CL-6.30.2012-10Q

10-Q 1 cl-6302012x10q.htm COLGATE-PALMOLIVE COMPANY 10-Q 6-30-2012 CL-6.30.2012-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________

FORM 10-Q

___________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2012



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

Commission File Number: 1-644

COLGATE-PALMOLIVE COMPANY

(Exact name of registrant as specified in its charter)



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



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

(212) 310-2000

(Registrant’s telephone number, including area code)

NO CHANGES

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):



Large accelerated filer x	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company ¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:



Class	Shares Outstanding	Date
Common stock, $1.00 par value	474,169,670	June 30, 2012

PART I. FINANCIAL INFORMATION

COLGATE-PALMOLIVE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Millions Except Per Share Amounts)

(Unaudited)



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Net sales	$	4,267	$	4,185	$	8,467	$	8,179
Cost of sales	1,806		1,781		3,569		3,444
Gross profit	2,461		2,404		4,898		4,735
Selling, general and administrative expenses	1,464		1,421		2,942		2,825
Other (income) expense, net	15		15		36		27
Operating profit	982		968		1,920		1,883
Interest expense, net	6		11		16		27
Income before income taxes	976		957		1,904		1,856
Provision for income taxes	311		311		606		603
Net income including noncontrolling interests	665		646		1,298		1,253
Less: Net income attributable to noncontrolling interests	38		24		78		55
Net income attributable to Colgate-Palmolive Company	$	627	$	622	$	1,220	$	1,198

Earnings per common share, basic	$	1.31	$	1.27	$	2.55	$	2.44

Earnings per common share, diluted	$	1.30	$	1.26	$	2.53	$	2.42

Dividends declared per common share*	$	—	$	—	$	1.20	$	1.11

* Two dividends were declared in the first quarters of 2012 and 2011.

See Notes to Condensed Consolidated Financial Statements.

COLGATE-PALMOLIVE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Millions)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Net income including noncontrolling interests	$	665		$	646		$	1,298		$	1,253
Other comprehensive income, net of tax
Cumulative translation adjustments	(291		)	176			(112		)	297
Retirement Plan and other retiree benefit adjustments	(4		)	14			10			28
Gains (losses) on available-for-sale securities	4			8			14			48
Unrealized gains (losses) on cash flow hedges	—			(4		)	5			(4		)
Total Other comprehensive income, net of tax	(291		)	194			(83		)	369
Total Comprehensive income including noncontrolling interests	374			840			1,215			1,622
Less: Net income attributable to noncontrolling interests	38			24			78			55
Less: Cumulative translation adjustments attributable to noncontrolling interests	(6		)	1			(4		)	2
Total Comprehensive income attributable to noncontrolling interests	32			25			74			57
Total Comprehensive income attributable to Colgate-Palmolive Company	$	342		$	815		$	1,141		$	1,565

See Notes to Condensed Consolidated Financial Statements.

COLGATE-PALMOLIVE COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Millions)

(Unaudited)



	June 30, 2012			December 31, 2011
Assets
Current Assets
Cash and cash equivalents	$	995		$	878
Receivables (net of allowances of $54 and $49, respectively)	1,785			1,675
Inventories	1,368			1,327
Other current assets	687			522
Total current assets	4,835			4,402
Property, plant and equipment:
Cost	7,427			7,324
Less: Accumulated depreciation	(3,802		)	(3,656		)
	3,625			3,668
Goodwill, net	2,611			2,657
Other intangible assets, net	1,316			1,341
Deferred income taxes	84			115
Other assets	682			541
Total assets	$	13,153		$	12,724

Liabilities and Shareholders’ Equity
Current Liabilities
Notes and loans payable	$	43		$	34
Current portion of long-term debt	252			346
Accounts payable	1,226			1,244
Accrued income taxes	288			392
Other accruals	1,757			1,700
Total current liabilities	3,566			3,716

Long-term debt	5,068			4,430
Deferred income taxes	272			252
Other liabilities	1,737			1,785

Shareholders’ Equity
Common stock	733			733
Additional paid-in capital	1,387			1,336
Retained earnings	16,294			15,649
Accumulated other comprehensive income (loss)	(2,554		)	(2,475		)
Unearned compensation	(39		)	(60		)
Treasury stock, at cost	(13,515		)	(12,808		)
Total Colgate-Palmolive Company shareholders’ equity	2,306			2,375
Noncontrolling interests	204			166
Total shareholders’ equity	2,510			2,541
Total liabilities and shareholders’ equity	$	13,153		$	12,724

See Notes to Condensed Consolidated Financial Statements.

COLGATE-PALMOLIVE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Millions)

(Unaudited)



	Six Months Ended
	June 30,
	2012			2011
Operating Activities
Net income including noncontrolling interests	$	1,298		$	1,253
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operations:
Depreciation and amortization	211			202
Restructuring and termination benefits, net of cash	(27		)	(31		)
Voluntary benefit plan contributions	(100		)	(100		)
Stock-based compensation expense	48			56
Deferred income taxes	14			46
Cash effects of changes in:
Receivables	(119		)	(153		)
Inventories	(46		)	(148		)
Accounts payable and other accruals	(148		)	(19		)
Other non-current assets and liabilities	62			48
Net cash provided by operations	1,193			1,154
Investing Activities
Capital expenditures	(189		)	(225		)
Purchases of marketable securities and investments	(219		)	(80		)
Proceeds from sale of marketable securities and investments	71			171
Payment for acquisitions, net of cash acquired	(29		)	(960		)
Other	45			(17		)
Net cash used in investing activities	(321		)	(1,111		)
Financing Activities
Principal payments on debt	(2,307		)	(1,869		)
Proceeds from issuance of debt	2,873			3,433
Dividends paid	(593		)	(568		)
Purchases of treasury shares	(894		)	(1,017		)
Proceeds from exercise of stock options and excess tax benefits	191			220
Net cash provided by (used in) financing activities	(730		)	199
Effect of exchange rate changes on Cash and cash equivalents	(25		)	7
Net increase (decrease) in Cash and cash equivalents	117			249
Cash and cash equivalents at beginning of the period	878			490
Cash and cash equivalents at end of the period	$	995		$	739
Supplemental Cash Flow Information
Income taxes paid	$	682		$	513

See Notes to Condensed Consolidated Financial Statements.

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)


1.	Basis of Presentation

The Condensed Consolidated Financial Statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair statement of the results for interim periods. Results of operations for interim periods may not be representative of results to be expected for a full year. Certain prior year amounts have been reclassified to conform to the current year presentation.

For a complete set of financial notes, including the significant accounting policies of Colgate-Palmolive Company (together with its subsidiaries, the “Company” or “Colgate”), refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission.


2.	Use of Estimates

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


3.	Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05, “Presentation of Comprehensive Income.” ASU No. 2011-05 eliminates the option to disclose other comprehensive income and its components in the statement of changes in equity. As permitted under ASU No. 2011-05, the Company elected to present items of net income and other comprehensive income in two separate consecutive statements beginning in the first quarter of 2012.


4.	Acquisitions and Divestitures

Sanex Acquisition

On June 20, 2011, the Company, Colgate-Palmolive Europe Sàrl, Unilever N.V. and Unilever PLC (together with Unilever N.V., “Unilever”) finalized the Company’s acquisition from Unilever of the Sanex personal care business in accordance with a Business and Share Sale and Purchase Agreement (the “Purchase Agreement”) for an aggregate purchase price of €676 ($966), subject to certain post-closing purchase price adjustments. The acquisition was financed with available cash, proceeds from the sale of the Company’s Euro-denominated investment portfolio and the issuance of commercial paper.

Total purchase price consideration of $966 has been allocated to the net assets acquired based on their respective fair values at June 20, 2011, as follows:



Recognized amounts of assets acquired and liabilities assumed:
Inventories	$	26
Property, plant and equipment, net	3
Other intangible assets, net	596
Goodwill, net	411
Accrued income taxes	(48		)
Long-term deferred income taxes	(18		)
Long-term other liabilities	(4		)
Fair value of net assets acquired	$	966

Other intangible assets acquired include trademarks of $403 with an indefinite useful life and customer relationships of $193 with useful lives ranging from 15 to 18 years.

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)

Goodwill of $411 was allocated between the Europe/South Pacific segment (90%) and the Greater Asia/Africa segment (10%). The Company expects that substantially all of the goodwill will be deductible for tax purposes. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial statements is not material. For the six months ended June 30, 2011, Other (income) expense, net included $10 in transaction costs related to the acquisition, of which $7 related to the second quarter.

Sale of Detergent Business in Colombia

In connection with the Sanex acquisition, Colgate sold its laundry detergent business in Colombia to Unilever for $215. The detergent sale closed on July 29, 2011 and, as a result of the sale, the Company recognized a pretax gain of $207 ($135 aftertax gain) in the third quarter of 2011. These operations were not material to the Company’s Net sales, Net income or Earnings per share.

Sale of Land in Mexico

On September 13, 2011, the Company’s Mexican subsidiary entered into an agreement to sell to the United States of America the Mexico City site on which its commercial operations, technology center and soap production facility are located. The sale price is payable in three installments, with the final installment due upon the transfer of the property, which is expected to occur in 2014. During the third quarter of 2011, the Company received the first installment of $24 upon signing the agreement. The Company is re-investing these payments to relocate its soap production to a new state-of-the-art facility to be constructed at its Mission Hills, Mexico site, to relocate its commercial and technology operations within Mexico City and to prepare the existing site for transfer. As a result, the Company expects to make capital improvements and incur costs to exit the site through 2014. These exit costs will primarily be related to staff leaving indemnities, accelerated depreciation and demolition to make the site building-ready. In 2011, the Company recorded $13 of pretax costs ($9 of aftertax costs) related to the sale. During the six months ended June 30, 2012, the Company incurred an additional $13 of pretax costs ($10 of aftertax costs) related to the sale, of which $6 of pretax costs ($5 of aftertax costs) relate to the second quarter.


5.	Inventories

Inventories by major class are as follows:



	June 30, 2012		December 31, 2011
Raw materials and supplies	$	323	$	319
Work-in-process	68		54
Finished goods	977		954
Total Inventories	$	1,368	$	1,327

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)


6.	Shareholders’ Equity

Changes in the components of Shareholders’ Equity for the six months ended June 30, 2012 are as follows:



	Colgate-Palmolive Company Shareholders’ Equity																	Noncontrolling Interests
	Common Stock		Additional Paid-in Capital			Unearned Compensation			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2011	$	733	$	1,336		$	(60	)	$	(12,808	)	$	15,649		$	(2,475	)	$	166
Net income												1,220						78
Other comprehensive income, net of tax															(79		)	(4		)
Dividends												(575		)				(18		)
Stock-based compensation expense			48
Shares issued for stock options			42						143
Shares issued for restricted stock awards			(44		)				44
Treasury stock acquired									(894		)
Other			5			21												(18		)
Balance, June 30, 2012	$	733	$	1,387		$	(39	)	$	(13,515	)	$	16,294		$	(2,554	)	$	204

Accumulated Other comprehensive income (loss), as reflected in the Condensed Consolidated Balance Sheets, primarily consists of cumulative foreign currency translation adjustments and unrecognized pension and other retiree benefit costs.


7.	Earnings Per Share



	Three Months Ended
	June 30, 2012					June 30, 2011
	Income		Shares (millions)	Per Share		Income		Shares (millions)	Per Share
Net income attributable to Colgate-Palmolive Company	$	627				$	622
Basic EPS	627		477.3	$	1.31	622		489.5	$	1.27
Stock options and restricted stock			4.0					3.8
Diluted EPS	$	627	481.3	$	1.30	$	622	493.3	$	1.26

For the three months ended June 30, 2012 and 2011, the average number of stock options that were anti-dilutive and not included in diluted earnings per share calculations were 405,780 and 18,734, respectively.

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)



	Six Months Ended
	June 30, 2012					June 30, 2011
	Income		Shares (millions)	Per Share		Income		Shares (millions)	Per Share
Net income attributable to Colgate-Palmolive Company	$	1,220				$	1,198
Basic EPS	1,220		478.7	$	2.55	1,198		491.5	$	2.44
Stock options and restricted stock			3.9					3.4
Diluted EPS	$	1,220	482.6	$	2.53	$	1,198	494.9	$	2.42

For the six months ended June 30, 2012 and 2011, the average number of stock options that were anti-dilutive and not included in diluted earnings per share calculations were 2,070,202 and 34,719, respectively.


8.	Retirement Plans and Other Retiree Benefits

Components of net periodic benefit cost for the three and six months ended June 30, 2012 and 2011 were as follows:



	Pension Benefits												Other Retiree Benefits
	United States						International
	Three Months Ended June 30,
	2012			2011			2012			2011			2012			2011
Service cost	$	7		$	6		$	6		$	5		$	3		$	3
Interest cost	24			25			8			10			10			10
Annual ESOP allocation	—			—			—			—			(1		)	—
Expected return on plan assets	(28		)	(28		)	(6		)	(7		)	—			—
Amortization of transition and prior service costs (credits)	3			3			—			1			1			1
Amortization of actuarial loss	14			12			3			3			4			4
Net periodic benefit cost	$	20		$	18		$	11		$	12		$	17		$	18



	Pension Benefits												Other Retiree Benefits
	United States						International
	Six Months Ended June 30,
	2012			2011			2012			2011			2012			2011
Service cost	$	14		$	13		$	11		$	10		$	6		$	6
Interest cost	49			51			17			19			21			21
Annual ESOP allocation	—			—			—			—			(1		)	(1		)
Expected return on plan assets	(56		)	(56		)	(12		)	(14		)	(1		)	(1		)
Amortization of transition and prior service costs (credits)	5			5			—			2			2			3
Amortization of actuarial loss	29			23			5			5			8			9
Net periodic benefit cost	$	41		$	36		$	21		$	22		$	35		$	37

For each of the six months ended June 30, 2012 and 2011, the Company made voluntary contributions of $100 to its U.S. postretirement plans.

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)


9.	Contingencies

As a global company serving consumers in more than 200 countries and territories, the Company is routinely subject to a wide variety of legal proceedings. These include disputes relating to intellectual property, contracts, product liability, marketing, advertising, foreign exchange controls, antitrust and trade regulation, as well as labor and employment, environmental and tax matters. 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.

As a matter of course, the Company is regularly audited by the IRS and other tax authorities around the world in countries where it conducts business. In this regard, all U.S. federal income tax returns through December 31, 2007 have been audited by the IRS and there are limited matters in administrative appeals for years 2002 through 2007, the settlement of which is not expected to have a material adverse effect on the Company’s results of operations, cash flows or financial condition. With a few exceptions, the Company is no longer subject to U.S., state and local income tax examinations for the years prior to 2007. In addition, the Company has subsidiaries in various foreign jurisdictions that have statutes of limitations for tax audits generally ranging from three to six years. Estimated incremental tax payments related to potential disallowances for subsequent periods are not expected to be material.

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 $225 (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 from the matters in question. 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 of these matters could be material to the Company’s results of operations or cash flows for any particular quarter or year.

Brazilian Matters

In 2001, the Central Bank of Brazil sought to impose a substantial fine on the Company’s Brazilian subsidiary based on alleged foreign exchange violations in connection with the financing of the Company’s 1995 acquisition of the Kolynos oral care business from Wyeth (formerly American Home Products) (the Seller), as described in the Company’s Form 8-K dated January 10, 1995. The Company appealed the imposition of the fine to the Brazilian Monetary System Appeals Council (the Council) and, on January 30, 2007, the Council decided the appeal in the Company’s favor, dismissing the fine entirely. However, certain tax and civil proceedings that began as a result of this Central Bank matter are still outstanding as described below.

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, approximate $129. The Company has been disputing the disallowances by appealing the assessments within the internal revenue authority’s appellate process with the following results to date:

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)


▪	In June 2005, the First Board of Taxpayers ruled in the Company’s favor and allowed all of the previously claimed deductions for 1996 through 1998. In March 2007, the First Board of Taxpayers ruled in the Company’s favor and allowed all of the previously claimed deductions for 1999 through 2001. The tax authorities appealed these decisions to the next administrative level.


▪	In August 2009, the First Taxpayers’ Council (the next and final administrative level of appeal) overruled the decisions of the First Board of Taxpayers, upholding the majority of the assessments, disallowing a portion of the assessments and remanding a portion of the assessments for further consideration by the First Board of Taxpayers.

The Company has filed a motion for clarification with a special appeals chamber of the Taxpayers’ Council and further appeals are available within the Brazilian federal courts. The Company intends to challenge these assessments vigorously. Although there can be no assurances, management believes, based on the opinion of its Brazilian legal counsel and other advisors, that the disallowances are without merit and that the Company should ultimately prevail on appeal, if necessary, in the Brazilian federal courts.

In 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, 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. Although there can be no assurances, management believes, based on the opinion of its Brazilian legal counsel, that the Company should ultimately prevail in this action. The Company intends to challenge this action vigorously.

In December 2005, the Brazilian internal revenue authority issued to the Company’s Brazilian subsidiary a tax assessment with interest and penalties of approximately $77, 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 is disputing the assessment within the internal revenue authority’s administrative appeals process. In October 2007, the Second Board of Taxpayers, which has jurisdiction over these matters, ruled in favor of the internal revenue authority. In January 2008, the Company appealed this decision, and in January 2012, a special appeals chamber of the Taxpayers’ Council denied the Company’s appeal. The Company plans to appeal this decision. Although there can be no assurances, management believes, based on the advice of its Brazilian legal counsel, that the tax assessment is without merit and that the Company should prevail on appeal, if not at the administrative level, in the Brazilian federal courts. The Company intends to challenge this assessment vigorously.

European Competition Matters

Since February 2006, the Company has learned that investigations relating to potential competition law violations involving the Company’s subsidiaries had been commenced by governmental authorities in a number of European countries and by the European Commission. The Company understands that substantially all of these investigations 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 is appealing each of these fines:


▪	In December 2009, the Swiss competition law authority imposed a fine of $5 on the Company’s GABA subsidiary for alleged violations of restrictions on parallel imports into Switzerland. The Company is appealing the fine in the Swiss courts.


▪	In January 2010, the Spanish competition law authority found that four suppliers of shower gel had entered into an agreement regarding product down-sizing, for which Colgate’s Spanish subsidiary was fined $3. The Company is appealing the fine in the Spanish courts.

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)


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


▪	In December 2011, the French competition law authority found that four consumer goods companies had entered into agreements on pricing and promotion of heavy duty detergents for which Colgate’s French subsidiary was fined $46 in connection with a divested business. The Company is appealing the fine in the French courts.


▪	In March 2012, the French competition law authority found that three pet food producers, including the Company’s Hill’s France subsidiary, had violated the competition law, for which it imposed a fine of $6 on the Company’s Hill’s France subsidiary for alleged restrictions on exports from France. The Company is appealing the fine in the French courts.

In addition, the German competition law authority has issued a formal claim of violations alleging that 17 branded goods companies, including the Company’s German subsidiary, exchanged sensitive information related to the German market. The Company has responded to this formal claim of violations.

Investigations are ongoing in Belgium, France and Greece, but no formal claims of violations have been filed in these jurisdictions except in the two French matters noted above.

The Company’s policy is to comply with antitrust and competition laws and, if a violation of any such laws is found, to take appropriate remedial action and to cooperate fully with any related governmental inquiry. The Company has undertaken a comprehensive review of its selling practices and related competition law compliance in Europe and elsewhere and, where the Company has identified a lack of compliance, it has undertaken remedial action. Competition and antitrust law investigations often continue for several years and can result in substantial fines for violations that are found. While the Company cannot predict the final financial impact of these competition law issues as these matters may change, the Company evaluates developments in these matters quarterly and accrues liabilities as and when appropriate.

ERISA Matters

In October 2007, a putative class action claiming that certain aspects of the cash balance portion of the Colgate-Palmolive Company Employees’ Retirement Income Plan (the Plan) do not comply with the Employee Retirement Income Security Act was filed against the Plan and the Company in the United States District Court for the Southern District of New York. Specifically, Proesel, et al. v. Colgate-Palmolive Company Employees’ Retirement Income Plan, et al. alleges improper calculation of lump sum distributions, age discrimination and failure to satisfy minimum accrual requirements, thereby resulting in the underpayment of benefits to Plan participants. Two other putative class actions filed earlier in 2007, Abelman, et al. v. Colgate-Palmolive Company Employees’ Retirement Income Plan, et al., in the United States District Court for the Southern District of Ohio, and Caufield v. Colgate-Palmolive Company Employees’ Retirement Income Plan, in the United States District Court for the Southern District of Indiana, both alleging improper calculation of lump sum distributions and, in the case of Abelman, claims for failure to satisfy minimum accrual requirements, were transferred to the Southern District of New York and consolidated with Proesel into one action, In re Colgate-Palmolive ERISA Litigation. The complaint in the consolidated action alleges improper calculation of lump sum distributions and failure to satisfy minimum accrual requirements, but does not include a claim for age discrimination. The relief sought includes recalculation of benefits in unspecified amounts, pre- and post-judgment interest, injunctive relief and attorneys’ fees. This action has not been certified as a class action as yet. The parties are in discussions via non-binding mediation to determine whether the action can be settled. The Company and the Plan intend to contest this action vigorously should the parties be unable to reach a settlement.

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)


10.	Segment Information

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. Corporate operations include costs related to stock options and restricted stock awards, research and development costs, Corporate overhead costs, restructuring and related implementation costs and gains and losses on sales of non-core product lines and assets. The Company reports these items within Corporate operations as they relate to Corporate-based responsibilities and decisions and are not included in the internal measures of segment operating performance used by the Company in order to measure the underlying performance of the business segments.

Net sales and Operating profit by segment were as follows:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Net sales
Oral, Personal and Home Care
North America	$	758		$	744		$	1,513		$	1,462
Latin America	1,269			1,231			2,439			2,328
Europe/South Pacific	850			857			1,704			1,689
Greater Asia/Africa	859			816			1,738			1,629
Total Oral, Personal and Home Care	3,736			3,648			7,394			7,108
Pet Nutrition	531			537			1,073			1,071
Total Net sales	$	4,267		$	4,185		$	8,467		$	8,179

Operating profit
Oral, Personal and Home Care
North America	$	196		$	194		$	379		$	386
Latin America	367			360			711			686
Europe/South Pacific	179			170			362			355
Greater Asia/Africa	220			199			440			402
Total Oral, Personal and Home Care	962			923			1,892			1,829
Pet Nutrition	145			140			293			281
Corporate	(125		)	(95		)	(265		)	(227		)
Total Operating profit	$	982		$	968		$	1,920		$	1,883

For the six months ended June 30, 2012, Corporate Operating profit includes costs of $18 associated with the business realignment and other cost-saving initiatives and costs of $13 related to the sale of land in Mexico. For the three months ended June 30, 2012, Corporate Operating profit includes costs of $13 associated with the business realignment and other cost-saving initiatives and costs of $6 related to the sale of land in Mexico. The business realignment and other cost-saving initiatives include the integration of Sanex, the right-sizing of the Colombia business and the closing of an oral care facility in Mississauga, Canada and a Hill’s facility in Los Angeles, California. For further information regarding the sale of land in Mexico, refer to Note 4.

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)


11.	Fair Value Measurements and Financial Instruments

The Company uses available market information and other valuation methodologies in assessing the fair value of financial instruments. Judgment is required in interpreting market data to develop the estimates of fair value and, accordingly, changes in assumptions or the estimation methodologies may affect the fair value estimates. The Company is exposed to credit losses in the event of nonperformance by counterparties to financial instrument contracts; however, nonperformance is considered unlikely as it is the Company’s policy to contract only with diverse, highly rated counterparties.

The Company is exposed to market risk from foreign currency exchange rates, interest rates and commodity price fluctuations. Volatility relating to these exposures is managed on a global basis by utilizing a number of techniques, including working capital management, supplier agreements, selling price increases, selective borrowings in local currencies and entering into selective derivative instrument transactions, issued with standard features, in accordance with the Company’s treasury and risk management policies, which prohibit the use of derivatives for speculative purposes and leveraged derivatives for any purpose. It is the Company’s policy to enter into derivative instrument contracts with terms that match the underlying exposure being hedged. Hedge ineffectiveness, if any, is not material for any period presented.

The Company’s derivative instruments include interest rate swap contracts, foreign currency contracts and commodity contracts. The Company utilizes interest rate swap contracts to manage its targeted mix of fixed and floating rate debt, and these swaps are valued using observable benchmark rates (Level 2 valuation). Foreign currency contracts consist of forward, option and swap contracts utilized to hedge a portion of the Company’s foreign currency purchases, assets and liabilities arising in the normal course of business as well as the net investment in certain foreign subsidiaries. These contracts are valued using observable market rates (Level 2 valuation). Commodity futures contracts are utilized to hedge the purchases of raw materials used in the Company’s operations. These contracts are measured using quoted commodity exchange prices (Level 1 valuation). The duration of foreign currency and commodity contracts generally does not exceed 12 months.

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)

The following summarizes the fair value of the Company’s derivative instruments and other financial instruments at June 30, 2012 and December 31, 2011:



	Assets					Liabilities
	Account	Fair Value				Account	Fair Value
Designated derivative instruments		6/30/12		12/31/11			6/30/12		12/31/11
Interest rate swap contracts	Other current assets	$	7	$	2	Other accruals	$	—	$	—
Interest rate swap contracts	Other assets	38		40		Other liabilities	—		2
Foreign currency contracts	Other current assets	15		8		Other accruals	5		6
Foreign currency contracts	Other assets	33		28		Other liabilities	—		—
Commodity contracts	Other current assets	4		—		Other accruals	—		1
Total designated		$	97	$	78		$	5	$	9

Derivatives not designated
Foreign currency contracts	Other assets	$	2	$	3	Other accruals	$	—	$	—
Total not designated		$	2	$	3		$	—	$	—

Total derivative instruments		$	99	$	81		$	5	$	9

Other financial instruments
Marketable securities	Other current assets	$	86	$	72
Available-for-sale securities	Other assets	392		236
Total other financial instruments		$	478	$	308

The carrying amount of cash, cash equivalents, accounts receivable and short-term debt approximated fair value as of June 30, 2012 and December 31, 2011. The estimated fair value of the Company’s long-term debt, including the current portion, as of June 30, 2012 and December 31, 2011, was $5,726 and $5,121, respectively, and the related carrying value was $5,320 and $4,776, respectively. The estimated fair value of long-term debt was derived principally from quoted prices on the Company’s outstanding fixed-term notes (Level 2 valuation).

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)

Fair value hedges

The Company has designated all interest rate swap contracts and certain foreign currency forward and option contracts as fair value hedges, for which the gain or loss on the derivative and the offsetting loss or gain on the hedged item are recognized in current earnings. The impact of foreign currency contracts is recognized in Selling, general and administrative expenses and the impact of interest rate swap contracts is recognized in Interest expense, net.

Activity related to fair value hedges recorded during the three-month and six-month periods ended June 30, 2012 and 2011 was as follows:



	2012									2011
	Foreign Currency Contracts			Interest Rate Swaps			Total			Foreign Currency Contracts			Interest Rate Swaps			Total
Notional Value at June 30,	$	740		$	1,338		$	2,078		$	538		$	1,288		$	1,826
Three-months ended June 30:
Gain (loss) on derivative	9			9			18			—			11			11
Gain (loss) on hedged items	(9		)	(9		)	(18		)	—			(11		)	(11		)
Six-months ended June 30:
Gain (loss) on derivative	10			7			17			6			8			14
Gain (loss) on hedged items	(10		)	(7		)	(17		)	(6		)	(8		)	(14		)

Cash flow hedges

All of the Company’s commodity contracts and certain foreign currency forward contracts have been designated as cash flow hedges, for which the effective portion of the gain or loss is reported as a component of Other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Activity related to cash flow hedges recorded during the three-month and six-month periods ended June 30, 2012 and 2011 was as follows:



	2012							2011
	Foreign Currency Contracts			Commodity Contracts		Total		Foreign Currency Contracts			Commodity Contracts			Total
Notional Value at June 30,	$	349		$	29	$	378	$	350		$	30		$	380
Three-months ended June 30:
Gain (loss) recognized in OCI	(3		)	3		—		(4		)	(2		)	(6		)
Gain (loss) reclassified into Cost of sales	—			1		1		(4		)	2			(2		)
Six-months ended June 30:
Gain (loss) recognized in OCI	3			5		8		(7		)	—			(7		)
Gain (loss) reclassified into Cost of sales	1			—		1		(8		)	5			(3		)

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

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)

Net investment hedges

The Company has designated certain foreign currency forward and option contracts and certain foreign currency-denominated debt as net investment hedges, for which the gain or loss on the instrument is reported as a component of Currency translation adjustments within OCI, along with the offsetting gain or loss on the hedged items.

Activity related to net investment hedges recorded during the three-month and six-month periods ended June 30, 2012 and 2011 was as follows:



	2012									2011
	Foreign Currency Contracts			Foreign Currency Debt			Total			Foreign Currency Contracts			Foreign Currency Debt			Total
Notional Value at June 30,	$	563		$	409		$	972		$	88		$	333		$	421
Three-months ended June 30:
Gain (loss) on instruments	27			10			37			(3		)	(19		)	(22		)
Gain (loss) on hedged items	(27		)	(10		)	(37		)	3			19			22
Six-months ended June 30:
Gain (loss) on instruments	8			4			12			(10		)	(33		)	(43		)
Gain (loss) on hedged items	(13		)	(4		)	(17		)	10			33			43

Derivatives Not Designated as Hedging Instruments

Derivatives not designated as hedging instruments for each period consist of a cross-currency swap that serves as an economic hedge of a foreign currency deposit, for which the gain or loss on the instrument and the offsetting gain or loss on the hedged item are recognized in Other (income) expense, net for each period. The cross-currency swap outstanding at December 31, 2010 was settled during the second quarter of 2011, resulting in a realized loss of $6 which was offset by a corresponding gain on an underlying deposit. A new cross-currency swap with similar terms and an underlying foreign currency deposit was entered into during June 2011.

Activity related to these contracts during the three-month and six-month periods ended June 30, 2012 and 2011 was as follows:



	2012			2011
	Cross-currency Swap			Cross-currency Swap
Notional Value at June 30,	$	96		$	96
Three-months ended June 30:
Gain (loss) on instrument	2			—
Gain (loss) on hedged item	(2		)	—
Six-months ended June 30:
Gain (loss) on instrument	(1		)	(4		)
Gain (loss) on hedged item	1			4

COLGATE-PALMOLIVE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Millions Except Share and Per Share Amounts)

(Unaudited)

Other Financial Instruments

Other financial instruments include marketable securities and Venezuelan bonds. The marketable securities primarily consist of bank deposits with original maturities greater than 90 days (Level 1 valuation) and are included in Other current assets.

Through its subsidiary in Venezuela, the Company is invested in U.S. dollar-linked, devaluation-protected bonds and fixed interest rate bonds, both of which are issued by the Venezuelan government. These bonds are actively traded and, therefore, are considered Level 2 investments as their values are determined based upon observable market-based inputs or unobservable inputs that are corroborated by market data. As of June 30, 2012, the U.S. dollar-linked, devaluation protected bonds and the fixed interest rate bonds had fair market values of $251 and $141, respectively. These investments are considered available-for-sale securities and are included in Other assets.

The following table presents a reconciliation of the Venezuelan bonds at fair value for the six months ended June 30:



	2012		2011
Beginning balance as of January 1,	$	236	$	96
Unrealized gain (loss) on investment	22		62
Purchases and sales during the period	134		71
Ending balance as of June 30,	$	392	$	229

As a result of the Venezuelan government’s elimination of the two-tier exchange rate structure effective January 1, 2011, the U.S. dollar-linked, devaluation-protected bonds revalued and the Company recorded an unrealized gain of $62 in the first quarter of 2011. For further information regarding Venezuela, refer to Note 12 below.


12.	Venezuela

Effective January 1, 2010, Venezuela was designated as hyperinflationary and therefore the functional currency for the Company’s Venezuelan subsidiary (CP Venezuela) became the U.S. dollar. As a result, the impact of Venezuelan currency fluctuations is reported in income. The change in the reporting currency from the Venezuelan bolivar fuerte to the U.S. dollar resulted in a one-time charge of $271 recorded within Other (income) expense, net in the first quarter of 2010.

On January 8, 2010, the Venezuelan government announced its decision to devalue its currency and implement a two-tier exchange rate structure. As a result, the official exchange rate changed from 2.15 to 2.60 for essential goods and 4.30 for non-essential goods. The devaluation resulted in a one-time pretax gain of $46 recorded in Other (income) expense and an aftertax gain of $59 in the first quarter of 2010. In December 2010, the Venezuelan government announced that, effective January 1, 2011, the 2.60 exchange rate for essential goods would be abolished. As a result, CP Venezuela incurred an aftertax loss of $36 in the fourth quarter of 2010.

The Company remeasures the financial statements of CP Venezuela at the rate at which it expects to remit future dividends, which currently is 4.30. For the six months ended June 30, 2012, CP Venezuela represented approximately 5% of the Company’s consolidated Net sales. At June 30, 2012, CP Venezuela’s bolivar fuerte-denominated net monetary asset position, which would be subject to translation adjustment in the event of a devaluation, was approximately $426. This amount does not include $251 of devaluation-protected bonds issued by the Venezuelan government, as these bonds provide protection against devaluations by adjusting the amount of bolivares fuerte received at maturity for any devaluation subsequent to issuance.

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Executive Overview and Outlook

Colgate-Palmolive Company 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 80% of the Company’s net sales are generated from markets outside the U.S., with approximately 50% of the Company’s net sales coming from emerging markets (which consist of Latin America, Greater Asia/Africa (excluding Japan) 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 segment is operated through four reportable operating segments: North America, Latin America, Europe/South Pacific and Greater Asia/Africa, 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 specialty pet retailers and the veterinary profession.

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 and distribution and logistics 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.

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

On June 20, 2011, the Company, Colgate-Palmolive Europe Sàrl, Unilever N.V. and Unilever PLC (together with Unilever N.V., “Unilever”) finalized the Company’s acquisition from Unilever of the Sanex personal care business in accordance with a Business and Share Sale and Purchase Agreement for an aggregate purchase price of €676 ($966), subject to certain post-closing purchase price adjustments. The acquisition was financed with available cash, proceeds from the sale of the Company’s Euro-denominated investment portfolio and the issuance of commercial paper.

On July 29, 2011, in connection with the Sanex acquisition, Colgate sold its laundry detergent business in Colombia to Unilever for $215 resulting in a pretax gain of $207 ($135 aftertax gain). In 2011, this gain was more than offset by pretax costs of $224 ($177 aftertax costs) associated with the implementation of business realignment and other cost-saving initiatives, the sale of land in Mexico discussed below and a competition law matter in France related to a divested detergent business as discussed in Note 9 “Contingencies” to the Condensed Consolidated Financial Statements. The business realignment and other cost-saving initiatives include the integration of Sanex, the right-sizing of the Colombia business and the closing of an oral care facility in Mississauga, Canada and a Hill’s facility in Los Angeles, California. In 2012, the Company incurred aftertax costs of $12 associated with the business realignment and other cost-saving initiatives and aftertax costs of $10 related to the sale of land in Mexico.

With over 80% of its Net sales generated outside of 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 and high inflation and governmental restrictions in the form of import authorization controls, currency exchange controls, price controls and the possibility of expropriation of property or other resources.

In particular, the Company has been impacted as a result of the significant devaluations of the Venezuelan bolivar fuerte, described more fully in Note 12 “Venezuela” to the Condensed Consolidated Financial Statements. In addition, the Venezuelan government continues to impose import authorization controls, currency exchange and payment controls and price controls. CP Venezuela continues to have limited access to U.S. dollars at the official rate, and currently only for imported goods. Under existing regulations, CP Venezuela is not permitted to access the currency market established in 2010, and as a result, CP Venezuela funds its requirements for imported goods through a combination of U.S. dollars obtained from the government at the official rate, intercompany borrowings, the use of financial and other intermediaries and existing U.S. dollar cash balances, which were obtained previously through parallel market transactions and through the prior liquidation of its U.S. dollar-denominated bond portfolio. On April 1, 2012, new price controls previously announced by the Venezuelan government became effective, affecting most products in CP Venezuela’s portfolio, thereby further restricting the Company’s ability to implement price increases, which has been one of the key mechanisms to offset the effects of continuing high inflation.

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

The Company’s business in Venezuela and the Company’s ability to repatriate its earnings, continue to be negatively affected by these difficult conditions and would be further negatively affected by additional devaluations or the imposition of additional or more stringent controls on foreign currency exchange, pricing or imports or other governmental actions. For the six months ended June 30, 2012, CP Venezuela represented approximately 5% of the Company’s consolidated Net sales. At June 30, 2012, CP Venezuela’s local currency net monetary asset position was approximately $426.

Looking forward, we expect global macroeconomic and market conditions to remain highly challenging. While the global marketplace in which we operate has always been highly competitive, the Company continues to experience heightened competitive activity in certain markets from other large multinational companies, some of which have greater resources than we do. Such activities have included more aggressive product claims and marketing challenges, as well as increased promotional spending and geographic expansion. Additionally, we continue to experience volatile foreign currency fluctuations and high commodity 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 brand names and its broad international presence in both mature and emerging markets, should position the Company well to increase shareholder value over the long-term.

Results of Operations

Three Months

Worldwide Net sales were $4,267 in the second quarter of 2012, up 2.0% from the second quarter of 2011, as volume growth of 5.0% and net selling price increases of 3.5% were significantly impacted by negative foreign exchange of 6.5%. Excluding the impact of the divestment of the non-core laundry detergent business in Colombia, volume increased 5.5%. The Sanex business contributed 1.0% to worldwide Net sales and volume growth in the second quarter of 2012. Organic sales (Net sales excluding foreign exchange, acquisitions and divestments), a non-GAAP financial measure as discussed below, increased 8.0% in the second quarter of 2012 on organic volume growth of 4.5%. Organic volume growth excludes the impact of acquisitions and divestments.

Net sales in the Oral, Personal and Home Care segment were $3,736 in the second quarter of 2012, up 2.5% from the second quarter of 2011, as volume growth of 6.0% and net selling price increases of 3.5% were significantly impacted by negative foreign exchange of 7.0%. Excluding the impact of the divestment of the non-core laundry detergent business in Colombia, volume increased 7.0%. The Sanex business contributed 2.0% to Net sales and volume growth in the segment in the second quarter of 2012. Organic sales in the Oral, Personal and Home Care segment increased 8.5% on organic volume growth of 5.0% in the second quarter of 2012.

Gross Profit/Margin

Worldwide Gross profit increased 2% to $2,461 in the second quarter of 2012 from $2,404 in the second quarter of 2011. Excluding the impact of costs related to the sale of land in Mexico ($6) and costs associated with business realignment and other cost-saving initiatives ($2), Gross profit increased to $2,469 in the second quarter of 2012.

Worldwide Gross profit margin increased to 57.7% in the second quarter of 2012 from 57.4% in the second quarter of 2011. Excluding the impact of costs related to the sale of land in Mexico of 10 basis points (bps) and costs associated with business realignment and other cost-saving initiatives of 10 bps, gross profit margin was 57.9% in the second quarter of 2012. This increase in the second quarter of 2012 was primarily due to cost savings from the Company’s funding-the-growth initiatives (180 bps) and higher pricing (140 bps), which were partially offset by higher raw and packaging material costs driven by global commodity costs and negative foreign exchange transaction costs (265 bps).

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)



	Three Months Ended June 30,
	2012		2011
Gross profit, GAAP	$	2,461	$	2,404
Costs related to the sale of land in Mexico	6		—
Business realignment and other cost-saving initiatives	2		—
Gross profit, non-GAAP	$	2,469	$	2,404



	Three Months Ended June 30,
	2012		2011		Basis Point Change
Gross profit margin, GAAP	57.7	%	57.4	%	30
Costs related to the sale of land in Mexico	0.1	%	—
Business realignment and other cost-saving initiatives	0.1	%	—
Gross profit margin, non-GAAP	57.9	%	57.4	%	50

Selling, General and Administrative expenses

Selling, general and administrative expenses increased 3.0% to $1,464 in the second quarter of 2012 from $1,421 in the second quarter of 2011. Excluding the impact of costs associated with the business realignment and other cost-saving initiatives ($5), Selling, general and administrative expenses increased to $1,459 in the second quarter of 2012.

Selling, general and administrative expenses as a percentage of Net sales increased to 34.3% in the second quarter of 2012 from 34.0% in the second quarter of 2011. Excluding the impact of costs related to the business realignment and other cost-saving initiatives (10 bps), Selling, general and administrative expenses were 34.2%, an increase of 20 bps as compared to the year ago quarter. This increase was a result of higher advertising expenses as a percentage of Net sales. In the second quarter of 2012, advertising increased 4.3% to $457, as compared with $438 in the second quarter of 2011, and increased as a percentage of Net sales to 10.7% in the second quarter of 2012 from 10.5% in the second quarter of 2011.



	Three Months Ended June 30,
	2012			2011
Selling, general and administrative expenses, GAAP	$	1,464		$	1,421
Business realignment and other cost-saving initiatives	(5		)	—
Selling, general and administrative expenses, non-GAAP	$	1,459		$	1,421



	Three Months Ended June 30,
	2012	2011		Basis Point Change
Selling, general and administrative expenses as a percentage of Net sales, GAAP	34.3%	34.0	%	30
Business realignment and other cost-saving initiatives	(0.1)%	—
Selling, general and administrative expenses as a percentage of Net sales, non-GAAP	34.2%	34.0	%	20

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Other (income) expense, net

Other (income) expense, net was $15 in the second quarter of 2012, even with the year ago quarter. In the second quarter of 2012, Other (income) expense, net includes costs of $6 related to the business realignment and other cost-saving initiatives. In the second quarter of 2011, Other income (expense), net included transaction costs of $7 related to the Sanex acquisition.



	Three Months Ended June 30,
	2012			2011
Other (income) expense, net, GAAP	$	15		$	15
Business realignment and other cost-saving initiatives	(6		)	—
Other (income) expense, net, non-GAAP	$	9		$	15

Operating Profit

Operating profit increased 1% to $982 in the second quarter of 2012 from $968 in the second quarter of 2011. Excluding the impact of costs associated with the sale of land in Mexico ($6) and the business realignment and other cost-saving initiatives ($13), Operating profit increased 3% to $1,001 in the second quarter of 2012 as compared to the second quarter of 2011, primarily due to strong sales growth and higher gross profit margin.

Operating profit margin was 23.0%, a decrease of 10 bps compared to the year ago quarter. Excluding the impact of costs associated with the sale of land in Mexico (20 bps) and the business realignment and other cost-saving initiatives (30 bps), Operating profit margin increased 40 bps to 23.5% in the second quarter of 2012 as compared to 23.1% in the second quarter of 2011. This increase of 40 bps is mainly due to an increase in Gross profit as a percentage of Net sales, a portion of which was reinvested in higher advertising, which also increased as a percentage of Net sales.



	Three Months Ended June 30,
	2012		2011		% Change
Operating profit, GAAP	$	982	$	968	1	%
Costs related to the sale of land in Mexico	6		—
Business realignment and other cost-saving initiatives	13		—
Operating profit, non-GAAP	$	1,001	$	968	3	%



	Three Months Ended June 30,
	2012		2011		Basis Point Change
Operating profit margin, GAAP	23.0	%	23.1	%	(10	)
Costs related to the sale of land in Mexico	0.2	%	—
Business realignment and other cost-saving initiatives	0.3	%	—
Operating profit margin, non-GAAP	23.5	%	23.1	%	40

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Net Sales and Operating Profit by Segment

North America



	Three Months Ended June 30,
	2012			2011			Change
Net sales	$	758		$	744		2.0		%
Operating profit	$	196		$	194		1		%
% of Net sales	25.9		%	26.1		%	(20	)	bps

Net sales in North America increased 2.0% in the second quarter of 2012 to $758, as a volume decline of 0.5% and negative foreign exchange of 0.5% were more than offset by net selling price increases of 3.0%. Organic sales in North America increased 2.5% in the second quarter of 2012.

Operating profit in North America increased 1% in the second quarter of 2012 to $196, while as a percentage of Net sales it decreased to 25.9%. The decrease in Operating profit as a percentage of Net sales was a result of an increase in Selling, general and administrative expenses, which was partially offset by an increase in Gross profit, both as a percentage of Net sales. This increase in Selling, general and administrative expenses was driven by higher advertising expenses as a percentage of Net sales. This increase in Gross profit was driven by cost savings from the Company’s funding-the-growth initiatives and higher pricing, partially offset by higher raw and packaging material costs.

Latin America



	Three Months Ended June 30,
	2012			2011			Change
Net sales	$	1,269		$	1,231		3.0		%
Operating profit	$	367		$	360		2		%
% of Net sales	28.9		%	29.2		%	(30	)	bps

Net sales in Latin America increased 3.0% in the second quarter of 2012 to $1,269, as volume growth of 6.5% and net selling price increases of 6.0% were significantly impacted by negative foreign exchange of 9.5%. The divestment of the non-core laundry detergent business in Colombia had an impact of 3.0% on sales and volume growth in Latin America. Organic sales in Latin America increased 15.5% in the second quarter of 2012. Volume gains were led by Brazil, Venezuela, Mexico and Colombia.

Operating profit in Latin America increased 2% in the second quarter of 2012 to $367, while as a percentage of Net sales it decreased to 28.9%. The decrease in Operating profit as a percentage of Net sales was due to a decrease in Gross profit and higher advertising, both as a percentage of Net sales. This decrease in Gross profit was due to higher raw and packaging material costs, negative foreign exchange transaction costs and higher costs due to inflation in Venezuela, which were partially offset by higher pricing and cost savings from the Company’s funding-the-growth initiatives.

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Europe/South Pacific



	Three Months Ended June 30,
	2012			2011			Change
Net sales	$	850		$	857		(1.0	)	%
Operating profit	$	179		$	170		5		%
% of Net sales	21.1		%	19.8		%	130		bps

Net sales in Europe/South Pacific decreased 1.0% in the second quarter of 2012 to $850, as volume growth of 9.5% was more than offset by net selling price decreases of 1.5% and a significant negative impact of foreign exchange of 9.0%. The Sanex business contributed 6.5% to Europe/South Pacific sales and volume growth in the second quarter of 2012. Organic sales in Europe/South Pacific increased 1.5% in the second quarter of 2012 on organic volume growth of 3.0%. Volume gains were led by France, Iberia, Australia, the United Kingdom and the GABA business.

Operating profit in Europe/South Pacific increased 5% in the second quarter of 2012 to $179, or 21.1% of Net sales. The increase in Operating profit was due to an increase in Gross profit and a decrease in Selling, general and administrative expenses, both as a percentage of Net sales. This increase in Gross profit was driven by savings from the Company’s funding-the-growth initiatives, which were partially offset by lower pricing and higher raw and packaging material costs. This decrease in Selling, general and administrative expenses was driven by lower overhead expenses.

Greater Asia/Africa



	Three Months Ended June 30,
	2012			2011			Change
Net sales	$	859		$	816		5.0	%
Operating profit	$	220		$	199		11	%
% of Net sales	25.6		%	24.4		%	120	bps

Net sales in Greater Asia/Africa increased 5.0% in the second quarter of 2012 to $859, as volume growth of 7.5% and net selling price increases of 5.0% were significantly impacted by negative foreign exchange of 7.5%. The Sanex business contributed 0.5% to Greater Asia/Africa sales and volume growth in the second quarter of 2012. Organic sales in Greater Asia/Africa grew 12.0% on organic volume growth of 7.0% in the second quarter of 2012. Volume gains were led by India, Russia, South Africa, the Philippines and Thailand.

Operating profit in Greater Asia/Africa increased 11% in the second quarter of 2012 to $220, or 25.6% of Net sales. This increase was a result of an increase in Gross profit as a percentage of Net sales. This increase in Gross profit was due to higher pricing and cost savings from the Company’s funding-the-growth initiatives, partially offset by higher raw and packaging material costs.

Pet Nutrition



	Three Months Ended June 30,
	2012			2011			Change
Net sales	$	531		$	537		(1.0	)	%
Operating profit	$	145		$	140		4		%
% of Net sales	27.3		%	26.1		%	120		bps

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Net sales for Hill’s Pet Nutrition decreased 1.0% in the second quarter of 2012 to $531, as a volume decline of 3.0% and negative foreign exchange of 3.0% were partially offset by net selling price increases of 5.0%. Organic sales in Hill’s Pet Nutrition increased 2.0% in the second quarter of 2012. Volume declines in the United States were partially offset by volume gains in France.

Operating profit in Hill’s Pet Nutrition increased 4% in the second quarter of 2012 to $145, or 27.3% of Net sales. This increase in Operating profit as a percentage of Net sales was due to an increase in Gross profit, which was partially offset by an increase in Selling, general and administrative expenses, both as a percentage of Net sales. This increase in Gross profit was driven by higher pricing and cost savings from the Company’s funding-the-growth initiatives, which were partially offset by higher raw and packaging material costs. This increase in Selling, general and administrative expenses was primarily due to higher advertising expenses.

Corporate



	Three Months Ended June 30,
	2012			2011			Change
Operating profit	$	(125	)	$	(95	)	32	%

Operating profit (loss) related to Corporate was ($125) in the second quarter of 2012 as compared to ($95) in the second quarter of 2011. In the second quarter of 2012, Corporate Operating profit (loss) includes costs of $13 associated with the business realignment and other cost-saving initiatives and costs of $6 related to the sale of land in Mexico.

Interest expense, net

Interest expense, net decreased to $6 for the three months ended June 30, 2012 as compared with $11 in the comparable period of 2011, due to an increase in interest income.

Net income attributable to Colgate-Palmolive Company and Earnings per share

Net income attributable to Colgate-Palmolive Company for the second quarter of 2012 increased to $627 from $622 in the comparable 2011 period, and earnings per common share on a diluted basis increased to $1.30 per share from $1.26 per share in the comparable 2011 period. Net income attributable to Colgate-Palmolive Company for the second quarter of 2012 included aftertax costs of $5 related to the sale of land in Mexico and aftertax costs of $9 associated with the business realignment and other cost-saving initiatives. Excluding the items described above, Net income attributable to Colgate-Palmolive Company in the second quarter of 2012 increased 3% to $641 and earnings per share on a diluted basis increased 6% to $1.33.



	Three Months Ended June 30,
	2012		2011		% Change
Net income attributable to Colgate-Palmolive Company, GAAP	$	627	$	622	1	%
Costs related to the sale of land in Mexico	5		—
Business realignment and other cost-saving initiatives	9		—
Net income attributable to Colgate-Palmolive Company, non-GAAP	$	641	$	622	3	%



	Three Months Ended June 30,
	2012		2011		% Change
Diluted earnings per common share, GAAP	$	1.30	$	1.26	3	%
Costs related to the sale of land in Mexico	0.01		—
Business realignment and other cost-saving initiatives	0.02		—
Diluted earnings per common share, non-GAAP	$	1.33	$	1.26	6	%

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Six Months

Worldwide Net sales were $8,467 in the first half of 2012, up 3.5% from the first half of 2011, as volume growth of 4.5% and net selling price increases of 3.5% were partially offset by a negative foreign exchange impact of 4.5%. Organic sales increased 7.0% in the first half of 2012 on organic volume growth of 3.5%. The Sanex business contributed 1.5% to worldwide Net sales and volume growth in the first half of 2012.

Net sales in the Oral, Personal and Home Care segment were $7,394 in the first half of 2012, up 4.0% from the first half of 2011, as volume growth of 5.5% and net selling price increases of 3.5% were partially offset by negative foreign exchange of 5.0%. Organic sales increased 8.0% in the first half of 2012 on organic volume growth of 4.5%. Excluding the impact of the divestment of the non-core detergent business in Colombia of 0.5%, volume increased 6.0%. The Sanex business contributed 1.5% to Oral, Personal and Home Care segment sales and volume growth in the first half of 2012.

Net sales and Operating profit by segment

Net sales and Operating profit by segment were as follows:



	Six Months Ended June 30,
	2012			2011
Net sales
Oral, Personal and Home Care
North America	$	1,513		$	1,462
Latin America	2,439			2,328
Europe/South Pacific	1,704			1,689
Greater Asia/Africa	1,738			1,629
Total Oral, Personal and Home Care	7,394			7,108
Pet Nutrition	1,073			1,071
Total Net sales	$	8,467		$	8,179

Operating profit
Oral, Personal and Home Care
North America	$	379		$	386
Latin America	711			686
Europe/South Pacific	362			355
Greater Asia/Africa	440			402
Total Oral, Personal and Home Care	1,892			1,829
Pet Nutrition	293			281
Corporate	(265		)	(227		)
Total Operating profit	$	1,920		$	1,883

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Within the Oral, Personal and Home Care segment, North America sales increased 3.5% as volume growth of 2.0% and net selling price increases of 2.0% were partially offset by negative foreign exchange of 0.5%. Organic sales in North America increased 4.0%. Latin America sales increased 5.0%, driven by volume growth of 4.0% and net selling price increases of 8.0%, which were significantly impacted by negative foreign exchange of 7.0%. Organic sales in Latin America increased 14.5% and, excluding the impact of the divestment of the non-core detergent business in Colombia, volume increased 6.5%. Europe/South Pacific sales increased 1.0% on volume growth of 8.5%, which was partially offset by a significant negative impact of foreign exchange of 5.5% and net selling price decreases of 2.0%. Organic sales in Europe/South Pacific were even with the year ago period. The Sanex business contributed 6.5% to Europe/South Pacific sales and volume growth. Greater Asia/Africa sales increased 6.5% on volume growth of 7.0% and net selling price increases of 4.5%, which were significantly impacted by negative foreign exchange of 5.0%. Organic sales in Greater Asia/Africa increased 11.0%. The Sanex business contributed 0.5% to Greater Asia/Africa sales and volume growth.

Net sales for the Hill’s Pet Nutrition segment remained even with the year ago period, as a volume decline of 2.0% and negative foreign exchange of 2.0% were offset by net selling price increases of 4.0%. Organic sales increased 2.0% in the first half of 2012.

In the first half of 2012, Operating profit (loss) related to Corporate was ($265) as compared to ($227) in the comparable period of 2011. In the first half of 2012, Corporate Operating profit (loss) included costs of $18 associated with the business realignment and other cost-saving initiatives and costs of $13 related to the sale of land in Mexico.

Gross Profit/Margin

Worldwide Gross profit increased 3% to $4,898 in the first half of 2012 from $4,735 in the first half of 2011. Excluding the impact of costs related to the sale of land in Mexico ($13) and costs associated with business realignment and other cost-saving initiatives ($4), Gross profit increased to $4,915 in the first six months of 2012.

Worldwide Gross profit margin decreased to 57.8% in the first half of 2012 from 57.9% in the first half of 2011. Excluding the impact of costs related to the sale of land in Mexico of 20 bps, gross profit margin was 58.0% in the first half of 2012. The increase was primarily due to cost savings from the Company’s funding-the-growth initiatives (150 bps) and higher pricing (150 bps), which were partially offset by higher raw and packaging material costs driven by global commodity costs and negative foreign exchange transaction costs (270 bps).



	Six Months Ended June 30,
	2012		2011
Gross profit, GAAP	$	4,898	$	4,735
Costs related to the sale of land in Mexico	13		—
Business realignment and other cost-saving initiatives	4		—
Gross profit, non-GAAP	$	4,915	$	4,735



	Six Months Ended June 30,
	2012		2011		Basis Point Change
Gross profit margin, GAAP	57.8	%	57.9	%	(10	)
Costs related to the sale of land in Mexico	0.2	%	—
Business realignment and other cost-saving initiatives	—		—
Gross profit margin, non-GAAP	58.0	%	57.9	%	10

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Selling, General and Administrative expenses

Selling, general and administrative expenses increased 4% to $2,942 in the first half of 2012 from $2,825 in the first half of 2011. Excluding the impact of costs associated with the business realignment and other cost-saving initiatives ($12), Selling, general and administrative expenses increased to $2,930 in the first half of 2012.

Selling, general and administrative expenses as a percentage of Net sales increased to 34.7% in the first half of 2012 from 34.5%. Excluding the impact of costs related to the business realignment and other cost-saving initiatives (10 bps), Selling, general and administrative expenses were 34.6%, an increase of 10 bps as compared to the year ago period, as increased advertising expenses were partially offset by lower overhead spending, all as a percentage of Net sales. In the first half of 2012, advertising increased 5.7% to $905, as compared with $856 in the first half of 2011.



	Six Months Ended June 30,
	2012			2011
Selling, general and administrative expenses, GAAP	$	2,942		$	2,825
Business realignment and other cost-saving initiatives	(12		)	—
Selling, general and administrative expenses, non-GAAP	$	2,930		$	2,825



	Six Months Ended June 30,
	2012		2011		Basis Point Change
Selling, general and administrative expenses as a percentage of Net sales, GAAP	34.7	%	34.5	%	20
Business realignment and other cost-saving initiatives	(0.1	)%	—
Selling, general and administrative expenses as a percentage of Net sales, non-GAAP	34.6	%	34.5	%	10

Other (income) expense, net

Other (income) expense, net was $36 in the first half of 2012 as compared to $27 in the first half of 2011, primarily due to higher amortization of intangible assets related to the acquisition of Sanex on June 20, 2011 as well as foreign exchange transaction costs. In the first half of 2012, Other (income) expense, net includes costs of $2 associated with the business realignment and other cost-saving initiatives. In the first half of 2011, Other income (expense), net includes transaction costs of $10 related to the Sanex acquisition.



	Six Months Ended June 30,
	2012			2011
Other (income) expense, net, GAAP	$	36		$	27
Business realignment and other cost-saving initiatives	(2		)	—
Other (income) expense, net, non-GAAP	$	34		$	27

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Operating Profit

Operating profit increased 2% to $1,920 in the first half of 2012 from $1,883 in the first half of 2011. Excluding the impact of costs associated with the sale of land in Mexico ($13) and the business realignment and other cost-saving initiatives ($18), Operating profit increased 4% to $1,951 in the first half of 2012 as compared to the first half of 2011, primarily due to strong sales growth.

Operating Profit margin was 22.7% in the first half of 2012, a decrease of 30 bps compared to the year ago quarter. Excluding the impact of costs associated with the sale of land in Mexico (10 bps) and costs related to business realignment and other cost-saving initiatives (20 bps), Operating profit margin was 23.0%, even with the year ago period, as higher gross profit and lower overhead expenses, all as a percentage of Net Sales, were reinvested in advertising.



	Six Months Ended June 30,
	2012		2011		% Change
Operating profit, GAAP	$	1,920	$	1,883	2	%
Costs related to the sale of land in Mexico	13		—
Business realignment and other cost-saving initiatives	18		—
Operating profit, non-GAAP	$	1,951	$	1,883	4	%



	Six Months Ended June 30,
	2012		2011		Basis Point Change
Operating profit margin, GAAP	22.7	%	23.0	%	(30	)
Costs related to the sale of land in Mexico	0.1	%	—
Business realignment and other cost-saving initiatives	0.2	%	—
Operating profit margin, non-GAAP	23.0	%	23.0	%	—

Interest expense, net

Interest expense, net decreased to $16 for the six months ended June 30, 2012 from $27 in the comparable period of 2011, due to an increase in interest income.

Income taxes

The quarterly provision for income taxes is determined based on the Company’s estimated full year effective tax rate adjusted by the amount of tax attributable to infrequent and unusual items that are separately recognized on a discrete basis in the income tax provision in the quarter in which they occur. The Company’s current estimate of its full year effective income tax rate before discrete period items is 31.8%, consistent with the full year effective income tax rate in 2011.

The effective tax rate for the second quarter of 2012 was 31.9% and was 31.8% for the first six months of 2012. The effective tax rate was 32.5% for the second quarter of 2011 and the first six months of 2011.

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Net income attributable to Colgate-Palmolive Company and Earnings per share

Net income attributable to Colgate-Palmolive Company in the first half of 2012 increased to $1,220 from $1,198 in the comparable 2011 period, and earnings per common share on a diluted basis increased to $2.53 per share from $2.42 per share in the comparable 2011 period. Net income attributable to Colgate-Palmolive Company in the first half of 2012 included aftertax costs of $10 related to the sale of land in Mexico and aftertax costs of $12 associated with the business realignment and other cost-saving initiatives. Excluding these items, Net income attributable to Colgate-Palmolive Company for the first half of 2012 increased 4% and earnings per common share on a diluted basis increased 6%.



	Six Months Ended June 30,
	2012		2011		% Change
Net income attributable to Colgate-Palmolive Company, GAAP	$	1,220	$	1,198	2	%
Costs related to the sale of land in Mexico	10		—
Business realignment and other cost-saving initiatives	12		—
Net income attributable to Colgate-Palmolive Company, non-GAAP	$	1,242	$	1,198	4	%



	Six Months Ended June 30,
	2012		2011		% Change
Diluted earnings per common share, GAAP	$	2.53	$	2.42	5	%
Costs related to the sale of land in Mexico	0.02		—
Business realignment and other cost-saving initiatives	0.02		—
Diluted earnings per common share, non-GAAP	$	2.57	$	2.42	6	%

Liquidity and Capital Resources

Net cash provided by operations increased 3% to $1,193 in the first half of 2012, compared with $1,154 in the comparable period of 2011. Net cash provided by operations for 2012 includes higher income tax payments and the payments for the previously disclosed competition law matter in France related to a divested detergent business.

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). Overall, the Company’s working capital increased to 2.8% of Net sales in the first half of 2012 as compared with 2.5% in the first half of 2011, primarily due to the timing of income tax payments. Both accounts receivable days sales outstanding and inventory days coverage improved versus the year ago period.

Investing activities used $321 in the first half of 2012, compared with $1,111 in the comparable period of 2011. In the second quarter of 2011, the Company acquired the Sanex business for $960, subject to certain post-closing purchase price adjustments, and, in the second quarter of 2012, the Company acquired the remaining interest in Tom’s of Maine for $18. Capital spending decreased in the first half of 2012 to $189 from $225 in the comparable period of 2011. The Company continues to focus its capital spending on projects that are expected to yield high aftertax returns. Overall capital expenditures for 2012 are expected to be at an annual rate of approximately 3.5% of Net sales.

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Financing activities used $730 of cash during the first half of 2012 compared with cash provided of $199 in the comparable period of 2011. The difference was primarily due to lower net proceeds from the issuance of debt and higher dividends paid in the first half of 2012 compared to the prior period.

Long-term debt, including the current portion, increased to $5,320 as of June 30, 2012 as compared to $4,776 as of December 31, 2011 and total debt increased to $5,363 as of June 30, 2012 as compared to $4,810 as of December 31, 2011. During the second quarter of 2012, the Company issued $500 of ten-year notes at a fixed rate of 2.30% under the Company’s shelf registration statement. Proceeds from the debt issuance were used to reduce commercial paper borrowings, which were used by the Company for general corporate purposes.

Commercial paper outstanding was $1,088 and $1,233 as of June 30, 2012 and 2011, respectively. The average daily balances outstanding for commercial paper in the first six months of 2012 and 2011 were $1,655 and $1,457, respectively. The maximum daily balance outstanding for commercial paper in the first six months of 2012 and 2011 were $2,042 and $1,853, respectively. The Company regularly classifies commercial paper and certain current maturities of notes payable as long-term debt as it has the intent and ability to refinance such obligations on a long-term basis, including, if necessary, by utilizing its lines of credit that expire in 2016.

Certain of the facilities with respect to the Company’s bank borrowings contain financial and other covenants as well as cross-default provisions. Noncompliance with these requirements could ultimately result in the acceleration of amounts owed. The Company is in full compliance with all such requirements and believes the likelihood of noncompliance is remote.

In the first quarter of 2012, the Company increased the annualized common stock dividend by 7% to $2.48 per share, effective in the second quarter of 2012. On September 8, 2011, the Company’s Board of Directors (the Board) approved a share repurchase program that authorized the repurchase of up to 50 million shares of the Company’s common stock.

Cash and cash equivalents increased $117 during the first half of 2012 to $995 at June 30, 2012, compared to $878 at December 31, 2011, most of which ($973 and $824, respectively) were held by the Company’s foreign subsidiaries. These amounts include $329 and $385, respectively, which are subject to currency exchange controls in Venezuela, limiting the total amount of Cash and cash equivalents held by the Company’s foreign subsidiaries that can be repatriated at any particular point in time. The Company regularly assesses its cash needs and the available sources to fund these needs and, as part of this assessment, the Company determines the amount of foreign earnings it intends to repatriate to help fund its domestic cash needs and provides applicable U.S. income and foreign withholding taxes on such earnings.

As of December 31, 2011, the Company had approximately $3,500 of undistributed earnings of foreign subsidiaries for which no U.S. income or foreign withholding taxes have been provided as the Company does not currently anticipate a need to repatriate these earnings. These earnings have been and currently are considered to be indefinitely reinvested and, therefore, are not subject to such taxes. Should these earnings be repatriated in the future, they would be subject to applicable U.S. income and foreign withholding taxes. Determining the tax liability that would arise if these earnings were repatriated is not practicable.

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 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.

For additional information regarding liquidity and capital resources, please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q 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 three and six months ended June 30, 2012 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, Net income attributable to Colgate-Palmolive Company and earnings per share on a diluted basis are discussed in this Quarterly Report on Form 10-Q both on a GAAP basis and excluding the impacts of costs associated with the business realignment and other cost-saving initiatives and costs related to the sale of land in Mexico (non-GAAP). Management believes these non-GAAP financial measures provide investors with useful supplemental information regarding the performance of the Company’s on-going operations. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures for the three and six months ended June 30, 2012 and 2011 is presented within each 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.

The following table provides a quantitative reconciliation of organic sales growth to Net sales growth for the three months ended June 30, 2012.



Three months ended June 30, 2012	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%	(0.5)%	0.0%	2.0%
Latin America	15.5%	(9.5)%	(3.0)%	3.0%
Europe/South Pacific	1.5%	(9.0)%	6.5%	(1.0)%
Greater Asia/Africa	12.0%	(7.5)%	0.5%	5.0%
Total Oral, Personal and Home Care	8.5%	(7.0)%	1.0%	2.5%
Pet Nutrition	2.0%	(3.0)%	0.0%	(1.0)%
Total Company	8.0%	(6.5)%	0.5%	2.0%

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

The following table provides a quantitative reconciliation of organic sales growth to Net sales growth for the six months ended June 30, 2012.



Six months ended June 30, 2012	Organic Sales Growth (Non-GAAP)	Foreign Exchange Impact	Acquisitions and Divestments Impact	Net Sales Growth (GAAP)
Oral, Personal and Home Care
North America	4.0%	(0.5)%	0.0%	3.5%
Latin America	14.5%	(7.0)%	(2.5)%	5.0%
Europe/South Pacific	0.0%	(5.5)%	6.5%	1.0%
Greater Asia/Africa	11.0%	(5.0)%	0.5%	6.5%
Total Oral, Personal and Home Care	8.0%	(5.0)%	1.0%	4.0%
Pet Nutrition	2.0%	(2.0)%	0.0%	0.0%
Total Company	7.0%	(4.5)%	1.0%	3.5%

COLGATE-PALMOLIVE COMPANY

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollars in Millions Except Share and Per Share Amounts)

Cautionary Statement on Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995 or by the SEC in its rules, regulations and releases. Such statements may relate, for example, to sales or volume growth, organic sales growth, profit or profit margin growth, earnings growth, financial goals, the impact of currency devaluations and exchange and price controls, including in Venezuela, cost-reduction plans, tax rates, new product introductions or commercial investment levels, among other matters. These statements are made on the basis of the Company’s views and assumptions as of this time and the Company undertakes no obligation to update these statements. Moreover, the Company does not, nor does any other person, assume responsibility for the accuracy and completeness of those statements. The Company cautions investors that any such forward-looking statements are not guarantees of future performance and that actual events or results may differ materially from those statements. Actual events or results may differ materially because of factors that affect international businesses and global economic conditions, as well as matters specific to the Company and the markets it serves, including the uncertain economic environment in different countries and its effect on consumer spending habits, increased competition and evolving competitive practices, currency rate fluctuations, exchange controls, price controls, changes in foreign or domestic laws or regulations or their interpretation, political and fiscal developments, the availability and cost of raw and packaging materials, the ability to maintain or increase selling prices as needed, changes in the policies of retail trade customers and the ability to continue lowering costs. For information about these and other factors that could impact the Company’s business and cause actual results to differ materially from forward-looking statements, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, including the information set forth under the captions “Item 1A. Risk Factors” and “Cautionary Statement on Forward-Looking Statements.”

Quantitative and Qualitative Disclosures about Market Risk

There is no material change in the information reported under Part II, Item 7, “Managing Foreign Currency, Interest Rate and Commodity Price Exposure” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

COLGATE-PALMOLIVE COMPANY

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of the Company’s Chairman of the Board, President and Chief Executive Officer and its Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2012 (the Evaluation). Based upon the Evaluation, the Company’s Chairman of the Board, President and Chief Executive Officer and its Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) are effective.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART II.	OTHER INFORMATION


Item 1.	Legal Proceedings

For information regarding legal matters, please refer to Item 3 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, Note 12 to the Consolidated Financial Statements included therein and Note 9 to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

For information regarding risk factors, please refer to Part 1, Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The share repurchase program approved by the Board on September 8, 2011 (the 2011 Program) authorized the repurchase of up to 50 million shares of the Company’s common stock. The Board also has authorized share repurchases on an on-going basis to fulfill certain requirements of the Company’s compensation and benefit programs. The shares will be repurchased from time to time in open market transactions or privately negotiated transactions at the Company’s discretion, subject to market conditions, customary blackout periods and other factors.

COLGATE-PALMOLIVE COMPANY

The following table shows the stock repurchase activity for each of the three months in the quarter ended June 30, 2012:



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⁾	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 through 30, 2012	532,693	$	98.50	500,000	39,004,489
May 1 through 31, 2012	2,010,210	$	99.43	2,010,000	36,994,489
June 1 through 30, 2012	1,790,556	$	99.69	1,790,200	35,204,289
Total	4,333,459	$	99.42	4,300,200

_______


⁽¹⁾	Includes share repurchases under the 2011 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 33,259 shares, all of which relate to shares deemed surrendered to the Company to satisfy certain employee elections under its compensation and benefit programs.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

COLGATE-PALMOLIVE COMPANY

Item 6. Exhibits



Exhibit No.		Description
1		Form of Distribution Agreement.

4-A		Form of Fixed Rate Medium-Term Note, Series H.

4-B		Form of Floating Rate Medium-Term Note, Series H.

5		Opinion of Sidley Austin LLP.

10-A		Amendment, dated May 11, 2012, to the Colgate-Palmolive Company 2005 Non-Employee Director Stock Option Plan.

10-B		Amendment, dated May 11, 2012, to the Colgate-Palmolive Company 2007 Stock Plan for Non-Employee Directors.

12		Computation of Ratio of Earnings to Fixed Charges.

31-A		Certificate of the Chairman of the Board, President and Chief Executive Officer of Colgate-Palmolive Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31-B		Certificate of the Chief Financial Officer of Colgate-Palmolive Company pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32		Certificate of the Chairman of the Board, President and Chief Executive Officer and the Chief Financial Officer of Colgate-Palmolive Company pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. § 1350.

101		The following materials from Colgate-Palmolive Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income; (ii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Balance Sheets; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements.

COLGATE-PALMOLIVE COMPANY

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	COLGATE-PALMOLIVE COMPANY
	(Registrant)

	Principal Executive Officer:

July 26, 2012	/s/ Ian Cook
	Ian Cook
	Chairman of the Board, President and Chief Executive Officer

	Principal Financial Officer:

July 26, 2012	/s/ Dennis J. Hickey
	Dennis J. Hickey
	Chief Financial Officer

	Principal Accounting Officer:

July 26, 2012	/s/ Victoria L. Dolan
	Victoria L. Dolan
	Vice President and Corporate Controller