Colgate-Palmolive Company
COLGATE PALMOLIVE CO (Form: 10-K, Received: 02/18/2016 09:10:29)


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
 
(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)
Registrant’s telephone number, including area code 212-310-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $1.00 par value
New York Stock Exchange
Floating Rate Notes due 2019
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨  (Do not check if a smaller reporting company)
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
The aggregate market value of Colgate-Palmolive Company Common Stock held by non-affiliates as of June 30, 2015 (the last business day of its most recently completed second quarter) was approximately $58.7 billion.
There were 892,738,516 shares of Colgate-Palmolive Company Common Stock outstanding as of January 31, 2016.
DOCUMENTS INCORPORATED BY REFERENCE:
Documents
Form 10-K Reference
Portions of Proxy Statement for the 2016 Annual Meeting of Stockholders
Part III, Items 10 through 14




Colgate-Palmolive Company
Table of Contents

Part I
  
Page
 
  
  
Item 1.
Business
Item 1A.  
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
 
 
  
Part II
 
  
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
 
  
Part III
 
  
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions and Director Independence
Item 14.
Principal Accountant Fees and Services
 
 
 
Part IV
 
  
Item 15.
Exhibits and Financial Statement Schedules
 
  
  
Signatures






PART I

ITEM 1.    BUSINESS

(a) General Development of the Business

Colgate-Palmolive Company (together with its subsidiaries, the “Company” or “Colgate”) is a leading consumer products company whose products are marketed in over 200 countries and territories throughout the world. Colgate was founded in 1806 and incorporated under the laws of the State of Delaware in 1923.

For recent business developments and other information, refer to the information set forth under the captions “Executive Overview and Outlook,” “Results of Operations,” “Restructuring and Related Implementation Charges” and “Liquidity and Capital Resources” in Part II, Item 7 of this report.

(b) Financial Information about Segments

Worldwide Net sales and Operating profit by business segment and geographic region during the last three years appear under the caption “Results of Operations” in Part II, Item 7 of this report and in Note 15, Segment Information to the Consolidated Financial Statements.

(c) Narrative Description of the Business

The Company operates in two product segments: Oral, Personal and Home Care; and Pet Nutrition. Colgate is a global leader in Oral Care with the leading toothpaste and manual toothbrush brands throughout many parts of the world according to market share data. Colgate’s Oral Care products include Colgate Total, Colgate Sensitive Pro-Relief, Colgate Max Fresh, Colgate Maximum Cavity Protection with Sugar Acid Neutralizer, Colgate Optic White and Colgate Luminous White toothpastes, Colgate 360° and Colgate Slim Soft manual toothbrushes and Colgate Optic White, Colgate Total and Colgate Plax mouthwashes. Colgate’s Oral Care business also includes pharmaceutical products for dentists and other oral health professionals.

Colgate is a leader in many product categories of the Personal Care market with global leadership in liquid hand soap, which it sells under the Palmolive, Protex and Softsoap brands. Colgate’s Personal Care products also include Palmolive, Sanex and Softsoap brand shower gels, Palmolive, Irish Spring and Protex bar soaps and Speed Stick, Lady Speed Stick and Sanex deodorants and antiperspirants. Colgate is the market leader in liquid hand soap in the U.S. with its line of Softsoap brand products according to market share data. Colgate’s Personal Care business outside the U.S. also includes Palmolive and Caprice shampoos and conditioners.

Colgate manufactures and markets a wide array of products for the Home Care market, including Palmolive and Ajax dishwashing liquids, Fabuloso and Ajax household cleaners and Murphy’s Oil Soap. Colgate is a market leader in fabric softeners with leading brands including Suavitel in Latin America, Soupline in Europe and Cuddly in the South Pacific according to market share data.

Sales of Oral, Personal and Home Care products accounted for 47% , 20% and 19% , respectively, of the Company’s total worldwide Net sales in 2015 . Geographically, Oral Care is a significant part of the Company’s business in Asia,   comprising approximately 86% of Net sales in that region for 2015 .


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Colgate, through its Hill’s Pet Nutrition segment ( Hill’s ), is a world leader in specialty pet nutrition products for dogs and cats with products marketed in over 80 countries worldwide. Hill’s markets pet foods primarily under three brands: Hill’s Science Diet, which is sold by authorized pet supply retailers and veterinarians for everyday nutritional needs; Hill’s Prescription Diet, a range of therapeutic products sold by veterinarians and authorized pet supply retailers to help nutritionally manage disease conditions in dogs and cats; and Hill s Ideal Balance, a range of products with natural ingredients, sold by authorized pet supply retailers and veterinarians. Sales of Pet Nutrition products accounted for 14% of the Company’s total worldwide Net sales in 2015 .

For more information regarding the Company’s worldwide Net sales by product category, refer to Note 1, Nature of Operations and Note 15, Segment Information to the Consolidated Financial Statements.

For additional information regarding market share data, see Market Share Information in Part II, Item 7 of this report.

Research and Development

Strong research and development capabilities and alliances enable Colgate to support its many brands with technologically sophisticated products to meet consumers’ oral, personal and home care and pet nutrition needs. The Company’s spending related to research and development activities was $274 million in 2015 , $277 million in 2014 and $267 million in 2013 .

Distribution; Raw Materials; Competition; Trademarks and Patents

The Company’s products are marketed by a direct sales force at individual operating subsidiaries or business units and by distributors or brokers. Oral, Personal and Home Care sales to Wal-Mart Stores, Inc. and its affiliates represent approximately 11% of the Company’s Net sales in 2015. No other customer represents more than 10% of the Company’s Net sales.

The majority of raw and packaging materials used in the Company’s products are purchased from other companies and are available from several sources. No single raw or packaging material represents, and no single supplier provides, a significant portion of the Company’s total material requirements. For certain materials, however, new suppliers may have to be qualified under industry, governmental and Colgate standards, which can require additional investment and take some period of time. Raw and packaging material commodities such as resins, pulp, essential oils, tropical oils, tallow, poultry, corn and soybeans are subject to market price variations.

The Company’s products are sold in a highly competitive global marketplace which has experienced increased trade concentration and the growing presence of large-format retailers and discounters. Products similar to those produced and sold by the Company are available from multinational and local competitors in the U.S. and overseas. Certain of the Company’s competitors are larger and have greater resources than the Company. In certain geographies, particularly in the emerging markets, the Company also faces strong local competitors, who may be more agile and have better local consumer insights than the Company. In addition, private label brands sold by retail trade chains are a source of competition for certain of the Company’s product lines. Product quality, innovation, brand recognition, marketing capability and acceptance of new products largely determine success in the Company’s operating segments.

Trademarks are considered to be of material importance to the Company’s business. The Company follows a practice of seeking trademark protection in the U.S. and throughout the world where the Company’s products are sold. Principal global and regional trademarks include Colgate, Palmolive, Speed Stick, Lady Speed Stick, Softsoap, Irish Spring, Protex, Sorriso, Kolynos, elmex, Tom’s of Maine, Sanex, Ajax, Axion, Fabuloso, Soupline and Suavitel, as well as Hill’s Science Diet, Hill’s Prescription Diet and Hill s Ideal Balance. The Company’s rights in these trademarks endure for as long as they are used and/or registered. Although the Company actively develops and maintains a portfolio of patents, no single patent is considered significant to the business as a whole.





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Environmental Matters

The Company has programs that are designed to ensure that its operations and facilities meet or exceed standards established by applicable environmental rules and regulations. Capital expenditures for environmental control facilities totaled $43 million for 2015 . For future years, expenditures are currently expected to moderately increase from historical levels due to spending in connection with Leadership in Energy and Environmental Design certifications at manufacturing facilities and continued progress on the Company’s goal to increase energy efficiencies in the manufacturing of the Company’s products. For additional information regarding environmental matters refer to Note 13, Commitments and Contingencies to the Consolidated Financial Statements.
 
Employees

As of December 31, 2015 , the Company employed approximately 37,900 employees.

Executive Officers of the Registrant

The following is a list of executive officers as of February 18, 2016:
Name
 
Age
 
Date First Elected Officer
 
Present Title
Ian Cook
 
63
 
1996
 
Chairman of the Board
 
 
  
 
  
 
President and Chief Executive Officer
Fabian T. Garcia
 
56
 
2003
 
Chief Operating Officer
 
 
 
 
 
 
Global Innovation and Growth, Europe/South Pacific
 
 
  
 
  
 
and Hill s Pet Nutrition
Franck J. Moison
 
62
 
2002
 
Chief Operating Officer
 
 
  
 
  
 
Emerging Markets and Business Development
Dennis J. Hickey
 
67
 
1998
 
Chief Financial Officer
Jennifer M. Daniels
 
52
 
2014
 
Chief Legal Officer and Secretary
Victoria L. Dolan
 
56
 
2011
 
Vice President and Corporate Controller
John J. Huston
 
61
 
2002
 
Senior Vice President
 
 
  
 
  
 
Chief of Staff
Delia H. Thompson
 
66
 
2002
 
Senior Vice President
 
 
  
 
  
 
Investor Relations
Daniel B. Marsili
 
55
 
2005
 
Senior Vice President
 
 
 
 
 
 
Global Human Resources
P. Justin Skala
 
56
 
2008
 
President
 
 
  
 
  
 
Colgate – North America and Global Sustainability
Noel R. Wallace
 
51
 
2009
 
President
 
 
  
 
  
 
Colgate – Latin America
Patricia Verduin
 
56
 
2011
 
Chief Technology Officer
Mukul Deoras
 
52
 
2015
 
Chief Marketing Officer

Each of the executive officers listed above has served the registrant or its subsidiaries in various executive capacities for the past five years with the exception of Jennifer M. Daniels, who joined the Company in 2014 as Chief Legal Officer and Secretary. Ms. Daniels joined the Company from NCR Corporation where she was Senior Vice President, General Counsel and Secretary. Prior to joining NCR Corporation in 2010, Ms. Daniels was Vice President, General Counsel and Secretary of Barnes & Noble, Inc., which she joined in 2007.

Under the Company’s By-Laws, the officers of the corporation hold office until their respective successors are chosen and qualified or until they have resigned, retired or been removed by the affirmative vote of a majority of the Board of Directors of the Company (the Board ). There are no family relationships between any of the executive officers, and there is no arrangement or understanding between any executive officer and any other person pursuant to which the executive officer was elected.

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(d) Financial Information about Geographic Areas

For financial data by geographic region, refer to the information set forth under the caption “Results of Operations” in Part II, Item 7, of this report and in Note 15, Segment Information to the Consolidated Financial Statements.  For a discussion of risks associated with our international operations, see Item 1A “Risk Factors.”

(e) Available Information

The Company’s website address is www.colgatepalmolive.com . The information contained on the Company’s website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. The Company makes available, free of charge, on its website its annual reports on Form 10-K, its quarterly reports on Form 10-Q, its interactive data files posted pursuant to Rule 405 of Regulation S-T, its current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act ) as soon as reasonably practicable after the Company has electronically filed such material with, or furnished it to, the United States Securities and Exchange Commission (the SEC ). Also available on the Company’s website are the Company’s Code of Conduct and Corporate Governance Guidelines, the charters of the Committees of the Board, reports under Section 16 of the Exchange Act of transactions in Company stock by directors and officers and its proxy statements.

ITEM 1A.    RISK FACTORS

In addition to the risks described elsewhere in this report, set forth below is a summary of the material risks to an investment in our securities.  These risks are not the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also have an adverse effect on us. If any of these risks actually occur, our business, results of operations, cash flows and financial condition could be materially and adversely impacted, which might cause the value of our securities to decline.

We face risks associated with significant international operations, including exposure to foreign currency fluctuations.

We operate on a global basis with approximately 75% of our Net sales originating in markets outside the U.S. While geographic diversity helps to reduce our exposure to risks in any one country or part of the world, it also means that we are subject to the full range of risks associated with significant international operations, including, but not limited to:

changes in exchange rates for foreign currencies, which may reduce the U.S. dollar value of revenues, profits and cash flows from non-U.S. markets or increase our supply costs, as measured in U.S. dollars, in those markets,
exchange controls and other limits on our ability to import raw materials or finished product or to repatriate earnings from overseas,
political or economic instability, social or labor unrest or changing macroeconomic conditions in our markets, including as a result of volatile commodity prices, including the price of oil,
lack of well-established or reliable legal systems in certain countries where we operate,
foreign ownership restrictions and the potential for nationalization or expropriation of property or other resources, and
other foreign or domestic legal and regulatory requirements, including those resulting in potentially adverse tax consequences or the imposition of onerous trade restrictions, price controls, labor laws, profit controls or other government controls.
These risks could have a significant impact on our ability to sell our products on a competitive basis in international markets and may adversely affect our business, results of operations, cash flows and financial condition.



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In an effort to minimize the impact on earnings of foreign currency rate movements, we engage in a combination of selling price increases, where permitted, sourcing strategies, cost-containment measures and selective hedging of foreign currency transactions. However, these measures may not succeed in offsetting any negative impact of foreign currency rate movements on our business and results of operations.

Significant competition in our industry could adversely affect our business.

We face vigorous competition worldwide, including from strong local competitors and from other large, multinational companies, some of which may have greater resources than we do. We face this competition in several aspects of our business, including, but not limited to, the pricing of products, promotional activities, new product introductions and expansion into new geographies. Such competition also extends to administrative and legal challenges of product claims and advertising. Our ability to compete also depends on the strength of our brands and on our ability to enforce and defend our patent, trademark and trade dress rights against infringement and legal challenges by competitors.

We may be unable to anticipate the timing and scale of such initiatives or challenges by competitors or to successfully respond to them, which could harm our business. In addition, the cost of responding to such initiatives and challenges, including management time, out-of-pocket expenses and price reductions, may affect our performance in the relevant period. A failure to compete effectively could adversely affect our business, results of operations, cash flows and financial condition.

Our business is subject to legal and regulatory risks in the U.S. and abroad.

Our business is subject to extensive legal and regulatory requirements in the U.S. and abroad. Such legal and regulatory requirements apply to most aspects of our products, including their development, ingredients, manufacture, packaging, labeling, storage, transportation, distribution, export, import, advertising and sale. U.S. federal authorities, including the U.S. Food and Drug Administration (the “FDA”), the Federal Trade Commission, the Consumer Product Safety Commission and the Environmental Protection Agency, regulate different aspects of our business, along with parallel authorities at the state and local levels and comparable authorities overseas. Also, our selling practices are regulated by competition law authorities in the U.S. and abroad.

New or more stringent legal or regulatory requirements, or more restrictive interpretations of existing requirements, could adversely impact our business, results of operations, cash flows and financial condition.  For example, from time to time, various regulatory authorities in Europe, the U.S. and other countries request or conduct reviews of the use of various ingredients in consumer products. Triclosan, an ingredient used by us primarily in Colgate Total toothpaste, is an example of an ingredient that has undergone reviews by various regulatory authorities worldwide, and Colgate Total toothpaste is subject to the FDA’s rigorous New Drug Application (“NDA”) process for safety and efficacy. Triclosan is currently being evaluated under the European Union’s Regulation for the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), which requires the registration of all covered chemicals used in the European Union by 2018. The FDA is also evaluating the use of benzalkoniam chloride (an ingredient used in certain of our hand soap products) and triclosan in hand soaps and hand sanitizers. Some states and municipalities in the U.S. have proposed, and Minnesota has passed, legislation banning the sale of certain products containing triclosan. The Minnesota legislation does not cover Colgate Total toothpaste. Environment Canada, the federal environmental authority in Canada, is also conducting a review to assess human and environmental risks of triclosan and is expected to issue its final assessment in 2016. A decision by a regulatory or governmental authority that triclosan, or any other of our ingredients, should not be used in certain consumer products or should otherwise be newly regulated, could adversely impact our business, as could negative reactions by our consumers, trade customers or non-governmental organizations to our use of such ingredients. Additionally, an inability to develop new or reformulated products containing alternative ingredients or to obtain regulatory approval of such products on a timely basis could likewise adversely affect our business.   

Because of our extensive international operations, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act (the “FCPA”) and similar worldwide anti-bribery laws. The FCPA and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to government officials or other third parties for the purpose of obtaining or retaining business. While our policies mandate compliance with these anti-bribery laws, we cannot provide assurance that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees, joint-venture partners or agents. Violations of these laws, or allegations of such violations, could disrupt our business and adversely affect our reputation and our business, results of operations, cash flows and financial condition.

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While it is our policy and practice to comply with all legal and regulatory requirements applicable to our business, a finding that we are in violation of, or out of compliance with, applicable laws or regulations could subject us to civil remedies, including fines, damages, injunctions or product recalls, or criminal sanctions, any of which could adversely affect our business, results of operations, cash flows and financial condition. Even if a claim is unsuccessful, is without merit or is not fully pursued, the negative publicity surrounding such assertions regarding our products, processes or business practices could adversely affect our reputation and brand image. For information regarding our legal and regulatory matters, see Item 3 “Legal Proceedings” and Note 13 , Commitments and Contingencies to the Consolidated Financial Statements.

Increasing dependence on key retailers in developed markets, changes in the policies of our retail trade customers and the emergence of new sales channels may adversely affect our business.

Our products are sold in a highly competitive global marketplace which has experienced increased trade concentration and the growing presence of large-format retailers and discounters. With the growing trend toward retail trade consolidation, we are increasingly dependent on key retailers, and some of these retailers, including large-format retailers, may have greater bargaining strength than we do. They may use this leverage to demand higher trade discounts, allowances or slotting fees, which could lead to reduced sales or profitability. The loss of a key customer or a significant reduction in sales to a key customer could adversely affect our business, results of operations, cash flows and financial condition. For additional information regarding our customers, see “Distribution; Raw Materials; Competition; Trademarks and Patents” in Item 1 “Business.”

We may also be negatively affected by changes in the policies of our retail trade customers, such as inventory de-stocking, limitations on access to shelf space, delisting of our products, environmental or sustainability initiatives and other conditions. For example, a determination by a key retailer that any of our ingredients should not be used in certain consumer products could adversely impact our business, results of operations, cash flows and financial condition. In addition, private label products sold by retail trade chains, which are typically sold at lower prices than branded products, are a source of competition for certain of our product lines, including liquid hand soaps and shower gels. The emergence of new sales channels for our products, such as e-commerce, may affect consumer preferences and market dynamics and could also adversely impact our business, results of operations, cash flows and financial condition.

The growth of our business depends on the successful identification, development and launch of innovative new products.

Our growth depends on the continued success of existing products, as well as the successful launch of innovative new products and line extensions. Our ability to launch new products and line extensions and to sustain existing products is affected by whether we can successfully:

identify, develop and fund technological innovations,
obtain and maintain necessary patent and trademark protection and avoid infringing intellectual property rights of others,
obtain approvals and registrations of regulated products, including from the FDA and other regulatory bodies in the U.S. and abroad, and
anticipate and respond to consumer needs and preferences.

The identification, development and introduction of innovative new products and line extensions involve considerable costs, and any new product or line extension may not generate sufficient customer and consumer interest and sales to become a profitable product or to cover the costs of its development and promotion. Our ability to achieve a successful launch of a new product or line extension could also be adversely affected by preemptive actions taken by competitors in response to the launch, such as increased promotional activities and advertising.

The failure to develop and launch successful new products could hinder the growth of our business and any delay in the development or launch of a new product could result in us not being the first to market, which could compromise our competitive position and adversely affect our business, results of operations, cash flows and financial condition.


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If, in the course of identifying or developing new products, we are found to have infringed the trademark, trade secret, copyright, patent or other intellectual property rights of others, directly or indirectly, through the use of third-party ideas or technologies, such a finding could adversely affect our ability to develop innovative new products and adversely affect our business, results of operations, cash flows and financial condition. Even if we are not found to infringe on a third party’s intellectual property rights, claims of infringement could adversely affect us, including by increasing costs and by delaying the launch of new products.

We may not realize the benefits that we expect from our 2012 Restructuring Program.

In the fourth quarter of 2012, we commenced a four-year Global Growth and Efficiency Program for sustained growth, which was expanded in 2014 and 2015 (the “2012 Restructuring Program”). The 2012 Restructuring Program’s initiatives are expected to help us ensure sustained solid worldwide growth in unit volume, organic sales and earnings per share and enhance our global leadership positions in our core businesses. The successful implementation of the remainder of the 2012 Restructuring Program presents significant organizational challenges and in some cases may require successful negotiations with third parties. As a result, we may not be able to realize all of the remaining anticipated benefits from the 2012 Restructuring Program. Events and circumstances, such as financial or strategic difficulties, delays and unexpected costs may occur that could result in our not realizing all of the remaining anticipated benefits or our not realizing such benefits on our expected timetable. In addition, changes in foreign exchange rates may result in our not achieving the remaining anticipated cost savings as measured in U.S. dollars. If we are unable to realize the remaining anticipated savings of the 2012 Restructuring Program, our ability to fund other initiatives and enhance profitability may be adversely affected. Any failure to implement the 2012 Restructuring Program in accordance with our expectations could adversely affect our business, results of operations, cash flows and financial condition. For additional information regarding the 2012 Restructuring Program, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Overview and Outlook” and “– Restructuring and Related Implementation Charges.”

There is no guarantee that our ongoing efforts to reduce costs will be successful.

We develop investments needed to support growth through our continuous, Company-wide initiatives to lower costs and increase effective asset utilization, which we refer to as our funding-the-growth initiatives. These initiatives are designed to reduce costs associated with direct materials, indirect expenses, distribution and logistics, and advertising and promotional materials, among other things. The achievement of our funding-the-growth targets depends on our ability to successfully identify and realize additional savings opportunities. Events and circumstances, such as financial or strategic difficulties, delays and unexpected costs may occur that could result in our not realizing all of the anticipated benefits or our not realizing the anticipated benefits on our expected timetable. If we are unable to realize the anticipated savings of our funding-the-growth initiatives, our ability to fund other initiatives and achieve our profitability goals may be adversely affected. Any failure to implement our funding-the-growth initiatives in accordance with our expectations could adversely affect our business, results of operations, cash flows and financial condition. For additional information regarding our funding-the-growth initiatives, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Overview and Outlook.”

Damage to our reputation could have an adverse effect on our business.

Maintaining our strong reputation with consumers and our trade partners globally is critical to selling our branded products. Accordingly, we devote significant time and resources to programs designed to protect and preserve our reputation, such as our Ethics and Compliance, Sustainability, Brand Protection and Product Safety, Regulatory and Quality initiatives.  Adverse publicity about us, our brands or our ingredients regarding health concerns, legal or regulatory proceedings, environmental impacts (including packaging, energy and water use and waste management) or other sustainability issues, whether or not deserved, could jeopardize our reputation. In addition, negative posts or comments about us on any social media website, whether true or untrue, could harm our reputation. The success of our brands could also suffer if our marketing initiatives do not have the desired impact on a brand's image or its ability to attract consumers.

Additionally, due to the scale and scope of our business, we must rely on relationships with third parties, including our suppliers, distributors, contractors, joint venture partners and other external business partners, for certain functions. While we have policies and procedures for managing these relationships, they inherently involve a lesser degree of control over business operations, governance and compliance, thereby potentially increasing our reputational and legal risk.


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In addition, third parties sell counterfeit versions of our products, which are inferior or may pose safety risks. As a result, consumers of our brands could confuse our products with these counterfeit products, which could cause them to refrain from purchasing our brands in the future and in turn could impair our brand equity and adversely affect our business, results of operations, cash flows and financial condition.

Damage to our reputation or loss of consumer confidence in our products for these or any other reasons could adversely affect our business, results of operations, cash flows and financial condition, as well as require resources to rebuild our reputation.

Volatility in material and other costs could adversely impact our profitability.

Raw and packaging material commodities such as resins, pulp, essential oils, tropical oils, tallow, poultry, corn and soybeans are subject to wide price variations. Increases in the costs and availability of these commodities and the costs of energy, transportation and other necessary services may adversely affect our profit margins if we are unable to pass along such higher costs in the form of price increases or otherwise achieve cost efficiencies, such as in manufacturing and distribution.

Legal claims and proceedings could adversely impact our business.

From time to time, we may be subject to legal claims and proceedings, including 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. Regardless of their merit, these claims can require significant time and expense to investigate and defend. Since litigation is inherently uncertain, there is no guarantee that we will be successful in defending ourselves against such claims or proceedings, or that our assessment of the materiality of these matters, including any reserves taken in connection therewith, will be consistent with the ultimate outcome of such matters. In addition, if one of our products, or a raw material contained in our products, is perceived or found to be defective or unsafe, we may need to recall some of our products. Whether or not a legal claim or proceeding is successful, or a recall is required, such assertions could have an adverse effect on our business, results of operations, cash flows and financial condition, and the negative publicity surrounding them could harm our reputation and brand image. See Item 3 “Legal Proceedings” and Note 13, Commitments and Contingencies to the Consolidated Financial Statements for additional information on certain of our legal claims and proceedings.

Disruption in our global supply chain or key office facilities could adversely impact our business.

We are engaged in manufacturing and sourcing of products and materials on a global scale. Our operations and those of our suppliers could be disrupted by a number of factors, including, but not limited to:

environmental events,
strikes and other labor disputes,
disruptions in logistics,
loss or impairment of key manufacturing sites,
loss of key suppliers,
supplier capacity constraints,
raw material and product quality or safety issues,
industrial accidents or other occupational health and safety issues,
the impact on our suppliers of tighter credit or capital markets, and
natural disasters, including climatic events and earthquakes, acts of war or terrorism and other external factors over which we have no control.

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In addition, we purchase certain key raw and packaging materials from single-source suppliers or a limited number of suppliers and new suppliers may have to be qualified under industry, governmental and Colgate standards, which can require additional investment and take a significant period of time.
While we believe that the supplies of raw materials needed to manufacture our products are adequate and have business continuity and contingency plans in place for key manufacturing sites and the supply of raw and packaging materials, significant disruption of manufacturing or sourcing of products or materials for any of the above reasons could interrupt product supply and, if not remedied, have an adverse impact on our business, results of operations, cash flows and financial condition.

In addition, as a result of our clustering of single-country subsidiaries into regional commercial hubs and our implementation of a global shared service organizational model, certain of our functions, such as marketing, finance and accounting, and customer service and logistics, have become more concentrated in key office facilities. A significant disruption to any of our key office facilities for any reason, including natural disasters, acts of war or terrorism, could adversely affect our business, results of operations, cash flows and financial condition.

A cyber-security incident, data breach or a failure of a key information technology system could adversely impact our business or reputation.

We rely extensively on information technology systems (“IT Systems”), including some which are managed, hosted, provided and/or used by third parties and their vendors, in order to conduct our business. Our uses of these systems include, but are not limited to:

communicating within the Company and with other parties, including our customers and consumers,
ordering and managing materials from suppliers,
converting materials to finished products,
receiving and processing orders from and shipping products to our customers,
marketing products to consumers,
collecting and storing customer, consumer, employee, investor and other stakeholder information and personal data,
processing transactions, including but not limited to employee payroll, employee and retiree benefits and payments to customers,
hosting, processing and sharing confidential and proprietary research, business plans and financial information,
complying with legal, regulatory and tax requirements,
providing data security, and
handling other processes involved in managing our business.
Although we have network security measures in place, our IT Systems, including those of third-party service providers with whom we have contracted, have been, and will likely continue to be, subject to computer viruses or other malicious codes, unauthorized access attempts, phishing and other cyber-attacks. We cannot guarantee that our security efforts will prevent breaches or breakdowns of our, or our third-party service providers’, IT Systems since the techniques used in these attacks change frequently and may be difficult to detect for periods of time. In addition, although we have policies and procedures in place to ensure that all personal information collected by the Company or its third-party service providers is securely maintained, data breaches due to human error or intentional or unintentional conduct have occurred and likely will continue to occur. Although we have seen no material impact on our business operations from the cyber-security attacks and data breaches we have experienced to date, if we suffer a loss or disclosure of confidential business or stakeholder information as a result of a breach of our IT Systems, including those of third-party service providers with whom we have contracted, we may suffer reputational, competitive and/or business harm, incur significant costs and be subject to government investigations, civil litigation, fines and/or damages, which may adversely impact our business, results of operations, cash flows and financial condition.

9



Furthermore, while we have disaster recovery and business continuity plans in place, if our IT Systems are damaged, breached or cease to function properly for any reason, including the poor performance of, failure of or cyber-attack on third-party service providers, catastrophic events, power outages, cyber-security breaches, network outages, failed upgrades or other similar events and, if the disaster recovery and business continuity plans do not effectively resolve such issues on a timely basis, we may suffer interruptions in our ability to manage or conduct business, as well as reputational harm and litigation, which may adversely impact our business, results of operations, cash flows and financial condition.

Uncertain global economic conditions and disruptions in the credit markets may adversely affect our business.

Uncertain global economic conditions could adversely affect our business. Recent global economic trends pose challenges to our business and could result in declining revenues, profitability and cash flows. Although we continue to devote significant resources to support our brands, during periods of economic uncertainty consumers may switch to economy brands, which could reduce sales volumes of our products or result in a shift in our product mix from higher margin to lower margin product offerings. Additionally, retailers may increase pressure on our selling prices or increase promotional activity for lower-priced or value offerings as they seek to maintain sales volumes and margins.

While we currently generate significant cash flows from ongoing operations and have access to global credit markets through our various financing activities, a disruption in the credit markets could limit the availability of credit. Recent and proposed changes in the bank regulatory environment could reduce the ability of financial institutions to extend credit or increase the cost we are charged to receive credit. Reduced access to credit or increased costs could adversely affect our liquidity and capital resources or significantly increase our cost of capital. In addition, if any financial institutions that hold our cash or other investments or that are parties to our revolving credit facilities supporting our commercial paper program or other financing arrangements, such as interest rate or foreign exchange hedging instruments, were to declare bankruptcy or become insolvent, they may be unable to perform under their agreements with us. This could leave us with reduced borrowing capacity or unhedged against certain interest rate, foreign currency or commodity price exposures. In addition, tighter credit markets may lead to business disruptions for certain of our suppliers, contract manufacturers or trade customers which could, in turn, adversely impact our business, results of operations, cash flows and financial condition.

Our success depends upon our ability to attract and retain key employees and the succession of senior management.

Our success largely depends on the performance of our management team and other key employees. If we are unable to attract and retain talented, highly qualified senior management and other key people, our business, results of operations, cash flows and financial condition could be adversely affected. In addition, if we are unable to effectively provide for the succession of senior management, including our Chief Executive Officer, our business, results of operations, cash flows and financial condition may be adversely affected. While we follow a disciplined, ongoing succession planning process and have succession plans in place for senior management and other key executives, these do not guarantee that the services of qualified senior executives will continue to be available to us at particular moments in time.

We may pursue acquisitions and divestitures, which could adversely impact our results.

We may pursue acquisitions of brands, businesses or technologies from third parties. Acquisitions involve numerous risks, including difficulties in the integration of the operations, technologies, services and products of acquired brands or businesses, the development or launch of products with acquired technologies, the estimation of and assumption of liabilities and contingencies, personnel turnover and the diversion of management’s attention from other business priorities, which may adversely impact our business, results of operations, cash flows and financial condition. In addition, we may be unable to achieve any anticipated benefits or cost savings from acquisitions in the time frame we anticipate, or at all.

Moreover, our pursuit of acquisitions could result in substantial additional debt, exposure to contingent liabilities, such as litigation (including for infringement of intellectual property) or earn-out obligations, the potential impairment of goodwill or other intangible assets, or transaction costs, all of which may adversely impact our business, results of operations, cash flows and financial condition.

We also may periodically divest brands or businesses. These divestitures may adversely impact our results of operations if we are unable to offset the dilutive impacts from the loss of revenue associated with the divested brands or businesses, or otherwise achieve the anticipated benefits or cost savings from the divestitures. In addition, businesses under consideration for, or otherwise subject to, divestiture may be adversely impacted prior to the divestiture, which could negatively impact our results of operations.

10




ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

The Company owns or leases approximately 340 properties which include manufacturing, distribution, research and office facilities worldwide. Our corporate headquarters is located in leased property at 300 Park Avenue, New York, New York.

In the U.S., the Company operates approximately 70 properties, of which 15 are owned. Major U.S. manufacturing and warehousing facilities used by the Oral, Personal and Home Care product segment of our business are located in Morristown, New Jersey; Morristown, Tennessee; and Cambridge, Ohio. The Pet Nutrition segment has major manufacturing and warehousing facilities in Bowling Green, Kentucky; Topeka, Kansas; Emporia, Kansas; and Richmond, Indiana. The primary research center for Oral, Personal and Home Care products is located in Piscataway, New Jersey, and the primary research center for Pet Nutrition products is located in Topeka, Kansas. Our global data center is also located in Piscataway, New Jersey.

Overseas, the Company operates approximately 270 properties, of which 76 are owned, in over 80 countries. Major overseas manufacturing and warehousing facilities used by the Oral, Personal and Home Care product segment of our business are located in Australia, Brazil, China, Colombia, France, Greece, India, Italy, Mexico, Poland, South Africa, Thailand, Turkey, Venezuela and Vietnam. The Pet Nutrition segment has major manufacturing and warehousing facilities in the Czech Republic and the Netherlands.

The Company has shared business service centers in Mexico, Poland and India, which are located in leased properties.

All of the facilities we operate are well maintained and adequate for the purpose for which they are intended.


11



ITEM 3.    LEGAL PROCEEDINGS

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 $ 175 million (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.


12



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 $ 76 million. The Company has been disputing the disallowances by appealing the assessments since October 2001. Numerous 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 has filed a lawsuit in Brazilian federal court. In the event the Company is unsuccessful in this filing, 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. The Company is challenging 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 is challenging 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 $ 48 million, 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 2014, the Superior Chamber of Administrative Tax Appeals denied the Company’s final administrative appeal, and the Company has filed a lawsuit in Brazilian federal court. In the event the Company is unsuccessful in this filing, 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.








13



Competition Matters

The Company is subject to competition law investigations and legal proceedings in a number of countries. 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 and associated private actions for damages. 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 million 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 million. 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 million. 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 million 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.

Currently, 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.


14



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. In 2015, the Company recognized a charge of $14 million in connection with this matter.

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. As of December 31, 2015, 25 cases filed against the Company had been voluntarily dismissed and/or had final judgment entered in favor of the Company. In addition, as of December 31, 2015, the Company had settled 15 cases for amounts that are not material to the Company’s results of operations.

As of December 31, 2015, there were 32 additional individual cases pending against the Company in state and federal courts in California, Delaware, the District of Columbia, Illinois, Indiana, Maryland, Massachusetts, Minnesota, Missouri, New Jersey, New York, South Carolina, Texas and Wisconsin. Thirteen of these cases were filed against the Company during the quarter ended December 31, 2015; all of these cases have multiple defendants named in addition to the Company. Some of the cases are expected to go to trial in 2016. 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 of the outcome at trial. Since the amount of any potential losses from these 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.

N8

The Company is a defendant in a lawsuit pending in Utah federal court brought by N8 Medical, Inc. (“N8 Medical”), Brigham Young University (“BYU”) and N8 Pharmaceuticals, Inc. (“N8 Pharma”) (collectively, “plaintiffs”). The complaint, originally filed in November 2013, alleges breach of contract and other torts arising out of the Company’s evaluation of a technology owned by BYU and licensed, at various times, to Ceragenix Pharmaceuticals, Inc., now in bankruptcy, N8 Medical and N8 Pharma.

In the third quarter of 2015, plaintiffs completed a submission of documents in the litigation alleging damages of approximately $2,500 million . The Company and its legal counsel believe these damages allegations are without merit and are vigorously challenging them and defending this case on its merits. The case is expected to go to trial in 2016.


ITEM 4.     MINE SAFETY DISCLOSURES

Not Applicable.


15



PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

For information regarding the market for the Company’s common stock, including quarterly market prices and dividends and stock price performance graphs, refer to “Market and Dividend Information” included in Part IV, Item 15 of this report. For information regarding the number of common shareholders of record, refer to “Historical Financial Summary” included in Part IV, Item 15 of this report.  For information regarding the securities authorized for issuance under our equity compensation plans, refer to “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” included in Part III, Item 12 of this report.

Issuer Purchases of Equity Securities

On February 19, 2015, the Company’s Board of Directors (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 “2015 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, blackout periods and other factors.

The following table shows the stock repurchase activity for each of the three months in the quarter ended December 31, 2015 :
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)
October 1 through 31, 2015
 
409,885

 
$
63.64

 
347,300

 
3,990

November 1 through 30, 2015
 
3,160,000

 
$
66.29

 
3,160,000

 
3,780

December 1 through 31, 2015
 
1,582,297

 
$
66.22

 
1,524,377

 
3,679

Total
 
5,152,182

 
$
66.06

 
5,031,677

 
 

_______
(1)  
Includes share repurchases under the 2015 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 120,505 shares, all of which relate to 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 December 31, 2015.

ITEM 6.    SELECTED FINANCIAL DATA

Refer to the information set forth under the caption “Historical Financial Summary” included in Part IV, Item 15 of this report.

16


(Dollars in Millions Except Per Share Amounts)

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview and Outlook

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 75% 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). 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 operated through five reportable operating segments: North America, Latin America, Europe/South Pacific, Asia 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.

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 the impact of foreign exchange, acquisitions and divestments), gross profit margin, operating profit, net income and earnings per share, 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.

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. 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.

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.


17


(Dollars in Millions Except Per Share Amounts)

As discussed in Part I, Item 1A “Risk Factors,” with approximately 75% of its Net sales generated outside the United States, the Company is exposed to changes in economic conditions and foreign currency exchange rates, as well as political uncertainty in some countries, all of which could impact future operating results. For example, as discussed in detail below, the operating environment in Venezuela is challenging, with economic uncertainty fueled by currency devaluations in 2010 and 2013 and effective devaluations in 2014 and 2015, high inflation and a precipitous decline in the price of oil, and governmental restrictions in the form of import authorization controls, currency exchange and payment controls, price and profit controls and the possibility of expropriation of property or other resources. Increasingly, the Company’s Venezuelan subsidiary (“CP Venezuela”) has experienced various production interruptions due to material shortages caused by limited access to U.S. dollars for imported materials, delays in the importation process due to regulations and controls imposed by the Venezuelan government, labor unrest and high costs due to inflation coupled with the inability to increase prices without government approval. Price controls, which became effective in April 2012, affect the majority of products in CP Venezuela’s portfolio and restrict the Company’s ability to implement price increases without government approval, which has limited the Company’s ability to offset the effects of continuing high inflation and the impact of currency devaluations. In addition, during the first quarter of 2014, the Venezuelan government issued the Law on Fair Pricing, establishing a maximum profit margin of 30% for products and services.

CP Venezuela’s business is reliant on imported materials and products and it cannot maintain regular operations without sufficient access to U.S. dollars which is controlled by the government. In February 2015, the Venezuelan government implemented changes in Venezuela’s foreign exchange regime. While the official exchange rate, as determined by the National Center for Foreign Commerce (“CENCOEX”), remained at 6.30 bolivares per dollar and the SICAD I (Supplementary System for the Administration of Foreign Currency) currency market, now known as SICAD, was unchanged, the SICAD II market was eliminated and a new, alternative currency market, the Foreign Exchange Marginal System (“SIMADI”), was created and became operational with a floating exchange rate determined by market participants. CP Venezuela has funded its requirements for imported goods through a combination of U.S. dollars obtained from CENCOEX and intercompany borrowings. Although access to U.S. dollars in Venezuela has been challenging, because the majority of the products in CP Venezuela’s portfolio have been designated as “essential” by the Venezuelan government, historically CP Venezuela’s access to U.S. dollars at the official rate of 6.30 bolivares per dollar was generally sufficient to settle most of its U.S. dollar obligations for imported goods. However, CP Venezuela’s access to U.S. dollars to fund imports became increasingly more limited and sporadic in 2015 and deteriorated even further during the fourth quarter of 2015. Although the SIMADI market has been accessible to CP Venezuela, it did not participate in that market through December 31, 2015. Since its inception, the volume of transactions in the SIMADI market as a whole has been very limited, and the SIMADI exchange rate at December 31, 2015 was 198.70 bolivares per dollar. Since the majority of CP Venezuela’s product portfolio is subject to price controls, it could not operate profitably without substantial price increases approved by the government if it had to pay for imported materials with U.S. dollars obtained from the SIMADI market.

The Company’s business in Venezuela and the Company’s ability to repatriate its earnings continue to be negatively affected by these difficult conditions. The restrictive exchange control regulations in Venezuela and CP Venezuela’s increasingly limited access to U.S. dollars have resulted in an ‘other-than-temporary’ lack of exchangeability between the Venezuelan bolivar and the U.S. dollar. This lack of exchangeability, together with other government controls on pricing, payments, profits and imports and restrictive labor laws, have significantly impacted the Company’s ability to make key operational decisions over its business in Venezuela, including the ability to manage its capital structure, material sourcing, product pricing and labor relations. The Company expects these conditions will continue for the foreseeable future. As a result, effective December 31, 2015, the Company concluded it no longer meets the accounting criteria for consolidation of CP Venezuela and began accounting for CP Venezuela using the cost method of accounting. As a result, the Company recorded an aftertax charge of $1,058 ( $1,084 pretax) or $1.16 per diluted share in 2015. The charge primarily consists of an impairment of the Company’s investment in CP Venezuela of $952 , which includes intercompany receivables from CP Venezuela, and $111 related to the reclassification of cumulative translation losses.


18


(Dollars in Millions Except Per Share Amounts)

Effective December 31, 2015, CP Venezuela’s net assets, which include $75 and $394 of cash and government bonds, respectively, are no longer included in the Company’s Consolidated Balance Sheet. CP Venezuela’s Net sales, Operating profit and Net income through December 31, 2015 are included in the Company’s Consolidated Statements of Income for the year ended December 31, 2015. For the year ended December 31, 2015, CP Venezuela represented approximately 4% of the Company’s consolidated Net sales and approximately 2% of the Company’s consolidated Operating profit, excluding the impacts of charges related to the change in accounting for the Company’s Venezuelan operations, the 2015 Venezuela Remeasurements (as defined below), a foreign competition law matter and the 2012 Restructuring Program and a gain on the sale of the Company’s laundry detergent business in the South Pacific.

In future periods, under the cost method of accounting, the Company will no longer include the results of CP Venezuela in its Consolidated Financial Statements and will include income relating to its Venezuelan operations only to the extent it receives cash for sales of inventory to CP Venezuela or for dividends or royalties remitted by CP Venezuela. Although CP Venezuela’s local operating results will no longer be included in the Company’s Consolidated Financial Statements for accounting purposes, under current tax rules, the Company is required to continue including CP Venezuela in its consolidated U.S. federal income tax return. Colgate has been operating in Venezuela for 72 years and the Company expects its operations in Venezuela to continue to provide Venezuelan consumers with the Company’s market leading brands.

Prior to the change in accounting for the Company’s Venezuelan operations, which was effective December 31, 2015, the Company remeasured the financial statements of CP Venezuela at the end of each month at the rate at which it expected to remit future dividends which, based on the advice of legal counsel, was the SICAD rate. During the year ended December 31, 2015, the Company incurred pretax losses of $34 ( $22 aftertax or $0.02 per diluted common share) related to the remeasurement of CP Venezuela’s local currency-denominated net monetary assets at the quarter-end SICAD rate. The quarter-end SICAD rate was 12.00 bolivares per dollar, 12.80 bolivares per dollar, 13.50 bolivares per dollar and 13.50 bolivares per dollar as of the end of the first, second, third and fourth quarters of 2015, respectively. The remeasurement losses incurred in the second and third quarters of 2015 are referred to as the “2015 Venezuela Remeasurements.”

During the year ended December 31, 2014, the Company incurred net pretax losses of $327 ( $214 aftertax or $0.23 per diluted common share) related to the remeasurement of CP Venezuela’s local currency-denominated net monetary assets at the quarter-end SICAD I rate for each of the first three quarters of 2014 (the “2014 Venezuela Remeasurements”). The SICAD I rate did not revalue during the fourth quarter of 2014 and remained at 12.00 bolivares per dollar as of December 31, 2014.

During the year ended December 31, 2013, the Company incurred a pretax loss of $172 ( $111 aftertax or $0.12 per diluted common share) related to the remeasurement of CP Venezuela’s local currency-denominated net monetary assets at the date of the devaluation that changed the official exchange rate from 4.30 to 6.30 bolivares per dollar (the “2013 Venezuela Remeasurement”). The 2015 Venezuela Remeasurements, 2014 Venezuela Remeasurements and 2013 Venezuela Remeasurement are referred to together as the “Venezuela Remeasurements.”

Included in the remeasurement losses during 2015 and 2014 were charges related to the devaluation-protected bonds issued by the Venezuelan government and held by CP Venezuela. Because the official exchange rate remained at 6.30 bolivares per dollar, the devaluation-protected bonds did not revalue at the SICAD rate but remained at the official exchange rate which resulted in an impairment in the fair value of the bonds.


19


(Dollars in Millions Except Per Share Amounts)

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 the Company ensure sustained 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 (the “Board”) approved an expansion of the Global Growth and Efficiency Program (as expanded, the “2012 Restructuring Program”). The initiatives under the 2012 Restructuring Program continue to be focused on the following areas:
Expanding Commercial Hubs
Extending Shared Business Services and Streamlining Global Functions
Optimizing Global Supply Chain and Facilities

The Board authorized the expansion of the 2012 Restructuring Program to take advantage of additional savings opportunities identified in all three areas.

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), exclusive of the expansion approved in October 2015 (discussed below). Savings from the 2012 Restructuring Program, substantially all of which are expected to increase future cash flows, are projected to be approximately $405 to $475 pretax ( $340 to $390 aftertax) annually by the end of the fourth year of the program, exclusive of the expansion approved in October 2015.

In 2015 , 2014 and 2013 , the Company incurred aftertax costs of $183 , $208 and $278 , respectively, associated with the 2012 Restructuring Program.

On October 29, 2015 , recognizing the macroeconomic challenges around the world and the Company’s successful implementation of the 2012 Restructuring Program to date, the Company’s Board approved the reinvestment of the funds from the sale of the Company’s laundry detergent business in the South Pacific (discussed below) to expand the 2012 Restructuring Program and extend it for one year through December 31, 2017. Initiatives under the expanded 2012 Restructuring Program will 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. The Company expects the initiatives under the expanded program to have a similar aftertax rate of return to the existing program, which on average has been 30%. The Company will update its disclosure to reflect the impact the expansion will have on the range of estimated charges and savings for the 2012 Restructuring Program when the additional initiatives under the expanded program are approved.

For more information regarding the 2012 Restructuring Program, see “Restructuring and Related Implementation Charges” below.

In August 2015, the Company completed the sale of its laundry detergent business in the South Pacific to Henkel AG & Co. KGaA for an aggregate purchase price of approximately 310 Australian dollars ($ 221 ) and recorded a pretax gain of $ 187 ($ 120 aftertax or $ 0.13 per diluted share) in Other (income) expense, net. The gain is net of charges related to the right-sizing of the Company’s South Pacific business, asset write-offs related to the divested laundry detergent business and other costs related to the sale. As discussed above, the funds from the sale will be reinvested to expand the 2012 Restructuring Program.











20


(Dollars in Millions Except Per Share Amounts)

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 parties have subsequently amended the 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 February 29, 2016. If these conditions are not fully satisfied by such date, the agreement will automatically be extended to March 30, 2016. While these conditions are not expected to be fully satisfied by March 30, 2016, 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 expected to occur by the third quarter 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. In 2015 , 2014 and 2013, the Company incurred aftertax costs of $0 , $3 and $12 , respectively, related to the sale of land in Mexico.

Looking forward, the Company expects global macroeconomic and market conditions to remain highly challenging. 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. Additionally, the Company continues to experience volatile foreign currency fluctuations and high raw and packaging material costs, driven by foreign exchange transaction 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 strategic initiatives: engaging to build our brands; innovation for growth; effectiveness and efficiency; and leading to win. This focus, together with the strength of the Company’s global brands, its broad international presence in both mature and emerging markets and initiatives, such as the 2012 Restructuring Program, should position the Company well to increase shareholder value over the long term.


21


(Dollars in Millions Except Per Share Amounts)

Results of Operations

Net Sales

Worldwide Net sales were $16,034 in 2015 , down 7.0% from 2014 , as volume growth of 1.5% and net selling price increases of 3.0% were more than offset by negative foreign exchange of 11.5% . Excluding divested businesses, unit volume increased 2.0% . Organic sales (Net sales excluding the impact of foreign exchange, acquisitions and divestments), a non-GAAP financial measure as discussed below, increased 5.0% in 2015 .

Net sales in the Oral, Personal and Home Care product segment were $13,822 in 2015 , down 8.0% from 2014 , as volume growth of 1.0% and net selling price increases of 3.0% were more than offset by negative foreign exchange of 12.0% . Divestments decreased volume by 0.5% . Organic sales in the Oral, Personal and Home Care product segment increased 4.5% in 2015 .

The increase in organic sales in 2015 versus 2014 was driven by an increase in Oral Care organic sales, with the toothpaste, manual toothbrush and mouthwash categories all contributing to growth. Personal Care and Home Care also contributed to organic sales growth due to strong organic sales in the shower gel and the liquid cleaners categories, respectively.

The Company s share of the global toothpaste market was 44.7% for full year 2015 and its share of the global manual toothbrush market was 34.7% for full year 2015 . Full year 2015 market shares in toothpaste were up in North America, Latin America, Europe/South Pacific and Africa/Eurasia and down in Asia versus full year 2014. In the manual toothbrush category, full year 2015 market shares were up in North America, Latin America and Europe/South Pacific and down in Asia and Africa/Eurasia versus full year 2014. For additional information regarding market shares, see “Market Share Information” below.

Net sales for Hill’s Pet Nutrition were $2,212 in 2015 , down 2.0% from 2014 , as volume growth of 3.5% and net selling price increases of 2.5% were more than offset by negative foreign exchange of 8.0% . Organic sales for Hill’s Pet Nutrition increased 6.0% in 2015 .

The increase in organic sales in 2015 versus 2014 was driven by continued growth in the Prescription Diet category. The Advanced Nutrition and Naturals categories also contributed to organic sales growth.

Worldwide Net sales were $17,277 in 2014 , down 1.0% from 2013 , as volume growth of 3.0% and net selling price increases of 2.0% were more than offset by negative foreign exchange of 6.0%. Organic sales increased 5.0% in 2014 .

22


(Dollars in Millions Except Per Share Amounts)

Gross Profit/Margin

Worldwide Gross profit decreased 7% to $9,399 in 2015 from $10,109 in 2014 . Gross profit in both periods included charges related to the 2012 Restructuring Program. Gross profit in 2014 also included costs related to the sale of land in Mexico. Excluding these items in both periods, Gross profit decreased to $9,419 in 2015 from $10,142 in 2014 , due to lower Net sales ($730), as the growth in organic sales was more than offset by the impact of negative foreign exchange.

Worldwide Gross profit margin increased to 58.6% in 2015 from 58.5% in 2014 . Excluding the items described above in both periods, Gross profit margin was 58.7% in 2015 , even with 2014 , as cost savings from the Company’s funding-the-growth initiatives ( 220 bps) and the 2012 Restructuring Program ( 20 bps) and higher pricing ( 130 bps) were offset by higher costs ( 370 bps), which included higher raw and packaging material costs, driven by significant foreign exchange transaction costs.

Worldwide Gross profit decreased 1% to $10,109 in 2014 from $10,201 in 2013 . Gross profit in both periods included charges related to the 2012 Restructuring Program and costs related to the sale of land in Mexico. Excluding these items in both periods, Gross profit decreased to $10,142 in 2014 from $10,248 in 2013 , primarily due to lower Net sales ($84), as the growth in organic sales was more than offset by the impact of negative foreign exchange, and lower Gross profit margin ($22).

Worldwide Gross profit margin decreased to 58.5% in 2014 from 58.6% in 2013 . Excluding the items described above in both periods, Gross profit margin decreased by 10 bps to 58.7% in 2014 from 58.8% in 2013. This decrease was primarily due to higher raw and packaging material costs (290 bps), which included foreign exchange transaction costs, which were offset by the benefits from cost savings from the Company’s funding-the-growth initiatives (200 bps), higher pricing (70 bps) and cost savings from the 2012 Restructuring Program (20 bps).
 
 
2015
 
2014
 
2013
Gross profit, GAAP
 
$
9,399

 
$
10,109

 
$
10,201

2012 Restructuring Program
 
20

 
29

 
32

Costs related to the sale of land in Mexico
 

 
4

 
15

Gross profit, non-GAAP
 
$
9,419

 
$
10,142

 
$
10,248


 
 
2015
 
2014
 
Basis Point Change
 
2013
 
Basis Point Change
Gross profit margin, GAAP
 
58.6
%
 
58.5
%
 
10

 
58.6
%
 
(10
)
2012 Restructuring Program
 
0.1

 
0.2

 
 
 
0.2

 
 
Gross profit margin, non-GAAP
 
58.7
%
 
58.7
%
 

 
58.8
%
 
(10
)


23


(Dollars in Millions Except Per Share Amounts)

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased 9% to $5,464 in 2015 from $5,982 in 2014 . Selling, general and administrative expenses in both periods included charges related to the 2012 Restructuring Program. Excluding these charges in both periods, Selling, general and administrative expenses decreased to $5,400 in 2015 from $5,920 in 2014 , reflecting decreased advertising investment of $293 and lower overhead expenses of $ 227 .

Selling, general and administrative expenses as a percentage of Net sales decreased to 34.1% in 2015 from 34.6% in 2014 . Excluding charges related to the 2012 Restructuring Program in both periods, Selling, general and administrative expenses as a percentage of Net sales were 33.7% , a decrease of 60 bps as compared to 2014 . This decrease in 2015 was primarily driven by decreased advertising investment ( 100 bps), partially offset by higher overhead expenses ( 40 bps), both as a percentage of Net sales. In 2015 , advertising investment decreased 16.4% to $1,491 as compared with $1,784 in 2014 , largely reflecting the impact of negative foreign exchange, and decreased as a percentage of Net sales to 9.3% from 10.3% in 2014 , in part reflecting a shift from advertising investment to in-store promotional activity.

Selling, general and administrative expenses decreased 4% to $5,982 in 2014 from $6,223 in 2013 . Selling, general and administrative expenses in both periods included charges related to the 2012 Restructuring Program. Excluding these charges, Selling, general and administrative expenses decreased to $5,920 in 2014 from $6,086 in 2013 , reflecting decreased advertising investment of $107 and lower overhead expenses of $59.

Selling, general and administrative expenses as a percentage of Net sales decreased to 34.6% in 2014 from 35.7% in 2013 . Excluding the charges related to the 2012 Restructuring Program, Selling, general and administrative expenses as a percentage of Net sales were 34.3% , a decrease of 60 bps as compared to 2013 . This decrease in 2014 was primarily driven by decreased advertising investment as a percentage of Net sales (60 bps). In 2014 , advertising investment decreased 5.7% to $1,784 as compared with $1,891 in 2013 and decreased as a percentage of Net sales to 10.3% from 10.9% in 2013 .

 
 
2015
 
2014
 
2013
Selling, general and administrative expenses, GAAP
 
$
5,464

 
$
5,982

 
$
6,223

2012 Restructuring Program
 
(64
)
 
(62
)
 
(137
)
Selling, general and administrative expenses, non-GAAP
 
$
5,400

 
$
5,920

 
$
6,086


 
 
2015
 
2014
 
Basis Point Change
 
2013
 
Basis Point Change
Selling, general and administrative expenses as a percentage of Net sales, GAAP
 
34.1
 %
 
34.6
 %
 
(50
)
 
35.7
 %
 
(110
)
2012 Restructuring Program
 
(0.4
)
 
(0.3
)
 
 
 
(0.8
)
 
 
Selling, general and administrative expenses as a percentage of Net sales, non-GAAP
 
33.7
 %
 
34.3
 %
 
(60
)
 
34.9
 %
 
(60
)



24


(Dollars in Millions Except Per Share Amounts)

Other (Income) Expense, Net

Other (income) expense, net was $62 , $570 and $422 in 2015 , 2014 and 2013 , respectively. The components of Other (income) expense, net are presented below:
Other (income) expense, net
 
2015
 
2014
 
2013
Amortization of intangible assets
 
$
33

 
$
32

 
$
32

2012 Restructuring Program
 
170

 
195

 
202

Venezuela remeasurement charges
 
34

 
327

 
172

Gain on sale of South Pacific laundry detergent business
 
(187
)
 

 

Charges for foreign competition law matters
 
14

 
41

 
23

Costs related to the sale of land in Mexico
 

 

 
3

Equity (income)
 
(8
)
 
(7
)
 
(5
)
Other, net
 
6

 
(18
)
 
(5
)
Total Other (income) expense, net
 
$
62

 
$
570

 
$
422


Other (income) expense, net was $62 in 2015 as compared to $570 in 2014 . Other (income) expense, net in both periods included charges related to the 2012 Restructuring Program, the Venezuela Remeasurements and foreign competition law matters. In 2015, Other (income) expense, net also included a gain on the sale of the Company’s laundry detergent business in the South Pacific.

Other (income) expense, net was $570 in 2014 as compared to $422 in 2013 . In 2013 , Other (income) expense, net included charges related to the 2012 Restructuring Program, the Venezuela Remeasurements and foreign competition law matters and costs related to the sale of land in Mexico.

Excluding the items described above in all years, as applicable, Other (income) expense, net was $31 in 2015 , $7 in 2014 and $22 in 2013 .
 
 
2015
 
2014
 
2013
Other (income) expense, net, GAAP
 
$
62

 
$
570

 
$
422

2012 Restructuring Program
 
(170
)
 
(195
)
 
(202
)
Venezuela remeasurement charges
 
(34
)
 
(327
)
 
(172
)
Gain on sale of South Pacific laundry detergent business
 
187

 

 

Charges for foreign competition law matters
 
(14
)
 
(41
)
 
(23
)
Costs related to the sale of land in Mexico
 

 

 
(3
)
Other (income) expense, net, non-GAAP
 
$
31

 
$
7

 
$
22



25


(Dollars in Millions Except Per Share Amounts)

Operating Profit

Operating profit decreased 22% to $ 2,789 in 2015 from $3,557 in 2014 . Operating profit in 2014 was even with 2013 .

In 2015, 2014 and 2013, Operating profit included charges related to the 2012 Restructuring Program, Venezuela Remeasurements and foreign competition law matters. In 2015, Operating profit also included a charge related to the change in accounting for the Company’s Venezuelan operations and a gain on the sale of the Company’s laundry detergent business in the South Pacific. In 2014 and 2013, Operating profit also included costs related to the sale of land in Mexico. Excluding these items in all years, as applicable, Operating profit decreased 5% in 2015 , primarily due to lower Gross profit, partially offset by a decrease in Selling, general and administrative expenses, and Operating profit increased 2% in 2014 , primarily due to lower Selling, general and administrative expenses, which more than offset a decrease in Gross profit.

Operating profit margin was 17.4% in 2015 , compared with 20.6% in 2014 and 20.4% in 2013 . Excluding the items described above in both periods as applicable, Operating profit margin increased 50 bps to 24.9% in 2015 compared to 24.4% in 2014 . This increase is mainly due to a decrease in Selling, general and administrative expenses as a percentage of Net sales ( 60 bps). Excluding the items described above in both periods as applicable, Operating profit margin increased 60 bps in 2014 compared to 2013 , primarily due to a decrease in Selling, general and administrative expenses as a percentage of Net sales (60 bps).
 
 
2015
 
2014
 
% Change
 
2013
 
% Change
Operating profit, GAAP
 
$
2,789

 
$
3,557

 
(22
)%
 
$
3,556

 
%
Venezuela accounting change
 
1,084

 

 
 
 

 
 
2012 Restructuring Program
 
254

 
286

 
 
 
371

 
 
Venezuela remeasurement charges
 
34

 
327

 
 
 
172

 
 
Gain on sale of South Pacific laundry detergent business
 
(187
)
 

 
 
 

 
 
Charges for foreign competition law matters
 
14

 
41

 
 
 
23

 
 
Costs related to the sale of land in Mexico
 

 
4

 
 
 
18

 
 
Operating profit, non-GAAP
 
$
3,988

 
$
4,215

 
(5
)%
 
$
4,140

 
2
%


 
 
2015
 
2014
 
Basis Point Change
 
2013
 
Basis Point Change
Operating profit margin, GAAP
 
17.4
 %
 
20.6
%
 
(320
)
 
20.4
%
 
20
Venezuela accounting change
 
6.8

 

 
 
 

 
 
2012 Restructuring Program
 
1.6

 
1.7

 
 
 
2.2

 
 
Venezuela remeasurement charges
 
0.2

 
1.9

 
 
 
1.0

 
 
Gain on sale of South Pacific laundry detergent business
 
(1.2
)
 

 
 
 

 
 
Charges for foreign competition law matters
 
0.1

 
0.2

 
 
 
0.1

 
 
Costs related to the sale of land in Mexico
 

 

 
 
 
0.1

 
 
Operating profit margin, non-GAAP
 
24.9
 %
 
24.4
%
 
50

 
23.8
%
 
60



26


(Dollars in Millions Except Per Share Amounts)

Interest (Income) Expense, Net

Interest (income) expense, net was $26 in 2015 compared with $24 in 2014 and $(9) in 2013 . The increase in Interest (income) expense, net from 2014 to 2015 was primarily due to higher interest expense as a result of higher debt levels. The change in Interest (income) expense, net from 2013 to 2014 was primarily due to higher debt levels as a result of the debt issuances in the first and fourth quarters of 2014 and lower interest income on investments held outside the United States.

Income Taxes

The effective income tax rate was 44.0% in 2015 , 33.8% in 2014 and 32.4% in 2013 .  As reflected in the table below, the non-GAAP effective income tax rate was 31.3% in 2015 , 31.5% in 2014 and 31.7% in 2013 .
 
 
2015
 
2014
 
2013
Effective income tax rate, GAAP
 
44.0
 %
 
33.8
 %
 
32.4
 %
Venezuela accounting change (1)
 
(11.7
)
 

 

2012 Restructuring Program
 
(0.3
)
 
(0.5
)
 
(0.7
)
Venezuela remeasurement charges
 

 
0.1

 
0.2

Gain on sale of South Pacific laundry detergent business
 
(0.2
)
 

 

Charges for foreign competition law matters
 
(0.1
)
 
(0.3
)
 
(0.2
)
Charges for foreign tax matters
 
(0.4
)
 
(1.6
)
 

Effective income tax rate, non-GAAP
 
31.3
 %
 
31.5
 %
 
31.7
 %
_______
(1)  
See Executive Overview and Outlook above and Note 14, Venezuela to the Consolidated Financial Statements.


The charge for a foreign tax matter in 2015 relates to 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 charge of $ 66 for a foreign tax matter in 2014 relates to a notice of an adverse decision in a foreign court regarding a tax position taken in prior years. As a result, as required, the Company reassessed its tax position in light of the decision and concluded it needed to increase its unrecognized tax benefits by $30 and write off a $36 deferred tax asset.

The effective income tax rate in all years benefited from tax planning associated with the Company’s global business initiatives.



27


(Dollars in Millions Except Per Share Amounts)

Net Income attributable to Colgate-Palmolive Company and Earnings per share, diluted

Net income attributable to Colgate-Palmolive Company was $1,384 , or $1.52 per share on a diluted basis, in 2015 compared to $2,180 , or $2.36 per share on a diluted basis, in 2014 and $2,241 , or $2.38 per share on a diluted basis, in 2013 . In 2015, 2014 and 2013, Net income attributable to Colgate-Palmolive Company included aftertax charges related to the 2012 Restructuring Program, the Venezuela Remeasurements and foreign competition law matters. In 2015, Net income attributable to Colgate-Palmolive Company also included a charge related to the change in accounting for the Company’s Venezuelan operations and a gain on the sale of the Company’s laundry detergent business in the South Pacific. In 2015 and 2014, Net income attributable to Colgate-Palmolive Company also included charges for foreign tax matters. In 2014 and 2013, Net income attributable to Colgate-Palmolive Company also included costs related to the sale of land in Mexico.

Excluding the items described above in all years, as applicable, Net income attributable to Colgate-Palmolive Company decreased 6% to $2,556 in 2015 and Earnings per share, diluted decreased 4% to $2.81 , and Net income attributable to Colgate-Palmolive Company increased 2% to $2,712 in 2014 , as compared to $2,665 in 2013 , and Earnings per share, diluted increased 3% to $2.93 in 2014 .
 
 
2015
 
2014
 
% Change
 
2013
 
% Change
Net income attributable to Colgate-Palmolive Company, GAAP
 
$
1,384

 
$
2,180

 
(37
)%
 
$
2,241

 
(3
)%
Venezuela accounting change
 
1,058

 

 
 
 

 
 
2012 Restructuring Program
 
183

 
208

 
 
 
278

 
 
Venezuela remeasurement charges
 
22

 
214

 
 
 
111

 
 
Gain on sale of South Pacific laundry detergent business
 
(120
)
 

 
 
 

 
 
Charges for foreign competition law matters
 
14

 
41

 
 
 
23

 
 
Costs related to the sale of land in Mexico
 

 
3

 
 
 
12

 
 
Charges for foreign tax matters
 
15

 
66

 
 
 

 
 
Net income attributable to Colgate-Palmolive Company, non-GAAP
 
$
2,556

 
$
2,712

 
(6
)%
 
$
2,665

 
2
 %

 
 
2015
 
2014
 
% Change
 
2013
 
% Change
Earnings per share, diluted, GAAP
 
$
1.52

 
$
2.36

 
(36
)%
 
$
2.38

 
(1
)%
Venezuela accounting change
 
1.16

 

 
 
 

 
 
2012 Restructuring Program
 
0.20

 
0.23

 
 
 
0.30

 
 
Venezuela remeasurement charges
 
0.02

 
0.23

 
 
 
0.12

 
 
Gain on sale of South Pacific laundry detergent business
 
(0.13
)
 

 
 
 

 
 
Charges for foreign competition law matters
 
0.02

 
0.04

 
 
 
0.03

 
 
Costs related to the sale of land in Mexico
 

 

 
 
 
0.01

 
 
Charges for foreign tax matters
 
0.02

 
0.07

 
 
 

 
 
Earnings per share, diluted, non-GAAP
 
$
2.81

 
$
2.93

 
(4
)%
 
$
2.84

 
3
 %


28


(Dollars in Millions Except Per Share Amounts)

Segment Results

The Company markets its products in over 200 countries and territories throughout the world in two product segments: Oral, Personal and Home Care; and Pet Nutrition. The Company evaluates segment performance based on several factors, including Operating profit. The Company uses Operating profit as a measure of the operating segment performance because it excludes the impact of corporate-driven decisions related to interest expense and income taxes.

Oral, Personal and Home Care

North America
 
2015
 
2014
 
% Change
 
2013
 
% Change
Net sales
$
3,149

 
$
3,124

 
1.0

%
 
$
3,072

 
1.5

%
Operating profit
$
974

 
$
926

 
5

%
 
$
927

 

%
% of Net sales
30.9
%
 
29.6
%
 
130

bps
 
30.2
%
 
(60
)
bps

Net sales in North America increased 1.0% in 2015 to $3,149 , driven by volume growth of 2.0% , which was partially offset by negative foreign exchange of 1.0% , while net selling prices were flat. Organic sales in North America increased 2.0% in 2015 .

The increase in organic sales in North America in 2015 versus 2014 was driven by Oral Care with strong organic sales in the toothpaste and manual toothbrush categories. Personal Care and Home Care also contributed to organic sales growth. Personal Care organic sales growth was driven by gains in the shower gel category. Home Care organic sales growth was due to strong organic sales in the fabric softener category.

Net sales in North America increased 1.5% in 2014 to $3,124 , driven by volume growth of 3.5%, which was partially offset by net selling price decreases of 1.0% due to increased promotional activities and negative foreign exchange of 1.0%. Organic sales in North America increased 2.5% in 2014.

Operating profit in North America increased 5% in 2015 to $974 , or 130 bps to 30.9% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit ( 80 bps) and a decrease in Selling, general and administrative expenses ( 90 bps), both as a percentage of Net sales. This increase in Gross profit was primarily driven by cost savings from the Company’s funding-the-growth initiatives ( 200 bps) and the 2012 Restructuring Program ( 10 bps), which were partially offset by higher costs ( 140 bps), primarily driven by higher raw and packaging material costs. This decrease in Selling, general and administrative expenses was primarily due to decreased advertising investment ( 80 bps), in part reflecting a shift from advertising investment to in-store promotional activities.

Operating profit in North America was $926 in 2014, even with 2013, while as a percentage of Net sales it decreased 60 bps to 29.6%. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit (30 bps) and an increase in Selling, general and administrative expenses (10 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs (200 bps) and lower pricing due to increased promotional activities, which were partially offset by cost savings from the Company’s funding-the-growth initiatives (210 bps) and the 2012 Restructuring Program (10 bps). This increase in Selling, general and administrative expenses was due to increased advertising investment (40 bps), which was partially offset by lower overhead expenses (30 bps).

    

29


(Dollars in Millions Except Per Share Amounts)

Latin America
 
2015
 
2014
 
% Change
 
2013
 
% Change
Net sales
$
4,327

 
$
4,769

 
(9.5
)
%
 
$
5,012

 
(5.0
)
%
Operating profit
$
1,209

 
$
1,279

 
(5
)
%
 
$
1,385

 
(8
)
%
% of Net sales
27.9
%
 
26.8
%
 
110

bps
 
27.6
%
 
(80
)
bps

Net sales in Latin America decreased 9.5% in 2015 to $4,327 , as net selling price increases of 10.5% were more than offset by volume declines of 1.0% and negative foreign exchange of 19.0% . Organic sales in Latin America increased 9.5% in 2015 . Volume declines in Venezuela and Brazil were partially offset by volume gains in Mexico, Ecuador and Argentina.
 
The increase in organic sales in Latin America in 2015 versus 2014 was due to an increase in Oral Care, Personal Care and Home Care organic sales. The increase in Oral Care organic sales was driven by strong organic sales in the toothpaste, manual toothbrush and mouthwash categories. Personal Care organic sales growth was driven by gains in the shower gel and underarm protection categories. The increase in Home Care organic sales was due to strong organic sales in the liquid cleaners category.

Net sales in Latin America decreased 5.0% in 2014 to $4,769 , as volume growth of 2.5% and net selling price increases of 7.0% were more than offset by negative foreign exchange of 14.5%. Organic sales in Latin America increased 9.0% in 2014. Volume gains were led by Venezuela, Mexico and Colombia and were partially offset by volume declines in Brazil.

Operating profit in Latin America decreased 5% in 2015 to $1,209 , while as a percentage of Net sales, it increased 110 bps to 27.9% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to a decrease in Selling, general and administrative expenses ( 130 bps), partially offset by a decrease in Gross profit ( 60 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs ( 680 bps), driven by foreign exchange transaction costs, and higher manufacturing costs ( 60 bps), driven by Venezuela, which were partially offset by cost savings from the Company’s funding-the-growth initiatives ( 200 bps) and higher pricing. This decrease in Selling, general and administrative expenses was due to decreased advertising investment ( 130 bps), in part reflecting a shift from advertising investment to in-store promotional activities.

Operating profit in Latin America decreased 8% in 2014 to $1,279 , or 80 bps to 26.8% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit (130 bps), which was partially offset by a decrease in Selling, general and administrative expenses (60 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs (570 bps), which included the impact of foreign exchange transaction costs, which were partially offset by cost savings from the Company's funding-the-growth initiatives (200 bps) and higher pricing. This decrease in Selling, general and administrative expenses was primarily due to decreased advertising investment (70 bps).

30


(Dollars in Millions Except Per Share Amounts)

Europe/South Pacific
 
2015
 
2014
 
% Change
 
2013
 
% Change
Net sales
$
2,870

 
$
3,406

 
(15.5
)
%
 
$
3,396

 
0.5

%
Operating profit
$
750

 
$
877

 
(14
)
%
 
$
805

 
9

%
% of Net sales
26.1
%
 
25.7
%
 
40

bps
 
23.7
%
 
200

bps

Net sales in Europe/South Pacific decreased 15.5% in 2015 to $2,870 , as volume growth of 2.0% was more than offset by net selling price decreases of 3.0% and negative foreign exchange of 14.5% . Excluding the impact of the divested laundry detergent business in the South Pacific, volume increased 4% led by volume gains in France, the United Kingdom and Poland, which were partially offset by volume declines in Austria. Organic sales in Europe/South Pacific increased by 1.0% in 2015 .

The increase in organic sales in Europe/South Pacific in 2015 versus 2014 was due to increases in Oral Care and Personal Care organic sales, which were partially offset by declines in organic sales in the Home Care category. The manual toothbrush category contributed to the increase in Oral Care organic sales. The shower gel category contributed to the increase in Personal Care organic sales. The decrease in Home Care organic sales was due to a decline in organic sales in the liquid cleaners category.

Net sales in Europe/South Pacific increased 0.5% in 2014 to $3,406 , as volume growth of 3.5% was partially offset by net selling price decreases of 2.5% due to increased promotional activities and negative foreign exchange of 0.5%. Organic sales in Europe/South Pacific increased by 1.5% in 2014. Volume gains were led by Australia, France and the United Kingdom.

Operating profit in Europe/South Pacific decreased 14% in 2015 to $750 , while as a percentage of Net sales, it increased 40 bps to 26.1% of Net sales. This increase in Operating profit as a percentage of Net sales was due to a decrease in Selling, general and administrative expenses ( 40 bps) as a percentage of Net sales. Gross profit as a percentage of Net sales was even with 2014 , as cost savings from the Company’s funding-the-growth initiatives ( 240 bps) and the 2012 Restructuring Program ( 60 bps) were offset by higher raw and packaging material costs ( 220 bps), driven by foreign exchange transaction costs, and lower pricing due to increased promotional activities. This decrease in Selling, general and administrative expenses was due to decreased advertising investment ( 60 bps), in part reflecting a shift from advertising investment to in-store promotional activities, which was partially offset by higher overhead expenses ( 20 bps).

Operating profit in Europe/South Pacific increased 9% in 2014 to $877 , or 200 bps to 25.7% of Net sales. This increase in Operating profit as a percentage of Net sales was due to an increase in Gross profit (170 bps) and a decrease in Selling, general and administrative expenses (30 bps), both as a percentage of Net sales. This increase in Gross profit was driven by cost savings from the Company's funding-the-growth initiatives (190 bps) and the 2012 Restructuring Program (70 bps), which more than offset higher raw and packaging material costs (20 bps) and lower pricing due to increased promotional activities. This decrease in Selling, general and administrative expenses was primarily due to decreased advertising investment (50 bps), which was partially offset by higher overhead expenses (20 bps).


31


(Dollars in Millions Except Per Share Amounts)

Asia
 
2015
 
2014
 
% Change
 
2013
 
% Change
Net sales
$
2,478

 
$
2,515

 
(1.5
)
%
 
$
2,472

 
1.5

%
Operating profit
$
753

 
$
736

 
2

%
 
$
698

 
5

%
% of Net sales
30.4
%
 
29.3
%
 
110

bps
 
28.2
%
 
110

bps

Net sales in Asia decreased 1.5% in 2015 to $2,478 , as volume growth of 4.0% was more than offset by net selling price decreases of 1.0% and negative foreign exchange of 4.5% . Acquisitions contributed 0.5% to volume. Organic sales in Asia grew 2.5% in 2015 . Volume gains were led by the Greater China region, the Philippines and India.
 
The increase in organic sales in 2015 versus 2014 was driven by an increase in Oral Care organic sales with the toothpaste and the manual toothbrush categories contributing to growth. Personal Care organic sales also contributed to organic sales growth with gains in the shampoo category.

Net sales in Asia increased 1.5% in 2014 to $2,515 , driven by volume growth of 3.5% and net selling price increases of 1.0% which were largely offset by negative foreign exchange of 3.0%. Organic sales in Asia grew 4.5% in 2014. Volume gains were led by the Philippines, India and the Greater China region.

Operating profit in Asia increased 2% in 2015 to $753 , or 110 bps to 30.4% of Net sales. This increase in Operating profit as a percentage of Net sales was due to an increase in Gross profit ( 10 bps) and a decrease in Selling, general and administrative expenses ( 110 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 ( 260 bps), which were partially offset by higher costs ( 230 bps), primarily driven by raw and packaging material costs, which included foreign exchange transaction costs, and lower pricing due to increased promotional activities. This decrease in Selling, general and administrative expenses was primarily due to decreased advertising investment ( 80 bps), in part reflecting a shift from advertising investment to in-store promotional activities, and lower overhead expenses ( 30 bps).

Operating profit in Asia increased 5% in 2014 to $736 , or 110 bps to 29.3% of Net sales. This increase in Operating profit as a percentage of Net sales was due to a decrease in Selling, general and administrative expenses (120 bps), which was partially offset by a decrease in Gross profit (20 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily due to higher costs (250 bps), primarily driven by raw and packaging material costs, which included foreign exchange transaction costs, partially offset by cost savings from the Company's funding-the-growth initiatives (200 bps) and higher pricing. This decrease in Selling, general and administrative expenses was primarily due to decreased advertising investment (110 bps).

Africa/Eurasia
 
2015
 
2014
 
% Change
 
2013
 
% Change
Net sales
$
998

 
$
1,208

 
(17.5
)
%
 
$
1,257

 
(4.0
)
%
Operating profit
$
178

 
$
235

 
(24
)
%
 
$
268

 
(12
)
%
% of Net sales
17.8
%
 
19.5
%
 
(170
)
bps
 
21.3
%
 
(180
)
bps

Net sales in Africa/Eurasia decreased 17.5% in 2015 to $998 , as net selling price increases of 7.5% were more than offset by volume declines of 1.5% and negative foreign exchange of 23.5% . Organic sales in Africa/Eurasia grew 6.0% in 2015 . Volume declines in the Central Asia/Caucasus region and Ukraine were partially offset by volume gains in the Sub-Saharan Africa region and South Africa.
 
The increase in organic sales in 2015 versus 2014 was driven by an increase in Oral Care organic sales due to strong organic sales in the toothpaste and the manual toothbrush categories. Home Care organic sales also contributed to organic sales growth with gains in the fabric softener category.

Net sales in Africa/Eurasia decreased 4.0% in 2014 to $1,208 . Volume growth of 6.0% and net selling price increases of 1.0% were more than offset by negative foreign exchange of 11.0%. Organic sales in Africa/Eurasia grew 7.0% in 2014. Volume gains were led by South Africa, the Sub-Saharan Africa region, Russia and Turkey.

32


(Dollars in Millions Except Per Share Amounts)

Operating profit in Africa/Eurasia decreased 24% in 2015 to $178 , or 170 bps to 17.8% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit ( 240 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 ( 790 bps), driven by higher foreign exchange transaction costs, which were partially offset by cost savings from the Company’s funding-the-growth initiatives ( 260 bps) and higher pricing. The decrease in Selling, general and administrative expenses was due to decreased advertising investment ( 190 bps), in part reflecting a shift from advertising investment to in-store promotional activities, which was partially offset by higher overhead expenses ( 70 bps).

Operating profit in Africa/Eurasia decreased 12% in 2014 to $235 , or 180 bps to 19.5% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit (200 bps), while Selling, general and administrative expenses were even with 2013. This decrease in Gross profit was primarily due to higher raw and packaging material costs (470 bps), driven by higher foreign exchange transaction costs, which were partially offset by cost savings from the Company's funding-the-growth initiatives (170 bps) and the 2012 Restructuring Program (10 bps) and higher pricing. Selling, general and administrative expenses were even with 2013, as higher overhead expenses (100 bps) were offset by decreased advertising investment (100 bps).

Hill s Pet Nutrition
 
2015
 
2014
 
% Change
 
2013
 
% Change
Net sales
$
2,212

 
$
2,255

 
(2.0
)
%
 
$
2,211

 
2.0

%
Operating profit
$
612

 
$
592

 
3

%
 
$
563

 
5

%
% of Net sales
27.7
%
 
26.3
%
 
140

bps
 
25.5
%
 
80

bps

Net sales for Hill’s Pet Nutrition decreased 2.0% in 2015 to $2,212 , as volume growth of 3.5% and net selling price increases of 2.5% , were more than offset by negative foreign exchange of 8.0% . Organic sales in Hill’s Pet Nutrition increased 6.0% in 2015 . Volume gains were led by the United States and Taiwan.

The increase in organic sales in 2015 versus 2014 was driven by continued growth in the Prescription Diet category. The Advanced Nutrition and Naturals categories also contributed to organic sales growth.

Net sales for Hill’s Pet Nutrition increased 2.0% in 2014 to $2,255 , driven by volume growth of 1.0% and net selling price increases of 3.0%, which were partially offset by negative foreign exchange of 2.0%. Organic sales in Hill’s Pet Nutrition increased 4.0% in 2014. Volume gains were led by Russia and South Africa and were partially offset by volume declines in the United States.

Operating profit in Hill’s Pet Nutrition increased 3% in 2015 to $612 , or 140 bps to 27.7% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit ( 60 bps) and a decrease in Selling, general and administrative expenses ( 190 bps), which were partially offset by an increase in Other (income) expense, net ( 110 bps), all 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) and higher pricing, partially offset by higher costs ( 220 bps), primarily driven by higher raw and packaging material costs, which included higher foreign exchange transaction costs. This decrease in Selling, general and administrative expenses was primarily due to decreased advertising investment ( 170 bps). This increase in Other (income) expense, net was primarily due to the expiration of a foreign sales tax exemption.

Operating profit in Hill’s Pet Nutrition increased 5% in 2014 to $592 , or 80 bps to 26.3% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to a decrease in Selling, general and administrative expenses (20 bps) and a decrease in Other (income) expense, net (100 bps), which were partially offset by a decrease in Gross profit (40 bps), all as a percentage of Net sales. This decrease in Gross profit was primarily due to higher raw and packaging material costs (290 bps), due in part to formulation changes and foreign exchange transaction costs, which were partially offset by cost savings from the Company's funding-the-growth initiatives (180 bps) and higher pricing. This decrease in Selling, general and administrative expenses was primarily due to decreased advertising investment (90 bps), partially offset by higher overhead expenses as a result of increased investment in customer development initiatives (60 bps). This decrease in Other (income) expense, net was in part due to the expiration of a third-party royalty agreement.


33


(Dollars in Millions Except Per Share Amounts)

Corporate
 
2015
 
2014
 
% Change
 
2013
 
% Change
Operating profit (loss)
$
(1,687
)
 
$
(1,088
)
 
55
%
 
$
(1,090
)
 

%

Corporate operations include Corporate overhead costs, research and development costs, stock-based compensation expense related to stock options and restricted stock unit awards, restructuring and related implementation costs and gains and losses on sales of non-core product lines. The components of Operating profit (loss) for the Corporate segment are presented as follows:
 
 
2015
 
2014
 
2013
2012 Restructuring Program
 
$
(254
)
 
$
(286
)
 
$
(371
)
Charge for Venezuela accounting change
 
(1,084
)
 

 

Venezuela remeasurement charges
 
(34
)
 
(327
)
 
(172
)
Charges for foreign competition law matters
 
(14
)
 
(41
)
 
(23
)
Costs related to the sale of land in Mexico
 

 
(4
)
 
(18
)
Gain on sale of South Pacific laundry detergent business
 
187

 

 

Corporate overhead costs and other, net
 
(488
)
 
(430
)
 
(506
)
Total Corporate Operating profit (loss)
 
$
(1,687
)
 
$
(1,088
)
 
$
(1,090
)




34


(Dollars in Millions Except Per Share Amounts)

Restructuring and Related Implementation Charges

2012 Restructuring Program

In the fourth quarter of 2012, the Company commenced the 2012 Restructuring Program. The program’s initiatives are expected to help Colgate ensure sustained solid worldwide growth in unit volume, organic sales and earnings per share and enhance its global leadership positions in its core businesses.

The 2012 Restructuring Program is expected to produce 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.

On October 23, 2014, the Company’s Board approved an expansion of the 2012 Restructuring Program. The initiatives under the 2012 Restructuring Program continue to be focused on the following areas:
Expanding Commercial Hubs - Building on the success of this structure already implemented in several divisions, continuing to cluster single-country subsidiaries into more efficient regional hubs, 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 - Implementing the Company s shared service organizational model, already successful in Europe, in all regions of the world. Initially focused on finance and accounting, these shared services will be expanded to additional functional areas to streamline global functions.
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.

The Board authorized the expansion of the 2012 Restructuring Program to take advantage of additional savings opportunities identified in all three areas.

On October 29, 2015 , the Company’s Board approved the reinvestment of the funds from the sale of the Company’s laundry detergent business in the South Pacific to expand the 2012 Restructuring Program and extend it for one year through December 31, 2017. Initiatives under the expanded 2012 Restructuring Program will 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. The Company expects the initiatives under the expanded program to have a similar aftertax rate of return to the existing program, which on average has been 30%. The Company will update its disclosure to reflect the impact the expansion will have on the range of estimated charges and savings for the 2012 Restructuring Program when the additional initiatives under the expanded program are approved. The charges and savings discussed below do not reflect the impact of this expansion.






35


(Dollars in Millions Except Per Share Amounts)

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). 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% ). Over the course of the 2012 Restructuring Program, it is currently estimated that approximately 75% of the charges will result in cash expenditures. Anticipated pretax charges for 2016 are expected to amount to approximately $285 to $435 ( $210 to $310 aftertax).

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 now expected that, by the end of 2016, the 2012 Restructuring Program will have contributed a net reduction of approximately 2,700-3,200 positions from the Company’s global employee workforce.

Savings from the 2012 Restructuring Program, substantially all of which are expected to increase future cash flows, are projected to be in the range of $405 to $475 pretax ( $340 to $390 aftertax) annually by the fourth year of the program. Savings in 2016 are expected to amount to approximately $60 to $70 pretax ($55 to $65 aftertax).

For the years ended December 31, 2015 , 2014 and 2013 , restructuring and implementation-related charges are reflected in the Consolidated Statements of Income as follows:  
 
 
2015
 
2014
 
2013
Cost of sales
 
$
20

 
$
29

 
$
32

Selling, general and administrative expenses
 
64

 
62

 
137

Other (income) expense, net
 
170

 
195

 
202

Total 2012 Restructuring Program charges, pretax
 
$
254

 
$
286

 
$
371

 
 
 
 
 
 
 
Total 2012 Restructuring Program charges, aftertax
 
$
183

 
$
208

 
$
278


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:
 
 
 
 
 
 
 
Program-to-date
 
2015
 
2014
 
2013
 
Accumulated Charges
North America
21
%
 
11
%
 
11
%
 
13
%
Latin America
3
%
 
4
%
 
4
%
 
4
%
Europe/South Pacific
15
%
 
20
%
 
28
%
 
24
%
Asia
3
%
 
3
%
 
%
 
2
%
Africa/Eurasia
5
%
 
3
%
 
7
%
 
5
%
Hill s Pet Nutrition
5
%
 
10
%
 
8
%
 
7
%
Corporate
48
%
 
49
%
 
42
%
 
45
%


36


(Dollars in Millions Except Per Share Amounts)

Since the inception of the 2012 Restructuring Program in the fourth quarter of 2012, the Company has incurred pretax cumulative charges of $1,000 ( $739 aftertax) in connection with the implementation of various projects as follows:
 
Cumulative Charges
 
as of December 31, 2015
Employee-Related Costs
$
404

Incremental Depreciation
71

Asset Impairments
7

Other
518

Total
$
1,000



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 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 closing of the Morristown, New Jersey personal care facility.

The following table summarizes the activity for the restructuring and implementation-related charges discussed above and the related accruals:
 
 
Employee-Related
Costs
 
Incremental
Depreciation
 
Asset
Impairments  
 
Other
 
Total
Balance at January 1, 2013
 
$
84

 
$

 
$

 
$
5

 
$
89

Charges
 
144

 
26

 
1

 
200

 
371

Cash payments
 
(97
)
 

 

 
(72
)
 
(169
)
Charges against assets
 
(17
)
 
(26
)
 
(1
)
 

 
(44
)
Foreign exchange
 
2

 

 

 

 
2

Other
 

 

 

 
(91
)
 
(91
)
Balance at December 31, 2013
 
$
116

 
$

 
$

 
$
42

 
$
158

Charges
 
73

 
25

 
1

 
187

 
286

Cash payments
 
(95
)
 

 

 
(117
)
 
(212
)
Charges against assets
 
(5
)
 
(25
)
 
(1
)
 

 
(31
)
Foreign exchange
 
(4
)
 

 

 
(5
)
 
(9
)
Other
 

 

 

 

 

Balance at December 31, 2014
 
$
85

 
$

 
$

 
$
107

 
$
192

Charges
 
109

 
20

 
5

 
120

 
254

Cash payments
 
(85
)
 

 

 
(94
)
 
(179
)
Charges against assets
 
(17
)
 
(20
)
 
(5
)
 

 
(42
)
Foreign exchange
 
(8
)
 

 

 
(2
)
 
(10
)
Other
 

 

 

 

 

Balance at December 31, 2015
 
$
84

 
$

 
$

 
$
131

 
$
215



37


(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 $17 , $5 and $17 for the years ended December 31, 2015, 2014 and 2013, 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 Consolidated Financial Statements).

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 years ended December 31, 2015, 2014 and 2013 included third-party incremental costs related to the development and implementation of new business and strategic initiatives of $65 , $65 and $50 , respectively, and contract termination costs and charges resulting directly from exit activities of $8 , $40 and $34 , respectively, directly related to the 2012 Restructuring Program. These charges were expensed as incurred. Also included in Other charges for the years ended December 31, 2015, 2014 and 2013 are other exit costs of $47 , $82 and $25 , respectively, related to the consolidation of facilities. Other charges for the year ended December 31, 2013 also included a curtailment charge of $91 related to changes to the Company s U.S. defined benefit retirement plans (see Note 10 , Retirement Plans and Other Retiree Benefits to the Consolidated Financial Statements).

Non-GAAP Financial Measures

This Annual Report on Form 10-K discusses organic sales growth (Net sales growth excluding the impact of foreign exchange, acquisitions and divestments) (non-GAAP). Management believes this measure provides investors with useful supplemental information regarding the Company’s underlying sales trends by presenting sales growth excluding 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 years ended December 31, 2015 and 2014 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, effective income tax rate, Net income attributable to Colgate-Palmolive Company and Earnings per share on a diluted basis are discussed in this Annual Report on Form 10-K both on a GAAP basis and, as applicable, excluding a charge related to the change in accounting for the Company’s Venezuelan operations, charges related to the 2012 Restructuring Program, charges related to the Venezuela Remeasurements, a gain on the sale of the Company’s laundry detergent business in the South Pacific, charges for foreign tax matters, costs related to the sale of land in Mexico and charges for foreign competition law matters (non-GAAP). Management believes these non-GAAP financial measures provide investors with useful supplemental information regarding the performance of the Company’s ongoing operations. A reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP financial measures for the years ended December 31, 2015 , 2014 and 2013 is presented within the applicable section of Results of Operations.

The Company uses the above financial measures internally in its budgeting process and as a factor in determining compensation. While the Company believes that these non-GAAP financial measures are useful in evaluating the Company’s business, 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.


38


(Dollars in Millions Except Per Share Amounts)

The following tables provide a quantitative reconciliation of organic sales growth to Net sales growth for each of the years ended December 31, 2015 and 2014 versus the prior year:
Year ended December 31, 2015
Organic
Sales Growth
(Non-GAAP)
Foreign
Exchange
Impact
Acquisitions and Divestments
Impact
Net Sales Growth
(GAAP)
Oral, Personal and Home Care
 
 
 
 
North America
2.0%
(1.0)%
—%
1.0%
Latin America
9.5%
(19.0)%
—%
(9.5)%
Europe/South Pacific
1.0%
(14.5)%
(2.0)%
(15.5)%
Asia
2.5%
(4.5)%
0.5%
(1.5)%
Africa/Eurasia
6.0%
(23.5)%
—%
(17.5)%
Total Oral, Personal and Home Care
4.5%
(12.0)%
(0.5)%
(8.0)%
Pet Nutrition
6.0%
(8.0)%
—%
(2.0)%
Total Company
5.0%
(11.5)%
(0.5)%
(7.0)%
Year ended December 31, 2014
Organic
Sales Growth
(Non-GAAP)
Foreign
Exchange
Impact
Acquisitions and Divestments
Impact
Net Sales Growth
(GAAP)
Oral, Personal and Home Care
 
 
 
 
North America
2.5%
(1.0)%
—%
1.5%
Latin America
9.0%
(14.5)%
0.5%
(5.0)%
Europe/South Pacific
1.5%
(0.5)%
(0.5)%
0.5%
Asia
4.5%
(3.0)%
—%
1.5%
Africa/Eurasia
7.0%
(11.0)%
—%
(4.0)%
Total Oral, Personal and Home Care
5.0%
(6.0)%
—%
(1.0)%
Pet Nutrition
4.0%
(2.0)%
—%
2.0%
Total Company
5.0%
(6.0)%
—%
(1.0)%



39


(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, costs related to the 2012 Restructuring 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.

Cash Flow

Net cash provided by operations was $2,949 in 2015 , compared to $3,298 in 2014 and $3,204 in 2013 . Net cash provided by operations for 2015 decreased due to: a decrease in Operating profit, excluding a charge related to the change in accounting for the Company’s Venezuelan operations, charges related to the 2012 Restructuring Program, charges related to the Venezuela Remeasurements, a gain on the sale of the Company’s laundry detergent business in the South Pacific, costs related to the sale of land in Mexico and charges for foreign competition law matters in both periods, as applicable; higher income tax payments; and payments for a foreign competition law matter. The increase in 2014 as compared to 2013 was primarily due to strong operating earnings and a continued tight focus on working capital.

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). The Company’s working capital as a percentage of Net sales was 0.5% and 0.8% in 2015 and 2014 , respectively. This decrease is primarily due to the exclusion of the working capital of the Company’s Venezuelan operations as of December 31, 2015.

On October 29, 2015 , the Company’s Board approved the reinvestment of the funds from the sale of the Company’s laundry detergent business in the South Pacific (discussed below) to expand the 2012 Restructuring Program and extend it through December 31, 2017. The Company will update its disclosure to reflect the impact the expansion will have on the range of estimated charges and savings for the 2012 Restructuring Program when the additional initiatives under the expanded program are approved. The charges and savings discussed below do not reflect the impact of this expansion.

Approximately 75% of total program charges related to the 2012 Restructuring Program, estimated to be $1,285 to $1,435 pretax ( $950 to $1,050 aftertax), are expected to result in cash expenditures. Savings from the 2012 Restructuring Program are projected to be in the range of $405 to $475 pretax ( $340 to $390 aftertax) annually by the fourth year of the program, substantially all of which are expected to increase future cash flows. The anticipated pretax charges for 2016 are expected to amount to approximately $285 to $435 ( $210 to $310 aftertax) and savings in 2016 are expected to amount to approximately $60 to $70 pretax ($55 to $65 aftertax). It is anticipated that cash requirements for the 2012 Restructuring Program will be funded from operating cash flows. Approximately 60% of the restructuring accrual at December 31, 2015 is expected to be paid before year end 2016.

Investing activities used $685 of cash in 2015 , reflecting a reduction in cash of $ 75 as CP Venezuela’s cash is no longer included in the Company’s Consolidated Balance Sheet effective December 31, 2015, compared to $859 and $890 during 2014 and 2013 , respectively. Purchases of marketable securities and investments increased in 2015 to $742 from $340 in 2014 , partially due to an increase, prior to the change in accounting for the Company’s Venezuelan operations, in CP Venezuela’s investments in local currency-denominated fixed interest rate government bonds and a fixed interest rate note receivable, an increase in purchases by the Company’s Argentinian subsidiary of U.S. dollar-linked fixed interest rate government bonds and an increase in bank deposits with original maturities greater than 90 days. Proceeds from the sale of marketable securities and investments increased in 2015 to $599 from $283 in 2014 partially due to higher proceeds, prior to the change in accounting for the Company’s Venezuelan operations, from CP Venezuela’s investments in local currency-denominated fixed interest rate government bonds and a fixed interest rate note receivable, higher proceeds from the Company’s Argentinian subsidiary’s investment in U.S. dollar-linked fixed interest rate government bonds and an increase in proceeds from the redemption of bank deposits with original maturities greater than 90 days.


40


(Dollars in Millions Except Per Share Amounts)

In August 2015, the Company completed the sale of its laundry detergent business in the South Pacific to Henkel AG & Co. KGaA for an aggregate purchase price of approximately 310 Australian dollars ($ 221 ) and recorded a pretax gain of $ 187 ($ 120 aftertax or $ 0.13 per diluted share). The gain is net of charges related to the right-sizing of the Company’s South Pacific business, asset write-offs related to the divested laundry detergent business and other costs related to the sale. As discussed above, the funds from the sale will be reinvested to expand the 2012 Restructuring Program.

In 2011, the Company’s Mexican subsidiary entered into an agreement to sell the Mexico City site on which its commercial operations, technology center and soap production facility were located. During 2011 and 2012, the Company received the first and second installments of $24 and $36 , respectively, related to the sale of land in Mexico. The parties have subsequently amended the 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 February 29, 2016. If these conditions are not fully satisfied by such date, the agreement will automatically be extended to March 30, 2016. While these conditions are not expected to be fully satisfied by March 30, 2016, 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 expected to occur by the third quarter of 2016.

Capital expenditures were $691 , $757 and $670 for 2015 , 2014 and 2013 , respectively. The Company continues to focus its capital spending on projects that are expected to yield high aftertax returns. Capital expenditures for 2016 are expected to be approximately 4.5% of Net sales, which is higher than the historical rate of approximately 3.5% primarily due to the 2012 Restructuring Program.

Financing activities used $2,276 of cash during 2015 compared to $2,170 and $2,142 during 2014 and 2013 , respectively. The increase in cash used in 2015 as compared to 2014 was primarily due to higher principal payments on debt, higher dividends paid and higher purchases of treasury shares, which were partially offset by higher proceeds from the issuances of debt. The increase in cash used in 2014 as compared to 2013 was primarily due to higher principal payments on debt and higher dividends paid, which were partially offset by higher proceeds from the issuances of debt.

Long-term debt, including the current portion, increased to $6,567 as of December 31, 2015 , as compared to $6,132 as of December 31, 2014 and total debt increased to $6,571 as of December 31, 2015 as compared to $6,148 as of December 31, 2014 . 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 2015, the Company issued $600 of thirty -year notes at a fixed rate of 4.00% . During the second quarter of 2015 the Company issued €500 of euro-denominated four -year notes at a variable rate . During the fourth quarter of 2014 , the Company issued $134 of forty -year notes at a variable rate . During the first quarter of 2014 , the Company issued $500 of five -year notes at a fixed rate of 1.75% and $500 of ten -year notes at a fixed rate of 3.25% . During the fourth quarter of 2013, the Company issued $300 of five-year notes at a fixed rate of 1.50% and $82 of forty-year notes at a variable rate. During the second quarter of 2013, the Company issued $400 of five-year notes at a fixed rate of 0.90% and $400 of ten-year notes at a fixed rate of 2.10%. The debt issuances during the third quarter of 2015, the first and fourth quarters of 2014 and the second and fourth quarters of 2013 were U.S. dollar-denominated. The debt issuances in 2015, 2014 and 2013 were under the Company’s shelf registration statement. Proceeds from the debt issuances in the second and third quarters of 2015, first quarter of 2014 and second and fourth quarters of 2013 were used for general corporate purposes which included the retirement of commercial paper borrowings. Proceeds from the debt issuance in the first quarter of 2014 were also used to repay and retire $250 of U.S. dollar-denominated notes and €250 of euro-denominated notes, both of which became due in the second quarter of 2014. Proceeds from the debt issuance in the second quarter of 2013 were also used to repay and retire $250 of notes due in 2013.


41


(Dollars in Millions Except Per Share Amounts)

At December 31, 2015 , the Company had access to unused domestic and foreign lines of credit of $2,976 (including under the facilities discussed below) and could also issue medium-term notes pursuant to an effective shelf registration statement. In November 2011, the Company entered into a five-year revolving credit facility with a capacity of $ 1,850 with a syndicate of banks. This facility was extended for an additional year in 2012 and again in 2013. In 2014, the Company entered into an amendment of this facility whereby the facility was extended for an additional year to November 2019 and the capacity of the facility was increased to $2,370 . The Company also has the ability to draw $165 from a revolving credit facility that expires in November 2016 . In addition, the Company has the ability to draw $20 from a credit facility that expires in December 2016 . Commitment fees related to the credit facilities are not material.

Domestic and foreign commercial paper outstanding was $5 and $255 as of December 31, 2015 and December 31, 2014 , respectively. The average daily balances outstanding for commercial paper in 2015 and 2014 were $1,989 and $1,486, 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 2019 .

The following is a summary of the Company’s commercial paper and global short-term borrowings as of December 31, 2015 and 2014 :
 
 
2015
 
2014
 
 
Weighted Average Interest Rate
 
Maturities
 
Outstanding
 
Weighted Average 
Interest Rate
 
Maturities
 
Outstanding