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

Executive Overview

Colgate-Palmolive Company (together with its subsidiaries, the “Company” or “Colgate”) seeks to deliver strong, consistent business results and superior shareholder returns by providing consumers globally with products that make their lives healthier and more enjoyable.

To this end, the Company is tightly focused on two product segments: Oral, Personal and Home Care; and Pet Nutrition. Within these segments, the Company follows a closely defined business strategy to develop and increase market leadership positions in key product categories. These product categories are prioritized based on their capacity to maximize the use of the organization’s core competencies and strong global equities and to deliver sustainable long-term growth.

Operationally, the Company is organized along geographic lines with management teams having responsibility for the business and financial results in each region. The Company competes in more than 200 countries and territories worldwide with established businesses in all regions contributing to the Company’s sales and profitability. Approximately 75% of the Company’s Net sales are generated from markets outside the U.S., with approximately 50% of the Company’s Net sales coming from emerging markets (which consist of Latin America, Asia (excluding Japan), Africa/Eurasia and Central Europe). This geographic diversity and balance help to reduce the Company’s exposure to business and other risks in any one country or part of the world.

The Oral, Personal and Home Care product segment is managed geographically in five reportable operating segments: North America, Latin America, Europe, Asia Pacific and Africa/Eurasia, all of which sell to a variety of retail and wholesale customers and distributors. The Company, through Hill’s Pet Nutrition, also competes on a worldwide basis in the pet nutrition market, selling its products principally through authorized pet supply retailers and veterinarians. Many of the Company’s products are also sold online through various e-commerce platforms and retailers.

On an ongoing basis, management focuses on a variety of key indicators to monitor business health and performance. These indicators include market share, net sales (including volume, pricing and foreign exchange components), organic sales growth (net sales growth excluding, as applicable, the impact of foreign exchange, acquisitions, divestments and the deconsolidation of the Company’s Venezuelan operations), a non-GAAP financial measure, and gross profit margin, operating profit, net income and earnings per share, in each case, on a GAAP and non-GAAP basis, as well as measures used to optimize the management of working capital, capital expenditures, cash flow and return on capital. The monitoring of these indicators and the Company’s Code of Conduct and corporate governance practices help to maintain business health and strong internal controls. For additional information regarding non-GAAP financial measures, see “Non-GAAP Financial Measures” below.

To achieve its business and financial objectives, the Company focuses the organization on initiatives to drive and fund growth. The Company seeks to capture significant opportunities for growth by identifying and meeting consumer needs within its core categories, through its focus on innovation and the deployment of valuable consumer and shopper insights in the development of successful new products regionally, which are then rolled out on a global basis. To enhance these efforts, the Company has developed key initiatives to build strong relationships with consumers, dental and veterinary professionals and retail customers. In addition, the Company has strengthened its capabilities in e-commerce, including by developing its relationships with online-only retailers and enhancing its digital marketing capabilities. Growth opportunities are greater in those areas of the world in which economic development and rising consumer incomes expand the size and number of markets for the Company’s products.

The investments needed to support growth are developed through continuous, Company-wide initiatives to lower costs and increase effective asset utilization. Through these initiatives, which are referred to as the Company’s funding-the-growth initiatives, the Company seeks to become even more effective and efficient throughout its businesses. These initiatives are designed to reduce costs associated with direct materials, indirect expenses, distribution and logistics, and advertising and promotional materials, among other things, and encompass a wide range of projects, examples of which include raw material substitution, reduction of packaging materials, consolidating suppliers to leverage volumes and increasing manufacturing efficiency through SKU reductions and formulation simplification. The Company also continues to prioritize its investments toward its higher margin businesses, specifically Oral Care, Personal Care and Pet Nutrition.

(Dollars in Millions Except Per Share Amounts)

Significant Items Impacting Comparability

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA” or “U.S. tax reform”) was enacted, which, among other things, lowered the U.S. corporate income tax rate to 21% from 35% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. Beginning in 2018, the TCJA also requires a minimum tax on certain future earnings generated by foreign subsidiaries while providing for future tax-free repatriation of such earnings through a 100% dividends-received deduction.

The Company recorded a provisional charge of $275 based on its initial analysis of the TCJA using available information and estimates. As a result, applicable U.S. and foreign taxes have been provided on substantially all of the Company’s accumulated earnings of foreign subsidiaries previously considered indefinitely reinvested. Given the significant complexity of the TCJA, anticipated guidance from the U.S. Treasury about implementing the TCJA and the potential for additional guidance from the SEC or the FASB related to the TCJA or additional information becoming available, the Company’s provisional charge may be adjusted during 2018 and is expected to be finalized no later than the fourth quarter of 2018. Other provisions of the TCJA that impact future tax years are still being assessed. Refer to “Results of Operations – Income Taxes” below for additional details.

In September 2016, the Company’s Mexican subsidiary completed the sale to the United States of America of the Mexico City site on which its commercial operations, technology center and soap production facility were previously located and received $60 as the third and final installment of the sale price. The total sale price (including the third installment and the previously received first and second installments) was $120. The Company recognized a pretax gain of $97 ($63 aftertax gain) in the third quarter of 2016, net of costs primarily related to site preparation.

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

Effective December 31, 2015, the Company concluded it no longer met the accounting criteria for consolidation of its Venezuelan subsidiary (“CP Venezuela”) and began accounting for CP Venezuela using the cost method of accounting. As such, effective December 31, 2015, the Company’s Consolidated Balance Sheet no longer includes the assets and liabilities of CP Venezuela. As a result of this change in accounting, the Company recorded an aftertax charge of $1,058 ($1,084 pretax) or $1.16 per diluted share in 2015. The charge primarily consists of an impairment of the Company’s investment in CP Venezuela of $952, which includes intercompany receivables from CP Venezuela, and $111 related to the reclassification of cumulative translation losses. Prior periods have not been restated and CP Venezuela’s Net sales, Operating profit and Net income are included in the Company’s Consolidated Statements of Income through December 31, 2015. See Note 14, Venezuela to the Consolidated Financial Statements for additional details.

Since January 1, 2016, under the cost method of accounting, the Company no longer includes the local operating results of CP Venezuela in its Consolidated Financial Statements and includes income relating to CP Venezuela only to the extent it receives cash for sales of inventory to CP Venezuela or for dividends or royalties remitted by CP Venezuela, all of which have been immaterial. Although CP Venezuela’s local operating results are no longer included in the Company’s Consolidated Financial Statements for accounting purposes, under current tax rules, the Company is required to continue including CP Venezuela in its consolidated U.S. federal income tax return. In the first quarter of 2016, Provision for income taxes included a $210 U.S. income tax benefit principally related to changes in Venezuela’s foreign exchange regime implemented in March 2016. See Note 11, Income Taxes to the Consolidated Financial Statements for additional details.

Prior to the change in accounting, CP Venezuela’s functional currency was the U.S. dollar since Venezuela had been designated hyper-inflationary and, as such, Venezuelan currency fluctuations were reported in income. The Company remeasured the financial statements of CP Venezuela at the end of each month at the rate at which it expected to remit future dividends which, based on the advice of legal counsel, was the SICAD rate (formerly known as the SICAD I rate). During the year ended December 31, 2015, the Company incurred pretax losses of $34 ($22 aftertax or $0.02 per diluted common share) related to the remeasurement of CP Venezuela’s local currency-denominated net monetary assets at the quarter-end SICAD rate for the second and third quarters of 2015. The SICAD rate did not revalue during the fourth quarter of 2015 and was 13.50 bolivares per dollar as of December 31, 2015. The remeasurement losses incurred in the second and third quarters of 2015 are referred to as the “Venezuela Remeasurements.”

(Dollars in Millions Except Per Share Amounts)

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

The Company is in the midst of a restructuring program known as the “Global Growth and Efficiency Program,” which following the most recent expansion and extension approved by the Company’s Board of Directors on October 26, 2017, runs through December 31, 2019. The program’s initiatives are expected to help the Company ensure sustained solid worldwide growth in unit volume, organic sales, operating profit and earnings per share and to enhance its global leadership positions in its core businesses. Implementation of the Global Growth and Efficiency Program remains on track.

The initiatives under the Global Growth and Efficiency Program are focused on the following areas:

▪	Expanding Commercial Hubs

▪	Extending Shared Business Services and Streamlining Global Functions

▪	Optimizing Global Supply Chain and Facilities

Savings, substantially all of which are expected to increase future cash flows, are projected to be in the range of $560 to $635 pretax ($500 to $575 aftertax) annually, once all projects are approved and implemented. Cumulative pretax charges resulting from the Global Growth and Efficiency Program, once all phases are approved and implemented, are estimated to be in the range of $1,730 to $1,885 ($1,280 to $1,380 aftertax).

In 2017, 2016 and 2015, the Company incurred aftertax costs of $246, $168 and $183, respectively, associated with the Global Growth and Efficiency Program. For more information regarding the Global Growth and Efficiency Program, see “Restructuring and Related Implementation Charges” below and Note 4, Restructuring and Related Implementation Charges to the Consolidated Financial Statements.

Outlook

Looking forward, the Company expects global macroeconomic and market conditions to remain highly challenging and category growth rates around the world to continue to be slow. While the global marketplace in which the Company operates has always been highly competitive, the Company continues to experience heightened competitive activity in certain markets from strong local competitors and from other large multinational companies, some of which have greater resources than the Company does. Such activities have included more aggressive product claims and marketing challenges, as well as increased promotional spending and geographic expansion. The Company has also been negatively affected by changes in the policies or practices of its retail trade customers in key markets, such as inventory de-stocking. In addition, the growth of e-commerce has affected and continues to affect consumer preferences and market dynamics. Given that approximately 75% of the Company’s Net sales originate in markets outside the U.S., the Company has experienced and may continue to experience volatile foreign currency fluctuations and high raw and packaging material costs. While the Company has taken, and will continue to take, measures to mitigate the effect of these conditions, should they persist, they could adversely affect the Company’s future results.

The Company believes it is well prepared to meet the challenges ahead due to its strong financial condition, experience operating in challenging environments and continued focus on the Company’s key priorities: growing sales through engaging with consumers, developing world-class innovation and working with retail partners; driving efficiency on every line of the income statement to increase margins; generating strong cash flow performance and utilizing that cash effectively to enhance total shareholder returns; and leading to win by staying true to the Company’s culture and focusing on its stakeholders. The Company’s commitment to these priorities, together with the strength of the Company’s global brands, its broad international presence in both developed and emerging markets and cost-saving initiatives, such as the Company’s funding-the-growth initiatives and the Global Growth and Efficiency Program, should position the Company well to increase shareholder value over the long term.

(Dollars in Millions Except Per Share Amounts)

Results of Operations

Net Sales

Worldwide Net sales were $15,454 in 2017, up 1.5% from 2016, driven by volume growth of 0.5%, net selling price increases of 0.5% and positive foreign exchange of 0.5%. Organic sales (Net sales excluding, as applicable, the impact of foreign exchange, acquisitions, divestments and the deconsolidation of the Company’s Venezuelan operations), a non-GAAP financial measure as discussed below, increased 1.0% in 2017.

Net sales in the Oral, Personal and Home Care product segment were $13,162 in 2017, up 2.0% from 2016, driven by volume growth of 0.5%, net selling price increases of 0.5% and positive foreign exchange of 1.0%. Organic sales in the Oral, Personal and Home Care product segment increased 1.0% in 2017.

The increase in organic sales in 2017 versus 2016 was driven by an increase in Oral Care organic sales, partially offset by a decline in Personal Care and Home Care organic sales. The increase in Oral Care organic sales was due to organic sales growth in the toothpaste category. The decrease in Personal Care organic sales was primarily due to declines in organic sales in the underarm protection, liquid hand soap and shampoo categories, which were partially offset by organic sales growth in the shower gel and bar soap categories. The decrease in the Home Care organic sales was primarily due to declines in organic sales in the hand dish category, partially offset by organic sales growth in the liquid cleaners and fabric conditioner categories.

The Company’s share of the global toothpaste market was 43.3% for full year 2017, down 0.4 share points from full year 2016, and its share of the global manual toothbrush market was 32.6% for full year 2017, down 0.5 share points from full year 2016. Full year 2017 market shares in toothpaste were up in Africa/Eurasia and down in North America, Latin America, Europe and Asia Pacific versus full year 2016. In the manual toothbrush category, full year 2017 market shares were up in Africa/Eurasia and down in North America, Latin America, Europe and Asia Pacific versus full year 2016. For additional information regarding the Company’s use of market share data and limitations on such data, see “Market Share Information” below.

Net sales for Hill’s Pet Nutrition were $2,292 in 2017, an increase of 1.0% from 2016, as net selling price increases of 1.5% and positive foreign exchange of 0.5% were partially offset by volume declines of 1.0%. Organic sales for Hill’s Pet Nutrition increased 0.5% in 2017.

The increase in organic sales in 2017 versus 2016 was due to an increase in organic sales in the Prescription Diet category, partially offset by a decline in organic sales in the Advanced Nutrition and Naturals categories.

Worldwide Net sales were $15,195 in 2016, down 5.0% from 2015, as net selling price increases of 2.5% were more than offset by volume declines of 3.0% and negative foreign exchange of 4.5%. Excluding divested businesses and the impact of the deconsolidation of the Company’s Venezuelan operations, volume increased 1.5%. Organic sales increased 4.0% in 2016.

(Dollars in Millions Except Per Share Amounts)

Gross Profit/Margin

Worldwide Gross profit increased 2% to $9,280 in 2017 from $9,123 in 2016. Gross profit in both periods included charges related to the Global Growth and Efficiency Program. Excluding these charges in both periods, Gross profit increased to $9,355 in 2017 from $9,169 in 2016, reflecting an increase of $156 resulting from higher Net sales and an increase of $30 resulting from higher Gross profit margin, which also excludes charges related to the Global Growth and Efficiency Program.

Worldwide Gross profit margin was 60.0% in 2017, even with 2016. Excluding charges related to the Global Growth and Efficiency Program in both periods, Gross profit margin increased by 20 basis points (bps) to 60.5% in 2017, from 60.3% in 2016. This increase in Gross profit margin was primarily driven by cost savings from the Company’s funding-the-growth initiatives and the Global Growth and Efficiency Program (200 bps) and higher pricing (20 bps), partially offset by higher raw and packaging material costs (190 bps).

Worldwide Gross profit decreased 3% to $9,123 in 2016 from $9,399 in 2015. Gross profit in both periods included charges related to the Global Growth and Efficiency Program. Excluding these items in both periods, Gross profit decreased to $9,169 in 2016 from $9,419 in 2015, reflecting a decrease of $492 resulting from the impact of the deconsolidation of the Company’s Venezuelan operations effective December 31, 2015 and negative foreign exchange, partially offset by growth in organic sales. This decrease in Gross profit was partially offset by an increase of $242 resulting from higher Gross profit margin.

Worldwide Gross profit margin increased to 60.0% in 2016 from 58.6% in 2015. Excluding the charges related to the Global Growth and Efficiency Program in both periods, Gross profit margin increased by 160 bps to 60.3% in 2016, from 58.7% in 2015. This increase in Gross profit margin was primarily driven by cost savings from the Company’s funding-the-growth initiatives and the Global Growth and Efficiency Program (200 bps) and higher pricing (100 bps), partially offset by higher costs (170 bps), which included higher raw and packaging material costs driven by significant foreign exchange transaction costs and the impact of the deconsolidation of the Company’s Venezuelan operations effective December 31, 2015.

		2017				2016				2015
Gross profit, GAAP		$	9,280			$	9,123			$	9,399
Global Growth and Efficiency Program		75				46				20
Gross profit, non-GAAP		$	9,355			$	9,169			$	9,419

		2017			2016			Basis Point Change		2015			Basis Point Change
Gross profit margin, GAAP		60.0	%		60.0	%		—		58.6	%		140
Global Growth and Efficiency Program		0.5			0.3					0.1
Gross profit margin, non-GAAP		60.5	%		60.3	%		20		58.7	%		160

(Dollars in Millions Except Per Share Amounts)

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 5% to $5,497 in 2017 from $5,249 in 2016. Selling, general and administrative expenses in both periods included charges related to the Global Growth and Efficiency Program. Excluding these charges in both periods, Selling, general and administrative expenses increased to $5,408 in 2017 from $5,172 in 2016, reflecting increased advertising investment of $145 and higher overhead expenses of $91.

Selling, general and administrative expenses as a percentage of Net sales increased to 35.6% in 2017 from 34.5% in 2016. Excluding charges related to the Global Growth and Efficiency Program in both periods, Selling, general and administrative expenses as a percentage of Net sales were 35.0%, an increase of 100 bps as compared to 2016. This increase in 2017 was driven by increased advertising investment (80 bps) and higher overhead expenses (20 bps), both as a percentage of Net sales. In 2017, advertising investment increased 10.2% to $1,573 as compared with $1,428 in 2016, and increased as a percentage of Net sales to 10.2% from 9.4% in 2016.

Selling, general and administrative expenses decreased 4% to $5,249 in 2016 from $5,464 in 2015. Selling, general and administrative expenses in both periods included charges related to the Global Growth and Efficiency Program. Excluding these charges in both periods, Selling, general and administrative expenses decreased to $5,172 in 2016 from $5,400 in 2015, reflecting decreased advertising investment of $63 and lower overhead expenses of $165.

Selling, general and administrative expenses as a percentage of Net sales increased to 34.5% in 2016 from 34.1% in 2015. Excluding charges related to the Global Growth and Efficiency Program in both periods, Selling, general and administrative expenses as a percentage of Net sales were 34.0%, an increase of 30 bps as compared to 2015. This increase in 2016 was driven by increased advertising investment (10 bps) and higher overhead expenses (20 bps), both as a percentage of Net sales. In 2016, advertising investment decreased 4.2% to $1,428 as compared with $1,491 in 2015, while as a percentage of Net sales, it increased to 9.4% from 9.3% in 2015.

		2017				2016				2015
Selling, general and administrative expenses, GAAP		$	5,497			$	5,249			$	5,464
Global Growth and Efficiency Program		(89		)		(77		)		(64		)
Selling, general and administrative expenses, non-GAAP		$	5,408			$	5,172			$	5,400

		2017			2016			Basis Point Change		2015			Basis Point Change
Selling, general and administrative expenses as a percentage of Net sales, GAAP		35.6	%		34.5	%		110		34.1	%		40
Global Growth and Efficiency Program		(0.6	)		(0.5	)				(0.4	)
Selling, general and administrative expenses as a percentage of Net sales, non-GAAP		35.0	%		34.0	%		100		33.7	%		30

(Dollars in Millions Except Per Share Amounts)

Other (Income) Expense, Net

Other (income) expense, net was $194, $37 and $62 in 2017, 2016 and 2015, respectively. The components of Other (income) expense, net are presented below:

Other (income) expense, net		2017				2016				2015
Global Growth and Efficiency Program		$	169			$	105			$	170
Amortization of intangible assets		35				33				33
Gain on sale of land in Mexico		—				(97		)		—
Charges for litigation matters		—				17				14
Venezuela remeasurement charges		—				—				34
Gain on sale of South Pacific laundry detergent business		—				—				(187		)
Equity income		(11		)		(10		)		(8		)
Other, net		1				(11		)		6
Total Other (income) expense, net		$	194			$	37			$	62

Other (income) expense, net was $194 in 2017 as compared to $37 in 2016. Other (income) expense, net in both periods included charges related to the Global Growth and Efficiency Program. Other (income) expense, net in 2016 also included a gain on the sale of land in Mexico and charges for litigation matters.

Other (income) expense, net was $37 in 2016 as compared to $62 in 2015. In 2015, Other (income) expense, net included charges related to the Global Growth and Efficiency Program, a gain on the sale of the Company’s laundry detergent business in the South Pacific, charges related to the Venezuela Remeasurements and charges for litigation matters.

Excluding the items described above in all periods, as applicable, Other (income) expense, net was $25 in 2017, $12 in 2016 and $31 in 2015.

		2017				2016				2015
Other (income) expense, net, GAAP		$	194			$	37			$	62
Global Growth and Efficiency Program		(169		)		(105		)		(170		)
Gain on sale of land in Mexico		—				97				—
Charges for litigation matters		—				(17		)		(14		)
Venezuela remeasurement charges		—				—				(34		)
Gain on sale of South Pacific laundry detergent business		—				—				187
Other (income) expense, net, non-GAAP		$	25			$	12			$	31

(Dollars in Millions Except Per Share Amounts)

Operating Profit

Operating profit decreased 6% to $3,589 in 2017 from $3,837 in 2016. Operating profit increased 38% to $3,837 in 2016 from $2,789 in 2015.

In 2017, 2016 and 2015, Operating profit included charges related to the Global Growth and Efficiency Program. In 2016 and 2015, Operating profit also included charges for litigation matters. In 2016, Operating profit also included a gain on sale of land in Mexico. In 2015, Operating profit also included a charge related to the deconsolidation of the Company’s Venezuelan operations, charges related to the Venezuela Remeasurements and a gain on the sale of the Company’s laundry detergent business in the South Pacific. Excluding these items in all periods, as applicable, Operating profit decreased 2% in 2017, primarily due to an increase in Selling, general and administrative expenses, which was partially offset by higher Gross profit, and Operating profit in 2016 was even with 2015, primarily due to lower Gross profit, which was offset by a decrease in Selling, general and administrative expenses.

Operating profit margin was 23.2% in 2017, compared with 25.3% in 2016 and 17.4% in 2015. Excluding the items described above in 2017 and 2016, as applicable, Operating profit margin decreased 80 bps to 25.4% in 2017 compared to 26.2% in 2016. This decrease is due to an increase in Selling, general and administrative expenses (100 bps), partially offset by an increase in Gross profit (20 bps), both as a percentage of Net sales. Excluding the items described above in 2016 and 2015, as applicable, Operating profit margin increased 130 bps in 2016 compared to 2015, primarily due to an increase in Gross profit (160 bps), partially offset by an increase in Selling, general and administrative expenses (30 bps), both as a percentage of Net sales.

		2017				2016				% Change			2015				% Change
Operating profit, GAAP		$	3,589			$	3,837			(6	)%		$	2,789			38	%
Global Growth and Efficiency Program		333				228							254
Gain on sale of land in Mexico		—				(97		)					—
Charges for litigation matters		—				17							14
Venezuela deconsolidation		—				—							1,084
Venezuela remeasurement charges		—				—							34
Gain on sale of South Pacific laundry detergent business		—				—							(187		)
Operating profit, non-GAAP		$	3,922			$	3,985			(2	)%		$	3,988			—	%

		2017			2016			Basis Point Change			2015			Basis Point Change
Operating profit margin, GAAP		23.2	%		25.3	%		(210	)		17.4	%		790
Global Growth and Efficiency Program		2.2			1.5						1.6
Gain on sale of land in Mexico		—			(0.7	)					—
Charges for litigation matters		—			0.1						0.1
Venezuela deconsolidation		—			—						6.8
Venezuela remeasurement charges		—			—						0.2
Gain on sale of South Pacific laundry detergent business		—			—						(1.2	)
Operating profit margin, non-GAAP		25.4	%		26.2	%		(80	)		24.9	%		130

Interest (Income) Expense, Net

Interest (income) expense, net was $102 in 2017 compared with $99 in 2016 and $26 in 2015. The increase in Interest (income) expense, net in 2017 as compared to 2016 was primarily due to higher average interest rates on debt. The change in Interest (income) expense, net from 2015 to 2016 was primarily due to lower interest income on investments held outside the United States, which reflects the impact of the deconsolidation of the Company’s Venezuelan operations effective December 31, 2015, and higher interest expense as a result of higher average interest rates on debt.

(Dollars in Millions Except Per Share Amounts)

Income Taxes

The effective income tax rate in 2017, 2016 and 2015 was 37.7%, 30.8% and 44.0%, respectively. As reflected in the table below, the non-GAAP effective income tax rate was 29.5% in 2017 and 31.3% in 2016 and 2015. The decrease in the non-GAAP effective income tax rate in 2017 as compared to 2016 is due primarily to the inclusion of excess tax benefits from stock-based compensation in the Provision for income taxes, as discussed in more detail below.

		2017
		Income Before Income Taxes				Provision For Income Taxes(1)				Effective Income Tax Rate (2)
As Reported GAAP		$	3,487			$	1,313			37.7	%
Global Growth and Efficiency Program		333				87				(1.0	)
U.S. tax reform		—				(275		)		(7.2	)
Non-GAAP		$	3,820			$	1,125			29.5	%

		2016
		Income Before Income Taxes				Provision For Income Taxes(1)				Effective Income Tax Rate (2)
As Reported GAAP		$	3,738			$	1,152			30.8	%
Global Growth and Efficiency Program		228				59				(0.3	)
Gain on sale of land in Mexico		(97		)		(34		)		(0.1	)
Benefits from tax matters		—				35				0.9
Charge for a litigation matter		17				6				—
Non-GAAP		$	3,886			$	1,218			31.3	%

		2015
		Income Before Income Taxes				Provision For Income Taxes(1)				Effective Income Tax Rate (2)
As Reported GAAP		$	2,763			$	1,215			44.0	%
Venezuela deconsolidation(3)		1,084				26				(11.7	)
Global Growth and Efficiency Program		254				69				(0.3	)
Venezuela remeasurement charges		34				12				—
Gain on sale of South Pacific laundry detergent business		(187		)		(67		)		(0.2	)
Charge for a litigation matter		14				—				(0.1	)
Charge for a tax matter		—				(15		)		(0.4	)
Non-GAAP		$	3,962			$	1,240			31.3	%

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(1) The income tax effect on non-GAAP items is calculated based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.

(2) The impact of non-GAAP items on the Company’s effective tax rate represents the difference in the effective tax rate calculated with and without the non-GAAP adjustment on Income before income taxes and Provision for income taxes.

(3) See Note 14, Venezuela to the Consolidated Financial Statements and “Significant Items Impacting Comparability” above.

(Dollars in Millions Except Per Share Amounts)

On December 22, 2017, the TCJA was enacted, which, among other things, lowered the U.S. corporate income tax rate to 21% from 35% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. Beginning in 2018, the TCJA also requires a minimum tax on certain future earnings generated by foreign subsidiaries while providing for future tax-free repatriation of such earnings through a 100% dividends-received deduction. The Company’s effective income tax rate in 2017 included a provisional charge of $275 related to the TCJA using available information and estimates. The provisional charge is comprised of $451 related to the one-time deemed repatriation of accumulated earnings of foreign subsidiaries and related withholding taxes and $20 related primarily to the remeasurement of net deferred tax assets as a result of the reduction in the corporate income tax rate, which are offset by $196 of income taxes which had been previously provided for planned repatriations of undistributed earnings of foreign subsidiaries. As a result, applicable U.S. and foreign taxes have been provided on substantially all of the Company’s accumulated earnings of foreign subsidiaries previously considered indefinitely reinvested. Given the significant complexity of the TCJA, anticipated guidance from the U.S. Treasury about implementing the TCJA and the potential for additional guidance from the SEC or the FASB related to the TCJA or additional information becoming available, the Company’s provisional charge may be adjusted during 2018 and is expected to be finalized no later than the fourth quarter of 2018. Other provisions of the TCJA that impact future tax years are still being assessed.

The effective income tax rate in 2017 also included $47 of stock compensation excess tax benefits in the Provision for income taxes as a result of the adoption of ASU No. 2016-09, “Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” effective January 1, 2017. See Note 2, Summary of Significant Accounting Policies - Recent Accounting Pronouncements and Note 11, Income Taxes to the Consolidated Financial Statements, for additional details.

The effective income tax rate in 2016 included a $210 U.S. income tax benefit recognized in the first quarter of 2016 principally related to changes in Venezuela’s foreign exchange regime implemented in March 2016. Although, effective December 31, 2015, the operating results of CP Venezuela are no longer included in the Company’s Consolidated Financial Statements, under current tax rules, the Company is required to continue including CP Venezuela’s results in its consolidated U.S. federal income tax return. See Note 11, Income Taxes and Note 14, Venezuela to the Consolidated Financial Statements. In order to fully utilize the above mentioned $210 tax benefit in 2016, the Company repatriated an incremental $1,500 of earnings of foreign subsidiaries it previously considered indefinitely reinvested outside of the U.S., and accordingly, recorded a tax charge of $210 during the first quarter of 2016.

The Company has taken a tax position in a foreign jurisdiction since 2002 that has been challenged by the local tax authorities. In 2015, the Company became aware of several Supreme Court rulings in the foreign jurisdiction disallowing certain tax deductions which had the effect of reversing prior decisions. Since the Company had taken deductions in prior years similar to those now disallowed by the Court, the Company, as required, reassessed its tax position and increased its unrecognized tax benefits by $15.

In 2016, the Supreme Court in the foreign jurisdiction decided the matter in the Company’s favor for the years 2002 through 2005. Also in 2016, the Administrative Court in the foreign jurisdiction decided the matter in the Company’s favor for the years 2008 through 2011 by acknowledging the Supreme Court’s ruling for the years 2002 through 2005, which eliminated the possibility of future appeals. As a result, the Company recorded a tax benefit of $30, including interest. The tax benefit of deductions related to this tax position taken for the years 2006 through 2007 and 2012 through 2014 totals approximately $16 at current exchange rates. These deductions are currently being challenged by the tax authorities in the foreign jurisdiction either in the lower courts or at the administrative level and, if resolved in the Company’s favor, will result in the Company recording additional tax benefits, including interest.

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

Reflecting U.S. tax reform, the Company expects its effective income tax rate in 2018 to be in the range of 26% to 27% both on a GAAP basis and excluding charges related to the Global Growth and Efficiency Program.

(Dollars in Millions Except Per Share Amounts)

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

Net income attributable to Colgate-Palmolive Company was $2,024, or $2.28 per share on a diluted basis, in 2017 compared to $2,441, or $2.72 per share on a diluted basis, in 2016 and $1,384, or $1.52 per share on a diluted basis, in 2015. In 2017, 2016 and 2015, Net income attributable to Colgate-Palmolive Company included aftertax charges related to the Global Growth and Efficiency Program. In 2017, Net income attributable to Colgate-Palmolive Company also included a charge related to U.S. tax reform. In 2016 and 2015, Net income attributable to Colgate-Palmolive Company also included charges for litigation matters. In 2016, Net income attributable to Colgate-Palmolive Company also included a gain on sale of land in Mexico and benefits from tax matters. In 2015, Net income attributable to Colgate-Palmolive Company also included charges related to the Venezuela Remeasurements, a charge related to the deconsolidation of the Company’s Venezuelan operations, a gain on the sale of the Company’s laundry detergent business in the South Pacific and a charge for a tax matter.

Excluding the items described above in all years, as applicable, Net income attributable to Colgate-Palmolive Company increased 1% to $2,545 in 2017 and Earnings per share, diluted increased 2% to $2.87, and Net income attributable to Colgate-Palmolive Company decreased 1% to $2,522 in 2016, as compared to $2,556 in 2015, and Earnings per share, diluted was even at $2.81.

(Dollars in Millions Except Per Share Amounts)

	2017
	Income Before Income Taxes				Provision For Income Taxes(1)				Net Income Including Noncontrolling Interests				Net Income Attributable to Colgate-Palmolive Company				Diluted Earnings Per Share(2)
As Reported GAAP	$	3,487			$	1,313			$	2,174			$	2,024			$	2.28
Global Growth and Efficiency Program	333				87				246				246				0.28
U.S. tax reform	—				(275		)		275				275				0.31
Non-GAAP	$	3,820			$	1,125			$	2,695			$	2,545			$	2.87

	2016
	Income Before Income Taxes				Provision For Income Taxes(1)				Net Income Including Noncontrolling Interests				Less: Income Attributable To Noncontrolling Interests				Net Income Attributable to Colgate-Palmolive Company				Diluted Earnings Per Share(2)
As Reported GAAP	$	3,738			$	1,152			$	2,586			$	145			$	2,441			$	2.72
Global Growth and Efficiency Program	228				59				169				1				168				0.19
Gain on sale of land in Mexico	(97		)		(34		)		(63		)		—				(63		)		(0.07		)
Benefits from tax matters	—				35				(35		)		—				(35		)		(0.04		)
Charge for a litigation matter	17				6				11				—				11				0.01
Non-GAAP	$	3,886			$	1,218			$	2,668			$	146			$	2,522			$	2.81

	2015
	Income Before Income Taxes				Provision For Income Taxes(1)				Net Income Including Noncontrolling Interests				Less: Income Attributable To Noncontrolling Interests				Net Income Attributable to Colgate-Palmolive Company				Diluted Earnings Per Share(2)
As Reported GAAP	$	2,763			$	1,215			$	1,548			$	164			$	1,384			$	1.52
Venezuela deconsolidation(3)	1,084				26				1,058				—				1,058				1.16
Global Growth and Efficiency Program	254				69				185				2				183				0.20
Venezuela remeasurement charges	34				12				22				—				22				0.02
Gain on sale of South Pacific laundry detergent business	(187		)		(67		)		(120		)		—				(120		)		(0.13		)
Charge for a litigation matter	14				—				14				—				14				0.02
Charge for a tax matter	—				(15		)		15				—				15				0.02
Non-GAAP	$	3,962			$	1,240			$	2,722			$	166			$	2,556			$	2.81

---

(1) The income tax effect on non-GAAP items is calculated based upon the tax laws and statutory income tax rates applicable in the tax jurisdiction(s) of the underlying non-GAAP adjustment.

(2) The impact of non-GAAP adjustments on Diluted earnings per share may not necessarily equal the difference between “GAAP” and “non-GAAP” as a result of rounding.

(3) See Note 14, Venezuela to the Consolidated Financial Statements and “Significant Items Impacting Comparability” above.

(Dollars in Millions Except Per Share Amounts)

Segment Results

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

Oral, Personal and Home Care

North America

	2017				2016				% Change				2015				% Change
Net sales	$	3,117			$	3,183			(2.0	)	%		$	3,149			1.0		%
Operating profit	$	986			$	1,030			(4	)	%		$	974			6		%
% of Net sales	31.6		%		32.4		%		(80	)	bps		30.9		%		150		bps

Net sales in North America decreased 2.0% in 2017 to $3,117, driven by net selling price decreases of 2.0%, while volume and foreign exchange were flat. Organic sales in North America decreased 2.0% in 2017.

The decrease in organic sales in North America in 2017 versus 2016 was primarily due to decreases in Personal Care and Home Care organic sales. The decrease in Personal Care was due to declines in organic sales in the underarm protection and liquid hand soap categories. The decrease in Home Care was primarily due to a decline in organic sales in the hand dish category.

Net sales in North America increased 1.0% in 2016 to $3,183, driven by volume growth of 2.5%, which was partially offset by net selling price decreases of 1.0% and negative foreign exchange of 0.5%. Organic sales in North America increased 1.5% in 2016.

Operating profit in North America decreased 4% in 2017 to $986, or 80 bps to 31.6% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit (40 bps) and an increase in Selling, general and administrative expenses (60 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily driven by higher raw and packaging material costs (160 bps) and lower pricing due to increased in-store promotional activities, which were partially offset by cost savings from the Company’s funding-the-growth initiatives and the Global Growth and Efficiency Program (220 bps). This increase in Selling, general and administrative expenses was due to increased advertising investment (60 bps).

Operating profit in North America increased 6% in 2016 to $1,030, or 150 bps to 32.4% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (100 bps) and a decrease in Selling, general and administrative expenses (70 bps), both as a percentage of Net sales. This increase in Gross profit was primarily driven by cost savings from the Company’s funding-the-growth initiatives (190 bps), which were partially offset by higher raw and packaging material costs (70 bps). This decrease in Selling, general and administrative expenses was due to lower overhead expenses (40 bps) and decreased advertising investment (30 bps), in part reflecting a shift from advertising investment to in-store promotional activities.

(Dollars in Millions Except Per Share Amounts)

Latin America

	2017				2016				% Change				2015				% Change
Net sales	$	3,887			$	3,650			6.5		%		$	4,327			(15.5	)	%
Operating profit	$	1,162			$	1,132			3		%		$	1,209			(6	)	%
% of Net sales	29.9		%		31.0		%		(110	)	bps		27.9		%		310		bps

Net sales in Latin America increased 6.5% in 2017 to $3,887, driven by volume growth of 2.5%, net selling price increases of 3.0% and positive foreign exchange of 1.0%. Volume gains were led by Brazil, the Southern Cone and the Andean Region. Organic sales in Latin America increased 5.5% in 2017.

The increase in organic sales in Latin America in 2017 versus 2016 was driven by increases in Oral Care organic sales as well as increases in Personal Care and Home Care organic sales. The increase in Oral Care was due to organic sales growth in the toothpaste, manual toothbrush and mouthwash categories. The increase in Personal Care was due to organic sales growth in the bar soap and shampoo categories. The increase in Home Care was due to organic sales growth in the fabric conditioner and liquid cleaners categories, partially offset by a decline in the hand dish category.

Net sales in Latin America decreased 15.5% in 2016 to $3,650, as net selling price increases of 8.5% were more than offset by volume declines of 14.0% and negative foreign exchange of 10.0%. Excluding the impact of the deconsolidation of the Company’s Venezuelan operations, volume increased 1.5%, led by volume gains in Mexico, partially offset by volume declines in Argentina. Organic sales in Latin America increased 10.0% in 2016.

Operating profit in Latin America increased 3% in 2017 to $1,162, while as a percentage of Net sales it decreased 110 bps to 29.9% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to an increase in Selling, general and administrative expenses (180 bps), partially offset by an increase in Gross profit (40 bps), both as a percentage of Net sales. This increase in Gross profit was mainly driven by cost savings from the Company’s funding-the-growth initiatives (170 bps) and higher pricing, which were partially offset by higher raw and packaging material costs (260 bps). This increase in Selling, general and administrative expenses was due to increased advertising investment (120 bps) and higher overhead expenses (60 bps).

Operating profit in Latin America decreased 6% in 2016 to $1,132, while as a percentage of Net sales it increased 310 bps to 31.0% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (390 bps), partially offset by an increase in Selling, general and administrative expenses (70 bps), both as a percentage of Net sales. This increase in Gross profit was mainly driven by cost savings from the Company’s funding-the-growth initiatives (150 bps) and higher pricing, which were partially offset by higher raw and packaging material costs (100 bps), which included foreign exchange transaction costs and the impact of the deconsolidation of the Company’s Venezuelan operations effective December 31, 2015. This increase in Selling, general and administrative expenses was due to increased advertising investment (90 bps), which was partially offset by lower overhead expenses (20 bps).

(Dollars in Millions Except Per Share Amounts)

Europe

	2017				2016				% Change				2015				% Change
Net sales	$	2,394			$	2,342			2.0		%		$	2,411			(3.0	)	%
Operating profit	$	599			$	579			3		%		$	615			(6	)	%
% of Net sales	25.0		%		24.7		%		30		bps		25.5		%		(80	)	bps

Net sales in Europe increased 2.0% in 2017 to $2,394, as volume growth of 2.0% and positive foreign exchange of 1.0% were partially offset by net selling price decreases of 1.0%. Volume gains were led by France, the Netherlands, Spain and Poland. Organic sales in Europe increased 1.0% in 2017.

The increase in organic sales in Europe in 2017 versus 2016 was primarily due to an increase in Oral Care organic sales, partially offset by a decrease in organic sales in Personal Care. The increase in Oral Care was driven by organic sales growth in the toothpaste category. The decrease in Personal Care was primarily due to declines in organic sales in the shampoo and bar soap categories, partially offset by an increase in organic sales in the shower gel category.

Net sales in Europe decreased 3.0% in 2016 to $2,342, as volume growth of 2.5% was more than offset by net selling price decreases of 2.5% and negative foreign exchange of 3.0%. Organic sales in Europe were flat in 2016. Volume gains were led by Germany, the United Kingdom and Poland, partially offset by volume declines in France.

Operating profit in Europe increased 3% in 2017 to $599, or 30 bps to 25.0% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (30 bps) and a decrease in Selling, general and administrative expenses (20 bps), both as a percentage of Net sales. This increase in Gross profit was primarily due to cost savings from the Company’s funding-the-growth initiatives and the Global Growth and Efficiency Program (230 bps) and category sales mix, which were partially offset by higher raw and packaging material costs (230 bps), including foreign exchange transaction costs, and lower pricing due to increased in-store promotional activities. This decrease in Selling, general and administrative expenses was due to lower overhead expenses (70 bps), which were partially offset by increased advertising investment (50 bps).

Operating profit in Europe decreased 6% in 2016 to $579, or 80 bps to 24.7% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit (100 bps), partially offset by a decrease in Selling, general and administrative expenses (50 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily driven by higher costs (200 bps), primarily due to higher raw and packaging material costs, which included foreign exchange transaction costs, and lower pricing due to increased in-store promotional activities. These decreases in Gross profit were partially offset by cost savings from the Company’s funding-the-growth initiatives and the Global Growth and Efficiency Program (190 bps). This decrease in Selling, general and administrative expenses was due to decreased advertising investment (100 bps), in part reflecting a shift from advertising investment to in-store promotional activities, which was partially offset by higher overhead expenses (50 bps).

(Dollars in Millions Except Per Share Amounts)

Asia Pacific

	2017				2016				% Change				2015				% Change
Net sales	$	2,781			$	2,796			(0.5	)	%		$	2,937			(5.0	)	%
Operating profit	$	841			$	887			(5	)	%		$	888			—		%
% of Net sales	30.2		%		31.7		%		(150	)	bps		30.2		%		150		bps

Net sales in Asia Pacific decreased 0.5% in 2017 to $2,781, driven by volume declines of 0.5%, while net selling prices and foreign exchange were flat. Volume declines in Australia, Thailand and India were partially offset by volume gains in the Philippines. Organic sales in Asia Pacific declined 0.5% in 2017.

The decrease in organic sales in 2017 versus 2016 was due to a decrease in Personal Care and Home Care organic sales, partially offset by an increase in organic sales in Oral Care. The decrease in Personal Care was primarily due to declines in organic sales in the shampoo and bar soap categories. The decrease in Home Care was due to declines in organic sales in the hand dish and fabric conditioner categories. The increase in Oral Care was due to an increase in organic sales in the toothpaste category, partially offset by a decline in organic sales in the manual toothbrush category.

Net sales in Asia Pacific decreased 5.0% in 2016 to $2,796, driven by volume declines of 1.0% and negative foreign exchange of 4.0%, while net selling prices were flat. Excluding the impact of the divestment of the Company’s laundry detergent business in the South Pacific, volume increased 2.0%, led by volume gains in the Philippines, Australia and the Greater China region. Organic sales in Asia Pacific grew 2.0% in 2016.

Operating profit in Asia Pacific decreased 5% in 2017 to $841, or 150 bps to 30.2% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to a decrease in Gross profit (20 bps) and an increase in Selling, general and administrative expenses (120 bps), both as a percentage of Net sales. This decrease in Gross profit was primarily due to higher costs (290 bps), primarily driven by raw and packaging material costs, which were partially offset by cost savings from the Company’s funding-the-growth initiatives (250 bps). This increase in Selling, general and administrative expenses was due to higher overhead expenses (90 bps) and increased advertising investment (30 bps).

Operating profit in Asia Pacific decreased to $887 in 2016, while as a percentage of Net sales, it increased 150 bps to 31.7% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (50 bps) and a decrease in Selling, general and administrative expenses (40 bps), both as a percentage of Net sales. This increase in Gross profit was primarily due to cost savings from the Company’s funding-the-growth initiatives (260 bps) and sales mix, which were partially offset by higher costs (290 bps), primarily driven by raw and packaging material costs, which included foreign exchange transaction costs. This decrease in Selling, general and administrative expenses was due to decreased advertising investment (10 bps), in part reflecting a shift from advertising investment to in-store promotional activities, and lower overhead expenses (30 bps).

(Dollars in Millions Except Per Share Amounts)

Africa/Eurasia

	2017				2016				% Change				2015				% Change
Net sales	$	983			$	960			2.5		%		$	998			(4.0	)	%
Operating profit	$	179			$	186			(4	)	%		$	178			4		%
% of Net sales	18.2		%		19.4		%		(120	)	bps		17.8		%		160		bps

Net sales in Africa/Eurasia increased 2.5% in 2017 to $983, as net selling price increases of 3.5% and positive foreign exchange of 3.5% were partially offset by volume declines of 4.5%. Volume declines in the Sub-Saharan Africa region, Turkey and South Africa were partially offset by volume gains in Russia. Organic sales in Africa/Eurasia declined 1.0% in 2017.

The decrease in organic sales in 2017 versus 2016 was due to a decrease in Oral Care, Personal Care and Home Care organic sales. The decrease in Oral Care was due to declines in organic sales in the manual toothbrush and mouthwash categories. The decrease in Personal Care was primarily due to declines in organic sales in the bar soap and underarm protection categories, partially offset by an increase in organic sales in the shampoo category. The decrease in Home Care was primarily due to declines in organic sales in the hand dish and liquid cleaners categories, partially offset by an increase in organic sales in the fabric conditioner category.

Net sales in Africa/Eurasia decreased 4.0% in 2016 to $960, as net selling price increases of 9.5% were more than offset by volume declines of 4.0% and negative foreign exchange of 9.5%. Organic sales in Africa/Eurasia grew 5.5% in 2016. Volume declines in the Sub-Saharan Africa region and South Africa were partially offset by volume gains in the Gulf States.

Operating profit in Africa/Eurasia decreased 4% in 2017 to $179, or 120 bps to 18.2% of Net sales. This decrease in Operating profit as a percentage of Net sales was primarily due to an increase in Selling, general and administrative expenses (260 bps), partially offset by an increase in Gross profit (160 bps), both as a percentage of Net sales. This increase in Gross profit was mainly driven by cost savings from the Company’s funding-the-growth initiatives (120 bps) and higher pricing, which were partially offset by higher raw and packaging material costs (100 bps). The increase in Selling, general and administrative expenses was due to increased advertising investment (310 bps), partially offset by lower overhead expenses (50 bps).

Operating profit in Africa/Eurasia increased 4% in 2016 to $186, or 160 bps to 19.4% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (300 bps), partially offset by an increase in Selling, general and administrative expenses (150 bps), both as a percentage of Net sales. This increase in Gross profit was mainly driven by cost savings from the Company’s funding-the-growth initiatives (170 bps) and higher pricing, which were partially offset by higher raw and packaging material costs (350 bps), driven by higher foreign exchange transaction costs. The increase in Selling, general and administrative expenses was due to higher overhead expenses (120 bps) and increased advertising investment (30 bps).

(Dollars in Millions Except Per Share Amounts)

Hill’s Pet Nutrition

	2017				2016				% Change				2015				% Change
Net sales	$	2,292			$	2,264			1.0		%		$	2,212			2.5		%
Operating profit	$	653			$	653			—		%		$	612			7		%
% of Net sales	28.5		%		28.8		%		(30	)	bps		27.7		%		110		bps

Net sales for Hill’s Pet Nutrition increased 1.0% in 2017 to $2,292, driven by net selling price increases of 1.5% and positive foreign exchange of 0.5%, partially offset by volume declines of 1.0%. Volume declines in the United States, Japan and Western and Eastern Europe were partially offset by volume gains in Australia and Latin America. The volume declines in the United States were attributable to trade disruption, while the volume declines in Japan were attributable to a continued contraction in the market. Organic sales in Hill’s Pet Nutrition increased 0.5% in 2017.

The increase in organic sales in 2017 versus 2016 was due to an increase in organic sales in the Prescription Diet category, partially offset by declines in organic sales in the Advanced Nutrition and Natural categories.

Net sales for Hill’s Pet Nutrition increased 2.5% in 2016 to $2,264, driven by net selling price increases of 2.5% while volume and foreign exchange were flat. Organic sales in Hill’s Pet Nutrition increased 2.5% in 2016. Volume gains led by Russia, Western Europe, South Africa, Canada and Taiwan were offset by volume declines in the United States and Japan.

Operating profit in Hill’s Pet Nutrition was $653 in 2017, even with 2016, while as a percentage of Net sales it decreased 30 bps to 28.5%. This decrease in Operating profit as a percentage of Net sales was primarily due to an increase in Selling, general and administrative expenses (90 bps), partially offset by an increase in Gross profit (60 bps), both as a percentage of Net sales. This increase in Gross profit was primarily due to cost savings from the Company’s funding-the-growth initiatives (170 bps) and higher pricing, partially offset by higher raw and packaging material costs (110 bps), net of foreign exchange transaction costs. This increase in Selling, general and administrative expenses was due to increased advertising investment (60 bps) and higher overhead expenses (30 bps).

Operating profit in Hill’s Pet Nutrition increased 7% in 2016 to $653, or 110 bps to 28.8% of Net sales. This increase in Operating profit as a percentage of Net sales was primarily due to an increase in Gross profit (20 bps), a decrease in Selling, general and administrative expenses (10 bps), and a decrease in Other (income) expense, net (80 bps), all as a percentage of Net sales. This increase in Gross profit was primarily driven by cost savings from the Company’s funding-the-growth initiatives (190 bps) and higher pricing, partially offset by higher costs (270 bps), primarily driven by higher raw and packaging material costs, which included higher foreign exchange transaction costs. This decrease in Selling, general and administrative expenses was primarily due to lower overhead expenses (10 bps). This decrease in Other (income) expense, net was in part due to a foreign sales tax benefit.

(Dollars in Millions Except Per Share Amounts)

Corporate

	2017				2016				% Change			2015				% Change
Operating profit (loss)	$	(831	)		$	(630	)		32	%		$	(1,687	)		(63	)	%

Corporate operations include Corporate overhead costs, research and development costs, stock-based compensation expense related to stock options and restricted stock unit awards, restructuring and related implementation costs and gains and losses on sales of non-core product lines. The components of Operating profit (loss) for the Corporate segment are presented as follows:

		2017				2016				2015
Global Growth and Efficiency Program		$	(333	)		$	(228	)		$	(254	)
Gain on sale of land in Mexico		—				97				—
Charges for litigation matters		—				(17		)		(14		)
Venezuela deconsolidation		—				—				(1,084		)
Venezuela remeasurement charges		—				—				(34		)
Gain on sale of South Pacific laundry detergent business		—				—				187
Corporate overhead costs and other, net		(498		)		(482		)		(488		)
Total Corporate Operating profit (loss)		$	(831	)		$	(630	)		$	(1,687	)

Restructuring and Related Implementation Charges

Global Growth and Efficiency Program

In the fourth quarter of 2012, the Company commenced the Global Growth and Efficiency Program. The program was expanded in 2014 and expanded and extended in 2015. Building on the Company’s successful implementation of the program, on October 26, 2017, the Board approved an expansion of the Global Growth and Efficiency Program and an extension of the program through December 31, 2019 to take advantage of additional opportunities to streamline the Company’s operations.

Initiatives under the Global Growth and Efficiency Program are expected to help the Company ensure sustained solid worldwide growth in unit volume, organic sales, operating profit and earnings per share and to enhance its global leadership positions in its core businesses, producing significant benefits in the Company’s long-term business performance. The major objectives of the program include:

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

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

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

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

(Dollars in Millions Except Per Share Amounts)

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

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

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

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

Implementation of the Global Growth and Efficiency Program remains on track. Savings, substantially all of which are expected to increase future cash flows, are projected to be in the range of $560 to $635 pretax ($500 to $575 aftertax) annually, once all projects are approved and implemented. Savings achieved in 2017 were in line with the Company’s previously disclosed estimate of $50 to $60 pretax ($40 to $50 aftertax). The Company expects savings in 2018 to be approximately $90 to $120 pretax ($100 to $125 aftertax). Cumulative pretax charges resulting from the Global Growth and Efficiency Program, once all phases are approved and implemented, are estimated to be in the range of $1,730 to $1,885 ($1,280 to $1,380 aftertax). The Company anticipates that pretax charges for 2018 will approximate $100 to $175 ($75 to $125 aftertax). It is expected that substantially all charges resulting from the Global Growth and Efficiency Program will be incurred by December 31, 2019.

The pretax charges resulting from the Global Growth and Efficiency Program are currently estimated to be comprised of the following categories: Employee-Related Costs, including severance, pension and other termination benefits (50%); asset-related costs, primarily Incremental Depreciation and Asset Impairments (10%); and Other charges, which include contract termination costs, consisting primarily of related implementation charges resulting directly from exit activities (20%) and the implementation of new strategies (20%). Over the course of the Global Growth and Efficiency Program, it is currently estimated that approximately 80% of the charges will result in cash expenditures.

The Company expects that the cumulative pretax charges, once all projects are approved and implemented, will relate to initiatives undertaken in North America (15%), Europe (20%), Latin America (5%), Asia Pacific (5%), Africa/Eurasia (5%), Hill’s Pet Nutrition (10%) and Corporate (40%), which includes substantially all of the costs related to the implementation of new strategies, noted above, on a global basis. The Company expects that, when it has been fully implemented, the Global Growth and Efficiency Program will have contributed a net reduction of approximately 3,800 to 4,400 positions from the Company’s global employee workforce.

For the years ended December 31, 2017, 2016 and 2015, restructuring and related implementation charges are reflected in the Consolidated Statements of Income as follows:

		2017				2016				2015
Cost of sales		$	75			$	46			$	20
Selling, general and administrative expenses		89				77				64
Other (income) expense, net		169				105				170
Total Global Growth and Efficiency Program charges, pretax		$	333			$	228			$	254
Total Global Growth and Efficiency Program charges, aftertax		$	246			$	168			$	183

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

(Dollars in Millions Except Per Share Amounts)

Total charges incurred for the Global Growth and Efficiency Program relate to initiatives undertaken by the following reportable operating segments:

										Program-to-date
	2017			2016			2015			Accumulated Charges
North America	23	%		35	%		21	%		18	%
Latin America	2	%		5	%		3	%		3	%
Europe	21	%		12	%		14	%		22	%
Asia Pacific	5	%		4	%		4	%		3	%
Africa/Eurasia	3	%		14	%		5	%		6	%
Hill’s Pet Nutrition	6	%		7	%		5	%		7	%
Corporate	40	%		23	%		48	%		41	%
Total	100	%		100	%		100	%		100	%

Since the inception of the Global Growth and Efficiency Program in the fourth quarter of 2012, the Company has incurred cumulative pretax charges of $1,561 ($1,153 aftertax) in connection with the implementation of various projects as follows:

	Cumulative Charges
	as of December 31, 2017
Employee-Related Costs	$	628
Incremental Depreciation	90
Asset Impairments	36
Other	807
Total	$	1,561

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

(Dollars in Millions Except Per Share Amounts)

The following table summarizes the activity for the restructuring and related implementation charges, in the respective periods, discussed above and the related accruals:

		Employee-Related Costs				Incremental Depreciation				Asset Impairments				Other				Total
Balance at January 1, 2015		$	85			$	—			$	—			$	107			$	192
Charges		109				20				5				120				254
Cash payments		(85		)		—				—				(94		)		(179		)
Charges against assets		(17		)		(20		)		(5		)		—				(42		)
Foreign exchange		(8		)		—				—				(2		)		(10		)
Other		—				—				—				—				—
Balance at December 31, 2015		$	84			$	—			$	—			$	131			$	215
Charges		61				9				20				138				228
Cash payments		(84		)		—				—				(153		)		(237		)
Charges against assets		(4		)		(9		)		(20		)		—				(33		)
Foreign exchange		(1		)		—				—				—				(1		)
Other		—				—				—				9				9
Balance at December 31, 2016		$	56			$	—			$	—			$	125			$	181
Charges		163				10				9				151				333
Cash payments		(74		)		—				—				(170		)		(244		)
Charges against assets		(21		)		(10		)		(9		)		—				(40		)
Foreign exchange		3				—				—				1				4
Other		—				—				—				—				—
Balance at December 31, 2017		$	127			$	—			$	—			$	107			$	234

Employee-Related Costs primarily include severance and other termination benefits and are calculated based on long-standing benefit practices, local statutory requirements and, in certain cases, voluntary termination arrangements. Employee-Related Costs also include pension and other retiree benefit enhancements amounting to $21, $4 and $17 for the years ended December 31, 2017, 2016 and 2015, respectively, which are reflected as Charges against assets within Employee-Related Costs in the preceding table, as the corresponding balance sheet amounts are reflected as a reduction of pension assets or an increase in pension and other retiree benefit liabilities (see Note 10, Retirement Plans and Other Retiree Benefits to the Consolidated Financial Statements).

Incremental Depreciation is recorded to reflect changes in useful lives and estimated residual values for long-lived assets that will be taken out of service prior to the end of their normal service period. Asset Impairments are recorded to write down assets held for sale or disposal to their fair value based on amounts expected to be realized. Charges against assets within Asset Impairments are net of cash proceeds pertaining to the sale of certain assets.

Other charges consist primarily of charges resulting directly from exit activities and the implementation of new strategies as a result of the Global Growth and Efficiency Program. These charges for the years ended December 31, 2017, 2016 and 2015 include third-party incremental costs related to the development and implementation of new business and strategic initiatives of $145, $116 and $65, respectively, and contract termination costs and charges resulting directly from exit activities of $6, $21 and $8, respectively. These charges were expensed as incurred. Also included in Other charges for the years ended December 31, 2017, 2016 and 2015 are other exit costs of $0, $1 and $47, respectively, related to the consolidation of facilities.

(Dollars in Millions Except Per Share Amounts)

Non-GAAP Financial Measures

This Annual Report on Form 10-K discusses certain financial measures on both a GAAP and a non-GAAP basis. The Company uses the non-GAAP financial measures described below internally in its budgeting process, to evaluate segment and overall operating performance and as a factor in determining compensation. The Company believes that these non-GAAP financial measures are useful in evaluating the Company’s underlying business performance and trends; however, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similar measures presented by other companies.

Net sales growth (GAAP) and organic sales growth (Net sales growth excluding, as applicable, the impact of foreign exchange, acquisitions, divestments and the deconsolidation of the Company’s Venezuelan operations) (non-GAAP) are discussed in this Annual Report on Form 10-K. Management believes the organic sales growth measure provides investors and analysts with useful supplemental information regarding the Company’s underlying sales trends by presenting sales growth excluding, as applicable, the external factor of foreign exchange, as well as the impact of acquisitions, divestments and the deconsolidation of the Company’s Venezuelan operations. A reconciliation of organic sales growth to Net sales growth for the years ended December 31, 2017 and 2016 is provided below.

Worldwide Gross profit, Gross profit margin, Selling, general and administrative expenses, Selling, general and administrative expenses as a percentage of Net sales, Other (income) expense, net, Operating profit, Operating profit margin, effective income tax rate, Net income attributable to Colgate-Palmolive Company and Earnings per share on a diluted basis are discussed in this Annual Report on Form 10-K both on a GAAP basis and excluding, as applicable, charges resulting from the Global Growth and Efficiency Program, a charge related to U.S. tax reform, a gain on the sale of land in Mexico, charges or benefits from tax matters, charges for litigation matters, costs related to the sale of land in Mexico, a gain on the sale of the Company’s South Pacific laundry detergent business, charges related to effective devaluations in Venezuela and a charge for the deconsolidation of the Company’s Venezuelan operations (non-GAAP).

These non-GAAP financial measures exclude items that, either by their nature or amount, management would not expect to occur as part of the Company’s normal business on a regular basis, such as restructuring charges, charges for certain litigation and tax matters, gains and losses from certain divestitures and certain unusual, non-recurring items. Investors and analysts use these financial measures in assessing the Company’s business performance, and management believes that presenting these financial measures on a non-GAAP basis provides them with useful supplemental information to enhance their understanding of the Company’s underlying business performance and trends. These non-GAAP financial measures also enhance the ability to compare period-to-period financial results. A reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP financial measures for the years ended December 31, 2017, 2016 and 2015 is presented within the applicable section of Results of Operations.

(Dollars in Millions Except Per Share Amounts)

The following tables provide a quantitative reconciliation of Net sales growth to organic sales growth for each of the years ended December 31, 2017 and 2016 versus the prior year:

Year ended December 31, 2017	Net Sales Growth (GAAP)	Foreign Exchange Impact	Acquisitions and Divestments Impact	Organic Sales Growth (Non-GAAP)
Oral, Personal and Home Care
North America	(2.0)%	—%	—%	(2.0)%
Latin America	6.5%	1.0%	—%	5.5%
Europe	2.0%	1.0%	—%	1.0%
Asia Pacific	(0.5)%	—%	—%	(0.5)%
Africa/Eurasia	2.5%	3.5%	—%	(1.0)%
Total Oral, Personal and Home Care	2.0%	1.0%	—%	1.0%
Pet Nutrition	1.0%	0.5%	—%	0.5%
Total Company	1.5%	0.5%	—%	1.0%

Year ended December 31, 2016	Net Sales Growth (GAAP)	Foreign Exchange Impact	Acquisitions and Divestments Impact	Organic Sales Growth (Non-GAAP)
Oral, Personal and Home Care
North America	1.0%	(0.5)%	—%	1.5%
Latin America	(15.5)%	(10.0)%	(15.5)%	10.0%
Europe	(3.0)%	(3.0)%	—%	—%
Asia Pacific	(5.0)%	(4.0)%	(3.0)%	2.0%
Africa/Eurasia	(4.0)%	(9.5)%	—%	5.5%
Total Oral, Personal and Home Care	(6.5)%	(5.0)%	(5.5)%	4.0%
Pet Nutrition	2.5%	—%	—%	2.5%
Total Company	(5.0)%	(4.5)%	(4.5)%	4.0%

Market Share Information

Management uses market share information as a key indicator to monitor business health and performance. References to market share in this Annual Report on Form 10-K are based on a combination of consumption and market share data provided by third-party vendors, primarily Nielsen, and internal estimates. All market share references represent the percentage of the dollar value of sales of our products, relative to all product sales in the category in the countries in which the Company competes and purchases data (excluding Venezuela from all periods).

Market share data is subject to limitations on the availability of up-to-date information. The Company measures year-to-date market shares from January 1 of the relevant year through the most recent period for which market share data is available, which typically reflects a lag time of one or two months. We believe that the third-party vendors we use to provide data are reliable, but we have not verified the accuracy or completeness of the data or any assumptions underlying the data. In addition, market share information calculated by the Company may be different from market share information calculated by other companies due to differences in category definitions, the use of data from different countries, internal estimates and other factors.

(Dollars in Millions Except Per Share Amounts)

Liquidity and Capital Resources

The Company expects cash flow from operations and debt issuances will be sufficient to meet foreseeable business operating and recurring cash needs (including for debt service, dividends, capital expenditures, charges resulting from the Global Growth and Efficiency Program and stock repurchases). The Company believes its strong cash generation and financial position should continue to allow it broad access to global credit and capital markets.

Cash Flow

Net cash provided by operations was $3,054 in 2017, compared to $3,141 in 2016 and $2,949 in 2015. Net cash provided by operations for 2017 decreased as compared to 2016 primarily due to the timing of income tax payments. The increase in 2016 as compared to 2015 was due to strong operating earnings and the timing of income tax payments, partially offset by the impact of the deconsolidation of the Company’s Venezuelan operations effective December 31, 2015 and voluntary contributions to employee postretirement plans.

The Company defines working capital as the difference between current assets (excluding Cash and cash equivalents and marketable securities, the latter of which is reported in Other current assets) and current liabilities (excluding short-term debt). The Company’s working capital as a percentage of Net sales increased to (2.0)% in 2017 as compared to (2.2)% in 2016, reflecting the Company’s continued tight focus on working capital.

Building on the Company’s successful implementation of the Global Growth and Efficiency Program, on October 26, 2017, the Board approved an expansion of the Global Growth and Efficiency Program and an extension of the program through December 31, 2019 to take advantage of additional opportunities to streamline the Company’s operations.

Implementation of the Global Growth and Efficiency Program remains on track. Including the most recent expansion, total program charges resulting from the Global Growth and Efficiency Program are estimated to be in the range of $1,730 to $1,885 ($1,280 to $1,380 aftertax). Approximately 80% of total program charges resulting from the Global Growth and Efficiency Program are expected to result in cash expenditures. Savings from the Global Growth and Efficiency Program, substantially all of which are expected to increase future cash flows, are projected to be in the range of $560 to $635 pretax ($500 to $575 aftertax) annually, once all projects are approved and implemented. Savings achieved in 2017 were in line with the Company’s previously disclosed estimate of $50 to $60 pretax ($40 to $50 aftertax).

The Company anticipates that pretax charges for 2018 will approximate $100 to $175 ($75 to $125 aftertax). The Company expects savings in 2018 to amount to approximately $90 to $120 pretax ($100 to $125 aftertax). It is anticipated that cash requirements for the Global Growth and Efficiency Program will be funded from operating cash flows. Approximately 75% of the restructuring accrual at December 31, 2017 is expected to be paid before year-end 2018.

Investing activities used $471 of cash in 2017, compared to $499 and $685 during 2016 and 2015, respectively. Investing activities in 2017 include $44 of proceeds from the sale of property and non-core product lines, primarily related to the Global Growth and Efficiency Program. Purchases of marketable securities and investments increased in 2017 to $347 from $336 in 2016. Proceeds from the sale of marketable securities and investments increased in 2017 to $391 from $378 in 2016.

(Dollars in Millions Except Per Share Amounts)

In September 2016, the Company’s Mexican subsidiary completed the sale to the United States of America of the Mexico City site on which its commercial operations, technology center and soap production facility were previously located and received $60 as the third and final installment of the sale price. The total sale price (including the third installment and the previously received first and second installments) was $120. The Company recognized a pretax gain of $97 ($63 aftertax gain) in the third quarter of 2016, net of costs primarily related to site preparation.

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

Capital expenditures in 2017 were $553, a decrease from $593 in 2016 and $691 in 2015. Capital expenditures decreased in 2017 primarily due to lower spending on capital projects in the Global Growth and Efficiency Program. Capital expenditures for 2018 are expected to be approximately 3.5% of Net sales. The Company continues to focus its capital spending on projects that are expected to yield high aftertax returns.

Financing activities used $2,450 of cash during 2017 compared to $2,233 and $2,276 during 2016 and 2015, respectively. The increase in cash used in 2017 as compared to 2016 was primarily due to lower net proceeds from the issuance of debt and higher purchases of treasury shares. The decrease in cash used in 2016 as compared to 2015 was primarily due to lower purchases of treasury shares and higher proceeds from the exercise of stock options and excess tax benefits from stock-based compensation, partially offset by lower net proceeds from the issuance of debt.

Long-term debt, including the current portion, increased to $6,566 as of December 31, 2017, as compared to $6,520 as of December 31, 2016 and total debt increased to $6,577 as of December 31, 2017 as compared to $6,533 as of December 31, 2016. The Company’s debt issuances support its capital structure strategy objectives of funding its business and growth initiatives while minimizing its risk-adjusted cost of capital. During the fourth quarter of 2017, the Company issued $400 of five-year notes at a fixed rate of 2.25%. During the third quarter of 2017, the Company issued $500 of thirty-year notes at a fixed rate of 3.70%. The debt issuances in 2017 were under the Company’s shelf registration statement. Proceeds from the debt issuances in 2017 were used for general corporate purposes, which included the retirement of commercial paper borrowings.

At December 31, 2017, the Company had access to unused domestic and foreign lines of credit of $2,949 (including under the facilities discussed below) and could also issue medium-term notes pursuant to an effective shelf registration statement. In November 2011, the Company entered into a five-year revolving credit facility with a capacity of $1,850 with a syndicate of banks. This facility was extended for an additional year in 2012 and again in 2013. In 2014, the Company entered into an amendment of this facility whereby the facility was extended for an additional year to November 2019 and the capacity of the facility was increased to $2,370. In 2016, the facility was extended for an additional year to November 2020. The Company also has the ability to draw $165 from a revolving credit facility that expires in November 2018. Commitment fees related to the credit facilities are not material.

Domestic and foreign commercial paper outstanding was $24 and $295 as of December 31, 2017 and December 31, 2016, respectively. The average daily balances outstanding of commercial paper in 2017 and 2016 were $1,606 and $1,642, respectively. The Company classifies commercial paper and certain current maturities of notes payable as long-term debt when it has the intent and ability to refinance such obligations on a long-term basis, including, if necessary, by utilizing its line of credit that expires in November 2020.

(Dollars in Millions Except Per Share Amounts)

The following is a summary of the Company’s commercial paper and global short-term borrowings as of December 31, 2017 and 2016:

		2017									2016
		Weighted Average Interest Rate			Maturities		Outstanding				Weighted Average Interest Rate			Maturities		Outstanding
Payable to banks		2.8	%		2018		$	11			1.6	%		2017		$	13
Commercial paper		1.5	%		2018		24				(0.3	)%		2017		295
Total							$	35								$	308

Certain of the agreements with respect to the Company’s bank borrowings contain financial and other covenants as well as cross-default provisions. Noncompliance with these requirements could ultimately result in the acceleration of amounts owed. The Company is in full compliance with all such requirements and believes the likelihood of noncompliance is remote. See Note 6, Long-Term Debt and Credit Facilities to the Consolidated Financial Statements for further information about the Company’s long-term debt and credit facilities.

Dividend payments in 2017 were $1,529, an increase from $1,508 in 2016 and $1,493 in 2015. Dividend payments increased to $1.59 per share in 2017 from $1.55 per share in 2016 and $1.50 per share in 2015. In the first quarter of 2017, the Company’s Board increased the quarterly common stock cash dividend to $0.40 per share from $0.39 per share, effective in the second quarter of 2017.

The Company repurchases shares of its common stock in the open market and in private transactions to maintain its targeted capital structure and to fulfill certain requirements of its compensation and benefit plans. On February 19, 2015, the Board authorized the repurchase of shares of the Company’s common stock having an aggregate purchase price of up to $5,000 under the 2015 Program, which replaced the previous program approved by the Board in 2011 (the “2011 Program”). The Company commenced repurchase of shares of the Company’s common stock under the 2015 Program beginning February 19, 2015. The Board also has authorized share repurchases on an ongoing basis to fulfill certain requirements of the Company’s compensation and benefit programs.

Aggregate share repurchases in 2017 consisted of 18.3 million common shares under the 2015 Program and 0.9 million common shares to fulfill the requirements of compensation and benefit plans, for a total purchase price of $1,399. Aggregate repurchases in 2016 consisted of 18.3 million common shares under the 2015 Program and 1.0 million common shares to fulfill the requirements of compensation and benefit plans, for a total purchase price of $1,335. Aggregate repurchases in 2015 consisted of 19.9 million common shares under the 2015 Program, 1.7 million common shares under the 2011 Program and 1.2 million common shares to fulfill the requirements of compensation and benefit plans, for a total purchase price of $1,551.

Cash and cash equivalents increased $220 during 2017 to $1,535 at December 31, 2017, compared to $1,315 at December 31, 2016, most of which ($1,467 and $1,273, respectively) were held by the Company’s foreign subsidiaries.

On December 22, 2017, the TCJA was enacted, which, among other things, lowered the U.S. corporate income tax rate to 21% from 35% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. Beginning in 2018, U.S. tax reform also requires a minimum tax on certain future earnings generated by foreign subsidiaries while providing for future tax-free repatriation of such earnings through a 100% dividends-received deduction.

As a result of the lower U.S. corporate income tax rate, the Company expects a reduction in its future tax payments. For more information regarding the impact of U.S. tax reform on the Company, refer to “Critical Accounting Policies and Use of Estimates” below and Note 11, Income Taxes to the Consolidated Financial Statements.

(Dollars in Millions Except Per Share Amounts)

In order to fully utilize a $210 U.S. income tax benefit in 2016 principally related to changes in Venezuela’s foreign exchange regime, during the quarter ended March 31, 2016, the Company decided to repatriate in 2016 $1,500 of earnings of foreign subsidiaries it previously considered indefinitely reinvested outside of the U.S., and accordingly, recorded a tax charge of $210 during the first quarter of 2016.

The following represents the scheduled maturities of the Company’s contractual obligations as of December 31, 2017:

		Total				2018				2019				2020				2021				2022				Thereafter
Long-term debt including current portion(1)		$	5,843			$	—			$	1,097			$	248			$	298			$	889			$	3,311
Net cash interest payments on long-term debt(2)		1,325				119				107				104				97				83				815
Leases		737				188				163				143				106				93				44
Purchase obligations(3)		1,197				952				112				99				21				3				10
U.S. tax reform payments		315				52				22				22				22				22				175
Total		$	9,417			$	1,311			$	1,501			$	616			$	544			$	1,090			$	4,355

---

(1)	The Company classifies commercial paper and notes maturing within the next 12 months as long-term debt when it has the intent and ability to refinance such obligations on a long-term basis. The amounts in this table exclude such obligations.

(2)	Includes the net interest payments on fixed and variable rate debt and associated interest rate swaps. Interest payments associated with floating rate instruments are based on management’s best estimate of projected interest rates for the remaining term of variable rate debt.

(3)

The Company had outstanding contractual obligations with suppliers at the end of 2017 for the purchase of raw, packaging and other materials and services in the normal course of business. These purchase obligation amounts represent only those items which are based on agreements that are legally binding and that specify all significant terms including minimum quantity, price and term and do not represent total anticipated purchases. Additionally, purchase obligations include the aggregate purchase price for two acquisitions completed in the first quarter of 2018. See Note 3, Acquisitions and Divestitures to the Consolidated Financial Statements for more information.

Long-term liabilities associated with the Company’s postretirement plans are excluded from the table above due to the uncertainty of the timing of these cash disbursements. The amount and timing of cash funding related to these benefit plans will generally depend on local regulatory requirements, various economic assumptions (the most significant of which are detailed in “Critical Accounting Policies and Use of Estimates” below) and voluntary Company contributions. Based on current information, the Company is not required to make a mandatory contribution to its qualified U.S. pension plan in 2018. Management’s best estimate of voluntary contributions the Company will make to its U.S. postretirement plans for the year ending December 31, 2018 is approximately $75. In addition, total benefit payments to be paid to participants for the year ending December 31, 2018 from the Company’s assets are estimated to be approximately $82.

Additionally, liabilities for unrecognized income tax benefits are excluded from the table above as the Company is unable to reasonably predict the ultimate amount or timing of a settlement of such liabilities. See Note 11, Income Taxes to the Consolidated Financial Statements for more information.

As more fully described in Part I, Item 3 “Legal Proceedings” and Note 13, Commitments and Contingencies to the Consolidated Financial Statements, the Company has commitments and contingencies with respect to lawsuits, environmental matters, taxes and other matters arising in the ordinary course of business.

Off-Balance Sheet Arrangements

The Company does not have off-balance sheet financing or unconsolidated special purpose entities.

(Dollars in Millions Except Per Share Amounts)

Managing Foreign Currency, Interest Rate, Commodity Price and Credit Risk Exposure

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, 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. The Company’s treasury and risk management policies prohibit the use of derivatives for speculative purposes and leveraged derivatives for any purpose.

The sensitivity of our financial instruments to market fluctuations is discussed below. See Note 2, Summary of Significant Accounting Policies and Note 7, Fair Value Measurements and Financial Instruments to the Consolidated Financial Statements for further discussion of derivatives and hedging policies and fair value measurements.

Foreign Exchange Risk

As the Company markets its products in over 200 countries and territories, it is exposed to currency fluctuations related to manufacturing and selling its products in currencies other than the U.S. dollar. The Company manages its foreign currency exposures through a combination of cost-containment measures, sourcing strategies, selling price increases and the hedging of certain costs in an effort to minimize the impact on earnings of foreign currency rate movements. See the “Results of Operations” section above for discussion of the foreign exchange impact on Net sales in each operating segment.

The assets and liabilities of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates with resulting translation gains and losses accumulated in a separate component of shareholders’ equity. Income and expense items are translated into U.S. dollars at average rates of exchange prevailing during the year.

Prior to the deconsolidation of the Company’s Venezuelan operations, which was effective December 31, 2015, the functional currency for CP Venezuela was the U.S. dollar since Venezuela was designated as hyper-inflationary, and Venezuelan currency fluctuations were reported in income. The local currency-denominated non-monetary assets of the Venezuelan operations, including inventories and property, plant and equipment were remeasured at their historical exchange rates, while local currency-denominated monetary assets and liabilities were remeasured at period-end exchange rates. Remeasurement adjustments for these operations were included in Net income attributable to Colgate-Palmolive Company. Refer to “Significant Items Impacting Comparability” above and to Note 14, Venezuela to the Consolidated Financial Statements for further discussion of the Company’s Venezuelan operations.

The Company primarily utilizes foreign currency contracts, including forward and swap contracts, option contracts, foreign and local currency deposits and local currency borrowings to hedge portions of its exposures relating to foreign currency purchases, assets and liabilities created in the normal course of business and the net investment in certain foreign subsidiaries. The duration of foreign currency contracts generally does not exceed 12 months and the contracts are valued using observable market rates.

The Company’s foreign currency forward contracts that qualify for cash flow hedge accounting resulted in a net unrealized loss of $9 and a net unrealized gain of $20 at December 31, 2017 and 2016, respectively. Changes in the fair value of cash flow hedges are recorded in Other comprehensive income (loss) and are reclassified into earnings in the same period or periods during which the underlying hedged transaction is recognized in earnings. At the end of 2017, an unfavorable 10% change in exchange rates would have resulted in a net unrealized loss of $79.

(Dollars in Millions Except Per Share Amounts)

Interest Rate Risk

The Company manages its mix of fixed and floating rate debt against its target with debt issuances and by entering into interest rate swaps in order to mitigate fluctuations in earnings and cash flows that may result from interest rate volatility. The notional amount, interest payment and maturity date of the swaps generally match the principal, interest payment and maturity date of the related debt, and the swaps are valued using observable benchmark rates.

Based on year-end 2017 variable rate debt levels, a 1% increase in interest rates would have increased Interest (income) expense, net by $7 in 2017.

Commodity Price Risk

The Company is exposed to price volatility related to raw materials used in production, such as resins, pulp, essential oils, tropical oils, tallow, poultry, corn and soybeans. The Company manages its raw material exposures through a combination of cost containment measures, ongoing productivity initiatives and the limited use of commodity hedging contracts. Futures contracts are used on a limited basis, primarily in the Hill’s Pet Nutrition segment, to manage volatility related to anticipated raw material inventory purchases of certain traded commodities.

At December 31, 2017 and 2016, the Company’s open commodity derivative contracts, which qualify for cash flow hedge accounting, were not material and would not have resulted in a material net unrealized loss at December 31, 2017 had there been an unfavorable 10% change in commodity futures prices.

Credit Risk

The Company is exposed to the risk of credit loss in the event of nonperformance by counterparties to financial instrument contracts; however, nonperformance is considered unlikely and any nonperformance is unlikely to be material as it is the Company’s policy to contract with diverse, credit-worthy counterparties based upon both strong credit ratings and other credit considerations.

Recent Accounting Pronouncements

On August 28, 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” amending the eligibility criteria for hedged items and transactions to expand an entity’s ability to hedge nonfinancial and financial risk components. The new guidance eliminates the requirement to separately measure and present hedge ineffectiveness and aligns the presentation of hedge gains and losses with the underlying hedge item. The new guidance also simplifies the hedge documentation and hedge effectiveness assessment requirements. The new guidance is effective for the Company beginning on January 1, 2019, with early adoption permitted. The amended presentation and disclosure requirements must be adopted on a prospective basis, while any amendments to cash flow and net investment hedge relationships that exist on the date of adoption must be applied on a “modified retrospective” basis, meaning a cumulative effect adjustment to the opening balance of retained earnings as of the beginning of the year of adoption. While the Company is currently assessing the impact of the new standard, this new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

On May 10, 2017, the FASB issued ASU No. 2017-09, “Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting,” clarifying when a change to the terms or conditions of a stock-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance was effective for the Company on a prospective basis beginning on January 1, 2018. This new guidance is not expected to have an impact on the Company’s Consolidated Financial Statements as it is not the Company’s practice to change either the terms or conditions of stock-based payment awards once they are granted.

(Dollars in Millions Except Per Share Amounts)

On March 10, 2017, the FASB issued ASU No. 2017-07, “Compensation–Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” changing the presentation of the net periodic benefit cost on the Statement of Income and limiting the amount of net periodic benefit cost eligible for capitalization to assets. The new guidance permits only the service cost component of net periodic benefit cost to be eligible for capitalization. The new guidance also requires entities to present the service cost component of net periodic benefit cost together with compensation costs arising from services rendered by employees during the period. Other components of net periodic benefit cost, which include interest, expected return on assets, amortization of prior service costs and actuarial gains and losses, are required to be presented outside of Operating profit. The line item or items used to present the other components of net periodic benefit cost must be disclosed in the Notes to the Consolidated Financial Statements, if not separately described on the Statement of Income. The new presentation requirement is required to be adopted on a “full retrospective” basis, meaning the standard is applied to all of the periods presented in the financial statements, while the limitation on capitalization can only be adopted on a prospective basis. The new guidance was effective for the Company beginning on January 1, 2018. Had the standard been effective for the year ended December 31, 2017, full year Operating profit would have increased by approximately $120 with no impact on Net income attributable to Colgate-Palmolive Company. The Company anticipates that in future years, as a result of the reclassification, Operating profit will increase by approximately $100 annually with no impact on Net income attributable to Colgate-Palmolive Company.

On January 26, 2017, the FASB issued ASU No. 2017-04, “Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” eliminating the requirement to calculate the implied fair value, essentially eliminating step two from the goodwill impairment test. The new standard requires goodwill impairment to be based upon the results of step one of the impairment test, which is defined as the excess of the carrying value of a reporting unit over its fair value. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard is effective for the Company on a prospective basis beginning on January 1, 2020, with early adoption permitted. This new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

On January 5, 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which provides additional guidance on evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The guidance requires an entity to evaluate if substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the new guidance would define this as an asset acquisition; otherwise, the entity then evaluates whether the asset meets the requirement that a business include, at a minimum, an input and substantive process that together significantly contribute to the ability to create outputs. The guidance was effective for the Company on a prospective basis beginning on January 1, 2018. This new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

On October 24, 2016, the FASB issued ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory,” which eliminates the requirement to defer recognition of income taxes on intra-entity asset transfers until the asset is sold to an outside party. The new guidance requires the recognition of current and deferred income taxes on intra-entity transfers of assets other than inventory, such as intellectual property and property, plant and equipment, when the transfer occurs. As permitted, the Company early-adopted the new standard on a “modified retrospective” basis, meaning the standard was applied only to the most recent period presented in the financial statements, as of January 1, 2017. This new guidance did not have a material impact on the Company’s Consolidated Financial Statements.

On August 26, 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which clarifies how certain cash receipts and payments are to be presented in the statement of cash flows. The guidance was effective for the Company on January 1, 2018. This new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

(Dollars in Millions Except Per Share Amounts)

On March 30, 2016, the FASB issued ASU No. 2016-09, “Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which amended accounting for income taxes related to stock-based compensation, the related classification in the statement of cash flows and share award forfeiture accounting. The new guidance was effective for the Company beginning on January 1, 2017. As required subsequent to the adoption of this new guidance, the Company recognized excess tax benefits from stock-based compensation of $47 (resulting from an increase in the fair value of an award from grant date to the vesting or exercise date, as applicable) in the Provision for income taxes as a discrete item during the year ended December 31, 2017. These amounts may not necessarily be indicative of future amounts that may be recognized as any excess tax benefits from stock-based compensation recognized would be dependent on future stock price, employee exercise behavior and applicable tax rates. Prior to January 1, 2017, excess tax benefits from stock-based compensation were recognized in equity. As permitted, the Company elected to classify these excess tax benefits from stock-based compensation as an operating activity in the Statement of Cash Flows instead of as a financing activity on a prospective basis and did not retrospectively adjust prior periods. Also, as permitted by the new standard, the Company elected to account for forfeitures as they occur.

On March 15, 2016, the FASB issued ASU No. 2016-07, “Investments–Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting,” which eliminated the requirement to retroactively adjust an investment that subsequently qualifies for equity method accounting (as a result of an increase in level of ownership interest or degree of influence) as if the equity method of accounting had been applied during all prior periods that the investment was held. The new standard requires that the investor add the cost of acquiring additional ownership interest in the investee to its current basis and prospectively apply the equity method of accounting. For an available-for-sale investment, any unrealized gains or losses should be recognized in earnings at the date the investment qualifies as an equity method investment. The new guidance was effective for the Company beginning on January 1, 2017, and did not have a material impact on the Company’s Consolidated Financial Statements.

On February 25, 2016, the FASB issued its final standard on lease accounting, ASU No. 2016-02, “Leases (Topic 842),” which supersedes Topic 840, “Leases.” The new accounting standard requires the recognition of right-of-use assets and lease liabilities for all long-term leases, including operating leases, on the balance sheet. The new standard also provides additional guidance on the measurement of the right-of-use assets and lease liabilities and will require enhanced disclosures about the Company’s leasing arrangements. Under current accounting standards, substantially all of the Company’s leases are considered operating leases and, as such, are not recognized on the Consolidated Balance Sheet. This new standard is effective for the Company beginning on January 1, 2019, with early adoption permitted. The standard requires a “modified retrospective” adoption, meaning the standard is applied to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently assessing the impact of the new standard on its Consolidated Financial Statements.

On January 5, 2016, the FASB issued ASU No. 2016-01, “Financial Instruments–Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The amendment to the standard was effective for the Company beginning on January 1, 2018 and is not expected to have a material impact on the Company’s Consolidated Financial Statements.

On July 22, 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which simplifies the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in, first-out (“LIFO”) and the retail inventory method. The new guidance was effective for the Company beginning on January 1, 2017. This new guidance did not have a material impact on the Company’s Consolidated Financial Statements.

(Dollars in Millions Except Per Share Amounts)

On May 28, 2014, the FASB and the International Accounting Standards Board issued their final converged standard on revenue recognition. The standard, issued as ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” by the FASB, provides a comprehensive revenue recognition model for all contracts with customers and supersedes current revenue recognition guidance. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to its customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The new standard also includes enhanced disclosures. During 2016, the FASB issued several accounting updates (ASU No. 2016-08, 2016-10 and 2016-12) to clarify implementation guidance and correct unintended application of the guidance. The standard allows for either full retrospective adoption or modified retrospective adoption. The Company adopted the new standard on January 1, 2018, on a “modified retrospective” basis, which did not have a material impact on the Company’s Consolidated Financial Statements. Although the new standard resulted in changes to the Company’s revenue recognition accounting policy commencing on January 1, 2018, the Company does not expect it will have a material impact in future periods on its Consolidated Financial Statements.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to use judgment and make estimates. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. Actual results could ultimately differ from those estimates. The accounting policies that are most critical in the preparation of the Company’s Consolidated Financial Statements are those that are both important to the presentation of the Consolidated Financial Statements and require significant or complex judgments and estimates on the part of management. The Company’s critical accounting policies are reviewed periodically with the Audit Committee of the Board of Directors.

In certain instances, accounting principles generally accepted in the United States of America allow for the selection of alternative accounting methods. The Company’s significant policies that involve the selection of alternative methods are accounting for shipping and handling costs and inventories.

▪

Shipping and handling costs may be reported as either a component of Cost of sales or Selling, general and administrative expenses. The Company reports such costs, primarily related to warehousing and outbound freight, in the Consolidated Statements of Income as a component of Selling, general and administrative expenses. Accordingly, the Company’s Gross profit margin is not comparable with the gross profit margin of those companies that include shipping and handling charges in cost of sales. If such costs had been included in Cost of sales, Gross profit margin would have decreased by 760 bps, from 60.0% to 52.4% in 2017 and decreased by 750 bps in 2016 and 2015, respectively, with no impact on reported earnings.

▪	The Company accounts for inventories using both the first-in, first-out (“FIFO”) method (75% of inventories) and the LIFO method (25% of inventories). There would have been no material impact on reported earnings for 2017, 2016 or 2015 had all inventories been accounted for under the FIFO method.

(Dollars in Millions Except Per Share Amounts)

The areas of accounting that involve significant or complex judgments and estimates are pensions and other retiree benefit cost assumptions, stock-based compensation, asset impairments, uncertain tax positions, tax valuation allowances, the provisional charge in 2017 related to U.S. tax reform, legal and other contingency reserves and, prior to the deconsolidation of the Company’s Venezuelan operations, the selection of the exchange rate used to remeasure the financial statements of CP Venezuela.

▪

In pension accounting, the most significant actuarial assumptions are the discount rate and the long-term rate of return on plan assets. The discount rate used to measure the benefit obligation for U.S. defined benefit plans was 3.73%, 4.27% and 4.93% as of December 31, 2017, 2016 and 2015, respectively. The discount rate used to measure the benefit obligation for other U.S. postretirement plans was 3.80%, 4.41% and 4.97% as of December 31, 2017, 2016 and 2015, respectively. Discount rates used for the U.S. and international defined benefit and other postretirement plans are based on a yield curve constructed from a portfolio of high-quality bonds whose projected cash flows approximate the projected benefit payments of the plans. The assumed long-term rate of return on plan assets for U.S. plans was 6.60% as of December 31, 2017 and 6.80% as of December 2016 and 2015. In determining the long-term rate of return, the Company considers the nature of the plans’ investments and the historical rate of return.

Average annual rates of return for the U.S. plans for the most recent 1-year, 5-year, 10-year, 15-year and 25-year periods were 14%, 8%, 6%, 8% and 8%, respectively. In addition, the current assumed rate of return for the U.S. plans is based upon the nature of the plans’ investments with a target asset allocation of approximately 53% in fixed income securities, 27% in equity securities and 20% in real estate and other investments. A 1% change in the assumed rate of return on plan assets of the U.S. pension plans would impact future Net income attributable to Colgate-Palmolive Company by approximately $14. A 1% change in the discount rate for the U.S. pension plans would impact future Net income attributable to Colgate-Palmolive Company by approximately $2. A third assumption is the long-term rate of compensation increase, a change in which would partially offset the impact of a change in either the discount rate or the long-term rate of return. This rate was 3.50% as of December 31, 2017, 2016 and 2015. Refer to Note 10, Retirement Plans and Other Retiree Benefits to the Consolidated Financial Statements for further discussion of the Company’s pension and other postretirement plans.

▪

The assumption requiring the most judgment in accounting for other postretirement benefits is the medical cost trend rate. The Company reviews external data and its own historical trends for health care costs to determine the medical cost trend rate. The assumed rate of increase for the U.S. postretirement benefit plans is 6.00% for 2018, declining to 4.75% by 2023 and remaining at 4.75% for the years thereafter. The effect on the total of service and interest cost components of a 1% increase in the assumed long-term medical cost trend rate would decrease Net income attributable to Colgate-Palmolive Company by $7.

▪

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock units, based on the fair value of those awards at the date of grant. The Company uses the Black-Scholes-Merton (“Black-Scholes”) option pricing model to determine the fair value of stock option awards. The weighted-average estimated fair value of each stock option award granted in the year ended December 31, 2017 was $8.37. The Black-Scholes model uses various assumptions to determine the fair value of stock option awards. These assumptions include the expected term of stock option awards, expected volatility rate, risk-free interest rate and expected dividend yield. While these assumptions do not require significant judgment, as the significant inputs are determined from historical experience or independent third-party sources, changes in these inputs could result in significant changes in the fair value of stock option awards. A one-year change in expected term would result in a change in fair value of approximately 7%. A 1% change in volatility would change fair value by approximately 7%.

(Dollars in Millions Except Per Share Amounts)

▪

Goodwill and indefinite life intangible assets, such as the Company’s global brands, are subject to impairment tests at least annually. The Company performs either a quantitative or qualitative assessment to determine the fair value of its reporting units for goodwill and fair value of its indefinite life intangible assets. The asset impairment analysis is generally performed using an income method, which requires several estimates, including future cash flows consistent with management’s strategic plans, sales growth rates, foreign exchange rates and the selection of a discount rate. For the Company’s goodwill impairment analysis, fair value is also determined using the market approach, which is generally derived from metrics of comparable publicly traded companies. When multiple valuation methodologies are used in a reporting unit’s goodwill impairment analysis, the Company performs a qualitative analysis comparing the fair value of a reporting unit under each method to assess its reasonableness and ensure consistency of results. Other qualitative factors the Company considers, in addition to those quantitative measures discussed above, include assessments of general macroeconomic conditions, industry-specific considerations and historical financial performance.

The estimated fair value of the Company’s intangible assets substantially exceeds the recorded carrying value, except for the intangible assets acquired in the Sanex acquisition in 2011, which were recorded at fair value. The estimated fair value of the Company’s reporting units also substantially exceeds the recorded carrying value. Therefore, it is not reasonably likely that significant changes in these estimates would occur that would result in an impairment charge related to these assets.

The Company applies the ‘relief from royalty method’ to estimate the fair value of the intangible assets acquired in the Sanex acquisition (the “Sanex intangible assets”). Under this method, the fair value of an intangible asset is calculated as the present value of future royalty savings generated as a result of owning the intangible asset. The key assumptions used in determining the Company’s estimate of the fair value of the Sanex intangible assets include royalty rates, discount rates and long-term revenue growth rates. Estimating long-term revenue growth rates requires significant judgment by management in areas such as future economic conditions, product pricing and consumer tastes and preferences. In determining an appropriate discount rate, the Company considers the current interest rate environment and its estimated cost of capital. As a result of the analysis, the Company determined that the fair value of the Sanex intangible assets exceeded their carrying value by more than 10% and concluded that such excess was reasonable considering the brand’s relatively recent acquisition. Based on this, the brand’s recent performance and the Company’s future plans for it, the Company does not believe there is a significant risk of impairment related to the Sanex intangible assets.

Asset impairment analysis related to certain fixed assets in connection with the Global Growth and Efficiency Program requires management’s best estimate of net realizable values.

▪

On December 22, 2017, the TCJA was enacted, which, among other things, lowered the U.S. corporate income tax rate to 21% from 35% and established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. U.S. tax reform also requires a minimum tax on certain future earnings generated by foreign subsidiaries while providing for future tax-free repatriation of such earnings through a 100% dividends-received deduction.

In accordance with ASC 740, Income Taxes, and Staff Accounting Bulletin 118, the Company recorded a provisional charge of $275 based on its initial analysis of the TCJA using available information and estimates. The provisional charge is comprised of $451 related to the one-time deemed repatriation of accumulated earnings of foreign subsidiaries and related withholding taxes and $20 related primarily to the remeasurement of net deferred tax assets as a result of the reduction in the corporate income tax rate, which are offset by $196 of income taxes which had been previously provided for planned repatriations of undistributed earnings of foreign subsidiaries. As a result, applicable U.S. and foreign taxes have been provided on substantially all of the Company’s accumulated earnings of foreign subsidiaries previously considered indefinitely reinvested.

Given the significant complexity of the TCJA, anticipated guidance from the U.S. Treasury about implementing the TCJA and the potential for additional guidance from the SEC or the FASB related to the TCJA or additional information becoming available, the Company’s provisional charge may be adjusted during 2018 and is expected to be finalized no later than the fourth quarter of 2018. Other provisions of the TCJA that impact future tax years are still being assessed.

(Dollars in Millions Except Per Share Amounts)

▪	The recognition and measurement of uncertain tax positions involves consideration of the amounts and probabilities of various outcomes that could be realized upon ultimate resolution.

▪	Tax valuation allowances are established to reduce deferred tax assets, such as tax loss carryforwards, to net realizable value. Factors considered in estimating net realizable value include historical results by tax jurisdiction, carryforward periods, income tax strategies and forecasted taxable income.

▪

Legal and other contingency reserves are based on management’s assessment of the risk of potential loss, which includes consultation with outside legal counsel and other advisors. Such assessments are reviewed each period and revised based on current facts and circumstances, if necessary. While it is possible that the Company’s cash flows and results of operations in a particular quarter or year could be materially affected by the impact of such contingencies, based on current knowledge it is the opinion of management that these matters will not have a material effect on the Company’s financial position, or its ongoing results of operations or cash flows. Refer to Note 13, Commitments and Contingencies to the Consolidated Financial Statements for further discussion of the Company’s contingencies.

▪

Prior to the deconsolidation of the Company’s Venezuelan operations, the selection of the exchange rate used to remeasure the financial statements of CP Venezuela required careful consideration by management given the various currency exchange mechanisms that exist in Venezuela. Although access to U.S. dollars in Venezuela had been challenging, because the majority of the products in CP Venezuela’s portfolio were designated as “essential” by the Venezuelan government, historically CP Venezuela’s access to U.S. dollars at the official rate of 6.30 bolivares per dollar was generally sufficient to settle most of its U.S. dollar obligations for imported materials. However, the Company believed this rate was not applicable to foreign investments and could not be used to pay dividends. The Company also gave consideration to using the SIMADI rate to remeasure the financial statements of CP Venezuela; however, CP Venezuela did not participate in the SIMADI market through December 31, 2015 and had no intention to do so. As a result, the Company remeasured the financial statements of CP Venezuela at the rate at which it believed was applicable for the remittance of future dividends which, based on the advice of legal counsel, was the SICAD rate.

Refer to “Significant Items Impacting Comparability” above and to Note 14, Venezuela to the Consolidated Financial Statements for further discussion of the Company’s Venezuelan operations.

The Company generates revenue through the sale of well-known consumer products to trade customers under established trading terms. While the recognition of revenue and receivables requires the use of estimates, there is a short time frame (typically less than 60 days) between the shipment of product and cash receipt, thereby reducing the level of uncertainty in these estimates. Refer to Note 2, Summary of Significant Accounting Policies to the Consolidated Financial Statements for further description of the Company’s significant accounting policies.

(Dollars in Millions Except Per Share Amounts)

Cautionary Statement on Forward-Looking Statements

This Annual Report on Form 10-K 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 that set forth anticipated results based on management’s current plans and assumptions. Such statements may relate, for example, to sales or volume growth, organic sales growth, profit or profit margin growth, earnings per share growth, financial goals, the impact of foreign exchange volatility, cost-reduction plans including the Global Growth and Efficiency Program, tax rates, U.S. tax reform, new product introductions, commercial investment levels, acquisitions and divestitures, or legal or tax proceedings, among other matters. These statements are made on the basis of the Company’s views and assumptions as of this time and the Company undertakes no obligation to update these statements whether as a result of new information, future events or otherwise, except as required by law or by the rules and regulations of the SEC. Moreover, the Company does not, nor does any other person, assume responsibility for the accuracy and completeness of those statements. The Company cautions investors that any such forward-looking statements are not guarantees of future performance and that actual events or results may differ materially from those statements. Actual events or results may differ materially because of factors that affect international businesses and global economic conditions, as well as matters specific to the Company and the markets it serves, including the uncertain economic environment in different countries and its effect on consumer spending habits, increased competition and evolving competitive practices, foreign currency rate fluctuations, exchange controls, price or profit controls, labor relations, changes in foreign or domestic laws, or regulations or their interpretation, political and fiscal developments, including changes in trade, tax and immigration policies, disruptions in global supply chain, the availability and cost of raw and packaging materials, the ability to maintain or increase selling prices as needed, the ability to implement the Global Growth and Efficiency Program as planned or differences between the actual and the estimated costs or savings under such program, changes in the policies of retail trade customers, the emergence of new sales channels, the growth of e-commerce, the ability to continue lowering costs, the ability to complete acquisitions and divestitures as planned, the ability to successfully integrate acquired businesses, and the uncertainty of the outcome of legal proceedings, whether or not the Company believes they have merit. For information about these and other factors that could impact the Company’s business and cause actual results to differ materially from forward-looking statements, refer to Part I, Item 1A “Risk Factors.”