Item 2. 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. The following discussion of the Company’s financial condition and results of operations should be read in conjunction with MD&A and the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022, which was filed with the SEC on August 10, 2022, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q (this Report). Unless otherwise noted, MD&A compares the three and nine month periods ended March 31, 2023 (the current period) to the three and nine month periods ended March 31, 2022 (the prior period), with percentage and basis point calculations based on rounded numbers, except for per share data and the effective tax rate.

EXECUTIVE OVERVIEW

Clorox is a leading multinational manufacturer and marketer of consumer and professional products with approximately 9,000 employees worldwide. Clorox sells its products 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 products, Pine-Sol® cleaners; Liquid-Plumr® clog removers; Poett® home care products; Fresh Step® cat litter; Glad® bags and wraps; Kingsford® grilling products; Hidden Valley® dressings, dips, seasonings and sauces; Brita® water-filtration products; Burt’s Bees® natural personal care products; and RenewLife®, Rainbow Light®, Natural Vitality® and NeoCell® 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 has operations in more than 25 countries or territories and sells its products in more than 100 markets.

The Company primarily markets its leading brands in midsized categories considered to be financially attractive. Most of the Company’s products compete with other nationally advertised brands within each category and with “private label” brands.

The Company operates through strategic business units (SBUs) that are organized into the Company’s operating segments. These operating segments are then aggregated into four reportable segments: Health and Wellness, Household, Lifestyle and International. These four reportable segments consist of the following:

• Health and Wellness consists of cleaning products, professional products and vitamins, minerals and supplements mainly marketed and sold in the U.S. Products within this segment include cleaning products such as laundry additives and home care products, primarily under the Clorox®, Clorox2®, Scentiva®, Pine-Sol, Liquid-Plumr, Tilex® and Formula 409® brands; professional cleaning and disinfecting products under the CloroxPro and Clorox Healthcare brands; professional food service products under the Hidden Valley brand; and vitamins, minerals and supplements under the RenewLife, Natural Vitality, NeoCell and Rainbow Light brands.

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

• Lifestyle consists of food, natural personal care products and water-filtration products marketed and sold in the U.S. 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 U.S. 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.

RECENT EVENTS AFFECTING THE COMPANY

For the fiscal quarter ended March 31, 2023, the Company continued to experience supply chain disruptions including the impacts of cost inflation resulting in persistently high manufacturing and logistics costs as well as higher commodity costs. In addition to these evolving challenges, ongoing uncertainties and economic and social disruptions remained present due to the continued effects of the coronavirus (COVID-19) pandemic, which were further heightened by the conflict in Ukraine that began in the previous fiscal year.

While demand for many of the products across the Company's portfolio remained strong compared to pre-pandemic levels, it has moderated versus the initial periods of the COVID-19 pandemic. An inflationary environment marked by supply chain disruptions, higher manufacturing and logistics costs and higher commodity costs is expected to continue through fiscal year 2023. While we have not experienced significant disruptions in our operations during fiscal year 2023 to date, 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 2023, the Company’s focus will be on addressing supply chain disruptions and volatility in commodity costs and foreign exchange markets and countering inflationary pressures through pricing actions and cost-cutting measures. In order to enhance the Company’s ability to respond more quickly to changing consumer behaviors and innovate faster, the Company has announced a streamlined operating model to be implemented over the course of fiscal years 2023 and 2024.

The impact of continued inflationary pressures and geopolitical events, specifically the conflict in Ukraine, have increased global economic and political uncertainty due to the uncertainty around the duration and resolution of the conflict and potential economic and global supply chain disruptions. Additionally, the extent of COVID-19’s effect on the Company’s operational and financial performance in the future will depend on future developments, including the duration, spread, intensity and phase of the pandemic in different countries, the emergence of COVID-19 variants and the effectiveness of vaccines against these variants, the Company’s continued ability to manufacture and distribute its products, any future government actions affecting consumers, our business operations, including any vaccine mandates, or the economy in general, and effectiveness of global vaccines. All of these factors are difficult to predict considering the rapidly evolving landscape as the Company continues to expect a variable operating environment going forward.

For additional information on the impacts and our response to the coronavirus pandemic, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Exhibit 99.1 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

			Three Months Ended																		Nine Months Ended
			3/31/2023						3/31/2022						% Change						3/31/2023						3/31/2022						% Change
Net sales			$	1,915					$	1,809					6		%				$	5,370					$	5,306					1		%

			Three Months Ended March 31, 2023
			Percentage change versus the year-ago period
			Reported (GAAP) Net Sales Growth / (Decrease)			Reported Volume						Acquisitions & Divestitures			Foreign Exchange Impact			Price/Mix/ Other (1)			Organic Sales Growth / (Decrease) (Non-GAAP) (2)			Organic Volume (3)
Health and Wellness			7		%	(16)		%				—		%	—		%	23		%	7		%	(16)		%
Household			2			(12)						—			—			14			2			(12)
Lifestyle			15			—						—			—			15			15			—
International			1			(7)						—			(13)			21			14			(7)
Total			6		%	(11)		%				—		%	(2)		%	19		%	8		%	(11)		%
			Nine Months Ended March 31, 2023
			Percentage change versus the year-ago period
			Reported (GAAP) Net Sales Growth / (Decrease)			Reported Volume						Acquisitions & Divestitures			Foreign Exchange Impact			Price/Mix/Other (1)			Organic Sales Growth / (Decrease) (Non-GAAP) (2)			Organic Volume (3)
Health and Wellness			—		%	(19)		%				—		%	—		%	19		%	—		%	(19)		%
Household			2			(8)						—			—			10			2			(8)
Lifestyle			5			(6)						—			—			11			5			(6)
International			(1)			(6)						—			(11)			16			10			(6)
Total			1		%	(12)		%				—		%	(2)		%	15		%	3		%	(12)		%

(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 “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.

Net sales in the current three month period increased by 6%, primarily driven by sales growth across all reportable segments. Volume decreased by 11% versus the prior period primarily due to pricing actions. The variance between volume and net sales was primarily due to the impact of favorable price mix.

Net sales in the current nine month period increased by 1%, primarily driven by sales growth in the Lifestyle and Household reportable segments. Volume decreased by 12%, reflecting lower shipments across all reportable segments primarily due to pricing actions. The variance between volume and net sales was primarily due to the impact of favorable price mix.

			Three Months Ended																		Nine Months Ended
			3/31/2023						3/31/2022						% Change						3/31/2023						3/31/2022						% Change
Gross profit			$	800					$	649					23		%				$	2,046					$	1,877					9		%
Gross margin			41.8		%				35.9		%										38.1		%				35.4		%

Gross margin increased by 590 basis points in the current three month period from 35.9% to 41.8%. 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.

Gross margin increased by 270 basis points in the current nine month period from 35.4% to 38.1%. 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

			Three Months Ended
																					% of Net Sales
			3/31/2023						3/31/2022						% Change						3/31/2023						3/31/2022
Selling and administrative expenses			$	311					$	233					33		%				16.2		%				12.9		%
Advertising costs			206						153						35						10.8						8.5
Research and development costs			35						31						13						1.8						1.7
			Nine Months Ended
																					% of Net Sales
			3/31/2023						3/31/2022						% Change						3/31/2023						3/31/2022
Selling and administrative expenses			$	854					$	710					20		%				15.9		%				13.4		%
Advertising costs			523						502						4						9.7						9.5
Research and development costs			100						98						2						1.9						1.8

Selling and administrative expenses, as a percentage of net sales, increased by 330 basis points and 250 basis points in current three and nine month periods, respectively. The dollar increase in selling and administrative expenses in both the current three and nine month periods was primarily due to higher incentive compensation expense and the Company’s digital capabilities and productivity enhancements investments.

Advertising costs, as a percentage of net sales, increased by 230 basis points and 20 basis points in the current three and nine month periods versus the prior periods, respectively. 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 12% and 9% in the current and prior three month periods, respectively.

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

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

			Three Months Ended												Nine Months Ended
			3/31/2023						3/31/2022						3/31/2023						3/31/2022
Goodwill, trademark and other asset impairments			$	445					$	—					$	445					$	—
Interest expense			24						21						69						69
Other (income) expense, net			24						11						54						20
Effective tax rate on earnings (losses)			14.7		%				23.9		%				1,813.5		%				23.3		%

Goodwill, trademark and other asset impairments of $445 in both the current three and nine month periods reflect non-cash impairment charges to goodwill and certain indefinite-lived trademarks related to the VMS business. See Notes to Condensed Consolidated Financial Statements for further information.

Other (income) expense, net was $24 and $11 in the current and prior three month periods, respectively, and $54 and $20 in the current and prior nine month periods, respectively. The variance was primarily due to restructuring and related implementation costs associated with the streamlined operating model incurred in both the current three and nine month periods.

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.

Once fully implemented, the Company expects annual cost savings to be approximately $75 to $100 annually, with benefits of approximately $35 anticipated 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 anticipates incurring approximately $75 to $100 of costs in fiscal years 2023 and 2024 related to this initiative. Of this total amount, the higher-end of the range of approximately $40 to $60 is expected to be incurred in fiscal year 2023. Related costs are primarily expected to include employee-related costs to reduce certain staffing levels such as severance payments, as well as for consulting and other costs. Costs incurred are expected to be settled primarily in cash.

Restructuring and related implementation costs, net were $21 for the three months ended March 31, 2023, of which $14 was related to employee-related costs and $7 was related to other costs. Restructuring and related implementation costs, net were $44 for the nine months ended March 31, 2023,of which $30 was related to employee-related costs and $14 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 (losses) was 14.7% and 1,813.5% for the current three and nine month periods, respectively, and 23.9% and 23.3% for the prior three and nine month periods, respectively. The lower tax rate on losses before income taxes in the current three month period was driven by the partial non-deductibility of impaired VMS goodwill. The substantially higher tax rate on earnings before income taxes in the current nine month period 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 (losses) per share

			Three Months Ended																		Nine Months Ended
			3/31/2023						3/31/2022						% Change						3/31/2023						3/31/2022						% Change
Diluted net earnings (losses) per share			$	(1.71)					$	1.21					(241)		%				$	(0.22)					$	2.91					(108)		%

Diluted net earnings (losses) per share (EPS) decreased by $2.92, or 241%, in the current three month period, primarily due to the noncash impairment charges on assets related to the VMS business, higher selling and administrative expenses, advertising investments and unfavorable commodity costs, partially offset by higher net sales primarily behind pricing as well as the benefit of cost savings.

Diluted EPS decreased by $3.13, or 108%, in the current nine month period, 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 and the impact of unfavorable foreign currency exchange rates, partially offset by net sales growth as well as the benefit of cost savings.

SEGMENT RESULTS

The following presents the results of the Company’s reportable segments and certain unallocated costs reflected in Corporate (see Notes to Condensed Consolidated Financial Statements for a reconciliation of segment results to consolidated results):

Health and Wellness

			Three Months Ended																		Nine Months Ended
			3/31/2023						3/31/2022						% Change						3/31/2023						3/31/2022						% Change
Net sales			$	707					$	662					7		%				$	2,054					$	2,055					—		%
Earnings (losses) before income taxes			(290)						84						(445)						(72)						245						(129)

Volume and earnings (losses) before income taxes decreased by 16% and 445% respectively, and net sales increased by 7% during the current three month period. The volume decrease was primarily due to pricing actions, partially offset by strong consumption, primarily in Cleaning. The variance between volume and net sales was primarily due to the benefit of price increases. The decrease in earnings (losses) before income taxes in the current period was primarily due to the noncash impairment charges on assets related to the VMS business, unfavorable commodity costs and advertising investments, partially offset by net sales growth primarily behind pricing as well as the benefit of cost savings.

Volume and earnings (losses) before income taxes decreased by 19% and 129% respectively, and net sales were essentially flat during the current nine month period. The volume decrease was primarily due to pricing actions and lower shipments from the ongoing normalization of consumer demand in Cleaning in the current period. The variance between volume and net sales was primarily due to the benefit of price increases. The decrease in earnings (losses) before income taxes in the current period was primarily due to the noncash impairment charges on assets related to the VMS business and unfavorable commodity costs, partially offset by the benefit of price increases as well as cost savings.

Household

			Three Months Ended																		Nine Months Ended
			3/31/2023						3/31/2022						% Change						3/31/2023						3/31/2022						% Change
Net sales			$	550					$	539					2		%				$	1,435					$	1,404					2		%
Earnings before income taxes			99						92						8						165						138						20

Net sales and earnings before income taxes increased by 2% and 8%, respectively, and volume decreased by 12% during the current three month period. The volume decrease was primarily driven by lower shipments across all SBUs due to pricing actions and in Grilling due to increased competitive activity, partially offset by strong consumption in Litter and Bags and Wraps. The variance between volume and net sales was primarily due to the benefit of price increases. The increase in earnings before income taxes was mainly due to net sales growth primarily behind pricing as well as the benefit of cost savings, partially offset by advertising investments and unfavorable commodity costs.

Net sales and earnings before income taxes increased by 2% and 20%, respectively, and volume decreased by 8% during the current nine month period. The volume decrease was primarily driven by lower shipments across all SBUs due to pricing actions, as well as lower shipments in Grilling due to increased competitive activity in the current period. The variance between volume and net sales was primarily due to the benefit of price increases. The increase in earnings before income taxes was mainly due to net sales growth primarily behind pricing as well as the benefit of cost savings, partially offset by unfavorable commodity costs, higher manufacturing and logistics costs and advertising investments.

Lifestyle

			Three Months Ended																		Nine Months Ended
			3/31/2023						3/31/2022						% Change						3/31/2023						3/31/2022						% Change
Net sales			$	353					$	306					15		%				$	1,005					$	961					5		%
Earnings before income taxes			83						66						26						217						239						(9)

Net sales and earnings before income taxes increased by 15% and 26% respectively, and volume was essentially flat during the current three month period. The variance between volume and net sales was mainly due to the benefit of pricing and strong consumption supported by merchandising activities in Brita and Food. The increase in earnings before income taxes was due to net sales growth primarily behind pricing as well as the benefit of cost savings, partially offset by advertising investments and unfavorable commodity costs.

Volume and earnings before income taxes decreased by 6% and 9% respectively, and net sales increased by 5% during the current nine month period. The volume decrease was primarily driven by lower shipments across all SBUs due to pricing actions. The variance between volume and net sales was mainly due to the benefit of price increases. The decrease in earnings before income taxes was primarily due to unfavorable commodity costs, advertising investments and higher manufacturing and logistics costs, partially offset by net sales growth primarily behind pricing.

International

			Three Months Ended																		Nine Months Ended
			3/31/2023						3/31/2022						% Change						3/31/2023						3/31/2022						% Change
Net sales			$	305					$	302					1		%				$	876					$	886					(1)		%
Earnings before income taxes			15						31						(52)						62						80						(23)

Volume and earnings before income taxes decreased by 7% and 52% respectively, and net sales increased by 1% during the current three month period. 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 unfavorable foreign currency exchange rates. The decrease in earnings before income taxes was primarily due to unfavorable foreign currency exchange rates, a noncash impairment charge related to the VMS business and higher manufacturing and logistics costs, partially offset by net sales growth primarily behind pricing and the benefit of cost savings.

Volume, net sales and earnings before income taxes decreased by 6%, 1% and 23%, respectively, in the current nine month period. 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 currency exchange rates. The decrease in earnings before income taxes was primarily due to unfavorable foreign currency exchange rates, higher manufacturing and logistics costs, unfavorable commodity costs, lower volume and higher selling and administrative expenses, partially offset by the net impact of pricing.

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 condensed consolidated statement of earnings. The business environment in Argentina continues to be challenging due to significant volatility in Argentina’s currency, high inflation, economic recession, impacts of COVID-19 and temporary price controls. As of March 31, 2023 and June 30, 2022, the net asset position, excluding goodwill, of Clorox Argentina was $49 and $45, respectively. Of these net assets, cash balances were approximately $24 and $15 as of March 31, 2023 and June 30, 2022, respectively. Net sales from Clorox Argentina represented approximately 2% of the Company’s consolidated net sales for both the nine months ended March 31, 2023 and the fiscal year ended June 30, 2022.

For additional information on the impacts of, and our response to, the business environment in Argentina, refer to “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

Corporate

Corporate includes certain non-allocated administrative costs, interest income, interest expense and various other non-operating income and expenses.

			Three Months Ended																		Nine Months Ended
			3/31/2023						3/31/2022						% Change						3/31/2023						3/31/2022						% Change
Losses before income taxes			$	(152)					$	(73)					108		%				$	(371)					$	(224)					66		%

Losses before income taxes increased by $79 in the current three month period primarily due to higher incentive compensation expense, restructuring charges associated with the implementation of the Company’s new operating model and the Company’s digital capabilities and productivity enhancement investments.

Losses before income taxes increased by $147 in the current nine month period primarily due to higher incentive compensation expense, the Company’s digital capabilities and productivity enhancement investments, and restructuring charges associated with the implementation of the Company’s new operating model.

FINANCIAL POSITION AND LIQUIDITY

The Company’s financial condition and liquidity remained strong as of March 31, 2023. The following table summarizes cash activities:

			Nine Months Ended
			3/31/2023						3/31/2022
Net cash provided by operations			$	728					$	451
Net cash used for investing activities			(142)						(167)
Net cash used for financing activities			(526)						(363)

Operating Activities

Net cash provided by operations was $728 in the current nine month period, compared with $451 in the prior nine month period. The increase was primarily driven by a decrease in working capital and lower incentive compensation paid in the current nine month period. The decrease in working capital was primarily driven by higher Accounts payable and accrued liabilities due to timing of payments, lower inventory balances mostly driven by optimization of inventory levels in the current nine month period and decrease in Accounts receivable due to timing of sales in the prior nine month period.

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 March 31, 2023 and June 30, 2022, the amount due to suppliers participating in SCF and included in Accounts payable and accrued liabilities was $212 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.

Investing Activities

Net cash used for investing activities was $142 in the current nine month period, compared with $167 in the prior nine month period. The year-over-year decrease was mainly due to lower capital spending in the current nine month period.

Financing Activities

Net cash used for financing activities was $526 in the current nine month period, compared with $363 in the prior nine month period. The year-over-year increase was mainly due to net cash used against borrowings, partially offset by lower treasury stock purchases in the current nine month period.

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. In addition, the Company’s cash generated from operations has decreased from historical levels primarily due to higher manufacturing and logistics costs and unfavorable commodity costs. 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 uncertainty, the impacts of cost inflation and continued economic and social disruptions caused by the COVID-19 outbreak and other geopolitical circumstances. 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 investments, 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.

Credit Arrangements

As of March 31, 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 March 31, 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 non-cash 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 March 31, 2023, and anticipates being in compliance with all restrictive covenants for the foreseeable future.

As of March 31, 2023, the Company maintained $31 of foreign and other credit lines, of which $5 was outstanding.

Stock Repurchases and Dividend Payments

As of March 31, 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 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. There were no share repurchases of common stock during the three months ended March 31, 2023 and 2022. During the nine months ended March 31, 2023 and 2022, the Company repurchased 0 and 152 thousand shares of common stock at a cost of $0 and $25, respectively.

Dividends per share declared and total dividends paid to Clorox stockholders were as follows for the periods indicated:

			Three Months Ended												Nine Months Ended
			3/31/2023						3/31/2022						3/31/2023						3/31/2022
Dividends per share declared			$	1.18					$	1.16					$	4.72					$	3.48
Total dividends paid			146						143						437						428

Venture Agreement

The Company has a venture agreement with The Procter & Gamble Company (P&G) for the Company’s Glad bags and wraps business. As of March 31, 2023 and June 30, 2022, P&G had a 20% interest in the venture. Upon termination of the agreement, the Company is required to purchase P&G’s 20% interest for cash at fair value as established by predetermined valuation procedures.

The Company performed a valuation of the Glad bags and wraps business as of December 31, 2022 in connection with an update of the Company’s financial projections in the second quarter of fiscal year 2023. As of March 31, 2023 and June 30, 2022, the estimated fair value of P&G’s interest in the venture was $527 and $635, respectively, of which $492 and $468, respectively, has been recognized and is reflected in Other liabilities in the Company’s Condensed Consolidated Balance Sheet. The $108 decrease in the estimated fair value of P&G’s interest since June 30, 2022 was attributable to an increase in the discount rate and a decrease in the estimated future cash flows since the prior valuation. Changes in the judgments, assumptions and market factors used could result in significantly different estimates of fair value. The difference between the estimated fair value and the amount recognized, and any future changes in the fair value of P&G’s interest, is charged to Cost of products sold in accordance over the remaining life of the agreement.

CONTINGENCIES

See Notes to Condensed Consolidated Financial Statements for information on the Company’s contingencies.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Notes to Condensed Consolidated Financial Statements for a summary of recently issued accounting standards relevant to the Company.

CRITICAL ACCOUNTING ESTIMATES

The methods, estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its consolidated financial statements. Accordingly, a different financial presentation could result depending on the judgments, estimates or assumptions that are used. The most critical accounting estimates are those that are most important to the portrayal of the Company’s financial condition and results, and require the Company to make the most difficult and subjective judgments, often estimating the outcome of future events that are inherently uncertain. As of March 31, 2023, there have been no significant changes to the Company’s critical accounting estimates since the preparation of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022, except as noted below:

Goodwill and Other Intangible Assets

During the third quarter of fiscal year 2023, management made a decision to narrow the focus on core brands and streamline investment levels in the Vitamins, Minerals and Supplements (VMS) business. As a result, revisions were made to the internal financial projections and operational plans of the VMS business reflecting the Company’s current estimates regarding the future financial performance of these operations and macroeconomic factors. The revised estimated future cash flows reflect lower sales growth expectations and lower investment levels. These revisions were considered a triggering event requiring interim impairment assessments to be performed as part of the preparation of the quarterly financial statements on the global indefinite-lived trademarks, other long-term assets and the VMS reporting unit. Based on the outcome of these assessments, a $306 goodwill impairment charge was recorded during the third quarter of fiscal year 2023. There is no remaining goodwill associated with the impaired reporting unit.

In addition, impairment charges of $139 were recorded in the third quarter of fiscal year 2023 related to indefinite-lived intangible assets associated with the VMS business. The useful lives of the impaired trademarks, with a remaining net carrying value of $28 as of March 31, 2023, were changed from indefinite to definite beginning on April 1, 2023.

See Notes to Condensed Consolidated Financial Statements for further information.

Venture Agreement Terminal Obligation

The Company performed a valuation of the Glad bags and wraps business as of December 31, 2022 in connection with an update of the Company’s financial projections in the second quarter of fiscal year 2023. As of March 31, 2023 and June 30, 2022, the estimated fair value of P&G’s interest in the venture was $527 and $635, respectively, of which $492 and $468, respectively, has been recognized and is reflected in Other liabilities. See Notes to Condensed Consolidated Financial Statements for additional information on the Venture Agreement.

Fair value determination requires significant judgment, assumptions and market factors which are uncertain and subject to change. Changes in the judgments, assumptions and market factors used could result in significantly different estimates of fair value. For perspective, if the discount rate as of December 31, 2022, the date of the most recent valuation performed, were to increase or decrease by 100 basis points, the estimated fair value of P&G’s interest would decrease by approximately $54 or increase by approximately $69, respectively. Such changes would affect the amount of future charges to Cost of products sold.

NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures that are included in this MD&A and the reasons management believes they are useful to investors are described below. These measures should be considered supplemental in nature and are not intended to be a substitute for the related financial information prepared in accordance with U.S. GAAP. In addition, these measures may not be the same as similarly named measures presented by other companies.

Organic sales growth / (decrease) is defined as net sales growth / (decrease) excluding the effect of foreign exchange rate changes and any acquisitions and divestitures. Management believes that the presentation of organic sales growth / (decrease) is useful to investors because it excludes sales from any acquisitions and divestitures, which results in a comparison of sales only from the businesses that the Company was operating and expects to continue to operate throughout the relevant periods, and the Company’s estimate of the impact of foreign exchange rate changes, which are difficult to predict and out of the control of the Company and management.

The following table provides a reconciliation of organic sales growth / (decrease) (non-GAAP) to net sales growth / (decrease) (GAAP), the most comparable GAAP measure:

			Three Months Ended March 31, 2023
			Percentage change versus the year-ago period
			Health and Wellness						Household						Lifestyle						International						Total
Net sales growth / (decrease) (GAAP)			7		%				2		%				15		%				1		%				6		%
Add: Foreign Exchange			—						—						—						13						2
Add/(Subtract): Divestitures / Acquisitions			—						—						—						—						—
Organic sales growth / (decrease) (non-GAAP)			7		%				2		%				15		%				14		%				8		%
			Nine Months Ended March 31, 2023
			Percentage change versus the year-ago period
			Health and Wellness						Household						Lifestyle						International						Total
Net sales growth / (decrease) (GAAP)			—		%				2		%				5		%				(1)		%				1		%
Add: Foreign Exchange			—						—						—						11						2
Add/(Subtract): Divestitures / Acquisitions			—						—						—						—						—
Organic sales growth / (decrease) (non-GAAP)			—		%				2		%				5		%				10		%				3		%

Cautionary Statement

This Report, including the exhibits hereto and the information incorporated by reference herein, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, among others, statements related to the expected or potential impact of the novel coronavirus (COVID-19) pandemic, and the related responses of governments, consumers, customers, suppliers, employees and the Company, on our business, operations, employees, financial condition and results of operations, and any such forward-looking statements, whether concerning the COVID-19 pandemic or otherwise, involve risks, assumptions and uncertainties. Except for historical information, statements about future volumes, sales, organic sales growth, foreign currencies, costs, cost savings, margins, earnings, earnings per share, diluted earnings per share, foreign currency exchange rates, tax rates, cash flows, plans, objectives, expectations, growth or profitability are forward-looking statements based on management’s estimates, beliefs, assumptions and projections. Words such as “could,” “may,” “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “predicts,” and variations on such words, and similar expressions that reflect our current views with respect to future events and operational, economic and financial performance are intended to identify such forward-looking statements. These forward-looking statements are only predictions, subject to risks and uncertainties, and actual results could differ materially from those discussed. Important factors that could affect performance and cause results to differ materially from management’s expectations, are described in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022, and in this Report, as updated from time to time in the Company’s Securities and Exchange Commission filings. These factors include, but are not limited to:

• the impact of the changing retail environment, including the growth of alternative retail channels and business models, and changing consumer preferences;

• volatility and increases in the costs of raw materials, energy, transportation, labor and other necessary supplies or services;

• the ability of the Company to drive sales growth, increase prices and market share, grow its product categories and manage favorable product and geographic mix;

• risks related to supply chain issues, product shortages and disruptions to the business, as a result of increased supply chain dependencies due to an expanded supplier network and a reliance on certain single-source suppliers;

• the ongoing COVID-19 pandemic and related impacts, including on the availability of, and efficiency of the supply, manufacturing and distribution systems for, the Company’s products, including any significant disruption to such systems; on the demand for and sales of the Company’s products; and on worldwide, regional and local adverse economic conditions;

• intense competition in the Company’s markets;

• unfavorable general economic and political conditions beyond our control, including recent supply chain disruptions, labor shortages, wage pressures, rising inflation, the interest rate environment, fuel and energy costs, foreign currency exchange rate fluctuations, weather events or natural disasters, disease outbreaks or pandemics, such as COVID-19, terrorism, and unstable geopolitical conditions, including the conflict in Ukraine;

• risks related to the Company’s use of and reliance on information technology systems, including potential security breaches, cyber-attacks, privacy breaches or data breaches that result in the unauthorized disclosure of consumer, customer, employee or Company information, or service interruptions, especially at a time when a large number of the Company’s employees are working remotely and accessing its technology infrastructure remotely;

• the ability of the Company to implement and generate cost savings and efficiencies, and successfully implement its business strategies, including achieving anticipated results and cost savings from the implementation of the streamlined operating model;

• dependence on key customers and risks related to customer consolidation and ordering patterns;

• the Company’s ability to attract and retain key personnel, which may continue to be impacted by challenges in the labor market, such as wage inflation and sustained labor shortages;

• the Company’s ability to maintain its business reputation and the reputation of its brands and products;

• lower revenue, increased costs or reputational harm resulting from government actions and compliance with regulations, or any material costs imposed by changes in regulation;

• the ability of the Company to successfully manage global political, legal, tax and regulatory risks, including changes in regulatory or administrative activity;

• risks related to international operations and international trade, including changing macroeconomic conditions as a result of inflation, volatile commodity prices and increases in raw and packaging materials prices, labor, energy and logistics; global economic or political instability; foreign currency fluctuations, such as devaluations, and foreign currency exchange rate controls; changes in governmental policies, including trade, travel or immigration restrictions, new or additional tariffs, and price or other controls; labor claims and civil unrest; continued high levels of inflation in Argentina; potential disruption from wars and military conflicts, including the conflict in Ukraine; impact of the United Kingdom’s exit from the European Union; potential negative impact and liabilities from the use, storage and transportation of chlorine in certain international markets where chlorine is used in the production of bleach; widespread health emergencies, such as COVID-19; and the possibility of nationalization, expropriation of assets or other government action;

• the impact of Environmental, Social, and Governance (ESG) issues, including those related to climate change and sustainability on our sales, operating costs or reputation;

• the ability of the Company to innovate and to develop and introduce commercially successful products, or expand into adjacent categories and countries;

• the impact of product liability claims, labor claims and other legal, governmental or tax proceedings, including in foreign jurisdictions and in connection with any product recalls;

• risks relating to acquisitions, new ventures and divestitures, and associated costs, including for asset impairment charges related to, among others, intangible assets, including trademarks and goodwill, in particular the impairment charges related to the carrying value of the Company’s VMS business; and the ability to complete announced transactions and, if completed, integration costs and potential contingent liabilities related to those transactions;

• the accuracy of the Company’s estimates and assumptions on which its financial projections, including any sales or earnings guidance or outlook it may provide from time to time, are based;

• risks related to additional increases in the estimated fair value of P&G’s interest in the Glad business;

• environmental matters, including costs associated with the remediation and monitoring of past contamination, and possible increases in costs resulting from actions by relevant regulators, and the handling and/or transportation of hazardous substances;

• the Company’s ability to effectively utilize, assert and defend its intellectual property rights, and any infringement or claimed infringement by the Company of third-party intellectual property rights;

• the performance of strategic alliances and other business relationships;

• the effect of the Company’s indebtedness and credit rating on its business operations and financial results and the Company’s ability to access capital markets and other funding sources, as well as the cost of capital to the Company;

• the Company’s ability to pay and declare dividends or repurchase its stock in the future;

• the impacts of potential stockholder activism; and

• risks related to any litigation associated with the exclusive forum provision in the Company’s bylaws.

The Company’s forward-looking statements in this Report are based on management’s current views, beliefs, assumptions and expectations regarding future events and speak only as of the date of this Report. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws.

In this Report, unless the context requires otherwise, the terms “the Company,” “Clorox,” “we,” “us,” and “our” refer to The Clorox Company and its subsidiaries.