UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) | | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2021.2022.
OR
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☐ | 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)
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Delaware | 31-0595760 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) | |
|
1221 Broadway, Oakland, California, 94612-1888
(Address of principal executive offices) (Zip code)
(510) 271-7000
(Registrant’s telephone number, including area code)
| | | | | | | | |
(Former name, former address and former fiscal year, if changed since last report) |
___________________ |
Securities registered pursuant to Section 12(b) of the Act: |
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock - $1.00 par value | CLX | New York Stock Exchange |
| | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller Reporting Company | ☐ | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of April 16, 2021,18, 2022, there were 124,372,035123,079,993 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 per share data)
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 | | 3/31/2022 | | 3/31/2021 | | 3/31/2022 | | 3/31/2021 |
Net sales | Net sales | | $ | 1,781 | | | $ | 1,783 | | | $ | 5,539 | | | $ | 4,738 | | Net sales | | $ | 1,809 | | | $ | 1,781 | | | $ | 5,306 | | | $ | 5,539 | |
Cost of products sold | Cost of products sold | | 1,007 | | | 951 | | | 3,008 | | | 2,604 | | Cost of products sold | | 1,160 | | | 1,007 | | | 3,429 | | | 3,008 | |
Gross profit | Gross profit | | | 774 | | | | 832 | | | | 2,531 | | | | 2,134 | | Gross profit | | | 649 | | | | 774 | | | | 1,877 | | | | 2,531 | |
Selling and administrative expenses | Selling and administrative expenses | | 237 | | | 269 | | | 744 | | | 690 | | Selling and administrative expenses | | 233 | | | 237 | | | 710 | | | 744 | |
Advertising costs | Advertising costs | | 200 | | | 184 | | | 566 | | | 461 | | Advertising costs | | 153 | | | 200 | | | 502 | | | 566 | |
Research and development costs | Research and development costs | | 32 | | | 39 | | | 104 | | | 103 | | Research and development costs | | 31 | | | 32 | | | 98 | | | 104 | |
Goodwill, trademark and other asset impairments | Goodwill, trademark and other asset impairments | | 329 | | | 0 | | | 329 | | | 0 | | Goodwill, trademark and other asset impairments | | — | | | 329 | | | — | | | 329 | |
Interest expense | Interest expense | | 25 | | | 24 | | | 74 | | | 74 | | Interest expense | | 21 | | | 25 | | | 69 | | | 74 | |
Other (income) expense, net | Other (income) expense, net | | 10 | | | 19 | | | (85) | | | 16 | | Other (income) expense, net | | 11 | | | 10 | | | 20 | | | (85) | |
Earnings (losses) before income taxes | Earnings (losses) before income taxes | | | (59) | | | | 297 | | | | 799 | | | | 790 | | Earnings (losses) before income taxes | | | 200 | | | | (59) | | | | 478 | | | | 799 | |
Income taxes | Income taxes | | 0 | | | 56 | | | 180 | | | 161 | | Income taxes | | 48 | | | — | | | 111 | | | 180 | |
Net earnings (losses) | Net earnings (losses) | | | (59) | | | | 241 | | | | 619 | | | | 629 | | Net earnings (losses) | | | 152 | | | | (59) | | | | 367 | | | | 619 | |
Less: Net earnings attributable to noncontrolling interests | Less: Net earnings attributable to noncontrolling interests | | | 2 | | | 0 | | | | 6 | | | | 0 | | Less: Net earnings attributable to noncontrolling interests | | | 2 | | | 2 | | | | 6 | | | | 6 | |
Net earnings (losses) attributable to Clorox | Net earnings (losses) attributable to Clorox | | $ | (61) | | | $ | 241 | | | $ | 613 | | | $ | 629 | | Net earnings (losses) attributable to Clorox | | $ | 150 | | | $ | (61) | | | $ | 361 | | | $ | 613 | |
Net earnings (losses) per share attributable to Clorox | Net earnings (losses) per share attributable to Clorox | | | | | | | | | Net earnings (losses) per share attributable to Clorox | | | | | | | | |
Basic net earnings (losses) per share | Basic net earnings (losses) per share | | $ | (0.49) | | | $ | 1.92 | | | $ | 4.86 | | | $ | 5.01 | | Basic net earnings (losses) per share | | $ | 1.22 | | | $ | (0.49) | | | $ | 2.93 | | | $ | 4.86 | |
Diluted net earnings (losses) per share | Diluted net earnings (losses) per share | | $ | (0.49) | | | $ | 1.89 | | | $ | 4.78 | | | $ | 4.94 | | Diluted net earnings (losses) per share | | $ | 1.21 | | | $ | (0.49) | | | $ | 2.91 | | | $ | 4.78 | |
Weighted average shares outstanding (in thousands) | Weighted average shares outstanding (in thousands) | | Weighted average shares outstanding (in thousands) | |
Basic | Basic | | 125,610 | | | 125,661 | | | 126,057 | | | 125,641 | | Basic | | 123,177 | | | 125,610 | | | 123,074 | | | 126,057 | |
Diluted | Diluted | | 125,610 | | | 127,328 | | | 128,030 | | | 127,236 | | Diluted | | 123,877 | | | 125,610 | | | 123,943 | | | 128,030 | |
| Comprehensive income (loss) | Comprehensive income (loss) | | $ | (37) | | | $ | 186 | | | $ | 706 | | | $ | 575 | | Comprehensive income (loss) | | $ | 207 | | | $ | (37) | | | $ | 394 | | | $ | 706 | |
Less: Total comprehensive income attributable to noncontrolling interests | Less: Total comprehensive income attributable to noncontrolling interests | | 2 | | 0 | | | 6 | | | 0 | | Less: Total comprehensive income attributable to noncontrolling interests | | 2 | | 2 | | | 6 | | | 6 | |
Total comprehensive income (loss) attributable to Clorox | Total comprehensive income (loss) attributable to Clorox | | $ | (39) | | | $ | 186 | | | $ | 700 | | | $ | 575 | | Total comprehensive income (loss) attributable to Clorox | | $ | 205 | | | $ | (39) | | | $ | 388 | | | $ | 700 | |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
The Clorox Company
Condensed Consolidated Balance Sheets
(Dollars in millions, except per share data) | | | | | | | | | | | | | | | | | |
| 3/31/2022 | | 6/30/2021 |
| (Unaudited) | | | |
ASSETS | | | | | |
Current assets | | | | | |
Cash and cash equivalents | $ | 241 | | | $ | 319 | |
Receivables, net | | 660 | | | | 604 | |
Inventories, net | | 803 | | | | 752 | |
Prepaid expenses and other current assets | | 165 | | | | 154 | |
Total current assets | | 1,869 | | | | 1,829 | |
Property, plant and equipment, net of accumulated depreciation and amortization of $2,510 and $2,382, respectively | | 1,312 | | | | 1,302 | |
Operating lease right-of-use assets | | 311 | | | | 332 | |
Goodwill | | 1,572 | | | | 1,575 | |
Trademarks, net | | 690 | | | | 693 | |
Other intangible assets, net | | 204 | | | | 225 | |
Other assets | | 364 | | | | 378 | |
Total assets | $ | 6,322 | | | $ | 6,334 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
Current liabilities | | | | | |
Notes and loans payable | $ | 395 | | | $ | — | |
Current maturities of long-term debt | | 600 | | | | 300 | |
Current operating lease liabilities | | 73 | | | | 81 | |
Accounts payable and accrued liabilities | | 1,575 | | | | 1,675 | |
| | | | | |
Total current liabilities | | 2,643 | | | | 2,056 | |
Long-term debt | | 1,887 | | | | 2,484 | |
Long-term operating lease liabilities | | 288 | | | | 301 | |
Other liabilities | | 843 | | | | 834 | |
Deferred income taxes | | 85 | | | | 67 | |
Total liabilities | | 5,746 | | | | 5,742 | |
Commitments and contingencies | | 0 | | | 0 |
Stockholders’ equity | | | | | |
Preferred stock: $1.00 par value; 5,000,000 shares authorized; none issued or outstanding | | — | | | | — | |
Common stock: $1.00 par value; 750,000,000 shares authorized; 130,741,461 shares issued as of March 31, 2022 and June 30, 2021; and 123,071,356 and 122,780,220 shares outstanding as of March 31, 2022 and June 30, 2021, respectively | | 131 | | | | 131 | |
Additional paid-in capital | | 1,195 | | | | 1,186 | |
Retained earnings | | 951 | | | | 1,036 | |
Treasury stock, at cost: 7,670,105 and 7,961,241 shares as of March 31, 2022 and June 30, 2021, respectively | | (1,358) | | | | (1,396) | |
Accumulated other comprehensive net (loss) income | | (519) | | | | (546) | |
Total Clorox stockholders’ equity | | 400 | | | | 411 | |
Noncontrolling interests | | 176 | | | | 181 | |
Total stockholders’ equity | | 576 | | | | 592 | |
Total liabilities and stockholders’ equity | $ | 6,322 | | | $ | 6,334 | |
| | | | | | | | | | | | | | | | | |
| 3/31/2021 | | 6/30/2020 |
| (Unaudited) | | | |
ASSETS | | | | | |
Current assets | | | | | |
Cash and cash equivalents | $ | 492 | | | $ | 871 | |
Receivables, net | | 643 | | | | 648 | |
Inventories, net | | 688 | | | | 454 | |
Prepaid expenses and other current assets | | 139 | | | | 47 | |
Total current assets | | 1,962 | | | | 2,020 | |
Property, plant and equipment, net of accumulated depreciation and amortization of $2,351 and $2,224, respectively | | 1,251 | | | | 1,103 | |
Operating lease right-of-use assets | | 328 | | | | 291 | |
Goodwill | | 1,574 | | | | 1,577 | |
Trademarks, net | | 694 | | | | 785 | |
Other intangible assets, net | | 246 | | | | 109 | |
Other assets | | 386 | | | | 328 | |
Total assets | $ | 6,441 | | | $ | 6,213 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
Current liabilities | | | | | |
| | | | | |
Current maturities of long-term debt | $ | 300 | | | $ | 0 | |
Current operating lease liabilities | | 74 | | | | 64 | |
Accounts payable and accrued liabilities | | 1,445 | | | | 1,329 | |
Income taxes payable | | 0 | | | | 25 | |
Total current liabilities | | 1,819 | | | | 1,418 | |
Long-term debt | | 2,483 | | | | 2,780 | |
Long-term operating lease liabilities | | 305 | | | | 278 | |
Other liabilities | | 819 | | | | 767 | |
Deferred income taxes | | 77 | | | | 62 | |
Total liabilities | | 5,503 | | | | 5,305 | |
Commitments and contingencies | | 0 | | | 0 |
Stockholders’ equity | | | | | |
Preferred stock: $1.00 par value; 5,000,000 shares authorized; NaN issued or outstanding | | 0 | | | | 0 | |
Common stock: $1.00 par value; 750,000,000 shares authorized; 130,741,461 and 158,741,461 shares issued as of March 31, 2021 and June 30, 2020, respectively; and 124,359,712 and 126,198,606 shares outstanding as of March 31, 2021 and June 30, 2020, respectively | | 131 | | | | 159 | |
Additional paid-in capital | | 1,190 | | | | 1,137 | |
Retained earnings | | 1,086 | | | | 3,567 | |
Treasury stock, at cost: 6,381,749 and 32,542,855 shares as of March 31, 2021 and June 30, 2020, respectively | | (1,111) | | | | (3,315) | |
Accumulated other comprehensive net (loss) income | | (553) | | | | (640) | |
Total Clorox stockholders’ equity | | 743 | | | | 908 | |
Noncontrolling interests | | 195 | | | | 0 | |
Total stockholders’ equity | | 938 | | | | 908 | |
Total liabilities and stockholders’ equity | $ | 6,441 | | | $ | 6,213 | |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
The Clorox Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)
| | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| 3/31/2021 | | 3/31/2020 |
Operating activities: | | | | | |
Net earnings | $ | 619 | | | $ | 629 | |
Adjustments to reconcile net earnings to net cash provided by operations: | | | | | |
Depreciation and amortization | | 157 | | | | 133 | |
Stock-based compensation | | 52 | | | | 37 | |
Deferred income taxes | | (21) | | | | 5 | |
Goodwill, trademark and other asset impairments | | 329 | | | | 0 | |
Other | | (53) | | | | 26 | |
Changes in: | | | | | |
Receivables, net | | 46 | | | | (102) | |
Inventories, net | | (220) | | | | 50 | |
Prepaid expenses and other current assets | | (29) | | | | (6) | |
Accounts payable and accrued liabilities | | 94 | | | | 53 | |
Operating lease right-of-use assets and liabilities, net | | (1) | | | | 7 | |
Income taxes payable / prepaid | | (80) | | | | (26) | |
Net cash provided by operations | | 893 | | | | 806 | |
Investing activities: | | | | | |
Capital expenditures | | (232) | | | | (158) | |
Businesses acquired, net of cash acquired | | (85) | | | | 0 | |
Other | | (24) | | | | 13 | |
Net cash used for investing activities | | (341) | | | | (145) | |
Financing activities: | | | | | |
Notes and loans payable, net | | 0 | | | | 234 | |
Treasury stock purchased | | (605) | | | | (225) | |
Cash dividends paid to Clorox stockholders | | (420) | | | | (399) | |
Cash dividends paid to noncontrolling interests | | (18) | | | | 0 | |
Issuance of common stock for employee stock plans and other | | 99 | | | | 129 | |
Net cash used for financing activities | | (944) | | | | (261) | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | | 10 | | | | (8) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | (382) | | | | 392 | |
Cash, cash equivalents, and restricted cash: | | | | | |
Beginning of period | | 879 | | | | 113 | |
End of period | $ | 497 | | | $ | 505 | |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| 3/31/2022 | | 3/31/2021 |
Operating activities: | | | | | |
Net earnings | $ | 367 | | | $ | 619 | |
Adjustments to reconcile net earnings to net cash provided by operations: | | | | | |
Depreciation and amortization | | 167 | | | | 157 | |
Stock-based compensation | | 44 | | | | 52 | |
Deferred income taxes | | 11 | | | | (21) | |
Goodwill, trademark and other asset impairments | | — | | | | 329 | |
Other | | 7 | | | | (53) | |
Changes in: | | | | | |
Receivables, net | | (56) | | | | 46 | |
Inventories, net | | (53) | | | | (220) | |
Prepaid expenses and other current assets | | 2 | | | | (29) | |
Accounts payable and accrued liabilities | | (93) | | | | 94 | |
Operating lease right-of-use assets and liabilities, net | | — | | | | (1) | |
Income taxes payable / prepaid | | 55 | | | | (80) | |
Net cash provided by operations | | 451 | | | | 893 | |
Investing activities: | | | | | |
Capital expenditures | | (172) | | | | (232) | |
Businesses acquired, net of cash acquired | | — | | | | (85) | |
Other | | 5 | | | | (24) | |
Net cash used for investing activities | | (167) | | | | (341) | |
Financing activities: | | | | | |
Notes and loans payable, net | | 395 | | | | — | |
Long-term debt repayments | | (300) | | | | — | |
Treasury stock purchased | | (25) | | | | (605) | |
Cash dividends paid to Clorox stockholders | | (428) | | | | (420) | |
Cash dividends paid to noncontrolling interests | | (5) | | | | (18) | |
Issuance of common stock for employee stock plans and other | | — | | | | 99 | |
Net cash used for financing activities | | (363) | | | | (944) | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | | (2) | | | | 10 | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | (81) | | | | (382) | |
Cash, cash equivalents, and restricted cash: | | | | | |
Beginning of period | | 324 | | | | 879 | |
End of period | $ | 243 | | | $ | 497 | |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
The Clorox Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim condensed consolidated financial statements for the three and nine months ended March 31, 20212022 and 2020,2021, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the consolidated results of operations, financial position and cash flows of The Clorox Company and its controlled subsidiaries (the Company) for the periods presented. However, the financial results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) have been omitted or condensed pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). The information in this report should be read in conjunction with the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 30, 2020,2021, which includes a complete set of footnote disclosures, including the Company’s significant accounting policies.
Recently IssuedAdopted Accounting Standards
Recently Issued Accounting Standards Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, “Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes,” which improves consistency in the application of accounting for income taxes by removingremoves certain exceptions to the general principles in ASC 740 and by clarifyingamends existing guidance to improve consistent application. Certain amendments must be applied prospectively, certain amendments must be applied on a retrospective basis, and amending existing guidance. The standard will be effective for the Company beginning in the first quarter of fiscal year 2022, with early adoption permitted. Thecertain amendments that are related to changes in ownership of foreign equity method investments or foreign subsidiaries are tomust be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments that are related to franchise taxes that are partially based on income are to be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments under this ASU are to be applied on a prospective basis. 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 January 2017, the FASB issued 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.earnings. The Company adopted this guidancestandard as of July 1, 2020 on a prospective basis, and the2021. The adoption of this new standard did not have a material impact on the Company’s condensed consolidated financial statements at the time of adoption. The impairment identified in the third quarter of fiscal year 2021 was calculated in accordance with this guidance. The future impact of this new standard will depend on the specific facts and circumstances of future impairments that may occur.statements.
NOTE 2. BUSINESS ACQUIRED
Saudi Joint Venture Acquisition
On July 9, 2020, the Company increased its investment in each of the two2 entities comprising its joint venture in the Kingdom of Saudi Arabia (Saudi joint venture). from 30 percent to 51 percent. The joint venture offers customers in the Gulf region a range of cleaning and disinfecting products. The Company had previously accounted for its 30 percentWith the additional investment, of $27 as of June 30, 2020, under the equity method of accounting. Subsequent to the closing of this transaction, the Company’s total ownership interest in each of the entities increased to 51 percent. The Company has consolidated this joint venture into the Company’sits consolidated financial statements from the date of acquisition and reflects operations within the International reportable segment. The equity and income attributable to the other joint venture owners is recorded and presented as noncontrolling interests. As a result of this transaction, the carrying value of the Company’s previously held equity investment was remeasured to fair value, and resulted in an $85 non-recurring, noncash gain recorded in Other (income) expense, net in the condensed consolidated statement of earnings and adjusted in Other operating activities in the condensed consolidated statement of cash flows for the first quarter of fiscal year 2021.
The Saudi joint venture acquisition was accounted for under the acquisition method of accounting for business combinations. The total purchase consideration ofwas $111 consistedconsisting of $100 cash paid which was sourced from operations, and $11 from the net effective settlement of preexisting arrangements between the Company and the joint venture. The assets and liabilities of the joint venture were recorded at their respective estimated fair value as of the acquisition date using generally accepted accounting principles for business combinations.date. The excess of the purchase price over the fair value of the total net identifiable assets acquired has been allocated to goodwill in the International reportable segment in the amount of $208. The goodwill is primarily attributable to the synergies expected to arise after the acquisition and reflects the value of further growth anticipated in the Gulf region. NaNnenoncontrolling interests recorded as of the goodwill is deductible for tax purposes.
As a resultdate of this transaction, the carrying value of the Company’s previously held equity investmentacquisition was remeasured to fair value,$412 and resulted in an $85 non-recurring, non-cash gain recorded in Other (income) expense, net in the condensed consolidated statement of earnings and adjusted in Other operating activities in the condensed consolidated statement of cash flows for the first quarter of fiscal year 2021. The fair values of the noncontrolling interests and previously held equity interest were determined using a discounted cash flow (DCF) method under the income approach. Under this approach, the Company estimates future cash flows and discounts these cash flows at a rate of return that reflects the entities’ relative risk.
$198, respectively. The purchase price allocation was finalized during the second quarter of fiscal year 2021. The following table summarizes
Refer to the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for the final purchase price allocation, for the fair value of the joint venture’s assets acquiredvaluation methodology and liabilities assumed and the related deferred income taxes as of the acquisition date. The fair value of the assets acquired and liabilities assumed reflects the final insignificant measurement period adjustmentsother information related to goodwill, deferred income taxes and income taxes payable. The definite-lived intangibles acquired primarily represent the Company reacquiring previously licensed trademarks and customer relationships. The weighted-average estimated useful life of intangible assets subject to amortization is 9 years.Saudi joint venture acquisition.
| | | | | |
| Joint Venture |
Goodwill | $ | 208 | |
Reacquired rights (included in Other intangible assets, net) | 138 | |
Property, plant and equipment | 46 | |
Customer relationships (included in Other intangible assets, net) | 10 | |
Working capital, net (includes cash acquired of $26) | 34 | |
Noncurrent liabilities, net | (5) | |
Deferred income taxes | (19) | |
Total fair value of net assets | 412 | |
Less: Fair value of noncontrolling interests | (198) | |
Less: Fair value of previously held equity interest | (103) | |
Total purchase consideration | $ | 111 | |
Included in the Company’s results for the three and nine months ended March 31, 2021 was $19 and $65, respectively, of net sales from the joint venture. Pro forma results reflecting this transaction were not presented because it is not significant to the Company’s consolidated financial results.
NOTE 3. INVENTORIES, NET
Inventories, net, consisted of the following as of:
| | | | | | | | | | | |
| 3/31/2021 | | 6/30/2020 |
Finished goods | $ | 522 | | | $ | 340 | |
Raw materials and packaging | 188 | | | 140 | |
Work in process | 10 | | | 7 | |
LIFO allowances | (32) | | | (33) | |
Total | $ | 688 | | | $ | 454 | |
| | | | | | | | | | | |
| 3/31/2022 | | 6/30/2021 |
Finished goods | $ | 602 | | | $ | 543 | |
Raw materials and packaging | 206 | | | 229 | |
Work in process | 37 | | | 11 | |
LIFO allowances | (42) | | | (31) | |
Total | $ | 803 | | | $ | 752 | |
NOTE 4. GOODWILL, TRADEMARK AND OTHER ASSETSASSET IMPAIRMENTS
The Company tests its goodwill and other indefinite-lived intangible assets for impairment annually in the fiscal fourth quarter unless there are indications during a different interim period that these assets may have become impaired.Finite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances occur that indicate that the carrying value of an asset (or asset group) may not be recoverable.
There were no impairment charges for goodwill or intangible assets recorded by the Company during the three and nine months ended March 31, 2022.
During the third quarter of fiscal 2021, as a result of lower than expected actual and projected net sales growth and operating performance for the Vitamins, Minerals and Supplements (VMS) strategic business unit (SBU), a strategic review was initiated by management that resulted in updated financial and operational plans. These events were considered a triggering event requiring interim impairment assessments to be performed on the VMS reporting unit, indefinite-lived trademarks and other assets. Based on the outcome of these assessments, the following pre-tax impairment charges were recorded:
| | | | | |
| Impairment Charge |
Goodwill | $ | 228 | |
Trademarks, net | 8693 | |
Other intangible assets, net | 147 | |
Property, plant and equipment, net | 1 | |
Total | $ | 329 | |
In connection with recognizing these impairment charges, the Company recognized tax benefits related to the impairments of $62 due to the partial tax deductibility of these charges.
The impairment charges are a result of a higher level of competitive activity than originally assumed, accelerated declinesRefer to the Notes to Consolidated Financial Statements in the channel whereCompany's Annual Report on Form 10-K for the business is over-developed, and higher than anticipated investmentsfiscal year ended June 30, 2021 for further information related to grow the business, which have adversely affected the assumptions used to determine the fair value of the respective assets held by the VMS reporting unit for growth and the estimates of expenses necessary to achieve that growth. These impairment charges are based on the Company’s current estimates regarding the future financial performance of the VMS SBU and macroeconomic factors.
To determine the fair value of the VMS reporting unit, the Company used a DCF method under the income approach. Under this approach, the Company estimated the future cash flows of the VMS reporting unit and discounted these cash flows at a rate of return that reflects its relative risk. The other key estimates and factors used in the DCF method include, but are not limited to, net sales and expense growth rates, and a terminal growth rate.
Changes in the carrying amount of Goodwill as of March 31, 2021 from June 30, 2020, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill |
| Health and Wellness | | Household | | Lifestyle | | International | | Total |
Balance as of June 30, 2020 | $ | 857 | | | $ | 85 | | | $ | 244 | | | $ | 391 | | | $ | 1,577 | |
Acquisitions | 0 | | | 0 | | | 0 | | | 212 | | | 212 | |
Translation adjustments and other | 0 | | | 0 | | | 0 | | | 4 | | | 4 | |
Balance as of September 30, 2020 | 857 | | | 85 | | | 244 | | | 607 | | | 1,793 | |
Translation adjustments and other (1) | 0 | | | 0 | | | 0 | | | 10 | | | 10 | |
Balance as of December 31, 2020 | 857 | | | 85 | | | 244 | | | 617 | | | 1,803 | |
Goodwill impairment | (228) | | | 0 | | | 0 | | | 0 | | | (228) | |
Translation adjustments and other | 0 | | | 0 | | | 0 | | | (1) | | | (1) | |
Balance as of March 31, 2021 | $ | 629 | | | $ | 85 | | | $ | 244 | | | $ | 616 | | | $ | 1,574 | |
(1) Includes $(4) purchase price allocation adjustment related to the Saudi joint venture acquisition. Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements.
To determine the estimated fair values of the VMS related indefinite-lived trademarks, which were included within the Health and Wellness reportable segment, the Company used the income approach. This approach requires significant judgments in determining the royalty rates and the assets’ estimated cash flows as well as the appropriate discount rates applied to those cash flows to determine fair value. In addition, the useful lives of the impaired trademarks, with a remaining net carrying value of $13 as of March 31, 2021, were changed from indefinite to definite beginning on April 1, 2021, which reflects the remaining expected useful lives of the trademarks based on the most recent financial and operational plans. The weighted-average estimated useful life of these trademarks is 16 years.
The following table summarizes the carrying amount of trademarksgoodwill, intangibles and other intangible assets as of March 31, 2021 and as of June 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2021 | | As of June 30, 2020 |
| Gross carrying amount | | Accumulated amortization / Impairments | | Net carrying amount | | Gross carrying amount | | Accumulated amortization / Impairments | | Net carrying amount |
Trademarks not subject to amortization | $ | 769 | | | $ | 86 | | | $ | 683 | | | $ | 766 | | | $ | 0 | | | $ | 766 | |
Trademarks subject to amortization | 47 | | | 36 | | | 11 | | | 47 | | | 28 | | | 19 | |
Other intangible assets | 583 | | | 337 | | | 246 | | | 424 | | | 315 | | | 109 | |
Total | $ | 1,399 | | | $ | 459 | | | $ | 940 | | | $ | 1,237 | | | $ | 343 | | | $ | 894 | |
Amortization expense relating to the Company’s intangible assets was $8 and $23 for the three and nine months ended March 31, 2021, respectively, and $3 and $10 for the three and nine months ended March 31, 2020, respectively. Estimated amortization expense for these intangible assets is $8, $32, $30, $29 and $28 for the remainder of fiscal year 2021 and fiscal years 2022, 2023, 2024 and 2025, respectively.asset impairments.
NOTE 5. DEBT
Short-term borrowings
In November 2021, $300 of the Company’s senior notes with an annual fixed interest rate of 3.80% became due and were repaid using commercial paper borrowings.
The weighted average effective interest rate of notes and loans payable as of March 31, 2022 was 0.77%. The Company had no notes and loans payable outstanding as of June 30, 2021.
Credit arrangements
On March 25, 2022, the Company entered into a new $1,200 revolving credit agreement (the Credit Agreement) that matures in March 2027. The Credit Agreement replaced a prior $1,200 revolving credit agreement (the Prior Credit Agreement) in place since November 2019. The Credit Agreement changed the interest rate benchmark used as a reference rate for borrowings under the Credit Agreement from the London Interbank Offered Rate (LIBOR) to the secured overnight financing rate (SOFR). The Company did not incur any termination fees or penalties in connection with entering the new agreement, which was considered a debt modification. There were no borrowings under either the Credit Agreement or the Prior Credit Agreement as of March 31, 2022 and June 30, 2021, respectively, and the Company believes that borrowings under the new Credit Agreement will continue to be available for general corporate purposes. The Credit Agreement includes certain restrictive covenants and limitations consistent with the previous agreement, with which the Company was in compliance as of March 31, 2022.
NOTE 5.6. 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, 2021,2022, the notional amount of commodity derivatives was $24,$25, of which $15 related$13 related to soybean oil futures used for the Food products businessbusiness and $9$12 related to jet fuel swaps used for the Grilling business. As of June 30, 2020,2021, the notional amount of commodity derivatives was $27,$32, of which $14$23 related to soybean oil futures and $13$9 related to jet fuel swaps.
Foreign Currency Risk Management
The Company may also enter into certain over-the-counter derivative contracts to manage a portion of the Company’s forecasted foreign currency exposure associated with the purchase of inventory. These foreign currency contracts generally have durations of no longer than 2 years. The foreign exchange contracts are measured at fair value using information quoted by foreign exchange dealers.
The notional amounts of outstanding foreign currency forward contracts used by the Company’s subsidiaries to hedge forecasted purchases of inventory were $68$59 and $70, respectively, as of March 31, 20212022 and June 30, 2020.
NOTE 5. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
2021.Interest Rate Risk Management
The Company may enter into over-the-counter interest rate forward or swap 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 or swap contracts historicallygenerally have had durations of less than 3 years. The interest rate contracts are measured at fair value using information quoted by U.S. government bond and interest rate derivative dealers.
The notional amounts of outstanding interest rate contracts used by the Company were $300$950 and $225,$300, respectively, as of March 31, 20212022 and June 30, 2020.2021. These contracts represent forward starting interest rate swap contracts with a maturity date of September 2022lock agreements to manage the exposure to interest rate volatility associated with future interest payments on a forecasted debt issuance.
Commodity, Foreign Exchange and Interest Rate Derivatives
The Company designates its commodity forward and futures contracts for forecasted purchases of raw materials, foreign currency forward contracts for forecasted purchases of inventory and interest rate forward contracts for forecasted interest payments as cash flow hedges.
NOTE 6. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
The effects of derivative instruments designated as hedging instruments on Other comprehensive (loss) income and Net earnings (loss) were as follows:
| | | Gains (losses) recognized in Other comprehensive (loss) income | | Gains (losses) recognized in Other comprehensive (loss) income |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 | | 3/31/2022 | | 3/31/2021 | | 3/31/2022 | | 3/31/2021 |
Commodity purchase derivative contracts | Commodity purchase derivative contracts | $ | 5 | | | $ | (11) | | | $ | 12 | | | $ | (8) | | Commodity purchase derivative contracts | $ | 10 | | | $ | 5 | | | $ | 12 | | | $ | 12 | |
Foreign exchange derivative contracts | Foreign exchange derivative contracts | 2 | | | 2 | | | (1) | | | 2 | | Foreign exchange derivative contracts | (1) | | | 2 | | | — | | | (1) | |
Interest rate derivative contracts | Interest rate derivative contracts | 26 | | | 0 | | | 36 | | | 0 | | Interest rate derivative contracts | 39 | | | 26 | | | 39 | | | 36 | |
Total | Total | $ | 33 | | | $ | (9) | | | $ | 47 | | | $ | (6) | | Total | $ | 48 | | | $ | 33 | | | $ | 51 | | | $ | 47 | |
| | | Location of Gains (losses) reclassified from Accumulated other comprehensive net (loss) income into Net earnings | Gains (losses) reclassified from Accumulated other comprehensive net (loss) income and recognized in Net earnings | | Location of gains (losses) reclassified from Accumulated other comprehensive net (loss) income into Net earnings (losses) | Gains (losses) reclassified from Accumulated other comprehensive net (loss) income and recognized in Net earnings (losses) |
| | | Three Months Ended | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended |
| | 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 | | 3/31/2022 | | 3/31/2021 | | 3/31/2022 | | 3/31/2021 |
Commodity purchase derivative contracts | Commodity purchase derivative contracts | Cost of products sold | $ | 0 | | | $ | 0 | | | $ | (2) | | | $ | (1) | | Commodity purchase derivative contracts | Cost of products sold | $ | 3 | | | $ | — | | | $ | 13 | | | $ | (2) | |
Foreign exchange derivative contracts | Foreign exchange derivative contracts | Cost of products sold | 0 | | | 0 | | | 0 | | | 0 | | Foreign exchange derivative contracts | Cost of products sold | — | | | — | | | — | | | — | |
Interest rate derivative contracts | Interest rate derivative contracts | Interest expense | (2) | | | (2) | | | (5) | | | (5) | | Interest rate derivative contracts | Interest expense | — | | | (2) | | | (3) | | | (5) | |
Total | Total | | $ | (2) | | | $ | (2) | | | $ | (7) | | | $ | (6) | | Total | | $ | 3 | | | $ | (2) | | | $ | 10 | | | $ | (7) | |
The estimated amount of the existing net gain (loss) in Accumulated other comprehensive net (loss) income as of March 31, 2021,2022 that is expected to be reclassified into Net earnings (losses) within the next twelve months is $2.
NOTE 5. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
$12.Counterparty Risk Management and Derivative Contract Requirements
The Company utilizes a variety of financial institutions as counterparties for over-the-counter derivative instruments. The Company enters into agreements governing the use of over-the-counter derivative instruments and sets internal limits on the aggregate over-the-counter derivative instrument positions held with each counterparty. Certain terms of these agreements require the Company or the counterparty to post collateral when the fair value of the derivative instruments exceeds contractually-defined counterparty liability position limits. Of the over-the-counter derivative instruments in liability positions held as of both March 31, 20212022 and June 30, 2020, $1 and $3, respectively,2021, $0 contained such terms. As of both March 31, 20212022 and June 30, 2020,2021, neither the Company nor any counterparty was required to post any collateral, as no counterparty liability position limits were exceeded.
Certain terms of the agreements governing the Company’s over-the-counter derivative instruments require the credit ratings, as assigned by Standard & Poor’s and Moody’s to the Company and its counterparties, to remain at a level equal to or better than the minimum of an investment grade credit rating. If the Company’s credit ratings were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. As of both March 31, 20212022 and June 30, 2020,2021, the Company and each of its counterparties had been assigned investment grade ratings by both Standard & Poor’s and Moody’s.
Certain of the Company’s exchange-traded futures contracts used for commodity price risk management include requirements for the Company to post collateral in the form of a cash margin account held by the Company’s broker for trades conducted on that exchange. As of both March 31, 20212022 and June 30, 2020,2021, the Company maintained cash margin balances related to exchange-traded futures contracts of $0, and $2, respectively, which are classified as Prepaid expenses and other current assets on the condensed consolidated balance sheets.
NOTE 6. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
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 are invested in accordance with the terms of the plans and within the confines of the trusts, which hold the marketable securities. The trusts represent variable interest entities for which the Company is considered the primary beneficiary, and, therefore, trust assets are consolidated and included in Other assets in the condensed consolidated balance sheets. The interests in mutual funds are measured at fair value using quoted market prices. The Company has designated these marketable securities as trading investments.
Fair Value Measurements
of Financial Instruments
Financial assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets are required to be classified and disclosed in one of the following three categories of the fair value hierarchy:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions.
As of both March 31, 20212022 and June 30, 2020,2021, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis included derivative financial instruments, which were classified as either Level 1 or Level 2, and trust assets to fund the Company’s nonqualified deferred compensation plans, which were classified as Level 1.
NOTE 5. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
All of the Company’s derivative instruments qualify for hedge accounting. The following table provides information about the balance sheet classification and the fair values of the Company’s derivative instruments:
| | | | 3/31/2021 | | 6/30/2020 | | | 3/31/2022 | | 6/30/2021 |
| | 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 | Assets | | | | | | | | | | | | Assets | | | | | | | | | | | |
Commodity purchase futures contracts | Commodity purchase futures contracts | Other current assets | | 1 | | $ | 3 | | | $ | 3 | | | $ | 0 | | | $ | 0 | | Commodity purchase futures contracts | Prepaid expenses and other current assets | | 1 | | $ | 1 | | | $ | 1 | | | $ | 5 | | | $ | 5 | |
Commodity purchase swaps contracts | Commodity purchase swaps contracts | Other current assets | | 2 | | 2 | | | 2 | | | 0 | | | 0 | | Commodity purchase swaps contracts | Prepaid expenses and other current assets | | 2 | | 6 | | | 6 | | | 4 | | | 4 | |
Commodity purchase swaps contracts | Commodity purchase swaps contracts | Other assets | | 2 | | 0 | | | 0 | | | 0 | | | 0 | | Commodity purchase swaps contracts | Other assets | | 2 | | 1 | | | 1 | | | — | | | — | |
Interest rate forward contracts | Other assets | | 2 | | 37 | | | 37 | | | 1 | | | 1 | | |
Interest rate contracts | | Interest rate contracts | Prepaid expenses and other current assets | | 2 | | 63 | | | 63 | | | 24 | | | 24 | |
| | | $ | 42 | | | $ | 42 | | | $ | 1 | | | $ | 1 | | | | $ | 71 | | | $ | 71 | | | $ | 33 | | | $ | 33 | |
Liabilities | | | | | | | | | |
Commodity purchase futures contracts | Accounts payable and accrued liabilities | | 1 | | $ | 0 | | | $ | 0 | | | $ | 1 | | | $ | 1 | | |
Commodity purchase swaps contracts | Accounts payable and accrued liabilities | | 2 | | 0 | | | 0 | | | 3 | | | 3 | | |
Foreign exchange forward contract | Accounts payable and accrued liabilities | | 2 | | 1 | | | 1 | | | 1 | | | 1 | | |
| | $ | 1 | | | $ | 1 | | | $ | 5 | | | $ | 5 | | |
|
NOTE 6. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 3/31/2021 | | 6/30/2020 |
| 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 (1) | | 1 | | $ | 213 | | | $ | 213 | | | $ | 584 | | | $ | 584 | |
Time deposits | Cash and cash equivalents (1) | | 2 | | 146 | | | 146 | | | 165 | | | 165 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Trust assets for nonqualified deferred compensation plans | Other assets | | 1 | | 131 | | | 131 | | | 100 | | | 100 | |
| | | | | $ | 490 | | | $ | 490 | | | $ | 849 | | | $ | 849 | |
Liabilities | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Current maturities of long-term debt and Long-term debt | Current maturities of long- term debt and Long-term debt (2) | | 2 | | 2,783 | | | 2,944 | | | 2,780 | | | 3,051 | |
| | | | | $ | 2,783 | | | $ | 2,944 | | | $ | 2,780 | | | $ | 3,051 | |
____________________
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 3/31/2022 | | 6/30/2021 |
| Balance Sheet Classification | | Fair Value Hierarchy Level | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Assets | | | | | | | | | | | |
Interest-bearing investments, including money market funds | Cash and cash equivalents (1) | | 1 | | $ | 101 | | | $ | 101 | | | $ | 196 | | | $ | 196 | |
Time deposits | Cash and cash equivalents (1) | | 2 | | 7 | | | 7 | | | 11 | | | 11 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Trust assets for nonqualified deferred compensation plans | Other assets | | 1 | | 134 | | | 134 | | | 136 | | | 136 | |
| | | | | $ | 242 | | | $ | 242 | | | $ | 343 | | | $ | 343 | |
Liabilities | | | | | | | | | | | |
Notes and loans payable | Notes and loans payable (2) | | 2 | | $ | 395 | | | $ | 395 | | | $ | — | | | $ | — | |
| | | | | | | | | | | |
Current maturities of long-term debt and Long-term debt | Current maturities of long- term debt and Long-term debt (3) | | 2 | | 2,487 | | | 2,461 | | | 2,784 | | | 2,963 | |
| | | | | $ | 2,882 | | | $ | 2,856 | | | $ | 2,784 | | | $ | 2,963 | |
(1)Cash and cash equivalents are composed of time deposits and other interest bearinginterest-bearing investments, including money market funds with original maturity dates of 90 days or less. Cash and cash equivalents are recorded at cost, which approximates fair value.
(2)Notes and loans payable are composed of outstanding U.S. commercial paper balances, which are recorded at cost, which approximates fair value.
(3)Current maturities of long-term debt and Long-term debt are recorded at cost. The fair value of Long-term debt, including current maturities, was determined using secondary market prices quoted by corporate bond dealers, and is classified as Level 2.
Furthermore, impairment charges of $329 were recorded during the third quarter of fiscal 2021, of which $228, $86, and $15 related to the goodwill of the VMS reporting unit, certain indefinite-lived trademarks and other assets, respectively. These adjustments were included as non-cash charges in the condensed consolidated statement of earnings. The non-recurring fair values utilized included unobservable Level 3 inputs based on management’s best estimates and assumptions. For additional information, refer to Note 4 of the Notes to Condensed Consolidated Financial Statements
NOTE 6.7. 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 (losses) was 23.9% and 23.3% for the three and nine months ended March 31, 2022, respectively, and (1.4)% and 22.5% for the current three and nine months ended March 31, 2021, respectively, and 18.9% and 20.4% for the prior three and nine months ended March 31, 2020, respectively. The substantially lower tax rate on losslosses before income taxes in the currentprior three month period and higher tax rate on earnings before income taxes in the current nine month period werewas driven by the partial non-deductibility of impaired VMS goodwill.
NOTE 7.8. NET EARNINGS (LOSSES) 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 Ended |
| 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 |
Basic | 125,610 | | 125,661 | | 126,057 | | 125,641 |
Dilutive effect of stock options and other | 0 | | 1,667 | | 1,973 | | 1,595 |
Diluted | 125,610 | | 127,328 | | 128,030 | | 127,236 |
| | | | | | | |
Antidilutive stock options and other | 4,826 | | 0 | | | 428 | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2022 | | 3/31/2021 | | 3/31/2022 | | 3/31/2021 |
Basic | 123,177 | | 125,610 | | 123,074 | | 126,057 |
Dilutive effect of stock options and other | 700 | | — | | 869 | | 1,973 |
Diluted | 123,877 | | 125,610 | | 123,943 | | 128,030 |
| | | | | | | |
Antidilutive stock options and other | 2,489 | | 4,826 | | | 2,489 | | | 428 | |
Basic net earnings (losses) per share and Diluted net earnings (losses) per share are calculated on Net earnings (losses) attributable to Clorox.
Since the Company generated net losses attributable to Clorox for the three months ended March 31, 2021, there was no dilutive effect of stock options and other instruments because their impact would be antidilutive.
NOTE 8.9. COMPREHENSIVE INCOME (LOSS)
The following table provides a summary of Comprehensive income (loss) for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 |
Net earnings (losses) | $ | (59) | | | $ | 241 | | | $ | 619 | | | $ | 629 | |
Other comprehensive (loss) income, net of tax: | | | | | | | |
Foreign currency translation adjustments | (7) | | | (51) | | | 40 | | | (58) | |
Net unrealized gains (losses) on derivatives | 27 | | | (5) | | | 42 | | | 1 | |
Pension and postretirement benefit adjustments | 2 | | | 1 | | | 5 | | | 3 | |
Total other comprehensive (loss) income, net of tax | 22 | | | (55) | | | 87 | | | (54) | |
Comprehensive income (loss) | (37) | | | 186 | | | 706 | | | 575 | |
Less: Total comprehensive income attributable to noncontrolling interests | 2 | | | 0 | | | 6 | | | 0 | |
Total comprehensive income (loss) attributable to Clorox | $ | (39) | | | $ | 186 | | | $ | 700 | | | $ | 575 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2022 | | 3/31/2021 | | 3/31/2022 | | 3/31/2021 |
Net earnings (losses) | $ | 152 | | | $ | (59) | | | $ | 367 | | | $ | 619 | |
Other comprehensive (loss) income, net of tax: | | | | | | | |
Foreign currency translation adjustments | 19 | | | (7) | | | (9) | | | 40 | |
Net unrealized gains (losses) on derivatives | 34 | | | 27 | | | 31 | | | 42 | |
Pension and postretirement benefit adjustments | 2 | | | 2 | | | 5 | | | 5 | |
Total other comprehensive (loss) income, net of tax | 55 | | | 22 | | | 27 | | | 87 | |
Comprehensive income (loss) | 207 | | | (37) | | | 394 | | | 706 | |
Less: Total comprehensive income attributable to noncontrolling interests | 2 | | | 2 | | | 6 | | | 6 | |
Total comprehensive income (loss) attributable to Clorox | $ | 205 | | | $ | (39) | | | $ | 388 | | | $ | 700 | |
NOTE 9.10. STOCKHOLDERS’ EQUITY
Changes in the components of Stockholders’ equity were as follows for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31 |
(Dollars in millions except per share data; shares in thousands) | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Net (Loss) Income | | Non-controlling interests | | Total Stockholders’ Equity |
Amount | | Shares | | | | Amount | | Shares | | | |
Balance as of December 31, 2019 | $ | 159 | | | 158,741 | | | $ | 1,062 | | | $ | 3,292 | | | $ | (3,357) | | | (33,717) | | | $ | (601) | | | $ | 0 | | | $ | 555 | |
Net earnings | — | | | — | | | — | | | 241 | | | — | | | — | | | — | | | — | | | 241 | |
Other comprehensive (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | (55) | | | — | | | (55) | |
Dividends to Clorox stockholders ($1.06 per share declared) | — | | | — | | | — | | | (135) | | | — | | | — | | | — | | | — | | | (135) | |
Stock-based compensation | — | | | — | | | 18 | | | — | | | — | | | — | | | — | | | — | | | 18 | |
Other employee stock plan activities | — | | | — | | | 31 | | | 0 | | | 70 | | | 1,083 | | | — | | | — | | | 101 | |
Treasury stock purchased | — | | | — | | | — | | | — | | | (30) | | | (184) | | | — | | | — | | | (30) | |
Balance as of March 31, 2020 | $ | 159 | | | 158,741 | | | $ | 1,111 | | | $ | 3,398 | | | $ | (3,317) | | | (32,818) | | | $ | (656) | | | $ | 0 | | | $ | 695 | |
| | | | | | | | | | | | | | | | | |
Balance as of December 31, 2020 | $ | 131 | | | 130,741 | | | $ | 1,176 | | | $ | 1,302 | | | $ | (850) | | | (5,017) | | | $ | (575) | | | $ | 196 | | | $ | 1,380 | |
Net earnings (losses) | — | | | — | | | — | | | (61) | | | — | | | — | | | — | | | 2 | | | (59) | |
Other comprehensive (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | 22 | | | — | | | 22 | |
Dividends to Clorox stockholders ($1.11 per share declared) | — | | | — | | | — | | | (139) | | | — | | | — | | | — | | | — | | | (139) | |
Dividends to non-controlling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | (3) | |
Stock-based compensation | — | | | — | | | 17 | | | — | | | — | | | — | | | — | | | — | | | 17 | |
Other employee stock plan activities | — | | | — | | | (3) | | | (16) | | | 44 | | | 283 | | | — | | | — | | | 25 | |
Treasury stock purchased | — | | | — | | | — | | | — | | | (305) | | | (1,648) | | | — | | | 0 | | | (305) | |
| | | | | | | | | | | | | | | | | |
Balance as of March 31, 2021 | $ | 131 | | | 130,741 | | | $ | 1,190 | | | $ | 1,086 | | | $ | (1,111) | | | (6,382) | | | $ | (553) | | | $ | 195 | | | $ | 938 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31 |
(Dollars in millions except per share data; shares in thousands) | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Net (Loss) Income | | Non-controlling interests | | Total Stockholders’ Equity |
Amount | | Shares | | | | Amount | | Shares | | | |
Balance as of December 31, 2020 | $ | 131 | | | 130,741 | | | $ | 1,176 | | | $ | 1,302 | | | $ | (850) | | | (5,017) | | | $ | (575) | | | $ | 196 | | | $ | 1,380 | |
Net earnings (losses) | — | | | — | | | — | | | (61) | | | — | | | — | | | — | | | 2 | | | (59) | |
Other comprehensive (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | 22 | | | — | | | 22 | |
Dividends to Clorox stockholders ($1.11 per share declared) | — | | | — | | | — | | | (139) | | | — | | | — | | | — | | | — | | | (139) | |
Dividends to non-controlling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | (3) | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 17 | | | — | | | — | | | — | | | — | | | — | | | 17 | |
Other employee stock plan activities | — | | | — | | | (3) | | | (16) | | | 44 | | | 283 | | | — | | | — | | | 25 | |
Treasury stock purchased | — | | | — | | | — | | | — | | | (305) | | | (1,648) | | | — | | | — | | | (305) | |
| | | | | | | | | | | | | | | | | |
Balance as of March 31, 2021 | $ | 131 | | | 130,741 | | | $ | 1,190 | | | $ | 1,086 | | | $ | (1,111) | | | (6,382) | | | $ | (553) | | | $ | 195 | | | $ | 938 | |
| | | | | | | | | | | | | | | | | |
Balance as of December 31, 2021 | $ | 131 | | | 130,741 | | | $ | 1,180 | | | $ | 949 | | | $ | (1,373) | | | (7,777) | | | $ | (574) | | | $ | 178 | | | $ | 491 | |
Net earnings | — | | | — | | | — | | | 150 | | | — | | | — | | | — | | | 2 | | | 152 | |
Other comprehensive (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | 55 | | | — | | | 55 | |
Dividends to Clorox stockholders ($1.16 per share declared) | — | | | — | | | — | | | (143) | | | — | | | — | | | — | | | — | | | (143) | |
Dividends to non-controlling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4) | | | (4) | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 19 | | | — | | | — | | | — | | | — | | | — | | | 19 | |
Other employee stock plan activities | — | | | — | | | (4) | | | (5) | | | 15 | | | 107 | | | — | | | — | | | 6 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Balance as of March 31, 2022 | $ | 131 | | | 130,741 | | | $ | 1,195 | | | $ | 951 | | | $ | (1,358) | | | (7,670) | | | $ | (519) | | | $ | 176 | | | $ | 576 | |
| | | | | | | | | | | | | | | | | |
NOTE 9.10. STOCKHOLDERS’ EQUITY (Continued)
| | | Nine Months Ended March 31 | | Nine Months Ended March 31 |
(Dollars in millions except per share data; shares in thousands) | (Dollars in millions except per share data; shares in thousands) | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Net (Loss) Income | | Non-controlling interests | | Total Stockholders’ Equity | (Dollars in millions except per share data; shares in thousands) | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Net (Loss) Income | | Non-controlling interests | | Total Stockholders’ Equity |
Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | |
Balance as of June 30, 2019 | $ | 159 | | | 158,741 | | | $ | 1,046 | | | $ | 3,150 | | | $ | (3,194) | | | (33,055) | | | $ | (602) | | | $ | 0 | | | $ | 559 | | |
Cumulative effect of accounting changes, net of tax (1) | — | | | — | | | — | | | 22 | | | — | | | — | | | — | | | — | | | 22 | | |
Net earnings | — | | | — | | | — | | | 629 | | | — | | | — | | | — | | | — | | | 629 | | |
Other comprehensive (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | (54) | | | — | | | (54) | | |
Dividends to Clorox stockholders ($3.18 per share declared) | — | | | — | | | — | | | (402) | | | — | | | — | | | — | | | — | | | (402) | | |
Stock-based compensation | — | | | — | | | 37 | | | — | | | — | | | — | | | — | | | — | | | 37 | | |
Other employee stock plan activities | — | | | — | | | 28 | | | (1) | | | 96 | | | 1,661 | | | — | | | — | | | 123 | | |
Treasury stock purchased | — | | | — | | | — | | | — | | | (219) | | | (1,424) | | | — | | | — | | | (219) | | |
Balance as of March 31, 2020 | $ | 159 | | | 158,741 | | | $ | 1,111 | | | $ | 3,398 | | | $ | (3,317) | | | (32,818) | | | $ | (656) | | | $ | 0 | | | $ | 695 | | |
Balance as of June 30, 2020 | | Balance as of June 30, 2020 | $ | 159 | | | 158,741 | | | $ | 1,137 | | | $ | 3,567 | | | $ | (3,315) | | | (32,543) | | | $ | (640) | | | $ | — | | | $ | 908 | |
| Balance as of June 30, 2020 | $ | 159 | | | 158,741 | | | $ | 1,137 | | | $ | 3,567 | | | $ | (3,315) | | | (32,543) | | | $ | (640) | | | $ | 0 | | | $ | 908 | | |
Net earnings | Net earnings | — | | | — | | | — | | | 613 | | | — | | | — | | | — | | | 6 | | | 619 | | Net earnings | — | | | — | | | — | | | 613 | | | — | | | — | | | — | | | 6 | | | 619 | |
Other comprehensive (loss) income | Other comprehensive (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | 87 | | | — | | | 87 | | Other comprehensive (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | 87 | | | — | | | 87 | |
Dividends to Clorox stockholders ($3.33 per share declared) | Dividends to Clorox stockholders ($3.33 per share declared) | — | | | — | | | — | | | (421) | | | — | | | — | | | — | | | — | | | (421) | | Dividends to Clorox stockholders ($3.33 per share declared) | — | | | — | | | — | | | (421) | | | — | | | — | | | — | | | — | | | (421) | |
Dividends to noncontrolling interests | Dividends to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9) | | | (9) | | Dividends to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9) | | | (9) | |
Business combinations including purchase accounting adjustments | Business combinations including purchase accounting adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 198 | | | 198 | | Business combinations including purchase accounting adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 198 | | | 198 | |
Stock-based compensation | Stock-based compensation | — | | | — | | | 52 | | | — | | | — | | | — | | | — | | | — | | | 52 | | Stock-based compensation | — | | | — | | | 52 | | | — | | | — | | | — | | | — | | | — | | | 52 | |
Other employee stock plan activities | Other employee stock plan activities | — | | | — | | | 1 | | | (33) | | | 141 | | | 1,233 | | | — | | | — | | | 109 | | Other employee stock plan activities | — | | | — | | | 1 | | | (33) | | | 141 | | | 1,233 | | | — | | | — | | | 109 | |
Treasury stock purchased | Treasury stock purchased | — | | | — | | | — | | | — | | | (605) | | | (3,072) | | | — | | | — | | | (605) | | Treasury stock purchased | — | | | — | | | — | | | — | | | (605) | | | (3,072) | | | — | | | — | | | (605) | |
Treasury stock retirement | (28) | | | (28,000) | | | — | | | (2,640) | | | 2,668 | | | 28,000 | | | — | | | 0 | | | 0 | | |
Treasury stock retirement (1) | | Treasury stock retirement (1) | (28) | | | (28,000) | | | — | | | (2,640) | | | 2,668 | | | 28,000 | | $ | — | | | — | | | — | |
Balance as of March 31, 2021 | Balance as of March 31, 2021 | $ | 131 | | | 130,741 | | | $ | 1,190 | | | $ | 1,086 | | | $ | (1,111) | | | (6,382) | | | $ | (553) | | | $ | 195 | | | $ | 938 | | Balance as of March 31, 2021 | $ | 131 | | | 130,741 | | | $ | 1,190 | | | $ | 1,086 | | | $ | (1,111) | | | (6,382) | | | $ | (553) | | | $ | 195 | | | $ | 938 | |
| Balance as of June 30, 2021 | | Balance as of June 30, 2021 | $ | 131 | | | 130,741 | | | $ | 1,186 | | | $ | 1,036 | | | $ | (1,396) | | | (7,961) | | | $ | (546) | | | $ | 181 | | | $ | 592 | |
Net earnings | | Net earnings | — | | | — | | | — | | | 361 | | | — | | | — | | | — | | | 6 | | | 367 | |
Other comprehensive (loss) income | | Other comprehensive (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | 27 | | | — | | | 27 | |
Dividends to Clorox stockholders ($3.48 per share declared) | | Dividends to Clorox stockholders ($3.48 per share declared) | — | | | — | | | — | | | (430) | | | — | | | — | | | — | | | — | | | (430) | |
Dividends to noncontrolling interests | | Dividends to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (11) | | | (11) | |
| Stock-based compensation | | Stock-based compensation | — | | | — | | | 44 | | | — | | | — | | | — | | | — | | | — | | | 44 | |
Other employee stock plan activities | | Other employee stock plan activities | — | | | — | | | (35) | | | (16) | | | 63 | | | 443 | | | — | | | — | | | 12 | |
Treasury stock purchased | | Treasury stock purchased | — | | | — | | | — | | | — | | | (25) | | | (152) | | | — | | | — | | | (25) | |
| Balance as of March 31, 2022 | | Balance as of March 31, 2022 | $ | 131 | | | 130,741 | | | $ | 1,195 | | | $ | 951 | | | $ | (1,358) | | | (7,670) | | | $ | (519) | | | $ | 176 | | | $ | 576 | |
(1) 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.
(1)On November 18, 2020 the Company retired 28 million shares of its treasury stock. These shares are now authorized but unissued. There was no effect on the Company’s overall equity position as a result of the retirement.
The Company has 2 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 0 authorization limit on the dollar amount and no expiration date.
Stock repurchases under the 2 stock repurchase programs were as follows for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 |
| Amount | | Shares (in thousands) | | Amount | | Shares (in thousands) | | Amount | | Shares (in thousands) | | Amount | | Shares (in thousands) |
Open-market purchase program | $ | 200 | | | 1,088 | | | $ | 0 | | | 0 | | | $ | 200 | | | 1,088 | | | $ | 85 | | | 577 | |
Evergreen Program | 105 | | | 560 | | | 30 | | | 184 | | | 405 | | | 1,984 | | | 134 | | | 847 | |
Total stock repurchases | $ | 305 | | | 1,648 | | | $ | 30 | | | 184 | | | $ | 605 | | | 3,072 | | | $ | 219 | | | 1,424 | |
NOTE 9.10. STOCKHOLDERS’ EQUITY (Continued)
Changes in Accumulated other comprehensive net (loss) income attributable to Clorox by component were as follows for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31 |
| Foreign currency translation adjustments | | Net unrealized gains (losses) on derivatives | | Pension and postretirement benefit adjustments | | Accumulated other comprehensive net (loss) income |
Balance as of December 31, 2019 | $ | (421) | | | $ | (17) | | | $ | (163) | | | $ | (601) | |
Other comprehensive (loss) income before reclassifications | (49) | | | (9) | | | 0 | | | (58) | |
Amounts reclassified from Accumulated other comprehensive net (loss) income | 0 | | | 2 | | | 2 | | | 4 | |
Income tax benefit (expense) | (2) | | | 2 | | | (1) | | | (1) | |
Net current period other comprehensive (loss) income | (51) | | | (5) | | | 1 | | | (55) | |
Balance as of March 31, 2020 | $ | (472) | | | $ | (22) | | | $ | (162) | | | $ | (656) | |
| | | | | | | |
Balance as of December 31, 2020 | $ | (403) | | | $ | (3) | | | $ | (169) | | | $ | (575) | |
Other comprehensive (loss) income before reclassifications | (6) | | | 33 | | | 0 | | | 27 | |
Amounts reclassified from Accumulated other comprehensive net (loss) income | 0 | | | 2 | | | 3 | | | 5 | |
Income tax benefit (expense), and other | (1) | | | (8) | | | (1) | | | (10) | |
Net current period other comprehensive (loss) income | (7) | | | 27 | | | 2 | | | 22 | |
Balance as of March 31, 2021 | $ | (410) | | | $ | 24 | | | $ | (167) | | | $ | (553) | |
| | | | | | | |
| Nine Months Ended March 31 |
| Foreign currency translation adjustments | | Net unrealized gains (losses) on derivatives | | Pension and postretirement benefit adjustments | | Accumulated other comprehensive net (loss) income |
Balance as of June 30, 2019 | $ | (414) | | | $ | (23) | | | $ | (165) | | | $ | (602) | |
Other comprehensive (loss) income before reclassifications | (55) | | | (6) | | | 0 | | | (61) | |
Amounts reclassified from Accumulated other comprehensive net (loss) income | 0 | | | 6 | | | 5 | | | 11 | |
Income tax benefit (expense) | (3) | | | 1 | | | (2) | | | (4) | |
Net current period other comprehensive (loss) income | (58) | | | 1 | | | 3 | | | (54) | |
Balance as of March 31, 2020 | $ | (472) | | | $ | (22) | | | $ | (162) | | | $ | (656) | |
| | | | | | | |
Balance as of June 30, 2020 | $ | (450) | | | $ | (18) | | | $ | (172) | | | $ | (640) | |
Other comprehensive (loss) income before reclassifications | 38 | | | 47 | | | 0 | | | 85 | |
Amounts reclassified from Accumulated other comprehensive net (loss) income | 0 | | | 7 | | | 7 | | | 14 | |
Income tax benefit (expense), and other | 2 | | | (12) | | | (2) | | | (12) | |
Net current period other comprehensive (loss) income | 40 | | | 42 | | | 5 | | | 87 | |
Balance as of March 31, 2021 | $ | (410) | | | $ | 24 | | | $ | (167) | | | $ | (553) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31 |
| Foreign currency translation adjustments | | Net unrealized gains (losses) on derivatives | | Pension and postretirement benefit adjustments | | Accumulated other comprehensive net (loss) income |
Balance as of December 31, 2020 | $ | (403) | | | $ | (3) | | | $ | (169) | | | $ | (575) | |
Other comprehensive (loss) income before reclassifications | (6) | | | 33 | | | — | | | 27 | |
Amounts reclassified from Accumulated other comprehensive net (loss) income | — | | | 2 | | | 3 | | | 5 | |
Income tax benefit (expense) | (1) | | | (8) | | | (1) | | | (10) | |
Net current period other comprehensive (loss) income | (7) | | | 27 | | | 2 | | | 22 | |
Balance as of March 31, 2021 | $ | (410) | | | $ | 24 | | | $ | (167) | | | $ | (553) | |
| | | | | | | |
Balance as of December 31, 2021 | $ | (431) | | | $ | 18 | | | $ | (161) | | | $ | (574) | |
Other comprehensive (loss) income before reclassifications | 19 | | | 48 | | | — | | | 67 | |
Amounts reclassified from Accumulated other comprehensive net (loss) income | — | | | (3) | | | 2 | | | (1) | |
Income tax benefit (expense), and other | — | | | (11) | | | — | | | (11) | |
Net current period other comprehensive (loss) income | 19 | | | 34 | | | 2 | | | 55 | |
Balance as of March 31, 2022 | $ | (412) | | | $ | 52 | | | $ | (159) | | | $ | (519) | |
| | | | | | | |
| Nine Months Ended March 31 |
| Foreign currency translation adjustments | | Net unrealized gains (losses) on derivatives | | Pension and postretirement benefit adjustments | | Accumulated other comprehensive net (loss) income |
Balance as of June 30, 2020 | $ | (450) | | | $ | (18) | | | $ | (172) | | | $ | (640) | |
Other comprehensive (loss) income before reclassifications | 38 | | | 47 | | | — | | | 85 | |
Amounts reclassified from Accumulated other comprehensive net (loss) income | — | | | 7 | | | 7 | | | 14 | |
Income tax benefit (expense) | 2 | | | (12) | | | (2) | | | (12) | |
Net current period other comprehensive (loss) income | 40 | | | 42 | | | 5 | | | 87 | |
Balance as of March 31, 2021 | $ | (410) | | | $ | 24 | | | $ | (167) | | | $ | (553) | |
| | | | | | | |
Balance as of June 30, 2021 | $ | (403) | | | $ | 21 | | | $ | (164) | | | $ | (546) | |
Other comprehensive (loss) income before reclassifications | (9) | | | 51 | | | — | | | 42 | |
Amounts reclassified from Accumulated other comprehensive net (loss) income | — | | | (10) | | | 6 | | | (4) | |
Income tax benefit (expense), and other | — | | | (10) | | | (1) | | | (11) | |
Net current period other comprehensive (loss) income | (9) | | | 31 | | | 5 | | | 27 | |
Balance as of March 31, 2022 | $ | (412) | | | $ | 52 | | | $ | (159) | | | $ | (519) | |
Included in foreign currency translation adjustments are re-measurementremeasurement losses on long-term intercompany loans where settlement is not planned or anticipated in the foreseeable future. There were 0no amounts associated with these loans reclassified from Accumulated other comprehensive net (loss) income for the periods presented.
NOTE 10.11. 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 Ended | | Three Months Ended | | Nine Months Ended |
| | 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 | | 3/31/2022 | | 3/31/2021 | | 3/31/2022 | | 3/31/2021 |
Service cost | Service cost | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Service cost | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Interest cost | Interest cost | 4 | | | 5 | | | 11 | | | 15 | | Interest cost | 3 | | | 4 | | | 11 | | | 11 | |
Expected return on plan assets (1) | Expected return on plan assets (1) | (4) | | | (5) | | | (11) | | | (14) | | Expected return on plan assets (1) | (4) | | | (4) | | | (11) | | | (11) | |
Settlement loss recognized | | Settlement loss recognized | 1 | | | — | | | 1 | | | — | |
Amortization of unrecognized items | Amortization of unrecognized items | 3 | | | 3 | | | 8 | | | 7 | | Amortization of unrecognized items | 3 | | | 3 | | | 7 | | | 8 | |
Total | Total | $ | 3 | | | $ | 3 | | | $ | 8 | | | $ | 8 | | Total | $ | 3 | | | $ | 3 | | | $ | 8 | | | $ | 8 | |
(1) The weighted average long-term expected rate of return on plan assets used in computing the fiscal year 20212022 net periodic benefit cost is 3.1%3.0%.
The net periodic benefit cost for the Company’s retirement health care plans was $0 for both the three and nine months ended March 31, 20212022, and 2020,$0 and $(1) for both the three and nine months ended March 31, 2021, and 2020.respectively.
During the three months ended March 31, 20212022 and 2020,2021, the Company made $6$8 and $7$6 in contributions to its domestic retirement income plans, respectively. During the nine months ended March 31, 20212022 and 2020,2021, the Company made $13 and $10 in contributions to its domestic retirement income plans.plans, respectively.
NetService cost component of the net periodic benefit cost, if any, is reflected in employee benefit costs, all other components are reflected in Other (income) expense, net.
NOTE 11.12. 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 $27 and $28 as of both March 31, 20212022 and June 30, 2020, respectively,2021, for its share of aggregate future remediation costs related to these matters.
One matter, which accounted for $14 of the recorded liability as of both March 31, 20212022 and June 30, 2020,2021, relates to environmental costs associated with one of the Company’s former operations at a site located in Alameda County, California. In November 2016, at the request of regulators and with the assistance of environmental consultants, the Company submitted a Feasibility Study that evaluated various options for managing the site and included estimates of the related costs. As a result,Following further discussions with the regulators in 2017, the Company recorded in Other (income) expense, net an undiscounted liability for costs estimated to be incurred over a 30-year period, based on one of the option recommendedoptions in the Feasibility Study. However,In September 2021, as a result of ongoingan additional study and further discussions with regulators, in June 2017, the Company increased itssubmitted a Soil Vapor Intrusion Report to the regulators, which has not resulted in a change to the recorded liability to $14, which reflects anticipated costs to implement additional remediation measures at this site.liability. While the Company believes its latest estimate isestimates of remediation costs are reasonable, the ultimate remediation requirements are not yet finalized and the regulators could require the Company to implement one of the other options evaluated in the Feasibility Study, withremediation actions for a longer period or take additional actions, which could include estimated undiscounted costs of up to approximately $28 over an estimated 30-year period, or require the Company to take otherdifferent actions and incur costs not included in the study.additional costs.
Another matter in Dickinson County, Michigan, at the site of one of the Company’s former operations for which the Company is jointly and severally liable, accounted for $9 and $10 of the recorded liability, as of March 31, 20212022 and June 30, 2020.2021, respectively. This amount reflects the Company’s agreement to be liable for 24.3% of the aggregate remediation and associated costs for this matter pursuant to a cost-sharing arrangement with a third party. If the third party is unable to pay its share of the response and remediation obligations, the Company may be responsible for such obligations. With the assistance of environmental consultants, the Company maintains an undiscounted liability representing its current best estimate of its share of the capital expenditures, maintenance and other costs that may be incurred over an estimated 30-year remediation period. Although it is reasonably possible that the Company’s exposure may exceed the amount recorded for the Dickinson County matter, any amount of such additional exposures, or range of exposures, is not estimable at this time.
NOTE 12: OTHER CONTINGENCIES AND GUARANTEES (continued)
The Company’s estimated losses related to these matters are sensitive to a variety of uncertain factors, including the efficacy of any remediation efforts, changes in any remediation requirements and the future availability of alternative clean-up technologies.
The Company is subject to various legal proceedings, claims and other loss contingencies, including, without limitation, loss contingencies relating to contractual arrangements, product liability, patents and trademarks, advertising, labor and employment, environmental, health and safety and other matters. With respect to these proceedings, claims and other loss contingencies, while considerable uncertainty exists, in the opinion of management at this time, the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, either individually or in the aggregate, on the Company’s condensed consolidated financial statements taken as a whole.
Guarantees
In conjunction with divestitures and other transactions, the Company may provide typical indemnifications (e.g., indemnifications for representations and warranties and retention of previously existing environmental, tax and employee liabilities) that have terms that vary in duration and in the potential amount of the total obligation and, in many circumstances, are not explicitly defined. The Company has not made, nor does it believe that it is probable that it will make, any material payments relating to its indemnifications, and believes that any reasonably possible payments would not have a material adverse effect, either individually or in the aggregate, on the Company’s condensed consolidated financial statements taken as a whole.
The Company had not recorded any material liabilities on the aforementioned guarantees as of both March 31, 20212022 and June 30, 2020.2021.
As of March 31, 2021,2022, the Company was party to a letter of credit of $11,$14, related to one of its insurance carriers, of which $0 had been drawn upon.
NOTE 12.13. SEGMENT RESULTS
The Company operates through SBUsstrategic business units (SBUs) that are also the Company’s operating segments. The SBUs are then aggregated into 4 reportable segments based on the economics and nature of the products sold:segments: Health and Wellness, Household, Lifestyle and International. Prior periods presented have been recast to reflect the reportable segment changes effective in the fourth quarter of fiscal year 2020.
Certain non-allocated administrative costs, interest income, interest expense and various other non-operating income and expenses are reflected in Corporate. Corporate assets include cash and cash equivalents, prepaid expenses and other current assets, property and equipment, operating lease right-of-use assets, other long-term assets and deferred taxes.
The tables below present reportable segment information and a reconciliation of the segment information to the Company’s consolidated Netnet sales and Earningsearnings (losses) before income taxes, with amounts that are not allocated to the reportable segments reflected in Corporate.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net sales |
| | Three Months Ended | | Nine Months Ended |
| | 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 |
Health and Wellness | | $ | 680 | | | $ | 736 | | | $ | 2,310 | | | $ | 1,944 | |
Household | | 510 | | | 480 | | | 1,421 | | | 1,183 | |
Lifestyle | | 293 | | | 294 | | | 928 | | | 856 | |
International | | 298 | | | 273 | | | 880 | | | 755 | |
Corporate | | 0 | | | 0 | | | 0 | | | 0 | |
Total | | $ | 1,781 | | | $ | 1,783 | | | $ | 5,539 | | | $ | 4,738 | |
| | | | | | | | |
| | Earnings (losses) before income taxes |
| | Three Months Ended | | Nine Months Ended |
| | 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 |
Health and Wellness (1) | | $ | (183) | | | $ | 210 | | | $ | 315 | | | $ | 514 | |
Household | | 97 | | | 114 | | | 266 | | | 190 | |
Lifestyle | | 68 | | | 80 | | | 259 | | | 242 | |
International | | 30 | | | 36 | | | 184 | | | 106 | |
Corporate | | (71) | | | (143) | | | (225) | | | (262) | |
Total | | $ | (59) | | | $ | 297 | | | $ | 799 | | | $ | 790 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net sales |
| | Three Months Ended | | Nine Months Ended |
| | 3/31/2022 | | 3/31/2021 | | 3/31/2022 | | 3/31/2021 |
Health and Wellness | | $ | 662 | | | $ | 680 | | | $ | 2,055 | | | $ | 2,310 | |
Household | | 539 | | | 510 | | | 1,404 | | | 1,421 | |
Lifestyle | | 306 | | | 293 | | | 961 | | | 928 | |
International | | 302 | | | 298 | | | 886 | | | 880 | |
| | | | | | | | |
Total | | $ | 1,809 | | | $ | 1,781 | | | $ | 5,306 | | | $ | 5,539 | |
| | | | | | | | |
| | Earnings (losses) before income taxes |
| | Three Months Ended | | Nine Months Ended |
| | 3/31/2022 | | 3/31/2021 | | 3/31/2022 | | 3/31/2021 |
Health and Wellness (1) | | $ | 84 | | | $ | (183) | | | $ | 245 | | | $ | 315 | |
Household | | 92 | | | 97 | | | 138 | | | 266 | |
Lifestyle | | 66 | | | 68 | | | 239 | | | 259 | |
International | | 31 | | | 30 | | | 80 | | | 184 | |
Corporate | | (73) | | | (71) | | | (224) | | | (225) | |
Total | | $ | 200 | | | $ | (59) | | | $ | 478 | | | $ | 799 | |
(1) The earnings (losses) before income taxes for the Health and Wellness segment include a $329 non-cash goodwill, trademark and other asset impairment charge for the VMS SBU for the three and nine months ended March 31, 2021.
All intersegment sales are eliminated and are not included in the Company’s reportable segments’ net sales.
Net sales to the Company’s largest customer, Wal-Mart Stores, Inc. and its affiliates, as a percentage of consolidated net sales, were 24%25% for each of the three and nine months ended March 31, 2021, respectively,2022, and 25%24% for each of the three and nine months ended March 31, 2020, respectively.2021.
NOTE 12.13. SEGMENT RESULTS (Continued)
The following table provides Net sales as a percentage of the Company’s consolidated net sales, for the Company’s SBUs anddisaggregated by SBU, for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net sales |
| | Three Months Ended | | Nine Months Ended |
| | 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 |
Cleaning | | 29 | % | | 32 | % | | 30 | % | | 31 | % |
Professional Products | | 5 | % | | 6 | % | | 7 | % | | 6 | % |
Vitamins, Minerals and Supplements | | 4 | % | | 4 | % | | 4 | % | | 4 | % |
Health and Wellness | | 38 | % | | 42 | % | | 41 | % | | 41 | % |
Bags and Wraps | | 11 | % | | 11 | % | | 11 | % | | 12 | % |
Cat Litter | | 7 | % | | 7 | % | | 7 | % | | 7 | % |
Grilling | | 11 | % | | 9 | % | | 8 | % | | 6 | % |
Household | | 29 | % | | 27 | % | | 26 | % | | 25 | % |
Food Products | | 10 | % | | 8 | % | | 9 | % | | 9 | % |
Natural Personal Care | | 3 | % | | 4 | % | | 4 | % | | 5 | % |
Water Filtration | | 3 | % | | 4 | % | | 4 | % | | 4 | % |
Lifestyle | | 16 | % | | 16 | % | | 17 | % | | 18 | % |
International | | 17 | % | | 15 | % | | 16 | % | | 16 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net sales | |
| | Three Months Ended | | Nine Months Ended |
| | 3/31/2022 | | 3/31/2021 | | 3/31/2022 | | 3/31/2021 |
Cleaning | | 28 | | % | | 29 | | % | | 30 | | % | | 30 | | % |
Professional Products | | 4 | | | | 5 | | | | 5 | | | | 7 | | |
Vitamins, Minerals and Supplements | | 4 | | | | 4 | | | | 4 | | | | 4 | | |
Health and Wellness | | 36 | | % | | 38 | | % | | 39 | | % | | 41 | | % |
Bags and Wraps | | 12 | | | | 11 | | | | 12 | | | | 11 | | |
Cat Litter | | 8 | | | | 7 | | | | 8 | | | | 7 | | |
Grilling | | 10 | | | | 11 | | | | 6 | | | | 8 | | |
Household | | 30 | | % | | 29 | | % | | 26 | | % | | 26 | | % |
Food Products | | 10 | | | | 10 | | | | 10 | | | | 9 | | |
Natural Personal Care | | 4 | | | | 3 | | | | 4 | | | | 4 | | |
Water Filtration | | 3 | | | | 3 | | | | 4 | | | | 4 | | |
Lifestyle | | 17 | | % | | 16 | | % | | 18 | | % | | 17 | | % |
International | | 17 | | % | | 17 | | % | | 17 | | % | | 16 | | % |
Total | | 100 | | % | | 100 | | % | | 100 | | % | | 100 | | % |
| | | | | | | | | | | | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Clorox Company
(Dollars in millions, except per share data)
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of The Clorox Company’s (the Company or Clorox) financial statements with a narrative from the perspective of management on the Company’s financial condition, results of operations, liquidity and certain other factors that may affect future results. The following discussion of the Company’s financial condition and results of operations should be read in conjunction with MD&A and the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020,2021, which was filed with the SEC on August 13, 2020,10, 2021, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q (this Report). Unless otherwise noted, MD&A compares the three and nine month periods ended March 31, 20212022 (the current period) to the three and nine month periods ended March 31, 20202021 (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 8,8009,000 employees worldwide. Clorox sells its products primarily through mass retailers, grocery outlets, warehouse clubs, dollar stores, home hardware centers, drug, pet and military stores, third-party and owned e-commerce channels, and distributors. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products, Pine-Sol® cleaners; Liquid-Plumr® clog removers; Poett® home care products; Fresh Step® cat litter; Glad® bags and wraps; Kingsford® grilling products; Hidden Valley® dressings;dressings, dips, seasonings and sauces; Brita® water-filtration products;systems and filters; Burt’s Bees® natural personal care products; and RenewLife®, Rainbow Light®, Natural Vitality®,and NeoCell® and Stop Aging Now®vitamins, minerals and supplements. The Company also markets industry-leading products and technologies for professional customers, including those sold under the CloroxPro™ and the Clorox Healthcare® brand names. The Company has operations in more than 25 countries or territories and sells its products in more than 100 markets.
The Company primarily markets its leading brands in midsized categories considered to be financially attractive. Most of the Company’s products compete with other nationally advertised brands within each category and with “private label” brands.
The Company operates through strategic business units (SBUs) which are also the Company’s operating segments. These SBUs are then aggregated into four reportable segments. Prior periods presented have been recast to reflect the reportable segment changes effective in the fourth quarter of fiscal year 2020. Thesegments: Health and Wellness, Household, Lifestyle and International. These four reportable segments consist of the following:
•Health and Wellness consists of cleaning products, professional products and vitamins, minerals and supplement products mainly marketed and sold in the U.S. Products within this segment include cleaning products such as laundry additives including bleach products under the Clorox® brand and Clorox 2® stain fighter and color booster; home care products, primarily under the Clorox®, CloroxClorox2®, Scentiva®, Formula 409Pine-Sol®, Liquid-Plumr®, Pine-SolTilex® and TilexFormula 409®brands; professional cleaning and disinfecting products under the CloroxPro™CloroxPro™, Clorox Healthcare®, and Clorox® Total 360TurboPro®TM brands andbrands; professional food service products under the Hidden Valley® brand; and vitamins, minerals and supplement products under the RenewLife®, Rainbow Light®, Natural Vitality®, NeoCell®and Rainbow Light® and Stop Aging Now® brands.
•Household consists of grilling products;cat litter products, bags and wraps;wraps and cat littergrilling products marketed and sold in the U.S. Products within this segment include grilling products under the Kingsford® and Kingsford® Match Light® brands; bags and wraps under the Glad® brand; and cat litter products under the Fresh Step®, Scoop Away® and Ever Clean® brands.brands; bags and wraps under the Glad® brand; and grilling products under the Kingsford® brand.
•Lifestyleconsists of food, products, water-filtration systems and filters, and natural personal care products and water-filtration marketed and sold in the U.S. Products within this segment include dressings, dips, seasonings and sauces, primarily under the Hidden Valley® brand; water-filtration systems and filters under the Brita® brand; and natural personal care products under the Burt’s Bees® brand; and water-filtration systems and filters under the Brita®brand.
•International consists of products sold outside the U.S. Products within this segment include laundry additives;additives, home care products;products, water-filtration systems and filters;filters, digestive health products; grilling products; cat litter products; food products;products, bags and wraps;wraps, natural personal care products;products, and professional cleaning and disinfecting products marketed primarily under the Clorox®, Ayudin®, Clorinda®, Poett®,Pine-Sol®, Glad®, Brita®, RenewLife®, Ever Clean® and Burt’s Bees® brands.
RECENT EVENTS RELATED TO COVID-19
The novelFor our fiscal quarter ended March 31, 2022, the coronavirus (COVID-19) pandemic has caused a severe global health crisis, along withcontinued to cause economic and societalsocial disruptions that led to ongoing uncertainties. Demand for many of the products across the Company portfolio remained elevated compared to pre-pandemic levels. The Company expects a continuing inflationary environment heightened by the conflict in Ukraine, marked by higher manufacturing and uncertainties. As a result,logistics costs as well as increased commodity costs. While we have not experienced significant disruptions in our operations during fiscal year 2022 to date, risks of future negative impacts due to transportation, logistical or supply constraints and higher commodity costs for certain raw materials remain present. We are continuing to address these impacts to our operations.
We have taken an active role in addressing the ongoing pandemic’s impact on our employees, operations, customers, consumers and communities, including taking precautionary measures, such as implementing contingency plans, making operational adjustments where necessary, and providing support to organizations that support front-line workers. The impactAs the U.S. and other countries have begun or are expected to begin to reopen their economies and the world moves into new phases of COVID-19 and responses of governments, consumers, and others to the pandemic, are affecting our business in many ways; however, we believe that the actions we are takingCompany will help us emerge from this global pandemic operationally sound,continue to focus on these priorities, while continuing to strive to serve people as consumer behaviors evolve inside and well positioned for continued long-term growth.outside the home.
For our fiscal third quarter ended March 31, 2021, we continued to experience elevated demand for many of our products, especially our disinfecting cleaning products, in response to COVID-19 in comparison to periods before the pandemic. The extent of COVID-19’s effect on ourthe Company’s operational and financial performance in the future will depend on future developments, including the duration, spread, intensity and intensityphase of the pandemic ourin different countries, the emergence of COVID-19 variants and the effectiveness of vaccines against these variants, the Company’s continued ability to manufacture and distribute ourits products, as well as any future government actions affecting consumers, andour business operations, including any vaccine mandates, or the economy generally,in general, and effectiveness of global vaccines, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.landscape as the Company continues to expect a variable operating environment going forward.
For additional information on the impacts and our response to the coronavirus pandemic, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Exhibit 99.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
2021.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2022 | | 3/31/2021 | | % Change | | 3/31/2022 | | 3/31/2021 | | % Change |
Net sales | $ | 1,809 | | | $ | 1,781 | | | 2 | % | | $ | 5,306 | | | $ | 5,539 | | | (4) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2021 | | 3/31/2020 | | % Change | | 3/31/2021 | | 3/31/2020 | | % Change |
Net sales | $ | 1,781 | | | $ | 1,783 | | | — | % | | $ | 5,539 | | | $ | 4,738 | | | 17 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 |
| Percentage change versus the year-ago period |
| Reported (GAAP) Net Sales Growth / (Decrease) | Reported Volume | | Acquisitions & Divestitures | Foreign Exchange Impact | Price/Mix/Other (1) | Organic Sales Growth / (Decrease) (Non-GAAP) (2) | Organic Volume (3) |
Health and Wellness | (8) | % | (11) | % | | — | % | — | % | 3 | % | (8) | % | (11) | % |
Household | 6 | | 4 | | | — | | — | | 2 | | 6 | | 4 | |
Lifestyle | — | | (1) | | | — | | — | | 1 | | — | | (1) | |
International | 9 | | 2 | | | 7 | | (2) | | 7 | | 4 | | (3) | |
Total | — | % | (4) | % | | 1 | % | — | % | 4 | % | (1) | % | (5) | % |
| | | | | | | | |
| Nine Months Ended March 31, 2021 |
| Percentage change versus the year-ago period |
| Reported (GAAP) Net Sales Growth / (Decrease) | Reported Volume | | Acquisitions & Divestitures | Foreign Exchange Impact | Price/Mix/Other (1) | Organic Sales Growth / (Decrease) (Non-GAAP) (2) | Organic Volume (3) |
Health and Wellness | 19 | % | 15 | % | | — | % | — | % | 4 | % | 19 | % | 15 | % |
Household | 20 | | 14 | | | — | | — | | 6 | | 20 | | 14 | |
Lifestyle | 8 | | 8 | | | — | | — | | — | | 8 | | 8 | |
International | 17 | | 13 | | | 8 | | (4) | | 7 | | 13 | | 6 | |
Total | 17 | % | 13 | % | | 1 | % | — | % | 4 | % | 16 | % | 12 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Percentage change versus the year-ago period |
| Reported (GAAP) Net Sales Growth / (Decrease) | Reported Volume | | Acquisitions & Divestitures | Foreign Exchange Impact | Price/Mix/ Other (1) | Organic Sales Growth / (Decrease) (Non-GAAP) (2) | Organic Volume (3) |
Health and Wellness | (3) | % | 1 | % | | — | % | — | % | (4) | % | (3) | % | 1 | % |
Household | 6 | | 2 | | | — | | — | | 4 | | 6 | | 2 | |
Lifestyle | 4 | | 6 | | | — | | — | | (2) | | 4 | | 6 | |
International | 1 | | 2 | | | — | | (5) | | 4 | | 6 | | 2 | |
Total | 2 | % | 2 | % | | — | % | — | % | — | % | 2 | % | 2 | % |
| | | | | | | | |
| Nine Months Ended March 31, 2022 |
| Percentage change versus the year-ago period |
| Reported (GAAP) Net Sales Growth / (Decrease) | Reported Volume | | Acquisitions & Divestitures | Foreign Exchange Impact | Price/Mix/Other (1) | Organic Sales Growth / (Decrease) (Non-GAAP) (2) | Organic Volume (3) |
Health and Wellness | (11) | % | (6) | % | | — | % | — | % | (5) | % | (11) | % | (6) | % |
Household | (1) | | (2) | | | — | | — | | 1 | | (1) | | (2) | |
Lifestyle | 4 | | 4 | | | — | | — | | — | | 4 | | 4 | |
International | 1 | | (1) | | | — | | (3) | | 5 | | 4 | | (1) | |
Total | (4) | % | (3) | % | | — | % | — | % | (1) | % | (4) | % | (3) | % |
(1) This represents the net impact on net sales growth / (decrease) from pricing actions, mix and other factors.
(2) Organic sales growth /growth/ (decrease) is defined as net sales growth /growth/ (decrease) excluding the effect of any acquisitions and divestitures as well as changes inand foreign exchange rate.rate changes. See “Non-GAAP Financial Information” below for reconciliation of organic sales growth/(decrease) to net sales growth/ (decrease), the most directly comparable GAAP financial information.
(3) Organic volume represents volume excluding the effect of any acquisitions and divestitures. In the three months ended March 31, 2021, the volume impact of acquisitions was 5% and 1% for International and Total Company, respectively. In the nine months ended March 31, 2021, the volume impact of acquisitions was 7% and 1% for International and Total Company, respectively.
Net sales in the current three month period was essentially flat when compared to the prior period, reflecting lower sales in the Health and Wellness reportable segment, partially offset by sales growth in the Household and International reportable segments. Volume decreased by 4% versus the prior period. The variance between volume growth and net sales growth was primarily due to the impact of lower trade promotion spending and favorable mix.
Net sales and volume in the current ninethree month period both increased by 17%2%, reflecting higher shipments across all reportable segments, primarily driven by increased demand due to COVID-19the Lifestyle and related behavioral shifts. Volume increased by 13% versus the prior period. The variance between volume growth and net sales growth was primarily due to the impact of favorable mix, partially offset by unfavorable foreign currency exchange rates.Household reportable segments.
Net sales and volumein the current nine month period decreased by 4% and 3%, respectively, reflecting lower shipments primarily in the Health and Wellness reportable segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2021 | | 3/31/2020 | | % Change | | 3/31/2021 | | 3/31/2020 | | % Change |
Gross profit | $ | 774 | | | $ | 832 | | | (7) | % | | $ | 2,531 | | | $ | 2,134 | | | 19 | % |
Gross margin | 43.5 | % | | 46.7 | % | | | | 45.7 | % | | 45.0 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2022 | | 3/31/2021 | | % Change | | 3/31/2022 | | 3/31/2021 | | % Change |
Gross profit | $ | 649 | | | $ | 774 | | | (16) | % | | $ | 1,877 | | | $ | 2,531 | | | (26) | % |
Gross margin | 35.9 | % | | 43.5 | % | | | | 35.4 | % | | 45.7 | % | | |
Gross margin, defined as gross profit as a percentage of net sales, decreased by 320760 basis points in the current three month period from 46.7%43.5% to 43.5%35.9%. The decrease was primarily driven by higher manufacturing and logistics costs and unfavorable commodity costs, partially offset by lower trade promotion spending and the benefit of price increases and cost savings initiatives.savings.
Gross margin increaseddecreased by 701030 basis points in the current nine month period from 45.0%45.7% to 45.7%35.4%. The increasedecrease was primarily driven by higher volume, cost savings, and lower trade promotion spending, partially offset by higher manufacturing and logistics costs and unfavorable commodity costs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| | | | | | | % of Net Sales |
| 3/31/2021 | | 3/31/2020 | | % Change | | 3/31/2021 | | 3/31/2020 |
Selling and administrative expenses | $ | 237 | | | $ | 269 | | | (12) | % | | 13.3 | % | | 15.1 | % |
Advertising costs | 200 | | | 184 | | | 9 | | | 11.2 | | | 10.3 | |
Research and development costs | 32 | | | 39 | | | (18) | | | 1.8 | | | 2.2 | |
| | | | | | | | | |
| Nine Months Ended |
| | | | | | | % of Net Sales |
| 3/31/2021 | | 3/31/2020 | | % Change | | 3/31/2021 | | 3/31/2020 |
Selling and administrative expenses | $ | 744 | | | $ | 690 | | | 8 | % | | 13.4 | % | | 14.6 | % |
Advertising costs | 566 | | | 461 | | | 23 | | | 10.2 | | | 9.7 |
Research and development costs | 104 | | | 103 | | | 1 | | | 1.9 | | | 2.2 |
Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| | | | | | | % of Net Sales |
| 3/31/2022 | | 3/31/2021 | | % Change | | 3/31/2022 | | 3/31/2021 |
Selling and administrative expenses | $ | 233 | | | $ | 237 | | | (2) | % | | 12.9 | % | | 13.3 | % |
Advertising costs | 153 | | | 200 | | | (24) | | | 8.5 | | | 11.2 | |
Research and development costs | 31 | | | 32 | | | (3) | | | 1.7 | | | 1.8 | |
| | | | | | | | | |
| Nine Months Ended |
| | | | | | | % of Net Sales |
| 3/31/2022 | | 3/31/2021 | | % Change | | 3/31/2022 | | 3/31/2021 |
Selling and administrative expenses | $ | 710 | | | $ | 744 | | | (5) | % | | 13.4 | % | | 13.4 | % |
Advertising costs | 502 | | | 566 | | | (11) | | | 9.5 | | | 10.2 | |
Research and development costs | 98 | | | 104 | | | (6) | | | 1.8 | | | 1.9 | |
Selling and administrative expenses, as a percentage of net sales, decreased by 180 basis points and 12040 basis points in the current three month period and nine month periods, respectively. The changewere essentially flat in the current threenine month period compared to the prior period. The dollar decrease in the current nine month period in selling and administrative expenses was primarily due to lower incentive compensation expenses. The change inexpenses and the current nine month period was primarily due to increased investments in several growth opportunities.benefit from cost savings, partially offset by the Company’s digital capabilities and productivity enhancements investments.
Advertising costs, as a percentage of net sales, increaseddecreased by 90270 basis points and 5070 basis points in the current three and nine month periods, respectively. The increasedollar decrease in the current three month period in advertising expenses reflectedcosts was primarily due to the Company’s continued support behind its brands.timing of spending. The dollar decrease in the current nine month period in advertising costs was primarily due to lower advertising spending. The Company’s U.S. retail advertising spend as a percentage of net sales was approximately9% and 12% in the current and prior three month periods.periods, respectively.
Research and development costs, as a percentage of net sales, decreased by 40 basis points and 30 basis pointswere essentially flat in the current three and nine month periods respectively. The decrease in research and development expenses was primarily dueas compared to lower incentive compensation expenses in the current three month period.prior periods. The Company continues to invest behind product innovation and cost savings.
Goodwill, trademark and other asset impairments, Interest expense, Other (income) expense, net, and the effective tax rate on earnings
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 | | 3/31/2022 | | 3/31/2021 | | 3/31/2022 | | 3/31/2021 |
Goodwill, trademark and other asset impairments | Goodwill, trademark and other asset impairments | $ | 329 | | | $ | — | | | $ | 329 | | | $ | — | | Goodwill, trademark and other asset impairments | $ | — | | | $ | 329 | | | $ | — | | | $ | 329 | |
Interest expense | Interest expense | 25 | | | 24 | | | 74 | | | 74 | | Interest expense | 21 | | | 25 | | | 69 | | | 74 | |
Other (income) expense, net | Other (income) expense, net | 10 | | | 19 | | | (85) | | | 16 | | Other (income) expense, net | 11 | | | 10 | | | 20 | | | (85) | |
Effective tax rate on earnings (losses) | Effective tax rate on earnings (losses) | (1.4) | % | | 18.9 | % | | 22.5 | % | | 20.4 | % | Effective tax rate on earnings (losses) | 23.9 | % | | (1.4) | % | | 23.3 | % | | 22.5 | % |
Goodwill, trademark and other asset impairments of $329 in the currentprior three and nine month periods reflect non-cashreflected noncash impairment charges related to goodwill, trademarks, and other assets held by the VMS business (included within the Health and Wellness segment). See Notes to Condensed Consolidated Financial Statements for further information.information regarding the impairments recorded.
Other (income) expense, net was $10$11 and $19$10 in the current and prior three month periods, respectively, and $20 and ($85) and $16 in the current and prior nine month periods, respectively. The variance between the current and prior three month periods was not significant. The variance between the current and prior nine month periods was primarily due to the one-time, non-cashnoncash remeasurement gain recognized in the current period from the Company’s previously held equity interest in the Kingdom of Saudi Arabia (Saudi joint ventureventure) in the first quarter of fiscal year 2021 (see Notes to Condensed Consolidated Financial Statements).prior period.
The effective tax rate on earnings (losses) was (1.4)%23.9% and 22.5%23.3% for the current three and nine month periods, respectively, and 18.9%(1.4)% and 20.4%22.5% for the prior three and nine month periods, respectively. The substantially lower tax rate on losslosses before income taxes in the currentprior three month period and higher tax rate on earnings before income taxes in the current nine month period werewas driven by the partial non-deductibility of impaired VMS goodwill.
Diluted net earnings (losses) per share
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2021 | | 3/31/2020 | | % Change | | 3/31/2021 | | 3/31/2020 | | % Change |
Diluted net earnings (losses) per share | $ | (0.49) | | | $ | 1.89 | | | (126) | % | | $ | 4.78 | | | $ | 4.94 | | | (3) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2022 | | 3/31/2021 | | % Change | | 3/31/2022 | | 3/31/2021 | | % Change |
Diluted net earnings (losses) per share | $ | 1.21 | | | $ | (0.49) | | | 347 | % | | $ | 2.91 | | | $ | 4.78 | | | (39) | % |
Diluted net earnings (losses) per share (EPS)(EPS) decreasedincreased by $2.38,$1.70, or 126%347%, in the current three month period, primarily due to the non-cashnoncash impairment charges on assets held by the VMS business in the prior period, as well as lower advertising spending and lower gross margin,higher net sales, partially offset by lower selling and administrative expenses.gross margin all in the current period.
Diluted net earnings per shareEPS decreased by $0.16,$1.87, or 3%39%, in the current nine month period, primarily due to the non-cash impairment charges on assets held by the VMS business, increased advertising investments and higher selling and administrative expenses, partially offset bylower gross margin, expansionlower net sales and the one-time, noncash remeasurement gain recognized on the previously held equity interest in the Saudi joint venture.venture in the prior period, partially offset by the noncash impairment charges on assets held by the VMS business in the prior period and lower advertising spending in the current period.
SEGMENT RESULTS
The following presents the results of operations from the Company’s reportable segments and certain unallocated costs reflected in Corporate (see Notes to Condensed Consolidated Financial Statements for a reconciliation of segment results to consolidated results):
Health and Wellness
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2021 | | 3/31/2020 | | % Change | | 3/31/2021 | | 3/31/2020 | | % Change |
Net sales | $ | 680 | | | $ | 736 | | | (8) | % | | $ | 2,310 | | | $ | 1,944 | | | 19 | % |
Earnings (losses) before income taxes | (183) | | | 210 | | | (187) | | | 315 | | | 514 | | | (39) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2022 | | 3/31/2021 | | % Change | | 3/31/2022 | | 3/31/2021 | | % Change |
Net sales | $ | 662 | | | $ | 680 | | | (3) | % | | $ | 2,055 | | | $ | 2,310 | | | (11) | % |
Earnings (losses) before income taxes | 84 | | | (183) | | | 146 | | | 245 | | | 315 | | | (22) | |
Volume net sales and earnings (losses) before income taxes increased by 1% and 146%, respectively, and net sales decreased by 11%, 8% and 187%, respectively,3% during the current three month period. The increase in volume was due to higher shipments in Cleaning driven by market share growth due to merchandising support, increased supply and sales decreases were primarily driveninnovation, partially offset by lower shipments primarily in Cleaning andthe Professional Products as well as supply constraints for some key products.portfolio due to the ongoing impacts of the COVID-19 pandemic. The variance between volume and net sales was primarily due to lowerhigher trade promotion spending.spending and unfavorable mix, partially offset by the benefit of price increases. The decreaseincrease in earnings (losses) before income taxes in the current period was primarily due to the non-cashnoncash impairment charges on assets held by the VMS business in the prior period, partially offset by higher manufacturing and logistics costs and lower net sales decline.all in the current period.
Volume, and net sales increased by 15%, and 19%, respectively, and earnings before income taxes decreased by 39%6%, 11% and 22%, respectively, during the current nine month period. The volume and net sales growth reflected higherdecreases were primarily due to lower shipments in Cleaning andthe Professional Products portfoliosportfolio due to greaterhigher COVID-19 related demand inside and outside ofin the home.prior period. The variance between volume and net sales was primarily due to lower trader promotion and favorableunfavorable mix. The decrease in earnings before income taxes in the current period was primarily due to lower net sales, higher manufacturing and logistics costs and unfavorable commodity costs, partially offset by the non-cashnoncash impairment charges on assets held by the VMS business higher manufacturingin the prior period and logistics costs, and higherlower advertising investment, partially offset by net sales growth.spending in the current period.
Household
Household
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | 3/31/2021 | | 3/31/2020 | | % Change | | 3/31/2021 | | 3/31/2020 | | % Change | | 3/31/2022 | | 3/31/2021 | | % Change | | 3/31/2022 | | 3/31/2021 | | % Change |
Net sales | Net sales | $ | 510 | | | $ | 480 | | | 6 | % | | $ | 1,421 | | | $ | 1,183 | | | 20 | % | Net sales | $ | 539 | | | $ | 510 | | | 6 | % | | $ | 1,404 | | | $ | 1,421 | | | (1) | % |
Earnings before income taxes | Earnings before income taxes | 97 | | | 114 | | | (15) | | | 266 | | | 190 | | | 40 | | Earnings before income taxes | 92 | | | 97 | | | (5) | | | 138 | | | 266 | | | (48) | |
Volume and net sales increased by 4%2% and 6%, respectively, and earnings before income taxes decreased by 15%,5% during the current three month period. The volume growth reflectedand net sales increases were primarily driven by higher shipments in Litter mainly due to innovation and continued growth in e-commerce channel in the current period, partially offset by lower shipments in Grilling fromdue to higher consumer demand.demand in the prior period. The variance between volume and net sales was primarily due to favorable mix and lower trade promotion spending.the benefit of price increases. The decrease in earnings before income taxes was mainly due to unfavorable commodity costs and higher manufacturing and logistics costs, partially offset by net sales growth and lower advertising spending.
Volume, net sales and earnings before income taxes decreased by 2%, 1% and 48%, during the current nine month period. The volume decrease was primarily driven by lower shipments in Grilling due to higher demand in the prior period. 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. The decrease in earnings before income taxes was mainly due to unfavorable commodity costs and higher manufacturing and logistics costs, partially offset by lower advertising investments,spending and cost savings.
Lifestyle
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2022 | | 3/31/2021 | | % Change | | 3/31/2022 | | 3/31/2021 | | % Change |
Net sales | $ | 306 | | | $ | 293 | | | 4 | % | | $ | 961 | | | $ | 928 | | | 4 | % |
Earnings before income taxes | 66 | | | 68 | | | (3) | | | 239 | | | 259 | | | (8) | |
Volume and net sales increased by 6% and 4%, respectively, and earnings before income taxes decreased by 3% during the current three month period. The volume and net sales increases were primarily driven by higher shipments of Natural Personal Care products primarily due to strong consumption, innovation and expanded distribution. The variance between volume and net sales was mainly due to higher trade promotion spending and unfavorable mix, partially offset by the benefit of price
increases. The decrease in earnings before income taxes was primarily due to unfavorable commodity costs and higher manufacturing and logistics costs, partially offset by lower advertising spending and net sales growth.
Both volume and net sales increased by 4% and earnings before income taxes decreased by 8%, during the current nine month period. The volume and net sales growth were primarily driven by higher shipments of Natural Personal Care products primarily due to strong consumption, innovation and expanded distribution, and higher shipments of Brita water-filtration products due to expanded distribution and merchandising support. The decrease in earnings before income taxes was primarily due to unfavorable commodity costs and higher manufacturing and logistics costs, partially offset by net sales growth.
International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2022 | | 3/31/2021 | | % Change | | 3/31/2022 | | 3/31/2021 | | % Change |
Net sales | $ | 302 | | | $ | 298 | | | 1 | % | | $ | 886 | | | $ | 880 | | | 1 | % |
Earnings before income taxes | 31 | | | 30 | | | 3 | | | 80 | | | 184 | | | (57) | |
Volume, net sales and earnings before income taxes increased by 14%2%, 20%1% and 40%3%, respectively, during the current ninethree month period. The volume growth reflected higher shipments across all SBUs, primarily driven by strong consumer demand. The variance between volume and net sales was primarily due to favorable mix and lower trade promotion spending. The increase in earnings before income taxes was mainly due to net sales growth, partially offset by higher manufacturing and logistics costs and higher advertising investments.
Lifestyle
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2021 | | 3/31/2020 | | % Change | | 3/31/2021 | | 3/31/2020 | | % Change |
Net sales | $ | 293 | | | $ | 294 | | | — | % | | $ | 928 | | | $ | 856 | | | 8 | % |
Earnings before income taxes | 68 | | | 80 | | | (15) | | | 259 | | | 242 | | | 7 | |
Volume and earnings before income taxes decreased by 1% and 15%, respectively, and net sales were essentially flat during the current three month period as compared to the prior period. The volume decrease was primarily driven by lower shipments of Natural Personal Care and Brita water filtration products, partially offset by higher shipments in Food products. The decrease in earnings before income taxes was primarily due to higher manufacturing and logistics costs.
Volume, net sales and earnings before income taxes increased by 8%, 8% and 7%, respectively, during the current nine month period. Both volume growth and net sales growth were primarily driven by higher shipments of Foodfrom ongoing demand for cleaning, disinfecting and Brita water filtration products mainly due to greater demand by consumers and strategic brand investments. The Natural Personal Care business declined as the brand continued to adapt to new consumer shopping and usage habits. Thelitter products.The increase in earnings before income taxes was primarily due to net sales growth, partially offset by higher manufacturing and logisticsunfavorable commodity costs.
International
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2021 | | 3/31/2020 | | % Change | | 3/31/2021 | | 3/31/2020 | | % Change |
Net sales | $ | 298 | | | $ | 273 | | | 9 | % | | $ | 880 | | | $ | 755 | | | 17 | % |
Earnings before income taxes | 30 | | | 36 | | | (17) | | | 184 | | | 106 | | | 74 | |
Volume and net sales increased by 2% and 9%, respectively, and earnings before income taxes decreased by 17%1% and 57%, respectively, and net sales increased by 1% during the current threenine month period. The volume increase was driven by higher shipments from ongoing demand for disinfecting and other household products in most geographic regions, as well as the impact of the Saudi joint venture acquisition. Theperiod.The variance between volume and net sales was mainly due to favorable mix and the benefit of price increases, implemented to offset inflation in certain markets, partially offset by the impact of unfavorable foreign currency exchange rates. The decrease in earnings before income taxes was primarily due to higher manufacturing and logistics costs, unfavorable foreign currency exchange rates and higher commodity costs, partially offset by net sales growth.
Volume, net sales and earnings before income taxes increased by 13%, 17% and 74%, respectively, during the current nine month period. The volume increase was primarily driven by higher shipments from ongoing demand for disinfecting and other household products in every geographic region, as well as the impact of the Saudi joint venture acquisition. The variance between volume and net sales was mainly due to favorable mix and the benefit of price increases implemented to offset inflation, partially offset by the impact of unfavorable foreign currency exchange rates. The increase in earnings before income taxes was primarily due to theone-time, noncash remeasurement gain recognized on the previously held equity interest in the Saudi joint venture.
venture recognized in the prior period, unfavorable commodity costs and higher manufacturing and logistics costs, partially offset by net sales growth and cost savings all in the current period.
Argentina
Effective July 1, 2018, under the requirements of U.S. GAAP, Argentina was designated as a highly inflationary economy, and as a result the U.S. dollar replaced the Argentine peso as the functional currency of the Company’s subsidiaries in Argentina. Consequently, gains and losses from non-U.S. dollar denominated monetary assets and liabilities of Clorox Argentina are recognized in Other (income) expense, net in the condensed consolidated statement of earnings. The business environment in Argentina continues to be challenging due to significant volatility in Argentina’s currency, high inflation, an economic recession, and impacts of COVID-19 that includeand temporary strict price controls. As of March 31, 20212022 and June 30, 2020,2021, the net asset position, excluding goodwill, of Clorox Argentina was $45$44 and $44,$48, respectively. Of these net assets, cash balances were approximately $9$12 and $19$11 as of March 31, 20212022 and June 30, 2020,2021, respectively. Net sales from Clorox Argentina represented approximately 2% of the Company’s consolidated net sales for the nine months ended March 31, 20212022 and the fiscal year ended June 30, 2020.2021.
For additional information on the impacts of, and our response to, the business environment in Argentina, refer to “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020.2021.
Corporate
Corporate includes certain non-allocated administrative costs, interest income, interest expense and various other non-operating income and expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2021 | | 3/31/2020 | | % Change | | 3/31/2021 | | 3/31/2020 | | % Change |
Losses before income taxes | $ | (71) | | | $ | (143) | | | (50) | % | | $ | (225) | | | $ | (262) | | | (14) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2022 | | 3/31/2021 | | % Change | | 3/31/2022 | | 3/31/2021 | | % Change |
Losses before income taxes | $ | (73) | | | $ | (71) | | | 3 | % | | $ | (224) | | | $ | (225) | | | — | % |
Losses before income taxes decreased by $72were essentially flat in the current three and nine month period primarilyperiods due to increased investments in the Company’s digital capabilities and productivity enhancements offset by lower employee and incentive compensation and COVID-19 related expenses. Losses before income taxes decreased by $37 in the current nine month period primarily due to lower COVID-19 related expenses.
FINANCIAL POSITION AND LIQUIDITY
The Company’s financial condition and liquidity remained strong as of March 31, 2021.2022. The following table summarizes cash activities:
| | | | | | | | | | | |
| Nine Months Ended |
| 3/31/2021 | | 3/31/2020 |
Net cash provided by operations | $ | 893 | | | $ | 806 | |
Net cash used for investing activities | (341) | | | (145) | |
Net cash used for financing activities | (944) | | | (261) | |
| | | | | | | | | | | |
| Nine Months Ended |
| 3/31/2022 | | 3/31/2021 |
Net cash provided by operations | $ | 451 | | | $ | 893 | |
Net cash used for investing activities | (167) | | | (341) | |
Net cash used for financing activities | (363) | | | (944) | |
Operating Activities
Net cash provided by operations was $893$451 in the current nine month period, compared with $806$893 in the prior nine month period. The increasedecrease was primarily driven by the Company’s profitable sales growth, partially offset by higher tax paymentslower cash earnings and higher employee incentive compensation payments madean increase in the current nine month period versus the prior period. Workingworking capital changes were essentially flat in the comparative period (increased inventories(lower Accounts payable and accrued liabilities in the current year primarily to meet customer demand, offsetdriven by lower spend and timing of payments and cash inflows from collections from increased quarter-enddue to higher sales in the prior fiscal year, partially offset by higher inventory builds in the prior fiscal year to improve product availability). These decreases were partially offset by lower tax payments and higher payableslower employee incentive compensation payments in the current period due tonine month period.
Payment Terms Extension and Supply Chain Financing
The Company initiated the extension of its payment terms with its suppliers and increased production levels primarilyin the second half of fiscal year 2020 in order to improve inventory availability).working capital as part of and to fund the IGNITE strategy and in keeping with evolving market practices. The Company’s current payment terms do not exceed 120 days in keeping with industry standards. The Company’s operating cash flows are directly impacted as a result of the extension of the payment terms with the suppliers.
As part of those ongoing efforts, the Company has arranged for a global financial institution to offer a voluntary supply chain finance (SCF) program for the benefit of the Company’s suppliers. Leveraging the Company’s credit rating, the SCF program enables suppliers to directly contract with the financial institution to receive payment from the financial institution prior to the payment terms between the Company and the supplier, by selling the Company’s payables to the financial institution. The participation in the program is at the sole discretion of the supplier and the Company has no economic interest in a supplier's decision to enter into the agreement and has no direct financial relationship with the financial institution, as it relates to the SCF program. Once a supplier elects to participate in the SCF program and reaches an agreement with the financial institution, the supplier elects which individual Company invoices to sell to the financial institution. The terms of the Company’s payment obligations are not impacted by a supplier’s participation in the program and as such, the SCF program has no direct impact on the Company’s balance sheets, cash flows or liquidity. No guarantees are provided by the Company or any of our subsidiaries under the SCF program. There would not be an expected material impact to the Company’s liquidity or capital resources if the financial institution or a supplier terminated the SCF arrangement.
All outstanding amounts related to suppliers participating in SCF are recorded within Accounts payable and accrued liabilities in the Consolidated Balance Sheets and the associated payments are included in operating activities within the Consolidated Statements of Cash Flows. As of March 31, 2022 and June 30, 2021, the amount due to suppliers participating in SCF and included in Accounts payable and accrued liabilities was $218 and $152, respectively. While the Company does not have direct access to information on, or influence over, which invoices a participating supplier elects to sell to the financial institution, the Company expects that the majority of these amounts have been sold to the financial institution.
Investing Activities
Net cash used for investing activities was $341$167 in the current nine month period, compared with $145$341 in the prior nine month period. The year-over-year increasedecrease was mainly due to the acquisition of an additional interest in the Company'sCompany’s Saudi joint venture in the prior nine month period and higherlower capital spending to increase manufacturing capacity in the current nine month period.
Financing Activities
Net cash used for financing activities was $944$363 in the current nine month period, compared with $261$944 in the prior nine month period. The year-over-year increasedecrease was mainly due to higherlower treasury stock repurchasespurchases and net cash sourced from borrowings, partially offset by reduced proceeds from employee stock option exercises in the current nine month period.
Current period financing activities included repayment of $300 of the Company’s senior notes with an annual fixed interest rate of 3.80% that became due in November 2021 and net cash sourced from short-term borrowings in the prior period.were repaid using commercial paper borrowings.
Capital Resources and Liquidity
As of March 31, 2022, current liabilities exceeded current assets by $774, primarily due to $600 of the Company's senior notes with an annual fixed interest rate of 3.05% coming due for repayment in September 2022. These senior notes are expected to be repaid through net proceeds from new borrowings. In addition, the Company’s cash generated from operations has decreased recently primarily due to higher manufacturing and logistics costs and unfavorable commodity costs.The Company continues to take actions to address some of the effects of such cost increases, which include implementing price increases, driving cost savings, and optimizing the Company’s supply chain.
Global financial markets have experienced a significant increase in volatility due to heightened uncertainty over the adverse economic impact caused by the COVID-19 outbreak.outbreak and other geopolitical circumstances. Notwithstanding these potential unforeseen adverse market conditions and as part of the Company’s regular assessment of its cash needs, the Company believes it will have the funds necessary to support our short-term liquidity and operating needs based on our anticipated ability to generate positive cash flows from operations in the future, access to capital markets enabled by our strong short-term and long-term credit ratings, and current borrowing availability under the credit agreement.
Credit Arrangements
As ofOn March 31, 2021,25, 2022, the Company maintainedentered into a new $1,200 revolving credit agreement (the Credit Agreement) that matures in November 2024March 2027. The Credit Agreement replaced a prior $1,200 revolving credit agreement (the prior Credit Agreement) in place since November 2019. The Credit Agreement also changed the interest rate benchmark used as a reference rate for certain borrowings under the Credit Agreement from the London Interbank Offered Rate (LIBOR) to the secured overnight financing rate (SOFR). The Company did not incur any termination fees or penalties in connection with entering the new Credit Agreement, which was considered a debt modification. There were no borrowings under either the new Credit Agreement or the prior Credit Agreement as of March 31, 20212022 and June 30, 2020,2021, respectively, and the Company believes that borrowings under the new Credit Agreement are and will continue to be available for general corporate 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 other similar non-cash charges and certain other items (Consolidated EBITDA) to total interest expense for the trailing four quarters (Interest Coverage ratio), as defined and described in the Credit Agreement. Refer to the section entitled “Non-GAAP Financial Measures” below for further discussion of these measures.
The following table sets forth the calculation of the Interest Coverage ratio as of March 31, 2021, using Consolidated EBITDA for the trailing four quarters, as contractually defined in the Credit Agreement:
| | | | | |
| Twelve Months Ended |
| 3/31/2021 |
Net earnings | $ | 929 | |
Add back: | |
Interest expense | 99 | |
Income tax expense | 265 | |
Depreciation and amortization | 204 | |
Non-cash asset impairment charges(1)
| 330 | |
Deduct: | |
Interest income | (4) | |
Non-recurring, non-cash gain(2)
| (85) | |
Consolidated EBITDA | $ | 1,738 | |
Interest expense | $ | 99 | |
Interest Coverage ratio | 17.6 | |
(1) Includes goodwill, trademark and other asset impairments recorded impacting the VMS SBU (see Notes to Condensed Consolidated Financial Statements)
(2) Non-recurring, non-cash gain from the remeasurement of the Company’s previously held investment in its Saudi joint venture (see Notes to Condensed Consolidated Financial Statements).
The Company was in compliance with all restrictive covenants and limitations in the Credit Agreement as of March 31, 2021,2022, 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 continue to draw on the Credit Agreement, and currently expects it will continue to have access to borrowings under the Credit Agreement.
As of March 31, 2021,2022, the Company maintained $35$34 of foreign and other credit lines, of which $8$2 was outstanding.
Stock Repurchases and Dividend Payments
As of March 31, 2021,2022, the Company had 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. During the three months ended March 31, 2022 and 2021, the Company repurchased 0 and 1,648 thousand shares of common stock at a cost of $0 and $305, respectively. During the nine months ended March 31, 2022 and 2021, the Company repurchased 152 and 3,072 thousand shares of common stock at a cost of $25 and $605, respectively.
Stock repurchases under the two stock repurchase programs were as follows for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 |
| Amount | | Shares (in thousands) | | Amount | | Shares (in thousands) | | Amount | | Shares (in thousands) | | Amount | | Shares (in thousands) |
Open-market purchase program | $ | 200 | | | 1,088 | | | $ | — | | | — | | | $ | 200 | | | 1,088 | | | $ | 85 | | | 577 | |
Evergreen Program | 105 | | | 560 | | | 30 | | | 184 | | | 405 | | | 1,984 | | | 134 | | | 847 | |
Total stock repurchases | $ | 305 | | | 1,648 | | | $ | 30 | | | 184 | | | $ | 605 | | | 3,072 | | | $ | 219 | | | 1,424 | |
Dividends per share declared and total dividends paid to Clorox stockholders were as follows for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2021 | | 3/31/2020 | | 3/31/2021 | | 3/31/2020 |
Dividends per share declared | $ | 1.11 | | | $ | 1.06 | | | $ | 3.33 | | | $ | 3.18 | | |
Total dividends paid | 140 | | | 133 | | | 420 | | | 399 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| 3/31/2022 | | 3/31/2021 | | 3/31/2022 | | 3/31/2021 |
Dividends per share declared | $ | 1.16 | | | $ | 1.11 | | | $ | 3.48 | | | $ | 3.33 | | |
Total dividends paid | 143 | | | 140 | | | 428 | | | 420 | | |
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 are 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 because it is a term used in the Credit Agreement. As defined in the Credit Agreement, Consolidated EBITDA represents earnings before interest, taxes, depreciation and amortization, and other similar non-cash charges (such as non-cash asset impairment charges and other non-cash, non-recurring gains or losses). Interest Coverage ratio is the ratio of Consolidated EBITDA to interest expense. The Company’s management believes disclosure of Consolidated EBITDA provides useful information to investors because it is used in determining compliance with the primary restrictive covenant in the Credit Agreement. For additional discussion of the Interest Coverage ratio and a reconciliation of Consolidated EBITDA to net earnings, see “Financial Position and Liquidity - Financing Activities - Credit Arrangements” above.
Organic sales growth / (decrease) is defined as net sales growth / (decrease) 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:
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| Three Months Ended March 31, 2021 |
| Percentage change versus the year-ago period |
| Health and Wellness | | Household | | Lifestyle | | International | | Total |
Net sales growth / (decrease) (GAAP) | (8) | % | | 6 | % | | — | % | | 9 | % | | — | % |
Add: Foreign Exchange | — | | | — | | | — | | | 2 | | | — | |
Add/(Subtract): Divestitures/Acquisitions | — | | | — | | | — | | | (7) | | | (1) | |
Organic sales growth / (decrease) (non-GAAP) | (8) | % | | 6 | % | | — | % | | 4 | % | | (1) | % |
| | | | | | | | | |
| Nine Months Ended March 31, 2021 |
| Percentage change versus the year-ago period |
| Health and Wellness | | Household | | Lifestyle | | International | | Total |
Net sales growth / (decrease) (GAAP) | 19 | % | | 20 | % | | 8 | % | | 17 | % | | 17 | % |
Add: Foreign Exchange | — | | | — | | | — | | | 4 | | | — | |
Add/(Subtract): Divestitures/Acquisitions | — | | | — | | | — | | | (8) | | | (1) | |
Organic sales growth / (decrease) (non-GAAP) | 19 | % | | 20 | % | | 8 | % | | 13 | % | | 16 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Percentage change versus the year-ago period |
| Health and Wellness | | Household | | Lifestyle | | International | | Total |
Net sales growth / (decrease) (GAAP) | (3) | % | | 6 | % | | 4 | % | | 1 | % | | 2 | % |
Add: Foreign Exchange | — | | | — | | | — | | | 5 | | | — | |
Add/(Subtract): Divestitures/Acquisitions | — | | | — | | | — | | | — | | | — | |
Organic sales growth / (decrease) (non-GAAP) | (3) | % | | 6 | % | | 4 | % | | 6 | % | | 2 | % |
| | | | | | | | | |
| Nine Months Ended March 31, 2022 |
| Percentage change versus the year-ago period |
| Health and Wellness | | Household | | Lifestyle | | International | | Total |
Net sales growth / (decrease) (GAAP) | (11) | % | | (1) | % | | 4 | % | | 1 | % | | (4) | % |
Add: Foreign Exchange | — | | | — | | | — | | | 3 | | | — | |
Add/(Subtract): Divestitures/Acquisitions | — | | | — | | | — | | | — | | | — | |
Organic sales growth / (decrease) (non-GAAP) | (11) | % | | (1) | % | | 4 | % | | 4 | % | | (4) | % |
Cautionary Statement
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, including, among others, statements related to the expected or potential impact of the COVID-19novel coronavirus (COVID-19) pandemic, and the related responses of governments, consumers, customers, suppliers, employees and the Company, on our business, operations, employees, financial condition and results of operations, and any such forward-looking statements, whether concerning the COVID-19 pandemic or otherwise, involve risks, assumptions and uncertainties. Except for historical information, statements about future volumes, sales, organic sales growth, foreign currencies, costs, cost savings, margins, earnings, earnings attributable to the Company, earnings per share, 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, 20202021, and in this Report, as updated from time to time in the Company’s Securities and Exchange Commission filings. These factors include, but are not limited to, the uncertainties relating to the continued impact of COVID-19 on the Company’s business, operations, employees, financial condition and results of operations, as well as:to:
•intense competition in the Company’s markets;
•the impact of the changing retail environment, including the growth of alternative retail channels and business models, and changing consumer preferences;
•the impact of COVID-19 on the availability of, and efficiency of the supply, manufacturing and distribution systems for, the Company’s products, including any significant disruption to such systems;
•long-term changes in consumer preference or on the demand for the Company’s products as a resultproducts; and on worldwide, regional and local adverse economic conditions, including increased risk of any shortages or lack of availability of any productsinflation;
•volatility and increases in the near-term;costs of raw materials, energy, transportation, labor and other necessary supplies or services;
•risks related to supply chain issues and product shortages as a result of increased supply chain dependencies due to an expanded supplier network and a reliance on a limited base of suppliers andcertain single-source suppliers;
•risks relating to the significant increase in demand for disinfecting and other products due to the COVID-19 pandemic;pandemic continuing;
•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, especially at a time when a large number of the Company’s employees are working remotely and accessing its technology infrastructure remotely;
•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;
•risks relating to acquisitions, including the recent acquisition of the majority interest in the company’s Saudi joint venture, new ventures and divestitures, and associated costs, including for asset impairment charges related to, among others, intangible assets, including trademarks and goodwill, in particular the impairment charges relating to the carrying value of the company’sCompany’s Vitamins, Minerals and Supplements business;
•unfavorable worldwide, regional and local economicthe ability to complete announced transactions and, financial market conditions, including as a result of fear of exposureif completed, integration costs and potential contingent liabilities related to or actual impacts of a widespread disease outbreak, such as COVID-19;those transactions;
•the Company’s ability to maintain its business reputation and the reputation of its brands and products;
•lower revenue, increased costs or reputational harm resulting from government actions and regulations;compliance with regulations, or any material costs imposed by changes in regulation;
•the ability of the Company to successfully manage global political, legal, tax and regulatory risks, including changes in regulatory or administrative activity;
•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;
•volatility and increases in commodity costs such as resin, sodium hypochlorite and agricultural commodities, and increases in energy, transportation or other costs;
•the operations of the Company and its suppliers being subject to disruption by events beyond the Company’s control, including work stoppages, cyber-attacks, weather events or natural disasters, political instability or uncertainty, disease outbreaks or pandemics, such as COVID-19, and terrorism;
•risks related to international operations and international trade, including foreign currency fluctuations, such as devaluations, and foreign currency exchange rate controls, including periodic changes in such controls; changes in U.S. immigration or tradegovernmental policies, including the imposition oftrade, travel or immigration restrictions, new or additional tariffs;tariffs, and price or other controls; labor claims and laborcivil unrest; inflationary pressures, particularly in Argentina; impact of the United Kingdom’s exit from and the related on-going negotiations with, the European Union; 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; widespread health emergencies, such as COVID-19; and the possibility of nationalization, expropriation of assets or other government action;
•the facilitiesimpact of macroeconomic and geopolitical trends and events, including the Companyunfolding situation in Ukraine and its suppliers being subject to disruption by events beyondregional and global ramifications and the Company’s control, including work stoppages, cyber-attacks, natural disasters, disease outbreaks or pandemics, such as COVID-19, and terrorism;effects of inflation;
•the ability of the Company to innovate and to develop and introduce commercially successful products, or expand into adjacent categories and countries;
•the impact of product liability claims, labor claims and other legal, governmental or tax proceedings, including in foreign jurisdictions and in connection with any product recalls;
•the ability of the Company to implement and generate cost savings and efficiencies;
•the success of the Company’sefficiencies, and successfully implement its business strategies;
•risks related to additional increases in the estimated fair value of The Procter & Gamble Company’s interest in the Glad business;
•the accuracy of the Company’s estimates and assumptions on which its financial projections, including any sales or earnings guidance or outlook it may provide from time to time, are based;
•risks related to additional increases in the estimated fair value of Procter & Gamble Co.’s interest in the Glad business;
•the performance of strategic alliances and other business relationships;
•the Company’s ability to attract and retain key personnel;
•the impact of Environmental, Social, and Governance (ESG) issues, including those related to climate change and sustainability on our sales, operating costs or reputation;
•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 Company’s ability to effectively utilize, assert and defend its intellectual property rights;
•rights, and any infringement or claimed infringement by the Company of third-party intellectual property rights;
•the effect of the Company’s indebtedness and credit rating on its business operations and financial results;
•results and the Company’s ability to access capital markets and other funding sources, as well as continued or increased market volatility;sources;
•the Company’s ability to pay and declare dividends or repurchase its stock in the future;
•uncertainties relating to tax positions, tax disputes and any changes in tax rates and regulations on the Company;
•the Company’s ability to maintain an effective system of internal controls;
•the impacts of potential stockholder activism; and
•risks related to any litigation associated with the exclusive forum provision in the Company’s discontinuation of operations in Venezuela.bylaws.
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 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,” 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, 2020.2021. 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, 2020.2021.
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 third fiscal quarter of the fiscal year ending June 30, 2021,2022, 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. in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 20202021 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.
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 third quarter of fiscal year 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| [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, 2021 | — | | | $ | — | | | — | | | $1,493 million |
February 1 to 28, 2021 | 910,000 | | | 186.23 | | | 910,000 | | | $1,428 million |
March 1 to 31, 2021 | 738,130 | | | 183.40 | | | 738,130 | | | $1,293 million |
Total | 1,648,130 | | | $ | 184.96 | | | 1,648,130 | | | |
2022. | | | | | | | | | | | | | | | | | | | | | | | |
| [a] | | [b] | | [c] | | [d] |
Period | Total Number of Shares Purchased | | Average Price Paid per Share (1) | | 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, 2022 | — | | | $ | — | | | — | | | $993 million |
February 1 to 28, 2022 | — | | | — | | | — | | | $993 million |
March 1 to 31, 2022 | — | | | — | | | — | | | $993 million |
Total | — | | | $ | — | | | — | | | |
____________________
(1)Of the shares purchased in February 2021, 560,000 shares were acquired pursuant to the Evergreen Program and 350,000 shares were acquired pursuant to the Open-Market Program. All shares purchased in March 2021 were acquired pursuant to the Open-Market 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.
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| | Credit Agreement, dated as of March 25, 2022, among The Clorox Company, Annual Incentive Plan, amendedthe lenders listed therein, JPMorgan Chase Bank, N.A., Citibank, N.A., and restatedWells Fargo Bank, National Association, as of February 9, 2021. |
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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. |
104 | | Cover 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.
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| | THE CLOROX COMPANY |
| | (Registrant) |
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DATE: April 30, 2021May 2, 2022 | BY | /s/ Jeffrey R. BakerLaura Peck |
| | Jeffrey R. BakerLaura Peck Vice President – Chief Accounting Officer and Corporate Controller |