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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2003

OR

For the transition period from                              to                             .

Commission File Number 1-644

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code 212-310-2000

Securities Registered Pursuant to Section 12(b) of the Act:

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [    ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes   X   No       

The aggregate market value of Colgate-Palmolive Company Common Stock held by non-affiliates as of June 30, 2003, (the last business day of our most recently completed second quarter) was approximately $30.9 billion.*

There were 532,610,151 shares of Common Stock outstanding as of February 29, 2004.

DOCUMENTS INCORPORATED BY REFERENCE:

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PART I

(a) General Development of the Business

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

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

(b) Financial Information about Industry Segments

Worldwide net sales and operating profit by business segment and geographic region during the last three years appear under the caption “Results of Operations” in Part II, Item 7 of this report and Note 14 to the Consolidated Financial Statements.

(c) Narrative Description of the Business

The Company manages its business in two product segments: Oral, Personal, Household Surface and Fabric Care; and Pet Nutrition. Colgate is a global leader in Oral Care with the leading toothpaste brand throughout many parts of the world, including the U.S., according to value share data provided by ACNielsen. Colgate’s Oral Care products include toothbrushes, toothpaste, tooth whitener, mouth rinses and dental floss, and pharmaceutical products for dentists and other oral health professionals. Significant recent product launches in this segment include Colgate Simply White toothpaste, Colgate Total Advanced Fresh, Colgate Total Plus Whitening, Colgate Herbal and Herbal White, and Colgate Triple Action toothpastes, and the Colgate Active Angle and Massager manual toothbrushes.

Colgate is a leader in many segments of the Personal Care market with several products including bar and liquid hand soaps, shower gels, shampoos, conditioners, deodorants and antiperspirants and shave products. Colgate is the market leader in liquid soaps in the U.S. and in male deodorant sticks globally. Significant recent product launches in this segment include Palmolive Aromatherapy shower gel and bar soap, Palmolive Thermal Spa shower gel, Palmolive Naturals shampoo, and Softsoap Vitamins shower gel and liquid hand soap. Colgate also manufactures and markets Mennen underarm antiperspirants and deodorants and men’s toiletries.

Colgate manufactures and markets a wide array of products for Household Surface and Fabric Care. Major products include Palmolive and Ajax dishwashing liquid and Fabuloso household cleansers. Colgate also markets other household names in cleaning and laundry products in the U.S. such as Fab and Murphy’s oil soap. In the Company’s major markets outside the U.S., Colgate is number one in fabric conditioners with leading brands including Suavitel in Latin America and Soupline in Europe. Significant recent product launches in this segment include Ajax All Purpose Cleaner Baking Soda with citrus extracts, Palmolive Aromatherapy dishwashing liquid, and Palmolive Dish Wipes.

Sales of Oral, Personal, Household Surface and Fabric Care products accounted for 34%, 24%, 16% and 13% of total worldwide sales in 2003, respectively. Geographically, Oral Care is a significant part of the Company’s business in Asia/Africa, comprising approximately 55% of sales in that region for 2003. For more information regarding the Company’s worldwide sales by product categories, refer to Notes 1 and 14 to the Consolidated Financial Statements included herein.

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Colgate, through its Hill’s Pet Nutrition segment, is the world leader in specialty pet nutrition products for dogs and cats. Hill’s markets pet foods primarily under two trademarks: Science Diet, which is sold by authorized pet supply retailers, breeders and veterinarians for every day nutritional needs; and Prescription Diet, a therapeutic product to help nutritionally manage disease conditions in dogs and cats. Significant recent product launches in this segment include Science Diet Nature’s Best, Science Diet Advanced Protection, a diet proven to increase vitality and alertness in adult dogs and cats, and Prescription Diet Feline m/d, a low carbohydrate diet clinically proven to alter a cat’s metabolism for effective weight loss and to help nutritionally manage diabetes. Hill’s sells its products in 86 countries and leads the premium pet food segment in North America, Japan and South Africa. Sales of Pet Nutrition products accounted for 13% of the Company’s total worldwide sales in 2003.

Research and Development

Strong research and development capabilities enable Colgate to support its many brands with technologically sophisticated products for consumers’ oral, personal and household care and pet nutrition needs. Company spending related to research and development activities was $204.8 million, $196.6 million and $184.9 million during 2003, 2002 and 2001, respectively.

Distribution; Competition; Trademarks and Patents

The Company’s products are generally marketed by a direct sales force at each individual operating subsidiary or business unit. In some instances, distributors or brokers are used. No single customer accounts for as much as 10% of the Company’s sales.

Most raw materials are purchased from other companies and are available from several sources. Raw material commodities such as tallow and essential oils are subject to wide price variations. No single raw material represents a significant portion of the Company’s total material requirements.

The Company’s products are sold in a highly competitive global marketplace which is experiencing increased trade concentration and the growing presence of large-format retailers. Products similar to those produced and sold by the Company are available from competitors in the U.S. and overseas. Certain of the Company’s competitors are larger and have greater resources than the Company. In addition, private label brands sold by retail trade chains are a source of competition for certain product lines of the Company. Product quality, brand recognition and acceptance and marketing capability largely determine success in the Company’s business segments.

Trademarks are considered to be of material importance to the Company’s business. The Company follows a practice of seeking trademark protection by all available means in the United States and throughout the world where the Company’s products are sold. Principal global trademarks include Colgate, Palmolive, Kolynos, Sorriso, Mennen, Protex, Ajax, Soupline, Suavitel, Fab, Science Diet and Prescription Diet in addition to several regional trademarks. These trademarks are of significant importance to the Company and its subsidiaries within their markets. The Company’s rights in these trademarks endure for as long as they are used and registered. Although the Company actively develops and maintains a number of patents, no single patent is considered significant to the business as a whole.

Employees

At year-end, the Company employed 36,600 employees of which 83% were located outside the United States.

Environmental Matters

It is the Company’s policy to fully comply with environmental rules and regulations. Capital expenditures for environmental control facilities totaled $26.7 million for 2003. For future years, expenditures are expected to

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be in the same range. The Company has programs that are designed to ensure that its operations and facilities meet or exceed applicable rules and regulations. For information regarding other environmental matters refer to Note 13 to the Consolidated Financial Statements included herein.

(d) Financial Information about Foreign and Domestic Operations and Export Sales

For information concerning geographic area financial data refer to the information set forth under the caption “Results of Operations” in Part II, Item 7 of this report and in Note 14 to the Consolidated Financial Statements.

(e) Available Information

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

The Company owns or leases a total of 294 properties which include manufacturing, distribution, research and office facilities worldwide. Corporate headquarters is located in leased property at 300 Park Avenue, New York, New York.

In the U.S., the Company operates 31 properties, of which 12 are owned. Major U.S. manufacturing and warehousing facilities used by the Oral, Personal, Household Surface and Fabric Care segment are located in Kansas City, Kansas; Morristown, New Jersey; Jeffersonville, Indiana; and Cambridge, Ohio. The Pet Nutrition segment has major facilities in Bowling Green, Kentucky; Topeka, Kansas; Commerce, California; and Richmond, Indiana. The primary research center for Oral, Personal, Household Surface and Fabric Care products is located in Piscataway, New Jersey and the primary research center for Pet Nutrition products is located in Topeka, Kansas. Other research facilities are located in select overseas locations.

Overseas, the Company operates 263 properties, of which 89 are owned, in over 70 countries. Major overseas facilities used by the Oral, Personal, Household Surface and Fabric Care segment are located in Australia, Brazil, Canada, China, Colombia, France, Italy, Mexico, South Africa, Thailand, the United Kingdom, Venezuela and elsewhere throughout the world. In some areas outside the U.S., products are either manufactured by independent contractors under Company specifications or are imported from the U.S. or elsewhere.

All facilities operated by the Company are, in general, well maintained and adequate for the purpose for which they are intended. The Company conducts continuing reviews of its facilities in connection with its ongoing focus on regionalization of manufacturing facilities and cost-reduction initiatives.

In 1995, the Company acquired the Kolynos oral care business from Wyeth (formerly American Home Products) (the Seller), as described in the Company’s Form 8-K dated January 10, 1995. On September 8, 1998, the Company’s Brazilian subsidiary received notice of an administrative proceeding from the Central Bank of Brazil primarily taking issue with certain foreign exchange filings made with the Central Bank in connection

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with the financing of this strategic transaction, but in no way challenging or seeking to unwind the acquisition. The Central Bank of Brazil in January 2001 notified the Company of its decision in this administrative proceeding to impose a fine, which, at the current exchange rate, approximates $90 million. The Company has appealed the decision to the Brazilian Monetary System Appeals Council (the Council), thereby suspending the fine pending the decision of the Council. If the fine is affirmed, interest and penalties may also be assessed. Further appeals are available within the Brazilian federal courts. Management believes, based on the opinion of its Brazilian legal counsel and other experts, that the filings challenged by the Central Bank fully complied with Brazilian law and that the Company will prevail on appeal. The Company intends to challenge this fine vigorously.

In addition, Brazilian prosecutors are reviewing the foregoing transactions as part of an overall examination of all international transfers of Reais through non-resident current accounts during the 1992 to 1998 time frame, which the Company understands involves hundreds and possibly thousands of other individuals and companies. In November 2003, these prosecutors requested that a federal judge authorize criminal charges against certain current and former officers of the Company’s Brazilian subsidiary based on the same allegations made in the Central Bank and tax proceedings discussed in this Item 3. The Company recently learned that the federal judge agreed to authorize the charges. Management believes, based on the opinion of its Brazilian legal counsel, that these officers behaved in all respects properly and in accordance with law in connection with the financing of the Kolynos acquisition. Management intends to support and defend these officers vigorously in any resulting proceeding.

In 2002 the Brazilian Federal Public Attorney filed a civil action against the federal government of Brazil, Laboratorios Wyeth-Whitehall Ltda., the Brazilian subsidiary of the Seller, and the Company, as represented by its Brazilian subsidiary, seeking to annul an April 2000 decision by the Brazilian Board of Tax Appeals that found in favor of the Seller’s 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 subsidiary. Management believes, based on the opinion of its Brazilian legal counsel, that the Company will ultimately prevail in this action. The Company intends to challenge this action vigorously.

In addition, the Brazilian internal revenue authority has disallowed interest deductions and foreign exchange losses taken by the Company’s Brazilian subsidiary in connection with the financing of the Kolynos acquisition, imposing a tax assessment that, at the current exchange rate, approximates $35 million. The Company and the tax authority have appealed this decision to the First Board of Taxpayers, and further appeals are available within the Brazilian federal courts. Management believes, based on the opinion of its Brazilian legal counsel and other experts, that the disallowance is without merit and that the Company will prevail on appeal. The Company intends to challenge this assessment vigorously.

For additional discussion of the Company’s contingencies refer to Note 13 to the Consolidated Financial Statements.

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None.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of executive officers as of March 8, 2004:

Each of the executive officers listed above has served the registrant or its subsidiaries in various executive capacities for the past five years, with the exception of Fabian T. Garcia, who joined Colgate in August 2003 as President, Asia/Pacific Division, and was elected an officer of the Company in December 2003. He previously served as Senior Vice President—International for the Timberland Company from April 2002 to August 2003, and was President of the Asia Pacific Region of Chanel from August 1996 to December 2001.

Under the Company’s By-Laws, the officers of the corporation hold office until their respective successors are chosen and qualified, or until they have resigned, retired or been removed by the affirmative vote of a majority of the Board of Directors.

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PART II

Refer to the information regarding the market for the Company’s common stock and the quarterly market price information appearing under the caption “Market and Dividend Information” included on page 60 of this report; the information under “Capital Stock and Stock Compensation Plans” in Note 8 to the Consolidated Financial Statements; and the “Number of shareholders of record” and “Cash dividends declared and paid per common share” under the caption “Historical Financial Summary” included on page 61 of this report.

Refer to the information set forth under the caption “Historical Financial Summary” included on page 61 of this report.

(Dollars in Millions Except Per Share Amounts)

Executive Overview

Colgate-Palmolive Company seeks to deliver consistent, 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 business segments: Oral, Personal, Household Surface and Fabric 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 core businesses and product categories are selected and prioritized according to their capacity to sustain longer term growth, strong global equities and maximize the use of the organization’s core competencies to yield a competitive advantage capable of delivering financial returns above its cost of capital.

Operationally, the Company is organized along geographic lines with specific regional management teams having responsibility for the financial results in each area. As a consequence of this geographic diversity—the Company competes in more than 200 countries and territories worldwide—the organization has a geographic balance which limits exposure to external events in any one country or part of the world.

The Oral, Personal, Household Surface and Fabric Care segment is operated through four operating divisions, North America, Latin America, Europe and Asia/Africa, which sell to a variety of retail and wholesale customers and distributors. In the Pet Nutrition segment, Hill’s also competes on a worldwide basis selling its products principally through the veterinary profession and specialty pet retailers.

To achieve its financial objectives, the Company employs a strategy which is used in all businesses worldwide and that focuses the organization on initiatives to both drive growth and simultaneously fund that growth. Growth and therefore revenues are driven by bringing to the marketplace products which offer value to the consumer through new benefits and convenience in the categories where the Company competes. The investments needed to fund this growth are developed through continuous, corporate-wide initiatives to lower costs and increase effective asset utilization. The Company also continues to prioritize its investments toward its higher margin businesses, specifically Oral Care, Personal Care and Pet Nutrition. In December 2003, the Company announced that it has agreed to acquire GABA Holding AG (GABA), a privately owned European oral care company headquartered in Switzerland. Also, consistent with the Company’s strategy to de-emphasize heavy-duty detergents, the Company completed the sale of its European laundry detergent brands during 2003.

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(Dollars in Millions Except Per Share Amounts)

The Company sees material opportunities for growth through its ability to identify and meet new consumer needs within the categories in which it competes. This includes deploying the insights and products developed in one region on a global basis. Growth opportunities are especially evident in those areas where the Company can leverage economic development and where rising consumer disposable incomes expand the markets for its products. The organization is, therefore, actively focused on the development of such products using global and local knowledge and consumer insight and has an organization in place to ensure these learnings and product bundles are introduced expeditiously around the world.

On an ongoing basis, management focuses on a variety of key indicators to monitor business health and performance. These indicators include measurements of market share, sales (including volume, pricing and foreign exchange components), gross profit margins, operating profits and net income; and measures to optimize the management of working capital, capital expenditures, cash flow and return on capital. For an additional discussion of key factors and risks that could impact future financial results, refer to the information set forth below under the caption “Cautionary Statement on Forward-Looking Statements.”

Ultimately, these indicators and other procedures for corporate governance (including the Corporate Code of Conduct) are used to ensure that business health is maintained and effective control exercised. The success of these measures is indicated by the vitality of the business and in its financial strength. The resultant strong and consistent cash flow, evidenced by the company’s AA-/(Aa3) credit rating, in turn provides flexibility for future investments and growth.

Results of Operations

The Company markets its products in over 200 countries and territories throughout the world in two distinct business segments: Oral, Personal, Household Surface and Fabric Care; and Pet Nutrition. Segment performance is evaluated 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.

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(Dollars in Millions Except Per Share Amounts)

Net Sales

Worldwide net sales increased 6.5% to $9,903.4 in 2003 on volume growth of 3.5%, increases in net selling prices of 0.5% and a positive foreign exchange impact of 2.5%. Net sales in the Oral, Personal, Household Surface and Fabric Care segment increased 6.0% on 3.5% volume growth while net sales in Pet Nutrition increased 11.0% on 4.5% volume growth. In 2002, worldwide net sales, excluding divestitures, increased 2.5% to $9,294.3 on volume growth of 4.5%, offset by the negative impact of foreign currencies.

Gross Profit

Gross profit margin increased to 55.0%, above both the 2002 level of 54.6% and the 2001 level of 53.4%. This favorable trend reflects the Company’s strategy to improve all aspects of its supply chain through global sourcing, regionalization of manufacturing facilities and other cost-reduction initiatives despite an increase in worldwide materials costs in 2003, as well as its focus on its high margin oral and personal care businesses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of sales were 33.3% in 2003, 32.6% in 2002 and 32.1% in 2001. The increase as a percent of sales in 2003 was driven by increases in advertising of 0.6% and pension and other employee benefit costs of 0.4%, partially offset by savings from cost-control initiatives of 0.3%. The 2002 increase was primarily driven by pension and other employee benefit costs that were partially offset by the benefit of ongoing cost-savings initiatives. Total advertising support behind the Company’s brands, including media, promotion and other consumer and trade incentives, some of which reduce reported net sales, has increased by 13%, 8% and 1% in 2003, 2002 and 2001, respectively. Included in selling, general and administrative expenses is media spending of $514.0, $486.6 and $509.0 in 2003, 2002 and 2001, respectively. Increased media spending in 2003 supported new product launches and helped increase market shares throughout the world. The decrease in media spending in 2002 reflected lower media pricing, the negative impact of foreign exchange and a slight shift in investment to other forms of total advertising support.

Other (Income) Expense, Net

During 2003, Other (income) expense, net changed by $38.0, from $23.0 of expense to ($15.0) of income. The primary components driving this change consist of gains of $107.2 ($63.5 aftertax) related to the sale of non-core brands partially offset by $59.3 ($39.0 aftertax) of costs related to the regionalization of manufacturing facilities, which combined resulted in a net benefit of $47.9 ($24.5 aftertax).

The Company sold various detergent brands marketed in France, Italy and Scandinavia and certain non-core soap brands marketed in Europe. In connection with the European brands divestment during 2003 and the Company’s ongoing focus on the regionalization of manufacturing facilities to streamline and strengthen its operations, the Company initiated the realignment of certain manufacturing operations and workforce reduction programs primarily in Europe, Latin America and Asia/Africa. For additional information refer to “Restructuring Activities” below and Note 4 to the Consolidated Financial Statements.

During 2002, Other (income) expense, net decreased from $94.5 to $23.0 reflecting the benefit from the change in accounting for goodwill and intangible assets and changes in the fair value of foreign currency contracts. These contracts are an economic hedge of certain foreign currency debt but do not qualify for hedge accounting.

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(Dollars in Millions Except Per Share Amounts)

The components of Other (income) expense, net are presented below:

Other, net consists of miscellaneous gains and losses including gains and losses on interest rate and foreign currency hedge contracts that do not qualify for hedge accounting.

Operating Profit

Operating profit rose 8% to $2,166.0 in 2003 from $2,013.1 in 2002, which had reflected a 10% increase from 2001 operating profit of $1,834.8. The continued increase resulted from sales growth, cost-saving initiatives as well as the net impact of sales of non-core brands and restructuring activities. If 2001 results were adjusted for the impact of the change in accounting for goodwill and intangible assets, operating profit would have been $1,889.1.

Interest Expense, Net

Interest expense, net was $124.1 in 2003 compared with $142.8 in 2002 and $166.1 in 2001. This decreasing trend is the result of lower interest rates and, in 2003, reduced debt levels.

Income Taxes

The effective tax rate on income was 30.4% in 2003 versus 31.1% in 2002 and 31.3% in 2001. If 2001 had been adjusted for the impact of the change in accounting for goodwill and intangible assets, the tax rate would have been 30.9%. The effective tax rate was reduced through the realization of tax credits and incentives in all years presented, and as a result of global tax planning strategies including overseas asset revaluations in 2003 and 2001.

Net Income

Net income was $1,421.3 in 2003 or $2.46 per share on a diluted basis compared with $1,288.3 in 2002 or $2.19 per share and $1,146.6 in 2001 or $1.89 per share. As previously discussed, net income in 2003 includes a net aftertax benefit of $24.5 or $.04 per share resulting from the gain on the sale of certain European detergent brands, offset by restructuring activities. If results for 2001 were adjusted for the impact of the change in accounting for goodwill and intangible assets, net income and diluted earnings per share would have been $1,190.4 and $1.96, respectively.

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(Dollars in Millions Except Per Share Amounts)

Segment Results

North America

Net sales in North America declined 1.0% to $2,356.2 on volume gains of 0.5%, positive foreign exchange of 1.0% and declines in net selling prices of 2.5%. Lower Colgate Simply White at-home tooth whitening gel sales in 2003 were offset by recent introductions such as Colgate Simply White toothpaste, Colgate Total Advanced Fresh toothpaste, Colgate Whitening and Colgate Massager manual toothbrushes, Colgate powered toothbrushes for kids featuring LEGO BIONICLE, and Softsoap Aromatherapy, Softsoap Foamworks and Softsoap Naturals Milk & Honey brand liquid hand soaps, which contributed to volume growth. In 2002, North America achieved overall sales growth of 3.0% to $2,374.1 on volume growth of 6.0%.

Operating profit in North America declined 5% to $547.4 due to increased media and promotion costs as well as the decline in sales. Operating profit in 2002 increased 12% to $578.7, as a result of volume gains, emphasis on higher margin products, and cost-savings initiatives improving gross profit margin. The impact of the discontinuation of amortization of goodwill and indefinite life intangible assets in 2002 was largely offset by increased pension and benefit costs.

Latin America

Net sales in Latin America declined 1.0% to $2,179.5 on 4.0% volume growth and increases in net selling prices of 7.5%, offset by the negative impact of 12.5% resulting from foreign currency declines primarily in Mexico, Venezuela, the Dominican Republic and Colombia. The strongest volume gains in the region were achieved in Mexico, Venezuela, Ecuador, Colombia, Peru and Chile. New products contributing to volume growth in Oral Care include Colgate Total Plus Whitening and Sorriso Super Refreshing toothpastes, Colgate Simply White at-home tooth whitening gel, and Colgate Active Angle, Colgate Extra Clean and Colgate Disney Finding Nemo manual toothbrushes. Driving growth in Personal and Household Surface Care are Palmolive Aromatherapy translucent bar soap, Palmolive Caprice specialty shampoos, and Fabuloso Orange Energy and Ajax Baking Soda and Citrus liquid cleaners. In 2002, Latin America net sales declined 5.5% to $2,206.8 as volume gains of 2.5% were negatively impacted by foreign exchange.

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(Dollars in Millions Except Per Share Amounts)

Operating profit in Latin America decreased 5% to $613.3 due to negative foreign currency impact offset by volume growth and cost-control initiatives. These factors, offset by the discontinuation of amortization of goodwill and indefinite life intangibles, caused a 2% decrease in operating profit in 2002 to $647.2.

Europe

Net sales in Europe increased 16.0% to $2,304.1 on volume gains of 3.0% and a 15.5% positive impact of stronger foreign currencies, primarily the euro, offset by a 2.5% decline in net selling prices. The United Kingdom, Russia, Turkey, Ukraine and Scandinavia achieved the strongest volume increases in the region. New products contributing to growth in Oral Care throughout Europe include Colgate Sensitive and Colgate Triple Action toothpastes, and Colgate Massager, Colgate Extra Clean and Colgate Whitening manual toothbrushes. Palmolive Aromatherapy Sensual, Palmolive Thermal and Palmolive Thermal Spa shower gels and bath foams, Lady Speed Stick Aloe deodorant, Palmolive Oxygen dishwashing liquid and Soupline Hearts fabric conditioner tablets drove growth in Personal, Household Surface and Fabric Care. In 2002, European net sales increased 8.0% to $1,984.3 on volume growth of 5.0%.

Operating profit in Europe increased 19% to $488.2 in 2003 and 19% to $409.0 in 2002 as a result of volume growth, gross margin improvement, the impact of the stronger euro and, in 2002, the discontinuation of amortization of goodwill and indefinite life intangible assets.

Asia/Africa

Net sales in Asia/Africa increased 13.5% to $1,747.5 on volume gains of 7.5% and the positive impact of 8.5% from foreign currencies offset by a 2.5% decrease in net selling prices. China, Malaysia, the Philippines and Australia achieved the strongest volume gains in the region. Successful new products driving growth in Oral Care are Colgate Herbal and Colgate Herbal White toothpastes, and Colgate Premier Ultra and Colgate Navigator Plus manual toothbrushes. Protex SunCare bar soap, Palmolive Naturals shampoo and Palmolive Aromatherapy shampoo, shower gel, talc, liquid hand soap and translucent bar soap contributed to growth in Personal Care throughout the region. In 2002, net sales in Asia/Africa increased 4.0% to $1,542.0 as volume gains of 4.5% were partially offset by foreign currency weakness.

Operating profit grew 21% in Asia/Africa to $280.7 in 2003 and 19% to $232.6 in 2002, driven by volume gains and higher gross profit margins benefiting from the regionalization of manufacturing facilities as well as strong foreign currencies.

Pet Nutrition

Net sales for Hill’s Pet Nutrition increased 11.0% to $1,316.1 on 4.5% volume growth, an increase of 1.5% in net selling prices and 5.0% in positive foreign currency impact. Hills’ business in the U.S. was driven by the continued success of Science Diet Nature’s Best, Science Diet Advanced Protection and Prescription Diet Feline m/d. Internationally, Japan, Hong Kong, Australia, Brazil, France, the United Kingdom, Spain, New Zealand, the Philippines and Russia each contributed strong volume gains. The continued rollout of Science Plan and Science Diet Nature’s Best throughout Europe and Asia contributed to the strong international results. In 2002, net sales for the Pet Nutrition segment increased 7.0% to $1,187.1 on 5.5% volume gains.

Operating profit in Pet Nutrition grew 17% to $371.0 in 2003 and 13% to $318.3 in 2002 as a result of strong volume gains and higher gross profit margins, as well as ongoing cost-savings initiatives.

LEGO^™ and BIONICLE^™ are trademarks of the LEGO Group used here with special permission.

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(Dollars in Millions Except Per Share Amounts)

Liquidity and Capital Resources

Net cash provided by operations increased 10% to $1,767.7 compared with $1,611.2 in 2002 and $1,503.9 in 2001. The increase reflects the Company’s improved profitability and working capital management including lower cash taxes. A portion of the higher taxes paid in 2002 related to a deferral of 2001 taxes into 2002 under a government relief program as a result of the events of September 11, 2001. The Company’s working capital as a percentage of sales improved to 1.7% of sales as compared with 3.2% of sales in 2002. The Company defines working capital as the difference between current assets (excluding cash and marketable securities, the latter of which is reported in other current assets) and current liabilities (excluding short-term debt). The inventory and accounts receivable components of working capital changed slightly from December 31, 2002 as both inventory days coverage and receivable days sales outstanding remained essentially unchanged. Working capital at December 31, 2003 includes an increase of approximately $69.6 of accrued liabilities related to taxes and restructuring costs incurred in connection with the Company’s sale of certain non-core product lines and other associated actions. The majority of these amounts are expected to be paid in the first half of 2004. Cash generated from operations in 2003 was used to fund capital spending, pay dividends, repurchase common stock and reduce overall debt levels.

Investing activities used $117.6 of cash during 2003 compared with $357.2 and $323.5 during 2002 and 2001, respectively, reflecting an increase in proceeds related to the sale of non-core product lines and from the sale of marketable securities and investments, as well as lower capital expenditures than in the comparable periods. Capital expenditures were $302.1, $343.7 and $340.2 for 2003, 2002 and 2001, respectively. Capital spending continues to be focused primarily on projects that yield high aftertax returns. Capital expenditures for 2004 are expected to be at the rate of approximately 3.0% to 3.5% of net sales. During 2003, the Company sold various detergent and certain non-core soap brands marketed in Europe for an aggregate sales price of $127.6. These non-core brands accounted for approximately 1% of the Company’s 2003 net sales. Certain detergent product lines in Central America were sold in 2001 for an aggregate sale price of $12.5. There were no significant divestitures in 2002. Proceeds from the sale of various marketable securities and investments include the settlement of certain foreign currency contracts.

During 2003, long-term debt decreased to $2,999.3 from $3,509.3 in 2002 and total debt decreased to $3,102.9 in 2003 from $3,603.9 in 2002, primarily due to the Company’s strong free cash flow before dividends (defined below) and the proceeds from the sale of non-core brands, partially offset by share repurchases. The Company’s long-term debt has maintained a rating of AA- by Standard & Poor’s and Aa3 by Moody’s Investors Service.

The Company currently issues commercial paper in the U.S., Canadian and European markets. Domestic and foreign commercial paper outstanding was $46.1 and $391.4, as of December 31, 2003 and 2002, respectively. Commercial paper outstanding during 2003 averaged $640.0 down from the $780.0 average in 2002. The maximum commercial paper outstanding during 2003 and 2002 was $920.0 and $1,100.0, respectively. These borrowings carry a Standard & Poor’s rating of A1+ and a Moody’s rating of P1. The commercial paper and certain current maturities of notes payable of $562.4 are classified as long-term debt at December 31, 2003, as the Company has the intent and ability to refinance such obligations on a long-term basis, including, if necessary, utilizing its lines of credit that expire in 2007.

Certain of the Company’s financing arrangements require the maintenance of a minimum ratio of operating cash flow to debt. The ESOP notes guaranteed by the Company and certain amounts payable to banks contain 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.