Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
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
-----------------
[LOGO] COLGATE-PALMOLIVE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 13-1815595
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
300 Park Avenue, New 10022
York, New York
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code 212-310-2000
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
$4.25 Preferred Stock, New York Stock Exchange
without par value,
cumulative dividend
Common Stock, $1.00 par New York Stock Exchange
value
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At February 28, 2002 the aggregate market value of stock held by
non-affiliates was $30.7 billion. There were 548,974,068 shares of Common Stock
outstanding as of February 28, 2002.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents Form 10-K Reference
--------- -------------------
Portions of Proxy Part III, Items 10
Statement for the 2002 through 13
Annual Meeting
PART I
ITEM 1. BUSINESS
(a) General Development of the Business
Colgate-Palmolive Company (together with its subsidiaries, the "Company"),
which was organized under the laws of the State of Delaware in 1923, is a
leading consumer products company whose products are marketed in over 200
countries and territories throughout the world.
For recent business developments, refer to the information set forth under
the captions "Results of Operations", "Liquidity and Capital Resources" and
"Outlook" in Part II, Item 7 of this report.
(b) Financial Information About Industry Segments
Worldwide net sales and earnings by business segment and geographic region
during the last three years appear under the caption "Results of Operations" in
Part II, Item 7 of this report.
(c) Narrative Description of the Business
The Company manages its business in two distinct product segments: Oral,
Personal and Household Care, and Pet Nutrition. Colgate is a global leader in
Oral Care with the leading toothpaste brand in the U.S. and throughout many
parts of the world. Colgate's Oral Care products include toothbrushes,
toothpaste, mouth rinses and dental floss, and pharmaceutical products for
dentists and other oral health professionals. Significant recent product
launches in this segment include Colgate 2in1 toothpaste and mouthwash, Colgate
Total Plus Whitening, Colgate Herbal and Colgate Fresh Confidence toothpastes,
and the Colgate Actibrush and Colgate Motion battery-powered toothbrushes.
Colgate leads many segments of the Personal Care market with several
products including bar and liquid hand soaps, shower gels, shampoos,
conditioners, deodorants and antiperspirants and shave products. Colgate is the
market leader in liquid soaps in the U.S. and globally is the market leader in
male deodorant sticks. Significant recent product launches in this segment
include the Softsoap and Palmolive brands of body washes and liquid hand soaps
such as Softsoap Fruit Essentials and Palmolive Vitamins shower gel and liquid
hand soap, and Palmolive Aromatherapy shower gel and bath foam. Colgate also
manufactures and markets Mennen underarm antiperspirants and deodorants and
other men's toiletries.
Colgate manufactures and markets a wide array of products for Household
Care. Major products include Palmolive and Ajax dishwashing liquid and Fabuloso
household cleansers. Colgate also markets other household names in cleaning and
laundry products in the U.S. such as Fab, Ajax and Murphy's oil soap. In the
Company's major markets outside the U.S., Colgate is number one in fabric
conditioners with leading brands Suavitel in Latin America and Soupline in
Europe. Significant recent product launches in this segment include Palmolive
Spring Sensations dishwashing liquid, Ajax wipes and new variants of Ajax Fete
des Fleurs cleaner.
Sales of Oral, Personal, Household and Fabric Care products accounted for
34%, 24%, 16% and 13% of total worldwide sales in 2001, respectively.
Geographically, Oral Care is a significant part of the Company's business in
Asia/Africa, comprising approximately 51% of sales in that region for 2001. For
more information regarding the Company's worldwide sales by product categories,
refer to Note 1 of the Consolidated Financial Statements included herein.
Colgate, through its Hill's Pet Nutrition subsidiary, is the world leader in
specialty pet nutrition products for dogs and cats. Hill's markets pet foods
primarily under two trademarks: Science Diet, which is sold by authorized pet
supply retailers, breeders and veterinarians for every day nutritional needs,
and Prescription Diet for dogs and cats with disease conditions. Significant
recent product launches in this segment include Science Diet Canine and Feline
Oral Care, Prescription Diet Canine b/d formula that reduces the effects of
canine brain aging, and Prescription Diet Canine and Feline z/d for allergic
animals. Hill's sells its products in 80 countries and leads the premium pet
food segment in North America, Japan and South Africa. Sales of Pet Nutrition
products accounted for 13% of total worldwide sales in 2001.
2
Research and Development
Strong research and development capabilities enable Colgate to support its
many brands with technologically sophisticated products for consumers' personal
and household care needs and pet nutrition needs. Company spending related to
research and development activities was $184.9 million and $176.1 million
during 2001 and 2000, respectively.
Distribution; Competition; Trademarks and Patents
The Company's products are generally marketed by a direct sales force at
each individual operating subsidiary or business unit. In some instances,
distributors or brokers are used. No single customer accounts for as much as
10% of the Company's sales.
Most raw materials are purchased from other companies and are available from
several sources. Raw material commodities such as tallow and essential oils are
subject to wide price variations. No single raw material represents a
significant portion of the Company's total material requirements.
The Company's products are sold in a highly competitive global marketplace
which is experiencing increased trade concentration. Products similar to those
produced and sold by the Company are available from competitors in the U.S. and
overseas. Certain of the Company's competitors are larger and have greater
resources than the Company. Product quality, brand recognition and acceptance
and marketing capability largely determine success in the Company's business
segments.
Trademarks are considered to be of material importance to the Company's
business. The Company follows a practice of seeking trademark protection by all
available means in the United States and throughout the world where the
Company's products are sold. Principal global trademarks include Colgate,
Palmolive, Kolynos, Mennen, Protex, Ajax, Soupline, Suavitel, Fab, Science Diet
and Prescription Diet in addition to several regional trademarks. These
trademarks are of significant importance to the Company and its subsidiaries
within their markets. The Company's rights in these trademarks endure for as
long as they are used and registered. Although the Company owns a number of
patents, no single patent is considered significant to the business as a whole.
Employees
At year-end, the Company employed approximately 38,500 employees of which
approximately 80% were located outside the United States.
Environmental Matters
It is the Company's policy to fully comply with environmental rules and
regulations. Capital expenditures for environmental control facilities totaled
$27.0 million for 2001. For future years, expenditures are expected to be in
the same range. The Company has programs that are designed to ensure that its
operations and facilities meet or exceed applicable rules and regulations. For
information regarding other environmental matters refer to Note 14 to the
Consolidated Financial Statements included herein.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
For information concerning geographic area financial data refer to the
information set forth under the caption "Results of Operations" in Part II,
Item 7 of this report.
3
ITEM 2. PROPERTIES
The Company owns and leases a total of 295 manufacturing, distribution,
research and office facilities worldwide. Corporate headquarters is located in
leased facilities at 300 Park Avenue, New York, New York.
In the United States, the Company operates 46 facilities, of which 20 are
owned. Major U.S. manufacturing and warehousing facilities used by the Oral,
Personal and Household Care segment are located in Kansas City, Kansas;
Morristown, New Jersey; Jeffersonville, Indiana; and Cambridge, Ohio. The Pet
Nutrition segment has major facilities in Bowling Green, Kentucky; Topeka,
Kansas; Commerce, California; and Richmond, Indiana. The primary research
center for Oral, Personal and Household Care products is located in Piscataway,
New Jersey and the primary research center for Pet Nutrition products is
located in Topeka, Kansas. Other research facilities are located in select
overseas locations.
Overseas, the Company operates 249 facilities, of which 90 are owned, in
over 70 countries. Major overseas facilities used by the Oral, Personal and
Household Care segment are located in Australia, Brazil, Canada, China,
Colombia, France, Italy, Malaysia, Mexico, South Africa, Thailand, the United
Kingdom, Venezuela and elsewhere throughout the world. In some areas outside
the United States, products are either manufactured by independent contractors
under Company specifications or are imported from the United States or
elsewhere.
All facilities operated by the Company are, in general, well maintained and
adequate for the purpose for which they are intended. The Company conducts
continuing reviews of its facilities with the view to modernization and cost
reduction.
ITEM 3. LEGAL PROCEEDINGS
In 1995, the Company acquired the Kolynos oral care business from American
Home Products, 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
$110 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, in the
course of monitoring the Central Bank proceeding, the Company learned recently
that Brazilian prosecutors are reviewing the foregoing transactions as part of
an overall examination of all international transfers of Reais 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.
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 $40 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.
For information regarding other legal matters refer to Note 14 to the
Consolidated Financial Statements.
4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of executive officers as of March 20, 2002:
Date First
Elected
Name Age Officer Present Title
---- --- ---------- -------------
Reuben Mark........ 63 1974 Chairman of the Board and Chief Executive Officer
William S. Shanahan 61 1983 President
Lois D. Juliber.... 53 1991 Chief Operating Officer
Javier G. Teruel... 51 1996 Chief Growth Officer
Ian M. Cook........ 49 1996 Executive Vice President
President, Colgate-North America
Stephen C. Patrick. 52 1990 Chief Financial Officer
Andrew D. Hendry... 54 1991 Senior Vice President
General Counsel and Secretary
Michael J. Tangney. 57 1993 Executive Vice President
President, Colgate-Latin America
Robert J. Joy...... 55 1996 Senior Vice President
Global Human Resources
Dennis J. Hickey... 53 1998 Vice President and
Corporate Controller
Robert C. Wheeler.. 60 1991 Chief Executive Officer
Hill's Pet Nutrition, Inc.
Steven R. Belasco.. 55 1991 Vice President
Taxation and Real Estate
Susan J. Riley..... 43 2001 Vice President
Treasurer
Ronald T. Martin... 53 2001 Vice President
Global Business Practices and Public Affairs
Michele C. Mayes... 52 2001 Vice President
Legal and Assistant Secretary
Peter D. McLeod.... 61 1984 Vice President
Manufacturing Engineering Technology
Barrie M. Spelling. 58 1994 President
Global Oral Care
Each of the executive officers listed above has served the registrant or its
subsidiaries in various executive capacities for the past five years, with the
exception of Susan J. Riley, who joined Colgate in January 2001 as Vice
President of Financial Business Development and was elected to her current
position effective July 2001. She previously served as the Chief Financial
Officer of The Dial Corporation, where she worked from 1997 to 2000.
Under the Company's By-Laws, the officers of the corporation hold office
until their respective successors are chosen and qualified, or until they have
resigned, retired or been removed by the affirmative vote of a majority of the
board of directors.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
Refer to the information regarding the market for the Company's common stock
and the quarterly market price information appearing under the caption "Market
and Dividend Information" included herein; the information under "Capital Stock
and Stock Compensation Plans" in Note 5 to the Consolidated Financial
Statements; and the "Number of shareholders of record" and "Cash dividends
declared and paid per common share" under the caption "Historical Financial
Summary" included herein.
ITEM 6. SELECTED FINANCIAL DATA
Refer to the information set forth under the caption "Historical Financial
Summary".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in Millions Except Per Share Amounts)
Results of Operations
2001 2000 1999
-------- -------- --------
Worldwide Net Sales by Business Segment and Geographic Region
Oral, Personal and Household Care
North America/(1)/........................................ $2,390.2 $2,310.0 $2,143.7
Latin America............................................. 2,443.3 2,507.5 2,356.7
Europe.................................................... 1,902.1 1,890.1 2,028.8
Asia/Africa............................................... 1,512.9 1,532.0 1,519.7
-------- -------- --------
Total Oral, Personal and Household Care...................... 8,248.5 8,239.6 8,048.9
Total Pet Nutrition/(2)/..................................... 1,179.3 1,118.3 1,069.3
-------- -------- --------
Total Net Sales........................................... $9,427.8 $9,357.9 $9,118.2
======== ======== ========
- --------
/(1)/ Net sales in the United States for Oral, Personal and Household Care were
$2,097.9, $2,025.7 and $1,880.8 in 2001, 2000 and 1999, respectively.
/(2)/ Net sales in the United States for Pet Nutrition were $790.2, $736.0 and
$709.2 in 2001, 2000 and 1999, respectively.
Net Sales and Earnings Before Interest and Taxes (EBIT)
Worldwide net sales increased 1.5%, excluding divestments, to $9,427.8 in
2001 on volume growth of 5.0%. Net sales would have grown 5.5% excluding
foreign currency translation. Net sales in the Oral, Personal and Household
Care segment increased 1.0%, excluding divestments, on 5.0% volume growth,
while net sales and volume in Pet Nutrition increased by 5.5%. In 2000,
worldwide net sales increased 2.5% to $9,357.9 on volume growth of 6.0%,
reflecting the negative impact of foreign currency translation.
EBIT rose from $1,740.5 in 2000 to $1,834.8 in 2001. The 5% increase
reflected the Company's strong volume growth and cost-control initiatives that
were effective in increasing margins. EBIT increased 11% in 2000 to $1,740.5
from $1,566.2 in 1999.
Gross Profit
Gross profit margin increased to 55.1%, above both the 2000 level of 54.4%
and the 1999 level of 53.7%. This favorable trend reflects the Company's
financial strategy to improve all aspects of its supply chain through global
sourcing and other cost-reduction initiatives, as well as its emphasis on
higher margin products.
6
(Dollars in Millions Except Per Share Amounts)
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales were
34.6% in 2001, 35.3% in 2000 and 35.7% in 1999. The overall spending as a
percentage of sales continued to decline as a result of the Company's ongoing
focus on overhead reduction and the effect of translation on local currency
costs.
Media and Other Advertising
Included in selling, general and administrative expenses is media spending
of $509.0, $550.9 and $575.6 in 2001, 2000 and 1999, respectively. The trend in
media spending reflects both lower media pricing and the negative impact of
exchange. Total advertising support, including media, promotion and other
consumer and trade incentives which reduce reported sales, has increased in
each of the years presented.
Other Expense, Net
Other expense, net, consists principally of amortization of goodwill and
other intangible assets, minority interest in earnings of less-than-100%-owned
consolidated subsidiaries, earnings from equity investments, gains on sale of
non-core product lines, and other miscellaneous gains and losses. Other
expense, net, increased in 2001 from $52.3 to $94.5 with $27.0 of the increase
resulting from unrealized losses on foreign currency contracts in 2001 of $11.6
as compared with unrealized gains of $15.4 in 2000. These contracts are an
economic hedge of certain foreign currency debt but do not qualify for hedge
accounting.
During 2000, the Company incurred charges of $92.7 ($61.2 aftertax),
including a restructuring charge related to the realignment of certain
manufacturing operations and the exiting of our business in Nigeria. Also
included were gains of $102.0 ($60.9 aftertax) recorded on the sale of real
estate and the sale of the Viva detergent brand in Mexico.
2001 2000 1999
-------- -------- --------
Worldwide Earnings by Business Segment and Geographic Region
Oral, Personal and Household Care
North America............................................ $ 511.6 $ 482.4 $ 413.0
Latin America............................................ 668.2 603.1 535.7
Europe................................................... 342.6 320.0 342.0
Asia/Africa.............................................. 195.9 194.0 166.7
-------- -------- --------
Total Oral, Personal and Household Care..................... 1,718.3 1,599.5 1,457.4
Total Pet Nutrition......................................... 282.1 243.5 219.9
Corporate Overhead and Other................................ (165.6) (102.5) (111.1)
-------- -------- --------
Earnings Before Interest and Taxes.......................... 1,834.8 1,740.5 1,566.2
Interest Expense, Net....................................... (166.1) (173.3) (171.6)
-------- -------- --------
Income Before Income Taxes.................................. $1,668.7 $1,567.2 $1,394.6
======== ======== ========
Segment Results
North America
North America net sales grew 3.5% to $2,390.2 on volume gains of 4.5%.
Volume increases were led by the strength of recently introduced products in
all core categories. In the Oral Care category, recently introduced products
such as Colgate Total Plus Whitening toothpaste, Colgate 2in1 toothpaste and
mouthwash and Colgate Motion battery-powered toothbrush contributed to
increased volumes and market share. The Personal Care category experienced
incremental market share driven by volume gains from recently introduced
products such as the Softsoap Fruit Essentials and Softsoap Vitamins with
vitamin E shower gels and liquid hand soaps, and the Mennen Speed Stick Power
of Nature deodorants. The Household Care category had increased volumes from
products such as Palmolive Spring Sensations dishwashing liquid and Suavitel
fabric conditioner. In 2000, North America achieved overall sales growth of
8.5%, excluding divestments, to $2,310.0 on volume growth of 7.5%.
7
(Dollars in Millions Except Per Share Amounts)
EBIT in North America grew 6% to $511.6 as a result of volume gains and
efficiencies in advertising spending. EBIT in 2000 increased 17% to $482.4.
Latin America
Net sales in Latin America increased slightly, excluding divestments, to
$2,443.3 on 5.0% volume growth offset by foreign currency weaknesses. Mexico,
Brazil, Venezuela, Ecuador and Central America achieved the strongest volume
gains in the region. Recently launched products including Colgate Herbal,
Colgate Fresh Confidence and Colgate Triple Action toothpastes contributed to
increased volumes and market share in the Oral Care category throughout the
region. Other products contributing to volume gains in the region were Lady
Speed Stick Ultra Dry deodorant, Palmolive Naturals and Caprice shampoos, Axion
Spring Sensations dishwashing liquid and Suavitel Fresca Primavera fabric
conditioner in the Personal and Household Care categories. In 2000, Latin
America net sales increased 6.5% to $2,507.5 on 5.5% volume growth.
EBIT in Latin America increased 11% to $668.2 as a result of volume gains,
higher gross profit margins, continued efforts to contain costs and
efficiencies in advertising spending. EBIT in 2000 grew 13% to $603.1.
Europe
Net sales in Europe increased 1.0%, excluding divestments, to $1,902.1 as
unit volume gains of 5.5% were partially offset by the weakened euro. Germany,
the United Kingdom, Greece and Russia achieved the strongest volume gains in
the region. Recent product launches including Colgate Herbal and Colgate Total
Plus Whitening toothpastes and the Colgate Actibrush Bzzz for kids
battery-powered toothbrush contributed to regional volume growth in the Oral
Care category. In the Personal and Household Care categories, new products such
as Palmolive Aromatherapy shower gel and bath foam, Palmolive Vitamins shower
gel and liquid hand soap and Ajax wipes contributed to increased volumes and
market share. In 2000, Europe net sales declined 7.0% to $1,890.1, due
primarily to the weakened euro, while volume grew 4.0%.
EBIT in Europe increased 7% to $342.6 due to volume gains and higher gross
profit margins. EBIT in 2000 declined 6% to $320.0 as a result of foreign
currency weakness.
Asia/Africa
Net sales in Asia/Africa decreased 1.0% to $1,512.9 as volume gains of 6.0%
were offset by foreign currency weakness. China, Australia, Malaysia, Thailand
and South Africa achieved the strongest volume gains in the region. Recent
product launches including Colgate Fresh Confidence, Colgate Herbal and Colgate
Triple Action toothpastes contributed to volume gains in the Oral Care
category. In the Personal and Household Care categories, recently introduced
products such as the Palmolive Fruit Essentials line of bar soap, liquid hand
soap and shower gels, Axion Orange Fantasy dishwashing paste and Softlan fabric
conditioner helped to drive volume growth in the region. In 2000, net sales in
Asia/Africa increased 1.5%, excluding divestments, to $1,532.0 as volume
increased 7.5%.
EBIT grew 1% in Asia/Africa to $195.9 driven by increased volumes and higher
gross profit margins. EBIT in 2000 grew 16% to $194.0.
Pet Nutrition
Net sales for Hill's Pet Nutrition increased 5.5% to $1,179.3 on 5.5% volume
growth. North American sales increased due to the introduction of innovative
new products including Science Diet Canine and Feline Oral Care, Science Diet
Canine Small Bites and Prescription Diet Canine b/d, a clinically proven
product that reduces the effects of canine brain aging. Hill's also experienced
strong volume growth in Europe, South Pacific and Latin America driven by new
products such as Science Diet Canine and Feline Oral Care and Prescription Diet
Canine and Feline z/d anti-allergy formula. In 2000, net sales for the Pet
Nutrition segment increased 4.5% to $1,118.3 on 5.5% volume gains.
EBIT in Pet Nutrition grew 16% to $282.1 driven by increased volumes, higher
gross profit margins and the continued focus on reducing overhead. EBIT in 2000
increased 11% to $243.5.
8
(Dollars in Millions Except Per Share Amounts)
Interest Expense, Net
Interest expense, net, was $166.1 compared with $173.3 in 2000 and $171.6 in
1999. The decrease in net interest expense in 2001 reflected lower interest
rates partially offset by increased average debt levels related to share
repurchases during the year.
Income Taxes
The effective tax rate on income was 31.3% in 2001 versus 32.1% in 2000 and
32.8% in 1999. Global tax planning strategies, including the realization of
foreign tax credits and incentives, benefited the effective tax rate in all
three years presented.
Net Income
Net income was $1,146.6 in 2001 or $1.89 per share on a diluted basis
compared with $1,063.8 in 2000 or $1.70 per share and $937.3 in 1999 or $1.47
per share.
2001 2000 1999
-------- -------- --------
Identifiable Assets
Oral, Personal and Household Care
North America....................... $2,063.6 $2,122.8 $2,076.5
Latin America....................... 1,979.9 2,091.3 2,151.4
Europe.............................. 1,263.6 1,369.4 1,469.1
Asia/Africa......................... 942.7 1,013.0 1,061.3
-------- -------- --------
Total Oral, Personal and Household Care 6,249.8 6,596.5 6,758.3
Total Pet Nutrition.................... 497.6 478.5 476.1
Total Corporate........................ 237.4 177.3 188.7
-------- -------- --------
Total Identifiable Assets/(1)/......... $6,984.8 $7,252.3 $7,423.1
======== ======== ========
- --------
/(1)/ Long-lived assets in the United States, primarily property, plant and
equipment and goodwill and other intangibles, represented approximately
one-third of total long-lived assets of $4,667.1, $4,813.3 and $4,952.3
in 2001, 2000 and 1999, respectively.
9
(Dollars in Millions Except Per Share Amounts)
Liquidity and Capital Resources
Net cash provided by operations increased 4% to $1,599.6 compared with
$1,536.2 in 2000 and $1,292.7 in 1999. The increase reflects the Company's
improved profitability and working capital management partially offset by
higher cash taxes. In prior years, cash taxes were reduced by certain tax
credits that have been fully utilized. Cash generated from operations was used
to fund capital spending, increase dividends and repurchase common shares.
2001 2000 1999
------ ------ ------
Capital Expenditures
North America............................... $ 69.5 $ 91.8 $ 97.6
Latin America............................... 116.6 121.3 118.2
Europe...................................... 33.3 41.7 60.8
Asia/Africa................................. 36.5 45.8 57.0
------ ------ ------
Total Oral, Personal and Household Care........ 255.9 300.6 333.6
Total Pet Nutrition............................ 37.0 29.2 21.1
Total Corporate................................ 47.3 36.8 18.1
------ ------ ------
Total Capital Expenditures.............. $340.2 $366.6 $372.8
====== ====== ======
Depreciation and Amortization
North America............................... $101.1 $ 99.3 $ 97.4
Latin America............................... 71.0 74.9 69.0
Europe...................................... 64.9 67.8 75.9
Asia/Africa................................. 47.8 47.0 46.6
------ ------ ------
Total Oral, Personal and Household Care........ 284.8 289.0 288.9
Total Pet Nutrition............................ 28.1 30.6 32.5
Total Corporate................................ 23.3 18.2 18.8
------ ------ ------
Total Depreciation and Amortization..... $336.2 $337.8 $340.2
====== ====== ======
Capital expenditures were 4% of net sales for 2001, 2000 and 1999. Capital
spending continues to be focused primarily on projects that yield high aftertax
returns. Capital expenditures for 2002 are expected to continue at the current
rate of approximately 4% of net sales.
Other investing activities in 2001, 2000 and 1999 included strategic
acquisitions and divestitures around the world. There were no significant
acquisitions in 2001. The aggregate purchase price of all 2000 and 1999
acquisitions was $64.9 and $46.4, respectively. Certain detergent product lines
in Central America were sold in 2001, the Mexico Viva detergent brand was sold
in 2000 and the U.S. Baby Magic brand was sold in 1999. The aggregate sale
price of all 2001, 2000 and 1999 sales of brands was $12.5, $102.5 and $94.7,
respectively.
During 2001, long-term debt increased to $3,137.5 from $2,857.1 and total
debt increased to $3,239.1 from $2,978.2 primarily due to increased share
repurchases. The Company's long-term debt rating was upgraded in 2001 to AA- by
Standard & Poor's and Aa3 by Moody's.
As of December 31, 2001 and 2000, $605.8 and $436.1, respectively, of
domestic and foreign commercial paper was outstanding. These borrowings carry a
Standard & Poor's rating of A1+ and a Moody's rating of P1. The commercial
paper is classified as long-term debt at December 31, 2001, as it is the
Company's intent and ability to refinance such obligations on a long-term basis.
10
(Dollars in Millions Except Per Share Amounts)
In 1993, the Company formed a financing subsidiary with outside equity
investors that purchases the Company's receivables. The Company consolidates
this entity, including such receivables, and reports the amounts invested by
outside investors as a minority interest. The purpose of this arrangement is to
provide the Company access to low cost sources of capital. During 2000 this
subsidiary ceased operations resulting in a cash payment of $113.9 to the
outside investors. In the fourth quarter of 2001, the subsidiary resumed
operations with funding of $89.7 from outside investors.
The Company repurchases common shares in open market and private
transactions for employee benefit plans and to maintain its targeted capital
structure. Aggregate repurchases for 2001 were 21.7 million shares, with a
total purchase price of $1,230.2. In 2000, 19.1 million shares were
repurchased, with a total purchase price of $1,040.6.
Dividend payments were $396.7, up from $382.4 in 2000 and $366.0 in 1999.
Common stock dividend payments increased to $.68 per share in 2001 from $.63
per share in 2000 and $.59 per share in 1999. The Series B Preference Stock
dividend payments were increased to $5.40 per share in 2001 from $5.04 per
share in 2000 and $4.96 in 1999.
Internally generated cash flows are adequate to support currently planned
business operations, acquisitions and capital expenditures. Free cash flow
(defined as cash generated by the business after capital expenditures and
dividend payments but before acquisitions, divestitures and share repurchases)
was $862.7 and $787.2 in 2001 and 2000, respectively, and provides the Company
with flexibility for further investments and/or financing. The Company has
additional sources of liquidity available in the form of lines of credit
maintained with various banks and access to financial markets worldwide. At
December 31, 2001, unused lines of credit amounted to $1,370.5 and the Company
had $1,351.4 available under a shelf registration filed in 2001. Significant
acquisitions would require external financing.
The following represents the scheduled maturities of the Company's long-term
contractual obligations as of December 31, 2001.
Payments Due by Period
---------------------------------------------------
Less than After 5
Total 1 Year 1-3 Years 4-5 Years Years
-------- --------- --------- --------- --------
Long-term debt including current portion $3,137.5 $ 931.3/(1)/ $ 919.9 $338.2 $ 948.1
Operating leases........................ 407.8 71.9 115.5 94.5 125.9
Unconditional purchase obligations...... 156.4 96.4 33.0 27.0 --
-------- -------- -------- ------ --------
Total................................ $3,701.7 $1,099.6 $1,068.4 $459.7 $1,074.0
======== ======== ======== ====== ========
- --------
/(1)/ Long-term debt due within 1 year includes $605.8 of commercial paper that
has been classified as long-term debt as of December 31, 2001, as the
Company has the intent and ability to refinance such obligations on a
long-term basis.
The Company does not have any off-balance sheet financing or unconsolidated
special purpose entities. The Company's treasury and risk management policies
prohibit the use of leveraged derivatives or derivatives for trading purposes.
The valuation of financial instruments that are marked to market are based upon
independent third-party sources including quoted market prices.
The Company is a party to various superfund and other environmental matters
and is contingently liable with respect to lawsuits, taxes and other matters
arising out of the normal course of business as more fully discussed in Note 14
to the Consolidated Financial Statements. Management proactively reviews and
manages its exposure to, and the impact of, environmental matters. 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
11
(Dollars in Millions Except Per Share Amounts)
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.
Restructuring Reserves
In December 2000, the Company recorded a charge of $63.9 ($42.5 aftertax)
associated with the realignment of three manufacturing locations in Latin
America and the exiting of our business in Nigeria. The charge recorded
included $14.2 for termination costs and $49.7 for exiting of manufacturing
operations. The restructuring was completed in 2001 with a final payment of
$7.2 representing termination costs for 979 employees.
Managing Foreign Currency, Interest Rate and Commodity Price Exposure
The Company is exposed to market risk from foreign currency exchange rates,
interest rates and commodity price fluctuations. The Company manages the
volatility relating to these exposures on a consolidated basis by utilizing a
number of techniques, including working capital management, selective
borrowings in local currencies and entering into certain derivative instrument
transactions in accordance with the Company's treasury and risk management
policies.
The Company operates in over 200 countries and territories and is exposed to
currency fluctuation related to manufacturing and selling its products in
currencies other than the U.S. dollar. The major foreign currency exposures
involve the markets in the European Union, Mexico and Brazil, although all
regions of the world are subject to foreign currency changes versus the U.S.
dollar. The Company actively monitors its foreign currency exposures in these
markets and has been able to substantially offset the impact on earnings of
foreign currency rate movements through a combination of cost-containment
measures, foreign currency hedging activities and selling price increases. The
Company primarily utilizes forward exchange and currency swap contracts to
hedge portions of its exposures relating to foreign currency purchases and
assets and liabilities created in the normal course of business. From time to
time, the Company hedges certain of its forecasted foreign currency purchases
using foreign currency forward contracts with durations no greater than 18
months.
The Company utilizes interest rate swaps and debt issuances to manage its
targeted mix of fixed and floating rate debt and to minimize significant
fluctuations in earnings and cash flows that may result from interest rate
volatility.
The Company is exposed to price volatility related to raw materials used in
production. The Company uses futures and option contracts on a limited basis to
manage volatility related to anticipated raw material inventory purchases. The
results of the Company's commodity hedging activity is not material.
The Company is exposed to credit loss in the event of nonperformance by
counterparties to the financial instrument contracts held by the Company;
however, nonperformance by these counterparties is considered remote as it is
the Company's policy to contract with diversified counterparties that have a
long-term debt rating of A or higher. In addition, if all these counterparties
did not perform, the Company's risk of credit loss would not be material.
Value at Risk
The Company's risk management procedures include the monitoring of interest
rate and foreign exchange exposures and the Company's offsetting hedge
positions utilizing statistical analyses of cash flows, market value,
sensitivity analysis and value-at-risk estimations. However, the use of these
techniques to quantify the market risk of such instruments should not be
construed as an endorsement of their accuracy or the accuracy of the related
assumptions. The Company utilizes a Value-at-Risk (VAR) model and an
Earnings-at-Risk (EAR) model that are intended to measure the maximum potential
loss in its interest rate and foreign exchange financial instruments assuming
adverse market conditions occur, given a 95% confidence level. The models
utilize a variance/covariance modeling technique. Historical interest rates and
foreign exchange rates from the preceding year are used to estimate the
volatility and correlation of future rates.
12
(Dollars in Millions Except Per Share Amounts)
The estimated maximum potential one-day loss in fair value of interest rate
or foreign exchange rate instruments, calculated using the VAR model, is not
material to the consolidated financial position, results of operations or cash
flows of the Company. The estimated maximum yearly loss in earnings due to
interest rate or foreign exchange rate instruments, calculated utilizing the
EAR model, is not material to the Company's results of operations. Actual
results in the future may differ materially from these projected results due to
actual developments in the global financial markets.
For information regarding the Company's accounting policies for financial
instruments and a description of financial instrument activities, refer to Note
2 and Note 11 to the Consolidated Financial Statements.
Accounting Changes
The Financial Accounting Standards Board's (FASB) Emerging Issues Task Force
(EITF) recently reached consensus on topics relating to the classification of
various types of sales incentives and promotional expenses. The Company will
adopt the new accounting requirements effective January 1, 2002. The impact of
the new accounting will result in the reclassification of certain sales
incentives and promotional expenses from selling, general and administrative
expenses to either a reduction of net sales or an increase of cost of sales,
but will have no impact on the Company's financial position or net income.
Based on historical information, annual net sales as currently reported for
2001 and 2000 will be reduced by approximately 4% with a corresponding
reduction in selling, general and administrative expenses. The impact on annual
cost of sales as currently reported is not material. In our 2002 Consolidated
Financial Statements, all comparative periods will be reclassified to conform
to the new requirements.
In July 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." In addition to requiring the use of the purchase method for
all future business combinations, SFAS 141 broadens the criteria for recording
intangible assets separate from goodwill. SFAS 142 addresses accounting and
reporting standards for acquired goodwill and other intangible assets. Under
the new standards, goodwill and indefinite life intangible assets, such as the
Company's global brands, are no longer amortized but will be subject to annual
impairment tests. Finite life intangible assets such as non-compete agreements
will continue to be amortized over their useful lives.
The Company will adopt these statements effective January 1, 2002. As a
result, the Company will cease amortization of goodwill and indefinite life
intangible assets, which is expected to increase income before income taxes by
approximately $50.0 and net income by approximately $40.0. Annual amortization
expense related to goodwill and other intangible assets was $68.0, $72.1 and
$75.6 for the years ended December 31, 2001, 2000 and 1999, respectively.
During 2002, the Company will perform the required transitional impairment
tests of goodwill and indefinite life intangible assets. It is management's
preliminary assessment that a transitional impairment charge, if any, will not
be material.
Accounting Policies and Use of Estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to use
judgment and make estimates. The level of uncertainty in estimates and
assumptions increases with the length of time until the underlying transactions
are completed. As such, the most significant uncertainty in the Company's
assumptions and estimates involved in preparing the financial statements
include pension and health care cost assumptions and legal and tax contingency
reserves. Actual results could ultimately differ from those estimates.
In certain instances, accounting principles generally accepted in the United
States allow for the selection of alternative accounting methods. The Company's
more significant policies where alternative methods are available include the
accounting for stock options (refer to Note 5 to the Consolidated Financial
Statements for further information) and inventories (LIFO/FIFO). For more
information on the Company's accounting policies, refer to the Notes to the
Consolidated Financial Statements.
13
(Dollars in Millions Except Per Share Amounts)
Outlook
Looking forward into 2002, the Company is well positioned for continued
growth in most of its markets. However, the Company operates in a highly
competitive global marketplace that is experiencing increased trade
concentration. In addition, movements in foreign currency exchange rates can
impact future operating results as measured in U.S. dollars. In particular,
economic uncertainty in some countries in Latin America and changes in the
value of the euro may impact the overall results of Latin America and Europe.
The Company expects the continued success of Colgate toothpaste, using
patented and proprietary technology, to bolster worldwide Oral Care leadership
and expects new products in Oral Care and other categories to add potential for
further growth. Overall, subject to global economic conditions, the Company
does not expect the 2002 market conditions to be materially different from
those experienced in 2001 and the Company expects its positive momentum to
continue. Historically, the consumer products industry has been less
susceptible to changes in economic growth than many other industries, and
therefore the Company constantly evaluates projects that will focus operations
on opportunities for enhanced growth potential. Over the long term, Colgate's
continued focus on its consumer products business and the strength of its
global brand names, its broad international presence in both developed and
developing markets, and its strong capital base all position the Company to
take advantage of growth opportunities and to continue to increase
profitability and shareholder value.
Cautionary Statement on Forward-Looking Statements
From time to time, the Company may make statements which constitute or
contain "forward-looking" information as that term is defined in the Private
Securities Litigation Reform Act of 1995 or by the Securities and Exchange
Commission in its rules, regulations and releases. Such statements may relate,
for example, to sales or volume growth, earnings growth, financial goals, cost
reduction plans and new product introductions among other matters. The Company
cautions investors that any such forward-looking statements made by the Company
are not guarantees of future performance and that actual results may differ
materially from anticipated results or expectations expressed in the Company's
forward-looking statements. The following are some of the factors that could
cause actual results to differ materially from forward-looking statements:
(1) Global Economic Conditions. The Company operates on a global basis,
with approximately 70% of its net sales coming from operations outside the
U.S. The Company is subject to the full range of economic risks, including
those associated with international operations, such as economic recession,
inflation, access to capital markets and related costs, movements in
currency exchange rates and interest rates, trade restrictions, tax law
changes, political and legal instability, the imposition of trade
restrictions and similar factors beyond the control of the Company.
(2) Competition. The Company faces vigorous competition from
multinational consumer product companies throughout the world with the same
or greater resources than the Company. Such competition is based on pricing
of products, promotional activities, advertising, new product introductions,
electronic commerce initiatives and other activities of competitors, the
timing and scale of which cannot be foreseen by the Company. The Company's
ability to compete also depends on the strength of its brands, its ability
to attract and retain key talent and its ability to protect its patent,
trademark and trade dress rights and to defend against related challenges
brought by competitors.
(3) Retail Trade. The Company can be negatively affected by changes in
the policies of its retail trade customers, such as inventory de-stocking,
limitations on access to shelf space, electronic data transmission
requirements and other conditions. With the growing trend towards retail
trade consolidation, especially in developed markets such as the United
States and Europe, the Company is increasingly dependent on key retailers,
and these retailers have increasingly greater bargaining strength. In
addition, private label brands sold by retail trade chains are becoming a
source of competition for the Company.
14
(Dollars in Millions Except Per Share Amounts)
(4) Products. The Company's growth depends on the successful development
and introduction of new products and line extensions, which face the
uncertainty of retail and consumer acceptance and reaction from competitors,
as well as the continued success of existing products. In addition, the
Company's ability to create new products and line extensions and to sustain
existing products is affected by its ability to develop technological
innovations, to receive and maintain necessary patent and trademark
protection and regulatory approvals and to anticipate successfully consumer
needs and preferences.
(5) Cost Pressures. The Company's ability to manage its cost structure
can be adversely affected by movements in raw material prices and by
unanticipated delays or difficulties in achieving cost efficiencies in
manufacturing and distribution. In addition, the Company's move to global
suppliers, to achieve cost reductions and simplify its business, has
resulted in an increasing dependence on key suppliers.
(6) Manufacturing. As a company engaged in manufacturing on a global
scale, the Company is subject to the risks inherent in such activities,
including industrial accidents, environmental events, strikes and other
labor disputes, loss or impairment of key manufacturing sites, product
quality and safety issues, natural disasters and other external factors over
which the Company has no control.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
See "Managing Foreign Currency, Interest Rate and Commodity Price Exposure"
which is located on page 12 of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the "Index to Financial Statements" which is located on page 19 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of the registrant set
forth in the Proxy Statement for the 2002 Annual Meeting is incorporated herein
by reference, as is the text in Part I of this report under the caption
"Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the Proxy Statement for the 2002 Annual Meeting
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of management set forth in the Proxy Statement for
the 2002 Annual Meeting is incorporated herein by reference.
(b) There are no arrangements known to the registrant that may at a
subsequent date result in a change in control of the registrant.
15
(Dollars in Millions Except Per Share Amounts)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the Proxy Statement for the 2002 Annual Meeting
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
See the "Index to Financial Statements" which is located on page 19 of this
report.
(b) Exhibits. See the exhibit index which begins on page 46 of this report.
(c) Reports on Form 8-K
None.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ REUBEN MARK
----------------------------------
Reuben Mark
Chairman of the Board
and Chief Executive Officer
Date: March 20, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 20, 2002 by the following persons on
behalf of the registrant and in the capacities indicated.
(a) Principal Executive Officer
/s/ REUBEN MARK
- --------------------------------------
Reuben Mark
Chairman of the Board
and Chief Executive Officer
(b) Principal Financial Officer
/s/ STEPHEN C. PATRICK
- --------------------------------------
Stephen C. Patrick
Chief Financial Officer
(c) Principal Accounting Officer
/s/ DENNIS J. HICKEY
- --------------------------------------
Dennis J. Hickey
Vice President and
Corporate Controller
(d) Directors:
Jill K. Conway, Ronald E. Ferguson,
Carlos M. Gutierrez, Ellen M. Hancock,
David W. Johnson, Richard J. Kogan,
Delano E. Lewis, Reuben Mark,
Howard B. Wentz, Jr.
/s/ ANDREW D. HENDRY
- --------------------------------------
Andrew D. Hendry
as Attorney-in-Fact
17
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
FINANCIAL STATEMENTS
For The Year Ended December 31, 2001
COLGATE-PALMOLIVE COMPANY
NEW YORK, NEW YORK 10022
18
Index to Financial Statements
Page
----
Financial Statements
Consolidated Statements of Income for the years
ended December 31, 2001, 2000, and 1999......................... 20
Consolidated Balance Sheets at December 31, 2001 and 2000......... 21
Consolidated Statements of Retained Earnings, Comprehensive Income
and Changes in Capital Accounts for the years ended
December 31, 2001, 2000 and 1999................................ 22
Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2000 and 1999.......................... 23
Notes to Consolidated Financial Statements........................ 24
Market and Dividend Information................................... 40
Financial Statement Schedules for the years ended
December 31, 2001, 2000 and 1999:
Schedule II--Valuation and Qualifying Accounts.................... 41
Report of Independent Public Accountants.......................... 44
Selected Financial Data
Historical Financial Summary...................................... 45
All other financial statements and schedules not listed have been omitted
since the required information is included in the financial statements or the
notes thereto or is not applicable or required.
19
COLGATE-PALMOLIVE COMPANY
Consolidated Statements of Income
(Dollars in Millions Except Per Share Amounts)
2001 2000 1999
-------- -------- --------
Net sales................................... $9,427.8 $9,357.9 $9,118.2
Cost of sales............................... 4,236.9 4,265.5 4,224.0
-------- -------- --------
Gross profit............................. 5,190.9 5,092.4 4,894.2
Selling, general and administrative expenses 3,261.6 3,299.6 3,254.4
Other expense, net.......................... 94.5 52.3 73.6
Interest expense, net....................... 166.1 173.3 171.6
-------- -------- --------
Income before income taxes.................. 1,668.7 1,567.2 1,394.6
Provision for income taxes.................. 522.1 503.4 457.3
-------- -------- --------
Net income............................... $1,146.6 $1,063.8 $ 937.3
======== ======== ========
Earnings per common share, basic............ $ 2.02 $ 1.81 $ 1.57
======== ======== ========
Earnings per common share, diluted.......... $ 1.89 $ 1.70 $ 1.47
======== ======== ========
See Notes to Consolidated Financial Statements.
20
COLGATE-PALMOLIVE COMPANY
Consolidated Balance Sheets
(Dollars in Millions Except Per Share Amounts)
2001 2000
--------- ---------
Assets
Current Assets
Cash and cash equivalents................................................ $ 172.7 $ 206.6
Receivables (less allowances of $45.6 and $39.8, respectively)........... 1,124.9 1,195.4
Inventories.............................................................. 677.0 686.6
Other current assets..................................................... 228.8 258.6
--------- ---------
Total current assets................................................. 2,203.4 2,347.2
Property, plant and equipment, net......................................... 2,513.5 2,528.3
Goodwill and other intangibles, net........................................ 1,904.0 2,096.4
Other assets............................................................... 363.9 280.4
--------- ---------
$ 6,984.8 $ 7,252.3
========= =========
Liabilities and Shareholders' Equity
Current Liabilities
Notes and loans payable.................................................. $ 101.6 $ 121.1
Current portion of long-term debt........................................ 325.5 320.2
Accounts payable......................................................... 678.1 738.9
Accrued income taxes..................................................... 195.0 163.7
Other accruals........................................................... 823.3 900.2
--------- ---------
Total current liabilities............................................ 2,123.5 2,244.1
Long-term debt.............................................................. 2,812.0 2,536.9
Deferred income taxes....................................................... 480.6 447.3
Other liabilities........................................................... 722.3 555.9
Shareholders' Equity
Preferred stock.......................................................... 341.3 354.1
Common stock, $1 par value (1,000,000,000 shares authorized, 732,853,180
shares issued)......................................................... 732.9 732.9
Additional paid-in capital............................................... 1,168.7 1,144.9
Retained earnings........................................................ 5,643.6 4,893.7
Accumulated other comprehensive income................................... (1,491.2) (1,269.7)
--------- ---------
6,395.3 5,855.9
Unearned compensation.................................................... (345.4) (344.4)
Treasury stock, at cost.................................................. (5,203.5) (4,043.4)
--------- ---------
Total shareholders' equity........................................... 846.4 1,468.1
--------- ---------
$ 6,984.8 $ 7,252.3
========= =========
See Notes to Consolidated Financial Statements.
21
COLGATE-PALMOLIVE COMPANY
Consolidated Statements of Retained Earnings, Comprehensive Income and Changes
in Capital Accounts
(Dollars in Millions Except Per Share Amounts)
Common Shares Additional Treasury Shares Accumulated Compre-
------------------- Paid-in --------------------- Retained Other Compre- hensive
Shares Amount Capital Shares Amount Earnings hensive Income Income
----------- ------ ---------- ----------- -------- -------- -------------- --------
Balance, January 1, 1999....... 585,419,480 $732.9 $ 824.6 147,433,700 $2,333.8 $3,641.0 $ (799.8)
Net income..................... 937.3 $ 937.3
Other comprehensive income:
Cumulative translation
adjustment.................. (336.4) (336.4)
--------
Total comprehensive income..... $ 600.9
========
Dividends declared:
Series B Convertible
Preference Stock, net of
income taxes................ (20.5)
Preferred stock.............. (.5)
Common stock................. (345.0)
Shares issued for stock options 6,894,907 128.0 (6,894,907) 132.5
Treasury stock acquired........ (12,849,744) 12,849,744 624.4
Other.......................... (601,597) 110.6 611,087 (34.3)
----------- ------ -------- ----------- -------- -------- ---------
Balance, December 31, 1999..... 578,863,046 $732.9 $1,063.2 153,999,624 $3,056.4 $4,212.3 $(1,136.2)
----------- ------ -------- ----------- -------- -------- ---------
Net income..................... 1,063.8 $1,063.8
Other comprehensive income:....
Cumulative translation
adjustment.................. (133.5) (133.5)
--------
Total comprehensive income..... $ 930.3
========
Dividends declared:
Series B Convertible
Preference Stock, net of
income taxes................ (20.3)
Preferred stock.............. (.4)
Common stock................. (361.7)
Shares issued for stock options 4,796,186 96.7 (4,796,186) 54.3
Treasury stock acquired........ (19,099,681) 19,099,681 1,040.6
Other.......................... 2,096,323 (15.0) (2,084,163) (107.9)
----------- ------ -------- ----------- -------- -------- ---------
Balance, December 31, 2000..... 566,655,874 $732.9 $1,144.9 166,218,956 $4,043.4 $4,893.7 $(1,269.7)
----------- ------ -------- ----------- -------- -------- ---------
Net income..................... 1,146.6 $1,146.6
Other comprehensive income:
Cumulative translation
adjustment.................... (198.5) (198.5)
Other.......................... (23.0) (23.0)
--------
Total comprehensive income..... $ 925.1
========
Dividends declared:
Series B Convertible
Preference Stock, net of
income taxes................ (21.3)
Preferred stock.............. (.4)
Common stock................. (375.0)
Shares issued for stock options 2,705,887 62.4 (2,705,887) 20.5
Treasury stock acquired........ (21,662,879) 21,662,879 1,230.2
Other.......................... 3,023,451 (38.6) (3,023,261) (90.6)
----------- ------ -------- ----------- -------- -------- ---------
Balance, December 31, 2001..... 550,722,333 $732.9 $1,168.7 182,152,687 $5,203.5 $5,643.6 $(1,491.2)
=========== ====== ======== =========== ======== ======== =========
See Notes to Consolidated Financial Statements.
22
COLGATE-PALMOLIVE COMPANY
Consolidated Statements of Cash Flows
(Dollars in Millions Except Per Share Amounts)
2001 2000 1999
--------- --------- --------
Operating Activities
Net income............................................... $ 1,146.6 $ 1,063.8 $ 937.3
Adjustments to reconcile net income to net
cash provided by operations:...........................
Restructured operations.............................. (8.9) (14.9) (35.6)
Depreciation and amortization........................ 336.2 337.8 340.2
Income taxes and other, net.......................... 168.6 69.7 122.3
Cash effects of changes in:
Receivables....................................... 19.4 (91.9) (81.3)
Inventories....................................... (18.7) 59.0 (82.8)
Payables and accruals............................. (43.6) 112.7 92.6
--------- --------- --------
Net cash provided by operations................... 1,599.6 1,536.2 1,292.7
--------- --------- --------
Investing Activities
Capital expenditures..................................... (340.2) (366.6) (372.8)
Payment for acquisitions, net of cash acquired........... (10.2) (64.9) (44.1)
Sale of non-core product lines........................... 12.5 102.5 89.9
Sale of marketable securities and investments............ 9.3 137.4 22.7
Other.................................................... (90.6) (17.0) (27.2)
--------- --------- --------
Net cash used for investing activities............... (419.2) (208.6) (331.5)
--------- --------- --------
Financing Activities
Principal payments on debt............................... (595.9) (739.4) (491.0)
Proceeds from issuance of debt........................... 887.9 925.4 555.5
Payments from (to) outside investors..................... 89.7 (113.9) --
Dividends paid........................................... (396.7) (382.4) (366.0)
Purchase of common stock................................. (1,230.2) (1,040.6) (624.4)
Other.................................................... 34.5 34.9 (14.2)
--------- --------- --------
Net cash used for financing activities............... (1,210.7) (1,316.0) (940.1)
--------- --------- --------
Effect of exchange rate changes on cash and cash equivalents (3.6) (4.6) (3.2)
--------- --------- --------
Net (decrease) increase in cash and cash equivalents........ (33.9) 7.0 17.9
Cash and cash equivalents at beginning of year.............. 206.6 199.6 181.7
--------- --------- --------
Cash and cash equivalents at end of year.................... $ 172.7 $ 206.6 $ 199.6
========= ========= ========
Supplemental Cash Flow Information
Income taxes paid........................................... $ 346.8 $ 306.3 $ 292.4
Interest paid............................................... 221.5 203.0 210.9
Principal payments on ESOP debt, guaranteed by the Company.. 12.9 8.8 6.7
See Notes to Consolidated Financial Statements.
23
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Millions Except Per Share Amounts)
1. Nature of Operations
The Company manufactures and markets a wide variety of products in the U.S.
and around the world in two distinct business segments: Oral, Personal and
Household Care, and Pet Nutrition. Oral, Personal and Household Care products
include toothpaste, oral rinses and toothbrushes, bar and liquid hand soaps,
shower gels, shampoos, conditioners, deodorants and antiperspirants, shave
products, laundry and dishwashing detergents, fabric conditioners, cleansers
and cleaners, bleaches and other similar items. These products are sold
primarily to wholesale and retail distributors worldwide. Pet Nutrition
products include pet food products manufactured and marketed by Hill's Pet
Nutrition. The principal customers for Pet Nutrition products are veterinarians
and specialty pet retailers. Principal global trademarks include Colgate,
Palmolive, Kolynos, Mennen, Protex, Ajax, Soupline, Suavitel, Fab, Science Diet
and Prescription Diet in addition to various regional trademarks.
The Company's principal classes of products accounted for the following
percentages of worldwide sales for the past three years:
2001 2000 1999
---- ---- ----
Oral Care............. 34% 34% 32%
Personal Care......... 24 24 24
Household Surface Care 16 16 16
Fabric Care........... 13 14 14
Pet Nutrition......... 13 12 12
2. Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of
Colgate-Palmolive Company and its majority-owned subsidiaries. Intercompany
transactions and balances have been eliminated. Investments in companies in
which the Company's interest is between 20% and 50% are accounted for using the
equity method. The Company's share of the net income/(loss) from such
investments is recorded in Other expense, net, in the Consolidated Statements
of Income.
Use of Estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to use
judgment and make estimates that affect the reported amounts of assets and
liabilities and disclosure of contingent gains and losses at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. The level of uncertainty in estimates and assumptions
increases with the length of time until the underlying transactions are
completed. As such, the most significant uncertainty in the Company's
assumptions and estimates involved in preparing the financial statements
include pension and health care cost assumptions and legal and tax contingency
reserves. Actual results could ultimately differ from those estimates.
Accounting Changes
The Financial Accounting Standards Board's (FASB) Emerging Issues Task Force
(EITF) recently reached consensus on topics relating to the classification of
various types of sales incentives and promotional expenses. The Company will
adopt the new accounting requirements effective January 1, 2002. The impact of
the new accounting will result in the reclassification of certain sales
incentives and promotional expenses from selling, general and administrative
expenses to either a reduction of net sales or an increase of cost of sales,
but will have no impact on the Company's financial position or net income.
Based on historical information, annual net sales as currently reported for
2001 and 2000 will be reduced by approximately 4% with a corresponding
reduction in selling, general and administrative expenses. The impact on annual
cost of sales as currently reported is not material. In our 2002 Consolidated
Financial Statements, all comparative periods will be reclassified to conform
to the new requirements.
24
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
In July 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." In addition to requiring the use of the purchase method for
all future business combinations, SFAS 141 broadens the criteria for recording
intangible assets separate from goodwill. SFAS 142 addresses accounting and
reporting standards for acquired goodwill and other intangible assets. Under
the new standards, goodwill and indefinite life intangible assets, such as the
Company's global brands, will no longer be amortized but will be subject to
annual impairment tests. Finite life intangible assets such as non-compete
agreements will continue to be amortized over their useful lives.
The Company will adopt these statements effective January 1, 2002. As a
result, the Company will cease amortization of goodwill and indefinite life
intangible assets, which is expected to increase income before income taxes by
approximately $50.0 and net income by approximately $40.0. Annual amortization
expense related to goodwill and other intangible assets was $68.0, $72.1 and
$75.6 for the years ended December 31, 2001, 2000 and 1999, respectively.
During 2002, the Company will perform the required transitional impairment
tests of goodwill and indefinite life intangible assets. It is management's
preliminary assessment that a transitional impairment charge, if any, will not
be material.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. The first-in,
first-out (FIFO) method is used to determine the cost of most inventories. The
cost of the remaining inventories is determined using the last-in, first-out
(LIFO) method.
Property, Plant and Equipment
Land, buildings, and machinery and equipment are stated at cost.
Depreciation is provided, primarily using the straight-line method, over
estimated useful lives ranging from 3 to 40 years.
Goodwill and Other Intangibles
Under current accounting guidance, goodwill is amortized on the
straight-line method, generally over a period of 40 years. Other intangible
assets, principally consisting of brands, trademarks and non-compete
agreements, are amortized on the straight-line method over periods ranging from
5 to 40 years depending on their useful lives.
The recoverability of the carrying values of intangible assets is evaluated
periodically based on a review of forecasted operating cash flows and the
profitability of the related business. For the three-year period ended December
31, 2001, there were no material adjustments to the carrying values of
intangible assets resulting from these evaluations.
Revenue Recognition
Sales are recorded at the time products are shipped to trade customers and
when risk of ownership transfers. Net sales reflect units shipped at selling
list prices reduced by estimated returns, promotion allowances and other
discounts.
25
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
Shipping and Handling Costs
Shipping and handling costs are classified as selling, general and
administrative expenses and were $631.0, $619.9 and $590.0 for the years ended
December 31, 2001, 2000 and 1999, respectively.
Advertising
Advertising costs are expensed in the year incurred.
Income Taxes
Deferred taxes are recognized for the expected future tax consequences of
temporary differences between the amounts carried for financial reporting and
tax purposes. Provision is made currently for taxes payable on remittances of
overseas earnings; no provision is made for taxes on overseas retained earnings
that are deemed to be permanently reinvested.
Translation of Overseas Currencies
The assets and liabilities of subsidiaries, other than those operating in
highly inflationary environments, are translated into U.S. dollars at year-end
exchange rates, with resulting translation gains and losses accumulated in a
separate component of shareholders' equity. Income and expense items are
converted into U.S. dollars at average rates of exchange prevailing during the
year.
For subsidiaries operating in highly inflationary environments, inventories,
goodwill and property, plant and equipment are translated at the rate of
exchange on the date the assets were acquired, while other assets and
liabilities are translated at year-end exchange rates. Translation adjustments
for these operations are included in net income.
Financial Instruments
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133, as amended, 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 cumulative effect of adoption of SFAS 133 did not result in a material
impact on the Company's financial position, results of operations or cash flows.
It is the Company's policy to enter into derivative instruments with terms
that match the underlying exposure being hedged. As such, the Company's
derivative instruments are considered highly effective and the net gain or loss
from hedge ineffectiveness was not material.
The Company's derivative instruments that qualify for hedge accounting are
primarily designated as either fair value hedges or cash flow hedges. For fair
value hedges, changes in fair value of the derivative as well as the offsetting
changes in fair value of the hedged item are recognized in earnings each
period. For cash flow hedges, changes in fair value of the derivative are
recorded in other comprehensive income and are recognized in earnings when the
offsetting effect of the hedged item is also recognized in earnings.
The Company may also enter into certain foreign currency derivative
instruments that economically hedge certain of its risks but do not qualify for
hedge accounting. Changes in fair value of these derivative instruments are
obtained from quoted market prices and are recognized in earnings each period.
26
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
Segment Information
The Company operates in two product segments: Oral, Personal and Household
Care, and Pet Nutrition. The operations of the Oral, Personal and Household
Care segment are managed geographically in four reportable operating segments:
North America, Latin America, Europe and Asia/Africa.
Management measures segment profit as operating income, which is defined as
income before interest expense and income taxes. The accounting policies of the
operating segments are the same as those described in the summary of
significant accounting policies. Corporate operations include research and
development costs, unallocated overhead costs, and gains and losses on sales of
non-strategic brands and assets. Corporate assets include primarily benefit
plan assets.
The financial and descriptive information on the Company's geographic area
and industry segment data, appearing in the tables contained in management's
discussion of this report, is an integral part of these financial statements.
Reclassifications
Certain prior year balances have been reclassified to conform with current
year presentation.
3. Acquisitions and Divestitures
During 2001, the Company did not make any significant acquisitions. During
2000 and 1999, the Company made several acquisitions totaling $64.9 and $46.4,
respectively. Individually, none of these acquisitions was significant.
The acquisitions were accounted for as purchases, and accordingly, the
purchase prices were allocated to the net tangible and intangible assets
acquired based on estimated fair values at the dates the acquisitions were
consummated. The results of operations of the acquired businesses have been
included in the Consolidated Financial Statements since the respective
acquisition dates. The inclusion of pro forma financial data for all
acquisitions would not have materially affected the financial information
included herein.
The aggregate sale price of all 2001, 2000 and 1999 divestitures was $12.5,
$102.5 and $94.7, respectively. These divestitures included certain Central
American detergent product lines in 2001, the Mexico Viva detergent brand in
2000 and the U.S. Baby Magic brand in 1999.
4. Long-Term Debt and Credit Facilities
Long-term debt consists of the following at December 31:
Weighted
Average
Interest
Rate Maturities 2001 2000
-------- ---------- -------- --------
Notes.................................. 5.9% 2002-2041 $1,724.7 $1,458.4
Commercial paper....................... 2.1 2002 605.8 436.1
ESOP notes, guaranteed by the Company.. 8.7 2002-2009 345.2 358.1
Payable to banks....................... 4.7 2002-2007 451.5 603.5
Capitalized leases..................... 10.3 1.0
-------- --------
3,137.5 2,857.1
Less: current portion of long-term debt 325.5 320.2
-------- --------
$2,812.0 $2,536.9
======== ========
27
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
Commercial paper is classified as long-term debt as it is the Company's
intent and ability to refinance such obligations on a long-term basis.
Scheduled maturities of debt outstanding at December 31, 2001, excluding
commercial paper reclassified, are as follows: 2002--$325.5; 2003--$675.2;
2004--$244.7; 2005--$77.6; 2006--$260.6 and $948.1 thereafter. The Company has
entered into interest rate swap agreements and foreign exchange contracts
related to certain of these debt instruments (see Note 11).
At December 31, 2001, the Company had unused credit facilities amounting to
$1,370.5. Commitment fees related to credit facilities are not material. The
weighted average interest rate on short-term borrowings, excluding amounts
reclassified, as of December 31, 2001 and 2000, was 5.6% and 7.6%, respectively.
5. Capital Stock and Stock Compensation Plans
Preferred Stock
Preferred Stock consists of 250,000 authorized shares without par value. It
is issuable in series, of which one series of 125,000 shares, designated $4.25
Preferred Stock, with a stated and redeemable value of $100 per share, has been
issued. The $4.25 Preferred Stock is redeemable only at the option of the
Company. At December 31, 2001 and 2000, 103,160 and 103,350 shares of $4.25
Preferred Stock, respectively, were outstanding.
Preference Stock
In 1988, the Company authorized the issuance of 50,000,000 shares of
Preference Stock, without par value. The Series B Convertible Preference Stock,
which is convertible into eight shares of common stock, ranks junior to all
series of the Preferred Stock. At December 31, 2001 and 2000, 5,059,086 and
5,254,847 shares of Series B Convertible Preference Stock, respectively, were
outstanding and issued to the Company's Employee Stock Ownership Plan.
Shareholder Rights Plan
Under the Company's Shareholder Rights Plan, each share of the Company's
common stock carries with it one Preference Share Purchase Right ("Rights").
The Rights themselves will at no time have voting power or pay dividends. The
Rights become exercisable only if a person or group acquires 15% or more of the
Company's common stock or announces a tender offer, the consummation of which
would result in ownership by a person or group of 15% or more of the common
stock. When exercisable, each Right entitles a holder to buy one two-hundredth
of a share of a new series of preference stock at an exercise price of $220.00,
subject to adjustment.
If the Company is acquired in a merger or other business combination, each
Right will entitle a holder to buy, at the Right's then current exercise price,
a number of the acquiring company's common shares having a market value of
twice such price. In addition, if a person or group acquires 15% or more of the
Company's common stock, each Right will entitle its holder (other than such
person or members of such group) to purchase, at the Right's then current
exercise price, a number of shares of the Company's common stock having a
market value of twice the Right's exercise price.
Further, at any time after a person or group acquires 15% or more (but less
than 50%) of the Company's common stock, the Board of Directors may, at its
option, exchange part or all of the Rights (other than Rights held by the
acquiring person or group) for shares of the Company's common stock on a
one-for-one basis.
The Company, at the option of the Board of Directors, may amend the Rights
or redeem the Rights for $.01 at any time before the acquisition by a person or
group of beneficial ownership of 15% or more of its common stock. The Board of
Directors is also authorized to reduce the 15% threshold to not less than 10%.
Unless redeemed earlier, the Rights will expire on October 31, 2008.
28
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
Stock Repurchases
During 1998, the Company entered into a series of forward purchase
agreements on its common stock that expire in 2004. These agreements are
settled on a net basis in shares of the Company's common stock and do not
require the Company to settle by purchasing its common stock at market prices.
To the extent that the market price of the Company's common stock on a
settlement date is higher/(lower) than the forward purchase price, the
equivalent value in shares of the net differential is received/(delivered) by
the Company. As of December 31, 2001, agreements were in place covering
approximately $387.2 of the Company's common stock (6.7 million shares) that
had forward prices averaging $58.14 per share. During 2001 and 2000,
settlements resulted in the Company delivering 1,237,689 and 217,574 shares,
respectively. During 1999, settlements resulted in the Company receiving
2,322,701 shares. All of these settlements were recorded as treasury stock
transactions.
Incentive Stock Plan
The Company has a plan that provides for grants of restricted stock awards
for officers and other executives of the Company and its major subsidiaries. A
committee of non-employee members of the Board of Directors administers the
plan. The awarded shares vest at the end of the restriction period, generally
between three and five years. During 2001 and 2000, 511,120 and 667,090 shares,
respectively, were awarded to employees in accordance with the provisions of
the plan.
Stock Option Plans
The Company's Stock Option Plans ("Plans") provide for the issuance of
non-qualified stock options to officers and key employees. Options are granted
at prices not less than the fair market value on the date of grant with a term
of up to ten years and generally vesting over three to five years. As of
December 31, 2001, 20,382,516 shares of common stock were available for future
grants.
The Plans contain a feature that provides for the grant of new options when
previously owned shares of Company stock are used to exercise existing options.
The number of new options granted under this feature is equal to the number of
shares of previously owned Company stock used to exercise the original options
and to pay the related required U.S. income tax. The new options are granted at
a price equal to the fair market value on the date of the new grant and have
the same expiration date as the original options exercised.
Stock option plan activity is summarized below:
2001 2000 1999
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(in thousands) Price (in thousands) Price (in thousands) Price
-------------- -------- -------------- -------- -------------- --------
Options outstanding,
January 1......... 39,143 $41 39,196 $36 42,786 $28
Granted............. 7,842 57 9,762 53 11,414 53
Exercised........... (5,565) 37 (9,361) 32 (14,587) 26
Canceled or expired. (487) 56 (454) 40 (417) 49
------ ------ -------
Options outstanding,
December 31....... 40,933 44 39,143 41 39,196 36
====== ====== =======
Options exercisable,
December 31....... 26,549 $39 24,840 $35 23,813 $28
====== ====== =======
29
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
The following table summarizes information relating to currently outstanding
and exercisable options as of December 31, 2001:
Weighted Average
Remaining Options Weighted Options Weighted
Contractual Life Outstanding Average Exercisable Average
Range of Exercise Prices (in years) (in thousands) Exercise Price (in thousands) Exercise Price
- ------------------------ ---------------- -------------- -------------- -------------- --------------
$13.01-$20.31...... 3 5,558 $17 5,558 $17
$20.79-$31.08...... 3 4,454 27 4,294 27
$31.33-$46.78...... 6 6,147 38 5,732 37
$46.89-$53.02...... 7 8,357 50 3,410 51
$53.06-$56.68...... 8 10,623 56 3,346 56
$56.69-$64.75...... 5 5,794 59 4,209 59
------ ------
6 40,933 $44 26,549 $39
====== ======
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
options granted under the Plans. Accordingly, no compensation expense has been
recognized. Had compensation expense been determined based on the Black-Scholes
option pricing model value at the grant date for awards in 2001, 2000 and 1999
consistent with the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company's
net income, basic earnings per common share and diluted earnings per common
share would have been $1,101.7, $1.94 per share and $1.81 per share,
respectively, in 2001; $1,006.1, $1.71 per share and $1.60 per share,
respectively, in 2000; and $891.9, $1.49 per share and $1.40 per share,
respectively, in 1999.
The weighted average Black-Scholes value of stock option grants issued in
2001, 2000 and 1999 was $9.37, $10.95 and $8.61, respectively. The
Black-Scholes value of each option granted is estimated using the Black-Scholes
option pricing model with the following assumptions: option term until exercise
ranging from 2 to 7 years, volatility ranging from 22% to 41%, risk-free
interest rate ranging from 3.3% to 6.2% and an expected dividend yield of 2.5%.
The Black-Scholes model used to determine the option values shown above was
developed to estimate the fair value of short-term freely tradable, fully
transferable options without vesting restrictions and was not designed to value
reloads, all of which significantly differ from the Company's stock option
awards. The value of this model is also limited by the inclusion of highly
subjective assumptions that greatly affect calculated values.
6. Employee Stock Ownership Plan
In 1989, the Company expanded its Employee Stock Ownership Plan ("ESOP")
through the introduction of a leveraged ESOP covering certain employees who
have met eligibility requirements. The ESOP issued $410.0 of long-term notes
due through 2009 bearing an average interest rate of 8.7%. The long-term notes,
which are guaranteed by the Company, are reflected in the accompanying
Consolidated Balance Sheets. The ESOP used the proceeds of the notes to
purchase 6.3 million shares of Series B Convertible Preference Stock (the
"Stock") from the Company. The Stock has a minimum redemption price of $65 per
share and pays semiannual dividends equal to the higher of $2.44 or the current
dividend paid on eight common shares for the comparable six-month period.
During 2000, the ESOP entered into a loan agreement with the Company under
which the benefits of the ESOP may be extended through 2035.
Dividends on these preferred shares, as well as common shares also held by
the ESOP, are paid to the ESOP trust and, together with cash contributions and
advances from the Company, are used by the ESOP to repay principal and interest
on the outstanding notes. Preferred shares are released for allocation to
participants based
30
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
upon the ratio of the current year's debt service to the sum of total principal
and interest payments over the life of the loan. At December 31, 2001,
1,630,743 shares were allocated to participant accounts and 3,428,343 shares
were available for future allocation. Each allocated share may be converted by
the ESOP Trustee into eight common shares but preferred shares generally
convert only after the employee ceases to work for the Company.
Dividends on these preferred shares are deductible for income tax purposes
and, accordingly, are reflected net of their tax benefit in the Consolidated
Statements of Retained Earnings, Comprehensive Income and Changes in Capital
Accounts.
Annual expense related to the leveraged ESOP, determined as interest
incurred on the original notes, plus the higher of either principal payments or
the cost of shares allocated, less dividends received on the shares held by the
ESOP and advances from the Company, was $0 in 2001, $3.4 in 2000 and $9.2 in
1999. Unearned compensation, which is shown as a reduction in shareholders'
equity, represents the amount of ESOP debt outstanding reduced by the
difference between the cumulative cost of shares allocated and the cumulative
principal payments.
Interest incurred on the ESOP's notes was $30.4 in 2001, $31.4 in 2000 and
$32.0 in 1999. The Company paid dividends on the stock held by the ESOP of
$29.4 in 2001, $28.6 in 2000 and $29.1 in 1999. Company contributions to the
ESOP were $0 in 2001, $4.8 in 2000 and $9.3 in 1999.
7. Retirement Plans and Other Retiree Benefits
Retirement Plans
The Company, its U.S. subsidiaries and some of its overseas subsidiaries
maintain defined benefit retirement plans covering substantially all of their
employees. Benefits are based primarily on years of service and employees'
career earnings. In the Company's principal U.S. plans, funds are contributed
to the trusts in accordance with regulatory limits to provide for current
service and for any unfunded projected benefit obligation over a reasonable
period. Assets of the plans consist principally of common stocks, guaranteed
investment contracts with insurance companies, investments in real estate funds
and U.S. Government and corporate obligations. Domestic plan assets also
include investments in the Company's common stock representing 10% and 11% of
plan assets at December 31, 2001 and 2000, respectively.
Other Retiree Benefits
The Company and certain of its subsidiaries provide health care and life
insurance benefits for retired employees to the extent not provided by
government-sponsored plans. The Company utilizes a portion of its leveraged
ESOP, in the form of future retiree contributions, to reduce its obligation to
provide these postretirement benefits and offset its current service cost.
Postretirement benefits otherwise are not currently funded.
31
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
Summarized information of the Company's defined benefit retirement plans and
postretirement plans are as follows:
Other
Pension Benefits Retiree Benefits
------------------------------------ ----------------
2001 2000 2001 2000 2001 2000
-------- -------- ------- ------- ------- -------
United States International
------------------ ----------------
Change in Benefit Obligation
Benefit obligation at beginning of year....... $ 938.3 $ 883.1 $ 345.0 $ 347.1 $ 164.2 $ 156.1
Service cost.................................. 31.8 27.8 11.1 12.4 (4.6) (5.5)
Interest cost................................. 71.5 68.2 21.5 22.0 16.6 16.6
Participant's contribution.................... 2.7 3.0 2.1 2.3 -- --
Acquisitions/plan amendments.................. -- -- 1.9 4.2 -- --
Actuarial loss................................ 70.3 36.8 10.3 4.7 23.9 11.3
Foreign exchange impact....................... -- -- (14.9) (24.6) (3.7) (2.2)
Benefits paid................................. (86.1) (80.6) (19.9) (23.1) (12.8) (12.1)
-------- -------- ------- ------- ------- -------
Benefit obligation at end of year............. $1,028.5 $ 938.3 $ 357.1 $ 345.0 $ 183.6 $ 164.2
-------- -------- ------- ------- ------- -------
Change in Plan Assets
Fair value of plan assets at beginning of year $ 932.7 $1,038.4 $ 243.7 $ 261.4 $ -- $ --
Actual return on plan assets.................. (54.2) (33.5) (8.2) 4.5 -- --
Company contributions......................... 105.0 5.4 12.6 14.7 12.8 12.1
Plan participant contributions................ 2.7 3.0 2.1 2.3 -- --
Foreign exchange impact....................... -- -- (13.2) (16.1) -- --
Benefits paid................................. (86.1) (80.6) (19.9) (23.1) (12.8) (12.1)
-------- -------- ------- ------- ------- -------
Fair value of plan assets at end of year...... $ 900.1 $ 932.7 $ 217.1 $ 243.7 $ -- $ --
-------- -------- ------- ------- ------- -------
Funded Status
Funded status at end of year.................. $ (128.4) $ (5.6) $(140.0) $(101.3) $(183.6) $(164.2)
Unrecognized net transition liability/(asset). .1 .8 .6 (3.2) -- --
Unrecognized net actuarial loss/(gain)........ 200.8 (10.0) 46.4 21.0 13.5 (7.9)
Unrecognized prior service costs.............. 20.6 26.9 7.0 8.0 (5.4) (6.5)
-------- -------- ------- ------- ------- -------
Net amount recognized......................... $ 93.1 $ 12.1 $ (86.0) $ (75.5) $(175.5) $(178.6)
======== ======== ======= ======= ======= =======
Amounts Recognized in Balance Sheet
Other assets.................................. $ 198.4 $ 102.8 $ 34.7 $ 36.0 $ -- $ --
Other liabilities............................. (105.3) (90.7) (120.7) (111.5) (175.5) (178.6)
-------- -------- ------- ------- ------- -------
Net amount recognized......................... $ 93.1 $ 12.1 $ (86.0) $ (75.5) $(175.5) $(178.6)
======== ======== ======= ======= ======= =======
Weighted Average Assumptions
Discount rate................................. 7.25% 7.75% 6.69% 7.22% 7.25% 7.75%
Long-term rate of return on plan assets....... 9.00% 9.25% 8.86% 9.11% -- --
Long-term rate of compensation increase....... 4.75% 5.00% 3.96% 4.43% -- --
ESOP growth rate.............................. -- -- -- -- 10.00% 10.00%
32
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
The United States pension benefits include funded qualified plans covering
most domestic employees and certain unfunded non-qualified plans. As of
December 31, 2001 and 2000, the United States qualified pension plans had
benefit obligations of $892.2 and $822.3, and plan assets of $896.8 and $929.3,
respectively.
Pension Benefits Other Retiree Benefits
---------------------------------------------- ---------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
------ ------ ------ ------ ------ ------ ----- ----- -----
United States International
---------------------- ----------------------
Components of Net Periodic
Benefit Costs
Service cost............... $ 31.8 $ 27.8 $ 28.5 $ 11.1 $ 12.4 $ 13.3 $ 4.0 $ 3.7 $ 3.4
Interest cost.............. 71.5 68.2 63.6 21.5 22.0 21.3 16.6 16.6 14.5
Annual ESOP allocation..... -- -- -- -- -- -- (8.6) (9.2) (8.4)
Expected return on plan
assets................... (86.6) (92.9) (82.7) (18.7) (19.1) (16.1) -- -- --
Amortization of transition/
prior service costs...... 7.1 7.2 (.8) .1 -- (.2) (1.0) (1.0) (.9)
Amortization of actuarial
loss/(gain).............. .8 (6.6) 1.3 .7 .3 1.1 .1 .2 (.4)
------ ------ ------ ------ ------ ------ ----- ----- -----
Net periodic benefit cost.. $ 24.6 $ 3.7 $ 9.9 $ 14.7 $ 15.6 $ 19.4 $11.1 $10.3 $ 8.2
====== ====== ====== ====== ====== ====== ===== ===== =====
The accumulated benefit obligation and fair value of plan assets for the
pension plans with accumulated benefit obligations in excess of plan assets
were $287.2 and $69.5, respectively, as of December 31, 2001, and $202.0 and
$5.4, respectively, as of December 31, 2000. These amounts represent
non-qualified domestic plans and plans at foreign locations that are primarily
unfunded, as such book reserves equal to the unfunded amount have been recorded.
The projected benefit obligation and fair value of plan assets for the
pension plans with projected benefit obligations in excess of plan assets were
$472.6 and $199.5, respectively, as of December 31, 2001, and $291.7 and $50.4,
respectively, as of December 31, 2000.
The assumed medical cost trend rate used in measuring the postretirement
benefit obligation was 8% for 2002, 7% for 2003, 6% for 2004 and 5% for years
thereafter. Changes in this rate can have a significant effect on amounts
reported. The effect of a 1% increase in the assumed medical cost trend rate
would increase the accumulated postretirement benefit obligation by
approximately $17.1 and increase the annual expense by approximately $2.3. The
effect of a 1% decrease in the assumed medical cost trend rate would decrease
the accumulated postretirement benefit obligation by approximately $14.2 and
decrease the annual expense by approximately $1.9.
8. Income Taxes
The provision for income taxes consists of the following for the three years
ended December 31:
2001 2000 1999
------ ------ ------
United States. $153.5 $150.9 $130.5
International. 368.6 352.5 326.8
------ ------ ------
$522.1 $503.4 $457.3
====== ====== ======
33
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
The components of income before income taxes are as follows for the three
years ended December 31:
2001 2000 1999
-------- -------- --------
United States $ 474.5 $ 483.3 $ 406.3
International 1,194.2 1,083.9 988.3
-------- -------- --------
$1,668.7 $1,567.2 $1,394.6
======== ======== ========
The difference between the statutory U.S. federal income tax rate and the
Company's global effective tax rate as reflected in the Consolidated Statements
of Income is as follows:
Percentage of Income Before Tax 2001 2000 1999
------------------------------- ---- ---- ----
Tax at U.S. statutory rate...................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit...... .6 .4 .9
Earnings taxed at other than U.S. statutory rate (3.0) (1.7) (1.4)
Other, net...................................... (1.3) (1.6) (1.7)
---- ---- ----
Effective tax rate.............................. 31.3% 32.1% 32.8%
==== ==== ====
In addition, net tax benefits of $54.4 in 2001, $91.6 in 2000 and $169.0 in
1999 were recorded directly through equity which included tax benefits related
to certain employee benefit plans. The 1999 amount also reflects tax benefits
related to currency devaluation in Brazil.
Temporary differences between accounting for financial statement purposes
and accounting for tax purposes result in taxes currently payable being lower
than the total provision for income taxes as follows:
2001 2000 1999
------ ------ ------
Property, plant and equipment............. $(12.1) $ (3.2) $(11.6)
Pension and other postretirement benefits. (29.0) (8.2) (4.0)
Alternative Minimum Tax credit utilization -- (89.1) (39.0)
Other, net................................ (0.7) 44.1 5.9
------ ------ ------
$(41.8) $(56.4) $(48.7)
====== ====== ======
The components of deferred tax assets/(liabilities) are as follows at
December 31:
2001 2000
------- -------
Deferred Taxes--Current:
Accrued liabilities....................... $ 65.3 $ 65.3
Restructuring accrual..................... -- 6.9
Other, net................................ 43.5 40.8
------- -------
Total deferred taxes current.............. 108.8 113.0
------- -------
Deferred Taxes--Long-term:
Intangible assets......................... (266.7) (270.1)
Property, plant and equipment............. (269.5) (257.4)
Pension and other postretirement benefits. (0.3) 54.7
Tax loss and tax credit carryforwards..... 100.0 81.4
Other, net................................ 40.3 18.8
Valuation allowance....................... (84.4) (74.7)
------- -------
Total deferred taxes long-term............ (480.6) (447.3)
------- -------
Net deferred taxes.................... $(371.8) $(334.3)
======= =======
34
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
The major component of the 2001 and 2000 valuation allowance relates to tax
benefits in certain jurisdictions not expected to be realized.
Applicable U.S. income and foreign withholding taxes have not been provided
on approximately $814.0 of undistributed earnings of foreign subsidiaries at
December 31, 2001. These earnings are currently considered to be permanently
invested and are not subject to such taxes. Determining the tax liability that
would arise if these earnings were remitted is not practicable.
9. Supplemental Income Statement Information
Other Expense, Net 2001 2000 1999
------------------ ------ ------ ------
Amortization of intangible assets $ 68.0 $ 72.1 $ 75.6
Earnings from equity investments. (0.2) (2.2) (5.3)
Minority interest................ 40.1 32.6 30.4
Other, net....................... (13.4) (50.2) (27.1)
------ ------ ------
$ 94.5 $ 52.3 $ 73.6
====== ====== ======
Interest Expense, Net 2001 2000 1999
--------------------- ------ ------ ------
Interest incurred................ $192.4 $203.5 $224.0
Interest capitalized............. (14.4) (3.8) (11.8)
Interest income.................. (11.9) (26.4) (40.6)
------ ------ ------
$166.1 $173.3 $171.6
====== ====== ======
Research and development......... $184.9 $176.1 $169.2
Media advertising................ 509.0 550.9 575.6
10. Supplemental Balance Sheet Information
Inventories 2001 2000
----------- ------ ------
Raw materials and supplies $188.0 $206.2
Work-in-process........... 27.9 30.7
Finished goods............ 461.1 449.7
------ ------
$677.0 $686.6
====== ======
Inventories valued under LIFO amounted to $143.1 and $133.0 at December 31,
2001 and 2000, respectively. The excess of current cost over LIFO cost at the
end of each year was $30.5 and $34.4, respectively. The liquidations of LIFO
inventory quantities had no effect on income in 2001, 2000 and 1999.
35
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
Property, Plant and Equipment, Net 2001 2000
---------------------------------- --------- ---------
Land................................ $ 128.8 $ 129.0
Buildings........................... 726.7 716.2
Machinery and equipment............. 3,553.4 3,442.1
--------- ---------
4,408.9 4,287.3
Accumulated depreciation............ (1,895.4) (1,759.0)
--------- ---------
$ 2,513.5 $ 2,528.3
========= =========
Goodwill and Other Intangible Assets, Net 2001 2000
----------------------------------------- --------- ---------
Goodwill and other intangibles...... $ 2,623.0 $ 2,747.4
Accumulated amortization............ (719.0) (651.0)
--------- ---------
$ 1,904.0 $ 2,096.4
========= =========
The net book value, as of December 31, 2001 and 2000, of goodwill totaled
$1,284.2 and $1,452.8, respectively, and of other intangible assets totaled
$619.8 and $643.6, respectively.
Other Accruals 2001 2000
-------------- ------ ------
Accrued payroll and employee benefits $254.9 $286.9
Accrued advertising.................. 261.8 267.1
Accrued interest..................... 23.9 53.0
Accrued taxes other than income taxes 48.6 69.9
Other................................ 234.1 223.3
------ ------
$823.3 $900.2
====== ======
Other Liabilities 2001 2000
----------------- ------ ------
Minority interest.................... $204.1 $117.2
Pension and other benefits........... 401.5 380.8
Other................................ 116.7 57.9
------ ------
$722.3 $555.9
====== ======
Accumulated Other Comprehensive Income
Accumulated Other Comprehensive Income is comprised of cumulative foreign
currency translation gains and losses, unrealized gains and losses from
derivative instruments designated as cash flow hedges, unrealized gains and
losses from available for sale securities and minimum pension liability
adjustments. As of December 31, 2001 and 2000, Accumulated Other Comprehensive
Income primarily consisted of cumulative foreign currency translation
adjustments.
The 2001 cumulative translation adjustment charge resulted primarily from
devaluation of the Brazilian real of $105.0 and the Argentine peso of $66.8. In
2000 and 1999, the cumulative translation adjustment charge related primarily
to the devaluation of the Brazilian real of $45.1 and $242.4, respectively.
These charges represented write-downs of foreign currency denominated assets
(primarily goodwill and property, plant and equipment) that will result in
lower depreciation expense in future periods.
36
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
11. Fair Value of Financial Instruments
In assessing the fair value of financial instruments at December 31, 2001
and 2000, the Company has used available market information and other valuation
methodologies. Some judgment is necessarily required in interpreting market
data to develop the estimates of fair value, and, accordingly, changes in
assumptions or the estimation methodologies may affect the fair value estimates.
The estimated fair values of the Company's derivative instruments are as
follows:
2001 2000
--------------- --------------
Notional Fair Notional Fair
Amount Value Amount Value
-------- ------ -------- -----
Interest rate swap contracts $788.8 $(13.7) $824.6 $ 3.7
Foreign currency contracts.. 591.2 11.9 728.6 (3.3)
The Company utilizes interest rate swap contracts to manage its targeted mix
of fixed and floating rate debt. Forward exchange and currency swap contracts
are utilized to hedge a portion of the Company's foreign currency purchases and
assets and liabilities created in the normal course of business. Forward
exchange contracts used in hedging forecasted foreign currency purchases have
durations no greater than 18 months.
As of December 31, 2001, the Company's derivative instruments were recorded
as assets or liabilities at estimated fair value. As of December 31, 2000, the
net carrying values of the interest rate swap contracts and the foreign
currency contracts were $0 and $18.3, respectively. Prior to the adoption of
SFAS 133, the fair values related to certain of these contracts were not
required to be recognized in the Company's financial statements.
The cumulative gains/(losses) related to those foreign currency contracts
and interest rate swap contracts designated as cash flow hedges expected to be
recognized in earnings over the next 12 months, when the offsetting effects of
the hedged item are also recorded in earnings, are $1.8 and ($9.3),
respectively.
Other Financial Instruments
The carrying amount of cash and cash equivalents, marketable securities,
long-term investments and short-term debt approximated fair value as of
December 31, 2001 and 2000. The estimated fair value of the Company's long-term
debt, including current portion, as of December 31, 2001 and 2000, was $3,312.5
and $2,880.7, respectively, and the related carrying value was $3,137.5 and
$2,857.1, respectively.
Credit Risk
The Company is exposed to credit loss in the event of nonperformance by
counterparties to the financial instrument contracts held by the Company;
however, nonperformance by these counterparties is considered remote as it is
the Company's policy to contract with diversified counterparties that have a
long-term debt rating of A or higher. In addition, if all these counterparties
did not perform, the Company's risk of credit loss would not be material.
12. Restructured Operations
In December 2000, the Company recorded a charge of $63.9 ($42.5 aftertax)
associated with the realignment of three manufacturing locations in Latin
America and the exiting of our business in Nigeria. The charge, recorded in
Other expense, net, included $14.2 for termination costs and $49.7 for exiting
of manufacturing operations. The restructuring was completed in 2001 with a
final payment of $7.2 representing termination costs for 979 employees.
37
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
13. Earnings Per Share
For the Year Ended 2001 For the Year Ended 2000 For the Year Ended 1999
------------------------------ ------------------------------ ----------------------------
Shares Shares Shares
Income (millions) Per Share Income (millions) Per Share Income (millions) Per Share
-------- ---------- --------- -------- ---------- --------- ------ ---------- ---------
Net income......... $1,146.6 $1,063.8 $937.3
Preferred dividends (21.7) (20.7) (21.0)
-------- -------- ------
Basic EPS.......... 1,124.9 557.8 $2.02 1,043.1 574.9 $1.81 916.3 583.1 $1.57
===== ===== =====
Stock options...... 8.8 9.8 11.7
ESOP conversion.... 21.3 41.1 20.3 42.6 19.7 44.0
-------- ----- -------- ----- ------ -----
Diluted EPS........ $1,146.2 607.7 $1.89 $1,063.4 627.3 $1.70 $936.0 638.8 $1.47
======== ===== ===== ======== ===== ===== ====== ===== =====
In determining the dilutive effect of the stock options, the number of
shares resulting from the assumed exercise of the options is appropriately
reduced by the number of shares that could have been purchased by the Company
with the proceeds from the exercise of such options.
14. Commitments and Contingencies
Minimum rental commitments under noncancellable operating leases, primarily
for office and warehouse facilities, are $71.9 in 2002, $62.0 in 2003, $53.5 in
2004, $47.9 in 2005, $46.6 in 2006 and $125.9 thereafter. Rental expense
amounted to $96.9 in 2001, $90.6 in 2000 and $102.4 in 1999. Contingent
rentals, sublease income and capital leases, which are included in fixed
assets, are not significant.
The Company has various contractual commitments to purchase raw materials,
products and services totaling $156.4 that expire through 2004.
The Company is a party to various superfund and other environmental matters
and is contingently liable with respect to lawsuits, taxes and other matters
arising out of the normal course of business. Management proactively reviews
and manages its exposure to, and the impact of, environmental matters and other
contingencies.
In 1995, the Company acquired the Kolynos oral care business from American
Home Products, 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
$110. 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, 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 $40. 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.
38
COLGATE-PALMOLIVE COMPANY
Notes to Consolidated Financial Statements--(continued)
(Dollars in Millions Except Per Share Amounts)
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.
15. Quarterly Financial Data (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
2001
Net sales................. $2,292.6 $2,329.6 $2,391.2 $2,414.4
Gross profit.............. 1,259.8 1,278.6 1,319.2 1,333.3
Net income................ 267.9 287.2 296.2 295.3
Earnings per common share:
Basic.................. .47 .50 .52 .53
Diluted................ .44 .47 .49 .49
2000
Net sales................. $2,241.8 $2,336.7 $2,366.5 $2,412.9
Gross profit.............. 1,221.2 1,270.9 1,293.5 1,306.8
Net income................ 239.9 261.9 275.3 286.7
Earnings per common share:
Basic.................. .41 .45 .47 .49
Diluted................ .38 .42 .44 .46
39
COLGATE-PALMOLIVE COMPANY
Market and Dividend Information
The Company's common stock and $4.25 Preferred Stock are listed on the New
York Stock Exchange. The trading symbol for the common stock is CL. Dividends
on the common stock have been paid every year since 1895 and the amount of
dividends paid per share has increased for 39 consecutive years.
Market Price
Quarter Ended Common Stock $4.25 Preferred Stock
------------- --------------------------- ---------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
High Low High Low High Low High Low
------ ------ ------ ------ ------ ------ ------ ------
March 31..... $62.50 $51.00 $64.81 $42.75 $89.00 $86.85 $89.00 $86.00
June 30...... 61.00 51.26 62.63 52.63 89.75 85.93 88.00 86.00
September 30. 60.25 52.64 59.88 43.06 88.00 85.50 88.00 85.75
December 31.. 59.41 56.15 64.56 46.50 88.00 85.00 88.50 86.50
Closing Price $57.75 $64.55 $87.50 $87.75
Dividends Paid
Per Share
Quarter Ended 2001 2000 2001 2000
------------- ------ ------ ------- -------
March 31........ $.1575 $.1575 $1.0625 $1.0625
June 30......... .1575 .1575 1.0625 1.0625
September 30.... .1800 .1575 1.0625 1.0625
December 31..... .1800 .1575 1.0625 1.0625
------ ------ ------- -------
Total........ $ .675 $ .63 $ 4.25 $ 4.25
==== ====== ======= =======
40
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 2001
(Dollars in Millions Except Per Share Amounts)
Column A Column B Column C Column D Column E
-------- ---------- ------------------ ---------- ---------
Additions
------------------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Other Deductions of Period
----------- ---------- ---------- ----- ---------- ---------
Allowance for doubtful accounts............... $ 39.8 $11.7 $ -- $ 5.9/(1)/ $ 45.6
====== ===== ==== ===== ======
Accumulated amortization of goodwill and other
intangibles................................. $651.0 $68.0 $ -- $ -- $719.0
====== ===== ==== ===== ======
Valuation allowance for deferred tax assets... $ 74.7 $27.0/(2)/ $ -- $17.3/(2)/ $ 84.4
====== ===== ==== ===== ======
- --------
NOTES:
/(1)/ Uncollectible accounts written off and cash discounts allowed.
/(2)/ Increase/decrease in allowance for tax loss and tax credit carryforward
benefits that are likely not to be utilized in the future.
41
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 2000
(Dollars in Millions Except Per Share Amounts)
Column A Column B Column C Column D Column E
-------- ---------- ---------------- ---------- ----------
Additions
----------------
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Other Deductions Period
----------- ---------- ---------- ----- ---------- ----------
Allowance for doubtful accounts............... $ 37.2 $10.3 $ -- $ 7.7/(1)/ $ 39.8
====== ===== ==== ===== ======
Accumulated amortization of goodwill and other
intangibles................................. $578.9 $72.1 $ -- $ -- $651.0
====== ===== ==== ===== ======
Valuation allowance for deferred tax assets... $137.0 $ -- $ -- $62.3/(2)/ $ 74.7
====== ===== ==== ===== ======
- --------
NOTES:
/(1)/ Uncollectible accounts written off and cash discounts allowed.
/(2)/ Decrease in allowance due to utilization of tax credits and net operating
loss carryforwards.
42
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1999
(Dollars in Millions Except Per Share Amounts)
Column A Column B Column C Column D Column E
-------- ---------- ---------------- ---------- ---------
Additions
----------------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Other Deductions of Period
----------- ---------- ---------- ----- ---------- ---------
Allowance for doubtful accounts............... $ 35.9 $ 10.2 $ -- $ 8.9/(1)/ $ 37.2
====== ====== ===== ===== ======
Accumulated amortization of goodwill and other
intangibles................................. $556.7 $ 75.6 $ -- $53.4/(2)/ $578.9
====== ====== ===== ===== ======
Valuation allowance for deferred tax assets... $122.8 $ -- $52.3/(3)/ $38.1/(3)/ $137.0
====== ====== ===== ===== ======
- --------
NOTES:
/(1)/ Uncollectible accounts written off and cash discounts allowed.
/(2)/ Primarily due to the impact of exchange rate changes in Brazil.
/(3)/ Increase/decrease in allowance for tax loss and tax credit carryforward
benefits that are likely not to be utilized in the future.
43
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Colgate-Palmolive Company:
We have audited the accompanying consolidated balance sheets of
Colgate-Palmolive Company (a Delaware corporation) and subsidiaries as of
December 31, 2001 and 2000, and the related consolidated statements of income,
retained earnings, comprehensive income and changes in capital accounts, and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements and the schedules referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Colgate-Palmolive Company
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted
in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
financial statements are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York
February 4, 2002
44
COLGATE-PALMOLIVE COMPANY
Historical Financial Summary/(1)/
Dollars in Millions Except Per Share Amounts
2001 2000 1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- -------- --------
Continuing Operations
Net sales............................ $9,427.8 $9,357.9 $9,118.2 $8,971.6 $9,056.7 $8,749.0 $8,358.2 $7,587.9
Results of operations:
Net income........................ 1,146.6 1,063.8 937.3 848.6 740.4 635.0 172.0/(2)/ 580.2/(3)/
Per share, basic.................. 2.02 1.81 1.57 1.40 1.22 1.05 .26/(2)/ .96/(3)/
Per share, diluted................ 1.89 1.70 1.47 1.30 1.13 .98 .25/(2)/ .89/(3)/
Depreciation and amortization expense 336.2 337.8 340.2 330.3 319.9 316.3 300.3 235.1
Financial Position
Current ratio........................ 1.0 1.0 1.0 1.1 1.1 1.2 1.3 1.4
Property, plant and equipment, net... 2,513.5 2,528.3 2,551.1 2,589.2 2,441.0 2,428.9 2,155.2 1,988.1
Capital expenditures................. 340.2 366.6 372.8 389.6 478.5 459.0 431.8 400.8
Total assets......................... 6,984.8 7,252.3 7,423.1 7,685.2 7,538.7 7,901.5 7,642.3 6,142.4
Long-term debt....................... 2,812.0 2,536.9 2,243.3 2,300.6 2,340.3 2,786.8 2,992.0 1,751.5
Shareholders' equity................. 846.4 1,468.1 1,833.7 2,085.6 2,178.6 2,034.1 1,679.8 1,822.9
Share and Other
Book value per common share.......... 1.54 2.57 3.14 3.53 3.65 3.42 2.84 3.12
Cash dividends declared and
paid per common share............... .675 .63 .59 .55 .53 .47 .44 .39
Closing price........................ 57.75 64.55 65.00 46.44 36.75 23.06 17.56 15.84
Number of common shares
outstanding (in millions)........... 550.7 566.7 578.9 585.4 590.8 588.6 583.4 577.6
Number of shareholders of record:
$4.25 Preferred................... 224 247 275 296 320 350 380 400
Common............................ 40,900 42,300 44,600 45,800 46,800 45,500 46,600 44,100
Average number of employees.......... 38,500 38,300 37,200 38,300 37,800 37,900 38,400 32,800
1993 1992
-------- --------
Continuing Operations
Net sales............................ $7,141.3 $7,007.2
Results of operations:
Net income........................ 189.9/(4)/ 477.0
Per share, basic.................. .27/(4)/ .73
Per share, diluted................ .26/(4)/ .68
Depreciation and amortization expense 209.6 192.5
Financial Position
Current ratio........................ 1.5 1.5
Property, plant and equipment, net... 1,766.3 1,596.8
Capital expenditures................. 364.3 318.5
Total assets......................... 5,761.2 5,434.1
Long-term debt....................... 1,532.4 946.5
Shareholders' equity................. 1,875.0 2,619.8
Share and Other
Book value per common share.......... 3.10 4.05
Cash dividends declared and
paid per common share............... .34 .29
Closing price........................ 15.59 13.94
Number of common shares
outstanding (in millions)........... 597.0 641.0
Number of shareholders of record:
$4.25 Preferred................... 450 470
Common............................ 40,300 36,800
Average number of employees.......... 28,000 28,800
- --------
/(1) / All share and per share amounts have been restated to reflect the 1999,
1997 and 1991 two-for-one stock splits.
/(2) / Income in 1995 includes a net provision for restructured operations of
$369.2. (Excluding this charge, earnings per share would have been $.89,
basic and $.84, diluted.)
/(3) / Income in 1994 includes a one-time charge of $5.2 for the sale of a
non-core business, Princess House.
/(4) / Income in 1993 includes a one-time impact of adopting new mandated
accounting standards, effective in the first quarter of 1993, of $358.2.
(Excluding this charge, earnings per share would have been $.84,
basic and $.79, diluted.)
45
COLGATE-PALMOLIVE COMPANY
EXHIBITS TO FORM 10-K
YEAR ENDED DECEMBER 31, 2001
Commission File No. 1-644
Exhibit No. Description
- ----------- -----------
3-A Restated Certificate of Incorporation,as amended. (Registrant hereby incorporates by reference
Exhibit 1 to its Form 8-K dated October 17, 1991, File No. 1-644-2.)
3-B By-laws. (Registrant hereby incorporates by reference Exhibit 3-B to its Annual Report on Form
10-K for the year ended December 31, 2000, File No. 1-644.)
4-A Rights Agreement dated as of October 23, 1998 between registrant and First Chicago Trust
Company of New York. (Registrant hereby incorporates by reference Exhibit 1 to its Form 8-A
dated October 23, 1998, File No. 1-644-2.)
4-B a) Other instruments defining the rights of security holders, including indentures.*
b) Colgate-Palmolive Company Employee Stock Ownership Trust Note Agreement dated as of June
1, 1989, as amended. (Registrant hereby incorporates by reference Exhibit 4-B (b) to its Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000, File No. 1-644-2.)
10-A a) Colgate-Palmolive Company Executive Incentive Compensation Plan, amended and restated as of
March 11, 1999. (Registrant hereby incorporates by reference Appendix A to its 1999 Notice of
Meeting and Proxy Statement.)
b) Colgate-Palmolive Company Executive Incentive Compensation Plan Trust, as amended.
(Registrant hereby incorporates by reference Exhibit 10-B (b) to its Annual Report on Form 10-K
for the year ended December 31, 1987, File No. 1-644-2.)
10-B a) Colgate-Palmolive Company Supplemental Salaried Employees Retirement Plan. (Registrant
hereby incorporates by reference Exhibit 10-E (Plan only) to its Annual Report on Form 10-K for
the year ended December 31, 1984, File No. 1-644-2.)
b) Colgate-Palmolive Company Supplemental Salaried Employees Retirement Plan Trust.
(Registrant hereby incorporates by reference Exhibit 10-C (b) to its Annual Report on Form 10-K
for the year ended December 31, 1987, File No. 1-644-2.)
10-C a) Colgate-Palmolive Company Executive Severance Plan, as amended and restated. (Registrant
hereby incorporates by reference Exhibit 10-E (a) to its Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001, File No. 1-644.)
b) Colgate-Palmolive Company Executive Severance Plan Trust. (Registrant hereby incorporates by
reference Exhibit 10-E (b) to its Annual Report on Form 10-K for the year ended December 31,
1987, File No. 1-644-2.)
10-D Colgate-Palmolive Company Pension Plan for Outside Directors, as amended and restated.
(Registrant hereby incorporates by reference Exhibit 10-D to its Annual Report on Form 10-K for
the year ended December 31, 1999, File No. 1-644-2.)
10-E Colgate-Palmolive Company Stock Plan for Non-Employee Directors. (Registrant hereby
incorporates by reference Exhibit 10-G to its Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-644.)
10-F Colgate-Palmolive Company Restated and Amended Deferred Compensation Plan for Non-
Employee Directors, as amended. (Registrant hereby incorporates by reference Exhibit 10-H to its
Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-644.)
10-G Career Achievement Plan. (Registrant hereby incorporates by reference Exhibit 10-I to its Annual
Report on Form 10-K for the year ended December 31, 1986, File No. 1-644-2.)
46
Exhibit No. Description
- ----------- -----------
10-H Colgate-Palmolive Company 1987 Stock Option Plan, as amended. (Registrant hereby
incorporates by reference Exhibit 10-J to its Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-644.)
10-I a) Stock Incentive Agreement between Colgate-Palmolive Company and Reuben Mark, Chairman
and Chief Executive Officer, dated January 13, 1993, pursuant to the Colgate-Palmolive Company
1987 Stock Option Plan, as amended. (Registrant hereby incorporates by reference Exhibit 10-N to
its Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-644-2.)
b) Stock Incentive Agreement between Colgate-Palmolive Company and Reuben Mark, Chairman
and Chief Executive Officer, dated November 7, 1997, pursuant to the Colgate-Palmolive
Company 1997 Stock Option Plan. (Registrant hereby incorporates by reference Exhibit 10-K(b)
to its Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-644.)
10-J Colgate-Palmolive Company Non-Employee Director Stock Option Plan, as amended. (Registrant
hereby incorporates by reference Exhibit 10-L to its Annual Report on Form 10-K for the year
ended December 31, 1997, File No. 1-644.)
10-K a) U.S. $800,000,000 Five Year Credit Agreement dated as of May 30, 1997. (Registrant hereby
incorporates by reference Exhibit 10-N to its Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, File No. 1-644.)
b) Amendment dated as of April 1, 1998 to the Five Year Credit Agreement dated as of May 30,
1997. (Registrant hereby incorporates reference Exhibit 10-M(b) to its Quarterly Report on Form
10-Q for the quarter ended March 31, 1998, File No. 1-644.)
10-L Colgate-Palmolive Company 1996 Stock Option Plan, as amended. (Registrant hereby
incorporates by reference Exhibit 10-N to its Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 1-644.)
10-M Colgate-Palmolive Company 1997 Stock Option Plan. (Registrant hereby incorporates by
reference appendix A to its 1997 Notice of Meeting and Proxy Statement.)
12 Statement re Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants.
24 Powers of Attorney.
- --------
* Registrant hereby undertakes upon request to furnish the Commission with a
copy of any instrument with respect to long-term debt where the total amount
of securities authorized thereunder does not exceed 10% of the total assets
of the registrant and its subsidiaries on a consolidated basis.
The exhibits indicated above that are not included with the Form 10-K 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-K
Exhibits)
300 Park Avenue
New York, New York 10022-7499
47