CLOROX CO /DE/, 10-Q filed on 11/3/2010
Quarterly Report
Document and Entity Information
3 Months Ended
Sep. 30, 2010
Document and Entity Information
 
Document Type
10-Q 
Amendment Flag
FALSE 
Document Period End Date
2010-09-30 
Document Fiscal Year Focus
2011 
Document Fiscal Period Focus
Q1 
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
139,443,276 
Condensed Consolidated Statements of Earnings (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended
Sep. 30,
2010
2009
Condensed Consolidated Statements of Earnings
 
 
Net sales
$ 1,266 
$ 1,303 
Cost of products sold
705 
720 
Gross profit
561 
583 
Selling and administrative expenses
181 
172 
Advertising costs
118 
122 
Research and development costs
29 
26 
Interest expense
32 
36 
Other (income) expense, net
(1)
10 
Earnings from continuing operations before income taxes
202 
217 
Income taxes on continuing operations
62 
77 
Earnings from continuing operations
140 
140 
Discontinued operations:
 
 
Earnings from discontinued operations, net of tax
16 
17 
Deferred tax benefit on businesses to be sold
60 
 
Earnings from discontinued operations
76 
17 
Net earnings
216 
157 
Basic
 
 
Continuing operations
0.99 
Discontinued operations
0.55 
0.12 
Basic net earnings per share
1.54 
1.12 
Diluted
 
 
Continuing operations
0.98 
0.99 
Discontinued operations
0.54 
0.12 
Diluted net earnings per share
1.52 
1.11 
Weighted average shares outstanding (in thousands)
 
 
Basic
139,475 
139,743 
Diluted
140,932 
140,861 
Dividends declared per share
$ 0.55 
$ 0.5 
Condensed Consolidated Balance Sheets (USD $)
In Millions
3 Months Ended
Sep. 30, 2010
Year Ended
Jun. 30, 2010
ASSETS
 
 
Cash and cash equivalents
$ 286 
$ 87 
Receivables, net
480 
540 
Inventories, net
370 
332 
Assets held for sale
472 
405 
Other current assets
113 
125 
Total current assets
1,721 
1,489 
Property, plant and equipment, net
965 
966 
Goodwill
1,317 
1,303 
Trademarks, net
552 
550 
Other intangible assets, net
93 
96 
Other assets
145 
144 
Total assets
4,793 
4,548 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
Notes and loans payable
506 
371 
Current maturities of long-term debt
300 
300 
Accounts payable
379 
409 
Accrued liabilities
425 
491 
Income taxes payable
87 
74 
Total current liabilities
1,697 
1,645 
Long-term debt
2,124 
2,124 
Other liabilities
669 
677 
Deferred income taxes
24 
19 
Total liabilities
4,514 
4,465 
Contingencies
 
 
Stockholders' equity
 
 
Common stock: $1.00 par value; 750,000,000 shares authorized; 158,741,461 shares issued at September 30, 2010 and June 30, 2010; and 139,443,276 and 138,764,511 shares outstanding at September 30, 2010 and June 30, 2010, respectively
159 
159 
Additional paid-in capital
608 
617 
Retained earnings
1,053 
920 
Treasury shares, at cost: 19,298,185 and 19,976,950 shares at September 30, 2010 and June 30, 2010, respectively
(1,204)
(1,242)
Accumulated other comprehensive net losses
(337)
(371)
Stockholders' equity
279 
83 
Total liabilities and stockholders' equity
$ 4,793 
$ 4,548 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2010
Jun. 30, 2010
Condensed Consolidated Balance Sheets
 
 
Common stock, par value
$ 1 
$ 1 
Common stock, shares, authorized
750,000,000 
750,000,000 
Common stock, shares, issued
158,741,461 
158,741,461 
Common stock, shares, outstanding
139,443,276 
138,764,511 
Treasury stock, shares
19,298,185 
19,976,950 
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions
3 Months Ended
Sep. 30,
2010
2009
Operating activities:
 
 
Net earnings
$ 216 
$ 157 
Deduct: Earnings from discontinued operations
76 
17 
Earnings from continuing operations
140 
140 
Adjustments to reconcile earnings from operations:
 
 
Depreciation and amortization
45 
48 
Share-based compensation
12 
13 
Deferred income taxes
(1)
Net loss on disposition of assets
 
Other
(3)
(27)
Changes in:
 
 
Receivables, net
60 
34 
Inventories, net
(44)
(21)
Other current assets
 
Accounts payable and accrued liabilities
(107)
(131)
Income taxes payable
15 
18 
Net cash provided by continuing operations
126 
77 
Net cash provided by discontinued operations
22 
17 
Net cash provided by operations
148 
94 
Investing activities:
 
 
Capital expenditures
(34)
(34)
Other
 
Net cash used for investing activities
(34)
(33)
Financing activities:
 
 
Notes and loans payable, net
134 
35 
Long-term debt repayments
 
(15)
Treasury stock purchased
(4)
 
Cash dividends paid
(77)
(70)
Issuance of common stock for employee stock plans and other
22 
15 
Net cash provided by (used for) financing activities
75 
(35)
Effect of exchange rate changes on cash and cash equivalents
10 
Net increase in cash and cash equivalents
199 
31 
Cash and cash equivalents:
 
 
Beginning of year
87 
206 
End of year
$ 286 
$ 237 
INTERIM FINANCIAL STATEMENTS
INTERIM FINANCIAL STATEMENTS
 
NOTE 1. INTERIM FINANCIAL STATEMENTS
 
 
 
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
NOTE 2. DISCONTINUED OPERATIONS
 
In September 2010, the Company entered into a definitive agreement to sell its global auto care businesses (Auto Businesses) to an affiliate of Avista Capital Partners in an all-cash transaction with proceeds of approximately $780, including $30 of cash flows related to working capital that is being retained by the Company as a result of the sale. The final proceeds are subject to closing adjustments related to the portion of the working capital transferred. The transaction, which is subject to regulatory and other customary approvals and closing conditions, is expected to close by the end of calendar year 2010.
 
Included in the transaction are substantially all of the Company's Auto Businesses, the majority of which are in the U.S., Australia, Canada and Europe, including the worldwide rights to distribute the market-leading Armor All® and STP® brands. As part of the transaction, the buyer will acquire two auto-care manufacturing facilities, one in the U.S. and one in the United Kingdom. Employees at these facilities, the Auto Businesses management team and other employees affiliated with the Auto Businesses will transfer to the buyer. The results of the Auto Businesses have historically been part of the Cleaning and the International reportable segments.
 
As part of the agreement, certain transitional services will be provided to the buyer for a period of up to eighteen months. The purpose of these services is to provide short-term assistance to the buyer in assuming the operations of the Auto Businesses. These services do not confer to the Company the ability to influence the operating or financial policies of the Auto Businesses under its new ownership. The Company's cash inflows and outflows from these services are not expected to be significant during the transition period. Income from these transition services will be reflected in other (income) expense in continuing operations with the costs associated with the services reflected in other line items in the income statement in continuing operations.
 
Beginning in the fiscal quarter ended September 30, 2010, the Company has reclassified the assets and liabilities of the Auto Businesses to assets held for sale and included the financial results of the Auto Businesses in discontinued operations for all periods presented.
 
The following table presents the net sales and earnings from the Auto Businesses:
 
    Three Months Ended
        9/30/2010       9/30/2009
Net sales   $        68     $        68  
Earnings from discontinued operations before income taxes   $ 24     $ 27  
Income tax expense     (8 )     (10 )
Deferred tax benefit on businesses to be sold     60       -  
Earnings from discontinued operations   $ 76     $ 17  
                 

As a result of the Auto Businesses being reported as discontinued operations, the Company reversed $5 in previously existing deferred tax liabilities and established a net $55 deferred tax asset for the excess of tax basis over book basis in the stock investments of the businesses being sold. A tax benefit had not been recorded for this temporary difference in previous periods, because the Company had not entered into a definitive agreement to sell the Auto Businesses until the current quarter.
 
The major classes of assets and liabilities of the Auto Businesses held for sale were as follows:
 
        9/30/2010       6/30/2010
Receivables, net   $       4     $       4  
Inventories, net     41       35  
Other current assets     1       1  
Current deferred tax assets (liabilities)     55       (5 )
Property, plant and equipment, net     14       13  
Goodwill     347       347  
Trademarks and other intangible assets, net     12       12  
Accounts payable and accrued liabilities     (2 )     (2 )
Assets held for sale   $ 472     $ 405  
 
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
NOTE 3. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
 
The Company is exposed to certain commodity, interest rate 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 enters into interest rate forward contracts to fix the benchmark interest rate prior to the anticipated issuance of fixed rate debt. These interest rate forward contracts have durations of less than 6 months. 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, interest rate forward contracts and its foreign currency forward contracts of forecasted purchases of inventory as cash flow hedges. During the three months ended September 30, 2010 and 2009, 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 $3. 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 September 30, 2010 and 2009, hedge ineffectiveness was not material. The Company dedesignates these cash flow hedge relationships whenever it determines that the hedge relationships are no longer highly effective or that the forecasted transaction is no longer probable. The portion of gains or losses on the derivative instrument previously accumulated in other comprehensive income for dedesignated hedges remains in accumulated other comprehensive income until the forecasted transaction is recognized in earnings, or is recognized in earnings immediately if the forecasted transaction is no longer probable. Changes in the value of derivative instruments after dedesignation are recorded in other income (expense) and amounted to $2 and $0 for the three months ended September 30, 2010 and 2009, respectively.
 
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       9/30/2010       6/30/2010
Assets                    
Foreign exchange contracts   Other current assets   $        -     $        1  
Commodity purchase contracts   Other current assets     3       -  
        $ 3     $ 1  
                     
Liabilities                    
Foreign exchange contracts   Accrued liabilities   $ (1 )   $ -  
Interest rate contracts   Accrued liabilities     (3 )     -  
Commodity purchase contracts   Accrued liabilities     -       (2 )
        $ (4 )   $ (2 )
                     
 
The effects of derivative instruments designated as hedging instruments on OCI and on the statement of earnings for the three months ended September 30, 2010, were as follows:
 
        Gain reclassified
        from OCI and
    Gain (Loss)   recognized in
Cash flow hedges       recognized in OCI       earnings
Commodity purchase contracts   $                     5     $ -
Interest rate contracts     (3 )     -
Foreign exchange contracts     (1 )     1
Total   $ 1     $ 1
               
The gains reclassified from OCI and recognized in earnings for foreign exchange contracts are included in cost of products sold.
 
The Company's derivative financial instruments not designated as hedging instruments are recorded at fair value in the condensed consolidated balance sheet as follows:
 
        Fair value
        Balance Sheet location       9/30/2009       6/30/2009
Commodity purchase contracts   Other current assets   $        1   $        -  
Commodity purchase contracts   Accrued liabilities     -     (1 )
        $ 1   $ (1 )
                   
As of September 30, 2010, the net notional value of commodity derivatives was $72, of which $34 related to diesel fuel, $19 related to jet fuel, $17 related to soybean oil and $2 related to crude oil.
 
As of September 30, 2010, the net notional value of interest rate forward contracts was $150 related to the anticipated refinancing of the $300 debt maturing in February 2011.
 
As of September 30, 2010, the Company had outstanding foreign currency forward contracts related to its subsidiaries in Canada and Australia of $30 and $18, respectively, used to hedge forecasted purchases of inventory.
 
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 September 30, 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 September 30, 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 September 30, 2010, the Company's financial assets and liabilities that were measured at fair value on a recurring basis during the year comprised of derivative financial instruments and were all level 2.
 
Commodity purchase contracts are fair valued using market quotations obtained from commodity derivative dealers. The interest rate contracts are fair valued using information quoted by U.S. government bond dealers. 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 September 30, 2010 and 2009, due to the short maturity and nature of those balances.
 
INVENTORIES, NET
INVENTORIES, NET
NOTE 4. INVENTORIES, NET
 
Inventories, net, consisted of the following as of:
 
        9/30/2010       6/30/2010
Finished goods   $       301     $       272  
Raw materials and packaging     103       94  
Work in process     4       4  
LIFO allowances     (28 )     (28 )
Allowances for obsolescence     (10 )     (10 )
Total   $ 370     $ 332  
                 
OTHER LIABILITIES
OTHER LIABILITIES
NOTE 5. OTHER LIABILITIES
 
Other liabilities consisted of the following as of:
 
        9/30/2010       6/30/2010
Employee benefit obligations   $       300   $       306
Venture agreement net terminal obligation     275     274
Taxes     64     64
Other     30     33
Total   $ 669   $ 677
             
NET EARNINGS PER SHARE
NET EARNINGS PER SHARE
NOTE 6. NET EARNINGS PER SHARE
 
The Company computes earnings per share (EPS) using the two-class method, 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 stockholders 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
        9/30/2010       9/30/2009
Net earnings   $       216     $       157  
Less: Earnings allocated to participating securities     (1 )     (1 )
Net earnings applicable to common stock   $ 215     $ 156  
                 
    Weighted Average Number of
Shares Outstanding for the
Three Months Ended
        9/30/2010       9/30/2009
Basic            139,475            139,743
Dilutive effect of stock options and other        
       (excludes participating securities)   1,457   1,118
Diluted   140,932   140,861
         
As of September 30, 2010 and 2009, the Company did not include stock options to purchase 2,147 thousand and 4,254 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 months ended September 30, 2010 and 2009, the Company issued 900 thousand and 862 thousand shares, respectively, of the Company's common stock.
 
During the three months ended September 30, 2010, the Company repurchased 58 thousand shares for an aggregate of $4 under its program to offset the impact of share dilution related to share-based awards (the Evergreen Program). The Company did not repurchase any shares under the Evergreen Program during the three months ended September 30, 2009.
 
The Company did not repurchase any shares under the open market purchase program during the three months ended September 30, 2010 and 2009.
COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
NOTE 7. 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, net of tax. Comprehensive income was as follows:
 
    Three Months Ended
        9/30/2010       9/30/2009
Net earnings   $       216     $       157
Other comprehensive gains (losses), net of tax:              
       Foreign currency translation     34       22
       Net derivative adjustments     (2 )     3
       Pension and postretirement benefit adjustments     2       1
Total comprehensive income   $ 250     $ 183
 
INCOME TAXES
INCOME TAXES
NOTE 8. 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 continuing operations was 30.9% for the current period as compared to 35.4% for the prior period. The lower rate in the current period was primarily due to favorable tax settlements.
 
Included in the balance of unrecognized tax benefits at September 30, 2010 and June 30, 2010, are potential benefits of $63 and $57, respectively, that if recognized, would affect the effective tax rate on earnings.
 
Gross unrecognized tax benefits relating to prior periods decreased by $23, primarily as a result of audit settlements in the current quarter. Gross unrecognized tax benefits relating to the current period increased by $33 and were primarily related to discontinued operations.
 
The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of September 30, 2010 and June 30, 2010, the total balance of accrued interest and penalties related to uncertain tax positions was $13 and $22, respectively. Interest and penalties included in income tax expense were a benefit of $2 and an expense of $3 for the three months ended September 30, 2010 and 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 were effectively settled by the Company and the IRS Appeals Division during the current period. Tax and interest payments of $18 were made with respect to these issues in the second quarter of fiscal year 2011. Various income tax returns in state and foreign jurisdictions are currently in the process of examination.
 
In the twelve months succeeding September 30, 2010, audit resolutions could potentially reduce total unrecognized tax benefits by up to $8, 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 9. 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:
 
    Three Months Ended
        9/30/2010       9/30/2009
Components of net periodic benefit cost (income):                
       Service cost   $        3     $        3  
       Interest cost     7       8  
       Expected return on plan assets     (8 )     (8 )
       Amortization of unrecognized items     4       2  
Total net periodic benefit cost   $ 6     $ 5  
                 
The net periodic benefit cost for the Company's retirement health care plans was $1 for each of the three month periods ended September 20, 2010 and 2009.
 
During the three months ended September 30, 2010, the Company made discretionary contributions of $15 to the domestic qualified retirement income plan.
 
CONTINGENCIES
CONTINGENCIES
NOTE 10. 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 at both September 30, 2010 and June 30, 2010, 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 September 30, 2010 and June 30, 2010. 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. 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 months ended September 30, 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 11. SEGMENT RESULTS
 
The Company operates through strategic business units, which are aggregated into four reportable segments: Cleaning, Household, Lifestyle and International. As a result of the Auto Businesses being reported as discontinued operations, the results of the Auto Businesses are no longer included in the Cleaning and International reportable segments (refer to Exhibit 99.1 for Quarterly Results from Continuing Operations for Fiscal Year 2010 (Adjusted for the Auto Care Businesses results classified to discontinued operations)). The four reportable segments consist of the following:
  • Cleaning consists of laundry, home-care and professional products marketed and sold in the United States. Products within this segment include laundry additives, including bleaches under the Clorox® brand and Clorox 2® stain fighter and color booster; home-care products, primarily under the Clorox®, Formula 409®, Liquid-Plumr®, Pine-Sol®, S.O.S® and Tilex® brands and natural cleaning and laundry products under the Green Works® brand.
     
  • 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, 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. These products include home-care, laundry, water filtration, charcoal and cat litter products, dressings and sauces, plastic bags, wraps and containers, and insecticides, primarily under the Clorox®, Javex®, Glad®, PinoLuz®, Ayudin®, Limpido®, Clorinda®, Poett®, Mistolin®, Lestoil®, Bon Bril®, Nevex®, Brita®, Green Works®, Pine-Sol®, Agua Jane® , Ever Clean®, Chux®, Kingsford®, Fresh Step®, Scoop Away ® and Ever Clean® brands, K C Masterpiece® and Hidden Valley® brands.
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   Earnings (Losses)
from Continuing Operations
Before Income Taxes
    Three Months Ended   Three Months Ended
        9/30/2010       9/30/2009   9/30/2010       9/30/2009
Cleaning   $          449   $          454       $          121     $          119  
Household     354     381     53       55  
Lifestyle     201     200     58       66  
International     262     268     40       43  
Corporate     -     -     (70 )     (66 )
Total Company   $ 1,266   $ 1,303   $ 202     $ 217  
                             
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 months ended September 30, 2010 and 2009, respectively.
INTERIM FINANCIAL STATEMENTS (Policy)
DISCONTINUED OPERATIONS (Tables)
    Three Months Ended
        9/30/2010       9/30/2009
Net sales   $        68     $        68  
Earnings from discontinued operations before income taxes   $ 24     $ 27  
Income tax expense     (8 )     (10 )
Deferred tax benefit on businesses to be sold     60       -  
Earnings from discontinued operations   $ 76     $ 17  
                 
        9/30/2010       6/30/2010
Receivables, net   $       4     $       4  
Inventories, net     41       35  
Other current assets     1       1  
Current deferred tax assets (liabilities)     55       (5 )
Property, plant and equipment, net     14       13  
Goodwill     347       347  
Trademarks and other intangible assets, net     12       12  
Accounts payable and accrued liabilities     (2 )     (2 )
Assets held for sale   $ 472     $ 405  
 
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Tables)
        Fair value
        Balance Sheet location       9/30/2010       6/30/2010
Assets                    
Foreign exchange contracts   Other current assets   $        -     $        1  
Commodity purchase contracts   Other current assets     3       -  
        $ 3     $ 1  
                     
Liabilities                    
Foreign exchange contracts   Accrued liabilities   $ (1 )   $ -  
Interest rate contracts   Accrued liabilities     (3 )     -  
Commodity purchase contracts   Accrued liabilities     -       (2 )
        $ (4 )   $ (2 )
                     
        Gain reclassified
        from OCI and
    Gain (Loss)   recognized in
Cash flow hedges       recognized in OCI       earnings
Commodity purchase contracts   $                     5     $ -
Interest rate contracts     (3 )     -
Foreign exchange contracts     (1 )     1
Total   $ 1     $ 1
               
        Fair value
        Balance Sheet location       9/30/2009       6/30/2009
Commodity purchase contracts   Other current assets   $        1   $        -  
Commodity purchase contracts   Accrued liabilities     -     (1 )
        $ 1   $ (1 )
                   
INVENTORIES, NET (Tables)
Schedule of inventories, net
        9/30/2010       6/30/2010
Finished goods   $       301     $       272  
Raw materials and packaging     103       94  
Work in process     4       4  
LIFO allowances     (28 )     (28 )
Allowances for obsolescence     (10 )     (10 )
Total   $ 370     $ 332  
                 
OTHER LIABILITIES (Tables)
Other liabilities
        9/30/2010       6/30/2010
Employee benefit obligations   $       300   $       306
Venture agreement net terminal obligation     275     274
Taxes     64     64
Other     30     33
Total   $ 669   $ 677
             
NET EARNINGS PER SHARE (Tables)
    Three Months Ended
        9/30/2010       9/30/2009
Net earnings   $       216     $       157  
Less: Earnings allocated to participating securities     (1 )     (1 )
Net earnings applicable to common stock   $ 215     $ 156  
                 
    Weighted Average Number of
Shares Outstanding for the
Three Months Ended
        9/30/2010       9/30/2009
Basic            139,475            139,743
Dilutive effect of stock options and other        
       (excludes participating securities)   1,457   1,118
Diluted   140,932   140,861
         
COMPREHENSIVE INCOME (Tables)
Comprehensive income
    Three Months Ended
        9/30/2010       9/30/2009
Net earnings   $       216     $       157
Other comprehensive gains (losses), net of tax:              
       Foreign currency translation     34       22
       Net derivative adjustments     (2 )     3
       Pension and postretirement benefit adjustments     2       1
Total comprehensive income   $ 250     $ 183
 
RETIREMENT INCOME AND HEALTH CARE BENEFIT PLANS (Tables)
Components of the net cost of retirement income and health care plans
    Three Months Ended
        9/30/2010       9/30/2009
Components of net periodic benefit cost (income):                
       Service cost   $        3     $        3  
       Interest cost     7       8  
       Expected return on plan assets     (8 )     (8 )
       Amortization of unrecognized items     4       2  
Total net periodic benefit cost   $ 6     $ 5  
                 
SEGMENT RESULTS (Tables)
Company's reportable segments' net sales and earnings (losses) before income taxes
     Net Sales   Earnings (Losses)
from Continuing Operations
Before Income Taxes
    Three Months Ended   Three Months Ended
        9/30/2010       9/30/2009   9/30/2010       9/30/2009
Cleaning   $          449   $          454       $          121     $          119  
Household     354     381     53       55  
Lifestyle     201     200     58       66  
International     262     268     40       43  
Corporate     -     -     (70 )     (66 )
Total Company   $ 1,266   $ 1,303   $ 202     $ 217  
                             
DISCONTINUED OPERATIONS (Details)
In Millions
3 Months Ended
Sep. 30,
Sep. 30, 2010
2010
2009
Jun. 30, 2010
DISCONTINUED OPERATIONS
 
 
 
 
Gross proceeds from sale of businesses
780 
 
 
 
Cash flows related to working capital
 
30 
 
 
Term of transitions services agreement
 
18 
 
 
Net sales
 
68 
68 
 
Earnings from discontinued operations before income taxes
 
24 
27 
 
Income tax expense
 
(8)
(10)
 
Deferred tax benefit on businesses to be sold
 
60 
 
 
Earnings from discontinued operations
 
76 
17 
 
Receivables, net
 
Inventories, net
41 
41 
 
35 
Other current assets
 
Current deferred tax assets
55 
55 
 
 
Current deferred tax liabilities
 
 
 
(5)
Property, plant and equipment, net
14 
14 
 
13 
Goodwill
347 
347 
 
347 
Trademarks and other intangible assets, net
12 
12 
 
12 
Accounts payable and accrued liabilities
(2)
(2)
 
(2)
Assets held for sale
472 
472 
 
405 
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Details)
In Millions
3 Months Ended
Sep. 30,
2010
2009
Jun. 30, 2010
Current maturities, months
18 
 
 
Maximum duration for interest rate forward contracts, months
 
 
Maximum duration for foreign currency contracts, months
12 
 
 
Estimated amount of the existing net gain to be reclassified into earnings, in the next 12 months
 
 
Changes in the value of derivative instruments after dedesignation
 
Derivative asset designated as hedging instrument, fair value
 
Derivative liability designated as hedging instrument, fair value
(4)
 
(2)
Gain (Loss) recognized in OCI
 
 
Gain reclassified from OCI and recognized in earnings
 
 
Derivative asset not designated as hedging instrument, fair value
 
 
Derivative liability not designated as hedging instrument, fair value
 
 
(1)
Notional value of commodity derivatives
72 
 
 
Notional value of interest rate forward contract
150 
 
 
Debt maturing in 2011
300 
 
 
Foreign exchange contracts
 
 
 
Gain (Loss) recognized in OCI
(1)
 
 
Gain reclassified from OCI and recognized in earnings
 
 
Foreign exchange contracts | Accrued Liabilities [Member]
 
 
 
Derivative liability designated as hedging instrument, fair value
(1)
 
 
Foreign exchange contracts | Other Current Assets [Member]
 
 
 
Derivative asset designated as hedging instrument, fair value
 
 
Interest rate contracts
 
 
 
Gain (Loss) recognized in OCI
(3)
 
 
Gain reclassified from OCI and recognized in earnings
 
 
 
Interest rate contracts | Accrued Liabilities [Member]
 
 
 
Derivative liability designated as hedging instrument, fair value
(3)
 
 
Commodity purchase contracts
 
 
 
Gain (Loss) recognized in OCI
 
 
Gain reclassified from OCI and recognized in earnings
 
 
 
Commodity purchase contracts | Accrued Liabilities [Member]
 
 
 
Derivative liability designated as hedging instrument, fair value
 
 
(2)
Derivative liability not designated as hedging instrument, fair value
 
 
(1)
Commodity purchase contracts | Other Current Assets [Member]
 
 
 
Derivative asset designated as hedging instrument, fair value
 
 
Derivative asset not designated as hedging instrument, fair value
 
 
Diesel Fuel Commodity Contract [Member]
 
 
 
Notional value of commodity derivatives
34 
 
 
Jet Fuel Commodity Contract [Member]
 
 
 
Notional value of commodity derivatives
19 
 
 
Soybean Oil Commodity Contract [Member]
 
 
 
Notional value of commodity derivatives
17 
 
 
Crude Oil Commodity Contract [Member]
 
 
 
Notional value of commodity derivatives
 
 
Canada Foreign Currency Exchange Contracts [Member]
 
 
 
Notional value
30 
 
 
Australia Foreign Currency Exchange Contracts [Member]
 
 
 
Notional value
18 
 
 
INVENTORIES, NET (Details) (USD $)
In Millions
Sep. 30, 2010
Jun. 30, 2010
INVENTORIES, NET
 
 
Finished goods
$ 301 
$ 272 
Raw materials and packaging
103 
94 
Work in process
LIFO allowances
(28)
(28)
Allowances for obsolescence
(10)
(10)
Total
$ 370 
$ 332 
OTHER LIABILITIES (Details) (USD $)
In Millions
Sep. 30, 2010
Jun. 30, 2010
OTHER LIABILITIES
 
 
Employee benefit obligations
$ 300 
$ 306 
Venture agreement net terminal obligation
275 
274 
Taxes
64 
64 
Other
30 
33 
Total
$ 669 
$ 677 
NET EARNINGS PER SHARE (Details) (USD $)
In Millions, except Share data
3 Months Ended
Sep. 30,
2010
2009
Net earnings
$ 216 
$ 157 
Less: Earnings allocated to participating securities
(1)
(1)
Net earnings applicable to common stock
215 
156 
Basic
139,475,000 
139,743,000 
Dilutive effect of stock options and other (excludes participating securities)
1,457,000 
1,118,000 
Diluted
140,932,000 
140,861,000 
Stock options
2,147,000 
4,254,000 
Common stock issued
900,000 
862,000 
Stock repurchased, shares
Evergreen Program [Member]
 
 
Shares repurchased
58,000 
Aggregate share price
 
COMPREHENSIVE INCOME (Details) (USD $)
In Millions
3 Months Ended
Sep. 30,
2010
2009
COMPREHENSIVE INCOME
 
 
Net earnings
$ 216 
$ 157 
Foreign currency translation
34 
22 
Net derivative adjustments
(2)
Pension and postretirement benefit adjustments
Total comprehensive income
$ 250 
$ 183 
INCOME TAXES (Details)
In Millions
3 Months Ended
Sep. 30, 2010
3 Months Ended
Jun. 30, 2010
3 Months Ended
Sep. 30, 2009
Dec. 31, 2010
INCOME TAXES
 
 
 
 
Effective tax rate, continuing operations
0.309 
0.354 
 
 
If realized, the total amount of unrecognized tax benefits that would affect the effective tax rate
63 
57 
 
 
Gross unrecognized tax benefits decreased, as a result of audit settlements
23 
 
 
 
Unrecognized tax benefits primarily related to discontinued operations
33 
 
 
 
Accrued interest and penalties related to uncertain tax positions
13 
22 
 
 
Interest and penalties of income tax expense
 
 
Federal interest and taxes
 
 
 
18 
Potential reduction in unrecognized tax benefits
 
 
 
RETIREMENT INCOME AND HEALTH CARE BENEFIT PLANS (Details) (USD $)
In Millions
3 Months Ended
Sep. 30,
2010
2009
Service cost
$ 3 
$ 3 
Interest cost
Expected return on plan assets
(8)
(8)
Amortization of unrecognized items
Total net periodic benefit cost
Retirement Health Care [Member]
 
 
Total net periodic benefit cost
Domestic Qualified Retirement Income Plans [Member]
 
 
Employer contributions to qualified plans
15 
 
CONTINGENCIES (Details)
In Millions
3 Months Ended
Sep. 30,
2010
2009
Year Ended
Jun. 30, 2010
CONTINGENCIES
 
 
 
Liability for future remediation cost
16 
 
16 
Percent liable for aggregate remediation and associated costs, other than legal fees
0.243 
 
0.243 
Remediation period, years
30 
 
 
Payments made towards remediation efforts, equivalent or less than
 
SEGMENT RESULTS (Details) (USD $)
In Millions
3 Months Ended
Sep. 30,
2010
2009
Net sales
$ 1,266 
$ 1,303 
Earnings (losses) from continuing operations before income taxes
202 
217 
Percentage of net sales to Wal-Mart, Inc. and its affiliates
0.27 
0.27 
Cleaning [Member]
 
 
Net sales
449 
454 
Earnings (losses) from continuing operations before income taxes
121 
119 
Household [Member]
 
 
Net sales
354 
381 
Earnings (losses) from continuing operations before income taxes
53 
55 
Lifestyle [Member]
 
 
Net sales
201 
200 
Earnings (losses) from continuing operations before income taxes
58 
66 
International [Member]
 
 
Net sales
262 
268 
Earnings (losses) from continuing operations before income taxes
40 
43 
Corporate [Member]
 
 
Net sales
 
 
Earnings (losses) from continuing operations before income taxes
$ (70)
$ (66)