CLOROX CO /DE/, 10-K filed on 8/13/2020
Annual Report
v3.20.2
Cover Page - USD ($)
$ in Billions
12 Months Ended
Jun. 30, 2020
Jul. 28, 2020
Dec. 31, 2019
Cover [Abstract]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Jun. 30, 2020    
Document Transition Report false    
Entity File Number 1-07151    
Entity Registrant Name THE CLOROX COMPANY    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 31-0595760    
Entity Address, Address Line One 1221 Broadway    
Entity Address, City or Town Oakland    
Entity Address, State or Province CA    
Entity Address, Postal Zip Code 94612-1888    
City Area Code (510)    
Local Phone Number 271-7000    
Title of 12(b) Security Common Stock – $1.00 par value    
Trading Symbol CLX    
Security Exchange Name NYSE    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
ICFR Auditor Attestation Flag true    
Entity Shell Company false    
Entity Public Float     $ 19.0
Entity Common Stock, Shares Outstanding   126,213,551  
Documents Incorporated by Reference Portions of the registrant’s definitive proxy statement for the 2020 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days after June 30, 2020, are incorporated by reference into Part III, Items 10 through 14 of this Annual Report on Form 10-K    
Amendment Flag false    
Current Fiscal Year End Date --06-30    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Entity Central Index Key 0000021076    
v3.20.2
CONSOLIDATED STATEMENT OF EARNINGS - USD ($)
shares in Thousands, $ in Millions
12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2018
Income Statement [Abstract]      
Net sales $ 6,721 $ 6,214  
Net sales     $ 6,124
Cost of products sold 3,658 3,486 3,449
Gross profit 3,063 2,728 2,675
Selling and administrative expenses 969 856 837
Advertising costs 675 612 570
Research and development costs 145 136 132
Interest expense 99 97 85
Other (income) expense, net (10) 3 (3)
Earnings before income taxes 1,185 1,024 1,054
Income taxes 246 204 231
Net earnings $ 939 $ 820 $ 823
Net earnings per share      
Basic net earnings per share (in dollars per share) $ 7.46 $ 6.42 $ 6.37
Diluted net earnings per share (in dollars per share) $ 7.36 $ 6.32 $ 6.26
Weighted average shares outstanding (in thousands)      
Basic (in shares) 125,828 127,734 129,293
Diluted (in shares) 127,671 129,792 131,581
v3.20.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2018
Statement of Comprehensive Income [Abstract]      
Net earnings $ 939 $ 820 $ 823
Other comprehensive (loss) income:      
Foreign currency adjustments, net of tax (36) (22) (28)
Net unrealized gains (losses) on derivatives, net of tax 5    
Net unrealized gains (losses) on derivatives, net of tax   2 12
Pension and postretirement benefit adjustments, net of tax (7) 4 12
Total other comprehensive (loss) income, net of tax (38) (16) (4)
Comprehensive income $ 901 $ 804 $ 819
v3.20.2
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Jun. 30, 2020
Jun. 30, 2019
Current assets    
Cash and cash equivalents $ 871 $ 111
Receivables, net 648 631
Inventories, net 454 512
Prepaid expenses and other current assets 47 51
Total current assets 2,020 1,305
Property, plant and equipment, net 1,103 1,034
Operating lease right-of-use assets 291  
Goodwill 1,577 1,591
Trademarks, net 785 791
Other intangible assets, net 109 121
Other assets 328 274
Total assets 6,213 5,116
Current liabilities    
Notes and loans payable 0 396
Current operating lease liabilities 64  
Accounts payable and accrued liabilities 1,329 1,035
Income taxes payable 25 9
Total current liabilities 1,418 1,440
Long-term debt 2,780 2,287
Long-term operating lease liabilities 278  
Other liabilities 767 780
Deferred income taxes 62 50
Total liabilities 5,305 4,557
Commitments and contingencies
Stockholders’ equity    
Preferred stock: $1.00 par value; 5,000,000 shares authorized; none issued or outstanding 0 0
Common stock: $1.00 par value; 750,000,000 shares authorized; 158,741,461 shares issued as of June 30, 2020 and 2019; and 126,198,606 and 125,686,325 shares outstanding as of June 30, 2020 and 2019, respectively 159 159
Additional paid-in capital 1,137 1,046
Retained earnings 3,567 3,150
Treasury shares, at cost: 32,542,855 and 33,055,136 shares as of June 30, 2020 and 2019, respectively (3,315) (3,194)
Accumulated other comprehensive net (loss) income (640) (602)
Stockholders’ equity 908 559
Total liabilities and stockholders’ equity $ 6,213 $ 5,116
v3.20.2
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Jun. 30, 2020
Jun. 30, 2019
Statement of Financial Position [Abstract]    
Preferred stock, par value (in dollars per share) $ 1.00 $ 1.00
Preferred stock, shares authorized (in shares) 5,000,000 5,000,000
Preferred stock, shares issued (in shares) 0 0
Preferred stock, shares outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 1.00 $ 1.00
Common stock, shares authorized (in shares) 750,000,000 750,000,000
Common stock, shares issued (in shares) 158,741,461 158,741,461
Common stock, shares outstanding (in shares) 126,198,606 125,686,325
Treasury stock, shares (in shares) 32,542,855 33,055,136
v3.20.2
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)
shares in Thousands, $ in Millions
Total
Cumulative Effect, Period of Adoption, Adjustment [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Retained Earnings [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Treasury Stock [Member]
Accumulated Other Comprehensive Net (Loss) Income [Member]
Accumulated Other Comprehensive Net (Loss) Income [Member]
Cumulative Effect, Period of Adoption, Adjustment [Member]
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Cumulative effect of accounting changes $ 542   $ 159 $ 928 $ 2,440   $ (2,442) $ (543)  
Balance, amount at Jun. 30, 2017 542   $ 159 928 2,440   $ (2,442) (543)  
Balance, shares (in shares) at Jun. 30, 2017     158,741       29,727    
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Cumulative effect of accounting changes 726 $ (3) [1] $ 159 975 2,797 $ 36 [1] $ (2,658) (547) $ (39) [1]
Net earnings 823       823        
Other comprehensive (loss) income (4)             (4)  
Dividends (467)       (467)        
Stock-based compensation 53     53          
Other employee stock plan activities 51     (6) 1   $ 56    
Other employee stock plan activities (in shares)             1,139    
Treasury stock purchased $ (272)           $ (272)    
Treasury stock purchased (in shares) (2,171)           (2,171)    
Balance, shares (in shares) at Jun. 30, 2018     158,741       30,759    
Balance, amount at Jun. 30, 2018 $ 726 (3) [1] $ 159 975 2,797 36 [1] $ (2,658) (547) (39) [1]
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Cumulative effect of accounting changes 726 (3) [1] 159 975 2,797 36 [1] (2,658) (547) (39) [1]
Cumulative effect of accounting changes 726 22 [2] $ 159 1,046 3,150 22 [2] (3,194) (602) (39)
Net earnings 820       820        
Other comprehensive (loss) income (16)             (16)  
Dividends (503)       (503)        
Stock-based compensation 43     43          
Other employee stock plan activities 152     28 0   $ 124    
Other employee stock plan activities (in shares)             2,178    
Treasury stock purchased $ (660)           $ (660)    
Treasury stock purchased (in shares) (4,474)           (4,474)    
Balance, shares (in shares) at Jun. 30, 2019     158,741       33,055    
Balance, amount at Jun. 30, 2019 $ 559 22 [2] $ 159 1,046 3,150 22 [2] $ (3,194) (602) (39)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201602Member                
Cumulative effect of accounting changes $ 559 22 [2] 159 1,046 3,150 22 [2] (3,194) (602) (39)
Cumulative effect of accounting changes 908 $ 22 [2] $ 159 1,137 3,567 $ 22 [2] (3,315) (602) $ (39)
Net earnings 939       939        
Other comprehensive (loss) income (38)             (38)  
Dividends (544)       (544)        
Stock-based compensation 50     50          
Other employee stock plan activities 162     41 0   $ 121    
Other employee stock plan activities (in shares)             2,043    
Treasury stock purchased $ (242)           $ (242)    
Treasury stock purchased (in shares) (1,531)           (1,531)    
Balance, shares (in shares) at Jun. 30, 2020     158,741       32,543    
Balance, amount at Jun. 30, 2020 $ 908   $ 159 1,137 3,567   $ (3,315) (640)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Accounting Standards Update [Extensible List] us-gaap:AccountingStandardsUpdate201602Member                
Cumulative effect of accounting changes $ 908   $ 159 $ 1,137 $ 3,567   $ (3,315) $ (640)  
[1] As a result of adopting ASU No. 2014-09, “Revenue from Contracts with Customers (ASC 606),” on July 1, 2018, the Company recorded a cumulativeeffect of initially applying the new guidance as an adjustment to the fiscal year 2019 opening balance of Retained earnings.
[2] As a result of adopting ASU No. 2016-02, “Leases (ASC 842),” on July 1, 2019, the Company recorded a cumulative effect of initially applying the newguidance as an adjustment to the fiscal year 2020 opening balance of Retained earnings. See Note 1 for more information.
v3.20.2
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares
3 Months Ended 12 Months Ended
Jun. 30, 2020
Mar. 31, 2020
Dec. 31, 2019
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2016
Statement of Stockholders' Equity [Abstract]                          
Dividends per share declared (in dollars per share) $ 1.11 $ 1.06 $ 1.06 $ 1.06 $ 1.06 $ 0.96 $ 0.96 $ 0.96 $ 4.29 $ 3.94 $ 3.60 $ 3.24 $ 3.11
v3.20.2
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
3 Months Ended 12 Months Ended
Jun. 30, 2020
Sep. 30, 2019
Jun. 30, 2019
Sep. 30, 2018
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2017
Operating activities:                
Net earnings $ 310 $ 203 $ 241 $ 210 $ 939 $ 820 $ 823 $ 701
Adjustments to reconcile net earnings to net cash provided by operations:                
Depreciation and amortization         180 180 166  
Stock-based compensation         50 43 53  
Deferred income taxes         (2) (20) (23)  
Other         30 (29) 44  
Changes in:                
Receivables, net         (27) (32) (24)  
Inventories, net         50 (7) (21)  
Prepaid expenses and other current assets         2 (6) 4  
Accounts payable and accrued liabilities         291 17 (47)  
Operating lease right-of-use assets and liabilities, net         19 0 0  
Income taxes payable/ prepaid         14 26 1  
Net cash provided by operations         1,546 992 976  
Investing activities:                
Capital expenditures         (254) (206) (194)  
Businesses acquired, net of cash acquired         0 0 (681)  
Other         2 10 16  
Net cash used for investing activities         (252) (196) (859)  
Financing activities:                
Notes and loans payable, net         (396) 189 (214)  
Long-term debt borrowings, net of issuance costs paid         492 0 891  
Long-term debt repayments         0 0 (400)  
Treasury stock purchased         (248) (661) (271)  
Cash dividends paid         (533) (490) (450)  
Issuance of common stock for employee stock plans and other         162 147 45  
Net cash used for financing activities         (523) (815) (399)  
Effect of exchange rate changes on cash, cash equivalents, and restricted cash         (5) (2) (3)  
Net increase (decrease) in cash, cash equivalents and restricted cash         766 (21) (285)  
Cash, cash equivalents and restricted cash:                
Beginning of year   $ 113   $ 134 113 134 419  
End of year 879   113   879 113 134 $ 419
Supplemental cash flow information:                
Interest paid         89 87 75  
Income taxes paid, net of refunds         241 207 245  
Non-cash financing activities:                
Cash dividends declared and accrued, but not paid $ 140   $ 133   $ 140 $ 133 $ 123  
v3.20.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Basis of Presentation
The Company is principally engaged in the production, marketing and sale of consumer products 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. The consolidated financial statements include the statements of the Company and its wholly owned and controlled subsidiaries. All significant intercompany transactions and accounts were eliminated in consolidation.
Use of Estimates
The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) requires management to reach opinions as to estimates and assumptions that affect reported amounts and related disclosures. Specific areas requiring the application of management’s estimates and judgments include, among others, assumptions pertaining to accruals for consumer and trade-promotion programs, stock-based compensation, retirement income plans, future cash flows associated with impairment testing of goodwill and other long-lived assets and the valuation of the venture agreement terminal obligation, the valuation of assets acquired and liabilities assumed in connection with a business combination, the credit worthiness of customers, uncertain tax positions, tax valuation allowances and legal, environmental and insurance matters. Actual results could materially differ from estimates and assumptions made.
Cash, Cash Equivalents and Restricted Cash
Cash equivalents consist of highly liquid interest-bearing accounts, time deposits held by financial institutions and money market funds with an initial maturity at purchase of 90 days or less. The fair value of cash and cash equivalents approximates the carrying amount.
The Company’s cash position includes amounts held by foreign subsidiaries and, as a result, the repatriation of certain cash balances from some of the Company’s foreign subsidiaries could result in additional withholding tax costs in certain foreign jurisdictions. However, these cash balances are generally available without legal restriction to fund local business operations. In addition, a portion of the Company’s cash balance is held in U.S. dollars by foreign subsidiaries whose functional currency is their local currency. Such U.S. dollar balances are reported on the foreign subsidiaries’ books in their functional currency, and the impact on such balances from foreign currency exchange rate differences is recorded in Other (income) expense, net.
As of June 30, 2020, 2019, 2018, and 2017, the Company had $8, $2, $3 and $2 of restricted cash, respectively, which was included in Prepaid expenses and other current assets and Other assets. The restricted cash as of June 30, 2020 was primarily related to funds held in an escrow account with limitations on usage and cash margin deposits held for exchange-traded futures contracts.
Inventories
The Company values its inventories using both the First-In, First-Out (“FIFO”) and the Last-In, First-Out (“LIFO”) methods. The FIFO inventory is stated at the lower of cost or net realizable value, which includes any costs to sell or dispose. In addition, appropriate consideration is given to obsolescence, excessive inventory levels, product deterioration and other factors in evaluating net realizable value. The LIFO inventory is stated at the lower of cost or market.
Property, Plant and Equipment and Finite-Lived Intangible Assets
Property, plant and equipment and finite-lived intangible assets are stated at cost. Depreciation and amortization expense are primarily calculated by the straight-line method using the estimated useful lives or lives determined by reference to the related lease contract in the case of leasehold improvements. The table below provides estimated useful lives of property, plant and equipment by asset classification.
Estimated
Useful Lives
Buildings and leasehold improvements
7 - 40 years
Land improvements
10 - 30 years
Machinery and equipment
3 - 15 years
Computer equipment
3 - 5 years
Capitalized software costs
3 - 7 years

Finite-lived intangible assets are amortized over their estimated useful lives, which range from 2 to 30 years.

Property, plant and equipment and finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances occur that indicate that the carrying amount of an asset (or asset group) may not be fully recoverable. The risk of impairment is initially assessed based on an estimate of the undiscounted cash flows at the lowest level for which identifiable cash flows exist. Impairment occurs when the carrying value of the asset exceeds the estimated future undiscounted cash flows generated by the asset. When impairment is indicated, an impairment charge is recorded for the difference between the carrying value of the asset and its estimated fair market value. Depending on the asset, estimated fair market value may be determined either by use of a discounted cash flow model or by reference to estimated selling values of assets in similar condition.
Capitalization of Software Costs
The Company capitalizes certain qualifying costs incurred in the acquisition and development of software for internal use, including the costs of the software, materials, consultants, interest and payroll and payroll-related costs for employees during the application development stage. Internal and external costs incurred during the preliminary project stage and post implementation-operation stage, mainly training and maintenance costs, are expensed as incurred. Once the application is substantially complete and ready for its intended use, qualifying costs are amortized on a straight-line basis over the software’s estimated useful life.
Impairment Review of Goodwill and Indefinite-Lived Intangible Assets
The Company tests its goodwill, trademarks with indefinite lives and other indefinite-lived intangible assets annually for impairment in the fiscal fourth quarter unless there are indications during a different interim period that these assets may have become impaired.
With respect to goodwill, the Company has the option to first assess qualitative factors, such as the maturity and stability of the reporting unit, the magnitude of the excess fair value over carrying value from the prior period’s impairment testing, other reporting unit specific operating results as well as new events and circumstances impacting the operations at the reporting unit level. Reporting units for goodwill impairment testing purposes were its individual strategic business units (SBUs). If the result of a qualitative test indicates a potential for impairment of a reporting unit, a quantitative test is performed. The quantitative test is a two-step process. In the first step, the Company compares the estimated fair value of the reporting unit to its carrying value. If the estimated fair value of any reporting unit is less than its carrying value, the Company performs a second step to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment charge is recorded for the difference between the carrying value and the implied fair value of the reporting unit’s goodwill. No impairments were identified as a result of the Company’s impairment review during fiscal year 2020.
To determine the fair value of a reporting unit as part of its quantitative test, the Company uses a discounted cash flow (DCF) method under the income approach, as it believes that this approach is the most reliable indicator of the fair value of its businesses and the fair value of their future earnings and cash flows. Under this approach, which requires significant judgments, the Company estimates the future cash flows of each reporting unit and discounts these cash flows at a rate of return that reflects their relative risk. The cash flows used in the DCF method are consistent with those the Company uses in its internal planning, which gives consideration to actual business trends experienced, and the broader business strategy for the long term. The other key estimates and factors used in the DCF method include, but are not limited to, net sales and expense growth rates, commodity prices, foreign exchange rates, inflation and a terminal growth rate. Changes in such estimates or the application of alternative assumptions could produce different results.
For trademarks and other intangible assets with indefinite lives, the Company has the option to first assess qualitative factors, such as the maturity and stability of the trademark or other intangible asset, the magnitude of the excess fair value over carrying value from the prior year’s impairment testing, other specific operating results, as well as new events and circumstances impacting the significant inputs used to determine the fair value of the intangible asset. If the result of a qualitative test indicates that it is more likely that not that the asset is impaired, a quantitative test is performed. When a quantitative test is performed, the estimated fair value of an asset is compared to its carrying value. If the carrying value of such asset exceeds its estimated fair value, an impairment charge is recorded for the difference between the carrying value and the estimated fair value. The Company uses the income approach to estimate the fair value of its trademarks and other intangible assets with indefinite lives. This approach requires significant judgments in determining the royalty rates and the assets’ estimated cash flows, as well as the appropriate discount and foreign exchange rates applied to those cash flows to determine fair value. Changes in such estimates or the use of alternative assumptions could produce different results. No significant impairments were identified in fiscal year 2020 as a result of the Company’s impairment review during any quarters of fiscal year 2020.
Leases
Effective July 1, 2019, the Company adopted Accounting Standards Codification 842, Leases (ASC 842). Under this guidance, the Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances. Right-of-use (ROU) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date and initial direct costs incurred by the Company and excludes any lease incentives received from the lessor. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The lease term may include an option to extend or terminate the lease when it is reasonably certain that the Company will exercise that option as of the commencement date of the lease, and is reviewed in subsequent periods if a triggering event occurs. As the Company’s leases typically do not contain a readily determinable implicit rate, the Company determines the present value of the lease liability using its incremental borrowing rate at the lease commencement date based on the lease term and the currency of the lease on a collateralized basis. Variable lease payments are the portion of lease payments that are not fixed over the lease term. Variable lease payments are expensed as incurred, and include certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease, as applicable. The Company elected to combine lease and non-lease components as a single lease component and to exclude short-term leases, defined as leases with an initial terms of 12 months or less, from its consolidated balance sheet.
Stock-based Compensation
The Company grants various nonqualified stock-based compensation awards to eligible employees, including stock options, restricted stock awards and performance shares.
For stock options, the Company estimates the fair value of each award on the date of grant using the Black-Scholes valuation model, which requires management to make estimates regarding expected option life, stock price volatility and other assumptions. Groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The Company estimates stock option forfeitures based on historical data for each employee grouping. The total number of stock options expected to vest is adjusted by actual and estimated forfeitures. Changes to the actual and estimated forfeitures will result in a cumulative adjustment in the period of change. Compensation expense is recorded by amortizing the grant date fair values on a straight-line basis over the vesting period, adjusted for estimated forfeitures.
For restricted stock awards, the fair value of each grant issued is estimated on the date of grant based on the current market price of the stock. Forfeitures are estimated based on historical data. The total number of restricted stock awards expected to vest is adjusted by actual and estimated forfeitures. Changes to the actual and estimated forfeitures will result in a cumulative adjustment in the period of change. Compensation expense is recorded by amortizing the grant date fair values on a straight-line basis over the vesting period, adjusted for estimated forfeitures.
The Company’s performance shares provide for the issuance of common stock to certain managerial staff and executive management if the Company achieves specified performance targets. The number of shares issued is dependent upon the achievement of specified performance targets. The performance period is three years and the payout determination is made at the end of the three-year performance period. Performance shares receive dividends earned during the vesting period upon vesting. The fair value of each grant issued is estimated on the date of grant based on the current market price of the stock. The total amount of compensation expense recognized reflects estimated forfeiture rates and management’s assessment of the probability that performance goals will be achieved. A cumulative adjustment is recognized to compensation expense in the current period to reflect any changes in the probability of achievement of performance goals.
Cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for stock-based payment arrangements (excess tax benefits) are classified as operating cash inflows.
Employee Benefits
The Company accounts for its retirement income and retirement health care plans using actuarial methods. These methods use an attribution approach that generally spreads “plan events” over the service lives or expected lifetime (for frozen plans) of plan participants. Examples of plan events are plan amendments and changes in actuarial assumptions such as the expected return on plan assets, discount rate, rate of compensation increase and certain employee-related factors, such as retirement age and mortality. The principle underlying the attribution approach is that employees render service over their employment period on a relatively “smooth” basis and, therefore, the statement of earnings effects of retirement income and retirement health care plans are recognized in the same pattern. One of the principal assumptions used in the net periodic benefit cost calculation is the expected return on plan assets. The expected return on plan assets may result in recognized expense or income that differs from the actual returns of those plan assets in any given year. Over time, however, the goal is for the expected long-term returns to approximate the actual returns and, therefore, the expectation is that the pattern of income and expense recognition should closely match the pattern of the services provided by the participants. The Company uses a market-related value method for calculating plan assets for purposes of determining the amortization of actuarial gains and losses. The differences between actual and expected returns are recognized in the net periodic benefit cost calculation over the average remaining service period or expected lifetime (for frozen plans) of the plan participants using the corridor approach. Under this approach, only actuarial gains (losses) that exceed 5% of the greater of the projected benefit obligation or the market-related value of assets are amortized to the Company’s net periodic benefit cost. In developing its expected return on plan assets, the Company considers the long-term actual returns relative to the mix of investments that comprise its plan assets and also develops estimates of future investment returns by considering external sources.
The Company recognizes an actuarial-based obligation at the onset of disability for certain benefits provided to individuals after employment, but before retirement, that include medical, dental, vision, life and other benefits.
Environmental Costs
The Company is involved in certain environmental remediation and ongoing compliance activities. Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and based upon a reasonable estimate of the liability. The Company’s accruals reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Actual costs to be incurred at identified sites in future periods may vary from the estimates, given the inherent uncertainties in evaluating environmental exposures. The accrual for environmental matters is included in Accounts payable and accrued liabilities and Other liabilities in the Company’s consolidated balance sheets on an undiscounted basis due to uncertainty regarding the timing of future payments.
Revenue Recognition
The Company’s revenue is primarily generated from the sale of finished product to customers. Revenue is recognized at the point in time when performance obligations under the terms of customer contracts are satisfied, which is when ownership, risks and rewards transfer, and can be on the date of shipment or the date of receipt by the customer, depending upon the particular customer arrangement. Shipping and handling activities are accounted for as contract fulfillment costs and included within Cost of products sold. After the completion of the performance obligation, there is an unconditional right to consideration as outlined in the contract. A right is considered unconditional if nothing other than the passage of time is required before payment of that consideration is due. The Company typically collects its customer receivables within two months. All performance obligations under the terms of contracts with customers have an original duration of one year or less.
The Company has trade promotion programs, which primarily include shelf price reductions, in-store merchandising, and consumer coupons. The costs of such activities, defined as variable consideration under ASC 606, “Revenue from Contracts with Customers,” are netted against sales and recorded when the related sales take place. Accruals for trade promotion programs are established based on the Company’s best estimate of the amounts necessary to settle existing and future obligations for products sold as of the balance sheet date. Amounts accrued for trade-promotions are based on various factors such as contractual terms and sales volumes, and also incorporate estimates that include customer participation rates, the rate at which customers will achieve program performance criteria, and consumer redemption rates.
The Company provides an allowance for doubtful accounts based on its historical experience and ongoing assessment of its customers’ credit risk and aging. Receivables are presented net of an allowance for doubtful accounts of $10 and $4 as of June 30, 2020 and 2019, respectively. Receivables, net, included non-customer receivables of $20 and $17 as of June 30, 2020 and 2019, respectively.
Cost of Products Sold
Cost of products sold represents the costs directly related to the manufacture and distribution of the Company’s products and primarily includes raw materials, packaging, contract manufacturing fees, shipping and handling, warehousing, package design, depreciation, amortization, direct and indirect labor and operating costs for the Company’s manufacturing and distribution facilities, including salary, benefit costs and incentive compensation, and royalties and other charges related to the Company’s Glad Venture Agreement (See Note 8).
Costs associated with developing and designing new packaging, including design, artwork, films and labeling, are expensed as incurred and included within Cost of products sold.
Selling and Administrative Expenses
Selling and administrative expenses represent costs incurred by the Company in generating revenues and managing the business and include market research, commissions and certain administrative expenses. Administrative expenses include salary, benefits, incentive compensation, professional fees and services and other operating costs associated with the Company’s non-manufacturing, non-research and development staff, facilities and equipment, as well as software and licensing fees.
Advertising and Research and Development Costs
The Company expenses advertising and research and development costs in the period incurred.
Income Taxes
The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax basis. Management reviews the Company’s deferred tax assets to determine whether their value can be realized based upon available evidence. A valuation allowance is established when management believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the Company’s income tax provision in the period of change. In addition to valuation allowances, the Company provides for uncertain tax positions when such tax positions do not meet certain recognition thresholds or measurement standards. Amounts for uncertain tax positions are adjusted in quarters when new information becomes available or when positions are effectively settled.
Per U.S. GAAP, foreign withholding taxes are provided on unremitted foreign earnings that are not indefinitely reinvested at the time the earnings are generated. The Company regularly reviews and assesses whether there are any changes to its indefinite reinvestment assertion and determined that none of the undistributed earnings of its foreign subsidiaries are indefinitely reinvested. As a result, the Company is providing foreign withholding taxes on the undistributed earnings of all foreign subsidiaries where applicable.
Foreign Currency Transactions and Translation
Local currencies are the functional currencies for substantially all of the Company’s foreign operations. When the transactional currency is different than the functional currency, transaction gains and losses are included as a component of Other (income) expense, net. In addition, certain assets and liabilities denominated in currencies other than a foreign subsidiary’s functional currency are reported on the subsidiary’s books in its functional currency, with the impact from exchange rate differences recorded in Other (income) expense, net. Assets and liabilities of foreign operations are translated into U.S. dollars using the exchange rates in effect at the balance sheet date, while income and expenses are translated at the respective average monthly exchange rates during the year.
Gains and losses on foreign currency translations are reported as a component of Other comprehensive (loss) income. The income tax effect of currency translation adjustments is recorded as a component of deferred taxes with an offset to Other comprehensive (loss) income where appropriate.
Effective July 1, 2018, under the requirements of U.S. GAAP, Argentina was designated as a highly inflationary economy, since it has experienced cumulative inflation of approximately 100 percent or more over a three-year period. As a result, beginning July 1, 2018, the U.S. dollar replaced the Argentine peso as the functional currency of the Company’s subsidiaries in Argentina (collectively, “Clorox Argentina”). Consequently, gains and losses from non-U.S. dollar denominated monetary assets and liabilities for Clorox Argentina are recognized in Other (income) expense, net in the consolidated statement of earnings.
Derivative Instruments
The Company’s use of derivative instruments, principally swaps, futures and forward contracts, is limited to non-trading purposes and is designed to partially manage exposure to changes in commodity prices, interest rates and foreign currencies. The Company’s contracts are hedges for transactions with notional amounts and periods consistent with the related exposures and do not constitute investments independent of these exposures.
The changes in the fair value (i.e., gains or losses) of a derivative instrument are recorded as either assets or liabilities in the consolidated balance sheets with an offset to Net earnings or Other comprehensive (loss) income depending on whether, for accounting purposes, it has been designated and qualifies as an accounting hedge and, if so, on the type of hedging relationship. The criteria used to determine if hedge accounting treatment is appropriate are: (a) formal designation and documentation of the hedging relationship, the risk management objective and hedging strategy at hedge inception; (b) eligibility of hedged items, transactions and corresponding hedging instrument; and (c) effectiveness of the hedging relationship both at inception of the hedge and on an ongoing basis in achieving the hedging objectives. For those derivative instruments designated and qualifying as hedging instruments, the Company must designate the hedging instrument either as a fair value hedge or as a cash flow hedge. The Company designates its commodity forward and future contracts for forecasted purchases of raw materials, interest rate forward contracts for forecasted interest payments, and foreign currency forward contracts for forecasted purchases of inventory as cash flow hedges. During the fiscal years ended June 30, 2020, 2019 and 2018, the Company had no hedging instruments designated as fair value hedges.
For derivative instruments designated and qualifying as cash flow hedges, the effective portion of gains or losses is reported as a component of Other comprehensive (loss) income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. From time to time, the Company may have contracts not designated as hedges for accounting purposes, for which it recognizes changes in the fair value in the consolidated statement of earnings in the current period. Cash flows from hedging activities are classified as operating activities in the consolidated statements of cash flows.
Recently Issued Accounting Standards
Recently Issued Accounting Standards Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, “Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and clarifies and amends existing guidance to improve consistent application. The standard will be effective for the Company beginning in the first quarter of fiscal year 2022, with early adoption permitted. The amendments that are related to changes in ownership of foreign equity method investments or foreign subsidiaries are to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments that are related to franchise taxes that are partially based on income are to be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments under this ASU are to be applied on a prospective basis.The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (ASC 350): Simplifying the Test for
Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill
impairment charge. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2021. The impact of the new standard will be dependent on the specific facts and circumstances of future individual impairments, if any.
Recently Adopted Accounting Standards
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (ASC 815): Targeted Improvements to Accounting for Hedging Activities,” which amends the hedge accounting recognition and presentation requirements to better align an entity’s risk management activities with its financial reporting. This standard also simplifies the application of hedge accounting in certain situations. The Company adopted this new guidance in the first quarter of fiscal year 2020 and the adoption did not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (ASC 842),” which requires lessees to recognize a ROU asset and a lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation will depend on the classification of a lease as either a finance or an operating lease. ASU 2016-02 also requires expanded disclosures about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-11, “Leases (ASC 842), Targeted Improvements,” which provides an optional transition method in applying the new lease standard. ASC 842 can be applied using either a modified retrospective approach at the beginning of the earliest period presented, or, as permitted by ASU 2018-11, at the beginning of the period in which it is adopted. The Company adopted the new standard in the first quarter of fiscal year 2020, on a modified retrospective basis using the optional transition method, and, accordingly, has not restated comparative periods; fiscal year 2019 balances and related disclosures supporting those comparative period balances continue to be presented under ASC 840, “Leases.” As allowed under the new standard, the Company elected to apply the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. Upon adoption, the Company recorded a cumulative effect adjustment to the opening balance of Retained earnings of $22 related primarily to the remaining deferred gain from the sale-leaseback of the Company’s general office building in Oakland, California. This new standard did not have a material impact on the Company’s consolidated statement of earnings or the consolidated statement of cash flows. Refer to Note 11 for more information.
v3.20.2
BUSINESS ACQUIRED
12 Months Ended
Jun. 30, 2020
Business Combinations [Abstract]  
BUSINESS ACQUIRED BUSINESS ACQUIRED
Nutranext Acquisition
On April 2, 2018, the Company acquired 100 percent of Nutranext, a dietary supplements company based in Sunrise, Florida. Nutranext manufactures and markets leading dietary supplement brands in the retail and e-commerce channels as well as in its direct-to-consumer business. The purchase of the business reflects the Company’s strategy to acquire leading brands in fast-growing categories with attractive gross margins.
The total consideration paid of $681, which included post-closing working capital and other adjustments, was initially funded through commercial paper borrowings and subsequently repaid using a combination of long-term debt financing and cash repatriated from foreign subsidiaries. The assets and liabilities of Nutranext were recorded at their respective estimated fair value as of the acquisition date using generally accepted accounting principles for business combinations. The excess of the purchase price over the fair value of the net identifiable assets acquired has been allocated to goodwill in the Health and Wellness reportable segment in the amount of $412. The goodwill of $412 is primarily attributable to the synergies expected to arise after the acquisition and reflects the value of further expanding the Company’s portfolio into the health and wellness arena. Of the total goodwill, $363 is deductible for tax purposes.
The purchase price allocation was finalized during the third quarter of fiscal year 2019. The following table summarizes the final purchase price allocation for the fair value of Nutranext’s assets acquired and liabilities assumed and the related deferred income taxes. The fair value of the assets acquired and liabilities assumed reflects the final insignificant measurement period adjustments related to goodwill, deferred income taxes and income taxes payable. The weighted-average estimated useful life of intangible assets subject to amortization is 15 years.
Nutranext
Goodwill (in the Health and Wellness reportable segment) (1)
$412  
Trademarks143  
Customer relationships75  
Property, plant and equipment49  
Working capital, net22  
Deferred income taxes(20) 
Consideration paid$681  
(1) Reflects segment changes effective in the fourth quarter of fiscal year 2020. See Note 18 for more information.
v3.20.2
INVENTORIES
12 Months Ended
Jun. 30, 2020
Inventory Disclosure [Abstract]  
INVENTORIES INVENTORIES
Inventories consisted of the following as of June 30:
20202019
Finished goods$340  $411  
Raw materials and packaging140  125  
Work in process  
LIFO allowances(33) (30) 
Total$454  $512  
The LIFO method was used to value approximately 31% and 34% of inventories as of June 30, 2020 and 2019, respectively. The carrying values for all other inventories are determined on the FIFO method. The effect on earnings of the liquidation of LIFO layers was insignificant for each of the fiscal years ended June 30, 2020, 2019 and 2018.
v3.20.2
PROPERTY, PLANT AND EQUIPMENT, NET
12 Months Ended
Jun. 30, 2020
Property, Plant and Equipment, Net [Abstract]  
PROPERTY, PLANT AND EQUIPMENT, NET PROPERTY, PLANT AND EQUIPMENT, NET
The components of property, plant and equipment, net, consisted of the following as of June 30:
20202019
Machinery and equipment$1,921  $1,867  
Buildings642  596  
Capitalized software costs368  358  
Land and improvements145  138  
Construction in progress153  131  
Computer equipment98  94  
Total3,327  3,184  
Less: Accumulated depreciation and amortization(2,224) (2,150) 
Property, plant and equipment, net$1,103  $1,034  

Depreciation and amortization expense related to property, plant and equipment, net, was $166, $165 and $156 in fiscal years 2020, 2019 and 2018, respectively, of which $5, $8 and $11 were related to amortization of capitalized software, respectively. Machinery and equipment above also includes capital leases of $21 and corresponding accumulated depreciation of $12 as of June 30, 2019 under Accounting Standards Codification 840, Leases (ASC 840).
Non-cash capital expenditures were $7, $2 and $2 for fiscal years, 2020, 2019 and 2018, respectively. There were no significant asset retirement obligations recorded and included in Buildings above for both fiscal years 2020 and 2019.
v3.20.2
GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS
12 Months Ended
Jun. 30, 2020
GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS [Abstract]  
GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by reportable segment for the fiscal years ended June 30, 2020 and 2019 were as follows:
Goodwill
Health and Wellness (1)
Household (1)
Lifestyle (1)
InternationalTotal
Balance as of June 30, 2018$856  $85  $244  $417  $1,602  
Acquisition —  —  —   
Effect of foreign currency translation—  —  —  (12) (12) 
Balance as of June 30, 2019$857  $85  $244  $405  $1,591  
Acquisition—  —  —  —  —  
Effect of foreign currency translation—  —  —  (14) (14) 
Balance as of June 30, 2020$857  $85  $244  $391  $1,577  
(1) Reflects segment changes effective in the fourth quarter of fiscal year 2020. See Note 18 for more information.

The changes in the carrying amount of trademarks and other intangible assets for the fiscal years ended June 30 were as follows:
As of June 30, 2020As of June 30, 2019
Gross
carrying
amount
Accumulated
amortization
Net carrying
amount
Gross
carrying
amount
Accumulated
amortization
Net carrying
amount
Trademarks with indefinite lives$766  $—  $766  $777  $—  $777  
Trademarks with finite lives47  28  19  40  26  14  
Other intangible assets with finite lives424  315  109  430  309  121  
Total$1,237  $343  $894  $1,247  $335  $912  
Amortization expense relating to the Company’s intangible assets was $14, $15 and $10 for the years ended June 30, 2020, 2019 and 2018, respectively. Estimated amortization expense for these intangible assets is $13, $12, $12, $11 and $10 for fiscal years 2021, 2022, 2023, 2024 and 2025, respectively.
v3.20.2
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
12 Months Ended
Jun. 30, 2020
Accounts Payable and Accrued Liabilities, Current [Abstract]  
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following as of June 30:
20202019
Accounts payable$575  $507  
Compensation and employee benefit costs288  158  
Trade and sales promotion costs164  115  
Dividends146  139  
Other156  116  
Total$1,329  $1,035  
v3.20.2
DEBT
12 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
DEBT DEBT
Short-term borrowings
Notes and loans payable are borrowings that mature in less than one year, primarily consisting of U.S. commercial paper issued by the Company and borrowings under the Company's revolving credit agreements. Notes and loans payable were $0 and $396 as of June 30, 2020 and 2019, respectively.
The weighted average interest rates incurred on average outstanding notes and loans payable during the fiscal years ended June 30, 2020, 2019 and 2018, including fees associated with the Company’s revolving credit agreements, were 2.49%, 2.98% and 2.10%, respectively. The weighted average effective interest rates on notes and loans payable as of June 30, 2019 was 2.65%.
Long-term borrowings
Long-term debt, carried at face value net of unamortized discounts, premiums and debt issuance costs, included the following as of June 30:
20202019
Senior unsecured notes and debentures:
3.80%, $300 due November 2021
$299  $299  
3.05%, $600 due September 2022
599  598  
3.50%, $500 due December 2024
498  498  
3.10%, $400 due October 2027
397  397  
3.90%, $500 due May 2028
496  495  
1.80%, $500 due May 2030
491  —  
Total2,780  2,287  
Less: Current maturities of long-term debt—  —  
Long-term debt$2,780  $2,287  
In May 2020, the Company issued $500 of senior notes with an annual fixed interest rate of 1.80% and a maturity date of May 15, 2030 and used the proceeds to repay borrowings under the revolving Credit Agreement and for general corporate purposes. Interest on the notes is payable semi-annually in May and November. The notes carry an effective interest rate of 1.96%, which includes the impact of amortizing debt issuance costs and the gain on the related interest rate forward contracts over the life of the notes (See Note 9). The notes rank equally with all of the Company's existing senior indebtedness.
In May 2018, the Company issued $500 of senior notes with an annual fixed interest rate of 3.90% and a maturity date of May 15, 2028 and used the proceeds to repay a portion of the outstanding commercial paper, including amounts raised in connection with the Nutranext acquisition. Interest on the notes is payable semi-annually in May and November. The notes carry an effective interest rate of 4.02%, which includes the impact of amortizing debt issuance costs and the loss on the related interest rate forward contracts over the life of the notes (See Note 9). The notes rank equally with all of the Company's existing senior indebtedness.
In September 2017, the Company issued $400 of senior notes with an annual fixed interest rate of 3.10% and a maturity date of October 1, 2027 and used the proceeds to repay $400 of senior notes with an annual fixed interest rate of 5.95% that became due in October 2017. The notes carry an effective interest rate of 3.13%, which includes the impact of amortizing debt issuance costs and the gain on the related interest rate forward contracts over the life of the notes (See Note 9). The notes rank equally with all of the Company’s existing senior indebtedness.
The weighted average interest rates incurred on average outstanding long-term debt during the fiscal years ended June 30, 2020, 2019 and 2018, were 3.75%, 3.81% and 3.94%, respectively. The weighted average effective interest rates on long-term debt balances as of both June 30, 2020 and 2019 were 3.48% and 3.81%, respectively.
Long-term debt maturities as of June 30, 2020, were $0, $300, $600, $0, $500, and $1,400 in fiscal years 2021, 2022, 2023, 2024, 2025, and thereafter, respectively.
Credit arrangements
On November 15, 2019, the Company entered into a new $1,200 revolving credit agreement (the Credit Agreement) that matures in November 2024. The Credit Agreement replaced a prior $1,100 revolving credit agreement (the Prior Credit Agreement) in place since February 2017. The Company did not incur any termination fees or penalties in connection with entering the new agreement, which was considered a debt modification. The Company was in compliance with all restrictive covenants and limitations in the Credit Agreement as of June 30, 2020, and anticipates being in compliance with all restrictive covenants for the foreseeable future. The Company continues to monitor the financial markets and assess its ability to fully draw on its Credit Agreement, and currently expects that it will continue to have access to borrowing under the Credit Agreement. As of the fiscal years ended June 30, 2020 and 2019, there were no borrowings due under the Credit Agreement or the Prior Credit Agreement.
The Company’s borrowing capacity under the revolving credit agreements and other financing arrangements as of June 30 was as follows:
20202019
Revolving credit facility$1,200  $1,100  
Foreign and other credit lines38  39  
Total$1,238  $1,139  
Of the $38 of foreign and other credit lines as of June 30, 2020, $3 was outstanding and the remainder of $35 was available for borrowing. Of the $39 of foreign and other credit lines as of June 30, 2019, $4 was outstanding and the remainder of $35 was available for borrowing.
v3.20.2
OTHER LIABILITIES
12 Months Ended
Jun. 30, 2020
Other Liabilities Disclosure [Abstract]  
OTHER LIABILITIES OTHER LIABILITIES
Other liabilities consisted of the following as of June 30:
20202019
Venture Agreement terminal obligation, net$400  $370  
Employee benefit obligations294  280  
Taxes23  34  
Other50  96  
Total$767  $780  
Venture Agreement
The Company has an agreement with The Procter & Gamble Company (P&G) for the Company’s Glad bags and wraps business. In connection with this agreement, P&G provides research and development (R&D) support to the Glad business. As of June 30, 2020 and 2019, P&G had a 20% interest in the venture. The Company pays a royalty to P&G for its interest in the profits, losses and cash flows, as contractually defined, of the Glad business, which is included in Cost of products sold. In December 2017, the Company and P&G extended the term of the agreement and the related R&D support provided by P&G. The term will now expire in January 2026, unless the parties agree, on or prior to January 31, 2025, to further extend the term of the agreement for another seven years or agree to take some other relevant action. The agreement can be terminated under certain circumstances, including at P&G’s option upon a change in control of the Company or, at either party’s option, upon the sale of the Glad business by the Company.
Upon termination of the agreement, the Company is required to purchase P&G’s 20% interest for cash at fair value as established by predetermined valuation procedures. As of June 30, 2020, the estimated fair value of P&G’s interest was $610, of which $400 has been recognized and is reflected in Other liabilities as noted in the table above. The difference between the estimated fair value and the amount recognized, and any future changes in the fair value of P&G’s interest, is charged to Cost of products sold in accordance with the effective interest method over the remaining life of the agreement. Following termination, the Glad business will retain the exclusive core intellectual property licenses contributed by P&G on a royalty-free basis for the licensed products marketed.
Deferred Gain on Sale-leaseback TransactionIn December 2012, the Company completed a sale-leaseback transaction under which it sold its general office building in Oakland, California to an unrelated third party for net proceeds of $108 and entered into a 15-year operating lease agreement with renewal options with the buyer for a portion of the building. The Company deferred recognition of the portion of the total gain on the sale that was equivalent to the present value of the lease payments and began to amortize such amount to earnings ratably over the lease term. As of June 30, 2019, the long-term portion of the deferred gain of $22 was included in Other, as noted in the table above. The Company reclassified the remaining deferred gain from the sale-leaseback of the general office building to Retained earnings upon adoption of the new lease guidance under ASC 842 effective July 1, 2019. Refer to Note 1 for more information.
v3.20.2
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
12 Months Ended
Jun. 30, 2020
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS [Abstract]  
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Financial Risk Management and Derivative Instruments
The Company is exposed to certain commodity, foreign currency and interest rate risks related to its ongoing business operations and uses derivative instruments to mitigate its exposure to these risks.
Commodity Price Risk Management
The Company may use commodity exchange-traded futures and over-the-counter swap contracts, which are generally no longer than 2 years, to fix the price of a portion of its forecasted raw material requirements. Commodity purchase contracts are measured at fair value using market quotations obtained from the Chicago Board of Trade commodity futures exchange and commodity derivative dealers.
As of June 30, 2020, the notional amount of commodity derivatives was $27, of which $14 related to soybean oil futures used for the Food products business and $13 related to jet fuel swaps used for the Grilling business. As of June 30, 2019, the notional amount of commodity derivatives was $24, of which $13 related to soybean oil futures and $11 related to jet fuel swaps.
Foreign Currency Risk Management
The Company may also enter into certain over-the-counter derivative contracts to manage a portion of the Company’s forecasted foreign currency exposure associated with the purchase of inventory. These foreign currency contracts generally have durations of no longer than 2 years. The foreign exchange contracts are measured at fair value using information quoted by foreign exchange dealers.
The notional amounts of outstanding foreign currency forward contracts used by the Company’s subsidiaries to hedge forecasted purchases of inventory were $70 and $61, respectively, as of June 30, 2020 and 2019.
Interest Rate Risk Management
The Company may enter into over-the-counter interest rate forward contracts to fix a portion of the benchmark interest rate prior to the anticipated issuance of fixed rate debt or to manage the Company’s level of fixed and floating rate debt. These interest rate forward contracts generally have durations of less than 3 years. The interest rate contracts are measured at fair value using information quoted by U.S. government bond dealers.
During the fourth quarter of fiscal year 2020, the Company entered into forward starting interest rate swap contracts with a maturity date of September 2022 and notional amounts totaling $225. The contracts were designated as cash flow hedges to manage the exposure to interest rate volatility associated with future interest payments on a forecasted debt issuance. The unrealized mark-to-market gains or losses on these hedging contracts will be recorded in Other comprehensive (loss) income until termination at which point the realized gains or losses will be reclassified from Accumulated other comprehensive net (loss) income and amortized into Interest expense on the consolidated statement of earnings over the term of the forecasted debt. There were no outstanding forward starting interest rate swaps as of June 30, 2019.
During fiscal year 2020, the Company entered into, and subsequently terminated, interest rate forward contracts related to the May 2020 issuance of $500 in senior notes (See Note 7). These contracts resulted in an insignificant gain recorded in Other comprehensive (loss) income, which is being amortized into Interest expense on the consolidated statement of earnings over the 10-year term of the notes.
During fiscal year 2018, the Company entered into, and subsequently terminated, interest rate forward contracts related to the September 2017 issuance of $400 in senior notes and the May 2018 issuance of $500 in senior notes (See Note 7). These contracts resulted in insignificant gains and losses included within Other comprehensive (loss) income, which are being amortized into Interest expense on the consolidated statement of earnings over the 10-year term of each of the notes.

Commodity, Foreign Exchange and Interest Rate Derivatives

The Company designates its commodity forward and futures contracts for forecasted purchases of raw materials, foreign
currency forward contracts for forecasted purchases of inventory, and interest rate forward contracts for forecasted interest
payments as cash flow hedges.
The effects of derivative instruments designated as hedging instruments on Other comprehensive (loss) income and Net earnings were as follows during the fiscal years ended June 30:
Gains (losses) recognized in Other comprehensive (loss) income
202020192018
Commodity purchase derivative contracts$(7) $(5) $ 
Foreign exchange derivative contracts—  —   
Interest rate derivative contracts —   
Total$(5) $(5) $ 

Location of Gains (losses) reclassified from Accumulated other comprehensive net (loss) income into Net earnings
Gains (losses) reclassified from Accumulated other comprehensive net (loss) income and recognized in Net earnings
202020192018
Commodity purchase derivative contractsCost of products sold$(4) $(2) $ 
Foreign exchange derivative contractsCost of products sold—   (1) 
Interest rate derivative contractsInterest expense(6) (6) (6) 
Total$(10) $(6) $(6) 

The estimated amount of the existing net gain (loss) in Accumulated other comprehensive net (loss) income as of June 30, 2020 that is expected to be reclassified into Net earnings within the next twelve months is $(11).

Counterparty Risk Management and Derivative Contract Requirements

The Company utilizes a variety of financial institutions as counterparties for over-the-counter derivative instruments. The Company enters into agreements governing the use of over-the-counter derivative instruments and sets internal limits on the aggregate over-the-counter derivative instrument positions held with each counterparty. Certain terms of these agreements require the Company or the counterparty to post collateral when the fair value of the derivative instruments exceeds contractually defined counterparty liability position limits. Of the over-the-counter derivative instruments in liability positions held as of June 30, 2020 and 2019, $3 and $1, respectively, contained such terms. As of both June 30, 2020 and 2019, neither the Company nor any counterparty was required to post any collateral as no counterparty liability position limits were exceeded.
Certain terms of the agreements governing the Company’s over-the-counter derivative instruments require the credit ratings, as assigned by Standard & Poor’s and Moody’s to the Company and its counterparties, to remain at a level equal to or better than the minimum of an investment grade credit rating. If the Company’s credit ratings were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. As of both June 30, 2020 and 2019, the Company and each of its counterparties had been assigned investment grade ratings by both Standard & Poor’s and Moody’s.
Certain of the Company’s exchange-traded futures contracts used for commodity price risk management include requirements for the Company to post collateral in the form of a cash margin account held by the Company’s broker for trades conducted on that exchange. As of June 30, 2020 and 2019, the Company maintained cash margin balances related to exchange-traded futures contracts of $2 and $1, respectively, which are classified as Prepaid expenses and other current assets on the consolidated balance sheets.
Trust Assets
The Company holds interests in mutual funds and cash equivalents as part of trust assets related to its nonqualified deferred compensation plans. The participants in the nonqualified deferred compensation plans, who are the Company’s current and former employees, may select among certain mutual funds in which their compensation deferrals are invested in accordance with the terms of the plan and within the confines of the trusts, which hold the marketable securities. The trusts represent variable interest entities for which the Company is considered the primary beneficiary, and, therefore, trust assets are consolidated and included in Other assets in the consolidated balance sheets. The interests in mutual funds are measured at fair value using quoted market prices. The Company has designated these marketable securities as trading investments.
As of June 30, 2020, the value of the trust assets related to the Company’s nonqualified deferred compensation plans increased by $4 as compared to June 30, 2019.
Fair Value of Financial Instruments
Financial assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets are required to be classified and disclosed in one of the following three categories of the fair value hierarchy:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions.
As of June 30, 2020 and 2019, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis during the period included derivative financial instruments, which were classified as either Level 1 or Level 2, and trust assets to fund the Company’s nonqualified deferred compensation plans, which were classified as Level 1.
All of the Company's derivative instruments qualify for hedge accounting. The following table provides information about the balance sheet classification and the fair values of the Company's derivative instruments:
20202019
Balance sheet classificationFair value
hierarchy
level
Carrying
Amount
Estimated
Fair
Value
Carrying
Amount
Estimated
Fair
Value
Assets
Interest rate forward contractsOther assets2  —  —  
$ $ $—  $—  
Liabilities
Commodity purchase futures contractsAccounts payable and accrued liabilities1    
Commodity purchase swaps contractsAccounts payable and accrued liabilities2    
Foreign exchange forward contractsAccounts payable and accrued liabilities2$  —  —  
$ $ $ $ 

The following table provides information about the balance sheet classification and the fair values of the Company's other assets and liabilities for which disclosure of fair value is required:


20202019
Balance sheet classificationFair value
hierarchy
level
Carrying
Amount
Estimated
Fair
Value
Carrying
Amount
Estimated
Fair
Value
Assets
Investments, including money market funds
Cash and cash equivalents (a)
1$584  $584  $26  $26  
Time deposits
Cash and cash equivalents (a)
2165  165    
Trust assets for nonqualified deferred compensation plansOther assets1100  100  96  96  
$849  $849  $129  $129  
Liabilities
Notes and loans payable
Notes and loans payable (b)
2$—  $—  $396  $396  
Current maturities of long-term debt and Long-term debt
Current maturities of long-
term debt and Long-term
debt (c)
22,780  3,051  2,287  2,402  
$2,780  $3,051  $2,683  $2,798  

(a)Cash and cash equivalents are composed of time deposits and other interest-bearing investments, including money market funds with original maturity dates of 90 days or less. Cash and cash equivalents are recorded at cost, which approximates fair value.
(b)Notes and loans payable is composed of outstanding U.S. commercial paper balances and/or amounts drawn on the Company’s credit agreements, all of which are recorded at cost, which approximates fair value.
(c)Current maturities of long-term debt and Long-term debt are recorded at cost. The fair value of Long-term debt, including current maturities, was determined using secondary market prices quoted by corporate bond dealers, and is classified as Level 2.
v3.20.2
OTHER CONTINGENCIES, GUARANTEES AND COMMITMENTS
12 Months Ended
Jun. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
OTHER CONTINGENCIES, GUARANTEES AND COMMITMENTS OTHER CONTINGENCIES, GUARANTEES AND COMMITMENTS
Contingencies
The Company is involved in certain environmental matters, including response actions at various locations. The Company had recorded liabilities totaling $28 and $27 as of June 30, 2020 and 2019, respectively, for its share of aggregate future remediation costs related to these matters.
One matter, which accounted for $14 of the recorded liability as of both June 30, 2020 and 2019, relates to environmental costs associated with one of the Company’s former operations at a site located in Alameda County, California. In November 2016, at the request of regulators and with the assistance of environmental consultants, the Company submitted a Feasibility Study that evaluated various options for managing the site and included estimates of the related costs. As a result, the Company recorded in Other (income) expense, net an undiscounted liability for costs estimated to be incurred over a 30-year period, based on the option recommended in the Feasibility Study. However, as a result of ongoing discussions with regulators, in June 2017, the Company increased its recorded liability to $14, which reflects anticipated costs to implement additional remediation measures at the site. While the Company believes its latest estimate is reasonable, regulators could require the Company to implement one of the other options evaluated in the Feasibility Study, with estimated undiscounted costs of up to $28 over an estimated 30-year period, or require the Company to take other actions and incur costs not included in the study.
Another matter in Dickinson County, Michigan, at the site of one of the Company’s former operations for which the Company is jointly and severally liable, accounted for $10 and $11 of the recorded liability as of June 30, 2020 and 2019, respectively. This amount reflects the Company’s agreement to be liable for 24.3% of the aggregate remediation and associated costs for this matter pursuant to a cost-sharing arrangement with a third party. If the third party is unable to pay its share of the response and remediation obligations, the Company may be responsible for such obligations. With the assistance of environmental consultants, the Company maintains an undiscounted liability representing its current best estimate of its share of the capital expenditures, maintenance and other costs that may be incurred over an estimated 30-year remediation period. Although it is reasonably possible that the Company’s exposure may exceed the amount recorded for the Dickinson County matter, any amount of such additional exposures, or range of exposures, is not estimable at this time. The Company’s estimated losses related to these matters are sensitive to a variety of uncertain factors, including the efficacy of any remediation efforts, changes in any remediation requirements, and the future availability of alternative clean-up technologies.
The Company is subject to various legal proceedings, claims and other loss contingencies, including, without limitation, loss contingencies relating to contractual arrangements, product liability, patents and trademarks, advertising, labor and employment, environmental, health and safety and other matters. With respect to these proceedings, claims and other loss contingencies, while considerable uncertainty exists, in the opinion of management at this time, the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, either individually or in the aggregate, on the Company’s consolidated financial statements taken as a whole.
Guarantees
In conjunction with divestitures and other transactions, the Company may provide typical indemnifications (e.g., indemnifications for representations and warranties and retention of previously existing environmental, tax and employee liabilities) that have terms that vary in duration and in the potential amount of the total obligation and, in many circumstances, are not explicitly defined. The Company has not made, nor does it believe that it is probable that it will make, any material payments relating to its indemnifications, and believes that any reasonably possible payments would not have a material adverse effect, either individually or in the aggregate, on the Company’s consolidated financial statements taken as a whole.
The Company had not recorded any material liabilities on the aforementioned guarantees as of June 30, 2020 and 2019.
The Company was a party to a letter of credit of $10 as of June 30, 2020 and $9 as of June 30, 2019, primarily related to one of its insurance carriers, of which $0 had been drawn upon.
Commitments
The Company is a party to certain purchase obligations, which are defined as purchase agreements that are enforceable and legally binding and that contain specified or determinable significant terms, including quantity, price and the approximate timing of the transaction. For purchase obligations subject to variable price and/or quantity provisions, an estimate of the price and/or quantity must be made. Examples of the Company’s purchase obligations include contracts to purchase raw materials, commitments to contract manufacturers, commitments for information technology and related services, advertising contracts, capital expenditure agreements, software acquisition and license commitments and service contracts. The Company enters into purchase obligations based on expectations of future business needs. Many of these purchase obligations are flexible to allow for changes in the Company’s business and related requirements. As of June 30, 2020, the Company’s purchase obligations by purchase date were as follows:
YearPurchase
Obligations
2021$149  
202278  
202327  
202419  
2025 
Thereafter20  
Total$299  
v3.20.2
LEASES
12 Months Ended
Jun. 30, 2020
Leases [Abstract]  
LEASES LEASES
The Company leases various property, plant and equipment, including office, warehousing, manufacturing and research and development facilities and equipment. These leases have remaining lease terms of up to 11 years, inclusive of renewal or termination options that the Company is reasonably certain to exercise. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information related to the Company’s leases was as follows:
Balance sheet classificationAs of
6/30/2020
Operating leases
Right-of-use assetsOperating lease right-of-use assets$291  
Current lease liabilitiesCurrent operating lease liabilities64  
Non-current lease liabilitiesLong-term operating lease liabilities278  
Total operating lease liabilities$342  
Finance leases
Right-of-use assetsOther assets$14  
Current lease liabilitiesAccounts payable and accrued liabilities 
Non-current lease liabilitiesOther liabilities12  
Total finance lease liabilities$14  
Components of lease cost were as follows:
Twelve Months Ended
6/30/2020
Operating lease cost73  
Finance lease cost:
Amortization of right-of-use assets 
Interest on lease liabilities—  
Total finance lease cost 
Variable lease cost39  
Short term lease cost 
Supplemental cash flow information and non-cash activity related to the Company’s leases were as follows:
Twelve Months Ended
6/30/2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases, net$54  
Operating cash flows from finance leases—  
Financing cash flows from finance leases 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$38  
Finance leases 
Weighted-average remaining lease term and discount rate for the Company’s leases were as follows:
As of 6/30/2020
Weighted-average remaining lease term:
Operating leases7 years
Finance leases7 years
Weighted-average discount rate:
Operating leases2.49 %
Finance leases3.20 %

Maturities of lease liabilities by fiscal year for the Company’s leases as of June 30, 2020 were as follows:
YearOperating leasesFinance leases
2021$70   
202256   
202349   
202442   
202536   
Thereafter122   
Total lease payments$375  $16  
Less: Imputed interest(33) (2) 
Total lease liabilities$342  $14  

The future minimum annual lease payments required under the Company’s existing non-cancelable operating and capital lease agreements as of June 30, 2019 prior to the adoption of ASC 842, were as follows:
YearOperating leasesCapital leases
2020$71  $ 
202165   
202250   
202342   
202437   
Thereafter124   
Total lease payments$389  $ 

Rent expense under operating leases under ASC 840 amounted to $72 and $86 for the years ended June 30, 2019 and 2018, respectively.
LEASES LEASES
The Company leases various property, plant and equipment, including office, warehousing, manufacturing and research and development facilities and equipment. These leases have remaining lease terms of up to 11 years, inclusive of renewal or termination options that the Company is reasonably certain to exercise. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information related to the Company’s leases was as follows:
Balance sheet classificationAs of
6/30/2020
Operating leases
Right-of-use assetsOperating lease right-of-use assets$291  
Current lease liabilitiesCurrent operating lease liabilities64  
Non-current lease liabilitiesLong-term operating lease liabilities278  
Total operating lease liabilities$342  
Finance leases
Right-of-use assetsOther assets$14  
Current lease liabilitiesAccounts payable and accrued liabilities 
Non-current lease liabilitiesOther liabilities12  
Total finance lease liabilities$14  
Components of lease cost were as follows:
Twelve Months Ended
6/30/2020
Operating lease cost73  
Finance lease cost:
Amortization of right-of-use assets 
Interest on lease liabilities—  
Total finance lease cost 
Variable lease cost39  
Short term lease cost 
Supplemental cash flow information and non-cash activity related to the Company’s leases were as follows:
Twelve Months Ended
6/30/2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases, net$54  
Operating cash flows from finance leases—  
Financing cash flows from finance leases 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$38  
Finance leases 
Weighted-average remaining lease term and discount rate for the Company’s leases were as follows:
As of 6/30/2020
Weighted-average remaining lease term:
Operating leases7 years
Finance leases7 years
Weighted-average discount rate:
Operating leases2.49 %
Finance leases3.20 %

Maturities of lease liabilities by fiscal year for the Company’s leases as of June 30, 2020 were as follows:
YearOperating leasesFinance leases
2021$70   
202256   
202349   
202442   
202536   
Thereafter122   
Total lease payments$375  $16  
Less: Imputed interest(33) (2) 
Total lease liabilities$342  $14  

The future minimum annual lease payments required under the Company’s existing non-cancelable operating and capital lease agreements as of June 30, 2019 prior to the adoption of ASC 842, were as follows:
YearOperating leasesCapital leases
2020$71  $ 
202165   
202250   
202342   
202437   
Thereafter124   
Total lease payments$389  $ 

Rent expense under operating leases under ASC 840 amounted to $72 and $86 for the years ended June 30, 2019 and 2018, respectively.