10-Q 1 clx-20210930.htm 10-Q clx-20210930
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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 September 30, 2021.
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: 1-07151
clx-20210930_g1.jpg
THE CLOROX COMPANY
(Exact name of registrant as specified in its charter) 
Delaware31-0595760
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1221 Broadway, Oakland, California, 94612-1888
(Address of principal executive offices) (Zip code)
(510) 271-7000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
___________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock - $1.00 par valueCLXNew York Stock Exchange
 
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  
Large accelerated filerAccelerated filerNon-accelerated filerSmaller Reporting CompanyEmerging 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 
 
As of October 19, 2021, there were 122,862,766 shares outstanding of the registrant’s common stock ($1.00 par value).
1


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
The Clorox Company
Condensed Consolidated Statements of Earnings and Comprehensive Income (Unaudited)
(Dollars in millions, except per share data)
Three Months Ended
9/30/20219/30/2020
Net sales$1,806 $1,916 
Cost of products sold1,136 996 
Gross profit670 920 
Selling and administrative expenses236 238 
Advertising costs182 179 
Research and development costs33 32 
Interest expense25 25 
Other (income) expense, net9 (80)
Earnings before income taxes185 526 
Income taxes42 109 
Net earnings143 417 
Less: Net earnings attributable to noncontrolling interests12 
Net earnings attributable to Clorox$142 $415 
Net earnings per share attributable to Clorox
Basic net earnings per share$1.15 $3.28 
Diluted net earnings per share$1.14 $3.22 
Weighted average shares outstanding (in thousands)
Basic122,980 126,346 
Diluted124,042 128,729 
Comprehensive income$122 $434 
Less: Total comprehensive income attributable to noncontrolling interests12 
Total comprehensive income attributable to Clorox$121 $432 

See Notes to Condensed Consolidated Financial Statements (Unaudited)
2


The Clorox Company
Condensed Consolidated Balance Sheets
(Dollars in millions, except per share data)
9/30/20216/30/2021
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents$210 $319 
Receivables, net654 604 
Inventories, net785 752 
Prepaid expenses and other current assets171 154 
Total current assets1,820 1,829 
Property, plant and equipment, net of accumulated depreciation and amortization
        of $2,422 and $2,382, respectively
1,301 1,302 
Operating lease right-of-use assets310 332 
Goodwill1,566 1,575 
Trademarks, net691 693 
Other intangible assets, net218 225 
Other assets368 378 
Total assets$6,274 $6,334 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Notes and loans payable$86 $ 
Current maturities of long-term debt899 300 
Current operating lease liabilities72 81 
Accounts payable and accrued liabilities1,582 1,675 
Total current liabilities2,639 2,056 
Long-term debt1,885 2,484 
Long-term operating lease liabilities288 301 
Other liabilities846 834 
Deferred income taxes69 67 
Total liabilities5,727 5,742 
Commitments and contingencies
Stockholders’ equity
Preferred stock: $1.00 par value; 5,000,000 shares authorized; none issued or outstanding
  
Common stock: $1.00 par value; 750,000,000 shares authorized; 130,741,461 shares issued as of September 30, 2021 and June 30, 2021; and 122,856,251 and 122,780,220 shares outstanding as of September 30, 2021 and June 30, 2021, respectively
131 131 
Additional paid-in capital1,166 1,186 
Retained earnings1,027 1,036 
Treasury stock, at cost: 7,885,210 and 7,961,241 shares as of September 30, 2021
        and June 30, 2021, respectively
(1,389)(1,396)
Accumulated other comprehensive net (loss) income(567)(546)
Total Clorox stockholders’ equity368 411 
Noncontrolling interests179 181 
Total stockholders’ equity547 592 
Total liabilities and stockholders’ equity$6,274 $6,334 

See Notes to Condensed Consolidated Financial Statements (Unaudited)
3


The Clorox Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)
Three Months Ended
9/30/20219/30/2020
Operating activities:
Net earnings$143 $417 
Adjustments to reconcile net earnings to net cash provided by operations:
Depreciation and amortization55 51 
Stock-based compensation9 13 
Deferred income taxes2 20 
Other8 (71)
Changes in:
Receivables, net(53)(8)
Inventories, net(37)(70)
Prepaid expenses and other current assets(14)(18)
Accounts payable and accrued liabilities(96)20 
Operating lease right-of-use assets and liabilities, net (1)
Income taxes payable / prepaid24 30 
Net cash provided by operations41 383 
Investing activities:
Capital expenditures(52)(69)
Businesses acquired, net of cash acquired (85)
Other(4)3 
Net cash used for investing activities(56)(151)
Financing activities:
Notes and loans payable, net86  
Treasury stock purchased(25)(100)
Cash dividends paid to Clorox stockholders(142)(140)
Issuance of common stock for employee stock plans and other(11)(7)
Net cash used for financing activities(92)(247)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(3)3 
Net increase (decrease) in cash, cash equivalents, and restricted cash(110)(12)
Cash, cash equivalents, and restricted cash:
Beginning of period324 879 
End of period$214 $867 


See Notes to Condensed Consolidated Financial Statements (Unaudited)
4


The Clorox Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited interim condensed consolidated financial statements for the three months ended September 30, 2021 and 2020, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the consolidated results of operations, financial position and cash flows of The Clorox Company and its controlled subsidiaries (the Company) for the periods presented. However, the financial results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) have been omitted or condensed pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). The information in this report should be read in conjunction with the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 30, 2021, which includes a complete set of footnote disclosures, including the Company’s significant accounting policies.

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, “Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes,” which removes certain exceptions to the general principles in ASC 740 and amends existing guidance to improve consistent application. Certain amendments must be applied prospectively, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. The Company adopted this standard as of July 1, 2021. The adoption of this new standard did not have a material impact on the Company’s condensed consolidated financial statements.
5


NOTE 2. BUSINESS ACQUIRED

Saudi Joint Venture Acquisition

On July 9, 2020, the Company increased its investment in each of the two entities comprising its joint venture in the Kingdom of Saudi Arabia (Saudi joint venture) from 30 percent to 51 percent. The joint venture offers customers in the Gulf region a range of cleaning and disinfecting products. With the additional investment, the Company has consolidated this joint venture into its consolidated financial statements from the date of acquisition and reflects operations within the International reportable segment. The equity and income attributable to the other joint venture owners is recorded and presented as noncontrolling interests. As a result of this transaction, the carrying value of the Company’s previously held equity investment was remeasured to fair value, and resulted in an $85 non-recurring, noncash gain recorded in Other (income) expense, net in the condensed consolidated statement of earnings and adjusted in Other operating activities in the condensed consolidated statement of cash flows for the first quarter of fiscal year 2021.

The Saudi joint venture acquisition was accounted for under the acquisition method of accounting for business combinations. The total purchase consideration was $111 consisting of $100 cash paid and $11 from the net effective settlement of preexisting arrangements between the Company and the joint venture. The assets and liabilities of the joint venture were recorded at their respective estimated fair value as of the acquisition date. The fair value of the total net assets and noncontrolling interests recorded as of the date of acquisition was $412 and $198, respectively. The purchase price allocation was finalized during the second quarter of fiscal year 2021.

Refer to the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for the final purchase price allocation, valuation methodology and other information related to the Saudi joint venture acquisition.



6


NOTE 3. INVENTORIES, NET
Inventories, net, consisted of the following as of:
9/30/20216/30/2021
Finished goods$594 $543 
Raw materials and packaging220 229 
Work in process13 11 
LIFO allowances(42)(31)
Total$785 $752 


NOTE 4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial Risk Management and Derivative Instruments

The Company is exposed to certain commodity, foreign currency and interest rate risks related to its ongoing business operations and uses derivative instruments to mitigate its exposure to these risks.

Commodity Price Risk Management

The Company may use commodity exchange traded futures and over-the-counter swap contracts, which are generally no longer than 2 years, to fix the price of a portion of its forecasted raw material requirements. Commodity purchase contracts are measured at fair value using market quotations obtained from the Chicago Board of Trade commodity futures exchange and commodity derivative dealers.

As of September 30, 2021, the notional amount of commodity derivatives was $35, of which $24 related to soybean oil futures used for the Food products business and $11 related to jet fuel swaps used for the Grilling business. As of June 30, 2021, the notional amount of commodity derivatives was $32, of which $23 related to soybean oil futures and $9 related to jet fuel swaps.

Foreign Currency Risk Management

The Company may also enter into certain over-the-counter derivative contracts to manage a portion of the Company’s forecasted foreign currency exposure associated with the purchase of inventory. These foreign currency contracts generally have durations of no longer than 2 years. The foreign exchange contracts are measured at fair value using information quoted by foreign exchange dealers.

The notional amounts of outstanding foreign currency forward contracts used by the Company’s subsidiaries to hedge forecasted purchases of inventory were $50 and $70, respectively, as of September 30, 2021 and June 30, 2021.

Interest Rate Risk Management

The Company may enter into over-the-counter interest rate contracts to fix a portion of the benchmark interest rate prior to the anticipated issuance of fixed rate debt. These interest rate contracts generally have durations of less than 3 years. The interest rate contracts are measured at fair value using information quoted by bond dealers.

The notional amounts of outstanding interest rate contracts used by the Company were $300 as of both September 30, 2021 and June 30, 2021. These contracts represent forward starting interest rate swap contracts with a maturity date of September 2022 to manage the exposure to interest rate volatility associated with future interest payments on a forecasted debt issuance.

Commodity, Foreign Exchange and Interest Rate Derivatives

The Company designates its commodity forward and futures contracts for forecasted purchases of raw materials, foreign currency forward contracts for forecasted purchases of inventory and interest rate contracts for forecasted interest payments as cash flow hedges.
7

NOTE 4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
The effects of derivative instruments designated as hedging instruments on Other comprehensive (loss) income and Net earnings were as follows:
Gains (losses) recognized in Other comprehensive (loss) income
Three Months Ended
9/30/20219/30/2020
Commodity purchase derivative contracts$ $1 
Foreign exchange derivative contracts1 (1)
Interest rate derivative contracts3 3 
Total$4 $3 

Location of gains (losses) reclassified from Accumulated other comprehensive net (loss) income into Net earningsGains (losses) reclassified from Accumulated other comprehensive net (loss) income and recognized in Net earnings
Three Months Ended
9/30/20219/30/2020
Commodity purchase derivative contractsCost of products sold$5 $(1)
Foreign exchange derivative contractsCost of products sold  
Interest rate derivative contractsInterest expense(2)(2)
Total$3 $(3)

The estimated amount of the existing net gain (loss) in Accumulated other comprehensive net (loss) income as of September 30, 2021, that is expected to be reclassified into Net earnings (losses) within the next twelve months is $7.

Counterparty Risk Management and Derivative Contract Requirements

The Company utilizes a variety of financial institutions as counterparties for over-the-counter derivative instruments. The Company enters into agreements governing the use of over-the-counter derivative instruments and sets internal limits on the aggregate over-the-counter derivative instrument positions held with each counterparty. Certain terms of these agreements require the Company or the counterparty to post collateral when the fair value of the derivative instruments exceeds contractually-defined counterparty liability position limits. Of the over-the-counter derivative instruments in liability positions held as of both September 30, 2021 and June 30, 2021, $0 contained such terms. As of September 30, 2021 and June 30, 2021, neither the Company nor any counterparty was required to post any collateral, as no counterparty liability position limits were exceeded.

Certain terms of the agreements governing the Company’s over-the-counter derivative instruments require the credit ratings, as assigned by Standard & Poor’s and Moody’s to the Company and its counterparties, to remain at a level equal to or better than the minimum of an investment grade credit rating. If the Company’s credit ratings were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. As of both September 30, 2021 and June 30, 2021, the Company and each of its counterparties had been assigned investment grade ratings by both Standard & Poor’s and Moody’s.

Certain of the Company’s exchange-traded futures contracts used for commodity price risk management include requirements for the Company to post collateral in the form of a cash margin account held by the Company’s broker for trades conducted on that exchange. As of September 30, 2021 and June 30, 2021, the Company maintained cash margin balances related to exchange-traded futures contracts of $2 and $0, respectively, which are classified as Prepaid expenses and other current assets on the condensed consolidated balance sheets.






8

NOTE 4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Trust Assets

The Company holds interests in mutual funds and cash equivalents as part of trust assets related to its nonqualified deferred compensation plans. The participants in the nonqualified deferred compensation plans, who are the Company’s current and former employees, may select among certain mutual funds in which their compensation deferrals are invested in accordance with the terms of the plans and within the confines of the trusts, which hold the marketable securities. The trusts represent variable interest entities for which the Company is considered the primary beneficiary, and, therefore, trust assets are consolidated and included in Other assets in the condensed consolidated balance sheets. The interests in mutual funds are measured at fair value using quoted market prices. The Company has designated these marketable securities as trading investments.

Fair Value of Financial Instruments

Financial assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets are required to be classified and disclosed in one of the following three categories of the fair value hierarchy:

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions.

As of September 30, 2021 and June 30, 2021, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis included derivative financial instruments, which were classified as either Level 1 or Level 2, and trust assets to fund the Company’s nonqualified deferred compensation plans, which were classified as Level 1.
9

NOTE 4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
All of the Company’s derivative instruments qualify for hedge accounting. The following table provides information about the balance sheet classification and the fair values of the Company’s derivative instruments:
 9/30/20216/30/2021
Balance Sheet
Classification
Fair Value
Hierarchy
Level
Carrying
Amount
Estimated
Fair
Value
Carrying
Amount
Estimated
Fair
Value
Assets
Commodity purchase futures contractsPrepaid expenses and other current assets1$1 $1 $5 $5 
Commodity purchase swaps contractsPrepaid expenses and other current assets24 4 4 4 
Foreign exchange forward contractsPrepaid expenses and other current assets22 2   
Interest rate contractsPrepaid expenses and other current assets226 26 24 24 
 $33 $33 $33 $33 

The following table provides information about the balance sheet classification and the fair values of the Company’s other assets and liabilities for which disclosure of fair value is required:
 9/30/20216/30/2021
Balance Sheet
Classification
Fair Value
Hierarchy
Level
Carrying
Amount
Estimated
Fair
Value
Carrying
Amount
Estimated
Fair
Value
Assets
Interest-bearing investments, including money market funds
Cash and cash
equivalents (1)
1$98 $98 $196 $196 
Time deposits
Cash and cash
equivalents (1)
21 1 11 11 
Trust assets for nonqualified deferred compensation plansOther assets1142 142 136 136 
 $241 $241 $343 $343 
Liabilities
Notes and loans payable
Notes and loans payable (2)
2$86 $86 $ $ 
Current maturities of long-term debt and Long-term debt
Current maturities of long-
term debt and Long-term
debt (3)
22,784 2,943 2,784 2,963 
$2,870 $3,029 $2,784 $2,963 

(1)Cash and cash equivalents are composed of time deposits and other interest-bearing investments, including money market funds with original maturity dates of 90 days or less. Cash and cash equivalents are recorded at cost, which approximates fair value.
(2)Notes and loans payable are composed of outstanding U.S. commercial paper balances, which are recorded at cost, which approximates fair value.
(3)Current maturities of long-term debt and Long-term debt are recorded at cost. The fair value of Long-term debt, including current maturities, was determined using secondary market prices quoted by corporate bond dealers, and is classified as Level 2.


10


NOTE 5. INCOME TAXES
In determining its quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter. The effective tax rate on earnings was 22.6% and 20.7% for the three months ended September 30, 2021, and 2020, respectively. The lower effective tax rate in the prior period was primarily due to the non-taxable portion of the remeasurement gain recognized on the previously held equity interest in the Saudi joint venture.


NOTE 6. NET EARNINGS PER SHARE (EPS)
The following is the reconciliation of the weighted average number of shares outstanding (in thousands) used to calculate basic net EPS to those used to calculate diluted net EPS:
Three Months Ended
9/30/20219/30/2020
Basic122,980126,346
Dilutive effect of stock options and other1,0622,383
Diluted124,042128,729
Antidilutive stock options and other1,068441 

Basic net earnings per share and Diluted net earnings per share are calculated on Net earnings attributable to Clorox.


NOTE 7. COMPREHENSIVE INCOME
The following table provides a summary of Comprehensive income for the periods indicated:
Three Months Ended
9/30/20219/30/2020
Net earnings $143 $417 
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments(23)10 
Net unrealized gains (losses) on derivatives1 5 
Pension and postretirement benefit adjustments1 2 
Total other comprehensive (loss) income, net of tax(21)17 
Comprehensive income122 434 
Less: Total comprehensive income attributable to noncontrolling interests1 2 
Total comprehensive income attributable to Clorox$121 $432 


11


NOTE 8. STOCKHOLDERS EQUITY

Changes in the components of Stockholders’ equity were as follows for the periods indicated:
Three Months Ended September 30
(Dollars in millions except per share data; shares in thousands)
Common StockAdditional Paid-in CapitalRetained EarningsTreasury StockAccumulated
Other
Comprehensive
Net (Loss) Income
Non-controlling interestsTotal Stockholders’ Equity
AmountShares AmountShares
Balance as of June 30, 2020$159 158,741 $1,137 $3,567 $(3,315)(32,543)$(640)$ $908 
Net earnings— — — 415 — — — 2 417 
Other comprehensive (loss) income— — — — — — 17 — 17 
Dividends to Clorox stockholders ($1.11 per share declared)
— — — (141)— — — — (141)
Dividends to non-controlling interests— — — — — — — (4)(4)
Business combinations including purchase accounting adjustments— — — — — — — 198 198 
Stock-based compensation— — 13 — — — — — 13 
Other employee stock plan activities— — (4)(1)8 283 — — 3 
Treasury stock purchased— — — — (100)(444)— — (100)
Balance as of September 30, 2020$159 158,741 $1,146 $3,840 $(3,407)(32,704)$(623)$196 $1,311 
Balance as of June 30, 2021$131 130,741 $1,186 $1,036 $(1,396)(7,961)$(546)$181 $592 
Net earnings— — — 142 — — — 1 143 
Other comprehensive (loss) income— — — — — — (21)— (21)
Dividends to Clorox stockholders ($1.16 per share declared)
— — — (143)— — — — (143)
Dividends to non-controlling interests— — — — — — — (3)(3)
Stock-based compensation— — 9 — — — — — 9 
Other employee stock plan activities— — (29)(8)32 228 — — (5)
Treasury stock purchased— — — — (25)(152)— — (25)
Balance as of September 30, 2021$131 130,741 $1,166 $1,027 $(1,389)(7,885)$(567)$179 $547 





12

NOTE 8. STOCKHOLDERS’ EQUITY (Continued)
Changes in Accumulated other comprehensive net (loss) income attributable to Clorox by component were as follows for the periods indicated:
Three Months Ended September 30
Foreign currency translation adjustmentsNet unrealized gains (losses) on derivativesPension and postretirement benefit adjustmentsAccumulated other comprehensive net (loss) income
Balance as of June 30, 2020$(450)$(18)$(172)$(640)
Other comprehensive (loss) income before reclassifications9 3  12 
Amounts reclassified from Accumulated other comprehensive net (loss) income 3 2 5 
Income tax benefit (expense)1 (1)  
Net current period other comprehensive (loss) income10 5 2 17 
Balance as of September 30, 2020$(440)$(13)$(170)$(623)
Balance as of June 30, 2021$(403)$21 $(164)$(546)
Other comprehensive (loss) income before reclassifications(22)4  (18)
Amounts reclassified from Accumulated other comprehensive net (loss) income (3)2 (1)
Income tax benefit (expense), and other(1) (1)(2)
Net current period other comprehensive (loss) income(23)1 1 (21)
Balance as of September 30, 2021$(426)$22 $(163)$(567)

Included in foreign currency translation adjustments are remeasurement losses on long-term intercompany loans where settlement is not planned or anticipated in the foreseeable future. There were no amounts associated with these loans reclassified from Accumulated other comprehensive net (loss) income for the periods presented.
13


NOTE 9. EMPLOYEE BENEFIT PLANS
The following table summarizes the components of net periodic benefit cost for the Company’s retirement income plans:
Three Months Ended
9/30/20219/30/2020
Service cost$ $ 
Interest cost4 4 
Expected return on plan assets (1)
(4)(4)
Amortization of unrecognized items2 3 
Total$2 $3 
(1) The weighted average long-term expected rate of return on plan assets used in computing the fiscal year 2022 net periodic benefit cost is 3.0%.
The net periodic benefit cost for the Company’s retirement health care plans was $0 for both the three months ended September 30, 2021 and 2020.
During the three months ended September 30, 2021 and 2020, the Company made $3 and $2 in contributions to its domestic retirement income plans, respectively.
Service cost component of the net periodic benefit cost, if any, is reflected in employee benefit costs, all other components are reflected in Other (income) expense, net.
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NOTE 10. OTHER CONTINGENCIES AND GUARANTEES
Contingencies
The Company is involved in certain environmental matters, including response actions at various locations. The Company had recorded liabilities totaling $28 as of both September 30, 2021 and June 30, 2021, for its share of aggregate future remediation costs related to these matters.
One matter, which accounted for $14 of the recorded liability as of both September 30, 2021 and June 30, 2021, relates to environmental costs associated with one of the Company’s former operations at a site located in Alameda County, California. In November 2016, at the request of regulators and with the assistance of environmental consultants, the Company submitted a Feasibility Study that evaluated various options for managing the site and included estimates of the related costs. As a result, the Company recorded in Other (income) expense, net an undiscounted liability for costs estimated to be incurred over a 30-year period, based on the option recommended in the Feasibility Study. However, as a result of ongoing discussions with regulators, in June 2017, the Company increased its recorded liability to $14, which reflects anticipated costs to implement additional remediation measures at this site. While the Company believes its latest estimate is reasonable, regulators could require the Company to implement one of the other options evaluated in the Feasibility Study, with estimated undiscounted costs of up to $28 over an estimated 30-year period, or require the Company to take other actions and incur costs not included in the study.
Another matter in Dickinson County, Michigan, at the site of one of the Company’s former operations for which the Company is jointly and severally liable, accounted for $10 of the recorded liability, as of September 30, 2021 and June 30, 2021. This amount reflects the Company’s agreement to be liable for 24.3% of the aggregate remediation and associated costs for this matter pursuant to a cost-sharing arrangement with a third party. If the third party is unable to pay its share of the response and remediation obligations, the Company may be responsible for such obligations. With the assistance of environmental consultants, the Company maintains an undiscounted liability representing its current best estimate of its share of the capital expenditures, maintenance and other costs that may be incurred over an estimated 30-year remediation period. Although it is reasonably possible that the Company’s exposure may exceed the amount recorded for the Dickinson County matter, any amount of such additional exposures, or range of exposures, is not estimable at this time. The Company’s estimated losses related to these matters are sensitive to a variety of uncertain factors, including the efficacy of any remediation efforts, changes in any remediation requirements and the future availability of alternative clean-up technologies.
The Company is subject to various legal proceedings, claims and other loss contingencies, including, without limitation, loss contingencies relating to contractual arrangements, product liability, patents and trademarks, advertising, labor and employment, environmental, health and safety and other matters. With respect to these proceedings, claims and other loss contingencies, while considerable uncertainty exists, in the opinion of management at this time, the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, either individually or in the aggregate, on the Company’s condensed consolidated financial statements taken as a whole.
Guarantees
In conjunction with divestitures and other transactions, the Company may provide typical indemnifications (e.g., indemnifications for representations and warranties and retention of previously existing environmental, tax and employee liabilities) that have terms that vary in duration and in the potential amount of the total obligation and, in many circumstances, are not explicitly defined. The Company has not made, nor does it believe that it is probable that it will make, any material payments relating to its indemnifications, and believes that any reasonably possible payments would not have a material adverse effect, either individually or in the aggregate, on the Company’s condensed consolidated financial statements taken as a whole.
The Company had not recorded any material liabilities on the aforementioned guarantees as of September 30, 2021 and June 30, 2021.
As of September 30, 2021, the Company was party to a letter of credit of $14, related to one of its insurance carriers, of which $0 had been drawn upon.


15


NOTE 11. SEGMENT RESULTS
The Company operates through strategic business units (SBUs) that are also the Company’s operating segments. The SBUs are then aggregated into four reportable segments: Health and Wellness, Household, Lifestyle and International.
Certain non-allocated administrative costs, interest income, interest expense and various other non-operating income and expenses are reflected in Corporate. Corporate assets include cash and cash equivalents, prepaid expenses and other current assets, property and equipment, operating lease right-of-use assets, other long-term assets and deferred taxes.
The tables below present reportable segment information and a reconciliation of the segment information to the Company’s consolidated net sales and earnings before income taxes, with amounts that are not allocated to the reportable segments reflected in Corporate.
Net sales
Three Months Ended
9/30/20219/30/2020
Health and Wellness$745 $813 
Household442 500 
Lifestyle331 318 
International288 285 
Corporate  
Total$1,806 $1,916 
Earnings (losses) before income taxes
Three Months Ended
9/30/20219/30/2020
Health and Wellness $105 $251 
Household36 109 
Lifestyle93 102 
International30 124 
Corporate(79)(60)
Total$185 $526 
All intersegment sales are eliminated and are not included in the Company’s reportable segments’ net sales.
Net sales to the Company’s largest customer, Wal-Mart Stores, Inc. and its affiliates, as a percentage of consolidated net sales, were 25% for the three months ended September 30, 2021, and 2020.
16

NOTE 11. SEGMENT RESULTS (Continued)
The following table provides Net sales as a percentage of the Company’s consolidated net sales, disaggregated by SBU, for the periods indicated:
Net sales
Three Months Ended
9/30/20219/30/2020
Cleaning33 %29 %
Professional Products5 %9 %
Vitamins, Minerals and Supplements3 %4 %
Health and Wellness41 %42 %
Bags and Wraps12 %11 %
Cat Litter7 %6 %
Grilling6 %9 %
Household25 %26 %
Food Products9 %9 %
Natural Personal Care4 %4 %
Water Filtration5 %4 %
Lifestyle18 %17 %
International16 %15 %
Total100 %100 %



17


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Clorox Company
(Dollars in millions, except per share data)
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of The Clorox Company’s (the Company or Clorox) financial statements with a narrative from the perspective of management on the Company’s financial condition, results of operations, liquidity and certain other factors that may affect future results. The following discussion of the Company’s financial condition and results of operations should be read in conjunction with MD&A and the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021, which was filed with the SEC on August 10, 2021, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q (this Report). Unless otherwise noted, MD&A compares the three month period ended September 30, 2021 (the current period) to the three month period ended September 30, 2020 (the prior period), with percentage and basis point calculations based on rounded numbers, except for per share data and the effective tax rate.

EXECUTIVE OVERVIEW
Clorox is a leading multinational manufacturer and marketer of consumer and professional products with approximately 9,000 employees worldwide. Clorox sells its products primarily through mass retailers, grocery outlets, warehouse clubs, dollar stores, home hardware centers, drug, pet and military stores, third-party and owned e-commerce channels, and distributors. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products, Pine-Sol® cleaners; Liquid-Plumr® clog removers; Poett® home care products; Fresh Step® cat litter; Glad® bags and wraps; Kingsford® grilling products; Hidden Valley® dressings, dips, seasonings and sauces; Brita® water-filtration systems and filters; Burt’s Bees® natural personal care products; and RenewLife®, Rainbow Light®, Natural Vitality® and NeoCell® vitamins, minerals and supplements. The Company also markets industry-leading products and technologies for professional customers, including those sold under the CloroxPro and Clorox Healthcare® brand names. The Company has operations in more than 25 countries or territories and sells its products in more than 100 markets.
The Company primarily markets its leading brands in midsized categories considered to be financially attractive. Most of the Company’s products compete with other nationally advertised brands within each category and with “private label” brands.

The Company operates through strategic business units (SBUs) which are also the Company’s operating segments. These SBUs are then aggregated into four reportable segments: Health and Wellness, Household, Lifestyle and International. These four reportable segments consist of the following:
Health and Wellness consists of cleaning products, professional products and vitamins, minerals and supplement products mainly marketed and sold in the U.S. Products within this segment include cleaning products such as laundry additives and home care products, primarily under the Clorox®, Clorox2®, Scentiva®, Pine-Sol®, Liquid-Plumr®, Tilex® and Formula 409® brands; professional cleaning and disinfecting products under the CloroxPro™, Clorox Healthcare® and Clorox® TurboProTM brands; professional food service products under the Hidden Valley® brand; and vitamins, minerals and supplement products under the RenewLife®, Natural Vitality®, NeoCell® and Rainbow Light® brands.

Household consists of cat litter products, bags and wraps and grilling products marketed and sold in the U.S. Products within this segment include cat litter products under the Fresh Step®, Scoop Away® and Ever Clean® brands, bags and wraps under the Glad® brand; and grilling products under the Kingsford® brand.

Lifestyle consists of food, natural personal care products and water-filtration marketed and sold in the U.S. Products within this segment include dressings, dips, seasonings and sauces, primarily under the Hidden Valley® brand; natural personal care products under the Burt’s Bees® brand; and water-filtration systems and filters under the Brita® brand.

International consists of products sold outside the U.S. Products within this segment include laundry additives; home care products; water-filtration systems and filters; digestive health products; grilling products; cat litter products; food products; bags and wraps; natural personal care products; and professional cleaning and disinfecting products marketed primarily under the Clorox®, Ayudin®, Clorinda®, Poett®, Pine-Sol®, Glad®, Brita®, RenewLife®, Ever Clean® and Burt’s Bees® brands.

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RECENT EVENTS RELATED TO COVID-19

For our fiscal quarter ended September 30, 2021, the coronavirus (COVID-19) pandemic continued to cause economic and social disruptions that led to ongoing uncertainties. Demand for many of the products across the Company portfolio remained elevated compared to pre-pandemic levels even while U.S. consumers continued to adjust some behaviors as vaccination rates improved. The Company expects a continuing inflationary environment, marked by higher manufacturing and logistics costs as well as increased commodity costs. While we have not experienced significant disruptions in our operations during fiscal year 2022 to date, risks of future negative impacts due to transportation, logistical or supply constraints and higher commodity costs for certain raw materials remain present. We are continuing to address these impacts to our operations.

We have taken an active role in addressing the ongoing pandemic’s impact on our employees, operations, customers, consumers and communities, including taking precautionary measures, such as implementing contingency plans, making operational adjustments where necessary, and providing support to organizations that support front-line workers. As the world moves into new phases of the pandemic, the Company will continue to focus on these priorities, while continuing to strive to serve people as consumer behaviors evolve inside and outside the home.

The extent of COVID-19’s effect on the Company’s operational and financial performance in the future will depend on future developments, including the duration, spread and intensity of the pandemic in different countries, the emergence of COVID-19 variants and the effectiveness of vaccines against these variants, the Company’s continued ability to manufacture and distribute its products, any future government actions affecting consumers and the economy in general, and timing and effectiveness of global vaccines, all of which are uncertain and difficult to predict considering the rapidly evolving landscape as the Company continues to expect a variable operating environment going forward.

For additional information on the impacts and our response to the coronavirus pandemic, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Exhibit 99.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.


RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
Three Months Ended
9/30/20219/30/2020% Change
Net sales$1,806 $1,916 (6)%
Three Months Ended September 30, 2021
Percentage change versus the year-ago period
Reported (GAAP) Net Sales Growth / (Decrease)Reported VolumeAcquisitions & DivestituresForeign Exchange Impact
Price/Mix/Other (1)
Organic Sales Growth / (Decrease) (Non-GAAP) (2)
Organic Volume (3)
Health and Wellness(8)%(1)%— %— %(7)%(8)%(1)%
Household(12)(8)— — (4)(12)(8)
Lifestyle— — (1)
International(1)— (2)(1)
Total(6)%(2)% %(1)%(3)%(5)%(2)%

(1) This represents the net impact on net sales growth / (decrease) from pricing actions, mix and other factors.
(2) Organic sales growth/ (decrease) is defined as net sales growth/ (decrease) excluding the effect of any acquisitions and divestitures and foreign exchange rate changes. See “Non-GAAP Financial Information” below for reconciliation of organic sales growth to net sales growth/ (decrease), the most directly comparable GAAP financial information.
(3) Organic volume represents volume excluding the effect of any acquisitions and divestitures.


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Net sales in the current period decreased by 6%, reflecting lower shipments primarily in the Health and Wellness and Household reportable segments, partially offset by higher shipments in the Lifestyle reportable segment. Volume decreased by 2% versus the prior period. The variance between volume and net sales was primarily due to the impacts of unfavorable price mix and foreign currency exchange rates.


Three Months Ended
9/30/20219/30/2020% Change
Gross profit$670 $920 (27)%
Gross margin37.1 %48.0 %

Gross margin decreased by 1090 basis points in the current period from 48.0% to 37.1%. The decrease was primarily driven by unfavorable commodity costs and higher manufacturing and logistics costs.

Expenses
Three Months Ended
% of Net Sales
9/30/20219/30/2020% Change9/30/20219/30/2020
Selling and administrative expenses$236 $238 (1)%13.1 %12.4 %
Advertising costs182 179 10.1 9.3 
Research and development costs33 32 1.8 1.7 

Selling and administrative expenses, as a percentage of net sales, were essentially flat in the current period as compared to the prior period.

Advertising costs, as a percentage of net sales, increased by 80 basis points in the current period. The Company’s U.S. retail advertising spend as a percentage of net sales was approximately 11% in the current and prior periods.

Research and development costs, as a percentage of net sales, were essentially flat in the current period as compared to the prior period. The Company continues to invest behind product innovation and cost savings.

Interest expense, Other (income) expense, net, and the effective tax rate on earnings
Three Months Ended
9/30/20219/30/2020
Interest expense$25 $25 
Other (income) expense, net(80)
Effective tax rate on earnings (losses)22.6 %20.7 %

Other (income) expense, net was $9 and ($80) in the current and prior period, respectively. The variance was primarily due to the one-time, noncash remeasurement gain recognized in the prior period from the Company’s previously held equity interest in the Kingdom of Saudi Arabia (Saudi joint venture).

The effective tax rate on earnings (losses) was 22.6% and 20.7% for the current and prior period, respectively. The lower effective tax rate in the prior period was primarily due to the non-taxable portion of the remeasurement gain recognized on the previously held equity interest in the Saudi joint venture.

Diluted net earnings per share
Three Months Ended
9/30/20219/30/2020% Change
Diluted net earnings per share$1.14 $3.22 (65)%

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Diluted net earnings per share (EPS) decreased by $2.08, or 65%, in the current period, primarily due to lower gross margin and lower net sales, in addition to the one-time, noncash remeasurement gain recognized on the previously held equity interest in the Saudi joint venture in the prior period.


SEGMENT RESULTS

The following presents the results of the Company’s reportable segments and certain unallocated costs reflected in Corporate
(see Notes to Condensed Consolidated Financial Statements for a reconciliation of segment results to consolidated results):

Health and Wellness
Three Months Ended
9/30/20219/30/2020% Change
Net sales$745 $813 (8)%
Earnings before income taxes105 251 (58)

Volume, net sales and earnings before income taxes decreased by 1%, 8% and 58%, respectively, during the current period. The volume decrease was primarily driven by lower shipments in the Professional Products portfolio as customers continued to work through high inventory levels, partially offset by higher shipments in Cleaning primarily driven by COVID-19 Delta variant trends, merchandising support and increased supply. The variance between volume and net sales was primarily due to unfavorable mix, partially offset by lower trade promotion. The decrease in earnings before income taxes in the current period was primarily due to unfavorable mix, higher manufacturing and logistics costs and unfavorable commodity costs.


Household
Three Months Ended
9/30/20219/30/2020% Change
Net sales$442 $500 (12)%
Earnings before income taxes36 109 (67)

Volume, net sales and earnings before income taxes decreased by 8%, 12% and 67%, respectively, during the current period. The volume decrease was primarily driven by lower shipments in Grilling due to higher demand and retailer inventory builds in the prior period, partially offset by higher shipments in Litter due to a shift in timing of merchandising support in the club channel, innovation and continued growth in the ecommerce channel. The variance between volume and net sales was primarily due to unfavorable mix, partially offset by lower trade promotion. The decrease in earnings before income taxes was mainly due to unfavorable commodity costs and lower net sales.


Lifestyle
 
Three Months Ended
9/30/20219/30/2020% Change
Net sales$331 $318 %
Earnings before income taxes93 102 (9)

Volume and net sales increased by 5% and 4%, respectively, and earnings before income taxes decreased by 9% during the current period. Both volume and net sales growth were primarily driven by higher shipments of Brita water-filtration products due to merchandising support and Natural Personal Care products mainly due to higher consumption in key categories previously impacted by lower store traffic, increased merchandising support and earlier shipments of holiday gift packs as compared to the prior period. The decrease in earnings before income taxes was primarily due to unfavorable commodity costs and higher manufacturing and logistics costs, partially offset by net sales growth.



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International
Three Months Ended
9/30/20219/30/2020% Change
Net sales$288 $285 %
Earnings before income taxes30 124 (76)

Volume decreased by 1%, net sales increased by 1% and earnings before income taxes decreased by 76% during the current period. The variance between volume and net sales was mainly due to the benefit of price increases, partially offset by unfavorable mix and foreign currency exchange rates. The decrease in earnings before income taxes was primarily due to the one-time, noncash remeasurement gain recognized on the previously held equity interest in the Saudi joint venture recognized in the prior period, unfavorable commodity costs and higher manufacturing and logistics costs, partially offset by the benefit of price increases.

Argentina

Effective July 1, 2018, under the requirements of U.S. GAAP, Argentina was designated as a highly inflationary economy, and as a result the U.S. dollar replaced the Argentine peso as the functional currency of the Company’s subsidiaries in Argentina. Consequently, gains and losses from non-U.S. dollar denominated monetary assets and liabilities of Clorox Argentina are recognized in Other (income) expense, net in the condensed consolidated statement of earnings. The business environment in Argentina continues to be challenging due to significant volatility in Argentina’s currency, high inflation, economic recession, impacts of COVID-19 and temporary price controls. As of September 30, 2021 and June 30, 2021, the net asset position, excluding goodwill, of Clorox Argentina was $45 and $48, respectively. Of these net assets, cash balances were approximately $7 and $11 as of September 30, 2021 and June 30, 2021, respectively. Net sales from Clorox Argentina represented approximately 2% of the Company’s consolidated net sales for the three months ended September 30, 2021 and the fiscal year ended June 30, 2021.

For additional information on the impacts of, and our response to, the business environment in Argentina, refer to “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Corporate