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, 1996.
0R
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File Number 1-644
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COLGATE-PALMOLIVE COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 13-1815595
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 PARK AVENUE, NEW YORK, NEW YORK 10022
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(Address of principal executive offices) (Zip Code)
(212) 310-2000
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(Registrant's telephone number, including area code)
NO CHANGES
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(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
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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
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Common, $1.00 par value 146,858,912 July 31, 1996
Total number of sequentially numbered pages in this filing, including exhibits
thereto:
PART I. FINANCIAL INFORMATION
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COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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(Dollars in Millions Except Per Share Amounts)
(Unaudited)
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Three Months Ended Six Months Ended
June 30, June 30,
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1996 1995 1996 1995
---- ---- ---- ----
Net sales $2,167.3 $2,090.7 $4,221.0 $4,071.0
Cost of sales 1,106.3 1,110.6 2,156.7 2,121.0
-------- -------- -------- --------
Gross profit 1,061.0 980.1 2,064.3 1,950.0
-------- -------- -------- --------
Selling, general and administrative
expenses 780.5 714.5 1,514.3 1,399.7
Interest expense 58.3 57.5 114.7 110.6
Interest income (5.2) (8.8) (14.5) (17.9)
--------- -------- -------- --------
Income before income taxes 227.4 216.9 449.8 457.6
Provision for income taxes 78.5 73.7 157.4 157.9
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Net income $ 148.9 $ 143.2 $ 292.4 $ 299.7
======== ======== ======== ========
Earnings per common share:
Primary $ .98 $ .95 $ 1.93 $ 2.00
========= ======== ======== ========
Assuming full dilution $ .92 $ .88 $ 1.80 $ 1.85
========= ======== ======== ========
Dividends declared per common share* $ - $ - $ .94 $ .82
========= ======== ======== ========
* Includes two dividend declarations in the six month periods.
See Notes to Condensed Consolidated Financial Statements.
2
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
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(Dollars in Millions)
(Unaudited)
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ASSETS
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June 30, December 31,
1996 1995
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Current Assets:
Cash and cash equivalents $ 189.8 $ 208.8
Marketable securities 69.7 47.8
Receivables (net of allowances of
$31.2 and $31.9) 1,164.7 1,116.9
Inventories 817.8 774.8
Other current assets 256.8 211.9
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2,498.8 2,360.2
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Property, Plant and Equipment:
Cost 3,766.5 3,599.4
Less: Accumulated depreciation 1,508.6 1,444.2
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2,257.9 2,155.2
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Goodwill and other intangible assets
(net of accumulated amortization
of $341.2 and $295.3) 2,753.7 2,741.7
Other assets 381.6 385.2
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$7,892.0 $ 7,642.3
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See Notes to Condensed Consolidated Financial Statements.
3
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in Millions)
(Unaudited)
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LIABILITIES AND SHAREHOLDERS' EQUITY
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June 30, December 31,
1996 1995
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Current Liabilities:
Notes and loans payable $ 272.5 $ 204.4
Current portion of long-term debt 90.3 37.0
Accounts payable 771.9 738.7
Accrued income taxes 71.9 76.7
Other accruals 685.1 696.3
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1,891.7 1,753.1
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Long-term debt 2,970.6 2,992.0
Deferred income taxes 230.9 237.3
Other liabilities 969.6 980.1
Shareholders' Equity:
Preferred Stock 399.9 403.5
Common Stock 183.2 183.2
Additional paid-in capital 1,054.3 1,033.7
Retained earnings 2,536.9 2,392.2
Cumulative foreign currency
translation adjustments (531.1) (513.0)
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3,643.2 3,499.6
Unearned compensation (374.6) (378.0)
Treasury stock, at cost (1,439.4) (1,441.8)
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1,829.2 1,679.8
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$7,892.0 $7,642.3
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See Notes to Condensed Consolidated Financial Statements.
4
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Dollars in Millions)
(Unaudited)
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Six Months Ended
----------------
June 30,
--------
1996 1995
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Operating Activities:
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Net cash provided by operating activities $ 264.5 $ 218.8
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Investing Activities:
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Capital expenditures (223.4) (187.7)
Payments for acquisitions, net of cash
acquired (23.7) (1,239.6)
Purchase of marketable securities, net (21.9) (13.4)
Other, net 5.2 (36.8)
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Net cash used for investing activities (263.8) (1,477.5)
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Financing Activities:
---------------------
Repayment of debt (7.6) (7.7)
Proceeds from issuance of debt 119.8 1,355.5
Repurchase of common stock - (8.6)
Dividends paid (147.7) (129.2)
Other, net 15.3 43.7
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Net cash (used for) provided by financing
activities (20.2) 1,253.7
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Effect of exchange rate changes on
cash and cash equivalents .5 .5
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Net decrease in cash and cash equivalents (19.0) (4.5)
Cash and cash equivalents at beginning of
period 208.8 169.9
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Cash and cash equivalents at end of
period $ 189.8 $ 165.4
======== =========
See Notes to Condensed Consolidated Financial Statements.
5
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars in Millions)
(Unaudited)
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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,
1996 1995
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Raw material and supplies $318.2 $313.8
Work-in-process 41.3 38.3
Finished goods 458.3 422.7
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$817.8 $774.8
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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
andoutstanding options. This calculation also assumes reduction of
available income by pro forma ESOP replacement funding, net of income taxes.
5. As described in Note 3 to the Company's consolidated financial statements
included in its Annual Report on Form 10-K, Colgate-Palmolive acquired the
worldwide Kolynos oral care business from American Home Products in January
1995. The acquisition is currently being reviewed by antitrust regulatory
authorities in Brazil. While it is not yet possible to definitively
determine whether or not approval will be obtained, management believes the
acquisition, or some variation thereof, will eventually be approved. It is
anticipated that the Brazilian authorities could render their decision
during the third quarter of 1996.
6. As described in Note 4 to the Company's consolidated financial statements
included in its Annual Report on Form 10-K, Colgate-Palmolive recorded a
charge for restructuring its worldwide manufacturing and administrative
operations in September 1995. Reserves relating to this program totaled
approximately $365.5 and $435.6 at June 30, 1996 and December 31, 1995,
respectively. Management believes that the costs of the restructuring
program will be financed through cash from operations and does not
anticipate any significant impact on its liquidity as a result of the
restructuring program.
7. Reference is made to the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year 1995 for a complete set of
financial notes including the Company's significant accounting policies.
6
COLGATE-PALMOLIVE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Dollars in Millions Except Per Share Amounts)
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Results of Operations
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Worldwide sales reached $2,167.3 in the second quarter of 1996, a 4% increase
over the 1995 second quarter, reflecting overall unit volume gains of 6%.
Sales in the Oral, Personal and Household Care segment were $1,959.4 up 3% from
$1,901.1 in 1995 on volume growth of 5%. Sales increases across all geographic
regions contributed to the growth.
Colgate-Asia/Africa sales increased 6% to $435.6 on volume gains of 8%.
Excluding the effect of acquisitions, sales increased 3% on unit volume gains of
6%. Contributing to this region's growth were excellent results in China, the
Philippines and India.
Colgate-Europe sales decreased 3% to $534.4 as currency losses offset the 2%
increase in volume. The United Kingdom, Austria, and Spain had the strongest
sales increases in the region.
Colgate-Latin America sales grew 6% to $522.3 on volume gains of 7%. Brazil,
Argentina, Chile, Ecuador and Dominican Republic achieved healthy increases in
sales and volume which offset the declines in Mexico and Venezuela where
recession negatively impacted sales. Excluding the Mexico and Venezuela
results, sales increased 17% on volume gains of 15%.
Colgate-North America sales grew 5% to $467.1 on volume gains 7%. Market
success of several new products, including Palmolive Dishwashing Liquid &
Antibacterial Hand Soap and Mennen Speed Stick gel, contributed to the strong
performance.
The Pet Nutrition segment experienced a 10% increase in sales on unit volume
increases of 4% as compared to the prior year.
Worldwide sales for the first half of 1996 increased 4% to $4,221.0 from
$4,071.0 in the same period of 1995, on 5% volume growth.
Oral, Personal and Household Care sales increased 3% to $3,829.3 in the 1996
first half, on volume gains of 4%. Within this segment, Colgate-Asia/Africa
sales increased 6% on volume growth of 8%, including a 2% increase in sales
from acquisitions. Colgate-Europe sales decreased 1% despite a volume increase
of 1% due to the effects of foreign exchange. Colgate-Latin America sales grew
3% on volume gains of 4%. Colgate-North America sales and volume grew 5%.
Pet Nutrition sales for the first half of 1996 increased 12% on volume increases
of 8%.
Worldwide gross profit margin for the 1996 second quarter increased to 49.0%
from 46.9% as the Company continues to focus on cost reduction and shifting
product mix towards high-margin oral and personal care products. Gross profit
for the first half increased to 48.9% from 47.9%.
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COLGATE-PALMOLIVE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Dollars in Millions Except Per Share Amounts)
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Selling, general and administrative expenses increased as a percentage of sales
to 36.0% in 1996 from 34.2% in 1995 in the second quarter and to 35.9% from
34.4% in the first half. This increase primarily was due to increased freight
and warehousing costs and higher levels of goodwill amortization from recent
acquisitions.
Earnings before interest and taxes (EBIT) increased 6% to $280.5 in the 1996
second quarter, and remained relatively consistent at $550.0 for the 1996 first
half versus the comparable periods in 1995.
Interest expense, net of interest income, increased to $53.1 in the 1996 second
quarter from $48.7 in 1995, and to $100.2 in the 1996 first half from $92.7 in
1995, primarily reflecting the full period of the increased level of debt
incurred in connection with the acquisition of Kolynos.
The effective tax rate for the second quarter 1996 was 34.5% versus 34.0% in
1995. The effective rate for the first half of 1995 was 35.0% versus 34.5% for
the same period in 1995.
Net income for the 1996 second quarter of $148.9 was 4% higher than 1995
results. Earnings per share for the 1996 second quarter increased 3% to $.98.
For the first half, net income decreased 2% to $292.4 and earnings per share
decreased 4% to $1.93.
Liquidity and Capital Resources
- -------------------------------
Working capital at both June 30, 1996 and December 31,1995 was $607.1 as
compared to $804.8 at June 30, 1995. Net cash provided by operations increased
to $264.5 in the first half of 1996 compared with $218.8 in the first half of
1995 due to the lower investment in working capital compared to the prior year.
At June 30, 1996 commercial paper outstanding was $925.8 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 1995 Annual Report on Form 10-K for additional
information regarding liquidity and capital resources.
8
COLGATE-PALMOLIVE COMPANY
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
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Reference is made to Note 14 to the consolidated financial statements
on page 35 of the registrant's Annual Report on Form 10-K for the
year ended December 31, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
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The Company's annual meeting of stockholders was held on May 2, 1996.
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, Richard J. Kogan,
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 127,859,940 1,297,813
Jill K. Conway 127,993,887 1,163,866
Ronald E. Ferguson 128,024,331 1,133,422
Ellen M. Hancock 128,020,361 1,137,392
David W. Johnson 128,059,456 1,098,297
John P. Kendall 128,022,980 1,134,773
Richard J. Kogan 128,009,052 1,148,701
Delano E. Lewis 128,017,714 1,140,039
Reuben Mark 128,029,727 1,128,026
Howard B. Wentz, Jr. 128,039,298 1,118,455
(b) The selection of Arthur Andersen LLP as auditors for the year
ending December 31, 1996 was approved. The results of the vote
are as follows:
Votes For Votes Against Abstentions
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127,206,950 1,374,677 576,126
(c) The adoption of the Stock Plan for Non-Employee Directors was
passed. The results of the vote are as follows:
Votes For Votes Against Abstentions
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119,297,458 5,933,831 3,926,464
9
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
Exhibit 10.F. Colgate-Palmolive Company Pension Plan
for Outside Directors.
Exhibit 10.G. Colgate-Palmolive Company Stock Plan
for Non-Employee Directors.
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.
None.
The exhibits indicated above which are not included with the Form 10-Q are
available upon request and payment of a reasonable fee approximating the
registrant's cost of providing and mailing the exhibits. Inquiries should be
directed to:
Colgate-Palmolive Company
Office of the Secretary (10-Q Exhibits)
300 Park Avenue
New York, NY 10022-7499
10
SIGNATURE
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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
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(Registrant)
August 14, 1996 /s/ Stephen C. Patrick
-------------------------------------
Stephen C. Patrick
Chief Financial Officer
11