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 September 30, 1997.
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 issuer's classes of
common stock, as of the latest practical date:
Class Shares Outstanding Date
- ------------------------ ------------------------ ----------------
Common, $1.00 par value 295,806,450 October 31, 1997
PART I. FINANCIAL INFORMATION
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
Net sales........................................................... $2,297.2 $2,230.6 $6,745.2 $6,451.6
Cost of sales....................................................... 1,130.5 1,135.8 3,329.8 3,292.5
-------- -------- ------- -------
Gross profit........................................................ 1,166.7 1,094.8 3,415.4 3,159.1
-------- -------- ------- -------
Selling, general and administrative
expenses.......................................................... 832.6 799.1 2,461.3 2,313.4
Interest expense.................................................... 59.9 59.8 176.2 174.5
Interest income..................................................... (13.3) (9.4) (36.9) (23.9)
-------- -------- ------- -------
879.2 849.5 2,600.6 2,464.0
-------- -------- ------- -------
Income before income taxes.......................................... 287.5 245.3 814.8 695.1
Income tax provision................................................ 98.9 84.4 280.8 241.8
-------- -------- -------- --------
Net income.......................................................... $ 188.6 $ 160.9 $ 534.0 $ 453.3
-------- -------- ------- -------
-------- -------- ------- -------
Earnings per common share:
Primary.......................................................... $ .62 $ .53 $ 1.76 $ 1.49
-------- -------- ------- -------
-------- -------- ------- -------
Assuming full dilution............................................ $ .58 $ .50 $ 1.63 $ 1.40
-------- -------- ------- -------
-------- -------- ------- -------
Dividends declared per common share:.............................. $ .28 $ .24 $ .79 $ .71
-------- -------- ------- -------
-------- -------- ------- -------
See Notes to Condensed Consolidated Financial Statements.
2
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
ASSETS
September 30, December 31,
1997 1996
------------ -------------
Current Assets:
Cash and cash equivalents............. $ 227.4 $ 248.2
Marketable securities................. 33.6 59.6
Receivables (less allowance for doubtful
accounts of $38.9 and $33.8)....... 1,075.2 1,064.4
Inventories........................... 807.0 770.7
Other current assets.................. 232.4 229.4
---------- ---------
2,375.6 2,372.3
---------- ---------
Property, Plant and Equipment:
Cost.................................. 3,799.6 3,830.8
Less: Accumulated depreciation....... 1,375.8 1,401.9
---------- ---------
2,423.8 2,428.9
---------- ---------
Goodwill and other intangible assets
(less accumulated amortization
of $453.4 and $387.0)................. 2,620.4 2,720.4
Other assets.......................... 361.3 379.9
---------- ---------
$7,781.1 $7,901.5
---------- ---------
---------- ---------
See Notes to Condensed Consolidated Financial Statements.
3
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
1997 1996
------------- --------------
Current Liabilities:
Notes and loans payable............. $ 285.7 $ 172.3
Current portion of long-term debt... 115.3 110.4
Accounts payable.................... 717.9 751.7
Accrued income taxes................ 153.6 93.1
Other accruals...................... 795.0 776.8
---------- ---------
2,067.5 1,904.3
---------- ---------
Long-term debt........................ 2,466.7 2,786.8
Deferred income taxes................. 233.3 234.3
Other liabilities..................... 857.6 942.0
Shareholders' Equity:
Preferred Stock..................... 386.5 392.7
Common Stock........................ 366.4 366.4
Additional paid-in capital.......... 963.0 918.4
Retained earnings................... 3,022.8 2,731.0
Cumulative foreign currency
translation adjustments............ (618.2) (534.7)
---------- ---------
4,120.5 3,873.8
Unearned compensation............... (366.1) (370.9)
Treasury stock, at cost............. (1,598.4) (1,468.8)
---------- ---------
2,156.0 2,034.1
---------- ---------
$7,781.1 $7,901.5
---------- ---------
---------- ---------
See Notes to Condensed Consolidated Financial Statements.
4
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30,
------------------
1997 1996
-------- --------
Operating Activities:
Net cash provided by operating activities............. $ 760.7 $ 580.7
-------- -------
Investing Activities:
Capital expenditures.................................. (320.3) (320.1)
Payments for acquisitions, net of cash acquired....... (31.0) (42.9)
Proceeds from sale of businesses and other assets..... 61.1 34.6
Sale/(Purchase)of marketable securities, net.......... 26.0 (46.9)
Other, net............................................ 3.9 (7.0)
-------- -------
Net cash used for investing activities (260.3) (382.3)
-------- -------
Financing Activities:
Principal payments on debt............................ (300.7) (7.4)
Proceeds from issuance of debt, net................... 117.3 38.6
Purchase of common stock.............................. (108.3) (17.2)
Dividends paid........................................ (242.3) (217.3)
Other, net............................................ 16.0 22.4
-------- -------
Net cash used for financing activities.............. (518.0) (180.9)
-------- -------
Effect of exchange rate changes on cash and cash
equivalents......................................... (3.2) (3.6)
-------- -------
Net (decrease)/increase in cash and cash equivalents.. (20.8) 13.9
Cash and cash equivalents at beginning of period...... 248.2 208.8
-------- -------
Cash and cash equivalents at end of period............ $227.4 $222.7
-------- -------
-------- -------
See Notes to Condensed Consolidated Financial Statements.
5
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:
September 30, December 31,
1997 1996
----------- ------------
Raw material and supplies.... $ 297.2 $ 311.5
Work-in-process.............. 31.0 34.3
Finished goods............... 478.8 424.9
--------- ---------
$ 807.0 $ 770.7
--------- ---------
--------- ---------
4. On March 6, 1997, the Company's Board of Directors approved a two-for-one
common stock split effected in the form of a 100% stock dividend. As a
result of the split, shareholders received one additional share of common
stock for each share they held as of April 25, 1997, which was distributed
May 15, 1997. Par value remained at $1 per share. Accordingly, all share
and per share amounts contained in the Condensed Consolidated Financial
Statements and Exhibits have been restated to give effect to the stock
split.
5. 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 Employee Stock Ownership Plan replacement funding, net
of income taxes.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share", ("SFAS No.
128") which simplified the computation of earnings per share. Under SFAS
No. 128, basic and diluted earnings per share will replace primary and
fully diluted earnings per share, respectively. The Company will adopt the
provisions of SFAS No. 128 effective December 31, 1997, and restate all
6
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
prior periods. The effect of adoption will not have any affect on the
Company's financial condition, results of operations or cash flows.
Earnings per share (basic and diluted) as determined by SFAS No. 128
would not be materially different than earnings per share (primary and
assuming full dilution) as included herein for all periods presented.
6. The Company acquired the worldwide Kolynos oral care business in January
1995. As described in the Company's Form 8-K filed on March 21, 1997, and
set forth under the caption "Outlook" in Part II, Item 7 and in Note 16 to
the Company's consolidated financial statements included in its 1996 Annual
Report on Form 10-K, the acquisition was approved by antitrust regulatory
authorities in Brazil subject to certain conditions. Among other things,
those conditions involved undertakings resulting in the substitution by the
Company of a new toothpaste brand for Kolynos in Brazil for four years and
the Company contract manufacturing toothpaste in Brazil for third parties
during this period. Toothbrushes, mouthwash and dental floss sold under
the Kolynos brand name in Brazil will continue during this four year
period.
7. Reference is made to the Company's 1996 Annual Report on Form 10-K filed
with the Securities and Exchange Commission for a complete set of financial
notes including the Company's accounting policies relating to financial
derivatives.
7
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 $2,297.2 in the third quarter of 1997, a 3% increase
over the 1996 third quarter, reflecting overall unit volume gains of 7%
partially offset by the decline in foreign currencies.
Sales in the Oral, Personal and Household Care segment were $2,064.4 up 3%
from 1996 on volume growth of 7%. Volume increases across all geographic
regions contributed to the growth.
Colgate-Asia/Africa sales from continuing businesses were $433.3, which were
level with the third quarter of 1996. Volume growth of 6% was offset by the
sharp decline in Southeast Asian currencies. Contributing to this region's
volume growth were India, China, Hong Kong, Taiwan and New Zealand.
Colgate-Europe sales were $522.7, which declined 7% over the prior year's
period as a result of weakening currencies. Excluding the effect of foreign
exchange, sales grew 7% on 6% volume growth. Germany, Belgium, Poland and
the Nordic group achieved strong volume gains.
Colgate-Latin America sales grew 15% to $597.9 on volume gains of 12%. This
growth was led by volume increases in Mexico, Brazil, Colombia, Ecuador and
the Dominican Republic.
Colgate-North America sales grew 5% to $510.7 on volume gains of 5%. New
products including Colgate Whitening with Baking Soda & Peroxide toothpaste,
the premium Colgate Wave toothbrush, Palmolive Pots & Pans dishwashing liquid
and Softsoap body wash, contributed to increased sales.
Hill's Pet Nutrition sales increased 5% to $232.8 on 4% volume growth from
1996. Hill's-International experienced the fastest growth, led by Japan, as a
result of new product introductions and television advertising.
Worldwide sales for the first nine months of 1997 increased 5% to $6,745.2
from $6,451.6 in the same period of 1996, on 7% volume growth.
Oral, Personal and Household Care sales increased 4% to $6,047.0 in the first
nine months of 1997, on volume gains of 7%. Within this segment,
Colgate-Asia/Africa sales from continuing businesses increased 2% on volume
growth of 5%. Colgate-Europe sales declined 5% primarily due to currency
losses offsetting 5% volume gains. Colgate-Latin America sales grew 14% on
volume gains of 11%. Colgate-North America sales and volume grew 6%.
Hill's Pet Nutrition sales for the first nine months of 1997 increased 14% as
compared to 1996 on 11% volume growth.
8
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 1997 third quarter increased to 50.8%
from 49.1% reflecting increased productivity from a streamlined manufacturing
process, regional sourcing and a profitable product mix. Gross profit margin
for the first nine months increased to 50.6% from 49.0%.
Selling, general and administrative expenses as a percentage of sales
increased to 36.2% in 1997 from 35.8% in 1996 in the third quarter and
increased to 36.5% from 35.9 % in the first nine months due to increased
advertising.
Earnings before interest and taxes (EBIT) for the 1997 third quarter and the
nine month period increased 13.0% and 12.8% to $334.1 and $954.1, respectively,
compared to $295.7 and $845.7 for the same periods in the prior year.
Interest expense, net of interest income, decreased to $46.6 in the 1997
third quarter from $50.4 in 1996 due to lower debt levels. Interest expense,
net decreased to $139.3 in the first nine months of 1997 from $150.6 in 1996.
The effective tax rate for the 1997 third quarter and the nine month period
was 34.4% and 34.5%, respectively, as compared to 34.4% and 34.8%,
respectively, for the same periods in the previous year.
Net income for the 1997 third quarter of $188.6 was 17% higher than
comparable 1996 net income of $160.9. Earnings per share for the 1997 third
quarter also increased 17% to $.62 from $.53 in 1996. For the nine months
net income and earnings per share increased 18% to $534.0 and $1.76,
respectively.
Liquidity and Capital Resources
Net cash provided by operations increased 31% to $760.7 in the first nine
months of 1997 compared with $580.7 in the first nine months of 1996 due to
both improved profitability and lower working capital. Working capital at
September 30, 1997 was $308.1 as compared to $468.0 at December 31, 1996. At
September 30, 1997, commercial paper outstanding was $263.5, which is
classified as long-term debt due to the Company's intent and ability to
refinance these obligations on a long-term basis.
Reference should be made to the 1996 Annual Report on Form 10-K for
additional information regarding liquidity and capital resources.
9
COLGATE-PALMOLIVE COMPANY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the caption "Outlook" in Part II, Item 7, Note 16
to the consolidated financial statements on pages 10 and 37 of the
registrant's Annual report on Form 10-K for the year ended December
31, 1996, the registrant's Current Report on Form 8-K filed March 20,
1997 and to Note 6 to the condensed consolidated financial statements
included herein.
As reported in the 8-K, the Company has agreed with the Brazilian
antitrust authorities (CADE) on undertakings for the operation of the
Kolynos business in Brazil and is currently implementing those
undertakings. Under Brazilian law, the CADE retains jurisdiction for
the purpose of monitoring the Company's compliance with the
undertakings.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits:
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:
None
10
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)
October 13, 1997 /s/ Stephen C. Patrick
---------------------------------
Stephen C. Patrick
Chief Financial Officer
11
Exhibit 11
Page 1 of 2
COLGATE-PALMOLIVE COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
Dollars in Millions Except Per Share Amounts
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------- ----------------
1997 1996 1997 1996
------ ------ ------ ------
PRIMARY
Earnings:
Net income............................... $188.6 $160.9 $534.0 $453.3
Deduct: Dividends on preferred shares, net of
income taxes............................. 5.2 5.3 15.7 16.1
------- ------- ------ ------
Net income applicable to common shares... $183.4 $155.6 $518.3 $437.2
------- ------- ------ ------
------- ------- ------ ------
Shares (in millions):
Weighted average common shares outstanding.. 295.9 293.6 295.3 292.8
------- ------- ------ ------
------- ------- ------ ------
Earnings per common share, primary......... $.62 $.53 $1.76 $1.49
------- ------- ------ ------
------- ------- ------ ------
Exhibit 11
Page 2 of 2
COLGATE-PALMOLIVE COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
Dollars in Millions Except Per Share Amounts
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
ASSUMING FULL DILUTION
Earnings:
Net income................................. $188.6 $160.9 $534.0 $453.3
Deduct:
Dividends on preferred shares.............. .1 .1 .4 .4
Replacement funding resulting from assumed
conversion of Series B
Convertible Preference Stock, net of tax... .5 1.2 1.5 3.7
------ ------ ------ ------
Net income applicable to common shares..... $188.0 $159.6 $532.1 $449.2
------ ------ ------ ------
------ ------ ------ ------
Shares (in millions):
Weighted average number of common shares
outstanding.............................. 295.9 293.6 295.3 292.8
Assumed conversion of options reduced by
the number of shares which could have been
purchased with the proceeds from the exercise
of such options.......................... 7.5 5.2 7.9 5.4
Assumed conversion of Series B Convertible
Preference Stock........................... 23.0 23.4 23.0 23.4
------ ------ ------ ------
Weighted average number of common shares
outstanding, as adjusted................. 326.4 322.2 326.2 321.6
------ ------ ------ ------
------ ------ ------ ------
Earnings per common share, assuming full
dilution................................. $.58 $.50 $1.63 $1.40
------ ------ ------ ------
------ ------ ------ ------
Exhibit 12
COLGATE-PALMOLIVE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Dollars in Millions (Unaudited)
Nine Months Ended
September 30, 1997
------------------
Income before income taxes.............................. $814.8
Add:
Interest on indebtedness and amortization of debt
expense and discount or premium....................... 174.2
Portion of rents representative of interest factor...... 23.3
Interest on ESOP debt, net of dividends................. 1.7
Less:
Income of less than fifty-percent-owned subsidiaries.... (6.1)
-------
Income as adjusted...................................... $1,007.9
-------
-------
Fixed Charges:
Interest on indebtedness and amortization of debt expense
and discount or premium............................... $174.2
Portion of rents representative of interest factor...... 23.3
Interest on ESOP debt, net of dividends................. 1.7
Capitalized interest.................................... 7.2
-------
Total fixed charges..................................... $206.4
-------
-------
Ratio of earnings to fixed charges...................... 4.9
-------
-------
In June 1989, the Company's leveraged employee stock ownership plan (ESOP)
issued $410.0 of long-term notes due through 2009 bearing an average interest
rate of 8.6%. These notes are guaranteed by the Company. Interest expense
on the ESOP's notes was $24.8 for the nine months ended September 30, 1997.
This interest is funded through preferred and common stock dividends as well
as Company contributions. The fixed charges presented above include
interest on ESOP indebtedness to the extent it is not funded through
preferred and common stock dividends.
5
1,000
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
227,400
33,600
1,114,100
38,900
807,000
2,375,600
3,799,600
1,375,800
7,781,100
2,067,500
2,466,700
0
386,500
366,400
1,403,100
7,781,100
6,745,200
6,745,200
3,329,800
2,461,300
0
0
139,300
814,800
280,800
534,000
0
0
0
534,000
1.76
1.63
