-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FzjcontdMWXxCToArpT6kqV/sFgGYtdhmh6int3+K05lMXuNsXAXAxUq3qR99F75 ENSJKuxg6Hea0IrY+GmO/A== 0001005477-01-001941.txt : 20010316 0001005477-01-001941.hdr.sgml : 20010316 ACCESSION NUMBER: 0001005477-01-001941 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GILLETTE CO CENTRAL INDEX KEY: 0000041499 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 041366970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-00922 FILM NUMBER: 1568721 BUSINESS ADDRESS: STREET 1: PRUDENTIAL TOWER BLDG STREET 2: SUITE 4800 CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 6174217000 MAIL ADDRESS: STREET 1: PRUDENTIAL TOWER BLDG STREET 2: SUITE 4800 CITY: BOSTON STATE: MA ZIP: 02199 FORMER COMPANY: FORMER CONFORMED NAME: GILLETTE SAFETY RAZOR CO DATE OF NAME CHANGE: 19660911 10-K 1 0001.txt GILLETTE COMPANY ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) |X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (fee required) for the fiscal year ended December 31, 2000 or |_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (no fee required) Commission File No. 1-922 The Gillette Company (Exact name of registrant as specified in its charter) Incorporated in Delaware 04-1366970 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Prudential Tower Building, Boston, Massachusetts 02199 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 617-421-7000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which registered Title of each class New York Stock Exchange Common Stock, $1.00 par value Boston Stock Exchange Chicago Stock Exchange Pacific Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((ss.)229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of Gillette Common Stock held by nonaffiliates as of February 27, 2001, was approximately $29,508,000,000.* The number of shares of Gillette Common Stock outstanding as of February 27, 2001, was 1,053,971,196. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the following documents have been incorporated by reference into this Form 10-K as indicated: Documents 10-K Parts - -------------------------------------------- ---------- 1. The Gillette Company 2000 Annual Report to Stockholders (the "2000 Annual Report") Part II 2. The Gillette Company 2001 Proxy Statement (the "2001 Proxy Statement") Part III * For purposes of this calculation only, Gillette Common Stock held by Executive Officers or Directors of the Company has been treated as owned by affiliates. 2000 FORM 10-K Index to The Gillette Company 2000 FORM 10-K PART I Item 1. Description of Business 1 Item 2. Description of Property 3 Item 3. Legal Proceedings 3 Item 4. Submission of Matters to a Vote of Security Holders 3 Executive Officers of Registrant 4 PART II Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters 5 Item 6. Selected Financial Data 5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Cautionary Statement 5 Item 7A. Disclosures Concerning Market Risk Sensitive Instruments 7 Item 8. Financial Statements and Supplementary Data 7 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 7 PART III Item 10. Directors and Executive Officers 7 Item 11. Executive Compensation 7 Item 12. Security Ownership of Certain Beneficial Owners and Management 8 Item 13. Certain Relationships and Related Transactions 8 PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Consolidated Statement of Income 24 Consolidated Balance Sheet 25 Consolidated Statement of Cash Flows 26 Consolidated Statement of Stockholders' Equity 27 Notes to Consolidated Financial Statements 28 Historical Financial Summary 46
Part I 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. The following are Gillette's primary businesses: - - Grooming, including male and female, wet and dry, shaving products and related toiletries. - - Portable Power, which includes alkaline and specialty batteries and cells. - - Oral Care, including toothbrushes and power plaque removers. Gillette also manufactures and sells small household appliances. Gillette has manufacturing operations at 38 facilities in 19 countries and distributes products in over 200 countries and territories. Grooming Gillette is the global leader in the Blade and Razor segment of its grooming business. Its shaving systems include the Mach3, SensorExcel, Sensor, Atra and Trac II brands, as well as disposable razor brands such as Custom Plus and Good News. The Company is also the world leader in the women's wet shaving market. Gillette's female shaving products include the SensorExcel for Women, Sensor for Women, Agility and new Gillette for Women Venus brands. The Company sells electric shavers and electric hair epilators as part of the 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 shave preparations, after-shave products, deodorants and antiperspirants, including the Gillette Series, Satin Care, Right Guard, Soft & Dri and Dry Idea brands. Portable Power Within the Duracell segment, the Company is the global leader in alkaline batteries, including premium-performing Duracell Ultra batteries, as well as Duracell Copper & Black batteries, the best-selling brand of alkaline batteries in the world. Duracell also markets primary lithium and zinc air batteries, as well as rechargeable nickel-metal hydride batteries. Oral Care The Company holds the global leadership positions in toothbrushes, under the Oral-B brand, and in power plaque removers, with its Braun Oral-B plaque removers, which are part of the Braun Products segment. The Company manufactures and sells other oral care products under the Oral-B brand. Other Products The Company also produces, markets and sells small household, hair care and personal diagnostic appliances within the Braun Products segment. 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 on pages 43 and 44 of this report. 1 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-B 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 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, 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. The grooming products business is marked by competition in new technology, as well as in price, marketing, advertising and promotion to retail outlets and to consumers. The Company'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. 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 Company's other businesses. The portable power products business is highly competitive in terms of product performance, innovation and price, and in marketing, advertising and promotion. Competition in oral care products is focused on product performance, price and professional endorsement. 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 35,200 persons, about 70% of them outside the United States. Research and Development In 2000, research and development expenditures were $179 million, compared with $201 million in 1999 and $190 million in 1998. 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 at page 44 of this report. 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 facilities:
Business Segment Location Owned/Leased - ---------------- -------- ------------ Blades & Razors Boston, MA (US) Owned Isleworth, UK Owned Berlin, Germany Owned Naucalli, Mexico Owned Manaus, Brazil Owned Hemel Hempstead, UK* Leased Devens, MA (US)* Leased Toiletries Andover, MA (US) Owned Reading, UK Owned/Leased Braun Kronberg, Germany Owned/Leased Barcelona, Spain Owned/Leased Walldurn, Germany Owned/Leased Marktheidenfeld, Germany Owned Mexico City, Mexico Owned/Leased Oral-B Iowa City, IA (US) Owned Duracell Port Elizabeth, South Africa Owned Aarschot, Belgium Owned Dongguan, China Owned/Leased Lancaster, SC (US) Owned LaGrange, GA (US) Owned Heist, Belgium* Leased Bethel, CT (US) Owned Multisegment Distribution Centers Romeoville, IL (US) Leased Ontario, CA (US) Leased Devens, MA (US) Leased Toronto, Canada Leased Altfeld, Germany Owned
* Packaging center that also serves as warehouse/distribution facility The above facilities are in good repair, meet the Company's needs adequately and operate at reasonable levels of capacity. 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. 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 2000. 3 EXECUTIVE OFFICERS OF REGISTRANT Information regarding the Executive Officers of the Company is set out below.
Name and Current Position Five-Year Business History Age - ------------------------------ ------------------------------------------------------------ --- James M. Kilts Chairman of the Board and Chief Executive Officer since 53 Chairman of the Board and January 2001 and February 2001, respectively; President and Chief Executive Officer Chief Executive Officer, Nabisco Group Holdings Corp., December 1999 - December 2000; President and Chief Executive Officer, Nabisco Holdings, January 1998 - December 1999; Executive Vice President, Worldwide Food, Philip Morris Companies, January 1994 - March 1997 Edward F. DeGraan President and Chief Operating Officer since July 2000; 57 President and Chief Acting Chief Executive Officer, October 2000 - February Operating Officer 2001; Executive Vice President, Global Business Management, January 2000 - July 2000; Executive Vice President, Global Business Management, Gillette Grooming Products and Duracell, January 1999 - January 2000; Executive Vice President, Duracell North Atlantic Group, January 1997 - December 1998; Senior Vice President, Manufacturing and Technical Operations, Gillette North Atlantic Group, May 1991 - December 1996 Jorgen Wedel Executive Vice President, Commercial Operations, 52 Executive Vice President Europe and AMEE, since March 2001; Executive Vice President, Commercial Operations, Eastern Hemisphere, January 1999 - February 2001; Executive Vice President, International Group, February 1997 - December 1998; President, Oral-B Laboratories, Inc., November 1993 - January 1997 Charles W. Cramb Senior Vice President, Finance and Chief Financial Officer 54 Senior Vice President and since December 1999; Senior Vice President, Finance, Chief Financial Officer Chief Financial Officer and Principal Accounting Officer, July 1997 - December 1999; Vice President and Controller, July 1995 - June 1997; Vice President, Finance, Planning and Administration, Diversified Group, October 1992 - June 1995 Robert E. DiCenso Senior Vice President, Personnel and Administration, since 60 Senior Vice President July 1994 John F. Manfredi Senior Vice President, Corporate Affairs, since March 2001; 60 Senior Vice President Executive Vice President, Corporate Affairs, Nabisco Holdings and Nabisco, Inc., April 1995 - December 2000 Richard K. Willard Senior Vice President and General Counsel since 52 Senior Vice President November 1999; Partner, Steptoe & Johnson LLP, and General Counsel 1988 - October 1999 Claudio E. Ruben Vice President, Controller and Principal Accounting 53 Vice President, Officer since January 2001; Vice President, Investor Controller and Relations, June 1999 - December 2000; Vice President, Principal Accounting Officer Internal Auditor, February 1998 - June 1999; Vice President, Finance and Administration, International Group, October 1995 - January 1998
4 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. 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 2000 Annual Report on the inside back cover under the caption, "Common Stock," and is incorporated by reference, and at page 45 of this report under the caption, "Quarterly Financial Information." As of February 27, 2001, the record date for the 2001 Annual Meeting, there were 53,027 Gillette stockholders of record. ITEM 6. SELECTED FINANCIAL DATA The information required by this item appears at page 46 of this report under the caption, "Historical Financial Summary." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item appears at pages 17 through 22 of this report under the caption, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Cautionary Statement Certain statements that the Company 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, the Company'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 the Company's expectations and projections. Investors are cautioned not to place undue reliance on any forward-looking statements. The Company assumes no obligation to update any forward-looking statements. The Company 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, the Company include the following, some of which are described in greater detail below: - - the pattern of the Company's sales, including variations in sales volume within periods; - - the acceptance by the Company's customers and consumers of new products and line extensions; - - the mix of products sold; - - the Company's ability to control its internal costs and the cost of raw materials; - - the prices of the Company's products and the response of the Company, its customers and competitors to changes in prices; - - technological advances by the Company and/or its competitors; - - new patents granted to the Company and/or its competitors; - - changes in exchange rates in one or more of the Company's geographic markets; - - changes in accounting policies; or - - the impact of general economic conditions in the United States and in other countries in which the Company currently does business. 5 Competitive Environment The Company experiences intense competition for sales of its products in most markets. The Company'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, the Company has major competitors, some of which are larger and more diversified than the Company. Aggressive competition within the Company's markets to preserve, gain or regain market share can affect the Company's results in any given period. Changes in Technology and New Product Introductions In most product categories in which the Company competes, there are continuous technological changes and frequent introductions of new products and line extensions. The Company's ability to successfully introduce new products and/or extend lines of existing products will depend on, among other things, the Company's ability to identify changing consumer tastes and needs, develop new technology, differentiate its products and gain market acceptance of new products. The Company 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 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 The Company 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 the Company's brands. The Company's intellectual property rights, however, could be challenged, invalidated or circumvented. The Company 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 The Company 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 the Company's business. In addition, the Company 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. The Company 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 the Company uses instruments to hedge certain foreign currency risks (through foreign currency forward, swap and option contracts and non-U.S. dollar denominated financings), there can be no assurance that the Company 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, the Company is increasingly dependent upon key retailers whose bargaining strength is growing. Accordingly, the Company faces greater pressure from retail trade customers to provide more favorable trade terms. 6 The Company 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 the Company's customers, particularly the Company's high-volume retail trade customers, have engaged in accelerated efforts to reduce inventory levels and change inventory delivery systems. While the Company 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 the Company to develop satisfactory inventory delivery systems could adversely affect operating results in any reporting period. ITEM 7A. DISCLOSURES CONCERNING MARKET RISK SENSITIVE INSTRUMENTS The information required by this item appears at page 20 of this report under the caption, "Market Risk." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Financial Statements and Supplementary Data for The Gillette Company and Subsidiary Companies appear in this report at the pages indicated below. (1) Independent Auditors' Report Page 23 (2) Consolidated Statement of Income for the Years Ended December 31, 2000, 1999 and 1998 Page 24 (3) Consolidated Balance Sheet at December 31, 2000 and 1999 Page 25 (4) Consolidated Statement of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 Page 26 (5) Consolidated Statement of Stockholders' Equity for the periods ended December 31, 2000, 1999 and 1998 Page 27 (6) Notes to Consolidated Financial Statements Pages 28 through 45 (7) Computation of Per Share Earnings Pages 24, 29, 45, 46 (8) Quarterly Financial Information Page 45 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None Part III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The information required by this item with respect to the Company's Directors appears in the 2001 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 the Company appears at the end of Part I of this report at pages 4 and 5. ITEM 11. EXECUTIVE COMPENSATION The information required by this item appears in the 2001 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. 7 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 2001 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. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item appears in the 2001 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. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K A. Financial Statements, Schedules and Exhibits Financial Statements The following appear in this report at the pages indicated below and are incorporated into Part II by reference. (1) Independent Auditors' Report Page 23 (2) Consolidated Statement of Income for the Years Ended December 31, 2000, 1999 and 1998 Page 24 (3) Consolidated Balance Sheet at December 31, 2000 and 1999 Page 25 (4) Consolidated Statement of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 Page 26 (5) Consolidated Statement of Stockholders' Equity for the periods ended December 31, 2000, 1999 and 1998 Page 27 (6) Notes to Consolidated Financial Statements Pages 28 through 45 (7) Computation of Per Share Earnings Pages 24, 29, 45, 46 Schedules 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 3 (a) Composite Certificate of Incorporation of The Gillette Company, as amended, filed as Exhibit 1.1 to The Gillette Company Registration Statement on Form 8-A on January 11, 2001, Commission File No. 1-922, incorporated by reference herein. (b) The Bylaws of The Gillette Company, as amended March 16, 2000, filed as Exhibit 3(b) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 1-922, incorporated by reference herein. 4 Instruments Defining the Rights of Security Holders, Including Indentures 8 (a) Specimen of form of certificate representing ownership of The Gillette Company Common Stock, $1.00 par value, effective December 10, 1996, filed as Exhibit 4(a) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1996, Commission File No. 1-922, incorporated by reference herein. (b) Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of The Gillette Company, filed as Exhibit A to Exhibit 1 to The Gillette Company Current Report on Form 8-K, dated December 30, 1985, Commission File No. 1-922, incorporated by reference herein. (c) Amendment to Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of The Gillette Company, dated December 9, 1996, filed as Exhibit 4(c) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1996, Commission File No. 1-922, incorporated by reference herein. (d) Renewed Rights Agreement, dated as of December 14, 1995, between The Gillette Company and The First National Bank of Boston, filed as Exhibit 4 to The Gillette Company Current Report on Form 8-K, dated December 18, 1995, Commission File No. 1-922, incorporated by reference herein. (e) Certificate of Amendment relating to an increase in the amount of authorized shares of preferred stock and common stock, filed as Exhibit 3(i) to The Gillette Company Quarterly Report on Form 10-Q for the period ended March 31, 1998, Commission File No. 1-922, incorporated by reference herein. (f) Form of $150,000,000 6.25% notes due August 15, 2003, issued pursuant to Registration Statement No. 33-54974 of The Gillette Company, filed November 24, 1992, as amended May 14, 1993, and June 24, 1993, and the Trust Indenture filed therewith as Exhibit 4.1, filed as part of Exhibit 4(f) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-922, incorporated by reference herein. (g) Form of $150,000,000 and $50,000,000 5.75% notes due October 15, 2005, issued pursuant to Registration Statement No. 33-50303 of The Gillette Company, filed September 17, 1993, and the Trust Indenture filed as Exhibit 4.1 to Registration Statement No. 33-54974 of The Gillette Company, as amended May 14, 1993, and June 24, 1993, filed as part of Exhibit 4(f) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-922, incorporated by reference herein. (h) Registration Statement filed on Form 8-A, dated January 11, 2001, revising the description of The Gillette Company's registered securities and corresponding rights, Commission File No. 1-922, incorporated by reference herein. The Company has issued nonregistered debt instruments, copies of which will be furnished to the Commission upon request. 10 Material Contracts *(a) The Gillette Company 1971 Stock Option Plan, as amended (subject to stockholder approval at the April 19, 2001, Annual Meeting), filed as Appendix A to the 2001 Proxy Statement, Commission File No. 1-922, incorporated by reference herein. *(b) The Gillette Company Stock Equivalent Unit Plan, as amended (subject to stockholder approval at the April 19, 2001, Annual Meeting), filed as Appendix B to the 2001 Proxy Statement, Commission File No. 1-922, incorporated by reference herein. 9 *(c) The Gillette Company Incentive Bonus Plan, as amended (subject to stockholder approval at the April 19, 2001, Annual Meeting), filed as Appendix D to the 2001 Proxy Statement, Commission File No. 1-922, incorporated by reference herein. *(d) The Gillette Company Executive Life Insurance Program, as amended, filed herewith. *(e) The Gillette Company Deferred Compensation Plan for Outside Directors, as amended, filed herewith. *(f) Employment Agreement, dated December 16, 1999, between The Gillette Company and Edward F. DeGraan, filed as Exhibit 10(i) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 1-922, incorporated by reference herein. *(g) Employment Agreement, dated December 16, 1999, between The Gillette Company and Jorgen Wedel, filed as exhibit 10(l) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 1-922, incorporated by reference herein. *(h) Employment Agreement, dated December 16, 1999, between The Gillette Company and Charles W. Cramb, filed as Exhibit 10(m) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 1-922, incorporated by reference herein. *(i) Employment Agreement, dated December 16, 1999, between The Gillette Company and Robert E. DiCenso, filed as Exhibit 10(n) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 1-922, incorporated by reference herein. *(j) Employment Agreement, dated December 16, 1999, between The Gillette Company and Richard K. Willard, filed as Exhibit 10(o) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 1-922, incorporated by reference herein. *(k) The Gillette Company Change of Control Severance Program for Key Executives, filed as Exhibit 10(p) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 1-922, incorporated by reference herein. *(l) Letter Agreement Re: Estate Preservation Plan II, dated May 27, 1999, between The Gillette Company and Alfred M. Zeien, filed as Exhibit 10(q) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 1-922, incorporated by reference herein. *(m) Termination Settlement Agreement, effective as of October 19, 2000, between The Gillette Company and Michael C. Hawley, filed herewith. *(n) Termination Settlement Agreement, dated December 18, 2000, between The Gillette Company and Robert G. King, filed herewith. *(o) Termination Settlement Agreement, dated July 31, 2000, between The Gillette Company and Archibald Livis, filed herewith. (p) Letter Agreement, dated July 20, 1989, between The Gillette Company and Berkshire Hathaway Inc., filed as Exhibit 4(a) to The Gillette Company Current Report on Form 8-K, dated July 20, 1989, Commission File No. 1-922, incorporated by reference herein. 10 *(q) Description of The Gillette Company Personal Financial Planning Reimbursement Program, as amended, filed herewith. *(r) The Gillette Company Estate Preservation Plan, filed as exhibit 10(l) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1997, Commission File No. 1-922, incorporated by reference herein. *(s) The Gillette Company Supplemental Retirement Plan, as amended, filed as Exhibit 10(v) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 1-922, incorporated by reference herein. *(t) The Gillette Company Supplemental Savings Plan, as amended, filed as Exhibit 10(w) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 1-922, incorporated by reference herein. (u) Multiyear Credit Agreement, dated as of December 20, 1996, among The Gillette Company, Morgan Guaranty Trust Company of New York, as agent, and a syndicate of domestic and foreign banks, filed as Exhibit 10(o) to The Gillette Company Annual Report on Form 10-K for the year ended December 31, 1996, Commission File No. 1-922, incorporated by reference herein. (v) $1,400,000,000 364-Day Credit Agreement, dated as of December 20, 1996, and amended and restated as of October 20, 1997, October 19, 1998, October 18, 1999, and supplemented as of March 24, 2000, and amended and restated as of October 17, 2000, among The Gillette Company, Morgan Guaranty Trust Company of New York, as agent, and a syndicate of domestic and foreign banks, filed herewith. (w) Registration Rights Agreement, dated as of September 12, 1996, among The Gillette Company, KKR Partners II, L.P. and DI Associates, L.P., filed as Exhibit 10.2 to The Gillette Company Current Report on Form 8-K, filed September 16, 1996, Commission File No. 1-922, incorporated by reference herein. 12 Computation of the ratios of current assets to current liabilities for the years 2000, 1999 and 1998. See page 20 under the caption, "Financial Condition," for the computation of the ratio of current assets to current liabilities. 13 Portions of the 2000 Annual Report to Stockholders of The Gillette Company incorporated by reference in this Form 10-K, filed herewith. 21 List of subsidiaries of The Gillette Company, filed herewith. 23 Independent Auditors' Consent, filed herewith. 24 Power of Attorney, filed herewith. * Management contract or compensatory plan or arrangement. B. Reports on Form 8-K On October 20, 2000, the Company filed a report on Form 8-K announcing that the Board of Directors had named Edward F. DeGraan to be Acting Chief Executive Officer and Richard R. Pivirotto to be nonexecutive Chairman of the Board. 11 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 15, 2001 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.
Signatures Title Date - ----------------------- ---------------------------------- -------------- * JAMES M. KILTS Chairman of the Board of March 15, 2001 - ----------------------- Directors, Chief Executive Officer James M. Kilts and Director * EDWARD F. DEGRAAN President, Chief Operating March 15, 2001 - ----------------------- Officer and Director Edward F. DeGraan * CHARLES W. CRAMB Senior Vice President March 15, 2001 - ----------------------- and Chief Financial Officer Charles W. Cramb * CLAUDIO E. RUBEN Vice President, Controller and March 15, 2001 - ----------------------- Principal Accounting Officer Claudio E. Ruben * WARREN E. BUFFETT Director March 15, 2001 - ----------------------- Warren E. Buffett * WILBUR H. GANTZ Director March 15, 2001 - ----------------------- Wilbur H. Gantz * MICHAEL B. GIFFORD Director March 15, 2001 - ----------------------- Michael B. Gifford * CAROL R. GOLDBERG Director March 15, 2001 - ----------------------- Carol R. Goldberg * DENNIS F. HIGHTOWER Director March 15, 2001 - ----------------------- Dennis F. Hightower * HERBERT H. JACOBI Director March 15, 2001 - ----------------------- Herbert H. Jacobi * HENRY R. KRAVIS Director March 15, 2001 - ----------------------- Henry R. Kravis * JORGE PAULO LEMANN Director March 15, 2001 - ----------------------- Jorge Paulo Lemann * RICHARD R. PIVIROTTO Director March 15, 2001 - ----------------------- Richard R. Pivirotto * MARJORIE M. YANG Director March 15, 2001 - ----------------------- Marjorie M. Yang * ALFRED M. ZEIEN Director March 15, 2001 - ----------------------- Alfred M. Zeien
*By CHARLES W. CRAMB ---------------- Charles W. Cramb as Attorney-In-Fact 12 EX-10.(D) 2 0002.txt EXECUTIVE LIFE INSURANCE PLAN Exhibit 10(d) THE GILLETTE COMPANY EXECUTIVE LIFE INSURANCE PLAN (as amended and restated effective as of July 1, 1990) (with amendments effective through March 1, 2001) ------------------------------------------------- ARTICLE 1 ESTABLISHMENT AND PURPOSE 1.1. Establishment. This Plan was established January 1, 1988 and amended July 1, 1990. The Plan as set forth herein, unless otherwise stated, is effective and applicable only for participants terminating active employment or retiring on or after March 1, 2001. 1.2. Purpose. The purpose of the Plan is to provide life insurance protection under a split-dollar arrangement as a benefit to certain executive employees of the Employer, in order to encourage such employees to continue their employment with the Employer, to reward such employees for their service with the Employer, and to induce desirable persons to enter into the Employer's employ in the future. The Plan amends the Prior Plan and the life insurance policies thereunder to replace the life insurance protection provided to a Participant under the Prior Plan with the life insurance protection provided under the Plan. ARTICLE 2 DEFINITIONS Except as otherwise provided, the following terms have the definitions hereinafter indicated whenever used in this Plan with initial capital letters: 2.1. Base Salary. "Base Salary" means a Participant's annualized base salary, exclusive of overtime, bonuses and other compensation, in effect at the time of the Participant's death or earlier Retirement. In the case of a Participant who continues to be paid on the Employer's payroll following the Participant's scheduled release date, the Participant's Base Salary shall be determined as of such release date. 2.2. Beneficiary. "Beneficiary" means the person, persons, entity or entities designated to be the recipient of the Participant's share of the proceeds of a Policy in accordance with the terms of Section 5.4. 2.3. Committee. "Committee" means the Executive Life Insurance Plan Committee, which shall be composed of the Senior Vice President-Administration and the Treasurer of the Company. 2.4. Company. "Company" means The Gillette Company, a Delaware corporation, and its successors and assigns. -2- 2.5. Eligible Employee. "Eligible Employee" means an Employee who is selected by the Committee to participate in the Plan. 2.6. Employee. "Employee" means any person who is or was before Retirement employed by the Employer as an executive employee and satisfied the job grade, officer status, employment status and/or other eligibility criteria, as set forth in Appendix I. 2.7. Employer. "Employer" means the Company and its subsidiaries. 2.8. Enrollment Agreement. "Enrollment Agreement" means the written agreement entered into by the Company and an Eligible Employee pursuant to which such Eligible Employee becomes a Participant in the Plan as of the date specified in such agreement. 2.9. Insurer. "Insurer" means the insurance company that provides life insurance coverage on a Participant under the Plan or the insurance company to whom application for such coverage has been made. 2.10. Participant. "Participant" means an Eligible Employee who is participating in the Plan pursuant to an Enrollment Agreement. 2.11. Plan. "Plan" means The Gillette Company Executive Life Insurance Plan as set forth herein together with any and all amendments and supplements hereto. 2.12. Policy. "Policy" means, with respect to each Employee, any policy of individual life insurance on the Employee's life which the Employer acquires or otherwise utilizes pursuant to Article 5 to provide benefits under the Plan. 2.13. Policy Proceeds. "Policy Proceeds" means the aggregate amount payable by the Insurer pursuant to the Policy to the Participant's Beneficiary and the Employer upon the death of the Participant. 2.14. Prior Plan. "Prior Plan" means The Gillette Company Executive Group Life Insurance Plan which provided life insurance coverage through a group life insurance contract issued by John Hancock Mutual Life Insurance Company. 2.15. Retirement. "Retirement" means termination of an Employee's employment with the Employer, for reasons other than death, on or after the date the Employee reaches the Employee's earliest retirement date under a retirement plan sponsored by the Employer. ARTICLE 3 PLAN RIGHTS AND OBLIGATIONS The rights of Participants are set forth herein. Each Participant is bound by the terms of the Plan. As a condition of participation in this Plan, an Eligible Employee's participation in the Prior Plan and any other group life insurance arrangement sponsored by the Employer shall -3- terminate as of the date specified in the Eligible Employee's Enrollment Agreement on which the Eligible Employee becomes a Participant in the Plan. ARTICLE 4 AMOUNT OF COVERAGE 4.1. Pre-Retirement Coverage. The amount of life insurance coverage to be provided to a Participant while the Participant continues to be employed by the Employer shall be equal to four times the Participant's Base Salary (coverage rounded up, if necessary, to the next $1,000). 4.2. Post-Retirement Coverage. The amount of life insurance coverage to be provided to a Participant after the Participant's Retirement shall be equal to the Participant's Base Salary (coverage rounded up, if necessary to the next $1,000). 4.3. Termination of Participation. Termination of a Participant's participation hereunder will occur upon the earlier to occur of the following events: (1) termination of the Plan or (2) termination of the Participant's employment with the Employer for reasons other than the Participant's death or Retirement. Thereafter, the Participant shall have no life insurance coverage under the Plan. ARTICLE 5 POLICY OWNERSHIP AND RIGHTS 5.1. Introduction. The provisions of this Article establish certain rights and obligations of the Employer and each Participant with respect to the Policy or Policies used to provide benefits under the Plan. The terms of this Article shall apply separately to each Participant. 5.2. Acquisition of Policy. The Employer shall apply for a Policy or Policies or utilize an existing Policy or Policies to provide the Participant's benefits under the Plan. The Employer and the Participant shall take all reasonable actions (1) to cause the Insurer to issue the Policy, and (2) to cause the Policy to conform to the provisions of this Plan. The Policy shall be subject to the terms and conditions of this Plan. 5.3. Policy Ownership. The Employer shall be the sole and absolute owner of each Policy, and may exercise all ownership rights granted to the owner thereof by the terms of the Policy, except as may otherwise be provided herein. 5.4. Beneficiary Designation. The Participant shall select the Beneficiary to receive the death benefit to which the Participant is entitled under Section 6.2 of the Plan, by specifying the same on a designation of beneficiary form prescribed by the Committee. Upon receipt of such form, the Employer shall execute and deliver to the Insurer the forms necessary to designate the persons or entities selected by the Participant as the beneficiaries to receive the death benefit to which the Participant is entitled under Section 6.2 of the Plan. The Employer shall also be a -4- named beneficiary in the Policy for any remaining Policy Proceeds referred to in Section 6.2 of the P1an. The Employer shall take all reasonable steps to cause the beneficiary designation provisions of the Policy to conform to the provisions hereof. The Employer shall not terminate, alter or amend the Participant's designation without the express written consent of the Participant. The Employer shall not be responsible for any loss or delay in transmitting the designation of beneficiary information to the Insurer. A Participant who has designated a beneficiary under the Prior Plan shall be deemed to have selected such beneficiary as the Participant's Beneficiary under this Plan. A Participant may change his or her Beneficiary from time to time by execution of a designation of beneficiary form as provided above. If the Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or die prior to distribution of the Participant's death benefit, then such death benefit shall be paid to the Participant's estate (or, in the case of an assignment pursuant to Section 5.5, to the Participant's assignee). 5.5. Assignment. An Employee shall have the right at any time to absolutely and irrevocably assign all of the Employee's right, title and interest in and to this Plan and any Policy which has been or may be acquired hereunder to an assignee. This right shall be exercisable by the execution and delivery to the Employer of a written assignment, on a form prescribed the Committee. Upon receipt of such written assignment executed by the Employee and duly accepted by the assignee thereof, the Employer shall consent thereto in writing, and shall thereafter treat the Employee's assignee as the sole owner of all of the right, title and interest in and to this Plan and in and to any Policy which has been or may be acquired hereunder. Thereafter, the Employee shall have no right, title or interest in and to this Plan or any Policy which has been or may be acquired hereunder, all such rights being vested in and exercisable only by such assignee, and any designation of Beneficiary made by the Employee prior to such assignment shall be null and void. If an Employee has made an assignment under the Prior Plan, such assignment shall be effective for purposes of this Plan. ARTICLE 6 DEATH BENEFITS 6.1. Prompt Collection. Upon the death of a Participant, the Employer with the cooperation of the Beneficiary, shall promptly take all action necessary to initiate payment by the Insurer of the Policy Proceeds. 6.2. Division of Policy Proceeds. A death benefit equal to the amount of life insurance coverage to which the Participant is entitled under Article 4 of this Plan, if any, shall be paid directly from the Insurer to the Participant's designated Beneficiary, and any remaining Policy Proceeds shall be paid to the Employer. -5- 6.3. Interest on Policy Proceeds. Any interest payable by the Insurer with respect to a Beneficiary's share of the Policy Proceeds shall be paid to the Beneficiary and any interest payable by the Insurer with respect to the Employer's share of the Policy Proceeds shall be paid to the Employer. 6.4. Additional Payment if Insufficient Policy Proceeds. In the event that, at the time of a Participant's death, the aggregate Policy Proceeds on Policies covering the Participant, reduced by the outstanding balance of any indebtedness incurred by the Employer and secured by the Policies (including any interest due on such indebtedness), is less than the amount of life insurance coverage to which the Participant is entitled under Article 4, the Employer shall pay directly to the designated Beneficiary an additional amount equal, on an after-tax basis, to the excess of such life insurance coverage over the available Policy Proceeds. ARTICLE 7 POLICY PREMIUMS 7.1. Payment of Premiums. The Employer shall pay the premiums on each Policy to the Insurer on or before the due date or within the grace period provided therein. Participants shall neither be required nor permitted to make contributions to the Plan or additional premiums on any Policy. 7.2. Recovery by Employer. The Employer shall receive from the Policy Proceeds of each Policy the amount thereof reduced by (i) the amount of life insurance coverage paid from such Policy to the designated Beneficiary pursuant to Section 6.2, and (ii) the outstanding balance of any indebtedness incurred by the Employer and secured by the Policy (including any interest due on such indebtedness). In the event that, prior to the death of the Participant covered by a Policy, the Employer surrenders the Policy to the Insurer, the Employer shall receive the entire cash surrender value of the Policy reduced by (i) the outstanding balance of any indebtedness incurred by the Employer and secured by the Policy (including any interest due on such indebtedness), and (ii) the amount, if any, transferred into another Policy. ARTICLE 8 PLAN ADMINISTRATION 8.1. Named Fiduciary; Administration. The Committee is hereby designated as the named fiduciary under this Plan. The named fiduciary shall have authority to control and manage the operation and administration of this Plan, and it shall be responsible for establishing and carrying out a funding policy and method consistent with the objectives of this Plan. The Committee shall also have the power to establish, adopt, or revise such rules, regulations, procedures and forms as it may deem advisable for the administration of the Plan. The interpretation and construction of the Plan by the Committee and any action taken thereunder, shall be binding and conclusive upon all parties in interest. No member of the Committee shall, in any event, be liable to any person for any action taken or omitted to be taken in connection -6- with the interpretation, construction or administration of the Plan, so long as such action or omission to act is made in good faith. (Members of the Committee shall be eligible to participate in the Plan while serving as members of the Committee, but a member of the Committee shall not vote or act upon any matter that relates solely to such member's interest in the Plan as a Participant.) 8.2. Determination of Benefits. The Committee shall make all determinations concerning eligibility to participate, rights to benefits, the amount of benefits, and any other question under this Plan. Any decision by the Committee denying a claim by a Participant or Beneficiary for benefits under this Plan shall be stated in writing and delivered or mailed to the Participant or Beneficiary. Such decision shall set forth the specific reasons for the denial written in a manner calculated to be understood by the Participant or Beneficiary. In addition, the Committee shall afford a reasonable opportunity to the Participant or Beneficiary for a full and fair review of the decision denying such claim. ARTICLE 9 MISCELLANEOUS 9.1. No Contract of Employment. Nothing contained herein shall be construed to be a contract of employment for any term of years, nor as conferring upon an Employee the right to continue in the employ of the Company in any capacity. 9.2. Amendment and Termination of Plan. The Company, through action of the Personnel Committee of its Board of Directors, may, in its sole discretion, amend or terminate the Plan in whole or in part at any time. In addition, without limiting the foregoing, the Committee shall have the power to amend the Plan on behalf of the Company where such amendment would not result in a material increase in the cost of the Plan for the Company. The Plan will also terminate, without notice, upon the total cessation of the business of the Company or upon the bankruptcy, receivership or dissolution of the Company. 9.3. Conflicting Provisions. In the event of a conflict between the provisions of this Plan and the provisions of any collateral assignment, beneficiary designation or other document related to a Policy, the provisions of the Plan shall prevail. 9.4. Notice. Any notice, consent, or demand required or permitted to be given under the provisions of this Plan shall be in writing, and shall be signed by the party giving or making the same. If such notice, consent, or demand is mailed, it shall be sent by United States certified mail, postage prepaid, addressed to such party's last known address as shown on the records of the Company. If notice, consent or demand is sent to the Company, it shall be sent to: Senior Vice President of Administration, Prudential Tower Building, 39th Floor, Boston, MA 02199. The date of such mailings shall be deemed the date of notice, consent, or demand. Either party may change the address to which notice is to be sent by giving notice of the change of address in the manner aforesaid. -7- 9.5. Governing Law. This Plan shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 9.6. Gender, Singular and Plural. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular. 9.7. Captions. The captions of the articles, sections, and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 9.8. Validity. In the event any provision of this Plan is held invalid, void, or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. 9.9. Binding Effect. This Plan shall be binding upon, and inure to the benefit of the Employer and its successors and assigns, and the Participants and their successors, assigns, heirs, executors, administrators and beneficiaries. IN WITNESS WHEREOF, the Company has caused this Plan to be executed on behalf of the Company by its officer thereunto duly authorized, effective as of the date and year first above written. THE GILLETTE COMPANY By: /s/ Lloyd B. Swaim ------------------------------- Title: Vice President and Treasurer Date: March 13, 1992 [Reflects amendments executed March 18, 1996, September 24, 1997 and February 15, 2001] -8- THE GILLETTE COMPANY EXECUTIVE LIFE INSURANCE PLAN (as amended and restated effective as of July 1, 1990) (with amendments effective through March 1, 2001) ------------------------------------------------- APPENDIX I ELIGIBILITY REQUIREMENTS FOR PARTICIPATION Grade Level/Officer Status: Grade 25 or above, or holding any of the following By-Law officer positions in The Gillette Company: Chairman of the Board, Chief Executive Officer, President, Vice Chairman of the Board, Executive Vice President, Senior Vice President, Vice President, Internal Auditor, Patent and Trademark Counsel, or Secretary. Employment Status: Full-time employee who is generally treated by The Gillette Company as a United States employee for employment and benefit purposes. EX-10.(E) 3 0003.txt DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS Exhibit 10(e) THE GILLETTE COMPANY DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS (As amended November 19, 1998) 1. Purpose The purpose of this Deferred Compensation Plan for Outside Directors (the "Plan") is to advance the interests of The Gillette Company (the "Company") by enhancing the ability of the Company to attract and retain Directors who are in a position to make significant contributions to the success of the Company and to reward Directors for such contributions by payment of one half of their annual Board retainer on a deferred basis. The Plan also provides a means whereby Directors may, in addition, elect deferral of the payment of the remainder of their annual Board retainer, as well as other retainers and fees which may otherwise become payable to them. 2. Effective Date of Plan The Plan shall become effective with respect to all Director retainers and meeting fees earned on and after January 1, 1997. 3. Administration The Plan shall be administered by the Personnel Committee of the Board of Directors (the "Committee"). The Committee shall have the authority, not inconsistent with the express provisions of the Plan, (1) to prescribe forms and procedures in connection with any election or designation with respect to the deferral of Directors' retainers and meeting fees, (2) to adopt, amend, and rescind rules and regulations for the administration of the Plan and (3) to interpret the Plan and decide any questions and settle any controversies or disputes that may arise in connection with the Plan. Such interpretations, determinations and actions of the Committee, and all other determinations and actions made or taken by the Committee under authority of any provisions of the Plan, shall be conclusive and binding on all parties. 4. Delegation of Authority The Committee may delegate to designated officers of the Company its duties under the Plan subject to such conditions and limitations as the Committee may prescribe. The Senior Vice President - Personnel and Administration of the Company, as the designee of the Committee, shall act as the Administrator (the "Administrator") of the Plan and shall have authority to prescribe forms and procedures in connection with any election to defer compensation made under the Plan. -2- 5. Eligibility Directors eligible to participate in the Plan ("Eligible Directors") shall be any Director of the Company who receives retainers and fees as a Director of the Company and is neither an officer nor an employee of the Company or any of its subsidiaries. 6. Terms and Conditions A. Mandatory Deferrals As of the first day of each calendar quarter, for each Eligible Director, fifty percent (50%) of the Board retainer accruing for such quarter shall be mandatorily deferred and converted into Deferred Stock Units ("DSUs"), which shall be credited to an account ("Deferred Stock Unit Account") maintained for the Eligible Director on the books of the Company. The number of DSUs (rounded to the nearest thousandth of a share) to be credited to each Eligible Director's Deferred Stock Unit Account shall be calculated by dividing the amount of the mandatorily deferred quarterly retainer by the Fair Market Value of the Company's common stock for the applicable calendar quarter. The Fair Market Value of the Company's common stock for a calendar quarter shall be based upon the average of the high and the low prices for the stock as reported on the New York Stock Exchange Composite Index for the second trading day following the Company's release of reported earnings for the preceding calendar quarter unless for good reason the Administrator determines an alternate date or dates for calculating the DSUs to be credited for the applicable calendar quarter. B. Voluntary Deferrals Each Eligible Director may elect, in lieu of receiving current payment of all or any portion of the remainder of the quarterly Board retainer and/or all or a portion of any other retainer and meeting fees to which such Eligible Director otherwise would be entitled, that such payment be deferred until after the Eligible Director's retirement or resignation as a Director of the Company, or in either case upon an earlier Change in Control (as that term is defined in The Gillette Company Retirement Plan) as provided below. The Eligible Director shall make such election (i) prior to December 15 of the year preceding the year in which the retainer and fees would be earned or (ii) with respect to an Eligible Director's first year or partial year of service as a Director, within thirty days following the date on which such Director first became a Director. The Eligible Director's election shall include (a) whether the deferred amounts shall be converted into DSUs and credited to a Deferred Stock Unit Account, or shall be credited to an account ("Deferred Cash Account", and together with the Deferred Stock Unit Account, "Accounts") maintained for such Eligible Director on the books of the Company, and (b) whether payment of the Eligible Director's Accounts shall be accelerated upon the occurrence of a Change in Control. A deferral election made by an Eligible Director shall remain in force for the calendar year so elected and for each year thereafter until changed or revoked prospectively by written notice to the Administrator not later than December 15 of the year preceding the year to which such change or revocation relates. A deferral election may not be changed or revoked after the beginning of the year to which it relates. -3- While an Eligible Director's deferral election is in effect, as of the first day of each calendar quarter with respect to Board retainers, or as of the date when any other retainer or meeting fee is earned, the Company shall credit the amount of voluntarily deferred retainers and fees for the applicable period either (i) as DSUs to a Deferred Stock Unit Account, in the same manner as described in Paragraph 6A above based upon the average of the high and the low prices for the Company's common stock as reported on the New York Stock Exchange Composite Index for the applicable date above or, in the case of any month in which the Company's earnings or other material information are reported, for the second trading day following the Company's release of reported earnings in the month to which the deferred amounts relate, or (ii) to a Deferred Cash Account, in accordance with the Eligible Director's election. C. Additional Credits to Accounts (1) Interest amounts shall be credited semiannually, on June 30 and December 31, to each Eligible Director's Deferred Cash Account based upon the balances in the Eligible Director's Deferred Cash Account during that calendar year. Interest shall be credited at a rate equivalent to the average yield on 10-year U.S. Treasury Bills on the first trading day of each calendar year ("Interest Rate"). The Interest Rate shall be adjusted annually. (2) Each time a dividend is paid on the Company's common stock, the Company shall make additional credits of DSUs to each Eligible Director's Deferred Stock Unit Account. The number of DSUs to be credited shall be calculated by multiplying the dividend amount per share of the Company's common stock by the number of DSUs credited to the Eligible Director's account as of the record date for the dividend, and dividing the result by the Fair Market Value of the Company's common stock on the dividend payment date based upon the average of the high and the low prices for the Company's common stock as reported on the New York Stock Exchange Composite Index for that date. D. Payment of Accounts As of the date an Eligible Director ceases to serve as a Director of the Company, the balance then credited to the Eligible Director's Deferred Stock Unit Account shall be converted to a fixed amount calculated by multiplying the number of DSUs in his or her Account by the Fair Market Value of the Company's common stock (determined based upon the average of the high and low prices of the stock as reported on the New York Stock Exchange Composite Index for the 20 trading days immediately preceding the applicable date). The resulting amount shall be credited to the Eligible Director's Deferred Cash Account, which shall continue to be credited with additional amounts as prescribed in Paragraph 6C(1) above until paid in full. The entire balance of an Eligible Director's Accounts shall be paid in cash to the Eligible Director in ten approximately equal annual installments beginning in January of the year after the Eligible Director ceases to serve as a Director of the Company, unless -4- the Eligible Director has elected, at least 12 months prior to the cessation of his or her service as a Director of the Company, to have payment of the Accounts made in a lesser number of approximately equal annual installments or in a single lump sum. Upon the death of an Eligible Director, any remaining amount then credited to the Eligible Director's Accounts shall be paid in a single lump sum to the beneficiary designated by the Eligible Director. If the designated beneficiary does not survive the Eligible Director, or if the Eligible Director does not designate a beneficiary under this paragraph, any remaining amount then credited to the Eligible Director's Accounts at the death of the Eligible Director shall be paid in a single lump sum to the estate of the Eligible Director. An Eligible Director may designate or change a beneficiary at any time by completing and delivering to the Administrator a beneficiary designation form as prescribed by the Adminsitrator. E. Change in Control Upon the occurrence of a Change in Control, notwithstanding anything contained in the Plan to the contrary, the amounts then credited to the Accounts of each Eligible Director who has previously elected to have payment of his or her Accounts accelerated hereunder shall be paid as soon as practicable following the Change in Control. For the purposes of the preceding sentence, DSUs credited to the Deferred Stock Unit Accounts subject to the payment acceleration elections of Eligible Directors shall be valued based upon the average of the high and low prices of the Company's common stock as reported on the New York Stock Exchange Composite Index for the 20 trading days immediately preceding the Change in Control. 7. Amendment and Termination The Board of Directors may amend or terminate this Plan at any time; however no such amendment shall reduce the then existing balance in any Eligible Director's Account or extend the time during which the Director has elected to receive payments. In the event of termination of the Plan, the Company may elect to satisfy its obligations under this Plan by making an immediate lump sum payment in cash or in such other manner as it determines appropriate. 8. Prior Plans This Plan is intended to replace The Gillette Company Outside Directors' Stock Ownership Plan ("ODSOP") and the Directors' Deferred Compensation Provisions, subject to the following: (1) No new contributions to Directors' ODSOP accounts shall be made after October 31, 1996; however these accounts shall be maintained and the shares of Company common stock held in these accounts shall continue to earn dividends. (2) Eligible Directors may convert cash amounts previously deferred under the Directors' Deferred Compensation Provisions into DSUs under this Plan by making a -5- written election before December 15, 1996. These cash deferrals shall be converted to DSUs based the average of the high and low prices of the Company's common stock as reported on the New York Stock Exchange Composite Index for last trading day of the months of July through December, 1996, and shall be credited to the Eligible Director's Deferred Stock Unit Account. If such an election is not made, the Eligible Director's cash deferral balance under the Directors' Deferred Compensation Provisions as of December 31, 1996 shall be credited to a Deferred Cash Account under this Plan as of January 1, 1997. 9. Severability If it shall ever be determined that, notwithstanding the Company's intent and purpose for establishing and maintaining this Plan, an Eligible Director is required to include all or part of any deferred amount in his or her gross income for any tax purposes prior to the time that such amount would be required to be paid under the terms of the Plan, whether by taxing authorities of the United States or other sovereign nation or political subdivisions thereof, the Administrator has the discretion to cause the amount equal to the consequent tax liability to be paid to the Eligible Director from his or her Accounts. 10. Adjustment Provisions In the event of a stock dividend, stock split or combination of shares, recapitalization or other changes in the Company's common stock, or other distribution to common stockholders other than regular cash dividends, after the effective date of the Plan, the number of DSUs credited to Deferred Stock Unit Accounts and other relevant provisions hereunder shall be adjusted accordingly by the Committee. 11. Source of Payments All amounts payable under the Plan shall be paid by the Company from its general assets. Notwithstanding the maintenance of records on its books as described in Paragraph 6 above, no Eligible Director shall have any right to or interest in any assets of the Company other than as an unsecured general creditor, and no separate fund shall be established in which any Eligible Director has any right or interest. The foregoing shall not prevent the Company from establishing a fund from which to satisfy its payment obligations under the Plan. 12. No Assignment of Interest The interest of any Eligible Director under the Plan may not be assigned, alienated, encumbered or otherwise transferred, and shall not be subject to attachment, garnishment, execution or levy; and any attempted assignment, alienation, encumbrance, transfer, attachment, garnishment, execution or levy shall be void and of no force or effect. ### EX-10.(M) 4 0004.txt TERMINATION SETTLEMENT AGREEMENT Exhibit 10(m) TERMINATION SETTLEMENT AGREEMENT AGREEMENT (the "Agreement"), dated as of October 19, 2000 (the "Termination Date"), by and between The Gillette Company (the "Company"), and Michael C. Hawley (the "Executive"). WHEREAS, the Executive has been employed as Chief Executive Officer of the Company; and WHEREAS, by mutual agreement between the parties hereto, the Executive has resigned, effective as of the Termination Date, his positions as Chief Executive Officer of the Company, as a member of the board of directors of the Company and as an officer and director of any subsidiary or affiliate of the Company for which he was serving in such positions. NOW, THEREFORE, BE IT RESOLVED, that the Company and the Executive, in consideration of the covenants herein set forth, hereby agree as follows: 1. Resignation of Executive and Board Positions By mutual agreement with the Company, the Executive resigns, effective as of the Termination Date, from his positions as Chief Executive Officer of the Company and a member of the Board of Directors of the Company, and from all other positions the Executive may currently hold as an officer or member of the board of directors of any of the Company's subsidiaries or affiliates. The Executive shall sign and deliver to the Company such other documents as may be necessary to effect or reflect such resignations. 1 2. Termination Settlement Payments, Benefits and Obligations (a) The Company will pay to the Executive his base salary through December 31, 2000. (b) In consideration of the Executive's agreement to comply with Sections 3, 5, 7 and 9 of this Agreement, and in lieu of and in satisfaction of any severance or other payments due under any severance programs maintained by the Company or any of its subsidiaries or affiliates (collectively, the "Company Entities"), or any individual agreement previously entered into with the Executive by any of the Company Entities, including without limitation the Change in Control Employment Agreement, dated as of December 16, 1999 by and between the Company and the Executive (the "Change in Control Employment Agreement"), the Company shall pay the Executive termination settlement pay in an aggregate amount of Eight Million Seven Hundred Thousand Dollars ($8,700,000), payable in monthly installments on or about the first day of each month over a twenty-four month period commencing on January 1, 2001 (the "Termination Settlement Period"). The monthly payment for each of the months of January, February and March 2001 will be $625,000 and the monthly payment for the remainder of the Termination Settlement Period will be $325,000. The Executive shall remain an employee of the Company during the Termination Settlement Period. The commencement of termination settlement payments shall be subject to the expiration of the Revocation Period (as defined in Section 9(c)) without exercise by the Executive of his right to revoke the ADEA Release. In the event of the death of the Executive before the expiration of the Termination Settlement Period, all remaining amounts shall be paid to the Executive's estate in the form of a lump sum payment. (c) During the Termination Settlement Period the Company will provide the Executive with office space, secretarial support, computer and telephone support, and a parking space commensurate with his status as a former Chief Executive Officer. The office provided 2 Executive shall be a perimeter (windowed) office of no less than 300 square feet with furnishings and other appointments, and located on one of the upper floors of the Prudential Tower, and said parking space shall be in the Prudential Tower as well. The Company shall have the right to relocate Executive to comparable first class office and parking space in Downtown Boston/Back Bay provided the Company maintains full secretarial, computer and telephone support. (d) For a period of Five Years from the date of this Agreement the Company will continue to pay for the maintenance of the home security system currently in place at the Executive's residences. (e) During the Termination Settlement Period, the Executive will continue to participate in the Company's medical, dental, Employees' Savings. Supplemental Savings and Executive Life Insurance and Estate Preservation Programs. During the Termination Settlement Period, the Executive will not be eligible to participate in the Company's Incentive Bonus, Salary Continuation. Long Term Disability, Vacation and Holiday Accrual or Travel Accident Programs. (f) During the Termination Settlement Period, the Executive will not be eligible for any additional stock option award grants under the Company's Stock Option Plan or any successor plans. All previously granted stock option awards will vest and be exercisable in accordance with the vesting and exercise terms applicable to employees under the Company's Stock Option Plan. These include the Executive's Stock Option Grants of 12/2/99 and 6/15/00, which would vest on 12/2/00 and 6/15/01 respectively. (g) The Executive will retire under the Company's Retirement Plans on January 1,2003. All Termination Settlement Payments described in subparagraphs (a) and (b) 3 above (including any lump sum payment as described in sub-paragraph (b)) will be included for the purpose of calculating his retirement benefits. (h) This Agreement shall supersede the Change in Control Employment Agreement and the Change in Control Employment Agreement shall be deemed terminated from and after the date of this Agreement, without any remaining obligation of any party under such agreement. 3. Disparaging Comments The Executive will refrain from making statements, written or oral, which denigrate, disparage or defame the goodwill or reputation of the Company Entities and their officers, shareholders, partners, agents and former and current employees and directors. The Company Entities will refrain from making statements, written or oral, which denigrate, disparage or defame the Executive's goodwill or reputation. There is excepted from this provision all statements: 1) necessary to enforce this Agreement, 2) made to one's immediate family, 3) made truthfully as a result of any question required to be answered by law, or 4) made truthfully by one party to this Agreement in response to any statement by the other party to this Agreement that is violative of this paragraph. 4. Confidentiality of this Agreement Except as required by law or regulation, or as necessary to enforce this Agreement, none of the parties hereto will disclose the terms of this Agreement, provided that the Executive may disclose such terms to his financial and legal advisors and his spouse and the Company may disclose such terms to selected employees, advisors and affiliates on a "need to know" basis, each of whom shall be instructed by the Executive and thc Company, as the case may be, to maintain the terms of this Agreement in strict confidence in accordance with the 4 terms hereof. This provision shall not apply once the Company discloses the terms thereof in any public filings required by the SEC or to the extent disclosed in any proxy statement. 5. Restrictive Covenants (a) The Executive has returned or will immediately return to the Company all Company Information (as defined below), including client lists, files, software, records, computer access codes and instruction manuals which he has in his possession, and agrees not to keep any copies of Company Information. The Executive affirms his obligation to keep all Company Information confidential and not to disclose it to any third party in the future. The term "Company Information" means: (i) confidential information, including information received from third parties under confidential conditions, and (ii) other technical, marketing, business or financial information, or information relating to personnel or former personnel of the Company, the use or disclosure of which might reasonably be construed to be contrary to the interest of the Company; provided, however, that the term "Company Information" shall not include any information that is or became or becomes generally known or available to the public other than as a direct result of a breach of this paragraph by the Executive or any action by the Executive prior to the Termination Date which would have been a breach of the Executive's obligations to the Company in effect at such time. The Executive shall have the right to remove from the offices of the Company any of his personal files that do not contain Company Information. (b) The Executive agrees that he will not engage in Competition with the Company during the period commencing on the Termination Date and ending December 31, 2003. "Competition" for the purposes of this Agreement shall mean: 5 (i) becoming directly or indirectly involved, as an owner, principal, employee, officer, director, independent contractor, representative, stockholder, agent, advisor, lender or in any other capacity, in any business engaged, or seeking to become engaged, in the businesses (including operations via the internet) conducted by the Company at any time during the period ending December 31, 2000, in any geographical area in which the Company is at the time engaging in or attempting to engage in such businesses; provided, however, that in no event shall ownership of less than 3% of the outstanding capital stock of any corporation, in and of itself, be deemed Competition if such capital stock is listed on a national securities exchange or regularly traded in an over-the-counter market; and provided, that Executive may become involved in any business in which the Company, at the time of the inception of the Executive's involvement in that business, is not engaged or attempting to become engaged, and Executive may continue said involvement even if the Company at some later date becomes engaged in said business; or (ii) soliciting any person who is a customer of the businesses conducted by the Company, on behalf of a business described in clause (i) of this Section 5(b), or inducing or attempting to persuade any employee of the Company or any of its subsidiaries to terminate his or her employment relationship with the Company to work for a business described in clause (i) this Section 5(b). (c) The Executive acknowledges and agrees that the Company's remedy at law for any breach of the Executive's obligations under this Section 5 would be inadequate and agrees and consents that temporary and permanent injunctive relief may be granted in any proceeding which may be brought to enforce any provision of this Section without the necessity of proof of actual damage. With respect to any provision of this Section 5 finally determined by a court of competent jurisdiction to be unenforceable, the Executive and the Company hereby 6 agree that such court shall have jurisdiction to reform this Agreement or any provision hereof so that it is enforceable to the maximum extent permitted by law, and the parties agree to abide by such court's determination. 6. Waiver of Other Payments and Benefits (a) The compensation and benefits arrangements set forth in this Agreement are in lieu of any rights or claims that the Executive may have with respect to severance or other benefits, or any other form of remuneration from the Company Entities, expenses or attorneys' fees. Notwithstanding the above, this waiver is not intended to deprive the Executive of any benefits or payments he otherwise is or would become entitled to wider the Company's tax qualified retirement plans, 401K plan, supplemental Savings and Retirement plans, retiree medical, retiree life insurance, estate preservation, stock option plans, other retiree benefits or for amounts deferred under the Company's incentive plans. 7. Information Requests/Cooperation The Executive agrees to make himself reasonably available to the Company to respond to requests by the Company for information concerning matters involving facts or events relating to the Company or any other Company Entity that may be within the Executive's knowledge, and to assist the Company and the Company Entities as reasonably requested with respect to pending and future litigations, arbitrations or other dispute resolutions. The Company will reimburse the Executive for his reasonable travel expenses and other costs incurred as a result of his assistance under this Section 7. 8. No Admission of Wrongdoing Nothing contained in this Agreement shall be construed in any way as an admission by any of the parties of any act, practice or policy of discrimination or breach of contract either in violation of applicable law or otherwise. 7 9. Waiver and Release (a) In consideration of the payments and benefits set forth in this Agreement, the Executive, for himself, his heirs, administrators, representatives, executors, successors and assigns (collectively "Releasors") does hereby irrevocably and unconditionally release, acquit and forever discharge the Company Entities and their former and current officers, shareholders, partners, agents, and employees and directors, including without limitation all persons acting by, through, under or in concert with any of them all in their capacity as such (collectively, "Releasees"), from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, remedies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees and costs) of any nature whatsoever, known or unknown, whether in law or equity and whether arising under federal, state or local law, including but not limited to any claim for discrimination based upon race, color, ethnicity, sex, age (including the Age Discrimination in Employment Act of 1967) (the "ADEA Release"), national origin, religion, disability, or any other protected or unlawful criterion or circumstance, which the Releasors had, now have, or may have in the future, against each or any of the Releasees through the date of the execution of this Agreement. The Executive acknowledges and agrees that if he or any other Releasor should hereafter make any claim or demand or commence or threaten to commence any action, claim or proceeding against the Releasees with respect to any cause, matter or thing which is the subject of this Section 9(a), this Agreement may be raised as a complete bar to any such action, claim or proceeding, and the applicable Releasee may recover from the Executive all costs incurred in connection with such action, claim or proceeding, including attorneys' fees. (b) In consideration of the Executive's agreements and covenants set forth in this Agreement, the Company and its subsidiaries (the "Company Releasors") hereby irrevocably 8 and unconditionally release, acquit and forever discharge the Executive from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, remedies, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees and costs) of any nature whatsoever, known or unknown, whether in law or equity and whether arising under federal, state or local law, which the Company Releasors now have, or may have in the future, against the Executive with respect to the Executive the through the date of the execution of this Agreement, other than any claim based upon fraudulent or illegal activity that was not discovered by the Company Releasors until subsequent to the date of execution of this Agreement. The Company Releasors acknowledge and agree that if they should hereafter make any claim or demand or commence or threaten to commence any action, claim or proceeding against the Executive with respect to any cause, matter or thing which is the subject of this Section 9(b), this Agreement may be raised as a complete bar to any such action, claim or proceeding, and the Executive may recover from the Company Releasors all costs incurred in connection with such action, claim or proceeding, including attorneys' fees. (c) The mutual releases of the parties contained in this section 9(a) and (b) above shall not apply to, waive or release (i) claims by either party arising out of this agreement or (ii) the respective rights and claims of the parties pursuant to the officers and directors indemnification provisions contained in the by-laws of the Company Entities. For purposes of clarity it is understood that such indemnification provisions shall cover the actions of the Executive as an officer, director or employee of the Company Entities. The Executive affirms that prior to the execution of this Agreement and the waiver and release in Section 9(a), the Executive was advised by the Company to consult with an attorney of the Executive's choice concerning the terms and conditions set forth herein and has done so, and that the Executive was 9 given up to 21 days to consider executing this Agreement, including the ADEA Release in Section 9(a). The Executive has 7 days following his execution of this Agreement (the "Revocation Period") to revoke the ADEA Release. In the event the Executive revokes the ADEA Release, the Company may cease making the payments set forth in Section 2. 10. No Reliance The Executive represents and acknowledges that, in executing this Agreement, he has not relied upon any representation or statement made by the Company and not set forth herein. 11. Governing Law This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to the principles of conflicts of law thereof, to the extent not superseded by applicable federal law. 12. Warranty The parties hereto represent and warrant that there exists no impediment or restraint, contractual or otherwise on their power, right or ability to enter into this Agreement and to perform their duties and obligations hereunder or as contemplated hereby. 13. Taxes All payments made to the Executive under this Agreement will be reduced by all income, employment and Medicare taxes required by law to be withheld on such payments. The Company will pay its share of any taxes required by law to be paid by Company as the Executive's employer. 10 14. No Coercion The parties hereto represent and acknowledge that they have decided to enter into this Agreement voluntarily, knowingly and without coercion of any kind. 15. Enforceability The parties hereto affirmatively acknowledge that this Agreement, and each of its provisions, is enforceable, and expressly agree not to challenge nor raise any defense against the enforceability of this Agreement or any of its provisions in the future. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. The Executive will be entitled to reimbursement of his reasonable legal fees and related litigation expanses if needed to enforce Executive's rights under this Agreement. 16. Notices All notices, requests, demands and other communication which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted by telecopy, electronic or digital transmission method upon receipt of telephonic or electronic confirmation; that day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express) and upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to: If to the Executive, addressed to: Michael C. Hawley 42 Chestnut Street Boston, MA 02108 and 11 Russell F. Conn., Esq. Conn Kavanaugh Rosenthal Peisch & Ford, LLP Ten Post Office Square Boston, MA 02109 If to the Company, addressed to: The Gillette Company, 4800 Prudential Tower Building, Boston Massachusetts 02199 Attention: General Counsel or to such other place and with such other copies as any party may designate as to itself or himself by written notice to the others. 17. Amendments: Waivers This Agreement may not be amended, modified or terminated, except by a written instrument signed by the parties hereto. Any provision of this Agreement may be waived by a written instrument signed by the party to be charged with such waiver. 18. Successors This Agreement shall be binding on the Executive, the Company, and their respective heirs, successors and assigns, including without limitation any corporation or other entity into which the Company may be merged, reorganized or liquidated, or by which may be acquired. The obligations of the Company may be assigned without limitation but in the event of such assignment, the Company shall remain responsible for all of its obligation's under this Agreement, including all payment and benefit obligations in paragraph 2. As the obligations to be performed by the Executive hereunder are unique based upon his skills and qualifications, the Executive's obligations under this Agreement may not be assigned. 12 19. Entire Agreement Except as specified herein, this Agreement contains the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto. 20. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 13 IN WITNESS WHEREOF, the parties have executed this Agreement, as of the date and year first written above, THE GILLETTE COMPANY -------------------- By: /s/ Michael C. Hawley --------------------- MICHAEL C. HAWLEY 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first written above. THE GILLETTE COMPANY -------------------- By: /s/ Robert E. DiCenso --------------------- Robert E. DiCenso --------------------- MICHAEL C. HAWLEY 14 EX-10.(N) 5 0005.txt PERSONAL AND CONFIDENTIAL Exhibit 10(n) November 8, 2000 - Revised December 18, 2000 PERSONAL AND CONFIDENTIAL TERMINATION SETTLEMENT AGREEMENT Robert G. King 181 Atlantic Avenue Cohasset, MA 02025 Dear Bob: This letter describes our proposed agreement concerning the termination of your employment with The Gillette Company. The termination settlement pay and benefits described below are available to you only if you execute this Agreement, which includes a release of all claims and a non-competition agreement. Your scheduled release date and last day of Gillette employment is April 1, 2001. Your present base salary will continue through March 31, 2001 and you will be eligible to participate in the 2000 Incentive Bonus Plan. Termination Settlement Pay - During the period April 1, 2001 through March 31, 2003 your total compensation will be at an annual rate of $765,000 payable semi-monthly, except that, should your Year 2000 Incentive Bonus exceed $175,000, your annual compensation rate of $765,000 will be increased by the amount by which the bonus exceeded $175,000. The aforementioned semi-monthly compensation payments will be included in the calculation of Average Annual Compensation in accordance with the terms of The Gillette Company Retirement Plan. These payments are hereinafter referred to as termination settlement pay. Change in Control Employment Agreement - Your change in control Employment Agreement with Gillette dated December 16, 1999, will terminate seven days after your execution of this Termination Settlement Agreement, when this Agreement becomes effective. Benefits Status During Settlement Payments Period - During the period from April 1, 2001 through March 31, 2003 (hereinafter referred to as the "settlement payments period") you will be eligible to continue participation in a number of employee benefits and services. These include continuing participation in the following contributory benefit plans: Medical Plan Dental Plan Supplemental Life Insurance Plan Employees' Savings Plan Supplemental Savings Plan Executive Life Insurance Plan If you elect to continue your participation in the Gillette medical or dental plans after your scheduled release date and you become eligible for coverage under any other medical or dental plans, you agree to look to those other plans for your primary coverage. Coverage under a Gillette plan will only apply in accordance with Gillette's Coordination of Benefits Provision as secondary payer. During any settlement payments period, you will also be eligible for many of the currently provided employee benefits and services. However, following your scheduled release date you will not be eligible for certain employee benefits, including: Incentive Bonuses Salary Continuation Plan Long-Term Disability Plan Vacation Accrual Holiday Pay Tuition Refund Plan The following is information concerning specific benefits provided under this Agreement as of your scheduled release date, at the end of a settlement payments period or when you elect to begin receiving pension benefits, as discussed below. The Gillette Company Retirement Plan - Company records indicate you will be eligible for a pension as of your scheduled release date. If you continue to receive termination settlement pay as semi-monthly payments until March 31, 2003, as set forth above, your retirement date for all benefits purposes shall be April 1, 2003. You may elect to retire and begin receiving pension payments prior to April 1, 2003, on any date following your scheduled release date. Once you elect to begin receiving pension payments, the settlement payments period ends and you are eligible for only those pension benefits and services available to retirees. At that time, the balance of any termination settlement payments must be taken as a lump sum or deferred to a specific future date. Lump sum payments and deferred termination settlement payments made after pension payments begin will not be included in determining service credit or in computing compensation under the Retirement Plan. Group Medical Coverage - If you elect to receive termination settlement pay as continuing payments, you may elect to continue your current Gillette group medical coverage at the regular employee contribution rate throughout the settlement payments period. 2 Group Dental Coverage - Dental coverage may be continued at the regular employee contribution rate throughout any settlement payments period. After the settlement payments period, you may continue group dental coverage for up to an additional 18 months by paying 102% of the premium cost of such coverage. Dental coverage is otherwise not available after retirement. Coverage under the Gillette group dental plan will continue through the last day of the month in which you terminate from the group plan. If you are in the process of having dental work done which requires more than one visit (for example, root canal work, etc.), you will have 30 days from the first of the next month to have it completed. The Gillette group dental plan cannot be converted into an individual membership. Employee Stock Ownership Plan (ESOP) - When terminated from the payroll, either on the scheduled release date or the last date of a settlements payments period, whichever is later, you may take a distribution of your ESOP account, or, if the account balance is $5,000 or more, defer the distribution. A terminating employee who is retirement eligible should refer to the Retiree/LTD Medical Program for information on using the ESOP to fund retiree medical coverage. Retiree Medical Program - An employee who is retirement eligible and is terminating from a subsidiary which participates in the Retiree Medical Program will be eligible for participation upon or after retirement. Employees hired prior to July 1, 1990 (Group 2) must maintain the full ESOP account balance with the trustee for continued eligibility for retiree medical coverage. Life Insurance (Spouse and Child) - Coverage provided under this plan will continue for a 31-day period following the date you retire or following the last day of the settlement payments period, whichever is later. During a settlement payments period, the amount of coverage under spouse or child life insurance will continue at the coverage level in effect on the scheduled release date. Within the 31-day period after the date you retire or the end of the settlement payments period, if applicable, you may convert to an individual policy without a qualifying exam. If you wish to convert to an individual policy, you must notify the Employee Benefits Department in order to arrange for an insurance company representative to contact you with details on conversion options. Please refer to Your Employee Benefits Book for information on the conversion privilege. Executive Life Insurance - Coverage may be continued by payroll deduction during a settlement payments period, at the same coverage level as an active employee. At retirement, no further contributions are required and coverage levels are adjusted to reflect a retirement benefit. Estate Preservation Plan - You, or the policy owner, may retain the policy by continuing the scheduled premium payments determined at the time of inception. If you elect to discontinue this policy, the Company will withdraw its cumulative premium payments from the policy's cash value and have no further interest in the policy. 3 Savings Plan - You may continue to participate in the Employees' Savings Plan during any settlement payments period. Participation in the Savings Plan during a settlement payments period will be at your rate of contribution on the scheduled release date, unless you change the contribution rate on a subsequent date. You may, in accordance with the terms of the Plan, retain an account balance of over $5,000 after your contributions end and defer withdrawal to a future date. When you want to withdraw your account, you may call the Plan Record Keeper and Trustee, Fidelity Investments, at 1-800-544-0263. A voluntary withdrawal taken prior to the end of a settlement payments period may result in suspension of participation and/or a negative tax impact. Please refer to the current Employees' Savings Plan booklet. Supplemental Savings Plan - If you participate in the Supplemental Savings Plan, deferrals under the Plan may continue during a settlement payments period. On the scheduled release date or at the end of the settlement payments period, whichever is later, the Supplemental Savings Plan will be paid to you in a single lump sum unless you have previously made a timely deferral election. Stock Equivalent Unit Plan - During a settlement payments period, the value of any awards will continue to be determined by stock price appreciation and dividend credits. You will receive additional information from the Manager of Executive Compensation concerning your payment or deferral election. Incentive Bonus Plan - You will be eligible for Incentive Bonus Consideration for the year 2000. Stock Option Plan - If you are eligible to receive a pension upon your scheduled release date or upon the end of any settlement payments period, your period for exercising any vested options will be the time period available to Stock Option Plan Participants retiring under The Gillette Company Retirement. Please refer to the 1971 Stock Option Plan for detailed information on the exercise of Stock Options. Vacation Pay - Any unused current year vacation accrued as of your scheduled release date will be paid to you at that time. Terminating employees eligible for retirement benefits under The Gillette Company Retirement Plan as of their scheduled release date will be granted full year vacation accrual for the current year, even if employment ends before December 31. There will be no vacation accrual after the scheduled release date. Employee Loan Program - If you have an outstanding loan with the Company, you must pay off the unpaid loan balance as stipulated in the loan agreement, which requires repayment in full no later than the date on which you are terminated from the payroll, either on the scheduled release date or the last day of a settlement payments period. Outplacement Counseling Services - Arrangements will be made with Lee Hecht Harrison, Inc. to assist you in your search for new employment. This service can be of considerable value and assistance to you in your transition from Gillette employment and you are urged to make maximum use of this resource. 4 In order to remain eligible for this outplacement assistance, you must initiate outplacement services with Lee Hecht Harrison, Inc. as soon as possible and in any event not later than fourteen days following your scheduled release date. You must also continue active participation in the job search program as it is established by your outplacement counselor. Use of the Lee Hecht Harrison, Inc. outplacement facility and counseling services will be available to you for a period of 12 months from your scheduled release date unless you sooner become re-employed, decline further services or voluntarily interrupt your participation in the program for a 30-day period. Basic Fringe Benefit Rights - If you decide not to accept and sign this Termination Settlement Agreement, your rights to certain fringe benefits upon termination will not be altered by your decision. These include your rights under applicable laws and benefit plan provisions to accrued and unused vacation pay as of your scheduled release date, conversion rights under the group life insurance plans, continuation of group medical and dental coverage under COBRA, and as well as any other rights you have as a benefits plan participant under the federal Employee Retirement Income Security Act of 1974 (ERISA). Inventions and Confidentiality - You are reminded that you will continue to be subject to the provisions of your original employment agreement with The Gillette Company even after your scheduled release date, including your agreement to transfer to The Gillette Company all improvements and inventions in certain fields made by you during your employment and within certain stated periods thereafter, and your agreement not to disclose or use at any time any secret or confidential information or knowledge obtained or acquired by you while in, or by reason of, your employment. Unemployment Compensation - Eligibility for unemployment compensation is determined by the Massachusetts Department of Employment and Training and not by the Company. If you wish to apply for unemployment, you should file an application according to the attached information promptly after your last day of work. The regulations of some states may delay the start of unemployment compensation payments because termination payments are or were being received. Non Defamatory Behavior - You agree that, except as may be required by law, you will not make, publish or state, or cause to be made, published or stated, any defamatory statement, writing or communication pertaining to the character, reputation, business practices, competence or conduct of The Gillette Company, its affiliates, shareholders, directors, officers, employees, agents, attorneys, servants, representatives, and successors. Company Property - You agree that, not later than your scheduled release date, you will return all equipment, files, documents, credit cards, and any other property belonging to The Gillette Company. 5 Non-Assignment - The settlement pay and benefits under this Agreement are personal to you and are expressly declared to be non-assignable and non-transferable. You shall have no right to commute, sell, assign, transfer or convey any payment hereunder. This Termination Settlement Agreement shall be binding upon any successor to the business of The Gillette Company, but shall not otherwise be assignable. Payment to Estate - Should you die after executing this Agreement but before all termination settlement payments are completed, and provided that your acceptance of the Agreement is not revoked during the seven-day revocation period, your estate will receive a lump sum payment of any balance of termination settlement pay due. Agreement and Best Efforts - Your receipt of termination settlement pay and benefits under this Agreement is contingent on your agreeing to the following non-competition agreement and release of all claims, and continuing to use your best efforts to the Company until your scheduled release date. Non-Competition Agreement - In consideration of the termination settlement pay and other settlement benefits, you agree that during the period ending March 31, 2003 (the "non-competition period"), which equals the number of weeks of termination settlement pay, you will not, without receiving prior written approval of The Gillette Company, engage in any business which is in competition with the business of Gillette, as defined below, or directly or indirectly accept employment with or render services on behalf of a competitor of Gillette, or any third party, in any capacity where the confidential information of Gillette acquired by you during your employment with Gillette may be considered to be useful to the competitor or to such other third party to become a competitor, irrespective of whether or not such competitor or such third party has any actual or implied intent to use confidential information of Gillette. "The business of Gillette" is understood to mean the business of The Gillette Company, including its subsidiaries, affiliates, joint venturers, and other entities with which Gillette has a substantial identity of interest. You acknowledge that if, at any time during the non-competition period, you perform services for any such competing business without obtaining prior written approval, The Gillette Company may, in its sole discretion, immediately terminate all termination settlement payments and settlement benefits and take whatever other actions it deems appropriate, including an action to enjoin without bond any breach of this Agreement. Release of All Claims - The Company wants to be certain that this Termination Settlement Agreement will resolve any and all dissatisfactions which you might have and in that regard requests that you carefully consider the following Release of All Claims. In consideration of the termination settlement pay and other benefits to be provided to you, you do hereby, for yourself, your heirs, executors and assigns, release and agree to indemnify and hold harmless The Gillette Company, its affiliates, shareholders, directors, officers, employees, and successors from any and all claims, 6 charges, complaints, damages, or causes of action, now existing, both known and unknown, of every name and nature, including but not limited to all claims of breach of contract or misrepresentation, wrongful discharge, or arising from alleged violations of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Older Workers Benefits Protection Act, the Rehabilitation Act of 1973, the Americans with Disabilities Act, the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act, the Worker Adjustment and Retraining Notification Act, Chapter 151B of Massachusetts General Laws, or any other local, state or federal law, regulation or policy or any other claim relating to or arising out of your employment with The Gillette Company or the termination thereof, with the sole exception of any rights you may have under the Workers' Compensation Act, and you further promise not to institute any lawsuit to challenge the validity of this release or the circumstances surrounding its execution. You also acknowledge that prior to your execution of this release: you have been provided with the option and opportunity of reviewing this release with independent counsel of your own choosing; you are competent to exercise this release; the only consideration for this release is the termination settlement pay and benefits described herein and no other promise or agreement has been made; your agreement to execute this release has not been obtained by any duress; and you fully understand that this document is intended to be a complete and legally binding general release. Governing Law - This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. Headings - Headings of the various provisions used herein are for convenience of reference only and shall not alter the meaning of the provisions. Severability - You agree that should any of the provisions of this Agreement be declared or determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby. Review - No decisions are required of you today. You have adequate time to review the provisions of this Agreement, to meet with human resources representatives and/or independent counsel of your own choosing. You are advised to consult with an attorney before signing this Agreement. If, after review, you agree to and accept the terms and conditions of this letter, please sign and return the enclosed copy of this letter not later than December 24, 2000. Revision - You agree that the changes from the original reflected in this revised agreement do not require any extension of time to the review period stated in the original. 7 Revocation - Federal law provides you with the right to revoke this Agreement during the seven days following your signing of the Agreement. I would like to take this opportunity to extend my personal thanks for your past support and my best wishes for your future. Sincerely, Robert E. DiCenso Sr Vice President, Personnel & Administration - -------------------------------------------------------------------------------- AGREED AND ACCEPTED: I hereby accept and agree to all of the terms and provisions of this Agreement. - ----------------------------- ----------------------------- Signature WITNESS: Signature - ----------------------------- Date 8 EX-10.(O) 6 0006.txt PERSONAL AND CONFIDENTIAL Exhibit 10(o) July 31, 2000 PERSONAL AND CONFIDENTIAL TERMINATION SETTLEMENT AGREEMENT Archie Livis 220 Boylston Street, Apt. 1213 Boston, MA 02116 Dear Archie: This letter describes our proposed agreement concerning the termination of your employment with The Gillette Company. As we discussed, your scheduled release date is July 31, 2000. This will be your last day of employment with Gillette. Termination Settlement Pay - The total termination settlement pay available to you under this Agreement is equal to 104 weeks of your current base salary. As we discussed, you will continue to receive your current base salary during the 22-week period from August 1, 2000, through December 31, 2000, when you will be terminated from the payroll. (The period between August 1, 2000, and December 31, 2000, is called the "settlement payments period.") The remaining 82 weeks of your termination settlement pay will be paid to you in a lump sum in January 2001. Benefits Status During Settlement Payments Period - You will be eligible during the settlement payments period to continue participation in a number of employee benefits and services during the settlement payments period. These include continuing participation in the following contributory benefit plans: Medical Plan Dental Plan Employees' Savings Plan Supplemental Savings Plan Executive Life Insurance Plan If you elect to continue your participation in the Gillette medical or dental plans after your scheduled release date and you become eligible for coverage under any other medical or dental plans, you agree to look to those other plans for your primary coverage. Coverage under a Gillette plan will only apply in accordance with Gillette's Coordination of Benefits Provision as secondary payer. During the settlement payments period, you will also be eligible for many of the currently provided employee benefits and services. However, following your scheduled release date, you will not be eligible for certain employee benefits, including: Incentive Bonuses Salary Continuation Plan Long-Term Disability Plan Vacation Accrual Travel Accident Insurance Plan Tuition Refund Plan The following is information concerning specific benefits provided under this Agreement as of your scheduled release date, at the end of the settlement payments period or when you begin receiving pension benefits, as discussed below. The Gillette Company Retirement Plan - Company records indicate you will be eligible for a pension as of your scheduled release date. You have elected to retire on January 1, 2001, and begin receiving pension payments thereafter. On December 31, 2000, the termination settlement payments period will end and you will become eligible for only those pension benefits and services available to retirees. As stated above, the balance of termination settlement pay due under this Agreement after December 31, 2000, will be paid to you as a lump sum in January 2001. This lump sum payment will not be included in determining service credit or in computing compensation under the Retirement Plan. Group Medical Coverage - If you elect to receive termination settlement pay as continuing payments, you may elect to continue your current Gillette group medical coverage at the regular employee contribution rate throughout the settlement payments period. Group Dental Coverage - Dental coverage may be continued at the regular employee contribution rate throughout the settlement payments period. After the settlement payments period, you may continue dental coverage for up to a total of 18 months from your scheduled release date by paying 102% of the cost of such coverage. Dental coverage is otherwise not available after retirement. 2 Coverage under the Gillette group dental plan will continue through the last day of the month in which you terminate from the group plan. If you are in the process of having dental work done which requires more than one visit (for example, root canal work, etc.), you will have 30 days from the first of the next month to have it completed. The Gillette group dental plan cannot be converted into an individual membership. Employee Stock Ownership Plan (ESOP) -When terminated from the payroll at the end of the settlement payments period, you may take a distribution of the account, or, if the account balance is $5,000 or more, defer the distribution. A terminating employee who is retirement eligible should refer to the Retiree/LTD Medical Program for information on using the ESOP to fund retiree medical coverage. Retiree Medical Program - You will be eligible for participation in the Retiree Medical Program upon or after retirement. Since you were hired prior to July 1, 1990 (Group 2), you must maintain the full ESOP account balance with the trustee for continued eligibility for retiree medical coverage. Executive Life Insurance - Coverage may be continued by payroll deduction during the settlement payments period, at the same coverage level as an Active employee. At retirement, no further contributions are required and coverage levels are adjusted to reflect a retirement benefit. Estate Preservation Plan - You, or the policy owner, may retain the policy by continuing the scheduled premium payments determined at the time of inception. If you elect to discontinue this policy, the Company will withdraw its cumulative premium payments from the policy's cash value and have no further interest in the policy. Savings Plan - You may continue to participate in the Employees' Savings Plan during the settlement payments period. Participation in the Savings Plan during the settlement payments period will be at your rate of contribution on the scheduled release date, unless you change the contribution rate on a subsequent date. You may, in accordance with the terms of the Plan, retain your account balance after your contributions end and defer withdrawal to a future date. When you want to withdraw your account, you may call the Plan Record Keeper and Trustee, Fidelity Investments, at 1-800-544-0263. A voluntary withdrawal taken prior to the end of a settlement payments period may result in suspension of participation and/or a negative tax impact. Please refer to the current Employees' Savings Plan booklet. No contributions to the Employees' Savings Plan may be applied from lump sum termination settlement payments, nor may a retiree continue contributions to the Plan. 3 Supplemental Savings Plan - Deferrals under the Supplemental Savings Plan may continue during the settlement payments period. At the end of the settlement payments period, the Supplemental Savings Plan balance will be paid to you in a single lump sum unless you have previously made a timely deferral election. Stock Equivalent Unit Plan - During the settlement payments period, the value of any awards will continue to be determined by stock price appreciation and dividend credits. You will receive additional information from the Manager of Executive Compensation concerning your payment or deferral election. Incentive Bonus Plan - Please refer to the Incentive Bonus Plan and to the Manager of Executive Compensation regarding bonus eligibility. Stock Option Plan - Since you have elected to begin receiving pension payments on January 1, 2001, your period for exercising any vested options will be the time period available to Stock Option Plan Participants retiring under The Gillette Company Retirement Plan. Please refer to the 1971 Stock Option Plan for detailed information on the exercise of Stock Options. Vacation Pay - Any unused current year vacation accrued as of your scheduled release date will be paid to you at that time. Because you are eligible for retirement benefits under the Retirement Plan as of your scheduled release date, you will be granted full year vacation accrual for the current year. There will be no vacation accrual after the scheduled release date. Basic Fringe Benefit Rights - If you decide not to accept and sign this Agreement, your basic rights to certain fringe benefits upon termination will not be altered by your decision. These include your rights under applicable laws and benefit plan provisions to accrued and unused vacation pay as of your scheduled release date, continuation of group medical and dental coverage under COBRA, and conversion rights under the group life insurance plans as well as any rights you have under the ESOP, Savings and Retirement Plans. Inventions and Confidentiality - You are reminded that you will continue to be subject to the provisions of your employment agreement with The Gillette Company even after your scheduled release date, including your agreement to transfer to The Gillette Company all improvements and inventions in certain fields made by you during your employment and within certain stated periods thereafter, and your agreement not to disclose or use at any time any secret or confidential information or knowledge obtained or acquired by you while in, or by reason of, your employment. 4 Unemployment Compensation - Eligibility for unemployment compensation is determined by the Massachusetts Department of Employment and Training and not by the Company. If you wish to apply for unemployment, you should file an application according to the attached information promptly after your last day of work. The regulations of some states may delay the start of unemployment compensation payments because termination payments are or were being received. Non Defamatory Behavior - You agree that, except as may be required by law, you will not make, publish or state, or cause to be made, published or stated, any defamatory statement, writing or communication pertaining to the character, reputation, business practices, competence or conduct of The Gillette Company, its affiliates, shareholders, directors, officers, employees, agents, attorneys, servants, representatives, and successors, whether such conduct occurs prior or subsequent to this Agreement. Company Property - You agree that, not later than your scheduled release date, you will return all equipment, files, documents, credit cards, and any other property belonging to The Gillette Company. Non-Assignment - The settlement pay and benefits under this Agreement are personal to you and are expressly declared to be non-assignable and non-transferable. You shall have no right to commute, sell, assign, transfer or convey any payment hereunder. This Termination Settlement Agreement shall be binding upon any successor to the business of The Gillette Company, but shall not otherwise be assignable. Payment to Estate - Should you die after your scheduled release date and after executing this Agreement but before all settlement payments are completed, your estate will receive a lump sum payment of any balance of termination settlement pay due. Non-Competition Agreement and General Release - Your receipt of termination settlement pay and benefits under this Agreement is contingent on your agreeing to the following non-competition agreement and release of all claims. Non-Competition Agreement - In consideration of the termination settlement pay and other settlement benefits, you agree that during the period ending July 30, 2002 (the "non-competition period"), which equals the number of weeks of termination settlement pay, you will not, without receiving prior written approval of The Gillette Company, engage in any business which is in competition with the business of Gillette, as defined below, or directly or indirectly accept employment with or render services on behalf of a competitor of Gillette, or any third party, in any capacity where the confidential information of Gillette acquired by you during your employment with Gillette may be considered to be useful to the competitor or to such other third party to become a competitor, irrespective of whether or not such competitor or such third party has any actual or implied intent to use confidential information of Gillette. "The business of Gillette" is understood to mean the business of The Gillette Company, including its subsidiaries, affiliates, joint 5 venturers, and other entities with which Gillette has a substantial identity of interest. You acknowledge that if, at any time during the non-competition period, you perform services for any such competing business without obtaining prior written approval, The Gillette Company may, in its sole discretion, immediately terminate all termination settlement payments and settlement benefits and take whatever other actions it deems appropriate, including an action to enjoin without bond any breach of this Agreement. Release of All Claims - The Company wants to be certain that this Termination Settlement Agreement will resolve any and all dissatisfactions which you might have and in that regard requests that you carefully consider the following Release of All Claims. In consideration of the termination settlement pay and other benefits to be provided to you, you do hereby, for yourself, your heirs, executors and assigns, release and agree to indemnify and hold harmless The Gillette Company, its affiliates, shareholders, directors, officers, employees, and successors from any and all claims, charges, complaints, damages, or causes of action, now existing, both known and unknown, of every name and nature, including but not limited to all claims of breach of contract or misrepresentation, wrongful discharge, or arising from alleged violations of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Older Workers Benefits Protection Act, the Rehabilitation Act of 1973, the Americans with Disabilities Act, the Fair Labor Standards Act, the Equal Pay Act, the Employee Retirement Income Security Act, the Worker Adjustment and Retraining Notification Act, Chapter 151B of Massachusetts General Laws, or any other local, state or federal law, regulation or policy or any other claim relating to or arising out of your employment with The Gillette Company or the termination thereof, with the sole exception of any rights you may have under the Workers' Compensation Act, and you further promise not to institute any lawsuit to challenge the validity of this release or the circumstances surrounding its execution. You also acknowledge that, prior to your execution of this release, you have been provided with the option and opportunity of reviewing this release with independent counsel of your own choosing, that you are competent to exercise this release, that the only consideration is the termination settlement pay and benefits described herein and that no other promise or agreement has been made, that your agreement to execute this release has not been obtained by any duress and that you fully understand that this document is intended to be a complete and legally binding general release. Governing Law - This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. Headings - Headings of the various provisions used herein are for convenience of reference only and shall not alter the meaning of the provisions. 6 Severability - You agree that should any of the provisions of this Agreement be declared or determined by any court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby. Review - No decisions are required of you today. You have adequate time to review the provisions of this Agreement, and to meet with the appropriate personnel representatives and/or independent counsel of your own choice. You are advised to consult with an attorney before signing this Agreement. If, after review, you agree to and accept the terms and conditions of this Agreement, please sign and return the enclosed copy not later than 21 days after your receipt of the Agreement. Revocation - Federal law provides you with the right to revoke this Agreement during the seven days following your signing of the Agreement. I would like to take this opportunity to extend my personal thanks for your past support and my best wishes for your future. Sincerely, THE GILLETTE COMPANY Robert E. DiCenso AGREED AND ACCEPTED: I hereby accept and agree to all of the terms and provisions of this Agreement as set forth herein. - ------------------------------- ------------------------------- Signature WITNESS: Signature - ------------------------------- Date 7 EX-10.(Q) 7 0007.txt PERSONAL FINANCIAL PLANNING (PFP) Exhibit 10(q) PERSONAL FINANCIAL PLANNING (PFP) REIMBURSEMENT PROGRAM For Executives Purpose of Plan: The purpose of this program is to assist Executives in paying for professional services and advice in managing the Executive's estate plan, taxes and general financial planning. Plan Highlights and Procedures: o Expenses covered under the program include: o The preparation of tax returns for federal, state and local income tax as well as gift tax returns. o Expenses related to develop and maintain an estate plan, including wills, establishing trusts etc. o General financial planning, including estimating tax liabilities for the year, making quarterly tax payments and a general review of personal asset allocations. o Expenses not covered under this program include costs associated with executing security trades (stocks, bonds mutual funds etc) and asset management fees. o The maximum annual reimbursement to be paid in a calendar year is $5,000 for eligible Active employees and $3,000 for eligible Retirees. o Reimbursement procedures: o Copies of invoices should be sent to the Manager of Corporate Benefits Counseling (Glenn Haskell). o Reimbursements to the executive will be processed with the next practical payroll cycle. Taxes will not be withheld, except for FICA. o Payments are considered taxable income. The executive will be responsible for all taxes; payments are not grossed-up. o Reimbursements are not eligible for Savings Plan deductions, nor are they considered pension eligible earnings. o Eligibility for active employees is based on the same criteria as the Estate Preservation Plan and Executive Life Insurance Plan. Eligible employees retiring on or after March 1, 2001 would be eligible for the reduced amount in retirement. EX-10.V 8 0008.txt AMENDED AND RESTATED CREDIT AGREEMENT Exhibit 10v [CONFORMED COPY] AMENDED AND RESTATED CREDIT AGREEMENT AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 17, 2000 among THE GILLETTE COMPANY (the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H WHEREAS, the parties hereto have heretofore entered into a 364-Day Credit Agreement dated as of December 20, 1996, amendments and restatements thereof dated as of October 20, 1997, October 19, 1998, and October 18, 1999 and the supplement thereof dated as of March 24, 2000 (the "Agreement"); WHEREAS, at the date hereof, there are no Loans outstanding under the Agreement; and WHEREAS, the parties hereto desire to amend the Agreement as set forth herein and to restate the Agreement in its entirety to read as set forth in the Agreement with the amendments specified below; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each capitalized term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended and restated hereby. SECTION 2. Amendment of the Agreement. (a) The following definition in Section 1.01 is amended to read as follows: "Termination Date" means October 16, 2001, or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. (b) The definition of "Refunding Borrowing" in Section .01 is deleted. (c) Section 3.02(d) is amended to read as follows: (d) the fact that the representations and warranties of the Company and the Borrower (if other than the Company) contained in this Agreement (except for the representations and warranties set forth in Sections 4.05 and 4.07 as to any matter which has theretofore been disclosed in writing by the Company to the Banks) shall be true in all material respects on and as of the date of such Borrowing. (d) Section 5.01 is amended to insert the following paragraph immediately after Section 5.01(j): Information required to be delivered pursuant to clauses 5.01(a), 5.01(b), 5.01(f) or 5.01(g) above shall be deemed to have been delivered on the date on which the Company provides notice to the Banks that such information has been filed with the Securities and Exchange Commission and is available at www.sec.gov. Such notice may be included in a certificate delivered pursuant to clause 5.O1(c); provided that the Company shall deliver paper copies of the information referred to in clauses 5.01(a), 5.01(b), 5.01(f) or 5.O1(g) to any Bank which specifically requests such delivery. SECTION 3. Updated Representations. (a) Each reference to "1998" in the definition of "Company's 1998 Form 10-K" in Section 4.04(a) and in Section 4.07 is changed to "1999". (b) Each reference to "1999" in the definition of "Company's Latest Form 10-Q" in Section 4.04(b) and in Section 4.05 is changed to "2000". SECTION 4. Change in Commitments. With effect from and including the date this Amendment and Restatement becomes effective in accordance with Section 8 hereof, the Commitment of each Bank shall be the amount set forth opposite the name of such Bank on the attached Commitment Schedule, which shall replace the existing Commitment Schedule. Any Bank whose Commitment is changed to zero shall upon such effectiveness cease to be a Bank party to the Agreement, and all accrued fees and other amounts payable under the Agreement for the account of such Bank shall be due and payable on such date; provided that the provisions of Sections 8.03 and 11.03 of the Agreement shall continue to inure to the benefit of each such Bank. 2 SECTION 5. Representations and Warranties. The Borrower hereby represents and warrants that as of the date hereof and after giving effect hereto: (a) no Default has occurred and is continuing; and (b) each representation and warranty of the Borrower set forth in the Agreement after giving effect to this Amendment and Restatement is true and correct as though made on and as of such date. SECTION 6. Governing Law. This Amendment and Restatement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts; Effectiveness. This Amendment and Restatement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment and Restatement shall become effective as of the date hereof when each of the following conditions shall have been satisfied: (i) receipt by the Administrative Agent of duly executed counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (ii) receipt by the Administrative Agent of an opinion of such counsel for the Borrower as may be acceptable to the Administrative Agent, substantially to the effect of Exhibit E to the Agreement with reference to this Amendment and Restatement and the Agreement as amended and restated hereby; and (iii) receipt by the Administrative Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of the Agreement as amended and restated hereby, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; provided that this Amendment and Restatement shall not become effective or binding on any party hereto unless all of the foregoing conditions are satisfied not later than the date hereof. The Administrative Agent shall promptly notify the Borrower and the Banks of the effectiveness of this Amendment and Restatement, and such notice shall be conclusive and binding on all parties hereto. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Restatement to be duly executed by their respective authorized officers as of the day and year first above written. THE GILLETTE COMPANY By: /s/ Gian Camuzzi ------------------------------------ Title: Vice President - Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Robert Bottamedi ------------------------------------ Title: Vice President ABN AMRO BANK N.V. By: /s/ Tracie Elliot ------------------------------------ Title: Vice President By: /s/ Cameron D. Gateman ------------------------------------ Title: Group Vice President BANK OF AMERICA, N.A. By: /s/ Lisa B. Choi ------------------------------------ Title: Vice President BANK ONE, NA (MAIN OFFICE CHICAGO) By: /s/ Mahua G. Thakurta ------------------------------------ Title: Commercial Banking Officer BANCA COMMERCIALE ITALIANA, NEW YORK BRANCH By: /s/ Frank Maffei ------------------------------------ Title: Authorized Signature By: /s/ John Michalisin ------------------------------------ Title: First Vice President CITIBANK, N.A. By: /s/ John S. Hutchins ------------------------------------ Title: Managing Director CREDIT SUISSE FIRST BOSTON By: /s/ David W. Kratovil ------------------------------------ Title: Director By: /s/ David L. Sawyer ------------------------------------ Title: Vice President DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Alexander Karow ------------------------------------ Title: Vice President By: /s/ Sheryl L. Paynter ------------------------------------ Title: Vice President FLEET NATIONAL BANK (formerly BankBoston, N.A.) By: /s/ Deborah A. Dobbins ------------------------------------ Title: Vice President BANCO SANTANDER CENTRAL HISPANO, S.A. By: /s/ Dom J. Radriguez ------------------------------------ Title: Vice President By: /s/ Robert E. Schlegel ------------------------------------ Title: Vice President MELLON BANK, N.A. By: /s/ Janet R. Twomey ------------------------------------ Title: Vice President MERRILL LYNCH BANK USA By: /s/ Raymond J. Dardano ------------------------------------ Title: Senior Credit Officer SOCIETE GENERALE By: /s/ Jay Sands ------------------------------------ Title: Managing Director STATE STREET BANK AND TRUST COMPANY By: /s/ Grace A. Barnett ------------------------------------ Title: Vice President BNP PARIBAS (formerly Paribas) By: /s/ Rebecca Marlowe ------------------------------------ Title: Senior Credit Officer By: /s/ Carol Simon ------------------------------------ Title: Chief Credit Officer FORTIS (USA) FINANCE L.L.C. By: /s/ Eddie Matthews ------------------------------------ Title: Senior Vice President By: /s/ Joseph A. Franzese ------------------------------------ Title: Senior Vice President & Controller ROYAL BANK OF CANADA By: /s/ D. S. Bryson ------------------------------------ Title: Senior Manager WACHOVIA BANK, N.A. By: /s/ J. Calvin Ratcliff, Jr. ------------------------------------ Title: Senior Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: /s/ Robert Bottamedi ------------------------------------ Title: Vice President COMMITTMENT SCHEDULE Bank Commitment - -------------------------------------------------------------------------------- Morgan Guaranty Trust Company of New York $150,000,000 ABN AMRO Bank N.V. $125,000,000 Bank of America, N.A. $125,000,000 Bank One, NA (Main Office Chicago) $125,000,000 Banca Commerciale Italiana, New York Branch $125,000,000 Citibank, N.A. $125,000,000 Credit Suisse First Boston $125,000,000 Deutsche Bank AG New York Branch and/or $125,000,000 Cayman Islands Branch Fleet National Bank (formerly BankBoston, N.A.) $125,000,000 Banco Santander Central Hispano, S.A. $50,000,000 Mellon Bank, N.A. $50,000,000 Merrill Lynch Bank USA $50,000,000 Societe Generale $50,000,000 State Street Bank and Trust Company $50,000,000 BNP Paribas (formerly Paribas) $0 Fortis (USA) Finance L.L.C. $0 Royal Bank of Canada $0 Wachovia Bank, N.A. $0 Total $1,400,000,000 - ----- -------------- [CONFORMED COPY] SUPPLEMENT TO CREDIT AGREEMENT SUPPLEMENT TO CREDIT AGREEMENT dated as of March 24, 2000 among THE GILLETTE COMPANY (the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). WITNESSETH WHEREAS, the parties hereto have heretofore entered into a 364-Day Credit Agreement dated as of December 20, 1996 and amendments and restatements thereof dated as of October 20, 1997, October 19, 1998 and October 18, 1999 (the "Agreement"); WHEREAS, at the date hereof, there are no Loans outstanding under the Agreement; WHEREAS, pursuant to Section 2.19 of the Agreement Borrower has proposed to increase the aggregate amount of the Commitments to $2,335,000,000 and the parties hereto have agreed to such increase on the terms and conditions provided herein; and WHEREAS, the parties hereto desire to supplement the Agreement as set forth herein to reflect the foregoing increase in Commitments; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each capitalized term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as supplemented hereby. SECTION 2. Increased Commitments. With effect from and including the date this Supplement becomes effective in accordance with Section 5 hereof, the Commitment of each Bank shall be the amount set forth opposite the name of such Bank on the attached Commitment Schedule, which shall replace the existing Commitment Schedule. SECTION 3. Representations and Warranties. The Borrower hereby represents and warrants that as of the date hereof and after giving effect hereto: (a) no Default has occurred and is continuing; and (b) each representation and warranty of the Borrower set forth in the Agreement after giving effect to this Supplement is true and correct as though made on and as of such date. SECTION 4. Governing Law. This Supplement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. Counterparts; Effectiveness. This Supplement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Supplement shall become effective as of the date hereof when each of the following conditions shall have been satisfied: (i) receipt by the Administrative Agent of duly executed counterparts hereof signed by the Borrower and by each Bank whose Commitment is increased hereby (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (ii) receipt by the Administrative Agent of an opinion of such counsel for the Borrower as may be acceptable to the Administrative Agent, substantially to the effect of Exhibit E to the Agreement with reference to this Supplement and the Agreement as supplemented hereby; and (iii) receipt by the Administrative Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of the Agreement as supplemented hereby, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; provided that this Supplement shall not become effective or binding on any party hereto unless all of the foregoing conditions are satisfied not later than the date hereof. The Administrative Agent shall promptly notify the Borrower and the 2 Banks of the effectiveness of this Supplement, and such notice shall be conclusive and binding on all parties hereto. 3 IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be duly executed by their respective authorized officers as of the day and year first above written. THE GILLETTE COMPANY By: /s/ Gian Camuzzi ---------------- Title: Vice President - Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Robert Bottamedi -------------------- Title: Vice President BANK ONE, NA (MAIN OFFICE CHICAGO) By: /s/ Jeffrey Lubatkin -------------------- Title: Vice President ABN AMRO BANK N. V. By: /s/ James E. Davis ------------------ Title: Group Vice President By: /s/ Ildiko E. Juhasz -------------------- Title: Assistant Vice President BANK OF AMERICA, N.A. By: /s/ Lisa B. Choi ---------------- Title: Vice President CITIBANK, N.A. By: /s/ Robert M. Spence -------------------- Title: Managing Director BANCA COMMERCIALE ITALIANA, NEW YORK BRANCH By: /s/ John Michalisin ------------------- Title: First Vice President By: /s/ Charles Dougherty --------------------- Title: Vice President DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Alexander Karow ------------------- Title: Assistant Vice President By: /s/ David Wagstaff IV --------------------- Title: Director MELLON BANK, N.A. By: /s/ R. Jane Westrich -------------------- Title: Vice President WACHOVIA BANK, N.A. By: /s/ B. Brantley Echols ---------------------- Title: Senior Vice President FORTIS (USA) FINANCE L.L.C. By: /s/ Eddie Matthews ------------------ Title: Senior Vice President By: /s/ Robert Fakhoury ------------------- Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: /s/ Robert Bottamedi -------------------- Title: Vice President COMMITMENT SCHEDULE Bank Commitment - -------------------------------------------------------------------------------- Morgan Guaranty Trust Company of New York $262,500,000 Bank One, NA (Main Office Chicago) $250,000,000 Bank of America, N.A. $200,000,000 Citibank, N.A. $200,000,000 ABN AMRO Bank N.V. $200,000,000 Credit Suisse First Boston $200,000,000 BankBoston, N.A. $160,000,000 Banca Commerciale Italiana, $125,000,000 New York Branch Deutsche Bank AG $125,000,000 New York Branch and/or Cayman Islands Branch Wachovia Bank, N.A. $125,000,000 Mellon Bank, N.A. $125,000,000 Royal Bank of Canada $100,000,000 Fortis (USA) Finance L.L.C. $62,500,000 Societe Generale $50,000,000 Banco Santander Central $50,000,000 Hispano, S.A. State Street Bank and Trust Company $50,000,000 Paribas $50,000,000 ----------- Total $2,335,000,000 ============== EX-13 9 0009.txt PORTIONS OF THE 2000 ANNUAL REPORT Management's Discussion and Analysis of Financial Condition and Results of Operations The Gillette Company and Subsidiary Companies RESULTS OF OPERATIONS Discontinued Operations Effective June 30, 2000, the Company decided to sell the Stationery Products business. As a result, this business is accounted for as a discontinued operation in the financial statements. The sale of the business to Newell Rubbermaid Inc. was finalized on December 29, 2000. The after-tax loss on the disposal of the business was $428 million, and the after-tax loss from discontinued operations, up to the measurement date of June 30, 2000, was $1 million. The loss on the disposal of the business includes a charge for direct transaction costs, employee severance, assets not transferable and disposed of and for other employee benefits, including fringe benefits, outplacement fees and special termination benefits related to pensions. Additional details are provided in the Notes to Consolidated Financial Statements. Net Sales Net sales from continuing operations in 2000 were $9.30 billion, 2% above those of 1999. Excluding the adverse effects of exchange, 5%, and the divestiture of the White Rain hair care line, 1%, sales climbed 8%. The 8% sales growth was attributable to favorable volume/mix of 6% and pricing of 2%, as increased marketing support contributed to good volume growth across all categories, except Duracell. Net sales in 1999 were $9.15 billion, essentially even with those of 1998. Pricing contributed 3% and volume/mix 1%, favorable factors that were offset by 4% unfavorable exchange. Excluding the adverse effects of exchange and the 1998 divestiture of Jafra Cosmetics International, sales rose 5%. An analysis of sales by business segment for continuing operations follows. (Millions) % Increase/(Decrease) -------------------------- --------------------- 2000 1999 1998 00/99 99/98 - -------------------------------------------------------------------------------- Blades & Razors $3,407 $3,167 $3,028 8 5 Toiletries 978 1,062 1,214 (8) (13) Duracell Products 2,577 2,726 2,576 (5) 6 Oral-B Products 676 616 642 10 (4) Braun Products 1,657 1,583 1,740 5 (9) -------------------------------------------------- $9,295 $9,154 $9,200 2 -- ================================================== See Notes to Consolidated Financial Statements for segment data. Sales of blades and razors were 8% higher than those of the prior year, due primarily to strong sales of the Mach3 shaving system in North America, Europe and Latin America. In Europe, sales were aided by a 39% increase in Mach3 cartridge shipments. Sales in Latin America were boosted by the successful launch of the Mach3 system in Brazil. In 1999, blade and razor sales were 5% above those of a year earlier, buoyed by the Mach3 shaving system, which was launched in all major markets, except Brazil, by year-end 1999. Sales in North America, reflecting the steady growth of the Mach3 system, were 14% above those of 1998. The Company's trade inventory reduction initiative contributed to lower sales in Europe and Latin America. Toiletries sales were 8% below those of the prior year, due primarily to the divestiture of the White Rain brand in April 2000. Sales of pre- and post-shave products were 6% above those of the year before. In 1999, toiletries sales were 13% below those of the previous year, due in part to the divestiture of the Jafra business in April 1998. Excluding Jafra, toiletries sales declined 7%. Sales of Duracell products declined 5%, as a 37% increase in sales of Duracell Ultra batteries was more than offset by lower sales of both Copper & Black and non-Duracell branded batteries. Contributing to the lower sales were increased competition faced by the Copper & Black brand in North America, depreciation of the Euro and lower overall battery sales in Korea, as well as low-priced alkaline competition in China. In 1999, 17 sales of Duracell products rose 6%, led by a 15% sales gain in North America that reflected improved volume/mix in a period of heightened consumer activity due to Year 2000 concerns. Higher volume in the AMEE region and better mix in the Asia-Pacific region also contributed to the increase in Duracell sales in 1999. Sales of Oral-B products were 10% above those of 1999. Sales growth, which was achieved in all geographies except Europe, was paced by Latin America, where economic conditions improved and the rollout of the premium CrossAction toothbrush to the region's largest markets was completed. In North America, sales growth also reflected new product activity, including the third-quarter launch of the Oral-B Advantage Plus toothbrush. In 1999, sales of Oral-B products were 4% below those of a year earlier. Gains in North America, driven by the success of the CrossAction toothbrush, were more than offset by shortfalls in Latin America that resulted from the region's economic weakness. Braun sales rose 5% from those of 1999. Aided by broad-based advertising support for core product categories, sales increases were achieved across all geographies except Europe, where sales were restrained by the depreciation of the Euro. Sales of the Braun Syncro electric shaver drove growth in Germany and Japan, while improving economic conditions and increased distribution led to strong advances in the AMEE region and Latin America. Sales in 1999 were 9% below those of the year before, due to economic softness in Europe and lower sales in North America. Gross Profit Gross profit from continuing operations was $5.91 billion in 2000, $5.76 billion in 1999 and $5.70 billion in 1998. As a percent of sales, gross profit was 63.6% in 2000, compared with 62.9% in 1999 and 62.0% in 1998. Margin improvement in both years was due to several factors: favorable sales mix; continued manufacturing efficiencies; and the benefit to our product cost structure of savings from the 1998 reorganization and realignment program. Selling, General and Administrative Expenses Selling, general and administrative expenses from continuing operations amounted to 41.2% of sales, compared with 40.1% and 37.9% in 1999 and 1998, respectively. In absolute terms, these expenses increased 4% in 2000 and 5% in 1999. In 2000, $608 million was spent on advertising, including sampling, and $1,268 million on sales promotion, for a total of $1,876 million, an increase of 12% over the 1999 spending level. This spending compares with 1999 amounts of $580 million, $1,087 million and $1,667 million, respectively. In 1998, these amounts were $593 million, $1,055 million and $1,648 million, respectively. The spending in 2000 represented 20.2% of sales, compared with 18.2% and 17.9% in 1999 and 1998, respectively. Other operating expenses declined 3% in 2000, reflecting a full year of benefits from the reorganization and realignment program, and increased 9% in 1999. Profit from Operations Profit from continuing operations was $1.51 billion in 2000, compared with $2.09 billion in 1999 and $1.78 billion in 1998. Profit from operations in 2000 was $2.08 billion before a restructuring and asset impairment charge of $572 million. Profit from operations in 1998 was $2.22 billion before a reorganization and realignment charge of $440 million. Profit from operations in 2000 represented 22.4% of sales, compared with 22.8% in 1999 and 24.1% in 1998, excluding the restructuring and asset impairment charge in 2000 and the reorganization and realignment charge in 1998. Operating profits in 2000 were almost even with those of 1999, as improved gross profit margin and cost savings from other operating expenses were offset by significant increases in marketing expenses. The decrease in operating profits in 1999 was due to a $30 million increase in marketing support and a $14 million increase in research and development for new product programs. Further, the Company incurred $61 million of incremental expenses related to the reorganization and realignment program, primarily for equipment and employee relocation and training. These expenses were not included as part of the original reserve, due to the requirements of the accounting standards. In addition, a gain of $22 million on the sale of land and a building was recognized in 1999. In the following table, the 2000 restructuring and asset impairment charge and the 1998 reorganization and realignment charge are included in Corporate/Other. 18 An analysis of operating profit by business segment for continuing operations follows. (Millions) % Increase/(Decrease) -------------------------- --------------------- 2000 1999 1998 00/99 99/98 - -------------------------------------------------------------------------------- Blades & Razors $1,340 $1,206 $1,153 11 5 Toiletries 76 85 54 (11) 57 Duracell Products 439 606 597 (28) 2 Oral-B Products 75 77 101 (3) (24) Braun Products 218 154 291 41 (47) -------------------------------------------------- $2,148 $2,128 $2,196 1 (3) -------------------------------------------------- Corporate/Other (636) (41) (420) -------------------------- $1,512 $2,087 $1,776 ========================== See Notes to Consolidated Financial Statements for segment data. Blade and razor profits were 11% higher in 2000, due primarily to the sales growth of the Mach3 shaving system in North America, Europe and Latin America. Blade and razor profits were 5% higher in 1999, due to the sales growth of the Mach3 shaving system. Toiletries profits were 11% below those of the prior year, in line with lower sales. Toiletries profits in 1999 were 57% above those of the previous year, due to unmatched new product launch expenses in 1998. Duracell profit from operations was 28% below that of the year before, reflecting both lower sales and increased marketing spending and related strategic actions in North America designed to regain market share, restore growth momentum and increase profitability. In 1999, Duracell reported profits 2% above those of the previous year, reflecting higher marketing expenses behind the geographic rollout of Duracell Ultra batteries and increased promotional support in North America. Oral-B profit from operations was 3% below that of 1999, due primarily to higher marketing expenses to support new product launches. In 1999, Oral-B profits declined 24%, due to marketing expenses supporting the CrossAction toothbrush launch in North America and Europe. Braun profit from operations was 41% above that of 1999, reflecting sales growth, improved mix and lower overhead expenses. Braun profits were $154 million in 1999, compared with $291 million in 1998, primarily the result of lower revenue to cover fixed costs. Nonoperating Charges/Income Net interest expense amounted to $218 million in 2000, $129 million in 1999 and $86 million in 1998. Net interest expense rose in 2000, reflecting increased borrowings to fund the share repurchase program and higher interest rates. Net interest expense rose in 1999, due to higher borrowings to fund the Company's share repurchase program. A net exchange gain of $8 million in 2000, which compared with 1999 and 1998 losses of $35 million and $23 million, respectively, was due primarily to subsidiaries in highly inflationary countries. Translation adjustments resulting from currency fluctuations of net foreign investments in non-highly inflationary countries are accumulated in a separate section of stockholders' equity, as noted on page 30. In 2000, the unfavorable translation adjustment was $249 million, compared with $205 million in 1999 and $36 million in 1998, reflecting significant exchange rate movements. Taxes and Income From Continuing Operations The effective tax rate was 36.3% in 2000, compared with rates of 34.8% in 1999 and 35.3% in 1998. The effective tax rate increased in 2000, due to the nondeductibility of certain asset impairment charges. Excluding the impact of these nondeductible charges, the tax rate declined to 32.8%. The decrease was primarily attributable to the reduction of the tax rate in Germany and the Company's tax management strategies. Income from continuing operations was $821 million in 2000, compared with $1,248 million in 1999 and $1,073 million in 1998. Fully diluted net income per common share from continuing operations was $.77 in 2000, compared with $1.13 and $.94 in 1999 and 1998, respectively. Excluding the charges in 2000 for restructuring and asset impairment and in 1998 for reorganization and realignment, income from continuing operations was $1,251 million in 2000, compared with $1,248 million in 1999 and $1,358 million in 1998. Fully diluted net income per common share from continuing operations was $1.18 in 2000, compared with $1.13 and $1.19 in 1999 and 1998, respectively. 19 Financial Condition The Company's financial condition continued to be strong in 2000. Net debt (total debt net of associated swaps, less cash and cash equivalents) decreased $82 million during 2000, despite additional spending under the Company's share repurchase program, due to improved cash flow from operations, proceeds from the sale of the Stationery Products business and the favorable exchange impact on foreign currency debt. Net debt at December 31, 2000, amounted to $4.45 billion, compared with $4.53 billion and $3.18 billion at December 31, 1999 and 1998, respectively. The market value of Gillette equity was $38 billion at the end of 2000, compared with $43 billion at the end of 1999. The Company's book equity position amounted to $1.92 billion at the end of 2000, compared with $3.06 billion at the end of 1999 and $4.54 billion at the end of 1998. The decreases in book equity in 2000 and 1999 were due primarily to the Gillette share repurchase program, as well as to the effect of foreign currency translation. Net cash provided by operating activities in 2000 was $1.60 billion, compared with $1.43 billion in 1999 and $.96 billion in 1998. The current ratio of the Company was .86 for 2000, compared with ratios of 1.39 for 1999 and 1.40 for 1998. The decrease in the 2000 current ratio was primarily attributable to the Company's reclassification of all commercial paper borrowings to short-term debt, due to the Company's credit facility agreements expiring within 2001. Capital spending in 2000 amounted to $793 million, compared with $889 million in 1999 and $952 million in 1998. Spending in all three years reflected substantial investments in the blade and razor, Duracell and Braun Products segments. In 2000, the Company sold the Stationery Products business for $528 million. In 1998, the Company made acquisitions in the Duracell Products segment for $100 million and sold the Jafra business for $200 million. Share repurchase funding in 2000, net of proceeds received from the sale of put options on Company stock, amounted to $921 million, compared with $1,949 million in 1999 and $1,010 million in 1998. Strong cash inflows from operations, proceeds from the sale of the Stationery Products business and alternate financing sources enabled the Company to reduce its $2.0 billion revolving credit facility in 2000 to $1.4 billion, expiring October 2001, and its $1.1 billion credit facility, expiring December 2001, to $550 million in January 2001. Both facilities are used by the Company to complement its commercial paper program. In order to increase flexibility in sourcing short-term borrowing, the Company launched a $1 billion Euro commercial paper program in 2000. At year-end 2000, there was $586 million outstanding under this program and $1.45 billion outstanding under the U.S. program, compared with $2.41 billion at the end of 1999 and $1.66 billion at the end of 1998. During 2000, the Company issued Euro-denominated notes for $228 million, due December 2002, and entered into a $264 million Euro-denominated debt obligation, with redemption rights in December 2001. During 1999, the Company issued Euro-denominated notes for $343 million, due February 2004, and entered into a $325 million Euro-denominated debt obligation, with redemption rights in March 2002, and a $437 million Euro-denominated debt obligation, with redemption rights in January 2003. The net proceeds were used to refinance existing short-term debt associated with the Company's share repurchase program. During 2000, both Standard & Poor's and Moody's maintained the Company's current credit ratings. Standard & Poor's rates the Company's long-term debt at AA, while Moody's rating is Aa3. The commercial paper rating is A1+ by Standard & Poor's and P1 by Moody's. Gillette will continue to have capital available for growth through both internally generated funds and significant credit resources. The Company has substantial unused lines of credit and access to worldwide financial market sources for funds. Market Risk The Company is subject to currency and interest rate risks that arise from normal business operations. The Company regularly assesses these risks and has established business strategies that offset exposures, supplemented by the use of financial instruments, to protect against the adverse effects of these and other market risks. To manage the impact of currency changes on foreign-denominated profits, the Company primarily uses product sourcing and pricing strategies, supplemented by purchases of foreign currency options when considered appropriate. The Company uses foreign-denominated debt and forward contracts to hedge the impact of currency changes on its net foreign investments, normally in currencies with low interest rates. 20 Most of the Company's transactional exchange exposure is concentrated through centralized cash management and intercompany invoicing. The Company hedges net residual transactional exchange exposures primarily through forward contracts. The Company uses primarily floating rate debt in order to match interest costs to the impact of inflation on earnings. The Company manages its mix of fixed and floating rate debt by entering into interest rate swaps. More detailed information about the strategies, policies and use of derivative financial instruments is provided in the financial instruments note. The Company has established clear policies, procedures and internal controls governing the use of derivative financial instruments and does not use them for trading, investment or other speculative purposes. Financial instrument positions are monitored using a value-at-risk model. Value at risk is estimated for each instrument based on historical volatility of market rates and a 95% confidence level. Based on the Company's overall evaluation of its market risk exposures from all of its financial instruments at December 31, 2000 and 1999, a near-term change in market rates would not materially affect the consolidated financial position, results of operations or cash flows of the Company. Restructuring and Asset Impairments On December 18, 2000, the Company announced a restructuring program and impaired certain intangible assets. This resulted in a fourth-quarter charge to operations of $572 million ($430 million after taxes, or $.41 in net income per common share, fully diluted). The worldwide restructuring of operations is expected to significantly improve the Company's operating efficiency, streamline the supply chain and further decrease costs. The program will result in a net reduction of approximately 2,700 employees across all business functions, operating units and geographies. Pretax cash outlays are estimated at approximately $235 million. Cash severance payments may extend beyond 2001, due to the severance payment deferral options available to terminated employees. When the program is fully implemented by the end of 2001, the annual pretax savings will approximate $125 million. Specific program activities include consolidating management functions; reducing factory locations, in part through outsourcing production of low-volume noncore products; streamlining the supply chain via warehouse consolidation and other actions; and downsizing and centralizing corporate functions. These actions will result in the closure of eight factories and 13 distribution centers and will be completed within 12 months. The amount of impairment is approximately $125 million for the restructuring and closure of factories and distribution centers, as well as the write-off of manufacturing, distribution and office equipment assets. Until the affected facilities cease operations, revenue-generating activities will continue. Buildings that are owned will be sold, and equipment will be disposed of through either sale or abandonment. The extent of the impairment was based on discounted cash flow analyses for the operating period up until closure and included an estimate of residual value. In addition, the charge included $212 million for the write-down of impaired goodwill relating to certain underperforming brands. This write-down was determined based upon a year-end impairment analysis necessitated by new evidence that indicated that the carrying amounts of the assets relating to the Thermoscan personal diagnostic appliance brand and certain national battery brands might not be fully recovered through undiscounted future operating cash flows. Such analysis indicated that impairment existed equivalent to the carrying amount of the acquired goodwill for one brand in the Braun Products segment, and the carrying amount of the acquired goodwill and identifiable intangible assets for certain brands in the Duracell Products segment. This analysis did not indicate impairment of the carrying amounts of any related tangible long-lived assets associated with these underperforming brands. Additional details are provided in the Notes to Consolidated Financial Statements. 21 Reorganization and Realignment On September 28, 1998, the Company announced a reorganization and realignment program that resulted in a third-quarter charge to operations, for the total program, of $535 million ($347 million after taxes, or $.30 income per common share, fully diluted). For continuing operations, the charge to operations was $440 million ($285 million after taxes, or $.25 in net income per common share, fully diluted). The total program resulted in the closure of 14 factories, 13 warehouses and 34 office facilities, as well as a reduction of 4,623 employees across all business segments, geographies and employee groups. Activity in 2000 consisted of the closing of three factories, two warehouses and five office facilities, as well as a reduction of 1,173 employees. Project activity was essentially complete at March 31, 2000. Pretax cash outlays were $16 million in 1998, $197 million in 1999 and $113 million in 2000. Cash severance payments extended beyond the completion of program activities, due to the severance payment deferral options available to terminated employees. In 2000, cash benefits generated from the program were in line with original estimates. Additional reorganization and realignment details are provided in the Notes to Consolidated Financial Statements. Euro Conversion A multifunctional Euro project team is responsible for ensuring the Company's ability to operate effectively during the Euro transition phase and through final Euro conversion. Total program costs are not expected to be material. Among other factors, conversion to the Euro may affect competition between markets, due to the existing pricing structure. The Company has developed marketing and pricing strategies for implementation throughout the more open European market. The Euro project team will further enhance these strategies as part of the ongoing Euro initiative. The Company is currently able to make and receive payments in Euros and will convert financial and information technology systems to be able to use Euros as its base currency in relevant markets prior to January 1, 2002. Based on the analysis and actions taken to date, the Company does not expect the Euro conversion to materially affect the consolidated financial position, results of operations or cash flows of the Company. RESPONSIBILITY FOR FINANCIAL STATEMENTS The Company is responsible for the objectivity and integrity of the accompanying consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The financial statements of necessity include the Company's estimates and judgments relating to matters not concluded by year-end. Financial information contained elsewhere in the 2000 Annual Report and Form 10-K is consistent with that included in the financial statements. The Company maintains a system of internal accounting controls that includes careful selection and development of employees, division of duties, and written accounting and operating policies and procedures augmented by a continuing internal audit program. Although there are inherent limitations to the effectiveness of any system of accounting controls, the Company believes that its system provides reasonable, but not absolute, assurance that its assets are safeguarded from unauthorized use or disposition and that its accounting records are sufficiently reliable to permit the preparation of financial statements that conform in all material respects with accounting principles generally accepted in the United States. KPMG LLP, independent auditors, are engaged to render an independent opinion regarding the fair presentation in the financial statements of the Company's financial condition and operating results. Their report appears on page 23. Their examination was made in accordance with auditing standards generally accepted in the United States and included a review of the system of internal accounting controls to the extent they considered necessary to determine the audit procedures required to support their opinion. The Audit Committee of the Board of Directors is composed solely of independent directors, as defined by the New York Stock Exchange. The Committee meets periodically and privately with the independent auditors, internal auditors and financial officers of the Company, as it deems necessary, to review the quality of the financial reporting of the Company, the internal accounting controls and the scope and results of audit examinations. The Committee also reviews compliance with the Company's policies relating to proper accounting and financial reporting systems and the independence of the independent auditors. In addition, the Committee is responsible for recommending the appointment of the Company's independent auditors. 22 Independent Auditors' Report The Gillette Company and Subsidiary Companies [KPMG LOGO] The Stockholders and Board of Directors of The Gillette Company We have audited the accompanying consolidated balance sheet of The Gillette Company and subsidiary companies as of December 31, 2000 and 1999, 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, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Gillette Company and subsidiary companies as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP KPMG LLP Boston, Massachusetts February 12, 2001 23 Consolidated Statement of Income The Gillette Company and Subsidiary Companies
Years Ended December 31, 2000, 1999 and 1998 2000 1999 1998 - --------------------------------------------------------------------------------------- (Millions, except per share amounts) Net Sales $9,295 $9,154 $9,200 Cost of Sales 3,384 3,392 3,499 -------------------------- Gross Profit 5,911 5,762 5,701 Selling, General and Administrative Expenses 3,827 3,675 3,485 Restructuring and Asset Impairment Charges 572 -- 440 -------------------------- Profit from Operations 1,512 2,087 1,776 Nonoperating Charges (Income) Interest income (5) (7) (8) Interest expense 223 136 94 Other charges - net 6 46 34 -------------------------- 224 175 120 -------------------------- Income from Continuing Operations before Income Taxes 1,288 1,912 1,656 Income Taxes 467 664 583 -------------------------- Income from Continuing Operations 821 1,248 1,073 Loss on Disposal of Discontinued Operations, net of tax (428) -- -- Income (Loss) from Discontinued Operations, net of tax (1) 12 8 -------------------------- Net Income $ 392 $1,260 $1,081 ========================== Net Income (Loss) per Common Share, basic Continuing Operations $ .78 $ 1.14 $ .95 Disposal of Discontinued Operations (.41) -- -- Discontinued Operations -- .01 .01 -------------------------- Net Income $ .37 $ 1.15 $ .96 ========================== Net Income (Loss) per Common Share, assuming full dilution Continuing Operations $ .77 $ 1.13 $ .94 Disposal of Discontinued Operations (.40) -- -- Discontinued Operations -- .01 .01 -------------------------- Net Income $ .37 $ 1.14 $ .95 ========================== Weighted average number of common shares outstanding Basic 1,054 1,089 1,117 Assuming full dilution 1,063 1,111 1,144
See accompanying Notes to Consolidated Financial Statements. 24 Consolidated Balance Sheet The Gillette Company and Subsidiary Companies
December 31, 2000 and 1999 2000 1999 - ----------------------------------------------------------------------------------------- (Millions, except per share amount) Assets Current Assets Cash and cash equivalents $ 62 $ 80 Trade receivables, less allowances: 2000 - $81; 1999 - $74 2,128 2,208 Other receivables 378 319 Inventories 1,162 1,392 Deferred income taxes 566 309 Other current assets 197 315 Net assets of discontinued operations 189 1,174 ------------------ Total Current Assets 4,682 5,797 ------------------ Property, Plant and Equipment, at cost less accumulated depreciation 3,550 3,467 Intangible Assets, less accumulated amortization 1,574 1,897 Other Assets 596 625 ------------------ $10,402 $11,786 ================== Liabilities and Stockholders' Equity Current Liabilities Loans payable $ 2,195 $ 1,440 Current portion of long-term debt 631 358 Accounts payable and accrued liabilities 2,346 2,149 Income taxes 299 233 ------------------ Total Current Liabilities 5,471 4,180 ------------------ Long-Term Debt 1,650 2,931 Deferred Income Taxes 450 423 Other Long-Term Liabilities 767 795 Minority Interest 41 38 Contingent Redemption Value of Common Stock Put Options 99 359 Stockholders' Equity 8.0% Cumulative Series C ESOP Convertible Preferred, without par value, Issued: 1999 - .1 shares -- 85 Unearned ESOP compensation -- (4) Common stock, par value $1 per share Authorized: 2,320 shares Issued: 2000 - 1,365 shares; 1999 - 1,364 shares 1,365 1,364 Additional paid-in capital 973 748 Earnings reinvested in the business 5,853 6,147 Accumulated other comprehensive income Foreign currency translation (1,280) (1,031) Pension adjustment (34) (30) Treasury stock, at cost: 2000 - 312 shares; 1999 - 299 shares (4,953) (4,219) ------------------ Total Stockholders' Equity 1,924 3,060 ------------------ $10,402 $11,786 ==================
See accompanying Notes to Consolidated Financial Statements. 25 Consolidated Statement of Cash Flows The Gillette Company and Subsidiary Companies
Years Ended December 31, 2000, 1999 and 1998 2000 1999 1998 - -------------------------------------------------------------------------------------------- (Millions) Operating Activities Income from continuing operations $ 821 $ 1,248 $ 1,073 Adjustments to reconcile income to net cash provided by operating activities: Provision for restructuring and asset impairment 572 -- 440 Depreciation and amortization 535 464 421 Other 5 (7) (46) Changes in assets and liabilities, excluding effects of acquisitions and divestitures: Accounts receivable (100) (48) (442) Inventories 149 (140) (62) Accounts payable and accrued liabilities (45) 65 72 Other working capital items (136) 97 (104) Other noncurrent assets and liabilities (197) (252) (142) Funding German pension plans -- -- (252) ----------------------------- Net cash provided by operating activities 1,604 1,427 958 ----------------------------- Investing Activities Additions to property, plant and equipment (793) (889) (952) Disposals of property, plant and equipment 41 124 65 Acquisition of businesses, less cash acquired -- -- (91) Sale of businesses 539 -- 200 Other (1) 2 5 ----------------------------- Net cash used in investing activities (214) (763) (773) ----------------------------- Financing Activities Purchase of treasury stock (944) (2,021) (1,066) Proceeds from sale of put options 23 72 56 Proceeds from exercise of stock option and purchase plans 36 149 126 Proceeds from long-term debt 494 1,105 500 Repayment of long-term debt (365) -- (12) Increase (decrease) in loans payable (385) 484 708 Dividends paid (671) (626) (552) Settlements of debt-related derivative contracts 279 42 9 ----------------------------- Net cash used in financing activities (1,533) (795) (231) ----------------------------- Effect of Exchange Rate Changes on Cash (5) (2) (2) Net Cash Provided by Discontinued Operations 130 111 45 ----------------------------- Decrease in Cash and Cash Equivalents (18) (22) (3) Cash and Cash Equivalents at Beginning of Year 80 102 105 ----------------------------- Cash and Cash Equivalents at End of Year $ 62 $ 80 $ 102 ============================= Supplemental disclosure of cash paid for: Interest $ 243 $ 126 $ 120 Income taxes $ 480 $ 457 $ 473 Noncash investing and financing activities: Acquisition of businesses Fair value of assets acquired $ -- $ -- $ 100 Cash paid -- -- 91 ----------------------------- Liabilities assumed $ -- $ -- $ 9 =============================
See accompanying Notes to Consolidated Financial Statements. 26 Consolidated Statement of Stockholders' Equity The Gillette Company and Subsidiary Companies
Unearned Additional Other Total Preferred ESOP Common Paid-in Earnings Treasury Comprehensive Stockholders' (Millions, except per share amounts) Shares Compensation Stock Capital Reinvested Stock Income Equity - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 $ 93 $ (17) $ 1,353 $ 309 $ 5,021 $(1,108) $ (810) $ 4,841 -------------------------------------------------------------------------------------------- Net income -- -- -- -- 1,081 -- -- 1,081 Foreign currency translation -- -- -- -- -- -- (36) (36) Pension adjustment -- -- -- -- -- -- (27) (27) ------- ------- Other comprehensive income -- -- -- -- -- -- (63) (63) ------- ------- Comprehensive income 1,018 ------- Dividends declared (per share $.51) -- -- -- -- (573) -- -- (573) Stock option and purchase plans (5.3 shares) -- -- 5 125 -- -- -- 130 Conversion of Series C ESOP preferred stock (.4 shares) (3) -- -- 1 -- 2 -- -- Purchase of Gillette treasury stock (21.3 shares) -- -- -- -- -- (1,066) -- (1,066) Proceeds from sale of put options -- -- -- 56 -- -- -- 56 Contingent liability of put options -- -- -- 130 -- -- -- 130 Earned ESOP compensation -- 7 -- -- -- -- -- 7 -------------------------------------------------------------------------------------------- Balance at December 31, 1998 90 (10) 1,358 621 5,529 (2,172) (873) 4,543 -------------------------------------------------------------------------------------------- Net income -- -- -- -- 1,260 -- -- 1,260 Foreign currency translation -- -- -- -- -- -- (205) (205) Pension adjustment -- -- -- -- -- -- 17 17 ------- ------- Other comprehensive income -- -- -- -- -- -- (188) (188) ------- ------- Comprehensive income 1,072 ------- Dividends declared (per share $.59) -- -- -- -- (642) -- -- (642) Stock option and purchase plans (5.7 shares) -- -- 6 139 -- -- -- 145 Conversion of Series C ESOP preferred stock (.6 shares) (5) -- -- (2) -- 7 -- -- Purchase of Gillette treasury stock (46.8 shares) -- -- -- -- -- (2,054) -- (2,054) Proceeds from sale of put options -- -- -- 72 -- -- -- 72 Contingent liability of put options -- -- -- (82) -- -- -- (82) Earned ESOP compensation -- 6 -- -- -- -- -- 6 -------------------------------------------------------------------------------------------- Balance at December 31, 1999 85 (4) 1,364 748 6,147 (4,219) (1,061) 3,060 -------------------------------------------------------------------------------------------- Net income -- -- -- -- 392 -- -- 392 Foreign currency translation -- -- -- -- -- -- (249) (249) Pension adjustment -- -- -- -- -- -- (4) (4) ------- ------- Other comprehensive income -- -- -- -- -- -- (253) (253) ------- ------- Comprehensive income 139 ------- Dividends declared (per share $.65) -- -- -- -- (686) -- -- (686) Stock option and purchase plans (1.8 shares) -- -- 1 34 -- -- -- 35 Conversion of Series C ESOP preferred stock (11.3 shares) (85) -- -- (92) -- 177 -- -- Purchase of Gillette treasury stock (24.5 shares) -- -- -- -- -- (911) -- (911) Proceeds from sale of put options -- -- -- 23 -- -- -- 23 Contingent liability of put options -- -- -- 260 -- -- -- 260 Earned ESOP compensation -- 4 -- -- -- -- -- 4 -------------------------------------------------------------------------------------------- Balance at December 31, 2000 $ -- $ -- $ 1,365 $ 973 $ 5,853 $(4,953) $(1,314) $ 1,924 ============================================================================================
See accompanying Notes to Consolidated Financial Statements. 27 Notes to Consolidated Financial Statements The Gillette Company and Subsidiary Companies NATURE OF OPERATIONS The Gillette Company is a global consumer products firm, with manufacturing operations conducted at 38 facilities in 19 countries. Products are distributed through wholesalers, retailers and agents in over 200 countries and territories. Gillette is the world leader in male grooming, a category that includes blades, razors and shaving preparations, and also in female grooming products, such as wet shaving products and hair epilation devices. The Company is the world's top seller of alkaline batteries, toothbrushes and oral care appliances. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany accounts and transactions are eliminated. The Stationery Products segment is reported as a discontinued operation, as discussed further on page 35. Cash and Cash Equivalents Cash and cash equivalents include cash, time deposits and all highly liquid debt instruments with an original maturity of three months or less. Revenue Recognition Revenue from product sales is recognized when the goods are shipped and title passes to the customer. Shipping and Handling Costs Shipping and handling costs are included in cost of sales. Inventories Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out (FIFO) basis. Intangible Assets Goodwill is amortized on the straight-line method, generally over a period of 40 years. The Company assesses the recoverability of goodwill by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. If the goodwill amortization cannot be fully recovered, the amount of possible goodwill impairment is analyzed based on projected discounted future operating cash flows or appraised values, depending on the nature of the asset. Other intangible assets are amortized on the straight-line method over a period of 10 to 40 years, predominantly 40 years. Depreciation Depreciation is computed primarily on a straight-line basis over the estimated useful lives of assets. Advertising Advertising costs are expensed in the year incurred. Advertising spending was $608 million in 2000, compared with $580 million in 1999 and $593 million in 1998. For interim reporting purposes, advertising expenses are charged to operations as a percentage of sales, based on estimated sales and related advertising expense for the full year. 28 Research and Development Research and development costs, included in selling, general and administrative expenses, amounted to $179 million in 2000, $201 million in 1999 and $190 million in 1998. Income Taxes The Company reinvests unremitted earnings of foreign operations and, accordingly, does not provide for Federal income taxes that could result from the remittance of such earnings. These unremitted earnings amounted to $3.5 billion and $2.8 billion at December 31, 2000 and 1999, respectively. Net Income per Common Share Basic net income per common share is calculated by dividing net income less dividends on preferred stock, net of tax benefits, by the weighted average number of common shares outstanding. The calculation of fully diluted net income per common share assumes conversion of preferred stock and stock options into common stock, and also adjusts net income for the effect of converting the preferred stock to common stock. At December 31, 2000, 1999 and 1998, 33 million, 35 million and 21 million shares of common stock issuable under stock options, respectively, were not included in the calculation of fully diluted earnings per share because their effects would have been antidilutive. Income from continuing operations and shares used to compute net income per share, basic and assuming full dilution, are reconciled below.
(Millions) 2000 1999 1998 - ------------------------------------------------------------------------------------ Income from Continuing Operations $ 821 $1,248 $1,073 Less: Preferred stock dividends 1 4 4 ------------------------ Income from Continuing Operations, basic $ 820 $1,244 $1,069 Effect of dilutive securities: Convertible preferred stock 2 5 5 ------------------------ Income from Continuing Operations, assuming full dilution $ 822 $1,249 $1,074 ======================== Common shares, basic 1,054 1,089 1,117 Effect of dilutive securities: Convertible preferred stock 3 12 12 Stock options 6 10 15 ------------------------ Common shares, assuming full dilution 1,063 1,111 1,144 ========================
Reclassification of Prior Years Prior-year financial statements have been reclassified to conform to the 2000 presentations. EFFECT OF ACCOUNTING CHANGES In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued. The Company adopted SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, on January 1, 2001. The adoption of SFAS No. 133 has not had a material impact on the Company's financial position or overall trends in results of operations and has not resulted in significant changes to its financial risk management practices. However, the adoption of SFAS No. 133 could result in more pronounced quarterly fluctuations in other income and expense. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." An amendment in June 2000 delayed the effective date until the fourth quarter of 2000. The adoption of SAB 101 did not have a material impact on the consolidated financial statements. In May 2000, the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives." This issue addresses the recognition, measurement and income statement classification for various types of sales incentives, including dis- 29 counts, coupons, rebates and free products. In November 2000, the EITF revised the transition date such that the Company must adopt EITF 00-14 no later than the second quarter of 2001. The Company adopted the consensus in the first quarter of 2001. The adoption of this consensus does not affect when the Company recognizes incentives or the amount. However, adoption of this consensus will affect the classification of revenues and expenses in the income statement. If this standard had been adopted at December 31, 2000, including required retroactive adjustment of prior periods, net sales would have been reduced by $70 million in 2000, $80 million in 1999 and $64 million in 1998. Cost of sales would have been increased by $51 million in 2000, $53 million in 1999 and $49 million in 1998. Selling, general and administrative expenses would have been reduced by $121 million in 2000, $133 million in 1999 and $113 million in 1998. The above reclassifications have no impact on profit from operations, net income or earnings per share. In July and September 2000, the EITF reached consensus on Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." This issue addresses the income statement classification for shipping and handling fees and costs. The Company adopted the consensus in the fourth quarter of 2000. The adoption of EITF Issue No. 00-10 did not have a material impact on the consolidated financial statements. FOREIGN CURRENCY TRANSLATION Net exchange gains or losses resulting from the translation of assets and liabilities of foreign subsidiaries, except those in highly inflationary economies, are accumulated in a separate section of stockholders' equity. Also included are the effects of exchange rate changes on intercompany transactions of a long-term investment nature and transactions designated as hedges of net foreign investments. The change in accumulated foreign currency translation adjustment in 2000 was a loss of $249 million, with the United Kingdom accounting for $115 million of the loss. Losses in 1999 were $205 million, with Brazil accounting for approximately half of the loss. Losses in 1998 were $36 million. An analysis of cumulative translation adjustments follows.
(Millions) 2000 1999 1998 - ---------------------------------------------------------------------------------------- Balance at beginning of year $(1,031) $ (826) $ (790) Translation adjustments, including the effect of hedging (216) (79) (86) Related income tax (expense) benefit (33) (126) 50 ----------------------------- Balance at end of year $(1,280) $(1,031) $ (826) =============================
Included in other charges in the Consolidated Statement of Income are a net exchange gain of $8 million in 2000 and losses of $35 million and $23 million in 1999 and 1998, respectively. SUPPLEMENTAL BALANCE SHEET INFORMATION Receivables Reserves (Millions) 2000 1999 1998 - -------------------------------------------------------------------------------- Balance at beginning of year $74 $79 $74 Additions, charged to profit and loss 63 50 43 Deductions, losses charged to reserves 56 55 38 ----------------------- Balance at end of year $81 $74 $79 ======================= Inventories December 31, December 31, (Millions) 2000 1999 - -------------------------------------------------------------------------------- Raw materials and supplies $ 153 $ 190 Work in process 194 182 Finished goods 815 1,020 ----------------------- $1,162 $1,392 ======================= 30 Property, Plant and Equipment December 31, December 31, (Millions) 2000 1999 - -------------------------------------------------------------------------------- Land $ 62 $ 65 Buildings 743 713 Machinery and equipment 5,061 4,984 ---------------------- 5,866 5,762 Less accumulated depreciation 2,316 2,295 ---------------------- $3,550 $3,467 ====================== Interest on funds used to finance construction of significant additions to tangible property and equipment is capitalized and amortized over the remaining life of the related asset. The capitalized interest is recorded as part of the asset to which it relates and will be amortized over the asset's estimated useful life. During 2000, 1999 and 1998, interest cost was capitalized in the amounts of $23 million, $13 million and $18 million, respectively. Intangible Assets December 31, December 31, (Millions) 2000 1999 - -------------------------------------------------------------------------------- Goodwill ($44 not subject to amortization) $1,294 $1,545 Other intangible assets 1,155 1,198 --------------------- 2,449 2,743 Less accumulated amortization 875 846 --------------------- $1,574 $1,897 ===================== Other intangible assets consists primarily of capitalized amounts related to trademarks, trade names, patents and other similar items. Accounts Payable and Accrued Liabilities - -------------------------------------------------------------------------------- Accounts payable $ 402 $ 513 Advertising and sales promotion 527 451 Payroll and payroll taxes 143 169 Other taxes 97 90 Dividends payable on common stock 171 157 Restructuring 240 139 Miscellaneous 766 630 ------------------- $2,346 $2,149 =================== Other Long-Term Liabilities - -------------------------------------------------------------------------------- Pensions $ 206 $ 207 Postretirement medical 291 296 Deferred compensation 215 242 Miscellaneous 55 50 ------------------- $ 767 $ 795 =================== 31 DEBT Loans Payable December 31, December 31, (Millions) 2000 1999 - -------------------------------------------------------------------------------- U.S. dollar Commercial Paper (6.6% and 6.0%) $ 1,452 $ 2,408 Euro Commercial Paper (5.0%) 586 -- Payable to banks (5.4% and 6.3%) 157 132 Amount reclassified as long-term debt -- (1,100) -------------------- $ 2,195 $ 1,440 ==================== Long-Term Debt - -------------------------------------------------------------------------------- Commercial Paper $ -- $ 1,100 5.00% Notes due 2006 300 300 5.75% Notes due 2005 200 200 3.25% Euro notes due 2004 283 302 2.23% Synthetic Euro obligation due 2003 374 429 6.25% Notes due 2003 150 150 5.25% Euro notes due 2002 236 -- 1.53% Synthetic Euro obligation due 2002 259 302 5.75% Notes due 2001 200 200 2.61% Synthetic Euro obligation due 2001 277 -- 6.00% Notes due 2000 -- 300 8.03% Guaranteed ESOP notes due through 2000 -- 5 Other, multicurrency borrowings 2 1 -------------------- Total long-term debt 2,281 3,289 Less current portion 631 358 -------------------- Long-term portion $ 1,650 $ 2,931 ==================== The Company's commercial paper program is supported by its revolving credit facilities. The Company has a $1.4 billion revolving bank credit agreement that expires in October 2001 and a $1.1 billion revolving bank credit agreement expiring in December 2001, both of which may be used for general corporate purposes. In January 2001, the $1.1 billion agreement was reduced to $550 million. Under the agreements, the Company has the option to borrow at various interest rates, including the prime rate, and is required to pay an average facility fee of .037% per annum. At year-end 2000 and 1999, there were no borrowings under such agreements. At December 31, 1999, $1.1 billion of commercial paper borrowing was classified as long-term debt based on the Company's intention and ability to maintain its revolving credit agreement beyond 2000. Aggregate maturities of total long-term debt for the five years subsequent to December 31, 2000, are $631 million in 2001, $447 million in 2002, $419 million in 2003, $283 million in 2004 and $200 million in 2005. Those maturities include the amortization of a portion of the synthetic Euro obligations. Unused lines of credit, including the revolving bank credit agreements, amounted to $2.6 billion at December 31, 2000. 32 FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are summarized below.
December 31, 2000 December 31, 1999 ------------------------------ ----------------------------- Notional Carrying Fair Notional Carrying Fair (Millions) Amount Amount Value Amount Amount Value - ------------------------------------------------------------------------------------------ Long-term investments $ 186 $ 187 $ 188 $ 188 Long-term debt (2,281) (2,308) (3,289) (3,186) Derivative instruments Debt-related contracts $ 1,918 (28) (19) $ 2,196 140 93 Other currency forwards Purchase contracts (409) 23 27 -- -- -- Sell contracts 389 (1) (5) -- -- -- Currency options -- -- -- 119 1 1 Equity contracts 39 7 7 56 1 1 Commodity contracts 26 -- (2) 29 -- 5
Notional amounts are a unit of measure specified in a derivative instrument. The carrying amounts and fair values of the debt-related contracts include interest receivables of $10 million and $24 million at December 31, 2000 and 1999, respectively. The carrying amounts for cash, short-term investments, receivables, accounts payable and accrued liabilities, and loans payable approximate fair value because of the short maturity of these instruments. The fair value of long-term investments is estimated based on quoted market prices. The fair value of long-term debt, including the current portion, is estimated based on rates currently offered to the Company for debt of the same remaining maturities. The estimated fair values of interest rate, foreign currency, equity and commodity contracts are calculated based on market rates. These values represent the estimated amounts the Company would receive or pay to terminate agreements, taking into consideration current market rates and the current creditworthiness of the counterparties. The Company uses derivative financial instruments to efficiently structure its debt in the desired currencies and mix of fixed to floating interest rates. The Company also uses derivatives to hedge transactional exchange exposure, currency exposure from converting foreign profits into U.S. dollars, equity-linked employee compensation and commodity exposures. All derivative contracts hedge transactions, balances and currency exposures for periods consistent with their underlying exposures. The debt-related derivatives consist of interest rate swaps and forward contracts. At December 31, 2000 and 1999, interest rate swaps converted $1.09 billion and $1.15 billion, respectively, of fixed rate debt to floating. Of the $1.15 billion in swaps at December 31, 1999, $350 million in U.S. dollar debt was also converted into Euro obligations of $282 million. The terms of the swaps match the terms of the underlying debt. The floating interest rate payments under these swaps are based on three-month LIBOR rates. Forward contracts effectively converted $832 million and $1,046 million U.S. dollar commercial paper borrowings in 2000 and 1999, respectively, into the following foreign currency obligations. December 31, December 31, (Notional amount, millions) 2000 1999 - -------------------------------------------------------------------------------- Euro $152 $820 British pound 642 -- Other 76 178 ---------------------- Total $870 $998 ====================== All of the forward contracts at December 31, 2000, mature in 2001. These forward contracts and $1.1 billion in Euro borrowings are designated as hedges of the Company's net investment in foreign subsidiaries. Resulting currency gains and losses on these contracts and borrowings are reported as foreign currency translation adjustments in accumulated other comprehensive income. The interest component of these contracts 33 is reported in interest expense over the term of the contracts. The Company's total debt after the effect of the associated contracts - payables of $38 million at December 31, 2000, and receivables of $116 million at December 31, 1999 - follows. December 31, 2000 December 31, 1999 ----------------- ----------------- (Millions) Amount Rate Amount Rate - -------------------------------------------------------------------------------- U.S. dollar floating rate $1,532 6.6% $2,203 6.0% U.S. dollar fixed rate -- -- 5 8.0 Euro floating rate 1,005 4.8 1,127 3.9 Euro fixed rate 1,194 2.7 1,033 1.8 Other floating rate 783 5.6 245 3.1 ------------------------------------ $4,514 5.0% $4,613 4.4% ==================================== Forward contracts entered into in order to hedge transactional currency exposures, principally inter company balances denominated in Euro, British pound, Yen and Canadian dollar at December 31, 2000, amounted to $409 million to purchase foreign currencies and $389 million to sell foreign currencies. All of these contracts mature in 2001. Gains and losses on these contracts are recorded in earnings in other nonoperating charges and offset gains and losses on the underlying exposure. The Company purchases foreign currency put options to assist in protecting its U.S. dollar earnings. The initial amounts paid are reflected in other current assets. Changes in fair values of outstanding contracts are reflected in profit from operations. There were no options outstanding at December 31, 2000. The option outstanding at December 31, 1999, was denominated in Yen and expired in December 2000. The Company has also fixed the cost of certain employee compensation expenses linked to its stock price by entering into equity swap and option contracts that mature in 2002 and 2003. Outstanding contracts are stated at fair value. Changes in fair value are reflected in profit from operations and offset changes in the value of the underlying liabilities. In addition, the Company enters into commodity swaps to fix the price of a portion of certain raw materials used in the manufacturing process. The maturities of the contracts highly correlate to the actual purchases of the commodity, and contract values are reflected in the cost of the commodity as it is actually purchased. The commodity swaps as of year-end 2000 mature through December 2001. The equity put options associated with the share repurchase program are described separately in the Share Repurchase Program note. Several major international financial institutions are counterparties to the Company's financial instruments. It is Company practice to monitor the financial standing of the counterparties and to limit the amount of exposure with any one institution. The Company may be exposed to credit loss in the event of nonperformance by the counterparties to these contracts, but does not anticipate such nonperformance. With respect to trade receivables, concentration of credit risk is limited, due to the diverse geographic areas covered by Gillette operations. Any possible bad debt loss has been provided for in the allowance for doubtful accounts. COMMITMENTS AND CONTINGENCIES Minimum rental commitments under noncancellable leases, primarily for office and warehouse facilities, are $84 million in 2001, $67 million in 2002, $52 million in 2003, $44 million in 2004, $41 million in 2005 and $120 million for years thereafter. Rental expense amounted to $113 million in 2000, $100 million in 1999 and $103 million in 1998. The Company is subject to legal proceedings and claims arising out of its businesses that cover a wide range of matters, including antitrust and trade regulation, contracts, advertising, environmental issues, product liability, patent and trademark matters and taxes. Management, after review and consultation with counsel, considers that any liability from all of these pending lawsuits and claims would not materially affect the consolidated financial position, results of operations or liquidity of the Company. 34 BUSINESS COMBINATIONS AND DIVESTITURES In 1998, the Company sold its Jafra skin care and color cosmetics business for $200 million. The transaction did not have a material impact on financial results. Also during 1998, the Company acquired two businesses in the Duracell Products segment, in South Korea and India, for an aggregate purchase price of $100 million. These two acquisitions have been accounted for by the purchase method of accounting. Their results of operations since acquisition, which have been included in the Company's consolidated financial statements, have not materially affected the consolidated financial position, results of operations or liquidity of the Company. Discontinued Operations On December 29, 2000, the sale of the Stationery Products business to Newell Rubbermaid Inc. was finalized. The sale resulted in a loss of $429 million (net of a tax benefit of $102 million), or $.40 in net income per common share, fully diluted. The net loss included the book loss on the transaction, the operating loss of the segment in 2000 and other costs directly associated with the decision to divest, including postdivestiture reorganization costs. The Stationery Products segment is accounted for as a discontinued operation. Accordingly, its net assets and liabilities have been segregated from continuing operations in the accompanying consolidated balance sheet, and its operating results are segregated and reported as discontinued operations in the accompanying consolidated statements of income and cash flows, and related notes. For the periods ended December 31, the results of discontinued operations were as follows: (Millions) 2000 1999 1998 - -------------------------------------------------------------------------------- Net sales $691 $743 $856 Income (loss) before income tax (8) 18 13 Income tax (benefit) (3) 6 5 --------------------- Income (loss) from discontinued operations $ (5) $ 12 $ 8 ===================== The assets identified as part of the disposition of the Stationery Products business are recorded as Net Assets of Discontinued Operations; the cash flow of the business is reported as Net Cash Provided by Discontinued Operations; and the results of operations of the segment are reported as Income (Loss) from Discontinued Operations, net of tax. Net Assets of Discontinued Operations consists of the following: (Millions) 2000 1999 1998 - -------------------------------------------------------------------------------- Net current assets $ 192 $ 509 $ 590 Property, plant and equipment, less accumulated depreciation 6 200 187 Other net noncurrent assets and liabilities (9) 465 495 --------------------------- Net assets of discontinued operations $ 189 $1,174 $1,272 =========================== RESTRUCTURING AND ASSET IMPAIRMENT On December 18, 2000, the Company announced a restructuring program to significantly improve the Company's operating efficiency, streamline the supply chain and further decrease costs. In accordance with EITF Issue 94-3, SFAS 121 and SAB 100, the Company recorded in the fourth quarter of 2000 a charge to operating expenses of $572 million ($430 million after taxes, or $.41 in net income per common share, fully diluted). Specific program activities include consolidating management functions; reducing factory locations, in part through outsourcing production of low-volume noncore products; streamlining the supply chain via warehouse consolidation and other actions; and downsizing and centralizing corporate functions. The program will result in the closure of eight factories and 13 distribution centers, affecting all business segments, and in the net reduction of approximately 2,700 employees across all business functions, operating units and geographies. The reduction will consist of 1,430 variable manufacturing and distribution employees and 1,270 35 executive, professional and administrative staff. All employee reductions are planned for 2001, and pretax cash outlays are estimated at approximately $235 million. The program was announced to all employees on December 18, 2000, via the Company's internal website and bulletin boards. The severance programs being used follow the Company's long-standing severance formulas and vary on a country-by-country basis, depending on local statutory requirements. The restructuring program included a write-down of approximately $125 million to the carrying amount of factories, as well as the write-off of manufacturing, distribution and office equipment assets. Until the affected facilities cease operations, revenue-generating activities will continue. Thus, these assets are considered assets to be held and used under SFAS 121. Asset disposals will be completed within 12 months. Buildings that are owned will be sold, and equipment will be disposed of through sale or abandonment. The value of the impaired assets was determined based on discounted cash flow analyses for the operating period up until closure and included an estimate of residual value. In addition, a charge of $212 million for the write-down of goodwill relating to underperforming brands was recognized. This write-down was determined based upon a year-end impairment analysis necessitated by new evidence that indicated that the carrying amounts of the assets relating to the Thermoscan personal diagnostic appliance brand and certain national battery brands might not be fully recovered through undiscounted future operating cash flows. Such analysis indicated that impairment existed equivalent to the carrying amount of the acquired goodwill for one brand in the Braun Products segment, and the carrying amount of the acquired goodwill and identifiable intangible assets for certain brands in the Duracell Products segment. This analysis did not indicate impairment of the carrying amounts of any related tangible long-lived assets associated with these underperforming brands. Details of the restructuring program charge and the write-down of goodwill relating to underperforming brands follow. The other benefits portion of employee-related expenses, shown below, includes fringe benefits, outplacement fees and special termination benefits related to pensions. Initial 2000 (Millions) Provision Activity Balance - -------------------------------------------------------------------------------- Employee-related expenses Severance payments $146 $ -- $146 Other benefits 67 -- 67 Asset impairments Property, plant and equipment 120 120 -- Goodwill 212 212 -- Contractual obligations and other 27 -- 27 -------------------------- $572 $332 $240 ========================== REORGANIZATION AND REALIGNMENT On September 28, 1998, the Company announced a reorganization to realign its worldwide operations. In connection with the reorganization and realignment, and in accordance with EITF Issue 94-3 and SFAS 121, the Company recorded in the third quarter of 1998 a charge to operating expenses of $535 million ($347 million after taxes, or $.30 in net income per common share, fully diluted). For continuing operations, the charge to operations was $440 million ($285 million after taxes, or $.25 in net income per common share, fully diluted). There have been no material modifications to the scope of the original plan. The program was essentially complete at March 31, 2000. 36 Details of the reorganization and realignment charges follow. The other benefits portion of employee-related expenses, shown below, includes fringe benefits, outplacement fees and special termination benefits related to pensions. Utilized Initial Through Utilized Total (Millions) Provision 1999 2000 Program - -------------------------------------------------------------------------------- Employee-related expenses Severance payments $265 $141 $ 68 $209 Other benefits 120 99 35 134 Asset impairments Property, plant and equipment 122 122 26 148 Other assets 13 13 -- 13 Distributor buyout costs 15 21 10 31 ---------------------------------- $535 $396 $139 $535 ================================== Severance payments were below the initial provision since the Company achieved efficiencies versus the original plan estimates in the actual severance rates paid to terminated employees. Asset impairment costs for property, plant and equipment were above the initial provision for two reasons. First, as factories were closed, there were certain instances where the Company chose not to redeploy equipment, as planned, at other facilities; and, second, the number of warehouse and office facility closures exceeded the original plan. The Company achieved the objectives and scope of the original distributor buyout program, although the effort was more costly than planned. In accordance with EITF Issue 94-3, certain expenses related to the program, primarily employee and equipment relocation, were not provided for, nor charged to, the reorganization and realignment reserve. Those expenses, which were therefore recognized as incurred, amounted to $9 million in 2000 and $61 million in 1999. The expenses were included in selling, general and administrative expenses. The effect of suspending depreciation for impaired assets was $9 million in 1999 and $3 million in 1998. INCOME TAXES Deferred income taxes are recognized for the expected tax consequences of temporary differences by applying enacted statutory tax rates, applicable to future years, to differences between the financial reporting basis and tax basis of assets and liabilities. Income before income taxes and income tax expense are summarized below. (Millions) 2000 1999 1998 - ------------------------------------------------------------------------------- Income from continuing operations before income taxes United States $ 664 $1,116 $1,018 Foreign 624 796 638 ------------------------- Total income before income taxes $1,288 $1,912 $1,656 ========================= Current tax expense Federal $ 365 $ 181 $ 337 Foreign 233 244 327 State 25 22 58 Deferred tax expense Federal (87) 134 (56) Foreign (68) 82 (75) State (1) 1 (8) ------------------------- Total income tax expense $ 467 $ 664 $ 583 ========================= 37 The effective tax rate increased in 2000, due primarily to the nondeductibility of certain asset impairment charges. Excluding the impact of the restructuring and asset impairment charge, the tax rate declined to 32.8%. The decrease was primarily attributable to the reduction of the tax rate in Germany and the Company's tax management strategies. A reconciliation of the statutory Federal income tax rates to the Company's effective tax rate follows. 2000 1999 1998 - -------------------------------------------------------------------------------- Statutory Federal tax rate 35.0% 35.0% 35.0% Goodwill amortization and asset impairments 5.0 .3 .3 Rate differential on foreign income (2.9) 2.0 1.6 Effect of foreign currency translation (.2) .5 .2 State taxes (net of Federal tax benefits) 1.2 .8 1.9 Benefit of foreign tax credits (4.2) (3.5) (3.3) Other differences 2.4 (.3) (.4) ------------------------ Effective tax rate 36.3% 34.8% 35.3% ======================== The components of deferred tax assets and deferred tax liabilities are shown below.
2000 1999 ------------------------------ ----------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax (Millions) Assets Liabilities Assets Liabilities - -------------------------------------------------------------------------------------------------------------- Current Advertising and sales promotion $ 21 $ -- $ 19 $ -- Benefit plans 60 -- 52 -- Discontinued operations 102 -- -- -- Restructuring and asset impairment 142 -- 67 -- Miscellaneous reserves and accruals 104 -- 62 -- Operating loss and credit carryforwards 4 -- 14 -- Other 133 -- 95 -- --------------------------------------------------------- Total current 566 $ -- 309 $ -- --------------------------------------------------------- Net current $566 $309 ==== ==== Noncurrent Benefit plans $126 $ -- $111 $ -- Intangibles -- 166 -- 195 Operating loss and credit carryforwards 27 -- 51 -- Property, plant and equipment -- 356 -- 326 Other -- 74 -- 45 --------------------------------------------------------- Total noncurrent 153 596 162 566 --------------------------------------------------------- Valuation allowance $ (7) $(19) ==== ==== Net noncurrent $450 $423 ==== ==== Total Net deferred tax assets/liabilities $116 $114 ==== ====
PENSION PLANS AND OTHER RETIREE BENEFITS The Company has various retirement programs, including defined benefit, defined contribution and other plans, that cover most employees worldwide. Other retiree benefits are health care and life insurance benefits provided to eligible retired employees, principally in the United States. The components of benefit expense for continuing operations follow. 38
Pension Benefits Other Retiree Benefits ----------------------- ----------------------- (Millions) 2000 1999 1998 2000 1999 1998 - ------------------------------------------------------------------------------------------- Components of net benefit expense: Service cost-benefits earned $ 64 $ 67 $ 65 $ 6 $ 6 $ 6 Interest cost on benefit obligation 122 112 119 19 16 17 Estimated return on assets (171) (159) (149) (4) (4) (3) Net amortization 5 13 7 (7) (7) (7) Plan curtailments and other (3) (7) -- -- -- -- ----------------------- ----------------------- 17 26 42 14 11 13 Defined contribution plans 6 6 2 -- -- -- Other defined benefit plans 9 9 10 -- -- -- ----------------------- ----------------------- Total benefit expense $ 32 $ 41 $ 54 $ 14 $ 11 $ 13 ======================= =======================
The funded status of the Company's principal defined benefit and other retiree benefit plans and the amounts recognized in the balance sheet follow.
Pension Benefits Other Retiree Benefits ---------------- ---------------------- (Millions) 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------- Change in benefit obligation: Balance at beginning of year $1,956 $2,022 $ 261 $ 240 Benefit payments (111) (97) (17) (15) Service and interest costs 185 179 24 22 Amendments 26 5 -- 21 Actuarial (gains) losses 78 22 (7) (1) Plan settlements -- (93) -- -- Plan curtailments (33) (6) -- -- Divestitures (71) -- -- -- Currency translation adjustment (69) (76) (2) (6) ---------------- ---------------- Balance at end of year $1,961 $1,956 $ 259 $ 261 ================ ================ Change in fair value of plan assets: Balance at beginning of year $2,052 $1,957 $ 41 $ 36 Actual return on plan assets 42 275 (1) 5 Employer contribution 31 39 -- -- Benefit payments (91) (78) -- -- Divestitures (87) -- -- -- Plan settlements -- (91) -- -- Currency translation adjustment (69) (50) -- -- ---------------- ---------------- Balance at end of year $1,878 $2,052 $ 40 $ 41 ================ ================ Plan assets greater (less) than benefit obligation $ (83) $ 96 $ (219) $ (220) Unrecognized prior service cost and transition obligation 44 50 18 19 Unrecognized net loss (gain) 128 (71) (90) (95) Minimum liability adjustment included in: Intangible assets (6) (13) -- -- Stockholders' equity (34) (30) -- -- ---------------- ---------------- Net prepaid (accrued) benefit cost $ 49 $ 32 $ (291) $ (296) ================ ================
39 The values at December 31 for pension plans with accumulated benefit obligations in excess of plan assets follow. (Millions) 2000 1999 - -------------------------------------------------------------------------------- Projected benefit obligation $513 $516 Accumulated benefit obligation 445 453 Fair value of plan assets 277 283 The weighted average assumptions used in determining related obligations of pension benefit plans are shown below. (Percent) 2000 1999 1998 - -------------------------------------------------------------------------------- Discount rate 7.0 6.8 6.3 Long-term rate of return on assets 9.1 9.1 8.6 Rate of compensation increases 4.7 4.7 3.9 The weighted average assumptions used in determining related obligations of other retiree benefit plans are shown below. (Percent) 2000 1999 1998 - -------------------------------------------------------------------------------- Discount rate 7.2 7.5 6.5 Long-term rate of return on assets 10.0 10.0 9.0 The assumed health care cost trend rate for 2001 and all subsequent years is 5.0%. A one percentage point increase in the trend rate would have increased the accumulated postretirement benefit obligation by 18%, and interest and service cost by 22%. A one percentage point decrease in the trend rate would have decreased the accumulated postretirement benefit obligation by 14%, and interest and service cost by 17%. The Employee Stock Ownership Plan (ESOP) was established to assist Gillette employees in financing retiree medical costs. ESOP accounts held by participants reduced the Company's obligations by $189 million and $144 million at December 31, 2000 and 1999, respectively. Account balances are assumed to have an annual yield of 12%. A retiree health benefits account within the Company's principal domestic pension plan also will be used to pay these costs. EMPLOYEE STOCK OWNERSHIP PLAN In 1990, the Company sold to the ESOP 165,872 shares of a new issue of 8% cumulative Series C convertible preferred stock for $100 million, or $602.875 per share. On April 25, 2000, the trustee for the ESOP trust redeemed the Series C preferred stock held by the trust for common stock. The redemption was made by the trustee in order to receive the common stock dividend, which now provides a higher return to holders than the preferred stock dividend. The redemption had no impact on fully diluted earnings per share and closed the gap between basic and fully diluted earnings per share. The preferred shares had a stated cost of $84 million and were redeemed for common stock held in the Company's treasury, at a cost of $174 million. Total stock holders' equity did not change as a result of the redemption. STOCK COMPENSATION PLANS AND CAPITAL STOCK At December 31, 2000, the Company had stock-based compensation plans described below that included the premerger plans of Duracell. 40 Stock Option Plans Stock option plans authorize the granting of options on shares of the Company's common stock to selected key employees, including officers, and to nonemployee directors, at not less than the fair market value of the stock on the date of grant. Outstanding options have seven- to 10-year terms. Options granted prior to April 17, 1997, are exercisable one year from the date of grant (except the Duracell options, which became exercisable upon the merger), provided the employee optionee is still employed or the director continues to serve. For options granted to employees after April 16, 1997, one-third of the options become vested on each of the first three anniversaries of the stock option award date. The plans also permit payment for options exercised in shares of the Company's common stock (except Duracell options) and the granting of incentive stock options. The Company applied APB 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans in its results of operations. Had the Company recorded a charge for the fair value of options granted consistent with SFAS 123, net income would have been reduced by $81 million in 2000, $146 million in 1999 and $100 million in 1998. The impact of this charge on net income per common share, both basic and assuming full dilution, would have been $.08, $.13 and $.09 in 2000, 1999 and 1998, respectively. The weighted average fair value of options granted was $10.58 in 2000, $14.64 in 1999 and $14.12 in 1998. The fair value of each option grant for the Company's plans is estimated on the date of the grant using the Black-Scholes option pricing model, with the following weighted average assumptions. 2000 1999 1998 - -------------------------------------------------------------------------------- Risk-free interest rates 6.3% 6.1% 5.7% Expected option lives 4.9 years 4.7 years 4.5 years Expected volatilities 33.4% 30.4% 19.2% Expected dividend yields 2.0% 1.3% .9% A summary of the status of the Company's stock option plans at December 31, 2000, 1999 and 1998, follows.
2000 1999 1998 ------------------------ ------------------------ ------------------------ Weighted Weighted Weighted Average Average Average Options Exercise Options Exercise Options Exercise (Thousands) Price (Thousands) Price (Thousands) Price - --------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 51,956 $39.79 43,659 $35.49 38,828 $27.18 Granted 11,404 32.04 15,322 45.19 10,984 56.29 Exercised (2,071) 17.48 (5,745) 18.94 (5,635) 17.53 Cancelled (2,320) 47.86 (1,280) 51.52 (518) 48.59 ------------------- ------------------- ------------------- Outstanding at year-end 58,969 $38.76 51,956 $39.79 43,659 $35.49 =================== =================== =================== Options exercisable at year-end 35,067 26,962 26,321 ====== ====== ======
The following table summarizes information about fixed stock options outstanding at December 31, 2000.
Outstanding Exercisable ----------------------------------------------------- ------------------------------ Weighted Average Range of Options Remaining Years Weighted Average Options Weighted Average Exercise Prices (Thousands) of Contractual Life Exercise Price (Thousands) Exercise Price - ----------------------------------------------------------------------------------------------------------------- $ 8-21 9,451 3.5 $17.28 9,451 $17.28 21-33 16,784 8.1 31.05 5,621 29.14 35-48 23,075 7.8 45.85 13,619 46.39 50-60 9,659 7.5 56.24 6,376 56.29 ------------------------------------------------ ------------------------- $ 8-60 58,969 7.1 $38.76 35,067 $37.58 ================================================ =========================
41 Stock Equivalent Unit Plan Eligible Gillette employees participate in the Stock Equivalent Unit Plan, which provides for awards of basic stock units to key employees. Each unit is treated as equivalent to one share of the Company's common stock. However, the employee only receives appreciation, if any, in the market value of the stock and dividend equivalent units as dividends are paid. Appreciation on basic stock units is limited to 100% of the original market value. Benefits accrue over seven years, and vesting commences in the third year. Plan expense amounted to $7 million in 2000, $10 million in 1999 and $9 million in 1998. Share Repurchase Program The Company has an ongoing share repurchase program that authorizes the purchase of up to 125 million shares in the open market or in privately negotiated transactions, depending on market conditions and other factors. From the inception of the program through December 31, 1999, the Company repurchased 69 million shares in the open market for $3,173 million. In 2000, the Company repurchased 25 million shares in the open market for $911 million. The Company plans to purchase the remaining authorized shares in the open market or in privately negotiated transactions, depending on market conditions and other factors. In 2000, the Company continued to sell equity put options as an enhancement to its ongoing share repurchase program and earned $23 million in premiums. These options provide the Company with an additional opportunity to supplement open-market purchases of its common stock if the options expire "in the money" (the option strike price is greater than the closing price for Gillette common stock on the expiration date). In addition, the premiums received are a source of funding for share purchases. The options are exercisable only on the last day of their term. The Company, at its discretion, may elect to settle by paying net cash or by purchasing the shares. The put option prices were based on the market value of the Company's stock at the date of issuance. The redemption value of the outstanding options, which represents the options' price multiplied by the number of shares under option, is presented in the accompanying consolidated balance sheet as "Contingent Redemption Value of Common Stock Put Options." At December 31, 2000 and 1999, no "in the money" obligations existed on outstanding options. Preferred Stock Purchase Rights At December 31, 2000, the Company had 527 million preferred stock purchase rights outstanding, representing one-half right for each share of common stock outstanding. Each right may be exercised to purchase one ten-thousandth of a share of junior participating preferred stock for $225. The rights will only become exercisable, or separately transferable, on the earlier of the tenth business day after the Company announces that a person has acquired 15% or more, or the tenth business day after a tender offer commences that could result in ownership of more than 15%, of the Company's common stock. If any person acquires 15% or more of the common stock (except in an offer for all common stock that has been approved by the Board of Directors), or in the event of certain mergers or other transactions involving a 15% or more stockholder, each right not owned by that person or related parties will enable its holder to purchase, at the right's exercise price, common stock (or a combination of common stock and other assets) having double that value. In the event of certain merger or asset sale transactions with another party, similar terms would apply to the purchase of that party's common stock. The rights, which have no voting power, expire on December 14, 2005, subject to extension. Upon approval by the Board of Directors, the rights may be redeemed for $.01 each under certain conditions, which may change after any person becomes a 15% stockholder. At December 31, 2000, there were authorized 5,000,000 shares of preferred stock without par value, of which 400,000 Series A shares were reserved for issuance upon exercise of the rights. 42 OPERATING SEGMENTS AND RELATED INFORMATION The following table presents certain operating segment information.
(Millions) Blades & Toiletries Duracell Oral-B Braun All Total Discontinued 2000 Razors Products Products Products Other Operations - --------------------------------------------------------------------------------------------------------------------------------- Net sales $ 3,407 $ 978 $ 2,577 $ 676 $ 1,657 $ -- $ 9,295 $ 691 Profit from operations 1,340 76 439 75 218 (636) 1,512 (8) Identifiable assets 3,740 538 3,304 636 1,343 652 10,213 189 Capital expenditures 477 52 156 11 93 4 793 26 Depreciation 222 43 59 30 83 30 467 27 1999 - --------------------------------------------------------------------------------------------------------------------------------- Net sales $ 3,167 $ 1,062 $ 2,726 $ 616 $ 1,583 $ -- $ 9,154 $ 743 Profit from operations 1,206 85 606 77 154 (41) 2,087 18 Identifiable assets 3,532 696 3,310 663 1,602 809 10,612 1,174 Capital expenditures 459 85 145 40 130 30 889 43 Depreciation 186 29 56 23 83 22 399 21 1998 - --------------------------------------------------------------------------------------------------------------------------------- Net sales $ 3,028 $ 1,214 $ 2,576 $ 642 $ 1,740 $ -- $ 9,200 $ 856 Profit from operations 1,153 54 597 101 291 (420) 1,776 13 Identifiable assets 3,378 771 3,288 680 1,679 834 10,630 1,272 Capital expenditures 453 69 144 62 135 89 952 48 Depreciation 167 27 51 18 73 13 349 24
Each operating segment is individually managed and has separate financial results that are reviewed by the Company's chief operating decision-makers. Each segment contains closely related products that are unique to the particular segment. The Blades & Razors segment consists of blades and razors. The Toiletries segment includes shave preparations, after-shaves and deodorants/antiperspirants. The Duracell Products segment consists of consumer batteries. The Oral-B Products segment primarily comprises toothbrushes and interdental products. Included in the Braun Products segment are electric shavers and hair epilators, as well as oral care, household, hair care and personal diagnostic appliances. Discontinued Operations contains the Stationery Products segment, which was sold on December 29, 2000. Profit from operations is net sales less cost of sales and selling, general and administrative expenses, but is not affected either by nonoperating charges/income or by income taxes. Nonoperating charges/income consists principally of net interest expense and the effect of exchange. In calculating profit from operations for individual operating segments, substantial administrative expenses incurred at the operating level that are common to more than one segment are allocated on a net sales basis. Certain headquarters expenses of an operational nature also are allocated to segments. All intercompany transactions, primarily merchandise transfers, have been eliminated, and intersegment revenues are not significant. The $572 million charge to profit from operations in 2000 for restructuring and asset impairment expenses and the $440 million charge to profit from operations in 1998 for reorganization and realignment expenses are not assigned to the operating segments in the accompanying table, since the elements of the charge are managed separately from the segments. 43 Had the Company allocated the charge by segment, the amounts for 2000 would have been as follows: Blades & Razors, $91 million; Toiletries, $133 million; Duracell Products, $135 million; Oral-B Products, $27 million; and Braun Products, $186 million. The amounts for 1998 would have been as follows: Blades & Razors, $117 million; Toiletries, $47 million; Duracell Products, $128 million; Oral-B Products, $68 million; Braun Products, $69 million; and All Other, $11 million. The All Other column includes items not allocated to operating segments. Profit from operations includes all unallocated income/expense items, including corporate headquarters expenses, as well as the $572 million charge for restructuring and asset impairment in 2000 and the $440 million charge for reorganization and realignment expenses in 1998. Identifiable assets includes deferred income tax assets, nonqualified benefit trusts, construction-in-progress costs related to Corporate Information Technology initiatives and other financial instruments managed by the Corporate Treasury Department. Capital expenditures is primarily related to Corporate Information Technology initiatives. Net sales by geographic area follow. (Millions) 2000 1999 1998 - -------------------------------------------------------------------------------- Foreign $5,539 $5,522 $5,749 United States 3,756 3,632 3,451 ------------------------------ $9,295 $9,154 $9,200 ============================== Long-lived assets at December 31 follow. - -------------------------------------------------------------------------------- Germany $ 704 $ 655 $ 574 Other Foreign 1,145 1,178 1,169 ------------------------------ Total Foreign 1,849 1,833 1,743 United States 1,701 1,634 1,542 ------------------------------ $3,550 $3,467 $3,285 ============================== 44 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Millions, except per share amounts) Three Months Ended --------------------------------------------------- 2000 March 31 June 30 September 30 December 31 Total Year - -------------------------------------------------------------------------------------------------------- Net sales $1,907 $2,249 $2,321 $2,818 $9,295 Gross profit 1,219 1,440 1,469 1,783 5,911 Profit from operations 442 499 575 (4) 1,512 Income from continuing operations before income taxes 389 444 524 (69) 1,288 Discontinued operations, net of tax (2) (427) -- -- (429) Net income 258 (131) 350 (85) 392 Net income per common share, basic (a) Continuing operations .24 .28 .33 (.08) .78 Discontinued operations -- (.41) -- -- (.41) Net income .24 (.13) .33 (.08) .37 Net income per common share, assuming full dilution(a) Continuing operations .24 .28 .33 (.08) .77 Discontinued operations -- (.41) -- -- (.40) Net income .24 (.13) .33 (.08) .37 Dividends declared per common share .16 1/4 -- .16 1/4 .32 1/2 .65 Dividends paid per common share .14 3/4 .16 1/4 .16 1/4 .16 1/4 .63 1/2 Stock price range: (composite basis) High 43.00 41.69 34.81 37.19 43.00 Low 28.19 30.88 27.19 27.13 27.13 1999 - -------------------------------------------------------------------------------------------------------- Net sales $1,796 $2,205 $2,354 $2,799 $9,154 Gross profit 1,164 1,382 1,476 1,740 5,762 Profit from operations 446 477 594 570 2,087 Income from continuing operations before income taxes 411 444 545 512 1,912 Discontinued operations, net of tax 1 10 (3) 4 12 Net income 269 300 352 339 1,260 Net income per common share, basic (a) Continuing operations .24 .26 .33 .32 1.14 Discontinued operations -- .01 -- -- .01 Net income .24 .27 .33 .32 1.15 Net income per common share, assuming full dilution (a) Continuing operations .24 .25 .32 .32 1.13 Discontinued operations -- .01 -- -- .01 Net income .24 .26 .32 .32 1.14 Dividends declared per common share -- .14 3/4 .14 3/4 .29 1/2 .59 Dividends paid per common share .12 3/4 .14 3/4 .14 3/4 .14 3/4 .57 Stock price range: (composite basis) High 64.38 60.19 48.38 45.44 64.38 Low 44.75 40.50 33.06 33.88 33.06
(a) Earnings per common share are computed independently for each of the periods presented and, therefore, may not add up to the total for the year. 45 Historical Financial Summary The Gillette Company and Subsidiary Companies
(Millions, except per share amounts and employees) 2000(a) 1999 1998(b) 1997 1996(c) 1995 - -------------------------------------------------------------------------------------------------------------------------------- Summary of Operations Net Sales (d) $ 9,295 9,154 9,200 9,138 8,783 7,972 Profit from Operations (d) $ 1,512 2,087 1,776 2,168 1,514 1,690 Income before Income Taxes Continuing $ 1,288 1,912 1,656 2,065 1,403 1,591 Discontinued $ (531) 18 13 156 122 109 ------------------------------------------------------------------------- $ 757 1,930 1,669 2,221 1,525 1,700 Net Income Continuing $ 821 1,248 1,073 1,327 871 1,000 Discontinued $ (429) 12 8 100 78 69 ------------------------------------------------------------------------- $ 392 1,260 1,081 1,427 949 1,069 Average Common Shares Outstanding Basic 1,054 1,089 1,117 1,118 1,107 1,100 Assuming full dilution 1,063 1,111 1,144 1,148 1,140 1,129 Per Common Share Data Net Income per Common Share: Basic Continuing $ .78 1.14 .95 1.18 .78 .91 Discontinued $ (.41) .01 .01 .09 .07 .06 ------------------------------------------------------------------------- $ .37 1.15 .96 1.27 .85 .97 Assuming full dilution Continuing $ .77 1.13 .94 1.15 .76 .89 Discontinued $ (.40) .01 .01 .09 .07 .06 ------------------------------------------------------------------------- $ .37 1.14 .95 1.24 .83 .95 Dividends Declared per Common Share: Gillette $ .65 .59 .51 .43 .36 .30 Duracell $ .58 .52 Stock Price, December 31 $ 36.13 41.19 47.81 50.22 38.88 26.06 Balance Sheet Data Net Property, Plant and Equipment (d) $ 3,550 3,467 3,285 2,918 2,404 1,882 Total Assets (d) $10,213 10,612 10,630 9,636 9,171 7,747 Long-Term Debt $ 1,650 2,931 2,256 1,476 1,490 1,048 Stockholders' Equity (d) $ 1,924 3,060 4,543 4,841 4,471 3,879 Other Information Net Interest Expense $ 218 129 86 69 67 73 Depreciation and Amortization (d) $ 535 464 421 384 347 310 Capital Expenditures (d) $ 793 889 952 933 787 549 Employees (d) 35,200 37,600 39,800 40,500 40,400 38,100
(a) In 2000, a charge for restructuring and asset impairment expenses reduced profit from operations and income before income taxes by $572 million, net income by $430 million and net income per common share, both basic and assuming full dilution, by $.41. (b) In 1998, a charge for reorganization and realignment expenses reduced profit from operations and income before income taxes by $440 million, net income by $285 million, net income per common share, basic, by $.26 and net income per common share, assuming full dilution, by $.25. (c) In 1996, charges for merger-related costs reduced profit from operations and income before income taxes by $413 million, net income by $283 million, net income per common share, basic, by $.26 and net income per common share, assuming full dilution, by $.25. (d) Represents continuing operations 46 Corporate and Stockholder Information ANNUAL MEETING The Annual Meeting of Stockholders will take place on Thursday, April 19, 2001, at the John F. Kennedy Library and Museum, Columbia Point, Boston, Massachusetts. The meeting will convene at 10 a.m. CORPORATE HEADQUARTERS Prudential Tower Building Boston, Massachusetts 02199 (617) 421-7000 Via Internet: www.gillette.com INCORPORATED State of Delaware COMMON STOCK Major stock exchanges: New York, Boston, Chicago, Pacific, Frankfurt New York Stock Exchange Symbol: G At year-end, stockholders numbered 53,700, living in all 50 states and more than 50 countries abroad. TRANSFER AGENT AND REGISTRAR Fleet National Bank c/o EquiServe L.P. P.O. Box 43016 Providence, Rhode Island 02940-3016 (781) 575-2322 By fax: (781) 828-8813 Toll-free: (888) 218-2841 Hearing impaired: (800) 952-9245 (TTY/TDD) Via Internet: www.equiserve.com AUDITORS KPMG LLP FINANCIAL INFORMATION The Gillette Company offers free of charge this Annual Report, which includes Form 10-K, as well as quarterly earnings reports and other announcements concerning financial results. Printed copies of these materials may be requested by writing to the Office of the Secretary; by calling toll-free (877) 788-4463 from within the United States; or by calling (703) 386-1171 from outside the United States. Financial information also may be reviewed, downloaded or requested in printed form by accessing the Investors' section of www.gillette.com. INVESTLINK - DIRECT STOCK PURCHASE PROGRAM InvestLink is a direct stock purchase program sponsored and administered by Fleet National Bank, the Company's Transfer Agent. InvestLink provides an economical, convenient way to purchase your first shares or to purchase additional shares of Gillette common stock directly from the Company. Program participants also may reinvest their cash dividends through InvestLink. Interested individuals may request an investor kit by writing to the Transfer Agent; by calling toll-free (877) 788-4463 from within the United States; by calling (703) 386-1171 from outside the United States; or by accessing the Investors' section of www.gillette.com. ELECTRONIC PROXY MATERIAL DISTRIBUTION The Company is pleased to offer its registered stockholders and participants in its Employees' Savings Plan and ESOP the option of receiving proxy material electronically. Registered stockholders and plan participants may authorize electronic delivery or obtain more information at www.econsent.com/g/. Beneficial stockholders should contact their brokerage firms to determine the availability of electronic proxy material distribution. Directors and Officers DIRECTORS Warren E. Buffett(2) Chairman and Chief Executive Officer, Berkshire Hathaway Inc. Edward F. DeGraan President Wilbur H. Gantz(3,4) Former Chairman and Chief Executive Officer, PathoGenesis Corporation Michael B. Gifford(1,3) Chairman of the Board, Danka Business Systems PLC Carol R. Goldberg(2,4) President, The Avcar Group, Ltd. Dennis F. Hightower(1,3,4) Chief Executive Officer, Europe Online Networks, S.A. Herbert H. Jacobi(2,3,4) Chairman of the Supervisory Board, HSBC Trinkaus & Burkhardt KGaA James M. Kilts(2) Chairman of the Board Henry R. Kravis(1,2,3) General Partner, Kohlberg Kravis Roberts & Co., L.P. Jorge P. Lemann(1,3) General Partner, GP Investimentos Richard R. Pivirotto(2,4) President, Richard R. Pivirotto Co., Inc. Marjorie M. Yang(1,3) Chairman, Esquel Group of Companies Alfred M. Zeien(3) Retired Chairman of the Board, The Gillette Company (1) Audit Committee (2) Executive Committee (3) Finance Committee (4) Personnel Committee Committee Chair(1,2,3,4) OFFICERS Chairman of the Board and Chief Executive Officer James M. Kilts President and Chief Operating Officer Edward F. DeGraan Executive Vice President Jorgen Wedel Commercial Operations, Europe and AMEE Senior Vice Presidents Charles W. Cramb, Finance Robert E. DiCenso, Personnel and Administration John F. Manfredi, Corporate Affairs Richard K. Willard, Legal Vice Presidents Duncan J. Adamson, Internal Audit Allan G. Boath, Global Business Management Gian U. Camuzzi, Treasurer James P. Connolly, Legal Michael T. Cowhig, Global Supply Chain and Business Development Edward E. Guillet, Human Resources A. Wallace Hayes Corporate Product Integrity David B. Jasie, Chairman's Office Eric A. Kraus, Corporate Communications Roland L. Loper, Investor Relations Royall M. Mack, Sr., Civic Affairs John M. McGowan, Taxation Claudio E. Ruben, Controller John C. Terry, Advanced Technologies Dieter Timmermann, Corporate Information Technology and Applications Michelle E. Viotty, New Business Development Patent and Trademark Counsel Donal B. Tobin Secretary William J. Mostyn III Assistant Treasurer Gail F. Sullivan Associate General Counsels Carol S. Fischman Kevin Loftus Timothy N. MacCaw Assistant General Counsels John B. Gatlin Deborah Marson Peter G.V. Mee EX-21 10 0010.txt SUBSIDIARIES Exhibit 21 THE GILLETTE COMPANY - SUBSIDIARIES Name Organized Under Laws Of - ---------------------------------------------------- ----------------------- Gillette Argentina S.A. Argentina Gillette Australia Pty. Ltd. Australia Duracell International GmbH Austria NV Duracell Batteries S.A. Belgium Duracell SpA Italy Gillette Berlin Holding GmbH Germany Its subsidiary: Gillette Deutschland GmbH & Co. Germany Gillette Beteiligungs GmbH Germany Its subsidiary: Braun GmbH Germany Its subsidiaries: Braun Electric Austria Gesellschaft mbH Austria Braun Espanola, S.A. Spain Braun Ireland Ltd. Ireland Braun de Mexico y Cia. de C.V. Mexico Gillette do Brasil, Inc. Delaware Its subsidiary: Gillette do Brasil Ltda. Brazil Gillette Canada Holdings, Inc. Delaware Its subsidiary: Gillette Canada Company Nova Scotia Its subsidiaries: Oral-B Laboratories Pty. Limited Australia Oral-B Laboratories International Inc. Delaware Productos Gillette Chile Limitada Chile Gillette China Limited China Its subsidiary: Braun (Shanghai) Co. Ltd. China Gillette de Colombia S.A. Colombia Colton Gulf Coast, Inc. Delaware Colton North Central, Inc. Delaware Gillette Czech Inc. Delaware Gillette Eastern Europe, Inc. Delaware Gillette Group Danmark A/S Denmark Gillette Group Finland Oy Finland Gillette International B.V. Netherlands Its subsidiary: Grupo Gillette Espana S.L. Spain Gillette Hong Kong Limited Hong Kong Gillette Foreign Sales Corporation Limited Jamaica Gillette Korea Limited Korea Groupe Gillette France S.A. France Name Organized Under Laws Of - ---------------------------------------------------- ----------------------- Gilfin B.V. Netherlands Its subsidiary: Parkfin Limited United Kingdom Compania Giva, S.A. Delaware Compania Interamericana Gillette, S.A. Panama Gillette Egypt S.A.E. Egypt Gillette Portuguesa, Limitada Portugal Gillette Safety Razor Company Massachusetts Its subsidiary: Gillette Group Italy S.p.A Italy Braun Gillette Japan Incorporated Delaware Gillette Management Inc. Delaware Grupo Gillette S.A. de C.V. Mexico Its subsidiary: Gillette de Mexico S.A. de C.V. Mexico Gillette Group Norge A/S Norway Gillette del Peru, Inc. and Lima Manufacturing Company Delaware Partners in: Gillette del Peru, S.C. Peru Gillette (Philippines), Inc. Philippines Gillette Sanayi ve Ticaret A.S. Turkey Duracell (S.E.A.) Pte. Ltd. Singapore Gillette Group South Africa (pty) Limited South Africa Gillette South Asia Inc. and Saratoga Investment, Inc. Delaware Their subsidiary: Gillette Group India Limited India Gillette Group Sverige AB Sweden Gillette Group Switzerland AG Switzerland Gillette Industries Limited United Kingdom Its subsidiaries: Gillette Group UK Limited United Kingdom Gillette U.K. Limited United Kingdom Braun (U.K.) Limited United Kingdom Gillette Petersburg Investment Inc. Delaware Its subsidiary: Petersburg Products International zao Russia Gillette Poland S.A. Poland Gillette Home Diagnostics, Inc. Delaware Its subsidiary: Thermoscan Inc. Delaware Gillette Oral Care, Inc. Delaware All of the voting securities of each subsidiary listed above are owned by its parent company or parent partners. The percentage ownership in Gillette India Limited, Shenmei Daily Use Products Limited Company, Gillette (Shanghai) Limited, Gillette Pakistan Limited and Duracell (China) Limited is 75%, 75%, 70%, 76.8% and 90%, respectively. There are a number of additional subsidiaries in the United States and foreign countries which, considered in the aggregate, do not constitute a significant subsidiary. EX-23 11 0011.txt INDEPENDENT AUDITORS' CONSENT Exhibit 23 INDEPENDENT AUDITORS' CONSENT The Stockholders and Board of Directors of The Gillette Company We consent to incorporation by reference in the following registration statements of The Gillette Company and any amendments thereto (1) No. 333-55790 on Form S-8, (2) No. 333-75517 on Form S-3, (3) No. 33-9495 on Form S-8, (4) No. 2-93230 on Form S-8, (5) Nos. 33-56218 and 33-27916 on Form S-8 which incorporate by reference therein registration statements on Form S-8 Nos. 2-90276, 2-63951 and 1-50710 and No. 2-41016 on Form S-7, (6) No. 33-54974 on Form S-3, (7) No. 33-50303 on Form S-3, (8) No. 33-52465 on Form S-8, (9) No. 33-53257 on Form S-8, (10) No. 33-53258 on Form S-8, (11) No. 33-55051 on Form S-3, (12) No. 33-59125 on Form S-8, (13) No. 33-63707 on Form S-8, (14) No. 333-16735 on Form S-4, (15) No. 333-19133 on Form S-8, (16), No. 333-25533 on Form S-8 and (17) No. 333-44257 on Form S-3 of our report dated February 12, 2001, relating to the consolidated balance sheet of The Gillette Company and subsidiary companies as of December 31, 2000 and 1999, and the consolidated statements of income, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 2000, which reports appear in the December 31, 2000, Annual Report on Form 10-K of The Gillette Company. KPMG LLP Boston, Massachusetts March 15, 2001 EX-24 12 0012.txt POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY We, the undersigned, hereby constitute Charles W. Cramb and Richard K. Willard, or either of them, our true and lawful attorneys with full power to sign for us in our name and in the capacity indicated below the Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, filed for the Company with the Securities and Exchange Commission for the year ended December 31, 2000, and any and all amendments and supplements thereto, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or either of them, to said Report and to any and all amendments and supplements to said Report. WITNESS Our Hand and Seal on the Date set forth below.
Signatures Title Date - ----------------------- ------------------------------------ ----------------- JAMES M. KILTS Chairman of the Board of Directors, February 15, 2001 - ----------------------- Chief Executive Officer and Director James M. Kilts EDWARD F. DEGRAAN President, Chief Operating February 15, 2001 - ----------------------- Officer and Director Edward F. DeGraan CHARLES W. CRAMB Senior Vice President and February 15, 2001 - ----------------------- Chief Financial Officer Charles W. Cramb CLAUDIO E. RUBEN Vice President, Controller and February 15, 2001 - ----------------------- Principal Accounting Officer Claudio E. Ruben WARREN E. BUFFETT Director February 15, 2001 - ----------------------- Warren E. Buffett WILBUR H. GANTZ Director February 15, 2001 - ----------------------- Wilbur H. Gantz MICHAEL B. GIFFORD Director February 15, 2001 - ----------------------- Michael B. Gifford CAROL R. GOLDBERG Director February 15, 2001 - ----------------------- Carol R. Goldberg DENNIS F. HIGHTOWER Director February 15, 2001 - ----------------------- Dennis F. Hightower HERBERT H. JACOBI Director February 15, 2001 - ----------------------- Herbert H. Jacobi HENRY R. KRAVIS Director February 15, 2001 - ----------------------- Henry R. Kravis JORGE PAULO LEMANN Director February 15, 2001 - ----------------------- Jorge Paulo Lemann RICHARD R. PIVIROTTO Director February 15, 2001 - ----------------------- Richard R. Pivirotto MARJORIE M. YANG Director February 15, 2001 - ----------------------- Marjorie M. Yang ALFRED M. ZEIEN Director February 15, 2001 - ----------------------- Alfred M. Zeien
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