Colgate-Palmolive Company
COLGATE PALMOLIVE CO (Form: 10-Q, Received: 07/30/2015 09:14:50)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
  FORM 10-Q
_________________________
  (Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2015
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   x   No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x   No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x
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
 
900,131,529
 
June 30, 2015





PART I.      FINANCIAL INFORMATION


COLGATE-PALMOLIVE COMPANY
  Condensed Consolidated Statements of Income
 (Dollars in Millions Except Per Share Amounts)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net sales
$
4,066

 
$
4,352

 
$
8,136

 
$
8,677

Cost of sales
1,699

 
1,800

 
3,377

 
3,601

Gross profit
2,367

 
2,552

 
4,759

 
5,076

Selling, general and administrative expenses
1,381

 
1,507

 
2,831

 
3,051

Other (income) expense, net
54

 
65

 
136

 
411

Operating profit
932

 
980

 
1,792

 
1,614

Interest (income) expense, net
6

 
9

 
14

 
16

Income before income taxes
926

 
971

 
1,778

 
1,598

Provision for income taxes
310

 
310

 
579

 
505

Net income including noncontrolling interests
616

 
661

 
1,199

 
1,093

Less: Net income attributable to noncontrolling interests
42

 
39

 
83

 
83

Net income attributable to Colgate-Palmolive Company
$
574

 
$
622

 
$
1,116

 
$
1,010

 
 
 
 
 
 
 
 
Earnings per common share, basic
$
0.63

 
$
0.68

 
$
1.23

 
$
1.10

 
 
 
 
 
 
 
 
Earnings per common share, diluted
$
0.63

 
$
0.67

 
$
1.22

 
$
1.09

 
 
 
 
 
 
 
 
Dividends declared per common share *
$
0.38

 
$
0.36

 
$
1.12

 
$
1.06


* Two dividends were declared in the first quarter of 2015 and 2014.


















See Notes to Condensed Consolidated Financial Statements.

2



COLGATE-PALMOLIVE COMPANY
  Condensed Consolidated Statements of Comprehensive Income
 (Dollars in Millions)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net income including noncontrolling interests
$
616

 
$
661

 
$
1,199

 
$
1,093

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Cumulative translation adjustments
66

 
25

 
(285
)
 
(19
)
Retirement plans and other retiree benefit adjustments
14

 
8

 
27

 
21

Gains (losses) on available-for-sale securities
(7
)
 
4

 
(8
)
 
(52
)
     Gains (losses) on cash flow hedges
(3
)
 
(4
)
 
(3
)
 
(4
)
Total Other comprehensive income (loss), net of tax
70

 
33

 
(269
)
 
(54
)
Total Comprehensive income including noncontrolling interests
686

 
694

 
930

 
1,039

Less: Net income attributable to noncontrolling interests
42

 
39

 
83

 
83

Less: Cumulative translation adjustments attributable to noncontrolling interests
(1
)
 

 

 
(1
)
Total Comprehensive income attributable to noncontrolling interests
41

 
39

 
83

 
82

Total Comprehensive income attributable to Colgate-Palmolive Company
$
645

 
$
655

 
$
847

 
$
957



See Notes to Condensed Consolidated Financial Statements.

3


COLGATE-PALMOLIVE COMPANY
  Condensed Consolidated Balance Sheets
 (Dollars in Millions)
(Unaudited)
 
June 30,
2015
 
December 31,
2014
Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
1,059

 
$
1,089

Receivables (net of allowances of $61 and $54, respectively)
1,691

 
1,552

Inventories
1,324

 
1,382

Other current assets
914

 
840

Total current assets
4,988

 
4,863

Property, plant and equipment:
 

 
 

Cost
8,418

 
8,385

Less: Accumulated depreciation
(4,379
)
 
(4,305
)
 
4,039

 
4,080

Goodwill
2,241

 
2,307

Other intangible assets, net
1,371

 
1,413

Deferred income taxes
144

 
76

Other assets
877

 
720

Total assets
$
13,660

 
$
13,459

Liabilities and Shareholders’ Equity
 

 
 

Current Liabilities
 

 
 

Notes and loans payable
$
9

 
$
16

Current portion of long-term debt
488

 
488

Accounts payable
1,169

 
1,231

Accrued income taxes
297

 
294

Other accruals
2,243

 
1,917

Total current liabilities
4,206

 
3,946

Long-term debt
6,186

 
5,644

Deferred income taxes
261

 
261

Other liabilities
2,250

 
2,223

Total liabilities
12,903

 
12,074

Shareholders’ Equity
 

 
 

Common stock
1,466

 
1,466

Additional paid-in capital
1,310

 
1,236

Retained earnings
18,936

 
18,832

Accumulated other comprehensive income (loss)
(3,776
)
 
(3,507
)
Unearned compensation
(9
)
 
(20
)
Treasury stock, at cost
(17,473
)
 
(16,862
)
Total Colgate-Palmolive Company shareholders’ equity
454

 
1,145

Noncontrolling interests
303

 
240

Total shareholders’ equity
757

 
1,385

Total liabilities and shareholders’ equity
$
13,660

 
$
13,459


See Notes to Condensed Consolidated Financial Statements.

4



COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Cash Flows
(Dollars in Millions)
(Unaudited)
 
Six Months Ended
 
June 30,
 
2015
 
2014
Operating Activities
 
 
 
Net income including noncontrolling interests
$
1,199

 
$
1,093

Adjustments to reconcile net income including noncontrolling interests to net cash provided by operations:
 

 
 

Depreciation and amortization
225

 
215

Restructuring and termination benefits, net of cash
59

 
68

Venezuela remeasurement charges
16

 
266

Stock-based compensation expense
51

 
54

Deferred income taxes
(60
)
 
(37
)
Cash effects of changes in:
 
 
 
Receivables
(222
)
 
(198
)
Inventories
8

 
(90
)
Accounts payable and other accruals
(77
)
 
(8
)
Other non-current assets and liabilities
24

 
26

Net cash provided by operations
1,223

 
1,389

Investing Activities
 

 
 

Capital expenditures
(280
)
 
(314
)
Purchases of marketable securities and investments
(365
)
 
(165
)
Proceeds from sale of marketable securities and investments
195

 
177

Payment for acquisitions, net of cash acquired

 
(25
)
Other
12

 
13

Net cash used in investing activities
(438
)
 
(314
)
Financing Activities
 

 
 

Principal payments on debt
(4,178
)
 
(4,282
)
Proceeds from issuance of debt
4,686

 
4,707

Dividends paid
(689
)
 
(662
)
Purchases of treasury shares
(767
)
 
(746
)
Proceeds from exercise of stock options and excess tax benefits
192

 
153

Net cash used in financing activities
(756
)
 
(830
)
Effect of exchange rate changes on Cash and cash equivalents
(59
)
 
(46
)
Net (decrease) increase in Cash and cash equivalents
(30
)
 
199

Cash and cash equivalents at beginning of the period
1,089

 
962

Cash and cash equivalents at end of the period
$
1,059

 
$
1,161

Supplemental Cash Flow Information
 

 
 

Income taxes paid
$
640

 
$
514


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. Certain prior year amounts have been reclassified to conform to the current year presentation.

For a complete set of financial statement notes, including the significant accounting policies of Colgate-Palmolive Company (together with its subsidiaries, the “Company” or “Colgate”), refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 , filed with the Securities and Exchange Commission.

2.
Use of Estimates

Provisions for certain expenses, including income taxes, media 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

On April 7, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03 “Simplifying the Presentation of Debt Issuance Costs,” which requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of related debt liability, consistent with debt discounts. Under current accounting standards, such costs are recorded as an asset. The new guidance is effective for the Company beginning January 1, 2016, with early adoption permitted. This new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

On February 18, 2015, the FASB issued ASU No. 2015-02 “Consolidation (Topic 810): Amendments to the Consolidation Analysis” that amends the current consolidation guidance. The amendments affect both the variable interest entity and voting interest entity consolidation models. The new guidance is effective for the Company beginning January 1, 2016, with early adoption permitted. This new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.
    
On May 28, 2014, the FASB and the International Accounting Standards Board (“IASB”) issued their final converged standard on revenue recognition. The standard, issued as ASU No. 2014-09 “Revenue from Contracts with Customers” by the FASB, provides a single, 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 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 which are significantly more comprehensive than those in existing revenue standards. ASU No. 2014-09 was to be effective for the Company beginning January 1, 2017. However, on July 9, 2015, the FASB voted to approve a one-year deferral of the effective date. This new guidance is now expected to be effective for the Company beginning January 1, 2018. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. While the Company is currently assessing the impact of the new standard, it does not expect this new guidance to have a material impact on its Consolidated Financial Statements.



6

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

4.
Acquisitions and Divestitures

Acquisition

On October 3, 2014, the Company acquired an oral care business in Myanmar for $62 in cash plus additional consideration contingent upon achievement of performance targets under a distribution services agreement.

Sale of Land in Mexico

On September 13, 2011, the Company’s Mexican subsidiary entered into an agreement to sell to the United States of America (the “Purchaser”) the Mexico City site on which its commercial operations, technology center and soap production facility were located. The sale price is payable in three installments. During the third quarter of 2011, the Company received the first installment of $24 upon signing the agreement. During the third quarter of 2012, the Company received the second installment of $36 . The parties have subsequently amended that agreement to extend the closing date. Under the existing agreement, the final installment of the purchase price is due upon the transfer of the property, which is subject to the Company’s satisfaction of certain closing conditions relating to site preparation by September 15, 2015. While these conditions are not expected to be fully satisfied by September 15, 2015, in which case the Purchaser has several options under the agreement (including termination and the return to it of the first two installments of the purchase price), based on the discussions to date, the Company believes that an additional amendment will be negotiated and the transfer of the property is likely to occur in the first half of 2016. The Company has reinvested the first two installments to relocate its soap production to a new state-of-the-art facility at its Mission Hills, Mexico site, to relocate its commercial and technology operations within Mexico City and to prepare the existing site for transfer. Exit costs incurred during the project primarily relate to staff leaving indemnities, accelerated depreciation and demolition to make the site building-ready. During the three months ended June 30, 2015 and 2014 , the Company recorded $0 and $2 of pretax costs ( $0 and $1 of aftertax costs), respectively, related to the sale. During the six months ended June 30, 2015 and 2014 , the Company recorded $0 and $3 of pretax costs ( $0 and $2 of aftertax costs), respectively, related to the sale.

5.
Restructuring and Related Implementation Charges
 
In the fourth quarter of 2012, the Company commenced a four -year Global Growth and Efficiency Program for sustained growth. The program’s initiatives are expected to help Colgate ensure continued solid worldwide growth in unit volume, organic sales and earnings per share and enhance its global leadership positions in its core businesses.

On October 23, 2014, the Company’s Board of Directors approved an expansion of the Global Growth and Efficiency Program (as expanded, the “2012 Restructuring Program”) to take advantage of additional savings opportunities.

Cumulative pretax charges related to the 2012 Restructuring Program, once all phases are approved and implemented, are estimated to be $1,285 to $1,435 ( $950 to $1,050 aftertax). Implementation of the 2012 Restructuring Program is expected to be substantially completed by December 31, 2016. These pretax charges 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 ( 10% ); and Other charges, which include contract termination costs, consisting primarily of implementation-related charges resulting directly from exit activities ( 20% ) and the implementation of new strategies ( 20% ). Anticipated pretax charges for 2015 are expected to amount to approximately $330 to $385 ( $245 to $285 aftertax). Over the course of the 2012 Restructuring Program, it is currently estimated that approximately 75% of the charges will result in cash expenditures.

It is expected that the cumulative pretax charges, once all projects are approved and implemented, will relate to initiatives undertaken in North America ( 15% ), Europe/South Pacific ( 20% ), Latin America ( 5% ), Asia ( 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. It is expected that, by the end of 2016, the 2012 Restructuring Program will contribute a net reduction of approximately 2,000 - 2,500 positions from the Company’s global employee workforce.

7

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

For the three and six months ended June 30, 2015 and 2014 , restructuring and implementation-related charges are reflected in the Condensed Consolidated Statements of Income as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Cost of sales
$
4

 
$
6

 
$
8

 
$
16

Selling, general and administrative expenses
11

 
12

 
29

 
29

Other (income) expense, net
37

 
56

 
115

 
131

Total 2012 Restructuring Program charges, pretax
$
52

 
$
74

 
$
152

 
$
176

 
 
 
 
 
 
 
 
Total 2012 Restructuring Program charges, aftertax
$
40

 
$
53

 
$
107

 
$
126


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 2012 Restructuring Program relate to initiatives undertaken by the following reportable operating segments:

Three Months Ended

Six Months Ended

Program-to-date

June 30,

June 30,

Accumulated Charges

2015

2014

2015

2014


North America
14
%

11
%

17
%

10
%

11
%
Latin America
5
%

5
%

2
%

4
%

3
%
Europe/South Pacific
19
%

16
%

11
%

19
%

25
%
Asia
11
%

%

4
%

%

2
%
Africa/Eurasia
4
%

2
%

3
%

2
%

5
%
Hill s Pet Nutrition
13
%

11
%

7
%

9
%

8
%
Corporate
34
%

55
%

56
%

56
%

46
%

Since the inception of the 2012 Restructuring Program in the fourth quarter of 2012, the Company has incurred pretax cumulative charges of $898 ( $663 aftertax) in connection with the implementation of various projects as follows:
 
Cumulative Charges
 
as of June 30, 2015
Employee-Related Costs
$
362

Incremental Depreciation
60

Asset Impairments
3

Other
473

Total
$
898


The majority of costs incurred since inception relate to the following projects: the implementation of the Company’s overall hubbing strategy; the consolidation of facilities; the extension of shared business services and streamlining of global functions; the simplification and streamlining of the Company’s research and development capabilities and oral care supply chain, both in Europe; restructuring how the Company will provide future retirement benefits to substantially all of its 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 closing of the Morristown, New Jersey personal care facility.

8

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

The following table summarizes the activity for the restructuring and implementation-related charges discussed above and the related accruals:
 
 
Three Months Ended June 30, 2015
 
 
Employee-Related
Costs
 
 
Incremental
Depreciation
 
 
Asset
Impairments  
 
 
Other  
 
 
Total  
 
Balance at March 31, 2015
 
$
92

 
$

 
$

 
$
139

 
$
231

Charges
 
32

 
3

 
1

 
16

 
52

Cash payments
 
(29
)
 

 

 
(18
)
 
(47
)
Charges against assets
 
(1
)
 
(3
)
 
(1
)
 

 
(5
)
Foreign exchange
 

 

 

 

 

Balance at June 30, 2015
 
$
94

 
$

 
$

 
$
137

 
$
231

 
 
Six Months Ended June 30, 2015
 
 
Employee-Related
Costs
 
 
Incremental
Depreciation
 
 
Asset
Impairments  
 
 
Other  
 
 
Total  
 
Balance at December 31, 2014
 
$
85

 
$

 
$

 
$
107

 
$
192

Charges
 
67

 
9

 
1

 
75

 
152

Cash payments
 
(44
)
 

 

 
(44
)
 
(88
)
Charges against assets
 
(9
)
 
(9
)
 
(1
)
 

 
(19
)
Foreign exchange
 
(5
)
 

 

 
(1
)
 
(6
)
Balance at June 30, 2015
 
$
94

 
$

 
$

 
$
137

 
$
231


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 $ 9 for the six months ended June 30, 2015 , 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).

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 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 2012 Restructuring Program. These charges for the three and six months ended June 30, 2015 include third-party incremental costs related to the development and implementation of new business and strategic initiatives of $ 14 and $ 26 , respectively, and contract termination costs and charges resulting directly from exit activities of $ 1 and $4 , respectively, directly related to the 2012 Restructuring Program. These charges were expensed as incurred. Also included in Other charges for the three and six months ended June 30, 2015 are other exit costs related to the consolidation of facilities of $ 1 and $ 45 , respectively.




9

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

6.
Inventories

Inventories by major class are as follows:
 
June 30,
2015
 
December 31,
2014
Raw materials and supplies
$
315

 
$
349

Work-in-process
58

 
55

Finished goods
951

 
978

Total Inventories
$
1,324

 
$
1,382


7.
Shareholders’ Equity

Changes in the components of Shareholders’ Equity for the six months ended June 30, 2015 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, 2014
$
1,466

 
$
1,236

 
$
(20
)
 
$
(16,862
)
 
$
18,832

 
$
(3,507
)
 
$
240

Net income
 

 
 

 
 

 
 

 
1,116

 
 
 
83

Other comprehensive income (loss), net of tax
 

 
 

 
 

 
 

 
 
 
(269
)
 


Dividends
 

 
 

 
 

 
 

 
(1,012
)
 
 

 
(20
)
Stock-based compensation expense
 

 
51

 
 

 
 

 
 

 
 

 
 

Shares issued for stock options
 

 
50

 
 

 
125

 
 

 
 

 
 

Shares issued for restricted stock units
 
 
(31
)
 
 
 
31

 
 
 
 
 
 
Treasury stock acquired
 

 
 

 
 

 
(767
)
 
 

 
 

 
 

Other
 

 
4

 
11

 


 
 

 
 

 


Balance, June 30, 2015
$
1,466

 
$
1,310

 
$
(9
)
 
$
(17,473
)
 
$
18,936

 
$
(3,776
)
 
$
303


Accumulated other comprehensive income (loss) includes cumulative translation losses of $ 2,738 and $ 2,453 at June 30, 2015 and December 31, 2014 , respectively, and unrecognized retirement plan and other retiree benefits costs of $ 1,037 and $ 1,064 at June 30, 2015 and December 31, 2014 , respectively.


10

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

8.
Earnings Per Share
 
Three Months Ended
 
June 30, 2015
 
June 30, 2014
 
Net income attributable to Colgate-Palmolive Company
 
Shares
(millions)
 
Per
Share
 
Net income attributable to Colgate-Palmolive Company
 
Shares
(millions)
 
Per
Share
Basic EPS
$
574

 
904.6

 
$
0.63

 
$
622

 
916.1

 
$
0.68

Stock options and
restricted stock units
 
 
7.8

 
 

 
 

 
9.8

 
 

Diluted EPS
$
574

 
912.4

 
$
0.63

 
$
622

 
925.9

 
$
0.67


For the three months ended June 30, 2015 and 2014 , the average number of stock options and restricted stock units that were anti-dilutive and not included in diluted earnings per share calculations were 1,571,872 and 48,362 , respectively.

 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
Net income attributable to Colgate-Palmolive Company
 
Shares
(millions)
 
Per
Share
 
Net income attributable to Colgate-Palmolive Company
 
Shares
(millions)
 
Per
Share
Basic EPS
$
1,116

 
906.1

 
$
1.23

 
$
1,010

 
917.8

 
$
1.10

Stock options and
restricted stock units
 
 
8.3

 
 

 
 

 
9.5

 
 

Diluted EPS
$
1,116

 
914.4

 
$
1.22

 
$
1,010

 
927.3

 
$
1.09


For the six months ended June 30, 2015 and 2014 , the average number of stock options and restricted stock units that were anti-dilutive and not included in diluted earnings per share calculations were 1,573,532 and 36,266 , 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 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.

11

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 June 30, 2015 and 2014 were as follows:
 
 
2015
 
2014
 
 
Pretax
 
Net of Tax
 
Pretax
 
Net of Tax
 
 
 
 
 
 
 
 
 
Cumulative translation adjustments
 
$
64

 
$
67

 
$
29

 
$
25

Retirement plans and other retiree benefits:
 
 
 
 
 
 
 
 
Net actuarial gain (loss) and prior service costs arising during the period
 

 

 

 

Amortization of net actuarial loss, transition and prior service costs (1)
 
22

 
14

 
14

 
8

Retirement plans and other retiree benefits adjustments
 
22

 
14

 
14

 
8

Available-for-sale securities:
 
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities (2)
 
(19
)
 
(12
)
 
6

 
4

Reclassification of (gains) losses into net earnings on available-for-sale securities (3)
 
7

 
5

 

 

Gains (losses) on available-for-sale securities
 
(12
)
 
(7
)
 
6

 
4

Cash flow hedges:
 
 
 
 
 
 
 
 
Unrealized gains (losses) on cash flow hedges
 
(5
)
 
(3
)
 
(8
)
 
(4
)
Reclassification of (gains) losses into net earnings on cash flow hedges (4)
 
(1
)
 

 

 

Gains (losses) on cash flow hedges
 
(6
)
 
(3
)
 
(8
)
 
(4
)
Total Other comprehensive income (loss)
 
$
68

 
$
71

 
$
41

 
$
33


(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) For the three months ended June 30, 2015 , these amounts included a pretax loss of $28 related to the remeasurement of the bolivar-denominated fixed interest rate bonds and the devaluation-protected bonds in Venezuela. For the three months ended June 30, 2014, these amounts included a pretax gain of $4 related to the remeasurement of the bolivar-denominated fixed interest rate bonds and the devaluation-protected bonds in Venezuela.
(3) Represents reclassification of losses on the Venezuela bonds into Other (income) expense, net due to an impairment in the fair value of the bonds as a result of the effective devaluation in the second quarter of 2015. See Note 14 , Fair Value Measurements and Financial Instruments for additional details.
(4) These (gains) losses are reclassified into Cost of sales. See Note 14 , Fair Value Measurements and Financial Instruments for additional details.


12

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 six months ended June 30, 2015 and 2014 were as follows:
 
 
2015
 
2014
 
 
Pretax
 
Net of Tax
 
Pretax
 
Net of Tax
 
 
 
 
 
 
 
 
 
Cumulative translation adjustments
 
$
(276
)
 
$
(285
)
 
$
(10
)
 
$
(18
)
Retirement plans and other retiree benefits:
 
 
 
 
 
 
 
 
Net actuarial gain (loss) and prior service costs arising during the period
 
(1
)
 
(1
)
 
3

 
2

Amortization of net actuarial loss, transition and prior service costs (1)
 
44

 
28

 
28

 
19

Retirement plans and other retiree benefits adjustments
 
43

 
27

 
31

 
21

Available-for-sale securities:
 
 
 
 
 
 
 
 
Unrealized gains (losses) on available-for-sale securities (2)
 
(20
)
 
(13
)
 
(292
)
 
(190
)
Reclassification of (gains) losses into net earnings on available-for-sale securities (3)
 
7

 
5

 
211

 
138

Gains (losses) on available-for-sale securities
 
(13
)
 
(8
)
 
(81
)
 
(52
)
Cash flow hedges:
 
 
 
 
 
 
 
 
Unrealized gains (losses) on cash flow hedges
 
1

 
1

 
(6
)
 
(3
)
Reclassification of (gains) losses into net earnings on cash flow hedges (4)
 
(7
)
 
(4
)
 
(3
)
 
(1
)
Gains (losses) on cash flow hedges
 
(6
)
 
(3
)
 
(9
)
 
(4
)
Total Other comprehensive income (loss)
 
$
(252
)
 
$
(269
)
 
$
(69
)
 
$
(53
)

(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) For the six months ended June 30, 2015 , these amounts included a pretax loss of $28 related to the remeasurement of the bolivar-denominated fixed interest rate bonds and the devaluation-protected bonds in Venezuela.
For the six months ended June 30, 2014 , these amounts included a pretax loss of $272 related to the remeasurement of the bolivar-denominated fixed interest rate bonds and the devaluation-protected bonds in Venezuela. See Note 14 , Fair Value Measurements and Financial Instruments for additional details.
(3) Represents reclassification of losses on the Venezuela bonds into Other (income) expense, net due to an impairment in the fair value of the bonds as a result of the effective devaluations in the second quarter of 2015 and the first quarter of 2014. See Note 14 , Fair Value Measurements and Financial Instruments for additional details.
(4) 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.


13

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 six months ended June 30, 2015 and 2014 were as follows:
 
Pension Benefits
 
Other Retiree Benefits
 
United States
 
International
 
 
 
 
 
Three Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
$
1

 
$
1

 
$
5

 
$
5

 
$
4

 
$
3

Interest cost
25

 
26

 
7

 
9

 
12

 
11

ESOP offset

 

 

 

 
(1
)
 
(1
)
Expected return on plan assets
(29
)
 
(29
)
 
(6
)
 
(8
)
 

 
(1
)
Amortization of transition and prior service costs (credits)

 

 
1

 
2

 

 

Amortization of actuarial loss (gain)
12

 
8

 
2

 

 
7

 
4

Net periodic benefit cost
$
9

 
$
6

 
$
9

 
$
8

 
$
22

 
$
16


 
Pension Benefits
 
Other Retiree Benefits
 
United States
 
International
 
 
 
 
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
$
1

 
$
1

 
$
10

 
$
10

 
$
8

 
$
6

Interest cost
50

 
51

 
15

 
18

 
23

 
21

ESOP offset

 

 

 

 
(1
)
 
(1
)
Expected return on plan assets
(58
)
 
(56
)
 
(14
)
 
(15
)
 
(1
)
 
(1
)
Amortization of transition and prior service costs (credits)

 

 
1

 
3

 

 

Amortization of actuarial loss (gain)
24

 
16

 
5

 
1

 
14

 
8

Net periodic benefit cost
$
17

 
$
12

 
$
17

 
$
17

 
$
43

 
$
33

 

For the six months ended June 30, 2015 and June 30, 2014 , the Company did not make any voluntary contributions to its U.S. postretirement plans.


14

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

11. Income Taxes

At December 31, 2014, the Company had unrecognized tax benefits of $ 218 . In May 2015, the Company became aware of several Supreme Court rulings in a 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 now disallowed by the Court. As a result, as required, the Company reassessed its tax position in light of the recent rulings and concluded it needed to increase its unrecognized tax benefits by $ 15 . The Company recorded this $ 15 income tax charge in the quarter ended June 30, 2015.

Although it is possible that the amount of unrecognized tax benefits with respect to the Company’s uncertain tax positions will further increase or decrease during the remainder of 2015, the Company does not expect material changes.

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, 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.

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, 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.

15

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

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, at the current exchange rate, are approximately $94 . The Company has been disputing the disallowances by appealing the assessments within the internal revenue authority’s appellate process since October 2001. Numerous appeals are currently pending at the administrative level.

In the event the Company is ultimately unsuccessful, 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 disallowances are without merit and that the Company should ultimately prevail on appeal, if necessary, in the Brazilian federal courts. The Company intends to challenge these assessments 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 intends to challenge this action vigorously.

In December 2005, the Brazilian internal revenue authority issued to the Company’s Brazilian subsidiary a tax assessment with interest and penalties of approximately $58 , 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 has been disputing the assessment within the internal revenue authority’s administrative appeals process. In November 2014, the Superior Chamber of Administrative Tax Appeals denied the Company’s most recent appeal. Further appeals are available both at the administrative level and 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 on appeal, if not at the administrative level, in the Brazilian federal courts. The Company intends to challenge this assessment vigorously.

16

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

Competition Matters

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. Competition and antitrust law investigations often continue for several years and can result in substantial fines for violations that are found. While the Company cannot predict the final financial impact of these competition law issues, as these matters may change, the Company evaluates developments in these matters quarterly and accrues liabilities as and when appropriate.

European Competition Matters

Certain of the Company’s subsidiaries in Europe are subject to investigations, and in some cases fines, by governmental authorities in a number of European countries related to potential competition law violations. The Company understands that substantially all of these matters also involve other consumer goods companies and/or retail customers. The status of the various pending matters is discussed below.

Fines have been imposed on the Company in the following matters, although, as noted below, the Company has appealed each of these fines:

In December 2009, the Swiss competition law authority imposed a fine of $6 on the Company’s GABA subsidiary for alleged violations of restrictions on parallel imports into Switzerland, which the Company appealed. In January 2014, this appeal was denied. The Company is appealing before the Swiss Supreme Court.

In December 2010, the Italian competition law authority found that 16 consumer goods companies, including the Company’s Italian subsidiary, exchanged competitively sensitive information in the cosmetics sector, for which the Company’s Italian subsidiary was fined $3 . The Company is appealing the fine in the Italian courts.

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 entitled to indemnification for this fine from Unilever as provided in the Sale and Purchase Agreement. The Company is appealing both fines in the French courts.

As of June 30, 2015, the following formal claim of violations is pending against the Company:

In July 2014, the Greek competition law authority issued a statement of objections alleging the Company and its Greek subsidiary restricted parallel imports into Greece. The Company has responded to this statement of objections.


17

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

Since December 31, 2014, the following matters have been resolved:

In March 2015, the French Supreme Court confirmed the French competition law authority’s March 2012 fine of the Company’s Hill’s French subsidiary in the amount of $ 7 .

In June 2015, the Spanish Supreme Court confirmed the annulment of the Spanish competition law authority’s January 2010 fine of the Company’s Spanish subsidiary.

In June 2015, the Belgian competition law authority issued a final settlement decision related to price coordination involving 11 branded goods companies, including the Company’s Belgian subsidiary, and a number of retailers in Belgium. As the Company was an immunity applicant, the Company’s Belgian subsidiary was not fined.

Australian Competition Matter

In December 2013, the Australian competition law authority instituted civil proceedings in the Sydney registry of the Federal Court of Australia alleging that three consumer goods companies, including the Company’s Australian subsidiary, a retailer and a former employee of the Company’s Australian subsidiary violated the Australian competition law by coordinating the launching and pricing of ultra concentrated laundry detergents. The Company is defending these proceedings. Since the amount of any potential losses from these proceedings currently cannot be estimated, the range of reasonably possible losses in excess of accrued liabilities disclosed above does not include any amount relating to these proceedings.

Talcum Powder Matters

The Company is a defendant in a number of civil actions alleging that certain talc products it sold prior to 1996 were contaminated with asbestos. The Company is challenging these cases vigorously. Twenty-one cases filed against the Company have been voluntarily dismissed and/or had final judgment entered in favor of the Company. In April 2015, an agreement in principle was reached to settle four individual cases following a trial and jury verdict in one of the cases in California against the Company and others and the settlements were finalized in June 2015. The amount of the settlements is not material to the Company’s results of operations.

There are 23 additional individual cases pending against the Company in state and federal courts in California, Delaware, the District of Columbia, Illinois, Maryland, New Jersey, New York, South Carolina and Wisconsin. Eleven of these cases have been filed against the Company since the quarter ended March 31, 2015; all but one of these cases have multiple defendants named in addition to the Company. Some of these cases are expected to go to trial in 2015, although the Company may succeed in dismissing or otherwise resolving them. While the Company and its legal counsel believe these cases are without merit and intend to challenge them vigorously, there can be no assurances of the outcome at trial. Since the amount of any potential losses from these additional cases currently cannot be estimated, the range of reasonably possible losses in excess of accrued liabilities disclosed above does not include any amount relating to these cases.


18

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/South Pacific, Asia 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.

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, 2014. 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 costs, 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 and Operating profit by segment were as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net sales
 
 
 
 
 
 
 
Oral, Personal and Home Care
 
 
 
 
 
 
 
North America
$
780

 
$
770

 
$
1,569

 
$
1,555

Latin America
1,126

 
1,231

 
2,213

 
2,383

Europe/South Pacific
731

 
873

 
1,472

 
1,738

Asia
623

 
610

 
1,284

 
1,282

Africa/Eurasia
254

 
308

 
508

 
606

Total Oral, Personal and Home Care
3,514

 
3,792

 
7,046

 
7,564

Pet Nutrition
552

 
560

 
1,090

 
1,113

Total Net sales
$
4,066

 
$
4,352

 
$
8,136

 
$
8,677

 
 
 
 
 
 
 
 
Operating profit
 

 
 

 
 
 
 
Oral, Personal and Home Care
 

 
 

 
 
 
 
North America
$
223

 
$
231

 
$
441

 
$
447

Latin America
321

 
311

 
629

 
601

Europe/South Pacific
183

 
227

 
367

 
444

Asia
181

 
178

 
374

 
371

Africa/Eurasia
45

 
58

 
84

 
117

Total Oral, Personal and Home Care
953

 
1,005

 
1,895

 
1,980

Pet Nutrition
146

 
146

 
293

 
290

Corporate
(167
)
 
(171
)
 
(396
)
 
(656
)
Total Operating profit
$
932

 
$
980

 
$
1,792

 
$
1,614



19

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

Approximately 80% of the Company’s Net sales are generated from markets outside the U.S., with over 50% of the Company’s Net sales coming from emerging markets (which consist of Latin America, Asia (excluding Japan), Africa/Eurasia and Central Europe).

For the three months ended June 30, 2015 , Corporate Operating profit (loss) includes charges of $52 related to the 2012 Restructuring Program and a charge of $16 related to the remeasurement of the Company’s Venezuelan subsidiary’s local currency-denominated net monetary assets as a result of an effective devaluation. For the six months ended June 30, 2015 , Corporate Operating profit (loss) includes charges of $152 related to the 2012 Restructuring Program and a charge of $16 related to the remeasurement of the Company’s Venezuelan subsidiary’s local currency-denominated net monetary assets as a result of an effective devaluation.

For the three months ended June 30, 2014 , Corporate Operating profit (loss) included charges of $74 related to the 2012 Restructuring Program and costs of $2 related to the sale of land in Mexico. For the six months ended June 30, 2014 , Corporate Operating profit (loss) included charges of $176 related to the 2012 Restructuring Program, charges of $266 related to the remeasurement of the Company’s Venezuelan subsidiary’s local currency-denominated net monetary assets as a result of an effective devaluation and costs of $3 related to the sale of land in Mexico. For further information regarding the 2012 Restructuring Program, refer to Note 5 , Restructuring and Related Implementation Charges. For further information regarding Venezuela, refer to Note 15 , Venezuela. For further information regarding the sale of land in Mexico, refer to Note 4 , Acquisitions and Divestitures.


20

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.

21

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

The following summarizes the fair value of the Company’s derivative instruments and other financial instruments at June 30, 2015 and December 31, 2014 :
 
Assets
 
Liabilities
 
 
Account
 
Fair Value
 
Account
 
Fair Value
Designated derivative instruments
 
6/30/15
 
12/31/14
 
 
 
6/30/15
 
12/31/14
Interest rate swap contracts
Other current assets
 
$
1

 
$
1

 
Other accruals
 
$

 
$

Interest rate swap contracts
Other assets
 
12

 
12

 
Other liabilities
 

 
2

Foreign currency contracts
Other current assets
 
22

 
21

 
Other accruals
 
10

 
4

Foreign currency contracts
Other assets
 
103

 
60

 
Other liabilities
 

 

Commodity contracts
Other current assets
 
1

 

 
Other accruals
 

 
1

Total designated
 
 
$
139

 
$
94

 
 
 
$
10

 
$
7

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated
 
 
 

 
 

 
 
 
 
 
 

Foreign currency contracts
Other current assets
 
$
3

 
$

 
Other accruals
 
$

 
$

Foreign currency contracts
Other assets
 
7

 
8

 
Other liabilities
 

 

Total not designated
 
 
$
10


$
8

 
 
 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Total derivative instruments
 
$
149

 
$
102

 
 
 
$
10

 
$
7

 
 
 
 
 
 
 
 
 
 
 
 
Other financial instruments
 
 

 
 

 
 
 
 

 
 

Marketable securities
Other current assets
 
$
248

 
$
200

 
 
 
 

 
 

Note receivable
Other current assets
 
38

 
42

 
 
 
 
 
 
Available-for-sale securities
Other assets
 
391

 
322

 
 
 
 

 
 

Total other financial instruments
 
$
677

 
$
564

 
 
 
 

 
 


The carrying amount of cash, cash equivalents, accounts receivable and short-term debt approximated fair value as of June 30, 2015 and December 31, 2014 . The estimated fair value of the Company’s long-term debt, including the current portion, as of June 30, 2015 and December 31, 2014 , was $6,838 and $6,346 , respectively, and the related carrying value was $6,674 and $6,132 , 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).

22

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

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 six months ended June 30, 2015 and 2014 was as follows:
 
2015
 
2014
 
Foreign
Currency
Contracts
 
Interest
Rate
Swaps
 
 
Total
 
Foreign
Currency
Contracts
 
Interest
Rate
Swaps
 
 
Total
Notional Value at June 30,
$
1,136

 
$
1,438

 
$
2,574

 
$
1,210

 
$
1,438

 
$
2,648

Three months ended June 30:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on derivative
(5
)
 
(4
)
 
(9
)
 

 
7

 
7

Gain (loss) on hedged items
5

 
4

 
9

 

 
(7
)
 
(7
)
Six months ended June 30:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on derivative
(3
)
 
2

 
(1
)
 
2

 
(3
)
 
(1
)
Gain (loss) on hedged items
3

 
(2
)
 
1

 
(2
)
 
3

 
1


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 six months ended June 30, 2015 and 2014 was as follows:
 
2015
 
2014
 
Foreign
Currency
Contracts
 
Commodity
Contracts
 
 
Total
 
Foreign
Currency
Contracts
 
Commodity
Contracts
 
 
Total
Notional Value at June 30,
$
666

 
$
10

 
$
676

 
$
521

 
$
14

 
$
535

Three months ended June 30:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) recognized in OCI
(6
)
 
1

 
(5
)
 
(7
)
 
(1
)
 
(8
)
Gain (loss) reclassified into Cost of sales
1

 

 
1

 
(1
)
 
1

 

Six months ended June 30:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) recognized in OCI
1

 

 
1

 
(7
)
 
1

 
(6
)
Gain (loss) reclassified into Cost of sales
8

 
(1
)
 
7

 
1

 
2

 
3


The net gain (loss) recognized in OCI for both foreign currency contracts and commodity contracts is expected to be recognized in Cost of sales within the next twelve months.


23

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

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 six months ended June 30, 2015 and 2014 was as follows:
 
2015
 
2014
 
Foreign
Currency
Contracts
 
Foreign
Currency
Debt
 
 
Total
 
Foreign
Currency
Contracts
 
Foreign
Currency
Debt
 
 
Total
Notional Value at June 30,
$
786

 
$
836

 
$
1,622

 
$
631

 
$
53

 
$
684

Three months ended June 30:
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on instruments
(29
)
 
(2
)
 
(31
)
 

 
2

 
2

Gain (loss) on hedged items
29

 
2