Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in millions, except per share amounts)

 

Overview

 

The Clorox Company (the Company or Clorox) is a leading manufacturer and marketer of consumer products. The Company sells its products primarily through mass merchandisers, grocery stores and other retail outlets. Clorox markets some of consumers’ most trusted and recognized brand names, including its namesake bleach and cleaning products, Green Works™ natural cleaners and laundry products, Poett ® and Mistolín ® cleaning products, Armor All ® and STP ® auto-care products, Fresh Step ® and Scoop Away ® cat litter, Kingsford ® charcoal, Hidden Valley ® and K C Masterpiece ® dressings and sauces, Brita ® water-filtration systems, Glad ® bags, wraps and containers, and Burt’s Bees ® natural personal care products. With approximately 8,300 employees worldwide, the Company manufactures products in more than two dozen countries and markets them in more than 100 countries.

 

The Company operates through strategic business units which are aggregated into four reportable segments: Cleaning, Household, Lifestyle and International. The four reportable segments consist of the following:

Corporate includes certain nonallocated administrative costs, interest income, interest expense and certain other nonoperating income and expenses. Corporate assets include cash and cash equivalents, the Company’s headquarters and research and development facilities, information systems hardware and software, pension balances and other investments.

 

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

 

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Volume growth of 3% for the current quarter was primarily driven by increased shipments of Clorox ® disinfecting wipes, although the growth rate decreased due to reduced concerns about H1N1 flu and a mild general flu season, Hidden Valley ® salad dressings and Fresh Step ® cat litter. Also contributing to the increase in shipments were Kingsford ® charcoal and disinfecting and fragranced cleaning products in Latin America. Partially offsetting these volume increases were lower shipments of Glad ® food storage products primarily due to competitive activity and category softness.

 

Volume growth of 3% during the nine months ended March 31, 2010, was primarily driven by increased shipments of disinfecting products, although the growth rate decreased due to reduced concerns about H1N1 flu and a mild general flu season, increased shipments of Hidden Valley ® salad dressing and Fresh Step ® cat litter, due to increased promotional activity. Partially offsetting these volume increases were lower shipments of Glad ® products primarily due to category softness, competitive activity and the Company’s exit from its private label food bags business.

 

Volume growth outpaced the growth in sales in both periods primarily due to increased trade promotion spending (160 basis points and 140 basis points, respectively) partially offset by pricing (90 basis points and 160 basis points, respectively). During the current quarter also reflects unfavorable foreign exchange rates from Venezuela (230 basis points) offset by favorable foreign exchange rates for other countries (200 basis points).

 

Gross margin decreased slightly in the current quarter and reflects approximately 170 basis points from cost savings, partially offset by approximately 120 basis points from unfavorable commodity costs.

 

Gross margin expansion for the nine months ended March 31, 2010, primarily reflects approximately 170 basis points from cost savings, 135 basis points from favorable commodity costs and 100 basis points from pricing.

 

Selling and administrative expenses increased in the current quarter primarily due to higher incentive compensation accruals. The increase during the nine months ended March 31, 2010, was primarily due to higher legal costs, consulting spending and incentive compensation accruals.

 

Advertising costs increased slightly in the current quarter compared to the prior period, as the Company continues to support its new products and established brands. The increase in advertising costs for the nine months ended March 31, 2010, was primarily driven by higher spending to support new product launches for International and to support the new product launch for Green Works ™ natural laundry products. Also contributing to the increase for the nine months ended March 31, 2010, was higher spending to support Glad ® premium trash bags and Burt’s Bees ® natural personal care products.

 

Research and development costs increased slightly in comparison to the prior periods as the Company continues to support its new products and established brands.

 

Restructuring costs in the current and prior periods relate to the Company’s Supply Chain and Other restructuring initiative. In fiscal year 2008, the Company began a restructuring plan that involves simplifying its supply chain and other restructuring activities (Supply Chain and Other restructuring plan), which was subsequently expanded to include additional costs, primarily severance, associated with the Company’s plan to reduce certain staffing levels. The Company anticipates the Supply Chain restructuring will be completed in fiscal year 2012.

 

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	Three Months Ended						Nine Months Ended
	3/31/2010			3/31/2009			3/31/2010			3/31/2009
Cleaning	$	1		$	4		$	4		$	7
Household		-			-			3			3
International		-			-			-			1
Corporate		-			1			2			1
Total Company	$	1		$	5		$	9		$	12

 

 

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	Severance				Accumulated Depreciation				Other				Total
Accrual Balance as of June 30, 2009	$	15			$	-			$	-			$	15
Charges		2				2				2				6
Cash payments		(3	)			-				(2	)			(5	)
Charges against assets		-				(2	)			-				(2	)
Accrual Balance as of September 30, 2009		14				-				-				14
Charges		-				1				5				6
Cash payments		(5	)			-				(5	)			(10	)
Charges against assets		-				(1	)			-				(1	)
Accrual Balance as of December 31, 2009		9				-				-				9
Charges		-				-				1				1
Cash payments		(2	)			-				(1	)			(3	)
Adjustments		(1	)			-				-				(1	)
Accrual Balance as of March 31, 2010	$	6			$	-			$	-			$	6

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CLEANING

 

	Three Months Ended									Nine Months Ended
	3/31/2010			3/31/2009			% Change			3/31/2010			3/31/2009			% Change
Net sales	$	451		$	471		(4	)%		$	1,378		$	1,371		1	%
Earnings before income taxes		114			111		3	%			336			304		11	%

HOUSEHOLD

 

	Three Months Ended									Nine Months Ended
	3/31/2010			3/31/2009			% Change			3/31/2010			3/31/2009			% Change
Net sales	$	408		$	407		-	%		$	1,123		$	1,188		(5	)%
Earnings before income taxes		72			78		(8	)%			154			166		(7	)%

Net sales were flat, volume increased, while earnings before income taxes decreased during the current quarter, as compared to the year-ago quarter. For the nine months ended March 31, 2010, net sales, volume and earnings before income taxes declined as compared to the year-ago period.

 

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Volume increases of 4% in the current quarter were primarily driven by higher shipments of Fresh Step ® cat litter, Kingsford ® charcoal products and Glad ® trash bags, due to increased promotional activities. These increases were partially offset by lower shipments of Glad ® food storage products primarily due to competitive activity and category softness.

 

Volume decline of 1% during the nine months ended March 31, 2010, was primarily driven by lower shipments of Glad ® products primarily due to category softness, competitive activity and the Company’s exit from its private label food bags business, partially offset by increased shipments of Fresh Step ® cat litter.

 

The variance between changes in volume and sales during both periods was primarily due to price declines on Glad ® trash bags in the previous fiscal year (approximately 310 basis and 260 basis points, respectively) and higher trade promotion spending in response to competitive activity (approximately 240 basis points and 160 basis points, respectively). These factors, for the current quarter, were partially offset by the benefit of favorable product mix (approximately 260 basis points).

 

The decline in earnings before income taxes for the current quarter was primarily driven by lower sales of Glad ® products and $14 of higher commodity, primarily resin, offset by $10 of cost savings primarily associated with the Company’s diversification of its supplier base and various manufacturing efficiencies.

 

The decline in earnings before income taxes for the nine months ended March 31, 2010, was primarily driven by lower sales of Glad ® products and $8 of higher advertising, partially offset by $23 of cost savings primarily associated with the Company’s diversification of its supplier base and various manufacturing efficiencies and $21 of lower commodity costs, primarily resin.

 

Net sales, volume and earnings before income taxes increased in the current periods as compared to the year-ago periods. Volume growth of 8% in the current quarter and during the nine months ended March 31, 2010, was primarily driven by Hidden Valley ® salad dressings, due to increased promotional activities and increased shipments of Brita ® pour-through water-filtration products. Also contributing to the current quarter were increased shipments of Burt’s Bees ® natural personal care products.

 

Volume growth outpaced net sales growth in both periods primarily due to increased trade-promotion spending (220 basis points and 120 basis points, respectively) and unfavorable product mix (85 basis points and 270 basis points, respectively).

 

The increase in earnings before income taxes for both periods was primarily due to higher net sales and lower commodity costs of $3 and $14 in the current and prior periods, respectively.

 

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Net sales and volume increased, while earnings before income taxes remained flat during the current quarter, as compared to the year-ago quarter. For the nine months ended March 31, 2010, net sales, volume and earnings before income taxes increased as compared to the year-ago period. Volume growth of 3% in the current quarter and 2% during the nine months ended March 31, 2010, was primarily driven by increased shipments of bleach and other disinfecting products in Latin America due to increased demand as a result of the H1N1 flu pandemic.

 

Net sales growth outpaced volume growth in the current periods driven by price increases.

 

The increase in earnings before income taxes during the nine months ended March 31, 2010, was primarily due to the $83 impact of price increases. This was partially offset by $16 of higher advertising, a $13 negative impact of foreign exchange rates, foreign currency transaction losses of $15, primarily in Venezuela as a result of converting local currency to U.S. dollars using the parallel market currency exchange rate for inventory purchases (see “Operating Activities” section below), and foreign currency loss of $12 from remeasuring Venezuela's net monetary U.S. dollar denominated liabilities using the parallel market exchange rate.

 

CORPORATE

	Three Months Ended									Nine Months Ended
	3/31/2010			3/31/2009			% Change			3/31/2010			3/31/2009			% Change
Loss before income taxes	$	(72)		$	(77)		(6	)%		$	(199)		$	(233)		(15	)%

 

The decrease in losses before income taxes attributable to Corporate during the current periods was primarily due to cost savings associated with the Company’s restructuring initiatives and lower interest expense, primarily due to a decrease in average interest rate paid on commercial paper borrowings and a decline in average debt balances. These decreases were partially offset by higher employee incentive compensation accruals during the current periods.

 

Financial Condition, Liquidity and Capital Resources

 

Operating Activities

 

The Company’s financial condition and liquidity remains strong as of March 31, 2010. Net cash provided by operations was $443 for the nine months ended March 31, 2010, as compared to $423 for the year-ago period. The increase was primarily due to higher net cash earnings and the positive cash impact of changes in working capital, partially offset by a $38 voluntary domestic pension plan contribution made during the current period. Based on current pension funding rules, the Company is not required to make any contributions in fiscal year 2010.

 

Foreign currency translation

 

Prior to December 31, 2009, the Company translated its Venezuelan subsidiary’s financial statements using Venezuela’s official exchange rate, which had been fixed by the Venezuelan government at 2.15 VEF to the U.S. dollar. However, the Company’s access to the official exchange rate has become increasingly limited due to delays in obtaining U.S. dollars through the government-sponsored currency exchange process at the official exchange rate and the removal of some products from the official list of items that may be imported at the official exchange rate.

 

This has led to the substantial use of the parallel market currency exchange rate to convert VEFs to U.S. dollars to pay for certain imported inventory purchases. The parallel market currency exchange rate represents the rates negotiated with local financial intermediaries. Due to these circumstances, effective December 31, 2009, the Company began translating its Venezuelan subsidiary’s financial statements using the parallel market currency exchange rate, the rate at which the Company expects to be able to remit dividends or return capital. The rate used at December 31, 2009, was 5.87 VEF to the U.S. dollar. On a pre-tax basis, this change in the rate used for converting these currencies resulted in additional remeasurement losses of $12 for the three months ended December 31, 2009, which related primarily to U.S. dollar denominated inventory purchases.

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Effective January 1, 2010 Venezuela was designated as a hyper-inflationary economy for purposes of accounting principles generally accepted in the United States of America. A hyper-inflationary economy designation occurs when a country has experienced cumulative rates of inflation of approximately 100 percent or more over a 3-year period. The hyper-inflationary designation requires the Company’s subsidiary in Venezuela to remeasure its financial statements as if the functional currency were the reporting currency or U.S. dollar . Bolivar denominated monetary assets and liabilities are remeasured at the parallel market currency rate and are recognized in earnings rather than as a component of Accumulated Other Comprehensive Net Losses on the balance sheet. The remeasurement loss as a result of using the parallel market currency exchange rate for the three and nine months ended March 31, 2010, was approximately $2 ($0.01 per diluted share) and $14 ($0.06 per diluted share), respectively . The rate used at March 31, 2010, was 7.05 VEF to the U.S. dollar.

 

The effect of accounting for the Company ’ s business in Venezuela using the parallel market currency exchange rate instead of the prior official rate of 2.15 VEF, excluding the remeasurement losses mentioned above, was $16 ($0.07 per diluted share) during the three and nine months ended March 31, 2010.

 

During the three and nine months ended March 31, 2010, net sales in Venezuela were approximately 1% and 2%, respectively, of total Company net sales. As of March 31, 2010, total assets in Venezuela were approximately 1% of total Company assets.

 

Working Capital

 

The Company’s working capital, defined in this context as total current assets net of total current liabilities, increased by $323 from June 30, 2009 to March 31, 2010, principally due to a decrease in current maturities of long-term debt by $277 as a result of a debt repayment (See “Financing Activities” below) offset by a reclassification of long-term debt that matures in February 2011 to current debt. Also contributing to the increase in working capital were increases in inventory, primarily due to off-season inventory builds in the Company’s charcoal business by approximately $43.

 

Investing Activities

 

Capital expenditures were $111 during the nine months ended March 31, 2010, compared to $135 in the comparable prior year period. Capital spending as a percentage of net sales was 2.8% during the nine months ended March 31, 2010, compared to 3.4% during the nine months ended March 31, 2009. Higher capital spending during the nine months ended March 31, 2009, was driven primarily by the Company’s manufacturing network consolidation efforts.

 

In January 2010, the Company acquired the assets of Caltech Industries, Inc., a company which provides disinfectants for the health care industry, for an aggregate price of $24, with the objective of expanding the Company’s capabilities in the areas of health and wellness. The final purchase price will be subject to certain tax adjustments. In connection with the purchase, the Company acquired Caltech Industries’ facility and its workforce. The Company paid for the acquisition in cash.

 

Net assets acquired, at fair value, included inventory of $2 and other assets of $4, goodwill of $9, trademarks of $6, customer list of $2, product formulae of $2 and other liabilities of $1. The trademarks, customer list and product formulae will be amortized over a period of 3, 15 and 10 years, respectively. Goodwill represents a substantial portion of the acquisition proceeds due to the high growth rate of the use of disinfecting products in the healthcare industry. Additional changes to the fair values of the assets acquired and liabilities assumed may be recorded as the Company finalizes its determination of the fair value of intangible assets acquired. Operating results of the acquired business are included in the consolidated net earnings in the Cleaning reportable segment, from the acquisition date, for the three and nine months ended March 31, 2010.

 

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Financing Activities

 

Net cash used for financing activities was $280 for the nine months ended March 31, 2010, compared to net cash used for financing activities of $367 in the comparable prior year period. The decrease in cash used for financing activities was primarily due to increased commercial paper borrowings and issuance of long-term debt to partially finance long-term debt repayment and dividend payments.

 

In January 2010, $575 of debt became due and was paid. The Company funded the debt repayment through the use of commercial paper and to a lesser extent, operating cash flows.

 

In November 2009, the Company issued $300 of long-term debt in senior notes. The notes carry an annual fixed interest rate of 3.55% payable semi-annually in May and November. The notes mature on November 1, 2015. Proceeds from the notes were used to retire commercial paper. The notes rank equally with all of the Company’s existing and future senior indebtedness.

 

At March 31, 2010, the Company had $584 of commercial paper outstanding at a weighted average interest rate of 0.3%. The Company continues to successfully issue commercial paper. The Company believes that current cash balances and cash generated by operations, together with access to external sources of funds as described below, will be sufficient to meet the Company’s operating and capital needs in the foreseeable future.

 

Credit Arrangements

 

At March 31, 2010, the Company had a $1,100 revolving credit agreement with an expiration date of April 2013. There were no borrowings under this revolving credit arrangement, which the Company believes is now available and will continue to be available for general corporate purposes and to support commercial paper issuances. The revolving credit agreement includes certain restrictive covenants. The primary restrictive covenant is a maximum ratio of total debt to EBITDA for the trailing 4 quarters (EBITDA ratio), as defined in the Company’s lending agreements, of 3.25. EBITDA, as defined by the revolving credit agreement, may not be comparable to similarly titled measures used by other entities. The Company’s EBITDA ratio at March 31, 2009, was 2.43.

 

The following table sets forth the calculation of the EBITDA ratio, as defined in the Company’s credit agreement, at March 31, 2010:

 

		6/30/2009				9/30/2009				12/31/2009				3/31/2010			Total
Net earnings		$	170			$	157			$	110			$	165		$	602
Add back:
Interest expense			36				36				37				34			143
Income tax expense			91				87				53				78			309
Depreciation and amortization			48				48				47				44			187
Asset impairment charges			3				-				-				-			3
Deduct:
Interest income			(1	)			(1	)			(1	)			-			(3	)
EBITDA		$	347			$	327			$	246			$	321		$	1,241
Debt at March 31, 2010																	$	3,018
EBITDA ratio																		2.43

The Company is in compliance with all restrictive covenants and limitations as of March 31, 2010. The Company anticipates being in compliance with all restrictive covenants for the foreseeable future.

 

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The Company continues to monitor the financial markets and assess its ability to fully draw under its revolving credit facility, but expects that any drawing under the facility will be fully funded.

 

In addition, the Company had $55 of foreign working capital credit lines and other facilities at March 31, 2010, of which $39 was available for borrowing. The Company was also a party to letters of credit of $20, primarily related to one of its insurance carriers.

 

Share Repurchases

 

The Company has two share repurchase programs: an open-market purchase program, which had, as of March 31, 2010, a total authorization of $750, and a program to offset the impact of share dilution related to share-based awards (the Evergreen Program), which has no authorization limit as to amount or timing of repurchases.

 

The Company did not repurchase any shares in the open market during the three or nine month periods ended March 31, 2010 and 2009.

 

Valuation of Goodwill and Indefinite-Lived Intangible Assets

 

In the third quarter of fiscal year 2010, the Company performed its annual review of goodwill and indefinite-lived intangible assets and there were no instances of impairment identified during this review. The Company estimates fair value of goodwill and intangible assets using discounted cash flow analyses based on assumptions of future revenues, costs and after-tax cash flows. Changes in the assumptions included in the discounted cash flow analysis used in this review could materially impact the fair value estimates.

 

The Burt’s Bees reporting unit , which includes $614 of goodwill,  was the most sensitive to changes in discounted cash flow assumptions used to estimate fair value. The fair value of the Burt’s Bees reporting unit was in excess of the book carrying value by approximately 5%. The Company is monitoring any events, circumstances, or changes in the Burt’s Bees business that might imply a reduction in the fair value and lead to an impairment of a portion of the goodwill .

 

Contingencies

 

The Company is involved in certain environmental matters, including Superfund and other response actions at various locations. The Company has a recorded liability of $16 and $19 at March 31, 2010 and June 30, 2009, respectively, for its share of the related aggregate future remediation cost. One matter in Dickinson County, Michigan, for which the Company is jointly and severally liable, accounts for a substantial majority of the recorded liability at both March 31, 2010 and June 30, 2009. The Company is subject to a cost-sharing arrangement with Ford Motor Co. (Ford) for this matter, under which the Company has agreed to be liable for 24.3% of the aggregate remediation and associated costs, other than legal fees, as the Company and Ford are each responsible for their own such fees. If Ford is unable to pay its share of the response and remediation obligations, the Company would likely be responsible for such obligations. In October 2004, the Company and Ford agreed to a consent judgment with the Michigan Department of Environmental Quality, which sets forth certain remediation goals and monitoring activities. Based on the current status of this matter, and with the assistance of environmental consultants, the Company maintains an undiscounted liability representing its best estimate of its share of costs associated with the capital expenditures, maintenance and other costs to be incurred over an estimated 30-year remediation period. The most significant components of the liability relate to the estimated costs associated with the remediation of groundwater contamination and excess levels of subterranean methane deposits. The Company made payments of less than $1 during each of the three and nine months ended March 31, 2010 and 2009, towards remediation efforts. Currently, the Company cannot accurately predict the timing of the payments that will likely be made under this estimated obligation. In addition, the Company’s estimated loss exposure is sensitive to a variety of uncertain factors, including the efficacy of remediation efforts, changes in remediation requirements and the timing, varying costs and alternative clean-up technologies that may become available in the future. Although it is possible that the Company’s exposure may exceed the amount recorded, any amount of such additional exposures, or range of exposures, is not estimable at this time.

 

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The Company is subject to various other lawsuits and claims relating to issues such as contract disputes, product liability, patents and trademarks, advertising, employee and other matters. Although the results of claims and litigation cannot be predicted with certainty, it is the opinion of management that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on the Company’s consolidated financial statements taken as a whole.

 

Recently adopted pronouncements

 

On July 1, 2009, the Company adopted a new accounting standard which provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities that must be included in the computation of earnings per share pursuant to the two-class method. These payment awards were previously not considered participating securities. Accordingly, the Company’s unvested performance units, restricted stock awards and restricted stock units that provide such nonforfeitable rights are now considered participating securities in the calculation of net earnings per share (EPS). The Company’s share-based payment awards granted in fiscal year 2010 are not participating securities. The new standard requires the retrospective adjustment of the Company’s earnings per share data. The impact of the retrospective adoption of the new accounting standard on the fiscal year 2009 reported EPS data was as follows:

 

The calculation of EPS under the new accounting standard is disclosed in Note 8.

 

On July 1, 2009, the Company adopted a new accounting standard which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, including contingent liabilities, and any noncontrolling interest in an acquired business. The new accounting standard also provides for recognizing and measuring the goodwill acquired in a business combination and requires disclosure of information to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The provisions of this standard were applied during the Company’s most recent acquisition (See Note 2).

 

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On July 1, 2009, the Company adopted a new accounting standard which requires disclosures about fair value of financial instruments in interim financial information (See Note 4). The Company already complies with the provisions of this accounting standard for its annual reporting.

 

On July 1, 2009, the Company adopted the provisions of the accounting standard on fair value measurements that apply to nonfinancial assets and liabilities that are recognized or disclosed at fair value on a non-recurring basis. The adoption of these provisions did not have an impact on the condensed consolidated financial statements or disclosures.

 

On January 1, 2010, the Company adopted the provisions of the accounting standard on fair value measurements and disclosures which requires some new disclosures and clarifies existing disclosure requirements about fair value measurements. Specifically, the Company is required to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to also describe the reasons for the transfers. The adoption of these provisions did not have an impact on the condensed consolidated financial statements disclosures.

 

Pronouncements to be adopted

 

On December 30, 2008, the FASB issued an accounting standard that will require additional disclosures about the major categories of plan assets and concentrations of risk for an employer’s plan assets of a defined benefit pension or other postretirement plan, as well as disclosure of fair value levels, similar to the disclosure requirements of the fair value measurements accounting standard. In accordance with the transition requirement, the Company will provide these enhanced disclosures about plan assets in its 2010 Annual Report on Form 10-K.

 

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Cautionary Statement

 

This Quarterly Report on Form 10-Q (this Report), including the exhibits hereto contains “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and such forward looking statements involve risks and uncertainties. Except for historical information, matters discussed below, including statements about future volume, sales, costs, cost savings, earnings, cash flows, plans, objectives, expectations, growth, or profitability, are forward looking statements based on management’s estimates, assumptions and projections. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations on such words, and similar expressions, 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 below. 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 year ended June 30, 2009, as updated from time to time in the Company’s SEC filings. These factors include, but are not limited to: unfavorable general economic and marketplace conditions and events, including consumer confidence and consumer spending levels, the rate of economic growth, the rate of inflation, and the financial condition of our customers, suppliers and service providers; foreign currency exchange rate and interest rate fluctuations; unfavorable political conditions in international markets and risks relating to international operations; the Company’s costs, including volatility and increases in commodity costs such as resin, diesel, chlor-alkali, agricultural commodities and other raw materials; increases in energy costs; the impact of the volatility of the debt markets on the Company’s cost of borrowing and access to funds, including commercial paper and its credit facility; risks relating to changes in the Company’s capital structure; risks arising from declines in cash flow, whether resulting from tax payments, debt payments, share repurchases, interest cost increases greater than management’s expectations, or increases in debt or changes in credit ratings, or otherwise; changes in the Company’s tax rate; the success of the Company’s strategies, including its previously announced Centennial Strategy; risks relating to acquisitions, mergers and divestitures, including the Company’s ability to achieve the projected strategic and financial benefits from the Burt’s Bees acquisition; the ability of the Company to implement and generate expected savings from its programs to reduce costs, including its Supply Chain Restructuring and Other restructuring plan changes; the need for any unanticipated restructuring or asset-impairment charges; the success of new products and the ability of the Company to develop products that delight the consumer; consumer and customer reaction to price increases; risks related to customer concentration; customer-specific ordering patterns and trends; competitive actions; supply disruptions or any future supply constraints that may affect key commodities or product inputs; risks inherent in supplier relationships, including sole-supplier relationships; risks related to the handling and/or transportation of hazardous substances, including but not limited to chlorine; risks related to the conversion of the Company’s information systems, including potential disruptions and costs; risks arising out of natural disasters; the impact of disease outbreaks, epidemics or pandemics on the Company’s operations; risks inherent in litigation; risks inherent in maintaining an effective system of internal controls, including the potential impact of acquisitions or the use of third-party service providers; the ability to manage and realize the benefit of joint ventures and other cooperative relationships, including the Company’s joint venture regarding the Company’s Glad ® plastic bags, wraps and containers business, and the agreements relating to the provision of information technology and related services by third parties; the ability of the Company to successfully manage tax, regulatory, product liability, intellectual property, environmental and other legal matters, including the risk resulting from joint and several liability for environmental contingencies and risks inherent in litigation including class action litigation; and the Company’s ability to maintain its business reputation and the reputation of its brands.

 

The Company’s forward looking statements in this Report are based on management’s current views and assumptions regarding future events and speak only as of their dates. 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” and “Clorox” refer to The Clorox Company and its subsidiaries.

 

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