CLOROX CO /DE/, 10-K filed on 8/15/2017
Annual Report
DOCUMENT AND ENTITY INFORMATION (USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Jun. 30, 2017
Jul. 28, 2017
Dec. 30, 2016
Document And Entity Information
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Jun. 30, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Entity Registrant Name
CLOROX CO /DE/ 
 
 
Entity Central Index Key
0000021076 
 
 
Current Fiscal Year End Date
--06-30 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 15.4 
Entity Common Stock, Shares Outstanding
 
129,068,511 
 
CONSOLIDATED STATEMENT OF EARNINGS (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
12 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2015
Income Statement [Abstract]
 
 
 
Net sales
$ 5,973 
$ 5,761 
$ 5,655 
Cost of products sold
3,302 
3,163 
3,190 
Gross profit
2,671 
2,598 
2,465 
Selling and administrative expenses
810 
806 
798 
Advertising costs
599 
587 
523 
Research and development costs
135 
141 
136 
Interest expense
88 
88 
100 
Other (income) expense, net
(7)
(13)
Earnings from continuing operations before income taxes
1,033 
983 
921 
Income taxes on continuing operations
330 
335 
315 
Earnings from continuing operations
703 
648 
606 
Losses from discontinued operations, net of tax
(2)
(26)
Net earnings
$ 701 
$ 648 
$ 580 
Basic
 
 
 
Basic continuing operations (in dollars per share)
$ 5.45 
$ 5.01 
$ 4.65 
Basic discontinued operations (in dollars per share)
$ (0.02)
$ 0.00 
$ (0.20)
Basic net earnings per share (in dollars per share)
$ 5.43 
$ 5.01 
$ 4.45 
Diluted
 
 
 
Diluted continuing operations (in dollars per share)
$ 5.35 
$ 4.92 
$ 4.57 
Diluted discontinued operations (in dollars per share)
$ (0.02)
$ 0.00 
$ (0.20)
Diluted net earnings per share (in dollars per share)
$ 5.33 
$ 4.92 
$ 4.37 
Weighted Average Number of Shares Outstanding, Diluted [Abstract]
 
 
 
Weighted average shares outstanding - basic (in shares)
128,953 
129,472 
130,310 
Weighted average shares outstanding - diluted (in shares)
131,566 
131,717 
132,776 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
12 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
Earnings from continuing operations
$ 703 
$ 648 
$ 606 
Losses from discontinued operations, net of tax
(2)
(26)
Net earnings
701 
648 
580 
Other comprehensive income (losses):
 
 
 
Foreign currency adjustments, net of tax
(3)
(53)
(54)
Net unrealized gains (losses) on derivatives, net of tax
(14)
Pension and postretirement benefit adjustments, net of tax
23 
(24)
(17)
Total other comprehensive income (losses), net of tax
27 
(68)
(85)
Comprehensive income
$ 728 
$ 580 
$ 495 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Jun. 30, 2017
Jun. 30, 2016
Current assets
 
 
Cash and cash equivalents
$ 418 
$ 401 
Receivables, net
565 
569 
Inventories, net
459 
443 
Prepaid expenses and other current assets
72 
72 
Total current assets
1,514 
1,485 
Property, plant and equipment, net
931 
906 
Goodwill
1,196 
1,197 
Trademarks, net
654 
657 
Other intangible assets, net
68 
78 
Other assets
210 
187 
Total assets
4,573 
4,510 
Current liabilities
 
 
Notes and loans payable
404 
523 
Current maturities of long-term debt
400 
Accounts payable and accrued liabilities
1,005 
1,035 
Income taxes payable
Total current liabilities
1,809 
1,558 
Long-term debt
1,391 
1,789 
Other liabilities
770 
784 
Deferred income taxes
61 
82 
Total liabilities
4,031 
4,213 
Commitments and contingencies
   
   
Stockholders’ equity
 
 
Preferred stock: $1.00 par value; 5,000,000 shares authorized; none issued or outstanding
Common stock: $1.00 par value; 750,000,000 shares authorized; 158,741,461 shares issued as of June 30, 2017 and 2016; and 129,014,172 and 129,355,263 shares outstanding as of June 30, 2017 and 2016, respectively
159 
159 
Additional paid-in capital
928 
868 
Retained earnings
2,440 
2,163 
Treasury shares, at cost: 29,727,289 and 29,386,198 shares as of June 30, 2017 and 2016, respectively
(2,442)
(2,323)
Accumulated other comprehensive net (losses) income
(543)
(570)
Stockholders’ equity
542 
297 
Total liabilities and stockholders’ equity
$ 4,573 
$ 4,510 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Jun. 30, 2017
Jun. 30, 2016
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)
Preferred stock, shares outstanding (in shares)
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)
129,014,172 
129,355,263 
Treasury stock, shares (in shares)
29,727,289 
29,386,198 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)
In Millions, except Share data in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Shares [Member]
AOCI Attributable to Parent [Member]
Balance, amount at Jun. 30, 2014
$ 154 
$ 159 
$ 709 
$ 1,739 
$ (2,036)
$ (417)
Balance, shares (in shares) at Jun. 30, 2014
 
158,741 
 
 
(29,945)
 
Net earnings
580 
 
 
580 
 
 
Other comprehensive income (loss)
(85)
 
 
 
 
(85)
Accrued dividends
(391)
 
 
(391)
 
 
Stock-based compensation
32 
 
32 
 
 
 
Other employee stock plan activities, amount
262 
 
34 
(5)
233 
 
Other employee stock plan activities, shares
 
 
 
 
(4,198)
 
Treasury stock purchased, amount
(434)
 
 
 
(434)
 
Treasury stock purchased, shares
 
 
 
 
4,016 
 
Balance, amount at Jun. 30, 2015
118 
159 
775 
1,923 
(2,237)
(502)
Balance, shares (in shares) at Jun. 30, 2015
 
158,741 
 
 
(30,127)
 
Net earnings
648 
 
 
648 
 
 
Other comprehensive income (loss)
(68)
 
 
 
 
(68)
Accrued dividends
(406)
 
 
(406)
 
 
Stock-based compensation
45 
 
45 
 
 
 
Other employee stock plan activities, amount
214 
 
48 
(2)
168 
 
Other employee stock plan activities, shares
 
 
 
 
2,892 
 
Treasury stock purchased, amount
(254)
 
 
 
(254)
 
Treasury stock purchased, shares
 
 
 
 
(2,151)
 
Balance, amount at Jun. 30, 2016
297 
159 
868 
2,163 
(2,323)
(570)
Balance, shares (in shares) at Jun. 30, 2016
 
158,741 
 
 
(29,386)
 
Net earnings
701 
 
 
701 
 
 
Other comprehensive income (loss)
27 
 
 
 
 
27 
Accrued dividends
(421)
 
 
(421)
 
 
Stock-based compensation
51 
 
51 
 
 
 
Other employee stock plan activities, amount
76 
 
(3)
70 
 
Other employee stock plan activities, shares
 
 
 
 
1,164 
 
Treasury stock purchased, amount
(189)
 
 
 
(189)
 
Treasury stock purchased, shares
 
 
 
 
(1,505)
 
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)
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
12 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2015
Operating activities:
 
 
 
Net earnings
$ 701 
$ 648 
$ 580 
Deduct: Losses from discontinued operations, net of tax
(2)
(26)
Earnings from continuing operations
703 
648 
606 
Adjustments to reconcile earnings from continuing operations to net cash provided by continuing operations:
 
 
 
Depreciation and amortization
163 
165 
169 
Stock-based compensation
51 
45 
32 
Deferred income taxes
(35)
(16)
Settlement of interest rate forward contracts
(25)
Other
36 
(17)
Changes in:
 
 
 
Receivables, net
(1)
(52)
Inventories, net
(19)
(45)
(25)
Prepaid expenses and other current assets
(5)
Accounts payable and accrued liabilities
(34)
57 
93 
Income taxes payable
12 
(62)
29 
Net cash provided by continuing operations
871 
768 
858 
Net cash (used for) provided by discontinued operations
(3)
10 
16 
Net cash provided by operations
868 
778 
874 
Investing activities:
 
 
 
Capital expenditures
(231)
(172)
(125)
Business acquired, net of cash acquired
(290)
Other
26 
32 
19 
Net cash used for investing activities
(205)
(430)
(106)
Financing activities:
 
 
 
Notes and loans payable, net
(125)
426 
(48)
Long-term debt borrowings, net of issuance costs
495 
Long-term debt repayments
(300)
(575)
Treasury stock purchased
(183)
(254)
(434)
Cash dividends paid
(412)
(398)
(385)
Issuance of common stock for employee stock plans and other
75 
210 
251 
Net cash used for financing activities
(645)
(316)
(696)
Effect of exchange rate changes on cash and cash equivalents
(1)
(13)
(19)
Net increase in cash and cash equivalents
17 
19 
53 
Cash and cash equivalents:
 
 
 
Beginning of year
401 
382 
329 
End of year
418 
401 
382 
Supplemental cash flow information:
 
 
 
Interest paid
78 
79 
104 
Income taxes paid, net of refunds
347 
323 
236 
Noncash financing activities:
 
 
 
Cash dividends declared and accrued, but not paid
$ 108 
$ 104 
$ 99 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 sales of consumer products through mass retail and grocery outlets, warehouse clubs, dollar stores, e-commerce channels, military stores and other retail outlets, and medical supply 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. Certain prior year reclassifications were made in the consolidated financial statements and related notes to the consolidated financial statements to conform to the current year presentation.
Effective September 22, 2014, the Company’s Venezuela affiliate, Corporación Clorox de Venezuela S.A. (Clorox Venezuela), discontinued its operations. Consequently, the Company presents the financial results of Clorox Venezuela as a discontinued operation in the consolidated financial statements for all periods presented herein.
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 management’s opinion on estimates and judgments include 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, 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 and Cash Equivalents
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 three months 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 income tax costs in the United States and 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, with the impact from foreign currency exchange rate differences recorded in Other (income) expense, net.
As of June 30, 2017 and 2016, the Company had $2 and $4 of restricted cash, respectively, which is primarily related to fiscal year 2012 acquisitions and a cash margin deposit held for exchange-traded futures contracts. Restricted cash was included in Prepaid expenses and other current assets as of June 30, 2017 and in Other assets as of June 30, 2016.
Inventories
Inventories are stated at the lower of cost or market. When necessary, the Company adjusts the carrying value of its inventory to the lower of cost or market, including any costs to sell or dispose. Appropriate consideration is given to obsolescence, excessive inventory levels, product deterioration and other factors in evaluating net realizable value for the purposes of determining 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 calculated by the straight-line method using the estimated useful lives or lives determined by lease contracts for the related assets. 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


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 maturity and stability of the reporting unit, magnitude of excess fair value over carrying value from the prior year’s impairment testing, other reporting unit specific operating results as well as new events and circumstances impacting the operations at the reporting unit level. 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. In all instances, the estimated fair value exceeded the carrying value of the reporting unit. Had the estimated fair value of any reporting unit been less than its carrying value, the Company would have performed a second step to determine the implied fair value of the reporting unit’s goodwill. If the carrying amount of a reporting unit’s goodwill had exceeded its implied fair value, an impairment charge would have been recorded for the difference between the carrying amount and the implied fair value of the reporting unit’s goodwill.
To determine the fair value of a reporting unit as part of its quantitative test, the Company uses a discounted cash flow (DCF) 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, 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 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 include, but are not limited to, future volumes, net sales and expense growth rates, changes in working capital, foreign exchange rates, inflation and a perpetuity 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 performs a quantitative analysis to test for impairment. When a quantitative test is performed, the estimated fair value of an asset is compared to its carrying amount. If the carrying amount of such asset exceeds its estimated fair value, an impairment charge is recorded for the difference between the carrying amount 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 both 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.
Stock-based Compensation
The Company grants various nonqualified stock-based compensation awards to eligible employees, including stock options, restricted stock and performance units.
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.
The Company’s performance unit grants 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 unit grants 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 primarily 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 required use of an 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
Sales are recognized as revenue when the risk of loss and title pass to the customer and when all of the following have occurred: a firm sales arrangement exists, pricing is fixed or determinable and collection is reasonably assured. Sales are recorded net of allowances for trade promotions, coupons, returns and other discounts. The Company routinely commits to one-time or ongoing trade-promotion programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs of such programs. Programs include shelf price reductions, end-of-aisle or in-store displays of the Company’s products and graphics and other trade-promotion activities conducted by the customer. Coupons are recognized as a liability when distributed based upon expected consumer redemptions. The Company maintains liabilities related to these programs for the estimated expenses incurred, but not paid, at the end of each period.
The Company provides an allowance for doubtful accounts based on its historical experience and ongoing assessment of its customers’ credit risk. Receivables were presented net of an allowance for doubtful accounts of $3 and $5 as of June 30, 2017 and 2016, respectively. Receivables, net, included non-customer receivables of $3 and $9 as of June 30, 2017 and 2016, 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 9).
Costs associated with developing and designing new packaging are expensed as incurred and include design, artwork, films and labeling. Expenses for fiscal years ended June 30, 2017, 2016 and 2015 were $13, $11 and $11, respectively, all of which were reflected in Cost of products sold or discontinued operations, as appropriate, in the consolidated statements of earnings.
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, software and licensing fees and other operating costs associated with the Company’s non-manufacturing, non-research and development staff, facilities and equipment.
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.
U.S. income tax expense and foreign withholding taxes are provided on unremitted foreign earnings that are not indefinitely reinvested at the time the earnings are generated. Where foreign earnings are indefinitely reinvested, no provision for U.S. income or foreign withholding taxes is made. When circumstances change and the Company determines that some or all of the undistributed earnings will be remitted in the foreseeable future, the Company accrues an expense in the current period for U.S. income taxes and foreign withholding taxes attributable to the anticipated remittance.
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 different 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 average monthly exchange rates during the year.
Gains and losses on foreign currency translations are reported as a component of Other comprehensive income (loss). Deferred taxes are not provided on cumulative translation adjustments where the Company expects earnings of a foreign subsidiary to be indefinitely reinvested. The income tax effect of currency translation adjustments related to foreign subsidiaries and equity investees for which earnings are not considered indefinitely reinvested is recorded as a component of deferred taxes with an offset to Other comprehensive income (loss).
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 income (loss) 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, 2017, 2016 and 2015, 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 income (loss) 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 March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires presenting the service cost component of net periodic benefit cost in the same income statement line items as other employee compensation costs arising from services rendered during the period. This standard also requires that other components of the net periodic benefit cost be presented separately from the line item(s) that includes service costs and outside of any subtotal of operating income, if one is presented, on a retrospective basis. Additionally, the new guidance limits the components that are eligible for capitalization in assets to only the service cost component. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2019, with the option to early adopt in the first quarter of fiscal year 2018. The Company is currently evaluating the impact that 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 (Topic 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, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires lessees to recognize a right-of-use 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. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2020, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which replaces most of the existing U.S. GAAP revenue recognition guidance and is intended to improve and converge with international standards on the financial reporting requirements for revenue from contracts with customers. The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers, including information about significant judgments and changes in judgments. The guidance is effective for the Company beginning in the first quarter of fiscal year 2019 and is expected to be applied on a modified retrospective basis.

Based on the Company’s preliminary assessment, the adoption of the standard is not expected to have a significant impact on its annual consolidated financial statements; however, there may be an impact on the Company’s financial results in interim periods due to the timing of recognition for certain trade promotion spending. As the Company completes its overall assessment, it is also identifying potential changes to its accounting policies, business processes, systems and controls to align with the new revenue recognition guidance and disclosure requirements.
Recently Adopted Accounting Standards

In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for share-based payment transactions, including requiring excess tax benefits and tax deficiencies to be recognized as income tax benefits or expenses in the consolidated statement of earnings. Additionally, the standard requires cash flows from excess tax benefits and deficiencies, previously classified as a financing activity, to be classified as an operating activity in the consolidated statement of cash flows. The Company adopted this guidance in the first quarter of fiscal year 2017. Excess tax benefits of $22 were recognized in the consolidated statement of earnings and classified as an operating activity in the consolidated statement of cash flows during the year ended June 30, 2017. The prior period consolidated statement of cash flows has not been adjusted as permitted. The guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The Company did not make this election and will continue to account for forfeitures on an estimated basis.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Cost,” which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this standard in the first quarter of fiscal year 2017 and retrospectively applied the standard to the June 30, 2016 consolidated balance sheet, resulting in an $8 reduction in Other assets and Long-term debt. The adoption had no impact on the Company’s consolidated statement of earnings or consolidated statement of cash flows.
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
On September 22, 2014, Clorox Venezuela announced that it was discontinuing its operations, effective immediately, and seeking to sell its assets. Since fiscal year 2012, Clorox Venezuela was required to sell more than two thirds of its products at prices frozen by the Venezuelan government. During this same period, Clorox Venezuela experienced successive years of hyperinflation resulting in significant sustained increases in its input costs, including packaging, raw materials, transportation and wages. As a result, Clorox Venezuela had been selling its products at a loss, resulting in ongoing operating losses. Clorox Venezuela repeatedly met with government authorities in an effort to help them understand the rapidly declining state of the business, including the need for immediate, significant and ongoing price increases and other critical remedial actions to address these adverse impacts. Based on the Venezuelan government’s representations, Clorox Venezuela had expected significant price increases would be forthcoming much earlier; however, the price increases subsequently approved were insufficient and would have caused Clorox Venezuela to continue operating at a significant loss into the foreseeable future. As such, Clorox Venezuela was no longer financially viable and was forced to discontinue its operations.
On September 26, 2014, the Company reported that Venezuelan Vice President Jorge Arreaza announced, with endorsement by President Nicolás Maduro, that the Venezuelan government had occupied the Santa Lucía and Guacara production facilities of Clorox Venezuela. On November 6, 2014, the Company reported that the Venezuelan government had published a resolution granting a government-sponsored Special Administrative Board full authority to restart and operate the business of Clorox Venezuela, thereby reaffirming the government's expropriation of Clorox Venezuela’s assets. Further, President Nicolás Maduro announced the government's intention to facilitate the resumed production of bleach and other cleaning products at Clorox Venezuela plants. He also announced his approval of a financial credit to invest in raw materials and production at the plants. These actions by the Venezuelan government were taken without the consent or involvement of Clorox Venezuela, its parent Clorox Spain S.L. (Clorox Spain) or any of their affiliates. Clorox Venezuela, Clorox Spain and their affiliates reserved their rights under all applicable laws and treaties.
With this exit, the financial results of Clorox Venezuela are reflected as discontinued operations in the Company’s consolidated financial statements. The results of Clorox Venezuela have historically been part of the International reportable segment.
Net sales for Clorox Venezuela were $0, $0 and $11 for the fiscal years ended June 30, 2017, 2016 and 2015, respectively.
The following table provides a summary of Earnings (losses) from discontinued operations for Clorox Venezuela and Earnings (losses) from discontinued operations other than Clorox Venezuela for the years ended June 30:
 
2017
 
2016
 
2015
Operating losses from Clorox Venezuela before income taxes
$

 
$

 
$
(6
)
Exit costs and other related expenses for Clorox Venezuela
(4
)
 
(2
)
 
(78
)
Total earnings (losses) from Clorox Venezuela before income taxes
(4
)
 
(2
)
 
(84
)
Income tax benefit attributable to Clorox Venezuela
2

 
2

 
29

Total earnings (losses) from Clorox Venezuela, net of tax
(2
)
 

 
(55
)
Gains (losses) from discontinued operations other than
 
 
 
 
 
Clorox Venezuela, net of tax

 

 
29

Losses from discontinued operations, net of tax
$
(2
)
 
$

 
$
(26
)

Unrelated to Clorox Venezuela, in the fiscal year ended June 30, 2015, $32 of gross unrecognized tax benefits relating to other discontinued operations for periods prior to fiscal year 2015 were recognized upon the expiration of the applicable statute of limitations. Recognition of these previously disclosed tax benefits had no impact on the Company’s cash flow or earnings from continuing operations for the fiscal year ended June 30, 2015.












Summary of Operating Losses, Asset Charges and Other Costs
The following provides a breakdown of (losses) gains from discontinued operations for Clorox Venezuela and gains from discontinued operations other than Clorox Venezuela for the fiscal years ended June 30:
 
2017
 
2016
 
2015
Operating losses from Clorox Venezuela before income taxes
$

 
$

 
$
(6
)
Net asset charges:
 
 
 
 
 
Inventories

 

 
(11
)
Property, plant and equipment

 

 
(16
)
Trademark and other intangible assets

 

 
(6
)
Other assets

 

 
(2
)
Other exit and business termination costs:
 
 
 
 
 
Severance

 

 
(3
)
Recognition of deferred foreign currency translation loss

 

 
(30
)
Other
(4
)
 
(2
)
 
(10
)
Total losses from Clorox Venezuela before income taxes
(4
)
 
(2
)
 
(84
)
Income tax benefit attributable to Clorox Venezuela
2

 
2

 
29

Total losses from Clorox Venezuela, net of tax
(2
)
 

 
(55
)
Gains from discontinued operations other than
Clorox Venezuela, net of tax

 

 
29

Losses from discontinued operations, net of tax
$
(2
)
 
$

 
$
(26
)

Financial Reporting: Hyperinflation and the Selection of Exchange Rates
Prior to Clorox Venezuela being consolidated under the rules governing the preparation of financial statements in a highly inflationary economy, cumulative translation gains (losses) were included as a component of Accumulated other comprehensive net (losses) income. The charge of $30 to discontinued operations in September 2014 represents the recognition of these losses as a result of Clorox Venezuela discontinuing its operations effective September 22, 2014.
Subsequent to Clorox Venezuela discontinuing operations in September 2014, the Venezuelan government has continued to evolve its currency exchange mechanisms; however, these changes have not had a material impact on the Company’s financial results because the balance of net bolivar assets and liabilities on the local books of Clorox Venezuela was $0 as of both June 30, 2017 and 2016. As of June 30, 2017 and 2016, the local books of Clorox Venezuela carried a net asset position of $0. In addition, as of both June 30, 2017 and 2016, the Company held $0 of tax asset balances related to Clorox Venezuela in Corporate in the reconciliation of the results of the Company’s reportable segments to consolidated results.
BUSINESSES ACQUIRED
BUSINESSES ACQUIRED
BUSINESSES ACQUIRED
On May 2, 2016, the Company acquired 100 percent of ReNew Life Holdings Corporation (RenewLife), a leading brand in digestive health. The amount paid was $290 funded through commercial paper. The amount paid of $290 represents the aggregate purchase price less cash acquired. The purchase of the RenewLife business reflects the Company’s strategy to acquire leading brands with attractive margins in growth categories. Results for RenewLife’s U.S. business are reflected in the Household reportable segment and results for RenewLife’s international business are reflected in the International reportable segment. Included in the Company's results for fiscal year 2017 and 2016 was $130 and $21, respectively, of RenewLife's global net sales.
The assets and liabilities of RenewLife were recorded at their respective estimated fair value as of the date of the acquisition using U.S. GAAP for business combinations. The excess of the purchase price over the fair value of the net identifiable assets acquired was allocated to goodwill. The recorded goodwill primarily reflects the value of expanding the Company’s portfolio further into the health and wellness arena.
The following table summarizes the final purchase price allocation for the fair value of RenewLife’s assets acquired and liabilities assumed and related deferred income taxes. The fair value of the assets acquired and liabilities assumed reflects the final insignificant measurement period adjustments related to deferred income taxes and income taxes payable. The weighted-average estimated useful life of intangible assets subject to amortization is 15 years.
 
RenewLife
Goodwill
$
137

Trademarks
134

Customer relationships
36

Property, plant and equipment
3

Working capital, net
40

Deferred income taxes
(60
)
Purchase Price
$
290


Pro forma results reflecting the acquisition were not presented because the acquisition did not meet the threshold requirements for additional disclosure.
INVENTORIES
INVENTORIES
INVENTORIES
Inventories consisted of the following as of June 30:
 
2017
 
2016
Finished goods
$
363

 
$
361

Raw materials and packaging
119

 
111

Work in process
3

 
3

LIFO allowances
(26
)
 
(32
)
Total
$
459

 
$
443


The last-in, first-out (LIFO) method was used to value approximately 37% and 38% of inventories as of June 30, 2017 and 2016, respectively. The carrying values for all other inventories are determined on the first-in, first-out (FIFO) method. The effect on earnings of the liquidation of LIFO layers was insignificant for each of the fiscal years ended June 30, 2017, 2016 and 2015.
PROPERTY, PLANT AND EQUIPMENT, NET
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:
 
2017
 
2016
Machinery and equipment
$
1,696

 
$
1,607

Buildings
524

 
524

Capitalized software costs
371

 
368

Land and improvements
116

 
118

Construction in progress
130

 
112

Computer equipment
95

 
88

Total
2,932

 
2,817

Less: Accumulated depreciation and amortization
(2,001
)
 
(1,911
)
Property, plant and equipment, net
$
931

 
$
906


Included in Machinery and equipment above are $13 and $12 of capital leases as of June 30, 2017 and 2016, respectively. Accumulated depreciation for assets under capital leases was $8 and $3 as of June 30, 2017 and 2016, respectively.
Included in Land and improvements above are $3 and $3 of asset retirement obligations as of June 30, 2017 and 2016, respectively, for two leased properties. The liability of $0 and $1 incurred in fiscal year 2017 and 2016, respectively, was recorded in Other liabilities.
Depreciation and amortization expense related to property, plant and equipment, net, was $153, $157 and $157 in fiscal years 2017, 2016 and 2015, respectively, which includes depreciation of assets under capital leases. This also includes amortization of capitalized software of $15, $16 and $19 in fiscal years 2017, 2016 and 2015, respectively.
During the second quarter of fiscal year 2017, the Company recognized a $21 non-cash charge related to impairing certain assets of the Company's Aplicare business within the Cleaning reportable segment. The asset impairment charge primarily related to writing down Property, plant and equipment to fair value in connection with an updated valuation of the Aplicare business. Refer to Note 11 for further details.
Non-cash capital expenditures were $2, $10 and $18 in fiscal years 2017, 2016 and 2015, respectively.
GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS
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, 2017 and 2016 were as follows:
 
Goodwill
 
Cleaning
 
Household
 
Lifestyle
 
International
 
Total
Balance June 30, 2015
$
323

 
$
85

 
$
244

 
$
415

 
$
1,067

Acquisition

 
122

 

 
15

 
137

Effect of foreign currency translation

 

 

 
(7
)
 
(7
)
Balance June 30, 2016
323

 
207

 
244

 
423

 
1,197

Effect of foreign currency translation

 

 

 
(1
)
 
(1
)
Balance June 30, 2017
$
323

 
$
207

 
$
244

 
$
422

 
$
1,196


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, 2017
 
As of June 30, 2016
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
Trademarks not subject to amortization
$
645

 
$

 
$
645

 
$
647

 
$

 
$
647

Trademarks subject to amortization
32

 
23

 
9

 
32

 
22

 
10

Other intangible assets
358

 
290

 
68

 
358

 
280

 
78

Total
$
1,035

 
$
313

 
$
722

 
$
1,037

 
$
302

 
$
735


Finite-lived intangible assets are amortized over their estimated useful lives, which range from 2 to 30 years. Amortization expense relating to the Company’s intangible assets was $10, $8 and $12 for the years ended June 30, 2017, 2016 and 2015, respectively. Estimated amortization expense for these intangible assets is $9, $9, $9, $8 and $7 for fiscal years 2018, 2019, 2020, 2021 and 2022, respectively.
During fiscal year 2016, the Company recognized $9 of intangible asset impairment charges, of which $6 related to the Aplicare® trademark within the Cleaning reportable segment. The Aplicare® trademark impairment was recognized based on the anticipated impact on future results from a competitive market entrant.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following as of June 30:
 
2017
 
2016
Accounts payable
$
501

 
$
490

Compensation and employee benefit costs
162

 
192

Trade and sales promotion
117

 
127

Dividends
116

 
108

Other
109

 
118

Total
$
1,005

 
$
1,035

DEBT
DEBT
DEBT
Notes and loans payable, which mature in less than one year, included the following as of June 30:
 
2017
 
2016
Commercial paper
$
403

 
$
522

Foreign borrowings
1

 
1

Total
$
404

 
$
523


The weighted average interest rates incurred on average outstanding notes and loans payable during the fiscal years ended June 30, 2017, 2016 and 2015, including fees associated with the Company’s undrawn revolving credit facility, were 1.21%, 1.10% and 2.05%, respectively. The weighted average effective interest rates on commercial paper balances as of June 30, 2017 and 2016 were 1.33% and 0.82%, respectively.
Long-term debt, carried at face value net of unamortized discounts, premiums and debt issuance costs, included the following as of June 30:
 
2017
 
2016
Senior unsecured notes and debentures:
 
 
 
5.95%, $400 due October 2017
$
400

 
$
400

3.80%, $300 due November 2021
298

 
297

3.05%, $600 due September 2022
596

 
596

3.50%, $500 due December 2024
497

 
496

Total
1,791

 
1,789

Less: Current maturities of long-term debt
(400
)
 

Long-term debt (1)
$
1,391

 
$
1,789


(1) Prior year amounts have been retrospectively adjusted to conform to the current year presentation of debt issuance costs required by ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs." See Note 1 for details.
The weighted average interest rates incurred on average outstanding long-term debt during the fiscal years ended June 30, 2017, 2016 and 2015, were 4.41%, 4.37% and 4.44%, respectively. The weighted average effective interest rates on long-term debt balances as of June 30, 2017 and 2016 was 4.41%.
Long-term debt maturities as of June 30, 2017, are $400, $0, $0, $0, $300 and $1,100 in fiscal years 2018, 2019, 2020, 2021, 2022 and thereafter, respectively.
In October 2017, $400 of the Company's senior notes with an annual fixed interest rate of 5.95%, are due for repayment.
In November 2015, $300 of the Company’s senior notes with an annual fixed interest rate of 3.55% became due and were repaid using commercial paper borrowings and cash on hand.
In January 2015, $575 of the Company’s senior notes with an annual fixed interest rate of 5.00% became due and were repaid using the net proceeds from the December 2014 debt issuance and commercial paper borrowings.
In December 2014, the Company issued $500 of senior notes with an annual fixed interest rate of 3.50%. The notes carry an effective interest rate of 4.10%, which includes the impact from the settlement of interest rate forward contracts in December 2014 (see Notes 10). The notes rank equally with all of the Company’s existing senior indebtedness.
The Company’s borrowing capacity under other financing arrangements as of June 30 was as follows:
 
2017
 
2016
Revolving credit facility
$
1,100

 
$
1,100

Foreign and other credit lines
29

 
28

Total
$
1,129

 
$
1,128




On February 8, 2017, the Company entered into a new $1,100 revolving credit agreement (the Credit Agreement) that matures in February 2022. The Credit Agreement replaced a prior $1,100 revolving credit agreement in place since October 2014. No termination fees or penalties were incurred in connection with the Company's debt modification. There were no borrowings under the Credit Agreement as of June 30, 2017 and 2016 and the Company believes that borrowings under the Credit Agreement are and will continue to be available for general business purposes. The Credit Agreement includes certain restrictive covenants and limitations, with which the Company was in compliance as of June 30, 2017.
Of the $29 of foreign and other credit lines as of June 30, 2017, $5 was outstanding and the remainder of $24 was available for borrowing. Of the $28 of foreign and other credit lines as of June 30, 2016, $5 was outstanding and the remainder of $23 was available for borrowing.
OTHER LIABILITIES
OTHER LIABILITIES
OTHER LIABILITIES
Other liabilities consisted of the following as of June 30:
 
2017
 
2016
Venture agreement terminal obligation, net
$
317

 
$
302

Employee benefit obligations
298

 
335

Taxes
42

 
40

Other
113

 
107

Total
$
770

 
$
784


Venture Agreement
The Company has an agreement with The Procter & Gamble Company (P&G) for the Company’s Glad® bags, wraps and containers business. As of June 30, 2017 and 2016, 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. The agreement with P&G will expire in January 2023 unless the parties agree, on or prior to January 2018, to extend the term of the agreement for another 10 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 interest for cash at fair value as established by predetermined valuation procedures. As of June 30, 2017, the estimated fair value of P&G’s interest was $458, of which $317 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 Transaction
In 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 will continue to amortize such amount to earnings ratably over the lease term. As of June 30, 2017 and 2016, the long-term portion of the deferred gain of $33 and $36, respectively, was included in Other as noted in the table above.
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
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 commodity derivative dealers.
As of June 30, 2017, the notional amount of commodity derivatives was $26, of which $14 related to jet fuel swaps used for the charcoal business and $12 related to soybean oil futures used for the food business. As of June 30, 2016, the notional amount of commodity derivatives was $30, of which $16 related to jet fuel swaps and $14 related to soybean oil futures.
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 $49 and $84, respectively, as of June 30, 2017 and 2016.
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. The interest rate contracts are measured at fair value using information quoted by U.S. government bond dealers.
During fiscal year 2015, the Company paid $25 to settle interest rate forward contracts related to the December 2014 issuance of $500 in senior notes. The settlement payments are reflected as operating cash flows in the consolidated statements of cash flows for the fiscal year ended June 30, 2015. The loss is reflected in Accumulated other comprehensive net loss on the consolidated balance sheets as of June 30, 2017 and 2016, and is being amortized into Interest expense on the consolidated statement of earnings over the 10-year term of the notes.
The Company had no outstanding interest rate forward contracts as of June 30, 2017 and 2016.
Commodity, Interest Rate and Foreign Exchange Derivatives
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.
The effects of derivative instruments designated as hedging instruments on Other comprehensive income (loss) and Net earnings were as follows during the fiscal years ended June 30:
 
Gains (losses)
recognized in Other comprehensive income
 
2017
 
2016
 
2015
Commodity purchase derivative contracts
$
(3
)
 
$
(4
)
 
$
(13
)
Foreign exchange derivative contracts
(1
)
 
(3
)
 
7

Interest rate derivative contracts

 

 
(12
)
Total
$
(4
)
 
$
(7
)
 
$
(18
)


 
Gains (losses) reclassified from Accumulated
other comprehensive loss and recognized
in Net earnings
 
2017
 
2016
 
2015
Commodity purchase derivative contracts
$
(2
)
 
$
(13
)
 
$
(5
)
Foreign exchange derivative contracts
(3
)
 
1

 
3

Interest rate derivative contracts
(6
)
 
(6
)
 
(5
)
Total
$
(11
)
 
$
(18
)
 
$
(7
)


The gains (losses) reclassified from Accumulated other comprehensive net losses and recognized in Net earnings during the fiscal years ended June 30, 2017, 2016 and 2015, for commodity purchase and foreign exchange derivative contracts were included in Cost of products sold, and for interest rate derivative contracts were included in Interest expense.
The estimated amount of the existing net gain (loss) in Accumulated other comprehensive losses as of June 30, 2017, which is expected to be reclassified into Net earnings within the next twelve months, is $(8). Gains and losses on derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in Net earnings. During each of the fiscal years ended June 30, 2017, 2016 and 2015, hedge ineffectiveness was not significant.
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 held as of June 30, 2017 and June 30, 2016 $1 and $4, respectively, contained such terms. As of both June 30, 2017 and 2016, 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, 2017 and 2016, 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, 2017 and 2016, the Company maintained cash margin balances related to exchange-traded futures contracts of $1 and $1, respectively, which are classified as Prepaid expenses and other current assets on the consolidated balance sheets.
Trust Assets
The Company has held 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, 2017, the value of the trust assets related to the Company’s nonqualified deferred compensation plans increased by $20 as compared to June 30, 2016, primarily due to current year employees’ contributions to these plans.
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, 2017 and 2016, 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.
The following table summarizes the fair value of Company’s assets and liabilities for which disclosure of fair value is required as of June 30:
 
 
 
 
 
2017
 
2016
Assets
Balance sheet classification
 
Fair value
hierarchy
level
 
Carrying
Amount
 
Estimated
Fair
Value
 
Carrying
Amount
 
Estimated
Fair
Value
Investments including money market funds
Cash and cash equivalents (a)
 
1
 
$
221

 
$
221

 
$
234

 
$
234

Time deposits
Cash and cash equivalents (a)
 
2
 
115

 
115

 
79

 
79

Commodity purchase futures contracts
Prepaid expenses and other current assets
 
1
 

 

 
1

 
1

Commodity purchase swaps contracts
Prepaid expenses and other current assets
 
2
 
1

 
1

 

 

Foreign exchange forward contracts
Prepaid expenses and other current assets
 
2
 

 

 
1

 
1

Commodity purchase swaps contracts
Other assets
 
2
 

 

 
1

 
1

Trust assets for nonqualified deferred compensation plans
Other assets
 
1
 
72

 
72

 
52

 
52

 
 
 
 
 
$
409

 
$
409

 
$
368

 
$
368

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Notes and loans payable
Notes and loans payable (b)
 
2
 
$
404

 
$
404

 
$
523

 
$
523

Commodity purchase swaps contracts
Accounts payable and accrued liabilities
 
2
 
1

 
1

 
1

 
1

Foreign exchange forward contracts
Accounts payable and accrued liabilities
 
2
 
1

 
1

 
4

 
4

Current maturities of long-term debt and Long-term debt
Current maturities of long-
term debt and Long-term
debt
(c)
 
2
 
1,791

 
1,855

 
1,789

 
1,922

 
 
 
 
 
$
2,197

 
$
2,261

 
$
2,317

 
$
2,450


(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 loan payable is composed of U.S. commercial paper and/or other similar short-term debts issued by non-U.S. subsidiaries, 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.
OTHER CONTINGENCIES AND GUARANTEES
OTHER CONTINGENCIES AND GUARANTEES
OTHER CONTINGENCIES AND GUARANTEES
Contingencies
The Company is involved in certain environmental matters, including response actions at various locations. The Company had recorded liabilities totaling $28 and $14 as of June 30, 2017 and June 30, 2016, respectively, for its share of aggregate future remediation costs related to these matters.
One matter, which accounted for $14 and less than $1 of the recorded liability as of June 30, 2017 and June 30, 2016, respectively, 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 $12 and $11 of the recorded liability as of June 30, 2017 and June 30, 2016, 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. 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 liabilities on the aforementioned guarantees as of June 30, 2017 and 2016.
The Company was a party to letters of credit of $10 as of both June 30, 2017 and 2016, primarily related to one of its insurance carriers, of which $0 had been drawn upon.
Other Matters
During the second quarter of fiscal year 2017, the Company recognized a $21 non-cash charge related to impairing certain assets of the Company’s Aplicare business within the Cleaning reportable segment. The asset impairment charge was recorded to Other (income) expense, net, and primarily related to writing down Property, plant and equipment to fair value in connection with an updated valuation of the Aplicare business. Such updated valuation took into account proposed actions that the Company planned to take in response to a December 2016 FDA warning letter that focused on the validation of Aplicare's sterilization process as well as quality controls and environmental monitoring for Aplicare's povidone-iodine products. The Aplicare business, which represents slightly less than 1% of the Company’s net sales, is a business primarily focused on providing skin antisepsis products to health care institutions. While the Company continues to believe in the value of the processes that Aplicare has used for the past 30 years, the Company may have additional future charges as it continues to address the warning letter and explores a range of various strategic alternatives for the Aplicare business, including a sale of the business. For the fiscal year ended June 30, 2017, the Aplicare business had net sales of $46 and insignificant net earnings excluding the $21 non-cash impairment charge recorded in the second quarter of fiscal year 2017. As of June 30, 2017, the Aplicare business had net assets of $15.
LEASES AND OTHER COMMITMENTS
LEASES AND OTHER COMMITMENTS
LEASES AND OTHER COMMITMENTS
The Company leases various property, plant, and equipment including office, warehousing, manufacturing and research and development facilities, in addition to certain manufacturing and information technology equipment. The Company expects that, in the normal course of business, existing contracts will be renewed or replaced by other leases. Rental expense for all operating leases was $84, $77 and $76 in fiscal years 2017, 2016 and 2015, respectively.
The future minimum annual lease payments required under the Company’s existing non-cancelable operating and capital lease agreements as of June 30, 2017, were as follows:
Year
Operating
leases
 
Capital
leases
2018
$
52

 
$
2

2019
46

 
1

2020
41

 

2021
37

 

2022
32

 

Thereafter
137

 

Total
$
345

 
$
3


The Company is also 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. 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. For purchase obligations subject to variable price and/or quantity provisions, an estimate of the price and/or quantity has been made. Many of these purchase obligations are short term in nature and are flexible to allow for changes in the Company’s business and related requirements. As of June 30, 2017, the Company’s purchase obligations were as follows:
Year
Purchase
Obligations
2018
$
158

2019
70

2020
36

2021
20

2022
13

Thereafter
21

Total
$
318

STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY
STOCKHOLDERS’ EQUITY
The Company has two share repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $750, all of which was available for share repurchases as of both June 30, 2017 and 2016, and a program to offset the anticipated impact of share dilution related to share-based awards (the Evergreen Program), which has no authorization limit as to amount or timing of repurchases. There were no share repurchases under the open-market purchase program during the fiscal years ended June 30, 2017, 2016 and 2015.
Share repurchases under the Evergreen Program were as follows during the fiscal years ended June 30:
 
2017
 
2016
 
2015
 
Amount
 
Shares
(in 000's)
 
Amount
 
Shares
(in 000's)
 
Amount
 
Shares
(in 000's)
Evergreen Program
$
189

 
1,505

 
$
254

 
2,151

 
$
434

 
4,016



Dividends per share declared and paid, respectively, during the fiscal years ended June 30 were as follows:
 
2017
 
2016
 
2015
Dividends per share declared
$
3.24

 
$
3.11

 
$
2.99

Dividends per share paid
3.20

 
3.08

 
2.96



Accumulated Other Comprehensive Net (Losses) Income
Changes in Accumulated other comprehensive net (losses) income by component were as follows for the fiscal years ended June 30:
 
Foreign currency
translation adjustments
 
Net
unrealized
gains
(losses) on
derivatives
 
Pension and
postretirement
benefit
adjustments
 
Accumulated
other
comprehensive
(losses) income
Balance June 30, 2014
$
(246
)
 
$
(39
)
 
$
(132
)
 
$
(417
)
Other comprehensive income (loss) before
reclassifications
(92
)
 
(18
)
 
(29
)
 
(139
)
Amounts reclassified from Accumulated other
comprehensive net losses

 
7

 

 
7

Recognition of deferred foreign currency translation
loss
30

 

 

 
30

Income tax benefit (expense)
8

 
(3
)
 
12

 
17

Net current period other comprehensive income (loss)
(54
)
 
(14
)
 
(17
)
 
(85
)
Balance June 30, 2015
(300
)
 
(53
)
 
(149
)
 
(502
)
Other comprehensive income (loss) before
reclassifications
(43
)
 
(7
)
 
(38
)
 
(88
)
Amounts reclassified from Accumulated other
comprehensive net losses

 
18

 

 
18

Income tax benefit (expense)
(10
)
 
(2
)
 
14

 
2

Net current period other comprehensive income (loss)
(53
)
 
9

 
(24
)
 
(68
)
Balance June 30, 2016
(353
)
 
(44
)
 
(173
)
 
(570
)
Other comprehensive income (loss) before
reclassifications
(3
)
 
(4
)
 
27

 
20

Amounts reclassified from Accumulated other
comprehensive net losses

 
11

 
9

 
20

Income tax benefit (expense)

 

 
(13
)
 
(13
)
Net current period other comprehensive income (loss)
(3
)
 
7

 
23

 
27

Balance June 30, 2017
$
(356
)
 
$
(37
)
 
$
(150
)
 
$
(543
)


Included in foreign currency adjustments are re-measurement losses on long-term intercompany loans where settlement is not planned or anticipated in the foreseeable future. For the fiscal years ended June 30, 2017, 2016 and 2015, Other comprehensive losses on these loans totaled $2, $14 and $9, respectively, and there were no amounts reclassified from Accumulated other comprehensive net (losses) income for the periods presented.
Pension and postretirement benefit reclassification adjustments are reflected in Cost of products sold, Selling and administrative expenses and Research and development costs.
NET EARNINGS PER SHARE (EPS)
NET EARNINGS PER SHARE (EPS)
NET EARNINGS PER SHARE (EPS)
The following is the reconciliation of the weighted average number of shares outstanding (in thousands) used to calculate basic net EPS to those used to calculate diluted net EPS for the fiscal years ended June 30:
 
2017
 
2016
 
2015
Basic
128,953

 
129,472

 
130,310

Dilutive effect of stock options and other
2,613

 
2,245

 
2,466

Diluted
131,566

 
131,717

 
132,776

 
 
 
 
 
 
Antidilutive stock options and other
11

 
42

 
23

STOCK-BASED COMPENSATION PLANS
STOCK-BASED COMPENSATION PLANS
STOCK-BASED COMPENSATION PLANS
In November 2012, the Company’s stockholders voted to approve the amended and restated 2005 Stock Incentive Plan (the Plan). The Plan permits the Company to grant various nonqualified stock-based compensation awards, including stock options, restricted stock, performance units, deferred stock units, stock appreciation rights and other stock-based awards. The primary amendment reflected in the Plan was an increase of approximately 3 million common shares that may be issued for stock-based compensation purposes. As of June 30, 2017, the Company is authorized to grant up to approximately 7 million common shares under the Plan, and, as of June 30, 2017, approximately 7 million common shares were available for grant.
Compensation cost and the related income tax benefit recognized for stock-based compensation plans were classified as indicated below for the fiscal years ended June 30:
 
2017
 
2016
 
2015
Cost of products sold
$
7

 
$
6

 
$
4

Selling and administrative expenses
40

 
35

 
25

Research and development costs
4

 
4

 
3

Total compensation costs
$
51

 
$
45

 
$
32

 
 
 
 
 
 
Related income tax benefit
$
19

 
$
17

 
$
12


Cash received during fiscal years 2017, 2016 and 2015 from stock options exercised under all stock-based payment arrangements was $81, $180 and $230, respectively. The Company issues shares for stock-based compensation plans from treasury stock. The Company may repurchase shares under its Evergreen Program to offset the estimated impact of share dilution related to stock-based awards (See Note 13).
Details regarding the valuation and accounting for stock options, restricted stock awards, performance units and deferred stock units for non-employee directors follow.
Stock Options
The fair value of each stock option award granted during fiscal years 2017, 2016 and 2015 was estimated on the date of grant using the Black-Scholes valuation model and assumptions noted in the following table:
 
2017
 
2016
 
2015
Expected life
5.5 years
 
5.6 years
 
5.6 to 5.8 years
Weighted-average expected life
5.5 years
 
5.6 years
 
5.7 years
Expected volatility
16.2% to 16.9%
 
16.4% to 17.3%
 
16.3% to 18.6%
Weighted-average volatility
16.9%
 
17.2%
 
16.6%
Risk-free interest rate
1.3% to 2.2%
 
1.3% to 1.7%
 
1.4% to 2.0%
Weighted-average risk-free interest rate
1.3%
 
1.7%
 
1.9%
Dividend yield
2.4% to 2.8%
 
2.5% to 2.8%
 
2.8% to 3.4%
Weighted-average dividend yield
2.6%
 
2.8%
 
3.3%

The expected life of the stock options is based on observed historical exercise patterns. The expected volatility is based on implied volatility from publicly traded options on the Company’s stock at the date of grant, historical implied volatility of the Company’s publicly traded options and other factors. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield is based on the projected annual dividend payment per share, divided by the stock price at the date of grant.
Details of the Company’s stock option activities are summarized below:
 
Number of
Shares
(In thousands)
 
Weighted-
Average
Exercise
Price
per Share
 
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
Options outstanding as of June 30, 2016
6,827

 
$
85

 
7 years
 
$
366

Granted
1,318

 
123

 
 
 
 
Exercised
(1,115
)
 
75

 
 
 
 
Canceled
(123
)
 
112

 
 
 
 
Options outstanding as of June 30, 2017
6,907

 
$
93

 
6 years
 
$
277

Options vested as of June 30, 2017
3,835

 
$
80

 
5 years
 
$
204



The weighted-average fair value per share of each option granted during fiscal years 2017, 2016 and 2015, estimated at the grant date using the Black-Scholes option pricing model was $13.75, $13.21 and $9.65, respectively. The total intrinsic value of options exercised in fiscal years 2017, 2016 and 2015 was $65, $142 and $140, respectively.
Stock option awards outstanding as of June 30, 2017, have been granted at prices that are equal to the market value of the stock on the date of grant. Stock option grants generally vest over 4 years and expire no later than 10 years after the grant date. The Company recognizes compensation expense on a straight-line basis over the vesting period. As of June 30, 2017, there was $17 of total unrecognized compensation cost related to non-vested options, which is expected to be recognized over a remaining weighted-average vesting period of 1 year, subject to forfeiture changes.
Restricted Stock Awards
The fair value of restricted stock awards is estimated on the date of grant based on the market price of the stock and is amortized to compensation expense on a straight-line basis over the related vesting periods, which are generally 3 to 4 years. The total number of restricted stock awards expected to vest is adjusted by actual and estimated forfeitures. Restricted stock grants receive dividend distributions earned during the vesting period upon vesting.
As of June 30, 2017, there was $1 of total unrecognized compensation cost related to non-vested restricted stock awards, which is expected to be recognized over a remaining weighted-average vesting period of 1 year. The total fair value of the shares that vested in each of the fiscal years 2017, 2016 and 2015 was $1 for all fiscal years. The weighted-average grant-date fair value of awards granted was $131.67, $128.91 and $95.67 per share for fiscal years 2017, 2016 and 2015, respectively.
A summary of the status of the Company’s restricted stock awards is presented below:
 
Number of
Shares
(In thousands)
 
Weighted-Average
Grant Date
Fair Value
per Share
Restricted stock awards as of June 30, 2016
13

 
$
108

Granted
10

 
132

Vested
(4
)
 
110

Forfeited
(1
)
 
96

Restricted stock awards as of June 30, 2017
18

 
$
120





Performance Units
As of June 30, 2017, there was $31 in unrecognized compensation cost related to non-vested performance unit grants that is expected to be recognized over a remaining weighted-average performance period of 1 year. The weighted-average grant-date fair value of awards granted was $122.73, $92.35 and $89.75 per share for fiscal years 2017, 2016 and 2015, respectively.
A summary of the status of the Company’s performance unit awards is presented below:
 
Number of
Shares
(In thousands)
 
Weighted-Average
Grant Date
Fair Value
per Share
Performance unit awards as of June 30, 2016
952

 
$
90

Granted
253

 
123

Distributed
(35
)
 
59

Forfeited
(308
)
 
87

Performance unit awards as of June 30, 2017
862

 
$
102

 
 
 
 
Performance units vested and deferred as of June 30, 2017

 
$


The non-vested performance units outstanding as of June 30, 2017 and 2016 were 738,000 and 794,000, respectively, and the weighted average grant date fair value was $108.00 and $95.18 per share, respectively. There were no shares vested during fiscal year 2017. Deferred shares continue to earn dividends, which are also deferred. The total fair value of shares vested was $0, $26 and $24 during fiscal years 2017, 2016 and 2015, respectively. Upon vesting, the recipients of the grants receive the distribution as shares or, if previously elected by eligible recipients, as deferred stock.
Deferred Stock Units for Nonemployee Directors
Nonemployee directors receive annual grants of deferred stock units under the Company’s director compensation program and can elect to receive all or a portion of their annual retainers and fees in the form of deferred stock units. The deferred stock units receive dividend distributions, which are reinvested as deferred stock units, and are recognized at their fair value on the date of grant. Each deferred stock unit represents the right to receive one share of the Company’s common stock following the completion of a director’s service.
During fiscal year 2017, the Company granted 14,000 deferred stock units, reinvested dividends of 6,000 units and distributed 59,000 shares, which had a weighted-average fair value on the grant date of $121.37, $125.68 and $77.15 per share, respectively. As of June 30, 2017, 205,000 units were outstanding, which had a weighted-average fair value on the grant date of $74.28 per share.
OTHER (INCOME) EXPENSE, NET
OTHER (INCOME) EXPENSE, NET
OTHER (INCOME) EXPENSE, NET
The major components of Other (income) expense, net, for the fiscal years ended June 30 were:
 
2017
 
2016
 
2015
Income from equity investees
$
(19
)
 
$
(15
)
 
$
(14
)
Gain on sale of assets and investments, net
(11
)
 
(11
)
 
(13
)
Interest income
(4
)
 
(5
)
 
(4
)
Asset impairment charges
23

 
10

 
3

Amortization of trademarks and other intangible assets
10

 
8

 
8

Foreign exchange transaction losses, net
(1
)
 
1

 
9

Other
8

 
5

 
(2
)
Total
$
6

 
$
(7
)
 
$
(13
)

In January 2017, the Company sold an Australian distribution facility, previously reported in the International reportable segment, which resulted in $23 in cash proceeds from investing activities and a gain of $10 included in Gain on sale of assets and investments, net in the table above for the fiscal year ended June 30, 2017.
In April 2016, the Company sold its Los Angeles bleach manufacturing facility, previously reported in the Cleaning reportable segment, which resulted in $20 in cash proceeds from investing activities and a gain of $11 included in Gain on sale of assets and investments, net in the table above for the fiscal year ended June 30, 2016.
In April 2015, a low-income housing partnership, in which the Company was a limited partner, sold its real estate holdings. The real property sale resulted in $15 in cash proceeds from investing activities and a net gain of $13 included in Gain on sale of assets and investments, net in the table above for the fiscal year ended June 30, 2015.
During the second quarter of fiscal year 2017, the Company recognized a $21 non-cash charge related to impairing certain assets of the Company's Aplicare business within the Cleaning reportable segment. The asset impairment charge is included in Asset impairment charges in the table above for the fiscal year ended June 30, 2017 and primarily related to writing down Property, plant and equipment to fair value in connection with an updated valuation of the Aplicare business. Refer to Note 11 for further details.
During fiscal year 2016, the Company recognized $9 of intangible asset impairment charges, of which $6 related to the Aplicare® trademark within the Cleaning reportable segment. The Aplicare® trademark impairment is included in Asset impairment charges in the table above for the fiscal year ended June 30, 2016 and was recognized based on the anticipated impact on future results from a competitive market entrant.
During fiscal year 2017, the Company recognized $14 of projected environmental costs associated with its former operations at a site in Alameda County, California within Corporate. These costs are included in Other in the table above for the fiscal year ended June 30, 2017. Refer to Note 11 for further details.
INCOME TAXES
INCOME TAXES
INCOME TAXES
The provision for income taxes on continuing operations, by tax jurisdiction, consisted of the following for the fiscal years ended June 30:
 
2017
 
2016
 
2015
Current
 
 
 
 
 
Federal
$
291

 
$
254

 
$
265

State
36

 
31

 
28

Foreign
38

 
45

 
38

Total current
365

 
330

 
331

Deferred
 
 
 
 
 
Federal
(29
)
 
11

 
(13
)
State
(2
)
 
1

 
(1
)
Foreign
(4
)
 
(7
)
 
(2
)
Total deferred
(35
)
 
5

 
(16
)
Total
$
330

 
$
335

 
$
315



The components of earnings from continuing operations before income taxes, by tax jurisdiction, consisted of the following for the fiscal years ended June 30:
 
2017
 
2016
 
2015
United States
$
927

 
$
900

 
$
829

Foreign
106

 
83

 
92

Total
$
1,033

 
$
983

 
$
921



A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate on continuing operations follows for the fiscal years ended June 30:
 
2017
 
2016
 
2015
Statutory federal tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
State taxes (net of federal tax benefits)
2.2

 
2.1

 
2.1

Tax differential on foreign earnings
(0.6
)
 
0.5

 
(0.3
)
Federal domestic manufacturing deduction
(2.6
)
 
(2.4
)
 
(2.1
)
Change in valuation allowance
0.2

 
0.5

 
0.6

Federal excess tax benefits
(2.0
)
 

 

Other differences
(0.3
)
 
(1.6
)
 
(1.1
)
Effective tax rate
31.9
 %
 
34.1
 %
 
34.2
 %


Applicable U.S. income taxes and foreign withholding taxes have not been provided on approximately $229 of undistributed earnings of certain foreign subsidiaries as of June 30, 2017, because these earnings are considered indefinitely reinvested. The estimated net federal income tax liability that could arise if these earnings were not indefinitely reinvested is approximately $60. Applicable U.S. income and foreign withholding taxes are provided on these earnings in the periods in which they are no longer considered indefinitely reinvested.
Beginning with the adoption of ASU 2016-09 in the first quarter of fiscal year 2017 (See Note 1), excess tax benefits resulting from stock-based payment arrangements are recognized as income tax benefits in the consolidated statements of earnings. Prior to this adoption, such excess tax benefits were recorded as increases to Additional paid-in capital. Excess tax benefits of approximately $22 were realized and recorded to Income tax expense for fiscal year 2017. Excess tax benefits of $51 and $42 were realized and recorded to Additional paid-in capital for fiscal years 2016 and 2015, respectively.
The components of net deferred tax assets (liabilities) as of June 30 are shown below:
 
2017
 
2016
Deferred tax assets (a)
 
 
 
Compensation and benefit programs
$
182

 
$
193

Basis difference related to Venture Agreement
30

 
30

Accruals and reserves
41

 
34

Inventory costs
25

 
21

Net operating loss and tax credit carryforwards
52

 
48

Other
54

 
54

Subtotal
384

 
380

Valuation allowance
(40
)
 
(37
)
Total deferred tax assets
344

 
343

Deferred tax liabilities (a)
 
 
 
Fixed and intangible assets
(311
)
 
(325
)
Low-income housing partnerships
(25
)
 
(23
)
Unremitted foreign earnings
(7
)
 
(16
)
Other
(24
)
 
(25
)
Total deferred tax liabilities
(367
)
 
(389
)
Net deferred tax assets (liabilities)
$
(23
)
 
$
(46
)

(a) In fiscal year 2016, the Company prospectively adopted ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," requiring all deferred tax assets and liabilities to be classified as noncurrent.
The Company reviews its deferred tax assets for recoverability on a quarterly basis. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Valuation allowances have been provided to reduce deferred tax assets to amounts considered recoverable. Details of the valuation allowance were as follows as of June 30:
 
2017
 
2016
Valuation allowance at beginning of year
$
(37
)
 
$
(34
)
Net decrease/(increase) for other foreign deferred tax assets

 
3

Net decrease/(increase) for foreign net operating loss carryforwards and tax credits
(3
)
 
(6
)
Valuation allowance at end of year
$
(40
)
 
$
(37
)


As of June 30, 2017, the Company had foreign tax credit carryforwards of $26 for U.S. income tax purposes with expiration dates between fiscal years 2023 and 2027. Tax credit carryforwards in foreign jurisdictions of $20 have expiration dates in fiscal year 2031. Tax credit carryforwards in foreign jurisdictions of $1 can be carried forward indefinitely. Tax benefits from foreign net operating loss carryforwards of $18 have expiration dates between fiscal years 2018 and 2037. Tax benefits from foreign net operating loss carryforwards of $13 can be carried forward indefinitely.
The Company files income tax returns in the U.S. federal and various state, local and foreign jurisdictions. The federal statute of limitations has expired for all tax years through June 30, 2012. Various income tax returns in state and foreign jurisdictions are currently in the process of examination.
The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of June 30, 2017 and 2016, the total balance of accrued interest and penalties related to uncertain tax positions was $3 and $3, respectively. Interest and penalties related to uncertain tax positions included in income tax expense resulted in a net benefit of $1, $1 and $1 in fiscal years 2017, 2016 and 2015, respectively.
The following is a reconciliation of the beginning and ending amounts of the Company’s gross unrecognized tax benefits:
 
2017
 
2016
 
2015
Unrecognized tax benefits at beginning of year
$
37

 
$
38

 
$
71

Gross increases - tax positions in prior periods
1

 
3

 
3

Gross decreases - tax positions in prior periods
(6
)
 
(3
)
 
(8
)
Gross increases - current period tax positions
9

 
8

 
6

Gross decreases - current period tax positions

 

 

Lapse of applicable statute of limitations
(1
)
 
(4
)
 
(34
)
Settlements

 
(5
)