FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994.
0R
[ ] 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 1-644-2
COLGATE-PALMOLIVE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 13-1815595
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 PARK AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
(212) 310-2000
(Registrant's telephone number, including area code)
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 X No
Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practical date:
Class Shares Outstanding Date
Common, $1.00 par value 145,832,234 July 29, 1994
Total number of sequentially numbered pages in this filing,
including exhibits thereto .
PART I. FINANCIAL INFORMATION
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Net sales $1,891.1 $1,775.1 $3,661.1 $3,477.8
Cost of Sales 988.4 923.9 1,896.3 1,811.8
Gross profit 902.7 851.2 1,764.8 1,666.0
Selling, general and administrative
expenses 671.1 622.5 1,282.4 1,207.8
Interest expense 27.7 15.7 54.7 32.9
Interest income (11.9) (5.4) (18.3) (11.4)
686.9 632.8 1,318.8 229.3
Income before taxes 215.8 218.4 446.0 436.7
Provision for income taxes 73.3 76.0 153.9 153.5
Income before changes in 142.5 142.4 292.1 283.2
accounting
Cumulative effect on prior years
of accounting changes - - - (358.2)
Net income (loss) $ 142.5 $ 142.4 $ 292.1 $ (75.0)
Earnings per common shares:
Primary:
Before changes in accounting $ .93 $ .86 $ 1.91 $ 1.71
Cumulative effect on prior
years of accounting changes - - - (2.25)
Net income (loss) $ .93 $ .86 $ 1.91 $ (.54)
Assuming full dilution:
Before changes in accounting $ .87 $ .81 $ 1.78 $ 1.61
Cumulative effect on prior
years of accounting
changes - - - (2.06)
Net income (loss) $ .87 $ .81 $ 1.78 $ (.45)
Dividends declared per common $ - $ - $ .72 $ .62
share*:
<FN>
* Includes two dividend declarations in the six month periods.
See Notes to Condensed Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
(Unaudited)
ASSETS
June 30, December 31,
1994 1993
Current Assets:
Cash and cash equivalents $ 152.5 $ 144.1
Marketable securities 86.3 67.1
Receivables (less allowance for
doubtful accounts of $25.5
and $24.9) 1,075.0 988.3
Inventories 750.3 678.0
Other current assets 233.2 192.9
2,297.3 2,070.4
Property, Plant and Equipment:
Cost 2,986.1 2,820.2
Less: Accumulated depreciation 1,121.5 1,053.9
1,864.6 1,766.3
Goodwill and other intangible
assets (less accumulated
amortization of $178.9 and
$151.2) 1,592.7 1,589.0
Other assets 346.0 335.5
$6,100.6 $5,761.2
See Notes to Condensed Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Millions Except per Share Amounts)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
1994 1993
Current Liabilities:
Notes and loans payable $ 175.0 $ 169.4
Current portion of long-term
debt 7.9 15.5
Accounts payable 650.2 599.3
Accrued income taxes 100.9 59.4
Other accruals 515.5 550.4
1,449.5 1,394.0
Long-term debt 1,820.0 1,532.4
Deferred income taxes 283.9 266.2
Other liabilties 721.0 693.6
Shareholder's Equity:
Preferred Stock 411.1 414.3
Common Stock 183.2 183.2
Additional paid-in capital 1,001.7 1,000.9
Retained earnings 2,338.6 2,163.4
Cumulative foreign currency
translation adjustments (377.3) (372.9)
3,557.3 3,388.9
Unearned compensation (387.1) (389.9)
Treasury stock, at cost (1,344.0) (1,124.0)
1,826.2 1,875.0
$6,100.6 $ 5,761.2
See Notes to Condensed Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Six Months Ended
June 30,
1994 1993
Operating Activities:
Net cash provided by operating $271.0 $271.3
activities
Investing Activities:
Capital expenditures (155.2) (151.2)
Payments for acquisitions, net of
cash acquired (39.3) -
(Purchase) Sale of marketable
securities (19.1) 31.8
Other, net 10.6 38.5
Net cash used for investing
activities (203.0) (80.9)
Financing Activities:
Repayment of debt (39.1) (91.2)
Proceeds from issuance of debt 323.2 215.9
Repurchase of common stock (226.5) (186.4)
Dividends paid (116.9) (109.3)
Other, net (0.5) 18.8
Net cash used for financing
activities (59.8) (152.2)
Effect of exchange rate changes on
cash and cash equivalents 0.2 (5.1)
Net increase in cash and cash
equivalents 8.4 33.1
Cash and cash equivalents at
beginning of period 144.1 117.9
Cash and cash equivalents at end
of period $152.5 $151.0
See Notes to Condensed Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
1. The condensed consolidated financial statements reflect all
normal recurring adjustments which, in management's opinion,
are necessary for a fair presentation of the results for
interim periods. Results of operations for the interim periods
may not be representative of results to be expected for a
full year.
2. Provision for certain expenses, including income taxes,
media advertising, consumer promotion and new product
introductory costs, are based on full year assumptions. Such
expenses are charged to operations in the year incurred and
are included in the accompanying condensed consolidated
financial statements in proportion with the passage of time or
with estimated annual tax rates or annual sales.
3. Inventories by major classes were as follows:
June 30, December 31,
1994 1993
Raw material and supplies $ 270.9 $ 250.0
Work-in-process 43.0 28.7
Finished goods 436.4 399.3
$ 750.3 $ 678.0
4. Primary earnings per share are determined by dividing net
income, after deducting dividends on preferred stock, net of
related tax benefits, by the weighted average number of common
shares outstanding. Fully diluted earnings per common share are
calculated assuming the conversion of all potentially
dilutive securities, including convertible preferred stock and
outstanding options. This calculation also assumes
reduction of available income by pro forma ESOP replacement
funding, net of income taxes.
5. Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and
for all investments in debt securities. The effect of adoption
had no impact on results of operations or cash flows and was not
material to financial condition. In the prior year, the Company
adopted SFAS No. 106, Other Postretirement Benefits, SFAS No.
109, Income Taxes and SFAS No. 112, Postemployment Benefits. A
charge of $358.2 was recorded in the 1993 first quarter.
6. Reference is made to the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the year
1993 for a complete set of financial notes including the
Company's significant accounting policies.
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
Worldwide sales reached $1,891.1 in the 1994 second quarter, a 7%
increase versus the 1993 second quarter, reflecting overall volume
gains of 9%. Sales would have increased 9% excluding the negative
impact of foreign currency translation.
Sales in the Oral, Personal and Household Care segment were $1,672.9,
an increase of 6% from the 1993 second quarter. Strong sales
increases in the Latin American, Asian, and European regions, more
than offset lower levels in the United States. Colgate-Latin America
achieved sales growth of 11% on unit volume growth of 10%.
Contributing to this region's growth were excellent results in Mexico
and the Dominican Republic as well as geographic expansion, which more
than offset declines due to soft economies in Brazil and Venezuela.
Sales in the Colgate-Asia/Africa region were 27% higher than the prior
year, on volume gains of 24%. Excluding the effects of a mid-1993
consolidation of the Company's Indian operations, results in
Asia/Africa increased a solid 9%, on 6% volume growth led by double
digit volume growth in Australia, South Africa and Malaysia. Sales
for Colgate-Europe improved 8% compared with 1993, on volume growth
of 16%; augmenting the 11% growth in the base business was an additional
5% from strategic acquisitions. Excluding foreign exchange declines,
sales in this region would have increased 11%. Four of Colgate's
largest subsidiaries--France, Italy, Spain and the United Kingdom, all
reported sales increases in excess of 10% on strong volume growth.
Inventory reductions by retailers in the US were the primary cause for
the 9% lower volume in Colgate-North America as well as the 13%
decline in sales.
Sales in the Specialty Marketing segment increased 12% on volume
growth of 9% led by Hill's Pet Nutrition with a sales increase of 19%
on volume growth of 16%. Contributors to the significant volume gains
were Hill's international operations, notably Europe and Asia. At the
end of the quarter, Hill's disposed of its veterinary drug
distribution business at approximately book value. After the close of
the second quarter, Colgate also entered into an agreement to sell its
Princess House subsidiary which resulted in an aftertax loss of $5.2. These
non-core businesses both had lower sales and unit volume during the
quarter.
Worldwide sales for the first half of 1994 increased 5% to $3,661.1
from $3,477.8 in the same period of 1993, on 8% volume growth. Sales
would have been up 8% excluding the impact of foreign currency
translation.
COLGATE-PALMOLIVE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions Except Per Share Amounts)
Oral, Personal and Household Care sales increased 5% to $3,252.2 in
the 1994 first half, on volume gains of 8%. Within this segment,
Colgate-Latin America sales increased 13%, led by strong performances
in Mexico, Colombia and the Dominican Republic. Colgate-Asia/Africa
increased sales 24% on volume growth of 23%. Excluding the Indian
consolidation, this region's sales increase of 8% was primarily due to
strong growth in Australia, South Africa and Malaysia. Sales in
Colgate-Europe increased 2%, but would have increased 7% if not for
foreign currency declines. Volume gains totaling 9% were primarily
due to increases in Italy, Spain, France, and the United Kingdom,
augmented by strategic brand acquisitions. Excluding acquisitions,
this region's sales were down 2%, due primarily to foreign exchange,
on volume growth of 4%. Colgate-North America sales and volume
declined 9% and 3%, respectively, when compared with the prior year
due primarily to trade inventory reductions.
Specialty Marketing sales for the 1994 first half increased 5% on
volume growth of 4%. Sales growth of 12% at Hill's Pet Nutrition was
partially offset by a decline in the other two businesses within the
segment. As discussed above, the veterinary drug distribution
business was disposed of during the 1994 second quarter and Princess
House was sold after the second quarter ended.
Gross profit margin increased for Colgate-Latin America, Colgate-
Asia/Africa and Colgate-Europe as well as for Hill's Pet Nutrition.
These improvements in large part offset the impact of Colgate-North
America's lower gross profit, so that the worldwide gross profit for
the 1994 second quarter declined slightly to 47.7% from 48.0%. Gross
profit for the 1994 first half increased to 48.2% from 47.9%.
Selling, general and administrative expenses increased as a percentage
of sales to 35.5% in 1994 from 35.1% in 1993 in the second quarter and
to 35.0% from 34.7% in the first half. This increase is directly
related to advertising spending which grew in absolute dollar terms
while also growing as a percentage of sales to 12.8% from 12.0% in the
second quarter and to 12.5% from 11.9% for the first half. Earnings
before interest and taxes (EBIT) increased 1.3% to $231.6 in the 1994
second quarter, and 5.3% to $482.4 for the 1994 first half versus the
comparable periods in 1993.
Interest expense, net of interest income, increased to $15.8 in the
1994 second quarter from $10.3 in 1993, and to $36.4 in the 1994 first
half from $21.5, reflecting increased levels of debt incurred
primarily in connection with the Company's share repurchase program.
This program commenced during the 1993 second quarter and has
continued throughout the first and second quarters of 1994.
The effective tax rates for the second quarter and first half of 1994
of 34.0% and 34.5% were down slightly from the effective rates for the
same periods in 1993 of 34.8% and 35.1%, respectively, due to
continued implementation of the Company's global tax savings
strategies. The Company's current estimate of its full year 1994
effective income tax rate is consistent with the 1993 full year rate
of 34.5%.
COLGATE-PALMOLIVE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in Millions Except Per Share Amounts)
Net income for the 1994 second quarter of $142.5 was essentially flat
when compared with 1993 results excluding the impact of a one-time
mandatory accounting change. Earnings per share for the 1994 second
quarter increased 8% to $.93, reflecting 8% fewer average shares
outstanding as a result of Company's share repurchase program. For
the first half, net income increased 3% to $292.1 and earnings per
share rose 12% to $1.91 excluding the 1993 mandated accounting change.
Included in 1994 net income is a one-time charge of $5.2 or $.04 per
share related to the sale of a non-core business, Princess House.
Excluding the charge, earnings for the quarter increased 4% to $147.7
with earnings per share rising 13% to $.97, and earnings for the first
half increased 5% to $297.3 with earnings per share rising 14% to
$1.95.
Liquidity and Capital Resources
Working capital at June 30, 1994 was $847.8 as compared with $676.4 at
December 31, 1993. The current ratio improved to 1.6 at June 30, 1994
from 1.5 at December 31, 1993. At June 30, 1994, commercial paper
outstanding was $666.1 which is classified as long-term due to the
Company's intent and ability to refinance these obligations on a long-
term basis.
During the second quarter of 1994, the Company entered into credit
agreements totaling $750 replacing credit agreements then in place.
Included in this total is a $500 revolving credit facility that
provides for general corporate borrowings and expires in April 1999.
In May 1994, the Company filed a shelf registration for $500 of debt
securities. During the second quarter, $208 of medium-term notes were
issued under this registration.
In keeping with the Company's ongoing program to repurchase common
shares in the open market and private transactions to achieve its
targeted capital structure and to provide for employee benefit plans,
aggregate open market repurchases through June 30, 1994, approximated
4 million shares with a total purchase price of $222.5.
Reference should be made to the 1993 Annual Report on Form 10-K for
additional information regarding available sources of liquidity and
capital.
PART II. OTHER INFORMATION
COLGATE-PALMOLIVE COMPANY
Item 1.Legal Proceedings
On April 5, 1994, Region V of the United States Environmental Protection
Agency (the "Region") issued to a Company plant in Jeffersonville,
Indiana a Findings of Violations and Order for Compliance under
Section 309 (a) of the Clean Water Act (the "Order"). The Order,
based in part on information supplied by the plant, stated that the
plant, at certain times in late 1993 and early 1994, had discharged
waste water containing substances in excess of amounts permitted by
its National Pollutant Discharge Elimination System Permit (the
"Permit"). The Order requires that the Plant submit certain
information and take certain actions to provide the Region
assurance that the plant will comply with the Permit. The plant is
complying with the Order.
On June 13, 1994, the Jeffersonville plant also received from Atlantic
States Legal Foundation, Inc., a public interest group, a notice of its
intention to bring a related citizen's suit under Section 505(b) of
the Federal Water Pollution Control Act (the "Act"). The Company
intends to respond to this notice in accordance with the Act.
Reference is made to Note 15 to the consolidated financial
statements on page 33 of the registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.O. U.S. $500,000,000 Five Year Credit
Agreement dated as of April 8, 1994.