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 March 31, 2001.
OR
[] 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
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COLGATE-PALMOLIVE COMPANY
(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
- ------------------------ ------------------ ------
Common, $1.00 par value 561,054,759 April 30, 2001
PART I. FINANCIAL INFORMATION
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COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
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Three Months Ended
------------------
March 31,
--------
2001 2000
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Net sales $ 2,292.6 $ 2,241.8
Cost of sales 1,032.8 1,020.6
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Gross profit 1,259.8 1,221.2
Selling, general and administrative expenses 818.3 816.7
Interest expense 47.4 49.1
Interest income (3.8) (8.0)
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Income before income taxes 397.9 363.4
Provision for income taxes 130.0 123.5
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Net income $ 267.9 $ 239.9
========== ==========
Earnings per common share:
Basic $ .47 $ .41
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Diluted $ .44 $ .38
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Dividends declared per common share* $ .32 $ .32
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* Two dividends were declared in each period.
See Notes to Condensed Consolidated Financial Statements.
2
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in Millions)
(Unaudited)
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ASSETS
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March 31, December 31,
2001 2000
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Current assets:
Cash and cash equivalents $ 227.9 $ 206.6
Marketable securities 2.0 5.9
Receivables (less allowances of $42.1 and $39.8) 1,136.4 1,195.4
Inventories 700.7 686.6
Other current assets 279.3 252.7
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2,346.3 2,347.2
Property, plant and equipment:
Cost 4,197.3 4,287.3
Less: Accumulated depreciation 1,745.1 1,759.0
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2,452.2 2,528.3
Goodwill and other intangibles (net of accumulated
amortization of $668.4 and $651.0) 2,023.7 2,096.4
Other assets 274.4 280.4
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$ 7,096.6 $ 7,252.3
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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
------------------------------------
March 31, December 31,
2001 2000
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Current liabilities:
Notes and loans payable $ 98.9 $ 121.1
Current portion of long-term debt 463.5 320.2
Accounts payable 669.4 738.9
Accrued income taxes 185.8 163.7
Other accruals 953.2 900.2
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2,370.8 2,244.1
Long-term debt 2,530.4 2,536.9
Deferred income taxes 422.3 447.3
Other liabilities 629.8 555.9
Shareholders' equity:
Preferred stock 349.3 354.1
Common stock 732.9 732.9
Additional paid-in capital 1,104.4 1,144.9
Retained earnings 4,982.9 4,893.7
Accumulated other comprehensive income (1,339.1) (1,269.7)
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5,830.4 5,855.9
Unearned compensation (342.2) (344.4)
Treasury stock, at cost (4,344.9) (4,043.4)
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1,143.3 1,468.1
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$ 7,096.6 $ 7,252.3
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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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Three Months Ended
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March 31,
---------
2001 2000
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Operating Activities:
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Net income $ 267.9 $ 239.9
Adjustments to reconcile net income to net cash
provided by operations:
Restructured operations (0.8) (4.7)
Depreciation and amortization 83.5 84.5
Income taxes and other, net 82.8 73.6
Cash effects of changes in:
Receivables 37.2 (7.9)
Inventories (32.4) (3.1)
Payables and accruals (94.0) (48.7)
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Net cash provided by operating activities 344.2 333.6
Investing Activities:
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Capital expenditures (47.0) (67.2)
Sale of (investments in) marketable securities 4.7 (21.8)
Proceeds from sales of long-term investments - 100.9
Other (2.6) (3.7)
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Net cash (used for) provided by investing activities (44.9) 8.2
Financing Activities:
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Principal payments on debt (190.9) (55.6)
Proceeds from issuance of debt 358.3 50.0
Dividends paid (89.8) (91.8)
Purchase of common stock (356.2) (239.9)
Other 3.1 3.9
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Net cash used for financing activities (275.5) (333.4)
Effect of exchange rate changes on
cash and cash equivalents (2.5) (1.6)
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Net increase in cash and cash equivalents 21.3 6.8
Cash and cash equivalents at beginning of period 206.6 199.6
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Cash and cash equivalents at end of period $ 227.9 $ 206.4
======== ========
See Notes to Condensed Consolidated Financial Statements.
5
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars and Shares in Millions Except Per Share Amounts)
(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 three months ended March 31, 2001 and 2000 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:
March 31, December 31,
2001 2000
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Raw materials and supplies $ 201.1 $ 206.2
Work-in-process 33.5 30.7
Finished goods 466.1 449.7
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$ 700.7 $ 686.6
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4. Earnings Per Share:
Three Months Ended March 31, 2001 Three Months Ended March 31, 2000
--------------------------------- ---------------------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ------ ------ ------ -----
Net income $267.9 $239.9
Preferred dividends (5.1) (5.3)
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Basic EPS 262.8 564.6 $.47 234.6 578.2 $.41
==== ====
Stock options 9.3 10.8
ESOP conversion 5.0 41.6 5.1 43.2
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Diluted EPS $267.8 615.5 $.44 $239.7 632.2 $.38
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COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars and Shares in Millions Except Per Share Amounts)
(Unaudited)
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5. Comprehensive income
Comprehensive income is comprised of net earnings, currency translation
gains and losses, and gains and losses from derivative instruments
designated as cash flow hedges. Total comprehensive income for the three
months ended March 31, 2001 and 2000 was $200.2 and $232.5, respectively,
with the difference from net income primarily consisting of foreign
currency translation adjustments. Accumulated other comprehensive income,
as reflected in the condensed consolidated balance sheets, primarily
consists of cumulative foreign currency translation adjustments.
6. Segment Information
Three months ended March 31,
2001 2000
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Net Sales
North America $ 580.5 $ 547.9
Latin America 584.5 588.4
Europe 463.8 462.4
Asia/Africa 386.4 375.5
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Total Oral, Personal and
Household Care 2,015.2 1,974.2
Total Pet Nutrition 277.4 267.6
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Net Sales $ 2,292.6 $ 2,241.8
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Earnings
North America $ 126.5 $ 114.3
Latin America 159.6 141.6
Europe 85.2 84.2
Asia/Africa 55.5 47.5
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Total Oral, Personal and
Household Care 426.8 387.6
Total Pet Nutrition 62.5 55.6
Corporate overhead and other (47.8) (38.7)
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Earnings before interest and taxes 441.5 404.5
Interest expense, net (43.6) (41.1)
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Income before income taxes $ 397.9 $ 363.4
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7
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars and Shares in Millions Except Per Share Amounts)
(Unaudited)
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7. Derivative Instruments and Hedging Activities
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133, as amended, establishes
accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. The cumulative effect of adoption of SFAS 133
did not result in a material impact on the Company's financial position,
results of operations or cash flows.
The Company is exposed to market risk from foreign currency exchange rate,
interest rate and commodity price fluctuations. To manage the volatility
relating to these exposures on a consolidated basis, the Company utilizes a
number of techniques, including selective borrowings in local currencies,
balance sheet management and entering into certain derivative instrument
transactions in accordance with Company risk management policies. The
Company does not enter into derivative transactions for trading purposes.
SFAS 133 requires that changes in the derivative's fair value be recognized
currently in earnings or other comprehensive income (OCI) depending on
whether a derivative is designated as and is effective as part of a hedging
relationship. For those derivative instruments that are designated and
qualify as hedging instruments, the Company designates the instrument,
based upon the exposure being hedged, as either a fair value hedge, cash
flow hedge or a hedge of a net investment in a foreign subsidiary.
For derivative instruments designated as fair value hedges, the change in
the fair value of the derivative as well as the offsetting gain or loss on
the hedged item attributable to the hedged risk are recognized in current
earnings. For derivative instruments designated as cash flow hedges, the
effective portion of the change in the fair value of the derivative is
recorded in OCI and is reclassified to earnings when the offsetting effects
of the hedged transaction affects earnings. The ineffective portion, if
any, of the change in the fair value of a derivative used as a cash flow
hedge is recognized in earnings as incurred.
The Company assesses the effectiveness of its hedge relationships at
inception and on a quarterly basis to determine whether the hedge
relationship is expected to be, or has been, highly effective in achieving
offsetting changes in fair value or cash flows related to the risk being
hedged. The Company is permitted to exclude certain components related to
the hedging instrument's time value from the assessment of hedge
effectiveness at inception of each hedge relationship. Changes in fair
value of the hedging instrument related to excluded components are
recognized in earnings as incurred.
Interest rate risk management
-----------------------------
The Company utilizes interest rate swaps to manage its mix of fixed and
floating rate debt, in accordance with internal treasury management
policies. The Company's target floating rate obligations as a percentage of
its global debt is set by policy.
The Company enters into interest rate swap contracts under which it pays
variable rates of interest and receives fixed rates on underlying notional
amounts. These contracts are designated as fair value hedges of fixed-rate
debt obligations. Changes during the period in the fair value of the
interest rate swaps, as well as offsetting changes in the fair value of the
fixed-rate debt obligations being hedged, are recognized as interest
expense. At March 31, 2001, the fair value of these contracts was an $18.6
asset.
8
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars and Shares in Millions Except Per Share Amounts)
(Unaudited)
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The Company also enters into interest rate swaps under which it pays fixed
rates of interest and receives variable rates on underlying notional
amounts. These contracts are designated as cash flow hedges of
variable-rate debt obligations. Gains and losses on these contracts are
deferred in OCI and reclassified to interest expense when the related
interest payments being hedged are recognized. At March 31, 2001, the fair
value of these contracts deferred in OCI was a $16.6 liability, of which
$5.9 is expected to be reclassified to earnings over the next 12 months.
The net gain or loss from hedge ineffectiveness on interest rate swaps was
not material and there were no gains or losses resulting from components
excluded from the assessment of hedge effectiveness for the period. No
interest rate swaps initially designated as cash flow hedges were
discontinued during the period.
Foreign currency risk management
--------------------------------
The Company operates in over 200 countries and territories and is exposed
to currency fluctuation related to manufacturing and selling its products
in currencies other than the U.S. dollar. Some of the foreign currency
exposures involve the markets in the European Union, Mexico and Brazil,
although all regions of the world are subject to foreign currency changes
versus the U.S. dollar. The Company utilizes forward exchange and currency
swap contracts to hedge portions of its exposures relating to foreign
currency purchases and sales, assets and liabilities created in the normal
course of business, and its net investment in certain overseas operations.
The Company generally enters into foreign currency forward contracts with
durations no greater than 18 months.
The Company enters into foreign currency forward contracts to hedge against
exchange rate fluctuations related to foreign currency denominated balance
sheet items. These contracts are designated as fair value hedges. Changes
during the period in the fair value of these contracts as well as the
offsetting foreign currency transaction gains or losses are recorded in
other expense. At March 31, 2001, the fair value of these contracts was a
$21.8 liability.
The Company also enters into foreign currency forward contracts to hedge
against exchange rate fluctuations related to forecasted foreign currency
denominated purchases and sales. These contracts are designated as cash
flow hedges. Gains and losses on these contracts are deferred in OCI and
reclassified to sales, cost of sales or selling, general and administrative
expenses in the same period that the underlying hedged transaction is
recognized in earnings. At March 31, 2001, the fair value of these
contracts deferred in OCI was an $11.8 asset, all of which is expected to
be reclassified to earnings over the next 12 months.
The Company utilizes foreign currency forward contracts to hedge its net
investments in its foreign subsidiaries in Europe, Asia and Latin America.
Gains and losses from these contracts are included in the cumulative
translation adjustment account included in OCI. The carrying value of these
derivative contracts at March 31, 2001 and their impact on cumulative
translation adjustment for the period then ended was not material to the
Company's consolidated financial statements.
9
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars and Shares in Millions Except Per Share Amounts)
(Unaudited)
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The net gain or loss from hedge ineffectiveness on foreign currency hedges
was not material and there were no gains or losses resulting from
components excluded from the assessment of hedge effectiveness for the
period. No foreign currency forward contracts initially designated as cash
flow hedges were discontinued during the period.
The Company also enters into certain foreign currency derivative
instruments that economically hedge certain of its risks but do not qualify
for hedge accounting. The fair value of these instruments at March 31, 2001
was not material.
Commodity Price Management
--------------------------
The Company is exposed to price volatility related to raw materials used in
production. The Company uses futures and option contracts on a limited
basis to manage volatility related to anticipated raw material inventory
purchases. These derivative instruments are designated as cash flow hedges.
Commodity hedging activity was not material to the Company's financial
statements.
8. New Accounting Pronouncements
In April 2001, the Financial Accounting Standards Board's Emerging Issues
Task Force (EITF) reached a consensus on Issue No. 00-25, "Vendor Income
Statement Characterization of Consideration Paid to a Reseller of the
Vendor's Products." This issue addresses the income statement
classification of consideration from a vendor to a customer in connection
with the customer's purchase or promotion of the vendor's products. While
the impact of this consensus on the Company's consolidated financial
statements is still being evaluated, it is expected to only impact revenue
and expense classifications and not change reported net income. At the same
meeting, the EITF also deferred the effective date of Issue No. 00-14,
"Accounting for Certain Sales Incentives," the impact of which was
disclosed in Note 2 to the consolidated financial statements included in
the Company's 2000 Annual Report on Form 10-K, to coincide with the
adoption of Issue No. 00-25. In accordance with the consensuses reached,
the Company will adopt the accounting required by Issue No. 00-14 and Issue
No. 00-25 effective January 1, 2002.
9. Reference is made to the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission for the year 2000 for a complete set
of financial notes including the Company's significant accounting policies.
10
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, excluding divestments, grew 3% to $2,292.6 in the first quarter
of 2001 reflecting unit volume gains of 7% partially offset by a decline in
foreign currencies. First quarter sales in the Oral, Personal and Household Care
segment, excluding divestments, were $2,015.2, also up 3% from 2000 on volume
growth of 7%.
Colgate-North America sales reached $580.5 in the first quarter of 2001. Sales
grew 6% on volume gains of 7% primarily driven by the continued strength of
recently introduced products. These new products included Colgate Total plus
Whitening and Colgate 2in1 toothpastes, Colgate Actibrush battery-powered
toothbrush, Lady Speed Stick aloe deodorant, and Softsoap Fruit Essentials
bodywash and liquid soap.
Colgate-Latin America sales, excluding divestments, increased 3% to $584.5 on
volume gains of 5% led by strong volume growth in Mexico, Brazil, the Dominican
Republic, Ecuador and Central America. Sales of Colgate Triple Action, Colgate
Herbal and Colgate Fresh Confidence toothpastes and the Colgate Actibrush
battery-powered toothbrush helped to strengthen market share leadership in the
Oral Care category within the region. The region also had market share gains in
the Personal and Household Care category that were driven by products such as
Lady Speed Stick Ultra Dry Cream, Palmolive Botanicals soap, Axion Spring
Sensations dishwashing liquid and Ajax antibacterial cleaner.
Colgate-Europe sales increased 1% to $463.8 as volume gains of 7% were
negatively impacted by the weakened Euro. Excluding currency, sales would have
also risen 7% driven primarily by volume gains in the United Kingdom, Germany,
France, the Nordic Group, Central Europe and Russia. Oral Care market share
continued to grow within the region primarily due to products such as the
battery-powered Colgate Actibrush and the Colgate Herbal and Colgate Fresh
Confidence toothpastes. Colgate-Europe also continued to gain market share in
the Personal and Household Care category with products such as Palmolive Spring
Sensations dishwashing liquid, and Palmolive Vitamins with Vitamin E shower gel,
bath foam and liquid hand soap.
Colgate-Asia/Africa first quarter sales, excluding divestments, increased 4% to
$386.4 as volume grew 11% with the strongest gains in China, Australia, Thailand
and Malaysia. The volume gains were led by recently introduced products
including Colgate Fresh Confidence and Colgate Herbal toothpastes, Colgate
Actibrush, Palmolive Naturals conditioner and Axion Spring Fresh dishwashing
liquid.
Sales in the Pet Nutrition segment increased 4% to $277.4 on volume gains of 5%
with strong volume increases particularly in international regions.
Hill's-International experienced strong growth in Germany, Australia, New
Zealand, Argentina and Brazil.
Worldwide gross profit margin for the first quarter of 2000 increased to 55.0%
from 54.5%, benefiting from continued streamlining of manufacturing, global
sourcing and other cost reduction programs.
11
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 as a percentage of sales decreased
to 35.7% in 2001 from 36.4% in 2000 as a result of continued focus on reducing
overhead and other cost efficiency programs.
Earnings before interest and taxes (EBIT) increased 9% to $441.5, and reached a
level of 19.3% of sales versus 18.0% in the same year ago period. The Company
continues to benefit from strong sales growth and cost-saving initiatives that
continue to drive profitability.
Interest expense, net of interest income increased to $43.6 in the 2001 first
quarter as compared with $41.1 in 2000. The increase is a result of higher
average debt levels in 2001 first quarter versus 2000.
The effective tax rate was 32.7% and 34.0% in the first quarter of 2001 and
2000, respectively. The 32.7% reflects the Company's current estimate of its
full year effective income tax rate which is slightly higher than the 2000 full
year rate of 32.1%.
First quarter 2001 net income increased 12% to $267.9 while diluted earnings per
share increased 16% to $0.44.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operations increased 3% to $344.2 in the 2001 first quarter
compared with $333.6 in the 2000 first quarter. Net cash from operations in the
first quarter includes a non-operating tax payment related to the sale of the
Mexican Viva detergent brand in the fourth quarter of 2000. Excluding the effect
of this tax payment, net cash provided by operations increased 13% over the 2000
first quarter. At March 31, 2001, $388.0 of commercial paper was classified as
long-term debt in accordance with the Company's intent and ability to refinance
these obligations on a long-term basis.
Reference should be made to the Company's 2000 Annual Report on Form 10-K for
additional information regarding available sources of liquidity and capital.
12
COLGATE-PALMOLIVE COMPANY
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
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For information regarding legal matters refer to Item 3 on page 4
of the registrant's Annual Report on Form 10-K for the year ended
December 31, 2000 and Note 14 to the consolidated financial
statements included therein on page 36.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
Exhibit 12 Ratio of Earnings to Fixed Charges.
(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
13
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)
Principal Financial Officer:
May 14, 2001 /s/ Stephen C. Patrick
--------------------------------------
Stephen C. Patrick
Chief Financial Officer
Principal Accounting Officer:
May 14, 2001 /s/ Dennis J. Hickey
-------------------------------------
Dennis J. Hickey
Vice President and
Corporate Controller
14