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, 1998.
0R
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________.
Commission File Number 1-644
COLGATE-PALMOLIVE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 13-1815595
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 PARK AVENUE, NEW YORK, NEW YORK 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 310-2000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NO CHANGES
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practical date:
Class Shares Outstanding Date
- ----------------------- ------------------ --------
Common, $1.00 par value 296,114,213 April 30, 1998
PART I. FINANCIAL INFORMATION
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
Three Months Ended
March 31,
---------------------------
1998 1997
-------- --------
Net sales ...................................... $2,159.5 $2,147.1
Cost of sales .................................. 1,036.0 1,066.5
-------- --------
Gross profit ................................... 1,123.5 1,080.6
-------- --------
Selling, general and administrative expenses ... 781.1 774.1
Interest expense ............................... 50.3 57.6
Interest income ................................ 7.1 11.9
-------- --------
824.3 819.8
-------- --------
Income before income taxes ..................... 299.2 260.8
Provision for income taxes ..................... 103.2 91.2
-------- --------
Net income ..................................... $ 196.0 $ 169.6
-------- --------
-------- --------
Earnings per common share:
Basic: ..................................... $ .65 $ .56
-------- --------
-------- --------
Diluted: ................................... $ .60 $ .52
-------- --------
-------- --------
Dividends declared per common share*: .......... $ .55 $ .51
-------- --------
-------- --------
* Includes two dividend declarations in both periods.
See Notes to Condensed Consolidated Financial Statements.
2
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
ASSETS
March 31, December 31,
1998 1997
---------- ------------
Current Assets:
Cash and cash equivalents ..................................... $ 176.2 $ 183.1
Marketable securities ......................................... 49.4 22.2
Receivables (less allowance of $38.3 and $35.8) ............... 1,085.7 1,037.4
Inventories ................................................... 748.1 728.4
Other current assets .......................................... 230.2 225.4
--------- ---------
2,289.6 2,196.5
--------- ---------
Property, Plant and Equipment:
Cost .......................................................... 3,849.0 3,798.3
Less: Accumulated depreciation ............................... 1,396.5 1,357.3
--------- ---------
2,452.5 2,441.0
--------- ---------
Goodwill and other intangible assets (net of
accumulated amortization of $495.8 and $475.0) ................. 2,561.8 2,585.3
Other assets ..................................................... 320.0 315.9
--------- ---------
$ 7,623.9 $ 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
March 31, December 31,
1998 1997
---------- ------------
Current Liabilities:
Notes and loans payable .................................... $ 173.0 $ 158.4
Current portion of long-term debt .......................... 152.4 178.3
Accounts payable ........................................... 692.3 716.9
Accrued income taxes ....................................... 126.6 67.0
Other accruals ............................................. 860.0 838.9
-------- ----------
2,004.3 1,959.5
-------- ----------
Long-term debt ................................................. 2,440.5 2,340.3
Deferred income taxes .......................................... 279.7 284.5
Other liabilities .............................................. 778.4 775.8
Shareholders' Equity:
Preferred stock ............................................ 382.3 385.3
Common stock ............................................... 366.4 366.4
Additional paid-in capital ................................. 1,057.4 1,027.4
Retained earnings .......................................... 3,168.8 3,138.0
Cumulative foreign currency translation adjustments ........ (689.8) (693.7)
--------- ----------
4,285.1 4,223.4
Unearned compensation ...................................... (360.8) (364.5)
Treasury stock, at cost .................................... (1,803.3) (1,680.3)
--------- ----------
2,121.0 2,178.6
-------- ----------
$7,623.9 $ 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
March 31, 1998 March 31, 1997
------------------------------------- -------------------------------------
Cumulative Cumulative
Retained Translation Retained Translation
Earnings Adjustment Total Earnings Adjustment Total
--------- ----------- ---------- ---------- ----------- ---------
Beginning Balance ..................... $ 3,138.0 $ (693.7) $ 2,444.3 $ 2,731.0 $ (534.7) $ 2,196.3
Net Income 196.0 196.0 169.6 169.6
Effect of Balance Sheet Translation ... 3.9 3.9 (16.2) (16.2)
--------- ---------
Total Comprehensive Income ............ 199.9 153.4
Dividends Declared .................... (165.2) (165.2) (151.0) (151.0)
--------- -------- --------- --------- -------- ---------
Ending Balance ........................ $ 3,168.8 $ (689.8) $ 2,479.0 $ 2,749.6 $ (550.9) $ 2,198.7
--------- -------- --------- --------- -------- ---------
--------- -------- --------- --------- -------- ---------
See Notes to Condensed Consolidated Financial Statements.
5
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Three Months Ended
March 31,
------------------------------
1998 1997
-------- --------
Operating Activities:
Net cash provided by operating activities ................................ $ 202.9 $ 155.0
-------- --------
Investing Activities:
Capital expenditures ..................................................... (77.5) (89.0)
Payments for acquisitions, net of cash acquired .......................... (.1) (10.3)
Sale of non-core product lines ........................................... - 20.7
(Investment in)/proceeds from sale of marketable securities
and other investments, net ........................................... (23.4) 12.2
Other, net ............................................................... (.9) (5.7)
-------- --------
Net cash used for investing activities ............................... (101.9) (72.1)
-------- --------
Financing Activities:
Principal payments on debt ............................................... (59.2) (104.1)
Proceeds from issuance of debt, net ...................................... 126.3 39.4
Dividends paid ........................................................... (83.8) (69.7)
Purchase of common stock ................................................. (83.7) (44.7)
Other, net ............................................................... (7.2) 18.0
-------- --------
Net cash used for financing activities ................................... (107.6) (161.1)
-------- --------
Effect of exchange rate changes on cash and cash equivalents ............. (.3) (2.7)
-------- --------
Net decrease in cash and cash equivalents ................................ (6.9) (80.9)
Cash and cash equivalents at beginning of period ......................... 183.1 248.2
-------- --------
Cash and cash equivalents at end of period ............................... $176.2 $167.3
-------- --------
-------- --------
See Notes to Condensed Consolidated Financial Statements.
6
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and Shares in Millions Except Per Share Amounts)
(Unaudited)
1. The condensed consolidated financial statements reflect all normal
recurring adjustments which, in management's opinion, are necessary for a
fair presentation of the results for interim periods. Results of operations
for the three months ended March 31, 1998 and 1997 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,
1998 1997
------------ ------------
Raw materials and supplies $ 259.8 $ 261.0
Work-in-process 33.3 33.5
Finished goods 455.0 433.9
------------ ------------
$ 748.1 $ 728.4
------------ ------------
------------ ------------
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. Par value remained $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. Earnings Per Share:
For the Three Months Ended 1998 For the Three Months Ended 1997
-------------------------------- -------------------------------
Per Per
Income Shares Share Income Shares Share
-------- -------- -------- -------- -------- -------
Net income ......................... $196.0 $169.6
Preferred dividends ................ (5.3) (5.4)
-------- --------
Basic EPS ....................... 190.7 295.6 $.65 164.2 294.6 $.56
------- -------
------- -------
Stock options ...................... 7.3 6.1
ESOP conversion .................... 4.7 22.8 4.7 23.3
-------- -------- -------- --------
Diluted EPS ..................... $195.4 325.7 $.60 $168.9 324.0 $.52
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
7
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and Shares in Millions Except Per Share Amounts)
(Unaudited)
6. In 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130, "Reporting Comprehensive Income." The Company
adopted this statement as of January 1, 1998 and, accordingly, disclosures
were expanded to include the Condensed Consolidated Statement of Retained
Earnings and Cumulative Translation Adjustment. There was no impact on the
Company's financial position, results of operations or cash flows.
7. 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 $2,159.5 in the first quarter of 1998, a 1% increase
over the 1997 first quarter, reflecting overall unit volume increases of 6%,
substantially offset by the decline in foreign currencies. Sales would have
grown 9%, excluding the negative effect of foreign exchange declines.
First quarter sales in the Oral, Personal and Household Care segment were
$1,928.5, up less than 1% from 1997 on volume growth of 7%.
Colgate-North America sales reached $486.1 in the first quarter of 1998. Sales
excluding divested businesses, grew 6% on volume gains of 5%. Contributing to
the growth were new product introductions, such as Softsoap antibacterial hand
gel, Lady Speed Stick gel, and the continued strength from the 1997
introductions of Colgate Total and Palmolive for pots & pans.
Colgate-Europe sales were virtually unchanged from a year ago at $492.4 for the
first quarter of 1998. Volume increased 8% with strong gains in France, Italy,
United Kingdom and Greece, primarily as a result of new product launches. The
volume increase, which occurred across all of Europe, was offset by the impact
of translating weaker European currencies.
Colgate-Latin America sales increased 8% to $578.0 on volume gains of 9%. All
key markets in the region contributed to volume growth. In addition, smaller
areas in the region such as Dominican Republic, Ecuador and Central America
gained double-digit growth.
Colgate-Asia/Africa first quarter sales from continuing businesses decreased
10% to $372.0. This decline was due to economic difficulties in the ASEAN
countries, partially mitigated by price increases. Contributing to this
region's 3% volume growth were strong gains in China, Hong Kong and
Australia offset by Malaysia and the Philippines volume decreases, due to
weakening economic conditions.
Sales in the Pet Nutrition segment increased 2% to $230.0 on volume gains of 4%.
Hill's-International benefited from new products and increased advertising in
Japan, as well as expanded selling activities in key European markets.
Worldwide gross profit margin for the first quarter of 1998 increased to 52.0%
from 50.3%, benefiting from continued streamlining of manufacturing, global
sourcing and other cost reduction programs.
Selling, general and administrative expenses in the first quarter of 1998
increased slightly as a percentage of sales to 36.2% from 36.1%. The higher
levels of expense included increased advertising partially offset by lower
administrative expenses.
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 11.7% to $342.4, and reached
a level of 15.9% of sales.
Interest expense, net of interest income decreased to $43.2 in the 1998 first
quarter as compared with $45.7 in 1997 primarily as a result of strong operating
cash flow which helped to lower debt levels.
The effective tax rate for the quarter was 34.5% in 1998 and 35.0% in the first
quarter 1997 and 32.8% for the full year 1997. The rate in 1998 reflects
continued benefits from the Company's tax planning strategies.
First quarter 1998 net income increased 16% to $196.0 or $.65 per share compared
with $169.6 or $.56 per share in the prior year.
Liquidity and Capital Resources
Net cash provided by operations increased 31% to $202.9 in the 1998 first
quarter compared with $155.0 in the 1997 first quarter. The improvement was
generated by the increase in operating profit and working capital management. At
March 31, 1998, $676.1 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 1997 Annual Report on Form 10-K for
additional information regarding available sources of liquidity and capital.
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10-M(b) Amendment dated as of April 1, 1998,
to the Five Year Credit Agreement dated
as of May 30, 1997.
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.
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
11
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 13, 1998 /s/ Stephen C. Patrick
----------------------------
Stephen C. Patrick
Chief Financial Officer
Principal Accounting Officer:
May 13, 1998 /s/ Dennis J. Hickey
----------------------------
Dennis J. Hickey
Vice President and
Corporate Controller
12
AMENDMENT
---------
AMENDMENT, dated as of April 1, 1998, to the Five Year Credit
Agreement dated as of May 30, 1997 (the "Credit Agreement"), among
Colgate-Palmolive Company, the Banks named therein, Citibank, N.A., as
Administrative Agent, and Morgan Guaranty Trust Company of New York, as
Documentation Agent.
W I T N E S S E T H :
WHEREAS, the Borrower and the Banks desire to amend the Credit
Agreement as set forth below;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. DEFINITIONS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit
Agreement shall have the meaning assigned to such term in the Credit
Agreement. Each reference therein to "this Agreement", "hereof",
"hereunder", "herein" and "hereby" and each similar reference contained in
the Credit Agreement shall from and after the date hereof refer to the Credit
Agreement as amended hereby.
Section 2. AMENDMENT OF SECTION 6.01 OF THE AGREEMENT. Section
6.01(f) of the Credit Agreement is amended by deleting the phrase
"$50,000,000" contained therein and inserting in lieu thereof the phrase
"$100,000,000".
Section 3. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
Section 4. COUNTERPARTS; EFFECTIVENESS. This Amendment may be
signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Amendment shall become effective as of the date hereof
when the Administrative Agent shall have received duly executed counterparts
hereof signed by the Borrower and the Required Lenders (or, in the case of
any party as to which an executed counterpart shall not have been received,
the Administrative Agent shall
have received telegraphic, telex or other written confirmation from such party
of execution of a counterpart hereof by such party). Except as specifically
amended hereby, the Credit Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
COLGATE-PALMOLIVE COMPANY
By
-----------------------------
Name:
Title:
CITIBANK, N.A., as Administrative Agent
By
-----------------------------
Name:
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Documentation Agent
By
-----------------------------
Name:
Title:
2
CITIBANK, N.A.
By
-----------------------------
Name:
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By
-----------------------------
Name:
Title:
BANCA COMMERCIALE ITALIANA NEW
YORK BRANCH
By
-----------------------------
Name:
Title:
BANCO SANTANDER
By
-----------------------------
Name:
Title:
By
-----------------------------
Name:
Title:
3
BANK OF AMERICA NT & SA
By
-----------------------------
Name:
Title:
THE BANK OF NEW YORK
By
-----------------------------
Name:
Title:
BANKERS TRUST COMPANY
By
-----------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By
-----------------------------
Name:
Title:
By
-----------------------------
Name:
Title:
BANQUE PARIBAS
By
-----------------------------
Name:
Title:
4
THE CHASE MANHATTAN BANK
By
-----------------------------
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By
-----------------------------
Name:
Title:
By
-----------------------------
Name:
Title:
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By
-----------------------------
Name:
Title:
By
-----------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By
-----------------------------
Name:
Title:
5
NATIONAL WESTMINSTER BANK PLC
By
-----------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK PLC,
NASSAU BRANCH
By
-----------------------------
Name:
Title:
NATIONSBANK, N.A.
By
-----------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By
-----------------------------
Name:
Title:
ROYAL BANK OF CANADA
By
-----------------------------
Name:
Title:
6
ISTITUTO BANCARIO SAN PAOLO DI
TORINO SPA
By
-----------------------------
Name:
Title:
SOCIETE GENERALE NEW YORK BRANCH
By
-----------------------------
Name:
Title:
STANDARD CHARTER BANK
By
-----------------------------
Name:
Title:
THE SUMITOMO BANK LIMITED
By
-----------------------------
Name:
Title:
7
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 March 31,
------------------------
1998 1997
------- ------
BASIC
Earnings:
Net income $196.0 $169.6
Deduct: Dividends on preferred shares 5.3 5.4
------- -------
Net income applicable to common shares $190.7 $164.2
------- -------
------- -------
Shares (in millions):
Weighted average shares outstanding 295.6 294.6
------- -------
------- -------
Earnings per common share, basic $ .65 $ .56
------- -------
------- -------
13
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 March 31,
----------------------------
1998 1997
------- -------
DILUTED
Earnings:
Net income $196.0 $169.6
Deduct: Dividends on preferred shares .1 .1
Deduct: Replacement funding .5 .6
------- -------
Net income applicable to common shares $195.4 $168.9
------- -------
------- -------
Shares (in millions):
Weighted average number of common shares
outstanding 295.6 294.6
Add: Assumed exercise of options reduced by the
number of shares purchased with the proceeds 7.3 6.1
Add: Assumed conversion of Series B convertible
Preference Stock 22.8 23.3
------- -------
Adjusted weighted average shares outstanding 325.7 324.0
------- -------
------- -------
Earnings per common share, diluted $ .60 $ .52
------- -------
------- -------
14
Exhibit 12
----------
COLGATE-PALMOLIVE COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31, 1998
------------------
Income before income taxes $299.2
ADD:
Interest on indebtedness and amortization of debt expense and
discount or premium 50.3
Portion of rents representative of interest factor 7.8
Interest on ESOP debt, net of dividends 0.8
LESS:
Income of less than fifty-percent owned subsidiaries (1.4)
------
Income as adjusted $356.7
------
------
FIXED CHARGES:
Interest on indebtedness and amortization of debt expense and
discount or premium $ 50.3
Portion of rents representative of interest factor 7.8
Interest on ESOP debt, net of dividends 0.8
Capitalized interest 1.9
------
Total fixed charges $ 60.8
======
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 quarter of 1998 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.
15
5
1,000,000
3-MOS
DEC-31-1998
MAR-31-1998
176
49
1,124
38
748
230
3,849
1,397
7,624
2,004
2,441
0
382
366
1,373
7,624
2,160
2,160
1,036
781
0
0
43
299
103
196
0
0
0
196
.65
.60
