CLOROX CO /DE/, 10-Q filed on 11/1/2013
Quarterly Report
Document and Entity Information
3 Months Ended
Sep. 30, 2013
Oct. 30, 2013
Document and Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 30, 2013 
 
Entity Registrant Name
CLOROX CO /DE/ 
 
Entity Central Index Key
0000021076 
 
Current Fiscal Year End Date
--06-30 
 
Document Fiscal Period Focus
Q1 
 
Document Fiscal Year Focus
2014 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
129,044,616 
Condensed Consolidated Statements of Earnings and Comprehensive Income (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Condensed Consolidated Statements of Earnings and Comprehensive Income [Abstract]
 
 
Net sales
$ 1,364 
$ 1,338 
Cost of products sold
779 
764 
Gross profit
585 
574 
Selling and administrative expenses
198 
195 
Advertising costs
120 
122 
Research and development costs
31 
30 
Interest expense
26 
33 
Other expense, net
Earnings from continuing operations before income taxes
208 
194 
Income taxes on continuing operations
71 
61 
Earnings from continuing operations
137 
133 
Losses from discontinued operations, net of tax
(1)
Net earnings
136 
133 
Basic net earnings (losses) per share
 
 
Continuing operations
$ 1.05 
$ 1.02 
Discontinued operations
$ (0.01)
$ 0 
Basic net earnings per share
$ 1.04 
$ 1.02 
Diluted net earnings (losses) per share
 
 
Continuing operations
$ 1.04 
$ 1.01 
Discontinued operations
$ (0.01)
$ 0 
Diluted net earnings per share
$ 1.03 
$ 1.01 
Weighted average shares outstanding (in thousands)
 
 
Basic
130,074 
130,268 
Diluted
132,237 
131,702 
Dividend declared per share
$ 0.71 
$ 0.64 
Comprehensive income
$ 135 
$ 160 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Sep. 30, 2013
Jun. 30, 2013
Current assets
 
 
Cash and cash equivalents
$ 323 
$ 299 
Receivables, net
506 
580 
Inventories, net
439 
394 
Other current assets
152 
147 
Total current assets
1,420 
1,420 
Property, plant and equipment, net of accumulated depreciation and amortization of $1,720 and $1,711, respectively
1,007 
1,021 
Goodwill
1,108 
1,105 
Trademarks, net
553 
553 
Other intangible assets, net
70 
74 
Other assets
143 
138 
Total assets
4,301 
4,311 
Current liabilities
 
 
Notes and loans payable
286 
202 
Accounts payable
374 
413 
Accrued liabilities
468 
490 
Income taxes payable
42 
29 
Total current liabilities
1,170 
1,134 
Long-term debt
2,170 
2,170 
Other liabilities
762 
742 
Deferred income taxes
118 
119 
Total liabilities
4,220 
4,165 
Contingencies
   
   
Stockholders' equity
 
 
Preferred stock: $1.00 par value; 5,000,000 shares authorized; none issued or outstanding
Common stock: $1.00 par value; 750,000,000 shares authorized; 158,741,461 shares issued at both September 30, 2013 and June 30, 2013; and 128,996,021 and 130,366,911 shares outstanding at September 30, 2013 and June 30, 2013, respectively
159 
159 
Additional paid-in capital
673 
661 
Retained earnings
1,603 
1,561 
Treasury shares, at cost: 29,745,440 and 28,374,550 shares at September 30, 2013 and June 30, 2013, respectively
(1,986)
(1,868)
Accumulated other comprehensive net losses
(368)
(367)
Stockholders' equity
81 
146 
Total liabilities and stockholders' equity
$ 4,301 
$ 4,311 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Sep. 30, 2013
Jun. 30, 2013
Condensed Consolidated Balance Sheets [Abstract]
 
 
Property, plant and equipment, accumulated depreciation
$ 1,720 
$ 1,711 
Preferred stock, par value per share
$ 1.00 
$ 1.00 
Preferred stock, shares authorized
5,000,000 
5,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value per share
$ 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
128,996,021 
130,366,911 
Treasury shares, shares
29,745,440 
28,374,550 
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Operating activities:
 
 
Net earnings
$ 136 
$ 133 
Deduct: Losses from discontinued operations, net of tax
(1)
Earnings from continuing operations
137 
133 
Adjustments to reconcile earnings from continuing operations to net cash provided by continuing operations:
 
 
Depreciation and amortization
44 
44 
Share-based compensation
10 
Deferred income taxes
(1)
15 
Other
11 
17 
Changes in:
 
 
Receivables, net
74 
80 
Inventories, net
(44)
(32)
Other current assets
(7)
Accounts payable and accrued liabilities
(63)
(68)
Income taxes payable
18 
10 
Net cash provided by continuing operations
179 
208 
Net cash used for discontinued operations
(1)
Net cash provided by operations
178 
208 
Investing activities:
 
 
Capital expenditures
(27)
(54)
Net cash used for investing activities
(27)
(54)
Financing activities:
 
 
Notes and loans payable, net
84 
(297)
Long-term debt borrowings, net of issuance costs
594 
Treasury stock purchased
(130)
Cash dividends paid
(93)
(83)
Issuance of common stock for employee stock plans and other
11 
28 
Net cash (used for) provided by financing activities
(128)
242 
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
24 
400 
Cash and cash equivalents:
 
 
Beginning of period
299 
267 
End of period
$ 323 
$ 667 
INTERIM FINANCIAL STATEMENTS
INTERIM FINANCIAL STATEMENTS

NOTE 1. INTERIM FINANCIAL STATEMENTS

Basis of Presentation

The unaudited interim condensed consolidated financial statements for the three months ended September 30, 2013 and 2012, 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. The results for the interim period ended September 30, 2013, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2014, or for any other 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 (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, 2013, 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.

INVENTORIES, NET
INVENTORIES, NET

NOTE 2. INVENTORIES, NET

Inventories, net, consisted of the following as of:

  9/30/2013       6/30/2013
Finished goods $      364     $      321  
Raw materials and packaging   120       121  
Work in process   3       3  
LIFO allowances   (39 )     (40 )
Allowances for obsolescence   (9 )     (11 )
Total $ 439     $ 394  
OTHER ASSETS
OTHER ASSETS

NOTE 3. OTHER ASSETS

Investments in Low-Income Housing Partnerships

The Company owns, directly or indirectly, limited partnership interests in low-income housing partnerships, which are accounted for using the equity method of accounting. The Company's investment balance as of both September 30, 2013 and June 30, 2013 was $6. These partnerships are considered to be variable interest entities; however, the Company does not consolidate them because it does not have the power to direct the activities of the partnerships that significantly impact their economic performance. The purpose of the partnerships is to develop and operate low-income housing rental properties. The general partners, who typically hold 1% of the partnership interests, are third parties unrelated to the Company and its affiliates, and are responsible for controlling and managing the business and financial operations of the partnerships. As a limited partner, the Company is not responsible for any of the liabilities and obligations of the partnerships nor do the partnerships or their creditors have any recourse to the Company other than for the capital requirements. All available tax benefits from low-income housing tax credits provided by the partnerships were claimed as of fiscal year 2012. The risk that previously claimed low-income housing tax credits might be recaptured or otherwise retroactively invalidated is considered remote.

OTHER LIABILITIES
OTHER LIABILITIES

NOTE 4. OTHER LIABILITIES

Other liabilities consisted of the following as of:

  9/30/2013       6/30/2013
Employee benefit obligations $      287   $      270
Venture agreement net terminal obligation   286     284
Taxes   76     74
Other   113     114
Total $ 762   $ 742
NET EARNINGS PER SHARE
NET EARNINGS PER SHARE

NOTE 5. NET EARNINGS PER SHARE

The following is the reconciliation of the weighted average number of shares outstanding (in thousands) used to calculate basic net earnings per share (EPS) to those used to calculate diluted net EPS:

  Three Months Ended
  9/30/2013       9/30/2012
Basic 130,074   130,268
Dilutive effect of stock options and other 2,163   1,434
Diluted 132,237   131,702

During the three months ended September 30, 2013, the Company excluded stock options to purchase approximately 1.8 million shares of the Company's common stock in the calculations of diluted net EPS because their exercise price was greater than the average market price, making them anti-dilutive.

During the three months ended September 30, 2012, the Company included all stock options to purchase shares of the Company's common stock in the calculations of diluted net EPS because the average market price of all outstanding grants was greater than the exercise price.

The Company has two share repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $750, all of which was available for share repurchases as of September 30, 2013, and a program to offset the impact of share dilution related to share-based awards (the Evergreen Program), which has no authorization limit as to amount or timing of repurchases.

During the three months ended September 30, 2013 and 2012, the Company repurchased approximately 1.6 million shares and zero shares, respectively, under its Evergreen Program, for an aggregate amount of $130 and $0, respectively. The Company did not repurchase any shares under the open-market purchase program during the three months ended September 30, 2013 and 2012.

COMPREHENSIVE INCOME
COMPREHENSIVE INCOME

NOTE 6. COMPREHENSIVE INCOME

Comprehensive income is defined as net earnings and other changes in stockholders' equity from transactions and other events from sources other than stockholders. Comprehensive income was as follows:

  Three Months Ended
  9/30/2013       9/30/2012
Net earnings $       136     $       133  
Other comprehensive (loss) income:              
       Foreign currency translation adjustments, net of tax of $1 and $3, respectively   4       27  
       Net unrealized losses on derivatives, net of tax of $1 and $1, respectively   (1 )     (1 )
       Pension and postretirement benefit adjustments, net of tax of $2 and $0, respectively   (4 )     1  
Total other comprehensive (loss) income, net of tax   (1 )     27  
Comprehensive income $ 135     $ 160  

On February 5, 2013, the Financial Accounting Standards Board (FASB) issued an update to current accounting standards related to disclosures of reclassifications out of accumulated other comprehensive income. The presentation requirements were adopted by the Company effective July 1, 2013 and are reflected below.

Changes in accumulated other comprehensive net losses by component were as follows:

        Foreign
currency
translation
adjustments
      Net unrealized
losses on
derivatives
      Pension and
postretirement
benefit
adjustments
      Total
Balance as of June 30, 2013, net of tax   $               (209 )   $                 (30 )   $               (128 )   $               (367 )
       Other comprehensive income (loss)                                                                                    
              before reclassifications     4       (1 )     (5 )     (2 )
       Amounts reclassified from accumulated other                                
              comprehensive net losses     -       -       1       1  
Net other comprehensive income (loss)     4       (1 )     (4 )     (1 )
Balance as of September 30, 2013, net of tax   $ (205 )   $ (31 )   $ (132 )   $ (368 )

Pension and postretirement benefit reclassification adjustments are reflected in cost of products sold and selling and administrative expenses.

INCOME TAXES
INCOME TAXES

NOTE 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 from continuing operationswas 34.1% and 31.6% for the three months ended September 30, 2013 and 2012, respectively.

The balance of unrecognized tax benefits as of September 30, 2013 and June 30, 2013, included potential benefits of $58 and $56, respectively, which, if recognized, would affect the effective tax rate on earnings.

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The total balance of accrued interest and penalties related to uncertain tax positions was $9 and $8 as of September 30, 2013 and June 30, 2013, respectively. Interest and penalties included in income tax expense resulted in a net expense of $1 and a net benefit of $6 for the three months ended September 30, 2013 and 2012, respectively.

The Company files income tax returns in U.S. federal and various state, local and foreign jurisdictions. The federal statute of limitations has expired for all tax years through June 30, 2009. Various income tax returns in state and foreign jurisdictions are currently in the process of examination.

RETIREMENT INCOME AND HEALTH CARE BENEFIT PLANS
RETIREMENT INCOME AND HEALTH CARE BENEFIT PLANS

NOTE 8. RETIREMENT INCOME AND HEALTH CARE BENEFIT PLANS

The following table summarizes the components of net periodic benefit cost for the Company's retirement income plans:

  Three Months Ended
  9/30/2013       9/30/2012
Service cost $       1     $       1  
Interest cost   6       6  
Expected return on plan assets   (6 )     (7 )
Amortization of unrecognized items   3       2  
Total $ 4     $ 2  

The net periodic benefit cost for the Company's retirement health care plans was $0 for both the three months ended September 30, 2013 and 2012.

CONTINGENCIES AND GUARANTEES
CONTINGENCIES AND GUARANTEES

NOTE 9. CONTINGENCIES AND GUARANTEES

Contingencies

The Company is involved in certain environmental matters, including response actions at various locations. The Company had a recorded liability of $14 and $13 as of September 30, 2013 and June 30, 2013, respectively, for its share of aggregate future remediation costs related to these matters. One matter in Dickinson County, Michigan, for which the Company is jointly and severally liable, accounted for a substantial majority of the recorded liability as of both September 30, 2013 and June 30, 2013. The Company has agreed to be liable for 24.3% of the aggregate remediation and associated costs for this matter pursuant to a cost-sharing arrangement with a third party. With the assistance of environmental consultants, the Company maintains an undiscounted liability representing its current best estimate of its share of the capital expenditures, maintenance and other costs that may be incurred over an estimated 30-year remediation period. Currently, the Company cannot accurately predict the timing of future payments that may be made under this 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 future availability of alternative clean-up technologies. Although it is reasonably 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.

In October 2012, a Brazilian appellate court issued an adverse decision in a lawsuit pending in Brazil against the Company and one of its wholly owned subsidiaries, The Glad Products Company (Glad). The lawsuit was initially filed in a Brazilian lower court in 2002 by two Brazilian companies and one Uruguayan company (collectively, Petroplus) related to joint venture agreements for the distribution of STP auto-care products in Brazil with three companies that became subsidiaries of the Company as a result of the Company's merger with First Brands Corporation in January 1999 (collectively, Clorox Subsidiaries). The pending lawsuit seeks indemnification for damages and losses for alleged breaches of the joint venture agreements and abuse of economic power by the Company and Glad. Petroplus had previously unsuccessfully raised the same claims and sought damages from the Company and the Clorox Subsidiaries in an International Chamber of Commerce (ICC) arbitration proceeding in Miami filed in 2001. The ICC arbitration panel unanimously ruled against Petroplus in a final decision in November 2003 (Final ICC Arbitration Award). The Final ICC Arbitration Award was ratified by the Superior Court of Justice of Brazil in May 2007 (Foreign Judgment), and the United States District Court for the Southern District of Florida subsequently confirmed the Final ICC Arbitration Award and recognized and adopted the Foreign Judgment as a judgment of the United States District Court for the Southern District of Florida (U.S. Judgment). Despite this, in March 2008, a Brazilian lower court ruled against the Company and Glad in the pending lawsuit and awarded Petroplus R$23 ($13) plus interest. The value of that judgment, including interest and foreign exchange fluctuations as of September 30, 2013, was approximately $35.

Among other defenses, because the Final ICC Arbitration Award, the Foreign Judgment and the U.S. Judgment relate to the same claims as those in the pending lawsuit, the Company believes that Petroplus is precluded from re-litigating these claims. Based on the unfavorable appellate court decision, the Company believes that it is reasonably possible that a loss could be incurred in this matter in excess of amounts accrued, and that the estimated range of such loss in this matter is from $0 to $29. The Company continues to believe that its defenses are meritorious, and has appealed the decision to the highest courts of Brazil, which could take years to resolve. Expenses related to this litigation and any potential additional loss would be reflected in discontinued operations, consistent with the Company's classification of expenses related to its discontinued Brazil operations.

In a separate action filed in 2004 by Petroplus, a lower Brazilian court in January 2013 nullified the Final ICC Arbitration Award. The Company believes this judgment is inconsistent with the Foreign Judgment and the U.S. Judgment and that it is without merit. The Company has appealed this decision.

Glad and the Clorox Subsidiaries have also filed separate lawsuits against Petroplus alleging misuse of the STP trademark and related matters, which are currently pending before Brazilian courts, and have taken other legal actions against Petroplus, which are pending.

The Company is subject to various other lawsuits and claims relating to issues such as contract disputes, product liability, patents and trademarks, advertising, and employee and other matters. Based on management's analysis of these claims and litigation, 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.

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 payments relating to its indemnifications, and believes that any reasonably possible payments would not have a material adverse effect, individually or in the aggregate, on the Company's consolidated financial statements taken as a whole.

As of September 30, 2013, the Company was a party to a letter of credit of $12, related to one of its insurance carriers, of which $0 had been drawn upon.

The Company had not recorded any liabilities on the aforementioned guarantees as of September 30, 2013.

SEGMENT RESULTS
SEGMENT RESULTS

NOTE 10. SEGMENT RESULTS

The Company operates through strategic business units that are aggregated into four reportable segments: Cleaning, Household, Lifestyle and International.

  • Cleaning consists of laundry, home care and professional products marketed and sold in the United States. Products within this segment include laundry additives, including bleach products under the Clorox® brand and Clorox 2® stain fighter and color booster; home care products, primarily under the Clorox®, Formula 409®, Liquid-Plumr®, Pine-Sol®, S.O.S® and Tilex® brands; naturally derived products under the Green Works® brand; and professional cleaning and disinfecting products under the Clorox®, Dispatch®, Aplicare®, HealthLink® and Clorox Healthcare™ 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, water-filtration systems and filters, and natural personal care products marketed and sold in the United States. Products within this segment include dressings and sauces, primarily under the Hidden Valley®, KC Masterpiece® and Soy Vay® brands; water-filtration systems and filters under the Brita® brand; and natural personal care products under the Burt's Bees® and güd® brands.
     
  • International consists of products sold outside the United States. Products within this segment include laundry, home care, water-filtration, charcoal and cat litter products, dressings and sauces, plastic bags, wraps and containers and natural personal care products, primarily under the Clorox®, Javex®, Glad®, PinoLuz®, Ayudin®, Limpido®, Clorinda®, Poett®, Mistolin®, Lestoil®, Bon Bril®, Nevex®, Brita®, Green Works®, Pine-Sol®, Agua Jane®, Chux®, Kingsford®, Fresh Step®, Scoop Away®, Ever Clean®, KC Masterpiece®, Hidden Valley® and Burt's Bees® brands.

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, property and equipment, other investments and deferred taxes.

The table below presents reportable segment information and a reconciliation of the segment information to the Company's consolidated net sales and earnings from continuing operations before income taxes, with amounts that are not allocated to the reportable segments reflected in Corporate.

        Net sales       Earnings (losses) from continuing
operations before income taxes
    Three Months Ended   Three Months Ended
    9/30/2013       9/30/2012   9/30/2013       9/30/2012
Cleaning   $           479   $           472   $             131     $             120  
Household     372     355     52       50  
Lifestyle     218     208     53       56  
International     295     303     28       28  
Corporate     -     -     (56 )     (60 )
Total   $ 1,364   $ 1,338   $ 208     $ 194  

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 26% and 27% for the three months ended September 30, 2013 and 2012, respectively.

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

NOTE 11. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial assets and liabilities carried at fair value in the consolidated balance sheets are required to be classified and disclosed in one of the following three categories:

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

As of September 30, 2013 and June 30, 2013, the Company's financial assets and liabilities that were measured at fair value on a recurring basis during the period included derivative financial instruments, which were all Level 2.

Financial Risk Management and Derivative Instruments

The Company is exposed to certain commodity, interest rate and foreign currency 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 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. Commodity purchase contracts are measured at fair value using market quotations obtained from commodity derivative dealers.

As of September 30, 2013, the notional amount of commodity derivatives was $64, of which $36 related to jet fuel and $28 related to soybean oil. As of June 30, 2013, the notional amount of commodity derivatives was $51, of which $32 related to jet fuel and $19 related to soybean oil.

Interest Rate Risk Management

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

As of both September 30, 2013 and June 30, 2013, there were no outstanding interest rate forward contracts.

Foreign Currency Risk Management

The Company may also enter into certain over-the-counter foreign currency-related derivative contracts to manage a portion of the Company's foreign exchange risk associated with the purchase of inventory and certain intercompany transactions. These foreign currency contracts generally have durations of no longer than 20 months. The foreign exchange contracts are measured at fair value using information quoted by foreign exchange dealers.

The notional amount of outstanding foreign currency forward contracts used by the Company's subsidiaries in Canada, Australia and New Zealand to hedge forecasted purchases of inventory were $12, $27 and $3, respectively, as of September 30, 2013, and $18, $22 and $4, respectively, as of June 30, 2013. The notional amount of outstanding foreign currency forward contracts used by the Company to economically hedge foreign exchange risk associated with certain intercompany transactions was $0 as of both September 30, 2013 and June 30, 2013.

Counterparty Risk Management

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. The $4 and $3 of derivative instruments reflected in liabilities as of September 30, 2013 and June 30, 2013, respectively, contained such terms. As of both September 30, 2013 and June 30, 2013, the Company was not required to post any collateral.

Certain terms of the agreements governing the Company's over-the-counter derivative instruments require the credit ratings, as assigned by Standard & Poor's and Moody's to the Company and its counterparties, to remain at a level equal to or better than the minimum of an investment grade credit rating. If the Company's credit ratings were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. As of both September 30, 2013 and June 30, 2013, the Company and each of its counterparties had been assigned investment grade ratings with both Standard & Poor's and Moody's.

Fair Value of Derivative Instruments

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 an accounting hedge, and, if so, on the type of 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 for forecasted purchases of raw materials, interest rate forward contracts for forecasted interest payments, and foreign currency forward contracts for forecasted purchases of inventory as cash flow hedges. The Company does not designate its foreign currency forward contracts for intercompany transactions as accounting hedges. During the three months ended September 30, 2013 and 2012, the Company had no hedging instruments designated as fair value hedges.

The Company's derivative instruments designated as hedging instruments were recorded at fair value in the condensed consolidated balance sheets as follows:

        Balance sheet classification       9/30/2013       6/30/2013
Assets                
Foreign exchange contracts   Other current assets   $        2   $        4
 
Liabilities                
Commodity purchase contracts   Accrued liabilities   $ 3   $ 3
Commodity purchase contracts   Other liabilities     1     -
        $ 4   $ 3

For derivative instruments designated and qualifying as cash flow hedges, the effective portion of gains or losses 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 loss in OCI as of September 30, 2013, expected to be reclassified into earnings within the next 12 months is $5. Gains and losses on 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, 2013 and 2012, respectively, hedge ineffectiveness was not significant. The Company de-designates 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 OCI for de-designated hedges remains in accumulated OCI 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 not designated as accounting hedges are recorded in other expense, net.

The effects of derivative instruments designated as hedging instruments on OCI and the condensed consolidated statements of earnings and comprehensive income were as follows:

    Three Months Ended
        (Loss) gain recognized in OCI       (Loss) gain reclassified from OCI and
recognized in earnings
    9/30/2013       9/30/2012   9/30/2013       9/30/2012
Commodity purchase contracts   $                   (2 )   $                2     $                   -     $                   -  
Interest rate contracts     -          (1 )     (1 )     (1 )
Foreign exchange contracts     -       (2 )     1       -  
Total   $ (2 )   $ (1 )   $ -     $ (1 )

The gains and losses reclassified from OCI and recognized in earnings during the three months ended September 30, 2013 for commodity purchase contracts and foreign exchange contracts were included in cost of products sold. The losses reclassified from OCI and recognized in earnings during the three months ended September 30, 2013 and 2012 for interest rate contracts were included in interest expense.

The gain from derivatives not designated as accounting hedges was $0 and $1 for the three months ended September 30, 2013 and 2012, respectively, and was reflected in other expense, net.

Other

The carrying values of cash and cash equivalents, accounts receivable, notes and loans payable and accounts payable approximated their fair values as of September 30, 2013 and June 30, 2013, due to their short maturity and nature. The estimated fair value of long-term debt, including current maturities, was $2,252 and $2,263 as of September 30, 2013 and June 30, 2013, respectively. The fair value of long-term debt was determined using secondary market prices quoted by corporate bond dealers, and was classified as Level 2. The Company accounts for its long-term debt at face value, net of any unamortized discounts or premiums.

INTERIM FINANCIAL STATEMENTS (Policy)

Basis of Presentation

The unaudited interim condensed consolidated financial statements for the three months ended September 30, 2013 and 2012, 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. The results for the interim period ended September 30, 2013, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2014, or for any other 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 (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, 2013, 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.

INVENTORIES, NET (Tables)
Schedule of Inventories
  9/30/2013       6/30/2013
Finished goods $      364     $      321  
Raw materials and packaging   120       121  
Work in process   3       3  
LIFO allowances   (39 )     (40 )
Allowances for obsolescence   (9 )     (11 )
Total $ 439     $ 394  
OTHER LIABILITIES (Tables)
Schedule of Other Liabilities
  9/30/2013       6/30/2013
Employee benefit obligations $      287   $      270
Venture agreement net terminal obligation   286     284
Taxes   76     74
Other   113     114
Total $ 762   $ 742
NET EARNINGS PER SHARE (Tables)
Schedule of Weighted Average Number of Shares
  Three Months Ended
  9/30/2013       9/30/2012
Basic 130,074   130,268
Dilutive effect of stock options and other 2,163   1,434
Diluted 132,237   131,702
COMPREHENSIVE INCOME (Tables)
  Three Months Ended
  9/30/2013       9/30/2012
Net earnings $       136     $       133  
Other comprehensive (loss) income:              
       Foreign currency translation adjustments, net of tax of $1 and $3, respectively   4       27  
       Net unrealized losses on derivatives, net of tax of $1 and $1, respectively   (1 )     (1 )
       Pension and postretirement benefit adjustments, net of tax of $2 and $0, respectively   (4 )     1  
Total other comprehensive (loss) income, net of tax   (1 )     27  
Comprehensive income $ 135     $ 160  
        Foreign
currency
translation
adjustments
      Net unrealized
losses on
derivatives
      Pension and
postretirement
benefit
adjustments
      Total
Balance as of June 30, 2013, net of tax   $               (209 )   $                 (30 )   $               (128 )   $               (367 )
       Other comprehensive income (loss)                                                                                    
              before reclassifications     4       (1 )     (5 )     (2 )
       Amounts reclassified from accumulated other                                
              comprehensive net losses     -       -       1       1  
Net other comprehensive income (loss)     4       (1 )     (4 )     (1 )
Balance as of September 30, 2013, net of tax   $ (205 )   $ (31 )   $ (132 )   $ (368 )
RETIREMENT INCOME AND HEALTHCARE BENEFIT PLANS (Tables)
Schedule of Components of Net Periodic Benefit Cost
  Three Months Ended
  9/30/2013       9/30/2012
Service cost $       1     $       1  
Interest cost   6       6  
Expected return on plan assets   (6 )     (7 )
Amortization of unrecognized items   3       2  
Total $ 4     $ 2  
SEGMENT RESULTS (Tables)
Schedule of Segment Reporting Information
        Net sales       Earnings (losses) from continuing
operations before income taxes
    Three Months Ended   Three Months Ended
    9/30/2013       9/30/2012   9/30/2013       9/30/2012
Cleaning   $           479   $           472   $             131     $             120  
Household     372     355     52       50  
Lifestyle     218     208     53       56  
International     295     303     28       28  
Corporate     -     -     (56 )     (60 )
Total   $ 1,364   $ 1,338   $ 208     $ 194  
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Tables)
        Balance sheet classification       9/30/2013       6/30/2013
Assets                
Foreign exchange contracts   Other current assets   $        2   $        4
 
Liabilities                
Commodity purchase contracts   Accrued liabilities   $ 3   $ 3
Commodity purchase contracts   Other liabilities     1     -
        $ 4   $ 3
    Three Months Ended
        (Loss) gain recognized in OCI       (Loss) gain reclassified from OCI and
recognized in earnings
    9/30/2013       9/30/2012   9/30/2013       9/30/2012
Commodity purchase contracts   $                   (2 )   $                2     $                   -     $                   -  
Interest rate contracts     -          (1 )     (1 )     (1 )
Foreign exchange contracts     -       (2 )     1       -  
Total   $ (2 )   $ (1 )   $ -     $ (1 )
INVENTORIES, NET (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2013
Jun. 30, 2013
INVENTORIES, NET [Abstract]
 
 
Finished goods
$ 364 
$ 321 
Raw materials and packaging
120 
121 
Work in process
LIFO allowances
(39)
(40)
Allowances for obsolescence
(9)
(11)
Total
$ 439 
$ 394 
OTHER ASSETS (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2013
Jun. 30, 2013
OTHER ASSETS [Abstract]
 
 
Investment in low-income housing partnerships
$ 6 
$ 6 
OTHER LIABILITIES (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2013
Jun. 30, 2013
OTHER LIABILITIES [Abstract]
 
 
Employee benefit obligations
$ 287 
$ 270 
Venture agreement net terminal obligation
286 
284 
Taxes
76 
74 
Other
113 
114 
Total
$ 762 
$ 742 
NET EARNINGS PER SHARE (Schedule of Weighted Average Number of Shares) (Details)
In Thousands, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
NET EARNINGS PER SHARE [Abstract]
 
 
Basic
130,074 
130,268 
Dilutive effect of stock options and other
2,163 
1,434 
Diluted
132,237 
131,702 
NET EARNINGS PER SHARE (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Net Earnings Per Share [Line Items]
 
 
Stock options excluded from calculation of diluted net EPS
1.8 
 
Open-market program [Member]
 
 
Net Earnings Per Share [Line Items]
 
 
Share repurchase program, remaining authorized repurchase amount
$ 750 
 
Evergreen Program [Member]
 
 
Net Earnings Per Share [Line Items]
 
 
Share repurchase program, shares repurchased
1.6 
Share repurchase program, value of shares repurchased
$ 130 
$ 0 
COMPREHENSIVE INCOME (Schedule of Comprehensive Income) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
COMPREHENSIVE INCOME [Abstract]
 
 
Net earnings
$ 136 
$ 133 
Other comprehensive (loss) income:
 
 
Foreign currency translation adjustments
27 
Net unrealized losses on derivatives
(1)
(1)
Pension and postretirement benefit adjustments
(4)
Total other comprehensive income (loss), net of tax
(1)
27 
Comprehensive income
135 
160 
Other comprehensive (loss) income, tax:
 
 
Foreign currency translation adjustments
Net unrealized losses on derivatives
(1)
(1)
Pension and postretirement benefit adjustments
$ (2)
$ 0 
COMPREHENSIVE INCOME (Schedule of Changes in Accumulated Other Comprehensive Net Losses) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Accumulated Other Comprehensive Income (Loss) [Line Items]
 
 
Beginning balance, net of tax
$ (367)
 
Other comprehensive income (loss) before reclassifications
(2)
 
Amounts reclassified from accumulated other comprehensive net losses
 
Total other comprehensive income (loss), net of tax
(1)
27 
Ending balance, net of tax
(368)
 
Foreign currency translation adjustments [Member]
 
 
Accumulated Other Comprehensive Income (Loss) [Line Items]
 
 
Beginning balance, net of tax
(209)
 
Other comprehensive income (loss) before reclassifications
 
Amounts reclassified from accumulated other comprehensive net losses
 
Total other comprehensive income (loss), net of tax
 
Ending balance, net of tax
(205)
 
Net unrealized losses on derivatives [Member]
 
 
Accumulated Other Comprehensive Income (Loss) [Line Items]
 
 
Beginning balance, net of tax
(30)
 
Other comprehensive income (loss) before reclassifications
(1)
 
Amounts reclassified from accumulated other comprehensive net losses
 
Total other comprehensive income (loss), net of tax
(1)
 
Ending balance, net of tax
(31)
 
Pension and postretirement benefit adjustments [Member]
 
 
Accumulated Other Comprehensive Income (Loss) [Line Items]
 
 
Beginning balance, net of tax
(128)
 
Other comprehensive income (loss) before reclassifications
(5)
 
Amounts reclassified from accumulated other comprehensive net losses
 
Total other comprehensive income (loss), net of tax
(4)
 
Ending balance, net of tax
$ (132)
 
INCOME TAXES (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Jun. 30, 2013
INCOME TAXES [Abstract]
 
 
 
Effective tax rate on earnings
34.10% 
31.60% 
 
Potential unrecognized tax benefits which, if recognized, would affect the effective tax rate on earnings
$ 58 
 
$ 56 
Accrued interest and penalties related to uncertain tax positions
 
Interest and penalties expense (benefit) included in income tax expense
$ 1 
$ (6)
 
RETIREMENT INCOME AND HEALTH CARE BENEFIT PLANS (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Defined Benefit Plans [Line Items]
 
 
Service Cost
$ 1 
$ 1 
Interest Cost
Expected return on plan assets
(6)
(7)
Amortization of unrecognized items
Net periodic benefit cost
Retirement Health Care Plans [Member]
 
 
Defined Benefit Plans [Line Items]
 
 
Net periodic benefit cost
$ 0 
$ 0 
CONTINGENCIES AND GUARANTEES (Details)
In Millions, unless otherwise specified
1 Months Ended 3 Months Ended
Mar. 31, 2008
USD ($)
Mar. 31, 2008
BRL
Sep. 30, 2013
USD ($)
Jun. 30, 2013
USD ($)
CONTINGENCIES AND GUARANTEES [Abstract]
 
 
 
 
Liability for future remediation costs
 
 
$ 14 
$ 13 
Percentage of liability for aggregate remediation and associated costs, other than legal fees
 
 
24.30% 
 
Remediation period
 
 
30 years 
 
Amount awarded to Petroplus
13 
23 
 
 
Current value of judgment
 
 
35 
 
Estimated range of loss in excess of amounts accrued, minimum
 
 
 
Estimated range of loss in excess of amounts accrued, maximum
 
 
29 
 
Letter of credit
 
 
12 
 
Letter of credit, amount outstanding
 
 
$ 0 
 
SEGMENT RESULTS (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Segment Reporting Information [Line Items]
 
 
Net sales
$ 1,364 
$ 1,338 
Earnings (losses) from continuing operations before income taxes
208 
194 
Percentage of consolidated net sales to largest customer
26.00% 
27.00% 
Cleaning [Member]
 
 
Segment Reporting Information [Line Items]
 
 
Net sales
479 
472 
Earnings (losses) from continuing operations before income taxes
131 
120 
Household [Member]
 
 
Segment Reporting Information [Line Items]
 
 
Net sales
372 
355 
Earnings (losses) from continuing operations before income taxes
52 
50 
Lifestyle [Member]
 
 
Segment Reporting Information [Line Items]
 
 
Net sales
218 
208 
Earnings (losses) from continuing operations before income taxes
53 
56 
International [Member]
 
 
Segment Reporting Information [Line Items]
 
 
Net sales
295 
303 
Earnings (losses) from continuing operations before income taxes
28 
28 
Corporate [Member]
 
 
Segment Reporting Information [Line Items]
 
 
Net sales
Earnings (losses) from continuing operations before income taxes
$ (56)
$ (60)
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Jun. 30, 2013
Derivative [Line Items]
 
 
 
Derivative instruments subject to contractually defined counterparty liability position limits
$ 4 
 
$ 3 
Estimated amount of the existing net loss to be reclassified into earnings, in the next 12 months, maximum
 
 
Gain (loss) from derivatives not designated as accounting hedges
 
Estimated fair value of long-term debt
2,252 
 
2,263 
Commodity purchase contracts [Member]
 
 
 
Derivative [Line Items]
 
 
 
Maximum contract duration
18 months 
 
 
Notional amount
64 
 
51 
Interest rate contracts [Member]
 
 
 
Derivative [Line Items]
 
 
 
Maximum contract duration
12 months 
 
 
Foreign exchange contracts [Member]
 
 
 
Derivative [Line Items]
 
 
 
Maximum contract duration
20 months 
 
 
Jet Fuel [Member] |
Commodity purchase contracts [Member]
 
 
 
Derivative [Line Items]
 
 
 
Notional amount
36 
 
32 
Soybean Oil [Member] |
Commodity purchase contracts [Member]
 
 
 
Derivative [Line Items]
 
 
 
Notional amount
28 
 
19 
Canada [Member] |
Foreign exchange contracts [Member]
 
 
 
Derivative [Line Items]
 
 
 
Notional amount
12 
 
18 
Australia [Member] |
Foreign exchange contracts [Member]
 
 
 
Derivative [Line Items]
 
 
 
Notional amount
27 
 
22 
New Zealand [Member] |
Foreign exchange contracts [Member]
 
 
 
Derivative [Line Items]
 
 
 
Notional amount
 
Economic Hedge of Foreign Exchange Risk [Member] |
Foreign exchange contracts [Member]
 
 
 
Derivative [Line Items]
 
 
 
Notional amount
$ 0 
 
$ 0 
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Derivative Instruments Designated as Hedging Instruments Recorded at Fair Value) (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2013
Jun. 30, 2013
Derivative [Line Items]
 
 
Cash flow hedge derivative instrument liabilities, at fair value
$ 4 
$ 3 
Foreign exchange contracts [Member] |
Other current assets [Member]
 
 
Derivative [Line Items]
 
 
Cash flow hedge derivative instrument assets, at fair value
Commodity purchase contracts [Member] |
Accrued liabilities [Member]
 
 
Derivative [Line Items]
 
 
Cash flow hedge derivative instrument liabilities, at fair value
Commodity purchase contracts [Member] |
Other liabilities [Member]
 
 
Derivative [Line Items]
 
 
Cash flow hedge derivative instrument liabilities, at fair value
$ 1 
$ 0 
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Schedule of the Effects of Derivative Instruments Designated as Hedging Instruments) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Derivative Instruments, Gain (Loss) [Line Items]
 
 
(Loss) gain recognized in OCI
$ (2)
$ (1)
(Loss) gain reclassified from OCI and recognized in earnings
(1)
Commodity purchase contracts [Member]
 
 
Derivative Instruments, Gain (Loss) [Line Items]
 
 
(Loss) gain recognized in OCI
(2)
(Loss) gain reclassified from OCI and recognized in earnings
Interest rate contracts [Member]
 
 
Derivative Instruments, Gain (Loss) [Line Items]
 
 
(Loss) gain recognized in OCI
(1)
(Loss) gain reclassified from OCI and recognized in earnings
(1)
(1)
Foreign exchange contracts [Member]
 
 
Derivative Instruments, Gain (Loss) [Line Items]
 
 
(Loss) gain recognized in OCI
(2)
(Loss) gain reclassified from OCI and recognized in earnings
$ 1 
$ 0