FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
0R
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________ .
Commission File Number 1-644
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COLGATE-PALMOLIVE COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 13-1815595
- ---------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 PARK AVENUE, NEW YORK, NEW YORK 10022
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(Address of principal executive offices) (Zip Code)
(212) 310-2000
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(Registrant's telephone number, including area code)
NO CHANGES
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(Former name, former address, and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practical date:
Class Shares Outstanding Date
- ------------------------ ----------------------- ----------------
Common, $1.00 par value 295,701,719 July 31, 1998
Total number of sequentially numbered pages in this filing, including exhibits
thereto:
PART I. FINANCIAL INFORMATION
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
- -----------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 2,256.5 $ 2,300.9 $ 4,416.0 $ 4,448.0
Cost of sales 1,083.9 1,132.8 2,119.9 2,199.3
--------- --------- --------- ---------
Gross profit 1,172.6 1,168.1 2,296.1 2,248.7
--------- --------- --------- ---------
Selling, general and administrative
expenses 824.7 854.6 1,605.8 1,628.7
Interest expense 51.0 58.7 101.3 116.3
Interest income (6.9) (11.7) (14.0) (23.6)
--------- --------- --------- ---------
Income before income taxes 303.8 266.5 603.0 527.3
Provision for income taxes 100.3 90.7 203.5 181.9
--------- --------- --------- ---------
Net income $ 203.5 $ 175.8 $ 399.5 $ 345.4
========= ========= ========= =========
Earnings per common share:
Basic $ .67 $ .58 $ 1.32 $ 1.14
========= ========= ========= =========
Diluted $ .62 $ .54 $ 1.22 $ 1.06
========= ========= ========= =========
Dividends declared per common share* $ -- $ -- $ .55 $ .51
========= ========= ========= =========
* Includes two dividend declarations in the first quarter periods.
See Notes to Condensed Consolidated Financial Statements.
2
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in Millions)
(Unaudited)
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ASSETS
------
June 30, December 31,
1998 1997
----- ------
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
--------- ---------
--------- ---------
See Notes to Condensed Consolidated Financial Statements.
3
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Dollars in Millions)
(Unaudited)
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
1998 1997
-------- ------------
Current Liabilities:
Notes and loans payable $ 143.8 $ 158.4
Current portion of long-term debt 89.5 178.3
Accounts payable 693.4 716.9
Accrued income taxes 133.8 67.0
Other accruals 810.6 838.9
---------- ----------
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
---------- ----------
---------- ----------
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)
- --------------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
--------------------------------------- -------------------------------------
Cumulative Cumulative
Retained Translation Retained Translation
Earnings Adjustment Total Earnings Adjustment Total
Beginning balance, April 1 $ 3,168.8 $ (689.8) $ 2,479.0 $ 2,749.6 $ (550.9) $ 2,198.7
Net income 203.5 203.5 175.8 175.8
Effect of balance sheet translation (22.4) (22.4) (4.2) (4.2)
--------- ----------
Total comprehensive income 181.1 171.6
Dividends (9.4) (9.4) (9.5) (9.5)
------------- ------------ --------- ---------- ------------ ----------
Ending balance, June 30 $ 3,362.9 $ (712.2) $ 2,650.7 $ 2,915.9 $ (555.1) $ 2,360.8
------------- ----------- --------- --------- ----------- ---------
------------- ----------- --------- --------- ----------- ---------
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
--------------------------------------- -------------------------------------------
Cumulative Cumulative
Retained Translation Retained Translation
Earnings Adjustment Total Earnings Adjustment Total
Beginning balance, January 1 $ 3,138.0 (693.7) $ 2,444.3 $ 2,731.0 $ (534.7) $ 2,196.3
Net income 399.5 399.5 345.4 345.4
Effect of balance sheet translation (18.5) (18.5) (20.4) (20.4)
---------- ---------
Total comprehensive income 381.0 325.0
Dividends (174.6) (174.6) (160.5) (160.5)
----------- ---------- ---------- ---------- ----------- ---------
Ending balance, June 30 $ 3,362.9 (712.2) $ 2,650.7 $ 2,915.9 $ (555.1) $ 2,360.8
----------- ------ --------- --------- ---------- ---------
----------- ------ --------- --------- ---------- ---------
See Notes to Condensed Consolidated Financial Statements.
5
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in Millions)
(Unaudited)
- -----------------------------------------------------------------------------------
Six Months Ended
June 30,
---------------------------
1998 1997
------ ------
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
---------- ------------
---------- ------------
See Notes to Condensed Consolidated Financial Statements.
6
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
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1. The condensed consolidated financial statements reflect all normal
recurring adjustments which, in management's opinion, are necessary
for a fair presentation of the results for interim periods. Results of
operations for the interim periods may not be representative of
results to be expected for a full year.
2. Provision for certain expenses, including income taxes, media
advertising, consumer promotion and new product introductory costs,
are based on full year assumptions. Such expenses are charged to
operations in the year incurred and are included in the accompanying
condensed consolidated financial statements in proportion with the
passage of time or with estimated annual tax rates or annual sales.
3. Inventories by major classes were as follows:
June 30, December 31,
1998 1997
------------ ------------
Raw material and supplies $ 260.6 $ 261.0
Work-in-process 34.8 33.5
Finished goods 421.0 433.9
------------ ------------
$ 716.4 $ 728.4
------------ ------------
------------ ------------
4. Earnings Per Share:
For the Three Months Ended
--------------------------
June 30, 1998 June 30, 1997
------------- -------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Net income $203.5 $175.8
Preferred dividends (5.2) (5.2)
------ ------
------ ------
Basic EPS 198.3 296.0 $.67 170.6 295.3 $.58
---- ----
---- ----
Stock options 7.2 6.7
ESOP conversion 4.6 22.6 4.6 23.1
------ ----- ---- ------ ----- ----
Diluted EPS $202.9 325.8 $.62 $175.2 325.1 $.54
------ ----- ---- ------ ----- ----
------ ----- ---- ------ ----- ----
7
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
- ----------------------------------------------------------------------------------------------
For the Six Months Ended
------------------------
June 30, 1998 June 30, 1997
------------- -------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Net income $399.5 $345.4
Preferred dividends (10.5) (10.6)
------ ------
------ ------
BASIC EPS 389.0 295.8 $1.32 334.8 294.9 $1.14
---- -----
---- -----
Stock options 7.3 6.5
ESOP conversion 9.2 22.6 9.2 23.1
------ ----- ---- ------ ----- -----
DILUTED EPS $398.2 325.7 $1.22 $344.0 324.5 $1.06
------ ----- ----- ------ ----- -----
------ ----- ----- ------ ----- -----
5. In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes
accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that
changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Statement
133 is effective, prospectively, for fiscal years beginning after June
15, 1999.
The Company is currently evaluating the effect of adopting
Statement 133 on the Company's financial statements.
6. Reference is made to the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year 1997 for a
complete set of financial notes including the Company's significant
accounting policies.
8
COLGATE-PALMOLIVE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
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:
Votes Received Votes Withheld
-------------- --------------
Jill K. Conway 272,109,670 1,380,337
Ronald E. Ferguson 272,338,360 1,151,647
Ellen M. Hancock 272,315,691 1,174,316
David W. Johnson 272,313,515 1,176,492
John P. Kendall 272,029,301 1,460,706
Richard J. Kogan 272,328,580 1,161,427
Delano E. Lewis 272,278,147 1,211,860
Reuben Mark 272,192,903 1,297,104
Howard B. Wentz, Jr. 272,068,956 1,421,051
(b) The selection of Arthur Andersen LLP as auditors for the year
ending December 31, 1998 was approved. The results of the vote
were as follows:
Votes For Votes Against Abstentions
--------- ------------- -----------
271,007,273 1,646,685 836,049
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10-E(a) Colgate-Palmolive Company Executive
Severance Plan, as amended.
Exhibit 12 Ratio of Earnings to Fixed Charges.
Exhibit 27 Financial Data Schedule.
11
(b) Reports on Form 8-K.
None.
The exhibits indicated above which are not included with the Form 10-Q are
available upon request and payment of a reasonable fee approximating the
registrant's cost of providing and mailing the exhibits. Inquiries should be
directed to:
Colgate-Palmolive Company
Office of the Secretary (10-Q Exhibits)
300 Park Avenue
New York, NY 10022-7499
12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLGATE-PALMOLIVE COMPANY
-------------------------
(Registrant)
Principal Financial Officer:
August 12, 1998 /s/ Stephen C. Patrick
----------------------------
Stephen C. Patrick
Chief Financial Officer
Principal Accounting Officer:
August 12, 1998 /s/ Dennis J. Hickey
-----------------------------
Dennis J. Hickey
Vice President and
Corporate Controller
13
Exhibit 10-E(a)
September 14, 1989
as amended June 11, 1998
COLGATE-PALMOLIVE COMPANY
EXECUTIVE SEVERANCE PLAN, AS AMENDED AND RESTATED
1. PURPOSE.
The purpose of the Colgate-Palmolive Company Executive Severance Plan (the
"Plan") is to provide executives who are in a position to contribute
materially to the success of Colgate-Palmolive Company or any company at
least 80% of whose voting shares are owned directly or indirectly by it
(collectively, the "Company") with reasonable compensation in the event of
their termination of employment with the Company under the circumstances
described herein.
2. EFFECTIVE DATE.
The Plan, as amended and restated, is effective as of June 11, 1998.
3. ADMINISTRATION.
The Plan shall be administered by a Committee. Committee shall mean (i)
prior to a Change of Control, the Committee appointed by the Board of
Directors of the Company to control and manage the operation and
administration of the Plan and (ii) following a Change of Control, the
Committee described in (i) above as constituted immediately prior to the
Change of Control with such changes in the membership thereof as may be
approved from time to time following the Change of Control by a majority of
the members of such Committee as constituted at the applicable time. The
Company shall have no right to appoint members to or to remove members from
the Committee following, or otherwise in connection with, a Change of
Control. Any interpretation of the Plan or construction of any of its
provisions by the Committee shall be final.
4. PARTICIPATION.
The Committee shall from time to time select the employees who are to
participate in the Plan (the "Participants") from among those employees who
are determined by the Committee to be in a position to contribute
materially to the success of the Company. The Company shall advise each
Participant of his participation in the Plan by a letter setting forth (i)
the benefits to which the Participant would become entitled, (ii) the
period, expressed in months, and during or for which the Participant would
become entitled to such benefits which period shall not be less than 12
months nor more than 36 months (the "Earned Benefit Period") and (iii) such
other terms, provisions and
conditions not inconsistent with the Plan as shall be determined by the
Committee.
A Participant shall cease to be a Participant in the Plan upon termination
of employment with the Company or, if earlier, upon termination of the
Plan. Notwithstanding the foregoing, a Participant who terminates
employment prior to termination of the Plan shall remain a Participant
until receipt of all of the payments, if any, to which he is entitled under
the terms hereof.
5. PAYMENTS UPON QUALIFIED TERMINATION OF EMPLOYMENT.
(a) receive an amount equal to the product of (i) the sum of (A) the
Participant's annualized Monthly Base Salary at the rate in effect
immediately prior to a Qualified Termination of Employment pursuant to
Section 8(a)(i) or immediately prior to an Adverse Change in
Conditions of Employment, as the case may be, or, if higher, at the
highest rate in effect during the 90-day period preceding the Change
of Control (for purposes of this Plan, Monthly Base Salary shall mean
regular monthly salary as indicated by the Company's payroll records)
and (B) the higher of (X) the highest annual bonus paid or payable to
the Participant (either pursuant to the Company's Executive Incentive
Compensation Plan or other bonus, incentive or compensation plan of
the Company or otherwise) for any year during the five-year period
ending immediately prior to the year in which the Qualified
Termination of Employment occurs (provided, however, that if such
five-year period includes the year in which the Change of Control
occurs, then the annual bonus paid or payable for such year shall be
deemed to be the higher of the said bonus actually paid or payable and
the bonus that would have been paid for such year, determined as if
all earnings, profit and other goals (whether established for the
Participant or the Company), if any, had been met for such year and as
if the Participant's employment had continued through the end of such
year on the same basis as immediately prior to the Change of Control)
and (Y) the bonus that would have been paid to the Participant (either
pursuant to the Company's Executive Incentive Compensation Plan or
other bonus, incentive or compensation plan of the Company or
otherwise) for the year in which the Qualified Termination of
Employment occurs, determined as if all earnings, profit or other
goals (whether established for the Participant or the Company), if
any, had been met for such year and as if the Participant had
continued to be employed by the Company through the end of such year
on the same basis as immediately
2
prior to a Qualified Termination of Employment pursuant to Section
8(a)(i) or immediately prior to an Adverse Change in Conditions of
Employment, as the case may be, and (ii) a fraction, the numerator of
which is the number of months in his Earned Benefit Period and the
denominator of which is twelve, provided, however, that such resulting
amount shall be reduced if and to the extent required by the terms of
Section 9 hereof; such amount shall be payable in an undiscounted cash
lump sum within 30 days of the Participant's Qualified Termination of
Employment;
(b) remain for his Earned Benefit Period an active Participant in all
welfare benefit plans, including but not limited to plans providing
life insurance, disability, accident, sickness, and/or medical
benefits, in which, and on the same basis as, he was participating at
the time of the Change of Control (or, if more favorable to the
Participant, as in effect at any time thereafter with respect to other
key executives), but subject to any coordination of benefits
provisions contained in such plans, or, alternatively, be provided
with substantially similar benefits for such period; notwithstanding
the foregoing, the Participant shall not be required to make any
contributions to the cost of such plans or benefits;
(c) receive a single cash lump sum within 30 days of the Participant's
Qualified Termination of Employment which is the actuarial equivalent
of a monthly retirement benefit commencing on the earliest date on
which such Participant's benefits could commence under the Company's
Employees Retirement Income Plan, but not prior to the end of his
Earned Benefit Period or age 65, whichever occurs first, in the form
of a straight life annuity in an amount equal to the excess of (i) the
benefits under the Employees Retirement Income Plan and the
Supplemental Salaried Employees Retirement Plan or any successor plans
thereto to which the Participant would have been entitled in the form
of a straight life annuity (plus the value of any additional spouse's
benefit) commencing on the earliest date on which such benefits could
have commenced if he had remained in the employ of the Company during
his Earned Benefit Period or until age 65, whichever occurs first, at
his Monthly Base Salary at the rate determined pursuant to (a)(i)(A)
above and assuming for this purpose that all accrued benefits are
fully vested and that benefit accrual formulas are no less
advantageous to the Participant than those in effect during the 90-day
period preceding the Change of Control over (ii) the benefits to which
the Participant would actually be entitled under the Employees
Retirement Income Plan and the Supplemental Salaried Employees
Retirement Plan if such benefits were paid in the form of a straight
life annuity (plus the value of any additional spouse's benefit)
commencing on the earliest date on which such benefits could actually
commence; actuarial equivalence shall be determined using the Morgan
Guaranty Trust Company of New York corporate base rate of interest and
the mortality table used to determine benefits under the Employees
Retirement Income Plan, both as in effect on the date of the
Participant's
3
Qualified Termination of Employment; provided, however, that if more
than one such mortality table is then in use, the mortality table that
would result in the largest benefit to the Participant shall be used.
6. PAYMENTS UPON CHANGE OF CONTROL.
In the event of a Change of Control of the Company (and whether or not the
Participant's employment terminates), a Participant shall be entitled, as
compensation for services rendered (subject to any applicable payroll or
other taxes required to be withheld) to:
(a) receive for the year in which the Change of Control occurs a bonus
(either pursuant to the Company's Executive Incentive Compensation
Plan or other bonus, incentive or compensation plan of the Company or
otherwise) equal to the product of (i) the amount determined pursuant
to Section 5(a)(i)(B)(Y), provided, however, that if no such goals
have been established for such year, the amount determined pursuant to
Section 5(a)(i)(B)(X), and (ii) a fraction, the numerator of which is
the number of months (or part thereof) in the period beginning January
1 of the year in which the Change of Control occurs and ending on the
date of the Change of Control and the denominator of which is twelve;
such bonus shall be payable in cash not later than March of the next
following year or, if earlier, within 30 days of the Participant's
Qualified Termination of Employment;
(b) receive within 30 days following the Change of Control, all
compensation amounts which the Participant has previously elected to
defer.
7. EXERCISABILITY OF STOCK OPTIONS UPON CHANGE OF CONTROL.
In the event of a Change of Control (and whether or not the Participant's
employment terminates), each stock option granted under any of the
Company's stock option plans, whether or not otherwise exercisable as of
such Change of Control, and that either was not granted in conjunction with
a stock appreciation unit or was granted in conjunction with a stock
appreciation unit whose value has been limited, shall be exercisable as of
such Change of Control.
8. QUALIFIED TERMINATION OF EMPLOYMENT.
(a) Qualified Termination of Employment with respect to any Participant
shall mean termination of employment of the Participant with the
Company, other than as a consequence of the death or Disability of the
Participant, within two years after a Change of Control of the
Company,
4
(i) by the Company for any reason other than for Cause, or
(ii) by the Participant by reason of an Adverse Change in
Conditions of Employment.
(b) For the purpose of this Section, Cause shall mean serious, willful
misconduct in respect of the Participant's obligations to the Company
(including but not limited to final conviction for a felony or
perpetration of a common law fraud) that has or is likely to result in
material economic damage to the Company.
(c) An Adverse Change in Conditions of Employment shall mean the
occurrence of any of the following events:
(i) change by the Company of the Participant's functions, duties
or responsibilities, which change would cause the
Participant's position with the Company to become one of less
dignity, responsibility, importance or scope;
(ii) a reduction by the Company of the Participant's Monthly Base
Salary as in effect immediately preceding the Change of
Control or as the same may thereafter be increased from time
to time;
(iii) failure by the Company to continue the Participant in any
compensation or benefit plan in which, and on at least as
favorable a basis as, he was participating immediately
preceding the Change of Control or, if more favorable to the
Participant, failure by the Company to provide for his
participation in any compensation or benefit plan on a
comparable basis and as in effect at any time thereafter with
respect to other key employees;
(iv) the Company's requiring the Participant to be based anywhere
other than within fifty (50) miles of the principal office
location of the Participant prior to the Change of Control,
except for required travel on the Company's business to an
extent substantially consistent with business travel
obligations of the Participant prior to the Change of Control.
A Participant's failure to object to a change described in (i), (ii), (iii)
or (iv) shall not constitute a waiver of such change as an Adverse Change
in Conditions of Employment. Any good faith determination by a Participant
of an Adverse Change in Conditions of Employment shall be determinative.
5
(d) For purposes of the Plan, a Change of Control of the Company shall
mean the happening of any of the following events:
(i) an acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time to time, and any
successor thereto (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either
(A) the then outstanding shares of the common stock, par value
$1.00 per share, of the Colgate-Palmolive Company, a Delaware
corporation (the "Parent Company") (the "Outstanding Company
Common Stock"), or (B) the combined voting power of the then
outstanding voting securities of the Parent Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however,
the following: (1) any acquisition directly from the Parent
Company, other than an acquisition by virtue of the exercise
of a conversion privilege unless the security being so
converted was itself acquired directly from the Parent
Company, (2) any acquisition by the Parent Company, (3) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Parent Company or any
corporation controlled by the Parent Company or (4) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (iii) of
this Section 8(d); or
(ii) a change in the composition of the Board of Directors of the
Parent Company (the "Board") such that the individuals who, as
of February 17, 1994, constitute the Board (such Board shall
be hereinafter referred to as the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board;
provided, however, for purposes of this Section 8(d), that any
individual who becomes a member of the Board subsequent to
February 17, 1994, whose election, or nomination for election
by the Parent Company's stockholders, was approved by a vote
of at least a majority of those individuals who are members of
the Board and who were also members of the Incumbent Board (or
deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the
Incumbent Board; but, provided further, that any such
individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board shall not be so considered as
a member of the Incumbent Board; or
6
(iii) the approval by the stockholders of the Parent Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Parent Company ("Corporate Transaction") excluding, however,
such a Corporate Transaction pursuant to which (A) all or
substantially all of the individuals and entities who are the
beneficial owners, respectively, of the outstanding Common
Stock and outstanding Company voting securities immediately
prior to such Corporate Transaction will beneficially own,
directly or indirectly, more than 60% of, respectively, the
outstanding shares of common stock, and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Corporate
Transaction (including, without limitation, a corporation
which as a result of such transaction owns the Parent Company
or all or substantially all of the Parent Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, or the
outstanding Common Stock and outstanding Company voting
securities, as the case may be, (B) no Person (other than the
Parent Company, any employee benefit plan (or related trust)
of the Parent Company or such corporation resulting from such
Corporate Transaction) will beneficially own, directly or
indirectly, 20% or more of, respectively, the outstanding
shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the
outstanding voting securities of such corporation entitled to
vote generally in the election of directors except to the
extent that such ownership existed prior to the Corporate
Transaction and (C) individuals who were members of the
Incumbent Board will constitute at least a majority of the
members of the board of directors of the corporation resulting
from such Corporate Transaction; or
(iv) the approval by the shareholders of the Parent Company of a
complete liquidation or dissolution of the Parent Company.
(e) Termination by the Company of a Participant's employment based on
Disability shall mean termination because of absence from duties with
the Company on a full time basis for 6 consecutive months, as a result
of the Participant's incapacity due to physical or mental illness
which is determined to be total and permanent by a physician selected
by the Company or its insurers and acceptable to the Participant or
the Participant's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
7
9. CERTAIN REDUCTION IN PAYMENTS.
For purposes of this Section 9, (i) Payment shall mean any payment or
distribution in the nature of compensation to or for the benefit of the
Participant (whether paid or payable pursuant to the Plan or otherwise, but
determined without regard to any reductions required by this Section 9);
(ii) Net After Tax Receipt shall mean the Present Value of a Payment net of
all taxes imposed on the Participant with respect thereto under Sections 1
and 4999 of the Code, determined by applying the highest marginal rate
under Section 1 of the Internal Revenue Code of 1986, as amended (the
"Code"), which applied to the Participant's taxable income for the
immediately preceding taxable year; (iii) Present Value shall mean such
value determined in accordance with Section 280G(d)(4) of the Code; and
(iv) Reduced Amount shall mean the smallest aggregate amount of Payments
which (a) is less than the sum of all Payments and (b) results in aggregate
Net After Tax Receipts which are equal to or greater than the Net After Tax
Receipts which would result if the aggregate Payments were any other amount
less than the sum of all Payments.
Anything in the Plan to the contrary notwithstanding, in the event Arthur
Andersen LLP (the "Accounting Firm") shall determine that receipt of all
Payments would subject the Participant to tax under Section 4999 of the
Code, it shall determine whether some amount of Payments would meet the
definition of a Reduced Amount. If the Accounting Firm determines that
there is a Reduced Amount, the aggregate Payments shall be reduced to such
Reduced Amount. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the
Change of Control, the Participant shall appoint another nationally
recognized accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company.
If the Accounting Firm determines that aggregate Payments should be reduced
to the Reduced Amount, the Company shall promptly give the Participant
notice to that effect and a copy of the detailed calculation thereof, and
the Participant may then elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the present value of
the aggregate Payments equals the Reduced Amount), and shall advise the
Company in writing of such election within ten days of his receipt of
notice. If no such election is made by the Participant within such ten-day
period, the Company may elect which of such Payments shall be eliminated or
reduced (as long as after such election the present value of the aggregate
Payments equals the Reduced Amount) and shall notify the Participant
promptly of such election. All determinations made by the Accounting Firm
under this Section 9 shall be binding upon the Company and the Participant
and shall be made within 15 business days of the date of termination of the
Participant's
8
employment. As promptly as practicable following such determination, the
Company shall pay to or distribute to or for the benefit of the Participant
such Payments as are then due to the Participant and shall promptly pay to
or distribute to or for the benefit of the Participant in the future such
Payments as become due to the Participant.
While it is the intention of the Company and the Participant to reduce the
amounts payable or distributable to the Participant hereunder only if the
aggregate Net After Tax Receipts to the Participant would thereby be
increased, as a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that amounts will have been paid or
distributed by the Company to or for the benefit of the Participant
pursuant to the Plan which should not have been so paid or distributed
("Overpayment") or that additional amounts which will have not been paid or
distributed by the Company to or for the benefit of the Participant
pursuant to the Plan could have been so paid or distributed
("Underpayment"), in each case, consistent with the calculation of the
Reduced Amount hereunder. In the event that the Accounting Firm, based
either upon the assertion of a deficiency by the Internal Revenue Service
against the Company or the Participant which the Accounting Firm believes
has a high probability of success or controlling precedent or other
substantial authority determines that an Overpayment has been made, any
such Overpayment paid or distributed by the Company to or for the benefit
of the Participant shall be treated for all purposes as a loan ab initio to
the Participant which the Participant shall repay to the Company together
with interest at the applicable federal rate provided for in Section
7872(f)(2) of the Code; provided however, that no such loan shall be deemed
to have been made and no amount shall be payable by the Participant to the
Company if and to the extent such deemed loan and payment would not either
reduce the amount on which the Participant is subject to tax under Section
1 and Section 4999 of the Code or generate a refund of such taxes. In the
event that the Accounting Firm, based upon controlling precedent or
substantial authority, determines that an Underpayment has occurred, any
such Underpayment shall be promptly paid by the Company to or for the
benefit of the Participant together with interest at the applicable federal
rate provided for in Section 7872(f)(2) of the Code.
10. CONFIDENTIAL INFORMATION.
The Participant shall hold, in a fiduciary capacity for the benefit of the
Company, all secret or confidential information, knowledge or data relating
to the Company and its businesses which shall have been obtained by the
Participant during his employment by the Company and which shall not be
public knowledge (other than by acts of the Participant in violation of
this provision). After termination of the Participant's employment with
the Company, the Participant shall not, without the prior written consent
of the Company, communicate or divulge any such information, knowledge or
data to any one other than the Company and those persons designated by it.
In no
9
event shall an asserted violation of this Section constitute a basis for
deferring or withholding any amounts otherwise payable to the Participant
under the Plan.
11. FINANCING.
Benefit payments under the Plan shall constitute general obligations of the
Company in accordance with the terms of the Plan. A Participant shall have
only an unsecured right to payment thereof out of the general assets of the
Company. Notwithstanding the foregoing, the Company may, by agreement with
one or more trustees to be selected by the Company, create a trust on such
terms as the Company shall determine to make payments to Participants in
accordance with the terms of the Plan.
12. TERMINATION AND PAYMENT OF THE PLAN.
The Plan shall terminate on the later of (i) June 30, 2001, unless extended
by the Board or (ii) in the event of a Change of Control of the Company on
or before the termination date of the Plan, two years after such Change of
Control, provided that the termination of the Plan shall not impair or
abridge the obligations of the Company incurred under the Plan to any
Participant.
Prior to a Change of Control, the Company may from time to time terminate
the Plan or amend the Plan in whole or in part. At any time upon or after
a Change of Control, the Plan may not be terminated or amended by the
Company. The Plan may, however, be amended following a Change of Control
by the Committee but only to the extent such amendment is required by law
or is necessary or desirable to prevent adverse consequences to one or more
Participants.
13. BENEFIT OF PLAN.
The Plan shall be binding upon and shall inure to the benefit of the
Participant, his heirs and legal representatives, and the Company and its
successors. The term "successor" shall mean any person, firm, corporation
or other business entity that, at any time, whether by merger, acquisition
or otherwise, acquires all or substantially all of the stock, assets or
business of the Company.
14. NON-ASSIGNABILITY.
Each Participant's rights under this Plan shall be non-transferable except
by will or by the laws of descent and distribution and except insofar as
applicable law may otherwise require. Subject to the foregoing, no right,
benefit or interest hereunder, shall be subject to anticipation,
alienation, sale, assignment, encumbrance, charge, pledge, hypothecation,
or set-off in respect of any claim, debt or obligation, or to
10
execution, attachment, levy or similar process, or assignment by operation
of law, and any attempt, voluntary or involuntary, to effect any such
action shall, to the full extent permitted by law, be null, void and of no
effect.
15. OTHER BENEFITS.
Except as otherwise specifically provided herein, nothing in the Plan shall
affect the level of benefits provided to or received by any Participant (or
the Participant's estate or beneficiaries) as part of any employee benefit
plan of the Company, and the Plan shall not be construed to affect in any
way a Participant's rights and obligations under any other plan maintained
by the Company on behalf of employees.
The Participant shall not be required to mitigate the amount of any payment
under the Plan by seeking employment or otherwise, and there shall be no
right of set-off or counterclaim, in respect of any claim, debt or
obligation, against any payments to the Participant, his dependents,
beneficiaries or estate provided for in the Plan.
16. TERMINATION OF EMPLOYMENT.
Nothing in the Plan shall be deemed to entitle a Participant to continued
employment with the Company, and the rights of the Company to terminate the
employment of a Participant shall continue as fully as though the Plan were
not in effect.
17. SEVERABILITY.
In the event that any provision or portion of the Plan shall be determined
to be invalid or unenforceable for any reason, the remaining provisions and
portions of the Plan shall be unaffected thereby and shall remain in full
force and effect to the fullest extent permitted by law.
18. INDEMNIFICATION.
If the Participant seeks, in any action, suit or arbitration, to enforce,
or to recover damages for breach of, his rights under the Plan, the
Participant shall be entitled to recover from the Company promptly as
incurred, and shall be indemnified by the
11
Company against, any and all expenses and disbursements, including
attorneys' fees, actually and reasonably incurred by the Participant. The
Company shall also pay to the Participant prejudgment interest on any money
judgment obtained by the Participant calculated at the Morgan Guaranty
Trust Company of New York corporate base rate of interest in effect from
time to time from the date that payment to him should have been made under
the Plan.
19. DELAWARE LAW TO GOVERN.
All questions pertaining to the construction, regulation, validity and
effect of the provisions of the Plan shall be determined in accordance with
the laws of the State of Delaware without regard to the conflict of law
principles thereof.
12
Exhibit 12
COLGATE-PALMOLIVE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Dollars in Millions (Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended
June 30, 1998
----------------
Income before income taxes $603.0
Add:
Interest on indebtedness and amortization of debt
expense and discount or premium 101.3
Portion of rents representative of interest
factor 15.8
Interest on ESOP debt, net of dividends 1.7
Less:
Income of less than fifty-percent-owned
subsidiaries (2.6)
------
Income as adjusted $719.2
------
------
Fixed Charges:
Interest on indebtedness and amortization of debt
expense and discount or premium
$101.3
Portion of rents representative of interest
factor 15.8
Interest on ESOP debt, net of dividends 1.7
Capitalized interest 4.1
------
Total fixed charges $122.9
------
------
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 8.6%. These notes are guaranteed by the Company. Interest incurred on
the ESOP's notes during the first half of 1998 was $16.5. 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.
14
5
1,000,000
6-MOS
DEC-31-1998
JAN-01-1998
JUN-30-1998
176
28
1172
37
716
253
3895
1442
7621
1871
2490
0
380
366
1471
7621
4416
4416
2120
1606
0
0
87
603
204
0
0
0
0
400
1.32
1.22
