CLOROX CO /DE/, 10-Q filed on 5/4/2010
Quarterly Report
Document and Entity Information
9 Months Ended
Mar. 31, 2010
Document Type
10-Q 
Amendment Flag
FALSE 
Document Period End Date
03/31/2010 
Document Fiscal Year Focus
2010 
Document Fiscal Period Focus
Q3 
Entity Registrant Name
CLOROX CO /DE/ 
Entity Central Index Key
0000021076 
Current Fiscal Year End Date
06/30 
Entity Filer Category
Large Accelerated Filer 
Entity Common Stock, Shares Outstanding
140,841,235 
Condensed Consolidated Statements of Earnings (USD $)
In Millions, except Share data in Thousands and Per Share data
3 Months Ended
Mar. 31, 2010
9 Months Ended
Mar. 31, 2010
3 Months Ended
Mar. 31, 2009
9 Months Ended
Mar. 31, 2009
Net sales
$ 1,366 
$ 4,017 
$ 1,350 
$ 3,950 
Cost of products sold
749 
2,220 
739 
2,291 
Gross profit
617 
1,797 
611 
1,659 
Selling and administrative expenses
182 
544 
174 
530 
Advertising costs
127 
381 
125 
351 
Research and development costs
30 
86 
27 
81 
Restructuring costs
 
14 
16 
Interest expense
34 
107 
39 
125 
Other expense (income), net
25 
(1)
Earnings before income taxes
243 
650 
233 
550 
Income taxes
78 
218 
80 
183 
Net earnings
165 
432 
153 
367 
Earnings per share
 
 
 
 
Basic
1.17 
3.06 
1.08 
2.61 
Diluted
1.16 
3.04 
1.08 
2.59 
Weighted average shares outstanding (in thousands)
 
 
 
 
Basic
140,764 
140,270 
139,213 
138,919 
Diluted
142,014 
141,509 
140,002 
140,078 
Dividend declared per share
$ 0.50 
$ 1.50 
$ 0.46 
$ 1.38 
Condensed Consolidated Balance Sheets (USD $)
In Millions
Mar. 31, 2010
Jun. 30, 2009
ASSETS
 
 
Cash and cash equivalents
$ 241 
$ 206 
Receivables, net
556.0 
486.0 
Inventories, net
423.0 
366.0 
Other current assets
118.0 
122.0 
Total current assets
1,338.0 
1,180.0 
Property, plant and equipment, net
935.0 
955.0 
Goodwill
1,658.0 
1,630.0 
Trademarks, net
565.0 
557.0 
Other intangible assets, net
100.0 
105.0 
Other assets
147.0 
149.0 
Total assets
4,743.0 
4,576.0 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
 
Notes and loans payable
586.0 
421.0 
Current maturities of long-term debt
300.0 
577.0 
Accounts payable
342.0 
381.0 
Accrued liabilities
478.0 
472.0 
Income taxes payable
66.0 
86.0 
Total current liabilities
1,772.0 
1,937.0 
Long-term debt
2,132.0 
2,151.0 
Other liabilities
610.0 
640.0 
Deferred income taxes
49.0 
23.0 
Total liabilities
4,563.0 
4,751.0 
Contingencies
 
 
Stockholders' equity (deficit)
 
 
Common stock: $1.00 par value; 750,000,000 shares authorized; 158,741,461 shares issued at March 31, 2010 and June 30, 2009; and 140,841,235 and 139,157,976 shares outstanding at March 31, 2010 and June 30, 2009, respectively
159.0 
159.0 
Additional paid-in capital
599.0 
579.0 
Retained earnings
838.0 
640.0 
Treasury shares, at cost: 17,900,226 and 19,583,485 shares at March 31, 2010 and June 30, 2009, respectively
(1,109.0)
(1,206.0)
Accumulated other comprehensive net losses
(307.0)
(347.0)
Stockholders' equity (deficit)
180.0 
(175.0)
Total liabilities and stockholders' equity (deficit)
$ 4,743.0 
$ 4,576.0 
Condensed Consolidated Balance Sheets [Parenthetical] (USD $)
Mar. 31, 2010
Jun. 30, 2009
Condensed Consolidated Balance Sheets [Parentheticals]
 
 
Common stock, par value
$ 1.00 
$ 1.00 
Common stock, shares authorized
750,000,000 
750,000,000 
Common stock, shares, issued
158,741,461 
158,741,461 
Common stock, shares, outstanding
140,841,235 
139,157,976 
Treasury stock, shares
17,900,226 
19,583,485 
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions
9 Months Ended
Mar. 31,
2010
2009
Operating activities:
 
 
Net earnings
$ 432 
$ 367 
Adjustments to reconcile earnings from operations:
 
 
Depreciation and amortization
139 
142 
Share-based compensation
46 
45 
Deferred income taxes
21 
(4)
Net loss on disposition of assets
 
Other
(19)
19 
Changes in:
 
 
Receivables, net
(60)
21 
Inventories, net
(50)
(42)
Other current assets
(3)
(20)
Accounts payable and accrued liabilities
(41)
(101)
Income taxes payable
(22)
(9)
Net cash provided by operations
443 
423 
Investing activities:
 
 
Capital expenditures
(111)
(135)
Businesses acquired, net of cash acquired
(19)
 
Other
(2)
Net cash used for investing activities
(128)
(137)
Financing activities:
 
 
Notes and loans payable, net
163 
(211)
Long-term debt borrowings
297 
 
Long-term debt repayments
(590)
 
Cash dividends paid
(211)
(193)
Issuance of common stock for employee stock plans, and other
61 
37 
Net cash used for financing activities
(280)
(367)
Effect of exchange rate changes on cash and cash equivalents
 
(16)
Net increase (decrease) in cash and cash equivalents
35 
(97)
Cash and cash equivalents:
 
 
Beginning of year
206 
214 
End of year
$ 241 
$ 117 
INTERIM FINANCIAL STATEMENTS
INTERIM FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
 
Basis of Presentation
 
The unaudited interim condensed consolidated financial statements for the three and nine months ended March 31, 2010 and 2009, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the consolidated results of operations, financial position and cash flows of The Clorox Company and its subsidiaries (the Company) for the periods presented. Certain prior period amounts have been reclassified in the condensed consolidated financial statements to conform to the current period presentation. The results for the interim period ended March 31, 2010, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2010, or for any future period.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission (the 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, 2009, which includes a complete set of footnote disclosures, including the Company's significant accounting policies.
 
Use of Estimates
 
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ materially from estimates and assumptions made.
 
Foreign Currency Translation
 
Prior to December 31, 2009, the Company translated its Venezuelan subsidiary's financial statements using Venezuela's official exchange rate, which had been fixed by the Venezuelan government at 2.15 bolivar fuertes (VEF) to the U.S. dollar. However, the Company's access to the official exchange rate has become increasingly limited due to delays in obtaining U.S. dollars through the government-sponsored currency exchange process at the official exchange rate and the removal of some products from the official list of items that may be imported at the official exchange rate. This has led to the substantial use of the parallel market currency exchange rate to convert VEFs to U.S. dollars to pay for certain imported inventory purchases. The parallel market currency exchange rate represents the rates negotiated with local financial intermediaries. Due to these circumstances, effective December 31, 2009, the Company began translating its Venezuelan subsidiary's financial statements using the parallel market currency exchange rate, the rate at which the Company expects to be able to remit dividends or return capital. The rate used at December 31, 2009, was 5.87 VEF to the U.S. dollar. On a pre-tax basis, this change in the rate used for converting these currencies resulted in additional remeasurement losses of $12 for the three months ended December 31, 2009, which related primarily to U.S. dollar denominated inventory purchases.
 
Effective January 1, 2010, Venezuela was designated as a hyper-inflationary economy for purposes of U.S. GAAP. A hyper-inflationary economy designation occurs when a country has experienced cumulative rates of inflation of approximately 100 percent or more over a 3-year period. The hyper-inflationary designation requires the Company's subsidiary in Venezuela to remeasure its financial statements as if the functional currency were the reporting currency or U.S. dollar. Bolivar denominated monetary assets and liabilities are remeasured at the parallel market currency rate and are recognized in earnings rather than as a component of Accumulated Other Comprehensive Net Losses on the balance sheet. The remeasurement loss as a result of using the parallel market currency exchange rate for the three and nine months ended March 31, 2010, was approximately $2 and $14, respectively. The rate used at March 31, 2010, was 7.05 VEF to the U.S. dollar.
 
During the three and nine months ended March 31, 2010, net sales in Venezuela were approximately 1% and 2%, respectively, of total Company net sales. As of March 31, 2010, total assets in Venezuela were approximately 1% of total Company assets.
 
New Accounting Pronouncements
 
Recently adopted pronouncements
 
On July 1, 2009, the Company adopted a new accounting standard which provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities that must be included in the computation of earnings per share pursuant to the two-class method. These payment awards were previously not considered participating securities. Accordingly, the Company's unvested performance units, restricted stock awards and restricted stock units that provide such nonforfeitable rights are now considered participating securities in the calculation of net earnings per share (EPS). The Company's share-based payment awards granted in fiscal year 2010 are not participating securities. The new standard requires the retrospective adjustment of the Company's earnings per share data. The impact of the retrospective adoption of the new accounting standard on the fiscal year 2009 reported EPS data was as follows:
 
Basic Diluted
        As previously
reported
        As restated         As previously
reported
        As restated
Three months ended March 31, 2009 $      1.09 $      1.08 $      1.08 $      1.08
Nine months ended March 31, 2009 2.64 2.61 2.60 2.59
  
Three months ended June 30, 2009 1.22 1.21 1.20 1.20
Year ended June 30, 2009 3.86 3.82 3.81 3.79

The calculation of EPS under the new accounting standard is disclosed in Note 8.
 
On July 1, 2009, the Company adopted a new accounting standard which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, including contingent liabilities, and any noncontrolling interest in an acquired business. The new accounting standard also provides for recognizing and measuring the goodwill acquired in a business combination and requires disclosure of information to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The provisions of this standard were applied during the Company's most recent acquisition (See Note 2).
 
On July 1, 2009, the Company adopted a new accounting standard which requires disclosures about fair value of financial instruments in interim financial information (See Note 4). The Company already complies with the provisions of this accounting standard for its annual reporting.
 
On July 1, 2009, the Company adopted the provisions of the accounting standard on fair value measurements that apply to nonfinancial assets and liabilities that are recognized or disclosed at fair value on a non-recurring basis. The adoption of these provisions did not have an impact on the condensed consolidated financial statements or disclosures.
 
On January 1, 2010, the Company adopted the provisions of the accounting standard on fair value measurements and disclosures which requires some new disclosures and clarifies existing disclosure requirements about fair value measurements. Specifically, the Company is required to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to also describe the reasons for the transfers. The adoption of these provisions did not have an impact on the condensed consolidated financial statements disclosures.
 
Pronouncements to be adopted
 
On December 30, 2008, the FASB issued an accounting standard that will require additional disclosures about the major categories of plan assets and concentrations of risk for an employer's plan assets of a defined benefit pension or other postretirement plan, as well as disclosure of fair value levels, similar to the disclosure requirements of the fair value measurements accounting standard. In accordance with the transition requirement, the Company will provide these enhanced disclosures about plan assets in its 2010 Annual Report on Form 10-K.
BUSINESS ACQUIRED
BUSINESS ACQUIRED
NOTE 2. BUSINESS ACQUIRED
 
In January 2010, the Company acquired the assets of Caltech Industries Inc., a company which provides disinfectants for the health care industry, for an aggregate price of $24, with the objective of expanding the Company's capabilities in the areas of health and wellness. The final purchase price will be subject to certain tax adjustments. In connection with the purchase, the Company acquired Caltech Industries' facility and its workforce. The Company paid for the acquisition in cash.
 
Net assets acquired, at fair value, included inventory of $2 and other assets of $4, goodwill of $9, trademarks of $6, customer list of $2, product formulae of $2 and other liabilities of $1. The trademarks, customer list and product formulae will be amortized over a period of 3, 15 and 10 years, respectively. Goodwill represents a substantial portion of the acquisition proceeds due to the high growth rate of the use of disinfecting products in the healthcare industry. Additional changes to the fair values of the assets acquired and liabilities assumed may be recorded as the Company finalizes its determination of the fair value of intangible assets acquired.
 
Operating results of the acquired business are included in the consolidated net earnings in the Cleaning reportable segment, from the acquisition date, for the three and nine months ended March 31, 2010. Pro forma results of the Company, assuming the acquisition had occurred at the beginning of each period presented, would not be materially different from the results reported.
RESTRUCTURING
RESTRUCTURING
NOTE 3. RESTRUCTURING
 
In fiscal year 2008, the Company began a restructuring plan that involves simplifying its supply chain and other restructuring activities (Supply Chain and Other restructuring plan), which was subsequently expanded to include additional costs, primarily severance, associated with the Company's plan to reduce certain staffing levels. The Company anticipates the Supply Chain and Other restructuring plan will be completed in fiscal year 2012.
 
The following table summarizes restructuring costs, primarily severance, associated with the Company's Supply Chain and Other restructuring plan by affected reportable segment, with unallocated amounts set forth in Corporate:
 
Three Months Ended Nine Months Ended
        3/31/2010         3/31/2009         3/31/2010         3/31/2009
Cleaning $      - $      1 $      2 $      3
International -   2 - 2
Corporate -   11 2 11
Total Company $ - $ 14 $ 4 $ 16
 
In addition to the restructuring costs described above, for the three months ended March 31, 2010, the Company recognized in cost of products sold restructuring-related costs associated with the Supply Chain and Other restructuring plan of $1. For the nine months ended March 31, 2010, the Company recognized restructuring-related costs associated with the Supply Chain and Other restructuring plan of $2 and $7, included in selling and administrative expenses and cost of products sold, respectively.
 
For the three months ended March 31, 2009, the Company recognized restructuring-related costs associated with the Supply Chain and Other restructuring plan of $1 and $4, included in selling and administrative expenses and cost of products sold, respectively. For the nine months ended March 31, 2009, the Company recognized restructuring-related costs associated with the Supply Chain and Other restructuring plan of $1 and $11, included in selling and administrative expenses and cost of products sold, respectively.
 
The following table summarizes restructuring-related costs associated with the Company's Supply Chain and Other restructuring plan by affected reportable segment, with unallocated amounts set forth in Corporate:
 
Three Months Ended Nine Months Ended
        3/31/2010         3/31/2009         3/31/2010         3/31/2009
Cleaning $      1 $      4 $      4 $      7
Household - - 3 3
International - - - 1
Corporate - 1 2 1
Total Company $ 1 $ 5 $ 9 $ 12
                         
Total costs associated with the Supply Chain and Other restructuring plan since inception through March 31, 2010, were $111, of which $35, $43, $12 and $21 were related to the Cleaning, Household, International segments and Corporate, respectively.
 
The Company anticipates incurring approximately $17 to $23 of Supply Chain and Other restructuring-related charges in fiscal year 2010, of which approximately $2 are expected to be noncash related. The Company anticipates approximately $6 to $8 of the fiscal year 2010 charges to be in Corporate and $8 to $10 to be in the Cleaning segment, of which approximately $6 to $8 are expected to be recognized as cost of products sold charges. The remaining estimated charges of $3 to $5 are expected to be recognized as cost of products sold in the Household segment. The total anticipated charges related to the Supply Chain and Other restructuring plan for the fiscal years 2011 and 2012 are estimated to be approximately $10 to $12.
 
The following table reconciles the accrual for the Supply Chain and Other restructuring charges discussed above:
 
        Severance         Accumulated
Depreciation
        Other         Total
Accrual Balance as of June 30, 2009 $      15 $      - $      - $      15
Charges 2 2 2 6
Cash payments (3 ) - (2 ) (5 )
Charges against assets - (2 ) - (2 )
Accrual Balance as of September 30, 2009 14 - - 14
Charges - 1 5 6
Cash payments (5 ) - (5 ) (10 )
Charges against assets - (1 ) - (1 )
Accrual Balance as of December 31, 2009 9 - - 9
Charges - - 1 1
Cash payments (2 ) - (1 ) (3 )
Adjustments (1 ) - - (1 )
Accrual Balance as of March 31, 2010 $ 6 $ - $ - $ 6
 
The Company may, from time to time, decide to pursue additional restructuring-related initiatives that involve charges in future periods.
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
NOTE 4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
 
The Company is exposed to certain commodity and foreign currency risks relating to its ongoing business operations. The Company uses commodity futures and swap contracts to fix the price of a portion of its forecasted raw material requirements. Contract maturities, which are generally no longer than 18 months, are matched to the length of the raw material purchase contracts. The Company also enters into certain foreign currency related derivative contracts to manage a portion of the Company's foreign exchange risk associated with the purchase of inventory. These foreign currency contracts generally have durations no longer than twelve months.
 
The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as a hedge, and on the type of the hedging relationship. For those derivative instruments designated and qualifying as hedging instruments, the Company must designate the hedging instrument as a fair value hedge or a cash flow hedge. The Company designates its commodity forward and future contracts of forecasted purchases for raw materials and its foreign currency forward contracts of forecasted purchases of inventory as cash flow hedges. During the three and nine months ended March 31, 2010, the Company had no hedging instruments designated as fair value hedges.
 
For derivative instruments designated and qualifying as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The estimated amount of the existing net gain at the reporting date expected to be reclassified into earnings within the next twelve months is $4. Gains and losses on the derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. During the three months ended March 31, 2010 and 2009, and the nine months ended March 31, 2010, the hedge ineffectiveness was not material.
 
The Company's derivative financial instruments designated as hedging instruments are recorded at fair value in the condensed consolidated balance sheet as follows:
 
Fair value
        Balance Sheet location         3/31/2010         6/30/2009
Assets
Commodity purchase contracts Other current assets $      5 $      6
  
Liabilities
Foreign exchange contracts Accrued liabilities $ (1 ) $ -
Commodity purchase contracts Accrued liabilities (1 ) (21 )
$ (2 ) $ (21 )
 
The effects of derivative instruments on OCI and on the statement of earnings were as follows:
 
Gain (Loss) recognized in OCI Gain (Loss) reclassified from OCI and recognized in
earnings
Cash flow hedges         Three months
ended
3/31/2010
        Three months
ended
3/31/2009
        Nine months
ended
3/31/2010
        Three months
ended
3/31/2010
        Three months
ended
3/31/2009
        Nine months
ended
3/31/2010
Commodity purchase contracts $      (2 ) $      (5 ) $      - $      (2 ) $      (11 ) $      (19 )
Foreign exchange contracts (1 ) - (3 ) (1 ) 2 (2 )
Total $ (3 ) $ (5 ) $ (3 ) $ (3 ) $ (9 ) $ (21 )
 
The gains (losses) reclassified from OCI and recognized in earnings are included in cost of products sold.
 
As of March 31, 2010, the net notional value of commodity derivatives was $103, of which $61 related to diesel fuel, $21 related to jet fuel, $18 related to soybean oil, $2 related to crude oil and $1 related to unleaded gas.
 
As of March 31, 2010, the Company had outstanding foreign currency forward contracts used to hedge forecasted purchases of inventory of $18 and $3 related to its subsidiaries in Canada and Australia, respectively.
 
Certain terms of the agreements governing the Company's over-the-counter derivative instruments require the Company or the counterparty to post collateral when the fair value of the derivative instruments exceeds contractually defined counterparty liability position limits. There was no collateral posted at March 31, 2010.
 
Certain terms of the agreements governing the over-the-counter derivative instruments contain provisions that require the credit ratings, as assigned by Standard and 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. As of March 31, 2010, the Company and each of its counterparties maintained investment grade ratings with both Standard and Poor's and Moody's.
 
U.S. GAAP prioritizes the inputs used in measuring fair value into the following 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.
 
At March 31, 2010, the Company's financial assets and liabilities that were measured at fair value on a recurring basis during the year were level 2 commodity purchase contracts with a fair value of $5 (included in other current assets), and commodity purchase and foreign exchange contracts with a fair value of $1 and $1, respectively, (included in accrued liabilities).
 
Commodity purchase contracts are fair valued using market quotations obtained off of the New York Mercantile Exchange.
 
The foreign exchange contracts are fair valued using information quoted by foreign exchange dealers.
 
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and notes and loans payable approximate their fair values at March 31, 2010 and June 30, 2009, due to the short maturity and nature of those balances. The estimated fair value of long-term debt, including current maturities, was $2,608 and $2,816 at March 31, 2010 and June 30, 2009, respectively. The Company accounts for its long-term debt at face value, net of any unamortized discounts or premiums. The fair value of long-term debt was determined using secondary market prices quoted by corporate bond dealers.
INVENTORIES, NET
INVENTORIES, NET
NOTE 5. INVENTORIES, NET
 
Inventories, net, consisted of the following at:
 
        3/31/2010         6/30/2009
Finished goods $      360 $      304
Raw materials and packaging 100 99
Work in process 4 4
LIFO allowances (31 ) (31 )
Allowances for obsolescence (10 ) (10 )
Total $ 423 $ 366
 

 

OTHER LIABILITIES
OTHER LIABILITIES
NOTE 6. OTHER LIABILITIES
 
Other liabilities consisted of the following at:
 
        3/31/2010         6/30/2009
Venture agreement net terminal obligation $      273 $      269
Employee benefit obligations 241 266
Taxes 60 65
Other 36 40
Total $ 610 $ 640
 
DEBT
DEBT
NOTE 7. DEBT
 
In January 2010, $575 of debt became due and was paid. The Company funded the debt repayment through the use of commercial paper and, to a lesser extent, operating cash flows.
 
In November 2009, the Company issued $300 of long-term debt in senior notes. The notes carry an annual fixed interest rate of 3.55% payable semi-annually in May and November. The notes mature on November 1, 2015. Proceeds from the notes were used to retire commercial paper. The notes rank equally with all of the Company's existing and future senior indebtedness.
 
NET EARNINGS PER SHARE
NET EARNINGS PER SHARE
NOTE 8. NET EARNINGS PER SHARE
 
The Company computes EPS using the two-class method (See Note 1), which is an earnings allocation formula that determines EPS for common stock and participating securities.
 
EPS for common stock is computed by dividing net earnings applicable to common stock by the weighted average number of common shares outstanding each period on an unrounded basis. Net earnings applicable to common stock includes dividends paid to common shareholders during the period plus a proportionate share of undistributed net earnings which is based on the weighted average number of shares of common stock and participating securities outstanding during the period.
 
Diluted EPS for common stock reflects the earnings dilution that could occur from common shares that may be issued through stock options, restricted stock awards, performance units and restricted stock units that are not participating securities. Excluded from this calculation are amounts allocated to participating securities.
 
The following are reconciliations of net earnings to net earnings applicable to common stock, and the number of common shares outstanding (in thousands) used to calculate basic EPS to those used to calculate diluted EPS:
 
  Three Months Ended   Nine Months Ended
3/31/2010       3/31/2009       3/31/2010       3/31/2009
Net earnings $      165 $      153 $      432   $      367
Less: Earnings allocated to participating securities - (2 ) (2 ) (4 )
Net earnings applicable to common stock $ 165 $ 151 $ 430 $ 363
 
 
Weighted Average Number of
Shares Outstanding for the
Three Months Ended
Weighted Average Number of
Shares Outstanding for the
Nine Months Ended
3/31/2010       3/31/2009       3/31/2010       3/31/2009
Basic 140,764   139,213   140,270   138,919
Dilutive effect of stock options and other
       (excludes participating securities) 1,250 789 1,239 1,159
Diluted 142,014 140,002 141,509 140,078
 

During the three and nine months ended March 31, 2010, the Company did not include stock options to purchase 2,743 thousand and 4,038 thousand shares, respectively, of the Company's common stock, in the calculations of diluted EPS because their inclusion would be anti-dilutive.
 
During the three and nine months ended March 31, 2009, the Company did not include stock options to purchase 6,691 thousand and 5,239 thousand shares, respectively, of the Company's common stock, in the calculations of diluted EPS because their inclusion would be anti-dilutive.
 
The Company did not repurchase any shares in the open market during the three and nine months ended March 31, 2010 and 2009.
 
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
NOTE 9. COMPREHENSIVE INCOME
 
Comprehensive income includes net earnings and certain adjustments that are excluded from net earnings, but included as a separate component of stockholders' equity (deficit), net of tax. Comprehensive income was as follows:
 
Three Months Ended Nine Months Ended
3/31/2010       3/31/2009       3/31/2010       3/31/2009
Net earnings $      165 $      153   $      432 $ 367  
Other comprehensive gains (losses), net of tax:
       Foreign currency translation 10 (9 ) 27      (129 )
       Net derivative adjustments (1 ) 2 10 (53 )
       Pension and postretirement benefit adjustments 1 1 3 2
Total comprehensive income $ 175 $ 147 $ 472 $ 187
INCOME TAXES
INCOME TAXES
NOTE 10. 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. On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law, and on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 was signed into law. The PPACA changes the tax treatment of federal subsidies received by sponsors of retiree health benefit plans that provide a benefit similar to Medicare Part D. These subsidies were previously non-taxable but will become taxable effective in tax years beginning after December 31, 2012. The Company has concluded that the impact of the future elimination of this tax deduction on its financial statements is and will be insignificant.
 
As of March 31, 2010 and June 30, 2009, the total amount of unrecognized tax benefits was $81 and $98, respectively, of which $77 and $91, respectively, would reduce income tax expense and the effective tax rate if recognized.
 
The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of March 31, 2010 and June 30, 2009, the total balance of accrued interest and penalties related to uncertain tax positions was $21 and $17, respectively. Interest and penalties included in income tax expense were $(1) and $4 for the three and nine months ended March 31, 2010, and $2 and $1 for the three and nine months ended March 31, 2009, respectively.
 
The Company files income tax returns in the U.S. federal and various state, local and foreign jurisdictions. Certain issues relating to 2003, 2004 and 2006 are under review by the IRS Appeals Division. The Company made payments of tax and interest to the IRS related to fiscal years 2004 and 2006 in the first quarter of fiscal year 2010 of $8. No tax benefits had previously been recognized for these payments. Various income tax returns in state and foreign jurisdictions are currently in the process of examination.
 
In the twelve months succeeding March 31, 2010, audit resolutions could potentially reduce total unrecognized tax benefits by up to $27, primarily as a result of cash settlement payments. Audit outcomes and the timing of audit settlements are subject to significant uncertainty.
RETIREMENT INCOME AND HEALTH CARE BENEFIT PLANS
RETIREMENT INCOME AND HEALTH CARE BENEFIT PLANS
NOTE 11. RETIREMENT INCOME AND HEALTH CARE BENEFIT PLANS
 
The following table summarizes the components of net periodic benefit cost for the Company's retirement income and health care plans:
    
Retirement Income Plans for the
Three Months Ended       Nine Months Ended
3/31/2010       3/31/2009 3/31/2010       3/31/2009
Components of net periodic benefit cost (income):          
       Service cost $ 2 $ 1 $ 7 $ 7
       Interest cost 8 7 23 22
       Expected return on plan assets      (8 )      (7 )      (23 )      (21 )
       Amortization of unrecognized items 2 1 6 4
Total net periodic benefit cost $ 4 $ 2 $ 13 $ 12
 
Health Care Plans for the
Three Months Ended       Nine Months Ended
3/31/2010       3/31/2009 3/31/2010       3/31/2009
Components of net periodic benefit cost (income):      
       Service cost $ - $ - $ 1 $ 1
       Interest cost      1      - 3 3
       Amortization of unrecognized items - -      (1 )        (1 )
Total net periodic benefit cost $ 1 $ - $ 3 $ 3  
                                  
During the nine months ended March 31, 2010, the Company made discretionary contributions of $38 to the domestic qualified retirement income plan. The Company made an additional discretionary contribution of $5 in April 2010. Based on current pension funding rules, the Company is not required to make any contributions in fiscal year 2010.
CONTINGENCIES
CONTINGENCIES
NOTE 12. CONTINGENCIES
 
The Company is involved in certain environmental matters, including Superfund and other response actions at various locations. The Company has a recorded liability of $16 and $19 at March 31, 2010 and June 30, 2009, respectively, for its share of the related aggregate future remediation cost. One matter in Dickinson County, Michigan, for which the Company is jointly and severally liable, accounts for a substantial majority of the recorded liability at both March 31, 2010 and June 30, 2009. The Company is subject to a cost-sharing arrangement with Ford Motor Co. (Ford) for this matter, under which the Company has agreed to be liable for 24.3% of the aggregate remediation and associated costs, other than legal fees, as the Company and Ford are each responsible for their own such fees. If Ford is unable to pay its share of the response and remediation obligations, the Company would likely be responsible for such obligations. In October 2004, the Company and Ford agreed to a consent judgment with the Michigan Department of Environmental Quality, which sets forth certain remediation goals and monitoring activities. Based on the current status of this matter, and with the assistance of environmental consultants, the Company maintains an undiscounted liability representing its best estimate of its share of costs associated with the capital expenditures, maintenance and other costs to be incurred over an estimated 30-year remediation period. The most significant components of the liability relate to the estimated costs associated with the remediation of groundwater contamination and excess levels of subterranean methane deposits. The Company made payments of less than $1 during each of the three and nine months ended March 31, 2010 and 2009, towards remediation efforts. Currently, the Company cannot accurately predict the timing of the payments that will likely be made under this estimated obligation. In addition, the Company's estimated loss exposure is sensitive to a variety of uncertain factors, including the efficacy of remediation efforts, changes in remediation requirements and the timing, varying costs and alternative clean-up technologies that may become available in the future. Although it is possible that the Company's exposure may exceed the amount recorded, any amount of such additional exposures, or range of exposures, is not estimable at this time.
 
The Company is subject to various other lawsuits and claims relating to issues such as contract disputes, product liability, patents and trademarks, advertising, employee and other matters. Although the results of claims and litigation cannot be predicted with certainty, it is the opinion of management that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on the Company's consolidated financial statements taken as a whole.
SEGMENT RESULTS
SEGMENT RESULTS
NOTE 13. SEGMENT RESULTS
 
The Company operates through strategic business units which are aggregated into four reportable segments: Cleaning, Household, Lifestyle and International. The four reportable segments consist of the following:
  • Cleaning consists of laundry, home-care, professional products and auto-care products marketed and sold in the United States. Products within this segment include laundry additives, including bleaches, under the Clorox® and Clorox 2® brands; home-care products, primarily under the Clorox®, Formula 409®, Liquid-Plumr®, Pine-Sol®, S.O.S® and Tilex® brands; natural cleaning and laundry products under the Green Works™ brand; and auto-care products primarily under the Armor All® and STP® brands.
      
  • Household consists of charcoal, cat litter and plastic bags, wraps and container products marketed and sold in the United States. Products within this segment include plastic bags, wraps and containers, under the Glad® brand; cat litter products, under the Fresh Step®, Scoop Away® and Ever Clean® brands; and charcoal products under the Kingsford® and Match Light® brands.
     
  • Lifestyle consists of food products and water-filtration systems and filters marketed and sold in the United States and all natural personal care products. Products within this segment include dressings and sauces, primarily under the Hidden Valley® and K C Masterpiece® brands, water-filtration systems and filters under the Brita® brand; and all natural personal care products under the Burt's Bees® brand.
      
  • International consists of products sold outside the United States, excluding natural personal care products.
Corporate includes certain nonallocated administrative costs, interest income, interest expense and certain other nonoperating income and expenses. Corporate assets include cash and cash equivalents, the Company's headquarters and research and development facilities, information systems hardware and software, pension balances, and other investments.
 
The table below presents reportable segment information and a reconciliation of the segment information to the Company's net sales and earnings before income taxes, with amounts that are not allocated to the operating segments shown as Corporate.
 
Net Sales
Three Months Ended    Nine Months Ended
3/31/2010       3/31/2009       3/31/2010       3/31/2009
Cleaning $ 451   $ 471   $ 1,378   $ 1,371  
Household 408 407 1,123 1,188
Lifestyle 226 215 638 602
International 281 257 878 789
Corporate - - - -
Total Company $      1,366 $      1,350 $      4,017 $      3,950
 

Earnings (Losses)
Before Income Taxes
Three Months Ended    Nine Months Ended
3/31/2010       3/31/2009       3/31/2010       3/31/2009
Cleaning $ 114 $ 111 $ 336 $ 304
Household 72 78 154 166
Lifestyle 82 74 226 197
International 47 47 133 116
Corporate (72 ) (77 ) (199 ) (233 )
Total Company $        243 $         233 $         650 $         550
 

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, were 27% of consolidated net sales for the three and nine months ended March 31, 2010, and 28% and 27% of consolidated net sales for the three and nine months ended March 31, 2009, respectively.