2017 Integrated Annual Report

GRI

Financial Statements

Years ended June 30
Dollars in millions, except share and per share data
2017 2016 2015
Net sales 5,973 5,761 5,655
Cost of products sold 3,302 3,163 3,190
Gross profit 2,671 2,598 2,465
Selling and administrative expenses 810 806 798
Advertising costs 599 587 523
Research and development costs 135 141 136
Interest expense 88 88 100
Other (income) expense, net 6 (7) (13)
Earnings from continuing operations before income taxes 1,033 983 921
Income taxes on continuing operations 330 335 315
Earnings from continuing operations 703 648 606
Losses from discontinued operations, net of tax (2) (26)
Net earnings 701 648 580
Net earnings (losses) per share
Basic
Continuing operations 5.45 5.01 4.65
Discontinued operations (0.02) (0.20)
Basic net earnings per share 5.43 5.01 4.45
Diluted
Continuing operations 5.35 4.92 4.57
Discontinued operations (0.02) (0.20)
Diluted net earnings per share 5.33 4.92 4.37
Weighted average shares outstanding (in thousands)
Basic 128,953 129,472 130,310
Diluted 131,566 131,717 132,776
Years ended June 30
Dollars in millions
2017 2016 2015
Earnings from continuing operations 703 648 606
Losses from discontinued operations, net of tax (2) (26)
Net earnings 701 648 580
Other comprehensive income (losses):
Foreign currency adjustments, net of tax (3) (53) (54)
Net unrealized gains (losses) on derivatives, net of tax 7 9 (14)
Pension and postretirement benefit adjustments, net of tax 23 (24) (17)
Total other comprehensive income (losses), net of tax 27 (68) (85)
Comprehensive income 728 580 495
Years ended June 30
Dollars in millions, except share and per share data
2017 2016
Assets
Current assets
Cash and cash equivalents 418 401
Receivables, net 565 569
Inventories, net 459 443
Prepaid expenses and other current assets 72 72
Total current assets 1,514 1,485
Property, plant and equipment, net 931 906
Goodwill 1,196 1,197
Trademarks, net 654 657
Other intangible assets, net 68 78
Other assets 210 187
Total assets 4,573 4,510
Liabilities and Stockholders’ Equity
Current liabilities
Notes and loans payable 404 523
Current maturities of long-term debt 400
Accounts payable and accrued liabilities 1,005 1,035
Income taxes payable
Total current liabilities 1,809 1,558
Long-term debt 1,391 1,789
Other liabilities 770 784
Deferred income taxes 61 82
Total liabilities 4,031 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 June 30, 2017 and 2016; and 129,014,172 and 129,355,263 shares outstanding as of June 30, 2017 and 2016, respectively 159 159
Additional paid-in capital 928 868
Retained earnings 2,440 2,163
Treasury shares, at cost: 29,727,289 and 29,386,198 shares as of June 30, 2017 and 2016, respectively (2,442) (2,323)
Treasury shares, at cost: 29,727,289 and 29,386,198 shares as of June 30, 2017 and 2016, respectively (2,442) (2,323)
Accumulated other comprehensive net (losses) income (543) (570)
Stockholders’ equity 542 297
Total liabilities and stockholders’ equity 4,573 4,510
  Common Stock Additional Paid-in Capital Retained Earnings Treasury Shares Accumulated Other Comprehen-
sive Net (Losses) Income
Total
Dollars in millions Shares
(000)
Amount Shares
(000)
Amount
Balance as of June 30, 2014 158,741 $159 $709 $1,739 (29,945) $(2,036) $(417) $154
Net earnings       580       580
Other comprehensive (loss) income             (85) (85)
Accrued dividends       (391)       (391)
Stock-based compensation     32         32
Other employee stock plan activities     34 (5) (4,198) 233   262
Treasury stock purchased         4,016 (434)   (434)
Balance as of June 30, 2015 158,741 159 775 1,923 (30,127) (2,237) (502) 118
Net earnings       648       648
Other comprehensive (loss) income             (68) (68)
Accrued dividends       (406)       (406)
Stock-based compensation     45         45
Other employee stock plan activities     48 (2) 2,892 168   214
Treasury stock purchased         (2,151) (254)   (254)
Balance as of June 30, 2016 158,741 159 868 2,163 (29,386) (2,323) (570) 297
Net earnings       701       701
Other comprehensive income (loss)             27 27
Accrued dividends       (421)       (421)
Stock-based compensation     51         51
Other employee stock plan activities     9 (3) 1,164 70   76
Treasury stock purchased         (1,505) (189)   (189)
Balance as of June 30, 2017 158,741 $159 $928 $2,440 (29,727) $(2,442) $(543) $542
Years ended June 30
Dollars in millions
2017 2016 2015
Operating activities:
Net earnings 701 648 580
Deduct: Losses from discontinued operations, net of tax (2) (26)
Earnings from continuing operations 703 648 606
Adjustments to reconcile earnings from continuing operations to net cash provided by continuing operations:    
Depreciation and amortization 163 165 169
Stock-based compensation 51 45 32
Deferred income taxes (35) 5 (16)
Settlement of interest rate forward contracts (25)
Other 36 1 (17)
Changes in:
Receivables, net (1) (52) 6
Inventories, net (19) (45) (25)
Prepaid expenses and other current assets (5) 6 6
Accounts payable and accrued liabilities (34) 57 93
Income taxes payable 12 (62) 29
Net cash provided by continuing operations 871 768 858
Net cash (used for) provided by discontinued operations (3) 10 16
Net cash provided by operations 868 778 874
Investing activities:
Capital expenditures (231) (172) (125)
Business acquired, net of cash acquired (290)
Other 26 32 19
Net cash used for investing activities (205) (430) (106)
Financing activities:
Notes and loans payable, net 125 426 (48)
Long-term debt borrowings, net of issuance costs 495
Long-term debt repayments (300) (575)
Treasury stock purchased (183) (254) (434)
Cash dividends paid (412) (398) (385)
Issuance of common stock for employee stock plans and other 75 210 251
Net cash used for financing activities (645) (316) (696)
Effect of exchange rate changes on cash and cash equivalents (1) (13) (19)
Net increase in cash and cash equivalents 17 19 53
Cash and cash equivalents:
Beginning of year 401 382 329
End of year 418 401 382
Supplemental cash flow information:
Interest paid 78 79 104
Income taxes paid, net of refunds 347 323 236
Noncash financing activities:
Cash dividends declared and accrued, but not paid 108 104 99

The Board of Directors and Stockholders of The Clorox Company

We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Clorox Company at June 30, 2017 and 2016 and the related consolidated statements of earnings, comprehensive income , stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2017 (not presented separately herein) and in our report dated August 15, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements as of June 30, 2017 and 2016 and for each of the three years in the period ended June 30, 2017 (presented on pages 46 through 50) is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of The Clorox Company’s internal control over financial reporting as of June 30, 2017, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated August 15, 2017 (not presented separately herein).

San Francisco, CA
August 15, 2017

The Board of Directors and Stockholders of The Clorox Company

We have reviewed selected quantitative performance indicators (the “Subject Matter”) included in Exhibit A and as identified by the “” symbol presented in The Clorox Company’s (“Clorox” or “the Company”) Annual Report and Executive Summary (the “Reports”) for the year ended June 30, 2017 or otherwise noted, in accordance with the criteria also set forth in Exhibit A (the “Criteria”). We did not review all information included in the Reports. We did not review the narrative sections of the Reports, except where they incorporated the Subject Matter. Clorox’s management is responsible for the Subject Matter included in Exhibit A and as also presented in the Reports, in accordance with the Criteria. Our responsibility is to express a conclusion on the Subject Matter based on our review.

Our review was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform our review to obtain limited assurance about whether any material modifications should be made to the Subject Matter in order for it to be in accordance with the Criteria. A review consists principally of applying analytical procedures, making inquiries of persons responsible for the subject matter, obtaining an understanding of the data management systems and processes used to generate, aggregate and report the Subject Matter and performing such other procedures as we considered necessary in the circumstances. A review is substantially less in scope than an examination, the objective of which is to obtain reasonable assurance about whether the Subject Matter, is in accordance with the Criteria, in all material respects, in order to express an opinion. Accordingly, we do not express such an opinion. A review also does not provide assurance that we became aware of all significant matters that would be disclosed in an examination. We believe that our review provides a reasonable basis for our conclusion.

As described in Exhibit A, the Subject Matter is subject to measurement uncertainties resulting from limitations inherent in the nature and the methods used for determining such data. The selection of different but acceptable measurement techniques can result in materially different measurements. The precision of different measurement techniques may also vary.

Based on our review, we are not aware of any material modifications that should be made to the selected quantitative performance indicators for the year ended June 30, 2017 or otherwise noted, in order for it to be in accordance with the Criteria.

San Francisco, CA
September 22, 2017

Exhibit A: Schedule of Selected Quantitative Performance Indicators — The Clorox Company

Indicator Name Scope Unit Value 1 Criteria
Scope 1, 2, and 3 greenhouse gas (GHG) emissions2, 3, 4, 5, 6 Global Percentage reduction of tCO2e per stat case sold over baseline year (2011)7 -18% The World Resources Institute (“WRI”) / World Business Council for Sustainable Development’s (“WBCSD”) Greenhouse Gas (“GHG”) Protocol Corporate Accounting and Reporting Standard, the GHG Protocol Scope 2 Guidance and the GHG Protocol Corporate Value Chain (Scope 3) Standard
Energy consumption, Scope 1 & 22, 3, 4, 5 Global Percentage reduction of MWh per stat case sold over baseline year (2011)7 -15% WRI/WBCSD’s GHG Protocol Corporate Accounting and Reporting Standard, the GHG Protocol Scope 2 Guidance
Water consumption2, 4 Global Percentage reduction of gallons of water consumed per stat case sold over baseline year (2011)7 -21% Management’s criteria as follows: Water consumption includes water at all global manufacturing sites, offices and research development centers used in 1) products sold to customers, 2) the manufacturing process, 3) irrigation and 4) water consumed by employees during office hours for personal needs (e.g., restrooms, break rooms). Water sources include city/municipal, well, lake, river and stormwater.
Sustainability improvements to product portfolio since January 20128 Global Percentage of product portfolio 34% Management’s criteria as follows: There are four types of sustainability improvement criteria that can be met either by fully meeting one or by partially meeting two or more: 1) a 5 percent or more reduction in product or packaging materials on a per-consumer-use basis; 2) an environmentally beneficial change to 10 percent or more of packaging or active ingredients on a per-consumer-use basis; 3) a 10 percent reduction in required usage of water or energy by consumer; or 4) an environmentally beneficial sourcing change to 20 percent or more of active ingredients or packaging on a per-consumer-use basis.
Workforce demographics/diversity metrics9 See right for metric scope Percentage minority nonproduction employees in U.S. 31% OSHA Regulation 1920.2(d) defines “Employee” as an individual who is employed in a business of his employer which affects commerce. The Equal Employment Opportunity Commission defines “Minority” as any race that is not white (Asian; Black; Latino; Native American; Native Hawaiian; or Two or More).

Management’s criteria as follows: “Manager” is defined as an “employee” at Grade 27 or above for U.S. employees and Grade 26 or above for international employees with regards to Clorox’s Human Resources (HR) compensation structure. “Production Employee” is defined as an employee at Grade 19 or below with regards to Clorox’s HR compensation structure (international and U.S.). “Nonproduction Employee” is defined as an employee at Grade 20 or above with regards to Clorox’s HR compensation structure (international and U.S.). In certain circumstances, nonproduction employees may be classified below Grade 20 based on type of work performed.
Percentage minority nonproduction managers in U.S. 26%
Percentage female nonproduction employees globally 50%
Percentage female nonproduction managers globally 41%
Percentage female Board of Directors 33%
Percentage minority Board of Directors 33%
Percentage female Executive Committee members 36%
U.S. product donations10 U.S. Only Fair Market Value of products donated in U.S. dollars $5.4 million Management’s criteria as follows: U.S. product donations refer to those donations used to aid in disaster relief or to support schools, food banks, and other nonprofit organizations. Fair market value is derived from current year average truckload price of the product donated. Truckload prices are based on volume ordered and shipped.
Total recordable incident rate11 Global Recordable incident rate (RIR) 0.60 Occupational Health and Safety Administration (OSHA) Regulation (Standards — 29 CFR) Part 1904 “Recording and Reporting Occupational Injuries and Illness”
Employee engagement score12 Global Percentage of employee engagement 88% Management’s criteria as follows: Engagement is defined as the intensity of employees’ connection to Clorox, marked by committed effort to achieve work goals (‘being engaged’) in environments that support productivity (‘being enabled’) and maintain personal well-being (‘feeling energized’).

Note 1: Nonfinancial information is subject to measurement uncertainties resulting from limitations inherent in the nature and the methods used for determining such data. The selection of different but acceptable measurement techniques can result in materially different measurements. The precision of different measurement techniques may also vary.

  1. All percentages are rounded to the nearest whole number in the annual report.
  2. For all locations where Clorox maintains operational control and for the calendar year ended Dec. 31, 2016.
  3. Scope 1 emissions include direct energy used by Clorox in its operations, categorized by stationary combustion, mobile combustion, refrigerant use, direct VOC loss and direct wood pyrolysis. The last two sources relate mainly to Clorox’s Kingsford business unit, and wood pyrolysis is considered to be a mostly carbon neutral process; therefore, CO2 emissions from wood pyrolysis are not included in total tCO2e, but CO2 equivalent emissions from CH4 and N2O are included. Natural gas emissions, the largest Scope 1 emission source, are calculated using factors from EPA Mandatory GHG Reporting for Stationary Fuel Sources (June 2017) and Global Warming Potential (GWP) rates from the Intergovernmental Panel on Climate Change’s (IPCC) Fourth Assessment Report.
  4. Clorox’s natural gas, electricity and municipal water consumption data for U.S. sites are tracked by Clorox’s third-party utility management company. Other sources of energy and water consumption in the U.S. are tracked manually on a site-by-site basis and reported to Clorox’s corporate team on an annual basis. For international sites, all energy and water consumption data is tracked manually and reported annually to Clorox’s corporate team.
  5. Scope 2 includes indirect emissions resulting from Clorox’s purchased electricity use. It is calculated following the GHG Protocol’s location-based method using the Environmental Protection Agency’s (EPA) 2014 eGRID emission factors for U.S. locations and the Energy Information Administration’s (EIA) Foreign Electricity Emission Factors published in 2007 for international locations. Clorox applies GWPs from the IPCC’s Fourth Assessment Report.
  6. Scope 3 includes finished goods transportation in the U.S. only and global employee business travel. Employee business travel includes emissions from commercial air flights and rental car use by Clorox’s employees. Commercial air flights are limited to business travel booked in the United States, United Kingdom, Hong Kong, Chile, Mexico, Peru and Canada. Mobile emission sources are calculated using emission factors from the EPA Climate Leaders Greenhouse Gas Inventory Protocol Core Module Guidance, published in 2008.
  7. A stat case is the number of cases sold or produced multiplied by a stat factor which normalizes case value between brands and provides a common denominator of the revenue generated by cases across various brands.
  8. Once a product meets the sustainability improvement criteria, it is reported to the Clorox Eco Team by each business unit and the sustainability improvement percentage is calculated for that product using its fiscal year net customer sales as a percentage of Clorox’s total fiscal year net customer sales. The total sustainability improvements percentage represents the summation of all sustainability improvement percentages for products that met the criteria between Jan. 1, 2012, and Dec. 31, 2016.
  9. For the fiscal year ended June 30, 2017.
  10. For the fiscal year ended June 30, 2017. U.S. product donations include donations made by any U.S. business unit.
  11. Recordable incident rate was determined as of July 20, 2017, for the fiscal year ended June 30, 2017. The recordable incident rate includes all reportable incidents that occurred at Clorox facilities globally. It does not include labor hours associated with nine remote facilities that have fewer than 30 employees.
  12. Clorox adopts Willis Towers Watson’s definition of employee engagement in terms of “sustainable” engagement. Employee engagement is measured by a survey administered March 13, 2017, through March 31, 2017. 6,219 Clorox employees responded to the survey.