UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2004.
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number 1-644
COLGATE-PALMOLIVE COMPANY
(Exact name of registrant as specified in its charter)
| Delaware | 13-1815595 | |
| (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)
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Class |
Shares Outstanding |
Date | ||
| Common, $1.00 par value |
532,087,773 | March 31, 2004 |
| 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, | ||||||
| 2004 |
2003 | |||||
| Net sales |
$ | 2,513.5 | $ | 2,348.4 | ||
| Cost of sales |
1,113.9 | 1,050.2 | ||||
| Gross profit |
1,399.6 | 1,298.2 | ||||
| Selling, general and administrative expenses |
868.3 | 787.7 | ||||
| Operating profit |
531.3 | 510.5 | ||||
| Interest expense, net |
28.3 | 34.0 | ||||
| Income before income taxes |
503.0 | 476.5 | ||||
| Provision for income taxes |
164.5 | 152.5 | ||||
| Net income |
$ | 338.5 | $ | 324.0 | ||
| Earnings per common share, basic |
$ | .62 | $ | .59 | ||
| Earnings per common share, diluted |
$ | .59 | $ | .56 | ||
| Dividends declared per common share* |
$ | .48 | $ | .42 | ||
| * | Two dividends were declared in each period. |
See Notes to Condensed Consolidated Financial Statements.
2
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| Assets |
||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ | 271.5 | $ | 265.3 | ||||
| Receivables (net of allowances of $46.0 and $43.6, respectively) |
1,204.8 | 1,222.4 | ||||||
| Inventories |
788.7 | 718.3 | ||||||
| Other current assets |
300.0 | 290.5 | ||||||
| Total current assets |
2,565.0 | 2,496.5 | ||||||
| Property, plant and equipment: |
||||||||
| Cost |
5,075.8 | 5,069.2 | ||||||
| Less: Accumulated depreciation |
(2,580.6 | ) | (2,527.0 | ) | ||||
| 2,495.2 | 2,542.2 | |||||||
| Goodwill, net |
1,290.9 | 1,299.4 | ||||||
| Other intangible assets, net |
594.0 | 597.6 | ||||||
| Other assets |
556.0 | 543.1 | ||||||
| Total assets |
$ | 7,501.1 | $ | 7,478.8 | ||||
| Liabilities and Shareholders’ Equity |
||||||||
| Current liabilities |
||||||||
| Notes and loans payable |
$ | 112.9 | $ | 103.6 | ||||
| Current portion of long-term debt |
314.9 | 314.4 | ||||||
| Accounts payable |
740.2 | 753.6 | ||||||
| Accrued income taxes |
179.4 | 183.8 | ||||||
| Other accruals |
1,195.4 | 1,090.0 | ||||||
| Total current liabilities |
2,542.8 | 2,445.4 | ||||||
| Long-term debt |
2,687.3 | 2,684.9 | ||||||
| Deferred income taxes |
463.2 | 456.0 | ||||||
| Other liabilities |
1,000.4 | 1,005.4 | ||||||
| Shareholders’ Equity |
||||||||
| Preferred stock |
284.8 | 292.9 | ||||||
| Common stock |
732.9 | 732.9 | ||||||
| Additional paid-in capital |
1,099.3 | 1,126.2 | ||||||
| Retained earnings |
7,514.2 | 7,433.0 | ||||||
| Accumulated other comprehensive income |
(1,868.2 | ) | (1,866.8 | ) | ||||
| 7,763.0 | 7,718.2 | |||||||
| Unearned compensation |
(322.9 | ) | (331.2 | ) | ||||
| Treasury stock, at cost |
(6,632.7 | ) | (6,499.9 | ) | ||||
| Total shareholders’ equity |
807.4 | 887.1 | ||||||
| Total liabilities and shareholders’ equity |
$ | 7,501.1 | $ | 7,478.8 | ||||
See Notes to Condensed Consolidated Financial Statements.
3
COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Operating Activities: |
||||||||
| Net income |
$ | 338.5 | $ | 324.0 | ||||
| Adjustments to reconcile net income to net cash provided by operations: |
||||||||
| Restructuring |
(6.2 | ) | — | |||||
| Depreciation and amortization |
79.9 | 75.7 | ||||||
| Deferred income taxes |
8.0 | 7.1 | ||||||
| Cash effects of changes in: |
||||||||
| Receivables |
12.0 | (10.2 | ) | |||||
| Inventories |
(73.8 | ) | (60.4 | ) | ||||
| Accounts payable and other accruals |
(26.6 | ) | 25.4 | |||||
| Other non-current assets and liabilities |
39.5 | 5.5 | ||||||
| Net cash provided by operations |
371.3 | 367.1 | ||||||
| Investing Activities: |
||||||||
| Capital expenditures |
(43.3 | ) | (48.2 | ) | ||||
| Other |
9.3 | (14.5 | ) | |||||
| Net cash used in investing activities |
(34.0 | ) | (62.7 | ) | ||||
| Financing Activities: |
||||||||
| Principal payments on debt |
(179.2 | ) | (129.2 | ) | ||||
| Proceeds from issuance of debt |
181.7 | 101.3 | ||||||
| Dividends paid |
(129.4 | ) | (97.4 | ) | ||||
| Purchases of treasury shares |
(220.3 | ) | (154.0 | ) | ||||
| Proceeds from exercise of stock options |
21.3 | 11.3 | ||||||
| Net cash used in financing activities |
(325.9 | ) | (268.0 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents |
(5.2 | ) | 1.5 | |||||
| Net increase in cash and cash equivalents |
6.2 | 37.9 | ||||||
| Cash and cash equivalents at beginning of period |
265.3 | 167.9 | ||||||
| Cash and cash equivalents at end of period |
$ | 271.5 | $ | 205.8 | ||||
| Supplemental Cash Flow Information: |
||||||||
| Income taxes paid |
$ | 154.6 | $ | 79.6 | ||||
See Notes to Condensed Consolidated Financial Statements.
4
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
| 1. | The Condensed Consolidated Financial Statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair presentation of the results for interim periods. Results of operations for the interim periods may not be representative of results to be expected for a full year. |
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, 2003, 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 and are included in the accompanying Condensed Consolidated Financial Statements in proportion with estimated annual tax rates, the passage of time or estimated annual sales. |
| 3. | Inventories by major classes were as follows: |
| March 31, 2004 |
December 31, 2003 | |||||
| Raw materials and supplies |
$ | 190.3 | $ | 182.3 | ||
| Work-in-process |
34.2 | 30.4 | ||||
| Finished goods |
564.2 | 505.6 | ||||
| $ | 788.7 | $ | 718.3 | |||
| 4. | 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 March 31, 2004 and 2003 was $337.1 and $318.9, respectively. Accumulated other comprehensive income, as reflected in the Condensed Consolidated Balance Sheets, primarily consists of cumulative foreign currency translation adjustments.
5
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
| 5. | Earnings Per Share |
| Three Months Ended | ||||||||||||||||||
| March 31, 2004 |
March 31, 2003 | |||||||||||||||||
| Income |
Shares |
Per Share |
Income |
Shares |
Per Share | |||||||||||||
| Net income |
$ | 338.5 | $ | 324.0 | ||||||||||||||
| Preferred dividends |
(6.6 | ) | (6.9 | ) | ||||||||||||||
| Basic EPS |
331.9 | 532.9 | $ | .62 | 317.1 | 537.1 | $ | .59 | ||||||||||
| Stock options and restricted stock |
4.2 | 5.0 | ||||||||||||||||
| Convertible preference stock |
6.6 | 35.4 | 6.8 | 37.6 | ||||||||||||||
| Diluted EPS |
$ | 338.5 | 572.5 | $ | .59 | $ | 323.9 | 579.7 | $ | .56 | ||||||||
| 6. | Stock-Based Compensation |
Stock-based compensation plans are accounted for under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As all grants had an exercise price not less than fair market value on the date of grant, no compensation expense has been recognized for stock option grants. The following illustrates the effect on net income and earnings per share if the Company had applied the fair value method of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”:
| Three Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| Net income, as reported |
$ | 338.5 | $ | 324.0 | ||
| Deduct: pro forma stock option compensation expense, net of tax |
10.8 | 9.3 | ||||
| Pro forma net income |
$ | 327.7 | $ | 314.7 | ||
| Earnings per share: |
||||||
| Basic—as reported |
$ | .62 | $ | .59 | ||
| Basic—pro forma |
.60 | .57 | ||||
| Diluted—as reported |
.59 | .56 | ||||
| Diluted—pro forma |
.57 | .54 | ||||
Pro forma stock option compensation expense above is the estimated fair value of options granted amortized over the vesting period.
6
COLGATE-PALMOLIVE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
| 7. | Restructuring Activities |
In line with the divestment of the European detergent brands and the Company’s focus on the regionalization of manufacturing facilities to streamline and strengthen its operations, during 2003 the Company initiated the realignment of certain manufacturing operations and workforce reduction programs primarily in Europe, Latin America and Asia. Restructuring activity in the first quarter of 2004 is as follows: