ITEM 1. BUSINESS
(a) General Development of the Business
Colgate-Palmolive Company (the "Company") is a corporation which was organized under the laws of the State of Delaware in 1923. The Company manufactures and markets a wide variety of products throughout the world for use by consumers. For recent business developments, refer to the information set forth in Part II, Item 7 of this report.
(b) Financial Information About Industry Segments
For information about industry segments refer to the information set forth in Part II, Item 7 of this report.
(c) Narrative Description of the Business
For information regarding description of the business refer to Note 1 to the Consolidated Financial Statements included herein; "Average number of employees" appearing under "Historical Financial Summary" included herein; and "Research and development" expenses appearing in Note 12 to the Consolidated Financial Statements included herein.
Compliance with environmental rules and regulations has not significantly affected the Company's capital expenditures, earnings or competitive position. Capital expenditures for environmental control facilities totaled $12.7 million in 1995 and are budgeted at $18.3 million for 1996. For future years, expenditures are expected to be in the same range. The Company has programs that are designed to ensure that its operations and facilities meet or exceed all applicable environmental rules and regulations.
(d) Financial Information About Foreign and Domestic Operations and Export Sales
For information concerning geographic area financial data refer to the information set forth in Part II, Item 7 of this report.
ITEM 2.

ITEM 2. PROPERTIES
The Company owns and leases a total of 338 manufacturing, distribution, research and office facilities worldwide. Corporate headquarters is housed in leased facilities at 300 Park Avenue, New York, New York.
In the United States, the Company operates 57 facilities, of which 26 are owned. Major U.S. manufacturing and warehousing facilities used by the Oral, Personal and Household Care segment are located in Kansas City, Kansas; Morristown, New Jersey; Jeffersonville, Indiana; and Cambridge, Ohio. The Company is transforming its former facilities in Jersey City, New Jersey into a mixed-use complex with the assistance of developers and other investors. Hill's Pet Nutrition has major facilities in Bowling Green, Kentucky; Topeka, Kansas; and Richmond, Indiana. Research facilities are located throughout the world with the primary research center for Oral, Personal and Household Care products located in Piscataway, New Jersey.
Overseas, the Company operates 281 facilities, of which 113 are owned, in over 70 countries. Major overseas facilities used by the Oral, Personal and Household Care segment are located in Australia, Brazil, Canada, China, Colombia, France, Italy, Mexico, Thailand, the United Kingdom and elsewhere throughout the world. In some areas outside the United States, products are either manufactured by independent contractors under Company specifications or are imported from the United States or elsewhere.
All facilities operated by the Company are, in general, well maintained and adequate for the purpose for which they are intended. The Company conducts continuing reviews of its facilities with the view to modernization and cost reduction.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
For information regarding legal matters see Note 14 to the Consolidated Financial Statements included herein.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of executive officers as of March 25, 1996:
Each of the executive officers listed above has served the registrant or its subsidiaries in various executive capacities for the past five years.
The Company By-Laws, paragraph 38, states: The officers of the corporation shall hold office until their respective successors are chosen and qualified in their stead, or until they have resigned, retired or been removed in the manner hereinafter provided. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the whole Board of Directors.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Refer to the information regarding the market for the Company's Common Stock and the quarterly market price information appearing under "Market and Dividend Information" in Note 15 to the Consolidated Financial Statements included herein; the information under "Capital Stock and Stock Compensation Plans" in Note 6 to the Consolidated Financial Statements included herein; and the "Number of shareholders of record" and "Cash dividends declared per common share" under the caption "Historical Financial Summary" included herein.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Refer to the information set forth under the caption "Historical Financial Summary" included herein.
ITEM 7.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the "Index to Financial Statements" which is located on page 14 of this report.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of the registrant set forth in the Proxy Statement for the 1996 Annual Meeting is incorporated herein by reference, as is the text in Part I of this report under the caption "Executive Officers of the Registrant".
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the Proxy Statement for the 1996 Annual Meeting is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of management set forth in the Proxy Statement for the 1996 Annual Meeting is incorporated herein by reference.
(b) There are no arrangements known to the registrant that may at a subsequent date result in a change in control of the registrant.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the Proxy Statement for the 1996 Annual Meeting is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
See the "Index to Financial Statements" which is located on page 14 of this report.
(b) Exhibits. See the exhibit index begins on page 42.
(c) Reports on Form 8-K . None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COLGATE-PALMOLIVE COMPANY (Registrant)
Date March 25, 1996 By /s/ REUBEN MARK ................................. Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
(a) Principal Executive Officer (c) Principal Accounting Officer
/s/ REUBEN MARK /s/ STEPHEN C. PATRICK ................................... ................................. Reuben Mark Stephen C. Patrick Chairman of the Board Vice President and Chief Executive Officer Corporate Controller
Date March 25, 1996 Date March 25, 1996
(b) Principal Financial Officer (d) Directors:
/s/ ROBERT M. AGATE Vernon R. Alden, Jill K. Conway, .................................. Ronald E. Ferguson, Ellen M. Hancock, Robert M. Agate David W. Johnson, John P. Kendall, Senior Executive Vice President Richard J. Kogan, Delano E. Lewis, and Chief Financial Officer Reuben Mark, Howard B. Wentz, Jr.
Date March 25, 1996 By /s/ ANDREW D. HENDRY ................................ Andrew D. Hendry as Attorney-in-Fact
Date March 25, 1996
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-K
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995
COLGATE-PALMOLIVE COMPANY
NEW YORK, NEW YORK 10022
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.
COLGATE-PALMOLIVE COMPANY CONSOLIDATED STATEMENTS OF INCOME Dollars in Millions Except Per Share Amounts
See Notes to Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY CONSOLIDATED BALANCE SHEETS Dollars in Millions Except Per Share Amounts
See Notes to Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Dollars in Millions
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL ACCOUNTS Dollars in Millions
See Notes to Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in Millions
See Notes to Consolidated Financial Statements.
COLGATE-PALMOLIVE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dollars in Millions Except Per Share Amounts
1. NATURE OF OPERATIONS
The Company manufactures and markets a wide variety of products in the U.S. and around the world in two distinct business segments: Oral, Personal and Household Care, and Pet Nutrition. Oral, Personal and Household Care products include toothpastes, oral rinses and toothbrushes, bar and liquid soaps, shampoos, conditioners, deodorants and antiperspirants, baby and shave products, laundry and dishwashing detergents, fabric softeners, cleansers and cleaners, bleaches, and other similar items. These products are sold primarily to wholesale and retail distributors worldwide. Pet Nutrition products include pet food products manufactured and marketed by Hill's Pet Nutrition. The principal customers for Pet Nutrition products are veterinarians and large-format specialty pet retailers. Principal global trademarks include Colgate, Palmolive, Mennen, Kolynos, Ajax, Soupline/Suavitel, Fab, Science Diet and Prescription Diet in addition to various regional trademarks.
The Company's principal classes of products accounted for the following percentages of worldwide sales for the past three years:
1995 1994 1993 ---- ---- ---- Oral Care................................. 30% 26% 25% Personal Care............................. 22% 24% 24% Household Surface Care.................... 16% 17% 17% Fabric Care............................... 18% 18% 19% Pet Nutrition............................. 9% 11% 11%
Company products are marketed under highly competitive conditions. Products similar to those produced and sold by the Company are available from competitors in the U.S. and overseas. Product quality, brand recognition and acceptance, and marketing capability largely determine success in the Company's business segments. The financial and descriptive information on the Company's geographic area and industry segment data, appearing in the tables contained in management's discussion, is an integral part of these financial statements. More than half of the Company's net sales, operating profit and identifiable assets are attributable to overseas operations. Transfers between geographic areas are not significant.
The Company's products are generally marketed by a sales force employed by each individual subsidiary or business unit. In some instances outside jobbers and brokers are used. Most raw materials used worldwide are purchased from others, are available from several sources and are generally available in adequate supply. Products and commodities such as tallow and essential oils are subject to wide price variations. No one of the Company's raw materials represents a significant portion of total material requirements.
Trademarks are considered to be of material importance to the Company's business; consequently the practice is followed of seeking trademark protection by all available means. Although the Company owns a number of patents, no one patent is considered significant to the business taken as a whole.
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of Colgate-Palmolive Company and its majority-owned subsidiaries. Intercompany transactions and balances have been eliminated. Investments in companies in which the Company's interest is between 20% and 50% are accounted for using the equity method. The Company's share of the net income from such investments is recorded as equity earnings and is classified as other expense, net in the Consolidated Statements of Income.
REVENUE RECOGNITION
Sales are recorded at the time products are shipped to trade customers. Net sales reflect units shipped at selling list prices reduced by promotion allowances.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent gains and losses at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Investments in short-term securities that do not meet the definition of cash equivalents are classified as marketable securities. Marketable securities are reported at cost, which equals market.
INVENTORIES
Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method is used to value substantially all inventories in the U.S. as well as in certain overseas locations. The remaining inventories are valued using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Land, buildings, and machinery and equipment are stated at cost. Depreciation is provided, primarily using the straight-line method, over estimated useful lives ranging from 3 to 40 years.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of purchase price over the fair value of identifiable tangible and intangible net assets of businesses acquired. Goodwill and other intangibles are amortized on a straight-line basis over periods not exceeding 40 years. The recoverability of carrying values of intangible assets is evaluated on a recurring basis. The primary indicators of recoverability are current and forecasted profitability of a related acquired business. For the three-year period ended December 31, 1995, there
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) were no material adjustments to the carrying values of intangible assets resulting from these evaluations.
INCOME TAXES
Deferred taxes are recognized for the expected future tax consequences of temporary differences between the amounts carried for financial reporting and tax purposes. Provision is made currently for taxes payable on remittances of overseas earnings; no provision is made for taxes on overseas retained earnings that are deemed to be permanently reinvested.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The cost of postretirement health care and other benefits is actuarially determined and accrued over the service period of covered employees.
TRANSLATION OF OVERSEAS CURRENCIES
The assets and liabilities of subsidiaries, other than those operating in highly inflationary environments, are translated into U.S. dollars at year-end exchange rates, with resulting translation gains and losses accumulated in a separate component of shareholders' equity. Income and expense items are converted into U.S. dollars at average rates of exchange prevailing during the year.
For subsidiaries operating in highly inflationary environments, inventories, goodwill and property, plant and equipment are translated at the rate of exchange on the date the assets were acquired, while other assets and liabilities are translated at year-end exchange rates. Translation adjustments for these operations are included in net income.
GEOGRAPHIC AREAS AND INDUSTRY SEGMENTS
The financial and descriptive information on the Company's geographic area and industry segment data, appearing in the tables contained in management's discussion of this report, is an integral part of these financial statements.
3. ACQUISITIONS
On January 10, 1995, the Company acquired the worldwide Kolynos oral care business ("Kolynos") from American Home Products Corporation for $1,040.0 in cash. Kolynos is a multinational oral care business operating primarily in South America and having a presence in Greece, Taiwan and Hungary. The acquired assets of the Kolynos business, located principally in Argentina, Brazil, Colombia, Ecuador, Peru and Uruguay, include trademarks and other intellectual property, accounts receivable, inventories, and property, plant and equipment that is utilized in the production of toothpaste, toothbrushes, dental floss and oral rinses.
The transaction was structured as a multinational acquisition of assets and stock and was accounted for under the purchase method of accounting, with the results of operations of Kolynos included with the results of the Company from January 10, 1995.
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
3. ACQUISITIONS--(CONTINUED)
The acquisition is currently being reviewed by antitrust regulatory authorities in Brazil. The financing used to acquire the Kolynos business was provided by commercial banks and refinanced during the year with long-term obligations.
The net book value of Kolynos assets was approximately $50.0. The purchase price was allocated to the acquired assets based upon preliminary determination of their respective fair values and is subject to adjustment. The cost in excess of the fair value of acquired assets is being amortized over 40 years.
The following unaudited pro forma summary combines the results of the operations of the Company and Kolynos as if the acquisition had occurred as of the beginning of 1994 after giving effect to certain adjustments, including amortization of goodwill, increased interest expense on the acquisition debt incurred and the related income tax effects.
SUMMARIZED PRO FORMA COMBINED RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994 ------------------------------------ Net sales............................... $7,864.0 Income before income taxes.............. 835.4 Net income.............................. 550.9 Primary earnings per common share....... 3.62 Fully diluted earnings per common share. 3.38
The pro forma financial information is not necessarily indicative of either the results of operations that would have occurred had the Company and Kolynos actually been combined during the year ended December 31, 1994, or the future results of operations of the combined companies. Although the Company intends to operate Kolynos in Brazil as a separate operation, there are certain other benefits that are anticipated to be realized from the implementation of the Company's integration plans which are not included in the pro forma information. The Company believes that future growth opportunities, as well as the benefits of such integration plans when fully implemented, will reduce and eventually more than offset any dilutive impact on earnings per share.
In addition, during 1995, the Company acquired the Odol oral care business in Argentina, the Barbados Cosmetic Products business in the Caribbean as well as other regional brands in the Oral, Personal and Household Care Segment. The aggregate purchase price of all 1995 acquisitions was $1,321.9.
During 1994, the Company acquired the Cibaca toothpaste and toothbrush business in India, the NSOA laundry soap business in Senegal, Nevex non-chlorine bleach in Venezuela, and Na Pancha laundry soap in Peru as well as several other regional brands in the Oral, Personal and Household Care segment. The aggregate purchase price of all 1994 acquisitions was $149.8.
In October 1993, the Company acquired the liquid hand and body soap brands of S.C. Johnson in Europe, the South Pacific and other international locations. During that year, the Company also acquired the Cristasol glass cleaner business in Spain, increased ownership of its Indian operation to majority control and made other investments. The aggregate purchase price of all 1993 acquisitions was $222.5.
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
3. ACQUISITIONS--(CONTINUED) All of these acquisitions have been accounted for as purchases, and, accordingly, the purchase prices were allocated to the net tangible and intangible assets acquired based on estimated fair values at the dates of the respective acquisitions. The results of operations have been included in the Consolidated Financial Statements since the respective acquisition dates. The inclusion of pro forma financial data for all acquisitions except Kolynos prior to the dates of acquisition would not have materially affected reported results.
4. RESTRUCTURED OPERATIONS
In September 1995, the Company announced a major worldwide restructuring of its manufacturing and administrative operations designed to further enhance profitable growth over the next several years by generating significant efficiencies and improving competitiveness. As a result of this rationalization, 24 of the 112 factories worldwide will be closed or significantly reconfigured. The worldwide workforce will be reduced by approximately 3,000 employees or 8.5%, of which a reduction of approximately 150 occurred during 1995.
The changes are expected to be substantially completed during 1997 in facilities around the world, but primarily in North America and Europe. Hill's Pet Nutrition and locations in Asia/Africa and certain Latin American countries, including Mexico, are also affected. The charge includes employee termination costs, expenses associated with the realignment of the Company's global manufacturing operations as well as settlement of contractual obligations.
The worldwide restructuring program resulted in a 1995 pretax charge of $460.5 ($369.2 net of tax) or $2.54 per share for the year.
A summary of the restructuring reserve established in 1995 is as follows:
ORIGINAL UTILIZED BALANCE AT RESERVE IN 1995 END OF YEAR -------- -------- ----------- Workforce.................................. $ 210.0 $ 4.2 $ 205.8 Manufacturing plants....................... 204.1 7.2 196.9 Settlement of contractual obligations...... 46.4 13.5 32.9 -------- -------- ----------- Total...................................... $ 460.5 $ 24.9 $ 435.6 -------- -------- ----------- -------- -------- -----------
Of the restructuring reserve remaining as of December 31, 1995, $100.0 is classified as a current liability, $175.9 as a noncurrent liability and $159.7 as a reduction of fixed assets.
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
5. LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt consists of the following at December 31:
- ------------
* These bonds have been swapped into U.S. dollar floating rate liabilities.
Other debt consists of capitalized leases and individual fixed and floating rate issues of less than $30.0 with various maturities. Commercial paper and certain other short-term borrowings are classified as long-term debt in accordance with the Company's intent and ability to refinance such obligations on a long-term basis. The Company has swapped the majority of these liabilities into long-term fixed rates ranging from 5.3% to 8.2%. Scheduled maturities of debt outstanding at December 31, 1995, excluding short-term borrowings reclassified, are as follows: 1996--$37.0; 1997--$142.2; 1998--$179.9; 1999-- $166.5; 2000--$231.6, and $893.6 thereafter.
At December 31, 1995, the Company had unused credit facilities amounting to $2,093.4. Commitment fees related to credit facilities are not material. The weighted average interest rate on all short-term borrowings as of December 31, 1995 and 1994 was 7.8% and 7.9%, respectively.
6. CAPITAL STOCK AND STOCK COMPENSATION PLANS
PREFERRED STOCK
Preferred Stock consists of 250,000 authorized shares without par value. It is issuable in series, of which one series of 125,000 shares, designated $4.25 Preferred Stock, with a stated and redeemable value of $100 per share, has been issued and is outstanding. The $4.25 Preferred Stock is redeemable only at the option of the Company.
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
6. CAPITAL STOCK AND STOCK COMPENSATION PLANS--(CONTINUED)
PREFERENCE STOCK
In 1988, the Company authorized the issuance of 50,000,000 shares of Preference Stock, without par value. The Series B Convertible Preference Stock, which is convertible into two shares of common stock, ranks junior to all series of the Preferred Stock. At December 31, 1995 and 1994, 6,014,615 and 6,091,375 shares of Series B Convertible Preference Stock, respectively, were outstanding and issued to the Company's ESOP.
SHAREHOLDER RIGHTS PLAN
Under the Company's Shareholder Rights Plan, each share of the Company's common stock carries with it one Preference Share Purchase Right. The Rights themselves will at no time have voting power or pay dividends. The Rights become exercisable only if a person or group acquires 20% or more of the Company's common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 20% or more of the common stock. When exercisable, each Right entitles a holder to buy one two-hundredth of a share of a new series of preference stock at an exercise price of $87.50.
If the Company is acquired in a merger or other business combination, each Right will entitle a holder to buy, at the Right's then current exercise price, a number of the acquiring company's common shares having a market value of twice such price. In addition, if a person or group acquires 30% or more of the Company's common stock, other than pursuant to a cash tender offer for all shares in which such person or group increases its stake from below 20% to 80% or more of the outstanding shares, each Right will entitle its holder (other than such person or members of such group) to purchase, at the Right's then current exercise price, a number of shares of the Company's common stock having a market value of twice the Right's exercise price.
Further, at any time after a person or group acquires 30% or more (but less than 50%) of the Company's common stock, the Board of Directors may, at its option, exchange part or all of the Rights (other than Rights held by the acquiring person or group) for shares of the Company's common stock on a one-for-one basis.
The Company, at the option of its Board of Directors, may redeem the Rights for $.005 at any time before the acquisition by a person or group of beneficial ownership of 20% or more of its common stock. The Board of Directors is also authorized to reduce the 20% and 30% thresholds to not less than 15%. Unless redeemed earlier, the Rights will expire on October 24, 1998.
INCENTIVE STOCK PLAN
The Company has a plan which provides for grants of restricted stock awards for officers and other executives of the Company and its major subsidiaries. A committee of non-employee members of the Board of Directors administers the plan. During 1995 and 1994, 155,094 and 80,249 shares, respectively were awarded to employees in accordance with the provisions of the plan.
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
6. CAPITAL STOCK AND STOCK COMPENSATION PLANS--(CONTINUED)
STOCK OPTION PLAN
The Company's 1987 Stock Option Plan provides for the issuance of non-qualified stock options to officers and key employees. Options are granted at prices not less than the fair market value on the date of grant. At December 31, 1995, 1,779,497 shares of common stock were available for future grants.
During 1992, an Accelerated Ownership feature was added to the 1987 Stock Option Plan. The Accelerated Ownership feature provides for the grant of new options when previously owned shares of Company stock are used to exercise existing options. The number of new options granted under this feature is equal to the number of shares of previously owned Company stock used to exercise the original options and to pay the related required U.S. income tax. The new options are granted at a price equal to the fair market value on the date of the new grant and have the same expiration date as the original options exercised.
Stock option plan activity is summarized below:
1995 1994 ---------------- ---------------- Options outstanding, January 1.......... 10,261,408 9,626,394 Granted................................. 2,581,173 2,528,109 Exercised............................... (2,252,955) (1,803,574) Canceled or expired..................... (93,731) (89,521) ---------------- ---------------- Options outstanding, December 31........ 10,495,895 10,261,408 ---------------- ---------------- ---------------- ---------------- Options exercisable, December 31........ 6,770,039 6,402,658 ---------------- ---------------- ---------------- ---------------- Option price range at exercise.......... $13.28 to $64.88 $11.88 to $57.94 ---------------- ---------------- ---------------- ---------------- Option price range, December 31......... $19.53 to $99.79 $13.28 to $99.79 ---------------- ---------------- ---------------- ----------------
In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). This Statement is effective beginning in 1996, with earlier application permitted. Although the statement encourages entities to adopt the fair value based method of accounting for employee stock options, the Company intends to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Adoption of SFAS 123 will require the Company to disclose additional information relating to the stock option plan and the Company's pro forma net income and earnings per share, as if the options granted were expensed at their estimated fair value at the time of grant.
7. EMPLOYEE STOCK OWNERSHIP PLAN
In 1989, the Company expanded its employee stock ownership plan (ESOP) through the introduction of a leveraged ESOP covering certain employees who have met certain eligibility requirements. The ESOP issued $410.0 of long-term notes due through 2009 bearing an average interest rate of 8.6%. The long-term notes, which are guaranteed by the Company, are recorded on the accompanying Consolidated Balance Sheets. The ESOP used the proceeds of the notes to purchase 6.3 million shares of Series B Convertible Preference Stock from the Company. The Stock has a minimum redemption price of $65 per share and pays semiannual dividends equal to the higher of $2.44 or the current dividend paid on
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
7. EMPLOYEE STOCK OWNERSHIP PLAN--(CONTINUED)
two common shares for the comparable six-month period. Each share may be converted by the Trustee into two shares of common stock.
Dividends on these preferred shares, as well as common shares also held by the ESOP, are paid to the ESOP trust and, together with Company contributions, are used by the ESOP to repay principal and interest on the outstanding notes. Preferred shares are released for allocation to participants based upon the ratio of the current year's debt service to the sum of total principal and interest payments over the life of the loan. At December 31, 1995, 1,190,498 shares were allocated to participant accounts.
Dividends on these preferred shares are deductible for income tax purposes and, accordingly, are reflected net of their tax benefit in the Consolidated Statements of Retained Earnings.
Annual expense related to the leveraged ESOP, determined as interest incurred on the notes, less dividends received on the shares held by the ESOP, plus the higher of either principal repayments on the notes or the cost of shares allocated, was $8.3 in 1995, $8.0 in 1994 and $7.9 in 1993. Similarly, unearned compensation, shown as a reduction in shareholders' equity, is reduced by the higher of principal payments or the cost of shares allocated.
Interest incurred on the ESOP's notes amounted to $33.9 in 1995, $34.2 in 1994 and $34.5 in 1993. The Company paid dividends on the stock held by the ESOP of $31.7 in 1995, $32.3 in 1994 and $32.7 in 1993. Company contributions to the ESOP were $6.4 in 1995 and $5.7 in 1994 and 1993.
8. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
RETIREMENT PLANS
The Company, its U.S. subsidiaries and a majority of its overseas subsidiaries maintain pension plans covering substantially all of their employees. Most plans provide pension benefits that are based primarily on years of service and employees' career earnings. In the Company's principal U.S. plans, funds are contributed to trustees in accordance with regulatory limits to provide for current service and for any unfunded projected benefit obligation over a reasonable period. To the extent these requirements are exceeded by plan assets, a contribution may not be made in a particular year. Plan assets consist principally of common stocks, guaranteed investment contracts with insurance companies, investments in real estate funds and U.S. Government obligations.
Net periodic pension expense of the plans includes the following components:
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
8. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS--(CONTINUED)
The following table sets forth the funded status of the plans at December 31:
The actuarial assumptions used to determine the projected benefit obligation of the plans were as follows:
When remeasuring the pension obligation, the Company reassesses each actuarial assumption. In accordance with generally accepted accounting principles, the settlement rate assumption is pegged to long-term bond rates to reflect the cost to satisfy the pension obligation currently, while the other assumptions reflect the long-term outlook of rates of compensation increases and return on assets.
OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company and certain of its subsidiaries provide health care and life insurance benefits for retired employees to the extent not provided by government-sponsored plans.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106). SFAS 106 required the Company to change its method of accounting for its postretirement life and health care benefits provided to retirees from the "pay-as-you-go" basis to accruing such costs over the working lives of the employees. The Company utilizes a portion of its leveraged ESOP, in the form of
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
8. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS--(CONTINUED)
future retiree contributions, to reduce its obligation to provide these postretirement benefits. Postretirement benefits currently are not funded. The Company also adopted SFAS 112, "Employers' Accounting for Postemployment Benefits." SFAS 112 requires accrual accounting for the estimated cost of benefits provided to former or inactive employees after employment but before retirement.
The cumulative effect on prior years of adopting SFAS 106 and 112 as of January 1, 1993 resulted in a pretax charge during 1993 of $195.7 ($129.2 aftertax or $.83 per share), of which $189.5 related to SFAS 106 and $6.2 related to SFAS 112. This non-cash charge represented the accumulated benefit obligation net of related accruals previously recorded by the Company as of January 1, 1993.
Postretirement benefits expense includes the following components:
The actuarial present value of postretirement benefit obligations included in Other liabilities in the Consolidated Balance Sheets is comprised of the following components, at December 31:
1995 1994 ------ ------ Retirees.................................................. $145.2 $144.9 Active participants eligible for retirement............... 2.0 2.9 Other active participants................................. 9.2 17.0 ------ ------ Accumulated postretirement benefit obligation............. 156.4 164.8 Unrecognized net gain..................................... 44.4 38.5 ------ ------ Accrued postretirement benefit liability.................. $200.8 $203.3 ------ ------ ------ ------
The principal actuarial assumptions used in the measurement of the accumulated benefit obligation were as follows:
When remeasuring the accumulated benefit obligation, the Company reassesses each actuarial assumption.
The cost of these postretirement medical benefits is dependent upon a number of factors, the most significant of which is the rate at which medical costs increase in the future. The effect of a 1% increase
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
8. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS--(CONTINUED)
in the assumed medical cost trend rate would increase the accumulated postretirement benefit obligation by approximately $12.5; annual expense would not be materially affected.
9. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The one-time non-cash charge for the recalculation of income taxes was $229.0 ($1.47 per share), which was recorded in 1993.
The provision for income taxes on income before changes in accounting consists of the following for the years ended December 31:
1995 1994 1993 ------ ------ ------ United States................................. $ 18.0 $ 43.3 $ 75.9 Overseas...................................... 173.5 256.4 212.2 ------ ------ ------ $191.5 $299.7 $288.1 ------ ------ ------ ------ ------ ------
Differences between accounting for financial statement purposes and accounting for tax purposes result in taxes currently payable (lower) higher than the total provision for income taxes as follows:
1995 1994 1993 ------ ------ ------ Excess of tax over book depreciation......... $(18.9) $(32.8) $(18.7) Net restructuring accrual (spending)......... 70.5 (19.0) (24.2) Other, net................................... (5.3) 5.6 (13.8) ------ ------ ------ $ 46.3 $(46.2) $(56.7) ------ ------ ------ ------ ------ ------
The components of income before income taxes are as follows for the three years ended December 31:
1995 1994 1993 ------- ------ ------ United States............................... $(121.1) $181.8 $256.9 Overseas.................................... 484.6 698.1 579.3 ------- ------ ------ $ 363.5 $879.9 $836.2 ------- ------ ------ ------- ------ ------
The difference between the statutory United States federal income tax rate and the Company's global effective tax rate as reflected in the Consolidated Statements of Income is as follows:
% OF INCOME BEFORE TAX 1995 1994 1993 ---------------------- ---- ---- ---- Tax at U.S. statutory rate.......................... 35.0% 35.0% 35.0% State income taxes, net of federal benefit.......... .6 .6 .7 Earnings taxed at other than U.S. statutory rate.... (.4) (.3) (.2) Restructured operations............................. 18.4 -- -- Other, net.......................................... (.9) (1.2) (1.0) ---- ---- ---- Effective tax rate.................................. 52.7% 34.1% 34.5% ---- ---- ---- ---- ---- ----
COLGATE-PALMOLIVE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Dollars in Millions Except Per Share Amounts
9. INCOME TAXES--(CONTINUED) In addition, net tax benefits of $6.8 in 1995 and $16.0 in 1994 were recorded directly through equity.
The components of deferred taxes are as follows at December 31:
1995 1994 ------- ------- Deferred Taxes--Current: Accrued liabilities, not deductible until paid..... $ 64.1 $ 68.6 Restructuring...................................... 20.0 -- Other, net......................................... 13.9 8.1 ------- ------- Total deferred taxes current....................... 98.0 76.7 ------- ------- Deferred Taxes--Long-term: Intangible assets, not amortized for tax purposes............................................. (212.2) (211.4) Property, plant and equipment, principally due to differences in depreciation.......................... (215.9) (196.6) Postretirement and postemployment benefits, past service cost......................................... 73.1 71.1 Restructuring...................................... 141.1 14.1 Tax loss and tax credit carryforwards.............. 124.8 81.5 Other, net......................................... (30.0) (21.7) Valuation allowance................................ (118.2) (32.4) ------- ------- Total deferred taxes long-term..................... (237.3) (295.4) ------- ------- Net deferred taxes--(liabilities)................ $(139.3) $(218.7) ------- ------- ------- -------
The major component of the 1995 and 1994 valuation allowance relates to tax benefits in certain jurisdictions not expected to be realized.
10. FOREIGN CURRENCY TRANSLATION
Cumulative translation adjustments, which represent the effect of translating assets and liabilities of the Company's non-U.S. entities, except those in highly inflationary economies, were as follows:
1995 1994 1993 ------- ------- ------- Balance, January 1............................. $(439.3) $(372.9) $(308.5) Effect of balance sheet translations........... (73.7) (66.4) (64.4) ------- ------- ------- Balance, December 31........................... $(513.0) $(439.3) $(372.9) ------- ------- ------- ------- ------- -------
Foreign currency charges, resulting from the translation of balance sheets of subsidiaries operating in highly inflationary environments and from foreign currency transactions, were not material in the years presented.
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
11. EARNINGS PER SHARE
Primary earnings per share are determined by dividing net income, after deducting preferred stock dividends net of related tax benefits ($21.6 in 1995, 1994 and 1993) by the weighted average number of common shares outstanding (145.2 million in 1995, 146.2 million in 1994 and 155.9 million in 1993).
Earnings per common share assuming full dilution, are calculated assuming the conversion of all potentially dilutive securities, including convertible preferred stock and outstanding options, unless the effect of such conversion is antidilutive. This calculation also assumes, if applicable, reduction of available income by pro forma ESOP replacement funding, net of income taxes.
12. INCOME STATEMENT INFORMATION
Other expense, net consists of the following for the years ended December 31:
1995 1994 1993 ------ ------ ------ Amortization of intangibles....................... $ 87.7 $ 56.3 $ 51.2 Earnings from equity investments.................. (7.3) (1.3) (7.4) Minority interest................................. 37.1 37.8 27.5 Other............................................. (21.4) (10.0) -- ------ ------ ------ $ 96.1 $ 82.8 $ 71.3 ------ ------ ------ ------ ------ ------
The following is a comparative summary of certain expense information for the years ended December 31:
1995 1994 1993 ------ ------ ------ Interest incurred................................. $250.7 $130.6 $ 81.3 Interest capitalized.............................. 14.7 9.7 11.8 ------ ------ ------ Interest expense.................................. $236.0 $120.9 $ 69.5 ------ ------ ------ ------ ------ ------
Research and development.......................... $156.7 $147.1 $139.9 Maintenance and repairs........................... $108.2 $110.1 $107.8 Media advertising................................. $561.3 $543.2 $508.3
13. BALANCE SHEET INFORMATION
Supplemental balance sheet information is as follows:
INVENTORIES 1995 1994 - ---------------------------------------------------------- ------ ------ [S] [C] [C] Raw materials and supplies................................ $313.8 $280.3 Work-in-process........................................... 38.3 38.4 Finished goods............................................ 422.7 395.2 ------ ------ $774.8 $713.9 ------ ------ ------ ------
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
13. BALANCE SHEET INFORMATION--(CONTINUED)
Inventories valued under LIFO amounted to $207.2 at December 31, 1995 and $163.6 at December 31, 1994. The excess of current cost over LIFO cost at the end of each year was $42.9 and $39.6, respectively. In 1995 and 1994, certain inventory quantities were reduced, which resulted in liquidations of LIFO inventory quantities. The effect was to increase income by $1.4 and $2.8 in 1995 and 1994, respectively.
PROPERTY, PLANT AND EQUIPMENT, NET 1995 1994 ------------------------------------ ----- ----- Land.............................................. $ 126.0 $ 94.9 Buildings......................................... 623.1 549.3 Machinery and equipment........................... 2,850.3 2,459.2 --------- --------- 3,599.4 3,103.4 Accumulated depreciation.......................... (1,444.2) (1,115.3) --------- --------- $ 2,155.2 $ 1,988.1 --------- --------- --------- ---------
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 1995 1994 ----------------------------------------- ----- ------ Goodwill and other intangibles.................... $ 3,037.0 $ 1,879.4 Accumulated amortization.......................... (295.3) (207.6) -------- -------- $2,741.7 $1,671.8 -------- -------- -------- --------
OTHER ACCRUALS 1995 1994 -------------- ------ ------ [S] [C] [C] Accrued payroll and employee benefits............... $271.0 $233.0 Accrued advertising................................. 117.6 105.4 Accrued interest.................................... 46.0 38.6 Accrued taxes other than income taxes............... 51.1 42.4 Restructuring accrual............................... 100.0 -- Other............................................... 110.6 121.9 ------ ------ $696.3 $541.3 ------ ------ ------ ------
FAIR VALUE OF FINANCIAL INSTRUMENTS
In assessing the fair value of financial instruments at December 31, 1995 and 1994, the Company has used available market information and other valuation methodologies. Some judgment is necessarily required in interpreting market data to develop the estimates of fair value, and, accordingly the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
13. BALANCE SHEET INFORMATION--(CONTINUED)
The estimated fair value of the Company's financial instruments at December 31, are summarized as follows:
FINANCIAL INSTRUMENTS AND RATE RISK MANAGEMENT
The Company utilizes interest rate agreements and foreign exchange contracts to manage interest rate and foreign currency exposures. The principal objective of such contracts is to manage rather than attempt to eliminate fluctuations in interest rate and foreign currency movements. The Company, as a matter of policy, does not speculate in financial markets and therefore does not hold these contracts for trading purposes. The Company utilizes what it considers straightforward instruments, such as forward foreign exchange contracts and non-leveraged interest rate swaps, to accomplish its objectives.
The Company primarily uses interest rate swap agreements to effectively convert a portion of its floating rate debt to fixed rate debt in order to manage interest rate exposures in a manner consistent with achieving a targeted fixed to variable interest rate ratio. The net effective cash payment of these financial derivative instruments combined with the related interest payments on the debt that they hedge are accounted for as interest expense. Those interest rate instruments that do not qualify as hedge instruments for accounting purposes are marked to market and carried on the balance sheets at fair value. As of December 31, 1995 and 1994, the Company had agreements outstanding with an aggregate notional amount of $1,142.2 and $222.0, respectively, with maturities through 2025.
The Company uses forward exchange contracts principally to hedge foreign currency exposures associated with its net investment in foreign operations and overseas debt. This hedging minimizes the impact of foreign exchange rate movements on the Company's financial position. The terms of these contracts are generally less than five years.
As of December 31, 1995 and 1994, the Company had approximately $972.0 and $397.6, respectively, of outstanding foreign exchange contracts. At December 31, 1995 approximately 10% of outstanding foreign exchange contracts served to hedge net investments in foreign subsidiaries, 50% hedged intercompany loans, 30% hedged third-party firm commitments, and the remaining 10% hedged
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
13. BALANCE SHEET INFORMATION--(CONTINUED)
certain transactions that are anticipated to settle in accordance with their identified terms. The Company makes net settlements for foreign exchange contracts at maturity, based on rates agreed to at inception of the contracts.
Gains and losses from contracts that hedge the Company's investments in its foreign subsidiaries are shown in the cumulative translation adjustments account included in shareholders' equity. Gains and losses from contracts that hedge firm commitments (including intercompany loans) are recorded in the balance sheets as a component of the related receivable or payable until realized, at which time they are recognized in the statements of income.
The contracts that hedge anticipated sales and purchases do not qualify as hedges for accounting purposes. Accordingly, the related gains and losses are calculated using the current forward foreign exchange rates and are recorded in the statements of income as other expense, net. These contracts mature within eighteen months.
The Company is exposed to credit loss in the event of nonperformance by counterparties on interest rate agreements and foreign exchange contracts; however, nonperformance by these counterparties is considered remote as it is the Company's policy to contract only with counterparties that have a long-term debt rating of A or higher. The amount of any such exposure is generally the unrealized gain on such contracts, which at December 31, 1995 was not significant.
14. COMMITMENTS AND CONTINGENCIES
Minimum rental commitments under noncancellable operating leases, primarily for office and warehouse facilities, are $68.6 in 1996, $52.7 in 1997, $44.1 in 1998, $38.7 in 1999, $38.9 in 2000 and $213.4 for years thereafter. Rental expense amounted to $91.8 in 1995, $83.4 in 1994 and $91.5 in 1993. Contingent rentals, sublease income and capital leases, which are included in fixed assets, are not significant.
The Company has various contractual commitments to purchase raw materials, products and services totaling $165.6 that expire through 1998.
The Company is a party to various superfund and other environmental matters and is contingently liable with respect to lawsuits, taxes and other matters arising out of the normal course of business. Management proactively reviews and manages its exposure to, and the impact of, environmental matters. While it is possible that the Company's cash flows and results of operations in particular quarterly or annual periods could be affected by the one-time impacts of the resolution of such contingencies, it is the opinion of management that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material impact on the Company's financial condition or ongoing cash flows and results of operations.
As discussed in Note 3, the acquisition of Kolynos is subject to review by antitrust regulatory authorities in Brazil. While it is not yet possible to definitively determine whether or not approval will be obtained, management believes the acquisition, or some variation thereof, will eventually be approved.
15. MARKET AND DIVIDEND INFORMATION
The Company's common stock and $4.25 Preferred Stock are listed on the New York Stock Exchange. The trading symbol for the common stock is CL. Dividends on the common stock have been
COLGATE-PALMOLIVE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dollars in Millions Except Per Share Amounts
15. MARKET AND DIVIDEND INFORMATION--(CONTINUED)
paid every year since 1895, and the amount of dividends paid per share has increased for 33 consecutive years.
MARKET PRICE
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
- ------------
(1) The third quarter of 1995 includes a provision for restructured operations of $460.5 ($369.2 aftertax) or $2.54 per share on a primary basis and $2.50 per share on a fully diluted basis.
(2) The sum of the quarterly fully diluted earnings (loss) per share amounts in 1995 is not equal to the full year because the computations of the weighted average number of shares outstanding and the potential impact of dilutive securities for each quarter and for the full year are made independently.
SCHEDULE II
COLGATE-PALMOLIVE COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN MILLIONS)
- ------------
NOTES:
(1) Uncollectible accounts written off and cash discounts allowed.
(2) Increase/decrease in allowance for tax loss and tax credit carryforward benefits which more likely than not will not be utilized in the future.
(3) Allowance for tax benefits from restructured operations in certain jurisdictions not expected to be realized.
(4) Other adjustments.
SCHEDULE II
COLGATE-PALMOLIVE COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN MILLIONS)
- ------------
NOTES:
(1) Uncollectible accounts written off and cash discounts allowed.
(2) Allowance for tax loss and tax credit carryforward benefits which more likely than not will not be utilized in the future.
(3) Other adjustments.
COLGATE-PALMOLIVE COMPANY
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN MILLIONS)
- ------------
NOTES:
(1) Adjustments arising from translation of reserve balances at year-end exchange rates.
(2) Uncollectible accounts written off and cash discounts allowed.
(3) Allowance for tax loss and tax credit carryforward benefits which more likely than not will not be utilized in the future. The $22.0 charged to costs and expenses was included in the 1993 one-time charge for the adoption of SFAS 109, "Accounting for Income Taxes."
(4) Other adjustments.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Colgate-Palmolive Company:
We have audited the accompanying consolidated balance sheets of Colgate-Palmolive Company (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, retained earnings, changes in capital accounts and cash flows for each of the three years in the period ended December 31, 1995. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Colgate-Palmolive Company and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in the accompanying notes to the consolidated financial statements, in 1993, the Company adopted three new accounting standards promulgated by the Financial Accounting Standards Board, changing its methods of accounting for income taxes, postretirement benefits other than pensions, and postemployment benefits.
Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index to financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York February 7, 1996
COLGATE-PALMOLIVE COMPANY
HISTORICAL FINANCIAL SUMMARY(1)
Dollars in Millions Except Per Share Amounts
- ------------ (1) All share and per share amounts have been restated to reflect the 1991 two-for-one stock split. (2) Income in 1995 includes a net provision for restructured operations of $369.2 ($2.54 per share on a primary basis or $2.50 per share on a fully diluted basis). (3) Income in 1994 includes a one-time charge of $5.2 for the sale of a non-core business, Princess House. (4) Income in 1993 includes a one-time impact of adopting new mandated accounting standards, effective in the first quarter of 1993, of $358.2 ($2.30 per share on a primary basis or $2.10 on a fully diluted basis). (5) Income in 1991 includes a net provision for restructured operations of $243.0 ($1.80 per share on a primary basis or $1.75 per share on a fully diluted basis). (6) Income in 1988 includes Hill's service agreement renegotiation net charge of $42.0 ($.30 per share on both a primary and fully diluted basis). (7) Due to timing differences, 1988 includes three dividend declarations while all other years include four dividend declarations. (8) Income in 1987 includes a net provision for restructured operations of $144.8 ($1.06 per share on a primary basis or $1.05 per share on a fully diluted basis).
COLGATE-PALMOLIVE COMPANY
EXHIBITS TO FORM 10-K
YEAR ENDED DECEMBER 31,1995
COMMISSION FILE NO. 1-644
- ------------
* Registrant hereby undertakes upon request to furnish the Commission with a copy of any instrument with respect to long-term debt where the total amount of securities authorized thereunder does not exceed 10% of the total assets of the registrant and its subsidiaries on a consolidated basis.
The exhibits indicated above which are not included with the Form 10-K are available upon request and payment of a reasonable fee approximating the registrant's cost of providing and mailing the exhibits. Inquiries should be directed to:
Colgate-Palmolive Company Office of the Secretary (10-K Exhibits) 300 Park Avenue New York, New York 10022-7499


ITEM 1. BUSINESS
GENERAL
PRINCIPAL BUSINESSES
The principal businesses of PS Group, Inc. (the "Company") are aircraft leasing (conducted directly), fuel sales and distribution, and oil and gas production and development.
STATE OF INCORPORATION AND EXECUTIVE OFFICES
The Company was incorporated in Delaware in 1972 (under the original name PSA, Inc.) as the successor to a California corporation originally incorporated in 1945. The Company has its principal executive offices at 4370 La Jolla Village Drive, Suite 1050, San Diego, California, 92122; telephone number (619) 642-2999.
ITEMS INCORPORATED BY REFERENCE
Certain information required by "Item 1. - Business" is incorporated by reference from pages 8 through 16 of the Company's 1995 Annual Report to Shareholders. This incorporated information includes financial information about the Company's business segments. Additional disclosure is made in this Form 10-K.
CORPORATE EMPLOYEES
As of December 31, 1995 the Company's corporate staff (excluding employees of subsidiaries) consisted of 7 full-time employees who manage the aircraft leasing operations and furnish administrative services to the Company. The staff also provides some administrative services for its subsidiaries for which it is reimbursed. None of the employees of the Company or its subsidiaries are covered by union contracts.
PROPOSED HOLDING COMPANY REORGANIZATION
The Board of Directors of the Company has proposed for submission to shareholders at the 1996 Annual Meeting of Shareholders (the "1996 Annual Meeting") a holding company reorganization pursuant to which the Company would become a wholly-owned subsidiary of PS Group Holdings, Inc. ("Holdings"), a newly-formed company organized under the laws of the State of Delaware which is currently a wholly-owned subsidiary of the Company (the "Reorganization"). If the Reorganization is consummated, each outstanding share of the Company's Common Stock will be converted into one share of Holdings Common Stock (to be listed on the New York and Pacific Stock Exchanges) and the Company will be a wholly-owned subsidiary of Holdings. The sole purpose of the Reorganization is to help preserve the Company's substantial net operating loss carryforwards, investment tax credit carryforwards and other tax benefits (the "Tax Benefits") for use in offsetting future taxable income. The Reorganization is intended to accomplish this objective by imposing certain transfer restrictions (the "Transfer Restrictions") on the shares of Holdings Common Stock in order to help decrease the risk of certain transfers of shares of the Company's Common Stock that could result in the occurrence of an "ownership change" for income tax purposes, which would limit the ability of the Company to use these tax benefits.
On February 9, 1996, Holdings filed with the Securities and Exchange Commission a Registration Statement on Form S-4 (Registration No. 333-00821) covering the shares of its
Common Stock to be issued in the Reorganization (the prospectus contained in such Registration Statement, in its final form, will also constitute the Company's proxy statement for the 1996 Annual Meeting). Reference is made to such Registration Statement for further information with respect to the proposed Reorganization. As of the date of this Form 10-K, such Registration Statement has not been declared effective by the Securities and Exchange Commission. The shares of Holdings Common Stock covered by such Registration Statement will be offered in connection with the Reorganization, and forms of proxy for use by shareholders of the Company in voting on the Reorganization at the 1996 Annual Meeting will be disseminated, only pursuant to the definitive version of such prospectus/proxy statement.
FORWARD-LOOKING STATEMENTS.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Form 10-K or incorporated by reference from the Company's 1995 Annual Report to Shareholders is forward looking, such as information relating to the future prospects of the Company's aircraft leases, the consequences of any unscheduled return of aircraft under lease, PS Trading's potential for growth, plans for expansion of Statex Petroleum, the availability of the Tax Benefits, the amount of otherwise-taxable income against which such benefits may be offset, and the effect of the proposed Transfer Restrictions in reducing the risk of a loss of the Tax Benefits. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including, but not limited to, the impact of economic conditions on each of the Company's business segments, the impact of competition, the impact of governmental legislation and regulation, and other risks detailed in this Form 10-K, in the Company's 1995 Annual Report to Shareholders and in other Securities and Exchange Commission filings of the Company.
CERTAIN ADDITIONAL INFORMATION
PS TRADING, INC. (PST) -- FUEL SALES AND DISTRIBUTION
RISKS. PST's operations are subject to all risks inherent in the business of fuel sales and distribution including fuel spillage and distribution accidents, which could result in damage to or destruction of property, or could result in personal injury or loss of life. Such an event could result in substantial cost to PST. PST carries substantial insurance coverage but may not be fully insured against all such risks.
ECONOMIC AND COMPETITIVE FACTORS AFFECTING PST. Virtually every refiner and reseller of refined petroleum products who sell in PST's market areas (including other large distributors and major oil companies) is a competitor or potential competitor of PST for the sale of its products. Many of these companies have greater financial resources and broader marketing capabilities than PST. In some instances competitors, especially refiners, may have lower costs for the refined petroleum products they sell and may thus be in a favorable position to offer product prices to PST's customers lower than those PST can offer.
ENVIRONMENTAL ISSUES. Since PST owns or leases fuel storage facilities or pipelines at several locations and contracts with independent companies to deliver fuel on its behalf, it is possible that future claims may be made against PST regarding potential soil and groundwater pollution. Currently no claim has been asserted. However, see "Legal Proceedings" for discussion of an order filed by the California Regional Water Quality Control Board, San Francisco Region. Typically PST operates at locations served by other companies including major airlines, oil companies and airports, most of which have greater financial resources and higher levels of operations at the locations served than PST.
STATEX PETROLEUM, INC. (STATEX) - OIL AND GAS PRODUCTION AND DEVELOPMENT
ACREAGE. The following table sets forth, by states, Statex well ownership and producing acreage as of December 31, 1995:
The following table sets forth, by states, undeveloped acreage ownership as of December 31, 1995:
RISKS. Statex's operations are subject to all risks inherent in the exploration for and production of oil and gas, including blowouts, cratering and fires, which could result in damage to or destruction of oil and gas wells or formations, producing facilities or property, or could result in personal injury or loss of life. Such an event could result in substantial cost to Statex and could have a material adverse effect upon its financial condition if Statex is not fully insured against such risk. Statex carries substantial insurance coverage but may not be fully insured against all such risks.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL ISSUES. Statex's operations are affected from time to time in varying degrees by political developments and federal and state laws and regulations. In particular, oil and gas production operations and returns are affected by tax and other laws relating to the petroleum industry, changes in such laws and constantly changing administrative regulations. In addition, oil and gas operations are subject to regulation, interruption and termination by governmental authorities for environmental issues and other considerations. Additionally, in most, if not all, areas where Statex conducts activities, there are statutory provisions regulating the production of oil and gas. These provisions allow administrative agencies to promulgate rules in connection with the operation and production of both oil and gas wells, including the method of developing new fields, spacing of wells and the maximum daily production allowable for both oil and gas wells and various environmental issues.
ECONOMIC AND COMPETITIVE FACTORS AFFECTING STATEX. Statex is engaged primarily in the production and sale of crude oil and natural gas. Statex has literally hundreds of competitors, most of which are larger and have greater resources than Statex. Oil and natural gas are fungible commodities and, as such, the prices Statex receives for its products are directly related to the open market price for such products at the time of sale. These prices generally fluctuate and are for the most part controlled by the laws of supply and demand. The price for oil is particularly driven by worldwide production and demand. Statex has virtually no control over the establishment of prices
for its products. To the extent there should be an oversupply of product and resulting lower prices, Statex's revenues would be negatively impacted.
ITEM 2.

ITEM 2. PROPERTIES
EXECUTIVE OFFICES AND OTHER GROUND FACILITIES
The Company's executive offices and principal administrative offices are located at 4370 La Jolla Village Drive, Suite 1050, San Diego, California. At December 31, 1995 the Company leased approximately 7,000 square feet for executive offices. During early 1996 the Company renegotiated a new lease to reduce its space to approximately 3,000 square feet. The new lease is expected to become effective in mid-1996 and will run for a five-year period ending in 2001. Base rent for the first 22 months of the lease totals approximately $512,000, and base rent for the remaining 38 months totals approximately $211,000.
PST owns an 8,000 square foot building located at 17742 Preston Road, Dallas, Texas which is used as its administrative offices. In addition, PST's wholesale operations leases 1,560 square feet for administrative offices at 5620 Birdcage Street, Suite 130, Citrus Heights, California for an annual rent of $23,000.
Statex leases approximately 5,000 square feet for executive offices at 1801 Royal Lane, Suite 110, Dallas, Texas at an annual rental of $34,000, for a period ending in mid-1998 with a 2-year renewal option at 95% of current market rates. For information regarding Statex oil and gas properties see "Business - Oil and Gas Production and Development."
The Company believes that its present properties are adequate for its business in light of its current operations.
FLIGHT EQUIPMENT
The aircraft owned by the Company as of February 29, 1996 are listed in the following table.
Notes: (a) Six MD-80s are leased to USAir for terms expiring from 1998 to 2004. One is leased to Continental for a term expiring at the beginning of 2008. (b) These aircraft are all leased to USAir for terms expiring in 2000. (c) The Company owns a one-third interest in each of these aircraft. United States Airlease and Airlease, Ltd. each also own a one-third interest. All six aircraft are leased to Continental for terms expiring in 1996. (d) One aircraft is leased to Continental for a term expiring at the beginning of 2008. One aircraft is leased to America West for a term expiring in 2006.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
In 1992 three related lawsuits were filed against the Company, certain of its directors and officers by stockholders in the United States District Court for the Southern District of California and a fourth lawsuit was filed in the United States District Court for the Central District of Illinois (the Illinois Case). All of the Southern District of California cases were consolidated into a single case (the California Case). Both the California Case and the Illinois Case were purported class actions alleging that the defendants made materially false and misleading statements in public statements in filings with the Securities and Exchange Commission and other reports, or omitted in such materials information necessary to make them not misleading, and that the defendants are therefore liable to the plaintiff class for declines in the price of the Company's common stock during a defined class period.
In the fall of 1992 the Company obtained dismissals of both the California Case and Illinois Case. In each instance, however, the court granted the plaintiffs leave to file an amended petition. In December 1992 the California case and the Illinois Case were consolidated in the Southern District of Illinois (the Consolidated Case). In March 1995 the Company reached an agreement in principle to settle with all defendants for $5 million all pending class action litigation. In October 1995 the United States District Court approved the settlement. While the $5 million settlement liability was recorded as of December 31, 1994, the actual cash payment was made by the Company in July 1995.
The Company, along with numerous other companies including major airlines, major oil companies and the owner of the San Francisco International Airport (most of which have greater financial resources than the Company), is under an order by the California Regional Water Quality Control Board, San Francisco Bay Region, to participate in the investigation, remediation and monitoring of actual or alleged soil and groundwater pollution at San Francisco International Airport. The Company and other potentially responsible parties have undertaken a joint compliance effort. No litigation is currently pending concerning this matter. The Company will vigorously defend against future claims, if any, in this matter.
The Company is a defendant in several other lawsuits related to the ordinary course of business, none of which are expected to have a materially adverse effect on the Company's financial condition.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the year ended December 31, 1995.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and certain additional information concerning the executive officers of the Company.
There are no family relationships between any of the Company's executive officers. Each of the Company's executive officers are elected annually and serve at the pleasure of the Board of Directors.
PART II
The information required by Items 5, 6, 7 and 8 of this Part II are hereby incorporated by reference from page 1 and pages 17 through 40 of the Company's 1995 Annual Report to Shareholders.
ITEM 5.

ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters
ITEM 6.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
ITEM 8.

ITEM 8. Financial Statements and Supplementary Data
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Part III, Items 10 through 13, is incorporated by reference from the Company's definitive Proxy Statement which will be filed with the Securities and Exchange Commission on or prior to April 30, 1996. Certain information concerning the Executive Officers of the Company is included in Part I, supra. See "Additional Item. Executive Officers of the Company."
PART IV
ITEM 14.

ITEM 14. FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements and Exhibits
1. Financial Statements: See Index to Financial Statements, Page. 2. Exhibits: See Index to Exhibits following Page.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized.
DATED: March 26, 1996.
PS GROUP, INC. (Registrant)
By: /s/ Lawrence A. Guske --------------------------------------- LAWRENCE A. GUSKE Vice President - Finance and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes Lawrence A. Guske and Johanna Unger, and each of them, as attorneys-in-fact, on his or her behalf, individually and in each capacity stated below, to sign and file any amendment to this Form 10-K Annual Report.
SIGNATURE TITLE DATE --------- ----- ----
/s/ C. E. Rickershauser, Jr. Chairman of the Board, March 26, 1996 - ----------------------------- Chief Executive Officer (C. E. Rickershauser, Jr.)
/s/ Lawrence A. Guske Vice President - March 26, 1996 - ----------------------------- Finance and Chief (Lawrence A. Guske) Financial Officer (principal financial officer)
/s/ Johanna Unger Vice President, Controller March 26, 1996 - ----------------------------- and Secretary (principal (Johanna Unger) accounting officer)
/s/ Robert M. Fomon Director March 26, 1996 - ----------------------------- (Robert M. Fomon)
/s/ J. P. Guerin Director March 26, 1996 - ----------------------------- (J. P. Guerin)
/s/ Donald W. Killian, Jr. Director March 26, 1996 - ----------------------------- (Donald W. Killian, Jr.)
/s/ Gordon C. Luce Director March 26, 1996 - ----------------------------- (Gordon C. Luce)
PS GROUP, INC. [ITEM 14(A)]
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
The consolidated statements of financial position of PS Group, Inc. at December 31, 1995 and 1994 and the related statements of operations, cash flows and stockholders' equity and the report of Ernst & Young LLP, independent auditors, are set forth on the pages indicated above in the Annual Report to Stockholders of PS Group, Inc. for the year ended December 31, 1995 and are incorporated herein by reference.
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K) of PS Group, Inc. of our report dated February 9, 1996, included in the 1995 Annual Report to Stockholders of PS Group, Inc.
We also consent to the incorporation by reference in ( i) the Registration Statement (Form S-8 No. 2-97926) pertaining to the Employee Incentive Stock Option Program and the Incentive Stock Option Plan of PS Group, Inc. and (ii) the Registration Statement (Form S-8, No. 33-45608) pertaining to the Recontek, Inc. 1987 Employment Stock Option Plan of our report referred to above, with respect to the consolidated financial statements of PS Group, Inc. incorporated herein by reference.
ERNST & YOUNG LLP
San Diego, California March 26, 1996
INDEX TO EXHIBITS
(3)(i) Articles of Incorporation.
(a) Restated Certificate of Incorporation. (Incorporated by reference to Exhibit (3)(a) to the Company's Current Report on Form 8-K dated November 18, 1986.) (b) Certificate of Amendment of Certificate of Incorporation. (Incorporated by reference to Exhibit (3)(b) to the Company's Current Report on Form 8-K dated November 18, 1986.) (c) Certificate of Amendment to Certificate of Incorporation dated May 24, 1990. (Incorporated by reference to Exhibit 3(c) to the Company's 1990 Annual Report on Form 10-K.) (d) Certificate of Amendment to Certificate of Incorporation dated June 12, 1992. (Incorporated by reference to Exhibit 3(d) to the Company's 1992 Annual Report on Form 10-K.)
(3)(ii) Bylaws as amended through March 24, 1995. (Incorporated by reference to Exhibit 3(ii) to the Company's 1994 Annual Report on Form 10-K.)
(4) Instruments defining the rights of security holders, including indentures:
(a) Amended and Restated Rights Agreement dated as of June 30, 1986 between the Company and Chemical Bank (Successor Rights Agent to Bank of America, N.T. & S.A.) (Incorporated by reference to the Company's Current Report on Form 8-K dated February 16, 1996.) (b) Amendment dated September 15, 1988 to Rights Agreement between the Company and Bank of America. (Incorporated by reference to the Company's Current Report on Form 8-K dated September 12, 1988.) (c) Amendment dated September 16, 1990 to Rights Agreement between the Company and Bank of America. (Incorporated by reference to the Company's Current Report on Form 8-K dated September 16, 1990.) (d) Amendment dated December 14, 1990 to Rights Agreement between the Company and Bank of America. (Incorporated by reference to the Company's Current Report on Form 8-K dated December 14, 1990.)
(10) Material contracts:
(a) 1984 Stock Incentive Plan of PS Group, Inc. (Incorporated by reference to Exhibit (19)(a) to the Company's report on Form 10-Q for the quarter ended June 30, 1985.) (b) Amendment to 1984 Stock Incentive Plan for PS Group, Inc., as approved by the Stockholders May 21, 1987. (Incorporated by reference to Exhibit (10)(g) to the Company's 1987 Annual Report on Form 10-K.) (c) Form 1, Form 2, Form 3, and Form 4 of Option Agreement effective November 17, 1984. (Incorporated by reference to Exhibit (19)(h) to the Company's report on Form 10-Q for the quarter ended June 30, 1985.)
Index-1
(d) Retirement Plan for Corporate Officers of PSA, Inc. (now PS Group, Inc.) and Participating Subsidiaries effective March 12, 1984, amending and restating the Retirement Plan for Corporate Officers of Pacific Southwest Airlines. (Incorporated by reference to Exhibit 10(d) to the Company's 1994 Annual Report on Form 10-K.) (e) Employment Agreement dated January 15, 1988 between the Company and Lawrence A. Guske. (Incorporated by reference to Exhibit 10(q) to the Company's 1988 Annual Report on Form 10-K.) This Agreement is substantially identical in all material respects to the Employment Agreement between the Company and Johanna Unger. (f) Amendment dated April 1, 1989 to Employment Agreement between the Company and Lawrence A. Guske. (Incorporated by reference to Exhibit 10(q) to the Company's 1989 Annual Report on Form 10-K.) This Amendment is substantially identical in all material respects to Amendment to Employment Agreement between the Company and Johanna Unger. (g) Agreement dated December 14, 1990 between Berkshire Hathaway Inc. ("Berkshire") and the Company relating to Berkshire's acquisition of the Company's Common Stock. (Incorporated by reference to Exhibit 10(v) to the Company's 1990 Annual Report on Form 10-K.) (h) Form of Indemnification Agreement. (Incorporated by reference to Exhibit 10(w) to the Company's 1990 Annual Report on Form 10-K as filed on Form 8 Amendment thereto dated May 29, 1991.) (i) Arrangement for Pension benefit for Chairman of the Board of the Company. (Incorporated by reference to Exhibit 10(u) to the Company's 1992 Annual Report on Form 10-K.) (j) Amended and Restated Credit Agreement dated October 3, 1995 between the Company and Bank of America National Trust and Savings Association. (Incorporated by reference to Exhibit (10)(a) to the Company's report on Form 10-Q for the quarter ended September 30, 1995.) (k) Agreement and Plan of Reorganization dated as of January 30, 1996 by and among the Company, PS Group Holdings, Inc. and PSG Merger Subsidiary, Inc. (Incorporated by reference to the Company's current report on Form 8-K dated February 16, 1996.)
(12) Computation of Ratios. (13) Inside front cover, page 1 and pages 8 to 40 from the 1995 Annual Report to Stockholders. (21) Subsidiaries. (23) Consent of Independent Auditors (see page of Item 14(a) of this Form 10-K). (27) Financial Data Schedule.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Matters relating to executive compensation plans and arrangements can be found within the index to exhibits as follows: (10)(a), (10)(b), (10)(c), (10)(d), (10)(e), (10)(f), (10)(h) and (10)(i).
ALL EXHIBITS INCORPORATED BY REFERENCE ARE FILED IN PS GROUP, INC. DOCUMENTS COMMISSION FILE NUMBER 1-7141.
Index-2