Executive Overview

Colgate-Palmolive Company seeks to deliver strong, consistent business results and superior shareholder returns by providing consumers on a global basis 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 specific regional 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. This geographic diversity and balance help to reduce the Company's exposure to business and other risks in any one country or part of the world.

The Oral, Personal and Home Care segment is operated through four reportable operating segments: North America, Latin America, Europe/South Pacific and Greater Asia/Africa, all of which sell to a variety of retail and wholesale customers and distributors. The Company, through Hill's Pet Nutrition, also competes on a worldwide basis in the pet nutrition market, selling its products principally through the veterinary profession and specialty pet retailers.

On an on-going basis, management focuses on a variety of key indicators to monitor business health and performance. These indicators include market share, sales (including volume, pricing and foreign exchange components), gross profit margin, operating profit, net income and earnings per share, as well as measures used to optimize the management of working capital, capital expenditures, cash flow and return on capital. The monitoring of these indicators, as well as the Company's corporate governance practices (including the Company's Code of Conduct), are used to ensure that business health and strong internal controls are maintained.

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

The investments needed to fund this growth are developed through continuous, Company-wide initiatives to lower costs and increase effective asset utilization through which the Company seeks to become even more effective and efficient throughout its businesses. 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)

Consistent with the Company's strategy to prioritize higher margin businesses, in the fourth quarter of 2006 the Company announced its agreement to sell its household bleach businesses in Latin America and Canada. The transaction closed in Canada during the fourth quarter of 2006. In the Latin American countries, the transaction closed during the first quarter of 2007 with the exception of Colombia, where the transaction did not receive regulatory approval.

The Company's previously announced 2004 Restructuring Program to enhance the Company's global leadership position in its core businesses was finalized as of December 31, 2008. Since the inception of the 2004 Restructuring Program, the Company has incurred total pretax cumulative charges of $1,069.2 ($775.5 aftertax). Savings are estimated to be in the range of $475 and $500 pretax ($350 and $375 aftertax) annually, substantially all of which will increase future cash flows.

As a result of the 2004 Restructuring Program, we streamlined our global supply chain, reallocated resources with an increase and upgrade in the sales, marketing and new product organizations in high-potential developing countries and other key markets, and consolidated these organizations in certain mature markets. The savings and benefits from the 2004 Restructuring Program, along with our other on-going cost-savings and growth initiatives, are anticipated to provide additional funds for investment in support of key categories and new product development while also supporting an increased level of profitability.

As further explained in the "Outlook" section below, while we expect global macroeconomic and market conditions to remain highly challenging in 2009, we believe the Company is well-positioned to deliver increased shareholder value over the long-term.

Results of Operations

Net Sales

Worldwide Net sales were $15,329.9 in 2008, up 11.0% from 2007, driven by volume growth of 3.5%, net selling price increases of 5.5% and a positive foreign exchange impact of 2.0%. The 2007 divestment of the Latin American household bleach business and the 2008 divestment of the Senegal fabric care business reduced sales growth for the year ended December 31, 2008 by 0.5% versus the comparable period of 2007. Excluding the impact of these divestments, Net sales increased 11.5% in 2008 on volume growth of 4.0%. Organic sales (Net sales excluding foreign exchange, acquisitions and divestments) grew 9.5% in 2008.

Net sales in the Oral, Personal and Home Care segment were $13,182.4 in 2008, up 10.5% from 2007, driven by volume growth of 3.5%, net selling price increases of 4.5% and a positive foreign exchange impact of 2.5%. Excluding the 0.5% impact of the above-described divestments, Net sales increased 11.0% in 2008 on volume growth of 4.0%. Organic sales grew 8.5% in 2008.

Net sales in Hill's Pet Nutrition were $2,147.5 in 2008, up 15.5% from 2007, driven by volume growth of 2.5%, net selling price increases of 10.5% and a positive foreign exchange impact of 2.5%. Organic sales grew 13.0% in 2008.

Worldwide Net sales were $13,789.7 in 2007, up 12.5% from 2006, driven by volume growth of 6.5%, net selling price increases of 1.0% and a positive foreign exchange impact of 5.0%. The divestments of the Latin American and Canadian household bleach businesses in 2007 and 2006, respectively, reduced sales growth for the year ended December 31, 2007 by 0.5% versus the comparable period of 2006. Excluding the impact of these divestments, sales increased 13.0% in 2007 on volume growth of 7.0%. Organic sales grew 8.0% in 2007.

(Dollars in Millions Except Per Share Amounts)

Gross Profit

Worldwide gross profit margin was 56.3% in 2008, 56.2% in 2007 and 54.8% in 2006. Restructuring and implementation-related charges incurred under the 2004 Restructuring Program included in Cost of sales for the years ended December 31, 2008, 2007 and 2006 were $58.8, $153.8 and $196.2, respectively. The 2004 Restructuring Program lowered the reported gross profit margin by 40 basis points (bps), 110 bps and 160 bps in 2008, 2007 and 2006, respectively. Excluding the impact of the 2004 Restructuring Program, gross profit margin was 56.7% in 2008, 57.3% in 2007 and 56.4% in 2006. On this basis, the decrease in 2008 was due to increases in raw and packaging material costs, partially offset by higher pricing and a continued focus on cost-savings programs. The increase in 2007 was due to cost-savings programs and the shift towards higher margin products, which more than offset the impact of higher raw and packaging material costs.

For additional information regarding the Company's 2004 Restructuring Program, refer to "Restructuring and Related Implementation Charges" below and Note 4 to the Consolidated Financial Statements.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of Net sales were 35.4% in 2008, 36.1% in 2007 and 35.6% in 2006. Included in Selling, general and administrative expenses are charges related to the 2004 Restructuring Program of $81.0 (0.5% of Net sales) in 2008, $49.1 (0.4% of Net sales) in 2007 and $46.1 (0.4% of Net sales) in 2006. The 70 bps decrease in 2008 was driven primarily by moderating levels of advertising investment (40 bps) and a continued focus on cost-savings programs. While advertising was lower as a percentage of Net sales, total advertising increased 7% to $1,649.5 as compared to 2007, on top of a 17% increase in the year-ago period. Selling, general and administrative expenses as a percentage of sales in 2007 increased by a net 50 bps as compared to 2006, primarily due to increased levels of advertising (40 bps) and an increase in shipping and handling costs.

Other (Income) Expense, Net



Other (income) expense, net was $183.4, $121.3 and $185.9 in 2008, 2007 and
2006, respectively. The components of Other (income) expense, net are presented
below:



                                                      2008        2007        2006
                                                     -------     -------     -------
      Minority interest                              $  80.3     $  67.1     $  57.5
      Amortization of intangible assets                 18.8        18.2        16.3
      Equity (income)                                   (3.8 )      (3.7 )      (3.4 )
      Gain on sales of non-core product lines, net        -        (48.6 )     (46.5 )
      2004 Restructuring Program                        24.0        55.6       153.1
      SFAS 88 pension charges                             -         15.4          -
      Hill's limited voluntary recall                     -         12.6          -
      Legal and environmental matters                   23.0          -          5.8
      Investment losses (income)                        25.1        (1.5 )      (5.7 )
      Other, net                                        16.0         6.2         8.8
                                                     - ----- -   - ----- -   - ----- -
      Total Other (income) expense, net              $ 183.4     $ 121.3     $ 185.9
                                                     - ----- -   - ----- -   - ----- -

(Dollars in Millions Except Per Share Amounts)

Operating Profit

In 2008, Operating profit increased 14% to $3,020.7 as compared to $2,653.1 in 2007 and increased 23% in 2007 as compared to $2,160.5 in 2006. Excluding the impact of the 2004 Restructuring Program and other items set forth below, Operating profit increased 10% in 2008 and 15% in 2007 as follows:

                                                                      %                            %
                                        2008          2007          Change         2006          Change
                                      ---------     ---------       ------       ---------       ------
Operating profit, GAAP                $ 3,020.7     $ 2,653.1           14 %     $ 2,160.5           23 %
2004 Restructuring Program                163.8         258.5                        395.4
Gain on sale of non-core product
lines, net                                   -          (48.6 )                      (46.5 )
SFAS 88 pension charges                      -           15.4                           -
Hill's limited voluntary recall              -           13.6                           -
                                      - -------     - ------- -                  - ------- -
Operating profit, non-GAAP            $ 3,184.5     $ 2,892.0           10 %     $ 2,509.4           15 %
                                      - -------     - ------- -                  - ------- -

Interest Expense, Net

Interest expense, net was $95.6 in 2008 compared with $156.6 in 2007 and $158.7 in 2006. The decrease in Interest expense, net from 2007 to 2008 was due to lower average interest rates.

Income Taxes

The effective income tax rate was 33.1% in 2008, 30.4% in 2007 and 32.4% in 2006. The tax rate in all years benefited from global tax planning strategies and was increased (decreased) by the impact of the Company's 2004 Restructuring Program and other discrete items as follows: 10 bps in 2008, (250 bps) in 2007 and 50 bps in 2006. The 2008 effective tax rate reflects the impact of the Company's 2004 Restructuring Program. The 2007 effective tax rate reflects a 300 bps reduction from the recognition of $73.9 of tax benefits as a result of the reduction of a tax loss carryforward valuation allowance in Brazil of $94.6 that was partially offset by tax provisions for the recapitalization of certain overseas subsidiaries and increases of 40 bps from the impact of the Company's 2004 Restructuring Program and 10 bps from the sale of the household bleach business in Latin America. The 2006 effective tax rate reflects an increase of 80 bps from the impact of the Company's 2004 Restructuring Program and a decrease of 30 bps from the sale of the household bleach business in Canada.

Further impacting the effective rate in 2007 as compared to 2006 was the cost associated with higher remittances from overseas subsidiaries and the one-time adjustment resulting from changes in statutory tax rates in certain overseas subsidiaries.

The impact of the 2004 Restructuring Program on the effective income tax rate for an individual period has depended on the projects and the related tax jurisdictions involved. The tax benefit derived from the charges incurred in 2008, 2007 and 2006 for the 2004 Restructuring Program was at a rate of 31.4%, 28.9% and 27.6%, respectively.

For additional information regarding the Company's income taxes, refer to Note 11 to the Consolidated Financial Statements.

(Dollars in Millions Except Per Share Amounts)

Net Income

Net income was $1,957.2, or $3.66 per share on a diluted basis, in 2008 compared with $1,737.4, or $3.20 per share, in 2007 and $1,353.4, or $2.46 per share, in 2006. Net income in 2008 included $112.4 ($0.21 per share) of charges related to the Company's 2004 Restructuring Program. Net income in 2007 included a $29.7 ($0.05 per share) gain on the sale of the household bleach business in Latin America and an income tax benefit of $73.9 ($0.14 per share) related to the tax items noted above. Such benefits were more than offset by $183.7 ($0.34 per share) of charges related to the Company's 2004 Restructuring Program, $10.0 ($0.02 per share) of SFAS 88 pension charges and $8.2 ($0.01 per share) of charges related to the limited voluntary recall of certain Hill's Pet Nutrition feline products. Net income in 2006 included a $38.2 ($0.07 per share) gain on the sale of the household bleach business in Canada, which was more than offset by $286.3 ($0.52 per share) of charges related to the Company's 2004 Restructuring Program.

Segment Results

The Company markets its products in over 200 countries and territories throughout the world in two distinct business 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.

Worldwide Net Sales by Business Segment and Geographic Region



                                                2008         2007         2006
                                             ----------   ----------   ----------
        Oral, Personal and Home Care
        North America                        $  2,851.7   $  2,720.8   $  2,590.8
        Latin America                           4,088.0      3,488.9      3,019.5
        Europe/South Pacific                    3,582.7      3,383.3      2,952.3
        Greater Asia/Africa                     2,660.0      2,337.6      2,006.0
                                             - --------   - --------   - --------
        Total Oral, Personal and Home Care     13,182.4     11,930.6     10,568.6
        Pet Nutrition                           2,147.5      1,859.1      1,669.1
                                             - --------   - --------   - --------
        Total Net sales                      $ 15,329.9   $ 13,789.7   $ 12,237.7
                                             - --------   - --------   - --------

Worldwide Operating Profit by Business Segment and Geographic Region



                                               2008          2007          2006
                                             ---------     ---------     ---------
        Oral, Personal and Home Care
        North America                        $   689.1     $   666.8     $   550.1
        Latin America                          1,180.7       1,006.0         872.9
        Europe/South Pacific                     746.5         763.8         681.2
        Greater Asia/Africa                      446.3         362.8         278.7
                                             - ------- -   - ------- -   - ------- -
        Total Oral, Personal and Home Care     3,062.6       2,799.4       2,382.9
        Pet Nutrition                            541.8         487.8         447.9
        Corporate                               (583.7 )      (634.1 )      (670.3 )
                                             - ------- -   - ------- -   - ------- -
        Total Operating profit               $ 3,020.7     $ 2,653.1     $ 2,160.5
                                             - ------- -   - ------- -   - ------- -

(Dollars in Millions Except Per Share Amounts)

North America

Net sales in North America increased 5.0% in 2008 to $2,851.7 as a result of 1.5% volume growth and net selling price increases of 3.5%. Products contributing to growth in oral care included Colgate Total Advanced Clean, Colgate Total Advanced Whitening and Colgate Max Fresh toothpastes, Colgate 360°, Colgate 360° Sensitive and Colgate 360° Deep Clean manual toothbrushes and Colgate 360° Sonic Power battery toothbrush. Products contributing to growth in other categories included Irish Spring Moisture Blast and Irish Spring Reviving Mint body wash, Palmolive Pure & Clear dish liquid and Softsoap brand Body Butter Coconut Scrub moisturizing body wash. In 2007, Net sales in North America increased 5.0% to $2,720.8 on 4.0% volume growth, net selling price increases of 0.5% and a 0.5% positive impact of foreign exchange. The divestment of the Canadian household bleach business reduced 2007 sales growth by 1.5% versus the comparable period of 2006. Excluding the impact of this divestment, Net sales increased 6.5% in 2007 on volume growth of 5.5%. Organic sales grew 6.0% in 2007.

Operating profit in North America increased 3% in 2008 to $689.1 due to sales growth and the benefits from restructuring and other cost-saving initiatives, partially offset by higher raw and packaging material costs. In 2007, Operating profit in North America increased 21% to $666.8, due to increased sales and gross profit margin as a result of improved product mix and the benefits of the 2004 Restructuring Program and other cost-saving initiatives, which more than offset an increased level of advertising.

Latin America

Net sales in Latin America increased 17.0% in 2008 to $4,088.0 as a result of 6.0% volume growth, net selling price increases of 9.5% and 1.5% positive impact of foreign exchange. The divestment of the Latin American household bleach business reduced 2008 sales growth by 0.5% versus the comparable period of 2007. Excluding the impact of this divestment, sales increased 17.5% in 2008 on volume growth of 6.5%. Organic sales grew 16.0% in 2008. Volume gains were led by Brazil, Mexico, Venezuela, Colombia and Argentina. Products contributing to growth in oral care included Colgate Total Professional Clean, Colgate Total Professional Sensitive and Colgate Max White toothpastes, Colgate 360°, Colgate 360° Sensitive, Colgate 360° Deep Clean and Colgate Max Fresh manual toothbrushes and Colgate Plax Whitening and Colgate Plax Ice mouthwashes. Products contributing to growth in other categories included Palmolive bar soap and shower gel with ingredients from the Amazon, Lady Speed Stick Aloe Defense multi-form deodorants, Palmolive Caprice shampoo and Suavitel Magic Moments fabric conditioner. In 2007, Net sales in Latin America increased 15.5% to $3,488.9 as a result of 9.0% volume growth, net selling price increases of 2.5% and 4.0% positive impact of foreign exchange. The divestment of the Latin American household bleach business reduced 2007 sales growth by 1.5% versus the comparable period of 2006. Excluding the impact of this divestment, sales increased 17.0% in 2007 on volume growth of 10.5%. Organic sales grew 13.0% in 2007.

Operating profit in Latin America increased 17% in 2008 to $1,180.7 as a result of sales growth and the benefits from restructuring and other cost-saving initiatives, which more than offset increased raw material costs and advertising spending. In 2007, Operating profit in Latin America increased 15% to $1,006.0 as a result of sales growth, which more than offset increased levels of advertising and higher shipping and handling costs.

Europe/South Pacific

Net sales in Europe/South Pacific increased 6.0% in 2008 to $3,582.7 as a result of 0.5% volume growth and a 5.5% positive impact of foreign exchange. Organic sales grew 0.5% in 2008. Volume gains in the United Kingdom, Denmark, Austria, Greece, the GABA business, Poland, Czech Republic, Romania,

(Dollars in Millions Except Per Share Amounts)

Adria and Australia more than offset volume declines in France, Italy, Portugal and Spain. Products contributing to growth in oral care included Colgate Max Fresh, Colgate Max White, Colgate Total and Colgate Sensitive Enamel Protect toothpastes, Colgate 360°, Colgate 360° Sensitive, Colgate 360° Deep Clean and Colgate Max Fresh manual toothbrushes, Colgate 360° Sonic Power battery toothbrush and Colgate Plax Whitening mouth rinse. Products contributing to growth in other categories included Palmolive Naturals Cherry Blossom shower gel, Ajax Professional bucket dilutable and Ajax Professional glass cleaners, PAIC Desincrust dish liquid, the French version of Palmolive Scrub Buster, and Soupline Magic Moments fabric conditioner. In 2007, Net sales in Europe/South Pacific increased 14.5% to $3,383.3 as a result of 6.5% volume growth and 10.0% positive impact of foreign exchange, offset by a 2.0% reduction in net selling prices. Organic sales grew 4.5% in 2007.

Operating profit in Europe/South Pacific decreased 2% to $746.5 in 2008, reflecting higher raw and packaging material costs, as well as higher selling, general and administrative costs, partially due to increased advertising spending. In 2007, Operating profit in Europe/South Pacific increased 12% to $763.8, reflecting increased sales and gross profit margin, partially offset by higher commercial investment and increased shipping and handling costs.

Greater Asia/Africa

Net sales in Greater Asia/Africa increased 14.0% in 2008 to $2,660.0 as a result of 7.0% volume growth, an increase in net selling prices of 5.5% and a 1.5% positive impact of foreign exchange. The divestment of the Senegal fabric care business reduced 2008 sales growth by 0.5% versus the comparable period of 2007. Excluding the impact of this divestment, sales increased 14.5% in 2008 on volume growth of 7.5%. Organic sales grew 13.0% in 2008. Volume gains were led by India, Russia and the rest of the CIS countries, Philippines, Malaysia, Vietnam, South Africa, and the Gulf States/Saudi Arabia region. Products driving oral care growth included Colgate Total Professional Clean, Colgate Max White, Colgate 360° Whole Mouth Clean and Darlie Salt White toothpastes, Colgate 360° Deep Clean and Colgate Max Fresh manual toothbrushes and Colgate Plax Overnight Herbal Sensations mouthwash. Products contributing to growth in other categories included Palmolive Nutra-Oil shower gel, Protex Aloe shower cream and bar soap and Protex Icy Cool bar soap. In 2007, Net sales in Greater Asia/Africa increased 16.5% to $2,337.6 on volume gains of 8.5%, an increase in net selling prices of 1.5% and a 6.5% positive impact of foreign exchange. Organic sales grew 10.0% in 2007.

Operating profit in Greater Asia/Africa increased 23% in 2008 to $446.3 as a result of sales growth and cost-saving initiatives, which more than offset higher raw material costs and advertising spending. In 2007, Operating profit in Greater Asia/Africa increased 30% to $362.8, reflecting increased sales and gross profit margin, partially offset by an increased level of advertising.

Pet Nutrition

Net sales for Hill's Pet Nutrition increased 15.5% in 2008 to $2,147.5 as a result of 2.5% volume growth, an increase in net selling prices of 10.5% and a 2.5% positive impact of foreign exchange. Organic sales grew 13.0% in 2008. New products contributing to sales in the U.S. specialty channel include Science Diet Nature's Best Canine and Feline and the relaunch of Science Diet Puppy and Kitten foods. Prescription Diet j/d Canine contributed to sales in the U.S. veterinary channel. New pet food products contributing to international sales include Science Plan Nature's Best Canine and Feline, Prescription Diet w/d Canine and Prescription Diet r/d Canine. In 2007, Net sales for Hill's Pet Nutrition increased 11.5% to $1,859.1 on volume gains of 3.5%, an increase in net selling prices of 5.5% and a 2.5% positive impact of foreign exchange. Organic sales grew 9.0% in 2007.

(Dollars in Millions Except Per Share Amounts)

Like most major North American pet food producers, Hill's Pet Nutrition was affected by the U.S. Food and Drug Administration's pet food recall in March 2007. Hill's took the precaution of conducting a voluntary recall of a small number of its products that may have been affected. These products accounted for less than 0.5% of Hill's Pet Nutrition's annual Net sales. The related sales loss did not have a significant impact on the Company's 2007 annual Net sales or Operating profit. Hill's Pet Nutrition's Operating profit for 2007 does not reflect the impact of the recall as these costs have been included in the Corporate segment.

Operating profit for Hill's Pet Nutrition increased 11% to $541.8 in 2008 and increased 9% to $487.8 in 2007. In both years, the increased Operating profit is . . .