CLOROX CO /DE/ (CLX) FY 2023 MD&A

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The Clorox Company

(Dollars in millions, except 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. In certain instances, parenthetical references are made to relevant sections of the Notes to Consolidated Financial Statements to direct the reader to a further detailed discussion. This section should be read in conjunction with the Consolidated Financial Statements and Supplementary Data included in this Annual Report on Form 10-K.

The following sections are included herein:

•Executive Overview

•Results of Operations

•Financial Position and Liquidity

•Contingencies

•Quantitative and Qualitative Disclosures about Market Risk

•Recently Issued Accounting Standards

•Critical Accounting Estimates

•Summary of Non-GAAP Financial Measures

EXECUTIVE OVERVIEW

The Clorox Company is a leading multinational manufacturer and marketer of consumer and professional products with fiscal year 2023 net sales of $7,389 and about 8,700 employees worldwide as of June 30, 2023. The Company has operations in approximately 25 countries or territories and sells its products in more than 100 markets, primarily through mass retailers; grocery outlets; warehouse clubs; dollar stores; home hardware centers; drug, pet and military stores; third-party and owned e-commerce channels; and distributors. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning and disinfecting products; Pine-Sol and Tilex cleaners; Liquid-Plumr clog removers; Poett home care products; Glad bags and wraps; Fresh Step cat litter; Kingsford grilling products; Hidden Valley dressings, dips, seasonings and sauces; Burt's Bees natural personal care products; Brita water-filtration products; and Natural Vitality, RenewLife, NeoCell and Rainbow Light vitamins, minerals and supplements. The Company also markets industry-leading products and technologies for professional customers, including those sold under the CloroxPro and Clorox Healthcare brand names.

The Company primarily markets its leading brands in midsized categories considered to be financially attractive. Most of the Company’s products, which can be found in about nine of 10 U.S. homes, compete with other nationally advertised brands within each category and with “private label” brands. About 80% of the Company's sales are generated from brands that hold the No. 1 or No. 2 market share position in their categories.

The Company operates through strategic business units (SBUs) which are organized into operating segments. Operating segments are then aggregated into four reportable segments: Health and Wellness, Household, Lifestyle and International. As of the fourth quarter of fiscal year 2023, the Health and Wellness reportable segment is composed of the Cleaning and Professional Products operating segments. The Vitamins, Minerals and Supplements (VMS) operating segment, previously included in the Health and Wellness reportable segment, is presented within Corporate and Other. All periods presented have been recast to reflect this change. The four reportable segments consist of the following:

•Health and Wellness consists of cleaning, disinfecting and professional products mainly marketed and sold in the United States. Products within this segment include home care cleaning and disinfecting products and laundry additives, primarily under the Clorox, Clorox2, Pine-Sol, Scentiva, Tilex, Liquid-Plumr and Formula 409 brands; professional cleaning and disinfecting products under the CloroxPro and Clorox Healthcare brands; and professional food service products under the Hidden Valley brand.

•Household consists of bags and wraps, cat litter and grilling products marketed and sold in the United States. Products within this segment include bags and wraps under the Glad brand; cat litter primarily under the Fresh Step and Scoop Away brands, and grilling products under the Kingsford brand.

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•Lifestyle consists of food, natural personal care products and water-filtration products marketed and sold in the United States. Products within this segment include dressings, dips, seasonings and sauces, primarily under the Hidden Valley brand; natural personal care products under the Burt’s Bees brand; and water-filtration products under the Brita brand.

•International consists of products sold outside the United States. Products within this segment include laundry additives; home care products; water-filtration products; digestive health products; grilling products; cat litter; food; bags and wraps; natural personal care products; and professional cleaning and disinfecting products marketed primarily under the Clorox, Ayudin, Clorinda, Poett, Pine-Sol, Glad, Brita, RenewLife, Ever Clean and Burt’s Bees brands.

Non-GAAP Financial Measures

This Executive Overview, the succeeding sections of MD&A and Exhibit 99.2 may include certain financial measures that are not defined by accounting principles generally accepted in the United States of America (U.S. GAAP). These measures, which are referred to as non-GAAP measures, are listed below:

•Free cash flow and free cash flow as a percentage of net sales. Free cash flow is calculated as net cash provided by operations less capital expenditures.

•Earnings before interest and income taxes (EBIT) margin (the ratio of EBIT to net sales).

•Adjusted earnings (losses) before interest and income taxes (adjusted EBIT) represents earnings (losses) excluding interest income, interest expense, income taxes and other significant items that are nonrecurring or unusual (such as asset impairments, charges related to the streamlined operating model, charges related to the digital capabilities and productivity enhancements investment, significant losses/(gains) related to acquisitions and other nonrecurring or unusual items impacting comparability).

•Adjusted EBIT margin (the ratio of adjusted EBIT to net sales).

•Economic profit (EP) is defined by the Company as earnings before income taxes, excluding certain U.S. GAAP items (such as asset impairments, charges related to implementation of the streamlined operating model, charges related to digital capabilities and productivity enhancements investment, significant losses/(gains) related to acquisitions and other nonrecurring or unusual items impacting comparability) and interest expense; less income taxes (calculated based on the Company’s effective tax rate excluding the identified U.S. GAAP items), and less after tax profit attributable to noncontrolling interests, and less a capital charge (calculated as average capital employed multiplied by a cost of capital rate).

•Organic sales growth / (decrease) is defined as net sales growth excluding the effect of foreign exchange rate changes and any acquisitions and divestitures.

For a discussion of these measures and the reasons management believes they are useful to investors, refer to “Summary of Non-GAAP Financial Measures” below. To the extent applicable, this MD&A and Exhibit 99.2 include reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP.

Fiscal Year 2023 Financial Highlights

A detailed discussion of strategic goals, key initiatives and results of operations is included below. Key fiscal year 2023 financial results are summarized as follows:

•The Company’s fiscal year 2023 net sales increased by 4% to $7,389 from $7,107 in fiscal year 2022, driven by net sales growth across the Household, Health and Wellness and Lifestyle reportable segments, primarily behind pricing.

•Gross margin increased by 360 basis points to 39.4% in fiscal year 2023 from 35.8% in fiscal year 2022. The increase was primarily driven by the benefit of price increases as well as cost savings, partially offset by unfavorable commodity costs and higher manufacturing and logistics costs.

•The Company reported earnings before income taxes of $238 in fiscal year 2023, compared to $607 in fiscal year 2022. The Company reported earnings attributable to Clorox of $149 in fiscal year 2023, compared to $462 in fiscal year 2022. The decrease was primarily due to the noncash impairment charges on assets related to the VMS business, higher selling and administrative expenses, unfavorable commodity costs, higher manufacturing and logistics costs, costs incurred from the implementation of the streamlined operating model, and advertising investments, partially offset by net sales growth as well as the benefit of cost savings.

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•The Company delivered diluted net earnings per share (EPS) of $1.20 in fiscal year 2023, a decrease of approximately 68%, or $2.53, from fiscal year 2022 diluted net EPS of $3.73. The decrease was mainly due to the decrease in net earnings primarily driven by the noncash impairment charges on assets related to the VMS business.

•EP increased by $115 to $397 in fiscal year 2023, compared to $282 in fiscal year 2022 (refer to the reconciliation of EP to earnings before income taxes in Exhibit 99.2).

•The Company’s net cash provided by operations was $1,158 in fiscal year 2023, compared to $786 in fiscal year 2022. Free cash flow was $930 or 12.6% of net sales in fiscal year 2023, compared to $535 or 7.5% of net sales in fiscal year 2022 (refer to the reconciliation of net cash provided by operations to free cash flow in “Financial Position and Liquidity - Investing - Free Cash Flow”).

•The Company paid $583 in cash dividends to stockholders in fiscal year 2023, compared to $571 in cash dividends in fiscal year 2022. In July 2023, the Company announced an increase of 2% in its quarterly cash dividend from the prior year.

Strategic Goals and Initiatives

The Company's IGNITE strategy — underpinned by its purpose, enduring values and commitment to inclusion, diversity, equity and allyship — accelerates innovation in key areas of the business to drive growth and deliver value for all Clorox stakeholders. Since launching in 2019, IGNITE focuses on four strategic choices aimed at fueling long-term growth; innovating consumer experiences; reimagining how the company and its people work; and continuously evolving the product portfolio. The Company’s long-term financial goals reflected in IGNITE include annual net sales growth of 3% to 5% — increased from 2% to 4% in 2021 — annual adjusted EBIT margin expansion of 25 to 50 basis points and annual free cash flow as a percentage of net sales of 11% to 13%.

Additionally, in August 2021 the Company announced a five-year, $500 strategic investment to accelerate its digital transformation and drive related productivity enhancements. This investment, which began in the first quarter of fiscal year 2022, includes replacement of the Company's enterprise resource planning system as well as the implementation of a suite of other digital technologies. Together, these efforts will generate efficiencies and better position the Company in supply chain, digital commerce, innovation, brand building and more over the long term.

Finally, as announced in August 2022, the Company began implementing in fiscal year 2023 a streamlined operating model that is focused on making the organization more consumer-obsessed, faster and leaner. This new structure prioritizes the Company's business units with a goal of creating more value for all stakeholders, increasing organizational efficiency and moving decision-making to those who are closer to consumers to better anticipate and meet their needs. Once fully implemented in fiscal year 2024, the Company expects annual costs savings of approximately $75 to $100.

Recent Events Affecting the Company

For the fiscal year ended June 30, 2023, the Company continued to experience an inflationary environment marked by persistently unfavorable commodity costs and higher manufacturing and logistics costs. Additionally, the Company is monitoring macroeconomic conditions as a result of increased interest rates and volatility in capital markets. These evolving challenges contributed to a highly dynamic operating environment as the Company continued its efforts to drive growth, rebuild margins and drive its transformation.

While the Company has not experienced significant disruptions in its operations during fiscal year 2023, the risks of future negative impacts due to transportation, logistical or supply constraints and higher commodity costs for certain raw materials remain present, and the Company continues to experience corresponding incremental costs and gross margin pressures. For fiscal year 2024, the Company anticipates the operating environment will remain volatile and challenging. Inflationary headwinds are expected to continue and consumers may feel greater pressure as continued macroeconomic uncertainty impacts spending. The Company will continue to invest in its brands, capabilities and people to deliver consistent, profitable growth over time. The Company announced and began implementing a streamlined operating model in fiscal year 2023 and will continue with its implementation in fiscal year 2024.

The impact of continued inflationary pressures, macroeconomic conditions and geopolitical instability, including the ongoing conflict in Ukraine, rising tensions between China and Taiwan and actual and potential shifts in U.S. and foreign trade, economic and other policies, have increased global macroeconomic and political uncertainty regarding the duration and resolution of the Ukraine conflict, the potential escalation of tensions between China and Taiwan and potential economic and global supply chain disruptions. These factors are difficult to predict considering the rapidly evolving landscape as the Company continues to expect a variable operating environment going forward.

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For further discussion of the possible impacts of inflationary pressures and other recent events on our business, financial conditions and results of operations, see “Risk Factors” in Part I, Item 1A of this Report.

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RESULTS OF OPERATIONS

Unless otherwise noted, MD&A compares results of operations from fiscal year 2023 (the current year) to fiscal year 2022 (the prior year), with percentage and basis point calculations based on rounded numbers, except for per share data and the effective tax rate. All periods presented have been recast to reflect the changes in reportable segments noted above. Discussions of fiscal year 2021 items and year-to-year comparisons between fiscal years 2022 and 2021 that were not impacted by the recast that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Exhibit 99.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended 2022.

CONSOLIDATED RESULTS

(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 and foreign exchange rate changes. See “Summary of Non-GAAP Financial Measures” below for reconciliation of organic sales growth / (decrease) to net sales growth / (decrease), the most directly comparable GAAP financial measure.

(3)Organic volume represents volume excluding the effect of any acquisitions and divestitures.

(4)Total Company includes Corporate and Other.

Net sales in fiscal year 2023 increased by 4%, driven by net sales growth across the Household, Health and Wellness and Lifestyle reportable segments, primarily behind pricing. Volume decreased by 10% versus the prior year primarily due to pricing actions. The variance between volume and net sales was primarily due to the impact of favorable price mix.

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Gross margin increased by 360 basis points in fiscal year 2023 from 35.8% to 39.4%. The increase was primarily driven by the benefit of price increases as well as cost savings, partially offset by unfavorable commodity costs and higher manufacturing and logistics costs.

Expenses

Selling and administrative expenses, as a percentage of net sales, increased by 260 basis points in fiscal year 2023. The increase in selling and administrative expenses was primarily due to higher incentive compensation expense and the Company’s digital capabilities and productivity enhancements investment. See Summary of Non-GAAP Financial Measures for further information regarding this investment.

Advertising costs, as a percentage of net sales, were essentially flat in the current year versus the prior year. The Company continues to support its brands. The Company’s U.S. retail advertising spend as a percentage of net sales was 11% for fiscal year 2023 and 10% for fiscal year 2022, respectively.

Research and development costs, as a percentage of net sales, were essentially flat in the current year as compared to the prior year. The Company continues to invest behind product innovation and cost savings.

Goodwill, trademark and other asset impairments, Interest expense, Other expense (income), net and Effective tax rate on earnings

Goodwill, trademark and other asset impairments of $445 in fiscal year 2023 reflect noncash impairment charges to goodwill and certain indefinite-lived trademarks related to the VMS business. See Notes to Consolidated Financial Statements for further information regarding the impairments recorded.

Interest expense was $90 and $106 in fiscal year 2023 and fiscal year 2022, respectively. The decrease in the current year interest expense was primarily due to a loss on the early extinguishment of debt in the prior year. See Notes to Consolidated Financial Statements for further information regarding the loss on the early extinguishment of debt recorded.

Other expense (income), net was $80 and $37 in fiscal year 2023 and fiscal year 2022, respectively. The variance was primarily due to restructuring and related implementation costs associated with the streamlined operating model incurred in the current year.

Restructuring and related costs

In the first quarter of fiscal year 2023, the Company began recognizing costs related to a plan that involves streamlining its operating model to meet its objectives of driving growth and productivity. The streamlined operating model is expected to enhance the Company’s ability to respond more quickly to changing consumer behaviors and innovate faster. The Company anticipates the implementation of this new model will be completed in fiscal year 2024, with different phases occurring throughout the implementation period.

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Once fully implemented, the Company expects annual cost savings to be approximately $75 to $100, with benefits of approximately $35 realized in fiscal year 2023. The benefits of the streamlined operating model are currently expected to increase future cash flows as a result of cost savings that will be generated primarily in the areas of selling and administration, supply chain, marketing and research and development.

The Company incurred $60 of costs in fiscal year 2023 and anticipates incurring approximately $30 to $40 in fiscal year 2024 related to this initiative, approximately half of which are expected to include employee-related costs to reduce certain staffing levels such as severance payments, with the remainder for consulting and other costs. Costs incurred are expected to be settled primarily in cash.

Of the restructuring and implementation related costs, net incurred in fiscal year 2023, $41 was related to employee-related costs and $19 was related to other costs. For further details on the streamlined operating model and restructuring, refer to the Notes to Consolidated Financial Statements.

The effective tax rate on earnings was 32.4% and 22.4% in fiscal year 2023 and 2022, respectively. The higher tax rate in fiscal year 2023 compared to fiscal year 2022 was driven by lower pre-tax income due to the VMS impairment charges and the non-deductibility of a portion of those charges.

Diluted net earnings per share

Diluted net earnings per share (EPS) decreased by $2.53, or 68%, in fiscal year 2023, primarily due to the noncash impairment charges on assets related to the VMS business, higher selling and administrative expenses, unfavorable commodity costs, higher manufacturing and logistics costs, costs incurred from the implementation of the streamlined operating model, and advertising investments, partially offset by net sales growth as well as the benefit of cost savings.

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SEGMENT RESULTS

Certain data from prior periods presented have been recast to reflect the changes in reportable segments noted above, and in connection with this change, Corporate was renamed Corporate and Other. Additionally, beginning in the fourth quarter of fiscal year 2023, management changed its measurement of segment profitability disclosed to segment adjusted EBIT. The following presents the results of the Company’s reportable segments and Corporate and Other:

(1)See “Summary of Non-GAAP Financial Measures” below for reconciliation of segment adjusted EBIT to earnings (losses) before income taxes, the most directly comparable GAAP financial measure.

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Health and Wellness

Fiscal year 2023 versus fiscal year 2022: Net sales and segment adjusted EBIT increased by 4% and 56%, respectively, and volume decreased by 16% during fiscal year 2023. The volume decrease was primarily due to pricing actions, partially offset by strong consumption supported by supply chain improvements, mainly in Cleaning. The variance between volume and net sales was primarily due to the benefit of price increases. The increase in segment adjusted EBIT in the current period was primarily due to net sales growth primarily behind pricing, as well as the benefit of cost savings, partially offset by unfavorable commodity costs.

Fiscal year 2022 versus fiscal year 2021: Volume, net sales and segment adjusted EBIT decreased by 9%, 10% and 49%, respectively, during fiscal year 2022. The volume and net sales decreases were primarily due to lower shipments in the Professional Products portfolio due to higher COVID-19 related demand in fiscal year 2021. The decrease in segment adjusted EBIT in fiscal year 2022 was primarily due to higher manufacturing and logistics costs, lower net sales and unfavorable commodity costs, partially offset by lower advertising spending and cost savings.

Household

Fiscal year 2023 versus fiscal year 2022: Net sales and segment adjusted EBIT increased by 6% and 32%, respectively, and volume decreased by 7% in fiscal year 2023. The volume decrease was primarily driven by lower shipments across all SBUs due to pricing actions, partially offset by merchandising and innovation, mainly in Litter and Glad. The variance between volume and net sales was primarily due to the benefit of price increases. The increase in segment adjusted EBIT was mainly due to net sales growth primarily behind pricing as well as the benefit of cost savings, partially offset by higher manufacturing and logistics costs, unfavorable commodity costs and advertising investments.

Fiscal year 2022 versus fiscal year 2021: Volume and segment adjusted EBIT decreased by 3% and 38%, respectively, and net sales were flat during fiscal year 2022. The volume decrease was primarily driven by lower shipments in Grilling due to higher demand in fiscal year 2021 and impacts from pricing actions in fiscal year 2022. The decrease in segment adjusted EBIT was mainly due to unfavorable commodity costs and higher manufacturing and logistics costs, partially offset by cost saving efforts and the benefits from pricing and lower trade spending.

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Lifestyle

Fiscal year 2023 versus fiscal year 2022: Net sales and segment adjusted EBIT increased by 7% and 1%, respectively, while volume decreased by 4% during fiscal year 2023. The volume decrease was primarily driven by lower shipments across all SBUs due to pricing actions and supply chain constraints in Natural Personal Care, partially offset by strong consumption in Brita water-filtration products. The variance between volume and net sales was mainly due to the benefit of price increases. The increase in segment adjusted EBIT was primarily due to net sales growth, partially offset by unfavorable commodity costs and higher manufacturing and logistics costs and advertising investments.

Fiscal year 2022 versus fiscal year 2021: Volume and net sales increased by 2% and 3%, respectively, while segment adjusted EBIT decreased by 13% during fiscal year 2022. The volume and net sales increases were primarily driven by higher shipments of Brita water-filtration products due to expanded distribution and merchandising support and Natural Personal Care products primarily due to innovation and strong consumption. The decrease in segment adjusted EBIT was primarily due to unfavorable commodity costs and higher manufacturing and logistics costs, partially offset by net sales growth.

International

Fiscal year 2023 versus fiscal year 2022: Volume and segment adjusted EBIT decreased by 5% and 8%, respectively, and net sales were essentially flat during fiscal year 2023. The volume decrease was primarily due to pricing actions. The variance between volume and net sales was mainly due to the benefit of price increases, partially offset by the impact of unfavorable foreign exchange rates. The decrease in segment adjusted EBIT was primarily due to unfavorable foreign currency exchange rates, higher manufacturing and logistics costs, increased selling and administrative expenses, unfavorable commodity costs and mix, and lower volume, partially offset by the net impact of pricing.

Fiscal year 2022 versus fiscal year 2021: Volume and segment adjusted EBIT decreased by 1% and 18%, respectively, and net sales increased by 2% during fiscal year 2022. The variance between volume and net sales was mainly due to the benefit of price increases, partially offset by the impact of unfavorable foreign exchange rates. The decrease in segment adjusted EBIT was primarily due to unfavorable commodity costs and higher manufacturing and logistics costs, partially offset by net sales growth all in fiscal year 2022.

Argentina

The business environment in Argentina continues to be challenging due to significant volatility in Argentina’s currency, high inflation, economic recession and temporary price controls. The Company operates in Argentina through certain wholly owned subsidiaries (collectively, “Clorox Argentina”). Clorox Argentina manufactures products at two plants that it owns and operates across Argentina.

Effective July 1, 2018, under the requirements of U.S. GAAP, Argentina was designated as a highly inflationary economy and as a result, the U.S. dollar replaced the Argentine peso as the functional currency of the Company’s subsidiaries in Argentina. Consequently, gains and losses from non-U.S. dollar denominated monetary assets and liabilities of Clorox Argentina are recognized in Other (income) expense, net in the consolidated statements of earnings utilizing the official Argentine government exchange rate.

As of September 2019, the government of Argentina reinstated foreign exchange controls in response to further declines in the value of the Argentine peso, limiting the Company’s ability to convert Argentine pesos to U.S. dollars and transfer U.S. dollars outside of Argentina. As a result of these controls, the spread between the official Argentine government exchange rate and

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unofficial parallel rates has continued to broaden. As of June 30, 2023 and 2022, the net asset position, excluding goodwill, of Clorox Argentina was $48 and $45, respectively. Of these net assets, cash balances were approximately $28 and $15 as of June 30, 2023 and 2022, respectively. Net sales from Clorox Argentina represented approximately 2% of the Company’s consolidated net sales for the fiscal years ended June 30, 2023 and 2022.

Volatility in the exchange rate is expected to continue, which, along with competition, changes in the retail, labor and macro-economic environment, and implemented and future additional legal limitations instituted to restrict foreign exchange transactions, as well as government price controls, could have an adverse impact on Clorox Argentina’s liquidity, net sales, net earnings, cash flows and net monetary asset position. 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.

Corporate and Other

Corporate and Other includes certain non-allocated administrative costs, the VMS business and various other non-operating income and expenses.

Fiscal year 2023 versus fiscal year 2022: Net sales decreased by 9% due to lower net sales in the VMS business. The increase in segment adjusted losses before interest and income taxes was primarily due to higher employee incentive compensation expenses.

Fiscal year 2022 versus fiscal year 2021: Net sales decreased by 9% due to lower net sales in the VMS business. The decrease in segment adjusted losses before interest and income taxes was primarily driven by lower employee incentive compensation expenses.

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FINANCIAL POSITION AND LIQUIDITY

Management’s discussion and analysis of the Company’s financial position and liquidity describes its consolidated operating, investing and financing activities from operations.

The Company’s cash position includes amounts held by foreign subsidiaries and, as a result, the repatriation of certain cash balances from some of the Company’s foreign subsidiaries could result in additional tax costs. However, these cash balances are generally available without legal restriction to fund local business operations. In addition, a portion of the Company’s cash balance is held in U.S. dollars by foreign subsidiaries, whose functional currency is their local currency. Such U.S. dollar balances are reported on the foreign subsidiaries’ books, in their functional currency, with the impact from foreign currency exchange rate differences recorded in Other (income) expense, net.

The Company’s financial condition and liquidity remained strong as of June 30, 2023. The following table summarizes cash activities for the years ended June 30:

Operating Activities

Net cash provided by operations was $1,158 in fiscal year 2023, compared with $786 in fiscal year 2022. The increase was primarily driven by lower working capital, higher cash earnings, lower incentive compensation payments and deferral of tax payments in the current fiscal year, partially offset by cash received from the settlement of interest rate derivative contracts in the prior fiscal year. The decrease in working capital was primarily driven by higher Accounts payable and accrued liabilities due to the timing of payments, lower Inventory mostly driven by optimization of inventory levels in the current fiscal year and a decrease in Accounts receivable due to timing of sales.

Payment Terms Extension and Supply Chain Financing

The Company initiated the extension of its payment terms with its suppliers in the second half of fiscal year 2020 in order to improve working capital as part of and to fund the IGNITE strategy and in keeping with evolving market practices. The Company’s current payment terms do not exceed 120 days in keeping with industry standards. The Company’s operating cash flows are directly impacted as a result of the extension of the payment terms with the suppliers.

As part of those ongoing efforts, the Company has arranged for a global financial institution to offer a voluntary supply chain finance (SCF) program for the benefit of the Company’s suppliers. Leveraging the Company’s credit rating, the SCF program enables suppliers to directly contract with the financial institution to receive payment from the financial institution prior to the payment terms between the Company and the supplier, by selling the Company’s payables to the financial institution. Participation in the program is at the sole discretion of the supplier and the Company has no economic interest in a supplier's decision to enter into the agreement and has no direct financial relationship with the financial institution, as it relates to the SCF program. Once a supplier elects to participate in the SCF program and reaches an agreement with the financial institution, the supplier elects which individual Company invoices to sell to the financial institution. The terms of the Company’s payment obligations are not impacted by a supplier’s participation in the program and as such, the SCF program has no direct impact on the Company’s balance sheets, cash flows or liquidity. No guarantees are provided by the Company or any of our subsidiaries under the SCF program. There would not be an expected material impact to the Company’s liquidity or capital resources if the financial institution or a supplier terminated the SCF arrangement.

All outstanding amounts related to suppliers participating in SCF are recorded within Accounts payable and accrued liabilities in the Consolidated Balance Sheets and the associated payments are included in operating activities within the Consolidated Statements of Cash Flows. As of June 30, 2023 and 2022, the amount due to suppliers participating in SCF and included in Accounts payable and accrued liabilities was $220 and $211, respectively. While the Company does not have direct access to information on, or influence over, which invoices a participating supplier elects to sell to the financial institution, the Company expects that the majority of these amounts have been sold to the financial institution.

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Investing Activities

Net cash used for investing activities was $223 in fiscal year 2023, as compared to $229 in fiscal year 2022.

Capital expenditures were $228 and $251 in fiscal years 2023 and 2022, respectively. Capital expenditures as a percentage of net sales were 3.1% and 3.5% for fiscal years 2023 and 2022, respectively. The current year-over-year decrease was due to higher spending in the prior period on capital projects to expand production capacity.

Free cash flow

Financing Activities

Net cash used for financing activities was $753 in fiscal year 2023, compared with $689 in fiscal year 2022. The year-over-year increase was mainly due to net cash outflows on borrowings in the current year, partially offset by higher proceeds from employee stock option exercises and lower treasury stock purchases.

Capital Resources and Liquidity

The Company's current liabilities may periodically exceed current assets as a result of the Company's debt management policies, including the Company's use of commercial paper borrowings which fluctuates depending on the amount and timing of operating and investing cash flows and payments for shareholder transactions such as dividends. The Company continues to take actions to address some of the effects of such cost increases, which include implementing price increases, driving cost savings and optimizing the Company’s supply chain.

Global financial markets have experienced a significant increase in volatility due to heightened macroeconomic uncertainty and the impacts of cost inflation. Notwithstanding potential unforeseen adverse market conditions and as part of the Company’s regular assessment of its cash needs, the Company believes it will have the funds necessary to support our short- and long-term liquidity and operating needs, including the costs related to the announced streamlined operating model and its digital capabilities and productivity enhancements investment, based on our anticipated ability to generate positive cash flows from operations in the future, access to capital markets enabled by our strong short-term and long-term credit ratings and current borrowing availability.

The Company may consider other transactions that require the issuance of additional long- and/or short-term debt or other securities to finance acquisitions, repurchase stock, refinance debt or fund other activities for general business purposes. Such transactions could require funds in excess of the Company’s current cash levels and available credit lines, and the Company’s access to or cost of such additional funds could be adversely affected by any decrease in credit ratings, which were the following as of June 30:

Credit Arrangements

As of June 30, 2023, the Company maintained a $1,200 revolving credit agreement that matures in March 2027 (the Credit Agreement). There were no borrowings under the Credit Agreement as of June 30, 2023 and June 30, 2022, and the Company believes that borrowings under the Credit Agreement are and will continue to be available for general corporate purposes. The Credit Agreement includes certain restrictive covenants and limitations. The primary restrictive covenant is a minimum ratio of 4.0, calculated as total earnings before interest, taxes, depreciation and amortization and other similar noncash charges and certain other items (Consolidated EBITDA) to total interest expense for the trailing four quarters (Interest Coverage ratio), as defined and described in the Credit Agreement.

The Company was in compliance with all restrictive covenants and limitations in the Credit Agreement as of June 30, 2023, and anticipates being in compliance with all restrictive covenants for the foreseeable future.

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As of June 30, 2023, the Company maintained $35 of foreign and other credit lines, of which $5 was outstanding and the remainder of $30 was available for borrowing.

As of June 30, 2022, the Company maintained $34 of foreign and other credit lines, of which $4 was outstanding and the remainder of $30 was available for borrowing.

Short-term Borrowings

The Company’s notes and loans payable primarily consist of U.S. commercial paper issued by the parent company and any borrowings under the Credit Agreement. These short-term borrowings have stated maturities of less than one year and provide supplemental funding for supporting operations. The level of U.S. commercial paper borrowings generally fluctuates depending upon the amount and timing of operating cash flows and payments for items such as dividends, income taxes, stock repurchases and pension contributions. The average balance of short-term borrowings outstanding was $232 and $233 for the fiscal years ended June 30, 2023 and 2022, respectively.

Long-term Borrowings

Long-term borrowings, consisting of senior unsecured notes and debentures, were $2,477 and $2,474 as of June 30, 2023 and 2022, respectively.

In May 2022, the Company issued $1,100 in senior notes, which included $500 of senior notes with an annual fixed interest rate of 4.40% payable semi-annually in May and November, final maturity in May 2029 that carry an effective rate of 3.89% (May 2029 senior notes), which includes the impact from the settlement of interest rate contracts in May 2022, and $600 of senior notes with an annual fixed rate of 4.60%, payable semi-annually in May and November, final maturity in May 2032 that carry an effective rate of 3.25% (May 2032 senior notes), which includes the impact from the settlement of interest rate contracts in May 2022. The notes rank equally with all of the Company's existing senior indebtedness. Proceeds from the senior notes were used to redeem prior to maturity $600 of senior notes with an annual fixed interest rate of 3.05% due in September 2022 and $500 of senior notes with an annual fixed interest rate of 3.50% due in December 2024, which were redeemed in June 2022 and for general corporate purposes. In connection with the redemption prior to maturity of the $500 of senior notes due in December 2024, the Company recorded a loss on the early extinguishment of debt of $13, which is included in Interest expense in the Consolidated Statement of Earnings, representing the difference paid in cash between the redemption price and the carrying amount of the debt extinguished of $5 and the accelerated amortization of losses on settlement of interest rate contracts and issuance costs associated with the debt extinguished of $8.

In November 2021, $300 of the Company’s senior notes with annual fixed interest rate of 3.80% became due and were repaid using commercial paper borrowings.

Stock Repurchases and Dividend Payments

As of June 30, 2023, the Company had two 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 was authorized by the Board of Directors in May 2018, and a program to offset the anticipated impact of dilution related to stock-based awards (the Evergreen Program), which has no authorization limit on the dollar amount and no expiration date. During the fiscal year ended June 30, 2023, no shares of common stock were purchased. During the fiscal year ended June 30, 2022, the Company purchased 152 thousand shares of common stock at a cost of $25.

Dividends per share and total dividends paid to Clorox stockholders were as follows during the fiscal years ended June 30:

On July 27, 2023, the Company declared a 2% increase in the quarterly dividend, from $1.18 to $1.20 per share, payable on August 25, 2023 to common stockholders of record as of the close of business on August 9, 2023.

On July 12, 2022, the Company declared a 2% increase in the quarterly dividend, from $1.16 to $1.18 per share, payable on August 12, 2022 to common stockholders of record as of the close of business on July 27, 2022.

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Material Cash Requirements

The following table summarizes the Company’s current and long-term material cash requirements as of June 30, 2023, which we intend to fund primarily with operating cash flows:

(1)Purchase obligations are defined as purchase agreements that are enforceable and legally binding and that contain specified or determinable significant terms, including quantity, price and the approximate timing of the transaction. For purchase obligations subject to variable price and/or quantity provisions, an estimate of the price and/or quantity has been made. Examples of the Company’s purchase obligations include contracts to purchase raw materials, commitments to contract manufacturers, commitments for information technology and related services, advertising contracts, capital expenditure agreements, software acquisition and license commitments and service contracts. The raw material contracts included above are entered into during the regular course of business based on expectations of future purchases. Many of these raw material contracts are flexible to allow for changes in the Company’s business and related requirements. If such changes were to occur, the Company believes its exposure could differ from the amounts listed above. Any amounts reflected in the consolidated balance sheets as Accounts payable and accrued liabilities are excluded from the table above, as they are short-term in nature and expected to be paid within one year.

(2)These amounts represent expected payments through 2033. Based on the accounting rules for nonqualified retirement income and retirement health care plans, the liabilities reflected in the Company’s consolidated balance sheets differ from these expected future payments (see Notes to Consolidated Financial Statements).

(3)The Company has a venture agreement with The Procter & Gamble Company (P&G) for the Company’s Glad bags and wraps business (the Venture Agreement). As of June 30, 2023, P&G had a 20% interest in the venture. Upon termination of the agreement in January 2026, the Company is required to purchase P&G’s 20% interest for cash at fair value as established by predetermined valuation procedures. Refer to the Notes to Consolidated Financial Statements for further details.

(4)Includes contracted spend through fiscal year 2026 related to the $500 digital capabilities and productivity enhancements investment, which is expected to be funded through cash generated from operations.

CONTINGENCIES

A summary of contingencies is contained in the Notes to Consolidated Financial Statements and is incorporated herein by reference.