UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
FORM 10-Q
_________________________
(Mark One)
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| | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 30, 2017 |
For the quarterly period ended March 31, 2020
OR
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| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from________ to________ . |
Commission File Number: 1-644
COLGATE-PALMOLIVE COMPANY
(Exact name of registrant as specified in its charter)
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| |
DELAWAREDelaware | 13-1815595 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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| | | | | | |
| 300 Park Avenue New York, | | |
| |
| New York, | New York | | | 10022 | |
(Address of principal executive offices) | | (Zip Code) | |
(212) (212) 310-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $1.00 par value | | CL | | New York Stock Exchange |
0.000% Notes due 2021 | | CL21A | | New York Stock Exchange |
0.500% Notes due 2026 | | CL26 | | New York Stock Exchange |
1.375% Notes due 2034 | | CL34 | | New York Stock Exchange |
0.875% Notes due 2039 | | CL39 | | New York Stock Exchange |
NO CHANGES
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| | | |
Large accelerated filer☒ | ☒ | Accelerated filer | ☐ |
Non-accelerated filer☐ (Do not check if a smaller reporting company) | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: |
| | | | |
Class | | Shares Outstanding | | Date |
Common stock, $1.00 par value | | 878,105,223856,528,455 | | September 30, 2017March 31, 2020 |
PART I.FINANCIAL INFORMATION
COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Income
(Dollars(Dollars in Millions Except Per Share Amounts)
(Unaudited)
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
Net sales | $ | 4,097 |
| | $ | 3,884 |
|
Cost of sales | 1,632 |
| | 1,597 |
|
Gross profit | 2,465 |
| | 2,287 |
|
Selling, general and administrative expenses | 1,473 |
| | 1,365 |
|
Other (income) expense, net | 40 |
| | 43 |
|
Operating profit | 952 |
| | 879 |
|
Non-service related postretirement costs | 21 |
| | 25 |
|
Interest (income) expense, net | 36 |
| | 40 |
|
Income before income taxes | 895 |
| | 814 |
|
Provision for income taxes | 147 |
| | 214 |
|
Net income including noncontrolling interests | 748 |
| | 600 |
|
Less: Net income attributable to noncontrolling interests | 33 |
| | 40 |
|
Net income attributable to Colgate-Palmolive Company | $ | 715 |
| | $ | 560 |
|
| | | |
Earnings per common share, basic | $ | 0.83 |
| | $ | 0.65 |
|
| | | |
Earnings per common share, diluted | $ | 0.83 |
| | $ | 0.65 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net sales | $ | 3,974 |
| | $ | 3,867 |
| | $ | 11,562 |
| | $ | 11,474 |
|
Cost of sales | 1,591 |
| | 1,543 |
| | 4,610 |
| | 4,598 |
|
Gross profit | 2,383 |
| | 2,324 |
| | 6,952 |
| | 6,876 |
|
Selling, general and administrative expenses | 1,429 |
| | 1,322 |
| | 4,124 |
| | 3,996 |
|
Other (income) expense, net | 27 |
| | (69 | ) | | 163 |
| | (2 | ) |
Operating profit | 927 |
| | 1,071 |
| | 2,665 |
| | 2,882 |
|
Interest (income) expense, net | 27 |
| | 25 |
| | 74 |
| | 78 |
|
Income before income taxes | 900 |
| | 1,046 |
| | 2,591 |
| | 2,804 |
|
Provision for income taxes | 250 |
| | 300 |
| | 770 |
| | 846 |
|
Net income including noncontrolling interests | 650 |
| | 746 |
| | 1,821 |
| | 1,958 |
|
Less: Net income attributable to noncontrolling interests | 43 |
| | 44 |
| | 120 |
| | 123 |
|
Net income attributable to Colgate-Palmolive Company | $ | 607 |
| | $ | 702 |
| | $ | 1,701 |
| | $ | 1,835 |
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| | | | | | | |
Earnings per common share, basic | $ | 0.69 |
| | $ | 0.79 |
| | $ | 1.93 |
| | $ | 2.05 |
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| | | | | | | |
Earnings per common share, diluted | $ | 0.68 |
| | $ | 0.78 |
| | $ | 1.91 |
| | $ | 2.04 |
|
| | | | | | | |
Dividends declared per common share * | $ | 0.40 |
| | $ | 0.39 |
| | $ | 1.59 |
| | $ | 1.55 |
|
* Two dividends were declared in the first quarter of 2017 and 2016.
See Notes to Condensed Consolidated Financial Statements.
2
COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Comprehensive Income
(Dollars(Dollars in Millions)
(Unaudited)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended |
| September 30, | | September 30, | March 31, |
| 2017 | | 2016 | | 2017 | | 2016 | 2020 | | 2019 |
Net income including noncontrolling interests | $ | 650 |
| | $ | 746 |
| | $ | 1,821 |
| | $ | 1,958 |
| $ | 748 |
| | $ | 600 |
|
Other comprehensive income (loss), net of tax: | | | | | | | | | | |
Cumulative translation adjustments | 64 |
| | — |
| | 294 |
| | 83 |
| (355 | ) | | 26 |
|
Retirement plans and other retiree benefit adjustments | 54 |
| | 16 |
| | 79 |
| | 39 |
| 16 |
| | 12 |
|
Gains (losses) on available-for-sale securities | — |
| | (1 | ) | | — |
| | (1 | ) | |
Gains (losses) on cash flow hedges | (3 | ) | | 1 |
| | (16 | ) | | (3 | ) | 18 |
| | (5 | ) |
Total Other comprehensive income (loss), net of tax | 115 |
| | 16 |
| | 357 |
| | 118 |
| (321 | ) | | 33 |
|
Total Comprehensive income including noncontrolling interests | 765 |
| | 762 |
| | 2,178 |
| | 2,076 |
| 427 |
| | 633 |
|
Less: Net income attributable to noncontrolling interests | 43 |
| | 44 |
| | 120 |
| | 123 |
| 33 |
| | 40 |
|
Less: Cumulative translation adjustments attributable to noncontrolling interests | 2 |
| | 2 |
| | 11 |
| | (3 | ) | (16 | ) | | 5 |
|
Total Comprehensive income attributable to noncontrolling interests | 45 |
| | 46 |
| | 131 |
| | 120 |
| 17 |
| | 45 |
|
Total Comprehensive income attributable to Colgate-Palmolive Company | $ | 720 |
| | $ | 716 |
| | $ | 2,047 |
| | $ | 1,956 |
| $ | 410 |
| | $ | 588 |
|
See Notes to Condensed Consolidated Financial Statements.
3
COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Balance Sheets
(Dollars(Dollars in Millions)
(Unaudited)
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Assets | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 854 |
| | $ | 883 |
|
Receivables (net of allowances of $84 and $76, respectively) | 1,551 |
| | 1,440 |
|
Inventories | 1,301 |
| | 1,400 |
|
Other current assets | 542 |
| | 456 |
|
Total current assets | 4,248 |
| | 4,179 |
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Property, plant and equipment: | |
| | |
|
Cost | 8,167 |
| | 8,580 |
|
Less: Accumulated depreciation | (4,680 | ) | | (4,830 | ) |
| 3,487 |
| | 3,750 |
|
Goodwill | 3,559 |
| | 3,508 |
|
Other intangible assets, net | 2,822 |
| | 2,667 |
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Deferred income taxes | 179 |
| | 177 |
|
Other assets | 775 |
| | 753 |
|
Total assets | $ | 15,070 |
| | $ | 15,034 |
|
Liabilities and Shareholders’ Equity | |
| | |
|
Current Liabilities | |
| | |
|
Notes and loans payable | $ | 255 |
| | $ | 260 |
|
Current portion of long-term debt | 255 |
| | 254 |
|
Accounts payable | 1,216 |
| | 1,237 |
|
Accrued income taxes | 485 |
| | 370 |
|
Other accruals | 2,232 |
| | 1,917 |
|
Total current liabilities | 4,443 |
| | 4,038 |
|
Long-term debt | 7,336 |
| | 7,333 |
|
Deferred income taxes | 415 |
| | 507 |
|
Other liabilities | 2,535 |
| | 2,598 |
|
Total liabilities | 14,729 |
| | 14,476 |
|
Shareholders’ Equity | |
| | |
|
Common stock | 1,466 |
| | 1,466 |
|
Additional paid-in capital | 2,623 |
| | 2,488 |
|
Retained earnings | 22,481 |
| | 22,501 |
|
Accumulated other comprehensive income (loss) | (4,578 | ) | | (4,273 | ) |
Unearned compensation | (1 | ) | | (2 | ) |
Treasury stock, at cost | (22,104 | ) | | (22,063 | ) |
Total Colgate-Palmolive Company shareholders’ equity | (113 | ) | | 117 |
|
Noncontrolling interests | 454 |
| | 441 |
|
Total equity | 341 |
| | 558 |
|
Total liabilities and equity | $ | 15,070 |
| | $ | 15,034 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Assets | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 1,380 |
| | $ | 1,315 |
|
Receivables (net of allowances of $82 and $73, respectively) | 1,530 |
| | 1,411 |
|
Inventories | 1,205 |
| | 1,171 |
|
Other current assets | 621 |
| | 441 |
|
Total current assets | 4,736 |
| | 4,338 |
|
Property, plant and equipment: | |
| | |
|
Cost | 8,419 |
| | 7,942 |
|
Less: Accumulated depreciation | (4,420 | ) | | (4,102 | ) |
| 3,999 |
| | 3,840 |
|
Goodwill | 2,216 |
| | 2,107 |
|
Other intangible assets, net | 1,343 |
| | 1,313 |
|
Deferred income taxes | 265 |
| | 301 |
|
Other assets | 216 |
| | 224 |
|
Total assets | $ | 12,775 |
| | $ | 12,123 |
|
Liabilities and Shareholders’ Equity | |
| | |
|
Current Liabilities | |
| | |
|
Notes and loans payable | $ | 7 |
| | $ | 13 |
|
Current portion of long-term debt | — |
| | — |
|
Accounts payable | 1,164 |
| | 1,124 |
|
Accrued income taxes | 391 |
| | 441 |
|
Other accruals | 2,292 |
| | 1,727 |
|
Total current liabilities | 3,854 |
| | 3,305 |
|
Long-term debt | 6,520 |
| | 6,520 |
|
Deferred income taxes | 196 |
| | 246 |
|
Other liabilities | 1,938 |
| | 2,035 |
|
Total liabilities | 12,508 |
| | 12,106 |
|
Shareholders’ Equity | |
| | |
|
Common stock | 1,466 |
| | 1,466 |
|
Additional paid-in capital | 1,932 |
| | 1,691 |
|
Retained earnings | 20,207 |
| | 19,922 |
|
Accumulated other comprehensive income (loss) | (3,834 | ) | | (4,180 | ) |
Unearned compensation | (1 | ) | | (7 | ) |
Treasury stock, at cost | (19,878 | ) | | (19,135 | ) |
Total Colgate-Palmolive Company shareholders’ equity | (108 | ) | | (243 | ) |
Noncontrolling interests | 375 |
| | 260 |
|
Total equity | 267 |
| | 17 |
|
Total liabilities and equity | $ | 12,775 |
| | $ | 12,123 |
|
See Notes to Condensed Consolidated Financial Statements.
4
COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Cash Flows
(Dollars in Millions)
(Unaudited)
| | | Nine Months Ended | Three Months Ended |
| September 30, | March 31, |
| 2017 | | 2016 | 2020 | | 2019 |
Operating Activities | | | | | | |
Net income including noncontrolling interests | $ | 1,821 |
| | $ | 1,958 |
| $ | 748 |
| | $ | 600 |
|
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operations: | |
| | |
| |
| | |
|
Depreciation and amortization | 354 |
| | 329 |
| 133 |
| | 128 |
|
Restructuring and termination benefits, net of cash | 80 |
| | (1 | ) | (30 | ) | | 5 |
|
Stock-based compensation expense | 106 |
| | 102 |
| 16 |
| | 17 |
|
Gain on sale of land in Mexico | — |
| | (97 | ) | |
Deferred income taxes | (2 | ) | | 50 |
| (99 | ) | | 53 |
|
Voluntary benefit plan contributions | (81 | ) | | (53 | ) | — |
| | (102 | ) |
Cash effects of changes in: | | | | | | |
Receivables | (50 | ) | | (126 | ) | (211 | ) | | (145 | ) |
Inventories | 16 |
| | 4 |
| 29 |
| | (32 | ) |
Accounts payable and other accruals | 39 |
| | 101 |
| 220 |
| | 44 |
|
Other non-current assets and liabilities | 12 |
| | 50 |
| (38 | ) | | 37 |
|
Net cash provided by operations | 2,295 |
|
| 2,317 |
| 768 |
|
| 605 |
|
Investing Activities | |
| | |
| |
| | |
|
Capital expenditures | (382 | ) | | (392 | ) | (82 | ) | | (71 | ) |
Purchases of marketable securities and investments | (301 | ) | | (271 | ) | (42 | ) | | (27 | ) |
Proceeds from sale of marketable securities and investments | 149 |
| | 158 |
| 16 |
| | — |
|
Proceeds from sale of land in Mexico | — |
| | 60 |
| |
Other | 2 |
| | — |
| |
Payment for acquisitions, net of cash acquired | | (351 | ) | | — |
|
Net cash used in investing activities | (532 | ) | | (445 | ) | (459 | ) | | (98 | ) |
Financing Activities | |
| | |
| |
| | |
|
Principal payments on debt | (3,551 | ) | | (5,446 | ) | (1,200 | ) | | (1,774 | ) |
Proceeds from issuance of debt | 3,478 |
| | 5,447 |
| 1,188 |
| | 2,076 |
|
Dividends paid | (1,070 | ) | | (1,053 | ) | (373 | ) | | (366 | ) |
Purchases of treasury shares | (1,055 | ) | | (913 | ) | (220 | ) | | (399 | ) |
Proceeds from exercise of stock options | 431 |
| | 418 |
| 297 |
| | 71 |
|
Net cash used in financing activities | (1,767 | ) | | (1,547 | ) | |
Net cash provided by (used in) financing activities | | (308 | ) | | (392 | ) |
Effect of exchange rate changes on Cash and cash equivalents | 69 |
| | 3 |
| (30 | ) | | 2 |
|
Net increase (decrease) in Cash and cash equivalents | 65 |
| | 328 |
| (29 | ) | | 117 |
|
Cash and cash equivalents at beginning of the period | 1,315 |
| | 970 |
| 883 |
| | 726 |
|
Cash and cash equivalents at end of the period | $ | 1,380 |
| | $ | 1,298 |
| $ | 854 |
| | $ | 843 |
|
Supplemental Cash Flow Information | |
| | |
| |
| | |
|
Income taxes paid | $ | 820 |
| | $ | 696 |
| $ | 128 |
| | $ | 149 |
|
See Notes to Condensed Consolidated Financial Statements.
5
COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Dollars in Millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2020 |
| Colgate-Palmolive Company Shareholders’ Equity | | |
| Common Stock | | Additional Paid-in Capital | | Unearned Compensation | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss)(1) | | Noncontrolling Interests |
Balance, December 31, 2019 | $ | 1,466 |
| | $ | 2,488 |
| | $ | (2 | ) | | $ | (22,063 | ) | | $ | 22,501 |
| | $ | (4,273 | ) | | $ | 441 |
|
Net income | | | | | | | | | 715 |
| | | | 33 |
|
Other comprehensive income (loss), net of tax | | | | | | | | | | | (305 | ) | | (16 | ) |
Dividends ($0.87/per share)* | | | | | | | | | (738 | ) | | | | (4 | ) |
Stock-based compensation expense | | | 16 |
| | | | | | | | | | |
Shares issued for stock options | | | 133 |
| | | | 164 |
| | | | | | |
Shares issued for restricted stock units | | | (15 | ) | | | | 15 |
| | | | | | |
Treasury stock acquired | | | | | | | (220 | ) | | | | | | |
Other | | | 1 |
| | 1 |
| |
|
| | 3 |
| | | | |
Balance, March 31, 2020 | $ | 1,466 |
| | $ | 2,623 |
| | $ | (1 | ) | | $ | (22,104 | ) | | $ | 22,481 |
| | $ | (4,578 | ) | | $ | 454 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2019 |
| Colgate-Palmolive Company Shareholders’ Equity | | |
| Common Stock | | Additional Paid-in Capital | | Unearned Compensation | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss)(1) | | Noncontrolling Interests |
Balance, December 31, 2018 | $ | 1,466 |
| | $ | 2,204 |
| | $ | (3 | ) | | $ | (21,196 | ) | | $ | 21,615 |
| | $ | (4,188 | ) | | $ | 299 |
|
Net income | | | | | | | | | 560 |
| | | | 40 |
|
Other comprehensive income (loss), net of tax | | | | | | | | | | | 28 |
| | 5 |
|
Dividends ($0.85)/per share)* | | | | | | | | | (734 | ) | | | | (2 | ) |
Stock-based compensation expense | | | 17 |
| | | | | | | | | | |
Shares issued for stock options | | | 33 |
| | | | 49 |
| | | | | | |
Shares issued for restricted stock units | | | (13 | ) | | | | 13 |
| | | | | | |
Treasury stock acquired | | | | | | | (399 | ) | | | | | | |
Other | | |
|
| |
|
| | 1 |
| | (5 | ) | | | | |
Balance, March 31, 2019 | $ | 1,466 |
| | $ | 2,241 |
| | $ | (3 | ) | | $ | (21,532 | ) | | $ | 21,436 |
| | $ | (4,160 | ) | | $ | 342 |
|
(1) Accumulated other comprehensive income (loss) includes cumulative translation losses of $3,467 at March 31, 2020 ($3,134 at March 31, 2019) and $3,128 at December 31, 2019 ($3,155 at December 31, 2018), respectively, and unrecognized retirement plan and other retiree benefits costs of $1,122 at March 31, 2020 ($1,026 at March 31, 2019) and $1,138 at December 31, 2019 ($1,038 at December 31, 2018), respectively.
* NaN dividends were declared in each of the first quarters of 2020 and 2019
See Notes to Condensed Consolidated Financial Statements.
6
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
The Condensed Consolidated Financial Statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair statement of the results for interim periods. Results of operations for interim periods may not be representative of results to be expected for a full year. Colgate-Palmolive Company (together with its subsidiaries, the “Company” or “Colgate”) reclassifies certain prior year amounts, as applicable, to conform to the current year presentation.
For a complete set of financial statement notes, including the Company’s significant accounting policies, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2019, filed with the Securities and Exchange Commission.Commission (the “SEC”).
Provisions for certain expenses, including income taxes, media advertising and consumer promotion, are based on full year assumptions and are included in the accompanying Condensed Consolidated Financial Statements in proportion with estimated annual tax rates, the passage of time or estimated annual sales.sales, as applicable.
| |
3. | Recent Accounting Pronouncements |
On August 28, 2017,In March 2020, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12, “Derivatives2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This new guidance is effective upon issuance of this ASU for contract modifications and hedging relationships on a prospective basis. While the Company is currently assessing the impact of the new guidance, it is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In March 2020, FASB issued ASU No. 2020-03, "Codification to Financial Instruments." This ASU improves and clarifies various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments related to Issue 1, Issue 2, Issue 4, and Issue 5 were effective upon issuance of this update. The amendments related to Issue 3, Issue 6 and Issue 7 were effective for the Company beginning on January 1, 2020. The new guidance did not have a material impact on the Company’s Consolidated Financial Statements.
In January 2020, the FASB issued ASU No. 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323) and Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The guidance provides clarification of the interaction of rules for Hedging Activities,” amendingequity securities, the eligibility criteria for hedged itemsequity method of accounting and transactions to expand an entity’s ability to hedge nonfinancialforward contracts and financial risk components. The new guidance eliminates the requirement to separately measure and present hedge ineffectiveness and aligns the presentationpurchase options on certain types of hedge gains and losses with the underlying hedge item. The new guidance also simplifies the hedge documentation and hedge effectiveness assessment requirements. Thesecurities. This new guidance is effective for the Company beginning on January 1, 2019,2021, with early adoption permitted. The amended presentation and disclosure requirements must be adopted on a prospective basis, while any amendments to cash flow and net investment hedge relationships that exist on the date of adoption must be applied on a “modified retrospective” basis, meaning a cumulative effect adjustment to the opening balance of retained earnings as of the beginning of the year of adoption. While the Company is currently assessing the impact of the new standard on its Consolidated Financial Statements, thisThis new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
On May 10, 2017,In December 2019, the FASB issued ASU No. 2017-09, “Compensation–Stock Compensation2019-12, “Income taxes (Topic 718)740): Scope of ModificationSimplifying the Accounting for Income Taxes.” clarifying when a changeThis ASU simplifies the accounting for income taxes by removing certain exceptions to the terms or conditions of a share-based payment award must be accounted for as a modification. The newgeneral principles in ASC 740 and also clarifies and amends existing guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. Theimprove consistent application. This new guidance is effective for the Company on a prospective basis beginning on January 1, 2018,2021, with early adoption permitted. This new guidance is not expected to have ana material impact on the Company’s Consolidated Financial Statements as it isStatements.
In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 825).” This ASU clarifies three topics related to financial instruments accounting. This new guidance was effective for the Company beginning on January 1, 2020. The new guidance did not have a material impact on the Company’s practice to change either the terms or conditions of share-based payment awards once they are granted.Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
On March 10, 2017,In August 2018, the FASB issued ASU No. 2017-07, “Compensation–Retirement Benefits2018-13, “Fair Value Measurement (Topic 715)820): ImprovingDisclosure Framework - Changes to the Presentation of Net Periodic Pension CostDisclosure Requirements for Fair Value Measurement.” This new guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and Net Periodic Postretirement Benefit Cost,” changing the presentation of the net periodic benefit cost on the Statement of Income and limiting the amount of net periodic benefit cost eligible for capitalization to assets.adds new disclosure requirements. The new guidance permits onlydisclosure requirements include disclosing the service cost component of net periodic benefit cost to be eligible for capitalization. The new guidance also requires entities to present the service cost component of net periodic benefit cost together with compensation costs arising from services rendered by employees during the period. Other components of net periodic benefit cost, which include interest, expected return on assets, amortization of prior service costs and actuarialchanges in unrealized gains and losses are required to be presented outsidefor the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of Operating profit. The line item or itemsthe reporting period and the range and weighted average of significant unobservable inputs used to present the other components of net periodic benefit cost must be disclosed in the Notes to the Consolidated Financial Statements, if not separately described on the Statement of Income. The new presentation requirement is required to be adopted on a “full retrospective” basis, meaning the standard is applied to all of the periods presented in the financial statements, while the limitation on capitalization can only be adopted on a prospective basis. Thedevelop Level 3 fair value measurements. This new guidance iswas effective for the Company beginning on January 1, 2018, with early adoption permitted. While2020 and did not have a material impact on the Company is currently assessing the impact of the new standard on itsCompany’s Consolidated Financial Statements, based on its historical results, it anticipates that, as a result of the reclassification, full year Operating profit will increase by approximately $100 annually with no impact on Net income attributable to Colgate-Palmolive Company.Statements.
OnIn January 26, 2017, the FASB issued ASU No. 2017-04, “Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” eliminating the requirement to calculate the implied fair value, essentially eliminating step two from the goodwill impairment test. The new standard requires goodwill impairment to be based upon the results of step one of the impairment test, which is defined as the excess of the carrying value of a reporting unit over its fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard iswas effective for the Company on a prospective basis beginning on January 1, 2020 with early adoption permitted. This new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
On January 5, 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which provides additional guidance on evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The guidance requires an entity to evaluate if substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the new guidance would define this as an asset acquisition; otherwise, the entity then evaluates whether the asset meets the requirement that a business include, at a minimum, an input and substantive process that together significantly contribute to the ability to create outputs. The guidance is effective for the Company on a prospective basis beginning on January 1, 2018, with early adoption permitted. This new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
On October 24, 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory,” which eliminates the requirement to defer recognition of income taxes on intra-entity asset transfers until the asset is sold to an outside party. The new guidance requires the recognition of current and deferred income taxes on intra-entity transfers of assets other than inventory, such as intellectual property and property, plant and equipment, when the transfer occurs. As permitted, the Company early-adopted the new standard on a “modified retrospective” basis, meaning the standard is applied only to the most recent period presented in the financial statements, as of January 1, 2017. This new guidance did not have a material impact on the Company’s Consolidated Financial Statements.
On August 26, 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which clarifies how certain cash receipts and payments are to be presented in the statement of cash flows. The guidance is effective for the Company beginning on January 1, 2018, with early adoption permitted. This new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
On March 30, 2016, the FASB issued ASU No. 2016-09, “Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which amended accounting for income taxes related to share-based compensation, the related classification in the statement of cash flows and share award forfeiture accounting. The new guidance was effective for the Company beginning on January 1, 2017. As required subsequent to the adoption of this new guidance, the Company recognized excess tax benefits of $17 and $43 (resulting from an increase in the fair value of an award from grant date to the vesting or exercise date, as applicable) in the Provision for income taxes as a discrete item during the three and nine months ended September 30, 2017, respectively. These amounts may not necessarily be indicative of future amounts that may be recognized as any excess tax benefits recognized would be dependent on future stock price, employee exercise behavior and applicable tax rates. Prior to January 1, 2017, excess tax benefits were recognized in equity. As permitted, the Company elected to classify excess tax benefits as an operating activity in the Statement of Cash Flows instead of as a financing activity on a prospective basis and did not retrospectively adjust prior periods. Also, as permitted by the new standard, the Company elected to account for forfeitures as they occur.
On March 15, 2016, the FASB issued ASU No. 2016-07, “Investments–Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting,” which eliminated the requirement to retroactively adjust an investment that subsequently qualifies for equity method accounting (as a result of an increase in level of ownership interest or degree of influence) as if the equity method of accounting had been applied during all prior periods that the investment was held. The new standard requires that the investor add the cost of acquiring additional ownership interest in the investee to its current basis and prospectively apply the equity method of accounting. For an available-for-sale investment, any unrealized gains or losses should be recognized in earnings at the date the investment qualifies as an equity method investment. The new guidance was effective for the Company beginning on January 1, 2017, and did not have a material impact on the Company’s Consolidated Financial Statements.
On February 25, 2016, the FASB issued its final standard on lease accounting, ASU No. 2016-02, “Leases (Topic 842),” which supersedes Topic 840, “Leases.” The new accounting standard requires the recognition of right-of-use assets and lease liabilities for all long-term leases, including operating leases, on the balance sheet. The new standard also provides additional guidance on the measurement of the right-of-use assets and lease liabilities and will require enhanced disclosures about the Company’s leasing arrangements. Under current accounting standards, substantially all of the Company’s leases are considered operating leases and, as such, are not recognized on the Consolidated Balance Sheet. This new standard is effective for the Company beginning on January 1, 2019, with early adoption permitted. The standard requires a “modified retrospective” adoption, meaning the standard is applied to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently assessing the impact of the new standard on its Consolidated Financial Statements.
On January 5,In June 2016, the FASB issued ASU No. 2016-01,2016-13, “Financial Instruments–Overall (Subtopic 825-10): RecognitionInstruments-Credit Losses (Topic 326)” Codification Improvements to Financial Instruments-Credit Losses (Topic 326). Subsequent updates were released in November 2018 (ASU No. 2018-19), November 2019 (ASU No. 2019-10 and Measurement of Financial Assets2019-11) and Financial Liabilities.” The updatedFebruary 2020 (ASU No. 2020-02) that provided additional guidance enhanceson this Topic. This ASU introduces the reportingcurrent expected credit loss (CECL) model, which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. The Company adopted the new standard, which includes amendments to address aspectsprimarily impacts the Company’s trade receivables and related methodology for assessing the collectability of recognition, measurement, presentation and disclosure. The amendment to the standard is effective for the Company beginningits customer accounts, on January 1, 2018. While the Company is currently assessing the impact2020, on a “modified retrospective” basis. The adoption of the new standard, it does not expect this new guidance to have a material impact on its Consolidated Financial Statements.
On July 22, 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which simplifies the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in first-out (“LIFO”) and the retail inventory method. The new guidance was effective for the Company beginning on January 1, 2017. This new guidance did not have a material impact on the Company’s Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
On May 28, 2014, the FASB and the International Accounting Standards Board issued their final converged standard on revenue recognition. The standard, issued as ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” by the FASB, provides a comprehensive revenue recognition model for all contracts with customers and supersedes current revenue recognition guidance. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to its customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The new standard also includes enhanced disclosures. During 2016, the FASB issued several accounting updates (ASU No. 2016-08, 2016-10 and 2016-12) to clarify implementation guidance and correct unintended application of the guidance. The standard allows for either full retrospective adoption or modified retrospective adoption. The Company plans to adopt the new standard on January 1, 2018, on a “modified retrospective” basis. The Company has substantially completed its assessment of the new standard and continues to make progress on its implementation. Based on the progress to date, the Company does not expect the new standard will have a material impact on its revenue recognition accounting policy or its Consolidated Financial Statements.
Hello Products LLC
On January 31, 2020, the Company acquired Hello Products LLC, an oral care business, for cash consideration of $351. The acquisition was financed with a combination of debt and cash. This acquisition is part of the Company’s strategy to focus on high growth segments within its Oral Care, Personal Care and Pet Nutrition businesses.
The total purchase price consideration of $351 has been allocated to the net assets acquired based on their respective preliminary estimated fair values as follows:
|
| | | |
Receivables | $ | 11 |
|
Inventories | 13 |
|
Other assets and liabilities, net | (4 | ) |
Other intangible assets | 200 |
|
Goodwill | 131 |
|
Fair value of net assets acquired | $ | 351 |
|
Other intangible assets acquired include trademarks of $155, which are considered to have an indefinite useful life, and customer relationships of $45, which have a finite useful life. Goodwill of $131 was allocated to the North America segment.
The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in adjustments to the preliminary values discussed above. The Company expects to finalize the purchase price allocation no later than the first quarter of 2021.
Pro forma results of operations have not been presented as the impact on the Company’s Condensed Consolidated Financial Statements is not material.
Laboratoires Filorga Cosmétiques (“Filorga”)
On September 19, 2019 (the “Acquisition Date”), the Company acquired the Filorga skin health business for cash consideration of €1,516 (approximately $1,674), which included interest on the equity purchase price, plus additional consideration of €32 (approximately $38), the majority of which related to repayment of loans from former shareholders of Filorga. Filorga is a premium anti-aging skin health brand focused primarily on facial care. This acquisition is part of the Company’s strategy to focus on high growth segments within its Oral Care, Personal Care and Pet Nutrition businesses, including by expanding its portfolio in premium skin health.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
The total purchase price consideration of $1,712 has been allocated to the net assets acquired based on their respective preliminary estimated fair values as follows:
|
| | | |
Cash | $ | 30 |
|
Receivables | 53 |
|
Inventories | 70 |
|
Other current assets | 18 |
|
Other intangible assets | 1,051 |
|
Goodwill | 923 |
|
Other current liabilities | (67 | ) |
Deferred income taxes | (276 | ) |
Noncontrolling interests | (90 | ) |
Fair value of net assets acquired | $ | 1,712 |
|
Other intangible assets acquired include trademarks of $774, which are considered to have an indefinite useful life, and customer relationships of $277, which have an estimated life of 14 years. Goodwill of $923 was allocated to the Europe segment. The Company expects that goodwill will not be deductible for tax purposes.
The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in adjustments to the preliminary values discussed above. The Company continues to evaluate potential contingencies that may have existed as of the acquisition date and expects to finalize the purchase price allocation no later than the third quarter of 2020.
Pro forma results of operations have not been presented as the impact on the Company’s Condensed Consolidated Financial Statements is not material.
Nigeria Joint Venture
On August 15, 2019, the Company acquired a 51% controlling interest in Colgate Tolaram Pte. Ltd., a joint venture which owns the Nigeria-based Hypo Homecare Products Limited, for $31.
Pro forma results of operations have not been presented as the impact on the Company’s Condensed Consolidated Financial Statements is not material.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
| |
5. | Restructuring and Related Implementation Charges |
InThe Company’s restructuring program (the "Global Growth and Efficiency Program"), which commenced in the fourth quarter of 2012, the Company commenced a restructuring program (as subsequently expanded, as described below, the “Global Growth and Efficiency Program”) for sustained growth. The program’s initiatives are expected to help Colgate ensure sustained solid worldwide growth in unit volume, organic sales, operating profit and earnings per share and enhance its global leadership positions in its core businesses.
On October 23, 2014, the Company’s Board of Directors (the “Board”) approved an expansion of the Global Growth and Efficiency Program to take advantage of additional savings opportunities.
On October 29, 2015, the Board approved the reinvestment of the funds from the sale of the Company’s laundry detergent business in the South Pacific to expand the Global Growth and Efficiency Program and extend it for one year throughconcluded on December 31, 2017. The Board approved the implementation plan for this expansion on March 10, 2016.
Building on the Company’s successful implementation of the Global Growth and Efficiency Program to date, on October 26, 2017, the Board approved an expansion of the Global Growth and Efficiency Program and an extension of the program through December 31, 2019 to take advantage of additional opportunities to streamline the Company’s operations.
2019. Initiatives under the Global Growth and Efficiency Program continue to fit within the program’sprogram's three focus areas of expanding commercial hubs, extending shared business services and streamlining global functions, and optimizing the global supply chain and facilities. There were 0 restructuring and implementation-related charges incurred for the three months ended March 31, 2020.
As a result ofFor the expansion, cumulative pretaxthree months ended March 31, 2019 restructuring and implementation-related charges resulting from the Global Growth and Efficiency Program, once all phases are approved and implemented, are now estimated to bereflected in the rangeincome statement as follows:
|
| | | | |
| Three Months Ended |
| March 31, 2019 |
Cost of sales | | $ | 11 |
|
Selling, general and administrative expenses | | 4 |
|
Other (income) expense, net | | 13 |
|
Non-service related postretirement costs | | 1 |
|
Total Global Growth and Efficiency Program charges, pretax | | $ | 29 |
|
| | |
Total Global Growth and Efficiency Program charges, aftertax | | $ | 22 |
|
Restructuring and implementation-related charges in the preceding table were recorded in the Corporate segment as these decisions were predominantly centrally directed and controlled and were not included in internal measures of $1,730 to $1,885 ($1,280 to $1,380 aftertax) as compared to the previous estimate of $1,500 to $1,585 ($1,120 to $1,170 aftertax). The Company now anticipates that pretax charges for 2017 will approximate $340 to $380 ($250 to $280 aftertax) as compared to the previous estimate of $275 to $360 ($210 to $260 aftertax). It is expected that substantially all charges resulting from the Global Growth and Efficiency Program will be incurred by December 31, 2019.segment operating performance.
The pretax charges resulting fromfollowing table summarizes the Global Growth and Efficiency Program are currently estimated to be comprised of the following categories: Employee-Related Costs, including severance, pension and other termination benefits (50%); asset-related costs, primarily Incremental Depreciation and Asset Impairments (10%); and Other charges, which include contract termination costs, consisting primarily of related implementation charges resulting directly from exit activities (20%) and the implementation of new strategies (20%). Over the course of the Global Growth and Efficiency Program, it is currently estimated that approximately 80% of the charges will result in cash expenditures.activity for restructuring accrual:
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2020 |
| | Employee-Related Costs | | Incremental Depreciation | | Asset Impairments | | Other | | Total |
Balance at December 31, 2019 | | $ | 26 |
| | $ | — |
| | $ | — |
| | $ | 74 |
| | $ | 100 |
|
Charges | | — |
| | — |
| | — |
| | — |
| | — |
|
Cash payments | | (15 | ) | | — |
| | — |
| | (15 | ) | | (30 | ) |
Charges against assets | | — |
| | — |
| | — |
| | — |
| | — |
|
Foreign exchange | | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) |
Other | | — |
| | — |
| | — |
| | — |
| | — |
|
Balance at March 31, 2020 | | $ | 10 |
| | $ | — |
| | $ | — |
| | $ | 59 |
| | $ | 69 |
|
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
The Company currently expects that the cumulative pretax charges, once all projects are approved and implemented, will relate to initiatives undertaken in North America (15%), Europe (20%), Latin America (5%), Asia Pacific (5%), Africa/Eurasia (5%), Hill’s Pet Nutrition (10%) and Corporate (40%), which includes substantially all of the costs related to the implementation of new strategies, noted above, on a global basis. The Company now expects that, when it has been fully implemented, the Global Growth and Efficiency Program will contribute a net reduction of approximately 3,800 to 4,400 positions from the Company’s global employee workforce.6. Inventories
For the three and nine months ended September 30, 2017 and 2016, restructuring and related implementation charges are reflected in the Condensed Consolidated Statements of Income as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Cost of sales | $ | 16 |
| | $ | 11 |
| | $ | 51 |
| | $ | 31 |
|
Selling, general and administrative expenses | 22 |
| | 9 |
| | 60 |
| | 49 |
|
Other (income) expense, net | 20 |
| | 22 |
| | 135 |
| | 76 |
|
Total Global Growth and Efficiency Program charges, pretax | $ | 58 |
| | $ | 42 |
| | $ | 246 |
| | $ | 156 |
|
| | | | | | | |
Total Global Growth and Efficiency Program charges, aftertax | $ | 39 |
| | $ | 32 |
| | $ | 185 |
| | $ | 114 |
|
Restructuring and related implementation charges in the preceding table are recorded in the Corporate segment as these initiatives are predominantly centrally directed and controlled and are not included in internal measures of segment operating performance.
Total charges incurred for the Global Growth and Efficiency Program relate to initiatives undertaken by the following reportable operating segments: |
| | | | | | | | | | | | | | |
| Three Months Ended |
| Nine Months Ended |
| Program-to-date |
| September 30, |
| September 30, |
| Accumulated Charges |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
|
North America | 27 | % |
| 30 | % |
| 23 | % |
| 32 | % |
| 18 | % |
Latin America | 2 | % |
| 3 | % |
| 3 | % |
| 5 | % |
| 3 | % |
Europe | (11 | )% |
| 19 | % |
| 29 | % |
| 10 | % |
| 23 | % |
Asia Pacific | 7 | % |
| 4 | % |
| 4 | % |
| 6 | % |
| 3 | % |
Africa/Eurasia | 2 | % |
| 12 | % |
| 2 | % |
| 14 | % |
| 6 | % |
Hill’s Pet Nutrition | 9 | % |
| 5 | % |
| 5 | % |
| 8 | % |
| 7 | % |
Corporate | 64 | % |
| 27 | % |
| 34 | % |
| 25 | % |
| 40 | % |
Since the inception of the Global Growth and Efficiency Program in the fourth quarter of 2012, the Company has incurred cumulative pretax charges of $1,474 ($1,092 aftertax) in connection with the implementation of various projects as follows: |
| | | |
| Cumulative Charges |
| as of September 30, 2017 |
Employee-Related Costs | $ | 594 |
|
Incremental Depreciation | 88 |
|
Asset Impairments | 29 |
|
Other | 763 |
|
Total | $ | 1,474 |
|
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
The majority of costs incurred since inception relate to the following projects: the implementation of the Company’s overall hubbing strategy; the extension of shared business services and streamlining of global functions; the consolidation of facilities; the closing of the Morristown, New Jersey personal care facility; the simplification and streamlining of the Company’s research and development capabilities and oral care supply chain, both in Europe; redesigning the European commercial organization; restructuring how the Company will provide future retirement benefits to substantially all of the U.S.-based employees participating in the Company’s defined benefit retirement plan by shifting them to the Company’s defined contribution plan.
The following tables summarize the activity for the restructuring and related implementation charges discussed above and the related accruals:
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 |
| | Employee-Related Costs | | Incremental Depreciation | | Asset Impairments | | Other | | Total |
Balance at June 30, 2017 | | $ | 138 |
| | $ | — |
| | $ | — |
| | $ | 116 |
| | $ | 254 |
|
Charges | | 21 |
| | 2 |
| | — |
| | 35 |
| | 58 |
|
Cash payments | | (16 | ) | | — |
| | — |
| | (42 | ) | | (58 | ) |
Charges against assets | | (15 | ) | | (2 | ) | | — |
| | — |
| | (17 | ) |
Foreign exchange | | — |
| | — |
| | — |
| | — |
| | — |
|
Balance at September 30, 2017 | | $ | 128 |
| | $ | — |
| | $ | — |
| | $ | 109 |
| | $ | 237 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
| | Employee-Related Costs | | Incremental Depreciation | | Asset Impairments | | Other | | Total |
Balance at December 31, 2016 | | $ | 56 |
| | $ | — |
| | $ | — |
| | $ | 125 |
| | $ | 181 |
|
Charges | | 129 |
| | 8 |
| | 2 |
| | 107 |
| | 246 |
|
Cash payments | | (43 | ) | | — |
| | — |
| | (124 | ) | | (167 | ) |
Charges against assets | | (17 | ) | | (8 | ) | | (2 | ) | | — |
| | (27 | ) |
Foreign exchange | | 3 |
| | — |
| | — |
| | 1 |
| | 4 |
|
Balance at September 30, 2017 | | $ | 128 |
| | $ | — |
| | $ | — |
| | $ | 109 |
| | $ | 237 |
|
Employee-Related Costs primarily include severance and other termination benefits and are calculated based on long-standing benefit practices, local statutory requirements and, in certain cases, voluntary termination arrangements. Employee-Related Costs also include pension and other retiree benefit enhancements amounting to $15 and $17 for the three and nine months ended September 30, 2017, respectively, which are reflected as Charges against assets within Employee-Related Costs in the preceding tables as the corresponding balance sheet amounts are reflected as a reduction of pension assets or an increase in pension and other retiree benefit liabilities (see Note 9, Retirement Plans and Other Retiree Benefits).
Incremental Depreciation is recorded to reflect changes in useful lives and estimated residual values for long-lived assets that will be taken out of service prior to the end of their normal service period. Asset Impairments are recorded to write down assets held for sale or disposal to their fair value based on amounts expected to be realized. Charges against assets within Asset Impairments are net of cash proceeds pertaining to the sale of certain assets.
Other charges consist primarily of charges resulting directly from exit activities and the implementation of new strategies as a result of the Global Growth and Efficiency Program. These charges for the three and nine months ended September 30, 2017 include third-party incremental costs related to the development and implementation of new business and strategic initiatives of $33 and $103, respectively, and contract termination costs and charges resulting directly from exit activities of $2 and $4, respectively. These charges were expensed as incurred.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
5. Inventories
Inventories by major class are as follows:
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Raw materials and supplies | $ | 329 |
| | $ | 305 |
|
Work-in-process | 46 |
| | 49 |
|
Finished goods | 976 |
| | 1,056 |
|
Total Inventories, net | $ | 1,351 |
| | $ | 1,410 |
|
Non-current inventory, net | $ | (50 | ) | | $ | (10 | ) |
Current Inventories, net | $ | 1,301 |
| | $ | 1,400 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Raw materials and supplies | $ | 249 |
| | $ | 266 |
|
Work-in-process | 47 |
| | 42 |
|
Finished goods | 909 |
| | 863 |
|
Total Inventories | $ | 1,205 |
| | $ | 1,171 |
|
6. Shareholders’ Equity
Changes in the components of Shareholders’ Equity for the nine months endedSeptember 30, 2017 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Colgate-Palmolive Company Shareholders’ Equity | | Noncontrolling Interests |
| Common Stock | | Additional Paid-in Capital | | Unearned Compensation | | Treasury Stock | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | |
Balance, December 31, 2016 | $ | 1,466 |
| | $ | 1,691 |
| | $ | (7 | ) | | $ | (19,135 | ) | | $ | 19,922 |
| | $ | (4,180 | ) | | $ | 260 |
|
Net income | |
| | |
| | |
| | |
| | 1,701 |
| | | | 120 |
|
Other comprehensive income (loss), net of tax | |
| | |
| | |
| | |
| | | | 346 |
| | 11 |
|
Dividends | |
| | |
| | |
| | |
| | (1,406 | ) | | |
| | (16 | ) |
Stock-based compensation expense | |
| | 106 |
| | |
| | |
| | |
| | |
| | |
|
Shares issued for stock options | |
| | 166 |
| | |
| | 274 |
| | |
| | |
| | |
|
Shares issued for restricted stock units | | | (33 | ) | | | | 33 |
| | | | | | |
Treasury stock acquired | |
| | |
| | |
| | (1,055 | ) | | |
| | |
| | |
|
Other | |
| | 2 |
| | 6 |
| | 5 |
| | (10 | ) | | |
| |
|
|
Balance, September 30, 2017 | $ | 1,466 |
| | $ | 1,932 |
| | $ | (1 | ) | | $ | (19,878 | ) | | $ | 20,207 |
| | $ | (3,834 | ) | | $ | 375 |
|
Accumulated other comprehensive income (loss) includes cumulative translation losses of $2,929 and $3,212 at September 30, 2017 and December 31, 2016, respectively, and unrecognized retirement plan and other retiree benefits costs of $898 and $977 at September 30, 2017 and December 31, 2016, respectively.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
7. Earnings Per Share
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2017 | | September 30, 2016 |
| Net income attributable to Colgate-Palmolive Company | | Shares (millions) | | Per Share | | Net income attributable to Colgate-Palmolive Company | | Shares (millions) | | Per Share |
Basic EPS | $ | 607 |
| | 880.7 |
| | $ | 0.69 |
| | $ | 702 |
| | 891.9 |
| | $ | 0.79 |
|
Stock options and restricted stock units | | | 5.6 |
| | |
| | |
| | 7.3 |
| | |
|
Diluted EPS | $ | 607 |
| | 886.3 |
| | $ | 0.68 |
| | $ | 702 |
| | 899.2 |
| | $ | 0.78 |
|
For the three months ended September 30, 2017March 31, 2020 and 20162019, earnings per share were as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2020 | | March 31, 2019 |
| Net income attributable to Colgate-Palmolive Company | | Shares (millions) | | Per Share | | Net income attributable to Colgate-Palmolive Company | | Shares (millions) | | Per Share |
Basic EPS | $ | 715 |
| | 856.9 |
| | $ | 0.83 |
| | $ | 560 |
| | 862.0 |
| | $ | 0.65 |
|
Stock options and restricted stock units | | | 1.5 |
| | |
| | |
| | 1.2 |
| | |
|
Diluted EPS | $ | 715 |
| | 858.4 |
| | $ | 0.83 |
| | $ | 560 |
| | 863.2 |
| | $ | 0.65 |
|
For the three months ended March 31, 2020 and 2019, the average number of stock options and restricted stock units that were anti-dilutive and not included in diluted earnings per share calculations were 9,502,32920,965,110 and 1,980,457,21,980,033, respectively.
|
| | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2017 | | September 30, 2016 |
| Net income attributable to Colgate-Palmolive Company | | Shares (millions) | | Per Share | | Net income attributable to Colgate-Palmolive Company | | Shares (millions) | | Per Share |
Basic EPS | $ | 1,701 |
| | 883.0 |
| | $ | 1.93 |
| | $ | 1,835 |
| | 893.2 |
| | $ | 2.05 |
|
Stock options and restricted stock units | | | 6.3 |
| | |
| | |
| | 7.0 |
| | |
|
Diluted EPS | $ | 1,701 |
| | 889.3 |
| | $ | 1.91 |
| | $ | 1,835 |
| | 900.2 |
| | $ | 2.04 |
|
For the nine months endedSeptember 30, 2017 and 2016, the average number of stock options and restricted stock units that were anti-dilutive and not included in diluted earnings per share calculations were 9,209,060 and 1,212,685, respectively.
Basic and diluted earnings per share are computed independently for each quarter and any year-to-date period presented. As a result of changes in shares outstanding during the year and rounding, the sum of the quarters’ earnings per share may not necessarily equal the earnings per share for any year-to-date period.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
| |
8. | Other Comprehensive Income (Loss) |
Additions to and reclassifications out of Accumulated other comprehensive income (loss) attributable to the Company for the three months ended September 30, 2017March 31, 2020 and 20162019 were as follows:
| | | | 2017 | | 2016 | | | | | | | | | |
| | Pretax | | Net of Tax | | Pretax | | Net of Tax | | 2020 | | 2019 |
| | | | | | | | | | Pretax | | Net of Tax | | Pretax | | Net of Tax |
Cumulative translation adjustments | | $ | 48 |
| | $ | 62 |
| | $ | (10 | ) | | $ | (2 | ) | | $ | (320 | ) | | $ | (339 | ) | | $ | 27 |
| | $ | 21 |
|
Retirement plans and other retiree benefits: | | | | | | | | | | | | | | | | |
Net actuarial gain (loss) and prior service costs arising during the period | | 72 |
| | 45 |
| | 9 |
| | 7 |
| | 2 |
| | 1 |
| | (1 | ) | | (1 | ) |
Amortization of net actuarial loss, transition and prior service costs (1) | | 15 |
| | 9 |
| | 15 |
| | 9 |
| | 17 |
| | 15 |
| | 17 |
| | 13 |
|
Retirement plans and other retiree benefits adjustments | | 87 |
| | 54 |
| | 24 |
| | 16 |
| | 19 |
| | 16 |
| | 16 |
| | 12 |
|
Available-for-sale securities: | | | | | | | | | |
Unrealized gains (losses) on available-for-sale securities | | — |
| | — |
| | — |
| | — |
| |
Reclassification of (gains) losses into net earnings on available-for-sale securities | | — |
| | — |
| | (1 | ) | | (1 | ) | |
Gains (losses) on available-for-sale securities | | — |
| | — |
| | (1 | ) | | (1 | ) | |
Cash flow hedges: | | | | | | | | | | | | | | | | |
Unrealized gains (losses) on cash flow hedges | | (8 | ) | | (5 | ) | | 1 |
| | — |
| | 25 |
| | 20 |
| | (2 | ) | | (2 | ) |
Reclassification of (gains) losses into net earnings on cash flow hedges (2) | | 4 |
| | 2 |
| | 1 |
| | 1 |
| | (3 | ) | | (2 | ) | | (4 | ) | | (3 | ) |
Gains (losses) on cash flow hedges | | (4 | ) | | (3 | ) | | 2 |
| | 1 |
| | 22 |
| | 18 |
| | (6 | ) | | (5 | ) |
Total Other comprehensive income (loss) | | $ | 131 |
| | $ | 113 |
| | $ | 15 |
| | $ | 14 |
| | $ | (279 | ) | | $ | (305 | ) | | $ | 37 |
| | $ | 28 |
|
(1)These components of Other comprehensive income (loss) are included in the computation of total pension cost. See Note 9, Retirement Plans and Other Retiree Benefits for additional details.
(2) These (gains) losses are reclassified into Cost of sales. See Note 13, Fair Value Measurements and Financial Instruments for additional details.
There were no tax impacts on Other comprehensive income (loss) (“OCI”) attributable to Noncontrolling interests.
| |
9. | Retirement Plans and Other Retiree Benefits |
Components of Net periodic benefit cost for the three months ended March 31, 2020 and 2019 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| Pension Benefits | | Other Retiree Benefits |
| United States | | International | | | | |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Service cost | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | 4 |
| | $ | 6 |
| | $ | 4 |
|
Interest cost | 19 |
| | 23 |
| | 5 |
| | 5 |
| | 11 |
| | 11 |
|
Expected return on plan assets | (27 | ) | | (26 | ) | | (4 | ) | | (5 | ) | | — |
| | (1 | ) |
Amortization of actuarial loss (gain) | 11 |
| | 13 |
| | 1 |
| | 2 |
| | 5 |
| | 2 |
|
Net periodic benefit cost | $ | 3 |
| | $ | 10 |
| | $ | 6 |
| | $ | 6 |
| | $ | 22 |
| | $ | 16 |
|
For the three months ended March 31, 2020 and 2019, the Company made voluntary contributions to its U.S. postretirement plans of $0 and $102, respectively.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
Additions to and reclassifications out of Accumulated other comprehensive income (loss) attributable to the Company for the nine months endedSeptember 30, 2017 and 2016 were as follows:
|
| | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Pretax | | Net of Tax | | Pretax | | Net of Tax |
| | | | | | | | |
Cumulative translation adjustments | | $ | 208 |
| | $ | 283 |
| | $ | 76 |
| | $ | 86 |
|
Retirement plans and other retiree benefits: | | | | | | | | |
Net actuarial gain (loss) and prior service costs arising during the period | | 72 |
| | 45 |
| | 9 |
| | 7 |
|
Amortization of net actuarial loss, transition and prior service costs (1) | | 52 |
| | 34 |
| | 47 |
| | 32 |
|
Retirement plans and other retiree benefits adjustments | | 124 |
| | 79 |
| | 56 |
| | 39 |
|
Available-for-sale securities: | | | | | | | | |
Unrealized gains (losses) on available-for-sale securities | | — |
| | — |
| | — |
| | — |
|
Reclassification of (gains) losses into net earnings on available-for-sale securities | | — |
| | — |
| | (1 | ) | | (1 | ) |
Gains (losses) on available-for-sale securities | | — |
| | — |
| | (1 | ) | | (1 | ) |
Cash flow hedges: | | | | | | | | |
Unrealized gains (losses) on cash flow hedges | | (28 | ) | | (17 | ) | | (6 | ) | | (4 | ) |
Reclassification of (gains) losses into net earnings on cash flow hedges (2) | | 2 |
| | 1 |
| | 1 |
| | 1 |
|
Gains (losses) on cash flow hedges | | (26 | ) | | (16 | ) | | (5 | ) | | (3 | ) |
Total Other comprehensive income (loss) | | $ | 306 |
| | $ | 346 |
| | $ | 126 |
| | $ | 121 |
|
(1) These components of Other comprehensive income (loss) are included in the computation of total pension cost. See Note 9, Retirement Plans and Other Retiree Benefits for additional details.
(2) These (gains) losses are reclassified into Cost of sales. See Note 13, Fair Value Measurements and Financial Instruments for additional details.
There were no tax impacts on Other comprehensive income (loss) attributable to Noncontrolling interests.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
| |
9. | Retirement Plans and Other Retiree Benefits |
Components of Net periodic benefit cost for the three and nine months ended September 30, 2017 and 2016 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Retiree Benefits |
| United States | | International | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | 4 |
| | $ | 3 |
| | $ | 4 |
|
Interest cost | 23 |
| | 27 |
| | 6 |
| | 7 |
| | 9 |
| | 10 |
|
ESOP offset | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
|
Expected return on plan assets | (28 | ) | | (27 | ) | | (5 | ) | | (6 | ) | | — |
| | — |
|
Amortization of transition and prior service costs (credits) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of actuarial loss (gain) | 12 |
| | 10 |
| | 2 |
| | 2 |
| | 1 |
| | 3 |
|
Net periodic benefit cost | $ | 7 |
| | $ | 10 |
| | $ | 7 |
| | $ | 7 |
| | $ | 12 |
| | $ | 17 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Retiree Benefits |
| United States | | International | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 1 |
| | $ | 1 |
| | $ | 11 |
| | $ | 12 |
| | $ | 11 |
| | $ | 10 |
|
Interest cost | 70 |
| | 80 |
| | 16 |
| | 19 |
| | 30 |
| | 32 |
|
ESOP offset | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) |
Expected return on plan assets | (83 | ) | | (82 | ) | | (15 | ) | | (17 | ) | | — |
| | — |
|
Amortization of transition and prior service costs (credits) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Amortization of actuarial loss (gain) | 36 |
| | 30 |
| | 7 |
| | 6 |
| | 9 |
| | 11 |
|
Net periodic benefit cost | $ | 24 |
| | $ | 29 |
| | $ | 19 |
| | $ | 20 |
| | $ | 49 |
| | $ | 52 |
|
For the nine months ended September 30, 2017 and 2016, the Company made voluntary contributions to its U.S. postretirement plans of $81 and $53, respectively.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
On March 30, 2016, the FASB issued ASU No. 2016-09, “Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which amended accountingThe provision for income taxes for the quarter ended March 31, 2020 includes $71 of income tax benefits recorded on a discrete period basis of which $45 relates to previously recorded foreign withholding taxes and $26 relates to a previously recorded valuation allowance against a deferred tax asset. As more fully described below, both items were previously recorded in connection with the charge recorded by the Company in 2017 and revised in 2018 related to share-based compensation.the Tax Cuts and Jobs Acts (the "TCJA").
As part of the previously recorded charge for the TCJA, the Company had provided for foreign withholding taxes expected to be paid on the remittance of earnings from certain overseas subsidiaries no longer deemed indefinitely reinvested. As a result of adoptinga recent reorganization of the standard effective January 1, 2017,ownership structure of certain foreign subsidiaries, the Company recognized excesshas now determined that 0 withholding taxes will be due on the remittance by certain subsidiaries of earnings previously deemed reinvested and, accordingly, reversed $45 of previously recorded foreign withholding taxes.
Also as part of the previously recorded charge for the TCJA, the Company provided a valuation allowance against a deferred tax benefits of $17 and $43 (resulting from an increase inasset related to foreign tax credit carry-forwards that the fair value of an award from the grant dateCompany did not expect to the vesting or exercise date, as applicable) in the Provision for income taxes as a discrete item during the three and nine months ended September 30, 2017, respectively. These amounts may not necessarily be indicative of future amounts that may be recognized as any excess tax benefits recognized would be dependent on future stock price, employee exercise behavior and applicable tax rates. Priorable to January 1, 2017, excess tax benefits were recognized in equity. See Note 3, Recent Accounting Pronouncements for additional information.
The Company has taken a tax position in a foreign jurisdiction since 2002 that has been challengeduse due to changes made by the local tax authorities. In May 2015, the Company became aware of several rulings by the Supreme Court in this foreign jurisdiction disallowing certain tax deductions which had the effect of reversing prior decisions. The Company had taken deductions in prior years similar to those disallowed by such court and as a result, as required, reassessed its tax position and increased its unrecognized tax benefits in 2015.
During the quarter ended June 30, 2016, the Supreme Court in this foreign jurisdiction decided the matter in the Company’s favor for the years 2002 through 2005 and, as a result, the Company recorded a net tax benefit of $13, including interest. During the quarter ended September 30, 2016, the Administrative Court in this jurisdiction also decided the matter in the Company’s favor for the years 2008 through 2011 by acknowledging the Supreme Court’s ruling for the years 2002 through 2005, which eliminated the possibility for future appeals.TCJA. As a result of a new operating structure being implemented within one of the Company's divisions, the Company recorded anow believes the use of these foreign tax benefit of $17, including interest,credit carry-forwards will not be limited in the quarter ended September 30, 2016.future and, accordingly, reversed the previously recorded valuation allowance of $26.
The tax benefit of deductions related to this tax position taken for the years 2006 through 2007 and 2012 through 2014 totals approximately $15 at current exchange rates. These deductions are currently being challenged by the tax authorities either in the lower courts or at the administrative level and, if resolved in the Company’s favor, will result in the Company recording additional tax benefits, including interest.
As a global company serving consumers in more than 200 countries and territories, the Company is routinely subject to a wide variety of legal proceedings. These include disputes relating to intellectual property, contracts, product liability, marketing, advertising, foreign exchange controls, antitrust and trade regulation, as well as labor and employment, pension, data privacy and security, environmental and tax matters and consumer class actions. Management proactively reviews and monitors the Company’s exposure to, and the impact of, environmental matters. The Company is party to various environmental matters and, as such, may be responsible for all or a portion of the cleanup, restoration and post-closure monitoring of several sites.
The Company establishes accruals for loss contingencies when it has determined that a loss is probable and that the amount of loss, or range of loss, can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances.
The Company also determines estimates of reasonably possible losses or ranges of reasonably possible losses in excess of related accrued liabilities, if any, when it has determined that a loss is reasonably possible and it is able to determine such estimates. For those matters disclosed below for which the amount of any potential losses can be reasonably estimated, the Company currently estimates that the aggregate range of reasonably possible losses in excess of any accrued liabilities is $0 to approximately $250$175 (based on current exchange rates). The estimates included in this amount are based on the Company’s analysis of currently available information and, as new information is obtained, these estimates may change. Due to the inherent subjectivity of the assessments and the unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to the Company. Thus, the Company’s exposure and ultimate losses may be higher or lower, and possibly significantly so, than the amounts accrued or the range disclosed above.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
Based on current knowledge, management does not believe that the ultimate resolution of loss contingencies arising from the matters discussed herein will have a material effect on the Company’s consolidated financial position or its ongoing results of operations or cash flows. However, in light of the inherent uncertainties noted above, an adverse outcome in one or more matters could be material to the Company’s results of operations or cash flows for any particular quarter or year.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
Brazilian Matters
There are certain tax and civil proceedings outstanding, as described below, related to the Company’sCompany’s 1995 acquisition of the Kolynos oral care business from Wyeth (the “Seller”).
The Brazilian internal revenue authority has disallowed interest deductions and foreign exchange losses taken by the Company’s Brazilian subsidiary for certain years in connection with the financing of the Kolynos acquisition. The tax assessments with interest, penalties and any court-mandated fees, at the current exchange rate, are approximately $171.$118. This amount includes additional assessments received from the Brazilian internal revenue authority in April 2016 relating to net operating loss carryforwards used by the Company’s Brazilian subsidiary to offset taxable income that had also been deducted from the authority’s original assessments. The Company has been disputing the disallowances by appealing the assessments since October 2001. Appeals areThere is 1 case currently pendingon appeal at the administrative level. In the event the Company is ultimately unsuccessful in itsthis administrative appeals,appeal, further appeals are available within the Brazilian federal courts.
In September 2015, the Company lost one1 of its appeals at the administrative level and filed a lawsuit in Brazilian federal court. In February 2017, the Company lost an additional administrative appeal and filed a similar actionlawsuit in Brazilian federal court. In April 2019, the Company lost another administrative appeal and filed a lawsuit in Brazilian federal court. Although there can be no assurances, management believes, based on the opinion of its Brazilian legal counsel, that the disallowances are without merit and that the Company should ultimately prevail. The Company is challenging these disallowances vigorously.
In July 2002, the Brazilian Federal Public Attorney filed a civil action against the federal government of Brazil, Laboratorios Wyeth-Whitehall Ltda. (the Brazilian subsidiary of the Seller) and the Company, as represented by its Brazilian subsidiary, in the 6th. Lower Federal Court in the City of São Paulo, seeking to annul an April 2000 decision by the Brazilian Board of Tax Appeals that found in favor of the Seller’s Brazilian subsidiary on the issue of whether it had incurred taxable capital gains as a result of the divestiture of Kolynos. The action seeks to make the Company’s Brazilian subsidiary jointly and severally liable for any tax due from the Seller’s Brazilian subsidiary. The case has been pending since 2002, and the Lower Federal Court has not issued a decision. Although there can be no assurances, management believes, based on the opinion of its Brazilian legal counsel, that the Company should ultimately prevail in this action. The Company is challenging this action vigorously.
In December 2005, the Brazilian internal revenue authority issued to the Company’s Brazilian subsidiary a tax assessment with interest, penalties and any court-mandated fees of approximately $77,$49, at the current exchange rate, based on a claim that certain purchases of U.S. Treasury bills by the subsidiary and their subsequent disposition during the period 2000 to 2001 were subject to a tax on foreign exchange transactions. The Company had been disputing the assessment within the internal revenue authority’s administrative appeals process. However, in November 2015, the Superior Chamber of Administrative Tax Appeals denied the Company’s final administrative appeal, and the Company has filed a lawsuit in the Brazilian federal court. In the event the Company is unsuccessful in this filing,lawsuit, further appeals are available within the Brazilian federal courts. Although there can be no assurances, management believes, based on the opinion of its Brazilian legal counsel, that the tax assessment is without merit and that the Company should ultimately prevail. The Company is challenging this assessment vigorously.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
Competition MattersMatter
Certain of the Company’s subsidiaries have historically been subject to investigations, and, in some cases, fines, by governmental authorities in a number of countries related to alleged competition law violations. Substantially all of these matters also have involved other consumer goods companies and/or retail customers. These investigations often continue for several years and can result in substantial fines for violations that are found as well as associated private actions for damages. While the Company cannot predict the final financial impact of pending competition law matters, as these matters may change, the Company evaluates developments in these matters quarterly and accrues liabilities as and when appropriate. The Company’s policy is to comply with antitrust and competition laws and, if a violation of any such laws is found, to take appropriate remedial action and to cooperate fully with any related governmental inquiry. The current status as of pendingMarch 31, 2020 of such competition law matters as of September 30, 2017pending against the Company during the three months ended March 31, 2020 is set forth below.
| |
▪ | In December 2014, the French competition law authority found that 13 consumer goods companies, including the Company’s French subsidiary, exchanged competitively sensitive information related to the French home care and personal care sectors, for which the Company’s French subsidiary was fined $57. In addition, as a result of the Company’s acquisition of the Sanex personal care business in 2011 from Unilever N.V. and Unilever PLC (together with Unilever N.V., “Unilever”), pursuant to a Business and Share Sale and Purchase Agreement (the “Sale and Purchase Agreement”), the French competition law authority found that the Company’s French subsidiary, along with Hillshire Brands Company (formerly Sara Lee Corporation (“Sara Lee”)), were jointly and severally liable for fines of $25 assessed against Sara Lee’s French subsidiary. The Company is entitled to indemnification for this fine from Unilever as provided in the Sale and Purchase Agreement. The fines were confirmed by the Court of Appeal in October 2016. The Company is appealing the decision of the Court of Appeal on behalf of the Company and Sara Lee in the French Supreme Court. |
| |
▪ | In July 2014, the Greek competition law authority issued a statement of objections alleging a restriction of parallel imports into Greece. The Company responded to this statement of objections. In July 2017, the Company received the decision from the Greek competition law authority in which the Company was fined $11 (based on current exchange rates), which approximates reserves previously taken by the Company for this matter.$11. The Company is appealingappealed the decision to the Greek courts. In April 2019, the Greek courts affirmed the judgment against the Company’s Greek subsidiary, but reduced the fine to $10.5 and dismissed the case against Colgate-Palmolive Company. The Company’s Greek subsidiary and the Greek competition authority have appealed the decision to the Greek Supreme Court. |
Talcum Powder Matters
The Company has been named as a defendant in civil actions alleging that certain talcum powder products that were sold prior to 1996 were contaminated with asbestos. Most of these actions involve a number of co-defendants from a variety of different industries, including suppliers of asbestos and manufacturers of products that, unlike the Company’s products, were designed to contain asbestos. As of September 30, 2017,March 31, 2020 and December 31, 2019, there were 171121 individual cases pending against the Company in state and federal courts throughout the United States, as compared to 174 cases as of June 30, 2017, 146 cases as of March 31, 2017 and 115 cases as of December 31, 2016.States. During the three months ended September 30, 2017, 22March 31, 2020, 5 new cases were filed and 255 cases were resolved by voluntary dismissal appeal or settlement. During the nine months ended September 30, 2017, 99 new cases were filed and 43 cases were resolved by voluntary dismissal, appeal or settlement. The value of the settlements in the quarter and the year-to-date period presented was not material, either individually or in the aggregate, to each suchthe period’s results of operations.
A number of the pending cases are expected to go to trial in 2017. The Company believes that a significant portion of its costs incurred in defending and resolving these claims will be covered by insurance policies issued by several primary, excess and excessumbrella insurance carriers, subject to deductibles, exclusions, retentions and policy limits.
While the Company and its legal counsel believe that these cases are without merit and intend to challenge them vigorously, there can be no assurances regarding the ultimate resolution of these matters. SinceWith the amountexception of any potential losses from these cases currently cannot be reasonably estimated,1 case where the Company received an adverse jury verdict in the second quarter of 2019 that the Company has appealed, the range of reasonably possible losses in excess of accrued liabilities disclosed above does not include any amount relating to these cases.cases because the amount of any possible losses from such cases currently cannot be reasonably estimated.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
N8
The Company was a defendant in a lawsuit that was brought in Utah federal court by N8 Medical, Inc. (“N8 Medical”), Brigham Young University (“BYU”) and N8 Pharmaceuticals, Inc. (“N8 Pharma”). The complaint, originally filed in November 2013, alleged breach of contract and other torts arising out of the Company’s evaluation of a technology owned by BYU and licensed, at various times, to Ceragenix Pharmaceuticals, Inc., now in bankruptcy, N8 Medical and N8 Pharma.
In 2016, the Company resolved the claims brought by BYU and N8 Medical. These claims were each resolved in an amount that is not material to the Company’s results of operations. In the first quarter of 2017, the court dismissed the claims of N8 Pharma and, in the third quarter of 2017, N8 Pharma appealed the decision.
ERISA Matter
In June 2016, a putative class action claiming that residual annuity payments made to certain participants in the Colgate-Palmolive Company Employees’ Retirement Income Plan (the “Plan”“Plan”) did not comply with the Employee Retirement Income Security Act was filed against the Plan, the Company and certain individuals (the “Company Defendants”) in the United States District Court for the Southern District of New York. This action has been certified as a class action. The relief sought includes recalculation of benefits, pre- and post-judgment interest and attorneys’ fees. The Company is contesting this action vigorously. Since the amount of any potential loss from this case currently cannot be reasonably estimated, the range of reasonably possible losses in excess of accrued liabilities disclosed above does not include any amount relating to the case.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
The Company operates in two2 product segments: Oral, Personal and Home Care; and Pet Nutrition.
The operations of the Oral, Personal and Home Care product segment are managed geographically in five5 reportable operating segments: North America, Latin America, Europe, Asia Pacific and Africa/Eurasia.
The Company evaluates segment performance based on several factors, including Operating profit. The Company uses Operating profit as a measure of operating segment performance because it excludes the impact of Corporate-driven decisions related to interest expense and income taxes.
The accounting policies of the operating segments are generally the same as those described in Note 2, Summary of Significant Accounting Policies to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2019. Intercompany sales have been eliminated. Corporate operations include costs related to stock options and restricted stock units, research and development costs, Corporate overhead costs restructuring and related implementation charges and gains and losses on sales of non-core product lines and assets. The Company reports these items within Corporate operations as they relate to Corporate-based responsibilities and decisions and are not included in the internal measures of segment operating performance used by the Company to measure the underlying performance of the operating segments.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
Net sales and Operating profit by segment were as follows:
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
Net sales | | | |
Oral, Personal and Home Care | | | |
North America | $ | 929 |
| | $ | 853 |
|
Latin America | 889 |
| | 889 |
|
Europe | 675 |
| | 602 |
|
Asia Pacific | 633 |
| | 700 |
|
Africa/Eurasia | 252 |
| | 240 |
|
Total Oral, Personal and Home Care | 3,378 |
| | 3,284 |
|
Pet Nutrition | 719 |
| | 600 |
|
Total Net sales | $ | 4,097 |
| | $ | 3,884 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net sales | | | | | | | |
Oral, Personal and Home Care | | | | | | | |
North America | $ | 795 |
| | $ | 800 |
| | $ | 2,319 |
| | $ | 2,393 |
|
Latin America | 985 |
| | 924 |
| | 2,911 |
| | 2,710 |
|
Europe | 642 |
| | 609 |
| | 1,784 |
| | 1,803 |
|
Asia Pacific | 728 |
| | 723 |
| | 2,111 |
| | 2,163 |
|
Africa/Eurasia | 251 |
| | 250 |
| | 738 |
| | 720 |
|
Total Oral, Personal and Home Care | 3,401 |
| | 3,306 |
| | 9,863 |
| | 9,789 |
|
Pet Nutrition | 573 |
| | 561 |
| | 1,699 |
| | 1,685 |
|
Total Net sales | $ | 3,974 |
| | $ | 3,867 |
| | $ | 11,562 |
| | $ | 11,474 |
|
| | | | | | | |
Operating profit | |
| | |
| | | | |
Oral, Personal and Home Care | |
| | |
| | | | |
North America | $ | 249 |
| | $ | 273 |
| | $ | 723 |
| | $ | 762 |
|
Latin America | 301 |
| | 298 |
| | 878 |
| | 829 |
|
Europe | 162 |
| | 158 |
| | 447 |
| | 437 |
|
Asia Pacific | 220 |
| | 230 |
| | 644 |
| | 668 |
|
Africa/Eurasia | 44 |
| | 50 |
| | 134 |
| | 138 |
|
Total Oral, Personal and Home Care | 976 |
| | 1,009 |
| | 2,826 |
| | 2,834 |
|
Pet Nutrition | 161 |
| | 162 |
| | 481 |
| | 479 |
|
Corporate | (210 | ) | | (100 | ) | | (642 | ) | | (431 | ) |
Total Operating profit | $ | 927 |
| | $ | 1,071 |
| | $ | 2,665 |
| | $ | 2,882 |
|
Approximately 75%70% of the Company’s Net sales are generated from markets outside the U.S., with approximately 50%45% of the Company’s Net sales coming from emerging markets (which consist of Latin America, Asia (excluding Japan), Africa/Eurasia and Central Europe).
For the three months ended September 30, 2017, Corporate Operating profit (loss) included charges of $58 resulting from the Global Growth and Efficiency Program. For the nine months ended September 30, 2017, Corporate Operating profit (loss) included charges of $246 resulting from the Global Growth and Efficiency Program.
For the three months ended September 30, 2016, Corporate Operating profit (loss) included charges of $42 resulting from the Global Growth and Efficiency Program, a charge of $6 for a previously disclosed litigation matter and a gain of $97 on the sale of land in Mexico. For the nine months ended September 30, 2016, Corporate Operating profit (loss) included charges of $156 resulting from the Global Growth and Efficiency Program, a charge of $6 for a previously disclosed litigation matter and a gain of $97 on the sale of land in Mexico.
For further information regarding the Global Growth and Efficiency Program, refer to Note 4, Restructuring and Related Implementation Charges.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
The Company’s Net sales of Oral, Personal and Home Care and Pet Nutrition products accounted for the following percentages of the Company’s Net sales:
|
| | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
Net sales | | | |
Oral Care | 44 | % | | 48 | % |
Personal Care | 20 | % | | 19 | % |
Home Care | 18 | % | | 18 | % |
Pet Nutrition | 18 | % | | 15 | % |
Total Net sales | 100 | % | | 100 | % |
Operating profit by segment was as follows:
|
| | | | | | | |
| Three Months Ended |
| March 31, |
| 2020 | | 2019 |
Operating profit | | | |
Oral, Personal and Home Care | | | |
North America | $ | 258 |
| | $ | 249 |
|
Latin America | 248 |
| | 232 |
|
Europe | 154 |
| | 151 |
|
Asia Pacific | 161 |
| | 189 |
|
Africa/Eurasia | 56 |
| | 46 |
|
Total Oral, Personal and Home Care | 877 |
| | 867 |
|
Pet Nutrition | 203 |
| | 164 |
|
Corporate | (128 | ) | | (152 | ) |
Total Operating profit | $ | 952 |
| | $ | 879 |
|
Corporate Operating profit (loss) for the three months ended March 31, 2020 included a charge for acquisition-related costs of $6. Corporate Operating profit (loss) for the three months ended March 31, 2019, included charges of $28 resulting from the Global Growth and Efficiency Program, which ended on December 31, 2019.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
| |
13. | Fair Value Measurements and Financial Instruments |
The Company uses available market information and other valuation methodologies in assessing the fair value of financial instruments. Judgment is required in interpreting market data to develop the estimates of fair value and, accordingly, changes in assumptions or the estimation methodologies may affect the fair value estimates. The Company is exposed to the risk of credit loss in the event of nonperformance by counterparties to financial instrument contracts; however, nonperformance is considered unlikely and any nonperformance is unlikely to be material, as it is the Company’s policy to contract only with diverse, credit-worthy counterparties based upon both strong credit ratings and other credit considerations.
The Company is exposed to market risk from foreign currency exchange rates, interest rates and commodity price fluctuations. Volatility relating to these exposures is managed on a global basis by utilizing a number of techniques, including working capital management, sourcing strategies, selling price increases, selective borrowings in local currencies and entering into selective derivative instrument transactions, issued with standard features, in accordance with the Company’s treasury and risk management policies, which prohibit the use of derivatives for speculative purposes and leveraged derivatives for any purpose. It is the Company’s policy to enter into derivative instrument contracts with terms that match the underlying exposure being hedged. Hedge ineffectiveness, if any, is not material for any period presented.
The Company’s derivative instruments include interest rate swap contracts, foreign currency contracts and commodity contracts. The Company utilizes interest rate swap contracts to manage its targeted mix of fixed and floating rate debt, and these swaps are valued using observable benchmark rates (Level 2 valuation). The Company utilizes foreign currency contracts, including forward and swap contracts, option contracts, local currency deposits and local currency borrowings to hedge portions of its foreign currency purchases, assets and liabilities arising in the normal course of business and the net investment in certain foreign subsidiaries. These contracts are valued using observable market rates (Level 2 valuation). Commodity futures contracts are utilized to hedge the purchases of raw materials used in production. These contracts are measured using quoted commodity exchange prices (Level 1 valuation). The duration of foreign currency and commodity contracts generally does not exceed 12 months.
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
The following table summarizes the fair value of the Company’s derivative instruments and other financial instruments which are carried at fair value in the Company’s Consolidated Balance Sheets at September 30, 2017March 31, 2020 and December 31, 2016:2019:
|
| | | | | | | | | | | | | | | | | | | |
| Assets | | Liabilities |
| Account | | Fair Value | | Account | | Fair Value |
Designated derivative instruments | | | March 31, 2020 | | December 31, 2019 | | | | March 31, 2020 | | December 31, 2019 |
Interest rate swap contracts | Other current assets | | $ | — |
| | $ | — |
| | Other accruals | | $ | — |
| | $ | — |
|
Interest rate swap contracts | Other assets | | 16 |
| | 4 |
| | Other liabilities | | — |
| | — |
|
Foreign currency contracts | Other current assets | | 58 |
| | 6 |
| | Other accruals | | 8 |
| | 15 |
|
Foreign currency contracts | Other assets | | — |
| | — |
| | Other liabilities | | 9 |
| | 14 |
|
Commodity contracts | Other current assets | | — |
| | — |
| | Other accruals | | 1 |
| | — |
|
Total designated | | $ | 74 |
| | $ | 10 |
| | | | $ | 18 |
| | $ | 29 |
|
| | | | | | | | | | | |
Other financial instruments | | | |
| | |
| | | | |
| | |
|
Marketable securities | Other current assets | | $ | 43 |
| | $ | 23 |
| | | | |
| | |
|
Total other financial instruments | | | $ | 43 |
| | $ | 23 |
| | | | |
| | |
|
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| Assets | | Liabilities |
| Account | | Fair Value | | Account | | Fair Value |
Designated derivative instruments | | 9/30/17 | | 12/31/16 | | | | 9/30/17 | | 12/31/16 |
Interest rate swap contracts | Other current assets | | $ | — |
| | $ | 1 |
| | Other accruals | | $ | — |
| | $ | — |
|
Interest rate swap contracts | Other assets | | — |
| | 1 |
| | Other liabilities | | 2 |
| | — |
|
Foreign currency contracts | Other current assets | | 9 |
| | 29 |
| | Other accruals | | 36 |
| | 4 |
|
Foreign currency contracts | Other assets | | — |
| | 5 |
| | Other liabilities | | 40 |
| | — |
|
Commodity contracts | Other current assets | | — |
| | — |
| | Other accruals | | — |
| | — |
|
Total designated | | | $ | 9 |
| | $ | 36 |
| | | | $ | 78 |
| | $ | 4 |
|
| | | | | | | | | | | |
Derivatives not designated | | | |
| | |
| | | | | | |
|
Foreign currency contracts | Other current assets | | $ | 1 |
| | $ | — |
| | Other accruals | | $ | 1 |
| | $ | — |
|
Total not designated | | | $ | 1 |
|
| $ | — |
| | | | $ | 1 |
| | $ | — |
|
| | | | | | | | | | | |
Total derivative instruments | | $ | 10 |
| | $ | 36 |
| | | | $ | 79 |
| | $ | 4 |
|
| | | | | | | | | | | |
Other financial instruments | | |
| | |
| | | | |
| | |
|
Marketable securities | Other current assets | | $ | 186 |
| | $ | 23 |
| | | | |
| | |
|
Total other financial instruments | | $ | 186 |
| | $ | 23 |
| | | | |
| | |
|
The carrying amount of cash, cash equivalents, marketable securities, accounts receivable and short-term debt approximated fair value as of September 30, 2017March 31, 2020 and December 31, 2016.2019. The estimated fair value of the Company’s long-term debt, including the current portion, as of September 30, 2017March 31, 2020 and December 31, 2016,2019, was $6,740$7,909 and $6,717,$8,056, respectively, and the related carrying value was $6,520 as of each balance sheet date.$7,591 and $7,587, respectively. The estimated fair value of long-term debt was derived principally from quoted prices on the Company’s outstanding fixed-term notes (Level 2 valuation).
The following amounts were recorded on the Condensed Consolidated Balance Sheet related to cumulative basis adjustment for fair value hedges as of:
|
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
Long-term debt: | | | |
Carrying amount of hedged item | $ | 415 |
| | $ | 403 |
|
Cumulative hedging adjustment included in the carrying amount | 16 |
| | 4 |
|
The following tables present the notional values as of:
|
| | | | | | | | | | | | | | | | | | | |
| March 31, 2020 |
| Foreign Currency Contracts | | Foreign Currency Debt | | Interest Rate Swaps | | Commodity Contracts | | Total |
Fair Value Hedges | $ | 535 |
| | $ | — |
| | $ | 400 |
| | $ | — |
| | $ | 935 |
|
Cash Flow Hedges | 718 |
| | — |
| | — |
| | 21 |
| | 739 |
|
Net Investment Hedges | 473 |
| | 3,752 |
| | — |
| | — |
| | 4,225 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2019 |
| Foreign Currency Contracts | | Foreign Currency Debt | | Interest Rate Swaps | | Commodity Contracts | | Total |
Fair Value Hedges | $ | 388 |
| | $ | — |
| | $ | 400 |
| | $ | — |
| | $ | 788 |
|
Cash Flow Hedges | 761 |
| | — |
| | — |
| | 20 |
| | 781 |
|
Net Investment Hedges | 478 |
| | 3,856 |
| | — |
| | — |
| | 4,334 |
|
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
Fair Value Hedges
The Company has designated all interest rate swap contractsfollowing table presents the location and certain foreign currency forward and option contracts as fair value hedges, for which the gain or lossamount of gains (losses) recognized on the derivative and the offsetting gain or loss on the hedged item are recognized in current earnings. The impactCompany’s Condensed Consolidated Statements of foreign currency contracts is primarily recognized in Selling, general and administrative expenses and the impact of interest rate swap contracts is recognized in Interest (income) expense, net.
Activity related to fair value hedges recorded during the three and nine months ended September 30, 2017 and 2016 was as follows:Income:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Foreign Currency Contracts | | Interest Rate Swaps | | Total | | Foreign Currency Contracts | | Interest Rate Swaps | | Total |
Notional Value at September 30, | $ | 1,095 |
| | $ | 600 |
| | $ | 1,695 |
| | $ | 239 |
| | $ | 1,250 |
| | $ | 1,489 |
|
Three months ended September 30, | | | | | | | | | | | |
Gain (loss) on derivatives | (14 | ) | | (1 | ) | | (15 | ) | | 1 |
| | (6 | ) | | (5 | ) |
Gain (loss) on hedged items | 14 |
| | 1 |
| | 15 |
| | (1 | ) | | 6 |
| | 5 |
|
Nine months ended September 30, | | | | | | | | | | | |
Gain (loss) on derivatives | (15 | ) | | (3 | ) | | (18 | ) | | (4 | ) | | 3 |
| | (1 | ) |
Gain (loss) on hedged items | 15 |
| | 3 |
| | 18 |
| | 4 |
| | (3 | ) | | 1 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
| Cost of sales | | Selling, general and administrative expenses | | Interest (income) expense, net | | Cost of sales | | Selling, general and administrative expenses | | Interest (income) expense, net |
Gain (loss) on hedges recognized in income: | | | | | | | | | | | |
Interest rate swaps designated as fair value hedges: | | | | | | | | | | | |
Derivative instrument | $ | — |
| | $ | — |
| | $ | (12 | ) | | $ | — |
| | $ | — |
| | $ | (3 | ) |
Hedged items | — |
| | — |
| | 12 |
| | — |
| | — |
| | 3 |
|
Foreign currency contracts designated as fair value hedges: | | | | | | |
| |
| |
|
Derivative instrument | — |
| | 24 |
| | — |
| | — |
| | (1 | ) | | — |
|
Hedged items | — |
| | (24 | ) | | — |
| | — |
| | 1 |
| | — |
|
Foreign currency contracts designated as cash flow hedges: | | | | | | |
| |
| |
|
Amount reclassified from OCI | 2 |
| | — |
| | — |
| | 3 |
| | — |
| | — |
|
Commodity contracts designated as cash flow hedges: | | | | | | |
| |
| |
|
Amount reclassified from OCI | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
|
Total gain (loss) on hedges recognized in income | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | 4 |
| | $ | — |
| | $ | — |
|
Cash Flow Hedges
All of the Company’s commodity contracts and certain foreign currency forward contracts have been designated as cash flow hedges, for which the effective portion of the gain or loss is reported as a component of Other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
Activity related to cash flow hedges recorded during the three and nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Foreign Currency Contracts | | Commodity Contracts | | Total | | Foreign Currency Contracts | | Commodity Contracts | | Total |
Notional Value at September 30, | $ | 724 |
| | $ | 1 |
| | $ | 725 |
| | $ | 690 |
| | $ | 8 |
| | $ | 698 |
|
Three months ended September 30, | | | | | | | | | | | |
Gain (loss) recognized in OCI | (8 | ) | | — |
| | (8 | ) | | 3 |
| | (2 | ) | | 1 |
|
Gain (loss) reclassified into Cost of sales | (4 | ) | | — |
| | (4 | ) | | (1 | ) | | — |
| | (1 | ) |
Nine months ended September 30, | | | | | | | | | | | |
Gain (loss) recognized in OCI | (28 | ) | | — |
| | (28 | ) | | (6 | ) | | — |
| | (6 | ) |
Gain (loss) reclassified into Cost of sales | (2 | ) | | — |
| | (2 | ) | | (1 | ) | | — |
| | (1 | ) |
The net gain (loss) recognizedfollowing table presents the location and amount of unrealized gains (losses) included in OCI for both foreign currency contracts and commodity contracts is generally expected to be recognized in Cost of sales within the next twelve months.OCI:
|
| | | | | | | |
| Three Months Ended |
March 31, |
2020 | | 2019 |
Foreign currency contracts designated as cash flow hedges: | | | |
Gain (loss) recognized in OCI | $ | 25 |
| | $ | (3 | ) |
Commodity contracts designated as cash flow hedges: | | | |
Gain (loss) recognized in OCI | — |
| | 1 |
|
Foreign currency contracts designated as net investment hedges: | | | |
Gain (loss) on instruments | 25 |
| | 6 |
|
Gain (loss) on hedged items | (25 | ) | | (6 | ) |
Foreign currency debt designated as net investment hedges: | | | |
Gain (loss) on instruments | 65 |
| | 29 |
|
Gain (loss) on hedged items | (65 | ) | | (29 | ) |
Total unrealized gain (loss) on hedges recognized in OCI | $ | 25 |
| | $ | (2 | ) |
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
Net Investment Hedges
The Company has designated certain foreign currency forward and option contracts and certain foreign currency-denominated debt as net investment hedges, for which the gain or loss on the instrument is reported as a component of Cumulative translation adjustments within OCI, along with the offsetting gain or loss on the hedged items.
Activity related to net investment hedges recorded during the three and nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Foreign Currency Contracts | | Foreign Currency Debt | | Total | | Foreign Currency Contracts | | Foreign Currency Debt | | Total |
Notional Value at September 30, | $ | 749 |
| | $ | 590 |
| | $ | 1,339 |
| | $ | 917 |
| | $ | 1,190 |
| | $ | 2,107 |
|
Three months ended September 30, | | | | | | | | | | | |
Gain (loss) on instruments | (23 | ) | | (22 | ) | | (45 | ) | | (4 | ) | | (13 | ) | | (17 | ) |
Gain (loss) on hedged items | 22 |
| | 22 |
| | 44 |
| | 4 |
| | 13 |
| | 17 |
|
Nine months ended September 30, | | | | | | | | | | | |
Gain (loss) on instruments | (69 | ) | | (115 | ) | | (184 | ) | | (20 | ) | | (36 | ) | | (56 | ) |
Gain (loss) on hedged items | 69 |
| | 115 |
| | 184 |
| | 20 |
| | 36 |
| | 56 |
|
Derivatives not Designated as Hedging Instruments
Derivatives not designated as hedging instruments for the third quarter of 2017 include foreign currency contracts for which the gain or loss on the instrument is recognized in Other (income) expense, net for the three and nine months ended September 30, 2017. During the second quarter of 2017, the Company de-designated foreign currency forward contracts previously designated as net investment hedges and entered into new derivative instruments with offsetting terms. Gains or losses on these de-designated derivatives were substantially offset by gains and losses on the new derivative instruments.
Derivatives not designated as hedging instruments for the third quarter of 2016 consist of a cross-currency swap that serves as an economic hedge of a foreign currency deposit, for which the gain or loss on the instrument and the offsetting gain or loss on the hedged item are recognized in Other (income) expense, net for each period.
Activity related to these contracts during the three and nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | |
| | 2017 | | 2016 |
| | Foreign Currency Contracts | | Foreign Currency Contracts |
Notional Value at September 30, | | $ | 42 |
| | $ | 6 |
|
Three months ended September 30, | | | |
|
|
Gain (loss) on instruments | | — |
| | — |
|
Gain (loss) on hedged items | | — |
| | — |
|
Nine months ended September 30, | | | |
|
|
Gain (loss) on instruments | | — |
| | 5 |
|
Gain (loss) on hedged items | | — |
| | (5 | ) |
COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
Other Financial Instruments
Other financial instruments are classified as Other current assets or Other assets.
Other financial instruments classified as Other current assets include marketable securities consisting of bank deposits of $186 with original maturities greater than 90 days carried at fair value (Level 1 valuation) and the current portion of bonds issued by the Argentinian government in the amount of $36 classified as held-to-maturity and carried at amortized cost.
Through its subsidiary in Argentina, the Company has invested in U.S. dollar-linked, devaluation-protected bonds and Argentinian peso-denominated bonds issued by the Argentinian government. As of September 30, 2017, the amortized cost was $36 and their approximate fair value was $36 (Level 2 valuation).
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Executive Overview and Outlook
Business Organization
Colgate-Palmolive Company (together with its subsidiaries, “we,” the “Company” or “Colgate”) seeks to deliver strong, consistent business results and superior shareholder returns by providing consumers globally with products that make their lives healthier and more enjoyable.
To this end, the Company iswe are tightly focused on two product segments: Oral, Personal and Home Care; and Pet Nutrition. Within these segments, the Company followswe follow a closely defined business strategy to developgrow our key product categories and increase our overall market leadership positionsshare. Within the categories in key product categories. These product categories are prioritizedwhich we compete, we prioritize our efforts based on their capacity to maximize the use of the organization’s core competencies and strong global equities and to deliver sustainable long-term growth.
Operationally, the Company iswe are organized along geographic lines with management teams having responsibility for the business and financial results in each region. The Company competesWe compete in more than 200 countries and territories worldwide with established businesses in all regions contributing to the Company’sour sales and profitability. Approximately 75%70% of the Company’sour Net sales are generated from markets outside the U.S., with approximately 50%45% of the Company’sour Net sales coming from emerging markets (which consist of Latin America, Asia (excluding Japan), Africa/Eurasia and Central Europe). This geographic diversity and balance help to reduce the Company’sour exposure to business and other risks in any one country or part of the world.
The Oral, Personal and Home Care product segment is managed geographically in five reportable operating segments: North America, Latin America, Europe, Asia Pacific and Africa/Eurasia, all of which sell primarily to a variety of retailtraditional and wholesale customerseCommerce retailers, wholesalers and distributors. The Company, throughThrough Hill’s Pet Nutrition, we also competescompete on a worldwide basis in the pet nutrition market, selling its products principally through authorized pet supply retailers, veterinarians and veterinarians. The Company’seCommerce retailers. We are engaged in manufacturing and sourcing of products are also sold online through various e-commerce platforms and retailers.materials on a global scale and have major manufacturing, warehousing facilities and distribution centers in every region around the world.
On an ongoing basis, management focuses on a variety of key indicators to monitor business health and performance. These indicators include market share, net sales (including volume, pricing and foreign exchange components), organic sales growth (net sales growth excluding the impact of foreign exchange, acquisitions and divestments), a non-GAAP financial measure, and gross profit margin, operating profit, net income and earnings per share, in each case, on a GAAP and non-GAAP basis, as well as measures used to optimize the management of working capital, capital expenditures, cash flow and return on capital. In addition, we review market share data to assess how our brands are performing within their categories on a global and regional basis. The monitoring of these indicators and the Company’sour Code of Conduct and corporate governance practices help to maintain business health and strong internal controls. For additional information regarding non-GAAP financial measures and the Company’s use of market share data and the limitations of such data, see “Non-GAAP Financial Measures” and “Market Share Information” below.
COVID-19
The novel coronavirus (“COVID-19”) has had a profound impact on the way people live, work, interact and shop and has severely restricted economic activity around the world. We have a well-established Crisis Management Team (“CMT”) process, and the CMT, together with our senior management team and Colgate people around the world, are working to respond to the challenges presented by COVID-19.
During the quarter ended March 31, 2020, many of the communities in which we manufacture, market and sell our products have experienced unprecedented “stay at home” orders, travel or movement restrictions and other government actions. Because the vast majority of our products (such as oral care products, soaps and other personal hygiene products, home cleaners and pet food) have been deemed essential for the health and well-being of people and their pets, we have, in most instances, been able to continue operating our business. In so doing, the health and safety of Colgate employees has been our first priority and, wherever possible, we have asked our employees globally to work from home, including most employees in our New York City headquarters, Piscataway, New Jersey technology campus, hubs and subsidiaries worldwide and shared business service centers. In those instances where our employees cannot work from home, such as in our factories and in certain of our laboratories, we have implemented additional safety measures and social distancing protocols, consistent with government recommendations and/or requirements, to help to ensure their safety. Even with such measures in place, we have experienced
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
some limited factory closures, particularly in India, and in some instances we have seen increased instances of absenteeism. In addition, some of our suppliers, customers, distributors and service providers have experienced disruptions to their businesses.
We saw a significant increase in demand across most of our categories in the quarter ended March 31, 2020. While some of this increase has been caused by consumers’ pantry-loading activity, we believe that some of the increased demand for our health and hygiene products (for example, liquid hand soap) is the result of increased consumption and may be sustainable. At the same time, we experienced declines in Greater China, India and in certain channels, including professional sales and travel retail, due to the economic slowdown and restricted consumer movement. We have also seen changes in the purchasing patterns of our consumers, including the frequency of visits by consumers to retailers and a shift in many markets to purchasing our products online. During the quarter ended March 31, 2020, in some instances, we were not able to keep up with the increased consumer demand for our products and our products were at times out of stock on retailers’ shelves. We expect that this may continue for a period of time as we continue to ramp up production of in-demand products.
Government actions in response to COVID-19 could, in the future, impact our consumers’ ability to purchase and our ability to manufacture and distribute our products. Nonetheless, we believe that, in the long-term, consumer demand for products in our categories will be strong. However, uncertainty continues surrounding the timing and extent of recovery, when travel and movement restrictions will abate, the timing and impact of consumer pantry-loading activity in certain markets, product demand trends and the impact of COVID-19 on the global economy. Our retail customers are also being impacted by the global pandemic; their success in addressing COVID-19 and maintaining their operations could impact consumer access to and sales of our products.
While we currently expect to be able to continue operating our business as described above and we intend to continue to work with government authorities and to follow the necessary protocols to maintain the health and safety of our employees and contract providers, uncertainty resulting from COVID-19 could result in an unforeseen additional disruption to our business, including our global supply chain and retailer network.
For more information about the anticipated COVID-19 impact, see “Outlook” below.
Business Strategy
To achieve itsour business and financial objectives, we are focused on innovating our core businesses; improving our brand building activities with an elevated brand purpose model and the Company focuses the organization on initiativesuse of equity advertising; innovating to gain market share in high growth segments and adjacencies; expanding into new channels and markets; maximizing growth online; and investing to drive and fund growth. The Company seeksconsumption in growing populations. We continue to capture significant opportunities for growth by identifying and meeting consumer needs within its core categories, through its focus on innovation and the deployment of valuable consumer and shopper insights in the development of successful new products regionally, which are then rolled out on a global basis. To enhance these efforts, the Company has developed keydevelop initiatives to build strong relationships with consumers, dental, veterinary and veterinaryskin health professionals and retail customers.traditional and eCommerce retailers. In addition, the Company has strengthened itswe continue to invest behind our brands, not just in terms of advertising, but also to build key growth capabilities in e-commerce, developing its relationships with online-only retailersareas such as innovation and its digital marketing capabilities. Growthdata and analytics. We also continue to broaden our eCommerce offerings, including direct-to-consumer and subscription services. We continue to believe that growth opportunities are greater in those areas of the world in which economic development and rising consumer incomes expand the size and number of markets for the Company’s products. We are also working to integrate our sustainability strategy across our organization.
COLGATE-PALMOLIVE COMPANYWe are also changing the way we work to drive growth and how we approach innovation to respond to the dynamic retail landscape and the evolving preferences of our customers and consumers. The retail landscape, the ease of new entrants into the market in many of our categories and the evolving preferences of our customers and consumers demand that we work differently and faster in an agile, authentic and culturally relevant manner to drive innovation.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
The investments needed to support growth are developed through continuous, Company-wide initiatives to lower costs and increase effective asset utilization. Through these initiatives, which are referred to as the Company’sour funding-the-growth initiatives, the Company seekswe seek to become even more effective and efficient throughout itsour businesses. These initiatives are designed to reduce costs associated with direct materials, indirect expenses, distribution and logistics, and advertising and promotional materials, among other things, and encompass a wide range of projects, examples of which include raw material substitution, reduction of packaging materials, consolidating suppliers to leverage volumes and increasing manufacturing efficiency through SKU reductions and formulation simplification. The CompanyWe also continuescontinue to prioritize itsour investments toward its higher margin businesses, specificallyin high growth segments within our Oral Care, Personal Care and Pet Nutrition.Nutrition businesses, including by expanding our portfolio in premium skin health.
Effective DecemberCOLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Significant Items Impacting Comparability
On January 31, 2015,2020, the Company concluded it no longer metacquired Hello Products LLC, an oral care business, for cash consideration of $351. The acquisition was financed with a combination of debt and cash. This acquisition is part of the accounting criteria for consolidation ofCompany's strategy to focus on high growth segments within its Venezuelan subsidiary (“CP Venezuela”)Oral Care, Personal Care and began accounting for CP Venezuela using the cost method of accounting. As such, effective December 31, 2015, the Company’s Consolidated Balance Sheet no longer includes the assets and liabilities of CP Venezuela. Prior periods have not been restated and CP Venezuela’s Net sales, Operating profit and Net income are included in the Company’s Consolidated Statements of Income through December 31, 2015.
Since January 1, 2016, under the cost method of accounting, the Company no longer includes the local operating results of CP Venezuela in its Consolidated Financial Statements and includes income relating to CP Venezuela onlyPet Nutrition businesses. See Note 4, Acquisitions to the extent it receives cash for sales of inventory to CP Venezuela or for dividends or royalties remitted by CP Venezuela, all of which have been immaterial. Although CP Venezuela’s local operating results are no longer included in the Company’sCondensed Consolidated Financial Statements for accounting purposes, under current tax rules, the Company is required to continue including CP Venezuela in its consolidated U.S. federal income tax return. In the first quarter of 2016, Provisionadditional information.
The provision for income taxes included a $210 U.S.for the quarter ended March 31, 2020 includes $71 of income tax benefit principallybenefits recorded on a discrete period basis of which $45 relates to previously recorded foreign withholding taxes and $26 relates to a previously recorded valuation allowance against a deferred tax asset. As more fully described in “Results of Operations-Income Taxes,” and in Note 10, Income Taxes to the Condensed Consolidated Financial Statements, both items were previously recorded in connection with the charge recorded in 2017 and revised in 2018 related to changes in Venezuela’s foreign exchange regime implemented in March 2016.the Tax Cuts and Jobs Act (the “TCJA”).
In the fourth quarter of 2012,On September 19, 2019, the Company commencedacquired Laboratoires Filorga Cosmétiques S.A. (“Filorga”), a skin health business, for cash consideration of €1,548 (approximately $1,712). Filorga is a premium anti-aging skin health brand focused primarily on facial care. The acquisition was financed with a combination of debt and cash. This acquisition is part of our strategy to focus on high growth segments within our Oral Care, Personal Care and Pet Nutrition businesses, including by expanding our portfolio in premium skin health. See Note 4, Acquisitions to the Condensed Consolidated Financial Statements for additional information.
Our restructuring program, (as subsequently expanded,known as described below, the “Global"Global Growth and Efficiency Program”) for sustained growth.Program," concluded on December 31, 2019. The program’sprogram's initiatives are expectedwere designed to help the Companyus ensure sustained solid worldwide growth in unit volume, organic sales, operating profit and earnings per share and to enhance itsour global leadership positions in itsour core businesses.
On October 23, 2014, the Company’s Board of Directors (the “Board”) approved an expansion of the Global Growth See Note 5, Restructuring and Efficiency Program to take advantage of additional savings opportunities. On October 29, 2015, the Board approved the reinvestment of the funds from the sale of the Company’s laundry detergent business in the South Pacific to expand the Global Growth and Efficiency Program and extend it through December 31, 2017. The Board approved the implementation plan for this expansion on March 10, 2016.
Related Implementation of the Global Growth and Efficiency Program remains on track. Building on the Company’s successful implementation of the Global Growth and Efficiency Program to date, on October 26, 2017, the Board approved an expansion of the Global Growth and Efficiency Program and an extension of the program through December 31, 2019 to take advantage of additional opportunities to streamline the Company’s operations.
The initiatives under the Global Growth and Efficiency Program continue to be focused on the following areas:
| |
▪ | Expanding Commercial Hubs |
| |
▪ | Extending Shared Business Services and Streamlining Global Functions |
| |
▪ | Optimizing Global Supply Chain and Facilities |
As a result of the expansion, savings, substantially all of which are expected to increase future cash flows, are now projected to be in the range of $560 to $635 pretax ($500 to $575 aftertax) annually, once all projects are approved and implemented, as comparedCharges to the previous estimate of $455 to $495 pretax ($425 to $475 aftertax). Cumulative pretax charges resulting from the Global Growth and Efficiency Program, once all phases are approved and implemented, are now estimated to be in the range of $1,730 to $1,885 ($1,280 to $1,380 aftertax), as compared to the previous estimate of $1,500 to $1,585 ($1,120 to $1,170 aftertax).Condensed Consolidated Financial Statements for additional information.
In the three and nine months ended September 30, 2017, the Company incurred aftertax costs of $39 and $185, respectively, associated with the Global Growth and Efficiency Program.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
For more information regarding the Global Growth and Efficiency Program, see “Restructuring and Related Implementation Charges” below.Outlook
Looking forward, the Company expectswe expect global macroeconomic, political and market conditions to remain highly challenging, especially due to the COVID-19 crisis. Although we have seen short-term improvement in category growth rates due to consumer pantry-loading activity, we have seen increased volatility in consumption rates in our categories and expect category growth rates to continueslow going forward as pantry inventory diminishes and to be slow.remain below historical levels. While the global marketplace in which the Company operateswe operate has always been highly competitive, the Company continueswe continue to experience heightened competitive activity in certain markets from strong local competitors, and from other large multinational companies, some of which have greater resources than we do, and from new entrants into the Company does.market in many of our categories. Such activities have included more aggressive product claims and marketing challenges, as well as increased promotional spending and geographic expansion. We expect promotional activities to increase as retailers try aggressively to get consumers back into the stores after prolonged “stay at home” and other government restrictions ease over the coming months. We have been negatively affected by changes in the policies or practices of our retail trade customers in key markets, such as inventory de-stocking, limitations on access to shelf space or delisting of our products. In addition, the retail landscape in many of our markets continues to be impacted by the rapid growth of eCommerce retailers, changing consumer preferences (as consumers increasingly shop online) and the emergence of new salesalternative retail channels, for the Company’s products, such as e-commerce,subscription services and direct-to-consumer businesses. These trends have been magnified due to the COVID-19 crisis in many of our geographies and we plan to continue to invest behind our eCommerce capabilities. This rapid growth in eCommerce and the emergence of alternative retail channels have created and may continue to create pricing pressures and/or adversely affect consumer preferences and market dynamics. Givenour relationships with our key retailers. In addition, given that approximately 75%70% of the Company’sour Net sales originate in markets outside the U.S., the Company continueswe have experienced and will likely continue to experience increasingly volatile foreign currency fluctuations and highhigher raw and packaging material costs. While the Company haswe have taken, and will continue to take, measures to mitigate the effect of these conditions, should theyin the current environment, it may become increasingly difficult to implement certain of these mitigation strategies. Should these conditions persist, they could adversely affect the Company’sour future results.
As discussed above, we continue to closely monitor the impact of COVID-19 on our business. While we have taken, and will continue to take, measures to mitigate the effects of COVID-19, we cannot estimate with certainty the full extent of COVID-19’s impact on our business, results of operations, cash flows and/or financial condition. For additionalmore information onabout factors that could impact our business, including due to COVID-19, see “Risk Factors” in Part II, Item IA of this Quarterly Report and Part I, Item 1A of our Annual Report on Form 10-K for the Company’s results, see “Cautionary Statement on Forward-Looking Statements” below.year ended December 31, 2019.
The Company believes it isIn summary, we believe we are well prepared to meet the challenges ahead due to itsour strong financial condition, experience operating in challenging environments, resilient global supply chain and continued focus on our key priorities: growing sales through engaging with consumers, developing world-class innovation and working with retail partners; driving efficiency on every line of the Company’s strategic initiatives: engagingincome statement to build our brands; innovation for growth; effectivenessincrease margins; generating strong cash flow performance and efficiency;utilizing that cash effectively to enhance total shareholder return; and leading to win. Thiswin by staying true to the Company’s culture and focusing on its stakeholders. Our key focus is to sustain the underlying momentum of our business, to adapt our financial plans to deliver on 2020, while leaving us well positioned for a return to stronger growth in 2021. Our commitment to these priorities, together with the strength of the Company’sour global brands, itsour broad international presence in both developed and emerging markets and cost-saving initiatives, such as the Global Growth and Efficiency Program,our funding-the-growth initiatives, should position us well to manage through the Company wellCOVID-19 crisis and to increase shareholder value over the long term.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Results of Operations
Three Months
Worldwide Net sales were $3,974$4,097 in the thirdfirst quarter of 2017,2020, up 3.0%5.5% from the thirdfirst quarter of 2016, driven by2019, as volume growth of 1.5%7.0% and positivenet selling price increases of 2.0% were partially offset by negative foreign exchange of 3.5%. Acquisitions contributed 1.5%, while net selling prices were flat. to volume. Organic sales (Net sales excluding the impact of foreign exchange, acquisitions and divestments), a non-GAAP financial measure, increased 1.5%7.5% in the thirdfirst quarter of 2017.2020. A reconciliation of net sales growth to organic sales growth is provided under “Non-GAAP Financial Measures” below.
Net sales in the Oral, Personal and Home Care product segment were $3,401$3,378 in the thirdfirst quarter of 2017,2020, up 3.0% from the thirdfirst quarter of 2016, driven by2019, as volume growth of 5.5% and net selling price increases of 1.5% and positivewere partially offset by negative foreign exchange of 1.5%, while net selling prices were flat.4.0%. Acquisitions contributed 2.0% to volume. Organic sales in the Oral, Personal and Home Care product segment increased 1.5%5.0% in the thirdfirst quarter of 2017.2020.
The Company’s share of the global toothpaste market was 43.5%40.5% on a year-to-date basis, down 0.30.9 share points from the year ago period, and its share of the global manual toothbrush market was 32.6%32.1% on a year-to-date basis, down 0.6up 0.5 share points from the year ago period. Year-to-date market shares in toothpaste were up in Latin America and Europe and down in North America, Asia Pacific and Africa/Eurasia and down in Latin America, Europe and Asia Pacific versus the comparable 20162019 period. In the manual toothbrush category, year-to-date market shares were up in Latin America, Europe and Asia Pacific, flat in Africa/Eurasia and down in North America Latin America, Europe and Asia Pacific versus the comparable 20162019 period. For additional information regarding market shares, see “Market Share Information” below.
Net sales in the Hill’s Pet Nutrition segment were $573$719 in the thirdfirst quarter of 2017,2020, up 2.0%20.0% from the thirdfirst quarter of 2016, driven by2019, as volume growth of 1.0%17.0% and positivenet selling price increases of 4.0% were partially offset by negative foreign exchange of 1.0%, while net selling prices were flat.. Organic sales in the Hill’s Pet Nutrition segment increased 1.0%21.0% in the thirdfirst quarter of 2017.2020.
Gross Profit/Margin
Worldwide Gross profit increased to $2,383 in the third quarter of 2017 from $2,324 in the third quarter of 2016. Gross profit in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Gross profit increased to $2,399 in the third quarter of 2017 from $2,335 in the third quarter of 2016. This increase in Gross profit reflects an increase of $64 resulting from higher Net sales.
Worldwide Gross profit margin decreased to 60.0% in the third quarter of 2017 from 60.1% in the third quarter of 2016. Excluding charges resulting from the Global Growth and Efficiency Program in both periods, Gross profit margin was 60.4% in the third quarter of 2017, even with the third quarter of 2016, as cost savings from the Company’s funding-the-growth initiatives (210 bps) were offset by higher raw and packaging material costs (210 bps).
|
| | | | | | | | |
| | Three Months Ended September 30, |
| | 2017 | | 2016 |
Gross profit, GAAP | | $ | 2,383 |
| | $ | 2,324 |
|
Global Growth and Efficiency Program | | 16 |
| | 11 |
|
Gross profit, non-GAAP | | $ | 2,399 |
| | $ | 2,335 |
|
|
| | | | | | | | | |
| | Three Months Ended September 30, |
| | 2017 | | 2016 | | Basis Point Change |
Gross profit margin, GAAP | | 60.0 | % | | 60.1 | % | | (10 | ) |
Global Growth and Efficiency Program | | 0.4 |
| | 0.3 |
| | |
Gross profit margin, non-GAAP | | 60.4 | % | | 60.4 | % | | — |
|
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Selling, General and Administrative ExpensesGross Profit/Margin
Selling, general and administrative expensesWorldwide Gross profit increased 8% to $1,429$2,465 in the thirdfirst quarter of 20172020 from $1,322$2,287 in the thirdfirst quarter of 2016. Selling, general and administrative expenses2019. Gross profit in both periodsthe first quarter of 2020 included acquisition-related costs. Gross profit in the first quarter of 2019 included charges resulting from the Global Growth and Efficiency Program. Excluding theseacquisition-related costs in the first quarter of 2020 and charges resulting from the Global Growth and Efficiency Program in the first quarter of 2019, Gross profit increased to $2,469 in the first quarter of 2020 from $2,298 in the first quarter of 2019, reflecting an increase of $126 resulting from higher Net sales and an increase of $45 resulting from higher Gross profit margin.
Worldwide Gross profit margin increased to 60.2% in the first quarter of 2020 from 58.9% in the first quarter of 2019. Excluding the items described above in both periods as applicable, Gross profit margin increased by 110 basis points (bps) to 60.3% in the first quarter of 2020 from 59.2% in the first quarter of 2019. This increase in Gross profit margin was due to cost savings from the Company’s funding-the-growth initiatives (150 bps), higher pricing (70 bps) and favorable mix (20 bps), partially offset by higher raw and packaging material costs (130 bps), which included foreign exchange transaction costs.
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
Gross profit, GAAP | | $ | 2,465 |
| | $ | 2,287 |
|
Acquisition-related costs | | 4 |
| | — |
|
Global Growth and Efficiency Program | | — |
| | 11 |
|
Gross profit, non-GAAP | | $ | 2,469 |
| | $ | 2,298 |
|
|
| | | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 | | Basis Point Change |
Gross profit margin, GAAP | | 60.2 | % | | 58.9 | % | | 130 |
|
Acquisition-related costs | | 0.1 |
| | — |
| | |
Global Growth and Efficiency Program | | — |
| | 0.3 |
| | |
Gross profit margin, non-GAAP | | 60.3 | % | | 59.2 | % | | 110 |
|
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 8% to $1,473 in the first quarter of 2020 from $1,365 in the first quarter of 2019. Selling, general and administrative expenses in the first quarter of 2019 included charges resulting from the Global Growth and Efficiency Program. Excluding charges resulting from the Global Growth and Efficiency Program in the first quarter of 2019, Selling, general and administrative expenses increased to $1,407$1,473 in the thirdfirst quarter of 20172020 from $1,313$1,361 in the thirdfirst quarter of 2016,2019, reflecting higher overhead expenses of $57 and increased advertising investment of $66 and higher overhead expenses of $28.$55.
Selling, general and administrative expenses as a percentage of Net sales increased to 36.0% in the thirdfirst quarter of 20172020 from 34.2%35.1% in the thirdfirst quarter of 2016.2019. Excluding charges resulting from the Global Growth and Efficiency Program in both periods,the first quarter of 2019, Selling, general and administrative expenses as a percentage of Net sales increased by 140100 bps to 35.4%36.0% in the thirdfirst quarter of 20172020 as compared to 34.0%35.0% in the thirdfirst quarter of 2016.2019. This increase was due to increased advertising investment (80 bps) and higher overhead expenses (20 bps) primarily due to higher logistics costs, both as a percentage of Net sales (140 bps).sales. In the thirdfirst quarter of 2017,2020, advertising investment increased 19% to $405, as compared with $339 in the third quarter of 2016, and increased as a percentage of Net sales to 10.2%11.8% from 11.0% in the thirdfirst quarter of 2017 from 8.8%2019 or 13% in absolute terms to $484, as compared with $429 in the thirdfirst quarter of 2016.2019.
| | | | Three Months Ended September 30, | | Three Months Ended March 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
Selling, general and administrative expenses, GAAP | | $ | 1,429 |
| | $ | 1,322 |
| | $ | 1,473 |
| | $ | 1,365 |
|
Global Growth and Efficiency Program | | (22 | ) | | (9 | ) | | — |
| | (4 | ) |
Selling, general and administrative expenses, non-GAAP | | $ | 1,407 |
| | $ | 1,313 |
| | $ | 1,473 |
| | $ | 1,361 |
|
| | | | Three Months Ended September 30, | | Three Months Ended March 31, |
| | 2017 | | 2016 | | Basis Point Change | | 2020 | | 2019 | | Basis Point Change |
Selling, general and administrative expenses as a percentage of Net sales, GAAP | | 36.0 | % | | 34.2 | % | | 180 | | 36.0 | % | | 35.1 | % | | 90 |
Global Growth and Efficiency Program | | (0.6 | ) | | (0.2 | ) | | | — |
| | (0.1 | ) | |
Selling, general and administrative expenses as a percentage of Net sales, non-GAAP | | 35.4 | % | | 34.0 | % | | 140 | | 36.0 | % | | 35.0 | % | | 100 |
Other (Income) Expense, Net
Other (income) expense, net was $27 in the third quarter of 2017, as compared to $(69) in the third quarter of 2016. Other (income) expense, net in both periods included charges resulting from the Global Growth and Efficiency Program. Other (income) expense, net in the third quarter of 2016 also included a gain on the sale of land in Mexico and a charge for a previously disclosed litigation matter. Excluding these items in both periods as applicable, Other (income) expense, net was $7 in the third quarter of 2017, as compared to $0 in the third quarter of 2016.
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| | | | | | | | |
| | Three Months Ended September 30, |
| | 2017 | | 2016 |
Other (income) expense, net, GAAP | | $ | 27 |
| | $ | (69 | ) |
Global Growth and Efficiency Program | | (20 | ) | | (22 | ) |
Gain on sale of land in Mexico | | — |
| | 97 |
|
Charge for a previously disclosed litigation matter | | — |
| | (6 | ) |
Other (income) expense, net, non-GAAP | | $ | 7 |
| | $ | — |
|
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Operating Profit
Operating profit decreased 13%increased 8% to $927$952 in the thirdfirst quarter of 20172020 from $1,071$879 in the thirdfirst quarter of 2016.2019. Operating profit in both periodsthe first quarter of 2020 included acquisition-related costs. Operating profit in the first quarter of 2019 included charges resulting from the Global Growth and Efficiency Program. Excluding acquisition-related costs in the first quarter of 2020 and charges resulting from the Global Growth and Efficiency Program in the first quarter of 2019, Operating profit increased to $958 in the thirdfirst quarter of 2016 also included a gain on the sale of land in Mexico and a charge for a previously disclosed litigation matter. Excluding these items in both periods, as applicable, Operating profit was $9852020 from $907 in the thirdfirst quarter of 2017, compared to $1,022 in the third quarter of 2016, a decrease of 4%,2019, as an increase in Gross profit was more thanpartially offset by an increase in Selling, general and administrative expenses.
Operating profit margin was 23.3%23.2% in the thirdfirst quarter of 2017, a decrease2020, an increase of 44060 bps compared to 27.7%22.6% in the thirdfirst quarter of 2016.2019. Excluding the items described above in both periods as applicable, Operating profit margin was 24.8%23.4% in the thirdfirst quarter of 2017, a decrease of 160 bps as compared to 26.4% in the third quarter of 2016. This decrease in Operating profit margin was primarily due to an increase in Selling, general and administrative expenses as a percentage of Net sales (140 bps), reflecting increased advertising investment.
|
| | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2017 | | 2016 | | % Change |
Operating profit, GAAP | | $ | 927 |
| | $ | 1,071 |
| | (13 | )% |
Global Growth and Efficiency Program | | 58 |
| | 42 |
| | |
Gain on sale of land in Mexico | | — |
| | (97 | ) | | |
Charge for a previously disclosed litigation matter | | — |
| | 6 |
| | |
Operating profit, non-GAAP | | $ | 985 |
| | $ | 1,022 |
| | (4 | )% |
|
| | | | | | | | | |
| | Three Months Ended September 30, |
| | 2017 | | 2016 | | Basis Point Change |
Operating profit margin, GAAP | | 23.3 | % | | 27.7 | % | | (440 | ) |
Global Growth and Efficiency Program | | 1.5 |
| | 1.1 |
| | |
Gain on sale of land in Mexico | | — |
| | (2.5 | ) | | |
Charge for a previously disclosed litigation matter | | — |
| | 0.1 |
| | |
Operating profit margin, non-GAAP | | 24.8 | % | | 26.4 | % | | (160 | ) |
Interest (Income) Expense, Net
Interest (income) expense, net was $27 in the third quarter of 2017 as compared to $25 in the third quarter of 2016, primarily due to higher average interest rates on debt.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Net Income Attributable to Colgate-Palmolive Company and Earnings Per Share
Net income attributable to Colgate-Palmolive Company for the third quarter of 2017 decreased to $607 from $702 in the third quarter of 2016, and Earnings per common share on a diluted basis decreased to $0.68 per share in the third quarter of 2017 from $0.78 in the third quarter of 2016. Net income attributable to Colgate-Palmolive Company in both periods included charges resulting from the Global Growth and Efficiency Program. Net income attributable to Colgate-Palmolive Company in the third quarter of 2016 also included a gain on the sale of land in Mexico, benefits from previously disclosed tax matters (see “Income taxes” below for further information) and a charge for a previously disclosed litigation matter.
Excluding the items described above in both periods, as applicable, Net income attributable to Colgate-Palmolive Company in the third quarter of 2017 decreased 1% to $646, and Earnings per common share on a diluted basis in the third quarter of 2017 was $0.73,2020, even with the thirdfirst quarter of 2016.
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
| Income Before Income Taxes | | Provision For Income Taxes(1) | | Net Income Including Noncontrolling Interests | | Net Income Attributable To Colgate-Palmolive Company | | Diluted Earnings Per Share(2) |
As Reported GAAP | $ | 900 |
| | $ | 250 |
| | $ | 650 |
| | $ | 607 |
| | $ | 0.68 |
|
Global Growth and Efficiency Program | 58 |
| | 19 |
| | 39 |
| | 39 |
| | 0.05 |
|
Non-GAAP | $ | 958 |
| | $ | 269 |
| | $ | 689 |
| | $ | 646 |
| | $ | 0.73 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| Income Before Income Taxes | | Provision For Income Taxes(1) | | Net Income Including Noncontrolling Interests | | Net Income Attributable To Colgate-Palmolive Company | | Diluted Earnings Per Share(2) |
As Reported GAAP | $ | 1,046 |
| | $ | 300 |
| | $ | 746 |
| | $ | 702 |
| | $ | 0.78 |
|
Global Growth and Efficiency Program | 42 |
| | 10 |
| | 32 |
| | 32 |
| | 0.04 |
|
Gain on sale of land in Mexico | (97 | ) | | (34 | ) | | (63 | ) | | (63 | ) | | (0.07 | ) |
Benefits from previously disclosed tax matters | — |
| | 22 |
| | (22 | ) | | (22 | ) | | (0.02 | ) |
Charge for a previously disclosed litigation matter | 6 |
| | 2 |
| | 4 |
| | 4 |
| | — |
|
Non-GAAP | $ | 997 |
| | $ | 300 |
| | $ | 697 |
| | $ | 653 |
| | $ | 0.73 |
|
(1) The income tax effect on non-GAAP items is calculated based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.
(2) The impact of non-GAAP adjustments on diluted earnings per share may not necessarily equal the difference between “GAAP” and “non-GAAP”2019, as a result of rounding.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Net Sales and Operating Profit by Segment
Oral, Personal and Home Care
North America
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Change |
Net sales | $ | 795 |
| | $ | 800 |
| | (0.5 | ) | % |
Operating profit | $ | 249 |
| | $ | 273 |
| | (9 | ) | % |
% of Net sales | 31.3 | % | | 34.1 | % | | (280 | ) | bps |
Net sales in North America decreased 0.5% in the third quarter of 2017 to $795, as volume growth of 3.0% and positive foreign exchange of 0.5% were more thanhigher Gross profit (110 bps) was largely offset by net selling price decreases of 4.0%. Organic sales in North America decreased 1.0% in the third quarter of 2017.
The decrease in organic sales in North America in the third quarter of 2017 versus the third quarter of 2016 was due to a decrease in Personal Care and Home Care organic sales, partially offset by an increase in organic sales in the Oral Care category. The decrease in Personal Care was due to a decline in organic sales in the liquid hand soap, underarm protection and shower gel categories. The decrease in Home Care was primarily due to a decline in organic sales in the hand dish and fabric softener categories, partially offset by an increase in organic sales in the liquid cleaners category. The increase in Oral Care was due to organic sales growth in the toothpaste and manual toothbrush categories.
Operating profit in North America decreased 9% in the third quarter of 2017 to $249, or 280 bps to 31.3% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit (40 bps) and an increase in Selling, general and administrative expenses (220 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily driven by higher raw and packaging material costs (140 bps) and lower pricing, partially offset by cost savings from the Company’s funding-the-growth initiatives (210 bps) and the Global Growth and Efficiency Program (50 bps). This increase in Selling, general and administrative expenses was due to increased advertising investment (250 bps), partially offset by lower overhead expenses (30 bps).
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Latin America
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Change |
Net sales | $ | 985 |
| | $ | 924 |
| | 6.5 |
| % |
Operating profit | $ | 301 |
| | $ | 298 |
| | 1 |
| % |
% of Net sales | 30.6 | % | | 32.3 | % | | (170 | ) | bps |
Net sales in Latin America increased 6.5% to $985 in the third quarter of 2017, driven by volume growth of 3.0%, net selling price increases of 2.5% and positive foreign exchange of 1.0%. Organic sales in Latin America increased 5.5% in the third quarter of 2017. Volume gains were led by Brazil and the Southern Cone region.
The increase in organic sales in Latin America in the third quarter of 2017 versus the third quarter of 2016 was due to increases in Oral Care, Personal Care and Home Care organic sales. The increase in Oral Care was due to organic sales growth in the toothpaste category. The increase in Personal Care was due to organic sales growth in the bar soap and shampoo categories. The increase in Home Care was due to organic sales growth in the liquid cleaners and fabric softener categories.
Operating profit in Latin America increased 1% in the third quarter of 2017 to $301, while as a percentage of Net sales, it decreased 170 bps to 30.6% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (50 bps), which was more than offset by an increase in Selling, general and administrative expenses (200 bps), both as a percentage of Net sales. This increase in Gross profit was primarily due to cost savings from the Company’s funding-the-growth initiatives (170 bps), and higher pricing, partially offset by higher raw and packaging material costs (280 bps). This increase in Selling, general and administrative expenses was due to increased advertising investment (100 bps) and higher overhead expenses (100 bps).
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Europe
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Change |
Net sales | $ | 642 |
| | $ | 609 |
| | 5.5 |
| % |
Operating profit | $ | 162 |
| | $ | 158 |
| | 3 |
| % |
% of Net sales | 25.2 | % | | 25.9 | % | | (70 | ) | bps |
Net sales in Europe increased 5.5% in the third quarter of 2017 to $642 as volume growth of 3.0% and positive foreign exchange of 4.5% were partially offset by net selling price decreases of 2.0%. Organic sales in Europe increased 1.0% in the third quarter of 2017. Volume gains were led by France, Italy, the Netherlands and Poland.
The increase in organic sales in Europe in the third quarter of 2017 versus the third quarter of 2016 was driven by Oral Care with organic sales growth in the toothpaste category. Home Care also contributed to organic sales growth with gains in the fabric softener category.
Operating profit in Europe increased 3% in the third quarter of 2017 to $162, while as a percentage of Net sales, it decreased 70 bps to 25.2% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (10 bps), which was more than offset by an increase in Selling, general and administrative expenses (100 bps), both as a percentage of Net sales. This increase
|
| | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 | | % Change |
Operating profit, GAAP | | $ | 952 |
| | $ | 879 |
| | 8 | % |
Global Growth and Efficiency Program | | — |
| | 28 |
| | |
Acquisition-related costs | | 6 |
| | — |
| | |
Operating profit, non-GAAP | | $ | 958 |
| | $ | 907 |
| | 6 | % |
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 | | Basis Point Change |
Operating profit margin, GAAP | | 23.2 | % | | 22.6 | % | | 60 |
Global Growth and Efficiency Program | | — |
| | 0.8 |
| | |
Acquisition-related costs | | 0.2 |
| | — |
| | |
Operating profit margin, non-GAAP | | 23.4 | % | | 23.4 | % | | — |
Non-Service Related Postretirement Costs
Non-service related postretirement costs were $21 in Gross profit was primarily driven by cost savingsthe first quarter of 2020, as compared to $25 in the first quarter of 2019. Non-service related postretirement costs in the first quarter of 2019 included charges resulting from the Company’s funding-the-growth initiatives (220 bps)Global Growth and Efficiency Program. Excluding charges resulting from the Global Growth and Efficiency Program (20 bps), partially offset by higher raw and packaging materialin the first quarter of 2019, Non-service related postretirement costs (230 bps). This increasewere $21 in Selling, general and administrative expenses was duethe first quarter of 2020, as compared to increased advertising investment (190 bps), partially offset by lower overhead expenses (90 bps).$24 in the first quarter of 2019.
Asia Pacific
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Change |
Net sales | $ | 728 |
| | $ | 723 |
| | 0.5 |
| % |
Operating profit | $ | 220 |
| | $ | 230 |
| | (4 | ) | % |
% of Net sales | 30.2 | % | | 31.8 | % | | (160 | ) | bps |
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
Non-service related postretirement costs, GAAP | | $ | 21 |
| | $ | 25 |
|
Global Growth and Efficiency Program | | — |
| | (1 | ) |
Non-service related postretirement costs, non-GAAP | | $ | 21 |
| | $ | 24 |
|
Interest (Income) Expense, Net sales in Asia Pacific increased 0.5%
Interest (income) expense, net was $36 in the thirdfirst quarter of 20172020 as compared to $728 as volume and net selling prices were flat, while foreign exchange was positive 0.5%. Organic sales$40 in Asia Pacific were even with the thirdfirst quarter of 2016. Volume gains in the Greater China region and the Philippines were offset by volume declines in Australia and India.
Organic sales in Asia Pacific in the third quarter of 2017 were even with the third quarter of 2016, as an increase in organic sales in Oral Care was offset by declines in organic sales in the Personal Care category. The increase in Oral Care was due to organic sales growth in the toothpaste category. The decrease in Personal Care was2019, primarily due to declines in organic sales in the bar soap and shampoo categories.lower average interest rates on debt.
Operating profit in Asia Pacific decreased 4% to $220 in the third quarter of 2017, or 160 bps to 30.2% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit (60 bps) and an increase in Selling, general and administrative expenses (90 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily driven by higher costs (330 bps), which were primarily driven by higher raw and packaging material costs, partially offset by cost savings from the Company’s funding-the-growth initiatives (260 bps). This increase in Selling, general and administrative expenses was due to higher overhead expenses (80 bps) and increased advertising investment (10 bps).
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Africa/Eurasia
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Change |
Net sales | $ | 251 |
| | $ | 250 |
| | 0.5 |
| % |
Operating profit | $ | 44 |
| | $ | 50 |
| | (12 | ) | % |
% of Net sales | 17.5 | % | | 20.0 | % | | (250 | ) | bps |
Net sales in Africa/Eurasia increased 0.5% in the third quarter of 2017 to $251. Volume declines of 4.5% were more than offset by net selling price increases of 2.5% and the impact of positive foreign exchange of 2.5%. Organic sales in Africa/Eurasia decreased 2.0% in the third quarter of 2017. Volume declines in the Sub-Saharan Africa region and the Middle East region were partially offset by volume gains in Russia.
The decrease in organic sales in Africa/Eurasia in the third quarter of 2017 versus the third quarter of 2016 was primarily due to a decrease in Oral Care and Personal Care organic sales. The decrease in Oral Care was due to a decline in organic sales in the manual toothbrush category. The decrease in Personal Care was due to a decline in organic sales in the underarm protection and shower gel categories.
Operating profit in Africa/Eurasia decreased 12% in the third quarter of 2017 to $44, or 250 bps to 17.5% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (80 bps), which was more than offset by an increase in Selling, general and administrative expenses (290 bps), both as a percentage of Net sales. This increase in Gross profit was mainly driven by cost savings from the Company’s funding-the-growth initiatives (130 bps) and the Global Growth and Efficiency Program (20 bps), and higher pricing, partially offset by higher raw and packaging material costs (120 bps). This increase in Selling, general and administrative expenses was due to increased advertising investment (290 bps).
Hill’s Pet Nutrition
|
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Change |
Net sales | $ | 573 |
| | $ | 561 |
| | 2.0 |
| % |
Operating profit | $ | 161 |
| | $ | 162 |
| | (1 | ) | % |
% of Net sales | 28.1 | % | | 28.9 | % | | (80 | ) | bps |
Net sales for Hill’s Pet Nutrition increased 2.0% in the third quarter of 2017 to $573, driven by volume growth of 1.0% and positive foreign exchange of 1.0%, while net selling prices were flat. Organic sales in Hill’s Pet Nutrition increased 1.0% in the third quarter of 2017. Volume gains in the United States and Western Europe were partially offset by volume declines in Japan. The volume declines in Japan are primarily attributable to a continued contraction in the market.
The increase in organic sales in the third quarter of 2017 versus the third quarter of 2016 was due to an increase in organic sales in the Prescription Diet category, partially offset by a decline in organic sales in the Advanced Nutrition and Naturals categories.
Operating profit in Hill’s Pet Nutrition decreased 1% in the third quarter of 2017 to $161, or 80 bps to 28.1% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (20 bps), which was more than offset by an increase in Selling, general and administrative expenses (80 bps), both as a percentage of Net sales. This increase in Gross profit was mainly driven by cost savings from the Company’s funding-the-growth initiatives (200 bps), partially offset by higher costs (180 bps), which were primarily driven by higher raw and packaging material costs. This increase in Selling, general and administrative expenses was due to increased advertising investment (130 bps), partially offset by lower overhead expenses (50 bps).
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Corporate
|
| | | | | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 | | Change |
Operating profit (loss) | $ | (210 | ) | | $ | (100 | ) | | 110 | % |
Operating profit (loss) related to Corporate was ($210) in the third quarter of 2017 as compared to ($100) in the third quarter of 2016. In the third quarter of 2017, Corporate Operating profit (loss) included charges of $58 resulting from the Global Growth and Efficiency Program. In the third quarter of 2016, Corporate Operating profit (loss) included charges of $42 resulting from the Global Growth and Efficiency Program, a gain of $97 on the sale of land in Mexico and a charge of $6 for a previously disclosed litigation matter.
Nine Months
Worldwide Net sales were $11,562 in the first nine months of 2017, up 1.0% as compared to the first nine months of 2016, as volume declines of 0.5% were more than offset by net selling price increases of 1.0% and positive foreign exchange of 0.5%. Organic sales increased 0.5% in the first nine months of 2017.
Net sales in the Oral, Personal and Home Care product segment were $9,863 in the first nine months of 2017, an increase of 1.0% as compared to the first nine months of 2016, as volume declines of 0.5% were more than offset by net selling price increases of 1.0% and positive foreign exchange of 0.5%. Organic sales in the Oral, Personal and Home Care product segment increased 0.5% in the first nine months of 2017.
The increase in organic sales in the first nine months of 2017 versus the first nine months of 2016 was driven by an increase in organic sales in Oral Care, partially offset by a decrease in organic sales in Personal Care and Home Care. The increase in Oral Care organic sales was due to growth in the toothpaste category. The decrease in Personal Care organic sales was attributable to declines in the liquid hand soap and underarm protection categories. The decrease in Home Care organic sales was attributable to a decline in the hand dish category, partially offset by gains in the liquid cleaners and fabric softener categories.
Net sales in the Hill’s Pet Nutrition segment were $1,699 in the first nine months of 2017, an increase of 1.0% as compared to the first nine months of 2016, as volume declines of 1.5% were more than offset by net selling price increases of 2.0% and positive foreign exchange of 0.5%. Organic sales for the Hill’s Pet Nutrition segment increased 0.5% in the first nine months of 2017 as organic sales growth in the Prescription Diet category was partially offset by declines in organic sales in the Advanced Nutrition and Naturals categories.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Net Sales and Operating Profit by Segment
Net sales and Operating profit by segment were as follows: |
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Net sales | | | |
Oral, Personal and Home Care | | | |
North America | $ | 2,319 |
| | $ | 2,393 |
|
Latin America | 2,911 |
| | 2,710 |
|
Europe | 1,784 |
| | 1,803 |
|
Asia Pacific | 2,111 |
| | 2,163 |
|
Africa/Eurasia | 738 |
| | 720 |
|
Total Oral, Personal and Home Care | 9,863 |
| | 9,789 |
|
Pet Nutrition | 1,699 |
| | 1,685 |
|
Total Net sales | $ | 11,562 |
| | $ | 11,474 |
|
| | | |
Operating profit | |
| | |
|
Oral, Personal and Home Care | |
| | |
|
North America | $ | 723 |
| | $ | 762 |
|
Latin America | 878 |
| | 829 |
|
Europe | 447 |
| | 437 |
|
Asia Pacific | 644 |
| | 668 |
|
Africa/Eurasia | 134 |
| | 138 |
|
Total Oral, Personal and Home Care | 2,826 |
| | 2,834 |
|
Pet Nutrition | 481 |
| | 479 |
|
Corporate | (642 | ) | | (431 | ) |
Total Operating profit | $ | 2,665 |
| | $ | 2,882 |
|
Within the Oral, Personal and Home Care product segment, North America Net sales decreased 3.0%, as a result of volume declines of 1.0% and net selling price decreases of 2.0%, while foreign exchange was flat. Organic sales in North America decreased 3.0%. Latin America Net sales increased 7.5%, driven by volume growth of 2.0%, net selling price increases of 4.5% and positive foreign exchange of 1.0%. Organic sales in Latin America increased 6.5%. Europe Net sales decreased 1.0%, as volume growth of 1.0% was more than offset by net selling price decreases of 1.0% and negative foreign exchange of 1.0%. Organic sales in Europe were even with the first nine months of 2016. Asia Pacific Net sales decreased 2.5%, as a result of volume declines of 1.0%, net selling price decreases of 0.5% and negative foreign exchange of 1.0%. Organic sales in Asia Pacific decreased 1.5%. Africa/Eurasia Net sales increased 2.5%, as volume declines of 6.0% were more than offset by net selling price increases of 4.5% and positive foreign exchange of 4.0%. Organic sales in Africa/Eurasia decreased 1.5%.
In the first nine months of 2017, Operating profit (loss) related to Corporate was ($642) as compared to ($431) in the first nine months of 2016. In the first nine months of 2017, Corporate Operating profit (loss) included charges of $246 resulting from the Global Growth and Efficiency Program. In the first nine months of 2016, Corporate Operating profit (loss) included charges of $156 resulting from the Global Growth and Efficiency Program, a gain of $97 on the sale of land in Mexico and a charge of $6 for a previously disclosed litigation matter.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Gross Profit/Margin
Worldwide Gross profit increased to $6,952 in the first nine months of 2017 from $6,876 in the first nine months of 2016. Gross profit in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Gross profit increased to $7,003 in the first nine months of 2017 from $6,907 in the first nine months of 2016. This increase in Gross profit reflects an increase of $52 resulting from higher Net sales and an increase of $44 resulting from higher Gross profit margin in the first nine months of 2017.
Worldwide Gross profit margin was 60.1% in the first nine months of 2017 as compared to 59.9% in the first nine months of 2016. Excluding the charges resulting from the Global Growth and Efficiency Program in both periods, Gross profit margin increased by 40 bps to 60.6% in the first nine months of 2017, from 60.2% in the first nine months of 2016, driven by cost savings from the Company’s funding-the-growth initiatives (170 bps), and higher pricing (40 bps), which were partially offset by higher costs (170 bps), driven by higher raw and packaging material costs.
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
Gross profit, GAAP | | $ | 6,952 |
| | $ | 6,876 |
|
Global Growth and Efficiency Program | | 51 |
| | 31 |
|
Gross profit, non-GAAP | | $ | 7,003 |
| | $ | 6,907 |
|
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 | | Basis Point Change |
Gross profit margin, GAAP | | 60.1 | % | | 59.9 | % | | 20 |
Global Growth and Efficiency Program | | 0.5 |
| | 0.3 |
| | |
Gross profit margin, non-GAAP | | 60.6 | % | | 60.2 | % | | 40 |
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 3% to $4,124 in the first nine months of 2017 from $3,996 in the first nine months of 2016. Selling, general and administrative expenses in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges, Selling, general and administrative expenses increased to $4,064 in the first nine months of 2017 from $3,947 in the first nine months of 2016, reflecting increased advertising investment of $73 and higher overhead expenses of $44.
Selling, general and administrative expenses as a percentage of Net sales increased to 35.7% in the first nine months of 2017 from 34.8% in the first nine months of 2016. Excluding charges resulting from the Global Growth and Efficiency Program, Selling, general and administrative expenses as a percentage of Net sales were 35.1% in the first nine months of 2017, an increase of 70 bps as compared to the first nine months of 2016. This increase was a result of increased advertising investment (50 bps) and higher overhead expenses (20 bps), both as a percentage of Net sales. In the first nine months of 2017, advertising investment increased 6% to $1,204, as compared with $1,131 in the first nine months of 2016, while as a percentage of Net sales, it increased to 10.4% in the first nine months of 2017 from 9.9% in the first nine months of 2016.
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
Selling, general and administrative expenses, GAAP | | $ | 4,124 |
| | $ | 3,996 |
|
Global Growth and Efficiency Program | | (60 | ) | | (49 | ) |
Selling, general and administrative expenses, non-GAAP | | $ | 4,064 |
| | $ | 3,947 |
|
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 | | Basis Point Change |
Selling, general and administrative expenses as a percentage of Net sales, GAAP | | 35.7 | % | | 34.8 | % | | 90 |
Global Growth and Efficiency Program | | (0.6 | ) | | (0.4 | ) | | |
Selling, general and administrative expenses as a percentage of Net sales, non- GAAP | | 35.1 | % | | 34.4 | % | | 70 |
Other (Income) Expense, Net
Other (income) expense, net was $163 in the first nine months of 2017, as compared to $(2) in the first nine months of 2016.
Other (income) expense, net in both periods included charges resulting from the Global Growth and Efficiency Program. Other (income) expense, net in the first nine months of 2016 also included a gain on the sale of land in Mexico and a charge for a previously disclosed litigation matter. Excluding these items in both periods as applicable, Other (income) expense, net was $28 in the first nine months of 2017, as compared to $13 in the first nine months of 2016.
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
Other (income) expense, net, GAAP | | $ | 163 |
| | $ | (2 | ) |
Global Growth and Efficiency Program | | (135 | ) | | (76 | ) |
Gain on sale of land in Mexico | | — |
| | 97 |
|
Charge for a previously disclosed litigation matter | | — |
| | (6 | ) |
Other (income) expense, net, non-GAAP | | $ | 28 |
| | $ | 13 |
|
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Operating Profit
Operating profit decreased 8% to $2,665 in the first nine months of 2017 from $2,882 in the first nine months of 2016. Operating profit in both periods included charges resulting from the Global Growth and Efficiency Program. Operating profit in the first nine months of 2016 also included a gain on the sale of land in Mexico and a charge for a previously disclosed litigation matter. Excluding these items in both periods as applicable, Operating profit for the first nine months of 2017 decreased 1% to $2,911 from $2,947 in the first nine months of 2016, primarily due to an increase in Selling, general and administrative expenses, partially offset by higher Gross profit.
Operating profit margin was 23.0% in the first nine months of 2017, a decrease of 210 bps compared to 25.1% in the first nine months of 2016. Excluding the items described above in both periods as applicable, Operating profit margin was 25.2%, a decrease of 50 bps from 25.7% in the first nine months of 2016. This decrease was primarily due to an increase in Selling, general and administrative expenses (70 bps), partially offset by an increase in Gross profit margin (40 bps), both as a percentage of Net sales. This increase in Selling, general and administrative expenses was primarily due to increased advertising investment.
|
| | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 | | % Change |
Operating profit, GAAP | | $ | 2,665 |
| | $ | 2,882 |
| | (8 | )% |
Global Growth and Efficiency Program | | 246 |
| | 156 |
| | |
Gain on sale of land in Mexico | | — |
| | (97 | ) | | |
Charge for a previously disclosed litigation matter | | — |
| | 6 |
| | |
Operating profit, non-GAAP | | $ | 2,911 |
| | $ | 2,947 |
| | (1 | )% |
|
| | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 | | Basis Point Change |
Operating profit margin, GAAP | | 23.0 | % | | 25.1 | % | | (210 | ) |
Global Growth and Efficiency Program | | 2.2 |
| | 1.4 |
| | |
Gain on sale of land in Mexico | | — |
| | (0.8 | ) | | |
Charge for a previously disclosed litigation matter | | — |
| | — |
| | |
Operating profit margin, non-GAAP | | 25.2 | % | | 25.7 | % | | (50 | ) |
Interest (Income) Expense, Net
Interest (income) expense, net was $74 in the first nine months of 2017 as compared to $78 in the first nine months of 2016, primarily due to lower interest expense as a result of lower average debt balances and higher interest income on investments held outside the United States.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Income Taxes
The effective income tax rate was 27.8%16.4% for the thirdfirst quarter of 20172020 as compared to 28.7%26.3% for the thirdfirst quarter of 2016.2019. As reflected in the table below, the non-GAAP effective income tax rate was 28.1%24.4% for the quarter ended September 30, 2017,March 31, 2020, as compared to 30.1%26.2% in the comparable period of 2016. The decrease in the non-GAAP effective income tax rate in the third quarter of 2017 was primarily due to the recognition of $17 of excess tax benefits in the Provision for income taxes in the third quarter of 2017 as a result of the adoption of ASU No. 2016-09, “Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” effective January 1, 2017. See Note 3, Recent Accounting Pronouncements and Note 10, Income Taxes to the Condensed Consolidated Financial Statements, for additional details.2019.
The effective income tax rate was 29.7% for the first nine months of 2017 as compared to 30.2% for the first nine months of 2016. As reflected in the table below, the non-GAAP effective income tax rate was 29.3% for the first nine months ended September 30, 2017, as compared to 31.0% in the comparable period of 2016. The decrease in the non-GAAP effective income tax rate in the first nine months of 2017 was primarily due to the recognition of $43 of excess tax benefits in the Provision for income taxes during the first nine months of 2017, as a result of the adoption of the new accounting guidance discussed above.
The quarterly provision for income taxes is determined based on the Company’s estimated full year effective income tax rate adjusted by the amount of tax attributable to infrequent or unusual items that are separately recognized on a discrete basis in the income tax provision in the quarter in which they occur. In addition, as discussed above, effective January 1, 2017, excess tax benefits from share-based compensation are now recognized in the Provision for income taxes on a discrete basis. The Company’s current estimate of its full year effective income tax rate before discrete period items is 30.8%24.7%, compared to 31.0%26.1% in the thirdfirst quarter of 2016.2019. See Note 10, Income Taxes to the Condensed Consolidated Financial Statements for additional details.
| | | | Three Months Ended September 30, | | Three Months Ended March 31, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | Income Before Income Taxes | | Provision For Income Taxes(1) | | Effective Income Tax Rate(2) | | Income Before Income Taxes | | Provision For Income Taxes(1) | | Effective Income Tax Rate(2) | | Income Before Income Taxes | | Provision For Income Taxes(1) | | Effective Income Tax Rate(2) | | Income Before Income Taxes | | Provision For Income Taxes(1) | | Effective Income Tax Rate(2) |
As Reported GAAP | | $ | 900 |
| | $ | 250 |
| | 27.8 | % | | $ | 1,046 |
| | $ | 300 |
| | 28.7 | % | | $ | 895 |
| | $ | 147 |
| | 16.4 | % | | $ | 814 |
| | $ | 214 |
| | 26.3 | % |
Global Growth and Efficiency Program | | 58 |
| | 19 |
| | 0.3 |
| | 42 |
| | 10 |
| | (0.2 | ) | | — |
| | — |
| | — |
| | 29 |
| | 7 |
| | (0.1 | ) |
Gain on sale of land in Mexico | | — |
| | — |
| | — |
| | (97 | ) | | (34 | ) | | (0.6 | ) | |
Benefits from previously disclosed tax matters | | — |
| | — |
| | — |
| | — |
| | 22 |
| | 2.2 |
| |
Charge for a previously disclosed litigation matter | | — |
| | — |
| | — |
| | 6 |
| | 2 |
| | — |
| |
Subsidiary and operating structure initiatives | | | — |
| | 71 |
| | 7.9 | % | | — |
| | — |
| | — |
|
Acquisition-related costs | | | 6 |
| | 2 |
| | 0.1 | % | | — |
| | — |
| | — |
|
Non-GAAP | | $ | 958 |
| | $ | 269 |
| | 28.1 | % | | $ | 997 |
| | $ | 300 |
| | 30.1 | % | | $ | 901 |
| | $ | 220 |
| | 24.4 | % | | $ | 843 |
| | $ | 221 |
| | 26.2 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | Income Before Income Taxes | | Provision For Income Taxes(1) | | Effective Income Tax Rate(2) | | Income Before Income Taxes | | Provision For Income Taxes(1) | | Effective Income Tax Rate(2) |
As Reported GAAP | | $ | 2,591 |
| | $ | 770 |
| | 29.7 | % | | $ | 2,804 |
| | $ | 846 |
| | 30.2 | % |
Global Growth and Efficiency Program | | 246 |
| | 61 |
| | (0.4 | ) | | 156 |
| | 41 |
| | (0.2 | ) |
Gain on sale of land in Mexico | | — |
| | — |
| | — |
| | (97 | ) | | (34 | ) | | (0.2 | ) |
Benefits from previously disclosed tax matters | | — |
| | — |
| | — |
| | — |
| | 35 |
| | 1.2 |
|
Charge for a previously disclosed litigation matter | | — |
| | — |
| | — |
| | 6 |
| | 2 |
| | — |
|
Non-GAAP | | $ | 2,837 |
| | $ | 831 |
| | 29.3 | % | | $ | 2,869 |
| | $ | 890 |
| | 31.0 | % |
(1) The income tax effect on non-GAAP items is calculated based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.
(2) The impact of non-GAAP items on the Company’s effective tax rate represents the difference in the effective tax rate calculated with and without the non-GAAP adjustment on Income before income taxes and Provision for income taxes.
The provision for income taxes for the quarter ended March 31, 2020 includes $71 of income tax benefits recorded on a discrete period basis of which $45 relates to previously recorded foreign withholding taxes and $26 relates to a previously recorded valuation allowance against a deferred tax asset. As more fully described below, both items were previously recorded in connection with the charge recorded by the Company in 2017 and revised in 2018 related to the TCJA.
As part of the previously recorded charge for the TCJA, the Company had provided for foreign withholding taxes expected to be paid on the remittance of earnings from certain overseas subsidiaries no longer deemed indefinitely reinvested. As a result of a recent reorganization of the ownership structure of certain foreign subsidiaries, the Company has now determined that no withholding taxes will be due on the remittance by certain subsidiaries of earnings previously deemed reinvested and, accordingly, reversed $45 of previously recorded foreign withholding taxes.
Also as part of the previously recorded charge for the TCJA, the Company provided a valuation allowance against a deferred tax asset related to foreign tax credit carry-forwards that the Company did not expect to be able to use due to changes made by the TCJA. As a result of a new operating structure being implemented within one of the Company's divisions, the Company now believes the use of these foreign tax credit carry-forwards will not be limited in the future and, accordingly, reversed the previously recorded valuation allowance of $26.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
The Company has taken a tax position in a foreign jurisdiction since 2002 that has been challenged by the local tax authorities. In May 2015, the Company became aware of several rulings by the Supreme Court in this foreign jurisdiction disallowing certain tax deductions, which had the effect of reversing prior decisions. The Company had taken deductions in prior years similar to those disallowed by such court and, as a result, as required, reassessed its tax position and increased its unrecognized tax benefits in 2015.
During the quarter ended June 30, 2016, the Supreme Court in this foreign jurisdiction decided the matter in the Company’s favor for the years 2002 through 2005 and, as a result, the Company recorded a net tax benefit of $13, including interest. During the quarter ended September 30, 2016, the Administrative Court in this jurisdiction also decided the matter in the Company’s favor for the years 2008 through 2011 by acknowledging the Supreme Court’s ruling for the years 2002 through 2005, which eliminated the possibility for future appeals. As a result, the Company recorded a tax benefit of $17, including interest, in the quarter ended September 30, 2016. The tax benefit of deductions related to this tax position taken for the years 2006 through 2007 and 2012 through 2014 totals approximately $15 at current exchange rates. These deductions are currently being challenged by the tax authorities either in the lower courts or at the administrative level and, if resolved in the Company’s favor, will result in the Company recording additional tax benefits, including interest.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Net Income Attributable to Colgate-Palmolive Company and Earnings Per Share
Net income attributable to Colgate-Palmolive Company for the first quarter of 2020 increased to $715 from $560 in the first quarter of 2019, and Earnings per common share on a diluted basis increased to $0.83 per share in the first quarter of 2020 from $0.65 in the first quarter of 2019. Net income attributable to Colgate-Palmolive Company in the first nine monthsquarter of 2017 decreased2020 included acquisition-related costs and a benefit related to $1,701 from $1,835 in the comparable 2016 period. Earnings per common share on a diluted basis decreased to $1.91 per share from $2.04 per share in the comparable 2016 period.subsidiary and operating structure initiatives and Net income attributable to Colgate-Palmolive Company in both periodsthe first quarter of 2019 included charges resulting from the Global Growth and Efficiency Program. Net income attributable to Colgate-Palmolive Company in the first nine months of 2016 also included a gain on the sale of land in Mexico, benefits from previously disclosed tax matters and a chargeSee Note 10, Income Taxes for a previously disclosed litigation matter.additional information.
Excluding the items described above in both periods as applicable, Net income attributable to Colgate-Palmolive Company increased 2% to $1,886 in the first nine monthsquarter of 20172020 increased 11% to $648 from $1,855$582 in the first nine monthsquarter of 20162019, and Earnings per common share on a diluted basis increased 3%12% to $2.12$0.75 in the first nine monthsquarter of 20172020 from $2.06$0.67 in the first nine monthsquarter of 2016.2019.
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 |
| Income Before Income Taxes | | Provision For Income Taxes(1) | | Net Income Including Noncontrolling Interests | | Net Income Attributable To Colgate-Palmolive Company | | Diluted Earnings Per Share(2) |
As Reported GAAP | $ | 895 |
| | $ | 147 |
| | $ | 748 |
| | $ | 715 |
| | $ | 0.83 |
|
Subsidiary and operating structure initiatives | — |
| | 71 |
| | (71 | ) | | (71 | ) | | (0.08 | ) |
Acquisition-related costs | 6 |
| | 2 |
| | 4 |
| | 4 |
| | — |
|
Non-GAAP | $ | 901 |
| | $ | 220 |
| | $ | 681 |
| | $ | 648 |
| | $ | 0.75 |
|
| | | Nine Months Ended September 30, 2017 | Three Months Ended March 31, 2019 |
| Income Before Income Taxes | | Provision For Income Taxes(1) | | Net Income Including Noncontrolling Interests | | Net Income Attributable To Colgate-Palmolive Company | | Diluted Earnings Per Share(2) | Income Before Income Taxes | | Provision For Income Taxes(1) | | Net Income Including Noncontrolling Interests | | Net Income Attributable To Colgate-Palmolive Company | | Diluted Earnings Per Share(2) |
As Reported GAAP | $ | 2,591 |
| | $ | 770 |
| | $ | 1,821 |
| | $ | 1,701 |
| | $ | 1.91 |
| $ | 814 |
| | $ | 214 |
| | $ | 600 |
| | $ | 560 |
| | $ | 0.65 |
|
Global Growth and Efficiency Program | 246 |
| | 61 |
| | 185 |
| | 185 |
| | 0.21 |
| 29 |
| | 7 |
| | 22 |
| | 22 |
| | 0.02 |
|
Non-GAAP | $ | 2,837 |
| | $ | 831 |
| | $ | 2,006 |
| | $ | 1,886 |
| | $ | 2.12 |
| $ | 843 |
| | $ | 221 |
| | $ | 622 |
| | $ | 582 |
| | $ | 0.67 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Income Before Income Taxes | | Provision For Income Taxes(1) | | Net Income Including Noncontrolling Interests | | Less: Income Attributable To Noncontrolling Interests | | Net Income Attributable To Colgate-Palmolive Company | | Diluted Earnings Per Share(2) |
As Reported GAAP | $ | 2,804 |
| | $ | 846 |
| | $ | 1,958 |
| | $ | 123 |
| | $ | 1,835 |
| | $ | 2.04 |
|
Global Growth and Efficiency Program | 156 |
| | 41 |
| | 115 |
| | 1 |
| | 114 |
| | 0.13 |
|
Gain on sale of land in Mexico | (97 | ) | | (34 | ) | | (63 | ) | | — |
| | (63 | ) | | (0.07 | ) |
Benefits from previously disclosed tax matters | — |
| | 35 |
| | (35 | ) | | — |
| | (35 | ) | | (0.04 | ) |
Charge for a previously disclosed litigation matter | 6 |
| | 2 |
| | 4 |
| | — |
| | 4 |
| | — |
|
Non-GAAP | $ | 2,869 |
| | $ | 890 |
| | $ | 1,979 |
| | $ | 124 |
| | $ | 1,855 |
| | $ | 2.06 |
|
(1) The income tax effect on non-GAAP items is calculated based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.
(2) The impact of non-GAAP adjustments on diluted earnings per share may not necessarily equal the difference between “GAAP” and “non-GAAP” as a result of rounding.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
RestructuringNet Sales and Related Implementation ChargesOperating Profit by Segment
Global GrowthOral, Personal and Efficiency ProgramHome Care
InNorth America
|
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 | | Change |
Net sales | $ | 929 |
| | $ | 853 |
| | 9.0 |
| % |
Operating profit | $ | 258 |
| | $ | 249 |
| | 4 |
| % |
% of Net sales | 27.8 | % | | 29.2 | % | | (140 | ) | bps |
Net sales in North America increased 9.0% in the fourthfirst quarter of 2012,2020 to $929, as volume growth of 9.5% was partially offset by negative foreign exchange of 0.5%, while net selling prices were flat. The Company's acquisition of Hello Products LLC contributed 1.5% to volume in North America. Organic sales in North America increased 8.0% in the Company commencedfirst quarter of 2020. Organic sales growth was led by the Global GrowthUnited States.
The increase in organic sales in North America in the first quarter of 2020 versus the first quarter of 2019 was due to increases in Oral Care, Personal Care and Efficiency Program.Home Care organic sales. The program’s initiatives are expectedincrease in Oral Care was primarily due to help Colgate ensure sustained solid worldwideorganic sales growth in unit volume,the toothpaste, manual toothbrush and prescription dental categories, partially offset by a decline in organic sales operating profit and earnings per share and enhance its global leadership positions in its core businesses.
The Global Growth and Efficiency Program is expected to produce significant benefits in the Company’s long-term business performance.mouthwash category. The major objectivesincrease in Personal Care was primarily due to organic sales growth in the skin health, liquid hand soap and bar soap categories. The increase in Home Care was primarily due to organic sales growth in the hand dish, liquid cleaner and fabric softener categories.
Operating profit in North America increased 4% in the first quarter of the program include:
| |
▪ | Becoming even stronger on the ground through the continued evolution and expansion of proven global and regional commercial capabilities, which have already been successfully implemented in a number of the Company’s operations around the world.
|
| |
▪ | Simplifying and standardizing how work gets done2020 to $258, while as a percentage of Net sales it decreased 140 bps to 27.8%. This decrease in Operating profit as a percentage of Net sales was due to increases in Selling, general and administrative expenses (100 bps) and Other (income) expense, net (50 bps), partially offset by increasing technology-enabled collaboration and taking advantage of global data and analytic capabilities, leading to smarter and faster decisions. |
| |
▪ | Reducing structural costs to continue to increase the Company’s gross and operating profit.
|
| |
▪ | Building on Colgate’s current position of strength to enhance its leading market share positions worldwide and ensure sustained sales and earnings growth.
|
On October 23, 2014, the Board approved an expansionincrease in Gross profit (10 bps), all as a percentage of the Global Growth and Efficiency ProgramNet sales. This increase in Gross profit was primarily due to take advantage of additionalcost savings opportunities. On October 29, 2015, the Board approved the reinvestment of the funds from the sale of the Company’s laundry detergent businessfunding-the-growth initiatives (120 bps), partially offset by higher raw and packaging material costs (60 bps) and unfavorable mix (30 bps). This increase in Selling, general and administrative expenses was primarily due to increased advertising investment (80 bps) and higher overhead expenses (20 bps), primarily driven by higher logistics costs.
Latin America
|
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 | | Change |
Net sales | $ | 889 |
| | $ | 889 |
| | — |
| % |
Operating profit | $ | 248 |
| | $ | 232 |
| | 7 |
| % |
% of Net sales | 27.9 | % | | 26.1 | % | | 180 |
| bps |
Net sales in Latin America in the South Pacific to expandfirst quarter of 2020 were $889, even with the Global Growthfirst quarter of 2019, as volume growth of 4.0% and Efficiency Programnet selling price increases of 6.5% were offset by negative foreign exchange of 10.5%. Organic sales in Latin America increased 10.5% in the first quarter of 2020. Organic sales growth was led by Argentina, Brazil and extend it through December 31, 2017. The Board approved the implementation plan for this expansion on March 10, 2016.Mexico.
Implementation of the Global Growth and Efficiency Program remains on track. Building on the Company’s successful implementation of the Global Growth and Efficiency Program to date, on October 26, 2017, the Board approved an expansion of the Global Growth and Efficiency Program and an extension of the program through December 31, 2019 to take advantage of additional opportunities to streamline the Company’s operations.
The initiatives under the Global Growth and Efficiency Program continue to be focused on the following areas:
| |
▪ | Expanding Commercial Hubs – Building on the success of the hub structure implemented around the world, streamlining operations in order to drive smarter and faster decision-making, strengthen capabilities available on the ground and improve cost structure. |
| |
▪ | Extending Shared Business Services and Streamlining Global Functions – Optimizing the Company’s shared service organizational model in all regions of the world and continuing to streamline global functions to improve cost structure.
|
| |
▪ | Optimizing Global Supply Chain and Facilities – Continuing to optimize manufacturing efficiencies, global warehouse networks and office locations for greater efficiency, lower cost and speed to bring innovation to market. |
As a result of the expansion, savings, substantially all of which are expected to increase future cash flows, are now projected to bein organic sales in Latin America in the rangefirst quarter of $5602020 versus the first quarter of 2019 was due to $635 pretax ($500increases in Oral Care, Personal Care and Home Care organic sales. The increase in Oral Care was primarily due to $575 aftertax) annually, once all projects are approved and implemented as compared to the previous estimate of $455 to $495 pretax ($425 to $475 aftertax). The Company continues to expect savings in 2017 to amount to approximately $50 to $60 pretax ($40 to $50 aftertax). Cumulative pretax charges resulting from the Global Growth and Efficiency Program, once all phases are approved and implemented, are now estimated to beorganic sales growth in the range of $1,730toothpaste, manual toothbrush and mouthwash categories. The increase in Personal Care was primarily due to $1,885 ($1,280organic sales growth in the bar soap and underarm protection categories. The increase in Home Care was primarily due to $1,380 aftertax) as compared toorganic sales growth in the previous estimate of $1,500 to $1,585 ($1,120 to $1,170 aftertax).liquid cleaner and hand dish categories.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Operating profit in Latin America increased 7% in the first quarter of 2020 to $248, or 180 bps to 27.9% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (140 bps) as a percentage of Net sales. This increase in Gross profit was primarily due to higher pricing and cost savings from the Company’s funding-the-growth initiatives (200 bps), partially offset by higher raw and packaging material costs (240 bps), which included foreign exchange transaction costs.
Europe
|
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 | | Change |
Net sales | $ | 675 |
| | $ | 602 |
| | 12 |
| % |
Operating profit | $ | 154 |
| | $ | 151 |
| | 2 |
| % |
% of Net sales | 22.8 | % | | 25.1 | % | | (230 | ) | bps |
Net sales in Europe increased 12.0% in the first quarter of 2020 to $675, as volume growth of 16.5% was partially offset by net selling price decreases of 1.5% and negative foreign exchange of 3.0%. The Company's acquisition of the Filorga skin health business contributed 8.5% to volume in Europe. Organic sales in Europe increased 6.5% in the first quarter of 2020. Organic sales growth was led by the United Kingdom and Germany.
The Company now anticipates that pretax charges for 2017 will approximate $340increase in organic sales in Europe in the first quarter of 2020 was due to $380 ($250increases in Oral Care, Personal Care and Home Care organic sales. The increase in Oral Care was primarily due to $280 aftertax)organic sales growth in the toothpaste category, partially offset by declines in organic sales in the prescription dental and battery-powered toothbrush categories. The increase in Personal Care was primarily due to an increase in organic sales in the liquid hand soap, body wash and bar soap categories. The increase in Home Care was primarily due to organic sales growth in the spray and liquid cleaners, household bleach and hand dish categories.
Operating profit in Europe increased 2% in the first quarter of 2020 to $154, while as compareda percentage of Net sales it decreased 230 bps to 22.8%. This decrease in Operating profit as a percentage of Net Sales was due to increases in Selling, general and administrative expenses (230 bps) and Other (income) expense, net (130 bps), partially offset by an increase in Gross profit (130 bps), all as a percentage of Net sales. This increase in Gross profit was primarily due to favorable mix (140 bps) and cost savings from the Company’s funding-the-growth initiatives (110 bps), partially offset by higher raw and packaging material costs (60 bps), which included foreign exchange transaction costs, and lower pricing. This increase in Selling, general and administrative expenses was due to higher overhead expenses (170 bps) and increased advertising investment (60 bps). This increase in Other (income) expense, net was due to the previous estimate of $275 to $360 ($210 to $260 aftertax). It is expected that substantially all charges resulting from the Global Growth and Efficiency Program will be incurred by December 31, 2019.
The pretax charges resulting from the Global Growth and Efficiency Program are currently estimated to be comprised of the following categories: Employee-Related Costs, including severance, pension and other termination benefits (50%); asset-related costs, primarily Incremental Depreciation and Asset Impairments (10%); and Other charges, which include contract termination costs, consisting primarily of related implementation charges resulting directly from exit activities (20%) and the implementation of new strategies (20%). Over the course of the Global Growth and Efficiency Program, it is currently estimated that approximately 80% of the charges will result in cash expenditures.
The Company expects that the cumulative pretax charges, once all projects are approved and implemented, will relate to initiatives undertaken in North America (15%), Europe (20%), Latin America (5%), Asia Pacific (5%), Africa/Eurasia (5%), Hill’s Pet Nutrition (10%) and Corporate (40%), which includes substantially all of the costsincremental amortization expense related to the implementation of new strategies, noted above, on a global basis. The Company now expects that, when it has been fully implemented, the Global Growth and Efficiency Program will contribute a net reduction of approximately 3,800 to 4,400 positions from the Company’s global employee workforce.Filorga acquisition (130 bps).
For the three and nine months ended September 30, 2017 and 2016, restructuring and related implementation charges are reflected in the Condensed Consolidated Statements of Income as follows:Asia Pacific
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Cost of sales | $ | 16 |
| | $ | 11 |
| | $ | 51 |
| | $ | 31 |
|
Selling, general and administrative expenses | 22 |
| | 9 |
| | 60 |
| | 49 |
|
Other (income) expense, net | 20 |
| | 22 |
| | 135 |
| | 76 |
|
Total Global Growth and Efficiency Program charges, pretax | $ | 58 |
| | $ | 42 |
| | $ | 246 |
| | $ | 156 |
|
| | | | | | | |
Total Global Growth and Efficiency Program charges, aftertax | $ | 39 |
| | $ | 32 |
| | $ | 185 |
| | $ | 114 |
|
|
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 | | Change |
Net sales | $ | 633 |
| | $ | 700 |
| | (9.5 | ) | % |
Operating profit | $ | 161 |
| | $ | 189 |
| | (15 | ) | % |
% of Net sales | 25.4 | % | | 27.0 | % | | (160 | ) | bps |
Restructuring and related implementation chargesNet sales in Asia Pacific decreased 9.5% in the preceding table are recordedfirst quarter of 2020 to $633, as volume declines of 8.5% and negative foreign exchange of 2.0% were partially offset by net selling price increases of 1.0%. Organic sales in Asia Pacific decreased 7.5% in the Corporate segment as these initiatives are predominantly centrally directedfirst quarter of 2020. Organic sales declines in the Greater China region and controlledIndia were partially offset by organic sales growth in Australia.
The decrease in organic sales in Asia Pacific in the first quarter of 2020 was primarily due to a decrease in Oral Care organic sales. The decrease in Oral Care was primarily due to declines in organic sales in the toothpaste and are not included in internal measures of segment operating performance.manual toothbrush categories.
Total charges incurred for the Global Growth and Efficiency Program relate to initiatives undertaken by the following reportable operating segments:
|
| | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | | Program-to-date |
| September 30, | | September 30, | | Accumulated Charges |
| 2017 | | 2016 | | 2017 | | 2016 | | |
North America | 27 | % | | 30 | % | | 23 | % | | 32 | % | | 18 | % |
Latin America | 2 | % | | 3 | % | | 3 | % | | 5 | % | | 3 | % |
Europe | (11 | )% | | 19 | % | | 29 | % | | 10 | % | | 23 | % |
Asia Pacific | 7 | % | | 4 | % | | 4 | % | | 6 | % | | 3 | % |
Africa/Eurasia | 2 | % | | 12 | % | | 2 | % | | 14 | % | | 6 | % |
Hill’s Pet Nutrition | 9 | % | | 5 | % | | 5 | % | | 8 | % | | 7 | % |
Corporate | 64 | % | | 27 | % | | 34 | % | | 25 | % | | 40 | % |
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Since the inception of the Global Growth and Efficiency ProgramOperating profit in Asia Pacific decreased 15% in the fourthfirst quarter of 2012,2020 to $161, or 160 bps to 25.4% of Net Sales. This decrease in Operating profit as a percentage of Net sales was primarily due to an increase in Selling, general and administrative expenses (180 bps), partially offset by an increase in Gross profit (10 bps), both as a percentage of Net sales. This increase in Gross profit was primarily due to cost savings from the Company has incurred cumulative pretax charges of $1,474 ($1,092 aftertax)Company’s funding-the-growth initiatives (180 bps), partially offset by higher raw and packaging material costs (150 bps), which included foreign exchange transaction costs. This increase in connection with the implementation of various projects as follows:Selling, general and administrative expenses was due to higher overhead expenses (140 bps), primarily driven by higher logistics costs, and increased advertising investment (40 bps).
Africa/Eurasia
|
| | | |
| Cumulative Charges |
| as of September 30, 2017 |
Employee-Related Costs | $ | 594 |
|
Incremental Depreciation | 88 |
|
Asset Impairments | 29 |
|
Other | 763 |
|
Total | $ | 1,474 |
|
|
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 | | Change |
Net sales | $ | 252 |
| | $ | 240 |
| | 5.0 |
| % |
Operating profit | $ | 56 |
| | $ | 46 |
| | 22 |
| % |
% of Net sales | 22.2 | % | | 19.2 | % | | 300 |
| bps |
Net sales in Africa/Eurasia increased 5.0% in the first quarter of 2020 to $252, as volume growth of 10.0% was partially offset by net selling price decreases of 0.5% and negative foreign exchange of 4.5%. The Company’s acquisition of a 51% controlling interest in Colgate Tolaram Pte. Ltd., a joint venture which owns the Nigeria-based Hypo Homecare Products Limited (the “Nigeria Joint Venture”), contributed 1.5% to volume in Africa/Eurasia. Organic sales in Africa/Eurasia increased 8.0% in the first quarter of 2020. Organic sales growth was led by Turkey and Russia.
The majorityincrease in organic sales in Africa/Eurasia in the first quarter of costs incurred since inception relate2020 versus the first quarter of 2019 was primarily due to increases in Oral Care and Personal Care organic sales. The increase in Oral Care was primarily due to organic sales growth in the following projects:toothpaste and manual toothbrush categories. The increase in Personal Care was primarily due to organic sales growth in the implementationbar soap and body wash categories.
Operating profit in Africa/Eurasia increased 22% in the first quarter of 2020 to $56, or 300 bps to 22.2% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (270 bps) and a decrease in Selling, general and administrative expenses (40 bps), both as a percentage of Net sales. This increase in Gross profit was primarily due to cost savings from the Company’s overall hubbing strategy; the extension of shared business servicesfunding-the-growth initiatives (230 bps) and streamlining of global functions; the consolidation of facilities; the closing of the Morristown, New Jersey personal care facility; the simplificationlower raw and streamlining of the Company’s researchpackaging material costs (40 bps). This decrease in Selling, general and development capabilities and oral care supply chain, both in Europe; redesigning the European commercial organization; restructuring how the Company will provide future retirement benefitsadministrative expenses was due to substantially all of the U.S.-based employees participating in the Company’s defined benefit retirement planlower overhead expenses (230 bps), partially offset by shifting them to the Company’s defined contribution plan.increased advertising investment (190 bps).
The following tables summarize the activity for the restructuring and related implementation charges discussed above and the related accruals:
Hill’s Pet Nutrition
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 |
| | Employee-Related Costs | | Incremental Depreciation | | Asset Impairments | | Other | | Total |
Balance at June 30, 2017 | | $ | 138 |
| | $ | — |
| | $ | — |
| | $ | 116 |
| | $ | 254 |
|
Charges | | 21 |
| | 2 |
| | — |
| | 35 |
| | 58 |
|
Cash payments | | (16 | ) | | — |
| | — |
| | (42 | ) | | (58 | ) |
Charges against assets | | (15 | ) | | (2 | ) | | — |
| | — |
| | (17 | ) |
Foreign exchange | | — |
| | — |
| | — |
| | — |
| | — |
|
Balance at September 30, 2017 | | $ | 128 |
| | $ | — |
| | $ | — |
| | $ | 109 |
| | $ | 237 |
|
|
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 | | Change |
Net sales | $ | 719 |
| | $ | 600 |
| | 20.0 |
| % |
Operating profit | $ | 203 |
| | $ | 164 |
| | 24 |
| % |
% of Net sales | 28.2 | % | | 27.3 | % | | 90 |
| bps |
Net sales for Hill’s Pet Nutrition increased 20.0% in the first quarter of 2020 to $719, as volume growth of 17.0% and net selling price increases of 4.0% were partially offset by negative foreign exchange of 1.0%. Organic sales in Hill’s Pet Nutrition increased 21.0% in the first quarter of 2020. Organic sales growth was led by the United States and Europe. |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
| | Employee-Related Costs | | Incremental Depreciation | | Asset Impairments | | Other | | Total |
Balance at December 31, 2016 | | $ | 56 |
| | $ | — |
| | $ | — |
| | $ | 125 |
| | $ | 181 |
|
Charges | | 129 |
| | 8 |
| | 2 |
| | 107 |
| | 246 |
|
Cash payments | | (43 | ) | | — |
| | — |
| | (124 | ) | | (167 | ) |
Charges against assets | | (17 | ) | | (8 | ) | | (2 | ) | | — |
| | (27 | ) |
Foreign exchange | | 3 |
| | — |
| | — |
| | 1 |
| | 4 |
|
Balance at September 30, 2017 | | $ | 128 |
| | $ | — |
| | $ | — |
| | $ | 109 |
| | $ | 237 |
|
The increase in organic sales in the first quarter of 2020 versus the first quarter of 2019 was primarily due to increases in organic sales in the Prescription Diet and Science Diet categories.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Employee-Related Costs primarily include severance and other termination benefits and are calculated based on long-standing benefit practices, local statutory requirements and,Operating profit in certain cases, voluntary termination arrangements. Employee-Related Costs also include pension and other retiree benefit enhancements amounting to $15 and $17 for the three and nine months ended September 30, 2017, respectively, which are reflected as Charges against assets within Employee-Related CostsHill’s Pet Nutrition increased 24% in the preceding tables as the corresponding balance sheet amounts are reflectedfirst quarter of 2020 to $203, or 90 bps to 28.2% of Net sales. This increase in Operating profit as a reductionpercentage of pension assets orNet sales was primarily due to an increase in pensionGross profit (120 bps), partially offset by an increase in Selling, general and administrative expenses (50 bps), both as a percentage of Net sales. This increase in Gross profit was primarily due to cost savings from the Company’s funding-the-growth initiatives (130 bps) and higher pricing, partially offset by higher raw and packaging material costs (170 bps). This increase in Selling, general and administrative expenses was due to increased advertising investment (210 bps), partially offset by lower overhead expenses (160 bps).
During the quarter ended March 31, 2019, Hill’s announced a voluntary recall, which was subsequently expanded, of select canned dog food products due to potentially elevated levels of Vitamin D resulting from a supplier error. In the United States, the voluntary recall was conducted in cooperation with the U.S. Food and Drug Administration. Following the announcement of the voluntary recall, and as of March 31, 2020, Hill’s and/or the Company have been named as defendants in 37 putative class action lawsuits, one putative class action filed on behalf of a European Union class and one individual action, all related to the voluntary recall and filed in various jurisdictions in the United States. In addition, two putative class actions related to the voluntary recall have been filed in Canada. Eight of the putative class actions lawsuits in the United States and one of the putative class action lawsuits in Canada have been voluntarily dismissed. Hill’s is entitled to indemnification from the supplier related to the voluntary recall. Sales of products voluntarily recalled represent less than 2% of Hill’s annual Net sales. The sales loss and other retiree benefit liabilities (see Note 9, Retirement Planscosts associated with the voluntary recall and Other Retiree Benefits tosubsequent expansion did not have a material impact on the Condensed Consolidated Financial Statements).
Incremental Depreciation is recorded to reflect changes in useful lives and estimated residual values for long-lived assets that will be taken out of service prior to the end of their normal service period. Asset ImpairmentsCompany’s Net sales or Operating profit are recorded to write down assets held for sale or disposal to their fair value based on amountsnot expected to be realized. Charges against assets within Asset Impairments are nethave a material impact in future periods.
Corporate
|
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 | | Change |
| |
Operating profit (loss) | $ | (128 | ) | | $ | (152 | ) | | (16 | ) | % |
Operating profit (loss) related to Corporate was ($128) in the first quarter of cash proceeds pertaining2020 as compared to ($152) in the salefirst quarter of certain assets.
Other2019. In the first quarter of 2020, Corporate Operating profit (loss) included acquisition-related costs of $6. In the first quarter of 2019, Corporate Operating profit (loss) included charges consist primarily of charges$28 resulting directly from exit activities and the implementation of new strategies as a result of the Global Growth and Efficiency Program. These charges for the three and nine months ended September 30, 2017 include third-party incremental costs related to the development and implementation of new business and strategic initiatives of $33 and $103, respectively, and contract termination costs and charges resulting directly from exit activities of $2 and $4, respectively. These charges were expensed as incurred.Program, which concluded on December 31, 2019.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q discusses certain financial measures on both a GAAP and a non-GAAP basis. The Company uses the non-GAAP financial measures described below internally in its budgeting process, to evaluate segment and overall operating performance and as a factor in determining compensation. The Company believes that these non-GAAP financial measures are useful in evaluating the Company’s underlying business performance and trends; however, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similar measures presented by other companies.
Net sales growth (GAAP) and organic sales growth (Net sales growth excluding the impact of foreign exchange, acquisitions and divestments) (non-GAAP) are discussed in this Quarterly Report on Form 10-Q. Management believes the organic sales growth measure provides investors and analysts with useful supplemental information regarding the Company’s underlying sales trends by presenting sales growth excluding the external factor of foreign exchange, as well as the impact of acquisitions and divestments.divestments, as applicable. A reconciliation of organic sales growth to Net sales growth for the three and nine months ended September 30, 2017March 31, 2020 is provided below.
Worldwide Gross profit, Gross profit margin, Selling, general and administrative expenses, Selling, general and administrative expenses as a percentage of Net sales, Other (income) expense, net, Operating profit, Operating profit margin, Non-service related postretirement costs, effective income tax rate, Net income attributable to Colgate-Palmolive Company and Earnings per share on a diluted basis are discussed in this Quarterly Report on Form 10-Q both on a GAAP basis and excluding, as applicable, the charges resulting from the Global Growth and Efficiency Program, and, as applicable, a gain on sale of land in Mexico, benefits from previously disclosed tax mattersacquisition-related costs and a charge forbenefit related to a previously disclosed litigation matter (non-GAAP).recent reorganization of the ownership structure of certain foreign subsidiaries and a new operating structure being implemented within one of the Company's divisions. These non-GAAP financial measures exclude items that, either by their nature or amount, management would not expect to occur as part of the Company’s normal business on a regular basis, such as restructuring charges, charges for certain litigation and tax matters, gains and losses from certain acquisition, divestitures and certain unusual, non-recurring items. Investors and analysts use these financial measures in assessing the Company’s business performance and management believes that presenting these financial measures on a non-GAAP basis provides them with useful supplemental information to enhance their understanding of the Company’s underlying business performance and trends. These non-GAAP financial measures also enhance the ability to compare period-to-period financial results. A reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP financial measures for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 is presented within the applicable section of Results of Operations.
The following table provides a quantitative reconciliation of Net sales growth to organic sales growth for the three months ended March 31, 2020:
|
| | | | |
Three Months Ended March 31, 2020 | Net Sales Growth (GAAP) | Foreign Exchange Impact | Acquisitions and Divestments Impact | Organic Sales Growth (Non-GAAP) |
Oral, Personal and Home Care | | | | |
North America | 9.0% | (0.5)% | 1.5% | 8.0% |
Latin America | —% | (10.5)% | —% | 10.5% |
Europe | 12.0% | (3.0)% | 8.5% | 6.5% |
Asia Pacific | (9.5)% | (2.0)% | —% | (7.5)% |
Africa/Eurasia | 5.0% | (4.5)% | 1.5% | 8.0% |
Total Oral, Personal and Home Care | 3.0% | (4.0)% | 2.0% | 5.0% |
Pet Nutrition | 20.0% | (1.0)% | —% | 21.0% |
Total Company | 5.5% | (3.5)% | 1.5% | 7.5% |
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
The following tables provide a quantitative reconciliation of Net sales growth to organic sales growth for the three and nine months ended September 30, 2017:
|
| | | | |
Three Months Ended September 30, 2017 | Net Sales Growth (GAAP) | Foreign Exchange Impact | Acquisitions and Divestments Impact | Organic Sales Growth (Non-GAAP) |
Oral, Personal and Home Care | | | | |
North America | (0.5)% | 0.5% | —% | (1.0)% |
Latin America | 6.5% | 1.0% | —% | 5.5% |
Europe | 5.5% | 4.5% | —% | 1.0% |
Asia Pacific | 0.5% | 0.5% | —% | 0.0% |
Africa/Eurasia | 0.5% | 2.5% | —% | (2.0)% |
Total Oral, Personal and Home Care | 3.0% | 1.5% | —% | 1.5% |
Pet Nutrition | 2.0% | 1.0% | —% | 1.0% |
Total Company | 3.0% | 1.5% | —% | 1.5% |
|
| | | | |
Nine Months Ended September 30, 2017 | Net Sales Growth (GAAP) | Foreign Exchange Impact | Acquisitions and Divestments Impact | Organic Sales Growth (Non-GAAP) |
Oral, Personal and Home Care | | | | |
North America | (3.0)% | —% | —% | (3.0)% |
Latin America | 7.5% | 1.0% | —% | 6.5% |
Europe | (1.0)% | (1.0)% | —% | 0.0% |
Asia Pacific | (2.5)% | (1.0)% | —% | (1.5)% |
Africa/Eurasia | 2.5% | 4.0% | —% | (1.5)% |
Total Oral, Personal and Home Care | 1.0% | 0.5% | —% | 0.5% |
Pet Nutrition | 1.0% | 0.5% | —% | 0.5% |
Total Company | 1.0% | 0.5% | —% | 0.5% |
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Liquidity and Capital Resources
The Company expects cash flow from operations and debt issuances will be sufficient to meet foreseeable business operating and recurring cash needs (including for debt service, dividends, capital expenditures charges resulting from the Global Growth and Efficiency Program and stock repurchases). The Company believes its strong cash generation and financial position should continue to allow it broad access to global credit and capital markets.
Net cash provided by operations decreased 1%increased 27% to $2,295$768 in the first ninethree months of 2017,2020, compared with $2,317$605 in the comparable period of 2016,2019, primarily due to the timing ofhigher net income, tax payments and higherlower voluntary contributions to an employee postretirement plan.
the Company’s pension plans and lower income tax payments. The Company continues to be tightly focused on working capital. The Company’s working capital was (3.6%) as a percentage of Net sales in the first three months of 2020 as compared to (3.9%) in the first three months of 2019. The Company defines working capital as the difference between current assets (excluding Cash and cash equivalents and marketable securities, the latter of which is reported in Other current assets) and current liabilities (excluding short-term debt). The Company’s working capital improved to (4.6%) as a percentage
Investing activities used $459 of Net salescash in the first ninethree months of 2017 as2020, compared to (3.4%)with $98 in the comparable period of 2019. As more fully described below, investing activities in the first ninethree months of 2016, reflecting2020 include the Company’s tight focus on working capital.acquisition of Hello Products LLC.
ImplementationOn September 19, 2019, the Company acquired Filorga for cash consideration of €1,516 (approximately $1,674) plus additional consideration of €32 (approximately $38), the Global Growthmajority of which related to repayment of loans from former shareholders of Filorga. On August 15, 2019, the Company acquired a 51% controlling interest in the Nigeria Joint Venture for $31. On January 31, 2020, the Company acquired Hello Products LLC for cash consideration of $351.
These acquisitions were financed with a combination of debt and Efficiency Program remains on track. Building on the Company’s successful implementation of the Global Growth and Efficiency Program to date, on October 26, 2017, the Board approved an expansion of the Global Growth and Efficiency Program and an extension of the program through December 31, 2019 to take advantage of additional opportunities to streamline the Company’s operations.
cash. As a result of the expansion, total program charges resulting fromincremental debt related to these acquisitions, the Global Growth and Efficiency Program are now estimated to be in the range of $1,730 to $1,885 ($1,280 to $1,380 aftertax) as compared to the previous estimate of $1,500 to $1,585 pretax ($1,120 to $1,170 aftertax). Approximately 80% of total program charges resulting from the Global Growth and Efficiency Program are expected to result in cash expenditures. Savings from the Global Growth and Efficiency Program, substantially all of which are expected to increase future cash flows, are now projected to be in the range of $560 to $635 pretax ($500 to $575 aftertax) annually, once all projects are approved and implemented, as compared to the previous estimate of $455 to $495 pretax ($425 to $475 aftertax).
The Company now anticipates that pretax charges for 2017 will approximate $340 to $380 ($250 to $280 aftertax) as compared to the previous estimate of $275 to $360 ($210 to $260 aftertax). The Company continues to expect savings in 2017 to amount to approximately $50 to $60 pretax ($40 to $50 aftertax). It is anticipated that cash requirements for the Global Growth and Efficiency Program will be funded from operating cash flows. Approximately 75% of the restructuring accrual at September 30, 2017 is expected to be paid in the next twelve months.
Investing activities used $532 of cashmoderated its share repurchases in the first ninequarter of 2020 and will continue to do so into 2021 in order to reduce debt levels.
Capital spending was $82 in the first three months of 2017,2020 compared with $445to $71 in the comparable period of 2016. Purchases2019. Capital expenditures for 2020 are expected to be approximately 2.5% to 3.0% of marketable securities and investments increased in the first nine months of 2017 to $301 from $271 in the comparable period of 2016. Proceeds from the sale of marketable securities and investments decreased in the first nine months of 2017 to $149 from $158 in the comparable period of 2016.
Capital spending decreased in the first nine months of 2017 to $382 from $392 in the comparable period of 2016.Net sales. The Company continues to focus its capital spending on projects that are expected to yield high aftertax returns. Capital expenditures for 2017 are expected to be approximately 4.0% of Net sales, which remains higher than the Company’s historical rate of approximately 3.5%, primarily due to the Global Growth and Efficiency Program.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Financing activities used $1,767$308 of cash during the first ninethree months of 2017,2020, compared with $1,547$392 used in the comparable period of 2016,2019, primarily reflecting higher purchasesproceeds from the exercise of treasury shares and higher net principal payments on debt.stock options in the first three months of 2020 compared with the comparable period of 2019.
Long-term debt, including the current portion, was even at $6,520increased to $7,591 as of September 30, 2017 and DecemberMarch 31, 2016 and total debt decreased to $6,527 as of September 30, 20172020 as compared to $6,533$7,587 as of December 31, 2016.2019 and total debt was $7,846 as of March 31, 2020 as compared to $7,847 as of December 31, 2019. During the first quarter of 2019, the Company issued €500 of seven-year notes at a fixed coupon rate of 0.500% and €500 of fifteen-year notes at a fixed coupon rate of 1.375%. The debt issuances were under the Company’s shelf registration statement. The debt issuances support itsthe Company’s capital structure strategy objectives of funding its business and growth initiatives while minimizing its risk-adjusted cost of capital. During the third quarter of 2017, the Company issued $500 of thirty-year notes at a fixed rate of 3.70%. The debt issuance was under the Company’s shelf registration statement. Proceeds from the debt issuance in the third quarter of 2017issuances were used for general corporate purposes, which included the retirement of commercial paper borrowings.and the repayment of the Company’s $500 1.75% fixed rate notes, which became due in March 2019, and €500 floating rate notes, which became due May 2019.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Domestic and foreign commercial paper outstanding was $383$858 and $0$216 as of September 30, 2017March 31, 2020 and 2016,2019, respectively. Commercial paper outstanding as of September 30, 2017 is U.S. dollar-denominated. Proceeds from the outstanding commercial paper in the second quarter of 2017 were used to repay and retire $250 of U.S. dollar-denominated notes, which became due during the second quarter. Proceeds from the outstanding commercial paper in the first quarter of 2017 were used to repay and retire $400 of U.S. dollar-denominated notes, which became due during the first quarter. The average daily balances outstanding for commercial paper in the first ninethree months of 20172020 and 20162019 were $1,649$1,694 and $1,194,$1,548, respectively. The Company classifies commercial paper and certain current maturities of notes payable as long-term debt when it has the intent and ability to refinance such obligations on a long-term basis, including, if necessary, by utilizing its lineunused lines of credit of approximately $4,500 (including under the facilities discussed below) or by issuing medium-term notes pursuant to an effective shelf registration statement. In November 2018, the Company entered into an amended and restated $2,650 revolving credit facility with a syndicate of banks that was scheduled to expire in November 2023. In August 2019, the term of the facility was extended by one year and it now expires in November 2024. In August 2019, the Company entered into a $1,500 364-day credit facility with a syndicate of banks that is scheduled to expire in August 2020. Commitment fees related to the credit facilities are not material.
Certain of the agreements with respect to the Company’s bank borrowings contain financial and other covenants as well as cross-default provisions. Noncompliance with these requirements could ultimately result in the acceleration of amounts owed. The Company is in full compliance with all such requirements and believes the likelihood of noncompliance is remote. Refer to Note 6, Long term Debt and Credit Facilities, on the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for further information about the Company’s long-term debt and credit facilities.
In the first quarter of 2017,2020, the Company increased the annualizedquarterly common stock dividend by 3% to $1.60$0.44 per share from $0.43 per share previously, effective in the second quarter of 2017.2020.
Cash and cash equivalents increased $65decreased $29 during the first ninethree months of 20172020 to $1,380$854 at September 30, 2017,March 31, 2020, compared to $1,315$883 at December 31, 2016,2019, most of which ($1,341794 and $1,273,$798, respectively) were held by the Company’s foreign subsidiaries. The Company regularly assesses its cash needs and the available sources to fund these needs and, as part of this assessment, the Company determines the amount of foreign earnings it intends to repatriate to help fund its domestic cash needs and provides applicable U.S. income and foreign withholding taxes on such earnings.
As of December 31, 2016, the Company had approximately $3,400 of undistributed earnings of foreign subsidiaries for which no U.S. income or foreign withholding taxes have been provided as the Company considered such earnings to be indefinitely reinvested outside of the U.S. and, therefore, not subject to such taxes.
In order to fully recognize a $210 U.S. income tax benefit in 2016 principally related to changes in Venezuela’s foreign exchange regime, duringDuring the quarter ended March 31, 2016,2020, COVID-19 did not have a significant impact on the Company decidedCompany’s access to repatriateglobal credit and capital markets needed to maintain sufficient liquidity for its continued operating and cash needs. For more information regarding the anticipated impact of COVID-19, see “Executive Overview” and “Risk Factors” in 2016 $1,500Part II, Item 1A of earnings of foreign subsidiaries it previously considered indefinitely reinvested outsidethis Quarterly Report and in Part I, Item 1A of the U.S., and accordingly, recorded a tax charge of $210 duringCompany’s Annual Report on Form 10-K for the first quarter of 2016. The Company currently does not anticipate a need to repatriate additional undistributed earnings of foreign subsidiaries. Any future repatriation would be subject to applicable U.S. income and foreign withholding taxes. As the Company operates in over 200 countries and territories throughout the world, and due to the complexities in the tax laws and the assumptions that would have to be made, it is not practicable to determine the tax liability that would arise if these earnings were repatriated.year ended December 31, 2019.
For additional information regarding liquidity and capital resources, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2019.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Goodwill and Indefinite-Lived Intangible Assets
As a result of the COVID-19 pandemic, the Company assessed whether a “triggering event” had occurred indicating a possible impairment of its goodwill and indefinite life intangible assets. As a result of this assessment, the Company determined that a “triggering event” had occurred relative to its recently acquired Filorga skin health business and, as required, performed a quantitative analysis, with the assistance of a third-party valuation firm, of the value of the Filorga reporting unit and its indefinite-life intangible assets. Based on the analysis, the Company determined that the fair value of the Filorga reporting unit and the related indefinite life intangible assets continue to exceed their carrying values and were not impaired as of March 31, 2020.
Determining the fair value of the Filorga reporting unit and indefinite-lived intangible assets requires significant judgment and estimates by management regarding several key inputs, including future cash flows consistent with management’s strategic plans, sales growth rates and the selection of royalty rates and a discount rate, amongst others. Estimating sales growth rates requires significant judgment by management in areas such as future economic conditions, category and industry growth rates, product pricing, consumer tastes and preferences and future expansion expectations. Given the inherent uncertainties in estimating the future impacts of the COVID-19 pandemic on global macroeconomic conditions and interest rates in general and on the Filorga business in particular, actual results may differ from management’s current estimates and could have an adverse impact on one or more of the assumptions used in our quantitative models related to the Filorga reporting unit, resulting in potential impairment charges in subsequent periods. As of March 31, 2020, the fair value of the Filorga reporting unit exceeded its carrying value by 10%. A reduction in the long-term growth rate of 50 basis points or an increase in the discount rate of 25 basis points would result in a reduction of the fair value of the Filorga reporting unit of approximating 5%. Given the recent acquisition of Filorga, where there is inherently a lower surplus of fair value over carrying value, management will continue to assess triggering events that may necessitate additional qualitative or quantitative analyses of our reporting units and indefinite-lived intangible assets in future periods.
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Market Share Information
Management uses market share information as a key indicator to monitor business health and performance. References to market share in this Quarterly Report on Form 10-Q are based on a combination of consumption and market share data provided by third-party vendors, primarily Nielsen, and internal estimates. All market share references represent the percentage of the dollar value of sales of our products, relative to all product sales in the category in the countries in which the Company competes and purchases data (excluding Venezuela from all periods).
Market share data is subject to limitations on the availability of up-to-date information. In particular, market share data is currently not generally available for certain retail channels, such as eCommerce or certain discounters. The Company measures year-to-date market shares from January 1 of the relevant year through the most recent period for which market share data is available, which typically reflects a lag time of one or two months. We believeThe Company believes that the third-party vendors we useit uses to provide data are reliable, but we haveit has not verified the accuracy or completeness of the data or any assumptions underlying the data. In addition, market share information calculatedreported by the Company may be different from market share information calculatedreported by other companies due to differences in category definitions, the use of data from different countries, internal estimates and other factors.
Cautionary Statement on Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain forward-looking statements (asas that term is defined in the U.S. Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission (“SEC”)SEC in its rules, regulations and releases)releases that set forth anticipated results based on management’s current plans and assumptions. Such statements may relate, for example, to sales or volume growth, net selling price increases, organic sales growth, profit or profit margin growth, earnings per share growth, financial goals, the impact of foreign exchange, volatility,the impact of COVID-19, cost-reduction plans, including the Global Growth and Efficiency Program, tax rates, the need to repatriate undistributed earnings of foreign subsidiaries, new product introductions, commercial investment levels, acquisitions, and divestitures, share repurchases, or legal or tax proceedings, among other matters. These statements are made on the basis of the Company’s views and assumptions as of this time and the Company undertakes no obligation to update these statements whether as a result of new information, future events or otherwise, except as required by law or by the rules and regulations of the SEC. Moreover, the Company does not nor does any other person assume responsibility for the accuracy and completeness of those statements. The Company cautions investors that any such forward-looking statements are not guarantees of future performance and that actual events or results may differ materially from those statements. Actual events or results may differ materially because of factors that affect international businesses and global economic conditions, as well as matters specific to the Company and the markets it serves, including the uncertain economic and political environment in different countries and its effect on consumer spending habits, increased competition and evolving competitive practices, foreign currency rate fluctuations, exchange controls, tariffs, price or profit controls, labor relations, changes in foreign or domestic laws, or regulations or their interpretation, political and fiscal developments, including changes in trade, tax and immigration policies, increased competition and evolving competitive practices (including from the growth of eCommerce and the entry of new competitors and business models), the ability to operate and respond effectively during a pandemic, epidemic or widespread public health concern, including COVID-19, disruptions in global supply chain, the availability and cost of raw and packaging materials, the ability to maintain or increase selling prices as needed, the ability to implement the Global Growth and Efficiency Program as planned or differences between the actual and the estimated costs or savings under such program, changes in the policies of retail trade customers, the emergence of new sales channels, including e-commerce,the growth of eCommerce and the changing retail landscape (as consumers increasingly shop online), the ability to develop innovative new products, the ability to continue lowering costs and operate in an agile manner, the ability to maintain the security of our information technology systems from a cyber-security incident or data breach, the ability to achieve our sustainability goals, the ability to complete acquisitions and divestitures as planned, the ability to successfully integrate acquired businesses, the ability to attract and retain key employees, and the uncertainty of the outcome of legal proceedings, whether or not the Company believes they have merit. For information about these and other factors that could impact the Company’s business and cause actual results to differ materially from forward-looking statements, refer to the Company’s filings with the SEC (including, but not limited to, the information set forth under the captions “Risk Factors” and “Cautionary Statement on Forward-Looking Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162019, this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and subsequent Quarterly Reports on Form 10-Q).
COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Quantitative and Qualitative Disclosures about Market Risk
There is no material change in the information reported under Part II, Item 7, “Managing Foreign Currency, Interest Rate, Commodity Price and Credit Risk Exposure” contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2019.
COLGATE-PALMOLIVE COMPANY
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, under the supervision and with the participation of the Company’s Chairman of the Board, President and Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2017March 31, 2020 (the “Evaluation”). Based upon the Evaluation, the Company’s Chairman of the Board, President and Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) are effective.
Changes in Internal Control overOver Financial Reporting
ThereThe Company is in the process of upgrading its enterprise IT system to SAP S/4 HANA. This change is not expected to have a material impact on the Company’s internal controls over financial reporting.
Except as noted above, there were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. As part of the Global Growth and Efficiency Program, the Company is implementing a shared business service organization model in all regions of the world. At this time, certain financial transaction processing activities have been transitioned to these shared business services centers. This transition has not materially affected the Company’s internal control over financial reporting.
COLGATE-PALMOLIVE COMPANY
PART II.OTHER INFORMATION
Item 1.Legal Proceedings
For information regarding legal matters, please refer to Note 11, Contingencies to the Condensed Consolidated Financial Statements contained in Part I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A.Risk Factors
ThereWith the exception of the change in risk factors discussed below, there have been no material changes from the risk factors disclosed in Part 1, Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2019.
We face various risks related to pandemics, epidemics or similar widespread public health concerns, which may have a material adverse effect on our business, results of operations, cash flows and financial condition.
We face various risks related to pandemics, epidemics or similar widespread public health concerns, including the novel coronavirus pandemic (“COVID-19”). A pandemic, epidemic or similar widespread health concern could have, and COVID-19 has had and may continue to have, a variety of impacts on our business, results of operations, cash flows and financial condition, including:
Our ability to continue to maintain and support the health and safety of our employees, including key employees;
Volatility in the demand for and availability of our products, which may be caused by the temporary inability of our consumers to purchase our products due to illness, financial hardship, quarantine, government actions mandating the closure of our distributors or retailers or imposing travel or movement restrictions, shifts in demand away from more discretionary or higher priced products to lower priced products, or pantry-loading activity;
Changes in purchasing patterns of our consumers, including the frequency of visits by consumers to retail locations and a shift to purchasing our products online from eCommerce retailers;
Inability to meet our customers' needs and achieve our cost targets due to temporary or long-term disruptions in the manufacture, sourcing and distribution of our products or materials despite our business continuity and contingency plans in place for key manufacturing sites and the supply of raw and packaging materials;
Failure of third parties on which we rely, including our suppliers, contract manufacturers, customers, commercial banks, joint venture partners and external business partners, to meet their obligations to us, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties;
Significant changes in the economic and political conditions of the markets in which we operate, which could restrict and have restricted our employees’ ability to work and travel, could mandate and have mandated or caused the closure of certain distributors or retailers, our offices, shared business service centers and/or operating and manufacturing facilities or otherwise could prevent and have prevented us as well as our third-party partners, suppliers or customers from sufficiently staffing operations, including operations necessary for the manufacture, distribution, sale and support of our products; and/or
Disruptions and volatility in the global capital markets, which may increase the cost of capital and adversely impact our access to capital, and currency and commodity prices.
Despite our efforts to manage these impacts, their ultimate impact also depends on factors beyond our knowledge or control, including the duration, severity and geographic scope of an outbreak, including COVID-19, and the actions taken to contain its spread and mitigate its public health and economic effects.
COLGATE-PALMOLIVE COMPANY
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
On February 19, 2015,June 18, 2018, the Board authorized the repurchase of shares of the Company’s common stock having an aggregate purchase price of up to $5 billion under a new share repurchase program (the “2015“2018 Program”), which replaced a previously authorized share repurchase program. The Board also has authorized share repurchases on an ongoing basis to fulfill certain requirements of the Company’s compensation and benefit programs. The shares are repurchased from time to time in open market or privately negotiated transactions at the Company’s discretion, subject to market conditions, customary blackout periods and other factors.
The following table shows the stock repurchase activity for the three months in the quarter ended September 30, 2017:March 31, 2020:
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Month | | Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(3) (in millions) |
July 1 through 31, 2017 | | 864,006 |
| | $ | 72.63 |
| | 810,000 |
| | $ | 1,717 |
|
August 1 through 31, 2017 | | 2,660,807 |
| | $ | 71.52 |
| | 2,491,000 |
| | $ | 1,539 |
|
September 1 through 30, 2017 | | 1,821,723 |
| | $ | 72.10 |
| | 1,756,859 |
| | $ | 1,412 |
|
Total | | 5,346,536 |
| | $ | 71.90 |
| | 5,057,859 |
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Month | | Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(3) (in millions) |
January 1 through 31, 2020 | | 797,787 |
| | $ | 69.81 |
| | 762,303 |
| | $ | 3,229 |
|
February 1 through 29, 2020 | | 1,294,084 |
| | $ | 74.52 |
| | 1,183,595 |
| | $ | 3,141 |
|
March 1 through 31, 2020 | | 1,031,036 |
| | $ | 67.36 |
| | 993,383 |
| | $ | 3,074 |
|
Total | | 3,122,907 |
| | $ | 70.95 |
| | 2,939,281 |
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(1)(1) Includes share repurchases under the 2018 Program and those associated with certain employee elections under the Company’s compensation and benefit programs. (2) The difference between the total number of shares purchased and the total number of shares purchased as part of publicly announced plans or programs is 183,626 shares, which represents shares deemed surrendered to the Company to satisfy certain employee elections under the Company’s compensation and benefit programs. (3) Includes approximate dollar value of shares that were available to be purchased under the publicly announced plans or programs that were in effect as of March 31, 2020.
| Includes share repurchases under the 2015 Program and those associated with certain employee elections under the Company’s compensation and benefit programs. |
| |
(2)
| The difference between the total number of shares purchased and the total number of shares purchased as part of publicly announced plans or programs is 288,677 shares, which represents shares deemed surrendered to the Company to satisfy certain employee elections under the Company’s compensation and benefit programs. |
| |
(3)
| Includes approximate dollar value of shares that were available to be purchased under the publicly announced plans or programs that were in effect as of September 30, 2017. |
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not Applicable.
Item 5.Other Information
None.
COLGATE-PALMOLIVE COMPANY
Item 6.Exhibits
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Exhibit No. | | Description |
10-A | | |
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10-B | | |
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12 | | |
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31-A | | |
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31-B | | |
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32 | | |
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101 | | The following materials from Colgate-Palmolive Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2017,March 31, 2020, formatted in Inline eXtensible Business Reporting Language (XBRL)(Inline XBRL): (i) the Condensed Consolidated Statements of Income; (ii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Balance Sheets; (iv) the Condensed Consolidated Statements of Cash Flows; (v) Condensed Consolidated Statements of Changes in Shareholders’ Equity and (v)(vi) Notes to Condensed Consolidated Financial Statements. |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).** |
__________
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* | Indicates a management contract or compensatory plan or arrangement. |
*** Furnished herewith.
COLGATE-PALMOLIVE COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| COLGATE-PALMOLIVE COMPANY |
| (Registrant) |
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| Principal Executive Officer: |
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October 27, 2017May 1, 2020 | /s/ Ian CookNoel R. Wallace |
| Ian CookNoel R. Wallace |
| Chairman of the Board, President and Chief Executive Officer |
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| Principal Financial Officer: |
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October 27, 2017May 1, 2020 | /s/ Dennis J. HickeyHenning I. Jakobsen |
| Dennis J. HickeyHenning I. Jakobsen |
| Chief Financial Officer |
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| Principal Accounting Officer: |
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October 27, 2017May 1, 2020 | /s/ Henning I. JakobsenPhilip G. Shotts |
| Henning I. JakobsenPhilip G. Shotts |
| Vice President and Corporate Controller |