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, 1995.
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
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 145,424,948 July 31, 1995
Total number of sequentially numbered pages in this filing, including exhibits
thereto:
PART I. FINANCIAL INFORMATION
------ ---------------------
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
-----------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1995 1994 1995 1994
---- ---- ---- ----
Net sales $2,090.7 $1,891.1 $4,071.0 $3,661.1
Cost of sales 1,110.6 988.4 2,121.0 1,896.3
-------- -------- -------- --------
Gross profit 980.1 902.7 1,950.0 1,764.8
-------- -------- -------- --------
Selling, general and administrative
expenses 714.5 671.1 1,399.7 1,282.4
Interest expense 57.5 27.7 110.6 54.7
Interest income (8.8) (11.9) (17.9) (18.3)
-------- -------- -------- --------
Income before income taxes 216.9 215.8 457.6 446.0
Provision for income taxes 73.7 73.3 157.9 153.9
-------- -------- -------- --------
Net income $ 143.2 $ 142.5 $ 299.7 $ 292.1
======== ======== ======== ========
Earnings per common share:
Primary $ .95 $ .93 $ 2.00 $ 1.91
======== ======== ======== ========
Assuming full dilution $ .88 $ .87 $ 1.85 $ 1.78
======== ======== ======== ========
Dividends declared per common share* $ -- $ -- $ .82 $ .72
======== ======== ======== ========
* Includes two dividend declarations in the six month periods.
See Notes to Condensed Consolidated Financial Statements.
2
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in Millions)
(Unaudited)
--------------------------------------------------------------------------------
ASSETS
------
June 30, December 31,
1995 1994
--------- ------------
Current Assets:
Cash and cash equivalents $ 165.4 $ 169.9
Marketable securities 61.1 47.6
Receivables (net of allowances of
$30.1 and $23.1) 1,212.1 1,049.6
Inventories 858.8 713.9
Other current assets 270.0 196.7
-------- --------
2,567.4 2,177.7
-------- --------
Property, Plant and Equipment:
Cost 3,431.4 3,103.4
Less: Accumulated depreciation 1,236.0 1,115.3
-------- --------
2,195.4 1,988.1
-------- --------
Goodwill and other intangible assets
(net of accumulated amortization
of $250.1 and $207.6) 2,677.4 1,671.8
Other assets 382.5 304.8
-------- --------
$7,822.7 $6,142.4
======== ========
See Notes to Condensed Consolidated Financial Statements.
3
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in Millions)
(Unaudited)
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
June 30, December 31,
1995 1994
--------- -----------
Current Liabilities:
Notes and loans payable $ 320.6 $ 181.9
Current portion of long-term debt 39.5 26.0
Accounts payable 751.9 694.9
Accrued income taxes 94.2 85.1
Other accruals 556.4 541.3
--------- ---------
1,762.6 1,529.2
Long-term debt 2,965.1 1,751.5
Deferred income taxes 299.0 295.4
Other liabilities 810.0 743.4
Shareholders' Equity:
Preferred Stock 405.3 408.4
Common Stock 183.2 183.2
Additional paid-in capital 1,026.4 1,020.4
Retained earnings 2,667.3 2,496.7
Cumulative foreign currency
translation adjustments (465.9) (439.3)
--------- ---------
3,816.3 3,669.4
Unearned compensation (381.2) (384.1)
Treasury stock, at cost (1,449.1) (1,462.4)
--------- ---------
1,986.0 1,822.9
--------- ---------
$ 7,822.7 $ 6,142.4
========= =========
See Notes to Condensed Consolidated Financial Statements.
4
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in Millions)
(Unaudited)
--------------------------------------------------------------------------------
Six Months Ended
----------------
June 30,
--------
1995 1994
---- ----
Operating Activities:
Net cash provided by operating activities $ 218.8 $ 271.0
--------- -------
Investing Activities:
Capital expenditures (187.7) (155.2)
Payments for acquisitions, net of cash
acquired (1,239.6) (39.3)
Purchase of marketable securities, net (13.4) (19.1)
Other, net (36.8) 10.6
--------- -------
Net cash used for investing activities (1,477.5) (203.0)
--------- -------
Financing Activities:
Repayment of debt (7.7) (39.1)
Proceeds from issuance of debt 1,355.5 323.2
Repurchase of common stock (8.6) (226.5)
Dividends paid (129.2) (116.9)
Other, net 43.7 (0.5)
--------- -------
Net cash provided by (used for) financing
activities 1,253.7 (59.8)
--------- -------
Effect of exchange rate changes on
cash and cash equivalents 0.5 0.2
--------- -------
Net (decrease) increase in cash and cash equivalents
(4.5) 8.4
Cash and cash equivalents at beginning of
period 169.9 144.1
--------- -------
Cash and cash equivalents at end of
period $ 165.4 $ 152.5
========= =======
See Notes to Condensed Consolidated Financial Statements.
5
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,
1995 1994
--------- -----------
Raw material and supplies $344.0 $280.3
Work-in-process 47.5 38.4
Finished goods 467.3 395.2
------ ------
$858.8 $713.9
====== ======
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. On January 10, 1995, the Company acquired the worldwide Kolynos oral care
business ("Kolynos") from American Home Products Corporation for $1,040.0 in
cash. Kolynos is a multinational oral care business operating primarily in
South America and having a presence in Greece, Taiwan and Hungary. The
acquired assets of the Kolynos business, located principally in Argentina,
Brazil, Colombia, Ecuador, Peru and Uruguay, include trademarks and other
intellectual property, accounts receivable, inventories, and property, plant
and equipment that is utilized in the production of toothpaste, toothbrushes,
dental floss and oral rinses. The acquisition is currently being reviewed by
antitrust regulatory authorities in Brazil.
The transaction was structured as a multinational acquisition of assets and
stock, financed with the proceeds of commercial bank borrowings, and was
accounted for under the purchase method of accounting, with the results of
operations of Kolynos included with the results of the Company from
January 10, 1995. The net book value of Kolynos's assets was approximately
$50.0. The purchase price was allocated to the acquired assets based upon
preliminary determination of their respective fair values and is subject to
adjustment. The cost in excess of the fair value of acquired assets is being
amortized over 40 years.
6
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
--------------------------------------------------------------------------------
The following unaudited pro forma summary combines the results of the
operations of the Company and Kolynos as if the acquisition had occurred as
of the beginning of 1994 after giving effect to certain adjustments,
including amortization of goodwill, increased interest expense on the
acquisition debt incurred and the related income tax effects.
Summarized Pro Forma Combined Results of Operations
Three Months Six Months Ended
June 30, 1994 June 30, 1994
------------- ----------------
Net Sales $1,951.7 $3,783.0
Income before income taxes 203.4 418.5
Net Income 134.3 274.0
Primary earnings per share .88 1.79
Fully diluted earnings per share .82 1.67
The pro forma financial information is not necessarily indicative of either
the results of operations that would have occurred had the Company and
Kolynos actually been combined during the three and six month periods in
1994, or the future results of operations of the combined companies.
Although the Company intends to operate Kolynos in Brazil as a separate
operation, there are certain other benefits that are anticipated to be
realized from the implementation of the Company's integration plans which
are not included in the pro forma information. The Company believes that
future growth opportunities, as well as the benefits of such integration
plans when fully implemented, will reduce and eventually more than offset
any dilutive impact on earnings per share.
6. Reference is made to the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year 1994 for a complete set of
financial notes including the Company's significant accounting policies.
7
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 $2,090.7 in the second quarter of 1995, an 11% increase
over the 1994 second quarter, reflecting overall unit volume gains of 6%
including the January 1995 acquisition of the Kolynos Latin American oral care
business. Sales and unit volume would have increased 10% and 5%, respectively,
if Kolynos and non-core 1994 divestitures are excluded.
Sales in the Oral, Personal and Household Care segment were $1,901.1 up 14% from
$1,672.9 in 1994 on volume growth of 9% including acquisitions. Sales increases
across all geographic regions contributed to the growth.
Colgate-Asia/Africa sales increased 17% to $411.8 on volume gains of 12%.
Contributing to this region's growth were excellent results in Malaysia, China,
India and Senegal.
Colgate-Europe sales increased 8% to $553.1 as currency gains offset a 4% unit
volume decline. The United Kingdom, Greece, Holland and Portugal achieved volume
gains while Italy and Germany were affected by economic softness.
Colgate-Latin America sales grew 19% to $492.7 on volume gains of 23%. Excluding
Kolynos, sales increased 4% on 8% unit volume gains. Brazil, Columbia and
Venezuela achieved healthy increases in sales and volume, more than offsetting a
9% unit volume decline in Mexico where devaluation of the peso negatively
impacted sales.
Colgate-North America sales grew 12% to $443.5 on volume gains of 10%. Market
success of several new products contributed to the best sales performance of the
past nine quarters.
Hill's Pet Nutrition experienced a 6% increase in sales while unit volume
remained level with the prior year as Hill's is completing its program to bring
its domestic distribution system in-house. Overall sales in the Specialty
Marketing segment declined 13% to $189.6 as a result of the second quarter 1994
sale of Princess House and VCA, two non-core businesses.
Worldwide sales for the first half of 1995 increased 11% to $4,071.0 from
$3,661.1 in the same period of 1994, on 7% volume growth. Excluding Kolynos and
1994 divestitures, sales and unit volume increased 10% and 6%, respectively.
Oral, Personal and Household Care sales increased 14% to $3,720.8 in the 1995
first half, on volume gains of 10%. Within this segment, Colgate-Asia/Africa
sales increased 18% on volume growth of 12%. Colgate-Europe sales increased 11%
despite a volume decline of 2% due to the effects of foreign exchange gains.
Colgate-Latin America sales grew 21% on volume gains of 26%. Excluding Kolynos,
Latin American sales increased 4% on volume gains of 10%. Additionally, due to
the economic downturn, Mexico's volume declined 4%. Colgate-North America sales
grew 9% on volume gains of 7%.
8
COLGATE-PALMOLIVE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Dollars in Millions Except Per Share Amounts)
-------------------------------------------------------------------------------
Specialty Marketing sales for the first half of 1995 decreased 14% due to the
second quarter 1994 sale of Princess House and VCA. Sales from continuing
operations increased 4% despite volume declines of 3% due to Hill's program to
buy out domestic distributors.
Worldwide gross profit margin for the 1995 second quarter declined to 46.9% from
47.7% primarily due to increases in raw materials and packaging costs. Gross
profit for the first half declined to 47.9% from 48.2%.
Selling, general and administrative expenses decreased as a percentage of sales
to 34.2% in 1995 from 35.5% in 1994 in the second quarter and to 34.4% from
35.0% in the first half. This decrease was due to a reduction, as a percentage
of sales, of general and administrative spending.
Earnings before interest and taxes (EBIT) increased 15% to $265.6 in the 1995
second quarter, and 14% to $550.3 for the 1995 first half versus the comparable
periods in 1994.
Interest expense, net of interest income, increased to $48.7 in the 1995 second
quarter from $15.8 in 1994, and to $92.7 in the 1995 first half from $36.4 in
1994, primarily reflecting the increased level of debt incurred in connection
with the acquisition of Kolynos.
The effective tax rates for the second quarter and first half of 1995 of 34.0%
and 34.5% were level with the effective rates for the same periods in 1994.
Net income for the 1995 second quarter of $143.2 was slightly higher than 1994
results, which included a one-time charge of $5.2 related to the sale of
Princess House. Earnings per share for the 1995 second quarter increased 2% to
$.95. For the first half, net income increased 3% to $299.7 and earnings per
share rose 5% to $2.00. Net income for the second quarter of 1995 was impacted
by reduced profits in Mexico, due to the current slowdown in the Mexican
economy, and by the acquisition of Kolynos, which had a dilutive effect of
approximately $.06 per share for the three months and $.12 per share for the six
months ended June 30, 1995. As the Company integrates this acquisition into its
existing business structure and competitively responds to events in its global
markets, it continues to evaluate opportunitites to streamline operations and
enhance existing synergies.
9
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
-------------------------------
Working capital at June 30, 1995 was $804.8 as compared with $648.5 at December
31, 1994. Net cash provided by operations decreased to $218.8 in the second
quarter of 1995 compared with the prior year due mainly to increased working
capital levels. At June 30, 1995, commercial paper outstanding was $1,474.6
which is classified as long-term due to the Company's intent and ability to
refinance these obligations on a long-term basis.
Reference should be made to the 1994 Annual Report on Form 10-K for additional
information regarding available sources of liquidity and capital.
10
COLGATE-PALMOLIVE COMPANY
PART II. OTHER INFORMATION
-------- -----------------
--------------------------------------------------------------------------------
Item 1. Legal Proceedings
------- -----------------
Reference is made to Note 13 to the consolidated financial
statements on page 29 of the registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
The Company's annual meeting of stockholders was held on May 4,
1995. The matters voted on and the results of the vote are as
follows:
(a) Vernon R. Alden, Jill K. Conway, Ronald E. Ferguson,
Ellen M. Hancock, David W. Johnson, John P. Kendall,
Delano E. Lewis, Reuben Mark and Howard B. Wentz, Jr.
were elected directors of the Company.
The results of the vote are as follows:
Votes Received Votes Withheld
-------------- --------------
Vernon R. Alden 129,664,095 736,593
Jill K. Conway 129,669,195 731,493
Ronald E. Ferguson 129,744,112 656,576
Ellen M. Hancock 129,719,427 681,261
David W. Johnson 129,722,855 677,833
John P. Kendall 129,595,272 805,416
Delano E. Lewis 129,650,906 749,782
Reuben Mark 129,729,421 671,267
Howard B. Wentz, Jr. 129,720,546 680,142
(b) The selection of Arthur Andersen LLP as auditors for
the year ending December 31, 1995 was approved. The
results of the vote are as follows:
Votes For Votes Against Abstentions
--------- ------------- -----------
128,471,555 1,323,643 605,490
(c) A stockholder proposal submitted by College Retirement
Equities Fund requesting the Board of Directors to adopt
a policy of seeking shareholder approval before issuing
preference stock except under certain circumstances was not
approved. The results of the vote are as follows:
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
40,625,715 72,298,957 2,633,750 14,842,266
11
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits:
Exhibit 10-D.(b) First Supplemental Amendment dated
as of January 1, 1989, between The
Bank of New York as trustee
under the will of Harold D. Uris,
deceased, d/b/a Uris Holding
Company, and Colgate-Palmolive
Company.
Exhibit 10-D.(c) Second Supplemental Agreement dated
as of March 15, 1995, between The
Bank of New York as trustee under
the will of Harold D. Uris,
deceased, and Colgate-Palmolive
Company.
Exhibit 11. Computation of Earnings per Common Share.
Exhibit 12. Ratio of Earnings to Fixed Charges.
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K.
A report on Form 8-K dated May 22, 1995 was filed by
the Company reporting the issuance through Goldman,
Sachs & Co. of $25,000,000 principal amount of its
Medium-Term Notes, Series B and filing the related
note.
12
SIGNATURE
---------
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.
COLGATE-PALMOLIVE COMPANY
------------------------
(Registrant)
August 14, 1995 /s/ Stephen C. Patrick
----------------------------
Stephen C. Patrick
Vice President
Corporate Controller
13