The Clorox Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except share and per share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim condensed consolidated financial statements for the three and six months ended December 31, 2017September 30, 2019 and 2016,2018, 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.
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, 2017,2019, which includes a complete set of footnote disclosures, including the Company’s significant accounting policies.
Leases
Effective July 1, 2019, the Company adopted Accounting Standards Codification 842, Leases (ASC 842). Under this guidance, the Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances. Right-of-use (ROU) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date and initial direct costs incurred by the Company and excludes any lease incentives received from the lessor. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option as of the commencement date of the lease, and is reviewed in subsequent periods if a triggering event occurs. As the Company’s leases typically do not contain a readily determinable implicit rate, the Company determines the present value of the lease liability using its incremental borrowing rate at the lease commencement date based on the lease term and the currency of the lease on a collateralized basis. Variable lease payments are expensed as incurred and include certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease, as applicable. The Company elected to combine lease and non-lease components as a single lease component and to exclude short-term leases, defined as leases with initial terms of 12 months or less, from its condensed consolidated balance sheet.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Standards
Recently Issued Accounting Standards not yet adoptedNot Yet Adopted
In AugustJanuary 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which amends the hedge accounting recognition and presentation requirements to better align an entity’s risk management activities with its financial reporting. This standard also simplifies the application of hedge accounting in certain situations. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2020, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires the presentation of the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. This standard also requires that other components of the net periodic benefit cost be presented separately from the line item(s) that includes service costs and outside of any subtotal of operating income, if one is presented, on a retrospective basis. Additionally, the new guidance limits the components that are eligible for capitalization in assets to only the service cost component. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2019. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2021, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
Recently Adopted Accounting Standards
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which amends the hedge accounting recognition and presentation requirements to better align an entity’s risk management activities with its financial reporting. This standard also simplifies the application of hedge accounting in certain situations. The Company adopted this new guidance in the first quarter of fiscal year 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires lessees to recognize a right-of-useROU asset and a lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation will depend on the classification of a lease as either a finance or an operating lease. ASU 2016-02 also requires expanded disclosures about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842), Targeted Improvements,” which provides an optional transition method in applying the new lease standard. Topic 842 can be applied using either a modified retrospective approach at the beginning of the earliest period presented, or, as permitted by ASU 2018-11, at the beginning of the period in which it is adopted. The Company adopted the new guidance is effective for the Company beginningstandard in the first quarter of fiscal year 2020, with early adoption permitted. The Company is currently evaluating the impact that the 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 of the existing U.S. GAAP revenue recognition guidance and is intended to improve and converge with international standards on 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
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, and is expected to be applied on a modified retrospective basis.
Based onbasis using the Company's preliminary assessment,optional transition method, and, accordingly, has not restated comparative periods; fiscal year 2019 balances and related disclosures supporting those comparative period balances continue to be presented under ASC 840, “Leases.” As allowed under the new standard, the Company elected to apply the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. Upon adoption, the Company recorded a cumulative effect adjustment to the opening balance of Retained earnings of $22 related primarily to the remaining deferred gain from the sale-leaseback of the Company’s general office building in Oakland, California. This new standard isdid not expected to have a significantmaterial impact on its annual consolidated financial statements; however, there may be an impact on the Company's financial results in interim periods due to the timing of recognition for certain trade promotion spending. As the Company completes its overall assessment, it is also identifying potential changes to its accounting policies, business processes, systems and controls to align with the new revenue recognition guidance and disclosure requirements.
NOTE 2. DISCONTINUED OPERATIONS
On September 22, 2014, the Company's Venezuela affiliate, Corporación Clorox de Venezuela S.A. (Clorox Venezuela) announced that it was discontinuing its operations, effective immediately, and seeking to sell its assets. Since fiscal year 2012, Clorox Venezuela has been 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 statementsstatement of earnings or the condensed consolidated statement of cash flows. Refer to Note 3 for all periods presented. The results of Clorox Venezuela had historically been part of the International reportable segment.more information.
There were no net sales for each of the three and six months ended December 31, 2017 and 2016, and losses from discontinued operations, net of tax were insignificant for these same periods.
NOTE 3.2. INVENTORIES, NET
Inventories, net, consisted of the following as of: |
| | | | | | | |
| 9/30/2019 | | 6/30/2019 |
Finished goods | $ | 410 |
| | $ | 411 |
|
Raw materials and packaging | 124 |
| | 125 |
|
Work in process | 6 |
| | 6 |
|
LIFO allowances | (36 | ) | | (30 | ) |
Total | $ | 504 |
| | $ | 512 |
|
|
| | | | | | | |
| 12/31/2017 | | 6/30/2017 |
Finished goods | $ | 399 |
| | $ | 363 |
|
Raw materials and packaging | 115 |
| | 119 |
|
Work in process | 6 |
| | 3 |
|
LIFO allowances | (26 | ) | | (26 | ) |
Total | $ | 494 |
| | $ | 459 |
|
NOTE 3. LEASES AND OTHER COMMITMENTS
The Company leases various property, plant, and equipment, including office, warehousing, manufacturing and research and development facilities and equipment. These leases have remaining lease terms of up to 12 years, inclusive of renewal or termination options that the Company is reasonably certain to exercise. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information related to the Company’s leases was as follows:
|
| | | | |
| Balance sheet classification | 9/30/2019 |
Operating leases | | |
Right-of-use assets | Operating lease right-of-use assets | $ | 312 |
|
Current lease liabilities | Current operating lease liabilities | 57 |
|
Non-current lease liabilities | Long-term operating lease liabilities | 290 |
|
Total operating lease liabilities | | $ | 347 |
|
| | |
Finance leases | | |
Right-of-use assets | Other assets | $ | 15 |
|
Current lease liabilities | Accounts payable and accrued liabilities | 2 |
|
Non-current lease liabilities | Other liabilities | 13 |
|
Total finance lease liabilities | | $ | 15 |
|
Components of lease cost were as follows:
|
| | | |
| Three Months Ended |
| 9/30/2019 |
Operating lease cost | $ | 18 |
|
Finance lease cost: | |
Amortization of right-of-use assets | 1 |
|
Interest on lease liabilities | — |
|
Total finance lease cost | $ | 1 |
|
Variable lease cost | $ | 10 |
|
NOTE 3. LEASES AND OTHER COMMITMENTS (Continued)
Supplemental cash flow information and non-cash activity related to the Company’s leases were as follows:
|
| | | |
| Three Months Ended |
| 9/30/2019 |
Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows from operating leases, net | $ | 17 |
|
Operating cash flows from finance leases | — |
|
Financing cash flows from finance leases | 1 |
|
Right-of-use assets obtained in exchange for lease obligations: | |
Operating leases | $ | 11 |
|
Finance leases | 7 |
|
Weighted-average remaining lease term and discount rate for the Company’s leases were as follows:
|
| | |
| 9/30/2019 |
Weighted-average remaining lease term: | |
Operating leases | 8 years |
|
Finance leases | 8 years |
|
Weighted-average discount rate: | |
Operating leases | 2.6 | % |
Finance leases | 3.3 | % |
Maturities of lease liabilities by fiscal year for the Company’s leases as of September 30, 2019 were as follows:
|
| | | | | | | |
Year | Operating leases | | Finance leases |
2020 | $ | 31 |
| | $ | 2 |
|
2021 | 65 |
| | 2 |
|
2022 | 53 |
| | 2 |
|
2023 | 45 |
| | 2 |
|
2024 | 39 |
| | 2 |
|
Thereafter | 155 |
| | 7 |
|
Total lease payments | $ | 388 |
| | $ | 17 |
|
Less: Imputed interest | (41 | ) | | (2 | ) |
Total lease liabilities | $ | 347 |
| | $ | 15 |
|
The future minimum annual lease payments required under the Company’s existing non-cancelable operating and capital lease agreements as of June 30, 2019 prior to the adoption of ASC 842 were as follows:
|
| | | | | | | |
Year | Operating leases | | Capital Leases |
2020 | $ | 71 |
| | $ | 2 |
|
2021 | 65 |
| | 2 |
|
2022 | 50 |
| | 1 |
|
2023 | 42 |
| | 1 |
|
2024 | 37 |
| | 1 |
|
Thereafter | 124 |
| | 2 |
|
Total lease payments | $ | 389 |
| | $ | 9 |
|
NOTE 4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Financial Risk Management and Derivative Instruments
The Company is exposed to certain commodity, foreign currency and interest rate risks related to its ongoing business operations and uses derivative instruments to mitigate its exposure to these risks.
Commodity Price Risk Management
The Company may use commodity exchange traded futures and over-the-counter swap contracts, which are generally no longer than 2 years, to fix the price of a portion of its forecasted raw material requirements. Commodity purchase contracts are measured at fair value using market quotations obtained from the Chicago Board of Trade commodity futures exchange and commodity derivative dealers.
As of December 31, 2017,September 30, 2019, the notional amount of commodity derivatives was $21,$31, of which $11$17 related to soybean oil futures used for the Food products business and $14 related to jet fuel swaps used for the charcoal business and $10 related to soybean oil futures used for the foodCharcoal business. As of June 30, 2017,2019, the notional amount of commodity derivatives was $26,$24, of which $14$13 related to soybean oil futures and $11 related to jet fuel swaps and $12 related to soybean oil futures.swaps.
Foreign Currency Risk Management
The Company may also enter into certain over-the-counter derivative contracts to manage a portion of the Company’s forecasted foreign currency exposure associated with the purchase of inventory. These foreign currency contracts generally have durations of no longer than 2 years. The foreign exchange contracts are measured at fair value using information quoted by foreign exchange dealers.
The notional amounts of outstanding foreign currency forward contracts used by the Company’s subsidiaries to hedge forecasted purchases of inventory were $35$55 and $61, respectively, as of December 31, 2017,September 30, 2019 and $49 as of June 30, 2017.2019.
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 or to manage the Company’s level of fixed and floating 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 December 31, 2017September 30, 2019 and June 30, 2017,2019, the Company had no0 outstanding interest rate forward contracts.
NOTE 4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Commodity, Foreign Exchange and Interest Rate Derivatives
The Company designates its commodity forward and futurefutures contracts for forecasted purchases of raw materials, foreign currency forward contracts for forecasted purchases of inventory, and interest rate forward contracts for forecasted interest payments as cash flow hedges.
The effects of derivative instruments designated as hedging instruments on Other comprehensive income (loss) and Net earnings were as follows:
|
| | | | | | | |
| Gains (losses) recognized in Other comprehensive income |
| Three Months Ended |
| 9/30/2019 | | 9/30/2018 |
Commodity purchase derivative contracts | $ | — |
| | $ | 4 |
|
Foreign exchange derivative contracts | 1 |
| | — |
|
Interest rate derivative contracts | — |
| | — |
|
Total | $ | 1 |
| | $ | 4 |
|
|
| | | | | | | | | | | | | | | |
| Gains (losses) recognized in Other comprehensive income |
| Three Months Ended | | Six Months Ended |
| 12/31/2017 | | 12/31/2016 | | 12/31/2017 | | 12/31/2016 |
Commodity purchase derivative contracts | $ | 1 |
| | $ | 1 |
| | $ | 3 |
| | $ | 1 |
|
Foreign exchange derivative contracts | 1 |
| | 1 |
| | — |
| | 1 |
|
Interest rate derivative contracts | — |
| | — |
| | 2 |
| | — |
|
Total | $ | 2 |
| | $ | 2 |
| | $ | 5 |
| | $ | 2 |
|
|
| | | | | | | | |
| Location of Gains (losses) reclassified from Accumulated other comprehensive net (loss) income into Net earnings | Gains (losses) reclassified from Accumulated other comprehensive net (loss) income and recognized in Net earnings |
| | Three Months Ended |
| | 9/30/2019 | | 9/30/2018 |
Commodity purchase derivative contracts | Cost of products sold | $ | — |
| | $ | 4 |
|
Foreign exchange derivative contracts | Cost of products sold | — |
| | 1 |
|
Interest rate derivative contracts | Interest expense | (2 | ) | | (2 | ) |
Total | | $ | (2 | ) | | $ | 3 |
|
|
| | | | | | | | | | | | | | | |
| Gains (losses) reclassified from Accumulated other comprehensive net (losses) income and recognized in Net earnings |
| Three Months Ended | | Six Months Ended |
| 12/31/2017 | | 12/31/2016 | | 12/31/2017 | | 12/31/2016 |
Commodity purchase derivative contracts | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1 | ) |
Foreign exchange derivative contracts | — |
| | (2 | ) | | (1 | ) | | (3 | ) |
Interest rate derivative contracts | (2 | ) | | (1 | ) | | (4 | ) | | (3 | ) |
Total | $ | (2 | ) | | $ | (3 | ) | | $ | (5 | ) | | $ | (7 | ) |
The gains (losses) reclassified from Accumulated other comprehensive net (losses) income and recognized in Net earnings during the three and six months ended December 31, 2017 and 2016, for commodity purchase and foreign exchange contracts were included in Cost of products sold, and for interest rate contracts were included in Interest expense.
The estimated amount of the existing net gain (loss) in Accumulated other comprehensive net (losses)(loss) income as of December 31, 2017, whichSeptember 30, 2019, that is expected to be reclassified into Net earnings within the next twelve months is $(4)$(7). Gains and losses on derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in Net earnings. During the three and six months ended December 31, 2017 and 2016, hedge ineffectiveness was not significant.
NOTE 4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
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 over-the-counter derivative instruments in liability positions held as of December 31, 2017both September 30, 2019 and June 30, 2017, $0 and2019, $1 respectively, contained such terms. As of December 31, 2017September 30, 2019 and June 30, 2017,2019, 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 of the Company and its counterparties, 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, 2017September 30, 2019 and June 30, 2017,2019, 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, 2017both September 30, 2019 and June 30, 2017,2019, the Company maintained cash margin balances related to exchange-traded futures contracts of $0 and $1, respectively, which are classified as Prepaid expenses and other current assets in the condensed consolidated balance sheets.
Trust Assets
The Company has heldholds interests in mutual funds and cash equivalents as part of the trust assets related to its nonqualified deferred compensation plans. The participants in the nonqualified deferred compensation plans, who are the Company’s current and former employees, may select among certain mutual funds in which to invest their compensation deferrals are invested in accordance with the terms of the plans and within the confines of the trusts, which hold the marketable securities. The trusts represent variable interest entities for which the Company is considered the primary beneficiary, and, therefore, trust assets are consolidated and included in Other assets in the condensed consolidated balance sheets. The interests in mutual funds are measured at fair value using quoted market prices. The Company has designated these marketable securities as trading investments.
Fair Value Measurements
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, 2017September 30, 2019 and June 30, 2017,2019, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis included derivative financial instruments, which were classified as either Level 1 or Level 2, and trust assets to fund the Company’s nonqualified deferred compensation plans, which were classified as Level 1.
NOTE 4. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
All of the Company’s derivative instruments qualify for hedge accounting. The following table summarizesprovides information about the balance sheet classification and the fair valuevalues of the Company’s derivative instruments: |
| | | | | | | | | | | | | | | | | | | |
| | | | | 9/30/2019 | | 6/30/2019 |
| Balance sheet classification | | Fair value hierarchy level | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Assets | | | | | | | | | | | |
Foreign exchange forward contracts | Prepaid expenses and other current assets | | 2 | | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
| | | | | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
|
Liabilities | | | | | | | | | | | |
Commodity purchase futures contracts | Accounts payable and accrued liabilities | | 1 | | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 1 |
|
Commodity purchase swaps contracts | Accounts payable and accrued liabilities | | 2 | | 2 |
| | 2 |
| | 1 |
| | 1 |
|
| | | | | $ | 2 |
| | $ | 2 |
| | $ | 2 |
| | $ | 2 |
|
The following table provides information about the balance sheet classification and the fair values of the Company’s other assets and liabilities for which disclosure of fair value is required:
|
| | | | | | | | | | | | | | | | | | | |
| | | | | 12/31/2017 | | 6/30/2017 |
| Balance sheet classification | | Fair value hierarchy level | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Assets | | | | | | | | | | | |
Investments including money market funds | Cash and cash equivalents (a) | | 1 | | $ | 240 |
| | $ | 240 |
| | $ | 221 |
| | $ | 221 |
|
Time deposits | Cash and cash equivalents (a) | | 2 | | 149 |
| | 149 |
| | 115 |
| | 115 |
|
Commodity purchase swaps contracts | Prepaid expenses and other current assets | | 2 | | 2 |
| | 2 |
| | 1 |
| | 1 |
|
Commodity purchase swaps contracts | Other assets | | 2 | | 1 |
| | 1 |
| | — |
| | — |
|
Trust assets for nonqualified deferred compensation plans | Other assets | | 1 | | 84 |
| | 84 |
| | 72 |
| | 72 |
|
| | | | | $ | 476 |
| | $ | 476 |
| | $ | 409 |
| | $ | 409 |
|
Liabilities | | | | | | | | | | | |
Notes and loans payable | Notes and loans payable (b) | | 2 | | $ | 495 |
| | $ | 495 |
| | $ | 404 |
| | $ | 404 |
|
Commodity purchase swaps contracts | Accounts payable and accrued liabilities | | 2 | | — |
| | — |
| | 1 |
| | 1 |
|
Foreign exchange forward contracts | Accounts payable and accrued liabilities | | 2 | | 1 |
| | 1 |
| | 1 |
| | 1 |
|
Current maturities of long-term debt and Long-term debt | Current maturities of long- term debt and Long-term debt (c) | | 2 | | 1,788 |
| | 1,843 |
| | 1,791 |
| | 1,855 |
|
| | | | | $ | 2,284 |
| | $ | 2,339 |
| | $ | 2,197 |
| | $ | 2,261 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | | | | 9/30/2019 | | 6/30/2019 |
| Balance sheet classification | | Fair value hierarchy level | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Assets | | | | | | | | | | | |
Investments, including money market funds | Cash and cash equivalents (a) | | 1 | | $ | 43 |
| | $ | 43 |
| | $ | 26 |
| | $ | 26 |
|
Time deposits | Cash and cash equivalents (a) | | 2 | | 18 |
| | 18 |
| | 7 |
| | 7 |
|
Trust assets for nonqualified deferred compensation plans | Other assets | | 1 | | 100 |
| | 100 |
| | 96 |
| | 96 |
|
| | | | | $ | 161 |
| | $ | 161 |
| | $ | 129 |
| | $ | 129 |
|
Liabilities | | | | | | | | | | | |
Notes and loans payable | Notes and loans payable (b) | | 2 | | $ | 449 |
| | $ | 449 |
| | $ | 396 |
| | $ | 396 |
|
Current maturities of long-term debt and Long-term debt | Current maturities of long- term debt and Long-term debt (c) | | 2 | | 2,287 |
| | 2,429 |
| | 2,287 |
| | 2,402 |
|
| | | | | $ | 2,736 |
| | $ | 2,878 |
| | $ | 2,683 |
| | $ | 2,798 |
|
____________________
| |
(a) | Cash and 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 and cash equivalents are recorded at cost, which approximates fair value. |
| |
(b) | Notes and loans payable is composed of U.S. commercial paper and/or other similar short-term debt issued by non-U.S. subsidiaries, all of which are recorded at cost, which approximates fair value. |
| |
(c) | Current maturities of long-term debt and Long-term debt are recorded at cost. The fair value of Long-term debt, including current maturities, was determined using secondary market prices quoted by corporate bond dealers, and is classified as Level 2. |
NOTE 5. DEBT
In September 2017, the Company issued $400 of senior notes with an annual fixed interest rate of 3.10% and a maturity date of October 1, 2027 under its existing shelf registration statement filed with the SEC. Interest on the notes is payable semi-annually in April and October. Additionally, the Company entered into, and subsequently terminated, interest rate forward contracts with a notional amount of $200 related to the issuance, which resulted in an insignificant gain to Accumulated other comprehensive net (losses) income. The notes carry an effective interest rate of 3.13%, which includes the impact of amortizing debt issuance costs and the gain on the interest rate forward contracts over the life of the notes. The notes rank equally with all of the Company's existing senior indebtedness.
The proceeds from the debt issuance were used to repay commercial paper in September 2017. In October 2017, the Company used commercial paper borrowings to repay its $400 senior notes with an annual fixed interest rate of 5.95%.
NOTE 6. OTHER LIABILITIES
Other liabilities consisted of the following:
|
| | | | | | | |
| 12/31/2017 | | 6/30/2017 |
Venture agreement terminal obligation, net | $ | 327 |
| | $ | 317 |
|
Employee benefit obligations | 307 |
| | 298 |
|
Taxes | 47 |
| | 42 |
|
Other | 110 |
| | 113 |
|
Total | $ | 791 |
| | $ | 770 |
|
Venture Agreement
The Company has an agreement with The Procter & Gamble Company (P&G) for the Company’s Glad® bags, wraps and containers business. In connection with this agreement, P&G provides research and development (R&D) support to the Glad® business. As of December 31, 2017 and June 30, 2017, P&G had a 20% interest in the venture. The Company pays a royalty to P&G for its interest in the profits, losses and cash flows, as contractually defined, of the Glad® business, which is included in Cost of products sold. In December 2017, the Company and P&G extended the term of the agreement and the related R&D support provided by P&G. The term will now expire in January 2026, unless the parties agree, on or prior to January 31, 2025, to further extend the term of the agreement for another seven years or agree to take some other relevant action. The agreement can be terminated under certain circumstances, including at P&G’s option upon a change in control of the Company or, at either party’s option, upon the sale of the Glad® business by the Company.
Upon termination of the agreement, the Company is required to purchase P&G’s 20% interest for cash at fair value as established by predetermined valuation procedures. As of December 31, 2017 and June 30, 2017, the estimated fair value of P&G’s interest was $630 and $458, respectively, of which $327 and $317, respectively, has been recognized and is reflected in Other liabilities as noted in the table above. The difference between the estimated fair value and the amount recognized, and any future changes in the fair value of P&G’s interest, is charged to Cost of products sold in accordance with the effective interest method over the remaining life of the agreement. Following termination, the Glad® business will retain the exclusive core intellectual property licenses contributed by P&G on a royalty-free basis for the licensed products marketed.
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 operations was (3.1)% and 15.9%21.5% for both the three and six months ended December 31, 2017, respectively,September 30, 2019 and 34.1% and 33.0% for the three and six months ended December 31, 2016, respectively. The decrease in the effective tax rate on earnings from continuing operations for the current three and six month periods was primarily due2018. In comparison to the enactment of The Tax Cuts and Jobs Act (the Tax Act) during the quarter.
The Tax Act was signed into law by the President of the United States on December 22, 2017. The Tax Act makes significant changes to U.S. tax law, and includes a reduction of U.S. corporation statutory income tax rates from 35% to 21% effective January 1, 2018. Under the Tax Act,prior period, the Company is subject to an average federal statutoryhad a reduced benefit from excess tax rate of 28.1% for its fiscal year ending June 30, 2018. The Company’s federal statutorydeductions offset by a greater benefit from reduced tax rate will be 21.0% beginning in July 2018 for the fiscal year ending June 30, 2019. The Tax Act also includes, among other things, a one-time transition tax on accumulated foreign earnings and the adoptionrelease of a modified territorial approach to the taxation of future foreign earnings.uncertain tax positions.
Under U.S. GAAP, deferred taxes must be adjusted for enacted changes in tax laws or rates during the period in which new tax legislation is enacted. As of December 31, 2017, the Company did not have adequate time to thoroughly obtain, prepare and analyze information necessary to finalize the accounting for the impacts of the Tax Act. Consequently, reasonable estimates of the impact of the Tax Act on the Company’s deferred tax balances and one-time transition tax have been reported as provisional, as defined in Staff Accounting Bulletin No. 118.
Based on the provisions of the Tax Act, the Company provisionally remeasured its net deferred tax liabilities to incorporate the future lower corporate tax rate resulting in a $33 reduction to net deferred tax liabilities. In addition, remeasurements specifically related to the reversal of deferred tax liabilities for U.S. tax on foreign unremitted earnings, related deferred foreign tax credits and related unrealized foreign exchange gains and losses, reduced the Company’s net deferred tax liability by a provisional amount of $27. These reductions in the net deferred tax liabilities were recognized as a benefit in the Company’s provision for income taxes in the three and six months ended December 31, 2017. The Company is continuing to analyze certain aspects of the Tax Act and is refining its calculations which could potentially affect the measurements of these balances or potentially give rise to new deferred tax amounts. The total provisional amounts related to the remeasurement of the Company’s deferred tax balances resulted in a $60 beneficial impact.
A provisional, one-time transition tax expense on accumulated foreign earnings, net of applicable foreign tax credits, of $7 was recognized in the Company’s provision for income taxes in the three and six months ended December 31, 2017. This amount may change as the Company continues to finalize the calculation of post-1986 foreign earnings and profits previously deferred from U.S. federal taxation and the amounts held in cash or other specified assets. This amount may also change as new guidance and clarifications are issued by the Internal Revenue Service. The Company anticipates that it will be able to utilize existing foreign tax credit carryforwards to fully offset its one-time transition tax liability.
The impact of the Tax Act in the three and six months ended December 31, 2017 also includes a provisional $28 benefit related to current year taxable income. Taken together, the beneficial impact of the Tax Act totaled $81 for the three and six months ended December 31, 2017 and was due to several provisional adjustments including net deferred tax liability reductions of $60, a beneficial current taxable income impact of $28 and a provisional one-time transition tax of $7.
NOTE 8.6. 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 |
| 9/30/2019 | | 9/30/2018 |
Basic | 125,823 |
| | 127,803 |
|
Dilutive effect of stock options and other | 1,642 |
| | 2,143 |
|
Diluted | 127,465 |
| | 129,946 |
|
| | | |
Antidilutive stock options and other | — |
| | 967 |
|
|
| | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| 12/31/2017 | | 12/31/2016 | | 12/31/2017 | | 12/31/2016 |
Basic | 129,359 | | 128,497 |
| | 129,189 | | 128,973 |
|
Dilutive effect of stock options and other | 2,296 | | 2,278 |
| | 2,370 | | 2,433 |
Diluted | 131,655 | | 130,775 |
| | 131,559 | | 131,406 |
|
| | | | | | | |
Antidilutive stock options and other | 1,223 | | 1,335 |
| | 1,223 | | 39 |
|
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 from share repurchases as of December 31, 2017, and a program to offset the anticipated impact of share dilution related to share-based awards (the Evergreen Program), which has no authorization limit as to amount or timing of repurchases. There were no share repurchases under the open-market purchase program during either of the three and six months ended December 31, 2017 and 2016.
Share repurchases under the Evergreen Program were as follows during the three and six months ended December 31:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| 12/31/2017 | | 12/31/2016 | | 12/31/2017 | | 12/31/2016 |
| Amount | | Shares (in 000's) | | Amount | | Shares (in 000's) | | Amount | | Shares (in 000's) | | Amount | | Shares (in 000's) |
Evergreen Program | $ | 3 |
| | 26 |
| | $ | 70 |
| | 572 |
| | $ | 63 |
| | 476 |
| | $ | 183 |
| | 1,455 |
|
NOTE 9.7. COMPREHENSIVE INCOME
The following table provides a summary of Comprehensive income for the periods indicated:
|
| | | | | | | |
| Three Months Ended |
| 9/30/2019 | | 9/30/2018 |
Net earnings | $ | 203 |
| | $ | 210 |
|
Other comprehensive income (loss), net of tax: | | | |
Foreign currency translation adjustments | (16 | ) | | (2 | ) |
Net unrealized gains (losses) on derivatives | 2 |
| | 1 |
|
Pension and postretirement benefit adjustments | 1 |
| | 1 |
|
Total other comprehensive income (loss), net of tax | (13 | ) | | — |
|
Comprehensive income | $ | 190 |
| | $ | 210 |
|
NOTE 8. STOCKHOLDERS’ EQUITY
Changes in the components of Stockholders’ equity were as follows for the periods indicated: |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| 12/31/2017 | | 12/31/2016 | | 12/31/2017 | | 12/31/2016 |
Earnings from continuing operations | $ | 233 |
| | $ | 150 |
| | $ | 425 |
| | $ | 329 |
|
Earnings (losses) from discontinued operations, net of tax | — |
| | (1 | ) | | — |
| | (1 | ) |
Net earnings | 233 |
| | 149 |
| | 425 |
| | 328 |
|
Other comprehensive income (loss), net of tax: | | | | | | | |
Foreign currency translation adjustments | (4 | ) | | (17 | ) | | 10 |
| | (18 | ) |
Net unrealized gains (losses) on derivatives | 3 |
| | 4 |
| | 8 |
| | 7 |
|
Pension and postretirement benefit adjustments | 1 |
| | 1 |
| | 1 |
| | 2 |
|
Total other comprehensive income (loss), net of tax | — |
| | (12 | ) | | 19 |
| | (9 | ) |
Comprehensive income | $ | 233 |
| | $ | 137 |
| | $ | 444 |
| | $ | 319 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Net (Loss) Income | | Total Stockholders’ Equity |
| Amount | | Shares (in thousands) | | | | Amount | | Shares (in thousands) | | |
Balance as of June 30, 2018 | $ | 159 |
| | 158,741 |
| | $ | 975 |
| | $ | 2,797 |
| | $ | (2,658 | ) | | (30,759 | ) | | $ | (547 | ) | | $ | 726 |
|
Cumulative effect of accounting changes, net of tax (1) | | | | | | | (3 | ) | | | | | | | | (3 | ) |
Net earnings |
|
| |
|
| |
|
| | 210 |
| |
|
| |
|
| |
|
| | 210 |
|
Other comprehensive income (loss) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | — |
| | — |
|
Dividends ($0.96 per share declared) |
|
| |
|
| |
|
| | (123 | ) | |
|
| |
|
| |
|
| | (123 | ) |
Stock-based compensation |
|
| |
|
| | 8 |
| |
|
| |
|
| |
|
| |
|
| | 8 |
|
Other employee stock plan activities |
|
| |
|
| | 1 |
| | 2 |
| | 54 |
| | 1,046 |
| |
|
| | 57 |
|
Treasury stock purchased |
|
| |
|
| |
|
| |
|
| | (198 | ) | | (1,423 | ) | |
|
| | (198 | ) |
Balance as of September 30, 2018 | $ | 159 |
| | 158,741 |
| | $ | 984 |
| | $ | 2,883 |
| | $ | (2,802 | ) | | (31,136 | ) | | $ | (547 | ) | | $ | 677 |
|
| | | | | | | | | | | | | | | |
Balance as of June 30, 2019 | $ | 159 |
| | 158,741 |
| | $ | 1,046 |
| | $ | 3,150 |
| | $ | (3,194 | ) | | (33,055 | ) | | $ | (602 | ) | | $ | 559 |
|
Cumulative effect of accounting changes, net of tax (2) |
|
| |
|
| |
|
| | 22 |
| |
|
| |
|
| |
|
| | 22 |
|
Net earnings |
|
| |
|
| |
|
| | 203 |
| |
|
| |
|
| |
|
| | 203 |
|
Other comprehensive income (loss) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | (13 | ) | | (13 | ) |
Dividends ($1.06 per share declared) |
|
| |
|
| |
|
| | (134 | ) | |
|
| |
|
| |
|
| | (134 | ) |
Stock-based compensation |
|
| |
|
| | 6 |
| |
|
| |
|
| |
|
| |
|
| | 6 |
|
Other employee stock plan activities |
|
| |
|
| | (9 | ) | | — |
| | 20 |
| | 472 |
| |
|
| | 11 |
|
Treasury stock purchased |
|
| |
|
| |
|
| |
|
| | (104 | ) | | (663 | ) | |
|
| | (104 | ) |
Balance as of September 30, 2019 | $ | 159 |
| | 158,741 |
| | $ | 1,043 |
| | $ | 3,241 |
| | $ | (3,278 | ) | | (33,246 | ) | | $ | (615 | ) | | $ | 550 |
|
(1) As a result of adopting ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” on July 1, 2018, the Company recorded a cumulative effect of initially applying the new guidance as an adjustment to the fiscal year 2019 opening balance of Retained earnings.
(2) As a result of adopting ASU No. 2016-02, “Leases (Topic 842),” on July 1, 2019, the Company recorded a cumulative effect of initially applying the new guidance as an adjustment to the fiscal year 2020 opening balance of Retained earnings. See Note 1 for more information.
The Company has 2 stock repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $2,000, which has no expiration date, and a program to offset the anticipated impact of dilution related to stock-based awards (the Evergreen Program), which has 0 authorization limit on the dollar amount and no expiration date.
Stock repurchases under the 2 stock repurchase programs were as follows for the periods indicated:
|
| | | | | | | | | | | | | |
| Three Months Ended |
| 9/30/2019 | | 9/30/2018 |
| Amount | | Shares (in thousands) | | Amount | | Shares (in thousands) |
Open-market purchase program | $ | — |
| | — |
| | $ | 78 |
| | 591 |
|
Evergreen Program | 104 |
| | 663 |
| | 120 |
| | 832 |
|
Total stock repurchases | $ | 104 |
| | 663 |
| | $ | 198 |
| | 1,423 |
|
NOTE 8. STOCKHOLDERS’ EQUITY (Continued)
Changes in Accumulated other comprehensive net (losses)(loss) income by component were as follows for the six months ended December 31:periods indicated:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| Foreign currency translation adjustments | | Net unrealized gains (losses) on derivatives | | Pension and postretirement benefit adjustments | | Accumulated other comprehensive (loss) income |
Balance as of June 30, 2018 | $ | (384 | ) | | $ | (25 | ) | | $ | (138 | ) | | $ | (547 | ) |
Other comprehensive income (loss) before reclassifications | (2 | ) | | 4 |
| | — |
| | 2 |
|
Amounts reclassified from Accumulated other comprehensive net (loss) income | — |
| | (3 | ) | | 2 |
| | (1 | ) |
Income tax benefit (expense) | — |
| | — |
| | (1 | ) | | (1 | ) |
Net current period other comprehensive income (loss) | (2 | ) | | 1 |
| | 1 |
| | — |
|
Balance as of September 30, 2018 | $ | (386 | ) | | $ | (24 | ) | | $ | (137 | ) | | $ | (547 | ) |
| | | | | | | |
Balance as of June 30, 2019 | $ | (414 | ) | | $ | (23 | ) | | $ | (165 | ) | | $ | (602 | ) |
Other comprehensive income (loss) before reclassifications | (15 | ) | | 1 |
| | — |
| | (14 | ) |
Amounts reclassified from Accumulated other comprehensive net (loss) income | — |
| | 2 |
| | 2 |
| | 4 |
|
Income tax benefit (expense), and other | (1 | ) | | (1 | ) | | (1 | ) | | (3 | ) |
Net current period other comprehensive income (loss) | (16 | ) | | 2 |
| | 1 |
| | (13 | ) |
Balance as of September 30, 2019 | $ | (430 | ) | | $ | (21 | ) | | $ | (164 | ) | | $ | (615 | ) |
|
| | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | | Net unrealized gains (losses) on derivatives | | Pension and postretirement benefit adjustments | | Accumulated other comprehensive (losses) income |
Balance as of June 30, 2016 | $ | (353 | ) | | $ | (44 | ) | | $ | (173 | ) | | $ | (570 | ) |
Other comprehensive income (loss) before reclassifications | (20 | ) | | 2 |
| | — |
| | (18 | ) |
Amounts reclassified from Accumulated other comprehensive net losses | — |
| | 7 |
| | 4 |
| | 11 |
|
Income tax benefit (expense) | 2 |
| | (2 | ) | | (2 | ) | | (2 | ) |
Net current period other comprehensive income (loss) | (18 | ) | | 7 |
| | 2 |
| | (9 | ) |
Balance as of December 31, 2016 | $ | (371 | ) | | $ | (37 | ) | | $ | (171 | ) | | $ | (579 | ) |
Balance as of June 30, 2017 | $ | (356 | ) | | $ | (37 | ) | | $ | (150 | ) | | $ | (543 | ) |
Other comprehensive income (loss) before reclassifications | 13 |
| | 5 |
| | — |
| | 18 |
|
Amounts reclassified from Accumulated other comprehensive net losses | — |
| | 5 |
| | 3 |
| | 8 |
|
Income tax benefit (expense) | (3 | ) | | (2 | ) | | (2 | ) | | (7 | ) |
Net current period other comprehensive income (loss) | 10 |
| | 8 |
| | 1 |
| | 19 |
|
Balance as of December 31, 2017 | $ | (346 | ) | | $ | (29 | ) | | $ | (149 | ) | | $ | (524 | ) |
Included in foreign currency translation adjustments are re-measurement losses on long-term intercompany loans where settlement is not planned or anticipated in the foreseeable future. For each of the three and six months ended December 31, 2017,September 30, 2019 and 2018, Other comprehensive income (loss) on these loans totaled $(3) and $(4), respectively. For the three and six months ended December 31, 2016, Other comprehensive income (loss) on these loans totaled $(3)$(2). There were no0 amounts associated with these loans reclassified from Accumulated other comprehensive net (losses)(loss) income for the periods presented.
NOTE 10.9. 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 | Three Months Ended |
| 12/31/2017 | | 12/31/2016 | | 12/31/2017 | | 12/31/2016 | 9/30/2019 | | 9/30/2018 |
Service cost | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
|
Interest cost | 5 |
| | 6 |
| | 11 |
| | 11 |
| 5 |
| | 6 |
|
Expected return on plan assets (1) | (4 | ) | | (5 | ) | | (9 | ) | | (10 | ) | (4 | ) | | (4 | ) |
Amortization of unrecognized items | 2 |
| | 3 |
| | 5 |
| | 6 |
| 2 |
| | 2 |
|
Total | $ | 3 |
| | $ | 4 |
| | $ | 7 |
| | $ | 7 |
| $ | 3 |
| | $ | 4 |
|
(1) The weighted average long-term expected rate of return on plan assets used in computing the fiscal year 20182020 net periodic benefit cost is 4.42%3.9%.
During each of the three and six months ended December 31, 2017,September 30, 2019 and 2018, the Company made $2 and $4 in contributions to theits domestic retirement income plans, respectively. For the three and six months ended December 31, 2016, the Company made $2 and $19plans.
Net periodic benefit costs are reflected in contributions to the domestic retirement income plans, respectively.
Other (income) expense, net.
NOTE 11.10. OTHER CONTINGENCIES AND GUARANTEES
Contingencies
The Company is involved in certain environmental matters, including response actions at various locations. The Company had recorded liabilities totaling $28$27 as of December 31, 2017September 30, 2019 and June 30, 2017,2019, for its share of aggregate future remediation costs related to these matters.
One matter, which accounted for $14 of the recorded liability as of December 31, 2017September 30, 2019 and June 30, 2017,2019, relates to environmental costs associated with one of the Company’s former operations at a site located in Alameda County, California. In November 2016, at the request of regulators and with the assistance of environmental consultants, the Company submitted a Feasibility Study that evaluated various options for managing the site and included estimates of the related costs. As a result, the Company recorded in Other (income) expense, net an undiscounted liability for costs estimated to be incurred over a 30-year period, based on the option recommended in the Feasibility Study. However, as a result of ongoing discussions with regulators, in June 2017, the Company increased its recorded liability to $14, which reflects anticipated costs to implement additional remediation measures at this site. While the Company believes its latest estimate is reasonable, regulators could require the Company to implement one of the other options evaluated in the Feasibility Study, with estimated undiscounted costs of up to $28 over an estimated 30-year period, or require the Company to take other actions and incur costs not included in the study.
Another matter in Dickinson County, Michigan, at the site of one of the Company'sCompany’s former operations for which the Company is jointly and severally liable, accounted for $12$11 of the recorded liability, as of December 31, 2017September 30, 2019 and June 30, 2017.2019. This amount reflects the Company'sCompany’s agreement to be liable for 24.3% of the aggregate remediation and associated costs for this matter pursuant to a cost-sharing arrangement with a third party. With the assistance of environmental consultants, the Company maintains an undiscounted liability representing its current best estimate of its share of the capital expenditures, maintenance and other costs that may be incurred over an estimated 30-year remediation period. Although it is reasonably possible that the Company’s exposure may exceed the amount recorded for the Dickinson County matter, any amount of such additional exposures, or range of exposures, is not estimable at this time. The Company'sCompany’s estimated losses related to these matters are sensitive to a variety of uncertain factors, including the efficacy of any remediation efforts, changes in any remediation requirements, and the future availability of alternative clean-up technologies.
The Company is subject to various legal proceedings, claims and other loss contingencies, including, without limitation, loss contingencies relating to contractual arrangements, product liability, patents and trademarks, advertising, labor and employment, environmental, health and safety and other matters. With respect to these proceedings, claims and other loss contingencies, while considerable uncertainty exists, in the opinion of management at this time, the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, either individually or in the aggregate, on the Company’s condensed consolidated financial statements taken as a whole.
NOTE 11. OTHER CONTINGENCIES AND GUARANTEES (continued)
Guarantees
In conjunction with divestitures and other transactions, the Company may provide typical indemnifications (e.g., indemnifications for representations and warranties and retention of previously existing environmental, tax and employee liabilities) that have terms that vary in duration and in the potential amount of the total obligation and, in many circumstances, are not explicitly defined. The Company has not made, nor does it believe that it is probable that it will make, any material payments relating to its indemnifications, and believes that any reasonably possible payments would not have a material adverse effect, either individually or in the aggregate, on the Company’s condensed consolidated financial statements taken as a whole.
The Company had not recorded any material liabilities on the aforementioned guarantees as of December 31, 2017September 30, 2019 and June 30, 2017.2019.
As of December 31, 2017,September 30, 2019, the Company was a party to lettersa letter of credit of $9 primarily$10, related to one of its insurance carriers, of which $0 had been drawn upon.
NOTE 12.11. SEGMENT RESULTS
The Company operates through strategic business units (SBUs) that are aggregated into four4 reportable segments based on the economics and nature of the products sold: Cleaning, Household, Lifestyle and International.
Certain non-allocated administrative costs, interest income, interest expense and various other non-operating income and expenses are reflected in Corporate. Corporate assets include cash and cash equivalents, prepaid expenses and other current assets, property and equipment, other investments and deferred taxes.
The tabletables below presentspresent 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 |
| 9/30/2019 | | 9/30/2018 |
Cleaning | $ | 562 |
| | $ | 571 |
|
Household | 381 |
| | 442 |
|
Lifestyle | 322 |
| | 309 |
|
International | 241 |
| | 241 |
|
Corporate | — |
| | — |
|
Total | $ | 1,506 |
| | $ | 1,563 |
|
| | | |
| Earnings (losses) before income taxes |
| Three Months Ended |
| 9/30/2019 | | 9/30/2018 |
Cleaning | $ | 178 |
| | $ | 180 |
|
Household | 25 |
| | 59 |
|
Lifestyle | 70 |
| | 62 |
|
International | 39 |
| | 28 |
|
Corporate | (54 | ) | | (61 | ) |
Total | $ | 258 |
| | $ | 268 |
|
|
| | | | | | | | | | | | | | | |
| Net sales |
| Three Months Ended | | Six Months Ended |
| 12/31/2017 | | 12/31/2016 | | 12/31/2017 | | 12/31/2016 |
Cleaning | $ | 472 |
| | $ | 469 |
| | $ | 1,031 |
| | $ | 1,003 |
|
Household | 410 |
| | 421 |
| | 851 |
| | 843 |
|
Lifestyle | 268 |
| | 260 |
| | 514 |
| | 496 |
|
International | 266 |
| | 256 |
| | 520 |
| | 507 |
|
Corporate | — |
| | — |
| | — |
| | — |
|
Total | $ | 1,416 |
| | $ | 1,406 |
| | $ | 2,916 |
| | $ | 2,849 |
|
| | | | | | | |
| Earnings (losses) from continuing operations before income taxes |
| Three Months Ended | | Six Months Ended |
| 12/31/2017 | | 12/31/2016 | | 12/31/2017 | | 12/31/2016 |
Cleaning | $ | 121 |
| | $ | 104 |
| | $ | 293 |
| | $ | 268 |
|
Household | 54 |
| | 71 |
| | 127 |
| | 140 |
|
Lifestyle | 69 |
| | 77 |
| | 133 |
| | 139 |
|
International | 23 |
| | 28 |
| | 46 |
| | 55 |
|
Corporate | (40 | ) | | (53 | ) | | (93 | ) | | (111 | ) |
Total | $ | 227 |
| | $ | 227 |
| | $ | 506 |
| | $ | 491 |
|
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 25% for eachthe three months ended September 30, 2019 and 2018, respectively.
NOTE 11. SEGMENT RESULTS (Continued)
The following table provides Net sales as a percentage of the three and six months ended December 31, 2017 and 2016.
In August 2017, the Company sold the Aplicare business, previously reported in the Cleaning reportable segment. For the fiscal year ended June 30, 2017, the Aplicare business hadCompany’s consolidated net sales of $46for the Company’s SBUs and insignificant net earnings excludingfor the $21 non-cash impairment charge recorded in December 2016.periods indicated:
|
| | | | | | |
| Net sales |
| | Three Months Ended |
| | 9/30/2019 | | 9/30/2018 |
Home care | | 22 | % | | 21 | % |
Laundry | | 10 | % | | 10 | % |
Professional products | | 6 | % | | 6 | % |
Cleaning | | 38 | % | | 37 | % |
Bags, wraps, and containers | | 12 | % | | 13 | % |
Cat litter | | 8 | % | | 7 | % |
Charcoal | | 4 | % | | 6 | % |
Digestive health | | 1 | % | | 2 | % |
Household | | 25 | % | | 28 | % |
Food products | | 9 | % | | 9 | % |
Natural personal care | | 5 | % | | 4 | % |
Water filtration | �� | 4 | % | | 4 | % |
Dietary supplements | | 3 | % | | 3 | % |
Lifestyle | | 21 | % | | 20 | % |
International | | 16 | % | | 15 | % |
Total | | 100 | % | | 100 | % |
.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Clorox Company
(Dollars in millions, except share and per share data)
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of The Clorox Company’s (the Company or Clorox) financial statements with a narrative from the perspective of management on the Company’s financial condition, results of operations, liquidity and certain other factors that may affect future results. The following discussion of the Company’s financial condition and results of operations should be read in conjunction with MD&A and the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017,2019, which was filed with the Securities and Exchange Commission (SEC) on August 15, 2017,14, 2019, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q (this Report). Unless otherwise noted, MD&A compares the three- and six-month periodsthree-month period ended December 31, 2017September 30, 2019 (the current period) to the three- and six-monththree-month period ended December 31, 2016September 30, 2018 (the prior period), with percentage and basis point calculations based on rounded numbers, except for per share data and the effective tax rate.
EXECUTIVE OVERVIEW
Clorox is a leading multinational manufacturer and marketer of consumer and professional products with approximately 8,1008,800 employees worldwide. Clorox sells its products primarily through mass retail outlets andretailers, grocery outlets, warehouse clubs, dollar stores, home hardware centers, drug, pet and military stores, third-party and owned e-commerce channels, military stores and other retail outlets, and medical supply distributors. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products, Pine-Sol® cleaners, Liquid-Plumr® clog removers, Poett® home care products, Fresh Step® cat litter, Glad® bags, wraps and container products,containers, Kingsford® and Match Light® charcoal, RenewLifeHidden Valley® digestive health products, Hidden Valley® dressings and sauces, Brita® water-filtration products, and Burt’s Bees® natural personal care products.products, RenewLife® digestive health products, and Rainbow Light®, Natural Vitality™ and NeoCell® dietary supplements. The Company also markets toindustry-leading products and technologies for professional services channels,customers, including infection control products forthose sold under the healthcare industry withCloroxPro™ and the Clorox Healthcare®brand and commercial cleaning products with Commercial Solutions® brand.names. The Company has operations in more than 25 countries or territories and sells its products in more than 100 markets.
The Company primarily markets its leading brands in midsized categories considered to be financially attractive. Most of the Company’s products compete with other nationally advertised brands within each category and with “private label” brands.
The Company operates through strategic business units (SBUs) that are aggregated into the following four reportable segments based on the economics and nature of the products sold:
| |
• | Cleaning consists of laundry, home care and professional products marketed and sold in the United States. Products within this segment include laundry additives, includingsuch as 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, disinfecting and disinfectingfood service products under the CloroxCloroxPro™, Dispatch®, DispatchClorox Healthcare®, HealthLinkHidden Valley® and KC Masterpiece® and Clorox Healthcare® brands. |
| |
• | Household consists of charcoal, bags, wraps and containers, cat litter, and digestive health products marketed and sold in the United States. Products within this segment include charcoal products under the Kingsford® and Match Light® brands; bags, wraps and containers under the Glad® brand; cat litter products under the Fresh Step®, Scoop Away® and Ever Clean® brands; and digestive health products under the RenewLife® brand. |
| |
• | Lifestyle consists of food products, water-filtration systems and filters, and natural personal care products, and dietary supplements marketed and sold mainly in the United States. Products within this segment include dressings and sauces, primarily under the Hidden Valley®, KC Masterpiece®, Kingsford® and Soy Vay® brands; water-filtration systems and filters under the Brita® brand; and natural personal care products under the Burt’s Bees® brand. brand; and dietary supplements under the Rainbow Light®, Natural Vitality™ and NeoCell® brands. |
| |
• | International consists of products sold outside the United States. Products within this segment include laundry,laundry; home care,care; water-filtration systems and filters; digestive health products, charcoal andproducts; charcoal; cat litter products,products; food products,products; bags, wraps and containers andcontainers; natural personal care productsproducts; and professional cleaning and disinfecting products primarily under the Clorox®, Glad®, PinoLuz®, Ayudin®, Limpido®, Clorinda®, Poett®, Mistolin®, Lestoil®, Bon Bril®, Brita®, Green Works®, Pine-Sol®, Agua Jane®, Chux®, RenewLife®, Kingsford®, Fresh Step®, Scoop Away®, Ever Clean®, KC Masterpiece®, Hidden Valley® and ,Burt’s Bees® brands, CloroxPro™, and Clorox Healthcare® brands. |
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS
Continuing operations
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| 12/31/2017 | | 12/31/2016 | | % Change | | 12/31/2017 | | 12/31/2016 | | % Change |
Net sales | $ | 1,416 |
| | $ | 1,406 |
| | 1 | % | | $ | 2,916 |
| | $ | 2,849 |
| | 2 | % |
|
| | | | | | | | | | |
| Three Months Ended |
| 9/30/2019 | | 9/30/2018 | | % Change |
Net sales | $ | 1,506 |
| | $ | 1,563 |
| | (4 | )% |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| Percentage change versus the year-ago period |
| Reported (GAAP) Net Sales Growth / (Decrease) | Reported Volume | | Acquisitions & Divestitures | Foreign Exchange Impact | Price/Mix/Other (1) | Organic Sales Growth / (Decrease) (Non-GAAP) (2) | Organic Volume (3) |
Cleaning | (2 | )% | 1 | % | | — | % | — | % | (3 | )% | (2 | )% | 1 | % |
Household | (14 | ) | (8 | ) | | — |
| — |
| (6 | ) | (14 | ) | (8 | ) |
Lifestyle | 4 |
| 4 |
| | — |
| — |
| — |
| 4 |
| 4 |
|
International | — |
| 2 |
| | — |
| (8 | ) | 6 |
| 8 |
| 2 |
|
Total | (4 | )% | — | % | | — | % | (2 | )% | (2 | )% | (2 | )% | — | % |
(1) This represents the net impact on net sales growth / (decrease) from pricing actions, mix and other factors.
(2) Organic sales growth / (decrease) is defined as net sales growth / (decrease) excluding the effect of any acquisitions and divestitures as well as changes in foreign exchange rates. See “Non-GAAP Financial Measures” below for reconciliation of organic sales growth / (decrease) to net sales growth, the most directly comparable GAAP financial measure.
(3) Organic volume represents volume excluding the effect of any acquisitions and divestitures.
Net sales in the current quarter increased 1%.decreased by 4%, reflecting lower sales in the Household and Cleaning reportable segments, partially offset by sales growth in the Lifestyle reportable segment. Volume increased 1%,was flat, reflecting higher shipments in the Lifestyle, International and Cleaning and Lifestyle reportable segments. Net sales also included the benefit of price increasessegments, offset by unfavorable mix.
Net sales in the current six-month period increased 2%. Volume increased 3%, reflecting higherlower shipments in the Cleaning, Household and Lifestyle reportable segments. Volume outpacedsegment. The variance between volume and net sales was primarily due to the impact of higher trade promotion spending, unfavorable mix and foreign currency exchange rates, partially offset by the benefit of price increases.
| | | Three Months Ended | | Six Months Ended | Three Months Ended |
| 12/31/2017 | | 12/31/2016 | | % Change | | 12/31/2017 | | 12/31/2016 | | % Change | 9/30/2019 | | 9/30/2018 | | % Change |
Gross profit | 609 |
| | $ | 629 |
| | (3 | )% | | $ | 1,282 |
| | $ | 1,269 |
| | 1 | % | $ | 663 |
| | $ | 678 |
| | (2 | )% |
Gross margin | 43.0 | % | | 44.7 | % | | | | 44.0 | % | | 44.5 | % | | | 44.0 | % | | 43.4 | % | | |
Gross margin, defined as gross profit as a percentage of net sales, decreased 170increased by 60 basis points in the current quarter from 44.7%43.4% to 43.0%44.0%. The decreaseincrease was primarily driven by higher manufacturing, logisticscost savings and commodity costs,the benefit of price increases, partially offset by cost savings.
Gross margin decreased 50 basis points in the current six-month period from 44.5% to 44.0%. The decrease was primarily driven byhigher trade promotion spending and higher manufacturing and logistics and commodity costs, partially offset by cost savings.costs.
| | | Three Months Ended | Three Months Ended |
| | | | | | | % of Net Sales | | | | | | | % of Net Sales |
| 12/31/2017 | | 12/31/2016 | | % Change | | 12/31/2017 | | 12/31/2016 | 9/30/2019 | | 9/30/2018 | | % Change | | 9/30/2019 | | 9/30/2018 |
Selling and administrative expenses | $ | 197 |
| | $ | 197 |
| | — | % | | 13.9 | % | | 14.0 | % | $ | 211 |
| | $ | 212 |
| | — | % | | 14.0 | % | | 13.6 | % |
Advertising costs | 140 |
| | 128 |
| | 9 |
| | 9.9 |
| | 9.1 |
| 137 |
| | 139 |
| | (1 | ) | | 9.1 |
| | 8.9 |
|
Research and development costs | 31 |
| | 32 |
| | (3 | ) | | 2.2 |
| | 2.3 |
| 30 |
| | 32 |
| | (6 | ) | | 2.0 |
| | 2.0 |
|
| | | | | | | | | | |
| Six Months Ended | |
| | | | | | | % of Net Sales | |
| 12/31/2017 | | 12/31/2016 | | % Change | | 12/31/2017 | | 12/31/2016 | |
Selling and administrative expenses | $ | 401 |
| | $ | 397 |
| | 1 | % | | 13.8 | % | | 13.9 | % | |
Advertising costs | 274 |
| | 256 |
| | 7 |
| | 9.4 |
| | 9.0 |
| |
Research and development costs | 63 |
| | 63 |
| | — |
| | 2.2 |
| | 2.2 |
| |
Selling and administrative expensesremained essentially flat in the current three- and six-month periods.
Advertising costs, as a percentage of net sales, increased 80 basis points in the current quarter andby 40 basis points in the current six-month period, primarily due tohowever were relatively flat in terms of dollars.
Advertising costs, as a percentage of net sales, increased investments to support innovation.by 20 basis points in the current period. The Company’s U.S. retail advertising spend as a percentage of net sales was 11%approximately 10% in the current quarter and 10% in the year-ago quarter.period.
Research and development costs remained essentially,as a percentage of net sales, were flat in the current three- and six-month periods.period. The Company continues to focus on product innovation and cost savings.
Interest expense, Other (income) expense, net, and the effective tax rate on earnings | | | Three Months Ended | | Six Months Ended | Three Months Ended |
| 12/31/2017 | | 12/31/2016 | | 12/31/2017 | | 12/31/2016 | 9/30/2019 | | 9/30/2018 |
Interest expense | $ | 20 |
| | $ | 22 |
| | $ | 41 |
| | $ | 44 |
| $ | 25 |
| | $ | 24 |
|
Other (income) expense, net | (6 | ) | | 23 |
| | (3 | ) | | 18 |
| 2 |
| | 3 |
|
Effective tax rate on earnings | (3.1 | )% | | 34.1 | % | | 15.9 | % | | 33.0 | % | 21.5 | % | | 21.5 | % |
Interest expense remained essentially flat in the current three- and six-month periods.
Other (income) expense, net, was $(6) and $(3) in the current three- and six-month periods, respectively, and $23 and $18 in the prior three- and six-month periods, respectively. The change in the current three- and six-month periods was primarily driven by a $21 non-cash impairment charge related to certain assets of the Aplicare business and $9 projected environmental costs associated with the Company’s former operations at a site in Alameda County, California, both of which were recorded in December 2016.
The effective tax rate on earnings from continuing operations was (3.1)% and 15.9%21.5% for both the current three- and six-month periods, respectively, and 34.1% and 33.0% forprior periods. In comparison to prior period, the prior three- and six-month periods, respectively. The decrease for the three- and six-month periods was primarily due to the passage of The Tax Cuts and Jobs Act (the Tax Act) during the current quarter (See Note 7 to the Condensed Consolidated Financial Statements). The major drivers contributing to the decrease in the effective tax rate from 34.1% in the prior three-month period to (3.1%) in the current three-month period were due to several provisional adjustments includingCompany had a $60 benefit related to a reduction in the net deferred tax liability, a $28reduced benefit from the reduction in the statutoryexcess tax rate applied to current taxable income, partiallydeductions offset by $7 for the one-time transition tax.a greater benefit from reduced tax on foreign earnings and release of uncertain tax positions.
Diluted net earnings per share
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| 12/31/2017 | | 12/31/2016 | | % Change | | 12/31/2017 | | 12/31/2016 | | % Change |
Diluted net earnings per share from continuing operations | $ | 1.77 |
| | $ | 1.14 |
| | 55 | % | | $ | 3.23 |
| | $ | 2.51 |
| | 29 | % |
|
| | | | | | | | | | |
| Three Months Ended |
| 9/30/2019 | | 9/30/2018 | | % Change |
Diluted net earnings per share | $ | 1.59 |
| | $ | 1.62 |
| | (2 | )% |
Diluted net earnings per share from continuing operations increased $0.63,(EPS) decreased by $0.03, or 55%2%, in the current quarter,period, primarily driven by a lower effective tax rate due to the passage of the Tax Act in December 2017 (See Note 7 to the Condensed Consolidated Financial Statements)higher trade promotion spending, unfavorable foreign exchange rates and higher net sales,manufacturing and logistics costs, partially offset by lower gross margin.
Diluted net earnings per share from continuing operations increased $0.72, or 29%, in the current six-month period, primarily driven by a lower effective tax rate due to the passagebenefit of the Tax Act in December 2017 (See Note 7 to the Condensed Consolidated Financial Statements)cost savings and higher net sales, partially offset by lower gross margin.
price increases.
DISCONTINUED OPERATIONS
Since the exit of Clorox Venezuela in the first quarter of fiscal year 2015, the Company has recognized $51 in after-tax exit costs and other related expenses within discontinued operations related to the exit of Clorox Venezuela. While the Company may continue to incur costs relating to this exit going forward, the Company does not expect these costs to be significant.
See Notes to the Condensed Consolidated Financial Statements for more information regarding discontinued operations of Clorox Venezuela.
SEGMENT RESULTS FROM CONTINUING OPERATIONS
The following sections presentpresents the results fromof operations offrom the Company’s reportable segments and certain unallocated costs reflected in Corporate:Corporate (see Notes to Condensed Consolidated Financial Statements for a reconciliation of segment results to consolidated results):
Cleaning
| | | Three Months Ended | | Six Months Ended | Three Months Ended |
| 12/31/2017 | | 12/31/2016 | | % Change | | 12/31/2017 | | 12/31/2016 | | % Change | 9/30/2019 | | 9/30/2018 | | % Change |
Net sales | $ | 472 |
| | $ | 469 |
| | 1 | % | | $ | 1,031 |
| | $ | 1,003 |
| | 3 | % | $ | 562 |
| | $ | 571 |
| | (2 | )% |
Earnings from continuing operations before income taxes | 121 |
| | 104 |
| | 16 |
| | 293 |
| | 268 |
| | 9 |
| |
Earnings before income taxes | | 178 |
| | 180 |
| | (1 | ) |
Volume increased by 1%, while net sales and earnings before income taxes decreased by 2% and 1%, respectively, during the current period. The volume increase was driven by higher shipments in Professional Products and Home Care, partially offset by lower shipments in Laundry. The higher shipments of Professional Products were mainly due to continued growth across all categories. The increased shipments in Home Care were primarily driven by Clorox® disinfecting wipes due to incremental merchandising events. The lower shipments in Laundry were primarily driven by the impact of price increases. The variance between volume and net sales was primarily due to unfavorable mix. The decrease in earnings before income taxes was primarily due to lower net sales, partially offset by cost savings.
Household
|
| | | | | | | | | | |
| Three Months Ended |
| 9/30/2019 | | 9/30/2018 | | % Change |
Net sales | $ | 381 |
| | $ | 442 |
| | (14 | )% |
Earnings before income taxes | 25 |
| | 59 |
| | (58 | ) |
Volume, net sales and earnings from continuing operationsbefore income taxes decreased by 8%, 14% and 58%, respectively, during the current period. Volume decreased primarily driven by lower shipments of Glad® bags and wraps mainly due to distribution losses, lower shipments in Charcoal mainly due to lower merchandising support, and lower consumption in RenewLife® digestive health products. The variance between volume and net sales was primarily due to higher trade promotion spending, partially offset by the benefit of price increases. The decrease in earnings before income taxes was mainly due to higher trade promotion spending.
Lifestyle
|
| | | | | | | | | | |
| Three Months Ended |
| 9/30/2019 | | 9/30/2018 | | % Change |
Net sales | $ | 322 |
| | $ | 309 |
| | 4 | % |
Earnings before income taxes | 70 |
| | 62 |
| | 13 |
|
Volume, net sales and earnings before income taxes increased by 2%4%, 1%4% and 16%13%, respectively, induring the current quarter.period. Both volume growth and net sales increased primarily driven by growth were driven primarily by higher shipments in HomeBurt’s Bees® Natural Personal Care mainly due to continued strength in Clorox® disinfecting wipes in the club channelface care and the launch of Scentiva® branded products, partially offsetlip care supported by lower shipments in Professional Products, primarily due to the sale of the Aplicare business in August 2017. Volume outpaced net sales primarily due to unfavorable mix.innovation. The increase in earnings from continuing operations before income taxes in the current quarter was primarily due to the prior year $21 non-cash impairment charge for the Aplicare business. The increase also reflected cost savings and net sales growth, partially offset by higher manufacturing and logistics costs.
Volume, net sales and earnings from continuing operations before income taxes increased by 4%, 3% and 9%, respectively, in the current six-month period. Both volume growth and net sales growth were driven primarily by higher shipments in Home Care, mainly due to continued strength in Clorox® disinfecting wipes in the club channel and the launch of Scentiva® branded products, partially offset by lower shipments in Professional Products, primarily due to the sale of the Aplicare business in August 2017. Volume outpaced net sales primarily due to unfavorable mix. The increase in earnings from continuing operations before income taxes was primarily due to net sales growth, the prior year $21 non-cash impairment charge for the Aplicare business and cost savings, partially offset by higher manufacturing, logistics and commodity costs.trade promotion spending.
HouseholdInternational
| | | Three Months Ended | | Six Months Ended | Three Months Ended |
| 12/31/2017 | | 12/31/2016 | | % Change | | 12/31/2017 | | 12/31/2016 | | % Change | 9/30/2019 | | 9/30/2018 | | % Change |
Net sales | $ | 410 |
| | $ | 421 |
| | (3 | )% | | $ | 851 |
| | $ | 843 |
| | 1 | % | $ | 241 |
| | $ | 241 |
| | — | % |
Earnings from continuing operations before income taxes | 54 |
| | 71 |
| | (24 | ) | | 127 |
| | 140 |
| | (9 | ) | |
Earnings before income taxes | | 39 |
| | 28 |
| | 39 |
|
conducts research and development activities at its owned facility in Buenos Aires, Argentina. Additionally, Clorox Argentina performs marketing, legal, and various other shared service activities to support the Company’s Latin American operations. Clorox Argentina, in turn, benefits from shared service activities performed within other geographic locations, such as information technology support and manufacturing technical assistance.
The Company is closely monitoring developments in Argentina and continues to take steps intended to mitigate the adverse conditions, but there can be no assurances that these actions will be able to mitigate these conditions as they may occur.
Certain non-allocated administrative costs, interest income, interest expense, and various other non-operating income and expenses are reflected in Corporate. Corporate assets include cash and cash equivalents, prepaid expenses and other current assets, property and equipment, other investments, and deferred taxes.
The Company believes it will have the funds necessary to meet its financing requirements and other fixed obligations as they become due based on its working capital requirements, anticipated ability to generate positive cash flows from operations in the future, investment-grade credit ratings, demonstrated access to long-term and short-term credit markets and current borrowing availability under the credit agreements. Additionally, the Company does not believe the one-time transition tax associated with the Tax Act will have any significant liquidity implications since the Company anticipates utilizing existing foreign tax credit carryforwards to fully offset its one-time transition tax liability.agreement.
The following table sets forth the calculation of the Interest Coverage ratio as of December 31, 2017,September 30, 2019, using Consolidated EBITDA for the trailing four quarters, as contractually defined:defined in the credit agreement: