FORM 10-Q
(Mark One) | ||
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended September 30, 2016. |
||
OR | ||
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Delaware | 31-0595760 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) | |
1221 Broadway | |
Oakland, California | 94612-1888 |
(Address of principal executive offices) | (Zip code) |
(510) 271-7000 |
(Registrant's telephone number, including area code) |
(Former name, former address and former fiscal year, if changed since last report) |
_________________________ |
Large accelerated filer ☑ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller Reporting Company ☐ |
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
The Clorox
Company
Condensed Consolidated
Statements of Earnings and Comprehensive Income (Unaudited)
(Dollars in
millions, except share and per share data)
Three Months Ended | ||||||||
9/30/2016 | 9/30/2015 | |||||||
Net sales | $ | 1,443 | $ | 1,390 | ||||
Cost of products sold | 803 | 765 | ||||||
Gross profit | 640 | 625 | ||||||
Selling and administrative expenses | 200 | 186 | ||||||
Advertising costs | 128 | 123 | ||||||
Research and development costs | 31 | 30 | ||||||
Interest expense | 22 | 23 | ||||||
Other (income) expense, net | (5 | ) | (1 | ) | ||||
Earnings from continuing operations before income taxes | 264 | 264 | ||||||
Income taxes on continuing operations | 85 | 91 | ||||||
Earnings from continuing operations | 179 | 173 | ||||||
Earnings (losses) from discontinued operations, net of tax | - | (1 | ) | |||||
Net earnings | $ | 179 | $ | 172 | ||||
Net earnings (losses) per share | ||||||||
Basic | ||||||||
Continuing operations | $ | 1.39 | $ | 1.34 | ||||
Discontinued operations | - | (0.01 | ) | |||||
Basic net earnings per share | $ | 1.39 | $ | 1.33 | ||||
Diluted | ||||||||
Continuing operations | $ | 1.36 | $ | 1.32 | ||||
Discontinued operations | - | (0.01 | ) | |||||
Diluted net earnings per share | $ | 1.36 | $ | 1.31 | ||||
Weighted average shares outstanding (in thousands) | ||||||||
Basic | 129,449 | 129,155 | ||||||
Diluted | 132,193 | 131,220 | ||||||
Dividend declared per share | $ | 0.80 | $ | 0.77 | ||||
Comprehensive income | $ | 182 | $ | 133 |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
2
The Clorox
Company
Condensed Consolidated
Balance Sheets (Unaudited)
(Dollars in millions, except share and per share
data)
9/30/2016 | 6/30/2016 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 408 | $ | 401 | ||||
Receivables, net | 494 | 569 | ||||||
Inventories, net | 465 | 443 | ||||||
Other current assets | 49 | 72 | ||||||
Total current assets | 1,416 | 1,485 | ||||||
Property, plant and equipment, net of accumulated depreciation | ||||||||
and amortization of $1,944 and $1,911, respectively | 917 | 906 | ||||||
Goodwill | 1,196 | 1,197 | ||||||
Trademarks, net | 657 | 657 | ||||||
Other intangible assets, net | 76 | 78 | ||||||
Other assets | 204 | 187 | ||||||
Total assets | $ | 4,466 | $ | 4,510 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities | ||||||||
Notes and loans payable | $ | 618 | $ | 523 | ||||
Current maturities of long-term debt | - | - | ||||||
Accounts payable and accrued liabilities | 874 | 1,035 | ||||||
Income taxes payable | 30 | - | ||||||
Total current liabilities | 1,522 | 1,558 | ||||||
Long-term debt | 1,789 | 1,789 | ||||||
Other liabilities | 783 | 784 | ||||||
Deferred income taxes | 83 | 82 | ||||||
Total liabilities | 4,177 | 4,213 | ||||||
Commitments and contingencies | ||||||||
Stockholders equity | ||||||||
Preferred stock: $1.00 par value; 5,000,000 shares authorized; none | ||||||||
issued or outstanding | - | - | ||||||
Common stock: $1.00 par value; 750,000,000 shares authorized; 158,741,461 shares | ||||||||
issued as of September 30, 2016 and June 30, 2016; and 128,707,796 and 129,355,263 | ||||||||
shares outstanding as of September 30, 2016 and June 30, 2016, respectively | 159 | 159 | ||||||
Additional paid-in capital | 881 | 868 | ||||||
Retained earnings | 2,238 | 2,163 | ||||||
Treasury shares, at cost: 30,033,665 and 29,386,198 shares | ||||||||
as of September 30, 2016 and June 30, 2016, respectively | (2,422 | ) | (2,323 | ) | ||||
Accumulated other comprehensive net (losses) income | (567 | ) | (570 | ) | ||||
Stockholders equity | 289 | 297 | ||||||
Total liabilities and stockholders equity | $ | 4,466 | $ | 4,510 |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
3
The Clorox
Company
Condensed Consolidated
Statements of Cash Flows (Unaudited)
(Dollars in millions)
Three Months Ended | ||||||||
9/30/2016 | 9/30/2015 | |||||||
Operating activities: | ||||||||
Net earnings | $ | 179 | $ | 172 | ||||
Deduct: Losses from discontinued operations, net of tax | - | (1 | ) | |||||
Earnings from continuing operations | 179 | 173 | ||||||
Adjustments to reconcile earnings from continuing operations to net cash | ||||||||
provided by continuing operations: | ||||||||
Depreciation and amortization | 41 | 41 | ||||||
Share-based compensation | 12 | 9 | ||||||
Deferred income taxes | (2 | ) | (5 | ) | ||||
Other | (14 | ) | (5 | ) | ||||
Changes in: | ||||||||
Receivables, net | 74 | 39 | ||||||
Inventories, net | (23 | ) | (30 | ) | ||||
Other current assets | (6 | ) | (10 | ) | ||||
Accounts payable and accrued liabilities | (153 | ) | (95 | ) | ||||
Income taxes payable | 62 | 18 | ||||||
Net cash provided by continuing operations | 170 | 135 | ||||||
Net cash provided by discontinued operations | - | 12 | ||||||
Net cash provided by operations | 170 | 147 | ||||||
Investing activities: | ||||||||
Capital expenditures | (59 | ) | (28 | ) | ||||
Other | 1 | 12 | ||||||
Net cash used for investing activities | (58 | ) | (16 | ) | ||||
Financing activities: | ||||||||
Notes and loans payable, net | 95 | 36 | ||||||
Treasury stock purchased | (110 | ) | (103 | ) | ||||
Cash dividends paid | (104 | ) | (99 | ) | ||||
Issuance of common stock for employee stock plans and other | 15 | 46 | ||||||
Net cash used for financing activities | (104 | ) | (120 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (1 | ) | (10 | ) | ||||
Net increase in cash and cash equivalents | 7 | 1 | ||||||
Cash and cash equivalents: | ||||||||
Beginning of period | 401 | 382 | ||||||
End of period | $ | 408 | $ | 383 |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
4
The Clorox Company
(Dollars in millions, except share and per
share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim condensed consolidated financial statements for the three months ended September 30, 2016 and 2015, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the consolidated results of operations, financial position and cash flows of The Clorox Company and its subsidiaries (the Company) for the periods presented. However, the financial results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.
Effective September 22, 2014, the Companys 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 condensed consolidated financial statements for all periods presented herein.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) have been omitted or condensed pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). The information in this report should be read in conjunction with the Companys Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 30, 2016, which includes a complete set of footnote disclosures including the Companys significant accounting policies.
Recently Issued Accounting Standards
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including requiring excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the consolidated statement of earnings. Additionally, the standard requires cash flows from excess tax benefits and deficiencies, previously classified as a financing activity, to be classified as an operating activity in the consolidated statement of cash flows. The Company adopted this guidance in the first quarter of fiscal year 2017. Excess tax benefits of $6 were recognized in the consolidated statement of earnings and classified as an operating activity in the consolidated statement of cash flows during the three months ended September 30, 2016. The prior period consolidated statement of cash flows has not been adjusted as permitted. The adoption resulted in approximately a 2 percentage point benefit to the Companys effective tax rate for the first quarter of fiscal year 2017. The guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The Company did not make this election and will continue to account for forfeitures on an estimated basis.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and a lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation will depend on the classification of the lease as either a finance or an operating lease. ASU 2016-02 also requires expanded disclosures about leasing arrangements. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2020, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
In April 2015, the FASB issued 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 Company adopted this standard in the first quarter of fiscal year 2017 and retrospectively applied the standard to the June 30, 2016 consolidated balance sheet, resulting in an $8 reduction in Other assets and Long-term debt. The adoption had no impact on the Companys consolidated statement of earnings or consolidated statement of cash flows.
In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis, which changes the guidance for evaluating whether to consolidate certain legal entities. The amendments modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities. The Company adopted this standard in the first quarter of fiscal year 2017. The adoption did not have an impact on the Companys consolidated financial statements.
5
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which replaces most existing U.S. GAAP revenue recognition guidance and is intended to improve and converge with international standards the financial reporting requirements for revenue from contracts with customers. The core principle of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers, including information about significant judgments and changes in judgments. The new guidance is effective for the Company beginning in the first quarter of fiscal year 2019, with the option to early adopt in the first quarter of fiscal year 2018. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
NOTE 2. DISCONTINUED OPERATIONS
On September 22, 2014, Clorox Venezuela announced that it was discontinuing its operations, effective immediately, and seeking to sell its assets. Since fiscal year 2012, Clorox Venezuela was required to sell more than two thirds of its products at prices frozen by the Venezuelan government. During this same period, Clorox Venezuela experienced successive years of hyperinflation resulting in significant sustained increases in its input costs, including packaging, raw materials, transportation and wages. As a result, Clorox Venezuela had been selling its products at a loss, resulting in ongoing operating losses. Clorox Venezuela repeatedly met with government authorities in an effort to help them understand the rapidly declining state of the business, including the need for immediate, significant and ongoing price increases and other critical remedial actions to address these adverse impacts. Based on the Venezuelan governments representations, Clorox Venezuela had expected significant price increases would be forthcoming much earlier; however, the price increases subsequently approved were insufficient and would have caused Clorox Venezuela to continue operating at a significant loss into the foreseeable future. As such, Clorox Venezuela was no longer financially viable and was forced to discontinue its operations.
On September 26, 2014, the Company reported that Venezuelan Vice President Jorge Arreaza announced, with endorsement by President Nicolás Maduro, that the Venezuelan government had occupied the Santa Lucía and Guacara production facilities of Clorox Venezuela. On November 6, 2014, the Company reported that the Venezuelan government had published a resolution granting a government-sponsored Special Administrative Board full authority to restart and operate the business of Clorox Venezuela, thereby reaffirming the government's expropriation of Clorox Venezuelas 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 Companys condensed consolidated financial statements for all periods presented. The results of Clorox Venezuela had historically been part of the International reportable segment.
Net sales for Clorox Venezuela were $0 for each of the three months ended September 30, 2016 and 2015.
The following table provides a summary of earnings (losses) from discontinued operations for Clorox Venezuela and earnings (losses) from discontinued operations other than Clorox Venezuela for the periods indicated:
Three Months Ended | |||||||
9/30/2016 | 9/30/2015 | ||||||
Operating losses from Clorox Venezuela before income taxes | $ | - | $ | - | |||
Exit costs and other related expenses for Clorox Venezuela | - | - | |||||
Total losses from Clorox Venezuela before income taxes | - | - | |||||
Income tax benefit attributable to Clorox Venezuela | - | - | |||||
Total losses from Clorox Venezuela, net of tax | - | - | |||||
Gains (losses) from discontinued operations | |||||||
other than Clorox Venezuela, net of tax | - | (1 | ) | ||||
Losses from discontinued operations, net of tax | $ | - | $ | (1 | ) |
6
NOTE 3. BUSINESSES ACQUIRED
On May 2, 2016, the Company acquired 100 percent of ReNew Life Holdings Corporation (RenewLife), a leading brand in digestive health. The amount paid was $290 funded through commercial paper. The amount paid of $290 represents the aggregate purchase price less cash acquired. The purchase of the RenewLife business reflects the Companys strategy to acquire leading brands with attractive margins in growth categories. Results for RenewLifes U.S. business are reflected in the Household reportable segment and results for RenewLifes international business are reflected in the International reportable segment.
The assets and liabilities of RenewLife were recorded at their respective estimated fair value as of the date of the acquisition using U.S. GAAP for business combinations. The excess of the purchase price over the fair value of the net identifiable assets acquired was allocated to goodwill. Goodwill recorded primarily reflects the value of expanding the Companys portfolio further into the health and wellness arena.
The following table summarizes the estimated fair value of RenewLifes assets acquired and liabilities assumed and related deferred income taxes as of the acquisition date. Due to the timing of the acquisition, the fair value of the assets acquired and liabilities assumed are based on a preliminary valuation and the Companys estimates and assumptions are subject to change within the measurement period. The primary areas of the purchase price that are not yet finalized are related to goodwill and income taxes. The weighted-average estimated useful life of intangible assets subject to amortization is 15 years.
RenewLife | ||||
Goodwill | $ | 137 | ||
Trademarks | 134 | |||
Customer relationships | 36 | |||
Property, plant and equipment | 3 | |||
Working capital, net | 41 | |||
Deferred income taxes | (61 | ) | ||
Purchase Price | $ | 290 |
Pro forma results reflecting the acquisition were not presented because the acquisition did not meet the threshold requirements for additional disclosure.
NOTE 4. INVENTORIES, NET
Inventories, net, consisted of the following as of:
9/30/2016 | 6/30/2016 | |||||||
Finished goods | $ | 374 | $ | 361 | ||||
Raw materials and packaging | 114 | 111 | ||||||
Work in process | 3 | 3 | ||||||
LIFO allowances | (26 | ) | (32 | ) | ||||
Total | $ | 465 | $ | 443 |
7
NOTE 5. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Financial assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets are required to be classified and disclosed in one of the following three categories of the fair value hierarchy:
Level 1: Quoted market prices
in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or
unobservable inputs that are corroborated by market data.
Level 3:
Unobservable inputs reflecting the reporting entitys own assumptions.
As of September 30, 2016 and June 30, 2016, the Companys financial assets and liabilities that were measured at fair value on a recurring basis during the applicable periods included derivative financial instruments, which were classified as either Level 1 or Level 2, and trust assets to fund certain of the Companys nonqualified deferred compensation plans, which were classified as Level 1.
Financial Risk Management and Derivative Instruments
The Company is exposed to certain commodity, interest rate, foreign currency and counterparty 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 futures exchanges or commodity derivative dealers.
As of September 30, 2016, the notional amount of commodity derivatives was $24, of which $14 related to jet fuel swaps and $10 related to soybean oil futures. As of June 30, 2016, the notional amount of commodity derivatives was $30, of which $16 related to jet fuel swaps and $14 related to soybean oil futures.
Foreign Currency Risk Management
The Company may also enter into certain over-the-counter derivative contracts to manage a portion of the Companys forecasted foreign currency exposure associated with the purchase of inventory. These foreign currency contracts generally have durations of no longer than 2 years. The foreign exchange contracts are measured at fair value using information quoted by foreign exchange dealers.
The notional amounts of outstanding foreign currency forward contracts used by the Companys subsidiaries to hedge forecasted purchases of inventory were $57 as of September 30, 2016, and $84 as of June 30, 2016.
Interest Rate Risk Management
The Company may also enter into over-the-counter interest rate derivative instruments to fix a portion of the benchmark interest rate prior to an anticipated issuance of fixed rate debt or to manage the Companys level of fixed and floating rate debt. The interest rate derivative instruments are measured at fair value using information quoted by U.S. government bond dealers.
As of both September 30, 2016 and June 30, 2016, the Company had no interest rate derivative instruments.
8
NOTE 5. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Counterparty Risk Management and Derivative Contract Requirements
The Company utilizes a variety of financial institutions as counterparties for over-the-counter derivative instruments. The Company enters into agreements governing the use of over-the-counter derivative instruments and sets internal limits on the aggregate over-the-counter derivative instrument positions held with each counterparty. Certain terms of these agreements require the Company or the counterparty to post collateral when the fair value of the derivative instrument exceeds contractually defined counterparty liability position limits. Of the derivative instruments of $3 and $5 reflected in Accounts payable and accrued liabilities as of September 30, 2016 and June 30, 2016, respectively, $2 and $4, respectively, contained such terms. As of both September 30, 2016 and June 30, 2016, neither the Company nor any counterparty was required to post any collateral as no counterparty liability position limits were exceeded.
Certain terms of the agreements governing the Companys over-the-counter derivative instruments require the credit ratings, as assigned by Standard & Poors and Moodys to the Company and its counterparties, to remain at a level equal to or better than the minimum of an investment grade credit rating. If the Companys credit ratings were to fall below investment grade, the counterparties to the derivative instruments could request full collateralization on derivative instruments in net liability positions. As of both September 30, 2016 and June 30, 2016, the Company and each of its counterparties had been assigned investment grade credit ratings by both Standard & Poors and Moodys.
Certain of the Companys exchange-traded futures contracts used for commodity price risk management include requirements for the Company to post collateral in the form of a cash margin account held by the Companys broker for trades conducted on that exchange. As of September 30, 2016 and June 30, 2016, the Company maintained cash margin balances related to exchange-traded futures contracts of $1, which are classified as Other current assets on the condensed consolidated balance sheets.
Trust Assets
The Company has held interests in mutual funds and cash equivalents as part of trust assets related to certain of its nonqualified deferred compensation plans. The participants in the deferred compensation plans, who are the Companys current and former employees, 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. These 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 condensed consolidated balance sheets. The interests in mutual funds are measured at fair value using quoted market prices. The Company has designated these marketable securities as trading investments.
9
NOTE 5. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Fair Value of Financial Instruments
The following table summarizes the fair value of the Companys assets and liabilities for which disclosure of fair value is required:
9/30/2016 | 6/30/2016 | |||||||||||||||
Balance sheet
classification |
Fair value
hierarchy level |
Carrying
Amount |
Estimated
Fair Value |
Carrying
Amount |
Estimated
Fair Value |
|||||||||||
Assets | ||||||||||||||||
Investments including money market | Cash and cash | |||||||||||||||
funds | equivalents (a) | 1 | $ | 253 | $ | 253 | $ | 234 | $ | 234 | ||||||
Time deposits | Cash and cash | |||||||||||||||
equivalents (a) | 2 | 76 | 76 | 79 | 79 | |||||||||||
Commodity purchase derivative contracts | Other current assets | 1 | 1 | 1 | 1 | 1 | ||||||||||
Foreign exchange derivative contracts | Other current assets | 2 | 1 | 1 | 1 | 1 | ||||||||||
Commodity purchase derivative contracts | Other assets | 2 | 1 | 1 | 1 | 1 | ||||||||||
Trust assets for nonqualified deferred | Other assets | |||||||||||||||
compensation plans | 1 | 62 | 62 | 52 | 52 | |||||||||||
$ | 394 | $ | 394 | $ | 368 | $ | 368 | |||||||||
Liabilities | ||||||||||||||||
Notes and loans payable | Notes and loans payable (b) | 2 | $ | 618 | $ | 618 | $ | 523 | $ | 523 | ||||||
Commodity purchase derivative contracts | Accounts payable and | |||||||||||||||
accrued liabilities | 2 | 1 | 1 | 1 | 1 | |||||||||||
Foreign exchange derivative contracts | Accounts payable and | |||||||||||||||
accrued liabilities | 2 | 2 | 2 | 4 | 4 | |||||||||||
Current maturities of long-term debt | Current maturities of long- | |||||||||||||||
and Long-term debt | term debt and Long-term | |||||||||||||||
debt (c) | 2 | 1,789 | 1,911 | 1,789 | 1,922 | |||||||||||
$ | 2,410 | $ | 2,532 | $ | 2,317 | $ | 2,450 |
(a) | Cash and cash equivalents are composed of time deposits and other interest bearing investments including money market funds with original maturity dates of 90 days or less. Cash and cash equivalents are recorded at cost, which approximates fair value. | |
(b) | Notes and loans payable is composed of U.S. commercial paper and/or other similar short-term debts issued by non-U.S. subsidiaries, all of which are recorded at cost, which approximates fair value. | |
(c) | Current maturities of long-term debt and Long-term debt are recorded at cost. The fair value of Long-term debt, including current maturities, is determined using secondary market prices quoted by corporate bond dealers, and is classified as Level 2. |
10
NOTE 5. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
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 Comprehensive income and Net earnings were as follows:
Three Months Ended | ||||||||
Gains (losses) recognized
in
Other comprehensive income |
||||||||
9/30/2016 | 9/30/2015 | |||||||
Commodity purchase derivative contracts | $ | - | $ | (7 | ) | |||
Interest rate derivative contracts | - | - | ||||||
Foreign exchange derivative contracts | - | 6 | ||||||
Total | $ | - | $ | (1 | ) | |||
Three Months Ended | ||||||||
Gains (losses) reclassified
from
Accumulated other comprehensive loss and recognized in Net earnings |
||||||||
9/30/2016 | 9/30/2015 | |||||||
Commodity purchase derivative contracts | $ | (1 | ) | $ | 2 | |||
Interest rate derivative contracts | (2 | ) | 2 | |||||
Foreign exchange derivative contracts | (1 | ) | (1 | ) | ||||
Total | $ | (4 | ) | $ | 3 |
The gains (losses) reclassified from Accumulated other comprehensive losses and recognized in Net earnings during the three months ended September 30, 2016 and 2015, for commodity purchase and foreign exchange contracts were included in Cost of products sold, and for interest rate contracts were included in Interest expense.
The estimated amount of the existing net gain (loss) in Accumulated other comprehensive losses as of September 30, 2016, that is expected to be reclassified into Net 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 Net earnings. During the three months ended September 30, 2016 and 2015, hedge ineffectiveness was not significant.
NOTE 6. INCOME TAXES
In determining its quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter. The effective tax rate on earnings from continuing operations was 32.0% for the three months ended September 30, 2016, and 34.5% for the three months ended September 30, 2015. This decrease was primarily due to the recognition of excess tax benefits from share-based compensation upon the adoption of ASU No. 2016-09 in the first quarter of fiscal year 2017. Refer to Note 1 for further details.
11
NOTE 7. NET EARNINGS PER SHARE (EPS)
The following is a 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:
Three Months Ended | ||||
9/30/2016 | 9/30/2015 | |||
Basic | 129,449 | 129,155 | ||
Dilutive effect of stock options and other | 2,744 | 2,065 | ||
Diluted | 132,193 | 131,220 | ||
Antidilutive stock options and other | - | 1,271 |
The Company has two share repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $750, all of which was available for share repurchases as of September 30, 2016, and a program to offset the anticipated impact of share dilution related to share-based awards (the Evergreen Program), which has no authorization limit as to amount or timing of repurchases.
Share repurchases under authorized programs were as follows during the three months ended September 30:
Three Months Ended | ||||||||||
9/30/2016 | 9/30/2015 | |||||||||
Amount |
Shares
(in 000's) |
Amount |
Shares
(in 000's) |
|||||||
Open-market purchase programs | $ | - | - | $ | - | - | ||||
Evergreen Program | 113 | 883 | 112 | 1,006 | ||||||
Total | $ | 113 | 883 | $ | 112 | 1,006 |
NOTE 8. COMPREHENSIVE INCOME
Comprehensive income was as follows for the periods indicated:
Three Months Ended | ||||||||
9/30/2016 | 9/30/2015 | |||||||
Earnings from continuing operations | $ | 179 | $ | 173 | ||||
Earnings (losses) from discontinued operations, net of tax | - | (1 | ) | |||||
Net earnings | 179 | 172 | ||||||
Other comprehensive income (loss), net of tax: | ||||||||
Foreign currency translation adjustments | (1 | ) | (43 | ) | ||||
Net unrealized gains (losses) on derivatives | 3 | 3 | ||||||
Pension and postretirement benefit adjustments | 1 | 1 | ||||||
Total other comprehensive income (loss), net of tax | 3 | (39 | ) | |||||
Comprehensive income | $ | 182 | $ | 133 |
12
NOTE 8. COMPREHENSIVE INCOME (Continued)
Changes in Accumulated other comprehensive net (losses) income by component were as follows for the three months ended September 30:
Foreign
currency translation adjustments |
Net unrealized
gains (losses) on derivatives |
Pension
and
postretirement benefit adjustments |
Accumulated
other comprehensive (losses) income |
|||||||||||||
Balance as of June 30, 2015 | $ | (300 | ) | $ | (53 | ) | $ | (149 | ) | $ | (502 | ) | ||||
Other comprehensive (loss) income before | ||||||||||||||||
reclassifications | (41 | ) | - | - | (41 | ) | ||||||||||
Amounts reclassified from accumulated other | ||||||||||||||||
comprehensive net losses | - | 3 | 1 | 4 | ||||||||||||
Income tax benefit (expense) | (2 | ) | - | - | (2 | ) | ||||||||||
Net current period other comprehensive income (loss) | (43 | ) | 3 | 1 | (39 | ) | ||||||||||
Balance as of September 30, 2015 | $ | (343 | ) | $ | (50 | ) | $ | (148 | ) | $ | (541 | ) | ||||
Balance as of June 30, 2016 | $ | (353 | ) | $ | (44 | ) | $ | (173 | ) | $ | (570 | ) | ||||
Other comprehensive (loss) income before | ||||||||||||||||
reclassifications | (1 | ) | - | - | (1 | ) | ||||||||||
Amounts reclassified from accumulated other | ||||||||||||||||
comprehensive net losses | - | 4 | 2 | 6 | ||||||||||||
Income tax benefit (expense) | - | (1 | ) | (1 | ) | (2 | ) | |||||||||
Net current period other comprehensive income (loss) | (1 | ) | 3 | 1 | 3 | |||||||||||
Balance as of September 30, 2016 | $ | (354 | ) | $ | (41 | ) | $ | (172 | ) | $ | (567 | ) |
Included in foreign currency translation adjustments are re-measurement losses on long-term intercompany loans where settlement is not planned or anticipated in the foreseeable future. For the three months ended September 30, 2016 and 2015, Other comprehensive income (loss) on these loans totaled $0 and $(5), respectively, and there were no amounts reclassified from Accumulated other comprehensive net (losses) income.
NOTE 9. EMPLOYEE BENEFIT PLANS
The following table summarizes the components of net periodic benefit cost for the Companys retirement income plans:
Three Months Ended | ||||||||
9/30/2016 | 9/30/2015 | |||||||
Service cost | $ | - | $ | - | ||||
Interest cost | 5 | 7 | ||||||
Expected return on plan assets | (5 | ) | (4 | ) | ||||
Amortization of unrecognized items | 3 | 2 | ||||||
Total | $ | 3 | $ | 5 |
The net periodic benefit cost for the Companys retirement health care plans was $0 for each of the three months ended September 30, 2016 and 2015.
During the three months ended September 30, 2016, the Company made $15 in discretionary contributions to the domestic qualified retirement income plan.
13
NOTE 10. 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 $13 and $14 as of September 30, 2016 and June 30, 2016, 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 September 30, 2016 and June 30, 2016. The Company has agreed to be liable for 24.3% of the aggregate remediation and associated costs for this matter pursuant to a cost-sharing arrangement with a third party. With the assistance of environmental consultants, the Company maintains an undiscounted liability representing its current best estimate of its share of the capital expenditures, maintenance and other costs that may be incurred over an estimated 30-year remediation period. Currently, the Company cannot accurately predict the timing of future payments that may be made under this obligation. In addition, the Companys estimated loss exposure is sensitive to a variety of uncertain factors, including the efficacy of remediation efforts, changes in remediation requirements and the future availability of alternative clean-up technologies. Although it is reasonably possible that the Companys exposure may exceed the amount recorded, any amount of such additional exposures, or range of exposures, is not estimable at this time.
The Company is subject to various legal proceedings, claims and other loss contingencies, including, without limitation, loss contingencies relating to contractual arrangements, product liability, patents and trademarks, advertising, labor and employment, environmental, health and safety and other matters. With respect to these proceedings, claims and other loss contingencies, while considerable uncertainty exists, in the opinion of management at this time, the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, either individually or in the aggregate, on the Companys condensed consolidated financial statements taken as a whole.
Guarantees
In conjunction with divestitures and other transactions, the Company may provide typical indemnifications (e.g., indemnifications for representations and warranties and retention of previously existing environmental, tax and employee liabilities) that have terms that vary in duration and in the potential amount of the total obligation and, in many circumstances, are not explicitly defined. The Company has not made, nor does it believe that it is probable that it will make, any material payments relating to its indemnifications, and believes that any reasonably possible payments would not have a material adverse effect, either individually or in the aggregate, on the Companys condensed consolidated financial statements taken as a whole.
The Company had not recorded any liabilities on the aforementioned guarantees as of September 30, 2016.
As of September 30, 2016, the Company was a party to letters of credit of $10 primarily related to one of its insurance carriers, of which $0 had been drawn upon.
14
NOTE 11. SEGMENT RESULTS
The Company operates through strategic business units that are aggregated into four reportable segments based on the economics and nature of the products sold: Cleaning, Household, Lifestyle and International. As a result of Clorox Venezuela being reported as discontinued operations, the results of Clorox Venezuela are no longer included in the International reportable segment.
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, other current assets, property and equipment, other investments and deferred taxes.
The table below presents reportable segment information and a reconciliation of the segment information to the Companys consolidated net sales and earnings from continuing operations before income taxes, with amounts that are not allocated to the reportable segments reflected in Corporate.
Net sales |
Earnings (losses) from
continuing
operations before income taxes |
|||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||
9/30/2016 | 9/30/2015 | 9/30/2016 | 9/30/2015 | |||||||||||
Cleaning | $ | 534 | $ | 497 | $ | 164 | $ | 149 | ||||||
Household | 422 | 411 | 69 | 82 | ||||||||||
Lifestyle | 236 | 231 | 62 | 59 | ||||||||||
International | 251 | 251 | 27 | 32 | ||||||||||
Corporate | - | - | (58 | ) | (58 | ) | ||||||||
Total | $ | 1,443 | $ | 1,390 | $ | 264 | $ | 264 |
All intersegment sales are eliminated and are not included in the Companys reportable segments net sales.
Net sales to the Companys largest customer, Wal-Mart Stores, Inc. and its affiliates, as a percentage of consolidated net sales, were 26% and 27% for the three months ended September 30, 2016 and 2015, respectively.
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The Clorox
Company
(Dollars in millions,
except share and per share data)
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of The Clorox Companys (the Company or Clorox) financial statements with a narrative from the perspective of management on the Companys financial condition, results of operations, liquidity and certain other factors that may affect future results. The following discussion of the Companys financial condition and results of operations should be read in conjunction with MD&A and the consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2016, which was filed with the Securities and Exchange Commission (SEC) on August 16, 2016, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q (this Report). Unless otherwise noted, MD&A compares the three-month period ended September 30, 2016 (the current period) to the three-month period ended September 30, 2015 (the prior period), with percentage and basis point calculations based on rounded numbers, except for per share data and the effective tax rate.
Effective September 22, 2014, the Companys Venezuela affiliate, Corporación Clorox de Venezuela S.A. (Clorox Venezuela), discontinued its operations. Consequently, for all periods presented herein, Clorox Venezuela is reflected as a discontinued operation.
OVERVIEW
Clorox is a leading multinational manufacturer and marketer of consumer and professional products with approximately 8,000 employees worldwide. Clorox sells its products primarily through grocery and mass retail outlets, e-commerce channels, wholesale distributors and medical supply distributors. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products, Pine-Sol ® cleaners, Liquid-Plumr ® clog removers, Poett ® home care products, Fresh Step ® cat litter, Glad ® bags, wraps and container products, Kingsford ® charcoal, RenewLife ® digestive health products, Hidden Valley ® dressings and sauces, Brita ® water-filtration products and Burts Bees ® natural personal care products. The Company also markets brands through professional services channels, including infection control products for the healthcare industry under Clorox Healthcare ® , HealthLink ® , Aplicare ® , and Dispatch ® brands. The Company manufactures products in more than a dozen countries and sells them in more than 100 markets.
The Company primarily markets its leading brands in midsized categories considered to be financially attractive. Most of the Companys products compete with other nationally advertised brands within each category and with private label brands.
The Company operates through strategic business units that are aggregated into the following four reportable segments based on the economics and nature of the products sold:
● |
Cleaning consists of laundry, home care and professional products marketed and sold in the United States. Products within this segment include laundry additives, including bleach products under the Clorox ® brand and Clorox 2 ® stain fighter and color booster; home care products, primarily under the Clorox ® , Formula 409 ® , Liquid-Plumr ® , Pine-Sol ® , S.O.S ® and Tilex ® brands; naturally derived products under the Green Works ® brand; and professional cleaning and disinfecting products under the Clorox ® , Dispatch ® , Aplicare ® , HealthLink ® and Clorox Healthcare ® brands. |
● |
Household consists of charcoal, cat litter, digestive health products and bags, wraps and container products marketed and sold in the United States. Products within this segment include charcoal products under the Kingsford ® and Match Light ® brands; cat litter products under the Fresh Step ® , Scoop Away ® and Ever Clean ® brands; digestive health products under the RenewLife ® brand; and bags, wraps and containers under the Glad ® brand. |
● |
Lifestyle consists of food products, water-filtration systems and filters and natural personal care products marketed and sold in the United States. Products within this segment include dressings and sauces, primarily under the Hidden Valley ® , KC Masterpiece ® and Soy Vay ® brands; water-filtration systems and filters under the Brita ® brand; and natural personal care products under the Burts Bees ® brand. |
● |
International consists of products sold outside the United States. This segment includes laundry, home care, water-filtration, digestive health products, charcoal and cat litter products, dressings and sauces, bags, wraps and containers and natural personal care products, primarily under the Clorox ® , Glad ® , PinoLuz ® , Ayudin ® , Limpido ® , Clorinda ® , Poett ® , Mistolin ® , Lestoil ® , Bon Bril ® , Brita ® , Green Works ® , Pine-Sol ® , Agua Jane ® , Chux ® , RenewLife ® , Kingsford ® , Fresh Step ® , Scoop Away ® , Ever Clean ® , KC Masterpiece ® , Hidden Valley ® and Burts Bees ® brands. |
16
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS
Three Months Ended | % of Net Sales | ||||||||||||||
9/30/2016 | 9/30/2015 | % Change | 9/30/2016 | 9/30/2015 | |||||||||||
Diluted net earnings per share | |||||||||||||||
from continuing operations | $ | 1.36 | $ | 1.32 | 3 | % | |||||||||
Net sales | 1,443 | 1,390 | 4 | 100 | % | 100 | % | ||||||||
Gross profit | 640 | 625 | 2 | 44.4 | 45.0 | ||||||||||
Selling and administrative expenses | 200 | 186 | 8 | 13.9 | 13.4 | ||||||||||
Advertising costs | 128 | 123 | 4 | 8.9 | 8.8 | ||||||||||
Research and development costs | 31 | 30 | 3 | 2.1 | 2.2 | ||||||||||
Interest expense | 22 | 23 | (4 | ) | 1.5 | 1.7 |
Diluted net earnings per share from continuing operations increased $0.04, or 3%, in the current period. Diluted net earnings per share increased primarily due to higher net sales and cost savings, partially offset by increased manufacturing and logistics costs and unfavorable foreign currency exchange rates.
Net sales in the current period increased 4%. Volume increased 8% reflecting higher shipments in all reportable segments, including the benefit from the acquisition of RenewLife. Volume outpaced net sales primarily due to unfavorable product mix and foreign currency exchange rates, partially offset by the benefit of price increases.
Gross margin , defined as gross profit as a percentage of net sales, decreased 60 basis points in the current period. The decrease was driven by higher manufacturing and logistics costs and unfavorable product mix and foreign currency exchange rates, partially offset by strong cost savings, favorable commodity costs and the benefit of price increases.
Selling and administrative expenses, as a percentage of net sales, increased 50 basis points in the current period, primarily due to the impact of RenewLife and increased performance-based compensation costs.
Advertising costs , as a percentage of net sales, remained essentially flat in the current period. The Companys U.S. retail advertising spend in the current period and prior period was approximately 10% of net sales.
Research and development costs remained essentially flat in the current period, reflecting the Companys continued support of its new products and established brands with an emphasis on innovation.
Interest expense remained essentially flat in the current period.
The effective tax rate on earnings from continuing operations was 32.0% and 34.5% for the current and prior period, respectively. This decrease was primarily due to the recognition of excess tax benefits from share-based compensation upon the adoption of Accounting Standards Update No. 2016-09 in the first quarter of fiscal year 2017. See Notes to the Condensed Consolidated Financial Statements for more information.
DISCONTINUED OPERATIONS
Since the exit of Clorox Venezuela in the first quarter of fiscal year 2015, the Company has recognized $49 in after-tax exit costs and other related expenses within discontinued operations related to the exit of Clorox Venezuela. The Company believes it is reasonably possible that it will recognize an additional $1 to $11 in after-tax exit costs and other related expenses within discontinued operations related to the exit of Clorox Venezuela during the remainder of fiscal year 2017 and fiscal years 2018 through 2019, for a total of $50 to $60 over the entire five-year period.
See Notes to the Condensed Consolidated Financial Statements for more information regarding discontinued operations of Clorox Venezuela.
17
SEGMENT RESULTS FROM CONTINUING OPERATIONS
The following sections present the results from operations of the Companys reportable segments and certain unallocated costs reflected in Corporate:
Cleaning
Three Months Ended | |||||||||
9/30/2016 | 9/30/2015 | % Change | |||||||
Net sales | $ | 534 | $ | 497 | 7 | % | |||
Earnings from continuing operations before income taxes | 164 | 149 | 10 |
Volume, net sales and earnings from continuing operations before income taxes increased by 13%, 7% and 10%, respectively, in the current period. Both volume and net sales growth were driven mainly by higher shipments across several Clorox ® branded products within Home Care, primarily Clorox ® disinfecting wipes resulting from expanded club-channel distribution and increased merchandising support, and in Professional Products across cleaning products. Volume outpaced net sales due to unfavorable product mix. The increase in earnings from continuing operations before income taxes was mainly due to net sales growth and strong cost savings.
Household
Three Months Ended | |||||||||
9/30/2016 | 9/30/2015 | % Change | |||||||
Net sales | $ | 422 | $ | 411 | 3 | % | |||
Earnings from continuing operations before income taxes | 69 | 82 | (16 | ) |
Volume and net sales increased by 6% and 3%, respectively, while earnings from continuing operations before income taxes decreased 16% in the current period. Both volume growth and net sales growth were driven by the acquisition of RenewLife, partially offset by lower shipments of Charcoal. Volume outpaced net sales, primarily due to higher trade promotion spending. The decrease in earnings from continuing operations before income taxes was mainly due to lower volume in Charcoal, higher trade promotion spending and higher manufacturing and logistics costs, partially offset by the benefit of favorable commodity costs.
Lifestyle
Three Months Ended | |||||||||
9/30/2016 | 9/30/2015 | % Change | |||||||
Net sales | $ | 236 | $ | 231 | 2 | % | |||
Earnings from continuing operations before income taxes | 62 | 59 | 5 |
Volume, net sales, and earnings from continuing operations before income taxes increased by 1%, 2% and 5%, respectively, in the current period. Both volume growth and net sales growth were primarily driven by higher shipments in the Burts Bees Natural Personal Care business largely due to innovation in lip color. Net sales growth outpaced volume, primarily due to decreased trade promotion spending. The increase in earnings from continuing operations before income taxes was primarily due to net sales growth, cost savings and favorable commodity costs, partially offset by higher manufacturing and logistics costs.
18
International
Three Months Ended | |||||||||
9/30/2016 | 9/30/2015 | % Change | |||||||
Net sales | $ | 251 | $ | 251 | - | % | |||
Earnings from continuing operations before income taxes | 27 | 32 | (16 | ) |
Volume increased 4%, net sales were flat and earnings from continuing operations before income taxes decreased by 16% in the current period. Volume grew due to higher shipments, mainly in Canada, which included the benefit from the RenewLife acquisition and in the Burts Bees Natural Personal Care Asia business, partially offset by lower shipments in certain Latin American countries, including Argentina. Volume outpaced net sales due to unfavorable foreign exchange rates, partially offset by the benefit of price increases. The decrease in earnings from continuing operations before income taxes was primarily due to unfavorable foreign currency exchange rates, inflationary pressure on manufacturing and logistics costs, partially offset by the benefit of price increases.
Argentina
The Company operates in Argentina through certain wholly owned subsidiaries (collectively, Clorox Argentina). Net sales from Clorox Argentina represented approximately 3% of the Companys consolidated net sales for each of the three months ended September 30, 2016 and the fiscal year ended June 30, 2016. The operating environment in Argentina continues to present business challenges, including significant devaluing of Argentinas currency and inflation.
Clorox Argentina manufactures products at three plants that it owns and operates across Argentina and markets those products to consumers throughout the country. Products are advertised nationally and sold to consumers through wholesalers and retail outlets located throughout Argentina. Sales are made primarily through the use of Clorox Argentinas sales force. Small amounts of products produced in Argentina are exported each year, including sales to the Companys other subsidiaries located primarily in Latin America. Clorox Argentina obtains its raw materials almost entirely from local sources. The Company also conducts research and development activities at its owned facility in Buenos Aires, Argentina. Additionally, Clorox Argentina performs marketing, legal, and various other shared service activities to support the Companys Latin American operations. Clorox Argentina in turn benefits from shared service activities performed within other geographic locations, such as information technology support and manufacturing technical assistance.
For the three months ended September 30, 2016 and the year ended June 30, 2016, the value of the Argentine peso (ARS) declined 3% and 39%, respectively. As of September 30, 2016, using the exchange rate of 15.4 ARS per USD, Clorox Argentina had total assets of $74, including cash and cash equivalents of $10, net receivables of $19, inventories of $19, net property, plant and equipment of $17 and intangible assets excluding goodwill of $3. Although Argentina is not currently designated as a highly inflationary economy for accounting purposes, further volatility and declines in the exchange rate are expected in the future, which would have an additional adverse impact on Clorox Argentinas net sales, net earnings, and net monetary asset position.
The Company is closely monitoring developments in Argentina and is taking steps intended to mitigate the adverse conditions, but there can be no assurances that the Company will be able to mitigate these conditions.
Corporate
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, other current assets, property and equipment, other investments and deferred taxes.
Three Months Ended | |||||||||||
9/30/2016 | 9/30/2015 | % Change | |||||||||
Losses from continuing operations before income taxes | $ | (58 | ) | $ | (58 | ) | - | % |
There was no significant change in losses from continuing operations before income taxes in the current period.
19
FINANCIAL POSITION AND LIQUIDITY
Operating Activities
The Companys financial condition and liquidity remained strong as of September 30, 2016. Net cash provided by continuing operations was $170 in the current period, compared with $135 in the prior period. The year-over-year increase was primarily related to higher tax payments in the prior period.
Investing Activities
Capital expenditures were $59 in the current period, compared with $28 in the prior period. Capital spending as a percentage of net sales was approximately 4% and 2% in the three months ended September 30, 2016 and 2015, respectively. The year-over-year increase was due to additional capital spending for manufacturing efficiencies and information technology infrastructure in the current period. Prior period investing activities also included proceeds from the sale of the Companys corporate jet.
Financing Activities
Net cash used for financing activities was $104 in the current period, compared with $120 in the prior period. The change was primarily due to an increase in cash sourced from notes and loan payable borrowings, partially offset by a decline in proceeds from the issuance of stock for employee stock plans.
Credit Arrangements
As of September 30, 2016, the Company had a $1,100 revolving credit agreement (the Credit Agreement) that expires in October 2019. As of September 30, 2016, there were no borrowings under the Credit Agreement, and the Company believes that borrowings under the Credit Agreement are and will continue to be available for general corporate purposes. The Credit Agreement includes certain restrictive covenants and limitations. The primary restrictive covenant is a maximum ratio of total debt to earnings before interest, taxes, depreciation and amortization and intangible asset impairment (Consolidated EBITDA) for the trailing four quarters (Consolidated Leverage ratio), as defined and described in the Credit Agreement, of 3.50.
The following table sets forth the calculation of the Consolidated Leverage ratio as of September 30, 2016, using Consolidated EBITDA for the trailing four quarters, as contractually defined:
9/30/2016 | |||
Earnings from continuing operations | $ | 654 | |
Add back: | |||
Interest expense | 87 | ||
Income tax expense | 329 | ||
Depreciation and amortization | 165 | ||
Noncash intangible asset impairment charges | 9 | ||
Deduct: | |||
Interest income | 5 | ||
Consolidated EBITDA | $ | 1,239 | |
Total debt | $ | 2,407 | |
Consolidated Leverage ratio | 1.94 |
The Company was in compliance with all restrictive covenants and limitations in the Credit Agreement as of September 30, 2016, and anticipates being in compliance with all restrictive covenants for the foreseeable future. The Company continues to monitor the financial markets and assess its ability to fully draw on its revolving credit agreement, and currently expects that any drawing on the agreement will be fully funded.
Of the $29 of foreign and other credit lines as of September 30, 2016, $4 was outstanding and the remainder of $25 was available for borrowing.
20
Share repurchases and dividends
The Company has two share repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $750, all of which was available for share repurchases as of September 30, 2016, and a program to offset the anticipated impact of share dilution related to share-based awards (the Evergreen Program), which has no authorization limit as to amount or timing of repurchases.
During the three months ended September 30, 2016 and 2015, the Company repurchased approximately 0.9 million and 1.0 million shares, respectively, under its Evergreen Program, for an aggregate amount of $113 and $112, respectively. The Company did not repurchase any shares under the open-market purchase program during the three months ended September 30, 2016 and 2015.
During the three months ended September 30, 2016 and 2015, the Company paid dividends per share of $0.80 and $0.77, respectively, aggregating to $104 and $99, respectively.
CONTINGENCIES
See Notes to Condensed Consolidated Financial Statements for information on the Companys contingencies.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Notes to Condensed Consolidated Financial Statements for a summary of recently issued accounting standards relevant to the Company.
21
Cautionary Statement
This Quarterly Report on Form 10-Q (the Report), including the exhibits hereto and the information incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such forward-looking statements involve risks and uncertainties. Except for historical information, statements about future volume, sales, foreign currencies, costs, cost savings, margin, earnings, earnings per share, diluted earnings per share, foreign currency exchange rates, cash flows, plans, objectives, expectations, growth or profitability are forward-looking statements based on managements estimates, assumptions and projections. Words such as could, may, expects, anticipates, targets, goals, projects, intends, plans, believes, seeks, estimates, predicts, and variations on such words, and similar expressions that reflect our current views with respect to future events and operational and financial performance, are intended to identify such forward-looking statements. These forward-looking statements are only predictions, subject to risks and uncertainties, and actual results could differ materially from those discussed herein. Important factors that could affect performance and cause results to differ materially from managements expectations are described in the sections entitled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on Form 10-K for the fiscal year ended June 30, 2016, as updated from time to time in the Companys Securities and Exchange Commission filings. These factors include, but are not limited to:
● |
intense competition in the Companys markets; |
● |
worldwide, regional and local economic conditions and financial market volatility; |
● |
the ability of the Company to drive sales growth, increase price and market share, grow its product categories and achieve favorable product and geographic mix; |
● |
volatility and increases in commodity costs such as resin, sodium hypochlorite and agricultural commodities, and increases in energy, transportation or other costs; |
● |
dependence on key customers and risks related to customer consolidation and ordering patterns; |
● |
risks related to reliance on information technology systems, including potential security breaches, cyber-attacks, privacy breaches or data breaches that result in the unauthorized disclosure of consumer, customer, employee or Company information, or service interruptions; |
● |
costs resulting from government regulations; |
● |
the ability of the Company to successfully manage global political, legal, tax and regulatory risks, including changes in regulatory or administrative activity; |
● |
risks related to international operations, including political instability; government-imposed price controls or other regulations; foreign currency exchange rate controls, including periodic changes in such controls, fluctuations and devaluations; labor claims, labor unrest and inflationary pressures, particularly in Argentina; and potential harm and liabilities from the use, storage and transportation of chlorine in certain international markets where chlorine is used in the production of bleach; and the possibility of nationalization, expropriation of assets or other government action; |
● |
risks relating to acquisitions, new ventures and divestitures, and associated costs, including the potential for asset impairment charges related to, among others, intangible assets and goodwill; |
● |
the ability of the Company to develop and introduce commercially successful products; |
● |
supply disruptions and other risks inherent in reliance on a limited base of suppliers; |
● |
the impact of product liability claims, labor claims and other legal proceedings, including in foreign jurisdictions |
● |
the success of the Companys business strategies; |
● |
the ability of the Company to implement and generate anticipated cost savings and efficiencies; |
● |
the Companys ability to attract and retain key personnel; |
● |
the Companys ability to maintain its business reputation and the reputation of its brands; |
● |
environmental matters, including costs associated with the remediation of past contamination and the handling and/or transportation of hazardous substances; |
● |
the impact of natural disasters, terrorism and other events beyond the Companys control; |
● |
the Companys ability to maximize, assert and defend its intellectual property rights; |
● |
any infringement or claimed infringement by the Company of third-party intellectual property rights; |
● |
risks related to the potential increase in the Companys purchase price for P&Gs interest in the Glad ® business and the impact from the decision on whether or not to extend the term of the related agreement with P&G; |
● |
the effect of the Companys indebtedness and credit rating on its business operations and financial results; |
● |
risks related to the Companys discontinuation of operations in Venezuela; |
● |
the Companys ability to pay and declare dividends or repurchase its stock in the future; |
● |
the Companys ability to maintain an effective system of internal controls, including after completing acquisitions; |
● | uncertainties relating to tax positions, tax disputes and changes in the Companys tax rate; |
● | the accuracy of the Companys estimates and assumptions on which its financial projections are based; and |
● | the impacts of potential stockholder activism. |
22
The Companys forward-looking statements in this Report are based on managements current views and assumptions regarding future events and speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws.
In this Report, unless the context requires otherwise, the terms the Company and Clorox refer to The Clorox Company and its subsidiaries.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have not been any material changes to the Companys market risk since June 30, 2016. For additional information, refer to Managements Discussion and Analysis of Financial Condition and Results of Operations included in Exhibit 99.1 of the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2016.
Item 4. Controls and Procedures
The Companys management, with the participation of the Companys Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures, as of the end of the period covered by this Report, were effective such that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
No change in the Companys internal control over financial reporting occurred during the first fiscal quarter of the fiscal year ending June 30, 2017, that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
23
PART II OTHER INFORMATION
Item 1.A. Risk Factors
For information regarding Risk Factors, please refer to Item 1.A. in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2016, and the information in Cautionary Statement included in this Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth the purchases of the Companys securities by the Company and any affiliated purchasers within the meaning of Rule 10b-18(a)(3) (17 CFR 240.10b-18(a)(3)) during the first quarter of fiscal year 2017.
[a] | [b] | [c] | [d] | ||||||
Period |
Total Number of
Shares Purchased (1) |
Average Price Paid
per Share |
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number (or
Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
|||||
July 1 to 31, 2016 | - | $ | - | - | (2) | ||||
August 1 to 31, 2016 | 405,154 | 131.34 | 405,154 | (2) | |||||
September 1 to 30, 2016 | 477,586 | 125.84 | 477,586 | (2) | |||||
Total | 882,740 | $ | 128.36 | 882,740 | (2) |
(1) | Shares purchased in July, August and September 2016 were acquired pursuant to the Companys share repurchase program to offset the impact of share dilution related to share-based awards (the Evergreen Program). | |
(2) | The Company has two share repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $750 million, all of which was available for share repurchases as of September 30, 2016, and the Evergreen Program, the purpose of which is to offset the impact of anticipated share dilution related to share-based awards and which has no authorization limit as to the amount or timing of repurchases. |
24
Item 6. Exhibits
3.2 |
The
Clorox Company Amended and Restated Bylaws (filed as Exhibit 3.2 to the
Current Report on Form 8-K, filed September 15, 2016, incorporated herein
by reference).
|
|
10.1 |
Form of Performance
Share Award Agreement under the Companys 2005 Stock Incentive Plan for
awards made in 2016.
|
|
10.2 |
Form
of Nonqualified Stock Option Award Agreement under the Companys 2005
Stock Incentive Plan.
|
|
31.1 |
Certification by the
Chief Executive Officer of the Company Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2 |
Certification by the Chief Financial Officer of the Company
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32 |
Certification by the
Chief Executive Officer and Chief Financial Officer of the Company
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
101 | The following materials from The Clorox Companys Quarterly Report on Form 10-Q for the period ended September 30, 2016, are formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Earnings and Comprehensive Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements. |
25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE CLOROX COMPANY | ||
(Registrant) | ||
DATE: November 2, 2016 | BY | /s/ Thomas D. Johnson |
Thomas D. Johnson | ||
Vice President Global Business Services and | ||
Chief Accounting Officer |
26
EXHIBIT INDEX
Exhibit No.
3.2 |
The
Clorox Company Amended and Restated Bylaws (filed as Exhibit 3.2 to the
Current Report on Form 8-K, filed September 15, 2016, incorporated herein
by reference).
|
|
10.1 |
Form of Performance
Share Award Agreement under the Companys 2005 Stock Incentive Plan for
awards made in 2016.
|
|
10.2 |
Form
of Nonqualified Stock Option Award Agreement under the Companys 2005
Stock Incentive Plan.
|
|
31.1 |
Certification by the
Chief Executive Officer of the Company Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2 |
Certification by the Chief Financial Officer of the Company
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32 |
Certification by the
Chief Executive Officer and Chief Financial Officer of the Company
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
101 | The following materials from The Clorox Companys Quarterly Report on Form 10-Q for the period ended September 30, 2016, are formatted in eXtensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Earnings and Comprehensive Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements. |
27
Exhibit 10.1
THE CLOROX COMPANY
2005
STOCK INCENTIVE PLAN
PERFORMANCE
SHARE AWARD AGREEMENT
NOTICE OF PERFORMANCE SHARE
GRANT
The Clorox Company, a
Delaware company (the Company), grants to the Grantee named below, in
accordance with the terms of The Clorox Company 2005 Stock Incentive Plan (the
Plan) and this performance share award agreement (the Agreement), the
following number of Performance Shares on the terms set forth below:
AGREEMENT
1. | Grant of Performance Shares . The Company hereby grants to the Grantee the Target Award set forth above, payment of which is dependent upon the achievement of certain performance goals more fully described in Section 3 of this Agreement. This Award is subject to the terms, definitions and provisions of the Plan and this Agreement. All terms, provisions, and conditions applicable to the Performance Shares set forth in the Plan and not set forth herein are incorporated by reference. To the extent any provision hereof is inconsistent with a provision of the Plan, the provisions of the Plan will govern. All capitalized terms that are used in this Agreement and not otherwise defined herein shall have the meanings ascribed to them in the Plan. | |
2. | Nature and Settlement of Award . The Performance Shares awarded pursuant to this Agreement represent the opportunity to receive Shares of the Company and Dividend Equivalents on such Shares (as described in Section 4 below). The Company shall issue to the Participant one Share for each vested Performance Share (plus any Dividend Equivalents accrued with respect to such vested Performance Shares), rounded down to the nearest whole share, less any Shares withheld in accordance with the provisions of Section 7 of this Agreement. Settlement shall occur on a date chosen by the Committee, which date shall be within seventy-five (75) days following the last day of the Performance Period, or any deferred settlement date established pursuant to Section 6 of this Agreement, whichever is later (the Settlement Date), and except as specifically provided in Section 5 of this Agreement, provided the Grantee has remained in the employment or service of the Company or its Subsidiaries through the Settlement Date. Although vested within the meaning of Section 83 of the Internal Revenue Code since no substantial risk of forfeiture exists at the Settlement Date, the Performance Shares (and any associated Dividend Equivalents) will not be earned until the Grantee has fulfilled all of the conditions precedent set forth in this Agreement, including, but not limited to, the obligations set forth in Sections 9(b), 9(c), 9(d), 9(e) and Section 10, and the Grantee shall have no right to retain the Shares or the value thereof upon vesting or settlement of the Performance Shares until all such conditions precedent have been satisfied. |
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3. | Determination of Number of Performance Shares Vested . | |
The number of Performance Shares vested, if any, for the Performance Period shall be determined in accordance with the following formula: | ||
# of Performance Shares = Payout Percentage x Target Award |
||
The Payout Percentage is based on cumulative economic profit (EP), calculated as described in the paragraph below, at the end of the Performance Period, determined in accordance with the following table: |
FY17 FY19 | Payout |
Performance Period is FY17-FY19 | |
Interim percentages to be interpolated |
Cumulative EP will be the sum of annual EP results over the Performance Period. Annual EP is defined as Earnings Before Interest & Taxes (EBIT), adjusted for non-cash restructuring charges, times one minus the tax rate, less capital charge. | ||
Notwithstanding the above, the EP levels in the preceding table shall be adjusted, fairly and appropriately, in accordance with the Plan and, as provided in this Agreement, to reflect accurately the direct and measurable effect of the impact of each of the following events not otherwise reflected in the determination of the initial EP levels (each, an Event) including, without limitation, the financial statement impact on the Company on account of the occurrence or potential occurrence of an Event: (1) the acquisition or divestiture of a business, (2) a Change in Control, (3) U.S Federal changes in tax statutes or the addition or deletion of taxes to which the Company or any Affiliated Company is subject, (4) force majeure (including events known as Acts of God), (5) the adoption of new or revised accounting pronouncements or changes to application of accounting pronouncements, and (6) any extraordinary, unusual or non-recurring item not previously listed. Notwithstanding the foregoing, an event listed in the preceding sentence shall not qualify as an Event, and therefore no adjustment shall be made to the EP levels, unless the impact of the occurrence or potential occurrence of such an event listed in the preceding sentence exceeds $2 million in EP. The purpose of any adjustments on account of the occurrence of an Event is to keep the probability of achieving the EP levels the same as if the Event triggering such adjustment had either not occurred or had not resulted in any financial statement impact. The determination of any adjustments shall be based on the Companys accounting as set forth in its books and records (including business projections) and/or in the annual budget and/or long range plan of the Company pursuant to which the EP levels were originally established. The amount of any such adjustment shall be approved by the Committee in its good faith determination in accordance with the provisions of this paragraph. To the extent applicable, the Committee shall condition the determination of the number of Performance Shares vested under this Section 3 upon the satisfaction of the adjusted EP levels. All Performance Shares that are not vested for the Performance Period shall be forfeited as of the last day of the Performance Period. | ||
4. | Dividend Equivalent Rights. No Dividend Equivalents shall be paid to the Grantee prior to the settlement of the award. Rather, such Dividend Equivalent payments will accrue and be notionally credited to the Grantees Performance Share account and paid out at the Payout Percentage in the form of additional Shares (the Dividend Equivalent Shares) upon settlement of the award, as described in Section 2 above. |
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5. | Termination of Continuous Service . Except as otherwise provided below, if the Grantees employment or service with the Company and its Subsidiaries is terminated for any reason prior to the Settlement Date, all Performance Shares and Dividend Equivalents subject to this Agreement shall be immediately forfeited. | |||
a. | Termination due to Death or Disability . If the Grantees termination of employment or service is due to death or Disability, all Performance Shares and Dividend Equivalents shall immediately vest and will be paid upon completion of the Performance Period based on the level of performance achieved as of the end of such Performance Period. | |||
b. | Termination due to Retirement . If the Grantees termination of employment or service is due to Retirement and is more than twelve (12) months from the Date of Grant set forth in this Agreement, the Performance Shares shall vest on a pro rata monthly basis, including full credit for partial months elapsed, and will be paid upon completion of the Performance Period based on the level of performance achieved as of the end of such Performance Period; provided, however, that this provision shall not apply in the event the Grantees employment or service is terminated for Cause. The amount of the vested Award may be computed under the following formula: Target Award times (number of full months elapsed in Performance Period divided by number of full months in Performance Period) times percent performance level achieved as of the end of the Performance Period. Dividend Equivalents accrued through the Grantees date of termination due to Retirement shall be paid at the same time as the settlement of the vested Performance Shares. | |||
c. | Definition of Retirement. For purposes of this Agreement, the term Retirement shall mean termination of employment or service as an Employee after (1) twenty (20) or more years of vesting service, which solely for purposes of this Agreement, shall be calculated under Article III of The Clorox Company 401(k) Plan (the 401(k) Plan) entitled Service along with any other relevant provisions of the 401(k) Plan necessary or desirable to give full effect thereto, or any successor provisions, regardless of the status of the Grantee with respect to the 401(k) Plan (Vesting Service), or (2) attaining age fifty-five with ten (10) or more years of Vesting Service. | |||
d. | Definition of Disability. For purposes of this Agreement, the Grantees employment shall be deemed to have terminated due to the Grantees Disability if the Grantee is entitled to long-term disability benefits under the Companys long-term disability plan or policy, as in effect on the date of termination of the Grantees employment. | |||
6. | Election to Defer Settlement . Prior to the commencement of the last year of the Performance Period, the Grantee may elect to defer the settlement of the Performance Shares from the last day of the Performance Period until a date at least two years following such date, or until the Grantees later termination of employment or service. If the Grantee makes such an election, it will become irrevocable on the date of such election. If the Grantee makes such an election, any Dividend Equivalents awarded with respect to such deferred Performance Shares shall also be deferred under the same terms. If the Grantee makes such an election, but a transaction occurs that subjects the Grantees Performance Shares to Section 19 of the Plan prior to the settlement date, the Grantees deferral election will terminate and the Grantees Performance Shares and Dividend Equivalents will be settled as of the date of that transaction. The Company may terminate any deferral hereunder if a change in law requires such termination. | |||
7. | Taxes . Pursuant to Section 16 of the Plan, the Committee shall have the power and the right to deduct or withhold, or require the Grantee to remit to the Company, an amount sufficient to satisfy any applicable tax withholding requirements applicable to this Award. The Committee may condition the issuance of Shares upon the Grantees satisfaction of such withholding obligations. The Grantee may elect to satisfy all or part of such withholding requirement by tendering previously-owned Shares or by having the Company withhold Shares having a Fair Market Value equal to the minimum statutory withholding rate that could be imposed on the transaction (or such other rate that will not result in a negative accounting impact) or in such other manner as is acceptable to the Company. Such election shall be irrevocable, made in writing, signed by the Grantee, and shall be subject to any restriction or limitations that the Committee, in its sole discretion, deems appropriate. | |||
8. | Transferability of Performance Shares . Performance Shares shall not be transferable by the Grantee other than by will or by the laws of descent or distribution. For avoidance of doubt, Shares issued to the Grantee in settlement of Performance Shares pursuant to Section 2 of this Agreement shall not be subject to any of the foregoing transferability restrictions. |
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9. | Protection of Trade Secrets and Limitations on Retention. | |||||
a. | Definitions. | |||||
i. | Affiliated Company means any organization controlling, controlled by or under common control with the Company. | |||||
ii. | Confidential Information means the Companys technical or business or personnel information not readily available to the public or generally known in the trade, including inventions, developments, trade secrets and other confidential information, knowledge, data and know-how of the Company or any Affiliated Company, whether or not they originated with the Grantee, or information which the Company or any Affiliated Company received from third parties under an obligation of confidentiality. | |||||
iii. | Conflicting Product means any product, process, machine, or service of any person or organization, other than the Company or any Affiliated Company, in existence or under development that (1) resembles or competes with a product, process, machine, or service upon or with which the Grantee shall have worked during the two years prior to the Grantees termination of employment with the Company or any Affiliated Company or (2) with respect to which during that period of time the Grantee, as a result of his/her job performance and duties, shall have acquired knowledge of Confidential Information, and whose use or marketability could be enhanced by application to it of Confidential Information. For purposes of this section, it shall be conclusively presumed that the Grantee has knowledge of information to which s/he has been directly exposed through actual receipt or review of memorandum or documents containing such information or through actual attendance at meetings at which such information was discussed or disclosed. | |||||
iv. | Conflicting Organization means any person or organization that is engaged in or about to become engaged in research on or development, production, marketing or selling of a Conflicting Product. | |||||
b. | Right to Retain Shares Contingent on Protection of Confidential Information . In partial consideration for the award of these Performance Shares, the Grantee agrees that at all times, both during and after the term of the Grantees employment with the Company or any Affiliated Company, to hold in the strictest confidence, and not to use (except for the benefit of the Company at the Companys direction) or disclose (except for the benefit of the Company at the Companys direction), regardless of when disclosed to the Grantee, any and all Confidential Information of the Company or any Affiliated Company. The Grantee understands that for purposes of this Section 9(b), Confidential Information further includes, but is not limited to, information pertaining to any aspect of the business of the Company or any Affiliated Company which is either information not known (or known as a result of a wrongful act of the Grantee or of others who were under confidentiality obligations as to the item or items involved) by actual or potential competitors of the Company or other third parties not under confidentiality obligations to the Company. If, prior to the expiration of the Performance Period or at any time within one (1) year after the Settlement Date, the Grantee discloses or uses, or threatens to disclose or use, any Confidential Information other than in the course of performing authorized services for the Company (or any Affiliated Company), the Performance Shares, whether vested or not, will be immediately forfeited and cancelled, and the Grantee shall immediately return to the Company the Shares or the pre-tax income derived from any disposition of the Shares. |
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c. | No Interference with Customers or Suppliers . In partial consideration for the award of these Performance Shares, in order to forestall the disclosure or use of Confidential Information as well as to deter the Grantees intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantees intentional interference with prospective economic advantage of the Company or any Affiliated Company and to promote fair competition, the Grantee agrees that the Grantees right to the Shares upon settlement of the Performance Shares is contingent upon the Grantee refraining, for a period of one (1) year after the date of settlement of the Performance Shares, for himself/herself or any third party, directly or indirectly, from using Confidential Information to (1) divert or attempt to divert from the Company (or any Affiliated Company) any business of any kind in which it is engaged, or (2) intentionally solicit its customers with which it has a contractual relationship as to Conflicting Products, or to interfere with the contractual relationship with any of its suppliers or customers (collectively, Interfere). If, during the term of the Performance Period or at any time within one (1) year after the Settlement Date, the Grantee breaches his/her obligation not to Interfere, the Grantees right to the Shares upon settlement of the Performance Shares shall not have been earned and the Performance Shares, whether vested or not, will be immediately cancelled, and the Grantee shall immediately return to the Company the Shares or the pre-tax income derived from any disposition of the Shares. For avoidance of doubt, the term Interfere shall not include any advertisement of Conflicting Products through the use of media intended to reach a broad public audience (such as television, cable or radio broadcasts, or newspapers or magazines) or the broad distribution of coupons through the use of direct mail or through independent retail outlets. THE GRANTEE UNDERSTANDS THAT THIS PARAGRAPH IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED, BUT PROVIDES FOR THE CANCELLATION OF THE PERFORMANCE SHARES AND A RETURN TO THE COMPANY OF THE SHARES OR THE GROSS TAXABLE PROCEEDS OF THE SHARES IF THE GRANTEE SHOULD CHOOSE TO VIOLATE THIS NO INTERFERENCE WITH CUSTOMERS OR SUPPLIERS PROVISION DURING THE TERM OF THE PERFORMANCE PERIOD OR WITHIN ONE (1) YEAR AFTER THE SETTLEMENT DATE. | |||||
d. | No Solicitation of Employees . In partial consideration for the award of these Performance Shares, in order to forestall the disclosure or use of Confidential Information, as well as to deter the Grantees intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantees intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Grantee agrees that the Grantees right to the Shares upon settlement of the Performance Shares is contingent upon the Grantee refraining, for a period of one (1) year after the date of settlement of the Performance Shares, for himself/herself or any third party, directly or indirectly, from soliciting for employment any person employed by the Company, or by any Affiliated Company, during the period of the solicited persons employment and for a period of one (1) year after the termination of the solicited persons employment with the Company or any Affiliated Company (collectively Solicit). If, during the term of the Performance Period or at any time within one (1) year after the Settlement Date, the Grantee breaches his/her obligation not to Solicit, the Grantees right to the Shares upon settlement of the Performance Shares shall not have been earned and the Performance Shares, whether vested or not, will be immediately cancelled, and the Grantee shall immediately return to the Company the Shares or the pre-tax income derived from any disposition of the Shares. THE GRANTEE UNDERSTANDS THAT THIS PARAGRAPH IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED, BUT PROVIDES FOR THE CANCELLATION OF THE PERFORMANCE SHARES AND A RETURN TO THE COMPANY OF THE SHARES OR THE GROSS TAXABLE PROCEEDS OF THE SHARES IF THE GRANTEE SHOULD CHOOSE TO VIOLATE THIS NON-SOLICITATION OF EMPLOYEES PROVISION DURING THE TERM OF THE PERFORMANCE PERIOD OR WITHIN ONE (1) YEAR AFTER THE SETTLEMENT DATE. | |||||
e. | Injunctive and Other Available Relief . By acceptance of these Performance Shares, the Grantee acknowledges that, if the Grantee were to breach or threaten to breach his/her obligation hereunder not to Interfere or Solicit or not to disclose or use any Confidential Information other than in the course of performing authorized services for the Company (or any Affiliated Company), the harm caused to the Company by such breach or threatened breach would be, by its nature, irreparable because, among other things, damages would be significant and the monetary harm that would ensue would not be able to be readily proven, and that the Company would be entitled to injunctive and other appropriate relief to prevent threatened or continued breach and to such other remedies as may be available at law or in equity. To the extent not prohibited by law, any cancellation of the Performance Shares pursuant to any of Sections 9(b) through 9(d) above shall not restrict, abridge or otherwise limit in any fashion the types and scope of injunctive and other available relief to the Company. Notwithstanding any provision of this Agreement to the contrary, nothing under this Agreement shall limit, abridge, modify or otherwise restrict the Company (or any Affiliated Company) from pursuing any or all legal, equitable or other appropriate remedies to which the Company may be entitled under any other agreement with the Grantee, any other plan, program, policy or arrangement of the Company (or any Affiliated Company) under which the Grantee is covered or participates, or any applicable law, all to the fullest extent not prohibited under applicable law. |
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f. | Permitted Reporting and Disclosure . Notwithstanding any language in this Agreement to the contrary, nothing in this Agreement prohibits Grantee from reporting possible violations of federal law or regulation to any governmental agency or governmental entity, or making other disclosures that are protected under federal law or regulation; provided, that, in each case such communications and disclosures are consistent with applicable law. Notwithstanding the foregoing, under no circumstance is Grantee authorized to disclose any information covered by the Companys attorney-client privilege or attorney work product or the Companys trade secrets without prior written consent of the Companys General Counsel. Any reporting or disclosure permitted under this Section 9(f) shall not result in the cancellation of Performance Shares. Grantee is entitled to certain immunities from liability under state and federal law for disclosing trade secrets if the disclosure was made to report or investigate an alleged violation of law, subject to certain conditions. Please see the Companys Confidential Information Policy for further details. | |||
10. | Right to Retain Shares Contingent on Continuing Non-Conflicting Employment . In partial consideration for the award of these Performance Shares, in order to forestall the disclosure or use of Confidential Information, as well as to deter the Grantees intentional interference with the contractual relations of the Company or any Affiliated Company, the Grantees intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Grantee agrees that the Grantees right to the Shares upon settlement of the Performance Shares is contingent upon the Grantee refraining, during the term of the Performance Period and for a period of one (1) year after the Settlement Date, from rendering services, directly or indirectly, as director, officer, employee, agent, consultant or otherwise, to any Conflicting Organization except a Conflicting Organization whose business is diversified and that, as to that part of its business to which the Grantee renders services, is not a Conflicting Organization, provided that the Company shall receive separate written assurances satisfactory to the Company from the Grantee and the Conflicting Organization that the Grantee shall not render services during such period with respect to a Conflicting Product. If, prior to the expiration of the Performance Period or at any time within one (1) year after the Settlement Date, the Grantee shall render services to any Conflicting Organization other than as expressly permitted herein, the Grantees right to the Shares upon settlement of the Performance Shares shall not have been earned and the Performance Shares, whether vested or not, will be immediately cancelled, and the Grantee shall immediately return to the Company the Shares or the pre-tax income derived from any disposition of the Shares. THE GRANTEE UNDERSTANDS THAT THIS PARAGRAPH IS NOT INTENDED TO AND DOES NOT PROHIBIT THE GRANTEE FROM RENDERING SERVICES TO A CONFLICTING ORGANIZATION, BUT PROVIDES FOR THE CANCELLATION OF THE PERFORMANCE SHARES AND A RETURN TO THE COMPANY OF THE SHARES OR THE GROSS TAXABLE PROCEEDS OF THE SHARES IF THE GRANTEE SHOULD CHOOSE TO RENDER SUCH SERVICES DURING THE TERM OF THE PERFORMANCE PERIOD OR WITHIN ONE (1) YEAR AFTER THE SETTLEMENT DATE. | |||
11. | Repayment Obligation . In the event that (1) the Company issues a restatement of financial results to correct a material error and (2) the Committee determines, in good faith, that the Grantees fraud or willful misconduct was a significant contributing factor to the need to issue such restatement and (3) some or all of the Performance Shares that were granted and/or vested prior to such restatement would not have been granted and/or vested, as applicable, based upon the restated financial results, the Grantee shall immediately return to the Company the Performance Shares or any Shares or the pre-tax income derived from any disposition of the Shares previously received in settlement of the Performance Shares that would not have been granted and/or vested based upon the restated financial results (the Repayment Obligation). The Company shall be able to enforce the Repayment Obligation by all legal means available, including, without limitation, by withholding such amount from other sums owed by the Company to the Grantee. | |||
12. | Miscellaneous Provisions . | |||
a. | Rights as a Stockholder . Neither the Grantee nor the Grantees transferee or representative shall have any rights as a stockholder with respect to any Shares subject to this Award until the Performance Shares have been settled and Share certificates have been issued to the Grantee, transferee or representative, as the case may be. | |||
b. | Choice of Law, Exclusive Jurisdiction and Venue . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction. The courts of the State of Delaware shall have exclusive jurisdiction over any disputes or other proceedings relating to this Agreement, and venue shall reside with the courts in New Castle County, Delaware, including if jurisdiction shall so permit, the U.S. District Court for the District of Delaware. Accordingly, the Grantee agrees that any claim of any type relating to this Agreement must be brought and maintained in the appropriate court located in New Castle County, Delaware, including if jurisdiction will so permit, in the U.S. District Court for the State of Delaware. The Grantee hereby consents to the jurisdiction over the Grantee of any such courts and waives all objections based on venue or inconvenient forum. |
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c. | Modification or Amendment . This Agreement may be modified or amended by the Board or the Committee at any time; provided, however, no modification or amendment to this Agreement shall be made which would materially and adversely affect the rights of the Grantee, without such Grantees written consent. | |||
d. | Severability . In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of this Agreement, and this Agreement shall be construed and enforced to reflect the intent of the parties to the fullest extent not prohibited by law, and in the event that such provision is not able to be so construed and enforced, then this Agreement shall be construed and enforced as if such illegal or invalid provision had not been included. In amplification of the preceding sentence, in the event that the time period or scope of any provision is declared by a court or arbitrator of competent jurisdiction to exceed the maximum time period or scope that such court or arbitrator deems enforceable, then such court or arbitrator shall have the power to reduce the time period or scope to the maximum time period or scope permitted by law. | |||
e. | References to Plan . All references to the Plan shall be deemed references to the Plan as may be amended. | |||
f. | Headings . The captions used in this Agreement are inserted for convenience and shall not be deemed a part of this Agreement for construction or interpretation. | |||
g. | Interpretation . Any dispute regarding the interpretation of this Agreement shall be submitted by the Grantee or by the Company forthwith to the Board or the Committee, which shall review such dispute at its next regular meeting. The resolution of such dispute by the Board or the Committee shall be final and binding on all persons. It is the intention of the Company and the Grantee to make the promises contained in this Agreement reasonable and binding only to the extent that it may be lawfully done under existing applicable laws. This Agreement and the Plan constitute the entire and exclusive agreement between the Grantee and the Company, and it supersedes all prior agreements or understandings, whether written or oral, with respect to the grant of Performance Shares set forth in this Agreement. | |||
h. | Section 409A Compliance . To the extent applicable, it is intended that the Plan and this Agreement comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (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 of the Plan or this Agreement that would cause this Award 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. | |||
Notwithstanding any provision of the Plan to the contrary, if the Grantee is a specified employee (as defined in Section 1.409A-1(i) of the Treasury Department Regulations) at the time of the Grantees separation from service (as defined in Section 1.409A-1(h) of the Treasury Department Regulations), and a payment to the Grantee under this Agreement is subject to Section 409A and is being made to the Grantee on account of the Grantees separation from service, then to the extent not paid on or before March 15 of the calendar year following the calendar year in which the separation from service occurred, such payment shall be delayed until the earlier of the date which is six (6) months after the date of the Grantees separation from service or the date of death of the Grantee. Any payments that were scheduled to be paid during the six (6) month period following the Grantees separation from service, but which were delayed pursuant to this Section 12(h), shall be paid without interest on, or as soon as administratively practicable after, the first day following the six (6) month anniversary of the Grantees separation from service (or, if earlier, the date of the Grantees death). Any payments that were originally scheduled to be paid following the six (6) months after the Grantees separation from service shall continue to be paid in accordance with their predetermined schedule. | ||||
i. | Agreement with Terms . Receipt of any benefits under this Agreement by the Grantee shall constitute the Grantees acceptance of and agreement with all of the provisions of this Agreement and of the Plan that are applicable to this Agreement, and the Company shall administer this Agreement accordingly. |
THE CLOROX COMPANY | |
By: /s/ Benno Dorer | |
Its: Chairman and Chief Executive Officer |
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THE GRANTEE ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT IS A UNILATERAL CONTRACT AND THAT THE GRANTEES RIGHT TO THE SHARES PURSUANT TO THIS AGREEMENT IS ACCEPTED AND EARNED ONLY BY CONTINUING EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS AWARD OR ACQUIRING SHARES HEREUNDER) AND BY ACHIEVEMENT OF THE PERFORMANCE CRITERIA AND BY COMPLIANCE WITH THE GRANTEES VARIOUS OBLIGATIONS UNDER THIS AGREEMENT. THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE PLAN, SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEES RIGHT OR THE COMPANYS RIGHT TO TERMINATE THE GRANTEES EMPLOYMENT AT ANY TIME, FOR ANY REASON OR NO REASON, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT ADVANCE NOTICE EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW.
The Grantee acknowledges that a copy of the Plan and Plan Information are available for viewing on the Companys internal HR website at https://clxweb.clorox.com/hr/Pages/HRatClorox/HRContentPages/StockIncentiveProgram.aspx, and the Companys Annual Report and Proxy Statement (the Prospectus Information) are available for viewing on the Companys Clorox website at http://investors.thecloroxcompany.com/sec.cfm. The Grantee hereby consents to receive the Prospectus Information electronically or, in the alternative, to contact the HR Service Center at 1-800-709-7095 to request a paper copy of the Prospectus Information. The Grantee represents that s/he is familiar with the terms and provisions thereof, and hereby accepts this Agreement subject to all of the terms and provisions thereof. The Grantee has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of the Agreement. The Grantee acknowledges and hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan or this Agreement. The Grantee further agrees to notify the Company upon any change in the residence address indicated below.
Dated: | Signed: | ||
Grantee |
Residence Address: | |
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Exhibit 10.2
THE CLOROX COMPANY
2005
STOCK INCENTIVE PLAN
NONQUALIFIED
STOCK OPTION AWARD AGREEMENT
NOTICE OF STOCK OPTION
GRANT
The Clorox Company, a Delaware
company (the Company), grants to the Optionee named below an option (the
Option) to purchase, in accordance with the terms of The Clorox Company 2005
Stock Incentive Plan (the Plan) and this nonqualified stock option agreement
(the Agreement), the number of shares of Common Stock of the Company (the
Shares) at the exercise price per share (the Exercise Price) set forth as
follows:
AGREEMENT
1. | Grant of Option . The Company hereby grants to the Optionee the Option to purchase the Shares at the Exercise Price, subject to the terms, definitions and provisions of the Plan and this Agreement. All terms, provisions, and conditions applicable to the Option set forth in the Plan and not set forth herein are incorporated by reference. To the extent any provision hereof is inconsistent with a provision of the Plan, the provisions of the Plan will govern. All capitalized terms that are used in this Agreement and not otherwise defined herein shall have the meanings ascribed to them in the Plan. | |
2. | Exercise of Option . | |
a. | Right to Exercise . This Option shall be exercisable prior to the expiration date set forth above (the Expiration Date), in accordance with the vesting schedule set forth above (the Vesting Schedule) and with the applicable provisions of the Plan and this Agreement. Except as otherwise specifically provided in this Agreement, in no event may this Option be exercised after the Expiration Date. Although vested within the meaning of Section 83 of the Internal Revenue Code since no substantial risk of forfeiture exists once the options become exercisable according to the Vesting Schedule above, the Options will not be earned until the Optionee has fulfilled all of the conditions precedent set forth in this Agreement, including, but not limited to, the obligations set forth in Sections 7(b), 7(c), 7(d), 7(e) and Section 8, and the Optionee shall have no right to retain the Shares or the value thereof upon vesting or exercise of the Options until all conditions precedent have been satisfied. | |
b. | Method of Exercise . This Option shall be exercisable only by delivery of an exercise notice (the Exercise Notice), available on the UBS website, the Companys designee, which shall state the election to exercise the Option, the whole number of vested Shares in respect of which the Option is being exercised and such other provisions as may be required by the Committee. Such Exercise Notice shall be signed by the Optionee and shall be delivered by mail or fax, to the Companys designee accompanied by payment of the Exercise Price. The Company may require the Optionee to furnish or execute such other documents as the Company shall reasonably deem necessary (1) to evidence such exercise and (2) to comply with or satisfy the requirements of the Securities Act of 1933, as amended, the Exchange Act, or any Applicable Laws. The Option shall be deemed to be exercised upon receipt by the Companys designee of such written notice accompanied by the Exercise Price. |
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No Shares will be issued pursuant to the exercise of the Option unless such issuance and such exercise shall comply with all Applicable Laws. Assuming such compliance, for income tax purposes, the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. |
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c. | Taxes . Pursuant to Section 16 of the Plan, the Committee shall have the power and the right to deduct or withhold, or require the Optionee to remit to the Company, an amount sufficient to satisfy any applicable tax withholding requirements applicable to this Option. The Committee may condition the issuance of Shares upon the Optionees satisfaction of such withholding obligations. The Optionee may elect to satisfy all or part of such withholding requirement by tendering previously-owned Shares or by having the Company withhold Shares having a Fair Market Value equal to the minimum statutory tax withholding rate that could be imposed on the transaction (or such other rate that will not result in a negative accounting impact) or in such other manner as is acceptable to the Company. Such election shall be irrevocable, made in writing, signed by the Optionee, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate. | ||
3. | Method of Payment . Pursuant to Section 6(f) of the Plan and subject to such limitations as the Committee may impose (including prohibition of one or more of the following payment methods), payment of the Exercise Price may be made in cash or by check, Shares or a combination thereof. | ||
4. | Termination of Employment or Service and Expiration of Exercise Period . | ||
a. | Termination of Employment or Service . If the Optionees employment or service with the Company and its Subsidiaries is terminated, the Optionee may exercise all or part of this Option prior to the expiration dates set forth in paragraph (b) herein, but only to the extent that the Option had become vested before the Optionees employment or service terminated. Notwithstanding the above, if the Optionees termination of employment or service (1) is due to Retirement and is more than 12 months from the Date of Grant set forth in this Agreement, or (2) is due to death or Disability, the Option shall become 100% vested and shall remain exercisable until the expiration dates determined pursuant to paragraph (b) of this Section. | ||
When the Optionees employment or service with the Company and its Subsidiaries terminates (except when due to Retirement, death or Disability), this Option shall expire immediately with respect to the number of Shares for which the Option is not yet vested. If the Optionee dies after termination of employment or service, but before the expiration of the Option, all or part of this Option may be exercised (prior to expiration) by the personal representative of the Optionee or by any person who has acquired this Option directly from the Optionee by will, bequest or inheritance, but only to the extent that the Option was vested and exercisable upon termination of the Optionees employment or service. | |||
b. | Expiration of Exercise Period . Upon termination of the Optionees employment or service with the Company and its Subsidiaries, the Option shall expire on the earliest of the following occasions: | ||
i. | The Expiration Date; | ||
ii. | The date ninety (90) days following the termination of the Optionees employment or service for any reason other than Cause, death, Disability, or Retirement; | ||
iii. | The date one year following the termination of the Optionees employment or service due to death or Disability; | ||
iv. | The date five (5) years following the termination of the Optionees employment or service due to Retirement, provided the Optionees Retirement is more than 12 months from the Date of Grant set forth in this Agreement; or | ||
v. | The date of termination of the Optionees employment or service for Cause. |
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c. |
Definition of Retirement. For purposes of this Agreement, the Optionees employment or service shall be deemed to have terminated due to Retirement if the Optionee terminates employment or service as an Employee for any reason, including Disability (but other than for Cause) after (1) twenty (20) or more years of vesting service, which solely for purposes of this Agreement, shall be calculated under Article III of The Clorox Company 401(k) Plan (the 401(k) Plan) entitled Service along with any other relevant provisions of the 401(k) Plan necessary or desirable to give full effect thereto, or any successor provisions, regardless of the status of the Optionee with respect to the 401(k) Plan (Vesting Service), or (2) attaining age fifty-five (55) with ten (10) or more years of Vesting Service. |
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d. | Definition of Disability. For purposes of this Agreement, the Optionees employment shall be deemed to have terminated due to the Optionees Disability if the Optionee is entitled to long-term disability benefits under the Companys long-term disability plan or policy, as in effect on the date of termination of the Optionees employment. | ||
5. | Change in Control . Upon the occurrence of a Change in Control, unless otherwise specifically prohibited under Applicable Laws or by the rules and regulations of any governing governmental agencies or national securities exchanges, the Option shall become 100% vested and immediately exercisable, unless such Option is assumed, converted or replaced by the continuing entity; provided, however, that in the event the Participants employment is terminated without Cause or by the Participant for Good Reason upon or within twenty-four (24) months following consummation of a Change in Control, any replacement awards will become immediately exercisable. For purposes of this Agreement, the term Good Reason shall have the meaning set forth in any employment agreement or severance agreement or policy applicable to the Optionee. If the Optionee is not a party to any agreement or covered by a policy in which a definition of Good Reason is provided, then the following definition shall apply: | ||
Good Reason means resignation of the Optionee in connection with the occurrence of any of the following events without the Optionees written consent (provided that notice of such event is provided within 90 days following the first occurrence thereof): | |||
a. | The assignment to the Optionee of any duties inconsistent in any material respect with the Optionees position (including offices, titles and reporting requirements), authority, duties or responsibilities as they existed at any time during the 120-day period immediately preceding the Change in Control, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Optionee; or | ||
b. | Any material reduction by the Company of the Optionees Base Salary or bonus target, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Optionee; or | ||
c. | The Company requires the Optionee to be based at any office or location which increases his commute by more than 50 miles from his commute immediately prior to the Change in Control. | ||
Any notice provided by the Optionee under this Good Reason provision shall mean a written notice which (1) indicates the specific termination provision in the Good Reason definition relied upon, (2) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Optionees employment under the provision so indicated and (3) the Optionees intended separation date if the Company does not cure the issue (which date shall be not less than thirty (30) days after the giving of such notice). | |||
6. | Transferability of Option . This Option shall not be transferable by the Optionee other than by will or the laws of descent and distribution, and the Option shall be exercisable during the Optionees lifetime only by the Optionee or on his or her behalf by the Optionees guardian or legal representative. | ||
7. | Protection of Trade Secrets and Limitations on Exercise . | ||
a. | Definitions . | ||
i. | Affiliated Company means any organization controlling, controlled by or under common control with the Company. |
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ii. |
Confidential Information
means the Companys technical or business or
personnel information not readily available to the public or generally
known in the trade, including inventions, developments, trade secrets and
other confidential information, knowledge, data and know-how of the
company or any Affiliated Company, whether or not they originated with the
Optionee, or information which the Company or any Affiliated Company
received from third parties under an obligation of
confidentiality.
|
||
iii. |
Conflicting Product
means any product, process, machine, or
service of any person or organization, other than the Company or any
Affiliated Company, in existence or under development that (1) resembles
or competes with a product, process, machine, or service upon or with
which the Optionee shall have worked during the two years prior to the
Optionees termination of employment with the Company or any Affiliated
Company or (2) with respect to which during that period of time the
Optionee, as a result of his/her job performance and duties, shall have
acquired knowledge of Confidential Information, and whose use or
marketability could be enhanced by application to it of Confidential
Information. For purposes of this section, it shall be conclusively
presumed that the Optionee has knowledge of information to which s/he has
been directly exposed through actual receipt or review of memorandum or
documents containing such information or through actual attendance at
meetings at which such information was discussed or
disclosed.
|
||
iv. | Conflicting Organization means any person or organization that is engaged in or about to become engaged in research on or development, production, marketing or selling of a Conflicting Product. | ||
b. | Right to Retain Shares Contingent on Protection of Confidential Information . In partial consideration for the award of this Option, the Optionee agrees that at all times, both during and after the term of the Optionees employment with the Company or any Affiliated Company, to hold in the strictest confidence, and not to use (except for the benefit of the Company at the Companys direction) or disclose (except for the benefit of the Company at the Companys direction), regardless of when disclosed to the Optionee, any and all Confidential Information of the Company or any Affiliated Company. The Optionee understands that for purposes of this Section 7(b), Confidential Information further includes, but is not limited to, information pertaining to any aspect of the business of the Company or any Affiliated Company which is either information not known (or known as a result of a wrongful act of the Optionee or of others who were under confidentiality obligations as to the item or items involved) by actual or potential competitors of the Company or other third parties not under confidentiality obligations to the Company. If, prior to the expiration of the Option or at any time within one (1) year after the date of exercise of all or any portion of the Option, the Optionee discloses or uses, or threatens to disclose or use, any Confidential Information other than in the course of performing authorized services for the Company (or any Affiliated Company), the unexercised portion of the Option, whether vested or not, will be immediately forfeited and cancelled, and the Optionee shall immediately return to the Company the Shares or the pre-tax income derived from any disposition of the Shares. | ||
c. | No Interference with Customers or Suppliers . In partial consideration for the award of this Option, in order to forestall the disclosure or use of Confidential Information as well as to avoid the Optionees intentional interference with the contractual relations of the Company or any Affiliated Company, the Optionees intentional interference with prospective economic advantage of the Company or any Affiliated Company and to promote fair competition, the Optionee agrees that the Optionees right to exercise this Option is contingent upon the Optionee refraining, prior to the expiration of the Option and for a period of one (1) year after the date of exercise, for himself/herself or any third party, directly or indirectly, from using Confidential Information to (1) divert or attempt to divert from the Company (or any Affiliated Company) any business of any kind in which it is engaged, or (2) intentionally solicit its customers with which it has a contractual relationship as to Conflicting Products, or interfere with the contractual relationship with any of its suppliers or customers (collectively, Interfere). If, during the term of the Option or at any time within one (1) year after the date of exercise of all or any portion of the Option, the Optionee breaches his/her obligation not to Interfere, the Optionees right to the Shares upon exercise of the Option shall not have been earned and the unexercised portion of the Option, whether vested or not, will be immediately cancelled, and the Optionee shall immediately return to the Company any Shares acquired upon exercise of the Option or the pre-tax income derived from any disposition of such Shares. For avoidance of doubt, the term Interfere shall not include any advertisement of Conflicting Products through the use of media intended to reach a broad public audience (such as television, cable or radio broadcasts, or newspapers or magazines) or the broad distribution of coupons through the use of direct mail or through independent retail outlets. THE OPTIONEE UNDERSTANDS THAT THIS PARAGRAPH IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED, BUT PROVIDES FOR THE CANCELLATION OF THE UNEXERCISED PORTION OF THE OPTION AND A RETURN TO THE COMPANY OF THE SHARES OR THE GROSS TAXABLE PROCEEDS OF SHARES ISSUED UPON AN EXERCISE OF THE OPTION IF THE OPTIONEE SHOULD CHOOSE TO VIOLATE THIS NO INTERFERENCE WITH CUSTOMERS OR SUPPLIERS PROVISION PRIOR TO THE EXPIRATION OF THE OPTION OR WITHIN ONE (1) YEAR AFTER EXERCISE. |
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d. | No Solicitation of Employees . In partial consideration for the award of this Option, in order to forestall the disclosure or use of Confidential Information, as well as to deter the Optionees intentional interference with the contractual relations of the Company or any Affiliated Company, the Optionees intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Optionee agrees that the Optionees right to exercise this Option is contingent upon the Optionee refraining, prior to the expiration of the Option and for a period of one (1) year after the date of exercise, for himself/herself or any third party, directly or indirectly, from soliciting for employment any person employed by the Company, or by any Affiliated Company, during the period of the solicited persons employment and for a period of one (1) year after the termination of the solicited persons employment with the Company or any Affiliated Company (collectively Solicit). If, during the term of the Option or at any time within one (1) year after the date of exercise of all or any portion of the Option, the Optionee breaches his/her obligation not to Solicit, the Optionees right to the Shares upon exercise of the Option shall not have been earned and the unexercised portion of the Option, whether vested or not, will be immediately cancelled, and the Optionee shall immediately return to the Company any Shares acquired upon exercise of the Option or the pre-tax income derived from any disposition of such Shares. THE OPTIONEE UNDERSTANDS THAT THIS PARAGRAPH IS NOT INTENDED TO AND DOES NOT PROHIBIT THE CONDUCT DESCRIBED, BUT PROVIDES FOR THE CANCELLATION OF THE UNEXERCISED PORTION OF THE OPTION AND A RETURN TO THE COMPANY OF THE SHARES OR THE GROSS TAXABLE PROCEEDS OF SHARES ISSUED UPON AN EXERCISE OF THE OPTION IF THE OPTIONEE SHOULD CHOOSE TO VIOLATE THIS NON-SOLICITATION OF EMPLOYEES PROVISION PRIOR TO THE EXPIRATION OF THE OPTION OR WITHIN ONE (1) YEAR AFTER EXERCISE. | |
e. | Injunctive and Other Available Relief . By acceptance of this Option, the Optionee acknowledges that, if the Optionee were to breach or threaten to breach his/her obligation hereunder not to Interfere or Solicit or not to disclose or use any Confidential Information other than in the course of performing authorized services for the Company (or any Affiliated Company), the harm caused to the Company by such breach or threatened breach would be, by its nature, irreparable because, among other things, damages would be significant and the monetary harm that would ensue would not be able to be readily proven, and that the Company would be entitled to injunctive and other appropriate relief to prevent threatened or continued breach and to such other remedies as may be available at law or in equity. To the extent not prohibited by law, any cancellation of the Option pursuant to any of Sections 7(b) through 7(d) above shall not restrict, abridge or limit in any fashion the types and scope of injunctive and other available relief to the Company. Notwithstanding any provision of this Agreement to the contrary, nothing under this Agreement shall limit, abridge, modify or otherwise restrict the Company (or any Affiliated Company) from pursuing any or all legal, equitable or other appropriate remedies to which the Company may be entitled under any other agreement with the Optionee, any other plan, program, policy or arrangement of the Company (or any Affiliated Company) under which the Optionee is covered or participates, or any applicable law, all to the fullest extent not prohibited under applicable law. | |
f. | Permitted Reporting and Disclosure . Notwithstanding any language in this Agreement to the contrary, nothing in this Agreement prohibits Optionee from reporting possible violations of federal law or regulation to any governmental agency or governmental entity, or making other disclosures that are protected under federal law or regulation; provided, that, in each case such communications and disclosures are consistent with applicable law. Notwithstanding the foregoing, under no circumstance is Optionee authorized to disclose any information covered by the Companys attorney-client privilege or attorney work product or the Companys trade secrets without prior written consent of the Companys General Counsel. Any reporting or disclosure permitted under this Section 7(f) shall not result in the cancellation of Options. Optionee is entitled to certain immunities from liability under state and federal law for disclosing trade secrets if the disclosure was made to report or investigate an alleged violation of law, subject to certain conditions. Please see the Companys Confidential Information Policy for further details. |
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8. | Right to Retain Shares Contingent on Continuing Non-Conflicting Employment . In partial consideration for the award of this Option in order to forestall the disclosure or use of Confidential Information, as well as to deter the Optionees intentional interference with the contractual relations of the Company or any Affiliated Company, the Optionees intentional interference with prospective economic advantage of the Company or any Affiliated Company, and to promote fair competition, the Optionee agrees that the Optionees right to exercise this Option is contingent upon the Optionee refraining, prior to the expiration of the Option and for a period of one (1) year after the date of exercise, from rendering services, directly or indirectly, as director, officer, employee, agent, consultant or otherwise, to any Conflicting Organization except a Conflicting Organization whose business is diversified and that, as to that part of its business to which the Optionee renders services, is not a Conflicting Organization, provided that the Company shall receive separate written assurances satisfactory to the Company from the Optionee and the Conflicting Organization that the Optionee shall not render services during such period with respect to a Conflicting Product. If, prior to the expiration of the Option or at any time within one (1) year after the date of exercise of all or any portion of the Option, the Optionee shall render services to any Conflicting Organization other than as expressly permitted herein, the Optionees right to the Shares upon exercise of the Option shall not have been earned and the unexercised portion of the Option, whether vested or not, will be immediately cancelled, and the Optionee shall immediately return to the Company any Shares acquired upon exercise of the Option or the pre-tax income derived from any disposition of such Shares. THE OPTIONEE UNDERSTANDS THAT THIS PARAGRAPH IS NOT INTENDED TO AND DOES NOT PROHIBIT THE OPTIONEE FROM RENDERING SERVICES TO A CONFLICTING ORGANIZATION, BUT PROVIDES FOR THE CANCELLATION OF THE UNEXERCISED PORTION OF THE OPTION AND A RETURN TO THE COMPANY OF THE SHARES OR THE GROSS TAXABLE PROCEEDS OF SHARES ISSUED UPON AN EXERCISE OF THE OPTION IF THE OPTIONEE SHOULD CHOOSE TO RENDER SUCH SERVICES PRIOR TO THE EXPIRATION OF THE OPTION OR WITHIN ONE (1) YEAR AFTER EXERCISE. | |
9. | Repayment Obligation . In the event that (1) the Company issues a significant restatement of financial results and (2) the Committee determines, in good faith, that the Optionees fraud or misconduct was a significant contributing factor to such restatement and (3) some or all of the Option that was granted and/or vested prior to such restatement would not have been granted and/or vested, as applicable, based upon the restated financial results, the Optionee shall immediately return to the Company the unexercised portion of the Option and any Shares or the pre-tax income derived from any disposition of the Shares previously received in upon exercise of the Option that would not have been granted and/or vested based upon the restated financial results. Notwithstanding anything herein to the contrary, in no event shall the Repayment Obligation apply to any portion of the Option that vested more than four years prior to the date the applicable restatement is announced. The Company shall be able to enforce the Repayment Obligation by all legal means available, including, without limitation, by withholding such amount from other sums owed by the Company to the Optionee. | |
10. | Miscellaneous Provisions . | |
a. | Rights as a Stockholder . Neither the Optionee nor the Optionees transferee or representative shall have any rights as a stockholder with respect to any Shares subject to this Option until the Option has been exercised and Share certificates have been issued to the Optionee, transferee or representative, as the case may be. | |
b. | Choice of Law, Exclusive Jurisdiction and Venue . This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction. The courts of the State of Delaware shall have exclusive jurisdiction over any disputes or other proceedings relating to this Agreement, and venue shall reside with the courts in New Castle County, Delaware, including if jurisdiction shall so permit, the U.S. District Court for the District of Delaware. Accordingly, the Optionee agrees that any claim of any type relating to this Agreement must be brought and maintained in the appropriate court located in New Castle County, Delaware, including if jurisdiction will so permit, in the U.S. District Court for the State of Delaware. The Optionee hereby consents to the jurisdiction over the Optionee of any such courts and waives all objections based on venue or inconvenient forum. |
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c. | Modification or Amendment . This Agreement may be modified or amended by the Board or the Committee at any time; provided, however, no modification or amendment to this Agreement shall be made which would materially and adversely affect the rights of the Optionee, without such Optionees written consent. | |
d. | Severability . In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of this Agreement, and this Agreement shall be construed and enforced to reflect the intent of the parties to the fullest extent not prohibited by law, and in the event that such provision is not able to be so construed and enforced, then this Agreement shall be construed and enforced as if such illegal or invalid provision had not been included. In amplification of the preceding sentence, in the event that the time period or scope of any provision is declared by a court or arbitrator of competent jurisdiction to exceed the maximum time period or scope that such court or arbitrator deems enforceable, then such court or arbitrator shall have the power to reduce the time period or scope to the maximum time period or scope permitted by law. | |
e. | References to Plan . All references to the Plan shall be deemed references to the Plan as may be amended. | |
f. | Headings . The captions used in this Agreement are inserted for convenience and shall not be deemed a part of this Option for construction or interpretation. | |
g. | Interpretation . Any dispute regarding the interpretation of this Agreement shall be submitted by the Optionee or by the Company forthwith to the Board or the Committee, which shall review such dispute at its next regular meeting. The resolution of such dispute by the Board or the Committee shall be final and binding on all persons. It is the intention of the Company and the Optionee to make the promises contained in this Agreement reasonable and binding only to the extent that it may be lawfully done under existing applicable laws. This Agreement and the Plan constitute the entire and exclusive agreement between the Optionee and the Company, and it supersedes all prior agreements or understandings, whether written or oral, with respect to the grant of Options set forth in this Agreement. | |
h. | Section 409A Compliance . To the extent applicable, it is intended that the Plan and this Agreement comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (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 of the Plan or this Agreement that would cause this Award 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. | |
i. | Agreement with Terms . Receipt of any benefits under this Agreement by the Optionee shall constitute the Optionees acceptance of and agreement with all of the provisions of this Agreement and of the Plan that are applicable to this Agreement, and the Company shall administer this Agreement accordingly. |
THE CLOROX
COMPANY
|
|
By: |
/s/ Benno
Dorer
|
Its: | Chairman and Chief Executive Officer |
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THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT IS A UNILATERAL CONTRACT AND THAT THE OPTIONEES RIGHT TO THE SHARES PURSUANT TO THE OPTION HEREOF IS ACCEPTED AND EARNED ONLY BY CONTINUING EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER) AND BY COMPLIANCE WITH THE OPTIONEES VARIOUS OBLIGATIONS UNDER THIS AGREEMENT. THE OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE PLAN, SHALL CONFER UPON THE OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH THE OPTIONEES RIGHT OR THE COMPANYS RIGHT TO TERMINATE THE OPTIONEES EMPLOYMENT AT ANY TIME, FOR ANY REASON OR NO REASON, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT ADVANCE NOTICE EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW.
The Optionee acknowledges that a copy of the Plan and Plan Information are available for viewing on the Companys internal HR website at https://clxweb.clorox.com/hr/Pages/HRatClorox/HRContentPages/StockIncentiveProgram.aspx , and the Companys Annual Report and Proxy Statement (the Prospectus Information) are available for viewing on the Companys Clorox website at http://investors.thecloroxcompany.com/sec.cfm . The Optionee hereby consents to receive the Prospectus Information electronically or, in the alternative, to contact the HR Service Center at 1-800-709-7095 to request a paper copy of the Prospectus Information. The Optionee represents that s/he is familiar with the terms and provisions thereof, and hereby accepts this Agreement subject to all of the terms and provisions thereof. The Optionee has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. The Optionee acknowledges and hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan or this Agreement. The Optionee further agrees to notify the Company upon any change in the residence address indicated below.
Dated: | Signed: | ||
Optionee |
Residence Address: | |
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Exhibit 31.1
CERTIFICATION
I, Benno Dorer, certify that: |
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1. | I have reviewed this quarterly report on Form 10-Q of The Clorox Company; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; | |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. | |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): | |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 2, 2016 |
/s/ Benno Dorer |
Benno Dorer |
Chairman and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Stephen M. Robb, certify that: |
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1. | I have reviewed this quarterly report on Form 10-Q of The Clorox Company; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; | |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting. | |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): | |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: November 2, 2016 |
/s/ Stephen M. Robb |
Stephen M. Robb |
Executive Vice President - Chief Financial Officer |
Exhibit 32
CERTIFICATION
In connection with the periodic report of The Clorox Company (the "Company") on Form 10-Q for the period ended September 30, 2016, as filed with the Securities and Exchange Commission (the "Report"), we, Benno Dorer, Chairman and Chief Executive Officer of the Company, and Stephen M. Robb, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to our knowledge:
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. |
This Certification has not been, and shall not be deemed, filed with the Securities and Exchange Commission.
Date: November 2, 2016
/s/ Benno Dorer |
Benno Dorer |
Chairman and Chief Executive Officer |
/s/ Stephen M. Robb |
Stephen M. Robb |
Executive Vice President - Chief Financial Officer |