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, 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 1-644-2
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 ---------
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 144,934,022 April 30, 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)
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Three Months Ended
March 31,
1995 1994
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Net sales $1,980.3 $1,770.0
Cost of sales 1,010.5 907.9
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Gross profit 969.8 862.1
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Selling, general and administrative
expenses 685.2 611.3
Interest expense (net of interest income
of $9.1 and $6.4, respectively) 43.8 20.6
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729.0 631.9
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Income before income taxes 240.8 230.2
Provision for income taxes 84.3 80.6
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Net income $ 156.5 $ 149.6
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Earnings per common share:
Primary:
Net income per share $ 1.05 $ .98
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Assuming full dilution:
Net income per share $ .97 $ .91
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Dividends declared per common share*: $ .82 $ .72
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* Includes two dividend declarations in both periods.
See Notes to Condensed Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
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ASSETS
March 31, December 31,
1995 1994
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Current Assets:
Cash and cash equivalents $ 171.5 $ 169.9
Marketable securities 82.1 47.6
Receivables (net of allowances of $32.4
and $23.1) 1,168.5 1,049.6
Inventories 821.2 713.9
Other current assets 241.7 196.7
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2,485.0 2,177.7
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Property, Plant and Equipment:
Cost 3,372.7 3,103.4
Less: Accumulated depreciation 1,204.2 1,115.3
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2,168.5 1,988.1
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Goodwill and other intangible
assets (net of accumulated amortization
of $228.3 and $207.6) 2,677.5 1,671.8
Other assets 376.5 304.8
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$7,707.5 $6,142.4
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See Notes to Condensed Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
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LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1995 1994
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Current Liabilities:
Notes and loans payable $ 184.9 $ 181.9
Current portion of long-term debt 39.0 26.0
Accounts payable 720.4 694.9
Accrued income taxes 141.5 85.1
Other accruals 631.7 541.3
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1,717.5 1,529.2
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Long-term debt 3,026.0 1,751.5
Deferred income taxes 294.6 295.4
Other liabilities 785.5 743.4
Shareholders' Equity:
Preferred stock 406.8 408.4
Common stock 183.2 183.2
Additional paid-in capital 1,020.2 1,020.4
Retained earnings 2,534.1 2,496.7
Cumulative foreign currency
translation adjustments (426.7) (439.3)
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3,717.6 3,669.4
Unearned compensation (381.6) (384.1)
Treasury stock, at cost (1,452.1) (1,462.4)
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1,883.9 1,822.9
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$ 7,707.5 $ 6,142.4
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See Notes to Condensed Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
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Three Months Ended
March 31,
1995 1994
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Operating Activities:
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Net cash provided by operating activities $ 138.1 $ 148.1
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Investing Activities:
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Capital expenditures (82.6) (67.0)
Payments for acquisitions, net of cash
acquired (1,216.7) (18.8)
Purchase of marketable securities, net (34.5) (19.3)
Other, net (9.6) (50.6)
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Net cash used for investing activities (1,343.4) (155.7)
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Financing Activities:
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Principal payments on debt (7.4) (8.1)
Proceeds from issuance of debt, net 1,274.9 260.7
Dividends paid (59.7) (53.6)
Purchase of common stock (9.0) (185.6)
Other, net 7.8 (1.3)
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Net cash provided by financing activities 1,206.6 12.1
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Effect of exchange rate changes on
cash and cash equivalents 0.3 (0.7)
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Net increase in cash and cash equivalents 1.6 3.8
Cash and cash equivalents at beginning of
period 169.9 144.1
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Cash and cash equivalents at end of period $ 171.5 $ 147.9
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See Notes to Condensed Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars 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, 1995 and 1994 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,
1995 1994
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Raw materials and supplies $324.2 $280.3
Work-in-process 46.2 38.4
Finished goods 450.8 395.2
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$821.2 $713.9
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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 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.
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
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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. The pro forma
combined results of operations for the three months ended March 31, 1995
are not materially different from the actual results of operations as
disclosed in the condensed consolidated statement of income.
Summarized Pro Forma Combined Results of Operations
For the Three Months Ended
March 31, 1994
--------------
Net Sales $1,831.3
Income before income taxes 215.2
Net Income 139.7
Primary earnings per share .91
Fully diluted earnings per share .85
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 periods presented 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.
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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Results of Operations
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Worldwide sales reached $1,980.3 in the first quarter of 1995, a 12% increase
over the 1994 first quarter, reflecting overall unit volume gains of 8%
including the January 1995 acquisition of the Kolynos worldwide oral care
business. Sales and unit volume would have increased 10% and 6%, respectively,
if Kolynos and non-core 1994 divestitures are excluded.
Sales in the Oral, Personal and Household Care segment were $1,819.8 up 15% from
$1,579.4 in 1994 on volume growth of 12% including acquisitions. Sales increases
across all geographic regions contributed to the growth.
Colgate-Asia/Africa sales increased 19% to $388.7 on volume gains of 13%.
Contributing to this region's growth were excellent results in Malaysia, China,
Australia, India, Senegal and South Africa.
Colgate-Europe sales increased 15% to $514.4 from $447.7 on volume gains of 2%
as well as benefits from stronger European currencies. The United Kingdom,
Greece, France, Germany and Spain achieved positive volume gains while Italy and
Portugal were affected by economic softness. Volume was strong in Central
Europe, particularly in Poland and Russia.
Colgate-Latin America sales grew 22% to $494.5 on volume gains of 30%. Excluding
the Kolynos acquisition sales increased 5% on 12% unit volume gains. Brazil,
Venezuela and Argentina achieved healthy increases in sales and volume. In
Mexico, unit volume growth and price increases partially offset the impact of
the peso devaluation on dollar results.
Colgate-North America sales grew 6% to $422.2 on volume gains of 3%. New product
introductions contributed to the best sales performance of the past eight
quarters.
Sales in the Specialty Marketing segment declined 16% to $160.6 as a result of
the second quarter 1994 sale of Princess House and VCA, two non-core businesses.
Hill's Pet Nutrition experienced a 2% increase in sales as price increases
offset a decrease in volume of 5%. The volume decline reflected the impact of
Hill's program to take control of its own domestic distribution and resulting
reduction of independent distributor inventory.
Gross profit margin improved to 49.0% from 48.7% in the first quarter of 1994.
The improvement in gross profit reflects the Company's continuing strategy to
shift product mix to higher margin oral and personal care product categories,
reduce overhead and improve manufacturing efficiency. This increased
profitability enabled the Company to reinvest in its existing businesses in the
form of higher research and development and advertising during the 1995 first
quarter as compared with the prior year.
Selling, general and administrative expenses in the 1995 first quarter
approximated prior year first quarter results at 34.6% of sales. In absolute
dollar terms, the higher levels of selling, general and administrative expenses
reflected the increase in total advertising spending and additional goodwill
amortization resulting from the January 1995 acquisition of Kolynos. Earnings
before interest and taxes (EBIT) increased 13.5% to $284.6. EBIT as a percentage
of sales increased to 14.4% from 14.2% in 1994.
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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Interest expense, net of interest income, was $43.8 in the 1995 first quarter as
compared with $20.6 in 1994. This increase is primarily due to increased levels
of debt incurred in connection with the January 1995 acquisition of Kolynos.
The effective tax rate was 35.0% in 1995 and in 1994. The 35.0% rate reflects
the Company's current estimate of its full year effective income tax rate which
is slightly higher than the 1994 full year rate of 34.1%.
First quarter 1995 net income was $156.5 or $1.05 per share compared with $149.6
or $0.98 per share in the prior year. Net income increased 5% and earnings per
share rose 7% on 2% fewer shares outstanding.
Liquidity and Capital Resources
- - - -------------------------------
Net cash provided by operations decreased to $138.1 in the 1995 first quarter
compared with $148.1 in the prior year due mainly to higher working capital
investments. At March 31, 1995, commercial paper outstanding was $1,894.7, which
is classified as long-term due to the Company's intent and ability to refinance
these obligations on a long-term basis. Additionally, as a result of the
increase in debt to finance the Kolynos acquisition, in the 1995 first quarter
both Moody's and Standard and Poor's debt rating agencies reviewed and
reaffirmed the Company's debt ratings.
Reference should be made to the 1994 Annual Report on Form 10-K for additional
information regarding available sources of liquidity and capital.
COLGATE-PALMOLIVE COMPANY
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.O. U.S. $900,000,000 Five Year Credit Agreement
dated as of March 24, 1995.
Exhibit 10.P. U.S. $1,000,000,000 - 364 Day Credit Agreement
dated as of March 24, 1995.
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 January 10, 1995 was filed by the Company
reporting the acquisition of the worldwide "Kolynos" oral care
business from American Home Products Corporation, for U.S. $1.04
billion in cash.
A report on Form 8-K/A (Amendment No.1) dated March 23, 1995 was
filed by the Company amending the Company's Report on Form 8-K dated
January 10, 1995 to include the Pro Forma Combined Statement of
Income combining the consolidated statement of income of the Company
for its year ended December 31, 1994 with that of Kolynos for its
fiscal year ended November 30, 1994, as well as the Pro Forma
Combined Balance Sheet at December 31, 1994, which combines the
consolidated balance sheet of Colgate-Palmolive Company at December
31, 1994 with that of Kolynos at November 30, 1994.
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
-------------------------
(Registrant)
Principal Accounting Officer:
May 10, 1995 /s/ Stephen C. Patrick
----------------------------------
Stephen C. Patrick
Vice President
Corporate Controller