Page 46 - Financial Statement Analysis

sub79433_ch01.qxd 4/7/08 3:27 PM Page 23

Chapter One | Overview of Financial Statement Analysis 23

Colgate’s Consolidated Statements of Retained Earnings, Comprehensive Income, Exhibit 1.7
and Changes in Capital Accounts

Additional Accumulated Compre-
Common Shares Paid-in Treasury Shares Retained Other Compre- hensive
Shares Amount Capital Shares Amount Earnings hensive Income Income
Balance, December 31, 2005 . . . . . 516 ,170,957 $732.9 $1,064.4 216,682,223 $(7,581.0) $8,968.1 $(1,804.7)
Net income . . . . . . . . . . . . . . . . . . . 1,353.4 $1,353.4
Other comprehensive income:
Cumulative translation
adjustment . . . . . . . . . . . . . . 89.1 89.1
Adjustment to initially apply
SFAS 158, net of taxes . . . . . . (380.7)
Minimum Pension liability
adjustment, net of tax . . . . . . 19.2 19.2
Other . . . . . . . . . . . . . . . . . . . . . (4.1) (4.1)
Total comprehensive income . . . . . . $1,457.6
Dividends declared:
Series B Convertible
Preference Stock,
net of taxes . . . . . . . . . . . . . . (28.7)
Common stock . . . . . . . . . . . . . . (649.1)
Stock-based compensation
expense . . . . . . . . . . . . . . . . . . . 116.9
Shares issued for stock options . . . 7,095,538 107.7 (7,095,538) 227.7
Treasury stock acquired . . . . . . . . . (14,982,242) 14,982,242 (884.7)
Other . . . . . . . . . . . . . . . . . . . . . . . 4,374,334 (70.9) (4,374,334) 164.1
Balance, December 31, 2006 512,658,587 $732.9 $1,218.1 220,194,593 $(8,073.9) $9,643.7 $(2,081.2)

major adjustments included in comprehensive income are the cumulative (foreign
currency) translation adjustment ($0.089 billion) and the minimum pension liability
adjustment ($0.019 billion). The largest constituent of other comprehensive income,
however, is adjustment for the initial application of SFAS 158—a new pension standard
that became applicable only in 2006—to the tune of $0.381. This amount is not included
in comprehensive income for the year. Also the cumulative total of the other compre-
hensive income adjustments are shown under the column “accumulated other com-
prehensive income”. All items—including the effect of SFAS 158 application—affect the
change in accumulated comprehensive income, from $1.805 billion in 2005 to $2.081
billion in 2006. While most companies show accumulated comprehensive income as a
separate line item within shareholder’s equity, conceptually it is just part of a com-
pany’s retained earnings. We discuss comprehensive income in detail in Chapter 6.
The third heading in the statement of shareholders’ equity shows details of treasury
stock. Treasury stock is discussed in Chapter 3. For now, it is sufficient to view the trea-
sury stock amount as the difference between cash paid for share repurchases and the
proceeds from reselling those shares. The treasury stock amount reduces equity. Col-
gate’s treasury stock at the end of 2006 is more than $8 billion, which is above 80% of
its shareholder’s equity (before treasury stock) of $9.485 billion. Much of the treasury