Notes to Financial
Statements
December 31, 2015
1. Description of the
Plan
The following description
of The Clorox Company Employee Retirement Investment Plan for Puerto Rico (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 most salaried and hourly production employees of
Clorox Manufacturing Company of Puerto Rico, Inc. (the Company) (previously,
The Clorox Company of Puerto Rico) and those affiliates of the Company that
adapt the Plan for the benefit of their Puerto Rico resident employees (the
Companies), except for (i) leased employees and (ii) non-resident aliens with
no Puerto Rico source of income, unless such coverage is specified in the
written agreement. Participants are eligible to participate on the first day of
employment following completion of one hour of service with the Companies. The
Plan is subject to the provisions of the Employee Retirement Income Security Act
of 1974, as amended (ERISA). The Employee Benefits Committee (the Committee)
administers the Plan. Banco Popular de Puerto Rico serves as the Plans trustee.
Mercer Trust Company (Mercer) serves as the Plans record-keeper and
custodian.
The Companies maintain a
non-leveraged employee stock ownership plan (the ESOP). The ESOP is maintained
as part of the Plan and is designed to invest primarily in the Companys common
stock. If elected, the participants can choose to (i) reinvest the dividends or
(ii) receive the dividends 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 no
limit was implemented; as such, there are certain participants whose investment
in the ESOP fund exceeds 10% of their total account balance.
Contributions
Participants may contribute
up to 20% of their covered compensation, up to 10% on a pre-tax and after-tax
bases, respectively, as defined in the Plan. Generally, covered/eligible compensation consists of regular
pay plus most bonuses, overtime and vacation pay.
5
Pre-tax contributions are
subject to a $15,000 limit specified under the Puerto Rico
Internal Revenue Code of 2011, as amended, (the
Code).
Newly eligible participants
who do not make a salary deferral contribution election, or fail to elect to
decline a deferral contribution, are automatically enrolled in the Plan at a 6%
contribution rate. All participants with a contribution rate of less than 10%
have an automatic annual percentage increase of 2% until the contribution rate
reaches 10% unless another annual percentage is elected or the automatic
election is declined.
Employees can receive a
dollar for dollar employer matching contribution up to a maximum of 4% of
eligible compensation. Participants need to have completed one year of service
to receive the match. Matching contributions are funded each pay period.
Eligible participants can
also be eligible for a non-elective employer contribution. Participants must
have completed one year of service and be an active employee at the end of the
Plan year to be able to receive the non-elective employer contribution. The
non-elective employer contribution is equal to 6% of eligible compensation
during the plan year. The non-elective employer contribution is funded during
the quarter subsequent to the Plan year end. See Vesting section for more
information.
Prior to July 1, 2011,
participants may have been eligible for a Value Sharing contribution to the Plan
based on the Companies performance (a profit sharing component).
Participants may also
rollover amounts representing distributions from other qualified defined benefit
or defined contribution plans.
Investment
Options
Participants direct
investment of their contributions and the Companies contributions into the
various investment options offered by the Plan. The Plan offers investments in
The Clorox Companys common stock, mutual funds, and a money market fund.
6
Participant
Accounts
Each participants account
is credited with the participants contribution and an allocation of: (a)
Company contributions and (b) Plan earnings. Allocations are based on
participants eligible compensation for the employer match and employer fixed
contributions and investment balance for investment earnings. At the discretion
of the Committee, forfeited balances of terminated participants non-vested
accounts may be used to pay Plan expenses, to reduce the Companies
contributions to the Plan, or to restore forfeited accounts of previously
terminated participants who subsequently resumed employment with the Companies.
The benefit to which a participant is entitled is the benefit that can be
provided from the participants vested account.
Vesting
Participants are always
fully vested in their individual contributions, the Companies matching
contributions, and actual earnings thereon.
7
The non-elective employer
contributions account will vest in accordance with the following schedule:
Years of Service
|
|
Percentage
|
1
|
|
|
0
|
%
|
|
2
|
|
|
20
|
%
|
|
3
|
|
|
40
|
%
|
|
4
|
|
|
66
|
%
|
|
5
|
|
|
100
|
%
|
|
Prior to July 1, 2008,
participants vested interest in the Value Sharing contribution, a profit
sharing component of the Plan made for plan years prior to July 1, 2011, was
determined in accordance with the following schedule:
Years of Service
|
|
Percentage
|
1-2
|
|
|
0
|
%
|
|
3
|
|
|
34
|
%
|
|
4
|
|
|
66
|
%
|
|
5
|
|
|
100
|
%
|
|
In October 2008, the
Committee adopted an amendment to the Plan containing a provision, effective
July 1, 2008, that changed the vesting schedule for the Value Sharing
contributions of a participant. The Value Sharing contribution account of a
participant who has an hour of service on or after July 1, 2008 vests in
accordance with the following schedule:
Years of Service
|
|
Percentage
|
1
|
|
|
0
|
%
|
|
2
|
|
|
20
|
%
|
|
3
|
|
|
40
|
%
|
|
4
|
|
|
66
|
%
|
|
5
|
|
|
100
|
%
|
|
Participants become
immediately vested in the Value Sharing contribution upon reaching age 60 while
employed by the Companies, at death, or upon termination of employment due to
permanent disability.
Payment of
Benefits
The Plan provides for
lump-sum distributions of the vested value of a participants account upon
death, permanent disability, or termination of employment. The Plan also
provides for installment distributions in limited instances. Hardship
withdrawals are permitted if certain criterion is met.
8
Notes Receivable from
Participants
Participants may obtain up
to two loans for a minimum of $1,000 each and a maximum amount equal to the
lesser of $50,000 reduced by the highest outstanding loan balance in the
previous 12 months, or 50% of the participants vested account balance. Loan
terms range from 1 to 5 years, or up to 15 years if the proceeds are used for
the purchase of a primary residence. The loans are secured by the balance of the
participants account and bear interest at a fixed rate (prime plus 1%)
determined at the time of the loan. Principal and accrued interest is repaid
ratably through payroll deductions. Outstanding notes receivable at December 31,
2015 carry interest rates ranging from 4.25% to 7%.
Plan
Termination
Although it has not
expressed any intent to do so, the Companies 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 a Plan termination, participants will
become 100% vested in their accounts.
Administrative
Expenses
The Companies pay
substantially all administrative expenses except for loan origination and
maintenance fees which are deducted from the participants account.
Forfeitures
Amounts forfeited for each
Plan year are used to reduce the Companies contributions. The unallocated
forfeitures related to non-vested accounts at December 31, 2015 and 2014 are
$7,876 and $27,766, respectively. The Companies used $7,876 and $27,766 of
forfeitures to reduce the Companies non-elective employer contributions for the
Plan years ended December 31, 2015 and 2014, respectively. Non-elective employer
contributions are made subsequent to the Plan year end.
2. Summary of
Significant Accounting Policies
Basis of
Accounting
The accompanying financial
statements are prepared on the accrual basis of accounting in accordance with
Accounting Principles Generally Accepted in the United States of America (U.S.
GAAP).
Investment Valuation and
Income Recognition
The Plans investments are
stated at fair 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.
9
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.
Benefit Payments to
Participants
Benefit payments to
participants are recorded upon distribution. As of December 31, 2015 and 2014,
no significant amounts were due to participants who had requested distributions
prior to the Plans year ends.
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 investment options in common stock, mutual funds, and a money market
fund. 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 could 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.
Recent Accounting
Pronouncements
In July 2015, the Financial
Accounting Standards board (FASB) issued 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
. Part I and Part III do
not apply to the Plan. Part II eliminates the requirements to disclose (1)
individual investments that represent five present or more of net assets
available for benefits (2) the net appreciation or depreciation in fair value of
investments by general type (3) disaggregation of investments within the fair
value hierarchy by nature, characteristics and risk; they must be disaggregated
only by general type. This is effective for fiscal years beginning after
December 15, 2015, with early adoption permitted. This has been adopted and
reflected retrospectively in these financial statements.
Subsequent Events
The Plan has evaluated
subsequent events through June 23, 2016, which is the date the financial
statements were available to be issue.
10
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 asset 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 three 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 and money market fund:
Valued at quoted market prices, which represent
the net asset values (NAV) of shares held by the Plan at year-end.
Companys common stock:
Valued at the last reported sales price on the last business day of the Plan
year.
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 following table sets
forth by level, within the fair value hierarchy, the Plans assets at fair value
as of December 31, 2015 and 2014:
|
|
Assets at Fair Value as of
December 31, 2015
|
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
The Clorox
Company common stock
|
|
$
|
1,189,330
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,189,330
|
Money market
fund
|
|
|
1,474,833
|
|
|
-
|
|
|
-
|
|
|
1,474,833
|
Mutual
funds
|
|
|
8,372,896
|
|
|
-
|
|
|
-
|
|
|
8,372,896
|
Total assets
at fair value
|
|
$
|
11,037,059
|
|
$
|
-
|
|
$
|
-
|
|
$
|
11,037,059
|
|
|
|
Assets at Fair Value as of December 31, 2014
|
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
The Clorox
Company common stock
|
|
$
|
1,396,279
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,396,279
|
Money market
fund
|
|
|
1,499,589
|
|
|
-
|
|
|
-
|
|
|
1,499,589
|
Mutual
funds
|
|
|
8,323,155
|
|
|
-
|
|
|
-
|
|
|
8,323,155
|
Total assets
at fair value
|
|
$
|
11,219,023
|
|
$
|
-
|
|
$
|
-
|
|
$
|
11,219,023
|
4. Party-in-Interest
Transactions
The Plans investment
transactions were managed by Banco Popular de Puerto Rico as of December 31,
2015 and 2014.
In addition, a portion of
the Plan's assets are participant directed investments in The Clorox Company
common stock. As the Companies are subsidiaries of The Clorox Company, the Plan
transactions involving The Clorox Company common stock qualify as
party-in-interest transactions. All of these party-in-interest transactions are
exempt from the prohibited transaction rules of ERISA.
5. Income Tax
Status
The Plan has received a
determination letter from the Puerto Rico Treasury Department dated May 3, 2013,
stating that the Plan meets the requirements of section 1081.01 (d) of the Code
and that the trust established thereunder will be entitled to exemption from
local income taxes. Subsequent to this determination by the Puerto Rico Treasury
Department, the Plan was amended. The Plan administrator believes the Plan is
being operated in compliance with applicable requirements of the Code and,
therefore, believes that the Plan, as amended and restated, is qualified and the
related trust is tax-exempt.
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 Puerto Rico Treasury Department. 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
recognized no interest or penalties related to uncertain tax positions. The Plan
may be subjected to routine audits by the 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.
12
Supplemental Schedule
13