x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COLGATE-PALMOLIVE COMPANY

(Exact name of registrant as specified in its charter)

DELAWARE

13-1815595

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

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).

Yes

x

No

o

Class

Shares Outstanding

Date

Common, $1.00 par value

 538,263,274

October 31, 2002

Three Months Ended
September 30,

Nine Months Ended
September 30,

2002

2001

2002

2001

Net sales

$

2,381.7

$

2,304.9

$

6,873.9

$

6,755.8

Cost of sales

1,079.1

1,072.5

3,124.5

3,154.8

Gross profit

1,302.6

1,232.4

3,749.4

3,601.0

Selling, general and administrative expenses

788.5

757.0

2,256.8

2,214.5

Operating profit

514.1

475.4

1,492.6

1,386.5

Interest expense

40.7

46.2

116.7

139.5

Interest income

(2.0

)

(2.7

)

(6.0

)

(9.5

)

Income before income taxes

475.4

431.9

1,381.9

1,256.5

Provision for income taxes

144.7

135.7

434.5

405.2

Net income

$

330.7

$

296.2

$

947.4

$

851.3

Earnings per common share:

Basic

$

.60

$

.52

$

1.71

$

1.49

Diluted

$

.57

$

.49

$

1.60

$

1.40

Dividends declared per common share

$

.18

$

.18

$

.54

$

.50

September 30,
2002

December 31,
2001

Current assets:

Cash and cash equivalents

$

200.7

$

172.7

Receivables (net of allowances of $44.9 and $45.6)

1,129.0

1,124.9

Inventories

689.6

677.0

Other current assets

214.2

228.8

2,233.5

2,203.4

Property, plant and equipment:

Cost

4,488.1

4,408.9

Less:  Accumulated depreciation

2,075.2

1,895.4

2,412.9

2,513.5

Goodwill and other intangible assets

1,757.2

1,904.0

Other assets

524.7

363.9

$

6,928.3

$

6,984.8

September 30,
2002

December 31,
2001

Current liabilities:

Notes and loans payable

$

126.9

$

101.6

Current portion of long-term debt

444.1

325.5

Accounts payable

653.8

678.1

Accrued income taxes

127.2

195.0

Other accruals

938.9

823.3

2,290.9

2,123.5

Long-term debt

3,072.1

2,812.0

Deferred income taxes

475.2

480.6

Other liabilities

766.7

722.3

Shareholders’ equity:

Preferred stock

325.8

341.3

Common stock

732.9

732.9

Additional paid-in capital

1,119.2

1,168.7

Retained earnings

6,285.2

5,643.6

Accumulated other comprehensive income

(1,812.3

)

(1,491.2

)

6,650.8

6,395.3

Unearned compensation

(340.3

)

(345.4

)

Treasury stock, at cost

(5,987.1

)

(5,203.5

)

323.4

846.4

$

6,928.3

$

6,984.8

Nine Months Ended
September 30,

2002

2001

Operating Activities:

Net income

$

947.4

$

851.3

Adjustments to reconcile net income to net cash provided by operations:

Depreciation and amortization

218.7

250.2

Deferred income taxes

16.1

60.8

Cash effects of changes in:

Receivables

(17.8

)

27.8

Inventories

(34.4

)

(64.2

)

Accounts payable and other accruals

148.8

(88.2

)

Income taxes payable

(30.6

)

42.9

Other non-current assets and liabilities

5.3

17.2

Net cash provided by operating activities

1,253.5

1,097.8

Investing Activities:

Capital expenditures

(214.0

)

(199.5

)

Voluntary long-term investment in benefit plan assets

(50.0

)

(55.7

)

Other

(13.0

)

1.7

Net cash used for investing activities

(277.0

)

(253.5

)

Financing Activities:

Principal payments on debt

(624.2

)

(195.8

)

Proceeds from issuance of debt

857.8

762.1

Dividends paid

(305.8

)

(287.7

)

Purchase of common stock

(903.9

)

(1,059.2

)

Other

27.1

21.0

Net cash used for financing activities

(949.0

)

(759.6

)

Effect of exchange rate changes on cash and cash equivalents

0.5

(1.7

)

Net increase in cash and cash equivalents

28.0

83.0

Cash and cash equivalents at beginning of period

172.7

206.6

Cash and cash equivalents at end of period

$

200.7

$

289.6

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.

Reference is made to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2001 for a complete set of financial notes including the Company’s significant accounting policies.

2.

Provision for certain expenses, including income taxes, media advertising and consumer promotion are based on full year assumptions.  Such amounts are recorded in the year incurred and are included in the accompanying Condensed Consolidated Financial Statements in proportion with estimated annual tax rates, the passage of time or annual sales.

3.

Sales Incentives and Promotional Expenses

On January 1, 2002, the Company adopted the requirements of the Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) Issue No. 00-14 “Accounting for Certain Sales Incentives” and Issue No. 00-25 “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products” that relate to the classification of various types of sales incentives and promotional expenses. Under this guidance, the Company’s net sales reflect units shipped at selling list prices reduced by sales returns and the cost of current and continuing promotional programs.  Current promotional programs are predominantly new product listing allowances, which are recorded at the beginning of the program, and introductory price reductions, which are reflected in net sales as the products are sold to the trade.  Continuing promotional programs are predominantly consumer coupons and volume-based sales incentive arrangements with trade customers. The redemption cost of consumer coupons is based on historical redemption experience and is recorded when coupons are distributed.  Volume-based incentives offered to trade customers are based on the estimated cost of the program and are recorded as products are sold.

The adoption of this new accounting resulted in the reclassification of certain sales incentives and promotional expenses from selling, general and administrative expenses to a reduction of net sales and cost of sales, but had no impact on the Company’s net income or earnings per share. The Condensed Consolidated Statements of Income reflect these reclassifications which reduced net sales by $86.3 and increased cost of sales by $0.5, for the three months ended September 30, 2001, and decreased net sales and cost of sales by $257.6 and $1.0, respectively, for the nine months ended September 30, 2001, with an offsetting reduction in selling, general and administrative expenses.

4.

Goodwill and Other Intangible Assets

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other Intangible Assets” effective January 1, 2002.  Under the new standard, goodwill and indefinite life intangible assets, such as the Company’s global brands, are no longer amortized but are subject to annual impairment tests.  Other intangible assets with finite lives, such as non-compete agreements, will continue to be amortized over their useful lives. The transitional impairment tests were completed and did not result in an impairment charge.

In accordance with SFAS 142, prior period amounts were not restated. A reconciliation of the previously reported net income and earnings per share for the three months and nine months ended September 30, 2001 to the amounts adjusted for the reduction of amortization expense, net of the related income tax effect, is as follows:

Three Months
Ended Sept. 30, 2001

Nine Months
Ended Sept. 30, 2001

Net
Income

Basic
EPS

Diluted
EPS

Net
Income

Basic
EPS

Diluted
EPS

Reported

$

296.2

$

.52

$

.49

$

851.3

$

1.49

$

1.40

Add: amortization adjustment

10.8

.02

.02

33.0

.06

.05

Adjusted

$

307.0

$

.54

$

.51

$

884.3

$

1.55

$

1.45

The net carrying value of goodwill and other intangible assets as of September 30, 2002 is comprised of the following:

Goodwill

$

1,147.4

Indefinite life intangible assets

357.5

Finite life intangible assets

252.3

$

1,757.2

The change in the net carrying amount of goodwill and other intangible assets during the three months and nine months ended September 30, 2002 is due to the impact of foreign currency translation adjustments and amortization of finite life intangible assets.

The net carrying value of goodwill as of September 30, 2002 by operating segment is as follows:

North America

$

249.3

Latin America

412.1

Europe

368.3

Asia/Africa

102.7

Total Oral, Personal and Household Care

1,132.4

Total Pet Nutrition

15.0

$

1,147.4

Finite life intangible assets as of September 30, 2002, subject to amortization expense, are comprised of the following:

Gross Carrying
Amount

Accumulated
Amortization

Net

Trademarks

$

369.0

$

(121.0

)

$

248.0

Other

7.7

(3.4

)

4.3

$

376.7

$

(124.4

)

$

252.3

Amortization expense for trademarks and other intangible assets with finite lives was $3.0 and $9.3 for the three months and nine months ended September 30, 2002, respectively.  Annual estimated amortization expense for each of the next five years is expected to approximate $12.0.

5.

Inventories by major classes were as follows:

September 30,
2002

December 31,
2001

Raw materials and supplies

$

179.2

$

188.0

Work-in-process

31.5

27.9

Finished goods

478.9

461.1

$

689.6

$

677.0

6.

Earnings Per Share:

Three Months Ended

September 30, 2002

September 30, 2001

Income

Shares

Per
Share

Income

Shares

Per
Share

Net income

$

330.7

$

296.2

Preferred dividends

(5.5

)

(5.8

)

Basic EPS

325.2

539.4

$

.60

290.4

554.5

$

.52

Stock options

6.9

8.4

ESOP conversion

5.4

38.7

5.7

40.9

Diluted EPS

$

330.6

585.0

$

.57

$

296.1

603.8

$

.49

Nine Months Ended

September 30, 2002

September 30, 2001

Income

Shares

Per
Share

Income

Shares

Per
Share

Net income

$

947.4

$

851.3

Preferred dividends

(16.6

)

(15.9

)

Basic EPS

930.8

544.5

$

1.71

835.4

559.9

$

1.49

Stock options

7.4

8.9

ESOP conversion

16.3

39.4

15.6

41.2

Diluted EPS

$

947.1

591.3

$

1.60

$

851.0

610.0

$

1.40

7.

Comprehensive income

Comprehensive income is comprised of net earnings, currency translation gains and losses, and gains and losses from derivative instruments designated as cash flow hedges.  Total comprehensive income for the three months ended September 30, 2002 and 2001 was $201.8 and $178.7, respectively.  Total comprehensive income for the nine months ended September 30, 2002 and 2001 was $626.3 and $659.5, respectively. The difference from net income primarily consists of foreign currency translation adjustments predominantly in Latin America. Accumulated other comprehensive income, as reflected in the Condensed Consolidated Balance Sheets, primarily consists of cumulative foreign currency translation adjustments.

8.

Contingencies

In 1995, the Company acquired the Kolynos oral care business from Wyeth (formerly American Home Products) (the “Seller”), as described in the Company’s Form 8-K dated January 10, 1995.  On September 8, 1998, the Company’s Brazilian subsidiary received notice of an administrative proceeding from the Central Bank of Brazil primarily taking issue with certain foreign exchange filings made with the Central Bank in connection with the financing of this strategic transaction, but in no way challenging or seeking to unwind the acquisition.  The Central Bank of Brazil in January 2001 notified the Company of its decision in this administrative proceeding to impose a fine, which, at the current exchange rate, approximates $70 million.  The Company has appealed the decision to the Brazilian Monetary System Appeals Council (the “Council”), thereby suspending the fine pending the decision of the Council. If the fine is affirmed, interest and penalties may also be assessed. Further

appeals are available within the Brazilian federal courts.  Management believes, based on the opinion of its Brazilian legal counsel and other experts, that the filings challenged by the Central Bank fully complied with Brazilian law and that the Company will prevail on appeal. The Company intends to challenge this fine vigorously.  In addition, Brazilian prosecutors are reviewing the foregoing transactions as part of an overall examination of all international transfers of Reals through non-resident current accounts during the 1992 to 1998 time frame.  The Company understands that this examination involves hundreds and possibly thousands of other individuals and companies. The Company learned recently that the Brazilian Federal Public Attorney filed a civil action against the federal government of Brazil, Laboratorios Wyeth-Whitehall Ltda., the Brazilian subsidiary of the Seller, and the Company, as represented by its Brazilian subsidiary, seeking to annul an April 2000 decision by the Brazilian Board of Tax Appeals that found in favor of the Seller’s subsidiary on the issue of whether it had incurred taxable capital gains as a result of the divestiture of Kolynos.  The action seeks to make the Company’s Brazilian subsidiary jointly and severally liable for any tax due from the Seller’s subsidiary.  Management believes, based on the opinion of its Brazilian legal counsel, that this action will be dismissed.  The Company intends to challenge this action vigorously.

In addition, the Brazilian internal revenue authority has disallowed interest deductions and foreign exchange losses taken by the Company’s Brazilian subsidiary in connection with the financing of the Kolynos acquisition, imposing a tax assessment which has been determined, at the current exchange rate, to approximate $25 million.  The Company has filed an administrative appeal with the Brazilian internal revenue authority, and further appeals are available within the Brazilian federal courts.  Management believes, based on the opinion of its Brazilian legal counsel and other experts, that the disallowance is without merit and that the Company will prevail on appeal.  The Company intends to challenge this assessment vigorously.

While it is possible that the Company’s cash flows and results of operations in a particular quarter or year could be affected by the one-time impacts of the resolution of such contingencies, it is the opinion of management that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material impact on the Company’s financial position or ongoing cash flows and results of operations.

9.

Segment Information –

Three months ended
September 30,

Nine months ended
September 30,

2002

2001

2002

2001

Net Sales

North America

$

623.5

$

593.7

$

1,753.2

$

1,711.2

Latin America

533.9

596.7

1,656.2

1,752.9

Europe

532.3

466.5

1,466.8

1,367.7

Asia/Africa

396.0

373.8

1,139.5

1,116.7

Total Oral, Personal and Household Care

2,085.7

2,030.7

6,015.7

5,948.5

Total Pet Nutrition

296.0

274.2

858.2

807.3

Net Sales

$

2,381.7

$

2,304.9

$

6,873.9

$

6,755.8

Earnings

North America

$

150.1

$

135.3

$

429.9

$

400.5

Latin America

160.5

173.5

489.7

494.2

Europe

110.9

88.0

305.7

259.9

Asia/Africa

58.0

44.0

170.5

148.7

Total Oral, Personal and Household Care

479.5

440.8

1,395.8

1,303.3

Total Pet Nutrition

78.6

68.7

230.7

206.3

Corporate

(44.0

)

(34.1

)

(133.9

)

(123.1

)

Operating profit

514.1

475.4

1,492.6

1,386.5

Interest expense, net

(38.7

)

(43.5

)

(110.7

)

(130.0

)

Income before income taxes

$

475.4

$

431.9

$

1,381.9

$

1,256.5

The Company evaluates segment performance based on several factors, including operating profit. The Company uses operating profit as a measure of the basic health of the operating segments because it excludes the impact of corporate-driven decisions affecting interest expense and income taxes.  Segment operating profit is reconciled in the table above to operating profit as shown on the Condensed Consolidated Statements of Income.

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

For information regarding legal matters refer to Note 8 of the Notes to Condensed Consolidated Financial Statements within this quarterly report and Note 14 to the Consolidated Financial Statements included in the registrant’s Annual Report on Form 10-K for the year ended December 31, 2001.

Item 6.

Exhibits and Reports on Form 8-K

(a)

Exhibits:

Exhibit 12

Ratio of Earnings to Fixed Charges.

Exhibit 99-A

Certificate of the Chairman and Chief Executive Officer of Colgate-Palmolive Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 99-B

Certificate of the Chief Financial Officer of Colgate-Palmolive Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)

Reports on Form 8-K.

On August 2, 2002, the Company filed a current report on Form 8-K attaching as exhibits sworn statements made by each of the Chairman and Chief Executive Officer and the Chief Financial Officer of the Company certifying previously filed reports pursuant to Securities and Exchange Commission Order No. 4-460.

COLGATE-PALMOLIVE COMPANY