UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Registration numbers: 33-59125 and 333-55790
A. Full title of the plan:
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
B. Name of the issuer of the securities held pursuant to the plan and
the address of its principal executive office:
The Gillette Company
Prudential Tower Building
Boston, MA 02199
Financial Statements of The Gillette Company
Employees' Savings Plan
The following audited financial statements with report of independent registered
public accounting firm thereon are enclosed with this report:
1. Statement of Assets Available for Plan Benefits as of December 31,
2004 and December 31, 2003.
2. Statement of Changes in Net Assets Available for Plan Benefits for
each of the two years ended December 31, 2004.
Exhibits
23 Consent of the Independent Registered Public Accounting Firm
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrative Committee of The Gillette Company Employees' Savings Plan has
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
The Gillette Company
Employees' Savings Plan
June 29, 2005 By: /s/ Charles W. Cramb
----------------------------------
Charles W. Cramb
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Financial Statements
December 31, 2004 and 2003
(With Report of Independent Registered Public Accounting Firm Thereon)
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
TABLE OF CONTENTS
PAGE
Report of Independent Registered Public Accounting Firm 1
Statements of Net Assets Available for Plan Benefits 2
Statements of Changes in Net Assets Available for Plan Benefits 3
Notes to Financial Statements 4 - 12
Note: Supplemental schedules required by the Employee Retirement Income Security
Act of 1974, as amended (ERISA), have not been included due to their
inclusion in master trust information filed with the Department of Labor
for The Gillette Company Master Savings Plan Trust.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Savings Plan Committee
The Gillette Company Employees' Savings Plan:
We have audited the statements of net assets available for plan benefits of The
Gillette Company Employees' Savings Plan (the Plan) as of December 31, 2004 and
2003, and the related statements of changes in net assets available for plan
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of The
Gillette Company Employees' Savings Plan at December 31, 2004 and 2003, and the
changes in net assets available for plan benefits for the years then ended in
conformity with U.S. generally accepted accounting principles.
KPMG LLP
Boston, Massachusetts
June 29, 2005
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 2004 and 2003
2004 2003
-------------- --------------
Assets:
Investment in the Savings Plan Trust $2,061,520,593 1,873,214,825
-------------- --------------
Net assets available for plan benefits $2,061,520,593 1,873,214,825
============== ==============
See accompanying notes to financial statements.
2
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Statements of Changes in Net Assets Available for Plan Benefits
Years ended December 31, 2004 and 2003
2004 2003
--------------- ---------------
Additions to net assets attributed to:
Net investment gain from the Savings Plan
Trust $ 279,355,422 298,762,621
Contributions:
Employee contributions 52,533,210 52,063,203
Employer contributions 26,858,491 27,264,875
--------------- ---------------
Total additions 358,747,123 378,090,699
--------------- ---------------
Deductions from net assets attributed to:
Benefit payments (191,235,402) (145,515,572)
Forfeitures (154,335) (275,745)
--------------- ---------------
Total deductions (191,389,737) (145,791,317)
--------------- ---------------
Net increase prior to transfers 167,357,386 232,299,382
Transfer from The Gillette Company ESOP 20,098,544 42,129,642
Transfer from Zooth, Inc. 849,838 --
--------------- ---------------
Net increase 188,305,768 274,429,024
--------------- ---------------
Net assets available for plan benefits:
Beginning of year 1,873,214,825 1,598,785,801
--------------- ---------------
End of year $ 2,061,520,593 1,873,214,825
=============== ===============
See accompanying notes to financial statements.
3
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Notes to Financial Statements
December 31, 2004 and 2003
Description of the Plan
(1) The Gillette Company Employees' Savings Plan (the Plan) is sponsored by The
Gillette Company (the Company). The following provides only general
information and participants should refer to the Plan document for a more
complete description of the Plan's provisions.
(A) GENERAL
The Plan is a defined contribution plan subject to the provisions of
the Employee Retirement Income Security Act of 1974 (ERISA), as
amended. Regular employees of the Company and its participating
subsidiaries are eligible to join the Plan on their date of hire.
(B) PARTICIPANT CONTRIBUTIONS
Eligible employees may voluntarily contribute from 2% to 10% of their
compensation as matched savings and from 1% to 5% of their compensation
as unmatched savings. All contributions must be in 1% increments.
All matched savings contributed by an employee are divided equally
between tax deferred and taxed savings. Unmatched savings may be
designated by an employee to be either tax deferred or taxed, but not
both. Tax deferred contributions made by an employee in any plan year
may not exceed the annual limit set by law, which was $13,000 and
$12,000 for 2004 and 2003, respectively.
(C) EMPLOYER CONTRIBUTIONS
The Company contributes $1.00 for every $1.00 of each participant's
matched savings for the first 5% of each participant's contribution and
$0.20 for every $1.00 of the next 5% of each participant's
contribution.
(D) VESTING
Participants are immediately vested in their own employee contributions
plus the actual earnings thereon. Matching contributions from the
Company vest after the participant has completed the earliest of three
years of service, two years from date of entry into the Plan, or the
attainment of age 65. Participants are also 100% vested in the Company
contributions credited to their accounts upon death, retirement, total,
and permanent disability, or Company-initiated termination (other than
for cause as determined by the Company).
(E) PARTICIPANTS' ACCOUNTS
A separate account is established for each participant at the time of
enrollment in the Plan. The balance in each account is invested, in
accordance with the directions given by the participant, in one or more
of the Plan's investment fund offerings (the Funds). A participant may
direct employee contributions in any of the following Funds:
GILLETTE COMPANY STOCK FUND
Invests in shares of The Gillette Company common stock.
4
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Notes to Financial Statements
December 31, 2004 and 2003
FIDELITY SHORT TERM INVESTMENT FUND
Seeks to preserve principal as well as generate interest income through
investment in high-quality short- and intermediate-term investment
contracts as well as other instruments issued by insurance companies
and banks.
FIDELITY RETIREMENT GOVERNMENT MONEY MARKET PORTFOLIO
Seeks to keep invested principal stable while generating current
interest or income by investing in high-quality money market
instruments issued or guaranteed by the U.S. Government or its
agencies.
FIDELITY MAGELLAN FUND
Seeks long-term capital appreciation by investing primarily in common
stocks and other securities of all types of domestic and international
companies in all industries.
FIDELITY U.S. EQUITY INDEX COMMINGLED POOL
Seeks to provide investment results that correspond to the Standard &
Poor's 500 Index and invests primarily in the common stocks of the
companies that make up that stock index.
FIDELITY GROWTH COMPANY FUND
Seeks long-term capital appreciation by investing primarily in
securities of domestic and foreign growth oriented companies.
FIDELITY EMERGING MARKETS FUND
Seeks capital appreciation from emerging markets around the world.
FIDELITY DIVERSIFIED INTERNATIONAL FUND
Seeks capital growth by investing primarily in equity securities of
companies located outside the U.S. Seeks stocks that are undervalued
compared to industry norms in their countries.
FIDELITY GROWTH & INCOME PORTFOLIO FUND
Seeks high total return through a combination of current income
and capital appreciation. Invests primarily in U.S. and foreign
stocks.
FIDELITY U.S. BOND INDEX FUND
Invests in investment grade (medium to high quality) or above
securities with maturities of at least one year.
PIMCO MID CAP FUND
Seeks to increase the value of investments over the long term through
capital growth.
5
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Notes to Financial Statements
December 31, 2004 and 2003
VANGUARD TOTAL STOCK MARKET INDEX FUND - ADMIRAL CLASS
Seeks to have investment characteristics effectively equal to the
unmanaged Wilshire 5000 Index.
AF WASHINGTON MUTUAL INVESTORS FUND CLASS R-5
Seeks to produce current income and to provide an opportunity for
growth.
JOHN HANCOCK SMALL CAP GROWTH FUND - CLASS A
Seeks long term capital appreciation by investing primarily in stocks
of small capitalization companies.
VANGUARD BALANCED INDEX FUND
Seeks growth and income by investing in equities and bonds.
The Fidelity Spartan U.S. Equity Index Fund and the AF Washington
Mutual Investors Fund were closed effective April 23, 2003. The
participant balances in these funds were transferred to Fidelity U.S.
Equity Index Commingled Pool and AF Washington Mutual Investors Fund
Class R-5, respectively. A new fund, Vanguard Total Stock Market Index
Fund - Admiral Class, was added during 2003.
Each of the Funds may also hold a portion of its assets in short-term
investments in order to meet liquidity needs for transfers, loans, and
withdrawals.
(F) PARTICIPANT LOANS
The maximum loan available to each participant is the lesser of (1)
$50,000 reduced by the highest outstanding loan balance due from the
participant during the preceding twelve months or (2) 50% of the
participant's vested account balance, reduced by the current
outstanding loan balance due from the participant. The minimum loan
amount available to participants is $500. Each loan shall bear interest
at a rate determined by the Savings Plan Committee. Repayment of the
loan must be made over a period not to exceed five years.
(G) PLAN EARNINGS
As of the close of each business day, the Plan trustee is responsible
for determining the fair market value of each of the investment
options, which includes all accrued earnings. The increase or decrease
in the fair market value of each investment fund since the preceding
business day is allocated among the participant accounts invested in
each fund based on the proportionate number of shares or units of the
fund held by each participant at the close of the preceding business
day.
With respect to the Gillette Company Stock Fund, the trustee is
responsible for determining the participants' accounts entitled to
receive each quarterly dividend and the number of shares to be credited
to each account, as of the quarterly ex dividend date. Any interest or
other income earned by the Fund, other than dividends, is allocated
quarterly to participant accounts on a proportionate basis.
6
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Notes to Financial Statements
December 31, 2004 and 2003
(H) BENEFIT PAYMENTS
Upon termination of employment, the participant or surviving spouse or
beneficiary will receive a lump-sum distribution of the participant's
vested account balance, or if the account balance exceeds $5,000 at
such time, they may elect to defer payment or receive periodic
installments. A participant (or surviving spouse or other beneficiary)
may also elect to have the proceeds of the distribution used to
purchase an annuity contract for his or her benefit.
Early withdrawals may also be made in the event of financial hardship
and other circumstances, based upon special guidelines detailed in the
Plan document.
(I) FORFEITURES
Forfeitures by Plan participants are used to reduce Company
contributions.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF ACCOUNTING
The accompanying financial statements are prepared on the accrual basis
of accounting.
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of net
assets available for plan benefits at the date of the financial
statements, and the reported amounts of additions to and deductions
from net assets available for plan benefits. Actual results could
differ from those estimates.
(B) INVESTMENTS
Investments are allocations of the assets of The Gillette Company
Master Savings Plan Trust (Savings Plan Trust) based upon the
proportionate interest of the Plan in the Savings Plan Trust. See note
5 for a detailed description of the Savings Plan Trust.
Investments of the Savings Plan Trust are stated at fair value except
for guaranteed and synthetic investment contracts which are valued at
contract value which approximates fair value. Contract value represents
contributions made under the contract plus interest at the contract
rate. The crediting interest rate is variable for the synthetic
contracts and is reset quarterly based upon the fair value of the
underlying securities. The crediting interest rate is fixed for
guaranteed contracts. The average yield for the years ended December
31, 2004 and 2003 is 4.49% and 5.06%, respectively, and the crediting
interest rate as of December 31, 2004 and 2003 is 4.20% and 4.83%,
respectively, for these investment contracts. Fair value for shares of
Company common stock held in the Savings Plan Trust is defined as the
closing price of the common stock as reported by the New York Stock
Exchange. The fair value for all other investments is determined daily
by the trustee on a per-share basis using security prices quoted on
national exchanges, and amortized cost in the case of any short-term
and money market securities held. Participant loans receivable are
valued at cost, which approximates fair value.
7
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Notes to Financial Statements
December 31, 2004 and 2003
Fund transactions received prior to 4:00 p.m. Eastern time by Fidelity
Management Trust Company are recognized on that business day.
Transactions received after 4:00 p.m. Eastern time are valued as of the
next business day. Transfers to or from the Gillette Company Stock Fund
are valued at the actual purchase or sale price reflecting commissions
and transaction fees. Contributions and loan payments into the Gillette
Company Stock Fund are invested based upon the weighted average
purchase price (including commissions and transaction fees) of the
shares of Company common stock acquired. Withdrawals from the Gillette
Company Stock Fund are valued based upon the weighted average sale
price (including commissions and transaction fees) of the shares sold.
Transfers from the Gillette Company Stock Fund are invested in the
receiving investment Fund(s) following the settlement period. Interest
income is recorded on the accrual basis and dividend income is recorded
on the ex-dividend date.
Net appreciation (depreciation) in the fair value of investments
includes both realized and unrealized gains and losses.
(C) PAYMENT OF BENEFITS
Benefits are recorded when paid.
(3) FUNDING POLICY
The Company's funding policy is to make contributions to the Plan in
accordance with the manner described in note 1.
(4) PLAN TERMINATION
The Company expects the Plan to continue indefinitely, but reserves the
right to amend or terminate the Plan at its discretion (see subsequent
events note 12). If the Plan is terminated or if contributions are
completely discontinued, each participant's interest in that portion of
their account balance attributable to Company contributions shall become
fully vested. Upon termination of the Plan, the Savings Plan Trust may
continue in existence at the direction of the board of directors of the
Company, subject to the provisions of the Plan and the Savings Plan Trust
agreement, or the Savings Plan Trust may be terminated and the assets
distributed to participants.
8
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Notes to Financial Statements
December 31, 2004 and 2003
(5) INVESTMENTS
Investments of the Savings Plan Trust are held in trust by Fidelity
Management Trust Company. Since April 2003, the plans participating in the
Savings Plan Trust were The Gillette Company Employees' Savings Plan and
The Gillette Company Employee Stock Ownership Plan (ESOP). Trust income is
allocated ratably between the plans in accordance with the assets of each
plan invested in the Savings Plan Trust. The net assets of the Savings Plan
Trust at December 31, 2004 and 2003 are as follows:
2004 2003
-------------- --------------
Investments, at fair value:
Marketable securities:
Gillette Company Stock Fund $1,313,225,222 1,171,019,453
Registered investment companies:
Fidelity Short Term Investment Fund 9,292,631 4,474,507
Fidelity Retirement Government Money Market Portfolio 40,118,056 41,471,952
Fidelity Magellan Fund 95,737,637 98,180,328
Fidelity Growth Company Fund 100,586,611 94,286,899
Fidelity Emerging Markets Fund 11,624,220 7,177,908
Fidelity Diversified International Fund 47,784,867 32,796,089
Fidelity Growth & Income Portfolio Fund 38,352,347 33,449,652
Fidelity U.S. Bond Index Fund 29,608,990 30,136,434
PIMCO Mid Cap Fund 21,293,506 12,336,912
John Hancock Small Cap Growth Fund - Class A 10,529,221 6,248,788
Vanguard Balanced Index Fund 42,597,426 39,665,084
Vanguard Total Stock Market Index Fund Admiral Class 9,238,832 4,516,245
Fidelity U.S. Equity Index Commingled Pool 124,075,886 122,499,243
AF Washington Mutual Inv R-5 21,745,761 16,077,146
Investment contracts, at contract value 425,462,397 414,356,214
Participant loans, at cost 28,532,224 26,932,508
-------------- --------------
Total investments and net assets $2,369,805,834 2,155,625,362
============== ==============
Assets allocated to The Gillette Company Employees'
Savings Plan $2,061,520,593 1,873,214,825
Assets allocated to The Gillette Company Employee
Stock Ownership Plan 308,285,241 282,410,537
The aggregate fair value of investment contracts was $439,968,129 and
$432,635,224 at December 31, 2004 and 2003, respectively.
9
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Notes to Financial Statements
December 31, 2004 and 2003
The statements of changes in net assets of the Savings Plan Trust for the
years ended December 31, 2004 and 2003 are as follows:
2004 2003
--------------- ---------------
Investment income (loss):
Net appreciation (depreciation) on fair value of investments:
Gillette Company Stock Fund $ 248,793,435 201,814,537
Fidelity Magellan Fund 5,647,664 18,544,989
Fidelity Spartan U.S. Equity Index Fund -- 3,452,766
Fidelity Growth Company Fund 10,833,201 25,458,247
Fidelity Emerging Markets Fund 1,773,141 1,898,186
Fidelity Diversified International Fund 6,822,788 8,621,085
Fidelity Growth & Income Portfolio Fund 2,421,569 4,783,806
Fidelity U.S. Bond Index Fund (255,635) (199,593)
PIMCO Mid Cap Fund 2,928,611 2,297,978
Washington Mutual Investors Fund -- 104,886
John Hancock Small Cap Growth Fund - Class A 1,095,853 1,170,851
Vanguard Balanced Index Fund 2,565,833 5,560,694
Vanguard Total Stock Market Index Fund Admiral Class 731,644 442,220
Fidelity U.S. Equity Index Commingled Pool 12,241,283 23,310,394
AF Washington Mutual Investors R-5 1,282,136 2,623,112
Dividends 26,608,838 25,755,037
Interest 19,803,402 22,107,554
Cash and cash equivalents 796 --
--------------- ---------------
Net investment gain 343,294,559 347,746,749
Transfer of assets from the Plan 79,391,701 79,328,078
Transfer of ESOP assets from State Street 27,287 289,451,693
Transfer of assets from Zooth, Inc. 849,838 --
--------------- ---------------
Total additions 423,563,385 716,526,520
--------------- ---------------
Transfer of assets from the Trust (209,228,578) (159,411,214)
Forfeitures (154,335) (275,745)
--------------- ---------------
Total deductions (209,382,913) (159,686,959)
--------------- ---------------
Net increase in assets 214,180,472 556,839,561
Net assets:
Beginning of year 2,155,625,362 1,598,785,801
--------------- ---------------
End of year $ 2,369,805,834 2,155,625,362
=============== ===============
10
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Notes to Financial Statements
December 31, 2004 and 2003
(6) ADMINISTRATIVE EXPENSES
The Company bears all trustee and administrative costs of maintaining the
Plan and investment expenses associated with the Gillette Company Stock
Fund. Investment expenses associated with all other funds offered as
investment options under the Plan, including the Fidelity Short Term
Investment Fund effective May 1, 2003, are deducted from the assets of each
of those funds.
(7) INCOME TAXES
A favorable tax determination letter was received from the Internal Revenue
Service on March 13, 2002 stating that the existing Plan and its underlying
trust qualified under Section 401(a) of the Internal Revenue Code of 1986
(the Code) as a profit sharing plan, and is exempt from Federal income
taxes. Further, the features of the Plan relating to tax-deferred savings
qualified under Section 401(k) of the Code. The Plan has been amended since
receiving the determination letter. However, the Company and the Plan's tax
counsel believe the Plan is designed and is currently being operated in
compliance with the applicable provisions of the Code.
(8) ESOP TRANSFERS
Shares of the Gillette Company Stock Fund allocated to the ESOP accounts of
participants not eligible for Company subsidized retiree medical benefits,
valued at $42,129,642, were transferred to a special account under this
Plan on April 1, 2003.
In 2004, transfers consisted primarily of accumulated ESOP assets of
participants terminated in prior years who did not elect payout of their
ESOP balances.
In the future, transfers from ESOP will occur if participants are
terminated and do not elect payout of their ESOP balances within one full
fiscal quarter from the date of their termination.
(9) PLAN TRANSFER
On August 2, 2004, $849,838 was transferred to the Plan from Zooth,
Inc.'s 401(k) Plan as part of the acquisition of Zooth, Inc. Zooth,
Inc. was acquired by the Company as of June 4, 2004.
(10) PARTY-IN-INTEREST TRANSACTIONS
Fidelity Investments, a wholly owned subsidiary of FMR Corporation, manages
several of the Plan's investment options as detailed in note 1(e). Fidelity
Management Trust Company and Fidelity Investments Institutional Operations
Company, both wholly owned subsidiaries of FMR Corporation, are the Plan's
trustee and recordkeeper, respectively. Therefore, transactions between
Fidelity Investments and both the trustee and the recordkeeper qualify as
party-in-interest transactions.
(11) PLAN AMENDMENTS
Effective December 1, 2003 through November 2004, accounts of $5,000 or
less were automatically distributed to participants or beneficiaries. This
is no longer effective as of November 2004.
Effective December 1, 2003 through November 2004, a terminated employee,
their spouse or domestic partner beneficiary could continue to make loan
payments directly to the Trustee until the loan is fully repaid. Repayment
of the loan must be made over a period not to exceed five years from the
date the loan was originally issued. This is no longer effective as of
November 2004.
11
THE GILLETTE COMPANY
EMPLOYEES' SAVINGS PLAN
Notes to Financial Statements
December 31, 2004 and 2003
(12) SUBSEQUENT EVENTS
On January 27, 2005, The Procter & Gamble Company, an Ohio corporation
(P&G), Aquarium Acquisition Corp., a wholly owned subsidiary of P&G and a
Delaware corporation (Merger Sub), and the Company, a Delaware corporation,
entered into an Agreement and Plan of Merger (the Merger Agreement). The
Merger Agreement provides that, upon the terms and subject to the
conditions set forth in the Merger Agreement, Merger Sub will merge with
and into the Company (the Merger), continuing as the surviving corporation.
Consummation of the Merger is subject to customary conditions, including
(i) approval of the holders of Gillette common stock, (ii) approval of the
holders of P&G common stock, (iii) absence of any law or order prohibiting
the closing, (iv) expiration or termination of the applicable
Hart-Scott-Rodino waiting period and certain other regulatory approvals,
(v) subject to certain exceptions, the accuracy of representations and
warranties, (vi) the absence of any material adverse effect with respect to
each party's business and (vii) the delivery of customary opinions from
counsel to the Company and counsel to P&G that the Merger will qualify as a
tax-free reorganization for federal income tax purposes.
The Company has stated as of the close of the merger, Plan participants'
shares of Gillette common stock will be converted into P&G common stock
using the same ratio (0.975 share of P&G for each Gillette share) that will
apply to all other Gillette shareholders.
The accompanying financial statements have been prepared assuming the
Company and the Plan continue on a stand-alone basis and do not reflect any
adjustments or disclosures that may be required upon consummation of the
Merger.
12