|
Proposal 2:
Advisory
Vote to Approve Executive Compensation
|
In accordance with the provisions of
Section 14A of the Exchange Act, as enacted as part of the Dodd-Frank Wall
Street Reform and Consumer Protection Act in July 2010, we are providing our
stockholders the opportunity to vote on a non-binding, advisory resolution to
approve the compensation of our named executive officers. This proposal gives
our stockholders the opportunity to express their views on the Companys
executive compensation, and is commonly referred to as a say-on-pay proposal.
This vote is only advisory and will not be binding upon the Company or the
Board. However, the Management Development and Compensation Committee, which is
responsible for designing and administering the Companys executive compensation
program, values the opinions expressed by stockholders and encourages all
stockholders to vote their shares on this matter.
The Companys compensation programs are
designed to enable and reinforce its overall business strategy by aligning pay
with the achievement of short- and long-term financial and strategic objectives
to build stockholder value and by providing a competitive level of compensation
needed to recruit, retain, and motivate talented executives critical to the
Companys long-term success. The key principle underlying
these compensation programs is pay for
performance. Our pay-for-performance principle and the alignment of our
compensation programs with the building of stockholder value are fully discussed
in the Compensation Discussion and Analysis section of this proxy statement,
which begins on page 26. The Board urges you to consider the factors discussed
in the Compensation Discussion and Analysis section of this proxy statement when
deciding how to vote on this Proposal 2.
At our 2015 Annual Meeting of
Stockholders held on November 18, 2015, our stockholders overwhelmingly approved
our executive compensation policies, with approximately 93% of votes cast in
favor of our proposal. We value this positive endorsement by our stockholders
and believe that the outcome signals our stockholders support of our
compensation program. We continued our general approach to compensation for
fiscal year 2016, specifically our pay-for-performance philosophy and our
efforts to attract, retain, and motivate our named executive officers. We
provide our stockholders the opportunity to vote on the compensation of our
named executive officers every year. The next vote on executive compensation
will be at the 2017 Annual Meeting of Stockholders.
Board of Directors Recommendation
The Board recommends a vote FOR the
advisory vote to approve executive compensation.
The Company is asking its stockholders to support the compensation of
the named executive officers as described in this proxy statement. This vote is
not intended to address any specific item of compensation, but rather the
overall compensation of our named executive officers in fiscal year 2016 and the
philosophy, policies, and practices underlying that compensation, which are
described in this proxy statement. The Board believes that the Companys overall
compensation process effectively implements its compensation philosophy and
achieves its goals.
Accordingly, the Board recommends a
vote FOR the adoption of the following advisory resolution, which will be
presented at the Annual Meeting:
RESOLVED, that the stockholders of The
Clorox Company approve, on an advisory basis, the compensation of the named
executive officers, as disclosed in The Clorox Companys Proxy Statement for the
2016 Annual Meeting of Stockholders pursuant to the compensation disclosure
rules of the Securities and Exchange Commission, including the Compensation
Discussion and Analysis, the Summary Compensation Table, and the other related
tables and disclosure.
24 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of Contents
Executive Compensation
Vote Required
The affirmative vote of a majority of
the votes present in person or represented by proxy and entitled to vote at the
Annual Meeting is required to approve this proposal.
This vote is advisory, and therefore
not binding on the Company, the Board, or the Management Development and
Compensation Committee. However, the Board and the Management Development and
Compensation Committee value the opinions of the Companys stockholders and, to
the extent there is any significant vote against the named
executive officers compensation as
disclosed in the proxy statement, we will consider such stockholders concerns
and the Management Development and Compensation Committee will evaluate whether
any actions are necessary to address those concerns.
The people designated in the proxy and
voting instruction card will vote your shares FOR approval unless you include
instructions to the contrary.
THE CLOROX COMPANY
- 2016 Proxy Statement
|
25
|
Table of Contents
|
Compensation
Discussion
and Analysis
|
Executive Summary
This Compensation Discussion and
Analysis (CD&A) describes our executive compensation philosophy and
program, the compensation decisions made under this program and the specific
factors we considered in making those decisions. This CD&A focuses on the
compensation of our named executive officers for fiscal year 2016, who
were:
●
|
Benno Dorer
Chief Executive
Officer (CEO);
|
●
|
Stephen M.
Robb
Executive Vice President Chief
Financial Officer (CFO);
|
●
|
Laura Stein
Executive Vice President General Counsel and
Corporate Affairs;
|
●
|
Nikolaos A.
Vlahos
Executive Vice President and
Chief Operating Officer Household, Lifestyle and Core Global Functions;
and
|
●
|
Dawn
Willoughby
Executive Vice President
and Chief Operating Officer Cleaning, International and Corporate
Strategy
|
On August 15, 2016, Mr. Dorer was named
Chairman of the Board of Directors (the Board) in addition to his role as
CEO.
Fiscal Year 2016 Performance
Highlights
In fiscal year 2016, the Company
delivered strong results, including 2% sales growth and an 8% increase in
diluted earnings per share from continuing operations, despite an ongoing
difficult macroeconomic environment, particularly in certain international
markets that included unfavorable foreign exchange rates. In the face of these
challenges, the Company delivered volume and sales growth across all of our U.S.
segments and strong earnings growth behind our 2020 Strategy, on top of strong
growth in the prior fiscal year. In addition, the Company delivered margin
expansion, supported by productivity gains and another year of substantial cost
savings. The Company also continued to invest strongly in its demand building
programs, which include innovation across our portfolio and digital marketing
communications enhancing brand engagement with our consumers.
The Companys 2020 Strategy aims to
accelerate profitable growth by engaging employees as business owners;
increasing brand investment behind superior products and technology that reaches
consumers in a dynamic marketplace; expanding
its brands into new categories and
channels; and driving out waste in its work, processes and products. Successes
for the Company in fiscal year 2016 included:
●
|
increasing fiscal year gross
margin by 150 basis points to 45.1%;
|
●
|
achieving $109 million in cost
savings, the Companys 13th consecutive year of average cost savings in
excess of $100 million;
|
●
|
achieving increased volume of 4%,
reflecting gains in all four of the Companys reportable
segments;
|
●
|
increasing earnings from
continuing operations to $648 million or $4.92 diluted EPS, versus $606
million or $4.57 diluted EPS in the prior year;
|
●
|
introducing new products in many
categories, including Fresh Step
®
with Febreze
®
cat
litter; new Hidden Valley
®
dressing flavors; Glad
®
trash bags with Clorox
®
antimicrobial protection; Burts
Bees
®
lipsticks, BB cream and new flavors of lip balm; and
Kingsford
®
professional briquets, among
others;
|
●
|
acquiring Renew Life, a leading
maker of digestive health products;
|
●
|
continuing to receive external
recognition for its leadership in corporate responsibility and
sustainability efforts; and
|
●
|
returning excess capital to
stockholders through share repurchases, delivering $398 million in
dividends to stockholders, and increasing the quarterly dividend by 4% in
May 2016.
|
How Pay Was Tied to the
Companys Performance in Fiscal Year 2016
Our fiscal year 2016 results and
compensation decisions continue to illustrate that our pay-for-performance
philosophy works as intended, with pay being driven by performance in the
following ways:
●
|
Fiscal Year 2016
Annual Incentive Payout.
In alignment
with our pay-for-performance philosophy, the annual incentive payout for
each of our named executive officers was above target due to the Companys
strong operational results compared to the targets established at the
beginning of the fiscal year. The Companys sales and economic profit
(EP) performance both significantly exceeded the targets for the fiscal
year.
|
26 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Compensation Discussion and Analysis
●
|
No Fiscal
Year 2016 Long-Term Incentive Payout.
Our three-year performance share results did not meet the required
financial target for cumulative EP, and, as a result, no performance
shares were paid out. These awards were granted in September 2013, and
payment was determined in August 2016 based on performance over the period
commencing July 1, 2013, and ending June 30, 2016. Fiscal year 2014
results were significantly below target, and while we had very strong
results in both fiscal years 2015 and 2016, these results were not enough
to offset the challenges of fiscal year 2014, as the performance share
payout is based on a cumulative EP
measure.
|
Compensation Philosophy
The key principle of our compensation
philosophy is to align pay with performance. We do so by delivering the majority
of executive pay through at-risk variable incentive awards that help ensure
that realized pay is tied to attainment of critical operational goals and
sustainable appreciation in stockholder value. In fiscal year 2016,
approximately 85% of the targeted compensation for our CEO and approximately 70%
of the targeted compensation for our other named executive officers was directly
tied to the achievement of short- and long-term operating goals and total
stockholder return. This approach is designed to accomplish the
following:
●
|
Pay for
Performance.
To reward performance
that drives the achievement of the Companys short- and long-term goals
and, ultimately, stockholder value.
|
●
|
Align
Management and Stockholder Interests.
To align the interests of our executive officers with our stockholders by
using long-term, equity-based incentives, maintaining stock ownership and
retention guidelines that encourage a culture of ownership, and rewarding
executive officers for sustained and superior Company performance as
measured by operating results and total stockholder
return.
|
●
|
Attract,
Retain, and Motivate Talented Executives.
To
compete and provide incentives for talented, high-performing
executives.
|
●
|
Address Risk-Management
Considerations.
To motivate our executives to
pursue objectives that create long-term stockholder value and discourage
behavior that could lead to unnecessary or excessive risk-taking
inconsistent with our strategic and financial objectives, by providing a
certain amount of fixed pay and balancing our executives at-risk pay
between short-term (one-year) and long-term (three-year) performance
horizons, using a variety of financial and other performance
metrics.
|
●
|
Support
Financial Efficiency.
To help ensure
that payouts under our cash-based and equity-based incentive awards are
appropriately supported by performance and to allow the Management
Development and Compensation Committee (the Committee) to design these
awards in a way that is intended to be treated as performance-based
compensation that is tax-deductible by the Company under Internal Revenue
Code (IRC) Section 162(m) (Section 162(m)), as
appropriate.
|
What
We Have and Dont Have Elements of Our Executive Compensation
Program
The following elements of our executive
compensation program reflect our continued commitment to our compensation
philosophy:
What We Have
✓
|
An executive compensation
program designed to mitigate inappropriate risk;
|
✓
|
Different performance horizons
for the goals within our annual and long-term incentive
plans;
|
✓
|
Use of economic profit as a
rigorous incentive metric;
|
✓
|
Stringent stock
ownership and retention guidelines for all of our executives;
|
✓
|
A prohibition on
speculative transactions involving the Companys stock, including hedging
and pledging;
|
✓
|
Stock options
that vest over a four-year period and have an exercise price equal to fair
market value of our Common Stock on the date of grant;
|
✓
|
Clawback
provisions in both our annual and long-term incentive plans;
|
✓
|
Double-trigger change in control
provisions for all equity awards;
|
✓
|
Reasonable cash
severance provisions to support talent retention and attraction
objectives, promote orderly succession planning, and avoid individual
negotiation with exiting executives, thus eliminating the need for
individual employment agreements;
|
✓
|
Modest
perquisites supported by sound business rationale;
|
✓
|
Annual review of
our executive compensation program by the Committee, which is composed
solely of independent members of the Board; and
|
✓
|
Use of an
independent compensation consultant who does not provide any additional
consulting services to the Company.
|
What We Dont Have
Ø
|
Employment contracts for any
executives;
|
Ø
|
Stock option re-pricing
without stockholder approval;
|
Ø
|
Payment of dividends or
dividend equivalents on unvested or unearned performance shares;
and
|
Ø
|
Tax gross-ups
for any employee, including executive
officers.
|
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
27
|
Table of
Contents
Components of our Executive Compensation Program
The table below outlines the components
of our executive compensation program, their purpose, and certain
characteristics of these components.
Component
|
|
Purpose
|
|
Characteristics
|
Base Salary
|
|
Compensate named executive
officers for their role and level of responsibility, as well as individual
performance.
|
|
Fixed component.
|
Annual Incentives
(1)
|
|
Promote the achievement of the Companys annual
corporate financial and strategic goals, as well as individual
objectives.
|
|
Performance-based cash bonus opportunity.
|
Long-Term
Incentives
(1)
|
|
Promote the achievement of the
Companys long-term corporate financial goals and stock price
appreciation.
|
|
Values of performance share
grants and stock option awards vary based on actual Company financial and
stock price performance.
|
Retirement Plans
|
|
Provide replacement income upon retirement (a long-term
retention incentive).
|
|
Fixed component; however, Company contributions vary
based on pay and employee contributions.
|
Post-Termination
Compensation
|
|
Provide contingent payments to
attract and retain named executive officers and promote orderly succession
for key roles.
|
|
Only payable if a named executive
officers employment is terminated under specific circumstances as
described in the applicable severance plan.
|
Perquisites
|
|
Provide
other benefits competitive with the compensation peer group and encourage
executives to proactively manage their health and financial
wellness.
|
|
Financial planning, Company car or car allowance, paid parking,
annual executive physical and health club
allowance.
|
(1)
|
Payouts under the annual and long-term incentive plans are
determined based on the achievement of objectives established by the
Committee at the beginning of the performance period. The performance
period is one year for the cash awarded under the Annual Incentive Plan,
which is further described in What We Pay: Components of Our Compensation
Program and three years for the performance shares awarded under the
long-term incentive plan. Specific financial goals cannot be changed
during the performance period, except in accordance with principles set by
the Committee at the time the goals were established, which, in the case
of our long-term incentive plan, provide for adjustments in limited
circumstances, including acquisitions, restructuring charges, or
significant changes to generally accepted accounting principles, and only
if the adjustments exceed a specified minimum financial impact to the
Company.
|
How We Make Compensation
Decisions
Roles
and Responsibilities in Setting Executive Compensation
Management Development and
Compensation Committee.
The Committee is made up entirely of
independent directors as defined by our Governance Guidelines and NYSE listing
standards. The Committee regularly reviews the design and implementation of our
executive compensation program and reports on its discussions and actions to the
Board. In particular, the Committee (i) oversees our executive compensation
program, (ii) approves the performance goals and strategic objectives for our
named executive officers, evaluates results against those targets each year, and
determines and approves the compensation of our CEO (after consulting with the
other independent members of the Board) and our other named executive officers,
as well as officers at or above the level of senior vice president and any other
officers covered by Section 16 of the Securities Exchange Act of 1934, as
amended, and (iii) makes recommendations to the Board with respect to the
structure of overall incentive and equity-based plans.
The Committee makes its determinations
regarding executive compensation after consulting with management and the
Committees independent compensation consultant (as further described below),
and its decisions are based on a variety of factors, including the Companys
performance, individual executives performance, peer group data, and input and
recommendations from the independent compensation consultant. Individual
performance is evaluated based on the performance of the business or operations
for which the executive is responsible, the individuals skill set relative to
industry peers, overall experience and time in the position, the critical nature
of the individuals role, difficulty of replacement, expected future
contributions, readiness for promotion to a higher level, role relative to that
of other executive officers, and, in the case of externally recruited named
executive officers, compensation earned with a prior employer.
In determining the compensation package
for each of our named executive officers other than our CEO, the Committee
receives input and recommendations from our CEO and our Senior Vice President
Chief People Officer. Named
28 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Compensation Discussion and
Analysis
executive officers do not have a role
in the determination of their own compensation, but named executive officers
other than our CEO do discuss their individual performance objectives with our
CEO. The Committee currently consists of Dr. Carmona and Messrs. Fleischer,
Harad, Mackay, Noddle, and Rebolledo.
Board of
Directors.
The independent members of the
Board undertake a thorough process during which they review our CEOs annual
performance, and each independent director provides candid feedback and
observations that are shared in aggregate with our CEO. The Board considers a
variety of substantive factors it has identified as being most important for
effective CEO performance, with a focus on strategy, people, operations, and
values. The full Board discusses the evaluations of our CEOs performance
against these factors and then provides its compensation recommendations to the
Committee. The Committee, after evaluating the Boards recommendations and
receiving input from the independent compensation consultant, then makes a final
determination on our CEOs compensation. Our CEO does not have a role in his own
compensation determination other than participating in a discussion with the
Board regarding his performance relative to specific targets and strategic
objectives set at the beginning of the fiscal year, which the Board considers in
both its compensation determination and when setting performance targets for the
upcoming fiscal year.
Independent
Compensation Consultant.
The Committee
retains the services of an independent compensation consulting firm to assist it
in the performance of its duties. During fiscal year 2016, the Committee used
the services of Frederic W. Cook & Co., Inc. FW Cooks work with the
Committee included data analysis and guidance and recommendations on the
following topics: compensation levels relative to our peers, market trends in
incentive plan design, risk and reward structure of executive compensation
plans, and other policies and practices, including the policies and views of
third-party proxy advisory firms. See the section entitled Independence of the
Compensation Consultant for a discussion of FW Cooks independence from
management.
Chief Executive
Officer.
Our CEO makes compensation
recommendations to the Committee for all executive officers other than himself.
In making these recommendations, our CEO evaluates the performance of each
executive officer and considers his or her responsibilities as well as the
compensation analysis provided by the independent compensation
consultant.
Other Members of
Management.
Senior human resources
management provides analyses regarding competitive practices and pay ranges,
compensation and benefit plans, policies and procedures for equity awards,
perquisites, general compensation, and benefits philosophy. Senior human
resources, legal, and, from time to time, finance executives attend
non-executive sessions of Committee meetings to provide additional perspective
and expertise.
Independence of the Compensation
Consultant
Pursuant to its charter, the Committee
is authorized to retain, oversee, and terminate any consultants it deems
necessary, as well as to approve the fees and other retention terms of any such
consultants. Prior to retaining a compensation consultant or any other external
advisor, from time to time as the Committee deems appropriate but at least
annually, the Committee assesses the independence of the advisor from
management. In evaluating FW Cook, the Committees compensation consultant, the
Committee took into consideration all factors relevant to FW Cooks
independence, including the following factors specified in the NYSE listing
standards:
●
|
other services provided to the
Company by FW Cook or any of its affiliates;
|
●
|
the fees paid by the Company
to FW Cook as a percentage of FW Cooks total revenue;
|
●
|
the policies and procedures of
FW Cook that are designed to prevent a conflict of interest;
|
●
|
any business or
personal relationship between individuals at FW Cook performing consulting
services for the Committee and a Committee member;
|
●
|
any ownership of
Company stock by the individuals at FW Cook performing consulting services
for the Committee; and
|
●
|
any business or
personal relationship between individuals at FW Cook performing consulting
services for the Committee and an executive officer of the
Company.
|
FW Cook has provided the Committee with
appropriate assurances and confirmation of its independent status in accordance
with the Committees charter and other considerations. The Committee believes
that FW Cook has been independent throughout its service to the Committee and
that there is no conflict of interest between FW Cook or individuals at FW Cook
and the Committee, the Companys executive officers, or the
Company.
Continues on next page
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|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
29
|
Table of
Contents
Our Peer Group
The Committee uses a peer group of
consumer products companies (the compensation peer group) to help determine
competitive compensation rates for the Companys executive officers, including
the named executive officers. The compensation peer group was selected by the
Committee based on the factors described
below, with input from FW Cook. The
compensation peer group is used to evaluate both the levels of executive
compensation and compensation practices within the consumer products
industry.
For fiscal year 2016, the compensation
peer group was composed of the following 19 companies:
Avon Products, Inc.
|
|
General Mills, Inc.
|
|
Molson Coors Brewing Company
|
Campbell Soup Company
|
|
The Hershey Company
|
|
Newell Rubbermaid Inc.
|
Church & Dwight Co., Inc.
|
|
Hormel Foods Corporation
|
|
Revlon, Inc.
|
Colgate-Palmolive Company
|
|
The J.M. Smucker Company
|
|
S.C. Johnson & Son, Inc.
|
Dr. Pepper Snapple Group, Inc.
|
|
Kellogg Company
|
|
Tupperware Brands Corporation
|
Edgewell Personal Care
|
|
McCormick & Company, Incorporated
|
|
|
The Estee Lauder Companies Inc.
|
|
Mead Johnson Nutrition Company
|
|
|
To determine the compensation peer
group for each year, the Committee considers companies that:
●
|
hold leadership positions in
branded consumer products;
|
●
|
are of reasonably similar size
based on market capitalization and revenue;
|
●
|
compete with the
Company for executive talent; and
|
●
|
have executive positions similar in breadth, complexity, and scope
of responsibility to those of the
Company.
|
The Committee annually reviews and
makes adjustments to the compensation peer group as appropriate to ensure that
the peer group companies continue to meet the relevant
criteria. Energizer Holdings, Inc.
split its personal care and battery businesses into two companies in fiscal year
2016; Edgewell Personal Care is the personal care product business and replaced
Energizer Holdings, Inc. in the compensation peer group. There were no other
changes to the compensation peer group for this fiscal year.
The Company was at the 40th percentile
for revenue, 66th percentile for net income, and 50th percentile for market
capitalization compared with the compensation peer group.
Fiscal Year
2016 Compensation of Our Named Executive Officers
For fiscal year 2016, management
engaged Aon Hewitt to obtain and aggregate compensation data for the
compensation peer group. This data was used to advise the Committee on setting
target compensation for our named executive officers. FW Cook reviewed this
information and performed an independent compensation analysis of the
compensation peer group data to advise the Committee. Although each individual
component of executive compensation is reviewed, particular emphasis is placed
on targeting total compensation within
15% of the median target dollar amounts of compensation of the compensation peer
group. Other factors, such as an executives level of experience, may result in
target total compensation for individual named executive officers being set
above or below this median range. For fiscal year 2016, each named executive
officers target total compensation is within 15% of the compensation peer group
median.
30 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Compensation Discussion and
Analysis
What We
Pay: Components of Our Compensation Program
A substantial portion of our targeted
executive compensation is at-risk variable compensation, with 85% of
compensation for our CEO and 70% of compensation for all our other named
executive officers being at
risk. Base salary is the
only fixed compensation component, as
outlined in the following charts, which reflect target compensation for fiscal
year 2016.
Compensation Mix - Average of All Other
NEOs
(1)
|
Fixed compensation = 30%
|
|
Variable compensation = 70%
|
(1)
|
Compensation mix represents the
actual base salary, target annual incentive award, and actual long-term
incentives granted in fiscal year 2016. Refer to the Summary Compensation
Table below for further details on actual
compensation.
|
Additional elements of our executive
compensation program include retirement plans, post-termination compensation,
and perquisites as appropriate to support our executive compensation philosophy.
Further detail about each element is provided in the discussion
below:
Base Salary.
The Committee generally seeks to establish base salaries for
our named executive officers within 15% of the median of the compensation peer
group. The Committee considered factors such as the executives specific role,
level of experience, and sustained performance, as well as the compensation peer
group market data, in determining each named executive officers base salary for
fiscal year 2016. Changes in base salary are approved by the Committee in
September and become effective in October of each year. All base salaries that
went into effect in October 2015 for the named executive officers, excluding our
CEO, were within this target pay range with the exception of Ms. Stein, who was
slightly above the range given her experience and tenure with the
Company.
After conducting a review for Mr. Dorer
and evaluating his individual performance and overall Company performance for
fiscal year 2015, the Committee approved a base salary increase of 2.6% for
fiscal year 2016, to $975,000, which
was within 15% of the compensation peer
group median for CEOs. The annual base salary increases for our named executive
officers, other than our CEO, ranged from 1.7% to 5.5%, with an average increase
of 3.3%. Our CFOs salary increase was at the high end of the range to bring
his salary closer to market median, in recognition of his continued strong
performance and increased experience. The actual base salaries earned by our
named executive officers in fiscal year 2016 are listed in the Salary column
of the Summary Compensation Table.
Annual
Incentives.
The Company provides annual
incentive awards to our named executive officers under the Companys Executive
Incentive Compensation Plan (Annual Incentive Plan). Payouts under the Annual
Incentive Plan are based on the level of achievement of Company performance
goals set annually by the Committee, not to exceed the stockholder-approved
maximums. These performance goals are tied to Board-approved corporate financial
and strategic performance goals and individual objectives, which are described
below. The amounts actually paid under the Annual Incentive Plan are based on
four factors: (1) a target award for each named executive officer, which is the
base salary multiplied by the annual incentive target (Target Award), (2) the
Companys performance
Continues on next page
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|
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THE CLOROX COMPANY
- 2016 Proxy Statement
|
31
|
Table of
Contents
measured against pre-established
corporate financial goals (Financial Performance Multiplier), (3) the
Companys level of achievement of various strategic metrics (Strategic Metrics
Multiplier), and (4) the named executive officers individual performance
(Individual Performance Multiplier), which
is based primarily on the performance
of the operations or functions under the individuals responsibility. The final
individual Annual Incentive Plan payout is determined by the following
formula:
The Financial Performance Multiplier
can range from 0% to 200% based on an objective assessment of Company
performance versus goals established by the Committee at the beginning of the
year. The Strategic Metrics and Individual Performance Multipliers, which are
also determined by the Committee, typically have a much narrower range, which
makes the impact they have on the total payout significantly smaller than the
Financial Performance Multiplier. Over the past three years, the range for the
Strategic Metrics Multiplier was 90% to 110%, and the range for the Individual
Performance Multipliers for the named executive officers was 90% to 115%. By
comparison, the range for the Financial Performance Multiplier during this same
time period was 28% to 171%.
Below is an illustration of the annual
incentive calculation, using our CEOs Annual Incentive Plan payout as an
example. Because the Financial Performance Multiplier was 161% in fiscal year
2016, based on the Companys strong performance compared to the targets for
annual net sales and EP that were established by the Committee at the beginning
of the year, the impact it had on the final incentive payout was much greater
than that of either the Strategic Metrics Multiplier or the Individual
Performance Multiplier.
32 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Compensation Discussion and
Analysis
Each of the elements of the annual
incentive formula is further described below.
Base Salary
. The named executive
officers actual fiscal year 2016 base salary is the starting point for the
annual incentive calculation.
Annual Incentive Target
. Each year, the
Committee sets an annual incentive target level for each named executive officer
as a percentage of his or her base salary, based on an assessment of median
bonus targets in the compensation peer group and other factors such as
individual experience, as noted above. The annual incentive target level is
generally set near the median of bonus targets for comparable positions in the
compensation peer group. The table below sets forth the targets for the fiscal
year 2016 annual incentive awards.
Named Executive Officer
|
|
Annual Incentive
Target (% of
Base
Salary)
|
Benno Dorer Chairman and
Chief Executive Officer
(1)
|
|
130
|
%
|
Stephen M. Robb Executive Vice President
Chief Financial Officer
|
|
80
|
%
|
Laura Stein Executive
Vice President General Counsel and Corporate Affairs
|
|
70
|
%
|
Nikolaos A. Vlahos Executive Vice
President and Chief Operating Officer Household, Lifestyle and Core Global Functions
|
|
80
|
%
|
Dawn Willoughby
Executive Vice President and Chief Operating Officer Cleaning,
International and Corporate Strategy
|
|
80
|
%
|
(1) Mr. Dorers
target was increased from 125% in fiscal year 2015 to 130% in fiscal year
2016.
Financial Performance Multiplier
. At
the beginning of each fiscal year, the Committee sets financial goals for the
Annual Incentive Plan based on targets approved by the Board. At the end of the
year, the Committee reviews the Companys results against the goals set at the
beginning of the year.
For fiscal year 2016, the Committee
established financial goals with a focus on increasing net sales and increasing
EP when compared to actual operating results for fiscal year 2015, as described
in greater detail below, in order to drive sustainable profitable growth and
short- and long-term total stockholder returns. The net sales and EP metrics
that determine the Financial Performance Multiplier are each weighted 50% as the
Committee continues to
believe this mix effectively balances a
focus on both top-line and bottom-line performance. In selecting the metrics and
setting the financial goals of the Annual Incentive Plan, the Committee
carefully considered whether the goals appropriately align with the goals of the
long-term incentive program so that the overall compensation design does not
encourage participants to take unnecessary or excessive risk or actions that are
inconsistent with the Companys short- and long-term strategic and financial
objectives.
For fiscal year 2016, the financial
goals for the Annual Incentive Plan, the potential range of payouts for
achieving those goals, and the actual results as determined by the Committee
were as follows:
|
Annual
Incentive
Financial Goals (in millions)
|
Goal
|
0%
(Minimum)
|
|
100%
(Target)
|
|
200%
(Maximum)
|
|
Actual
(1)
|
Net Sales (weighted
50%)
(2)
|
$
|
5,512
|
|
$
|
5,682
|
|
$
|
5,852
|
|
$
|
5,740
|
EP
(weighted 50%)
(3)
|
$
|
428
|
|
$
|
468
|
|
$
|
508
|
|
$
|
503
|
(1)
|
Results exclude the impact of the
Renew Life acquisition, which added $21 of net sales and reduced EP by
$19.
|
(2)
|
Net sales as reported in the
Companys consolidated financial statements, adjusted for the impact of
Renew Life.
|
(3)
|
EP for purposes of the financial
performance multiplier is defined by the Company as earnings from
continuing operations before income taxes, non-cash restructuring, and
interest expense, which is then tax affected and reduced by a capital
charge.
|
Strategic Metrics Multiplier
. At the
beginning of each fiscal year, the Committee sets multiple strategic metrics for
the Annual Incentive Plan based on what it believes will best drive the
Companys overall strategy of engaging
employees, increasing brand investment
behind superior value, keeping the core healthy and growing into new categories
and channels, and reducing waste. For fiscal year 2016, the Committee set 11
metrics, each with one or
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Table of
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more associated targets that are
objectively measurable, to be evaluated in determining the Strategic Metrics
Multiplier used in the Annual Incentive Plan payout.
For example, to determine whether the
results of the high-performing employee engagement metric were met, the Company
measured its annual engagement survey results against a benchmark of other
fast-moving consumer goods companies. To calculate the consumer value metric,
the
Company measured a brands value to
consumers in terms of product, price, and brand equity, while the innovation and
strategic product pipeline metric was measured against a target based on
historical and projected sales resulting from innovation. Goals related to
reshaping the portfolio include mergers and acquisitions as well as organic
growth. For fiscal year 2016, the 11 strategic metrics and the Companys results
were as follows:
Strategic Metric
|
|
FY 2016 Result
|
|
Strategic Metric
|
|
FY 2016 Result
|
●
High-performing
employee engagement
|
|
Exceeded
|
|
●
Innovation
and strategic product pipeline
|
|
Exceeded
|
●
Diversity targets
within the Company
|
|
Not Met
|
|
●
Targeted goals related
to reshaping the portfolio
|
|
Met
|
●
Consumer value
measure
|
|
Exceeded
|
|
●
Targeted level of cost
savings
|
|
Exceeded
|
●
Domestic dollar
share
|
|
Met
|
|
●
Gross margin
improvement
|
|
Exceeded
|
●
International
volume
|
|
Exceeded
|
|
●
Target selling and
administrative expenses of 13.5% of net sales
|
|
Not Met
|
●
Future net sales growth
projections
|
|
Met
|
|
|
|
|
While the diversity and selling and
administrative expenses were not met, the Company came very close to meeting
these targets and met or exceeded all of the other strategic metrics. The
diversity target was met for two of the three sub-targets, while the selling and
administrative expenses missed the target primarily due to higher anticipated
incentive payouts as a result of the strong Company performance for fiscal year
2016. Based on the Companys performance against these strategic metrics, the
Committee determined that the level of payout for the Strategic Metrics
Multiplier was 110%. Over the past three years, the range for the Strategic
Metrics Multiplier has been 90% to 110%.
Individual Performance
Multiplier
. Consistent with our pay-for-performance philosophy, the annual
incentive payouts initially are determined by financial results and performance
against strategic metrics, multiplied by an Individual Performance Multiplier.
Based on its evaluation of individual performance, the Committee reviewed and
approved the Individual Performance Multiplier for each named executive officer
to reflect the officers individual contributions in fiscal year 2016. In
determining the multiplier for individual performance, the Committee carefully
evaluates several performance factors against objectives established at the
beginning of the year. For our CEO, the Committee conducts a detailed evaluation
covering the key categories of strategy, people, operations, values and
relationships, and overall performance, with specific goals within each
category. To set specific targets for our CEO, the Committee uses a balanced
scorecard with annual strategic priorities of financial goals, people, customer
and consumer, growth, and margin, with specific metrics and targets within each
strategic priority. These targets are used to measure the CEOs performance
twice a year, with a mid-year review and a year-end evaluation. This assessment
is then used to determine the appropriate individual multiplier for the fiscal
year performance.
The range of Individual Performance
Multipliers in 2016 was 105% to 115% based on the contributions made in the
fiscal year by our named executive officers. Our CFO received an Individual
Performance Multiplier of 115%, primarily for his contributions in delivering
above-target performance on financial and operational goals, including sales,
EPS, cost savings, cash flow, and capital management. He also delivered
best-in-class organizational leadership with record high employee
engagement and widespread training and development, while meeting diversity goals
and reducing turnover. The remaining non-CEO named executive officers received
Individual Performance Multipliers of 105%. The Committee reviewed the results
for our CEO and determined his Individual Performance Multiplier was 110%. Our
CEOs Individual Performance Multiplier was based on his continued strong
performance since taking the role in November 2014, including progress on the
strategy accelerators, delivering overall operational and financial results for
fiscal year 2016 that exceeded expectations, and continuing to shape a highly
successful senior management team.
Final Individual Annual Incentive
Plan Payouts
. In accordance with the formula described above, the final
annual incentive payouts to our named executive officers in fiscal year 2016,
excluding our CEO, ranged from $754,980 to $945,010, and from 186% to 204% of
the named executive officers Target Awards. Mr. Dorers annual incentive payout
was $2,469,220. This award was 195% of his Target Award and is composed of a
Financial Performance Multiplier of 161%, a Strategic Metrics Multiplier of
110%, and an Individual Performance Multiplier of 110%. These payouts are also
reflected in the Non-Equity Incentive Plan Compensation column of the Summary
Compensation Table.
34 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Compensation Discussion and
Analysis
Long-Term
Incentives.
Each year, we provide
long-term incentive compensation to our named executive officers. For the past
several years, these awards have been made in the form of performance shares and
stock options. We believe these forms of compensation align Company performance
and executive officer compensation with the interests of our stockholders. These
incentive awards also support the achievement of our long-term corporate
financial goals.
We occasionally use time-based
restricted stock for special purposes, such as in connection with a promotion or
as a replacement for compensation forfeited by an externally recruited executive
at a prior employer.
The Committee annually reviews the
costs of, and potential stockholder dilution attributable to, our long-term
incentive program to ensure that the overall program is financially efficient
and in line with that of our compensation peer group. The Committee also seeks
to calibrate the long-term incentive program design to appropriately drive
performance in line with that of the compensation peer group. In determining the
total value of the long-term incentive opportunity for each named executive
officer, the Committee reviews the compensation peer group data presented by
both management and the independent compensation consultant on a role-by-role
basis and considers recommendations by our CEO for the other named executive
officers.
The Committees goal is to target
long-term incentive awards in amounts that are generally competitive with the
median of the compensation peer group. Actual long-term incentive award target
levels for individual named executive officers may vary from the median based on
a variety of factors, such as the named executive officers sustained
performance, individual experience, critical nature of his or her role, and
expected future contributions. Like the annual incentive awards, actual payouts
under the long-term incentive awards will vary from the target based on how the
Company performs against pre-established targets. The value of payouts will also
vary based on changes in the market price of our Common Stock.
The Committee determined that our named
executive officers would receive 50% of the value of their total annual
long-term incentive award granted in fiscal year 2016 in performance shares and
50% in stock options. The Committee believes this mix of equity awards supports
several important objectives, including compensating named executive officers
for achievement of long term goals tied to our business strategy, rewarding
named executive officers for sustained increases in the price of our Common
Stock, enhancing retention by mitigating the impact of price fluctuations of our
Common Stock in the overall long-term incentive value, and ensuring that the
overall cost of the program is aligned with the compensation realized by
the
named executive officers and the
performance delivered to stockholders. The Committee does not consider the
amount of outstanding performance shares, stock options, and restricted stock
currently held by a named executive officer when making annual awards of
performance shares and stock options because such amounts represent compensation
attributable to prior years.
Long-Term Incentive
Award.
The long-term incentive awards
granted to our named executive officers for fiscal year 2016 were made in
September 2015. The Committee considered factors such as the executives role,
level of experience, and sustained performance, as well as the compensation peer
group market data, in determining each named executive officers long-term
incentive award. For fiscal year 2016, the annual long-term incentives for our
named executive officers, excluding our CEO, ranged in value from $800,000 to
$1,100,000. Mr. Dorer received a long-term incentive award valued at $4,350,000.
The long-term incentives awarded to our named executive officers in fiscal year
2016 are listed in the Stock Awards and Option Awards columns of the Summary
Compensation Table.
Performance
Shares
. Performance shares are grants of
restricted stock units that pay out after a three-year performance period only
if the Company meets pre-established financial performance goals, which are
described below. We believe that performance shares align the interests of our
named executive officers with the interests of our stockholders because the
number of shares earned and the shares potential value are tied to the
achievement of performance targets. The performance target is a cumulative EP
target informed by our three-year financial long-range plan and the budget
developed by management, which is reviewed and approved by the Board. In setting
the performance targets for the performance shares, the Committee reviews the
budget and long-range plan and seeks to appropriately align the performance
goals with the objectives of the Annual Incentive Plan, so that the overall
compensation design does not encourage participants to take unnecessary or
excessive risk or actions that are inconsistent with the Companys short- and
long-term strategic and financial objectives. The Committee believes its use of
cumulative EP as a metric provides rigor and an ability to align performance
with pay over the three-year performance period.
The payout of the performance share
awards granted in September 2015 is subject solely to the Companys achievement
of a cumulative EP target during the performance period of July 2015 through
June 2018. The percentage range for payouts is from 0%, if the minimum
cumulative EP target is not met, to a maximum of 150% of the target number of
shares, with a payout of 25% of the target number of shares when the minimum
cumulative EP target is attained.
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For the grant made in September 2013,
which was based on a performance period of July 2013 through June 2016 and was
scheduled to pay out in August 2016, the Committee established cumulative EP
targets and set various payout levels tied to cumulative EP for the performance
period. For the September 2013 grant, the cumulative EP target was set so a
payout of 100% would be made if the Company achieved EP growth of approximately
5% per year during the performance period. The Committee believes this metric
directly supports the Companys corporate strategy and long-term financial goals
and correlates to stock price performance.
In August 2016, the Committee certified
the results of the September 2013 grant for the 2013-2016 performance period.
The adjusted financial target for the grant was a cumulative EP of $1,430
million over the three-year performance period for a 100% payout. The cumulative
EP target was adjusted by the Committee for the events in Venezuela that
ultimately led to the Companys discontinuation of operations in that country,
which the Committee determined to be an extraordinary, unusual, or non-recurring
event, as well as for the acquisition of Renew Life in May 2016. The Companys
actual cumulative EP was below the payout threshold of $1,346 million, resulting
in the Committee certifying a payout of 0%. This payout supports the Companys
belief in pay for performance over the long term.
Stock
Options
. Stock options align the interests of our named executive
officers with those of our stockholders because the options only have value if
the price of the Companys stock increases after the stock options are granted.
Stock options vest in 25% increments over a four-year period (beginning one year
from the date of grant) and expire ten years from the date of grant. In fiscal
year 2016, the Committee awarded stock options to our named executive officers
as part of our annual long-term incentive plan. The exercise price for the stock
options was equal to the closing price of our Common Stock on the date of grant.
Information on all stock option grants is shown in the Grants of Plan-Based
Awards table.
Retirement
Plans
Our named executive officers
participate in the same tax-qualified retirement benefit programs available to
all other United States-based salaried and non-collectively bargained hourly
employees. The Companys retirement plans are designed to provide replacement
income upon retirement and to be competitive with programs offered by our
peers.
In addition, because the IRC limits the
amount of benefits that can be contributed to and paid from a tax-qualified
retirement plan, the Company also provides our executive officers, including our
named executive officers, with additional retirement benefits intended to
restore amounts that would otherwise be payable under the Companys
tax-qualified retirement plans if the IRC did not have limits on includable
compensation and maximum benefits. We call these plans restoration plans
because they restore total executive retirement benefits to the same percentage
level provided to our salaried employees who are not limited by IRC
restrictions.
A brief description of each of our
retirement programs is set forth below. Each of our named executive officers
participates in these retirement programs with the exception of the Supplemental
Executive Retirement Plan.
The Clorox
Company Pension Plan.
The Clorox
Company Pension Plan (the Pension Plan) is a cash balance pension plan that
was frozen effective July 1, 2011. This freeze did not affect the benefits
previously accrued under the Pension Plan, which remain fully funded.
The Clorox
Company 401(k) Plan.
After the
Pension Plan was frozen in July 2011, the Clorox Company 401(k) Plan (the
401(k) Plan) became the base retirement plan for the Company. The Company
makes an annual fixed contribution of 6% of eligible pay and a matching
contribution of up to 4% of eligible pay to employees under the 401(k)
Plan.
Nonqualified
Deferred Compensation Plan.
Under
the Nonqualified Deferred Compensation Plan (the NQDC), eligible employees may
voluntarily defer receipt of up to 50% of base salary and up to 100% of their
annual incentive awards. In fiscal year 2016, deferred amounts could be invested
in a manner that generally mirrored the funds available in the 401(k) Plan. The
NQDC permits the Company to contribute amounts that exceed the IRC compensation
limits in the tax-qualified plans through a 401(k) restoration
provision.
Supplemental
Executive Retirement Plan.
The
Supplemental Executive Retirement Plan (the SERP), a defined benefit plan, was
closed to new participants effective April 2007 and, effective June 30, 2011,
was frozen with regard to pay and offsets, while still accruing age and service
credits. Benefits under the SERP have historically been calculated as an annuity
based on a percentage of average compensation adjusted by age and years of
service and offset by the annuity value of Company contributions to the
tax-qualified retirement plans
36 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Compensation Discussion and
Analysis
and by Social Security. Effective July
1, 2011, the SERP was replaced by the Executive Retirement Plan (the ERP)
(described below). Moving from the SERP to the ERP created a defined
contribution structure that is more closely aligned with the benefits provided
by the Companys compensation peer group. As of July 1, 2016, only three of our
named executive officers are still eligible for the SERP.
Executive
Retirement Plan.
Our executive
officers (including named executive officers) participate in the ERP. Under the
ERP, the Company makes an annual contribution of 5% of an eligible participants
base salary and annual incentive award into the plan.
Further details about the provisions of
the Pension Plan, NQDC, SERP and ERP are provided in the Overview of Pension
Benefits and the Overview of the Nonqualified Deferred Compensation Plans
sections below.
Post-Termination
Compensation
The Company has a severance plan (the
Severance Plan) that provides our named executive officers with
post-termination payments if the named executive officers employment is
terminated by the Company other than for cause. These payments are intended to
provide a measure of financial security following the loss of employment, which
we believe is important to attract and retain executives. The severance benefits
are designed to be competitive with the compensation peer group and external
market practices.
The Company also has an Executive
Change in Control Severance Plan (the CIC Plan), which provides severance
benefits to certain eligible executives of the Company, including all of the
Companys named executive officers, if their employment with the Company is
involuntarily terminated in connection with a change in control of the Company.
In addition to helping mitigate the financial impact associated with termination
after a change in control, these benefits further align the interests of our
executive officers with the interests of our stockholders by providing
incentives for retention, for business continuity purposes. Under the CIC Plan,
a named executive officer is eligible for change in control severance benefits
if his or her employment is terminated in connection with a change in control,
either by the Company without cause or by the named executive officer for good
reason. See the section entitled Potential Payments upon Termination or Change
in Control for additional information.
Perquisites
We provide our named executive officers
with other limited benefits we believe are competitive with the compensation
peer group and consistent with the Companys overall
executive compensation program. These
benefits allow our named executive officers to proactively manage their health,
work more efficiently, and, in the case of the financial planning program, help
them optimize the value received from our compensation and benefits programs.
These perquisites are a Company car or car allowance, paid parking at the
Companys headquarters, an annual executive physical exam, reimbursement for
health club membership, and financial planning services.
Other Executive
Compensation Policies and Practices
Tally
Sheets.
To help ensure that our
executive compensation design is aligned with our overall compensation
philosophy of pay for performance and that total compensation levels are
appropriate, the Committee annually reviews compensation tally sheets for each
of our named executive officers. These tally sheets outline current target total
compensation (including the compensation elements described above), the
potential wealth creation of long-term incentive awards granted to our officers
under various potential stock prices, and the potential value of payouts under
various termination scenarios. As such, these tally sheets help provide the
Committee with a comprehensive understanding of all elements of the Companys
compensation program and enable the Committee to consider changes to the
Companys compensation program, arrangements, and plans in light of best
practices and emerging trends. The Committee may consider the information
presented in the tally sheets in determining future compensation.
Results of
2015 Advisory Vote to Approve Executive Compensation.
At our 2015 Annual Meeting of Stockholders held on
November 18, 2015, we asked our stockholders to approve, on an advisory basis,
our fiscal year 2015 compensation awarded to our named executive officers,
commonly referred to as a say-on-pay vote. Our stockholders overwhelmingly
approved the compensation to our named executive officers, with approximately
93% of votes cast in favor of our proposal. We value this positive endorsement
by our stockholders of our 2015 executive compensation policies and believe that
the outcome signals our stockholders support of our compensation program. We
continued our general approach to compensation for fiscal year 2016,
specifically our pay-for-performance philosophy and our efforts to attract,
retain, and motivate our named executive officers. We value the opinions of our
stockholders and will continue to consider the results from this years and
future advisory votes on executive compensation, as well as feedback received
throughout the year, when making compensation decisions for our named executive
officers.
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Stock Award
Granting Practices.
The Company
awards annual long-term incentive grants each September at a regularly scheduled
Committee meeting, which typically occurs during the third week of the month, or
about six weeks after the Company has publicly reported its annual earnings. The
meeting date is the effective grant date for the awards, and the exercise/grant
price is equal to the closing price of our Common Stock on that date.
The Committee may also make occasional
grants of stock options and other equity-based awards at other times to
recognize, retain, or recruit executive officers. The Committee did not approve
any additional grants to the named executive officers in fiscal year
2016.
Executive
Stock Ownership Guidelines.
To
maintain alignment of the interests of the Companys executive officers and our
stockholders, all executive officers, including the named executive officers,
are expected to build and maintain a significant level of direct stock
ownership. Ownership levels can be achieved over time in a variety of ways, such
as by retaining stock received upon the exercise of stock options or the vesting
of stock awards or by purchasing stock in the open market. At a minimum,
executive officers are expected to establish and maintain direct ownership of
Common Stock having a value, based on the current market price of the stock,
equal to a multiple of each executive officers annual base salary. The current
minimum ownership guidelines are as follows:
Chief Executive Officer
|
|
6x annual base salary
|
Executive Officers (other than the
CEO)
|
|
3x annual base salary
|
Other Senior Executives
|
|
2x annual base salary
|
Ownership levels are based on shares of
Common Stock owned by the named executive officer or held pursuant to Company
plans, including performance shares that have vested and been deferred for
settlement. Unexercised stock options and shares that have not vested due to
time or performance restrictions are excluded from the ownership
levels.
As of the date of this proxy statement,
all of our named executive officers except our CEO have met the required
ownership levels. Mr. Dorer became subject to a higher threshold with his
promotion to CEO in fiscal year 2015, when his ownership threshold increased
from 3 times annual base salary to 6 times annual base salary required for the
CEO.
Retention
Ratios.
Executive officers,
including our named executive officers, are required to retain a certain
percentage of shares obtained upon either the exercise of stock options or the
release of restrictions on performance
shares and restricted stock, after
satisfying applicable taxes. Our CEO is expected to retain 75% of shares
acquired (after taxes) until the minimum ownership level is met. After attaining
the minimum ownership level, our CEO must retain 50% of any additional shares
acquired (after taxes) until retirement or termination. Other executive officers
must retain 75% of shares acquired (after taxes) until the minimum ownership
levels are met and thereafter must retain 25% of shares acquired (after taxes)
for one year after receipt.
Securities
Trading Policy; Prohibition on Hedging and Pledging.
To ensure alignment of the interests of our stockholders and
executive officers, including our named executive officers, the Companys
Insider Trading Policy does not permit executive officers to engage in
short-term or speculative transactions or derivative transactions involving the
Companys stock and includes prohibitions on options trading, hedging, or
pledging the Companys stock as collateral. Trading is permitted only during
announced trading periods or in accordance with a previously established trading
plan that meets SEC requirements. At all times, including during announced
trading periods, executive officers are required to obtain preclearance from the
Companys General Counsel or Corporate Secretary prior to entering into any
transactions in Company securities, unless those sales occur in accordance with
a previously established trading plan that meets SEC requirements.
Clawback
Provisions.
Under our Annual
Incentive Plan and long-term incentive plan, in the event of a restatement of
financial results to correct a material error or other factors as described in
the long-term incentive plan, the Committee is authorized to reduce or recoup an
executive officers award, as applicable, to the extent that the Committee
determines such executive officers fraud or intentional misconduct was a
significant contributing factor to the need for a restatement.
Tax
Deductibility Limits on Executive Compensation.
Section 162(m) limits the tax deductibility of compensation
paid to our CEO and the three other most highly compensated named executive
officers employed at the end of the year (other than the CFO) to $1 million per
year, unless such amounts are determined to be performance-based compensation.
Our policy with respect to Section 162(m) seeks to balance the interests of the
Company in maintaining flexible incentive plans against the possible loss of a
tax deduction when taxable compensation for any of the executive officers
subject to Section 162(m) exceeds $1 million per year. The Annual Incentive Plan
and long-term incentive plan are designed to provide the Committee with the
ability to decide whether or not to make performance-based compensation awards
that
38 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Compensation Discussion and
Analysis
are intended to meet the requirements
of Section 162(m). The Committee generally seeks to satisfy the requirements
necessary to allow the compensation of its executives to be deductible under
Section 162(m) of the Internal Revenue Code, but retains the discretion and may
also approve compensation that is not deductible under Section 162(m). The rules
and regulations promulgated under Section
162(m) are complex and subject to
change from time to time, sometimes with retroactive effect. There can be no
guarantee, therefore, that amounts potentially subject to the Section 162(m)
limitations will be treated by the Internal Revenue Service as qualified
performance-based compensation under Section 162(m) and/or deductible by the
Company.
Form 10-K,
Financial Statements, and Integrated Annual Report
Executive
Summary
The following portions of the Companys
Annual Report on Form 10-K for the fiscal year ended June 30, 2016, are attached
as Appendix A to this proxy statement: Managements Discussion and Analysis of
Financial Condition and Results of Operations; Managements Report on Internal
Control over Financial Reporting; Report of Independent Registered Public
Accounting Firm; Consolidated Financial Statements; Valuation and Qualifying
Accounts and Reserves; and Reconciliation of Economic Profit.
The Companys Form 10-K
has been filed with the SEC and
posted on the Companys website and a copy may be obtained, without charge, by
calling Clorox Stockholder Direct at 888-CLX-NYSE (259-6973) toll-free, 24 hours
a day, seven days a week, or by contacting The Clorox Company, c/o Corporate
Secretary, 1221 Broadway, Oakland, CA 94612-1888
. The 2016 Integrated Annual ReportExecutive Summary is available with
the Proxy Statement at
www.edocumentview.com/CLX
.
Solicitation of
Proxies
We will pay for the entire cost of
soliciting proxies on behalf of the Company. We will also reimburse brokerage
firms, banks, and other agents for the cost of forwarding the Companys proxy
materials to beneficial owners. In addition, our directors and employees may
solicit proxies in person, by telephone, via the Internet, or by other means of
communication. Directors and employees will not be
paid any additional compensation for
soliciting proxies. We have retained Innisfree M&A Incorporated
(Innisfree) to assist in soliciting proxies for the Annual Meeting at an
estimated cost of $20,000 plus out-of-pocket expenses. In addition, we have
agreed to indemnify Innisfree against certain liabilities arising out of or in
connection with its engagement.
Stockholder
Proposals and Director Nominations for the 2017 Annual Meeting
Stockholder Proposals
for Inclusion
in the Proxy Statement for the 2017
Annual
Meeting
In the event that a stockholder wishes
to have a proposal considered for presentation at the 2017 Annual Meeting of
Stockholders and included in the Companys proxy statement and form of proxy
used in connection with such meeting pursuant to Exchange Act Rule 14a-8, the
proposal must be received by the Companys Corporate Secretary no later than the
close of business on May 26, 2017. Any such proposal must comply with the
requirements of Rule 14a-8.
Director Nominations
for Inclusion
in the Proxy Statement for the 2017
Annual
Meeting
The Board recently adopted proxy
access, which allows a stockholder or group of up to 20 stockholders who have
owned at least 3% of the Companys Common Stock for at least three years to
submit director nominees (up to 20% of the Board) for inclusion in the Companys
proxy materials if the stockholder(s) provides timely written notice of such
nomination(s) and the stockholder(s) and the nominee(s) satisfy the requirements
specified in the Companys Bylaws. To be timely for inclusion in the Companys
proxy materials for the 2017 Annual Meeting of Stockholders,
62 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Information About the Annual
Meeting
notice must be received by the
Corporate Secretary at the principal executive offices of the Company no earlier
than the close of business on April 26, 2017, and no later than the close of
business on May 26, 2017. The notice must contain the information required by
the Companys Bylaws, and the stockholder(s) and nominee(s) must comply with the
information and other requirements in our Bylaws relating to the inclusion of
stockholder nominees in the Companys proxy materials.
Other Proposals and Director Nominations
for Presentation at the 2017 Annual Meeting
Our Bylaws also establish an advance
notice procedure for stockholders who wish to present a proposal, including the
nomination of directors, before an annual meeting of stockholders, but do not
intend for the proposal to be included in our proxy statement. Under our Bylaws,
if a stockholder, rather than including a proposal or director nomination in the
proxy statement as discussed above, seeks to nominate a director or propose
other business for consideration at that meeting, notice must be received by the
Corporate Secretary at the principal executive offices of the Company not later
than the close of business on the 90th day or earlier than the close of business
on the 120th day prior to the first anniversary of the
preceding
years annual meeting. To be timely for
the 2017 Annual Meeting of Stockholders, the notice must be received by the
Corporate Secretary on any date beginning no earlier than the close of business
on July 19, 2017, and ending no later than the close of business on August 18,
2017. However, in the event that the date of the annual meeting is advanced by
more than 30 days, or delayed by more than 60 days from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
close of business on the 120th day prior to such annual meeting and not later
than the close of business on the later of the 90th day prior to such annual
meeting or the 10th day following the day on which public announcement of the
date of such meeting is first made. The notice must contain the information
required by the Companys Bylaws. If a stockholder does not meet these
deadlines, or does not satisfy the requirements of Rule 14a-4 of the Exchange
Act, the persons named as proxies will be allowed to use their discretionary
voting authority when and if the matter is raised at the annual
meeting.
All notices of proposals or
nominations, as applicable, must be addressed to The Clorox Company, c/o
Corporate Secretary, 1221 Broadway, Oakland, CA
94612-1888.
Householding
The SECs householding rules permit
us to deliver only one Notice of Annual Meeting and Proxy Statement or Notice of
Internet Availability of Proxy Materials to stockholders who share an address
unless otherwise requested. This procedure reduces printing and mailing costs.
If you share an address with another stockholder and have received only one set
of proxy materials, you may request a separate copy of these materials at no
cost to you by calling Clorox Stockholder Direct at 888-CLX-NYSE (259-6973)
toll-free, 24 hours a day, seven days a week, or by contacting The Clorox
Company, c/o Corporate Secretary, 1221 Broadway, Oakland, CA 94612-1888.
Alternatively, if you are currently receiving multiple copies of the proxy
materials at the same address and wish to receive a single copy in the future,
you may contact us by calling or writing to us at the telephone number or
address given above.
If you are a beneficial owner (i.e.,
your shares are held in the name of a bank, broker, or other holder of record),
the bank, broker, or other holder of record may deliver only one copy of the
proxy materials to stockholders who have the same address unless the bank,
broker, or other holder of record has received contrary instructions from one or
more of the stockholders. If you wish to receive a separate copy of the proxy
materials, now or in the future, you may contact us at the address or telephone
number above and we will promptly deliver a separate copy. Beneficial owners
sharing an address who are currently receiving multiple copies of the proxy
materials and wish to receive a single copy in the future should contact their
bank, broker, or other holder of record to request that only a single copy be
delivered to all stockholders at the shared address in the
future.
THE CLOROX COMPANY
- 2016 Proxy Statement
|
63
|
Table of
Contents
|
Attending the Annual
Meeting
|
The Annual Meeting will be held on
Wednesday, November 16, 2016, at 9:00 a.m. Pacific time, at the offices of the
Company, 1221 Broadway, Oakland, CA 94612-1888. Check-in for the Annual Meeting
begins promptly at 8:30 a.m.
To attend the
Annual Meeting, you must be a stockholder of the Company as of the close of
business on the Record Date and provide proof that you owned Clorox Common Stock
on the Record Date or hold a legal proxy from a Record Date stockholder. Please
see the more detailed information below
.
Admission will be on a first-come, first-served basis, and seating is limited.
Even if you plan to attend the Annual Meeting, we strongly urge you to vote in
advance by proxy.
If you plan to attend the Annual
Meeting this year, please be aware of the following information:
●
|
To
be admitted to the Annual Meeting, you must have a current form of
government-issued photo identification (such as a drivers license or
passport).
|
●
|
Because attendance at the
Annual Meeting is limited to Record Date stockholders, you must provide
proof that you owned Clorox Common Stock on the Record Date.
|
●
|
If you hold your shares with
Cloroxs transfer agent, Computershare Trust Company, N.A.
(Computershare), your ownership of Clorox Common Stock as of the Record
Date will be verified through reports provided by Computershare prior to
admittance to the meeting.
|
●
|
If you hold your shares with a
broker, trustee, bank, or nominee, you must provide proof of beneficial
ownership as of the Record Date, such as a brokerage account statement
showing that you owned Clorox Common Stock for the statement period
immediately prior to the Record Date, a copy of your Notice of Internet
Availability of Proxy Materials, a copy of your proxy and voting
instruction card, a letter or legal proxy provided by your broker, trust,
bank, or nominee, or other similar evidence of ownership on the Record
Date.
|
●
|
If you are not a Record Date
stockholder, you will be admitted to the Annual Meeting only if you have a
legal proxy from a Record Date stockholder.
|
●
|
Cameras, recording equipment, and
other electronic devices will not be allowed to be used in the meeting
except for use by the Company.
|
●
|
For your protection, briefcases,
purses, packages, etc. may be subject to inspection as you enter the
meeting. We regret any inconvenience this may cause you.
|
By Order of the Board of
Directors,
Angela C. Hilt
Vice President Corporate Secretary
& Associate
General Counsel
September 23, 2016
64 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Clorox Company
(Dollars in millions, except share and per share data)
Managements Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) is designed to provide
a reader of The Clorox Companys (the Company or Clorox) financial statements
with a narrative from the perspective of management on the Companys financial
condition, results of operations, liquidity and certain other factors that may
affect future results. In certain instances, parenthetical references are made
to relevant sections of the Notes to Consolidated Financial Statements to direct
the reader to a further detailed discussion. This section should be read in
conjunction with the Consolidated Financial Statements and Supplementary Data
included in this Annual Report on Form 10-K.
The following sections are included
herein:
●
|
Executive
Overview
|
●
|
Results of
Operations
|
●
|
Financial Position and
Liquidity
|
●
|
Contingencies
|
●
|
Quantitative and Qualitative
Disclosures about Market Risk
|
●
|
Recently Issued Accounting
Standards
|
●
|
Critical Accounting Policies
and Estimates
|
●
|
Summary of Non-GAAP Financial
Measures
|
EXECUTIVE OVERVIEW
Clorox is a leading multinational
manufacturer and marketer of consumer and professional products with
approximately 8,000 employees worldwide as of June 30, 2016 and fiscal year 2016
net sales of $5,761. Clorox sells its products primarily through grocery and
mass retail outlets, e-commerce channels, wholesale distributors and medical
supply distributors. Clorox markets some of the most trusted and recognized
consumer brand names, including its namesake bleach and cleaning products,
Pine-Sol
®
cleaners, Liquid-Plumr
®
clog removers,
Poett
®
home care products, Fresh Step
®
cat litter,
Glad
®
bags, wraps and container products, Kingsford
®
charcoal, Renew Life
®
digestive health products, Hidden
Valley
®
dressings and sauces, Brita
®
water-filtration
products and Burts Bees
®
natural personal care products. The Company
also markets brands through professional services channels, including infection
control products for the healthcare industry under Clorox
Healthcare
®
, HealthLink
®
, Aplicare
®
and
Dispatch
®
brands. The Company manufactures products in more than a
dozen countries and sells them in more than 100 markets.
The Company primarily markets its
leading brands in midsized categories considered to be financially attractive.
Most of the Companys products compete with other nationally advertised brands
within each category and with private label brands.
The Company operates through strategic
business units that are aggregated into the following four reportable segments
based on the economics and nature of the products sold:
●
|
Cleaning
consists of laundry, home care and professional products
marketed and sold in the United States. Products within this segment
include laundry additives, including bleach products under the
Clorox
®
brand and Clorox 2
®
stain fighter and color
booster; home care products, primarily under the Clorox
®
,
Formula 409
®
, Liquid-Plumr
®
, Pine-Sol
®
,
S.O.S
®
and Tilex
®
brands; naturally derived products
under the Green Works
®
brand; and professional cleaning and
disinfecting products under the Clorox
®
, Dispatch
®
,
Aplicare
®
, HealthLink
®
and Clorox
Healthcare
®
brands.
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-1
|
Table of
Contents
●
|
Household
consists of charcoal, cat litter, digestive health
products and bags, wraps and container products marketed and sold in the
United States. Products within this segment include charcoal products
under the Kingsford
®
and Match Light
®
brands; cat
litter products under the Fresh Step
®
, Scoop Away
®
and Ever Clean
®
brands; digestive health products under the
Renew Life
®
brand; and bags, wraps and containers under the
Glad
®
brand.
|
|
|
●
|
Lifestyle
consists of food products, water-filtration systems and
filters and natural personal care products marketed and sold in the United
States. Products within this segment include dressings and sauces,
primarily under the Hidden Valley
®
, KC Masterpiece
®
and Soy Vay
®
brands; water-filtration systems and filters under
the Brita
®
brand; and natural personal care products under the
Burts Bees
®
brand.
|
|
|
●
|
International
consists of products sold outside the United States.
Products within this segment include laundry, home care, water-filtration,
digestive health products, charcoal and cat litter products, dressings and
sauces, bags, wraps and containers and natural personal care products,
primarily under the Clorox
®
, Glad
®
,
PinoLuz
®
, Ayudin
®
, Limpido
®
,
Clorinda
®
, Poett
®
, Mistolin
®
,
Lestoil
®
, Bon Bril
®
, Brita
®
, Green
Works
®
, Pine-Sol
®
, Agua Jane
®
,
Chux
®
, Renew Life
®
, Kingsford
®
, Fresh
Step
®
, Scoop Away
®
, Ever Clean
®
, KC
Masterpiece
®
, Hidden Valley
®
and Burts
Bees
®
brands.
|
Non-GAAP Financial
Measures
This Executive Overview, the succeeding
sections of MD&A and Exhibit 99.3 include certain financial measures that
are not defined by accounting principles generally accepted in the United States
of America (U.S. GAAP). These measures, which are referred to as non-GAAP
measures, are listed below.
●
|
Currency-neutral net sales
growth
represents U.S. GAAP net sales
growth excluding the impact of the change in foreign currency exchange
rates.
|
●
|
Economic profit
(EP)
is defined by the Company as
earnings from continuing operations before income taxes, excluding noncash
U.S. GAAP restructuring and intangible asset impairment costs, and
interest expense; less an amount of tax based on the effective tax rate
and less a charge equal to average capital employed multiplied by a cost
of capital rate.
|
●
|
Free cash flow and free cash
flow as a percentage of net sales.
Free
cash flow is calculated as net cash provided by continuing operations less
capital expenditures related to continuing operations.
|
●
|
Earnings from continuing
operations before interest and taxes (EBIT) margin (the ratio of EBIT to
net sales)
|
●
|
Debt to earnings from
continuing operations before interest, taxes, depreciation and
amortization, and noncash intangible asset impairment charges ratio
(Consolidated Leverage
ratio)
|
For a discussion of these measures and
the reasons management believes they are useful to investors, refer to
Summary of Non-GAAP Financial
Measures
below. For a discussion of the
Consolidated Leverage ratio, please refer to
Credit Arrangements
below. This
MD&A and Exhibit 99.3 include reconciliations of these non-GAAP measures to
the most directly comparable financial measures calculated and presented in
accordance with U.S. GAAP.
Fiscal Year 2016 Financial
Highlights
A detailed discussion of strategic
goals, key initiatives and results of operations is included below. Key fiscal
year 2016 financial results are summarized as follows:
●
|
The Companys fiscal year 2016
net sales increased by 2%, from $5,655 in fiscal year 2015 to $5,761 in
fiscal year 2016, reflecting higher volume and the benefit of price
increases, partially offset by unfavorable foreign currency exchange rates
and higher trade promotion spending. On a currency-neutral basis, net
sales increased 5%.
|
|
|
●
|
Gross margin increased 150 basis
points to 45.1% in fiscal year 2016 from 43.6% in fiscal year 2015,
reflecting the benefits of favorable commodity costs, cost savings and
price increases, partially offset by higher manufacturing and logistics
costs, increased trade promotion spending, and the impact of unfavorable
foreign currency exchange rates.
|
A-2 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of
Contents
Appendix A
●
|
The Company reported earnings
from continuing operations of $648 in fiscal year 2016 compared to $606 in
fiscal year 2015. The Company reported earnings from continuing operations
before income taxes of $983 in fiscal year 2016, compared to $921 in
fiscal year 2015.
|
|
|
●
|
The Company delivered diluted net
EPS from continuing operations in fiscal year 2016 of $4.92, an increase
of approximately 8% from fiscal year 2015 diluted net EPS of
$4.57.
|
|
|
●
|
EP increased to $490 in fiscal
year 2016 compared to $458 in fiscal year 2015 (refer to the
reconciliation of EP to earnings from continuing operations before income
taxes in Exhibit 99.3).
|
|
|
●
|
The Companys net cash flows
provided by continuing operations were $768 in fiscal year 2016, compared
to $858 in fiscal year 2015 reflecting higher tax payments and higher
performance-based incentive compensation payments in fiscal year 2016
related to the Companys strong fiscal year 2015 financial results. Free
cash flow was $596 or 10% of net sales in fiscal year 2016, a decrease
from $733 or 13% of net sales in fiscal year 2015.
|
|
|
●
|
The Company paid $398 in cash
dividends to stockholders in fiscal year 2016 compared to $385 in cash
dividends in fiscal year 2015. In May 2016, the Company announced an
increase of 4% in the quarterly cash dividend from prior year. In fiscal
year 2016, the Company repurchased approximately 2 million shares of its
common stock at a cost of $254.
|
|
|
●
|
On May 2, 2016, the Company
acquired Renew Life, a leading brand in digestive health for $290. Results
for Renew Lifes domestic business are reflected in the Household
reportable segment and results for Renew Lifes international business are
reflected in the International reportable segment. Included in the
Companys results for fiscal year 2016 was $21 of Renew Lifes global net
sales.
|
Strategic Goals and
Initiatives
The Clorox Companys 2020 Strategy
serves as its strategic growth plan, directing the Company to the highest value
opportunities for long-term, profitable growth and total shareholder
return.
The long-term financial goals reflected
in the Companys 2020 Strategy include annual net sales growth of 3-5%, annual
EBIT margin growth of 25-50 basis points and annual free cash flow of 10-12% of
net sales. Clorox anticipates using free cash flow to invest in the business,
maintain appropriate debt levels and return excess cash to
stockholders.
In fiscal year 2017, Clorox anticipates
ongoing macroeconomic challenges that may impact its sales and margins,
including unfavorable foreign currency exchange rates, particularly in
Argentina, and a continuation of challenging international economies. The
Company is monitoring anticipated slower U.S. category growth, driven primarily
by expected competitive activity and changes to commodity costs and
manufacturing and logistics costs.
The Companys priority in fiscal year
2017 remains investing strongly in its U.S. businesses, particularly in its 3D
demand-creation model of Desire, Decide and Delight, including advertising and
trade promotion spending. The Company is also focused on product innovation to
delight and deliver superior value to consumers. Importantly, the Company will
work to continue to improve its margins by driving cost savings initiatives and
slowing the growth of selling and administrative expenses by driving out
low-value activity.
As the Company executes its 2020
Strategy, a particular focus on Strategy Accelerators, will help drive
investment decisions with the goal to deliver profitable long-term
growth:
●
|
Accelerating portfolio
momentum
reallocates resources to
faster-growing countries, categories and brands in the portfolio or
focuses investment in new categories with growth tailwinds like the
Companys recent acquisition of Renew Life digestive health
products.
|
|
|
●
|
Accelerating 3D technology
transformation
reflects an emphasis in
digital communications that can deliver more targeted messages based on
how consumers research, shop and buy their products. The Company continues
to invest in digital marketing and social media and is focused on driving
its e-commerce business.
|
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-3
|
Table of Contents
●
|
Accelerating innovation
across the Companys 3D
demand-creation model of Desire, Decide and Delight will continue to
support category growth and market share improvement. The Company is
focused on delivering superior value to consumers through the introduction
of new products and product improvements.
|
|
|
●
|
Accelerating the Companys
growth culture
involves fostering a
work environment where employees directly support the Companys effort to
drive profitable growth. The growth culture vision provides a framework to
deliver on that goal through five calls to action: put the consumer first,
be curious, think boldly, embrace change and act like an
owner.
|
Looking forward, the Company will continue
to execute against its 2020 Strategy and seek to achieve its goals to deliver
long-term profitable growth.
RESULTS OF
OPERATIONS
Unless otherwise noted, managements
discussion and analysis compares results of continuing operations from fiscal
year 2016 to fiscal year 2015, and fiscal year 2015 to fiscal year 2014, with
percentage and basis point calculations based on rounded numbers, except for per
share data and the effective tax rate.
CONSOLIDATED
RESULTS
Continuing
operations
Net sales
in fiscal year 2016 increased 2%. Volume increased 4%
reflecting higher shipments in all reportable segments and most significantly in
Cleaning, Household and Lifestyle. Higher shipments in the Cleaning segment were
driven by Home Care and Professional Products, partially offset by Laundry;
higher shipments in the Household segment were primarily due to the acquisition
of the Renew Life business, Charcoal, and Bags and Wraps, partially offset by
Cat Litter; and higher shipments in the Lifestyle segment primarily were due to
Natural Personal Care and Dressing and Sauces. Volume outpaced net sales
primarily due to unfavorable foreign currency exchange rates and higher trade
promotion spending, partially offset by the benefit of price
increases.
Net sales in fiscal year 2015 increased
3%. Volume increased 2%, reflecting higher product shipments in the
International segment, primarily due to growth in Latin
America, Canada, Europe and Asia; higher shipments of Burts Bees
®
natural personal care products, largely due to innovation in lip and face care
products combined with distribution gains; higher shipments of cleaning and
healthcare products in the professional products business; higher shipments of
Clorox
®
toilet bowl cleaner due to increased merchandising activities
and distribution gains; and higher shipments of Kingsford
®
charcoal
products behind increased merchandising support to launch the start of the
grilling season. Volume results also reflected lower shipments of
Clorox
®
liquid bleach due to the February 2015 price increase,
category softness and increased competition; and lower shipments of
Brita
®
water-filtration products, primarily due to continuing
A-4 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
category softness and increased
competition. The variance between volume and net sales was primarily due to the
benefit of price increases, partially offset by unfavorable foreign currency
exchange rates. On a currency-neutral basis, net sales increased about
5%.
Gross margin
, defined as gross profit as a percentage of net sales, in
fiscal year 2016 increased 150 basis points from 43.6% to 45.1%. Gross margin
expansion in fiscal year 2016 was driven by the benefits of favorable commodity
costs, strong cost savings and price increases, partially offset by higher
manufacturing and logistics costs, increased trade promotion spending and the
impact of unfavorable foreign currency exchange rates.
Gross margin, defined as gross profit as a
percentage of net sales, in fiscal year 2015 increased 90 basis points from
42.7% to 43.6%. Gross margin expansion in fiscal year 2015 was driven by the
benefits of cost savings and price increases, partially offset by the impact of
higher manufacturing and logistics costs.
Expenses
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
% of Net sales
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
to
2015
|
|
2015
to
2014
|
|
2016
|
|
2015
|
|
2014
|
Selling and administrative
expenses
|
|
$
|
806
|
|
$
|
798
|
|
$
|
751
|
|
1
|
%
|
|
6
|
%
|
|
14.0
|
%
|
|
14.1
|
%
|
|
13.6
|
%
|
Advertising costs
|
|
|
587
|
|
|
523
|
|
|
503
|
|
12
|
|
|
4
|
|
|
10.2
|
|
|
9.2
|
|
|
9.1
|
|
Research and development costs
|
|
|
141
|
|
|
136
|
|
|
125
|
|
4
|
|
|
9
|
|
|
2.4
|
|
|
2.4
|
|
|
2.3
|
|
Selling and administrative
expenses
were relatively flat in fiscal
year 2016.
Selling and administrative expenses
increased 6% in fiscal year 2015, primarily from higher performance-based
incentive costs as a result of fiscal year financial performance exceeding
financial targets. Expenses in the prior year reflected lower performance-based
incentive costs when the Companys results fell below financial targets. In
addition, the Company continued to experience inflationary pressures in
international markets. These increases were partially offset by the benefit of
cost savings, one-time costs in fiscal year 2014 related to the change in
information technology (IT) service providers and a one-time impact related to a
change in the Companys long-term disability plan in fiscal year 2015 to bring
it more in line with the marketplace.
Advertising
costs
as a percentage of net sales
increased during fiscal year 2016 mainly to drive awareness and trial behind
innovation and maintain the health of the Companys core business. The Companys
U.S. retail advertising spend was approximately 11% of net sales during the
year.
Advertising costs as a percentage of net
sales increased slightly during fiscal year 2015, reflecting continued support
behind the Companys brands, including driving the trial of new products. The
Companys U.S. retail advertising spend was approximately 10% of net sales
during the year.
Research and development
costs
as a percentage of net sales was
flat in fiscal year 2016.
Research and development costs increased
slightly as a percentage of net sales in fiscal year 2015, driven by higher
performance-based incentive costs.
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-5
|
Table of Contents
Interest expense, Other (income)
expense, net, and the effective tax rate on earnings
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest expense
|
|
$
|
88
|
|
|
$
|
100
|
|
|
$
|
103
|
|
Other income, net
|
|
|
(7
|
)
|
|
|
(13
|
)
|
|
|
(10
|
)
|
Income taxes on continuing operations
|
|
|
335
|
|
|
|
315
|
|
|
|
305
|
|
Interest expense
decreased $12 in fiscal year 2016, primarily due to a lower
weighted-average interest rate on total debt.
Interest expense decreased $3 in fiscal
year 2015, primarily due to a lower weighted-average interest rate on long-term
debt resulting from the issuance of senior notes in December 2014 and the
maturities of senior notes in January 2015, combined with less interest expense
on a lower balance of commercial paper throughout fiscal year 2015.
Other (income) expense,
net
, of $(7) in fiscal year 2016 included
$(15) of income from equity investees, $(11) gain on the sale of the Los Angeles
bleach manufacturing facility, partially offset by $9 of noncash asset
impairment charges and $8 of amortization of trademarks and other intangible
assets.
Other (income) expense, net, of $(13) in
fiscal year 2015 included $(14) of income from equity investees, $(13) gain on
the sale of real estate assets by a low-income housing partnership and $(4) of
interest income, partially offset by $9 of foreign currency exchange losses, $8
of amortization of trademarks and other intangible assets and $3 of noncash
asset impairment charges.
Other (income) expense, net, of $(10) in
fiscal year 2014 included $(13) of income from equity investees, $(5) of
insurance and litigation settlements and other smaller items, partially offset
by $8 of amortization of trademarks and other intangible assets and $3 of
noncash asset impairment charges.
The effective tax rate on
earnings
was 34.1%, 34.2% and 34.6% in
fiscal years 2016, 2015 and 2014, respectively. The effective tax rate in fiscal
year 2016 compared to fiscal year 2015 was essentially flat. The lower effective
tax rate in fiscal year 2015 compared to fiscal year 2014 was primarily due to
higher uncertain tax position releases, partially offset by higher tax on
foreign earnings, in fiscal year 2015.
Diluted net earnings per
share
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
to
2015
|
|
2015
to
2014
|
Diluted net EPS from continuing operations
|
|
$
|
4.92
|
|
$
|
4.57
|
|
$
|
4.39
|
|
8
|
%
|
|
4
|
%
|
Diluted net earnings per share (EPS) from
continuing operations increased $0.35, driven by the benefits of higher sales
and gross margin expansion, partially offset by increased advertising
investments.
Diluted net EPS from continuing operations
increased $0.18 in fiscal year 2015, driven by the benefits of higher sales and
gross margin expansion, partially offset by increased selling and administrative
expenses, primarily from higher performance-based incentive costs as a result of
fiscal year financial performance exceeding financial targets. Expenses in the
prior year reflected lower performance-based incentive costs when the Companys
results fell below financial targets. Increased investments in total
demand-building programs also reduced fiscal year diluted EPS.
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
A-6 THE
CLOROX COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
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 governments 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 governments expropriation of Clorox Venezuelas assets.
Further, President Nicolás Maduro announced the governments 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. Since the exit of Clorox
Venezuela in the first quarter of fiscal year 2015, the Company has recognized
$49 in after-tax exit costs and other related expenses within discontinued
operations related to the exit of Clorox Venezuela. The Company believes it is
reasonably possible that it will recognize $1 to $11 in after-tax exit costs and
other related expenses in discontinued operations for Clorox Venezuela during
fiscal years 2017 through 2019, for a total of $50 to $60 over the entire
five-year period.
See Notes to Consolidated Financial
Statements for more information regarding discontinued operations of Clorox
Venezuela.
Unrelated to Clorox Venezuela, in the
fiscal year ended June 30, 2015, the Company recognized $32 of previously
unrecognized tax benefits relating to other discontinued operations upon the
expiration of the applicable statute of limitations. Recognition of these
previously disclosed tax benefits had no impact on the Companys cash flows or
earnings from continuing operations for the fiscal year ended June 30,
2015.
SEGMENT RESULTS FROM CONTINUING
OPERATIONS
The following presents the results from
continuing operations of the Companys reportable segments and certain
unallocated costs reflected in Corporate (see Notes to Consolidated Financial
Statements for a reconciliation of segment results to consolidated
results):
Cleaning
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
to
2015
|
|
2015
to
2014
|
Net sales
|
|
$
|
1,912
|
|
$
|
1,824
|
|
$
|
1,776
|
|
5
|
%
|
|
3
|
%
|
Earnings from continuing operations before income
taxes
|
|
|
511
|
|
|
445
|
|
|
428
|
|
15
|
|
|
4
|
|
Fiscal year 2016 versus fiscal year
2015:
Volume, net sales and earnings from
continuing operations before income taxes increased by 6%, 5% and 15%,
respectively, during fiscal year 2016. Both volume and net sales growth were
driven primarily by higher shipments across several Home Care brands, including
Clorox
®
disinfecting wipes resulting from increased merchandising
support and expanded warehouse club distribution, and in Professional Products
mainly in cleaning products. These increases were partially offset by lower
shipments in Laundry, primarily due to the impact of the February 2015 price
increase on Clorox
®
liquid bleach. Volume outpaced net sales due to
unfavorable product mix. The increase in earnings from continuing operations
before income taxes was mainly due to net sales growth, the benefit of favorable
commodity costs, strong cost savings, and the gain on the sale of the Companys
Los Angeles bleach manufacturing facility, partially offset by higher
manufacturing and logistics costs and increased advertising
investments.
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-7
|
Table of Contents
Fiscal year 2015 versus fiscal year
2014:
Volume, net sales and earnings from
continuing operations before income taxes increased by 2%, 3% and 4%,
respectively, during fiscal year 2015. Both volume and net sales grew primarily
due to higher shipments of Clorox
®
toilet bowl cleaner and
Clorox
®
disinfecting wipes in Home Care, behind increased
merchandising activities. The Professional Products Division also grew volume,
which was driven primarily by distribution gains across a number of brands.
These increases were partially offset by lower shipments of Clorox
®
liquid bleach in Laundry, primarily due to the February 2015 price increase. Net
sales growth outpaced volume growth primarily due to the benefit of price
increase. The increase in earnings from continuing operations before income
taxes was driven by the benefit of sales growth and cost savings, partially
offset by an increase in demand-building investments.
Household
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
to
2015
|
|
2015
to
2014
|
Net sales
|
|
$
|
1,862
|
|
$
|
1,794
|
|
$
|
1,709
|
|
4
|
%
|
|
5
|
%
|
Earnings from continuing operations before income
taxes
|
|
|
428
|
|
|
375
|
|
|
326
|
|
14
|
|
|
15
|
|
Fiscal year 2016 versus fiscal year
2015:
Volume, net sales and earnings from
continuing operations before income taxes increased by 3%, 4% and 14%,
respectively, during fiscal year 2016. Both volume growth and net sales growth
were driven by the acquisition of the Renew Life business, higher shipments of
Charcoal resulting from increased merchandising support and increased shipments
across several Glad
®
products, including continued strength in
premium trash bags. These increases were partially offset by lower shipments of
Cat Litter, largely due to continuing competitive activity. Net sales growth
outpaced volume growth, primarily due to favorable product mix and the benefit
of price increases, partially offset by higher trade promotion spending, mainly
in Bags and Wraps. The increase in earnings from continuing operations before
income taxes was mainly due to net sales growth, the benefit of favorable
commodity costs and strong cost savings, partially offset by higher
manufacturing and logistics costs and increased advertising
investments.
Fiscal year 2015 versus fiscal year
2014:
Volume, net sales and earnings from
continuing operations before income taxes increased by 2%, 5% and 15%,
respectively, during fiscal year 2015. Both volume growth and net sales growth
were driven by higher shipments of Kingsford
®
charcoal products
behind increased merchandising activities. Net sales growth outpaced volume
growth primarily due to the benefits of price increases on Glad
®
bags
and wraps. The increase in earnings from continuing operations before income
taxes was driven by strong sales growth and the benefit of cost savings,
partially offset by an increase in demand building investments and manufacturing
and logistics costs.
Lifestyle
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
to
2015
|
|
2015
to
2014
|
Net sales
|
|
$
|
990
|
|
$
|
950
|
|
$
|
936
|
|
4
|
%
|
|
1
|
%
|
Earnings from continuing operations before income
taxes
|
|
|
251
|
|
|
257
|
|
|
258
|
|
(2
|
)
|
|
|
|
Fiscal year 2016 versus fiscal year
2015:
Volume and net sales increase by 5%
and 4%, respectively, while earnings from continuing operations before income
taxes decreased 2% during fiscal year 2016. Both volume growth and net sales
growth were primarily driven by higher shipments of Burts Bees
®
Natural Personal Care largely due to innovation in lip and face care and higher
shipments of Hidden Valley
®
bottled salad dressings due to
innovation. Volume growth outpaced net sales growth primarily due to increased
trade promotion spending. The decrease in earnings from continuing operations
before income taxes was primarily due to increased advertising investments to
support new products and increased selling and administrative expenses to
support innovation and growth, partially offset by net sales growth and cost
savings.
A-8 THE
CLOROX COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
Fiscal year 2015 versus fiscal year
2014:
Net sales and volume both increased
by 1%, while earnings from continuing operations before income taxes remained
flat during fiscal year 2015. Both net sales growth and volume growth were
driven by higher shipments of Burts Bees
®
natural personal care
products, largely due to innovation in lip and face care products combined with
distribution gains. The increase was partially offset by lower shipments of
Brita
®
water-filtration products, primarily due to continuing
category softness and increased competition. Flat earnings from continuing
operations before income taxes reflected lower commodity costs, cost savings and
favorable product mix. These increases were offset by higher manufacturing and
logistics costs and demand building investments.
International
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
to
2015
|
|
2015
to
2014
|
Net sales
|
|
$
|
997
|
|
$
|
1,087
|
|
$
|
1,093
|
|
(8
|
)%
|
|
(1
|
)%
|
Earnings from continuing operations before income
taxes
|
|
|
66
|
|
|
79
|
|
|
99
|
|
(16
|
)
|
|
(20
|
)
|
Fiscal year 2016 versus fiscal year
2015:
Volume increased 1%, while net
sales and earnings from continuing operations before income taxes decreased by
8% and 16%, respectively, during fiscal year 2016. Volume grew primarily due to
higher shipments, mainly in Canada, which included the benefit of Renew Life
acquisition, Mexico, and Europe, partially offset by lower shipments in certain
other Latin American countries largely due to the impact of price increases
taken to offset inflationary pressures. The decline in net sales was primarily
due to unfavorable foreign currency exchange rates across multiple countries,
including the impact of the significant devaluation of the Argentine peso,
partially offset by the benefit of price increases. The decrease in earnings
from continuing operations before income taxes was primarily due to lower net
sales, unfavorable foreign currency exchange rates, inflationary pressure on
manufacturing and logistics costs and higher advertising costs, offset by the
benefits of price increases and cost savings.
Fiscal year 2015 versus fiscal year
2014:
Volume increased 3%, while net
sales and earnings from continuing operations before income taxes decreased 1%
and 20%, respectively, during fiscal year 2015. Volume grew primarily due to
higher shipments in Latin America, Canada, Europe and Asia. Volume growth
outpaced net sales growth primarily due to unfavorable foreign currency exchange
rates, partially offset by the benefit of price increases and favorable product
mix. The decrease in earnings from continuing operations before income taxes was
primarily driven by unfavorable foreign currency exchange rates and inflation
across multiple countries, primarily in Argentina (see Argentina below), which
resulted in higher selling and administrative expenses, higher manufacturing and
logistics costs and higher commodity costs. These decreases in earnings were
partially offset by the benefit of price increases, favorable product mix and
cost savings.
Argentina
The Company operates in Argentina through
certain wholly owned subsidiaries (collectively, Clorox Argentina). Net sales
from Clorox Argentina represented approximately 3% and 4% for the fiscal years
ended June 30, 2016 and 2015, respectively, of the Companys consolidated net
sales for those periods. The operating environment in Argentina and the Latin
America region continues to present business challenges, including significant
devaluing currency and inflation.
Clorox Argentina manufactures products at
three plants that it owns and operates across Argentina and markets those
products to consumers throughout the country. Products are advertised nationally
and sold to consumers through wholesalers and retail outlets located throughout
Argentina. Sales are made primarily through the use of Clorox Argentinas sales
force. Small amounts of products produced in Argentina are exported each year,
including sales to the Companys subsidiaries located primarily in Latin
America. Clorox Argentina obtains its raw materials almost entirely from local
sources. The Company also conducts research and development activities at its
owned facility in Buenos Aires, Argentina. Additionally, Clorox Argentina
performs marketing, legal, and various other shared service activities to
support the Companys Latin American operations. Clorox Argentina in turn
benefits from shared service activities performed within other geographic
locations, such as information technology support and manufacturing technical
assistance.
Continues on next page
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|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-9
|
Table of Contents
For the fiscal year ended June 30, 2016
and 2015, the value of the Argentine peso (ARS) declined 39% and 10%,
respectively. As of June 30, 2016, using the exchange rate of 15 ARS per U.S.
dollar (USD), Clorox Argentina had total assets of $77, including cash and cash
equivalents of $22, net receivables of $13, inventories of $19, net property,
plant and equipment of $15 and intangible assets excluding goodwill of $3.
Goodwill for Argentina is aggregated and assessed for impairment at the Latin
America reporting unit level, which is part of the Companys International
reportable segment. Based on the results of the annual impairment test performed
in the fourth quarter of fiscal year 2016, the fair value of the Latin America
reporting unit exceeded its carrying value by more than 20% and reflected
unfavorable foreign currency exchange rates across several countries and the
Companys expectations of continued challenges from the Latin America region.
Although Argentina is not currently designated as a highly inflationary economy
for accounting purposes, further volatility and declines in the exchange rate
are expected in the future, which would have an additional adverse impact on
Clorox Argentinas net sales, net earnings, and net monetary asset
position.
The Company is closely monitoring
developments in Argentina and is taking steps intended to mitigate the adverse
conditions, but there can be no assurances that these actions will be able to
mitigate these conditions.
Corporate
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
2016
to
2015
|
|
2015
to
2014
|
Losses from continuing operations before income
taxes
|
|
$
|
(273)
|
|
$
|
(235)
|
|
$
|
(227)
|
|
16
|
%
|
|
4
|
%
|
Corporate includes certain non-allocated
administrative costs, interest income, interest expense and other non-operating
income and expenses. Corporate assets include cash and cash equivalents,
property and equipment, other investments and deferred taxes.
Fiscal year 2016 versus fiscal year
2015:
The increase in losses from
continuing operations before income was primarily due to higher current year
benefits and performance-based employee incentive costs including the prior year
change in the Companys long-term disability plan to bring it more in line with
the marketplace, absence of the prior years gain on the sale of real estate
assets by a low-income housing partnership and increased current year
information technology spending to support the Companys initiatives. This was
partially offset by lower current year interest expense primarily due to a lower
weighted-average interest rate on total debt.
Fiscal year 2015 versus fiscal year
2014:
The increase in losses from
continuing operations before income taxes was primarily due to higher
performance-based incentive costs as a result of fiscal year financial
performance exceeding financial targets, compared to the prior year which
reflected lower performance-based incentive costs when the Companys results
fell below financial targets. This factor was partially offset by cost savings,
a gain on the sale of real estate assets by a low-income housing partnership and
benefits from a change in the Companys long-term disability plan to bring it
more in line with the marketplace.
FINANCIAL POSITION AND
LIQUIDITY
Managements discussion and analysis of
the Companys financial position and liquidity describes its consolidated
operating, investing and financing activities from continuing operations,
contractual obligations and off-balance sheet arrangements.
A-10 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
The following table summarizes cash
activities from continuing operations for the years ended June 30:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net cash provided by
continuing operations
|
|
$
|
768
|
|
|
$
|
858
|
|
|
$
|
786
|
|
Net cash used for investing
activities
|
|
|
(430
|
)
|
|
|
(106
|
)
|
|
|
(137
|
)
|
Net cash used for financing activities
|
|
|
(316
|
)
|
|
|
(696
|
)
|
|
|
(592
|
)
|
The Companys cash position includes
amounts held by foreign subsidiaries and, as a result, the repatriation of
certain cash balances from some of the Companys foreign subsidiaries could
result in additional tax costs in excess of tax benefits. However, these cash
balances held by foreign subsidiaries are generally available without legal
restriction to fund local business operations.
In addition, a portion of the Companys
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. The Companys cash holdings at June 30 were as follows:
|
|
2016
|
|
2015
|
|
2014
|
|
U.S. dollar balances held
by U.S. dollar functional currency subsidiaries and at parent
|
|
$
|
249
|
|
$
|
221
|
|
$
|
180
|
|
Non-U.S. dollar balances held by non-U.S.
dollar functional currency subsidiaries
|
|
|
133
|
|
|
142
|
|
|
132
|
|
U.S. dollar balances held
by non-U.S. dollar functional currency subsidiaries
|
|
|
19
|
|
|
19
|
|
|
12
|
|
Non-U.S. dollar balances held by U.S. dollar
functional currency subsidiaries
|
|
|
|
|
|
|
|
|
5
|
|
Total
|
|
$
|
401
|
|
$
|
382
|
|
$
|
329
|
|
|
The Companys total cash balance was $401
as of June 30, 2016, as compared to $382 as of June 30, 2015. The increase of
$19 was primarily attributable to $768 of net cash provided by continuing
operations, largely offset by cash used in investing activities of $430, which
included the $290 acquisition of Renew Life and $172 in capital expenditures,
and cash used in financing activities of $316, which included cash dividends of
$398 and share repurchases of $254, partially offset by proceeds from the
issuance of common stock for employee stock plans of $210 and incremental
borrowings of $126.
The Companys total cash balance was $382
as of June 30, 2015, as compared to $329 as of June 30, 2014. The increase of
$53 was primarily attributable to $858 of net cash provided by continuing
operations, $495 of net proceeds from the December 2014 long-term debt issuance
and $251 of proceeds from the issuance of common stock for employee stock plans.
These increases were partially offset by $575 of repayments of long-term debt,
$434 of share repurchases, $385 of dividend payments, $125 of capital
expenditures and $48 of repayments of commercial paper borrowings.
Operating
Activities
Net cash provided by continuing operations
decreased to $768 in fiscal year 2016 from $858 in fiscal year 2015. The
decrease reflected higher payments in the current year for both taxes and
performance-based employee incentive compensation related to the Companys
strong 2015 fiscal year results. These factors were partially offset by higher
earnings from continuing operations in fiscal year 2016 and $25 in prior year
payments to settle interest-rate hedges related to the Companys issuance of
long-term debt.
Net cash provided by continuing operations
increased to $858 in fiscal year 2015 from $786 in fiscal year 2014. The
increase was primarily due to the companys fiscal year performance, including
solid net sales growth and margin expansion. Other contributing factors include
lower performance-based incentive payments related to the companys fiscal year
2014 performance and lower tax payments in the current period, as well as the
initial funding of the companys non-qualified deferred compensation plan in the
year-ago period. These benefits were partially offset by $25 in payments to
settle interest-rate hedges related to the companys issuance of long-term debt
in December 2014.
Continues on next page
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THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-11
|
Table of Contents
Investing
Activities
Capital expenditures were $172, $125 and
$137, respectively, in fiscal years 2016, 2015 and 2014. Capital spending as a
percentage of net sales was 3.0%, 2.2% and 2.5% for fiscal years 2016, 2015 and
2014, respectively. The increase in fiscal year 2016 was due to additional
capital spending to drive cost savings and to support innovation and growth. The
relatively flat fiscal year 2015 capital spending as a percentage of net sales
was due to prudent management of capital spending against manufacturing,
technology and facility projects which meet growth, efficiency, replacement or
compliance requirements.
In April 2016, the Company sold its Los
Angeles bleach manufacturing facility, resulting in $20 in cash proceeds from
investing activities and a gain of $(11) recorded in Other (income) expense,
net, on the consolidated statement of earnings for the year ended June 30, 2016.
In September 2015, the Company sold its corporate jet to an unrelated party for
cash proceeds of $11.
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 gain of $(14) recorded in Other (income) expense, net, on the
consolidated statement of earnings for the year ended June 30, 2015.
Acquisition
On May 2, 2016, the Company acquired Renew
Life, a leading brand in digestive health. The amount paid was $290 funded
through commercial paper.
Free cash flow
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net cash provided by
continuing operations
|
|
$
|
768
|
|
|
$
|
858
|
|
|
$
|
786
|
|
Less: capital expenditures
|
|
|
(172
|
)
|
|
|
(125
|
)
|
|
|
(137
|
)
|
Free cash flow
|
|
$
|
596
|
|
|
$
|
733
|
|
|
$
|
649
|
|
Free cash flow as a percentage of net sales
|
|
|
10.3%
|
|
|
|
13.0
%
|
|
|
|
11.8
%
|
|
Financing
Activities
Capital Resources and
Liquidity
Net cash used for financing activities was
$316 in fiscal year 2016, as compared to $696 in fiscal year 2015. Net cash used
for financing activities was lower in fiscal year 2016, mainly driven by the
increase in net borrowings to fund the Renew Life acquisition.
Net cash used for financing activities was
$696 in fiscal year 2015, as compared to $592 in fiscal year 2014. Net cash used
for financing activities was higher in fiscal year 2015 due to a net reduction
in long-term debt and an increase in share repurchases and dividends paid. These
factors were partially offset by an increase in proceeds from the issuance of
common stock for employee stock plans.
Credit
Arrangements
As of June 30, 2016, the Company had a
$1,100 revolving credit agreement (the Credit Agreement), which expires in
October 2019. There were no borrowings under the Credit Agreement as of June 30,
2016 or 2015, and the Company believes that borrowings under the Credit
Agreement are and will continue to be available for general corporate purposes.
The agreement includes certain restrictive covenants and limitations. The
primary restrictive covenant is a maximum ratio of total debt to earnings before
interest, taxes, depreciation and amortization and intangible asset impairment
(Consolidated EBITDA) for the trailing four quarters (Consolidated Leverage
ratio), as defined and described in the Credit Agreement, of 3.50.
A-12 THE
CLOROX COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
The following table sets forth the
calculation of the Consolidated Leverage ratio as of June 30, using Consolidated
EBITDA for the trailing four quarters, as contractually defined:
|
|
|
2016
|
|
Earnings from continuing
operations
|
|
$
|
648
|
|
Add back:
|
|
|
|
|
Interest
expense
|
|
|
88
|
|
Income tax
expense
|
|
|
335
|
|
Depreciation
and amortization
|
|
|
165
|
|
Noncash
intangible asset impairment charges
|
|
|
9
|
|
Deduct:
|
|
|
|
|
Interest
income
|
|
|
5
|
|
Consolidated
EBITDA
|
|
$
|
1,240
|
|
Total debt
|
|
$
|
2,320
|
|
Consolidated Leverage
ratio
|
|
|
1.87
|
|
|
|
|
|
|
The Company was in compliance with all
restrictive covenants and limitations in the credit agreement as of June 30,
2016, and anticipates being in compliance with all restrictive covenants for the
foreseeable future. The Company continues to monitor the financial markets and
assess its ability to fully draw on its revolving credit agreement, and
currently expects that any drawing on the agreement will be fully
funded.
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. Of the $29 of foreign and other credit lines as of June
30, 2015, $4 was outstanding and the remainder of $25 was available for
borrowing.
Short-term
Borrowings
The Companys notes and loans payable
include U.S. commercial paper issued by the parent company and a short-term loan
held by a non-U.S. subsidiary. These short-term borrowings have stated
maturities less than one year and provide supplemental funding for supporting
operations. The level of U.S. commercial paper borrowings generally fluctuate
depending upon the amount and timing of operating cash flows and payments for
items such as dividends, income taxes, share repurchases and pension
contributions. The average balance of U.S. commercial paper borrowings
outstanding was $371 and $104 for the fiscal year ended June 30, 2016 and 2015,
respectively.
Long-term
Borrowings
In November 2015, $300 of the Companys
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 Companys
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, under a shelf
registration statement filed with the SEC that will expire in December 2017, the
Company issued $500 of senior notes with an annual fixed interest rate of 3.50%. Interest on the notes is payable semi-annually in June and December and the
notes have a maturity date of December 15, 2024. 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 to Consolidated
Financial Statements). The notes rank equally with all of the Companys existing
senior indebtedness.
Based on the Companys working capital
requirements, anticipated ability to generate positive cash flows from
operations in the future, investment-grade credit ratings, demonstrated access
to long- and short-term credit markets and current borrowing availability under
credit agreements, the Company believes it will have the funds necessary to meet
its financing requirements and other fixed obligations as they become due. The
Company may consider other transactions which may require the issuance of
additional long- and/or short-term debt or other securities to finance
acquisitions,
Continues on next page
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|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-13
|
Table of Contents
repurchase shares, refinance debt or fund
other activities for general business purposes. Such transactions could require
funds in excess of the Companys current cash levels and available credit lines,
and the Companys access to or cost of such additional funds could be adversely
affected by any decrease in credit ratings, which were the following as of June
30:
|
|
2016
|
|
2015
|
|
|
Short-term
|
|
Long-term
|
|
Short-term
|
|
Long-term
|
Standard and
Poors
|
|
A-2
|
|
BBB+
|
|
A-2
|
|
BBB+
|
Moodys
|
|
P-2
|
|
Baal
|
|
P-2
|
|
Baa1
|
Share Repurchases and Dividend
Payments
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, 2016 and 2015, 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.
Share repurchases under authorized
programs were as follows during the fiscal years ended June 30:
|
|
2016
|
|
2015
|
|
2014
|
|
|
Amount
|
|
Shares
(000)
|
|
Amount
|
|
Shares
(000)
|
|
Amount
|
|
Shares
(000)
|
|
Open-market purchase
programs
|
|
|
$
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
$
|
|
|
|
|
|
Evergreen Program
|
|
|
|
254
|
|
|
2,151
|
|
|
|
434
|
|
|
4,016
|
|
|
|
260
|
|
|
3,046
|
|
Total
|
|
|
$
|
254
|
|
|
2,151
|
|
|
$
|
434
|
|
|
4,016
|
|
|
$
|
260
|
|
|
3,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share and total dividends
amount paid were as follows during the fiscal years ended June 30:
|
|
2016
|
|
2015
|
|
2014
|
Dividends per share
declared
|
|
$
|
3.11
|
|
$
|
2.99
|
|
$
|
2.87
|
Total dividends paid
|
|
|
398
|
|
|
385
|
|
|
368
|
Contractual
Obligations
The Company had contractual obligations as
of June 30, 2016, payable or maturing in the following fiscal years:
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Thereafter
|
|
Total
|
|
Long-term debt maturities including interest
payments
|
|
|
$
|
72
|
|
|
|
460
|
|
|
|
48
|
|
|
|
47
|
|
|
|
47
|
|
|
|
1,495
|
|
|
$
|
2,169
|
|
Notes and loans payable
|
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523
|
|
Purchase obligations
(1)
|
|
|
|
150
|
|
|
|
54
|
|
|
|
37
|
|
|
|
12
|
|
|
|
2
|
|
|
|
1
|
|
|
|
256
|
|
Capital leases
|
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Operating leases
|
|
|
|
49
|
|
|
|
45
|
|
|
|
38
|
|
|
|
32
|
|
|
|
29
|
|
|
|
135
|
|
|
|
328
|
|
Payments related to nonqualified postretirement
plans
(2)
|
|
|
|
17
|
|
|
|
18
|
|
|
|
16
|
|
|
|
16
|
|
|
|
15
|
|
|
|
70
|
|
|
|
152
|
|
Venture agreement terminal
obligation
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448
|
|
|
|
448
|
|
Total
|
|
|
$
|
814
|
|
|
$
|
579
|
|
|
$
|
140
|
|
|
$
|
107
|
|
|
$
|
93
|
|
|
$
|
2,149
|
|
|
$
|
3,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Purchase obligations are defined as
purchase agreements that are enforceable and legally binding and that
contain specified or determinable significant terms, including quantity,
price and the approximate timing of the transaction. For purchase
obligations subject to variable price and/or quantity provisions, an
estimate of the price and/or quantity has been made. Examples of the
Companys 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 raw material contracts included
above are entered into during the regular course of business based on
expectations of future purchases. Many of these raw material contracts are
flexible to allow for changes in the Companys business and related
requirements. If such changes were to occur, the Company believes its
exposure could differ from the amounts listed above. Any amounts reflected
in the consolidated balance sheets as Accounts payable and accrued
liabilities are excluded from the table above.
|
(2)
|
This amount represents expected payments through 2026. Based on the
accounting rules for retirement and postretirement benefit plans, the
liabilities reflected in the Companys consolidated balance sheets differ
from these expected future payments (see Notes to Consolidated Financial
Statements).
|
A-14 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
(3)
|
The Company has a venture agreement with The Procter & Gamble
Company (P&G) for the Companys Glad
®
bags, wraps and containers business. As of June 30, 2016
and 2015, P&G had a 20% interest in the venture. The agreement with
P&G will expire in January 2023, unless the parties decide on or prior
to January 2018, to extend the term of the agreement for another 10 years.
Upon termination of the agreement, the Company is required to purchase
P&Gs interest for cash at fair value as established by predetermined
valuation procedures. As of June 30, 2016, the estimated fair value of
P&Gs interest was $448, of which $302 has been recognized and is
reflected in Other liabilities in the Companys June 30, 2016 Consolidated
Balance Sheet. The difference between the estimated fair value and the
amount recognized, and any future changes in the fair value of P&Gs
interest, is charged to Cost of products sold on a straight-line basis
over the remaining life of the agreement. The estimated fair value of
P&Gs interest increased significantly in 2016 and may increase or
decrease up until any such purchase by the Company of P&Gs interest.
These changes will affect the amount of future charges to Cost of products
sold. Refer to Notes to Consolidated Financial Statements for further
details.
|
Off-Balance Sheet
Arrangements
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 payments relating to its
indemnifications, and believes that any reasonably possible payments would not
have a material adverse effect, individually or in the aggregate, on the
Companys consolidated financial statements taken as a whole.
The Company had not recorded any
liabilities on the aforementioned indemnifications as of June 30, 2016 and
2015.
As of June 30, 2016 and 2015, the Company
was a party to letters of credit of $10 and $11, respectively, both primarily
related to one of its insurance carriers, of which $0 had been drawn
upon.
CONTINGENCIES
A summary of contingencies is contained in
Note 12 of Notes to Consolidated Financial Statements.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
As a multinational company, the Company is
exposed to the impact of foreign currency fluctuations, changes in commodity
prices, interest-rate risk and other types of market risk.
In the normal course of business, where
available at a reasonable cost, the Company manages its exposure to market risk
using contractual agreements and a variety of derivative instruments. The
Companys objective in managing its exposure to market risk is to limit the
impact of fluctuations on earnings and cash flow through the use of swaps,
forward purchases and futures contracts. Derivative contracts are entered into
for non-trading purposes with major credit-worthy institutions, thereby
decreasing the risk of credit loss.
The Company uses different methodologies,
when necessary, to estimate the fair value of its derivative contracts. The
estimated fair values of the majority of the Companys contracts are based on
quoted market prices, traded exchange market prices or broker price quotations,
and represent the estimated amounts that the Company would pay or receive to
terminate the contracts.
Sensitivity Analysis for Derivative
Contracts
For fiscal years 2016 and 2015, the
Companys exposure to market risk was estimated using sensitivity analyses,
which illustrate the change in the fair value of a derivative financial
instrument assuming hypothetical changes in foreign exchange rates, commodity
prices or interest rates. The results of the sensitivity analyses for foreign
currency derivative contracts, commodity derivative contracts and interest rate
contracts are summarized below. Actual changes in foreign exchange rates,
commodity prices or interest rates may differ from the hypothetical changes, and
any changes in the fair value of the contracts, real or hypothetical, would be
partly to fully offset by an inverse change in the value of the underlying
hedged items.
Continues on next page
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THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-15
|
Table of Contents
The changes in the fair value of
derivatives 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 or not, for accounting purposes, the derivative is
designated and qualified as a cash flow hedge. During the fiscal years ended
June 30, 2016, 2015 and 2014, the Company had no hedging instruments designated
as fair value hedges. In the event the Company has contracts not designated as
hedges for accounting purposes, the Company recognizes the changes in the fair
value of these contracts in the consolidated statement of earnings.
Foreign Currency
Risk
The Company seeks to minimize the impact
of certain foreign currency fluctuations by hedging transactional exposures with
foreign currency forward contracts. Based on a hypothetical decrease of 10% in
the value of the U.S. dollar as of June 30, 2016 and June 30, 2015, the
estimated fair value of the Companys then-existing foreign currency derivative
contracts would decrease by $9 and $12, respectively, with the corresponding
impact included in Accumulated other comprehensive income (loss). Based on a
hypothetical increase of 10% in the value of the U.S. dollar as of June 30, 2016
and June 30, 2015, the estimated fair value of the Companys then-existing
foreign currency derivative contracts would increase by $7 and $10,
respectively, with the corresponding impact included in Accumulated other
comprehensive income (loss).
Commodity Price
Risk
The Company is exposed to changes in the
price of commodities used as raw materials in the manufacturing of its products.
The Company uses various strategies to manage cost exposures on certain raw
material purchases with the objective of obtaining more predictable costs for
these commodities, including long-term commodity purchase contracts and
commodity derivative contracts, where available at a reasonable cost. During
fiscal years 2016 and 2015, the Companys raw materials exposures pertaining to
derivative contracts existed with jet fuel and soybean oil. Based on a
hypothetical decrease or increase of 10% in these commodity prices as of June
30, 2016, and June 30, 2015, the estimated fair value of the Companys
then-existing commodity derivative contracts would decrease or increase by $3
and $4, respectively, with the corresponding impact included in Accumulated
other comprehensive income (loss).
Interest Rate
Risk
The Company is exposed to interest rate
volatility with regard to existing short-term borrowings, primarily commercial
paper, and anticipated future issuances of long-term debt. Weighted average
interest rates for commercial paper borrowings have been less than 1% during
fiscal years 2016 and 2015. Assuming average variable rate debt levels during
fiscal years 2016 and 2015, a 100 basis point increase in interest rates would
increase interest expense from commercial paper by approximately $4 and $1,
respectively. Assuming average variable rate debt levels in fiscal years 2016
and 2015, a decrease in interest rates to zero percent would decrease interest
expense from commercial paper by $3 and $1, respectively.
The Company is also exposed to interest
rate volatility with regard to anticipated future issuances of debt. Primary
exposures include movements in U.S. Treasury rates. The Company used interest
rate forward contracts to reduce interest rate volatility on fixed rate
long-term debt during fiscal year 2015, but had no interest rate forward
contract positions during fiscal year 2016, and no outstanding contracts as of
June 30, 2016.
RECENTLY ISSUED ACCOUNTING
STANDARDS
The Company plans to adopt Accounting
Standards Update (ASU) No. 2016-09, Compensation-Stock Compensation (Topic
718): Improvements to Employee Share-Based Payment Accounting, in the first
quarter of fiscal year 2017. While the actual benefit realized may vary
significantly given the inherent uncertainty in predicting future share-based
transactions, the Company currently estimates that the adoption will result in
approximately a 4 percentage point benefit to the Companys historical effective
tax rate of 34% to 35% for fiscal year 2017. A summary of all recently issued
accounting standards, including ASU 2016-09, is contained in Note 1 of Notes to
Consolidated Financial Statements.
A-16 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
The methods, estimates, and judgments the
Company uses in applying its most critical accounting policies have a
significant impact on the results the Company reports in its consolidated
financial statements. Specific areas requiring the application of managements
estimates and judgment include, among others, assumptions pertaining to accruals
for consumer and trade-promotion programs, stock-based compensation costs,
pension and post-employment benefit costs, future cash flows associated with
impairment testing of goodwill and other long-lived assets, credit worthiness of
customers, uncertain tax positions, tax valuation allowances and legal,
environmental and insurance matters. Accordingly, a different financial
presentation could result depending on the judgments, estimates or assumptions
that are used. The most critical accounting policies and estimates are those
that are most important to the portrayal of the Companys financial condition
and results, and require the Company to make the most difficult and subjective
judgments, often estimating the outcome of future events that are inherently
uncertain. The Companys most critical accounting policies and estimates are
related to: revenue recognition; valuation of goodwill and intangible assets;
employee benefits, including estimates related to stock-based compensation and
retirement income plans; and income taxes. The Companys critical accounting
policies and estimates have been reviewed with the Audit Committee of the Board
of Directors. A summary of the Companys significant accounting policies and
estimates is contained in Note 1 of Notes to Consolidated Financial
Statements.
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. Programs include
shelf-price reductions, end-of-aisle or in-store displays of the Companys
products and graphics and other trade-promotion activities conducted by the
customer. Costs related to these programs are recorded as a reduction of sales.
The Companys trade promotion accruals are primarily based on estimated volume
and incorporate historical sales and spending trends by customer and category.
The determination of these estimated accruals requires judgment and may change
in the future as a result of changes in customer promotion participation,
particularly for new programs and for programs related to the introduction of
new products. Final determination of the total cost of a promotion is dependent
upon customers providing information about proof of performance and other
information related to the promotional event. This process of analyzing and
settling trade-promotion programs with customers could impact the Companys
results of operations and trade promotion accruals depending on how actual
results of the programs compare to original estimates. If the Companys trade
promotion accrual estimates as of June 30, 2016 were to differ by 10%, the
impact on net sales would be approximately $11.
Goodwill and Other Intangible
Assets
The Company tests its goodwill and other
indefinite-lived intangible assets for impairment annually in the fiscal fourth
quarter unless there are indications during a different interim period that
these assets may have become impaired.
Goodwill
Consistent with fiscal year 2015, the
Companys reporting units for goodwill impairment testing purposes are its
domestic Strategic Business Units (SBUs), Canada, Latin America and AMEA (Asia,
Middle East, Europe and Australia, New Zealand, and South Africa). These
reporting units are components of the Companys business that are either
operating segments or one level below an operating segment and for which
discrete financial information is available that is reviewed by the managers of
the respective operating segments. No instances of impairment were identified
during the fiscal year 2016 annual impairment review. All of the Companys
reporting units had fair values that exceeded recorded values. However, future
changes in the judgments, assumptions and estimates that are used in the
impairment testing for goodwill and indefinite-lived intangible assets as
described below could result in significantly different estimates of the fair
values.
Continues on next page
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|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-17
|
Table of Contents
In its evaluation of goodwill impairment,
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 years impairment testing, other reporting unit
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, 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 each 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 units goodwill. If the carrying amount of a
reporting units 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 units 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 sales volumes, revenue and expense growth rates, changes
in working capital, foreign exchange rates, currency devaluation, inflation and
a perpetuity growth rate. Changes in such estimates or the application of
alternative assumptions could produce different results.
Trademarks and Other Indefinite-Lived
Intangible Assets
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.
During fiscal year 2016, the Company
recognized $9 of intangible asset impairment charges, of which $6 related to the
Aplicare
®
trademark within the Cleaning segment. The
Aplicare
®
trademark impairment was recognized based on the
anticipated impact on future results from a competitive market entrant. No
instances of impairment were identified as a result of the Companys fourth
quarter annual impairment review.
Finite-Lived Intangible
Assets
Finite-lived intangible assets are
reviewed for possible impairment whenever events or changes in circumstances
occur that indicate that the carrying amount of an asset (or asset group) may
not be recoverable. The Companys impairment review requires significant
management judgment, including estimating the future success of product lines,
future sales volumes, revenue and expense growth rates, alternative uses for the
assets and estimated proceeds from the disposal of the assets. The Company
reviews business plans for possible impairment indicators. Impairment occurs
when the carrying amount of the asset (or asset group) exceeds its estimated
future undiscounted cash flows and the impairment is viewed as other than
temporary. When impairment is indicated, an impairment charge is recorded for
the difference between the assets carrying value and its estimated fair value.
Depending on the asset, estimated fair value may be determined either by use of
a DCF model or by reference to estimated selling values of assets in similar
condition. The use of different assumptions would increase or decrease the
estimated fair value of assets and would increase or decrease any impairment
measurement.
Employee Benefits
The Companys critical accounting policies
and estimates in this area relate to its stock-based compensation and retirement
income programs.
A-18 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
Stock-based
Compensation
The Company grants various nonqualified
stock-based compensation awards to eligible employees, including stock options,
performance units and restricted stock. The stock-based compensation expense and
related income tax benefit recognized in the consolidated statement of earnings
in fiscal year 2016 were $45 and $17, respectively. As of June 30, 2016, there
was $53 of unrecognized compensation costs related to non-vested stock options,
restricted stock and performance unit awards, which are expected to be
recognized over a weighted average remaining vesting period of one year. The
Company estimates the fair value of each stock option 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 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
catch-up adjustment in the period of change.
The use of different assumptions in the
Black-Scholes valuation model could lead to a different estimate of the fair
value of each stock option. The expected volatility is based on implied
volatility from publicly traded options on the Companys stock at the date of
grant, historical implied volatility of the Companys publicly traded options
and other factors. If the Companys assumption for the volatility rate is
increased by one percentage point, the fair value of options granted in fiscal
year 2016 would have increased by $1. The expected life of the stock options is
based on observed historical exercise patterns. If the Companys assumption for
the expected life is increased by one year, the fair value of options granted in
fiscal year 2016 would have increased by less than $1.
The Companys 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
performance period is three years and the payout determination is made at the
end of the three-year performance period. 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 the initial assumption that performance goals will be
achieved. Compensation expense is adjusted based on managements assessment of
the probability that performance goals will be achieved. If such goals are not
met or it is determined that achievement of performance goals is not probable,
previously recognized compensation expense is trued up in the current period to
reflect the expected payout level. Actual results could materially differ from
previous estimates. If it is determined that the performance goals will be
exceeded, additional compensation expense is recognized, subject to a cap of
150% of target.
Retirement Income
Plans
The determination of net periodic pension
cost is based on actuarial assumptions including a discount rate to reflect the
time value of money, the long-term rate of return on plan assets, employee
compensation rates and demographic assumptions to determine the probability and
timing of benefit payments. The selection of assumptions is based on historical
trends and known economic and market conditions at the time of valuation. The
expected long-term rate of return assumption is based on an analysis of
historical experience of the portfolio and the summation of prospective returns
for each asset class in proportion to the funds current asset allocation. The
actual net periodic pension cost could differ from the expected results because
actuarial assumptions and estimates are used. In the calculation of pension
expense related to domestic plans for 2016, the Company used a beginning-of-year
discount rate assumption of 4.2% and a long-term rate of return on plan assets
assumption of 4.3%. The use of a different discount rate or long-term rate of
return on domestic plan assets can significantly impact pension expense. For
example, as of June 30, 2016, a decrease of 100 basis points in the discount
rate would increase the domestic retirement income plans pension liability by
approximately $63, and decrease fiscal year 2016 domestic retirement income
plans pension expense by $2. A 100 basis point decrease in the long-term rate
of return on plan assets would increase fiscal year 2016 domestic retirement
income plans pension expense by $4. At the end of fiscal year 2016, the
long-term rate of return is assumed to be 4.7% for the domestic plan assets.
This change is a result of the change in the plans target investment
allocation. The Company also has defined benefit pension plans for eligible
international employees, including Canadian employees, and different assumptions
are used in the determination of pension expense for those plans, as
appropriate. See Notes to Consolidated Financial Statements for further
discussion of pension and other retirement plan obligations.
Continues on next page
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THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-19
|
Table of Contents
Income Taxes
The Companys effective tax rate is based
on income by tax jurisdiction, statutory tax rates and tax planning
opportunities available to the Company in the various jurisdictions in which the
Company operates. Significant judgment is required in determining the Companys
effective tax rate and in evaluating its tax positions.
The Company maintains valuation allowances
when it is likely that all or a portion of a deferred tax asset will not be
realized. Changes in valuation allowances from period to period are included in
the Companys income tax provision in the period of change. In determining
whether a valuation allowance is warranted, the Company takes into account such
factors as prior earnings history, expected future earnings, unsettled
circumstances that, if unfavorably resolved, would adversely affect the
utilization of a deferred tax asset, statutory carry-back and carry-forward
periods and tax strategies that could potentially enhance the likelihood of
realization of a deferred tax asset. Valuation allowances maintained by the
Company relate mostly to deferred tax assets arising from the Companys
currently anticipated inability to use net operating losses in certain foreign
countries.
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.
As of June 30, 2016, the liability
recorded for uncertain tax positions, excluding associated interest and
penalties, was approximately $37. Since audit outcomes and the timing of audit
settlements are subject to significant uncertainty, liabilities for uncertain
tax positions are excluded from the contractual obligations table (see Notes to
Consolidated Financial Statements).
United States income taxes and foreign
withholding taxes are not provided when foreign earnings are indefinitely
reinvested. The Company determines whether its foreign subsidiaries will invest
their undistributed earnings indefinitely and reassesses this determination on a
periodic basis. A change to the Companys determination may be warranted based
on the Companys experience as well as plans regarding future international
operations and expected remittances. Changes in the Companys determination
would likely require an adjustment to the income tax provision in the quarter in
which the determination is made.
SUMMARY OF NON-GAAP FINANCIAL
MEASURES
The non-GAAP financial measures included
in this MD&A and Exhibit 99.3 and the reasons management believes they are
useful to investors are described below. These measures should be considered
supplemental in nature and are not intended to be a substitute for the related
financial information prepared in accordance with U.S. GAAP. In addition, these
measures may not be the same as similarly named measures presented by other
companies.
Free cash flow
is calculated as net cash provided by continuing operations
less capital expenditures related to continuing operations. The Companys
management uses this measure and
free cash
flow as a percentage of net sales
to help
assess the cash generation ability of the business and funds available for
investing activities, such as acquisitions, investing in the business to drive
growth and financing activities, including debt payments, dividend payments and
share repurchases. Free cash flow does not represent cash available only for
discretionary expenditures, since the Company has mandatory debt service
requirements and other contractual and non-discretionary expenditures. Refer to
Free cash flow and Free cash flow as a percentage of net sales above for a
reconciliation of these non-GAAP measures.
EBIT
represents earnings from continuing operations before income taxes, interest
income and interest expense.
EBIT
margin
is the ratio of EBIT to net sales. The
companys management believes these measures provide useful additional
information to investors about trends in the companys operations and are useful
for period-over-period comparisons.
A-20 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
Currency-neutral net sales
growth
represents U.S. GAAP net sales growth
excluding the impact of the change in foreign currency exchange rates. The
Companys management believes these measures provide useful additional
information to investors about changes in the Companys core business operations
without the unpredictability and volatility of currency fluctuations. The
following table presents the
currency-neutral
net sales growth
reconciliation for fiscal
year 2016:
|
|
2016
|
Net sales growth GAAP
|
|
|
2
|
%
|
Less: foreign exchange impact
|
|
|
(3
|
)
|
Currency-neutral net sales growth
non-GAAP
|
|
|
5
|
%
|
|
|
|
|
|
Economic profit (EP)
is defined by the Company as earnings from continuing
operations before income taxes, excluding noncash U.S. GAAP restructuring and
intangible asset impairment costs, and interest expense; less an amount of tax
based on the effective tax rate and less a charge equal to average capital
employed multiplied by a cost of capital rate. EP is a key financial metric the
Companys management uses to evaluate business performance and allocate
resources, and is a component in determining employee incentive compensation.
The Companys management believes EP provides additional perspective to
investors about financial returns generated by the business and represents
profit generated over and above the cost of capital used by the business to
generate that profit. Refer to Exhibit 99.3 for a reconciliation of EP to
earnings from continuing operations before income taxes.
CAUTIONARY STATEMENT
This Annual Report on Form 10-K (this
Report), including the exhibits hereto and the information incorporated by
reference herein, contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and such forward-looking statements
involve risks and uncertainties. Except for historical information, statements
about future volume, sales, foreign currencies, costs, cost savings, margin,
earnings, earnings per share, diluted earnings per share, foreign currency
exchange rates, cash flows, plans, objectives, expectations, growth or
profitability, are forward-looking statements based on managements estimates,
assumptions and projections. Words such as could, may, expects,
anticipates, targets, goals, projects, intends, plans, believes,
seeks, estimates, predicts and variations on such words, and similar
expressions that reflect our current views with respect to future events and
operational and financial performance, are intended to identify such
forward-looking statements. These forward-looking statements are only
predictions, subject to risks and uncertainties, and actual results could differ
materially from those discussed. Important factors that could affect performance
and cause results to differ materially from managements expectations are
described in the sections entitled Risk Factors and Managements Discussion
and Analysis of Financial Condition and Results of Operations in this Report,
as updated from time to time in the Companys Securities and Exchange Commission
filings. These factors include, but are not limited to:
●
|
intense competition in the Companys
markets;
|
●
|
worldwide, regional and local
economic conditions and financial market volatility;
|
●
|
the ability of the Company to drive
sales growth, increase price and market share, grow its product categories
and achieve favorable product and geographic mix;
|
●
|
volatility and increases in
commodity costs such as resin, sodium hypochlorite and agricultural
commodities, and increases in energy, transportation or other
costs;
|
●
|
dependence on key customers and
risks related to customer consolidation and ordering
patterns;
|
●
|
risks related to reliance on
information technology systems, including potential security breaches,
cyber-attacks, privacy breaches or data breaches that result in the
unauthorized disclosure of consumer, customer, employee or Company
information, or service interruptions;
|
●
|
costs resulting from government
regulations;
|
●
|
the ability of the Company to
successfully manage global political, legal, tax and regulatory risks,
including changes in regulatory or administrative
activity;
|
●
|
risks related to international
operations, including political instability; government-imposed price
controls or other regulations; foreign currency exchange rate controls,
including periodic changes in such controls, fluctuations and
devaluations; labor claims, labor unrest and inflationary pressures,
particularly in Argentina; and potential harm and liabilities from the
use, storage and transportation of chlorine in certain international
markets where chlorine is used in the production of bleach; and the
possibility of nationalization, expropriation of assets or other
government action;
|
Continues on next page
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THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-21
|
Table of
Contents
●
|
risks relating to acquisitions,
new ventures and divestitures, and associated costs, including the
potential for asset impairment charges related to, among others,
intangible assets and goodwill;
|
●
|
the ability of the Company to
develop and introduce commercially successful products;
|
●
|
supply disruptions and other
risks inherent in reliance on a limited base of
suppliers;
|
●
|
the impact of product liability
claims, labor claims and other legal proceedings, including in foreign
jurisdictions
|
●
|
the success of the Companys
business strategies;
|
●
|
the ability of the Company to
implement and generate anticipated cost savings and
efficiencies;
|
●
|
the Companys ability to attract
and retain key personnel;
|
●
|
the Companys ability to maintain
its business reputation and the reputation of its brands;
|
●
|
environmental matters, including
costs associated with the remediation of past contamination and the
handling and/or transportation of hazardous
substances;
|
●
|
the impact of natural disasters,
terrorism and other events beyond the Companys control;
|
●
|
the Companys ability to
maximize, assert and defend its intellectual property
rights;
|
●
|
any infringement or claimed
infringement by the Company of third-party intellectual property
rights;
|
●
|
risks related to the potential
increase in the Companys purchase price for P&Gs interest in the
Glad
®
business and the impact from the decision on whether or
not to extend the term of the related agreement with
P&G;
|
●
|
the effect of the Companys
indebtedness and credit rating on its business operations and financial
results;
|
●
|
risks related to the Companys
discontinuation of operations in Venezuela;
|
●
|
the Companys ability to pay and
declare dividends or repurchase its stock in the future;
|
●
|
the Companys ability to maintain
an effective system of internal controls, including after completing
acquisitions;
|
●
|
uncertainties relating to tax
positions, tax disputes and changes in the Companys tax
rate;
|
●
|
the accuracy of the Companys
estimates and assumptions on which its earnings guidance is based;
and
|
●
|
the impacts of potential
stockholder activism.
|
The Companys forward-looking
statements in this Report are based on managements current views and
assumptions regarding future events and speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by the federal securities
laws.
MANAGEMENTS REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
The Companys management is responsible
for establishing and maintaining adequate internal control over financial
reporting. The Companys internal control over financial reporting is a process
designed under the supervision of its Chief Executive Officer and Chief
Financial Officer to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Companys financial statements
for external reporting in accordance with accounting principles generally
accepted in the United States of America.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions or that the degree of compliance with the policies or
procedures may deteriorate.
Management evaluated the effectiveness
of the Companys internal control over financial reporting using the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in
Internal
Control-Integrated Framework
published in
2013. Management, under the supervision and with the participation of the
Companys Chief Executive Officer and Chief Financial Officer, assessed the
effectiveness of the Companys internal control over financial reporting at June
30, 2015, and concluded that it is effective.
Management has excluded Renew Life from
its assessment of internal control over financial reporting as of June 30, 2016
because Renew Life was acquired by the Company on May 2, 2016. The acquired
business internal control over financial reporting and related processes have
not been integrated into the Companys existing systems and internal control
over financial reporting, and have been excluded from managements assessment of
the effectiveness of internal control over financial reporting as of June 30,
2016. Renew Life, which is included in the June 30, 2016 consolidated financial
statements, constitutes $344 and $284 of total and net assets, respectively, as
of June 30, 2016 and $21 and $(6) of net sales and net earnings, respectively,
for the year then ended.
The Companys independent registered
public accounting firm, Ernst & Young LLP, has audited the effectiveness of
the Companys internal control over financial reporting as of June 30,
2016.
A-22 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Appendix A
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and
Stockholders of The Clorox Company
We have audited the accompanying
consolidated balance sheets of The Clorox Company as of June 30, 2016 and 2015,
and the related consolidated statements of earnings, comprehensive income,
stockholders equity and cash flows for each of the three years in the period
ended June 30, 2016. Our audits also included the financial statement schedule
in Exhibit 99.2. These financial statements and schedule are the responsibility
of the Companys management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of The Clorox Company at June 30, 2016 and 2015,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended June 30, 2016, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), The Clorox Companys internal control over financial reporting as of
June 30, 2016, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated August 16, 2016 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
San Francisco, CA
August 16,
2016
Continues on next page
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|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-23
|
Table of
Contents
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and
Stockholders of The Clorox Company
We have audited The Clorox Companys
internal control over financial reporting as of June 30, 2016, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 framework) (the
COSO criteria). The Clorox Companys management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying Managements Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
As indicated in the accompanying
Managements Report on Internal Control Over Financial Reporting, managements
assessment of and conclusion on the effectiveness of internal control over
financial reporting did not include the internal controls of Renew Life, which
is included in the June 30, 2016 consolidated financial statements of The Clorox
Company and constituted $344 and $284 of total and net assets, respectively, as
of June 30, 2016 and $21 and $(6) of net sales and net earnings, respectively,
for the year then ended. Our audit of internal control over financial reporting
of The Clorox Company also did not include an evaluation of the internal control
over financial reporting of Renew Life.
In our opinion, The Clorox Company
maintained, in all material respects, effective internal control over financial
reporting as of June 30, 2016, based on the COSO criteria.
We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets as of June 30, 2016 and 2015, and the
related consolidated statements of earnings, comprehensive income, stockholders
equity, and cash flows for each of the three years in the period ended June 30,
2016 of The Clorox Company and our report dated August 16, 2016 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
San Francisco, CA
August 16,
2016
A-24 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Appendix A
CONSOLIDATED STATEMENTS OF
EARNINGS
The Clorox
Company
|
Years ended June
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in millions, except share and per share
data
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Net sales
|
|
$
|
5,761
|
|
|
$
|
5,655
|
|
|
$
|
5,514
|
|
|
Cost of products sold
|
|
|
3,163
|
|
|
|
3,190
|
|
|
|
3,158
|
|
|
Gross profit
|
|
|
2,598
|
|
|
|
2,465
|
|
|
|
2,356
|
|
|
|
|
Selling and administrative
expenses
|
|
|
806
|
|
|
|
798
|
|
|
|
751
|
|
|
Advertising costs
|
|
|
587
|
|
|
|
523
|
|
|
|
503
|
|
|
Research and development
costs
|
|
|
141
|
|
|
|
136
|
|
|
|
125
|
|
|
Interest expense
|
|
|
88
|
|
|
|
100
|
|
|
|
103
|
|
|
Other (income) expense,
net
|
|
|
(7
|
)
|
|
|
(13
|
)
|
|
|
(10
|
)
|
|
Earnings from continuing operations before
income taxes
|
|
|
983
|
|
|
|
921
|
|
|
|
884
|
|
|
Income taxes on continuing
operations
|
|
|
335
|
|
|
|
315
|
|
|
|
305
|
|
|
Earnings from continuing
operations
|
|
|
648
|
|
|
|
606
|
|
|
|
579
|
|
|
Losses from discontinued
operations, net of tax
|
|
|
|
|
|
|
(26
|
)
|
|
|
(21
|
)
|
|
Net earnings
|
|
$
|
648
|
|
|
$
|
580
|
|
|
$
|
558
|
|
|
|
|
Net earnings (losses) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
5.01
|
|
|
$
|
4.65
|
|
|
$
|
4.47
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
(0.20
|
)
|
|
|
(0.16
|
)
|
|
Basic net
earnings per share
|
|
$
|
5.01
|
|
|
$
|
4.45
|
|
|
$
|
4.31
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
4.92
|
|
|
$
|
4.57
|
|
|
$
|
4.39
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
(0.20
|
)
|
|
|
(0.16
|
)
|
|
Diluted net earnings per
share
|
|
$
|
4.92
|
|
|
$
|
4.37
|
|
|
$
|
4.23
|
|
|
|
|
Weighted average shares
outstanding (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
129,472
|
|
|
|
130,310
|
|
|
|
129,558
|
|
|
Diluted
|
|
|
131,717
|
|
|
|
132,776
|
|
|
|
131,742
|
|
See Notes to Consolidated Financial
Statements
Continues on next page
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|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-25
|
Table of
Contents
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
The Clorox
Company
|
Years ended June
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in millions
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Earnings from continuing
operations
|
|
$
|
648
|
|
|
$
|
606
|
|
|
$
|
579
|
|
|
Losses from discontinued operations, net of
tax
|
|
|
|
|
|
|
(26
|
)
|
|
|
(21
|
)
|
|
Net earnings
|
|
|
648
|
|
|
|
580
|
|
|
|
558
|
|
|
Other comprehensive (losses)
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustments,
net of tax
|
|
|
(53
|
)
|
|
|
(54
|
)
|
|
|
(37
|
)
|
|
Net unrealized
gains (losses) on derivatives, net of tax
|
|
|
9
|
|
|
|
(14
|
)
|
|
|
(9
|
)
|
|
Pension and postretirement
benefit adjustments, net of tax
|
|
|
(24
|
)
|
|
|
(17
|
)
|
|
|
(4
|
)
|
|
Total other comprehensive (losses) income,
net of tax
|
|
|
(68
|
)
|
|
|
(85
|
)
|
|
|
(50
|
)
|
|
Comprehensive
income
|
|
$
|
580
|
|
|
$
|
495
|
|
|
$
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial
Statements
A-26 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Appendix A
CONSOLIDATED BALANCE
SHEETS
The Clorox
Company
|
As of June
30
|
|
|
|
|
|
|
|
|
|
Dollars in millions, except share and per share
data
|
|
2016
|
|
|
2015
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
401
|
|
|
$
|
382
|
|
|
Receivables,
net
|
|
|
569
|
|
|
|
519
|
|
|
Inventories, net
|
|
|
443
|
|
|
|
385
|
|
|
Other current
assets
|
|
|
72
|
|
|
|
143
|
|
|
Total
current assets
|
|
|
1,485
|
|
|
|
1,429
|
|
|
Property, plant and equipment, net
|
|
|
906
|
|
|
|
918
|
|
|
Goodwill
|
|
|
1,197
|
|
|
|
1,067
|
|
|
Trademarks, net
|
|
|
657
|
|
|
|
535
|
|
|
Other intangible assets,
net
|
|
|
78
|
|
|
|
50
|
|
|
Other assets
|
|
|
195
|
|
|
|
165
|
|
|
Total assets
|
|
$
|
4,518
|
|
|
$
|
4,164
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Notes and loans
payable
|
|
$
|
523
|
|
|
$
|
95
|
|
|
Current
maturities of long-term debt
|
|
|
|
|
|
|
300
|
|
|
Accounts payable and accrued
liabilities
|
|
|
1,035
|
|
|
|
979
|
|
|
Income taxes
payable
|
|
|
|
|
|
|
31
|
|
|
Total
current liabilities
|
|
|
1,558
|
|
|
|
1,405
|
|
|
Long-term debt
|
|
|
1,797
|
|
|
|
1,796
|
|
|
Other
liabilities
|
|
|
784
|
|
|
|
750
|
|
|
Deferred income taxes
|
|
|
82
|
|
|
|
95
|
|
|
Total
liabilities
|
|
|
4,221
|
|
|
|
4,046
|
|
|
|
|
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, 2016 and 2015; and 129,355,263 and 128,614,310
|
|
|
|
|
|
|
|
|
|
shares outstanding as of June 30, 2016 and
2015, respectively
|
|
|
159
|
|
|
|
159
|
|
|
Additional paid-in
capital
|
|
|
868
|
|
|
|
775
|
|
|
Retained earnings
|
|
|
2,163
|
|
|
|
1,923
|
|
|
Treasury shares, at cost:
29,386,198 and 30,127,151 shares
|
|
|
|
|
|
|
|
|
|
as of June 30, 2016 and 2015,
respectively
|
|
|
(2,323
|
)
|
|
|
(2,237
|
)
|
|
Accumulated other
comprehensive net (losses) income
|
|
|
(570
|
)
|
|
|
(502
|
)
|
|
Stockholders equity
|
|
|
297
|
|
|
|
118
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
4,518
|
|
|
$
|
4,164
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial
Statements
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-27
|
Table of
Contents
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY
The Clorox
Company
|
Dollars in millions
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
|
Treasury
Shares
|
|
Accumulated
Other
Comprehensive
Net
(Losses)
Income
|
|
|
Total
|
|
Shares
(000)
|
|
Amount
|
Shares
(000)
|
|
|
Amount
|
|
|
Balance as of June 30,
2013
|
|
158,741
|
|
|
$
|
159
|
|
|
$
|
661
|
|
|
$
|
1,561
|
|
|
(28,375
|
)
|
|
|
$
|
(1,868
|
)
|
|
|
$
|
(367
|
)
|
|
$
|
146
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
558
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
(50
|
)
|
|
Accrued
dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(374
|
)
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
Other employee stock plan
activities
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
(6
|
)
|
|
1,476
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
98
|
|
|
Treasury stock purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,046
|
)
|
|
|
|
(260
|
)
|
|
|
|
|
|
|
|
(260
|
)
|
|
Balance as of June 30, 2014
|
|
158,741
|
|
|
|
159
|
|
|
|
709
|
|
|
|
1,739
|
|
|
(29,945
|
)
|
|
|
|
(2,036
|
)
|
|
|
|
(417
|
)
|
|
|
154
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
580
|
|
|
Other comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85
|
)
|
|
|
(85
|
)
|
|
Accrued dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(391
|
)
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
Other employee stock plan
activities
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
(5
|
)
|
|
(4,198
|
)
|
|
|
|
233
|
|
|
|
|
|
|
|
|
262
|
|
|
Treasury stock
purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,016
|
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
(434
|
)
|
|
Balance as of June 30,
2015
|
|
158,741
|
|
|
|
159
|
|
|
|
775
|
|
|
|
1,923
|
|
|
(30,127
|
)
|
|
|
|
(2,237
|
)
|
|
|
|
(502
|
)
|
|
|
118
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
648
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
(68
|
)
|
|
Accrued
dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(406
|
)
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
Other employee stock plan
activities
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
(2
|
)
|
|
2,892
|
|
|
|
|
168
|
|
|
|
|
|
|
|
|
214
|
|
|
Treasury stock purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,151
|
)
|
|
|
|
(254
|
)
|
|
|
|
|
|
|
|
(254
|
)
|
|
Balance as of June 30, 2016
|
|
158,741
|
|
|
$
|
159
|
|
|
$
|
868
|
|
|
$
|
2,163
|
|
|
(29,386
|
)
|
|
|
$
|
(2,323
|
)
|
|
|
$
|
(570
|
)
|
|
$
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial
Statements
A-28 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Appendix A
CONSOLIDATED STATEMENTS OF CASH
FLOWS
The Clorox Company
|
Years ended June
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in
millions
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
648
|
|
|
$
|
580
|
|
|
$
|
558
|
|
|
Deduct: Losses
from discontinued operations, net of tax
|
|
|
|
|
|
|
(26
|
)
|
|
|
(21
|
)
|
|
Earnings from continuing
operations
|
|
|
648
|
|
|
|
606
|
|
|
|
579
|
|
|
Adjustments to
reconcile earnings from continuing operations to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provided by
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
165
|
|
|
|
169
|
|
|
|
177
|
|
|
Stock-based
compensation
|
|
|
45
|
|
|
|
32
|
|
|
|
36
|
|
|
Deferred
income taxes
|
|
|
5
|
|
|
|
(16
|
)
|
|
|
(21
|
)
|
|
Settlement
of interest rate forward contracts
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
Other
|
|
|
1
|
|
|
|
(17
|
)
|
|
|
6
|
|
|
Changes
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
|
(52
|
)
|
|
|
6
|
|
|
|
20
|
|
|
Inventories,
net
|
|
|
(45
|
)
|
|
|
(25
|
)
|
|
|
1
|
|
|
Other
current assets
|
|
|
6
|
|
|
|
6
|
|
|
|
5
|
|
|
Accounts
payable and accrued liabilities
|
|
|
57
|
|
|
|
93
|
|
|
|
(12
|
)
|
|
Income
taxes payable
|
|
|
(62
|
)
|
|
|
29
|
|
|
|
(5
|
)
|
|
Net cash provided by continuing
operations
|
|
|
768
|
|
|
|
858
|
|
|
|
786
|
|
|
Net cash provided by (used for) discontinued
operations
|
|
|
10
|
|
|
|
16
|
|
|
|
(19
|
)
|
|
Net cash provided by operations
|
|
|
778
|
|
|
|
874
|
|
|
|
767
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(172
|
)
|
|
|
(125
|
)
|
|
|
(137
|
)
|
|
Business
acquired, net of cash acquired
|
|
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
32
|
|
|
|
19
|
|
|
|
|
|
|
Net cash used for investing activities from
continuing operations
|
|
|
(430
|
)
|
|
|
(106
|
)
|
|
|
(137
|
)
|
|
Net cash used for investing activities by
discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
Net cash used for investing
activities
|
|
|
(430
|
)
|
|
|
(106
|
)
|
|
|
(138
|
)
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
and loans payable, net
|
|
|
426
|
|
|
|
(48
|
)
|
|
|
(60
|
)
|
|
Long-term
debt borrowings, net of issuance costs
|
|
|
|
|
|
|
495
|
|
|
|
|
|
|
Long-term
debt repayments
|
|
|
(300
|
)
|
|
|
(575
|
)
|
|
|
|
|
|
Treasury
stock purchased
|
|
|
(254
|
)
|
|
|
(434
|
)
|
|
|
(260
|
)
|
|
Cash
dividends paid
|
|
|
(398
|
)
|
|
|
(385
|
)
|
|
|
(368
|
)
|
|
Issuance
of common stock for employee stock plans and other
|
|
|
210
|
|
|
|
251
|
|
|
|
96
|
|
|
Net cash used for financing
activities
|
|
|
(316
|
)
|
|
|
(696
|
)
|
|
|
(592
|
)
|
|
Effect of exchange rate changes on cash and
cash equivalents
|
|
|
(13
|
)
|
|
|
(19
|
)
|
|
|
(7
|
)
|
|
Net increase in cash and cash
equivalents
|
|
|
19
|
|
|
|
53
|
|
|
|
30
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
382
|
|
|
|
329
|
|
|
|
299
|
|
|
End
of year
|
|
$
|
401
|
|
|
$
|
382
|
|
|
$
|
329
|
|
|
|
|
Supplemental cash flow
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
79
|
|
|
$
|
104
|
|
|
$
|
76
|
|
|
Income
taxes paid, net of refunds
|
|
|
323
|
|
|
|
236
|
|
|
|
312
|
|
|
Noncash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared and accrued, but not paid
|
|
|
104
|
|
|
|
99
|
|
|
|
95
|
|
See Notes to Consolidated Financial
Statements
Continues on next page
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THE CLOROX COMPANY
- 2016 Proxy Statement
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A-29
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Table of
Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The Clorox Company
(Dollars in millions, except share and 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 sales of consumer products through mass retail
outlets and grocery, e-commerce channels, wholesale distributors 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
Companys 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 managements opinion on estimates
and judgments include assumptions pertaining to accruals for consumer and
trade-promotion programs, stock-based compensation costs, pension and
post-employment benefit costs, 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 instruments, time deposits 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 Companys cash position includes
amounts held by foreign subsidiaries and, as a result, the repatriation of
certain cash balances from some of the Companys foreign subsidiaries could
result in additional 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 Companys 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. The Companys cash holdings were as follows as of June
30:
|
|
|
2016
|
|
2015
|
|
|
U.S. dollar balances held
by U.S. dollar functional currency subsidiaries and at parent
|
|
$
|
249
|
|
$
|
221
|
|
|
Non-U.S. dollar balances held by non-U.S.
dollar functional currency subsidiaries
|
|
|
133
|
|
|
142
|
|
|
U.S. dollar balances held
by non-U.S. dollar functional currency subsidiaries
|
|
|
19
|
|
|
19
|
|
|
Non-U.S. dollar balances held by U.S. dollar
functional currency subsidiaries
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
401
|
|
$
|
382
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016 and 2015, the
Company had $4 and $3 of restricted cash, respectively, which is primarily
related to fiscal year 2012 acquisitions. Restricted cash was included in Other
assets as of June 30, 2016 and in Other current assets as of June 30,
2015.
A-30 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of Contents
Appendix A
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Inventories
Inventories are stated at the lower of
cost or market. When necessary, the Company provides allowances to adjust 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
|
10 - 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 softwares 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 years 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
Continues on next page
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THE CLOROX COMPANY
- 2016 Proxy Statement
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A-31
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Table of Contents
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
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 units goodwill. If the carrying amount of a reporting units 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 units 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 sales volumes, revenue and expense growth rates, changes
in working capital, foreign exchange rates, currency devaluation, 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
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 catch-up 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 Companys 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 are dependent upon vesting and 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 the initial
assumption that performance goals will be achieved. Compensation expense is
adjusted based on managements assessment of the probability that performance
goals will be achieved. If such goals are not met or it is determined that
achievement of performance goals is not probable, previously recognized
compensation expense is trued up in the current period to reflect the expected
payout level. If it is determined that the performance goals will be exceeded,
additional compensation expense is recognized, subject to a cap of
150%.
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 financing cash
inflows.
A-32 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of Contents
Appendix A
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Employee Benefits
The Company accounts for its defined
benefit 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 pension 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 pension expense by the Company.
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 Companys 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 become 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 Companys 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 Companys 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. Trade-promotion and
coupon redemption costs are recorded as a reduction of sales.
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 $5 and $4 as of June 30, 2016 and 2015, respectively.
Receivables, net, included non-customer receivables of $9 and $12 as of June 30,
2016 and 2015, respectively.
Continues on next page
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THE CLOROX COMPANY
- 2016 Proxy Statement
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A-33
|
Table of Contents
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Cost of Products
Sold
Cost of products sold represents the costs
directly related to the manufacture and distribution of the Companys 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 Companys manufacturing
and distribution facilities including salary, benefit costs and incentive
compensation, and royalties and other charges related to the Companys
Glad
®
Venture Agreement (see Note 10).
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, 2016, 2015 and 2014
were $11, $11 and $12, 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 Companys 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 Companys 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 Companys 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 Companys 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 subsidiarys functional currency are reported on the subsidiarys
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.
A-34 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of Contents
Appendix A
NOTE 1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 joint ventures 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 Companys 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 Companys 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, 2016, 2015 and 2014, 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
In March 2016, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (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 deficiencies to be recognized as income tax benefit or expense in
the consolidated statement of earnings and excess tax benefits and deficiencies
to be classified as an operating activity in the consolidated statement of cash
flows. The new guidance is effective for the Company beginning in the first
quarter of fiscal year 2018, with early adoption permitted. The Company is
planning to adopt the standard in the first quarter of fiscal year 2017. While
the actual benefit realized may vary significantly given the inherent
uncertainty in predicting future share-based transactions, the Company currently
estimates that the adoption will result in approximately a 4 percentage point
benefit to the Companys historical effective tax rate of 34% to 35% for fiscal
year 2017.
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842), which requires lessees to recognize a
right-of-use asset and lease liability for all leases with terms of more than 12
months. Recognition, measurement and presentation will depend on classification
as a finance or 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 adoption of this
guidance will have on its consolidated financial statements.
Continues on next page
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THE CLOROX COMPANY
- 2016 Proxy Statement
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A-35
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Table of Contents
NOTE 1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
In November 2015, the FASB issued ASU No.
2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes, which requires all deferred tax liabilities and assets to be classified
as noncurrent. The Company adopted the standard in the fourth quarter of fiscal
year 2016 on a prospective basis as permitted. Prior period balances have not
been retrospectively adjusted.
In April 2015, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (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 new guidance is effective for the
Company beginning in the first quarter of fiscal year 2017, with early adoption
permitted. The Company does not expect the adoption of this guidance will have a
significant impact on its consolidated financial statements.
In February 2015, the FASB issued ASU No.
2015-02, Amendments to the Consolidation Analysis, which changes the guidance
for evaluating whether to consolidate certain legal entities. The amendments
modify the evaluation of whether limited partnerships and similar legal entities
are variable interest entities (VIEs) or voting interest entities. The new
guidance is effective for the Company beginning in the first quarter of fiscal
year 2017, with early adoption permitted. The Company does not expect the
adoption of this guidance will have a significant impact 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 existing U.S. GAAP revenue recognition guidance and is intended to improve
and converge with international standards 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 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.
NOTE 2. 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 governments 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 governments expropriation of Clorox Venezuelas assets.
Further, President Nicolás Maduro announced the governments 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.
A-36 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of Contents
Appendix A
NOTE 2. DISCONTINUED
OPERATIONS (Continued)
With this exit, the financial results of
Clorox Venezuela are reflected as discontinued operations in the Companys
consolidated financial statements. The results of Clorox Venezuela have
historically been part of the International reportable segment.
Net sales for Clorox Venezuela were $0,
$11 and $77 for the fiscal years ended June 30, 2016, 2015 and 2014,
respectively.
The following table provides a summary of
gains (losses) from discontinued operations for Clorox Venezuela and gains
(losses) from discontinued operations other than Clorox Venezuela for the years
ended June 30:
|
2016
|
|
|
2015
|
|
|
2014
|
|
Operating losses from
Clorox Venezuela before income taxes
|
|
$
|
|
|
|
|
$
|
(6
|
)
|
|
|
$
|
(23
|
)
|
Exit costs and other related expenses for
Clorox Venezuela
|
|
|
(2
|
)
|
|
|
|
(78
|
)
|
|
|
|
|
|
Total losses from Clorox
Venezuela before income taxes
|
|
|
(2
|
)
|
|
|
|
(84
|
)
|
|
|
|
(23
|
)
|
Income tax benefit attributable to Clorox
Venezuela
|
|
|
2
|
|
|
|
|
29
|
|
|
|
|
6
|
|
Total losses from Clorox
Venezuela, net of tax
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
|
(17
|
)
|
Gains (losses) from discontinued operations
other than Clorox Venezuela, net of tax
|
|
|
|
|
|
|
|
29
|
|
|
|
|
(4
|
)
|
Losses from discontinued
operations, net of tax
|
|
$
|
|
|
|
|
$
|
(26
|
)
|
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Companys cash flow or earnings from continuing operations for the fiscal years
ended June 30, 2015 and 2014. (See Note 18)
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:
|
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
|
|
|
(2
|
)
|
|
|
|
(10
|
)
|
Total losses from Clorox
Venezuela before income taxes
|
|
|
(2
|
)
|
|
|
|
(84
|
)
|
Income tax benefit attributable to Clorox
Venezuela
|
|
|
2
|
|
|
|
|
29
|
|
Total losses from Clorox
Venezuela, net of tax
|
|
|
|
|
|
|
|
(55
|
)
|
Gains from discontinued operations other
than Clorox Venezuela, net of tax
|
|
|
|
|
|
|
|
29
|
|
Losses from discontinued
operations, net of tax
|
|
$
|
|
|
|
|
$
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
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.
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-37
|
Table of Contents
NOTE 2. DISCONTINUED OPERATIONS
(Continued)
Financial Reporting: Hyperinflation and the
Selection of Exchange Rates
Due to a sustained inflationary
environment, the financial statements of Clorox Venezuela are consolidated under
the rules governing the preparation of financial statements in a highly
inflationary economy. As such, Clorox Venezuelas non-U.S. dollar (non-USD)
monetary assets and liabilities were remeasured into U.S. dollars (USD) each
reporting period with the resulting gains and losses now reflected in
discontinued operations.
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 Companys 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, 2016 and 2015. As of June 30, 2016 and
2015, the local books of Clorox Venezuela carried a net asset position of $0. In
addition, as of June 30, 2016 and 2015, the Company held $0 and $13,
respectively, of tax asset balances related to Clorox Venezuela in Corporate in
the reconciliation of the results of the Companys reportable segments to
consolidated results.
NOTE 3. BUSINESSES
ACQUIRED
On May 2, 2016, the Company acquired 100
percent of ReNew Life Holdings Corporation (Renew Life), 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 Renew Life business reflects the Companys strategy to
acquire leading brands with attractive margins in growth categories. Results for
Renew Lifes U.S. business are reflected in the Household reportable segment and
results for Renew Lifes international business are reflected in the
International reportable segment. Included in the Companys results for fiscal
year 2016 was $21 of Renew Lifes global net sales.
The assets and liabilities of Renew Life
were recorded at their respective estimated fair values as of the date of the
acquisition using generally accepted accounting principles for business
combinations. The excess of the purchase price over the fair value of the net
identifiable assets acquired has been allocated to goodwill. Goodwill recorded
primarily reflects the value of expanding the Companys portfolio further into
the health and wellness arena.
The following table summarizes the
estimated fair values of Renew Lifes assets acquired and liabilities assumed
and related deferred income taxes as of the acquisition date. Due to the timing
of the acquisition, the fair value of the assets acquired and liabilities
assumed are based on a preliminary valuation and the Companys estimates and
assumptions are subject to change within the measurement period. The primary
areas of the purchase price that are not yet finalized are related to goodwill
and income taxes. The weighted-average estimated useful life of intangible
assets subject to amortization is 15 years.
|
|
2016
|
|
|
Renew Life
|
|
Goodwill
|
|
$
|
137
|
|
Trademarks
|
|
|
134
|
|
Customer
relationships
|
|
|
36
|
|
Property, plant and equipment
|
|
|
3
|
|
Working capital,
net
|
|
|
41
|
|
Deferred income taxes
|
|
|
(61
|
)
|
Purchase Price
|
|
$
|
290
|
|
|
|
|
|
|
Pro forma results reflecting the
acquisition were not presented because the acquisition did not meet the
threshold requirements for additional disclosure.
A-38 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of Contents
Appendix A
NOTE 4.
INVENTORIES
Inventories consisted of the following as
of June 30:
|
2016
|
|
|
2015
|
|
Finished goods
|
|
$
|
361
|
|
|
|
$
|
316
|
|
Raw materials and packaging
|
|
|
111
|
|
|
|
|
101
|
|
Work in process
|
|
|
3
|
|
|
|
|
3
|
|
LIFO allowances
|
|
|
(32
|
)
|
|
|
|
(35
|
)
|
Total
|
|
$
|
443
|
|
|
|
$
|
385
|
|
|
|
|
|
|
|
|
|
|
|
The last-in, first-out (LIFO) method was
used to value approximately 38% of inventories as of June 30, 2016 and 2015,
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 a benefit of $0, $0 and $2 for the fiscal years ended June
30, 2016, 2015 and 2014, respectively.
NOTE 5. OTHER CURRENT
ASSETS
Other current assets consisted of the
following as of June 30:
|
2016
|
|
2015
|
Deferred tax
assets
(a)
|
|
$
|
|
|
$
|
99
|
Prepaid expenses
|
|
|
70
|
|
|
39
|
Other
|
|
|
2
|
|
|
5
|
Total
|
|
$
|
72
|
|
$
|
143
|
|
|
|
|
|
|
|
(a)
|
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. See Note 1 and 18 for further
details.
|
NOTE 6. PROPERTY, PLANT AND
EQUIPMENT, NET
The components of property, plant and
equipment, net, consisted of the following as of June 30:
|
2016
|
|
2015
|
Machinery and
equipment
|
$
|
1,607
|
|
|
$
|
1,608
|
|
Buildings
|
|
524
|
|
|
|
515
|
|
Capitalized software
costs
|
|
368
|
|
|
|
371
|
|
Land and improvements
|
|
118
|
|
|
|
122
|
|
Construction in
progress
|
|
112
|
|
|
|
65
|
|
Computer equipment
|
|
88
|
|
|
|
76
|
|
|
|
2,817
|
|
|
|
2,757
|
|
Less: Accumulated depreciation and
amortization
|
|
(1,911
|
)
|
|
|
(1,839
|
)
|
Total
|
$
|
906
|
|
|
$
|
918
|
|
|
|
|
|
|
|
|
|
Included in Machinery and equipment above
are $12 of capital leases as of June 30, 2016 and 2015, respectively.
Accumulated depreciation for assets under capital leases was $3 and $2 as of
June 30, 2016 and 2015, respectively.
Included in Land and improvements above
are $3 and $2 of asset retirement obligations as of June 30, 2016 and 2015,
respectively, for two leased properties. The liability of $1 and $2 incurred in
fiscal year 2016 and 2015, respectively, was recorded in Other
liabilities.
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-39
|
Table of
Contents
NOTE 6. PROPERTY, PLANT AND EQUIPMENT,
NET (Continued)
Depreciation and amortization expense
related to property, plant and equipment, net, was $157, $157 and $161 in fiscal
years 2016, 2015 and 2014, respectively, which includes depreciation of assets
under capital leases. This also includes amortization of capitalized software of
$16, $19 and $22 in fiscal years 2016, 2015 and 2014, respectively.
Non-cash capital expenditures were $10,
$18 and $0 in fiscal years 2016, 2015 and 2014, respectively.
NOTE 7. GOODWILL, TRADEMARKS AND OTHER
INTANGIBLE ASSETS
The changes in the carrying amount of
goodwill by reportable segment for the fiscal years ended June 30, 2016 and 2015
were as follows:
|
|
Goodwill
|
|
|
Cleaning
|
|
Lifestyle
|
|
Household
|
|
International
|
|
Total
|
Balance June 30,
2014
|
|
|
$
|
323
|
|
|
$
|
244
|
|
|
$
|
85
|
|
|
$
|
449
|
|
|
|
$
|
1,101
|
|
Effect of foreign currency
translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
(34
|
)
|
Balance June 30,
2015
|
|
|
|
323
|
|
|
|
244
|
|
|
|
85
|
|
|
|
415
|
|
|
|
|
1,067
|
|
Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
|
15
|
|
|
|
|
137
|
|
Effect of foreign currency
translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
(7
|
)
|
Balance June 30, 2016
|
|
|
$
|
323
|
|
|
$
|
244
|
|
|
$
|
207
|
|
|
$
|
423
|
|
|
|
$
|
1,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2016
|
|
As of June 30,
2015
|
|
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
|
Trademarks not subject to
amortization
|
|
|
$
|
647
|
|
|
$
|
|
|
|
$
|
647
|
|
|
$
|
524
|
|
|
$
|
|
|
|
$
|
524
|
|
Trademarks subject to amortization
|
|
|
|
32
|
|
|
|
22
|
|
|
|
10
|
|
|
|
33
|
|
|
|
22
|
|
|
|
11
|
|
Other intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and product formulae
|
|
|
|
137
|
|
|
|
134
|
|
|
|
3
|
|
|
|
137
|
|
|
|
133
|
|
|
|
4
|
|
Other
|
|
|
|
221
|
|
|
|
146
|
|
|
|
75
|
|
|
|
188
|
|
|
|
142
|
|
|
|
46
|
|
Total
|
|
|
$
|
1,037
|
|
|
$
|
302
|
|
|
$
|
735
|
|
|
$
|
882
|
|
|
$
|
297
|
|
|
$
|
585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets are
amortized over their estimated useful lives, generally ranging from 2 to 30
years. Amortization expense relating to the Companys intangible assets was $8,
$12 and $15 for the years ended June 30, 2016, 2015 and 2014, respectively.
Estimated amortization expense for these intangible assets is $10, $9, $9, $9
and $8 for fiscal years 2017, 2018, 2019, 2020 and 2021,
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 segment. The
Aplicare
®
trademark impairment was recognized based on the
anticipated impact on future results from a competitive market
entrant.
A-40 THE CLOROX COMPANY
- 2016 Proxy Statement
Table of
Contents
Appendix A
NOTE 8. ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
Accounts payable and accrued liabilities
consisted of the following as of June 30:
|
|
2016
|
|
2015
|
|
Accounts payable
|
|
|
$
|
490
|
|
|
$
|
431
|
|
Compensation and employee benefit
costs
|
|
|
|
192
|
|
|
|
189
|
|
Trade and sales
promotion
|
|
|
|
127
|
|
|
|
115
|
|
Dividends
|
|
|
|
108
|
|
|
|
103
|
|
Other
|
|
|
|
118
|
|
|
|
141
|
|
Total
(a)
|
|
|
$
|
1,035
|
|
|
$
|
979
|
|
|
|
(a)
|
Accounts payable and accrued
liabilities were combined into one financial statement line as of June 30,
2016. The change has been retrospectively applied to all periods
presented.
|
NOTE 9. DEBT
Notes and loans payable, which mature in
less than one year, included the following as of June 30:
|
|
2016
|
|
2015
|
|
Commercial paper
|
|
|
$
|
522
|
|
|
$
|
93
|
|
Foreign borrowings
|
|
|
|
1
|
|
|
|
2
|
|
Total
|
|
|
$
|
523
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average interest rates
incurred on average outstanding notes and loans payable during the fiscal years
ended June 30, 2016, 2015 and 2014, including fees associated with the Companys
undrawn revolving credit facility, were 1.10%, 2.05% and 0.97%, respectively.
The weighted average effective interest rates on commercial paper balances as of
June 30, 2016 and 2015 were 0.82% and 0.39%, respectively.
Long-term debt, carried at face value net
of unamortized discounts or premiums, included the following as of June
30:
|
|
2016
|
|
2015
|
|
Senior unsecured notes and
debentures:
|
|
|
|
|
|
|
|
|
|
3.55%,
$300 due November 2015
|
|
|
|
|
|
|
|
300
|
|
5.95%, $400 due October
2017
|
|
|
|
400
|
|
|
|
399
|
|
3.80%,
$300 due November 2021
|
|
|
|
298
|
|
|
|
298
|
|
3.05%, $600 due
September 2022
|
|
|
|
599
|
|
|
|
599
|
|
3.50%,
$500 due December 2024
|
|
|
|
500
|
|
|
|
500
|
|
Total
|
|
|
|
1,797
|
|
|
|
2,096
|
|
Less: Current maturities of long-term
debt
|
|
|
|
|
|
|
|
(300
|
)
|
Long-term debt
|
|
|
$
|
1,797
|
|
|
$
|
1,796
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average interest rates
incurred on average outstanding long-term debt during the fiscal years ended
June 30, 2016, 2015 and 2014, were 4.37%, 4.44% and 4.56%, respectively. The
weighted average effective interest rates on long-term debt balances as of June
30, 2016 and 2015, were 4.41% and 4.31%, respectively.
Long-term debt maturities as of June 30,
2016, are $0, $400, $0, $0, $0 and $1,400 in fiscal years 2017, 2018, 2019,
2020, 2021 and thereafter, respectively.
In November 2015, $300 of the Companys
senior notes with an annual fixed interest rate of 3.55% became due and were
repaid using commercial paper borrowings and cash on hand.
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-41
|
Table of
Contents
NOTE 9. DEBT (Continued)
In December 2014, under a shelf
registration statement filed with the SEC that will expire in December 2017, the
Company issued $500 of senior notes with an annual fixed interest rate of 3.50%. Interest on the notes is payable semi-annually in June and December and the
notes have a maturity date of December 15, 2024. 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 Note 11). The notes rank
equally with all of the Companys existing senior indebtedness. In January 2015,
$575 of the Companys 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.
The Companys borrowing capacity under
other financing arrangements as of June 30 was as follows:
|
|
2016
|
|
2015
|
|
Revolving credit
facility
|
|
|
$
|
1,100
|
|
|
$
|
1,100
|
|
Foreign credit lines
|
|
|
|
10
|
|
|
|
11
|
|
Other credit
lines
|
|
|
|
18
|
|
|
|
18
|
|
Total
|
|
|
$
|
1,128
|
|
|
$
|
1,129
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016, the Company had a
$1,100 revolving credit agreement (the Credit Agreement), which expires in
October 2019. There were no borrowings under the Credit Agreement as of June 30,
2016 or 2015. The agreement includes certain restrictive covenants and
limitations, with which the Company was in compliance as of June 30,
2016.
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. Of the $29 of foreign and other credit lines as of June
30, 2015, $4 was outstanding and the remainder of $25 was available for
borrowing.
NOTE 10. OTHER
LIABILITIES
Other liabilities consisted of the
following as of June 30:
|
|
2016
|
|
2015
|
|
Employee benefit
obligations
|
|
|
$
|
335
|
|
|
$
|
299
|
|
Venture agreement terminal obligation,
net
|
|
|
|
302
|
|
|
|
294
|
|
Taxes
|
|
|
|
40
|
|
|
|
38
|
|
Other
|
|
|
|
107
|
|
|
|
119
|
|
Total
|
|
|
$
|
784
|
|
|
$
|
750
|
|
|
|
|
|
|
|
|
|
|
|
Venture Agreement
The Company has an agreement with The
Procter & Gamble Company (P&G) for the Companys Glad
®
bags,
wraps and containers business. As of June 30, 2016 and 2015, 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 decide, on
or prior to January 2018, to extend the term of the agreement for another 10
years. The agreement can be terminated under certain circumstances, including at
P&Gs option upon a change in control of the Company or, at either partys
option, upon the sale of the Glad
®
business by the
Company.
Upon termination of the agreement, the
Company is required to purchase P&Gs interest for cash at fair value as
established by predetermined valuation procedures. As of June 30, 2016, the
estimated fair value of P&Gs interest was $448, of which $302 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&Gs interest, is charged to Cost
of products sold on a straight-line basis 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.
A-42 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of
Contents
Appendix A
NOTE 10. OTHER LIABILITIES
(Continued)
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, CA 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, 2016 and 2015, the long-term portion of the deferred
gain of $36 and $40, respectively, was included in Other in the table
above.
NOTE 11. FINANCIAL INSTRUMENTS AND FAIR
VALUE MEASUREMENTS
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 entitys own assumptions.
As of June 30, 2016 and 2015, the
Companys 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
certain of the Companys nonqualified deferred compensation plans, which were
classified as Level 1.
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, 2016, the notional amount
of commodity derivatives was $30, of which $16 related to jet fuel swaps and $14
related to soybean oil futures. As of June 30, 2015, the notional amount of
commodity derivatives was $47, of which $27 related to jet fuel swaps and $20
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 Companys
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 Companys subsidiaries to hedge
forecasted purchases of inventory were $84 and $105, respectively, as of June
30, 2016 and 2015.
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-43
|
Table of
Contents
NOTE 11. FINANCIAL INSTRUMENTS AND FAIR
VALUE MEASUREMENTS (Continued)
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 Companys 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, 2016
and 2015, and is being amortized into Interest expense on the consolidated
statements of earnings over the 10-year term of the notes.
The Company had no outstanding interest
rate forward contracts as of June 30, 2016 and 2015.
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 derivative instruments of $5 and $8 reflected in Accounts payable
and accrued liabilities and Other liabilities as of June 30, 2016 and 2015,
respectively, $4 and $8, respectively, contained such terms. As of both June 30,
2016 and 2015, 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 Companys over-the-counter derivative instruments require the credit
ratings, as assigned by Standard & Poors and Moodys 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 Companys 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, 2016 and 2015, the Company and each of its
counterparties had been assigned investment grade ratings by both Standard &
Poors and Moodys.
Certain of the Companys 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 Companys broker for trades conducted on that exchange. As of June 30, 2016
and 2015, the Company maintained cash margin balances related to exchange-traded
futures contracts of $1 and $2, respectively, which are classified as 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 certain of its
nonqualified deferred compensation plans. The participants, who are the
Companys current and former employees, in the deferred compensation plans 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.
A-44 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of
Contents
Appendix A
NOTE 11. FINANCIAL INSTRUMENTS AND FAIR
VALUE MEASUREMENTS (Continued)
The value of the trust assets related to
certain of the Companys nonqualified deferred compensation plans increased by
$14 as compared to June 30, 2015, primarily due to current year employees
contributions to these plans.
Fair Value of Financial
Instruments
The following table summarizes the fair
value of Companys assets and liabilities for which disclosure of fair value is
required as of June 30:
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Balance
sheet
classification
|
|
Fair value
hierarchy
level
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments including money market
funds
|
|
Cash and cash
equivalents
(a)
|
|
1
|
|
|
$
|
234
|
|
|
$
|
234
|
|
|
$
|
212
|
|
|
$
|
212
|
|
Time deposits
|
|
Cash and cash
equivalents
(a)
|
|
2
|
|
|
|
79
|
|
|
|
79
|
|
|
|
84
|
|
|
|
84
|
|
Commodity purchase derivative
contracts
|
|
Other current assets
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Foreign exchange
derivative contracts
|
|
Other current
assets
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Commodity purchase derivative
contracts
|
|
Other assets
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Trust assets for
nonqualified deferred
compensation
plans
|
|
Other assets
|
|
1
|
|
|
|
52
|
|
|
|
52
|
|
|
|
38
|
|
|
|
38
|
|
|
|
|
|
|
|
|
$
|
368
|
|
|
$
|
368
|
|
|
$
|
335
|
|
|
$
|
335
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and loans payable
|
|
Notes and loans
payable
(b)
|
|
2
|
|
|
$
|
523
|
|
|
$
|
523
|
|
|
$
|
95
|
|
|
$
|
95
|
|
Commodity purchase
derivative contracts
|
|
Accounts payable
and
accrued
liabilities
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
8
|
|
|
|
8
|
|
Foreign exchange derivative
contracts
|
|
Accounts payable and
accrued liabilities
|
|
2
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of
long-term debt and
Long-term debt
|
|
Current maturities of
long-term
debt and Long-term
debt
(c)
|
|
2
|
|
|
|
1,797
|
|
|
|
1,922
|
|
|
|
2,096
|
|
|
|
2,137
|
|
|
|
|
|
|
|
|
$
|
2,325
|
|
|
$
|
2,450
|
|
|
$
|
2,199
|
|
|
$
|
2,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
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.
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-45
|
Table of
Contents
NOTE 11. FINANCIAL INSTRUMENTS AND
FAIR VALUE MEASUREMENTS (Continued)
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 net loss
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Commodity purchase
derivative contracts
|
|
|
$
|
(4
|
)
|
|
|
$
|
(13
|
)
|
|
|
$
|
2
|
|
Interest rate derivative contracts
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
(13
|
)
|
Foreign exchange
derivative contracts
|
|
|
|
(3
|
)
|
|
|
|
7
|
|
|
|
|
(3
|
)
|
Total
|
|
|
$
|
(7
|
)
|
|
|
$
|
(18
|
)
|
|
|
$
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses)
reclassified from
accumulated other comprehensive net
loss and
recognized in net earnings
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Commodity purchase
derivative contracts
|
|
|
$
|
(13
|
)
|
|
|
$
|
(5
|
)
|
|
|
$
|
|
|
Interest rate derivative contracts
|
|
|
|
(6
|
)
|
|
|
|
(5
|
)
|
|
|
|
(4
|
)
|
Foreign exchange
derivative contracts
|
|
|
|
1
|
|
|
|
|
3
|
|
|
|
|
4
|
|
Total
|
|
|
$
|
(18
|
)
|
|
|
$
|
(7
|
)
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gains (losses) reclassified from
Accumulated other comprehensive net (losses) income and recognized in earnings
during the fiscal years ended June 30, 2016, 2015 and 2014, for commodity
purchase and foreign exchange contracts were included in Cost of products sold,
and for interest rate contracts were included in Interest expense.
The estimated amount of the existing net
gain (loss) in Accumulated other comprehensive net (losses) income as of June
30, 2016, which is expected to be reclassified into earnings within the next
twelve months, is $(11). Gains and losses on derivative instruments representing
either hedge ineffectiveness or hedge components excluded from the assessment of
effectiveness are recognized in the consolidated statement of earnings. During
each of the fiscal years ended June 30, 2016, 2015 and 2014, hedge
ineffectiveness was not significant.
NOTE 12. OTHER CONTINGENCIES AND
GUARANTEES
Contingencies
The Company is involved in certain
environmental matters, including response actions at various locations. The
Company had a recorded liability of $14 and $12 as of June 30, 2016 and 2015,
respectively, for its share of aggregate future remediation costs related to
these matters. One matter in Dickinson County, Michigan, for which the Company
is jointly and severally liable, accounted for a substantial majority of the
recorded liability as of both June 30, 2016 and 2015. The Company has agreed 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. Currently, the Company cannot accurately predict the
timing of future payments that may be made under this obligation. In addition,
the Companys estimated loss exposure is sensitive to a variety of uncertain
factors, including the efficacy of remediation efforts, changes in remediation
requirements and the future availability of alternative clean-up technologies.
Although it is reasonably possible that the Companys exposure may exceed the
amount recorded, any amount of such additional exposures, or range of exposures,
is not estimable at this time.
A-46 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of
Contents
Appendix A
NOTE 12. OTHER CONTINGENCIES AND
GUARANTEES (Continued)
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 Companys 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 Companys consolidated financial statements taken as a whole.
The Company had not recorded any
liabilities on the aforementioned indemnifications as of June 30, 2016 and
2015.
The Company was a party to letters of
credit of $10 and $11 as of June 30, 2016 and 2015, respectively, primarily
related to one of its insurance carriers, of which $0 had been drawn
upon.
NOTE 13. LEASES AND OTHER
COMMITMENTS
The Company leases various property,
plant, and equipment including office, warehousing, and manufacturing
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 $77, $76 and $71 in fiscal years 2016, 2015 and 2014,
respectively.
The future minimum annual lease
commitments required under the Companys existing non-cancelable operating and
capital lease agreements as of June 30, 2016, were as follows:
Year
|
|
Operating
leases
|
|
Capital
leases
|
|
2017
|
|
|
$
|
49
|
|
|
$
|
3
|
|
2018
|
|
|
|
45
|
|
|
|
2
|
|
2019
|
|
|
|
38
|
|
|
|
1
|
|
2020
|
|
|
|
32
|
|
|
|
|
|
2021
|
|
|
|
29
|
|
|
|
|
|
Thereafter
|
|
|
|
135
|
|
|
|
|
|
Total
|
|
|
$
|
328
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-47
|
Table of
Contents
NOTE 13. LEASES AND OTHER COMMITMENTS
(Continued)
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 Companys 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 Companys business and related requirements. As of June
30, 2016, the Companys purchase obligations were as follows:
Year
|
Purchase
Obligations
|
|
2017
|
|
$
|
150
|
|
2018
|
|
|
54
|
|
2019
|
|
|
37
|
|
2020
|
|
|
12
|
|
2021
|
|
|
2
|
|
Thereafter
|
|
|
1
|
|
Total
|
|
$
|
256
|
|
|
|
|
|
|
NOTE 14. 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, 2016 and 2015, 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.
Share repurchases under authorized
programs were as follows during the fiscal years ended June 30:
|
|
2016
|
|
2015
|
|
2014
|
|
|
Amount
|
|
Shares
(in
000s)
|
|
Amount
|
|
Shares
(in
000s)
|
|
Amount
|
|
Shares
(in
000s)
|
|
Open-market purchase
programs
|
|
|
$
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
$
|
|
|
|
|
|
Evergreen Program
|
|
|
|
254
|
|
|
2,151
|
|
|
|
434
|
|
|
4,016
|
|
|
|
260
|
|
|
3,046
|
|
Total
|
|
|
$
|
254
|
|
|
2,151
|
|
|
$
|
434
|
|
|
4,016
|
|
|
$
|
260
|
|
|
3,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share declared and paid,
respectively, during the fiscal years ended June 30 were as follows:
|
2016
|
|
2015
|
|
2014
|
|
Dividends per share
declared
|
|
$
|
3.11
|
|
|
$
|
2.99
|
|
|
$
|
2.87
|
|
Dividends per share paid
|
|
|
3.08
|
|
|
|
2.96
|
|
|
|
2.84
|
|
A-48 THE CLOROX
COMPANY
- 2016 Proxy Statement
Table of
Contents
Appendix A
NOTE 14. STOCKHOLDERS EQUITY
(Continued)
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
adjustments
|
|
|
Net
unrealized
gains
(losses)
on
derivatives
|
|
|
Pension
and
postretirement
benefit
adjustments
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
Balance June 30,
2013
|
|
|
$
|
(209
|
)
|
|
|
$
|
(30
|
)
|
|
|
$
|
(128
|
)
|
|
|
$
|
(367
|
)
|
Other comprehensive (loss) income before
reclassifications
|
|
|
|
(26
|
)
|
|
|
|
(15
|
)
|
|
|
|
(16
|
)
|
|
|
|
(57
|
)
|
Amounts reclassified from accumulated other
comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
8
|
|
Income tax benefit (expense)
|
|
|
|
(11
|
)
|
|
|
|
6
|
|
|
|
|
4
|
|
|
|
|
(1
|
)
|
Net current period other comprehensive
income (loss)
|
|
|
|
(37
|
)
|
|
|
|
(9
|
)
|
|
|
|
(4
|
)
|
|
|
|
(50
|
)
|
Balance June 30,
2014
|
|
|
|
(246
|
)
|
|
|
|
(39
|
)
|
|
|
|
(132
|
)
|
|
|
|
(417
|
)
|
Other comprehensive (loss) income 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 (loss) income 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
|
)
|
|
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, 2016, 2015 and 2014, Other comprehensive losses on these loans totaled
$14, $9 and $12, respectively, and there were no amounts reclassified from
Accumulated other comprehensive net (losses) income.
Pension and postretirement benefit
reclassification adjustments are reflected in Cost of products sold, Selling and
administrative expenses and Research and development costs.
NOTE 15. 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:
|
|
2016
|
|
2015
|
|
2014
|
|
Basic
|
|
129,472
|
|
130,310
|
|
129,558
|
|
Dilutive effect of stock options and
other
|
|
2,245
|
|
2,466
|
|
2,184
|
|
Diluted
|
|
131,717
|
|
132,776
|
|
131,742
|
|
Antidilutive stock options and
other
|
|
42
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-49
|
Table of
Contents
NOTE 16. STOCK-BASED COMPENSATION
PLANS
In November 2012, the Companys
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, 2016, the Company is authorized to grant
up to approximately 8 million common shares under the Plan, and, as of June 30,
2016, approximately 8 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:
|
|
2016
|
|
2015
|
|
2014
|
|
Cost of products
sold
|
|
|
$
|
6
|
|
|
$
|
4
|
|
|
$
|
4
|
|
Selling and administrative
expenses
|
|
|
|
35
|
|
|
|
25
|
|
|
|
29
|
|
Research and development
costs
|
|
|
|
4
|
|
|
|
3
|
|
|
|
3
|
|
Total compensation cost
|
|
|
$
|
45
|
|
|
$
|
32
|
|
|
$
|
36
|
|
Related income tax benefit
|
|
|
$
|
17
|
|
|
$
|
12
|
|
|
$
|
13
|
|
Cash received during fiscal years 2016,
2015 and 2014 from stock options exercised under all stock-based payment
arrangements was $180, $230 and $86, 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 14).
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 2016, 2015 and 2014 was estimated on the date of
grant using the Black-Scholes valuation model and assumptions noted in the
following table:
|
2016
|
|
2015
|
|
2014
|
|
Expected life
|
5.6 years
|
|
5.6 to 5.8 years
|
|
5.7 years
|
|
Weighted-average expected life
|
5.6 years
|
|
5.7 years
|
|
5.7 years
|
|
Expected
volatility
|
16.43% to 17.3%
|
|
16.3% to 18.6%
|
|
18.4% to 18.5%
|
|
Weighted-average volatility
|
17.2%
|
|
16.6%
|
|
18.5%
|
|
Risk-free interest
rate
|
1.3% to 1.7%
|
|
1.4% to 2.0%
|
|
1.8% to 1.9%
|
|
Weighted-average risk-free interest
rate
|
1.7%
|
|
1.9%
|
|
1.8%
|
|
Dividend yield
|
2.5% to 2.8%
|
|
2.8% to 3.4%
|
|
3.4%
|
|
Weighted-average dividend yield
|
2.8%
|
|
3.3%
|
|
3.4%
|
|
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 Companys stock at the
date of grant, historical implied volatility of the Companys 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.
A-50 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of
Contents
Appendix A
NOTE 16. STOCK-BASED COMPENSATION PLANS
(Continued)
Details of the Companys 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, 2015
|
|
|
8,357
|
|
|
|
$
|
76
|
|
7 years
|
|
|
$
|
236
|
|
Granted
|
|
|
1,317
|
|
|
|
|
112
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,633
|
)
|
|
|
|
69
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(214
|
)
|
|
|
|
95
|
|
|
|
|
|
|
|
Options outstanding as of
June 30, 2016
|
|
|
6,827
|
|
|
|
$
|
85
|
|
7 years
|
|
|
$
|
366
|
|
Options vested as of June 30, 2016
|
|
|
3,555
|
|
|
|
$
|
74
|
|
5
years
|
|
|
$
|
228
|
|
The weighted-average fair value per share
of each option granted during fiscal years 2016, 2015 and 2014, estimated at the
grant date using the Black-Scholes option pricing model was $13.21, $9.65 and
$9.69, respectively. The total intrinsic value of options exercised in fiscal
years 2016, 2015 and 2014 was $142, $140 and $42, respectively.
Stock option awards outstanding as of June
30, 2016, 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 four years
and expire no later than ten years after the grant date. The Company recognizes
compensation expense ratably over the vesting period. As of June 30, 2016, there
was $16 of total unrecognized compensation cost related to non-vested options,
which is expected to be recognized over a remaining weighted-average vesting
period of one 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 three to four 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, 2016, 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 one year. The total fair value of the shares that vested in each of
the fiscal years 2016, 2015 and 2014 was $1, respectively. The weighted-average
grant-date fair value of awards granted was $128.91, $95.67 and $89.25 per share
for fiscal years 2016, 2015 and 2014, respectively.
A summary of the status of the Companys
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, 2015
|
|
|
18
|
|
|
|
$
|
91
|
|
Granted
|
|
|
5
|
|
|
|
|
129
|
|
Vested
|
|
|
(9
|
)
|
|
|
|
88
|
|
Forfeited
|
|
|
(1
|
)
|
|
|
|
106
|
|
Restricted stock awards as
of June 30, 2016
|
|
|
13
|
|
|
|
$
|
108
|
|
|
|
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-51
|
Table of
Contents
NOTE 16. STOCK-BASED COMPENSATION PLANS
(Continued)
Performance Units
As of June 30, 2016, there was $37 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 one year. The weighted-average grant-date fair value of awards granted
was $92.35, $89.75 and $84.45 per share for fiscal years 2016, 2015 and 2014,
respectively.
A summary of the status of the Companys
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, 2015
|
|
|
1,123
|
|
|
|
$
|
79
|
|
Granted
|
|
|
286
|
|
|
|
|
92
|
|
Distributed
|
|
|
(377
|
)
|
|
|
|
70
|
|
Forfeited
|
|
|
(80
|
)
|
|
|
|
87
|
|
Performance unit awards as
of June 30, 2016
|
|
|
952
|
|
|
|
$
|
90
|
|
Performance units vested and deferred as of June 30,
2016
|
|
|
157
|
|
|
|
$
|
58
|
|
The non-vested performance units
outstanding as of June 30, 2016 and 2015 were 794,000 and 944,000, respectively,
and the weighted average grant date fair value was $95.18 and $81.92 per share,
respectively. Total shares vested during fiscal year 2016 were 354,000, which
had a weighted average grant date fair value per share of $72.11. During fiscal
year 2016, $25 of the vested awards was paid by the issuance of shares and $1 of
the vested awards was deferred. Deferred shares continue to earn dividends,
which are also deferred. The total fair value of shares vested was $26, $24 and
$0 during fiscal years 2016, 2015 and 2014, 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 Companys 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 Companys common stock following the
completion of a directors service.
During fiscal year 2016, the Company
granted 13,000 deferred stock units, reinvested dividends of 6,000 units and
distributed 16,000 shares, which had a weighted-average fair value on grant date
of $126.65, $124.03 and $62.70 per share, respectively. As of June 30, 2016,
244,000 units were outstanding, which had a weighted-average fair value on the
grant date of $71.13 per share.
NOTE 17. OTHER (INCOME) EXPENSE, NET
The major components of Other (income)
expense, net, for the fiscal years ended June 30 were:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income from equity
investees
|
|
|
$
|
(15
|
)
|
|
|
$
|
(14
|
)
|
|
|
$
|
(13
|
)
|
Interest income
|
|
|
|
(5
|
)
|
|
|
|
(4
|
)
|
|
|
|
(3
|
)
|
Low income housing
partnership gains, net
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
Foreign exchange transaction losses,
net
|
|
|
|
1
|
|
|
|
|
9
|
|
|
|
|
1
|
|
Amortization of trademarks
and other intangible assets
|
|
|
|
8
|
|
|
|
|
8
|
|
|
|
|
8
|
|
Intangible asset impairment
charges
|
|
|
|
9
|
|
|
|
|
3
|
|
|
|
|
3
|
|
Other
|
|
|
|
(5
|
)
|
|
|
|
(2
|
)
|
|
|
|
(6
|
)
|
Total
|
|
|
$
|
(7
|
)
|
|
|
$
|
(13
|
)
|
|
|
$
|
(10
|
)
|
|
A-52 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of
Contents
Appendix A
NOTE 17. OTHER (INCOME) EXPENSE, NET
(Continued)
In April 2016, the Company sold its Los
Angeles bleach manufacturing facility, previously reported in the Cleaning
segment, which resulted in $20 in cash proceeds from investing activities and a
gain of $(11) included in Other in the table above for the year ended June 30,
2016.
During fiscal year 2016, the Company
recognized $9 of intangible asset impairment charges, of which $6 related to the
Aplicare
®
trademark within the Cleaning segment. The
Aplicare
®
trademark impairment was recognized based on the
anticipated impact on future results from a competitive market
entrant.
Investment in Low-Income Housing
Partnerships
The Company owns, directly or indirectly,
limited partnership interests in low-income housing partnerships, which are
accounted for using the equity method of accounting. These partnerships are
considered to be variable interest entities; however, the Company does not
consolidate them because it does not have the power to direct the partnerships
activities that significantly impact their economic performance. The purpose of
the partnerships is to develop and operate low-income housing rental properties.
The general partners, who typically hold 1% of the partnership interests, are
third parties unrelated to the Company and its affiliates, and are responsible
for controlling and managing the business and financial operations of the
partnerships. As a limited partner, the Company is not responsible for any of
the liabilities and obligations of the partnerships nor do the partnerships or
their creditors have any recourse to the Company other than for the capital
requirements. All available tax benefits from low-income housing tax credits
provided by the partnerships were claimed as of fiscal year 2012. The risk that
previously claimed low-income housing tax credits might be recaptured or
otherwise retroactively invalidated is considered remote.
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 gain of $(14) recorded to Other (income) expense, net, on the
consolidated statement of earnings for the year ended June 30,
2015.
NOTE 18. INCOME TAXES
The provision for income taxes on
continuing operations, by tax jurisdiction, consisted of the following for the
fiscal years ended June 30:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
$
|
254
|
|
|
|
$
|
265
|
|
|
|
$
|
247
|
|
State
|
|
|
|
31
|
|
|
|
|
28
|
|
|
|
|
34
|
|
Foreign
|
|
|
|
45
|
|
|
|
|
38
|
|
|
|
|
45
|
|
Total current
|
|
|
|
330
|
|
|
|
|
331
|
|
|
|
|
326
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
11
|
|
|
|
|
(13
|
)
|
|
|
|
(19
|
)
|
State
|
|
|
|
1
|
|
|
|
|
(1
|
)
|
|
|
|
2
|
|
Foreign
|
|
|
|
(7
|
)
|
|
|
|
(2
|
)
|
|
|
|
(4
|
)
|
Total deferred
|
|
|
|
5
|
|
|
|
|
(16
|
)
|
|
|
|
(21
|
)
|
Total
|
|
|
$
|
335
|
|
|
|
$
|
315
|
|
|
|
$
|
305
|
|
|
The components of earnings from continuing
operations before income taxes, by tax jurisdiction, consisted of the following
for the fiscal years ended June 30:
|
|
2016
|
|
2015
|
|
2014
|
|
United States
|
|
|
$
|
900
|
|
|
$
|
829
|
|
|
$
|
754
|
|
Foreign
|
|
|
|
83
|
|
|
|
92
|
|
|
|
130
|
|
Total
|
|
|
$
|
983
|
|
|
$
|
921
|
|
|
$
|
884
|
|
|
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-53
|
Table of
Contents
NOTE 18. INCOME TAXES
(Continued)
A reconciliation of the statutory federal
income tax rate to the Companys effective tax rate on continuing operations
follows for the fiscal years ended June 30:
|
|
2016
|
|
2015
|
|
2014
|
Statutory federal tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes (net
of federal tax benefits)
|
|
|
2.1
|
|
|
|
2.1
|
|
|
|
2.6
|
|
Tax
differential on foreign earnings
|
|
|
0.5
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Domestic
manufacturing deduction
|
|
|
(2.4
|
)
|
|
|
(2.1
|
)
|
|
|
(2.3
|
)
|
Change in valuation allowance
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.6
|
|
Other
differences
|
|
|
(1.6
|
)
|
|
|
(1.1
|
)
|
|
|
(1.0
|
)
|
Effective tax rate
|
|
|
34.1
|
%
|
|
|
34.2
|
%
|
|
|
34.6
|
%
|
|
Applicable U.S. income taxes and foreign
withholding taxes have not been provided on approximately $216 of undistributed
earnings of certain foreign subsidiaries as of June 30, 2016, 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 $56. 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.
Tax benefits resulting from stock-based
payment arrangements that are in excess of the tax benefits recorded in net
earnings over the vesting period of those arrangements (excess tax benefits) are
recorded as increases to Additional paid-in capital. Excess tax benefits of
approximately $51, $42, and $11 were realized and recorded to Additional paid-in
capital for fiscal years 2016, 2015 and 2014, respectively.
The components of net deferred tax assets
(liabilities) as of June 30 are shown below:
|
|
2016
|
|
|
2015
|
|
Deferred tax
assets
(a)
|
|
|
|
|
|
|
|
|
|
|
Compensation and
benefit programs
|
|
|
$
|
193
|
|
|
|
$
|
191
|
|
Basis difference
related to Venture Agreement
|
|
|
|
30
|
|
|
|
|
30
|
|
Accruals and
reserves
|
|
|
|
34
|
|
|
|
|
43
|
|
Inventory
costs
|
|
|
|
21
|
|
|
|
|
19
|
|
Net operating loss
and tax credit carryforwards
|
|
|
|
48
|
|
|
|
|
41
|
|
Other
|
|
|
|
54
|
|
|
|
|
61
|
|
Subtotal
|
|
|
|
380
|
|
|
|
|
385
|
|
Valuation
allowance
|
|
|
|
(37
|
)
|
|
|
|
(34
|
)
|
Total deferred tax
assets
|
|
|
|
343
|
|
|
|
|
351
|
|
Deferred tax
liabilities
(a)
|
|
|
|
|
|
|
|
|
|
|
Fixed and
intangible assets
|
|
|
|
(325
|
)
|
|
|
|
(277
|
)
|
Low-income housing
partnerships
|
|
|
|
(23
|
)
|
|
|
|
(22
|
)
|
Unremitted foreign
earnings
|
|
|
|
(16
|
)
|
|
|
|
(7
|
)
|
Other
|
|
|
|
(25
|
)
|
|
|
|
(24
|
)
|
Total deferred tax
liabilities
|
|
|
|
(389
|
)
|
|
|
|
(330
|
)
|
Net deferred tax
assets (liabilities)
|
|
|
$
|
(46
|
)
|
|
|
$
|
21
|
|
|
(a)
|
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. See Note 1 for further
details.
|
A-54 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of
Contents
Appendix A
NOTE 18. INCOME TAXES
(Continued)
The Company periodically reviews its
deferred tax assets for recoverability. 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:
|
|
2016
|
|
|
2015
|
|
Valuation allowance at
beginning of year
|
|
|
$
|
(34
|
)
|
|
|
$
|
(51
|
)
|
Net decrease/(increase) for other foreign
deferred tax assets
|
|
|
|
3
|
|
|
|
|
15
|
|
Net decrease/(increase)
for foreign net operating loss carryforwards and tax credits
|
|
|
|
(6
|
)
|
|
|
|
2
|
|
Valuation allowance at end of year
|
|
|
$
|
(37
|
)
|
|
|
$
|
(34
|
)
|
|
As of June 30, 2016, the Company had
foreign tax credit carryforwards of $15 for U.S. income tax purposes with
expiration dates between fiscal years 2024 and 2025. Tax credit carryforwards in
foreign jurisdictions of $19 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 $16
have expiration dates between fiscal years 2017 and 2036. Tax benefits from
foreign net operating loss carryforwards of $12 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, 2016 and 2015, the total balance of accrued interest and
penalties related to uncertain tax positions was $3 and $10, respectively.
Interest and penalties related to uncertain tax positions included in income tax
expense resulted in a net benefit of $1, a net benefit of $1, and a net expense
of $3 in fiscal years 2016, 2015 and 2014, respectively.
The following is a reconciliation of the
beginning and ending amounts of the Companys gross unrecognized tax benefits:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Unrecognized tax benefits at beginning of
year
|
|
|
$
|
38
|
|
|
|
$
|
71
|
|
|
|
$
|
69
|
|
Gross increases - tax positions in prior
periods
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
3
|
|
Gross decreases - tax positions in prior
periods
|
|
|
|
(3
|
)
|
|
|
|
(8
|
)
|
|
|
|
(5
|
)
|
Gross increases - current period tax positions
|
|
|
|
8
|
|
|
|
|
6
|
|
|
|
|
7
|
|
Gross decreases - current period tax
positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lapse of applicable statute of limitations
|
|
|
|
(4
|
)
|
|
|
|
(34
|
)
|
|
|
|
(1
|
)
|
Settlements
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
(2
|
)
|
Unrecognized tax benefits at end of year
|
|
|
$
|
37
|
|
|
|
$
|
38
|
|
|
|
$
|
71
|
|
|
Included in the balance of unrecognized
tax benefits as of June 30, 2016, 2015 and 2014, are potential benefits of $27,
$27 and $58, respectively, which if recognized, would affect net earnings.
During 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 Companys cash flow or earnings from continuing operations for the
fiscal years ended June 30, 2016, 2015 and 2014.
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-55
|
Table of
Contents
NOTE 19. EMPLOYEE BENEFIT PLANS
Retirement Income Plans
Effective July 1, 2011, and as part of a
set of long-term, cost-neutral enhancements to the Companys overall employee
benefit plans, the domestic qualified retirement income pension plan was frozen
for service accrual and eligibility purposes for most participants, however,
interest credits have continued to accrue on participant balances. As of June
30, 2016 and 2015, the benefits of the domestic pension plan are based on either
employee years of service and compensation or a stated dollar amount per year of
service. The Company is the sole contributor to the plan in amounts deemed
necessary to provide benefits and to the extent deductible for federal income
tax purposes. Assets of the plan consist primarily of investments in cash
equivalents and common collective trusts.
The Company contributed $15 to its
domestic qualified pension plan during fiscal year 2016. No contributions were
made in fiscal year 2015 and 2014. The Companys funding policy for its
qualified plans is to contribute amounts sufficient to meet minimum funding
requirements as set forth in employee benefit tax laws plus additional amounts
as the Company may determine to be appropriate. Subsequent to June 30, 2016, the
Company made a $15 discretionary contribution to the pension plan.
Contributions made to the domestic
non-qualified pension plans were $16, $13 and $13 in fiscal years 2016, 2015 and
2014, respectively.
Retirement Health Care Plans
The Company provides certain health care
benefits for employees who meet age, participation and length of service
requirements at retirement. The plans pay stated percentages of covered expenses
after annual deductibles have been met or stated reimbursements up to a
specified dollar subsidy amount. Benefits paid take into consideration payments
by Medicare for the domestic plan. The plans are funded as claims are paid, and
the Company has the right to modify or terminate certain plans.
The assumed domestic health care cost
trend rate used in measuring the accumulated benefit obligation (ABO) was 6.75%
for both medical and prescription drugs for fiscal year 2016. These rates have
been assumed to gradually decrease each year until an assumed ultimate trend of
4.5% is reached in 2037. The health care cost trend rate assumption has a
minimal effect on the amounts reported due primarily to the existence of benefit
cap provisions in the Companys domestic plan. As such, the effect of a
hypothetical 100 basis point increase or decrease in the assumed domestic health
care cost trend rate on the total service and interest cost components as well
as the postretirement benefit obligation would have been immaterial for each of
the fiscal years ended June 30, 2016, 2015 and 2014.
A-56 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of
Contents
Appendix A
NOTE 19. EMPLOYEE BENEFIT PLANS
(Continued)
Financial Information Related to
Retirement Income and Retirement Health Care
Summarized information for the Companys
retirement income and retirement health care plans as of and for the fiscal
years ended June 30 is as follows:
|
|
Retirement
Income
|
|
Retirement
Health
Care
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Change in benefit
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation as of beginning
of year
|
|
|
$
|
639
|
|
|
|
$
|
641
|
|
|
|
$
|
45
|
|
|
|
$
|
49
|
|
Service
cost
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Interest
cost
|
|
|
|
26
|
|
|
|
|
25
|
|
|
|
|
2
|
|
|
|
|
2
|
|
Actuarial loss
(gain)
|
|
|
|
51
|
|
|
|
|
14
|
|
|
|
|
2
|
|
|
|
|
|
|
Plan
amendments
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Translation and
other adjustments
|
|
|
|
(1
|
)
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
(2
|
)
|
Benefits
paid
|
|
|
|
(42
|
)
|
|
|
|
(38
|
)
|
|
|
|
(2
|
)
|
|
|
|
(3
|
)
|
Projected
benefit obligation as of end of year
|
|
|
|
673
|
|
|
|
|
639
|
|
|
|
|
47
|
|
|
|
|
45
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of
assets as of beginning of year
|
|
|
$
|
409
|
|
|
|
$
|
432
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Actual return
on plan assets
|
|
|
|
26
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Employer
contributions
|
|
|
|
31
|
|
|
|
|
13
|
|
|
|
|
2
|
|
|
|
|
3
|
|
Benefits
paid
|
|
|
|
(42
|
)
|
|
|
|
(38
|
)
|
|
|
|
(2
|
)
|
|
|
|
(3
|
)
|
Translation and
other adjustments
|
|
|
|
(1
|
)
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets as of end of
year
|
|
|
|
423
|
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost, net
funded status
|
|
|
$
|
(250
|
)
|
|
|
$
|
(230
|
)
|
|
|
$
|
(47
|
)
|
|
|
$
|
(45
|
)
|
Amount
recognized in the balance sheets consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefit
assets
|
|
|
$
|
1
|
|
|
|
$
|
2
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Current accrued
benefit liability
|
|
|
|
(14
|
)
|
|
|
|
(16
|
)
|
|
|
|
(3
|
)
|
|
|
|
(3
|
)
|
Non-current
accrued benefit liability
|
|
|
|
(237
|
)
|
|
|
|
(216
|
)
|
|
|
|
(44
|
)
|
|
|
|
(42
|
)
|
Accrued benefit
cost, net
|
|
|
$
|
(250
|
)
|
|
|
$
|
(230
|
)
|
|
|
$
|
(47
|
)
|
|
|
$
|
(45
|
)
|
|
Retirement income plans with ABO in excess
of plan assets as of June 30 were as follows:
|
|
Pension Plans
|
|
Other
Retirement Plans
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Projected benefit obligation
|
|
|
$
|
575
|
|
|
$
|
538
|
|
|
$
|
76
|
|
|
$
|
80
|
|
Accumulated benefit obligation
|
|
|
|
574
|
|
|
|
538
|
|
|
|
76
|
|
|
|
80
|
|
Fair
value of plan assets
|
|
|
|
399
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
The ABO for all pension plans was $596,
$559 and $563 as of June 30, 2016, 2015 and 2014, respectively.
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-57
|
Table of Contents
NOTE 19. EMPLOYEE BENEFIT PLANS
(Continued)
The net costs of the retirement income and
health care plans for the fiscal years ended June 30 included the following
components:
|
|
Retirement Income
|
|
Retirement Health
Care
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
2014
|
|
Service cost
|
|
|
$
|
1
|
|
|
|
$
|
2
|
|
|
|
$
|
3
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
1
|
|
Interest cost
|
|
|
|
26
|
|
|
|
|
25
|
|
|
|
|
27
|
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
2
|
|
Expected return on plan
assets
|
|
|
|
(17
|
)
|
|
|
|
(20
|
)
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized
items
|
|
|
|
10
|
|
|
|
|
12
|
|
|
|
|
11
|
|
|
|
|
(3
|
)
|
|
|
|
2
|
|
|
|
(4
|
)
|
Total
|
|
|
$
|
20
|
|
|
|
$
|
19
|
|
|
|
$
|
16
|
|
|
|
$
|
(1
|
)
|
|
|
$
|
4
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items not yet recognized as a component of
postretirement expense as of June 30, 2016, consisted of:
|
|
Retirement
Income
|
|
|
Retirement
Health
Care
|
|
Net actuarial loss
(gain)
|
|
|
$
|
296
|
|
|
|
$
|
(13
|
)
|
Prior service benefit
|
|
|
|
|
|
|
|
|
(6
|
)
|
Net deferred income tax
(assets) liabilities
|
|
|
|
(111
|
)
|
|
|
|
7
|
|
Accumulated other comprehensive loss
(income)
|
|
|
$
|
185
|
|
|
|
$
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain) recorded in
Accumulated other comprehensive net (losses) income for the fiscal year ended
June 30, 2016, included the following:
|
|
Retirement
Income
|
|
|
Retirement
Health
Care
|
|
Net actuarial loss (gain)
as of beginning of year
|
|
|
$
|
264
|
|
|
|
$
|
(17
|
)
|
Amortization during the year
|
|
|
|
(10
|
)
|
|
|
|
2
|
|
Loss (gain) during the
year
|
|
|
|
42
|
|
|
|
|
2
|
|
Net actuarial loss (gain) as of end of
year
|
|
|
$
|
296
|
|
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The Company uses the straight-line
amortization method for unrecognized prior service costs and benefits. In fiscal
year 2017, the Company expects to recognize, on a pre-tax basis, $11 of the net
actuarial loss as a component of net periodic benefit cost for the Pension
Plans. In addition, in fiscal year 2017, the Company expects to recognize, on a
pre-tax basis, $1 of the net actuarial gain as a component of net periodic
benefit cost for the retirement health care plans.
Weighted-average assumptions used to
estimate the actuarial present value of benefit obligations as of June 30 were
as follows:
|
|
Retirement
Income
|
|
Retirement
Health Care
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Discount rate
|
|
3.42
|
%
|
|
4.20
|
%
|
|
3.42
|
%
|
|
4.16
|
%
|
Rate of compensation increase
|
|
2.92
|
%
|
|
3.37
|
%
|
|
n/a
|
|
|
n/a
|
|
A-58 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
NOTE 19. EMPLOYEE BENEFIT PLANS
(Continued)
Weighted-average assumptions used to
estimate the net periodic pension and other postretirement benefit costs as of
June 30 were as follows:
|
|
Retirement Income
|
|
|
2016
|
|
2015
|
|
2014
|
Discount rate
|
|
4.20
|
%
|
|
4.05
|
%
|
|
4.39
|
%
|
Rate of compensation increase
|
|
3.37
|
%
|
|
4.46
|
%
|
|
3.44
|
%
|
Expected return on plan assets
|
|
4.34
|
%
|
|
5.28
|
%
|
|
6.61
|
%
|
|
|
|
Retirement Health Care
|
|
|
2016
|
|
2015
|
|
2014
|
Discount rate
|
|
4.16
|
%
|
|
4.00
|
%
|
|
4.33
|
%
|
The expected long-term rate of return
assumption is based on an analysis of historical experience of the portfolio and
the summation of prospective returns for each asset class in proportion to the
funds current asset allocation.
Expected benefit payments for the
Companys pension and other postretirement plans as of June 30, 2016, were as
follows:
|
|
Retirement
Income
|
|
Retirement
Health
Care
|
2017
|
|
|
$
|
39
|
|
|
$
|
3
|
2018
|
|
|
|
52
|
|
|
|
3
|
2019
|
|
|
|
39
|
|
|
|
3
|
2020
|
|
|
|
39
|
|
|
|
2
|
2021
|
|
|
|
39
|
|
|
|
2
|
Fiscal years 2022 through 2026
|
|
|
|
193
|
|
|
|
12
|
Expected benefit payments are based on the
same assumptions used to measure the benefit obligations and include estimated
future employee service.
The target allocations and weighted
average asset allocations by asset category of the investment portfolio for the
Companys domestic retirement income plans as of June 30 were:
|
|
% Target
Allocation
|
|
% of Plan
Assets
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
U.S. equity
|
|
|
11
|
%
|
|
|
11
|
%
|
|
|
11
|
%
|
|
|
11
|
%
|
International equity
|
|
|
12
|
|
|
|
12
|
|
|
|
11
|
|
|
|
12
|
|
Fixed income
|
|
|
74
|
|
|
|
74
|
|
|
|
74
|
|
|
|
74
|
|
Other
|
|
|
3
|
|
|
|
3
|
|
|
|
4
|
|
|
|
3
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The target asset allocation is determined
based on the optimal balance between risk and return and, at times, may be
adjusted to achieve the plans overall investment objective to generate
sufficient resources to pay current and projected plan obligations over the life
of the domestic qualified retirement income plan.
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-59
|
Table of Contents
NOTE 19. EMPLOYEE BENEFIT PLANS
(Continued)
The following table sets forth by level
within the fair value hierarchy, the retirement income plans assets carried at
fair value as of June 30:
|
|
2016
|
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Cash equivalents
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
2
|
|
Common collective trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond funds
|
|
|
|
|
|
|
|
307
|
|
|
|
307
|
|
International equity
funds
|
|
|
|
|
|
|
|
56
|
|
|
|
56
|
|
Domestic equity funds
|
|
|
|
|
|
|
|
44
|
|
|
|
44
|
|
Real
estate fund
|
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
Total common collective
trusts
|
|
|
|
|
|
|
|
421
|
|
|
|
421
|
|
Total assets at fair value
|
|
|
$
|
2
|
|
|
$
|
421
|
|
|
$
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Cash equivalents
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
3
|
|
Common collective trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond funds
|
|
|
|
|
|
|
|
295
|
|
|
|
295
|
|
International equity
funds
|
|
|
|
|
|
|
|
59
|
|
|
|
59
|
|
Domestic equity funds
|
|
|
|
|
|
|
|
41
|
|
|
|
41
|
|
Real
estate fund
|
|
|
|
|
|
|
|
11
|
|
|
|
11
|
|
Total common collective
trusts
|
|
|
|
|
|
|
|
406
|
|
|
|
406
|
|
Total assets at fair value
|
|
|
$
|
3
|
|
|
$
|
406
|
|
|
$
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of cash equivalents
approximates its fair value as of June 30, 2016 and 2015.
Common collective trust funds are not
publicly traded and, therefore, are classified as Level 2. They are valued at a
net asset value unit price determined by the portfolios sponsor based on the
fair value of underlying assets held by the common collective trust fund on June
30, 2016 and 2015.
The common collective trusts are invested
in various trusts that attempt to achieve their investment objectives by
investing primarily in other collective investment funds which have
characteristics consistent with each trusts overall investment objective and
strategy.
Defined Contribution
Plans
The Company has defined contribution plans
for most of its domestic employees. The plans include The Clorox Company 401(k)
Plan, The Clorox Company 2011 Nonqualified Defined Contribution Plan and the
Executive Retirement Plan. The aggregate cost of the domestic defined
contribution plans was $45, $45 and $43 in fiscal years 2016, 2015 and 2014,
respectively. Included in the aggregate cost was the cost of The Clorox Company
401(k) Plan of $41, $42 and $38 in fiscal years 2016, 2015 and 2014,
respectively. The Company also has defined contribution plans for certain
international employees. The aggregate cost of these foreign plans was $3 for
the fiscal years ended June 30, 2016, 2015 and 2014.
A-60 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
NOTE 20. SEGMENT
REPORTING
The Company operates through strategic
business units that are aggregated into the following four reportable segments
based on the economics and nature of the products sold:
●
|
Cleaning
consists of laundry, home care and professional
products marketed and sold in the United States. Products within this
segment include laundry additives, including bleach products under the
Clorox
®
brand and Clorox 2
®
stain fighter and color
booster; home care products, primarily under the Clorox
®
,
Formula 409
®
, Liquid-Plumr
®
, Pine-Sol
®
,
S.O.S
®
and Tilex
®
brands; naturally derived products
under the Green Works
®
brand; and professional cleaning and
disinfecting products under the Clorox
®
, Dispatch
®
,
Aplicare
®
, HealthLink
®
and Clorox
Healthcare
®
brands.
|
●
|
Household
consists of
charcoal, cat litter, digestive health products and bags, wraps and
container products marketed and sold in the United States. Products within
this segment include charcoal products under the Kingsford
®
and
Match Light
®
brands; cat litter products under the Fresh
Step
®
, Scoop Away
®
and Ever Clean
®
brands; digestive health products under the Renew Life
®
brand;
and bags, wraps and containers under the Glad
®
brand.
|
●
|
Lifestyle
consists of food products, water-filtration systems and
filters and natural personal care products marketed and sold in the United
States. Products within this segment include dressings and sauces,
primarily under the Hidden Valley
®
, KC Masterpiece
®
and Soy Vay
®
brands; water-filtration systems and filters under
the Brita
®
brand; and natural personal care products under the
Burts Bees
®
brand.
|
●
|
International
consists of products sold outside the United States.
Products within this segment include laundry, home care, water-filtration,
digestive health products, charcoal and cat litter products, dressings and
sauces, bags, wraps and containers and natural personal care products,
primarily under the Clorox
®
, Glad
®
,
PinoLuz
®
, Ayudin
®
, Limpido
®
,
Clorinda
®
, Poett
®
, Mistolin
®
,
Lestoil
®
, Bon Bril
®
, Brita
®
, Green
Works
®
, Pine-Sol
®
, Agua Jane
®
,
Chux
®
, Renew Life
®
, Kingsford
®
, Fresh
Step
®
, Scoop Away
®
, Ever Clean
®
, KC
Masterpiece
®
, Hidden Valley
®
and Burts
Bees
®
brands.
|
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-61
|
Table of Contents
NOTE 20. SEGMENT REPORTING
(Continued)
Certain non-allocated administrative
costs, interest income, interest expense and various other non-operating income
and expenses are reflected in Corporate. Corporate assets include cash and cash
equivalents, property and equipment, other investments and deferred
taxes.
|
|
Fiscal
Year
|
|
Cleaning
|
|
Household
|
|
Lifestyle
|
|
International
|
|
Corporate
|
|
|
Total
Company
|
Net sales
|
|
2016
|
|
$
|
1,912
|
|
$
|
1,862
|
|
$
|
990
|
|
$
|
997
|
|
$
|
|
|
|
$
|
5,761
|
|
|
2015
|
|
|
1,824
|
|
|
1,794
|
|
|
950
|
|
|
1,087
|
|
|
|
|
|
|
5,655
|
|
|
2014
|
|
|
1,776
|
|
|
1,709
|
|
|
936
|
|
|
1,093
|
|
|
|
|
|
|
5,514
|
Earnings (losses) from
continuing
operations before income taxes
|
|
2016
|
|
|
511
|
|
|
428
|
|
|
251
|
|
|
66
|
|
|
(273
|
)
|
|
|
983
|
|
|
2015
|
|
|
445
|
|
|
375
|
|
|
257
|
|
|
79
|
|
|
(235
|
)
|
|
|
921
|
|
|
2014
|
|
|
428
|
|
|
326
|
|
|
258
|
|
|
99
|
|
|
(227
|
)
|
|
|
884
|
Income from equity
investees
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
15
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
14
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
13
|
Total assets
|
|
2016
|
|
|
883
|
|
|
1,092
|
|
|
880
|
|
|
1,057
|
|
|
606
|
|
|
|
4,518
|
|
|
2015
|
|
|
876
|
|
|
725
|
|
|
860
|
|
|
1,057
|
|
|
646
|
|
|
|
4,164
|
Capital expenditures
|
|
2016
|
|
|
44
|
|
|
83
|
|
|
18
|
|
|
24
|
|
|
3
|
|
|
|
172
|
|
|
2015
|
|
|
35
|
|
|
50
|
|
|
11
|
|
|
25
|
|
|
4
|
|
|
|
125
|
|
|
2014
|
|
|
37
|
|
|
53
|
|
|
11
|
|
|
31
|
|
|
5
|
|
|
|
137
|
Depreciation and
amortization
|
|
2016
|
|
|
61
|
|
|
60
|
|
|
19
|
|
|
21
|
|
|
4
|
|
|
|
165
|
|
|
2015
|
|
|
52
|
|
|
67
|
|
|
19
|
|
|
24
|
|
|
7
|
|
|
|
169
|
|
|
2014
|
|
|
49
|
|
|
67
|
|
|
19
|
|
|
25
|
|
|
17
|
|
|
|
177
|
Significant noncash charges included
in
earnings (losses) from continuing
operations before income
taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
2016
|
|
|
10
|
|
|
8
|
|
|
5
|
|
|
1
|
|
|
21
|
|
|
|
45
|
|
|
2015
|
|
|
8
|
|
|
7
|
|
|
4
|
|
|
1
|
|
|
12
|
|
|
|
32
|
|
|
2014
|
|
|
11
|
|
|
9
|
|
|
5
|
|
|
1
|
|
|
10
|
|
|
|
36
|
All intersegment sales are eliminated and
are not included in the Companys reportable segments net sales.
Net sales to the Companys largest
customer, Walmart Stores, Inc. and its affiliates, were 27%, 26% and 27% of
consolidated net sales for each of the fiscal years ended June 30, 2016, 2015
and 2014, respectively, and occurred in each of the Companys reportable
segments. No other customers accounted for more than 10% of consolidated net
sales in any of these fiscal years. During fiscal years 2016, 2015 and 2014, the
Companys five largest customers accounted for 46%, 45%, and 45% of its
consolidated net sales for each of the three fiscal years,
respectively.
Three of the Companys product lines have
accounted for 10% or more of consolidated net sales during each of the past
three fiscal years. In fiscal years 2016, 2015 and 2014, sales of liquid bleach
represented approximately 13%, 14% and 13% of the Companys consolidated net
sales, respectively, approximately 25%, 26%, and 26% of net sales in the
Cleaning segment for each such years, respectively, and approximately 27%, 27%
and 28% of net sales in the International segment, respectively. Sales of trash
bags represented approximately 13%, 14% and 13% of the Companys consolidated
net sales in each of the fiscal years 2016, 2015 and 2014, respectively, and
approximately 37%, 38% and 36% of net sales in the Household segment,
respectively, for each such years. Sales of charcoal represented approximately
11% of the Companys consolidated net sales and approximately 34% of net sales
in the Household segment in fiscal years 2016, 2015 and 2014.
A-62 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
NOTE 20. SEGMENT REPORTING
(Continued)
Net sales and property, plant and
equipment, net, by geographic area as of and for the fiscal years ended June 30
were as follows:
|
|
Fiscal
Year
|
|
United
States
|
|
Foreign
|
|
Total
Company
|
Net sales
|
|
2016
|
|
$
|
4,805
|
|
$
|
956
|
|
$
|
5,761
|
|
|
2015
|
|
|
4,609
|
|
|
1,046
|
|
|
5,655
|
|
|
2014
|
|
|
4,466
|
|
|
1,048
|
|
|
5,514
|
Property, plant and equipment, net
|
|
2016
|
|
$
|
799
|
|
$
|
107
|
|
$
|
906
|
|
|
2015
|
|
|
801
|
|
|
117
|
|
|
918
|
NOTE 21. RELATED PARTY
TRANSACTIONS
The Company holds various equity
investments with ownership percentages of up to 50% in a number of consumer
products businesses, most of which operate outside the United States. The equity
investments, presented in Other assets accounted for under the equity method,
were $59 as of the fiscal years ended June 30, 2016 and 2015. The Company has no
ongoing capital commitments, loan requirements, guarantees or any other types of
arrangements under the terms of its agreements that would require any future
cash contributions or disbursements arising out of an equity
investment.
Transactions with the Companys equity
investees typically represent payments for contract manufacturing and purchases
of raw materials. Payments to related parties, including equity investees, for
such transactions during the fiscal years ended June 30, 2016, 2015 and 2014
were $57, $55 and $57, respectively. Receipts from and ending accounts
receivable and payable balances related to the Companys related parties were
not significant during or as of the end of each of the fiscal years
presented.
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-63
|
Table of Contents
NOTE 22. UNAUDITED QUARTERLY
DATA
Dollars in millions, except market price and per share
data
|
|
Quarters Ended
|
|
|
September 30
|
|
|
December 31
|
|
|
March 31
|
|
June 30
|
|
Total Year
|
|
Fiscal year ended June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
1,390
|
|
|
|
$
|
1,345
|
|
|
|
$
|
1,426
|
|
|
$
|
1,600
|
|
|
$
|
5,761
|
|
Cost of products sold
|
|
|
|
765
|
|
|
|
|
745
|
|
|
|
|
780
|
|
|
|
873
|
|
|
|
3,163
|
|
Earnings from continuing operations
|
|
|
|
173
|
|
|
|
|
151
|
|
|
|
|
159
|
|
|
|
165
|
|
|
|
648
|
|
(Losses) earnings from discontinued
operations, net of tax
|
|
|
|
(1
|
)
|
|
|
|
(2
|
)
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
172
|
|
|
|
|
149
|
|
|
|
|
162
|
|
|
|
165
|
|
|
|
648
|
|
Per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
$
|
1.34
|
|
|
|
$
|
1.16
|
|
|
|
$
|
1.23
|
|
|
$
|
1.28
|
|
|
$
|
5.01
|
|
Discontinued
operations
|
|
|
|
(0.01
|
)
|
|
|
|
(0.01
|
)
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per share
|
|
|
$
|
1.33
|
|
|
|
$
|
1.15
|
|
|
|
$
|
1.25
|
|
|
$
|
1.28
|
|
|
$
|
5.01
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
$
|
1.32
|
|
|
|
$
|
1.14
|
|
|
|
$
|
1.21
|
|
|
$
|
1.26
|
|
|
$
|
4.92
|
|
Discontinued
operations
|
|
|
|
(0.01
|
)
|
|
|
|
(0.01
|
)
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings per share
|
|
|
$
|
1.31
|
|
|
|
$
|
1.13
|
|
|
|
$
|
1.23
|
|
|
$
|
1.26
|
|
|
$
|
4.92
|
|
Dividends declared per common share
|
|
|
$
|
0.77
|
|
|
|
$
|
0.77
|
|
|
|
$
|
0.77
|
|
|
$
|
0.80
|
|
|
$
|
3.11
|
|
Market price (NYSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
$
|
119.75
|
|
|
|
$
|
131.78
|
|
|
|
|
132.19
|
|
|
$
|
138.41
|
|
|
$
|
138.41
|
|
Low
|
|
|
|
104.26
|
|
|
|
|
114.06
|
|
|
|
|
122.40
|
|
|
|
119.23
|
|
|
|
104.26
|
|
Year-end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138.39
|
|
Fiscal year ended June 30,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
1,352
|
|
|
|
$
|
1,345
|
|
|
|
$
|
1,401
|
|
|
$
|
1,557
|
|
|
$
|
5,655
|
|
Cost of products sold
|
|
|
|
774
|
|
|
|
|
773
|
|
|
|
|
796
|
|
|
|
847
|
|
|
|
3,190
|
|
Earnings from continuing operations
|
|
|
|
145
|
|
|
|
|
128
|
|
|
|
|
144
|
|
|
|
189
|
|
|
|
606
|
|
Losses from discontinued operations, net of
tax
|
|
|
|
(55
|
)
|
|
|
|
(3
|
)
|
|
|
|
30
|
|
|
|
2
|
|
|
|
(26
|
)
|
Net earnings
|
|
|
|
90
|
|
|
|
|
125
|
|
|
|
|
174
|
|
|
|
191
|
|
|
|
580
|
|
Per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
$
|
1.12
|
|
|
|
$
|
0.98
|
|
|
|
$
|
1.09
|
|
|
$
|
1.46
|
|
|
$
|
4.65
|
|
Discontinued
operations
|
|
|
|
(0.42
|
)
|
|
|
|
(0.02
|
)
|
|
|
|
0.22
|
|
|
|
0.02
|
|
|
|
(0.20
|
)
|
Basic
net earnings per share
|
|
|
$
|
0.70
|
|
|
|
$
|
0.96
|
|
|
|
$
|
1.31
|
|
|
$
|
1.48
|
|
|
$
|
4.45
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
|
$
|
1.10
|
|
|
|
$
|
0.97
|
|
|
|
$
|
1.08
|
|
|
$
|
1.44
|
|
|
$
|
4.57
|
|
Discontinued
operations
|
|
|
|
(0.42
|
)
|
|
|
|
(0.02
|
)
|
|
|
|
0.22
|
|
|
|
0.02
|
|
|
|
(0.20
|
)
|
Diluted
net earnings per share
|
|
|
$
|
0.68
|
|
|
|
$
|
0.95
|
|
|
|
$
|
1.30
|
|
|
$
|
1.46
|
|
|
$
|
4.37
|
|
Dividends declared per common share
|
|
|
$
|
0.74
|
|
|
|
$
|
0.74
|
|
|
|
$
|
0.74
|
|
|
$
|
0.77
|
|
|
$
|
2.99
|
|
Market price (NYSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
$
|
112.70
|
|
|
|
$
|
112.65
|
|
|
|
$
|
106.36
|
|
|
$
|
98.31
|
|
|
$
|
112.70
|
|
Low
|
|
|
|
103.77
|
|
|
|
|
102.95
|
|
|
|
|
95.19
|
|
|
|
86.03
|
|
|
|
86.03
|
|
Year-end
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104.02
|
|
A-64 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of Contents
Appendix A
FIVE-YEAR FINANCIAL
SUMMARY
The Clorox
Company
|
|
Years ended June 30
|
Dollars in millions, except per share data
|
|
2016
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,761
|
|
$
|
5,655
|
|
|
$
|
5,514
|
|
|
$
|
5,533
|
|
|
$
|
5,379
|
|
Gross profit
|
|
|
2,598
|
|
|
2,465
|
|
|
|
2,356
|
|
|
|
2,391
|
|
|
|
2,272
|
|
Earnings from continuing
operations
|
|
$
|
648
|
|
$
|
606
|
|
|
$
|
579
|
|
|
$
|
573
|
|
|
$
|
535
|
|
(Losses) earnings from
discontinued operations, net of tax
|
|
|
|
|
|
(26
|
)
|
|
|
(21
|
)
|
|
|
(1
|
)
|
|
|
6
|
|
Net earnings
|
|
$
|
648
|
|
$
|
580
|
|
|
$
|
558
|
|
|
$
|
572
|
|
|
$
|
541
|
|
COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
5.01
|
|
$
|
4.65
|
|
|
$
|
4.47
|
|
|
$
|
4.37
|
|
|
$
|
4.09
|
|
Diluted
|
|
|
4.92
|
|
|
4.57
|
|
|
|
4.39
|
|
|
|
4.31
|
|
|
|
4.05
|
|
Dividends declared per share
|
|
$
|
3.11
|
|
$
|
2.99
|
|
|
$
|
2.87
|
|
|
$
|
2.63
|
|
|
$
|
2.44
|
|
|
|
|
As of June 30
|
Dollars in millions
|
|
2016
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
OTHER DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,518
|
|
$
|
4,164
|
|
|
$
|
4,258
|
|
|
$
|
4,311
|
|
|
$
|
4,355
|
|
Long-term debt
|
|
|
1,797
|
|
|
1,796
|
|
|
|
1,595
|
|
|
|
2,170
|
|
|
|
1,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES (Dollars in millions)
Column A
|
|
Column B
|
|
|
Column C
|
|
|
Column D
|
|
Column E
|
|
|
|
|
|
|
Additions
|
|
|
Deductions
|
|
|
|
|
Description
|
|
Balance at
beginning
of
period
|
|
|
Charged to
costs
and
expenses
|
|
|
Credited to
costs
and
expenses
|
|
Credited
to other
accounts
|
|
Balance at
end
of period
|
|
Allowance for doubtful
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended June 30, 2016
|
|
$
|
(4
|
)
|
|
$
|
(1
|
)
|
|
$
|
|
|
$
|
|
|
$
|
(5
|
)
|
Year ended June 30,
2015
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
(4
|
)
|
Year
ended June 30, 2014
|
|
|
(5
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
(3
|
)
|
LIFO allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended June 30, 2016
|
|
$
|
(34
|
)
|
|
$
|
(1
|
)
|
|
$
|
|
|
$
|
3
|
|
$
|
(32
|
)
|
Year ended June 30,
2015
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
2
|
|
|
(34
|
)
|
Year
ended June 30, 2014
|
|
|
(40
|
)
|
|
|
|
|
|
|
3
|
|
|
1
|
|
|
(36
|
)
|
Valuation allowance on
deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended June 30, 2016
|
|
$
|
(34
|
)
|
|
$
|
(5
|
)
|
|
$
|
|
|
$
|
2
|
|
$
|
(37
|
)
|
Year ended June 30,
2015
|
|
|
(51
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
21
|
|
|
(34
|
)
|
Year ended June 30,
2014
|
|
|
(36
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
10
|
|
|
(51
|
)
|
Continues on next page
►
|
|
|
|
THE CLOROX COMPANY
- 2016 Proxy Statement
|
A-65
|
Table of Contents
THE CLOROX
COMPANY
RECONCILIATION OF ECONOMIC
PROFIT (UNAUDITED)
(1)
Dollars in millions
|
|
FY16
|
|
FY15
|
|
FY14
|
|
Earnings from continuing operations before income
taxes
|
|
$
|
983
|
|
$
|
921
|
|
$
|
884
|
|
Noncash U.S. GAAP restructuring and
intangible asset impairment costs
|
|
|
9
|
|
|
1
|
|
|
3
|
|
Interest expense
|
|
|
88
|
|
|
100
|
|
|
103
|
|
Earnings from continuing operations before
income taxes,
|
|
|
|
|
|
|
|
|
|
|
noncash U.S. GAAP restructuring and
intangible asset
|
|
|
|
|
|
|
|
|
|
|
impairment costs, and interest
expense
|
|
$
|
1,080
|
|
$
|
1,022
|
|
$
|
990
|
|
Income taxes on earnings
from continuing operations before income taxes,
|
|
|
|
|
|
|
|
|
|
|
noncash U.S. GAAP
restructuring and intangible
|
|
|
|
|
|
|
|
|
|
|
asset impairment costs and
interest expense
(2)
|
|
|
368
|
|
|
350
|
|
|
342
|
|
Adjusted after tax
profit
|
|
$
|
712
|
|
$
|
672
|
|
$
|
648
|
|
Average capital
employed
(3)
|
|
|
2,472
|
|
|
2,393
|
|
|
2,494
|
|
Capital
charge
(4)
|
|
|
222
|
|
|
214
|
|
|
225
|
|
Economic profit
(1)
(Adjusted after tax profit less
capital charge)
|
|
$
|
490
|
|
$
|
458
|
|
$
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Economic profit (EP) is defined by
the Company as earnings from continuing operations before income taxes,
excluding noncash U.S. GAAP restructuring and intangible asset impairment
costs, and interest expense; less an amount of tax based on the effective
tax rate, and less a charge equal to average capital employed multiplied
by a cost of capital rate. EP is a key financial metric that the Companys
management uses to evaluate business performance and allocate resources,
and is a component in determining employee incentive compensation. The
Companys management believes EP provides additional perspective to
investors about financial returns generated by the business and represents
profit generated over and above the cost of capital used by the business
to generate that profit.
|
(2)
|
The tax rate applied is the effective
tax rate on earnings from continuing operations, which was 34.1%, 34.2%
and 34.6% in fiscal years 2016, 2015 and 2014, respectively.
|
(3)
|
Total capital employed represents total assets less non-interest
bearing liabilities. Adjusted capital employed represents total capital
employed adjusted to add back current year after tax noncash U.S. GAAP
restructuring and intangible asset impairment costs. Average capital
employed is the average of adjusted capital employed for the current year
and total capital employed for the prior year, based on year-end balances.
See below for details of the average capital employed
calculation:
|
Total assets
|
|
$
|
4,518
|
|
$
|
4,164
|
|
$
|
4,258
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
(5)
|
|
|
1,032
|
|
|
976
|
|
|
912
|
|
Income taxes
payable
|
|
|
|
|
|
31
|
|
|
8
|
|
Other
liabilities
(5)
|
|
|
784
|
|
|
745
|
|
|
768
|
|
Deferred
income taxes
|
|
|
82
|
|
|
95
|
|
|
103
|
|
Non-interest
bearing liabilities
|
|
|
1,898
|
|
|
1,847
|
|
|
1,791
|
|
Total capital
employed
|
|
|
2,620
|
|
|
2,317
|
|
|
2,467
|
|
After tax noncash U.S.
GAAP restructuring and intangible asset impairment costs
|
|
|
6
|
|
|
1
|
|
|
2
|
|
Adjusted capital
employed
|
|
$
|
2,626
|
|
$
|
2,318
|
|
$
|
2,469
|
|
Average capital employed
|
|
$
|
2,472
|
|
$
|
2,393
|
|
$
|
2,494
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
Capital charge represents average
capital employed multiplied by a cost of capital, which was 9% for all
fiscal years presented. The calculation of capital charge includes the
impact of rounding numbers.
|
(5)
|
Accounts payable and accrued liabilities were combined into one
financial statement line as of June 30, 2016. The change has been
retrospectively applied to all periods presented. Accounts payable and
accrued liabilities and Other Liabilities are adjusted to exclude
interest-bearing liabilities.
|
A-66 THE CLOROX
COMPANY
- 2016 Proxy
Statement
Table of Contents
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