|• ANNUAL REPORT • SUBSIDIARIES • CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM • CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF THE CLOROX COMPANY • CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF THE CLOROX COMPANY • CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER • MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION • VALUATION AND QUALIFYING ACCOUNTS AND RESERVES • RECONCILIATION OF ECONOMIC PROFIT • XBRL INSTANCE DOCUMENT • XBRL TAXONOMY EXTENSION SCHEMA • XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE • XBRL TAXONOMY EXTENSION LABEL LINKBASE • XBRL TAXONOMY EXTENSION CALCULATION LINKBASE • XBRL TAXONOMY EXTENSION DEFINITION LINKBASE|
Commission file number: 1-07151
1221 Broadway, Oakland, California
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to
Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ. No o.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o. No þ.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ. No o.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ. No o.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o. No þ.
The aggregate market value of the registrants common stock held by non-affiliates on December 30, 2011 (the last business day of the most recently completed second quarter) was approximately $8.6 billion.
As of July 31, 2012, there were 129,613,607 shares of the registrants common stock outstanding.
Documents Incorporated by Reference:
Portions of the registrants definitive proxy statement for the 2012 Annual Meeting of Stockholders (the Proxy Statement), to be filed within 120 days after June 30, 2012, are incorporated by reference into Part III, Items 10 through 14 of this Annual Report on Form 10-K.
THE CLOROX COMPANY
This Annual Report on Form 10-K (this Report), including the exhibits hereto and the information incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and such forward-looking statements involve risks and uncertainties. Except for historical information, matters discussed below, including statements about future volume, sales, costs, cost savings, earnings, cash flows, plans, objectives, expectations, growth or profitability, are forward-looking statements based on managements estimates, assumptions and projections. Words such as will, could, may, expects, anticipates, targets, goals, projects, intends, plans, believes, seeks, estimates and variations on such words, and similar expressions, are intended to identify such forward-looking statements. These forward-looking statements are only predictions, subject to risks and uncertainties, and actual results could differ materially from those discussed below. Important factors that could affect performance and cause results to differ materially from managements expectations are described in the sections entitled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K for the fiscal year ended June 30, 2012, as updated from time to time in the Companys Securities and Exchange Commission (SEC) filings.
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 1. BUSINESS
Overview of Business
The Clorox Company is a leading manufacturer and marketer of consumer and professional products with approximately 8,400 employees worldwide and fiscal year 2012 net sales of $5.5 billion. Clorox sells its products primarily through mass merchandisers, grocery stores, other retail outlets, distributors and medical supply providers. Clorox markets some of consumers most trusted and recognized brand names, including its namesake bleach and cleaning products, Clorox Healthcare, HealthLink®, Aplicare® and Dispatch® products, Green Works® naturally derived home care products, Pine-Sol® cleaners, Poett® home care products, Fresh Step® cat litter, Glad® bags, wraps and containers, Kingsford® charcoal, Hidden Valley® and K C Masterpiece® dressings and sauces, Brita® water-filtration products, and Burts Bees® and güd® natural personal care products. The Company manufactures products in more than two dozen countries and markets them in more than 100 countries. The Company was founded in Oakland, Calif., in 1913 and is incorporated in Delaware.
The Companys strategy is focused on creating shareholder value by investing in new and existing sales channels and countries with profitable growth potential and attractive categories, particularly those categories aligned with global consumer megatrends in the areas of health and wellness, sustainability and affordability, and appealing to a multicultural marketplace. The Company uses economic profit as the key financial metric in its decisions to drive enhanced performance, make portfolio choices and determine resource allocations. Economic profit represents profit generated over and above the cost of capital used by the business to generate that profit.
In fiscal year 2012, the Company celebrated numerous successes. The Company expanded its product portfolio through innovation and bolt-on acquisitions, delivering a record level of new products, including the güd® line of natural personal care products under the Burts Bees® brand, the expansion of the on-the-go Brita® Bottle line, the Liquid-Plumr® Double Impact snake + gel system, Clorox® high-efficiency bleach gel and new flavors of Hidden Valley® dressings. The Company also acquired HealthLink and Aplicare, Inc., leading providers of infection control products that increase the Companys exposure to faster-growing categories and expand the breadth and depth of the Companys health care portfolio, as well as Soy Vay® Enterprises, Inc., which makes Asian marinades and dressings. The Company also transformed its domestic bleach production practices to set the stage for its upcoming launch and phased roll-out of Clorox® Concentrated Regular-Bleach, which enables better product performance and a reduction in the Companys costs and environmental footprint. In addition, the Company opened a new facility located in Pleasanton, Calif., which will house the Companys research and development group, as well as other administrative and operational support personnel. The new facility features state-of-the-art labs and open work spaces to encourage creativity, collaboration and innovation. Finally, the Company continued to make progress in implementing its upgraded enterprise resource planning (ERP) system in Latin America, which replaces legacy systems, and is expected to streamline operations and enable future growth. For information on recent business developments, refer to the information set forth under the caption Executive Overview - Fiscal Year 2012 Summary in Managements Discussion and Analysis of Financial Condition and Results of Operations, on page 1 of Exhibit 99.1 hereto, incorporated herein by reference.
Financial Information About Operating Segments and Principal Products
The Company operates through strategic business units that are aggregated into four reportable segments: Cleaning, Household, Lifestyle and International. Beginning in the fourth quarter of fiscal year 2012, natural personal care financial results outside the U.S. are being reported in the International segment rather than in the Lifestyle segment because management of the International segment now has primary oversight of the natural personal care financial results outside the U.S. All periods presented have been recast to reflect this change. The four reportable segments consist of the following:
The Company has three product lines that have accounted for 10% or more of consolidated net sales during each of the past three fiscal years. In fiscal years 2012, 2011 and 2010, respectively, sales of liquid bleach represented approximately 13%, 14% and 13% of the Companys consolidated net sales, approximately 26%, 27% and 28% of net sales in the Cleaning segment and approximately 22%, 23% and 22% of net sales in the International segment. In fiscal years 2012, 2011 and 2010, respectively, sales of trash bags represented approximately 13%, 13% and 12% of the Companys consolidated net sales, approximately 35%, 34% and 31% of net sales in the Household segment and approximately 10%, 11% and 10% of net sales in the International segment. Sales of charcoal represented approximately 11% of the Companys consolidated net sales in each of the fiscal years 2012, 2011 and 2010 and approximately 35%, 34% and 36% of net sales in the Household segment, respectively.
Information about the results of each of the Companys reportable segments for the last three fiscal years and total assets as of the end of the last two fiscal years, reconciled to the consolidated results, is set forth below. For additional information, refer to the information set forth under the caption Segment Results from Continuing Operations in Managements Discussion and Analysis of Financial Condition and Results of Operations, on page 8 of Exhibit 99.1 hereto.
Fiscal year 2011 earnings (losses) from continuing operations before income taxes for the Lifestyle and International reportable segments included a noncash goodwill impairment charge of $164 and $94, respectively, for the Burts Bees business. Fiscal year 2011 diluted net earnings per share from continuing operations included the impact of $1.86 from this noncash goodwill impairment charge.
Fiscal years 2011 and 2010 net sales for the International segment included $34 and $29, respectively, that was previously reported in the Lifestyle segment. Fiscal years 2011 and 2010 earnings (losses) from continuing operations before income taxes for the International segment also included $92 and $1 of losses, respectively, that were previously reported in the Lifestyle segment. In addition, total assets for fiscal year 2011 for the International segment included $264 that was previously reported in the Lifestyle segment.
Total assets for Corporate included $267 and $259 of cash and cash equivalents for fiscal years 2012 and 2011, respectively.
Principal Markets and Methods of Distribution
In the United States, most of the Companys products are nationally advertised and sold to mass merchandisers, warehouse clubs, and dollar, military and other types of retail stores primarily through a direct sales force, and to grocery stores and grocery wholesalers primarily through a combination of direct sales teams and a network of brokers. Within the United States, the Company sells institutional, janitorial and food-service versions of many of its products through distributors, and sells healthcare products through a direct sales force and medical supply providers. Outside the United States, the Company sells products to the retail trade through subsidiaries, licensees, distributors and joint-venture arrangements with local partners. Additionally, the Company sells many of its products through online retailers and sells its natural personal care products directly to consumers online.
Financial Information about Foreign and Domestic Operations
For detailed financial information about the Companys foreign and domestic operations, including net sales and long-lived assets by geographic area, see Note 20 Segment Reporting of the Notes to Consolidated Financial Statements beginning on page 62 of Exhibit 99.1 hereto.
Sources and Availability of Raw Materials
The Company purchases raw materials from numerous unaffiliated domestic and international suppliers, some of which are sole-source or single-source suppliers. Interruptions in the delivery of these materials could adversely impact the Company. Key raw materials used by the Company include resin, diesel, chlor-alkali, sodium hypochlorite, high-strength bleach, corrugate and agricultural commodities. Sufficient raw materials were available during fiscal year 2012 but costs for many materials continued to increase amid volatility and inflation. The Company generally utilizes supply and forward-purchase contracts to help ensure availability and help manage the volatility of the pricing of raw materials needed in its operations. However, the Company is nonetheless highly exposed over the short term to changes in the prices of commodities used as raw materials in the manufacturing of its products. For further information regarding the impact of changes in commodity prices, see Quantitative and Qualitative Disclosures about Market Risk in Managements Discussion and Analysis of Financial Condition and Results of Operations on page 18 of Exhibit 99.1 hereto and Risk Factors Volatility and increases in the price of raw materials, energy, shipping and transportation, and other necessary supplies or services could harm the Companys profits in Item 1.A herein.
Patents and Trademarks
Most of the Companys brand name consumer products are protected by registered trademarks. Its brand names and trademarks are highly important to the Companys business, and the Company vigorously protects its trademarks from apparent infringements. Maintenance of brand equity value is critical to the Companys success. The Companys patent rights are also material to its business and are asserted, where appropriate, against apparent infringements.
Most sales of the Companys charcoal products occur in the first six months of each calendar year. A moderate seasonality trend also occurs in the net sales of the Companys Burts Bees® natural personal care products, with slightly more than half of the annual net sales occurring during the months of October through March. Short-term borrowings may be used to fund inventories of those products in the off-season.
Net sales to the Companys largest customer, Walmart Stores, Inc. and its affiliates, were 26%, 27% and 27% for the fiscal years ended 2012, 2011 and 2010, respectively, of consolidated net sales and occurred in each of the Companys reportable segments. No other customers exceeded 10% of consolidated net sales in any year. During fiscal years 2012, 2011 and 2010, the Companys five largest customers accounted for 44%, 44% and 45% of its net sales, respectively, and its ten largest customers accounted for 55% of its net sales for each of the three fiscal years.
The markets for consumer products are highly competitive. Most of the Companys products compete with other nationally advertised brands within each category and with private label brands. Competition is encountered from similar and alternative products, some of which are produced and marketed by major multinational or national companies having financial resources greater than those of the Company. Depending on the product, the Companys products compete on product performance, brand recognition, price, value or other benefits to consumers. A newly introduced consumer product (whether improved or newly developed) usually encounters intense competition requiring substantial expenditures for advertising, sales promotion and trade merchandising support. If a product gains consumer acceptance, it normally requires continued advertising and promotional support and ongoing product improvement to maintain its relative market position.
Research and Development
In the fourth quarter of fiscal year 2012, the Company began the process of relocating certain employees from its general office building in Oakland, Calif. to a new facility located in Pleasanton, Calif. Employees from its Technical and Data Center in Pleasanton, Calif. are also expected to be relocated to the new facility by the end of fiscal year 2013. The new facility consists of approximately 343,000 square feet of leased space and will include the Companys primary research and development facility, utilizing state-of-the-art labs and open work spaces to encourage creativity, collaboration and innovation. The Company also anticipates selling the previous Technical and Data Center in fiscal year 2013. In addition, the Company conducts research and development activities in Kennesaw, Ga.; Cincinnati, Oh.; Willowbrook, Il.; Midland, Mi.; Durham, NC; and Buenos Aires, Argentina.
The Company devotes significant resources and attention to product development, process technology and consumer insight research to develop commercially viable consumer-preferred products with innovative and distinctive features. The Company incurred expenses of $121 million, $115 million, and $118 million in fiscal years 2012, 2011 and 2010, respectively, on direct research activities relating to the development of new products and/or the maintenance and improvement of existing products. In addition, the Company also obtains technologies from third parties for use in its products. Royalties relating to such technologies are reflected in the Companys cost of sales. For further information regarding the Companys research and development costs, see Research and development costs in Managements Discussion and Analysis of Financial Condition and Results of Operations on page 6 of Exhibit 99.1 hereto.
For information regarding noncapital expenditures related to environmental matters, see the discussions below under Risk Factors Environmental matters create potential liability risks in Item 1.A. No material capital expenditures relating to environmental compliance are presently anticipated.
Number of Persons Employed
As of June 30, 2012, the Company employed approximately 8,400 people.
The Companys Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act are available on the Companys website, free of charge, as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC. These reports are available at TheCloroxCompany.com under Investors/Financial Reporting/SEC Filings. Information relating to corporate governance at Clorox, including the Companys Code of Conduct, the Clorox Company Board of Directors Governance Guidelines and Board Committee charters, including charters for the Management Development and Compensation Committee, the Audit Committee, the Finance Committee and the Nominating and Governance Committee, is available at TheCloroxCompany.com under Corporate Responsibility/Performance/Corporate Governance or http://www.thecloroxcompany.com/corporate-responsibility/performance/corporate-governance/ . The Company will provide any of the foregoing information without charge upon written request to Corporate Communications, The Clorox Company, 1221 Broadway, Oakland, CA 94612-1888. The information contained on the Companys website is not included as a part of, or incorporated by reference into, this Report.
ITEM 1.A. RISK FACTORS
The risks and uncertainties set forth below, as well as other factors described elsewhere in this Report or in other filings by the Company with the SEC, could adversely affect the Companys business, financial condition and results of operations. Additional risks and uncertainties that are not currently known to the Company or that are not currently believed by the Company to be material may also harm the Companys business operations and financial results.
Unfavorable worldwide, regional and local economic conditions and financial market volatility may negatively impact the Companys financial performance and liquidity.
Although the Company continues to devote significant resources to support its brands, unfavorable economic conditions may continue to negatively affect consumer demand for the Companys products. Consumers may reduce discretionary spending due to economic uncertainty or unfavorable economic conditions, and this may lead to reduced sales volumes or cause a shift in the Companys product mix from higher margin to lower margin products. Consumers may increase purchases of lower-priced or non-branded products and the Companys competitors may increase levels of promotional activity for lower-priced products as they seek to maintain sales volumes during uncertain economic times.
In addition, global markets have continued to experience significant disruptions during fiscal year 2012, and continuing volatility, particularly in Venezuela and Argentina, could harm the Companys business. Although the Company currently generates significant cash flows from ongoing operations and has access to global credit markets through its financing activities and existing credit facilities to meet its current needs, if the current credit conditions were to worsen, the Company might not be able to access credit markets on favorable terms when needed, which could adversely affect the Companys ability to borrow. Financial market volatility and unfavorable economic conditions may also adversely affect the financial condition of the Companys customers, suppliers and other business partners. If customers financial conditions are severely affected, the Company may not be able to collect accounts receivable, which could impact its results.
The Company faces intense competition in its markets, which could lead to reduced profitability.
The Company faces intense competition from consumer product companies both in the United States and in its international markets. Most of the Companys products compete with other widely-advertised brands within each product category and with private label brands and generic nonbranded products of grocery chains and wholesale cooperatives in certain categories, which typically are sold at lower prices.
The Companys products generally compete on the basis of product performance, brand recognition, price, value or other benefits to consumers. Advertising, promotion, merchandising and packaging also have a significant impact on consumer purchasing decisions, and the Company is increasingly using digital media marketing and promotional programs to reach consumers. A newly introduced consumer product (whether improved or newly developed) usually encounters intense competition requiring substantial expenditures for advertising, sales promotion and trade merchandising. If a product gains consumer acceptance, it normally requires continued advertising, promotional support and product improvements to maintain its relative market position. If the Companys advertising, marketing and promotional programs, including its use of digital media to reach consumers, are not effective or adequate, the Companys sales and volume may be impacted.
Some of the Companys competitors are larger than the Company and have greater financial resources. These competitors may be able to spend more aggressively on advertising and promotional activities, introduce competing products more quickly and respond more effectively to changing business and economic conditions than the Company can. In addition, the Companys competitors may attempt to gain market share by offering products at prices at or below those typically offered by the Company. Competitive activity may require the Company to increase its spending on advertising and promotions and/or reduce prices, which could lead to reduced profits and adversely affect growth.
Sales growth objectives may be difficult to achieve, and price increases, market category declines and changes to the Companys product and geographic mix may impact the Companys financial results.
A large percentage of the Companys revenues comes from mature markets that are subject to high levels of competition. During fiscal year 2012, approximately 79% of the Companys net sales was generated in U.S. markets. U.S. markets for cleaning products are generally characterized by high household penetration. The Companys ability to achieve sales growth will depend on its ability to drive growth through innovation, investment in its established brands and enhanced merchandising and its ability to capture market share from competitors. The Company anticipates taking some price increases across its global portfolio in fiscal year 2013, which may slow sales growth or create volume declines in the short term as consumers adjust to price increases. If the Company is unable to increase market share in existing product lines, develop product improvements, undertake sales, marketing and advertising initiatives that grow its product categories, and develop, acquire or successfully launch new products, it may not achieve its sales growth objectives. Even if the Company is successful in increasing sales within its product categories, a continuing or accelerating decline in the overall markets for its products could have a negative impact on the Companys financial results.
In addition, changes to the mix of products the Company sells, as well as the mix of countries in which its products are sold, can adversely impact the Companys operating expenses, the amount of revenue and the timing of revenue recognition, which could cause its profitability to suffer. The Companys outlook assumes a certain volume and product mix of sales, and if actual results vary from this projected volume and product mix of sales, the Companys operations and results could be negatively affected.
Volatility and increases in the price of raw materials, energy, shipping and transportation, and other necessary supplies or services could harm the Companys profits.
Volatility and increases in the price of raw materials, including resin, chlor-alkali, sodium hypochlorite, high-strength bleach, linerboard, soybean oil, solvent, natural oils, corrugate and other chemicals and agricultural commodities, or increases in the cost of energy, transportation and other necessary services may harm the Companys profits and operating results. The Company anticipates continued commodity and other price increases in fiscal year 2013 and if such increases occur or exceed the Companys estimates and the Company is not able to increase the prices of its products or achieve cost savings to offset such price increases, its profits and operating results will be harmed. In addition, if the Company increases the prices of its products in response to increases in the cost of commodities, and the commodity costs decline, the Company may not be able to sustain its price increases over time. Also, competitors may not adjust their prices or customers may decide not to pay the higher prices, which could lead to sales declines and loss of market share. Sustained price increases may lead to declines in volume, and while the Company seeks to project tradeoffs between price increases and volume, its projections may not accurately predict the volume impact of price increases, which could adversely affect its financial condition and results of operations. For further information regarding the impact of changes in commodity prices, see Quantitative and Qualitative Disclosures about Market Risk in Managements Discussion and Analysis of Financial Condition and Results of Operations on page 18 of Exhibit 99.1 hereto.
To reduce the price volatility associated with anticipated commodity purchases, the Company uses derivative instruments, including commodity futures and swaps. The extent of the Companys derivative position at any given time depends on the Companys assessment of the markets for these commodities, the price volatility in the markets and the cost of the derivative instruments. Many of the commodities used by the Company in its products do not have actively traded derivative instruments. If the Company does not or is unable to take a derivative position and costs subsequently increase, or if it institutes a position and costs subsequently decrease, the Companys costs may be greater than anticipated or higher than its competitors costs and financial results could be adversely affected.
Profitability could suffer if the Company is unable to generate anticipated cost savings and efficiencies, or efficiently manage supply chain and manufacturing processes.
The Company continues to implement plans to improve its competitive position by achieving aggressive annual cost-savings targets, and it expects ongoing cost savings from its continuous improvement activities. The Company anticipates these continuing cost savings will result from reducing material costs and manufacturing inefficiencies and realizing productivity gains, distribution efficiencies and overhead reductions in each of its business segments. If the Company cannot successfully implement its cost-savings plans or the cost of making these cost-savings changes increases, it may not realize all anticipated benefits. Any negative impact these plans have on the Companys relationships with employees or customers or any failure to generate the anticipated efficiencies and savings could adversely affect its financial results.
The Companys success and profitability also depend on the efficient manufacture and production of products. Historically, the Company has undertaken restructuring programs and incurred restructuring charges, and expects to continue to restructure its operations as necessary to improve operational efficiency. Gaining additional efficiencies may become increasingly difficult over time and any failure to successfully execute such changes, or any increase in the cost of these changes, may result in supply chain interruption, which may negatively impact product volume and margins.
The Company is subject to risks related to its international operations, including exposure to foreign exchange rate risk.
The Company faces and will continue to face substantial risks associated with having foreign operations, including:
These risks could have a significant impact on the Companys ability to commercialize its products on a competitive basis in international markets and may have a material adverse effect on its results of operations or financial position. The Companys small sales volume in some countries, relative to some multinational and local competitors, could exacerbate such risks.
In addition, the Company is exposed to foreign currency exchange rate risk with respect to its sales, profits, assets and liabilities denominated in currencies other than the U.S. dollar. Although the Company uses instruments to hedge certain foreign currency risks, these hedges only offset a small portion of the Companys exposure to foreign currency fluctuations and its reported earnings may be affected by changes in foreign exchange rates.
The Companys international operations are also subject to risks relating to potential difficulties in staffing and managing local operations, import and export laws, raw material availability, credit risk of local customers, suppliers and distributors and potentially adverse tax consequences.
Inflation is another risk associated with the Companys international operations. For example, Venezuela has been designated for financial reporting purposes as a highly inflationary economy, and Argentina could in the future be designated as such. Gains and losses resulting from the remeasurement of non-U.S. dollar monetary assets and liabilities of subsidiaries operating in highly inflationary economies are recorded in net earnings. Venezuelas designation as a highly inflationary economy and the potential for further devaluation of the local currency exchange rate will continue to negatively affect the Companys revenue, operating profit and net income in fiscal year 2013 and beyond. In addition, there can be no assurance that other countries in which the Company operates will not also become highly inflationary, that such countries currencies will not be devalued, or both, and that the Companys operations will not be negatively impacted as a result. For further information regarding Venezuela, see Venezuela in Managements Discussion and Analysis of Financial Condition and Results of Operations on page 11 of Exhibit 99.1 hereto.
Government regulations could impose material costs.
Generally, the manufacture, packaging, labeling, storage, distribution and advertising of the Companys products and the conduct of its business operations must all comply with extensive federal, state and foreign laws and regulations. For example, in the United States, many of the Companys products are regulated by the Environmental Protection Agency, the Food and Drug Administration and the Consumer Product Safety Commission, and the Companys product claims and advertising are regulated by the Federal Trade Commission.
Most states have agencies that regulate in parallel to these federal agencies. In addition, the Companys international operations are subject to regulation in each of the foreign jurisdictions in which it manufactures or distributes its products. If the Company is found to be noncompliant with applicable laws and regulations in these or other areas, it could be subject to civil remedies, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have a material adverse effect on its business. Loss of or failure to obtain necessary permits and registrations, particularly with respect to its charcoal business, could delay or prevent the Company from meeting current product demand, introducing new products, building new facilities or acquiring new businesses and could adversely affect operating results. It is possible that the federal government will increase regulation of the transportation, storage or use of certain chemicals to protect the environment, including as a result of evolving climate change standards or increased regulation in other areas, and that such regulation could negatively impact the Companys ability to obtain raw materials or could increase costs. In addition, pending legislative initiatives and adopted legislation, such as the Patient Protection and Affordable Care Act, the Health Care and Education Reconciliation Act of 2010 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, in the areas of healthcare reform and other initiatives and legislation in the area of taxation of domestic and foreign profits, executive compensation and corporate governance, could also increase the Company's costs. These risks may be increased by the Companys recent acquisitions of HealthLink and Aplicare, Inc., which manufacture products subject to additional regulations.
The Companys ability to conduct business, particularly in international markets, may be affected by political, legal, tax and regulatory risks, and government reviews, inquiries or investigations could harm the Companys business.
The Companys operations outside the United States are subject to risks relating to non-compliance with legal and regulatory requirements in the United States and in such foreign jurisdictions. Additionally, there is a risk of potentially higher incidence of fraud or corruption in certain foreign jurisdictions and related difficulties in maintaining effective internal controls. From time to time, the Company may conduct internal investigations and compliance reviews to ensure that it is in compliance with applicable laws and regulations. Additionally, the Company could be subject to inquiries or investigations by government and other regulatory bodies. Any determination that the Companys operations or activities are not in compliance with U.S. laws, including the Foreign Corrupt Practices Act, or international laws and regulations, could expose the Company to significant fines, penalties or other sanctions that may harm the business and reputation of the Company.
Acquisitions, new venture investments and divestitures may not be successful, which could impact the Companys results.
In connection with the Companys strategy, the Company expects to seek to increase growth through acquisitions. Not only is the identification of good acquisition candidates difficult and competitive, but these transactions also involve numerous risks, including the ability to:
Acquired companies or operations or newly-created ventures may not be profitable or may not achieve sales levels and profitability that justify the investments made. Future acquisitions or ventures could also result in potentially dilutive issuances of equity securities, the incurrence of debt, the assumption of contingent liabilities including litigation, the increase in expenses related to certain assets and increased operating expenses, all of which could adversely affect the Companys results of operations and financial condition. Future acquisitions of foreign companies or new foreign ventures would increase, among other things, the Companys exposure to foreign exchange rate risks. In addition, to the extent that the economic benefits associated with any of the Companys acquisitions diminish in the future, the Company may be required to record impairment charges related to goodwill, intangible assets or other assets associated with such acquisitions, which could adversely affect its operating results.
The Company may also divest certain assets, businesses or brands that do not meet the Companys strategic objectives or growth targets. With respect to any divestiture, the Company may encounter difficulty finding potential acquirers or other divestiture options on favorable terms. Any divestiture could affect the profitability of the Company, either as a result of the gains or losses on such sale of a business or brand, the loss of the operating income resulting from such sale or the costs or liabilities that are not assumed by the acquirer (i.e., stranded costs) that may negatively impact profitability subsequent to any divestiture. The Company may also be required to recognize impairment charges as a result of a divesture.
Any potential future acquisitions, new ventures or divestitures may divert the attention of management and may divert resources from matters that are core or critical to the business.
The Company may not successfully develop and introduce new products and line extensions.
The Companys future performance and growth depends on its innovation and ability to successfully develop or license and introduce new products and line extensions and product improvements. The Company cannot be certain that it will successfully achieve its innovation goals. The development and introduction of new products require substantial and effective research, development and marketing expenditures, which the Company may be unable to recoup if the new products do not gain widespread market acceptance. New product development and marketing efforts, including efforts to enter markets or product categories in which the Company has limited or no prior experience, have inherent risks. These risks include product development or launch delays, which could result in the Company not being first to market, the failure of new products and line extensions to achieve anticipated levels of market acceptance and the cost of failed product introductions.
Dependence on key customers could adversely affect the Companys business, financial condition and results of operations.
A limited number of customers account for a large percentage of the Companys net sales. Net sales to the Companys largest customer, Walmart Stores, Inc. and its affiliates, were 26%, 27% and 27% for the fiscal years ended 2012, 2011 and 2010, respectively, of consolidated net sales and occurred in each of the Companys reportable segments. No other customers exceeded 10% of consolidated net sales in any of these fiscal years. During fiscal years 2012, 2011 and 2010, the Companys five largest customers accounted for 44%, 44% and 45% of its net sales, respectively, and its ten largest customers accounted for 55% of its net sales for each of these fiscal years. The Company expects that a significant portion of its revenues will continue to be derived from a small number of customers. As a result, changes in the strategies of the Companys largest customers, including a reduction in the number of brands they carry or a shift of shelf space to private label or competitors products, may harm the Companys sales. Additionally, this may reduce the ability of the Company to bring new innovative products to consumers.
In addition, the Companys business is based primarily upon individual sales orders, and the Company typically does not enter into long-term contracts with its customers. Accordingly, these customers could reduce their purchasing levels or cease buying products from the Company at any time and for any reason. If the Company does not effectively respond to the demands of its customers, they could decrease their purchases from the Company, causing the Companys sales and profits to decline. In recent years, the Company has seen increasing retailer consolidation both in the United States and internationally. This trend has resulted in the increased size and influence of large consolidated retailers, which may demand lower pricing or special packaging or impose other requirements on product suppliers. These business demands may relate to inventory practices, logistics or other aspects of the customer-supplier relationship. If the Company ceases doing business with a significant customer or if sales of its products to a significant customer materially decrease due to customer inventory reductions or otherwise, the Companys business, financial condition and results of operations may be harmed.
Reliance on a limited base of suppliers may result in disruptions to the Companys business.
The Company relies on a limited number of suppliers for certain commodities and raw material inputs, including sole-source and single-source suppliers for certain of its raw materials, packaging, product components, finished products and other necessary supplies. If the Company is unable to maintain supplier arrangements and relationships, or if it is unable to contract with suppliers at the quantity, quality and price levels needed for its business, or if any of the Companys key suppliers becomes insolvent or experiences other financial distress, the Company could experience disruptions in production and its financial results could be adversely affected.
The Companys financial results could suffer if the Company is unable to implement its strategies or if the Companys strategies do not achieve the intended effects.
The Company may not be able to implement its strategies, including, among other things, new product innovation, cost savings and penetration of and growth in international markets. If the Company is unable to implement its strategies in accordance with its expectations, the Company may not achieve its intended growth targets and its financial results could be adversely affected. While the Company believes that implementation of its strategies will advance the Companys business and financial results, there can be no assurance that this will be the case.
The Companys success depends, in part, on its key personnel.
The Companys success depends, in part, on its ability to retain its key personnel, including its executive officers and senior management team. The unexpected loss of one or more of the Companys key employees could disrupt its business. The Companys success also depends, in part, on its continuing ability to identify, hire, train and retain other highly qualified personnel. Competition for these employees can be intense, especially in the San Francisco Bay Area where the Companys headquarters and largest research facility are located. The Company may not be able to attract, assimilate or retain qualified personnel in the future, and its failure to do so could adversely affect its business.
Product liability claims and other legal proceedings could adversely affect the Companys sales and operating results.
The Company has in the past paid, and may be required in the future to pay, for losses or injuries purportedly caused by its products. Such claims may be based on allegations that, among other things, the Companys products contain contaminants, provide inadequate instructions regarding their use or inadequate warnings concerning interactions with other substances, or damage property or persons. Product liability claims could result in negative publicity that could harm the Companys reputation, sales and operating results. In addition, if one of the Companys products is found to be defective, the Company could be required to recall it, which could result in adverse publicity and significant expenses. Although the Company maintains general and product liability insurance coverage, potential product liability claims may exceed the amount of such insurance coverage or certain product liability claims may be excluded under the terms of the policies.
In addition, the Company is, and may in the future become, a party to litigation and other disputes. In general, claims made by or against the Company in litigation, disputes or other proceedings can be expensive and time consuming to bring or defend against and could result in settlements, injunctions or damages that could significantly affect its business or financial results or condition. It is not possible to predict the final resolution of the litigation, disputes or proceedings with which the Company currently is or may in the future become involved. The impact of these matters on the Companys business, results of operations and financial condition could be material. See Contingencies in Managements Discussion and Analysis of Financial Condition and Results of Operations on page 17 and Note 12 Other Contingencies and Guarantees of the Notes to Consolidated Financial Statements beginning on page 47 of Exhibit 99.1 hereto for additional information related to one of these matters.
Harm to the Companys reputation or the reputation of one or more of its leading brands could have an adverse effect on the business.
Maintaining a strong reputation with consumers, customers and trade partners is critical to the success of the Companys business. The Company devotes significant time and resources to programs designed to protect and preserve the Companys reputation and the reputation of its brands. These programs include ethics and compliance, sustainability, and product safety and quality initiatives. Despite these efforts, negative publicity about the Company, including product safety or similar concerns, whether real or perceived, could occur, and the Companys products could face withdrawal, recall or other quality issues. Such events, if they were to occur, could harm the Companys image and result in an adverse effect on its business, as well as require resources to rebuild its reputation.
Environmental matters create potential liability risks.
The Company must comply with various environmental laws and regulations in the jurisdictions in which it operates, including those relating to air emissions, water discharges, the handling and disposal of solid and hazardous wastes, the remediation of contamination associated with the use and disposal of hazardous substances and concerns regarding climate change. The Company has incurred, and will continue to incur, significant capital and operating expenditures and other costs in complying with environmental laws and regulations and in providing physical security for its worldwide operations, and such expenditures reduce the cash flow available to the Company for other purposes.
The Company is currently involved in or has potential liability with respect to the remediation of past contamination in the operation of some of its currently and formerly owned and leased facilities. In addition, some of its present and former facilities have been or had been in operation for many years and, over that time, some of these facilities may have used substances or generated and disposed of wastes that are or may be considered hazardous. It is possible that those sites, as well as disposal sites owned by third parties to whom the Company has sent waste, may in the future be identified and become the subject of remediation. It is possible that the Company could become subject to additional environmental liabilities in the future that could result in a material adverse effect on its results of operations or financial condition.
The Company had a recorded liability of $14 million and $15 million at June 30, 2012 and 2011, respectively, for its share of aggregate future remediation costs related to certain environmental matters, including response actions at various locations. One matter in Dickinson County, Michigan, for which the Company is jointly and severally liable, accounts for a substantial majority of the recorded liability at both June 30, 2012 and 2011. 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 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 also handles and/or transports hazardous substances, including but not limited to chlorine, at some of its international plant sites. A release of such chemicals, whether in transit or at the Companys facilities, due to accident or an intentional act, could result in substantial liability.
Failure to maximize, successfully assert or successfully defend the Companys intellectual property rights could impact its competitiveness.
The Company relies on intellectual property rights based on trademark, trade secret, patent and copyright laws to protect its brands and its products and the packaging for those products. The Company cannot be certain that these intellectual property rights will be maximized or that they can be successfully asserted. There is a risk that the Company will not be able to obtain and perfect its own intellectual property rights or, where appropriate, license intellectual property rights necessary to support new product introductions. The Company cannot be certain that these rights, if obtained, will not later be invalidated, circumvented or challenged, and the Company could incur significant costs in connection with legal actions to assert its intellectual property rights or to defend those rights from assertions of invalidity. In addition, even if such rights are obtained in the United States, the laws of some of the other countries in which the Companys products are or may be sold do not protect intellectual property rights to the same extent as the laws of the United States. If other parties infringe the Companys intellectual property rights, they may dilute the value of the Companys brands in the marketplace, which could diminish the value that consumers associate with the Companys brands and harm its sales. The failure to perfect or successfully assert its intellectual property rights could make the Company less competitive and could have a material adverse effect on its business, operating results and financial condition.
If the Company is found to have infringed the intellectual property rights of others or cannot obtain necessary intellectual property rights from others, its competitiveness could be negatively impacted.
One of the Companys strategies is to improve its products by licensing third-party ideas and technologies in a process referred to as open innovation. If the Company is found to have violated the trademark, trade secret, copyright, patent or other intellectual property rights of others, directly or indirectly, through the use of such third-party ideas or technologies arising from its open innovation projects, such a finding could result in the need to cease use of a trademark, trade secret, copyrighted work or patented invention in the Companys business and the obligation to pay a substantial amount for past infringement. It could also be necessary to pay a substantial amount in the future for rights if holders are willing to permit the Company to continue to use such intellectual property rights. Either having to cease use or pay such amounts could make the Company less competitive and could have a material adverse impact on its business, operating results and financial condition.
The Companys substantial indebtedness could adversely affect its operations and financial results and prevent the Company from fulfilling its obligations, and the Company may incur substantially more debt in the future, which could exacerbate these risks.
The Company has a significant amount of indebtedness. As of June 30, 2012, the Company had $2.7 billion of debt, including $850 million of senior unsecured notes that mature in fiscal year 2013. The Companys substantial indebtedness could have important consequences. For example, it could:
In addition, the Company may incur substantial additional indebtedness in the future to fund acquisitions, to repurchase shares or to fund other activities for general business purposes, subject to compliance with the Companys existing restrictive debt covenants. As of June 30, 2012, the Company could add approximately $1.1 billion in incremental debt and remain in compliance with restrictive debt covenants, although there is no assurance that the actual amount that the Company may be able to borrow in the future will equal this amount. If new debt is added to the current debt levels, the related risks that the Company now faces could intensify. In addition, the cost of incurring additional debt could increase due to possible downgrades in the Companys credit rating. Any decision regarding the Companys future borrowings will be based on the facts and circumstances existing at the time, including the Companys credit rating. If the Company were to borrow the maximum amount available to it, its credit rating could be downgraded.
The Company could be adversely affected if its credit ratings were to fall below investment grade.
Certain terms of the agreements governing the Companys over-the-counter derivative instruments contain provisions that require the Companys 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 rating were to fall below investment grade, the counterparties to the derivative instruments in net liability positions could request full collateralization. As of June 30, 2012, the Company and each of its counterparties maintained investment-grade ratings with both Standard & Poors and Moodys.
The Company may not have sufficient cash to service its indebtedness and pay cash dividends.
The Companys ability to repay and refinance its indebtedness, particularly the $850 million of senior unsecured notes that mature in fiscal year 2013, and to fund capital expenditures depends on the Companys cash flow. In addition, the Companys ability to pay cash dividends depends on cash flow and net earnings (as defined by Delaware law). The Companys cash flow and net earnings are often subject to general economic, financial, competitive, legislative, regulatory and other factors beyond the Companys control, and such factors may limit the Companys ability to repay indebtedness, declare and pay cash dividends and repatriate foreign earnings at an effective cost.
The facilities of the Company and its suppliers are subject to disruption by events beyond the Companys control.
Operations at the facilities of the Company and its suppliers and retail customers are subject to disruption for a variety of reasons, including work stoppages, demonstrations, disease outbreaks or pandemics, acts of war, terrorism, fire, earthquakes, flooding or other natural disasters. The Companys corporate headquarters, Technical and Data Center and new facility in Pleasanton, Calif. are located near major earthquake fault lines in California. If a major disruption were to occur, it could result in harm to people or the natural environment, temporary loss of access to critical data, delays in shipments of products to customers or suspension of operations.
The Companys continued growth and expansion and increasing reliance on third-party service providers could adversely affect its internal control over financial reporting, which could harm its business and financial results.
Clorox management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Companys financial statements would be prevented or detected. The Companys continuing growth and expansion in domestic and globally dispersed markets will place significant additional pressure on the Companys system of internal control over financial reporting. Moreover, the Company increasingly engages the services of third parties to assist with business operations and financial reporting processes, which inserts additional monitoring obligations and risk into the system of internal control. Any failure to maintain an effective system of internal control over financial reporting could limit the Companys ability to report its financial results accurately and on a timely basis or to detect and prevent fraud.
A failure of key information technology systems could adversely impact the Companys ability to conduct business.
The Company relies extensively on information technology systems, some of which are managed by third-party service providers, in order to conduct its business. These systems include, but are not limited to, programs and processes relating to communicating within the Company and with other parties, ordering and managing materials from suppliers, converting materials to finished products, shipping products to customers, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, and other processes involved in managing the business. The Company has made significant progress with its implementation of enterprise-wide upgrades to its hardware, software and operating systems, including its ERP system in Latin America, which replaces legacy systems, and is expected to streamline operations and enable future growth. If the Companys existing and/or future technology systems and processes do not adequately support the future growth of the Companys business, the Companys business may be adversely impacted. Although the Company has network security measures in place, the systems may be vulnerable to computer viruses, security breaches, and other similar disruptions from unauthorized users. While the Company has business continuity plans in place, if the systems are damaged or cease to function properly due to any number of causes, including catastrophic events, power outages, security breaches or other similar events, and if the business continuity plans do not effectively resolve such issues on a timely basis, the Company may suffer interruptions in the ability to manage or conduct business, which may adversely impact the Companys business.
The Companys judgments regarding the accounting for tax positions and the resolution of tax disputes may impact the Companys earnings and cash flow.
Significant judgment is required in determining the Companys effective tax rate and in evaluating its tax positions. The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement criteria prescribed by applicable accounting standards. Fluctuations in federal, state, local and foreign taxes or a change to uncertain tax positions, including related interest and penalties, may impact the Companys effective tax rate and the Companys financial results. When particular tax matters arise, a number of years may elapse before such matters are audited and finally resolved. Unfavorable resolution of any tax matter could increase the effective tax rate. Any resolution of a tax issue may require the use of cash in the year of resolution. For additional information, refer to the information set forth in Note 18 - Income Taxes of the Notes to Consolidated Financial Statements beginning on page 55 of Exhibit 99.1 hereto.
The estimates and assumptions on which the Companys financial statement projections are based may prove to be inaccurate, which may cause its actual results to materially differ from such projections, which may adversely affect the Companys stock price.
The Companys financial statement projections are dependent on certain estimates and assumptions related to, among other things, category growth, commodity prices, cost savings, foreign exchange rates, liabilities, goodwill, market share projections, and the Companys ability to generate sufficient cash flow to reinvest in its existing business, fund internal growth, repurchase its shares, make acquisitions, pay dividends and meet debt obligations. While the Companys projections are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances and at the time they are made, the Companys actual results may differ materially from its financial outlook. Any material variation between the Companys projections and its actual results may adversely affect its stock price.
There can be no guarantee that the Company will continue to declare dividends or repurchase its stock.
Although the Company has historically declared quarterly cash dividends on its common stock and has been authorized to repurchase its shares subject to certain limitations under a share repurchase program, any determinations to continue to declare cash dividends on its common stock or to repurchase its common stock will be based primarily upon the Companys financial condition, results of operations and business requirements, the price of its common stock in the case of the repurchase program, and the board of directors continuing determination that the repurchase program and the declaration of dividends are in the best interests of the Companys stockholders and are in compliance with all laws and agreements applicable to the repurchase and dividend programs. In the event the Company does not declare a quarterly dividend or discontinues its share repurchases, the Companys stock price could be adversely affected.
The Companys business could be negatively affected as a result of an unsolicited takeover proposal or a proxy contest.
During fiscal years 2012 and 2011, the Company was the target of an unsolicited takeover proposal from a shareholder activist, which resulted in significant costs to the Company. If such a proposal were to be made again, the Company would incur significant costs, which would have an adverse effect on the Companys financial results. In addition, such a proposal may disrupt the Companys operations and divert the attention of the Companys management and employees. In addition, any perceived uncertainties as to the Companys future direction resulting from such a situation could result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners, which could adversely affect the Companys business.
ITEM 1.B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
Production and Distribution Facilities
The Company owns or leases and operates 24 manufacturing facilities in North America and owns and operates 15 manufacturing facilities outside North America. The Company also leases six regional distribution centers in North America and several other warehouse facilities. Management believes the Companys production and distribution facilities, together with additional facilities owned or leased and operated by various unaffiliated finished product suppliers and distribution center service providers that serve the Company, are adequate to support the business efficiently and that the Companys properties and equipment have generally been well maintained. The Company is continually performing a supply chain efficiency analysis, which may lead to further closures of domestic and international manufacturing facilities and the redistribution of production between its remaining facilities and contract manufacturers to optimize availability and capacity and seek to reduce operating costs.
Offices and Research and Development Facilities
The Company owns its general office building located in Oakland, Calif., its Technical and Data Center located in Pleasanton, Calif. and its research and development facility at its plant in Buenos Aires, Argentina. The Company anticipates selling the Technical and Data Center in fiscal year 2013. The Company leases a new facility located in Pleasanton, Calif., which will house the Companys research and development group, as well as other administrative and operational support personnel. The new facility features state-of-the-art labs and open work spaces to encourage creativity, collaboration and innovation. The relocation of personnel to the new facility from the Companys general office and from the previous Technical and Data Center is expected to be completed in fiscal year 2013.
The Company also conducts research and development activities and engineering research in leased facilities in Willowbrook, Il.; Cincinnati, Oh.; Midland, Mi.; Durham, NC.; and Kennesaw, Ga. Leased sales offices and other facilities are located at a number of other locations. The Company has outsourced a significant portion of its information technology activities to Hewlett-Packard, including its data centers, which are primarily located in Alpharetta, Ga.
None of the Companys owned facilities are encumbered to secure debt owed by the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various lawsuits and claims relating to issues such as contract disputes, product liability, patents and trademarks, advertising, employee and other matters. Although the results of claims and litigation cannot be predicted with certainty, it is the opinion of management that the ultimate disposition of these matters, to the extent not previously provided for or disclosed in the Companys consolidated financial statements in Exhibit 99.1 hereto, will not have a material adverse effect, individually or in the aggregate, on the Companys consolidated financial statements taken as a whole.
ITEM 4. MINE SAFETY DISCLOSURES
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, year first elected and current titles of each of the executive officers of the Company as of July 31, 2012, are set forth below:
There is no family relationship between any of the above-named persons, or between any of such persons and any of the directors of the Company. See Item 10 of Part III of this Report for additional information.
Donald R. Knauss was elected chairman and chief executive officer of the Company in October 2006. He was executive vice president of The Coca-Cola Company and president and chief operating officer for Coca-Cola North America from February 2004 until August 2006.
Lawrence S. Peiros was elected executive vice president and chief operating officer effective March 2011. From January 2007 through February 2011, he served as executive vice president and chief operating officer North America. From January 1999 to January 2007, he served as group vice president household.
Stephen M. Robb was elected senior vice president chief financial officer effective November 2011. From January 2011 until November 2011, he served as vice president global finance. He served as vice president financial planning & analysis from October 2004 to January 2011.
Frank A. Tataseo was elected executive vice president strategy & growth and professional products effective January 2009. From February 2007 to December 2008, he served as executive vice president functional operations. From July 2004 through January 2007, he served as group vice president functional operations.
Jacqueline P. Kane was elected senior vice president human resources & corporate affairs effective January 2005. She joined the Company as vice president human resources in March 2004 and was elected senior vice president human resources in July 2004.
Laura Stein was elected senior vice president general counsel effective January 2005. She also served as secretary from September 2005 through May 2007.
Thomas P. Britanik was elected senior vice president chief marketing officer effective June 2009. He previously held the position of vice president marketing from February 2008 to May 2009. From July 2005 through January 2008, he served as vice president general manager, U.S. auto-care and Brita®.
Wayne L. Delker was elected senior vice president chief innovation officer effective June 2009. He joined the Company in August 1999 as vice president global research & development and served in that position through May 2009.
Benno Dorer was elected senior vice president cleaning division and Canada effective March 2011. He served as senior vice president general manager, cleaning division from June 2009 to March 2011. From October 2007 through May 2009, he held the title of vice president general manager, cleaning division. He previously held the position of vice president general manager, household division from March 2007 to October 2007. He joined the Company in January 2005 as vice president general manager, Glad® products and served in that position to March 2007.
James Foster was elected senior vice president chief product supply officer effective June 2009. From April 2009 to May 2009, he served as vice president product supply. From October 2007 to April 2009, he served as vice president manufacturing. He held the position of vice president product supply, specialty products groups from July 2004 through September 2007.
Grant J. LaMontagne was elected senior vice president chief customer officer effective June 2009. From July 2004 to May 2009, he served as vice president sales.
George Roeth was elected senior vice president general manager, specialty division effective June 2009. He held the title of vice president general manager, specialty division from February 2007 through May 2009. From April 2004 to February 2007, he served as vice president general manager, litter, food & charcoal.
Michael J. Costello was elected vice president general manager, international, effective March 2011. He held the title of vice president general manager, Latin America and Europe, from July 2009 to March 2011, and vice president general manager, Latin America, from June 2008 through June 2009. From November 2005 through May 2008, he served as vice president international marketing.
The Companys common stock is listed on the New York Stock Exchange. The high and low sales prices quoted for the New York Stock Exchange-Composite Transactions Report for each quarterly period during the past two fiscal years appear in Note 21 Unaudited Quarterly Data of the Notes to Consolidated Financial Statements, which appears on page 65 of Exhibit 99.1 hereto, incorporated herein by reference.
The number of record holders of the Companys common stock as of July 31, 2012, was 12,566 based on information provided by the Companys transfer agent.
The amount of quarterly dividends declared with respect to the Companys common stock during the past two fiscal years appears in Note 21 Unaudited Quarterly Data of the Notes to Consolidated Financial Statements, which appears on page 65 of Exhibit 99.1 hereto, incorporated herein by reference.
Equity Compensation Plan Information
See Part III, Item 12 hereof.
Issuer Purchases of Equity Securities
The following table sets out 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 fourth quarter of fiscal year 2012.
ITEM 6. SELECTED FINANCIAL DATA
This information appears under Five-Year Financial Summary, on page 66 of Exhibit 99.1 hereto, incorporated herein by reference.
This information appears under Managements Discussion and Analysis of Financial Condition and Results of Operations, on pages 1 through 23 of Exhibit 99.1 hereto, incorporated herein by reference.
ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information appears under Quantitative and Qualitative Disclosures about Market Risk in Managements Discussion and Analysis of Financial Condition and Results of Operations, on pages 18 through 19 of Exhibit 99.1 hereto, incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
These statements and data appear on pages 28 through 66 of Exhibit 99.1 hereto, incorporated herein by reference.
ITEM 9.A. CONTROLS AND PROCEDURES
Disclosure 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 Securities Exchange Act of 1934 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 disclosure.
Managements Report on Internal Control Over Financial Reporting
Managements report on internal control over financial reporting is set forth on page 25 of Exhibit 99.1 hereto, and is incorporated herein by reference. The Companys independent registered public accounting firm, Ernst & Young, LLP, has audited the effectiveness of the Companys internal control over financial reporting as of June 30, 2012. See Report of Independent Registered Public Accounting Firm, which appears on page 27 of Exhibit 99.1 hereto.
Change in Internal Control Over Financial Reporting
No change in the Companys internal control over financial reporting occurred during the fourth fiscal quarter of the fiscal year ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
ITEM 9.B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K, information regarding the executive officers of the registrant is reported in Part I of this Report.
The Company has adopted a Code of Conduct that applies to its principal executive officer, principal financial officer and controller, among others. The Code of Conduct is located on the Companys website at TheCloroxCompany.com under Corporate Responsibility/Performance/Corporate Governance or http://www.thecloroxcompany.com/corporate-responsibility/performance/corporate-governance/. The Company intends to satisfy the requirement under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of its Code of Conduct by posting such information on the Companys website. The Companys website also contains its corporate governance guidelines and the charters of its principal board committees.
Information regarding the Companys directors, compliance with Section 16(a) of the Exchange Act and corporate governance set forth in the Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive and director compensation and the report of the Management Development and Compensation Committee of the Companys board of directors set forth in the Proxy Statement is incorporated herein by reference.
Information regarding security ownership of certain beneficial owners, management and directors and equity compensation plan information set forth in the Proxy Statement is incorporated herein by reference.
Information regarding certain relationships and related transactions, director independence and securities authorized for issuance under equity compensation plans set forth in the Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding principal accountant fees and services set forth in the Proxy Statement is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
INDEX OF EXHIBITS