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financial stAtements

Condensed Consolidated Statements of Earnings

Years ended June 30
Dollars in millions, except share and per share data
2018 2017 2016
Net sales $ 6,124 $ 5,973 $ 5,761
Cost of products sold 3,449 3,302 3,163
Gross profit 2,675 2,671 2,598
Selling and administrative expenses 837 810 806
Advertising costs 570 599 587
Research and development costs 132 135 141
Interest expense 85 88 88
Other (income) expense, net (3) 6 (7)
Earnings from continuing operations before income taxes 1,054 1,033 983
Income taxes on continuing operations 231 330 335
Earnings from continuing operations 823 703 648
Losses from discontinued operations, net of tax (2)
Net earnings $ 823 $ 701 $ 648
Net earnings (losses) per share
Basic
Continuing operations $ 6.37 $ 5.45 $ 5.01
Discontinued operations (0.02)
Basic net earnings per share $ 6.37 $ 5.43 $ 5.01
Diluted
Continuing operations $ 6.26 $ 5.35 $ 4.92
Discontinued operations (0.02)
Diluted net earnings per share $ 6.26 $ 5.33 $ 4.92
Weighted average shares outstanding (in thousands)
Basic 129,293 128,953 129,472
Diluted 131,581 131,566 131,717

Condensed Consolidated Statements of Comprehensive Income

Years ended June 30
Dollars in millions
2018 2017 2016
Earnings from continuing operations $ 823 $ 703 $ 648
Losses from discontinued operations, net of tax (2)
Net earnings 823 701 648
Other comprehensive income (losses)
Foreign currency adjustments, net of tax (28) (3) (53)
Net unrealized gains (losses) on derivatives, net of tax 12 7 9
Pension and postretirement benefit adjustments, net of tax 12 23 (24)
Total other comprehensive income (losses), net of tax (4) 27 (68)
Comprehensive income $ 819 $ 728 $ 580

Condensed Consolidated Balance Sheets

As of June 30
Dollars in millions, except share and per share data
2018 2017
ASSETS
Current assets
Cash and cash equivalents $ 131 $ 418
Receivables, net 600 565
Inventories, net 506 459
Prepaid expenses and other current assets 74 72
Total current assets 1,311 1,514
Property, plant and equipment, net 996 931
Goodwill 1,602 1,196
Trademarks, net 795 654
Other intangible assets, net 134 68
Other assets 222 210
Total assets $ 5,060 $ 4,573
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Notes and loans payable $ 199 $ 404
Current maturities of long-term debt 400
Accounts payable and accrued liabilities 1,001 1,005
Total current liabilities 1,200 1,809
Long-term debt 2,284 1,391
Other liabilities 778 770
Deferred income taxes 72 61
Total liabilities 4,334 4,031
Commitments and contingencies
Stockholders’ equity
Preferred stock: $1.00 par value; 5,000,000 shares authorized; none issued or outstanding
Common stock: $1.00 par value; 750,000,000 shares authorized; 158,741,461 shares issued
as of June 30, 2018 and 2017; and 127,982,767 and 129,014,172 shares outstanding as of
June 30, 2018 and 2017, respectively
159 159
Additional paid-in capital 975 928
Retained earnings 2,797 2,440
Treasury shares, at cost: 30,758,694 and 29,727,289 shares as of June 30, 2018 and 2017, respectively (2,658) (2,442)
Accumulated other comprehensive net (losses) income (547) (543)
Stockholders’ equity 726 542
Total liabilities and stockholders’ equity $ 5,060 $ 4,573

Condensed Consolidated Statements of Stockholders’ Equity

Dollars in millions Shares
(in thousands)
Amount Additional
Paid-in
Capital
Retained
Earnings
Shares
(in thousands)
Amount Accumulated
Other
Comprehensive
Net (Losses)
Income
Total
Balance as of June 30, 2015 158,741 $159 $775 $1,923 (30,127) $(2,237) $(502) $118
Net earnings 648 648
Other comprehensive income (loss) (68) (68)
Accrued dividends (406) (406)
Stock-based compensation 45 45
Other employee stock plan activities 48 (2) 2,892 168 214
Treasury stock purchased (2,151) (254) (254)
Balance as of June 30, 2016 158,741 159 868 2,163 (29,386) (2,323) (570) 297
Net earnings 701 701
Other comprehensive income (loss) 27 27
Accrued dividends (421) (421)
Stock-based compensation 51 51
Other employee stock plan activities 9 (3) 1,164 70 76
Treasury stock purchased (1,505) (189) (189)
Balance as of June 30, 2017 158,741 159 928 2,440 (29,727) (2,442) (543) 542
Net earnings 823 823
Other comprehensive income (loss) (4) (4)
Accrued dividends (467) (467)
Stock-based compensation 53 53
Other employee stock plan activities (6) 1 1,139 56 51
Treasury stock purchased (2,171) (272) (272)
Balance as of June 30, 2018 158,741 $159 $975 $2,797 (30,759) $(2,658) $(547) $726

Condensed Consolidated Statements of Cash Flows

Years ended June 30
Dollars in millions
2018 2017 2016
Operating activities:
Net earnings $ 823 $ 701 $ 648
Deduct: Losses from discontinued operations, net of tax (2)
Earnings from continuing operations 823 703 648
Adjustments to reconcile earnings from continuing operations to net cash
provided by continuing operations:
Depreciation and amortization 166 163 165
Stock-based compensation 53 51 45
Deferred income taxes (23) (35) 5
Other 43 36 1
Changes in:
Receivables, net (24) (1) (52)
Inventories, net (21) (19) (45)
Prepaid expenses and other current assets 3 (5) 6
Accounts payable and accrued liabilities (47) (34) 57
Income taxes payable 1 12 (62)
Net cash provided by continuing operations 974 871 768
Net cash (used for) provided by discontinued operations (3) 10
Net cash provided by operations 974 868 778
Investing activities:
Capital expenditures (194) (231) (172)
Businesses acquired, net of cash acquired (681) (290)
Other 16 26 32
Net cash used for investing activities (859) (205) (430)
Financing activities:
Notes and loans payable, net (214) (125) 426
Long-term debt borrowings, net of issuance costs 891
Long-term debt repayments (400) (300)
Treasury stock purchased (271) (183) (254)
Cash dividends paid (450) (412) (398)
Issuance of common stock for employee stock plans and other 45 75 210
Net cash used for financing activities (399) (645) (316)
Effect of exchange rate changes on cash and cash equivalents (3) (1) (13)
Net increase (decrease) in cash and cash equivalents (287) 17 19
Cash and cash equivalents:
Beginning of year 418 401 382
End of year $ 131 $ 418 $ 401
Supplemental cash flow information:
Interest paid $ 75 $ 78 $ 79
Income taxes paid, net of refunds 245 347 323
Non-cash financing activities:
Cash dividends declared and accrued, but not paid 123 108 104

Report of Independent Registered Public Accounting Firm on Condensed Financial Statements

The Board of Directors and Stockholders of The Clorox Company

We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Clorox Company as of June 30, 2018 and 2017, the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2018, the related notes and the financial statement schedule in Exhibit 99.2 (collectively referred to as the “consolidated financial statements”) (not presented separately herein) and in our report dated August 14, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements as of June 30, 2018 and 2017 and for each of the three years in the period ended June 30, 2018 (presented on pages 49 through 51) is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of The Clorox Company’s internal control over financial reporting as of June 30, 2018, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated August 14, 2018 (not presented separately herein) expressed an unqualified opinion thereon.

San Francisco, CA
August 14, 2018

Report of Independent Accountants on Review of Nonfinancial Information

The Board of Directors and Stockholders of The Clorox Company

We have reviewed selected quantitative performance indicators (the “Subject Matter”) included in Exhibit A and as identified by the “” symbol presented in The Clorox Company’s (“Clorox” or “the Company”) Annual Report for the year ended June 30, 2018, or otherwise noted, in accordance with the criteria also set forth in Exhibit A (the “Criteria”). The Clorox Company’s management is responsible for the Subject Matter included in Exhibit A, in accordance with the Criteria. Our responsibility is to express a conclusion on the Subject Matter based on our review.

Our review was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants (AICPA) in AT-C section 105, Concepts Common to All Attestation Engagements, and AT-C section 210, Review Engagements. Those standards require that we plan and perform our review to obtain limited assurance about whether any material modifications should be made to the Subject Matter in order for it to be in accordance with the Criteria. A review consists principally of applying analytical procedures, making inquiries of persons responsible for the subject matter, obtaining an understanding of the data management systems and processes used to generate, aggregate and report the Subject Matter and performing such other procedures as we considered necessary in the circumstances. A review is substantially less in scope than an examination, the objective of which is to obtain reasonable assurance about whether the Subject Matter is in accordance with the Criteria, in all material respects, in order to express an opinion. Accordingly, we do not express such an opinion. A review also does not provide assurance that we became aware of all significant matters that would be disclosed in an examination. We believe that our review provides a reasonable basis for our conclusion.

In performing our review, we have complied with the independence and other ethical requirements of the Code of Professional Conduct issued by the AICPA.

We applied the Statements on Quality Control Standards established by the AICPA and, accordingly, maintain a comprehensive system of quality control.

As described in Exhibit A, the Subject Matter is subject to measurement uncertainties resulting from limitations inherent in the nature and the methods used for determining such data. The selection of different but acceptable measurement techniques can result in materially different measurements. The precision of different measurement techniques may also vary.

Based on our review, we are not aware of any material modifications that should be made to the selected quantitative performance indicators for the year ended June 30, 2018, or otherwise noted, in order for it to be in accordance with the Criteria.

San Francisco, CA
September 21, 2018

Exhibit A: Schedule of Selected Quantitative Performance Indicators

Indicator Name Scope Unit Value1 Criteria
Scope 1, 2, and 3 greenhouse gas (GHG) emissions2, 3, 4, 5, 6 Global Percentage reduction of tCO2e per stat case sold over baseline year (2011)7 -32% The World Resources Institute (“WRI”) / World Business Council for Sustainable Development’s (“WBCSD”) Greenhouse Gas (“GHG”) Protocol Corporate Accounting and Reporting Standard, the GHG Protocol Scope 2 Guidance and the GHG Protocol Corporate Value Chain (Scope 3) Standard
Energy consumption, Scope 1 and 22, 3, 4, 5 Global Percentage reduction of MWh per stat case sold over baseline year (2011)7 -17% WRI/WBCSD’s GHG Protocol Corporate Accounting and Reporting Standard, the GHG Protocol Scope 2 Guidance
Water consumption2, 4 Global Percentage reduction of gallons of water consumed per stat case sold over baseline year (2011)7 -22% Management’s criteria as follows: Water consumption includes water at all global manufacturing sites, offices and research development centers used in 1) products sold to customers 2) the manufacturing process 3) irrigation and 4) water consumed by employees during office hours for personal needs (i.e. restrooms, break rooms). Water sources include city/municipal, well, lake, river and storm water.
Sustainability improvements to product portfolio since January 20128 Global Percentage of product portfolio 49% Management’s criteria as follows: There are four types of sustainability improvement criteria that can be met either by fully meeting one or by partially meeting two or more: 1) a 5 percent or more reduction in product or packaging materials on a per-consumer-use basis; 2) an environmentally beneficial change to 10 percent or more of packaging or active ingredients on a per-consumer-use basis; 3) a 10 percent reduction in required usage of water or energy by consumer; or 4) an environmentally beneficial sourcing change to 20 percent or more of active ingredients or packaging on a per-consumer-use basis.
Workforce
demographics/diversity metrics9
See right for metric scope Percentage minority nonproduction employees in U.S. 32% OSHA Regulation 1920.2(d) defines “Employee” as an individual who is employed in a business of his employer which affects commerce. The Equal Employment Opportunity Commission defines “Minority” as any race that is not white (Asian; Black; Latino; Native American; Native Hawaiian; or Two or More).

Management’s criteria as follows: “Manager” is defined as an “employee” at Grade 27 or above for U.S. employees and Grade 26 or above for international employees with regards to Clorox’s Human Resources (HR) compensation structure. “Production Employee” is defined as an employee at Grade 19 or below with regards to Clorox’s HR compensation structure (international and U.S.). “Non-Production Employee” is defined as an employee at Grade 20 or above with regards to Clorox’s HR compensation structure (international and U.S.). In certain circumstances, nonproduction employees may be classified below Grade 20 based on type of work performed.

U.S. Census Bureau benchmark metrics are based on the U.S. Census Bureau’s Equal Employment Opportunity (EEO) Tabulation 2006-2010, American Community Survey 5-year dataset. The benchmarks are modeled using Clorox’s workforce as of June 30, 2018. The calculations utilize weighted averages by U.S. Census job code and apply approximate workforce location assumptions based on Clorox’s historical workforce locations and headcount trends.
Percentage minority nonproduction managers in U.S. 28%
Percentage female nonproduction employees globally 51%
Percentage female nonproduction managers globally 43%
Percentage female Board of Directors 33%
Percentage minority Board of Directors 33%
Percentage female Executive Committee members 33%
U.S. Census Bureau benchmark percentage for minority non-production managers in the U.S. 30%
U.S. Census Bureau benchmark percentage for minority non-production employees in the U.S. 33%
U.S. product donations9,10 U.S. only Fair market value of products donated in U.S. dollars $14.4
million
Management’s criteria as follows: U.S. product donations refer to those donations used to aid in disaster relief or to support schools, food banks, and other non-profit organizations. Fair Market Value is derived from current year average truckload price of the product donated. Truckload prices are based on volume ordered and shipped.
Total recordable incident rate11 Global Recordable incident rate (RIR) 0.82 Occupational Health and Safety Administration (OSHA) Regulation (Standards – 29 CFR) Part 1904 “Recording and Reporting Occupational Injuries and Illness”
Employee engagement score12 Global Percentage of employee engagement 88% Management’s criteria as follows: Engagement is defined as the intensity of employees’ connection to Clorox, marked by committed effort to achieve work goals (‘being engaged’) in environments that support productivity (‘being enabled’) and maintain personal well-being (‘feeling energized’).

Note 1: Non-financial information is subject to measurement uncertainties resulting from limitations inherent in the nature and the methods used for determining such data. The selection of different but acceptable measurement techniques can result in materially different measurements. The precision of different measurement techniques may also vary.

1 All percentages are rounded to the nearest whole number in the Annual Report.

2 For all locations where Clorox maintains operational control and for the calendar year ended Dec. 31, 2017.

3 Scope 1 emissions include direct energy used by Clorox in its operations, categorized by stationary combustion, mobile combustion, refrigerant use, direct VOC loss and direct wood pyrolysis. The last two sources relate mainly to Clorox’s Kingsford business unit, and wood pyrolysis is considered to be a mostly carbon neutral process; therefore CO2 emissions from wood pyrolysis are not included in total tCO2e, but CO2 equivalent emissions from CH4 and N2O are included. Natural gas emissions, the largest Scope 1 emission source, are calculated using factors from EPA Mandatory GHG Reporting for Stationary Fuel Sources (June 2017) and Global Warming Potential (GWP) rates from the Intergovernmental Panel on Climate Change’s (IPCC) Fourth Assessment Report.

4 Clorox’s natural gas, electricity and municipal water consumption data for U.S. sites are tracked by Clorox’s third-party utility management company. Other sources of energy and water consumption in the U.S. are tracked manually on a site by site basis and reported to Clorox’s corporate team on an annual basis. For international sites, all energy and water consumption data is tracked manually and reported annually to Clorox’s corporate team.

5 Scope 2 includes indirect emissions resulting from Clorox’s purchased electricity use and is calculated using the Environmental Protection Agency’s (EPA) 2016 eGRID emission factors for U.S. locations and the Energy Information Administration’s (EIA) Foreign Electricity Emission Factors published in 2007 for international locations. Clorox applies GWPs from the IPCC’s Fourth Assessment Report. For the Scope 2 market-based-method, Clorox contacted its largest utility suppliers, however was unable to obtain supplier specific emission factors. Clorox does not purchase any renewable energy certificates or other contractual instruments and residual mix factors are not currently available in the locations in which Clorox operates. Due to the lack of market-based data available, Clorox’s market-based emissions were calculated following the same process as the location-based-method emissions.

6 Scope 3 includes finished goods transportation in the U.S. only and global employee business travel. Employee business travel includes emissions from commercial air flights and rental car use by Clorox’s employees. Commercial air flights are limited to business travel booked in the United States, United Kingdom, Hong Kong, Chile, Mexico, Peru and Canada. In 2017, the company changed its calculation methodology for Scope 3 emissions as the U.S. EPA guidance stopped supporting the methodology the company previously adopted. In the current year, Scope 3 emissions for business travel are calculated using ‘per vehicle-mile traveled’ and ‘per passenger-mile traveled’ emissions factors from the EPA’s Center for Corporate Climate Leadership guidance, published in 2018. Emissions from finished goods transportation are calculated using ‘per ton-mile’ emission factors, from the same guidance. In prior years, Scope 3 emissions were calculated based on fuel usage, using the EPA’s ‘btu/ton-mile’ and ‘GHG emissions per unit of fuel’ emission factors. As these factors are no longer being provided by the EPA, Clorox calculated Scope 3 emissions using the revised approach in the current year, and also updated its 2011 baseline in order to accurately compare GHG emissions overtime.

7 A stat case is the number of cases sold or produced multiplied by a stat factor which normalizes case value between brands and provides a common denominator of the revenue generated by cases across various brands.

8 Once a product meets the sustainability improvement criteria, it is reported to the Clorox Eco Team by each business unit and the sustainability improvement percentage is calculated for that product using its fiscal year net customer sales as a percentage of Clorox’s total fiscal year net customer sales. The total sustainability improvements percentage represents the summation of all sustainability improvement percentages for products that met the criteria between Jan. 1, 2012 and Dec. 31, 2017.

9 For the fiscal year ended June 30, 2018.

10 U.S. product donations include donations made by any U.S. business unit.

11 Recordable incident rate was determined as of July 9, 2018, for the fiscal year ended June 30, 2018. The recordable incident rate includes all reportable incidents that occurred at Clorox facilities globally. It does not include remote Clorox facilities that have fewer than 30 employees.

12 Clorox adopts Willis Towers Watson’s definition of employee engagement in terms of ‘sustainable’ engagement. Employee engagement is measured by a survey administered March 12, 2018 through March 30, 2018. 6,350 Clorox employees responded to the survey.