10-Q 1 cl-9302018x10q.htm 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
FORM 10-Q
_________________________
(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the quarterly period ended September 30, 2018

OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the transition period from________ to________ .

Commission File Number: 1-644
COLGATE-PALMOLIVE COMPANY
(Exact name of registrant as specified in its charter)

DELAWARE | 13-1815595
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)

300 Park Avenue, New York, New York | 10022
(Address of principal executive offices) | (Zip Code)

(212) 310-2000
(Registrant’s telephone number, including area code)
NO CHANGES
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ | Accelerated filer ☐
Non-accelerated filer ☐ | Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class |  | Shares Outstanding |  | Date
Common stock, $1.00 par value |  | 867,319,919 |  | September 30, 2018

PART I. FINANCIAL INFORMATION
COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Income
(Dollars in Millions Except Per Share Amounts)
(Unaudited)

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2018 |  | 2017 (A) |  | 2018 |  | 2017 (A)
Net sales | $ | 3,845 |  |  | $ | 3,974 |  |  | $ | 11,733 |  |  | $ | 11,562 |
Cost of sales | 1,576 |  |  | 1,591 |  |  | 4,755 |  |  | 4,610 |
Gross profit | 2,269 |  |  | 2,383 |  |  | 6,978 |  |  | 6,952 |
Selling, general and administrative expenses | 1,369 |  |  | 1,410 |  |  | 4,061 |  |  | 4,055 |
Other (income) expense, net | 26 |  |  | 16 |  |  | 114 |  |  | 150 |
Operating profit | 874 |  |  | 957 |  |  | 2,803 |  |  | 2,747 |
Non-service related postretirement costs | 18 |  |  | 30 |  |  | 65 |  |  | 82 |
Interest (income) expense, net | 36 |  |  | 27 |  |  | 106 |  |  | 74 |
Income before income taxes | 820 |  |  | 900 |  |  | 2,632 |  |  | 2,591 |
Provision for income taxes | 258 |  |  | 250 |  |  | 717 |  |  | 770 |
Net income including noncontrolling interests | 562 |  |  | 650 |  |  | 1,915 |  |  | 1,821 |
Less: Net income attributable to noncontrolling interests | 39 |  |  | 43 |  |  | 121 |  |  | 120 |
Net income attributable to Colgate-Palmolive Company | $ | 523 |  |  | $ | 607 |  |  | $ | 1,794 |  |  | $ | 1,701 |
Earnings per common share, basic | $ | 0.60 |  |  | $ | 0.69 |  |  | $ | 2.06 |  |  | $ | 1.93 |
Earnings per common share, diluted | $ | 0.60 |  |  | $ | 0.68 |  |  | $ | 2.05 |  |  | $ | 1.91 |
Dividends declared per common share * | $ | 0.42 |  |  | $ | 0.40 |  |  | $ | 1.66 |  |  | $ | 1.59 |

* Two dividends were declared in the first quarter of 2018 and 2017.
(A) Prior year amounts have been reclassified to conform to the current year presentation as a result of the adoption of Accounting Standards Update (“ASU”) No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” For further information regarding the impact of the reclassification, see Note 1, Basis of Presentation, Note 3, Recent Accounting Pronouncements and Updated Accounting Policies and Note 13, Segment Information to the Condensed Consolidated Financial Statements.
See Notes to Condensed Consolidated Financial Statements.
2

COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Comprehensive Income
(Dollars in Millions)
(Unaudited)

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Net income including noncontrolling interests | $ | 562 |  |  | $ | 650 |  |  | $ | 1,915 |  |  | $ | 1,821 |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |
Cumulative translation adjustments | (49 | ) |  | 64 |  |  | (247 | ) |  | 294 |
Retirement plans and other retiree benefit adjustments | 31 |  |  | 54 |  |  | 59 |  |  | 79 |
Gains (losses) on cash flow hedges | (1 | ) |  | (3 | ) |  | 9 |  |  | (16 | )
Total Other comprehensive income (loss), net of tax | (19 | ) |  | 115 |  |  | (179 | ) |  | 357 |
Total Comprehensive income including noncontrolling interests | 543 |  |  | 765 |  |  | 1,736 |  |  | 2,178 |
Less: Net income attributable to noncontrolling interests | 39 |  |  | 43 |  |  | 121 |  |  | 120 |
Less: Cumulative translation adjustments attributable to noncontrolling interests | (11 | ) |  | 2 |  |  | (25 | ) |  | 11 |
Total Comprehensive income attributable to noncontrolling interests | 28 |  |  | 45 |  |  | 96 |  |  | 131 |
Total Comprehensive income attributable to Colgate-Palmolive Company | $ | 515 |  |  | $ | 720 |  |  | $ | 1,640 |  |  | $ | 2,047 |

See Notes to Condensed Consolidated Financial Statements.
3

COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Balance Sheets
(Dollars in Millions)
(Unaudited)

| September 30, 2018 |  | December 31, 2017
Assets |  |  |
Current Assets |  |  |
Cash and cash equivalents | $ | 841 |  |  | $ | 1,535 |
Receivables (net of allowances of $82 and $77, respectively) | 1,532 |  |  | 1,480 |
Inventories | 1,245 |  |  | 1,221 |
Other current assets | 523 |  |  | 403 |
Total current assets | 4,141 |  |  | 4,639 |
Property, plant and equipment: |  |  |  |  |
Cost | 8,451 |  |  | 8,460 |
Less: Accumulated depreciation | (4,580 | ) |  | (4,388 | )
| 3,871 |  |  | 4,072 |
Goodwill | 2,539 |  |  | 2,218 |
Other intangible assets, net | 1,660 |  |  | 1,341 |
Deferred income taxes | 165 |  |  | 188 |
Other assets | 195 |  |  | 218 |
Total assets | $ | 12,571 |  |  | $ | 12,676 |
Liabilities and Shareholders’ Equity |  |  |  |  |
Current Liabilities |  |  |  |  |
Notes and loans payable | $ | 85 |  |  | $ | 11 |
Current portion of long-term debt | — |  |  | — |
Accounts payable | 1,158 |  |  | 1,212 |
Accrued income taxes | 360 |  |  | 354 |
Other accruals | 2,144 |  |  | 1,831 |
Total current liabilities | 3,747 |  |  | 3,408 |
Long-term debt | 6,519 |  |  | 6,566 |
Deferred income taxes | 325 |  |  | 204 |
Other liabilities | 2,048 |  |  | 2,255 |
Total liabilities | 12,639 |  |  | 12,433 |
Shareholders’ Equity |  |  |  |  |
Common stock | 1,466 |  |  | 1,466 |
Additional paid-in capital | 2,183 |  |  | 1,984 |
Retained earnings | 21,008 |  |  | 20,531 |
Accumulated other comprehensive income (loss) | (4,172 | ) |  | (3,855 | )
Unearned compensation | 1 |  |  | (5 | )
Treasury stock, at cost | (20,916 | ) |  | (20,181 | )
Total Colgate-Palmolive Company shareholders’ equity | (430 | ) |  | (60 | )
Noncontrolling interests | 362 |  |  | 303 |
Total equity | (68 | ) |  | 243 |
Total liabilities and equity | $ | 12,571 |  |  | $ | 12,676 |

See Notes to Condensed Consolidated Financial Statements.
4

COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Cash Flows
(Dollars in Millions)
(Unaudited)

| Nine Months Ended
| September 30,
| 2018 |  | 2017
Operating Activities |  |  |
Net income including noncontrolling interests | $ | 1,915 |  |  | $ | 1,821 |
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operations: |  |  |  |  |
Depreciation and amortization | 385 |  |  | 354 |
Restructuring and termination benefits, net of cash | (20 | ) |  | 80 |
Stock-based compensation expense | 97 |  |  | 106 |
Charge for U.S. tax reform | 80 |  |  | — |
Deferred income taxes | 78 |  |  | (2 | )
Voluntary benefit plan contributions | (67 | ) |  | (81 | )
Cash effects of changes in: |  |  |
Receivables | (196 | ) |  | (50 | )
Inventories | (36 | ) |  | 16 |
Accounts payable and other accruals | 13 |  |  | 39 |
Other non-current assets and liabilities | (55 | ) |  | 12 |
Net cash provided by operations | 2,194 |  |  | 2,295 |
Investing Activities |  |  |  |  |
Capital expenditures | (321 | ) |  | (382 | )
Purchases of marketable securities and investments | (159 | ) |  | (301 | )
Proceeds from sale of marketable securities and investments | 28 |  |  | 149 |
Payment for acquisitions, net of cash acquired | (728 | ) |  | — |
Other | 6 |  |  | 2 |
Net cash used in investing activities | (1,174 | ) |  | (532 | )
Financing Activities |  |  |  |  |
Principal payments on debt | (5,478 | ) |  | (3,551 | )
Proceeds from issuance of debt | 5,536 |  |  | 3,478 |
Dividends paid | (1,122 | ) |  | (1,070 | )
Purchases of treasury shares | (956 | ) |  | (1,055 | )
Proceeds from exercise of stock options | 319 |  |  | 431 |
Net cash used in financing activities | (1,701 | ) |  | (1,767 | )
Effect of exchange rate changes on Cash and cash equivalents | (13 | ) |  | 69 |
Net increase (decrease) in Cash and cash equivalents | (694 | ) |  | 65 |
Cash and cash equivalents at beginning of the period | 1,535 |  |  | 1,315 |
Cash and cash equivalents at end of the period | $ | 841 |  |  | $ | 1,380 |
Supplemental Cash Flow Information |  |  |  |  |
Income taxes paid | $ | 655 |  |  | $ | 820 |

See Notes to Condensed Consolidated Financial Statements.
5

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)

1. | Basis of Presentation

The Condensed Consolidated Financial Statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair statement of the results for interim periods. Results of operations for interim periods may not be representative of results to be expected for a full year. Colgate-Palmolive Company (together with its subsidiaries, the “Company” or “Colgate”) reclassifies certain prior year amounts, as applicable, to conform to the current year presentation.
The Company adopted Accounting Standards Update (“ASU”) No. 2017-07, “Compensation–Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” on January 1, 2018. For further information regarding the impact of the adoption of ASU No. 2017-07, refer to Note 3, Recent Accounting Pronouncements and Updated Accounting Policies and Note 13, Segment Information.
For a complete set of financial statement notes, including the Company’s significant accounting policies, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission (the “SEC”).

2. | Use of Estimates

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

3. | Recent Accounting Pronouncements and Updated Accounting Policies

Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15, “Intangibles–Goodwill and Other–Internal–Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” This new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new guidance is effective for the Company on a prospective or retrospective basis beginning on January 1, 2020, with early adoption permitted. While the Company is currently assessing the impact of the new guidance, it is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-14, “Compensation–Retirement Benefits–Defined Benefit Plans–General (Topic 715): Disclosure Framework–Changes to the Disclosure Requirements for Defined Benefit Plans.” This new guidance removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and requires certain additional disclosures. This new guidance is effective for the Company on a retrospective basis beginning in the year ending December 31, 2020, with early adoption permitted. While the Company is currently assessing the impact of the new guidance, it is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This new guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This new guidance is effective for the Company beginning on January 1, 2020, with early adoption permitted. Certain disclosures in the new guidance will need to be applied on a retrospective basis and others on a prospective basis. While the Company is currently assessing the impact of the new guidance, it is not expected to have a material impact on the Company’s Consolidated Financial Statements.
6

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement–Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”), which permits the reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act (the “TCJA” or “U.S. tax reform”) from Accumulated other comprehensive income (loss) to Retained earnings. This new guidance is effective for the Company beginning on January 1, 2019, with early adoption permitted, and must be applied either in the period of adoption or retrospectively to periods in which the effects of the TCJA are recognized. The Company elected to adopt this new guidance early, beginning on January 1, 2018, and reclassified $163 during the first quarter of 2018.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” amending the eligibility criteria for hedged items and transactions to expand an entity’s ability to hedge nonfinancial and financial risk components. The new guidance eliminates the requirement to separately measure and present hedge ineffectiveness and aligns the presentation of hedge gains and losses with the underlying hedge item. The new guidance also simplifies the hedge documentation and hedge effectiveness assessment requirements. The new guidance is effective for the Company beginning on January 1, 2019, with early adoption permitted. The amended presentation and disclosure requirements must be adopted on a prospective basis, while any amendments to cash flow and net investment hedge relationships that exist on the date of adoption must be applied on a “modified retrospective” basis, meaning a cumulative effect adjustment to the opening balance of retained earnings as of the beginning of the year of adoption. The new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting,” clarifying when a change to the terms or conditions of a stock-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance was effective for the Company on a prospective basis beginning on January 1, 2018 and did not impact the Company’s Consolidated Financial Statements, as it is not the Company’s practice to change either the terms or the conditions of stock-based payment awards once they are granted.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation–Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” changing the presentation of the net periodic benefit cost on the Statement of Income and limiting the amount of net periodic benefit cost eligible for capitalization to assets. The new guidance permits only the service cost component of net periodic benefit cost to be eligible for capitalization. The new guidance also requires entities to present the service cost component of net periodic benefit cost together with compensation costs arising from services rendered by employees during the period. The non-service related components of net periodic benefit cost, which include interest, expected return on assets, amortization of prior service costs and actuarial gains and losses, are required to be presented outside of Operating profit. The line item or items used to present the other components of net periodic benefit cost must be disclosed in the Notes to the Consolidated Financial Statements, if not separately described on the Statement of Income. The new presentation requirement is required to be adopted on a “full retrospective” basis, meaning the standard is applied to all of the periods presented in the financial statements, while the limitation on capitalization can only be adopted on a prospective basis. Effective January 1, 2018, as required, the Company adopted this standard on a retrospective basis. As permitted by the new guidance, the Company used the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the basis for applying the retrospective presentation requirements. As a result, for all periods presented, only the service related component of pension and other postretirement benefit costs is included in Operating profit. The non-service related components are included in a new line item, “Non-service related postretirement costs,” which is below Operating profit. For the three months ended September 30, 2017, the Company reclassified $19 and $11 and, for the nine months ended September 30, 2017, the Company reclassified $69 and $13 of non-service related components of pension and other postretirement benefit costs from Selling, general and administrative expenses and Other (income) expense, net, respectively, to Non-service related postretirement costs. Adoption of this standard had no effect on Net income attributable to Colgate-Palmolive Company, Earnings per common share or Cash flow.
7

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” eliminating the requirement to calculate the implied fair value, essentially eliminating step two from the goodwill impairment test. The new standard requires goodwill impairment to be based upon the results of step one of the impairment test, which is defined as the excess of the carrying value of a reporting unit over its fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard is effective for the Company on a prospective basis beginning on January 1, 2020, with early adoption permitted. This new guidance is not expected to have an impact on the Company’s Consolidated Financial Statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which provides additional guidance on evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The guidance requires an entity to evaluate if substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the new guidance would define this as an asset acquisition; otherwise, the entity then evaluates whether the asset meets the requirement that a business include, at a minimum, an input and substantive process that together significantly contribute to the ability to create outputs. The guidance was effective for the Company on a prospective basis beginning on January 1, 2018. This new guidance did not have an impact on the Company’s Consolidated Financial Statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which clarifies how certain cash receipts and payments are to be presented in the statement of cash flows. The guidance was effective for the Company on January 1, 2018. This new guidance did not have an impact on the Company’s Consolidated Financial Statements.
In February 2016, the FASB issued its final standard on lease accounting, ASU No. 2016-02, “Leases (Topic 842),” which supersedes Topic 840, “Leases.” The new accounting standard requires the recognition of right-of-use assets and lease liabilities for all long-term leases, including operating leases, on the balance sheet. Under current accounting standards, substantially all of the Company’s leases are considered operating leases and, as such, are not recognized on the Company’s Consolidated Balance Sheet. The new standard also provides additional guidance on the measurement of the right-of-use assets and lease liabilities and will require enhanced disclosures about the Company’s leasing arrangements. This new standard is effective for the Company beginning on January 1, 2019, with early adoption permitted.
In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” to clarify the implementation guidance and ASU No. 2018-11, “Leases (Topic 842) Targeted Improvements.” This updated guidance provides an optional transition method, which allows for the initial application of the new accounting standard at the adoption date and the recognition of a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the period of adoption. The Company will adopt the new standard on January 1, 2019 and intends to elect certain practical expedients, including the optional transition method that allows for the application of the new standard at its adoption date with no restatement of prior period amounts. The Company has identified its significant lease contracts by geography and by asset type and is in the process of implementing a global lease management and accounting system. The Company is in the process of finalizing its assessment of the impact of the new standard on its Consolidated Financial Statements and is evaluating its processes and internal controls to identify any necessary changes.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments–Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The amendment to the standard was effective for the Company beginning on January 1, 2018 and did not have an impact on the Company’s Consolidated Financial Statements.
8

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
In May 2014, the FASB and the International Accounting Standards Board issued their final converged standard on revenue recognition. The standard, issued as ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” by the FASB, provides a comprehensive revenue recognition model for all contracts with customers and supersedes current revenue recognition guidance. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to its customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The new standard also includes enhanced disclosures. During 2016, the FASB issued several accounting updates (ASU No. 2016-08, 2016-10 and 2016-12) to clarify implementation guidance and correct unintended application of the guidance. The standard allows for either full retrospective adoption or modified retrospective adoption. The Company adopted the new standard on January 1, 2018, on a “modified retrospective” basis, which did not have a material impact on the Company’s Consolidated Financial Statements. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the 2018 opening balance of retained earnings. Results for periods beginning on or after January 1, 2018 are presented under Topic 606, “Revenue from Contracts with Customers,” while prior period amounts are not adjusted and continue to be reported in accordance with the prior accounting guidance under Topic 605, “Revenue Recognition.”
The new accounting standard changes only the timing of when certain of the Company’s sales are recorded and does not change the amount at which sales are recorded. The application of the new accounting standard did not have a material impact on the Company’s Consolidated Financial Statements for the three or nine months ended September 30, 2018 and is not expected to have a material impact on the Company’s Consolidated Financial Statements in future periods.
Updated Accounting Policies
Revenue Recognition Accounting Policy
The Company’s revenue contracts represent a single performance obligation to sell its products to trade customers. Sales are recorded at the time control of the products is transferred to trade customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the products. Control is the ability of trade customers to direct the “use of” and “obtain” the benefit from our products. In evaluating the timing of the transfer of control of products to trade customers, the Company considers several control indicators, including significant risks and rewards of products, the Company’s right to payment and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to trade customers.
Net sales reflect the transaction prices for contracts, which include units shipped at selling list prices reduced by variable consideration. Variable consideration includes expected sales returns and the cost of current and continuing promotional programs. Current promotional programs primarily include product listing allowances and co-operative advertising arrangements. Continuing promotional programs are predominantly consumer coupons and volume-based sales incentive arrangements. The cost of promotional programs is estimated using the expected value method considering all reasonably available information, including the Company’s historical experience and its current expectations, and is reflected in the transaction price when sales are recorded. Adjustments to the cost of promotional programs in subsequent periods are generally not material, as the Company’s promotional programs are typically of short duration, thereby reducing the uncertainty inherent in such estimates.
Sales returns are generally accepted at the Company’s discretion and are not material to the Company’s Consolidated Financial Statements. The Company’s contracts with trade customers do not have significant financing components or non-cash consideration and the Company does not have unbilled revenue or significant amounts of prepayments from customers. The Company records Net sales excluding taxes collected on its sales to its trade customers. Shipping and handling activities are accounted for as contract fulfillment costs and classified as Selling, general and administrative expenses.
9

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)

4. | Acquisitions and Divestitures

Acquisitions
In January 2018, the Company acquired all of the outstanding equity interests of Physicians Care Alliance, LLC and Elta MD Holdings, Inc., professional skin care businesses, for aggregate cash consideration of approximately $730. With these acquisitions, the Company entered the professional skin care category, which complements its existing global personal care businesses and resulted in the recognition of additional goodwill.
During the third quarter of 2018, the Company updated its analysis of the preliminary valuation of the assets and liabilities acquired, which primarily resulted in an increase of $64 to goodwill, a decrease in other intangible assets of $69 and a decrease in deferred income taxes of $5, compared with the estimates recorded in the first quarter of 2018. The impact of the change to the preliminary estimates was not material to the Company’s results of operations. As a result, the total purchase price consideration of $730 has been allocated to the net assets acquired based on their respective estimated fair values as follows:

Recognized amounts of assets acquired and liabilities assumed: |
Inventories | $ | 8 |
Other current assets | 8 |
Other intangible assets | 369 |
Goodwill | 396 |
Other current liabilities | (6 | )
Deferred income taxes | (45 | )
Fair value of net assets acquired | $ | 730 |

Based on the Company’s purchase price allocation, other intangible assets acquired primarily include trademarks of $231 with useful lives of 25 years and customer relationships of $133 with useful lives ranging from 12 to 13 years.
Goodwill of $396 was allocated to the North America segment. The Company expects that approximately 45% of the goodwill will be deductible for tax purposes.
Pro forma results of operations have not been presented as the impact on the Company’s Condensed Consolidated Financial Statements is not material.
10

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)

5. | Restructuring and Related Implementation Charges

In the fourth quarter of 2012, the Company commenced a restructuring program (the “Global Growth and Efficiency Program”) for sustained growth. The program was expanded in 2014 and expanded and extended in 2015. Building on the Company’s successful implementation of the program, on October 26, 2017, the Company’s Board of Directors (the “Board”) approved an expansion of the Global Growth and Efficiency Program and an extension of the program through December 31, 2019 to take advantage of additional opportunities to streamline the Company’s operations.
Initiatives under the Global Growth and Efficiency Program continue to fit within the program’s three focus areas of expanding commercial hubs, extending shared business services and streamlining global functions and optimizing the global supply chain and facilities.
Including the most recent expansion, cumulative pretax charges resulting from the Global Growth and Efficiency Program, once all phases are approved and implemented, are estimated to be in the range of $1,730 to $1,885 ($1,280 to $1,380 aftertax). The Company now anticipates that pretax charges for 2018 will approximate $125 to $165 ($95 to $125 aftertax). It is expected that substantially all charges resulting from the Global Growth and Efficiency Program will be incurred by December 31, 2019.
The pretax charges resulting from the Global Growth and Efficiency Program are currently estimated to be comprised of the following categories: Employee-Related Costs, including severance, pension and other termination benefits (50%); asset-related costs, primarily Incremental Depreciation and Asset Impairments (5%); and Other charges, which include contract termination costs, consisting primarily of related implementation charges resulting directly from exit activities (25%) and the implementation of new strategies (20%). Over the course of the Global Growth and Efficiency Program, it is currently estimated that approximately 80% of the charges will result in cash expenditures.
The Company expects that the cumulative pretax charges, once all projects are approved and implemented, will relate to initiatives undertaken in North America (15%), Latin America (5%), Europe (20%), Asia Pacific (5%), Africa/Eurasia (5%), Hill’s Pet Nutrition (10%) and Corporate (40%), which includes substantially all of the costs related to the implementation of new strategies, noted above, on a global basis. The Company expects that, when it has been fully implemented, the Global Growth and Efficiency Program will have contributed a net reduction of approximately 3,800 to 4,400 positions from the Company’s global employee workforce.
For the three and nine months ended September 30, 2018 and 2017, restructuring and related implementation charges are reflected in the Condensed Consolidated Statements of Income as follows:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Cost of sales | $ | 8 |  |  | $ | 16 |  |  | $ | 19 |  |  | $ | 51 |
Selling, general and administrative expenses | 9 |  |  | 22 |  |  | 24 |  |  | 60 |
Other (income) expense, net | 8 |  |  | 9 |  |  | 64 |  |  | 122 |
Non-service related postretirement costs | 1 |  |  | 11 |  |  | 8 |  |  | 13 |
Total Global Growth and Efficiency Program charges, pretax | $ | 26 |  |  | $ | 58 |  |  | $ | 115 |  |  | $ | 246 |
Total Global Growth and Efficiency Program charges, aftertax | $ | 22 |  |  | $ | 39 |  |  | $ | 93 |  |  | $ | 185 |

Restructuring and related implementation charges in the preceding table are recorded in the Corporate segment as these initiatives are predominantly centrally directed and controlled and are not included in internal measures of segment operating performance.
11

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
Total charges incurred for the Global Growth and Efficiency Program relate to initiatives undertaken by the following reportable operating segments:

| Three Months Ended |  | Nine Months Ended |  | Program-to-date
| September 30, |  | September 30, |  | Accumulated Charges
| 2018 |  | 2017 |  | 2018 |  | 2017 |  |
North America | 16 | % |  | 27 | % |  | 17 | % |  | 23 | % |  | 18 | %
Latin America | 8 | % |  | 2 | % |  | 11 | % |  | 3 | % |  | 4 | %
Europe | (24 | )% |  | (11 | )% |  | (4 | )% |  | 29 | % |  | 20 | %
Asia Pacific | 14 | % |  | 7 | % |  | 4 | % |  | 4 | % |  | 3 | %
Africa/Eurasia | 5 | % |  | 2 | % |  | 5 | % |  | 2 | % |  | 6 | %
Hill’s Pet Nutrition | 40 | % |  | 9 | % |  | 25 | % |  | 5 | % |  | 8 | %
Corporate | 41 | % |  | 64 | % |  | 42 | % |  | 34 | % |  | 41 | %
Total | 100 | % |  | 100 | % |  | 100 | % |  | 100 | % |  | 100 | %

Since the inception of the Global Growth and Efficiency Program in the fourth quarter of 2012, the Company has incurred cumulative pretax charges of $1,676 ($1,246 aftertax) in connection with the implementation of various projects as follows:

| Cumulative Charges
| as of September 30, 2018
Employee-Related Costs | $ | 672 |
Incremental Depreciation | 91 |
Asset Impairments | 43 |
Other | 870 |
Total | $ | 1,676 |

The majority of costs incurred since inception relate to the following projects: the implementation of the Company’s overall hubbing strategy; the extension of shared business services and streamlining of global functions; the consolidation of facilities; the closing of the Morristown, New Jersey personal care facility; the simplification and streamlining of the Company’s research and development capabilities and oral care supply chain, both in Europe; redesigning the European commercial organization; restructuring how the Company will provide future retirement benefits to substantially all of the U.S.-based employees participating in the Company’s defined benefit retirement plan by shifting them to the Company’s defined contribution plan; and the implementation of a Corporate efficiencies program.
The following tables summarize the activity for the restructuring and related implementation charges discussed above and the related accruals:

|  | Three Months Ended September 30, 2018
|  | Employee-Related Costs |  | Incremental Depreciation |  | Asset Impairments |  | Other |  | Total
Balance at June 30, 2018 |  | $ | 82 |  |  | $ | — |  |  | $ | — |  |  | $ | 130 |  |  | $ | 212 |
Charges |  | 9 |  |  | — |  |  | 5 |  |  | 12 |  |  | 26 |
Cash payments |  | (17 | ) |  | — |  |  | — |  |  | (13 | ) |  | (30 | )
Charges against assets |  | (1 | ) |  | — |  |  | (5 | ) |  | — |  |  | (6 | )
Foreign exchange |  | (3 | ) |  | — |  |  | — |  |  | — |  |  | (3 | )
Other |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Balance at September 30, 2018 |  | $ | 70 |  |  | $ | — |  |  | $ | — |  |  | $ | 129 |  |  | $ | 199 |

12

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)

|  | Nine Months Ended September 30, 2018
|  | Employee-Related Costs |  | Incremental Depreciation |  | Asset Impairments |  | Other |  | Total
Balance at December 31, 2017 |  | $ | 127 |  |  | $ | — |  |  | $ | — |  |  | $ | 107 |  |  | $ | 234 |
Charges |  | 44 |  |  | 1 |  |  | 7 |  |  | 63 |  |  | 115 |
Cash payments |  | (89 | ) |  | — |  |  | — |  |  | (46 | ) |  | (135 | )
Charges against assets |  | (8 | ) |  | (1 | ) |  | (7 | ) |  | — |  |  | (16 | )
Foreign exchange |  | (4 | ) |  | — |  |  | — |  |  | — |  |  | (4 | )
Other |  | — |  |  | — |  |  | — |  |  | 5 |  |  | 5 |
Balance at September 30, 2018 |  | $ | 70 |  |  | $ | — |  |  | $ | — |  |  | $ | 129 |  |  | $ | 199 |

Employee-Related Costs primarily include severance and other termination benefits and are calculated based on long-standing benefit practices, local statutory requirements and, in certain cases, voluntary termination arrangements. Employee-Related Costs also include pension and other retiree benefit enhancements amounting to $1 and $8 for the three and nine months ended September 30, 2018, respectively, which are reflected as Charges against assets within Employee-Related Costs in the preceding tables as the corresponding balance sheet amounts are reflected as a reduction of pension assets or an increase in pension and other retiree benefit liabilities. See Note 10, Retirement Plans and Other Retiree Benefits for additional information.
Incremental Depreciation is recorded to reflect changes in useful lives and estimated residual values for long-lived assets that will be taken out of service prior to the end of their normal service period. Asset Impairments are recorded to write down inventories and assets held for sale or disposal to their fair value based on amounts expected to be realized. Charges against assets within Asset Impairments are net of cash proceeds pertaining to the sale of certain assets.
Other charges consist primarily of charges resulting directly from exit activities and the implementation of new strategies as a result of the Global Growth and Efficiency Program. These charges for the three and nine months ended September 30, 2018 include third-party incremental costs related to the development and implementation of new business and strategic initiatives of $11 and $31, respectively, and contract termination costs and charges resulting directly from exit activities of $1 and $32, respectively. These charges were expensed as incurred.
6. Inventories
Inventories by major class are as follows:

| September 30, 2018 |  | December 31, 2017
Raw materials and supplies | $ | 248 |  |  | $ | 267 |
Work-in-process | 40 |  |  | 42 |
Finished goods | 957 |  |  | 912 |
Total Inventories | $ | 1,245 |  |  | $ | 1,221 |

13

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
7. Shareholders’ Equity
Changes in the components of Shareholders’ Equity for the nine months ended September 30, 2018 are as follows:

| Colgate-Palmolive Company Shareholders’ Equity |  | Noncontrolling Interests
| Common Stock |  | Additional Paid-in Capital |  | Unearned Compensation |  | Treasury Stock |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  |
Balance, December 31, 2017 | $ | 1,466 |  |  | $ | 1,984 |  |  | $ | (5 | ) |  | $ | (20,181 | ) |  | $ | 20,531 |  |  | $ | (3,855 | ) |  | $ | 303 |
Net income |  |  |  |  |  |  |  |  |  |  |  |  | 1,794 |  |  |  |  | 121 |
Other comprehensive income (loss), net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (154 | ) |  | (25 | )
Dividends |  |  |  |  |  |  |  |  |  |  |  |  | (1,450 | ) |  |  |  |  | (37 | )
Stock-based compensation expense |  |  |  | 97 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Shares issued for stock options |  |  |  | 133 |  |  |  |  |  | 188 |  |  |  |  |  |  |  |  |  |
Shares issued for restricted stock units |  |  | (31 | ) |  |  |  | 31 |  |  |  |  |  |  |
Treasury stock acquired |  |  |  |  |  |  |  |  |  | (956 | ) |  |  |  |  |  |  |  |  |
Other |  |  |  | — |  |  | 6 |  |  | 2 |  |  | 133 |  |  | (163 | ) | (1) |  |
Balance, September 30, 2018 | $ | 1,466 |  |  | $ | 2,183 |  |  | $ | 1 |  |  | $ | (20,916 | ) |  | $ | 21,008 |  |  | $ | (4,172 | ) |  | $ | 362 |

(1) As a result of the early adoption of ASU 2018-02, the Company reclassified the stranded tax effects in Accumulated other comprehensive income (loss) resulting from the TCJA to Retained earnings. See Note 3, Recent Accounting Pronouncements and Updated Accounting Policies for additional information.
Accumulated other comprehensive income (loss) includes cumulative translation losses of $3,159 and $2,927 at September 30, 2018 and December 31, 2017, respectively, and unrecognized retirement plan and other retiree benefits costs of $1,017 and $923 at September 30, 2018 and December 31, 2017, respectively.
14

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
8. Earnings Per Share
For the three months ended September 30, 2018 and 2017, earnings per share were as follows:

| Three Months Ended
| September 30, 2018 |  | September 30, 2017
| Net income attributable to Colgate-Palmolive Company |  | Shares (millions) |  | Per Share |  | Net income attributable to Colgate-Palmolive Company |  | Shares (millions) |  | Per Share
Basic EPS | $ | 523 |  |  | 868.8 |  |  | $ | 0.60 |  |  | $ | 607 |  |  | 880.7 |  |  | $ | 0.69 |
Stock options and restricted stock units |  |  | 2.3 |  |  |  |  |  |  |  |  | 5.6 |  |  |  |
Diluted EPS | $ | 523 |  |  | 871.1 |  |  | $ | 0.60 |  |  | $ | 607 |  |  | 886.3 |  |  | $ | 0.68 |

For the three months ended September 30, 2018 and 2017, the average number of stock options and restricted stock units that were anti-dilutive and not included in diluted earnings per share calculations were 17,373,432 and 9,502,329, respectively.
For the nine months ended September 30, 2018 and 2017, earnings per share were as follows:

| Nine Months Ended
| September 30, 2018 |  | September 30, 2017
| Net income attributable to Colgate-Palmolive Company |  | Shares (millions) |  | Per Share |  | Net income attributable to Colgate-Palmolive Company |  | Shares (millions) |  | Per Share
Basic EPS | $ | 1,794 |  |  | 871.9 |  |  | $ | 2.06 |  |  | $ | 1,701 |  |  | 883.0 |  |  | $ | 1.93 |
Stock options and restricted stock units |  |  | 3.1 |  |  |  |  |  |  |  |  | 6.3 |  |  |  |
Diluted EPS | $ | 1,794 |  |  | 875.0 |  |  | $ | 2.05 |  |  | $ | 1,701 |  |  | 889.3 |  |  | $ | 1.91 |

For the nine months ended September 30, 2018 and 2017, the average number of stock options and restricted stock units that were anti-dilutive and not included in diluted earnings per share calculations were 16,602,521 and 9,209,060, respectively.
Basic and diluted earnings per share are computed independently for each quarter and any year-to-date period presented. As a result of changes in the number of shares outstanding during the year and rounding, the sum of the quarters’ earnings per share may not necessarily equal the earnings per share for any year-to-date period.
15

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)

9. | Other Comprehensive Income (Loss)

Additions to and reclassifications out of Accumulated other comprehensive income (loss) attributable to the Company for the three months ended September 30, 2018 and 2017 were as follows:

|  | 2018 |  | 2017
|  | Pretax |  | Net of Tax |  | Pretax |  | Net of Tax
Cumulative translation adjustments |  | $ | (38 | ) |  | $ | (38 | ) |  | $ | 48 |  |  | $ | 62 |
Retirement plans and other retiree benefits: |  |  |  |  |  |  |  |
Net actuarial gain (loss) and prior service costs arising during the period |  | 24 |  |  | 18 |  |  | 72 |  |  | 45 |
Amortization of net actuarial loss, transition and prior service costs (1) |  | 16 |  |  | 13 |  |  | 15 |  |  | 9 |
Retirement plans and other retiree benefits adjustments |  | 40 |  |  | 31 |  |  | 87 |  |  | 54 |
Cash flow hedges: |  |  |  |  |  |  |  |
Unrealized gains (losses) on cash flow hedges |  | (2 | ) |  | (1 | ) |  | (8 | ) |  | (5 | )
Reclassification of (gains) losses into net earnings on cash flow hedges (2) |  | — |  |  | — |  |  | 4 |  |  | 2 |
Gains (losses) on cash flow hedges |  | (2 | ) |  | (1 | ) |  | (4 | ) |  | (3 | )
Total Other comprehensive income (loss) |  | $ | — |  |  | $ | (8 | ) |  | $ | 131 |  |  | $ | 113 |

(1) These components of Other comprehensive income (loss) are included in the computation of total pension cost. See Note 10, Retirement Plans and Other Retiree Benefits for additional details.
(2) These (gains) losses are reclassified into Cost of sales. See Note 14, Fair Value Measurements and Financial Instruments for additional details.
There were no tax impacts on Other comprehensive income (loss) attributable to Noncontrolling interests.
16

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
Additions to and reclassifications out of Accumulated other comprehensive income (loss) attributable to the Company for the nine months ended September 30, 2018 and 2017 were as follows:

|  | 2018 |  | 2017
|  | Pretax |  | Net of Tax |  | Pretax |  | Net of Tax
Cumulative translation adjustments |  | $ | (216 | ) |  | $ | (222 | ) |  | $ | 208 |  |  | $ | 283 |
Retirement plans and other retiree benefits: |  |  |  |  |  |  |  |
Net actuarial gain (loss) and prior service costs arising during the period |  | 24 |  |  | 18 |  |  | 72 |  |  | 45 |
Amortization of net actuarial loss, transition and prior service costs (1) |  | 52 |  |  | 41 |  |  | 52 |  |  | 34 |
Retirement plans and other retiree benefits adjustments |  | 76 |  |  | 59 |  |  | 124 |  |  | 79 |
Cash flow hedges: |  |  |  |  |  |  |  |
Unrealized gains (losses) on cash flow hedges |  | 4 |  |  | 3 |  |  | (28 | ) |  | (17 | )
Reclassification of (gains) losses into net earnings on cash flow hedges (2) |  | 8 |  |  | 6 |  |  | 2 |  |  | 1 |
Gains (losses) on cash flow hedges |  | 12 |  |  | 9 |  |  | (26 | ) |  | (16 | )
Total Other comprehensive income (loss) |  | $ | (128 | ) |  | $ | (154 | ) |  | $ | 306 |  |  | $ | 346 |

(1) These components of Other comprehensive income (loss) are included in the computation of total pension cost. See Note 10, Retirement Plans and Other Retiree Benefits for additional details.
(2) These (gains) losses are reclassified into Cost of sales. See Note 14, Fair Value Measurements and Financial Instruments for additional details.
There were no tax impacts on Other comprehensive income (loss) attributable to Noncontrolling interests.
17

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)

10. | Retirement Plans and Other Retiree Benefits

Components of Net periodic benefit cost for the three and nine months ended September 30, 2018 and 2017 were as follows:

| Pension Benefits |  | Other Retiree Benefits
| United States |  | International |  |  |  |
| Three Months Ended September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017
Service cost | $ | — |  |  | $ | — |  |  | $ | 3 |  |  | $ | 4 |  |  | $ | 3 |  |  | $ | 3 |
Interest cost | 21 |  |  | 23 |  |  | 5 |  |  | 6 |  |  | 9 |  |  | 9 |
ESOP offset | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1 | )
Expected return on plan assets | (28 | ) |  | (28 | ) |  | (5 | ) |  | (5 | ) |  | (1 | ) |  | — |
Amortization of transition and prior service costs (credits) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of actuarial loss (gain) | 12 |  |  | 12 |  |  | 2 |  |  | 2 |  |  | 2 |  |  | 1 |
Net periodic benefit cost | $ | 5 |  |  | $ | 7 |  |  | $ | 5 |  |  | $ | 7 |  |  | $ | 13 |  |  | $ | 12 |

| Pension Benefits |  | Other Retiree Benefits
| United States |  | International |  |  |  |
| Nine Months Ended September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017
Service cost | $ | 1 |  |  | $ | 1 |  |  | $ | 10 |  |  | $ | 11 |  |  | $ | 11 |  |  | $ | 11 |
Interest cost | 64 |  |  | 70 |  |  | 16 |  |  | 16 |  |  | 28 |  |  | 30 |
ESOP offset | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1 | )
Expected return on plan assets | (86 | ) |  | (83 | ) |  | (16 | ) |  | (15 | ) |  | (1 | ) |  | — |
Amortization of transition and prior service costs (credits) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of actuarial loss (gain) | 35 |  |  | 36 |  |  | 6 |  |  | 7 |  |  | 11 |  |  | 9 |
Net periodic benefit cost | $ | 14 |  |  | $ | 24 |  |  | $ | 16 |  |  | $ | 19 |  |  | $ | 49 |  |  | $ | 49 |

For the nine months ended September 30, 2018 and 2017, the Company made voluntary contributions to its U.S. postretirement plans of $67 and $81, respectively.
18

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)

11. | Income Taxes

On December 22, 2017, the TCJA was enacted, which, among other things, lowered the U.S. corporate income tax rate to 21% from 35% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. Beginning in 2018, the TCJA also requires a minimum tax on certain earnings generated by foreign subsidiaries while providing for tax-free repatriation of such earnings through a 100% dividends-received deduction. The Company’s effective income tax rate in 2017 included a provisional charge of $275, recorded in the fourth quarter of 2017, based on its initial analysis of the TCJA using information and estimates available as of February 15, 2018, the date on which the Company filed its Annual Report on Form 10-K for the year ended December 31, 2017. During the third quarter of 2018, the Company recognized an additional provisional transition tax expense of $80 reflecting the impact of transition tax guidance issued by the U.S. Treasury through the third quarter of 2018 and the update of certain estimates and calculations based on information available through the third quarter of 2018.
Given the significant complexity of the TCJA, recent and anticipated further guidance from the U.S. Treasury about implementing the TCJA and the potential for additional guidance from the SEC or the FASB related to the TCJA or additional information becoming available, the Company’s provisional charge may be adjusted further. The aforementioned guidance and additional information regarding the TCJA may also impact the Company’s 2018 effective income tax rate, exclusive of any adjustment to the provisional charge.
The Company has taken a tax position in a foreign jurisdiction since 2002 that has been challenged by the local tax authorities. In May 2015, the Company became aware of several rulings by the Supreme Court in this foreign jurisdiction disallowing certain tax deductions, which had the effect of reversing prior decisions. The Company had taken deductions in prior years similar to those disallowed by such court and, as a result, as required, reassessed its tax position and increased its unrecognized tax benefits in 2015.
In 2016, the Supreme Court in the foreign jurisdiction decided the matter in the Company’s favor for the years 2002 through 2005. Also in 2016, the Administrative Court in the foreign jurisdiction decided the matter in the Company’s favor for the years 2008 through 2011 by acknowledging the Supreme Court’s ruling for the years 2002 through 2005, which eliminated the possibility of future appeals. As a result, the Company recorded a tax benefit of $30, including interest, in 2016.
In March 2018, the lower courts ruled in the Company’s favor for the years 2006, 2007 and 2012 through 2014. The deadline for the local tax authorities to appeal has now passed, and the Company considers all outstanding disputes on this matter resolved. As a result, the Company recorded an additional tax benefit of $15, including interest, during the second quarter of 2018.
As a result of the early adoption of ASU No. 2018-02, the Company reclassified $163 of stranded tax effects in Accumulated other comprehensive income (loss) resulting from the TCJA to Retained earnings during the first quarter of 2018. See Note 3, Recent Accounting Pronouncements and Updated Accounting Policies for additional information.

12. | Contingencies

As a global company serving consumers in more than 200 countries and territories, the Company is routinely subject to a wide variety of legal proceedings. These include disputes relating to intellectual property, contracts, product liability, marketing, advertising, foreign exchange controls, antitrust and trade regulation, as well as labor and employment, pension, privacy, environmental and tax matters and consumer class actions. Management proactively reviews and monitors the Company’s exposure to, and the impact of, environmental matters. The Company is party to various environmental matters and, as such, may be responsible for all or a portion of the cleanup, restoration and post-closure monitoring of several sites.
The Company establishes accruals for loss contingencies when it has determined that a loss is probable and that the amount of loss, or range of loss, can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances.
19

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
The Company also determines estimates of reasonably possible losses or ranges of reasonably possible losses in excess of related accrued liabilities, if any, when it has determined that a loss is reasonably possible and it is able to determine such estimates. For those matters disclosed below for which the amount of any potential losses can be reasonably estimated, the Company currently estimates that the aggregate range of reasonably possible losses in excess of any accrued liabilities is $0 to approximately $200 (based on current exchange rates). The estimates included in this amount are based on the Company’s analysis of currently available information and, as new information is obtained, these estimates may change. Due to the inherent subjectivity of the assessments and the unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to the Company. Thus, the Company’s exposure and ultimate losses may be higher or lower, and possibly significantly so, than the amounts accrued or the range disclosed above.
Based on current knowledge, management does not believe that the ultimate resolution of loss contingencies arising from the matters discussed herein will have a material effect on the Company’s consolidated financial position or its ongoing results of operations or cash flows. However, in light of the inherent uncertainties noted above, an adverse outcome in one or more matters could be material to the Company’s results of operations or cash flows for any particular quarter or year.
Brazilian Matters
There are certain tax and civil proceedings outstanding, as described below, related to the Company’s 1995 acquisition of the Kolynos oral care business from Wyeth (the “Seller”).
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, penalties and any court-mandated fees, at the current exchange rate, are approximately $139. This amount includes additional assessments received from the Brazilian internal revenue authority in April 2016 relating to net operating loss carryforwards used by the Company’s Brazilian subsidiary to offset taxable income that had also been deducted from the authority’s original assessments. The Company has been disputing the disallowances by appealing the assessments since October 2001. Appeals are currently pending at the administrative level. In the event the Company is ultimately unsuccessful in its administrative appeals, further appeals are available within the Brazilian federal courts.
In September 2015, the Company lost one of its appeals at the administrative level and filed a lawsuit in Brazilian federal court. In February 2017, the Company lost an additional administrative appeal and filed a lawsuit in Brazilian federal court. Although there can be no assurances, management believes, based on the opinion of its Brazilian legal counsel, that the disallowances are without merit and that the Company should ultimately prevail. The Company is challenging these disallowances vigorously.
In July 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, in the 6th. Lower Federal Court in the City of São Paulo, 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. The case has been pending since 2002, and the Lower Federal Court has not issued a decision. 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 is challenging this action vigorously.
20

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
In December 2005, the Brazilian internal revenue authority issued to the Company’s Brazilian subsidiary a tax assessment with interest, penalties and any court-mandated fees of approximately $62, 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 had been disputing the assessment within the internal revenue authority’s administrative appeals process. However, in November 2015, the Superior Chamber of Administrative Tax Appeals denied the Company’s final administrative appeal, and the Company has filed a lawsuit in the Brazilian federal court. In the event the Company is unsuccessful in this lawsuit, further appeals are available within the Brazilian federal courts. Although there can be no assurances, management believes, based on the opinion of its Brazilian legal counsel, that the tax assessment is without merit and that the Company should ultimately prevail. The Company is challenging this assessment vigorously.
Competition Matters
Certain of the Company’s subsidiaries have historically been subject to investigations, and, in some cases, fines, by governmental authorities in a number of countries related to alleged competition law violations. Substantially all of these matters also involved other consumer goods companies and/or retail customers. 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 status of pending competition law matters as of September 30, 2018 is set forth below.

▪ | In December 2014, the French competition law authority found that 13 consumer goods companies, including the Company’s French subsidiary, exchanged competitively sensitive information related to the French home care and personal care sectors, for which the Company’s French subsidiary was fined $57. In addition, as a result of the Company’s acquisition of the Sanex personal care business in 2011 from Unilever N.V. and Unilever PLC (together with Unilever N.V., “Unilever”), pursuant to a Business and Share Sale and Purchase Agreement (the “Sale and Purchase Agreement”), the French competition law authority found that the Company’s French subsidiary, along with Hillshire Brands Company (formerly Sara Lee Corporation (“Sara Lee”)), were jointly and severally liable for fines of $25 assessed against Sara Lee’s French subsidiary. The Company is indemnified for these fines by Unilever pursuant to the Sale and Purchase Agreement. The fines were confirmed by the Court of Appeal in October 2016. The Company is appealing the decision of the Court of Appeal on behalf of the Company and Sara Lee in the French Supreme Court.

▪ | In July 2014, the Greek competition law authority issued a statement of objections alleging a restriction of parallel imports into Greece. The Company responded to this statement of objections. In July 2017, the Company received the decision from the Greek competition law authority in which the Company was fined $11. The Company is appealing the decision to the Greek courts.

21

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
Talcum Powder Matters
The Company has been named as a defendant in civil actions alleging that certain talcum powder products that were sold prior to 1996 were contaminated with asbestos. Most of these actions involve a number of co-defendants from a variety of different industries, including suppliers of asbestos and manufacturers of products that, unlike the Company’s products, were designed to contain asbestos. As of September 30, 2018, there were 215 individual cases pending against the Company in state and federal courts throughout the United States, as compared to 222 cases as of June 30, 2018 and 193 cases as of December 31, 2017. During the three months ended September 30, 2018, 23 new cases were filed and 30 cases were resolved by voluntary dismissal or settlement. During the nine months ended September 30, 2018, 90 new cases were filed and 68 cases were resolved by voluntary dismissal, judgment in the Company’s favor or settlement. The value of settlements in the quarter and the year-to-date period presented was not material, either individually or in the aggregate, to each such period’s results of operations.
The Company believes that a significant portion of its costs incurred in defending and resolving these claims will be covered by insurance policies issued by several primary, excess and umbrella insurance carriers, subject to deductibles, exclusions, retentions and policy limits.
While the Company and its legal counsel believe that these cases are without merit and intend to challenge them vigorously, there can be no assurances regarding the ultimate resolution of these matters. Since the amount of any potential losses from these cases currently cannot be reasonably estimated, the range of reasonably possible losses in excess of accrued liabilities disclosed above does not include any amount relating to these cases.
ERISA Matter
In June 2016, a putative class action claiming that residual annuity payments made to certain participants in the Colgate-Palmolive Company Employees’ Retirement Income Plan (the “Plan”) did not comply with the Employee Retirement Income Security Act was filed against the Plan, the Company and certain individuals in the United States District Court for the Southern District of New York. This action has been certified as a class action. The relief sought includes recalculation of benefits, pre- and post-judgment interest and attorneys’ fees. The Company is contesting this action vigorously. Since the amount of any potential loss from this case currently cannot be reasonably estimated, the range of reasonably possible losses in excess of accrued liabilities disclosed above does not include any amount relating to the case.
22

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)

13. | Segment Information

The Company operates in two product segments: Oral, Personal and Home Care; and Pet Nutrition.
The operations of the Oral, Personal and Home Care product segment are managed geographically in five reportable operating segments: North America, Latin America, Europe, Asia Pacific and Africa/Eurasia.
The Company evaluates segment performance based on several factors, including Operating profit. The Company uses Operating profit as a measure of operating segment performance because it excludes the impact of Corporate-driven decisions related to interest expense and income taxes.
Effective January 1, 2018, as required, the Company adopted ASU No. 2017-07, “Compensation–Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” on a retrospective basis. To conform to the current year’s presentation, for the three and nine months ended September 30, 2017, the Company reclassified $30 and $82, respectively, of non-service related components of pension and other postretirement costs, which was previously deducted from Operating profit, to a new line item, “Non-service related postretirement costs,” which is below Operating profit. The impact of the reclassification from Operating profit by segment for the three months ended September 30, 2017 is as follows: North America $15, Latin America $2, Europe $1, Asia Pacific $0, Africa/Eurasia $0, Pet Nutrition $6 and Corporate $6. The impact of the reclassification from Operating profit by segment for the nine months ended September 30, 2017 is as follows: North America $43, Latin America $5, Europe $4, Asia Pacific $1, Africa/Eurasia $1, Pet Nutrition $18 and Corporate $10. The reclassification had no effect on Net income attributable to Colgate-Palmolive Company, Earnings per common share or Cash flow.
The accounting policies of the operating segments are generally the same as those described in Note 2, Summary of Significant Accounting Policies to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Intercompany sales have been eliminated. Corporate operations include costs related to stock options and restricted stock units, research and development costs, Corporate overhead costs, restructuring and related implementation charges and gains and losses on sales of non-core product lines and assets. The Company reports these items within Corporate operations as they relate to Corporate-based responsibilities and decisions and are not included in the internal measures of segment operating performance used by the Company to measure the underlying performance of the operating segments.
Net sales by segment were as follows:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Net sales |  |  |  |  |  |  |
Oral, Personal and Home Care |  |  |  |  |  |  |
North America | $ | 858 |  |  | $ | 795 |  |  | $ | 2,509 |  |  | $ | 2,319 |
Latin America | 856 |  |  | 985 |  |  | 2,718 |  |  | 2,911 |
Europe | 640 |  |  | 642 |  |  | 1,908 |  |  | 1,784 |
Asia Pacific | 673 |  |  | 728 |  |  | 2,106 |  |  | 2,111 |
Africa/Eurasia | 236 |  |  | 251 |  |  | 734 |  |  | 738 |
Total Oral, Personal and Home Care | 3,263 |  |  | 3,401 |  |  | 9,975 |  |  | 9,863 |
Pet Nutrition | 582 |  |  | 573 |  |  | 1,758 |  |  | 1,699 |
Total Net sales | $ | 3,845 |  |  | $ | 3,974 |  |  | $ | 11,733 |  |  | $ | 11,562 |

Approximately 70% of the Company’s Net sales are generated from markets outside the U.S., with approximately 50% of the Company’s Net sales coming from emerging markets (which consist of Latin America, Asia (excluding Japan), Africa/Eurasia and Central Europe).
23

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
The Company’s Net sales of Oral, Personal and Home Care and Pet Nutrition products accounted for the following percentages of the Company’s Net sales:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Net sales |  |  |  |  |  |  |
Oral Care | 47 | % |  | 48 | % |  | 47 | % |  | 48 | %
Personal Care | 20 | % |  | 20 | % |  | 20 | % |  | 19 | %
Home Care | 18 | % |  | 18 | % |  | 18 | % |  | 18 | %
Pet Nutrition | 15 | % |  | 14 | % |  | 15 | % |  | 15 | %
Total Net sales | 100 | % |  | 100 | % |  | 100 | % |  | 100 | %

Operating profit by segment was as follows:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Operating profit |  |  |  |  |  |  |
Oral, Personal and Home Care |  |  |  |  |  |  |
North America | $ | 259 |  |  | $ | 264 |  |  | $ | 780 |  |  | $ | 766 |
Latin America | 222 |  |  | 303 |  |  | 757 |  |  | 883 |
Europe | 162 |  |  | 163 |  |  | 480 |  |  | 451 |
Asia Pacific | 191 |  |  | 220 |  |  | 620 |  |  | 645 |
Africa/Eurasia | 41 |  |  | 44 |  |  | 133 |  |  | 135 |
Total Oral, Personal and Home Care | 875 |  |  | 994 |  |  | 2,770 |  |  | 2,880 |
Pet Nutrition | 163 |  |  | 167 |  |  | 492 |  |  | 499 |
Corporate | (164 | ) |  | (204 | ) |  | (459 | ) |  | (632 | )
Total Operating profit | $ | 874 |  |  | $ | 957 |  |  | $ | 2,803 |  |  | $ | 2,747 |

For the three and nine months ended September 30, 2018, Corporate Operating profit (loss) included charges of $25 and $107, respectively, resulting from the Global Growth and Efficiency Program.
For the three and nine months ended September 30, 2017, Corporate Operating profit (loss) included charges of $47 and $233, respectively, resulting from the Global Growth and Efficiency Program.
For further information regarding the Global Growth and Efficiency Program, refer to Note 5, Restructuring and Related Implementation Charges.
24

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)

14. | Fair Value Measurements and Financial Instruments

The Company uses available market information and other valuation methodologies in assessing the fair value of financial instruments. Judgment is required in interpreting market data to develop the estimates of fair value and, accordingly, changes in assumptions or the estimation methodologies may affect the fair value estimates. 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 and any nonperformance is unlikely to be material, as it is the Company’s policy to contract only with diverse, credit-worthy counterparties based upon both strong credit ratings and other credit considerations.
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, sourcing strategies, 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, which prohibit the use of derivatives for speculative purposes and leveraged derivatives for any purpose. It is the Company’s policy to enter into derivative instrument contracts with terms that match the underlying exposure being hedged. Hedge ineffectiveness, if any, is not material for any period presented.
The Company’s derivative instruments include interest rate swap contracts, foreign currency contracts and commodity contracts. The Company utilizes interest rate swap contracts to manage its targeted mix of fixed and floating rate debt, and these swaps are valued using observable benchmark rates (Level 2 valuation). The Company utilizes foreign currency contracts, including forward and swap contracts, option contracts, local currency deposits and local currency borrowings to hedge portions of its foreign currency purchases, assets and liabilities arising in the normal course of business and the net investment in certain foreign subsidiaries. These contracts are valued using observable market rates (Level 2 valuation). Commodity futures contracts are utilized to hedge the purchases of raw materials used in production. These contracts are measured using quoted commodity exchange prices (Level 1 valuation). The duration of foreign currency and commodity contracts generally does not exceed 12 months.
The following table summarizes the fair value of the Company’s derivative instruments and other financial instruments which are carried at fair value in the Company’s Consolidated Balance Sheets at September 30, 2018 and December 31, 2017:

| Assets |  | Liabilities
| Account |  | Fair Value |  | Account |  | Fair Value
Designated derivative instruments |  |  | 9/30/18 |  | 12/31/17 |  |  |  | 9/30/18 |  | 12/31/17
Interest rate swap contracts | Other current assets |  | $ | — |  |  | $ | — |  |  | Other accruals |  | $ | 2 |  |  | $ | — |
Interest rate swap contracts | Other assets |  | — |  |  | — |  |  | Other liabilities |  | 16 |  |  | 7 |
Foreign currency contracts | Other current assets |  | 27 |  |  | 25 |  |  | Other accruals |  | 12 |  |  | 20 |
Foreign currency contracts | Other assets |  | — |  |  | — |  |  | Other liabilities |  | 28 |  |  | 46 |
Commodity contracts | Other current assets |  | — |  |  | — |  |  | Other accruals |  | 1 |  |  | — |
Total designated |  | $ | 27 |  |  | $ | 25 |  |  |  |  | $ | 59 |  |  | $ | 73 |
Other financial instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Marketable securities | Other current assets |  | $ | 120 |  |  | $ | 14 |  |  |  |  |  |  |  |  |
Total other financial instruments |  |  | $ | 120 |  |  | $ | 14 |  |  |  |  |  |  |  |  |

25

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
The carrying amount of cash, cash equivalents, accounts receivable and short-term debt approximated fair value as of September 30, 2018 and December 31, 2017. The estimated fair value of the Company’s long-term debt, including the current portion, as of September 30, 2018 and December 31, 2017, was $6,660 and $6,799, respectively, and the related carrying value was $6,604 and $6,566, respectively. The estimated fair value of long-term debt was derived principally from quoted prices on the Company’s outstanding fixed-term notes (Level 2 valuation).
Fair Value Hedges
The Company has designated all interest rate swap contracts and certain foreign currency forward and option contracts as fair value hedges, for which the gain or loss on the derivative and the offsetting gain or loss on the hedged item are recognized in current earnings. The impact of foreign currency contracts is primarily recognized in Selling, general and administrative expenses and the impact of interest rate swap contracts is recognized in Interest (income) expense, net.
Activity related to fair value hedges recorded during the three and nine months ended September 30, 2018 and 2017 was as follows:

| 2018 |  | 2017
| Foreign Currency Contracts |  | Interest Rate Swaps |  | Total |  | Foreign Currency Contracts |  | Interest Rate Swaps |  | Total
Notional Value at September 30, | $ | 400 |  |  | $ | 1,000 |  |  | $ | 1,400 |  |  | $ | 1,095 |  |  | $ | 600 |  |  | $ | 1,695 |
Three months ended September 30, |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gain (loss) on derivatives | — |  |  | — |  |  | — |  |  | (14 | ) |  | (1 | ) |  | (15 | )
Gain (loss) on hedged items | — |  |  | — |  |  | — |  |  | 14 |  |  | 1 |  |  | 15 |
Nine months ended September 30, |  |  |  |  |  |  |  |  |  |  |
Gain (loss) on derivatives | (7 | ) |  | (11 | ) |  | (18 | ) |  | (15 | ) |  | (3 | ) |  | (18 | )
Gain (loss) on hedged items | 7 |  |  | 11 |  |  | 18 |  |  | 15 |  |  | 3 |  |  | 18 |

Cash Flow Hedges
All of the Company’s commodity contracts and certain foreign currency forward contracts have been designated as cash flow hedges, for which the effective portion of the gain or loss is reported as a component of Other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
Activity related to cash flow hedges recorded during the three and nine months ended September 30, 2018 and 2017 was as follows:

| 2018 |  | 2017
| Foreign Currency Contracts |  | Commodity Contracts |  | Total |  | Foreign Currency Contracts |  | Commodity Contracts |  | Total
Notional Value at September 30, | $ | 821 |  |  | $ | 14 |  |  | $ | 835 |  |  | $ | 724 |  |  | $ | 1 |  |  | $ | 725 |
Three months ended September 30, |  |  |  |  |  |  |  |  |  |  |
Gain (loss) recognized in OCI | (2 | ) |  | — |  |  | (2 | ) |  | (8 | ) |  | — |  |  | (8 | )
Gain (loss) reclassified into Cost of sales | — |  |  | — |  |  | — |  |  | (4 | ) |  | — |  |  | (4 | )
Nine months ended September 30, |  |  |  |  |  |  |  |  |  |  |
Gain (loss) recognized in OCI | 4 |  |  | — |  |  | 4 |  |  | (28 | ) |  | — |  |  | (28 | )
Gain (loss) reclassified into Cost of sales | (8 | ) |  | — |  |  | (8 | ) |  | (2 | ) |  | — |  |  | (2 | )

26

COLGATE-PALMOLIVE COMPANY
Notes to Condensed Consolidated Financial Statements (continued)
(Dollars in Millions Except Share and Per Share Amounts)
(Unaudited)
The net gain (loss) recognized in OCI for both foreign currency contracts and commodity contracts is generally expected to be recognized in Cost of sales within the next twelve months.
Net Investment Hedges
The Company has designated certain foreign currency forward and option contracts and certain foreign currency-denominated debt as net investment hedges, for which the gain or loss on the instrument is reported as a component of Cumulative translation adjustments within OCI, along with the offsetting gain or loss on the hedged items.
Activity related to net investment hedges recorded during the three and nine months ended September 30, 2018 and 2017 was as follows:

| 2018 |  | 2017
| Foreign Currency Contracts |  | Foreign Currency Debt |  | Total |  | Foreign Currency Contracts |  | Foreign Currency Debt |  | Total
Notional Value at September 30, | $ | 633 |  |  | $ | 1,417 |  |  | $ | 2,050 |  |  | $ | 749 |  |  | $ | 590 |  |  | $ | 1,339 |
Three months ended September 30, |  |  |  |  |  |  |  |  |  |  |
Gain (loss) on instruments | 1 |  |  | 10 |  |  | 11 |  |  | (23 | ) |  | (22 | ) |  | (45 | )
Gain (loss) on hedged items | — |  |  | (10 | ) |  | (10 | ) |  | 22 |  |  | 22 |  |  | 44 |
Nine months ended September 30, |  |  |  |  |  |  |  |  |  |  |
Gain (loss) on instruments | 26 |  |  | 69 |  |  | 95 |  |  | (69 | ) |  | (115 | ) |  | (184 | )
Gain (loss) on hedged items | (23 | ) |  | (69 | ) |  | (92 | ) |  | 69 |  |  | 115 |  |  | 184 |

27

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Executive Overview
Colgate-Palmolive Company (together with its subsidiaries, the “Company” or “Colgate”) seeks to deliver strong, consistent business results and superior shareholder returns by providing consumers globally 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 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. Approximately 70% of the Company’s Net sales are generated from markets outside the U.S., with approximately 50% of the Company’s Net sales coming from emerging markets (which consist of Latin America, Asia (excluding Japan), Africa/Eurasia and Central Europe). 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 product segment is managed geographically in five reportable operating segments: North America, Latin America, Europe, Asia Pacific and Africa/Eurasia, 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 authorized pet supply retailers and veterinarians. Many of the Company’s products are also sold online through various e-commerce platforms and retailers.
On an ongoing basis, management focuses on a variety of key indicators to monitor business health and performance. These indicators include market share, net sales (including volume, pricing and foreign exchange components), organic sales growth (net sales growth excluding, as applicable, the impact of foreign exchange, acquisitions and divestments), a non-GAAP financial measure, and gross profit margin, operating profit, net income and earnings per share, in each case, on a GAAP and non-GAAP basis, 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 Code of Conduct and corporate governance practices help to maintain business health and strong internal controls. For additional information regarding non-GAAP financial measures, see “Non-GAAP Financial Measures” below.
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. In addition, the Company has strengthened its capabilities in e-commerce, including by developing its relationships with online-only retailers and enhancing its digital marketing capabilities. Growth opportunities are greater in those areas of the world in which economic development and rising consumer incomes expand the size and number of markets for the Company’s products.
28

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
The investments needed to support growth are developed through continuous, Company-wide initiatives to lower costs and increase effective asset utilization. Through these initiatives, which are referred to as the Company’s funding-the-growth initiatives, the Company seeks to become even more effective and efficient throughout its businesses. These initiatives are designed to reduce costs associated with direct materials, indirect expenses, distribution and logistics, and advertising and promotional materials, among other things, and encompass a wide range of projects, examples of which include raw material substitution, reduction of packaging materials, consolidating suppliers to leverage volumes and increasing manufacturing efficiency through SKU reductions and formulation simplification. The Company also continues to prioritize its investments toward its higher margin businesses, specifically Oral Care, Personal Care and Pet Nutrition.
Significant Items Impacting Comparability
In January 2018, the Company acquired all of the outstanding equity interests of Physicians Care Alliance, LLC (“PCA”) and Elta MD Holdings, Inc. (“Elta”), professional skin care businesses, for aggregate cash consideration of approximately $730. With these acquisitions, the Company has entered the professional skin care category, which complements its existing global personal care businesses. See Note 4, Acquisitions and Divestitures to the Condensed Consolidated Financial Statements for additional information.
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA” or “U.S. tax reform”) was enacted, which, among other things, lowered the U.S. corporate income tax rate to 21% from 35% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. Beginning in 2018, the TCJA also requires a minimum tax on certain future earnings generated by foreign subsidiaries while providing for future tax-free repatriation of such earnings through a 100% dividends-received deduction.
As a result of the enactment of the TCJA, in the fourth quarter of 2017, the Company recorded a provisional charge of $275 based on its initial analysis of the TCJA using information and estimates available as of February 15, 2018, the date on which the Company filed its Annual Report on Form 10-K for the year ended December 31, 2017. During the third quarter of 2018, the Company recognized an additional provisional transition tax expense of $80 reflecting the impact of transition tax guidance issued by the U.S. Treasury through the third quarter of 2018 and the update of certain estimates and calculations based on information available through the third quarter of 2018. Given the significant complexity of the TCJA, recent and anticipated further guidance from the U.S. Treasury about implementing the TCJA and the potential for additional guidance from the Securities and Exchange Commission (the “SEC”) or the FASB related to the TCJA or additional information becoming available, the Company’s provisional charge may be adjusted further. The aforementioned guidance and additional information regarding the TCJA may also impact the Company’s 2018 effective income tax rate, exclusive of any adjustment to the provisional charge. Refer to “Results of Operations–Income Taxes” below for additional details.
The Company is in the midst of a restructuring program known as the “Global Growth and Efficiency Program,” which, following the most recent expansion and extension approved by the Company’s Board of Directors (the “Board”) on October 26, 2017, runs through December 31, 2019. The program’s initiatives are expected to help the Company ensure sustained solid worldwide growth in unit volume, organic sales, operating profit and earnings per share and to enhance its global leadership positions in its core businesses. Implementation of the Global Growth and Efficiency Program remains on track.
The initiatives under the Global Growth and Efficiency Program are focused on the following areas:

▪ | Expanding Commercial Hubs

▪ | Extending Shared Business Services and Streamlining Global Functions

▪ | Optimizing Global Supply Chain and Facilities

Savings, substantially all of which are expected to increase future cash flows, are projected to be in the range of $560 to $635 pretax ($500 to $575 aftertax) annually, once all projects are approved and implemented. Cumulative pretax charges resulting from the Global Growth and Efficiency Program, once all phases are approved and implemented, are estimated to be in the range of $1,730 to $1,885 ($1,280 to $1,380 aftertax).
In the three and nine months ended September 30, 2018, the Company incurred aftertax costs of $22 and $93, respectively, resulting from the Global Growth and Efficiency Program.
29

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
For more information regarding the Global Growth and Efficiency Program, see “Restructuring and Related Implementation Charges” below and Note 5, Restructuring and Related Implementation Charges to the Condensed Consolidated Financial Statements.
Effective January 1, 2018, as required, the Company adopted ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” on a retrospective basis. As a result, for all periods presented, only the service related component of pension and other postretirement benefit costs is included in Operating profit. The non-service related components (interest cost, expected return on assets and amortization of actuarial gains and losses) are included in a new line item, “Non-service related postretirement costs,” which is below Operating profit. Adoption of this standard had no effect on Net income attributable to Colgate-Palmolive Company, Earnings per common share or Cash flow. See Note 3, Recent Accounting Pronouncements and Updated Accounting Policies to the Condensed Consolidated Financial Statements for additional information.
In addition, effective July 1, 2018, Argentina was designated as a hyper-inflationary economy under GAAP. Consequently, the functional currency for the Company’s Argentinian subsidiary is the U.S. dollar and the impact of Argentinian currency fluctuations has been and will be recorded in income. However, this designation has not had and is not expected to have a material impact on the Company’s Consolidated Financial Statements.
Outlook
Looking forward, the Company expects global macroeconomic and market conditions to remain highly challenging with continued low category growth rates around the world. While the global marketplace in which the Company operates has always been highly competitive, the Company continues to experience heightened competitive activity in certain markets from strong local competitors and from other large multinational companies, some of which have greater resources than the Company does. Such activities have included more aggressive product claims and marketing challenges, as well as increased promotional spending and geographic expansion. The Company has also been negatively affected by changes in the policies or practices of its retail trade customers in key markets, such as inventory de-stocking. In addition, the growth of e-commerce has affected and continues to affect consumer preferences and market dynamics. Given that approximately 70% of the Company’s Net sales originate in markets outside the U.S., the Company has experienced and may continue to experience volatile foreign currency fluctuations and high raw and packaging material costs. While the Company has taken, and will continue to take, measures to mitigate the effect of these conditions, should they persist, they could adversely affect the Company’s future results.
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 key priorities: growing sales through engaging with consumers, developing world-class innovation and working with retail partners; driving efficiency on every line of the income statement to increase margins; generating strong cash flow performance and utilizing that cash effectively to enhance total shareholder returns; and leading to win by staying true to the Company’s culture and focusing on its stakeholders. The Company’s commitment to these priorities, together with the strength of the Company’s global brands, its broad international presence in both developed and emerging markets and cost-saving initiatives, such as the Company’s funding-the-growth initiatives and the Global Growth and Efficiency Program, should position the Company well to increase shareholder value over the long term.
30

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Results of Operations
Three Months
Worldwide Net sales were $3,845 in the third quarter of 2018, down 3.0% from the third quarter of 2017, as negative foreign exchange of 4.0% was partially offset by net selling price increases of 1.0%, while volume was flat. The Company’s previously disclosed professional skin care acquisitions increased volume by 1.5%. Organic sales (Net sales excluding the impact of foreign exchange, acquisitions and divestments), a non-GAAP financial measure, decreased 0.5% in the third quarter of 2018. A reconciliation of net sales growth to organic sales growth is provided under “Non-GAAP Financial Measures” below.
Net sales in the Oral, Personal and Home Care product segment were $3,263 in the third quarter of 2018, down 4.0% from the third quarter of 2017 as negative foreign exchange of 4.5% and volume declines of 0.5% were partially offset by net selling price increases of 1.0%. The Company’s previously disclosed professional skin care acquisitions increased volume by 1.5%. Organic sales in the Oral, Personal and Home Care product segment decreased 1.0% in the third quarter of 2018.
The Company’s share of the global toothpaste market was 41.9% on a year-to-date basis, down 1.3 share points from the year ago period, and its share of the global manual toothbrush market was 32.2% on a year-to-date basis, down 0.6 share points from the year ago period. Year-to-date market shares in toothpaste were flat in Europe and Africa/Eurasia and down in North America, Asia Pacific and Latin America versus the comparable 2017 period. In the manual toothbrush category, year-to-date market shares were up in North America and Latin America, flat in Africa/Eurasia and down in Europe and Asia Pacific versus the comparable 2017 period. For additional information regarding market shares, see “Market Share Information” below.
Net sales in the Hill’s Pet Nutrition segment were $582 in the third quarter of 2018, up 1.5% from the third quarter of 2017, driven by volume growth of 1.0% and net selling price increases of 2.0%, partially offset by negative foreign exchange of 1.5%. Organic sales in the Hill’s Pet Nutrition segment increased 3.0% in the third quarter of 2018.
Gross Profit/Margin
Worldwide Gross profit decreased to $2,269 in the third quarter of 2018 from $2,383 in the third quarter of 2017. Gross profit in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Gross profit decreased to $2,277 in the third quarter of 2018 from $2,399 in the third quarter of 2017. This decrease in Gross profit reflects a decrease of $78 resulting from lower Net sales and a decrease of $44 resulting from lower Gross profit margin.
Worldwide Gross profit margin decreased to 59.0% in the third quarter of 2018 from 60.0% in the third quarter of 2017. Excluding charges resulting from the Global Growth and Efficiency Program in both periods, Gross profit margin decreased by 120 basis points (bps) to 59.2% in the third quarter of 2018 from 60.4% in the third quarter of 2017. This decrease in Gross profit margin was due to higher raw and packaging material costs (390 bps), partially offset by cost savings from the Company’s funding-the-growth initiatives (220 bps) and higher pricing (50 bps).

|  | Three Months Ended September 30,
|  | 2018 |  | 2017
Gross profit, GAAP |  | $ | 2,269 |  |  | $ | 2,383 |
Global Growth and Efficiency Program |  | 8 |  |  | 16 |
Gross profit, non-GAAP |  | $ | 2,277 |  |  | $ | 2,399 |

|  | Three Months Ended September 30,
|  | 2018 |  | 2017 |  | Basis Point Change
Gross profit margin, GAAP |  | 59.0 | % |  | 60.0 | % |  | (100 | )
Global Growth and Efficiency Program |  | 0.2 |  |  | 0.4 |  |  |
Gross profit margin, non-GAAP |  | 59.2 | % |  | 60.4 | % |  | (120 | )

31

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 3% to $1,369 in the third quarter of 2018 from $1,410 in the third quarter of 2017. Selling, general and administrative expenses in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Selling, general and administrative expenses decreased to $1,360 in the third quarter of 2018 from $1,388 in the third quarter of 2017, reflecting lower overhead expenses of $18 and decreased advertising investment of $10.
Selling, general and administrative expenses as a percentage of Net sales increased to 35.6% in the third quarter of 2018 from 35.5% in the third quarter of 2017. Excluding charges resulting from the Global Growth and Efficiency Program in both periods, Selling, general and administrative expenses as a percentage of Net sales increased by 50 bps to 35.4% in the third quarter of 2018 as compared to 34.9% in the third quarter of 2017. This increase was due to higher overhead expenses (40 bps) and increased advertising investment (10 bps), both as a percentage of Net sales. In the third quarter of 2018, advertising investment increased as a percentage of Net sales to 10.3% from 10.2% in the third quarter of 2017 but decreased 2% in absolute terms to $395, as compared with $405 in the third quarter of 2017.

|  | Three Months Ended September 30,
|  | 2018 |  | 2017
Selling, general and administrative expenses, GAAP |  | $ | 1,369 |  |  | $ | 1,410 |
Global Growth and Efficiency Program |  | (9 | ) |  | (22 | )
Selling, general and administrative expenses, non-GAAP |  | $ | 1,360 |  |  | $ | 1,388 |

|  | Three Months Ended September 30,
|  | 2018 |  | 2017 |  | Basis Point Change
Selling, general and administrative expenses as a percentage of Net sales, GAAP |  | 35.6 | % |  | 35.5 | % |  | 10
Global Growth and Efficiency Program |  | (0.2 | ) |  | (0.6 | ) |  |
Selling, general and administrative expenses as a percentage of Net sales, non-GAAP |  | 35.4 | % |  | 34.9 | % |  | 50

Other (Income) Expense, Net
Other (income) expense, net was $26 in the third quarter of 2018, as compared to $16 in the third quarter of 2017. Other (income) expense, net in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Other (income) expense, net was $18 in the third quarter of 2018, as compared to $7 in the third quarter of 2017. This increase in Other (income) expense, net was primarily due to the amortization of intangible assets resulting from the professional skin care acquisitions.

|  | Three Months Ended September 30,
|  | 2018 |  | 2017
Other (income) expense, net, GAAP |  | $ | 26 |  |  | $ | 16 |
Global Growth and Efficiency Program |  | (8 | ) |  | (9 | )
Other (income) expense, net, non-GAAP |  | $ | 18 |  |  | $ | 7 |

32

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Operating Profit
Operating profit decreased 9% to $874 in the third quarter of 2018 from $957 in the third quarter of 2017. Operating profit in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Operating profit decreased 10% to $899 in the third quarter of 2018 from $1,004 in the third quarter of 2017, as a decrease in Gross profit was partially offset by a decrease in Selling, general and administrative expenses.
Operating profit margin was 22.7% in the third quarter of 2018, a decrease of 140 bps compared to 24.1% in the third quarter of 2017. Excluding charges resulting from the Global Growth and Efficiency Program in both periods, Operating profit margin was 23.4% in the third quarter of 2018, a decrease of 190 bps as compared to 25.3% in the third quarter of 2017. This decrease in Operating profit margin was primarily due to a decrease in Gross profit (120 bps) and an increase in Selling, general and administrative expenses (50 bps), both as a percentage of Net sales.

|  | Three Months Ended September 30,
|  | 2018 |  | 2017 |  | % Change
Operating profit, GAAP |  | $ | 874 |  |  | $ | 957 |  |  | (9 | )%
Global Growth and Efficiency Program |  | 25 |  |  | 47 |  |  |
Operating profit, non-GAAP |  | $ | 899 |  |  | $ | 1,004 |  |  | (10 | )%

|  | Three Months Ended September 30,
|  | 2018 |  | 2017 |  | Basis Point Change
Operating profit margin, GAAP |  | 22.7 | % |  | 24.1 | % |  | (140 | )
Global Growth and Efficiency Program |  | 0.7 |  |  | 1.2 |  |  |
Operating profit margin, non-GAAP |  | 23.4 | % |  | 25.3 | % |  | (190 | )

Non-Service Related Postretirement Costs
Non-service related postretirement costs were $18 in the third quarter of 2018, as compared to $30 in the third quarter of 2017. Non-service related postretirement costs in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Non-service related postretirement costs were $17 in the third quarter of 2018, as compared to $19 in the third quarter of 2017.

|  | Three Months Ended September 30,
|  | 2018 |  | 2017
Non-service related postretirement costs, GAAP |  | $ | 18 |  |  | $ | 30 |
Global Growth and Efficiency Program |  | (1 | ) |  | (11 | )
Non-service related postretirement costs, non-GAAP |  | $ | 17 |  |  | $ | 19 |

Interest (Income) Expense, Net
Interest (income) expense, net was $36 in the third quarter of 2018 as compared to $27 in the third quarter of 2017, primarily due to higher average interest rates on debt.
33

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Net Income Attributable to Colgate-Palmolive Company and Earnings Per Share
Net income attributable to Colgate-Palmolive Company for the third quarter of 2018 decreased to $523 from $607 in the third quarter of 2017, and Earnings per common share on a diluted basis decreased to $0.60 per share in the third quarter of 2018 from $0.68 in the third quarter of 2017. Net income attributable to Colgate-Palmolive Company in both periods included charges resulting from the Global Growth and Efficiency Program. Net income attributable to Colgate-Palmolive Company in the third quarter of 2018 also included a provisional charge related to U.S. tax reform. See “Income Taxes” below for additional information.
Excluding the items described above in both periods as applicable, Net income attributable to Colgate-Palmolive Company in the third quarter of 2018 decreased 3% to $625 from $646 in the third quarter of 2017, and Earnings per common share on a diluted basis decreased 1% to $0.72 in the third quarter of 2018 from $0.73 in the third quarter of 2017.

| Three Months Ended September 30, 2018
| Income Before Income Taxes |  | Provision For Income Taxes(1) |  | Net Income Including Noncontrolling Interests |  | Net Income Attributable To Colgate-Palmolive Company |  | Diluted Earnings Per Share(2)
As Reported GAAP | $ | 820 |  |  | $ | 258 |  |  | $ | 562 |  |  | $ | 523 |  |  | $ | 0.60 |
Global Growth and Efficiency Program | 26 |  |  | 4 |  |  | 22 |  |  | 22 |  |  | 0.02 |
U.S. tax reform | — |  |  | (80 | ) |  | 80 |  |  | 80 |  |  | 0.10 |
Non-GAAP | $ | 846 |  |  | $ | 182 |  |  | $ | 664 |  |  | $ | 625 |  |  | $ | 0.72 |

| Three Months Ended September 30, 2017
| Income Before Income Taxes |  | Provision For Income Taxes(1) |  | Net Income Including Noncontrolling Interests |  | Net Income Attributable To Colgate-Palmolive Company |  | Diluted Earnings Per Share(2)
As Reported GAAP | $ | 900 |  |  | $ | 250 |  |  | $ | 650 |  |  | $ | 607 |  |  | $ | 0.68 |
Global Growth and Efficiency Program | 58 |  |  | 19 |  |  | 39 |  |  | 39 |  |  | 0.05 |
Non-GAAP | $ | 958 |  |  | $ | 269 |  |  | $ | 689 |  |  | $ | 646 |  |  | $ | 0.73 |

(1) The income tax effect on non-GAAP items is calculated based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.
(2) The impact of non-GAAP adjustments on diluted earnings per share may not necessarily equal the difference between “GAAP” and “non-GAAP” as a result of rounding.
34

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Net Sales and Operating Profit by Segment
Oral, Personal and Home Care
North America

| Three Months Ended September 30,
| 2018 |  | 2017 |  | Change
Net sales | $ | 858 |  |  | $ | 795 |  |  | 8.0 |  | %
Operating profit | $ | 259 |  |  | $ | 264 |  |  | (2 | ) | %
% of Net sales | 30.2 | % |  | 33.2 | % |  | (300 | ) | bps

Net sales in North America increased 8.0% in the third quarter of 2018 to $858, driven by volume growth of 7.5% and net selling price increases of 0.5%, while foreign exchange was flat. The Company’s previously disclosed professional skin care acquisitions increased volume by 6.0%. Organic sales in North America increased 2.0% in the third quarter of 2018.
The increase in organic sales in North America in the third quarter of 2018 versus the third quarter of 2017 was primarily due to an increase in Oral Care and Personal Care organic sales. The increase in Oral Care was primarily due to organic sales growth in the toothpaste and toothbrush categories. The increase in Personal Care was primarily attributable to organic sales growth in the liquid hand soap and shower gel categories, partially offset by a decline in organic sales in the underarm protection category.
Operating profit in North America decreased 2% in the third quarter of 2018 to $259, or 300 bps to 30.2% of Net sales. This decrease in Operating profit as a percentage of Net sales was due to a decrease in Gross profit (60 bps), an increase in Selling, general and administrative expenses (170 bps) and an increase in Other (income) expense, net (70 bps), all as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs (220 bps), partially offset by cost savings from the Company’s funding-the-growth initiatives (170 bps). This increase in Selling, general and administrative expenses was due to higher overhead expenses (200 bps), primarily driven by increased logistics costs. This increase in Other (income) expense, net was primarily due to the amortization of intangible assets resulting from the professional skin care acquisitions.
35

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Latin America

| Three Months Ended September 30,
| 2018 |  | 2017 |  | Change
Net sales | $ | 856 |  |  | $ | 985 |  |  | (13.0 | ) | %
Operating profit | $ | 222 |  |  | $ | 303 |  |  | (27 | ) | %
% of Net sales | 25.9 | % |  | 30.8 | % |  | (490 | ) | bps

Net sales in Latin America decreased 13.0% to $856 in the third quarter of 2018. Volume declines of 6.0% and negative foreign exchange of 9.5% were partially offset by net selling price increases of 2.5%. Volume declines in Brazil, Central America and Argentina were partially offset by volume gains in the Greater Caribbean region and Mexico. Organic sales in Latin America decreased 3.5% in the third quarter of 2018.
The decrease in organic sales in Latin America in the third quarter of 2018 versus the third quarter of 2017 was due to decreases in Oral Care and Personal Care organic sales, partially offset by an increase in Home Care organic sales. The decrease in Oral Care was due to a decline in organic sales in the toothpaste category. The decrease in Personal Care was primarily due to a decline in organic sales in the bar soap category. The increase in Home Care was primarily due to organic sales growth in the hand dish category.
Operating profit in Latin America decreased 27% in the third quarter of 2018 to $222, or 490 bps to 25.9% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit (340 bps) and an increase in Selling, general and administrative expenses (130 bps), both as a percentage of Net sales. This decrease in Gross profit was due to higher raw and packaging material costs (640 bps), which included foreign exchange transaction costs, partially offset by cost savings from the Company’s funding-the-growth initiatives (300 bps). This increase in Selling, general and administrative expenses was due to higher overhead expenses (120 bps) and increased advertising investment (10 bps).
36

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Europe

| Three Months Ended September 30,
| 2018 |  | 2017 |  | Change
Net sales | $ | 640 |  |  | $ | 642 |  |  | (0.5 | ) | %
Operating profit | $ | 162 |  |  | $ | 163 |  |  | (1 | ) | %
% of Net sales | 25.3 | % |  | 25.4 | % |  | (10 | ) | bps

Net sales in Europe decreased 0.5% in the third quarter of 2018 to $640, as volume growth of 2.0% was more than offset by net selling price decreases of 1.5% and negative foreign exchange of 1.0%. Volume gains were led by the United Kingdom, Spain and Greece. Organic sales in Europe increased 0.5% in the third quarter of 2018.
The increase in organic sales in Europe in the third quarter of 2018 versus the third quarter of 2017 was primarily due to an increase in Oral Care organic sales. The increase in Oral Care was primarily due to an increase in organic sales in the toothpaste category.
Operating profit in Europe decreased 1% in the third quarter of 2018 to $162, or 10 bps to 25.3% of Net sales. This decrease in Operating profit as a percentage of Net sales was due to an increase in Selling, general and administrative expenses (20 bps), partially offset by an increase in Gross profit (10 bps), both as a percentage of Net sales. This increase in Gross profit was primarily due to cost savings from the Company’s funding-the-growth initiatives (200 bps), partially offset by higher raw and packaging material costs (180 bps). This increase in Selling, general and administrative expenses was due to increased advertising investment (50 bps), partially offset by lower overhead expenses (30 bps).
Asia Pacific

| Three Months Ended September 30,
| 2018 |  | 2017 |  | Change
Net sales | $ | 673 |  |  | $ | 728 |  |  | (7.5 | ) | %
Operating profit | $ | 191 |  |  | $ | 220 |  |  | (13 | ) | %
% of Net sales | 28.4 | % |  | 30.2 | % |  | (180 | ) | bps

Net sales in Asia Pacific decreased 7.5% in the third quarter of 2018 to $673, due to volume declines of 4.0% and negative foreign exchange of 3.5%, while net selling prices were flat. Volume declines in the Greater China region were partially offset by volume gains in India. Organic sales in Asia Pacific in the third quarter of 2018 decreased 4.0%.
The decrease in organic sales in Asia Pacific in the third quarter of 2018 was primarily due to a decrease in Oral Care organic sales. The decrease in Oral Care was due to declines in organic sales in the toothpaste and manual toothbrush categories.
Operating profit in Asia Pacific decreased 13% in the third quarter of 2018 to $191, or 180 bps to 28.4% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit (80 bps) and an increase in Selling, general and administrative expenses (90 bps), both as a percentage of Net sales. This decrease in Gross profit was due to higher raw and packaging material costs (360 bps), partially offset by cost savings from the Company’s funding-the-growth initiatives (280 bps). This increase in Selling, general and administrative expenses was due to increased advertising investment (100 bps), partially offset by lower overhead expenses (10 bps).
37

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Africa/Eurasia

| Three Months Ended September 30,
| 2018 |  | 2017 |  | Change
Net sales | $ | 236 |  |  | $ | 251 |  |  | (6.0 | ) | %
Operating profit | $ | 41 |  |  | $ | 44 |  |  | (7 | ) | %
% of Net sales | 17.4 | % |  | 17.5 | % |  | (10 | ) | bps

Net sales in Africa/Eurasia decreased 6.0% in the third quarter of 2018 to $236 as volume declines of 0.5% and negative foreign exchange of 8.5% were partially offset by net selling price increases of 3.0%. Volume declines in Russia and Saudi Arabia were partially offset by volume growth in the Gulf States and Israel. Organic sales in Africa/Eurasia increased 2.5% in the third quarter of 2018.
The increase in organic sales in Africa/Eurasia in the third quarter of 2018 versus the third quarter of 2017 was due to an increase in Oral Care organic sales, partially offset by decreases in Personal Care and Home Care organic sales. The increase in Oral Care was due to organic sales growth in the toothpaste and manual toothbrush categories. The decrease in Personal Care was primarily due to organic sales decline in the bar soap and underarm protection categories, partially offset by organic sales growth in the shower gel category. The decrease in Home Care was primarily due to a decline in organic sales in the fabric softener category.
Operating profit in Africa/Eurasia decreased 7% in the third quarter of 2018 to $41, or 10 bps to 17.4% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit (170 bps), partially offset by a decrease in Selling, general and administrative expenses (120 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs (550 bps), which included foreign exchange transaction costs, partially offset by cost savings from the Company’s funding-the-growth initiatives (150 bps) and higher pricing. This decrease in Selling, general and administrative expenses was due to lower overhead expenses (120 bps).
Hill’s Pet Nutrition

| Three Months Ended September 30,
| 2018 |  | 2017 |  | Change
Net sales | $ | 582 |  |  | $ | 573 |  |  | 1.5 |  | %
Operating profit | $ | 163 |  |  | $ | 167 |  |  | (2 | ) | %
% of Net sales | 28.0 | % |  | 29.1 | % |  | (110 | ) | bps

Net sales for Hill’s Pet Nutrition increased 1.5% in the third quarter of 2018 to $582, as volume growth of 1.0% and net selling price increases of 2.0% were partially offset by negative foreign exchange of 1.5%. Volume gains in the United States, South Africa and Australia were partially offset by volume declines in Western Europe. Organic sales in Hill’s Pet Nutrition increased 3.0% in the third quarter of 2018.
The increase in organic sales in the third quarter of 2018 versus the third quarter of 2017 was due to increases in organic sales in the Prescription Diet, Naturals and Advanced Nutrition categories.
Operating profit in Hill’s Pet Nutrition decreased 2% in the third quarter of 2018 to $163, or 110 bps to 28.0% of Net sales. This decrease in Operating profit as a percentage of Net sales was due to a decrease in Gross profit (60 bps) and an increase in Other (income) expense, net (50 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs (270 bps), partially offset by cost savings from the Company’s funding-the-growth initiatives (160 bps). This increase in Other (income) expense, net was primarily due to the expiration of a foreign sales tax benefit.
38

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Corporate

| Three Months Ended September 30,
| 2018 |  | 2017 |  | Change
Operating profit (loss) | $ | (164 | ) |  | $ | (204 | ) |  | (20 | ) | %

Operating profit (loss) related to Corporate was ($164) in the third quarter of 2018 as compared to ($204) in the third quarter of 2017. In the third quarter of 2018, Corporate Operating profit (loss) included charges of $25 resulting from the Global Growth and Efficiency Program. In the third quarter of 2017, Corporate Operating profit (loss) included charges of $47 resulting from the Global Growth and Efficiency Program.
Nine Months
Worldwide Net sales were $11,733 in the first nine months of 2018, up 1.5% as compared to the first nine months of 2017, driven by volume growth of 1.5%, while net selling prices and foreign exchange were flat. The Company’s previously disclosed professional skin care acquisitions increased volume by 1.0%. Organic sales increased 0.5% in the first nine months of 2018.
Net sales in the Oral, Personal and Home Care product segment were $9,975 in the first nine months of 2018, an increase of 1.0% as compared to the first nine months of 2017, driven by volume growth of 1.0%, while net selling prices and foreign exchange were flat. The Company’s previously disclosed professional skin care acquisitions increased volume by 1.0%. Organic sales in the Oral, Personal and Home Care product segment were even with the first nine months of 2017.
Increases in Oral Care and Home Care organic sales in the first nine months of 2018 were offset by a decrease in Personal Care organic sales. The increase in Oral Care was primarily due to organic sales growth in the toothpaste and manual toothbrush categories. The increase in Home Care was primarily due to organic sales growth in the liquid cleaner and fabric softener categories. The decrease in Personal Care was primarily due to declines in organic sales in the bar soap, shampoo and underarm protection categories, partially offset by organic sales growth in the liquid hand soap category.
Net sales in the Hill’s Pet Nutrition segment were $1,758 in the first nine months of 2018, an increase of 3.5% as compared to the first nine months of 2017, driven by volume growth of 1.0%, net selling price increases of 1.0% and positive foreign exchange of 1.5%. Organic sales for the Hill’s Pet Nutrition segment increased 2.0% in the first nine months of 2018, driven by organic sales growth in the Prescription Diet category, which was partially offset by declines in organic sales in the Advanced Nutrition and Naturals categories.
39

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Net Sales and Operating Profit by Segment
Net sales and Operating profit by segment were as follows:

| Nine Months Ended September 30,
| 2018 |  | 2017
Net sales |  |  |
Oral, Personal and Home Care |  |  |
North America | $ | 2,509 |  |  | $ | 2,319 |
Latin America | 2,718 |  |  | 2,911 |
Europe | 1,908 |  |  | 1,784 |
Asia Pacific | 2,106 |  |  | 2,111 |
Africa/Eurasia | 734 |  |  | 738 |
Total Oral, Personal and Home Care | 9,975 |  |  | 9,863 |
Pet Nutrition | 1,758 |  |  | 1,699 |
Total Net sales | $ | 11,733 |  |  | $ | 11,562 |
Operating profit |  |  |  |  |
Oral, Personal and Home Care |  |  |  |  |
North America | $ | 780 |  |  | $ | 766 |
Latin America | 757 |  |  | 883 |
Europe | 480 |  |  | 451 |
Asia Pacific | 620 |  |  | 645 |
Africa/Eurasia | 133 |  |  | 135 |
Total Oral, Personal and Home Care | 2,770 |  |  | 2,880 |
Pet Nutrition | 492 |  |  | 499 |
Corporate | (459 | ) |  | (632 | )
Total Operating profit | $ | 2,803 |  |  | $ | 2,747 |

Within the Oral, Personal and Home Care product segment, North America Net sales increased 8.0%, driven by volume growth of 7.5% and net selling price increases of 0.5% while foreign exchange was flat. The Company’s previously disclosed professional skin care acquisitions increased volume in North America by 5.0%. Organic sales in North America increased 3.0%. Latin America Net sales decreased 6.5%, driven by volume declines of 2.5% and negative foreign exchange of 5.0%, partially offset by net selling price increases of 1.0%. Organic sales in Latin America decreased 1.5%. Europe Net sales increased 7.0%, as volume growth of 3.0% and positive foreign exchange of 6.5% were partially offset by net selling price decreases of 2.5%. Organic sales in Europe increased 0.5%. Asia Pacific Net sales were flat as volume declines of 1.5% were offset by positive foreign exchange of 1.5%, while net selling prices were flat. Organic sales in Asia Pacific decreased 1.5%. Africa/Eurasia Net sales decreased 0.5%, as volume declines of 0.5% and negative foreign exchange of 2.0% were partially offset by net selling price increases of 2.0%. Organic sales in Africa/Eurasia increased 1.5%.
In the first nine months of 2018, Operating profit (loss) related to Corporate was ($459) as compared to ($632) in the first nine months of 2017. In the first nine months of 2018 and 2017, Corporate Operating profit (loss) included charges of $107 and $233, respectively, resulting from the Global Growth and Efficiency Program.
40

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Gross Profit/Margin
Worldwide Gross profit increased to $6,978 in the first nine months of 2018 from $6,952 in the first nine months of 2017. Gross profit in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Gross profit decreased to $6,997 in the first nine months of 2018 from $7,003 in the first nine months of 2017. This decrease in Gross profit reflects a decrease of $112 resulting from lower Gross profit margin, partially offset by an increase of $106 resulting from higher Net sales in the first nine months of 2018.
Worldwide Gross profit margin was 59.5% in the first nine months of 2018 as compared to 60.1% in the first nine months of 2017. Excluding the charges resulting from the Global Growth and Efficiency Program in both periods, Gross profit margin decreased by 100 bps to 59.6% in the first nine months of 2018, from 60.6% in the first nine months of 2017 primarily due to higher raw and packaging material costs (300 bps), which were partially offset by cost savings from the Company’s funding-the-growth initiatives (160 bps).

|  | Nine Months Ended September 30,
|  | 2018 |  | 2017
Gross profit, GAAP |  | $ | 6,978 |  |  | $ | 6,952 |
Global Growth and Efficiency Program |  | 19 |  |  | 51 |
Gross profit, non-GAAP |  | $ | 6,997 |  |  | $ | 7,003 |

|  | Nine Months Ended September 30,
|  | 2018 |  | 2017 |  | Basis Point Change
Gross profit margin, GAAP |  | 59.5 | % |  | 60.1 | % |  | (60 | )
Global Growth and Efficiency Program |  | 0.1 |  |  | 0.5 |  |  |
Gross profit margin, non-GAAP |  | 59.6 | % |  | 60.6 | % |  | (100 | )

41

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $4,061 in the first nine months of 2018 from $4,055 in the first nine months of 2017. Selling, general and administrative expenses in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Selling, general and administrative expenses increased to $4,037 in the first nine months of 2018 from $3,995 in the first nine months of 2017, reflecting higher overhead expenses of $32 and increased advertising investment of $10.
Selling, general and administrative expenses as a percentage of Net sales decreased to 34.6% in the first nine months of 2018 from 35.1% in the first nine months of 2017. Excluding charges resulting from the Global Growth and Efficiency Program, Selling, general and administrative expenses as a percentage of Net sales were 34.4% in the first nine months of 2018, a decrease of 20 bps as compared to the first nine months of 2017. This decrease was due to lower overhead expenses (10 bps) and decreased advertising investment (10 bps), both as a percentage of Net sales. In the first nine months of 2018, advertising investment increased 1% to $1,214, as compared with $1,204 in the first nine months of 2017, while as a percentage of Net sales, it decreased to 10.3% in the first nine months of 2018 from 10.4% in the first nine months of 2017.

|  | Nine Months Ended September 30,
|  | 2018 |  | 2017
Selling, general and administrative expenses, GAAP |  | $ | 4,061 |  |  | $ | 4,055 |
Global Growth and Efficiency Program |  | (24 | ) |  | (60 | )
Selling, general and administrative expenses, non-GAAP |  | $ | 4,037 |  |  | $ | 3,995 |

|  | Nine Months Ended September 30,
|  | 2018 |  | 2017 |  | Basis Point Change
Selling, general and administrative expenses as a percentage of Net sales, GAAP |  | 34.6 | % |  | 35.1 | % |  | (50 | )
Global Growth and Efficiency Program |  | (0.2 | ) |  | (0.5 | ) |  |
Selling, general and administrative expenses as a percentage of Net sales, non- GAAP |  | 34.4 | % |  | 34.6 | % |  | (20 | )

Other (Income) Expense, Net
Other (income) expense, net was $114 in the first nine months of 2018, as compared to $150 in the first nine months of 2017. Other (income) expense, net in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Other (income) expense, net was $50 in the first nine months of 2018, as compared to $28 in the first nine months of 2017. This increase in Other (income) expense, net was primarily due to the amortization of intangible assets resulting from the professional skin care acquisitions.

|  | Nine Months Ended September 30,
|  | 2018 |  | 2017
Other (income) expense, net, GAAP |  | $ | 114 |  |  | $ | 150 |
Global Growth and Efficiency Program |  | (64 | ) |  | (122 | )
Other (income) expense, net, non-GAAP |  | $ | 50 |  |  | $ | 28 |

42

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Operating Profit
Operating profit increased 2% to $2,803 in the first nine months of 2018 from $2,747 in the first nine months of 2017. Operating profit in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Operating profit for the first nine months of 2018 decreased 2% to $2,910 from $2,980 in the first nine months of 2017, primarily as a result of a decrease in Gross profit and an increase in Selling, general and administrative expenses.
Operating profit margin was 23.9% in the first nine months of 2018, an increase of 10 bps compared to 23.8% in the first nine months of 2017. Excluding charges resulting from the Global Growth and Efficiency Program in both periods, Operating profit margin was 24.8%, a decrease of 100 bps from 25.8% in the first nine months of 2017. This decrease was primarily due to a decrease in Gross profit margin (100 bps) as a percentage of Net sales.

|  | Nine Months Ended September 30,
|  | 2018 |  | 2017 |  | % Change
Operating profit, GAAP |  | $ | 2,803 |  |  | $ | 2,747 |  |  | 2 | %
Global Growth and Efficiency Program |  | 107 |  |  | 233 |  |  |
Operating profit, non-GAAP |  | $ | 2,910 |  |  | $ | 2,980 |  |  | (2 | )%

|  | Nine Months Ended September 30,
|  | 2018 |  | 2017 |  | Basis Point Change
Operating profit margin, GAAP |  | 23.9 | % |  | 23.8 | % |  | 10 |
Global Growth and Efficiency Program |  | 0.9 |  |  | 2.0 |  |  |
Operating profit margin, non-GAAP |  | 24.8 | % |  | 25.8 | % |  | (100 | )

Non-Service Related Postretirement Costs
Non-service related postretirement costs were $65 in the first nine months of 2018, as compared to $82 in the first nine months of 2017. Non-service related postretirement costs in both periods included charges resulting from the Global Growth and Efficiency Program. Excluding these charges in both periods, Non-service related postretirement costs were $57 in the first nine months of 2018, as compared to $69 in the first nine months of 2017.

|  | Nine Months Ended September 30,
|  | 2018 |  | 2017
Non-service related postretirement costs, GAAP |  | $ | 65 |  |  | $ | 82 |
Global Growth and Efficiency Program |  | (8 | ) |  | (13 | )
Non-service related postretirement costs, non-GAAP |  | $ | 57 |  |  | $ | 69 |

Interest (Income) Expense, Net
Interest (income) expense, net was $106 in the first nine months of 2018 as compared to $74 in the first nine months of 2017, primarily due to higher average interest rates on debt.
43

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Income Taxes
The effective income tax rate was 31.5% for the third quarter of 2018 as compared to 27.8% for the third quarter of 2017. As reflected in the table below, the non-GAAP effective income tax rate was 21.5% for the third quarter of 2018, as compared to 28.1% in the comparable period of 2017.
The effective income tax rate was 27.2% for the first nine months of 2018 as compared to 29.7% for the first nine months of 2017. As reflected in the table below, the non-GAAP effective income tax rate was 24.6% for the nine months ended September 30, 2018, as compared to 29.3% in the comparable period of 2017.
The quarterly provision for income taxes is determined based on the Company’s estimated full year effective income tax rate adjusted by the amount of tax attributable to infrequent or unusual items that are separately recognized on a discrete basis in the income tax provision in the quarter in which they occur. The Company’s current estimate of its full year effective income tax rate before discrete period items is 25.1%, compared to 30.8% in the third quarter of 2017, primarily due to the enactment of the TCJA, as discussed in more detail below. See Note 11, Income Taxes to the Condensed Consolidated Financial Statements for additional details.

|  | Three Months Ended September 30,
|  | 2018 |  | 2017
|  | Income Before Income Taxes |  | Provision For Income Taxes(1) |  | Effective Income Tax Rate(2) |  | Income Before Income Taxes |  | Provision For Income Taxes(1) |  | Effective Income Tax Rate(2)
As Reported GAAP |  | $ | 820 |  |  | $ | 258 |  |  | 31.5 | % |  | $ | 900 |  |  | $ | 250 |  |  | 27.8 | %
Global Growth and Efficiency Program |  | 26 |  |  | 4 |  |  | (0.5 | ) |  | 58 |  |  | 19 |  |  | 0.3 |
U.S. tax reform |  | — |  |  | (80 | ) |  | (9.5 | ) |  | — |  |  | — |  |  | — |
Non-GAAP |  | $ | 846 |  |  | $ | 182 |  |  | 21.5 | % |  | $ | 958 |  |  | $ | 269 |  |  | 28.1 | %

|  | Nine Months Ended September 30,
|  | 2018 |  | 2017
|  | Income Before Income Taxes |  | Provision For Income Taxes(1) |  | Effective Income Tax Rate(2) |  | Income Before Income Taxes |  | Provision For Income Taxes(1) |  | Effective Income Tax Rate(2)
As Reported GAAP |  | $ | 2,632 |  |  | $ | 717 |  |  | 27.2 | % |  | $ | 2,591 |  |  | $ | 770 |  |  | 29.7 | %
Global Growth and Efficiency Program |  | 115 |  |  | 25 |  |  | (0.2 | ) |  | 246 |  |  | 61 |  |  | (0.4 | )
Benefit from a foreign tax matter |  | — |  |  | 15 |  |  | 0.5 |  |  | — |  |  | — |  |  | — |
U.S. tax reform |  | — |  |  | (80 | ) |  | (2.9 | ) |  | — |  |  | — |  |  | — |
Non-GAAP |  | $ | 2,747 |  |  | $ | 677 |  |  | 24.6 | % |  | $ | 2,837 |  |  | $ | 831 |  |  | 29.3 | %

(1) The income tax effect on non-GAAP items is calculated based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.
(2) The impact of non-GAAP items on the Company’s effective tax rate represents the difference in the effective tax rate calculated with and without the non-GAAP adjustment on Income before income taxes and Provision for income taxes.
44

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
On December 22, 2017, the TCJA was enacted, which, among other things, lowered the U.S. corporate income tax rate to 21% from 35% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. Beginning in 2018, the TCJA also requires a minimum tax on certain earnings generated by foreign subsidiaries while providing for tax-free repatriation of such earnings through a 100% dividends-received deduction. The Company’s effective income tax rate in 2017 included a provisional charge of $275, recorded in the fourth quarter of 2017, based on its initial analysis of the TCJA using information and estimates available as of February 15, 2018, the date on which the Company filed its Annual Report on Form 10-K for the year ended December 31, 2017. During the third quarter of 2018, the Company recognized an additional provisional transition tax expense of $80 reflecting the impact of transition tax guidance issued by the U.S. Treasury through the third quarter of 2018 and the update of certain estimates and calculations based on information available through the third quarter of 2018.
Given the significant complexity of the TCJA, recent and anticipated further guidance from the U.S. Treasury about implementing the TCJA and the potential for additional guidance from the SEC or the FASB related to the TCJA or additional information becoming available, the Company’s provisional charge may be adjusted further. The aforementioned guidance and additional information regarding the TCJA may also impact the Company’s 2018 effective income tax rate, exclusive of any adjustment to the provisional charge.
The Company has taken a tax position in a foreign jurisdiction since 2002 that has been challenged by the local tax authorities. In May 2015, the Company became aware of several rulings by the Supreme Court in this foreign jurisdiction disallowing certain tax deductions, which had the effect of reversing prior decisions. The Company had taken deductions in prior years similar to those disallowed by such court and, as a result, as required, reassessed its tax position and increased its unrecognized tax benefits in 2015.
In 2016, the Supreme Court in the foreign jurisdiction decided the matter in the Company’s favor for the years 2002 through 2005. Also in 2016, the Administrative Court in the foreign jurisdiction decided the matter in the Company’s favor for the years 2008 through 2011 by acknowledging the Supreme Court’s ruling for the years 2002 through 2005, which eliminated the possibility of future appeals. As a result, the Company recorded a tax benefit of $30, including interest, in 2016.
In March 2018, the lower courts ruled in the Company’s favor for the years 2006, 2007 and 2012 through 2014. The deadline for the local tax authorities to appeal has now passed, and the Company considers all outstanding disputes on this matter resolved. As a result, the Company recorded an additional tax benefit of $15, including interest, during the second quarter of 2018.
45

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Net Income Attributable to Colgate-Palmolive Company and Earnings Per Share
Net income attributable to Colgate-Palmolive Company in the first nine months of 2018 increased to $1,794 from $1,701 in the comparable 2017 period. Earnings per common share on a diluted basis increased to $2.05 per share from $1.91 per share in the comparable 2017 period. Net income attributable to Colgate-Palmolive Company in both periods included charges resulting from the Global Growth and Efficiency Program. Net income attributable to Colgate-Palmolive Company in the first nine months of 2018 also included a benefit from a foreign tax matter and a provisional charge related to U.S. tax reform. See “Income Taxes” above for additional information.
Excluding the items described above in both periods, as applicable, Net income attributable to Colgate-Palmolive Company increased 3% to $1,952 in the first nine months of 2018 from $1,886 in the first nine months of 2017 and Earnings per common share on a diluted basis increased 5% to $2.23 in the first nine months of 2018 from $2.12 in the first nine months of 2017.

| Nine Months Ended September 30, 2018
| Income Before Income Taxes |  | Provision For Income Taxes(1) |  | Net Income Including Noncontrolling Interests |  | Less: Income Attributable to Noncontrolling Interests |  | Net Income Attributable To Colgate-Palmolive Company |  | Diluted Earnings Per Share(2)
As Reported GAAP | $ | 2,632 |  |  | $ | 717 |  |  | $ | 1,915 |  |  | $ | 121 |  |  | $ | 1,794 |  |  | $ | 2.05 |
Global Growth and Efficiency Program | 115 |  |  | 25 |  |  | 90 |  |  | (3 | ) |  | 93 |  |  | 0.11 |
Benefit from a foreign tax matter | — |  |  | 15 |  |  | (15 | ) |  | — |  |  | (15 | ) |  | (0.02 | )
U.S. tax reform | — |  |  | (80 | ) |  | 80 |  |  | — |  |  | 80 |  |  | 0.09 |
Non-GAAP | $ | 2,747 |  |  | $ | 677 |  |  | $ | 2,070 |  |  | $ | 118 |  |  | $ | 1,952 |  |  | $ | 2.23 |

| Nine Months Ended September 30, 2017
| Income Before Income Taxes |  | Provision For Income Taxes(1) |  | Net Income Including Noncontrolling Interests |  | Net Income Attributable To Colgate-Palmolive Company |  | Diluted Earnings Per Share(2)
As Reported GAAP | $ | 2,591 |  |  | $ | 770 |  |  | $ | 1,821 |  |  | $ | 1,701 |  |  | $ | 1.91 |
Global Growth and Efficiency Program | 246 |  |  | 61 |  |  | 185 |  |  | 185 |  |  | 0.21 |
Non-GAAP | $ | 2,837 |  |  | $ | 831 |  |  | $ | 2,006 |  |  | $ | 1,886 |  |  | $ | 2.12 |

(1) The income tax effect on non-GAAP items is calculated based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.
(2) The impact of non-GAAP adjustments on diluted earnings per share may not necessarily equal the difference between “GAAP” and “non-GAAP” as a result of rounding.
46

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Restructuring and Related Implementation Charges
Global Growth and Efficiency Program
In the fourth quarter of 2012, the Company commenced the Global Growth and Efficiency Program. The program was expanded in 2014 and expanded and extended in 2015. Building on the Company’s successful implementation of the program, on October 26, 2017, the Board approved an expansion of the Global Growth and Efficiency Program and an extension of the program through December 31, 2019 to take advantage of additional opportunities to streamline the Company’s operations.
Initiatives under the Global Growth and Efficiency Program are expected to help the Company ensure sustained solid worldwide growth in unit volume, organic sales, operating profit and earnings per share and to enhance its global leadership positions in its core businesses, producing significant benefits in the Company’s long-term business performance. The major objectives of the program include:

▪ | Becoming even stronger on the ground through the continued evolution and expansion of proven global and regional commercial capabilities, which have already been successfully implemented in a number of the Company’s operations around the world.

▪ | Simplifying and standardizing how work gets done by increasing technology-enabled collaboration and taking advantage of global data and analytic capabilities, leading to smarter and faster decisions.

▪ | Reducing structural costs to continue to increase the Company’s gross and operating profit.

▪ | Building on Colgate’s current position of strength to enhance its leading market share positions worldwide and ensure sustained sales and earnings growth.

The initiatives under the Global Growth and Efficiency Program continue to be focused on the following areas:

▪ | Expanding Commercial Hubs – Building on the success of the hub structure implemented around the world, streamlining operations in order to drive smarter and faster decision-making, strengthen capabilities available on the ground and improve cost structure.

▪ | Extending Shared Business Services and Streamlining Global Functions – Optimizing the Company’s shared service organizational model in all regions of the world and continuing to streamline global functions to improve cost structure.

▪ | Optimizing Global Supply Chain and Facilities – Continuing to optimize manufacturing efficiencies, global warehouse networks and office locations for greater efficiency, lower cost and speed to bring innovation to market.

Implementation of the Global Growth and Efficiency Program remains on track. Savings, substantially all of which are expected to increase future cash flows, are projected to be in the range of $560 to $635 pretax ($500 to $575 aftertax) annually, once all projects are approved and implemented. The Company expects savings in 2018 to be approximately $90 to $120 pretax ($100 to $125 aftertax). Cumulative pretax charges resulting from the Global Growth and Efficiency Program, once all phases are approved and implemented, are estimated to be in the range of $1,730 to $1,885 ($1,280 to $1,380 aftertax). The Company now anticipates that pretax charges for 2018 will approximate $125 to $165 ($95 to $125 aftertax). It is expected that substantially all charges resulting from the Global Growth and Efficiency Program will be incurred by December 31, 2019.
The pretax charges resulting from the Global Growth and Efficiency Program are currently estimated to be comprised of the following categories: Employee-Related Costs, including severance, pension and other termination benefits (50%); asset-related costs, primarily Incremental Depreciation and Asset Impairments (5%); and Other charges, which include contract termination costs, consisting primarily of related implementation charges resulting directly from exit activities (25%) and the implementation of new strategies (20%). Over the course of the Global Growth and Efficiency Program, it is currently estimated that approximately 80% of the charges will result in cash expenditures.
47

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
The Company expects that the cumulative pretax charges, once all projects are approved and implemented, will relate to initiatives undertaken in North America (15%), Latin America (5%), Europe (20%), Asia Pacific (5%), Africa/Eurasia (5%), Hill’s Pet Nutrition (10%) and Corporate (40%), which includes substantially all of the costs related to the implementation of new strategies, noted above, on a global basis. The Company expects that, when it has been fully implemented, the Global Growth and Efficiency Program will have contributed a net reduction of approximately 3,800 to 4,400 positions from the Company’s global employee workforce.
For the three and nine months ended September 30, 2018 and 2017, restructuring and related implementation charges are reflected in the Condensed Consolidated Statements of Income as follows:

| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
| 2018 |  | 2017 |  | 2018 |  | 2017
Cost of sales | $ | 8 |  |  | $ | 16 |  |  | $ | 19 |  |  | $ | 51 |
Selling, general and administrative expenses | 9 |  |  | 22 |  |  | 24 |  |  | 60 |
Other (income) expense, net | 8 |  |  | 9 |  |  | 64 |  |  | 122 |
Non-service related postretirement costs | 1 |  |  | 11 |  |  | 8 |  |  | 13 |
Total Global Growth and Efficiency Program charges, pretax | $ | 26 |  |  | $ | 58 |  |  | $ | 115 |  |  | $ | 246 |
Total Global Growth and Efficiency Program charges, aftertax | $ | 22 |  |  | $ | 39 |  |  | $ | 93 |  |  | $ | 185 |

Restructuring and related implementation charges in the preceding table are recorded in the Corporate segment as these initiatives are predominantly centrally directed and controlled and are not included in internal measures of segment operating performance.
Total charges incurred for the Global Growth and Efficiency Program relate to initiatives undertaken by the following reportable operating segments:

| Three Months Ended |  | Nine Months Ended |  | Program-to-date
| September 30, |  | September 30, |  | Accumulated Charges
| 2018 |  | 2017 |  | 2018 |  | 2017 |  |
North America | 16 | % |  | 27 | % |  | 17 | % |  | 23 | % |  | 18 | %
Latin America | 8 | % |  | 2 | % |  | 11 | % |  | 3 | % |  | 4 | %
Europe | (24 | )% |  | (11 | )% |  | (4 | )% |  | 29 | % |  | 20 | %
Asia Pacific | 14 | % |  | 7 | % |  | 4 | % |  | 4 | % |  | 3 | %
Africa/Eurasia | 5 | % |  | 2 | % |  | 5 | % |  | 2 | % |  | 6 | %
Hill’s Pet Nutrition | 40 | % |  | 9 | % |  | 25 | % |  | 5 | % |  | 8 | %
Corporate | 41 | % |  | 64 | % |  | 42 | % |  | 34 | % |  | 41 | %
Total | 100 | % |  | 100 | % |  | 100 | % |  | 100 | % |  | 100 | %

48

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Since the inception of the Global Growth and Efficiency Program in the fourth quarter of 2012, the Company has incurred cumulative pretax charges of $1,676 ($1,246 aftertax) in connection with the implementation of various projects as follows:

| Cumulative Charges
| as of September 30, 2018
Employee-Related Costs | $ | 672 |
Incremental Depreciation | 91 |
Asset Impairments | 43 |
Other | 870 |
Total | $ | 1,676 |

The majority of costs incurred since inception relate to the following projects: the implementation of the Company’s overall hubbing strategy; the extension of shared business services and streamlining of global functions; the consolidation of facilities; the closing of the Morristown, New Jersey personal care facility; the simplification and streamlining of the Company’s research and development capabilities and oral care supply chain, both in Europe; redesigning the European commercial organization; restructuring how the Company will provide future retirement benefits to substantially all of the U.S.-based employees participating in the Company’s defined benefit retirement plan by shifting them to the Company’s defined contribution plan; and the implementation of a Corporate efficiencies program.
The following tables summarize the activity for the restructuring and related implementation charges discussed above and the related accruals:

|  | Three Months Ended September 30, 2018
|  | Employee-Related Costs |  | Incremental Depreciation |  | Asset Impairments |  | Other |  | Total
Balance at June 30, 2018 |  | $ | 82 |  |  | $ | — |  |  | $ | — |  |  | $ | 130 |  |  | $ | 212 |
Charges |  | 9 |  |  | — |  |  | 5 |  |  | 12 |  |  | 26 |
Cash payments |  | (17 | ) |  | — |  |  | — |  |  | (13 | ) |  | (30 | )
Charges against assets |  | (1 | ) |  | — |  |  | (5 | ) |  | — |  |  | (6 | )
Foreign exchange |  | (3 | ) |  | — |  |  | — |  |  | — |  |  | (3 | )
Other |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Balance at September 30, 2018 |  | $ | 70 |  |  | $ | — |  |  | $ | — |  |  | $ | 129 |  |  | $ | 199 |

|  | Nine Months Ended September 30, 2018
|  | Employee-Related Costs |  | Incremental Depreciation |  | Asset Impairments |  | Other |  | Total
Balance at December 31, 2017 |  | $ | 127 |  |  | $ | — |  |  | $ | — |  |  | $ | 107 |  |  | $ | 234 |
Charges |  | 44 |  |  | 1 |  |  | 7 |  |  | 63 |  |  | 115 |
Cash payments |  | (89 | ) |  | — |  |  | — |  |  | (46 | ) |  | (135 | )
Charges against assets |  | (8 | ) |  | (1 | ) |  | (7 | ) |  | — |  |  | (16 | )
Foreign exchange |  | (4 | ) |  | — |  |  | — |  |  | — |  |  | (4 | )
Other |  | — |  |  | — |  |  | — |  |  | 5 |  |  | 5 |
Balance at September 30, 2018 |  | $ | 70 |  |  | $ | — |  |  | $ | — |  |  | $ | 129 |  |  | $ | 199 |

49

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Employee-Related Costs primarily include severance and other termination benefits and are calculated based on long-standing benefit practices, local statutory requirements and, in certain cases, voluntary termination arrangements. Employee-Related Costs also include pension and other retiree benefit enhancements amounting to $1 and $8 for the three and nine months ended September 30, 2018, respectively, which are reflected as Charges against assets within Employee-Related Costs in the preceding tables as the corresponding balance sheet amounts are reflected as a reduction of pension assets or an increase in pension and other retiree benefit liabilities. See Note 10, Retirement Plans and Other Retiree Benefits to the Condensed Consolidated Financial Statements for additional information.
Incremental Depreciation is recorded to reflect changes in useful lives and estimated residual values for long-lived assets that will be taken out of service prior to the end of their normal service period. Asset Impairments are recorded to write down inventories and assets held for sale or disposal to their fair value based on amounts expected to be realized. Charges against assets within Asset Impairments are net of cash proceeds pertaining to the sale of certain assets.
Other charges consist primarily of charges resulting directly from exit activities and the implementation of new strategies as a result of the Global Growth and Efficiency Program. These charges for the three and nine months ended September 30, 2018 include third-party incremental costs related to the development and implementation of new business and strategic initiatives of $11 and $31, respectively, and contract termination costs and charges resulting directly from exit activities of $1 and $32, respectively. These charges were expensed as incurred.
50

COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q discusses certain financial measures on both a GAAP and a non-GAAP basis. The Company uses the non-GAAP financial measures described below internally in its budgeting process, to evaluate segment and overall operating performance and as a factor in determining compensation. The Company believes that these non-GAAP financial measures are useful in evaluating the Company’s underlying business performance and trends; however, 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.
Net sales growth (GAAP) and organic sales growth (Net sales growth excluding, as applicable, the impact of foreign exchange, acquisitions and divestments) (non-GAAP) are discussed in this Quarterly Report on Form 10-Q. Management believes the organic sales growth measure provides investors and analysts with useful supplemental information regarding the Company’s underlying sales trends by presenting sales growth excluding, as applicable, the external factor of foreign exchange, as well as the impact of acquisitions and divestments. A reconciliation of organic sales growth to Net sales growth for the three and nine months ended September 30, 2018 is provided below.
Worldwide Gross profit, Gross profit margin, Selling, general and administrative expenses, Selling, general and administrative expenses as a percentage of Net sales, Other (income) expense, net, Operating profit, Operating profit margin, Non-service related postretirement costs, effective income tax rate, Net income attributable to Colgate-Palmolive Company and Earnings per share on a diluted basis are discussed in this Quarterly Report on Form 10-Q both on a GAAP basis and excluding the charges resulting from the Global Growth and Efficiency Program and, as applicable, the benefit from a foreign tax matter and a charge related to U.S. tax reform (non-GAAP). These non-GAAP financial measures exclude items that, either by their nature or amount, management would not expect to occur as part of the Company’s normal business on a regular basis, such as restructuring charges, charges for certain litigation and tax matters, gains and losses from certain divestitures and certain unusual, non-recurring items. Investors and analysts use these financial measures in assessing the Company’s business performance and management believes that presenting these financial measures on a non-GAAP basis provides them with useful supplemental information to enhance their understanding of the Company’s underlying business performance and trends. These non-GAAP financial measures also enhance the ability to compare period-to-period financial results. A reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP financial measures for the three and nine months ended September 30, 2018 and 2017 is presented within the applicable section of Results of Operations.
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COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
The following tables provide a quantitative reconciliation of Net sales growth to organic sales growth for the three and nine months ended September 30, 2018:

Three Months Ended September 30, 2018 | Net Sales Growth (GAAP) | Foreign Exchange Impact | Acquisitions and Divestments Impact | Organic Sales Growth (Non-GAAP)
Oral, Personal and Home Care |  |  |  |
North America | 8.0% | —% | 6.0% | 2.0%
Latin America | (13.0)% | (9.5)% | —% | (3.5)%
Europe | (0.5)% | (1.0)% | —% | 0.5%
Asia Pacific | (7.5)% | (3.5)% | —% | (4.0)%
Africa/Eurasia | (6.0)% | (8.5)% | —% | 2.5%
Total Oral, Personal and Home Care | (4.0)% | (4.5)% | 1.5% | (1.0)%
Pet Nutrition | 1.5% | (1.5)% | —% | 3.0%
Total Company | (3.0)% | (4.0)% | 1.5% | (0.5)%

Nine Months Ended September 30, 2018 | Net Sales Growth (GAAP) | Foreign Exchange Impact | Acquisitions and Divestments Impact | Organic Sales Growth (Non-GAAP)
Oral, Personal and Home Care |  |  |  |
North America | 8.0% | —% | 5.0% | 3.0%
Latin America | (6.5)% | (5.0)% | —% | (1.5)%
Europe | 7.0% | 6.5% | —% | 0.5%
Asia Pacific | —% | 1.5% | —% | (1.5)%
Africa/Eurasia | (0.5)% | (2.0)% | —% | 1.5%
Total Oral, Personal and Home Care | 1.0% | —% | 1.0% | —%
Pet Nutrition | 3.5% | 1.5% | —% | 2.0%
Total Company | 1.5% | —% | 1.0% | 0.5%

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COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
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 for debt service, dividends, capital expenditures, charges resulting from the Global Growth and Efficiency Program and stock repurchases). The Company believes its strong cash generation and financial position should continue to allow it broad access to global credit and capital markets.
Net cash provided by operations decreased 4% to $2,194 in the first nine months of 2018, compared with $2,295 in the comparable period of 2017, primarily due to an increase in working capital, partially offset by lower income tax payments. The Company’s working capital was (3.1%) as a percentage of Net sales in the first nine months of 2018 as compared to (4.6%) in the first nine months of 2017. 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).
Building on the Company’s successful implementation of the Global Growth and Efficiency Program, on October 26, 2017, the Board approved an expansion of the Global Growth and Efficiency Program and an extension of the program through December 31, 2019 to take advantage of additional opportunities to streamline the Company’s operations.
Implementation of the Global Growth and Efficiency Program remains on track. Including the most recent expansion, total program charges resulting from the Global Growth and Efficiency Program are estimated to be in the range of $1,730 to $1,885 ($1,280 to $1,380 aftertax). Approximately 80% of total program charges resulting from the Global Growth and Efficiency Program are expected to result in cash expenditures. Savings from the Global Growth and Efficiency Program, substantially all of which are expected to increase future cash flows, are projected to be in the range of $560 to $635 pretax ($500 to $575 aftertax) annually, once all projects are approved and implemented.
The Company now anticipates that pretax charges for 2018 will approximate $125 to $165 ($95 to $125 aftertax). The Company expects savings in 2018 to amount to approximately $90 to $120 pretax ($100 to $125 aftertax). It is anticipated that cash requirements for the Global Growth and Efficiency Program will be funded from operating cash flows. Approximately 67% of the restructuring accrual at September 30, 2018 is expected to be paid in the next twelve months.
Investing activities used $1,174 of cash in the first nine months of 2018, compared with $532 in the comparable period of 2017, reflecting the Company’s acquisition of the outstanding equity interests of PCA and Elta, professional skin care businesses, for aggregate cash consideration of approximately $730. Capital spending was $321 in the first nine months of 2018 compared to $382 in the comparable period of 2017. Capital expenditures for 2018 are expected to be approximately 3.0% to 3.5% of Net sales. The Company continues to focus its capital spending on projects that are expected to yield high aftertax returns.
Financing activities used $1,701 of cash during the first nine months of 2018, compared with $1,767 in the comparable period of 2017, reflecting net proceeds on debt in the first nine months of 2018 compared with net payments on debt in the comparable period of 2017 and lower proceeds from the exercise of stock options in the first nine months of 2018 compared with the comparable period of 2017.
Long-term debt, including the current portion, decreased to $6,519 as of September 30, 2018 as compared to $6,566 as of December 31, 2017, and total debt increased to $6,604 as of September 30, 2018 as compared to $6,577 as of December 31, 2017 due to higher outstanding commercial paper as of September 30, 2018. The Company’s debt issuances support its capital structure strategy objectives of funding its business and growth initiatives while minimizing its risk-adjusted cost of capital. During the third quarter of 2017, the Company issued $500 of thirty-year notes at a fixed rate of 3.70%. The debt issuance was under the Company’s shelf registration statement. Proceeds from the debt issuance in the third quarter of 2017 were used for general corporate purposes, which included the retirement of commercial paper borrowings.
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COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Domestic and foreign commercial paper outstanding was $476 and $383 as of September 30, 2018 and 2017, respectively. Commercial paper outstanding as of September 30, 2018 was denominated in U.S. dollars and Euros. The average daily balances outstanding for commercial paper in the first nine months of 2018 and 2017 were $1,812 and $1,649, respectively. The Company classifies commercial paper and certain current maturities of notes payable as long-term debt when 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 November 2020.
Certain of the agreements with respect to the Company’s bank borrowings contain financial and other covenants as well as 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.
In the first quarter of 2018, the Company increased the annualized common stock dividend by 5% to $1.68 per share, effective in the second quarter of 2018.
Cash and cash equivalents decreased $694 during the first nine months of 2018 to $841 at September 30, 2018, compared to $1,535 at December 31, 2017, most of which ($778 and $1,467, respectively) were held by the Company’s foreign subsidiaries.
On December 22, 2017, the TCJA was enacted, which, among other things, lowered the U.S. corporate income tax rate to 21% from 35% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. Beginning in 2018, U.S. tax reform also requires a minimum tax on certain earnings generated by foreign subsidiaries while providing for tax-free repatriation of such earnings through a 100% dividends-received deduction. As a result of the lower U.S. corporate income tax rate, the Company expects a reduction in its future tax payments.
For additional information regarding liquidity and capital resources, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
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COLGATE-PALMOLIVE COMPANY
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
(Dollars in Millions Except Per Share Amounts)
Market Share Information
Management uses market share information as a key indicator to monitor business health and performance. References to market share in this Quarterly Report on Form 10-Q are based on a combination of consumption and market share data provided by third-party vendors, primarily Nielsen, and internal estimates. All market share references represent the percentage of the dollar value of sales of our products, relative to all product sales in the category in the countries in which the Company competes and purchases data (excluding Venezuela from all periods).
Market share data is subject to limitations on the availability of up-to-date information. The Company measures year-to-date market shares from January 1 of the relevant year through the most recent period for which market share data is available, which typically reflects a lag time of one or two months. We believe that the third-party vendors we use to provide data are reliable, but we have not verified the accuracy or completeness of the data or any assumptions underlying the data. In addition, market share information calculated by the Company may be different from market share information calculated by other companies due to differences in category definitions, the use of data from different countries, internal estimates and other factors.
Cautionary Statement on Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain forward-looking statements (as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995 or by the SEC in its rules, regulations and releases) that set forth anticipated results based on management’s plans and assumptions. Such statements may relate, for example, to sales or volume growth, net selling price increases, organic sales growth, profit or profit margin growth, earnings per share growth, financial goals, the impact of foreign exchange volatility, cost-reduction plans, including the Global Growth and Efficiency Program, tax rates, U.S. tax reform, new product introductions, commercial investment levels, acquisitions and divestitures, or legal or tax proceedings, 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 whether as a result of new information, future events or otherwise, except as required by law or by the rules and regulations of the SEC. 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 the Company and the markets it serves, including the uncertain economic environment in different countries and its effect on consumer spending habits, increased competition and evolving competitive practices, foreign currency rate fluctuations, exchange controls, price or profit controls, labor relations, changes in foreign or domestic laws or regulations or their interpretation, political and fiscal developments, including changes in trade, tax and immigration policies, disruptions in global supply chain, the availability and cost of raw and packaging materials, the ability to maintain or increase selling prices as needed, the ability to implement the Global Growth and Efficiency Program as planned or differences between the actual and the estimated costs or savings under such program, changes in the policies of retail trade customers, the emergence of new sales channels, the growth of e-commerce, the ability to continue lowering costs, the ability to complete acquisitions and divestitures as planned, the ability to successfully integrate acquired businesses, and the uncertainty of the outcome of legal proceedings, whether or not the Company believes they have merit. For information about these and other factors that could impact the Company’s business and cause actual results to differ materially from forward-looking statements, refer to the Company’s filings with the SEC (including, but not limited to, the information set forth under the captions “Risk Factors” and “Cautionary Statement on Forward-Looking Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 and subsequent Quarterly Reports on Form 10-Q).
Quantitative and Qualitative Disclosures about Market Risk
There is no material change in the information reported under Part II, Item 7, “Managing Foreign Currency, Interest Rate, Commodity Price and Credit Risk Exposure” contained in our Annual Report on Form 10-K for the year ended December 31, 2017.
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COLGATE-PALMOLIVE COMPANY
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 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 September 30, 2018 (the “Evaluation”). Based upon the Evaluation, the Company’s Chairman of the Board 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 Securities Exchange Act of 1934) are effective.
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. As part of the Global Growth and Efficiency Program, the Company is implementing a shared business service organization model in all regions of the world. At this time, certain financial transaction processing activities have been transitioned to these shared business service centers. This transition has not materially affected the Company’s internal control over financial reporting.
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COLGATE-PALMOLIVE COMPANY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal matters, please refer to Note 12, Contingencies to the Condensed Consolidated Financial Statements contained in Part I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in Part 1, Item 1A. Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
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COLGATE-PALMOLIVE COMPANY
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 18, 2018, the Board authorized the repurchase of shares of the Company’s common stock having an aggregate purchase price of up to $5 billion under a new share repurchase program (the “2018 Program”), which replaced a previously authorized share repurchase program. The Board also has authorized share repurchases on an ongoing basis to fulfill certain requirements of the Company’s compensation and benefit programs. The shares are repurchased from time to time in open market 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 the three months in the quarter ended September 30, 2018:

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) |  | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(3) (in millions)
July 1 through 31, 2018 |  | 450,607 |  |  | $ | 65.76 |  |  | 397,500 |  |  | $ | 4,924 |
August 1 through 31, 2018 |  | 1,881,655 |  |  | $ | 66.60 |  |  | 1,763,244 |  |  | $ | 4,806 |
September 1 through 30, 2018 |  | 1,568,897 |  |  | $ | 67.44 |  |  | 1,477,550 |  |  | $ | 4,707 |
Total |  | 3,901,159 |  |  | $ | 66.84 |  |  | 3,638,294 |  |  |  |

(1) | Includes share repurchases under the 2018 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 262,865 shares, which represents shares deemed surrendered to the Company to satisfy certain employee elections under the Company’s compensation and benefit programs.

(3) | Includes approximate dollar value of shares that were available to be purchased under the publicly announced plans or programs that were in effect as of September 30, 2018.

Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
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COLGATE-PALMOLIVE COMPANY
Item 6. Exhibits

Exhibit No. |  | Description
10 |  | Colgate-Palmolive Company Executive Severance Plan, as amended and restated through September 13, 2018. (Registrant hereby incorporates by reference Exhibit 10-A to its Current Report on Form 8-K filed on September 18, 2018, File No. 1-644.)
12 |  | Computation of Ratio of Earnings to Fixed Charges.
31-A |  | Certificate of the Chairman of the Board and Chief Executive Officer of Colgate-Palmolive Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31-B |  | Certificate of the Chief Financial Officer of Colgate-Palmolive Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32 |  | Certificate of the Chairman of the Board and Chief Executive Officer and the Chief Financial Officer of Colgate-Palmolive Company pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. § 1350.
101 |  | The following materials from Colgate-Palmolive Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2018, formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income; (ii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Balance Sheets; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements.

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COLGATE-PALMOLIVE COMPANY
SIGNATURES
Pursuant to the requirements 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)
| Principal Executive Officer:
October 26, 2018 | /s/ Ian Cook
| Ian Cook
| Chairman of the Board and Chief Executive Officer
| Principal Financial Officer:
October 26, 2018 | /s/ Henning I. Jakobsen
| Henning I. Jakobsen
| Chief Financial Officer
| Principal Accounting Officer:
October 26, 2018 | /s/ Philip G. Shotts
| Philip G. Shotts
| Vice President and Controller

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