Notes to Financial
Statements
1. Description of the
Plan
The following description
of The Clorox Company 401(k) Plan (the Plan) provides only general
information. Participants should refer to the Plan document for a more complete
description of the Plans provisions.
General
The Plan is a defined
contribution plan covering substantially all employees of The Clorox Company
(the Company) and its affiliated companies that have adopted the Plan
(Participating Company). The following employees are not covered by the Plan:
(i) leased employees (contractors), (ii) nonresident aliens with no United
States of America source of income, (iii) employees covered by a collective
bargaining agreement, unless such coverage is specified in the written
agreement, (iv) employees sent to a Participating Company by an international
subsidiary to participate in a training or development program sponsored by the
Participating Company with the understanding that they will be sent to an
international subsidiary after completing the program, and (v) employees who are
residents of Puerto Rico or who perform services for a Participating Company
primarily in Puerto Rico and are participants of The Clorox Company Employee
Retirement Investment Plan for Puerto Rico. Participants are eligible to
participate on the first day of employment with the Company. The Plan is subject
to the provisions of the Employee Retirement Income Security Act of 1974, as
amended (ERISA).
The Company maintains a
non-leveraged employee stock ownership plan (the ESOP) within the meaning of
Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the
Code). The ESOP is maintained as part of the Plan and is designed to invest in
the Companys common stock. If elected, participants can receive dividends paid
directly to them in cash. No participant shall be permitted to direct more than
5% of the contributions to be made to the Plan on his or her behalf in the ESOP
fund; and no participant shall be permitted to effect a transfer or exchange
from another investment fund into the ESOP fund if the portion of the
participants account invested in the ESOP fund would exceed 5% of his or her
account balance immediately after such transfer or exchange. From January 1,
2007 up to December 31, 2012, the limit was 10%. Prior to January 1, 2007, there
was no account limit implemented; as such there are certain participants whose
investment in the ESOP fund exceeds 10% of their total account balance.
The Employee Benefits
Committee (the Committee) administers the Plan. Mercer Trust Company
(Mercer) is the trustee, custodian and recordkeeper of the Plan.
4
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
1. Description of the
Plan (continued)
Contributions
The Plan allows for
automatic enrollment for newly eligible participants who do not make a salary
deferral contribution election, or fail to elect to decline a deferral
contribution. The Plan also implements an automatic annual contribution rate
increase until a set contribution rate is reached unless another annual
percentage is elected or the automatic election is declined.
|
|
Participants Covered by a
Collective
Bargaining
Agreement
|
|
Participants Not Covered
by a
Collective Bargaining
Agreement
|
Automatic
enrollment rate
|
|
|
5
|
%
|
|
|
|
6
|
%
|
|
Contribution rate
below which
|
|
|
10
|
%
|
|
|
|
20
|
%
|
|
will
trigger annual increase
|
|
|
|
|
|
|
|
|
|
|
Annual increase
in contribution
|
|
|
1
|
%
|
|
|
|
2
|
%
|
|
rate if triggered
|
|
|
|
|
|
|
|
|
|
|
Participants may contribute
from 1% to 50% (25% for participants covered by a collective bargaining
agreement) of their covered compensation, on a pre-tax and after-tax basis, as
defined in the Plan. Participants not covered by a collective bargaining
agreement also have the option to contribute on a Roth basis. The combined
pre-tax, after-tax and Roth contributions cannot exceed the 50% and 25% limit,
as applicable. Generally, covered compensation consists of regular pay plus most
bonuses, overtime and vacation pay. It does not include, for example, short or
long term disability pay, relocation, severance, deferred compensation, stock
compensation, or Workers Compensation pay. Participant contributions are
subject to limits specified under the Code.
Employees not covered by a
collective bargaining agreement, can receive a matching contribution of 100% of
salary deferral contributions, including pre-tax, after-tax and Roth, up to a
maximum of 4% of eligible compensation.
Participants covered by a
collective bargaining agreement can receive a Company match of 100% of eligible
participants pre-tax and after-tax contributions, up to a maximum of $1,000 per
participant per Plan year. Effective during 2015, for certain hourly employee at
the Burnside, Kentucky location of the Kingsford Manufacturing Company covered
by a collective bargaining agreement (Kingsford Participants), the maximum
contribution was increased to $1,200 for those whose last date of hire was prior
to January 1, 2005 and to 3% of eligible compensation for those whose last date
of hire is on or after January 1, 2005.
Participants are eligible
for the Company matching contribution after completing one year of service.
Matching contributions are funded each pay period and are fully vested
immediately.
5
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
1. Description of the
Plan (continued)
Eligible participants not
covered by a collective bargaining agreement and effective during 2015, certain
Kingsford Participants whose last date of hire is on or after January 1, 2005,
can also be eligible for a non-elective employer contribution. To receive a
non-elective employer contribution for a particular Plan year, a participant
must have completed at least one year of service prior to December 31 of the
Plan year. A participant must also have been an eligible employee sometime
during the Plan year and have been employed with the Company on December 31 of
the Plan year or have separated from service during the Plan year due to death
or disability resulting in being certified as disabled, attainment of age 60
(age 62 for anyone who first becomes a Participant after June 30, 2011) or
attainment of age 55 with 10 years of service.
The non-elective employer
contribution is equal to 6% of eligible compensation or 2.5% of eligible
compensation for certain eligible Kingsford Participants during the Plan year.
The non-elective employer contributions are funded during the quarter subsequent
to the Plan year end. See Vesting section for more information.
Participants may also
rollover amounts representing distributions from other qualified defined benefit
or defined contribution plans. Subject to Committee discretion, participants may
also rollover outstanding loans under a plan sponsored by an entity that was
acquired by or merged with the Company.
Investment Options
Participants direct the
investment of their contributions and the Company contributions into the various
investment options offered by the Plan. The Plan offers investments in mutual
funds, common collective funds, the Companys common stock, and a separately
managed portfolio. Participants are also allowed to direct their contributions
to TD Ameritrade a self-directed brokerage account which permits investments in
additional mutual funds, common stocks, and other investment products.
6
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
1. Description of the
Plan (continued)
Participant Accounts and
Forfeitures
Each participants account
is credited with the participants contribution and allocations of: (a) Company
contributions and (b) Plan earnings. Allocations are based on participants
eligible compensation for the employer match and non-elective employer
contribution and investment balances for investment earnings. At the discretion
of the Committee, forfeited balances of terminated participants nonvested
accounts may be used to pay the Plans expenses, to reduce the Companys
contributions to the Plan, or to restore accounts of previously terminated
participants who subsequently resumed employment with the Company. The amounts
of unallocated forfeitures related to nonvested accounts at December 31, 2015
and 2014 are $780,979 and $673,677, respectively. The Company used $752,843 and
$645,960 of forfeitures to reduce the non-elective employer contribution for the
Plan year ended December 31, 2015 and 2014, respectively.
Vesting
Participants are always
fully vested in their individual contributions, Company matching contributions,
and actual earnings thereon.
The non-elective employer
contribution, will vest in varying rates over a period of 5 years as follows:
Years of Service
|
Non-elective
Employer
Contribution
|
1
|
|
0
|
%
|
|
2
|
|
20
|
%
|
|
3
|
|
40
|
%
|
|
4
|
|
70
|
%
|
|
5
|
|
100
|
%
|
|
Participants become
immediately vested in the non-elective employer contributions upon reaching age
60 (age 62 for anyone who first becomes a Participant after June 30, 2011) while
employed by the Company, at death, or upon permanent disability.
7
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
1. Description of the
Plan (continued)
Notes Receivable from
Participants
Participants may borrow a
minimum of $1,000 from their fund accounts up to a maximum equal to the lesser
of $50,000 or 50% of their vested account balance. Loan terms range from one to
5 years, or up to 15 years if proceeds are used for the purchase of a primary
residence. The loans are secured by the balance in the participants account and
bear interest at a fixed rate (prime plus 1%) determined at the time of the
loan. Principal and accrued interest are repaid ratably through payroll
deductions or directly to the custodian by the participant.
Payment of Benefits
The Plan allows for
lump-sum and partial distributions of the vested value of a participants
account at death, upon permanent disability, or upon termination of employment.
Hardship and other in-service withdrawals are permitted if certain criteria are
met.
Administrative Expenses
The Company pays
substantially all administrative expenses except for certain investment fees and
loan fees, which are deducted from the affected participants account. Quarterly
recordkeeping fees are also deducted from participants accounts effective March
2014.
Plan Termination
Although it has not
expressed any intent to do so, the Company has the right under the Plan to
discontinue its contributions at any time and to terminate the Plan subject to
the provisions of ERISA. In the event of the Plans termination, participants
will become 100% vested in their accounts.
2. Summary of Accounting
Policies
Basis of Accounting
The accompanying financial
statements are prepared in accordance with generally accepted accounting
principles in the United States of America (U.S. GAAP).
8
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
2. Summary of Accounting
Policies (continued)
Investment Valuation and
Income Recognition
The Plans investments are
stated at fair value, except for fully benefit-responsive investment contracts,
which are reported at contract value. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. See Note 4 for
further discussion of fair value measurements.
Purchases and sales of
securities are recognized on a trade-date basis. Interest income is recorded on
the accrual basis. Dividends are recorded on the ex-dividend date.
Notes Receivable from
Participants
Notes receivable from
participants are measured at their unpaid principal balance plus any accrued but
unpaid interest. Delinquent participant loans are reclassified as distributions
based upon the terms of the Plan Document. Outstanding notes receivable at
December 31, 2015 carry interest rates ranging from 4.25% to 10.50%.
Payment of Benefits
Benefits paid to
participants are recognized upon payment.
Use of Estimates
The preparation of
financial statements in conformity with U.S. GAAP requires the Plans management
to make estimates that affect the amounts reported in the financial statements
and accompanying footnotes. Actual results could differ from those estimates.
Risk and Uncertainties
The Plan provides for
various participant directed investment options in mutual funds, common stocks,
a separately managed portfolio, a common collective fund, and a self-directed
brokerage account. Investment securities, in general, are exposed to various
risks, such as interest rate, credit, and overall market volatility risk. Due to
the level of risk associated with certain investment securities, it is
reasonably possible that changes in the values of investment securities will
occur in the near term and that such changes could materially affect the amounts
reported in the statements of net assets available for benefits, the statement
of changes in net assets available for benefits, and participant account
balances.
9
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
2. Summary of Accounting
Policies (continued)
Recent Accounting
Pronouncements
In July 2015, the Financial
Accounting Standards board (FASB) issued Accounting Standards Update (ASU)
2015-12,
Plan Accounting: Defined
Contribution Pension Plans (Topic 962); (Part I) Fully Benefit-Responsive
Investment Contracts; (Part II) Plan Investment Disclosures; and (Part III)
Measurement Date Practical Expedient
. This guidance attempts to reduce complexity in employee benefit plan
accounting. Such changes include (1) measuring and presenting fully benefit
responsive investment contracts at contract value (2) eliminating various
requirements for plan investment disclosures, such as net
appreciation/depreciation by general investment by type and individual
investments that represent 5% or more of net assets; and (3) a practical
expedient that permits a plan to measure investments as of a month-end date
closest to the plans financial year end. Part III is not applicable to the
Plan. ASU 2015-12 is effective for the Plan beginning after December 15, 2015,
with early adoption permitted and retrospective application required for Part I
and Part II. The Plan has elected to early adopt Part I and Part II of this ASU
in the current year and as such, these financial statements reflect this
adoption.
In May 2015, FASB issued
ASU 2015-07,
Fair Value
Measurement
(Topic 820): Disclosures for Investments in
Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent)
. This guidance
eliminates the requirement to categorize within the fair value hierarchy all
investments for which fair value is measured using the net asset value per share
practical expedient (NAV). ASU 2015-07 also removes the requirement to make
certain disclosures for all investments that are eligible to be measured at fair
value using the NAV, and is effective for the Plan beginning after December 15,
2015, with early adoption permitted. ASU 2015-07 requires retrospective
application by removing investments measured using NAV from the fair value
hierarchy in all periods presented. The Plan has elected to early adopt this ASU
in the current year and as such, these financial statements have revised
disclosures to reflect this adoption.
10
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
3. Fair Value
Measurements
Fair value is defined as
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (i.e., an exit price). Fair value is determined based on a
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. An assets or liabilitys classification is based on the lowest
level of input that is significant to the fair value measurement. Assets and
liabilities carried at fair value are classified and disclosed in one of the
following categories:
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 managements own
assumptions.
|
The following is a
description of the valuation methodologies used for assets and liabilities
measured at fair value:
Mutual funds: Valued at quoted market prices, which represent the net
asset values (NAV) of shares held by the Plan at year-end.
Common stock, including the Companys common stock: Valued at the last
reported quoted market sales price on the last business day of the Plan
year.
Separately managed portfolio (The Clorox Stable Value fund or the Fund):
Valued using the market approach at a unit price (NAV) of the underlying
investments in common collective trust funds which are in turn determined by the
portfolios sponsor based on the fair value of underlying investments held by
the common collective trust fund on the last business day of the Plan year.
Common collective trust funds: Valued using the market approach at a unit
price (NAV) determined by the portfolios sponsor based on the fair value of
underlying investments held by the common collective trust fund on the last
business day of the Plan year.
Interest bearing accounts (part of TD Ameritrade self-directed brokerage
account): Valued at cost plus accrued interest, which approximates fair value.
The methods described above
may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. Furthermore, while the
Plan believes its valuation methods are appropriate and consistent with other
market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a
different fair value measurement at the
reporting date.
11
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
3. Fair Value
Measurements (continued)
The following table sets
forth by level, within the fair value hierarchy, the Plans assets carried at
fair value.
|
|
Assets at Fair Value as of December 31,
2015
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
Mutual
funds
|
|
$
|
527,181,919
|
|
$
|
-
|
|
$
|
527,181,919
|
Employer
securities
|
|
|
117,602,711
|
|
|
-
|
|
|
117,602,711
|
Self directed
brokerage account
|
|
|
18,602,587
|
|
|
-
|
|
|
18,602,587
|
Total assets in
the fair value hierarchy
|
|
|
663,387,217
|
|
|
-
|
|
|
663,387,217
|
Investments
measured at net asset value
(a)
|
|
|
|
|
|
|
|
|
571,940,480
|
Investments at
fair value
|
|
$
|
663,387,217
|
|
$
|
-
|
|
$
|
1,235,327,697
|
|
|
|
Assets at Fair Value as of December 31,
2014
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
Mutual
funds
|
|
$
|
855,881,054
|
|
$
|
-
|
|
$
|
855,881,054
|
Employer
securities
|
|
|
106,057,806
|
|
|
-
|
|
|
106,057,806
|
Self directed
brokerage account
|
|
|
19,083,812
|
|
|
-
|
|
|
19,083,812
|
Total assets in
the fair value hierarchy
|
|
|
981,022,672
|
|
|
-
|
|
|
981,022,672
|
Investments
measured at net asset value
(a)
|
|
|
|
|
|
|
|
|
187,849,368
|
Investments at
fair value
|
|
$
|
981,022,672
|
|
$
|
-
|
|
$
|
1,168,872,040
|
(a)
In
accordance with Subtopic 820-10, certain investments that were measured at net
asset value per share (or its equivalent) (NAV) have not been classified in the
fair value hierarchy. The fair value amounts represented in this table are
intended to permit reconciliation of the fair value hierarchy to the line items
presented in the statement of net assets available for benefits.
The funds measured at net
asset value above may impose, in its sole discretion, a prior notice period of
up to 12 months for any withdrawal of assets. They may also require that within
90 days from withdrawal from the fund, money from the fund cannot be invested
directly into a competing fund, such as a money market fund.
12
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
4. The Clorox Stable
Value Fund
The Fund invests in common
collective trusts.
Prior to December 31, 2015,
the Fund also invested in security-backed contracts issued by insurance
companies.
A security-backed contract
is an investment contract issued by an insurance company or other financial
institution, backed by a portfolio of collective trust funds that are owned by
the Fund. The portfolio underlying the contract is maintained separately from
the contract issuers general assets, usually by a third party custodian. The
interest crediting rate of a security-backed contract is based on the contract
value, and the fair value, duration, and yield to maturity of the underlying
portfolio. Security-backed contracts cannot credit an interest rate that is less
than zero percent. These contracts typically allow for realized and unrealized
gains and losses on the underlying assets to be amortized, usually over the
duration of the underlying investments, through adjustments to the future
interest crediting rate, rather than reflected immediately in the net assets of
the Fund. The issuer guarantees that all qualified participant withdrawals will
be at contract value.
Risks arise when entering
into any investment contract due to the potential inability of the issuer to
meet the terms of the contract. In addition, security-backed contracts have the
risk of default or the lack of liquidity of the underlying portfolio
assets.
Security-backed contracts
generally provide for withdrawals associated with certain events which are not
in the ordinary course of Fund operations. These withdrawals are paid with a
market value adjustment applied to the withdrawal as defined in the investment
contract. Each contract issuer specifies the events which may trigger a market
value adjustment; however, such events may include all or a portion of the
following:
●
|
material amendments
to the Funds structure or administration;
|
●
|
changes to the
participating plans competing investment options including the
elimination of equity wash provisions;
|
●
|
complete or partial
termination of the Fund, including a merger with another
fund;
|
●
|
the failure of the
Fund to qualify for exemption from federal income taxes or any required
prohibited transaction exemption under ERISA;
|
13
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
4. The Clorox Stable
Value Fund (continued)
●
|
the redemption of all
or a portion of the interests in the Fund held by a participating plan at
the direction of the participating plan sponsor, including withdrawals due
to the removal of a specifically identifiable group of employees from
coverage under the participating plan (such as a group layoff or early
retirement incentive program), the closing or sale of a subsidiary,
employing unit, or affiliate, the bankruptcy or insolvency of a plan
sponsor, the merger of the plan with another plan, or the plan sponsors
establishment of another tax qualified defined contribution
plan;
|
●
|
any change in law,
regulation, ruling, administrative or judicial position, or accounting
requirement, applicable to the Fund or participating
plans; or
|
●
|
the delivery of
any communication to plan participants designed to influence a participant
not to invest in the Fund.
|
At this time, the Fund does
not believe that the occurrence of any such market value event, which would
limit the Funds ability to transact at contract value with participants, is
probable.
Security-backed contracts
generally are evergreen contracts that contain termination provisions, allowing
the Fund or the contract issuer to terminate with notice, at any time at fair
value, and providing for automatic termination of the contract if the contract
value or the fair value of the underlying portfolio equals zero. The issuer is
obligated to pay the excess contract value when the fair value of the underlying
portfolio equals zero.
In addition, if the Fund
defaults in its obligations under the security-backed contract (including the
issuers determination that the agreement constitutes a non-exempt prohibited
transaction as defined under ERISA), and such default is not corrected within
the time permitted by the contract, then the contract may be terminated by the
issuer and the Fund will receive the fair value as of the date of termination.
14
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
5. Income Tax Status
The Plan has received a
determination letter from the Internal Revenue Service (the IRS) dated October
29, 2013, stating that the Plan is qualified under Section 401(a) of the Code,
and therefore the related trust is exempt from taxation. Subsequent to this
determination by the IRS, the Plan was restated. The Plans management believes
that the Plan is being operated in accordance with the applicable requirements
of the Code and therefore believes that the Plan, as amended, is qualified and
the related trust is tax-exempt. The Company has indicated that it will take the
necessary steps, if any, to maintain the Plans operations in compliance with
the Code.
U.S. GAAP requires plan
management to evaluate uncertain tax positions taken by the Plan. The financial
statement effects of a tax position are recognized when the position is more
likely than not, based on the technical merits, to be sustained upon examination
by the IRS. The plan administrator has analyzed the tax positions taken by the
Plan, and has concluded that as of December 31, 2015, there are no uncertain
positions taken or expected to be taken. The Plan has recognized no interest or
penalties related to uncertain tax positions. The Plan may be subjected to
routine audits by taxing jurisdictions; however, there are currently no audits
in progress for any tax periods. The Plan is no longer subject to income tax
examinations for Plan years prior to 2012.
6. Party-in-Interest
Transactions
Transactions in shares of
the Companys common stock qualify as party-in-interest transactions under the
provisions of ERISA. During the Plan year ended December 31, 2015, the Plan
purchased or received approximately $4,979,000 and sold or distributed
approximately $15,285,000 of the Companys common stock.
7. Subsequent Event
Effective January 1, 2016,
the Plan was amended to provide for the following:
●
|
Participant
contribution rate, automatic enrollment and re-enrollment rate, automatic
increase rate and threshold have been updated for certain Kingsford
Participants. These rates now conform to the rates allowable for
participants not covered by a collective bargaining agreement (see Note
1)
|
●
|
Certain Kingsford
Participants are able to make contributions on a Roth basis.
|
15
The Clorox Company 401(k)
Plan
Notes to Financial
Statements (continued)
8. Reconciliation of
Financial Statements to the Form 5500
The Company will report the
Plans investment in the common collective trusts at fair market value on its
Form 5500. As a result, the following is a reconciliation of the Statement of
Net Assets Available for Benefits per the financial statements at December 31,
2014, to the Statements of Net Assets Available for Benefits expected to be
reported in the Plans Form 5500:
Net assets
available for benefits per the financial
|
|
|
|
statements
|
|
$
|
1,236,383,082
|
Adjustment
from contract value to fair value related to
|
|
|
|
fully
benefit-responsive investment contracts through
|
|
|
|
stable
value investments
|
|
|
891,692
|
Net assets
available for benefits per the Form 5500
|
|
$
|
1,237,274,774
|
Adjustment from contract
value to fair value is related to the separately managed portfolio, The Clorox
Stable Value Fund.
The following is a
reconciliation of the Statement of Changes in Net Assets Available for Benefits
per the financial statements for the Plan year ended December 31, 2015, to the
Statement of Changes in Net Assets Available for Benefits expected to be
reported in the Plans Form 5500:
Total increase in
net assets available for benefits per the
|
|
|
|
|
financial
statements
|
|
$
|
54,503,626
|
|
Less:
prior year adjustment from contract value to fair
|
|
|
|
|
value
|
|
|
(891,692
|
)
|
Total net income
per the Form 5500
|
|
$
|
53,611,934
|
|
16
Supplemental Schedule