Colgate-Palmolive Company is an American company specializing in the manufacturing and marketing of cleaning and hygiene products such as detergents, soaps, toothpaste and toothbrushes. The brand is enjoying a strong reputation in many countries.
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, 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 ----- 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 issuer's classes of common stock, as of the latest practical date: Class Shares Outstanding Date - ----------------------- -------------------------- ------------- Common, $1.00 par value 554,988,615 July 31, 2001
PART I. FINANCIAL INFORMATION - ------- --------------------- COLGATE-PALMOLIVE COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (Dollars in Millions Except Per Share Amounts) (Unaudited) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net sales $2,329.6 $2,336.7 $4,622.2 $4,578.5 Cost of sales 1,051.0 1,065.8 2,083.8 2,086.4 -------- -------- -------- -------- Gross profit 1,278.6 1,270.9 2,538.4 2,492.1 Selling, general and administrative expenses 809.0 832.8 1,627.3 1,649.5 Interest expense 45.9 51.2 93.3 100.3 Interest income (3.0) (7.0) (6.8) (15.0) -------- -------- -------- -------- Income before income taxes 426.7 393.9 824.6 757.3 Provision for income taxes 139.5 132.0 269.5 255.5 -------- -------- -------- -------- Net income $ 287.2 $ 261.9 $ 555.1 $ 501.8 ======== ======== ======== ======== Earnings per common share: Basic $ .50 $ .45 $ .97 $ .85 ======== ======== ======== ======== Diluted $ .47 $ .42 $ .91 $ .80 ======== ======== ======== ======== Dividends declared per common share* $ - $ - $ .32 $ .32 ======== ======== ======== ======== </TABLE> * 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) - -------------------------------------------------------------------------------- ASSETS ------ <TABLE> <CAPTION> June 30, December 31, 2001 2000 ---- ---- <S> <C> <C> Current assets: Cash and cash equivalents $ 251.1 $ 206.6 Marketable securities 3.9 5.9 Receivables (less allowances of $42.1 and $39.8) 1,174.3 1,195.4 Inventories 711.2 686.6 Other current assets 251.0 252.7 -------- -------- 2,391.5 2,347.2 Property, plant and equipment: Cost 4,237.1 4,287.3 Less: Accumulated depreciation 1,781.3 1,759.0 -------- -------- 2,455.8 2,528.3 Goodwill and other intangible assets (net of accumulated amortization of $685.4 and $651.0) 1,984.0 2,096.4 Other assets 313.9 280.4 -------- -------- $7,145.2 $7,252.3 ======== ======== </TABLE> See Notes to Condensed Consolidated Financial Statements. 3
COLGATE-PALMOLIVE COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (Dollars in Millions) (Unaudited) - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ <TABLE> <CAPTION> June 30, December 31, 2001 2000 ---- ---- <S> <C> <C> Current liabilities: Notes and loans payable $ 89.3 $ 121.1 Current portion of long-term debt 351.1 320.2 Accounts payable 699.0 738.9 Accrued income taxes 191.4 163.7 Other accruals 749.8 900.2 --------- --------- 2,080.6 2,244.1 Long-term debt 2,958.2 2,536.9 Deferred income taxes 400.9 447.3 Other liabilities 630.4 555.9 Shareholders' equity: Preferred stock 346.9 354.1 Common stock 732.9 732.9 Additional paid-in capital 1,114.7 1,144.9 Retained earnings 5,261.7 4,893.7 Accumulated other comprehensive income (1,344.0) (1,269.7) --------- --------- 6,112.2 5,855.9 Unearned compensation (343.8) (344.4) Treasury stock, at cost (4,693.3) (4,043.4) --------- --------- 1,075.1 1,468.1 --------- --------- $ 7,145.2 $ 7,252.3 ========= ========= </TABLE> See Notes to Condensed Consolidated Financial Statements. 4
COLGATE-PALMOLIVE COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Dollars in Millions) (Unaudited) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Six Months Ended ---------------- June 30, -------- 2001 2000 ------- ------- <S> <C> <C> Operating Activities: - --------------------- Net income $ 555.1 $ 501.8 Adjustments to reconcile net income to net cash provided by operations: Restructured operations (1.6) (6.2) Depreciation and amortization 167.2 168.7 Income taxes and other, net 73.5 76.0 Cash effects of changes in: Receivables 0.8 (78.3) Inventories (48.6) 10.4 Payables and accruals (124.5) (15.2) ------- ------- Net cash provided by operating activities 621.9 657.2 Investing Activities: - --------------------- Capital expenditures (122.3) (157.2) Payments for acquisitions, net of cash acquired (10.2) (30.0) Sale of marketable securities 0.9 19.1 Proceeds from sale of long-term investments 4.2 103.5 Other (40.3) (37.4) ------- ------- Net cash used for investing activities (167.7) (102.0) Financing Activities: - --------------------- Principal payments on debt (190.9) (333.1) Proceeds from issuance of debt 660.3 456.0 Dividends paid (187.1) (191.9) Purchase of common stock (706.0) (465.4) Other 17.4 6.4 ------- ------- Net cash used for financing activities (406.3) (528.0) Effect of exchange rate changes on cash and cash equivalents (3.4) (2.6) ------- ------- Net increase in cash and cash equivalents 44.5 24.6 Cash and cash equivalents at beginning of period 206.6 199.6 ------- ------- Cash and cash equivalents at end of period $ 251.1 $ 224.2 ======= ======= </TABLE> 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) - -------------------------------------------------------------------------------- 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, 2001 2000 ---- ---- Raw materials and supplies $198.9 $206.2 Work-in-process 32.0 30.7 Finished goods 480.3 449.7 ------ ------ $711.2 $686.6 ====== ====== 4. Earnings Per Share: <TABLE> <CAPTION> Three Months Ended June 30, 2001 Three Months Ended June 30, 2000 -------------------------------- -------------------------------- Per Per Income Shares Share Income Shares Share ------ ------ ----- ------ ------ ----- <S> <C> <C> <C> <C> <C> <C> Net income $287.2 $261.9 Preferred dividends (5.0) (5.1) ------ ------ Basic EPS 282.2 560.6 $.50 256.8 576.3 $.45 ==== ==== Stock options 8.9 10.3 ESOP conversion 4.9 41.2 5.0 42.7 ------ ----- ------ ----- Diluted EPS $287.1 610.7 $.47 $261.8 629.3 $.42 ====== ===== ==== ====== ===== ==== </TABLE> 6
COLGATE-PALMOLIVE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (Dollars and Shares in Millions Except Per Share Amounts) (Unaudited) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Six Months Ended June 30, 2001 Six Months Ended June 30, 2000 ------------------------------ ------------------------------ Per Per Income Shares Share Income Shares Share ------ ------ ----- ------ ------ ----- <S> <C> <C> <C> <C> <C> <C> Net income $555.1 $501.8 Preferred dividends (10.1) (10.4) ------ ------ Basic EPS 545.0 562.6 $.97 491.4 577.2 $.85 ==== ==== Stock options 9.1 10.6 ESOP conversion 9.9 41.4 10.1 43.0 ------ ----- ------ ----- Diluted EPS $554.9 613.1 $.91 $501.5 630.8 $.80 ====== ===== ==== ====== ===== ==== </TABLE> 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 June 30, 2001 and 2000 was $280.6 and $215.7, respectively. Total comprehensive income for the six months ended June 30, 2001 and 2000 was $480.8 and $448.2, respectively. The difference from net income primarily consists 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. 7
COLGATE-PALMOLIVE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (Dollars in Millions) (Unaudited) <TABLE> <CAPTION> - -------------------------------------------------------------------------------- 6. Segment information: Three months ended June 30, Six months ended June 30, 2001 2000 2001 2000 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net Sales North America $ 584.2 $ 567.4 $1,164.7 $1,115.3 Latin America 613.7 635.8 1,198.2 1,224.2 Europe 472.0 480.0 935.8 942.4 Asia/Africa 371.8 378.8 758.2 754.3 -------- -------- -------- -------- Total Oral, Personal and Household Care 2,041.7 2,062.0 4,056.9 4,036.2 Total Pet Nutrition 287.9 274.7 565.3 542.3 -------- -------- -------- -------- Net Sales $2,329.6 $2,336.7 $4,622.2 $4,578.5 ======== ======== ======== ======== Earnings North America $ 136.1 $ 127.3 $ 262.6 $ 241.6 Latin America 163.7 144.1 323.3 285.7 Europe 86.7 83.0 171.9 167.2 Asia/Africa 49.2 46.1 104.7 93.6 -------- -------- -------- -------- Total Oral, Personal and Household Care 435.7 400.5 862.5 788.1 Total Pet Nutrition 75.1 58.0 137.6 113.6 Corporate overhead and other (41.2) (20.4) (89.0) (59.1) -------- -------- -------- -------- Earnings before interest and taxes 469.6 438.1 911.1 842.6 Interest expense, net (42.9) (44.2) (86.5) (85.3) -------- -------- -------- -------- Income before income taxes $ 426.7 $ 393.9 $ 824.6 $ 757.3 ======== ======== ======== ======== </TABLE> 8
COLGATE-PALMOLIVE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (Dollars and Shares in Millions Except Per Share Amounts) (Unaudited) - -------------------------------------------------------------------------------- 7. New Accounting Pronouncements In April 2001, the Financial Accounting Standards Board's (FASB) 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. This consensus is expected to impact only revenue and expense classifications and not to 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 Annual Report on Form 10-K for the year ended December 31, 2000, 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. In July 2001, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." In addition to requiring the use of the purchase method for all business combinations, SFAS 141 requires intangible assets that meet certain criteria to be recognized as assets apart from goodwill. SFAS 142 addresses accounting and reporting standards for acquired goodwill and other intangible assets, and generally, requires that goodwill and indefinite life intangible assets no longer be amortized but be tested for impairment annually. Finite life intangible assets will continue to be amortized over their useful lives. The Company will adopt these statements effective January 1, 2002. The impact of these statements on the Company's consolidated financial statements is currently being evaluated. 8. Reference is made to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2000 for a complete set of financial notes including the Company's significant accounting policies. 9
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 $2,329.6 in the second quarter of 2001. Sales increased 1%, excluding divestments, as compared to the 2000 second quarter, reflecting unit volume gains of 5% offset by a decline in foreign currencies. Sales would have risen 5%, excluding the effect of foreign exchange. Second quarter sales in the Oral, Personal and Household Care segment, excluding divestments, remained level at $2,041.7 on volume growth of 5% offset by foreign currencies. Colgate-North America sales grew 3% in the second quarter of 2001 to $584.2 on volume gains of 4%. Sales were driven by the continuing growth of new products in all core categories. These new products included Colgate Total Plus Whitening toothpaste, Colgate 2in1 liquid toothpaste and mouthwash, Softsoap Fruit Essentials bodywash and liquid hand soap and the recently launched Lady Speed Stick Invisible Dry with Aloe deodorant. Increased market share was achieved in the Personal and Oral Care categories led by Softsoap Two in One hand soap, Speed Stick Ultimate AP deodorant and the continued success of the Actibrush toothbrush. Colgate-Latin America sales decreased 1% to $613.7 on volume gains of 4%, excluding divested businesses. Strong volume growth was seen in Mexico, Venezuela, Argentina and Central America. Colgate Fresh Confidence, Colgate Triple Action and Colgate Herbal toothpastes continued to increase market shares in toothpaste throughout the region. Contributing to growth in the Household Surface Care category were Ajax Antibacterial cleaner and Ajax Fiesta de Flores Antibacterial Apple, a new antibacterial cleaner. Colgate-Europe sales decreased 1% to $472.0 as volume gains of 6% were negatively impacted by the weakened Euro. Excluding the impact of foreign currency, sales would have also risen 6% largely due to volume increases in France, Germany, the United Kingdom and Italy. The Colgate Actibrush and the new Actibrush Bzzz for kids have strengthened Oral Care market share growth throughout the region. The performance of Palmolive Naturals translucent soap and Colgate Triple Action toothpaste and the recent launch of Lady Speed Stick Invisible Dry deodorant have driven volume growth across Central Europe and Russia. Colgate-Asia/Africa sales decreased 2% to $371.8 on volume gains of 7% offset by foreign currencies. Volume growth was driven by China, Malaysia, Thailand, New Zealand and South Africa. China continues to experience record market shares in Oral Care with the performance of recently introduced products such as Colgate Fresh Confidence and Colgate Herbal toothpastes and the Colgate Actibrush. Also contributing to volume growth in the region was the performance of Palmolive Naturals conditioner. Hill's Pet Nutrition sales increased 5% to $287.9 with unit volume gains of 5%. Domestic volume rose through strong veterinary endorsements, effective national selling programs and higher sales from new products such as Science Diet Sensitive Skin and Science Diet Sensitive Stomach special needs products. Hill's-International experienced volume growth across Europe, Japan and the South Pacific, driven by sales of new products coupled with the expansion of the Perfect Shop/Perfect Clinic merchandising programs. 10
COLGATE-PALMOLIVE COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- (Dollars in Millions Except Per Share Amounts) - -------------------------------------------------------------------------------- Sales in the Oral, Personal and Household Care segment for the six months ended June 30, 2001 were up 1% to $4,056.9 from the comparable period in 2000 as volume rose 6% partially offset by a decline in foreign currencies. Within this segment, Colgate-North America sales increased 4% on volume growth of 5%, Colgate-Latin America sales increased 1%, excluding divested businesses, on volume growth of 4%, Colgate-Europe sales decreased 1% while volume grew 7% and Colgate-Asia/Africa sales increased 1% on volume growth of 9%. Worldwide gross profit margin for the second quarter of 2001 increased to 54.9% from 54.4% for the comparable period in 2000. The Company continued to benefit from manufacturing cost reduction initiatives, global sourcing and other cost reduction programs. Selling, general and administrative expenses as a percentage of sales decreased to 34.7% in the second quarter of 2001 from 35.6% in 2000, and to 35.2% in the first half of 2001 from 36.0% for the comparable period in 2000, as a result of the continued focus on reducing overhead, efficiencies in advertising purchases and the impact of translation on local currency advertising costs. Additionally, some promotion spending (i.e. "360-degree advertising") has been shifted to programs that are reported as a reduction of sales. Earnings before interest and taxes (EBIT) increased 7% to $469.6 in the second quarter of 2001, and reached a level of 20.2% of sales versus 18.7% in second quarter of 2000. For the first half of 2001 EBIT increased 8% to $911.1, a level of 19.7% of sales as compared to 18.4% in 2000. Interest expense, net of interest income, decreased to $42.9 in the second quarter of 2001 as compared with $44.2 in 2000. For the first half of 2001 interest expense increased slightly to $86.5 compared with $85.3 in 2000, primarily due to higher average debt levels in the current year, partially offset by the effect of lower interest rates. The effective tax rate for the second quarter of 2001 was 32.7% versus 33.5% for the second quarter of 2000. The effective rate for the first half of 2001 was 32.7% versus 33.7% for the same period in 2000. The 32.7% rate reflects the Company's current estimate of its full year effective income tax rate that is slightly higher than the 2000 full year rate of 32.1%. Net income for the second quarter of 2001 increased 10% to $287.2 or $.47 per share on a diluted basis compared with $261.9 or $.42 per share in the prior year. For the first half of 2001, net income increased 11% to $555.1 or $.91 per share on a diluted basis compared with $501.8 or $.80 per share in the prior year. 11
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 - ------------------------------- Net cash provided by operations was $621.9 in the 2001 first half compared with $657.2 in the 2000 first half. Net cash from operations includes a non-recurring first quarter tax payment related to the sale of the Mexican Viva detergent brand that occurred in the fourth quarter of 2000. Excluding the effect of this tax payment, net cash provided by operations is equal to the record cash generation of the 2000 first half. At June 30, 2001, $795.9 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 liquidity and capital resources. 12
COLGATE-PALMOLIVE COMPANY PART II. OTHER INFORMATION - ------- ----------------- - -------------------------------------------------------------------------------- Item 1. Legal Proceedings - ------ ----------------- 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 pages 36-37. Item 4. Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- The Company's annual meeting of stockholders was held on May 10, 2001. 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, Richard J. Kogan, 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 506,157,981 5,163,806 Ronald E. Ferguson 506,383,122 4,938,665 Ellen M. Hancock 506,241,102 5,080,685 David W. Johnson 506,202,360 5,119,427 Richard J. Kogan 506,191,738 5,130,049 Reuben Mark 506,337,278 4,984,509 Howard B. Wentz, Jr. 505,954,277 5,367,510 (b) The ratification of the selection of Arthur Andersen LLP as auditors for the year ending December 31, 2001 was approved. The results of the vote were as follows: Votes For Votes Against Abstentions ----------- ------------- ----------- 502,552,673 6,262,224 2,506,890 (c) A stockholder proposal regarding SA 8000 Social Accountability Standards was not approved. The results of the vote were as follows: Votes For Votes Against Abstentions ----------- ------------- ----------- 45,334,377 351,445,162 44,344,767 13
COLGATE-PALMOLIVE COMPANY PART II. OTHER INFORMATION (continued) - ------- ----------------- - -------------------------------------------------------------------------------- Item 6. Exhibits and Reports on Form 8-K - ------ -------------------------------- (a) Exhibits: Exhibit 10-C(a) Colgate-Palmolive Company Executive Severance Plan, as amended and restated. 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 14
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 13, 2001 /s/ Stephen C. Patrick ---------------------------- Stephen C. Patrick Chief Financial Officer Principal Accounting Officer: August 13, 2001 /s/ Dennis J. Hickey ---------------------------- Dennis J. Hickey Vice President and Corporate Controller 15