CLOROX CO /DE/, 10-Q filed on 2/4/2016
Quarterly Report
Document and Entity Information
6 Months Ended
Dec. 31, 2015
Jan. 21, 2016
Document and Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Dec. 31, 2015 
 
Entity Registrant Name
CLOROX CO /DE/ 
 
Entity Central Index Key
0000021076 
 
Current Fiscal Year End Date
--06-30 
 
Document Fiscal Period Focus
Q2 
 
Document Fiscal Year Focus
2016 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
129,445,561 
Condensed Consolidated Statements of Earnings and Comprehensive Income (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Condensed Consolidated Statements of Earnings and Comprehensive Income [Abstract]
 
 
 
 
Net sales
$ 1,345 
$ 1,345 
$ 2,735 
$ 2,697 
Cost of products sold
745 
773 
1,510 
1,547 
Gross profit
600 
572 
1,225 
1,150 
Selling and administrative expenses
191 
191 
377 
371 
Advertising costs
126 
127 
249 
248 
Research and development costs
34 
33 
64 
63 
Interest expense
22 
26 
45 
52 
Other (income) expense, net
(3)
(2)
(4)
Earnings from continuing operations before income taxes
230 
197 
494 
415 
Income taxes on continuing operations
79 
69 
170 
142 
Earnings from continuing operations
151 
128 
324 
273 
Losses from discontinued operations, net of tax
(2)
(3)
(3)
(58)
Net earnings
149 
125 
321 
215 
Basic net earnings (losses) per share
 
 
 
 
Continuing operations
$ 1.16 
$ 0.98 
$ 2.50 
$ 2.10 
Discontinued operations
$ (0.01)
$ (0.02)
$ (0.02)
$ (0.44)
Basic net earnings per share
$ 1.15 
$ 0.96 
$ 2.48 
$ 1.66 
Diluted net earnings (losses) per share
 
 
 
 
Continuing operations
$ 1.14 
$ 0.97 
$ 2.46 
$ 2.07 
Discontinued operations
$ (0.01)
$ (0.02)
$ (0.02)
$ (0.44)
Diluted net earnings per share
$ 1.13 
$ 0.95 
$ 2.44 
$ 1.63 
Weighted average shares outstanding (in thousands)
 
 
 
 
Basic
129,543 
130,555 
129,349 
129,933 
Diluted
131,546 
132,819 
131,477 
132,203 
Dividends declared per share
$ 0.77 
$ 0.74 
$ 1.54 
$ 1.48 
Comprehensive income
$ 129 
$ 88 
$ 262 
$ 179 
Condensed Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2015
Jun. 30, 2015
Current assets
 
 
Cash and cash equivalents
$ 390 
$ 382 
Receivables, net
474 
519 
Inventories, net
450 
385 
Other current assets
176 
143 
Total current assets
1,490 
1,429 
Property, plant and equipment, net of accumulated depreciation and amortization of $1,874 and $1,839, respectively
878 
918 
Goodwill
1,051 
1,067 
Trademarks, net
532 
535 
Other intangible assets, net
47 
50 
Other assets
177 
165 
Total assets
4,175 
4,164 
Current liabilities
 
 
Notes and loans payable
500 
95 
Current maturities of long-term debt
300 
Accounts payable
366 
431 
Accrued liabilities
492 
548 
Income taxes payable
31 
Total current liabilities
1,358 
1,405 
Long-term debt
1,796 
1,796 
Other liabilities
740 
750 
Deferred income taxes
83 
95 
Total liabilities
3,977 
4,046 
Commitments and contingencies
   
   
Stockholders' equity
 
 
Preferred stock: $1.00 par value; 5,000,000 shares authorized; none issued or outstanding
Common stock: $1.00 par value; 750,000,000 shares authorized; 158,741,461 shares issued at both December 31, 2015 and June 30, 2015; and 129,357,199 and 128,614,310 shares outstanding at December 31, 2015 and June 30, 2015, respectively
159 
159 
Additional paid-in capital
823 
775 
Retained earnings
2,042 
1,923 
Treasury shares, at cost: 29,384,262 and 30,127,151 shares at December 31, 2015 and June 30, 2015, respectively
(2,265)
(2,237)
Accumulated other comprehensive net loss
(561)
(502)
Stockholders' equity
198 
118 
Total liabilities and stockholders' equity
$ 4,175 
$ 4,164 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Dec. 31, 2015
Jun. 30, 2015
Condensed Consolidated Balance Sheets [Abstract]
 
 
Property, plant and equipment, accumulated depreciation
$ 1,874 
$ 1,839 
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
129,357,199 
128,614,310 
Treasury shares, shares
29,384,262 
30,127,151 
Condensed Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
6 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Operating activities:
 
 
Net earnings
$ 321 
$ 215 
Deduct: Losses from discontinued operations, net of tax
(3)
(58)
Earnings from continuing operations
324 
273 
Adjustments to reconcile earnings from continuing operations to net cash provided by continuing operations:
 
 
Depreciation and amortization
82 
85 
Share-based compensation
22 
Deferred income taxes
(10)
(16)
Settlement of interest rate forward contracts
(25)
Other
(7)
Changes in:
 
 
Receivables, net
28 
60 
Inventories, net
(77)
(78)
Other current assets
(8)
(4)
Accounts payable and accrued liabilities
(99)
(19)
Income taxes payable
(77)
(23)
Net cash provided by continuing operations
178 
267 
Net cash provided by discontinued operations
10 
Net cash provided by operations
185 
277 
Investing activities:
 
 
Capital expenditures
(68)
(60)
Other
12 
Net cash used for investing activities
(56)
(57)
Financing activities:
 
 
Notes and loans payable, net
405 
(141)
Long-term debt borrowing, net of issuance costs
496 
Long-term debt repayments
(300)
Treasury stock purchased
(144)
(8)
Cash dividends paid
(198)
(191)
Issuance of common stock for employee stock plans and other
133 
125 
Net cash (used for) provided by financing activities
(104)
281 
Effect of exchange rate changes on cash and cash equivalents
(17)
(11)
Net increase in cash and cash equivalents
490 
Cash and cash equivalents:
 
 
Beginning of period
382 
329 
End of period
$ 390 
$ 819 
INTERIM FINANCIAL STATEMENTS
INTERIM FINANCIAL STATEMENTS

NOTE 1. INTERIM FINANCIAL STATEMENTS

 

Basis of Presentation

 

The unaudited interim condensed consolidated financial statements for the three and six months ended December 31, 2015 and 2014, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the consolidated results of operations, financial position and cash flows of The Clorox Company and its subsidiaries (the Company) for the periods presented. However, the financial results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.

 

Effective September 22, 2014, the Company's Venezuela affiliate, Corporación Clorox de Venezuela S.A. (Clorox Venezuela), discontinued its operations. Consequently, the Company reclassified the financial results of Clorox Venezuela as a discontinued operation in the condensed consolidated financial statements for all periods presented herein.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) have been omitted or condensed pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). The information in this report should be read in conjunction with the Company's Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 30, 2015, which includes a complete set of footnote disclosures including the Company's significant accounting policies.

 

Recently Issued Accounting Standards

In December 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which requires all deferred tax liabilities and assets to be classified as noncurrent. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2018, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Cost,” which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2017, with early adoption permitted. The Company does not expect the adoption of this guidance will have a significant impact on its consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidation Analysis,” which changes the guidance for evaluating whether to consolidate certain legal entities. The amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2017, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which replaces most existing U.S. GAAP revenue recognition guidance and is intended to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers, including information about significant judgments and changes in judgments. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2019, with the option to early adopt in the first quarter of fiscal year 2018. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.



DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS

NOTE 2. DISCONTINUED OPERATIONS

 

On September 22, 2014, Clorox Venezuela announced that it was discontinuing its operations, effective immediately, and seeking to sell its assets. Since fiscal year 2012, Clorox Venezuela was required to sell more than two thirds of its products at prices frozen by the Venezuelan government. During this same period, Clorox Venezuela experienced successive years of hyperinflation resulting in significant sustained increases in its input costs, including packaging, raw materials, transportation and wages. As a result, Clorox Venezuela had been selling its products at a loss, resulting in ongoing operating losses. Clorox Venezuela repeatedly met with government authorities in an effort to help them understand the rapidly declining state of the business, including the need for immediate, significant and ongoing price increases and other critical remedial actions to address these adverse impacts. Based on the Venezuelan government's representations, Clorox Venezuela had expected significant price increases would be forthcoming much earlier; however, the price increases subsequently approved were insufficient and would have caused Clorox Venezuela to continue operating at a significant loss into the foreseeable future. As such, Clorox Venezuela was no longer financially viable and was forced to discontinue its operations. 

 

On September 26, 2014, the Company reported that Venezuelan Vice President Jorge Arreaza announced, with endorsement by President Nicolás Maduro, that the Venezuelan government had occupied the Santa Lucía and Guacara production facilities of Clorox Venezuela. On November 6, 2014, the Company reported that the Venezuelan government had published a resolution granting a government-sponsored Special Administrative Board full authority to restart and operate the business of Clorox Venezuela, thereby reaffirming the government's expropriation of Clorox Venezuela's assets. Further, President Nicolás Maduro announced the government's intention to facilitate the resumed production of bleach and other cleaning products at Clorox Venezuela plants. He also announced his approval of a financial credit to invest in raw materials and production at the plants. These actions by the Venezuelan government were taken without the consent or involvement of Clorox Venezuela, its parent Clorox Spain S.L. (Clorox Spain) or any of their affiliates. Clorox Venezuela, Clorox Spain and their affiliates reserved their rights under all applicable laws and treaties.

 

With this exit, the financial results of Clorox Venezuela are reflected as discontinued operations in the Company's condensed consolidated financial statements for all periods presented. The results of Clorox Venezuela have historically been part of the International reportable segment.

 

Net sales for Clorox Venezuela were $0 for the three and six months ended December 31, 2015, and $0 and $11 for the three and six months ended December 31, 2014, respectively.

 

The following table provides a summary of losses from discontinued operations for Clorox Venezuela and losses from discontinued operations other than Clorox Venezuela for the periods indicated:

 

      Three Months Ended     Six Months Ended
      12/31/2015   12/31/2014   12/31/2015   12/31/2014
Operating losses from Clorox Venezuela before income taxes       -     -       -     (6)
Exit costs and other related expenses for Clorox Venezuela       (1)     (4)       (1)     (77)
Total losses from Clorox Venezuela before income taxes       (1)     (4)       (1)     (83)
Income tax benefit attributable to Clorox Venezuela       -     1       -     25
Total losses from Clorox Venezuela, net of tax       (1)     (3)       (1)     (58)
Losses from discontinued operations other than Clorox Venezuela, net of tax       (1)     -       (2)     -
Losses from discontinued operations, net of tax     $ (2)   $ (3)     $ (3)   $

(58)

INVENTORIES, NET
INVENTORIES

NOTE 3. INVENTORIES, NET

 

Inventories, net, consisted of the following as of:

 

      12/31/2015   6/30/2015
Finished goods     $ 367     $ 316  
Raw materials and packaging       112       101  
Work in process       3       3  
LIFO allowances       (32)       (35 )
Total     $ 450     $ 385  
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

NOTE 4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

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 2 years, 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 futures exchanges or commodity derivative dealers.

As of December 31, 2015, the notional amount of commodity derivatives was $43, of which $21 related to jet fuel swaps and $22 related to soybean oil futures. As of June 30, 2015, the notional amount of commodity derivatives was $47, of which $27 related to jet fuel swaps and $20 related to soybean oil futures.

Interest Rate Risk Management

The Company may also enter into over-the-counter interest rate derivative instruments to fix a portion of the benchmark interest rate prior to an anticipated issuance of fixed rate debt or to manage the Company's level of fixed and floating rate debt. The interest rate derivative instruments are measured at fair value using information quoted by U.S. government bond dealers.

As of both December 31, 2015 and June 30, 2015, the Company had no interest rate derivative instruments.

Foreign Currency Risk Management

The Company may also enter into certain over-the-counter derivative contracts to manage a portion of the Company's forecasted foreign currency exposure associated with the purchase of inventory. These foreign currency contracts generally have durations of no longer than 2 years. The foreign exchange contracts are measured at fair value using information quoted by foreign exchange dealers.

The notional amount of outstanding foreign currency forward contracts used by the Company's subsidiaries in Canada, Australia and New Zealand were $37, $39 and $7, respectively, as of December 31, 2015, and $64, $35 and $6, respectively, as of June 30, 2015.

Counterparty Risk Management and Derivative Contract Requirements

The Company utilizes a variety of financial institutions as counterparties for over-the counter derivative instruments. The Company enters into agreements governing the use of over-the-counter derivative instruments and sets internal limits on the aggregate over-the-counter derivative instrument positions held with each counterparty. Certain terms of these agreements require the Company or the counterparty to post collateral when the fair value of the derivative instrument exceeds contractually defined counterparty liability position limits. Of the $10 and $8 of the derivative instruments reflected in accrued liabilities and other liabilities as of December 31, 2015 and June 30, 2015, respectively, $9 and $8, respectively, contained such terms. As of both December 31, 2015 and June 30, 2015, neither the Company nor any counterparty was required to post any collateral as no counterparty liability position limits were exceeded.

Certain terms of the agreements governing the Company's over-the-counter derivative instruments require the credit ratings, as assigned by Standard & Poor's and Moody's to the Company and its counterparties, to remain at a level equal to or better than the minimum of an investment grade credit rating. If the Company's credit ratings were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. As of both December 31, 2015 and June 30, 2015, the Company and each of its counterparties had been assigned investment grade credit ratings by both Standard & Poor's and Moody's.

Certain of the Company's exchange-traded futures contracts used for commodity price risk management include requirements for the Company to post collateral in the form of a cash margin account held by the Company's broker for trades conducted on that exchange. As of December 31, 2015 and June 30, 2015, the Company maintained cash margin balances related to exchange-traded futures contracts of $1 and $2, respectively, which are classified as other current assets on the condensed consolidated balance sheets.

Trust Assets

The Company has held interests in mutual funds and cash equivalents as part of trust assets related to certain of its nonqualified deferred compensation plans. These trusts represent variable interest entities for which the Company is considered the primary beneficiary, and therefore, trust assets are consolidated and included in other assets in the condensed consolidated balance sheets. The interests in mutual funds are measured at fair value using quoted market prices. The Company has designated these marketable securities as trading investments. The participants in the deferred compensation plans may select among certain mutual funds in which their compensation deferrals are invested in accordance with the terms of the plans and within the confines of the trusts which hold the marketable securities.

Fair Value Measurements

Financial assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets are required to be classified and disclosed in one of the following three categories of the fair value hierarchy:

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

As of December 31, 2015 and June 30, 2015, the Company's financial assets and liabilities that were measured at fair value on a recurring basis during the applicable periods included derivative financial instruments, which were classified as either Level 1 or Level 2, and trust assets to fund certain of the Company's nonqualified deferred compensation plans, which were classified as Level 1.

The following table summarizes the fair value of the Company's financial assets and liabilities for which disclosure of fair value is required:


    12/31/2015   6/30/2015
Balance sheet
classification
  Fair value
hierarchy
level
  Carrying
Amount
  Estimated
Fair
Value
  Carrying
Amount
  Estimated
Fair
Value
Assets                
Investments including money market funds (a) Cash and cash equivalents   1   $ 234   $ 234   $ 212   $ 212
Time deposits (a) Cash and cash equivalents   2   79   79   84   84
Foreign exchange derivative contracts Other current assets   2   5   5   1   1
Commodity purchase derivative contracts Other current assets   1   1   1   -   -

Trust assets for nonqualified deferred

         

compensation plans

Other assets   1   47   47   38   38
      $ 366   $ 366   $ 335   $ 335
Liabilities            
Notes and loans payable (b) Notes and loans payable   2   $ 500   $ 500   $ 95   $ 95
Commodity purchase derivative contracts Accrued liabilities   1   1   1   -   -
Commodity purchase derivative contracts Accrued liabilities   2   8   8   8   8
Commodity purchase derivative contracts Other liabilities   2   1   1   -   -
Long-term debt (c) Other liabilities   2   1,796   1,848   2,096   2,137
      $ 2,306   $ 2,358   $ 2,199   $ 2,240
____________________


(a)       Cash equivalents are composed of time deposits and other interest bearing investments including money market funds with original maturity dates of 90 days or less. Cash equivalents are recorded at cost, which approximates fair value.
(b) Short-term debt is composed of U.S. commercial paper and/or other similar short-term debts issued by non-U.S. subsidiaries, all of which are recorded at cost, which approximates fair value.
(c) Long-term debt, which is recorded at cost, includes current maturities. The fair value of long-term debt was determined using secondary market prices quoted by corporate bond dealers, and was classified as Level 2.

Commodity, Interest Rate and Foreign Exchange Derivatives

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 effects of derivative instruments designated as hedging instruments on comprehensive income and net earnings were as follows:

Gains (losses) recognized in comprehensive income
Three Months Ended Six Months Ended
12/31/2015 12/31/2014   12/31/2015   12/31/2014
Commodity purchase derivative contracts $ -     $ (10 )   $ (7 )   $ (16 )
Interest rate derivative contracts   -       (9 )     -       (12 )
Foreign exchange derivative contracts   (2 )     1       5       5  
Total $ (2 )   $ (18 )   $ (2 )   $ (23 )
 
  Gains (losses) reclassified from accumulated other comprehensive net loss and
recognized in net earnings
  Three Months Ended   Six Months Ended
  12/31/2015   12/31/2014   12/31/2015   12/31/2014
Commodity purchase derivative contracts $ (3 )   $ -     $ (5 )   $ -  
Interest rate derivative contracts   (1 )     (1 )     (3 )     (3 )
Foreign exchange derivative contracts   (1 )     1       -       -  
Total $ (5 )   $ -     $ (8 )   $ (3 )


The gains (losses) reclassified from accumulated other comprehensive net loss and recognized in net earnings during the three and six months ended December 31, 2015 and 2014, for commodity purchase and foreign exchange contracts were included in cost of products sold. The gains (losses) reclassified from accumulated other comprehensive losses and recognized in net earnings during the three and six months ended December 31, 2015 and 2014, for interest rate contracts were included in interest expense.

The estimated amount of the existing net gain (loss) in accumulated other comprehensive net loss as of December 31, 2015, that is expected to be reclassified into net earnings within the next twelve months is $(12). 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 and six months ended December 31, 2015 and 2014, hedge ineffectiveness was not significant.

DEBT
DEBT

NOTE 5. DEBT

 

In November 2015, $300 of the Company's senior notes with an annual fixed interest rate of 3.55% became due and were repaid using commercial paper borrowings and cash on hand. 

INCOME TAXES
INCOME TAXES

NOTE 6. INCOME TAXES

In determining its quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter. The effective tax rate on earnings from continuing operations was 34.5% for both the current three and six months ended December 31, 2015, and 34.9% and 34.2% for the three and six months ended December 31, 2014.

NET EARNINGS PER SHARE (EPS)
NET EARNINGS PER SHARE (EPS)

NOTE 7. NET EARNINGS PER SHARE (EPS)

 

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

 

  Three Months Ended   Six Months Ended
  12/31/2015   12/31/2014   12/31/2015   12/31/2014
Basic 129,543   130,555    129,349    129,933
Dilutive effect of stock options and other 2,003   2,264   2,128   2,270
Diluted 131,546   132,819   131,477   132,203

During the three and six months ended December 31, 2015, there were no stock options or restricted stock units that were considered antidilutive and excluded from the diluted net EPS calculation. During the three and six months ended December 31, 2014, the number of stock options and restricted stock units that were considered antidilutive and excluded from the diluted net EPS calculation were 0.2 million shares and 0.3 million shares, respectively.

 

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 December 31, 2015, and a program to offset the anticipated impact of share dilution related to share-based awards (the Evergreen Program), which has no specified cap.

 

During the three and six months ended December 31, 2015, the Company repurchased approximately 0.3 million shares and 1.3 million shares, respectively, under its Evergreen Program, for an aggregate cost of $32 and $144, respectively. During the three and six months ended December 31, 2014, the Company repurchased zero shares and approximately 0.1 million shares, respectively, under its Evergreen Program, for an aggregate amount of $0 and $8, respectively. The Company did not repurchase any shares under the open-market purchase program during the three and six months ended December 31, 2015 and 2014.

COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
NOTE 8. COMPREHENSIVE INCOME

Comprehensive income was as follows for the periods indicated:

Three Months Ended Six Months Ended
12/31/2015 12/31/2014   12/31/2015   12/31/2014
Earnings from continuing operations $ 151     $ 128     $ 324     $ 273  
Losses from discontinued operations, net of tax   (2 )     (3 )     (3 )     (58 )
Net earnings   149       125       321       215  
Other comprehensive income (loss), net of tax:                              
       Foreign currency translation adjustments   (24 )     (19 )     (67 )     (19 )
       Net unrealized gains (losses) on derivatives   3       (19 )     6       (20 )
       Pension and postretirement benefit adjustments   1       1       2       3  
Total other comprehensive income (loss), net of tax   (20 )     (37 )     (59 )     (36 )
Comprehensive income $ 129     $ 88     $ 262     $ 179  

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

Three Months Ended Six Months Ended
12/31/2015 12/31/2014   12/31/2015   12/31/2014
Foreign currency adjustments                      
Other comprehensive gains (losses) before reclassifications $ (20 )   $ (22 )   (61 )   $ (55 )
              Reclassificiation of (gains) losses into earnings:                            
                     Recognition of deferred foreign currency translation loss   -       -     -       30  
              Income tax benefit (expense)   (4 )     3     (6 )     6  
       Foreign currency adjustments, net of tax $ (24 )   $ (19 )   (67 )   $ (19 )
 
Net unrealized gains (losses) on derivatives                            
              Other comprehensive gains (losses) before reclassifications $ (2 )   $ (16 )   (2 )   $ (23 )
              Reclassificiation of (gains) losses into earnings   5       -     8       3  
              Income tax benefit (expense)   -       (3 )   -       -  
       Net unrealized gains (losses) on derivatives, net of tax $ 3     $ (19 )   6     $ (20 )
 
Pension and postretirement benefit adjustments                            
              Other comprehensive gains (losses) before reclassifications $ -     $ (1 )   -     $ (1 )
              Reclassificiation of (gains) losses into earnings   2       2     3       4  
              Income tax benefit (expense)   (1 )     -     (1 )     -  
       Pension and postretirement benefit adjustments, net of tax $ 1     $ 1     2     $ 3  
 
Total other comprehensive income (loss), net of tax $ (20 )   $ (37 )   (59 )   $ (36 )

Included in foreign currency adjustments are re-measurement losses on long-term intercompany loans where settlement is not planned or anticipated in the foreseeable future. For the three and six months ended December 31, 2015, other comprehensive net income (loss) on these loans totaled $(6) and $(11). For the three and six months ended December 31, 2014, other comprehensive net income (loss) on these loans totaled $(3) and $(4), respectively. There were no amounts reclassified from accumulated other comprehensive net loss for the periods presented related to long-term intercompany loans where settlement is not planned or anticipated in the foreseeable future.

EMPLOYEE BENEFIT PLANS
RETIREMENT INCOME AND HEALTH CARE BENEFIT PLANS

NOTE 9. EMPLOYEE BENEFIT PLANS

 

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

 

    Three Months Ended   Six Months Ended
    12/31/2015   12/31/2014   12/31/2015   12/31/2014
Service cost   $   -     $   1     $   -     $   1  
Interest cost       6         6         13         12  
Expected return on plan assets       (5 )       (5 )       (9 )       (10 )
Amortization of unrecognized items       3         3         5         6  
Total   $   4     $   5     $   9     $   9  

The net periodic benefit cost for the Company's retirement health care plans was $0 for both the three and six months ended December 31, 2015, and a credit of $1 for both the three and six months ended December 31, 2014.


In the three and six months ended December 31, 2015, the Company made $0 and $15 in discretionary contributions to the domestic qualified retirement income pension plan, respectively.

OTHER CONTINGENCIES AND GUARANTEES
OTHER CONTINGENCIES AND GUARANTEES

NOTE 10. OTHER 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 $13 and $12 as of December 31, 2015 and June 30, 2015, 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 December 31, 2015 and June 30, 2015. 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. 


The Company is subject to various other lawsuits, claims and loss contingencies relating to issues such as contract disputes, product liability, patents and trademarks, advertising, and employee and other matters. Based on management's analysis, 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, either individually or in the aggregate, on the Company's condensed consolidated financial statements taken as a whole.

 

Guarantees

 

In conjunction with divestitures and other transactions, the Company may provide typical indemnifications (e.g., indemnifications for representations and warranties and retention of previously existing environmental, tax and employee liabilities) that have terms that vary in duration and in the potential amount of the total obligation and, in many circumstances, are not explicitly defined. The Company has not made, nor does it believe that it is probable that it will make, any payments relating to its indemnifications, and believes that any reasonably possible payments would not have a material adverse effect, either individually or in the aggregate, on the Company's condensed consolidated financial statements taken as a whole.

 

The Company had not recorded any liabilities on the aforementioned guarantees as of December 31, 2015.

 

As of December 31, 2015, the Company was a party to letters of credit of $10 primarily related to one of its insurance carriers, of which $0 had been drawn upon.


SEGMENT RESULTS
SEGMENT RESULTS

NOTE 11. SEGMENT RESULTS

 

The Company operates through strategic business units that are aggregated into four reportable segments: Cleaning, Household, Lifestyle and International. As a result of Clorox Venezuela being reported as discontinued operations, the results of Clorox Venezuela are no longer included in the International reportable segment.

 

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      
    Three Months Ended   Six Months Ended      
    12/31/2015   12/31/2014   12/31/2015   12/31/2014      
Cleaning   $ 457     $ 447     $ 954     $ 917    
Household     375       371       786       763    
Lifestyle     251       246       482       462    
International     262       281       513       555    
Corporate      -       -       -       -    
Total   $ 1,345     $ 1,345     $ 2,735     $ 2,697    
                                   
    Earnings (losses) from continuing operations before income taxes  
    Three Months Ended   Six Months Ended  
    12/31/2015   12/31/2014   12/31/2015   12/31/2014  
Cleaning   $ 123     $ 107     $ 272     $ 231    
Household     67       51       149       103    
Lifestyle     72       73       131       129    
International     22       24       54       50    
Corporate     (54 )     (58 )     (112 )     (98 )  
Total   $ 230     $ 197     $ 494     $ 415    

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 condensed consolidated net sales, were 26% for each of the three and six months ended December 31, 2015 and 2014.


INTERIM FINANCIAL STATEMENTS (Policy)

Basis of Presentation

 

The unaudited interim condensed consolidated financial statements for the three and six months ended December 31, 2015 and 2014, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the consolidated results of operations, financial position and cash flows of The Clorox Company and its subsidiaries (the Company) for the periods presented. However, the financial results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.

 

Effective September 22, 2014, the Company's Venezuela affiliate, Corporación Clorox de Venezuela S.A. (Clorox Venezuela), discontinued its operations. Consequently, the Company reclassified the financial results of Clorox Venezuela as a discontinued operation in the condensed consolidated financial statements for all periods presented herein.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) have been omitted or condensed pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). The information in this report should be read in conjunction with the Company's Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 30, 2015, which includes a complete set of footnote disclosures including the Company's significant accounting policies.

Recently Issued Accounting Standards

In December 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which requires all deferred tax liabilities and assets to be classified as noncurrent. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2018, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Cost,” which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2017, with early adoption permitted. The Company does not expect the adoption of this guidance will have a significant impact on its consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Amendments to the Consolidation Analysis,” which changes the guidance for evaluating whether to consolidate certain legal entities. The amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2017, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which replaces most existing U.S. GAAP revenue recognition guidance and is intended to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers, including information about significant judgments and changes in judgments. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2019, with the option to early adopt in the first quarter of fiscal year 2018. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.



DISCONTINUED OPERATIONS (Tables)
Summary of net sales and breakdown of losses from discontinued operations
      Three Months Ended     Six Months Ended
      12/31/2015   12/31/2014   12/31/2015   12/31/2014
Operating losses from Clorox Venezuela before income taxes       -     -       -     (6)
Exit costs and other related expenses for Clorox Venezuela       (1)     (4)       (1)     (77)
Total losses from Clorox Venezuela before income taxes       (1)     (4)       (1)     (83)
Income tax benefit attributable to Clorox Venezuela       -     1       -     25
Total losses from Clorox Venezuela, net of tax       (1)     (3)       (1)     (58)
Losses from discontinued operations other than Clorox Venezuela, net of tax       (1)     -       (2)     -
Losses from discontinued operations, net of tax     $ (2)   $ (3)     $ (3)   $

(58)

INVENTORIES, NET (Tables)
Schedule of Inventories
      12/31/2015   6/30/2015
Finished goods     $ 367     $ 316  
Raw materials and packaging       112       101  
Work in process       3       3  
LIFO allowances       (32)       (35 )
Total     $ 450     $ 385  
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Tables)


    12/31/2015   6/30/2015
Balance sheet
classification
  Fair value
hierarchy
level
  Carrying
Amount
  Estimated
Fair
Value
  Carrying
Amount
  Estimated
Fair
Value
Assets                
Investments including money market funds (a) Cash and cash equivalents   1   $ 234   $ 234   $ 212   $ 212
Time deposits (a) Cash and cash equivalents   2   79   79   84   84
Foreign exchange derivative contracts Other current assets   2   5   5   1   1
Commodity purchase derivative contracts Other current assets   1   1   1   -   -

Trust assets for nonqualified deferred

         

compensation plans

Other assets   1   47   47   38   38
      $ 366   $ 366   $ 335   $ 335
Liabilities            
Notes and loans payable (b) Notes and loans payable   2   $ 500   $ 500   $ 95   $ 95
Commodity purchase derivative contracts Accrued liabilities   1   1   1   -   -
Commodity purchase derivative contracts Accrued liabilities   2   8   8   8   8
Commodity purchase derivative contracts Other liabilities   2   1   1   -   -
Long-term debt (c) Other liabilities   2   1,796   1,848   2,096   2,137
      $ 2,306   $ 2,358   $ 2,199   $ 2,240
____________________


(a)       Cash equivalents are composed of time deposits and other interest bearing investments including money market funds with original maturity dates of 90 days or less. Cash equivalents are recorded at cost, which approximates fair value.
(b) Short-term debt is composed of U.S. commercial paper and/or other similar short-term debts issued by non-U.S. subsidiaries, all of which are recorded at cost, which approximates fair value.
(c) Long-term debt, which is recorded at cost, includes current maturities. The fair value of long-term debt was determined using secondary market prices quoted by corporate bond dealers, and was classified as Level 2.
Gains (losses) recognized in comprehensive income
Three Months Ended Six Months Ended
12/31/2015 12/31/2014   12/31/2015   12/31/2014
Commodity purchase derivative contracts $ -     $ (10 )   $ (7 )   $ (16 )
Interest rate derivative contracts   -       (9 )     -       (12 )
Foreign exchange derivative contracts   (2 )     1       5       5  
Total $ (2 )   $ (18 )   $ (2 )   $ (23 )
 
  Gains (losses) reclassified from accumulated other comprehensive net loss and
recognized in net earnings
  Three Months Ended   Six Months Ended
  12/31/2015   12/31/2014   12/31/2015   12/31/2014
Commodity purchase derivative contracts $ (3 )   $ -     $ (5 )   $ -  
Interest rate derivative contracts   (1 )     (1 )     (3 )     (3 )
Foreign exchange derivative contracts   (1 )     1       -       -  
Total $ (5 )   $ -     $ (8 )   $ (3 )
NET EARNINGS PER SHARE (EPS) (Tables)
Schedule of Weighted Average Number of Shares
  Three Months Ended   Six Months Ended
  12/31/2015   12/31/2014   12/31/2015   12/31/2014
Basic 129,543   130,555    129,349    129,933
Dilutive effect of stock options and other 2,003   2,264   2,128   2,270
Diluted 131,546   132,819   131,477   132,203
COMPREHENSIVE INCOME (Tables)
Three Months Ended Six Months Ended
12/31/2015 12/31/2014   12/31/2015   12/31/2014
Earnings from continuing operations $ 151     $ 128     $ 324     $ 273  
Losses from discontinued operations, net of tax   (2 )     (3 )     (3 )     (58 )
Net earnings   149       125       321       215  
Other comprehensive income (loss), net of tax:                              
       Foreign currency translation adjustments   (24 )     (19 )     (67 )     (19 )
       Net unrealized gains (losses) on derivatives   3       (19 )     6       (20 )
       Pension and postretirement benefit adjustments   1       1       2       3  
Total other comprehensive income (loss), net of tax   (20 )     (37 )     (59 )     (36 )
Comprehensive income $ 129     $ 88     $ 262     $ 179  


Three Months Ended Six Months Ended
12/31/2015 12/31/2014   12/31/2015   12/31/2014
Foreign currency adjustments                      
Other comprehensive gains (losses) before reclassifications $ (20 )   $ (22 )   (61 )   $ (55 )
              Reclassificiation of (gains) losses into earnings:                            
                     Recognition of deferred foreign currency translation loss   -       -     -       30  
              Income tax benefit (expense)   (4 )     3     (6 )     6  
       Foreign currency adjustments, net of tax $ (24 )   $ (19 )   (67 )   $ (19 )
 
Net unrealized gains (losses) on derivatives                            
              Other comprehensive gains (losses) before reclassifications $ (2 )   $ (16 )   (2 )   $ (23 )
              Reclassificiation of (gains) losses into earnings   5       -     8       3  
              Income tax benefit (expense)   -       (3 )   -       -  
       Net unrealized gains (losses) on derivatives, net of tax $ 3     $ (19 )   6     $ (20 )
 
Pension and postretirement benefit adjustments                            
              Other comprehensive gains (losses) before reclassifications $ -     $ (1 )   -     $ (1 )
              Reclassificiation of (gains) losses into earnings   2       2     3       4  
              Income tax benefit (expense)   (1 )     -     (1 )     -  
       Pension and postretirement benefit adjustments, net of tax $ 1     $ 1     2     $ 3  
 
Total other comprehensive income (loss), net of tax $ (20 )   $ (37 )   (59 )   $ (36 )
EMPLOYEE BENEFIT PLANS (Tables)
Schedule of Components of Net Periodic Benefit Cost
    Three Months Ended   Six Months Ended
    12/31/2015   12/31/2014   12/31/2015   12/31/2014
Service cost   $   -     $   1     $   -     $   1  
Interest cost       6         6         13         12  
Expected return on plan assets       (5 )       (5 )       (9 )       (10 )
Amortization of unrecognized items       3         3         5         6  
Total   $   4     $   5     $   9     $   9  
SEGMENT RESULTS (Tables)
Schedule of Segment Reporting Information

 

    Net sales      
    Three Months Ended   Six Months Ended      
    12/31/2015   12/31/2014   12/31/2015   12/31/2014      
Cleaning   $ 457     $ 447     $ 954     $ 917    
Household     375       371       786       763    
Lifestyle     251       246       482       462    
International     262       281       513       555    
Corporate      -       -