Obtain Colgate-Palmolive’s (C-P) Form 8-K dated December 6, 2004. Companies file an 8-K with the SEC when they want to announce a special event has occurred at their business. As is often the case with Form 8-Ks, C-P’s includes as an attachment a press release related to its planned restructuring that was issued the same day the 8-K was filed.
You also need to obtain C-P’s income statements for 2003, 2004, 2005, and 2006. The easiest way to obtain these income statements is to retrieve either the company’s 2006 and 2005 Form 10-Ks, or its 2006 and 2005 annual reports. From the 2006 annual report or 10-K, you should also read carefully Note 4, “Restructuring Activities.” To obtain the Form 10-Ks you can use the EDGAR system following the instructions in Appendix A, or they can be found under the “For Investors” link on the company’s corporate website: www.colegate.com. The company’s annual reports are also available on its website.
Required
a. In the Form 8-K, the second paragraph of “Item 2.05 Costs Associated with Exit or Disposal Activities,” C-P discloses that a charge of $102 million will be incurred as a result of the 17 restructuring projects it is undertaking. Some of the costs described in this paragraph can be considered sunk costs. Identify these and specify a dollar amount that appears to be related to sunk costs.
b. In the third paragraph of “Item 2.05 . . .” the company estimates that the total costs eventually incurred for the restructuring will total from $550 to $650 million, after taxes, and that approximately $200 million of these will be incurred in 2005. Based on Note 4 in the company’s 2006 10-K or annual report, what were the actual, after-tax restructuring costs incurred in 2005? Based on Note 4, did the company’s 2006 estimate of the total, after-tax costs of restructuring differ from the estimate it made in 2004?
c. In the press release section of its 8-K, C-P stated that one objective of the restructuring was to increase its gross profit margin. Using the income statements for 2003–2006, calculate C-P’s gross profit percentage for each year. Does it appear the company has achieved the goal of increasing its gross profit margin? Show your computations.