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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
FORM 10-Q
_________________________
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from________ to________ .
Commission File Number: 1-644
COLGATE-PALMOLIVE COMPANY
(Exact name of registrant as specified in its charter)
Delaware
13-1815595
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
300 Park Avenue
 
 

 
 
New York,
New York
 
 
10022
 
(Address of principal executive offices)
 
(Zip Code)
 
(212) 310-2000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $1.00 par value
 
CL
 
New York Stock Exchange
0.000% Notes due 2021
 
CL21A
 
New York Stock Exchange
0.500% Notes due 2026
 
CL26
 
New York Stock Exchange
1.375% Notes due 2034
 
CL34
 
New York Stock Exchange
0.875% Notes due 2039
 
CL39
 
New York Stock Exchange

NO CHANGES
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class
 
Shares Outstanding
 
Date
Common stock, $1.00 par value
 
856,528,455
 
March 31, 2020





PART I.    FINANCIAL INFORMATION


COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Income
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
 
 
Three Months Ended
 
March 31,
 
2020
 
2019
Net sales
$
4,097

 
$
3,884

Cost of sales
1,632

 
1,597

Gross profit
2,465

 
2,287

Selling, general and administrative expenses
1,473

 
1,365

Other (income) expense, net
40

 
43

Operating profit
952

 
879

Non-service related postretirement costs
21

 
25

Interest (income) expense, net
36

 
40

Income before income taxes
895

 
814

Provision for income taxes
147

 
214

Net income including noncontrolling interests
748

 
600

Less: Net income attributable to noncontrolling interests
33

 
40

Net income attributable to Colgate-Palmolive Company
$
715

 
$
560

 
 
 
 
Earnings per common share, basic
$
0.83

 
$
0.65

 
 
 
 
Earnings per common share, diluted
$
0.83

 
$
0.65







See Notes to Condensed Consolidated Financial Statements.

2





COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Comprehensive Income
(Dollars in Millions)
(Unaudited)
 
Three Months Ended
 
March 31,
 
2020
 
2019
Net income including noncontrolling interests
$
748

 
$
600

Other comprehensive income (loss), net of tax:
 
 
 
Cumulative translation adjustments
(355
)
 
26

Retirement plans and other retiree benefit adjustments
16

 
12

     Gains (losses) on cash flow hedges
18

 
(5
)
Total Other comprehensive income (loss), net of tax
(321
)
 
33

Total Comprehensive income including noncontrolling interests
427

 
633

Less: Net income attributable to noncontrolling interests
33

 
40

Less: Cumulative translation adjustments attributable to noncontrolling interests
(16
)
 
5

Total Comprehensive income attributable to noncontrolling interests
17

 
45

Total Comprehensive income attributable to Colgate-Palmolive Company
$
410

 
$
588



See Notes to Condensed Consolidated Financial Statements.

3



COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Balance Sheets
(Dollars in Millions)
(Unaudited)
 
March 31,
2020
 
December 31,
2019
Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
854

 
$
883

Receivables (net of allowances of $84 and $76, respectively)
1,551

 
1,440

Inventories
1,301

 
1,400

Other current assets
542

 
456

Total current assets
4,248

 
4,179

Property, plant and equipment:
 

 
 

Cost
8,167

 
8,580

Less: Accumulated depreciation
(4,680
)
 
(4,830
)
 
3,487

 
3,750

Goodwill
3,559

 
3,508

Other intangible assets, net
2,822

 
2,667

Deferred income taxes
179

 
177

Other assets
775

 
753

Total assets
$
15,070

 
$
15,034

Liabilities and Shareholders’ Equity
 

 
 

Current Liabilities
 

 
 

Notes and loans payable
$
255

 
$
260

Current portion of long-term debt
255

 
254

Accounts payable
1,216

 
1,237

Accrued income taxes
485

 
370

Other accruals
2,232

 
1,917

Total current liabilities
4,443

 
4,038

Long-term debt
7,336

 
7,333

Deferred income taxes
415

 
507

Other liabilities
2,535

 
2,598

Total liabilities
14,729

 
14,476

Shareholders’ Equity
 

 
 

Common stock
1,466

 
1,466

Additional paid-in capital
2,623

 
2,488

Retained earnings
22,481

 
22,501

Accumulated other comprehensive income (loss)
(4,578
)
 
(4,273
)
Unearned compensation
(1
)
 
(2
)
Treasury stock, at cost
(22,104
)
 
(22,063
)
Total Colgate-Palmolive Company shareholders’ equity
(113
)
 
117

Noncontrolling interests
454

 
441

Total equity
341

 
558

Total liabilities and equity
$
15,070

 
$
15,034




See Notes to Condensed Consolidated Financial Statements.

4




COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Cash Flows
(Dollars in Millions)
(Unaudited)
 
Three Months Ended
 
March 31,
 
2020
 
2019
Operating Activities
 
 
 
Net income including noncontrolling interests
$
748

 
$
600

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

 
 

Depreciation and amortization
133

 
128

Restructuring and termination benefits, net of cash
(30
)
 
5

Stock-based compensation expense
16

 
17

Deferred income taxes
(99
)
 
53

Voluntary benefit plan contributions

 
(102
)
Cash effects of changes in:
 
 
 
Receivables
(211
)
 
(145
)
Inventories
29

 
(32
)
Accounts payable and other accruals
220

 
44

Other non-current assets and liabilities
(38
)
 
37

Net cash provided by operations
768


605

Investing Activities
 

 
 

Capital expenditures
(82
)
 
(71
)
Purchases of marketable securities and investments
(42
)
 
(27
)
Proceeds from sale of marketable securities and investments
16

 

Payment for acquisitions, net of cash acquired
(351
)
 

Net cash used in investing activities
(459
)
 
(98
)
Financing Activities
 

 
 

Principal payments on debt
(1,200
)
 
(1,774
)
Proceeds from issuance of debt
1,188

 
2,076

Dividends paid
(373
)
 
(366
)
Purchases of treasury shares
(220
)
 
(399
)
Proceeds from exercise of stock options
297

 
71

Net cash provided by (used in) financing activities
(308
)
 
(392
)
Effect of exchange rate changes on Cash and cash equivalents
(30
)
 
2

Net increase (decrease) in Cash and cash equivalents
(29
)
 
117

Cash and cash equivalents at beginning of the period
883

 
726

Cash and cash equivalents at end of the period
$
854

 
$
843

Supplemental Cash Flow Information
 

 
 

Income taxes paid
$
128

 
$
149


See Notes to Condensed Consolidated Financial Statements.

5




COLGATE-PALMOLIVE COMPANY
Condensed Consolidated Statements of Changes in Shareholders Equity
(Dollars in Millions)
(Unaudited)
Three Months Ended March 31, 2020
 
Colgate-Palmolive Company Shareholders’ Equity
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Unearned
Compensation
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)(1)
 
Noncontrolling
Interests
Balance, December 31, 2019
$
1,466

 
$
2,488

 
$
(2
)
 
$
(22,063
)
 
$
22,501

 
$
(4,273
)
 
$
441

Net income
 
 
 
 
 
 
 
 
715

 
 
 
33

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
(305
)
 
(16
)
Dividends ($0.87/per share)*
 
 
 
 
 
 
 
 
(738
)
 
 
 
(4
)
Stock-based compensation expense
 
 
16

 
 
 
 
 
 
 
 
 
 
Shares issued for stock options
 
 
133

 
 
 
164

 
 
 
 
 
 
Shares issued for restricted stock units
 
 
(15
)
 
 
 
15

 
 
 
 
 
 
Treasury stock acquired
 
 
 
 
 
 
(220
)
 
 
 
 
 
 
Other
 
 
1

 
1

 


 
3

 
 
 
 
Balance, March 31, 2020
$
1,466

 
$
2,623

 
$
(1
)
 
$
(22,104
)
 
$
22,481

 
$
(4,578
)
 
$
454


Three Months Ended March 31, 2019
 
Colgate-Palmolive Company Shareholders’ Equity
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Unearned
Compensation
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)(1)
 
Noncontrolling
Interests
Balance, December 31, 2018
$
1,466

 
$
2,204

 
$
(3
)
 
$
(21,196
)
 
$
21,615

 
$
(4,188
)
 
$
299

Net income
 
 
 
 
 
 
 
 
560

 
 
 
40

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
 
 
28

 
5

Dividends ($0.85)/per share)*
 
 
 
 
 
 
 
 
(734
)
 
 
 
(2
)
Stock-based compensation expense
 
 
17

 
 
 
 
 
 
 
 
 
 
Shares issued for stock options
 
 
33

 
 
 
49

 
 
 
 
 
 
Shares issued for restricted stock units
 
 
(13
)
 
 
 
13

 
 
 
 
 
 
Treasury stock acquired
 
 
 
 
 
 
(399
)
 
 
 
 
 
 
Other
 
 


 


 
1

 
(5
)
 
 
 
 
Balance, March 31, 2019
$
1,466

 
$
2,241

 
$
(3
)
 
$
(21,532
)
 
$
21,436

 
$
(4,160
)
 
$
342


(1) Accumulated other comprehensive income (loss) includes cumulative translation losses of $3,467 at March 31, 2020 ($3,134 at March 31, 2019) and $3,128 at December 31, 2019 ($3,155 at December 31, 2018), respectively, and unrecognized retirement plan and other retiree benefits costs of $1,122 at March 31, 2020 ($1,026 at March 31, 2019) and $1,138 at December 31, 2019 ($1,038 at December 31, 2018), respectively.

* Two dividends were declared in each of the first quarters of 2020 and 2019




See Notes to Condensed Consolidated Financial Statements.

6


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


1.
Basis of Presentation

The Condensed Consolidated Financial Statements reflect all normal recurring adjustments which, in management’s opinion, are necessary for a fair statement of the results for interim periods. Results of operations for interim periods may not be representative of results to be expected for a full year. Colgate-Palmolive Company (together with its subsidiaries, the “Company” or “Colgate”) reclassifies certain prior year amounts, as applicable, to conform to the current year presentation.

For a complete set of financial statement notes, including the Company’s significant accounting policies, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (the “SEC”).

2.
Use of Estimates

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

3.
Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This new guidance is effective upon issuance of this ASU for contract modifications and hedging relationships on a prospective basis. While the Company is currently assessing the impact of the new guidance, it is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In March 2020, FASB issued ASU No. 2020-03, "Codification to Financial Instruments." This ASU improves and clarifies various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments related to Issue 1, Issue 2, Issue 4, and Issue 5 were effective upon issuance of this update. The amendments related to Issue 3, Issue 6 and Issue 7 were effective for the Company beginning on January 1, 2020. The new guidance did not have a material impact on the Company’s Consolidated Financial Statements.

In January 2020, the FASB issued ASU No. 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323) and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The guidance provides clarification of the interaction of rules for equity securities, the equity method of accounting and forward contracts and purchase options on certain types of securities. This new guidance is effective for the Company beginning on January 1, 2021, with early adoption permitted. This new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In December 2019, the FASB issued ASU No. 2019-12, “Income taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. This new guidance is effective for the Company beginning on January 1, 2021, with early adoption permitted. This new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Financial Instruments (Topic 825).” This ASU clarifies three topics related to financial instruments accounting. This new guidance was effective for the Company beginning on January 1, 2020. The new guidance did not have a material impact on the Company’s Consolidated Financial Statements.


7

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



In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This new guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This new guidance was effective for the Company beginning on January 1, 2020 and did not have a material impact on the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” eliminating the requirement to calculate 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 was effective for the Company on a prospective basis beginning on January 1, 2020 and did not have a material impact on the Company’s Consolidated Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326)” Codification Improvements to Financial Instruments-Credit Losses (Topic 326). Subsequent updates were released in November 2018 (ASU No. 2018-19), November 2019 (ASU No. 2019-10 and 2019-11) and February 2020 (ASU No. 2020-02) that provided additional guidance on this Topic. This ASU introduces the current expected credit loss (CECL) model, which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. The Company adopted the new standard, which primarily impacts the Company’s trade receivables and related methodology for assessing the collectability of its customer accounts, on January 1, 2020, on a “modified retrospective” basis. The adoption of this ASU did not have a material impact on the Company’s Consolidated Financial Statements.

8

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



4.
Acquisitions

Hello Products LLC

On January 31, 2020, the Company acquired Hello Products LLC, an oral care business, for cash consideration of $351. The acquisition was financed with a combination of debt and cash. This acquisition is part of the Company’s strategy to focus on high growth segments within its Oral Care, Personal Care and Pet Nutrition businesses.

The total purchase price consideration of $351 has been allocated to the net assets acquired based on their respective preliminary estimated fair values as follows:

Receivables
$
11

Inventories
13

Other assets and liabilities, net
(4
)
Other intangible assets
200

Goodwill
131

Fair value of net assets acquired
$
351



Other intangible assets acquired include trademarks of $155, which are considered to have an indefinite useful life, and customer relationships of $45, which have a finite useful life. Goodwill of $131 was allocated to the North America segment.

The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in adjustments to the preliminary values discussed above. The Company expects to finalize the purchase price allocation no later than the first quarter of 2021.

Pro forma results of operations have not been presented as the impact on the Company’s Condensed Consolidated Financial Statements is not material.

Laboratoires Filorga Cosmétiques (“Filorga”)

On September 19, 2019 (the “Acquisition Date”), the Company acquired the Filorga skin health business for cash consideration of 1,516 (approximately $1,674), which included interest on the equity purchase price, plus additional consideration of 32 (approximately $38), the majority of which related to repayment of loans from former shareholders of Filorga. Filorga is a premium anti-aging skin health brand focused primarily on facial care. This acquisition is part of the Company’s strategy to focus on high growth segments within its Oral Care, Personal Care and Pet Nutrition businesses, including by expanding its portfolio in premium skin health.

9

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




The total purchase price consideration of $1,712 has been allocated to the net assets acquired based on their respective preliminary estimated fair values as follows:
Cash
$
30

Receivables
53

Inventories
70

Other current assets
18

Other intangible assets
1,051

Goodwill
923

Other current liabilities
(67
)
Deferred income taxes
(276
)
Noncontrolling interests
(90
)
Fair value of net assets acquired
$
1,712



Other intangible assets acquired include trademarks of $774, which are considered to have an indefinite useful life, and customer relationships of $277, which have an estimated life of 14 years. Goodwill of $923 was allocated to the Europe segment. The Company expects that goodwill will not be deductible for tax purposes.

The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in adjustments to the preliminary values discussed above. The Company continues to evaluate potential contingencies that may have existed as of the acquisition date and expects to finalize the purchase price allocation no later than the third quarter of 2020.

Pro forma results of operations have not been presented as the impact on the Company’s Condensed Consolidated Financial Statements is not material.

Nigeria Joint Venture

On August 15, 2019, the Company acquired a 51% controlling interest in Colgate Tolaram Pte. Ltd., a joint venture which owns the Nigeria-based Hypo Homecare Products Limited, for $31.

Pro forma results of operations have not been presented as the impact on the Company’s Condensed Consolidated Financial Statements is not material.



10

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



5.
Restructuring and Related Implementation Charges
    
The Company’s restructuring program (the "Global Growth and Efficiency Program"), which commenced in the fourth quarter of 2012, concluded on December 31, 2019. Initiatives under the Global Growth and Efficiency Program fit within the program's three focus areas of expanding commercial hubs, extending shared business services and streamlining global functions, and optimizing the global supply chain and facilities. There were no restructuring and implementation-related charges incurred for the three months ended March 31, 2020.

For the three months ended March 31, 2019 restructuring and implementation-related charges are reflected in the income statement as follows:
 
Three Months Ended
 
March 31, 2019
Cost of sales
 
$
11

Selling, general and administrative expenses
 
4

Other (income) expense, net
 
13

Non-service related postretirement costs
 
1

Total Global Growth and Efficiency Program charges, pretax
 
$
29

 
 
 
Total Global Growth and Efficiency Program charges, aftertax
 
$
22



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

The following table summarizes the activity for restructuring accrual:

 
 
Three Months Ended March 31, 2020
 
 
Employee-Related
Costs 
 
Incremental
Depreciation 
 
Asset
Impairments
 
Other
 
Total
Balance at December 31, 2019
 
$
26

 
$

 
$

 
$
74

 
$
100

Charges
 

 

 

 

 

Cash payments
 
(15
)
 

 

 
(15
)
 
(30
)
Charges against assets
 

 

 

 

 

Foreign exchange
 
(1
)
 

 

 

 
(1
)
Other
 

 

 

 

 

Balance at March 31, 2020
 
$
10

 
$

 
$

 
$
59

 
$
69




11

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



6.    Inventories

Inventories by major class are as follows:
 
March 31,
2020
 
December 31,
2019
Raw materials and supplies
$
329

 
$
305

Work-in-process
46

 
49

Finished goods
976

 
1,056

       Total Inventories, net
$
1,351

 
$
1,410

            Non-current inventory, net
$
(50
)
 
$
(10
)
              Current Inventories, net
$
1,301

 
$
1,400



7.    Earnings Per Share

For the three months ended March 31, 2020 and 2019, earnings per share were as follows:

 
Three Months Ended
 
March 31, 2020
 
March 31, 2019
 
Net income attributable to Colgate-Palmolive Company
 
Shares
(millions)
 
Per
Share
 
Net income attributable to Colgate-Palmolive Company
 
Shares
(millions)
 
Per
Share
Basic EPS
$
715

 
856.9

 
$
0.83

 
$
560

 
862.0

 
$
0.65

Stock options and
restricted stock units
 
 
1.5

 
 

 
 

 
1.2

 
 

Diluted EPS
$
715

 
858.4

 
$
0.83

 
$
560

 
863.2

 
$
0.65



For the three months ended March 31, 2020 and 2019, the average number of stock options and restricted stock units that were anti-dilutive and not included in diluted earnings per share calculations were 20,965,110 and 21,980,033, respectively.


12

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



8.
Other Comprehensive Income (Loss)

Additions to and reclassifications out of Accumulated other comprehensive income (loss) attributable to the Company for the three months ended March 31, 2020 and 2019 were as follows:
 
 
2020
 
2019
 
 
Pretax
 
Net of Tax
 
Pretax
 
Net of Tax
Cumulative translation adjustments
 
$
(320
)
 
$
(339
)
 
$
27

 
$
21

Retirement plans and other retiree benefits:
 
 
 
 
 
 
 
 
Net actuarial gain (loss) and prior service costs arising during the period
 
2

 
1

 
(1
)
 
(1
)
Amortization of net actuarial loss, transition and prior service costs (1)
 
17

 
15

 
17

 
13

Retirement plans and other retiree benefits adjustments
 
19

 
16

 
16

 
12

Cash flow hedges:
 
 
 
 
 
 
 
 
Unrealized gains (losses) on cash flow hedges
 
25

 
20

 
(2
)
 
(2
)
Reclassification of (gains) losses into net earnings on cash flow hedges (2)
 
(3
)
 
(2
)
 
(4
)
 
(3
)
Gains (losses) on cash flow hedges
 
22

 
18

 
(6
)
 
(5
)
Total Other comprehensive income (loss)
 
$
(279
)
 
$
(305
)
 
$
37

 
$
28


(1) These components of Other comprehensive income (loss) are included in the computation of total pension cost. See Note 9, Retirement Plans and Other Retiree Benefits for additional details.
(2) These (gains) losses are reclassified into Cost of sales. See Note 13, Fair Value Measurements and Financial Instruments for additional details.

There were no tax impacts on Other comprehensive income (loss) (“OCI”) attributable to Noncontrolling interests.

9.
Retirement Plans and Other Retiree Benefits

Components of Net periodic benefit cost for the three months ended March 31, 2020 and 2019 were as follows:

 
Three Months Ended March 31,
 
Pension Benefits
 
Other Retiree Benefits
 
United States
 
International
 
 
 
 
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Service cost
$

 
$

 
$
4

 
$
4

 
$
6

 
$
4

Interest cost
19

 
23

 
5

 
5

 
11

 
11

Expected return on plan assets
(27
)
 
(26
)
 
(4
)
 
(5
)
 

 
(1
)
Amortization of actuarial loss (gain)
11

 
13

 
1

 
2

 
5

 
2

Net periodic benefit cost
$
3

 
$
10

 
$
6

 
$
6

 
$
22

 
$
16


For the three months ended March 31, 2020 and 2019, the Company made voluntary contributions to its U.S. postretirement plans of $0 and $102, respectively.


13

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



10.
Income Taxes

The provision for income taxes for the quarter ended March 31, 2020 includes $71 of income tax benefits recorded on a discrete period basis of which $45 relates to previously recorded foreign withholding taxes and $26 relates to a previously recorded valuation allowance against a deferred tax asset. As more fully described below, both items were previously recorded in connection with the charge recorded by the Company in 2017 and revised in 2018 related to the Tax Cuts and Jobs Acts (the "TCJA").

As part of the previously recorded charge for the TCJA, the Company had provided for foreign withholding taxes expected to be paid on the remittance of earnings from certain overseas subsidiaries no longer deemed indefinitely reinvested. As a result of a recent reorganization of the ownership structure of certain foreign subsidiaries, the Company has now determined that no withholding taxes will be due on the remittance by certain subsidiaries of earnings previously deemed reinvested and, accordingly, reversed $45 of previously recorded foreign withholding taxes.

Also as part of the previously recorded charge for the TCJA, the Company provided a valuation allowance against a deferred tax asset related to foreign tax credit carry-forwards that the Company did not expect to be able to use due to changes made by the TCJA. As a result of a new operating structure being implemented within one of the Company's divisions, the Company now believes the use of these foreign tax credit carry-forwards will not be limited in the future and, accordingly, reversed the previously recorded valuation allowance of $26.

11.
Contingencies

As a global company serving consumers in more than 200 countries and territories, the Company is routinely subject to a wide variety of legal proceedings. These include disputes relating to intellectual property, contracts, product liability, marketing, advertising, foreign exchange controls, antitrust and trade regulation, as well as labor and employment, pension, data privacy and security, environmental and tax matters and consumer class actions. Management proactively reviews and monitors the Company’s exposure to, and the impact of, environmental matters. The Company is party to various environmental matters and, as such, may be responsible for all or a portion of the cleanup, restoration and post-closure monitoring of several sites.

The Company establishes accruals for loss contingencies when it has determined that a loss is probable and that the amount of loss, or range of loss, can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changes in circumstances.

The Company also determines estimates of reasonably possible losses or ranges of reasonably possible losses in excess of related accrued liabilities, if any, when it has determined that a loss is reasonably possible and it is able to determine such estimates. For those matters disclosed below for which the amount of any potential losses can be reasonably estimated, the Company currently estimates that the aggregate range of reasonably possible losses in excess of any accrued liabilities is $0 to approximately $175 (based on current exchange rates). The estimates included in this amount are based on the Company’s analysis of currently available information and, as new information is obtained, these estimates may change. Due to the inherent subjectivity of the assessments and the unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to the Company. Thus, the Company’s exposure and ultimate losses may be higher or lower, and possibly significantly so, than the amounts accrued or the range disclosed above.

Based on current knowledge, management does not believe that the ultimate resolution of loss contingencies arising from the matters discussed herein will have a material effect on the Company’s consolidated financial position or its ongoing results of operations or cash flows. However, in light of the inherent uncertainties noted above, an adverse outcome in one or more matters could be material to the Company’s results of operations or cash flows for any particular quarter or year.


14

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



Brazilian Matters

There are certain tax and civil proceedings outstanding, as described below, related to the Company’s 1995 acquisition of the Kolynos oral care business from Wyeth (the Seller).

The Brazilian internal revenue authority has disallowed interest deductions and foreign exchange losses taken by the Company’s Brazilian subsidiary for certain years in connection with the financing of the Kolynos acquisition. The tax assessments with interest, penalties and any court-mandated fees, at the current exchange rate, are approximately $118. This amount includes additional assessments received from the Brazilian internal revenue authority in April 2016 relating to net operating loss carryforwards used by the Company’s Brazilian subsidiary to offset taxable income that had also been deducted from the authority’s original assessments. The Company has been disputing the disallowances by appealing the assessments since October 2001. There is one case currently on appeal at the administrative level. In the event the Company is ultimately unsuccessful in this administrative appeal, further appeals are available within the Brazilian federal courts.

In September 2015, the Company lost one of its appeals at the administrative level and filed a lawsuit in Brazilian federal court. In February 2017, the Company lost an additional administrative appeal and filed a lawsuit in Brazilian federal court. In April 2019, the Company lost another administrative appeal and filed a lawsuit in Brazilian federal court. Although there can be no assurances, management believes, based on the opinion of its Brazilian legal counsel, that the disallowances are without merit and that the Company should ultimately prevail. The Company is challenging these disallowances vigorously.
 
In July 2002, the Brazilian Federal Public Attorney filed a civil action against the federal government of Brazil, Laboratorios Wyeth-Whitehall Ltda. (the Brazilian subsidiary of the Seller) and the Company, as represented by its Brazilian subsidiary, in the 6th. Lower Federal Court in the City of São Paulo, seeking to annul an April 2000 decision by the Brazilian Board of Tax Appeals that found in favor of the Seller’s Brazilian subsidiary on the issue of whether it had incurred taxable capital gains as a result of the divestiture of Kolynos. The action seeks to make the Company’s Brazilian subsidiary jointly and severally liable for any tax due from the Seller’s Brazilian subsidiary. The case has been pending since 2002, and the Lower Federal Court has not issued a decision. Although there can be no assurances, management believes, based on the opinion of its Brazilian legal counsel, that the Company should ultimately prevail in this action. The Company is challenging this action vigorously.

In December 2005, the Brazilian internal revenue authority issued to the Company’s Brazilian subsidiary a tax assessment with interest, penalties and any court-mandated fees of approximately $49, at the current exchange rate, based on a claim that certain purchases of U.S. Treasury bills by the subsidiary and their subsequent disposition during the period 2000 to 2001 were subject to a tax on foreign exchange transactions. The Company had been disputing the assessment within the internal revenue authority’s administrative appeals process. However, in November 2015, the Superior Chamber of Administrative Tax Appeals denied the Company’s final administrative appeal, and the Company has filed a lawsuit in the Brazilian federal court. In the event the Company is unsuccessful in this lawsuit, further appeals are available within the Brazilian federal courts. Although there can be no assurances, management believes, based on the opinion of its Brazilian legal counsel, that the tax assessment is without merit and that the Company should ultimately prevail. The Company is challenging this assessment vigorously.


15

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



Competition Matter

Certain of the Company’s subsidiaries have historically been subject to investigations, and, in some cases, fines, by governmental authorities in a number of countries related to alleged competition law violations. Substantially all of these matters also involved other consumer goods companies and/or retail customers. The Company’s policy is to comply with antitrust and competition laws and, if a violation of any such laws is found, to take appropriate remedial action and to cooperate fully with any related governmental inquiry. The status as of March 31, 2020 of such competition law matters pending against the Company during the three months ended March 31, 2020 is set forth below.

In July 2014, the Greek competition law authority issued a statement of objections alleging a restriction of parallel imports into Greece. The Company responded to this statement of objections. In July 2017, the Company received the decision from the Greek competition law authority in which the Company was fined $11. The Company appealed the decision to the Greek courts. In April 2019, the Greek courts affirmed the judgment against the Company’s Greek subsidiary, but reduced the fine to $10.5 and dismissed the case against Colgate-Palmolive Company. The Company’s Greek subsidiary and the Greek competition authority have appealed the decision to the Greek Supreme Court.

Talcum Powder Matters

The Company has been named as a defendant in civil actions alleging that certain talcum powder products that were sold prior to 1996 were contaminated with asbestos. Most of these actions involve a number of co-defendants from a variety of different industries, including suppliers of asbestos and manufacturers of products that, unlike the Company’s products, were designed to contain asbestos. As of March 31, 2020 and December 31, 2019, there were 121 individual cases pending against the Company in state and federal courts throughout the United States. During the three months ended March 31, 2020, five new cases were filed and five cases were resolved by voluntary dismissal or settlement. The value of the settlements in the quarter presented was not material, either individually or in the aggregate, to the period’s results of operations.

The Company believes that a significant portion of its costs incurred in defending and resolving these claims will be covered by insurance policies issued by several primary, excess and umbrella insurance carriers, subject to deductibles, exclusions, retentions and policy limits.

While the Company and its legal counsel believe that these cases are without merit and intend to challenge them vigorously, there can be no assurances regarding the ultimate resolution of these matters. With the exception of one case where the Company received an adverse jury verdict in the second quarter of 2019 that the Company has appealed, the range of reasonably possible losses in excess of accrued liabilities disclosed above does not include any amount relating to these cases because the amount of any possible losses from such cases currently cannot be reasonably estimated.

ERISA Matter

In June 2016, a putative class action claiming that residual annuity payments made to certain participants in the Colgate-Palmolive Company Employees’ Retirement Income Plan (the “Plan”) did not comply with the Employee Retirement Income Security Act was filed against the Plan, the Company and certain individuals in the United States District Court for the Southern District of New York. This action has been certified as a class action. The relief sought includes recalculation of benefits, pre- and post-judgment interest and attorneys’ fees. The Company is contesting this action vigorously. Since the amount of any potential loss from this case currently cannot be reasonably estimated, the range of reasonably possible losses in excess of accrued liabilities disclosed above does not include any amount relating to the case.


16

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



12.
Segment Information

The Company operates in two product segments: Oral, Personal and Home Care; and Pet Nutrition. 

The operations of the Oral, Personal and Home Care product segment are managed geographically in five reportable operating segments: North America, Latin America, Europe, Asia Pacific and Africa/Eurasia.

The Company evaluates segment performance based on several factors, including Operating profit. The Company uses Operating profit as a measure of operating segment performance because it excludes the impact of Corporate-driven decisions related to interest expense and income taxes.

The accounting policies of the operating segments are generally the same as those described in Note 2, Summary of Significant Accounting Policies to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Intercompany sales have been eliminated. Corporate operations include costs related to stock options and restricted stock units, research and development costs, Corporate overhead costs and gains and losses on sales of non-core product lines and assets. The Company reports these items within Corporate operations as they relate to Corporate-based responsibilities and decisions and are not included in the internal measures of segment operating performance used by the Company to measure the underlying performance of the operating segments.

Net sales by segment were as follows:
 
Three Months Ended
 
March 31,
 
2020
 
2019
Net sales
 
 
 
Oral, Personal and Home Care
 
 
 
North America
$
929

 
$
853

Latin America
889

 
889

Europe
675

 
602

Asia Pacific
633

 
700

Africa/Eurasia
252

 
240

Total Oral, Personal and Home Care
3,378

 
3,284

Pet Nutrition
719

 
600

Total Net sales
$
4,097

 
$
3,884



Approximately 70% of the Company’s Net sales are generated from markets outside the U.S., with approximately 45% of the Company’s Net sales coming from emerging markets (which consist of Latin America, Asia (excluding Japan), Africa/Eurasia and Central Europe).

17

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



The Company’s Net sales of Oral, Personal and Home Care and Pet Nutrition products accounted for the following percentages of the Company’s Net sales:
 
Three Months Ended
 
March 31,
 
2020
 
2019
Net sales
 
 
 
Oral Care
44
%
 
48
%
Personal Care
20
%
 
19
%
Home Care
18
%
 
18
%
Pet Nutrition
18
%
 
15
%
Total Net sales
100
%
 
100
%

Operating profit by segment was as follows:
 
Three Months Ended
 
March 31,
 
2020
 
2019
Operating profit
 
 
 
Oral, Personal and Home Care
 
 
 
North America
$
258

 
$
249

Latin America
248

 
232

Europe
154

 
151

Asia Pacific
161

 
189

Africa/Eurasia
56

 
46

Total Oral, Personal and Home Care
877

 
867

Pet Nutrition
203

 
164

Corporate
(128
)
 
(152
)
Total Operating profit
$
952

 
$
879



Corporate Operating profit (loss) for the three months ended March 31, 2020 included a charge for acquisition-related costs of $6. Corporate Operating profit (loss) for the three months ended March 31, 2019, included charges of $28 resulting from the Global Growth and Efficiency Program, which ended on December 31, 2019.


18

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



13.
Fair Value Measurements and Financial Instruments

The Company uses available market information and other valuation methodologies in assessing the fair value of financial instruments. Judgment is required in interpreting market data to develop the estimates of fair value and, accordingly, changes in assumptions or the estimation methodologies may affect the fair value estimates. The Company is exposed to the risk of credit loss in the event of nonperformance by counterparties to financial instrument contracts; however, nonperformance is considered unlikely and any nonperformance is unlikely to be material, as it is the Company’s policy to contract only with diverse, credit-worthy counterparties based upon both strong credit ratings and other credit considerations.

The Company is exposed to market risk from foreign currency exchange rates, interest rates and commodity price fluctuations. Volatility relating to these exposures is managed on a global basis by utilizing a number of techniques, including working capital management, sourcing strategies, selling price increases, selective borrowings in local currencies and entering into selective derivative instrument transactions, issued with standard features, in accordance with the Company’s treasury and risk management policies, which prohibit the use of derivatives for speculative purposes and leveraged derivatives for any purpose. It is the Company’s policy to enter into derivative instrument contracts with terms that match the underlying exposure being hedged.

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

The following table summarizes the fair value of the Company’s derivative instruments and other financial instruments which are carried at fair value in the Company’s Consolidated Balance Sheets at March 31, 2020 and December 31, 2019:
 
Assets
 
Liabilities
 
 
Account
 
Fair Value
 
Account
 
Fair Value
Designated derivative instruments
 
 
March 31, 2020
 
December 31, 2019
 
 
 
March 31, 2020
 
December 31, 2019
Interest rate swap contracts
Other current assets
 
$

 
$

 
Other accruals
 
$

 
$

Interest rate swap contracts
Other assets
 
16

 
4

 
Other liabilities
 

 

Foreign currency contracts
Other current assets
 
58

 
6

 
Other accruals
 
8

 
15

Foreign currency contracts
Other assets
 

 

 
Other liabilities
 
9

 
14

Commodity contracts
Other current assets
 

 

 
Other accruals
 
1

 

Total designated
 
$
74

 
$
10

 
 
 
$
18

 
$
29

 
 
 
 
 
 
 
 
 
 
 
 
Other financial instruments
 
 
 

 
 

 
 
 
 

 
 

Marketable securities
Other current assets
 
$
43

 
$
23

 
 
 
 

 
 

Total other financial instruments
 
 
$
43

 
$
23

 
 
 
 

 
 



19

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



The carrying amount of cash, cash equivalents, marketable securities, accounts receivable and short-term debt approximated fair value as of March 31, 2020 and December 31, 2019. The estimated fair value of the Company’s long-term debt, including the current portion, as of March 31, 2020 and December 31, 2019, was $7,909 and $8,056, respectively, and the related carrying value was $7,591 and $7,587, respectively. The estimated fair value of long-term debt was derived principally from quoted prices on the Company’s outstanding fixed-term notes (Level 2 valuation).

The following amounts were recorded on the Condensed Consolidated Balance Sheet related to cumulative basis adjustment for fair value hedges as of:
 
March 31, 2020
 
December 31, 2019
Long-term debt:
 
 
 
Carrying amount of hedged item
$
415

 
$
403

Cumulative hedging adjustment included in the carrying amount
16

 
4



The following tables present the notional values as of:
 
March 31, 2020
 
Foreign
Currency
Contracts
 
Foreign Currency Debt
 
Interest Rate Swaps
 
Commodity Contracts
 
 
Total
Fair Value Hedges
$
535

 
$

 
$
400

 
$

 
$
935

Cash Flow Hedges
718

 

 

 
21

 
739

Net Investment Hedges
473

 
3,752

 

 

 
4,225


 
December 31, 2019
 
Foreign
Currency
Contracts
 
Foreign Currency Debt
 
Interest Rate Swaps
 
Commodity Contracts
 
 
Total
Fair Value Hedges
$
388

 
$

 
$
400

 
$

 
$
788

Cash Flow Hedges
761

 

 

 
20

 
781

Net Investment Hedges
478

 
3,856

 

 

 
4,334




20

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



The following table presents the location and amount of gains (losses) recognized on the Company’s Condensed Consolidated Statements of Income:
 
Three Months Ended March 31,
 
2020
 
2019
 
Cost of sales
 
Selling, general and administrative expenses
 
Interest (income) expense, net
 
Cost of sales
 
Selling, general and administrative expenses
 
Interest (income) expense, net
Gain (loss) on hedges recognized in income:
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps designated as fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
Derivative instrument
$

 
$

 
$
(12
)
 
$