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, 2023, which was filed with the SEC on August 10, 2023, 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 month period ended September 30, 2023 (the current period) to the three month period ended September 30, 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

The Clorox Company is a leading multinational manufacturer and marketer of consumer and professional products with approximately 8,700 employees worldwide. 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, cleaning and disinfecting products, Pine-Sol® and Tilex® cleaners; Liquid-Plumr® clog removers; Poett® home care products; Glad® bags and wraps; Fresh Step® cat litter; Kingsford® grilling products; Hidden Valley® dressings, dips, seasonings and sauces; Burt’s Bees® natural personal care products; Brita® water-filtration products; and Natural Vitality®, RenewLife®, NeoCell® and Rainbow Light® vitamins, minerals and supplements. The Company also markets industry-leading products and technologies for professional customers, including those sold under the CloroxPro™ and Clorox Healthcare® brand names.

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

The Company operates through strategic business units (SBUs) which are organized into operating segments. Operating segments are then aggregated into four reportable segments: Health and Wellness, Household, Lifestyle and International. 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 mainly marketed and sold in the United States. Products within this segment include home care cleaning 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, natural personal care products and water-filtration products marketed and sold in the United States. Products within this segment include dressings, dips, seasonings and sauces, primarily under the Hidden Valley brand; natural personal care products under the Burt’s Bees brand; and water-filtration products under the Brita brand.

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

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.

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 and the vast majority of orders are taking place in an automated manner. The Company expects to experience ongoing, but lessening, operational impacts in the second quarter as it makes progress in returning to normalized operations.

The effects of the cyberattack are expected to negatively impact fiscal year 2024 results, though some of the anticipated net sales not recognized in the first quarter as a result of the disruptions are expected to be recognized in subsequent quarters of fiscal year 2024 as customers rebuild inventories.

The Company also incurred incremental expenses of approximately $24 as a result of the cyberattack for the three months ended September 30, 2023. 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 expects to incur additional costs related to the cyberattack in future periods.

The Company has not recognized any insurance proceeds in the three months ended September 30, 2023 related to the cyberattack. The timing of recognizing insurance recoveries, if any, may differ from the timing of recognizing the associated expenses.

Other Recent Events

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

The risks of future negative impacts due to transportation, logistical or supply constraints and higher commodity costs for certain raw materials remain present, and the Company continues to experience corresponding incremental costs and gross margin pressures. For fiscal year 2024, the Company anticipates the operating environment will remain volatile and challenging. Inflationary headwinds are expected to continue and consumers may feel greater pressure as continued macroeconomic uncertainty impacts spending. The Company will continue to invest in its brands, capabilities and people to deliver consistent, profitable growth over time. The Company announced and began implementing a streamlined operating model in fiscal year 2023 and will continue with its implementation in fiscal year 2024.

The impact of continued inflationary pressures, macroeconomic conditions and geopolitical instability, including ongoing conflicts 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, refer to Item 1.A, “Risk Factors” of this report and “Risk Factors” included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

			Three months ended
			9/30/2023						9/30/2022						% Change
Net sales			$	1,386					$	1,740					(20)		%

			Three months ended September 30, 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			(23)		%	(29)		%				—		%	—		%	6		%	(23)		%	(29)		%
Household			(23)			(30)						—			—			7			(23)			(30)
Lifestyle			(28)			(37)						—			—			9			(28)			(37)
International			(5)			(13)						—			(14)			22			9			(13)
Total Company (4)			(20)		%	(26)		%				—		%	(2)		%	8		%	(18)		%	(26)		%

(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.

(4)Total Company includes Corporate and Other.

Net sales and volume in the current period decreased by 20% and 26%, respectively, primarily driven by lower volume resulting from the cyberattack. The variance between volume and net sales was primarily due to the impact of favorable price mix.

			Three months ended
			9/30/2023						9/30/2022						% Change
Gross profit			$	532					$	626					(15)		%
Gross margin			38.4		%				36.0		%

Gross margin increased by 240 basis points in the current period from 36.0% to 38.4%. The increase was primarily driven by the benefit of pricing and cost savings, partially offset by the impact of lower volume.

Expenses

			Three months ended
																					% of Net Sales
			9/30/2023						9/30/2022						% Change						9/30/2023						9/30/2022
Selling and administrative expenses			$	276					$	261					6		%				19.9		%				15.0		%
Advertising costs			165						161						2						11.9						9.3
Research and development costs			29						32						(9)						2.1						1.8

Selling and administrative expenses, as a percentage of net sales, increased by 490 basis points in the current period versus the prior period. The increase in selling and administrative expenses as a percentage of net sales was primarily due to an arbitral decision relating to a commercial dispute, incremental costs associated with the cyberattack and the Company’s digital capabilities and productivity enhancements investment, partially offset by the benefit of cost savings primarily related to implementation of the streamlined operating model.

RESULTS OF OPERATIONS (Continued)

For further information regarding the cyberattack and the Company’s digital capabilities and productivity enhancements investment, see Non-GAAP Financial Measures.

Advertising costs, as a percentage of net sales, increased by 260 basis points in the current period versus the prior period as a result of lower net sales from the cyberattack, while dollars were essentially flat. The Company’s U.S. retail advertising spend as a percentage of net sales increased from 11% to 14% versus the prior period.

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

Interest expense, Other (income) expense, net and the effective tax rate on earnings

			Three months ended
			9/30/2023						9/30/2022
Interest expense			21						$	22
Other (income) expense, net			12						34
Effective tax rate on earnings			14.6		%				25.0		%

Other (income) expense, net was $12 and $34 in the current and prior period, respectively. The variance was primarily due to restructuring and related implementation costs associated with the streamlined operating model incurred in the prior 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 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 $35 realized in fiscal year 2023 and benefits of approximately $45 to $50 anticipated in fiscal year 2024. The benefits of the streamlined operating model are currently expected to increase future cash flows as a result of cost savings that will be generated primarily in the areas of selling and administration, supply chain, marketing and research and development.

The Company incurred $60 of costs in fiscal year 2023 and anticipates incurring approximately $30 to $40 of costs in fiscal year 2024 related to this initiative of which approximately $10 to $15 are expected to be employee-related costs to reduce certain staffing levels such as severance payments, with the remainder for consulting and other costs. Costs incurred are expected to be settled primarily in cash.

Restructuring and related implementation costs, net were $0 for the three months ended September 30, 2023. Restructuring and related implementation costs, net were $19 for the three months ended September 30, 2022, of which $16 was related to employee-related costs and $3 was related to other costs. For further details on the streamlined operating model and restructuring, refer to the notes to condensed consolidated financial statements.

The effective tax rate on earnings was 14.6% for the current period and 25.0% for the prior period. The lower tax rate on earnings was primarily driven by the impact of temporary relief provided by the Internal Revenue Service relating to U.S. foreign tax credit regulations.

Diluted net earnings per share

			Three months ended
			9/30/2023						9/30/2022						% Change
Diluted net earnings per share			$	0.17					$	0.68					(75)		%

Diluted net earnings per share (EPS) decreased by $0.51, or 75%, in the current period, primarily due to the impact of lower volume, partially offset by the benefits of pricing and cost savings.

SEGMENT RESULTS

The following presents the results of the Company’s reportable segments and Corporate and Other (see notes to condensed 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)):

			Net sales
			Three months ended
			9/30/2023						9/30/2022
Health and Wellness			$	504					$	657
Household			325						423
Lifestyle			229						320
International			270						285
Corporate and Other			58						55
Total			$	1,386					$	1,740

			Segment adjusted EBIT (1)
			Three months ended
			9/30/2023						9/30/2022
Health and Wellness			$	104					$	133
Household			(4)						22
Lifestyle			19						60
International			34						23
Corporate and Other			(62)						(63)
Total			$	91					$	175
Interest income			10						2
Interest expense			(21)						(22)
Cyberattack costs			(24)						—
Streamlined operating model			—						(19)
Digital capabilities and productivity enhancements investment			(27)						(20)
Earnings before income taxes			$	29					$	116

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

Health and Wellness

			Three months ended
			9/30/2023						9/30/2022						% Change
Net sales			$	504					$	657					(23)		%
Segment adjusted EBIT			104						133						(22)

Volume, net sales and segment adjusted EBIT decreased by 29%, 23% and 22% respectively, during the current period. The volume and net sales decreases were primarily due to operational disruptions resulting from the cyberattack. The variance between volume and net sales was primarily due to the benefit of price increases. The decrease in segment adjusted EBIT in the current period was primarily due to lower volume partially offset by the benefits of pricing.

Household

			Three months ended
			9/30/2023						9/30/2022						% Change
Net sales			$	325					$	423					(23)		%
Segment adjusted EBIT			(4)						22						(118)

SEGMENT RESULTS (Continued)

Volume, net sales and segment adjusted EBIT decreased by 30%, 23% and 118%, respectively, during the current period. The volume and net sales decreases were primarily due to operational disruptions resulting from the cyberattack. The variance between volume and net sales was primarily due to the benefit of price increases. The decrease in segment adjusted EBIT was mainly due to lower volume, partially offset by cost savings and the benefit of pricing.

Lifestyle

			Three months ended
			9/30/2023						9/30/2022						% Change
Net sales			$	229					$	320					(28)		%
Segment adjusted EBIT			19						60						(68)

Volume, net sales and segment adjusted EBIT decreased by 37%, 28% and 68% respectively, during the current period. The volume and net sales decreases were primarily due to operational disruptions resulting from the cyberattack. The variance between volume and net sales was mainly due to the benefit of mix and price increases. The decrease in segment adjusted EBIT was due to lower volume partially offset by lower manufacturing and logistics costs.

International

			Three months ended
			9/30/2023						9/30/2022						% Change
Net sales			$	270					$	285					(5)		%
Segment adjusted EBIT			34						23						48

Volume and net sales decreased by 13% and 5% respectively, and segment adjusted EBIT increased by 48% during the current period. The volume decrease was primarily due to operational disruptions resulting from the cyberattack. 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 increase in segment adjusted EBIT was primarily due to the net impact of pricing, partially offset by unfavorable foreign currency exchange rates and lower volume.

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, utilizing the official Argentine government exchange rate.

The business environment in Argentina continues to be challenging due to significant volatility in Argentina’s currency, high inflation, economic recession and temporary price controls. As of September 30, 2023 and June 30, 2023, the net asset position, excluding goodwill, of Clorox Argentina was $44 and $48, respectively. Of these net assets, cash balances were approximately $23 and $28 as of September 30, 2023 and June 30, 2023, respectively. Net sales from Clorox Argentina represented approximately 2% of the Company’s consolidated net sales for both the three months ended September 30, 2023 and the fiscal year ended June 30, 2023.

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, 2023.

Corporate and Other

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

			Three months ended
			9/30/2023						9/30/2022						% Change
Net Sales			$	58					$	55					5		%
Segment adjusted EBIT			(62)						(63)						(2)

SEGMENT RESULTS (Continued)

Net sales increased by 5% due to higher net sales in the VMS business. Segment adjusted EBIT was essentially flat for the period.

FINANCIAL POSITION AND LIQUIDITY

The Company’s financial condition and liquidity remained strong as of September 30, 2023. The following table summarizes cash activities:

			Three months ended
			9/30/2023						9/30/2022
Net cash provided by operations			$	20					$	178
Net cash used for investing activities			(23)						(45)
Net cash provided by (used for) financing activities			155						(35)

Operating Activities

Net cash provided by operations was $20 in the current three month period, compared with $178 in the prior three month period. The decrease was primarily driven by higher employee incentive compensation paid in the current three month period and lower cash earnings in the current three month period, partially offset by lower working capital. The lower cash earnings and decrease in working capital in the current three month period, primarily due to lower Accounts Receivable, were a result of the operational disruption due to the cyberattack.

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. 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 the condensed consolidated financial statements for detail on the SCF program.

Investing Activities

Net cash used for investing activities was $23 in the current three month period, compared with $45 in the prior three month period. The year-over-year decrease was mainly due to the timing of payments in the current three month period as a result of the operational disruption due to the cyberattack.

Financing Activities

Net cash provided by financing activities was $155 in the current three month period, compared with net cash used for financing activities of $35 in the prior three month period. The year-over-year increase was mainly due to higher cash sourced from short term borrowings in the current three 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. 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 its 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.

FINANCIAL POSITION AND LIQUIDITY (Continued)

Credit Arrangements

As of September 30, 2023, the Company maintained a $1,200 revolving credit agreement that matures in March 2027 (the Credit Agreement). There were no borrowings under the Credit Agreement as of September 30, 2023 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 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 September 30, 2023 and anticipates being in compliance with all restrictive covenants for the foreseeable future.

As of September 30, 2023, the Company maintained $33 of foreign and other credit lines, of which $11 was outstanding.

Stock Repurchases and Dividend Payments

As of September 30, 2023, the Company had two stock repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $2,000, which has no expiration date, and 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 September 30, 2023 and 2022.

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

			Three months ended
			9/30/2023						9/30/2022
Dividends per share declared			$	2.40					$	2.36
Total dividends paid			149						145

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.

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.

Adjusted earnings (losses) before interest and income taxes (adjusted EBIT) represents earnings (losses) before income taxes excluding interest income, interest expense and other significant items that are nonrecurring or unusual (such as incremental costs 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 and other nonrecurring or unusual items impacting comparability). The Company uses this measure to assess the operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance, and allocate resources to each segment. Management believes that the presentation of adjusted EBIT is useful to investors to assess operating performance on a consistent basis by removing the impact of the items that management believes does not directly reflect the performance of each segment's underlying operations. Adjusted EBIT margin is the ratio of adjusted EBIT to net sales.

			Reconciliation of earnings (losses) before income taxes to adjusted EBIT
			Three months ended
			9/30/2023						9/30/2022
Earnings (losses) before income taxes			$	29					$	116
Interest income			(10)						(2)
Interest expense			21						22
Cyberattack costs (1)			24						—
Streamlined operating model (2)			—						19
Digital capabilities and productivity enhancements investment (3)			27						20
Adjusted EBIT			$	91					$	175

(1)Represents incremental costs incurred as a result of the cyberattack the Company experienced in the first quarter of fiscal year 2024. Due to the nature, scope and magnitude of these costs, the Company’s management believes presenting theses costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the Company’s operations and is useful for period over period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by Company management. See notes to condensed consolidated financial statements for additional information.

(2)Represents restructuring and related implementation costs, net for the streamlined operating model. Due to the nonrecurring and unusual nature of these costs, the company's management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the company's operations and is useful for period over period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by company management. See notes to condensed consolidated financial statements for additional information.

(3)Represents expenses related to the Company's digital capabilities and productivity enhancements investment. Due to the nature, scope and magnitude of this investment, these costs are considered by management to represent incremental transformational costs above the historical normal level of spending for information technology to support operations. Since these strategic investments, including incremental operating costs, will cease at the end of the investment period, are not expected to recur in the foreseeable future and are not considered representative of the company's underlying operating performance, the company's management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the company's operations and is useful for period-over-period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by company management.

Of the total $500 million investment, approximately 65% is expected to represent incremental operating costs primarily recorded within selling and administrative expenses to be adjusted from reported Earnings (losses) before income taxes for purposes of disclosing adjusted EBIT over the course of the next five years. About 70% of these operating costs are expected to be related to the implementation of the ERP, with the remaining costs primarily related to the implementation of complementary technologies.

During the three months ended September 30, 2023 and 2022, the Company incurred approximately $27 and $20, respectively, of operating expenses related to its digital capabilities and productivity enhancements investment. The expenses relate to the following:

			Three months ended
			9/30/2023						9/30/2022
External consulting fees (1)			$	21					$	16
IT project personnel costs (2)			2						1
Other (3)			4						3
Total			$	27					$	20

NON-GAAP FINANCIAL MEASURES (Continued)

(1)Comprised of third-party consulting fees incurred to assist in the project management and the preliminary project stage of this transformative investment. The Company relies on consultants for certain capabilities required for these programs that the Company does not maintain internally. These costs support the implementation of these programs incremental to the Company's normal IT costs and will not be incurred following implementation.

(2)Comprised of labor costs associated with internal IT project management teams that are utilized to oversee the new system implementations. Given the magnitude and transformative nature of the implementations planned, the necessary project management costs are incremental to the historical levels of spend and will no longer be incurred subsequent to implementation. As a result of this long-term strategic investment, the Company considers these costs not reflective of the ongoing costs to operate its business.

(3)Comprised of various other expenses associated with the Company’s new system implementations, including company personnel dedicated to the project that have been backfilled with either permanent or temporary resources in positions that are considered part of normal operating expenses.

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 September 30, 2023
			Percentage change versus the year-ago period
			Health and Wellness						Household						Lifestyle						International						Total Company (1)
Net sales growth / (decrease) (GAAP)			(23)		%				(23)		%				(28)		%				(5)		%				(20)		%
Add: Foreign Exchange			—						—						—						14						2
Add/(Subtract): Divestitures / Acquisitions			—						—						—						—						—
Organic sales growth / (decrease) (non-GAAP)			(23)		%				(23)		%				(28)		%				9		%				(18)		%

(1)Total Company includes Corporate and Other.

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 regarding the expected or potential impact of the Company’s operational disruption stemming from a cyberattack, and any such forward-looking statements 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, 2023, 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:

• unfavorable general economic and geopolitical conditions beyond our control, including 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 ongoing conflicts in the Middle East and Ukraine and rising tensions between China and Taiwan, as well as macroeconomic and geopolitical volatility and uncertainty as a result of a number of these and other factors, including actual and potential shifts between the U.S. and its trading partners, especially China;

CAUTIONARY STATEMENT (Continued)

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

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

• 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;

• intense competition in the Company’s markets;

• risks related to the Company’s use of and reliance on information technology systems, including potential and actual security breaches, cyberattacks, privacy breaches or data breaches that result in the unauthorized disclosure of consumer, customer, employee or Company information, business, service or operational disruptions, or that impact the Company’s financial results or financial reporting, or any resulting unfavorable outcomes, increased costs or legal proceedings;

• the ability of the Company to implement and generate cost savings and efficiencies, and successfully implement its transformational initiatives or strategies, including achieving anticipated benefits and cost savings from the implementation of the streamlined operating model and digital capabilities and productivity enhancements;

• 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;

• changes to our processes and procedures as a result of our digital capabilities and productivity enhancements investment that may result in changes to the Company’s internal controls over financial reporting;

• 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 operational or supply chain disruptions 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;

• the 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;

CAUTIONARY STATEMENT (Continued)

• 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 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.