XMEX:CL Colgate-Palmolive Co Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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CL-6.30.2012-10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
 FORM 10-Q
___________________________

 (Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2012
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from________ to________ .
Commission File Number: 1-644
COLGATE-PALMOLIVE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
13-1815595
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
300 Park Avenue, New York, New York
10022
(Address of principal executive offices)
(Zip Code)
(212) 310-2000
(Registrant’s telephone number, including area code)
NO CHANGES
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class
 
Shares Outstanding
 
Date
Common stock, $1.00 par value
 
474,169,670
 
June 30, 2012





PART I.    FINANCIAL INFORMATION


COLGATE-PALMOLIVE COMPANY
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in Millions Except Per Share Amounts)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Net sales
$
4,267

 
$
4,185

 
$
8,467

 
$
8,179

Cost of sales
1,806

 
1,781

 
3,569

 
3,444

Gross profit
2,461

 
2,404

 
4,898

 
4,735

Selling, general and administrative expenses
1,464

 
1,421

 
2,942

 
2,825

Other (income) expense, net
15

 
15

 
36

 
27

Operating profit
982

 
968

 
1,920

 
1,883

Interest expense, net
6

 
11

 
16

 
27

Income before income taxes
976

 
957

 
1,904

 
1,856

Provision for income taxes
311

 
311

 
606

 
603

Net income including noncontrolling interests
665

 
646

 
1,298

 
1,253

Less: Net income attributable to noncontrolling interests
38

 
24

 
78

 
55

Net income attributable to Colgate-Palmolive Company
$
627

 
$
622

 
$
1,220

 
$
1,198

 
 
 
 
 
 
 
 
Earnings per common share, basic
$
1.31

 
$
1.27

 
$
2.55

 
$
2.44

 
 
 
 
 
 
 
 
Earnings per common share, diluted
$
1.30

 
$
1.26

 
$
2.53

 
$
2.42

 
 
 
 
 
 
 
 
Dividends declared per common share*
$

 
$

 
$
1.20

 
$
1.11


* Two dividends were declared in the first quarters of 2012 and 2011.



See Notes to Condensed Consolidated Financial Statements.

2




COLGATE-PALMOLIVE COMPANY
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (Dollars in Millions)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
Net income including noncontrolling interests
$
665

 
$
646

 
$
1,298

 
$
1,253

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Cumulative translation adjustments
(291
)
 
176

 
(112
)
 
297

Retirement Plan and other retiree benefit adjustments
(4
)
 
14

 
10

 
28

Gains (losses) on available-for-sale securities
4

 
8

 
14

 
48

     Unrealized gains (losses) on cash flow hedges

 
(4
)
 
5

 
(4
)
Total Other comprehensive income, net of tax
(291
)
 
194

 
(83
)
 
369

Total Comprehensive income including noncontrolling interests
374

 
840

 
1,215

 
1,622

Less: Net income attributable to noncontrolling interests
38

 
24

 
78

 
55

Less: Cumulative translation adjustments attributable to noncontrolling interests
(6
)
 
1

 
(4
)
 
2

Total Comprehensive income attributable to noncontrolling interests
32

 
25

 
74

 
57

Total Comprehensive income attributable to Colgate-Palmolive Company
$
342

 
$
815

 
$
1,141

 
$
1,565



See Notes to Condensed Consolidated Financial Statements.

3



COLGATE-PALMOLIVE COMPANY
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in Millions)
(Unaudited)
 
June 30,
2012
 
December 31,
2011
Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
995

 
$
878

Receivables (net of allowances of $54 and $49, respectively)
1,785

 
1,675

Inventories
1,368

 
1,327

Other current assets
687

 
522

Total current assets
4,835

 
4,402

Property, plant and equipment:
 

 
 

Cost
7,427

 
7,324

Less: Accumulated depreciation
(3,802
)
 
(3,656
)
 
3,625

 
3,668

Goodwill, net
2,611

 
2,657

Other intangible assets, net
1,316

 
1,341

Deferred income taxes
84

 
115

Other assets
682

 
541

Total assets
$
13,153

 
$
12,724

 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 

Current Liabilities
 

 
 

Notes and loans payable
$
43

 
$
34

Current portion of long-term debt
252

 
346

Accounts payable
1,226

 
1,244

Accrued income taxes
288

 
392

Other accruals
1,757

 
1,700

Total current liabilities
3,566

 
3,716

 
 
 
 
Long-term debt
5,068

 
4,430

Deferred income taxes
272

 
252

Other liabilities
1,737

 
1,785

 
 
 
 
Shareholders’ Equity
 

 
 

Common stock
733

 
733

Additional paid-in capital
1,387

 
1,336

Retained earnings
16,294

 
15,649

Accumulated other comprehensive income (loss)
(2,554
)
 
(2,475
)
Unearned compensation
(39
)
 
(60
)
Treasury stock, at cost
(13,515
)
 
(12,808
)
Total Colgate-Palmolive Company shareholders’ equity
2,306

 
2,375

Noncontrolling interests
204

 
166

Total shareholders’ equity
2,510

 
2,541

Total liabilities and shareholders’ equity
$
13,153

 
$
12,724


See Notes to Condensed Consolidated Financial Statements.

4



COLGATE-PALMOLIVE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
 
Six Months Ended
 
June 30,
 
2012
 
2011
Operating Activities
 
 
 
Net income including noncontrolling interests
$
1,298

 
$
1,253

Adjustments to reconcile net income including noncontrolling interests to net cash provided by operations:
 

 
 

Depreciation and amortization
211

 
202

Restructuring and termination benefits, net of cash
(27
)
 
(31
)
Voluntary benefit plan contributions
(100
)
 
(100
)
Stock-based compensation expense
48

 
56

Deferred income taxes
14

 
46

Cash effects of changes in:
 

 
 
Receivables
(119
)
 
(153
)
Inventories
(46
)
 
(148
)
Accounts payable and other accruals
(148
)
 
(19
)
Other non-current assets and liabilities
62

 
48

Net cash provided by operations
1,193

 
1,154

Investing Activities
 

 
 

Capital expenditures
(189
)
 
(225
)
Purchases of marketable securities and investments
(219
)
 
(80
)
Proceeds from sale of marketable securities and investments
71

 
171

Payment for acquisitions, net of cash acquired
(29
)
 
(960
)
Other
45

 
(17
)
Net cash used in investing activities
(321
)
 
(1,111
)
Financing Activities
 

 
 

Principal payments on debt
(2,307
)
 
(1,869
)
Proceeds from issuance of debt
2,873

 
3,433

Dividends paid
(593
)
 
(568
)
Purchases of treasury shares
(894
)
 
(1,017
)
Proceeds from exercise of stock options and excess tax benefits
191

 
220

Net cash provided by (used in) financing activities
(730
)
 
199

Effect of exchange rate changes on Cash and cash equivalents
(25
)
 
7

Net increase (decrease) in Cash and cash equivalents
117

 
249

Cash and cash equivalents at beginning of the period
878

 
490

Cash and cash equivalents at end of the period
$
995

 
$
739

Supplemental Cash Flow Information
 

 
 

Income taxes paid
$
682

 
$
513


See Notes to Condensed Consolidated Financial Statements.

5

COLGATE-PALMOLIVE COMPANY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)

1.
Basis of Presentation

The Condensed Consolidated Financial Statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair statement of the results for interim periods. Results of operations for interim periods may not be representative of results to be expected for a full year. Certain prior year amounts have been reclassified to conform to the current year presentation.

For a complete set of financial notes, including the significant accounting policies of Colgate-Palmolive Company (together with its subsidiaries, the “Company” or “Colgate”), refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission.

2.
Use of Estimates

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

3.
Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05, “Presentation of Comprehensive Income.” ASU No. 2011-05 eliminates the option to disclose other comprehensive income and its components in the statement of changes in equity. As permitted under ASU No. 2011-05, the Company elected to present items of net income and other comprehensive income in two separate consecutive statements beginning in the first quarter of 2012.

4.
Acquisitions and Divestitures

Sanex Acquisition

On June 20, 2011, the Company, Colgate-Palmolive Europe Sàrl, Unilever N.V. and Unilever PLC (together with Unilever N.V., “Unilever”) finalized the Company’s acquisition from Unilever of the Sanex personal care business in accordance with a Business and Share Sale and Purchase Agreement (the “Purchase Agreement”) for an aggregate purchase price of €676 ($966), subject to certain post-closing purchase price adjustments. The acquisition was financed with available cash, proceeds from the sale of the Company’s Euro-denominated investment portfolio and the issuance of commercial paper.

Total purchase price consideration of $966 has been allocated to the net assets acquired based on their respective fair values at June 20, 2011, as follows: 
Recognized amounts of assets acquired and liabilities assumed:
 
Inventories
$
26

Property, plant and equipment, net
3

Other intangible assets, net
596

Goodwill, net
411

Accrued income taxes
(48
)
Long-term deferred income taxes
(18
)
Long-term other liabilities
(4
)
Fair value of net assets acquired
$
966


Other intangible assets acquired include trademarks of $403 with an indefinite useful life and customer relationships of $193 with useful lives ranging from 15 to 18 years.


6

COLGATE-PALMOLIVE COMPANY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)

Goodwill of $411 was allocated between the Europe/South Pacific segment (90%) and the Greater Asia/Africa segment (10%). The Company expects that substantially all of the goodwill will be deductible for tax purposes. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial statements is not material. For the six months ended June 30, 2011, Other (income) expense, net included $10 in transaction costs related to the acquisition, of which $7 related to the second quarter.

Sale of Detergent Business in Colombia

In connection with the Sanex acquisition, Colgate sold its laundry detergent business in Colombia to Unilever for $215. The detergent sale closed on July 29, 2011 and, as a result of the sale, the Company recognized a pretax gain of $207 ($135 aftertax gain) in the third quarter of 2011. These operations were not material to the Company’s Net sales, Net income or Earnings per share.

Sale of Land in Mexico

On September 13, 2011, the Company’s Mexican subsidiary entered into an agreement to sell to the United States of America the Mexico City site on which its commercial operations, technology center and soap production facility are located. The sale price is payable in three installments, with the final installment due upon the transfer of the property, which is expected to occur in 2014. During the third quarter of 2011, the Company received the first installment of $24 upon signing the agreement. The Company is re-investing these payments to relocate its soap production to a new state-of-the-art facility to be constructed at its Mission Hills, Mexico site, to relocate its commercial and technology operations within Mexico City and to prepare the existing site for transfer. As a result, the Company expects to make capital improvements and incur costs to exit the site through 2014. These exit costs will primarily be related to staff leaving indemnities, accelerated depreciation and demolition to make the site building-ready. In 2011, the Company recorded $13 of pretax costs ($9 of aftertax costs) related to the sale. During the six months ended June 30, 2012, the Company incurred an additional $13 of pretax costs ($10 of aftertax costs) related to the sale, of which $6 of pretax costs ($5 of aftertax costs) relate to the second quarter.

5.
Inventories

Inventories by major class are as follows:
 
 
June 30,
2012
 
December 31,
2011

Raw materials and supplies
$
323

 
$
319

Work-in-process
68

 
54

Finished goods
977

 
954

Total Inventories
$
1,368

 
$
1,327




7

COLGATE-PALMOLIVE COMPANY
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)


6.
Shareholders’ Equity

Changes in the components of Shareholders’ Equity for the six months ended June 30, 2012 are as follows:
 
 
Colgate-Palmolive Company Shareholders’ Equity
 
Noncontrolling
Interests
 
Common
Stock
 
Additional
Paid-in
Capital
 
Unearned
Compensation
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
Balance, December 31, 2011
$
733

 
$
1,336

 
$
(60
)
 
$
(12,808
)
 
$
15,649

 
$
(2,475
)
 
$
166

Net income
 

 
 

 
 

 
 

 
1,220

 
 
 
78

Other comprehensive income, net of tax
 

 
 

 
 

 
 

 
 
 
(79
)
 
(4
)
Dividends
 

 
 

 
 

 
 

 
(575
)
 
 

 
(18
)
Stock-based compensation expense
 

 
48

 
 

 
 

 
 

 
 

 
 

Shares issued for stock options
 

 
42

 
 

 
143

 
 

 
 

 
 

Shares issued for restricted stock awards
 
 
(44
)
 
 
 
44

 
 
 
 
 
 
Treasury stock acquired
 

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