24 THE CLOROX COMPANY- 2014 Proxy Statement
Table of Contents
Compensation Discussion and Analysis
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 Company’s 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 Company’s 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 retirement 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 officer’s employment is terminated under specific circumstances as described in the applicable severance plan or, with respect to the CEO, the employment agreement. | 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, limited non-business use of company aircraft, 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, as defined 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 Exchange Act, 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 based on its experience in consultation with management and the Committee’s independent compensation consultant (as further described below). The Committee’s decisions are based on a variety of factors, including the Company’s performance, individual performance, peer group data, and input and recommendations from the independent compensation consultant. Individual performance is evaluated and subsequent compensation decisions are made based on the performance of the business or operations for which the individual is responsible, the individual’s skill set relative to industry peers, overall experience and time in the position, the critical nature of the individual’s role, difficulty of
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Table of Contents ✓ | replacement, expected future contributions, readinessClawback provisions in both our annual and long-term incentive plans;
| ✓ | Double-trigger change in control provisions 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.all equity awards; | ✓ | In determining the compensation package for eachModest perquisites supported by sound business rationale;
| ✓ | Annual review of our named executive officers other than our CEO,compensation program by the Committee, receives input and recommendations from our CEO and our Senior Vice President – Human Resources & Corporate Affairs. Named executive officers do not have a role in the determinationwhich is composed solely of their own compensation. Named executive officers other than our CEO do, however, discuss their individual performance objectives with our CEO. Special 162(m) Subcommittee.Although the Board has determined that, consistent with our Governance Guidelines and the NYSE listing standards, all members of the Committee are “independent,” the Committee determined that Mr. Matschullat may not qualify as an “outside director” for purposes of Section 162(m) due to his service as interim CEO from May 2006 until October 2006. As a result, a subcommittee composed of directors Dr. Carmona and Messrs. Friedman, Harad, and Noddle (the “Subcommittee”) was established to take any actions required under Section 162(m) for performance-based compensation to be fully deductible by the Company for income tax purposes.
Board of Directors.The independent members of the Board undertake a thorough process during which they review our CEO’s annual performanceBoard; and each independent director provides candid feedback and observations. To do this, the Board considers a variety
| ✓ | Use of key substantive factors it has identified as being most important for effective CEO performance, with a focus on strategy, people, operations, and values. The evaluations of our CEO’s performance against these key factors are subsequently discussed by the Board, which then provides its recommendations on CEO compensation to the Committee. The Committee, after evaluating the Board’s recommendations and with input from thean independent compensation consultant then makes a final determination on our CEO’s compensation. Our CEOwho does not haveprovide any additional consulting services to the Company. |
What We Don’t Have ∅ | Employment contracts for any executives as of July 1, 2015; | ∅ | Stock option re-pricing without stockholder approval; | ∅ | Use of time-based restricted stock in our annual long-term incentive grants; | ∅ | Payment of dividends or dividend equivalents on unvested or unearned performance shares; and | ∅ | Tax gross-ups for any employee, including executive officers. |
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 Company’s 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 Company’slong-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 andretain named executive officers and promote orderly succession for key roles. | | Only payable if a rolenamed executive officer’s employment is terminated under specific circumstances as described in his own compensation determinationthe applicable severance plan or, with respect to the Executive Chairman, the employment agreement. | Perquisites | | Provide other than participating in a discussionbenefits competitive with the Board regarding his performance relativecompensation peer group and encourage executives to performance targetsproactively manage their health and strategicfinancial wellness. | | Financial planning, Company car or car allowance, paid parking, limited non-business use of company aircraft, 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 setestablished by the Committee at the beginning of the fiscal year.Independentperformance 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 Consultant.TheProgram” 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 retainsat the services of an independent compensation consulting firm to assist ittime the goals were established, which, in the performancecase of its duties. During fiscal year 2014,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 Committee usedadjustments exceed a specified minimum financial impact to the services of Frederic W. Cook & Co., Inc. (“FWC”). FWC’s work with the Committee included data analysis, guidance, and recommendations on the following topics: compensation levels relative to our peers, market trendsCompany.
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26 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Compensation Discussion and Analysis
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 Committee’s independent compensation consultant (as further described below), and its decisions are based on a variety of factors, including the Company’s 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 individual’s skill set relative to industry peers, overall experience and time in the position, the critical nature of the individual’s 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 Executive Chairman and our CEO, the Committee receives input and recommendations from our CEO and our Executive Vice President – Human Resources and Corporate Affairs. Named 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, Noddle, and Rebolledo. Special 162(m) Subcommittee.Although the Board has determined that, consistent with our Governance Guidelines and the NYSE listing standards, all members of the Committee are “independent,” the Committee determined that Mr. Matschullat, who previously served on the Committee, may not qualify as an “outside director” for purposes of Section 162(m) due to his service as interim CEO from May 2006 until October 2006. As a result, a subcommittee composed of directors who qualify as “outside directors” under Section 162(m) (the “Subcommittee”) was established to take any actions required under Section 162(m) for performance-based compensation to be fully deductible by the Company for income tax purposes. After the end of our 2015 fiscal year, the Board changed certain Board committee assignments, which resulted in Mr. Matschullat’s service on the Committee ending on July 29, 2015. As a result, as of that date the Subcommittee is no longer required for purposes of Section 162(m) since all of the members of the Committee qualify as “outside directors” under Section 162(m). Board of Directors.The independent members of the Board undertake a thorough process during which they review our CEO’s 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 key 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 CEO’s performance against these key factors and then provides its compensation recommendations to the Committee. The Committee, after evaluating the Board’s recommendations and receiving input from the independent compensation consultant, then makes a final determination on our CEO’s 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.
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Table of Contents Additionally, for fiscal year 2015, as a result of the transition in the CEO role, the Committee reviewed and approved the recommended short-term incentive bonus for Mr. Knauss for his role as Chairman and CEO for a portion of the year and the remaining portion of the year as Executive Chairman. Mr. Knauss did not have a role in compensation determinations other than to discuss his performance relative to specific targets and strategic objectives set at the beginning of the fiscal year. Mr. Dorer, who assumed the CEO role on November 20, 2014, did not have a role in his compensation determinations for fiscal year 2015, other than to discuss his performance at the end of the year relative to specific goals that he established when transitioning into the role in November 2014. 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 2015, the Committee used the services of Frederic W. Cook & Co., Inc. (“FWC”). FWC’s 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 designs, 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 FWC’s independence from management. Chief Executive Officer.Our CEO makes compensation recommendations to the Committee for all executive officers other than himself and the Executive Chairman. 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” for a discussion of FWC’s 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, and 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 FWC, the Committee’s compensation consultant, the Committee took into consideration all factors relevant to FWC’s independence, including the following factors specified in the NYSE listing standards: ● | other services provided to the Company by FWC oranyor any of its affiliates; | ● | the fees paid by the Company to FWC as a percentage of FWC’s total revenue; | ● | the policies and procedures of FWC that are designedtodesigned to prevent a conflict of interest; | ● | any business or personal relationship betweenindividualsbetween individuals at FWC performing consulting services forthefor the Committee and a Committee member; | ● | any ownership of Company stock by the individuals at FWC performing consulting services for the Committee; and | ● | any business or personal relationship betweenindividualsbetween individuals at FWC performing consulting services forthefor the Committee and an executive officer of the Company;any ownership of Company stock by the individualsat FWC performing consulting services for theCommittee; andthe fees paid by the Company as a percentage ofFWC’s total revenue.
26 THE CLOROX COMPANY- 2014 Proxy Statement
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Compensation Discussion and Analysis
Company. |
FWC has provided the Committee with appropriate assurances and confirmation of its independent status pursuant to the Committee’s charter and other factors. The Committee believes that FWC has been independent
throughout its service to the Committee and there is no conflict of interest between FWC and confirmation of its independent status in accordance with the Committee’s charter and other considerations. The Committee believes that FWC has been independent throughout its service to the Committee and that there is no conflict of interest between FWC or individuals at FWC and the Committee, the Company’s executive officers, or the Company.
28 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Compensation Discussion and Analysis Our Peer Group The Committee uses a peer group composed of 1519 consumer products companies (the “compensation peer group”) to help determine competitive compensation rates for the Company’s 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 FWC. 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 2014,2015, the compensation peer group was composed of the following companies:
Avon Products, Inc. | General Mills, Inc. | Molson Coors Brewing Co.Company | Campbell Soup Company | H.J. Heinz Company*The Hershey Company | Newell Rubbermaid Inc. | Church & Dwight Co., Inc. | The Hershey CompanyHormel Foods Corporation | Revlon, Inc. | Colgate-Palmolive Co.Company | JMThe J.M. Smucker Company | S.C. Johnson & Son, Inc. | Energizer HoldingsDr. Pepper Snapple Group, Inc. | Kellogg Company | Tupperware Brands |
| Corporation | *Energizer Holdings, Inc. | Compensation data for H.J. HeinzMcCormick & Company, before its acquisition was available and was used in fiscal year 2014. 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 consumerproducts;are of reasonably similar size based on marketcapitalization and revenue;compete with the Company for executive talent; and
● | 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. |
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. There were no changes to the compensation peer group inIn fiscal year 2014.2015, H.J. Heinz Company was removed due to its acquisition, and the following companies were added: Dr. Pepper Snapple Group, Inc., The Estee Lauder Companies Inc., Hormel Foods Corporation, McCormick & Company, Incorporated, and Mead Johnson Nutrition Company.
Fiscal Year 20142015 Compensation of Our Named Executive Officers For fiscal year 2014,2015, 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. FWC 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 plus or minus 15% of the median target dollar amounts of compensation of the compensation peer group. Other factors, such as an executive’s level of experience, may result in target total compensation for individual named executive officers being set above or below the peer median.this median range. Specifically, for fiscal year 2014, 2015, target compensation for our CEO, taking into account his recent promotion, was slightly above 10%more than 15% below the peer group median. Our CFO, EVP – General Counsel, and EVP – Human Resources and Corporate Affairs were within 15% of the peer group median due to his long tenure and experience as CEO.median. The target compensation amounts for Mr. Knauss in his role as CEO and for our co-COOs and CFOformer co-COO, Mr. Roeth, were belowslightly more than 15% ofabove the peer group median due to their relatively short tenure in their respective roles.median. In addition, it may not be possible to obtain specific market data for certain positionsa particular position due to the unique nature of the position’s responsibilities. For fiscal year 2014,2015, Mr. Tataseo’s positionrole did not have comparable market data, so it was evaluated based on positions with comparable responsibility and importance within the Company.
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Table of Contents
What We Pay: Components of Our Compensation Program A substantial portion of our targeted executive compensation is at-risk variable compensation, with 86%85% of compensation for our CEO and 71% of compensation for all our other named executive officers being(excluding Mr. Knauss, who retired effective July 1, 2015, and Mr. Roeth, who at-risk pay.retired on January 5, 2015) being at-risk. Base salary is the only fixed compensation component, as outlined in the following charts, which reflect target compensation for fiscal year 2014.2015.
Compensation Mix - CEO(1) Compensation Mix - Average of All Other NEOSNEOs(1) (1) | Compensation mix represents the actual base salary, target annual incentive award, and actual long-term incentives granted in fiscal year 2014.2015. Refer to the Summary Compensation Table below for further details on actual compensation. The CEO mix is based on Mr. Dorer’s compensation as CEO. |
Additional elements of the 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 about each element:below: Base Salary.The Committee generally seeks to establish base salaries for our named executive officers within plus or minus 15% of the median of the compensation peer group. The Committee considered factors such as the executive’s specific role, level of experience, and sustained performance, as well as the compensation peer group market data, in determining each named executive officer’s base salary for fiscal year 2014.2015. Changes in base salary are approved by the Committee in September and are become effective in October of each year. Due to the leadership changes in fiscal year 2015, the Board also approved various mid-year salary changes. All base salaries that went into effect in October 20132014 for the named executive officers arewere within this target pay range. ForAfter reviewing Mr. Knauss’ compensation, with input from the third year in a row,independent compensation consultant, the Committee did not increase the annual base salary for our CEOMr. Knauss. This was the fourth year in a row Mr. Knauss’ base salary was not increased, reflecting his compensation’s current alignment to market and adherence to our compensation philosophy, as well as Mr. Knauss’ then-pending transition to Executive Chairman. After conducting a similar review for Mr. Dorer and evaluating his individual performance and overall Company performance for fiscal year 2014, the Committee approved a base salary increase of 2.3% at the beginning of fiscal year 2015, while Mr. Dorer was in line with the median CEOhis co-COO role. Mr. Dorer’s base salary offurther increased by 76% on November 20, 2014, upon his promotion to CEO, from $540,000 to $950,000, which is below the Company’s compensation peer group.group median for CEOs. The annual base salary increases for our named executive officers other than our CEOMr. Knauss and Mr. Dorer ranged from 2.52%0% to 5.26%10%, with an average increase of 3.33%3.4%. Our CFO’s salary increase was at the high end of the range to bring his salary closer to market, range, in recognition of his continued strong performance and increased experience. The actual amountsbase salaries earned by our named executive officers in fiscal year 20142015 are listed in the “Salary” column of the Summary Compensation Table. 2830 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents Compensation Discussion and Analysis Annual Incentives.The Company provides annual incentive awards to our named executive officers under the Company’s 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.Committee, not to exceed the stockholder-approved maximums. These performance goals are designedtied to promote the achievement of Board-approved corporate financial and strategic performance goals and individual objectives. Specifically, theobjectives, which are described below. The amounts actually paid under the Annual Incentive Plan are determined based on four factors: (1) a target award for each named executive executive officer, which is the base salary multiplied by the annual incentive target (“Target Award”), (2) the Company’s performance measured against predetermined corporate financial goals (“Financial Performance Multiplier”), (3) the Company’s level of achievement of various strategic metrics (“Strategic Metrics Multiplier”), and (4) the named executive officer’s individual performance (“Individual Performance Multiplier”), which is based primarily on the performance of the operations or functions under the individual’s 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 can have on the total payout significantly smaller than the Financial Performance Multiplier. Over the past three years, the range for the Strategic Metrics MultipliersMultiplier was 90% to 100% and the range for the Individual Performance Multipliers was 95% 80% to 110%125%. By comparison, the range for the Financial Performance MultipliersMultiplier during this same time period was 28% to 148%171%.
The actualBelow is an illustration of the annual incentive calculation, is illustrated below using our CEO’s Annual Incentive Plan payout as an example. Because the Financial Performance Multiplier was 28%171% in fiscal year 2014,2015, based on the Company’s strong performance compared to the targets for annual net sales and economic profit 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.
| | (1) | In connection with Mr. Dorer’s promotion to Chief Executive Officer, his base salary and annual incentive target were increased from $540,000 and 80%, respectively, to $950,000 and 125%, respectively, for the period beginning November 20, 2014 to the end of the fiscal year. Therefore, in fiscal year 2015, his target bonus of $893,579 represents the pro-rated amount using a weighted average of base salary and annual incentive targets based on time in each position. |
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Table of Contents Each of the elements of the annual incentive formula is further described below. Base Salary. The named executive officer’s actual fiscal year 20142015 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.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 typicallygenerally 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 20142015 annual incentive awards. In fiscal year 2014, the annual incentive targets for the named executive officers were unchanged from the fiscal year 2013 targets. | Named Executive Officer | | Annual Incentive Target (% of Base Salary) | Benno Dorer – Chief Executive Officer(1) | 125% | | Donald R. Knauss – Executive Chairman and CEO | (Retired effective July 1, 2015) | 145% | Stephen M. Robb – Executive Vice President – Chief Financial Officer(2) | 80% | Jacqueline P. Kane – Executive Vice President – Human Resource and Corporate Affairs | 70% | Frank A. Tataseo – Executive Vice President – Professional Products Division, Mergers & Acquisitions andNew Business Development | | | 75% | | Information Technology | | 75% | | | Benno DorerLaura Stein – Executive Vice President and Chief Operating Officer – Cleaning, International andGeneral Counsel | | | 70% | | Corporate Strategy | | 80% | | | George C. Roeth – Former Executive Vice President and Chief Operating Officer – Lifestyle, Household and Global | | | | | Global Operating Functions | (Retired January 5, 2015) | 80% |
| | (1) | Stephen M. Robb – Senior Vice President – Chief Financial OfficerIn connection with Mr. Dorer’s promotion during fiscal year 2015, the annual incentive target for Mr. Dorer was increased from 80% (while he was co-COO) to 125% (when he became CEO) for the period beginning November 20, 2014 to the end of the fiscal year. Therefore in fiscal year 2015, his bonus was pro-rated based on those two targets and time in each position. | (2) | | Mr. Robb’s target was increased from 75% | in fiscal year 2014 to 80% for fiscal year 2015. |
Financial Performance Multiplier. At the beginning of each fiscal year, the Committee sets financial goals for the Annual Incentive Plan based on the targets approved by the Board. At the end of the year, the Committee reviews the Company’s results against the financial goals set at the beginning of the year. For fiscal year 2014,2015, the Committee established financial goals with continueda focus on maintaining or increasing net sales and increasing economic profit when compared to actual operating results for fiscal year 2014, as described in greater detail below, in order to drive sustainable profitable growth in short- and long-term total stockholder returns. TheseThe net sales and economic profit metrics that determine the Financial Performance Multiplier are each weighted equally 50% as the Committee continues to believe this mix effectively balances a focus on both top-line and bottom- linebottom-line performance. In selecting the metrics and setting the performancefinancial goals inof the Annual Incentive Plan, the Committee carefully considered whether the goals appropriately align with the goals inof the long-term incentive program so that the overall compensation design does not inadvertently encourage participants to take unnecessary or excessive risk or actions that are inconsistent with the Company’s short- and long-term strategic and financial objectives.
For fiscal year 2014,2015, 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 | | | Net Sales (weighted 50%)(1) | | | $ | 5,611 | | | $ | 5,785 | | | $ | 5,959 | | | $ | 5,591 | | | EP (weighted 50%)(2) | | | $ | 401 | | | $ | 441 | | | $ | 481 | | | $ | 405 | | |
| Annual Incentive Financial Goals (in millions) | Goal | 0% (Minimum) | | 100% (Target) | | 200% (Maximum) | | Actual | Net Sales (weighted 50%)(1) | | $ | 5,383 | | | $ | 5,549 | | | $ | 5,715 | | $ | 5,655 | EP (weighted 50%)(2) | | $ | 386 | | | $ | 426 | | | $ | 466 | | $ | 457 |
| | (1) | Net sales as reported in the Company’s consolidated financial statements. | (2) | 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. |
The Company faced a difficult environment in fiscal year 2014 that included unfavorable foreign exchange rates, soft categories, and increased competitive activity, resulting in a financial performance multiplier of 28%. When the financial targets were set at the beginning of fiscal year 2014, no additional Venezuela currency devaluation, above the carry-over impact from the devaluation of the bolivar in February 2013, was forecasted given the
volatility of the country’s political and economic situation and the difficulty of predicting the potential magnitude of any devaluation. As a result, when the final results were calculated, the additional negative impact from the effective currency devaluation in Venezuela that occurred in March 2014 was excluded, resulting in an upward adjustment of the multiplier to 28%. This was the only adjustment made to the financial performance multiplier.
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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 Company’s overall strategy of being a high-performance organization of enthusiastic owners, winning with superior capabilities in Desire, Decide, andengaging Delight, accelerating growth both in and beyondemployees, increasing brand investment behind superior value, keeping the core healthy and relentlessly driving outgrowing into new categories and channels, and reducing waste. For fiscal year 2014,2015, the Committee set 1211 metrics, each with one or
32 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Compensation Discussion and Analysis 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 measure consumer product preference, the Company established targets for strategic product growth, new product launches, advertising, and packaging communications for various products, 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 partnerships. The initiative to simplify work was measured against targets related to our agile enterprise approach, focusing on reducing administrative waste, and finding faster and more efficient ways of doing work. Finally, we established goals against our energy, water, and solid waste use for our global operations and sought more efficient ways to produce and package our products for the metric relating to reduction of the Company’s environmental footprint. For fiscal year 2014,2015, the 1211 strategic metrics and the Company’s results were as follows: Strategic Metric | | FY14FY 2015 Result | | | Strategic Metric | | FY14FY 2015 Result | | High-performing employee engagement | | Met or Exceeded | | | Targeted goals related to reshaping the portfolio | | Not Met or Exceeded | | Diversity targets, both within the Company and for our suppliers | | Met or Exceeded | | Targeted level of cost savings
| | Met or Exceeded | Consumer product preference
| | Met or Exceeded | | • | | Not Met | Dollar share, both domestically and
internationally
| | Not Met | | cost savings | | Met or Exceeded | Future net sales growth projections • | Consumer product preference | | Met or Exceeded | | • | Gross margin improvement | | Met or Exceeded | • | Dollar share, both domestically and internationally | | Not Met | | | Successful execution of initiative to simplify work and eliminate low value activity | | Met or Exceeded | | Future net sales growth projections | | Not Met | | • | Reduction of the Company’s environmental footprint | | Met or Exceeded | • | Innovation and strategic product pipeline | | Met or Exceeded | | Reduction of the Company’s
environmental footprint
| | | Met or Exceeded |
Based on the Company’s performance against these strategic metrics, the Committee determined that the level of payout for the Strategic Metrics Multiplier was 90%100%. Over the past three years, the range for the Strategic Metrics Multiplier washas been 90% to 100%. Individual Performance Multiplier. Consistent with our pay-for-performance philosophy, the annual incentive payouts initially are determined by financial results and the performance against strategic metrics, are multiplied by thean Individual Performance Multiplier. Based on its reviewevaluation of individual performance, the Committee reviewed and approved the Individual Performance Multiplier for each named executive officer to reflect the officer’s individual contributions in fiscal year 20142015. In determining the multiplier for individual contributions. Specifically,performance, the Committee carefully evaluates several performance factors against objectives established at the beginning of the year. For the CEO, the Committee conducts a detailed evaluation covering the key categories of strategy, people, operations, values, and overall performance, with specific goals within each category. To set specific targets for the CEO, the Committee uses a balanced scorecard with annual strategic priorities of financial goals, people, customer, growth, and margin, with specific metrics and targets within each strategic priority. These targets are used to measure the CEO’s 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 20142015 was 95%90% to 100% due to110% based on the contributions made in the fiscal year by our named executive officers, despite a challenging business environment.officers. The higher end of thethis narrow range was awarded to our Chairmanthe EVP – Human Resources and CEOCorporate Affairs, EVP – General Counsel and our CFO primarily for contributions made with respect to leadership changes within the organization and their support in connection with the discontinuation of the organization. The high end of the range was also awarded to our EVP and COO – Cleaning, International and Corporate Strategy for his contributionsoperations in strategy development and International.Venezuela. The lower end of the range was awarded to the EVP – New Business Development for his contributions despite mergers and acquisitions results falling short of expectations. The Committee reviewed the results for our EVP and COO –Lifestyle, Household and Global Operating FunctionsCEO and our EVP– Professional Products, MergersExecutive Chairman and Acquisitionsdetermined their Individual Performance Multipliers were 110% and Information Technology100%, respectively. Our CEO’s Individual Performance Multiplier was based on his strong performance since taking the role in November 2014, including the introduction of the strategy accelerators, delivering overall operational and financial results for their contributions despitefiscal year 2015 that exceeded expectations, and leading a challenging external environment.highly successful senior management succession plan. 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 2014,2015, excluding our CEO,Messrs. Dorer, Knauss, and Roeth (who retired on January 5, 2015), ranged from $94,500$618,850 to $106,440,$827,640, and from 24%154% to 25%188% of the Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | 33 |
Table of Contents named executive officers’ Target Awards. Mr. Dorer’s annual incentive payout was $1,680,820. Due to his promotion, Mr. Dorer’s final annual incentive payout was prorated to reflect the periods during the fiscal year when he served as co-COO, with an annual incentive target of 80%, and when he served as CEO, with an annual incentive target of 125%, which is below the peer group median in light of his recent promotion. This award was 188% of his Target Award and is composed of a Financial Performance Multiplier of 171%, a Strategic Metrics Multiplier of 100%, and an Individual Performance Multiplier of 110%. Mr. Knauss’ annual incentive payout was $420,210,$2,851,430, or 25%171% of his Target Award.Award, which comprises a Financial Performance Multiplier of 171%, a Strategic Metrics Multiplier of 100%, and an Individual Performance Multiplier of 100%. These payouts are also reflected in the Non-Equity“Non-Equity Incentive Plan CompensationCompensation” column of the Summary Compensation Table. Long-Term Incentives.Each year, we provide long-term incentive compensation to our named executive officers 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. Unlike many of our industry peers, we do not use time-based restricted stock as a form of annual long-term incentive opportunitycompensation because we believe that doing so reduces the degree to which the total long-term incentive opportunity is impacted by changes in our multi-year operating performance. However, we do 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. Continues on next page4 | | | | THE CLOROX COMPANY- 2014 Proxy Statement
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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 also considers recommendations by our CEO for the other named executive officers. The Committee’s 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 officer’s 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 the 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 20142015 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, 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 20142015 were made in September 2013.2014. The Committee considered factors such as the executive’s role, level of experience, and sustained performance, as well as the compensation peer group market data, in determining each named executive officer’s long-term incentive award. For fiscal year 2014,2015, the annual long-term incentives for our named executive officers, excluding our CEO,Messrs. Dorer and Knauss, ranged from a value of $800,000 to $925,000.$1,100,000. Mr. KnaussDorer received a long-term incentive award valued at $5,400,000.$5,000,000, which consisted of a $975,000 long-term incentive award approved at the beginning of fiscal year 2015 (while Mr. Dorer was co-COO), a target long-term incentive award of $3,025,000 in connection with his promotion to CEO (50% in the form of stock options and 50% in the form of performance shares that vest after a three-year performance period of October 1, 2014 through September 30, 2017), and a one-time promotional stock option grant of $1,000,000. In light of his transition to the Executive Chairman role, Mr. Knauss did not receive a long-term incentive award for fiscal year 2015. The long-termlong- 34 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Compensation Discussion and Analysis term incentives awarded to our named executive officers in fiscal year 20142015 are listed in the Stock Awards and Option Awards columns of the Summary Compensation Table. Performance SharesShares.. 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.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 economic profit target which is informed by the budget and our three-year financial long-range plan developed by management and reviewed and approved by the Board. In setting the performance goalstargets for the performance shares, the Committee reviews the budget and long-range plan and seeks to appropriately align the performance goals with the goalsobjectives of the Annual Incentive Plan so that the overall compensation design does not unintentionally encourage participants to take unnecessary or excessive risk or actions that are inconsistent with the Company’s short- and long-term strategic and financial objectives. In addition, theThe Committee believes using EPits use of cumulative economic profit (“cumulative EP”) as a metric provides additional rigor and an ability to align performance with pay inover the long term.three-year performance period. The payout of the performance share awardawards granted in fiscal yearSeptember 2014 is subject solely to the Company’s achievement of a cumulative economic profit (“cumulative EP”)EP target during the performance period of July 2014 through June 2017. The percentage range for payouts is from 0%, in the event the minimum cumulative EP target is not met, to a maximum of 150% of the target number of shares, with a payout of 50% of the target number of shares when the minimum cumulative EP target is attained. For the grant made in September 2011,2012, which was based on a performance period of July 20112012 through June 20142015 and was paid out in August 2014,2015, the Committee established cumulative operating profit as an objective measureEP targets and set various payout levels tied to determine the performance level that would be necessary for any payout to occur. The Committee also set specific goals based on various levels of cumulative EP for the performance period ifperiod. For the cumulative operating profit was achieved. TheSeptember 2012 grant, the cumulative EP target was set so a payout of 100% would occurbe made if the Company achieved EP growth of approximately 3% per year during the performance period. The Committee believes this metric directly supports the Company’s corporate strategy and long-term financial goals and correlates to stock price performance. In August 2014,2015, the Committee certified the results of the September 20112012 grant for the 2011-20142012-2015 performance period. The adjusted financial targetstarget for the grant were a cumulative operating profit of $2,817 million andwas a cumulative EP of $1,231$1,281 million over the three-year 32 | THE CLOROX COMPANY- 2014 Proxy Statement |
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for a 100% payout. The cumulative operating profitEP targets were adjusted by the Committee for the events in Venezuela that ultimately led to the Company’s discontinuation of operations in that country, which the Committee determined to be an extraordinary, unusual, or non-recurring event. The Company’s actual cumulative EP was $2,843 million, which met the required threshold, and the EP result was $1,233$1,288 million, resulting in the Committee certifying a payout of 103%105%. This payout supports the Company’s belief in pay for performance over the long term. Stock OptionsOptions.. 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 Company’s 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 2014,2015, 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-union hourly employees. The Company’s 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 Company’s 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 except for our CEO, who does not participate in the Executive Retirement Plan (the “ERP”) but does participate in an individual replacement supplemental executive retirement plan.programs. 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. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | 35 |
Table of Contents 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 2014,2015, 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 and by Social Security. Effective July 1, 2011, the SERP was replaced by the ERPExecutive 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 Company’s compensation peer group. Executive Retirement Plan.Our executive officers (including named executive officers other than our CEO)Executive Chairman) participate in the ERP. Under the ERP, we makethe Company makes an annual contribution of 5% of an eligible participant’s base salary and annual incentive award into the plan. Our named executive officers who are eligible for a benefit under the SERP also receive annual “step-down” transition contributions into the ERP, as further described below. These transition contributions began in July 2011, when the ERP became effective, and are made over a three- or a five-year period, depending on the named executiveofficer’s organizational level at the time the ERP became effective. The transition contributions as a percentage of eligible pay range from 7% in the first year to 5% in the final year for the three-year transition and from 9% in the first year to 5% in the final year for the five-year transition. Replacement Supplemental Executive Retirement Plan.Pursuant to hisMr. Knauss’ employment agreement andin place at the beginning of fiscal year 2015, to compensate for the loss of retirement benefits at his prior employer when he became ourthe Company’s CEO in 2006, Mr. Knauss Continues on next page4 | | | | THE CLOROX COMPANY- 2014 Proxy Statement
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participates participated in a replacement SERP. The replacement SERP providesprovided retirement benefits that are equal to the greater of (i) the amount payable as calculated under the Company SERP frozen effective June 30, 2011, described above, and (ii) the benefits to which Mr. Knauss would have been entitled if he had stayed at his previous employer, The Coca-Cola
Company. Mr. Knauss iswas fully vested in the replacement SERP and he iswas the sole participant in the plan. During fiscal year 2015, Mr. Knauss reached the tenure and age requirements which resulted in the Company SERP providing for greater retirement benefits. As a result, Mr. Knauss’ right to receive any benefits under the replacement SERP was eliminated when his employment agreement was amended and restated (as described in “Potential Payments upon Termination or Change in Control”). Further details about the provisions of the Pension Plan, NQDC, SERP, ERP, and Mr. Knauss’ replacement SERPERP 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 (“Severance(the “Severance Plan”) that provides our named executive officers (other than our CEO)Executive Chairman) 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 entered into a revised employment agreement with our CEOExecutive Chairman in May 2010, further amended in November 2014, which providesprovided for severance benefits under similar conditions.conditions, so long as such a termination occurred prior to March 31, 2015. The Company also has an Executive Change in Control Severance Plan (the “CIC Plan”) to provide for the payment of severance benefits to certain eligible executives of the Company, including all of the Company’s named executive officers other(other than our CEO,Executive Chairman) in the event their employment with the Company is involuntarily terminated in connection with a change in control of the Company. The Company also has entered intohad, until his retirement, a change in control agreement with Mr. Knauss to provide change in control severance benefits. 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 retention for business continuity purposes. Under the CIC Plan and Mr. Knauss’ change in control agreement, a named executive officer is eligible for change in control severance benefits in the event 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. 36 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Compensation Discussion and Analysis Perquisites We provide our named executive officers with other limited benefits we believe are competitive with the compensation peer group and consistent with the Company’s overall executive compensation program. We believe 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 Company’s headquarters, an annual executive physical exam, reimbursement for health club membership, financial planning services and, in the case of our CEO,Messrs. Dorer and Knauss, limited non-business corporate airplane usage. Compensation for Mr. Knauss – Chairman and CEO
The compensation of our Chairman and CEO, Mr. Knauss, is consistent with the executive compensation philosophy and program that applies generally to all of our named executive officers, as described above. Mr. Knauss’ target total compensation is designed to be competitive with the compensation of other CEOs in the compensation peer group and his annual incentive and long-term incentive awards are linked to Company performance.
In the beginning of fiscal year 2014, the Committee, with input from the independent compensation consultant, reviewed all the elements of Mr. Knauss’ compensation, including base salary and annual incentive and long-term incentive award opportunities, in comparison with CEO compensation of the compensation peer group. Based on this review, and in connection with an evaluation of Mr. Knauss’ individual performance and overall Company performance for fiscal years 2012 and 2013, the Committee did not increase Mr. Knauss’ base salary for fiscal year 2014. This was the third year in a row that Mr. Knauss’ base salary was not increased. Additionally, the Committee did not increase Mr. Knauss’ annual incentive target of 145% of base salary for fiscal year 2014 or his long-term incentive award value of $5.4 million.
The decision to not increase Mr. Knauss’ compensation for fiscal year 2014 was a result of his compensation’s current alignment to market and adherence to our compensation philosophy. Mr. Knauss’ overall compensation was competitive with the target range of CEO compensation in the compensation peer group when considering his tenure and experience as CEO, so his compensation was not adjusted in fiscal year 2014.
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Shortly after fiscal year 2014 ended, the Committee reviewed Mr. Knauss’ performance for the year and determined a payout of $420,210. This award was comprised of the Financial Performance Multiplier of 28%, the Strategic Metrics Multiplier of 90%, and a CEO Individual Performance Multiplier of 100%, as described earlier under the “Annual Incentives” section. The Board viewed Mr. Knauss’ individual performance as solid despite the challenging year, as the Company did not meet its financial targets for a 100% payout for the year. Nevertheless, the Company delivered substantial value to stockholders. Mr. Knauss’ annual incentive payout was 78% lower than the annual incentive payout in 2013, which was primarily due to lower Company financial performance versus the targets approved by the Committee at the beginning of the fiscal year.
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 assumed stock prices, and the potential value of payouts under various termination scenarios. As such, these tally sheets ensure thathelp provide the Committee haswith a comprehensive understanding of all elements of the Company’s compensation program and enable the Committee to consider changes to the Company’s 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 20132014 Advisory Vote to Approve Executive Compensation.At our 2013 annual meeting2014 Annual Meeting of stockholdersStockholders held on November 20, 2013,19, 2014, we asked our stockholders to approve, on an advisory basis, our fiscal year 20132014 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 92% of votes cast in favor of our proposal. We value this positive endorsement by our stockholders of our 20132014 executive compensation policies and believe that the outcome signals our stockholders’ support of our compensation program. As a result, we continued our general approach to compensation for fiscal year 2014,2015, 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 year’s and future advisory votes on executive compensation, as well as feedback received throughout the year, when making compensation decisions for our named executive officers. 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. In fiscal year 2014,Except for Mr. Dorer’s promotional stock option grant described under “Long-Term Incentive Award” above, the Committee did not makeapprove any specialadditional grants to ourthe named executive officers.officers in fiscal year 2015. Executive Stock Ownership Guidelines.To preserve the linkage betweenmaintain alignment of the interests of the Company’s executive officers and our stockholders, all executive officers, including the named executive officers, are expected to accumulate 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 officer’s annual base salary. The current minimum ownership level 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 the named executive officers, with the exception of Mr. Dorer whose ownership threshold increased from 3 times annual base salary to 6 times annual base salary upon his promotion to CEO, have met the required ownership levels. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | 37 |
Table of Contents 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 Continues on next page4 | | | | THE CLOROX COMPANY- 2014 Proxy Statement
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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. 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. Named executive officers achieve ownership levels over time through the ongoing required retention ratios associated with the exercise of stock options and vesting of full-value shares or by purchasing stock in the open market.
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 Company’s Insider Trading Policy does not permit executive officers to engage in short-term or speculative transactions or derivative transactions involving the Company’s stock includingand includes prohibitions on options trading, hedging, or pledging the Company’s 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 Company’s General Counsel or Corporate Secretary 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 officer’s award, as applicable, to the extent that the Committee determines such executive officer’s 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 our 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 $1 million per year. The Annual Incentive Plan and long-term incentive plan are designed to provide the Committee with the ability to decide whether or not to make performance-based compensation awards that are intended to meet the requirements of Section 162(m).
The Management Development and Compensation Committee Report As detailed in its charter, the Management Development and Compensation Committee of the Board oversees the Company’s executive compensation program and policies. As part of this function, the Committee discussed, and reviewed with management, the CD&A. Based on this review and discussion, we have recommended to the Board that the CD&A be included in the proxy statement. THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE George J. Harad,Jeffrey Noddle, Chair Richard H. Carmona
Tully M. FriedmanSpencer C. Fleischer
Robert W. MatschullatGeorge Harad
Jeffrey W. NoddleRogelio Rebolledo
3638 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents Compensation Discussion and Analysis
Compensation Discussion and Analysis Tables SUMMARY COMPENSATION TABLE The following table sets forth the compensation earned, paid or awarded to our named executive officers for the fiscal years ended June 30, 2015, 2014 2013, and 2012.2013. | Name and Principal Position | | Year | | Salary ($)(1) | | Bonus ($) | | Stock Awards ($)(2)(3) | | Option Awards ($)(2) | | Non-Equity Incentive Plan Compensation ($)(4) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) | | All Other Compensation ($)(6) | | Total ($) | | | Donald R. Knauss(7) | | 2014 | | $ | 1,154,424 | | — | | $ | 2,699,867 | | $ | 2,700,006 | | $ | 420,210 | | $1,628,105 | | $347,274 | | $8,949,886 | | | Chairman and Chief | | 2013 | | | 1,150,000 | | — | | | 2,699,798 | | | 2,699,456 | | | 1,916,790 | | 1,790,104 | | 464,916 | | 10,721,064 | | | Executive Officer | | 2012 | | | 1,154,423 | | — | | | 2,625,408 | | | 2,625,111 | | | 2,740,220 | | 1,978,367 | | 334,860 | | 11,458,389 | | | Frank A. Tataseo | | 2014 | | | 534,672 | | — | | | 450,119 | | | 450,034 | | | 97,090 | | 571,551 | | 206,207 | | 2,309,673 | | | Executive Vice President – | | 2013 | | | 522,500 | | — | | | 449,966 | | | 449,944 | | | 497,880 | | — | | 240,164 | | 2,160,454 | | | Professional Products | | 2012 | | | 514,442 | | — | | | 449,790 | | | 450,036 | | | 600,230 | | 1,635,484 | | 193,888 | | 3,843,870 | | | Division, Mergers & | | | | | | | | | | | | | | | | | | | | | | | | | Acquisitions and | | | | | | | | | | | | | | | | | | | | | | | | | Information Technology | | | | | | | | | | | | | | | | | | | | | | | | | Benno Dorer(8) | | 2014 | | | 522,669 | | — | | | 462,786 | | | 462,526 | | | 106,440 | | 397,824 | | 192,377 | | 2,144,622 | | | Executive Vice President | | | | | | | | | | | | | | | | | | | | | | | | | and Chief Operating | | | | | | | | | | | | | | | | | | | | | | | | | Officer – Cleaning, | | | | | | | | | | | | | | | | | | | | | | | | | International and | | | | | | | | | | | | | | | | | | | | | | | | | Corporate Strategy | | | | | | | | | | | | | | | | | | | | | | | | | George C. Roeth(9) | | 2014 | | | 522,669 | | — | | | 462,786 | | | 462,526 | | | 101,120 | | 357,283 | | 194,256 | | 2,100,640 | | | Executive Vice President | | 2013 | | | 478,742 | | — | | | 325,216 | | | 599,968 | | | 437,410 | | — | | 196,809 | | 2,038,145 | | | and Chief Operating | | | | | | | | | | | | | | | | | | | | | | | | | Officer – Lifestyle, | | | | | | | | | | | | | | | | | | | | | | | | | Household and Global | | | | | | | | | | | | | | | | | | | | | | | | | Operating Functions | | | | | | | | | | | | | | | | | | | | | | | | | Stephen M. Robb | | 2014 | | | 491,731 | | — | | | 400,293 | | | 399,965 | | | 94,500 | | 187,877 | | 162,675 | | 1,737,041 | | | Senior Vice President – | | 2013 | | | 462,500 | | — | | | 380,020 | | | 379,940 | | | 450,460 | | — | | 165,603 | | 1,838,523 | | | Chief Financial Officer | | 2012 | | | 396,361 | | — | | | 187,413 | | | 437,511 | | | 401,100 | | 849,638 | | 116,665 | | 2,388,688 | | |
Name and Principal Position | Year | | Salary ($)(1) | Bonus ($) | | Stock Awards ($)(2)(3) | | Option Awards ($)(2) | | Non-Equity Incentive Plan Compensation ($)(4) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) | | All Other Compensation ($)(6) | | Total ($) | Benno Dorer Chief Executive Officer (Effective November 20, 2014) | 2015 | | $789,762 | — | | $2,000,344 | | $2,999,979 | | $1,680,820 | | $242,911 | | $144,371 | | $7,858,187 | 2014 | | 522,669 | — | | 462,786 | | 462,526 | | 106,440 | | 397,824 | | 192,377 | | 2,144,622 | | | | | | | | | | | | | | | | | Donald R. Knauss Former Executive Chairman and Former Chairman and Chief Executive Officer (Retired effective July 1, 2015 and November 20, 2014, respectively) | 2015 | | 1,154,423 | — | | — | | — | | 2,851,430 | | 1,698,979 | | 201,785 | | 5,906,617 | 2014 | | 1,154,424 | — | | 2,699,867 | | 2,700,006 | | 420,210 | | 1,628,105 | | 347,274 | | 8,949,886 | 2013 | | 1,150,000 | — | | 2,699,798 | | 2,699,456 | | 1,916,790 | | 1,790,104 | | 464,916 | | 10,721,064 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stephen M. Robb Executive Vice President — Chief Financial Officer | 2015 | | 539,423 | — | | 549,698 | | 549,984 | | 827,640 | | 33,073 | | 121,604 | | 2,621,422 | 2014 | | 491,731 | — | | 400,293 | | 399,965 | | 94,500 | | 187,877 | | 162,675 | | 1,737,041 | 2013 | | 462,500 | — | | 380,020 | | 379,940 | | 450,460 | | — | | 165,603 | | 1,838,523 | Jacqueline P. Kane Executive Vice President — Human Resources and Corporate Affairs | 2015 | | 469,269 | — | | 399,699 | | 400,032 | | 618,850 | | 506,781 | | 121,939 | | 2,516,570 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Frank A. Tataseo(7) Executive Vice President — New Business Development | 2015 | | 542,830 | — | | 449,998 | | 450,048 | | 624,160 | | 213,253 | | 152,914 | | 2,433,203 | 2014 | | 534,672 | — | | 450,119 | | 450,034 | | 97,090 | | 571,551 | | 206,207 | | 2,309,673 | 2013 | | 522,500 | — | | 449,966 | | 449,944 | | 497,880 | | — | | 240,164 | | 2,160,454 | | | | | | | | | | | | | | | | | Laura Stein Executive Vice President — General Counsel | 2015 | | 570,537 | — | | 399,699 | | 400,032 | | 751,180 | | 86,515 | | 136,964 | | 2,344,927 | 2014 | | 556,792 | — | | 390,159 | | 390,010 | | 118,960 | | 483,075 | | 203,834 | | 2,142,830 | 2013 | | 545,875 | — | | 380,020 | | 379,940 | | 464,690 | | — | | 238,507 | | 2,009,032 | | | | | | | | | | | | | | | | | George C. Roeth Former Executive Vice President and Chief Operating Officer – Household, Lifestyle and Global Operating Functions (Retired January 5, 2015) | 2015 | | 277,338 | — | | 487,723 | | 487,488 | | 382,520 | | 1,358,883 | | 1,438,738 | | 4,432,690 | 2014 | | 522,669 | — | | 462,786 | | 462,526 | | 101,120 | | 357,283 | | 194,256 | | 2,100,640 | 2013 | | 478,742 | — | | 325,216 | | 599,968 | | 437,410 | | — | | 196,809 | | 2,038,145 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Reflects actual salary earned for fiscal years 2015, 2014, 2013, and 2012.2013. Fiscal years 20142015 and 20122014 had an extra day of earnings in the pay cycle (versus 2013). Thus, Mr. Knauss’ reported salary shows a reduction from fiscal year 2012 to fiscal year 2013 and an increase from fiscal year 2013 to both fiscal year 2014;years 2014 and 2015; however, his actual annual base salary was $1,150,000 in all three years. | (2) | The amounts reflected in these columns are the values determined under FASB ASC Topic 718 for the awards granted in the fiscal years ended June 30, 2015, 2014, 2013, and 2012,2013, in accordance with the applicable accounting standard. The assumptions made in valuing stock awards and option awards reported in these columns are discussed in Note 1,Summary of Significant Accounting Policies under subsection “Stock-Based“Stock-Based Compensation,,” and in Note 14,15, Stock-Based Compensation Plans,, to the Company’s consolidated financial statements for the three years in the period ended June 30, 2014,2015, included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014.2015. The option award granted to Mr. Roeth in fiscal year 2015 was forfeited due to his retirement. Additional information regarding the stock awards and option awards granted to our named executive officers during fiscal year 20142015 is set forth in the Grants of Plan-Based Awards Table. |
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Table of Contents (3) | The grant date fair value of the performance share awards reflected in this column is the target payout based on the probable outcome of the performance-based conditions, determined as of the grant date. The maximum potential payout of the stock awards would be 150% of the target shares awarded on the grant date. The maximum value of the performance share award for 20142015 determined as of the date of grant would be as follows for each respective named executive officer: Mr. KnaussDorer – $4,049,800;$3,000,516; Mr. Robb – $824,548; Ms. Kane – $599,549; Mr. Tataseo – $675,178; Mr. Dorer$647,997; Ms. Stein – $694,179;$599,549; and Mr. Roeth - $694,179; and– $731,584. No performance shares were granted to Mr. Robb – $600,440.Knauss in fiscal year 2015. The performance share award granted to Mr. Roeth in fiscal year 2015 was forfeited due to his retirement. See the Grants of Plan-Based Awards Table for more information about the performance shares granted under the 2005 Stock Incentive Plan. | (4) | Reflects annual incentive awards earned for fiscal years 2015, 2014, 2013, and 20122013 and paid out in September 2015, 2014, 2013, and 2012,2013, respectively, under the Annual Incentive Plan. Information about the Annual Incentive Plan is set forth in the Compensation Discussion and Analysis under “Annual Incentives.”Incentives”. | |
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Table of Contents
(5) | The amounts reflect the aggregate change in the present value of accumulated benefits during fiscal years 2015, 2014, 2013, and 20122013 under the SERP, including Mr. Knauss’ replacement SERP, the Pension Plan, and the cash balance restoration benefit of the NQDC (note that the SERP, the Pension Plan, and the cash balance restoration benefit of the NQDC are all frozen benefits; refer to the Pension Benefits Table for further information). Each plan amount in fiscal year 20142015 is set forth in the following table: | | |
| | Donald R. Knauss | | Frank A. Tataseo | | Benno Dorer | | George C. Roeth | | Stephen M. Robb | | | SERP (includes, for Mr. Knauss, the replacement SERP) | $ | 1,538,483 | | $ | 493,277 | | $ | 372,899 | | $ | 309,810 | | $ | 183,212 | | | The Pension Plan | | 1,146 | | | 5,367 | | | 1,642 | | | 5,892 | | | 4,658 | | | Cash Balance Restoration Benefit | | 88,476 | | | 72,907 | | | 23,283 | | | 41,581 | | | 7 | | | Total | $ | 1,628,105 | | $ | 571,551 | | $ | 397,824 | | $ | 357,283 | | $ | 187,877 | |
| | Benno Dorer | | Donald R. Knauss | | Stephen M. Robb | | Jacqueline P. Kane | | Frank A. Tataseo | | Laura Stein | | George C. Roeth | The Pension Plan | | $ | 1,632 | | $ | 1,141 | | $ | 4,632 | | $ | 1,877 | | $ | 5,337 | | $ | 4,046 | | $ | 4,501 | SERP | | | 238,648 | | | 1,686,005 | | | 28,440 | | | 501,705 | | | 189,653 | | | 70,616 | | | 1,336,455 | Cash Balance Restoration Benefit | | | 2,631 | | | 11,833 | | | 1 | | | 3,199 | | | 18,263 | | | 11,853 | | | 17,927 | Total | | $ | 242,911 | | $ | 1,698,979 | | $ | 33,073 | | $ | 506,781 | | $ | 213,253 | | $ | 86,515 | | $ | 1,358,883 |
| | (6) | The amounts shown in the All Other Compensation column represent (i) actual Company contributions under the Company’s 401(k) Plan, (ii) nonqualified contributions under the NQDC and ERP, other than the frozen cash balance restoration benefit, which is reflected in the change in pension value column (refer to the “Nonqualified Deferred Compensation” section for further information), and (iii) perquisites available to named executive officers of the Company. Amounts are set forthCompany, (iv) the separation payment to Mr. Roeth in the following table: | connection with his retirement, and (v) a cash payment to Mr. Roeth in lieu of 2,210 unvested restricted stock units awarded to him in March 2011, which were cancelled in connection with his retirement: |
| | Donald R. Knauss | | Frank A. Tataseo | | Benno Dorer | | George C. Roeth | | Stephen M. Robb | | | The Clorox Company 401(k) Plan | $ | 25,000 | | $ | 23,291 | | $ | 25,102 | | $ | 24,481 | | $ | 25,235 | | | Nonqualified Deferred Compensation Plan | | 281,179 | | | 151,627 | | | 133,166 | | | 139,360 | | | 116,550 | | | Company Paid Perquisites | | 41,095 | | | 31,289 | | | 34,109 | | | 30,415 | | | 20,890 | | | Total | $ | 347,274 | | $ | 206,207 | | $ | 192,377 | | $ | 194,256 | | $ | 162,675 | |
| | Benno Dorer | | Donald R. Knauss | | Stephen M. Robb | | Jacqueline P. Kane | | Frank A. Tataseo | | Laura Stein | | George C. Roeth | The Clorox Company 401(k) Plan | | $ | 25,646 | | $ | 24,478 | | $ | 25,094 | | $ | 26,123 | | $ | 24,536 | | $ | 25,743 | | $ | 24,145 | Nonqualified Deferred | | | | | | | | | | | | | | | | | | | | | | Compensation Plan | | | 84,246 | | | 131,021 | | | 64,909 | | | 57,940 | | | 81,104 | | | 86,017 | | | 72,180 | Company Paid Perquisites | | | 34,479 | | | 46,286 | | | 31,601 | | | 37,876 | | | 47,274 | | | 25,204 | | | 27,413 | Separation Payment | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,080,000 | Payment for Cancellation of RSU’s | | | — | | | — | | | — | | | — | | | — | | | — | | | 235,000 | Total | | $ | 144,371 | | $ | 201,785 | | $ | 121,604 | | $ | 121,939 | | $ | 152,914 | | $ | 136,964 | | $ | 1,438,738 |
| | | The following table sets forth the perquisites we make available to our named executive officers and the cost to the Company for providing these perquisites during fiscal year 2014.2015. The amount included under Non-Business Use of Company Aircraft represents the incremental cost to the Company of Mr. Knauss’ non-business use of the Company aircraft of $13,919$3,936 in fiscal year 2014.2015. The incremental cost is determined on a per flight basis and consists of the variable costs incurred as a result of flight activity. Other Perquisites consists of paid parking at the Company’s headquarters, health club reimbursement, and an annual executive physical. | |
| | Donald R. Knauss | | Frank A. Tataseo | | Benno Dorer | | George C. Roeth | | Stephen M. Robb | | | Executive Automobile Program | $ | 13,200 | | $ | 13,200 | | $ | 13,200 | | $ | 13,200 | | $ | 13,200 | | | Basic Financial Planning | | 9,025 | | | 14,009 | | | 15,238 | | | 13,135 | | | 4,000 | | | Non-Business Use of Company Aircraft | | 13,919 | | | — | | | — | | | — | | | — | | | Other Perquisites | | 4,951 | | | 4,080 | | | 5,671 | | | 4,080 | | | 3,690 | | | Total | $ | 41,095 | | $ | 31,289 | | $ | 34,109 | | $ | 30,415 | | $ | 20,890 | |
| | Benno Dorer | | Donald R. Knauss | | Stephen M. Robb | | Jacqueline P. Kane | | Frank A. Tataseo | | Laura Stein | | George C. Roeth | Executive Automobile Program | | $ | 13,200 | | $ | 13,200 | | $ | 13,200 | | $ | 13,200 | | $ | 13,200 | | $ | 13,200 | | $ | 7,700 | Basic Financial Planning | | | 15,177 | | | 22,034 | | | 14,861 | | | 19,010 | | | 28,503 | | | 6,408 | | | 14,833 | Non-Business Use of Company Aircraft | | | — | | | 3,936 | | | — | | | — | | | — | | | — | | | — | Other Perquisites | | | 6,102 | | | 7,116 | | | 3,540 | | | 5,666 | | | 5,571 | | | 5,596 | | | 4,880 | Total | | $ | 34,479 | | $ | 46,286 | | $ | 31,601 | | $ | 37,876 | | $ | 47,274 | | $ | 25,204 | | $ | 27,413 |
| | (7) | Effective November 20, 2014, Mr. Knauss will become the Company’s Executive Chairman. | (8) | Effective November 20, 2014, Mr. Dorer will become the Company’s Chief Executive Officer. | (9) | Mr. RoethTataseo will be retiring effective January 2,on October 1, 2015. |
3840 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents Compensation Discussion and Analysis GRANTS OF PLAN-BASED AWARDS This table shows grants of plan-based awards to the named executive officers during fiscal year 2014.2015. | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | | Estimated Possible Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares or Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($) | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | | Estimated Possible Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares or Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($) | | | | | | | | | | | | | | | Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | | Threshold (#) | Target (#) | Maximum (#) | Grant Date | Threshold ($) | Target ($) | Maximum ($) | | Threshold (#) | Target (#) | Maximum (#) | Benno Dorer | | | | | Annual Incentive Plan(1) | | | — | $893,579 | $5,526,000 | | Performance Shares(2) | | 9/17/2014 | | 2,715 | 5,430 | 8,145 | | $487,723 | Stock Options(3) | | 9/17/2014 | | 50,780 | $89.82 | 487,488 | Performance Shares(4) | | 11/20/2014 | | 7,545 | 15,090 | 22,635 | | 1,512,622 | Stock Options(5) | | 11/20/2014 | | 221,170 | 100.24 | 2,512,491 | Donald R. Knauss | | | | | | | | | (Retired effective | | | | July 1, 2015) | | | | Annual Incentive Plan(1) | | | — | 1,667,500 | 9,210,000 | | — | | Performance Shares(2) | | 9/17/2014 | | — | Stock Options(3) | | 9/17/2014 | | — | Stephen M. Robb | | | | Annual Incentive Plan(1) | | | — | 440,000 | 5,526,000 | | 549,698 | Performance Shares(2) | | 9/17/2014 | | 3,060 | 6,120 | 9,180 | | 57,290 | 89.82 | 549,984 | Stock Options(3) | | 9/17/2014 | | Jacqueline P. Kane | | | | Annual Incentive Plan(1) | | — | $1,667,500 | $8,610,000 | | | | | | | — | 329,000 | 5,526,000 | | Performance Shares(2) | 9/17/2013 | | | | | 15,985 | 31,970 | 47,955 | | | $2,699,867 | 9/17/2014 | | 2,225 | 4,450 | 6,675 | | 399,699 | Stock Options(3) | 9/17/2013 | | | | | 276,640 | $84.45 | 2,700,006 | 9/17/2014 | | 41,670 | 89.82 | 400,032 | Frank A. Tataseo | | | | | | | | | | | | | | Annual Incentive Plan(1) | | — | 405,563 | 5,166,000 | | | | | | | | — | 405,563 | 5,526,000 | | Performance Shares(2) | 9/17/2013 | | | | | 2,665 | 5,330 | 7,995 | | | | 450,119 | 9/17/2014 | | 2,505 | 5,010 | 7,515 | | 449,998 | Stock Options(3) | 9/17/2013 | | | | | 46,110 | 84.45 | 450,034 | 9/17/2014 | | 46,880 | 89.82 | 450,048 | Benno Dorer | | | | | | | | | | Laura Stein | | | | Annual Incentive Plan(1) | | — | 422,400 | 5,166,000 | | | | | | | — | 399,350 | 5,526,000 | | Performance Shares(2) | 9/17/2013 | | | | | 2,740 | 5,480 | 8,220 | | | | 462,786 | 9/17/2014 | | 2,225 | 4,450 | 6,675 | | 399,699 | Stock Options(3) | 9/17/2013 | | | | | 47,390 | 84.45 | 462,526 | 9/17/2014 | | 41,670 | 89.82 | 400,032 | George C. Roeth | | | | | | | | | | | (Retired January 5, 2015) | | (Retired January 5, 2015) | | Annual Incentive Plan(1) | | — | 422,400 | 5,166,000 | | | | | | | — | 223,693 | 5,526,000 | | Performance Shares(2) | 9/17/2013 | | | | | 2,740 | 5,480 | 8,220 | | | | 462,786 | | Stock Options(3) | 9/17/2013 | | | | | 47,390 | 84.45 | 462,526 | | Stephen M. Robb | | | | | | | | | | Annual Incentive Plan(1) | | — | 375,000 | 5,166,000 | | | | | | | Performance Shares(2) | 9/17/2013 | | | | | 2,370 | 4,740 | 7,110 | | | | 400,293 | | Stock Options(3) | 9/17/2013 | | | | | 40,980 | 84.45 | 399,965 | | Performance Shares(2)(6) | | 9/17/2014 | | 2,715 | 5,430 | 8,145 | | 487,723 | Stock Options(3)(6) | | 9/17/2014 | | 50,780 | 89.82 | 487,488 |
| | | | (1) | Represents estimated possible payouts of annual incentive awards for fiscal year 20142015 under the Annual Incentive Plan for each of our named executive officers. The Annual Incentive Plan is an annual cash incentive opportunity and, therefore, awards are earned in the year of grant. The target amounts represent the potential payout if both Company performance, including financial and strategic metrics, and individual performance are at target levels. Target amounts for Messrs. Dorer and Roeth have been pro-rated for time and compensation received in their roles during fiscal year 2015. The maximum amount represents the stockholder-approved maximum payout in the Annual Incentive Plan of 1.0% of Company earnings before income taxes for our CEOMr. Knauss and 0.6% of Company earnings before income taxes for all other named executive officers.officers (including Mr. Dorer in fiscal year 2015). Because Mr. Dorer transitioned into the CEO role during the fiscal year, after the performance period and participants were established for the year, the maximum payout for Mr. Dorer is 0.6% of Company earnings before income taxes. His maximum payout for fiscal year 2016 will be 1.0% of Company earnings before income taxes. The Annual Incentive Plan is designed to enable the Committee to make awards that meet the requirements of IRC Section 162(m), as appropriate, and the maximum column reflects maximum awards possible under the Annual Incentive Plan. The Committee historically has paid annual incentive awards that are substantially lower than the maximum Annual Incentive Plan payouts. See the Summary Compensation Table for the actual payout amounts in fiscal year 20142015 under the Annual Incentive Plan. See “Annual Incentives” in the Compensation Discussion and Analysis for additional information about the Annual Incentive Plan. |
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Table of Contents (2) | Represents possible future payouts of Common Stock underlying performance shares awarded in fiscal year 20142015 to each of our named executive officers as part of their participation in the 2005 Stock Incentive Plan. These awards will vest upon the achievement of performance measures based on cumulative economic profit growth over a three-year period, with the threshold, target, and maximum awards equal to 50%, 100%, and 150%, respectively, of the number of performance shares granted. If the minimum financial goals are not met at the end of the three-year period, no awards will be paid out under the 2005 Stock Incentive Plan. See “Long-Term Incentives” in the Compensation Discussion and Analysis for additional information. No performance shares were granted to Mr. Knauss in fiscal year 2015. | | (3) | Represents stock options awarded to each of our named executive officers under the 2005 Stock Incentive Plan. All stock options vest in equal installments on the first, second, third, and fourth anniversaries of the grant date. |
Continues on next page4 | No stock options were granted to Mr. Knauss in fiscal year 2015. | (4) | Represents possible future payouts of Common Stock underlying performance shares awarded in fiscal year 2015 under the 2005 Stock Incentive Plan to Mr. Dorer on November 20, 2014, when he was promoted to CEO. These awards will vest upon the achievement of performance measures based on cumulative economic profit growth over a three-year period (October 1, 2014, through September 30, 2017), with the threshold, target, and maximum awards equal to 50%, 100%, and 150%, respectively, of the number of performance shares granted. If the minimum financial goals are not met at the end of the three-year period, no awards will be paid out under the 2005 Stock Incentive Plan. See “Long-Term Incentives” in the Compensation Discussion and Analysis for additional information. | THE CLOROX COMPANY - 2014 Proxy Statement (5) | 39Represents stock options awarded under the 2005 Stock Incentive Plan to Mr. Dorer when he was promoted to CEO effective November 20, 2014. All stock options vest in equal installments on the first, second, third, and fourth anniversaries of the grant date. | (6) | The stock option and performance share awards granted to Mr. Roeth in fiscal year 2015 were forfeited at his retirement. |
Table of Contents
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END The following equity awards granted to our named executive officers were outstanding as of the end of fiscal year 2014.2015. | Option Awards | | Stock Awards | Name | Number of Securities Underlying Unexercised Options - Exercisable (#) | Number of Securities Underlying Unexercised Options - Unexercisable (#) | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | Donald R. Knauss | | | | | | | | | | | | | | Stock Options(3) | 275,000 | | | | $63.21 | 10/2/2016 | | | | | | | | | 185,000 | | | | 61.16 | 9/18/2017 | | | | | | | | | 227,710 | | | | 63.95 | 9/16/2018 | | | | | | | | | 298,330 | | | | 57.25 | 9/15/2019 | | | | | | | | | 233,542 | 77,848 | (4) | | 66.48 | 9/14/2020 | | | | | | | | | 141,135 | 141,135 | (5) | | 68.37 | 9/14/2021 | | | | | | | | | 96,983 | 290,947 | (6) | | 72.11 | 9/11/2022 | | | | | | | | | — | 276,640 | (7) | | 84.45 | 9/17/2023 | | | | | | | | Performance Shares(3) | | | | | | | | | | | 39,552 | (8) | 3,615,053 | | | | | | | | | | | | 37,440 | (9) | 3,422,016 | | | | | | | | | | | | 31,970 | (10) | 2,922,058 | Frank A. Tataseo | | | | | | | | | | | | | | Stock Options(3) | 31,700 | | | | 61.51 | 9/19/2016 | | | | | | | | | 41,100 | | | | 61.16 | 9/18/2017 | | | | | | | | | 47,940 | | | | 63.95 | 9/16/2018 | | | | | | | | | 52,390 | | | | 57.25 | 9/15/2019 | | | | | | | | | 40,035 | 13,345 | (4) | | 66.48 | 9/14/2020 | | | | | | | | | 24,300 | 24,300 | (5) | | 68.15 | 9/13/2021 | | | | | | | | | 16,165 | 48,495 | (6) | | 72.11 | 9/11/2022 | | | | | | | | | — | 46,110 | (7) | | 84.45 | 9/17/2023 | | | | | | | | Performance Shares(3) | | | | | | | | | | | 6,798 | (8) | 621,337 | | | | | | | | | | | | 6,240 | (9) | 570,336 | | | | | | | | | | | | 5,330 | (10) | 487,162 | Benno Dorer | | | | | | | | | | | | | | Stock Options(3) | 24,700 | | | | 61.16 | 9/18/2017 | | | | | | | | | 28,760 | | | | 63.95 | 9/16/2018 | | | | | | | | | 34,920 | | | | 57.25 | 9/15/2019 | | | | | | | | | 28,912 | 9,638 | (4) | | 66.48 | 9/14/2020 | | | | | | | | | 17,550 | 17,550 | (5) | | 68.15 | 9/13/2021 | | | | | | | | | 11,675 | 35,025 | (6) | | 72.11 | 9/11/2022 | | | | | | | | | 9,392 | 28,176 | (11) | | 74.09 | 1/2/2023 | | | | | | | | | — | 47,390 | (7) | | 84.45 | 9/17/2023 | | | | | | | | Performance Shares(3) | | | | | | | | | | | 4,913 | (8) | 449,048 | | | | | | | | | | | | 4,510 | (9) | 412,214 | | | | | | | | | | | | 5,480 | (10) | 500,872 | | | | | | | | | 2,210 | 201,994 | (12) | | | |
| | | Option Awards | | Stock Awards | | | Name | | Number of Securities Underlying Unexercised Options- Exercisable (#) | | Number of Securities Underlying Unexercised Options- Unexercisable (#) | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) | | | Benno Dorer | | | | | | | | | | | | | | | | | | | | | | | Stock Options(2) | | 12,350 | | | | | | | $61.16 | | 9/18/2017 | | | | | | | | | | | | | | 14,380 | | | | | | | 63.95 | | 9/16/2018 | | | | | | | | | | | | | | 17,460 | | | | | | | 57.25 | | 9/15/2019 | | | | | | | | | | | | | | 19,826 | | | | | | | 66.48 | | 9/14/2020 | | | | | | | | | | | | | | 14,857 | | 4,952 | (3) | | | | 68.15 | | 9/13/2021 | | | | | | | | | | | | | | 15,529 | | 15,529 | (4) | | | | 72.11 | | 9/11/2022 | | | | | | | | | | | | | | 13,280 | | 13,279 | (5) | | | | 74.09 | | 1/2/2023 | | | | | | | | | | | | | | 10,199 | | 30,598 | (6) | | | | 84.45 | | 9/17/2023 | | | | | | | | | | | | | | — | | 50,780 | (7) | | | | 89.82 | | 9/17/2024 | | | | | | | | | | | | | | — | | 221,170 | (8) | | | | 100.24 | | 11/20/2024 | | | | | | | | | | | | Performance Shares(2) | | | | | | | | | | | | | | | | | 3,354 | (9) | | $348,887 | | | | | | | | | | | | | | | | | | | | 4,795 | (10) | | 498,776 | | | | | | | | | | | | | | | | | | | | 5,430 | (11) | | 564,829 | | | | | | | | | | | | | | | | | | | | 15,090 | (12) | | 1,569,662 | |
4042 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents Compensation Discussion and Analysis | Option Awards | | Stock Awards | Name | Number of Securities Underlying Unexercised Options - Exercisable (#) | Number of Securities Underlying Unexercised Options - Unexercisable (#) | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | George C. Roeth | | | | | | | | | | | | | | | | Stock Options(3) | 17,900 | | | | | 61.51 | | 9/19/2016 | | | | | | | | | 24,700 | | | | | 61.16 | | 9/18/2017 | | | | | | | | | 28,760 | | | | | 63.95 | | 9/16/2018 | | | | | | | | | 34,920 | | | | | 57.25 | | 9/15/2019 | | | | | | | | | 28,912 | 9,638 | (4) | | | 66.48 | | 9/14/2020 | | | | | | | | | 17,550 | 17,550 | (5) | | | 68.15 | | 9/13/2021 | | | | | | | | | 11,675 | 35,025 | (6) | | | 72.11 | | 9/11/2022 | | | | | | | | | 9,392 | 28,176 | (11) | | | 74.09 | | 1/2/2023 | | | | | | | | | — | 47,390 | (7) | | | 84.45 | | 9/17/2023 | | | | | | | | Performance Shares(3) | | | | | | | | | | | | | 4,913 | (8) | 449,048 | | | | | | | | | | | | | | 4,510 | (9) | 412,214 | | | | | | | | | | | | | | 5,480 | (10) | 500,872 | | | | | | | | | | | 2,210 | 201,994 | (12) | | | | Stephen M. Robb | | | | | | | | | | | | | | | | Stock Options(3) | 11,400 | | | | | $61.51 | | 9/19/2016 | | | | | | | | | 15,400 | | | | | 61.16 | | 9/18/2017 | | | | | | | | | 17,980 | | | | | 63.95 | | 9/16/2018 | | | | | | | | | 21,830 | | | | | 57.25 | | 9/15/2019 | | | | | | | | | 16,680 | 5,560 | (4) | | | 66.48 | | 9/14/2020 | | | | | | | | | 10,125 | 10,125 | (5) | | | 68.15 | | 9/13/2021 | | | | | | | | | 16,234 | 16,233 | (13) | | | 64.96 | | 11/17/2021 | | | | | | | | | 13,650 | 40,950 | (6) | | | 72.11 | | 9/11/2022 | | | | | | | | | — | 40,980 | (7) | | | 84.45 | | 9/17/2023 | | | | | | | | Performance Shares(3) | | | | | | | | | | | | | 2,832 | (8) | 258,845 | | | | | | | | | | | | | | 5,270 | (9) | 481,678 | | | | | | | | | | | | | | 4,740 | (10) | 433,236 |
| | | Option Awards | | Stock Awards | | Name | | Number of Securities Underlying Unexercised Options- Exercisable (#) | | Number of Securities Underlying Unexercised Options- Unexercisable (#) | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | �� | Market Value of Shares or Units of Stock That Have Not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) | | | Donald R. Knauss | | | | | | | | | | | | | | | | | | | | | | | (Retired effective | | | | | | | | | | | | | | | | | | | | | | | July 1, 2015) | | | | | | | | | | | | | | | | | | | | | | | Stock Options(2) | | 185,000 | | | | | | | $61.16 | | 9/18/2017 | | | | | | | | | | | | | | 227,710 | | | | | | | 63.95 | | 9/16/2018 | | | | | | | | | | | | | | 311,390 | | | | | | | 66.48 | | 9/14/2020 | | | | | | | | | | | | | | 211,703 | | 70,567 | (3) | | | | 68.37 | | 9/14/2021 | | | | | | | | | | | | | | 193,965 | | 193,965 | (4) | | | | 72.11 | | 9/11/2022 | | | | | | | | | | | | | | 69,160 | | 207,480 | (6) | | | | 84.45 | | 9/17/2023 | | | | | | | | | | | | Performance Shares(2) | | | | | | | | | | | | | | | | | 39,312 | (9) | | $4,089,234 | | | | | | | | | | | | | | | | | | | | 31,970 | (10) | | 3,325,519 | | | Stephen M. Robb | | | | | | | | | | | | | | | | | | | | | | | Stock Options(2) | | 17,980 | | | | | | | $63.95 | | 9/16/2018 | | | | | | | | | | | | | | 21,830 | | | | | | | 57.25 | | 9/15/2019 | | | | | | | | | | | | | | 22,240 | | | | | | | 66.48 | | 9/14/2020 | | | | | | | | | | | | | | 15,188 | | 5,062 | (3) | | | | 68.15 | | 9/13/2021 | | | | | | | | | | | | | | 24,350 | | 8,117 | (13) | | | | 64.96 | | 11/17/2021 | | | | | | | | | | | | | | 27,300 | | 27,300 | (4) | | | | 72.11 | | 9/11/2022 | | | | | | | | | | | | | | 10,245 | | 30,735 | (6) | | | | 84.45 | | 9/17/2023 | | | | | | | | | | | | | | — | | 57,290 | (7) | | | | 89.82 | | 9/17/2024 | | | | | | | | | | | | Performance Shares(2) | | | | | | | | | | | | | | | | | 5,533 | (9) | | 575,543 | | | | | | | | | | | | | | | | | | | | 4,740 | (10) | | 493,055 | | | | | | | | | | | | | | | | | | | | 6,120 | (11) | | 636,602 | | | Jacqueline P. Kane | | | | | | | | | | | | | | | | | | | | | | | Stock Options(2) | | 38,881 | | | | | | | $66.48 | | 9/14/2020 | | | | | | | | | | | | | | 30,780 | | 10,260 | (3) | | | | 68.15 | | 9/13/2021 | | | | | | | | | | | | | | 27,300 | | 27,300 | (4) | | | | 72.11 | | 9/11/2022 | | | | | | | | | | | | | | 9,990 | | 29,970 | (6) | | | | 84.45 | | 9/17/2023 | | | | | | | | | | | | | | — | | 41,670 | (7) | | | | 89.82 | | 9/17/2024 | | | | | | | | | | | | Performance Shares(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,533 | (9) | | 575,543 | | | | | | | | | | | | | | | | | | | | 4,620 | (10) | | 480,572 | | | | | | | | | | | | | | | | | | | | 4,450 | (11) | | 462,889 | | | Frank A. Tataseo | | | | | | | | | | | | | | | | | | | | | | | Stock Options(2) | | — | | 12,150 | (3) | | | | $68.15 | | 9/13/2021 | | | | | | | | | | | | | | 32,330 | | 32,330 | (4) | | | | 72.11 | | 9/11/2022 | | | | | | | | | | | | | | 11,527 | | 34,583 | (6) | | | | 84.45 | | 9/17/2023 | | | | | | | | | | | | | | — | | 46,880 | (7) | | | | 89.82 | | 9/17/2024 | | | | | | | | | | | | Performance Shares(2) | | | | | | | | | | | | | | | | | 6,552 | (9) | | 681,539 | | | | | | | | | | | | | | | | | | | | 5,330 | (10) | | 554,427 | | | | | | | | | | | | | | | | | | | | 5,010 | (11) | | 521,140 | |
Continues on next page► | | | | (1) | Represents unvested restricted stock units under the 2005 Stock Incentive Plan multiplied by the closing price of our Common Stock on June 30, 2014. The ultimate value will depend on the value of our Common Stock on the actual vesting date. | THE CLOROX COMPANY - 2015 Proxy Statement | (2)43 |
Table of Contents | | | Option Awards | | Stock Awards | | Name | | Number of Securities Underlying Unexercised Options- Exercisable (#) | | Number of Securities Underlying Unexercised Options- Unexercisable (#) | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) | | | Laura Stein | | | | | | | | | | | | | | | | | | | | | | | Stock Options(2) | | 45,080 | | | | | | | $66.48 | | 9/14/2020 | | | | | | | | | | | | | | 30,780 | | 10,260 | (3) | | | | 68.15 | | 9/13/2021 | | | | | | | | | | | | | | 27,300 | | 27,300 | (4) | | | | 72.11 | | 9/11/2022 | | | | | | | | | | | | | | 9,990 | | 29,970 | (6) | | | | 84.45 | | 9/17/2023 | | | | | | | | | | | | | | — | | 41,670 | (7) | | | | 89.82 | | 9/17/2024 | | | | | | | | | | | | Performance Shares(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5,533 | (9) | | $575,543 | | | | | | | | | | | | | | | | | | | | 4,620 | (10) | | 480,572 | | | | | | | | | | | | | | | | | | | | 4,450 | (11) | | 462,889 | | | George C. Roeth | | | | | | | | | | | | | | | | | | | | | | | (Retired January 5, | | | | | | | | | | | | | | | | | | | | | | | 2015)(14) | | | | | | | | | | | | | | | | | | | | | | | Performance Shares(2) | | | | | | | | | | | | | | | | | 4,077 | (9) | | 424,090 | | | | | | | | | | | | | | | | | | | | 4,620 | (10) | | 480,572 | |
(1) | Represents unvested “target” number of performance shares under the 2005 Stock Incentive Plan multiplied by the closing price of our Common Stock on June 30, 2014,2015, except as noted below in footnote (8)(9). The ultimate value will depend on whether performance criteria are met and the value of our Common Stock on the actual vesting date. | | (3)(2) | Grants were made under the 2005 Stock Incentive Plan. | | (4) | Represents unvested portion of stock options that vest in four equal installments beginning one year from the grant date of September 14, 2010. | | (5)(3) | Represents unvested portion of stock options that vest in four equal installments beginning one year from the grant date of September 14, 2011, for Mr. Knauss and September 13, 2011, for all other named executive officers. | | (6)(4) | Represents unvested portion of stock options that vest in four equal installments beginning one year from the grant date of September 11, 2012. | (5) | (7)Represents unvested one-time off-cycle stock option grant that was granted to Mr. Dorer when he was promoted to Executive Vice President — Chief Operating Officer – Cleaning, International and Corporate Strategy effective January 1, 2013. | (6) | Represents unvested portion of stock options that vest in four equal installments beginning one year from the grant date of September 17, 2013. | (7) | Represents unvested portion of stock options that vest in four equal installments beginning one year from the grant date of September 17, 2014. | (8) | Represents unvested portion of off-cycle stock options granted to Mr. Dorer when he was promoted to CEO effective November 20, 2014. Options vest in four equal installments beginning one year from the grant date of November 20, 2014. | (9) | Represents the actual number of performance shares that were paid out under our 2005 Stock Incentive Plan. The grants from the plan have a three-year performance period (fiscal years 20122013 through 2014)2015). Performance is based on achievement of cumulative operating profit growth and cumulative economic profit growth. After completion of the 20142015 fiscal year the Committee determined whether the performance measures had been achieved and based on the results, on August 14, 2014,13, 2015, the Committee approved the payout of this award at 103%105% of target. |
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Table of Contents
| (9) | Represents the “target” number of performance shares that can be earned under our 2005 Stock Incentive Plan. The grants from the plan have a three-year performance period (fiscal years 2013 through 2015). Performance is based on achievement of cumulative operating profit growth and cumulative economic profit growth. The Committee will determine whether the performance measures have been achieved after the completion of fiscal year 2015. | | (10) | Represents the “target” number of performance shares that can be earned under our 2005 Stock Incentive Plan. The grants from the plan have a three-year performance period (fiscal years 2014 through 2016). Performance is based on achievement of cumulative economic profit growth. The Committee will determine whether the performance measures have been achieved after the completion of fiscal year 2016. | | (11) | Represents unvested one-time off-cycle stock option grantthe “target” number of performance shares that was granted to Messrs. Dorer and Roeth when they were promoted to Executive Vice President and Chief Operating Officer – Cleaning, International and Corporate Strategy and Executive Vice President and Chief Operating Officer – Lifestyle, Household and Global Operating Functions, respectively, effective January 1, 2013.can be earned under our 2005 Stock Incentive Plan. The grants from the plan have a three-year performance period (fiscal years 2015 through 2017). Performance is based on achievement of cumulative economic profit growth. The Committee will determine whether the performance measures have been achieved after the completion of fiscal year 2017. | | (12) | Represents unvested one-timethe “target” number of performance shares that can be earned under our 2005 Stock Incentive Plan. The off-cycle restricted stock grant that wasgrants from the plan, which were granted to Messrs.Mr. Dorer and Roethwhen he was promoted to CEO effective November 20, 2014, have a three-year performance period (October 1, 2014 through September 30, 2017). Performance is based on March 1, 2011, due to increased responsibility atachievement of cumulative economic profit growth. The Committee will determine whether the timeperformance measures have been achieved after the completion of grant.the performance period. |
44 THE CLOROX COMPANY - 2015 Proxy Statement
Table of Contents Compensation Discussion and Analysis | (13) | Represents unvested one-time off-cycle stock option grant that was granted to Mr. Robb when he was promoted to Senior Vice President – Chief Financial Officer effective November 17, 2011. | (14) | The stock awards granted to Mr. Roeth for fiscal year 2015 were forfeited at retirement. The performance share awards granted to Mr. Roeth for fiscal years 2013 and 2014 were pro-rated. The stock options granted to Mr. Roeth that were unvested at the date of his retirement, excluding those granted in fiscal year 2015, automatically vested at the date of his termination per the provisions of the grant agreement. |
OPTION EXERCISES AND STOCK VESTED This table shows stock options exercised and stock vested for the named executive officers during fiscal year 2014.2015. | Option Awards | | Stock Awards | Name | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#)(2) | | Value Realized on Vesting ($)(2) | Donald R. Knauss | — | | | $ | — | | — | | — | Frank A. Tataseo | 26,563 | (3) | | | 884,166 | | — | | — | Benno Dorer | 43,200 | (3) | | | 1,191,879 | | — | | — | George C. Roeth | 35,300 | (3) | | | 1,325,620 | | — | | — | Stephen M. Robb | — | | | | — | | — | | — |
| | Option Awards | | Stock Awards | | | Name | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($)(1) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($)(2) | | | Benno Dorer | — | (3) | | $ — | | 4,913 | (4) | | $ 436,913 | | | Donald R. Knauss(Retired effective July 1, 2015) | 573,330 | (3) | | 25,997,363 | | 39,552 | (4) | | 3,517,359 | | | Stephen M. Robb | 26,800 | (3) | | 1,291,122 | | 2,832 | (4) | | 251,850 | | | Jacqueline P. Kane | 167,989 | (3) | | 4,248,698 | | 5,747 | (4) | | 511,081 | | | Frank A. Tataseo | 262,960 | (3) | | 10,418,349 | | 6,798 | (4) | | 604,546 | | | Laura Stein | 102,590 | (3) | | 4,248,698 | | 5,747 | (4) | | 511,081 | | | George C. Roeth(Retired January 5, 2015) | 311,588 | (3) | | 10,526,948 | | 4,913 | (4) | | 511,050 | |
| | (1) | The dollar value realized reflects the difference between the closingmarket price of the Common Stock on the date ofupon exercise and the stock option exercise price. | (2) | The dollar value realized reflects the market value of the vested shares based on the closing price of the Common Stock on the vesting date, unless settlement of the shares was deferred, in which case it was based on the closing price of the Common Stock of $104.02 on June 30, 2015. | (3) | The number represents the exercise of nonqualified stock options granted in previous years under the Company’s 2005 Stock Incentive Plan. | (4) | The number of stock awards representslisted represent the vesting of performance shares at 103% of target, granted underthrough participation in the Company’sCompany's 2005 Stock Incentive Plan. The grant from the plan had a three-year performance period (fiscal years 20112012 through 2013)2014). Performance wasis based on the achievement of cumulative operating profit goal and cumulative economic profit growth. On August 15, 2013,14, 2014, the Committee approved the payout of this award at 0%103% of target; thus, no awards vestedtarget and no valuethe award was realized. | (3) | Represents exercise of nonqualified stock options granted in previous years under the Company’s 2005 Stock Incentive Plan.settled on August 18, 2014. |
Overview of Pension Benefits Historically, pension benefits have been paid to the named executive officers under the following plans: (i) the Pension Plan, (ii) the cash balance restoration provision in the NQDC, and (iii) the SERP, and (iv) in the case of Mr. Knauss, the replacement SERP, which was put in place to compensate for Mr. Knauss’ loss of retirement benefits from his prior employer when he became our CEO (described in further detail below).SERP. Effective July 1, 2011, the Pension Plan and the cash balance restoration provision under the NQDC were frozen. The SERP was also frozen as of June 30, 2011, with regard to pay and offsets, while still allowing age and service credits, as described in the “Retirement Plan” section of the CD&A. The Replacement Supplemental Executive Retirement Plan.Pursuant to his employment agreement, Mr. Knauss participates in a replacement SERP that provides retirement benefits equal to the greater of (i) the amount payable as calculated under the Company SERP, described above, and (ii) the benefits to which he would have been entitled if he had stayed at his previous employer, The Coca-Cola Company. Mr. Knauss is fully vested in the replacement SERP and is the sole participant in the plan. All items described in the above overview are included in the Change in Pension Value column of the Summary Compensation Table and the Pension Benefits Table.
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Table of Contents Compensation Discussion and Analysis
PENSION BENEFITS TABLE The following table sets forth each named executive officer’s pension benefits under the Company’s pension plans for fiscal year 2014.2015. | Name | Plan Name | | Number of Years of Credited Service (#)(1) | | Present Value of Accumulated Benefit ($)(2) | | Payments During Last Fiscal Year ($) | | | Donald R. Knauss | The Pension Plan(3) | | 8 | | $ | 34,316 | | $— | | | | Replacement SERP/SERP(4) | | 8 | | | 9,992,469 | | — | | | | Cash Balance Restoration(5) | | 8 | | | 471,609 | | — | | | Frank A. Tataseo | The Pension Plan(3) | | 20 | | | 160,628 | | — | | | | SERP(4) | | 20 | | | 4,964,588 | | — | | | | Cash Balance Restoration(5) | | 20 | | | 413,998 | | — | | | Benno Dorer | The Pension Plan(3) | | 9 | | | 49,138 | | — | | | | SERP(4) | | 9 | | | 1,379,330 | | — | | | | Cash Balance Restoration(5) | | 9 | | | 129,230 | | — | | | George C. Roeth | The Pension Plan(3) | | 27 | | | 176,377 | | — | | | | SERP(4) | | 27 | | | 2,565,833 | | — | | | | Cash Balance Restoration(5) | | 27 | | | 212,503 | | — | | | Stephen M. Robb | The Pension Plan(3) | | 25 | | | 139,417 | | — | | | | SERP(4) | | 25 | | | 1,393,217 | | — | | | | Cash Balance Restoration(5) | | 25 | | | 67,034 | | — | |
| Name | | Plan Name | | Number of Years of Credited Service (#)(1) | | Present Value of Accumulated Benefit ($)(2) | | Payments During Last Fiscal Year ($) | | | Benno Dorer | | The Pension Plan(3) | | 10 | | $ | 50,770 | | $ | — | | | | | SERP(4) | | 10 | | | 1,617,978 | | | — | | | | | Cash Balance Restoration(5) | | 10 | | | 131,861 | | | — | | | Donald R. Knauss | | The Pension Plan(3) | | 9 | | | 35,457 | | | — | | | (Retired effective July 1, 2015) | | SERP(4) | | 9 | | | 11,678,474 | | | — | | | | | Cash Balance Restoration(5) | | 9 | | | 483,442 | | | — | | | Stephen M. Robb | | The Pension Plan(3) | | 26 | | | 144,049 | | | — | | | | | SERP(4) | | 26 | | | 1,421,657 | | | — | | | | | Cash Balance Restoration(5) | | 26 | | | 67,035 | | | — | | | Jacqueline P. Kane | | The Pension Plan(3) | | 11 | | | 58,363 | | | — | | | | | SERP(4) | | 11 | | | 3,470,834 | | | — | | | | | Cash Balance Restoration(5) | | 11 | | | 155,463 | | | — | | | Frank A. Tataseo | | The Pension Plan(3) | | 21 | | | 165,965 | | | — | | | | | SERP(4) | | 21 | | | 5,154,241 | | | — | | | | | Cash Balance Restoration(5) | | 21 | | | 432,261 | | | — | | | Laura Stein | | The Pension Plan(3) | | 18 | | | 125,815 | | | — | | | | | SERP(4) | | 18 | | | 3,740,636 | | | — | | | | | Cash Balance Restoration(5) | | 18 | | | 202,266 | | | — | | | George C. Roeth | | The Pension Plan(3) | | 28 | | | — | | | 180,838 | | | (Retired January 5, 2015) | | SERP(4) | | 28 | | | 3,902,288 | | | — | | | | | Cash Balance Restoration(5) | | 28 | | | 223,783 | | | — | |
| | (1) | Number of years of credited service is rounded to the nearest whole number. | (2) | Present value of the accumulated benefit was calculated using the following assumptions: mortality table: RP2000;MILES-CGFD; discount rate: 4.00%4.20%; and age at June 30, 2014.2015. | (3) | The Pension Plan was frozen effective July 1, 2011. Participants keep their accumulated pay credits and receive only quarterly interest credits after that date. | (4) | The SERP was frozen with regards to pay and offsets effective June 30, 2011. Age and service credits continue to accrue. | (5) | The cash balance restoration provision in the NQDC was eliminated effective July 1, 2011, when the Pension Plan was frozen. Participants keep their accumulated pay credits but no contributions were made under this provision after July 1, 2011. | (6) | Mr. Roeth retired on January 5, 2015; amounts reflected in the payments during the last fiscal year column are payments he received after his retirement date. |
Overview of the Nonqualified Deferred Compensation Plans Executive Retirement Plan.Our executive officers (including each of our named executive officers other than Mr. Knauss) are eligible for participation in the ERP. The ERP provides that the Company will make an annual contribution of 5% of an eligible participant’s base salary plus annual incentive payment into the plan. For named executive officers who were age 55 or older as of July 1, 2011, when the ERP was introduced, Company contributions are fully vested in the ERP. For named executive officers who had not attained age 55 as of July 1, 2011, Company contributions will vest over a three-year period and will fully vest upon the participant’s attainment of age 62 with ten years of service with the Company (at which time the individuals are considered retirement-eligible under the ERP). An eligible participant can elect distribution in a lump sum or up to 15 annual installments upon a qualifying payment event. Our named executive officers who were eligible participants in the SERP at the time it was frozen receive annual “step-down” transition contributions into the ERP over a three- or five-year period that began July 2011, when the ERP became effective. The named executive officers eligible for the five-year “step-down” transition contribution are Messrs. Dorer and Tataseo Roeth, and Dorer,Mmes. Stein and Kane, each of whom received a 9% transition contribution in the first year decreasing to a 5% transition contribution in the fifth year. Mr. Robb received a three-year “step-down”
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awards. In addition, the NQDC offers a 401(k) restoration provision. All Company retirement contributions are made in the form of (i) a fixed 6% employer annual contribution and (ii) an employer match of up to 4% of pay into the 401(k) Plan, subject to IRC compensation limits. Contributions on eligible compensation that exceed the IRC compensation limits are contributed into a participant’s NQDC account under the 401(k) restoration provision. Participants in the NQDC may elect to receive benefits from the NQDC either in a lump sum or up to 15 annual payments upon a qualifying payment event. Participants may choose from an array of investment crediting rates that generally mirror the investment fund options available in the 401(k) Plan. The NQDC uses the same benefit formulas, types of compensation to determine benefits, and vesting requirements as our frozen tax-qualified retirement plans. The responsibility to pay benefits under the NQDC is an unfunded and unsecured obligation of the Company for contributions prior to January 1, 2012. Contributions from January 1, 2012, through the present are fully funded by the Company. The following table provides information regarding the accounts of the named executive officers under the NQDC and ERP in fiscal year 2014.2015.
NONQUALIFIED DEFERRED COMPENSATION Name | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($)(2) | Aggregate Earnings in Last FY ($)(3) | Aggregate Balance at Last FYE ($)(4)(5) | Donald R. Knauss | $161,000 | $281,179 | $1,095,222 | $6,114,298 | Frank A. Tataseo | 36,008 | 151,627 | 833,592 | 4,942,750 | Benno Dorer | 121,740 | 133,166 | 163,878 | 1,067,105 | George C. Roeth | 242,358 | 139,360 | 195,549 | 1,338,482 | Stephen M. Robb | 27,882 | 116,550 | 39,003 | 957,321 |
| Name | | Executive Contributions in Last FY ($)(1) | | Registrant Contributions in Last FY ($)(2) | | Aggregate Earnings in Last FY ($)(3) | | Aggregate Balance at Last FYE ($)(4)(5) | | | Benno Dorer | | $ | 27,549 | | $ | 84,246 | | $ | 9,675 | | $ | 1,451,019 | | | Donald R. Knauss(Retired effective July 1, 2015) | | | 161,000 | | | 131,021 | | | 150,498 | | | 7,040,259 | | | Stephen M. Robb | | | 17,253 | | | 64,908 | | | 19,181 | | | 1,136,943 | | | Jacqueline P. Kane | | | 48,685 | | | 57,940 | | | 15,450 | | | 4,005,307 | | | Frank A. Tataseo | | | 147,182 | | | 81,104 | | | 199,389 | | | 5,822,568 | | | Laura Stein | | | 18,950 | | | 86,017 | | | 116,745 | | | 2,929,093 | | | George C. Roeth(Retired January 5, 2015) | | | 52,704 | | | 72,180 | | | 104,247 | | | 1,778,846 | |
| | (1) | For Mr. Knauss, the amount represents base salary that the executive deferred, for Ms. Kane, the incentive award that the executive deferred, and for Messrs. Dorer, Robb, Tataseo, and Roeth Dorer, and RobbMs. Stein, the annual base salary deferral and incentive award deferred during fiscal year 2014.2015. Deferred base salary is also reported in the Summary Compensation Table – Salary. Deferred annual incentive awards are also reported in the Summary Compensation Table – Non-Equity Incentive Plan Compensation. | (2) | Represents that portion of the Company’s 401(k) match and Company contribution of up to 10% of eligible compensation that is in excess of IRC compensation limits pursuant to the 401(k) restoration provision of the NQDC and the Company’s contribution under the ERP. These contributions are also reported in the Summary Compensation Table – All Other Compensation and are included under the caption “Nonqualified Deferred Compensation Plan” in footnote (6) to the Summary Compensation Table – All Other Compensation. Table. | (3) | Earnings are based on an array of investment options that generally mirror the 401(k) Plan. Earnings vary based on participant investment elections. | (4) | Reflects aggregate balances under the restoration provision of the NQDC and any deferred base salary and annual incentive awards as of the end of fiscal year 2014.2015. | (5) | The executive and registrant contribution total amounts in the table below are also reported as compensation in the Summary Compensation Table in the years indicated: | | |
Fiscal Year | Donald R. Knauss | Frank A. Tataseo | Benno Dorer | George C. Roeth | Stephen M. Robb | 2014 | $442,179 | $187,635 | $254,906 | $381,718 | $144,432 | 2013 | 525,022 | 218,413 | | 173,431 | 136,431 | 2012 | 425,038 | 395,276 | | | 64,768 |
| Fiscal Year | | Benno Dorer | | Donald R. Knauss | | Stephen M. Robb | | Jacqueline P. Kane | | Frank A. Tataseo | | Laura Stein | | George C. Roeth | | | 2015 | | $ | 111,795 | | $ | 292,021 | | $ | 82,161 | | $106,625 | | $ | 228,287 | | $ | 104,967 | | $ | 124,884 | | | 2014 | | | 254,906 | | | 442,179 | | | 144,432 | | | | | 187,635 | | | 688,420 | | | 381,718 | | | 2013 | | | | | | 525,022 | | | 136,431 | | | | | 218,413 | | | 294,050 | | | 173,431 | |
Potential Payments Upon Termination or Change in Control Payments upon Termination Severance Plan for Named Executive Officers Other than Mr. Knauss.Under the terms of the Severance Plan, our named executive officers are eligible to receive benefits in the event their employment is terminated by the Company without cause (other than in connection with a change in control). No benefits are payable under the terms of the Severance Plan if the Company terminates the employment of the named executive officer for cause or if the named executive officer voluntarily resigns.
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Table of Contents Regardless of the manner in which a named executive officer’s employment terminates, each named executive officer would retain the amounts he or she had earned over
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the course of his or her employment prior to the termination event, such as balances under the NQDC, vested and accrued retirement benefits, and previously vested stock options, except as outlined below under “Termination for Cause.” For further information about previously earned amounts, see the tables entitled Summary Compensation Table, Outstanding Equity Awards at Fiscal Year-End, Option Exercises and Stock Vested, Pension Benefits Table, and Nonqualified Deferred Compensation.Compensation tables. Under the Severance Plan, each named executive officer agrees to return and not to use or disclose proprietary information of the Company and, for two years following any such termination, the named executive officer is also prohibited from soliciting for employment any employee of the Company, or diverting or attempting to divert from the Company any business. Termination benefits under the Severance Plan for our named executive officers other than Mr. Knauss are as follows: Involuntary Termination Without Cause. If the Company terminates the employment of a named executive officer’s employmentofficer (other than the CEO) without cause, the Severance Plan entitles the named executive officer to receive a lump-sum severance payment after termination equal to two times the named executive officer’s current base salary. In the case of the CEO, the severance amount is equal to the sum of (i) two times the CEO’s base salary and (ii) two times the CEO’s average annual bonus multiplied by 75%. Under the Severance Plan, thea named executive officer (other than the CEO) is also entitled to an amount equal to 75% of his or her Annual Incentive Plan award for the fiscal year in which he or she was terminated,terminated. The CEO is entitled to an amount equal to 100% of his Annual Incentive Plan award for the fiscal year in which he was terminated. The amount of severance paid is calculated using the actual Company Financial Performance Multiplier and the Strategic Metrics Multiplier, and assumingassumes an Individual Performance Multiplier of 100%, pro-ratedprorated to the date of termination. If the named executive officer is retirement-eligible under the terms of the Annual Incentive Plan, the executive would be eligible for either the treatment under the Severance Plan or retirement treatment for purposes of the Annual Incentive Plan award payout (retirement treatment would be 100%, versus 75%, of his or her Annual Incentive Plan award for the fiscal year in which he or she was terminated, pro-ratedprorated to the date of termination). It is the Committee’s decision as to which treatment to apply. The Severance Plan provides that the named executive officer is entitled to continue to participate in the Company’s medical and dental insurance programs for up to two years following termination on the same terms as active employees. In addition, at the end of this coverage, a named executive officer will be eligible to participate in the Company’s medical and/or dental plans offered to former employees who retire at age 55 or older, provided the executive has completed at least ten years of service, on the same terms as such other former employees. If eligible, this coverage will continue until the named executive officer turns age 65. Thereafter, the named executive officer may participate in the Company’s general retiree health plan as it may exist in the future, if otherwise eligible. If the named executive officer will be age 55 or older and will have completed at least ten years of service at the end of, and including, the two-year period following termination, the named executive officer will be deemed to be age 55 and/or to have ten years of service under any pre-65 retiree health plan as well as the SERP. The above severance-related benefits are provided only if the named executive officer executes a general release prepared by the Company. Termination Due to Retirement. Under the Company’s policy applicable to all employees, upon retirement the named executive officer is entitled to his or her salary through the last day of employment and is eligible for a pro-rata portion of the Annual Incentive Plan award for the fiscal year in which his or her retirement occurs. Based on the provisions of the respective plans, he or she will also be eligible to receive SERP, ERP, and other benefits under applicable Company retirement plans. In addition to the amounts that the named executive officer has earned or accrued over the course of his or her employment under the Company’s qualified and nonqualified plans, a named executive officer who is at least age 55 with ten years of service or who has 20 years of service regardless of age is eligible to receive retirement-related benefits under the long-term incentive program. Stock options held for longer than one year will vest in full and remain exercisable for five years following the named executive officer’s retirement, or until the expiration date, whichever is sooner, and performance shares held longer than one year will be paid out on a pro-rata basis at the end of the relevant performance period based on the actual level of performance achieved during that period. Termination Due to Death or Disability. Under the Company’s policy applicable to all employees, if the named executive officer’s employment is terminated due to his or her death, the named executive officer’s beneficiary or estate is entitled to (i) the named executive officer’s salary through the date of his or her death, (ii) a pro-rata portion of the named
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death or until the expiration date, whichever is earlier, and all performance shares will be paid out at the end of the relevant performance period based on the actual level of performance achieved during that period. If the named executive officer begins to receive benefits under the Company’s long-term disability plan, the Company may terminate the named executive officer’s employment at any time, in which case the named executive officer will receive his or her salary through the date of his or her termination and will also be entitled to a pro-rata portion of his or her actual Annual Incentive Plan award for the fiscal year of his or her termination. Stock options will vest in full, and all vested options will remain exercisable for an additional year following the named executive officer’s disabilityor until the expiration date, whichever is earlier, and all performance shares will be paid out at the end of the relevant performance period based on the actual level of performance achieved during that period. Termination for CauseMisconduct. The Company may terminate a named executive officer’s employment for causemisconduct at any time without notice. Upon the named executive officer’s termination for cause,misconduct, the named executive officer is entitled to his or her salary through the date of his or her termination, but is not entitled to any Annual Incentive Plan award for the fiscal year in which his or her termination for causemisconduct occurs. “Cause”“Misconduct” under the Severance Plan means: (i) the willful and continued neglect of significant duties or willful and continued violation of a material Company policy after having been warned in writing, (ii) a material act of dishonesty, fraud, misrepresentation, or other act of moral turpitude, (iii) gross negligence in the course of employment, (iv) the failure to obey a lawful direction of the Board or a corporate officer to whom the named executive officer reports, directly or indirectly, andor (v) an action that is inconsistent with the Company’s best interests and values. All outstanding stock option grants awarded since September 2005 are forfeited upon a termination for cause.misconduct. In addition, any retirement-related benefits a named executive officer would normally receive related to performance shares are also forfeited upon a termination for cause.misconduct. Voluntary Termination. A named executive officer may resign from his or her employment at any time. Upon the named executive officer’s voluntary resignation, the named executive officer is entitled to his or her salary through the date of termination, but is not entitled to any Annual Incentive Plan award for the fiscal year of termination. All unvested outstanding stock option and performance share grants are forfeited upon voluntary termination. The Company also maintains a Change in Control Severance Plan for the benefit of each of our named executive officers other than Mr. Knauss. Please see the “Potential Payments upon Termination or Change in Control” section for further details on the Change in Control Severance Plan. Mr. Knauss’ Employment Agreement.In May 2010,November 2014, Mr. Knauss entered into a revisedan amended and restated employment agreement with the Company that reflects current market trendsin connection with his transition to Executive Chairman. The amended and practices and is generally alignedrestated agreement replaced the May 2010 employment agreement with the terms of the Severance Plan. This agreement provides thatMr. Knauss, with revisions to reflect Mr. Knauss’ annual salary will be subject to periodic review in accordance with the Company’s regular administrative practices for named executive officers,new role as described in the CD&A.Executive Chairman. Among other revisions, Mr. Knauss’ amended and restated employment agreement also states that Mr. Knauss is eligibleremoved references to participate in the replacement SERP, which is described below and inhad provided for an additional retirement benefit to compensate for the “Overviewloss of Pension Benefits” section, and other compensation, incentive, and benefit plans made available toretirement benefits at his prior employer when he became the Company’s named executive officers. Pursuant to hisCEO, as Mr. Knauss had reached the tenure and age requirements which qualified the Clorox benefit as the richer plan. The amended and restated employment agreement upon completion of seven years of service on October 2, 2013,also eliminated termination benefits for Mr. Knauss becamerelating to any termination by the Company without cause or by Mr. Knauss for good reason occurring after March 31, 2015.
Mr. Knauss is retirement-eligible under all Company welfare benefit (including medical, life, disability, and severance benefits), equity, and other incentive plans and programs applicable to the Company’s executive officers; however, such benefits will be offset by any comparable retiree benefits received, on a benefit-by-benefit and coverage-by-coverage basis, with respect to the pension benefit from his previous employer. Mr. Knaussofficers, participates in the Company SERP, and is eligible for an early retirement benefit since he has completed seven years of service. The replacement SERP also provided for an additional retirement benefit, which was intended to duplicate the rights and benefits to which he would have been entitled under the supplemental executive retirement plan of his previous employer. However, the supplemental retirement benefit that Mr. Knauss will be eligible to receive upon retirement will be limited to the greater of (i) the amount payable as calculated under the Company SERP and (ii) the amount he would have received if he had stayed at his previous employer. The amount payable under the Company SERP is now the greater of the two benefits.benefit. For more information regarding the Company SERP and the replacement SERP, see “Overview of Pension Benefits.” Under Mr. Knauss’ employment agreement, if the Company had terminated his employment without cause subsequent to March 31, 2015, such termination would have been treated as a termination due to retirement. The terms of Mr. Knauss’ employment agreement relating to termination by the Company without cause prior to March 31, 2015, due to retirement, due to death or disability, and for cause are
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similar to the terms of the Severance Plan for our other named executive officers, which are described above. However, Mr. Knauss’ termination benefits differ from the other named executive officers’ termination benefits. Upon termination by the Company without cause, or by Mr. Knauss for good reason (each as defined in his employment agreement and described in further detail below), and provided that Mr. Knauss executes a general release, Mr. Knauss will receive severance-related benefits as follows: A lump-sum amount equal to two times his current base salary plus two times 75% of the average of his Annual Incentive Plan awards for the preceding three years;A pro-rata portion of the Annual Incentive Plan award for the fiscal year in which termination occurs based on the actual Financial Performance Multiplier and Strategic Metrics Multiplier and assuming an Individual Performance Multiplier of 100%, paid at the end of the fiscal year;Continuation of medical and dental benefits for the two-year period after termination or until age 65, whichever is earlier. In addition, Mr. Knauss has completed seven years of service, which entitles him under his employment agreement to participate in the medical and dental benefits offered to former employees who retire at age 55 with at least ten years of service; andIf Mr. Knauss gives the Company at least three months’ notice prior to terminating his employment, his termination will be deemed to be due to retirement for purposes of the Company’s long-term incentive plan. If Mr. Knauss does not elect to commence benefits under the SERP, then outstanding stock awards will vest in accordance with the terms of the respectiveaward agreements.
“Good reason” is defined in Mr. Knauss’ employment agreement as the: (i) assignment of duties inconsistent with Mr. Knauss’ position or material diminution of his position, excluding appointment of a non-executive Chairman of the Board, (ii) Company’s failure to provide compensation and benefits as provided in Mr. Knauss’ employment agreement, (iii) relocation of Mr. Knauss’ office that increases his commute by more than 50 miles, (iv) termination of his employment by the Company other than as expressly permitted by Mr. Knauss’ employment agreement, or (v) failure of the Company to obtain a successor company’s agreement to assume Mr. Knauss’ employment agreement. In addition, a failure by the Board to appoint Mr. Knauss
to the Board also constitutes good reason. A failure by the stockholders to elect Mr. Knauss to the Board does not constitute good reason.
“Cause” is defined in Mr. Knauss’ employment agreement as: (i) the willful and continued neglect of significant duties or willful and continued violation of a material Company policy after having been warned in writing, (ii) a material act of dishonesty, fraud, misrepresentation or other act of moral turpitude, (iii) gross negligence in the course of employment, or (iv) the failure to obey a lawful direction of the Board.
In addition to the employment agreement, the Company also entered into a revisedan amended and restated change in control agreement with Mr. Knauss on November 15, 2011,20, 2014, which is described below in “Potential Payments upon Change in Control.”
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Table of Contents Potential Payments upon Change in Control Change in Control Severance Plan for Named Executive Officers Other Than Mr. Knauss.Under the CIC Plan, executives are eligible for change in control severance benefits, subject to the execution of a waiver and release, in the event they are terminated without cause or resign for good reason (each as defined under the CIC Plan and as further described below) during (i) the two-year period following a change in control or (ii) a period of up to one year prior to the change in control in limited circumstances where the executive’s termination is directly related to or in anticipation of a change in control. The severance benefits under the CIC Plan include (i) a lump-sum severance payment equal to two times (or, in the case of the CEO, three times) the sum of (a) the executive’s (a) base salary and (b) average Annual Incentive Plan award for the three completed fiscal years prior to termination, (ii) a lump-sum amount equal to the difference between the actuarial equivalent of the benefit the named executive officer would have been entitled to receive if his or her employment had continued until the second anniversary of the date of termination and the actuarial equivalent of the aggregate benefits paid or payable as of the date of termination under the qualified and nonqualified retirement plans, (iii) continuation of healthcare benefits for a maximum of two (or, in the case of the CEO, three) years following a severance-qualifying termination, (iv) continued financial planning services for the year of termination, (v) vesting of all outstanding equity awards granted prior to the change in control, and (vi) thean amount equal to the average Annual Incentive Plan award for the three completed fiscal years preceding termination pro-ratedprorated for the
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number of days employed in the fiscal year during which termination occurred. In addition, the CIC Plan provides for an excise tax cutback such that the excise tax under Sections 280G and 4999 of the IRC would not apply (unless the executive would receive a greater amount of severance benefits on an after-tax basis without a cutback, in which case the cutback would not apply). The CIC Plan permits the Committee to make changes to the CIC Plan that are adverse to covered executives with 12 months’ advance notice. If a change in control of the Company occurs during that 12-month period, then such changes would not become effective. Each participant under the CIC Plan is subject to certain restrictive covenants including confidentiality and non-disparagement provisions and a non-solicitation provision during the term of his or her employment and for two years thereafter. “Cause” is generally defined as (i) willful and continued failure to substantially perform duties upon written demand or (ii) willfully engaging in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company. A termination for cause requires a vote of 75% of the Board at a meeting after notice to the executive has been given and the executive has had an opportunity to be heard. “Good Reason” is generally defined as (i) an assignment of duties inconsistent with the executive officer’s position (including offices and reporting requirements), authority, duties, or responsibilities (other than reassignments with a substantially similar level and scope of authority, duties, responsibilities, and reporting relationships), (ii) any failure to substantially comply with any of the material provisions of compensation plans, programs, agreements, or arrangements as in effect immediately prior to the change in control, which material provisions consist of base salary, cash incentive compensation target bonus opportunity, equity compensation opportunity in the aggregate, savings and retirement benefits in the aggregate, and welfare benefits (including medical, dental, life, disability, and severance benefits) in the aggregate, (iii) relocation of principal place of employment that increases the executive officer’s commuting distance by more than 50 miles, (iv) termination of employment by the Company other than as expressly permitted by the CIC Plan, or (v) failure of a successor company to assume the CIC Plan. Change in Control Agreement with Mr. Knauss.On November 15, 2011,20, 2014, the Committee approved a newCompany entered into an amended and restated change in control agreement forwith Mr. Knauss to better align with market practicereflect his transition from Chairman and provide more consistency with the CIC Plan.CEO to Executive Chairman. The new agreement replaced the change in control agreement with Mr. Knauss that became effective on October 2, 2006, when Mr. Knauss began his employment as Chairman and CEO of the Company. KeyNovember 15, 2011. The primary changes from the prior changeagreement were to align with the changes in controlMr. Knauss’ employment agreement includedand reflect the elimination of the tax gross-up for tax liabilities in the event of a change in control and the elimination of the annual renewal provision in the prior agreement.transition into his new role. In the event that Mr. Knauss iswas terminated without cause or resignsresigned for good reason (each as defined in his change in control agreement and further described below) within the three-yeartwo-year period following a change in control, he would behave been entitled to the following change in control severance benefits, subject to the execution of a general release and waiver: ● | Cash compensation equal to three times his base salary and three times his average Annual Incentive Plan awards for the preceding three years, plus 100% of his average Annual Incentive Plan awards for the preceding three years, prorated to the date of termination. This amount would have been paid in a lump sum after termination. | ● | Payment of an amount equal to the difference between the actuarial equivalent of the benefit Mr. Knauss would have been eligible to receive if his employment had continued until the third anniversary of the date of termination and the actuarial equivalent of his |
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Table of Contents Compensation Discussion and three times his average Annual Incentive Plan awards for the preceding three years, plus 100% of his average Annual Incentive Plan awards for the preceding three years, pro-rated to the date of termination. This amount would be paid in a lump sum after termination. Payment of an amount that would equal the difference between the actuarial equivalent of the benefit Mr. Knauss would have been eligible to receive if his employment had continued until the third anniversary of the date of termination and the actuarial equivalent of his actual aggregate benefits paid or payable, if any, as of the date of termination under the qualified and nonqualified retirement plans. This amount wouldalso be paid in a lump sum after termination.Continued participation in health, welfare, and insurance benefits until the third anniversary of the date of termination. In addition, for purposes of determining Mr. Knauss’ eligibility for retiree benefits under other Company plans and programs, he would be deemed to have continued employment during such period and to have retired on the last day of such period.Financial planning services for the calendar year of termination.Any outstanding stock awards granted to Mr. Knauss under the Company’s long-term incentive program prior to the change in control would automatically vest upon a qualifying termination following a change in control in accordance with the terms of the award agreements.Analysis
| actual aggregate benefits paid or payable, if any,as of the date of termination under the qualified andnonqualified retirement plans. This amount would alsohave been paid in a lump sum after termination. | ● | Continued participation in health, welfare, andinsurance benefits until the third anniversary of thedate of termination. In addition, for purposes ofdetermining Mr. Knauss’ eligibility for retiree benefitsunder other Company plans and programs, he wouldhave been deemed to have continued employmentduring such period and to have retired on the last dayof such period. | ● | Financial planning services for the calendar year oftermination. | ● | Any outstanding stock awards granted to Mr. Knaussunder the Company’s long-term incentive programprior to the change in control would have automaticallyvested upon a qualifying termination following achange in control in accordance with the terms of theaward agreements. |
“Good reason” is defined in Mr. Knauss’ change in control agreement as (i) a material diminution of position or an assignment of inconsistent duties, (ii) a decrease in or failure to provide compensation and benefits, (iii) a material change in work location, (iv) a termination 48 THE CLOROX COMPANY- 2014 Proxy Statement
Table of Contents
Compensation Discussion and Analysis
of Mr. Knauss’ employment by the Company other than as expressly permitted by his change in control agreement, (v) any failure by the Company to obtain a successor corporation’s agreement to assume Mr. Knauss’ change in control agreement, or (vi) a failure of the Board to nominate Mr. Knauss to the Board at any time. Failure by the stockholders to elect Mr. Knauss to the Board does not constitute good reason. “Cause” is defined in Mr. Knauss’ change in control agreement as the (i) willful and continued failure to perform duties after receiving a written warning, or (ii) willful engagement in illegal conduct or gross misconduct that is materially and demonstrably injurious to the Company. In the event that any payments made in connection with a change in control would be subject to the “golden parachute” (280G)(Section 280G) excise tax, the provision in Mr. Knauss’ change in control agreement provides for the best after-tax payment to Mr. Knauss, whereby Mr. Knauss would receivehave received a final payment based on the greater net after-tax result under the following scenarios: (i) Mr. Knauss receives full value of all benefit payments and pays excise and all other taxes on such benefit payments, or (ii) the Company reduces the cash severance payment to the safe harbor limit to avoid triggering excise tax on such benefit payments. Mr. Knauss and the Company pay all other income and employment statutory taxes in the same manner as regular taxable compensation. In addition to the above benefits, under Mr. Knauss’ change in control agreement, if Mr. Knauss dieshad died during the two-year protection period following a change in control or if Mr. Knauss’ employment ishad been terminated due to disability during such period following a change in control, all stock options granted to him under his employment agreement would have become fully vested and remain exercisable for one year following the date of death or termination due to disability or, if earlier, until the expiration of the term of the option. Furthermore, upon a change in control, shouldif the continuing entity had not assumeassumed or replacereplaced the stock options awarded to Mr. Knauss under his employment agreement, such awards would have become immediately vested upon the change in control. Mr. Knauss is subject to the same restrictive covenants as set forth in the CIC Plan, described in detail above. Estimated Potential Payments upon Termination or Change in Control The following table reflects the estimated amount of compensation payable to each of the Company’s named executive officers upon termination of the named executive officer’s employment under various scenarios.scenarios except for Mr. Roeth, who retired in January 2015, and for whom only the actual termination scenario is shown. The amounts exclude earned amounts such as vested or accrued benefits, other than benefits vested under the Company’s SERP or replacement SERP. If a named executive officer is eligible for his or her SERP benefit as of the assumed termination date, the respective SERP benefit amount reported under the Retirement“Retirement” column is also included in the scenarios for Involuntary Termination Withoutwithout Cause and Termination Afterafter Change in Control on the Retirement Benefits line. The amounts shown are calculated using an assumed termination date effective as of the last business day of fiscal year 20142015 (June 30, 2014)2015) and the closing trading price of our Common Stock of $91.40$104.02 on such date. Although the calculations are intended to provide reasonable estimates of the potential compensation payable upon termination, they are based on assumptions outlined in the footnotes of the table and may not represent the actual amount the named executive officer would receive if an eligible termination event were to occur. The table does not include compensation or benefits provided under plans or arrangements that are generally available to all salaried employees, with the exception of disability and life insurance.employees. Amounts reflected for change in control assume that each named executive officer is involuntarily terminated by the Company without cause or voluntarily terminates for good reason within two years after a change in control. Continues on next page4► | | | | THE CLOROX COMPANY - 20142015 Proxy Statement | 4951 |
Table of Contents TERMINATION TABLES Name and Benefits | | Involuntary Termination Without Cause (or Good Reason for CEO only) | | Termination After Change In Control | | Retirement | | Disability | | Death | | Involuntary Termination Without Cause | | Involuntary Termination After Change In Control | | Retirement | | Disability | | Death | | Donald R. Knauss | | | | | | | | | | | | | | | Cash Severance | | $ | 6,662,280 | (1) | | $ | 10,636,080 | (2) | | $ | — | (3) | | $ | — | (4) | | $ | — | (4) | | Benno Dorer | | | | | | | | | | | | | Cash Payment | | | $ | 3,567,385 | (1) | | $ | 4,129,693 | (2) | | $ | — | (3) | | $ | — | (4) | | $ | — | (4) | | Stock Options | | | 9,492,066 | (5) | | | 12,761,171 | (6) | | | 9,492,066 | (5) | | | 12,761,171 | (7) | | | 12,761,171 | (7) | | — | | 3,226,501 | (5) | | — | | 4,036,682 | (6) | | 4,036,682 | (6) | | Restricted Stock | | | — | | | — | | | — | | | — | | | — | | | — | | — | | — | | — | | — | | Performance Shares | | | 6,186,394 | (8) | | | 7,183,112 | (9) | | | 6,186,394 | (8) | | | 10,376,625 | (10) | | | 10,376,625 | (10) | | — | | 1,296,091 | (7) | | — | | 3,049,070 | (8) | | 3,049,070 | (8) | | Retirement Benefits | | | 9,992,469 | (11) | | | 13,268,845 | (12) | | | 9,992,469 | (11) | | | 11,727,792 | (13) | | | 5,435,040 | (14) | | Retirement Plan Benefits | | | — | | — | | — | | — | | — | | Health & Welfare Benefits | | | — | (15) | | | 11,692 | (16) | | | — | | | — | | | — | | | 29,484 | (9) | | 44,226 | (10) | | — | | — | | — | | Disability/Life Insurance(17) | | | — | | | — | | | — | | | 1,767,912 | | | | 1,150,000 | | | Financial Planning(18) | | | 16,500 | | | 16,500 | | | — | | | — | | | | — | | | Financial Planning(11) | | | — | | 16,500 | | — | | — | | — | | Total Estimated Value | | $ | 32,349,709 | | $ | 43,877,400 | | | $ | 25,670,929 | | | $ | 36,633,500 | | | $ | 29,722,836 | | | $ | 3,596,869 | | $ | 8,713,011 | | $ | — | | $ | 7,085,752 | | $ | 7,085,752 | | Frank A. Tataseo | | | | | | | | | | | | | | | | | | Cash Severance | | $ | 1,487,063 | (19) | | $ | 2,444,740 | (20) | | $ | — | (3) | | $ | — | (4) | | $ | — | (4) | | Donald R. Knauss(12) | | | | | | | | | | | | | Cash Payment | | | $ | — | | $ | 10,219,627 | (13) | | $ | — | (3) | | $ | — | (4) | | $ | — | (4) | | Stock Options | | | 1,608,201 | (5) | | | 2,153,091 | (6) | | | 1,608,201 | (5) | | | 2,153,091 | (7) | | | 2,153,091 | (7) | | — | | 11,467,028 | (5) | | 11,467,028 | (14) | | 11,467,028 | (6) | | 11,467,028 | (6) | | Restricted Stock | | | — | | | — | | | — | | | — | | | — | | | — | | — | | — | | — | | — | | Performance Shares | | | 1,050,786 | (8) | | | 1,216,957 | (9) | | | 1,050,786 | (8) | | | 1,749,313 | (10) | | | 1,749,313 | (10) | | — | | 6,509,043 | (7) | | 6,509,043 | (15) | | 7,671,792 | (8) | | 7,671,792 | (8) | | Retirement Benefits | | | 5,885,468 | (21) | | | 6,464,547 | (22) | | | 5,885,468 | (23) | | | 4,964,588 | (13) | | | 3,148,224 | (14) | | Retirement Plan Benefits | | | — | | 4,785,918 | (16) | | 10,432,609 | (17) | | 12,186,686 | (18) | | 6,279,149 | (19) | | Health & Welfare Benefits | | | 35,886 | (15) | | | 42,261 | (24) | | | — | | | — | | | — | | | — | | 33,000 | (20) | | — | | — | | — | | Disability/Life Insurance(17) | | | — | | | — | | | — | | | 497,582 | | | 540,750 | | | Financial Planning(18) | | | 16,500 | | | 16,500 | | | — | | | — | | | — | | | Financial Planning(11) | | | — | | 16,500 | | — | | — | | — | | Total Estimated Value | | $ | 10,083,904 | | $ | 12,338,096 | | | $ | 8,544,455 | | | $ | 9,364,574 | | | $ | 7,591,378 | | | $ | — | | $ | 33,031,116 | | $ | 28,408,680 | | $ | 31,325,506 | | $ | 25,417,969 | | Benno Dorer | | | | | | | | | | | | | | | | | | Cash Severance | | $ | 1,372,800 | (19) | | $ | 1,800,588 | (20) | | $ | — | (3) | | $ | — | (4) | | $ | — | (4) | | Stephen M. Robb | | | | | | | | | | | | | Cash Payment | | | $ | 1,540,000 | (21) | | $ | 2,170,707 | (22) | | $ | — | (3) | | $ | — | (4) | | $ | — | (4) | | Stock Options | | | — | | | 2,140,923 | (6) | | | — | | | 2,134,657 | (7) | | | 2,134,657 | (7) | | 1,763,224 | (14) | | 2,719,795 | (5) | | 1,763,224 | (14) | | 2,719,795 | (6) | | 2,719,795 | (6) | | Restricted Stock | | | — | | | 201,994 | (25) | | | — | | | 201,994 | (25) | | | 201,994 | (25) | | — | | — | | — | | — | | — | | Performance Shares | | | — | | | 930,291 | (9) | | | — | | | 1,416,548 | (10) | | | 1,416,548 | (10) | | 933,657 | (15) | | 1,150,387 | (7) | | 933,657 | (15) | | 1,756,240 | (8) | | 1,756,240 | (8) | | Retirement Benefits | | | — | | | — | | | — | | | — | | | — | | | Retirement Plan Benefits | | | — | | — | | — | | 1,421,657 | (18) | | 965,770 | (19) | | Health & Welfare Benefits | | | 36,486 | (15) | | | 42,495 | (24) | | | — | | | — | | | — | | | 37,636 | (9) | | 37,636 | (10) | | — | | — | | — | | Disability/Life Insurance(17) | | | — | | | — | | | — | | | 519,120 | | | 528,000 | | | Financial Planning(18) | | | 16,500 | | | 16,500 | | | | — | | | — | | | — | | | Financial Planning(11) | | | — | | 16,500 | | — | | — | | — | | Total Estimated Value | | $ | 1,425,786 | | $ | 5,132,791 | | $ | — | | | $ | 4,272,319 | | | $ | 4,281,199 | | | $ | 4,274,517 | | $ | 6,095,025 | | $ | 2,696,881 | | $ | 5,897,692 | | $ | 5,441,805 | | George C. Roeth | | | | | | | | | | | | | | | | | | Cash Severance | | $ | 1,478,400 | (19) | | $ | 2,207,047 | (20) | | $ | — | (3) | | $ | — | (4) | | $ | — | (4) | | Jacqueline P. Kane | | | | | | | | | | | | | Cash Payment | | | $ | 1,269,000 | (21) | | $ | 1,906,467 | (22) | | $ | — | (3) | | $ | — | (4) | | $ | — | (4) | | Stock Options | | | 1,626,136 | (5) | | | 2,186,152 | (6) | | | 1,626,136 | (5) | | | 2,186,152 | (7) | | | 2,186,152 | (7) | | 1,640,463 | (14) | | 2,336,226 | (5) | | 1,640,463 | (14) | | 2,336,226 | (6) | | 2,336,226 | (6) | | Restricted Stock | | | — | | | 201,994 | (25) | | | — | | | 201,994 | (25) | | | 201,994 | (25) | | — | | — | | — | | — | | — | | Performance Shares | | | 759,443 | (8) | | | 930,291 | (9) | | | 759,443 | (8) | | | 1,416,548 | (10) | | | 1,416,548 | (10) | | 924,929 | (15) | | 1,082,518 | (7) | | 924,929 | (15) | | 1,565,726 | (8) | | 1,565,726 | (8) | | Retirement Benefits | | | — | | | — | | | — | | | 2,565,833 | (13) | | | 1,765,488 | (14) | | Retirement Plan Benefits | | | 3,751,881 | (23) | | 4,778,215 | (24) | | 3,751,881 | (25) | | 4,132,496 | (18) | | 1,633,788 | (19) | | Health & Welfare Benefits | | | 36,486 | (15) | | | 42,495 | (24) | | | — | | | — | | | — | | | 37,636 | (9) | | 37,636 | (10) | | — | | — | | — | | Disability/Life Insurance(17) | | | — | | | — | | | — | | | 535,394 | | | 528,000 | | | Financial Planning(18) | | | 16,500 | | | | 16,500 | | | — | | | — | | | — | | | Financial Planning(11) | | | — | | 16,500 | | — | | — | | — | | Total Estimated Value | | $ | 3,916,965 | | $ | 5,584,479 | | | $ | 2,385,579 | | | $ | 6,905,921 | | | $ | 6,098,182 | | | $ | 7,623,909 | | $ | 10,157,562 | | $ | 6,317,273 | | $ | 8,034,448 | | $ | 5,535,740 | | Stephen M. Robb | | | | | | | | | | | | | | | | | | Cash Severance | | $ | 1,375,000 | (19) | | $ | 2,039,287 | (20) | | $ | — | (3) | | $ | — | (4) | | $ | — | (4) | | Frank A. Tataseo | | | | | | | | | | | | | Cash Payment | | | $ | 1,487,063 | (21) | | $ | 2,283,863 | (22) | | $ | — | (3) | | $ | — | (4) | | $ | — | (4) | | Stock Options | | | 1,386,511 | (5) | | | 1,870,779 | (6) | | | 1,386,511 | (5) | | | 1,870,779 | (7) | | | 1,870,779 | (7) | | 1,924,959 | (14) | | 2,707,714 | (5) | | 1,924,959 | (14) | | 2,707,714 | (6) | | 2,707,714 | (6) | | Restricted Stock | | | — | | | — | | | — | | | — | | | — | | | — | | — | | — | | — | | — | | Performance Shares | | | 608,992 | (8) | | | 756,770 | (9) | | | 608,992 | (8) | | | 1,221,245 | (10) | | | 1,221,245 | (10) | | 1,084,962 | (15) | | 1,262,383 | (7) | | 1,084,962 | (15) | | 1,811,076 | (8) | | 1,811,076 | (8) | | Retirement Benefits | | | — | | | — | | | — | | | 1,393,217 | (13) | | | 942,755 | (14) | | Retirement Plan Benefits | | | 5,922,071 | (23) | | 6,217,759 | (24) | | 5,922,071 | (25) | | 5,154,241 | (18) | | 3,138,840 | (19) | | Health & Welfare Benefits | | | 36,486 | (15) | | | 42,350 | (24) | | | — | | | — | | | — | | | 37,636 | (9) | | 37,636 | (10) | | — | | — | | — | | Disability/Life Insurance(17) | | | — | | | — | | | — | | | 416,072 | | | 500,000 | | | Financial Planning(18) | | | 16,500 | | | 16,500 | | | — | | | — | | | — | | | Financial Planning(11) | | | — | | 16,500 | | — | | — | | — | | Total Estimated Value | | $ | 3,423,489 | | $ | 4,725,686 | | | $ | 1,995,503 | | | $ | 4,901,313 | | | $ | 4,534,779 | | | $ | 10,456,691 | | $ | 12,525,855 | | $ | 8,931,991 | | $ | 9,673,031 | | $ | 7,657,630 | |
(1) | This amount represents two times Mr. Knauss’ current base salary of $1,150,000, plus two times 75% of his average Annual Incentive Plan awards for the preceding three years, plus 100% of his current year Annual Incentive Plan award target of $1,667,500, pro-rated to the date of termination. |
5052 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents Compensation Discussion and Analysis Name and Benefits | | Involuntary Termination Without Cause | | Involuntary Termination After Change In Control | | Retirement | | Disability | | Death | | Laura Stein | | | | | | | | | | | | | | | | | | | | | | Cash Payment | | $ | 1,440,513 | (21) | | $ | 1,860,261 | (22) | | $ | — | (3) | | $ | — | (4) | | $ | — | (4) | | Stock Options | | | — | | | | 2,417,396 | (5) | | | — | | | | 2,352,398 | (6) | | | 2,352,398 | (6) | | Restricted Stock | | | — | | | | — | | | | — | | | | — | | | | — | | | Performance Shares | | | — | | | | 1,082,518 | (7) | | | — | | | | 1,565,726 | (8) | | | 1,565,726 | (8) | | Retirement Plan Benefits | | | — | | | | — | | | | — | | | | — | | | | — | | | Health & Welfare Benefits | | | 23,996 | (9) | | | 23,996 | (10) | | | — | | | | — | | | | — | | | Financial Planning(11) | | | — | | | | 16,500 | | | | — | | | | — | | | | — | | | Total Estimated Value | | $ | 1,464,509 | | | $ | 5,400,671 | | | $ | — | | | $ | 3,918,124 | | | $ | 3,918,124 | | | George C. Roeth(26) | | | | | | | | | | | | | | | | | | | | | | Cash Payment | | $ | — | | | $ | — | | | $ | 1,462,520 | (27) | | $ | — | | | $ | — | | | Stock Options | | | — | | | | — | | | | 2,843,202 | (28) | | | — | | | | — | | | Restricted Stock | | | — | | | | — | | | | 235,000 | (29) | | | — | | | | — | | | Performance Shares | | | — | | | | — | | | | 901,501 | (30) | | | — | | | | — | | | Retirement Plan Benefits | | | — | | | | — | | | | 4,036,144 | (25) | | | — | | | | — | | | Health & Welfare Benefits | | | — | | | | — | | | | 6,192 | (31) | | | — | | | | — | | | Financial Planning(11) | | | — | | | | — | | | | — | | | | — | | | | — | | | Total Estimated Value | | $ | — | | | $ | — | | | $ | 9,484,559 | | | $ | — | | | $ | — | | |
(1) | This amount reflects two times Mr. Dorer’s current base salary plus two times 75% of his average Annual Incentive Plan awards from the preceding three years. In addition, the amount includes 100% of his current year target Annual Incentive Plan award, pro-rated to the date of termination. | (2) | This amount represents three times Mr. Dorer’s current base salary, plus three times the average Annual Incentive Plan awards for the preceding three years, plus the average Annual Incentive Plan awards for the preceding three years, pro-rated to the date of termination, subject to the excise tax cut back provision in the Change in Control Severance Plan. | (3) | Messrs. Knauss, Robb, and Tataseo and Ms. Kane are retirement-eligible and thus are eligible for a pro-rata Annual Incentive Plan award upon retirement. However, all bonus-eligible employees active as of June 30, 2015, are eligible to receive an annual incentive award, so a pro-rata Annual Incentive Plan award would not be applicable as of this date as the assumed termination date is June 30, 2015. Mr. Dorer and Ms. Stein are not retirement-eligible and thus not eligible for an Annual Incentive Plan award upon retirement. | (4) | Named executive officers whose termination is the result of disability or death are eligible to receive a pro-rata Annual Incentive Plan award through the date of termination. However, all bonus-eligible employees active as of June 30, 2015, are eligible to receive an annual incentive award, so a pro-rata Annual Incentive Plan award would not be applicable since the assumed termination date is June 30, 2015. | (5) | For Messrs. Knauss, Robb, and Tataseo and Ms. Kane who are retirement-eligible, this amount represents the expected value of the accelerated vesting of all outstanding stock options, and assumes a five-year expected life, or the remaining original term, whichever is sooner. For Mr. Dorer and Ms. Stein, this amount represents the intrinsic value of the accelerated vesting of all outstanding stock options (based on the provision that non-retirement eligible executives exercise stock options within 90 days of termination), calculated as the difference between the June 30, 2015, closing Common Stock price of $104.02 and the exercise price for each option. | (6) | For Messrs. Knauss, Robb, and Tataseo and Ms. Kane who are retirement-eligible, this amount represents the expected value of the accelerated vesting of all outstanding stock options upon the named executive officer’s termination of employment due to disability or death, and assumes a five-year expected life, or the remaining original term, whichever is sooner. For Mr. Dorer and Ms. Stein, this amount represents the expected value of the accelerated vesting of all outstanding stock options (based on the provision that non-retirement eligible executives exercise stock options within one-year of death or disability), calculated as the difference between the June 30, 2015, closing Common Stock price of $104.02 and the exercise price for each option. | (7) | Performance shares will vest based on performance through the day of the change in control. This amount assumes a pro-rated targeted payout and is valued at the closing price of our Common Stock on June 30, 2015, of $104.02. | (8) | This amount represents the value of the accelerated vesting of performance shares upon a death or disability, assuming a target payout and valued at the closing price of our Common Stock on June 30, 2015, of $104.02. Upon a death or disability termination, the entire performance share grant will vest. The actual payout will not be determined until the end of the performance period. | (9) | This amount represents the estimated Company cost of providing continuing medical and dental benefits for the two-year period following termination. | (10) | For Messrs. Robb and Tataseo and Mmes. Kane and Stein, this amount represents the estimated Company cost of providing welfare benefits, including medical, dental, and vision, for the two-year period following a qualifying termination after a change in control. For Mr. Dorer, this amount represents the estimated Company cost of providing welfare benefits, including medical, dental, and vision, for the three-year period following a qualifying termination after a change in control. | (11) | This amount represents the cost of providing financial planning for the year of termination. | (12) | Mr. Knauss’ amended and restated employment agreement eliminated termination benefits relating to any termination by the Company without cause or by Mr. Knauss for good reason occurring after March 31, 2015. | (13) | This amount represents three times Mr. Knauss’ current base salary, plus three times the average Annual Incentive Plan awards for the preceding three years, plus the average Annual Incentive Plan awards for the preceding three years, pro-rated to the date of termination, subject to the excise tax cut back provision described in the Change in Control Agreement with Mr. Knauss. |
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Table of Contents (14) | Messrs. Knauss, Robb, and Tataseo Roeth, and Robb are retirement-eligible and thus are eligible for a pro-rata Annual Incentive Plan award upon retirement. However, all bonus-eligible employees active as of June 30, 2014, are eligible to receive an annual incentive award, so a pro-rata Annual Incentive Plan award would not be applicable as of this date as the assumed termination date is June 30, 2014. | (4) | Named executive officers whose termination is the result of disability or death are eligible to receive a pro-rata Annual Incentive Plan award through the date of termination. However, all bonus-eligible employees active as of June 30, 2014, are eligible to receive an annual incentive award, so a pro-rata Annual Incentive Plan award would not be applicable since the assumed termination date is June 30, 2014. | (5) | Messrs. Knauss, Tataseo, Roeth, and RobbMs. Kane are retirement-eligible and, thus, all unvested stock options held greater than one year will automatically vest upon termination. This amount represents the expected value of the accelerated vesting of the stock options, calculated asand assumes a five-year expected life, or the difference between the June 30, 2014, closing Common Stock price of $91.40 and the exercise price for each option.remaining original term, whichever is sooner. | (6) | This amount represents the value of the accelerated vesting of all outstanding stock options, calculated as the difference between the June 30, 2014, closing Common Stock price of $91.40 and the exercise price for each option. | (7) | This amount represents the value of the accelerated vesting of outstanding stock options upon the named executive officer’s termination of employment due to disability or death, calculated as the difference between the June 30, 2014, closing Common Stock price of $91.40 and the exercise price for each option. | (8)(15) | Messrs. Knauss, Robb, and Tataseo Roeth, and RobbMs. Kane are retirement-eligible and, thus, are entitled to receive a pro-rata portion of all performance shares held at least one year at the date of termination. This value represents the pro-rata vesting of the eligible shares from the September 20112012 and September 20122013 grants, assuming a target payout and valued at the closing price of our Common Stock on June 30, 2014,2015, of $91.40.$104.02. The actual payout of the shares will not be determined until the end of the performance period. Named executive officers who are not retirement-eligible forfeit shares upon termination under these scenarios. | (9) | Performance shares will vest on a pro-rata basis after a change in control. This amount assumes a targeted payout and is valued at the closing price of our Common Stock on June 30, 2014, of $91.40. | (10) | This amount represents the value of the accelerated vesting of performance shares upon a death or disability, assuming a target payout and valued at the closing price of our Common Stock on June 30, 2014, of $91.40. Upon a death or disability termination, the entire performance share grant will vest. The actual payout will not be determined until the end of the performance period. | (11) | Mr. Knauss received three years of benefit accruals for the replacement SERP under the terms of his employment agreement; he is not eligible for any additional retirement benefits in the event of an involuntary termination or retirement above what he has already accrued. Mr. Knauss is vested in the replacement SERP and the Company SERP, which is now the greater of the two benefits. These benefits are described further in the sections entitled Mr. Knauss’ Employment Agreement and Overview of Pension Benefits. | (12)(16) | This amount represents the difference between the actuarial equivalent of the benefit Mr. Knauss would have been eligible to receive if his employment had continued until the third anniversary of the date of termination, under the qualified and nonqualified retirement plans and the actuarial equivalent of Mr. Knauss’ actual aggregate benefits paid or payable, if any, as of the date of termination under the qualified and nonqualified retirement plans. Mr. Knauss’ amount also includes the value of the SERP benefit he would receive upon termination, as he is already vested in this benefit. | (13)(17) | In connection with Mr. Knauss’ retirement this is the present value of the amount he will receive under the SERP. | (18) | This amount represents the present value of the SERP benefit payable to the named executive officer at the time of termination due to disability. | (14)(19) | This amount represents the present value of the SERP benefit payable to the named executive officer’s beneficiary at the time of death. | (15) | This amount represents the estimated Company cost of providing continuing medical and dental benefits for the two-year period following termination. Mr. Knauss currently has not elected to receive medical and dental coverage under the Company’s plans, so there is no Company cost related to this benefit. | (16)(20) | This amount represents the estimated Company cost of providing welfare benefits, including medical, dental, disability, and life insurance, for the three-year period following a qualifying termination after a change in control. Mr. Knauss currently has not elected to receive medical and dental coverage under the Company’s plans, so there is no Company cost related to this portion of the benefit. | (17) | These amounts represent benefits payable pursuant to the Company’s disability and life insurance plans. The disability benefit represents the same benefit level offered to other salaried employees. The death benefit represents the life insurance coverage elected by the named executive officer, and is also the same program that is offered to other salaried employees. | (18) | This amount represents the cost of providing financial planning for the year of termination. | (19)(21) | This amount reflects two times the named executive officer’s current base salary. In addition, for Messrs. Robb and Tataseo Roeth, and Robb,Ms. Kane, who are retirement-eligible, this amount includes 100% of their current year target Annual Incentive Plan award pro-rated to the date of termination. For Mr. Dorer,Ms. Stein, this amount includes 75% of hisher current year target Annual Incentive Plan award, pro-rated to the date of termination. | (20)(22) | This amount represents two times the named executive officer’s current base salary, plus two times the average Annual Incentive Plan awards for the preceding three years, plussubject to the excise tax cut back provision in the Change in Control Severance Plan. For Messrs. Robb and Tataseo and Ms. Kane, who are retirement-eliglble, this amount also includes 100% of their current year target Annual Incentive Plan award, pro-rated to the date of termination. For Ms. Stein, this amount includes the average Annual Incentive Plan awards for the preceding three years, pro-rated to the date of termination. | (21)(23) | For Ms. Kane and Mr. Tataseo, this amount is the present value of the SERP benefit heeach would receive upon termination as he isthey are both already vested in this benefit. | (22)(24) | This amount represents the difference between the actuarial equivalent of the benefit the named executive officer would have been eligible to receive if his or her employment had continued until the second anniversary of the date of termination or the first day of the month following the named executive officer’s 65th birthday, if earlier, under the qualified and nonqualified retirement plans and the actuarial equivalent of the named executive officer’s actual aggregate benefits paid or payable, if any, as of the date of termination under the qualified and nonqualified retirement plans. Ms. Kane and Mr. Tataseo’s amount also includes the value of the SERP benefit heeach would receive upon termination, as heeach is already vested in this benefit. | (23)(25) | As described above, for Ms. Kane and Mr. Tataseo, this amount represents the value of vested benefits under the Company SERP per the provisions of the plan and would be payable upon retirement. For Mr. Roeth this amount represents the value of vested benefits under the Company SERP per the provisions of the plan that was paid upon retirement. | (24)(26) | Mr. Roeth retired from the Company on January 5, 2015. | (27) | Amount represents cash separation payment in connection with Mr. Roeth’s retirement. Amount also includes pro-rated annual incentive award earned for fiscal year 2015 and paid out in September 2015 under the Annual Incentive Plan. Per the terms of the Annual Incentive Plan, Mr. Roeth was considered retirement-eligible and thus received a pro-rata award for fiscal year 2015. | (28) | Mr. Roeth was retirement-eligible and, thus, all unvested stock options held greater than one year vested automatically vested at retirement. This amount represents the estimated Company costexpected value of providing welfare benefits, including medical, dental, disability,the accelerated vesting of the stock options, and assumes a five-year expected life, insurance,or the remaining original term, whichever is sooner. | (29) | Mr. Roeth’s stock award amount includes a cash payment of $235,000 for the two-year period following a qualifying termination after a changecancellation of 2,210 unvested restricted stock units awarded to him in control.March 2011. | (25)(30) | Mr. Roeth was retirement-eligible and, thus, entitled to receive a pro-rata portion of all performance shares held at least one year at the date of termination. This amountvalue represents the pro-rata vesting of the eligible shares from the September 2012 and September 2013 grants, assuming a target payout and valued at the closing price of our Common Stock on January 5, 2015 of $103.89. The actual payout of the shares will not be determined until the end of the performance period. Named executive officers who are not retirement-eligible forfeit shares upon termination under these scenarios. | (31) | Estimated value of restricted stock held by Messrs. Dorer and Roeth that will vest upon change in control, death, or disability.continuation of health care benefits for two years from date of separation. |
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Table of Contents Only our non-employee directors receive compensation for their services as directors. The Company’s non-employee director compensation program is comprised of cash compensation and an annual grant of deferred stock units. The following table sets forth information regarding compensation for each of the Company’s non-employee directors during fiscal year 2014:2015. Name | Fees Earned or Paid in Cash ($)(1) | | Stock Awards ($)(2) | | Option Awards ($)(3) | | Total ($) | | Fees Earned or Paid in Cash ($)(4) | | Stock Awards ($)(5) | | Total ($) | Daniel Boggan, Jr.(1) | 105,000 | | 125,000 | | — | | 230,000 | | 95,790 | | 96,250 | | 192,040 | Richard H. Carmona | 95,000 | | 125,000 | | — | | 220,000 | | 98,750 | | 128,750 | | 227,500 | Tully M. Friedman | 105,000 | | 125,000 | | — | | 230,000 | | Spencer C. Fleischer(2) | | | — | | — | | — | Tully M. Friedman(3) | | | 40,897 | | 31,250 | | 72,147 | George J. Harad | 115,000 | | 125,000 | | — | | 240,000 | | 118,750 | | 128,750 | | 247,500 | Esther Lee | 83,641 | | 31,250 | | — | | 114,891 | | 98,750 | | 128,750 | | 227,500 | Robert W. Matschullat | 120,000 | | 125,000 | | — | | 245,000 | | 125,433 | | 128,750 | | 254,183 | Edward A. Mueller* | 44,062 | | 93,750 | | — | | 137,812 | | Jeffrey Noddle | 95,000 | | 125,000 | | — | | 220,000 | | 98,750 | | 128,750 | | 227,500 | Rogelio Rebolledo | 95,000 | | 125,000 | | — | | 220,000 | | 98,750 | | 128,750 | | 227,500 | Pamela Thomas-Graham | 95,000 | | 125,000 | | — | | 220,000 | | 98,750 | | 128,750 | | 227,500 | Carolyn M. Ticknor | 107,337 | | 125,000 | | — | | 232,337 | | 118,750 | | 128,750 | | 247,500 | Christopher J. Williams(2) | | | — | | — | | — |
*(1) | Mr. MuellerBoggan retired from the Board effective May 13, 2015. | (2) | Messrs. Fleischer and Williams did not receive any compensation from the Company during fiscal year 2015 as they began service as directors in fiscal year 2016. | (3) | Mr. Friedman retired from the Board effective November 18, 2013.19, 2014. | (1)(4) | The amounts reported in the “Fees Earned or Paid in Cash” column reflect the total annual cash retainer and other cash compensation earned by each director in fiscal year 20142015 and include amounts deferred into cash or deferred stock units and/or amounts issued in Common Stock in lieu of cash at the director’s election. The annual cash retainer is paid to each director in quarterly installments. | (2)(5) | The amounts reported reflect the grant-date fair value for financial statement reporting purposes of the annual grant of deferred stock units earned during fiscal year 2014.2015. Awards are granted on an annual basis at the end of each calendar year. Refer to Note 1415 of the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014,2015, for a discussion of the relevant assumptions used in calculating the grant-date fair value under applicable accounting guidance. As of June 30, 2014,2015, the following directors had the indicated aggregate number of deferred stock units accumulated in their deferred accounts for all years of service as a director, which includes deferrals of cash compensation, annual awards of deferred stock units, and additional deferred stock units credited as a result of dividend equivalents earned with respect to the deferred stock units: Mr. Boggan – 32,31034,526 units; Dr. Carmona – 12,79414,429 units; Mr. Friedman – 47,298–36,330 units; Mr. Harad – 29,02932,307 units; Ms. Lee – 3391,604 units; Mr. Matschullat – 70,61373,969 units; Mr. Noddle – 1,0192,304 units; Mr. Rebolledo – 1,0192,304 units; Ms. Thomas-Graham – 16,60418,353 units; and Ms. Ticknor – 22,86424,799 units. | (3) | No stock options were granted to directors in fiscal year 2014. The award of stock options as an element of director compensation was discontinued in October 2006. Prior to October 2006, each new non-employee director received a one-time grant of 8,000 options upon joining the board of directors, which award vested in two equal installments over a two-year period. The Company’s prior policy of making annual grants to non-employee directors of stock options that vested over a two-year period was discontinued in 2004. As of June 30, 2014, the following director had vested options for the indicated aggregate number of shares: Ms. Thomas-Graham – 8,000 shares. |
Fees Earned or Paid in Cash Cash compensation consists of annual cash retainer amounts and any special assignment fees. The following table lists the various retainers paid for board service and service as the lead director or a committee chair during fiscal year 2014:2015: Annual director retainer(1) | $95,00098,750 | Lead director retainer | 25,000 | Committee chair retainers: | | Nominating and Governance Committee(2) | 10,000 | Finance Committee | 10,00011,875 | Audit Committee | 20,000 | Management Development and Compensation Committee | 20,000 |
52 THE CLOROX COMPANY -(1) | The annual director retainer through September 30, 2014, was $95,000. The annual director retainer was increased to $100,000 effective October 1, 2014. The aggregate amount of the annual retainer for board service in fiscal year 2015 was $98,750. | (2) | The annual Nominating and Governance Committee chair retainer through September 30, 2014, was $10,000. The annual Nominating and Governance Committee chair retainer was increased to $12,500 effective October 1, 2014. The aggregate amount of the annual retainer for service as chair of the Nominating and Governance Committee in fiscal year 2015 was $11,875. |
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Table of Contents Director CompensationEffective July 1, 2015, the independent chair receives an annual cash retainer of $150,000 in addition to the annual director retainer paid to all non-employee directors.
Directors who serve as a Board member, lead director, independent chair, or committee chair for less than the full fiscal year receive proratedpro-rated retainer amounts based on the number of days they served in such position during the fiscal year. In addition to the retainer amounts, each non-employee director is entitled to receive a fee of $2,500 per day for any special assignment requested by the Board. No special assignment fees were paid in fiscal year 2014.2015. Payment Elections Under the Company’s Independent Directors’ Deferred Compensation Plan, a director may annually elect to receive all or a portion of his or her cash compensation in the form of cash, Common Stock, deferred cash, or deferred stock units. Payment in Stock.Directors who elect to receive cash compensation amounts in the form of Common Stock are issued shares of Common Stock based on the fair market value of the Common Stock as determined by the closing price of the Common Stock on the last trading day of the quarter for which the fees were earned. Elective Deferral Program.For directors who elect deferred cash, the amount deferred is credited to an unfunded cash account that is credited with interest at an annual interest rate equal to Wells Fargo Bank, N.A.’s prime lending rate in effect on January 1 of each year. Upon termination of service as a director, the amounts credited to the director’s deferred cash account are paid out in five annual cash installments or in one lump-sum cash payment, at the director’s election. For directors who elect deferred stock units, the amount deferred is credited to an unfunded account in the form of units equivalent to the fair market value of the Common Stock on the date on which the fees are scheduled to be paid. When dividends are declared, additional deferred stock units are allocated to the director’s deferred stock unit account in amounts equivalent to the dollar amount of Common Stock dividends paid by the Company divided by the fair market value of the Common Stock on the date the dividends are paid. Upon termination of service as a director, the amounts credited to the deferred stock unit account, which include any elective deferrals and the annual deferred stock unit grants described below, are paid out in shares of Common Stock in five annual installments or in one lump sum, at the director’s election.
Stock Unit Awards In addition to the cash compensation amounts described above, each non-employee director also receives an annual grant of deferred stock units.units, the value of which was increased from $125,000 to $130,000 effective October 1, 2014. The aggregate value of the deferred stock unit award amount earned by eacha non-employee director serving for the full fiscal year 20142015 was $125,000.$128,750. Awards are made as of the last business day in the calendar year and represent payment for services provided during such calendar year. Directors who serve as non-employee Board members for less than the full calendar year receive pro-rated awards based on the number of full fiscal quarters they served as a non-employee Board member during the calendar year. As noted above, deferred stock units accrue dividend equivalents and the balance of a director’s deferred stock unit account is paid out in Common Stock following the director’s termination of service in the same manner described above.service.
Stock Ownership Guidelines for Directors The Board believes that the alignment of directors’ interests with those of stockholders is strengthened when Board members are also stockholders. The Board therefore requires that each non-employee director, within five years of being first elected, ownsown Common Stock or deferred stock units having a market value of at least five times his theiror her annual cash retainer. This program is designed to ensure that directors acquire a meaningful and significant ownership interest in the Company during their tenure on the Board. As of June 30, 2014,2015, each non-employee director was in compliance with the guidelines.
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Table of Contents | Compensation Committee Interlocks and Insider Participation |
Each of Dr. Carmonaand Messrs. Boggan, Friedman, Harad, Matschullat, Noddle, and NoddleRebolledo served as a member of the Management Development and Compensation Committee during part or all of fiscal year 2014.2015. None of the members was an officer or employee of the Company or any of the subsidiaries during fiscal year 20142015 or in any prior fiscal year other than Mr. Matschullat, Chief Executive Officer of the Company from March 2006 through October 2006. No executive officer of the Company served on the board of directors or compensation committee of any other entity that has or had one or more executive officers who served as a member of the Board or Management Development and Compensation Committee during fiscal year 2014.2015. | Section 16(a) Beneficial Ownership Reporting Compliance |
Section 16(a) of the Exchange Act and SEC regulations require the Company’s directors, certain officers, and holders of more than 10% of the Company’s Common Stock to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. The reporting directors, officers, and 10% stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of copies of such reports received or written representations from its directors and such covered officers, the Company believes that its directors and officers complied with all applicable Section 16(a) filing requirements duringreports were filed timely in fiscal year 2014.2015, except for one Form 4 for each of Jacqueline P. Kane, George Roeth, and Nikolaos Vlahos, which were filed late due to technical difficulties in the electronic transmission of the reports. In addition, a Form 3/A was recently filed for Stephen M. Robb to correct the inadvertent omission of certain shares and stock options from his Section 16(a) reports due to an administrative error. 54 THE CLOROX COMPANY - 20142015 Proxy Statement57
Table of Contents | Proposal 2: Advisory Vote on 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 Company’s 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 Company’s executive compensation program, values the opinions expressed by stockholders and encourages all stockholders to vote their shares on this matter. The Company’s 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 Company’s 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 23.24. 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 20132014 Annual Meeting of Stockholders held on November 20, 2013,19, 2014, our stockholders overwhelmingly approved our executive compensation policies, with approximately 92% 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. As a result, we continued our general approach to compensation for fiscal year 2014,2015, 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 20152016 Annual Meeting of Stockholders.
Board of Directors’ Recommendation The Board recommends a vote FOR the advisory vote on 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 20142015 and the philosophy, policies, and practices underlying that compensation, which are described in this proxy statement. The Board believes that the Company’s 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 Company’s Proxy Statement for the 20142015 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.” Continues on next page4 | | | | THE CLOROX COMPANY - 201458 THE CLOROX COMPANY - 2015 Proxy Statement
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Table of Contents Proposal 2: Advisory Vote on 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. The people designated in the proxy and voting instruction card will vote your shares FOR approval unless you include instructions to the contrary. 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 Company’s 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. 56 THE CLOROX COMPANY - 2014THE CLOROX COMPANY - 2015 Proxy Statement | 59 |
Table of Contents | Proposal 3: Ratification of Independent Registered Public Accounting Firm |
The Audit Committee has the authority to appoint (subject to ratification by the Company's stockholders), retain, compensate and oversee the Company’s independent registered public accounting firm. The Audit Committee of the Board has selected Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2015.2016. Ernst & Young LLP has been so engaged since February 15, 2003.
Board of Directors’ Recommendation The Board unanimously recommends that stockholders vote FOR the ratification of the selection of Ernst & Young LLP.While ratification of the selection of Ernst & Young LLP by stockholders is not required by law, as a matter of policy, such selection is being submitted to the stockholders for ratification at the Annual Meeting (and it is the present intention of the Board to continue this policy). The Audit Committee and the Board believe that the continued retention of Ernst & Young LLP as the Company’s independent registered public accounting firm is in the best interests of the Company and its stockholders, and recommend the ratification of the Audit Committee’s appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2015. The people designated in the proxy and voting instruction card will vote your shares represented by proxy FOR ratification unless you include instructions to the contrary. If stockholders fail to ratify the appointment of this firm, the Audit Committee will reconsider the appointment.2016.
Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting to respond to appropriate questions and to make a statement should they desire to do so.
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 ratify the appointment of Ernst & Young LLP. If stockholders fail to ratify the appointment of this firm, the Audit Committee will reconsider the appointment. The people designated in the proxy and voting instruction card will vote your shares represented by proxy FOR ratification unless you include instructions to the contrary.
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Table of Contents
The Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing, and reporting practices of the Company. The Audit Committee operates in accordance with a written charter, which was adopted by the Board. A copy of that charter is available on the Company’s website athttp://www.thecloroxcompany.com/corporate-responsibility/performance/corporate-governance/company-charters/ company-charters, or in print by contacting The Clorox Company, c/o Secretary, 1221 Broadway, Oakland, CA 94612-1888. Each member of the Audit Committee is “independent,” as required by the applicable listing standards of the NYSE and the rules of the SEC. The Audit Committee members are not professional accountants or auditors, and their functions are not intended to duplicate or to certify the activities of management or the Company’s independent registered public accounting firm. The Audit Committee oversees the Company’s financial reporting process on behalf of the Board. The Company’s management has primary responsibility for the financial statements and reporting process, including the Company’s internal control over financial reporting. The independent registered public accounting firm is responsible for performing an integrated audit of the Company’s financial statements and internal control over financial reporting in accordance with the auditing standards of the Public Company Accounting Oversight Board. The Audit Committee appointed Ernst & Young LLP (“EY”) to audit the Company’s financial statements as of and for the year ended June 30, 2015, and the effectiveness of the Company’s internal control over financial reporting as of June 30, 2015. EY has served as the Company’s independent registered public accounting firm since February 2003. The Audit Committee considered several factors in selecting EY as the Company’s independent registered public accounting firm, including the firm’s independence and internal quality controls, the overall depth of talent, their experience with the Company’s industry, and their familiarity with the Company’s business and internal control over financial reporting. In determining whether to reappoint EY as the Company’s independent registered public accounting firm for the year ending June 30, 2016, the Audit Committee again took those factors into consideration along with its evaluation of the past performance of EY. The Audit Committee is responsible for the audit fee negotiations associated with the retention of EY. Further, in conjunction with the mandated rotation of the auditing firm’s coordinating partner, the Audit Committee and its chairperson are directly involved in the selection of EY’s new coordinating partner. EY has also issued reports on its review of certain corporate responsibility and sustainability metrics and information provided in the Company’s Annual Report. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2014.2015. This review included a discussion of the quality and the acceptability of the Company’s financial reporting and system of internal controls, including the clarity of disclosures in the financial statements.statements, reasonableness of significant contingency accruals, reserves and allowances, critical accounting policies and estimates and risk assessment. The Audit Committee also reviewed and discussed with the Company’s independent registered public accounting firm the audited financial statements of the Company for the fiscal year ended June 30, 2014,2015, the independent registered public accounting firm’s judgments as to the quality and acceptability of the Company’s financial reporting, critical accounting policies and estimates and such other matters as are required to be discussed by Auditing Standard No. 16, as adopted by the Public Company Accounting Oversight Board. The Audit Committee obtained from the independent registered public accounting firm the written disclosures and the letter from the auditors required by the applicable requirements of the Public Company Accounting Oversight Board regarding communications with the Audit Committee concerning independence of the auditors and discussed with the auditors their independence. The Audit Committee meets periodically with the independent registered public accounting firm, with and without management present, to discuss the results of the independent registered public accounting firm’s examinations and evaluations of the Company’s internal controls and the overall quality of the Company’s financial reporting. Based upon the review and discussions referred to above, the Audit Committee recommended to the Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014,2015, for filing with the SEC. THE AUDIT COMMITTEE Carolyn Ticknor, Chair
George J. HaradJeffrey Noddle Rogelio Rebolledo Pamela Thomas-Graham Christopher Williams
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Fees of the Independent Registered Public Accounting Firm The table below includes fees related to fiscal years 20142015 and 20132014 of the Company’s independent registered public accounting firm, Ernst & Young LLP: | 2014 | 2013 | 2015 | 2014 | Audit Fees(1) | $4,678,000 | $4,144,000 | $4,701,000 | $4,678,000 | Audit-Related Fees(2) | 234,000 | 259,000 | 123,000 | 279,000 | Tax Fees(3) | 528,000 | 263,000 | 277,000 | 528,000 | All Other Fees(4) | — | — | — | — | Total | $5,440,000 | $4,666,000 | 5,101,000 | $5,485,000 |
| | (1) | Consists of fees for professional services rendered for the audit of the Company’s annual financial statements and internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, included in the Company’s Annual Reports on Form 10-K for each of the fiscal years ended June 30, 20142015 and 2013,2014, and for review of the financial statements included in the Company’s Quarterly Reports on Form 10-Q during those fiscal years. |
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Audit Committee Report
(2) | Consists of fees for assurance and related services (including the Company’s employee benefit plans) not included in the Audit Fees listed above. | (3) | Consists of fees for tax compliance, tax advice and tax planning for the fiscal years ended June 30, 20142015 and 2013.2014. These services included tax return preparation and review services for foreign subsidiaries and affiliates and advisory services on tax matters. | (4) | Consists of fees for all other services not included in the three categories set forth above. There were no such services in fiscal years 20142015 and 2013.2014. |
The Audit Committee has established a policy that requires it to approve all services provided by the Company’s independent registered public accounting firm before services are provided. The Audit Committee has pre-approved the engagement of the independent registered public accounting firm for audit services, and certain specified audit-related services and tax services within defined limits. The Audit Committee has not pre-approved engagement of the independent registered public accounting firm for any other non-audit services.
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Table of Contents | Proposal 4: Approval of Material Terms of Performance Goals Under the Company’s Executive Incentive Plan |
The Company currently maintains The Clorox Company Executive Incentive Compensation Plan (the “EIC Plan”). The EIC Plan provides for annual or other short-term incentive awards to the Company’s CEO and other designated executive officers. The EIC Plan first became effective on July 1, 2005, upon approval by stockholders at the Company’s Annual Meeting in 2005, and the material terms of its performance goals were last re-approved by the stockholders at the Company’s Annual Meeting in 2010. In order to satisfy more clearly the requirements that should allow bonuses paid under the EIC Plan to continue to qualify as tax-deductible “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “IRC”), the Board is asking stockholders to re-approve the material terms of the performance goals under the EIC Plan. Stockholders are being asked only to re-approve the material terms of the performance goals under the EIC Plan at the Annual Meeting. These terms are the same as those that the stockholders previously approved in 2005, and 2010. Stockholders are not being asked to approve any amendment to the EIC Plan or to approve the EIC Plan itself. If the stockholders do not approve the material terms of the performance goals for performance-based bonuses, there will be no impact on the terms of the EIC Plan. The EIC Plan will continue to remain in existence, and awards may continue to be made in accordance with the terms of the EIC Plan. The only impact on the Company will be that some or all of the value of certain awards that are based on the achievement of one or more performance goals will no longer be deductible under the IRC as a result of the limitations imposed under Section 162(m) of the IRC. The Board believes that it is in the best interests of the Company and its stockholders to enable the Company to pay bonuses and similar incentive compensation under arrangements that qualify as fully tax-deductible performance-based compensation in the EIC Plan. The Board is therefore asking stockholders to re-approve, for Section 162(m) purposes, the material terms of the performance goals set forth herein. In general, Section 162(m) places a limit on the deductibility for federal income tax purposes of the compensation paid to the Company’s CEO or any of the Company’s three most highly compensated executive officers (other than the Company’s CEO and CFO). Under Section 162(m), compensation paid to such persons in excess of $1 million in a taxable year is not generally deductible. However, compensation that qualifies as “performance-based” under Section 162(m) does not count against the $1 million limitation. One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the material terms of the performance goals under which compensation may be paid be disclosed to and approved by the Company’s stockholders. In addition, Section 162(m) provides that if the Company retains the authority to change the targets under a performance goal, then the Company must, no later than the first stockholders meeting that occurs in the fifth year following the year in which prior stockholder approval was obtained, again disclose the material terms of the performance goals to stockholders for re-approval. For purposes of Section 162(m), the material terms include (a) the employees eligible to receive compensation, (b) a description of the business criteria on which the performance goal is based, and (c) the maximum amount of compensation that can be paid to an employee under the performance goal. Each of these aspects of the EIC Plan is discussed below, and stockholder approval of this Proposal will be deemed to constitute approval of each of these aspects of the EIC Plan for purposes of the approval requirements of Section 162(m) of the IRC. EIC Plan Summary The following paragraphs provide a summary of the principal features of the EIC Plan. This summary does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of the EIC Plan, which is attached to this proxy statement as Appendix A. Capitalized terms used herein and not defined shall have the same meanings as set forth in the EIC Plan. Purpose.The purpose of the EIC Plan is to enhance the Company’s ability to attract and retain highly qualified executives and provide such executives with additional financial incentives (referred to herein as “Awards”) to promote the success of the Company and its Subsidiaries. Awards granted under the EIC Plan are intended to qualify as performance-based compensation within the meaning of Section 162(m) of the IRC. Eligibility.Participation in the EIC Plan is limited to the Company’s CEO and each other officer of the Company who the Committee (as defined below) determines is or may be a “covered employee” of the Company within the meaning of Section 162(m) of the IRC and is selected by the Committee to participate in the EIC Plan (collectively “Participants”). The number of persons eligible to participate in the EIC Plan is approximately 14.
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Table of Contents Administration.The EIC Plan currently is administered by the Management Development and Compensation Committee (“MDCC”) of the Company’s Board or a subcommittee of the MDCC (the MDCC or such subcommittee, the “Committee”), which is a committee of the Board consisting of two or more members of the Board who are “outside directors” within the meaning of Section 162(m) of the IRC, “non-employee directors” within the meaning of Rule 16b-3 (or any successor rule) of the Securities Exchange Act of 1934, as amended, and “independent directors” under the New York Stock Exchange Listing Standards. The Committee has the authority to (i) select the Participants to whom Awards shall be granted, (ii) designate the Performance Period, and (iii) specify the terms and conditions for the determination and payment of each Award. Except as otherwise provided by the Board and subject to applicable laws, the Committee has the full and final authority in its discretion to establish rules and take all actions determined by the Committee to be necessary in the administration of the EIC Plan, including, without limitation, interpreting the terms of the EIC Plan and any related documents, rules, or regulations and deciding all questions of fact arising in their application. All decisions, determinations, and interpretations of the Committee are final, binding, and conclusive on all persons, including the Company, its subsidiaries, its stockholders, the Participants, and their estates and beneficiaries. Performance Goal.“Earnings Before Income Taxes” is the measure of performance provided for the payment of Awards under the EIC Plan. For purposes of the EIC Plan, Earnings Before Income Taxes consists of earnings before income taxes of the Company as reported on the Company’s income statement for the applicable Performance Period, and adjusted to exclude the impact of charges for restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring items, as well as the cumulative effect of tax and accounting changes, each as determined in accordance with generally accepted accounting principles or identified in the Company’s financial statements, notes to the financial statements, management’s discussion and analysis, or other filings with the United States Securities and Exchange Commission. Performance Period. The Performance Period under the EIC Plan is the Company’s fiscal year, but may be a shorter or longer period as determined by the Committee. In no event will the Performance Period be less than six months or more than five years. Maximum Award.The maximum Award that may be paid to any Participant other than the Company’s CEO for any Performance Period is 0.6% of Earnings Before Income Taxes for the Performance Period. The maximum Award that may be paid to the Company’s CEO for any Performance Period is 1.0% of Earnings Before Income Taxes for the Performance Period. Awards.Within 90 days after the commencement of each Performance Period, or the number of days that is equal to 25% of such Performance Period, if less, the Committee shall select, in writing, the Participants to whom Awards shall be granted, designate the Performance Period, and specify the terms and conditions for the determination and payment of such Awards. Although each Participant is eligible to receive an Award equal to 0.6% of Earnings Before Income Taxes for the Performance Period, except for the Company’s CEO who is eligible to receive an Award equal to 1.0% of Earnings Before Income Taxes for the Performance Period, the actual amount of the Award may be conditioned by the Committee upon the satisfaction of such objective or subjective standards as it determines to be appropriate, such that the actual Award may be reduced (but not increased) from the maximum level permitted under the EIC Plan in the Committee’s discretion. See the section entitled“Annual Incentives” under the Compensation Discussion and Analysis on page 31 for a full discussion of the determination of Awards by the Committee. Committee Certification.As soon as practicable after the end of each Performance Period, the Committee shall determine the amount of the Awards to be paid to each Participant for the Performance Period and shall certify its determination in writing. Payment of Awards.All awards will be paid in cash, Shares or a combination thereof. Award payments made in Shares, in whole or in part, shall be made from the aggregate number of Shares authorized to be issued under the 2005 Stock Incentive Plan (or its successor). Awards shall be paid to Participants following the Committee’s certification no later than 90 days after the close of the Performance Period, unless all or a portion of an Award is deferred pursuant to an election the Participant has timely and validly made under Section 409A of the IRC. Since the effectiveness of the EIC Plan in 2005, all awards have been paid in cash. Recoupment of Awards. In the event of a restatement of the Company’s financial results to correct a material error resulting from fraud or intentional misconduct, if a lower payment of performance-based compensation would have been made to the Participants based upon the restated financial results, the Board or the Committee will, to the extent permitted by law, seek to recoup the amount by which the individual Participant’s Award(s) for the restated years exceeded the lower payment that would have been made based on the restated financial results, plus a reasonable rate of interest; provided, however, neither the Board nor the Committee will seek to recoup Awards paid more than three years prior to the date on which the Company announces the need for the applicable financial statements to be restated, and only will seek to recoup Awards paid to Participants whose fraud or intentional misconduct was a significant contributing factor to the need for such restatement.
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Table of Contents Proposal 4: Approval of Material Terms of Performance Goals Under the Company’s Executive Incentive Plan Non-Transferability of Awards. Unless otherwise determined by the Committee, an Award granted under the EIC Plan may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner by any Participant. During the lifetime of the Participant, payment of an Award shall only be made to such Participant. The Committee may, however, establish procedures necessary for a Participant to designate a beneficiary to whom any amounts would be payable in the event of the Participant’s death. Amendment and Termination. The Board or Committee may at any time alter, amend, suspend, or terminate the EIC Plan, in whole or in part, provided, however, that no amendment that requires stockholder approval in order to maintain qualification of the Awards as performance-based compensation under Section 162(m) of the IRC shall be made without such approval. If changes are made to Section 162(m) of the IRC or the related regulations that permit greater flexibility with respect to any Award, the Committee may make adjustments to the EIC Plan and/or Awards as it deems appropriate. Benefits to Be Received Upon Approval.Awards under the EIC Plan are determined based on future performance and, therefore, the value or benefits that may become payable under the terms of future Awards (including any Awards that may be granted with respect to the Company’s fiscal year ending on June 30, 2016) cannot now be determined. Federal Income Tax Consequences The following is a brief summary of the material United States federal income tax consequences associated with Awards granted under the EIC Plan. The summary is based on existing United States laws and regulations, and there can be no assurance that those laws and regulations will not change in the future. The summary does not purport to be complete and does not discuss the tax consequences upon a Participant’s death, or the provisions of the income tax laws of any municipality, state, or foreign country in which the Participant may reside. The tax consequences for any particular Participant may vary based on individual circumstances. Participants will recognize ordinary income equal to the amount of the Award received in the year of receipt (assuming, in the case of Participants who make an election to defer receipt of payment of their Award, that such election is timely and validly made under Section 409A of the IRC). That income will be subject to applicable income and employment tax withholding by the Company. If and to the extent that the EIC Plan payments satisfy the requirements of Section 162(m) of the IRC and otherwise satisfy the requirements of deductibility under federal income tax law, the Company will receive a deduction for the amount constituting ordinary income to the Participant. However, the rules and regulations promulgated under Section 162(m) are complicated and subject to change from time to time, sometimes with retroactive effect. In addition, a number of additional requirements must be met in order for particular compensation to so qualify. As such, there can be no assurance that any compensation awarded or paid under the EIC will be fully deductible under all circumstances.
Board of Directors’ Recommendation The Board unanimously recommends that stockholders vote FOR the approval of the material terms of the performance goals under The Clorox Company Executive Incentive Compensation Plan.If the stockholders do not approve the material terms of the performance goals under the EIC Plan, the EIC Plan will continue to remain in existence, and awards may continue to be made in accordance with the terms of the EIC Plan. The only impact on the Company will be that some or all of the value of certain awards that are based on the achievement of one or more performance goals will no longer be deductible under the IRC. The Board believes that it is in the best interests of the Company and its stockholders to enable the Company to pay bonuses and similar incentive compensation under arrangements that should qualify as tax-deductible performance-based compensation in the EIC Plan. Accordingly, the Board recommends a vote FOR the adoption of the following resolution, which will be presented at the Annual Meeting: “RESOLVED, that the stockholders of the Company hereby approve and adopt the material terms of the performance goals under the Company’s Executive Incentive Compensation Plan attached as Appendix A to the proxy statement for this meeting.”
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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 the material terms of the performance goals under the EIC Plan. The people designated in the proxy and voting instruction card will vote your shares represented by proxy FOR approval unless you include instructions to the contrary.
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Form 10-K, Financial Statements, and Integrated Annual Report—Executive Summary The following portions of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014,2015, are attached as Appendix AB to this proxy statement: Management’s Discussion and Analysis of Financial Condition and Results of Operations; Management’s 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 Company’s Form 10-K has been filed with the SEC and posted on the Company’s 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 Secretary, 1221 Broadway, Oakland, CA 94612-1888. The 20142015 Integrated Annual Report—Executive Summary is available with the Proxy Statement atwww.edocumentview.com/CLXCLX..
Director Communications Stockholders and interested parties may direct communications to individual directors, including the lead director,independent chair, to a Board committee, to the independent directors as a group, or to the Board as a whole, by addressing the communications to the named individual, to the committee, to the independent directors as a group, or to the Board as a whole and sending them to The Clorox Company, c/o Secretary, 1221 Broadway, Oakland, CA 94612-1888. The Secretary will review all communications so addressed and will forward to the addressee(s) all communications determined to bear substantively on the business, management or governance of the Company.
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 Company’s 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.
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Stockholder Proposals for the 20152016 Annual Meeting In the event that a stockholder wishes to have a proposal considered for presentation at the 20152016 Annual Meeting of Stockholders and included in the Company’s proxy statement and form of proxy used in connection with such meeting, the proposal must be forwarded to the Company’s Secretary so that it is received no later than May 29, 2015.28, 2016. Any such proposal must comply with the requirements of Rule 14a-8 promulgated under the Exchange Act. UnderAs further described in the Company’s Current Report on Form 8-K filed on August 28, 2015, we recently amended our Bylaws to permit a stockholder or group of up to 20 stockholders who have owned at least 3% of the Company’s Common Stock for at least three years the ability to submit director nominees (up to 20% of the Board) for inclusion in the Company’s proxy materials if the stockholder(s) provides timely written notice of such
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Table of Contents nomination(s) and the stockholder(s) and the nominee(s) satisfy the requirements specified in the Company’s Bylaws. To be timely for inclusion in the Company’s proxy materials for the 2016 Annual Meeting of Stockholders, notice must be received by the Secretary at the principal executive offices of the Company no earlier than the close of business on April 28, 2016, and no later than the close of business on May 28, 2016. The notice must contain the information required by the Company’s Bylaws, ifand 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 Company’s proxy materials. 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 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 year’s annual meeting. To be timely for the 20152016 Annual Meeting of Stockholders, the notice must be received by the Secretary on any date beginning no earlier than the close of business on July 22, 2015,21, 2016, and ending no later than the close of business on August 21, 2015.20, 2016. However, in the event that the date of the annual meeting is advanced by more than 30 days, or delayed by more than 3060 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.
Householding The SEC’s “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 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.
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Table of Contents | | | Attending the Annual Meeting | | |
The Annual Meeting will be held on Wednesday, November 19, 2014,18, 2015, at 9:00 a.m. Pacific time, in Building Cat the offices of the Company’s Pleasanton Campus, located at 4900 Johnson Drive, Pleasanton,Company, 1221 Broadway, Oakland, CA 94588.94612-1888. 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.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 driver’s 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.● | To be admitted to the Annual Meeting, you must have a current form of government-issued photo identification (such as a driver’s 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 Clorox’s 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. |
By Order of the Record Date will be verified through reports provided by Computershare prior to admittance to the meeting.Board of Directors,
Angela C. Hilt Vice President – Corporate Secretary & Associate General CounselSeptember 25, 2015 ● | 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 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 THE CLOROX COMPANYVice President – Corporate Secretary
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September 26, 2014
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 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.Directions to the Annual Meeting are available at:http://www.thecloroxcompany.com/contact/bayarea.
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THE CLOROX COMPANY EXECUTIVE INCENTIVE COMPENSATION PLAN As Amended and Restated Effective as of February 7, 2008 1. ESTABLISHMENT, OBJECTIVES, DURATION. The Clorox Company, a Delaware corporation (hereinafter referred to as the “Company”) hereby establishes a short-term incentive compensation plan to be known as the “The Clorox Company Executive Incentive Compensation Plan” (hereinafter referred to as the “Plan”). The purpose of the Plan is to enhance the Company’s ability to attract and retain highly qualified executives and to provide such executives with additional financial incentives to promote the success of the Company and its Subsidiaries. Awards payable under the Plan are intended to constitute “performance-based compensation” under Section 162(m) of the Code and the regulations promulgated thereunder, and the Plan shall be construed consistently with such intention. The Plan is effective as of July 1, 2005, subject to the approval of the Plan by the stockholders of the Company at the 2005 Annual Meeting. The Plan will remain in effect until such time as it shall be terminated by the Board or the Committee, pursuant to Section 11 herein. 2. DEFINITIONS. The following terms, when capitalized, shall have the meanings set forth below: (a) “Award” means a bonus paid in cash, Shares or any combination thereof. (b) “Board” means the Board of Directors of the Company. (c) “Code” means the Internal Revenue Code of 1986, as amended. (d) “Committee” means the Committee, as specified in Section 3(a), appointed by the Board to administer the Plan. (e) “Company” means The Clorox Company. (f) “Earnings Before Income Taxes” means the earnings before income taxes of the Company as reported in the Company’s income statement for the applicable Performance Period. For purposes of the foregoing definition, Earnings Before Income Taxes shall be adjusted to exclude the impact of charges for restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring items, as well as the cumulative effect of tax or accounting changes, each as determined in accordance with generally accepted accounting principles or identified in the Company’s financial statements, notes to the financial statements, management’s discussion and analysis or other filings with the U.S. Securities and Exchange Commission. (g) “Exchange Act” means the Securities Exchange Act of 1934, as amended. (h) “Fair Market Value” means, as of any date, the value of a Share determined as follows: | (i) | | Where there exists a public market for the Share, the Fair Market Value shall be (A) the closing sales price for a Share on the date of the determination (or, if no sales were reported on that date, on the last trading date on which sales were reported) on the New York Stock Exchange, the NASDAQ Global Market or the principal securities exchange on which the Share is listed for trading, whichever is applicable, or (B) if the Share is not traded on any such exchange or national market system, the average of the closing bid and asked prices of a Share on the NASDAQ Capital Market, in each case, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or |
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Table of Contents | (ii) | | In the absence of an established market of the type described above for the Share, the Fair Market Value thereof shall be determined by the Committee in good faith, and such determination shall be conclusive and binding on all persons. |
(i) “Participant” means the Company’s Chief Executive Officer and each other executive officer of the Company that the Committee determines, in its discretion, is or may be a “covered employee” of the Company within the meaning of Section 162(m) of the Code and regulations promulgated thereunder who is selected by the Committee to participate in the Plan. (j) “Performance Period” means the fiscal year of the Company, or such shorter or longer period as determined by the Committee; provided, however, that a Performance Period shall in no event be less than six (6) months nor more than five (5) years. (k) “Plan” means The Clorox Company Executive Incentive Compensation Plan. (l) “Share” means a share of common stock of the Company, par value $1.00 per share. (m) “Subsidiary” means any corporation in which the Company owns, directly or indirectly, at least fifty percent (50%) of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which the Company owns, directly or indirectly, at least fifty percent (50%) of the combined equity thereof. 3. ADMINISTRATION OF THE PLAN. (a)The Committee. The Plan shall be administered by the Management Development and Compensation Committee of the Board or such other committee (the “Committee”) as the Board shall select consisting of two or more members of the Board each of whom is intended to be a “non-employee director” within the meaning of Rule 16b-3 (or any successor rule) of the Exchange Act, an “outside director” under regulations promulgated under Section 162(m) of the Code, and an “independent director” under New York Stock Exchange Listing standards. The members of the Committee shall be appointed from time to time by, and shall serve at the discretion of, the Board. (b)Authority of the Committee. Subject to applicable laws and the provisions of the Plan (including any other powers given to the Committee hereunder), and except as otherwise provided by the Board, the Committee shall have full and final authority in its discretion to establish rules and take all actions, including, without limitation, interpreting the terms of the Plan and any related rules or regulations or other documents enacted hereunder and deciding all questions of fact arising in their application, determined by the Committee to be necessary in the administration of the Plan. (c)Effect of Committee’s Decision. All decisions, determinations and interpretations of the Committee shall be final, binding and conclusive on all persons, including the Company, its Subsidiaries, its stockholders, the Participants and their estates and beneficiaries. 4. ELIGIBILITY. Eligibility under this Plan is limited to Participants designated by the Committee, in its sole and absolute discretion. 5. FORM OF PAYMENT OF AWARDS. Payment of Awards under the Plan shall be made in cash, Shares or a combination thereof, as the Committee shall determine, subject to the limitations set forth in Sections 6 and 7 herein. 6. SHARES SUBJECT TO THE PLAN. Award payments that are made in the form of Shares, in whole or in part, shall be made from the aggregate number of Shares authorized to be issued under and otherwise in accordance with the terms of The Clorox Company 2005 Stock Incentive Plan (or any successor stock incentive plan approved by the stockholders of the Company). A-2 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix A 7. AWARDS. (a)Selection of Participants and Designation of Performance Period and Terms of Award. Within 90 days after the beginning of each Performance Period or, if less than 90 days, the number of days which is equal to twenty-five percent (25%) of the relevant Performance Period applicable to an Award, the Committee shall, in writing, (i) select the Participants to whom Awards shall be granted, (ii) designate the applicable Performance Period, and (iii) specify terms and conditions for the determination and payment of the Award for each Participant for such Performance Period, including, without limitation, the extent to which the Participant shall have the right to receive an Award following termination of the Participant’s employment. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Awards, and may reflect distinctions based on the reasons for termination of employment. (b)Maximum Award. The maximum Award that may be paid to any Participant other than the Company’s chief executive officer under the Plan for any Performance Period shall not exceed 0.6% of Earnings Before Income Taxes. The maximum Award that may be paid to the Company’s chief executive officer under the Plan for any Performance Period shall not exceed 1.0% of Earnings Before Income Taxes. (c)Actual Award. Subject to the limitation set forth in paragraph (b) hereof, each Participant under the Plan shall be eligible to receive an Award equal to 0.6% of Earnings Before Income Taxes for the designated Performance Period, except for the Company’s chief executive officer who shall be eligible to receive an Award equal to 1.0% of Earnings Before Income Taxes for the designated Performance Period; provided, however, that the Committee may condition payment of an Award upon the satisfaction of such objective or subjective standards as the Committee shall determine to be appropriate, in its sole and absolute discretion, and shall retain the discretion to reduce the amount of any Award that would otherwise be payable to a Participant, including a reduction in such amount to zero. (d)Clawback. In the event of a restatement of the Company’s financial results to correct a material error resulting from fraud or intentional misconduct, as determined by the Board or the Committee, the Board, or the Committee, will review all compensation that was made pursuant to this Plan on the basis of having met or exceeded specific performance targets for performance periods beginning after June 30, 2008 which occur during the years for which financial statements are restated. If a lower payment of performance-based compensation would have been made to the Participants based upon the restated financial results, the Board or the Committee, as applicable, will, to the extent permitted by governing law and subject to the following sentence, seek to recoup for the benefit of the Company the amount by which the individual Participant’s Award(s) for the restated years exceeded the lower payment that would have been made based on the restated financial results, plus a reasonable rate of interest; provided, however, that neither the Board nor the Committee will seek to recoup Awards paid more than three years prior to the date on which the Company announces the need for the applicable financial statements to be restated. The Board, or the Committee, will only seek to recoup Awards paid to Participants whose fraud or intentional misconduct was a significant contributing factor to the need for such restatement, as determined by the Board or the Committee, as applicable. 8. COMMITTEE CERTIFICATION AND PAYMENT OF AWARDS. As soon as reasonably practicable following the end of each Performance Period, the Committee shall determine the amount of the Award to be paid to each Participant for such Performance Period and shall certify such determination in writing. Awards shall be paid to the Participants following such certification by the Committee no later than ninety (90) days following the close of the Performance Period with respect to which the Awards are made, unless all or a portion of a Participant’s Award is deferred pursuant to the Participant’s timely and validly made election made in accordance with such terms as the Company, the Board or a committee thereof may determine. A timely election is one that satisfies the requirements of Section 409A (as defined in Section 14(g) below) and typically for performance based compensation must be made at least six months before the end of the Performance Period, provided that the Participant performs services continuously from the later of the beginning of the Performance Period or the date the performance criteria are established through the date an election is made and provided further that in no event may a deferral be made after such compensation has become readily ascertainable as set forth in Code Section 409A (as defined in Section 14(g) below). Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | A-3 |
Table of Contents 9. TERMINATION OF EMPLOYMENT. Except as may be specifically provided in an Award pursuant to Section 7(a) or in any written agreement executed between the Participant and the Company, including employment or change in control agreements, a Participant shall have no right to an Award under the Plan for any Performance Period in which the Participant is not actively employed by the Company or a Subsidiary on the last day of the Performance Period to which such Award relates. In establishing Awards under Section 7(a), the Committee may also provide that in the event a Participant is not employed by the Company or a Subsidiary on the date on which the Award is paid, the Participant may forfeit his or her right to the Award paid under the Plan. 10. TAXES. The Company shall have the power and right to deduct or withhold, or require a Participant to remit to the Company (or a Subsidiary), an amount (in cash or Shares) sufficient to satisfy any applicable tax withholding requirements applicable to an Award. Whenever under the Plan payments are to be made in cash, such payments shall be net of an amount sufficient to satisfy any applicable tax withholding requirements. Subject to such restrictions as the Committee may prescribe, a Participant may satisfy all or a portion of any tax withholding requirements relating to Awards payable in Shares by electing to have the Company withhold Shares having a Fair Market Value equal to the amount to be withheld. 11. AMENDMENT OR TERMINATION OF THE PLAN. The Board or the Committee may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part; provided, however, that no amendment that requires stockholder approval in order to maintain the qualification of Awards as performance-based compensation pursuant to Code Section 162(m) and regulations promulgated thereunder shall be made without such stockholder approval. If changes are made to Code Section 162(m) or regulations promulgated thereunder to permit greater flexibility with respect to any Award or Awards available under the Plan, the Committee may, subject to this Section 11, make any adjustments to the Plan and/or Awards it deems appropriate. 12. NO RIGHTS TO EMPLOYMENT. The Plan shall not confer upon any Participant any right with respect to continuation of employment with the Company, nor shall it interfere in any way with his or her right or the Company’s right to terminate his or her employment at any time, with or without cause. 13. NO ASSIGNMENT. Except as otherwise required by applicable law, any interest, benefit, payment, claim or right of any Participant under the Plan shall not be sold, transferred, assigned, pledged, encumbered or hypothecated by any Participant and shall not be subject in any manner to any claims of any creditor of any Participant or beneficiary, and any attempt to take any such action shall be null and void. During the lifetime of any Participant, payment of an Award shall only be made to such Participant. Notwithstanding the foregoing, the Committee may establish such procedures as it deems necessary for a Participant to designate a beneficiary to whom any amounts would be payable in the event of any Participant’s death. 14. LEGAL CONSTRUCTION. (a)Gender, Number and References. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular and the singular shall include the plural. Any reference in the Plan to a Section of the Plan either in the Plan or to an act or code or to any section thereof or rule or regulation thereunder shall be deemed to refer to such Section of the Plan, act, code, section, rule or regulation, as may be amended from time to time, or to any successor Section of the Plan, act, code, section, rule or regulation. A-4 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix A (b)Severability. If any one or more of the provisions contained in this Plan, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and all other applications thereof shall not in any way be affected or impaired thereby. This Plan shall be construed and enforced as if such invalid, illegal or unenforceable provision has never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the invalid, illegal or unenforceable provision or by its severance herefrom. In lieu of such invalid, illegal or unenforceable provisions there shall be added automatically as a part hereof a provision as similar in terms and economic effect to such invalid, illegal or unenforceable provision as may be possible and be valid, legal and enforceable. (c)Requirements of Law. The granting of Awards and the issuance of cash or Shares under the Plan shall be subject to all applicable laws and to such approvals by any governmental agencies or national securities exchanges as may be required. (d)Unfunded Plan. Awards under the Plan will be paid from the general assets of the Company, and the rights of Participants under the Plan will be only those of general unsecured creditors of the Company. (e)Governing Law. To the extent not preempted by federal law, the Plan shall be construed in accordance with and governed by the laws of the State of California, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction. (f)Non-Exclusive Plan. Neither the adoption of the Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other incentive arrangements as it may deem desirable. (g)Code Section 409A Compliance. To the extent applicable, it is intended that this Plan and any Awards granted hereunder comply with the requirements of Section 409A of the Code and any related regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service (“Section 409A”). Any provision that would cause the Plan or any Award granted hereunder to fail to satisfy Section 409A shall have no force or effect until amended to comply with Section 409A, which amendment may be retroactive to the extent permitted by Section 409A. THE CLOROX COMPANY - 2015 Proxy Statement | A-5 |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Clorox Company (Dollars in millions, except per share amounts) Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of The Clorox Company’s (the Company or Clorox) financial statements with a narrative from the perspective of management on the Company’s 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 OverviewResults of OperationsFinancial Position and LiquidityContingenciesQuantitative and Qualitative Disclosures about Market RiskRecently Issued Accounting PronouncementsCritical Accounting Policies and EstimatesSummary of Non-GAAP Financial Measures
● | Executive Overview | ● | Results of Operations | ● | Financial Position and Liquidity | ● | Contingencies | ● | Quantitative and Qualitative Disclosures about Market Risk | ● | Recently Issued Accounting Pronouncements | ● | 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 8,2007,700 employees worldwide as of June 30, 2015 and fiscal year 20142015 net sales of $5,591.$5,655. Clorox sells its products primarily through mass retail outlets, e-commerce channels, wholesale distributors and medical supply providers.distributors. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products, Kingsford® charcoal, Pine-Sol® cleaners, Liquid-Plumr® clog removers, Poett® home care products, Fresh Step® cat litter, Glad® bags, wraps and containers, Hidden ValleyKingsford® and KC Masterpiececharcoal, Hidden Valley® dressings and sauces, Brita® water-filtration products and Burt’s Bees® natural personal care products. The Company also markets brands forthrough professional services channels, including Clorox Healthcare® and Dispatch® infection control products for the healthcare industry.industry under Clorox Healthcare®, HealthLink®, Aplicare® and Dispatch® brands. The Company manufactures products in more than a dozen countries and markets them in more than 100 countries. The Company primarily markets its leading brands in midsized categories considered to be financially attractive. Most of the Company’s products compete with other nationally advertised brands within each category and with “private label” brands. As discussed more fully below under “Venezuela Discontinued Operations,” the Company’s Venezuela affiliate, Corporación Clorox de Venezuela S.A. (Clorox Venezuela), discontinued its operations effective September 22, 2014. The Company has reclassified the financial results of Clorox Venezuela as a discontinued operation in the consolidated financial statements for all periods presented herein. The Company operates through strategic business units that are aggregated into four reportable segments: Cleaning, Household, Lifestyle and International. ● | 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. |
HouseholdTHE CLOROX COMPANY - 2015 Proxy Statement consists of charcoal, cat litter and plastic bags, wraps and container products marketed and sold in the United States. Products within this segment include plastic bags, wraps and containers under the Glad® brand; cat litter products under the Fresh Step®, Scoop Away® and Ever Clean® brands; and charcoal products under the Kingsford® and Match Light® brands. THE CLOROX COMPANY - 2014 Proxy Statement A-1
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Table of Contents 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 Burt’s Bees® brand.
International consists of products sold outside the United States. Products within this segment include laundry, home care, water-filtration, charcoal and cat litter products, dressings and sauces, plastic bags, wraps and containers and natural personal care products, primarily under the Clorox®, Javex®, Glad®, PinoLuz®, Ayudin®, Limpido®, Clorinda®, Poett®, Mistolin®, Lestoil®, Bon Bril®, Nevex®, Brita®, Green Works®, Pine-Sol®, Agua Jane®, Chux®, Kingsford®, Fresh Step®, Scoop Away®, Ever Clean®, KC Masterpiece®, Hidden Valley® and Burt’s Bees® brands.
● | Household consists of charcoal, cat litter and plastic bags, wraps and container products marketed and sold in the United States. Products within this segment include plastic bags, wraps and containers under the Glad® brand; cat litter products under the Fresh Step®, Scoop Away® and Ever Clean® brands; and charcoal products under the Kingsford® and Match Light® brands.
| ● | 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 Burt’s Bees® brand.
| ● | International consists of products sold outside the United States. Products within this segment include laundry, home care, water-filtration, charcoal and cat litter products, dressings and sauces, plastic 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®, Kingsford®, Fresh Step®, Scoop Away®, Ever Clean®, KC Masterpiece®, Hidden Valley® and Burt’s 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 growthEconomic profit (EP)Free cash flow and free cash flow as a percentage of net salesEarnings 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 (Adjusted EBITDA ratio)
● | Currency-neutral net sales growth | ● | Economic profit (EP) | ● | Free cash flow and free cash flow as a percentage of net sales | ● | 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“Summary of Non-GAAP Financial Measures”Measures” below. For a discussion of the Adjusted EBITDAConsolidated Leverage ratio, please refer to “Senior Notes and 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 20142015 Financial Highlights A detailed discussion of strategic goals, key initiatives and results of operations areis included below. Key fiscal year 20142015 financial results are summarized as follows: The Company reported earnings from continuing operations of $562 in fiscal year 2014, compared to $574 in fiscal year 2013, and net cash flows from continuing operations of $771 in fiscal year 2014, compared to $777 in fiscal year 2013.● | The Company delivered diluted net earnings per share from continuing operations in fiscal year 2015 of $4.57, an increase of approximately 4% from fiscal year 2014 diluted net earnings per share of $4.39.
| ● | The Company’s fiscal year 2015 net sales increased by 3%, from $5,514 in fiscal year 2014 to $5,655 in fiscal year 2015, reflecting the benefit of price increases and higher volume, partially offset by unfavorable foreign currency exchange rates. On a currency-neutral basis, net sales increased 5%.
| ● | Gross margin increased 90 basis points to 43.6% in fiscal year 2015 from 42.7% in fiscal year 2014, reflecting the benefits of cost savingsand priceincreases, partially offset by the impact of higher manufacturing and logistics costs.
| ● | The Company reported earnings from continuing operations of $606 in fiscal year 2015, compared to $579 in fiscal year 2014.
| ● | EP increased to $458 in fiscal year 2015 compared to $423 in fiscal year 2014 (refer to the reconciliation of EP to earnings from continuing operations before income taxes in Exhibit 99.3). |
The Company’s fiscal year 2014 net sales decreased 0.6% to $5,591 from $5,623 in fiscal year 2013, reflecting the impact of unfavorable foreign currency exchange rates, partially offset by the benefit of price increases. On a currency-neutral basis, net sales increased 1.8%.
Gross margin decreased 70 basis points to 42.2% in fiscal year 2014 from 42.9% in fiscal year 2013, reflecting the impact of higher manufacturing and logistics costs and increased commodity costs, partially offset by the benefits of cost savings and price increases.
EP decreased to $407 in fiscal year 2014 compared to $426 in fiscal year 2013 (refer to the reconciliation of EP to earnings from continuing operations before income taxes in Exhibit 99.3).
The Company delivered diluted net earnings per share from continuing operations in fiscal year 2014 of $4.26, a decrease of approximately 1% from fiscal year 2013 diluted net earnings per share of $4.31.
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Table of Contents Appendix AB Free cash flow was $633 or 11%● | The Company’s net cash flows provided by continuing operations were $858 in fiscal year 2015, compared to $786 in fiscal year 2014. Free cash flow was $733 or 13% of net sales in fiscal year 2015, an increase from $649 or 12% of net sales in fiscal year 2014.
| ● | The Company returned $385 in cash dividends to stockholders in fiscal year 2015 compared to $368 in cash dividends in fiscal year 2014. In May 2015, the Company announced an increase of 4% in the quarterly cash dividend. In fiscal year 2015, the Company repurchased approximately 4 million shares of its common stock at a cost of approximately $434. |
Venezuela 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 2014,2012, 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 increase from $583 or 10%effort to help them understand the rapidly declining state of net sales in fiscal year 2013 (referthe business, including the need for immediate, significant and ongoing price increases and other critical remedial actions to “Free cash flow” below).
The Company returned $368 in cash dividendsaddress these adverse impacts. Based on the Venezuelan government’s representations, Clorox Venezuela had expected significant price increases would be forthcoming much earlier; however, the price increases subsequently approved were insufficient and would have caused Clorox Venezuela to stockholders in fiscal year 2014,continue operating at a significant loss into the foreseeable future. As such, Clorox Venezuela was no longer financially viable and in May 2014 announced an increase of 4% in the annual cash dividendwas forced to $2.96 per share from $2.84 per share. In fiscal yeardiscontinue its operations.On September 26, 2014, the Company repurchased reported that Venezuelan Vice President Jorge Arreaza announced, with endorsement by President Nicolás Maduro, that the Venezuelan government had occupied the Santa Lucía totaland Guacara production facilities of 3 million sharesClorox Venezuela. On November 6, 2014, the Company reported that the Venezuelan government had published a resolution granting a government-sponsored Special Administrative Board full authority to restart and operate the business of Clorox Venezuela, thereby reaffirming the government's expropriation of Clorox Venezuela’s assets. Further, President Nicolás Maduro announced the government's intention to facilitate the resumed production of bleach and other cleaning products at Clorox Venezuela plants. He also announced his approval of a financial credit to invest in raw materials and production at the plants. These actions by the Venezuelan government were taken without the consent or involvement of Clorox Venezuela, its common stock at a costparent Clorox Spain S.L. (Clorox Spain) or any of approximately $260. their affiliates. Clorox Venezuela, Clorox Spain and their affiliates reserved their rights under all applicable laws and treaties.Strategic Goals and Initiatives In fiscal year 2014,The Clorox introduced itsCompany’s 2020 Strategy serves as its strategic growth plan, which directsdirecting the Company to the highest value opportunities for long-term, profitable growth and strong stockholder returns through the year 2020.returns.
The long-term financial goals reflected in the Company’s 2020 Strategy include annual net sales growth of 3-5%, market share growth, annual EBIT margin growth between 25-50 basis points and annual free cash flow as a percentage of net sales of about 10-12%, which. Clorox anticipates using free cash flow to invest in the business, maintain appropriate debt leverage within its target rangelevels and return excess cash to stockholders. In fiscal year 2015,2016, Clorox anticipates certain continuing challenges to impact its sales results,and margins, including unfavorable foreign currency exchange rates, particularly in Argentina, and Venezuela, soft U.S. retail categoriesa continuation of slowing international economies. In addition, the Company is monitoring changes to commodities costs and heightened competitive activity.managing rising logistics costs. The Company’s priority in fiscal year 20152016 is to reinvigoratecontinue investing strongly in its categories and grow its overall market share by increasing investmentU.S. business, particularly in demand-building programs, including trade promotion, advertising and consumer promotion. The Company is also focused on product innovation, with a goal to deliver 3% incremental sales growth from new products, line extensions and product improvements in fiscal year 2015. Clorox is focused on enhancing its “3D” demand-creation model of Desire, Decide and Delight, capabilitiesincluding advertising and consumer promotion, as well as trade promotion in order to ensure more targeted messaging for consumersdrive category and market share growth. The Company is also focused on product innovation that reinforces the value proposition of its brands, including marketing communications that drive consumer desire, in-store promotions that compel purchase decisions at the point of decide, and superior products that delight consumers.
Clorox will continue to reshape its portfolio toward businesses aligned with the four consumer megatrends of healthdelight and wellness, sustainability, consumer fragmentation and affordability/value. The Company is focused on growing its U.S. retail, professional products and international businesses: growing U.S. retail businesses through execution of its “3D” demand creation model, growing professional products by expanding its healthcare business organically and through bolt-on acquisitions, and growing international businesses by primarily focusing on existing markets wheredeliver superior value to consumers. Importantly, the Company has significant scale and competitive advantage.
Clorox’s 2020 Strategy priorities include driving net sales growth and margin improvement. The Company anticipates improvingsupporting its margins by reducing exposure to inflation in its products and operations, continuing to slow the growth of selling and administrative expenses by driving out low-value activity and rebuilding margin in its international businesses. The Company’s
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Table of Contents As the Company executes its 2020 Strategy, also includes a particular focus on “Strategy Accelerators,” will help drive investment decisions – with the goal to increase its total brand-building investment over time.deliver profitable growth: ● | Accelerating portfolio momentum takesadvantage of tailwinds in faster-growing categories and brands in the portfolio by directing more demand investment to those categories and brands.
| ● | Accelerating3D technology transformation addresses the shift in how today’s consumers research, shop and buy their products. The Company is investing in digital marketing and social media and focused on driving its e-commerce business.
| ● | Accelerating innovationacross the Company’s demand-creation model of Desire, Decide and Delight will continue to support category growth and market share improvement.In particular, the Company is focused on delivering superior value to consumers through the introduction of new products and product improvements.
| ● | Accelerating the Company’s growth cultureencourages Clorox employees to be even more consumer-centric and focus on driving out low-value activity and delivering growth for the Company as they conduct their day-to-day activities. |
Looking forward, the Company will continue to execute against its 2020 Strategy and seek to achieve its goals to deliver long-term profitable growth and long-term stockholder value.growth. RESULTS OF OPERATIONS Management’sUnless otherwise noted, management’s discussion and analysis of the Company’scompares results of continuing operations unless otherwise noted, comparesfrom fiscal year 2015 to fiscal year 2014, and fiscal year 2014 to fiscal year 2013, and fiscal year 2013 to fiscal year 2012, with percentage and basis point calculations based on rounded numbers, except as noted.
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CONSOLIDATED RESULTS Continuing operations
Net sales in fiscal year 2014 decreased 0.6%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 Burt’s 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 tocontinuing category softness and increased competition. The variance between volume and net sales was flat,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%. Net sales in fiscal year 2014 remained essentially flat. Volume increased 0.6%, reflecting higher shipments of cleaning and healthcare products in the professional products business; higher shipments of charcoal products, primarily behind strong merchandising activities and improved weather conditions; higher shipments of Clorox® liquid bleach, driven by product innovation; and higher shipments of Hidden Valley® dry and bottled salad dressings, primarily due to continued B-4 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B category growth and increased merchandising activity. These increases were partially offset by lower shipments due to heightened competitive activity in the disinfecting wipes category, including the distribution loss of Clorox® disinfecting wipes at a major club customer; and lower shipments of Glad® trash bags, primarily due to a price increase in the second half of the fiscal year 2014; and lower shipments in Venezuela, due to manufacturing and supply chain constraints.year. The variance between volume and net sales was primarily due to unfavorable foreign currency exchange rates, (240 basis points), partially offset by the benefit of price increases (160 basis points).increases. On a currency-neutral basis, net sales increased about 1.8%2%. Net sales in fiscal year 2013 increased 3%. Volume was flat, reflecting higher shipments in the professional products business, primarily due to base healthcare and cleaning business strength and the benefit of acquisitions in fiscal year 2012; higher shipments of Glad® premium trash bags, primarily due to new product innovation and increased merchandising events; higher shipments of Clorox® disinfecting wipes behind strong merchandising activities and a heightened flu season; higher shipments of Hidden Valley® products behind strong merchandising activity and innovation; higher shipments of Burt’s Bees® natural personal care products, primarily driven by new product innovation and promotional events; and higher shipments of the new concentrated Clorox® liquid bleach. These increases were offset by lower shipments of charcoal products, primarily due to poor weather conditions and price increases; the exit from international nonstrategic export businesses; lower shipments of Brita® water-filtration products, primarily due to decreased merchandising activities, price increases and a comparison to strong volume in the prior year behind the launch of the Brita® Bottle; lower shipments of Glad® base trash bags, primarily due to decreased merchandising and a shift to premium trash products, and Glad® food storage products, primarily due to distribution losses; lower shipments of Clorox 2® stain fighter and color booster, primarily due to category softness and distribution losses; and lower shipments in Canada. Net sales growth outpaced volume primarily due to the benefit of price increases (270 basis points), partially offset by unfavorable foreign currency exchange rates (60 basis points).
Gross profit decreased 2%increased 5% in fiscal year 2014,2015, from $2,412$2,356 to $2,360,$2,465, and gross margin, defined as gross profit as a percentage of net sales, decreased 70increased 90 basis points from 42.9%42.7% to 42.2%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. Gross profit decreased 1% in fiscal year 2014, from $2,391 to $2,356, and gross margin decreased 50 basis points from 43.2% to 42.7%. Gross margin decline in fiscal year 2014 was driven by 160 basis points from higher manufacturing and logistics costs, including the impact of continued inflation in Venezuela and Argentina, and 120 basis points from higher commodity costs. These factors were partially offset by 140 basis points fromthe benefits of cost savings and 80 basis points from the benefit of price increases. A-4 THE CLOROX COMPANY - 2014 Proxy Statement
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Appendix A
Gross profit increased 5% in fiscal year 2013, from $2,304 to $2,412, and gross margin increased 80 basis points from 42.1% to 42.9%. Gross margin expansion in fiscal year 2013 was driven by 160 basis points from cost savings and 120 basis points from the benefit of price increases. These factors were partially offset by 170 basis points from higher manufacturing and logistics costs, including the impact of inflationary pressures in Argentina and Venezuela.
Expenses | | | | | | | | | | | | % Change | | % of Net sales | | | | | 2014 | | 2013 | | 2012 | | 2014 to 2013 | | 2013 to 2012 | | 2014 | | 2013 | | 2012 | | | Selling and administrative expenses | | $ | 765 | | $ | 807 | | $ | 798 | | (5 | )% | | 1 | % | | 13.7 | % | | 14.4 | % | | 14.6 | % | | | Advertising costs | | | 504 | | | 500 | | | 482 | | 1 | | | 4 | | | 9.0 | | | 8.9 | | | 8.8 | | | | Research and development costs | | | 125 | | | 130 | | | 121 | | (4 | ) | | 7 | | | 2.2 | | | 2.3 | | | 2.2 | | |
| | | | | | | | | | | % Change | | % of Net sales | | | 2015 | | 2014 | | 2013 | | 2015 to 2014 | | 2014 to 2013 | | 2015 | | 2014 | | 2013 | Selling and administrative expenses | | $ | 798 | | $ | 751 | | $ | 793 | | 6 | % | | (5 | )% | | 14.1 | % | | 13.6 | % | | 14.3 | % | Advertising costs | | | 523 | | | 503 | | | 498 | | 4 | | | 1 | | | 9.2 | | | 9.1 | | | 9.0 | | Research and development costs | | | 136 | | | 125 | | | 130 | | 9 | | | (4 | ) | | 2.4 | | | 2.3 | | | 2.3 | |
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 Company’s 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 Company’s long-term disability plan in fiscal year 2015 to bring it more in line with the marketplace. Selling and administrative expenses decreased 5% in fiscal year 2014, primarily driven by lower employeeperformance-based incentive compensation costs, cost savings and a comparison to one-time costs associated with an information technology (IT)IT systems implementation in Latin America incurred in fiscal year 2013. These decreases were partially offset by one-time costs related to the transition to new IT service providers in fiscal year 2014. Selling and administrative expenses increased 1% in fiscal year 2013, primarily driven by higher wages and employee benefits, largely due to international inflation, as well as investments made in systems and processes to support the long-term growth of the Burt’s Bees® business. These increases were largely offset by prior-year non-repeating advisory fees related to a withdrawn proxy contest, as well as lower employee incentive compensation costs and cost savings in fiscal year 2013.
Advertising costsas a percentage of net sales increased slightly during fiscal year 2015, reflecting continued support behind the Company’s brands, including driving the trial of new products. The Company’s U.S. retail advertising spend was approximately 10% of net sales during the year. Advertising costs as a percentage of net sales increased slightly during fiscal year 2014, reflecting an increase in spending onacross our U.S. brands offset by reductions in spending in challenging markets outside the United States, particularly Venezuelaretail and Argentina.international markets. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-5 |
Advertising costs as a percentageTable of sales increased slightly during fiscal year 2013. Activity was primarily in support of new products, including the launch of new concentrated Clorox® liquid bleach and Burt’s Bees® natural personal care products.Contents
Research and development costsdecreased slightly as a percentage of net sales in fiscal year 2014, primarily driven by lower employee incentive compensation costs. Research and development costs increased slightly as a percentage of net sales in fiscal year 2013, primarily2015, driven by costs related to the investment in and transition to the Company’s Pleasanton, Calif., researchhigher performance-based incentive costs.
Research and development facility.costs were flat as a percentage of net sales in fiscal year 2014, and were impacted by lower performance-based incentive costs. Interest expense, other expense (income),income, net, and the effective tax rate on income from continuing operationsearnings | | 2015 | | | 2014 | | | 2013 | | Interest expense | | $100 | | | $103 | | | $122 | | Other income, net | | (13 | ) | | (10 | ) | | (4 | ) | Income taxes on continuing operations | | 315 | | | 305 | | | 279 | |
| | 2014 | | 2013 | | | 2012 | | Interest expense | | | 103 | | | 122 | | | | 125 | | Other expense (income), net | | | 2 | | | — | | | | (13 | ) | Income taxes on continuing operations | | | 299 | | | 279 | | | | 248 | |
Interest expensedecreased $19 and $3 in fiscal yearsyear 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 2013, respectively,the maturities of senior notes in January 2015, combined with less interest expense on a lower balance of commercial paper throughout fiscal year 2015.
Interest expensedecreased $19 in fiscal year 2014, primarily due to a lower weighted-average interest rate on long-term debt resulting from the issuance of senior notes in September 2012 and the maturities of senior notes in October 2012 and March 2013. Continues on next page4 | | | | THE CLOROX COMPANY- 2014 Proxy Statement
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Other expense (income),income, net, of $2$(13) in fiscal year 20142015 included $11$(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, including the impact of an effective currency devaluation resulting from the Company using the SICAD I currency exchange rate in Venezuela beginning in March 2014 (see “Venezuela” below), $8 of amortization of trademarks and other intangible assets and $4$3 of noncash trademarkasset impairment charges as a resultcharges. Other income, net, of the effective currency devaluation and economic environment$(10) in Venezuela. These factors were partially offset byfiscal year 2014 included $(13) of income from equity investees, $(5) of insurance and litigation settlements and other smaller items.items, partially offset by $8 of amortization of trademarks and other intangible assets and $3 of noncashasset impairment charges. Other expense (income),income, net, of $0$(4) in fiscal year 2013 included $(12) of income from equity investees, $(4) from gains on fixed asset sales, net and $(4) of a gain on the sale of real estate assets by a low-income housing partnership, gains, offset by $11 of foreign currency exchange losses and $9 of amortization of trademarks and other intangible assets. Other expense (income), net, of $(13) in fiscal year 2012 included $(11) of income from equity investees and $(6) of income from transition services related to the Company’s sale of its global auto care businesses, partially offset by $9 of amortization of trademarks and other intangible assets.assets and $8 of foreign currency exchange losses.
The effective tax rate on earnings from continuing operationswas 34.7%34.2%, 32.7%34.6% and 31.4%32.7% in fiscal years 2015, 2014 2013 and 2012,2013, respectively. The increaselower effective tax rate in the fiscal year 2015 compared to fiscal year 2014 effective tax rate was primarily due to favorablehigher uncertain tax settlements in the prior periods andposition releases, partially offset by higher taxestax on foreign earnings, in the current period. The higher effective tax rate in fiscal year 20132014 compared to fiscal year 20122013 was primarily due to lower taxesfavorable tax settlements in fiscal year 2013 and higher tax on foreign earnings and higher uncertain tax position releases in fiscal year 2012.2014. Diluted net earnings per share from continuing operations | | | | | | | | | | | | % Change | | | | | 2014 | | 2013 | | 2012 | | 2014 to 2013 | | 2013 to 2012 | | | Diluted net earnings per share from continuing operations | | $ | 4.26 | | $ | 4.31 | | $ | 4.10 | | (1.2 | )% | | 5.1 | % | |
| | | | | | | | % Change | | | 2015 | | 2014 | | 2013 | | 2015 to 2014 | | 2014 to 2013 | Diluted net earnings per share from continuing operations | | $4.57 | | $4.39 | | $4.31 | | 4% | | 2% |
Diluted net earnings per share (EPS) from continuing operations decreased $0.05increased $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 Company’s results fell below financial targets. Increased investments in total demand-building programs also reduced fiscal year diluted EPS. B-6 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B Diluted net earnings per share from continuing operations increased $0.08 in fiscal year 2014, driven by higher manufacturing and logistics costs, higher commodity costs, unfavorable foreign currency exchange rates, incremental demand-building investments and a higher effective tax rate. In fiscal year 2014, diluted EPS from continuing operations was negatively affected by the macroeconomic challenges in Venezuela, including a $0.14 impact from charges related to the effective devaluation of the Venezuelan currency (see “Venezuela” below). These factors were partially offset by the benefits of cost savings, price increases and reduced employeelower performance-based incentive compensation costs, reflecting significantly lower year-over-year payouts, as well as lower interest expense. Diluted net EPS from continuing operations increased $0.21 in fiscal year 2013, driven by the benefits of price increases and strong cost savings. These factors were partially offset by higher manufacturing and logistics costs, and other supply chainhigher commodity costs, increased investments in total demand-building programs, unfavorable foreign currency exchange rates and a higher effective tax rate.
Free cash flowDiscontinued Operations
| | | 2014 | | | 2013 | | | 2012 | | | | Net cash provided by continuing operations | | $ | 771 | | | $ | 777 | | | $ | 620 | | | | Less: capital expenditures | | | (138 | ) | | | (194 | ) | | | (192 | ) | | | Free cash flow | | $ | 633 | | | $ | 583 | | | $ | 428 | | | | Free cash flow as a percentage of net sales | | | 11.3% | | | | 10.4% | | | | 7.8% | | |
Free cash flow as a percentage of net sales increasedIn addition to the $49 recognized in the fiscal year 2014, primarily dueended June 30, 2015, the Company believes it is reasonably possible that it will recognize $11 to lower capital$21 in after-tax exit costs and other related expenses in discontinued operations for Clorox Venezuela during fiscal years 2016 through 2019, for a total of $60 to $70 over the entire five-year period. Of this total, the Company believes $0 to $5 will be after-tax cash expenditures. Further significant changes to the exchange rate used for financial reporting purposes, among many other external factors, could have a significant impact on the above estimated costs.
Free cash flow as a percentageSee Notes to Consolidated Financial Statements for more information regarding discontinued operations of net sales increased inClorox Venezuela.
In the fiscal year 2013, primarily dueended June 30, 2015, the Company recognized $32 of previously unrecognized tax benefits relating to favorable changes in working capital,other discontinued operations upon the priorexpiration of the applicable statute of limitations. Recognition of these previously disclosed tax benefits had no impact on the Company’s cash flows or earnings from continuing operations for the fiscal year settlement of interest rate forward contracts and higher earnings.ended June 30, 2015. A-6 THE CLOROX COMPANY - 2014 Proxy Statement
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Appendix A
SEGMENT RESULTS FROM CONTINUING OPERATIONS The following presents the results from continuing operations of the Company’s reportable segments and certain unallocated costs reflected in Corporate (see Note 19 of the Notes to Consolidated Financial Statements for a reconciliation of segment results to consolidated results): Cleaning | | | | | | | | | | | | % Change | | | | 2014 | | 2013 | | 2012 | | 2014 to 2013 | | 2013 to 2012 | | | Net sales | | $ | 1,776 | | $ | 1,783 | | $ | 1,692 | | — | % | | 5 | % | | | Earnings from continuing operations before income taxes | | | 428 | | | 420 | | | 381 | | 2 | | | 10 | | |
| | | | | | | % Change | | 2015 | | 2014 | | 2013 | | 2015 to 2014 | | 2014 to 2013 | Net sales | $1,824 | | $1,776 | | $1,783 | | 3 | % | | – | % | Earnings from continuing operations before income taxes | 445 | | 428 | | 420 | | 4 | | | 2 | |
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 andnet 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. Fiscal year 2014 versus fiscal year 2013:Net sales were flat and earnings from continuing operations before income taxes increased 2%, while volume decreased 1% during fiscal year 2014. Volume in the Cleaning segment decreased 1%, driven by lower shipments due to heightened competitive activity in the disinfecting wipes category, including the distribution loss of Clorox® disinfecting wipes at a major club customer. These decreases were partially offset by higher shipments of cleaning and healthcare products in the professional products business, and higher shipments of Clorox®liquid bleach driven by product innovation. The variance between net sales and volume was primarily due to the benefit of price increases (60 basis points) and other smaller items, partially offset by higher trade-promotion spending (60 basis points).spending. The Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-7 |
Table of Contents increase in earnings from continuing operations before income taxes was driven by $33 of cost savings, primarily related to the Company’s conversion to concentrated bleach in fiscal year 2013, $12 of2013; lower employeeperformance-based incentive compensation costscosts; and various manufacturing and other efficiencies. These increases were partially offset by $16 of increased commodity costs, primarily resin, $10 ofresin; incremental demand-building investmentsinvestments; and other individually smaller items. Household | | | | | | | % Change | | 2015 | | 2014 | | 2013 | | 2015 to 2014 | | 2014 to 2013 | Net sales | $1,794 | | $1,709 | | $1,693 | | 5 | % | | 1 | % | Earnings from continuing operations before income taxes | 375 | | 326 | | 336 | | 15 | | | (3 | ) |
Fiscal year 20132015 versus fiscal year 2012:2014:NetVolume, net sales volume and earnings from continuing operations before income taxes increased by 2%, 5% and 15%, respectively, during fiscal year 2013. Volume in the Cleaning segment increased 3%,2015. Both volume growth andnet sales growth were driven by higher shipments in the professionalof Kingsford®charcoal products business, primarily due to base healthcare and cleaning business strength and the benefit of acquisitions in fiscal year 2012; higher shipments of Clorox® disinfecting wipes behind strongincreased merchandising activities and a heightened flu season; and higher shipments of the new concentrated Clorox® liquid bleach. These increases were partially offset by lower shipments of Clorox 2® stain fighter and color booster due to category softness and distribution losses, and lower shipments of Pine-Sol® cleaners, primarily due to price increases.activities. Net sales growth outpaced volume growth primarily due to the benefitbenefits of price increases (170 basis points).on Glad® bags and wraps. The increase in earnings from continuing operations before income taxes was primarily due to higher netdriven by strong sales growth and $35the benefit of cost savings, primarily related to concentrated Clorox® liquid bleach and package redesign. These increases were partially offset by $24 of higheran increase in demand building investments and manufacturing and logistics and other supply chain costs, $13 of higher selling and administrative costs, primarily related to the acquisitions in fiscal year 2012 and costs associated with the transition to concentrated Clorox® liquid bleach and $10 of higher advertising and sales promotion expenses, primarily in support of concentrated Clorox® liquid bleach. Household
| | | | | | | | | | | | % Change | | | | 2014 | | 2013 | | 2012 | | 2014 to 2013 | | 2013 to 2012 | | | Net sales | | $ | 1,709 | | $ | 1,693 | | $ | 1,676 | | 1 | % | | 1 | % | | | Earnings from continuing operations before income taxes | | | 326 | | | 336 | | | 298 | | (3 | ) | | 13 | | |
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Fiscal year 2014 versus fiscal year 2013:Net sales and volume both increased 1%, while earnings from continuing operations before income taxes decreased 3% during fiscal year 2014. VolumeThe increase in the volume in the Household segment increased 1%,was driven by higher shipments of Kingsford®charcoal products due to strong merchandising activities and improved weather conditions, partially offset by lower shipments of Glad®trash bags, primarily due to a price increase in the second half of fiscal year 2014. The decrease in earnings from continuing operations before income taxes was driven by $37 of higher commodity costs, primarily resin, $19 of higher manufacturing and logistics costs, including one-time supply chain costs in order to meet strong customer demand for charcoal products, and other individually smaller items. These decreases were partially offset by $21 of cost savings, highernet sales and $11 of lower employeeperformance-based incentive compensation costs. Lifestyle | | | | | | | % Change | | 2015 | | 2014 | | 2013 | | 2015 to 2014 | | 2014 to 2013 | Net sales | $950 | | $936 | | $929 | | 1 | % | | 1 | % | Earnings from continuing operations before income taxes | 257 | | 258 | | 259 | | – | | | – | |
Fiscal year 20132015 versus fiscal year 2012:2014: Net sales and volume both increased by 1%, while earnings from continuing operations before income taxes increased, while volume decreasedremained flat during fiscal year 2013. Volume2015. Bothnet sales growth and volume growth were driven by higher shipments of Burt’s Bees® natural personal care products, largely due to innovation in the Household segment decreased 3%, drivenlip and face care products combined with distribution gains. The increase was partially offset by lower shipments of charcoal products due to poor weather conditions and price increases, and lower shipments of GladBrita® base trash bags, primarily due to decreased merchandising and a shift to premium trash products, and Glad® food storagewater-filtration products, primarily due to distribution losses. These decreases were partially offset by higher shipments of Glad® premium trash bags primarily due to new product innovationcontinuing category softness and increased merchandising events. The variance between net sales and volume was primarily due to the benefit of price increases (340 basis points). The increase incompetition. Flat earnings from continuing operations before income taxes was driven by $31 ofreflected lower commodity costs, cost savings primarily related to various manufacturing efficiencies, and $26 from the benefit of pricefavorable product mix. These increases partiallywere offset by $15 of higher manufacturing and logistics costs and other supply chain costs.demand building investments. Lifestyle
| | | | | | | | | | | | % Change | | | | | 2014 | | 2013 | | 2012 | | 2014 to 2013 | | 2013 to 2012 | | | Net sales | | $ | 936 | | $ | 929 | | $ | 901 | | 1 | % | | 3 | % | | | Earnings from continuing operations before income taxes | | | 258 | | | 259 | | | 265 | | — | | | (2 | ) | |
Fiscal year 2014 versus fiscal year 2013: Net sales and volume both increased 1%, while earnings from continuing operations before income taxes remained flat during fiscal year 2014. Volume in the Lifestyle segment increased, 1%, driven by higher shipments of Hidden Valley®dry and bottled salad dressings, primarily due to continued category growth and increased merchandising activity, and higher shipments of Burt’s Bees®natural personal care products, driven by product innovation in lip and face care products. These increases were partially offset by lower shipments of Brita®water-filtration products, primarily due to increased private-label competition and category softness, and decreased merchandising activities. Flat earnings from continuing operations before income taxes reflected $9 of higher demand-building investments, primarily driven by increased advertising and sales promotion expenses in support of Burt’s Bees® natural personal care products, and other individually smaller items, offset by $10 of cost savings, primarily related to various manufacturing and other efficiencies and $7lower performance-based incentive costs. B-8 THE CLOROX COMPANY- 2015 Proxy Statement
Table of lower employee incentive compensation costs.Contents Appendix B International | | | | | | | % Change | | 2015 | | 2014 | | 2013 | | 2015 to 2014 | | 2014 to 2013 | Net sales | $1,087 | | $1,093 | | $1,128 | | (1 | )% | | (3 | )% | Earnings from continuing operations before income taxes | 79 | | 99 | | 95 | | (20 | ) | | 4 | |
Fiscal year 20132015 versus fiscal year 2012:2014: NetVolume increased 3%, while net sales and volume increased, while earnings from continuing operations before income taxes decreased 1% and 20%, respectively, during fiscal year 2013.2015. Volume in the Lifestyle segment increased 2%, driven by higher shipments of Hidden Valley® products behind strong merchandising activity and innovation, and higher shipments of Burt’s Bees® natural personal care products, primarily driven by new product innovation and promotional events. These increases were partially offset by lower shipments of Brita® water-filtration products,grew primarily due to decreased merchandising activities, price increaseshigher shipments in Latin America, Canada, Europe and a comparison to strong volume in the prior year behind the launch of the Brita® Bottle, and lower shipments of KC Masterpiece® sauces, primarily due to competitive activity. Net salesAsia. Volume growth outpaced volumenet sales growth primarily due to unfavorable foreign currency exchange rates, partially offset by the benefit of price increases (120 basis points).and favorable product mix. The decrease in earnings from continuing operations before income taxes was primarily due to approximately $12 of higher other supply chain costsdriven by unfavorable foreign currency exchange rates and $8 ofinflation across multiple countries, primarily in Argentina (see “Argentina” below), which resulted in higher selling and administrative expenses, both driven,higher manufacturing and logistics costs and higher commodity costs. These decreases in part, by investments in systems and processes to support the long-term growth of the Burt’s Bees® business, and $7 of higher advertising and sales promotion expenses in support of new products. These increasesearnings were partially offset by higher net salesthe benefit of price increases, favorable product mix and $10 of cost savings, primarily related to various manufacturing efficiencies.savings. A-8 THE CLOROX COMPANY - 2014 Proxy Statement
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International
| | | | | | | | | | | | % Change | | | | | 2014 | | 2013 | | 2012 | | 2014 to 2013 | | 2013 to 2012 | | | Net sales | | $ | 1,170 | | $ | 1,218 | | $ | 1,199 | | (4 | )% | | 2 | % | | | Earnings from continuing operations before income taxes | | | 76 | | | 96 | | | 119 | | (21 | ) | | (19 | ) | |
Fiscal year 2014 versus fiscal year 2013:Net sales decreased 3%, while volume and earnings from continuing operations before income taxes decreased while volume increased 2% and 4%, respectively, during fiscal year 2014. Volume in the International segment increased 1%, driven by higher shipments in Peru, Asia, the Middle East, Europe and Argentina, partially offset by lower shipments in VenezuelaAustralia and Australia.Colombia. The variance between net sales and volume was primarily due to unfavorable foreign currency exchange rates, (1,110 basis points), partially offset by the benefit of price increases (490 basis points) and favorable product mix (160 basis points).mix. While International segment net sales decreased 4% during fiscal year 2014, excluding the negative foreign currency impact of 11%10%, segment sales grew about 7%. The decreaseincrease in earnings from continuing operations before income taxes was primarily due to $51the benefit of higherprice increases; cost savings, primarily related to various manufacturing and logisticsother efficiencies; favorable product mix; one-time costs drivenincurred in fiscal year 2013 associated with an IT systems implementation in Latin America and lower performance-based incentive costs. These increases were partially offset by continued inflation inVenezuelaandArgentina, $49 of unfavorable foreign currency exchange rates, primarily in ArgentinaArgentina; higher manufacturing and Venezuela (see “Venezuela”logistics and “Argentina” below), $15 ofother supply chain costs and higher selling and administrative costs, both factors mainly driven by continued inflation in Latin America; higher commodity costs, primarily resin,resin; and other individually smaller items.increased advertising and sales promotion costs, primarily in Latin America. Also impacting fiscal year 2014 results were noncash tax deductible impairment charges on trademark values totaling $4. These decreases were partially offset by $59 from the benefit of price increases, $27 of cost savings, primarily related to various manufacturing and other efficiencies, $19 of favorable product mix, $12 from a comparison to one-time costs associated with an IT systems implementation in Latin America incurred in fiscal year 2013 and $9 of lower employee incentive compensation costs.values. Fiscal year 2013 versus fiscal year 2012:Net sales increased, while volume and earnings from continuing operations before income taxes decreased during fiscal year 2013. Volume in the International segment decreased 2%, driven by the exit from nonstrategic export businesses and lower shipments in Canada, partially offset by higher shipments in Asia and certain regions in Latin America. The variance between net sales and volume was primarily due to the benefit of price increases (450 basis points) and favorable product mix (160 basis points), partially offset by unfavorable foreign currency exchange rates (290 basis points). The decrease in earnings from continuing operations before income taxes was primarily due to $55 of higher manufacturing and logistics and other supply chain costs and $12 of higher selling and administrative costs, both factors reflecting the impact of inflationary pressures in Argentina and Venezuela, $24 of unfavorable foreign currency exchange rates and other smaller items. These decreases were partially offset by $53 from the benefit of price increases, $15 of cost savings, primarily related to various manufacturing efficiencies and $11 of favorable product mix.
Venezuela
The Business and Operating Environment
Net sales from the Company’s Venezuela subsidiary (the Venezuela business) represented approximately 1%, 2% and 2% of the Company’s consolidated net sales for the fiscal years ended June 30, 2014, 2013 and 2012, respectively. The operating environment in Venezuela is challenging, with high inflation, political instability, governmental restrictions in the form of currency exchange, price and margin controls and the possibility of government actions such as further devaluations, business occupations or intervention and expropriation of assets. In addition, the foreign exchange controls in Venezuela limit the Venezuela business’s ability to remit dividends and pay intercompany balances.
A majority of the Company’s product portfolio in Venezuela is subject to price controls, which for nearly three years have prevented the Company from increasing prices on controlled products to offset the impact of continuing high inflation on product, labor and other operating costs that are not subject to similar controls. In addition to the price control laws, in November 2013, the Venezuelan legislature approved an “enabling law” granting the president of Venezuela the authority to enact laws and regulations in certain policy areas by decree. This authority includes the
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ability to restrict profit margins and impose greater controls on foreign exchange and the production, import and distribution of staples and other goods. Among other actions, the president has used this decree power to pass a law effective January 2014 which, among other things, authorizes the Venezuelan government to set “just prices” and maximum profit margins in the private sector.
Currency Devaluation and Foreign Exchange Controls
Due to a sustained inflationary environment, the financial statements of the Venezuela business are consolidated under the rules governing the preparation of financial statements in a highly inflationary economy. As such, the Venezuela business’s non-U.S. dollar (non-USD) monetary assets and liabilities are remeasured into U.S. dollars (USD) each reporting period with the resulting gains and losses reflected in other expense (income), net.
On February 8, 2013, the Venezuelan government announced a devaluation of its currency exchange commission (CADIVI) rate from 4.3 to 6.3 bolivares fuertes (VEF) per USD and the elimination of the alternative currency exchange system, SITME. Prior to February 8, 2013, the Company had been utilizing the rate at which it had been obtaining USD through SITME to remeasure its Venezuelan financial statements, which was 5.7 VEF per USD at the announcement date. In response to these developments, the Company began utilizing the CADIVI rate of 6.3 VEF per USD to translate the financial statements of the Venezuela business.
In March 2013, the Venezuelan government announced the creation of a new alternative currency exchange system, a government-controlled auction process referred to as SICAD I, whereby companies meeting certain qualifications may periodically bid to acquire USD. In January 2014, the Venezuelan government announced further changes to the regulations governing the currency exchange systems. Among the changes was the creation of a new government agency, CENCOEX, to administer the currency exchange mechanism previously administered by CADIVI.
In February 2014, the Venezuelan government established another currency exchange mechanism, SICAD II, that provides an additional method to exchange VEF at exchange rates significantly higher than the CENCOEX and SICAD I rates. As of June 30, 2014, the posted rate of the SICAD II exchange system was 50.0 VEF per USD.
Financial Reporting Impacts and Business Trends
Based on an analysis of the published exchange regulations and an assessment of currency requirements applicable to the Venezuela business, the Company has concluded that the SICAD I rate is currently the most appropriate rate for it to use for financial reporting purposes. The Company began using the SICAD I rate to record the results of business operations and remeasure the gain or loss on non-USD denominated monetary assets and liabilities in Venezuela beginning on March 1, 2014. As a result, the Company recorded a non-tax deductible remeasurement loss of $10 in other expense (income), net, for the year ended June 30, 2014, reflecting the effective devaluation from the CENCOEX rate of 6.3 to the June 30, 2014, posted SICAD I rate of 10.6.
The Company’s business and cash flows in Venezuela have been adversely impacted by the country’s difficult political and economic conditions. The Venezuela subsidiary operated at a profit for the years ended June 30, 2013 and 2012. The subsidiary operated at a loss for the fiscal year ended June 30, 2014, including 14 cents of charges due to the remeasurement losses described above, impairment charges on trademark values and other charges related to the effective devaluation of the Venezuelan currency.
Considerable uncertainty remains regarding the viability of existing currency exchanges, the availability of USD under these exchanges and whether a new currency system will emerge. Further significant devaluations of the VEF could occur in the future, which would adversely impact financial results. For illustrative purposes only, if exchange rates were to range between 25.0 and 50.0 VEF per USD, the Company would record additional non-tax deductible remeasurement losses between approximately $6 and $8 based on the non-USD denominated net monetary asset position of the Venezuela business of $11 using the 10.6 SICAD I rate as of June 30, 2014. Additionally, the Company’s net sales and net earnings would be further negatively impacted by any additional devaluations and other economic and regulatory factors, which would also require the Company to undergo additional impairment testing on its goodwill, trademarks and other assets attributable to the Venezuela business.
A-10 THE CLOROX COMPANY - 2014 Proxy Statement
Table of Contents
Appendix A
As of June 30, 2014, using the SICAD I rate of 10.6, the Venezuela business had total assets of $68 including cash and cash equivalents of $5, a long-term value added tax (VAT) receivable from the Venezuelan government of $9, inventories of $11, net property, plant and equipment of $16 and intangible assets excluding goodwill of $6. Goodwill for Venezuela is aggregated and assessed for impairment at the Latin America reporting unit level, which is a component of the Company’s International segment. Based on the results of the annual impairment test performed in the fourth quarter of fiscal year 2014, the fair value of the Latin America reporting unit exceeded its recorded value by more than 40% and reflected the Company’s expectations of continued challenges from the Venezuela business consistent with the Company’s current long-range projections.
Business Outlook
If the Venezuela business continues to be restricted in its ability to increase prices, operating losses will continue into future periods. Further devaluations of the Venezuela currency would result in additional remeasurement losses and increase the risk for impairment of asset values, including intangible assets and goodwill. Additionally, based on the Venezuela business’s current cash flow projections, unless the Venezuela business is able to obtain significant and ongoing price increases in the near future to offset past and expected future impacts from inflation, the business will likely have insufficient working capital to sustain its operations beyond the first quarter of fiscal year 2015 without further financial support from the Company. As a result of the above factors, all options are being considered, including an exit from Venezuela if necessary.
Argentina The operating environment in Argentina also presents business challenges, including price controls on some of the Company’s products, a devaluing currency and inflation. Although Argentina is not currently designated as a highly inflationary economy for accounting purposes, further volatility and declines in the exchange rate are expected. For the fiscal years ended June 30, 2015, 2014 and 2013, and 2012, the official value of the Argentine peso (ARS) per USD declined 33%10%, 16%34% and 9%16%, respectively, as compared to the U.S. dollar. Net sales from the Company’s Argentine subsidiary represented approximately 4%, 3% and 4% of the Company’s consolidated net sales for each of the fiscal years ended June 30, 2015, 2014 and 2013, respectively. In addition,As such, and notwithstanding any actions the Company may undertake in July 2014,the market in the event of further devaluations, significant future declines in the Argentine government defaultedcurrency as compared to the U.S. dollar in the range of up to 50% or more, for example, could have a material impact on debt payment agreements. the Company’s total reported net sales and net earnings. Further devaluations of the Argentine peso could have an additional adverse impact on the Company’s net sales and net earnings andalso increase the risk for impairment of intangible assets and goodwill. As of June 30, 2014,2015, using an exchange rate of 8.19.1 ARS per USD, the Company’s ArgentinaArgentine subsidiary had total assets of $105,$100, including cash and cash equivalents of $25,$35, net receivables of $20,$18, inventories of $15,$19, net property, plant and equipment of $20$19 and intangible assets excluding goodwill of $5.$4. Goodwill for Argentina is aggregated and assessed for impairment at the Latin America reporting unit level, which is a component of the Company’s International segment. Based on the results of the annual impairment test performed in the fourth quarter of fiscal year 2014, 2015, Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-9 |
Table of Contents the fair value of the Latin America reporting unit exceeded its recorded value by more than 40%79% and reflected the Company’s expectations of continued challenges from the Argentina business consistent with the Company’s current long-range projections. Net sales from the Company’s Argentine subsidiary represented approximately 3% of the Company’s consolidated net sales for each of the fiscal years ended June 30, 2014, 2013 and 2012. 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 the Companythese actions will be able to mitigate these conditions. Corporate | | | | | | | | | | | | | | | % Change | | | | | 2014 | | | 2013 | | 2012 | | | 2014 to 2013 | | 2013 to 2012 | | | Losses from continuing operations before income taxes | | $ | (227 | ) | | $ | (258 | ) | | $ | (272 | ) | | (12 | )% | | (5 | )% | |
| | | | | | | | | | % Change | | 2015 | | | 2014 | | | 2013 | | | 2015 to 2014 | | 2014 to 2013 | Losses from continuing operations before income taxes | $(235 | ) | | $(227 | ) | | $(258 | ) | | 4 | % | | (12 | )% |
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. Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
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TableFiscal 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 Contentsfiscal year financial performance exceeding financial targets, compared to the prior year which reflected lower performance-based incentive costs when the Company’s results fell below financial targets. This factor was partially offset bycost savings, a gain on the sale of real estate assets by a low-income housing partnership and benefits from a change in the Company’s long-term disability plan to bring it more in line with the marketplace.
Fiscal year 2014 versus fiscal year 2013:The decrease in losses from continuing operations before income taxes was primarily due to lower interest expense and lower employeeperformance-based incentive compensation costs in fiscal year 2014. These factors were partially offset by one-time costs related to the transition to new IT service providers in fiscal year 2014, higher wages and employee benefit costs in fiscal year 2014 and the gain recorded upon the sale-leaseback of the Company’s Oakland, Calif., general office building in fiscal year 2013. Fiscal year 2013 versus fiscal year 2012: The decrease in losses from continuing operations before income taxes was primarily due to prior-year non-repeating advisory fees related to a withdrawn proxy contest, as well as lower employee incentive compensation costs in fiscal year 2013. These factors were partially offset by higher wages and employee benefit costs in fiscal year 2013.
FINANCIAL POSITION AND LIQUIDITY Management’s discussion and analysis of the Company’s financial position and liquidity describes its consolidated operating, investing and financing activities from continuing operations, contractual obligations and off-balance sheet arrangements. The following table summarizes cash activities as offrom continuing operations for the years ended June 30: | | | 2014 | | 2013 | | 2012 | | | Net cash provided by continuing operations | | $ | 771 | | | $ | 777 | | | $ | 620 | | | | Net cash used for investing activities | | | (138 | ) | | | (55 | ) | | | (277 | ) | | | Net cash used for financing activities | | | (592 | ) | | | (685 | ) | | | (321 | ) | |
| 2015 | | | 2014 | | | 2013 | | Net cash provided by operations | $ | 858 | | | $ | 786 | | | $ | 780 | | Net cash used for investing activities | | (106 | ) | | | (137 | ) | | | (51 | ) | Net cash used for financing activities | | (696 | ) | | | (592 | ) | | | (685 | ) |
The Company’s cash position includes amounts held by foreign subsidiaries and, as a result, the repatriation of certain cash balances from some of the Company’s foreign subsidiaries could result in additional tax costs.costs in excess of tax benefits. Additionally, as of June 30, 2015 the Company’s Argentine subsidiary held cash and cash equivalents of $35, with no government-approved mechanism to convert local currency into U.S. dollars, which restricts the Company's ability to repatriate these funds. However, these cash balances held by foreign subsidiaries are generally available without legal restriction to fund local business operations. B-10 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B In addition, a portion of the Company’s cash balance is held in U.S. dollars by foreign subsidiaries, whose functional currency is their local currency. Such U.S. dollar balances are reported on the foreign subsidiaries’ books, in their functional currency, with thewiththe impact from foreign currency exchange rate differences recorded in other expense (income),income, net. The Company’s cash holdings at June 30 were as followsfollows: | | 2015 | | 2014 | | 2013 | | | U.S. dollar balances held by U.S. dollar functional currency subsidiaries and at parent | $ | 221 | | $ | 180 | | $ | 130 | | | Non-U.S. dollar balances held by non-U.S. dollar functional currency subsidiaries | | 142 | | | 132 | | | 115 | | | U.S. dollar balances held by non-U.S. dollar functional currency subsidiaries | | 19 | | | 12 | | | 36 | | | Non-U.S. dollar balances held by U.S. dollar functional currency subsidiaries | | – | | | 5 | | | 18 | | | Total | $ | 382 | | $ | 329 | | $ | 299 | | | | | | | | | | | | |
The Company’s total cash balance was $382 as of June 30:30, 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. | | | 2014 | | 2013 | | 2012 | | | U.S. dollar balances held by U.S. dollar functional currency subsidiaries and parent | | $ | 180 | | $ | 130 | | | $ | 131 | | | Non-U.S. dollar balances held by non-U.S. dollar functional currency subsidiaries | | | 132 | | | 115 | | | | 81 | | | U.S. dollar balances held by non-U.S. dollar functional currency subsidiaries | | | 12 | | | 36 | | | | 35 | | | Non-U.S. dollar balances held by U.S. dollar functional currency subsidiaries | | | 5 | | | 18 | | | | 20 | | | Total | | $ | 329 | | $ | 299 | | | $ | 267 | | |
The Company’s total cash balance was $329 as of June 30, 2014, as compared to $299 as of June 30, 2013. The increase of $30 was primarily attributable to $771$786 of net cash provided by continuing operations and $96 of proceeds from the issuance of common stock for employee stock plans, partially offset by $368 of dividend payments, $260 of share repurchases, $138$137 of capital expenditures and $60 of repayments of commercial paper borrowings. The Company’s total cash balance was $299 asAs of June 30, 2013,2015, total current assets exceeded total current liabilities by $24, and as compared to $267 as of June 30, 2012. The increase of $32 was primarily attributable to $777 of net cash provided by continuing operations, $593 of net proceeds from the September 2012 long-term debt issuance, $135 of proceeds from the sale-leaseback of the Company’s general office building in Oakland, Calif., and former Technical and Data Center in Pleasanton, Calif., and $133 of proceeds from the issuance of common stock for employee stock plans and other. These increases were partially offset by $850 of repayments of long-term debt, $335 of dividend payments, $194 of capital expenditures, $128 of share repurchases and $98 of repayments of commercial paper borrowings.
A-12 THE CLOROX COMPANY - 2014 Proxy Statement
Table of Contents
Appendix A
As of June 30, 2014, total current liabilities exceeded total current assets by $243, and, as of June 30, 2013, total current assets exceeded total current liabilities by $286.$243. The year-over-year change was primarily attributable to $575 of current maturities of long-term debt, which matured in January 2015, partially offset by current maturities of long-term debt of $300 maturing in JanuaryNovember 2015. The Company anticipates that the debt repayment will be made with a combination of debt refinancing and the use of operating cash flows.
Operating Activities Net cash provided by continuing operations decreasedincreased to $771$858 in fiscal year 2015 from $786 in fiscal year 2014. The increase reflects the company’s fiscal year performance, including solid net sales growth and margin expansion. Other contributing factors include lower performance-based incentive payments related to the company's fiscal year 2014 performance and lower tax payments in the current period, as well as the initial funding of the company's 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 company's issuance of long-term debt in December 2014. Net cash provided by continuing operations increased to $786 in fiscal year 2014 from $777$780 in fiscal year 2013. The decreaseincrease was primarily due to favorable changes in working capital and higher earnings, partially offset by higher tax payments and the company’s funding of liabilities under certain nonqualified deferred compensation plans in fiscal year 2014, partially offset by favorable changes in working capital.2014. Net cash provided by continuing operations increased to $777 in fiscal year 2013 from $620 in fiscal year 2012. The increase was primarily due to favorable changes in working capital, driven by lower tax payments in fiscal year 2013 as a result of favorable tax settlements, the prior-year settlement of interest rate forward contracts; and higher earnings.
Investing Activities Capital expenditures were $138, $194$125, $137 and $192,$190, respectively, in fiscal years 2015, 2014 2013 and 2012.2013. Capital spending as a percentage of net sales was 2.5%2.2%, 3.5%2.5% and 3.5%3.4% for fiscal years 2015, 2014 and 2013, respectively. 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 2012, respectively.facility projects which meet growth, efficiency, replacement or compliance requirements. The decrease in fiscal year 2014 capital spending as a percentage of net sales was driven by prior-period investments in the Company’s Pleasanton, Calif., research and office facility and IT systems implementation in Latin America. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-11 |
Table of Contents In April 2015, a low-income housing partnership, in which the Company was a limited partner, sold its real estate holdings. The Company estimatesreal property sale resulted in $15 in cash proceeds from investing activities and a gain of $14 recorded to other income, net, on the consolidated statement of earnings for the year ended June 30, 2015. The sale is also expected to result in approximately $8 of cash income tax payments that will be paid in the first quarter of fiscal year 2015 capital spending will be approximately 3%2016 and reflected as operating activities in the condensed consolidated statement of net sales. Capital spending as a percentage of net sales remained flat in fiscal year 2013 compared to fiscal year 2012.cash flows for the three months ended September 30, 2015. In fiscal year 2013, the Company completed sale-leaseback transactions under which it sold its general office building in Oakland, Calif., and former Technical and Data Center in Pleasanton, Calif., to unrelated parties for combined net proceeds of $135. The Company entered into operating lease agreements with the respective buyers for portions of the buildings for up to 15 years, all of which contain renewal options. In December 2011, the Company acquired HealthLink, Aplicare, Inc.Free cash flow
| 2015 | | | 2014 | | | 2013 | | Net cash provided by continuing operations | $ | 858 | | | $ | 786 | | | $ | 780 | | Less: capital expenditures | | (125 | ) | | | (137 | ) | | | (190 | ) | Free cash flow | $ | 733 | | | $ | 649 | | | $ | 590 | | Free cash flow as a percentage of net sales | | 13.0% | | | | 11.8% | | | | 10.7% | |
Free cash flow as a percentage of net salesincreased in fiscal year 2015, primarily due to higher net cash provided by continuing operations and Soy Vay Enterprises, Inc., including each business’ workforce, for purchase prices aggregating $97, funded through commercial paper borrowings. Thelower capital expenditures. Free cash paidflow as a percentage of $93 represents the aggregate purchase prices less cash acquired. Results for HealthLink and Aplicare, Inc., providers of infection control products for the health care industry, are reflectednet sales increased in the Cleaning reportable segment. Results for Soy Vay Enterprises, Inc., a California-based operation that provides the Company a presence in the market for Asian sauces, are reflected in the Lifestyle reportable segment.fiscal year 2014, primarily due to lower capital expenditures. Financing Activities Capital Resources and Liquidity 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. Net cash used for financing activities was $592 in fiscal year 2014, as compared to $685 in fiscal year 2013. Net cash used for financing activities was higher in fiscal year 2013 due to repayment of company borrowings following the Company’s sale-leaseback transactions under which it sold its general office building in Oakland, Calif., and former Technical and Data Center in Pleasanton, Calif. This factor was partially offset by an increase in share repurchases and higher dividends paid in fiscal year 2014. Net cash used for financing activities was $685 in fiscal year 2013, as compared to $321 in fiscal year 2012. The change was primarily due to a reduction in total debt and higher dividends paid during fiscal year 2013, partially offset by fewer share repurchases and an increase in employee stock option exercises in fiscal year 2013.
Senior Notes and Credit Arrangements In January 2015, $575 of the Company’s senior notes with an annual fixed interest rate of 5.00% became due and were repaid using the net proceeds from the December 2014 debt issuance and commercial paper borrowings. In December 2014, 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 Company’s existing senior indebtedness. In March 2013, $500 in senior notes with an annual fixed interest rate of 5.00% became due and were repaid. The repayment was funded in part with commercial paper borrowings and in part with a portion of the proceeds from the sale-leaseback transaction of the Company’s Oakland, Calif., general office building. Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
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B-12 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B In October 2012, $350 in senior notes with an annual fixed interest rate of 5.45% became due and were repaid. The repayment was funded with a portion of the proceeds from the September 2012 issuance of $600 in senior notes with an annual fixed interest rate of 3.05%, payable semi-annually in March and September, and a maturity date of September 15, 2022. The remaining proceeds from the September 2012 issuance were used to repay commercial paper. In November 2011, the Company issued $300 in senior notes with an annual fixed interest rate of 3.80%, payable semi-annually in May and November, and a maturity date of November 15, 2021. Proceeds from the notes were used to repay commercial paper.
The senior notes issued in September 2012 and November 2011 rank equally and ratably in right of payment with all of the Company’s existing and future senior unsecured indebtedness and senior to any future subordinated unsecured indebtedness. These notes were issued under the Company’s shelf registration statement filed in November 2011 which allowsand rank equally with all of the Company to offer and sell an unlimited amount of itsCompany’s existing senior unsecured indebtedness from time to time and expires in November 2014.indebtedness. As of June 30, 2014,2015, the Company had a $1.1 billion$1,100 revolving credit agreement (the Credit Agreement), which expires in October 2019. The Credit Agreement replaced a prior $1,100 revolving credit agreement in place since May 2017.2012. There were no borrowings under the agreement,Credit Agreement as of June 30, 2015 or 2014, and the Company believes that borrowings under the revolving credit agreementCredit 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 (Adjusted(Consolidated EBITDA) for the trailing four quarters (Adjusted EBITDA(Consolidated Leverage ratio), as defined and described in the Company’s revolving credit agreement,Credit Agreement, of 3.50. The following table sets forth the calculation of the Adjusted EBITDAConsolidated Leverage ratio as of June 30, using AdjustedConsolidated EBITDA for the trailing four quarters, as contractually defined: | 2014 | | 2013 | | Earnings from continuing operations | $ | 562 | | $ | 574 | | Add back: | | | | | | | Interest expense | | 103 | | | 122 | | Income tax expense | | 299 | | | 279 | | Depreciation and amortization | | 180 | | | 182 | | Noncash intangible asset impairment charges | | 4 | | | — | | Deduct: | | | | | | | Interest income | | 3 | | | 3 | | Adjusted EBITDA | $ | 1,145 | | $ | 1,154 | | Total debt | $ | 2,313 | | $ | 2,372 | | Adjusted EBITDA ratio | | 2.02 | | | 2.06 | | | | | | | | |
| | 2015 | | | Earnings from continuing operations | $ | 606 | | | Add back: | | | | | Interest expense | | 100 | | | Income tax expense | | 315 | | | Depreciation and amortization | | 169 | | | Noncash intangible asset impairment charges | | 3 | | | Deduct: | | | | | Interest income | | 4 | | | Consolidated EBITDA | $ | 1,189 | | | Total debt | $ | 2,191 | | | Consolidated Leverage ratio | | 1.84 | | |
The Company is in compliance with all restrictive covenants and limitations in the credit agreement as of June 30, 2014,2015, 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. The Company had $44$29 of foreign and other credit lines as of June 30, 2014; $52015; $4 was outstanding and the remainder of $39$25 was available for borrowing. Based on the Company’s 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. Should the Company undertake other transactions requiring funds in excess of its current cash levels and available credit lines, it would consider the issuance A-14 THE CLOROX COMPANY - 2014 Proxy Statement
Table of Contents
Appendix A
of additional debt or other securities to finance acquisitions, repurchase shares, refinance debt or fund other activities for general business purposes. The Company’s 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: | 2014 | | 2013 | 2015 | | 2014 | | Short-term | | Long-term | | Short-term | | Long-term | Short-term | | Long-term | | Short-term | | Long-term | Standard and Poor’s | A-2 | | BBB+ | | A-2 | | BBB+ | A-2 | | BBB+ | | A-2 | | BBB+ | Moody’s | P-2 | | Baa1 | | P-2 | | Baa1 | P-2 | | Baa1 | | P-2 | | Baa1 |
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Table of Contents Share Repurchases and Dividend Payments On May 13, 2013, the Company’s board of directors terminated the share repurchase programs previously authorized on May 13, 2008, and May 18, 2011, and authorized a new share repurchase program for an aggregate purchase amount of up to $750. This open market share repurchase program is in addition to the Company’s evergreen repurchase program (Evergreen Program), the purpose of which is to offset the impact of stock dilution related to stock-based awards. The Evergreen Program 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: | 2014 | | 2013 | | 2012 | | 2015 | | 2014 | | 2013 | | | Amount | | Shares (000) | | Amount | | Shares (000) | | Amount | | Shares (000) | | Amount | | Shares (000) | | Amount | | Shares (000) | | Amount | | Shares (000) | | Open-market purchase programs | | $ | — | | — | | | $ | — | | — | | | $ | 158 | | 2,429 | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | Evergreen Program | | | 260 | | 3,046 | | | | 128 | | 1,500 | | | | 67 | | 990 | | | | 434 | | 4,016 | | | 260 | | 3,046 | | | 128 | | 1,500 | | Total | | $ | 260 | | 3,046 | | | $ | 128 | | 1,500 | | | $ | 225 | | 3,419 | | | $ | 434 | | 4,016 | | $ | 260 | | 3,046 | | | $ | 128 | | 1,500 | | | | | | | | | | | | | | | | |
During fiscal years 2015, 2014 2013 and 2012,2013, the Company declared dividends per share of $2.99, $2.87 $2.63 and $2.44,$2.63, respectively. During fiscal years 2015, 2014 2013 and 2012,2013, the Company paid dividends per share of $2.96, $2.84 $2.56 and $2.40,$2.56, respectively, equivalent to $385, $368 and $335, and $315, respectively. Contractual Obligations The Company had contractual obligations as of June 30, 2014,2015, payable or maturing in the following fiscal years: | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | Thereafter | | Total | | Long-term debt maturities including interest payments (See Note 8) | | $ | 668 | | $ | 359 | | $ | 54 | | $ | 442 | | $ | 30 | | | $ | 993 | | $ | 2,546 | | Notes and loans payable (See Note 8) | | | 143 | | | — | | | — | | | — | | | — | | | | — | | | 143 | | Purchase obligations(1) | | | 246 | | | 87 | | | 65 | | | 51 | | | 33 | | | | 7 | | | 489 | | Operating leases (See Note 15) | | | 47 | | | 45 | | | 41 | | | 37 | | | 32 | | | | 127 | | | 329 | | Payments related to nonqualified postretirement plans(2) | | | 17 | | | 17 | | | 19 | | | 19 | | | 16 | | | | 72 | | | 160 | | Venture Agreement terminal obligation | | | | | | | | | | | | | | | | | | | | | | | | (See Note 10) | | | — | | | — | | | — | | | — | | | — | | | | 290 | | | 290 | | Total | | $ | 1,121 | | $ | 508 | | $ | 179 | | $ | 549 | | $ | 111 | | | $ | 1,489 | | $ | 3,957 | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | Thereafter | | Total | | Long-term debt maturities including interest payments | $ | 377 | | $ | 72 | | $ | 460 | | $ | 48 | | $ | 47 | | | $ | 1,542 | | $ | 2,546 | | Notes and loans payable | | 95 | | | — | | | — | | | — | | | — | | | | — | | | 95 | | Purchase obligations(1) | | 176 | | | 57 | | | 37 | | | 30 | | | 7 | | | | — | | | 307 | | Capital leases | | 3 | | | 3 | | | 2 | | | 1 | | | — | | | | — | | | 9 | | Operating leases | | 50 | | | 46 | | | 42 | | | 34 | | | 29 | | | | 100 | | | 301 | | Payments related to nonqualified postretirement plans(2) | 20 | | | 21 | | | 21 | | | 17 | | | 18 | | | | 75 | | | 172 | | Venture Agreement net terminal obligation(3) | | — | | | — | | | — | | | — | | | — | | | | 294 | | | 294 | | Total | $ | 721 | | $ | 199 | | $ | 562 | | $ | 130 | | $ | 101 | | | $ | 2,011 | | $ | 3,724 | | | (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 Company’s purchase obligations include contracts to purchase raw materials, commitments to contract manufacturers, commitments for information technology and related services, advertising contracts, utility agreements, capital expenditure agreements, software acquisition and license commitments and service contracts. Approximately 17% of the Company’s purchase obligations relate to service contracts for information technology that have been outsourced. 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 Company’s 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) | Represents expected payments through 2024.2025. Based on the accounting rules for retirement and postretirement benefit plans, the liabilities reflected in the Company’s consolidated balance sheets differ from these expected future payments (see Note 18 of the Notes to Consolidated Financial Statements). |
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| A-15This amount represents the net liability related to the Company’s venture agreement with The Procter and Gamble Company (P&G), as further described in the Notes to Consolidated Financial Statements. Upon termination of the agreement, the Company will purchase P&G’s interest for cash at fair value. As such, the amount of the ultimate settlement of the agreement, which could be impacted by a number of factors including the estimated value of the Glad business at the time of termination, could differ from the current carrying value of the obligation. |
B-14 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B As of June 30, 2014,2015, the liability recorded for uncertain tax positions, excluding associated interest and penalties, was approximately $71. In$38. During the twelve months succeedingfiscal year ended June 30, 2014, it is reasonably possible that up to $302015, $32 of othergross unrecognized tax benefits may be recognized.relating to other discontinued operations for periods prior to fiscal year 2015 were recognized upon the expiration of the applicable statute of limitations. Recognition of these previously disclosed tax benefits had no impact on the Company’s cash flow or earnings from continuing operations for the fiscal years ended June 30, 2015, 2014 and 2013. Since audit outcomes and the ultimate amount and timing of further cashaudit settlements cannot be predicted dueare subject to the high degree ofsignificant uncertainty, liabilities for uncertain tax positions are excluded from the contractual obligations table (see Note 17 of the Notes to Consolidated Financial Statements). 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 Company’s consolidated financial statements taken as a whole. The Company had not recorded any liabilities on the aforementioned guaranteesindemnifications as of June 30, 20142015 and 2013.2014. As of June 30, 2014,2015, the Company was a party to letters of credit of $12,$11, primarily related to one of its insurance carriers, of which $0 had been drawn upon. CONTINGENCIES The Company is involved in certain environmental matters, including response actions at various locations. The Company had a recorded liability of $14$12 and $13$14 as of June 30, 20142015 and 2013,2014, 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, 20142015 and 2013.2014. 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 Company’s 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 Company’s exposure may exceed the amount recorded, any amount of such additional exposures, or range of exposures, is not estimable at this time. In October 2012, a Brazilian appellate court issued an adverse decision in a lawsuit pending in Brazil against the Company and one of its wholly owned subsidiaries, The Glad Products Company (Glad). The lawsuit, which was initially filed in a Brazilian lower court in 2002 by two Brazilian companies and one Uruguayan company (collectively, Petroplus) related, relates to joint venture agreements for the distribution of STP auto-care products in Brazil with three companies that became subsidiaries of the Company as a result of the Company’s merger with First Brands Corporation in January 1999 (collectively, Clorox Subsidiaries). The pending lawsuit seeks indemnification for damages and losses for alleged breaches of the joint venture agreements and abuse of economic power by the Company and Glad. Petroplus had previously unsuccessfully raised the same claims and sought damages from the Company and the Clorox Subsidiaries in an International Chamber of Commerce (ICC) arbitration proceeding in Miami, Florida, filed in 2001. The ICC arbitration panel unanimously ruled against Petroplus in a final decision in November 2003 (Final ICC Arbitration Award). The Final ICC Arbitration Award was ratified by the Superior Court of Justice of Brazil in May 2007 (Foreign Judgment), and the United States District Court for the Southern District of Florida subsequently confirmed the Final ICC Arbitration Award and recognized and adopted the Foreign Judgment as a judgment of the United States District Court for the Southern District of Florida (U.S. Judgment). Despite this, in March 2008, a Brazilian lower court ruled against the Company and Glad in the pending lawsuit and awarded Petroplus R$23 ($13) plus interest.lawsuit. The value of thatthe judgment against the Company, including interest and foreign exchange fluctuations as of June 30, 2014,2015, was approximately $39.$32. A-16 THE CLOROX COMPANY - 2014Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-15 |
Table of Contents Appendix A
Among other defenses, because the Final ICC Arbitration Award, the Foreign Judgment and the U.S. Judgment relate to the same claims as those in the pending lawsuit, the Company believes that Petroplus is precluded from re-litigating these claims. Based on the unfavorable appellate court decision, however, the Company believes that it is reasonably possible that a loss could be incurred in this matter in excess of amounts accrued, and that the estimated range of such loss in this matter is from $0 to $33. $26. The Company continues to believe that its defenses are meritorious, and has appealed the decision to the highest courts of Brazil. In December 2013, in the first stage of the appellate process, in December 2013, the appellate court declined to admit the Company’s appeals to the highest courts. The Company then appealed directly to the highest courts andcourts. While in May 2014 the SupremeSuperior Court of Justice originally agreed to consider the Company’s appeal.appeal, in December 2014 the same court declined to admit the appeal based on procedural grounds. The Company successfully appealed that decision and the court agreed to admit the appeal in March 2015. The appeal is currently pending and it is possible that a final decision in this case could be issued as early as the first quarter of fiscal year 2016. Expenses related to this litigation have been, and any potential additional loss would be, reflected in discontinued operations, consistent with the Company’s classification of expenses related to its discontinued Brazil operations. In a separate action filed in 2004 by Petroplus, in January 2013, a lower Brazilian court in January 2013 nullified the Final ICC Arbitration Award. The Company believes this judgment is inconsistent with the Foreign Judgment and the U.S. Judgment and that it is without merit. The Company appealed this decision, and the lower court decision was overturned by the appellate court in April 2014. Petroplus has appealed this decision to Brazil’s highest court. Glad and the Clorox Subsidiaries have also filed separate lawsuits against Petroplus alleging misuse of the STP trademark and related matters, which are currently pending before Brazilian courts, and have taken other legal actions against Petroplus, which are pending. Additionally, in November 2013, the Clorox Subsidiaries initiated a new ICC arbitration seeking damages against Petroplus. The Company is subject to various other lawsuits, claims and other loss contingencies relating to issues such as contract disputes, product liability, patents and trademarks, advertising, andcommercial, administrative, employee and other matters. Based on management’s analysis, it is the opinion of management that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on the Company’s consolidated financial statements taken as a whole. 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 Company’s 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 Company’s 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 20142015 and 2013,2014, the Company’s 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 B-16 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B 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. 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, 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, 2015, 2014 2013 Continues on next page4 | | | | THE CLOROX COMPANY- 2014 Proxy Statement
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and 2012,2013, 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 other expense (income),income, net. Foreign Currency Risk The Company seeks to minimize the impact of certain foreign currency fluctuations by hedging transactional exposures with foreign currency forward contracts. As of June 30, 20142015 and 2013,2014, the Company’s foreign currency transactional exposures pertaining to derivative contracts existed with the Canadian, Australian and New Zealand dollars. Based on a hypothetical decrease of 10% in the value of the U.S. dollar against the Canadian, Australian and New Zealand dollars as of June 30, 2015, the estimated fair value of the Company’s then-existing foreign currency derivative contracts would decrease by $12. Based on a hypothetical increase of 10% in the value of the U.S. dollar against the Canadian, Australian and New Zealand dollars as of June 30, 2015, the estimated fair value of the Company’s then-existing foreign currency derivative contracts would increase by $10. Based on a hypothetical decrease of 10% in the value of the U.S. dollar against the Canadian, Australian and New Zealand dollars as of June 30, 2014, the estimated fair value of the Company’s then-existing foreign currency derivative contracts would decrease by $10. Based on a hypothetical increase of 10% in the value of the U.S. dollar against the Canadian, Australian and New Zealand dollars as of June 30, 2014, the estimated fair value of the Company’s then-existing foreign currency derivative contracts would increase by $8. Based on a hypothetical decrease or increase of 10% in the value of the U.S. dollar against the Canadian, Australian and New Zealand dollars as of June 30, 2013, the estimated fair value of the Company’s then-existing foreign currency derivative contracts would decrease or increase by $4, with the corresponding impact included in accumulated other comprehensive net losses or other expense (income), net, as appropriate. 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 20142015 and 2013,2014, the Company’s raw materials exposures pertaining to derivative contracts existed with jet fuel, soybean oil and crude oil. Based on a hypothetical decrease or increase of 10% in these commodity prices as of June 30, 2014,2015, and June 30, 2013,2014, the estimated fair value of the Company’s then-existing commodity derivative contracts would decrease or increase by $4 and $5, respectively,in both fiscal years, with the corresponding impact included in accumulated other comprehensive net losses.income. Interest Rate Risk The Company is exposed to interest rate volatility with regard to existing and anticipated future issuances of debt. Primary exposures related to existing debt include movements in U.S. commercial paper rates. Weighted average interest rates for commercial paper have been less than 1% during fiscal years 20142015 and 2013.2014. Assuming average variable rate debt levels during fiscal years 20142015 and 2013,2014, a 100 basis point increase in interest rates would increase interest expense from commercial paper by approximately $3$1 and $2,$3, respectively. Assuming average variable rate debt levels in fiscal years 20142015 and 2013,2014, a decrease in interest rates to zero percent would decrease interest expense from commercial paper by $1 in both fiscal years. 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 20142015 and 2013. Based on a hypothetical decrease or increase of 100 basis points on the underlying U.S. Treasury rates as of June 30, 2014, the estimated fair value of the Company’s then-existing interest rate derivative contracts would have decreased or increased by $25, with the corresponding impact included in accumulated other comprehensive net losses.2014. The Company had no outstanding interest rate forward contracts as of June 30, 2013.2015. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (FASB) issued an update to current accounting standards, which establishes a single, comprehensive revenue recognition model for all contracts with customers, and will supersede most current revenue recognition guidance. It requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
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Table of Contents Appendix ARECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
entitledA summary of recently issued accounting pronouncements is contained in exchange for those goods or services. The amendments are effective for the Company beginning in the first quarterNote 1 of fiscal year 2018. Early adoption is not permitted. The Company is currently in the process of evaluating the impact of the adoption of these requirements on its consolidated financial statements.
In April 2014, the FASB issued an updateNotes to current accounting standards, which will change the criteria for reporting discontinued operations. The amendments will also require new disclosures about discontinued operations and disposals of components of an entity that do not qualify for discontinued operations reporting. The amendments are effective for the Company for new disposals (or classifications as held for sale) of components of the Company, should they occur, beginning in the first quarter of fiscal year 2016. Early adoption is permitted for disposals (or classifications as held for sale) that have not been previously reported.Consolidated Financial Statements.
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 management’s 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 are those that are most important to the portrayal of the Company’s 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 Company’s most critical accounting policies are:are related to: revenue recognition; valuation of intangible assets and property, plant and equipment; employee benefits, including estimates related to stock-based compensation; and income taxes. The Company’s critical accounting policies have been reviewed with the Audit Committee of the Board of Directors. A summary of the Company’s significant accounting policies is contained in Note 1 of the 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 returns, trade promotions, coupons 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 Company’s 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 Company’s estimated costs of trade promotions incorporate historical sales and spending trends by customer and category. The determination of these estimated costs 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 Company’s results of operations and trade spending accruals depending on how actual results of the programs compare to original estimates. If the Company’s trade spending accrual estimates as of June 30, 2014,2015 were to differ by 10%, the impact on net sales would be approximately $10.$11. Valuation of Intangible Assets and Property, Plant and Equipment 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 2013,2014, the Company’s 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), previously referred to as Rest of World. These reporting units are components of the Company’s 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 Continues on next page4 | | | | THE CLOROX COMPANY- 2014 Proxy Statement
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of impairment were identified during the fiscal year 20142015 annual impairment review and all of the Company’s reporting units had fair values that significantly 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. B-18 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B In its evaluation of goodwill impairment, the Company performs either an initialhas the option to first assess qualitative or quantitative evaluation for each of its reporting units. Factors considered in the qualitative test includefactors such as maturity and stability of the reporting unit, magnitude of excess fair value over book value from pastthe prior year’s 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. IfIn all instances, the estimated fair value exceeded the carrying value of the reporting unit. Had the estimated fair value of any reporting unit isbeen less than its carrying value, the Company performswould have performed a second step to determine the implied fair value of the reporting unit’s goodwill. If the carrying amount of a reporting unit’s goodwill exceedshad exceeded its implied fair value, an impairment charge iswould have been recorded for the difference between the carrying amount and the implied fair value of the reporting unit’s goodwill. To determine the fair value of a reporting unit as part of its quantitative test, the Company uses a discounted cash flow (DCF) approach, as it believes that this approach is the most reliable indicator of the fair value of its businesses and the fair value of their future earnings and cash flows. Under this approach, the Company estimates the future cash flows of each reporting unit and discounts these cash flows at a rate of return that reflects their relative risk. The cash flows used in the DCF are consistent with those the Company’s three-year long-range plan,Company uses in its internal planning, which is presented to the Board and 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 anthe income approach the relief-from-royalty method, to estimate the fair value of its trademarks and other intangible assets with indefinite lives. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. The determination of the fair values of trademarks and other intangible assets with indefinite livesapproach requires significant judgments in determining both the assets’ estimated cash flows as well as the appropriate discount and royaltyforeign exchange rates applied to those cash flows to determine fair value. Changes in such estimates or the applicationuse of alternative assumptions could produce different results. There were no instances of impairment identified during fiscal years 2013 or 2012. However, asAs a result of the effective devaluation of the Venezuelan currency in the third quarter of fiscal year 2014, the Company assessed whether recorded values of intangible assets attributable to theClorox Venezuela subsidiary and goodwill of the reporting unit, which included Venezuela, were impaired. As a result of its assessment, the Company identified indications of impairment and recorded noncash tax deductible impairment charges on trademark values totaling $4. The Company used the relief-from-royalty methodincome approach to estimate the fair value of the trademarks. The $4 impairment charge was reflected in other expense (income), net, in the International reportable segment. See “segment, of which $3 relates to continuing operations and is reflected in other income, net and $1 relates to trademarks held on the books of Clorox Venezuela” above for additional information. and is reflected in earnings from discontinued operations, net. Based on the results of the annual impairment test performed in the fourth quarter of fiscal year 2014,2015, there were no additional indications of impairment of assets in Venezuela. There were no instances of impairment identified during fiscal years 2013.
Property, Plant and Equipment and Finite-Lived Intangible Assets Property, plant and equipment and 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 Company’s 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 conducts quarterly reviews of idle and A-20 THE CLOROX COMPANY - 2014 Proxy Statement
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Appendix A
underutilized equipment, and 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 asset’s book 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. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-19 |
Table of Contents Employee Benefits The Company’s critical accounting policies in this area relate to its stock-based compensation and retirement income programs. 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 20142015 were $36$32 and $13,$12, respectively. As of June 30, 2014,2015, there was $37$34 of unrecognized compensation costs related to non-vested stock options, restricted stock and performance unit awards, which isare 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. During fiscal year 2014, adjustments related to forfeitures totaled $2. 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 Company’s stock at the date of grant, historical implied volatility of the Company’s publicly traded options and other factors. If the Company’s assumption for the volatility rate is increased by one percentage point, the fair value of options granted in fiscal year 20142015 would have increased by $1. The expected life of the stock options is based on observed historical exercise patterns. If the Company’s assumption for the expected life is increased by one year, the fair value of options granted in fiscal year 20142015 would have increased by less than $1. The Company’s performance unit grants provide for the issuance of common stock to certain managerial staff and executive management if the Company achieves specified performance targets. The 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 management’s 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% 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 on plan assets assumption is based on an analysis of historical returns for similar classesexperience of assetsthe portfolio and the summation of prospective returns for each asset class andin proportion to the fund’s current asset allocation. The rate is a summation of the estimated return of each asset class weighted by each class’ proportion to the total plan assets. 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 2014,2015, the Company used a beginning-of-year discount rate assumption of 4.4%4.0% and a long-term rate of return on plan assets Continues on next page4 | | | | THE CLOROX COMPANY- 2014 Proxy Statement
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assumption of 6.7%5.3%. 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, 2014,2015, a decrease of 100 basis points in the discount rate would increase pension liability by approximately $55,$39, and decrease fiscal year 20142015 pension expense by less than $1. A 100 basis point decrease in the long-term rate of return on plan assets would increase fiscal year 20142015 pension expense by $3.$4. At the end of fiscal year 2014,2015, the long-term B-20 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B rate of return is assumed to be 5.3%4.3% for the domestic plan assets. This change is a result of the change in the plan’s target investment allocation. The Company also has defined benefit pension plans for eligible international employees, including Canadian and Australian employees, and different assumptions are used in the determination of pension expense for those plans, as appropriate. Refer to Note 18 of theSee Notes to Consolidated Financial Statements for further discussion of pension and other retirement plan obligations. Income Taxes The Company’s 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 Company’s effective tax rate and in evaluating its tax positions. The Company maintains valuation allowances wherewhen 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 Company’s 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 Company’s 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. 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 Company’s determination may be warranted based on the Company’s experience as well as plans regarding future international operations and expected remittances. Changes in the Company’s 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 flowis calculated as net cash provided by continuing operations less capital expenditures.expenditures related to continuing operations. The Company’s management uses this measure andfree 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. A-22 THE CLOROX COMPANY - 2014 Proxy Statement
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Appendix A
EBITrepresents earnings from continuing operations before income taxes, interest income and interest expense.EBIT marginis the ratio of EBIT to net sales. The company's management believes these measures provide useful additional information to investors about trends in the company's operations and are useful for period-over-period comparisons. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-21 |
Table of Contents Currency-neutral net sales growthrepresents U.S. GAAP net sales growth excluding the impact of foreign currency exchange rates. The Company’s management believes these measures provide useful additional information to investors about trends in the Company’s core business operations. The following table presents thecurrency-neutral net sales growthreconciliation for fiscal year 2014:2015: | | 20142015 | | | Net sales growth – GAAP | (0.6 | ) | 3 | % | | | Less: foreign exchange impact | | | (2.42 | ) | | | Non-GAAP Currency-neutral net sales growth (currency-neutral)– non-GAAP | 1.8 | | 5 | % | | | | | | | |
Economic profit (EP)is defined by the Company as earnings from continuing operations before income taxes, excluding noncash restructuring-relatedU.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 the weighted-average cost of capital. EP is a key financial metric the Company’s management uses to evaluate business performance and allocate resources, and is a component in determining management’s incentive compensation. The Company’s 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 for the fiscal year ended June 30, 2014 (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, matters discussed below, including 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 management’s estimates, assumptions and projections. Words such as “will,” “could,” “may,” “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and variations on such words, and similar expressions that reflect our current views with respect to future events 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 below. Important factors that could affect performance and cause results to differ materially from management’s expectations are described in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report, as updated from time to time in the Company’s Securities and Exchange Commission filings. These factors include, but are not limited to: 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 unrest and inflationary pressures, particularly in Venezuela, as well as Argentina and other challenging markets;risks related to the possibility of nationalization, expropriation of assets or other government action in foreign jurisdictions, particularly in Venezuela and Argentina;● | intense competition in the Company’s markets;worldwide, regional and local economic conditions and financial market volatility;volatility and increases in commodity costs such as resin, sodium hypochlorite and agricultural commodities, and increases in energy, transportation or other costs;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;dependence on key customers and risks related to customer consolidation and ordering patterns;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;supply disruptions and other risks inherent in reliance on a limited base of suppliers;the ability of the Company to implement and generate anticipated cost savings and efficiencies;Continues on next page4 | | ● | worldwide, regional and local economic conditions and financial market volatility; | THE CLOROX COMPANY - 2014 Proxy Statement ● | A-23the ability of the Company to drive sales growth, increase price and market share, grow its product categories and achieve favorable product and geographic mix; | ● | 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; | ● | risks related to the possibility of nationalization, expropriation of assets or other government action in foreign jurisdictions; | ● | risks related to the Company’s discontinuation of operations in Venezuela; | ● | volatility and increases in commodity costs such as resin, sodium hypochlorite and agricultural commodities, and increases in energy, transportation or other costs; | ● | supply disruptions and other risks inherent in reliance on a limited base of suppliers; | ● | the ability of the Company to develop and introduce commercially successful products; | ● | dependence on key customers and risks related to customer consolidation and ordering patterns; | ● | 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; |
B-22 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents the success of the Company’s business strategies;the impact of product liability claims and other legal proceedings, including in foreign jurisdictions and the Company’s litigation related to its discontinued operations in Brazil;the ability of the Company to develop and introduce commercially successful products;risks relating to acquisitions, new ventures and divestitures, and associated costs, including the potential for asset impairment charges, including intangible assets and goodwill;risks related to reliance on information technology systems, including potential security breaches, cyber attacks or privacy breaches that result in the unauthorized disclosure of consumer, customer, employee or Company information, or service interruptions;the Company’s ability to attract and retain key personnel;the Company’s 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 Company’s control;the Company’s ability to maximize, assert and defend its intellectual property rights;any infringement or claimed infringement by the Company of third-party intellectual property rights;the effect of the Company’s indebtedness and credit rating on its operations and financial results;the Company’s ability to maintain an effective system of internal controls;uncertainties relating to tax positions, tax disputes and changes in the Company’s tax rate;the accuracy of the Company’s estimates and assumptions on which its financial statement projections are based;the Company’s ability to pay and declare dividends or repurchase its stock in the future; andthe impacts of potential stockholder activism.
Appendix B ● | risks related to reliance on information technology systems, including potential security breaches, cyber-attacks or privacy breaches that result in the unauthorized disclosure of consumer, customer, employee or Company information, or service interruptions; | ● | 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 success of the Company’s business strategies; | ● | the ability of the Company to implement and generate anticipated cost savings and efficiencies; | ● | the impact of product liability claims, labor claims and other legal proceedings, including in foreign jurisdictions and the Company’s litigation related to its discontinued operations in Brazil; | ● | the Company’s ability to attract and retain key personnel; | ● | the Company’s 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 Company’s control; | ● | the Company’s ability to maximize, assert and defend its intellectual property rights; | ● | any infringement or claimed infringement by the Company of third-party intellectual property rights; | ● | the effect of the Company’s indebtedness and credit rating on its operations and financial results; | ● | the Company’s ability to maintain an effective system of internal controls; | ● | uncertainties relating to tax positions, tax disputes and changes in the Company’s tax rate; | ● | the accuracy of the Company’s estimates and assumptions on which its financial statement projections are based; | ● | the Company’s ability to pay and declare dividends or repurchase its stock in the future; and | ● | the impacts of potential stockholder activism. |
The Company’s forward-looking statements in this Report are based on management’s 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. MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s 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 Company’s financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. A company’s 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 company’s 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. Management evaluated the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated Framework published in 1992.2013. Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting at June 30, 2014,2015, and concluded that it is effective. The Company’s independent registered public accounting firm, Ernst & Young LLP, has audited the effectiveness of the Company’s internal control over financial reporting as of June 30, 2014.2015. A-24 THE CLOROX COMPANY - 2014Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-23 |
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, 20142015 and 2013,2014, 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, 2014.2015. Our audits also included the financial statement schedule in Exhibit 99.2. These financial statements and schedule are the responsibility of the Company’s 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, 20142015 and 2013,2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2014,2015, 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 Company’s internal control over financial reporting as of June 30, 2014,2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework) and our report dated August 25, 201421, 2015 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP San Francisco, CA August 25, 201421, 2015 Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
| A-25 |
B-24 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders of The Clorox Company We have audited The Clorox Company’s internal control over financial reporting as of June 30, 2014,2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 framework) (the COSO criteria). The Clorox Company’s 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 Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s 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 company’s 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 company’s 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 company’s 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. In our opinion, The Clorox Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2014,2015, based on the COSO criteria (1992(2013 framework). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Clorox Companyas of June 30, 20142015 and 2013,2014, 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, 20142015 of The Clorox Company and our report dated August 25, 201421, 2015 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP San Francisco, CA August 25, 2014 A-26 THE CLOROX COMPANY - 2014 Proxy Statement
Table of Contents
Appendix A
CONSOLIDATED STATEMENTS OF EARNINGS
The Clorox Company
| Years ended June 30 Dollars in millions, except per share amounts | 2014 | | 2013 | | 2012 | | | Net sales | $ | 5,591 | | $ | 5,623 | | $ | 5,468 | | | Cost of products sold | | 3,231 | | | 3,211 | | | 3,164 | | | Gross profit | | 2,360 | | | 2,412 | | | 2,304 | | | | | Selling and administrative expenses | | 765 | | | 807 | | | 798 | | | Advertising costs | | 504 | | | 500 | | | 482 | | | Research and development costs | | 125 | | | 130 | | | 121 | | | Interest expense | | 103 | | | 122 | | | 125 | | | Other expense (income), net | | 2 | | | — | | | (13 | ) | | Earnings from continuing operations before income taxes | | 861 | | | 853 | | | 791 | | | Income taxes on continuing operations | | 299 | | | 279 | | | 248 | | | Earnings from continuing operations | | 562 | | | 574 | | | 543 | | | Losses from discontinued operations, net of tax | | (4 | ) | | (2 | ) | | (2 | ) | | Net earnings | $ | 558 | | $ | 572 | | $ | 541 | | | | | Net earnings (losses) per share | | | | | | | | | | | Basic | | | | | | | | | | | Continuing operations | $ | 4.34 | | $ | 4.38 | | $ | 4.15 | | | Discontinued operations | | (0.03 | ) | | (0.01 | ) | | (0.01 | ) | | Basic net earnings per share | $ | 4.31 | | $ | 4.37 | | $ | 4.14 | | | | | Diluted | | | | | | | | | | | Continuing operations | $ | 4.26 | | $ | 4.31 | | $ | 4.10 | | | Discontinued operations | | (0.03 | ) | | (0.01 | ) | | (0.01 | ) | | Diluted net earnings per share | $ | 4.23 | | $ | 4.30 | | $ | 4.09 | | | Weighted average shares outstanding (in thousands) | | | | | | | | | | | Basic | | 129,558 | | | 131,075 | | | 130,852 | | | Diluted | | 131,742 | | | 132,969 | | | 132,310 | |
See Notes to Consolidated Financial Statements21, 2015
Continues on next page4► | | | | THE CLOROX COMPANY- 20142015 Proxy Statement | A-27B-25 |
Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEEARNINGS The Clorox Company | Years ended June 30 Dollars in millions | 2014 | | | 2013 | | | 2012 | | | | Net earnings | $ | 558 | | | $ | 572 | | | $ | 541 | | | | Other comprehensive (losses) income: | | | | | | | | | | | | | | Foreign currency translation adjustments, net of tax expense of $11, benefit of $5 and benefit | | | | | | | | | | | | | | of $1, respectively | | (37 | ) | | | (11 | ) | | | (41 | ) | | | Net unrealized (losses) gains on derivatives, net of tax benefit of $6, expense of $1 and benefit of $4, | | | | | | | | | | | | | | respectively | | (9 | ) | | | 3 | | | | (37 | ) | | | Pension and postretirement benefit adjustments, net of tax benefit of $4, expense of $22 and benefit | | | | | | | | | | | | | | of $37, respectively | | (4 | ) | | | 37 | | | | (68 | ) | | | Total other comprehensive (losses) income, net of tax | | (50 | ) | | | 29 | | | | (146 | ) | | | Comprehensive income | $ | 508 | | | $ | 601 | | | $ | 395 | | | | | | | | | | | | | | | | |
| Years ended June 30 Dollars in millions, except per share amounts | | 2015 | | | 2014 | | | 2013 | | | | Net sales | | $ | 5,655 | | | $ | 5,514 | | | $ | 5,533 | | | | Cost of products sold | | | 3,190 | | | | 3,158 | | | | 3,142 | | | | Gross profit | | | 2,465 | | | | 2,356 | | | | 2,391 | | | | | | | Selling and administrative expenses | | | 798 | | | | 751 | | | | 793 | | | | Advertising costs | | | 523 | | | | 503 | | | | 498 | | | | Research and development costs | | | 136 | | | | 125 | | | | 130 | | | | Interest expense | | | 100 | | | | 103 | | | | 122 | | | | Other income, net | | | (13 | ) | | | (10 | ) | | | (4 | ) | | | Earnings from continuing operations before income taxes | | | 921 | | | | 884 | | | | 852 | | | | Income taxes on continuing operations | | | 315 | | | | 305 | | | | 279 | | | | Earnings from continuing operations | | | 606 | | | | 579 | | | | 573 | | | | Losses from discontinued operations, net of tax | | | (26 | ) | | | (21 | ) | | | (1 | ) | | | Net earnings | | $ | 580 | | | $ | 558 | | | $ | 572 | | | | | | | Net earnings (losses) per share | | | | | | | | | | | | | | | Basic | | | | | | | | | | | | | | | Continuing operations | | $ | 4.65 | | | $ | 4.47 | | | $ | 4.37 | | | | Discontinued operations | | | (0.20 | ) | | | (0.16 | ) | | | — | | | | Basic net earnings per share | | $ | 4.45 | | | $ | 4.31 | | | $ | 4.37 | | | | | | | Diluted | | | | | | | | | | | | | | | Continuing operations | | $ | 4.57 | | | $ | 4.39 | | | $ | 4.31 | | | | Discontinued operations | | | (0.20 | ) | | | (0.16 | ) | | | (0.01 | ) | | | Diluted net earnings per share | | $ | 4.37 | | | $ | 4.23 | | | $ | 4.30 | | | | | | | Weighted average shares outstanding (in thousands) | | | | | | | | | | | | | | | Basic | | | 130,310 | | | | 129,558 | | | | 131,075 | | | | Diluted | | | 132,776 | | | | 131,742 | | | | 132,969 | | |
See Notes to Consolidated Financial Statements A-28B-26 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents Appendix AB CONSOLIDATED BALANCE SHEETS STATEMENTS OF COMPREHENSIVE INCOME The Clorox Company | As of June 30 Dollars in millions, except per share amounts | 2014 | | 2013 | | | ASSETS | | | | | | | | Current assets | | | | | | | | Cash and cash equivalents | $ | 329 | | $ | 299 | | | Receivables, net | | 546 | | | 580 | | | Inventories, net | | 386 | | | 394 | | | Other current assets | | 134 | | | 147 | | | Total current assets | | 1,395 | | | 1,420 | | | Property, plant and equipment, net | | 977 | | | 1,021 | | | Goodwill | | 1,101 | | | 1,105 | | | Trademarks, net | | 547 | | | 553 | | | Other intangible assets, net | | 64 | | | 74 | | | Other assets | | 174 | | | 138 | | | Total assets | $ | 4,258 | | $ | 4,311 | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | Current liabilities | | | | | | | | Notes and loans payable | $ | 143 | | $ | 202 | | | Current maturities of long-term debt | | 575 | | | — | | | Accounts payable | | 440 | | | 413 | | | Accrued liabilities | | 472 | | | 490 | | | Income taxes payable | | 8 | | | 29 | | | Total current liabilities | | 1,638 | | | 1,134 | | | Long-term debt | | 1,595 | | | 2,170 | | | Other liabilities | | 768 | | | 742 | | | Deferred income taxes | | 103 | | | 119 | | | Total liabilities | | 4,104 | | | 4,165 | | | 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 at June 30, 2014 and 2013; and 128,796,228 and 130,366,911 | | | | | | | | shares outstanding at June 30, 2014 and 2013, respectively | | 159 | | | 159 | | | Additional paid-in capital | | 709 | | | 661 | | | Retained earnings | | 1,739 | | | 1,561 | | | Treasury shares, at cost: 29,945,233 and 28,374,550 shares | | | | | | | | at June 30, 2014 and 2013, respectively | | (2,036 | ) | | (1,868 | ) | | Accumulated other comprehensive net loss | | (417 | ) | | (367 | ) | | Stockholders’ equity | | 154 | | | 146 | | | Total liabilities and stockholders’ equity | $ | 4,258 | | $ | 4,311 | | | | | | | | | |
| Years ended June 30 Dollars in millions | | 2015 | | | 2014 | | | 2013 | | | | Earnings from continuing operations | | $ | 606 | | | $ | 579 | | | $ | 573 | | | | Losses from discontinued operations, net of tax | | | (26 | ) | | | (21 | ) | | | (1 | ) | | | Net earnings | | | 580 | | | | 558 | | | | 572 | | | | Other comprehensive (losses) income: | | | | | | | | | | | | | | | Foreign currency adjustments, net of tax | | | (54 | ) | | | (37 | ) | | | (11 | ) | | | Net unrealized (losses) gains on derivatives, net of tax | | | (14 | ) | | | (9 | ) | | | 3 | | | | Pension and postretirement benefit adjustments, net of tax | | | (17 | ) | | | (4 | ) | | | 37 | | | | Total other comprehensive (losses) income, net of tax | | | (85 | ) | | | (50 | ) | | | 29 | | | | Comprehensive income | | $ | 495 | | | $ | 508 | | | $ | 601 | | | | | | | | | | | | | | | | | |
See Notes to Consolidated Financial Statements Continues on next page4► | | | | THE CLOROX COMPANY - 20142015 Proxy Statement | A-29B-27 |
Table of Contents CONSOLIDATED BALANCE SHEETS The Clorox Company | As of June 30 Dollars in millions, except per share amounts | 2015 | | | 2014 | | | | ASSETS | | | | | | | | | | Current assets | | | | | | | | | | Cash and cash equivalents | $ | 382 | | | $ | 329 | | | | Receivables, net | | 519 | | | | 546 | | | | Inventories, net | | 385 | | | | 386 | | | | Other current assets | | 143 | | | | 134 | | | | Total current assets | | 1,429 | | | | 1,395 | | | | Property, plant and equipment, net | | 918 | | | | 977 | | | | Goodwill | | 1,067 | | | | 1,101 | | | | Trademarks, net | | 535 | | | | 547 | | | | Other intangible assets, net | | 50 | | | | 64 | | | | Other assets | | 165 | | | | 174 | | | | Total assets | $ | 4,164 | | | $ | 4,258 | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | Current liabilities | | | | | | | | | | Notes and loans payable | $ | 95 | | | $ | 143 | | | | Current maturities of long-term debt | | 300 | | | | 575 | | | | Accounts payable | | 431 | | | | 440 | | | | Accrued liabilities | | 548 | | | | 472 | | | | Income taxes payable | | 31 | | | | 8 | | | | Total current liabilities | | 1,405 | | | | 1,638 | | | | Long-term debt | | 1,796 | | | | 1,595 | | | | Other liabilities | | 750 | | | | 768 | | | | Deferred income taxes | | 95 | | | | 103 | | | | Total liabilities | | 4,046 | | | | 4,104 | | | | | | | 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 at June 30, 2015 and 2014; and 128,614,310 and 128,796,228 | | | | | | | | | | shares outstanding at June 30, 2015 and 2014, respectively | | 159 | | | | 159 | | | | Additional paid-in capital | | 775 | | | | 709 | | | | Retained earnings | | 1,923 | | | | 1,739 | | | | Treasury shares, at cost: 30,127,151 and 29,945,233 shares | | | | | | | | | | at June 30, 2015 and 2014, respectively | | (2,237 | ) | | | (2,036 | ) | | | Accumulated other comprehensive net loss | | (502 | ) | | | (417 | ) | | | Stockholders’ equity | | 118 | | | | 154 | | | | Total liabilities and stockholders’ equity | $ | 4,164 | | | $ | 4,258 | | | |
See Notes to Consolidated Financial Statements B-28 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B CONSOLIDATEDSTATEMENTS OFSTOCKHOLDERS’EQUITY The CloroxCompany | | | Common Stock | | | | | | | | Treasury Shares | | | | | | | | Dollars in millions | | Shares (000) | | Amount | | Additional Paid-in Capital | | | Retained Earnings | | | Shares (000) | | | Amount | | | Accumulated Other Comprehensive Net (Losses) Income | | | Total | | | | Balance at June 30, 2012 | | 158,741 | | | $ | 159 | | | $ | 633 | | | | $ | 1,350 | | | (29,179 | ) | | | $ | (1,881 | ) | | | $ | (396 | ) | | $ | (135 | ) | | | Net earnings | | | | | | | | | | | | | | | 572 | | | | | | | | | | | | | | | | | 572 | | | | Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | 29 | | | | 29 | | | | Accrued dividends | | | | | | | | | | | | | | | (348 | ) | | | | | | | | | | | | | | | | (348 | ) | | | Stock-based compensation | | | | | | | | | | 35 | | | | | | | | | | | | | | | | | | | | | | 35 | | | | Other employee stock plan activities | | | | | | | | | | (7 | ) | | | | (13 | ) | | 2,304 | | | | | 141 | | | | | | | | | 121 | | | | Treasury stock purchased | | | | | | | | | | | | | | | | | | (1,500 | ) | | | | (128 | ) | | | | | | | | (128 | ) | | | Balance at 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 at 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 at June 30, 2015 | | 158,741 | | | $ | 159 | | | $ | 775 | | | | $ | 1,923 | | | (30,127 | ) | | | $ | (2,237 | ) | | | $ | (502 | ) | | $ | 118 | | | |
See Notes toConsolidatedFinancialStatements Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-29 |
Table of Contents CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYCASH FLOWS The Clorox Company | | Common Stock | | | | | | | | | | | | Treasury Shares | | | | | | | | | | | | | Dollars in millions | Shares (000) | | Amount | | Additional Paid-in Capital | | | Retained Earnings | | | Shares (000 | ) | | Amount | | | Accumulated Other Comprehensive Net (Losses) Income | | | Total | | | | Balance at June 30, 2011 | 158,741 | | | $ | 159 | | | $ | 632 | | | | $ | 1,143 | | | (27,675 | ) | | | $ | (1,770 | ) | | | $ | (250 | ) | | $ | (86 | ) | | | Net earnings | | | | | | | | | | | | | | 541 | | | | | | | | | | | | | | | | | 541 | | | | Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | (146 | ) | | | (146 | ) | | | Accrued dividends | | | | | | | | | | | | | | (320 | ) | | | | | | | | | | | | | | | | (320 | ) | | | Stock-based compensation | | | | | | | | | 27 | | | | | | | | | | | | | | | | | | | | | | 27 | | | | Other employee stock plan activities | | | | | | | | | (26 | ) | | | | (14 | ) | | 1,915 | | | | | 114 | | | | | | | | | 74 | | | | Treasury stock purchased | | | | | | | | | | | | | | | | | (3,419 | ) | | | | (225 | ) | | | | | | | | (225 | ) | | | Balance at June 30, 2012 | 158,741 | | | | 159 | | | | 633 | | | | | 1,350 | | | (29,179 | ) | | | | (1,881 | ) | | | | (396 | ) | | | (135 | ) | | | Net earnings | | | | | | | | | | | | | | 572 | | | | | | | | | | | | | | | | | 572 | | | | Other comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | 29 | | | | 29 | | | | Accrued dividends | | | | | | | | | | | | | | (348 | ) | | | | | | | | | | | | | | | | (348 | ) | | | Stock-based compensation | | | | | | | | | 35 | | | | | | | | | | | | | | | | | | | | | | 35 | | | | Other employee stock plan activities | | | | | | | | | (7 | ) | | | | (13 | ) | | 2,304 | | | | | 141 | | | | | | | | | 121 | | | | Treasury stock purchased | | | | | | | | | | | | | | | | | (1,500 | ) | | | | (128 | ) | | | | | | | | (128 | ) | | | Balance at June 30, 2013 | 158,741 | | | | 159 | | | | 661 | | | | | 1,561 | | | (28,375 | ) | | | | (1,868 | ) | | | | (367 | ) | | | 146 | | | | Net earnings | | | | | | | | | | | | | | 558 | | | | | | | | | | | | | | | | | 558 | | | | Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | (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 at June 30, 2014 | 158,741 | | | $ | 159 | | | $ | 709 | | | | $ | 1,739 | | | (29,945 | ) | | | $ | (2,036 | ) | | | $ | (417 | ) | | $ | 154 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended June 30 | | | | | | | | | | | | | | | Dollars in millions | | 2015 | | | 2014 | | | 2013 | | | | Operating activities: | | | | | | | | | | | | | | | Net earnings | | $ | 580 | | | $ | 558 | | | $ | 572 | | | | Deduct: Losses from discontinued operations, net of tax | | | (26 | ) | | | (21 | ) | | | (1 | ) | | | Earnings from continuing operations | | | 606 | | | | 579 | | | | 573 | | | | Adjustments to reconcile earnings from continuing operations to net cash | | | | | | | | | | | | | | | provided by continuing operations: | | | | | | | | | | | | | | | Depreciation and amortization | | | 169 | | | | 177 | | | | 180 | | | | Stock-based compensation | | | 32 | | | | 36 | | | | 35 | | | | Deferred income taxes | | | (16 | ) | | | (21 | ) | | | (8 | ) | | | Settlement of interest rate forward contracts | | | (25 | ) | | | — | | | | — | | | | Other | | | (17 | ) | | | 6 | | | | 20 | | | | Changes in: | | | | | | | | | | | | | | | Receivables, net | | | 6 | | | | 20 | | | | (10 | ) | | | Inventories, net | | | (25 | ) | | | 1 | | | | (11 | ) | | | Other current assets | | | 6 | | | | 5 | | | | 12 | | | | Accounts payable and accrued liabilities | | | 93 | | | | (12 | ) | | | (29 | ) | | | Income taxes payable | | | 29 | | | | (5 | ) | | | 18 | | | | Net cash provided by continuing operations | | | 858 | | | | 786 | | | | 780 | | | | Net cash provided by (used for) discontinued operations | | | 16 | | | | (19 | ) | | | (5 | ) | | | Net cash provided by operations | | | 874 | | | | 767 | | | | 775 | | | | | | | Investing activities: | | | | | | | | | | | | | | | Capital expenditures | | | (125 | ) | | | (137 | ) | | | (190 | ) | | | Proceeds from sale-leasebacks, net of transaction costs | | | — | | | | — | | | | 135 | | | | Other | | | 19 | | | | — | | | | 4 | | | | Net cash used for investing activities from continuing operations | | | (106 | ) | | | (137 | ) | | | (51 | ) | | | Net cash used for investing activities by discontinued operations | | | — | | | | (1 | ) | | | (4 | ) | | | Net cash used for investing activities | | | (106 | ) | | | (138 | ) | | | (55 | ) | | | | | | Financing activities: | | | | | | | | | | | | | | | Notes and loans payable, net | | | (48 | ) | | | (60 | ) | | | (98 | ) | | | Long-term debt borrowings, net of issuance costs | | | 495 | | | | — | | | | 593 | | | | Long-term debt repayments | | | (575 | ) | | | — | | | | (850 | ) | | | Treasury stock purchased | | | (434 | ) | | | (260 | ) | | | (128 | ) | | | Cash dividends paid | | | (385 | ) | | | (368 | ) | | | (335 | ) | | | Issuance of common stock for employee stock plans and other | | | 251 | | | | 96 | | | | 133 | | | | Net cash used for financing activities | | | (696 | ) | | | (592 | ) | | | (685 | ) | | | Effect of exchange rate changes on cash and cash equivalents | | | (19 | ) | | | (7 | ) | | | (3 | ) | | | Net increase in cash and cash equivalents | | | 53 | | | | 30 | | | | 32 | | | | Cash and cash equivalents: | | | | | | | | | | | | | | | Beginning of year | | | 329 | | | | 299 | | | | 267 | | | | End of year | | $ | 382 | | | $ | 329 | | | $ | 299 | | | | | | | Supplemental cash flow information: | | | | | | | | | | | | | | | Interest paid | | $ | 104 | | | $ | 76 | | | $ | 129 | | | | Income taxes paid, net of refunds | | | 236 | | | | 312 | | | | 263 | | | | Noncash financing activities: | | | | | | | | | | | | | | | Cash dividends declared and accrued, but not paid | | | 99 | | | | 95 | | | | 93 | | |
See Notes to Consolidated Financial Statements A-30B-30 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents Appendix A CONSOLIDATED STATEMENTS OF CASH FLOWS
The Clorox Company
| Years ended June 30 Dollars in millions | | 2014 | | 2013 | | 2012 | | | Operating activities: | | | | | | | | | | | | | | | Net earnings | | $ | 558 | | | $ | 572 | | | $ | 541 | | | | Deduct: Losses from discontinued operations, net of tax | | | (4 | ) | | | (2 | ) | | | (2 | ) | | | Earnings from continuing operations | | | 562 | | | | 574 | | | | 543 | | | | Adjustments to reconcile earnings from continuing operations to net cash | | | | | | | | | | | | | | | provided by continuing operations: | | | | | | | | | | | | | | | Depreciation and amortization | | | 180 | | | | 182 | | | | 178 | | | | Stock-based compensation | | | 36 | | | | 35 | | | | 27 | | | | Deferred income taxes | | | (10 | ) | | | (11 | ) | | | (12 | ) | | | Funding of nonqualified deferred compensation plans | | | (26 | ) | | | — | | | | — | | | | Other | | | 36 | | | | 20 | | | | (36 | ) | | | Changes in: | | | | | | | | | | | | | | | Receivables, net | | | 24 | | | | (8 | ) | | | (52 | ) | | | Inventories, net | | | 1 | | | | (11 | ) | | | 1 | | | | Other current assets | | | 6 | | | | 11 | | | | (3 | ) | | | Accounts payable and accrued liabilities | | | (17 | ) | | | (30 | ) | | | 10 | | | | Income taxes payable | | | (21 | ) | | | 15 | | | | (36 | ) | | | Net cash provided by continuing operations | | | 771 | | | | 777 | | | | 620 | | | | Net cash used for discontinued operations | | | (4 | ) | | | (2 | ) | | | (8 | ) | | | Net cash provided by operations | | | 767 | | | | 775 | | | | 612 | | | | | | | Investing activities: | | | | | | | | | | | | | | | Capital expenditures | | | (138 | ) | | | (194 | ) | | | (192 | ) | | | Proceeds from sale-leasebacks, net of transaction costs | | | — | | | | 135 | | | | — | | | | Businesses acquired, net of cash acquired | | | — | | | | — | | | | (93 | ) | | | Other | | | — | | | | 4 | | | | 8 | | | | Net cash used for investing activities | | | (138 | ) | | | (55 | ) | | | (277 | ) | | | | | | Financing activities: | | | | | | | | | | | | | | | Notes and loans payable, net | | | (60 | ) | | | (98 | ) | | | (164 | ) | | | Long-term debt borrowings, net of issuance costs | | | — | | | | 593 | | | | 297 | | | | Long-term debt repayments | | | — | | | | (850 | ) | | | — | | | | Treasury stock purchased | | | (260 | ) | | | (128 | ) | | | (225 | ) | | | Cash dividends paid | | | (368 | ) | | | (335 | ) | | | (315 | ) | | | Issuance of common stock for employee stock plans and other | | | 96 | | | | 133 | | | | 86 | | | | Net cash used for financing activities | | | (592 | ) | | | (685 | ) | | | (321 | ) | | | Effect of exchange rate changes on cash and cash equivalents | | | (7 | ) | | | (3 | ) | | | (6 | ) | | | Net increase in cash and cash equivalents | | | 30 | | | | 32 | | | | 8 | | | | Cash and cash equivalents: | | | | | | | | | | | | | | | Beginning of year | | | 299 | | | | 267 | | | | 259 | | | | End of year | | $ | 329 | | | $ | 299 | | | $ | 267 | | | | | | | Supplemental cash flow information: | | | | | | | | | | | | | | | Interest paid | | $ | 76 | | | $ | 129 | | | $ | 123 | | | | Income taxes paid, net of refunds | | | 312 | | | | 263 | | | | 292 | | | | Noncash financing activities: | | | | | | | | | | | | | | | Cash dividends declared and accrued, but not paid | | | 95 | | | | 93 | | | | 85 | | |
See Notes to Consolidated Financial Statements
Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
| A-31 |
Table of ContentsB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Clorox Company (Dollars in millions, except per share amounts) 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, e-commerce channels, distributors and medical supply providers.distributors. The consolidated financial statements include the statements of the Company and its wholly owned and controlled subsidiaries. All significant intercompany transactions and accounts were eliminated in consolidation. Certain prior year reclassifications were made in the consolidated financial statements and related notes to the consolidated financial statements to conform to the current year presentation. Effective September 22, 2014, the Company’s Venezuela affiliate, Corporación Clorox de Venezuela S.A. (Clorox Venezuela), discontinued its operations. Consequently, the Company reclassified 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 generally accepted in the United States of America (U.S. GAAP) requires management to makereach opinions as to estimates and assumptions that affect reported amounts and related disclosures. Specific areas requiring the application of management’s 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. Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued an update to current accounting standards, which establishes a single, comprehensive revenue recognition model for all contracts with customers, and will supersede most current revenue recognition guidance. It requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments are effective for the Company beginning in the first quarter of fiscal year 2018. Early adoption is not permitted. The Company is currently in the process of evaluating the impact of the adoption of these requirements on its consolidated financial statements.
In April 2014, the FASB issued an update to current accounting standards, which will change the criteria for reporting discontinued operations. The amendments will also require new disclosures about discontinued operations and disposals of components of an entity that do not qualify for discontinued operations reporting. The amendments are effective for the Company for new disposals (or classifications as held for sale) of components of the Company, should they occur, beginning in the first quarter of fiscal year 2016. Early adoption is permitted for disposals (or classifications as held for sale) that have not been previously reported.
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 Company’s cash position includes amounts held by foreign subsidiaries and, as a result, the repatriation of certain cash balances from some of the Company’s foreign subsidiaries could result in additional tax costs.costs in the United States and in certain foreign jurisdictions. However, these cash balances are generally available without legal restriction to fund local business operations. In addition, a portion of the Company’s cash balance is held in U.S. dollars by foreign subsidiaries, whose functional currency is their local currency. A-32 THE CLOROX COMPANY - 2014 Proxy Statement
Table of Contents
Appendix A
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 expense (income),income, net. The Company’s cash holdings were as follows as of June 30: | | 2014 | | 2013 | | | U.S. dollar balances held by U.S. dollar functional currency subsidiaries and at parent | $ | 180 | | $ | 130 | | | Non-U.S. dollar balances held by non-U.S. dollar functional currency subsidiaries | | 132 | | | 115 | | | U.S. dollar balances held by non-U.S. dollar functional currency subsidiaries | | 12 | | | 36 | | | Non-U.S. dollar balances held by U.S. dollar functional currency subsidiaries | | 5 | | | 18 | | | Total | $ | 329 | | $ | 299 | | | | | | | | | |
| 2015 | | 2014 | | U.S. dollar balances held by U.S. dollar functional currency subsidiaries and at parent | $ | 221 | | $ | 180 | | Non-U.S. dollar balances held by non-U.S. dollar functional currency subsidiaries | | 142 | | | 132 | | U.S. dollar balances held by non-U.S. dollar functional currency subsidiaries | | 19 | | | 12 | | Non-U.S. dollar balances held by U.S. dollar functional currency subsidiaries | | — | | | 5 | | Total | $ | 382 | | $ | 329 | | | |
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. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-31 |
Table of Contents NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property, Plant and Equipment and Finite-Lived Intangible Assets Property, plant and equipment and finite-lived intangible assets are stated at cost. Depreciation and amortization expense are calculated by the straight-line method using the estimated useful lives or lives determined by lease contracts offor 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 book value of the asset exceeds the estimated future undiscounted cash flows generated by the asset and the impairment is viewed as other than temporary.asset. When an impairment is indicated, an impairment charge is recorded for the difference between the book 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 significantqualifying 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. Costs incurred prior to the application development stage,Internal and external costs incurred onceduring 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, and other costs not qualifying for capitalization, including training and maintenance costs are charged to expense. Capitalized software amortization expense was $22, $21 and $18, in fiscal years 2014, 2013 and 2012, respectively. Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
| A-33 |
Table of Contents
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)amortized on a straight-line basis over the software’s 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 performs either ahas the option to first assess qualitative or quantitative evaluation for each of its reporting units. Factors considered in the qualitative test includefactors such as maturity and stability of the reporting unit, magnitude of excess fair value over book value from pastthe prior year’s impairment testing, other reporting unit specific operating results as well as new events and circumstances impacting the operations at the reporting unit level. If the result of a qualitative test indicates a potential for impairment of a reporting unit, a quantitative test is performed. The quantitative test is a two-step process. In the first step, the Company compares the estimated fair value of the reporting unit to its carrying value. IfIn all instances, the estimated fair value exceeded the carrying value of the reporting unit. Had the estimated fair value of any reporting unit isbeen less than its carrying value, the Company performswould have performed a second step to determine the implied fair value of the reporting unit’s goodwill. If the carrying amount of a reporting unit’s goodwill exceedshad exceeded its implied fair value, an impairment charge iswould have been recorded for the difference between the carrying amount and the implied fair value of the reporting unit’s goodwill. To determine the fair value of a reporting unit as part of its quantitative test, the Company uses a discounted cash flow (DCF) approach, as it believes that this approach is the most reliable indicator of the fair value of its businesses and the fair value of their future earnings and cash flows. Under this approach, the Company estimates the future cash flows of each reporting unit and discounts these cash flows at a rate of return that reflects their relative risk. The cash flows B-32 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 and compares the estimated fair value of an asset 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’s estimates ofCompany uses the income approach to estimate the fair value are based primarily on a discounted cash flow or incomeof its trademarks and other intangible assets with indefinite lives. This approach that requires significant management judgment with respect to future sales volumes, revenuejudgments in determining both the assets’ estimated cash flows as well as the appropriate discount and expense growth rates, changes in working capital, foreign exchange rates currency devaluation, inflation and a perpetuity growth rate.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 Company’s performance unit grants provide for the issuance of common stock to certain managerial staff and executive management if the Company achieves specified performance targets. The 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 management’s 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% of target. 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. Employee Benefits The Company accounts for its defined benefit retirement income and retirement health care plans using actuarial methods.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 A-34 THE CLOROX COMPANY - 2014 Proxy Statement
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Appendix A
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
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Table of Contents NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. This method employs an asset smoothing approach. 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 the amountbased upon a reasonable estimate of the liability can be reasonably estimated.liability. The Company’s accruals reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomesbecome 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 aggregate accrual for environmental matters is included in otherOther liabilities in the Company’s consolidated balance sheets on an undiscounted basis due to uncertainty regarding the timing of future payments. Revenue Recognition Sales are recognized as revenue when the risk of loss and title pass to the customer and when all of the following have occurred: a firm sales arrangement exists, pricing is fixed or determinable and collection is reasonably assured. Sales are recorded net of allowances for returns, trade promotions, coupons and other discounts. The Company routinely commits to one-time or ongoing trade-promotion programs with customers and consumer coupon programs that require the Company to estimate and accrue the expected costs of such programs. Programs include shelf price reductions, end-of-aisle or in-store displays of the Company’s products and graphics and other trade-promotion activities conducted by the customer. Coupons are recognized as a liability when distributed based upon expected consumer redemptions. The Company maintains liabilities related to these programs for the estimated expenses incurred, but not paid, at the end of each period. 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 $3$4 and $5$3 as of June 30, 2015 and 2014, and 2013, respectively. The Company’s provision for doubtful accounts was $0, $0 and $3 in fiscal years 2014, 2013 and 2012, respectively. Receivables, net, included non-customer receivables of $15$12 and $13$15 as of June 30, 2015 and 2014, and 2013, respectively. Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
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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 Company’s products and primarily includes raw materials, packaging, contract packer fees, shipping and handling, warehousing, package design, depreciation, amortization, direct and indirect labor and operating costs for the Company’s manufacturing and distribution facilities including salary, benefit costs and incentive compensation, and royalties and amortization related to the Company’s Glad Venture Agreement (see Note 10 – Other Liabilities)9). Costs associated with developing and designing new packaging are expensed as incurred and include design, artwork, films and labeling. Expenses for fiscal years ended June 30, 2015, 2014 and 2013 and 2012 were $11, $12 $10 and $10, respectively, all of which were reflected in cost of products sold or discontinued operations, as appropriate, in the consolidated statements of earnings. B-34 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Selling and Administrative Expenses Selling and administrative expenses represent costs incurred by the Company in generating revenues and managing the business and include market research, commissions and certain administrative expenses. Administrative expenses include salary, benefits, incentive compensation, professional fees and services, software and licensing fees and other operating costs associated with the Company’s non-manufacturing, non-research and development staff, facilities and equipment. Advertising and Research and Development Costs The Company expenses advertising and research and development costs in the period incurred. Income Taxes The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax bases. Management reviews the Company’s deferred tax assets to determine whether their value can be realized based upon available evidence. A valuation allowance is established when management believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change. In addition to valuation allowances, the Company provides for uncertain tax positions when such tax positions do not meet certain recognition thresholds or measurement standards. Amounts for uncertain tax positions are adjusted in quarters when new information becomes available or when positions are effectively settled. U.S. income tax expense and foreign withholding taxes are provided on unremitted foreign earnings that are not indefinitely reinvested at the time the earnings are generated. Where foreign earnings are indefinitely reinvested, no provision for U.S. income or foreign withholding taxes is made. When circumstances change and the Company determines that some or all of the undistributed earnings will be remitted in the foreseeable future, the Company accrues an expense in the current period for U.S. income taxes and foreign withholding taxes attributable to the anticipated remittance. Foreign Currency Transactions and Translation Local currencies are the functional currencies for substantially all of the Company’s foreign operations. When the transactional currency is different than the functional currency, transaction gains and losses are included as a component of other expense (income),income, net. In addition, certain assets and liabilities denominated in currencies different than a foreign subsidiary’s functional currency are reported on the subsidiary’s books in its functional currency, with the impact from exchange rate differences recorded in other expense (income),income, net. Except for Venezuela as discussed below, assetsAssets 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-36 THE CLOROX COMPANY - 2014 Proxy Statement
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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. 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. Due to a sustained inflationary environment, the financial statements of the Venezuela business are consolidated under the rules governing the preparation of financial statements in a highly inflationary economy. As such, the Venezuela business’s non-U.S. dollar (non-USD) denominated monetary assets and liabilities are remeasured into U.S. dollars (USD) each reporting period with the resulting gains and losses reflected in other expense (income), net.
Derivative Instruments The Company’s use of derivative instruments, principally swaps, futures and forward contracts, is limited to non-trading purposes and is designed to partially manage exposure to changes in commodity prices, interest rates and foreign currencies. The Company’s contracts are hedges for transactions with notional amounts and periods consistent with the related exposures and do not constitute investments independent of these exposures. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-35 |
Most commodity, interest rate and foreign exchange derivative contracts are designated as cash flow hedgesTable of certain forecasted raw material purchases, interest payments and finished goods inventory purchases, based on certain hedge criteria. The criteria used to determine if hedge accounting treatment is appropriate are: (a) whether the designation of the hedge is to an underlying exposure and (b) whether there is sufficient correlation between the value of the derivative instrument and the underlying obligation. Contents
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The changes in the fair value (i.e., gains or losses) of derivativesa derivative instrument are recorded as either assets or liabilities in the consolidated balance sheetsheets with an offset to net earnings or other comprehensive income depending on whether, for accounting purposes, the derivative isit 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, 2015, 2014 and 2013, 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 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 other income, net. Cash flows from hedging activities are classified as operating activities in the consolidated statements of cash flows. The Company de-designates cash flow hedge relationships when it determines that the hedge relationships are no longer highly effective or that the forecasted transaction is no longer probable. Upon de-designation of a hedge, the portion of gains or losses on the derivative instrument that was previously accumulated in other comprehensive income remains in accumulated other comprehensive income until the forecasted transaction is recognized in net earnings, or is recognized in net earnings immediately if it is determined that there is any ineffectiveness or the forecasted transaction is no longer probable. 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 other expense (income), net. Cash flows from hedging activities are classified as operating activities in the consolidated statements of cash flows. 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 Company’s 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. NOTE 2. BUSINESSES ACQUIREDRecently Issued Accounting Pronouncements
In December 2011,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 acquired HealthLink, Aplicare, Inc.beginning in the first quarter of fiscal year 2017, with early adoption permitted. The Company is currently evaluating the impact that adoption of ASU 2015-03 will have 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 Soy Vay Enterprises, Inc., including each business’ workforce, for purchase prices aggregating $97, funded through commercial paper borrowings.similar legal entities are variable interest entities ("VIEs") or voting interest entities. The cash paid of $93 represents the aggregate purchase prices less cash acquired. Results for HealthLink and Aplicare, Inc., providers of infection control productsnew guidance is effective for the health care industry,Company beginning in the first quarter of fiscal year 2017, with early adoption permitted. The Company is currently evaluating the impact that adoption of ASU 2015-02 will have on its consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which replaces most 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 B-36 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 ASU 2014-09 will have on its consolidated financial statements. In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (Topic 205),” which will change the criteria for reporting discontinued operations. The amendments will also require new disclosures about discontinued operations and disposals of components of an entity that do not qualify for discontinued operations reporting. The amendments are effective for the Company for new disposals (or classifications as held for sale) of components of the Company, should they occur, beginning in the first quarter of fiscal year 2016. Early adoption is permitted for disposals (or classifications as held for sale) that have not been previously reported. The Company will adopt this ASU beginning in the first quarter of fiscal year 2016, as required. Adoption of the new standard will not impact the Company’s reporting or disclosures for discontinued operations of Clorox Venezuela or other previously discontinued operations. 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 government’s representations, Clorox Venezuela had expected significant price increases would be forthcoming much earlier; however, the price increases subsequently approved were insufficient and would have caused Clorox Venezuela to continue operating at a significant loss into the foreseeable future. As such, Clorox Venezuela was no longer financially viable and was forced to discontinue its operations. On September 26, 2014, the Company reported that Venezuelan Vice President Jorge Arreaza announced, with endorsement by President Nicolás Maduro, that the Venezuelan government had occupied the Santa Lucía and Guacara production facilities of Clorox Venezuela. On November 6, 2014, the Company reported that the Venezuelan government had published a resolution granting a government-sponsored Special Administrative Board full authority to restart and operate the business of Clorox Venezuela, thereby reaffirming the government's expropriation of Clorox Venezuela’s assets. Further, President Nicolás Maduro announced the government's intention to facilitate the resumed production of bleach and other cleaning products at Clorox Venezuela plants. He also announced his approval of a financial credit to invest in raw materials and production at the plants. These actions by the Venezuelan government were taken without the consent or involvement of Clorox Venezuela, its parent Clorox Spain S.L. (Clorox Spain) or any of their affiliates. Clorox Venezuela, Clorox Spain and their affiliates reserved their rights under all applicable laws and treaties. With this exit, the financial results of Clorox Venezuela are reflected as discontinued operations in the CleaningCompany’s consolidated financial statements. The results of Clorox Venezuela have historically been part of the International reportable segment. Results Net sales for Soy Vay Enterprises, Inc., a California-based operation that providesClorox Venezuela were $11, $77 and $90 for the Company a presence in the market for Asian sauces, are reflected in the Lifestyle reportable segment.fiscal years ended June 30, 2015, 2014 and 2013, respectively. Continues on next page4► | | | | THE CLOROX COMPANY - 20142015 Proxy Statement | A-37B-37 |
Table of Contents NOTE 2. DISCONTINUED OPERATIONS (Continued) The following table provides a summary of (losses) gains from discontinued operations for Clorox Venezuela and gains (losses) from discontinued operations other than Clorox Venezuela for the years ended June 30: | | | 2015 | | | 2014 | | | 2013 | | | | Operating (losses) earnings from Clorox Venezuela before income taxes | | | $ | (6 | ) | | | $ | (23 | ) | | | $ | 1 | | | | Exit costs and other related expenses for Clorox Venezuela | | | | (78 | ) | | | | — | | | | | — | | | | Total losses from Clorox Venezuela before income taxes | | | | (84 | ) | | | | (23 | ) | | | | 1 | | | | Income tax benefit attributable to Clorox Venezuela | | | | 29 | | | | | 6 | | | | | — | | | | Total (losses) gains from Clorox Venezuela, net of tax | | | | (55 | ) | | | | (17 | ) | | | | 1 | | | | Gains (losses) from discontinued operations other than Clorox Venezuela, net of tax | | | | 29 | | | | | (4 | ) | | | | (2 | ) | | | Losses from discontinued operations, net of tax | | | $ | (26 | ) | | | $ | (21 | ) | | | $ | (1 | ) | | |
Unrelated to Clorox Venezuela, in the fiscal year ended June 30, 2015, $32 of gross unrecognized tax benefits relating to other discontinued operations for periods prior to fiscal year 2015 were recognized upon the expiration of the applicable statute of limitations. Recognition of these previously disclosed tax benefits had no impact on the Company’s cash flow or earnings from continuing operations for the fiscal years ended June 30, 2015, 2014 and 2013.(See Note 17.) 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 year ended June 30: | | 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 | | | (10 | ) | | Total losses from Clorox Venezuela before income taxes | | | (84 | ) | | Income tax benefit attributable to Clorox Venezuela | | | 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. B-38 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 2. DISCONTINUED OPERATIONS (Continued) Goodwill related to Clorox Venezuela was previously aggregated and assessed for impairment at the Latin America reporting unit level, which is a component of the Company's International segment. In the first quarter of fiscal year 2015, after Clorox Venezuela discontinued its operations, the Company reviewed the relative fair value of its components of the Latin America reporting unit and concluded that no goodwill should be allocated to the Clorox Venezuela component and that there were no indicators of impairment within the remaining Latin America reporting unit. Based on the results of the annual impairment test performed in the fourth quarter of fiscal year 2015, the fair value of the Latin America reporting unit exceeded its recorded value by approximately 79%. 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 Venezuela’s 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 Company’s financial results because the balance of net bolivar assets and liabilities on the local books of Clorox Venezuela was $0 as of June 30, 2015. As of June 30, 2014, the local books of Clorox Venezuela carried a net asset position of $42. In addition, as of June 30, 2015 and 2014, the Company held $13 and $17, respectively, of tax asset balances related to Clorox Venezuela in Corporate in the reconciliation of the results of the Company’s reportable segments to consolidated results. NOTE 3. INVENTORIES NET Inventories net, consisted of the following as of June 30: | | 2014 | | | 2013 | | | | Finished goods | $ | 321 | | | $ | 321 | | | | Raw materials and packaging | | 113 | | | | 121 | | | | Work in process | | 2 | | | | 3 | | | | LIFO allowances | | (36 | ) | | | (40 | ) | | | Allowances for obsolescence | | (14 | ) | | | (11 | ) | | | Total | $ | 386 | | | $ | 394 | | | | | | | | | | | | |
| | 2015 | | | 2014 | | | Finished goods | | $ | 316 | | | $ | 312 | | | Raw materials and packaging | | | 101 | | | | 108 | | | Work in process | | | 3 | | | | 2 | | | LIFO allowances | | | (35 | ) | | | (36 | ) | | Total | | $ | 385 | | | $ | 386 | | | |
The last-in, first-out (LIFO) method was used to value approximately 34%38% and 37%34% of inventories as of June 30, 20142015 and 2013,2014, respectively. The carrying values for all other inventories, including inventories of all international businesses, 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, $2 $3 and $2$3 for the fiscal years ended June 30, 2015, 2014 2013 and 2012,2013, respectively. The Company had inventory consigned to others of $4$2 and $2$4 as of June 30, 20142015 and 2013, respectively. During fiscal years 2014, 2013 and 2012, the Company’s inventory obsolescence expense was $13, $12 and $13, respectively.
NOTE 4. OTHER CURRENT ASSETS Other current assets consisted of the following as of June 30: | | 2014 | | 2013 | | | Deferred tax assets | $ | 81 | | $ | 87 | | | Prepaid expenses | | 42 | | | 41 | | | Other | | 11 | | | 19 | | | Total | $ | 134 | | $ | 147 | | | | | | | | | |
| | 2015 | | 2014 | | Deferred tax assets | | $ | 99 | | $ | 81 | | Prepaid expenses | | | 39 | | | 42 | | Other | | | 5 | | | 11 | | Total | | $ | 143 | | $ | 134 | | |
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Table of Contents NOTE 4. OTHER CURRENT ASSETS (Continued) As of June 30, 20142015 and 2013,2014, Other in the table above included $9$3 and $13$9 of restricted cash, respectively. As of June 30, 20142015 and 2013, restricted cash of $5 and $10, respectively, was held by a foreign subsidiary as a prepayment received for intercompany services. Subsequent to June 30, 2014, this balance is no longer restricted as all services have been performed. Additionally, as of June 30, 2014 and 2013, the Company had restricted cash of $3 and $3, respectively, held in escrow related to fiscal year 2012 acquisitions. Additionally, as of June 30, 2015 and 2014, restricted cash of $0 and $5, respectively, was held by a foreign subsidiary as a prepayment received for intercompany services. NOTE 5. PROPERTY, PLANT AND EQUIPMENT, NET The components of property, plant and equipment, net, consisted of the following as of June 30: | | 2014 | | | 2013 | | | | Machinery and equipment | $ | 1,593 | | | $ | 1,590 | | | | Buildings | | 506 | | | | 485 | | | | Capitalized software costs | | 374 | | | | 362 | | | | Land and improvements | | 122 | | | | 119 | | | | Construction in progress | | 79 | | | | 96 | | | | Computer equipment | | 79 | | | | 80 | | | | | | 2,753 | | | | 2,732 | | | | Less: accumulated depreciation and amortization | | (1,776 | ) | | | (1,711 | ) | | | Total | $ | 977 | | | $ | 1,021 | | | | | | | | | | | | |
| | 2015 | | | 2014 | | | Machinery and equipment | | $ | 1,608 | | | $ | 1,593 | | | Buildings | | | 515 | | | | 506 | | | Capitalized software costs | | | 371 | | | | 374 | | | Land and improvements | | | 122 | | | | 122 | | | Construction in progress | | | 65 | | | | 79 | | | Computer equipment | | | 76 | | | | 79 | | | | | | 2,757 | | | | 2,753 | | | Less: accumulated depreciation and amortization | | | (1,839 | ) | | | (1,776 | ) | | Total | | $ | 918 | | | $ | 977 | | | |
Included in Machinery and equipment above are $12 and $0 of equipment under capital leases as of June 30, 2015 and 2014, respectively. Accumulated depreciation for assets under capital leases was $2 and $0 as of June 30, 2015 and 2014, respectively. Included in Land and improvements above are $2 and $0 of asset retirement obligations as of June 30, 2015 and 2014, respectively, for two leased properties. The liability of $2 incurred in fiscal year 2015 was recorded in Other liabilities. Depreciation and amortization expense related to property, plant and equipment, net, was $157, $161 $162 and $158$162 in fiscal years 2015, 2014 and 2013, respectively, which includes depreciation of assets under capital leases. This also includes amortization of capitalized software of $19, $22 and 2012,$21 in fiscal years 2015, 2014 and 2013, respectively. A-38 THE CLOROX COMPANY -Non-cash capital expenditures were $18, $0 and $0 in fiscal years 2015, 2014 Proxy Statement
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Appendix Aand 2013, respectively.
NOTE 6. GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS ChangesThe changes in the carrying amount of goodwill by reportable segment for the fiscal years ended June 30, 2015 and 2014 were as follows:
| | Goodwill | | | Cleaning | | Lifestyle | | Household | | International | | | Total | | Balance June 30, 2013 | | | $323 | | | $244 | | | $85 | | | $453 | | | $1,105 | | Effect of foreign currency translation | | | — | | | — | | | — | | | (4 | ) | | (4 | ) | 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 | | |
During the fourth quarter of fiscal years 2015, 2014 and 2013, the Company completed its annual impairment tests of goodwill and no instances of impairment were identified. B-40 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 6. GOODWILL, TRADEMARKS AND OTHER INTANGIBLE ASSETS (Continued) The changes in the carrying amount of trademarks and other intangible assets for the fiscal years ended June 30, 2015 and 2014 were as follows: | | | As of June 30, 2015 | | As of June 30, 2014 | | | | | Gross carrying amount | | Accumulated amortization | | Net carrying amount | | Gross carrying amount | | Accumulated amortization | | Net carrying amount | | | Trademarks not subject to amortization | | | $ | 524 | | | $ | — | | | $ | 524 | | | $ | 533 | | | $ | — | | | $ | 533 | | | Trademarks subject to amortization | | | | 33 | | | | 22 | | | | 11 | | | | 36 | | | | 22 | | | | 14 | | | Other intangible assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | Technology and product formulae | | | | 137 | | | | 133 | | | | 4 | | | | 139 | | | | 129 | | | | 10 | | | Other | | | | 188 | | | | 142 | | | | 46 | | | | 194 | | | | 140 | | | | 54 | | | Total | | | $ | 882 | | | $ | 297 | | | $ | 585 | | | $ | 902 | | | $ | 291 | | | $ | 611 | | |
Amortization expense relating to our intangible assets was $12, $15 and $15 for the years ended June 30, 2015, 2014 and 2013, were as follows: | | | | | | Goodwill | | | | | | | | | | Cleaning | | Lifestyle | | Household | | International | | | Total | | | | Balance June 30, 2012 | | $323 | | | $244 | | | $85 | | | $460 | | | $ | 1,112 | | | | Translation adjustments and other | | — | | | — | | | — | | | (7 | ) | | | (7 | ) | | | Balance June 30, 2013 | | $323 | | | $244 | | | $85 | | | $453 | | | $ | 1,105 | | | | Translation adjustments and other | | — | | | — | | | — | | | (4 | ) | | | (4 | ) | | | Balance June 30, 2014 | | $323 | | | $244 | | | $85 | | | $449 | | | $ | 1,101 | | | | | | | | | | | | | | | | | | | | | |
| | Trademarks | | Other intangible assets | | | Subject to amortization | | | Not subject to amortization | | | Total | | | Technology and product formulae | | | Other | | | Total | | | | Balance June 30, 2012 | | $19 | | | | $537 | | | | $556 | | | | $23 | | | | $63 | | | | $ | 86 | | | | Amortization | | (3 | ) | | | — | | | | (3 | ) | | | (9 | ) | | | (6 | ) | | | | (15 | ) | | | Translation adjustments and other | | — | | | | — | | | | — | | | | 5 | | | | (2 | ) | | | | 3 | | | | Balance June 30, 2013 | | $16 | | | | $537 | | | | $553 | | | | $19 | | | | $55 | | | | $ | 74 | | | | Acquisitions and other additions | | — | | | | — | | | | — | | | | — | | | | 5 | | | | | 5 | | | | Amortization | | (1 | ) | | | — | | | | (1 | ) | | | (9 | ) | | | (6 | ) | | | | (15 | ) | | | Impairment | | — | | | | (4 | ) | | | (4 | ) | | | — | | | | — | | | | | — | | | | Translation adjustments and other | | (1 | ) | | | — | | | | (1 | ) | | | — | | | | — | | | | | — | | | | Balance June 30, 2014 | | $14 | | | | $533 | | | | $547 | | | | $10 | | | | $54 | | | | $ | 64 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Intangible assets subject to amortization were net of total accumulated amortization of $291 and $275 as of June 30, 2014 and 2013, respectively, of which $22 and $21, respectively, related to trademarks. Total accumulated amortization included $142 and $136 as of June 30, 2014 and 2013, respectively, related to intangible assets subject to amortization that were fully amortized, of which $13 and $13, respectively, related to trademarks.respectively. Estimated amortization expense for these intangible assets is $9, $5, $5, $4$8, $8, $7, $7 and $3$6 for fiscal years 2015, 2016, 2017, 2018, 2019 and 2019,2020, respectively.
In the first quarter of fiscal year 2015, the Company recorded impairment of trademarks and other intangible assets of $6 related to the discontinuation of operations in Venezuela. This amount is included as part of losses from discontinued operations, net of tax. In fiscal year 2014, the Company entered into an exclusivity agreement with a manufacturer. In connection with the agreement, the Company recorded an Other Intangible Asset valued at $4 that will be amortized over the 7-year term of the agreement. The agreement may be renewed for an additional 3 years at no cost upon mutual consent. Asas a result of the effective devaluation of the Venezuelan currency in the third quarter, of fiscal year 2014, the Company assessed whether recorded values of intangible assets attributable to the Venezuela subsidiary and goodwill of the reporting unit whichthat included Venezuela were impaired. As a result of its assessment, the Company identified indications of impairment and recorded noncash tax deductible impairment charges on trademark values totaling $4.$4, which is reflected in the International reportable segment. Of this amount, $3 is related to continuing operations and is reflected in Other income, net and $1 is related to trademarks held on the books of Clorox Venezuela and is reflected in losses from discontinued operations, net. The Company used anthe income approach the relief-from-royalty method, to estimate the fair value of the trademarks, and as such, the fair value measurement was classified as Level 3. The impairment charge was reflected in other expense (income), net, in the International reportable segment. For a further discussion on Venezuelaof Clorox Venezuela’s intangible and other asset balances, refer tosee Note 19 – Segment Reporting.2.
In fiscal year 2014, the Company entered into an exclusivity agreement with a manufacturer. In connection with the agreement, the Company recorded an Other intangible asset valued at $4 that will be amortized over the 7 year term of the agreement. The agreement may be renewed for an additional 3 years at no cost upon mutual consent. During the fourth quarter of fiscal years 2015, 2014 2013 and 2012,2013, the Company completed its annual impairment tests of goodwill and indefinite-lived intangible assets and no instances of impairment were identified. Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
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Table of Contents
NOTE 7. ACCRUED LIABILITIES Accrued liabilities consisted of the following as of June 30: | | 2014 | | 2013 | | | Trade and sales promotion | $ | 113 | | $ | 116 | | | Compensation and employee benefit costs | | 102 | | | 152 | | | Dividends | | 100 | | | 96 | | | Interest | | 27 | | | 27 | | | Insurance | | 18 | | | 20 | | | Derivatives | | 17 | | | 3 | | | Royalties | | 11 | | | 11 | | | Other | | 84 | | | 65 | | | Total | $ | 472 | | $ | 490 | | | | | | | | | |
| | 2015 | | 2014 | | Compensation and employee benefit costs | | $ | 189 | | $ | 102 | | Trade and sales promotion | | | 115 | | | 113 | | Dividends | | | 103 | | | 100 | | Royalties | | | 16 | | | 11 | | Insurance | | | 15 | | | 18 | | Interest | | | 14 | | | 27 | | Derivatives | | | 8 | | | 17 | | Other | | | 88 | | | 84 | | Total | | $ | 548 | | $ | 472 | | |
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Table of Contents NOTE 8. DEBT Notes and loans payable, which mature in less than one year, included the following as of June 30: | | 2014 | | 2013 | | | Commercial paper | $ | 141 | | $ | 200 | | | Foreign borrowings | | 2 | | | 2 | | | Total | $ | 143 | | $ | 202 | | | | | | | | | |
| | 2015 | | 2014 | | Commercial paper | | | $ | 93 | | $ | 141 | | Foreign borrowings | | | | 2 | | | 2 | | Total | | | $ | 95 | | $ | 143 | | | |
The weighted average interest rates incurred on average outstanding notes and loans payable during the fiscal years ended June 30, 2015, 2014 2013 and 2012,2013, including fees associated with the Company’s undrawn revolving credit facility, were 0.97%2.05%, 1.68%0.97% and 0.85%1.68%, respectively. The weighted average effective interest rates on commercial paper balances as of June 30, 2015 and 2014, were 0.39% and 2013, were 0.28% and 0.31%, respectively. The carrying value of notes and loans payable as of June 30, 2014 and 2013, approximated their fair value due to their short maturity. Long-term debt, carried at face value net of unamortized discounts or premiums, included the following as of June 30: | | 2014 | | | 2013 | | | Senior unsecured notes and debentures: | | | | | | | | | 5.00%, $575 due January 2015 | $ | 575 | | | $ | 575 | | | 3.55%, $300 due November 2015 | | 300 | | | | 300 | | | 5.95%, $400 due October 2017 | | 399 | | | | 399 | | | 3.80%, $300 due November 2021 | | 298 | | | | 298 | | | 3.05%, $600 due September 2022 | | 598 | | | | 598 | | | Total | | 2,170 | | | | 2,170 | | | Less: Current maturities of long-term debt | | (575 | ) | | | — | | | Long-term debt | $ | 1,595 | | | $ | 2,170 | | | | | | | | | | |
| | | 2015 | | | 2014 | | | | Senior unsecured notes and debentures: | | | | | | | | | | | 5.00%, $575 due January 2015 | | $ | — | | | $ | 575 | | | | 3.55%, $300 due November 2015 | | | 300 | | | | 300 | | | | 5.95%, $400 due October 2017 | | | 399 | | | | 399 | | | | 3.80%, $300 due November 2021 | | | 298 | | | | 298 | | | | 3.05%, $600 due September 2022 | | | 599 | | | | 598 | | | | 3.50%, $500 due December 2024 | | | 500 | | | | — | | | | Total | | | 2,096 | | | | 2,170 | | | | Less: Current maturities of long-term debt | | | (300 | ) | | | (575 | ) | | | Long-term debt | | $ | 1,796 | | | $ | 1,595 | | | |
The weighted average interest rates incurred on average outstanding long-term debt during the fiscal years ended June 30, 2015, 2014 and 2013, were 4.44%, 4.56% and 2012, were 4.56%, 4.76% and 5.21%, respectively. The weighted average effective interest raterates on long-term debt balances as of June 30, 2015 and 2014, were 4.31% and 2013, was 4.56%, respectively. In January 2015, $575 of the Company’s senior notes with an annual fixed interest rate of 5.00% became due and were repaid using the net proceeds from the December 2014 debt issuance and commercial paper borrowings. In December 2014, 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 10). The notes rank equally with all of the Company’s existing senior indebtedness. In March 2013, $500 in senior notes with an annual fixed interest rate of 5.00% became due and were repaid. The repayment was funded in part with commercial paper borrowings and in part with a portion of the proceeds from the sale-leaseback transaction of the Company’s Oakland, Calif., general office building (Note 10 – Other Liabilities)(see Note 9). A-40 THE CLOROX COMPANY- 2014 Proxy Statement
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Appendix A
NOTE 8. DEBT (Continued)
In October 2012, $350 in senior notes with an annual fixed interest rate of 5.45% became due and were repaid. The repayment was funded with a portion of the proceeds from the September 2012 issuance of $600 in senior notes with an annual fixed interest rate of 3.05%, payable semi-annually in March and September, and a maturity date of September 15, 2022. The remaining proceeds from the September 2012 issuance were used to repay commercial paper. In November 2011, the Company issued $300 in senior notes with an annual fixed interest rate of 3.80%, payable semi-annually in May and November, and a maturity date of November 15, 2021. Proceeds from the notes were used to repay commercial paper.
The senior notes issued in September 2012 and November 2011 rank equally and ratably in right of payment with all of the Company’s existing and future senior unsecured indebtedness and senior to any future subordinated unsecured indebtedness. These notes were issued under the Company’s shelf registration statement filed in November 2011 which allowsand rank equally with all of the Company to offer and sell an unlimited amountCompany’s existing senior indebtedness. B-42 THE CLOROX COMPANY- 2015 Proxy Statement
Table of its senior unsecured indebtedness from time to time and expires in November 2014.Contents As of June 30, 2014, the Company had interest rate forward contracts with a notional amount of $288 related to the anticipated refinancing of senior notes maturing in January 2015.Appendix B
NOTE 8. DEBT (Continued) The Company’s borrowing capacity under other financing arrangements as of June 30 was as follows: | | 2014 | | 2013 | | | Revolving credit facility | $ | 1,100 | | $ | 1,100 | | | Foreign credit lines | | 31 | | | 32 | | | Other credit lines | | 13 | | | 13 | | | Total | $ | 1,144 | | $ | 1,145 | | | | | | | | | |
| | | 2015 | | 2014 | | | Revolving credit facility | | $ | 1,100 | | $ | 1,100 | | | Foreign credit lines | | | 11 | | | 31 | | | Other credit lines | | | 18 | | | 13 | | | Total | | $ | 1,129 | | $ | 1,144 | | |
As of June 30, 2014,2015, the Company had a $1.1 billion$1,100 revolving credit agreement (the Credit Agreement), which expires in October 2019. The Credit Agreement replaced a prior $1,100 revolving credit agreement in place since May 2017.2012. There were no borrowings under the agreement,Credit Agreement as of June 30, 2015 or 2014, and the Company believes that borrowings under the revolving credit facilityCredit Agreement are and will continue to be available for general corporate purposes. The agreement includes certain restrictive covenants and limitations, with which the Company was in compliance as of June 30, 2014.2015. 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. Of the $44 of foreign and other credit lines as of June 30, 2014, $5 was outstanding and the remainder of $39 was available for borrowing. As of June 30, 2014, $7 of the foreign credit lines related to Clorox Venezuela, of which $1 was outstanding. Long-term debt maturities as of June 30, 2014,2015, are $575, $300, $0, $400, $0, $0 and $900$1,400 in fiscal years 2015, 2016, 2017, 2018, 2019, 2020 and thereafter, respectively. NOTE 9. OTHER LIABILITIES Other liabilities consisted of the following as of June 30: | | 2015 | | 2014 | | | Employee benefit obligations | | $ | 299 | | $ | 289 | | | Venture agreement net terminal obligation | | | 294 | | | 290 | | | Taxes | | | 38 | | | 76 | | | Other | | | 119 | | | 113 | | | Total | | $ | 750 | | $ | 768 | | |
Venture Agreement The Company has an agreement with The Procter & Gamble Company (P&G) for its Glad® plastic bags, wraps and containers business. The Company maintains a net terminal obligation liability, which reflects the estimated value of the contractual requirement to repurchase P&G’s interest at the termination of the agreement. As of June 30, 2015 and 2014, 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, entered into in 2003, has a 20-year term, with a 10-year renewal option by mutual agreement and can be terminated under certain circumstances, including at P&G’s option upon a change in control of the Company or, at either party’s option, upon the sale of the Glad® business by the Company. Upon termination of the agreement, the Company will purchase P&G’s interest for cash at fair value as established by predetermined valuation procedures. 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. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-43 |
Table of Contents NOTE 9. 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, Calif. 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, 2015 and 2014, the long-term portion of the deferred gain of $40 and $43, respectively, was included in Other in the table above. NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS Financial assets and liabilities carriedmeasured 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:categories of the fair value hierarchy: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions. As of June 30, 2015 and 2014, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis during the period included derivative financial instruments, which were all classified as Level 2, and trust assets to fund certain of the Company’s nonqualified deferred compensation plans, which were classified as Level 1. As of June 30, 2013, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis during the period included derivative financial instruments, which were all classified as Level 2. Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
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Table of Contents
NOTE 9. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Financial Risk Management and Derivative Instruments The Company is exposed to certain commodity, interest rate and foreign currency 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 to fix the price of a portion of its forecasted raw material requirements. Contract maturities, which are generally no longer than 2 years, are matched to the length of the raw material purchase contracts. Commodity purchase contracts are measured at fair value using market quotations obtained from commodity derivative dealers. 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. As of June 30, 2014, the notional amount of commodity derivatives was $36, of which $19 related to jet fuel swaps and $17 related to soybean oil futures. As of June 30, 2013, the notional value of commodity derivatives was $51, of which $32 related to jet fuel swaps and $19 related to soybean oil futures.
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. These interest rate forward contracts generally have durations of less than twelve12 months. The interest rate contracts are measured at fair value using information quoted by U.S. government bond dealers. During fiscal years 2014 and 2013, the Company paid $0 and $4 to settle interest rate forward contracts, respectively, which were reflected in operating cash flows. As of June 30, 20142015 and 2013,2014, the notional amount of interest rate forward contracts was $0 and $288, and $0, respectively. The B-44 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued) During fiscal year 2015, the Company paid $25 to settle interest rate forward contracts outstandingrelated 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 netloss on the consolidated balancesheet as of June 30, 2014, were related to2015, and will be amortized into interest expense on the anticipated refinancingconsolidated statements of senior notes maturing in January 2015.earnings over the 10-year term of the notes. Foreign Currency Risk Management The Company may also enter into certain over-the-counter foreign currency-related derivative contracts to manage a portion of the Company’s forecasted foreign exchange riskcurrency exposure associated with the purchase of inventory and certain intercompany transactions. These foreign currency contracts generally have durations of no longer than 2016 months. The foreign exchange contracts are measured at fair value using information quoted by foreign exchange dealers. The notional amountamounts of outstanding foreign currency forward contracts used by the Company’s subsidiaries in Canada, Australia and New Zealand to hedge forecasted purchases of inventory were $64, $35 and $6, respectively, as of June 30, 2015, and $54, $28 and $5, respectively, as of June 30, 2014, and $18, $22 and $4, respectively, as of June 30, 2013. There were no outstanding contracts to economically hedge foreign exchange risk associated with intercompany transactions as of June 30, 2014 and 2013, respectively.2014. Counterparty Risk Management 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 $17$8 and $3$17 of the derivative instruments reflected in accrued liabilities as of June 30, 2015 and 2014, respectively, $8 and 2013, respectively, $11, and $3, respectively, contained such terms. As of both June 30, 20142015 and 2013,2014, neither the Company nor any counterparty was required to post any collateral. A-42 THE CLOROX COMPANY- 2014 Proxy Statement
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Appendix A
NOTE 9. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Certain terms of the agreements governing the Company’s over-the-counter derivative instruments require the credit ratings, as assigned by Standard & Poor’s and Moody’s to the Company and its counterparties, to remain at a level equal to or better than the minimum of an investment grade credit rating. If the Company’s credit ratings were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. As of both June 30, 20142015 and 2013,2014, the Company and each of its counterparties had been assigned investment grade ratings withby both Standard & Poor’s and Moody’s. Certain of the Company’s exchange-traded futures contracts used for commodity price risk management include requirements for the Company to post collateral in the form of a cash margin account held by the Company’s broker for trades conducted on that exchange. As of June 30, 2015 and June 30, 2014, the Company maintained cash margin balances related to exchange-traded futures contracts of $2 and $1, respectively, which are classified as Other current assets on the consolidated balance sheets. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-45 |
Table of Contents NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued) Fair Value of Financial InstrumentsDeferred Gain on Sale-leaseback Transaction
Derivatives
The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as an accounting hedge and, if so, on the type of hedging relationship. For those derivative instruments designated and qualifying as hedging instruments, the Company must designate the hedging instrument as a fair value hedge or 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. The Company does not designate its foreign currency forward contracts for intercompany transactions as accounting hedges. During the fiscal years ended June 30, 2014, 2013 andIn December 2012, the Company had no hedging instruments designated as faircompleted a sale-leaseback transaction under which it sold its general office building in Oakland, Calif. 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 hedges.
Trust Assets
Beginning in December 2013,of the Company holds mutual fundslease payments and cash equivalents as partwill continue to amortize such amount to earnings ratably over the lease term. As of trusts related to certainJune 30, 2015 and 2014, the long-term portion of its nonqualifiedthe deferred compensation plans. The trusts represent variable interest entities, for which the Company is considered the primary beneficiary,gain of $40 and therefore, trust assets are consolidated and$43, respectively, was included in other assetsOther in the condensed consolidated balance sheets. The mutual funds aretable above.
NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS Financial assets and liabilities measured at fair value using quoted market prices. The Company has designated these marketable securities as trading investments. The participantson a recurring basis in the deferred compensation plans may select among certain mutual fundsconsolidated balance sheets are required to be classified and disclosed in which their compensation deferrals are invested in accordance with the termsone of the plans and within the confinesfollowing three categories of the trustsfair value hierarchy: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions. As of June 30, 2015 and 2014, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis during the period included derivative financial instruments, which hold the marketable securities. The Company’s derivative instruments designatedwere all classified as hedging instrumentsLevel 2, and trust assets related to fund certain of the Company’s nonqualified deferred compensation plans, which were recordedclassified as Level 1.
Financial Risk Management and Derivative Instruments The Company is exposed to certain commodity, interest rate and foreign currency 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 to fix the price of a portion of its forecasted raw material requirements. Contract maturities, which are generally no longer than 2 years, are matched to the length of the raw material purchase contracts. Commodity purchase contracts are measured at fair value using market quotations obtained from commodity derivative dealers. 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. As of June 30, 2014, the notional amount of commodity derivatives was $36, of which $19 related to jet fuel swaps and $17 related to soybean oil futures. 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. These interest rate forward contracts generally have durations of less than 12 months. The interest rate contracts are measured at fair value using information quoted by U.S. government bond dealers. As of June 30, 2015 and 2014, the notional amount of interest rate forward contracts was $0 and $288, respectively. B-44 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued) 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 netloss on the consolidated balance sheetssheet as of June 30, 2015, and will be amortized into interest expense on the consolidated statements of earnings over the 10-year term of the notes. Foreign Currency Risk Management The Company may also enter into certain over-the-counter foreign currency-related derivative contracts to manage a portion of the Company’s forecasted foreign currency exposure associated with the purchase of inventory and certain intercompany transactions. These foreign currency contracts generally have durations of no longer than 16 months. The foreign exchange contracts are measured at fair value using information quoted by foreign exchange dealers. The notional amounts of outstanding foreign currency forward contracts used by the Company’s subsidiaries in Canada, Australia and New Zealand to hedge forecasted purchases of inventory were $64, $35 and $6, respectively, as follows:of June 30, 2015, and $54, $28 and $5, respectively, as of June 30, 2014. | | | | | 2014 | | 2013 | | | | | Balance sheet classification | | Level 1 | | Level 2 | | Level 1 | | Level 2 | | | Assets | | | | | | | | | | | | | | | | | | | Foreign exchange derivative contracts | | Other current assets | | | $ | — | | | $ | — | | | $— | | | $ 4 | | | Commodity purchase derivative contracts | | Other current assets | | | | — | | | | 1 | | | — | | | — | | | Trust assets for nonqualified deferred compensation plans | | Other assets | | | | 31 | | | | — | | | — | | | — | | | | | | | | $ | 31 | | | $ | 1 | | | $— | | | $ 4 | | | Liabilities | | | | | | | | | | | | | | | | | | | Commodity purchase derivative contracts | | Accrued liabilities | | | $ | — | | | $ | 1 | | | $— | | | $ 3 | | | Interest rate contracts | | Accrued liabilities | | | | — | | | | 13 | | | — | | | — | | | Foreign exchange derivative contracts | | Accrued liabilities | | | | — | | | | 3 | | | — | | | — | | | | | | | | $ | — | | | $ | 17 | | | $— | | | $ 3 | | | | | | | | | | | | | | | | | | | | |
ForCounterparty Risk Management
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 designated and qualifyingsets 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 $8 and $17 of the derivative instruments reflected in accrued liabilities as cash flow hedges,of June 30, 2015 and 2014, respectively, $8 and $11, respectively, contained such terms. As of both June 30, 2015 and 2014, neither the effective portionCompany nor any counterparty was required to post any collateral. Certain terms of gainsthe agreements governing the Company’s over-the-counter derivative instruments require the credit ratings, as assigned by Standard & Poor’s and Moody’s to the Company and its counterparties, to remain at a level equal to or losses is reported as a componentbetter than the minimum of other comprehensive income (OCI)an investment grade credit rating. If the Company’s credit ratings were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. As of both June 30, 2015 and reclassified into earnings2014, the Company and each of its counterparties had been assigned investment grade ratings by both Standard & Poor’s and Moody’s. Certain of the Company’s exchange-traded futures contracts used for commodity price risk management include requirements for the Company to post collateral in the same period or periods duringform of a cash margin account held by the Company’s broker for trades conducted on that exchange. As of June 30, 2015 and June 30, 2014, the Company maintained cash margin balances related to exchange-traded futures contracts of $2 and $1, respectively, which are classified as Other current assets on the hedged transaction affects earnings. The estimated amount of the existing net loss in OCI asconsolidated balance sheets. Continues on next page4► | | | | THE CLOROX COMPANY - 20142015 Proxy Statement | A-43B-45 |
Table of Contents NOTE 9.10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued) of June 30, 2014, expected to be reclassified into earnings within the next twelve months is $8. Gains and losses on derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. During each of the fiscal years ended June 30, 2014, 2013 and 2012, hedge ineffectiveness was not significant.
The effects of derivative instruments designated as hedging instruments on OCI and the consolidated statements of earnings were as follows during the fiscal years ended June 30:
| | | Gains (losses) | | Gains (losses) reclassified from OCI and | | | | recognized in OCI | | recognized in earnings | | | | 2014 | | 2013 | | 2012 | | | 2014 | | 2013 | | 2012 | | | Commodity purchase derivative contracts | | | $ | 2 | | | $ | (1 | ) | | $ | (1 | ) | | | $ | — | | | $ | — | | | $ | 4 | | | Interest rate contracts | | | | (13 | ) | | | (1 | ) | | | (39 | ) | | | | (4 | ) | | | (3 | ) | | | (2 | ) | | Foreign exchange derivative contracts | | | | (3 | ) | | | 3 | | | | 3 | | | | | 4 | | | | — | | | | 2 | | | Total | | | $ | (14 | ) | | $ | 1 | | | $ | (37 | ) | | | $ | — | | | $ | (3 | ) | | $ | 4 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The gains reclassified from OCI and recognized in earnings during the fiscal years ended June 30, 2014 and 2012, for commodity purchase and foreign exchange contracts were included in cost of products sold. The losses reclassified from OCI and recognized in earnings during the fiscal years ended June 30, 2014, 2013 and 2012, for interest rate contracts were included in interest expense.
Changes in the value of the trust assets related to certain of the Company’s nonqualified deferred compensation plans were $(1) for the fiscal year ended June 30, 2014, and were reflected in other expense (income), net, in the consolidated statements of earnings.
Other
The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values as of June 30, 2014 and 2013, due to their short maturity and nature. The estimated fair value of long-term debt, including current maturities, was $2,265 and $2,263 as of June 30, 2014 and 2013, respectively. The fair value of long-term debt was determined using secondary market prices quoted by corporate bond dealers, and was classified as Level 2.
NOTE 10. OTHER LIABILITIES
Other liabilities consisted of the following as of June 30:
| | 2014 | | 2013 | | | Venture agreement net terminal obligation | $ | 290 | | $ | 284 | | | Employee benefit obligations | | 289 | | | 270 | | | Taxes | | 76 | | | 74 | | | Other | | 113 | | | 114 | | | Total | $ | 768 | | $ | 742 | | | | | | | | | |
Venture Agreement
The Company has an agreement with The Procter & Gamble Company (P&G) for its Glad® plastic bags, wraps and containers business. The Company maintains a net terminal obligation liability, which reflects the estimated value of the contractual requirement to repurchase P&G’s interest at the termination of the agreement. As of June 30, 2014 and 2013, 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.
A-44 THE CLOROX COMPANY- 2014 Proxy Statement
Table of Contents
Appendix A
NOTE 10. OTHER LIABILITIES (Continued)
The agreement, entered into in 2003, has a 20-year term, with a 10-year renewal option and can be terminated under certain circumstances, including at P&G’s option upon a change in control of the Company or, at either party’s option, upon the sale of the Glad® business by the Company. Upon termination of the agreement, the Company will purchase P&G’s interest for cash at fair value as established by predetermined valuation procedures. Following termination, the Glad® business will retain the exclusive core intellectual property licenses contributed by P&G on a royalty-free basis for the licensed products marketed.
Deferred Gain on Sale-leaseback Transaction In December 2012, the Company completed a sale-leaseback transaction under which it sold its general office building in Oakland, Calif., 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, 20142015 and 2013,2014, the long-term portion of the deferred gain of $43$40 and $47,$43, respectively, was included in Other in the table above. NOTE 10. 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 entity’s own assumptions. As of June 30, 2015 and 2014, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis during the period included derivative financial instruments, which were all classified as Level 2, and trust assets to fund certain of the Company’s nonqualified deferred compensation plans, which were classified as Level 1. Financial Risk Management and Derivative Instruments The Company is exposed to certain commodity, interest rate and foreign currency 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 to fix the price of a portion of its forecasted raw material requirements. Contract maturities, which are generally no longer than 2 years, are matched to the length of the raw material purchase contracts. Commodity purchase contracts are measured at fair value using market quotations obtained from commodity derivative dealers. 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. As of June 30, 2014, the notional amount of commodity derivatives was $36, of which $19 related to jet fuel swaps and $17 related to soybean oil futures. 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. These interest rate forward contracts generally have durations of less than 12 months. The interest rate contracts are measured at fair value using information quoted by U.S. government bond dealers. As of June 30, 2015 and 2014, the notional amount of interest rate forward contracts was $0 and $288, respectively. B-44 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued) 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 netloss on the consolidated balancesheet as of June 30, 2015, and will be amortized into interest expense on the consolidated statements of earnings over the 10-year term of the notes. Foreign Currency Risk Management The Company may also enter into certain over-the-counter foreign currency-related derivative contracts to manage a portion of the Company’s forecasted foreign currency exposure associated with the purchase of inventory and certain intercompany transactions. These foreign currency contracts generally have durations of no longer than 16 months. The foreign exchange contracts are measured at fair value using information quoted by foreign exchange dealers. The notional amounts of outstanding foreign currency forward contracts used by the Company’s subsidiaries in Canada, Australia and New Zealand to hedge forecasted purchases of inventory were $64, $35 and $6, respectively, as of June 30, 2015, and $54, $28 and $5, respectively, as of June 30, 2014. Counterparty Risk Management 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 $8 and $17 of the derivative instruments reflected in accrued liabilities as of June 30, 2015 and 2014, respectively, $8 and $11, respectively, contained such terms. As of both June 30, 2015 and 2014, neither the Company nor any counterparty was required to post any collateral. Certain terms of the agreements governing the Company’s over-the-counter derivative instruments require the credit ratings, as assigned by Standard & Poor’s and Moody’s to the Company and its counterparties, to remain at a level equal to or better than the minimum of an investment grade credit rating. If the Company’s credit ratings were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. As of both June 30, 2015 and 2014, the Company and each of its counterparties had been assigned investment grade ratings by both Standard & Poor’s and Moody’s. Certain of the Company’s exchange-traded futures contracts used for commodity price risk management include requirements for the Company to post collateral in the form of a cash margin account held by the Company’s broker for trades conducted on that exchange. As of June 30, 2015 and June 30, 2014, the Company maintained cash margin balances related to exchange-traded futures contracts of $2 and $1, respectively, which are classified as Other current assets on the consolidated balance sheets. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-45 |
Table of Contents NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued) Fair Value of Financial Instruments The following table summarizes the Company’s assets and liabilities that were measured at fair value in the consolidated balance sheets as of June 30: | | | | | | 2015 | | 2014 | | | Balance sheet classification | | Fair value hierarchy level | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | | Assets | | | | | | | | | | | | | | | | | | | | | | Investments including money market funds(a) | | Cash and cash equivalents | | 1 | | | $ | 212 | | | $ | 212 | | | $ | 150 | | | $ | 150 | | Time deposits(a) | | Cash and cashequivalents | | 2 | | | | 84 | | | | 84 | | | | 75 | | | | 75 | | Foreign exchange derivative contracts | | Other current assets | | 2 | | | | 1 | | | | 1 | | | | — | | | | — | | Interest rate contracts | | Other current assets | | 2 | | | | — | | | | — | | | | — | | | | — | | Commodity purchase derivative contracts | | Other current assets | | 2 | | | | — | | | | — | | | | 1 | | | | 1 | | Trust assets for nonqualified deferred compensation plans | | Other assets | | 1 | | | | 38 | | | | 38 | | | | 31 | | | | 31 | | | | | | | | | $ | 335 | | | $ | 335 | | | $ | 257 | | | $ | 257 | | Liabilities | | | | | | | | | | | | | | | | | | | | | | Commodity purchase derivative contracts | | Accrued liabilities | | 2 | | | $ | 8 | | | $ | 8 | | | $ | 1 | | | $ | 1 | | Interest rate derivative contracts | | Accrued liabilities | | 2 | | | | — | | | | — | | | | 13 | | | | 13 | | Foreign exchange derivative contracts | | Accrued liabilities | | 2 | | | | — | | | | — | | | | 3 | | | | 3 | | Commodity purchase derivative contracts | | Other liabilities | | 2 | | | | — | | | | — | | | | — | | | | — | | Notes and loans payable(b) | | Notes and loanspayable | | 2 | | | | 95 | | | | 95 | | | | 143 | | | | 143 | | Long-term debt(c) | | Other liabilities | | 2 | | | | 2,096 | | | | 2,137 | | | | 2,170 | | | | 2,265 | | | | | | | | | $ | 2,199 | | | $ | 2,240 | | | $ | 2,330 | | | $ | 2,425 | | |
(a) | | 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 equivalents are recorded at cost, which approximates fair value. | (b) | | Short-term debt 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) | | Long-term debt, which is recorded at cost, includes the current portion of debt instruments, which approximates fair value. The fair value of long-term debt was determined using secondary market prices quoted by corporate bond dealers, and was 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. The effects of derivative instruments designated as hedging instruments on other comprehensive net (losses) income and the consolidated statements of earnings and the consolidated statements of comprehensive income were as follows during the fiscal years ended June 30: | | Gains (losses) recognized in other comprehensive net loss | | Gains (losses) reclassified from accumulated other comprehensive net loss and recognized in earnings | | | | 2015 | | | 2014 | | | 2013 | | | | 2015 | | | 2014 | | | 2013 | | | Commodity purchase derivative contracts | | | | $ | (13 | ) | | | $ | 2 | | | | $ | (1 | ) | | | | $ | (5 | ) | | | $ | — | | | | $ | — | | | Interest rate derivative contracts | | | | | (12 | ) | | | | (13 | ) | | | | (1 | ) | | | | | (5 | ) | | | | (4 | ) | | | | (3 | ) | | Foreign exchange derivative contracts | | | | | 7 | | | | | (3 | ) | | | | 3 | | | | | | 3 | | | | | 4 | | | | | — | | | Total | | | | $ | (18 | ) | | | $ | (14 | ) | | | $ | 1 | | | | | $ | (7 | ) | | | $ | — | | | | $ | (3 | ) | | |
B-46 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued) The gains (losses) reclassified from accumulated other comprehensive net (losses) income and recognized in earnings during the fiscal years ended June 30, 2015, 2014 and 2013, for commodity purchase and foreign exchange contracts were included in cost of products sold. The losses reclassified from accumulated other comprehensive net (losses) income and recognized in earnings during the fiscal years ended June 30, 2015, 2014 and 2013, for interest rate contracts were included in interest expense. The estimated amount of the existing net loss in accumulated other comprehensive net (losses) income as of June 30, 2015, which is expected to be reclassified into earnings within the next twelve months, is $13. Gains and losses on derivative instruments representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. During each of the fiscal years ended June 30, 2015, 2014 and 2013, hedge ineffectiveness was not significant. 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 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 marketablesecurities as trading investments. The participants 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 plans and within the confines of the trusts which hold the marketable securities. The value of the trust assets related to certain of the Company’s nonqualified deferred compensation plans increased by $7 as compared to June 30, 2014, primarily due to current quarter employees’ contributions to these plans and market returns. NOTE 11. 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$12 and $13$14 as of June 30, 20142015 and 2013,2014, 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, 20142015 and 2013.2014. 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 Company’s 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 Company’s exposure may exceed the amount recorded, any amount of such additional exposures, or range of exposures, is not estimable at this time. In October 2012, a Brazilian appellate court issued an adverse decision in a lawsuit pending in Brazil against the Company and one of its wholly owned subsidiaries, The Glad Products Company (Glad). The lawsuit, which was initially filed in a Brazilian lower court in 2002 by two Brazilian companies and one Uruguayan company (collectively, Petroplus) related, relates to joint venture agreements for the distribution of STP auto-care products in Brazil with three companies that became subsidiaries of the Company as a result of the Company’s merger with First Brands Corporation in January 1999 (collectively, Clorox Subsidiaries). The pending lawsuit seeks indemnification for damages and losses for alleged breaches of the joint venture agreements and abuse of economic power by the Company and Glad. Petroplus had previously unsuccessfully raised the same claims and sought damages from the Company and the Clorox Subsidiaries in an International Chamber of Commerce (ICC) arbitration proceeding in Miami, Florida, filed in Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-47 |
Table of Contents NOTE 11. OTHER CONTINGENCIES AND GUARANTEES (Continued) 2001. The ICC arbitration panel unanimously ruled against Petroplus in a final decision in November 2003 (Final ICC Arbitration Award). The Final ICC Arbitration Award was ratified by the Superior Court of Justice of Brazil in May 2007 (Foreign Judgment), and the United States District Court for the Southern District of Florida subsequently confirmed the Final ICC Arbitration Award and recognized and adopted the Foreign Judgment as a judgment of the United States District Court for the Southern District of Florida (U.S. Judgment). Despite this, in March 2008, a Brazilian lower court ruled against the Company and Glad in the pending lawsuit and awarded Petroplus R$23 ($13) plus interest.lawsuit. The value of thatthe judgment against the Company, including interest and foreign exchange fluctuations as of June 30, 2014,2015, was approximately $39.$32. Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
| A-45 |
Table of Contents
NOTE 11. OTHER CONTINGENCIES AND GUARANTEES (Continued)
Among other defenses, because the Final ICC Arbitration Award, the Foreign Judgment and the U.S. Judgment relate to the same claims as those in the pending lawsuit, the Company believes that Petroplus is precluded from re-litigating these claims. Based on the unfavorable appellate court decision, however, the Company believes that it is reasonably possible that a loss could be incurred in this matter in excess of amounts accrued, and that the estimated range of such loss in this matter is from $0 to $33. $26. The Company continues to believe that its defenses are meritorious, and has appealed the decision to the highest courts of Brazil. In December 2013, in the first stage of the appellate process, in December 2013 the appellate court declined to admit the Company’s appeals to the highest courts. The Company then appealed directly to the highest courts andcourts. While in May 2014 the SupremeSuperior Court of Justice originally agreed to consider the Company’s appeal.appeal, in December 2014 the same court declined to admit the appeal based on procedural grounds. The Company successfully appealed that decision and the court agreed to admit the appeal in March 2015. The appeal is currently pending and it is possible that a final decision in this case could be issued as early as the first quarter of fiscal year 2016. Expenses related to this litigation have been, and any potential additional loss would be, reflected in discontinued operations, consistent with the Company’s classification of expenses related to its discontinued Brazil operations. In a separate action filed in 2004 by Petroplus, in January 2013, a lower Brazilian court in January 2013 nullified the Final ICC Arbitration Award. The Company believes this judgment is inconsistent with the Foreign Judgment and the U.S. Judgment and that it is without merit. The Company appealed this decision, and the lower court decision was overturned by the appellate court in April 2014. Petroplus has appealed this decision to Brazil’s highest court. Glad and the Clorox Subsidiaries have also filed separate lawsuits against Petroplus alleging misuse of the STP trademark and related matters, which are currently pending before Brazilian courts, and have taken other legal actions against Petroplus, which are pending. Additionally, in November 2013, the Clorox Subsidiaries initiated a new ICC arbitration seeking damages against Petroplus. The Company is subject to various other lawsuits, claims and other loss contingencies relating to issues such as contract disputes, product liability, patents and trademarks, advertising, and employeecommercial, administrative, employment claims and other matters. Based on management’s analysis, it is the opinion of management that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on the Company’s consolidated financial statements taken as a whole. Guarantees In conjunction with divestitures and other transactions, the Company may provide typical indemnifications (e.g., indemnifications for representations and warranties and retention of previously existing environmental, tax and employee liabilities) that have terms that vary in duration and in the potential amount of the total obligation and, in many circumstances, are not explicitly defined. The Company has not made, nor does it believe that it is probable that it will make, any material payments relating to its indemnifications, and believes that any reasonably possible payments would not have a material adverse effect, individually or in the aggregate, on the Company’s consolidated financial statements taken as a whole. The Company had not recorded any liabilities on the aforementioned guaranteesindemnifications as of June 30, 20142015 and 2013.2014. As of June 30, 2014,2015, the Company was a party to letters of credit of $12,$11, primarily related to one of its insurance carriers, of which $0 had been drawn upon. B-48 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 12. LEASES AND OTHER COMMITMENTS The Company leases transportation and manufacturing equipment, certain information technology equipment and various manufacturing, warehousing, and office facilities. The majority of the Company’s leases are classified as operating leases, and the Company’s existing contracts will expire by 2027. 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 $76, $71 and $71 in fiscal years 2015, 2014 and 2013, respectively. The future minimum annual lease commitments required under the Company’s existing non-cancelable operating and capital lease agreements as of June 30, 2015, were as follows: Year | | Operating leases | | Capital leases | | 2016 | | | $ | 50 | | | $ | 3 | | 2017 | | | | 46 | | | | 3 | | 2018 | | | | 42 | | | | 2 | | 2019 | | | | 34 | | | | 1 | | 2020 | | | | 29 | | | | — | | Thereafter | | | | 100 | | | | — | | Total | | | $ | 301 | | | $ | 9 | | | |
Included within the future minimum lease commitments for operating leases disclosed above are future minimum rental payments required under the Company’s existing non-cancelable lease agreements for the corporate headquarters and primary research and development facility as of June 30, 2015, in the amounts of $6, $7, $7, $7, $7 and $22 in fiscal years 2016, 2017, 2018, 2019, 2020 and thereafter, respectively. The Company is also a party to certain purchase obligations, which are defined as purchase agreements that are enforceable and legally binding and that contain specified or determinable significant terms, including quantity, price and the approximate timing of the transaction. Examples of the Company’s purchase obligations include contracts to purchase raw materials, commitments to contract manufacturers, commitments for information technology and related services, advertising contracts, capital expenditure agreements, software acquisition and license commitments and service contracts. The Company enters into purchase obligations during the regular course of business based on expectations of future needs. Many of these purchase obligations contracts are short term in nature and are flexible to allow for changes in the Company’s business and related requirements. As of June 30, 2015, the Company’s purchase obligations totaled $176, $57, $37, $30, $7 and $0 for fiscal years 2016, 2017, 2018, 2019, 2020 and thereafter, respectively. NOTE 13. STOCKHOLDERS’ EQUITY On May 13, 2013, the Company’s board of directors terminated the share repurchase programs previously authorized on May 13, 2008, and May 18, 2011, and authorized a new share repurchase program for an aggregate purchase amount of up to $750. This open market share repurchase program is in addition to the Company’s evergreen repurchase program (Evergreen Program), the purpose of which is to offset the impact of stock dilution related to stock-based awards. The Evergreen Program has no authorization limit as to amount or timing of repurchases. A-46 THE CLOROX COMPANY- 2014 Proxy Statement
Table of Contents
Appendix A
NOTE 12. STOCKHOLDERS’ EQUITY (Continued)
Share repurchases under authorized programs were as follows during the fiscal years ended June 30: | | 2014 | | 2013 | | 2012 | | | Amount | Shares (000) | | Amount | Shares (000) | | Amount | Shares (000) | | | Open-market purchase programs | | $ | — | | — | | | $ | — | | — | | | $ | 158 | | 2,429 | | | Evergreen Program | | | 260 | | 3,046 | | | | 128 | | 1,500 | | | | 67 | | 990 | | | Total | | $ | 260 | | 3,046 | | | $ | 128 | | 1,500 | | | $ | 225 | | 3,419 | | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | 2014 | | 2013 | | | Amount | | Shares (in 000's) | | Amount | | Shares (in 000's) | | Amount | | Shares (in 000's) | | Open-market purchase programs | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | Evergreen Program | | | | 434 | | | 4,016 | | | | 260 | | | 3,046 | | | | 128 | | | 1,500 | | Total | | | $ | 434 | | | 4,016 | | | $ | 260 | | | 3,046 | | | $ | 128 | | | 1,500 | | |
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Table of Contents NOTE 13. STOCKHOLDERS’ EQUITY (Continued) During fiscal years 2015, 2014 2013 and 2012,2013, the Company declared dividends per share of $2.99, $2.87 $2.63 and $2.44,$2.63, respectively, and paid dividends per share of $2.96, $2.84 and $2.56, and $2.40, respectively. In February 2013, the FASB issued an update to current accounting standards related to disclosures of reclassifications out of accumulated other comprehensive income. The presentation requirements were adopted by the Company effective July 1, 2013, and are reflected below.
Changes in accumulated other comprehensive net losses(losses) income by component were as follows:follows for the fiscal years ended June 30: | | Foreign currency translation adjustments | | Net unrealized (losses) gains on derivatives | | Pension and postretirement benefit adjustments | | Total | | | Balance as of June 30, 2012, net of tax | | $ | (198 | ) | | | $ | (33 | ) | | | $ | (165 | ) | | $ | (396 | ) | | | Other comprehensive (loss) income before reclassifications | | | (11 | ) | | | | — | | | | | 31 | | | | 20 | | | | Amounts reclassified from accumulated other comprehensive | | | | | | | | | | | | | | | | | | | | | net losses | | | — | | | | | 3 | | | | | 6 | | | | 9 | | | | Net other comprehensive (loss) income | | | (11 | ) | | | | 3 | | | | | 37 | | | | 29 | | | | Balance as of June 30, 2013, net of tax | | $ | (209 | ) | | | $ | (30 | ) | | | $ | (128 | ) | | $ | (367 | ) | | | Other comprehensive losses before reclassifications | | | (37 | ) | | | | (9 | ) | | | | (9 | ) | | | (55 | ) | | | Amounts reclassified from accumulated other | | | | | | | | | | | | | | | | | | | | | comprehensive net losses | | | — | | | | | — | | | | | 5 | | | | 5 | | | | Net other comprehensive losses | | | (37 | ) | | | | (9 | ) | | | | (4 | ) | | | (50 | ) | | | Balance as of June 30, 2014, net of tax | | $ | (246 | ) | | | $ | (39 | ) | | | $ | (132 | ) | | $ | (417 | ) | | | | | | | | | | | | | | | | | | | | | | |
| | 2015 | | | 2014 | | | 2013 | | | Foreign currency adjustments | | | | | | | | | | | | | | | | | Other comprehensive (loss) income before reclassifications | | | $ | (92 | ) | | | $ | (26 | ) | | | $ | (16 | ) | | Amounts reclassified from accumulated other comprehensive net losses: | | | | | | | | | | | | | | | | | Recognition of deferred foreign currency translation loss | | | | 30 | | | | | — | | | | | — | | | Income tax benefit (expense) | | | | 8 | | | | | (11 | ) | | | | 5 | | | Foreign currency adjustments, net of tax | | | $ | (54 | ) | | | $ | (37 | ) | | | $ | (11 | ) | | | | Net unrealized (losses) gains on derivatives | | | | | | | | | | | | | | | | | Other comprehensive income (loss) before reclassifications | | | $ | (18 | ) | | | $ | (15 | ) | | | $ | 1 | | | Amounts reclassified from accumulated other comprehensive net losses | | | | 7 | | | | | — | | | | | 3 | | | Income tax (expense) benefit | | | | (3 | ) | | | | 6 | | | | | (1 | ) | | Net unrealized (losses) gains on derivatives, net of tax | | | $ | (14 | ) | | | $ | (9 | ) | | | $ | 3 | | | | | Pension and postretirement benefit adjustments | | | | | | | | | | | | | | | | | Other comprehensive (loss) income before reclassifications | | | $ | (29 | ) | | | $ | (16 | ) | | | $ | 49 | | | Amounts reclassified from accumulated other comprehensive net losses | | | | — | | | | | 8 | | | | | 10 | | | Income tax benefit (expense) | | | | 12 | | | | | 4 | | | | | (22 | ) | | Pension and postretirement benefit adjustments, net of tax | | | $ | (17 | ) | | | $ | (4 | ) | | | $ | 37 | | | | | | | | | | | | | | | | | | | | Total changes in other comprehensive (losses) income, net of tax | | | $ | (85 | ) | | | $ | (50 | ) | | | $ | 29 | | | |
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, 2015, 2014 and 2013, other comprehensive losses on these loans totaled $9, $12 and $1, 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 and selling and administrative expenses. NOTE 13.14. 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: | | 2014 | | 2013 | | 2012 | | | Basic | 129,558 | | 131,075 | | 130,852 | | | Dilutive effect of stock options and other | 2,184 | | 1,894 | | 1,458 | | | Diluted | 131,742 | | 132,969 | | 132,310 | | | | | | | | | |
| 2015 | | 2014 | | 2013 | | Basic | 130,310 | | 129,558 | | 131,075 | | Dilutive effect of stock options and other | 2,466 | | 2,184 | | 1,894 | | Diluted | 132,776 | | 131,742 | | 132,969 | | |
During fiscal years 2015, 2014 and 2013, the Company included allthere were approximately zero stock options to purchase shares ofand restricted stock units that were considered antidilutive and excluded from the Company’s common stock in the calculations of diluted net EPS because the average market price was greater than the exercise price of all outstanding options.calculation. Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
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B-50 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents NOTE 13. NET EARNINGS PER SHARE (EPS) (Continued)
During fiscal year 2012, the Company did not include stock options to purchase approximately 1.8 million shares of the Company’s common stock in the calculations of diluted net EPS because their exercise price was greater than the average market price, making them anti-dilutive.Appendix B
NOTE 14.15. STOCK-BASED COMPENSATION PLANS In November 2012, the Company’s stockholders voted to approve the amended and restated 2005 Stock Incentive Plan (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, 2014,Pursuant to the Plan, the Company is authorized to grantissue up to 7 million common shares. As of June 30, 2015, approximately 7 million common shares under the Plan and, as of June 30, 2014, approximately 6 million shares were available for grant.grant under the plan. 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. | | 2014 | | 2013 | | 2012 | | | Cost of products sold | | $ | 4 | | | $ | 4 | | | $ | 3 | | | Selling and administrative expenses | | | 29 | | | | 28 | | | | 22 | | | Research and development costs | | | 3 | | | | 3 | | | | 2 | | | Total compensation cost | | $ | 36 | | | $ | 35 | | | $ | 27 | | | Related income tax benefit | | $ | 13 | | | $ | 13 | | | $ | 10 | | | | | | | | | | | | | | | |
| | 2015 | | 2014 | | 2013 | | Cost of products sold | | | $ | 4 | | | $ | 4 | | | $ | 4 | | Selling and administrative expenses | | | | 25 | | | | 29 | | | | 28 | | Research and development costs | | | | 3 | | | | 3 | | | | 3 | | Total compensation cost | | | $ | 32 | | | $ | 36 | | | $ | 35 | | Related income tax benefit | | | $ | 12 | | | $ | 13 | | | $ | 13 | |
Cash received during fiscal years 2015, 2014 2013 and 20122013 from stock options exercised under all stock-based payment arrangements was $230, $86 $121 and $79,$121, 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 (Note 12 – Stockholders’ Equity)(see Note 13). Details regarding the valuation and accounting for stock options, restricted stock awards, performance units and deferred stock units for non-employee directors follow. Stock Options The fair value of each stock option award granted during fiscal years 2015, 2014 2013 and 20122013 was estimated on the date of grant using the Black-Scholes valuation model and assumptions noted in the following table: | | 2014 | | 2013 | | 2012 | | | Expected life | 5.7 years | | 5.7 years | | 4.9 - 5.7 years | | | Weighted-average expected life | 5.7 years | | 5.7 years | | 5.7 years | | | Expected volatility | 18.4% to 18.5% | | 18.7% to 19.2% | | 21.9% to 25.9% | | | Weighted-average volatility | 18.5% | | 19.1% | | 23.5% | | | Risk-free interest rate | 1.8% to 1.9% | | 0.6% to 0.8% | | 0.9% to 1.1% | | | Weighted-average risk-free interest rate | 1.8% | | 0.7% | | 0.9% | | | Dividend yield | 3.4% | | 3.2%-3.6% | | 3.5%-3.8% | | | Weighted-average dividend yield | 3.4% | | 3.6% | | 3.5% | |
| 2015 | | 2014 | | 2013 | | Expected life | 5.6 to 5.8 years | | 5.7 years | | 5.7 years | | Weighted-average expected life | 5.7 years | | 5.7 years | | 5.7 years | | Expected volatility | 16.3% to 18.6% | | 18.4% to 18.5% | | 18.7% to 19.2% | | Weighted-average volatility | 16.6% | | 18.5% | | 19.1% | | Risk-free interest rate | 1.4% to 2.0% | | 1.8% to 1.9% | | 0.6% to 0.8% | | Weighted-average risk-free interest rate | 1.9% | | 1.8% | | 0.7% | | Dividend yield | 2.8% to 3.4% | | 3.4% | | 3.2%-3.6% | | Weighted-average dividend yield | 3.3% | | 3.4% | | 3.6% | |
A-48 THE CLOROX COMPANY- 2014 Proxy Statement
Table of Contents
Appendix A
NOTE 14. STOCK-BASED COMPENSATION PLANS (Continued)
The expected life of the stock options is based on observed historical exercise patterns. Groups of employees having similar historical exercise behavior are considered separately for valuation purposes. The Company estimates stock option forfeitures based on historical data for employee groups. The total number of stock options expected to vest is adjusted by actual and estimated forfeitures. The expected volatility is based on implied volatility from publicly traded options on the Company’s stock at the date of grant, historical implied volatility of the Company’s publicly traded options and other factors. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield is based on the projected annual dividend payment per share, divided by the stock price at the date of grant. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-51 |
Table of Contents NOTE 15. STOCK-BASED COMPENSATION PLANS (Continued) Details of the Company’s stock option activities are summarized below: | | | Number of Shares | | | Weighted- Average Exercise Price per Share | | Average Remaining Contractual Life | | Aggregate Intrinsic Value | | | | | (In thousands) | | | | | | | | | | | | Options outstanding as of June 30, 2013 | | | 10,257 | | | $ | 65 | | 7 years | | $ | 184 | | | Granted | | | 1,795 | | | | 84 | | | | | | | | Exercised | | | (1,450 | ) | | | 60 | | | | | | | | Cancelled | | | (234 | ) | | | 75 | | | | | | | | Options outstanding as of June 30, 2014 | | | 10,368 | | | $ | 69 | | 6 years | | $ | 232 | | | Options vested as of June 30, 2014 | | | 5,772 | | | $ | 64 | | 5 years | | $ | 159 | |
| Number of Shares (In thousands) | | | Weighted- Average Exercise Price per Share | | Average Remaining Contractual Life | | Aggregate Intrinsic Value | | Options outstanding as of June 30, 2014 | | 10,368 | | | $69 | | 6 years | | $232 | | Granted | | 1,895 | | | 91 | | | | | | Exercised | | (3,605 | ) | | 64 | | | | | | Cancelled | | (301 | ) | | 82 | | | | | | Options outstanding as of June 30, 2015 | | 8,357 | | | $76 | | 7 years | | $236 | | Options vested as of June 30, 2015 | | 4,094 | | | $68 | | 5 years | | $148 | |
The weighted-average fair value per share of each option granted during fiscal years 2015, 2014 2013 and 2012,2013, estimated at the grant date using the Black-Scholes option pricing model was $9.65, $9.69 $6.96 and $9.24,$6.96, respectively. The total intrinsic value of options exercised in fiscal years 2015, 2014 and 2013 was $140, $42 and 2012 was $42, $45, and $29, respectively. Stock option awards outstanding as of June 30, 2014,2015, have been granted at prices that are either equal to or above 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, 2014,2015, there was $17 of total unrecognized compensation cost related to non-vested options, which is expected to be recognized over a remaining weighted-average vesting period of 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, 2014,2015, 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 2015, 2014 and 2013 and 2012 was less than $1, $1 and $3, respectively.$1. The weighted-average grant-date fair value of awards granted was $95.67, $89.25 $72.28 and $68.52$72.28 per share for fiscal years 2015, 2014 and 2013, and 2012, respectively. Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
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Table of Contents
NOTE 14. STOCK-BASED COMPENSATION PLANS (Continued)
A summary of the status of the Company’s restricted stock awards as of June 30 is presented below:
| | | Number of Shares | | | Weighted-Average Grant Date Fair Value per Share |
| | | (In thousands) | | | | | | | Restricted stock awards as of June 30, 2013 | | | 11 | | | $ | 68 | | | Granted | | | 13 | | | | 89 | | | Vested | | | (3 | ) | | | 67 | | | Forfeited | | | — | | | | — | | | Restricted stock awards as of June 30, 2014 | | | 21 | | | $ | 81 | | |
| Number of Shares (In thousands) | | | Weighted-Average Grant Date Fair Value per Share | | Restricted stock awards as of June 30, 2014 | | 21 | | | $81 | | Granted | | 10 | | | 96 | | Vested | | (8 | ) | | 78 | | Forfeited | | (5 | ) | | 81 | | Restricted stock awards as of June 30, 2015 | | 18 | | | $91 | | |
B-52 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 15. STOCK-BASED COMPENSATION PLANS (Continued) Performance Units The Company’s performance unit grants provide for the issuance of common stock to certain managerial staff and executive management if the Company achieves certain performance targets. The performance period is three years and the final 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 actual and estimated forfeitures, and the initial assumption that performance goals will be achieved. Compensation expense is adjusted, as necessary, on a quarterly basis based on management’s 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, any previously recognized compensation expense is adjusted 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% of the grant day target. The number of shares issued will be dependent upon vesting and the achievement of specified performance targets. As of June 30, 2014,2015, there was $19$16 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 $89.75, $84.45 $72.11 and $68.17$72.11 per share for fiscal years 2015, 2014 2013 and 2012,2013, respectively. A summary of the status of the Company’s performance unit awards as of June 30 is presented below:
| | | Number of Shares | | | Weighted-Average Grant Date Fair Value per Share |
| | | (In thousands) | | | | | | | | Performance unit awards as of June 30, 2013 | | | 1,335 | | | | $ | 66 | | | Granted | | | 347 | | | | | 84 | | | Distributed | | | (35 | ) | | | | 54 | | | Forfeited | | | (426 | ) | | | | 67 | | | Performance unit awards as of June 30, 2014 | | | 1,221 | | | | $ | 73 | | | Performance units vested and deferred as of June 30, 2014 | | | 168 | | | | $ | 56 | |
A-50 THE CLOROX COMPANY - 2014 Proxy Statement
| Number of Shares (In thousands) | | | Weighted-Average Grant Date Fair Value per Share | | Performance unit awards as of June 30, 2014 | | 1,221 | | | $73 | | Granted | | 332 | | | 90 | | Distributed | | (349 | ) | | 68 | | Forfeited | | (81 | ) | | 80 | | Performance unit awards as of June 30, 2015 | | 1,123 | | | $79 | | Performance units vested and deferred as of June 30, 2015 | | 179 | | | $58 | |
Table of Contents
Appendix A
NOTE 14. STOCK-BASED COMPENSATION PLANS (Continued)
The non-vested performance units outstanding as of June 30, 2015 and 2014 were 944,000 and 2013, were 1,053,000, and 1,116,000, respectively, and the weighted average grant date fair value was $74.68$81.92 and $69.01$74.68 per share, respectively. NoTotal shares vested during fiscal year 2014.2015 were 357,000, which had a weighted average grant date fair value per share of $68.15. During fiscal year 2015, $23 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 $24, $0 $14 and $34$14 during fiscal years 2015, 2014 2013 and 2012,2013, respectively. Upon vesting, the recipients of the grants receive the distribution as shares or, if previously elected by eligible recipients, as deferred stock. During fiscal year 2013, $13 of the vested awards was paid by the issuance of shares. During fiscal year 2013, $1 of the vested awards was deferred. Deferred shares continue to earn dividends, which are also deferred. Deferred Stock Units for Nonemployee Directors Nonemployee directors receive annual grants of deferred stock units under the Company’s director compensation program and can elect to receive all or a portion of their annual retainers and fees in the form of deferred stock units. The deferred stock units receive dividend distributions, which are reinvested as deferred stock units, and are recognized at their fair value on the date of grant. Each deferred stock unit represents the right to receive one share of the Company’s common stock following the completion of a director’s service. During fiscal year 2014,2015, the Company granted 16,00014,000 deferred stock units, reinvested dividends of 7,000 units and distributed 23,00014,000 shares, which had a weighted-average fair value on grant date of $91.79, $88.96$103.99, $100.59 and $66.79$62.82 per share, respectively. As of June 30, 2014, 233,0002015, 241,000 units were outstanding, which had a weighted-average fair value on the grant date of $62.84$66.26 per share. NOTE 15. LEASES AND OTHER COMMITMENTS
The Company leases transportation equipment, certain information technology equipment and various manufacturing, warehousing, and office facilities. The Company’s leases are classified as operating leases, and the Company’s existing contracts will expire by 2027. 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 $71, $71 and $68 in fiscal years 2014, 2013 and 2012, respectively. The future minimum rental payments required under the Company’s existing non-cancelable lease agreements as of June 30, 2014, are expected to be $47, $45, $41, $37, $32 and $127 in fiscal years 2015, 2016, 2017, 2018, 2019 and thereafter, respectively.
The future minimum rental payments required under the Company’s existing non-cancelable lease agreement’s for the corporate headquarters and primary research and development facility as of June 30, 2014, are expected to be $10, $11, $11, $11, $11 and $69 in fiscal years 2015, 2016, 2017, 2018, 2019 and thereafter, respectively. These amounts are included in the Company’s future minimum rental payments disclosed above.
The Company is also a party to certain purchase obligations, which are defined as purchase agreements that are enforceable and legally binding and that contain specified or determinable significant terms, including quantity, price and the approximate timing of the transaction. Examples of the Company’s purchase obligations include contracts to purchase raw materials, commitments to contract manufacturers, commitments for information technology and related services, advertising contracts, utility agreements, capital expenditure agreements, software acquisition and license commitments and service contracts. Approximately 17% of the Company’s purchase obligations in fiscal years 2015 through 2019 relate to service contracts for information technology that has been outsourced. The contracts included above are entered into during the regular course of business based on expectations of future needs. Many of these contracts are short term in nature and are flexible to allow for changes in the Company’s business and related requirements. As of June 30, 2014, the Company’s purchase obligations, including the services related to information technology, totaled $246, $87, $65, $51, $33 and $7 for fiscal years 2015, 2016, 2017, 2018, 2019 and thereafter, respectively.
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Table of Contents NOTE 16. OTHER EXPENSE (INCOME),INCOME, NET The major components of other expense (income),income, net, for the fiscal years ended June 30 were: | | | 2014 | | | 2013 | | | 2012 | | | | Foreign exchange transaction losses, net (Note 1) | | | $ | 11 | | | | $ | 11 | | | | $ | 1 | | | | Amortization of trademarks and other intangible assets (Note 6) | | | | 8 | | | | | 9 | | | | | 9 | | | | Intangible asset impairment charges (Note 6) | | | | 4 | | | | | — | | | | | — | | | | Income from equity investees | | | | (13 | ) | | | | (12 | ) | | | | (11 | ) | | | Interest income | | | | (3 | ) | | | | (3 | ) | | | | (3 | ) | | | Income from transition and related services | | | | (1 | ) | | | | (3 | ) | | | | (6 | ) | | | Low-income housing partnership gains | | | | — | | | | | 4 | | | | | (2 | ) | | | Other, net | | | | (4 | ) | | | | 2 | | | | | (1 | ) | | | Total | | | $ | 2 | | | | $ | — | | | | $ | (13 | ) | | |
| 2015 | | | 2014 | | | 2013 | | | Income from equity investees | | $ | (14 | ) | | | $ | (13 | ) | | | $ | (12 | ) | | Low income housing partnership gains, net | | | (13 | ) | | | | — | | | | | (2 | ) | | Interest income | | | (4 | ) | | | | (3 | ) | | | | (3 | ) | | Income from transition and related services | | | (1 | ) | | | | (1 | ) | | | | (3 | ) | | Foreign exchange transaction losses, net | | | 9 | | | | | 1 | | | | | 8 | | | Amortization of trademarks and other intangible assets | | | 8 | | | | | 8 | | | | | 9 | | | Intangible asset impairment charges | | | 3 | | | | | 3 | | | | | — | | | Restructuring charges | | | 2 | | | | | — | | | | | — | | | Insurance and other settlements | | | — | | | | | (5 | ) | | | | — | | | Other | | | (3 | ) | | | | — | | | | | (1 | ) | | Total | | $ | (13 | ) | | | $ | (10 | ) | | | $ | (4 | ) | | |
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. The Company’s investment balance as of June 30, 2015 and 2014, was $0 and 2013, was $4, and $6, respectively. 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 toOther income, net, on the consolidated statement of earnings for the year ended June 30, 2015. B-54 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 17. INCOME TAXES The provision for income taxes on continuing operations, by tax jurisdiction, consisted of the following as of June 30: | | | 2014 | | | 2013 | | | 2012 | | | | Current | | | | | | | | | | | | | | | Federal | | $ | 231 | | | $ | 247 | | | $ | 200 | | | | State | | | 33 | | | | 23 | | | | 12 | | | | Foreign | | | 45 | | | | 20 | | | | 48 | | | | Total current | | | 309 | | | | 290 | | | | 260 | | | | Deferred | | | | | | | | | | | | | | | Federal | | | (10 | ) | | | (10 | ) | | | — | | | | State | | | 2 | | | | (2 | ) | | | 1 | | | | Foreign | | | (2 | ) | | | 1 | | | | (13 | ) | | | Total deferred | | | (10 | ) | | | (11 | ) | | | (12 | ) | | | Total | | $ | 299 | | | $ | 279 | | | $ | 248 | | | |
| 2015 | | | 2014 | | | 2013 | | | Current | | | | | | | | | | | | | | | | Federal | | $ | 265 | | | | $ | 247 | | | | $ | 245 | | | State | | | 28 | | | | | 34 | | | | | 23 | | | Foreign | | | 38 | | | | | 45 | | | | | 19 | | | Total current | | | 331 | | | | | 326 | | | | | 287 | | | Deferred | | | | | | | | | | | | | | | | Federal | | | (13 | ) | | | | (19 | ) | | | | (1 | ) | | State | | | (1 | ) | | | | 2 | | | | | (2 | ) | | Foreign | | | (2 | ) | | | | (4 | ) | | | | (5 | ) | | Total deferred | | | (16 | ) | | | | (21 | ) | | | | (8 | ) | | Total | | $ | 315 | | | | $ | 305 | | | | $ | 279 | | | |
A-52 THE CLOROX COMPANY - 2014 Proxy Statement
Table of Contents
Appendix A
NOTE 17. INCOME TAXES (Continued)
The components of earnings from continuing operations before income taxes, by tax jurisdiction, consisted of the following as of June 30: | | | 2014 | | 2013 | | 2012 | | | United States | | $ | 756 | | $ | 731 | | $ | 655 | | | Foreign | | | 105 | | | 122 | | | 136 | | | Total | | $ | 861 | | $ | 853 | | $ | 791 | | |
| 2015 | | 2014 | | 2013 | | United States | | $ | 829 | | | $ | 754 | | | $ | 724 | | Foreign | | | 92 | | | | 130 | | | | 128 | | Total | | $ | 921 | | | $ | 884 | | | $ | 852 | | |
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate on continuing operations follows as of June 30: | | | 2014 | | 2013 | | 2012 | | | Statutory federal tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % | | | State taxes (net of federal tax benefits) | | 2.7 | | | 1.7 | | | 1.1 | | | | Tax differential on foreign earnings | | (1.3 | ) | | (3.3 | ) | | (2.5 | ) | | | Domestic manufacturing deduction | | (2.4 | ) | | (2.3 | ) | | (2.2 | ) | | | Change in Valuation Allowance | | 2.8 | | | 2.0 | | | 0.8 | | | | Other differences | | (2.1 | ) | | (0.4 | ) | | (0.8 | ) | | | Effective tax rate | | 34.7 | % | | 32.7 | % | | 31.4 | % | | |
| 2015 | | 2014 | | 2013 | | Statutory federal tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % | | State taxes (net of federal tax benefits) | 2.1 | | | 2.6 | | | 1.7 | | | Tax differential on foreign earnings | (0.3 | ) | | (0.3 | ) | | (2.9 | ) | | Domestic manufacturing deduction | (2.1 | ) | | (2.3 | ) | | (2.3 | ) | | Change in valuation allowance | 0.6 | | | 0.6 | | | 0.7 | | | Other differences | (1.1 | ) | | (1.0 | ) | | 0.5 | | | Effective tax rate | 34.2 | % | | 34.6 | % | | 32.7 | % | | |
The lower effective tax rate for fiscal year 20132015 compared to fiscal year 2014 was primarily due to favorablehigher uncertain tax settlements and lower taxesposition releases, partially offset by higher tax on foreign earnings. Applicable U.S. income taxes and foreign withholding taxes have not been provided on approximately $186$204 of undistributed earnings of certain foreign subsidiaries as of June 30, 2014,2015, 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 $50.$54. 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 $11,$42, $11, and $10,$11, were realized and recorded to additional paid-in capital for the fiscal years 2015, 2014 2013 and 2012,2013, respectively. Continues on next page4► | | | | THE CLOROX COMPANY - 20142015 Proxy Statement | A-53B-55 |
Table of Contents NOTE 17. INCOME TAXES (Continued) The components of net deferred tax assets (liabilities) as of June 30 are shown below: | | | 2014 | | | 2013 | | | | Deferred tax assets | | | | | | | | | | | Compensation and benefit programs | | $ | 171 | | | $ | 176 | | | | Basis difference related to Venture Agreement | | | 30 | | | | 30 | | | | Accruals and reserves | | | 53 | | | | 55 | | | | Inventory costs | | | 20 | | | | 20 | | | | Net operating loss and tax credit carryforwards | | | 37 | | | | 33 | | | | Other | | | 63 | | | | 51 | | | | Subtotal | | | 374 | | | | 365 | | | | Valuation allowance | | | (51 | ) | | | (36 | ) | | | Total deferred tax assets | | | 323 | | | | 329 | | | | Deferred tax liabilities | | | | | | | | | | | Fixed and intangible assets | | | (269 | ) | | | (273 | ) | | | Low-income housing partnerships | | | (24 | ) | | | (23 | ) | | | Unremitted foreign earnings | | | (8 | ) | | | (18 | ) | | | Other | | | (26 | ) | | | (24 | ) | | | Total deferred tax liabilities | | | (327 | ) | | | (338 | ) | | | Net deferred tax liabilities | | $ | (4 | ) | | $ | (9 | ) | | |
| 2015 | | | 2014 | | | Deferred tax assets | | | | | | | | | Compensation and benefit programs | $ | 191 | | | $ | 171 | | | Basis difference related to Venture Agreement | | 30 | | | | 30 | | | Accruals and reserves | | 43 | | | | 53 | | | Inventory costs | | 19 | | | | 20 | | | Net operating loss and tax credit carryforwards | | 41 | | | | 37 | | | Other | | 61 | | | | 63 | | | Subtotal | | 385 | | | | 374 | | | Valuation allowance | | (34 | ) | | | (51 | ) | | Total deferred tax assets | | 351 | | | | 323 | | | Deferred tax liabilities | | | | | | | | | Fixed and intangible assets | | (277 | ) | | | (269 | ) | | Low-income housing partnerships | | (22 | ) | | | (24 | ) | | Unremitted foreign earnings | | (7 | ) | | | (8 | ) | | Other | | (24 | ) | | | (26 | ) | | Total deferred tax liabilities | | (330 | ) | | | (327 | ) | | Net deferred tax assets (liabilities) | $ | 21 | | | $ | (4 | ) | | |
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: | | | 2014 | | | 2013 | | | | Valuation allowance at beginning of year | | | $ | (36 | ) | | | $ | (20 | ) | | | Net decrease in realizability of foreign deferred tax assets | | | | (12 | ) | | | | (9 | ) | | | Net increase in foreign net operating loss carryforward and other | | | | (3 | ) | | | | (7 | ) | | | Valuation allowance at end of year | | | $ | (51 | ) | | | $ | (36 | ) | | |
| 2015 | | | 2014 | | | Valuation allowance at beginning of year | | $ | (51 | ) | | | $ | (36 | ) | | Net decrease/(increase) for other foreign deferred tax assets | | | 15 | | | | | (12 | ) | | Net decrease/(increase) for foreign net operating loss carryforwards and tax credits | | | 2 | | | | | (3 | ) | | Valuation allowance at end of year | | $ | (34 | ) | | | $ | (51 | ) | | |
As of June 30, 2014,2015, the Company had foreign tax credit carryforwards of $19$24 for U.S. income tax purposes.purposes with expiration dates between fiscal years 2023 and 2025. Tax credit carryforwards in foreign jurisdictions of $14$18 have expiration dates in fiscal year 2016. Tax benefits from foreign net operating loss carryforwards of $19$13 have expiration dates between fiscal years 2016 and 2025. Tax benefits from foreign net operating loss carryforwards of $4$10 may 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, 2010.2011. Various income tax returns in state and foreign jurisdictions are currently in the process of examination. Certain issues relating to fiscal years 1996 through 2000 were effectively settled by the Company and the Canadian Revenue Agency in the first quarter of fiscal year 2012, resulting in a net benefit of tax and interest of $7. No tax benefits had previously been recognized for these issues in the Company’s consolidated financial statements.
A-54 THE CLOROX COMPANY - 2014 Proxy Statement
Table of Contents
Appendix A
NOTE 17. INCOME TAXES (Continued)
The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. As of June 30, 20142015 and 2013,2014, the total balance of accrued interest and penalties related to uncertain tax positions was $11$10 and $8,$11, respectively. Interest and penalties related to uncertain tax positions included in income tax expense resulted in a net benefit of $1, a net expense of $3, and a net expense of $1 and a net benefit of $3 in fiscal years 2015, 2014 and 2013, and 2012, respectively. B-56 THE CLOROX COMPANY- 2015 Proxy Statement
Table of Contents Appendix B NOTE 17. INCOME TAXES (Continued) The following is a reconciliation of the beginning and ending amounts of the Company’s gross unrecognized tax benefits: | | | 2014 | | | 2013 | | | 2012 | | | | Unrecognized tax benefits - July 1 | | | $ | 69 | | | | $ | 80 | | | | $ | 97 | | | | Gross increases - tax positions in prior periods | | | | 3 | | | | | 3 | | | | | 4 | | | | Gross decreases - tax positions in prior periods | | | | (5 | ) | | | | (19 | ) | | | | (17 | ) | | | Gross increases - current period tax positions | | | | 7 | | | | | 7 | | | | | 5 | | | | Gross decreases - current period tax positions | | | | — | | | | | — | | | | | (1 | ) | | | Lapse of applicable statute of limitations | | | | (1 | ) | | | | (2 | ) | | | | (2 | ) | | | Settlements | | | | (2 | ) | | | | — | | | | | (6 | ) | | | Unrecognized tax benefits - June 30 | | | $ | 71 | | | | $ | 69 | | | | $ | 80 | | | |
| 2015 | | | 2014 | | | 2013 | | | Unrecognized tax benefits at beginning of year | | $ | 71 | | | | $ | 69 | | | | $ | 80 | | | Gross increases - tax positions in prior periods | | | 3 | | | | | 3 | | | | | 3 | | | Gross decreases - tax positions in prior periods | | | (8 | ) | | | | (5 | ) | | | | (19 | ) | | Gross increases - current period tax positions | | | 6 | | | | | 7 | | | | | 7 | | | Gross decreases - current period tax positions | | | — | | | | | — | | | | | — | | | Lapse of applicable statute of limitations | | | (34 | ) | | | | (1 | ) | | | | (2 | ) | | Settlements | | | — | | | | | (2 | ) | | | | — | | | Unrecognized tax benefits at end of year | | $ | 38 | | | | $ | 71 | | | | $ | 69 | | | |
Included in the balance of unrecognized tax benefits as of June 30, 2015, 2014 2013 and 2012,2013, are potential benefits of $27, $58 $56 and $56, respectively, which if recognized, would affect net earnings. During the effective tax rate on earnings. In the twelve months succeedingfiscal year ended June 30, 2014, it is reasonably possible that up to $302015, $32 of othergross unrecognized tax benefits may be recognized. Audit outcomesrelating to other discontinued operations for periods prior to fiscal year 2015 were recognized upon the expiration of the applicable statute of limitations. Recognition of these previously disclosed tax benefits had no impact on the Company’s cash flow or earnings from continuing operations for the fiscal years ended June 30, 2015, 2014 and the timing of audit settlements are subject to significant uncertainty.2013.
NOTE 18. EMPLOYEE BENEFIT PLANS Retirement Income Plans Effective July 1, 2011, and as part of a set of long-term, cost-neutral enhancements to the Company’s 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, 20142015 and 2013,2014, the benefits of the domestic qualified plan are based on either employee years of service and compensation or a stated dollar amount per yearsyear 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 mutual funds and common collective trusts. The Company did not make any contributions to its domestic qualified retirement income plan during fiscal years 2015, 2014 2013 and 2012.2013. The Company’s 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, 2015, the Company made a $15 discretionary contribution to the pension plan. Contributions made to the domestic nonqualified retirement income plans were $13, $11$13 and $11 in fiscal years 2015, 2014 2013 and 2012,2013, respectively. Contributions made to the foreign retirement income plans were $1, $2 $1 and $1 in fiscal years 2015, 2014 2013 and 2012,2013, 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. Continues on next page► | | | | THE CLOROX COMPANY - 2015 Proxy Statement | B-57 |
Table of Contents NOTE 18. EMPLOYEE BENEFIT PLANS (Continued) The assumed domestic health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 7.3%7.1% for medical and 7.7%7.2% for prescription drugs for fiscal year 2014.2015. These rates have been assumed to gradually decrease each year until an assumed ultimate trend of 4.5% is reached in 2028. The health care cost trend rate assumption has ana minimal effect on the amounts reported. Thereported due primarily to the existence of benefit cap provisions in the Company’s domestic plan. As such, the effect of a hypothetical 100 basis point increase or Continues on next page4 | | | | THE CLOROX COMPANY - 2014 Proxy Statement
| A-55 |
Table of Contents
NOTE 18. EMPLOYEE BENEFIT PLANS (Continued)
decrease in the assumed domestic health care cost trend rate on the total service and interest cost components andas well as the postretirement benefit obligation would have been $0, $0 and $1immaterial for each of the fiscal years ended June 30, 2015, 2014 2013 and 2012, respectively.2013. Financial Information Related to Retirement Income and Retirement Health Care Summarized information for the Company’s retirement income and retirement health care plans atas of and for the fiscal years ended June 30 is as follows: | | | Retirement Income | | Retirement Health Care | | | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | | Change in benefit obligations: | | | | | | | | | | | | | | | | | | | | | Projected benefit obligation at beginning of year | | $ | 612 | | | $ | 646 | | | | $ | 51 | | | | $ | 63 | | | | Service cost | | | 3 | | | | 4 | | | | | 1 | | | | | 1 | | | | Interest cost | | | 27 | | | | 24 | | | | | 2 | | | | | 2 | | | | Actuarial (gain) loss | | | 47 | | | | (27 | ) | | | | (2 | ) | | | | (9 | ) | | | Plan amendments | | | — | | | | — | | | | | (2 | ) | | | | (5 | ) | | | Translation and other adjustment | | | (6 | ) | | | — | | | | | — | | | | | — | | | | Benefits paid | | | (42 | ) | | | (35 | ) | | | | (1 | ) | | | | (1 | ) | | | Projected benefit obligation at end of year | | | 641 | | | | 612 | | | | | 49 | | | | | 51 | | | | Change in plan assets: | | | | | | | | | | | | | | | | | | | | | Fair value of assets at beginning of year | | | 408 | | | | 394 | | | | | — | | | | | — | | | | Actual return on plan assets | | | 51 | | | | 37 | | | | | — | | | | | — | | | | Employer contributions to nonqualified plans | | | 15 | | | | 12 | | | | | 1 | | | | | 1 | | | | Benefits paid | | | (42 | ) | | | (35 | ) | | | | (1 | ) | | | | (1 | ) | | | Fair value of plan assets at end of year | | | 432 | | | | 408 | | | | | — | | | | | — | | | | Accrued benefit cost, net funded status | | $ | (209 | ) | | $ | (204 | ) | | | $ | (49 | ) | | | $ | (51 | ) | | | Amount recognized in the balance sheets consists of: | | | | | | | | | | | | | | | | | | | | | Pension benefit assets | | $ | 2 | | | $ | — | | | | $ | — | | | | $ | — | | | | Current accrued benefit liability | | $ | (14 | ) | | $ | (17 | ) | | | $ | (4 | ) | | | $ | (4 | ) | | | Non-current accrued benefit liability | | | (197 | ) | | | (187 | ) | | | | (45 | ) | | | | (47 | ) | | | Accrued benefit cost, net | | $ | (209 | ) | | $ | (204 | ) | | | $ | (49 | ) | | | $ | (51 | ) | | |
| | Retirement Income | | Retirement Health Care | | | | 2015 | | | 2014 | | | 2015 | | | 2014 | | | Change in benefit obligations: | | | | | | | | | | | | | | | | | | | | Projected benefit obligation as of beginning of year | | $ | 641 | | | $ | 612 | | | | $ | 49 | | | | $ | 51 | | | Service cost | | | 2 | | | | 3 | | | | | — | | | | | 1 | | | Interest cost | | | 25 | | | | 27 | | | | | 2 | | | | | 2 | | | Actuarial loss (gain) | | | 14 | | | | 47 | | | | | — | | | | | (2 | ) | | Plan amendments | | | — | | | | — | | | | | (1 | ) | | | | (2 | ) | | Translation and other adjustments | | | (5 | ) | | | (6 | ) | | | | (2 | ) | | | | — | | | Benefits paid | | | (38 | ) | | | (42 | ) | | | | (3 | ) | | | | (1 | ) | | Projected benefit obligation as of end of year | | | 639 | | | | 641 | | | | | 45 | | | | | 49 | | | Change in plan assets: | | | | | | | | | | | | | | | | | | | | Fair value of assets as of beginning of year | | $ | 432 | | | $ | 408 | | | | $ | — | | | | $ | — | | | Actual return on plan assets | | | 6 | | | | 51 | | | | | — | | | | | — | | | Employer contributions to nonqualified plans | | | 13 | | | | 15 | | | | | 3 | | | | | 1 | | | Benefits paid | | | (38 | ) | | | (42 | ) | | | | (3 | ) | | | | (1 | ) | | Translation adjustment | | | (4 | ) | | | — | | | | | — | | | | | — | | | Fair value of plan assets as of end of year | | | 409 | | | | 432 | | | | | — | | | | | — | | | Accrued benefit cost, net funded status | | $ | (230 | ) | | $ | (209 | ) | | | $ | (45 | ) | | | $ | (49 | ) | | Amount recognized in the balance sheets consists of: | | | | | | | | | | | | | | | | | | | | Pension benefit assets | | $ | 2 | | | $ | 2 | | | | $ | — | | | | $ | — | | | Current accrued benefit liability | | | (16 | ) | | | (14 | ) | | | | (3 | ) | | | | (4 | ) | | Non-current accrued benefit liability | | | (216 | ) | | | (197 | ) | | | | (42 | ) | | | | (45 | ) | | Accrued benefit cost, net | | $ | (230 | ) | | $ | (209 | ) | | | $ | (45 | ) | | | $ | (49 | ) | | |
Retirement income plans with an accumulated benefit obligation (ABO) in excess of plan assets as of June 30 were as follows: | | | Pension Plans | | Other Retirement Plans | | | | | 2014 | | 2013 | | 2014 | | 2013 | | | Projected benefit obligation | | $ | 538 | | $ | 529 | | | $ | 78 | | | $ | 80 | | | Accumulated benefit obligation | | | 538 | | | 528 | | | | 78 | | | | 80 | | | Fair value of plan assets | | | 405 | | | 405 | | | | — | | | | — | |
| | Pension Plans | | Other Retirement Plans | | | | 2015 | | 2014 | | 2015 | | 2014 | | Projected benefit obligation | | $ | 538 | | $ | 538 | | $ | 80 | | $ | 78 | | Accumulated benefit obligation | | | 538 | | | 538 | | | 80 | | | 78 | | Fair value of plan assets | | | 385 | | | 405 | | | — | | | — | |
The ABO for all pension plans was $559, $563 $530 and $561$530 as of June 30, 2015, 2014 and 2013, and 2012, respectively. The ABO for all retirement income plans increased by $31 in fiscal year 2014, primarily due to a decrease in the discount rate assumption.
A-56B-58 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents Appendix AB NOTE 18. 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 | | | | | 2014 | | | 2013 | | | 2012 | | | 2014 | | | 2013 | | | 2012 | | | | Service cost | | | $ | 3 | | | | $ | 4 | | | | $ | — | | | | $ | 1 | | | | $ | 1 | | | | $ | 1 | | | | Interest cost | | | | 27 | | | | | 24 | | | | | 29 | | | | | 2 | | | | | 2 | | | | | 3 | | | | Expected return on plan assets | | | | (25 | ) | | | | (29 | ) | | | | (31 | ) | | | | — | | | | | — | | | | | — | | | | Amortization of unrecognized items | | | | 11 | | | | | 12 | | | | | 8 | | | | | (4 | ) | | | | (2 | ) | | | | (3 | ) | | | Total | | | $ | 16 | | | | $ | 11 | | | | $ | 6 | | | | $ | (1 | ) | | | $ | 1 | | | | $ | 1 | | | |
| | Retirement Income | | Retirement Health Care | | | | 2015 | | | 2014 | | | 2013 | | | 2015 | | 2014 | | | 2013 | | | Service cost | | | $ | 2 | | | | $ | 3 | | | | $ | 4 | | | | $ | — | | | $ | 1 | | | | $ | 1 | | | Interest cost | | | | 25 | | | | | 27 | | | | | 24 | | | | | 2 | | | | 2 | | | | | 2 | | | Expected return on plan assets | | | | (20 | ) | | | | (25 | ) | | | | (29 | ) | | | | — | | | | — | | | | | — | | | Amortization of unrecognized items | | | | 12 | | | | | 11 | | | | | 12 | | | | | 2 | | | | (4 | ) | | | | (2 | ) | | Total | | | $ | 19 | | | | $ | 16 | | | | $ | 11 | | | | $ | 4 | | | $ | (1 | ) | | | $ | 1 | | | |
Items not yet recognized as a component of postretirement expense as of June 30, 2014,2015, consisted of: | | | Retirement Income | | | Retirement Health Care | | | | Net actuarial loss (gain) | | | $ | 247 | | | | $ | (29 | ) | | | Prior service cost (benefit) | | | | 1 | | | | | (9 | ) | | | Net deferred income tax (assets) liabilities | | | | (92 | ) | | | | 14 | | | | Accumulated other comprehensive loss (income) | | | $ | 156 | | | | $ | (24 | ) | | |
| | Retirement Income | | | Retirement Health Care | | | Net actuarial loss (gain) | | | $ | 264 | | | | $ | (17 | ) | | Prior service benefit | | | | — | | | | | (7 | ) | | Net deferred income tax (assets) liabilities | | | | (98 | ) | | | | 8 | | | Accumulated other comprehensive loss (income) | | | $ | 166 | | | | $ | (16 | ) | | |
Net actuarial loss (gain) recorded in accumulated other comprehensive net losses(losses) income for the fiscal year ended June 30, 2014,2015, included the following: | | | Retirement Income | | | Retirement Health Care | | | | Net actuarial loss (gain) at beginning of year | | | $ | 239 | | | | $ | (29 | ) | | | Amortization during the year | | | | (11 | ) | | | | 2 | | | | Loss (gain) during the year | | | | 19 | | | | | (2 | ) | | | Net actuarial loss (gain) at end of year | | | $ | 247 | | | | $ | (29 | ) | | |
| | Retirement Income | | | Retirement Health Care | | | Net actuarial loss (gain) as of beginning of year | | | $ | 247 | | | | $ | (29 | ) | | Amortization during the year | | | | (12 | ) | | | | 13 | | | Loss (gain) during the year | | | | 29 | | | | | (1 | ) | | Net actuarial loss (gain) as of end of year | | | $ | 264 | | | | $ | (17 | ) | | |
The Company uses the straight-line amortization method for unrecognized prior service costs and benefits. In fiscal year 2015,2016, the Company expects to recognize, on a pre-tax basis, approximately less than $1 of the prior service cost and $11$10 of the net actuarial loss as a component of net periodic benefit cost for the retirement income plans, and approximately $1 ofplans. In addition, in fiscal year 2016, the prior service credit and $3Company expects to recognize, on a pre-tax basis, $2 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 | | | | | 2014 | | 2013 | | 2014 | | 2013 | | | Discount rate | | 4.05 | % | | 4.39 | % | | 4.00 | % | | 4.33 | % | | | Rate of compensation increase | | 4.46 | % | | 3.44 | % | | n/a | | | n/a | | |
| | Retirement Income | | Retirement Health Care | | | | 2015 | | 2014 | | 2015 | | 2014 | | Discount rate | | 4.20 | % | | 4.05 | % | | 4.16 | % | | 4.00 | % | | Rate of compensation increase | | 3.37 | % | | 4.46 | % | | n/a | | | n/a | | |
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Table of Contents NOTE 18. 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 | | Retirement Income | | | | 2014 | | 2013 | | 2012 | | 2015 | | 2014 | | 2013 | | Discount rate | | 4.39% | | 3.87% | | 5.31% | | 4.05 | % | | 4.39 | % | | 3.87 | % | | Rate of compensation increase | | 3.44% | | 3.71% | | 3.93% | | 4.46 | % | | 3.44 | % | | 3.71 | % | | Expected return on plan assets | | 6.61% | | 7.50% | | 8.12% | | 5.28 | % | | 6.61 | % | | 7.50 | % | | | | | | | | Retirement Health Care | | Retirement Health Care | | | | 2014 | | 2013 | | 2012 | | 2015 | | 2014 | | 2013 | | Discount rate | | 4.33% | | 3.86% | | 5.29% | | 4.00 | % | | 4.33 | % | | 3.86 | % | |
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 fund’s current asset allocation. Expected benefit payments for the Company’s pension and other postretirement plans as of June 30, 2014,2015, were as follows: | | Retirement Income | | Retirement Health Care | | Retirement Income | | Retirement Health Care | | 2015 | | $ | 38 | | $ | 4 | | 2016 | | | 39 | | 4 | | $ | 41 | | $ | 4 | | 2017 | | | 40 | | 3 | | 42 | | 3 | | 2018 | | | 41 | | 3 | | 43 | | 3 | | 2019 | | | 39 | | 3 | | 40 | | 3 | | Fiscal years 2020 through 2024 | | | 196 | | 13 | | 2020 | | | 41 | | 3 | | Fiscal years 2021 through 2025 | | | 210 | | 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 Company’s domestic retirement income plans as of June 30 were: | | | % Target Allocation | | % of Plan Assets | | | | | 2014 | | 2013 | | 2014 | | 2013 | | | U.S. equity | | | 11 | % | | | 20 | % | | | 11 | % | | | 20 | % | | | International equity | | | 12 | | | | 21 | | | | 12 | | | | 21 | | | | Fixed income | | | 74 | | | | 54 | | | | 74 | | | | 54 | | | | Other | | | 3 | | | | 5 | | | | 3 | | | | 5 | | | | Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | | | | | | | | | | | | | | | | | | |
| | % Target Allocation | | % of Plan Assets | | | | 2015 | | 2014 | | 2015 | | 2014 | | U.S. equity | | | 11 | % | | | 11 | % | | | 11 | % | | | 11 | % | | International equity | | | 12 | | | | 12 | | | | 12 | | | | 12 | | | Fixed income | | | 74 | | | | 74 | | | | 74 | | | | 74 | | | Other | | | 3 | | | | 3 | | | | 3 | | | | 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 plan’s overall investment objective to generate sufficient resources to pay current and projected plan obligations over the life of the domestic qualified retirement income plan. A-58B-60 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents Appendix AB NOTE 18. 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: | | | 2014 | | | | | Level 1 | | Level 2 | | Total | | | Cash equivalents | | | $ | 3 | | | $ | — | | | $ | 3 | | | Common collective trusts | | | | | | | | | | | | | | | Bond funds | | | | — | | | | 309 | | | | 309 | | | International equity funds | | | | — | | | | 64 | | | | 64 | | | Domestic equity funds | | | | — | | | | 44 | | | | 44 | | | Real Estate fund | | | | — | | | | 12 | | | | 12 | | | Total common collective trusts | | | | — | | | | 429 | | | | 429 | | | Total assets at fair value | | | $ | 3 | | | $ | 429 | | | $ | 432 | | | | | | | | | | | | | | | | | | | | | | | 2013 | | | | | Level 1 | | Level 2 | | Total | | | Cash equivalents | | | $ | 3 | | | $ | — | | | $ | 3 | | | Common collective trusts | | | | | | | | | | | | | | | Bond funds | | | | — | | | | 217 | | | | 217 | | | International equity funds | | | | — | | | | 93 | | | | 93 | | | Domestic equity funds | | | | — | | | | 77 | | | | 77 | | | Real Estate fund | | | | — | | | | 18 | | | | 18 | | | Total common collective trusts | | | | — | | | | 405 | | | | 405 | | | Total assets at fair value | | | $ | 3 | | | $ | 405 | | | $ | 408 | | | | | | | | | | | | | | | | |
| | 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 | | | | | | | 2014 | | | | Level 1 | | Level 2 | | Total | | Cash equivalents | | | $ | 3 | | | $ | — | | | $ | 3 | | Common collective trusts | | | | | | | | | | | | | | Bond funds | | | | — | | | | 309 | | | | 309 | | International equity funds | | | | — | | | | 64 | | | | 64 | | Domestic equity funds | | | | — | | | | 44 | | | | 44 | | Real estate fund | | | | — | | | | 12 | | | | 12 | | Total common collective trusts | | | | — | | | | 429 | | | | 429 | | Total assets at fair value | | | $ | 3 | | | $ | 429 | | | $ | 432 | | |
The carrying value of cash equivalents approximates its fair value as of June 30, 20142015 and 2013.2014. 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 portfolio’s sponsor based on the fair value of underlying assets held by the common collective trust fund on June 30, 20142015 and 2013.2014. 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 trust’s 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 Benefit Plan and the Executive Retirement Plan. The aggregate cost of the domestic defined contribution plans was $45, $43 $45 and $50$45 in fiscal years 2015, 2014 2013 and 2012,2013, respectively. Included in the aggregate cost was the cost of The Clorox Company 401(k) Plan of $42, $38 $40 and $46$40 in fiscal years 2015, 2014 2013 and 2012,2013, respectively. The Company also has defined contribution plans for certain international employees. The aggregate cost of these foreign plans was $3, $1$3 and $1 for the fiscal years ended June 30, 2015, 2014 and 2013, and 2012, respectively. Continues on next page4► | | | | THE CLOROX COMPANY - 20142015 Proxy Statement | A-59B-61 |
Table of Contents NOTE 19. SEGMENT REPORTING The Company operates through strategic business units that are aggregated into four reportable segments: Cleaning, Household, Lifestyle and International. Cleaningconsists of laundry, home care and professional products marketed and sold in the United States.
● | Cleaningconsists 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®brand andClorox 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®andClorox Healthcare®brands. | | | ● | Householdconsists of charcoal, cat litter and plastic bags, wraps and container products marketed and sold in the United States. Products within this segment include plastic bags, wraps and containers under the Glad®brand; cat litter products under the Fresh Step®, Scoop Away®and Ever Clean®brands; and charcoal products under the Kingsford®and Match Light®brands. | | | ● | Lifestyleconsists 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 Burt’s Bees®brand. | | | ● | Internationalconsists of products sold outside the United States. Products within this segment include laundry, home care, water-filtration, charcoal and cat litter products, dressings and sauces, plastic bags, wraps and containers and natural personal care products, primarily under theClorox®, Glad®, PinoLuz®, Ayudin®, Limpido®, Clorinda®, Poett®, Mistolin®, Lestoil®, Bon Bril®, Brita®, Green Works®, Pine-Sol®, Agua Jane®, Chux®, Kingsford®, Fresh Step®, Scoop Away®, Ever Clean®, KC Masterpiece®, Hidden Valley®and Burt’s Bees®brands. |
Householdconsists of charcoal, cat litter and plastic bags, wraps and container products marketed and soldin the United States. Products within this segment include plastic bags, wraps and containers under the Glad®brand; cat litter products under the Fresh Step®, Scoop Away®and Ever Clean®brands; and charcoal productsunder the Kingsford®and Match Light®brands.
Lifestyleconsists of food products, water-filtration systems and filters, and natural personal care productsmarketed and sold in the United States. Products within this segment include dressings and sauces, primarilyunder the Hidden Valley®, KC Masterpiece®and Soy Vay®brands; water-filtration systems and filters under theBrita®brand; and natural personal care products under the Burt’s Bees®brand.
Internationalconsists of products sold outside the United States. Products within this segment include laundry,home care, water-filtration, charcoal and cat litter products, dressings and sauces, plastic bags, wraps andcontainers and natural personal care products, primarily under the Clorox®, Javex®, Glad®, PinoLuz®, Ayudin®,Limpido®, Clorinda®, Poett®, Mistolin®, Lestoil®, Bon Bril®, Nevex®, Brita®, Green Works®, Pine-Sol®, AguaJane®, Chux®, Kingsford®, Fresh Step®, Scoop Away®, Ever Clean®, KC Masterpiece®, Hidden Valley®andBurt’s Bees®brands.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. | | Year | | Cleaning | | Household | | Lifestyle | | International | | Corporate | | | Company | | Net sales | | 2015 | | $ | 1,824 | | $ | 1,794 | | $ | 950 | | $ | 1,087 | | $ | — | | | $ | 5,655 | | | | 2014 | | | 1,776 | | | 1,709 | | | 936 | | | 1,093 | | | — | | | | 5,514 | | | | 2013 | | | 1,783 | | | 1,693 | | | 929 | | | 1,128 | | | — | | | | 5,533 | | Earnings (losses) from continuing operations before income taxes | | 2015 | | | 445 | | | 375 | | | 257 | | | 79 | | | (235 | ) | | | 921 | | | | 2014 | | | 428 | | | 326 | | | 258 | | | 99 | | | (227 | ) | | | 884 | | | | 2013 | | | 420 | | | 336 | | | 259 | | | 95 | | | (258 | ) | | | 852 | | Income from equity investees | | 2015 | | | — | | | — | | | — | | | 14 | | | — | | | | 14 | | | | 2014 | | | — | | | — | | | — | | | 13 | | | — | | | | 13 | | | | 2013 | | | — | | | — | | | — | | | 12 | | | — | | | | 12 | | Total assets | | 2015 | | | 876 | | | 725 | | | 860 | | | 1,057 | | | 646 | | | | 4,164 | | | | 2014 | | | 887 | | | 745 | | | 869 | | | 1,190 | | | 567 | | | | 4,258 | | Capital expenditures | | 2015 | | | 35 | | | 50 | | | 11 | | | 25 | | | 4 | | | | 125 | | | | 2014 | | | 37 | | | 53 | | | 11 | | | 31 | | | 5 | | | | 137 | | | | 2013 | | | 57 | | | 72 | | | 19 | | | 24 | | | 18 | | | | 190 | | Depreciation and amortization | | 2015 | | | 52 | | | 67 | | | 19 | | | 24 | | | 7 | | | | 169 | | | | 2014 | | | 49 | | | 67 | | | 19 | | | 25 | | | 17 | | | | 177 | | | | 2013 | | | 52 | | | 69 | | | 19 | | | 26 | | | 14 | | | | 180 | | Significant noncash charges included | | | | | | | | | | | | | | | | | | | | | | | inearnings from continuing | | | | | | | | | | | | | | | | | | | | | | | operations before income taxes: | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation | | 2015 | | | 8 | | | 7 | | | 4 | | | 1 | | | 12 | | | | 32 | | | | 2014 | | | 11 | | | 9 | | | 5 | | | 1 | | | 10 | | | | 36 | | | | 2013 | | | 10 | | | 9 | | | 5 | | | 1 | | | 10 | | | | 35 | |
VenezuelaNet sales from the Company’s Venezuela subsidiary (the Venezuela business) represented approximately 1%, 2% and 2% of the Company’s consolidated net sales for the fiscal years ended June 30, 2014, 2013 and 2012, respectively. The operating environment in Venezuela is challenging, with high inflation, political instability, governmental restrictions in the form of currency exchange, price and margin controls, and the possibility of government actions such as further devaluations, business occupations or intervention and expropriation of assets. In addition, the foreign exchange controls in Venezuela limit the Venezuela business’s ability to remit dividends and pay intercompany balances.
Due to a sustained inflationary environment, the financial statements of the Venezuela business are consolidated under the rules governing the preparation of financial statements in a highly inflationary economy. As such, the Venezuela business’s non-USD monetary assets and liabilities are remeasured into USD each reporting period with the resulting gains and losses reflected in other expense (income), net.
On February 8, 2013, the Venezuelan government announced a devaluation of its currency exchange commission (CADIVI) rate from 4.3 to 6.3 bolivares fuertes (VEF) per USD and the elimination of the alternative currency exchange system, SITME. Prior to February 8, 2013, the Company had been utilizing the rate at which it had been obtaining USD through SITME to remeasure its Venezuelan financial statements, which was 5.7 VEF per USD at the announcement date. In response to these developments, the Company began utilizing the CADIVI rate of 6.3 VEF per USD to translate the financial statements of the Venezuela business.
A-60B-62 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents Appendix AB NOTE 19. SEGMENT REPORTING (Continued) In March 2013, the Venezuelan government announced the creation of a new alternative currency exchange system, a government-controlled auction process referred to as SICAD I, whereby companies meeting certain qualifications may periodically bid to acquire USD. In January 2014, the Venezuelan government announced further changes to the regulations governing the currency exchange systems. Among the changes was the creation of a new government agency, CENCOEX, to administer the currency exchange mechanism previously administered by CADIVI.
In February 2014, the Venezuelan government established another currency exchange mechanism, SICAD II, that provides an additional method to exchange VEF at exchange rates significantly higher than the CENCOEX and SICAD I rates. As of June 30, 2014, the posted rate of the SICAD II exchange system was 50.0 VEF per USD.
Based on an analysis of the published exchange regulations and an assessment of currency requirements applicable to the Venezuela business, the Company has concluded that the SICAD I rate is currently the most appropriate rate for it to use for financial reporting purposes. The Company began using the SICAD I rate to record the results of business operations and remeasure the gain or loss on non-USD monetary assets and liabilities in Venezuela beginning on March 1, 2014. As a result, the Company recorded a non-tax deductible remeasurement loss of $10 for the year ended June 30, 2014, reflecting the effective devaluation from the CENCOEX rate of 6.3 to the June 30, 2014 posted SICAD I rate of 10.6.
As of June 30, 2014, using the SICAD I rate of 10.6, the Venezuela business had total assets of $68 including cash and cash equivalents of $5, a long-term value added tax (VAT) receivable from the Venezuelan government of $9, inventories of $11, net property, plant and equipment of $16, and intangible assets excluding goodwill of $6. Goodwill for Venezuela is aggregated and assessed for impairment at the Latin America reporting unit level, which is a component of the Company’s International segment. Based on the results of the annual impairment test performed in the fourth quarter of fiscal year 2014, the fair value of the Latin America reporting unit exceeded its recorded value by more than 40%. The Venezuela subsidiary operated at a profit for the years ended June 30, 2012 and 2013. The subsidiary operated at a loss for the fiscal year ended June 30, 2014, including a reduction of 14 cents diluted net earnings per share (EPS) due to the remeasurement losses described above, impairment charges on trademark values (Note 6 – Goodwill, Trademarks and Other Intangible Assets), and other charges related to the effective devaluation of the Venezuelan currency.
Considerable uncertainty remains regarding the viability of these currency exchanges, the availability of USD under these exchanges, and whether a new system will emerge. The Company is monitoring developments to assess the implications of these systems for business operations, future cash flow and financial reporting for the Venezuela business.
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Table of Contents
NOTE 19. SEGMENT REPORTING (Continued)
Argentina
The operating environment in Argentina also presents business challenges, including price controls on some of the Company’s products, a devaluing currency and inflation. For the fiscal years ended June 30, 2014, 2013 and 2012, the value of the Argentine peso (ARS) per USD declined 34%, 16% and 9%, respectively. In addition, in July 2014, the Argentine government defaulted on debt payment agreements. As of June 30, 2014, using an exchange rate of 8.1 ARS per USD, the Company’s Argentina subsidiary had total assets of $105, including cash and cash equivalents of $25, net receivables of $20, inventories of $15, net property, plant and equipment of $20 and intangible assets excluding goodwill of $5. Goodwill for Argentina is aggregated and assessed for impairment at the Latin America reporting unit level, which is a component of the Company’s International segment. Based on the results of the annual impairment test performed in the fourth quarter of fiscal year 2014, the fair value of the Latin America reporting unit exceeded its recorded value by more than 40%. Net sales from the Company’s Argentina subsidiary represented approximately 3% of the Company’s consolidated net sales for each of the fiscal years ended June 30, 2014, 2013 and 2012. The Company is closely monitoring developments in Argentina and is taking steps intended to mitigate the adverse conditions.
| | | Fiscal Year | | Cleaning | | Household | | Lifestyle | | International | | Corporate | | Total Company | | | Net sales | | 2014 | | $ | 1,776 | | $ | 1,709 | | $ | 936 | | $ | 1,170 | | $ | — | | | $ | 5,591 | | | | | 2013 | | | 1,783 | | | 1,693 | | | 929 | | | 1,218 | | | — | | | | 5,623 | | | | | 2012 | | | 1,692 | | | 1,676 | | | 901 | | | 1,199 | | | — | | | | 5,468 | | | Earnings (losses) from continuing | | | | | | | | | | | | | | | | | | | | | | | | operations before income taxes | | 2014 | | | 428 | | | 326 | | | 258 | | | 76 | | | (227 | ) | | | 861 | | | | | 2013 | | | 420 | | | 336 | | | 259 | | | 96 | | | (258 | ) | | | 853 | | | | | 2012 | | | 381 | | | 298 | | | 265 | | | 119 | | | (272 | ) | | | 791 | | | Income from equity investees | | 2014 | | | — | | | — | | | — | | | 13 | | | — | | | | 13 | | | | | 2013 | | | — | | | — | | | — | | | 12 | | | — | | | | 12 | | | | | 2012 | | | — | | | — | | | — | | | 11 | | | — | | | | 11 | | | Total assets | | 2014 | | | 887 | | | 745 | | | 869 | | | 1,190 | | | 567 | | | | 4,258 | | | | | 2013 | | | 905 | | | 799 | | | 878 | | | 1,202 | | | 527 | | | | 4,311 | | | Capital expenditures | | 2014 | | | 37 | | | 53 | | | 11 | | | 32 | | | 5 | | | | 138 | | | | | 2013 | | | 57 | | | 72 | | | 19 | | | 28 | | | 18 | | | | 194 | | | | | 2012 | | | 63 | | | 79 | | | 18 | | | 32 | | | — | | | | 192 | | | Depreciation and amortization | | 2014 | | | 49 | | | 67 | | | 19 | | | 28 | | | 17 | | | | 180 | | | | | 2013 | | | 52 | | | 69 | | | 19 | | | 28 | | | 14 | | | | 182 | | | | | 2012 | | | 45 | | | 73 | | | 18 | | | 25 | | | 17 | | | | 178 | | | Significant noncash charges included | | | | | | | | | | | | | | | | | | | | | | | | in earnings (losses) from continuing | | | | | | | | | | | | | | | | | | | | | | | | operations before income taxes: | | | | | | | | | | | | | | | | | | | | | | | | Share-based compensation | | 2014 | | | 11 | | | 9 | | | 5 | | | 1 | | | 10 | | | | 36 | | | | | 2013 | | | 10 | | | 9 | | | 5 | | | 1 | | | 10 | | | | 35 | | | | | 2012 | | | 13 | | | 12 | | | 6 | | | 1 | | | (5 | ) | | | 27 | |
All intersegment sales are eliminated and are not included in the Company’s reportable segments’ net sales. Net sales to the Company’s largest customer, Walmart Stores, Inc. and its affiliates, were 26%, 27% and 27% of consolidated net sales for each of the fiscal years ended June 30, 2015, 2014 and 2013, and 2012,respectively, and occurred in each of the Company’s reportable segments. No other customers accounted for more than 10% of consolidated net sales in any of these fiscal years. During fiscal years 2015, 2014 2013 and 2012,2013, the Company’s five largest customers accounted for 45%, 45% and 44% of its consolidated net sales respectively.for each of the three fiscal years. A-62 THE CLOROX COMPANY - 2014 Proxy Statement
TableThree of Contents
Appendix A
NOTE 19. SEGMENT REPORTING (Continued)
The Company has threethe Company’s product lines that have accounted for 10% or more of consolidated net sales during each of the past three fiscal years. In fiscal years 2015, 2014 2013 and 2012,2013, sales of liquid bleach represented approximately 13%14%, 14%13% and 14% of the Company’s consolidated net sales, respectively, approximately 26%, 26% and 26% of net sales in the Cleaning segment respectively,for each such years, and approximately 27%, 28% and 27%28% of net sales in the International segment, respectively. Sales of trash bags represented approximately 14%, 13% and 13% of the Company’s consolidated net sales in each of the fiscal years 2015, 2014 and 2013, respectively, approximately 38%, 36% and 2012, approximately 36%, 37% and 35% of net sales in the Household segment, respectively, and approximately 8%, 10%8% and 10% of net sales in the International segment, respectively. Sales of charcoal represented approximately 11%, 10%11% and 11%10% of the Company’s consolidated net sales and approximately 34%, 32%34% and 35%32% of net sales in the Household segment in fiscal years 2015, 2014 2013 and 2012,2013, respectively.
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 | | 2014 | | $ | 4,466 | | $ | 1,125 | | $ | 5,591 | | | | | 2013 | | | 4,448 | | | 1,175 | | | 5,623 | | | | | 2012 | | | 4,316 | | | 1,152 | | | 5,468 | | | Property, plant and equipment, net | | 2014 | | $ | 825 | | $ | 152 | | $ | 977 | | | | | 2013 | | | 860 | | | 161 | | | 1,021 | |
| | Fiscal Year | | United States | | Foreign | | Total Company | | Net sales | | 2015 | | $ | 4,609 | | $ | 1,046 | | $ | 5,655 | | | | 2014 | | | 4,466 | | | 1,048 | | | 5,514 | | | | 2013 | | | 4,448 | | | 1,085 | | | 5,533 | | Property, plant and equipment, net | | 2015 | | $ | 801 | | $ | 117 | | $ | 918 | | | | 2014 | | | 825 | | | 152 | | | 977 | |
NOTE 20. 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 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 Company’s 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, 2015, 2014 and 2013 were $55, $57 and 2012 were $57, $50, and $49, respectively. Receipts from and ending accounts receivable and payable balances related to the Company’s related parties were not significant during andor as of the end of each of the fiscal years presented. Continues on next page4► | | | | THE CLOROX COMPANY - 20142015 Proxy Statement | A-63B-63 |
Table of Contents NOTE 21. UNAUDITED QUARTERLY DATA | | | Quarters Ended | | | | | | | | September 30 | | December 31 | | March 31 | | June 30 | | Total Year | | | Fiscal year ended June 30, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | | $ | 1,364 | | | | $ | 1,330 | | | | $ | 1,386 | | | | $ | 1,511 | | | | $ | 5,591 | | | | Cost of products sold | | | $ | 779 | | | | $ | 773 | | | | $ | 807 | | | | $ | 872 | | | | $ | 3,231 | | | | Earnings from continuing operations | | | $ | 137 | | | | $ | 116 | | | | $ | 139 | | | | $ | 170 | | | | $ | 562 | | | | Losses from discontinued operations, net of tax | | | $ | (1 | ) | | | $ | (1 | ) | | | $ | (2 | ) | | | $ | — | | | | $ | (4 | ) | | | Net earnings | | | $ | 136 | | | | $ | 115 | | | | $ | 137 | | | | $ | 170 | | | | $ | 558 | | | | Per common share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuing operations | | | $ | 1.05 | | | | $ | 0.90 | | | | $ | 1.06 | | | | $ | 1.32 | | | | $ | 4.34 | | | | Discontinued operations | | | | (0.01 | ) | | | | (0.01 | ) | | | | (0.01 | ) | | | | (0.01 | ) | | | | (0.03 | ) | | | Basic net earnings per share | | | $ | 1.04 | | | | $ | 0.89 | | | | $ | 1.05 | | | | $ | 1.31 | | | | $ | 4.31 | | | | Diluted | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuing operations | | | $ | 1.04 | | | | $ | 0.88 | | | | $ | 1.05 | | | | $ | 1.30 | | | | $ | 4.26 | | | | Discontinued operations | | | | (0.01 | ) | | | | (0.01 | ) | | | | (0.01 | ) | | | | (0.01 | ) | | | | (0.03 | ) | | | Diluted net earnings per share | | | $ | 1.03 | | | | $ | 0.87 | | | | $ | 1.04 | | | | $ | 1.29 | | | | $ | 4.23 | | | | Dividends declared per common share | | | $ | 0.71 | | | | $ | 0.71 | | | | $ | 0.71 | | | | $ | 0.74 | | | | $ | 2.87 | | | | Market price (NYSE) | | | | | | | | | | | | | | | | | | | | | | | | | | | | High | | | $ | 87.60 | | | | $ | 96.76 | | | | $ | 92.75 | | | | $ | 93.43 | | | | $ | 96.76 | | | | Low | | | | 81.25 | | | | | 80.20 | | | | | 83.70 | | | | | 86.56 | | | | | 80.20 | | | | Year-end | | | | | | | | | | | | | | | | | | | | | | | | 91.40 | | | | Fiscal year ended June 30, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | | $ | 1,338 | | | | $ | 1,325 | | | | $ | 1,413 | | | | $ | 1,547 | | | | $ | 5,623 | | | | Cost of products sold | | | $ | 764 | | | | $ | 762 | | | | $ | 818 | | | | $ | 867 | | | | $ | 3,211 | | | | Earnings from continuing operations | | | $ | 133 | | | | $ | 123 | | | | $ | 134 | | | | $ | 184 | | | | $ | 574 | | | | Losses from discontinued operations, net of tax | | | $ | — | | | | $ | — | | | | $ | (1 | ) | | | $ | (1 | ) | | | $ | (2 | ) | | | Net earnings | | | $ | 133 | | | | $ | 123 | | | | $ | 133 | | | | $ | 183 | | | | $ | 572 | | | | Per common share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuing operations | | | $ | 1.02 | | | | $ | 0.94 | | | | $ | 1.01 | | | | $ | 1.40 | | | | $ | 4.38 | | | | Discontinued operations | | | | — | | | | | — | | | | | — | | | | | (0.01 | ) | | | | (0.01 | ) | | | Basic net earnings per share | | | $ | 1.02 | | | | $ | 0.94 | | | | $ | 1.01 | | | | $ | 1.39 | | | | $ | 4.37 | | | | Diluted | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuing operations | | | $ | 1.01 | | | | $ | 0.93 | | | | $ | 1.00 | | | | $ | 1.38 | | | | $ | 4.31 | | | | Discontinued operations | | | | — | | | | | — | | | | | — | | | | | (0.01 | ) | | | | (0.01 | ) | | | Diluted net earnings per share | | | $ | 1.01 | | | | $ | 0.93 | | | | $ | 1.00 | | | | $ | 1.37 | | | | $ | 4.30 | | | | Dividends declared per common share | | | $ | 0.64 | | | | $ | 0.64 | | | | $ | 0.64 | | | | $ | 0.71 | | | | $ | 2.63 | | | | Market price (NYSE) | | | | | | | | | | | | | | | | | | | | | | | | | | | | High | | | $ | 73.65 | | | | $ | 76.74 | | | | $ | 88.63 | | | | $ | 90.10 | | | | $ | 90.10 | | | | Low | | | | 69.67 | | | | | 71.00 | | | | | 73.50 | | | | | 81.12 | | | | | 69.67 | | | | Year-end | | | | | | | | | | | | | | | | | | | | | | | | 83.14 | | |
| | Quarters Ended | | | | | September 30 | | | December 31 | | | March 31 | | | June 30 | | | Total Year | | | 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) earnings 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 | | | Fiscal year ended June 30, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | | $ | 1,343 | | | | $ | 1,308 | | | | $ | 1,366 | | | | $ | 1,497 | | | | $ | 5,514 | | | Cost of products sold | | | $ | 759 | | | | $ | 753 | | | | $ | 791 | | | | $ | 855 | | | | $ | 3,158 | | | Earnings from continuing operations | | | $ | 139 | | | | $ | 118 | | | | $ | 151 | | | | $ | 171 | | | | $ | 579 | | | Losses from discontinued operations, net of tax | | | $ | (3 | ) | | | $ | (3 | ) | | | $ | (14 | ) | | | $ | (1 | ) | | | $ | (21 | ) | | Net earnings | | | $ | 136 | | | | $ | 115 | | | | $ | 137 | | | | $ | 170 | | | | $ | 558 | | | Per common share: | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuing operations | | | $ | 1.07 | | | | $ | 0.91 | | | | $ | 1.16 | | | | $ | 1.32 | | | | $ | 4.47 | | | Discontinued operations | | | | (0.03 | ) | | | | (0.02 | ) | | | | (0.11 | ) | | | | — | | | | | (0.16 | ) | | Basic net earnings per share | | | $ | 1.04 | | | | $ | 0.89 | | | | $ | 1.05 | | | | $ | 1.32 | | | | $ | 4.31 | | | Diluted | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuing operations | | | $ | 1.05 | | | | $ | 0.90 | | | | $ | 1.14 | | | | $ | 1.30 | | | | $ | 4.39 | | | Discontinued operations | | | | (0.02 | ) | | | | (0.03 | ) | | | | (0.10 | ) | | | | (0.01 | ) | | | | (0.16 | ) | | Diluted net earnings per share | | | $ | 1.03 | | | | $ | 0.87 | | | | $ | 1.04 | | | | $ | 1.29 | | | | $ | 4.23 | | | Dividends declared per common share | | | $ | 0.71 | | | | $ | 0.71 | | | | $ | 0.71 | | | | $ | 0.74 | | | | $ | 2.87 | | | Market price (NYSE) | | | | | | | | | | | | | | | | | | | | | | | | | | | High | | | $ | 87.60 | | | | $ | 96.76 | | | | $ | 92.75 | | | | $ | 93.43 | | | | $ | 96.76 | | | Low | | | | 81.25 | | | | | 80.20 | | | | | 83.70 | | | | | 86.56 | | | | | 80.20 | | | Year-end | | | | | | | | | | | | | | | | | | | | | | | | 91.40 | | |
A-64B-64 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents Appendix AB FIVE-YEAR FINANCIAL SUMMARY
The Clorox Company | | | Years ended June 30 | | | Dollars in millions, except per share data | | 2014 | | 2013 | | 2012 | | 2011(1)(2) | | 2010(1) | | | OPERATIONS | | | | | | | | | | | | | | | | | | | | | | | Net sales | | $ | 5,591 | | | $ | 5,623 | | | $ | 5,468 | | | | $ | 5,231 | | | $ | 5,234 | | | Gross profit | | | 2,360 | | | | 2,412 | | | | 2,304 | | | | | 2,273 | | | | 2,319 | | | Earnings from continuing operations | | $ | 562 | | | $ | 574 | | | $ | 543 | | | | $ | 287 | | | $ | 526 | | | (Losses) earnings from discontinued operations, net of tax | | | (4 | ) | | | (2 | ) | | | (2 | ) | | | | 270 | | | | 77 | | | Net earnings | | $ | 558 | | | $ | 572 | | | $ | 541 | | | | $ | 557 | | | $ | 603 | | | COMMON STOCK | | | | | | | | | | | | | | | | | | | | | | | Earnings per share | | | | | | | | | | | | | | | | | | | | | | | Continuing operations | | | | | | | | | | | | | | | | | | | | | | | Basic | | $ | 4.34 | | | $ | 4.38 | | | $ | 4.15 | | | | $ | 2.09 | | | $ | 3.73 | | | Diluted | | | 4.26 | | | | 4.31 | | | | 4.10 | | | | | 2.07 | | | | 3.69 | | | Dividends declared per share | | $ | 2.87 | | | $ | 2.63 | | | $ | 2.44 | | | | $ | 2.25 | | | $ | 2.05 | | | OTHER DATA | | | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 4,258 | | | $ | 4,311 | | | $ | 4,355 | | | | $ | 4,163 | | | $ | 4,548 | | | Long-term debt | | | 1,595 | | | | 2,170 | | | | 1,571 | | | | | 2,125 | | | | 2,124 | |
| | Years ended June 30 | | Dollars in millions, except per share data | | 2015 | | | 2014 | | | 2013 | | | 2012 | | 2011(1)(2) | | OPERATIONS | | | | | | | | | | | | | | | | | | | | | Net sales | | $ | 5,655 | | | $ | 5,514 | | | $ | 5,533 | | | $ | 5,379 | | | $ | 5,144 | | Gross profit | | | 2,465 | | | | 2,356 | | | | 2,391 | | | | 2,272 | | | | 2,232 | | Earnings from continuing operations | | $ | 606 | | | $ | 579 | | | $ | 573 | | | $ | 535 | | | $ | 268 | | (Losses) earnings from discontinued operations, net of tax | | | (26 | ) | | | (21 | ) | | | (1 | ) | | | 6 | | | | 289 | | Net earnings | | $ | 580 | | | $ | 558 | | | $ | 572 | | | $ | 541 | | | $ | 557 | | COMMON STOCK | | | | | | | | | | | | | | | | | | | | | Earnings per share | | | | | | | | | | | | | | | | | | | | | Continuing operations | | | | | | | | | | | | | | | | | | | | | Basic | | $ | 4.65 | | | $ | 4.47 | | | $ | 4.37 | | | $ | 4.09 | | | $ | 1.96 | | Diluted | | | 4.57 | | | | 4.39 | | | | 4.31 | | | | 4.05 | | | | 1.94 | | Dividends declared per share | | $ | 2.99 | | | $ | 2.87 | | | $ | 2.63 | | | $ | 2.44 | | | $ | 2.25 | | | | | | As of June 30 | | Dollars in millions | | 2015 | | 2014 | | 2013 | | 2012 | | 2011(1)(2) | | OTHER DATA | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 4,164 | | | $ | 4,258 | | | $ | 4,311 | | | $ | 4,355 | | | $ | 4,163 | | Long-term debt | | | 1,796 | | | | 1,595 | | | | 2,170 | | | | 1,571 | | | | 2,125 | |
| | (1) | In November 2010, the Company completed the sale of its global auto care businesses pursuant to the terms of a Purchase and Sale Agreement and received cash consideration of $755. Included in earnings from discontinued operations for the fiscal year ended June 30, 2011, is an after-tax gain on the transaction of $247. | (2) | Earnings from continuing operations and net earnings included the $258 noncash goodwill impairment charge recognized in fiscal year 2011 related to the Burt’s Bees®business. Diluted net earnings per share from continuing operations included the impact of $1.86 from this noncash goodwill impairment charge. |
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, 2014 | | $ | (5 | ) | | $ | — | | | $ | 2 | | $ | — | | $ | (3 | ) | | | Year ended June 30, 2013 | | | (7 | ) | | | — | | | | 2 | | | — | | | (5 | ) | | | Year ended June 30, 2012 | | | (5 | ) | | | (3 | ) | | | 1 | | | — | | | (7 | ) | | | LIFO allowance | | | | | | | | | | | | | | | | | | | | | Year ended June 30, 2014 | | $ | (40 | ) | | $ | — | | | $ | 3 | | $ | 1 | | $ | (36 | ) | | | Year ended June 30, 2013 | | | (37 | ) | | | (3 | ) | | | — | | | — | | | (40 | ) | | | Year ended June 30, 2012 | | | (29 | ) | | | (8 | ) | | | — | | | — | | | (37 | ) | | | Valuation allowance on deferred tax assets | | | | | | | | | | | | | | | | | | | | | Year ended June 30, 2014 | | $ | (36 | ) | | $ | (25 | ) | | $ | — | | $ | 10 | | $ | (51 | ) | | | Year ended June 30, 2013 | | | (20 | ) | | | (16 | ) | | | — | | | — | | | (36 | ) | | | Year ended June 30, 2012 | | | (14 | ) | | | (6 | ) | | | — | | | — | | | (20 | ) | | | Allowance for inventory obsolescence | | | | | | | | | | | | | | | | | | | | | Year ended June 30, 2014 | | $ | (11 | ) | | $ | (13 | ) | | $ | — | | $ | 10 | | $ | (14 | ) | | | Year ended June 30, 2013 | | | (10 | ) | | | (12 | ) | | | — | | | 11 | | | (11 | ) | | | Year ended June 30, 2012 | | | (11 | ) | | | (13 | ) | | | — | | | 14 | | | (10 | ) | |
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, 2015 | | $ | (3 | ) | | $ | (1 | ) | | $ | — | | $ | — | | $ | (4 | ) | | Year ended June 30, 2014 | | | (5 | ) | | | — | | | | 2 | | | — | | | (3 | ) | | Year ended June 30, 2013 | | | (7 | ) | | | — | | | | 2 | | | — | | | (5 | ) | | LIFO allowance | | | | | | | | | | | | | | | | | | | | Year ended June 30, 2015 | | $ | (36 | ) | | $ | — | | | $ | — | | $ | 2 | | $ | (34 | ) | | Year ended June 30, 2014 | | | (40 | ) | | | — | | | | 3 | | | 1 | | | (36 | ) | | Year ended June 30, 2013 | | | (37 | ) | | | (3 | ) | | | — | | | — | | | (40 | ) | | Valuation allowance on deferred tax assets | | | | | | | | | | | | | | | | | | | | Year ended June 30, 2015 | | $ | (51 | ) | | $ | (4 | ) | | $ | — | | $ | 21 | | $ | (34 | ) | | Year ended June 30, 2014 | | | (36 | ) | | | (25 | ) | | | — | | | 10 | | | (51 | ) | | Year ended June 30, 2013 | | | (20 | ) | | | (16 | ) | | | — | | | — | | | (36 | ) | |
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Table of Contents THE CLOROX COMPANY
RECONCILIATION OF ECONOMIC PROFIT (UNAUDITED)(1) | Dollars in millions | | FY14 | | FY13 | | FY12 | | | Earnings from continuing operations before income taxes | | $ | 861 | | $ | 853 | | $ | 791 | | | Noncash restructuring-related and intangible asset impairment costs | | | 4 | | | — | | | 4 | | | Interest expense | | | 103 | | | 122 | | | 125 | | | Earnings from continuing operations before income taxes, | | | | | | | | | | | | noncash restructuring-related and intangible asset | | | | | | | | | | | | impairment costs and interest expense | | $ | 968 | | $ | 975 | | $ | 920 | | | Income taxes on earnings from continuing operations before | | | | | | | | | | | | income taxes, noncash restructuring-related and intangible | | | | | | | | | | | | asset impairment costs and interest expense(2) | | | 336 | | | 319 | | | 289 | | | Adjusted after tax profit | | $ | 632 | | $ | 656 | | $ | 631 | | | Average capital employed(3) | | | 2,494 | | | 2,552 | | | 2,544 | | | Capital charge(4) | | | 225 | | | 230 | | | 229 | | | Economic profit(1)(Adjusted after tax profit less capital charge) | | $ | 407 | | $ | 426 | | $ | 402 | | | | | | | | | | | | | |
Dollars in millions | | FY15 | | FY14 | | FY13 | | Earnings from continuing operations before income taxes | | $ | 921 | | $ | 884 | | $ | 852 | | Noncash U.S. GAAP restructuring and intangible asset impairment costs | | | 1 | | | 3 | | | — | | Interest expense | | | 100 | | | 103 | | | 122 | | Earnings from continuing operations before income taxes, | | | | | | | | | | | noncash U.S. GAAP restructuring and intangible asset | | | | | | | | | | | impairment costs, and interest expense | | $ | 1,022 | | $ | 990 | | $ | 974 | | Income taxes on earnings from continuing operations before | | | | | | | | | | | income taxes, noncash U.S. GAAP restructuring and intangible | | | | | | | | | | | asset impairment costs and interest expense(2) | | | 350 | | | 342 | | | 318 | | Adjusted after tax profit | | $ | 672 | | $ | 648 | | $ | 656 | | Average capital employed(3) | | | 2,393 | | | 2,494 | | | 2,552 | | Capital charge(4) | | | 214 | | | 225 | | | 230 | | Economic profit(1)(Adjusted after tax profit less capital charge) | | $ | 458 | | $ | 423 | | $ | 426 | | |
| | (1) | Economic profit (EP) is defined by the Company as earnings from continuing operations before income taxes, excluding noncash restructuring-relatedU.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 the weighted-average cost of capital. EP is a key financial metric that the Company’s management uses to evaluate business performance and allocate resources, and is a component in determining management’s incentive compensation. The Company’s 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 continuing operations, which was 34.7%34.2%, 32.7%34.6% and 31.4%32.7% in fiscal years 2015, 2014 2013 and 2012,2013, 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 restructuring-relatedU.S. GAAP restructuring and intangible asset impairment costs. Average capital employed represents a two-pointis 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: |
| | | FY14 | | FY13 | | FY12 | | | Total assets | | $ | 4,258 | | $ | 4,311 | | $ | 4,355 | | | Less: | | | | | | | | | | | | Accounts payable | | | 440 | | | 413 | | | 412 | | | Accrued liabilities | | | 472 | | | 490 | | | 494 | | | Income taxes payable | | | 8 | | | 29 | | | 5 | | | Other liabilities | | | 768 | | | 742 | | | 739 | | | Deferred income taxes | | | 103 | | | 119 | | | 119 | | | Non-interest bearing liabilities | | | 1,791 | | | 1,793 | | | 1,769 | | | Total capital employed | | | 2,467 | | | 2,518 | | | 2,586 | | | After tax Noncash restructuring-related and intangible asset impairment costs | | | 3 | | | — | | | 4 | | | Adjusted capital employed | | $ | 2,470 | | $ | 2,518 | | $ | 2,590 | | | Average capital employed | | $ | 2,494 | | $ | 2,552 | | $ | 2,544 | | | | | | | | | | | | | |
| | FY15 | | FY14 | | FY13 | | Total assets | | $ | 4,164 | | $ | 4,258 | | $ | 4,311 | | Less: | | | | | | | | | | | Accounts payable | | | 431 | | | 440 | | | 413 | | Accrued liabilities | | | 545 | | | 472 | | | 490 | | Income taxes payable | | | 31 | | | 8 | | | 29 | | Other liabilities | | | 745 | | | 768 | | | 742 | | Deferred income taxes | | | 95 | | | 103 | | | 119 | | Non-interest bearing liabilities | | | 1,847 | | | 1,791 | | | 1,793 | | Total capital employed | | | 2,317 | | | 2,467 | | | 2,518 | | After tax noncash U.S. GAAP restructuring and intangible asset impairment costs | | | 1 | | | 2 | | | — | | Adjusted capital employed | | $ | 2,318 | | $ | 2,469 | | $ | 2,518 | | Average capital employed | | $ | 2,393 | | $ | 2,494 | | $ | 2,552 | | |
| | (4) | Capital charge represents average capital employed multiplied by the weighted-average cost of capital. The weighted-average cost of capital used to calculate capital charge was 9% for all fiscal years presented. The calculation of capital charge includes the impact of rounding numbers. |
A-66B-66 THE CLOROX COMPANY- 20142015 Proxy Statement
Table of Contents
| Electronic Voting Instructions
IMPORTANT ANNUAL STOCKHOLDERS MEETING INFORMATIONAvailable 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by 11:59 p.m., Eastern Time, on November 18, 2014. | | | | | Vote by Internet
Go towww.envisionreports.com/CLXOr scan the QR code with your smartphoneFollow the steps outlined on the secure website
| | | Vote by telephone
Call toll free 1-800-652-VOTE (8683) within the USA, US territories &Canada on a touch tone telephoneFollow the instructions provided by the recorded message
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Using ablack inkpen, mark your votes with anXas shown in this example. Please do not write outside the designated areas. | X |
Electronic Voting Instructions Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by the Internet or telephone must be received by 11:59 p.m., Eastern Time, on November 17, 2015.
| | Vote by Internet | | • Go towww.envisionreports.com/CLX | | • Or scan the QR code with your smartphone | | • Follow the steps outlined on the secure website |
Vote by telephone | • | Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone | • | Follow the instructions provided by the recorded message |
Annual Meeting Proxy Card | |
‚▼ IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. ▼‚
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| | | | | | | | | | | | | | | | | | | | | A | | The Board of Directors recommends a voteFOR the election of each of the following director nominees: | |
1. | Election of Directors: | For | Against | AbstainFor | | Against | | | For | Against | Abstain | | | | | For | Against | Against | | Abstain | | | | For | | Against | | Abstain | | | | 01 - Daniel Boggan, Jr. | | o | o | o | | 05 - Donald R. Knauss | | o | o | o | | 09 - Rogelio Rebolledo | | o | o | o | | | 02 - Richard H. Carmona | o | o☐ | o | ☐ | 06 | ☐ | | 05 - Esther Lee | o | o☐ | o | ☐ | 10 | ☐ | | 09 - Pamela Thomas-Graham | | o☐ | o | o☐ | | ☐ | | | | | 0302 - Benno Dorer | | o☐ | o | o☐ | | 07☐ | | 06 - Robert W. Matschullat | | o☐ | o | o☐ | | 11☐
| | 10 - Carolyn M. Ticknor | | ☐ | | ☐ | | ☐ | | | | 03 - Spencer C. Fleischer | | ☐ | | ☐ | | ☐ | | o07 - Jeffrey Noddle | o | o☐ | | ☐ | | ☐ | | 11 - Christopher J. Williams | | ☐ | | ☐ | | ☐ | | | | 04 - George J. Harad | | o☐ | o | o☐ | | ☐ | | 08 - Jeffrey NoddleRogelio Rebolledo | | o☐ | o | o☐ | | ☐ | | | | | | | | | | |
B | | The Board of Directors recommends a voteFOR Proposal 2. |
| | | | | | | | | | | | | | | | | | | | | | B | The Board of Directors recommends a voteFOR Proposal 2. | C | | The Board of Directors recommends a voteFOR Proposal 3. | | | | | | | | | For | Against | Abstain | | | | | | | | | | For | Against | Abstain | | 2. | Advisory Vote on Executive Compensation. | o | o | o | | 3. | Ratification of Independent Registered Public Accounting Firm. | o | o | o | | | | | | | | | | | | | | | | | | | | | | |
| | For | | Against | | Abstain | 2. Advisory Vote on Executive Compensation. | | ☐ | | ☐ | | ☐ |
D | Non-Voting Items | The Board of Directors recommends a voteFOR Proposal 4. |
Change of Address— Please print new address below.
| | Comments— Please print your comments below.For
| | | Against | | Abstain | 4. Approval of the Material Terms of the Performance Goals under the Company’s Executive Incentive Compensation Plan. | | ☐ | | ☐ | | ☐ |
C | | The Board of Directors recommends a voteFOR Proposal 3. |
| | For | | Against | | Abstain | 3. Ratification of Independent Registered Public Accounting Firm. | | ☐ | | ☐ | | ☐ |
E | | Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below |
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. | Date (mm/dd/yyyy) — Please print date below. | | Signature 1 — Please keep signature within the box. | | Signature 2 — Please keep signature within the box. | / / | | jjj | | jjj | | | | | | |
Table of Contents Dear Stockholders: Attached is the proxy for The Clorox Company’s 20142015 Annual Meeting of Stockholders (the “Annual Meeting”). It is important that you vote your shares. You may vote via telephone, the Internet or mail. If you wish to vote via telephone or the Internet, instructions are printed on this form. If you wish to vote by mail, please mark, sign, date and return the proxy using the enclosed envelope. Only stockholders on the record date, September 22, 2014,21, 2015, or their legal proxy holders, may attend the Annual Meeting. To be admitted to the Annual Meeting, you must bring a current form of government-issued photo identification and proof that you owned Clorox common stock on the record date.Please see the “Attending the Annual Meeting” section of the proxy statement for further information. Sincerely, Angela C. Hilt
Vice President – Corporate Secretary & Associate General CounselAnnual Meeting of Stockholders Meeting Date: November 19, 2014Check – In Time: 8:30 a.m. Pacific TimeMeeting Time: 9:00 a.m. Pacific TimeMeeting Location: the Company’s Pleasanton Campus, located at 4900 Johnson Drive, Building C, Pleasanton, CA 94588
| ● Meeting Date: November 18, 2015 | | ● Check-In Time: 8:30 a.m. Pacific Time | | ● Meeting Time:9:00 a.m. Pacific Time | | ● Meeting Location: the offices of the Company, located at 1221 Broadway, Oakland, CA 94612 |
Please note that cameras, recording equipment and other electronic devices will not be allowed in the meeting except for use by the Company. For your protection, briefcases, purses, packages, etc. may be inspected as you enter the meeting. The Notice of Annual Meeting, Proxy Statement and 20142015 Integrated Annual Report — Executive Summary are available at www.envisionreports.com/CLX. ‚▼ IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. ▼‚
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| Proxy — The Clorox Company | |
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CLOROX COMPANY ANNUAL MEETING OF STOCKHOLDERS — NOVEMBER 19, 201418, 2015 The stockholder(s) whose signature(s) appear(s) on the reverse side hereby appoint(s) Donald R. Knauss,Benno Dorer, Stephen M. Robb and Laura Stein, and each of them individually, as proxies, each with full power of substitution, to vote as designated on the reverse side of this ballot, all of the shares of common stock of The Clorox Company that the stockholder(s) whose signature(s) appear(s) on the reverse side would be entitled to vote, if personally present, at the Annual Meeting of Stockholders to be held at 9:00 a.m., Pacific time on Wednesday, November 19, 2014,18, 2015, at the Company’s Pleasanton Campus,offices of the Company, located at 4900 Johnson Drive, Building C, Pleasanton,1221 Broadway, Oakland, CA 9458894612 and any adjournment or postponement thereof. A majority of said proxies, including any substitutes, or if only one of them be present, then that one, may exercise all of the powers of said proxies hereunder. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER(S). IF NO SUCH DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTEDFOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS,FOR PROPOSAL 2,FOR PROPOSAL 3 ANDFOR PROPOSAL 3.4. If any other matters properly come before the meeting, the persons named in this proxy will vote in their discretion. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE. (Items to be voted appear on reverse side) Change of Address— Please print new address below. | | Comments— Please print your comments below. | xxx | | xxx |
| IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - F ON BOTH SIDES OF THIS CARD. | |
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