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, 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 ----- 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 issuers classes of common stock, as of the latest practical date: <TABLE> <CAPTION> Class Shares Outstanding Date - ------------------------ ----------------------- ---------------- <S> <C> <C> Common, $1.00 par value 295,701,719 July 31, 1998 </TABLE> 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) <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, -------- -------- 1998 1997 1998 1997 ---- ---- ---- ---- <S> <C> <C> <C> <C> 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 ========= ========= ========= ========= </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) - -------------------------------------------------------------------------------- <TABLE> <CAPTION> ASSETS ------ June 30, December 31, 1998 1997 ----- ------ <S> <C> <C> 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 --------- --------- 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 --------- --------- --------- --------- </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, 1998 1997 -------- ------------ <S> <C> <C> 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 ---------- ---------- 1,871.1 1,959.5 ---------- ---------- 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) ---------- ---------- 4,485.4 4,223.4 Unearned compensation (360.1) (364.5) Treasury stock, at cost (1,908.4) (1,680.3) ---------- ---------- 2,216.9 2,178.6 ---------- ---------- $ 7,620.9 $ 7,538.7 ---------- ---------- ---------- ---------- </TABLE> See Notes to Condensed Consolidated Financial Statements. 4
COLGATE-PALMOLIVE COMPANY CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS ------------------------------------------------------ AND --- CUMULATIVE TRANSLATION ADJUSTMENT --------------------------------- (Dollars in Millions Except Per Share Amounts) (Unaudited) <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------------- Three Months Ended Three Months Ended June 30, 1998 June 30, 1997 --------------------------------------- ------------------------------------- Cumulative Cumulative Retained Translation Retained Translation Earnings Adjustment Total Earnings Adjustment Total <S> <C> <C> <C> <C> <C> <C> 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 ------------- ----------- --------- --------- ----------- --------- ------------- ----------- --------- --------- ----------- --------- </TABLE> <TABLE> <CAPTION> Six Months Ended Six Months Ended June 30, 1998 June 30, 1997 --------------------------------------- ------------------------------------------- Cumulative Cumulative Retained Translation Retained Translation Earnings Adjustment Total Earnings Adjustment Total <S> <C> <C> <C> <C> <C> <C> 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 ----------- ------ --------- --------- ---------- --------- ----------- ------ --------- --------- ---------- --------- </TABLE> See Notes to Condensed Consolidated Financial Statements. 5
COLGATE-PALMOLIVE COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Dollars in Millions) (Unaudited) <TABLE> <CAPTION> - ----------------------------------------------------------------------------------- Six Months Ended June 30, --------------------------- 1998 1997 ------ ------ <S> <C> <C> Operating Activities: - ---------------------- Net cash provided by operating activities $ 480.9 $ 426.8 ---------- ------------ Investing Activities: - --------------------- 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) ---------- ------------ Net cash used for investing activities (168.5) (162.6) ---------- ------------ 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 ---------- ------------ Cash and cash equivalents at end of period $ 176.1 $ 234.3 ---------- ------------ ---------- ------------ </TABLE> 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) - -------------------------------------------------------------------------------- 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: <TABLE> <CAPTION> June 30, December 31, 1998 1997 ------------ ------------ <S> <C> <C> Raw material and supplies $ 260.6 $ 261.0 Work-in-process 34.8 33.5 Finished goods 421.0 433.9 ------------ ------------ $ 716.4 $ 728.4 ------------ ------------ ------------ ------------ </TABLE> 4. Earnings Per Share: <TABLE> <CAPTION> For the Three Months Ended -------------------------- June 30, 1998 June 30, 1997 ------------- ------------- Per Per Income Shares Share Income Shares Share ------ ------ ----- ------ ------ ----- <S> <C> <C> <C> <C> <C> <C> 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 ------ ----- ---- ------ ----- ---- ------ ----- ---- ------ ----- ---- </TABLE> 7
COLGATE-PALMOLIVE COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (Dollars in Millions Except Per Share Amounts) (Unaudited) <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------- For the Six Months Ended ------------------------ June 30, 1998 June 30, 1997 ------------- ------------- Per Per Income Shares Share Income Shares Share ------ ------ ----- ------ ------ ----- <S> <C> <C> <C> <C> <C> <C> 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 ------ ----- ----- ------ ----- ----- ------ ----- ----- ------ ----- ----- </TABLE> 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 ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- (Dollars in Millions Except Per Share Amounts) - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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: <TABLE> <CAPTION> Votes Received Votes Withheld -------------- -------------- <S> <C> <C> 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 </TABLE> (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: <TABLE> <CAPTION> Votes For Votes Against Abstentions --------- ------------- ----------- <S> <C> <C> 271,007,273 1,646,685 836,049 </TABLE> 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