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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 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number 1-644-2
COLGATE-PALMOLIVE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 13-1815595
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
300 PARK AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-310-2000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
$4.25 Preferred Stock, without New York Stock Exchange
par value, cumulative dividend
Common Stock, $1.00 par value New York Stock Exchange
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, 1995 the aggregate market value of stock held by
non-affiliates was $9,325 million. There were 144,579,030 shares of Common
Stock outstanding as of February 28, 1995.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents Form 10-K Reference
Portions of Proxy Statement for the
1995 Annual Meeting Part III, Items 10 through 13
Total number of sequentially numbered pages in this filing, including
exhibits thereto: .
The exhibit index begins on page 38.
PART I
ITEM 1. BUSINESS
(a) General Development of the Business
Colgate-Palmolive Company (the "Company") is a corporation which was
organized under the laws of the State of Delaware in 1923. The Company
manufactures and markets a wide variety of products throughout the world for
use by consumers. For recent business developments, refer to the information
set forth under the captions "Results of Operations" and "Liquidity and
Capital Resources" in Part II, Item 7 of this report.
(b) Financial Information About Industry Segments
For information about industry segments refer to the information set forth
under the caption "Results of Operations" in Part II, Item 7 of this report.
(c) Narrative Description of the Business
For information regarding description of the business refer to the caption
"Scope of Business" on page 5; "Average number of employees" appearing under
"Historical Financial Summary" on page 36; and "Research and development"
expenses appearing in Note 11 to the Consolidated Financial Statements on
page 27 of this report.
The Company's products are generally marketed by a sales force employed by
each individual subsidiary or business unit. In some instances outside
jobbers and brokers are used. Most raw materials used worldwide are purchased
from others, are available from several sources and are generally available
in adequate supply. Products and commodities such as tallow and essential
oils are subject to wide price variations. No one of the Company's raw
materials represents a significant portion of total material requirements.
Trademarks are considered to be of material importance to the Company's
business; consequently the practice is followed of seeking trademark
protection by all available means. Although the Company owns a number of
patents, no one patent is considered significant to the business taken as a
whole.
The Company has programs for the operation and design of its facilities which
meet or exceed applicable environmental rules and regulations. Compliance
with such rules and regulations has not significantly affected the Company's
capital expenditures, earnings or competitive position. Capital expenditures
for environmental control facilities totaled $11.6 million in 1994 and are
budgeted at $17.6 million for 1995. For future years, expenditures are
expected to be in the same range.
(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.
ITEM 2. PROPERTIES
The Company owns and leases a total of 301 manufacturing, distribution,
research and office facilities worldwide. Corporate headquarters is housed in
leased facilities at 300 Park Avenue, New York, New York.
In the United States, the Company operates 66 facilities, of which 26 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
Company is transforming its former facilities in Jersey City, New Jersey into
a mixed-use complex with the assistance of developers and other investors.
The Specialty Marketing segment has major facilities in Bowling Green,
Kentucky; Topeka, Kansas; and Richmond, Indiana. Research facilities are
located throughout the world with the research center for Oral, Personal and
Household Care products located in Piscataway, New Jersey.
Overseas, the Company operates 235 facilities, of which 89 are owned, in over
60 countries. Major overseas facilities used by the Oral, Personal and
Household Care segment are located in Australia, Brazil, Canada, China,
Colombia, France, Germany, Italy, Mexico, Thailand, the United Kingdom 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
On April 5, 1994, Region V of the United States Environmental Protection
Agency (the "Region") issued to a Company plant in Jeffersonville, Indiana a
Findings of Violations and Order for Compliance under Section 309
2
(a) of the Clean Water Act (the "Order"). The Order, based in part on
information supplied by the plant, stated that the plant, at certain times in
late 1993 and early 1994, had discharged waste water containing substances in
excess of amounts permitted by its National Pollutant Discharge Elimination
System Permit (the "Permit"). The Order requires that the plant submit
certain information and take certain actions to provide the Region with
assurance that the plant will comply with the Permit. The plant is complying
with the Order.
EPA Region V and the Company have entered into a settlement of an
administrative complaint filed separately by EPA under Section 309 (g) of the
Clean Water Act on or about September 30, 1994. In connection with the
settlement, the Company has paid an administrative civil penalty in the
amount of $110,000. The settlement has been executed by the Acting Director
of the Water Office at Region V and has been formally adopted as an order of
the EPA Regional Administrator.
On June 13, 1994, the Jeffersonville plant also received from Atlantic States
Legal Foundation, Inc., a public interest group, a notice of its intention to
bring a related citizen's suit under Section 505(b) of the Federal Water
Pollution Control Act (the "Act"). The Company intends to respond to this
notice in accordance with the Act.
For additional information regarding legal matters see Note 13 to the
Consolidated Financial Statements included on page 29 of this report.
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 23, 1995:
Date First
Elected
Name Age Officer Present Title
Reuben Mark 56 1974 Chairman of the Board and Chief Executive
Officer
William S. Shanahan 54 1983 President and Chief Operating Officer
Robert M. Agate 59 1985 Senior Executive Vice President and Chief
Financial Officer
William G. Cooling 50 1981 Chief of Operations, Specialty Marketing and
International Business Development
Craig B. Tate 49 1989 Chief Technological Officer
Silas M. Ford 57 1983 Executive Vice President
Office of the Chairman
Andrew D. Hendry 47 1991 Senior Vice President
General Counsel and Secretary
Douglas M. Reid 60 1990 Senior Vice President
Global Human Resources
John E. Steel 65 1991 Senior Vice President
Global Marketing and Sales
Edgar J. Field 55 1991 President
International Business Development
Lois D. Juliber 46 1991 President
Colgate-USA/Canada/Puerto Rico
Stephen A. Lister 53 1994 President
Colgate-Asia Pacific
David A. Metzler 52 1991 President
Colgate-Europe
3
Michael J. Tangney 50 1993 President
Colgate-Latin America
Robert C. Wheeler 53 1991 President
Hill's Pet Nutrition, Inc.
Steven R. Belasco 48 1991 Vice President
Taxation
Brian J. Heidtke 54 1986 Vice President
Finance and Corporate Treasurer
Peter D. McLeod 54 1984 Vice President
Manufacturing Engineering Technology
Stephen C. Patrick 45 1990 Vice President
Corporate Controller
Donald A. Schindel 61 1995 Vice President
Corporate Development
John H. Tietjen 52 1995 Vice President
Global Business Development
Michael S. Roskothen 58 1993 President
Global Oral Care
Thomas G. Davies 54 1995 Vice President
Global Business Development Fabric Care
Barrie M. Spelling 51 1994 Vice President
Global Business Development
Household Surface Care
Each of the executive officers listed above has served the registrant or its
subsidiaries in various executive capacities for the past five years, except
Douglas M. Reid and Andrew D. Hendry. Douglas M. Reid served as Senior Vice
President and Senior Staff Officer at Xerox prior to joining the Company in
1990. Andrew D. Hendry was Vice President, General Counsel for UNISYS prior
to joining the Company in 1991.
The Company By-Laws, paragraph 38, states: The officers of the corporation
shall hold office until their respective successors are chosen and qualified
in their stead, or until they have resigned, retired or been removed in the
manner hereinafter provided. Any officer elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the whole Board of Directors.
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 "Market and
Dividend Information" in Note 15 on page 31; the information under "Common
Stock" in Note 5 to the Consolidated Financial Statements on page 21; and the
"Number of shareholders of record" and "Cash dividends declared per common
share" under the caption "Historical Financial Summary" on page 36 of this
report.
ITEM 6. SELECTED FINANCIAL DATA
Refer to the information set forth under the caption "Historical Financial
Summary" on page 36 of this report.
4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Scope of Business
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 Specialty Marketing. Oral, Personal and Household Care
products include toothpastes, oral rinses and toothbrushes, bar and liquid
soaps, shampoos, conditioners, deodorants and antiperspirants, baby and shave
products, laundry and dishwashing detergents, fabric softeners, cleansers and
cleaners, bleaches, and other similar items. Specialty Marketing products
include pet nutrition products and products previously sold by Princess House
and VCA. Principal global trademarks and trade names include Colgate,
Palmolive, Mennen, Ajax, Soupline/Suavitel, Fab, Science Diet and
Prescription Diet in addition to various regional tradenames.
The Company's principal classes of products accounted for the following
percentages of worldwide sales for the past three years:
1994 1993 1992
Oral Care ............................ 26% 25% 23%
Personal Care ........................ 24% 24% 23%
Household Surface Care ............... 17% 17% 18%
Fabric Care .......................... 18% 19% 20%
Pet Nutrition ........................ 11% 11% 10%
Company products are marketed under highly competitive conditions. Products
similar to those produced and sold by the Company are available from
competitors in the U.S. and overseas. Product quality, brand recognition and
acceptance, and marketing capability largely determine success in the
Company's business segments.
As shown in the geographic area and industry segment data that follow, more
than half of the Company's net sales, operating profit and identifiable
assets are attributable to overseas operations. Transfers between geographic
areas are not significant.
Results of Operations (Dollars in Millions Except Per Share Amounts)
1994 1993 1992
Worldwide Net Sales by Business Segment
Oral, Personal and Household Care ......... $6,735.8 $6,306.4 $6,230.7
Specialty Marketing ....................... 852.1 834.9 776.5
Total Net Sales .......................... $7,587.9 $7,141.3 $7,007.2
Segment Net Sales by Geographic Region
North America
Oral, Personal and Household Care ......... $1,623.1 $1,762.5 $1,839.0
Specialty Marketing ....................... 776.9 774.8 725.1
Total North America ...................... 2,400.0 2,537.3 2,564.1
Europe
Oral, Personal and Household Care ......... 1,968.2 1,843.6 2,117.0
Specialty Marketing ....................... 75.2 60.1 51.4
Total Europe ............................. 2,043.4 1,903.7 2,168.4
Latin America* ............................. 1,736.5 1,525.8 1,315.2
Asia and Africa* ........................... 1,408.0 1,174.5 959.5
Total Net Sales .......................... $7,587.9 $7,141.3 $7,007.2
* Amounts in Latin America and Asia/Africa relate to the Oral, Personal and
Household Care segment only. Sales of Specialty Marketing products to these
regions are primarily exported to local distributors and therefore are
included in North American results in all years to conform to the
current-year presentation.
Net Sales
Worldwide net sales in 1994 increased 6% to $7,587.9 from $7,141.3 in 1993.
Excluding the sales of non-core businesses disposed of during 1994, sales
increased 8% on volume growth of 7% reflecting the Company's increas-
5
ing global strength and worldwide brand presence. Sales in the Oral, Personal
and Household Care segment were $6,735.8, up 7% from $6,306.4 in 1993. Sales
in the Asia/Africa Region continued a trend of strong growth, posting a 20%
overall increase led by Malaysia, Hong Kong, India and South Africa.
Australia and New Zealand showed volume improvements and also benefited from
favorable currency translation that increased overall sales. Among the
technologically advanced products contributing to 17% volume gains in this
region are Colgate Total toothpaste, Palmolive Nouriche shampoo and Ajax Gel
2-in-1 bleach/cleaner. The 1994 results include the impact of the July 1993
consolidation of the Company's Indian operation. Sales in Europe were up 7%
on 6% volume growth, including 4% from acquisitions. Sales growth in Europe
was led by France, Italy, Greece, the United Kingdom, Spain and Eastern
Europe. Sales in Latin America were up 14% overall on 11% volume growth, with
notable growth in Mexico, Brazil, Colombia and Central America. Colgate Total
toothpaste, Colgate Precision/Total toothbrushes and the expansion of Mennen
deodorants all contributed to the region's growth.
North America was negatively impacted by trade downstocking of inventory and
disinflationary pricing as sales were down 8% on volume declines of 4%. Sales
growth in the Specialty Marketing segment was led by Hill's Pet Nutrition,
which posted sales increases of 16% for the year on 14% volume growth,
reflecting continued strength in the domestic market and further
international expansion. Sales and volume growth were supported by the
introduction of Hill's new Prescription Diet formula for improving oral
health in dogs and Prescription Diet HealthBlend preventive care. Overall
Specialty Marketing reported sales were up slightly versus the prior year as
a result of the second-quarter 1994 sale of Princess House and VCA, two
non-core businesses.
The Company's overall sales in 1993 increased 2% over 1992 and would have
reflected a 7% overall growth excluding the impact of foreign currency
declines. Volume increased 5% during the year, including 1% resulting from
increased ownership of the Indian operation to majority control. Sales in the
Oral, Personal and Household Care segment were mixed. Asia/Africa and Latin
America reported strong increases throughout the regions, while Europe was
down 13%, due to currency declines and difficult economic conditions in
Western Europe, and North America experienced the effects of disinflationary
pricing as sales were down 4% from 1992. Sales for the Specialty Marketing
segment were up 8%, reflecting continued growth in pet foods in both domestic
and international markets, up 11% versus 1992, offset by declines in sales at
non-core businesses.
Gross Profit
Gross profit margin in 1994 improved to 48.4% from 47.8% in 1993 and 47.1% in
1992. The continuing improvement in gross profit reflects the Company's
strategy to shift product mix to higher margin oral care, personal care and
pet nutrition product categories, reduce overhead and improve manufacturing
efficiency by focusing investments on high-return capital projects.
Improvement in the profitability of sales enables the Company to generate
more cash from operations to reinvest in its existing businesses in the form
of research and development, advertising to launch new products, growing
geographically, investing in strategic acquisitions within its core
businesses, and paying dividends.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percent of sales was 35% in
1994 versus 34% in 1993 and 36% in 1992. The 1994 and 1993 expenditures
reflect the continued reduction of the Company's overhead expenses, while
providing higher advertising and product promotion spending, which increased
in 1994 in absolute dollar amounts and as a percentage of sales, while also
increasing spending in research and development. These expenditures support
current business growth levels and are investments to maintain the Company's
competitive advantage in introducing new and improved products in its
strategic core businesses.
Other Expense and Income
Other expense and income 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 and income effects from the 1994 disposition of non-core
businesses and other asset sales. Amortization expense increased in each of
the three years ended 1994 due to higher levels of intangible assets stemming
from the Company's recent acquisitions, most notably Cibaca in India and S.C.
Johnson Wax in Europe, which affected 1994 expense and Mennen, which impacted
expense recognition in 1993 for a full year and in 1992 from the date of
acquisition. The decrease in equity earnings and increase in minority
interest that occurred in 1993 and continues into 1994 primarily results from
increased ownership in the Company's Indian operation to majority control.
Loss on disposition of non-core businesses and gains on sale of miscellaneous
assets make up the remainder of other expense and income in 1994.
6
Earnings Before Interest and Taxes
Earnings before interest and taxes (EBIT) increased 9% in 1994 to $966.6
compared with $883.0 in the prior year. EBIT for the Oral, Personal and
Household Care segment was up 9%, with strong gains across all of the
Company's developing markets and mixed results in the developed world. Lower
returns were experienced in the developed world due principally to a 21%
decline in North America as a result of trade downstocking and increased
spending on advertising and research and development to position that region
for future growth. EBIT for Europe increased 19%, primarily reflecting both
sales growth and higher gross profit margins. Asia/Africa and Latin America
both showed significant improvement: EBIT was up 20% for each on an already
healthy base business. Specialty Marketing also contributed to the overall
EBIT growth led by a 10% improvement at Hill's Pet Nutrition, which increased
EBIT while investing in developing markets to expand its international reach.
1994 1993 1992
Worldwide Earnings by Business Segment
Oral, Personal and Household Care ......... $809.6 $740.6 $665.0
Specialty Marketing ....................... 162.0 147.8 131.1
Total Segment Earnings ................... $971.6 $888.4 $796.1
Segment Earnings By Geographic Region
North America
Oral, Personal and Household Care ......... $148.3 $187.0 $198.1
Specialty Marketing ....................... 158.0 143.0 126.0
Total North America ...................... 306.3 330.0 324.1
Europe
Oral, Personal and Household Care ......... 198.4 167.0 184.2
Specialty Marketing ....................... 4.0 4.8 5.1
Total Europe ............................. 202.4 171.8 189.3
Latin America* ............................. 298.4 249.6 191.6
Asia and Africa* ........................... 164.5 137.0 91.1
Total Segment Earnings ................... 971.6 888.4 796.1
Unallocated Expense, Net ................... (5.0) (5.4) (18.2)
Earnings Before Interest and Taxes ......... 966.6 883.0 777.9
Interest Expense, Net ...................... (86.7) (46.8) (50.0)
Income Before Income Taxes ................. $879.9 $836.2 $727.9
* Amounts in Latin America and Asia/Africa relate to the Oral, Personal and
Household Care segment only. Sales of Specialty Marketing products to these
regions are primarily exported to local distributors, and earnings are
included in North American results in all years to conform to the
current-year presentation.
EBIT increased 14% to $883.0 in 1993 compared with $777.9 in 1992. The Oral,
Personal and Household Care segment reported 11% growth to $740.6, with gains
in the developing regions offsetting declines in the developed regions, which
were impacted by difficult business climates. Within this group, North
America EBIT decreased 6% to $187.0 compared with the prior year primarily
due to lower selling prices. EBIT in Europe decreased 9% due to the negative
impact of foreign currency translation and difficult economic conditions. In
Latin America, EBIT improved 30% to $249.6 in 1993 versus the prior year
while Asia/Africa increased 50%, including the consolidation of India.
Overall, the higher margin product mix and reduced selling, general and
administrative expenses allowed for increased investment in advertising,
product promotion, and research and development, as well as the achievement
of a higher level of EBIT. In the Specialty Marketing segment, EBIT was
$147.8 in 1993 compared with $131.1 in 1992. The improvement results
principally from higher domestic unit volume growth and expanded
international distribution at Hill's Pet Nutrition, particularly in Europe
and exports to Japan.
Net Interest Expense
Interest expense, net of interest income, was $86.7 in 1994 compared with
$46.8 in 1993 and $50.0 in 1992. The increase in net interest expense in 1994
versus the prior two years results from higher debt for the full year,
incurred primarily to finance share repurchases and acquisitions, and
slightly higher effective interest rates in 1994.
7
Income Taxes
The effective tax rate on income for 1994 was 34.1% versus 34.5% in 1993 and
1992. The increase in the U.S. statutory tax rate in 1993 was in part offset
by statutory rate reductions in several overseas jurisdictions. Global tax
savings strategies benefited the effective rate in 1994, 1993 and 1992.
Net Income
Net income was $580.2 in 1994 or $3.82 per share on a primary basis compared
with $189.9 or $1.08 per share in 1993. Included in 1993 net income and per
share amounts is the cumulative one-time impact on prior years of adopting
new mandated accounting standards effective January 1, 1993 for income taxes,
other postretirement benefits and postemployment benefits. Excluding the
changes in accounting in 1993 and the one-time charge for the sale of a
non-core business in 1994, income increased 7% to $585.4 while primary
earnings per share increased 14% to $3.86.
Return on sales was 8% in 1994, consistent with the percentage return in 1993
(excluding the impact of accounting changes), reflecting the Company's
continuing shift to higher margin categories and focus on cost containment,
while providing increased investments aimed at future growth.
Subsequent Event
On January 10, 1995 the Company acquired the worldwide Kolynos oral care
business from American Home Products Corporation for $1,040.0 in cash. The
acquisition was structured as a multinational acquisition of assets and
stock, financed with the proceeds of commercial bank borrowings, and will be
accounted for as a purchase.
The Kolynos business is a multinational oral care business that is engaged in
the production and sale of toothpaste, toothbrushes, dental floss and oral
rinses operating primarily in South America. Kolynos adds significant
strength to the Company's existing South American operations by providing a
strong regional brand to complement the existing Colgate brand equity. The
acquisition is subject to review by antitrust regulatory authorities in
Brazil and Colombia.
Liquidity and Capital Resources
Net cash provided by operations increased 17% to $829.4 in 1994 compared with
$710.4 in 1993 and $542.7 in 1992. The improvement in cash generated by
operating activities to 11% of sales in 1994 from 10% of sales in 1993
reflects the Company's improving profitability and continued management
emphasis on working capital. Cash generated from operations was used to
finance acquisitions, repurchase shares and fund an increased dividend level.
The Company has additional sources of liquidity available in the form of
lines of credit maintained with various banks. Such lines of credit amounted
to $1,439.8 at December 31, 1994. The Company also has the ability to issue
commercial paper at favorable interest rates to meet short-term liquidity
needs. These borrowings carry a Standard & Poor's rating of A1 and a Moody's
rating of P1.
1994 1993 1992
Identifiable Assets
North America
Oral, Personal and Household Care ...... $2,416.0 $2,420.3 $2,263.3
Specialty Marketing .................... 473.9 446.4 420.4
Total North America ................... 2,889.9 2,866.7 2,683.7
Europe
Oral, Personal and Household Care ...... 1,293.8 1,169.3 1,290.2
Specialty Marketing .................... 35.7 27.8 23.5
Total Europe .......................... 1,329.5 1,197.1 1,313.7
Latin America* .......................... 845.2 804.4 679.4
Asia/Africa* ............................ 889.0 692.7 464.3
5,953.6 5,560.9 5,141.1
Corporate Assets ........................ 188.8 200.3 293.0
Total Assets ............................ $6,142.4 $5,761.2 $5,434.1
* Amounts in Latin America and Asia/Africa relate to the Oral, Personal and
Household Care segment only. Certain amounts have been reclassified to conform
to the current-year presentation.
8
During the third quarter of 1994, the remaining outstanding principal ($32.0)
of the 9.625% debentures due July 15, 2017 was retired. Also during the third
quarter, the Company obtained a $50.0 7.25% term loan. During the second
quarter, the Company entered into credit agreements totaling $750.0 replacing
credit agreements then in place. In May 1994, the Company filed a shelf
registration for $500.0 of debt securities. During the second quarter, $208.0
of medium-term notes were issued under this registration. In connection with
the acquisition of Kolynos, the Company borrowed approximately $1,100.0 from
commercial banks in January 1995. As a result of the increase in debt to
finance this acquisition, both Moody's and Standard and Poor's debt rating
agencies reviewed and reaffirmed the Company's debt ratings.
During the third quarter of 1993, the Company participated in the formation
of a business that purchases receivables, including Company receivables.
Outside institutions invested $60.0 in this entity, in 1993 and an additional
$15.2 in 1994. The Company consolidates this entity and the amounts invested
by the outside institutions are classified as a minority interest. During the
1993 first quarter, the Company repaid outstanding debt totaling $85.7, which
included $50.0 of 8.9% Swiss franc notes due in 1993. During the third
quarter of 1993, the Company redeemed $79.0 of its 9.625% debentures due
2017.
During 1992, the Company increased the amount available under its shelf
registration from $150.0 to $400.0. In the fourth quarter of 1993, $230.0 of
medium-term notes were issued under this registration in addition to $169.2
issued in the fourth quarter of 1992. These notes are rated A1/A+ by Moody's
and Standard & Poor's, respectively.
1994 1993 1992
Capital Expenditures
Oral, Personal and Household Care ......... $343.1 $341.1 $292.3
Specialty Marketing ....................... 57.7 23.2 26.2
Total Capital Expenditures ............... $400.8 $364.3 $318.5
Depreciation and Amortization
Oral, Personal and Household Care ......... $213.0 $188.7 $173.3
Specialty Marketing ....................... 22.1 20.9 19.2
Total Depreciation and Amortization ...... $235.1 $209.6 $192.5
Certain amounts have been reclassified to conform to the current-year
presentation.
Capital expenditures in 1994 were $400.8 (5.3% of sales) compared with $364.3
(5.1% of sales) in 1993 and $318.5 (4.5% of sales) in 1992. The increase in
1994 spending was focused primarily on projects that yield high aftertax
returns, thereby reducing the Company's cost structure. Capital expenditures
for 1995 are expected to continue at the current rate of approximately 5% of
sales.
Other investing activities in 1994, 1993 and 1992 included strategic
acquisitions and equity investments worldwide. During 1994, the Company
acquired the Cibaca toothbrush and toothpaste business in India, the NSOA
laundry soap business in Senegal and several other regional brands across the
Oral, Personal and Household Care segment. In October 1993, the Company
acquired the liquid hand and body soap brands of S.C. Johnson Wax in Europe,
the South Pacific and other international locations. Also in 1993, the
Company acquired the Cristasol glass cleaner business in Spain, increased
ownership of its Indian operation to majority control and made other
investments. The aggregate purchase price of all 1994 and 1993 acquisitions
was $149.8 and $222.5, respectively.
Acquisitions totaled $718.4 in 1992 and included businesses in the personal
care, household care, fabric care, and oral care categories, the most
significant being the Mennen Company acquired for an aggregate purchase price
of approximately $670.0. The purchase price was paid with 11.6 million
unregistered shares of the Company's common stock and $127.0 in cash.
Goodwill and other intangible assets increased as a result of these
acquisitions.
During 1994, the Company repurchased common shares in the open market and
private transactions to provide for employee benefit plans and to maintain
its targeted capital structure. Aggregate repurchases for the year
approximated 6.9 million shares with a total purchase price of $411.1. During
1993, 12.6 million shares were acquired with a total purchase price of
$698.1.
The ratio of debt to total capitalization (defined as the ratio of debt to
debt plus equity) increased to 52% during 1994 from 48% in 1993 and 30% in
1992. As a result of the Kolynos acquisition in January 1995, the proforma
ratio of debt to total capitalization increased to 63%. The lower ratio of
debt to total capitalization in 1992 reflects
9
the issuance of shares in connection with the acquisition of The Mennen
Company. The return on average shareholders' equity before accounting
changes, increased to 31% in 1994 from 24% in 1993.
Dividend payments were $255.6 in 1994 ($246.9 aftertax), up from $240.8
($231.4 aftertax) in 1993, reflecting a 14% increase in the common dividend
effective in the third quarter of 1994 partially offset by fewer shares
outstanding. Common dividend payments increased to $1.54 per share in 1994
from $1.34 per share in 1993. The Series B Preference Stock dividends were
declared and paid at the stated rate of $4.88 per share. The increase in
dividend payments in 1993 over 1992 reflects a 16% increase in the common
dividend effective in the third quarter of 1993.
The Company utilizes interest rate agreements and foreign exchange contracts
to manage interest rate and foreign currency exposures. The principal
objective of such contracts is to moderate rather than attempt to eliminate
fluctuations in interest rate and foreign currency movements. The Company, as
a matter of policy, does not speculate in financial markets and therefore
does not hold these contracts for trading purposes. The Company utilizes what
it considers straightforward instruments, such as forward foreign exchange
contracts and non-leveraged interest rate swaps, to accomplish its
objectives.
The Company primarily uses interest rate swap agreements to effectively
convert a portion of its floating rate debt to fixed rate debt in order to
manage interest rate exposures in a manner consistent with achieving a
targeted fixed to variable interest rate ratio. Those interest rate
instruments that do not qualify as hedge instruments for accounting purposes
are marked to market and carried on the balance sheet at fair value. As of
December 31, 1994 and 1993, the Company had agreements outstanding with an
aggregate notional amount of $222.0 and $347.0, respectively, with maturities
through 2001.
The Company uses forward exchange contracts principally to hedge foreign
currency exposures associated with its net investment in foreign operations
and intercompany loans. This hedging minimizes the impact of foreign exchange
rate movements on the Company's financial position. The terms of these
contracts are rarely longer than three years.
As of December 31, 1994 and 1993, the Company had approximately $390.7 and
$439.0, respectively, of outstanding foreign exchange contracts in which
foreign currencies were purchased, and approximately $6.9 in which foreign
currencies were sold as of December 31, 1994. At December 31, 1994 and 1993,
approximately 20% of outstanding foreign exchange contracts served to hedge
net investments in foreign subsidiaries, 60% hedged intercompany loans, 10%
hedged third-party firm commitments, and the remaining 10% hedged certain
transactions that are anticipated to settle in accordance with their
identified terms. The Company makes net settlements for foreign exchange
contracts at maturity, based on rates agreed to at inception of the
contracts.
Gains and losses from contracts that hedge the Company's investments in its
foreign subsidiaries are shown in the cumulative translation adjustment
account included in shareholder's equity. Gains and losses from contracts
that hedge firm commitments (including intercompany loans) are recorded in
the balance sheets as a component of the related receivable or payable.
The contracts that hedge anticipated sales and purchases do not qualify as
hedges for accounting purposes. Accordingly, the related gains and losses are
calculated using the current forward foreign exchange rates and are recorded
in the statements of income as other expense, net.
Internally generated cash flows appear to be adequate to support currently
planned business operations, acquisitions and capital expenditures.
Significant acquisitions, including the acquisition of Kolynos discussed
previously, require external financing.
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. While it
is possible that the Company's cash flows and results of operations in
particular quarterly or annual periods 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 condition or ongoing cash flows and results of operations.
Outlook
Looking forward into 1995, the Company is well positioned for strong growth
in developing markets, particularly South America as a result of the Kolynos
acquisition in early 1995. Economic uncertainty in Mexico could impact
overall results from that country, as previously anticipated growth will be
tempered in at least the near term
10
until the peso currency is stabilized. Several new products including
Palmolive Dishwashing Liquid and Antibacterial Hand Soap, Irish Spring
Waterfall Clean soap and Murphy's Kitchen Care cleaning products were
introduced into the North American market in late 1994. Growth is also
anticipated due to new product introductions in Colgate-International
operations and in Hill's. Overall, the global economic situation for 1995 is
not expected to be materially different from that experienced in 1994, 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 which 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the "Index to Financial Statements" which is located on page 14 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 1995 Annual Meeting is incorporated
herein by reference, as is the text in Part I of this report under the
capiton "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the Proxy Statement for the 1995 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
1995 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the Proxy Statement for the 1995 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 14 of this
report.
(b) Exhibits. See the exhibit index which begins on page 38.
(c) Reports on Form 8-K. None.
11
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)
Date March 23, 1995
By /s/ Reuben Mark
Reuben Mark
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
(a) Principal Executive Officer
/s/ Reuben Mark
Reuben Mark
Chairman of the Board
and Chief Executive Officer
Date March 23, 1995
(b) Principal Financial Officer
/s/Robert M. Agate
Robert M. Agate
Senior Executive Vice President
and Chief Financial Officer
Date March 23, 1995
(c) Principal Accounting Officer
/s/ Stephen C. Patrick
Stephen C. Patrick
Vice President
Corporate Controller
Date March 23, 1995
(d) Directors:
Vernon R. Alden, Jill K. Conway,
Ronald E. Ferguson, Ellen M. Hancock,
David W. Johnson, John P. Kendall,
Delano E. Lewis, Reuben Mark,
Howard B. Wentz, Jr.
Date March 23, 1995
By /s/Andrew D. Hendry
Andrew D. Hendry
as Attorney-in-Fact
12
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
FINANCIAL STATEMENTS
For The Year Ended December 31, 1994
COLGATE-PALMOLIVE COMPANY
NEW YORK, NEW YORK 10022
13
COLGATE-PALMOLIVE COMPANY
Index to Financial Statements
Page
Financial Statements
Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992 ... 15
Consolidated Balance Sheets at December 31, 1994 and 1993 ................................ 16
Consolidated Statements of Retained Earnings and Changes in Capital Accounts for the years
ended December 31, 1994, 1993 and 1992 ................................................. 17
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 18
Notes to Consolidated Financial Statements ............................................... 19-31
Financial Statement Schedules for the years ended December 31, 1994, 1993 and 1992:
II Valuation and Qualifying Accounts .................................................... 32-34
Report of Independent Public Accountants ................................................. 35
Selected Financial Data
Historical Financial Summary ............................................................. 36
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.
14
Consolidated Statements of Income
Dollars in Millions Except Per Share Amounts
1994 1993 1992
Net sales ......................................................................... $7,587.9 $7,141.3 $7,007.2
Cost of sales ..................................................................... 3,913.3 3,729.9 3,708.4
Gross profit .................................................................... 3,674.6 3,411.4 3,298.8
Selling, general and administrative expenses ...................................... 2,625.2 2,457.1 2,500.2
Other expense, net ................................................................ 82.8 71.3 20.7
Interest expense, net of interest income of $34.2, $22.7, and $28.1,
respectively .................................................................... 86.7 46.8 50.0
Income before income taxes ........................................................ 879.9 836.2 727.9
Provision for income taxes ........................................................ 299.7 288.1 250.9
Income before changes in accounting ............................................... 580.2 548.1 477.0
Cumulative effect on prior years of accounting changes ............................ -- (358.2) --
Net income ...................................................................... $ 580.2 $ 189.9 $ 477.0
Earnings per common share, primary:
Income before changes in accounting .............................................. $ 3.82 $ 3.38 $ 2.92
Cumulative effect on prior years of accounting changes ........................... -- (2.30) --
Net income per share ............................................................ $ 3.82 $ 1.08 $ 2.92
Earnings per common share, assuming full dilution:
Income before changes in accounting .............................................. $ 3.56 $ 3.15 $ 2.74
Cumulative effect on prior years of accounting changes ........................... -- (2.10) --
Net income per share ............................................................ $ 3.56 $ 1.05 $ 2.74
See Notes to Consolidated Financial Statements.
15
Consolidated Balance Sheets
Dollars in Millions Except Per Share Amounts
1994 1993
Assets
Current Assets
Cash and cash equivalents ............................................ $ 169.9 $ 144.1
Marketable securities ................................................ 47.6 67.1
Receivables (less allowances, of $23.1 and $24.9, respectively) ...... 1,049.6 988.3
Inventories .......................................................... 713.9 678.0
Other current assets ................................................. 196.7 192.9
Total current assets ................................................ 2,177.7 2,070.4
Property, plant and equipment, net .................................... 1,988.1 1,766.3
Goodwill and other intangibles, net ................................... 1,671.8 1,589.0
Other assets .......................................................... 304.8 335.5
$ 6,142.4 $ 5,761.2
Liabilities and Shareholders' Equity
Current Liabilities
Notes and loans payable .............................................. $ 181.9 $ 169.4
Current portion of long-term debt .................................... 26.0 15.5
Accounts payable ..................................................... 694.9 599.3
Accrued income taxes ................................................. 85.1 59.4
Other accruals ....................................................... 541.3 550.4
Total current liabilities ........................................... 1,529.2 1,394.0
Long-term debt ........................................................ 1,751.5 1,532.4
Deferred income taxes ................................................. 295.4 266.2
Other liabilities ..................................................... 743.4 693.6
Shareholders' Equity
Preferred stock ...................................................... 408.4 414.3
Common stock, $1 par value (500,000,000 shares authorized, 183,213,295
shares issued) ..................................................... 183.2 183.2
Additional paid-in capital ........................................... 1,020.4 1,000.9
Retained earnings .................................................... 2,496.7 2,163.4
Cumulative translation adjustments ................................... (439.3) (372.9)
3,669.4 3,388.9
Unearned compensation ................................................ (384.1) (389.9)
Treasury stock, at cost .............................................. (1,462.4) (1,124.0)
Total shareholders' equity .......................................... 1,822.9 1,875.0
$ 6,142.4 $ 5,761.2
See Notes to Consolidated Financial Statements.
16
Consolidated Statements of Retained Earnings
Dollars in Millions
1994 1993 1992
Balance, January 1 ......................................... $2,163.4 $2,204.9 $1,928.6
Add:
Net income ................................................ 580.2 189.9 477.0
2,743.6 2,394.8 2,405.6
Deduct:
Dividends declared:
Series B Convertible Preference Stock, net of income taxes 21.1 21.1 20.2
Preferred stock .......................................... .5 .5 .5
Common stock ............................................. 225.3 209.8 180.0
246.9 231.4 200.7
Balance, December 31 ....................................... $2,496.7 $2,163.4 $2,204.9
Consolidated Statements of Changes in Capital Accounts
Dollars in Millions
Additional
Common Stock Paid-In Treasury Stock
Shares Amount Capital Shares Amount
Balance, January 1, 1992 ................................ 147,343,336 $ 171.5 $ 411.4 24,215,296 $ 447.7
Shares issued in connection with acquisition ............ 11,648,693 11.7 532.4 -- --
Shares issued for stock options ...................... 2,441,044 -- 9.5 (2,441,044) (46.6)
Treasury stock acquired .............................. (976,983) -- -- 976,983 54.0
Other ................................................ (215,686) -- 32.0 221,656 12.2
Balance, December 31, 1992 .............................. 160,240,404 183.2 985.3 22,972,891 467.3
Shares issued for stock options ...................... 1,408,105 -- 9.6 (1,408,105) (34.7)
Treasury stock acquired .............................. (12,610,423) -- -- 12,610,423 698.1
Other ................................................ 218,517 -- 6.0 (218,517) (6.7)
Balance, December 31, 1993 .............................. 149,256,603 183.2 1,000.9 33,956,692 1,124.0
Shares issued for stock options ...................... 1,803,574 -- 1.6 (1,803,574) (63.4)
Treasury stock acquired .............................. (6,923,325) -- -- 6,923,325 411.1
Other ................................................ 267,385 -- 17.9 (267,385) (9.3)
Balance, December 31, 1994 .............................. 144,404,237 $ 183.2 $1,020.4 38,809,058 $1,462.4
See Notes to Consolidated Financial Statements.
17
Consolidated Statements of Cash Flows
Dollars in Millions
1994 1993 1992
Operating Activities
Net Income ..................................................................... $ 580.2 $ 189.9 $ 477.0
Adjustments to reconcile net income to net cash
provided by operations:
Cumulative effect on prior years of accounting changes ....................... -- 358.2 --
Restructured operations, net ................................................. (39.1) (77.0) (92.0)
Depreciation and amortization ................................................ 235.1 209.6 192.5
Deferred income taxes and other, net ......................................... 64.7 53.6 (25.8)
Cash effects of changes in:
Receivables ................................................................. (50.1) (103.6) (38.0)
Inventories ................................................................. (44.5) 31.7 28.4
Other current assets ........................................................ (7.8) (4.6) 10.6
Payables and accruals ....................................................... 90.9 52.6 (10.0)
Net cash provided by operations ............................................ 829.4 710.4 542.7
Investing Activities
Capital expenditures ........................................................... (400.8) (364.3) (318.5)
Payment for acquisitions, net of cash acquired ................................. (146.4) (171.2) (170.1)
Sale of marketable securities and other investments ............................ 58.4 33.8 79.9
Investments in less-than-majority-owned companies and other .................... (1.9) (12.5) (6.6)
Other, net ..................................................................... 33.0 61.7 17.4
Net cash used for investing activities ..................................... (457.7) (452.5) (397.9)
Financing Activities
Principal payments on debt ..................................................... (88.3) (200.8) (250.1)
Proceeds from issuance of debt, net ............................................ 316.4 782.1 262.6
Proceeds from outside investors ................................................ 15.2 60.0 --
Dividends paid ................................................................. (246.9) (231.4) (200.7)
Purchase of common stock ....................................................... (357.9) (657.2) (20.5)
Proceeds from exercise of stock options and other, net ......................... 18.5 21.8 22.6
Net cash used for financing activities ..................................... (343.0) (225.5) (186.1)
Effect of exchange rate changes on cash and cash equivalents .................... (2.9) (6.2) (9.3)
Net increase (decrease) in cash and cash equivalents ............................ 25.8 26.2 (50.6)
Cash and cash equivalents at beginning of year .................................. 144.1 117.9 168.5
Cash and cash equivalents at end of year ........................................ $ 169.9 $ 144.1 $ 117.9
Supplemental Cash Flow Information:
Income taxes paid ............................................................... $ 261.1 $ 216.4 $ 178.1
Interest paid ................................................................... $ 96.9 $ 59.1 $ 68.7
Non-cash consideration in payment for acquisitions .............................. $ 8.0 $ 36.3 $ 859.8
ESOP debt, guaranteed by the Company ............................................ $ (4.0) $ (3.4) $ (3.0)
See Notes to Consolidated Financial Statements.
18
Notes to Consolidated Financial Statements
Dollars in Millions Except Per Share Amounts
1. 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 from such
investments is recorded as equity earnings and is classified as other
expense, net in the Consolidated Statements of Income.
Revenue Recognition
Sales are recorded at the time products are shipped to trade customers. Net
sales reflect units shipped at selling list prices reduced by trade promotion
allowances.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents for purposes of the
Consolidated Balance Sheets and the Consolidated Statements of Cash Flows.
Investments in short-term securities that do not meet the definition of cash
equivalents are classified as marketable securities in the Consolidated
Balance Sheets. Marketable securities are reported at cost, which equals
market.
Inventories
Inventories are valued at the lower of cost or market. The last-in, first-out
(LIFO) method is used to value substantially all inventories in the U.S. as
well as in certain overseas locations. The remaining inventories are valued
using the first-in, first-out (FIFO) 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
Goodwill represents the excess of purchase price over the fair value of
identifiable tangible and intangible net assets of businesses acquired.
Goodwill and other intangibles are amortized on a straight-line basis over
periods not exceeding 40 years. The recoverability of carrying values of
intangible assets is evaluated on a recurring basis. The primary indicators
of recoverability are current or forecasted profitability of a related
acquired business. For the three-year period ended December 31, 1994, there
were no adjustments to the carrying values of intangible assets resulting
from these evaluations.
Income Taxes
For 1994 and 1993, 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.
Postretirement and Postemployment Benefits
Effective January 1, 1993, the cost of postretirement health care and other
benefits is actuarially determined and accrued over the service period of
covered employees.
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.
19
For subsidiaries operating in highly inflationary environments, inventories
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.
Geographic Areas and Industry Segments
The financial and descriptive information on the Company's geographic area
and industry segment data, appearing in the tables contained in Item 7 of
this report, is an integral part of these financial statements.
2. Acquisitions
During 1994, the Company acquired the Cibaca toothpaste and toothbrush
business in India, the NSOA laundry soap business in Senegal, Nevex
non-chlorine bleach in Venezuela, and Na Pancha laundry soap in Peru as well
as several other regional brands in the Oral, Personal and Household Care
segment. The aggregate purchase price of all 1994 acquisitions was $149.8.
In October 1993, the Company acquired the liquid hand and body soap brands of
S.C. Johnson Wax in Europe, the South Pacific and other international
locations. During that year, the Company also acquired the Cristasol glass
cleaner business in Spain, increased ownership of its Indian operation to
majority control and made other investments. The aggregate purchase price of
all 1993 acquisitions was $222.5.
In March 1992, the Company acquired The Mennen Company ("Mennen") for an
aggregate purchase price of $670.0, paid with 11.6 million unregistered
shares of the Company's common stock and $127.0 in cash. The acquisition
included Mennen's personal care products business as well as non-core
businesses that were sold in August 1992. The results of operations of Mennen
have been included in the Consolidated Financial Statements since March 27,
1992.
During 1992, the Company also acquired the remaining interest in Viset, an
Italian manufacturer of consumer products, and established significant
ownership positions in joint ventures in China and Eastern Europe. The
aggregate purchase price of all 1992 acquisitions was $718.4.
All of these acquisitions have been 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 of the
respective acquisitions. The results of operations have been included in the
Consolidated Financial Statements since the respective acquisition dates. The
inclusion of pro forma financial data for these acquisitions prior to the
dates of acquisition would not have materially affected reported results.
3. Long-Term Debt and Credit Facilities
Long-term debt consists of the following at December 31:
1994 1993
ESOP serial notes, guaranteed by the Company, due from 2001 through 2009 at
interest rates ranging from 8.2% to 8.9% ..................................................... $ 394.6 $ 398.6
Medium-term notes due from 1995 through 2003 at interest rates ranging from
5.5% to 7.2% ................................................................................. 397.5 397.2
Medium-term notes due from 1997 through 2004 at interest rates ranging from
6.7% to 7.6% ................................................................................. 207.1 --
Commercial paper at interest rates ranging from 5.57% to 6.12% ................................. 609.8 586.1
9.98% debentures due 2017 ...................................................................... -- 32.0
12.43% Canadian dollar notes due 2030 .......................................................... 57.9 67.6
7.25% term loan due 1999 ....................................................................... 50.0 --
Other .......................................................................................... 60.6 66.4
1,777.5 1,547.9
Less: current portion of long-term debt ........................................................ 26.0 15.5
$1,751.5 $1,532.4
Other debt consists of capitalized leases and individual fixed and floating
rate issues of less than $30.0 with various maturities. Scheduled maturities
of debt outstanding at December 31, 1994, exclusive of capitalized lease
obligations, are as follows: 1995-$23.4; 1996-$34.0; 1997-$104.4; 1998-$58.1,
and 1999-$158.0. Commercial paper is classified as long-term debt in
accordance with the Company's intent and ability to refinance such
obligations on a long-term basis.
20
At December 31, 1994, the Company had unused credit facilities amounting to
$1,439.8. Commitment fees related to credit facilities are not material. The
weighted average interest rate on short-term borrowings as of December 31,
1994 and 1993 was 7.9% and 6.6%, respectively.
4. Leases
At December 31, 1994, future minimum rental payments under capital and
operating leases were as follows:
Capital Operating
Year Ending December 31,
1995 $3.0 $ 63.2
1996 2.8 52.9
1997 1.7 40.1
1998 .9 34.5
1999 .4 31.8
Later years .7 56.5
Total minimum lease payments 9.5 279.0
Less: minimum sublease rental income -- 24.7
Net minimum lease payments 9.5 $254.3
Less: interest and executory costs 1.2
Present value of net minimum lease payments $8.3
Rent expense for all operating leases totaled $83.4 in 1994, $91.5 in 1993
and $80.3 in 1992.
5. Capital Stock and Stock Option 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 and is outstanding. Dividends on the $4.25 Preferred Stock
are cumulative. Under the provisions of the Certificate of Incorporation, the
Preferred Stock is subject to redemption only at the option of the Company.
Preference Stock
In 1988, the Company's Certificate of Incorporation was amended to authorize
the issuance of a new class of preferred stock consisting of 50,000,000
shares of Preference Stock, without par value. The Preference Stock, which is
convertible into two shares of common stock, ranks junior to all series of
the Preferred Stock with respect to the payment of dividends and the
distribution of assets of the Company. At December 31, 1994 and 1993,
6,091,375 and 6,181,480 shares of Preference Stock, respectively, were
outstanding and issued to the Company's ESOP.
Common Stock
In March 1992, the Company issued 11,648,693 unregistered shares of its
common stock in connection with acquiring Mennen. Certain registration rights
were granted for a portion of the shares issued in connection with the
transaction.
In October 1988, the Board of Directors authorized the redemption of the then
outstanding common stock purchase rights for a total of $6.9. A new rights
plan was adopted, and stockholders received a distribution of one Preference
Share Purchase Right ("Right") for each outstanding share of the Company's
common stock. Each Right entitles stockholders to buy one two-hundredth
interest in a share of a new series of preference stock at an exercise price
of $87.50. Each interest is designed to make it the economic equivalent of
one share of common stock. A Right is exercisable only if a person or group
acquires 20% 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 20% or more of the common stock.
If the Company is acquired in a merger or other business combination
transaction, each Right will entitle its holder to purchase, at the Right's
then current exercise price, a number of the acquiring company's common
shares
21
having a market value at that time of twice the Right's exercise price. In
addition, if a person or group acquires 30% or more of the Company's
outstanding common stock, otherwise than pursuant to a cash tender offer for
all shares in which such person or group increases its stake from below 20%
to 80% or more of the outstanding shares, 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 30% or more (but less than 50%) of the
Company's outstanding 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.
Prior to the acquisition by a person or group of beneficial ownership of 20%
or more of the Company's common stock, each Right is redeemable at the option
of the Board of Directors at a price of $.005.
The Board of Directors is also authorized to reduce the 20% and 30%
thresholds referred to above to not less than 15%. The new Rights will expire
on October 24, 1998. There were 144,404,237 Preference Share Purchase Rights
outstanding at December 31, 1994 and 149,256,603 at December 31, 1993.
At December 31, 1994 and 1993, 596,478 and 507,855 shares, respectively, were
held for distribution under the Executive Incentive Compensation Plan, which
provides for cash and common stock awards for officers and other executives
of the Company and its major subsidiaries. The cost of these shares totaled
$29.8 at December 31, 1994 and $22.7 at December 31, 1993.
Stock Option Plans
The Company's 1987 Stock Option Plan provides for the issuance of
non-qualified stock options to officers and key employees. The non-qualified
stock options permit optionees to acquire common stock of the Company upon
payments of cash or stock.
Options are granted at prices not less than the fair market value on the date
of grant. At December 31, 1994, 4,287,890 shares were available for future
grants. The Company's 1977 Stock Option Plan terminated during 1987, except
as to options granted.
During 1992, an Accelerated Ownership feature was added to the 1987 Stock
Option Plan. The Accelerated Ownership feature 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:
1994 1993
Options outstanding, January 1 ............. 9,626,394 8,204,191
Granted .................................... 2,528,109 2,925,639
Exercised .................................. (1,803,574) (1,408,105)
Canceled or expired ........................ (89,521) (95,331)
Options outstanding, December 31 ........... 10,261,408 9,626,394
Options exercisable at December 31 ......... 6,402,658 5,381,106
Option price range at exercise ............. $11.88 to $57.94 $10.03 to $56.31
Option price range at December 31 .......... $13.28 to $99.79 $11.88 to $99.79
6. Employee Stock Ownership Plan
In 1989, the Company expanded its employee stock ownership plan (ESOP)
through the introduction of a leveraged ESOP covering employees who have met
certain eligibility requirements. The ESOP issued $410.0 of long- term notes
due through 2009 bearing an average interest rate of 8.6%. The long-term
notes, which are guaranteed by the Company, are recorded on 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 from the
Company. The Stock has a minimum redemption price of $65 per share and pays
semi-annual dividends equal to the higher of $2.44 or the current dividend
paid on two common shares for the comparable six-month period. Each share may
be converted by the Trustee into two shares of common stock.
22
Dividends on these preferred shares, as well as common shares also held by
the ESOP, are paid to the ESOP trust and, together with Company
contributions, are used by the ESOP to repay principal and interest on the
outstanding notes. Preferred shares are released for allocation to
participants based 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, 1994, 1,017,757 shares were allocated to participant accounts.
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.
Annual expense related to the leveraged ESOP, determined as interest incurred
on the notes, less dividends received on the shares held by the ESOP, plus
the higher of either principal repayments on the notes or the cost of shares
allocated, was $8.0 in 1994, $7.9 in 1993 and $8.1 in 1992. Similarly,
unearned compensation, shown as a reduction in shareholders' equity, is
reduced by the higher of principal payments or the cost of shares allocated.
Interest incurred on the ESOP's notes amounted to $34.2 in 1994, $34.5 in
1993 and $35.1 in 1992. The Company paid dividends on the stock held by the
ESOP of $32.3 in 1994, $32.7 in 1993 and $32.8 in 1992. Company contributions
to the ESOP were $5.7 in 1994 and 1993, and $5.6 in 1992.
7. Retirement Plans and Other Postretirement Benefits
Retirement Plans
The Company, its U.S. subsidiaries and a majority of its overseas
subsidiaries maintain pension plans covering substantially all of their
employees. Most plans provide pension benefits that are based primarily on
years of service and employees' career earnings. In the Company's principal
U.S. plans, funds are contributed to trustees as necessary to provide for
current service and for any unfunded projected benefit obligation over a
reasonable period. To the extent these requirements are exceeded by plan
assets, a contribution may not be made in a particular year. Plan assets
consist principally of common stocks, deposit administration contracts with
insurance companies, investments in real estate funds and U.S. Government
obligations.
Net periodic pension expense of the plans includes the following components:
1994 1993 1992
U.S. Overseas U.S. Overseas U.S. Overseas
Service cost--benefits earned during the period ............. $ 23.1 $17.9 $ 18.7 $ 12.3 $ 17.9 $ 12.4
Interest cost on projected benefit obligation ............... 63.1 15.3 64.2 15.4 62.0 16.7
Actual return on plan assets ................................ (3.1) (2.2) (95.2) (15.2) (87.6) (12.0)
Net amortization and deferral ............................... (69.1) (7.0) 19.5 7.1 9.6 2.7
Net pension expense ......................................... $ 14.0 $24.0 $ 7.2 $ 19.6 $ 1.9 $ 19.8
23
The following table sets forth the funded status of the plans at December 31:
1994 1993
U.S Overseas U.S. Overseas
Plan assets at fair value ................................................... $739.2 $ 137.3 $ 809.2 $ 126.6
Actuarial present value of benefit obligations:
Vested obligation .......................................................... 676.6 189.4 744.6 170.1
Nonvested obligation ....................................................... 52.0 21.5 54.5 19.0
Accumulated benefit obligation .............................................. 728.6 210.9 799.1 189.1
Additional benefits related to assumed future
compensation levels ....................................................... 43.6 30.4 112.8 38.5
Projected benefit obligation ................................................ 772.2 241.3 911.9 227.6
Plan assets (less than) projected benefit obligation ........................ (33.0) (104.0) (102.7) (101.0)
Deferral of net actuarial changes and other, net ............................ 96.7 (3.3) 182.2 11.6
Unrecognized prior service cost ............................................. 21.9 3.3 26.8 2.0
Unrecognized transition asset ............................................... (36.2) (4.3) (45.6) (4.9)
Additional liability ........................................................ -- (.7) (6.2) (1.2)
Prepaid (accrued) pension cost recognized in the
Consolidated Balance Sheets ............................................... $ 49.4 $(109.0) $ 54.5 $ (93.5)
The actuarial assumptions used to determine the projected benefit obligations
of the plans were as follows:
Overseas
U.S. (weighted average)
1994 1993 1992 1994 1993 1992
Settlement rates ..... 8.75% 7.25% 8.25% 8.38% 7.83% 9.13%
Long-term rates of
compensation
increase ........... 5.75% 5.75% 6.00% 5.53% 5.30% 6.45%
Long-term rates of
return on plan
assets ............. 9.25% 9.25% 9.75% 10.88% 10.32% 11.10%
When remeasuring the pension obligation, the Company reassesses each
actuarial assumption. In accordance with generally accepted accounting
principles, the settlement rate assumption is pegged to long-term bond rates
to reflect the cost to satisfy the pension obligation currently, and the
other assumptions reflect the long-term outlook of rates of compensation
increases and return on assets.
Other Postretirement and Postemployment 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.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106). SFAS 106 requires the Company to
change its method of accounting for its postretirement life and health care
benefits provided to retirees from the "pay-as-you-go" basis to accruing such
costs over the working lives of the employees. The Company elected to
recognize this change in accounting on the immediate recognition basis and
utilizes a portion of its leveraged ESOP, in the form of future retiree
contributions, to reduce its obligation to provide these postretirement
benefits. Postretirement benefits currently are not funded. The Company also
adopted SFAS 112, "Employers' Accounting for Postemployment Benefits." SFAS
112 requires accrual accounting for the estimated cost of benefits provided
to former or inactive employees after employment but before retirement.
The cumulative effect on prior years of adopting SFAS 106 and 112 as of
January 1, 1993 resulted in a pretax charge during 1993 of $195.7 ($129.2
aftertax or $.83 per share), of which $189.5 related to SFAS 106 and $6.2
related to SFAS 112. This non-cash charge represented the accumulated benefit
obligation net of related accruals previously recorded by the Company as of
January 1, 1993.
24
Postretirement benefits expense included the following components:
1994 1993
Service cost-benefits earned during the period ........... $ 2.2 $ 3.7
Annual ESOP allocation ................................... (5.7) (6.2)
Interest cost on accumulated postretirement benefit
obligation ............................................. 14.2 16.4
Amortization of unrecognized net (gain) .................. (.1) --
Net postretirement expense ............................. $10.6 $13.9
The cash cost to the Company for postretirement benefits in 1992, excluding
acquisitions, approximated $11.2.
The actuarial present value of postretirement benefit obligations included in
Other liabilities in the Consolidated Balance Sheets was comprised of the
following components, at December 31:
1994 1993
Retirees ............................................... $144.9 $155.2
Active participants eligible for retirement ............ 2.9 11.3
Other active participants .............................. 17.0 25.1
Accumulated postretirement benefit obligation .......... 164.8 191.6
Unrecognized net gain .................................. 38.5 14.2
Accrued postretirement benefit liability ............... $203.3 $205.8
The principal actuarial assumptions used in the measurement of the
accumulated benefit obligation were as follows:
1994 1993
Discount rate ........................................ 8.75% 7.25%
Current medical cost trend rate ...................... 10.00% 10.00%
Ultimate medical cost trend rate ..................... 6.25% 5.00%
Medical cost trend rate decreases ratably to
ultimate in year ................................... 2001 2001
ESOP growth rate ..................................... 10.00% 10.00%
When remeasuring the accumulated benefit obligation, the Company reassesses
each actuarial assumption.
The cost of these postretirement medical benefits is dependent upon a number
of factors, the most significant of which is the rate at which medical costs
increase in the future. The effect of a 1% increase in the assumed medical
cost trend rate would increase the accumulated postretirement benefit
obligation by approximately $17.3; annual expense would not be materially
affected.
8. Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The
one-time non-cash charge for the recalculation of income taxes was $229.0
($1.47 per share), which was recorded in the 1993 Statement of Income,
primarily as a result of the 1992 acquisition of Mennen.
The provision for income taxes on income before changes in accounting
consists of the following for the years ended December 31:
1994 1993 1992
United States .................. $ 43.3 $ 75.9 $ 70.3
Overseas ....................... 256.4 212.2 180.6
$299.7 $288.1 $250.9
25
Differences between accounting for financial statement purposes and
accounting for tax purposes result in taxes currently payable (lower) higher
than the total provision for income taxes as follows:
1994 1993 1992
Excess of tax over book depreciation ....... $(32.8) $(18.7) $(18.0)
Net restructuring (spending) accrual ....... (19.0) (24.2) (22.0)
Other, net ................................. 5.6 (13.8) (9.4)
$(46.2) $(56.7) $(49.4)
The components of income before income taxes are as follows for the three
years ended December 31:
1994 1993 1992
United States .................. $181.8 $256.9 $247.6
Overseas ....................... 698.1 579.3 480.3
$879.9 $836.2 $727.9
The difference between the statutory United States federal income tax rate
and the Company's global effective tax rate as reflected in the Consolidated
Statements of Income is as follows:
% of Income Before Tax 1994 1993 1992
Tax at U.S. statutory rate ........................ 35.0% 35.0% 34.0%
State income taxes, net of federal benefit ........ .6 .7 1.0
Earnings taxed at other than U.S. statutory rate .. (.3) (.2) .3
Other, net ........................................ (1.2) (1.0) (.8)
Effective tax rate ................................ 34.1% 34.5% 34.5%
In addition, tax benefits of $16.0 in 1994 and $15.8 in 1993 were recorded
directly through equity.
The components of deferred taxes at December 31:
1994 1993
Deferred Taxes--Current:
Accrued liabilities, not deductible until paid .................................. $ 68.6 $ 74.9
Other, net ...................................................................... 8.1 16.2
Total deferred taxes current ................................................... 76.7 91.1
Deferred Taxes--Long-term:
Intangible assets, not amortized for tax purposes ............................... (196.6) (213.6)
Property, plant and equipment, principally due to differences in depreciation ... (208.0) (165.7)
Postretirement and postemployment benefits, past service cost ................... 71.1 73.5
Restructuring ................................................................... 14.1 33.3
Tax loss and tax credit carryforwards ........................................... 81.5 63.3
Other, net ...................................................................... (25.1) (28.7)
Valuation allowance ............................................................. (32.4) (28.3)
Total deferred taxes long-term ................................................. (295.4) (266.2)
Net deferred taxes (liabilities) .............................................. $(218.7) $(175.1)
The major component of the 1994 and 1993 valuation allowance relates to the
uncertainty of realizing certain foreign deferred tax assets.
26
9. Foreign Currency Translation
Cumulative translation adjustments, which represent the effect of translating
assets and liabilities of the Company's non-U.S. entities, except those in
highly inflationary economies, were as follows:
1994 1993 1992
Balance, January 1 ......................... $(372.9) $(308.5) $(216.9)
Effect of balance sheet translations ....... (66.4) (64.4) (91.6)
Balance, December 31 ....................... $(439.3) $(372.9) $(308.5)
Foreign currency charges, resulting from the translation of balance sheets of
subsidiaries operating in highly inflationary environments and from foreign
currency transactions, were not material in 1994, 1993 and 1992.
10. Earnings Per Share
Primary earnings per share are determined by dividing net income, after
deducting preferred stock dividends net of related tax benefits ($21.6 net in
1994 and 1993, and $20.7 net in 1992), by the weighted average number of
common shares outstanding (146.2 million in 1994, 155.9 million in 1993 and
156.5 million in 1992).
Fully diluted earnings per common share are calculated assuming the
conversion of all potentially dilutive securities, including convertible
preferred stock and outstanding options, unless the effect of such conversion
is antidilutive. This calculation also assumes, if applicable, reduction of
available income by pro forma ESOP replacement funding, net of income taxes.
11. Other Income Statement Information
Other expense (income) consists of the following for the years ended December
31:
1994 1993 1992
Amortization of intangibles .............. $ 56.3 $51.2 $ 47.7
Earnings from equity investments ......... (1.3) (7.4) (21.7)
Minority interest ........................ 37.8 27.5 2.1
Other .................................... (10.0) -- (7.4)
$ 82.8 $71.3 $ 20.7
The following is a comparative summary of certain expense information for the
years ended December 31:
1994 1993 1992
Interest incurred .................... $130.6 $ 81.3 $ 86.5
Interest capitalized ................. 9.7 11.8 8.4
Interest expense ..................... $120.9 $ 69.5 $ 78.1
Research and development ............. $147.1 $139.9 $125.8
Maintenance and repairs .............. $110.1 $107.8 $108.2
Media advertising costs .............. $543.2 $508.3 $516.6
12. Balance Sheet Information
Supplemental balance sheet information is as follows:
Inventories 1994 1993
Raw materials and supplies ................... $280.3 $250.0
Work-in-process .............................. 38.4 28.7
Finished goods ............................... 395.2 399.3
$713.9 $678.0
Inventories valued under LIFO amounted to $163.6 at December 31, 1994 and
$170.8 at December 31, 1993. The excess of current cost over LIFO cost at the
end of each year was $39.6 and $23.1, respectively. In 1994 and 1993, certain
inventory quantities were reduced, which resulted in liquidations of LIFO
inventory quantities. The effect was to increase income by $2.8 and $1.7 in
1994 and 1993, respectively.
27
Property, Plant and Equipment, Net 1994 1993
Land ............................................. $ 94.9 $ 82.6
Buildings ........................................ 549.3 491.3
Machinery and equipment .......................... 2,459.2 2,246.3
3,103.4 2,820.2
Accumulated depreciation ......................... (1,115.3) (1,053.9)
$ 1,988.1 $ 1,766.3
Goodwill and Other Intangible Assets, Net 1994 1993
Goodwill and other intangibles ................... $ 1,879.4 $ 1,740.2
Accumulated amortization ......................... (207.6) (151.2)
$ 1,671.8 $ 1,589.0
Other Accruals 1994 1993
Accrued payroll and employee benefits ............ $ 233.0 $ 223.8
Accrued advertising .............................. 105.4 121.0
Accrued interest ................................. 38.6 19.3
Accrued taxes, other than income taxes ........... 42.4 35.9
Other ............................................ 121.9 150.4
$ 541.3 $ 550.4
Fair Value of Financial Instruments
In assessing the fair value of financial instruments at December 31, 1994 and
1993, 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, the estimates
are not necessarily indicative of the amounts that the Company could realize
in a current market exchange.
The estimated fair value of the Company's financial instruments at December
31, are summarized as follows:
1994 1993
Carrying Fair Carrying Fair
Amount Amount Amount Value
Assets:
Cash and cash equivalents ................................. $ 169.9 $ 169.9 $ 144.1 $ 144.1
Marketable securities ..................................... 47.6 47.6 67.1 67.1
Long-term investments ..................................... 58.8 58.6 61.0 60.5
Liabilities:
Notes and loans payable ................................... (181.9) (181.9) (169.4) (169.4)
Long-term debt, including current portion ................. (1,777.5) (1,760.1) (1,547.9) (1,689.7)
Other liabilities:
Foreign exchange contracts ............................... (11.0) (10.2) 6.7 4.7
Interest rate instruments ................................ (14.2) (10.8) -- 6.3
Equity:
Foreign exchange contracts--
hedge investment in subsidiaries ........................ (4.0) (3.4) 1.0 1.7
Financial Instruments and Rate Risk Management
The Company utilizes interest rate agreements and foreign exchange contracts
to manage interest rate and foreign currency exposures. The principal
objective of such contracts is to moderate rather than attempt to eliminate
fluctuations in interest rate and foreign currency movements. The Company, as
a matter of policy, does not speculate in financial markets and therefore
does not hold these contracts for trading purposes. The Company utilizes what
it considers straightforward instruments, such as forward foreign exchange
contracts and non-leveraged interest rate swaps, to accomplish its
objectives.
28
The Company primarily uses interest rate swap agreements to effectively
convert a portion of its floating rate debt to fixed rate debt in order to
manage interest rate exposures in a manner consistent with achieving a
targeted fixed to variable interest rate ratio. The net effective cash
payment of these instruments combined with the related interest payments on
the debt that they hedge are accounted for as interest expense. Those
interest rate instruments that do not qualify as hedge instruments for
accounting purposes are marked to market and carried on the balance sheet at
fair value. As of December 31, 1994 and 1993, the Company had agreements
outstanding with an aggregate notional amount of $222.0 and $347.0,
respectively, with maturities through 2001.
The Company uses forward exchange contracts principally to hedge foreign
currency exposures associated with its net investment in foreign operations
and intercompany loans. This hedging minimizes the impact of foreign exchange
rate movements on the Company's financial position. The terms of these
contracts are rarely longer than three years.
As of December 31, 1994 and 1993, the Company had approximately $390.7 and
$439.0, respectively, of outstanding foreign exchange contracts in which
foreign currencies were purchased, and approximately $6.9 in which foreign
currencies were sold as of December 31, 1994. At December 31, 1994 and 1993,
approximately 20% of outstanding foreign exchange contracts served to hedge
net investments in foreign subsidiaries, 60% hedged intercompany loans, 10%
hedged third-party firm commitments, and the remaining 10% hedged certain
transactions that are anticipated to settle in accordance with their
identified terms. The Company makes net settlements for foreign exchange
contracts at maturity, based on rates agreed to at inception of the
contracts.
Gains and losses from contracts that hedge the Company's investments in its
foreign subsidiaries are shown in the cumulative translation adjustments
account included in shareholders' equity. Gains and losses from contracts
that hedge firm commitments (including intercompany loans) are recorded in
the balance sheets as a component of the related receivable or payable.
The contracts that hedge anticipated sales and purchases do not qualify as
hedges for accounting purposes. Accordingly, the related gains and losses are
calculated using the current forward foreign exchange rates and are recorded
in the statements of income as other expense, net. These contracts mature in
less than one year.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate agreements and foreign exchange contracts;
however, nonperformance by these counterparties is considered remote as it is
the Company's policy to contract only with counterparties that have a
long-term debt rating of A or higher. The amount of any such exposure is
generally the unrealized gain on such contracts, which at December 31, 1994
was not significant.
Effective January 1, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values
and for all investments in debt securities. The effect of adoption had no
impact on results of operations or cash flows and was not material to
financial condition.
13. Commitments and Contingent Liabilities
The Company has various contractual commitments to purchase raw materials,
products and services totaling $184.9 that expire through 1998.
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. While
it is possible that the Company's cash flows and results of operations in
particular quarterly or annual periods 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 condition or ongoing cash flows and results of operations.
As discussed in Note 16, the acquisition of Kolynos is subject to review by
antitrust regulatory authorities in Brazil and Colombia. While it is not yet
possible to definitively determine whether or not approval will be obtained,
management believes the acquisition, or some variation thereof, will
eventually be approved.
29
14. Quarterly Financial Data (Unaudited)
Dollars in Millions Except Per Share Amounts
First Second Third Fourth
Quarter Quarter Quarter Quarter
1994
Net sales ............................................. $1,770.0 $1,891.1 $1,930.7 $1,996.1
Gross profit .......................................... 862.1 902.7 951.8 958.0
Net income ............................................ 149.6 142.5 151.0 137.1
Earnings per common share:
Primary .............................................. .98 .93 1.00 .91
Assuming full dilution ............................... .91 .87 .93 .85
1993
Net sales ............................................. $1,702.7 $1,775.1 $1,823.1 $1,840.4
Gross profit .......................................... 814.8 851.2 870.1 875.3
Income before changes in accounting ................... 140.8 142.4 142.8 122.1
Net (loss) ((1)) income ............................... (217.4) 142.4 142.8 122.1
Earnings per common share before changes in accounting:
Primary .............................................. .85 .86 .89 .78
Assuming full dilution ............................... .79 .81 .82 .73
(Loss) earnings per common share:((2))
Primary .............................................. (1.39) .86 .89 .78
Assuming full dilution ............................... (1.25) .81 .82 .73
(1) Reflects a first-quarter 1993 charge for changes in accounting for Other
Postretirement Benefits, Postemployment Benefits and Income Taxes of $358.2.
(2) The sum of the quarterly earnings per share amounts in 1993 was not equal
to the full year because the computations of the weighted average number of
shares outstanding and the potential impact of dilutive securities for each
quarter and for the full year were made independently.
30
15. 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 32 consecutive years.
Market Price
Common Stock $4.25 Preferred Stock
1994 1993 1994 1993
Quarter Ended High Low High Low High Low High Low
March 31 ................... $ 65.38 $ 55.63 $ 67.25 $ 54.25 $ 76.00 $ 72.00 $ 75.50 $ 63.50
June 30 .................... 59.50 51.25 66.38 52.63 73.00 68.00 77.00 73.00
September 30 ............... 58.63 49.50 59.00 46.75 70.50 67.00 77.50 73.50
December 31 ................ 64.75 57.00 62.75 52.50 68.50 62.50 76.50 72.00
Closing Price .............. $ 63.38 $ 62.38 $ 64.00 $ 73.50
Dividends Paid Per Share
Quarter Ended 1994 1993 1994 1993
March 31 ................... $ .36 $ .31 $1.0625 $1.0625
June 30 .................... .36 .31 1.0625 1.0625
September 30 ............... .41 .36 1.0625 1.0625
December 31 ................ .41 .36 1.0625 1.0625
Total .................... $ 1.54 $ 1.34 $ 4.25 $ 4.25
16. Subsequent Event--Purchase of Kolynos Oral Care Business
On January 10, 1995, the Company acquired the worldwide Kolynos oral care
business ("Kolynos") from American Home Products Corporation for $1,040.0 in
cash. Kolynos is a multinational oral care business operating primarily in
South America and having a presence in Greece, Taiwan and Hungary. The
acquired assets of the Kolynos business, located principally in Argentina,
Brazil, Colombia, Ecuador, Peru and Uruguay, include trademarks and other
intellectual property, accounts receivable, inventories, and property, plant
and equipment that is utilized in the production of toothpaste, toothbrushes,
dental floss and oral rinses.
The transaction was structured as a multinational acquisition of assets and
stock and will be accounted for under the purchase method of accounting, with
the results of operations of Kolynos included with the results of the Company
from January 10, 1995. The acquisition will be reviewed by antitrust
regulatory authorities in Brazil and Colombia. The financing used to acquire
the Kolynos business was provided by commercial banks.
The net book value of Kolynos's assets was approximately $50.0. The Company
is currently evaluating the business in order to determine the fair value of
assets acquired, including intangibles and goodwill.
The Company expects the acquisition to have a first-year (unaudited) dilutive
effect of less than 5% on total Company earnings. Although the Company
intends to operate Kolynos in Brazil as a separate operation, there are
certain other benefits that are anticipated to be realized from the
implementation of the Company's integration plans. The Company believes that
future growth opportunities, as well as the benefits of such integration
plans when fully implemented, will reduce and eventually more than offset any
dilutive impact on earnings per share.
31
COLGATE-PALMOLIVE COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1994
(Dollars in Millions)
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
$5.6(1)
.6(3)
Allowance for doubtful accounts .............................. $ 24.9 $ 4.4 $ -- $6.2 $ 23.1
Accumulated amortization of goodwill and other intangibles ... $151.2 $56.4 $ -- $-- $207.6
Valuation allowance for deferred tax assets .................. $ 28.3 $ 4.1(2) $ -- $-- $ 32.4
NOTES:
(1) Uncollectible accounts written off and cash discounts allowed.
(2) Allowance for tax loss and tax credit carryforward benefits which more
likely than not will not be utilized in the future.
(3) Other adjustments.
32
COLGATE-PALMOLIVE COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1993
(Dollars in Millions)
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
$ 1.2(1)
9.1(2)
.2(4)
Allowance for doubtful accounts ............................ $ 21.8 $13.6 $-- $10.5 $ 24.9
Accumulated amortization of goodwill and other intangibles . $100.0 $51.2 $-- $-- $151.2
Valuation allowance for deferred tax assets ................ $ -- $22.0(3) $6.3(3) $-- $ 28.3
NOTES:
(1) Adjustments arising from translation of reserve balances at year-end
exchange rates.
(2) Uncollectible accounts written off and cash discounts allowed.
(3) Allowance for tax loss and tax credit carryforward benefits which more
likely than not will not be utilized in the future. The $22.0 charged to
costs and expenses was included in the 1993 one-time charge for the adoption
of SFAS 109, "Accounting for Income Taxes."
(4) Other adjustments.
33
COLGATE-PALMOLIVE COMPANY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended December 31, 1992
(Dollars in Millions)
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
$ 2.0(2)
10.6(3)
.9(4)
Allowance for doubtful accounts ............................ $21.5 $12.3 $ 1.5(1) $ 13.5 $ 21.8
Accumulated amortization of goodwill and other intangibles . $53.3 $47.7 $(1.0)(4) $-- $100.0
NOTES:
(1) Balances of acquired companies.
(2) Adjustments arising from translation of reserve balances at year-end
exchange rates.
(3) Uncollectible accounts written off and cash discounts allowed.
(4) Other adjustments.
34
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, 1994 and 1993, and the related consolidated statements of
income, retained earnings, changes in capital accounts and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements and the schedule 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 generally accepted auditing
standards. 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in the accompanying notes to the consolidated financial
statements, in 1993, the Company adopted three new accounting standards
promulgated by the Financial Accounting Standards Board, changing its methods
of accounting for income taxes, postretirement benefits other than pensions,
and postemployment benefits.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states 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 1, 1995
35
COLGATE-PALMOLIVE COMPANY
Historical Financial Summary (1)
Dollars in Millions Except Per Share Amounts
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
Operations
Net sales .............. 7,587.9 7,141.3 7,007.2 6,060.3 5,691.3 5,038.8 4,734.3 4,365.7 3,768.7 3,488.5
Results of operations:
Net income ............ 580.2(2) 189.9(3) 477.0 124.9(4) 321.0 280.0 152.7(5) .9(7) 114.8 122.5
Per share, primary .... 3.82(2) 1.08(3) 2.92 .77(4) 2.28 1.98 1.11(5) .01(7) .81 .78
Per share, assuming
full dilution ........ 3.56(2) 1.05(3) 2.74 .75(4) 2.12 1.90 1.10(5) .01(7) .81 .77
Depreciation and
amortization expense . 235.1 209.6 192.5 146.2 126.2 97.0 82.0 70.1 60.3 49.7
Financial Position
Working capital ........ 648.5 676.4 635.6 596.0 516.0 907.5 710.9 439.5 428.7 518.0
Ratio of current assets
to current liabilities 1.4 1.5 1.5 1.5 1.4 1.9 1.7 1.3 1.4 1.5
Property, plant and
equipment, net ....... 1,988.1 1,766.3 1,596.8 1,394.9 1,362.4 1,105.4 1,021.6 1,201.8 1,113.7 978.3
Capital expenditures ... 400.8 364.3 318.5 260.7 296.8 210.0 238.7 285.8 220.9 208.6
Total assets ........... 6,142.4 5,761.2 5,434.1 4,510.6 4,157.9 3,536.5 3,217.6 3,227.7 2,845.9 2,814.0
Long-term debt ......... 1,751.5 1,532.4 946.5 850.8 1,068.4 1,059.5 674.3 694.1 522.0 529.3
Shareholders' equity ... 1,822.9 1,875.0 2,619.8 1,866.3 1,363.6 1,123.2 1,150.6 941.1 979.9 907.0
Share and Other
Book value per common
share ................ 16.96 12.40 16.21 12.54 10.12 8.39 8.24 6.77 6.91 6.33
Cash dividends declared
per common share ..... 1.54 1.34 1.15 1.02 .90 .78 .55(6) .695 .68 .66
Cash dividends paid per
common share ......... 1.54 1.34 1.15 1.02 .90 .78 .74 .695 .68 .65
Closing price .......... 63.38 62.38 55.75 48.88 36.88 31.75 23.50 19.63 20.44 16.38
Number of common shares
outstanding (in
millions) ............ 144.4 149.3 160.2 147.3 133.2 132.2 138.1 137.2 140.1 141.3
Number of shareholders
of record:
$4.25 Preferred ....... 400 450 470 460 500 500 550 600 600 700
Common ................ 44,100 40,300 36,800 34,100 32,000 32,400 33,200 33,900 35,900 39,600
Average number of
employees ............ 32,800 28,000 28,800 24,900 24,800 24,100 24,700 37,400 37,900 40,600
(1) All share and per share amounts have been restated to reflect the 1991
two-for-one stock split.
(2) Income in 1994 includes a one-time charge of $5.2 for the sale of
non-core business, Princess House.
(3) Income in 1993 includes a one-time impact of adopting new mandated
accounting standards, effective in the first quarter of 1993, of $358.2
($2.30 per share on a primary basis or $2.10 on a fully diluted basis).
(4) Income in 1991 includes a net provision for restructured operations of
$243.0 ($1.80 per share on a primary basis or $1.75 per share on a fully
diluted basis).
(5) Income in 1988 includes Hill's service agreement renegotiation net charge
of $42.0 ($.30 per share on both a primary and fully diluted basis).
(6) Due to timing differences, 1988 includes three dividend declarations
while all other years include four dividend declarations.
(7) Income in 1987 includes a net provision for restructured operations of
$144.8 ($1.06 per share on a primary basis or $1.05 per share on a fully
diluted basis).
36
COLGATE-PALMOLIVE COMPANY
EXHIBITS TO FORM 10-K
YEAR ENDED DECEMBER 31, 1994
Commission File No. 1-644-2
37
COLGATE-PALMOLIVE COMPANY
INDEX TO EXHIBITS
Exhibit No. Description Page No.
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 Amendment No. 1 to its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, File No. 1-644-2.)
4-A Rights agreement dated as of October 13, 1988 between registrant and Morgan Shareholder
Services Trust Company. (Registrant hereby incorporates by reference Exhibit I to its Form
8-A dated October 21, 1988, 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. (Registrant hereby incorporates by reference Exhibit 4-B (b) to its Annual Report on
Form 10-K for the year ended December 31, 1989, File No. 1-644-2.)
10-A Colgate-Palmolive Company 1977 Stock Option Plan, as amended. (Registrant hereby
incorporates by reference Exhibit 10-A to its Annual Report on Form 10-K for the year ended
December 31, 1986, File No. 1-644-2.)
10-B a) Colgate-Palmolive Company Executive Incentive Compensation Plan, as amended. 40-44
b) Colgate-Palmolive Company Executive Incentive Compensation Plan Trust. (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-C 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 Spouse's Benefit 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-D Lease dated August 15, 1978 between Harold Uris, d/b/a Uris Holding Company, and
Colgate-Palmolive Company. (Registrant hereby incorporates by reference Exhibit 2(b) to its
Annual Report on Form 10-K for the year ended December 31, 1978, File No. 1-644-2.)
10-E a) Colgate-Palmolive Company Executive Severance Plan. (Registrant hereby incorporates by
reference Exhibit 10-E (a) to its Annual Report on Form 10-K for the year ended December 31,
1989, File No. 1-644-2.)
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-F Colgate-Palmolive Company Pension Plan for Outside Directors. (Registrant hereby
incorporates by reference Exhibit 10-F to its Annual Report on Form 10-K for the year ended
December 31, 1988, File No. 1-644-2.)
10-G Colgate-Palmolive Company Stock Purchase 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, 1988, File No. 1-644-2.)
10-H Colgate-Palmolive Company Restated and Amended Deferred Compensation Plan for Non-Employee
Directors. (Registrant hereby incorporates by reference Exhibit 10-H to its Annual Report on
Form 10-K for the year ended December 31, 1991, File No. 1-644-2.)
10-I 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.)
38
10-J 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, 1992, File No. 1-644-2.)
10-K Colgate-Palmolive Company Stock Compensation Plan for Non-Employee Directors, as amended.
(Registrant hereby incorporates by reference Exhibit A to its Proxy Statement dated March
30, 1990, File No. 1-644-2.)
10-L 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.)
10-M Purchase Agreement among American Home Products Corporation, Colgate-Palmolive Company and
KAC Corp. dated as of January 9, 1995. (Registrant hereby incorporates by reference Exhibit
2 to its Current Report on Form 8-K dated January 10, 1995, File No. 1-644-2.)
10-N U.S, $500,000,000 Five Year Credit Agreement dated as of April 8, 1994. (Registrant hereby
incorporates by reference Exhibit 10-O to its Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, File No. 1-644-2.)
10-O U.S. $250,000,000 364 Day Credit Agreement dated as of April 8, 1994. (Registrant hereby
incorporates by reference Exhibit 10-P to its Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, File No. 1-644-2.)
10-P U.S. $400,000,000 Credit Agreement dated as of January 8, 1995.
10-Q U.S. $770,000,000 Five Year Credit Agreement dated as of January 8, 1995.
10-R U.S. $330,000,000 364 Day Credit Agreement dated as of January 8, 1995.
11 Statement re Computation of Earnings Per Common Share. 45-46
12 Statement re Computation of Ratio of Earnings to Fixed Charges. 47
21 Subsidiaries of the Registrant. 48-49
23 Consent of Independent Public Accountants. 50
24 Powers of Attorney. 51-59
27 Financial Data Schedule.
* 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 which 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
39