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, 2019.
OR
For the quarterly period ended March 31, 2019.
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
_________________________
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, California94612-1888
(Address of principal executive offices)(Zip
1221 Broadway, Oakland, California, 94612-1888
(Address of principal executive offices) (Zip code)
(510) 271-7000
(Registrant's telephone number, including area 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
Securities registered pursuant to Section 12(g) of the Act: None
 
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 þ☑ 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 þ☑ 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 filerþ
☑
Accelerated filer¨
☐
Non-accelerated filer¨
☐
Smaller Reporting Company¨
☐
Emerging Growth Company¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No þ☑
 
As of AprilOctober 17, 2019, there were 127,367,814125,503,468 shares outstanding of the registrant’s common stock ($1.00 par value).
 



PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
The Clorox Company
Condensed Consolidated Statements of Earnings and Comprehensive Income (Unaudited)
(Dollars in millions, except share and per share data)
  Three Months Ended Nine Months Ended
  3/31/2019 3/31/2018 3/31/2019 3/31/2018
Net sales $1,551
 $1,517
 $4,587
 $4,433
Cost of products sold  878
  868
  2,593
  2,502
Gross profit  673
  649
  1,994
  1,931
Selling and administrative expenses  216
  208
  639
  609
Advertising costs  161
  150
  445
  424
Research and development costs  34
  32
  98
  95
Interest expense  24
  20
  72
  61
Other (income) expense, net  (2)  (3)  8
  (6)
Earnings from continuing operations before income taxes  240
  242
  732
  748
Income taxes on continuing operations  53
  61
  153
  142
Earnings from continuing operations  187
  181
  579
  606
Earnings (losses) from discontinued operations, net of tax  —
  —
  —
  —
Net earnings $187
 $181
 $579
 $606
Net earnings (losses) per share            
Basic            
Continuing operations $1.46
 $1.39
 $4.53
 $4.69
Discontinued operations  —
  —
  —
  —
Basic net earnings per share $1.46
 $1.39
 $4.53
 $4.69
Diluted            
Continuing operations $1.44
 $1.37
 $4.45
 $4.60
Discontinued operations  —
  —
  —
  —
Diluted net earnings per share $1.44
 $1.37
 $4.45
 $4.60
Weighted average shares outstanding (in thousands)            
Basic  128,404
  129,694
  128,092
  129,357
Diluted  130,266
  131,900
  130,218
  131,703
             
Comprehensive income $200
 $180
 $562
 $624










  Three Months Ended
  9/30/2019 9/30/2018
Net sales $1,506
 $1,563
Cost of products sold  843
  885
Gross profit  663
  678
Selling and administrative expenses  211
  212
Advertising costs  137
  139
Research and development costs  30
  32
Interest expense  25
  24
Other (income) expense, net  2
  3
Earnings before income taxes  258
  268
Income taxes  55
  58
Net earnings $203
 $210
Net earnings per share      
Basic net earnings per share $1.61
 $1.65
Diluted net earnings per share $1.59
 $1.62
Weighted average shares outstanding (in thousands)      
Basic  125,823
  127,803
Diluted  127,465
  129,946
       
Comprehensive income $190
 $210

See Notes to Condensed Consolidated Financial Statements (Unaudited)


The Clorox Company
Condensed Consolidated Balance Sheets
(Dollars in millions, except share and per share data)
 3/31/2019 6/30/2018
 (Unaudited)   
ASSETS     
Current assets     
Cash and cash equivalents$178
 $131
Receivables, net 587
  600
Inventories, net 556
  506
Prepaid expenses and other current assets 72
  74
Total current assets 1,393
  1,311
Property, plant and equipment, net of accumulated depreciation and amortization
        of $2,125 and $2,061, respectively
 1,000
  996
Goodwill 1,589
  1,602
Trademarks, net 791
  795
Other intangible assets, net 124
  134
Other assets 265
  222
Total assets$5,162
 $5,060
LIABILITIES AND STOCKHOLDERS’ EQUITY     
Current liabilities     
Notes and loans payable$321
 $199
Accounts payable and accrued liabilities 940
  1,001
Total current liabilities 1,261
  1,200
Long-term debt 2,286
  2,284
Other liabilities 774
  778
Deferred income taxes 60
  72
Total liabilities 4,381
  4,334
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; 158,741,461 shares
issued as of March 31, 2019 and June 30, 2018; and 127,888,226 and 127,982,767 shares outstanding as of March 31, 2019 and June 30, 2018, respectively
 159
  159
Additional paid-in capital 1,033
  975
Retained earnings 3,004
  2,797
Treasury shares, at cost: 30,853,235 and 30,758,694 shares as of March 31, 2019
        and June 30, 2018, respectively
 (2,851)  (2,658)
Accumulated other comprehensive net (loss) income (564)  (547)
Stockholders’ equity 781
  726
Total liabilities and stockholders’ equity$5,162
 $5,060


 9/30/2019 6/30/2019
 (Unaudited)   
ASSETS     
Current assets     
Cash and cash equivalents$150
 $111
Receivables, net 556
  631
Inventories, net 504
  512
Prepaid expenses and other current assets 56
  51
Total current assets 1,266
  1,305
Property, plant and equipment, net of accumulated depreciation and amortization
        of $2,156 and $2,150, respectively
 1,034
  1,034
Operating lease right-of-use assets 312
  —
Goodwill 1,585
  1,591
Trademarks, net 789
  791
Other intangible assets, net 118
  121
Other assets 293
  274
Total assets$5,397
 $5,116
LIABILITIES AND STOCKHOLDERS’ EQUITY     
Current liabilities     
Notes and loans payable$449
 $396
Current operating lease liabilities 57
  —
Accounts payable and accrued liabilities 941
  1,035
Income taxes payable 11
  9
Total current liabilities 1,458
  1,440
Long-term debt 2,287
  2,287
Long-term operating lease liabilities 290
  —
Other liabilities 744
  780
Deferred income taxes 68
  50
Total liabilities 4,847
  4,557
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; 158,741,461 shares
issued as of September 30, 2019 and June 30, 2019; and 125,495,492 and 125,686,325 shares outstanding as of September 30, 2019 and June 30, 2019, respectively
 159
  159
Additional paid-in capital 1,043
  1,046
Retained earnings 3,241
  3,150
Treasury shares, at cost: 33,245,969 and 33,055,136 shares as of September 30, 2019
        and June 30, 2019, respectively
 (3,278)  (3,194)
Accumulated other comprehensive net (loss) income (615)  (602)
Stockholders’ equity 550
  559
Total liabilities and stockholders’ equity$5,397
 $5,116

See Notes to Condensed Consolidated Financial Statements (Unaudited)


The Clorox Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)
 Three Months Ended
 9/30/2019 9/30/2018
Operating activities:     
Net earnings$203
 $210
Adjustments to reconcile net earnings to net cash provided by operations:     
Depreciation and amortization 44
  44
Stock-based compensation 6
  8
Deferred income taxes 7
  (3)
Other 19
  16
Changes in:     
Receivables, net 73
  33
Inventories, net 6
  (13)
Prepaid expenses and other current assets (10)  (13)
Accounts payable and accrued liabilities (82)  (52)
Operating lease right-of-use assets and liabilities, net 1
  —
Income taxes payable/receivable, net 4
  29
Net cash provided by operations 271
  259
Investing activities:     
Capital expenditures (54)  (36)
Other 12
  —
Net cash used for investing activities (42)  (36)
Financing activities:     
Notes and loans payable, net 51
  80
Treasury stock purchased (110)  (203)
Cash dividends paid (133)  (122)
Issuance of common stock for employee stock plans and other 9
  53
Net cash used for financing activities (183)  (192)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (2)  —
Net increase (decrease) in cash, cash equivalents, and restricted cash 44
  31
Cash, cash equivalents, and restricted cash:     
Beginning of period 113
  134
End of period$157
 $165
 Nine Months Ended
 3/31/2019 3/31/2018
    (As Adjusted*)
Operating activities:     
Net earnings$579
 $606
Deduct: Losses from discontinued operations, net of tax —
  —
Earnings from continuing operations 579
  606
Adjustments to reconcile earnings from continuing operations to net cash
provided by continuing operations:
     
Depreciation and amortization 133
  121
Stock-based compensation 34
  37
Deferred income taxes (7)  (43)
Other (29)  24
Changes in:     
Receivables, net 11
  (29)
Inventories, net (51)  (58)
Prepaid expenses and other current assets (10)  (2)
Accounts payable and accrued liabilities (55)  (64)
Income taxes payable/receivable, net (2)  (16)
Net cash provided by continuing operations 603
  576
Net cash provided by discontinued operations —
  —
Net cash provided by operations 603
  576
Investing activities:     
Capital expenditures (135)  (126)
Other 9
  14
Net cash used for investing activities (126)  (112)
Financing activities:     
Notes and loans payable, net 117
  657
Long-term debt borrowings, net of issuance costs —
  396
Long-term debt repayments —
  (400)
Treasury stock purchased (315)  (70)
Cash dividends paid (368)  (326)
Issuance of common stock for employee stock plans and other 137
  35
Net cash (used for) provided by financing activities (429)  292
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (2)  2
Net increase in cash, cash equivalents, and restricted cash 46
  758
Cash, cash equivalents, and restricted cash:     
Beginning of period 134
  419
End of period$180
 $1,177


*Adjusted to reflect the retrospective adoption of Accounting Standards Update (ASU) No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” effective July 1, 2018. As of March 31, 2019 and 2018 and June 30, 2018 and 2017, the Company had $2, $3, $3 and $2 of restricted cash, respectively, and the restricted cash was included in Prepaid expenses and other current assets and Other assets in the condensed consolidated balance sheets.

See Notes to Condensed Consolidated Financial Statements (Unaudited)


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

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited interim condensed consolidated financial statements for the three and nine months ended March 31,September 30, 2019 and 2018, 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 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). Certain prior year reclassifications were made in the condensed consolidated statements of cash flows to conform to the current year presentation. 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, 2018,2019, which includes a complete set of footnote disclosures, including the Company’s significant accounting policies.

Revenue Recognition

Revenue is recognized when performance obligations under the terms of the contracts with customers are satisfied. The Company's performance obligation generally consists of the promise to sell finished products to wholesalers, distributors, retailers or consumers. Control of finished products is transferred upon shipment to, or receipt at, customers' locations, as determined by the specific terms of the contract. Once control is transferred to the customer, the Company has completed its performance obligation, and revenue is recognized. After completion of the performance obligation, there is an unconditional right to consideration as outlined in the contract. A right is unconditional if nothing other than the passage of time is required before payment of that consideration is due. The Company typically collects its customer receivables within two months. All performance obligations under the terms of contracts with customers have an original duration of one year or less.

The Company routinely commits to one-time or ongoing trade-promotion programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs of such programs, which include shelf price reductions, end-of-aisle or in-store displays of the Company’s products and graphics and other trade-promotion activities conducted by the customer. The costs of such activities, defined as variable consideration under Topic 606 of the Accounting Standards Codification, "Revenue from Contracts with Customers," are netted against sales and recorded when the related sale takes place. The accruals for trade promotion programs and consumer coupon liabilities are established based on the Company’s best estimate of the amounts necessary to settle future and existing obligations for products sold as of the balance sheet date. The Company uses forecasted appropriations, historical trend analysis, and customer and sales organization inputs in determining the accruals for promotional activities, and uses historical trend experience and coupon redemption estimates for the coupon accrual requirements.

The Company provides an allowance for doubtful accounts based on its historical experience and ongoing assessment of its customers’ credit risk and aging. Receivables are presented net of the allowance for doubtful accounts.

Foreign Currency Transactions and TranslationLeases

Effective July 1, 2018, under2019, the requirementsCompany adopted Accounting Standards Codification 842, Leases (ASC 842). Under this guidance, the Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to control the use of U.S. GAAP, Argentina was designatedidentified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances. Right-of-use (ROU) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date and initial direct costs incurred by the Company and excludes any lease incentives received from the lessor. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option as of the commencement date of the lease, and is reviewed in subsequent periods if a highly inflationary economy, since it has experienced cumulative inflationtriggering event occurs. As the Company’s leases typically do not contain a readily determinable implicit rate, the Company determines the present value of approximately 100 percent or more over a three-year period. As a result, beginning July 1, 2018, the U.S. dollar replacedlease liability using its incremental borrowing rate at the Argentine peso aslease commencement date based on the functionallease term and the currency of the Company’s subsidiaries in Argentina (collectively, "Clorox Argentina"). Consequently, gainslease on a collateralized basis. Variable lease payments are expensed as incurred and losses from non-U.S. dollar denominated monetary assetsinclude certain non-lease components, such as maintenance and liabilities for Clorox Argentina are recognized in Other (income) expense, netother services provided by the lessor, and other charges included in the lease, as applicable. The Company elected to combine lease and non-lease components as a single lease component and to exclude short-term leases, defined as leases with initial terms of 12 months or less, from its condensed consolidated statement of earnings.balance sheet.


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recently Issued Accounting Standards

Recently Issued Accounting Standards Not Yet Adopted

In February 2018,January 2017, the Financial Accounting Standards Board (FASB) issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which amends its guidance to allow a reclassification from Accumulated Other Comprehensive Income to Retained Earnings for the stranded income tax effects resulting from The Tax Cuts and Jobs Act of 2017 (the Tax Act). If elected, this reclassification adjustment may be applied to either the period of adoption or retrospectively to the periods impacted by the Tax Act. The amendments are effective for the Company beginning in the first quarter of fiscal year 2020, with early adoption permitted. The Company expects to early adopt this guidance in, and apply it to, the fourth quarter of fiscal year 2019. The Company is evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which amends the hedge accounting recognition and presentation requirements to better align an entity’s risk management activities with its financial reporting. This standard also simplifies the application of hedge accounting in certain situations. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2020, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

In January 2017, the FASB issued ASUStandards Update (ASU) No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2021, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

Recently Adopted Accounting Standards

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which amends the hedge accounting recognition and presentation requirements to better align an entity’s risk management activities with its financial reporting. This standard also simplifies the application of hedge accounting in certain situations. The Company adopted this new guidance in the first quarter of fiscal year 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires lessees to recognize a right-of-useROU asset and a lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation will depend on the classification of a lease as either a finance or an operating lease. ASU 2016-02 also requires expanded disclosures about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11, "Leases“Leases (Topic 842), Targeted Improvements,"” which provides an optional transition method in applying the new lease standard. Topic 842 can be applied using either a modified retrospective approach at the beginning of the earliest period presented, or, as permitted by ASU 2018-11, at the beginning of the period in which it is adopted. The Company will adoptadopted the new standard on July 1, 2019,in the first quarter of fiscal year 2020, on a modified retrospective basis using the optional transition method, and, accordingly, willhas not restaterestated comparative periods. The Company has initiated its plan forperiods; fiscal year 2019 balances and related disclosures supporting those comparative period balances continue to be presented under ASC 840, “Leases.” As allowed under the adoption and implementation of this new accounting standard, including assessing its lease arrangements and implementing software to meet the reporting and disclosure requirements of this standard. Additionally, the Company is inelected to apply the processpackage of identifying changespractical expedients to its business processesnot reassess prior conclusions related to contracts containing leases, lease classification and controls to support theinitial direct costs. Upon adoption, and is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements. Refer to Note 12 of the Notes to Consolidated Financial Statements in Form 10-K for the fiscal year ended June 30, 2018 for the future minimum annual lease payments required under the Company’s existing non-cancelable operating and capital lease arrangements as of June 30, 2018.


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recently Adopted Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which replaces most of the existing U.S. GAAP revenue recognition guidance and is intended to improve and converge with international standards on the financial reporting requirements for revenue from contracts with customers. The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers, including information about significant judgments and changes in judgments.

The Company adopted the new guidance on a modified retrospective basis effective July 1, 2018, and does not expect the guidance to have a material impact on the Company's annual consolidated financial statements. However, there will be an impact on the Company’s financial results in the interim periods due to the timing of recognition for certain trade promotion spending. Due to a change in the timing of recognition for certain trade promotion spending, the Company recorded an immateriala cumulative effect of initially applying the new guidance as an adjustment to the fiscal year 2019 opening balance of Retained earnings. Results for periods beginning on or after July 1, 2018 are recognized and presented in accordance with Topic 606, while prior period amounts have not been adjusted and continueearnings of $22 related primarily to be reported in accordance with the prior accounting guidance under Topic 605, "Revenue Recognition." The Company has made changes to its accounting policies, business processes, systems and controls to align withremaining deferred gain from the new revenue recognition guidance and disclosure requirements.

In March 2017, the FASB issued ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires presenting the service cost component of net periodic benefit cost in the same income statement line items as other employee compensation costs arising from services rendered during the period. This standard also requires that other componentssale-leaseback of the net periodic benefit cost be presented separately from the line item(s) that includes service costs and outside of any subtotal of operating income, if one is presented, on a retrospective basis. The Company adopted thisCompany’s general office building in Oakland, California. This new guidance in the first quarter of fiscal year 2019 and the adoptionstandard did not have a material impact on the Company'sCompany’s condensed consolidated financial statements. Followingstatement of earnings or the adoptioncondensed consolidated statement of this guidance, the Company records the non-service cost components of net periodic benefit cost in Other (income) expense, net.

In March 2018, the FASB issued ASU No. 2018-05, “Income Taxes (Topic 740)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” which amends its guidance to address the initial accounting for the income tax effects of the Tax Act, which was enacted on December 22, 2017 (enactment date). This guidance allowed reasonable estimates of income tax effects to be reported as provisional amounts during the measurement period, which is one year from the enactment date, when the necessary information is not available, prepared, or analyzed in sufficient detail to complete the accounting. The amendments also added specific disclosure requirements. The Company adopted this new guidance and initially recorded $81 of provisional benefits in the second quarter of fiscal year 2018.cash flows. Refer to Note 63 for more information.




NOTE 2. DISCONTINUED OPERATIONS
On September 22, 2014, the Company's Venezuela affiliate, Corporación Clorox de Venezuela S.A. (Clorox Venezuela) announced that it was discontinuing its operations, effective immediately, and seeking to sell its assets. Since fiscal year 2012, Clorox Venezuela has been required to sell more than two thirds of its products at prices frozen by the Venezuelan government. During this same period, Clorox Venezuela experienced successive years of hyperinflation resulting in significant sustained increases in its input costs, including packaging, raw materials, transportation and wages. As a result, Clorox Venezuela had been selling its products at a loss, resulting in ongoing operating losses. Clorox Venezuela repeatedly met with government authorities in an effort to help them understand the rapidly declining state of the business, including the need for immediate, significant and ongoing price increases and other critical remedial actions to address these adverse impacts. Based on the Venezuelan government’s representations, Clorox Venezuela had expected significant price increases would be forthcoming much earlier; however, the price increases subsequently approved were insufficient and would have caused Clorox Venezuela to continue operating at a significant loss into the foreseeable future. As such, Clorox Venezuela was no longer financially viable and was forced to discontinue its operations.
On September 26, 2014, the Company reported that Venezuelan Vice President Jorge Arreaza announced, with endorsement by President Nicolás Maduro, that the Venezuelan government had occupied the Santa Lucía and Guacara production facilities of Clorox Venezuela. On November 6, 2014, the Company reported that the Venezuelan government had published a resolution granting a government-sponsored Special Administrative Board full authority to restart and operate the business of Clorox Venezuela, thereby reaffirming the government's expropriation of Clorox Venezuela’s assets. Further, President Nicolás Maduro announced the government's intention to facilitate the resumed production of bleach and other cleaning products at Clorox Venezuela plants. He also announced his approval of a financial credit to invest in raw materials and production at the plants. These actions by the Venezuelan government were taken without the consent or involvement of Clorox Venezuela, its parent Clorox Spain S.L. (Clorox Spain) or any of their affiliates. Clorox Venezuela, Clorox Spain and their affiliates reserved their rights under all applicable laws and treaties.
With this exit, the financial results of Clorox Venezuela are reflected as discontinued operations in the Company’s condensed consolidated financial statements for all periods presented. The results of Clorox Venezuela had historically been part of the International reportable segment.
There were no net sales for each of the three and nine months ended March 31, 2019 and 2018, and losses from discontinued operations, net of tax were insignificant for these same periods.


NOTE 3. BUSINESS ACQUIRED

On April 2, 2018, the Company acquired 100 percent of Nutranext, a health and wellness company based in Sunrise, Florida. Nutranext manufactures and markets leading dietary supplement brands in the retail and e-commerce channels as well as in its direct-to-consumer business. The purchase of the business reflects the Company's strategy to acquire leading brands in fast-growing categories with attractive gross margins and a focus on health and wellness.

The total consideration paid of $681, which included post-closing working capital and other adjustments, was initially funded through commercial paper borrowings and subsequently repaid using a combination of long-term debt financing and cash repatriated from foreign subsidiaries. The assets and liabilities of Nutranext were recorded at their respective estimated fair value as of the acquisition date using U.S. GAAP for business combinations. The excess of the purchase price over the fair value of the net identifiable assets acquired has been allocated to goodwill in the Lifestyle and Household reportable segments of $310 and $102, respectively. The goodwill of $412 is primarily attributable to the synergies, including those with the digestive health business, expected to arise after the acquisition and reflects the value of further expanding the Company’s portfolio into the health and wellness arena. Of the total goodwill, $363 is expected to be deductible for tax purposes.

The following table summarizes the final purchase price allocation for the fair value of Nutranext's assets acquired and liabilities assumed and the related deferred income taxes as of March 31, 2019. The fair value of the assets acquired and liabilities assumed reflects the final insignificant measurement period adjustments related to goodwill, deferred income taxes and income taxes payable. The weighted-average estimated useful life of intangible assets subject to amortization is 15 years.
 Nutranext
Goodwill ($310 in Lifestyle reportable segment and $102 in Household reportable segment)$412
Trademarks143
Customer relationships75
Property, plant and equipment49
Working capital, net22
Deferred income taxes(20)
Consideration paid$681

Effective April 2, 2018, Nutranext was consolidated into the Company's results of operations. Results for Nutranext's global business are reflected in the Lifestyle reportable segment.
Pro forma results reflecting the acquisition were not presented because the acquisition did not meet the threshold requirements for additional disclosure.

NOTE 4.2. INVENTORIES, NET
Inventories, net, consisted of the following as of:
3/31/2019 6/30/20189/30/2019 6/30/2019
Finished goods$445
 $395
$410
 $411
Raw materials and packaging136
 129
124
 125
Work in process6
 9
6
 6
LIFO allowances(31) (27)(36) (30)
Total$556
 $506
$504
 $512




NOTE 3. LEASES AND OTHER COMMITMENTS

The Company leases various property, plant, and equipment, including office, warehousing, manufacturing and research and development facilities and equipment. These leases have remaining lease terms of up to 12 years, inclusive of renewal or termination options that the Company is reasonably certain to exercise. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Supplemental balance sheet information related to the Company’s leases was as follows:
 Balance sheet classification9/30/2019
Operating leases  
Right-of-use assetsOperating lease right-of-use assets$312
Current lease liabilitiesCurrent operating lease liabilities57
Non-current lease liabilitiesLong-term operating lease liabilities290
Total operating lease liabilities $347
   
Finance leases  
Right-of-use assetsOther assets$15
Current lease liabilitiesAccounts payable and accrued liabilities2
Non-current lease liabilitiesOther liabilities13
Total finance lease liabilities $15


Components of lease cost were as follows:
 Three Months Ended
 9/30/2019
Operating lease cost$18
Finance lease cost: 
Amortization of right-of-use assets1
Interest on lease liabilities—
Total finance lease cost$1
Variable lease cost$10

NOTE 3. LEASES AND OTHER COMMITMENTS (Continued)

Supplemental cash flow information and non-cash activity related to the Company’s leases were as follows:
 Three Months Ended
 9/30/2019
Cash paid for amounts included in the measurement of lease liabilities: 
Operating cash flows from operating leases, net$17
Operating cash flows from finance leases—
Financing cash flows from finance leases1
Right-of-use assets obtained in exchange for lease obligations: 
Operating leases$11
Finance leases7


Weighted-average remaining lease term and discount rate for the Company’s leases were as follows:
9/30/2019
Weighted-average remaining lease term:
Operating leases8 years
Finance leases8 years
Weighted-average discount rate:
Operating leases2.6%
Finance leases3.3%


Maturities of lease liabilities by fiscal year for the Company’s leases as of September 30, 2019 were as follows:
YearOperating leases Finance leases
2020$31
 $2
202165
 2
202253
 2
202345
 2
202439
 2
Thereafter155
 7
Total lease payments$388
 $17
Less: Imputed interest(41) (2)
Total lease liabilities$347
 $15


The future minimum annual lease payments required under the Company’s existing non-cancelable operating and capital lease agreements as of June 30, 2019 prior to the adoption of ASC 842 were as follows:
YearOperating leases Capital Leases
2020$71
 $2
202165
 2
202250
 1
202342
 1
202437
 1
Thereafter124
 2
Total lease payments$389
 $9





NOTE 5.4. 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 March 31,September 30, 2019, the notional amount of commodity derivatives was $29,$31, of which $18$17 related to soybean oil futures used for the foodFood products business and $11$14 related to jet fuel swaps used for the charcoalCharcoal business. As of June 30, 2018,2019, the notional amount of commodity derivatives was $34,$24, of which $24$13 related to soybean oil futures and $10$11 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$55 and $61, respectively, as of both March 31,September 30, 2019 and June 30, 2018.2019.

Interest Rate Risk Management

The Company may enter into over-the-counter interest rate forward contracts to fix a portion of the benchmark interest rate prior to the anticipated issuance of fixed rate debt or to manage the Company’s level of fixed and floating rate debt. These interest rate forward contracts generally have durations of less than 12 months. The interest rate contracts are measured at fair value using information quoted by U.S. government bond dealers.

As of March 31,September 30, 2019 and June 30, 2018,2019, the Company had no0 outstanding interest rate forward contracts.
NOTE 5.4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

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 forward contracts for forecasted interest payments as cash flow hedges.

The effects of derivative instruments designated as hedging instruments on Other comprehensive income and Net earnings were as follows:

Gains (losses) recognized in Other comprehensive incomeGains (losses) recognized in Other comprehensive income
Three Months Ended Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 3/31/2019 3/31/20189/30/2019 9/30/2018
Commodity purchase derivative contracts$2
 $—
 $(4) $3
$—
 $4
Foreign exchange derivative contracts—
 1
 1
 1
1
 —
Interest rate derivative contracts—
 —
 —
 2
—
 —
Total$2
 $1
 $(3) $6
$1
 $4


Gains (losses) reclassified from Accumulated other comprehensive net (loss) income and recognized in Net earningsLocation 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 Nine Months Ended Three Months Ended
3/31/2019 3/31/2018 3/31/2019 3/31/2018 9/30/2019 9/30/2018
Commodity purchase derivative contracts$(1) $—
 $(1) $—
Cost of products sold$—
 $4
Foreign exchange derivative contracts1
 —
 2
 (1)Cost of products sold—
 1
Interest rate derivative contracts(2) (1) (5) (5)Interest expense(2) (2)
Total$(2) $(1) $(4) $(6) $(2) $3


The gains (losses) reclassified from Accumulated other comprehensive net (loss) income and recognized in Net earnings during the three and nine months ended March 31, 2019 and 2018, for commodity purchase and foreign exchange contracts were included in Cost of products sold, and for interest rate contracts were included in Interest expense.

The estimated amount of the existing net gain (loss) in Accumulated other comprehensive net (loss) income as of March 31,September 30, 2019, whichthat is expected to be reclassified into Net earnings within the next twelve months is $(6)$(7). Gains and losses on derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in Net earnings. During the three and nine months ended March 31, 2019 and 2018, hedge ineffectiveness was not significant.

NOTE 5.4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

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 instrument exceeds contractually defined counterparty liability position limits. Of the over-the-counter derivative instruments in liability positions held as of March 31,both September 30, 2019 and June 30, 2018, none2019, $1 contained such terms. As of March 31,September 30, 2019 and June 30, 2018,2019, 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 of the Company and its counterparties, as assigned by Standard & Poor’s and Moody’s, 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 March 31,September 30, 2019 and June 30, 2018,2019, the Company and each of its counterparties had been assigned investment grade credit 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 March 31,both September 30, 2019 and June 30, 2018,2019, the Company maintained cash margin balances related to exchange-traded futures contracts of $1, and $2, respectively, which are classified as Prepaid expenses and other current assets in the condensed consolidated balance sheets.

Trust Assets

The Company has heldholds interests in mutual funds and cash equivalents as part of the 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 to invest their compensation deferrals 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 Measurements

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 March 31,September 30, 2019 and June 30, 2018,2019, 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.
NOTE 5.4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

All of the Company’s derivative instruments qualify for hedge accounting. The following table summarizesprovides information about the balance sheet classification and the fair valuevalues of the Company’s derivative instruments:
     9/30/2019 6/30/2019
 Balance sheet
classification		 Fair value
hierarchy
level		 Carrying
Amount		 Estimated
Fair
Value		 Carrying
Amount		 Estimated
Fair
Value
Assets           
Foreign exchange forward contractsPrepaid expenses and other current assets 2 $1
 $1
 $—
 $—
     $1
 $1
 $—
 $—
Liabilities           
Commodity purchase futures contractsAccounts payable and accrued liabilities 1 $—
 $—
 $1
 $1
Commodity purchase swaps contractsAccounts payable and accrued liabilities 2 2
 2
 1
 1
     $2
 $2
 $2
 $2

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:
 3/31/2019 6/30/2018 9/30/2019 6/30/2019
Balance sheet
classification		 Fair value
hierarchy
level		 Carrying
Amount		 Estimated
Fair
Value		 Carrying
Amount		 Estimated
Fair
Value
Balance sheet
classification
 
Fair value
hierarchy
level
 
Carrying
Amount
 
Estimated
Fair
Value
 
Carrying
Amount
 
Estimated
Fair
Value
Assets                
Investments, including money market funds
Cash and cash
equivalents (a)
 1 $40
 $40
 $24
 $24
Cash and cash
equivalents (a)
 1 $43
 $43
 $26
 $26
Time deposits
Cash and cash
equivalents (a)
 2 29
 29
 23
 23
Cash and cash
equivalents (a)
 2 18
 18
 7
 7
Commodity purchase swaps contractsPrepaid expenses and other current assets 2 1
 1
 3
 3
Foreign exchange forward contractsPrepaid expenses and other current assets 2 1
 1
 2
 2
Trust assets for nonqualified deferred compensation plansOther assets 1 91
 91
 86
 86
Other assets 1 100
 100
 96
 96
 $162
 $162
 $138
 $138
 $161
 $161
 $129
 $129
Liabilities                
Notes and loans payable
Notes and loans payable (b)
 2 $321
 $321
 $199
 $199
Notes and loans payable (b)
 2 $449
 $449
 $396
 $396
Commodity purchase futures contractsAccounts payable and accrued liabilities 1 1
 1
 1
 1
Commodity purchase swaps contracts
Accounts payable and
accrued liabilities
 2 1
 1
 —
 —
Current maturities of long-term debt and Long-term debt
Current maturities of long-
term debt and Long-term
debt (c)
 2 2,286
 2,353
 2,284
 2,269
Current maturities of long-
term debt and Long-term
debt (c)
 2 2,287
 2,429
 2,287
 2,402
 $2,609
 $2,676
 $2,484
 $2,469
 $2,736
 $2,878
 $2,683
 $2,798

____________________

(a)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.
(b)Notes and loans payable is composed of U.S. commercial paper and/or other similar short-term debt issued by non-U.S. subsidiaries, all of which are recorded at cost, which approximates fair value.
(c)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.








NOTE 6.5. 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 from continuing operations was 21.8% and 20.8%21.5% for both the three and nine months ended March 31,September 30, 2019 respectively, and 25.5% and 19.0% for2018. In comparison to prior period, the three and nine months ended March 31, 2018, respectively. The decrease in the effectiveCompany had a reduced benefit from excess tax rate on continuing operations for the current three-month period was primarily due to the lower federal statutory tax rate for fiscal year 2019 as a result of enactment of the Tax Act, partiallydeductions offset by the repeal of the domestic manufacturing deduction in fiscal year 2019. The lower effectivea greater benefit from reduced tax rate on earnings from continuing operations for the prior nine-month period was primarily due to one-time tax benefits from the enactment of the Tax Act during the second quarter of fiscal year 2018 and the final year of domestic manufacturing deduction benefits in fiscal year 2018, partially offset by the lower federal statutory tax rate for fiscal year 2019.

The Tax Act was signed into law by the President of the United States on December 22, 2017. The Tax Act made significant changes to U.S. tax law, and included a reduction of U.S. corporation statutory income tax rates from 35% to 21%, effective January 1, 2018. Under the Tax Act, the Company was subject to an average federal statutory tax rate of 28.1% for its fiscal year ended June 30, 2018. The Company’s federal statutory tax rate was 21.0% beginning in July 2018 for the fiscal year ending June 30, 2019. The Tax Act also included, among other things, a one-time transition tax on accumulated foreign earnings and the adoptionrelease of a modified territorial approach to the taxation of future foreign earnings.

During the second quarter of fiscal year 2018, the Company made reasonable estimates of the impacts of the Tax Act and initially recorded total benefits of $81 as provisional, as defined in Staff Accounting Bulletin No. 118, as follows:
  Adjustments
One-time net deferred tax liability reduction $60
One-time transition tax (7)
Net total one-time tax benefit 53
Beneficial year-to-date current taxable income impact 28
Total tax benefits $81
uncertain tax positions
.

As of December 31, 2018, the Company completed its accounting for all of the enactment-date income tax effects of the Tax Act. Cumulative measurement adjustments through the second quarter of fiscal year 2019 were insignificant.


NOTE 7.6. 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 Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 3/31/2019 3/31/20189/30/2019 9/30/2018
Basic128,404 129,694
 128,092 129,357
125,823
 127,803
Dilutive effect of stock options and other1,862 2,206
 2,126 2,346
1,642
 2,143
Diluted130,266 131,900
 130,218 131,703
127,465
 129,946
       
Antidilutive stock options and other23 1,136
 807 1,136
—
 967



NOTE 8.7. COMPREHENSIVE INCOME
The following table provides a summary of Comprehensive income for the periods indicated:
Three Months Ended Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 3/31/2019 3/31/20189/30/2019 9/30/2018
Earnings from continuing operations$187
 $181
 $579
 $606
Earnings (losses) from discontinued operations, net of tax—
 —
 —
 —
Net earnings187
 181
 579
 606
$203
 $210
Other comprehensive income (loss), net of tax:          
Foreign currency translation adjustments8
 (4) (23) 6
(16) (2)
Net unrealized gains (losses) on derivatives3
 2
 2
 10
2
 1
Pension and postretirement benefit adjustments2
 1
 4
 2
1
 1
Total other comprehensive income (loss), net of tax13
 (1) (17) 18
(13) —
Comprehensive income$200
 $180
 $562
 $624
$190
 $210




NOTE 9.8. STOCKHOLDERS’ EQUITY

Changes in the components of Stockholders’ equity were as follows for the periods indicated:
Three Months Ended March 31Three Months Ended September 30
Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock 
Accumulated
Other
Comprehensive
Net (Loss) Income
 
Total Stockholders’ Equity
Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock 
Accumulated
Other
Comprehensive
Net (Loss) Income
 
Total Stockholders’ Equity
Amount 
Shares
(in thousands)
 Amount Shares
(in thousands)		 Amount Shares
(in thousands)		 Amount Shares
(in thousands)		 
Balance as of December 31, 2017$159
 158,741
 $941
 $2,649
 $(2,465) (29,393) $(524) $760
Balance as of June 30, 2018$159
 158,741
 $975
 $2,797
 $(2,658) (30,759) $(547) $726
Cumulative effect of accounting changes, net of tax (1)
      (3)       (3)
Net earnings

 

 

 181
 

 

 

 181


 

 

 210
 

 

 

 210
Other comprehensive income (loss)

 

 

 

 

 

 (1) (1)

 

 

 

 

 

 —
 —
Dividends ($0.96 per share declared)

 

 

 (125) 

 

 

 (125)

 

 

 (123) 

 

 

 (123)
Stock-based compensation

 

 14
 

 

 

 

 14


 

 8
 

 

 

 

 8
Other employee stock plan activities

 

 1
 (1) 8
 141
 

 8


 

 1
 2
 54
 1,046
 

 57
Treasury stock purchased

 

 

 

 —
 —
 

 —


 

 

 

 (198) (1,423) 

 (198)
Balance as of March 31, 2018$159
 158,741
 $956
 $2,704
 $(2,457) (29,252) $(525) $837
Balance as of September 30, 2018$159
 158,741
 $984
 $2,883
 $(2,802) (31,136) $(547) $677
              

               
Balance as of December 31, 2018$159
 158,741
 $1,014
 $2,940
 $(2,794) (30,651) $(577) $742
Balance as of June 30, 2019$159
 158,741
 $1,046
 $3,150
 $(3,194) (33,055) $(602) $559
Cumulative effect of accounting changes, net of tax (2)


 

 

 22
 

 

 

 22
Net earnings

 

 

 187
 

 

 

 187


 

 

 203
 

 

 

 203
Other comprehensive income (loss)

 

 

 

 

 

 13
 13


 

 

 

 

 

 (13) (13)
Dividends ($0.96 per share declared)

 

 

 (123) 

 

 

 (123)
Dividends ($1.06 per share declared)

 

 

 (134) 

 

 

 (134)
Stock-based compensation

 

 16
 

 

 

 

 16


 

 6
 

 

 

 

 6
Other employee stock plan activities

 

 3
 —
 16
 264
 

 19


 

 (9) —
 20
 472
 

 11
Treasury stock purchased

 

 

 

 (73) (466) 

 (73)

 

 

 

 (104) (663) 

 (104)
Balance as of March 31, 2019$159
 158,741
 $1,033
 $3,004
 $(2,851) (30,853) $(564) $781
               
Nine Months Ended March 31
Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock 
Accumulated
Other
Comprehensive
Net (Loss) Income
 
Total Stockholders’ Equity
Amount Shares
(in thousands)		 Amount Shares
(in thousands)		 
Balance as of June 30, 2017$159
 158,741
 $928
 $2,440
 $(2,442) (29,727) $(543) $542
Net earnings

 

 

 606
 

 

 

 606
Other comprehensive income (loss)

 

 

 

 

 

 18
 18
Dividends ($2.64 per share declared)

 

 

 (343) 

 

 

 (343)
Stock-based compensation

 

 37
 

 

 

 

 37
Other employee stock plan activities

 

 (9) 1
 48
 951
 

 40
Treasury stock purchased

 

 

 

 (63) (476) 

 (63)
Balance as of March 31, 2018$159
 158,741
 $956
 $2,704
 $(2,457) (29,252) $(525) $837
               
Balance as of June 30, 2018$159
 158,741
 $975
 $2,797
 $(2,658) (30,759) $(547) $726
Cumulative effect of accounting changes (1)


 

 

 (3) 

 

 

 (3)
Net earnings

 

 

 579
 

 

 

 579
Other comprehensive income (loss)

 

 

 

 

 

 (17) (17)
Dividends ($2.88 per share declared)

 

 

 (369) 

 

 

 (369)
Stock-based compensation

 

 34
 

 

 

 

 34
Other employee stock plan activities

 

 24
 —
 116
 2,048
 

 140
Treasury stock purchased

 

 

 

 (309) (2,142) 

 (309)
Balance as of March 31, 2019$159
 158,741
 $1,033
 $3,004
 $(2,851) (30,853) $(564) $781
Balance as of September 30, 2019$159
 158,741
 $1,043
 $3,241
 $(3,278) (33,246) $(615) $550

(1) As a result of adopting ASU No. 2014-09, "Revenue“Revenue from Contracts with Customers (Topic 606),"” on July 1, 2018, the Company recorded a cumulative effect of initially applying the new guidance as an adjustment to the fiscal year 2019 opening balance of Retained earnings.
(2) As a result of adopting ASU No. 2016-02, “Leases (Topic 842),” on July 1, 2019, the Company recorded a cumulative effect of initially applying the new guidance as an adjustment to the fiscal year 2020 opening balance of Retained earnings. See Note 1 for more information.
NOTE 9. STOCKHOLDERS' EQUITY (continued)

The Company has two2 stock repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $2,000, which has no expiration date, and a program to offset the anticipated impact of dilution related to stock-based awards (the Evergreen Program), which has no0 authorization limit on the dollar amount and no expiration date.

Stock repurchases under the two2 stock repurchase programs were as follows for the periods indicated:
Three Months Ended Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 3/31/2019 3/31/20189/30/2019 9/30/2018
Amount Shares
(in thousands)		 Amount Shares
(in thousands)		 Amount Shares
(in thousands)		 Amount Shares
(in thousands)		Amount Shares
(in thousands)		 Amount Shares
(in thousands)
Open-market purchase program$—
 —
 $—
 —
 $78
 591
 $—
 —
$—
 —
 $78
 591
Evergreen Program73
 466
 —
 —
 231
 1,551
 63
 476
104
 663
 120
 832
Total stock repurchases$73
 466
 $—
 —
 $309
 2,142
 $63
 476
$104
 663
 $198
 1,423

NOTE 8. STOCKHOLDERS’ EQUITY (Continued)

Changes in Accumulated other comprehensive net (loss) income by component were as follows for the periods indicated:
 Three Months Ended March 31
 Foreign currency translation adjustments Net unrealized gains (losses) on derivatives Pension and postretirement benefit adjustments Accumulated other comprehensive (loss) income
Balance as of December 31, 2017$(346) $(29) $(149) $(524)
Other comprehensive income (loss) before reclassifications(4) 1
 —
 (3)
Amounts reclassified from Accumulated other comprehensive net (loss) income—
 1
 1
 2
Income tax benefit (expense)—
 —
 —
 —
Net current period other comprehensive income (loss)(4) 2
 1
 (1)
Balance as of March 31, 2018$(350) $(27) $(148) $(525)
        
Balance as of December 31, 2018$(415) $(26) $(136) $(577)
Other comprehensive income (loss) before reclassifications8
 2
 —
 10
Amounts reclassified from Accumulated other comprehensive net (loss) income—
 2
 2
 4
Income tax benefit (expense)—
 (1) —
 (1)
Net current period other comprehensive income (loss)8
 3
 2
 13
Balance as of March 31, 2019$(407) $(23) $(134) $(564)

NOTE 9. STOCKHOLDERS' EQUITY (continued)

Nine Months Ended March 31Three Months Ended September 30
Foreign currency translation adjustments Net unrealized gains (losses) on derivatives Pension and postretirement benefit adjustments Accumulated other comprehensive (loss) income
Balance as of June 30, 2017$(356) $(37) $(150) $(543)
Other comprehensive income (loss) before reclassifications9
 6
 —
 15
Amounts reclassified from Accumulated other comprehensive net (loss) income—
 6
 4
 10
Income tax benefit (expense)(3) (2) (2) (7)
Net current period other comprehensive income (loss)6
 10
 2
 18
Balance as of March 31, 2018$(350) $(27) $(148) $(525)
       Foreign currency translation adjustments Net unrealized gains (losses) on derivatives Pension and postretirement benefit adjustments Accumulated other comprehensive (loss) income
Balance as of June 30, 2018$(384) $(25) $(138) $(547)$(384) $(25) $(138) $(547)
Other comprehensive income (loss) before reclassifications(22) (3) —
 (25)(2) 4
 —
 2
Amounts reclassified from Accumulated other comprehensive net (loss) income—
 4
 5
 9
—
 (3) 2
 (1)
Income tax benefit (expense)(1) 1
 (1) (1)—
 —
 (1) (1)
Net current period other comprehensive income (loss)(23) 2
 4
 (17)(2) 1
 1
 —
Balance as of March 31, 2019$(407) $(23) $(134) $(564)
Balance as of September 30, 2018$(386) $(24) $(137) $(547)
       
Balance as of June 30, 2019$(414) $(23) $(165) $(602)
Other comprehensive income (loss) before reclassifications(15) 1
 —
 (14)
Amounts reclassified from Accumulated other comprehensive net (loss) income—
 2
 2
 4
Income tax benefit (expense), and other(1) (1) (1) (3)
Net current period other comprehensive income (loss)(16) 2
 1
 (13)
Balance as of September 30, 2019$(430) $(21) $(164) $(615)


Included in foreign currency translation adjustments are re-measurement losses on long-term intercompany loans where settlement is not planned or anticipated in the foreseeable future. For each of the three and nine months ended March 31,September 30, 2019 Other comprehensive income (loss) on these loans totaled $1 and $(3), respectively. For the three and nine months ended March 31, 2018, Other comprehensive income (loss) on these loans totaled $0 and $(3), respectively.$(2). There were no0 amounts associated with these loans reclassified from Accumulated other comprehensive net (loss) income for the periods presented.

NOTE 10.9. EMPLOYEE BENEFIT PLANS
The following table summarizes the components of net periodic benefit cost for the Company’s retirement income plans:
Three Months Ended Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 3/31/2019 3/31/20189/30/2019 9/30/2018
Service cost$—
 $1
 $—
 $1
$—
 $—
Interest cost5
 6
 17
 17
5
 6
Expected return on plan assets (1)
(4) (5) (13) (14)(4) (4)
Amortization of unrecognized items2
 2
 7
 7
2
 2
Total$3
 $4
 $11
 $11
$3
 $4
(1) The weighted average long-term expected rate of return on plan assets used in computing the fiscal year 20192020 net periodic benefit cost is 4.33%3.9%.
During each of the three and nine months ended March 31,September 30, 2019 the Company made $57 and $61 in contributions to its domestic retirement income plans. During the three and nine months ended March 31, 2018, the Company made $15 and $19$2 in contributions to its domestic retirement income plans.
As a result of adopting ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715),” effective July 1, 2018, netNet periodic benefit cost iscosts are reflected in Other (income) expense, net for fiscal year 2019, and in Cost of products sold, Selling and administrative expenses and Research and development costs prior to fiscal year 2019. Refer to Note 1 for more details.net.

NOTE 11.10. 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$27 as of March 31,September 30, 2019 and June 30, 2018,2019, for its share of aggregate future remediation costs related to these matters.
One matter, which accounted for $14 of the recorded liability as of March 31,September 30, 2019 and June 30, 2018,2019, 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'sCompany’s former operations for which the Company is jointly and severally liable, accounted for $12$11 of the recorded liability, as of March 31,September 30, 2019 and June 30, 2018.2019. This amount reflects the Company'sCompany’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. 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'sCompany’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 March 31,September 30, 2019 and June 30, 2018.2019.
As of March 31,September 30, 2019, the Company was a party to lettersa letter of credit of $9, primarily$10, related to one of its insurance carriers, of which $0 had been drawn upon.



NOTE 12.11. SEGMENT RESULTS
The Company operates through strategic business units (SBUs) that are aggregated into four4 reportable segments based on the economics and nature of the products sold: Cleaning, 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, other investments 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 from continuing operations before income taxes, with amounts that are not allocated to the reportable segments reflected in Corporate.
 Net salesNet sales
 Three Months Ended Nine Months EndedThree Months Ended
 3/31/2019 3/31/2018 3/31/2019 3/31/20189/30/2019 9/30/2018
Cleaning $508
 $513
 $1,579
 $1,544
$562
 $571
Household 489
 493
 1,324
 1,344
381
 442
Lifestyle 309
 252
 953
 766
322
 309
International 245
 259
 731
 779
241
 241
Corporate —
 —
 —
 —
—
 —
Total $1,551
 $1,517
 $4,587
 $4,433
$1,506
 $1,563
           
 Earnings (losses) from continuing operations before income taxesEarnings (losses) before income taxes
 Three Months Ended Nine Months EndedThree Months Ended
 3/31/2019 3/31/2018 3/31/2019 3/31/20189/30/2019 9/30/2018
Cleaning $135
 $135
 $450
 $428
$178
 $180
Household 93
 88
 198
 215
25
 59
Lifestyle 51
 55
 191
 188
70
 62
International 24
 23
 77
 69
39
 28
Corporate (63) (59) (184) (152)(54) (61)
Total $240
 $242
 $732
 $748
$258
 $268

All intersegment sales are eliminated and are not included in the Company’s reportable segments’ net sales.
Net sales to the Company'sCompany’s largest customer, Wal-Mart Stores, Inc. and its affiliates, as a percentage of consolidated net sales, were 25% for each of the three26% and nine months ended March 31, 2019, and 25% and 26% for the three and nine months ended March 31,September 30, 2019 and 2018, respectively.

NOTE 12.11. SEGMENT RESULTS (continued)(Continued)

The following table provides Net sales as a percentage of the Company'sCompany’s consolidated net sales disaggregated by SBU:for the Company’s SBUs and for the periods indicated:
 Net salesNet sales
 Three Months Ended Nine Months Ended Three Months Ended
 3/31/2019 3/31/2018 3/31/2019 3/31/2018 9/30/2019 9/30/2018
Home care 20% 20% 19% 20% 22% 21%
Laundry 8% 8% 9% 9% 10% 10%
Professional products 5% 6% 6% 6% 6% 6%
Cleaning 33% 34% 34% 35% 38% 37%
Bags, wraps, and containers 12% 14% 13% 14% 12% 13%
Cat litter 8% 7% 8% 7% 8% 7%
Charcoal 10% 10% 6% 7% 4% 6%
Digestive health 2% 2% 2% 2% 1% 2%
Household 32% 33% 29% 30% 25% 28%
Food products 9% 9% 9% 9% 9% 9%
Natural personal care 4% 4% 5% 5% 5% 4%
Water filtration 3% 3% 3% 3%��4% 4%
Dietary supplements (1)
 3% —% 4% —% 3% 3%
Lifestyle 19% 16% 21% 17% 21% 20%
International 16% 17% 16% 18% 16% 15%
Total 100% 100% 100% 100% 100% 100%
(1) The Company acquired the dietary supplements business in April 2018. See Note 3 for details..



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

The Clorox Company
(Dollars in millions, except share and 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, 2018,2019, which was filed with the Securities and Exchange Commission (SEC) on August 14, 2018,2019, 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- and nine-month periodsthree-month period ended March 31,September 30, 2019 (the current period) to the three- and nine-month periodsthree-month period ended March 31,September 30, 2018 (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 8,7008,800 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, military stores 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, wraps and container products,containers, Kingsford®charcoal, Hidden Valley® dressings and sauces, Brita® water-filtration products, Burt’s Bees® natural personal care products, RenewLife® digestive health products, and Rainbow Light®, Natural Vitality®™ and NeocellNeoCell® dietary supplements. The Company also markets brands toindustry-leading products and technologies for professional services,customers, including those sold under the CloroxPro™ and the Clorox Healthcare® and Commercial Solutions®.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) that are aggregated into the following four reportable segments based on the economics and nature of the products sold:
•
Cleaning consists of laundry, home care and professional products marketed and sold in the United States. Products within this segment include laundry additives, includingsuch as bleach products under the Clorox® brand and Clorox 2® stain fighter and color booster; home care products, primarily under the Clorox®, Formula 409®, Liquid-Plumr®, Pine-Sol®, S.O.S® and Tilex® brands; naturally derived products under the Green Works® brand; and professional cleaning, and disinfecting and food service products under the CloroxCloroxPro®™, Dispatch®, HealthLink®, Clorox Healthcare®, Hidden Valley®,and KC Masterpiece® and Soy Vay® brands.
•
Household consists of charcoal, bags, wraps and containers, cat litter, and digestive health products marketed and sold in the United States. Products within this segment include charcoal products under the Kingsford® and Match Light® brands; bags, wraps and containers under the Glad® brand; cat litter products under the Fresh Step®, Scoop Away® and Ever Clean® brands; and digestive health products under the RenewLife® brand.
•
Lifestyle consists of food products, water-filtration systems and filters, natural personal care products, and dietary supplements primarily marketed and sold mainly in the United States. Products within this segment include dressings and sauces, primarily under the Hidden Valley®, KC Masterpiece®, Kingsford® and Soy Vay® brands; water-filtration systems and filters under the Brita® brand; natural personal care products under the Burt’s Bees® brand; and dietary supplements under the Rainbow Light®, Natural Vitality®™ and NeocellNeoCell® brands.
•
International consists of products sold outside the United States. Products within this segment include laundry,laundry; home care,care; water-filtration systems and filters; digestive health products, charcoal andproducts; charcoal; cat litter products,products; food products,products; bags, wraps and containers andcontainers; natural personal care productsproducts; and professional cleaning and disinfecting products primarily under the Clorox®, Glad®, PinoLuz®, Ayudin®, Limpido®, Clorinda®, Poett®, Mistolin®, Lestoil®, Bon Bril®, Brita®, Green Works®, Pine-Sol®, Agua Jane®, Chux®, RenewLife®, Kingsford®, Fresh Step®, Scoop Away®, Ever Clean®, KC Masterpiece®, Hidden Valley®, Burt’s Bees®, CloroxPro™, and Clorox Healthcare® brands.



RESULTS OF OPERATIONS
CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS
Continuing operations
 Three Months Ended Nine Months Ended
 3/31/2019 3/31/2018 % Change 3/31/2019 3/31/2018 % Change
Net sales$1,551
 $1,517
 2% $4,587
 $4,433
 3%
 Three Months Ended
 9/30/2019 9/30/2018 % Change
Net sales$1,506
 $1,563
 (4)%

 Three Months Ended September 30, 2019
 Percentage change versus the year-ago period
 Reported (GAAP) Net Sales Growth / (Decrease)Reported Volume Acquisitions & DivestituresForeign Exchange Impact
Price/Mix/Other (1)
Organic Sales Growth / (Decrease) (Non-GAAP) (2)
Organic Volume (3)
Cleaning(2)%1 % —%— %(3)%(2)%1 %
Household(14)(8) —
—
(6)(14)(8)
Lifestyle4
4
 —
—
—
4
4
International—
2
 —
(8)6
8
2
Total(4)%— % —%(2)%(2)%(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 as well as changes in foreign exchange rates. See “Non-GAAP Financial Measures” below for reconciliation of organic sales growth / (decrease) to net sales growth, the most directly comparable GAAP financial measure.
(3) Organic volume represents volume excluding the effect of any acquisitions and divestitures.

Net sales in the current three-month period increasedquarter decreased by 2%4%, reflecting lower sales in the Household and Cleaning reportable segments, partially offset by sales growth in the Lifestyle reportable segment, partially offset by lower sales in the International, Cleaning and Household reportable segments.segment. Volume increased by 1%, primarily due towas flat, reflecting higher shipments in the Lifestyle, International and InternationalCleaning reportable segments, partially offset by lower shipments in the Household reportable segment. The variance between volume and Cleaning reportable segments. Netnet sales growth outpaced volume growthwas primarily due to the benefitimpact of price increases,higher trade promotion spending, unfavorable mix and foreign currency exchange rates, partially offset by the impact of unfavorable foreign currency exchange rates and unfavorable mix.
Net sales in the current nine-month period increased by 3%, reflecting sales growth in the Lifestyle and Cleaning reportable segments, partially offset by lower sales in the International and Household reportable segments. Volume increased by 3%, primarily due to higher shipments in the Lifestyle and International reportable segments, partially offset by lower shipments in the Household and Cleaning reportable segments. Net sales growth included the benefit of price increases, partially offset by the impact of unfavorable foreign currency exchange rates and unfavorable mix.increases.
Three Months Ended Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 % Change 3/31/2019 3/31/2018 % Change9/30/2019 9/30/2018 % Change
Gross profit$673
 $649
 4% $1,994
 $1,931
 3%$663
 $678
 (2)%
Gross margin43.4% 42.8%   43.5% 43.6%  44.0% 43.4%  

Gross margin, defined as gross profit as a percentage of net sales, increased by 60 basis points in the current three-month periodquarter from 42.8%43.4% to 43.4%44.0%. The increase was primarily driven by cost savings and the benefit of price increases, and cost savings, partially offset by higher manufacturingtrade promotion spending and logistics costs, the negative impact of unfavorable foreign currency exchange rates, and unfavorable commodity costs.
Gross margin decreased by 10 basis points in the current nine-month period from 43.6% to 43.5%. The decrease was primarily driven by higher manufacturing and logistics costs, unfavorable commodity costs, and the negative impact of unfavorable foreign currency exchange rates, partially offset by the benefit of price increases and cost savings.costs.
Three Months EndedThree Months Ended
      % of Net Sales      % of Net Sales
3/31/2019 3/31/2018 % Change 3/31/2019 3/31/20189/30/2019 9/30/2018 % Change 9/30/2019 9/30/2018
Selling and administrative expenses$216
 $208
 4% 13.9% 13.7%$211
 $212
 — % 14.0% 13.6%
Advertising costs161
 150
 7
 10.4
 9.9
137
 139
 (1) 9.1
 8.9
Research and development costs34
 32
 6
 2.2
 2.1
30
 32
 (6) 2.0
 2.0
         
Nine Months Ended
      % of Net Sales
3/31/2019 3/31/2018 % Change 3/31/2019 3/31/2018
Selling and administrative expenses$639
 $609
 5% 13.9% 13.7%
Advertising costs445
 424
 5
 9.7
 9.6
Research and development costs98
 95
 3
 2.1
 2.1

Selling and administrative expenses, as a percentage of net sales, increased by 2040 basis points in both the current three- and nine-month periods. Selling and administrative expenses include Nutranext integration expensesperiod, however were relatively flat in fiscal year 2019.terms of dollars.



Advertising costs, as a percentage of net sales, increased by 5020 basis points in the current three-month period, primarily due to increased investments across a majority of the U.S. portfolio, and were relatively flat in the current nine-month period. The Company’s U.S. retail advertising spend as a percentage of net sales was approximately 11%10% in the current and year-ago quarters.period.


Research and development costs, as a percentage of net sales, were essentially flat in the current three- and nine-month periods.period. The Company continues to focus on product innovation and cost savings.

Interest expense, Other (income) expense, net, and the effective tax rate on earnings
Three Months Ended Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 3/31/2019 3/31/20189/30/2019 9/30/2018
Interest expense$24
 $20
 $72
 $61
$25
 $24
Other (income) expense, net(2) (3) 8
 (6)2
 3
Effective tax rate on earnings21.8% 25.5% 20.8% 19.0%21.5% 21.5%
Interest expense increased by $4 and $11 in the current three- and nine-month periods, respectively, primarily due to higher long-term debt balances resulting from the issuance of senior notes in May 2018.
Other (income) expense, net was $(2) and $(3) in the current and prior three-month periods, respectively, and $8 and $(6) in the current and prior nine-month periods, respectively. The variance in the nine-month period was primarily driven by net periodic benefit costs, which are recognized in Other (income) expense, net in fiscal year 2019, as a result of adopting Accounting Standards Update No. 2017-07, “Compensation-Retirement Benefits (Topic 715),” on July 1, 2018. Prior to the adoption, net periodic benefit costs were recorded in Cost of products sold, Selling and administrative expenses and Research and development costs. Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements for more information.
The effective tax rate on earnings from continuing operations was 21.8% and 25.5%21.5% for both the current and prior three-month periods, respectively, and 20.8% and 19.0% forperiods. In comparison to prior period, the current and prior nine-month periods, respectively. The decrease in the effectiveCompany had a reduced benefit from excess tax rate on earnings from continuing operations for the current three-month period was primarily due to the lower federal statutory tax rate for fiscal year 2019 as a result of enactment of the Tax Act, partiallydeductions offset by the repeala greater benefit from reduced tax on foreign earnings and release of the domestic manufacturing deduction in fiscal year 2019. The lower effectiveuncertain tax rate on earnings from continuing operations for the prior nine-month period was primarily due to one-time tax benefits from the enactment of The Tax Cuts and Jobs Act (the Tax Act) during the second quarter of fiscal year 2018 and the final year of domestic manufacturing deduction benefits in fiscal year 2018, partially offset by the lower federal statutory tax rate for fiscal year 2019. See Note 6 of the Notes to Condensed Consolidated Financial Statements for more details.positions.

Diluted net earnings per share
 Three Months Ended Nine Months Ended
 3/31/2019 3/31/2018 % Change 3/31/2019 3/31/2018 % Change
Diluted net earnings per share from continuing operations$1.44
 $1.37
 5% $4.45
 $4.60
 (3)%
 Three Months Ended
 9/30/2019 9/30/2018 % Change
Diluted net earnings per share$1.59
 $1.62
 (2)%

Diluted net earnings per share (EPS) from continuing operations increaseddecreased by $0.07,$0.03, or 5%2%, in the current three-month period, primarily due to a lower effective tax rate,higher trade promotion spending, unfavorable foreign exchange rates and higher manufacturing and logistics costs, partially offset by lower earnings from continuing operations before income taxes.
Diluted net EPS from continuing operations decreased by $0.15, or 3%, in the current nine-month period, primarily due to lower earnings from continuing operations before income taxesbenefit of cost savings and a higher effective tax rate, which was mainly driven by prior year one-time tax benefits as a result of the Tax Act.

price increases.

SEGMENT RESULTS

DISCONTINUED OPERATIONS
Since the exit of Clorox Venezuela in the first quarter of fiscal year 2015, the Company has recognized $51 in after-tax exit costs and other related expenses within discontinued operations related to the exit of Clorox Venezuela. While the Company may continue to incur costs relating to this exit going forward, the Company does not expect these costs to be significant.
See Notes to the Condensed Consolidated Financial Statements for more information regarding discontinued operations of Clorox Venezuela.


SEGMENT RESULTS FROM CONTINUING OPERATIONS
The following sections presentpresents the results fromof operations offrom the Company’s reportable segments and certain unallocated costs reflected in Corporate:Corporate (see Notes to Condensed Consolidated Financial Statements for a reconciliation of segment results to consolidated results):

Cleaning
Three Months Ended Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 % Change 3/31/2019 3/31/2018 % Change9/30/2019 9/30/2018 % Change
Net sales$508
 $513
 (1)% $1,579
 $1,544
 2%$562
 $571
 (2)%
Earnings from continuing operations before income taxes135
 135
 —
 450
 428
 5
Earnings before income taxes178
 180
 (1)

Volume andincreased by 1%, while net sales and earnings before income taxes decreased by 4%2% and 1%, respectively, and earnings from continuing operations before income taxes was flat induring the current three-month period. Volume decreasedThe volume increase was driven by higher shipments in Professional Products and Home Care, partially offset by lower shipments in Home Care, Laundry andLaundry. The higher shipments of Professional Products.Products were mainly due to continued growth across all categories. The decreasedincreased shipments in Home Care were primarily driven by volume softness in Clorox® disinfecting wipes impacteddue to incremental merchandising events. The lower shipments in Laundry were primarily driven by a significantly milder cold and flu season compared to a year ago, as well as heightened competitive activity.the impact of price increases. The variance between volume and net sales was primarily due to the benefit of price increases and lower trade promotion spending, partially offset by unfavorable mix. Earnings from continuing operations before income taxes was flat, reflecting the benefit of cost savings partially offset by higher manufacturing and logistics costs.
Volume decreased by 1%, while net sales and earnings from continuing operations before income taxes increased by 2% and 5%, respectively, in the current nine-month period. Volume decreased primarily driven by lower shipments in Home Care and Laundry, partially offset by higher shipments of Professional Products due to growth across all categories. The decreased shipments in Home Care were primarily driven by volume softness in Clorox® disinfecting wipes impacted by a significantly milder cold and flu season compared to a year ago, as well as heightened competitive activity. The variance between volume and net sales was primarily due to the benefit of price increases. The increasedecrease in earnings from continuing operations before income taxes was primarily due to lower net sales, growth and cost savings, partially offset by higher manufacturing and logistics costs and unfavorable commodity costs.cost savings.



Household
Three Months Ended Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 % Change 3/31/2019 3/31/2018 % Change9/30/2019 9/30/2018 % Change
Net sales$489
 $493
 (1)% $1,324
 $1,344
 (1)%$381
 $442
 (14)%
Earnings from continuing operations before income taxes93
 88
 6
 198
 215
 (8)
Earnings before income taxes25
 59
 (58)

Volume, and net sales decreased by 6% and 1%, respectively, while earnings from continuing operations before income taxes increaseddecreased by 6%8%, in14% and 58%, respectively, during the current three-month period. Volume decreased primarily driven by lower shipments of Glad® bags and wraps mainly due to price increases in addition to heightened competitive activity, as well asdistribution losses, lower shipments in Cat Litter.Charcoal mainly due to lower merchandising support, and lower consumption in RenewLife® digestive health products. The variance between volume and net sales was primarily due to the benefit of price increases,higher trade promotion spending, partially offset by unfavorable mix. The increase in earnings from continuing operations before income taxes was largely due to the benefit of price increases and cost savings, partially offset by higher manufacturing and logistics costs and lower sales.
Volume, net sales and earnings from continuing operations before income taxes decreased by 4%, 1% and 8%, respectively, in the current nine-month period. Volume decreased, primarily driven by lower shipments of Glad® bags and wraps, mainly due to price increases in addition to heightened competitive activity, and lower shipments in Charcoal, mainly due to lower consumption. The variance between volume and net sales was primarily due to the benefit of price increases, partially offset by unfavorable mix. The decrease in earnings from continuing operations before income taxes was mainly due to higher manufacturing and logistics costs and unfavorable commodity costs, partially offset by cost savings.


Lifestyle 
 Three Months Ended Nine Months Ended
 3/31/2019 3/31/2018 % Change 3/31/2019 3/31/2018 % Change
Net sales$309
 $252
 23 % $953
 $766
 24%
Earnings from continuing operations before income taxes51
 55
 (7) 191
 188
 2
Volume and net sales increased by 28% and 23%, respectively, while earnings from continuing operations before income taxes decreased by 7% in the current three-month period. Both volume growth and net sales growth were primarily driven by the benefit of the April 2018 acquisition of the Nutranext dietary supplements business. Volume growth outpaced net sales growth, primarily due to unfavorable mix, partially offset by lower trade promotion spending and the benefit of price increases. The decrease in earnings from continuing operations before income taxes was primarilymainly due to higher manufacturing and logistics costs, partially offset by net sales growth. Earnings from continuing operations before income taxes also included ongoing investments to support the continued integration of Nutranext.trade promotion spending.

Lifestyle 
 Three Months Ended
 9/30/2019 9/30/2018 % Change
Net sales$322
 $309
 4%
Earnings before income taxes70
 62
 13

Volume, net sales and earnings from continuing operations before income taxes increased by 32%4%, 24%4% and 2%13%, respectively, induring the current nine-month period. Both volume and net sales grewincreased primarily driven primarily by the benefit of the April 2018 acquisition of the Nutranext dietary supplements business and higher shipments ofgrowth in Burt’s Bees® Natural Personal Care products, mainly due to continued strength in face care and lip care supported by innovation and merchandising. Volume growth outpaced net sales growth, primarily due to unfavorable mix, partially offset by the benefit of price increases.innovation. The increase in earnings from continuing operations before income taxes was primarily due to net sales growth, and cost savings, partially offset by higher manufacturing and logistics costs.trade promotion spending.

International
Three Months Ended Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 % Change 3/31/2019 3/31/2018 % Change9/30/2019 9/30/2018 % Change
Net sales$245
 $259
 (5)% $731
 $779
 (6)%$241
 $241
 —%
Earnings from continuing operations before income taxes24
 23
 4
 77
 69
 12
Earnings before income taxes39
 28
 39

Volume increased by 2%, net sales decreased by 5%,was flat, and earnings from continuing operations before income taxes increased by 4%39% in the current three-month period. Volume increased, primarily driven by higher shipments in AsiaLatin America and Canada.Australia. The variance between volume and net sales was mainly due to unfavorable foreign currency exchange rates and higher trade promotion spending,mix, partially offset by the benefit of price increases. The increase in earnings from continuing operations before income taxes was largely due to the benefit of price increases, partially offset by the impact of unfavorable foreign currency exchange rates, mainly from devaluation of the Argentine peso, and inflationary pressure on manufacturing and logistics costs.peso.
Volume increased by 1%, net sales decreased by 6%, and earnings from continuing operations before income taxes increased by 12%
Argentina

The business environment in the current nine-month period. Volume grew, primarily driven by higher shipments in Asia and Canada, partially offset by lower shipments in certain Latin American countries, mainly Argentina. The variance between volume and net sales was mainlyArgentina continues to be challenging due to unfavorable foreignsignificant volatility in Argentina’s currency, exchange rateshigh inflation, and higher trade promotion spending, partially offset by the benefit of price increases. The increase in earnings from continuing operations before income taxes was largely due to the benefit of price increases and cost savings, partially offset by unfavorable foreign currency exchange rates, mainly from devaluation of the Argentine peso, and inflationary pressure on manufacturing and logistics costs.
Argentina
economic recession. The Company operates in Argentina through certain wholly owned subsidiaries (collectively, “Clorox Argentina”). Net sales from Clorox Argentina represented approximately 2%manufactures products at two plants that it owns and 3%operates across Argentina and markets those products to consumers throughout the country. Products are advertised nationally and sold to consumers through wholesalers and retail outlets located throughout Argentina. Sales are made primarily through the use of Clorox Argentina’s sales force. Small amounts of products produced in Argentina are exported each year, including sales to the Company’s other subsidiaries located primarily in Latin America. Clorox Argentina obtains its raw materials almost entirely from local sources; however, the price of some of these raw materials may fluctuate with changes in the value of the Company’s consolidated net sales forU.S. dollar against the nine months ended March 31, 2019Argentine peso. The Company also conducts research and for the fiscal year ended June 30, 2018, respectively. Total assets ofdevelopment activities at its owned facility in Buenos Aires, Argentina. Additionally, Clorox Argentina were approximately 1% ofperforms marketing, legal, and various other shared service activities to support the Company's consolidated assetsCompany’s Latin American operations. Clorox Argentina, in turn, benefits from shared service activities performed within other geographic locations, such as of March 31, 2019information technology support and June 30, 2018. The operating environment in Argentina continues to be challenging, including the continuing significant volatility in Argentina’s currency, high inflation and economic recession.manufacturing technical assistance.



Effective July 1, 2018, under the requirements of generally accepted accounting principles in the United States (U.S. GAAP),U.S. GAAP, Argentina was designated as a highly inflationary economy, since it has experienced cumulative inflation of approximately 100 percent or more over a three-year period. As a result, beginning July 1, 2018, 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 forof Clorox Argentina are recognized in Other (income) expense, net in the condensed consolidated statement of earnings.

As of September 2019, the government of Argentina reinstated foreign exchange controls in response to further declines in the value of the Argentine peso, limiting the Company’s ability to convert Argentine pesos to U.S. dollars and transfer U.S. dollars outside of Argentina. At September 30, 2019 and June 30, 2019, the net asset position, excluding goodwill, of Clorox Argentina was $34 and $47, respectively. Of these net assets, cash balances were approximately $2 and $16 as of September 30, 2019 and June 30, 2019, respectively. Net sales from Clorox Argentina represented approximately 2% of the Company’s consolidated net sales for both the three months ended September 30, 2019 and the fiscal year ended June 30, 2019.

Volatility in the exchange rate is expected to continue in the future, which, along with competition, and changes in the retail, labor and macro-economic environment, and implemented and future additional legal limitations instituted to restrict foreign exchange transactions could have an adverse impact on Clorox Argentina’s liquidity, net sales, net earnings, cash flows and net monetary asset position. The Company is closely monitoring developments in Argentina and continues to take steps intended to mitigate the adverse conditions, but there can be no assurances that these actions will be able to mitigate these conditions as they may occur.

Corporate

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, other investments, and deferred taxes.
 Three Months Ended Nine Months Ended
 3/31/2019 3/31/2018 % Change 3/31/2019 3/31/2018 % Change
Losses from continuing operations before income taxes$(63) $(59) 7% $(184) $(152) 21%
 Three Months Ended
 9/30/2019 9/30/2018 % Change
Losses before income taxes$(54) $(61) (11)%

Losses from continuing operations before income taxes increaseddecreased by $4$7 in the current three-month period.

Losses from continuing operations before income taxes increasedperiod, primarily driven by $32 in the current nine-month period, which included an increase in interest expense.

lower employee incentive compensation costs.


FINANCIAL POSITION AND LIQUIDITY
The Company’s financial condition and liquidity remained strong as of March 31,September 30, 2019. The following table summarizes cash activities from continuing operations:activities:
 Nine Months Ended
 3/31/2019 3/31/2018
Net cash provided by continuing operations$603
 $576
Net cash used for investing activities(126) (112)
Net cash (used for) provided by financing activities(429) 292
 Three Months Ended
 9/30/2019 9/30/2018
Net cash provided by operations$271
 $259
Net cash used for investing activities(42) (36)
Net cash used for financing activities(183) (192)

Operating Activities

Net cash provided by continuing operations was $603$271 in the current nine-month period, compared with $576$259 in the prior nine-monthyear-ago period. The year-over-year increase was primarily relateddue to current year benefits from the Tax Act and year-over-year improvements inlower working capital, partially offset by a higher contribution to employee retirement income plans.capital.

Investing Activities

Net cash used for investing activities was $126$42 in the current nine-month period, compared with $112$36 in the prior nine-monthyear-ago period. The year-over-year increase was mainly due to higher capital spending in the current period, primarily driven by the acquisition of a manufacturing facility, partially offset by cash proceeds from the sale of a manufacturing facility in the first quarter of fiscal year 2020.

Financing Activities

Net cash used for financing activities was $429$183 in the current nine-month period, compared with net cash provided of $292$192 in the prior nine-monthyear-ago period. The year-over-year increase in net cash useddecrease was mainly dueattributable to lower treasury stock purchases, largely offset by reduced proceeds from employee stock option exercises and a decrease in cash sourced from short-term borrowings, higher treasury stock repurchases and higher dividend payments, partially offset by higher proceeds from stock option exercises.borrowings.

Capital Resources and Liquidity

The Company believes it will have the funds necessary to meet its financing requirements and other fixed obligations as they become due based on its working capital requirements, anticipated ability to generate positive cash flows from operations in the future, investment-grade credit ratings, demonstrated access to long-term and short-term credit markets and current borrowing availability under the credit agreement.

Credit Arrangements

As of March 31,September 30, 2019, the Company maintained a $1,100 revolving credit agreement that matures in February 2022. There were no borrowings under this credit agreement as of March 31,September 30, 2019 and June 30, 2018,2019, and the Company believes that borrowings under this credit agreement are and will continue to be available for general corporatebusiness purposes.

The credit agreement includes certain restrictive covenants and limitations. The primary restrictive covenant is a minimum ratio of 4.0 calculated as total earnings before interest, taxes, depreciation and amortization and non-cash asset impairment charges (Consolidated EBITDA) to total interest expense for the trailing four quarters (Interest Coverage ratio), as defined and described in the credit agreement.



The following table sets forth the calculation of the Interest Coverage ratio as of March 31,September 30, 2019, using Consolidated EBITDA for the trailing four quarters, as contractually defined:defined in the credit agreement:
Twelve Months EndedTwelve Months Ended
3/31/20199/30/2019
Earnings from continuing operations$796
Earnings from operations$813
Add back:  
Interest expense96
98
Income tax expense242
201
Depreciation and amortization178
180
Non-cash asset impairment charges—
—
Deduct:  
Interest income(4)(2)
Consolidated EBITDA$1,308
$1,290
Interest expense$96
$98
Interest Coverage ratio13.6
13.2

The Company was in compliance with all restrictive covenants and limitations in the credit agreement as of March 31,September 30, 2019, and anticipates being in compliance with all restrictive covenants for the foreseeable future. The Company continues to monitor the financial markets and assess its ability to fully draw on its credit agreement, and currently expects that any drawing on the credit agreement will be fully funded.

As of March 31,September 30, 2019, the Company maintained $39$38 of foreign and other credit lines, of which $4$3 was outstanding.

Long-term Borrowings

In September 2017, the Company issued $400 of senior notes with an annual fixed interest rate of 3.10% and used the proceeds to repay $400 of senior notes with an annual fixed interest rate of 5.95% that became due in October 2017. The September 2017 senior notes carry an effective interest rate of 3.13%. The notes rank equally with all of the Company's existing senior indebtedness.


Stock Repurchases and DividendsDividend Payments
The
As of September 30, 2019, the Company hashad two stock repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $2,000, which has no expiration date, and a program to offset the anticipated impact of dilution related to stock-based awards (the Evergreen Program), which has no authorization limit on the dollar amount and no expiration date.

Stock repurchases under the two stock repurchase programs were as follows for the periods indicated:
Three Months Ended Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 3/31/2019 3/31/20189/30/2019 9/30/2018
Amount Shares
(in thousands)		 Amount Shares
(in thousands)		 Amount Shares
(in thousands)		 Amount Shares
(in thousands)		Amount Shares
(in thousands)		 Amount Shares
(in thousands)
Open-market purchase program$—
 —
 $—
 —
 $78
 591
 $—
 —
$—
 —
 $78
 591
Evergreen Program73
 466
 —
 —
 231
 1,551
 63
 476
104
 663
 120
 832
Total stock repurchases$73
 466
 $—
 —
 $309
 2,142
 $63
 476
$104
 663
 $198
 1,423

Dividends per share declared and total dividends paid were as follows for the periods indicated:
Three Months Ended Nine Months EndedThree Months Ended
3/31/2019 3/31/2018 3/31/2019 3/31/20189/30/2019 9/30/2018
Dividends per share declared$0.96
 $0.96
 $2.88
 $2.64
$1.06
 $0.96
Total dividends paid123
 109
 368
 326
133
 122


CONTINGENCIES
See Notes to Condensed Consolidated Financial Statements for information on the Company’s contingencies.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Notes to Condensed Consolidated Financial Statements for a summary of recently issued accounting standards relevant to the Company.
NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures that may be included in this MD&A and the reasons management believes they are useful to investors are described below.  These measures should be considered supplemental in nature and are not intended to be a substitute for the related financial information prepared in accordance with U.S. GAAP.  In addition, these measures may not be the same as similarly named measures presented by other companies.

The Company uses the term Consolidated EBITDA, which is a financial measure that is not defined by U.S. GAAP, because it is a term used in its Credit Agreement.revolving credit agreement. As defined in the Credit Agreement,credit agreement, Consolidated EBITDA represents earnings from continuing operations before interest, taxes, depreciation and amortization and non-cash asset impairment charges. Interest Coverage ratio is the ratio of Consolidated EBITDA to interest expense. The Company'sCompany’s management believes disclosure of Consolidated EBITDA provides useful information to investors because it is used in the primary restrictive covenant in the Company's Credit Agreement.Company’s credit agreement. For additional discussion of the Interest Coverage ratio and a reconciliation of Consolidated EBITDA, see “Financial Position and Liquidity - Financing Activities - Credit Arrangements” above.

Organic sales growth / (decrease) is defined as net sales growth excluding the effect of foreign exchange rate changes and any acquisitions and divestitures. Management believes that the presentation of organic sales growth / (decrease) is useful to investors because it excludes sales from any acquisitions and divestitures, which results in a comparison of sales only from the businesses that the Company was operating throughout the relevant periods, and the impact of foreign exchange rate changes, which are out of the control of the Company and management.

The following table provides a reconciliation of organic sales growth / (decrease) (non-GAAP) to net sales growth / (decrease) (GAAP), the most comparable GAAP measure:
 Three Months Ended September 30, 2019
 Percentage change versus the year-ago period
 Cleaning Household Lifestyle International Total
Net sales growth / (decrease) (GAAP)(2)% (14)% 4% —% (4)%
Add: Foreign Exchange—
 —
 —
 8
 2
Add/(Subtract): Divestitures/Acquisitions—
 —
 —
 —
 —
Organic sales growth / (decrease) (non-GAAP)(2)% (14)% 4% 8% (2)%



Cautionary Statement
This Quarterly Report on Form 10-Q (the(this Report), including the exhibits hereto and the information incorporated by reference herein, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such forward-looking statements involve risks and uncertainties. Except for historical information, statements about future volumes, sales, organic sales growth, foreign currencies, costs, cost savings, margins, earnings, earnings per share, including as a result of the Nutranext acquisition, diluted earnings per share, foreign currency exchange rates, tax rates, cash flows, plans, objectives, expectations, growth or profitability are forward-looking statements based on management’s estimates, beliefs, assumptions and projections. Words such as “could,” “may,” “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “predicts,” and variations on such words, and similar expressions that reflect our current views with respect to future events and operational, economic and financial performance are intended to identify such forward-looking statements. These forward-looking statements are only predictions, subject to risks and uncertainties, and actual results could differ materially from those discussed. Important factors that could affect performance and cause results to differ materially from management’s expectations, or could affect the Company’s ability to achieve its strategic goals,are described in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2018,2019, as updated from time to time in the Company’s Securities and Exchange Commission filings. These factors include, but are not limited to:
intense competition in the Company’s markets;
the impact of the changing retail environment, including the growth of e-commerce retailers, hard discounters and other alternative retail channels;channels and business models, and changing consumer preferences;
volatility and increases in commodity costs such as resin, sodium hypochlorite and agricultural commodities, and increases in energy, transportation or other costs;
the ability of the Company to drive sales growth, increase prices and market share, grow its product categories and manage favorable product and geographic mix;
dependence on key customers and risks related to customer consolidation and ordering patterns;
risks related to the Company’s use of and reliance on information technology systems, including potential security breaches, cyber-attacks, privacy breaches or data breaches that result in the unauthorized disclosure of consumer, customer, employee or Company information, or service interruptions;
the Company’s ability to maintain its business reputation and the reputation of its brands;brands and products;
risks relating to acquisitions, new ventures and divestitures, and associated costs, including the potential for asset impairment charges related to, among others, intangible assets and goodwill; and the ability to complete announced transactions and, if completed, integration costs and potential contingent liabilities related to those transactions, including those related to the Nutranext acquisition;transactions;
lower revenue, or increased costs or reputational harm resulting from government actions and regulations;
the ability of the Company to successfully manage global political, legal, tax and regulatory risks, including changes in regulatory or administrative activity and as a result of the Nutranext acquisition;activity;
worldwide, regional and local economic and financial market conditions;
risks related to international operations and international trade, including political instability; government-imposed price controls or other regulations; foreign currency fluctuations, including devaluation,such as devaluations, and foreign currency exchange rate controls, including periodic changes in such controls; changes in U.S. immigration or trade policies, including tariffs,the imposition of new or additional tariffs; labor claims and labor unrest andunrest; inflationary pressures, particularly in Argentina; political instability and the uncertainty regarding the outcome of Brexit; government-imposed price controls or other regulations; potential negative impact and liabilities from the use, storage and transportation of chlorine in certain international markets where chlorine is used in the production of bleach; and the possibility of nationalization, expropriation of assets or other government action;
the ability of the Company to innovate and to develop and introduce commercially successful products;products, or expand into adjacent categories and countries;
the impact of product liability claims, labor claims and other legal or tax proceedings, including in foreign jurisdictions;
the ability of the Company to implement and generate cost savings and efficiencies;
the success of the Company’s business strategies;
•
risks related to additional increases in the estimated fair value of The Procter & Gamble Company's (P&G)P&G’s interest in the Glad® business such as the significant increases from June 30, 2017 to June 30, 2018 primarily due to the Tax Act and the extension of the venture agreement with, and the related R&D support provided by, P&G;business;
the Company'sCompany’s ability to attract and retain key personnel;
supply disruptions and other risks inherent in reliance on a limited base of suppliers;
environmental matters, including costs associated with the remediation and monitoring of past contamination, and possible increases in costs resulting from actions by relevant regulators, and the handling and/or transportation of hazardous substances;
increased focus by governmental and non-governmental organizations, customers, consumers and investors on sustainability issues, including those related to climate change;


the impactfacilities of natural disasters, terrorismthe Company and otherits suppliers being subject to disruption by events beyond the Company’s control;


control, including work stoppages, cyber-attacks, natural disasters and terrorism;
the Company’s ability to maximize, assert and defend its intellectual property rights;
any infringement or claimed infringement by the Company of third-party intellectual property rights;
the on-going effectsaccuracy of the Tax ActCompany’s estimates and assumptions on the Company, including as a result of any additional Congressional, administrative or other actions, or other guidance related to the Tax Act;
uncertainties relating to tax positions, tax disputes and changes in the Company’s tax rate;which its financial projections are based;
the effect of the Company’s indebtedness and credit rating on its business operations and financial results;
the Company’s ability to pay and declare dividends or repurchase its stock in the future;
uncertainties relating to tax positions, tax disputes and changes in the Company’s tax rate, and any additional effects of the Tax Act on the Company;
the Company’s ability to maintain an effective system of internal controls;
the impacts of potential stockholder activism;
the accuracy of the Company’s estimates and assumptions on which its financial projections are based; and
risks related to the Company’s discontinuation of operations in Venezuela.
The Company’s forward-looking statements in this Report are based on management’s current views, beliefs, assumptions and expectations regarding future events and speak only as of the dates when made.date of this Report. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws.
In this Report, unless the context requires otherwise, the terms “the Company,” “Clorox,” “we,” “us”“us,” and “our” refer to The Clorox Company and its subsidiaries.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have not been any material changes to the Company’s market risk since June 30, 2018.2019. For additional information, 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, 2018.2019.
Item 4. Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Report, were effective such that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
No change in the Company’s internal control over financial reporting occurred during the thirdfirst fiscal quarter of the fiscal year ending June 30, 2019,2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART II – OTHER INFORMATION
Item 1.A. Risk Factors
For information regarding Risk Factors, please refer to Item 1.A. Risk Factors in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018,2019, and the information in “Cautionary Statement” included in this Report.



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In May 2018, the Board of Directors authorized the Company to repurchase up to $2,000 million in shares of common stock on the open market (the 2018 Open-Market Program), which has no expiration date and replaced the prior open-market purchase program with an authorized aggregate purchase amount of up to $750 million, which had not been utilized prior to termination in May 2018.date.

In August 1999, the Board of Directors authorized a stock repurchase program to reduce or eliminate dilution upon the issuance of common stock pursuant to the Company’s stock compensation plans (the Evergreen Program). In November 2005, the Board of Directors authorized the extension of the Evergreen Program to reduce or eliminate dilution in connection with issuances of common stock pursuant to the Company’s 2005 Stock Incentive Plan. The Evergreen Program has no expiration date and has no specified limit as to dollar amount and therefore is not included in column [d] below.

The following table sets forth the purchases of the Company’s securities by the Company and any affiliated purchasers within the meaning of Rule 10b-18(a)(3) (17 CFR 240.10b-18(a)(3)) during the thirdfirst quarter of fiscal year 2019.2020.
 [a] [b] [c] [d]
Period
Total Number of
Shares Purchased
(1)
 
Average Price Paid
per Share (2)
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
 
Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
January 1 to 31, 2019—
 $—
 —
 $1,827 million
February 1 to 28, 2019—
 —
 —
 $1,827 million
March 1 to 31, 2019465,329
 157.67
 465,329
 $1,827 million
Total465,329

$157.67

465,329
  
 [a] [b] [c] [d]
Period
Total Number of
Shares Purchased
(1)
 
Average Price Paid
per Share (2)
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
 
Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
July 1 to 31, 201963,144
 $152.86
 63,144
 $1,578 million
August 1 to 31, 2019582,004
 157.66
 582,004
 $1,578 million
September 1 to 30, 201917,742
 160.94
 17,742
 $1,578 million
Total662,890

$157.29

662,890
  
____________________

(1)
All of the shares purchased in MarchJuly, August and September 2019 were acquired pursuant to the Company’s Evergreen Program.
(2)
Average price paid per share in the period includes commission.


Item 6. Exhibits
See Exhibit Index below, which is incorporated by reference herein.
EXHIBIT INDEX
Exhibit No.
10.1
Form of Performance Share Award Agreement under the Company's 2005 Stock Incentive Plan for awards made in 2019.
31.1
 
Certification by the Chief Executive Officer of the Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Certification by the Chief Financial Officer of the Company Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
 
Certification by the Chief Executive Officer and Chief Financial Officer of the Company Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  THE CLOROX COMPANY
  (Registrant)
 
 
DATE: May 1,October 31, 2019BY/s/ Jeffrey R. Baker
  
Jeffrey R. Baker
Vice President – Chief Accounting Officer and Corporate Controller

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