# CLOROX CO /DE/ (CLX) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from CLOROX CO /DE/'s 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/21076/000002107624000030/clx-20240630.htm Accession: 0000021076-24-000030 Filing date: 2024-08-08 Report date: 2024-06-30 Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference. Source document followed from filing index: clx-20240630_d2.htm. Confidence: high Company profile: /company/CLX/ All MD&A years: /company/CLX/mda/ Previous year: /company/CLX/mda/fy2023/ (FY 2023) Next year: /company/CLX/mda/fy2025/ (FY 2025) 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 2024 net sales of $7,093 and about 8,000 employees worldwide as of June 30, 2024. 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; Brita water-filtration products; Burt's Bees natural personal care 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. 1 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.Operating segments not aggregated into a reportable segment are reflected in Corporate and Other. The four reportable segments consist of the following: •Health and Wellness consists of cleaning, disinfecting and professional products 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. •Lifestyle consists of food, water-filtration and natural personal care products marketed and sold in the United States. Products within this segment include dressings, dips, seasonings and sauces, primarily under the Hidden Valley brand; water-filtration products under the Brita brand; and natural personal care products under the Burt’s Bees brand. •International consists of products sold outside the United States. Products within this segment include laundry additives; home care products; bags and wraps; cat litter; water-filtration products; professional cleaning and disinfecting products; natural personal care products; food; grilling products and digestive health products marketed primarily under the Clorox, Glad, Poett, Brita, Burt's Bees, Pine-Sol, Ever Clean, Clorinda, Chux and Fresh Step 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 the pension settlement charge, incremental costs, net of insurance recoveries, related to the cyberattack, 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 / divestitures 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 the pension settlement charge, incremental costs, net of insurance recoveries, related to the cyberattack, 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 / divestitures 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 / (decrease) excluding the effect of foreign exchange rate changes and any acquisitions or 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. 2 Fiscal Year 2024 Financial Highlights A detailed discussion of strategic goals, key initiatives and results of operations is included below. Key fiscal year 2024 financial results are summarized as follows: •The Company’s fiscal year 2024 net sales decreased by 4% to $7,093 from $7,389 in fiscal year 2023, primarily driven by lower shipments resulting from the impacts of the cyberattack and higher pricing. •Gross margin increased by 360 basis points to 43.0% in fiscal year 2024 from 39.4% in fiscal year 2023. The increase was primarily driven by the benefit of price increases as well as cost savings, partially offset by unfavorable foreign exchange rates. •The Company reported earnings before income taxes of $398 in fiscal year 2024, compared to $238 in fiscal year 2023. The Company reported earnings attributable to Clorox of $280 in fiscal year 2024, compared to $149 in fiscal year 2023. •The Company delivered diluted net earnings per share (EPS) of $2.25 in fiscal year 2024, an increase of approximately 88%, or $1.05, from fiscal year 2023 diluted net EPS of $1.20. The increase was primarily due to the noncash impairment charges on assets held by the Better Health Vitamins, Minerals and Supplements (VMS) business in the prior period and the benefits of pricing, cost savings and lower manufacturing and logistics costs in the current period, partially offset by losses relating to the divestiture of the Argentina business, the pension settlement charge, unfavorable foreign exchange rates, lower volume and higher advertising investments, all in the current period. •EP increased by $176 to $573 in fiscal year 2024, compared to $397 in fiscal year 2023 (refer to the reconciliation of EP to earnings before income taxes in Exhibit 99.2). •The Company’s net cash provided by operations was $695 in fiscal year 2024, compared to $1,158 in fiscal year 2023. Free cash flow was $483 or 6.8% of net sales in fiscal year 2024, compared to $930 or 12.6% of net sales in fiscal year 2023 (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 $595 in cash dividends to stockholders in fiscal year 2024, compared to $583 in cash dividends paid in fiscal year 2023. In July 2024, 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. 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%. In March of 2024, the Company completed the divestiture of its Argentina business, which consisted of its production plants in Argentina as well as the rights to the Company's brands in Argentina, Uruguay and Paraguay. The transaction was in support of the Company's IGNITE strategy and the commitment to evolve its portfolio to increase focus on its core business to drive more consistent, profitable growth. As announced in August 2021, the Company plans to invest in transformative technologies and processes over a five-year period. This investment began in fiscal year 2022, and includes replacement of the Company's enterprise resource planning system and transitioning to a cloud-based platform as well as the implementation of a suite of other digital technologies. Total incremental transformational costs are expected to be $560 to $580 million, compared to the previous estimate of approximately $500 million. The increased estimate includes impacts from delays as a result of the cyberattack. The implementation timeline is unchanged. It is expected that these implementations will generate efficiencies and transform the Company's operations in the areas of supply chain, digital commerce, innovation, brand building and more over the long term. Finally, in fiscal year 2024, the Company completed the implementation of its streamlined operating model to help 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 implementation of this new model resulted in the reduction of certain staffing levels and is expected to achieve cost savings of approximately $100 million annually. 3 Recent Events Affecting the Company Cyberattack On Monday, August 14, 2023, the Company disclosed it had identified unauthorized activity on some of its Information Technology (IT) systems. That activity began on Friday, August 11, 2023 and after becoming aware of it that evening, the Company immediately began taking steps to stop and remediate the activity. The Company also took certain systems offline and engaged third-party cybersecurity experts to support its investigation and recovery efforts. The Company implemented its business continuity plans, including manual ordering and processing procedures at a reduced rate of operations in order to continue servicing its customers. However, the incident resulted in wide-scale disruptions to the Company’s business operations throughout the remainder of the quarter ended September 30, 2023. The impacts of these system disruptions included order processing delays and significant product outages, resulting in a negative impact on net sales and earnings. The Company has since transitioned back to automated order processing. The Company experienced lessening operational impacts in the second quarter and has since returned to substantially normalized operations. The effects of the cyberattack negatively impacted fiscal year 2024 results, though some of the anticipated net sales not recognized in the first quarter as a result of the disruptions were recognized in the remainder of fiscal year 2024 as customers rebuilt inventories. The Company also incurred incremental costs, net of insurance recoveries, of approximately $29 in fiscal year 2024 as a result of the cyberattack. These costs relate to third-party consulting services, including IT recovery and forensic experts and other professional services incurred to investigate and remediate the attack, as well as incremental operating costs incurred from the resulting disruption to the Company’s business operations. The Company does not expect to incur significant costs related to the cyberattack in future periods. The Company has recorded insurance recoveries of $30 in fiscal year 2024 related to the cyberattack. The timing of recognizing further insurance recoveries may differ from the timing of recognizing the associated expenses. For the fiscal year ended June 30, 2024, the Company continued to experience an inflationary environment. 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. Other than the cyberattack, the Company has not experienced significant disruptions in its operations during fiscal year 2024. However, 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 2025, 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 implementation of this new model was completed in fiscal year 2024. The impact of continued inflationary pressures, macroeconomic conditions and geopolitical instability, including the ongoing conflict in the Middle East and 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 conflicts, the potential escalation of tensions 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. 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. 4 RESULTS OF OPERATIONS Unless otherwise noted, MD&A compares results of operations from fiscal year 2024 (the current year) to fiscal year 2023 (the prior year), with percentage and basis point calculations based on rounded numbers, except for per share data and the effective tax rate. Discussions of fiscal year 2022 items and year-to-year comparisons between fiscal years 2023 and 2022 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 years ended 2023 and 2022. CONSOLIDATED RESULTS [[GREPCENT_TABLE]] [["","","","","","% Change"],["","2024","","2023","","2024 to2023"],["Net sales","$","7,093","","","$","7,389","","","(4)","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","Year Ended June 30, 2024"],["","Percentage change versus the year-ago period"],["","Reported (GAAP) Net Sales Growth / (Decrease)","Reported Volume","","Acquisitions & Divestitures (1)","Foreign Exchange Impact","Price/Mix/Other (2)","Organic Sales Growth / (Decrease) (Non-GAAP) (3)","Organic Volume (4)"],["Health and Wellness","(2)","%","(4)","%","","\u2014","%","\u2014","%","2","%","(2)","%","(4)","%"],["Household","(7)","","(8)","","","\u2014","","\u2014","","1","","(7)","","(8)"],["Lifestyle","(5)","","(6)","","","\u2014","","\u2014","","1","","(5)","","(6)"],["International (4)","(2)","","(5)","","","(4)","","(21)","","23","","23","","\u2014"],["Total Company (4)(5)","(4)","%","(6)","%","","(1)","%","(3)","%","5","%","\u2014","%","(5)","%"]] [[/GREPCENT_TABLE]] (1)The Argentina divestiture impact is calculated as net sales from the Argentina business after the sale date in the year-ago period. (2)This represents the net impact on net sales growth / (decrease) from pricing actions, mix and other factors. (3)Organic sales growth / (decrease) is defined as net sales growth / (decrease) excluding the effect of foreign exchange rate changes and any acquisitions or divestitures. 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. (4)Organic volume represents volume excluding the effect of any acquisitions and divestitures. In the fiscal year ended June 30, 2024, the volume impact of divestitures was 19% and 3% for International and Total Company, respectively. (5)Total Company includes Corporate and Other. Net sales and volume in fiscal year 2024 decreased by 4% and 6%, respectively, primarily driven by lower shipments resulting from the impacts of the cyberattack and higher pricing. The variance between volume and net sales was primarily due to the impact of favorable price mix, partially offset by unfavorable foreign exchange rates. [[GREPCENT_TABLE]] [["","","","","","% Change"],["","2024","","2023","","2024 to 2023"],["Gross profit","$","3,048","","$","2,908","","5","%"],["Gross margin","43.0","%","","39.4","%"]] [[/GREPCENT_TABLE]] Gross margin increased by 360 basis points in fiscal year 2024 from 39.4% to 43.0%. The increase was primarily driven by the benefit of price increases as well as cost savings, partially offset by unfavorable foreign exchange rates. 5 Expenses [[GREPCENT_TABLE]] [["","","","","","% Change","","% of Net sales"],["","2024","","2023","","2024 to 2023","","2024","","2023"],["Selling and administrative expenses","$","1,167","","","$","1,183","","","(1)","%","","16.5%","","16.0%"],["Advertising costs","832","","","734","","","13","","","11.7","","9.9"],["Research and development costs","126","","","138","","","(9)","","","1.8","","1.9"]] [[/GREPCENT_TABLE]] Selling and administrative expenses, as a percentage of net sales, increased by 50 basis points in fiscal year 2024. The dollar decrease in selling and administrative expenses was primarily due to cost savings and lower incentive compensation expense partially offset by incremental costs associated with the cyberattack, net of insurance recoveries and an arbitral decision related to a commercial dispute. For further information on the cyberattack, see Notes to the Consolidated Financial Statements. Advertising costs, as a percentage of net sales, increased 180 basis points in fiscal year 2024. The increase in advertising costs reflects the Company’s continued support behind its brands. The Company’s U.S. retail advertising spend as a percentage of net sales was 13% for fiscal year 2024 and 11% for fiscal year 2023, respectively. Research and development costs, as a percentage of net sales, were essentially flat, while dollars decreased in the current year as compared to the prior year. The Company continues to invest behind product innovation and cost savings. Loss on divestiture, pension settlement charge, goodwill, trademark and other asset impairments, Interest expense, Other expense (income), net and Effective tax rate on earnings [[GREPCENT_TABLE]] [["","2024","","2023"],["Loss on divestiture","$","240","","","$","\u2014"],["Pension settlement charge","171","","","\u2014"],["Goodwill, trademark and other asset impairments","\u2014","","","445"],["Interest expense","90","","","90"],["Other expense (income), net","24","","","80"],["Effective tax rate on earnings","26.5","%","","32.4","%"]] [[/GREPCENT_TABLE]] Loss on divestiture of $240 in fiscal year 2024 reflects the loss on the divestiture of the Argentina business. See Notes to Consolidated Financial Statements for further information. Pension settlement charge was $171 in fiscal year 2024 and reflects the settlement of the domestic qualified pension plan. See Notes to Consolidated Financial Statements for further information. Goodwill, trademark and other asset impairments of $445 in the prior fiscal year reflected noncash impairment charges to goodwill and certain indefinite-lived trademarks related to the Better Health VMS business. See Notes to Consolidated Financial Statements for further information regarding the impairments recorded in fiscal year 2023. Other expense (income), net was $24 and $80 in fiscal year 2024 and fiscal year 2023, respectively. The variance was primarily due to higher restructuring and related implementation costs associated with the streamlined operating model incurred in the prior year and the gain on the sale-leaseback transaction recorded in the current period, partially offset by the net impact of interest income and Argentina foreign exchange rates in the current period. 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 implementation of this new model was completed in fiscal year 2024. The Company expects cost savings of approximately $100 annually. The benefits of the streamlined operating model are 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 $32 and $60 of costs in fiscal year 2024 and 2023, respectively. Costs incurred are expected to be settled primarily in cash. 6 Of the restructuring and implementation related costs, net incurred in fiscal years 2024 and 2023, $7 and $41 was related to employee-related costs, respectively, $6 and $0 was related to asset impairment costs, respectively, and $19 and $19 was related to other costs, respectively. For further details on the streamlined operating model and restructuring, refer to the Notes to Consolidated Financial Statements. The effective tax rate on earnings was 26.5% and 32.4% in fiscal year 2024 and 2023, respectively. The lower tax rate in fiscal year 2024 compared to fiscal year 2023 was driven by the partial non-deductibility of impaired Better Health VMS goodwill in the prior period and an international legal entity reorganization in the current period, partially offset by the divestiture of the Argentina business in the current period. Diluted net earnings per share [[GREPCENT_TABLE]] [["","","","","","% Change"],["","2024","","2023","","2024 to 2023"],["Diluted net EPS","$","2.25","","","$","1.20","","","88","%"]] [[/GREPCENT_TABLE]] Diluted net earnings per share (EPS) increased by $1.05, or 88%, in fiscal year 2024, primarily due to the noncash impairment charges on assets held by the Better Health Vitamins, Minerals and Supplements (VMS) business in the prior period and the benefits of pricing, cost savings and lower manufacturing and logistics costs in the current period, partially offset by losses relating to the divestiture of the Argentina business, the pension settlement charge, unfavorable foreign exchange rates, lower volume and higher advertising investments, all in the current period. 7 SEGMENT RESULTS The following presents the results of the Company’s reportable segments and Corporate and Other (see Notes to Consolidated Financial Statements for further discussion of the principle measure of segment profitability used by management, segment adjusted earnings (losses) before interest and income taxes (segment adjusted EBIT)): [[GREPCENT_TABLE]] [["","Net sales"],["","Fiscal year"],["","2024","","2023"],["Health and Wellness","$","2,485","","","$","2,532"],["Household","1,950","","","2,098"],["Lifestyle","1,275","","","1,338"],["International","1,162","","","1,181"],["Reportable segment total","6,872","","","7,149"],["Corporate and Other","221","","","240"],["Total","$","7,093","","","$","7,389"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","Segment adjusted EBIT (1)"],["","Fiscal year"],["","2024","","2023"],["Health and Wellness","$","719","","","$","594"],["Household","260","","","308"],["Lifestyle","253","","","284"],["International","122","","","89"],["Reportable segment total","1,354","","","1,275"],["Corporate and Other","(309)","","","(358)"],["Total","$","1,045","","","$","917"],["Interest income","23","","","16"],["Interest expense","(90)","","","(90)"],["Loss on divestiture","(240)","","","\u2014"],["Pension settlement charge","(171)","","","\u2014"],["Cyberattack costs, net of insurance recoveries","(29)","","","\u2014"],["VMS impairment","\u2014","","","(445)"],["Restructuring and related costs","(32)","","","(60)"],["Digital capabilities and productivity enhancements investment","(108)","","","(100)"],["Earnings (losses) before income taxes","$","398","","","$","238"]] [[/GREPCENT_TABLE]] (1)See “Summary of Non-GAAP Financial Measures” below for reconciliation of segment adjusted EBIT to earnings (losses) before income taxes, the most directly comparable GAAP financial measure. 8 Health and Wellness [[GREPCENT_TABLE]] [["","","","","","","","% Change"],["","2024","","2023","","","","2024 to 2023"],["Net sales","$","2,485","","","$","2,532","","","","","(2)","%"],["Segment adjusted EBIT","719","","","594","","","","","21"]] [[/GREPCENT_TABLE]] Fiscal year 2024 versus fiscal year 2023: Volume and net sales decreased by 4% and 2%, respectively, and segment adjusted EBIT increased by 21% during fiscal year 2024. The volume decrease was primarily due to pricing actions and the impacts resulting from the cyberattack. The variance between volume and net sales was primarily due to the benefit of price increases, partially offset by unfavorable mix. The increase in segment adjusted EBIT in the current period was primarily due to lower manufacturing and logistics costs, the benefits of both cost savings and pricing and favorable commodity costs, partially offset by higher advertising investments and unfavorable mix. Household [[GREPCENT_TABLE]] [["","","","","","","","% Change"],["","2024","","2023","","","","2024 to 2023"],["Net sales","$","1,950","","","$","2,098","","","","","(7)","%"],["Segment adjusted EBIT","260","","","308","","","","","(16)"]] [[/GREPCENT_TABLE]] Fiscal year 2024 versus fiscal year 2023: Volume, net sales and segment adjusted EBIT decreased by 8%, 7% and 16%, respectively, in fiscal year 2024. The volume decrease was primarily driven by lower consumption and distribution losses resulting from the cyberattack. The variance between volume and net sales was primarily due to the benefit of price increases, partially offset by higher trade promotion spending. The decrease in segment adjusted EBIT was mainly due to lower net sales and higher advertising investments, partially offset by cost savings. Lifestyle [[GREPCENT_TABLE]] [["","","","","","","","% Change"],["","2024","","2023","","","","2024 to 2023"],["Net sales","$","1,275","","","$","1,338","","","","","(5)","%"],["Segment adjusted EBIT","253","","","284","","","","","(11)"]] [[/GREPCENT_TABLE]] Fiscal year 2024 versus fiscal year 2023: Volume, net sales and segment adjusted EBIT decreased by 6%, 5% and 11%, respectively, during fiscal year 2024. The volume decrease was primarily due to distribution losses, supply chain constraints and the impact of the cyberattack. The variance between volume and net sales was mainly due to the benefit of price increases partially offset by higher trade promotion spending. The decrease in segment adjusted EBIT was primarily due to higher advertising investments and lower net sales, partially offset by favorable commodity costs. International [[GREPCENT_TABLE]] [["","","","","","","","% Change"],["","2024","","2023","","","","2024 to 2023"],["Net sales","$","1,162","","","$","1,181","","","","","(2)","%"],["Segment adjusted EBIT","122","","","89","","","","","37"]] [[/GREPCENT_TABLE]] Fiscal year 2024 versus fiscal year 2023: Volume and net sales decreased by 5% and 2%, respectively, while segment adjusted EBIT increased by 37% during fiscal year 2024. The volume decrease was primarily due to the impact of the Argentina divestiture. 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 increase in segment adjusted EBIT was primarily due to the net impact of pricing, partially offset by unfavorable foreign exchange rates, higher manufacturing and logistics costs and unfavorable commodity costs. 9 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 were recognized in Other (income) expense, net in the consolidated statements of earnings, utilizing the official Argentine government exchange rate. On March 20, 2024, the Company completed the divestiture of its Argentina business. The financial results of the Argentina business through March 20, 2024 are reflected as part of the International reportable segment. See Notes to Consolidated Financial Statements for further information. As of June 30, 2023, the net asset position, excluding goodwill, of Clorox Argentina was $48. Of these net assets, cash balances were approximately $28 as of June 30, 2023. Net sales from Clorox Argentina represented approximately 2% of the Company’s consolidated net sales for both the fiscal years ended June 30, 2024 and 2023. Corporate and Other [[GREPCENT_TABLE]] [["","","","","","","","% Change"],["","2024","","2023","","","","2024 to 2023"],["Net Sales","$","221","","","$","240","","","","","(8)","%"],["Segment adjusted EBIT","(309)","","","(358)","","","","","(14)","%"]] [[/GREPCENT_TABLE]] Corporate and Other includes certain non-allocated administrative costs, the Better Health VMS business and various other non-operating income and expenses. Fiscal year 2024 versus fiscal year 2023: Net sales decreased by 8% due to lower net sales in the Better Health VMS business. The decrease in segment adjusted losses before interest and income taxes was primarily due to lower Better Health VMS operating expenses and reductions in employee related expenses primarily due to cost savings and lower employee incentive compensation, partially offset by higher foreign exchange losses on Corporate and Other assets related to operations in Argentina. FINANCIAL POSITION AND LIQUIDITY Management’s discussion and analysis of the Company’s financial position and liquidity describes its consolidated operating, investing and financing activities from operations. The Company’s cash position includes amounts held by foreign subsidiaries and, as a result, the repatriation of certain cash balances from some of the Company’s foreign subsidiaries could result in additional tax costs. However, these cash balances are generally available without legal restriction to fund local business operations. In addition, a portion of the Company’s cash balance is held in U.S. dollars by foreign subsidiaries, whose functional currency is their local currency. Such U.S. dollar balances are reported on the foreign subsidiaries’ books, in their functional currency, with the impact from foreign currency exchange rate differences recorded in Other (income) expense, net. The Company’s financial condition and liquidity remained strong as of June 30, 2024. The following table summarizes cash activities for the years ended June 30: [[GREPCENT_TABLE]] [["","2024","","2023"],["Net cash provided by operations","$","695","","","$","1,158"],["Net cash used for investing activities","(175)","","","(223)"],["Net cash used for financing activities","(655)","","","(753)"]] [[/GREPCENT_TABLE]] Operating Activities Net cash provided by operations was $695 in fiscal year 2024, compared with $1,158 in fiscal year 2023. The decrease was primarily driven by higher tax payments, an increase in working capital and higher employee incentive compensation payments in the current fiscal year; partially offset by higher cash earnings in the current fiscal year. The increase in tax payments in the current fiscal year was primarily driven by payment of fiscal year 2023 income taxes previously deferred as a result of the relief provided by the IRS announced in January 2023 due to winter storms in California. 10 The increase in working capital in the current fiscal year is primarily due to a decrease in accounts payable and accrued liabilities due to the timing of payments. 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 payment terms with 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. 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. 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. Refer to the Notes to Consolidated Financial Statements for detail on the SCF program. Investing Activities Net cash used for investing activities was $175 in fiscal year 2024, as compared to $223 in fiscal year 2023. The year-over-year decrease was mainly due to net cash proceeds from the sale of the Argentina business, a sale-leaseback transaction and lower capital spending in the current fiscal year. Capital expenditures were $212 and $228 in fiscal years 2024 and 2023, respectively. Capital expenditures as a percentage of net sales were 3.0% and 3.1% for fiscal years 2024 and 2023, respectively. Free cash flow [[GREPCENT_TABLE]] [["","2024","","2023"],["Net cash provided by operations","$","695","","","$","1,158"],["Less: capital expenditures","(212)","","","(228)"],["Free cash flow","$","483","","","$","930"],["Free cash flow as a percentage of net sales","6.8","%","","12.6","%"]] [[/GREPCENT_TABLE]] Financing Activities Net cash used for financing activities was $655 in fiscal year 2024, compared with $753 in fiscal year 2023. The year-over-year decrease was driven by lower net cash repayments on short-term borrowings in the current fiscal year. 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. 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, as well as the costs and impacts of the business disruption associated with the cyberattack, 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. 11 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: [[GREPCENT_TABLE]] [["","2024","","2023"],["","Short-term","","Long-term","","Short-term","","Long-term"],["Standard and Poor\u2019s","A-2","","BBB+","","A-2","","BBB+"],["Moody\u2019s","P-2","","Baa1","","P-2","","Baa1"]] [[/GREPCENT_TABLE]] Credit Arrangements As of June 30, 2024, 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, 2024 and June 30, 2023, 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, 2024, and anticipates being in compliance with all restrictive covenants for the foreseeable future. As of June 30, 2024, the Company maintained $34 of foreign and other credit lines, of which $9 was outstanding and the remainder of $25 was available for borrowing. 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. 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 $168 and $232 for the fiscal years ended June 30, 2024 and 2023, respectively. Long-term Borrowings Long-term borrowings, consisting of senior unsecured notes and debentures, were $2,481 and $2,477 as of June 30, 2024 and 2023, respectively. Stock Repurchases and Dividend Payments As of June 30, 2024, the Company had two stock repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $2,000, which has no expiration date and was authorized by the Board of Directors in May 2018, and a program to offset the anticipated impact of dilution related to stock-based awards (the Evergreen Program), which has no authorization limit on the dollar amount and no expiration date. During the fiscal years ended June 30, 2024 and 2023, no shares of common stock were purchased. Dividends per share and total dividends paid to Clorox stockholders were as follows during the fiscal years ended June 30: [[GREPCENT_TABLE]] [["","2024","","2023"],["Dividends per share declared","$","4.80","","","$","4.72"],["Dividends per share paid","4.80","","","4.72"],["Total dividends paid","595","","","583"]] [[/GREPCENT_TABLE]] On July 30, 2024, the Company declared a 2% increase in the quarterly dividend, from $1.20 to $1.22 per share, payable on August 30, 2024 to common stockholders of record as of the close of business on August 14, 2024. 12 On July 27, 2023, the Company declared a 2% increase in the quarterly dividend, from $1.18 to $1.20 per share, payable on August 25, 2023 to common stockholders of record as of the close of business on August 9, 2023. Material Cash Requirements The following table summarizes the Company’s current and long-term material cash requirements as of June 30, 2024, which we intend to fund primarily with operating cash flows: [[GREPCENT_TABLE]] [["","2025","","2026","","2027","","2028","","2029","","Thereafter","","Total"],["Long-term debt maturities including interest payments","$","90","","","$","90","","","$","90","","","$","984","","","$","559","","","$","1,193","","","$","3,006"],["Notes and loans payable","5","","","1","","","1","","","\u2014","","","\u2014","","","\u2014","","","7"],["Purchase obligations (1) (4)","181","","","128","","","81","","","43","","","27","","","45","","","505"],["Operating and finance leases","111","","","106","","","91","","","71","","","57","","","61","","","497"],["Payments related to nonqualified retirement income and retirement health care plans (2)","15","","","14","","","13","","","13","","","13","","","48","","","116"],["Venture Agreement terminal obligation (3)","\u2014","","","531","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","531"],["Total","$","402","","","$","870","","","$","276","","","$","1,111","","","$","656","","","$","1,347","","","$","4,662"]] [[/GREPCENT_TABLE]] (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 2034. 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. Refer to the Notes to Consolidated Financial Statements for further details. (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, 2024, 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 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.