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, 1998.
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
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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 __
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 295,701,719 July 31, 1998
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 Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 2,256.5 $ 2,300.9 $ 4,416.0 $ 4,448.0
Cost of sales 1,083.9 1,132.8 2,119.9 2,199.3
--------- --------- --------- ---------
Gross profit 1,172.6 1,168.1 2,296.1 2,248.7
--------- --------- --------- ---------
Selling, general and administrative
expenses 824.7 854.6 1,605.8 1,628.7
Interest expense 51.0 58.7 101.3 116.3
Interest income (6.9) (11.7) (14.0) (23.6)
--------- --------- --------- ---------
Income before income taxes 303.8 266.5 603.0 527.3
Provision for income taxes 100.3 90.7 203.5 181.9
--------- --------- --------- ---------
Net income $ 203.5 $ 175.8 $ 399.5 $ 345.4
========= ========= ========= =========
Earnings per common share:
Basic $ .67 $ .58 $ 1.32 $ 1.14
========= ========= ========= =========
Diluted $ .62 $ .54 $ 1.22 $ 1.06
========= ========= ========= =========
Dividends declared per common share* $ -- $ -- $ .55 $ .51
========= ========= ========= =========
* Includes two dividend declarations in the first quarter periods.
See Notes to Condensed Consolidated Financial Statements.
2
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in Millions)
(Unaudited)
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ASSETS
------
June 30, December 31,
1998 1997
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Current Assets:
Cash and cash equivalents $ 176.1 $ 183.1
Marketable securities 27.5 22.2
Receivables (net of allowances of
$36.9 and $35.8) 1,134.9 1,037.4
Inventories 716.4 728.4
Other current assets 253.0 225.4
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2,307.9 2,196.5
--------- ---------
Property, plant and equipment, at cost: 3,895.2 3,798.4
Less: Accumulated depreciation 1,441.7 1,357.4
--------- ---------
2,453.5 2,441.0
--------- ---------
Goodwill and other intangible assets
(net of accumulated amortization
of $516.5 and $475.0) 2,540.2 2,585.3
Other assets 319.3 315.9
--------- ---------
$ 7,620.9 $ 7,538.7
--------- ---------
--------- ---------
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
June 30, December 31,
1998 1997
-------- ------------
Current Liabilities:
Notes and loans payable $ 143.8 $ 158.4
Current portion of long-term debt 89.5 178.3
Accounts payable 693.4 716.9
Accrued income taxes 133.8 67.0
Other accruals 810.6 838.9
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1,871.1 1,959.5
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Long-term debt 2,490.0 2,340.3
Deferred income taxes 280.0 284.5
Other liabilities 762.9 775.8
Shareholders' equity:
Preferred stock 379.5 385.3
Common stock 366.4 366.4
Additional paid-in capital 1,088.8 1,027.4
Retained earnings 3,362.9 3,138.0
Cumulative foreign currency
translation adjustments (712.2) (693.7)
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4,485.4 4,223.4
Unearned compensation (360.1) (364.5)
Treasury stock, at cost (1,908.4) (1,680.3)
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2,216.9 2,178.6
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$ 7,620.9 $ 7,538.7
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---------- ----------
See Notes to Condensed Consolidated Financial Statements.
4
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
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AND
---
CUMULATIVE TRANSLATION ADJUSTMENT
---------------------------------
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
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Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
--------------------------------------- -------------------------------------
Cumulative Cumulative
Retained Translation Retained Translation
Earnings Adjustment Total Earnings Adjustment Total
Beginning balance, April 1 $ 3,168.8 $ (689.8) $ 2,479.0 $ 2,749.6 $ (550.9) $ 2,198.7
Net income 203.5 203.5 175.8 175.8
Effect of balance sheet translation (22.4) (22.4) (4.2) (4.2)
--------- ----------
Total comprehensive income 181.1 171.6
Dividends (9.4) (9.4) (9.5) (9.5)
------------- ------------ --------- ---------- ------------ ----------
Ending balance, June 30 $ 3,362.9 $ (712.2) $ 2,650.7 $ 2,915.9 $ (555.1) $ 2,360.8
------------- ----------- --------- --------- ----------- ---------
------------- ----------- --------- --------- ----------- ---------
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
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Cumulative Cumulative
Retained Translation Retained Translation
Earnings Adjustment Total Earnings Adjustment Total
Beginning balance, January 1 $ 3,138.0 (693.7) $ 2,444.3 $ 2,731.0 $ (534.7) $ 2,196.3
Net income 399.5 399.5 345.4 345.4
Effect of balance sheet translation (18.5) (18.5) (20.4) (20.4)
---------- ---------
Total comprehensive income 381.0 325.0
Dividends (174.6) (174.6) (160.5) (160.5)
----------- ---------- ---------- ---------- ----------- ---------
Ending balance, June 30 $ 3,362.9 (712.2) $ 2,650.7 $ 2,915.9 $ (555.1) $ 2,360.8
----------- ------ --------- --------- ---------- ---------
----------- ------ --------- --------- ---------- ---------
See Notes to Condensed Consolidated Financial Statements.
5
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in Millions)
(Unaudited)
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Six Months Ended
June 30,
---------------------------
1998 1997
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Operating Activities:
- ----------------------
Net cash provided by operating activities $ 480.9 $ 426.8
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Investing Activities:
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Capital expenditures (157.5) (197.6)
Payments for acquisitions, net of cash
acquired (.7) (16.9)
Sale of non-core product lines 5.0 20.6
Purchases/Proceeds from sale of marketable
securities and other investments, net (6.4) 44.2
Other, net (8.9) (12.9)
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Net cash used for investing activities (168.5) (162.6)
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Financing Activities:
- ---------------------
Principal payments on debt (315.3) (249.3)
Proceeds from issuance of debt, net 346.5 159.6
Dividends paid (174.6) (160.5)
Purchase of common stock (173.7) (49.5)
Other, net (2.1) 24.8
----------- ------------
Net cash used for financing activities (319.2) (274.9)
----------- ------------
Effect of exchange rate changes on
cash and cash equivalents (.2) (3.2)
----------- ------------
Net decrease in cash and cash equivalents (7.0) (13.9)
Cash and cash equivalents at beginning of
period 183.1 248.2
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Cash and cash equivalents at end of
period $ 176.1 $ 234.3
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---------- ------------
See Notes to Condensed Consolidated Financial Statements.
6
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 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,
1998 1997
------------ ------------
Raw material and supplies $ 260.6 $ 261.0
Work-in-process 34.8 33.5
Finished goods 421.0 433.9
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$ 716.4 $ 728.4
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------------ ------------
4. Earnings Per Share:
For the Three Months Ended
--------------------------
June 30, 1998 June 30, 1997
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Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Net income $203.5 $175.8
Preferred dividends (5.2) (5.2)
------ ------
------ ------
Basic EPS 198.3 296.0 $.67 170.6 295.3 $.58
---- ----
---- ----
Stock options 7.2 6.7
ESOP conversion 4.6 22.6 4.6 23.1
------ ----- ---- ------ ----- ----
Diluted EPS $202.9 325.8 $.62 $175.2 325.1 $.54
------ ----- ---- ------ ----- ----
------ ----- ---- ------ ----- ----
7
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
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For the Six Months Ended
------------------------
June 30, 1998 June 30, 1997
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Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Net income $399.5 $345.4
Preferred dividends (10.5) (10.6)
------ ------
------ ------
BASIC EPS 389.0 295.8 $1.32 334.8 294.9 $1.14
---- -----
---- -----
Stock options 7.3 6.5
ESOP conversion 9.2 22.6 9.2 23.1
------ ----- ---- ------ ----- -----
DILUTED EPS $398.2 325.7 $1.22 $344.0 324.5 $1.06
------ ----- ----- ------ ----- -----
------ ----- ----- ------ ----- -----
5. In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement 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 statement requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Statement
133 is effective, prospectively, for fiscal years beginning after June
15, 1999.
The Company is currently evaluating the effect of adopting
Statement 133 on the Company's financial statements.
6. Reference is made to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year 1997 for a
complete set of financial notes including the Company's significant
accounting policies.
8
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
Worldwide sales reached $2,256.5 in the second quarter of 1998, a 2% decrease
over the 1997 second quarter, reflecting a decline in foreign currencies
offset by unit volume gains of 3%. Sales would have risen 5%, excluding the
negative effect of foreign exchange.
Sales in the Oral, Personal and Household Care segment were $2,013.4 down 2%
from 1997 on volume growth of 3%.
Colgate-Latin America sales increased 2% to $609.2 on volume gains of 7%.
Mexico, Brazil, Colombia, Peru, Ecuador, and Central America led the region
with strong volume gains. Successful products, such as Colgate Double Cool
Stripe toothpaste, Colgate Sensation whitening toothpaste, Caprice Naturals
and Botanicals hair care products, and consumption-building programs are
strengthening the region's market shares.
Colgate-North America sales reached $523.6 in the second quarter of 1998.
Sales excluding divested businesses, grew 9% on volume gains of 8%.
Contributing to strong growth were increased advertising and the introduction
of new products, such as Softsoap antibacterial hand gel, Speed Stick
Ultimate odor-fighting antiperspirant, Lady Speed Stick gel, and the
continued success of Colgate Total toothpaste, introduced at 1997 year-end.
Colgate-Europe second quarter sales decreased 3% to $503.4. Sales declined due
to lower European currencies. Italy, Greece, Belgium and Poland contributed to
Europe's volume gains of 1%, while Russian volume decreased as a result of weak
economic conditions.
Colgate-Asia/Africa second quarter sales decreased 14% to $377.2, reflecting
devalued local currencies and widespread economic contraction in this
region. Unit volume decreased 3%, partially offset by healthy volume growth
in China, Taiwan, Turkiye, and Australia.
Hill's Pet Nutrition segment experienced a 2% increase in sales on unit volume
gains of 3%. Hill's-International benefited from new products, increased
advertising in Japan and expanded selling activities in key European markets and
the South Pacific. Hill's has experienced new product momentum particularly with
Science Diet Feline Maintenance Savory Recipes, Science Diet Feline Maintenance
Savory Cuts, and new Prescription Diet formulas through increased consumer
awareness.
Sales in the Oral, Personal and Household Care segment for the six months ended
June 30, 1998 were $3,942.0, down 1% from the comparable period in 1997 on
volume growth of 5%. Within this segment, Colgate-Latin America sales increased
5% on volume growth of 8%, Colgate-North America sales excluding divested
businesses increased 7% on volume growth of 6%. Colgate-Europe sales decreased
2% on volume growth of 4% and Colgate-Asia/Africa sales declined 12% as unit
volume was level.
9
COLGATE-PALMOLIVE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Dollars in Millions Except Per Share Amounts)
- --------------------------------------------------------------------------------
Worldwide gross profit margin for the second quarter of 1998 increased to 52.0%
from 50.8%. The Company continues to benefit from product mix, streamlining
manufacturing costs, global sourcing and other cost reduction programs.
Selling, general and administrative (SG&A) expenses decreased as a percentage
of sales to 36.5% in the second quarter of 1998 from 37.1% in 1997, and to
36.4% in the first half of 1998 from 36.6% in the first half of 1997. The
SG&A decrease is the net result of cost reductions, increased other income,
offset by increased advertising investment.
Earnings before interest and taxes (EBIT) increased 11% to $347.9 in the 1998
second quarter, and reached a level of 15.4% of sales versus 13.6% in second
quarter 1997. For the first half of 1998 EBIT increased 11.3% to $690.3, a level
of 15.6% of sales as compared to 12.7% in 1997.
Interest expense, net of interest income, decreased to $44.1 in the 1998 second
quarter as compared with $47.0 in 1997, and to $87.4 in the first half of 1998
compared with $92.7 in 1997 primarily as a result of strong operating cash flows
which helped to lower debt levels.
The effective tax rate for the second quarter 1998 was 33.0% versus 34.0% for
the second quarter 1997. The effective rate for the first half of 1998 was 33.7%
versus 34.5% for the same period in 1997. The rate in 1998 reflects continued
benefits from the Company's tax planning strategies.
Net income for the second quarter 1998 increased 15.8% to $203.5 or $.67 per
share compared with $175.8 or $.58 per share in the prior year. For the first
half of 1998, net income increased 15.7% to $399.5 or $1.32 per share compared
with $345.4 or $1.14 per share in the prior year.
Liquidity and Capital Resources
Net cash provided by operations increased 13% to $480.9 in the 1998 first half
compared with $426.8 in the 1997 first half. The improvement was generated by
the increase in operating profit and working capital management. At June 30,
1998, commercial paper outstanding was $854.7, which was classified as long-term
debt due to the Company's intent and ability to refinance these obligations on a
long-term basis. The ratio of net debt to total capitalization (defined as the
ratio of the book values of debt less cash and marketable securities ["net
debt"] to net debt plus equity) was unchanged from December 31, 1997, at 53%.
Reference should be made to the 1997 Annual Report on Form 10-K for additional
information regarding liquidity and capital resources.
10
COLGATE-PALMOLIVE COMPANY
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
For information regarding legal matters refer to Note 17 to the
consolidated financial statements on page 35 of the registrant's
Annual Report on Form 10-K for the year ended December 31, 1997.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on May 7, 1998.
The matters voted on and the results of the vote were as follows:
(a) 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 were as follows:
Votes Received Votes Withheld
-------------- --------------
Jill K. Conway 272,109,670 1,380,337
Ronald E. Ferguson 272,338,360 1,151,647
Ellen M. Hancock 272,315,691 1,174,316
David W. Johnson 272,313,515 1,176,492
John P. Kendall 272,029,301 1,460,706
Richard J. Kogan 272,328,580 1,161,427
Delano E. Lewis 272,278,147 1,211,860
Reuben Mark 272,192,903 1,297,104
Howard B. Wentz, Jr. 272,068,956 1,421,051
(b) The selection of Arthur Andersen LLP as auditors for the year
ending December 31, 1998 was approved. The results of the vote
were as follows:
Votes For Votes Against Abstentions
--------- ------------- -----------
271,007,273 1,646,685 836,049
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10-E(a) Colgate-Palmolive Company Executive
Severance Plan, as amended.
Exhibit 12 Ratio of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
11
(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
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)
Principal Financial Officer:
August 12, 1998 /s/ Stephen C. Patrick
----------------------------
Stephen C. Patrick
Chief Financial Officer
Principal Accounting Officer:
August 12, 1998 /s/ Dennis J. Hickey
-----------------------------
Dennis J. Hickey
Vice President and
Corporate Controller
13