UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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T
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2009
or
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
.
Commission
File Number 1-644
(Exact
name of registrant as specified in its charter)
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DELAWARE
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13-1815595
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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300
Park Avenue, New York, New York
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10022
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code 212-310-2000
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Common
Stock, $1.00 par value
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New
York Stock Exchange
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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes T No £
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes £ NoT
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 T 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 T No £
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) 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. £
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 the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large
accelerated filer T
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Accelerated
filer £
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Non-accelerated
filer £ (Do not
check if a smaller reporting company)
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Smaller
reporting company £
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes£ NoT
The
aggregate market value of Colgate-Palmolive Company Common Stock held by
non-affiliates as of June 30, 2009 (the last business day of its most recently
completed second quarter) was approximately $35.2 billion.
There
were 493,747,179 shares of Colgate-Palmolive Company Common Stock
outstanding as of January 31, 2010.
DOCUMENTS
INCORPORATED BY REFERENCE:
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Documents
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Form 10-K Reference
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Portions
of Proxy Statement for the 2010 Annual Meeting
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Part
III, Items 10 through 14
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Colgate-Palmolive Company
Table
of Contents
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Part
I
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Page
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Item
1.
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1
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Item
1A.
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5
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Item
1B.
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10
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Item
2.
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10
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Item
3.
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10
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Item
4.
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13
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Part
II
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Item
5.
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14
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Item
6.
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15
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Item
7.
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15
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Item
7A.
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35
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Item
8.
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35
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Item
9.
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35
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Item
9A.
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36
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Item
9B.
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36
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Part
III
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Item
10.
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37
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Item
11.
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37
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Item
12.
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37
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Item
13.
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38
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Item
14.
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38
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Part
IV
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Item
15.
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39
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40
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PART
I
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ITEM 1.
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BUSINESS
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(a)
General Development of the Business
Colgate-Palmolive
Company (together with its subsidiaries, the “Company” or “Colgate”) is a
leading consumer products company whose products are marketed in over 200
countries and territories throughout the world. Colgate was founded in 1806 and
incorporated under the laws of the State of Delaware in 1923.
For
recent business developments and other information, refer to the information set
forth under the captions “Executive Overview and Outlook,” “Results of
Operations” and “Liquidity and Capital Resources” in Part II, Item 7 of this
report.
(b)
Financial Information about Segments
Worldwide
Net sales and Operating profit by business segment and geographic region during
the last three years appear under the caption “Results of Operations” in Part
II, Item 7 of this report and in Note 14 to the Consolidated Financial
Statements.
(c)
Narrative Description of the Business
The
Company manages its business in two product segments: Oral, Personal and Home
Care; and Pet Nutrition. Colgate is a global leader in Oral Care with the
leading toothpaste and manual toothbrush brands throughout many parts of the
world according to value share data provided by ACNielsen. Colgate’s Oral Care
products include Colgate Total and Colgate Max Fresh toothpastes, Colgate
360° manual
toothbrushes and Colgate and Colgate Plax mouth rinses. Colgate’s
Oral Care business also includes dental floss and pharmaceutical products for
dentists and other oral health professionals.
Colgate
is a leader in many product categories of the Personal Care market with global
leadership in liquid hand soap. Colgate’s Personal Care products include
Palmolive and Softsoap brand shower gels, Palmolive, Irish Spring and Protex bar
soaps and Speed Stick and Lady Speed Stick deodorants and
antiperspirants. Colgate is the market leader in liquid hand soap in
the U.S. with its line of Softsoap brand products according to value share data
provided by ACNielsen. Colgate’s Personal Care business outside the
U.S. also includes Palmolive and Caprice shampoo and conditioners.
Colgate
manufactures and markets a wide array of products for Home Care, including
Palmolive and Ajax dishwashing liquids, Fabuloso and Ajax household cleaners and
Murphy’s Oil Soap. Colgate is a market leader in fabric conditioners with
leading brands including Suavitel in Latin America and Soupline in
Europe.
Sales of
Oral, Personal and Home Care products accounted for 41%, 22% and 23%,
respectively, of total worldwide sales in 2009. Geographically, Oral Care is a
significant part of the Company’s business in Greater Asia/Africa, comprising approximately 69%
of sales in that region for 2009.
Colgate,
through its Hill’s Pet Nutrition segment (Hill’s), is a world leader in
specialty pet nutrition products for dogs and cats with products marketed in
over 95 countries around the world. Hill’s markets pet foods primarily under two
trademarks: Science Diet, which is sold by authorized pet supply retailers and
veterinarians for everyday nutritional needs; and Prescription Diet, a range of
therapeutic products sold by veterinarians to help nutritionally manage disease
conditions in dogs and cats. Sales of Pet Nutrition products
accounted for 14% of the Company’s total worldwide sales in 2009.
For more
information regarding the Company’s worldwide sales by product categories, refer
to Notes 1 and 14 to the Consolidated Financial Statements.
Research
and Development
Strong
research and development capabilities and alliances enable Colgate to support
its many brands with technologically sophisticated products to meet consumers’
oral, personal and home care and pet nutrition needs. The Company’s spending
related to research and development activities was $269 million, $253 million
and $247 million during 2009, 2008 and 2007, respectively.
Distribution;
Raw Materials; Competition; Trademarks and Patents
The
Company’s products are generally marketed by a direct sales force at individual
operating subsidiaries or business units. In some instances, distributors or
brokers are used. No single customer accounts for 10% or more of the Company’s
sales.
Most raw
and packaging materials are purchased from other companies and are available
from several sources. No single raw or packaging material represents, and no
single supplier provides, a significant portion of the Company’s total material
requirements. For certain materials, however, new suppliers may have
to be qualified under industry, government and Colgate standards, which can
require additional investment and take some period of time. Raw and packaging
material commodities such as resins, tallow, corn and soybeans are subject to
market price variations.
The
Company’s products are sold in a highly competitive global marketplace, which
has experienced increased trade concentration and the growing presence of
large-format retailers and discounters. Products similar to those produced and
sold by the Company are available from competitors in the U.S. and overseas.
Certain of the Company’s competitors are larger and have greater resources than
the Company. In addition, private label brands sold by retail trade chains are a
source of competition for certain product lines of the Company. Product quality
and innovation, brand recognition, marketing capability and acceptance of new
products largely determine success in the Company’s business
segments.
Trademarks
are considered to be of material importance to the Company’s business. The
Company follows a practice of seeking trademark protection in the U.S. and
throughout the world where the Company’s products are sold. Principal global and
regional trademarks include Colgate, Palmolive, Mennen, Speed Stick, Lady Speed
Stick, Softsoap, Irish Spring, Protex, Sorriso, Kolynos, Elmex, Tom’s of Maine,
Ajax, Axion, Fabuloso, Soupline, Suavitel, Hill’s Science Diet and Hill’s
Prescription Diet. The Company’s rights in these trademarks endure for as long
as they are used and registered. Although the Company actively develops and
maintains a portfolio of patents, no single patent is considered significant to
the business as a whole.
Environmental
Matters
The
Company has programs that are designed to ensure that its operations and
facilities meet or exceed standards established by applicable environmental
rules and regulations. Capital expenditures for environmental control facilities
totaled $15 million for 2009. For future years, expenditures are currently
expected to be of a similar magnitude. For additional information regarding
environmental matters refer to Note 13 to the Consolidated Financial
Statements.
Employees
As of
December 31, 2009, the Company employed approximately 38,100
employees.
Executive
Officers of the Registrant
The
following is a list of executive officers as of February 25, 2010:
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Name
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Age
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Date First Elected Officer
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Present Title
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Ian
Cook
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57
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1996
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Chairman
of the Board
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President
and Chief Executive Officer
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Michael
J. Tangney
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65
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1993
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Vice
Chairman
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Stephen
C. Patrick
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60
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1990
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Chief
Financial Officer
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Andrew
D. Hendry
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62
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1991
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Senior
Vice President
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|||
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General
Counsel and Secretary
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||||||
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Fabian
T. Garcia
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50
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2003
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Chief
Operating Officer,
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Europe,
Global Marketing, Customer Development, Supply Chain and
Technology
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Franck
J. Moison
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56
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2002
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Chief
Operating Officer
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Emerging
Markets
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||||||
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Dennis
J. Hickey
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61
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1998
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Vice
President and Corporate Controller
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Ronald
T. Martin
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61
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2001
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Vice
President
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Global
Social Responsibility
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||||||
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John
J. Huston
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55
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2002
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Vice
President
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Office
of the Chairman
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Delia
H. Thompson
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60
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2002
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Vice
President
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Investor
Relations
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Hector
I. Erezuma
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65
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2005
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Vice
President
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Taxation
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Daniel
B. Marsili
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49
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2005
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Vice
President
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Global
Human Resources
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||||||
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Gregory
P. Woodson
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58
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2007
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Vice
President
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Chief
Ethics and Compliance Officer
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Nina
D. Gillman
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56
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2008
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Vice
President
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Deputy
General Counsel, Global Legal Organization and Assistant
Secretary
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| Name | Age | Date First Elected Officer | Present Title | |||
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David
R. Groener
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55
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2008
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Vice
President
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Global
Supply Chain
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Alexandre
de Guillenchmidt
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64
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2008
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President
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Colgate-Europe
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Rosemary
Nelson
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62
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2008
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Vice
President
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Deputy
General Counsel, Operations
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Derrick
E.M. Samuel
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53
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2008
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President
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Colgate
– Greater Asia
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Justin
P. Skala
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50
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2008
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President
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Colgate-Latin
America
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Noel
R. Wallace
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46
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2009
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President
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Colgate
North America and Global Sustainability
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||||||
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Neil
Thompson
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54
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2009
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President
and Chief Executive Officer
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Hill’s
Pet Nutrition, Inc
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||||||
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Elaine
Paik
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45
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2009
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Vice
President and Corporate
Treasurer
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Each of
the executive officers listed above has served the registrant or its
subsidiaries in various executive capacities for the past five
years.
Under the
Company’s By-Laws, the officers of the corporation hold office until their
respective successors are chosen and qualified or until they have resigned,
retired or been removed by the affirmative vote of a majority of the Board of
Directors. There are no family relationships between any of the
executive officers, and there is no arrangement or understanding between any
executive officer and any other person pursuant to which the executive officer
was elected.
(d)
Financial Information about Geographic Areas
For
financial data by geographic region, refer to the information set forth under
the caption “Results of Operations” in Part II, Item 7, of this report and in
Note 14 to the Consolidated Financial Statements. For a discussion of
risks associated with our international operations, see Item 1A, “Risk
Factors.”
(e)
Available Information
The
Company’s web site address is
www.colgate.com. The
information contained on the Company’s web site is not included as a part of, or
incorporated by reference into, this Annual Report on Form 10-K. The Company
makes available, free of charge, on its web site its annual reports on Form
10-K, its quarterly reports on Form 10-Q, its interactive data files posted
pursuant to Rule 405 of Regulation S-T, its current reports on Form 8-K and
amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (the Exchange Act) as soon as reasonably
practicable after the Company has electronically filed such material with, or
furnished it to, the United States Securities and Exchange Commission (the SEC).
Also available on the Company’s web site are the Company’s Code of Conduct and
Corporate Governance Guidelines, the charters of the Committees of the Board of
Directors, reports under Section 16 of the Exchange Act of transactions in
Company stock by directors and officers and its proxy statements.
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ITEM
1A.
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RISK
FACTORS
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Set forth
below is a summary of the material risks to an investment in our
securities. These risks are not the only ones we face. Additional
risks not presently known to us or that we currently deem immaterial may also
have an adverse effect on us. If any of the below risks actually occur, our
business, results of operations, cash flows or financial condition could suffer,
which might cause the value of our securities to decline.
We
face risks associated with significant international operations.
We
operate on a global basis with approximately 75% of our net sales coming from
markets outside the U.S. While geographic diversity helps to reduce the
Company’s exposure to risks in any one country or part of the world, it also
means that we are subject to the full range of risks associated with significant
international operations, including, but not limited to:
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·
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changes
in exchange rates for foreign currencies, which may reduce the U.S. dollar
value of revenue we receive from non-U.S. markets or increase our labor or
supply costs in those markets,
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·
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exchange
controls and other limits on our ability to repatriate earnings from
overseas,
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·
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political
or economic instability or changing macroeconomic conditions in our major
markets,
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·
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lack
of well-established or reliable legal systems in certain areas where the
Company operates,
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·
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foreign
ownership restrictions and nationalization or expropriation of property or
other resources, and
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·
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foreign
or domestic legal and regulatory requirements resulting in potentially
adverse tax consequences or the imposition of onerous trade restrictions
or other government controls.
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These
risks could have a significant impact on our ability to sell our products on a
competitive basis in international markets and may have a material adverse
effect on our results of operations, cash flows and financial condition. We
monitor our foreign currency exposure to minimize the impact on earnings of
foreign currency rate movements through a combination of cost-containment
measures, selling price increases and foreign currency hedging. We cannot
provide assurances, however, that these measures will succeed in offsetting any
negative impact of foreign currency rate movements on our business and results
of operations.
For
example, our results of operations will be adversely impacted by the recent
designation of Venezuela as hyper-inflationary and the subsequent currency
devaluation in Venezuela. Exchange controls in Venezuela could also
have an adverse impact on our results of operations. For
additional information regarding the potential impact of the risks associated
with our operations in Venezuela, refer to Item 7 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Executive Overview
and Outlook” and Note 18 to the Consolidated Financial
Statements.
Uncertain global
economic conditions and disruptions in the credit markets may adversely affect
our business.
Uncertain
global economic conditions could adversely affect our
business. Recent global economic trends pose challenges to our
business and could result in declining revenues, profitability and cash
flow. Although we continue to devote significant resources to support
our brands, during periods of economic uncertainty consumers may switch to
economy brands, which could reduce sales volumes of our products or result in a
shift in our product mix from higher margin to lower margin product
offerings. Additionally, retailers may increase pressure on our
selling prices or increase promotional activity for lower-priced or value
offerings as they seek to maintain sales volumes and margins.
While we
currently generate significant cash flows from our ongoing operations and have
access to global credit markets through our various financing activities, any
disruption in the credit markets could limit the availability of credit or the
ability or willingness of financial institutions to extend credit, which could
adversely affect our liquidity and capital resources. If any
financial institutions that are parties to our revolving credit facility
supporting our commercial paper program or other financing arrangements, such as
interest rate or foreign exchange hedging instruments, were to declare
bankruptcy or become insolvent, they may be unable to perform under their
agreements with us. This could leave us with reduced borrowing
capacity or unhedged against certain interest rate or foreign currency
exposures. In addition, tighter credit markets may lead to business
disruptions for certain of our suppliers, contract manufacturers or trade
customers which could, in turn, adversely impact our business.
Significant
competition in our industry could adversely affect our business.
We face
vigorous competition around the world, including from other large, multinational
consumer product companies, some of which have greater resources than we do. We
face this competition in several aspects of our business, including, but not
limited to, the pricing of products, promotional activities, advertising and new
product introductions.
We may be
unable to anticipate the timing and scale of such activities or initiatives by
competitors or to successfully counteract them, which could harm our business.
In addition, the cost of responding to such activities and initiatives may
affect our financial performance in the relevant period. Our ability to compete
also depends on the strength of our brands and on our ability to protect our
patent, trademark and trade dress rights and to defend against related
challenges brought by competitors. A failure to compete effectively could
adversely affect our growth and profitability.
Changes
in the policies of our retail trade customers and increasing dependence on key
retailers in developed markets may adversely affect our business.
Our
products are sold in a highly competitive global marketplace which has
experienced increased trade concentration and the growing presence of
large-format retailers and discounters. With the growing trend toward retail
trade consolidation, we are increasingly dependent on key retailers, and some of
these retailers, including large-format retailers, may have greater bargaining
strength than we do. They may use this leverage to demand higher trade
discounts, allowances or slotting fees, which could lead to reduced sales or
profitability. We may also be negatively affected by changes in the policies of
our retail trade customers, such as inventory de-stocking, limitations on access
to shelf space, delisting of our products, environmental initiatives and other
conditions. In addition, private label products sold by retail trade
chains, which are typically sold at lower prices than branded products, are a
source of competition for certain of our product lines, including liquid hand
soap.
The
growth of our business depends on the successful development and introduction of
new products.
Our
growth depends on the continued success of existing products as well as the
successful development and introduction of new products and line extensions,
which face the uncertainty of retail and consumer acceptance and reaction from
competitors. In addition, our ability to create new products and line extensions
and to sustain existing products is affected by whether we can:
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•
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develop
and fund technological innovations,
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•
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receive
and maintain necessary patent and trademark
protection,
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•
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obtain
governmental approvals and registrations of regulated
products,
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•
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comply
with U.S. Food and Drug Administration (FDA) and other governmental
regulations, and
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|
|
•
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anticipate
consumer needs and preferences
successfully.
|
The
failure to develop and launch successful new products could hinder the growth of
our business and any delay in the development or launch of a new product could
result in the Company not being the first to market, which could compromise our
competitive position.
Volatility
in material and other costs and our increasing dependence on key suppliers could
adversely impact our profitability.
Raw and
packaging material commodities such as resins, tallow, corn and soybeans are
subject to wide price variations. Increases in the costs and availability of
these commodities and the costs of energy, transportation and other necessary
services may adversely affect our profit margins if we are unable to pass along
any higher costs in the form of price increases or otherwise achieve cost
efficiencies such as in manufacturing and distribution. In addition, our move to
global suppliers, for materials and other services in order to achieve cost
reductions and simplify our business, has resulted in an increasing dependence
on key suppliers. For certain materials, new suppliers may have to be qualified
under industry, government and Colgate standards, which can require additional
investment and take some period of time. While we believe that the supplies of
raw materials needed to manufacture our products are adequate, global economic
conditions, supplier capacity constraints and other factors could affect the
availability of, or prices for, those raw materials.
Damage
to our reputation could have an adverse effect on our business.
Maintaining
our strong reputation with consumers and our trade partners globally is critical
to selling our branded products. Accordingly, we devote significant
time and resources to programs designed to protect and preserve our reputation,
such as our Ethics and Compliance, Sustainability, Brand Protection and Product
Safety, Regulatory and Quality initiatives. In particular, adverse
publicity about product safety or quality and similar types of concerns, real or
imagined, or the allegations of product contamination or tampering, whether or
not valid, may result in a product recall or reduced demand for our products. A
significant product recall could tarnish the image of the affected brands and
cause consumers to choose other products.
In
addition, from time to time, third parties sell counterfeit versions of our
products. To the extent that third parties sell products that are
counterfeit versions of our brands, consumers of our brands could confuse our
products with products that they consider inferior, or that pose safety risks,
which could cause them to refrain from purchasing our brands in the future and
in turn could impair our brand equity and adversely affect our
business.
Similarly,
adverse publicity regarding our responses to health concerns, our environmental
impacts, including packaging, energy and water use and waste management, or
other sustainability issues, whether or not deserved, could jeopardize our
reputation. Damage to our reputation or loss of consumer confidence
in our products for any of these reasons could have a material adverse effect on
our business, as well as require resources to rebuild our
reputation.
Our
business is subject to regulation in the U.S. and abroad.
The
manufacture, packaging, labeling, storage, distribution, advertising and sale of
our products are subject to extensive regulation in the U.S. and abroad. This
regulation includes, but is not limited to, the following:
|
|
•
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in
the U.S.
|
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|
•
|
our
products and the manufacture of our products are subject to regulation and
review and/or approval by the Food and Drug Administration (FDA) as well
as by the Consumer Product Safety Commission and the Environmental
Protection Agency (EPA),
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•
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our
product claims and advertising are regulated by the Federal Trade
Commission, the FDA and the EPA and, in
addition,
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•
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state
and local agencies regulate in parallel to the above
agencies;
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•
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we
are also subject to similar regulation in the foreign countries in which
we manufacture and sell our products;
and
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|
•
|
our
selling practices are regulated by competition authorities in the U.S. and
abroad.
|
A finding
that we are in violation of, or out of compliance with, applicable laws or
regulations could subject us to civil remedies, including fines, damages,
injunctions or product recalls, or criminal sanctions, any of which could have a
material adverse effect on our business. Even if a claim is unsuccessful, is not
merited or is not fully pursued, the negative publicity surrounding such
assertions regarding our products or processes could adversely affect our
reputation and brand image. For information regarding our European
competition matters, see Item 3, “Legal Proceedings” and Note 13 to the
Consolidated Financial Statements.
We comply
with the regulatory requirements applicable to the manufacture and sale of the
products we currently market. New or more restrictive regulations or
more restrictive interpretations of existing regulations, however, could have an
adverse impact on our business. For example, from time to time,
various regulatory authorities and consumer groups in Europe, the U.S. and other
countries request or conduct reviews of the use of certain ingredients in
consumer products, including triclosan. A finding by a regulatory
authority that triclosan, or any other of our ingredients, should not be used in
certain consumer products or should otherwise be newly regulated, could have an
adverse impact on our business, as could negative reactions by our consumers,
trade customers or non-governmental organizations to our use of such
ingredients. Currently, Colgate uses triclosan in certain of its
oral, personal and home care products, including Colgate Total toothpaste,
Softsoap brand liquid hand soap, Palmolive dish liquid and Protex bar
soap.
Our
business is subject to the risks inherent in global manufacturing and sourcing
activities.
The
Company is engaged in manufacturing and sourcing of products and materials on a
global scale. We are subject to the risks inherent in such
activities, including, but not limited to:
|
|
•
|
industrial
accidents or other occupational health and safety
issues,
|
|
|
•
|
environmental
events,
|
|
|
•
|
strikes
and other labor disputes,
|
|
|
•
|
disruptions
in logistics,
|
|
|
•
|
loss
or impairment of key manufacturing
sites,
|
|
|
•
|
raw
material and product quality or safety
issues,
|
|
|
•
|
natural
disasters, acts of war or terrorism and other external factors over which
we have no control.
|
While we
have business continuity and contingency plans for key manufacturing sites and
the supply of raw materials, significant disruption of manufacturing for any of
the above reasons could interrupt product supply and, if not remedied, have an
adverse impact on our business. In addition, if our products, or raw materials
contained in our products, are found or perceived to be defective or unsafe, we
may need to recall some of our products; our reputation and brand image could be
diminished; and we could lose market share or become subject to liability
claims, any of which could have a material adverse effect on our
business.
Our
success depends upon our ability to attract and retain key employees and the
succession of senior management.
Our
success largely depends on the performance of our management team and other key
employees. If we are unable to attract and retain talented, highly
qualified senior management and other key people, our future operations could be
adversely affected. In addition, if we are unable to effectively
provide for the succession of senior management, including our Chief Executive
Officer, our business may be materially adversely affected. While we
follow a disciplined, ongoing succession planning process and have succession
plans in place for senior management and other key executives, these do not
guarantee that the services of qualified senior executives will continue to be
available to us at particular moments in time.
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
|
ITEM 2.
|
PROPERTIES
|
The
Company owns or leases approximately 330 properties which include manufacturing,
distribution, research and office facilities worldwide. Our corporate
headquarters is located in leased property at 300 Park Avenue, New York, New
York.
In the
U.S., the Company operates approximately 60 properties of which 14 are owned.
Major U.S. manufacturing and warehousing facilities used by the Oral, Personal
and Home Care segment of our business are located in Morristown, New Jersey;
Morristown, Tennessee; and Cambridge, Ohio. The Pet Nutrition segment has major
facilities in Bowling Green, Kentucky; Topeka, Kansas; Emporia, Kansas;
Commerce, California; and Richmond, Indiana. The primary research center for
Oral, Personal and Home Care products is located in Piscataway, New Jersey and
the primary research center for Pet Nutrition products is located in Topeka,
Kansas. Piscataway, New Jersey also serves as our global data
center.
Overseas,
the Company operates approximately 270 properties, of which 70 are owned, in
over 70 countries. Major overseas facilities used by the Oral, Personal and Home
Care segment of our business are located in Australia, Brazil, China, Colombia,
France, Italy, Mexico, Poland, South Africa, Thailand, Venezuela, Vietnam and
elsewhere throughout the world. The Pet Nutrition segment has a major facility
in the Czech Republic.
All of
the facilities we operate are well maintained and adequate for the purpose for
which they are intended.
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
The
Company is contingently liable with respect to lawsuits, environmental matters
and other matters arising in the normal course of business.
Brazilian
Matters
In 2001,
the Central Bank of Brazil sought to impose a substantial fine on the Company’s
Brazilian subsidiary (approximately $150 million at the current exchange rate)
based on alleged foreign exchange violations in connection with the financing of
the Company’s 1995 acquisition of the Kolynos oral care business from Wyeth
(formerly American Home Products) (the Seller), as described in the Company’s
Form 8-K dated January 10, 1995. The Company appealed the imposition of the fine
to the Brazilian Monetary System Appeals Council (the Council), and on January
30, 2007, the Council decided the appeal in the Company’s favor, dismissing the
fine entirely. However, certain tax and civil proceedings that began as a result
of this Central Bank matter are still outstanding as described
below.
The
Brazilian internal revenue authority has disallowed interest deductions and
foreign exchange losses taken by the Company’s Brazilian subsidiary for certain
years in connection with the financing of the Kolynos acquisition. The tax
assessments with interest, at the current exchange rate, approximate $115
million. The Company has been disputing the disallowances by appealing the
assessments within the internal revenue authority’s appellate process with the
following results to date:
|
|
·
|
In
June 2005, the First Board of Taxpayers ruled in the Company’s favor and
allowed all of the previously claimed deductions for 1996 through 1998. In
March 2007, the First Board of Taxpayers ruled in the Company’s favor and
allowed all of the previously claimed deductions for 1999 through 2001.
The tax authorities appealed these decisions to the next administrative
level.
|
|
|
·
|
In
August 2009, the First Taxpayers’ Council (the next and final
administrative level of appeal) overruled the decisions of the First Board
of Taxpayers, upholding the majority of the assessments, disallowing a
portion of the assessments and remanding a portion of the assessments for
further consideration by the First Board of
Taxpayers.
|
The
Company has filed a motion for reconsideration with the First Taxpayers’ Council
and further appeals are available within the Brazilian federal
courts. The Company intends to challenge these assessments
vigorously. Although there can be no assurances, management believes, based on
the opinion of its Brazilian legal counsel and other advisors, that the
disallowances are without merit and that the Company should ultimately prevail
on appeal, if necessary, in the Brazilian federal courts.
In 2002,
the Brazilian Federal Public Attorney filed a civil action against the federal
government of Brazil, Laboratorios Wyeth-Whitehall Ltda. (the Brazilian
subsidiary of the Seller) and the Company, as represented by its Brazilian
subsidiary, seeking to annul an April 2000 decision by the Brazilian Board of
Tax Appeals that found in favor of the Seller’s Brazilian subsidiary on the
issue of whether it had incurred taxable capital gains as a result of the
divestiture of Kolynos. The action seeks to make the Company’s Brazilian
subsidiary jointly and severally liable for any tax due from the Seller’s
Brazilian subsidiary. Although there can be no assurances, management believes,
based on the opinion of its Brazilian legal counsel, that the Company should
ultimately prevail in this action. The Company intends to challenge this action
vigorously.
In
December 2005, the Brazilian internal revenue authority issued to the Company’s
Brazilian subsidiary a tax assessment with interest and penalties of
approximately $69 million, at the current exchange rate, based on a claim that
certain purchases of U.S. Treasury bills by the subsidiary and their subsequent
disposition during the period 2000 to 2001 were subject to a tax on foreign
exchange transactions. The Company is disputing the assessment within the
internal revenue authority’s administrative appeals process. In October 2007,
the Second Board of Taxpayers, which has jurisdiction over these matters, ruled
in favor of the internal revenue authority. In January 2008, the Company
appealed this decision to the next administrative level. Although there can be
no assurances, management believes, based on the advice of its Brazilian legal
counsel, that the tax assessment is without merit and that the Company should
prevail on appeal either at the administrative level or, if necessary, in the
Brazilian federal courts. The Company intends to challenge this assessment
vigorously.
European Competition
Matters
During
the period from February 2006 to June 2009, the Company learned that
investigations relating to potential competition law violations involving the
Company’s subsidiaries had been commenced by governmental authorities in the
European Union (EU), France, Germany, Greece, Italy, the Netherlands, Romania,
Spain, Switzerland and the United Kingdom (UK). The Company
understands that many of these investigations also involve other consumer goods
companies and/or retail customers. While several of the
investigations are ongoing, there have been the following results to
date:
|
●
|
In
February 2008, the federal competition authority in Germany imposed fines
on four of the Company’s competitors, but the Company was not fined due to
its cooperation with the German
authorities.
|
|
●
|
In
November 2009, the UK Office of Fair Trading informed the Company that it
was no longer pursuing its investigation of the
Company.
|
|
●
|
In
December 2009, the Swiss competition law authority imposed a fine of $5
million on the Company’s GABA subsidiary for alleged violations of
restrictions on parallel imports into Switzerland. The Company is
appealing the fine in the Swiss
courts.
|
|
●
|
In
January 2010, the Spanish competition law authority found that four
suppliers of shower gel had entered into an agreement regarding product
down-sizing, for which Colgate’s Spanish subsidiary was fined $3 million.
The Company intends to appeal the fine in the Spanish
courts.
|
|
●
|
While
the investigations of the Company’s Romanian subsidiary by the Romanian
competition authority are now closed, a complainant has
petitioned the court to reopen one of the
investigations.
|
Currently,
formal claims of violations, or statements of objections, are pending against
the Company in France and Italy. The French competition authority
alleges agreements on pricing and promotion of heavy duty detergents among four
consumer goods companies, including the Company’s French
subsidiary. The Italian competition authority alleges that 17
consumer goods companies, including the Company’s Italian subsidiary, exchanged
competitively sensitive information in the cosmetics sector. The
Company will have an opportunity to respond to each of these statements of
objections. Investigations are ongoing in the EU, France, Germany,
Greece and the Netherlands, but no formal claims of violations have been filed
in these jurisdictions.
The
Company’s policy is to comply with antitrust and competition laws and, if a
violation of any such laws is found, to take appropriate remedial action and to
cooperate fully with any related governmental inquiry. The Company has
undertaken a comprehensive review of its selling practices and related
competition law compliance in Europe and elsewhere and, where the Company has
identified a lack of compliance, it has undertaken remedial action. Competition
and antitrust law investigations often continue for several years and can result
in substantial fines for violations that are found. Such fines, depending on the
gravity and duration of the infringement as well as the value of the sales
involved, have amounted, in some cases, to hundreds of millions of dollars.
While the Company cannot predict the final financial impact of these competition
law issues as these matters may change, the Company has taken and will, as
necessary, take additional reserves as and when appropriate.
ERISA
Matters
In
October 2007, a putative class action claiming that certain aspects of the cash
balance portion of the Colgate-Palmolive Company Employees’ Retirement Income
Plan (the Plan) do not comply with the Employee Retirement Income Security Act
was filed against the Plan and the Company in the United States District Court
for the Southern District of New York. Specifically, Proesel, et al. v.
Colgate-Palmolive Company Employees’ Retirement Income Plan, et al.
alleges improper calculation of lump sum distributions, age discrimination and
failure to satisfy minimum accrual requirements, thereby resulting in the
underpayment of benefits to Plan participants. Two other putative class actions
filed earlier in 2007, Abelman, et al. v.
Colgate-Palmolive Company Employees’ Retirement Income Plan, et al., in
the United States District Court for the Southern District of Ohio, and Caufield v.
Colgate-Palmolive Company Employees’ Retirement Income Plan, in the
United States District Court for the Southern District of Indiana, both alleging
improper calculation of lump sum distributions and, in the case of Abelman, claims for
failure to satisfy minimum accrual requirements, were transferred to the
Southern District of New York and consolidated with Proesel into one
action, In re
Colgate-Palmolive ERISA Litigation. The complaint in the consolidated
action alleges improper calculation of lump sum distributions and failure to
satisfy minimum accrual requirements, but does not include a claim for age
discrimination. The relief sought includes recalculation of benefits in
unspecified amounts, pre- and post-judgment interest, injunctive relief and
attorneys’ fees. This action has not been certified as a class action as yet.
The Company and the Plan intend to contest this action vigorously should the
parties be unable to reach a settlement.
For
additional discussion of the Company’s contingencies refer to Note 13 to the
Consolidated Financial Statements.
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
PART
II
|
ITEM 5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Refer to
the information regarding the market for the Company’s common stock and the
quarterly market price information appearing under the caption “Market and
Dividend Information”, and the “Number of common shareholders of record” under
the caption “Historical Financial Summary”. For information regarding the
securities authorized for issuance under our equity compensation plans, refer to
“Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” included in Item 12 of this report.
Issuer Purchases of Equity
Securities
For each
of the three months in the quarter ended December 31, 2009, the Company
repurchased its common stock under a share repurchase program that was approved
by the Board of Directors in January 2008 (the 2008 Program). Under the 2008
Program, the Company was authorized to purchase up to 30 million shares of the
Company’s common stock. The Board’s authorization also provided for
share repurchases on an on-going basis to fulfill certain requirements of the
Company’s compensation and benefit programs. The shares were repurchased in open
market transactions or privately negotiated transactions at the Company’s
discretion, subject to market conditions, customary blackout periods and other
factors.
The
following table shows the stock repurchase activity for each of the three months
in the quarter ended December 31, 2009:
|
Month
|
Total Number of Shares Purchased(1)
|
Average Price Paid per
Share
|
Total Number of Shares Purchased as Part of
Publicly Announced Plans or Programs(2)
|
Maximum Number of Shares that May Yet be Purchased
Under the Plans or Programs
|
||||||||||||
|
October
1 through 31, 2009
|
437,885 | $ | 77.75 | 415,700 | 6,996,647 | |||||||||||
|
November
1 through 30, 2009
|
2,040,557 | $ | 81.95 | 2,005,000 | 4,991,647 | |||||||||||
|
December
1 through 31, 2009
|
2,528,399 | $ | 83.64 | 2,515,000 | 2,476,647 | |||||||||||
|
Total
|
5,006,841 | $ | 82.44 | 4,935,700 | ||||||||||||
____________
|
(1)
|
Includes
share repurchases under the 2008 Program and those associated with certain
employee elections under the Company’s compensation and benefit
programs.
|
|
(2)
|
The
difference between the total number of shares purchased and the total
number of shares purchased as part of publicly announced plans or programs
is 71,141 shares, all of which relate to shares surrendered to the Company
to satisfy certain employee elections under its compensation and benefit
programs.
|
(Dollars in Millions Except Per Share
Amounts)
On
February 4, 2010, the Company’s Board of Directors authorized a new share
repurchase program (the 2010 Program) effective as of that date. The
2010 Program authorizes the repurchase of up to 40 million shares of the
Company’s common stock. As with the prior program, the Board’s
authorization also provides for share repurchases on an on-going basis to
fulfill certain requirements of the Company’s compensation and benefit programs.
The shares will be repurchased from time to time in open market transactions or
privately negotiated transactions at the Company’s discretion, subject to market
conditions, customary blackout periods and other factors.
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
Refer to
the information set forth under the caption “Historical Financial
Summary.”
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Executive
Overview and Outlook
Colgate-Palmolive
Company seeks to deliver strong, consistent business results and superior
shareholder returns by providing consumers on a global basis with products that
make their lives healthier and more enjoyable.
To this
end, the Company is tightly focused on two product segments: Oral, Personal and
Home Care; and Pet Nutrition. Within these segments, the Company follows a
closely defined business strategy to develop and increase market leadership
positions in key product categories. These product categories are prioritized
based on their capacity to maximize the use of the organization’s core
competencies and strong global equities and to deliver sustainable long-term
growth.
Operationally,
the Company is organized along geographic lines with specific regional
management teams having responsibility for the business and financial results in
each region. The Company competes in more than 200 countries and territories
worldwide with established businesses in all regions contributing to the
Company’s sales and profitability. This geographic diversity and balance help to
reduce the Company’s exposure to business and other risks in any one country or
part of the world.
The Oral,
Personal and Home Care segment is operated through four reportable operating
segments: North America, Latin America, Europe/South Pacific and Greater
Asia/Africa, all of which sell to a variety of retail and wholesale customers
and distributors. The Company, through Hill’s Pet Nutrition, also competes on a
worldwide basis in the pet nutrition market, selling its products principally
through the veterinary profession and specialty pet retailers.
On an
ongoing basis, management focuses on a variety of key indicators to monitor
business health and performance. These indicators include market share, sales
(including volume, pricing and foreign exchange components), organic sales
growth, gross profit margin, operating profit, net income and earnings per
share, as well as measures used to optimize the management of working capital,
capital expenditures, cash flow and return on capital. The monitoring of these
indicators and the Company’s corporate governance practices (including the
Company’s Code of Conduct) help to maintain business health and strong internal
controls.
(Dollars in Millions Except Per Share
Amounts)
To
achieve its business and financial objectives, the Company focuses the
organization on initiatives to drive and fund growth. The Company seeks to
capture significant opportunities for growth by identifying and meeting consumer
needs within its core categories, through its focus on innovation and the
deployment of valuable consumer and shopper insights in the development of
successful new products regionally, which are then rolled out on a global basis.
To enhance these efforts, the Company has developed key initiatives to build
strong relationships with consumers, dental and veterinary professionals and
retail customers. Growth opportunities are greater in emerging
markets where economic development is likely to expand the markets for the
Company’s products.
The
investments needed to fund this growth are developed through continuous,
Company-wide initiatives to lower costs and increase effective asset utilization
through which the Company seeks to become even more effective and efficient
throughout its businesses. The Company also continues to prioritize its
investments toward its higher margin businesses, specifically Oral Care,
Personal Care and Pet Nutrition.
The
Company operates in a highly competitive global marketplace and looking forward,
expects global macroeconomic and market conditions to remain highly
challenging. As disclosed in “Item 1A. Risk Factors”, with
approximately 75% of its Net sales generated outside of the United States, the
Company is exposed to changes in economic conditions and foreign currency
exchange rates, as well as political uncertainty in some countries, all of which
could impact future operating results.
Venezuela
has been designated hyper-inflationary effective January 1,
2010. Consequently, the functional currency for the Company’s
Venezuelan subsidiary will be the U.S. dollar and the impact of all future
Venezuelan currency fluctuations will be recorded in income. See
“Managing Foreign Currency, Interest Rate and Commodity Price Exposure—Foreign
Exchange Risk” below and Note 18 to the Consolidated Financial
Statements.
Also, on
January 8, 2010, the Venezuelan government announced its decision to devalue its
currency and implement a two-tier exchange rate structure. As a
result, the official exchange rate changed from 2.15 to 2.60 for essential goods
and 4.30 for non-essential goods. While we currently believe that
many of our products may receive the 2.60 rate of exchange, we will remeasure
the financial statements of our Venezuelan subsidiary for 2010 and future
periods at the rate at which we expect to remit dividends, which currently is
4.30. While difficult to project, our preliminary estimate is that
the impact of the devaluation will be a net reduction in 2010 diluted earnings
per share of between $0.06 and $0.10 per share. This includes the
ongoing negative impact from foreign exchange translation, partially offset by
one-time benefits from lower taxes on accrued but unpaid remittances and the
remeasurement of the local balance sheet at the devaluation date. As
actual results may differ, please see “Cautionary Statement on Forward-Looking
Statements” below. The Venezuelan government continues to impose
currency exchange controls. We could be negatively affected if we are
unable to obtain U.S. dollars at either of the official rates, in which case we
may have to obtain dollars through transactions on the parallel market, where
the exchange rate is less favorable. In 2009, our Venezuelan
operations contributed 6% of consolidated net sales.
Lower
commodity and oil prices as compared with 2008 had a favorable impact on the
Company’s results for 2009. The Company believes that this effect should
continue in 2010 and, coupled with ongoing aggressive savings programs and
favorable currency trends, should offset the impact of any pressures on selling
prices or the costs of any consumption building programs that may be implemented
to drive volume given the uncertain economic environment. However,
continued difficult macroeconomic conditions and uncertainties in the global
credit markets could negatively impact the Company’s suppliers, customers and
consumers which could, in turn, have an adverse impact on the Company’s
business.
(Dollars in Millions Except Per Share
Amounts)
As a
result of the Company’s four-year restructuring and business-building program
(the 2004 Restructuring Program), which was finalized as of December 31, 2008,
the Company streamlined its global supply chain, reallocated resources to
enhance its sales, marketing and new product organizations in high-potential
developing countries and other key markets and consolidated these organizations
in certain mature markets. The savings and benefits from the 2004
Restructuring Program, along with the Company’s other ongoing cost-savings and
growth initiatives, are providing funds for investment in support of key
categories and markets and new product development, while also supporting an
increased level of profitability.
The
Company believes it is well prepared to meet the challenges ahead due to its
strong financial condition, experience operating in challenging environments and
continued focus on the Company’s strategic initiatives: getting closer to the
consumer, the profession and customers; effectiveness and efficiency in
everything; innovation everywhere; and leadership. This focus, together with the
strength of the Company’s global brand names and its broad international
presence in both mature and emerging markets, should position the Company well
to increase shareholder value over the long-term.
Results
of Operations
Net
Sales
Worldwide
Net sales were $15,327 in 2009, level with 2008 as volume growth of 0.5% and net
selling price increases of 6.0% were offset by a negative foreign exchange
impact of 6.5%. Worldwide organic sales (Net sales excluding the impact of
foreign exchange, acquisitions and divestments) grew 6.5% in 2009.
Net sales
in the Oral, Personal and Home Care segment were $13,195 in 2009, level with
2008, as volume growth of 2.0% and net selling price increases of 5.5% were
offset by a negative foreign exchange impact of 7.5%. The 2008 divestment of a
non-core brand in Germany impacted sales growth in 2009 by 0.5% versus 2008.
Excluding the impact of this divestment, Net sales increased 0.5% in 2009 on
volume growth of 2.5%. Organic sales in the Oral, Personal and Home Care segment
grew 8.0% in 2009.
Net sales
in Hill’s Pet Nutrition were $2,132 in 2009, down 0.5% from 2008 as net selling
price increases of 8.5% were more than offset by 7.5% volume declines and a 1.5%
negative impact of foreign exchange. Organic sales in Hill’s Pet Nutrition grew
1.0% in 2009.
Worldwide
Net sales were $15,330 in 2008, up 11.0% from 2007, driven by volume growth of
3.5%, net selling price increases of 5.5% and a positive foreign exchange impact
of 2.0%. The 2007 divestment of the Latin American household bleach business and
the 2008 divestment of the Senegal fabric care business reduced sales growth for
2008 by 0.5% versus 2007. Excluding the impact of these divestments, Net sales
increased 11.5% in 2008 on volume growth of 4.0%. Worldwide organic sales grew
9.5% in 2008.
(Dollars in Millions Except Per Share
Amounts)
Gross
Profit
Worldwide
gross profit margin was 58.8% in 2009, 56.3% in 2008 and 56.2% in
2007. Restructuring and implementation-related charges incurred under
the 2004 Restructuring Program included in Cost of sales for the years ended
December 31, 2008 and 2007 were $59 and $154, respectively. The 2004
Restructuring Program lowered the reported gross profit margin by 40 basis
points (bps) and 110 bps in 2008 and 2007, respectively. Excluding the impact of
the 2004 Restructuring Program, gross profit margin was 56.7% in 2008 and 57.3%
in 2007. The gross profit increase in 2009 was driven by higher pricing and a
continued focus on cost-savings programs, partially offset by a negative foreign
exchange impact and costs related to the remeasurement of liabilities related to
inventory purchases in Venezuela. Excluding the impact of the 2004 Restructuring
Program, the decrease in 2008 was due to increases in raw and packaging material
costs, partially offset by higher pricing and a continued focus on cost-savings
programs.
For
additional information regarding the Company’s 2004 Restructuring Program, refer
to “Restructuring and Related Implementation Charges” below and Note 4 to the
Consolidated Financial Statements.
During
2009, due to currency exchange control limitations in Venezuela, the Company’s
Venezuelan subsidiary (CP Venezuela) settled certain of its U.S.
dollar-denominated liabilities with dollars obtained through securities
transactions in the parallel market at an exchange rate less favorable than the
official rate. As a result, in the second half of 2009, CP Venezuela incurred
$92 of higher costs related to the remeasurement of U.S. dollar liabilities to
be settled with proceeds from these transactions, $65 of which is included in
Gross profit for liabilities related to the purchase of inventory and $27 of
which is included in Other (income) expense, net for all other liabilities.
Additionally, in order to manage its overall currency exposure, CP Venezuela has
purchased $210 of U.S. dollar-denominated bonds issued by a Venezuelan
state-owned corporation and $50 of U.S. dollar-linked, devaluation-protected
bonds issued by the Venezuelan government.
Selling, General and
Administrative Expenses
Selling,
general and administrative expenses as a percentage of Net sales were 34.5% in
2009, 35.4% in 2008 and 36.1% in 2007. Included in Selling, general and
administrative expenses are charges related to the 2004 Restructuring Program of
$81 (0.5% of Net sales) in 2008 and $49 (0.4% of Net sales) in
2007. The 90 bps decrease in 2009 was driven primarily by the absence
of charges related to the 2004 Restructuring Program in 2009, lower advertising
costs (80 bps) and a continued focus on cost-savings programs, partially offset
by higher pension and benefit costs. Selling, general and administrative
expenses as a percentage of Net sales in 2008 decreased by 70 bps due to
moderating levels of advertising investment (40 bps) and a continued focus on
cost savings programs.
(Dollars in Millions Except Per Share
Amounts)
Other (Income) Expense,
Net
Other
(income) expense, net was $111, $103 and $54 in 2009, 2008 and 2007,
respectively. The components of Other (income) expense, net are presented
below:
|
Other
(income) expense, net
|
2009
|
2008
|
2007
|
|||||||||
|
Amortization
of intangible assets
|
$ | 22 | $ | 19 | $ | 18 | ||||||
|
Legal
and environmental matters
|
27 | 23 | — | |||||||||
|
Remeasurement
of certain liabilities in Venezuela
|
27 | — | — | |||||||||
|
Asset
impairments
|
16 | — | — | |||||||||
|
Equity
(income)
|
(5 | ) | (4 | ) | (4 | ) | ||||||
|
2004
Restructuring Program
|
— | 24 | 56 | |||||||||
|
Investment
losses (income)
|
— | 25 | (2 | ) | ||||||||
|
Gain
on sales of non-core product lines, net
|
— | — | (49 | ) | ||||||||
|
Pension
settlement charges
|
— | — | 15 | |||||||||
|
Hill’s
limited voluntary recall
|
— | — | 13 | |||||||||
|
Other,
net
|
24 | 16 | 7 | |||||||||
|
Total
Other (income) expense, net
|
$ | 111 | $ | 103 | $ | 54 | ||||||
Operating
Profit
In 2009,
Operating profit increased 17% to $3,615 from $3,101 in 2008. In 2008, Operating
profit increased 14% from $2,720 in 2007. Excluding the impact of the
2004 Restructuring Program and other items set forth below, Operating profit
increased 11% in 2009 and 10% in 2008 as follows:
|
%
|
%
|
|||||||||||||||||||
|
2009
|
2008
|
Change
|
2007
|
Change
|
||||||||||||||||
|
Operating
profit, GAAP
|
$ | 3,615 | $ | 3,101 | 17 | % | $ | 2,720 | 14 | % | ||||||||||
|
2004
Restructuring Program
|
— | 164 | 259 | |||||||||||||||||
|
Gain
on sale of non-core product lines, net
|
— | — | (49 | ) | ||||||||||||||||
|
Pension
settlement charges
|
— | — | 15 | |||||||||||||||||
|
Hill’s
limited voluntary recall
|
— | — | 14 | |||||||||||||||||
|
Operating
profit, non-GAAP
|
$ | 3,615 | $ | 3,265 | 11 | % | $ | 2,959 | 10 | % | ||||||||||
Interest Expense,
Net
Interest
expense, net was $77 in 2009 compared with $96 in 2008 and $157 in 2007. The
decrease in Interest expense, net from 2008 to 2009 was due to lower average
interest rates and lower debt levels. The decrease in Interest
expense, net from 2007 to 2008 was due to lower average interest
rates.
(Dollars in Millions Except Per Share
Amounts)
Income
Taxes
The
effective income tax rate was 32.2% in both 2009 and 2008, and 29.6% in 2007.
The tax rate in all years benefited from global tax planning strategies. The
2007 effective tax rate reflects a 300 bps reduction from the recognition of $74
of tax benefits as a result of the reduction of a tax loss carryforward
valuation allowance in Brazil of $95 that was partially offset by tax provisions
for the recapitalization of certain overseas subsidiaries and increases of 40
bps from the impact of the Company’s 2004 Restructuring Program and 10 bps from
the sale of the household bleach business in Latin America.
The
impact of the 2004 Restructuring Program on the effective income tax rate for an
individual period depended on the projects and the related tax jurisdictions
involved. The tax benefit derived from the charges incurred in 2008 and 2007 for
the 2004 Restructuring Program was at a rate of 31.4% and 28.9%,
respectively.
For
additional information regarding the Company’s income taxes, refer to Note 11 to
the Consolidated Financial Statements.
Net
Income
Net
income was $2,291, or $4.37 per share on a diluted basis in 2009 compared with
$1,957, or $3.66 per share on a diluted basis in 2008 and $1,737 or $3.20 per
share in 2007. Net income in 2008 included $113 ($0.21 per share) of charges
related to the Company’s 2004 Restructuring Program. Net income in
2007 included a $30 ($0.05 per share) gain on the sale of the household bleach
business in Latin America and an income tax benefit of $74 ($0.14 per share)
related to the tax items noted above, which were more than offset by $184 ($0.34
per share) of charges related to the Company’s 2004 Restructuring Program, $10
($0.02 per share) of pension settlement charges and $8 ($0.01 per share) of
charges related to the limited voluntary recall of certain Hill’s Pet Nutrition
feline products.
Segment
Results
The
Company markets its products in over 200 countries and territories throughout
the world in two distinct business segments: Oral, Personal and Home Care; and
Pet Nutrition. The Company evaluates segment performance based on
several factors, including Operating profit. The Company uses Operating profit
as a measure of the operating segment performance because it excludes the impact
of corporate-driven decisions related to interest expense and income
taxes.
To
conform to the current year presentation required by the Consolidation Topic of
the Financial Accounting Standards Board (FASB) Codification, the amounts of Net
income attributable to noncontrolling interests in less-than-wholly owned
subsidiaries of $80 and $67 for years ended December 31, 2008 and December 31,
2007, respectively, which were previously deducted from Greater Asia/Africa
Operating profit, have been reclassified to a new line below Operating
profit.
(Dollars in Millions Except Per Share
Amounts)
Worldwide
Net Sales by Business Segment and Geographic Region
|
2009
|
2008
|
2007
|
||||||||||
|
Oral,
Personal and Home Care
|
||||||||||||
|
North
America
|
$ | 2,950 | $ | 2,852 | $ | 2,721 | ||||||
|
Latin
America
|
4,319 | 4,088 | 3,489 | |||||||||
|
Europe/South
Pacific
|
3,271 | 3,582 | 3,383 | |||||||||
|
Greater
Asia/Africa
|
2,655 | 2,660 | 2,338 | |||||||||
|
Total
Oral, Personal and Home Care
|
13,195 | 13,182 | 11,931 | |||||||||
|
Pet
Nutrition
|
2,132 | 2,148 | 1,859 | |||||||||
|
Total
Net sales
|
$ | 15,327 | $ | 15,330 | $ | 13,790 | ||||||
Worldwide
Operating Profit by Business Segment and Geographic Region
|
2009
|
2008
|
2007
|
||||||||||
|
Oral,
Personal and Home Care
|
||||||||||||
|
North
America
|
$ | 843 | $ | 689 | $ | 667 | ||||||
|
Latin
America
|
1,360 | 1,181 | 1,006 | |||||||||
|
Europe/South
Pacific
|
748 | 746 | 764 | |||||||||
|
Greater
Asia/Africa
|
631 | 527 | 430 | |||||||||
|
Total
Oral, Personal and Home Care
|
3,582 | 3,143 | 2,867 | |||||||||
|
Pet
Nutrition
|
555 | 542 | 487 | |||||||||
|
Corporate
|
(522 | ) | (584 | ) | (634 | ) | ||||||
|
Total
Operating profit
|
$ | 3,615 | $ | 3,101 | $ | 2,720 | ||||||
North
America
Net sales
in North America increased 3.5% in 2009 to $2,950 as a result of 4.0% volume
growth and level selling prices, partially offset by a 0.5% negative impact of
foreign exchange. Organic sales in North America grew 4.0% in 2009. Products
contributing to growth in oral care included Colgate Total Enamel Strength,
Colgate Sensitive Enamel Protect and Colgate Max White with Mini Bright Strips
toothpastes, Colgate 360° ActiFlex, Colgate Max Fresh and Colgate Max White
manual toothbrushes and the new Colgate Wisp mini-brush. Products contributing
to growth in other categories included Softsoap Nutri Serums, Softsoap Body
Butter Coconut Scrub, Irish Spring Hair and Body and Cool Relief body washes,
and Palmolive Pure + Caring and Ajax Lime with Bleach Alternative dish liquids.
Net sales in North America increased 5.0% in 2008 to $2,852 as a result of 1.5%
volume growth and net selling price increases of 3.5%.
Operating
profit in North America increased 22% in 2009 to $843 due to sales growth,
cost-saving initiatives and lower raw and packaging material
costs. In 2008, Operating profit in North America increased 3% to
$689 due to sales growth and the benefits from restructuring and other
cost-saving initiatives, partially offset by higher raw and packaging material
costs.
(Dollars in Millions Except Per Share
Amounts)
Latin
America
Net sales
in Latin America increased 5.5% in 2009 to $4,319 as a result of 3.0% volume
growth and net selling price increases of 13.5%, partially offset by an 11.0%
negative impact of foreign exchange. Organic sales in Latin America grew 16.5%
in 2009. Volume gains were led by Brazil, Venezuela, Colombia, and Mexico.
Products contributing to growth in oral care included Colgate Total Professional
Sensitive, Colgate Total Professional Whitening and Colgate Triple Action
toothpastes, Colgate 360° ActiFlex, Colgate 360° Deep Clean and Colgate Max
White manual toothbrushes and Colgate Plax Complete Care and Colgate Plax
Sensitive mouthwashes. Products contributing to growth in other categories
included Protex Aloe bar soap, Axion Professional dish liquid, Lady Speed Stick
Depil Control and Speed Stick Waterproof deodorants, and Suavitel GoodBye
Ironing and Suavitel Magic Moments fabric conditioners. In 2008, Net sales in
Latin America increased 17.0% to $4,088 as a result of 6.0% volume growth, net
selling price increases of 9.5% and 1.5% positive impact of foreign exchange.
The divestment of the Latin American household bleach business reduced 2008
sales growth by 0.5% versus the comparable period of 2007. Excluding the impact
of this divestment, Net sales increased 17.5% in 2008 on volume growth of 6.5%.
Organic sales grew in Latin America 16.0% in 2008.
Operating
profit in Latin America increased 15% in 2009 to $1,360 as a result of sales
growth and cost-saving initiatives. In 2008, Operating profit in
Latin America increased 17% to $1,181 as a result of sales growth and the
benefits from restructuring and other cost-saving initiatives, which more than
offset increased raw material costs and advertising spending.
Europe/South
Pacific
Net sales
in Europe/South Pacific decreased 8.5% in 2009 to $3,271 as net selling price
increases of 0.5% were more than offset by 0.5% in volume declines and an 8.5%
negative impact of foreign exchange. The 2008 divestment of a non-core brand in
Germany impacted sales growth for 2009 by 0.5% versus 2008. Excluding the impact
of this divestment, Net sales decreased 8.0% in 2009 and volume was level with
2008. Organic sales in Europe/South Pacific grew 0.5% in 2009. Volume gains in
the United Kingdom, Greece, Denmark and Australia were more than offset by
volume declines in Spain, Germany, Slovenia and Ireland. Products contributing
to growth in oral care included Colgate Sensitive Pro-Relief, Colgate Total
Advanced Clean and Colgate Max Fresh with Mouthwash Beads toothpastes, Colgate
360° ActiFlex and Colgate Max White manual toothbrushes and Colgate Plax Alcohol
Free and Colgate Plax Ice mouth rinses. Products contributing to growth in other
categories included Palmolive Aromatherapy Morning Tonic shower gel, Ajax
Professional bucket dilutable and Ajax Professional glass cleaners, Lady Speed
Stick Clinical Protection and Lady Speed Stick Depil Protect deodorants and
Soupline Magic Moments and Soupline Aroma Tranquility fabric conditioners. In
2008, Net sales in Europe/South Pacific increased 6.0% to $3,582 as a result of
0.5% volume growth and a 5.5% positive impact of foreign exchange. Organic sales
in Europe/South Pacific grew 0.5% in 2008.
Operating
profit in Europe/South Pacific was level at $748 in 2009, as a continued focus
on cost-savings programs, lower advertising costs and lower raw and packaging
material costs offset the negative impact of foreign exchange. In 2008,
Operating profit in Europe/South Pacific decreased 2% to $746, reflecting higher
raw and packaging material costs, as well as higher selling, general and
administrative costs, partially due to increased advertising
spending.
(Dollars in Millions Except Per Share
Amounts)
Greater
Asia/Africa
Net sales
in Greater Asia/Africa were level in 2009 at $2,655 as volume growth of 2.0% and
net selling prices of 6.0% were offset by a 8.0% negative impact of foreign
exchange. Organic sales in Greater Asia/Africa grew 8.0% in 2009. Volume gains
were led by India, the Greater China region, Turkey and Thailand. Products
driving oral care growth included Colgate Sensitive Pro-Relief, Colgate Total
Professional Clean and Colgate 360° Whole Mouth Clean toothpastes, Colgate 360°
ActiFlex and Colgate Max White manual toothbrushes and Colgate Plax Ice and
Colgate Plax Complete Care mouthwashes. Products contributing to growth in other
categories included Palmolive Spa Banya shower liquid and bar soap and Lady
Speed Stick Depil Control deodorant. In 2008, Net sales in Greater Asia/Africa
increased 14.0% to $2,660 as a result of 7.0% volume growth, an increase in net
selling prices of 5.5% and a 1.5% positive impact of foreign exchange. The
divestment of the Senegal fabric care business reduced 2008 sales growth by 0.5%
versus 2007. Excluding the impact of this divestment, sales increased 14.5% in
2008 on volume growth of 7.5%. Organic sales in Greater Asia/Africa grew 13.0%
in 2008.
Operating
profit in Greater Asia/Africa increased 20% in 2009 to $631, reflecting higher
pricing, lower raw and packaging material costs and cost-saving initiatives. In
2008, Operating profit in Greater Asia/Africa increased 23% to $527 as a result
of sales growth and cost-saving initiatives, which more than offset higher raw
material costs and advertising spending.
Hill’s
Pet Nutrition
Net sales
for Hill’s Pet Nutrition decreased 0.5% in 2009 to $2,132 as 8.5% net selling
price increases were more than offset by 7.5% volume declines and a 1.5%
negative impact of foreign exchange. Volume was negatively impacted in part due
to price increases taken in late 2008 and early 2009 in response to
significantly higher commodity costs. Organic sales in Hill’s Pet Nutrition grew
1.0% in 2009. New products contributing to sales in the U.S. specialty channel
include a significantly expanded line of Science Diet Simple Essentials Treats
Canine. New pet food products contributing to international sales include
Science Plan Snacks Canine and Science Plan Healthy Mobility Canine. In 2008,
Net sales for Hill’s Pet Nutrition increased 15.5% to $2,148 as a result of 2.5%
volume growth, an increase in net selling prices of 10.5% and a 2.5% positive
impact of foreign exchange. Organic sales in Hill’s Pet Nutrition
grew 13.0% in 2008.
Operating
profit for Hill’s Pet Nutrition increased 2% to $555 in 2009 due to higher
pricing, lower raw and packaging material costs and cost-saving initiatives. In
2008, the Operating profit increased 11% to $542 due to increased sales
partially offset by higher agricultural commodities costs and higher advertising
spending.
Like most
major North American pet food producers, Hill’s Pet Nutrition was affected by
the U.S. Food and Drug Administration’s pet food recall in March 2007. Hill’s
took the precaution of conducting a voluntary recall of a small number of its
products that may have been affected. These products accounted for less than
0.5% of Hill’s Pet Nutrition’s annual Net sales. The related sales loss did not
have a significant impact on the Company’s 2007 annual Net sales or Operating
profit. Hill’s Pet Nutrition’s Operating profit for 2007 does not reflect the
impact of the recall as these costs have been included in the Corporate
segment.
(Dollars in Millions Except Per Share
Amounts)
Corporate
Operating
profit (loss) for the Corporate segment was ($522), ($584) and ($634) in 2009,
2008 and 2007, respectively. Corporate operations include Corporate overhead
costs, research and development costs, stock-based compensation related to stock
options and restricted stock awards, restructuring and related implementation
costs, gains and losses on sales of non-core product lines and assets, and, in
2007, certain pension settlement charges as well as the impact on Operating
profit of the limited voluntary recall of certain Hill’s Pet Nutrition feline
products. The components of Operating profit (loss) for the Corporate segment
are presented below:
|
2009
|
2008
|
2007
|
||||||||||
|
Gain
on sales of non-core product lines, net
|
$ | — | $ | — | $ | 49 | ||||||
|
2004
Restructuring Program
|
— | (164 | ) | (259 | ) | |||||||
|
Pension
settlement charges
|
— | — | (15 | ) | ||||||||
|
Hill’s
limited voluntary recall
|
— | — | (14 | ) | ||||||||
|
Corporate
overhead costs and other, net
|
(522 | ) | (420 | ) | (395 | ) | ||||||
|
Total
Corporate Operating profit (loss)
|
$ | (522 | ) | $ | (584 | ) | $ | (634 | ) | |||
Corporate
Operating profit (loss) in 2009 decreased as compared to 2008, primarily due to
the absence of charges related to the 2004 Restructuring Program,
offset by higher Corporate overhead costs, primarily pension and benefit
costs.
Corporate
Operating profit (loss) in 2008 decreased as compared to 2007, primarily due to
lower charges related to the 2004 Restructuring Program, partially offset by
higher charges for legal and environmental costs and investment
losses. In addition, 2007 includes the negative impact of pension
settlement charges and the negative impact of the limited voluntary recall of
certain Hill’s Pet Nutrition feline products.
For
additional information regarding the Company’s 2004 Restructuring Program, refer
to “Restructuring and Related Implementation Charges” below and Note 4 to the
Consolidated Financial Statements.
Non-GAAP Financial
Measures
Net sales
and volume growth, both worldwide and in relevant geographic divisions, are
discussed in this Annual Report on Form 10-K both on a GAAP basis and excluding
divestments (non-GAAP). Management believes these non-GAAP financial measures
provide useful supplemental information to investors as they allow comparisons
of Net sales and volume growth from ongoing operations. This Annual
Report on Form 10-K also discusses organic sales growth (Net sales growth
excluding the impact of foreign exchange, acquisitions and divestments)
(non-GAAP). Management believes this measure provides investors with
useful supplemental information regarding the Company’s underlying sales trends
by presenting sales growth excluding the external factor of foreign exchange, as
well as the impact of acquisitions and divestments.
Worldwide
Gross profit margin and Operating profit are discussed in this Annual Report on
Form 10-K both on a GAAP basis and excluding the impact of the 2004
Restructuring Program and other items (non-GAAP). Management believes these
non-GAAP financial measures provide useful supplemental information to investors
regarding the underlying business trends and performance of the Company’s
ongoing operations and are useful for period-over-period comparisons of such
operations.
(Dollars in Millions Except Per Share
Amounts)
The
Company uses the above financial measures internally in its budgeting process
and as a factor in determining compensation. While the Company believes that
these non-GAAP financial measures are useful in evaluating the Company’s
business, this information should be considered as supplemental in nature and is
not meant to be considered in isolation or as a substitute for the related
financial information prepared in accordance with GAAP. In addition, these
non-GAAP financial measures may not be the same as similar measures presented by
other companies.
Restructuring
and Related Implementation Charges
2004
Restructuring Program
The
Company’s 2004 Restructuring Program to enhance the Company’s global leadership
position in its core businesses was finalized as of December 31, 2008 and there
were no charges incurred in the twelve months ended December 31, 2009. The
restructuring accrual decreased from $33 at December 31, 2008 to $15 at December
31, 2009, primarily due to cash payments for termination benefits, exit
activities and the implementation of strategies.
Charges
incurred in connection with the implementation of various projects since
inception were as follows:
|
Cumulative
Charges as of December 31,
2008
|
||||
|
Termination
Benefits
|
$ | 426 | ||
|
Incremental
Depreciation
|
222 | |||
|
Asset
Impairments
|
47 | |||
|
Other
|
374 | |||
|
Total
cumulative 2004 Restructuring Program charges, pretax
|
$ | 1,069 | ||
Other
charges primarily consisted of implementation-related charges resulting directly
from exit activities and the implementation of new strategies as a result of the
2004 Restructuring Program. These charges included ramp-down costs related to
the closure of existing facilities, start-up costs for new facilities and
third-party incremental costs related to the development and implementation of
new business and strategic initiatives. Since the inception of the 2004
Restructuring Program in December 2004, the Company has incurred $46 of charges
related to start-up costs for new manufacturing facilities and $137 of costs for
the development and implementation of new business and strategic
initiatives.
Total
charges related to the 2004 Restructuring Program were as follows: North America
(36%), Europe/South Pacific (28%), Latin America (4%), Greater Asia/Africa
(10%), Hill’s Pet Nutrition (1%) and Corporate (21%).
(Dollars in Millions Except Per Share
Amounts)
For the
years ended December 31, 2008 and 2007, restructuring and implementation-related
charges were reflected in the income statement as follows:
|
2008
|
2007
|
|||||||
|
Cost
of sales
|
$ | 59 | $ | 154 | ||||
|
Selling,
general and administrative expenses
|
81 | 49 | ||||||
|
Other
(income) expense, net
|
24 | 56 | ||||||
|
Total
2004 Restructuring Program charges, pretax
|
$ | 164 | $ | 259 | ||||
|
Total
2004 Restructuring Program charges, aftertax
|
$ | 113 | $ | 184 | ||||
Restructuring
and implementation-related charges in the preceding table were recorded in the
Corporate segment as these decisions were centrally directed and controlled and
were not included in internal measures of segment operating
performance.
The
following table summarizes the activity for the restructuring and
implementation-related charges discussed above and the related accrual
balances:
|
Termination Benefits
|
Incremental Depreciation
|
Asset Impairments
|
Other
|
Total
|
||||||||||||||||
|
Balance
at December 31, 2006
|
$ | 53 | $ | — | $ | — | $ | 12 | $ | 65 | ||||||||||
|
Charges
|
81 | 41 | — | 137 | 259 | |||||||||||||||
|
Cash
payments
|
(65 | ) | — | — | (138 | ) | (203 | ) | ||||||||||||
|
Charges
against assets
|
(14 | ) | (41 | ) | — | (5 | ) | (60 | ) | |||||||||||
|
Other
|
(2 | ) | — | — | 3 | 1 | ||||||||||||||
|
Foreign
exchange
|
2 | — | — | — | 2 | |||||||||||||||
|
Balance
at December 31, 2007
|
$ | 55 | $ | — | $ | — | $ | 9 | $ | 64 | ||||||||||
|
Charges
|
33 | 20 | (12 | ) | 123 | 164 | ||||||||||||||
|
Cash
payments
|
(74 | ) | — | — | (121 | ) | (195 | ) | ||||||||||||
|
Charges
against assets
|
(3 | ) | (20 | ) | 12 | 21 | 10 | |||||||||||||
|
Other
|
— | — | — | (7 | ) | (7 | ) | |||||||||||||
|
Foreign
exchange
|
1 | — | — | (4 | ) | (3 | ) | |||||||||||||
|
Balance
at December 31, 2008
|
$ | 12 | $ | — | $ | — | $ | 21 | $ | 33 | ||||||||||
|
Charges
|
— | — | — | — | — | |||||||||||||||
|
Cash
payments
|
(7 | ) | — | — | (11 | ) | (18 | ) | ||||||||||||
|
Charges
against assets
|
— | — | — | — | — | |||||||||||||||
|
Other
|
— | — | — | — | — | |||||||||||||||
|
Foreign
exchange
|
(1 | ) | — | — | 1 | — | ||||||||||||||
|
Balance
at December 31, 2009
|
$ | 4 | $ | — | $ | — | $ | 11 | $ | 15 | ||||||||||
Termination
benefits incurred pursuant to the 2004 Restructuring Program were calculated
based on long-standing benefit practices, local statutory requirements and, in
certain cases, voluntary termination arrangements. Termination benefits also
include pension enhancements amounting to $3 in 2008, which are reflected as
Charges against assets within Termination benefits in the preceding table, as
the corresponding balance sheet amounts are reflected as a reduction of pension
assets or an increase in pension liabilities.
(Dollars in Millions Except Per Share
Amounts)
Incremental
depreciation was recorded to reflect changes in useful lives and estimated
residual values for long-lived assets that are taken out of service prior to the
end of their normal service period. Asset impairments have been recorded to
write down assets held for sale or disposal to their fair value based on amounts
expected to be realized. Within Asset impairments, charges are net of gains
realized on the sale of assets.
During
2008, Other charges related to start-up costs for new manufacturing facilities
were $5 and costs incurred for the development and implementation of new
business and strategic initiatives were $66. Start-up costs for new
facilities and third-party incremental costs related to the development and
implementation of new business and strategic initiatives were expensed as
incurred.
Liquidity and Capital
Resources
The
Company expects cash flow from operations and debt issuances will be sufficient
to meet foreseeable business operating and recurring cash needs (including debt
service, dividends, capital expenditures and planned stock repurchases). The
Company believes its strong cash-generating capability and financial condition
should continue to allow it broad access to financial markets
worldwide.
Cash
Flow
Net cash
provided by operations in 2009 was $3,277 as compared with $2,302 in 2008 and
$2,252 in 2007. The increase in 2009 as compared to 2008 is primarily related to
improved profitability, decreased working capital and lower cash spending
related to the 2004 Restructuring Program, partially offset by higher tax
payments. The increase in 2008 as compared to 2007 reflects the
Company’s improved profitability, offset by increased working capital, higher
tax payments and higher voluntary cash contributions to the Company’s U.S.
postretirement benefit plans.
The
Company defines working capital as the difference between current assets
(excluding cash and cash equivalents and marketable securities, the latter of
which is reported in Other current assets) and current liabilities (excluding
short-term debt). Overall, the Company’s working capital decreased to (0.4%) of
Net sales in 2009 as compared with 2.5% in 2008. The decrease in working capital
in 2009 is primarily related to improved accounts receivable days’ sales
outstanding and decreased inventory days outstanding, while current liabilities
including income taxes increased with our profitability. In 2008,
higher balances in accounts receivable were due primarily to higher Net
sales. Additionally, inventory and accounts payable and other
accruals increased in 2008 as a result of raw material cost increases and
inventory build-up for new product launches and promotional
activities.
Investing
activities used $841 of cash during 2009 compared with uses of $613 and $528
during 2008 and 2007, respectively. Investing activities for 2009 included the
purchase of $210 of U.S. dollar-denominated bonds issued by a Venezuelan
state-owned corporation and $50 of U.S. dollar-linked, devaluation-protected
bonds issued by the Venezuelan government. The increase in use in 2008 as
compared to 2007 was primarily due to higher capital spending and lower proceeds
from the sale of property and non-core product lines, offset by lower payments
for acquisitions.
(Dollars in Millions Except Per Share
Amounts)
Capital
expenditures were $575, $684 and $583 for 2009, 2008 and 2007, respectively.
Lower capital expenditures in 2009 reflected the completion during the year of
certain capacity expansions, as well as the completion of the 2004 Restructuring
Program at the end of 2008. Capital spending continues to focus
primarily on projects that yield high aftertax returns. Overall capital
expenditures for 2010 are expected to represent approximately 3.5% of Net
sales.
Investing
activities in 2009 and 2008 included $17 and $58, respectively, of proceeds from
the sale of certain assets, including certain asset sales in 2008 related to the
2004 Restructuring Program. Investing activities in 2007 included $67
of net proceeds from the sale of the Company’s Latin American household bleach
business and $43 of proceeds from the sale of other property related to the 2004
Restructuring Program. In 2007, the Company increased its ownership
interest in one of its subsidiaries in China to 100% at a cost of
$27.
Financing
activities used $2,270 of cash during 2009 compared to $1,530 and $1,803 during
2008 and 2007, respectively. The increase in 2009 was primarily due
to higher net debt payments and an increase in dividends paid. The
decrease in 2008 was primarily due to fewer repurchases of common
stock.
Long-term
debt decreased to $3,147 as of December 31, 2009 as compared to $3,676 as of
December 31, 2008 and total debt decreased to $3,182 as of December 31, 2009 as
compared to $3,783 as of December 31, 2008. The Company’s long-term debt is
rated AA- by Standard & Poor’s and Aa3 by Moody’s Investors
Service.
At
December 31, 2009, the Company had access to unused domestic and foreign lines
of credit of $3,014 and could also issue medium-term notes pursuant to an
effective shelf registration statement. In August 2008, the Company increased
the borrowing capacity under its domestic revolving credit facility from $1,500
to $1,600 by adding two banks to the syndicate of banks participating in the
revolving credit facility. The facility has an expiration date of
November 2012. These domestic lines are available for general
corporate purposes and to support the issuance of commercial paper.
During
the third quarter of 2009, the Company issued $300 of U.S. dollar-denominated
six-year notes at a fixed rate of 3.15% under the Company’s shelf registration
statement. Proceeds from the debt issuance were primarily used to reduce
commercial paper borrowings. In addition, during the third quarter of 2009, to
effectively convert a portion of the Company’s fixed rate debt portfolio to a
variable rate, the Company also entered into interest rate swaps, with a total
notional value of $330.
During
2008, the Company issued $250 of five-year notes at a fixed rate of 4.2% under
the Company’s shelf registration statement. The Company
simultaneously entered into interest rate swaps to effectively convert the fixed
interest rate of the notes to a variable rate. During 2008, the
Company also issued approximately $75 of forty-year notes at a variable rate,
also under the shelf registration statement. Proceeds from the debt
issuances were used to repay $100 of medium-term notes with an original maturity
of May 2017 and to reduce commercial paper borrowings.
During
2007, the Company issued 250 million of Euro-denominated medium-term notes
maturing in June 2014 at a fixed interest rate of 4.75%, payable
annually. The net proceeds of approximately $332 (248 million Euros)
from the issuance were used to pay down U.S. dollar-denominated commercial
paper.
(Dollars in Millions Except Per Share
Amounts)
Domestic
and foreign commercial paper outstanding was $0 and $735 as of December 31, 2009
and 2008, respectively. The average daily balances outstanding for commercial
paper in 2009 and 2008 were $1,144 and $1,284, respectively. These
borrowings carry a Standard & Poor’s rating of A-1+ and a Moody’s Investors
Service rating of P-1. The Company regularly classifies commercial paper and
certain current maturities of notes payable as long-term debt as it has the
intent and ability to refinance such obligations on a long-term basis,
including, if necessary, by utilizing its line of credit that expires in
2012.
Certain
of the facilities with respect to the Company’s bank borrowings contain
cross-default provisions. Noncompliance with these requirements could ultimately
result in the acceleration of amounts owed. The Company is in full compliance
with all such requirements and believes the likelihood of noncompliance is
remote. See Note 6 to the Consolidated Financial Statements for further
information about the Company’s long-term debt and credit
facilities.
Dividend
payments in 2009 were $981, an increase from $889 in 2008 and $798 in 2007.
Common stock dividend payments increased to $1.72 per share in 2009 from $1.56
per share in 2008 and $1.40 per share in 2007. The Series B Preference stock
dividend payments increased to $13.76 per share in 2009 from $12.48 per share in
2008 and $11.20 per share in 2007. On February 4, 2010, the Company’s
Board of Directors increased the quarterly common stock cash dividend to $0.53
per share, effective as of the second quarter 2010.
The
Effect of exchange rate changes on Cash and cash equivalents in 2009 primarily
reflects the premium associated with acquiring U.S. dollar currency through
parallel market transactions in Venezuela.
The
Company repurchases its shares of common stock in the open market and in private
transactions to maintain its targeted capital structure and to fulfill certain
requirements of its compensation and benefit plans. The repurchases are made
pursuant to programs authorized by the Company’s Board of
Directors. Shares repurchased from January 30, 2008 through February
4, 2010 were repurchased pursuant to a program authorized by the Board on
January 30, 2008 (the 2008 Program) and shares repurchased from March 9, 2006 to
January 29, 2008 were repurchased pursuant to a program authorized by the Board
on March 9, 2006 (the 2006 Program). On February 4, 2010, the
Company’s Board of Directors authorized a new share repurchase program (the 2010
Program) which replaced the 2008 Program. The 2010 Program authorizes the
repurchase of up to 40 million shares of the Company’s common
stock.
Aggregate
repurchases in 2009 included 13.9 million common shares under the 2008 Program
and 1.0 million common shares to fulfill the requirements of compensation and
benefit plans, for a total purchase price of $1,063. Aggregate
repurchases in 2008 included 13.8 million common shares under both the 2008
Program and the 2006 Program, and 0.9 million common shares to fulfill the
requirements of compensation and benefit plans, for a total purchase price of
$1,073. Aggregate repurchases in 2007 included 20.8 million common
shares for a total purchase price of $1,269.
(Dollars in Millions Except Per Share
Amounts)
The
following represents the scheduled maturities of the Company’s contractual
obligations as of December 31, 2009:
|
Payments Due by Period
|
||||||||||||||||||||||||||||
|
Total
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
||||||||||||||||||||||
|
Long-term
debt including current portion
|
$ | 3,147 | $ | 326 | $ | 639 | $ | 341 | $ | 262 | $ | 358 | $ | 1,221 | ||||||||||||||
|
Net
cash interest payments on long-term debt(1)
|
686 | 110 | 98 | 87 | 68 | 58 | 265 | |||||||||||||||||||||
|
Leases
|
1,283 | 185 | 158 | 140 | 121 | 109 | 570 | |||||||||||||||||||||
|
Purchase
obligations(2)
|
551 | 287 | 140 | 77 | 25 | 11 | 11 | |||||||||||||||||||||
|
Total(3)
|
$ | 5,667 | $ | 908 | $ | 1,035 | $ | 645 | $ | 476 | $ | 536 | $ | 2,067 | ||||||||||||||
____________
|
(1)
|
Includes
the net interest payments on fixed and variable rate debt and associated
interest rate swaps. Interest payments associated with floating rate
instruments are based on management’s best estimate of projected interest
rates for the remaining term of variable rate
debt.
|
|
(2)
|
The
Company had outstanding contractual obligations with suppliers at the end
of 2009 for the purchase of raw, packaging and other materials and
services in the normal course of business. These purchase obligation
amounts represent only those items which are based on agreements that are
enforceable and legally binding and that specify minimum quantity, price
and term and do not represent total anticipated
purchases.
|
|
(3)
|
Long-term
liabilities associated with the Company’s postretirement plans are
excluded from the table above due to the uncertainty of the timing of
these cash disbursements. The amount and timing of cash funding related to
these benefit plans will generally depend on local regulatory
requirements, various economic assumptions (the most significant of which
are detailed in “Critical Accounting Policies and Use of Estimates,”
below) and voluntary Company contributions. Based on current
information, the Company does not anticipate having to make any mandatory
contributions to its qualified U.S. pension plan until
2012. Management’s best estimate of cash requirements to be
paid directly from the Company’s assets for its postretirement plans for
the year ending December 31, 2010, is approximately $120, including
approximately $35 for other retiree benefit plans. These estimated cash
requirements include approximately $55 of projected contributions to the
Company’s postretirement plans, comprised of $35 of voluntary
contributions to our U.S. pension plans and approximately $20 of projected
benefit payments made directly to participants of unfunded
plans.
|
Liabilities
for unrecognized income tax benefits are excluded from the table above as the
Company is unable to reasonably predict the ultimate amount or timing of a
settlement of such liabilities. See Note 11 to the Consolidated
Financial Statements for more information.
As more
fully described in Note 13 to the Consolidated Financial Statements, the Company
is contingently liable with respect to lawsuits, environmental matters, taxes
and other matters arising in the ordinary course of business.
(Dollars in Millions Except Per Share
Amounts)
Off-Balance
Sheet Arrangements
The
Company does not have off-balance sheet financing or unconsolidated special
purpose entities.
Managing
Foreign Currency, Interest Rate and Commodity Price Exposure
The
Company is exposed to market risk from foreign currency exchange rates, interest
rates and commodity price fluctuations. Volatility relating to these exposures
is managed on a global basis by utilizing a number of techniques, including
working capital management, selling price increases, selective borrowings in
local currencies and entering into selective derivative instrument transactions,
issued with standard features, in accordance with the Company’s treasury and
risk management policies. The Company’s treasury and risk management policies
prohibit the use of leveraged derivatives for any purpose as well as derivatives
for trading purposes.
The
sensitivity of our financial instruments to these market fluctuations is
discussed below. See Note 2 and Note 7 to the Consolidated Financial Statements
for further discussion of derivatives and hedging policies and fair value
measurements.
Foreign
Exchange Risk
As the
Company markets its products in over 200 countries and territories, it is
exposed to currency fluctuations related to manufacturing and selling its
products in currencies other than the U.S. dollar. Our foreign currency
exposures reflect the Company’s operations in the markets in Latin America (28%
of Net sales), Europe/South Pacific (21% of Net sales) and Asia/Africa (17% of
Net sales). The Company manages its foreign currency exposures in these markets
through a combination of cost-containment measures, selling price increases and
foreign currency hedging of certain costs in an effort to minimize the impact on
earnings of foreign currency rate movements. See the “Results of Operations”
section above for discussion of the foreign exchange impact on Net sales in each
segment.
The
assets and liabilities of foreign 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
translated into U.S. dollars at average rates of exchange prevailing during the
year.
For
subsidiaries operating in highly inflationary environments, inventories,
prepaids, goodwill and property, plant and equipment are remeasured at their
historical exchange rates, while other assets and liabilities are remeasured at
year-end exchange rates. Remeasurement adjustments for these operations are
included in Net income.
The
Company primarily utilizes foreign currency contracts, including forward and
swap contracts, local currency deposits and local currency borrowings to hedge
portions of its exposures relating to foreign currency purchases, assets and
liabilities created in the normal course of business and the net investment in
certain foreign subsidiaries. The duration of foreign currency
contracts generally does not exceed 12 months and the contracts are valued using
observable forward rates.
(Dollars in Millions Except Per Share
Amounts)
Our
foreign currency forward contracts that qualify for cash flow hedge accounting
resulted in net unrealized gains of $4 at December 31, 2009 and net unrealized
losses of $5 at December 31, 2008. Changes in the fair value of cash flow hedges
are recorded in Other comprehensive income (loss) and are reclassified into
earnings in the same period or periods during which the underlying hedged
transaction is recognized in earnings. At the end of 2009, an unfavorable 10%
change in exchange rates would have resulted in a net unrealized loss of
$17.
Interest
Rate Risk
The
Company manages its targeted mix of fixed and floating rate debt with debt
issuances and by entering into interest rate swaps in order to mitigate
fluctuations in earnings and cash flows that may result from interest rate
volatility. The notional amount, interest payment and maturity date
of the swaps match the principal, interest payment and maturity date of the
related debt in all cases, and the swaps are valued using observable benchmark
rates.
Based on
year-end 2009 variable rate debt levels, a 1-percentage-point increase in
interest rates would have increased Interest expense, net by $10 in
2009.
Commodity
Price Risk
The
Company is exposed to price volatility related to raw materials used in
production, such as resins, tallow, corn and soybeans. The Company manages its
raw material exposures through a combination of cost containment measures,
ongoing productivity initiatives and the limited use of commodity hedging
contracts. Futures contracts are used on a limited basis, primarily in the Pet
Nutrition segment, to manage volatility related to anticipated raw material
inventory purchases of certain traded commodities.
Our open
commodity derivative contracts, which qualify for cash flow hedge accounting,
resulted in net unrealized losses of $0 and $7 for the years ended December 31,
2009 and 2008, respectively. At the end of 2009, an unfavorable 10% change in
commodity futures prices would have resulted in an unrealized net loss of
$1.
Credit
Risk
The
Company is exposed to the risk of credit loss in the event of nonperformance by
counterparties to financial instrument contracts; however, nonperformance is
considered unlikely as it is the Company’s policy to contract with highly rated
diverse counterparties.
Recent
Accounting Pronouncements
No new
accounting pronouncement issued or which became effective during the fiscal year
has had or is expected to have a material impact on the Consolidated Financial
Statements.
(Dollars in Millions Except Per Share
Amounts)
Critical
Accounting Policies and Use of Estimates
The
preparation of financial statements requires management to use judgment and make
estimates. The level of uncertainty in estimates and assumptions increases with
the length of time until the underlying transactions are completed. Actual
results could ultimately differ from those estimates. The accounting policies
that are most critical in the preparation of the Company’s Consolidated
Financial Statements are those that are both important to the presentation of
the Company’s financial condition and results of operations and require
significant or complex judgments and estimates on the part of management. The
Company’s critical accounting policies are reviewed periodically with the Audit
Committee of the Board of Directors.
In
certain instances, accounting principles generally accepted in the United States
of America allow for the selection of alternative accounting methods. The
Company’s significant policies that involve the selection of alternative methods
are accounting for shipping and handling costs and inventories.
|
|
•
|
Shipping
and handling costs may be reported as either a component of cost of sales
or selling, general and administrative expenses. The Company reports such
costs, primarily related to warehousing and outbound freight, in the
Consolidated Statements of Income as a component of Selling, general and
administrative expenses. Accordingly, the Company’s gross profit margin is
not comparable with the gross profit margin of those companies that
include shipping and handling charges in cost of sales. If such costs had
been included in cost of sales, gross profit margin as a percent of sales
would have decreased by 730 bps, from 58.8% to 51.5%, in 2009 and
decreased by 780 and 790 bps in 2008 and 2007, respectively, with no
impact on reported earnings.
|
|
|
•
|
The
Company accounts for inventories using both the first-in, first-out (FIFO)
method (approximately 79% of inventories) and the last-in, first-out
(LIFO) method (approximately 21% of inventories). There would have been no
material impact on reported earnings for 2009, 2008 and 2007 had all
inventories been accounted for under the FIFO
method.
|
The areas
of accounting that involve significant or complex judgments and estimates are
pensions and other postretirement benefits, stock options, asset impairments,
uncertain tax positions, tax valuation allowances and legal and other
contingencies.
|
|
•
|
In
pension accounting, the most significant actuarial assumptions are the
discount rate and the long-term rate of return on plan assets. The
discount rate for U.S. defined benefit plans was 5.75%, 6.30% and 6.50% as
of December 31, 2009, 2008 and 2007, respectively. The discount rate for
other U.S. postretirement plans was 5.75%, 5.80% and 6.50% as of December
31, 2009, 2008 and 2007, respectively. Discount rates used for
the U.S. defined benefit and other postretirement plans are based on a
yield curve constructed from a portfolio of high-quality bonds for which
the timing and amount of cash outflows approximate the estimated payouts
of the U.S. plans. For the Company’s international plans, the discount
rates are set by benchmarking against investment-grade corporate bonds
rated AA. The assumed long-term rate of return on plan assets for U.S.
plans was 8.0% as of December 31, 2009, 2008 and 2007. In determining the
long-term rate of return, the Company considers the nature of the plans’
investments, an expectation for the plans’ investment strategies and the
historical rate of return.
|
(Dollars in Millions Except Per Share
Amounts)
Average
annual rates of return for the U.S. plans for the most recent 1-year, 5-year,
10-year, 15-year and 25-year periods were 17%, 5%, 4%, 6%, and 9%, respectively.
In addition, the current rate of return assumption for the U.S. plans is based
upon a targeted asset allocation of approximately 33% in fixed income securities
(which are expected to earn approximately 6% in the long-term), 63% in equity
securities (which are expected to earn approximately 9.25% in the long-term) and
4% in real estate and other (which are expected to earn approximately 6% in the
long-term). A 1% change in either the discount rate or the assumed rate of
return on plan assets of the U.S. pension plans would impact future Net income
by approximately $10. A third assumption is the long-term rate of compensation
increase, a change in which would partially offset the impact of a change in
either the discount rate or the long-term rate of return. This rate
was 4.0% as of December 31, 2009, 2008 and 2007. Refer to Note 10 to the
Consolidated Financial Statements for further discussion of the Company’s
pension and other postretirement plans.
|
|
•
|
The
assumption requiring the most judgment in accounting for other
postretirement benefits is the medical cost trend rate. The Company
reviews external data and its own historical trends for health care costs
to determine the medical cost trend rate. The assumed rate of increase is
9.00% for 2010, declining to 5.00% by 2016 and remaining at 5.00% for the
years thereafter. The effect of a 1% increase in the assumed long-term
medical cost trend rate would reduce Net income by
$5.
|
|
|
•
|
The
Company recognizes the cost of employee services received in exchange for
awards of equity instruments, such as stock options and restricted stock,
based on the fair value of those awards at the date of
grant. The Company uses the Black-Scholes-Merton
(Black-Scholes) option pricing model to determine the fair value of
stock-option awards. The weighted-average estimated fair value
of each stock option granted for the year ended December 31, 2009 was
$12.06. The Black-Scholes model uses various assumptions to determine the
fair value of options. These assumptions include expected term of options,
expected volatility, risk-free interest rate and expected dividend yield.
While these assumptions do not require significant judgment, as the
significant inputs are determined from historical experience or
independent third-party sources, changes in these inputs could result in
significant changes in fair value. A one-year change in term
would result in a change in fair value of approximately 9%. A one percent
change in volatility would change fair value by approximately
5%.
|
|
|
•
|
The
asset impairment analysis performed for goodwill and intangible assets
requires several estimates including future cash flows, growth rates and
the selection of a discount rate. Since the estimated fair value of the
Company’s intangible assets substantially exceeds the recorded book value,
significant changes in these estimates would have to occur to result in an
impairment charge related to these
assets.
|
|
|
•
|
The
recognition and measurement of uncertain tax positions involves
consideration of the amounts and probabilities of various outcomes that
could be realized upon ultimate
settlement.
|
|
|
•
|
Tax
valuation allowances are established to reduce tax assets such as tax loss
carryforwards, to net realizable value. Factors considered in estimating
net realizable value include historical results by tax jurisdiction,
carryforward periods, income tax strategies and forecasted taxable
income.
|
(Dollars in Millions Except Per Share
Amounts)
|
|
•
|
Legal
and other contingency reserves are based on management’s assessment of the
risk of potential loss, which includes consultation with outside legal
counsel and advisors. Such assessments are reviewed each period and
revised, based on current facts and circumstances, if necessary. While it
is possible that the Company’s cash flows and results of operations in a
particular quarter or year could be materially affected by the impact of
such contingencies, it is the opinion of management that these matters
will not have a material impact on the Company’s financial position,
on-going results of operations or cash flows. Refer to Note 13 to the
Consolidated Financial Statements for further discussion of the Company’s
contingencies.
|
The
Company generates revenue through the sale of well-known consumer products to
trade customers under established trading terms. While the recognition of
revenue and receivables requires the use of estimates, there is a short time
frame (typically less than 60 days) between the shipment of product and cash
receipt, thereby reducing the level of uncertainty in these estimates. Refer to
Note 2 to the Consolidated Financial Statements for further description of the
Company’s significant accounting policies.
Cautionary
Statement on Forward-Looking Statements
This
Annual Report on Form 10-K may contain “forward-looking statements” as that term
is defined in the Private Securities Litigation Reform Act of 1995 or by the SEC
in its rules, regulations and releases. Such statements may relate, for example,
to sales or volume growth, profit and profit margin growth, earnings growth,
financial goals, the impact of the recent currency devaluation in Venezuela,
cost-reduction plans, tax rates and new product introductions, among other
matters. These statements are made on the basis of the Company’s views and
assumptions as of this time and the Company undertakes no obligation to update
these statements. Moreover, the Company does not, nor does any other person,
assume responsibility for the accuracy and completeness of those
statements. The Company cautions investors that any such
forward-looking statements are not guarantees of future performance and that
actual events or results may differ materially from those statements. Actual
events or results may differ materially because of factors that affect
international businesses and global economic conditions, as well as matters
specific to us and the markets we serve, including currency rate
fluctuations, changes in foreign or domestic laws or regulations or their
interpretation, political and fiscal developments, the availability and cost of
raw and packaging materials, our ability to maintain or increase selling prices
as required, changes in the policies of retail trade customers and our ability
to continue lowering costs and to mitigate the impact of the recent currency
devaluation in Venezuela. For information about these and other
factors that could impact our business and cause actual results to differ
materially from forward-looking statements, refer to “Risk Factors” in Item
1A.
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
See
“Managing Foreign Currency, Interest Rate and Commodity Price Exposure” in Item
7.
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
See “Index to Financial
Statements.”
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
The
Company’s management, under the supervision and with the participation of the
Company’s Chairman of the Board, President and Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of the design
and operation of the Company’s disclosure controls and procedures as of December
31, 2009 (the Evaluation). Based upon the Evaluation, the Company’s Chairman of
the Board, President and Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Exchange Act) are effective.
Management’s
Annual Report on Internal Control over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting. The Company’s internal control over
financial reporting is a process designed under the supervision of its Chairman
of the Board, President and Chief Executive Officer and Chief Financial Officer
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the Company’s financial statements for external reporting
in accordance with accounting principles generally accepted in the United States
of America. Management evaluates the effectiveness of the Company’s internal
control over financial reporting using the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal
Control—Integrated Framework.” Management, under the supervision and with the
participation of the Company’s Chairman of the Board, President and Chief
Executive Officer and Chief Financial Officer, assessed the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2009 and
concluded that it is effective.
The
Company’s independent registered public accounting firm, PricewaterhouseCoopers
LLP, has audited the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2009, and has expressed an unqualified
opinion in their report, which appears in this report.
Changes
in Internal Control over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting that
occurred during the Company’s most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
|
ITEM
9B.
|
OTHER
INFORMATION
|
On
February 25, 2010, the Company amended the Colgate-Palmolive Company
Supplemental Salaried Employees’ Retirement Plan to limit the benefit payable
thereunder so that such benefit, when expressed as a lump sum value, together
with the benefit payable under the Colgate-Palmolive Company Employees’
Retirement Income Plan, also expressed as a lump sum, will not exceed a cap of
$20 million, with such cap to be adjusted at an annual rate of
6%. The plan amendment is filed as Exhibit 10-B(d) to this
report. For additional information regarding the Company’s retirement
plans, see the Company’s Proxy Statement for its 2010 Annual Meeting of
Stockholders.
PART
III
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
See
“Executive Officers of the Registrant” in Part I of this report.
Additional
information required by this Item relating to directors, executive officers and
corporate governance of the registrant and information regarding compliance with
Section 16(a) of the Exchange Act is incorporated herein by reference to the
Company’s Proxy Statement for its 2010 Annual Meeting of Stockholders (the 2010
Proxy Statement).
Code
of Ethics
The
Company’s Code of Conduct promotes the highest ethical standards in all of the
Company’s business dealings. The Code of Conduct satisfies the SEC’s
requirements for a Code of Ethics for senior financial officers and applies to
all Company employees, including the Chairman, President and Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer, and the Company’s
directors. The Code of Conduct is available on the Company’s website at www.colgate.com. Any
amendment to the Code of Conduct will promptly be posted on the Company’s
website. It is the Company’s policy not to grant waivers of the Code of Conduct.
In the extremely unlikely event that the Company grants an executive officer a
waiver from a provision of the Code of Conduct, the Company will promptly
disclose such information by posting it on its website or by using other
appropriate means in accordance with SEC rules.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
information regarding executive compensation set forth in the 2010 Proxy
Statement is incorporated herein by reference.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
|
|
(a)
|
The
information regarding security ownership of certain beneficial owners and
management set forth in the 2010 Proxy Statement is incorporated herein by
reference.
|
|
|
(b)
|
The
registrant does not know of any arrangements that may at a subsequent date
result in a change in control of the
registrant.
|
|
|
(c)
|
Equity
compensation plan information as of December 31,
2009:
|
|
|
(a)
|
(b)
|
(c)
|
|||||||||
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(in
thousands)
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(in
thousands)
|
|||||||||
|
Equity
compensation plans approved by security holders
|
27,892 | (1) | $ | 58 | (2) | 29,579 | (3) | |||||
|
Equity
compensation plans not approved by security holders
|
Not
applicable
|
Not
applicable
|
Not
applicable
|
|||||||||
|
Total
|
27,892 | $ | 58 | 29,579 | ||||||||
____________
|
(1)
|
Consists
of 25,091 options outstanding and 2,801 restricted shares awarded but not
yet vested under the Company’s Stock Option and Incentive Stock Plans,
respectively, which are more fully described in Note 8 to the Consolidated
Financial Statements.
|
|
(2)
|
Includes
the weighted-average exercise price of stock options outstanding of $65
and restricted shares of $0.
|
|
(3)
|
Amount
includes 18,426 options available for issuance under the Company’s Stock
Option Plans and 11,153 of restricted shares available for issuance under
the Company’s Incentive Stock Plan.
|
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The
information regarding certain relationships and related transactions and
director independence set forth in the 2010 Proxy Statement is incorporated
herein by reference.
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The
information regarding auditor fees and services set forth in the 2010 Proxy
Statement is incorporated herein by reference.
PART
IV
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
(a) Financial
Statements and Financial Statement Schedules
See “Index to Financial
Statements.”
(b) Exhibits.
See “Exhibits to Form
10-K.”
COLGATE-PALMOLIVE COMPANY
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:
February 25, 2010
|
By
|
/s/ Ian Cook
|
|
|
Ian
Cook
Chairman
of the Board, President and
Chief
Executive Officer
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on February 25, 2010, by the following persons on behalf of the
registrant and in the capacities indicated.
|
(a) Principal
Executive Officer
|
(d) Directors
|
|
|
/s/ Ian Cook
|
/s/ John
T. Cahill
|
|
|
Ian
Cook
Chairman
of the Board, President and
Chief
Executive Officer
|
John
T. Cahill
|
|
|
/s/ Jill
K. Conway
|
||
|
Jill
K. Conway
|
||
|
(b) Principal
Financial Officer
|
||
|
/s/ Stephen
C. Patrick
|
/s/ Ian
Cook
|
|
|
Stephen
C. Patrick
Chief
Financial Officer
|
Ian
Cook
|
|
|
(c) Principal
Accounting Officer
|
/s/ Ellen
M. Hancock
|
|
|
Ellen
M. Hancock
|
||
|
/s/Dennis
J. Hickey
|
/s/ David
W. Johnson
|
|
|
Dennis
J. Hickey
Vice
President and
Corporate
Controller
|
David
W. Johnson
|
|
|
/s/ Richard
J. Kogan
|
||
|
Richard
J. Kogan
|
||
|
/s/ Delano
E. Lewis
|
||
|
Delano
E. Lewis
|
||
|
/s/ J.
Pedro Reinhard
|
||
|
J.
Pedro Reinhard
|
||
|
/s/ Stephen
I. Sadove
|
||
|
Stephen
I. Sadove
|
Index
to Financial Statements
|
Page
|
||
|
Consolidated
Financial Statements
|
||
|
Report
of Independent Registered Public Accounting Firm
|
43
|
|
|
Consolidated
Statements of Income for the years ended December 31, 2009, 2008 and
2007
|
44
|
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
45
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity for the years ended December
31, 2009, 2008 and 2007
|
46
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007
|
48
|
|
|
Notes
to Consolidated Financial Statements
|
49
|
|
|
Schedule
II - Valuation and Qualifying Accounts for the years ended December 31,
2009, 2008 and 2007
|
92
|
|
|
Selected
Financial Data
|
||
|
Market
and Dividend Information
|
93
|
|
|
Historical
Financial Summary
|
95
|
|
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.
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of
Colgate-Palmolive
Company
In our
opinion, the consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of
Colgate-Palmolive Company and its subsidiaries (the Company) at December 31,
2009 and 2008, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's
management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in Management's Annual Report on Internal Control over
Financial Reporting, appearing under Item 9A. Our responsibility is
to express opinions on these financial statements, on the financial statement
schedule, and on the Company's internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis for
our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
New York,
New York
February
25, 2010
COLGATE-PALMOLIVE
COMPANY
Consolidated
Statements of Income
For
the years ended December 31,
(Dollars
in Millions Except Per Share Amounts)
|
2009
|
2008(A)
|
2007(A)
|
||||||||||
|
Net
sales
|
$ | 15,327 | $ | 15,330 | $ | 13,790 | ||||||
|
Cost
of sales
|
6,319 | 6,704 | 6,043 | |||||||||
|
Gross
profit
|
9,008 | 8,626 | 7,747 | |||||||||
|
Selling,
general and administrative expenses
|
5,282 | 5,422 | 4,973 | |||||||||
|
Other
(income) expense, net
|
111 | 103 | 54 | |||||||||
|
Operating
profit
|
3,615 | 3,101 | 2,720 | |||||||||
|
Interest
expense, net
|
77 | 96 | 157 | |||||||||
|
Income
before income taxes
|
3,538 | 3,005 | 2,563 | |||||||||
|
Provision
for income taxes
|
1,141 | 968 | 759 | |||||||||
|
Net
income including noncontrolling interests
|
2,397 | 2,037 | 1,804 | |||||||||
|
Less:
Net income attributable to noncontrolling interests
|
106 | 80 | 67 | |||||||||
|
Net
income
|
$ | 2,291 | $ | 1,957 | $ | 1,737 | ||||||
|
Earnings
per common share, basic
|
$ | 4.53 | $ | 3.81 | $ | 3.35 | ||||||
|
Earnings
per common share, diluted
|
$ | 4.37 | $ | 3.66 | $ | 3.20 | ||||||
|
(A)
|
Prior
year amounts have been reclassified to conform to the current year
presentation required by the Consolidation Topic of the FASB Codification.
See Note 2 to Consolidated Financial Statements for additional
information.
|
See Notes
to Consolidated Financial Statements.
COLGATE-PALMOLIVE
COMPANY
Consolidated
Balance Sheets
As
of December 31,
(Dollars
in Millions Except Share Amounts)
|
2009
|
2008(A)
|
|||||||
|
Assets
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 600 | $ | 555 | ||||
|
Receivables
(net of allowances of $52 and $47, respectively)
|
1,626 | 1,592 | ||||||
|
Inventories
|
1,209 | 1,197 | ||||||
|
Other
current assets
|
375 | 366 | ||||||
|
Total
current assets
|
3,810 | 3,710 | ||||||
|
Property,
plant and equipment, net
|
3,516 | 3,119 | ||||||
|
Goodwill,
net
|
2,302 | 2,152 | ||||||
|
Other
intangible assets, net
|
821 | 834 | ||||||
|
Other
assets
|
685 | 164 | ||||||
|
Total
assets
|
$ | 11,134 | $ | 9,979 | ||||
|
Liabilities
and Shareholders’ Equity
|
||||||||
|
Current
Liabilities
|
||||||||
|
Notes
and loans payable
|
$ | 35 | $ | 107 | ||||
|
Current
portion of long-term debt
|
326 | 91 | ||||||
|
Accounts
payable
|
1,172 | 1,061 | ||||||
|
Accrued
income taxes
|
387 | 272 | ||||||
|
Other
accruals
|
1,679 | 1,421 | ||||||
|
Total
current liabilities
|
3,599 | 2,952 | ||||||
|
Long-term
debt
|
2,821 | 3,585 | ||||||
|
Deferred
income taxes
|
82 | 82 | ||||||
|
Other
liabilities
|
1,375 | 1,316 | ||||||
|
Total
liabilities
|
7,877 | 7,935 | ||||||
|
Commitments
and contingent liabilities
|
— | — | ||||||
|
Shareholders’
Equity
|
||||||||
|
Preference
stock
|
169 | 181 | ||||||
|
Common
stock, $1 par value (2,000,000,000 shares authorized, 732,853,180 shares
issued)
|
733 | 733 | ||||||
|
Additional
paid-in capital
|
1,764 | 1,610 | ||||||
|
Retained
earnings
|
13,157 | 11,760 | ||||||
|
Accumulated
other comprehensive income (loss)
|
(2,096 | ) | (2,477 | ) | ||||
| 13,727 | 11,807 | |||||||
|
Unearned
compensation
|
(133 | ) | (187 | ) | ||||
|
Treasury
stock, at cost
|
(10,478 | ) | (9,697 | ) | ||||
|
Total
Colgate-Palmolive Company shareholders’ equity
|
3,116 | 1,923 | ||||||
|
Noncontrolling
interests
|
141 | 121 | ||||||
|
Total
shareholders’ equity
|
3,257 | 2,044 | ||||||
|
Total
liabilities and shareholders’ equity
|
$ | 11,134 | $ | 9,979 | ||||
|
(A)
|
Prior
year amounts have been reclassified to conform to the current year
presentation required by the Consolidation Topic of the FASB
Codification. See Note 2 to Consolidated Financial Statements
for additional information.
|
See Notes
to Consolidated Financial Statements.
COLGATE-PALMOLIVE
COMPANY
Consolidated
Statements of Changes in Shareholders’ Equity
(Dollars
in Millions)
|
Colgate-Palmolive Company Shareholder’s
Equity
|
Noncontrolling
Interests(A)
|
|||||||||||||||||||||||||||||||||||
|
Preference
Stock
|
Common
Stock
|
Additional
Paid-In Capital
|
Unearned
Compensation
|
Treasury
Stock
|
Retained Earnings
|
Accumulated
Other Comprehensive Income
(Loss)
|
Comprehensive Income (Loss)
|
|||||||||||||||||||||||||||||
|
Balance,
January 1, 2007
|
$ | 223 | $ | 733 | $ | 1,218 | $ | (251 | ) | $ | (8,074 | ) | $ | 9,644 | $ | (2,081 | ) | $ | 112 | |||||||||||||||||
|
Net
income
|
1,737 | $ | 1,737 | 67 | ||||||||||||||||||||||||||||||||
|
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||||
|
Cumulative
translation adjustment
|
250 | 250 | 7 | |||||||||||||||||||||||||||||||||
|
Retirement
Plan and other retiree benefit adjustments, net of taxes
|
164 | 164 | ||||||||||||||||||||||||||||||||||
|
Other
|
— | — | ||||||||||||||||||||||||||||||||||
|
Total
comprehensive income
|
$ | 2,151 | ||||||||||||||||||||||||||||||||||
|
Adjustment
to initially apply FIN 48
|
(4 | ) | ||||||||||||||||||||||||||||||||||
|
Purchase
of Noncontrolling interests
|
(27 | ) | ||||||||||||||||||||||||||||||||||
|
Dividends
declared:
|
||||||||||||||||||||||||||||||||||||
|
Series
B Convertible Preference stock, net of taxes
|
(28 | ) | ||||||||||||||||||||||||||||||||||
|
Common
stock
|
(721 | ) | ||||||||||||||||||||||||||||||||||
|
Noncontrolling
interests in Company’s subsidiaries
|
(49 | ) | ||||||||||||||||||||||||||||||||||
|
Stock-based
compensation expense
|
110 | |||||||||||||||||||||||||||||||||||
|
Stock
options exercised
|
175 | 255 | ||||||||||||||||||||||||||||||||||
|
Treasury
stock acquired
|
(1,269 | ) | ||||||||||||||||||||||||||||||||||
|
Preference
stock conversion
|
(25 | ) | (92 | ) | 117 | |||||||||||||||||||||||||||||||
|
Other
|
107 | 32 | 67 | |||||||||||||||||||||||||||||||||
|
Balance,
December 31, 2007
|
$ | 198 | $ | 733 | $ | 1,518 | $ | (219 | ) | $ | (8,904 | ) | $ | 10,628 | $ | (1,667 | ) | $ | 110 | |||||||||||||||||
|
Net
income
|
1,957 | $ | 1,957 | 80 | ||||||||||||||||||||||||||||||||
|
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||||
|
Cumulative
translation adjustment
|
(450 | ) | (450 | ) | (5 | ) | ||||||||||||||||||||||||||||||
|
Retirement
Plan and other retiree benefit adjustments, net of taxes
|
(352 | ) | (352 | ) | ||||||||||||||||||||||||||||||||
|
Other
|
(8 | ) | (8 | ) | ||||||||||||||||||||||||||||||||
|
Total
comprehensive income
|
$ | 1,147 | ||||||||||||||||||||||||||||||||||
See Notes
to Consolidated Financial Statements.
COLGATE-PALMOLIVE
COMPANY
Consolidated
Statements of Changes in Shareholders’ Equity
(Dollars
in Millions)
|
Colgate-Palmolive Company Shareholder’s
Equity
|
Noncontrolling Interests(A) | |||||||||||||||||||||||||||||||||||
| Preference Stock | Common Stock | Additional Paid-In Capital | Unearned Compensation | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Comprehensive Income (Loss) | |||||||||||||||||||||||||||||
|
Dividends
declared:
|
||||||||||||||||||||||||||||||||||||
|
Series
B Convertible Preference stock, net of taxes
|
(28 | ) | ||||||||||||||||||||||||||||||||||
|
Common
stock
|
(797 | ) | ||||||||||||||||||||||||||||||||||
|
Noncontrolling
interests in Company’s subsidiaries
|
(64 | ) | ||||||||||||||||||||||||||||||||||
|
Stock-based
compensation expense
|
100 | |||||||||||||||||||||||||||||||||||
|
Stock
options exercised
|
61 | 157 | ||||||||||||||||||||||||||||||||||