FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999.
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
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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 292,198,773 April 30, 1999
PART I. FINANCIAL INFORMATION
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COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
------------------
March 31,
---------
1999 1998
------------------- -------------------
Net sales $2,175.3 $2,159.5
Cost of sales 1,009.4 1,036.0
-------- --------
Gross profit 1,165.9 1,123.5
Selling, general and administrative expenses 801.0 781.1
Interest expense 54.0 50.3
Interest income 8.1 7.1
-------- --------
846.9 824.3
-------- --------
Income before income taxes 319.0 299.2
Provision for income taxes 110.1 103.2
-------- --------
Net income $ 208.9 $ 196.0
======== ========
Earnings per common share:
Basic: $ .70 $ .65
======== ========
Diluted: $ .65 $ .60
======== ========
Dividends declared per common share*: $ .55 $ .55
======== ========
* Two dividends were declared in each period.
See Notes to Condensed Consolidated Financial Statements.
2
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in Millions)
(Unaudited)
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ASSETS
------
March 31, December 31,
1999 1998
------------- --------------
Current Assets:
Cash and cash equivalents $ 189.0 $ 181.7
Marketable securities 16.1 12.8
Receivables (less allowance of $34.1 and $38.3) 1,097.7 1,085.6
Inventories 742.4 746.0
Other current assets 229.0 218.8
------------- --------------
2,274.2 2,244.9
Property, Plant and Equipment:
Cost 4,017.8 4,127.3
Less: Accumulated depreciation 1,530.9 1,538.1
------------- --------------
2,486.9 2,589.2
Goodwill and other intangibles (net of accumulated
amortization of $576.0 and $556.7) 2,288.4 2,524.1
Other assets 343.3 327.0
------------- --------------
$ 7,392.8 $ 7,685.2
============= ==============
See Notes to Condensed Consolidated Financial Statements.
3
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in Millions)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
March 31, December 31,
1999 1998
----------- ------------
Current Liabilities:
Notes and loans payable $ 189.9 $ 175.3
Current portion of long-term debt 285.8 281.6
Accounts payable 701.6 726.1
Accrued income taxes 86.7 74.2
Other accruals 909.3 857.2
--------- ---------
2,173.3 2,114.4
Long-term debt 2,357.2 2,300.6
Deferred income taxes 448.3 448.0
Other liabilities 739.3 736.6
Shareholders' Equity:
Preferred stock 372.8 376.2
Common stock 366.4 366.4
Additional paid-in capital 1,196.9 1,191.1
Retained earnings 3,688.7 3,641.0
Cumulative foreign currency
translation adjustments (1,050.1) (799.8)
--------- ---------
4,574.7 4,774.9
Unearned compensation (352.2) (355.5)
Treasury stock, at cost (2,547.8) (2,333.8)
--------- ---------
1,674.7 2,085.6
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$ 7,392.8 $ 7,685.2
========= =========
See Notes to Condensed Consolidated Financial Statements.
4
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in Millions)
(Unaudited)
Three Months Ended
-------------------------------------
March 31,
---------
1999 1998
---------------- ---------------
Operating Activities
- ----------------------
Net cash provided by operating activities $322.0 $202.9
Investing Activities:
- ---------------------
Capital expenditures (62.5) (77.5)
Payments for acquisitions, net of cash acquired (4.3) (.1)
Investments in marketable securities and other investments (2.7) (23.4)
Other (3.6) (.9)
----- ------
Net cash used for investing activities (73.1) (101.9)
Financing Activities:
- ---------------------
Principal payments on debt (23.1) (59.2)
Proceeds from issuance of debt 82.7 126.3
Dividends paid (80.8) (83.8)
Purchase of common stock (192.1) (83.7)
Other (26.5) (7.2)
------ -----
Net cash used for financing activities activities (239.8) (107.6)
Effect of exchange rate changes on
cash and cash equivalents (1.8) (.3)
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Net increase (decrease) in cash and cash equivalents 7.3 (6.9)
Cash and cash equivalents at beginning of period 181.7 183.1
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Cash and cash equivalents at end of period $ 189.0 $ 176.2
======= =======
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)
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1. The condensed consolidated financial statements reflect all normal recurring
adjustments which, in management's opinion, are necessary for a fair
presentation of the results for interim periods. Results of operations for
the three months ended March 31, 1999 and 1998 may not be representative of
results to be expected for a full year.
2. Provision for certain expenses, including income taxes, media advertising,
consumer promotion and new product introductory costs, are based on full year
assumptions. Such expenses are charged to operations in the year incurred
and are included in the accompanying condensed consolidated financial
statements in proportion with the passage of time or with estimated annual
tax rates or annual sales.
3. Inventories by major classes were as follows:
March 31, December 31,
1999 1998
------------ -----------
Raw materials and supplies $240.9 $257.9
Work-in-process 33.2 32.9
Finished goods 468.3 455.2
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$742.4 $746.0
====== ======
4. Earnings Per Share:
For the Three Months Ended 1999 For the Three Months Ended 1998
------------------------------------ ----------------------------------------
Per Per
Income Shares Share Income Shares Share
------------------------------------ ----------------------------------------
Net income $208.9 $196.0
Preferred dividends (5.2) (5.3)
------ ------
Basic EPS 203.7 292.1 $.70 190.7 295.6 $.65
==== ====
Stock options 6.4 7.3
ESOP conversion 4.7 22.2 4.7 22.8
------ ----- ------ -----
Diluted EPS $208.4 320.7 $.65 $195.4 325.7 $.60
====== ===== ==== ====== ===== ====
6
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars and Shares in Millions Except Per Share Amounts)
(Unaudited)
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5. Comprehensive income
Comprehensive income is comprised primarily of net earnings and currency
translation gains and losses. Total comprehensive income for the three months
ended March 31, 1999 and 1998 was as follows:
Three months ended March 31,
1999 1998
-----------------------------
Net income $ 208.9 $196.0
Foreign currency translation adjustment due to devaluation of
Brazilian Real (224.0) -
Other foreign currency translation adjustments (26.3) 3.9
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Total comprehensive income (loss) $ (41.4) $199.9
======= ======
The charge to cumulative translation adjustment resulting from the
devaluation of the Brazilian Real in the three months ended March 31, 1999
related to foreign currency denominated goodwill and property, plant and
equipment and did not include economic losses on monetary assets.
6. Segment Information -
Three months ended March 31,
1999 1998
----------------------------------------------
Net Sales
North America $ 533.3 $ 486.1
Latin America 534.5 578.0
Europe 501.5 504.0
Asia/Africa 361.0 360.4
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Total Oral, Personal and Household Care 1,930.3 1,928.5
Total Pet Nutrition 245.0 231.0
-------- --------
Net Sales $2,175.3 $2,159.5
======== ========
Earnings by Business Segment
North America $ 113.0 $ 90.1
Latin America 128.2 137.8
Europe 89.6 80.4
Asia/Africa 42.4 42.4
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Total Oral, Personal and Household Care 373.2 350.7
Total Pet Nutrition 44.5 39.8
Corporate (52.8) (48.1)
-------- --------
Earnings before interest and taxes 364.9 342.4
Interest expense,net (45.9) (43.2)
-------- --------
Income before income taxes $ 319.0 $ 299.2
======== ========
7
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars and Shares in Millions Except Per Share Amounts)
(Unaudited)
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7. Subsequent Event
On May 5, 1999, 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 will receive one additional share of Colgate
common stock for each share they hold as of May 19, 1999. Par value will
remain at $1 per share. Giving retroactive effect for the stock split, common
shares outstanding as of March 31, 1999 would have been 584,222,254. Earnings
per share, after giving retroactive effect to the two-for-one split are
presented below for the three months ended March 31, 1999 and 1998:
1999 1998
------- -------
Basic EPS $0.35 $0.32
Diluted EPS 0.32 0.30
Financial information contained elsewhere in this report has not been
adjusted to reflect the impact of the common stock split.
8. Reference is made to the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year 1998 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 $2,175.3 in the first quarter of 1999, a 1% increase
over the 1998 first quarter, reflecting overall unit volume increase of 3%,
substantially offset by the decline in foreign currencies. Sales would have
grown 5%, excluding the negative effect of foreign exchange declines.
First quarter sales in the Oral, Personal and Household Care segment were
$1,930.3, up less than 1% from 1998 on volume growth of 2%.
Colgate-North America sales reached $533.3 in the first quarter of 1999. Sales,
excluding divested businesses, grew 11% on volume gains of 13% primarily driven
by new products in all core categories. These new products included the launch
of Colgate Total Fresh Stripe toothpaste in late March and the introduction of
Palmolive lemon dishwashing liquid and antibacterial hand soap.
Colgate-Europe sales were level with a year ago at $501.5 for the first quarter
of 1999. Volume decrease of 2% was attributed to the economic crisis in Russia.
Excluding Russia, sales were up 4% and unit volume rose 1% largely due to
increases in Italy, Greece, Holland and Germany. Market shares are healthy
across the region as a result of the relaunch of Colgate Total toothpaste and
new varieties of Palmolive shower gel and Palmolive liquid soaps.
Colgate-Latin America sales decreased 8% to $534.5 on a volume decrease of 3%.
Strong growth in Mexico, Central America, the Caribbean, Argentina, Chile and
the Dominican Republic largely offset difficult economic conditions in Brazil
and Ecuador. The introduction of Speed Stick gel in four new countries and
product extensions of Softsoap liquid soap and Palmolive shower gels continue to
strengthen market leadership.
Colgate-Asia/Africa first quarter sales increased slightly to $361.0. The
Company had strong volume growth in Greater China, South Pacific, Taiwan and
Vietnam partially offset by volume declines in the ASEAN countries of Malaysia,
Philippines and Thailand. Volume increased 1%.
Sales in the Pet Nutrition segment increased 6% to $245.0 on volume gains of 8%
largely as a result of strong volume growth in the international regions.
Hill's-International benefited from new feline varieties, and improvements in
the entire dry cat food line complemented by increased advertising.
Worldwide gross profit margin for the first quarter of 1999 increased to 53.6%
from 52.0%, benefiting from continued streamlining of manufacturing, global
sourcing and other cost reduction programs.
Selling, general and administrative expenses in the first quarter of 1999
increased slightly as a percentage of sales to 36.8% from 36.2%. The higher
level of expenses included nonrecurring costs related to year 2000, implementing
SAP software and related changes in manufacturing processes.
9
COLGATE-PALMOLIVE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Dollars in Millions Except Per Share Amounts)
- --------------------------------------------------------------------------------
Earnings before interest and taxes (EBIT) increased 6.6% to $364.9, and reached
a level of 16.8% of sales.
Interest expense, net of interest income increased to $45.9 in the 1999 first
quarter as compared with $43.2 in 1998. The increase is primarily due to
increased levels of debt incurred in connection with stock repurchases.
The effective tax rate was 34.5% in the first quarter of 1999 and 1998. The
34.5% reflects the Company's current estimate of its full year effective income
tax rate which is slightly higher than the 1998 full year rate of 32.1%. The
rate in 1998 benefited from global tax planning strategies, including the
realization of tax credits.
First quarter 1999 net income increased 6.6% to $208.9 or $.70 per share
compared with $196.0 or $.65 per share in the prior year.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operations increased 59% to $322.0 in the 1999 first
quarter compared with $202.9 in the 1998 first quarter. The improvement was
generated by the increase in operating profit and working capital management.
At March 31, 1999, $667.4 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 1998 Annual Report on Form 10-K for
additional information regarding available sources of liquidity and capital.
Year 2000 Update
- ----------------
The Company has developed plans to address the possible exposures related to the
year 2000 on the Company's operations as outlined in the 1998 Form 10-K. The
Company is converting to SAP, which is year 2000 compliant. This project is
progressing on schedule, with 84% of the planned global conversions for 1999
completed by the end of the first quarter of 1999. Internal systems not
converted to SAP are being remediated to be year 2000 compliant.
The year 2000 project plan has not materially changed and is progressing in
accordance with previously identified time schedules outlined in the 1998 Form
10-K. Specifically, the first three phases of the plan are complete and the
fourth phase is 97% completed with respect to the system testing, remediation
and contingency plans for critical internal systems. Progress against project
plan timelines is monitored through a system of internal reporting and is
presented to senior management and the Audit Committee of the Board of Directors
or the full Board on a frequent basis.
10
COLGATE-PALMOLIVE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Dollars in Millions Except Per Share Amounts)
- --------------------------------------------------------------------------------
Year 2000 Update (continued)
- ----------------------------
The Company currently estimates that the total incremental cost, including
external contractor costs, costs to modify existing systems and costs of
internal resources dedicated to preparing for the year 2000 to be approximately
$30 million, of which approximately 50% has been spent to date. These costs are
charged to expense as incurred and are incremental to the investment in SAP
systems.
Readers are cautioned that forward-looking statements made in the Year 2000
Update are based on management's estimates, assumptions and projections. Some
of the factors that could cause actual results to differ materially from
expectations expressed in the Company's forward-looking statements are described
in the Company's Form 8-K filed with the Securities and Exchange Commission on
November 13, 1998 under the caption "Cautionary Statement on Forward-Looking
Statements". These factors include, but are not limited to, the risks
associated with international operations, the activities of competitors, retail
trade practices, the success of new product introductions, cost pressures and
manufacturing and environmental matters.
11
COLGATE-PALMOLIVE COMPANY
PART II. OTHER INFORMATION
- -------- -----------------
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings
- ------- -----------------
For information regarding legal matters refer to Note 16 to the
consolidated financial statements on page 37 of the registrant's Annual
Report on Form 10-K for the year ended December 31, 1998.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
Exhibit 12 Ratio of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
(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:
May 14, 1999 /s/ Stephen C. Patrick
--------------------------------
Stephen C. Patrick
Chief Financial Officer
Principal Accounting Officer:
May 14, 1999 /s/ Dennis J. Hickey
-------------------------------
Dennis J. Hickey
Vice President and
Corporate Controller
13
Exhibit 12
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COLGATE-PALMOLIVE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(Dollars in Millions)
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31, 1999
--------------
Income before income taxes $319.0
Add:
Interest on indebtedness and amortization of debt expense and
discount or premium 53.9
Portion of rents representative of interest factor 8.6
Interest on ESOP debt, net of dividends 0.9
Less:
Income of less than fifty-percent owned subsidiaries (1.5)
------
Income as adjusted $380.9
======
Fixed Charges:
Interest on indebtedness and amortization of debt expense and
discount or premium $ 53.9
Portion of rents representative of interest factor 8.6
Interest on ESOP debt, net of dividends 0.9
Capitalized interest $ 1.5
------
Total fixed charges $ 64.9
======
Ratio of earnings to fixed charges 5.9
======
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 8.7%. These notes are guaranteed by the Company. Interest incurred on
the ESOP's notes during the first quarter of 1999 was $8.1. This interest is
funded through preferred and common stock dividends. The fixed charges
presented above include interest on ESOP indebtedness to the extent it is not
funded through preferred and common stock dividends.
5
3-MOS
DEC-31-1999
JAN-01-1999
MAR-31-1999
189
16
1132
34
742
2274
4018
1531
7393
2173
2357
0
373
366
936
7393
2175
2175
1009
801
0
0
46
319
110
209
0
0
0
209
.70
.65
