Business Context and Reporting Period
This Form 10-Q covers The Procter & Gamble Company for the quarterly period ended March 31, 1994, and the nine-month period ended on the same date. The company reported 683,912,211 shares of Common Stock outstanding as of April 22, 1994.
Key Financial Metrics
| Metric | Q1 1994 | Q1 1993 | 9M 1994 | 9M 1993 |
|---|---|---|---|---|
| Net Sales ($ millions) | 7,441 | 7,350 | 22,793 | 23,068 |
| Operating Income ($ millions) | 923 | 767 | 3,031 | 2,401 |
| Net Earnings ($ millions) | 482 | 502 | 1,805 | 563 |
| Diluted EPS ($) | 0.64 | 0.66 | 2.38 | 0.71 |
| Cash and Equivalents ($ millions) | 2,424 | 2,322 | 2,424 | 2,742 |
| Total Debt ($ millions) | 6,951 | 6,986 | 6,951 | 6,986 |
Note: Total Debt is the sum of Debt due within one year and Long-term debt. 1993 Net Earnings and EPS figures include a significant prior years' effect of accounting changes of $(925) million.
Material Changes vs. Prior Period
- Operating Profit: Operating income increased 20% to $923 million in Q1 1994 compared to $767 million in Q1 1993, driven by cost reduction programs and volume gains.
- Net Earnings: Reported net earnings decreased slightly to $482 million from $502 million year-over-year due to a one-time after-tax charge of $102 million related to the close-out of two interest rate swaps. Excluding this charge, earnings increased 16%.
- Sales Volume: Net sales rose 1% to $7,441 million. At constant exchange rates, sales would have increased 3%, reflecting a 6% increase in worldwide unit volume.
- Cash Flow: Operating cash flow for the nine months ended March 31, 1994, was $2,320 million, compared to $2,178 million in the prior year.
Guidance, Outlook, and Risks
Management characterized the quarter as strong, citing solid unit volume gains in the U.S. and double-digit volume growth in International operations. The company performed a comprehensive review of financial derivative contracts, confirming all outstanding contracts are within operating and financing policies. Certain derivative instruments are now carried at market value, though the effect was not material.
Risks and Contingencies: The filing highlights a one-time charge of $102 million (after-tax) to eliminate future market volatility associated with leveraged interest rate swaps. Exchange rates adversely affected reported sales figures.
Investor Verification Checklist
- Verify the impact of the $102 million after-tax charge on interest rate swaps on the true operating performance.
- Confirm the 13% year-over-year growth in adjusted net earnings for the nine-month period ($1,907 million vs. $1,688 million).
- Review the 6% increase in worldwide unit volume to validate organic growth trends.
- Assess the stability of liquidity given the $2,424 million cash balance against $6,951 million in total debt.
- Monitor the effect of exchange rates on future sales, as constant currency sales were 3% higher than reported sales.