Balance Sheet Horizontal Analysis

Present a horizontal analysis of the balance sheets comparing current year to previous year. Dollar changes and percentage changes (round to 1 decimal point) should be presented.

What were the absolute dollar and the percentage change between the current and previous year-end net accounts receivable balance? Was the change an increase or decrease?

What were the absolute dollar and the percentage change between the current and previous year-end inventory? Was the change an increase or decrease?

Compared to the previous year-end, did the amounts reported for each of the following long-term assets increase or decrease? By how much? Include dollar amount for each item. Property, Plant and Equipment; Operating lease right-of-use assets; Net intangibles; Other long-term assets

What was the amount of change in the balance in retained earnings between year- ends? (What caused this change?

The components of net deferred tax assets (liabilities) as of June 30 are shown below: The net deferred tax assets and liabilities included in the consolidated balance sheet at June 30 were as follows: I I I (1) Net deferred tax assets are recorded in Other assets. 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 : As of June 30, 2023, the Company had foreign tax credit carryforwards of $18 for U.S. income tax purposes with expiration dates between fiscal years 2026 and 2033. Tax credit carryforwards in U.S. jurisdictions of $5 have expiration dates between fiscal year 2024 and 2033. Tax credit carryforwards in U.S. jurisdictions of $2 can be carried forward indefinitely. Tax credit carryforwards in foreign jurisdictions of $29 can be carried forward indefinitely. Tax benefits from net operating loss carryforwards in U.S. jurisdictions of $4 have expiration dates between fiscal years 2030 and 2042 . Tax benefits from net operating loss carryforwards in U.S. jurisdictions of $6 can be carried forward indefinitely. Tax benefits from foreign net operating loss carryforwards of $21 have expiration dates between fiscal years 2024 and 2040. Tax benefits from foreign net operating loss carryforwards of $9 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 30,2015 . Various income tax returns in state and foreign jurisdictions are currently in the process of examination. Stock-based Compensation The Company grants various nonqualified stock-based compensation awards to eligible employees, including stock options, restricted stock awards and performance shares. For stock options, the Company estimates the fair value of each award on the date of grant using the Black-Scholes valuation model, which requires management to make estimates regarding expected option life, stock price volatility and other assumptions. Groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The Company estimates stock option forfeitures based on historical data for each employee grouping. The total number of stock options expected to vest is adjusted by actual and estimated forfeitures. Changes to the actual and estimated forfeitures will result in a cumulative adjustment in the period of change. Compensation expense is recorded by amortizing the grant date fair values on a straight-line basis over the vesting period, adjusted for estimated forfeitures. For restricted stock awards, the fair value of each grant issued is estimated on the date of grant based on the current market price of the stock. Forfeitures are estimated based on historical data. The total number of restricted stock awards expected to vest is adjusted by actual and estimated forfeitures. Changes to the actual and estimated forfeitures will result in a cumulative adjustment in the period of change. Compensation expense is recorded by amortizing the grant date fair values on a straight-line basis over the vesting period, adjusted for estimated forfeitures. The Company's performance shares provide for the issuance of common stock to certain managerial staff and executive management if the Company achieves specified performance targets. The number of shares issued is dependent upon the achievement of specified performance targets. The performance period is three years and the payout determination is made at the end of the three-year performance period. Performance shares receive dividends earned during the vesting period upon vesting. The fair value of each grant issued is estimated on the date of grant based on the current market price of the stock. The total amount of compensation expense recognized reflects estimated forfeiture rates and management's assessment of the probability that performance goals will be achieved. A cumulative adjustment is recognized to compensation expense in the current period to reflect any changes in the probability of achievement of performance goals. Cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for stock-based payment arrangements (excess tax benefits) are classified as operating cash inflows. Employee Benefits The Company accounts for its retirement income and retirement health care plans using actuarial methods. These methods use an attribution approach that generally spreads "plan events" over the service lives or expected lifetime (for frozen plans) of plan participants. Examples of plan events are plan amendments and changes in actuarial assumptions such as the expected return on plan assets, discount rate, rate of compensation increase and certain employee-related factors, such as retirement age and mortality. The principle underlying the attribution approach is that employees render service over their employment period on a relatively "smooth" basis and, therefore, the statement of earnings effects of retirement income and retirement health care plans are recognized in the same pattern. One of the principal assumptions used in the net periodic benefit cost calculation is the expected return on plan assets. The expected retum 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 retums to approximate the actual returns and, therefore, the expectation is that the pattern of income and expense recognition should closely match the pattem 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 includes medical, dental, vision, life and other benefits. the Company's individual operating segments. If the result of a qualitative test indicates a potential for impairment of a reporting unit, a quantitative test is performed. In the quantitative test, the Company compares the estimated fair value of the reporting unit to its carrying value. If the estimated fair value of any reporting unit is less than its carrying value, an impairment charge is recorded for the difference between the carrying value and the fair value of the reporting unit. To determine the fair value of a reporting unit as part of its quantitative test, the Company uses the discounted cash flow (DCF) method under the income approach, as it believes that this approach is the most reliable indicator of the fair value of its businesses and the fair value of its future earnings and cash flows. Under this approach, which requires significant judgments, the Company estimates the future cash flows of each reporting unit and discounts these cash flows at a rate of return that reflects their relative risk. The cash flows used in the DCF method are consistent with those the Company uses in its internal planning, which gives consideration to actual business trends experienced, and the broader business strategy for the long term. The other key estimates and factors used in the DCF method include, but are not limited to, net sales and expense growth rates, commodity prices, foreign exchange rates, inflation and a terminal growth rate. Changes in such estimates or the application of altemative assumptions could produce different results. For trademarks and other intangible assets with indefinite lives, the Company has the option to first assess qualitative factors, such as the maturity and stability of the trademark or other intangible asset, the magnitude of the excess fair value over carrying value from a previous period's impairment testing, other specific operating results, as well as new events and circumstances impacting the significant inputs used to determine the fair value of the intangible asset. If the result of a qualitative test indicates that it is more likely than not that the asset is impaired, a quantitative test is performed. When a quantitative test is performed, the estimated fair value of an asset is compared to its carrying value. If the carrying value of such asset exceeds its estimated fair value, an impaiment charge is recorded for the difference between the carrying value and the estimated fair value. The Company uses the DCF method under the relief from royalty income approach to estimate the fair value of its trademarks and other intangible assets with indefinite lives. This approach requires significant judgments in determining the royalty rates and the assets' estimated cash flows, as well as the appropriate discount and foreign exchange rates applied to those cash flows to determine fair value. Changes in such estimates or the use of alternative assumptions could produce different results. Leases The Company determines whether an arrangement contains a lease at inception by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration and other facts and circumstances. Right-of-use (ROU) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets are calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date and initial direct costs incurred by the Company and excludes any lease incentives received from the lessor. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. The lease term may include an option to extend or terminate the lease when it is reasonably certain that the Company will exercise that option as of the commencement date of the lease, and is reviewed in subsequent periods if a triggering event occurs. As the Company's leases typically do not contain a readily determinable implicit rate, the Company determines the present value of the lease liability using its incremental borrowing rate at the lease commencement date based on the lease term and the currency of the lease on a collateralized basis. Variable lease payments are the portion of lease payments that are not fixed over the lease term. Variable lease payments are expensed as incurred, and include certain nonlease components, such as maintenance and other services provided by the lessor, and other charges included in the lease, as applicable. The Company elected to combine lease and non-lease components as a single lease component and to exclude short-term leases, defined as leases with an initial term of 12 months or less, from its consolidated balance sheet. Restructuring Liabilities The Company incurs restructuring costs in comnection with workforce reductions; consolidation or closure of a facility, sale or termination of a line of business; and other actions. Such costs include employee termination benefits (one-time arrangements and benefits attributable to prior service), termination of contractual obligations, noncash asset charges and other direct incremental costs. The Company records employee termination liabilities once they are both probable and estimable for severance provided under the Company's existing severance policy. Employee termination liabilities outside of the Company's existing severance policy are recognized at the time relevant employees are notified, unless the employees will be retained to render service beyond a minimum retention period for transition purposes, in which case the liability is recognized ratably over the future service period. Other costs associated with a restructuring plan or exit or disposal activities, such as consulting and professional fees, facility exit costs, employee relocation, outplacement costs, accelerated depreciation or asset impairments associated with a restructuring plan, are recognized in the period in which the liability is incurred or the asset is impaired. NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property, Plant and Equipment and Finite-Lived Intangible Assets Property, plant and equipment and finite-lived intangible assets are stated at cost. Depreciation and amortization expense are primarily calculated by the straight-line method using the estimated useful lives or lives determined by reference to the related lease contract in the case of leasehold improvements. The table below provides estimated useful lives of property, plant and equipment by asset classification. Fetimatad Finite-lived intangible assets are amortized over their estimated useful lives, which range from 7 to 30 years. Property, plant and equipment and finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances occur that indicate that the carrying amount of an asset (or asset group) may not be fully recoverable. The risk of impairment is initially assessed based on an estimate of the undiscounted cash flows at the lowest level for which identifiable cash flows exist. Impairment occurs when the canrying value of the asset (or asset group) exceeds the estimated future undiscounted cash flows generated by the asset (or asset group). When impairment is indicated, an impairment charge is recorded for the difference between the carrying value of the asset (or asset group) 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. Intemal and extemal 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. Capitalized internal use software is included in Property, plant and equipment. Capitalized software as a service is included in Prepaid expenses and other current assets or Other assets and is amortized using the straight-line method over the term of the hosting arrangement which is typically no greater than 10 years. Business Combinations The Company records acquired businesses within the consolidated financial statements using the acquisition method prospectively from the acquisition date. Under the acquisition method, once control is obtained, assets acquired and liabilities assumed, including amounts attributable to noncontrolling interests, are recorded at their respective fair values on the acquisition date. The Company's estimates of fair value are inherently uncertain and subject to refinement. The excess of the total of the purchase consideration, fair value of the noncontrolling interest and fair value of the previously held equity interest over the identifiable assets acquired and liabilities assumed is recorded as goodwill. Measurement period adjustments to the fair values of the identifiable assets acquired and liabilities assumed with the corresponding offset to goodwill, if applicable, are applied in the reporting period in which the adjustment amounts are determined based on new information obtained during the measurement period. In the event of a step acquisition, the Company records a gain or loss in Other income (expense), net on the consolidated statement of earnings as a result of remeasuring a previously held equity interest to fair value on the acquisition date. Transaction expenses are recognized separately from the business combination and are expensed as incurred. Impairment Review of Goodwill and Indefinite-Lived Intangible Assets The Company tests its goodwill, trademarks with indefinite lives and other indefinite-lived intangible assets annually for impairment in the fiscal fourth quarter unless there are indications during a different interim period that these assets may have become impaired. With respect to goodwill, the Company has the option to first assess qualitative factors, such as the maturity and stability of the reporting unit, the magnitude of the excess fair value over carrying value from a previous period's impairment testing, other reporting unit specific operating results, microeconomic and macroeconomic factors, as well as new events and circumstances impacting the operations at the reporting unit level. The Company operates through strategic business units (SBUs) that are organized into the Company's operating segments. Reporting units for goodwill impairment testing purposes were identified as 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Clorox Company (Dollars in millions, except per share data) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations and Basis of Presentation The Company is principally engaged in the production, marketing and sale of consumer products through mass retailers, grocery outlets, warehouse clubs, dollar stores, home hardware centers, drug, pet and military stores, third-party and owned e-commerce channels, and distributors. The consolidated financial statements include the statements of the Company and its wholly owned and controlled subsidiaries. All significant intercompany transactions and accounts were eliminated in consolidation. Use of Estimates The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP) requires management to reach opinions as to estimates and assumptions that affect reported amounts and related disclosures. Specific areas requiring the application of management's estimates and judgments include, among others, assumptions pertaining to accruals for consumer and trade-promotion programs, future cash flows associated with impairment testing of goodwill and other long-lived assets, uncertain tax positions, tax valuation allowances, the valuation of the Venture Agreement terminal obligation, stock-based compensation, retirement income plans, as well as legal, environmental and insurance matters, and the valuation of assets acquired and liabilities assumed in connection with a business combination. Actual results could materially differ from estimates and assumptions made. Cash, Cash Equivalents and Restricted Cash Cash equivalents consist of highly liquid interest-bearing accounts, time deposits held by financial institutions and money market funds with an initial maturity at purchase of 90 days or less. The fair value of cash and cash equivalents approximates the carrying amount. The Company's cash position includes amounts held by foreign subsidiaries and, as a result, the repatriation of certain cash balances from some of the Company's foreign subsidiaries could result in additional withholding tax costs in certain foreign jurisdictions. However, these cash balances are generally available without legal restriction to fund local business operations. In addition, a portion of the Company's cash balance is held in U.S. dollars by foreign subsidiaries whose functional currency is their local currency. Such U.S. dollar balances are reported on the foreign subsidiaries' books in their functional currency, and the impact on such balances from foreign currency exchange rate differences is recorded in Other (income) expense, net. As of June 30, 2023, 2022, 2021 and 2020, the Company had \$1,\$3, \$5 and \$8 of restricted cash, respectively, which was included in Prepaid expenses and other current assets and Other assets. Inventories The Company values its inventories using both the First-In, First-Out (FIFO) and the Last-In, First-Out (LIFO) methods. The FIFO inventory is stated at the lower of cost or net realizable value, which includes any costs to sell or dispose. In addition, appropriate consideration is given to obsolescence, excessive inventory levels, product deterioration and other factors in evaluating net realizable value. The LIFO inventory is stated at the lower of cost or market. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY The Clorox Company See Notes to Consolidated Financial Statements CONSOLIDATED BALANCE SHEETS The Clorox Company As of June 30 Dollars in millions, except per share data 2023 2022 ASSETS Current assets \begin{tabular}{|c|c|c|c|c|} \hline Cash and cash equivalents & $ & 367 & $ & 183 \\ \hline Receivables, net & & 688 & & 681 \\ \hline Inventories, net & & 696 & & 755 \\ \hline Prepaid expenses and other current assets & & 77 & & 106 \\ \hline Total current assets & & 1,828 & & 1,725 \\ \hline Property, plant and equipment, net & & 1,345 & & 1,334 \\ \hline Operating lease right-of-use assets & & 346 & & 342 \\ \hline Goodwill & & 1,252 & & 1,558 \\ \hline Trademarks, net & & 543 & & 687 \\ \hline Other intangible assets, net & & 169 & & 197 \\ \hline Other assets & & 462 & & 315 \\ \hline Total assets & $ & 5,945 & $ & 6,158 \\ \hline \multicolumn{5}{|l|}{ LIABILITIES AND STOCKHOLDERS' EQUITY } \\ \hline \multicolumn{5}{|l|}{ Current liabilities } \\ \hline Notes and loans payable & $ & 50 & $ & 237 \\ \hline Current operating lease liabilities & & 87 & & 78 \\ \hline Accounts payable and accrued liabilities & & 1,659 & & 1,469 \\ \hline Income taxes payable & & 121 & & \\ \hline Total current liabilities & & 1,917 & & 1,784 \\ \hline Long-term debt & & 2,477 & & 2,474 \\ \hline Long-term operating lease liabilities & & 310 & & 314 \\ \hline Other liabilities & & 825 & & 791 \\ \hline Deferred income taxes & & 28 & & 66 \\ \hline Total liabilities & & 5,557 & & 5,429 \\ \hline \multicolumn{5}{|l|}{ Commitments and contingencies } \\ \hline \multicolumn{5}{|l|}{ Stockholders' equity } \\ \hline Preferred stock: $1.00 par value; 5,000,000 shares authorized; none issued or outstanding & & & & \\ \hline \begin{tabular}{l} Common stock: $1.00 par value; 750,000,000 shares authorized; 130,741,461 shares issued as of June 30,2023 and \\ 2022 ; and 123,820,022 and 123,152,132 shares outstanding as of June 30,2023 and 2022 , respectively \end{tabular} & & 131 & & 131 \\ \hline Additional paid-in capital & & 1,245 & & 1,202 \\ \hline Retained earnings & & 583 & & 1,048 \\ \hline Treasury stock, at cost: 6,921,439 and 7,589,329 shares as of June 30,2023 and 2022 , respectively & & (1,246) & & (1,346) \\ \hline Accumulated other comprehensive net (loss) income & & (493) & & (479) \\ \hline Total Clorox stockholders' equity & & 220 & & 556 \\ \hline Noncontrolling interests & & 168 & & 173 \\ \hline Total stockholders' equity & & 388 & & 729 \\ \hline Total liabilities and stockholders' equity & $ & 5,945 & $ & 6,158 \\ \hline \end{tabular} See Notes to Consolidated Financial Statements 31 See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements