<PAGE>

                                                                      Exhibit 13


                      Management's Discussion and Analysis

                of Financial Condition and Results of Operations

                  The Gillette Company and Subsidiary Companies

                              RESULTS OF OPERATIONS

Net Sales

Net sales in 2001 were $8.96 billion, 3% below those of 2000. Excluding the
adverse effect of exchange, 3%, sales were level with those of the prior year.
The level sales were attributable to favorable pricing of 1%, offset by negative
volume/mix of 1%, which included the significant unfavorable impact of trade
inventory reductions. Net sales in 2000 were $9.22 billion, 2% above those of
1999. Excluding the adverse effect 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%.

An analysis of sales by business segment follows.

<TABLE>
<CAPTION>
                                                           % increase/(decrease)
                                                           ---------------------
Years ended December 31,        2001        2000      1999     01/00       00/99
-------------------------- ---------   --------- --------- ---------   ---------
(millions)

<S>                         <C>         <C>       <C>         <C>         <C>
 Blades & Razors            $3,416      $3,394    $3,143       1           8
 Personal Care                 877         960     1,041      (9)         (8)
 Duracell                    2,365       2,567     2,709      (8)         (5)
 Oral Care                   1,270       1,204     1,114       6           8
 Braun                       1,033       1,100     1,067      (6)          3
--------------------------  ------      ------    ------     ----        ---
                            $8,961      $9,225    $9,074      (3)          2
--------------------------  ------      ------    ------     ----        ---
</TABLE>

 See Notes to Consolidated Financial Statements for segment data.

Sales of blades and razors were 1% higher than those of the prior year. Without
the adverse effect of exchange, sales grew 4%. Strong shipments of the new
Gillette for Women Venus shaving system in North America and Europe offset the
lower volumes that resulted from the Company's program to reduce trade
inventories of blades. This trade inventory reduction will enhance the
comparison of 2002 sales with those of 2001. In 2000, sales of blades and razors
were 8% higher than those of the previous year, due primarily to strong sales of
the Mach3 shaving system in North America, Europe and Latin America, including
the successful launch of the Mach3 system in Brazil.

      Personal care sales were 9% below those of 2000, but would have been 5%
below that year's level without the negative effect of exchange and the
divestiture of White Rain hair care products in April 2000. Sales declined in
shave preparations, as well as in antiperspirants/deodorants. In 2000, personal
care sales decreased 8% from those of the prior year, due primarily to the
divestiture of the White Rain brand.

      Sales of Duracell products fell 8% from those of 2000. Excluding the
adverse effect of exchange, sales were 6% lower than in the prior year. The
sales decline reflected the Company's efforts to reduce trade inventory levels
and a change in mix, as the proportion of CopperTop battery sales increased
versus those of the premium- priced Duracell Ultra brand. The new CopperTop
battery, which replaced the former Copper & Black design, was introduced in the
U.S. in June, backed by a comprehensive advertising and promotional campaign. In
2000, sales of Duracell products declined 5%, as a substantial increase in sales
of Duracell Ultra batteries was more than offset by much 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 and the depreciation of the Euro.

      Oral care sales were 6% above those of 2000, reflecting gains in all
geographies, but would have been 9% higher than that year's level without the
impact of unfavorable exchange. Strong gains in power oral care products more
than offset lower sales of manual oral care products. The new Braun Oral-B
battery-powered toothbrush started its rollout in the U.S. and Europe during the
year, and initial trade and consumer response was encouraging. In 2000, sales of
oral care products were 8% above those of 1999. This sales growth was paced by
Latin America, where economic conditions improved and the rollout of the premium
CrossAction toothbrush

                                       17
<PAGE>
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.

      Sales of Braun products were 6% below those of the previous year.
Excluding the impact of exchange, Braun sales were 2% lower than in the prior
year, reflecting reduced product offerings within non-shaving categories. In
2000, Braun sales rose 3% from those of 1999. Sales advances were achieved
across all geographies except Europe, where growth was restrained by the
depreciation of the Euro. Particularly noteworthy were sales of the Braun Syncro
electric shaver, which drove gains in Germany and Japan.

      The Company's largest customer, Wal-Mart Stores, Inc. and its affiliates,
accounted for 12% of sales in 2001. These sales occurred primarily in the
United States and were across all product segments.


Gross Profit

Gross profit was $5.55 billion in 2001, $5.76 billion in 2000 and $5.59 billion
in 1999. As a percent of sales, gross profit was 62.0% in 2001, compared with
62.4% in 2000 and 61.6% in 1999. In 2001, the margin decline was mainly due to
lower Duracell and blade and razor margins. Duracell gross profit margin
declined, due to a higher proportion of lower margin CopperTop battery sales.
Margin for blades and razors also decreased, reflecting the greater proportion
of razor sales resulting from the launch of the new Gillette for Women Venus
shaving system. Braun and oral care showed improved gross profit margin,
reflecting manufacturing efficiencies and favorable product mix, while personal
care showed little change in gross profit margin. In 2000, margin improvement
was due to favorable sales mix and improved manufacturing efficiencies.

Selling, General and Administrative Expenses

Selling, general and administrative expenses amounted to 43.3% of net sales,
compared with 39.8% and 38.6% in 2000 and 1999, respectively. In absolute terms,
these expenses increased 6% in 2001 and 5% in 2000. In 2001, $576 million was
spent on advertising, including sampling, and $1,196 million on sales promotion,
for a total of $1,772 million, an increase of 1% over the 2000 spending level.
This spending compares with 2000 amounts of $539 million, $1,215 million and
$1,754 million, respectively. In 1999, these amounts were $513 million, $1,016
million and $1,529 million, respectively. The 7% rise in advertising spending in
2001 was in line with our objective to increase our advertising investment
levels. Total direct marketing expenses in 2001 represented 19.8% of sales,
compared with 19.0% and 16.8% in 2000 and 1999, respectively. In 2001, other
marketing and administrative expenses were 10% above those of the prior year,
due to continued substantial investment behind our merchandising activity. Other
marketing and administrative expenses declined 3% in 2000, reflecting a full
year of benefits from the September 1998 reorganization and realignment program.

Profit from Operations

Profit from operations was $1.50 billion in 2001, compared with $1.51 billion in
2000 and $2.09 billion in 1999.

         Before restructuring and asset impairment charges of $172 million in
2001 and $572 million in 2000, profit from operations was $1.67 billion in 2001
and $2.08 billion in 2000. Excluding the restructuring and asset impairment
charges in 2001 and 2000, profit from operations in 2001 represented 18.6% of
sales, compared with 22.6% in 2000 and 23.0% in 1999. Operating profits in 2001
were 20% below those of 2000, due to lower net sales, higher advertising
spending and other marketing and administrative expenses. Operating profits in
2000 were virtually unchanged from those of 1999, as improved gross profit
margin and cost savings from other operating expenses were offset by significant
increases in marketing expenses.

      In 1999, 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.

                                       18
<PAGE>
An analysis of operating profit by business segment follows. The 2001 and 2000
restructuring and asset impairment charges are included in Corporate/Other.

<TABLE>
<CAPTION>

                                                          %increase/(decrease)
                                                           ------------------
Years ended December 31,        2001        2000      1999 01/00        00/99
-------------------------- ---------   --------- --------- -------   --------
(millions)

<S>                         <C>         <C>       <C>        <C>         <C>
 Blades & Razors            $1,141      $1,272    $1,144     (10)        11
 Personal Care                  68         100        93     (32)         8
 Duracell                      217         456       608     (52)       (25)
 Oral Care                     240         226       224       6          1
 Braun                          98          94        60       4         56
--------------------------  ------      ------    ------     ---        ---
                             1,764       2,148     2,129     (18)         1

 Corporate/Other              (266)       (636)      (42)
--------------------------  ------      ------    ------
                            $1,498      $1,512    $2,087
--------------------------  ------      ------    ------
</TABLE>

 See Notes to Consolidated Financial Statements for segment data.

Blade and razor profits were 10% lower in 2001, due to lower gross profit
margin, increased advertising support and higher administrative costs. In 2000,
blade and razor profits were 11% higher than those of the year before, due
primarily to the sales growth of the Mach3 shaving system in North America,
Europe and Latin America.

      Personal care profits were 32% lower than those of the prior year, due to
lower sales and increased administrative costs. In 2000, personal care profits
were 8% above those of the previous year.

      Duracell profit from operations was 52% below that of the year before, the
result of lower sales, greater advertising support and increased overhead costs.
In 2000, Duracell profit from operations was 25% lower than in 1999, reflecting
both lower sales and increased marketing spending.

      Oral care profit from operations was 6% above that of 2000, due primarily
to increased sales and higher gross profit margin. Direct marketing support was
level with that of the prior year, and overhead expenses were higher. In 2000,
oral care profit from operations was 1% above that of the previous year, as
higher sales were offset by increased marketing expenses to support new product
launches.

      Braun profit from operations was 4% higher than in 2000, reflecting
improved gross profit margin. Spending rates for marketing expenses and
overheads were in line with those of the prior year. In 2000, Braun profit from
operations was 56% higher than in 1999, reflecting sales growth, improved mix
and lower overhead expenses.

Nonoperating Charges/Income

Net interest expense amounted to $141 million in 2001, $218 million in 2000 and
$129 million in 1999. Net interest expense fell in 2001, because of lower
interest rates and reduced borrowings. Net interest expense rose in 2000, due to
increased borrowings to fund the share repurchase program and higher interest
rates. A net exchange loss of $3 million in 2001, which compared with a net
exchange gain of $8 million in 2000 and a loss of $35 million in 1999, 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 33. In 2001, the unfavorable translation
adjustment was $93 million, compared with unfavorable translation adjustments of
$249 million in 2000 and $205 million in 1999, reflecting significant exchange
rate movements.

Taxes and Income from Continuing Operations

The effective tax rate was 32.2% in 2001, compared with rates of 36.3% in 2000
and 34.8% in 1999. The effective tax rate decreased in 2001, due primarily to
the nondeductibility of certain asset impairment charges in 2000. Excluding the
impact of the restructuring and asset impairment charges in both 2001 and 2000,
the tax rate declined to 31% in 2001 from 32.8% in 2000.

                                       19
<PAGE>
      Income from continuing operations was $910 million in 2001, compared with
$821 million in 2000 and $1,248 million in 1999. Fully diluted net income per
common share from continuing operations was $.86 in 2001, compared with $.77 and
$1.13 in 2000 and 1999, respectively.

      Excluding the restructuring and asset impairment charges in 2001 and 2000,
income from continuing operations was $1,045 million in 2001, compared with
$1,251 million in 2000 and $1,248 million in 1999. Fully diluted net income per
common share from continuing operations was $.99 in 2001, compared with $1.18
and $1.13 in 2000 and 1999, respectively.

Financial Condition

The Company's financial condition strengthened during 2001. Cash provided by
operations is the Company's primary source of funds to finance operating needs
and capital expenditures and to pay dividends. During 2001, the Company
generated $2.09 billion in cash from operations, a 31% increase over 2000. The
increase reflected improvements in working capital, principally from accounts
receivable collections. The strong working capital performance allowed the
Company to reduce net debt (total debt net of associated swaps, less cash and
cash equivalents) by $1.13 billion during 2001. Net debt at December 31, 2001,
was $3.32 billion, compared with $4.45 billion and $4.53 billion at December 31,
2000 and 1999, respectively. As a component of net debt, cash and cash
equivalents increased $885 million in 2001 to $947 million and were invested
primarily in highly liquid deposits and marketable securities of institutions
with high credit quality. Cash from operating activities of $1.60 billion in
2000 compared with $1.43 billion in 1999. An additional source of cash in 2000
was the sale of the Stationery Products business for $528 million.

      The market value of outstanding Gillette equity was $35 billion at the end
of 2001, compared with $38 billion at the end of 2000. The Company's book equity
position was $2.14 billion at the end of 2001, compared with $1.92 billion at
the end of 2000 and $3.06 billion at the end of 1999. The decrease in book
equity in 2000 was due primarily to the Gillette share repurchase program.

      Capital spending decreased to $624 million in 2001, compared with $793
million in 2000 and $889 million in 1999. Spending in all three years reflected
substantial investments in blades and razors, as well as in the Duracell
segment.

      Share repurchase funding in 2001, net of proceeds received from the sale
of put options on Company stock, amounted to $3 million, compared with $921
million in 2000 and $1,949 million in 1999.

      The Company's long-term credit ratings of AA- from Standard & Poor's and
Aa3 from Moody's and commercial paper ratings of A1+ from Standard & Poor's and
P1 from Moody's provide a high degree of flexibility in obtaining funds. To
support its commercial paper program, the Company entered into a $1.65 billion,
364-day revolving bank credit agreement on October 16, 2001, that replaced the
$1.4 billion revolving bank credit agreement that expired in October 2001 and
the $550 million revolving bank credit agreement that was due to expire in
December 2001. The Company plans to renew the credit facility in 2002 and does
not foresee any problems in doing so. The revolving bank credit agreement
requires an earnings-to-interest-expense ratio above 6.5X at each quarter end
for the four quarters then ended. At December 31, 2001, the interest coverage
ratio, at 10.3X, was well above the required ratio. The Company believes it has
sufficient alternative sources of higher cost funding available to replace its
commercial paper program, if necessary.

      At year-end 2001, there was $1.98 billion outstanding under the Company's
commercial paper program, compared with $2.04 billion at the end of 2000 and
$2.41 billion at the end of 1999. On September 26, 2001, the Company issued a
$200 million U.S.-denominated 5.25% Euro note due December 2006. The Company
subsequently repurchased $75 million of the Euro note on October 12, 2001, and
on October 18, 2001, reissued a $75 million floating rate Euro note, due January
2003. The repurchase had no impact on earnings. On December 5, 2001, the Company
issued a $250 million U.S.-denominated 3.75% note due December 2004. The
proceeds from the debt issuances were used to reduce commercial paper borrowing.
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.

      Through its strong brands, leading market positions and improving
financial condition, Gillette will continue to have capital available for growth
through both internally generated funds and significant credit

                                       20
<PAGE>
resources. The Company has substantial unused lines of credit and access to
worldwide financial markets, enabling the Company to raise funds at favorable
rates.

      The Company has contractual obligations payable or maturing in the
following years.

<TABLE>
<CAPTION>
                                                              2003,     2005,           2007
At December 31, 2001,                              2002       2004      2006      and beyond       Total
--------------------------------------------   --------   ---------   -------   ------------   ---------
(millions)

<S>                                             <C>       <C>         <C>           <C>         <C>
 Long-term debt, including current portion      $  420    $  993      $625          $  -        $2,038
 Loans payable                                   2,235         -         -             -         2,235
 Operating leases                                   94       139       100           131           464
--------------------------------------------    ------    ------      ----          ----        ------
                                                $2,749    $1,132      $725          $131        $4,737
</TABLE>

The Company has no material contingent commitments. The Company has no material
"off balance sheet" liabilities or nonconsolidated Special Purpose Entities.

Market Risk

The Company is subject to market risks, such as changes in currency and interest
rates that arise from normal business operations. The Company regularly assesses
these risks and has established business strategies to provide natural offsets,
supplemented by the use of derivative 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.

      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 and forward
rate agreements.

      Most of the Company's transactional exchange exposure is managed through
centralized cash management. The Company hedges net residual transactional
exchange exposures primarily through forward contracts.

      More detailed information about the strategies, policies and use of
derivative financial instruments is provided in the financial instruments and
risk management activities 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, 2001 and 2000, 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 improved
the Company's operating efficiency, streamlined the supply chain and further
decreased costs. The program budgeted a net reduction of approximately 2,700
employees across all business functions, operating units and geographies.

      The charge for impaired intangible assets was $212 million to write down
$157 million of acquired goodwill relating to the Thermoscan personal diagnostic
appliance brand in the Braun segment and $55 million of acquired goodwill and
identifiable intangible assets for certain national battery brands in the
Duracell segment.

      The charge for the restructuring program was $360 million, and activity
under the program continued throughout 2001. Specific program activities
included consolidating management functions; reducing factory

                                       21
<PAGE>
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
included the planned closure of eight factories and 13 distribution centers
during 2001.

      Pretax cash outlays for the restructuring program were estimated at
approximately $235 million. Cash severance payments will extend beyond 2001, due
to the severance payment deferral options available to terminated employees. At
December 31, 2001, remaining cash outlays were $79 million, which will occur
primarily in 2002. Pretax savings from the program were $45 million in 2001 and
will be approximately $135 million in 2002.

      The noncash charges for the restructuring program were approximately $125
million for the write-down to disposal value of factories and distribution
centers, as well as the write-off of manufacturing, distribution and office
equipment assets. Revenue-generating activities continued until the affected
facilities ceased operations. Buildings were sold, and equipment was 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.

      Under the direction of the new Chief Executive Officer, the Company
adopted a new strategy in 2001 for the Personal Care segment that included
establishing a separate Personal Care Global Business Management unit as part of
the Company's reemphasis on the category. This change in strategy also led to
the decision not to close one major factory dedicated to personal care
manufacturing, resulting in a pretax reduction in the 2000 restructuring
provision of approximately $33 million. Minor modifications were also made to
certain other programs, including the decision not to close two small factories.
In addition, the Company recorded a pretax recovery of approximately $22
million, reflecting better than anticipated results relating to the closing of
certain other facilities.

      During the fourth quarter of 2001, the Company recorded a charge of $63
million associated with planned new actions: the withdrawal from several minor
noncore businesses and the cessation of operations in one factory in the
Duracell segment. The factory closure, based on a study that revealed excess
worldwide capacity, will result in the reduction of 170 employees. Once the
closure is completed, annual pretax savings will be approximately $5 million.

      In the fourth quarter of 2001, in connection with a decision to exit
battery brands in certain international markets, the Company announced a noncash
impairment charge relating to the write-down of goodwill, other intangibles and
related long-lived assets. This resulted in a fourth-quarter 2001 pretax charge
to operations of $164 million. The businesses covered represent regional battery
products that do not carry the Duracell brand. The value of the impaired assets
was determined based on discounted cash flow analyses for future operating
periods.

      As a result of the three actions taken in the fourth quarter of 2001, the
Company recorded a pretax charge of $172 million ($135 million after taxes, or
$.13 in net income per common share, fully diluted).

      Additional details are provided on pages 39-41 in the Notes to
Consolidated Financial Statements.

                          CRITICAL ACCOUNTING POLICIES

Restructuring

The Company estimates its restructuring liability for the exit plans developed
by senior management by accumulating detailed estimates of costs from each of
the affected geographic locations. This includes the estimated costs of employee
severance and related benefits, impairment of property and equipment, contract
termination payments for leases, distributor arrangements and other contractual
obligations, and any other qualifying exit costs related to the exit plan. These
estimated costs are grouped by specific projects within the overall exit plan
and are then monitored on a monthly basis by corporate finance personnel, as
well as by finance personnel at each affected geographic location. Changes in
estimates for individual locations are evaluated periodically to determine if a
change in estimate is required for the overall restructuring program.

      Changes in estimates occurred during 2001 for the 2000 restructuring
program, as discussed above under "Restructuring and Asset Impairments." The
primary reason for the changes was a strategic redirection of the Company's
Personal Care unit that resulted in a pretax reduction of $33 million in the
2000 reserve. In


                                       22
<PAGE>
addition, the Company recorded a pretax recovery of approximately $22 million,
reflecting better than anticipated results in other projects within the 2000
restructuring program.

Promotional Expense

The Company enters into promotional arrangements, primarily with its retail
customers, many of which require periodic payments based on estimated total-year
purchases of Gillette products. Therefore, the Company is required to estimate
these future purchases on a routine basis in order to properly account for these
payments. In addition, the Company routinely commits to one-time promotional
programs with customers that require the Company to estimate the ultimate cost
of each promotional program and accrue that cost until paid. The Company tracks
its commitments for promotional programs and, using experience gained over many
years, records an accrual at the end of each period for the earned, but unpaid,
costs of promotional programs. Based on this experience, all promotional
accruals fairly represent future requirements.

Impairment and Amortization

The Company recorded impairment charges for goodwill and other long-lived assets
in 2000 and 2001. These charges related to discrete product lines for which
estimated discounted future operating cash flows indicated that the assets were
not recoverable. The preparation of discounted future operating cash flow
analyses requires significant management judgment with respect to revenue and
expense growth rates, changes in working capital use and selection of an
appropriate discount rate. The use of different assumptions would increase or
decrease estimated discounted future operating cash flows and could increase or
decrease the impairment charge.

      The Company adopted Statement of Financial Accounting Standards (SFAS)
142, "Goodwill and Other Intangible Assets," effective January 1, 2002. As a
result, compared with 2001, annual amortization expense will be $34 million
lower in 2002 and in future years.

Pension Expense

The Company's calculation of pension expense uses discount and other rate
assumptions. Pension plan expense is principally the sum of interest and service
cost on the plan, less expected return on plan assets. The expected return on
plan assets is calculated by applying an assumed rate of return to the fair
value of plan assets. If plan assets decline, the expected return on plan assets
for the next year also declines, increasing pension expense. At December 31,
2001, the fair value of plan assets decreased to $1.6 billion from $1.9 billion
at December 31, 2000, chiefly due to the poor performance of the equity markets,
adding approximately $45 million to 2002 pension expense.

                   EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS


See pages 32 and 33 in Notes to Consolidated Financial Statements for a complete
description of the effect of recent accounting pronouncements.

                    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 2001 Annual Report 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.

                                       23
<PAGE>
      KPMG LLP, independent auditors, are engaged by the Board of Directors 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 25. 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 by the Board of Directors.

              FORWARD-LOOKING STATEMENTS AND 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, but are not limited to, the following:

(a)  the pattern of the Company's sales, including variations in sales volume
     within periods;
(b)  the acceptance by the Company's customers and consumers of new products and
     line extensions;
(c)  the mix of products sold;
(d)  the Company's ability to control its internal costs and the cost of raw
     materials;
(e)  the prices of the Company's products and the response of the Company, its
     customers and competitors to changes in prices;
(f)  technological advances by the Company and/or its competitors;
(g)  new patents granted to the Company and/or its competitors;
(h)  changes in exchange rates in one or more of the Company's geographic
     markets;
(i)  changes in accounting policies; or
(j)  the impact of general economic conditions in the United States and in other
     countries in which the Company currently does business.

      Please refer to the Cautionary Statement contained in the Company's most
recent Annual Report on Form 10-K, and under Item 5, Other Information, in the
Company's most recent Quarterly Report on Form 10-Q, for a more detailed
explanation of the inherent limitations in such forward-looking statements.

                                       24
<PAGE>
                          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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.



/s/ KPMG LLP
KPMG LLP

Boston, Massachusetts
February 11, 2002

                                       25
<PAGE>
                        Consolidated Statement of Income
                  The Gillette Company and Subsidiary Companies


<TABLE>
<CAPTION>
Years Ended December 31,                                                      2001                 2000                  1999
----------------------------------------------------------               ------------        -------------          ------------
(millions, except per share amounts)

<S>                                                                        <C>                   <C>                   <C>
 Net Sales                                                                 $ 8,961               $ 9,225               $ 9,074
 Cost of Sales                                                               3,407                 3,469                 3,486
-------------------------------------------------------------              -------               -------               -------
 Gross Profit                                                                5,554                 5,756                 5,588

 Selling, General and Administrative Expenses                                3,884                 3,672                 3,501
 Restructuring and Asset Impairment Charges                                    172                   572                    --
-------------------------------------------------------------              -------               -------               -------
 Profit from Operations                                                      1,498                 1,512                 2,087

 Nonoperating Charges (Income)
   Interest income                                                              (4)                   (5)                   (7)
   Interest expense                                                            145                   223                   136
   Other charges - net                                                          15                     6                    46
-------------------------------------------------------------              -------               -------               -------
                                                                               156                   224                   175
-------------------------------------------------------------              -------               -------               -------
 Income from Continuing Operations

   before Income Taxes                                                       1,342                 1,288                 1,912
 Income Taxes                                                                  432                   467                   664
-------------------------------------------------------------              -------               -------               -------
 Income from Continuing Operations                                             910                   821                 1,248

 Loss on Disposal of Discontinued Operations, net of tax                        --                  (428)                   --
 Income (Loss) from Discontinued Operations, net of tax                         --                    (1)                   12
-------------------------------------------------------------              -------               -------               -------
 Net Income                                                                $   910               $   392               $ 1,260
-------------------------------------------------------------              -------               -------               -------

 Net Income (Loss) per Common Share, basic

   Continuing Operations                                                   $   .86               $   .78               $  1.14
   Disposal of Discontinued Operations                                          --                  (.41)                   --
   Discontinued Operations                                                      --                    --                   .01
-------------------------------------------------------------              -------               -------               -------
    Net Income                                                             $   .86               $   .37               $  1.15
-------------------------------------------------------------              -------               -------               -------

 Net Income (Loss) per Common Share,
   assuming full dilution
   Continuing Operations                                                   $   .86               $   .77               $  1.13
   Disposal of Discontinued Operations                                          --                  (.40)                   --
   Discontinued Operations                                                      --                    --                   .01
-------------------------------------------------------------              -------               -------               -------
    Net Income                                                             $   .86               $   .37               $  1.14
-------------------------------------------------------------              -------               -------               -------

 Weighted average number of common shares outstanding
   Basic                                                                     1,055                 1,054                 1,089
   Assuming full dilution                                                    1,058                 1,063                 1,111
-------------------------------------------------------------              -------               -------               -------
</TABLE>
 See accompanying Notes to Consolidated Financial Statements


                                       26
<PAGE>
                           Consolidated Balance Sheet
                  The Gillette Company and Subsidiary Companies


<TABLE>
<CAPTION>
At December 31,                                                            2001           2000
----------------------------------------------------------------------- --------        --------
(millions, except per share amount)

 Assets
 Current Assets

<S>                                                                      <C>           <C>
   Cash and cash equivalents                                             $    947      $     62
   Trade receivables, less allowances: 2001 - $69; 2000 - $81               1,473         2,128
   Other receivables                                                          313           378
   Inventories                                                              1,011         1,162
   Deferred income taxes                                                      481           566
   Other current assets                                                       207           197
   Net assets of discontinued operations                                       23           189
                                                                         --------      --------
    Total Current Assets                                                    4,455         4,682
                                                                         --------      --------
 Property, Plant and Equipment, at cost less accumulated depreciation       3,548         3,550
 Intangible Assets, less accumulated amortization                           1,353         1,574
 Other Assets                                                                 613           596
                                                                         --------      --------
                                                                         $  9,969      $ 10,402
                                                                         --------      --------

 Liabilities and Stockholders' Equity
 Current Liabilities

   Loans payable                                                         $  2,235      $  2,195
   Current portion of long-term debt                                          428           631
   Accounts payable and accrued liabilities                                 1,880         2,346
   Income taxes                                                               295           299
                                                                         --------      --------
    Total Current Liabilities                                               4,838         5,471
                                                                         --------      --------
 Long-Term Debt                                                             1,654         1,650
 Deferred Income Taxes                                                        459           450
 Other Long-Term Liabilities                                                  805           767
 Minority Interest                                                             42            41

 Contingent Redemption Value of
   Common Stock Put Options                                                    34            99
 Stockholders' Equity
   Common stock, par value $1 per share
    Authorized: 2,320 shares
    Issued: 2001 - 1,368 shares; 2000 - 1,365 shares                        1,368         1,365
   Additional paid-in capital                                               1,094           973
   Earnings reinvested in the business                                      6,077         5,853
   Accumulated other comprehensive loss                                    (1,437)       (1,314)
   Treasury stock, at cost:
    2001 - 312 shares; 2000 - 312 shares                                   (4,965)       (4,953)
                                                                         --------      --------
    Total Stockholders' Equity                                              2,137         1,924
                                                                         --------      --------
                                                                         $  9,969      $ 10,402
                                                                         --------      --------
</TABLE>

 See accompanying Notes to Consolidated Financial Statements.



                                       27
<PAGE>
                      Consolidated Statement of Cash Flows
                  The Gillette Company and Subsidiary Companies

<TABLE>
<CAPTION>
Years Ended December 31,                                                       2001                  2000                  1999
                                                                          -----------       --------------           -------------
(millions)

 Operating Activities

<S>                                                                         <C>                   <C>                   <C>
   Income from continuing operations                                        $   910               $   821               $ 1,248
   Adjustments to reconcile income to net cash provided
    by operating activities:
    Provision for restructuring and asset impairment                            172                   572                    --
    Depreciation and amortization                                               509                   535                   464
    Other                                                                       (18)                    5                    (7)
    Changes in assets and liabilities, excluding effects of
     acquisitions and divestitures:
     Accounts receivable                                                        622                  (100)                  (48)
     Inventories                                                                101                   149                  (140)
     Accounts payable and accrued liabilities                                  (191)                  (45)                   65
     Other working capital items                                                  6                  (136)                   97
     Other noncurrent assets and liabilities                                    (19)                 (197)                 (252)
                                                                            -------               -------               -------
       Net cash provided by operating activities                              2,092                 1,604                 1,427
                                                                            -------               -------               -------
 Investing Activities

   Additions to property, plant and equipment                                  (624)                 (793)                 (889)
   Disposals of property, plant and equipment                                    59                    41                   124
   Sale of businesses                                                            --                   539                    --
   Other                                                                          1                    (1)                    2
                                                                            -------               -------               -------
       Net cash used in investing activities                                   (564)                 (214)                 (763)
                                                                            -------               -------               -------
 Financing Activities

   Purchase of treasury stock                                                   (12)                 (944)               (2,021)
   Proceeds from sale of put options                                              9                    23                    72
   Proceeds from exercise of stock option and purchase plans                     53                    36                   149
   Proceeds from long-term debt                                                 525                   494                 1,105
   Repayment of long-term debt                                                 (684)                 (365)                   --
   Increase (decrease) in loans payable                                          56                  (385)                  484
   Dividends paid                                                              (686)                 (671)                 (626)
   Settlements of debt-related derivative contracts                               4                   279                    42
                                                                            -------               -------               -------
       Net cash used in financing activities                                   (735)               (1,533)                 (795)
                                                                            -------               -------               -------
 Effect of Exchange Rate Changes on Cash                                         (1)                   (5)                   (2)
 Net Cash Provided by Discontinued Operations                                    93                   130                   111
                                                                            -------               -------               -------
 Increase (Decrease) in Cash and Cash
   Equivalents                                                                  885                   (18)                  (22)
 Cash and Cash Equivalents at Beginning of Year                                  62                    80                   102
                                                                            -------               -------               -------
 Cash and Cash Equivalents at End of Year                                   $   947               $    62               $    80
                                                                            -------               -------               -------
   Supplemental disclosure of cash paid for:
    Interest                                                                $   154               $   243               $   126
    Income taxes                                                            $   232               $   480               $   457
                                                                            -------               -------               -------
</TABLE>


 See accompanying Notes to Consolidated Financial Statements


                                       28
<PAGE>
                Consolidated Statement of Stockholders' Equity
                  The Gillette Company and Subsidiary Companies

<TABLE>
<CAPTION>
                                                              Unearned            Additional
                                         Preferred                ESOP   Common      Paid-in
(millions, except per share amounts)         Stock        Compensation    Stock      Capital
                                       -----------      -------------- -------- ------------
 Balance at
<S>                                      <C>              <C>            <C>      <C>
 December 31, 1998                         $    90         $   (10)       $ 1,358    $   621
 Net income                                     --              --             --         --
   Foreign currency translation                 --              --             --         --
   Pension adjustment                           --              --             --         --
                                           -------         -------        -------    -------
   Other comprehensive loss                     --              --             --         --
                                           -------         -------        -------    -------
 Comprehensive income


 Dividends declared (per share $.59)            --              --             --         --
 Stock option and purchase plans
  (5.7 shares)                                  --              --              6        139
 Conversion of Series C ESOP
  preferred stock (.6 shares)                   (5)             --             --         (2)
 Purchase of Gillette treasury stock
  (46.8 shares)                                 --              --             --         --
 Proceeds from sale of put options              --              --             --         72
 Contingent liability of put options            --              --             --        (82)
 Earned ESOP compensation                       --               6             --         --
                                           -------         -------        -------    -------
 Balance at
 December 31, 1999                              85              (4)         1,364        748
                                           -------         -------        -------    -------
 Net income                                     --              --             --         --
   Foreign currency translation                 --              --             --         --
   Pension adjustment                           --              --             --         --
                                           -------         -------        -------    -------
   Other comprehensive loss                     --              --             --         --
                                           -------         -------        -------    -------
 Comprehensive income

Dividends declared (per share $.65)             --              --             --         --
 Stock option and purchase plans
  (1.8 shares)                                  --              --              1         34
 Conversion of Series C ESOP
  preferred stock (11.3 shares)                (85)             --             --        (92)
 Purchase of Gillette treasury stock
  (24.5 shares)                                 --              --             --         --
 Proceeds from sale of put options              --              --             --         23
 Contingent liability of put options            --              --             --        260
 Earned ESOP compensation                       --               4             --         --
                                           -------         -------        -------    -------
 Balance at

 December 31, 2000                              --              --          1,365        973
                                           -------         -------        -------    -------
 Net income                                     --              --             --         --
   Foreign currency translation                 --              --             --         --
   Pension adjustment                           --              --             --         --
   Cash flow hedges                             --              --             --         --
                                           -------         -------        -------    -------
   Other comprehensive loss                     --              --             --         --
                                           -------         -------        -------    -------
 Comprehensive income


 Dividends declared (per share $.65)            --              --             --         --
 Stock option and purchase plans
  (2.4 shares)                                  --              --              3         47
 Purchase of Gillette treasury stock
  (0.4 shares)                                  --              --             --         --
 Proceeds from sale of put options              --              --             --          9
 Contingent liability of put options            --              --             --         65
                                           -------         -------        -------    -------
 Balance at

 December 31, 2001                         $    --         $    --        $ 1,368    $ 1,094
                                           -------         -------        -------    -------
</TABLE>



<TABLE>
<CAPTION>
                                                                           Other          Total
                                           Earnings     Treasury   Comprehensive  Stockholders'
(millions, except per share amounts)     Reinvested        Stock          Income         Equity
                                       ------------ ------------ --------------- --------------
Balance at
<S>                                      <C>            <C>        <C>            <C>
December 31, 1998                          $ 5,529        $(2,172)      $  (873)      $ 4,543
Net income                                   1,260             --            --         1,260
  Foreign currency translation                  --             --          (205)         (205)
  Pension adjustment                            --             --            17            17
                                           -------        -------       -------       -------
  Other comprehensive loss                      --             --          (188)         (188)
                                           -------        -------       -------       -------
Comprehensive income                                                                    1,072
                                                                                      -------
Dividends declared (per share $.59)           (642)            --            --          (642)
Stock option and purchase plans
 (5.7 shares)                                   --             --            --           145
Conversion of Series C ESOP
 preferred stock (.6 shares)                    --              7            --            --
Purchase of Gillette treasury stock

 (46.8 shares)                                  --         (2,054)           --        (2,054)
Proceeds from sale of put options               --             --            --            72
Contingent liability of put options             --             --            --           (82)
Earned ESOP compensation                        --             --            --             6
                                           -------        -------       -------       -------
Balance at
December 31, 1999                            6,147         (4,219)       (1,061)        3,060
                                           -------        -------       -------       -------
Net income                                     392             --            --           392
  Foreign currency translation                  --             --          (249)         (249)
  Pension adjustment                            --             --            (4)           (4)
                                           -------        -------       -------       -------
  Other comprehensive loss                      --             --          (253)         (253)
                                           -------        -------       -------       -------
Comprehensive income                                                                      139
                                                                                      -------
Dividends declared (per share $.65)           (686)            --            --          (686)
Stock option and purchase plans
 (1.8 shares)                                   --             --            --            35
Conversion of Series C ESOP
 preferred stock (11.3 shares)                  --            177            --            --
Purchase of Gillette treasury stock
 (24.5 shares)                                  --           (911)           --          (911)
Proceeds from sale of put options               --             --            --            23
Contingent liability of put options             --             --            --           260
Earned ESOP compensation                        --             --            --             4
                                           -------        -------       -------       -------
Balance at
December 31, 2000                            5,853         (4,953)       (1,314)        1,924
                                           -------        -------       -------       -------
Net income                                     910             --            --           910
  Foreign currency translation                  --             --           (93)          (93)
  Pension adjustment                            --             --           (22)          (22)
  Cash flow hedges                              --             --            (8)           (8)
                                           -------        -------       -------       -------
  Other comprehensive loss                      --             --          (123)         (123)
                                           -------        -------       -------       -------
Comprehensive income                                                                      787
                                                                                      -------
Dividends declared (per share $.65)           (686)            --            --          (686)
Stock option and purchase plans
 (2.4 shares)                                   --             --            --            50
Purchase of Gillette treasury stock
 (0.4 shares)                                   --            (12)           --           (12)
Proceeds from sale of put options               --             --            --             9
Contingent liability of put options             --             --            --            65
                                           -------        -------       -------       -------
Balance at
December 31, 2001                          $ 6,077        $(4,965)      $(1,437)      $ 2,137
                                           -------        -------       -------       -------
</TABLE>

 See accompanying Notes to Consolidated Financial Statements.


                                       29
<PAGE>
                  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 34 facilities in 15 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 selected female grooming products,
such as wet shaving products and hair epilation devices. The Company is the
world's top seller of alkaline batteries and manual and power toothbrushes.

                  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, liabilities, revenues and expenses, and disclosure of contingent assets
and liabilities at the date of the financial statements. 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 pages 38 and 39.

Cash and Cash Equivalents

Cash and cash equivalents include cash, time deposits and marketable securities
that are highly liquid and have maturities of three months or less at the date
of purchase.

Revenue Recognition

Revenue from product sales is recognized when the goods are shipped and title
passes to the customer, provided that: there are no uncertainties regarding
customer acceptance; persuasive evidence of an arrangement exists; the sales
price is fixed or determinable; and collectibility is deemed probable.

Shipping and Handling Costs

Shipping and handling costs of $165 million in 2001, $152 million in 2000 and
$154 million in 1999 are included in selling, general and administrative
expenses.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out (FIFO) basis.

Intangible Assets

For the years presented in this report, goodwill is amortized on the
straight-line method, generally over a period of 40 years. Other intangible
assets, consisting primarily of trademarks, trade names, patents and other
similar items, are amortized on the straight-line method over a period of 10 to
40 years, predominantly 40 years. Accounting for goodwill and other intangible
assets is changing in 2002, as described further on pages 32 and 33.

Impairment of Goodwill and Long-Lived Assets

The Company continually 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. Intangible assets and other long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of intangible
assets and other long-lived assets is measured by a comparison of the carrying
amount of an asset or asset group to future net undiscounted cash flows expected
to be generated by the asset or asset group. If these comparisons indicate that
an asset is not recoverable, the impairment loss recognized is the amount by
which the carrying amount of the goodwill, intangible asset or other long-lived
asset exceeds the related estimated fair value. Estimated fair value is based on
discounted future operating cash flows or appraised values, depending on the
nature of the asset. The Company determines the discount rate for this analysis
based on the

                                       30
<PAGE>
expected internal rate of return for the related business and does not allocate
interest charges to the asset or asset group being measured. Considerable
judgment is required to estimate discounted future operating cash flows.

Depreciation

Depreciation is computed primarily on a straight-line basis over the estimated
useful lives of assets: buildings and building equipment, five to 40 years;
machinery and equipment, three to 20 years.

Advertising

Advertising costs are expensed in the year incurred. Advertising was $576
million in 2001, compared with $539 million in 2000 and $513 million in 1999.
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.

Research and Development

Research and development costs, included in selling, general and administrative
expenses, amounted to $187 million in 2001, $179 million in 2000 and $201
million in 1999.

Financial Instruments

Cash and cash equivalents, trade receivables, long-term investments, accounts
payable, loans payable and all derivative instruments are carried at fair value.
The fair values of cash equivalents, trade receivables, accounts payable and
loans payable approximate cost. The fair value of long-term investments is based
on quoted market prices. The estimated fair values of derivative instruments 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 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.

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period that includes the
enactment date. 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 $3.0
billion and $3.5 billion at December 31, 2001 and 2000, respectively.

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation."

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, 2001, 2000 and 1999, 44
million, 33 million and 35 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. There
were no preferred shares outstanding in 2001.

                                       31
<PAGE>
Income from continuing operations and shares used to compute net income per
share, basic and assuming full dilution, are reconciled below.

<TABLE>
<CAPTION>
Years ended December 31,                                       2001       2000      1999
                                                              -------   -------- ---------
(millions)

<S>                                                           <C>        <C>      <C>
 Income from Continuing Operations                            $  910     $  821   $1,248
 Less: Preferred stock dividends                                   -          1        4
                                                              ------     ------   ------
 Income from Continuing Operations, basic                        910        820    1,244
 Effect of dilutive securities:
   Convertible preferred stock                                     -          2        5
                                                              ------     ------   ------
 Income from Continuing Operations, assuming full dilution    $  910     $  822   $1,249
                                                              ------     ------   ------
 Common shares, basic                                          1,055      1,054    1,089
 Effect of dilutive securities:
   Convertible preferred stock                                     -          3       12
   Stock options                                                   3          6       10
                                                              ------     ------   ------
 Common shares, assuming full dilution                         1,058      1,063    1,111
</TABLE>

Reclassification of Prior Years

Prior-year financial statements have been reclassified to conform to the 2001
presentations.

                  EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS


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
discounts, coupons, rebates and free products. The Company adopted the consensus
in the first quarter of 2001. The adoption of EITF 00-14 resulted in the
following reclassifications in the 2000 income statement: net sales were reduced
by $70 million; cost of sales was increased by $51 million; and selling, general
and administrative expenses were decreased by $121 million. For 1999, net sales
were reduced by $80 million; cost of sales was increased by $58 million; and
selling, general and administrative expenses were decreased by $138 million. The
above reclassifications had no impact on profit from operations, net income or
earnings per share.

      In January 2001, the EITF reached a consensus on Issue No. 00-22,
"Accounting for Points and Certain Other Time-Based or Volume-Based Sales
Incentive Offers and Offers for Free Products or Services to be Delivered in the
Future." This issue requires that certain volume rebates to customers be
classified as a reduction of revenue. The consensus was effective for the first
quarter of 2001, and its impact on the consolidated financial statements was not
material.

      In April 2001, the EITF reached a consensus on Issue No. 00-25, "Vendor
Income Statement Characterization of Consideration to a Purchaser of the
Vendor's Products or Services." This issue addresses the income statement
classification of slotting fees, cooperative advertising arrangements and
buydowns. The Company adopted this consensus in the first quarter of 2002. If
this standard had been adopted at December 31, 2001, including required
retroactive application to prior periods, net sales would have been reduced by
$877 million in 2001, $915 million in 2000 and $750 million in 1999. Selling,
general and administrative expenses would have been reduced by the same amounts
in each year. The above reclassifications would have had no impact on profit
from operations, net income or earnings per share.

      In July 2001, Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets," was issued. The Company adopted the
provisions of SFAS 142, effective January 1, 2002. SFAS 142 requires that
goodwill and other intangible assets with indefinite lives no longer be
amortized, but instead be tested for impairment, at least annually, in
accordance with the new impairment testing provisions of SFAS 142. Unamortized
goodwill at December 31, 2001, was $751 million. Unamortized other intangible
assets with indefinite lives at December 31, 2001, was $122 million. Annual
amortization expense related to

                                       32
<PAGE>
goodwill and other intangible assets with indefinite lives was $34 million in
2001 and $33 million in 2000 and 1999. The Company has determined that no
transitional impairment losses will be recognized due to the change in
accounting principle.

      In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations,"
was issued. SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
Company plans to adopt the provisions of SFAS 143 on January 1, 2003, and does
not expect the adoption will have a material impact on its financial statements.

      In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," was issued. It provides new guidance that modifies the
existing guidance in SFAS 121 and in APB Opinion No. 30. Goodwill will still be
evaluated for impairment under SFAS 142. The Company adopted SFAS 144 in the
first quarter of 2002. Its adoption will not have a material impact on the
Company's financial statements.

                      ACCUMULATED OTHER COMPREHENSIVE LOSS

An analysis of accumulated other comprehensive loss follows.

<TABLE>
<CAPTION>
                                                                               Accumulated
                                        Foreign                      Cash            Other
                                       Currency        Pension       Flow    Comprehensive
                                    Translation     Adjustment     Hedges             Loss
                                  -------------   ------------   --------   --------------
(millions)

<S>                                 <C>            <C>            <C>        <C>
 Balance at December 31, 1998       $  (826)       $   (47)       $    --       $  (873)
 Change in period                       (79)            17             --           (62)
 Income tax expense                    (126)            --             --          (126)
-------------------------------     -------        -------        -------       -------
 Balance at December 31, 1999        (1,031)           (30)            --        (1,061)
-------------------------------     -------        -------        -------       -------
 Change in period                      (216)            (4)            --          (220)
 Income tax expense                     (33)            --             --           (33)
-------------------------------     -------        -------        -------       -------
 Balance at December 31, 2000        (1,280)           (34)            --        (1,314)
-------------------------------     -------        -------        -------       -------
 Change in period                       (48)           (53)           (13)         (114)
 Income tax benefit (expense)           (45)            31              5            (9)
-------------------------------     -------        -------        -------       -------
 Balance at December 31, 2001       $(1,373)       $   (56)       $    (8)      $(1,437)
-------------------------------     -------        -------        -------       -------
</TABLE>

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 balances of a
long-term investment nature and transactions designated as hedges of net foreign
investments. The changes in accumulated foreign currency translation adjustment
in 2001 were losses of $93 million, primarily from currency devaluation in
Argentina and Brazil. Losses in 2000 were $249 million, with the United Kingdom
accounting for $115 million. Losses in 1999 were $205 million, with Brazil
accounting for approximately half of the losses.

      Included in other charges in the Consolidated Statement of Income are a
net exchange loss of $3 million in 2001, a net exchange gain of $8 million in
2000 and a net exchange loss of $35 million in 1999.

                                       33
<PAGE>
                     SUPPLEMENTAL BALANCE SHEET INFORMATION

Receivables Reserves

<TABLE>
<CAPTION>
Years Ended December 31,                    2001     2000    1999
                                          ------   ------   -----
(millions)

<S>                                         <C>      <C>     <C>
 Balance at beginning of year                $81      $74    $79
 Additions, charged to profit and loss        30       63     50
 Deductions, losses charged to reserves       42       56     55
                                             ---      ---    ---
 Balance at end of year                      $69      $81    $74
</TABLE>

Inventories

<TABLE>
<CAPTION>
At December 31,                  2001        2000
                              ---------   ---------
(millions)

<S>                            <C>         <C>
 Raw materials and supplies    $  130      $  153
 Work in process                  183         194
 Finished goods                   698         815
                               ------      ------
                               $1,011      $1,162
</TABLE>

Property, Plant and Equipment

<TABLE>
<CAPTION>
At December 31,                      2001       2000
                                 --------   --------
(millions)

<S>                               <C>        <C>
 Land                             $   56     $   62
 Buildings                           809        743
 Machinery and equipment           5,140      5,061
                                  ------     ------
                                   6,005      5,866
 Less accumulated depreciation     2,457      2,316
                                  ------     ------
                                  $3,548     $3,550
</TABLE>

Interest on funds used to finance construction of significant additions to
tangible property and equipment is capitalized and recorded as part of the asset
to which it relates and is amortized over the asset's estimated useful life.
During 2001, 2000 and 1999, interest cost was capitalized in the amounts of $11
million, $23 million and $13 million, respectively.

Intangible Assets

<TABLE>
<CAPTION>
At December 31,                                          2001       2000
                                                      ---------   -------
(millions)

<S>                                                    <C>         <C>
 Goodwill ($44 million not subject to amortization)    $1,170      $1,294
 Other intangible assets                                1,113       1,155
                                                       ------      ------
                                                        2,283       2,449
 Less accumulated amortization                            930         875
                                                       ------      ------
                                                       $1,353      $1,574
</TABLE>

                                       34
<PAGE>
Accounts Payable and Accrued Liabilities

<TABLE>
<CAPTION>
At December 31,                           2001        2000
                                     ---------   ---------
(millions)

<S>                                   <C>         <C>
 Accounts payable                     $  401      $  402
 Advertising and sales promotion         438         527
 Payroll and payroll taxes               183         143
 Other taxes                              76          97
 Dividends payable on common stock       172         171
 Restructuring reserve                   112         240
 Miscellaneous                           498         766
                                      ------      ------
                                      $1,880      $2,346
</TABLE>

Other Long-Term Liabilities

<TABLE>
<CAPTION>
At December 31,                2001        2000
                          ---------   ---------
(millions)

<S>                        <C>         <C>
 Pensions                  $  259      $  206
 Postretirement medical       283         291
 Deferred compensation        182         215
 Miscellaneous                 81          55
                           ------      ------
                           $  805      $  767
</TABLE>

                                      DEBT

Loans Payable

<TABLE>
<CAPTION>
At December 31,                                      2001      2000
                                                  -------   ---------
(millions)

<S>                                              <C>         <C>
 U.S. dollar Commercial Paper (2.1% and 6.6%)    $1,975      $1,452
 Euro Commercial Paper (5.0%)                         -         586
 Payable to banks (2.2% and 5.4%)                   260         157
                                                 ------      ------
                                                 $2,235      $2,195
</TABLE>

                                       35
<PAGE>
Long-Term Debt

<TABLE>
<CAPTION>
At December 31,                                          2001                 2000
                                                      --------              --------
(millions)

<S>                                                   <C>                   <C>
5.25% Notes due 2006                                  $   130               $    --
5.00% Notes due 2006                                      308                   300
5.75% Notes due 2005                                      213                   200
3.75% Notes due 2004                                      252                    --
3.25% Euro notes due 2004                                 264                   283
2.23% Euro obligation due 2003                            252                   374
6.25% Notes due 2003                                      158                   150
Floating rate notes due 2003                               75                    --
5.25% Euro notes due 2002                                 230                   236
1.53% Euro obligation due 2002                            199                   259
5.75% Notes due 2001                                       --                   200
2.61% Synthetic Euro obligation due 2001                   --                   277
Other, multicurrency borrowings                             1                     2
Current portion of long-term debt                        (428)                 (631)
                                                      -------               -------
Long-term debt                                        $ 1,654               $ 1,650
</TABLE>

The Company's commercial paper program is supported by its revolving credit
facility and other sources of liquidity. The Company has a $1.65 billion
revolving bank credit agreement, which expires in October 2002, that supports up
to $2.2 billion in commercial paper issuances. Under the agreement, the Company
has the option to borrow at various interest rates, including the prime rate,
and is required to pay a facility fee of .04% per annum. At year-end 2001 and
2000, there were no borrowings under such agreements. Other unused lines of
credit amounted to $183 million at December 31, 2001.

      Long-term weighted average interest rates were 2.6% and 4.3% as of
December 31, 2001 and 2000, respectively, after giving effect to interest rate
hedging instruments. Aggregate maturities of total long-term debt, excluding
market value adjustments, for the five years subsequent to December 31, 2001,
are $420 million in 2002, $477 million in 2003, $516 million in 2004, $200
million in 2005 and $425 million in 2006.

                                       36
<PAGE>
             FINANCIAL INSTRUMENTS AND RISK MANAGEMENT ACTIVITIES


The estimated fair values of the Company's financial instruments are summarized
below.

<TABLE>
<CAPTION>
At December 31,                                            2001                   2000
                                                      ------------   ---------------------------
                                                       Carrying
                                                         Amount/        Carrying          Fair
                                                       Fair Value          Amount         Value
                                                      ------------   ------------- -------------
(millions)

<S>                                                    <C>              <C>            <C>
Long-term investments                                    $   176        $   186        $   187
Long-term debt, including current portion                 (2,082)        (2,281)        (2,308)
Derivative instruments

  Currency forwards hedging net investments                    9            (37)           (37)
  Interest rate swaps                                         49              9             18
  Forward rate agreements                                     (5)            --             --
  Commodity swaps                                             (3)            --             (2)
  Other currency forwards and swaps
   Assets                                                     12             28             30
   Liabilities                                                (8)            (5)            (8)
  Equity contracts                                             5              7              7
</TABLE>

Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, which requires that all derivative instruments be
reported on the balance sheet at fair value. The cumulative effect of adopting
SFAS 133 as of January 1, 2001, was not material to the Company's consolidated
financial statements.

      The Company is subject to market risks, such as changes in currency and
interest rates that arise from normal business operations. The Company regularly
assesses these risks and has established business strategies to provide natural
offsets, supplemented by the use of derivative financial instruments to protect
against the adverse effects of these and other market risks. The Company has
established clear policies, procedures and internal controls governing the use
of derivatives and does not use them for trading, investment or other
speculative purposes.

      The Company uses derivative contracts to efficiently structure its debt in
the desired currencies and mix of fixed to floating interest rates. Forward
contracts effectively convert U.S. dollar commercial paper borrowings into
non-U.S. dollar obligations, primarily in currencies with low interest rates. At
December 31, 2001, the Company had forward contracts with fair values of $9
million recorded in assets and no direct non-U.S. dollar borrowings designated
as hedges of the currency changes on the Company's foreign net investments.
Currency effects of the net investment hedges are reflected as a component of
foreign currency translation adjustments in accumulated other comprehensive loss
and produced a $53 million aftertax gain for the year ended December 31, 2001.
Interest effects of these hedges are reported in interest expense.

      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 to floating rate debt by entering into interest rate swaps and forward
rate agreements. At December 31, 2001, the Company had interest rate swaps with
a fair value of $49 million recorded in assets designated as fair value hedges,
effectively converting certain fixed rate debt into variable rate debt. The
terms of the swaps match the terms of the underlying debt. The fair values of
both the swaps and the debt are recorded as equal and offsetting gains and
losses in interest expense. As these hedges are 100% effective, there is no
current impact on earnings due to hedge ineffectiveness.

      At December 31, 2001, the Company had forward rate agreements with fair
values of $5 million recorded in liabilities designated as cash flow hedges,
effectively fixing certain variable interest payments. Aftertax net losses of $9
million ($14 million pretax) were deferred in other comprehensive loss during
the year ended December 31, 2001. Remaining pretax deferred amounts of $6
million will be reclassified into interest expense over the next 15 months in
the period during which the hedged variable interest payments are recognized.
Ineffective amounts had no impact on earnings for the year ended December 31,
2001.

                                       37
<PAGE>
      The Company also enters into commodity swaps to fix the price of certain
forecasted purchases of raw material used in the manufacturing process. At
December 31, 2001, the Company had swaps with fair values of $3 million recorded
as liabilities designated as cash flow hedges. Changes in fair values are
included in other comprehensive loss to the extent effective and are
reclassified into cost of sales in the period during which the hedged
transaction affects earnings. Total aftertax losses deferred in other
comprehensive loss during the year ended December 31, 2001, including the
cumulative effect of change in accounting principle upon adoption of SFAS 133,
was $6 million ($9 million pretax). Remaining pretax deferred amounts of $6
million will be reclassified into earnings over the next 15 months. Ineffective
amounts had no impact on earnings for the year ended December 31, 2001.

      Most of the Company's transactional exchange exposure is managed through
centralized cash management. The Company hedges net residual transactional
exchange exposures, principally intercompany balances, through forward contracts
and currency swaps that are recorded at their net fair value of $4 million at
December 31, 2001. Changes in fair value are recorded in nonoperating charges
and offset gains and losses resulting from the underlying exposures.

      The Company also uses derivatives to hedge equity-linked employee
compensation. The Company fixes the cost of certain employee compensation
expenses linked to its stock price by entering into equity swap and option
contracts. These contracts are recorded in assets at their fair value of $5
million at December 31, 2001. Changes in fair value are recorded in profit from
operations and offset the changes in the value of the underlying liabilities.

      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.
Using the best information available, including that related to recent
developments, the Company has provided an allowance for doubtful accounts based
on estimated bad debt loss.

                          COMMITMENTS AND CONTINGENCIES

Minimum rental commitments under noncancellable operating leases, primarily for
office and warehouse facilities, are $94 million in 2002, $73 million in 2003,
$66 million in 2004, $51 million in 2005, $49 million in 2006 and $131 million
for years thereafter. Rental expense amounted to $121 million in 2001, $113
million in 2000 and $100 million in 1999.

      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 legal proceedings and claims would not materially affect 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 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

                                       38
<PAGE>
consolidated statements of income and cash flows, and related notes. For the
periods ended December 31, the results follow.

<TABLE>
<CAPTION>
Years Ended December 31,                                 2001         2000      1999
                                                        ------   ---------- ---------
(millions)

<S>                                                      <C>        <C>         <C>
 Net sales                                               --         $ 691       $ 743
 Income (loss) before income taxes                       --            (8)         18
 Income taxes (benefit)                                  --            (3)          6
                                                         --         -----       -----
 Income (loss) from discontinued operations              --         $  (5)      $  12
</TABLE>

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
follows.

<TABLE>
<CAPTION>
At December 31,                                                      2001         2000      1999
                                                                   ------   ---------- ---------
(millions)

<S>                                                                <C>          <C>       <C>
 Net current assets                                                $   26       $  192    $  509
 Property, plant and equipment, less accumulated depreciation           5            6       200
 Other net noncurrent assets and liabilities                           (8)          (9)      465
                                                                   ------       ------    ------
 Net assets of discontinued operations                             $   23       $  189    $1,174
</TABLE>

                       RESTRUCTURING AND ASSET IMPAIRMENTS

On December 18, 2000, the Company announced a restructuring program and impaired
certain intangible assets. In accordance with EITF Issue No. 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).

      The charge for the restructuring program was $360 million, and activity
under the program continued throughout 2001. The restructuring program will
significantly improve the Company's operating efficiency, streamline the supply
chain and further decrease costs. 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 planned the closure of eight
factories and 13 distribution centers, affecting all business segments, and a
net reduction of approximately 2,700 employees across all business functions,
operating units and geographies. The reduction was expected to consist of 1,430
variable manufacturing and distribution employees and 1,270 executive,
professional and administrative staff. 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 and local practices. Employee reductions occurring in
2001 required pretax cash outlays of $128 million.

      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. Revenue-generating
activities continued until the affected facilities ceased operations. Thus,
these assets were considered assets to be held and used under SFAS 121. Asset
disposals were completed in 2001. Buildings were sold, and equipment was
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.

                                       39
<PAGE>
      The charge for impaired intangible assets was $212 million to write down
$157 million of acquired goodwill relating to the Thermoscan personal diagnostic
appliance brand in the Braun segment and $55 million of acquired goodwill and
identifiable intangible assets for certain national battery brands in the
Duracell segment.

      Under the direction of the new Chief Executive Officer, the Company
adopted a new strategy in 2001 for the Personal Care segment that included
establishing a separate Personal Care Global Business Management unit as part of
the Company's reemphasis on the category. This change in strategy also led to
the decision not to close one major factory dedicated to personal care
manufacturing, resulting in a pretax reduction in the 2000 reserve provision of
approximately $33 million. Minor modifications were also made to certain other
programs, including the decision not to close two small factories. In addition,
the Company recorded a pretax recovery of approximately $22 million, reflecting
better than anticipated results relating to the closing of certain other
factories.

      Details of the activity in the 2000 restructuring program follow. The
other benefits portion of employee-related expenses, shown below, includes
fringe benefits, outplacement fees and special termination benefits related to
pensions.

2000 Restructuring Program

<TABLE>
<CAPTION>
                                           Initial         2000           2001     Reclassi-        Reduce          Balance
                                         Provision     Activity       Activity      fication     Provision    Dec. 31, 2001
                                       -----------   ----------   ------------   -----------   -----------   --------------
(millions)

<S>                                     <C>            <C>           <C>          <C>             <C>             <C>
 Employee-related expenses
   Severance payments                   $ 146          $  --         $ (93)       $  29           $ (26)          $  56
   Other benefits                          67             --           (30)         (10)             (7)             20
 Property, plant, and equipment           120           (120)           --           --              --              --
 Contractual obligations and other         27             --            (5)         (19)             --               3
                                        -----          -----         -----        -----           -----           -----
                                        $ 360          $(120)        $(128)       $  --           $ (33)          $  79
</TABLE>

Details of the facility closures and employee reductions for the 2000
restructuring program follow.

<TABLE>
<CAPTION>
                                                      Plan Inception
                              Initial         2001           Through
                                 Plan     Activity     Dec. 31, 2001
                            ---------   ----------   ---------------

<S>                           <C>         <C>         <C>
 Facility closures
   Factories                      8            5              5
   Distribution centers          13           13             13
 Employee reductions          2,700        2,620          2,620
</TABLE>

During the fourth quarter of 2001, the Company recorded a charge of $63 million
associated with planned new actions: the withdrawal from several noncore
businesses and the closing of one factory in the Duracell segment. The factory
closure, based on a study that revealed excess worldwide capacity, will result
in the reduction of 170 employees. Once the closure is completed, annual pretax
savings will be approximately $5 million. The factory closure and the majority
of the employee reductions were completed in January 2002. Details of the
activity in the 2001 restructuring program follow.

2001 Restructuring Program

<TABLE>
<CAPTION>
                                          Initial       2001          Balance
                                        Provision   Activity    Dec. 31, 2001
                                      ----------- ----------   --------------
(millions)

<S>                                      <C>        <C>         <C>
 Employee-related expenses
   Severance payments                    $  3       $ --               $  3
 Property, plant, and equipment            23        (23)                --
 Contractual obligations and other         37         (7)                30
                                         ----       ----               ----
                                         $ 63       $(30)              $ 33
</TABLE>

                                       40
<PAGE>
      In the fourth quarter of 2001, in connection with a decision to exit
certain regional battery brands in international markets that do not carry the
Duracell brand, the Company announced a noncash impairment charge relating to
the write-down of goodwill, other intangibles and related long-lived assets.
This resulted in a fourth-quarter 2001 pretax charge to operations of $164
million. The value of the impaired assets was determined based on discounted
cash flow analyses for future operating periods.

      A summary of restructuring and asset impairment charges follows.

<TABLE>
<CAPTION>
Years ended December 31,                     2001     2000    1999
                                         --------   ------ -------
(millions)

<S>                                        <C>        <C>     <C>
 Restructuring provision                   $  63      $ 360   $ --
 Asset impairments                           164        212     --
 Changes to 2000 restructuring program       (55)        --     --
                                           -----      -----   ----
                                           $ 172      $ 572   $ --
</TABLE>

                                  INCOME TAXES

Income before income taxes and income tax expense are summarized below.

<TABLE>
<CAPTION>
Years ended December 31,                                    2001         2000       1999
                                                         ---------   ---------   ---------
(millions)

<S>                                                       <C>           <C>        <C>
 Income from continuing operations before income taxes
   United States                                          $  533        $ 664      $1,116
   Foreign                                                   809          624         796
                                                          ------        ------     ------
 Total income before income taxes                         $1,342        $1,288     $1,912
                                                          ------        ------     ------
 Current tax expense

   Federal                                                $  107        $ 365      $  181
   Foreign                                                   219          233         244
   State                                                      15           25          22
 Deferred tax expense

   Federal                                                    44          (87)        134
   Foreign                                                    43          (68)         82
   State                                                       4           (1)          1
                                                          ------        --------   ------
 Total income tax expense                                 $  432        $ 467      $  664
</TABLE>

The effective tax rate decreased in 2001, due primarily to the nondeductibility
of certain asset impairment charges in 2000. Excluding in both years the impact
of the restructuring and asset impairment charges, the tax rate declined to
31.0% from 32.8%. The decrease was primarily attributable to the Company's tax
management strategies. A reconciliation of the statutory Federal income tax
rates to the Company's effective tax rate follows.

                                       41
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,                            2001        2000      1999
                                               ---------   --------- ---------
(percent)

<S>                                                <C>         <C>       <C>
 Statutory Federal tax rate                        35.0        35.0      35.0
 Goodwill amortization and asset impairments        1.5         5.0       0.3
 Rate differential on foreign income               (2.6)       (2.9)      2.0
 Effect of foreign currency translation            (0.2)       (0.2)      0.5
 State taxes (net of Federal tax benefits)          0.9         1.2       0.8
 Benefit of foreign tax credits                    (3.3)       (4.2)     (3.5)
 Other differences                                  0.9         2.4      (0.3)
                                                  -----       -----     -----
 Effective tax rate                                32.2        36.3      34.8
</TABLE>

The components of deferred tax assets and deferred tax liabilities are shown
below.

<TABLE>
<CAPTION>
At December 31,                                             2001                              2000
                                               -------------------------------   ------------------------------
                                                 Deferred Tax     Deferred Tax     Deferred Tax    Deferred Tax
                                                       Assets      Liabilities           Assets     Liabilities
                                               --------------   --------------   --------------   -------------
(millions)


<S>                                              <C>              <C>              <C>            <C>
 Current
  Advertising and sales promotion                      $ 37            $ --              $ 21           $ --
  Benefit plans                                          48              --                60             --
  Discontinued operations                                41              --               102             --
  Restructuring and asset impairments                    97              --               142             --
  Miscellaneous reserves and accruals                    67              --               104             --
  Operating loss and credit carryforwards                 2              --                 4             --
  Other                                                 189              --               133             --
                                                       ----            ----              ----           ----
  Total current                                         481            $ --               566           $ --
                                                       ----            ----              ----           ----
  Net current                                          $481                              $566
                                                       ----            ----              ----           ----
Noncurrent

  Benefit plans                                        $136            $ --              $126           $ --
  Intangibles                                            --             151                --            166
  Operating loss and credit carryforwards                19              --                27             --
  Property, plant and equipment                          --             397                --            356
  Other                                                  --              58                --             74
                                                       ----            ----              ----           ----
  Total noncurrent                                      155             606               153            596
                                                       ----            ----              ----           ----
   Valuation allowance                                 $ (8)                             $ (7)
                                                       ----            ----              ----           ----
   Net noncurrent                                                      $459                             $450
                                                                       ----                             ----
 Total

   Net deferred tax assets/liabilities                 $ 22                              $116
                                                       ----                              ----
</TABLE>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Based upon the level of historical taxable income
and projections for future taxable income over the periods for which the
deferred tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of these deductible differences,
net of the existing valuation allowances at December 31, 2001. The valuation
allowance at December 31, 2001, related to deferred tax assets in certain
foreign jurisdictions for which management believes it is more likely than not
that it will not generate sufficient future taxable income in order to realize
the deferred tax assets.

      At December 31, 2001, the Company had net operating loss carryforwards for
foreign income tax purposes of $34 million, which are available to offset future
taxable income, if any, through 2006.

                                       42
<PAGE>
                       PENSIONS 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 defined
benefit expense for continuing operations follow.

<TABLE>
<CAPTION>
                                                      Pensions                     Other Retiree Benefits
                                         ----------------------------------- ---------------------------------
Years ended December 31,                      2001          2000        1999      2001        2000      1999
                                         ---------   ----------- ----------- ---------   --------- -----------
(millions)

<S>                                         <C>            <C>          <C>         <C>        <C>        <C>
Components of net benefit
  expense:
  Service cost-benefits earned              $  61          $  64        $  67       $   6      $   6      $   6
  Interest cost on benefit obligation         130            122          112          18         19         16
  Estimated return on assets                 (166)          (171)        (159)         (4)        (4)        (4)
  Net amortization                              9              5           13          (5)        (7)        (7)
  Plan curtailments and other                  --             (3)          (7)         --         --         --
                                            -----          -----        -----       -----      -----      -----
                                               34             17           26          15         14         11
  Other                                        12              9            9          --         --         --
                                            -----          -----        -----       -----      -----      -----
  Net defined benefit expense               $  46          $  26        $  35       $  15      $  14      $  11
                                            -----          -----        -----       -----      -----      -----
</TABLE>



                                       43
<PAGE>
The funded status of the Company's principal defined benefit and other retiree
benefit plans and the amounts recognized in the balance sheet follow.

<TABLE>
<CAPTION>
                                                   Pension Benefits           Other Retiree Benefits
                                             ---------------------------   ------------------------------
Years ended December 31,                           2001           2000          2001                2000
                                             ------------   ------------   -----------       ------------
(millions)

<S>                                             <C>             <C>             <C>              <C>
Change in benefit obligation:
  Balance at beginning of year                  $ 1,961         $ 1,956         $   259          $   261
  Benefit payments                                 (113)           (111)            (21)             (17)
  Service and interest costs                        191             185              24               24
  Amendments                                         12              26             (14)              --
  Actuarial (gains) losses                          (57)             78             135               (7)
  Plan curtailments                                  (3)            (33)             --               --
  Divestitures                                       --             (71)             --               --
  Currency translation adjustment                   (41)            (69)             (3)              (2)
                                                -------         -------         -------          -------
  Balance at end of year                        $ 1,950         $ 1,961         $   380          $   259
                                                -------         -------         -------          -------
Change in fair value of plan assets:

  Balance at beginning of year                  $ 1,878         $ 2,052         $    40          $    41
  Actual return on plan assets                     (168)             42              (2)              (1)
  Employer contribution                              35              31              --               --
  Benefit payments                                  (92)            (91)             --               --
  Divestitures                                       --             (87)             --               --
  Currency translation adjustment                   (35)            (69)             --               --
                                                -------         -------         -------          -------
  Balance at end of year                        $ 1,618         $ 1,878         $    38          $    40
                                                -------         -------         -------          -------
Benefit obligations in excess of plan assets    $  (332)        $   (83)        $  (342)         $  (219)
Unrecognized prior service cost and
  transition obligation                              41              44               2               18
Unrecognized net loss (gain)                        399             128              57              (90)
Minimum liability adjustment included in:
  Intangible assets                                 (12)             (6)             --               --
  Stockholders' equity                              (87)            (34)             --               --
                                                -------         -------         -------          -------
Net prepaid (accrued) benefit cost              $     9         $    49         $  (283)         $  (291)
                                                -------         -------         --------         --------
</TABLE>

The values for pension plans with accumulated benefit obligations in excess of
plan assets follow.

<TABLE>
<CAPTION>
At December 31,                      2001       2000
                                   --------   --------
(millions)
<S>                                <C>        <C>
 Projected benefit obligation      $ 550      $ 513
 Accumulated benefit obligation      490        445
 Fair value of plan assets           276        277
</TABLE>

The weighted average assumptions used in determining related obligations of
pension benefit plans are shown below.

<TABLE>
<CAPTION>
At December 31,                           2001       2000     1999
                                      --------   -------- --------
(percent)
<S>                                      <C>        <C>      <C>
 Discount rate                            6.8        7.0      6.8
 Long-term rate of return on assets       8.6        9.1      9.1
 Rate of compensation increases           4.2        4.7      4.7
</TABLE>

                                       44
<PAGE>
The weighted average assumptions used in determining related obligations of
other retiree benefit plans are shown below.

<TABLE>
<CAPTION>
At December 31,                           2001       2000     1999
                                      --------   -------- --------
(percent)
<S>                                       <C>       <C>      <C>
 Discount rate                            7.2        7.2      7.5
 Long-term rate of return on assets       9.0       10.0     10.0
</TABLE>

The assumed health care cost trend rate for 2002 is 12%, decreasing to 5% in
2007. A one percentage point increase in the trend rate would have increased the
accumulated postretirement benefit obligation by 14%, and interest and service
cost by 21%. A one percentage point decrease in the trend rate would have
decreased the accumulated postretirement benefit obligation by 12%, 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 $139
million and $189 million at December 31, 2001 and 2000, 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. In addition to the defined benefit and other retiree benefit
plans, the Company also sponsors defined contribution plans, primarily covering
U.S. employees. The Company's expense for defined contribution plans in 2001,
2000 and 1999 totaled $34 million, $35 million and $36 million, respectively.

                          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 provided 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 stockholders' equity did not change as a result
of the redemption.

In June 2000, all shares were fully allocated to participants and the ESOP loan
was fully repaid. No contributions were made during 2001.

                  STOCK COMPENSATION PLANS AND CAPITAL STOCK


At December 31, 2001, the Company had stock-based compensation plans described
below that included the premerger plans of Duracell.

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. Under the stock incentive plans, options to purchase a maximum of
198,800,000 shares may be granted. At December 31, 2001, 39,544,796 shares were
available for future grants. Options granted under the plans may be either
incentive stock options or nonqualified options. Outstanding options have seven-
to 10-year terms.

      Options granted prior to April 17, 1997, became 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. One-quarter of the options awarded to the Chief
Executive Officer on his hiring date vested immediately, and the remainder vest
in one-third increments annually over a three-year period. The January 19, 2001,
options granted to the President/Chief Operating Officer vest one-half on the
first anniversary and one-half on the

                                       45
<PAGE>
second anniversary 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).

      The Company applies 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, the
Company's net income and net income per common share would have been as follows.

<TABLE>
<CAPTION>
Years ended December 31,                    2001       2000        1999
                                       ---------   ---------  ----------
(millions, except per share amounts)
<S>                                   <C>         <C>        <C>
 Net income

   As reported                          $  910      $  392     $ 1,260
   Pro forma                               792         311       1,114
 Net income per common share
 Basic
   As reported                          $  .86      $  .37     $  1.15
   Pro forma                               .75         .29        1.02
 Assuming full dilution
   As reported                             .86         .37        1.14
   Pro forma                               .75         .29        1.01
</TABLE>

The weighted average fair value of options granted was $9.44 in 2001, $10.58 in
2000 and $14.64 in 1999. 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.

<TABLE>
<CAPTION>
Years ended December 31,        2001          2000        1999
                            -----------   ----------- ------------
<S>                       <C>           <C>         <C>
 Risk-free interest rates    5.4%          6.3%        6.1%
 Expected option lives       5.5 years     4.9 years   4.7 years
 Expected volatilities      33.3%         33.4%       30.4%
 Expected dividend yields    2.2%          2.0%        1.3%
</TABLE>

A summary of the status of the Company's stock option plans follows.

<TABLE>
<CAPTION>
Years ended December 31,                      2001                     2000                     1999
                                    ------------------------ ------------------------ -------------------------
                                                    Weighted                   Weighted                  Weighted
                                                     Average                    Average                   Average
                                          Options   Exercise         Options   Exercise       Options    Exercise
                                      (Thousands)      Price     (Thousands)      Price   (Thousands)       Price
                                    ------------- ----------   ------------- ---------- ------------- -----------
<S>                                   <C>          <C>           <C>          <C>         <C>          <C>
 Outstanding at beginning of year       58,969     $  38.76        51,956     $  39.79      43,659     $  35.49
   Granted                              18,127        29.23        11,404        32.04      15,322        45.19
   Exercised                            (2,488)       17.04        (2,071)       17.48      (5,745)       18.94
   Cancelled                            (3,556)       42.31        (2,320)       47.86      (1,280)       51.52
                                        ------     --------        ------     --------      ------     --------
 Outstanding at year-end                71,052     $  36.91        58,969     $  38.76      51,956     $  39.79
                                        ------     --------        ------     --------      ------     --------
 Options exercisable at year-end        42,242                     35,067                   26,962
</TABLE>

                                       46
<PAGE>
The following table summarizes information about fixed stock options
outstanding.

<TABLE>
<CAPTION>
At December 31, 2001
----------------------------------------------------------------------------------------------------------
    Range of
Exercise Prices                         Outstanding                                 Exercisable
------------------- ------------------------------------------------------ -------------------------------
                                      Weighted Average

       At     Less       Options       Remaining Years   Weighted Average       Options  Weighted Average
    Least     Than   (Thousands)   of Contractual Life     Exercise Price   (Thousands)    Exercise Price
   -------  ------ ------------- --------------------- ------------------ ------------- -----------------
<S>          <C>     <C>           <C>                   <C>                <C>          <C>
 $     11    $21        7,403              2.7              $  17.97           7,403        $  17.97
       21     35       33,161              8.4                 30.11           8,800           30.62
       35     48       21,500              6.8                 45.85          17,114           46.05
       50     60        8,988              6.5                 56.22           8,925           56.26
             ---       ------              ---              --------          ------        --------
 $     11    $60       71,052              7.1              $  36.91          42,242        $  40.07
</TABLE>

Share Repurchase Program

The Company has a share repurchase program in place 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, 2000, the Company repurchased 94
million shares in the open market for $4,084 million. In 2001, the Company
repurchased 400 thousand shares for $12 million.

     In 2001, the Company continued to sell equity put options as an enhancement
to the share repurchase program and earned $9 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, 2001, the outstanding put options had strike prices that
were greater than the closing price for Gillette common stock on December 31,
2001. Those options were therefore "in the money." Although the options are not
exercisable until a future date, the "in the money" obligation at December 31,
2001, was $1 million. At December 31, 2000, no "in the money" obligations
existed on outstanding options.

Preferred Stock Purchase Rights

At December 31, 2001, the Company had 528 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, 2001, there were authorized 5 million shares of preferred
stock without par value, of which 400 thousand Series A shares were reserved for
issuance upon exercise of the rights. No shares were outstanding.

                                       47
<PAGE>
                  OPERATING SEGMENTS AND RELATED INFORMATION


The following table presents certain operating segment information.

<TABLE>
<CAPTION>
                               Blades &     Personal                     Oral                    All
Years ended December 31,         Razors         Care     Duracell        Care       Braun       Other       Total
                             ----------   ----------   ----------   ---------   ---------   ---------   ---------
(millions)

 2001
<S>                            <C>          <C>          <C>         <C>         <C>         <C>         <C>
 Net sales                     $3,416       $  877       $2,365      $1,270      $1,033      $   --      $ 8,961
 Profit from operations         1,141           68          217         240          98        (266)       1,498
 Identifiable assets            3,195          515        2,932         976         963       1,388        9,969
 Capital expenditures             222           49          162          92          69          30          624
 Depreciation                     197           26           78          53          53          46          453

 2000
 Net sales                     $3,394       $  960       $2,567      $1,204      $1,100      $   --      $ 9,225
 Profit from operations         1,272          100          456         226          94        (636)       1,512
 Identifiable assets            3,740          538        3,304         901       1,078         841       10,402
 Capital expenditures             477           52          156          45          59           4          793
 Depreciation                     222           43           59          54          59          30          467

 1999
 Net sales                     $3,143       $1,041       $2,709      $1,114      $1,067      $   --      $ 9,074
 Profit from operations         1,144           93          608         224          60         (42)       2,087
 Identifiable assets            3,532          696        3,310       1,075       1,190       1,983       11,786
 Capital expenditures             459           85          145          82          88          30          889
 Depreciation                     186           29           56          49          57          22          399
</TABLE>

Each operating segment is individually managed and has separate financial
results that are reviewed by the Company's chief operating decision-maker. Each
segment contains closely related products that are unique to the particular
segment. The name of the Toiletries segment has been changed to Personal Care,
to better reflect the philosophy of segment management. No changes have been
made to the products contained in the segment.

      The Blades & Razors segment consists of blades and razors. The Personal
Care segment includes shave preparations, after-shaves and
antiperspirants/deodorants. The Duracell segment consists of consumer batteries.
Effective January 1, 2001, a new "Oral Care" segment replaced the previous
"Oral-B Products" segment. Oral Care contains all manual oral care products
previously included under Oral-B Products, plus Braun Oral-B power oral care
products previously included in the "Braun Products" segment. The new Braun
segment contains all remaining Braun products: male and female hair removal;
household and hair care appliances; and personal diagnostic devices, including
ear thermometers and blood pressure monitors. Prior-year amounts have been
reclassified to reflect the change.

      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.

                                       48
<PAGE>
      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 $172 million and $572 million
charges for restructuring and asset impairments in 2001 and 2000, respectively.
Identifiable assets includes financial instruments managed by the Corporate
Treasury Department, nonqualified benefit trusts, deferred income tax assets and
net assets of discontinued operations. Capital expenditures is primarily related
to Research and Development initiatives.

      The Company's largest customer, Wal-Mart Stores, Inc. and its affiliates,
accounted for 12% of sales in 2001. These sales occurred primarily in the
United States and were across all product segments.


Net sales by geographic area follow.

<TABLE>
<CAPTION>
Years ended December 31,       2001       2000      1999
                           ---------   --------- ---------
(millions)

<S>                         <C>         <C>       <C>
 Foreign                    $5,204      $5,510    $5,509
 United States               3,757       3,715     3,565
                            ------      ------    ------
                            $8,961      $9,225    $9,074
</TABLE>

Long-lived assets follow.

<TABLE>
<CAPTION>
At December 31,        2001       2000      1999
                   --------   -------- ---------
(millions)

<S>                 <C>        <C>      <C>
 Germany            $  508     $  519   $  546
 Other Foreign       1,013      1,145    1,178
                    ------     ------   ------
   Total Foreign     1,521      1,664    1,724
 United States       2,027      1,886    1,743
                    ------     ------   ------
                    $3,548     $3,550   $3,467
</TABLE>


                                       49
<PAGE>
                  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)





<TABLE>
<CAPTION>
                                                              Three Months Ended
                                         --------------------------------------------------------------------
2001                                          March 31     June 30    September 30   December 31  Total Year
                                         ------------- -----------  -------------- -------------  -----------
(millions, except per share amounts)

<S>                                            <C>         <C>        <C>            <C>          <C>
 Net sales                                     $ 1,763     $   2,118      $ 2,362     $ 2,718      $   8,961
 Gross profit                                    1,140         1,346        1,440       1,628          5,554
 Profit from operations                            319           375          473         331          1,498
 Income from continuing operations
   before income taxes                             264           336          429         313          1,342
 Net income                                        182           232          296         200            910
 Net income per common share, basic
   and assuming full dilution (a)                  .17           .22          .28         .19            .86
 Dividends declared per common share                --       .16 1/4      .16 1/4     .32 1/2            .65
 Dividends paid per common share               .16 1/4       .16 1/4      .16 1/4     .16 1/4            .65
 Stock price range:
   High                                          36.38         31.98        32.08       35.31          36.38
   Low                                           29.50         24.50        26.00       29.00          24.50

2000

 Net sales                                     $ 1,889     $   2,222      $ 2,308     $ 2,806      $   9,225
 Gross profit                                    1,183         1,392        1,437       1,744          5,756
 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:
   High                                          43.00         41.69        34.81       37.19          43.00
   Low                                           28.19         30.88        27.19       27.13          27.13
</TABLE>

(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.

                                       50
<PAGE>
                          Historical Financial Summary
                  The Gillette Company and Subsidiary Companies


<TABLE>
<CAPTION>
Years ended December 31,                                 2001(a)      2000(b)      1999        1998(c)       1997       1996(d)
                                                      ----------   ----------   ----------   ----------   ----------   ---------
(millions, except per share amounts and employees)

 Summary of Operations

<S>                                                      <C>          <C>          <C>         <C>           <C>        <C>
Net Sales (e)                                            $ 8,961        9,225       9,074         9,136        9,084      8,735
Profit from Operations (e)                               $ 1,498        1,512       2,087         1,776        2,168      1,514
Income before Income Taxes
  Continuing                                             $ 1,342        1,288       1,912         1,656        2,065      1,403
  Discontinued                                           $    --         (531)         18            13          156        122
                                                         -------      -------      ------       -------      -------    -------
                                                         $ 1,342          757       1,930         1,669        2,221      1,525
Net Income

  Continuing                                             $   910          821       1,248         1,073        1,327        871
  Discontinued                                           $    --         (429)         12             8          100         78
                                                         -------      -------      ------       -------      -------    -------
                                                         $   910          392       1,260         1,081        1,427        949
Weighted Average Common Shares
  Outstanding
  Basic                                                    1,055        1,054       1,089         1,117        1,118      1,107
  Assuming full dilution                                   1,058        1,063       1,111         1,144        1,148      1,140
Per Common Share Data
Net Income per Common Share:
  Basic
   Continuing                                            $   .86          .78        1.14           .95         1.18        .78
   Discontinued                                          $    --         (.41)        .01           .01          .09        .07
                                                         -------      -------      ------       -------      -------    -------
                                                         $   .86          .37        1.15           .96         1.27        .85
  Assuming Full Dilution
   Continuing                                            $   .86          .77        1.13           .94         1.15        .76
   Discontinued                                          $    --         (.40)        .01           .01          .09        .07
                                                         -------      -------      ------       -------      -------    -------
                                                         $   .86          .37        1.14           .95         1.24        .83
Dividends Declared per Common Share:
  Gillette                                               $   .65          .65         .59           .51          .43        .36
  Duracell                                                                                                         $        .58
Stock Price, December 31                                 $ 33.40        36.13       41.19         47.81        50.22      38.88
Balance Sheet Data
Net Property, Plant and Equipment (e)                    $ 3,548        3,550       3,467         3,285        2,918      2,404
Total Assets (e)                                         $ 9,946       10,213      10,612        10,630        9,636      9,171
Long-Term Debt                                           $ 1,654        1,650       2,931         2,256        1,476      1,490
Stockholders' Equity                                     $ 2,137        1,924       3,060         4,543        4,841      4,471
Other Information
Net Interest Expense                                     $   141          218         129            86           69         67
Depreciation and Amortization (e)                        $   509          535         464           421          384        347
Capital Expenditures (e)                                 $   624          793         889           952          933        787
Employees (e)                                             31,500       35,200      37,600        39,800       40,500     40,400
</TABLE>

(a) In 2001, charges for restructuring and asset impairment expenses reduced
    profit from operations and income before income taxes by $172 million, net
    income by $135 million and net income per common share, both basic and
    assuming full dilution, by $.13.

(b) In 2000, charges 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.

(c) 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.

(d) 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.

(e) Represents continuing operations.

                                       51


<PAGE>
                     Corporate and Stockholder Information



<Table>
<S>                                                                  <C>

Stockholder Inquiries                                                 Auditors
William J. Mostyn III                                                 KPMG LLP
Secretary

                                                                      Financial Information
Investor Inquiries                                                    The Gillette Company offers free of charge this Annual
Christopher M. Jakubik                                                Report, the Form 10-K Annual Report, quarterly earnings
Vice President, Investor Relations                                    reports and other announcements concerning financial results.

Media Inquiries                                                           Printed copies of these materials may be requested
Eric A. Kraus                                                         by writing to the Office of the Secretary, by calling toll
Vice President, Corporate Communications                              free (877) 788-4463 from within the United States or by
                                                                      calling (703) 386-1171 from outside the United States.
Annual Meeting                                                            Financial information also may be reviewed, down-
The Annual Meeting of Stockholders will take place                    loaded or requested in printed form by accessing the
on Thursday, May 16, 2002, at the Hotel du Pont,                      Investors' section of www.gillette.com.
Wilmington, Delaware. The meeting will convene at
10 am.
                                                                      InvestLink-Direct Stock
                                                                      Purchase Program
Corporate Headquarters                                                InvestLink is a direct stock purchase program sponsored
Prudential Tower Building                                             and administered by EquiServe Trust Company, N.A.,
Boston, Massachusetts 02199                                           the Company's Transfer Agent. InvestLink provides
(617)421-7000                                                         an economical, convenient way to purchase your first
Via Internet: www.gillette.com                                        shares or to purchase additional shares of Gillette common
                                                                      stock directly from the Company Program participants
Incorporated                                                          also may reinvest their cash dividends through InvestLink.
State of Delaware                                                         Interested individuals may request an investor kit by
                                                                      writing to the Transfer Agent by calling toll-free
Common Stock                                                          (877)788-4463 from within the United States, by calling
Major stock exchanges, New York, Boston, Chicago,                     (703)386-1171 from outside the United States; or
Pacific, Frankfurt                                                    by accessing the Investors' section of www.gillette.com.

New York Stock Exchange Symbol: G                                     Electronic Proxy Material Distribution
                                                                      The Company is pleased to offer its registered stock-
At year-end stockholders numbered 47,400, living in                   holders and participants in its Employees' Savings Plan
all 50 states and more than 50 countries abroad                       and ESOP the option of receiving proxy material
                                                                      electronically.
                                                                      Registered stockholders and plan participants may authorize
Transfer Agent and Registrar                                          electronic delivery or obtain more information at
EquiServe Trust Company, N.A.                                         www.econsent.com/g/.
P.O. Box 43016                                                            Beneficial stockholders should contact their
Providence, Rhode Island 02940-3016                                   brokerage firms to determine the availability of electronic
(781)575-2322                                                         proxy material distribution.
By fax: (781)828-8813
Toll-free: (888)218-2841
Hearing impaired: (800)952-9245(TTY/TDD)
Via Internet: www.equiserve.com

</Table>


<PAGE>
                        Directors and Executive Officers



<Table>
<S>                                               <C>
DIRECTORS                                         EXECUTIVE DIRECTORS

Warren E. Buffett(3),(5)                          Chairman of the Board and
Chairman and Chief Executive Officer,             Chief Executive Officer
Berkshire Hathaway, Inc.                          James M. Kilts

Edward F. DeGraan                                 President and
President                                         Chief Operating Officer
                                                  Edward F. DeGraan
Wilbur H. Gantz(2),(5)
Former Chairman and Chief Executive Officer,      Senior Vice Presidents
PathoGenesis Corporation                          Charles W. Cramb
                                                  Finance
Michael B. Gifford(1),(4)
Former Chairman of the Board,                     Edward E. Guillet
Danka Business Systems PLC                        Human Resources

Carol R. Goldberg(2),(3)                          Peter Klein
President,                                        Strategy and Business Development
The Avcar Group, Ltd.
                                                  Kathy S. Lane
Dennis F. Hightower (2),(5)                       Corporate Information Technology and Applications
Retired Chief Executive Officer,
Europe Online Networks, S.A.                      John F. Manfredi
                                                  Corporate Affairs
Herbert H. Jacobi(2),(4)
Chairman of the Supervisory Board,                Richard K. Willard
HSBC Trinkaus & Burkhardt KGaA                    Legal

                                                  Vice Presidents
James M. Kilts(3)                                 A. Bruce Cleverly
Chairman of the Board                             Global Business Management,
                                                  Oral Care
Henry R. Kravis(1),(3)
General Partner,                                  Joseph F. Dooley
Kohlberg Kravis Roberts & Co., L.P.               Commercial Operations,
                                                  North America
Jorge P. Lemann(1),(4)
General Partner,                                  Ernst A. Haberli
GP Investimentos                                  Commercial Operations,
                                                  International
Richard R. Pivirotto(2),(5)
President,                                        Peter K. Hoffman
Richard R. Pivirotto Co., Inc.                    Global Business Management,
                                                  Blades and Razors
Marjorie M. Yang(1),(4)
Chairman and Chief Executive Officer,             Mark M. Leckie
Esquel Group                                      Global Business Management,
                                                  Duracell
(1)Audit Committee
(2)Compensation Committee                         Claudio E. Ruben
(3)Executive Committee                            Controller
(4)Finance Committee
(5)Nominating and Corporate Governance Committee  Joseph Scalzo
                                                  Global Business Management,
   Committee Chair                                Personal Care
</Table>