Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________ FORM 10-K __________________ ☑ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 2016 OR ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from__________to__________. Commission file number: 1-07151 THE CLOROX COMPANY (Exact name of registrant as specified in its charter) Delaware 31-0595760 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1221 Broadway, Oakland, California 94612-1888 (Address of principal executive offices) (ZIP code) (510) 271-7000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock–$1.00 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑. No ☐ . 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 ☐ . No ☑. 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 ☑. No ☐. 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 ☑. No ☐ .
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UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549__________________
FORM10-K__________________
☑AnnualreportpursuanttoSection13or15(d)oftheSecuritiesExchangeActof1934
forthefiscalyearendedJune30,2016OR
☐ TransitionreportpursuanttoSection13or15(d)oftheSecuritiesExchangeActof1934
forthetransitionperiodfrom__________to__________.Commissionfilenumber:1-07151
THECLOROXCOMPANY(Exactnameofregistrantasspecifiedinitscharter)
Delaware 31-0595760
(Stateorotherjurisdictionof (I.R.S.Employerincorporationororganization) IdentificationNumber)
1221Broadway,Oakland,California94612-1888
(Addressofprincipalexecutiveoffices)(ZIPcode)
(510)271-7000(Registrant’stelephonenumber,includingareacode)
SecuritiesregisteredpursuanttoSection12(b)oftheAct:
Titleofeachclass Nameofeachexchangeonwhichregistered
CommonStock–$1.00parvalue NewYorkStockExchange
SecuritiesregisteredpursuanttoSection12(g)oftheAct:None
(Titleofclass)
Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.Yes☑.No☐.
IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.Yes☐.No☑.
Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.Yes☑.No☐.
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractiveDataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles).Yes☑.No☐.
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IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-K(§229.405ofthischapter)isnotcontainedherein,andwillnotbecontained,tothebestofregistrant’sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.☑.
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,orasmallerreportingcompany.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler”and“smallerreportingcompany”inRule12b-2oftheExchangeAct.(Checkone):
Largeacceleratedfiler☑ Acceleratedfiler☐ Non-acceleratedfiler☐ Smallerreportingcompany☐
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheAct).Yes☐No☑.
Theaggregatemarketvalueoftheregistrant’scommonstockheldbynon-affiliatesasofDecember31,2015(thelastbusinessdayoftheregistrant’smostrecentlycompletedsecondfiscalquarter)wasapproximately$16.4billion.
AsofJuly29,2016,therewere129,469,454sharesoftheregistrant’scommonstockoutstanding.
DocumentsIncorporatedbyReference:
Portionsoftheregistrant’sdefinitiveproxystatementforthe2016AnnualMeetingofStockholders(the“ProxyStatement”),tobefiledwithin120daysafterJune30,2016,areincorporatedbyreferenceintoPartIII,Items10through14ofthisAnnualReportonForm10-K.
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THECLOROXCOMPANYANNUALREPORTONFORM10-K
FORTHEFISCALYEARENDEDJUNE30,2016TABLEOFCONTENTS
PagePartI Item1. Business 1
Item1.A. RiskFactors 5Item1.B. UnresolvedStaffComments 18Item2. Properties 18
Item3. LegalProceedings 19Item4. MineSafetyDisclosures 19
PartII Item5. MarketforRegistrant’sCommonEquity,RelatedStockholderMattersandIssuerPurchasesofEquitySecurities 22
Item6. SelectedFinancialData 23Item7. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 23Item7.A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 23Item8. FinancialStatementsandSupplementaryData 23Item9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure 23Item9.A. ControlsandProcedures 23
Item9.B. OtherInformation 23PartIII Item10. Directors,ExecutiveOfficersandCorporateGovernance 24
Item11. ExecutiveCompensation 24Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelated
StockholderMatters 24Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 24Item14. PrincipalAccountingFeesandServices 24
PartIV Item15. ExhibitsandFinancialStatementSchedules 25Signatures 30
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PARTI
ThisAnnualReportonForm10-KforthefiscalyearendedJune30,2016(thisReport),includingtheexhibitsheretoandtheinformationincorporatedbyreferenceherein,contains“forward-lookingstatements”withinthemeaningofSection27AoftheSecuritiesActof1933,asamended(theSecuritiesAct),andSection21EoftheSecuritiesExchangeActof1934,asamended(theExchangeAct),andsuchforward-lookingstatementsinvolverisksanduncertainties.Exceptforhistoricalinformation,statementsaboutfuturevolume,sales,foreigncurrencies,costs,costsavings,margin,earnings,earningspershare,dilutedearningspershare,foreigncurrencyexchangerates,cashflows,plans,objectives,expectations,growthorprofitability,areforward-lookingstatementsbasedonmanagement’sestimates,assumptionsandprojections.Wordssuchas“could,”“may,”“expects,”“anticipates,”“targets,”“goals,”“projects,”“intends,”“plans,”“believes,”“seeks,”“estimates,”“predicts”andvariationsonsuchwords,andsimilarexpressionsthatreflectourcurrentviewswithrespecttofutureeventsandoperationalandfinancialperformance,areintendedtoidentifysuchforward-lookingstatements.Theseforward-lookingstatementsareonlypredictions,subjecttorisksanduncertainties,andactualresultscoulddiffermateriallyfromthosediscussedbelow.Importantfactorsthatcouldaffectperformanceandcauseresultstodiffermateriallyfrommanagement’sexpectationsaredescribedinthesectionsentitled“RiskFactors”and“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”inthisReport,asupdatedfromtimetotimeintheCompany’sU.S.SecuritiesandExchangeCommission(SEC)filings.
TheCompany’sforward-lookingstatementsinthisReportarebasedonmanagement’scurrentviewsandassumptionsregardingfutureeventsandspeakonlyasoftheirdates.TheCompanyundertakesnoobligationtopubliclyupdateorreviseanyforward-lookingstatements,whetherasaresultofnewinformation,futureeventsorotherwise,exceptasrequiredbythefederalsecuritieslaws.
InthisReport,unlessthecontextrequiresotherwise,theterms“theCompany”and“Clorox”refertoTheCloroxCompanyanditssubsidiaries.
ITEM1.BUSINESS
OverviewofBusiness
TheCloroxCompanyisaleadingmultinationalmanufacturerandmarketerofconsumerandprofessionalproductswithfiscalyear2016netsalesof$5.8billionandapproximately8,000employeesworldwideasofJune30,2016.Cloroxsellsitsproductsprimarilythroughgroceryandmassretailoutlets,e-commercechannels,wholesaledistributorsandmedicalsupplydistributors.Cloroxmarketssomeofthemosttrustedandrecognizedconsumerbrandnames,includingitsnamesakebleachandcleaningproducts,Pine-Sol®cleaners,Liquid-Plumr®clogremovers,Poett®homecareproducts,FreshStep®catlitter,Glad®bags,wrapsandcontainerproducts,Kingsford®charcoal,RenewLife®digestivehealthproducts,HiddenValley®dressingsandsauces,Brita®water-filtrationproducts,andBurt’sBees®naturalpersonalcareproducts.TheCompanyalsomarketsbrandsthroughprofessionalserviceschannels,includinginfectioncontrolproductsforthehealthcareindustryunderCloroxHealthcare®andCloroxCommercialSolutions®.Morethan80%oftheCompany’ssalesaregeneratedfrombrandsthatholdtheNo.1orNo.2marketsharepositionsintheircategories.TheCompanywasfoundedinOakland,Californiain1913andisincorporatedinDelaware.
TheCompany’s2020strategyfocusesondeliveringlong-term,profitablegrowthandtotalshareholderreturn.TheCompany’slong-termfinancialgoalsincludeannualnetsalesgrowthof3-5%,annualEBITmargingrowthof25-50basispointsandannualfreecashflowof10-12%ofnetsales.
OnMay2,2016,theCompanyacquired100percentofthedigestivehealthcompanyRenewLifefor$290million.ThepurchaseoftheRenewLifebusinessalignswiththeCompany’sacquisitionstrategytotargetleadingbrandswithattractivemarginsinhigh-growthcategories,particularlyinhealthandwellness.ResultsforRenewLife’sdomesticbusinessarereflectedintheHouseholdreportablesegmentandresultsforRenewLife’sinternationalbusinessarereflectedintheInternationalreportablesegment.IncludedintheCompany’sresultsforfiscalyear2016was$21millionofRenewLife’sglobalnetsales.
Infiscalyear2016,theCompanydeliveredstrongresultsincluding2%netsalesgrowthandan8%increaseindilutedearningspershare(EPS)fromcontinuingoperations,despiteahighlycompetitiveenvironmentintheU.S.andadifficultmacro-environment,includingunfavorableforeignexchangeratesandchallengingeconomiesinInternationalmarkets.
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TheCompanyfocusedondrivingsalesgrowthinitsU.S.business,leveragingincrementaldemandbuildinginvestmentsandinnovation,todrivecategorygrowthandmarketshareimprovements.Inparticular,theCompanylaunchednewproductsinmanycategoriesinfiscalyear2016,includingtheBrita®Infinitypitcher,Burt'sBees®lipsticks,CloroxHealthcare®nasalantisepticswabs,CloroxHealthcare®Optimum-UVEnlight,FreshStep®withFebreze™,Glad®DualDefense™trashbags,HiddenValley®Greekyogurtdressing.
Ininternationalmarkets,theCompanyfocusedonanumberofmeasurestoaddresseconomicchallengesexperiencedinfiscalyear2016.Significantcurrencydeclinesacrossthemajorityofcountriesandhighinflationinseveralmarketswerepartiallyoffsetbypriceincreasesandcostsavingsinitiatives.Despitethesechallenges,theCompany’sinternationalbusinesscontinuedtoplayanimportantstrategicrole,withNo.1andNo.2brandsinmultiplecountriesandstronggrowthoftheBurt’sBees®brandinternationally.
Infiscalyear2016,theCompanyrepurchasedapproximately2millionsharesofitscommonstockfor$254million,paid$398millionindividendstostockholdersandannounceda4%increaseinitsquarterlydividendfromprioryear,payableinAugust2016.
Finally,theCompanycontinueditscommitmenttocorporateresponsibilitybymaintainingstrongandtransparentenvironmental,socialandgovernancepractices.TheCompanyremainedcommittedtoloweringwaterandenergyuse,solidwastetolandfillandgreenhousegasemissionsaspartofits2020operationalfootprintreductiongoals.TheCompanywasrecognizedasoneofthetopcorporatecitizensbyCorporateResponsibilitymagazineandnamedasoneofthegreenestcompaniesinthe2016NewsweekGreenRankings.Infiscalyear2016,togetherTheCloroxCompanyFoundationandTheBurt’sBeesGreaterGoodFoundationawardedapproximately$5millionincashgrants,andtheCompanymadeproductdonationswithafairmarketvalueofapproximately$8millionandcontributedmorethan$1milliontodeservingnonprofitsthroughcausemarketingprogramsforsocialandcharitablecauses.
Infiscalyear2017,Cloroxanticipatesongoingchallengesthatmayimpactitssalesandmargins,includingunfavorableforeigncurrencyexchangerates,particularlyinArgentina,andacontinuationofchallenginginternationaleconomies.Inaddition,theCompanyismonitoringanticipatedslowerU.S.categorygrowth,drivenprimarilybyexpectedcompetitiveactivityandchangestocommoditycostsandmanufacturingandlogisticscosts.
Foradditionalinformationonrecentbusinessdevelopments,see“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations,”inExhibit99.1,incorporatedhereinbyreference.
FinancialInformationAboutOperatingSegmentsandPrincipalProducts
TheCompanyoperatesthroughstrategicbusinessunitsthatareaggregatedintofourreportablesegments:Cleaning,Household,LifestyleandInternational.Thefourreportablesegmentsconsistofthefollowing:
● Cleaningconsistsoflaundry,homecareandprofessionalproductsmarketedandsoldintheUnitedStates.Productswithinthissegmentincludelaundryadditives,includingbleachproductsundertheClorox®brandandClorox2®stainfighterandcolorbooster;homecareproducts,primarilyundertheClorox®,Formula409®,Liquid-Plumr®,Pine-Sol®,S.O.S®andTilex®brands;naturallyderivedproductsundertheGreenWorks®brand;andprofessionalcleaninganddisinfectingproductsundertheClorox®,Dispatch®,Aplicare®,HealthLink®andCloroxHealthcare®brands.
● Householdconsistsofcharcoal,catlitter,digestivehealthproductsandbags,wrapsandcontainerproductsmarketedandsoldintheUnitedStates.ProductswithinthissegmentincludecharcoalproductsundertheKingsford®andMatchLight®brands;catlitterproductsundertheFreshStep®,ScoopAway®
andEverClean®brands;digestivehealthproductsundertheRenewLife®brand;andbags,wrapsandcontainersundertheGlad®brand.● Lifestyleconsistsoffoodproducts,water-filtrationsystemsandfiltersandnaturalpersonalcareproductsmarketedandsoldintheUnitedStates.Products
withinthissegmentincludedressingsandsauces,primarilyundertheHiddenValley®,KCMasterpiece®andSoyVay®brands;water-filtrationsystemsandfiltersundertheBrita®brand;andnaturalpersonalcareproductsundertheBurt’sBees®brand.
● InternationalconsistsofproductssoldoutsidetheUnitedStates.Productswithinthissegmentincludelaundry,homecare,water-filtration,digestivehealthproducts,charcoalandcatlitterproducts,dressingsandsauces,bags,wrapsandcontainersandnaturalpersonalcareproducts,primarilyundertheClorox®
,Glad®,PinoLuz®,Ayudin®,Limpido®,Clorinda®,Poett®,Mistolin®,Lestoil®,BonBril®,Brita®,GreenWorks®,Pine-Sol®,AguaJane®
,Chux®,RenewLife®,Kingsford®,FreshStep®,ScoopAway®,EverClean®,KCMasterpiece®,HiddenValley®andBurt’sBees®brands.
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ThreeoftheCompany’sproductlineshaveaccountedfor10%ormoreofconsolidatednetsalesduringeachofthepastthreefiscalyears.Infiscalyears2016,2015and2014,salesofliquidbleachrepresentedapproximately13%,14%and13%oftheCompany’sconsolidatednetsales,respectively,approximately25%,26%,and26%ofnetsalesintheCleaningsegmentforeachsuchyears,respectively,andapproximately27%,27%and28%ofnetsalesintheInternationalsegment,respectively.Salesoftrashbagsrepresentedapproximately13%,14%and13%oftheCompany’sconsolidatednetsalesineachofthefiscalyears2016,2015and2014,respectively,andapproximately37%,38%and36%ofnetsalesintheHouseholdsegment,respectively,foreachsuchyears.Salesofcharcoalrepresentedapproximately11%oftheCompany’sconsolidatednetsalesandapproximately34%ofnetsalesintheHouseholdsegmentinfiscalyears2016,2015and2014.
InformationabouttheresultsofeachoftheCompany’sreportablesegmentsforthelastthreefiscalyearsandtotalassetsasoftheendofthelastthreefiscalyears,reconciledtotheconsolidatedamounts,issetforthbelow.Certainnon-allocatedadministrativecosts,interestincome,interestexpenseandvariousothernon-operatingincomeandexpensesarereflectedinCorporate.Foradditionalinformation,refertotheinformationsetforthunderthecaption“SegmentResultsfromContinuingOperations”in“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations,”inExhibit99.1.
(Dollarsinmillions)FiscalYear Cleaning Household Lifestyle International Corporate
TotalCompany
NetSales 2016$1,912$1,862$990$ 997$ - $5,761 2015 1,824 1,794 950 1,087 - 5,655
2014 1,776 1,709 936 1,093 - 5,514Earnings(losses)from 2016 511 428 251 66 (273) 983continuingoperationsbefore 2015 445 375 257 79 (235) 921Incometaxes 2014 428 326 258 99 (227) 884Totalassets 2016 883 1,092 880 1,057 606 4,518
2015 876 725 860 1,057 646 4,164
PrincipalMarketsandMethodsofDistribution
IntheUnitedStates,mostoftheCompany’sproductsarenationallyadvertisedandsoldtomassretail-outlets,warehouseclubs,anddollar,militaryandothertypesofretailstoresprimarilythroughadirectsalesforce,andtogrocerystoresandgrocerywholesalersprimarilythroughacombinationofdirectsalesteamsandanetworkofbrokers.TheCompanysellsinstitutional,janitorial,andfood-serviceversionsofmanyofitsproductsthroughdistributorsusinganetworkofbrokers,andsellshealthcareproductsthroughadirectsalesforceandmedicalsupplydistributors.OutsidetheUnitedStates,theCompanysellsproductstotheretailtradethroughsubsidiaries,licensees,distributorsandjoint-venturearrangementswithlocalpartners.Additionally,theCompanysellsmanyofitsproductsthroughonlineretailers.
FinancialInformationAboutForeignandDomesticOperations
FordetailedfinancialinformationabouttheCompany’sforeignanddomesticoperations,includingnetsalesandproperty,plantandequipment,net,bygeographicarea,seetheNotestoConsolidatedFinancialStatementsinExhibit99.1.
SourcesandAvailabilityofRawMaterials
TheCompanypurchasesrawmaterialsfromnumerousunaffiliateddomesticandinternationalsuppliers,someofwhicharesole-sourceorsingle-sourcesuppliers.InterruptionsinthedeliveryofthesematerialscouldadverselyimpacttheCompany.KeyrawmaterialsusedbytheCompanyincluderesin,diesel,sodiumhypochlorite,corrugatedcardboardandagriculturalcommodities.Sufficientrawmaterialswereavailableduringfiscalyear2016.Costsforresinanddieseldecreasedinfiscalyear2016.However,costsformanymaterialscontinuedtoincreaseamidvolatilityandinflationinsomekeygeographicandcommoditymarkets,whichtheCompanyexpectstocontinueinfiscalyear2017.TheCompanygenerallyutilizessupplyandforward-purchasecontractstohelpensureavailabilityandhelpmanagethevolatilityofthepricingofrawmaterialsneededinitsoperations.However,theCompanyisnonethelesshighlyexposedtochangesinthepricesofcommoditiesusedasrawmaterialsinthemanufacturingofitsproducts.Forfurtherinformationregardingtheimpactofchangesincommodityprices,see“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”inExhibit99.1and“RiskFactors–Volatilityandincreasesinthecostsofrawmaterials,energy,transportation,laborandothernecessarysuppliesorserviceshaveharmed,andinthefuturemayharm,theCompany’snetearningsandcashflow”inItem1.A.
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PatentsandTrademarks
MostoftheCompany’sbrandnameconsumerproductsareprotectedbyregisteredtrademarks.TheCompany’sbrandnamesandtrademarksarehighlyimportanttoitsbusiness,andtheCompanyvigorouslyprotectsitstrademarksfromapparentinfringements.MaintenanceofbrandequityvalueiscriticaltotheCompany’ssuccess.TheCompany’spatentrightsarealsomaterialtoitsbusinessandareasserted,whereappropriate,againstapparentinfringements.
Seasonality
MostsalesoftheCompany’scharcoalproductsoccurinthefirstsixmonthsofeachcalendaryear.AmoderateseasonalitytrendalsooccursinthenetsalesoftheCompany’sBurt’sBees®naturalpersonalcareproducts,withslightlymorethanhalfoftheannualnetsalesoccurringduringthemonthsofOctoberthroughMarch.Short-termborrowingsmaybeusedtofundinventoriesofthoseproductsintheoffseason.
Customers
NetsalestotheCompany’slargestcustomer,WalmartStores,Inc.anditsaffiliates,were27%,26%and27%ofconsolidatednetsalesforeachofthefiscalyearsendedJune30,2016,2015and2014,respectively,andoccurredineachoftheCompany’sreportablesegments.Noothercustomersaccountedformorethan10%ofconsolidatednetsalesinanyofthesefiscalyears.Duringfiscalyears2016,2015and2014,theCompany’sfivelargestcustomersaccountedfor46%,45%,and45%ofitsconsolidatednetsalesforeachofthethreefiscalyears,respectively.
Competition
Themarketsforconsumerproductsarehighlycompetitive.TheCompany’sproductscompetewithothernationallyadvertisedbrandsandwith“privatelabel”brandswithineachcategory.Competitioncomesfromsimilarandalternativeproducts,someofwhichareproducedandmarketedbymajormultinationalornationalcompanieshavingfinancialresourcesgreaterthanthoseoftheCompany.TheCompany’sproductsgenerallycompeteonthebasisofproductperformance,brandrecognition,andprice.Anewlyintroducedconsumerproduct(whetherimprovedornewlydeveloped)usuallyencountersintensecompetitionrequiringsubstantialexpendituresforadvertising,salespromotionandtrademerchandisingsupport.Ifaproductgainsconsumeracceptance,ittypicallyrequirescontinuedadvertisingandpromotionalsupportandongoingproductimprovementstomaintainitsrelativemarketposition.ForfurtherinformationregardingtheintensecompetitiontheCompanyfaces,see“RiskFactors–TheCompanyfacesintensecompetitioninitsmarkets,whichcouldleadtoreducednetsales,netearningsandcashflow”inItem1.A.
ResearchandDevelopment
TheCompanyconductsresearchanddevelopmentprimarilyatitsfacilitylocatedinPleasanton,CA,whichtheCompanyhasleasedsince2011.ThePleasantonfacilityconsistsofapproximately357,000squarefeetofleasedspace,utilizingstate-of-the-artlabsandopenworkspacestoencouragecreativity,collaborationandinnovation.InadditiontotheleasedfacilityinPleasanton,CA,theCompanyconductsresearchanddevelopmentactivitiesinMeriden,CT;Willowbrook,IL;Durham,NC;Cincinnati,OH;andBuenosAires,Argentina.
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TheCompanydevotessignificantresourcesandattentiontoproductdevelopment,processtechnologyandconsumerinsightresearchtodevelopcommerciallyviableconsumer-preferredproductswithinnovativeanddistinctivefeatures.TheCompanyincurredexpensesof$141million,$136millionand$125millioninfiscalyears2016,2015and2014,respectively,ondirectresearchactivitiesrelatingtothedevelopmentofnewproductsand/ortheimprovementofexistingproducts.Inaddition,theCompanyobtainstechnologiesfromthirdpartiesforuseinitsproducts.RoyaltiesrelatingtosuchtechnologiesarereflectedintheCompany’sCostofproductssold.ForfurtherinformationregardingtheCompany’sresearchanddevelopmentcosts,see“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”inExhibit99.1.
EnvironmentalMatters
Forinformationregardingnoncapitalexpendituresrelatedtoenvironmentalmatters,seethediscussionsbelowunder“RiskFactors–EnvironmentalmatterscreatepotentialliabilitiesthatcouldadverselyaffecttheCompany’sresultsofoperationsorfinancialcondition”inItem1.A.Nomaterialcapitalexpendituresrelatingtoenvironmentalcompliancearepresentlyanticipated.
NumberofPersonsEmployed
AsofJune30,2016,theCompanyemployedapproximately8,000people.
AvailableInformation
TheCompany’sAnnualReportonForm10-K,QuarterlyReportsonForm10-QandCurrentReportsonForm8-KandamendmentstothosereportsfiledorfurnishedpursuanttoSections13(a)or15(d)oftheExchangeActareavailableontheCompany’swebsite,freeofcharge,assoonasreasonablypracticableafterthereportsareelectronicallyfiledwithorfurnishedtotheSEC.ThesereportsareavailableatTheCloroxCompany.comunderInvestors/FinancialReporting/SECFilings.InformationrelatingtocorporategovernanceatClorox,includingtheCompany’sCodeofConduct,theCloroxCompanyBoardofDirectorsGovernanceGuidelinesandBoardCommitteechartersfortheManagementDevelopmentandCompensationCommittee,theAuditCommittee,andtheNominatingandGovernanceCommittee,isavailableatTheCloroxCompany.comunderCorporateResponsibility/Performance/CorporateGovernanceorhttp://www.thecloroxcompany.com/corporate-responsibility/performance/corporate-governance.TheCompanywillprovideanyoftheforegoinginformationwithoutchargeuponwrittenrequesttoCorporateCommunications,TheCloroxCompany,1221Broadway,Oakland,CA94612-1888.TheinformationcontainedontheCompany’swebsiteisnotincludedasapartof,orincorporatedbyreferenceinto,thisReport.
ITEM1.A.RISKFACTORS
Therisksanduncertaintiessetforthbelow,aswellasotherfactorsdescribedelsewhereinthisReportorinotherfilingsbytheCompanywiththeSEC,couldadverselyaffecttheCompany’sbusiness,financialconditionandresultsofoperations.AdditionalrisksanduncertaintiesthatarenotcurrentlyknowntotheCompanyorthatarenotcurrentlybelievedbytheCompanytobematerialmayalsoharmtheCompany’sbusinessoperationsandfinancialresults.
TheCompanyfacesintensecompetitioninitsmarkets,whichcouldleadtoreducednetsales,netearningsandcashflow.
TheCompanyfacesintensecompetitionfromconsumerproductcompaniesbothintheUnitedStatesandinitsinternationalmarkets.MostoftheCompany’sproductscompetewithotherwidelyadvertisedbrandswithineachproductcategory.TheCompanyalsofacescompetitionfromretailers,includingclubstores,grocery,dollarstores,massmerchandisersandinternet-basedretailers,whichareincreasinglyoffering“privatelabel”brandsthataretypicallysoldatlowerpricesandcompetewiththeCompany’sproductsincertaincategories.Duringtimesofeconomicuncertainty,consumerstendtopurchasemore“privatelabel”orothereconomybrands.Increasedpurchasesof“privatelabel”productscouldreducenetsalesoftheCompany’shigher-marginproductsortherecouldbeashiftinproductmixtolower-marginofferings.
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TheCompany’sproductsgenerallycompeteonthebasisofproductperformance,brandrecognition,andprice.Advertising,promotion,merchandisingandpackagingalsohavesignificantimpactsonconsumerpurchasingdecisions,andtheCompanyisincreasinglyusingdigitalmediamarketingandpromotionalprogramstoreachconsumers.Anewlyintroducedconsumerproduct(whetherimprovedornewlydeveloped)usuallyencountersintensecompetitionrequiringsubstantialexpendituresforadvertising,salespromotionandtrademerchandising.Ifaproductgainsconsumeracceptance,ittypicallyrequirescontinuedadvertising,promotionalsupportandproductimprovementstomaintainitsrelativemarketposition.IftheCompany’sadvertising,marketingandpromotionalprograms,includingitsuseofdigitalmediatoreachconsumers,arenoteffectiveoradequate,theCompany’snetsalesmaybenegativelyimpacted.
SomeoftheCompany’scompetitorsarelargerthantheCompanyandhavegreaterfinancialresources.Thesecompetitorsmaybeabletospendmoreaggressivelyonadvertisingandpromotionalactivities,introducecompetingproductsmorequicklyandrespondmoreeffectivelytochangingbusinessandeconomicconditionsthantheCompanycan.Inaddition,theCompany’scompetitorsmayattempttogainmarketsharebyofferingproductsatpricesatorbelowthosetypicallyofferedbytheCompany.CompetitiveactivitymayrequiretheCompanytoincreaseitsspendingonadvertisingandpromotionsand/orreduceprices,whichcouldleadtoreducednetearningsandadverselyaffectgrowth.
Uncertainworldwide,regionalandlocaleconomicconditionsandfinancialmarketvolatilitymaynegativelyimpacttheCompanyandconsumersofitsproducts,whichwouldnegativelyaffecttheCompany’sfinancialperformanceandliquidity.
AlthoughtheCompanycontinuestodevotesignificantresourcestosupportitsbrands,uncertaineconomicconditionsmaycontinuetonegativelyaffectconsumerdemandfortheCompany’sproducts.Consumersmayalsobesensitivetoeconomicuncertaintyorunfavorableeconomicconditionsandreducediscretionaryspending,whichmayleadtoreducednetsalesorcauseashiftintheCompany’sproductmixfromhigher-margintolower-marginproducts.Consumersmayincreasepurchasesoflower-pricedor“privatelabel”products,andtheCompany’scompetitorsmayincreaselevelsofadvertisingandpromotionalactivityforlower-pricedproductsastheyseektomaintainsalesvolumesduringuncertaineconomictimes,whichmaynegativelyimpacttheCompany’snetsales.
Globalmarketscontinuedtoexperiencesignificantdisruptionsduringfiscalyear2016,andcontinuingvolatilitycouldcontinuetoharmtheCompany’sbusiness.Inaddition,financialmarketvolatilitycouldadverselyaffecttheCompany’sliquidityandcapitalresources.UncertaineconomicconditionsandfinancialmarketvolatilitymayalsoadverselyaffectthefinancialconditionoftheCompany’scustomers,suppliersandotherbusinesspartners.Ifcustomers’financialconditionsareseverelyaffected,customersmayreducetheirpurchasesoftheCompany’sproductsortheCompanymaynotbeabletocollectaccountsreceivable,eachofwhichcouldhaveamaterialadverseimpactontheCompany’sbusinessoperationsorfinancialresults.
Salesgrowthobjectivesmaybedifficulttoachieve,andpriceincreases,marketandcategorydeclinesandchangestotheCompany’sproductandgeographicmixmayadverselyimpacttheCompany’sfinancialresults.
AlargepercentageoftheCompany’srevenuescomesfrommaturemarketsthataresubjecttohighlevelsofcompetition.Duringfiscalyear2016,approximately83%oftheCompany’snetsalesweregeneratedinU.S.markets.TheCompany’sabilitytoachievesalesgrowthdependsonitsabilitytodrivegrowththroughinnovation,expansionintonewproductcategories,channelsandcountries,investmentinitsestablishedbrandsandenhancedmerchandisinganditsabilitytocapturemarketsharefromcompetitors.IftheCompanyisunabletoincreasemarketshareinexistingproductlines,developproductimprovements,undertakesales,marketingandadvertisinginitiativesthatgrowitsproductcategoriesand/ordevelop,acquireorsuccessfullylaunchnewproductsorbrands,itmaynotachieveitssalesgrowthobjectives.EvenwhentheCompanyissuccessfulinincreasingmarketsharewithinparticularproductcategories,adeclineinthemarketsforsuchproductcategorieshashadandcancontinuetohaveanegativeimpactontheCompany’sfinancialresults.
Inaddition,changestothemixofproductstheCompanysells,aswellasthemixofcountriesinwhichitsproductsaresold,canadverselyimpacttheCompany’snetsales,profitabilityandcashflow.TheCompany’sfinancialoutlookassumesacertainvolumeandproductmix,andifactualresultsvaryfromthisprojectedvolumeandproductmix,theCompany’sbusinessoperationsandfinancialresultscouldbenegativelyaffected.
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Volatilityandincreasesinthecostsofrawmaterials,energy,transportation,laborandothernecessarysuppliesorserviceshaveharmed,andinthefuturemayharm,theCompany’snetearningsandcashflow.
Volatilityandincreasesinthecostsofrawmaterials,includingresin,sodiumhypochlorite,linerboard,soybeanoil,solvent,corrugatedcardboardandotherchemicalsandagriculturalcommodities,orincreasesinthecostofenergy,transportation,laborandothernecessarysuppliesorserviceshaveharmed,andinthefuturemayharm,theCompany’sprofitsandoperatingresults.Wedistributeourproductsandreceiverawmaterialsprimarilybyrailandtruck.Reducedavailabilityofrailortruckingcouldcauseustoincurunanticipatedexpensesandimpairourabilitytodistributeourproductsorreceiveourrawmaterialsinatimelymanner.
TheCompanybelievescommodityandothercostincreasesarepossibleinthefuture.IfsuchincreasesoccurorexceedtheCompany’sestimatesandtheCompanyisnotabletoincreasethepricesofitsproductsorachievecostsavingstooffsetsuchcostincreases,itsprofitsandoperatingresultswillbeharmed.Inaddition,iftheCompanyincreasesthepricesofitsproductsinresponsetoincreasesinthecostofcommodities,andcommoditycostsdecline,theCompanymaynotbeabletosustainitspriceincreases.Sustainedpriceincreasesmayleadtodeclinesinvolumeascompetitorsmaynotadjusttheirpricesorcustomersmaydecidenottopaythehigherprices,whichcouldleadtosalesdeclinesandlossofmarketshare.WhiletheCompanyseekstoprojecttradeoffsbetweenpriceincreasesandvolume,itsprojectionsmaynotaccuratelypredictthevolumeimpactofpriceincreases,whichcouldadverselyaffectitsfinancialconditionandresultsofoperations.
Toreducethecostvolatilityassociatedwithanticipatedcommoditypurchases,theCompanyusesderivativeinstruments,includingcommodityfuturesandswaps.TheextentoftheCompany’sderivativepositionatanygiventimedependsontheCompany’sassessmentofthemarketsforthesecommodities,thecostvolatilityinthemarketsandthecostofthederivativeinstruments.ManyofthecommoditiesusedbytheCompanyinitsproductsdonothaveactivelytradedderivativeinstruments.IftheCompanydoesnotorisunabletotakeaderivativepositionandcostssubsequentlyincrease,orifitinstitutesapositionandcostssubsequentlydecrease,theCompany’scostsmaybegreaterthananticipatedorhigherthanitscompetitors’costsandtheCompany’sfinancialresultscouldbeadverselyaffected.ForfurtherinformationregardingtheCompany’suseofderivativeinstruments,see“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”inExhibit99.1.
DependenceonkeycustomerscouldadverselyaffecttheCompany’sbusiness,financialconditionandresultsofoperations.
AlimitednumberofcustomersaccountforalargepercentageoftheCompany’snetsales.NetsalestotheCompany’slargestcustomer,WalmartStores,Inc.anditsaffiliates,were27%,26%and27%ofconsolidatednetsalesforeachofthefiscalyearsendedJune30,2016,2015and2014,respectively,andoccurredineachoftheCompany’sreportablesegments.Nootherindividualcustomeraccountedformorethan10%ofconsolidatednetsalesinanyofthesefiscalyears.Duringfiscalyears2016,2015and2014,theCompany’sfivelargestcustomersaccountedfor46%,45%,and45%ofitsconsolidatednetsalesforeachofthethreefiscalyears,respectively.TheCompanyexpectsthatasignificantportionofitsrevenueswillcontinuetobederivedfromasmallnumberofcustomers.Asaresult,changesinthestrategiesoftheCompany’slargestcustomers,includingareductioninthenumberofbrandstheycarryorashiftofshelfspaceto“privatelabel”orcompetitors’products,mayharmtheCompany’snetsalesandreducetheabilityoftheCompanytooffernewinnovativeandimprovedproductstoconsumers.Inaddition,anylossofakeycustomerorasignificantreductioninnetsalestoakeycustomer,evenifsuchlossorreductionrelatestoakeycustomerofabusinessunitoftheCompany,couldhaveamaterialadverseeffectontheCompany’sbusiness,financialconditionandresultsofoperations.
Inaddition,theCompany’sbusinessisbasedprimarilyuponindividualsalesorders,andtheCompanytypicallydoesnotenterintolong-termcontractswithitscustomers.Accordingly,customerscouldreducetheirpurchasinglevelsorceasebuyingproductsfromtheCompanyatanytimeandforanyreason.IftheCompanydoesnoteffectivelyrespondtothedemandsofitscustomers,theycoulddecreasetheirpurchasesfromtheCompany,causingtheCompany’snetsalesandnetearningstodecline.Furthermore,unfavorablemarketconditionsorcompetitivepressuresmaycausetheCompany’scustomerstoreevaluatethenumberandmixofbrandstheysell,resultinginlowerpurchasesoftheCompany’sproductsbythesecustomers.
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TheCompanycontinuestoseeretailerconsolidationbothintheUnitedStatesandinternationally.Thistrendhasresultedintheincreasedsizeandinfluenceoflargeconsolidatedretailers,whohaveinthepastchanged,andmayinthefuturechange,theirbusinessstrategies,demandlowerpricingorspecialpackagingorimposeotherburdensomerequirementsonproductsuppliers.Thesebusinessdemandsmayrelatetoinventorypractices,logistics,ashiftinfocusawayfrombrandedproductstoward“privatelabel”orotheraspectsofthecustomer-supplierrelationship.TheselargeconsolidatedcompaniescouldalsoexertadditionalcompetitivepressureontheCompany’sothercustomers,whichcouldinturnleadtosuchcustomersdemandinglowerpricingorspecialpackagingorimposingotheronerousrequirementsontheCompany.IftheCompanyceasesdoingbusinesswithasignificantcustomerorifsalesofitsproductstoasignificantcustomermateriallydecreaseduetocustomerinventoryreductionsorotherwise,theCompany’sbusiness,financialconditionandresultsofoperationsmaybeharmed.
Cyber-attacks,privacybreaches,databreachesorafailureofkeyinformationtechnologysystemscouldadverselyimpacttheCompany’sabilitytoconductbusiness.
TheCompanyreliesextensivelyoninformationtechnologysystems,manyofwhicharemanagedbythird-partyserviceproviders,inordertoconductitsbusiness.Thesesystemsinclude,butarenotlimitedto,programsandprocessesrelatingtocommunicatingwithintheCompanyandwithcustomers,consumersandotherparties,orderingandmanagingmaterialsfromsuppliers,convertingmaterialstofinishedproducts,shippingproductstocustomers,processingtransactions,summarizingandreportingresultsofoperations,complyingwithregulatory,legalandtaxrequirementsandimplementingotherprocessesinvolvedinmanagingthebusiness.AlthoughtheCompanyhasmadeprogresswithitsimplementationofenterprise-wideupgradestoitshardware,softwareandoperatingsystems,legacysystemsstillremain.IftheCompany’sexistingand/orfuturetechnologysystems,third-partyserviceprovidersandprocessesdonotadequatelysupportthefuturegrowthoftheCompany’sbusiness,theCompany’sbusinessmaybeadverselyimpacted.
AlthoughtheCompanyhasnetworksecuritymeasuresinplace,thesystemsmaybevulnerabletocomputervirusesorothermaliciouscodes,securitybreachesandotherdisruptionsfromunauthorizedusersorsystemfailures,includingInternetoutages.WhiletheCompanyhasbusinesscontinuityplansinplace,ifthesystemsaredamagedorceasetofunctionproperlyduetoanynumberofcauses,includingcatastrophicevents,poweroutages,securitybreachesorothersimilarevents,andifthebusinesscontinuityplansdonoteffectivelyresolvesuchissuesonatimelybasis,theCompanymaysufferinterruptionsinitsabilitytomanageorconductbusiness,whichmayadverselyimpacttheCompany’sbusiness.Furthermore,theCompanysellsitsBurt’sBees®naturalpersonalcareproducts,RenewLife®digestivehealthproductsandotherproductsdirectlytoconsumersonline,provideswebsites,mobileappsandconnecteddevices,andofferspromotions,rebates,customerloyaltyandotherprogramsthroughwhichitmayreceivepersonalinformation,anditoritsvendorscouldexperiencecyber-attacks,privacybreaches,databreachesorotherincidentsthatresultinunauthorizeddisclosureofconsumer,customer,employeeorCompanyinformation.InAugust2015,thefederalgovernmentbroughtanindictmentagainstbrokersandhackersforstealingadvanced,nonpublicpressreleasesofvariouspubliccompaniesfromnewswiresandtradingonsecuritiesusingtheinformationfromsuchpressreleases.IftheCompanysuffersalossasaresultofabreachorotherbreakdowninitstechnology,includingsuchcyber-attack,privacybreaches,databreachesorotherincidentinvolvingoneoftheCompany’svendors,thatresultinunauthorizeddisclosureorsignificantunavailabilityofbusiness,financial,personalorstakeholderinformation,theCompanymaysufferreputational,competitiveand/orbusinessharmandmaybeexposedtolegalliability,whichmayadverselyaffecttheCompany’sresultsofoperationsand/orfinancialcondition.Inaddition,iftheCompany’sserviceproviders,suppliersorcustomersexperiencesuchabreachorunauthorizeddisclosureorsystemfailure,theirbusinessescouldbedisruptedorotherwisenegativelyaffected,whichmayresultinadisruptionintheCompany’ssupplychainorreducedcustomerorders,whichwouldadverselyaffecttheCompany’sbusinessoperations.
Governmentregulationscouldimposematerialcosts.
Generally,themanufacture,packaging,labeling,storage,distributionandadvertisingoftheCompany’sproductsandtheconductofitsbusinessoperationsmustallcomplywithextensivefederal,stateandforeignlawsandregulations.Forexample,intheUnitedStates,manyoftheCompany’sproductsareregulatedbytheEnvironmentalProtectionAgency,theFoodandDrugAdministrationandtheConsumerProductSafetyCommission,andtheCompany’sproductclaimsandadvertisingareregulatedbytheFederalTradeCommission,amongotherregulatoryagencies.Moststateshaveagenciesthatregulateinparalleltothesefederalagencies.TheCompany’sinternationaloperationsarealsosubjecttoregulationineachoftheforeignjurisdictionsinwhichitmanufacturesordistributesitsproducts.Thereisalsoariskofpotentiallyhigherincidenceoffraudorcorruptionincertainforeignjurisdictionsandrelateddifficultiesinmaintainingeffectiveinternalcontrols.Additionally,theCompanycouldbesubjecttoinquiriesorinvestigationsbygovernmentalandotherregulatorybodies.AnydeterminationthattheCompany’soperationsoractivitiesarenotincompliancewithapplicablelawcouldexposetheCompanytosignificantfines,penaltiesorothersanctionsthatmayharmthebusinessandreputationoftheCompany.
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Inparticular,becauseoftheCompany’sextensiveinternationaloperations,wecouldbeadverselyaffectedbyviolationsoftheForeignCorruptPracticesActandsimilarworldwideanti-briberylaws.TheForeignCorruptPracticesActandsimilarworldwideanti-briberylawsgenerallyprohibitcompaniesandtheirintermediariesfrommakingimproperpaymentstogovernmentofficialsorotherthirdpartiesforthepurposeofobtainingorretainingbusiness.Whileourpoliciesmandatecompliancewiththeseanti-briberylaws,wecannotprovideassurancethatourinternalcontrolpoliciesandprocedureswillalwaysprotectusfromrecklessorcriminalactscommittedbyouremployees,joint-venturepartnersoragents.Violationsoftheselaws,orallegationsofsuchviolations,coulddisruptourbusinessandadverselyaffectourreputationandourbusiness,resultsofoperations,cashflowsandfinancialcondition.
Itisexpectedthatfederal,stateandforeigngovernmentswillcontinuetointroducenewandexpandedlegislationaffectingtheCompany’soperations,whichmayrequiretheCompanytoincreaseitsresources,capabilitiesandexpertiseinsuchareas.Forexample,theCompanyissubjecttoregulationsregardingthetransportation,storageoruseofcertainchemicalstoprotecttheenvironment,includingasaresultofevolvingclimatechangestandards,andnewandincreasedregulationinotherareas,suchaswithrespectto“conflictminerals.”SuchregulationcouldnegativelyimpacttheCompany’sabilitytoobtainrawmaterialsorcouldincreaseitsacquisitionandcompliancecosts.Inaddition,pendinglegislativeinitiativesandadoptedlegislationintheareasofhealthcarereformandotherareas,suchasthePatientProtectionandAffordableCareActandtheHealthCareandEducationReconciliationActof2010,theDodd-FrankWallStreetReformandConsumerProtectionAct,theForeignAccountTaxComplianceActandlegislationintheareaoftaxationofdomesticandforeignprofits,executivecompensationandcorporategovernance,couldalsoincreasetheCompany’scosts.TheserisksmaybeincreasedbytheCompany’srecentacquisitionofRenewLife,whichmanufacturesproductssubjecttoadditionalregulations.
IftheCompanyisfoundtobenoncompliantwithapplicablelawsandregulationsintheseorotherareas,itcouldbesubjecttocivilremedies,includingfines,importdetentions,injunctions,productwithdrawalsorrecallsorassetseizures,aswellaspotentialcriminalsanctions,anyofwhichcouldhaveamaterialadverseeffectonitsbusiness.Lossoforfailuretoobtainnecessarypermitsandregistrations,particularlywithrespecttoitscharcoalbusiness,coulddelayorpreventtheCompanyfrommeetingcurrentproductdemand,introducingnewproducts,buildingnewfacilitiesoracquiringnewbusinessesandcouldadverselyaffectoperatingresults.AstheCompanyexpandsitsnaturalpersonalcareandhealthcarebusinessessuchasthroughBurt’sBees®,HealthLink®,Aplicare®andCaltechIndustries,anincreasingnumberofitsproductshaveandwillbecomesubjecttoregulationsandlawsrelatingtodrugsandmedicaldevices.Inaddition,astheCompanyentersthedigestivehealthspacethroughitsacquisitionofRenewLife®,itsproductsaresubjecttoregulationsrelatingtodietarysupplements.Inordertocomplywiththeselawsandregulations,theCompanymayberequiredtomakechangestoproductformulation,labelingormarketingclaims,performadditionaltestingtosubstantiateitsproductclaims,makecostlychangesinitsmanufacturingprocessesorsupplychainorstopsellingcertainproductsuntilcorrectiveactionshavebeentaken.
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TheCompanyissubjecttorisksrelatedtoitsinternationaloperations.
Infiscalyear2016,approximately17%oftheCompany’snetsalesweregeneratedininternationalmarkets,includingapproximately3%oftheCompany’snetsalesinArgentina.TheCompanyfacesandwillcontinuetofacesubstantialrisksassociatedwithitsforeignoperations,includingthefollowing:
● economicorpoliticalinstability,particularlyinArgentina;● pricecontrolsandrelatedgovernmentactions;● foreigncurrencyfluctuations,currencycontrolsandinflation,particularlyinArgentina,whichmayadverselyaffecttheCompany’sabilitytodobusinessin
certainmarketsandreducetheU.S.dollarvalueofrevenues,profitsorcashflowsitgeneratesinnon-U.S.markets;● difficulty in obtaining non-local currency (e.g., U.S. dollars) to pay for the rawmaterials needed to manufacture the Company’s products and contract-
manufacturedproducts;● restrictions on or costs related to the repatriation of foreign profits to the United States, including possible taxes or withholding obligations on any
repatriations;● theimpositionoftariffs,traderestrictions,importandexportlawsorothergovernmentactionsgeneratinganegativeimpactontheCompany’sbusiness;● difficultiesinhiringandretainingqualifiedemployees;● civilunrest,workstoppagesandlabordisputes;● employmentlitigationrelatedtoemployees,contractorsandsuppliers,particularlyinArgentina;● difficultiesinobtainingorunavailabilityofrawmaterials;● potentiallossofdistributionchannelsasaresultofretailerconsolidation;● increasedcreditriskofcustomers,suppliersanddistributors;● potentialharmtothirdparties,theCompany’semployeesand/orsurroundingcommunities,andrelatedliabilitiesanddamagestotheCompany’sreputation,
fromtheuse,storageandtransportationofchlorineincertaininternationalmarketswherechlorineisusedintheproductionofbleach,whethersuchactionsareundertakenbytheCompanyorbytheCompany’sbusinesspartners;
● difficultiesinenforcingintellectualpropertyandcontractualrights;● lackofwell-establishedorreliable,andimpartiallegalsystemsincertaincountrieswheretheCompanyoperates;● challengesrelatingtoenforcementoforcompliancewithlocallawsandregulationsandwithU.S.lawsaffectingoperationsoutsideoftheUnitedStates,
includingwithoutlimitation,theForeignCorruptPracticesAct;● thepossibilityofnationalization,expropriationofassetsorothersimilargovernmentactions;and● risksrelatedtotheCompany’sdiscontinuedoperationsinVenezuela.
TherisksdescribedabovecouldhaveasignificantadverseimpactontheCompany’sabilitytocommercializeitsproductsonacompetitivebasisininternationalmarketsandmayhaveamaterialadverseeffectonitsresultsofoperationsorfinancialcondition.TheCompany’ssmallsalesvolumeinsomecountries,relativetosomemultinationalandlocalcompetitors,couldexacerbatesuchrisks.
Inaddition,theCompanyisexposedtoforeigncurrencyexchangerateriskswithrespecttoitsnetsales,netearningsandcashflowdrivenbymovementsoftheU.S.dollarrelativetoothercurrencies.Aweakeningofthecurrenciesinwhichsalesaregeneratedrelativetothecurrenciesinwhichcostsaredenominatedwoulddecreasenetearningsandcashflow.AlthoughtheCompanyusesinstrumentstohedgecertainforeigncurrencyrisks,thesehedgesonlyoffsetasmallportionoftheCompany’sexposuretoforeigncurrencyfluctuationsand,therefore,theCompany’sreportednetearningsmaybenegativelyaffectedbychangesinforeignexchangerates.
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InflationisanotherriskassociatedwiththeCompany’sinternationaloperations.Forexample,Argentinacouldinthefuturebedesignatedasahighlyinflationaryeconomy.Gainsandlossesresultingfromtheremeasurementofnon-U.S.dollarmonetaryassetsandliabilitiesofsubsidiariesoperatinginhighlyinflationaryeconomiesarerecordedinnetearnings.OthercountriesinwhichtheCompanyoperatesmayalsobecomehighlyinflationaryorsuchcountries’currenciesmaybedevalued,orboth,whichmaynegativelyimpacttheCompany’sbusinessoperationsandfinancialresults.
ForfurtherinformationregardingArgentina,see“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”inExhibit99.1.
Acquisitions,newventureinvestmentsanddivestituresmaynotbesuccessful,whichcouldimpacttheCompany’sbusinessoperationsandfinancialresults.
InconnectionwiththeCompany’sstrategy,theCompanyexpectstocontinuetoseekacquisitionopportunities,suchastherecentacquisitionofRenewLife,whichcompetesinthedigestivehealthcategory.However,theCompanymaynotbeabletoidentifyandsuccessfullynegotiatesuitablestrategicacquisitionsatattractiveprices.Inaddition,allacquisitionsandinvestmentsentailnumerousrisks,includingrisksrelatingtotheCompany’sabilityto:
● successfullyintegrateacquiredcompanies,products,systemsorpersonnelintotheCompany’sexistingbusiness,especiallywithrespecttobusinessesoroperationsthatareoutsideoftheUnitedStates;
● minimizeanypotentialinterruptiontotheongoingbusinessoftheCompanyortheacquiredcompany;● successfullyentercategoriesandmarketsinwhichtheCompanymayhavelimitedornopriorexperience,suchasthedigestivehealthcategory;● achieveexpectedsynergiesandobtainthedesiredfinancialorstrategicbenefitsfromacquisitions;● achievedistributionexpansionrelatedtoproducts,categoriesandmarketsfromacquisitions;● retainkeyrelationshipswithemployees,customers,partnersandsuppliersofacquiredcompanies;and● maintainuniformstandards,controls,proceduresandpoliciesthroughoutacquiredcompanies.
Acquiredcompaniesoroperationsorjointventuresmaynotbeprofitableormaynotachievesaleslevelsandprofitabilityandcashflowexpectations.Futureacquisitionsorventurescouldalsoresultinpotentiallydilutiveissuancesofequitysecurities,theincurrenceofdebt,theassumptionofcontingentliabilities,includinglitigation,anincreaseinexpensesrelatedtocertainassetsandincreasedoperatingexpenses,allofwhichcouldadverselyaffecttheCompany’sresultsofoperationsandfinancialcondition.FutureacquisitionsofforeigncompaniesornewforeignventureswouldsubjecttheCompanytolocalregulationsandcouldpotentiallyleadtorisksrelatedto,amongotherthings,increasedexposuretoforeignexchangeratechanges,governmentpricecontrol,repatriationofprofitsandliabilitiesrelatingtotheForeignCorruptPracticesAct.Inaddition,totheextentthattheeconomicbenefitsassociatedwithanyoftheCompany’sacquisitionsdiminishinthefuture,theCompanymayberequiredtorecordimpairmentchargesrelatedtogoodwill,intangibleassetsorotherassetsassociatedwithsuchacquisitions,whichcouldadverselyaffectitsoperatingresultsand/ornetearningspershare.
TheCompanymayalsodivestcertainassets,businessesorbrandsthatdonotmeettheCompany’sstrategicobjectivesorgrowthtargets.Withrespecttoanydivestiture,theCompanymayencounterdifficultyfindingpotentialacquirersorotherdivestitureoptionsonfavorableterms.AnydivestiturecouldaffecttheprofitabilityoftheCompanyasaresultofthegainsorlossesonsuchsaleofabusinessorbrand,thelossoftheoperatingincomeresultingfromsuchsaleorthecostsorliabilitiesthatarenotassumedbytheacquirer(i.e.,strandedcosts)thatmaynegativelyimpactprofitabilityandcashflowsubsequenttoanydivestiture.TheCompanymayalsoberequiredtorecognizeimpairmentchargesasaresultofadivesture.
Inaddition,anypotentialfutureacquisitions,newventuresordivestituresmaydiverttheattentionofmanagementandresourcesfrommattersthatarecoreorcriticaltotheCompany’sbusiness.
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TheCompanymaynotsuccessfullydevelopandintroducenewproductsandlineextensionsorsuccessfullyexpandintoadjacentcategoriesandcountries,whichcouldadverselyimpactitsfinancialresults.
TheCompany’sfutureperformanceandgrowthdependsoninnovationanditsabilitytosuccessfullydeveloporlicensecapabilitiestointroducenewproducts,brands,lineextensionsandproductimprovementsorenterintoorexpandintoadjacentproductcategories,saleschannelsorcountries.TheCompanycannotbecertainthatitwillsuccessfullyachieveitsinnovationgoals.Thedevelopmentandintroductionofnewproductsrequiresubstantialandeffectiveresearchanddevelopmentandmarketingexpenditures,whichtheCompanymaybeunabletorecoupifthenewproductsdonotgainwidespreadmarketacceptance.Inaddition,effectiveandintegratedsystemsarerequiredfortheCompanytogatheranduseconsumerdataandinformationtosuccessfullymarketitsproducts.Newproductdevelopmentandmarketingefforts,includingeffortstoentermarketsorproductcategoriesinwhichtheCompanyhaslimitedornopriorexperience,haveinherentrisks.Theserisksincludeproductdevelopmentorlaunchdelays,whichcouldresultintheCompanynotbeingfirsttomarketandthefailureofnewproducts,brandsandlineextensionstoachieveanticipatedlevelsofmarketacceptance.Ifproductintroductionsorneworexpandedadjacenciesarenotsuccessful,costsassociatedwiththeseeffortsmaynotbefullyrecoupedandtheCompany’snetearningscouldbeadverselyaffected.Inaddition,ifsalesgeneratedbynewproductscauseadeclineinsalesoftheCompany’sexistingproducts,theCompany’sfinancialconditionandresultsofoperationscouldbemateriallyadverselyaffected.
RelianceonalimitedbaseofsuppliersmayresultindisruptionstotheCompany’sbusiness.
TheCompanyreliesonalimitednumberofsuppliersforcertaincommoditiesandrawmaterialinputs,includingsole-sourceandsingle-sourcesuppliersforcertainofitsrawmaterials,packaging,productcomponents,finishedproductsandothernecessarysupplies.NewsuppliershavetobequalifiedunderCompanystandardsandmayalsohavetobequalifiedundergovernmentalandindustrystandards,whichcanrequireadditionalinvestmentandtime.TheCompanycouldexperiencedisruptionsinproductionanditsfinancialresultsandrelationshipswithcustomerscouldbeadverselyaffectediftheCompanyisunabletoqualifyanyneedednewsuppliersormaintainsupplierarrangementsandrelationships,ifitisunabletocontractwithsuppliersatthequantity,qualityandpricelevelsneededforitsbusinessorifanyoftheCompany’skeysuppliersbecomesinsolvent,experiencesfinancialdistressorenvironmental,economicorotheroutsidefactorsimpactitsoperations.
Productliability,commercialclaimsorotherlegalproceedingscouldadverselyaffecttheCompany’snetsalesandoperatingresults,includingcashflow.
TheCompanyhasinthepastpaid,andmayberequiredinthefuturetopay,forlossesorinjuriespurportedlycausedbyitsproducts.Suchclaimsmaybebasedonallegationsthat,amongotherthings,theCompany’sproductscontaincontaminantsorprovideinadequateinstructionsorwarningsregardingtheiruse,havedefectivepackaging,failtoperformasadvertised,ordamagepropertyorpersons.ProductliabilityclaimscouldresultinnegativepublicitythatcouldharmtheCompany’sreputation,salesandoperatingresults.Inaddition,ifanyoftheCompany’sproductsisfoundtobedefective,theCompanymayrecallit,whichcouldresultinadversepublicityandsignificantexpenses.InJuly2016,theCompanyvoluntarilyrecalledthreeoftheLiquid-Plumr®products,whichrecallaffectsproductsmanufacturedpriortoMarch22,2016.AlthoughtheCompanymaintainsproductliabilityinsurancecoverage,potentialproductliabilityclaimsmaybesubjecttoaretention,exceedtheamountofinsurancecoverageorbeexcludedunderthetermsofthepolicies.
Inaddition,theCompanyis,andmayinthefuturebecome,thesubjectof,orpartyto,variouspendingorthreatenedlegalactions,governmentinvestigationsandproceedingsfromtimetotime,includingadvertisingdisputeswithcompetitors,consumerclassactions,includingthoserelatedtoadvertisingclaims,laborclaims,breachofcontractclaims,antitrustlitigation,securitieslitigation,premisesliabilityclaimsandlitigationinforeignjurisdictions.Ingeneral,claimsmadebyoragainsttheCompanyinlitigation,investigations,disputesorotherproceedingshavebeenandcaninthefuturebeexpensiveandtime-consumingtobringordefendagainstandcouldresultinsettlements,injunctionsordamagesthatcouldsignificantlyaffectitsbusinessorfinancialresultsorcondition.Itisnotpossibletopredictthefinalresolutionofthelitigation,investigations,disputesorproceedingswithwhichtheCompanycurrentlyisormayinthefuturebecomeinvolved.TheimpactofthesemattersontheCompany’sbusiness,resultsofoperationsandfinancialconditioncouldbematerial.See“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”andtheNotestoConsolidatedFinancialStatementsinExhibit99.1foradditionalinformationrelatedtothesematters.
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ProfitabilityandcashflowcouldsufferiftheCompanyisunabletosuccessfullyimplementitsstrategies,generateanticipatedcostsavingsandefficienciesorefficientlymanagesupplychainandmanufacturingprocesses.
TheCompanycontinuestoimplementplanstoimproveitscompetitivepositionbysettingaggressiveannualcostsavingstargets,anditexpectsongoingcostsavingsfromitscontinuousimprovementactivities.TheCompanyanticipatesthesecontinuingcostsavingswillresultfromreducingmaterialcostsandmanufacturinginefficienciesandrealizingproductivitygains,distributionefficienciesandoverheadreductions.IftheCompanycannotsuccessfullyimplementitscostsavingsplansorthecostofmakingthesechangesincreases,theCompanymaynotrealizeallanticipatedbenefits,whichcouldadverselyaffectitsfinancialresultsoritslong-termstrategies,suchasthe2020Strategy,whichincludesfinancialgoalssuchasannualnetsalesgrowthof3-5%,annualEBITmargingrowthbetween25-50basispointsandannualfreecashflowasapercentageofnetsalesofabout10-12%.TheCompanyalsocontinuestoseektopenetratenewmarketsandintroducenewproductsandproductimprovements.Thesegoalsandstrategiesmaynotbeimplementedormayfailtoachievedesiredresults,andtheCompanymayfailtoachieveoneormoreofthefinancialgoalsforoneormoreoftherelevantfiscalyears.Inaddition,theCompanyexpectstocontinuetorestructureitsoperationsasnecessarytoimproveoperationalefficiency,includingoccasionallyclosingfacilitiesorplants.Gainingadditionalefficienciesmaybecomeincreasinglydifficultovertime,theremaybeone-timecostsrelatingtofacilityclosuresorotherrestructuringsandanticipatedcostsavingsandtheCompany’sstrategiesmaynotbeimplementedormayfailtoachievedesiredresults.IftheCompanyisunabletoimplementitsstrategiesorifitsstrategiesdonotachievetheintendedeffects,ifitdoesnotrealizecostsavingsandotherefficienciesorifitisunabletoefficientlymanageitssupplychainandmanufacturingprocesses,theCompany’sfinancialresultscouldsuffer.TheseplansandstrategiescouldalsohaveanegativeimpactontheCompany’srelationshipswithemployeesorcustomers,whichcouldalsoadverselyaffecttheCompany’sfinancialresults.
Lossof,orinabilitytoattract,keypersonnelcouldadverselyimpacttheCompany’sbusiness.
TheCompany’ssuccessdepends,inpart,onitsabilitytoretainitskeypersonnel,includingitsexecutiveofficersandseniormanagementteam.TheunexpectedlossofoneormoreoftheCompany’skeyemployeescoulddisruptitsbusiness.TheCompany’ssuccessalsodepends,inpart,onitscontinuingabilitytoidentify,hire,trainandretainotherhighlyqualifiedpersonnel.Competitionfortheseemployeescanbeintense,especiallyintheSanFranciscoBayArea,wheretheCompany’sheadquartersandlargestresearchfacilityarelocated.AstheCompanyexpandsintonewcategoriesormarkets,includingmoreregulatedbusinesses,itwillalsorequirepersonnelwithrelevanttrainingandexperienceinsuchcategoriesormarkets.TheCompanymaynotbeabletoattract,assimilateorretainqualifiedpersonnelinthefuture,anditsfailuretodosocouldadverselyaffectitsbusiness.
HarmtotheCompany’sreputationorthereputationofoneormoreofitsleadingbrandscouldhaveanadverseeffectonthebusiness.
Maintainingastrongreputationwithconsumers,customersandtradepartnersiscriticaltothesuccessoftheCompany’sbusiness.TheCompanydevotessignificanttimeandresourcestoprogramsdesignedtoprotectandpreservetheCompany’sreputationandthereputationofitsbrands.Theseprogramsincludeethicsandcompliance,sustainabilityandproductsafetyandqualityinitiatives.Despitetheseefforts,negativepublicityabouttheCompany,includingproductsafety,quality,efficacyorsimilarconcerns,whetherrealorperceived,couldoccur,andtheCompany’sproductscouldfacewithdrawal,recallorotherqualityissues.TheCompanyalsolicensescertainofitsbrandstothirdparties,whichcreatesadditionalexposureforthosebrandstoproductsafety,qualityandotherconcerns.Inaddition,widespreaduseofsocialmediaandnetworkingsitesbyconsumershasgreatlyincreasedthespeedandaccessibilityofinformationdissemination.Negativepublicity,postsorcommentsonsocialmediaornetworksitesabouttheCompanyoritsbrands,whetheraccurateorinaccurate,ordisclosureofnon-publicsensitiveinformationabouttheCompany,couldbewidelydisseminatedthroughtheuseofsocialmedia.Suchevents,iftheyweretooccur,couldharmtheCompany’simageandadverselyaffectitsbusiness,aswellasrequireresourcestorebuildtheCompany’sreputation.
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EnvironmentalmatterscreatepotentialliabilitiesthatcouldadverselyaffecttheCompany’sresultsofoperationsorfinancialcondition.
TheCompanymustcomplywithvariousenvironmentallawsandregulationsinthejurisdictionsinwhichitoperates,includingthoserelatingtoairemissions,waterdischarges,handlinganddisposalofsolidandhazardouswastes,remediationofcontaminationassociatedwiththeuseanddisposalofhazardoussubstancesandclimatechange.TheCompanyhasincurred,andwillcontinuetoincur,significantexpendituresandothercostsincomplyingwithenvironmentallawsandregulationsandinprovidingphysicalsecurityforitsworldwideoperations,andsuchexpendituresreducethecashflowavailabletotheCompanyforotherpurposes.
TheCompanyiscurrentlyinvolvedinorhaspotentialliabilitywithrespecttotheremediationofpastcontaminationintheoperationofsomeofitscurrentandformerfacilities.Inaddition,someofitspresentandformerfacilitieshaveorhadbeeninoperationformanyyearsand,overthattime,someofthosefacilitiesmayhaveusedsubstancesorgeneratedanddisposedofwastesthatareormaybeconsideredhazardous.Itispossiblethatthosesites,aswellasdisposalsitesownedbythirdpartiestowhomtheCompanyhassentwaste,maybeidentifiedandbecomethesubjectofremediation.TheCompanycouldalsobecomesubjecttoadditionalenvironmentalliabilitiesinthefuturethatcouldresultinamaterialadverseeffectonitsresultsofoperationsorfinancialcondition.
TheCompanyhadarecordedliabilityof$14millionand$12millionasofJune30,2016and2015,respectively,foritsshareofaggregatefutureremediationcostsrelatedtocertainenvironmentalmatters,includingresponseactionsatvariouslocations.OnematterinDickinsonCounty,Michigan,forwhichtheCompanyisjointlyandseverallyliable,accountsforasubstantialmajorityoftherecordedliabilityasofbothJune30,2016and2015.See“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”andtheNotestoConsolidatedFinancialStatementsinExhibit99.1foradditionalinformationrelatedtotheseliabilities.
TheCompanyalsohandlesand/ortransportshazardoussubstances,includingbutnotlimitedtochlorine,atsomeofitsinternationalplantsites.Areleaseofsuchchemicals,whetherintransitorattheCompany’sfacilities,duetoaccidentoranintentionalact,couldresultinsubstantialliabilityandbusinessdisruptions.
ThefacilitiesoftheCompanyanditssuppliersaresubjecttodisruptionbyeventsbeyondtheCompany’scontrol.
OperationsatfacilitiesoftheCompany,itssuppliers,serviceprovidersandretailcustomersaresubjecttodisruptionforavarietyofreasons,includingworkstoppages,demonstrations,diseaseoutbreaksorpandemics,actsofwar,terrorism,fire,earthquakes,floodingorothernaturaldisasters.TheCompany’scorporateheadquartersandprimaryresearchanddevelopmentfacilityarelocatednearmajorearthquakefaultlinesinCalifornia.Ifamajordisruptionweretooccur,itcouldresultinharmtopeopleorthenaturalenvironment,temporarylossofaccesstocriticaldata,delaysinshipmentsofproductstocustomersorsuspensionofoperations.AnysuchdisruptioncouldhaveamaterialadverseimpactontheCompany’sbusiness.
Failuretomaximize,successfullyassertorsuccessfullydefendtheCompany’sintellectualpropertyrightscouldimpactitscompetitiveness.
TheCompanyreliesonintellectualpropertyrightsbasedontrademark,tradesecret,patentandcopyrightlawstoprotectitsbrands,productsandpackagingforitsproducts.TheCompanycannotbecertainthattheseintellectualpropertyrightswillbemaximizedorthattheycanbesuccessfullyasserted.ThereisariskthattheCompanywillnotbeabletoobtainandperfectitsownintellectualpropertyrightsor,whereappropriate,licenseintellectualpropertyrightsnecessarytosupportnewproductintroductions.TheCompanycannotbecertainthattheserights,ifobtained,willnotlaterbeinvalidated,circumventedorchallenged,andtheCompanycouldincursignificantcostsinconnectionwithlegalactionstoassertitsintellectualpropertyrightsortodefendthoserightsfromassertionsofinvalidity.Inaddition,evenifsuchrightsareobtainedintheUnitedStates,thelawsofsomeoftheothercountriesinwhichtheCompany’sproductsareormaybesoldmaynotprotectintellectualpropertyrightstothesameextentasthelawsoftheUnitedStates.IfotherpartiesinfringetheCompany’sintellectualpropertyrights,theymaydiluteordiminishthevalueoftheCompany’sbrandsandproductsinthemarketplace,whichcoulddiminishthevaluethatconsumersassociatewiththeCompany’sbrandsandharmitsnetsales.ThefailuretoperfectandprotectitsintellectualpropertyrightscouldmaketheCompanylesscompetitiveandcouldhaveamaterialadverseeffectonitsbusiness,operatingresults,andfinancialcondition.
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IftheCompanyisfoundtohaveinfringedtheintellectualpropertyrightsofothersorcannotobtainnecessaryintellectualpropertyrightsfromothers,itscompetitivenesscouldbenegativelyimpacted.
IftheCompanyisfoundtohaveviolatedthetrademark,tradesecret,copyright,patentorotherintellectualpropertyrightsofothers,directlyorindirectly,throughtheuseofthird-partymarks,ideasortechnologies,suchafindingcouldresultintheneedtoceaseuseofsuchtrademark,tradesecret,copyrightedworkorpatentedinventionintheCompany’sbusinessandtheobligationtopayforpastinfringement.IfholdersarewillingtopermittheCompanytocontinuetousesuchintellectualpropertyrights,theycouldrequireapaymentofasubstantialamountforcontinueduseofthoserights.EitherceasinguseorpayingsuchamountscouldcausetheCompanytobecomelesscompetitiveandcouldhaveamaterialadverseimpactontheCompany’sbusiness,operatingresultsandfinancialcondition.
EveniftheCompanyisnotfoundtoinfringeathirdparty’sintellectualpropertyrights,claimsofinfringementcouldadverselyaffecttheCompany’sbusiness.Forexample,iftheCompanyseeksproposalsfrommultiplevendorsforanewproductorinnovationandchoosestopartnerwithaparticularvendor,anothervendormayclaimtheCompanyinfringeditsintellectualpropertyrightsbyusinginformationgatheredfromthevendorproposals.TheCompanycouldincurmateriallegalcostsandrelatedexpensestodefendagainstsuchclaimsandtheCompanycouldincursignificantcostsassociatedwithdiscontinuingtouse,provideormanufacturecertainproducts,servicesortrademarksevenifitisultimatelyfoundnottohaveinfringedsuchrights.
AnincreaseinthevalueoftheCompany’sGlad®businesswouldresultinanincreaseintheCompany’spurchaseobligationforTheProcter&GambleCompany’s,P&G’s,20%interestinthatbusiness,whichmayadverselyaffecttheCompany’snetearningsandcashflow.Additionally,itisuncertainwhethertheCompany’snetearningsandcashflowwouldbeadverselyaffectedmorebyanextensionoraterminationoftheagreementrelatedtotheGlad®business.
InJanuary2003,theCompanyenteredintoaventureagreementwithP&GrelatedtotheCompany’sGlad®bags,wrapsandcontainersbusiness.Inconnectionwiththisagreement,P&GprovidesresearchanddevelopmentsupporttotheGlad®business.TheagreementwithP&GwillexpireinJanuary2023unlessthepartiesdecide,onorpriortoJanuary2018,toextendthetermoftheagreementforanother10years.
Unlessextended,theagreementwillrequiretheCompanytopurchaseP&G’s20%interestinJanuary2023forcashatfairvalue.AsofJune30,2016,theestimatedfairvalueofP&G’sinterestwas$448million,ofwhich$302millionhasbeenrecognizedbytheCompanyandisreflectedinOtherliabilitiesintheCompany’sJune30,2016ConsolidatedBalanceSheet.Thedifferencebetweentheestimatedfairvalueandtheamountrecognized,andanyfuturechangesinthefairvalueofP&G’sinterest,ischargedtoCostofproductssoldonastraightlinebasisovertheremaininglifeoftheagreement.TheestimatedfairvalueofP&G’sinterestincreasedsignificantlyin2016andmaycontinuetochangeupuntilanysuchpurchasebytheCompanyofP&G’sinterest.AnyadditionalsignificantincreasesinthefairvalueofsuchinterestmayadverselyaffecttheCompany’snetearningsandcashflow.
IftheCompanyandP&Gdecidenottoextendthetermoftheagreement,thisdecisionmayharmthetermsonwhichtheCompanyhasaccesstoinnovationfromP&G.Alternatively,iftheCompanyandP&Gdecidetoextendthetermoftheagreement,therecanbenoassurancethatanyfutureinnovationwillresult.Ineithercase,netearningsandcashflowmaybenegativelyimpacted.Foradditionalinformation,see“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”andNote10totheConsolidatedFinancialStatementsinExhibit99.1.
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TheCompany’ssubstantialindebtednesscouldadverselyaffectitsbusinessoperationsandfinancialresultsandpreventtheCompanyfromfulfillingitsobligations,andtheCompanymayincursubstantiallymoredebtinthefuture,whichcouldexacerbatetheserisks.
AsofJune30,2016,theCompanyhadover$2billionofdebt.TheCompany’ssubstantialindebtednesscouldhaveimportantconsequences.Forexample,itcould:
● requiretheCompanytodedicateasubstantialportionofitscashflowfromoperationstopaymentsonitsindebtedness,whichwouldreducetheavailabilityofitscashflowtofundworkingcapitalrequirements,capitalexpenditures,futureacquisitionsandothergeneralcorporatepurposes;
● limittheCompany’sflexibilityinplanningfororreactingtogeneraladverseeconomicconditionsorchangesinitsbusinessandtheindustriesinwhichitoperates;
● placetheCompanyatacompetitivedisadvantagecomparedtoitscompetitorsthathavelessdebt;and● limit,alongwiththefinancialandotherrestrictivecovenantsintheCompany’sdebtdocuments,itsabilitytoborrowadditionalfunds.
Additionally,failurebytheCompanytocomplywiththefinancialandotherrestrictivecovenantsinitsdebtdocumentscouldresultinaneventofdefaultthat,ifnotcuredorwaived,couldhaveasignificantadverseeffectontheCompany.Further,certaintermsoftheagreementsgoverningtheCompany’sover-the-counterderivativeinstrumentscontainprovisionsthatrequiretheCompany’screditratings,asassignedbyStandard&Poor’sandMoody’stotheCompanyanditscounterparties,toremainatalevelequaltoorbetterthantheminimumofaninvestmentgradecreditrating.AsofJune30,2016,theCompanyandeachofitscounterpartieshadbeenassignedinvestment-graderatingswithbothStandard&Poor’sandMoody’s.However,iftheCompany’screditratingweretofallbelowinvestmentgrade,thecounterpartiestothederivativeinstrumentsinnetliabilitypositionscouldrequestfullcollateralization.
TheCompanymayincursubstantialadditionalindebtednessinthefuturetofundacquisitions,repurchasesharesorfundotheractivitiesforgeneralbusinesspurposes,subjecttocompliancewiththeCompany’sexistingrestrictivedebtcovenants.AsofJune30,2016,theCompanycouldaddapproximately$2billioninincrementaldebtandremainincompliancewithrestrictivedebtcovenants,althoughtheactualamountthattheCompanymaybeabletoborrowinthefuturemaynotequalthisamount.Ifnewdebtisaddedtothecurrentdebtlevels,therelatedrisksthattheCompanynowfacescouldintensify.Inaddition,thecostofincurringadditionaldebtcouldincreaseduetopossibledowngradesintheCompany’screditrating,economicconditionsorotherwise.Inthisregard,failuretomaintaintheCompany'screditratingscouldadverselyaffecttheinterestrateinfuturefinancings,liquidity,competitivepositionandaccesstocapitalmarkets.
TheCompanyissubjecttorisksrelatedtoitsdiscontinuedoperationsinVenezuela.
OnSeptember22,2014,theCompany’sVenezuelasubsidiaryannouncedthatitwasdiscontinuingitsoperations,effectiveimmediately,andseekingtosellitsassets.OnSeptember26,2014,theCompanyreportedthatVenezuelanVicePresidentJorgeArreazaannounced,withendorsementbyPresidentNicolásMaduro,thattheVenezuelangovernmenthadoccupiedtheproductionfacilitiesoftheCompany’sVenezuelasubsidiary.OnNovember6,2014,theCompanyreportedthattheVenezuelangovernmenthadpublishedaresolutiongrantingagovernment-sponsoredSpecialAdministrativeBoardfullauthoritytorestartandoperatethebusinessformerlyoperatedbytheCompany’sVenezuelasubsidiary,therebyreaffirmingthegovernment’sexpropriationofitsassets.Further,PresidentNicolásMaduroannouncedthegovernment’sintentiontofacilitatetheresumedproductionofbleachandothercleaningproductsattheVenezuelaplants.TheVenezuelangovernment’sactionsraisegraveconcerns,astheproductionofcleaningproducts,inparticularbleach,isahighlyspecializedandtechnicalprocess.AnyrestartingofoperationsinVenezuelaisorwouldbewithouttheconsentorinvolvementoftheCompanyanditsaffiliates,andanyresumedproductionprocesseswouldbeoutsidetheCompany’scontrol.TheCompanyhasadvisedrepeatedlythatitanditsaffiliatescannotberesponsibleforthesafetyofanyworkersandthesurroundingcommunitiesorforthesafety,qualityoreffectivenessofanyproductthatmaybeproducedundertheVenezuelangovernment’stakeoveroranyuseofthenamesandtrademarksoftheCompanyanditsaffiliates.Nevertheless,theCompanymayfaceliabilitiesorcostsassociatedwithanysuchunauthorizedresumptionofoperationsbytheVenezuelangovernmentorothers.
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TheCompanymaynotcontinuetopaydividendsorrepurchaseitsstock.
AlthoughtheCompanyhashistoricallydeclaredandpaidquarterlycashdividendsonitscommonstockandhasbeenauthorizedtorepurchaseitssharessubjecttocertainlimitationsunderitssharerepurchaseprograms,anydeterminationsbytheboardofdirectorstocontinuetodeclareandpaycashdividendsontheCompany’scommonstockortorepurchasetheCompany’scommonstockwillbebasedprimarilyupontheCompany’sfinancialcondition,resultsofoperationsandbusinessrequirements,thepriceofitscommonstockinthecaseoftherepurchaseprogramandtheboardofdirectors’continuingdeterminationthattherepurchaseprogramsandthedeclarationandpaymentofdividendsareinthebestinterestsoftheCompany’sstockholdersandareincompliancewithalllawsandagreementsapplicabletotherepurchaseanddividendprograms.TheCompany’sabilitytocontinuetodeclareandpaycashdividendswilldependupon,amongotherthings,itscashbalancesandfuturecashrequirements,resultsofoperations,financialconditionandnetearnings,allofwhicharesubjecttogeneraleconomic,financial,competitive,legislative,regulatoryandotherfactorsbeyondtheCompany’scontrol.IntheeventtheCompanydoesnotdeclareandpayaquarterlydividendordiscontinuesitssharerepurchases,theCompany’sstockpricecouldbeadverselyaffected.
TheCompany’scontinuedgrowthandexpansionandrelianceonthird-partyserviceproviderscouldadverselyaffectitsinternalcontroloverfinancialreporting,whichcouldharmitsbusinessandfinancialresults.
Cloroxmanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting.InternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingforexternalpurposesinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStates.Becauseofitsinherentlimitations,internalcontroloverfinancialreportingcannotprovideabsoluteassurancethatamisstatementoftheCompany’sfinancialstatementswouldbepreventedordetected.TheCompany’scontinuinggrowthandexpansionindomesticandgloballydispersedmarkets,suchasitsrecentacquisitionofRenewLife,mayplacesignificantadditionalpressureontheCompany’ssystemofinternalcontroloverfinancialreporting.Moreover,theCompanyengagestheservicesofthirdpartiestoassistwithbusinessoperationsandfinancialreportingprocesses,whichinjectsadditionalmonitoringobligationsandriskintothesystemofinternalcontrol.AnyfailuretomaintainaneffectivesystemofinternalcontroloverfinancialreportingcouldlimittheCompany’sabilitytoreportitsfinancialresultsaccuratelyandonatimelybasis,ortodetectandpreventfraudandcouldexposeittoregulatoryenforcementactionandshareholderclaims.
TheCompany’sjudgmentsregardingtheaccountingfortaxpositionsandtheresolutionoftaxdisputesmayimpacttheCompany’snetearningsandcashflow.
SignificantjudgmentisrequiredtodeterminetheCompany’seffectivetaxrateandevaluateitstaxpositions.TheCompanyprovidesforuncertaintaxpositionswhensuchtaxpositionsdonotmeettherecognitionthresholdsormeasurementcriteriaprescribedbyapplicableaccountingstandards.Fluctuationsinfederal,state,localandforeigntaxesorachangetouncertaintaxpositions,includingrelatedinterestandpenalties,mayimpacttheCompany’seffectivetaxrateandtheCompany’sfinancialresults.Whenparticulartaxmattersarise,anumberofyearsmayelapsebeforesuchmattersareauditedandfinallyresolved.Unfavorableresolutionofanytaxmattercouldincreasetheeffectivetaxrate,whichwouldhaveanadverseeffectontheCompany’soperatingresults.Anyresolutionofataxissuemayrequiretheuseofcashintheyearofresolution.Foradditionalinformation,seetheinformationsetforthintheNotestoConsolidatedFinancialStatementsinExhibit99.1.
TheestimatesandassumptionsonwhichtheCompany’sfinancialprojectionsarebasedmayprovetobeinaccurate,whichmaycauseitsactualresultstomateriallydifferfromsuchprojections,whichmayadverselyaffecttheCompany’sfutureprofitability,cashflowsandstockprice.
TheCompany’sfinancialprojectionsaredependentoncertainestimatesandassumptionsrelatedto,amongotherthings,categorygrowth,marketshareprojections,productpricing,foreignexchangerates,commodityprices,costsavings,accrualsforestimatedliabilities,includinglitigationreserves,goodwill,measurementofbenefitobligationsforpensionandotherpostretirementbenefitplansandtheCompany’sabilitytogeneratesufficientcashflowtoreinvestinitsexistingbusiness,fundinternalgrowth,repurchaseitsshares,makeacquisitions,paydividendsandmeetdebtobligations.WhiletheCompany’sfinancialprojectionsarebasedonhistoricalexperienceandonvariousotherassumptionsthattheCompanybelievestobereasonableunderthecircumstancesandatthetimetheyaremade,theCompany’sactualresultsmaydiffermateriallyfromitsfinancialprojections.AnymaterialvariationbetweentheCompany’sfinancialprojectionsanditsactualresultsmayadverselyaffecttheCompany’sfutureprofitability,cashflowsandstockprice.
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TheCompany’sbusinesscouldbenegativelyimpactedasaresultofstockholderactivismoranunsolicitedtakeoverproposaloraproxycontest.
Inrecentyears,proxycontestsandotherformsofstockholderactivismhavebeendirectedagainstnumerouspubliccompanies,includingtheCompany.Duringfiscalyears2012and2011,theCompanywasthetargetofanunsolicitedtakeoverproposalfromastockholderactivist,whichresultedinsignificantcoststotheCompany.Ifsuchaproposalweretobemadeagain,theCompanywouldincursignificantcosts,whichwouldhaveanadverseeffectontheCompany’sfinancialresults.Stockholderactivistsmayalsoseektoinvolvethemselvesinthegovernance,strategicdirectionandoperationsoftheCompany.SuchproposalsmaydisrupttheCompany’sbusinessanddiverttheattentionoftheCompany’smanagementandemployees,andanyperceiveduncertaintiesastotheCompany’sfuturedirectionresultingfromsuchasituationcouldresultinthelossofpotentialbusinessopportunities,theperceptionthattheCompanyneedsachangeinthedirectionofitsbusiness,ortheperceptionthattheCompanyisunstableorlackscontinuity,whichmaybeexploitedbyourcompetitors,causeconcerntoourcurrentorpotentialcustomers,andmaymakeitmoredifficultfortheCompanytoattractandretainqualifiedpersonnelandbusinesspartners,whichcouldadverselyaffecttheCompany’sbusiness.Inaddition,actionsofactiviststockholdersmaycausesignificantfluctuationsinourstockpricebasedontemporaryorspeculativemarketperceptionsorotherfactorsthatdonotnecessarilyreflecttheunderlyingfundamentalsandprospectsofourbusiness.
ITEM1.B.UNRESOLVEDSTAFFCOMMENTS
None.
ITEM2.PROPERTIES
ProductionandDistributionFacilities
TheCompanyownsorleasesandoperates23manufacturingfacilitiesinNorthAmericaandownsorleasesandoperates13manufacturingfacilitiesoutsideNorthAmerica.TheCompanyalsoleases6regionaldistributioncentersinNorthAmericaandseveralotherwarehousefacilitiesintheU.S.andinternationalmarkets.ManagementbelievestheCompany’sownedandleasedproductionanddistributionfacilitiesareadequatetosupportthebusinessefficiently,andthattheCompany’spropertiesandequipmenthavegenerallybeenwellmaintained.TheCompanyiscontinuallyperformingasupply-chainefficiencyanalysis,whichmayleadtoclosuresofdomesticandinternationalmanufacturingfacilitiesandtheredistributionofproductionbetweenitsremainingfacilitiesandcontractmanufacturerstooptimizeavailabilityandcapacityandtoseektoreduceoperatingcosts.
OfficesandResearchandDevelopmentFacilities
Since2011,theCompanyhasleasedafacilitylocatedinPleasanton,CA,whichhousestheCompany’sresearchanddevelopmentgroupaswellasotheradministrativeandoperationalsupportpersonnel.Thefacilityfeaturesstate-of-the-artlabsandopenworkspacestoencouragecreativity,collaborationandinnovation.TheCompanyleasesofficespaceinOakland,CAforitscorporateheadquarters.TheCompanyownsaresearchanddevelopmentfacilitylocatedatitsplantinBuenosAires,Argentina.TheCompanyalsoconductsresearchanddevelopmentactivitiesandengineeringresearchinleasedfacilitiesinMeriden,CT;Willowbrook,IL;Cincinnati,OH;andDurham,NC.Leasedsalesofficesandotherfacilitiesarelocatedatanumberofotherlocations.
Encumbrances
NoneoftheCompany’sownedfacilitiesareencumberedtosecuredebtowedbytheCompany.
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ITEM3.LEGALPROCEEDINGS
TheCompanyissubjecttoroutinelitigationincidentaltoitsbusinessintheUnitedStatesandininternationallocations,includingvariouslawsuitsandclaimsrelatingtoissuessuchascontractdisputes,productliability,patentsandtrademarks,advertising,commercial,administrative,employmentantitrust,securities,consumerclassactionsandothermatters.Althoughtheresultsofclaimsandlitigationcannotbepredictedwithcertainty,basedonmanagement’sanalysis,itistheopinionofmanagementthattheultimatedispositionofthesematters,totheextentnotpreviouslyprovidedforordisclosedintheCompany’sconsolidatedfinancialstatementsinExhibit99.1,willnothaveamaterialadverseeffect,individuallyorintheaggregate,ontheCompany’sconsolidatedfinancialstatementstakenasawhole.
ITEM4.MINESAFETYDISCLOSURES
Notapplicable.
EXECUTIVEOFFICERSOFTHEREGISTRANT
Thenames,ages,yearfirstelectedandcurrenttitlesofeachoftheexecutiveofficersoftheCompanyasofAugust15,2016,aresetforthbelow:
Name Age
YearFirstElectedExecutiveOfficer Title
BennoDorer 52 2009 ChairmanandChiefExecutiveOfficerJamesFoster 53 2009 ExecutiveVicePresident–ProductSupply,EnterprisePerformanceandITStephenM.Robb 51 2011 ExecutiveVicePresident–ChiefFinancialOfficerLauraStein 54 2005 ExecutiveVicePresident–GeneralCounselandCorporateAffairsNikolaosVlahos 48 2013 ExecutiveVicePresident–ChiefOperatingOfficer,Household,Lifestyle
andCoreGlobalFunctionsDawnWilloughby 47 2013 ExecutiveVicePresident–ChiefOperatingOfficer,Cleaning,
InternationalandCorporateStrategyWilliamS.Bailey 50 2016 SeniorVicePresident–CorporateBusinessDevelopmentJonBalousek 47 2013 SeniorVicePresident–GeneralManager,SpecialtyDivisionMichaelR.Costello 50 2011 SeniorVicePresident–InternationalDeniseGarner 53 2015 SeniorVicePresident–ChiefInnovationOfficerMatthewLaszlo 46 2015 SeniorVicePresident–ChiefCustomerOfficerKirstenMarriner 43 2016 SeniorVicePresident–ChiefPeopleOfficerLindaRendle 38 2016 SeniorVicePresident–CleaningDivisionEricReynolds 46 2015 SeniorVicePresident–ChiefMarketingOfficerManjitSingh 47 2016 SeniorVicePresident–ChiefInformationOfficer
Thereisnofamilyrelationshipbetweenanyoftheabove-namedpersons,orbetweenanyofsuchpersonsandanyofthedirectorsoftheCompany.SeeItem10ofPartIIIofthisReportforadditionalinformation.
BennoDoreristhechairmanandchiefexecutiveofficeroftheCompany,apositionhehasheldsinceAugust2016.Priortothisrole,heservedaschiefexecutiveofficeroftheCompanyfromNovember2014untilAugust2016.FromJanuary2013untilNovember2014,heservedasexecutivevicepresident–chiefoperatingofficer,cleaning,internationalandcorporatestrategy.FromMarch2011toDecember2012,heservedasseniorvicepresident–cleaningdivisionandCanada.Heservedasseniorvicepresident–generalmanager,cleaningdivisionfromJune2009toMarch2011.
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JamesFosteristheexecutivevicepresident–productsupply,enterpriseperformanceandIToftheCompany,apositionhehasheldsinceNovember2014.Priortothisrole,heservedasseniorvicepresident–chiefproductsupplyofficerfromJune2009toNovember2014.
StephenM.Robbistheexecutivevicepresident–chieffinancialofficeroftheCompany,apositionhehasheldsinceNovember2014.Priortothisrole,heservedasseniorvicepresident–chieffinancialofficerfromNovember2011toNovember2014.FromJanuary2011untilNovember2011,heservedasvicepresident–globalfinance.Heservedasvicepresident–financialplanning&analysisfromOctober2004toJanuary2011.
LauraSteinistheexecutivevicepresident–generalcounselandcorporateaffairsoftheCompany,apositionshehasheldsinceFebruary2016.Priortothisrole,sheservedasexecutivevicepresident–generalcounselfromFebruary2015toFebruary2016.Sheservedasseniorvicepresident–generalcounselfromJanuary2005toFebruary2015.
NikolaosVlahosistheexecutivevicepresident–chiefoperatingofficer,household,lifestyle,andcoreglobalfunctionsoftheCompany,apositionhehasheldsinceSeptember2014.Priortothisrole,heservedasseniorvicepresident–chiefcustomerofficerfromMarch2013toSeptember2014.FromMarch2011toFebruary2013,heservedasvicepresident–generalmanager,Burt’sBees®.Heservedasvicepresident–generalmanager,laundry,Brita®andGreenWorks®,fromMarch2009toFebruary2011.
DawnWilloughbyistheexecutivevicepresident–chiefoperatingofficer,cleaning,internationalandcorporatestrategyoftheCompany,havingtakenonresponsibilityforcorporatestrategyinAugust2016;andcleaningandinternationalinSeptember2014andforprofessionalproductsinNovember2014.Priortothisrole,sheservedasseniorvicepresident–generalmanager,cleaningdivisionfromJanuary2013toSeptember2014.Sheservedasvicepresident–generalmanager,HomeCare,fromOctober2012toJanuary2013,andvicepresident–generalmanager,Glad®ProductsfromJanuary2010toOctober2012.
WilliamS.Baileyistheseniorvicepresident–corporatebusinessdevelopmentoftheCompany,apositionhehasheldsinceJanuary2016.PriortojoiningtheCompany,heservedasvicepresident–corporateandbusinessdevelopmentatTripAdvisor,fromJune2012toJanuary2016.Heservedasvicepresident-corporatedevelopmentatAncestry.com,fromJune2011toJune2012.FromAugust2009toJune2011,heservedasvicepresident–corporateandbusinessdevelopmentatCheckPointSoftwareTechnologiesInc.
JonBalousekisseniorvicepresident–generalmanager,specialtydivisionoftheCompany,apositionhehasheldsinceJanuary2013.Priortothisrole,heservedasvicepresident–generalmanager,litter,foodandcharcoalfromOctober2011toDecember2012,andvicepresident–marketing,cleaningdivisionfromOctober2008toSeptember2011.
MichaelR.Costelloistheseniorvicepresident–internationaloftheCompany,apositionhehasheldsinceSeptember2013.Priortothisrole,heservedasvicepresident–generalmanager,international,fromMarch2011toAugust2013.FromJuly2009throughMarch2011,heservedasvicepresident–generalmanager,LatinAmericaandEurope.
DeniseGarneristheseniorvicepresident-chiefinnovationofficeroftheCompany,apositionshehasheldsinceJanuary2015.Priortothisrole,sheservedasvicepresident,R&D–globalcleaning&international,fromJanuary2010toDecember2014.
MatthewLaszloistheseniorvicepresident–chiefcustomerofficeroftheCompany,apositionhehasheldsinceOctober2014.Priortothisrole,heservedasvicepresident–generalmanager,professionalproductsdivision,fromOctober2013toOctober2014.FromJanuary2012toOctober2013heservedasvicepresident–sales,professionalproductsdivision.FromJanuary2010toJanuary2012heservedasdirector–fieldsales,professionalproductsdivision.
KirstenMarrineristheseniorvicepresident–chiefpeopleofficeroftheCompany,apositionshehasheldsinceMarch2016.PriortojoiningtheCompany,sheservedasseniorvicepresidentandchiefhumanresourcesofficeratOmnicare,fromMarch2013toAugust2015.Sheservedinvariousleadershiproles,includingasseniorvicepresident,directoroftalentmanagementanddevelopmentatFifthThirdBank,fromOctober2004toMarch2013.
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LindaRendleisseniorvicepresident–cleaningdivisionoftheCompany,apositionshehasheldsinceAugust2016.Priortothisrole,sheservedasvicepresident–generalmanager,homecarefromOctober2014toAugust2016.FromApril2012toOctober2014,sheservedasvicepresident–sales,cleaningdivision.FromAugust2011toApril2012,sheservedasdirectorofsalesplanning–litter,food&charcoal.FromJanuary2010toAugust2011,sheservedasdirectorofsales–supplychain.
EricReynoldsistheseniorvicepresident–chiefmarketingofficeroftheCompany,apositionhehasheldsinceJanuary2015.Priortothisrole,heservedasvicepresident–generalmanager,Europe,MiddleEast,AfricaandAsiafromMay2012toJanuary2015.FromMay2011toApril2012hewasdirector,Internationalbusinessdevelopment.FromJune2008toApril2011hewasgeneralmanager,Caribbean.
ManjitSinghistheseniorvicepresident–chiefinformationofficeroftheCompany,apositionhehasheldsinceDecember2014.InAugust2016,hejoinedtheCompany’sexecutivecommittee.PriortojoiningtheCompany,heservedasheadofverticalconsultingatBox,Inc.,fromFebruary2014toNovember2014.FromSeptember2010toJanuary2013,heservedasGlobalChiefInformationOfficeratLasVegasSandsCorp.
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PARTII
ITEM5.MARKETFORREGISTRANT’SCOMMONEQUITY,RELATEDSTOCKHOLDERMATTERSANDISSUERPURCHASESOFEQUITYSECURITIES
MarketInformation
TheCompany’scommonstockislistedontheNewYorkStockExchange.ThehighandlowsalespricesquotedfortheNewYorkStockExchange-CompositeTransactionsReportforeachquarterlyperiodduringthepasttwofiscalyearsappearintheNotestoConsolidatedFinancialStatementsinExhibit99.1,incorporatedhereinbyreference.
Holders
ThenumberofrecordholdersoftheCompany’scommonstockasofJuly29,2016,was10,995basedoninformationprovidedbytheCompany’stransferagent.
Dividends
TheamountofquarterlydividendsdeclaredwithrespecttotheCompany’scommonstockduringthepasttwofiscalyearsappearsintheNotestoConsolidatedFinancialStatementsinExhibit99.1,incorporatedhereinbyreference.
EquityCompensationPlanInformation
SeePartIII,Item12hereof.
IssuerPurchasesofEquitySecurities
ThefollowingtablesetsforththepurchasesoftheCompany’ssecuritiesbytheCompanyandanyaffiliatedpurchaserswithinthemeaningofRule10b-18(a)(3)(17CFR240.10b-18(a)(3))duringthefourthquarteroffiscalyear2016.
[a] [b] [c] [d]
Period TotalNumberofShares(orUnits)Purchased(1)
AveragePricePaidperShare(orUnit)
TotalNumberofShares(orUnits)
PurchasedasPartofPubliclyAnnouncedPlansorPrograms
MaximumNumber(orApproximateDollarValue)thatMayYet
BePurchasedUnderthePlansorPrograms
April1to30,2016 257,617 $124.35 257,617 (2)
May1to31,2016 30,315 126.69 30,315 (2)
June1to30,2016 - - - (2)
287,932 $ 124.59 287,932
(1)SharespurchasedinApril2016andMay2016wereacquiredpursuanttotheCompany’ssharerepurchaseprogramtooffsettheimpactofsharedilutionrelatedtoshare-basedawards(theEvergreenProgram).
(2) TheCompanyhastwosharerepurchaseprograms:anopen-marketpurchaseprogramwithanauthorizedaggregatepurchaseamountofupto$750million,allofwhichwasavailableforsharerepurchasesasofJune30,2016,andtheEvergreenProgram,thepurposeofwhichistooffsettheimpactofanticipatedsharedilutionrelatedtoshare-basedawardsandwhichhasnospecifiedcap.
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ITEM6.SELECTEDFINANCIALDATA
Thisinformationappearsunder“Five-YearFinancialSummary”inExhibit99.1,incorporatedhereinbyreference.
ITEM7.MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
Thisinformationappearsunder“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations,”inExhibit99.1,incorporatedhereinbyreference.
ITEM7.A.QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK
Thisinformationappearsunder“QuantitativeandQualitativeDisclosuresaboutMarketRisk”in“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations,”inExhibit99.1,incorporatedhereinbyreference.
ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA
ThesestatementsanddataappearinExhibit99.1,incorporatedhereinbyreference.
ITEM9.CHANGESINANDDISAGREEMENTSWITHACCOUNTANTSONACCOUNTINGANDFINANCIALDISCLOSURE
None.
ITEM9.A.CONTROLSANDPROCEDURES
DisclosureControlsandProcedures
TheCompany’smanagement,withtheparticipationoftheCompany’schiefexecutiveofficerandchieffinancialofficer,evaluatedtheeffectivenessoftheCompany’sdisclosurecontrolsandproceduresasoftheendoftheperiodcoveredbythisReport.Basedonthatevaluation,thechiefexecutiveofficerandchieffinancialofficerconcludedthattheCompany’sdisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisReport,wereeffectivesuchthattheinformationrequiredtobedisclosedbytheCompanyinreportsfiledundertheExchangeActis(i)recorded,processed,summarizedandreportedwithinthetimeperiodsspecifiedintheSEC’srulesandformsand(ii)accumulatedandcommunicatedtomanagement,includingthechiefexecutiveofficerandchieffinancialofficer,asappropriatetoallowtimelydecisionsregardingdisclosure.
Management’sReportonInternalControlOverFinancialReporting
Management’sreportoninternalcontroloverfinancialreportingissetforthinExhibit99.1,andisincorporatedhereinbyreference.TheCompany’sindependentregisteredpublicaccountingfirm,Ernst&Young,LLP,hasauditedtheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingasofJune30,2016.See“ReportofIndependentRegisteredPublicAccountingFirm,”whichappearsinExhibit99.1.
ChangeinInternalControlOverFinancialReporting
NochangeintheCompany’sinternalcontroloverfinancialreportingoccurredduringthefourthfiscalquarterofthefiscalyearendedJune30,2016,thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theCompany’sinternalcontroloverfinancialreporting.
ITEM9.B.OTHERINFORMATION
Notapplicable.
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PARTIII
ITEM10.DIRECTORS,EXECUTIVEOFFICERSANDCORPORATEGOVERNANCE
PursuanttoInstruction3toItem401(b)ofRegulationS-K,informationregardingtheexecutiveofficersoftheregistrantisreportedinPartIofthisReport.
TheCompanyhasadoptedaCodeofConductthatappliestoitsprincipalexecutiveofficer,principalfinancialofficerandprincipalaccountingofficer,amongothers.TheCodeofConductislocatedontheCompany’swebsiteatTheCloroxCompany.comunderCorporateResponsibility/Performance/CorporateGovernanceorhttp://www.thecloroxcompany.com/corporate-responsibility/performance/corporate-governance.TheCompanyintendstosatisfytherequirementunderItem5.05ofForm8-Kregardingdisclosureofamendmentsto,orwaiversfrom,provisionsofitsCodeofConductbypostingsuchinformationontheCompany’swebsite.TheCompany’swebsitealsocontainsitscorporategovernanceguidelinesandthechartersofitsprincipalboardcommittees.
InformationregardingtheCompany’sdirectors,compliancewithSection16(a)oftheExchangeActandcorporategovernancesetforthintheProxyStatementisincorporatedhereinbyreference.
ITEM11.EXECUTIVECOMPENSATION
Informationregardingexecutiveanddirectorcompensation,ManagementDevelopmentandCompensationCommitteeinterlocksandinsiderparticipationandthereportoftheManagementDevelopmentandCompensationCommitteeoftheCompany’sboardofdirectorssetforthintheProxyStatementisincorporatedhereinbyreference.
ITEM12.SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTANDRELATEDSTOCKHOLDERMATTERS
Informationregardingsecurityownershipofcertainbeneficialowners,managementanddirectorsandsecuritiesauthorizedforissuanceunderequitycompensationplanssetforthintheProxyStatementisincorporatedhereinbyreference.
ITEM13.CERTAINRELATIONSHIPSANDRELATEDTRANSACTIONS,ANDDIRECTORINDEPENDENCE
InformationregardingcertainrelationshipsandrelatedtransactionsanddirectorindependencesetforthintheProxyStatementisincorporatedhereinbyreference.
ITEM14.PRINCIPALACCOUNTINGFEESANDSERVICES
InformationregardingprincipalaccountingfeesandservicessetforthintheProxyStatementisincorporatedhereinbyreference.
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PARTIV
ITEM15.EXHIBITSANDFINANCIALSTATEMENTSCHEDULES
(a)FinancialStatementsandSchedules:
ConsolidatedFinancialStatementsandReportsofIndependentRegisteredPublicAccountingFirmincludedinExhibit99.1,incorporatedhereinbyreference.
ReportsofIndependentRegisteredPublicAccountingFirm.
ConsolidatedStatementsofEarningsforthefiscalyearsendedJune30,2016,2015and2014.
ConsolidatedStatementsofComprehensiveIncomeforthefiscalyearsendedJune30,2016,2015and2014.
ConsolidatedBalanceSheetsasofJune30,2016and2015.
ConsolidatedStatementsofStockholders’EquityforthefiscalyearsendedJune30,2016,2015and2014.
ConsolidatedStatementsofCashFlowsforthefiscalyearsendedJune30,2016,2015and2014.
NotestoConsolidatedFinancialStatements.
ValuationandQualifyingAccountsandReservesincludedinExhibit99.2,incorporatedhereinbyreference.
(b) Exhibits:
IncorporatedbyReference
ExhibitNumber ExhibitDescription Form FileNo. Exhibit FilingDate
3.1 RestatedCertificateofIncorporation. 10-Q 001-07151 3(iii) February14,20003.2 Bylaws(amendedandrestated). 8-K 001-07151 3.2 August28,20153.3 CertificateofDesignationsforTheCloroxCompanySeriesAJunior
ParticipatingPreferredStock. 8-K 001-07151 3.1 July19,2011
4.1 Indenture,datedasofDecember3,2004,betweentheCompanyandTheBankofNewYorkTrustCompanyN.A.,astrustee.
8-K 001-07151 4.1 December3,2004
4.2 Indenture,datedasofOctober9,2007,betweentheCompanyandTheBankofNewYorkTrustCompanyN.A.,astrustee.
S-3ASR 333-200722 4.1 December4,2014
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IncorporatedbyReference
ExhibitNumber ExhibitDescription Form FileNo. Exhibit FilingDate
4.3 FirstSupplementalIndenture,datedasofNovember9,2009,amongtheCompany,TheBankofNewYorkTrustCompanyN.A.,andWellsFargoBank,NationalAssociation,astrustee.
S-3ASR 333-200722 4.2 December4,2014
4.4 SecondSupplementalIndenture,datedasofNovember9,2009,betweentheCompanyandWellsFargoBank,NationalAssociation,astrustee.
S-3ASR 333-200722 4.3 December4,2014
4.5 ThirdSupplementalIndenture,datedasofNovember17,2011,betweenthecompanyandWellsFargoBank,NationalAssociation,astrustee.
S-3ASR 333-200722 4.4 December4,2014
4.6 FourthSupplementalIndenture,datedasofSeptember13,2012,betweentheCompanyandWellsFargoBank,NationalAssociation,astrustee.
S-3ASR 333-200722 4.5 December4,2014
4.7 FifthSupplementalIndenture,datedasofDecember9,2014,betweentheCompanyandWellsFargoBank,NationalAssociation,astrustee
8-K 001-07151 4.1 December9,2014
10.1* TheCloroxCompanyAmendedandRestatedIndependentDirectors’DeferredCompensationPlan,effectiveasofNovember16,2005,andamendedandrestatedasofFebruary7,2008.
10-Q 001-07151 10.55 May2,2008
10.2* TheCloroxCompanyNon-QualifiedDeferredCompensationPlan,adoptedasofJanuary1,1996,andamendedandrestatedasofJuly20,2004.
10-K 001-07151 10(x) August27,2004
10.3* AmendmentNo.1toTheCloroxCompanyNon-QualifiedDeferredCompensationPlan.
10.4* TheCloroxCompanyAnnualIncentivePlan,amendedandrestatedasofSeptember17,2013.
10-K 001-07151 10.8 August25,2014
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IncorporatedbyReference
ExhibitNumber ExhibitDescription Form FileNo. Exhibit FilingDate
10.5* TheCloroxCompany2005StockIncentivePlan,amendedandrestatedasofNovember14,2012.
10-Q 001-07151 10.1 February5,2013
10.6* FormofPerformanceShareAwardAgreementundertheCompany’s2005StockIncentivePlanforawardsmadein2013.
10-K 001-07151 10.12 August25,2014
10.7* FormofPerformanceShareAwardAgreementundertheCompany’s2005StockIncentivePlanforawardsmadein2014.
10-K 001-07151 10.9 August21,2015
10.8* FormofPerformanceShareAwardAgreementundertheCompany’s2005StockIncentivePlanforawardsmadein2015.
10-Q 001-07151 10.1 November2,2015
10.9* FormofRestrictedStockUnitAwardAgreementundertheCompany’s2005StockIncentivePlan.
10-K 001-07151 10.13 August23,2013
10.10* FormofNonqualifiedStockOptionAwardAgreementundertheCompany’s2005StockIncentivePlan.
10-K 001-07151 10.14 August25,2014
10.11* TheCloroxCompanyAmendedandRestated2005NonqualifiedDeferredCompensationPlan,effectiveJanuary1,2008.
10-K 001-07151 10.18 August19,2008
10.12* AmendmentNo.1toTheCloroxCompanyAmendedandRestated2005NonqualifiedDeferredCompensationPlan.
10-K 001-07151 10.18 August26,2011
10.13* AmendmentNo.2toTheCloroxCompanyAmendedandRestated2005NonqualifiedDeferredCompensationPlan.
10.14* TheCloroxCompanySupplementalExecutiveRetirementPlan,asrestatedeffectiveJanuary5,2005,asrevisedAugust13,2009.
10-Q 001-07151 10.17 November3,2009
10.15* AmendmentNo.1toTheCloroxCompanySupplementalExecutiveRetirementPlan,effectiveasofJuly29,2011.
10-Q 001-07151 10.21 November3,2011
10.16* AmendmentNo.2toTheCloroxCompanySupplementalExecutiveRetirementPlan,effectiveasofSeptember11,2012.
10-Q 001-07151 10.2 November2,2012
10.17* TheCloroxCompanyExecutiveIncentiveCompensationPlan,amendedandrestatedasofFebruary7,2008.
10-Q 001-07151 10.58 May2,2008
10.18* FormofIndemnificationAgreement. 10-Q 001-07151 10.27 May4,2010
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IncorporatedbyReference
ExhibitNumber ExhibitDescription Form FileNo. Exhibit FilingDate
10.19* FirstAmendedandRestatedExecutiveChangeinControlSeverancePlan,effectiveNovember20,2014.
10-Q 001-07151 10.1 February5,2015
10.20* SeverancePlanforCloroxExecutiveCommitteeMembers,amendedandrestatedeffectiveNovember20,2014.
10-Q 001-07151 10.2 February5,2015
10.21* TheCloroxCompanyExecutiveRetirementPlan,effectiveasofJuly1,2011.
10-Q 001-07151 10.27 May4,2011
10.22* AmendmentNo.1toTheCloroxCompanyExecutiveRetirementPlan.10.23* TheCloroxCompany2011NonqualifiedDeferredCompensationPlan,
effectiveasofJuly1,2011.10-K 001-07151 10.29 August26,2011
10.24* AmendmentNo.1toTheCloroxCompany2011NonqualifiedDeferredCompensationPlan.
10.25 CreditAgreement,datedasofOctober1,2014amongTheCloroxCompany,thelenderslistedtherein,Citibank,N.A.,JPMorganChaseBank,N.A.andWellsFargoBank,NationalAssociation,asAdministrativeAgents,andCitibank,N.A.asServicingAgent.
8-K 001-07151 10.1 October7,2014
10.26(+) AmendedandRestatedJointVentureAgreementdatedasofJanuary31,2003,betweenTheGladProductsCompanyandcertainaffiliatesandTheProcterandGambleCompanyandcertainaffiliates.
21 Subsidiaries.23 ConsentofIndependentRegisteredPublicAccountingFirm.31.1 CertificationoftheChiefExecutiveOfficerofTheCloroxCompany
pursuanttoSection302oftheSarbanes-OxleyActof2002.31.2 CertificationoftheChiefFinancialOfficerofTheCloroxCompany
pursuanttoSection302oftheSarbanes-OxleyActof2002.32 CertificationoftheChiefExecutiveOfficerandChiefFinancialOfficer
ofTheCloroxCompanypursuanttoSection906oftheSarbanes-OxleyActof2002.
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IncorporatedbyReference
ExhibitNumber ExhibitDescription Form FileNo. Exhibit FilingDate
99.1 Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations,ConsolidatedFinancialStatements,Management’sReportonInternalControloverFinancialReportingandReportsofIndependentRegisteredPublicAccountingFirm.
99.2 ValuationandQualifyingAccountsandReserves.99.3 ReconciliationofEconomicProfit(Unaudited).101 ThefollowingmaterialsfromTheCloroxCompany’sAnnualReporton
Form10-KfortheyearendedJune30,2016areformattedinextensibleBusinessReportingLanguage(XBRL):(i)theConsolidatedStatementsofEarnings,(ii)theConsolidatedStatementsofComprehensiveIncome,(iii)theConsolidatedBalanceSheets,(iv)theConsolidatedStatementsofStockholders’Equity,(v)theConsolidatedStatementsofCashFlowsand(vi)NotestoConsolidatedFinancialStatements.
____________________
(*)Indicatesamanagementordirectorcontractorcompensatoryplanorarrangementrequiredtobefiledasanexhibittothisreport.(+) Confidentialtreatmenthasbeenrequestedforcertaininformationcontainedinthisdocument.Suchinformationhasbeenomittedandfiledseparatelywith
theSecuritiesandExchangeCommission.
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SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized.
THECLOROXCOMPANYDate:August16,2016 By:/s/BennoDorer
B.Dorer ChiefExecutiveOfficer
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedatesindicated.
Signature Title Date/s/R.H.Carmona Director August16,2016R.H.Carmona/s/S.C.Fleischer Director August16,2016S.C.Fleischer/s/G.J.Harad Director August16,2016G.J.Harad/s/E.Lee Director August16,2016E.Lee/s/R.W.Matschullat Director August16,2016R.W.Matschullat/s/J.Noddle Director August16,2016J.Noddle/s/R.M.Rebolledo Director August16,2016R.M.Rebolledo/s/P.Thomas-Graham Director August16,2016P.Thomas-Graham/s/C.M.Ticknor Director August16,2016C.M.Ticknor/s/C.J.Williams Director August16,2016C.J.Williams
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/s/A.D.D.MacKay Director August16,2016A.D.D.MacKay/s/B.Dorer ChairmanandChiefExecutiveOfficer August16,2016B.Dorer (PrincipalExecutiveOfficer)/s/S.M.Robb ExecutiveVicePresident—ChiefFinancialOfficer August16,2016S.M.Robb (PrincipalFinancialOfficer)/s/T.Johnson VicePresident—GlobalBusinessServicesandChiefAccountingOfficer August16,2016T.Johnson (PrincipalAccountingOfficer)
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INDEXOFEXHIBITS
IncorporatedbyReference
ExhibitNumber ExhibitDescription Form FileNo. Exhibit FilingDate
3.1 RestatedCertificateofIncorporation. 10-Q 001-07151 3(iii) February14,20003.2 Bylaws(amendedandrestated). 8-K 001-07151 3.1 August28,20153.3 CertificateofDesignationsforTheCloroxCompanySeriesAJunior
ParticipatingPreferredStock.8-K 001-07151 3.1 July19,2011
4.1 Indenture,datedasofDecember3,2004,betweentheCompanyandTheBankofNewYorkTrustCompanyN.A.,astrustee.
8-K 001-07151 4.1 December3,2004
4.2 Indenture,datedasofOctober9,2007,betweentheCompanyandTheBankofNewYorkTrustCompanyN.A.,astrustee.
S-3ASR 333-200722 4.1 December4,2014
4.3 FirstSupplementalIndenture,datedasofNovember9,2009,amongtheCompany,TheBankofNewYorkTrustCompanyN.A.,andWellsFargoBank,NationalAssociation,astrustee.
S-3ASR 333-200722 4.2 December4,2014
4.4 SecondSupplementalIndenture,datedasofNovember9,2009,betweentheCompanyandWellsFargoBank,NationalAssociation,astrustee.
S-3ASR 333-200722 4.3 December4,2014
4.5 ThirdSupplementalIndenture,datedasofNovember17,2011,betweenthecompanyandWellsFargoBank,NationalAssociation,astrustee.
S-3ASR 333-200722 4.4 December4,2014
4.6 FourthSupplementalIndenture,datedasofSeptember13,2012,betweentheCompanyandWellsFargoBank,NationalAssociation,astrustee.
S-3ASR 333-200722 4.5 December4,2014
4.7 FifthSupplementalIndenture,datedasofDecember9,2014,betweentheCompanyandWellsFargoBank,NationalAssociation,astrustee
8-K 001-07151 4.1 December9,2014
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IncorporatedbyReference
ExhibitNumber ExhibitDescription Form FileNo. Exhibit FilingDate
10.1* TheCloroxCompanyAmendedandRestatedIndependentDirectors’DeferredCompensationPlan,effectiveasofNovember16,2005,andamendedandrestatedasofFebruary7,2008.
10-Q 001-07151 10.55 May2,2008
10.2* TheCloroxCompanyNon-QualifiedDeferredCompensationPlan,adoptedasofJanuary1,1996,andamendedandrestatedasofJuly20,2004.
10-K 001-07151 10(x) August27,2004
10.3* AmendmentNo.1toTheCloroxCompanyNon-QualifiedDeferredCompensationPlan
10.4* TheCloroxCompanyAnnualIncentivePlan,amendedandrestatedasofSeptember17,2013.
10-K 001-07151 10.8 August25,2014
10.5* TheCloroxCompany2005StockIncentivePlan,amendedandrestatedasofNovember14,2012.
10-Q 001-07151 10.1 February5,2013
10.6* FormofPerformanceShareAwardAgreementundertheCompany’s2005StockIncentivePlanforawardsmadein2013.
10-K 001-07151 10.12 August25,2014
10.7* FormofPerformanceShareAwardAgreementundertheCompany’s2005StockIncentivePlanforawardsmadein2014.
10-K 001-07151 10.9 August21,2015
10.8 FormofPerformanceShareAwardAgreementundertheCompany’s2005StockIncentivePlanforawardsmadein2015.
10-Q 001-07151 10.1 November2,2015
10.9* FormofRestrictedStockUnitAwardAgreementundertheCompany’s2005StockIncentivePlan.
10-K 001-07151 10.13 August23,2013
10.10* FormofNonqualifiedStockOptionAwardAgreementundertheCompany’s2005StockIncentivePlan.
10-K 001-07151 10.14 August25,2014
10.11* TheCloroxCompanyAmendedandRestated2005NonqualifiedDeferredCompensationPlan,effectiveJanuary1,2008.
10-K 001-07151 10.18 August19,2008
10.12* AmendmentNo.1toTheCloroxCompanyAmendedandRestated2005NonqualifiedDeferredCompensationPlan.
10-K 001-07151 10.18 August26,2011
10.13* AmendmentNo.2toTheCloroxCompanyAmendedandRestated2005NonqualifiedDeferredCompensationPlan.
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IncorporatedbyReference
ExhibitNumber ExhibitDescription Form FileNo. Exhibit FilingDate
10.14* TheCloroxCompanySupplementalExecutiveRetirementPlan,asrestatedeffectiveJanuary5,2005,asrevisedAugust13,2009.
10-Q 001-07151 10.17 November3,2009
10.15* AmendmentNo.1toTheCloroxCompanySupplementalExecutiveRetirementPlan,effectiveasofJuly29,2011.
10-Q 001-07151 10.21 November3,2011
10.16* AmendmentNo.2toTheCloroxCompanySupplementalExecutiveRetirementPlan,effectiveasofSeptember11,2012.
10-Q 001-07151 10.2 November2,2012
10.17* TheCloroxCompanyExecutiveIncentiveCompensationPlan,amendedandrestatedasofFebruary7,2008.
10-Q 001-07151 10.58 May2,2008
10.18* FormofIndemnificationAgreement. 10-Q 001-07151 10.27 May4,201010.19* FirstAmendedandRestatedExecutiveChangeinControlSeverance
Plan,effectiveNovember20,2014.10-Q 001-07151 10.1 February5,2015
10.20* SeverancePlanforCloroxExecutiveCommitteeMembers,amendedandrestatedeffectiveNovember20,2014.
10-Q 001-07151 10.2 February5,2015
10.21* TheCloroxCompanyExecutiveRetirementPlan,effectiveasofJuly1,2011.
10-Q 001-07151 10.27 May4,2011
10.22* AmendmentNo.1toTheCloroxCompanyExecutiveRetirementPlan.10.23* TheCloroxCompany2011NonqualifiedDeferredCompensationPlan,
effectiveasofJuly1,2011.10-K 001-07151 10.29 August26,2011
10.24* AmendmentNo.1toTheCloroxCompany2011NonqualifiedDeferredCompensationPlan.
10.25 CreditAgreement,datedasofOctober1,2014amongTheCloroxCompany,thelenderslistedtherein,Citibank,N.A.,JPMorganChaseBank,N.A.andWellsFargoBank,NationalAssociation,asAdministrativeAgents,andCitibank,N.A.asServicingAgent.
8-K 001-07151 10.1 October7,2014
10.26(+) AmendedandRestatedJointVentureAgreementdatedasofJanuary31,2003,betweenTheGladProductsCompanyandcertainaffiliatesandTheProcterandGambleCompanyandcertainaffiliates.
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IncorporatedbyReference
ExhibitNumber ExhibitDescription Form FileNo. Exhibit FilingDate
21 Subsidiaries.23 ConsentofIndependentRegisteredPublicAccountingFirm.31.1 CertificationoftheChiefExecutiveOfficerofTheCloroxCompany
pursuanttoSection302oftheSarbanes-OxleyActof2002.31.2 CertificationoftheChiefFinancialOfficerofTheCloroxCompany
pursuanttoSection302oftheSarbanes-OxleyActof2002.32 CertificationoftheChiefExecutiveOfficerandChiefFinancialOfficerof
TheCloroxCompanypursuanttoSection906oftheSarbanes-OxleyActof2002.
99.1 Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations,ConsolidatedFinancialStatements,Management’sReportonInternalControloverFinancialReportingandReportsofIndependentRegisteredPublicAccountingFirm.
99.2 ValuationandQualifyingAccountsandReserves.99.3 ReconciliationofEconomicProfit(Unaudited).101 ThefollowingmaterialsfromTheCloroxCompany’sAnnualReporton
Form10-KfortheyearendedJune30,2015areformattedinextensibleBusinessReportingLanguage(XBRL):(i)theConsolidatedStatementsofEarnings,(ii)theConsolidatedStatementsofComprehensiveIncome,(iii)theConsolidatedBalanceSheets,(iv)theConsolidatedStatementsofStockholders’Equity,(v)theConsolidatedStatementsofCashFlowsand(vi)NotestoConsolidatedFinancialStatements.
____________________
(*)Indicatesamanagementordirectorcontractorcompensatoryplanorarrangementrequiredtobefiledasanexhibittothisreport.(+) Confidentialtreatmenthasbeenrequestedforcertaininformationcontainedinthisdocument.Suchinformationhasbeenomittedandfiledseparatelywith
theSecuritiesandExchangeCommission.
35
Exhibit10.3
THECLOROXCOMPANYNONQUALIFIEDDEFERREDCOMPENSATIONPLAN
AMENDMENTNO.1
PursuanttoSection6.06ofTheCloroxCompanyNonqualifiedDeferredCompensationPlan(the“Plan”),thePlanisherebyamendedasfollows,effectiveasofJuly1,2016:
3.Section5.01(b)ofthePlanisherebydeletedinitsentiretyandreplacedwiththefollowing:
“(b)SubsequentElections.AParticipantmaychangetheformofadistributionelectionwithrespecttohisorherentirevestedAccountbysubmittingthechangetotheCommitteeinwriting,atleasttwocalendaryearsbeforetheParticipanthasaTerminationofEmployment.UnlessotherwiseapprovedbytheAdministratorinitssolediscretion,onlyonechangeelectionunderthisparagraph(b)canbemadefortheParticipant’sentirevestedAccount.Achangeelectionmadeunderthisparagraph(b)shallbeirrevocableasofDecember31ofthecalendaryearthatisatleastthesecondcalendaryearpriortothecalendaryearinwhichtheParticipanthasaTerminationofEmployment.Ifsuchasubsequentelectionisnotvalidbecause,forexample,itisnotmadeinatimelymanner,theParticipant’smostrecenteffectivedistributionelectionunderthisSection5.01willgovernpaymentoftheParticipant’sentirevestedAccountupontheParticipant’sTerminationofEmployment.”
ExceptasmodifiedbythisAmendmentNo.1,thePlanshallremainunchangedandshallremaininfullforceandeffect.
INWITNESSWHEREOF,TheCloroxCompanyhascausedthisAmendmentNo.1tobedulyexecutedasofthedayandyearfirstwrittenabove.
TheCloroxCompanyBy:/s/KirstenMarriner
Exhibit10.13
THECLOROXCOMPANYAMENDEDANDRESTATED
2005NONQUALIFIEDDEFERREDCOMPENSATIONPLANAMENDMENTNO.2
PursuanttoSection6.07ofTheCloroxCompany2005NonqualifiedDeferredCompensationPlan,asamended(the“Plan”),thePlanisherebyamendedasfollows,effectiveasofJuly1,2016:
2.Section5.01(b)ofthePlanisherebydeletedinitsentiretyandreplacedwiththefollowing:
“(b)SubsequentElectionsforElectiveDeferrals.AParticipantmaychangetheformofadistributionelection(whetherpayablein-serviceoruponorfollowingSeparationFromService)withrespecttoalloraportionofhisorherAccountbysubmittingthechangetotheCommittee,inwriting,atleastonecalendaryearbeforetheoriginallyscheduleddistributiondate.UnlessotherwiseapprovedbytheAdministratorinitssolediscretion,onlyonechangeelectionunderthisparagraph(b)canbemadeforamountscreditedtoaParticipant’sAccountforanyspecificPlanYear.Anysuchchangeelectionwilldeferthetimingofcommencementofthedistributionforfiveyearsaftertheoriginallyscheduleddistributiondate.Achangeelectionmadeunderthisparagraph(b)shallbeirrevocableasofthedatethatisoneyearpriortotheoriginallyscheduleddistributiondate.Ifsuchasubsequentelectionisnotvalidbecause,forexample,itisnotmadeinatimelymanner,theParticipant’smostrecenteffectivedistributionelectionwillgovernthepaymentoftheParticipant’sAccount.”
ExceptasmodifiedbythisAmendmentNo.2,thePlanshallremainunchangedandshallremaininfullforceandeffect.
INWITNESSWHEREOF,TheCloroxCompanyhascausedthisAmendmentNo.2tobedulyexecutedasofthedayandyearfirstwrittenabove.
TheCloroxCompanyBy:/s/KirstenMarriner
Exhibit10.22
THECLOROXCOMPANYEXECUTIVERETIREMENTPLAN
AMENDMENTNO.1
PursuanttoSection6.07ofTheCloroxCompanyExecutiveRetirementPlan(the“Plan”),thePlanisherebyamendedasfollows,effectiveasofJuly1,2016:
4.Section5.01(b)ofthePlanisherebydeletedinitsentiretyandreplacedwiththefollowing:
“(b)SubsequentElection.AParticipantmaychangetheformofadistributionelectionwithrespecttoalloraportionofhisorherAccountbysubmittingthechangetotheCommittee,inwriting,atleastonecalendaryearbeforetheoriginallyscheduleddistributiondate.UnlessotherwiseapprovedbytheAdministratorinitssolediscretion,onlyonechangeelectionunderthisparagraph(b)canbemadeforamountscreditedtoaParticipant’sAccountforanyspecificPlanYear.Anysuchchangeelectionwilldeferthetimingofcommencementofthedistributionforfiveyearsaftertheoriginallyscheduleddistributiondate.Achangeelectionmadeunderthisparagraph(b)shallbeirrevocableasofthedatethatisoneyearpriortotheoriginallyscheduleddistributiondate.Ifsuchasubsequentelectionisnotvalidbecause,forexample,itisnotmadeinatimelymanner,theParticipant’smostrecenteffectivedistributionelectionwillgovernthepaymentoftheParticipant’sAccount.”
ExceptasmodifiedbythisAmendmentNo.1,thePlanshallremainunchangedandshallremaininfullforceandeffect.
INWITNESSWHEREOF,TheCloroxCompanyhascausedthisAmendmentNo.1tobedulyexecutedasofthedayandyearfirstwrittenabove.
TheCloroxCompanyBy:/s/KirstenMarriner
Exhibit10.24
THECLOROXCOMPANY2011NONQUALIFIEDDEFERREDCOMPENSATIONPLAN
AMENDMENTNO.1
PursuanttoSection6.07ofTheCloroxCompany2011NonqualifiedDeferredCompensationPlan(the“Plan”),thePlanisherebyamendedasfollows,effectiveasofJuly1,2016:
1.Section5.01(c)ofthePlanisherebydeletedinitsentiretyandreplacedwiththefollowing:
“(c)SubsequentElectionsforElectiveDeferrals.AParticipantmaychangetheformofadistributionelection(whetherpayablein-serviceoruponorfollowingSeparationFromService)withrespecttoalloraportionofhisorherAccountbysubmittingthechangetotheCommittee,inwriting,atleastonecalendaryearbeforetheoriginallyscheduleddistributiondate.UnlessotherwiseapprovedbytheAdministratorinitssolediscretion,onlyonechangeelectionunderthisparagraph(c)canbemadeforamountscreditedtoaParticipant’sAccountforanyspecificPlanYear.Anysuchchangeelectionwilldeferthetimingofcommencementofthedistributionforfiveyearsaftertheoriginallyscheduleddistributiondate.Achangeelectionmadeunderthisparagraph(c)shallbeirrevocableasofthedatethatisoneyearpriortotheoriginallyscheduleddistributiondate.Ifsuchasubsequentelectionisnotvalidbecause,forexample,itisnotmadeinatimelymanner,theParticipant’smostrecenteffectivedistributionelectionwillgovernthepaymentoftheParticipant’sAccount.”
ExceptasmodifiedbythisAmendmentNo.1,thePlanshallremainunchangedandshallremaininfullforceandeffect.
INWITNESSWHEREOF,TheCloroxCompanyhascausedthisAmendmentNo.1tobedulyexecutedasofthedayandyearfirstwrittenabove.
TheCloroxCompanyBy:/s/KirstenMarriner
Exhibit10.26
EXECUTIONCOPY
AMENDEDANDRESTATEDJOINTVENTUREAGREEMENT
DATEDASOFJANUARY31,2003
BETWEEN
THEGLADPRODUCTSCOMPANYANDITSAFFILIATESIDENTIFIEDHEREIN
AND
THEPROCTER&GAMBLECOMPANYANDITSAFFILIATEIDENTIFIEDHEREIN
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
TABLEOFCONTENTS
PageARTICLEI DEFINITIONS 2
Section1.1 DefinedTerms 2Section1.2 OtherDefinitions 14Section1.3 OtherDefinitionalProvisions;Interpretation 16
ARTICLEII CONTRIBUTIONSANDALLOCATIONSOFINTEREST 16Section2.1 ClosingofJointVenture 16Section2.2 CloroxContributionandRelatedMatters 16Section2.3 ContributionbyP&GandRelatedMatters 19Section2.4 NatureofJVInterest 20Section2.5 InitialAllocationsofInterestandCapitalAccounts 20Section2.6 AdditionalCapitalCallsandParentLoans 21Section2.7 P&GOption 23Section2.8 RightswithRespecttoCapital 24Section2.9 CapitalAccounts 24
ARTICLEIII ALLOCATIONSANDDISTRIBUTIONS 26Section3.1 AllocationofNetProfitsandLosses 26Section3.2 SpecialAllocations 27Section3.3 Section704(c)Allocation 29Section3.4 DistributionsofAvailableCashFlow 29Section3.5 DistributionsofIPRelatedAmounts 32
ARTICLEIV REPRESENTATIONSANDWARRANTIES 33Section4.1 RepresentationsandWarrantiesofalltheParties 33Section4.2 RepresentationsandWarrantiesoftheCloroxParties 34Section4.3 RepresentationsandWarrantiesofP&G 39Section4.4 SurvivalofRepresentationsandWarranties 40
ARTICLEV GOVERNANCE 40Section5.1 BoardofManagers 40Section5.2 MeetingsoftheBoard 42Section5.3 P&GVetoRights 44Section5.4 BusinessPlan,BudgetandReportstotheBoard 45
-i-
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
TABLEOFCONTENTS(continued)
PageSection5.5 AdditionalItemsforBoardApproval 46
ARTICLEVI TRANSFERSOFINTEREST;TERMANDTERMINATION 47Section6.1 General;RestrictionsonTransfers 47Section6.2 EffectofTransfersonDistributionsamongJVPartners 47Section6.3 TermofJointVenture 48Section6.4 P&GPutRights 48Section6.5 CloroxPurchaseofP&GJVInterest 50Section6.6 Tag-AlongRights 52Section6.7 DragAlongRights 52Section6.8 ServicesTerminationAmount 53
ARTICLEVII CERTAINAGREEMENTS 54Section7.1 Personnel;ProvisionofServices 54Section7.2 Non-Competition 55Section7.3 Confidentiality;Non-Disclosure 56Section7.4 Non-Solicitation 58Section7.5 AgreementtoCooperate;FurtherAssurances;OtherMatters 59Section7.6 PublicStatements 60Section7.7 ConductofBusiness 60Section7.8 InternationalRelationships 62Section7.9 SublicensesofP&GIntellectualProperty 62
ARTICLEVIII CONDITIONSPRECEDENTTOCLOSING 63Section8.1 ConditionstoEachParty’sObligations 63Section8.2 ConditionstotheClosingObligationsoftheCloroxParties 63Section8.3 ConditionstotheClosingObligationsoftheP&GParties 64
ARTICLEIX ACCOUNTING;TAXMATTERS 65Section9.1 Accounting 65Section9.2 TaxMatters 66
ARTICLEX INDEMNIFICATION 67Section10.1 IndemnificationbyCloroxPartners 67Section10.2 IndemnificationbyP&GPartners 67
-ii-
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
TABLEOFCONTENTS(continued)
PageSection10.3 Third-PartyClaims 68Section10.4 LimitationonLossesandExpenses 69
ARTICLEXI MISCELLANEOUS 69Section11.1 AmendmentsandWaivers 69Section11.2 Successors,AssignsandTransferees 69Section11.3 Notices 69Section11.4 Integration 70Section11.5 Severability 70Section11.6 Counterparts 71Section11.7 GoverningLaw 71Section11.8 Arbitration 71Section11.9 InjunctiveRelief 72Section11.10 Expenses 72Section11.11 NoThirdPartyBeneficiaries 72Section11.12 GuaranteesbyCloroxandP&G 73Section11.13 EffectivenessofAmendmentandRestatement,Representations,
WarrantiesandAgreements 74
-iii-
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
TABLEOFCONTENTS
PageEXHIBITSExhibitA P&GLicenseAgreement[SUPERSEDED]
ExhibitB P&GServicesAgreement[SUPERSEDED]
ExhibitC DescriptionofP&GEquipment
ExhibitD PreliminaryBusinessPlan
ExhibitE PreliminaryBudget
ExhibitF CloroxServices
ExhibitG TermsofInternationalRelationships
ExhibitH JVAccountingPrinciples
ExhibitI FormofJVSublicenseAgreement
ExhibitJ FormofAmendedGladLicenseAgreement
-iv-
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
AMENDEDANDRESTATEDJOINTVENTUREAGREEMENT
ThisAmendedandRestatedJointVentureAgreement(this“Agreement”)ismadeasofthe31stdayofJanuary,2003byandbetweenTheGladProductsCompany,aDelawarecorporation,GladManufacturingCompany,aDelawarecorporation,CloroxServicesCompany,aDelawarecorporation,TheCloroxSalesCompany,aDelawarecorporation,CloroxInternationalCompany,aDelawarecorporation(collectivelythe“CloroxParties”),andTheCloroxCompany,aDelawarecorporation(“Clorox”),andTheProcter&GambleCompany,anOhiocorporation(“P&G”)andProcter&GambleRHDInc.,anOhiocorporation(“P&GSub”andcollectivelywithP&G,the“P&GParties”)(each,a“Party”andcollectively,the“Parties”).
BACKGROUND
WHEREAS,theCloroxPartiescurrentlyoperatetheGladBusiness(asdefinedbelow);
WHEREAS,theP&GPartieshavecertainintellectualpropertyandproprietarytechnologiesthattheP&GPartiesandtheCloroxPartieswishtouseintheGladBusiness;
WHEREAS,theCloroxPartiesandtheP&GPartiesdesirethatP&GSubacquireanundividedparticipationinterestintheGladBusinessandparticipateinthemanagementofsuchbusiness,asprovidedforherein;
WHEREAS,theCloroxPartiesandtheP&GPartieshavepreviouslyenteredintoaJointVentureAgreement,datedasofNovember15,2002(the“OriginalDate”)withrespecttotheGladBusiness(the“OriginalAgreement”);
WHEREAS,theCloroxPartiesandtheP&GPartieswishtoamendandrestateinitsentiretytheOriginalAgreementinaccordancewiththefurtherprovisionsofthisAgreement;
WHEREAS,thePartiesintendfortheircontractualrelationshipestablishedbythisAgreementwithrespecttotheGladBusinesstobetreatedasapartnershipforU.S.federal,stateandlocalincometaxpurposes;and
WHEREAS,theCloroxPartiesandtheP&GPartieswishtosetforth,andbeboundbytheirmutualagreementastocertainsignificanttermsandconditionsregardingtheforegoingandrelatedmatters;
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
NOW,THEREFORE,inconsiderationofthemutualcovenantsandagreementssetforthinthisAgreement,andforothergoodandvaluableconsideration,thereceiptandsufficiencyofwhichareherebyacknowledged,thePartiesagreeasfollows:
ARTICLEI
DEFINITIONS
ForpurposesofthisAgreement,thefollowingtermshavethemeaningsspecifiedorreferredtointhisSection1:
Section1.1DefinedTerms.
AsusedinthisAgreement:
“AdjustmentAmount”meansanamountequalto(a)tenpercent(10%)oftheaggregateCapitalContributionsmadeordeemedmadebyallJVPartnersaftertheClosingDateandonorpriortotheclosingoftheexerciseoftheP&GOption,minus(b)tenpercent(10%)oftheaggregatedistributionstotheJVPartnerswithrespecttodistributionsofAvailableCashFlow(otherthandistributionsmadeunderSection3.4(c)(ii)hereof)consistingofthenetcashproceedsofanysale,transferorotherdispositionofanybusinessorassetsoftheGladBusinessoutsidetheordinarycourseofbusinessoftheGladBusinessaftertheClosingDateandonorpriortotheclosingoftheP&GOption,minus(c)theaggregatedistributionsunderSection3.4(c)(ii)andSection3.5(b)(ii)madepriortotheclosingoftheP&GOption(whichfortheavoidanceofdoubtwillnotincludeanyamountsincludedinthefollowingclause(d)),minus(d)thecumulativeamountofDistributionShortfallsowedorpreviouslypaidtotheholderoftheClassAJVInterestunderSection3.4(c)(v)hereof.
“Affiliate”meanswithrespecttoaspecifiedPerson,anyPersonthatdirectlyorindirectly,throughoneormoreintermediaries,controls,iscontrolledby,orisundercommoncontrolwith,thespecifiedPerson.Asusedinthisdefinition,theterm“control”meansthepossession,directlyorindirectly,orastrusteeorexecutor,ofthepowertodirectorcausethedirectionofthemanagementandpoliciesofaPerson,whetherthroughownershipofvotingsecurities,astrusteeorexecutor,bycontractorcreditarrangementorotherwise.Forpurposesofclarification,thePartiesagreethatHenkelKGaA,anentityorganizedunderthelawsofGermany,willnotbedeemedtobeanAffiliateofanyCloroxParty.
“AffiliateLoans”withrespecttoanyInternationalLicenseeshallhavethemeaningsetforthintheJVSublicenseAgreementtowhichsuchInternationalLicenseeisaparty.
“AvailableCashFlow”means,withrespecttoanyFiscalQuarterorotherperiod,thesumofallcashreceiptsduringsuchFiscalQuarterorotherperiodattributedtotheJointVenturefromanyandallsourcesotherthanthecashproceedsofanyIndebtedness,plusallReservesasofthecloseofbusinessonthelastdayoftheprecedingFiscalQuarterorotherperiod,plusinterestonsuchReservesatClorox’s30-daycommercialpaperborrowingrate(or,ifCloroxisunabletoobtaincommercialpaper,Clorox’sshorttermcostofborrowing)minusallcashdisbursementsattributedtotheJointVentureforanyandallpurposesduringsuchFiscalQuarterorotherperiod(includingloanrepayments(otherthanParentLoans),interestpayments(otherthaninrespectofParentLoans),capitalimprovementsandreplacementsbutexcluding(x)disbursementsfundedbythecashproceedsofanyIndebtedness(otherthanParentLoans)),(y)guaranteedpaymentsmadeunderSection3.5(a)and3.5(b)forsuchFiscalQuarter,and(z)areasonableallowanceasofthelastdayofsuchFiscalQuarterorotherperiodforReserves,contingenciesandanticipatedobligationsasdeterminedbytheBoard,determinedinaccordancewiththeJVAccountingPrinciples,minusdistributionsmadepursuanttoSection3.5hereofforsuchFiscalQuarter(otherthantheguaranteedpaymentsdescribedinSections3.5(a)and3.5(b)hereof).
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
2
“BusinessDay”meansadayotherthanaSaturday,Sunday,federalorNewYorkholidayorotherdayonwhichcommercialbanksinNewYork,NewYorkareauthorizedorrequiredbylawtoclose.
“CapitalCall”meansacallbytheBoardpursuanttoSection2.6hereoftotheJVPartnersforadditionalcontributionsofcapitaltobeattributedtotheJointVenture.
“CapitalContribution”meansthetotalamountofcashandthe[***]fairmarketvalue[***]ofalloftheassetstobeattributedtotheJointVentureascontributedbyaJVPartner,includingtheCloroxContributionandtheP&GContribution.
“CarryingValue”means,withrespecttoanyProperty,theProperty’s[***]exceptthattheCarryingValueofallPropertiesmaybeadjustedtoequaltheir[***]inaccordancewiththe[***]immediatelypriorto:(i)thedateoftheacquisitionofanyadditionalinterestintheJointVenturebyanyneworexistingJVPartnerinexchangeformorethanademinimiscapitalcontribution;or(ii)thedateofthedistributionofmorethanademinimisamountofProperty(otherthanaproratadistribution)toaJVPartner.TheCarryingValueofanyPropertydistributedtoanyJVPartnerwillbeadjustedimmediatelypriortosuchdistributiontoequalitsfairmarketvalue.TheCarryingValueofanyPropertycontributedbyanyJVPartnerwillbeadjustedimmediatelypriortosuchcontributiontoequalitsfairmarketvalue.InthecaseofanyassetthathasaCarryingValuethatdiffersfromits[***]CarryingValuewillbeadjustedbytheamountofdepreciationcalculatedforpurposesofthedefinitionof“NetProfitsandNetLoss”ratherthantheamountofdepreciationcalculatedfor[***].Forpurposesofclarification,CloroxandP&Ghaveagreedontheinitialcontributionsandthe[***]asreflectedintheinitialCapitalAccounts.
“ChangeofControl”ofanyPerson(the“RelevantPerson”)meanstheoccurrenceofeither(i)theacquisitionbyanyPersonorgroupofPersonsactinginconcert(otherthanaJVPartneroritsAffiliates)ofdirectorindirect(throughtheownershipofamajorityofthevotingpowerofaparentcorporationofotherwise)beneficialownership(asdefinedunderSection13(d)oftheSecuritiesandExchangeActof1934,asamended)ofsecuritiesoftheRelevantPersonsuchthatfollowingsuchacquisitionsuchPersonorgroupofPersonsactinginconcertbeneficiallyownamajorityofthevotingpowerofalloutstandingvotingsecuritiesofsuchRelevantPersonor(ii)anymerger,consolidationorshareexchangeoftheRelevantPersonwithorintoanyotherPerson,unlesstheequityholdersoftheRelevantPersonimmediatelypriortoanysuchtransactionareholdersofamajorityofthevotingpowerofthesurvivingentityoritsparentcompanyimmediatelythereafter.
“ClassAInterest”meanstheundividedClassAparticipationinterestintheJointVenture,whichshallentitletheJVPartnerholdingsuchClassAinteresttoreceiveallocationsanddistributionsfromtimetotimeasprovidedinthisAgreement.
“ClassARoyaltyAmount”means,withrespecttoanyFiscalQuarter,royaltypaymentsattributabletotheJointVenturereceivedundertheGladLicenseAgreementsinanamountequalto[***]percent([***]%)oftheaggregateDistributableLocalCashFlowfortheInternationalLicenseesforsuchFiscalQuarter,lessDeemedWithholdingTaxesonsuchroyaltypayments.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
3
“ClassBInterest”meanstheundividedClassBparticipationinterestintheJointVenture,whichshallentitletheJVPartnerholdingsuchClassBinteresttoreceiveallocationsanddistributionsfromtimetotimeasprovidedinthisAgreement.
“ClassCInterest”meanstheundividedClassCparticipationinterestintheJointVenture,whichshallentitletheJVPartnerholdingsuchClassCinteresttoreceiveallocationsanddistributionsfromtimetotimeasprovidedinthisAgreement.
“CloroxDisclosureSchedule”meansascheduledatedasoftheOriginalDatedeliveredbyCloroxtoP&G,whichidentifiesexceptionsandothermatterswithrespecttotherepresentationsandwarrantiesoftheCloroxPartiescontainedinSections4.1and4.2.
“CloroxPartners”meanstheCloroxPartiesandanyPermittedTransfereesofanyCloroxPartiesthathavebeenTransferredalloranypartoftheJVInterestheldbysuchCloroxParties.
“Code”meanstheInternalRevenueCodeof1986,asamended(oranycorrespondingprovisionorprovisionsofanysucceedinglaw).
“ContributionAllocationStatement”meanstheallocationoftheCloroxContributionamongtheCloroxPartiestobepreparedbyCloroxingoodfaith.
“DeemedWithholdingTaxes”meansanamountofwithholdingtaxesdeemedtohavebeenimposedunderthedefinitionof“ClassARoyaltyAmount.”TheamountofwithholdingtaxesdeemedtohavebeenimposedwillbedeterminedbasedontheaggregateamountofwithholdingtaxesthatwouldhavebeenimposedonpaymentsmadeundertheGladLicenseAgreementshadroyaltypaymentsinanaggregateamountequaltotheClassARoyaltyAmountbeenpaidinsuchFiscalQuarterbytheInternationalLicenseesproratainaccordancewiththetotalroyaltypaymentsactuallymadebytheInternationalLicenseesundertheGladLicenseAgreementsforsuchFiscalQuarter.
“DistributableCashFlow”means,withrespecttoanyFiscalQuarterorotherperiod,AvailableCashFlowforsuchFiscalQuarterorotherPeriodminusanypaymentsrequiredtobemadepursuanttoSection3.4(d)hereof.
“DistributableLocalCashFlow”foranyInternationalLicenseehasthemeaningsetforthintheJVSublicenseAgreementtowhichsuchInternationalLicenseeisaparty.
“EnvironmentalLaws”meansanyandalllaws,rules,orders,regulations,statutes,ordinances,guidelines,codes,decrees,orotherlegallyenforceablerequirement(includingcommonlaw)ofanyforeigngovernment,theUnitedStates,oranystate,local,municipalorotherGovernmentalAuthority,regulating,relatingtoorimposingliabilityorstandardsofconductconcerningprotectionoftheenvironmentorofhumanhealth,oremployeehealthandsafety.
“ExclusiveField”meansthe[***]ofbags,wraps,strawsandcoveredcontainersprimarily[***].
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
4
“FairMarketValue”means,excepttotheextentotherwiseexpresslyprovidedherein:
(i)withrespecttoaParty’sOrdinaryJVInterest,“FairMarketValue”willbecalculatedastheproductof(x)theOrdinaryJVInterestheldbysuchPartyand(y)“FairMarketValue”foralloutstandingOrdinaryJVInterestsasifallOrdinaryJVInterestsweretobesoldtoasinglebuyerwhowouldacquiresolecontroloverthebusinessandaffairsoftheGladBusiness.“FairMarketValue”foralloutstandingOrdinaryJVInterestswillbedeterminedbyagreementofthePartiesor,ifthePartiesareunabletosoagreewithin[***]throughgoodfaithnegotiation,thenthePartieswillagreeupon[***]todeterminesuchvaluation,providedthatifthePartiesareunabletosoagree[***].Notwithstandingtheforegoing,totheextent“FairMarketValue”isbeingdeterminedforpurposesofSection6.6or6.7hereof,“FairMarketValue”forpurposesoftheforegoingclause(y)willbedeterminedbyreferencetothe[***]asapplicable.Forexample,[***].If,ineitheroftheexamplesprovidedinthetwoimmediatelyprecedingsentences,therewere$[***]outstanding,theFairMarketValueofalloutstandingOrdinaryJVInterestswouldhaveequaled$[***]ratherthan$[***](i.e.thevalueofalloftheOrdinaryJVInterestswouldequalthevalueofthe[***]).The[***]inanysuchtransactionwillincludethe[***]arenotattributabletotheJointVenture.TheintentoftheimmediatelyprecedingfoursentencesistomakeitclearthatFairMarketValueunderthosecircumstanceswillbederivedsolelyfromthe[***].
(ii)withrespecttoaGladLocalBusiness,“FairMarketValue”willbeequalto[***].“FairMarketValue”oftheGladLocalBusinesswillbedeterminedbyagreementofthePartiesor,ifthePartiesareunabletosoagreewithin[***]throughgoodfaithnegotiation,thenthe[***]willdeterminesuchvaluation.Notwithstandingtheforegoing,totheextent“FairMarketValue”isbeingdetermined[***]“FairMarketValue”willbedeterminedbyreferencetothe[***].Forexample,if[***].If,intheexampleprovidedintheimmediatelyprecedingsentence,therewere$[***]ofAffiliateLoansoutstanding,theFairMarketValueofalloutstandingOrdinaryJVInterestswouldhaveequaled$[***]ratherthan$[***](i.e.thevaluewouldequalthevalueof[***]).The[***]inanysuchtransactionwillincludethe[***].TheintentoftheimmediatelyprecedingthreesentencesistomakeitclearthatFairMarketValueunderthosecircumstanceswillbederivedsolelyfrom[***].Intheeventofanytransactioninvolvingthe[***],totheextenttheP&GPartnersbelieveingoodfaiththatthe[***]insuchtransaction[***]represents,thePartieswillnegotiateingoodfaithtoagreeupontheappropriateallocationand,ifthePartiesareunabletosoagreewithin[***]throughgoodfaithnegotiation,thenthe[***]willdeterminesuchallocation;
(iii)withrespecttoeachoftheClassAInterestandtheClassCInterest,individually,“FairMarketValue”willbedeemedtobeanamountequalto[***]oftheaggregateFairMarketValueofthe[***];
(iv)withrespecttotheP&GOption,(A)duringtheOptionExercisePeriod,iftheP&GOptionisnotyetexercised,thegreaterof[***]withrespecttotheOrdinaryJVInterestand[***]thethen-applicableOptionPrice;and(B)aftertheOptionExercisePeriod,[***];and
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
5
(v)intheevent“FairMarketValue”isbeingdeterminedinconnectionwithaCloroxChangeofControl,the[***]willdeterminetheFairMarketValuesoftheOrdinaryJVInterestsheldbytheCloroxPartners(takingintoaccounttheexistenceoftheP&GOptionifsuchoptionhasnotbeenpreviouslyexercisedorterminated)andtheGladLocalBusinesses[***].Oncethe[***]hasdeterminedtheFairMarketValuesoftheOrdinaryJVInterestsheldbytheCloroxPartnersandtheGladLocalBusinesses,itwillthendeterminethe“FairMarketValues”of[***].Forexample,assumingtheP&GOptionhasbeenexercised,ifathirdpartybuyeracquires[***].If,intheexampleprovidedintheimmediatelyprecedingsentence,therewere[***]theOrdinaryJVInterestswouldhaveequaled[***](i.e.thevalueofalloftheOrdinaryJVInterestswouldequal[***]theGladLocalBusinesseswouldhaveequaled$[***].The[***].ThisdeterminationinconnectionwithaCloroxChangeofControlwillbemadebythe[***]basedonthe[***],andforavoidanceofdoubtitisexpectedindeterminingsuchrelativevaluesthat[***]asthecasemaybe).The[***]willbedirectedtodetermineFairMarketValuebasedon[***].
Withrespecttoanydeterminationof“FairMarketValue”hereunder,the[***]bytheCloroxPartners(collectively),andeachoftheCloroxPartners(collectively)andtheP&GPartners(collectively)willhavetherighttomakeapresentationwithrespecttothecalculationofFairMarketValuetothe[***]makingthedetermination.
“Field”means,collectively,theExclusiveFieldandtheNon-ExclusiveField.
“FiscalQuarter”meanseachthree(3)calendarmonthperiodendingonMarch31,June30,September30andDecember31,orinthecaseofthefirstFiscalQuarteroftheJointVenture,theperiodfromtheClosingDatethroughMarch31,2003.
“FiscalYear”means(i)each12-monthperiodendingonJune30,orinthecaseofthefirstFiscalYearoftheJointVenture,theperiodfromtheClosingDatethroughJune30,2003,or(ii)ifafterthedateofthisAgreementthetaxableyearisrequiredbytheCodetobeaperiodotherthantheperioddescribedinclause(i),theneach12-monthperiodthatisthetaxableyearoftheJointVenturedeterminedinaccordancewiththerequirementsoftheCode;(iii)theperiodfromthedayaftertheendofthemostrecentlyendedFiscalYearuntilthedatetheTermends,and(iv)forpurposesofmakingallocationsofNetProfitsandNetLoss,FiscalYearmeansanyportionofataxableyearoftheJointVenturetotheextentrequiredtocomplywithSection706oftheCode.
“GAAP”meansgenerallyacceptedaccountingprinciplesasineffectintheUnitedStates(orsuchotherjurisdictionasmaybespecifiedherein)consistentlyapplied.
“GeneralTechnology”meansanytechnologyofgeneralutilitynotspecific[***],includingbutnotlimitedtotechnologythatcanbeused[***]and/or[***]or[***]or[***].AnytechnologythatisnotGeneralTechnologyisSpecificTechnology.
“GladBalanceSheet”meansthebalancesheetoftheGladBusinessasofJune30,2002,attachedtoSection1.1totheCloroxDisclosureSchedule.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
6
“GladBusiness”meansthebusinessconductedbyCloroxanditsSubsidiarieswithintheFieldandanyotherbusinessthattheBoarddeterminestoenterintowithoutviolatingSection5.3(a),includinganyexpansionofsuchbusinessintoaNewCountrythatisstructuredinthemannersetforthinSection7.8(b)hereof,providedthatsuchbusinesswillnotinclude(i)anybusiness,operations,properties,assetsorLiabilitiesoftheGladLicensedBusinessor(ii)anyequityinterestinanySubsidiaryofCloroxconductingtheGladLicensedBusiness.
“GladExistingInternationalBusiness”meansthebusinessintheFieldconductedbyCloroxanditsSubsidiariesinCanada,Australia,NewZealand,thePeople’sRepublicofChina,thePhilippines,HongKong,CostaRica,SouthKoreaandSouthAfrica.
“GladFinancialStatements”meanstheGladBalanceSheetandtherelatedstatementsofearningsandcashflowsoftheGladBusinesspreviouslydeliveredtoP&G.
“GladGlobalBusiness”meanstheGladBusinessandtheGladLicensedBusinessasconductedduringtheTerm.
“GladLicenseAgreements”meansthelicenseagreementsbetweenTheGladProductsCompanyandeachoftheInternationalLicensees,enteredintoasoftheClosingDatesubstantiallyintheformsetforthonExhibitJhereto,whichlicenseagreementsprovideforaroyaltypaymentcalculatedbasedonthenetsalesofsuchInternationalLicensee,andsuchothercomparableneworamendedlicenseagreementsthatmaybeenteredintoduringtheTermwithrespecttointellectualpropertyofCloroxAffiliatesfortheGladBusiness,whichlicenseagreementsarebetweenTheGladProductsCompany(oranotherAffiliateonbehalfofClorox)andanInternationalLicenseewithrespecttoNewCountriesinconnectionwithanexpansionstructuredinthemannersetforthinSection7.8(a).
“GladLicenseTerminationAmount”means,underanyGladLicenseAgreement,anamountequalto[***]percent([***]%)oftheFairMarketValueoftheGladLocalBusinessfortheTerritory(asdefinedinsuchGladLicenseAgreement).
“GladLicensedBusiness”means(x)theGladExistingInternationalBusinessand(y)anyexpansionofthebusinessconductedbyCloroxanditsSubsidiariesintheFieldintoaNewCountrythatisstructuredinthemannersetforthinSection7.8(a)hereof.
“GladLocalBusiness”,withrespecttoanyInternationalLicensee,shallhavethemeaningsetforthintheJVSublicenseAgreementtowhichsuchInternationalLicenseeisaparty.
“GladParties”means,collectively,theCloroxPartiesandtheInternationalLicenseesand“GladParty”meansanyonesuchPerson.
“GovernmentalAuthority”meansanynationorgovernment,anystateorotherpoliticalsubdivisionthereof,andanyentityexercisingexecutive,legislative,judicial,regulatoryoradministrativefunctionsoforpertainingtogovernment.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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“Improvements”meansanyandallIntellectualPropertyrightsinandtoanyupdate,modification,customization,translation,upgrade,improvement,enhancementand/orderivativework.
“Indebtedness”meansallobligationsforborrowedmoney,includingguarantees,andallreimbursementobligationsinrespectofoutstandinglettersofcredit(measuredassumingsuchlettersofcreditaredrawninfull).
[***]shallhavethemeaningsetforthinthedefinitionof[***].
“IndustrialPackaging”means[***]usedaspackagingforproducts,whichpackagingis(i)[***],(ii)soldto[***]fortheiruseasthepackagingfortheirproducts,and(iii)[***].Fortheavoidanceofdoubt,IndustrialPackagingshallexcludeany[***]andusedaspackaging[***],andwhichpackagingis(A)[***]and(B)soldto[***]fortheiruseasthepackagingfortheirproducts.
“Infringe”meanstoinfringe,misappropriate,dilute,impairorotherwiseviolate.
“InstitutionalChannel”meanssalesofproductstocommercial,educationaland/orgovernmentalinstitutionsandorganizationsincluding,withoutlimitation,hospitals,restaurants,janitorialserviceproviders,universities,schools,hotelsandcaterers(collectively,“Institutions”),aswellassalesofproductsto[***].
“IntellectualProperty”meansanyandallintellectualproperty,including,withoutlimitation,patents,copyrights,trademarks,servicemarks,tradenames,software,tradesecrets,technology,inventions,specifications,know-how,processes,formulae,productdescriptionsandspecificationsandothertechnicalorproprietaryinformation,andallregistrationsandapplicationstherefor.
“InternationalAcquisition”means,withrespecttoanyInternationalLicensee,thesale,dispositionorothertransfertoaThirdPartyofallorsubstantiallyalloftheequityinterestsofsuchInternationalLicenseeorofallorsubstantiallyallthebusiness,assetsandpropertiesofsuchInternationalLicenseeusedintheGladLocalBusinessofsuchInternationalLicensee,butexcludinganytransactioninwhichtheJVInterestsoftheP&GPartnersarepurchasedpursuanttotheprovisionsofSections6.4,6.5,6.6or6.7.
“InternationalLicensee”meanseachofCloroxAustraliaPty.Ltd.,TheCloroxCompanyofCanadaLtd.,CloroxdeCentroAmerica,S.A.,CloroxChina(Guangzhou)Ltd.,CloroxHongKongLimited,CloroxNewZealandLimited,CloroxInternationalPhilippines,Inc.,CloroxAfrica(Pty)Ltd.andCloroxKoreaLimitedandanyotherPersonthatbecomesapartytoaJVSublicenseAgreementasalicenseethereunder.
“IPAcquisition”means,inconnectionwithanInternationalAcquisition,agrantofa[***]theRelatedLocalIntellectualProperty(orotherdispositionofallsubstantialrightstoallsuchRelatedLocalIntellectualProperty)oftheapplicableInternationalLicensee,whichlicenseisgrantedtoaThirdPartylicenseeonbehalfoftheJointVentureinexchangefora[***]totheJointVenturefromthenewlicenseeofsuchRelatedLocalIntellectualProperty.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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“IPAllocationAmount”means,inthecaseofanyInternationalAcquisitioninwhichthereisanIPAcquisition,anamountequalto[***]percent([***]%)oftheFairMarketValueoftherelevantGladLocalBusiness.
“IPAcquisitionPrice”means,inthecaseofanyInternationalAcquisitioninwhichthereisarelatedIPAcquisition,theamountpaidtoacquirethelicenseoforrightstotheRelatedLocalIntellectualPropertybythenewlicenseeofsuchRelatedLocalIntellectualProperty.
“JointVenture”meansthecontractualrelationshipbetweentheJVPartnerscreatedbythisAgreement,whichwillbetreatedasapartnershipforU.S.federal,stateandlocalincometaxpurposes,andwillincludeallinterestsattributedtosuchJointVentureinaccordancewiththetermsofthisAgreementwithrespecttoanybusiness,asset,right,propertyorLiability,includingwithoutlimitationtheCloroxContributionandtheP&GContribution.
“JVInterest”meansanOrdinaryJVInterest,ClassAInterest,ClassBInterestorClassCInterest.
“JVSublicenseAgreements”means(i)thesublicenseagreementstobedatedandexecutedasoftheClosingDateintheformattachedheretoasExhibitIbetweenTheGladProductsCompanyandeachInternationalLicensee,providingforthesublicensetotheInternationalLicenseeofcertainIntellectualPropertyrightslicensedundertheP&GLicenseAgreement,pursuanttothetermsthereof,and(ii)suchotherlicenseagreementswhichmaybeenteredintoonbehalfoftheJointVentureduringtheTermwithrespecttoNewCountriespursuanttoSection7.8(a).
“JVSublicenseTerminationAmount”means,underanyJVSublicenseAgreement,anamountequalto[***]percent([***]%)oftheFairMarketValueoftheGladLocalBusinesstowhichsuchJVSublicenseAgreementrelates.
“JVPartners”meansanyPersonthatholdsaJVInterestinaccordancewiththetermsofthisAgreement.AsoftheClosingDate,theJVPartnerswillconsistofeachoftheCloroxPartiesandP&GSub.
“KnowHow”meansanyandallproprietaryinformation,knowledgeorexpertiseknowntoP&G[***];andmayinclude,withoutlimitation,anyknowhow,copyrights,software,tradesecrets,technology,inventions,specifications,processes,formulae,productdescriptionsandspecificationsandothertechnicalorproprietaryinformation,ifany,ownedorheldbyP&G[***](asdefinedintheP&GLicenseAgreement).
“Liabilities”means,astoanyPerson,alldebts,liabilitiesandobligations,direct,indirect,absoluteorcontingentofsuchPerson,whetheraccrued,vestedorotherwise,whetherknownorunknownandwhetherornotactuallyreflected,orrequiredbyGAAPtobereflected,insuchPerson’sbalancesheet.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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“Knowledge”or“knowledge”ofaPartymeanstotheactualknowledgeafterreasonableinquiry(i)ofthoseemployeesofsuchPartyanditsAffiliateswhopriortotheexecutionoftheOriginalAgreementparticipatedinthepreparationornegotiationoftheOriginalAgreementoranyoftheRelatedAgreementsortheduediligenceinvestigationsrelatingtothePWCReportorthetransactionscontemplatedbytheOriginalAgreementandtheRelatedAgreementsor(ii)ofthoseemployeesofsuchPartyanditsAffiliateswhohavebeenconsultedpriortotheexecutionoftheOriginalAgreementbytheemployeesspecifiedinclause(i)withrespecttotheOriginalAgreementoranyoftheRelatedAgreementsoranyofthetransactionscontemplatedherebyorthereby.
“Liens”meansanyadverseclaims,liens,securityinterests,charges,leases,licensesorsublicensesandotherencumbrancesofanykindandnature.
“MaterialAdverseEffect”means(i)withrespecttotheCloroxParties,amaterialadverseeffectuponthebusiness,properties,financialconditionorresultsofoperationsoftheGladBusinessandtheGladExistingInternationalBusiness,takenasawhole(providedthatforavoidanceofdoubtthePartiesacknowledgethatitisnotapreconditionthatanadverseeffectimpactmorethanonecountryormarketbeforeitispossibleforthisstandardtobesatisfied)orontheabilityoftheCloroxPartiestoperformtheirobligationsunderthisAgreementoranyoftheRelatedAgreementsand(ii)withrespecttotheP&GParties,amaterialadverseeffectontheabilityoftheP&GPartiestoperformtheirobligationsunderthisAgreementoranyoftheRelatedAgreements.
“MaterialsofEnvironmentalConcern”meansanygasolineorpetroleum(includingcrudeoiloranyfractionthereof)orpetroleumproducts,polychlorinatedbiphenyls,urea-formaldehydeinsulation,asbestos,pollutants,contaminants,radioactivity,andanyothersubstancesofanykind,whetherornotanysuchsubstanceisdefinedashazardousortoxicunderanyEnvironmentalLaw,thatisregulatedpursuanttoorcouldgiverisetoliabilityunderanyEnvironmentalLaw.
“NetIncome(Loss)”means,foranyperiod,thenetincome(loss)attributedtotheJointVentureinaccordancewiththeJVAccountingPrinciples,excluding(a)anygainsorlossresultingfromthesaleorotherdispositionofanyproperty,plantorequipmentattributedtotheJointVenturewhichisnotsoldorotherwisedisposedofintheordinarycourseofbusiness;(b)anygainsorlossresultingfromthesaleorotherdispositionofanyequityinterestinanyPerson;(c)anyextraordinarygainorloss;(d)anyone-timechargesorexpensesassociatedwiththeacquisitionofanybusinessorPerson;and(e)anycumulativeeffectofachangeinaccountingprinciples.
“NetProfits”and“NetLoss”mean,foreachFiscalYearorotherperiod,anamountequaltothetaxableincomeorlossattributedtotheJointVentureforsuchyearorperiod,determinedinaccordancewithCodeSection703(a)(forthispurpose,allitemsofincome,gain,lossordeductionrequiredtobestatedseparatelypursuanttoCodeSection703(a)(1)willbeincludedintaxableincomeorloss)andwiththeaccountingmethodusedbytheJointVentureforfederalincometaxpurposes,withthefollowingadjustments:
(i)anyincomeattributedtotheJointVenturethatisexemptfromU.S.federalincometaxandnototherwisetakenintoaccountincomputingNetProfitsorNetLosswillbeaddedtosuchtaxableincomeorloss;
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(ii)anyexpendituresattributedtotheJointVenturedescribedinCodeSection705(a)(2)(B)ortreatedasCodeSection705(a)(2)(B)expenditurespursuanttoTreasuryRegulationSection1.704-1(b)(2)(iv)(i)andnototherwisetakenintoaccountincomputingNetProfitsorNetLosswillbesubtractedfromsuchtaxableincomeorloss;
(iii)iftheCarryingValueofanyPropertydiffersfromitsadjustedtaxbasisforfederalincometaxpurposes,anygainorlossresultingfromadispositionofsuchassetwillbecalculatedwithreferencetosuchCarryingValue;
(iv)uponanadjustmenttotheCarryingValueofanyProperty(otherthananadjustmentinrespectofdepreciation)pursuanttothedefinitionofCarryingValue,theamountoftheadjustmentwillbeincludedasgainorlossincomputingsuchtaxableincomeorloss;
(v)iftheCarryingValueofanyPropertydiffersfromitsadjustedtaxbasisforfederalincometaxpurposestheamountofdepreciation,amortizationorcostrecoverydeductionswithrespecttosuchPropertywillforpurposesofdeterminingNetProfitsandNetLossbeanamountwhichbearsthesameratiotosuchCarryingValueasthefederalincometaxdepreciation,amortizationorothercostrecoverydeductionsbearstosuchadjustedtaxbasis;
(vi)notwithstandinganyotherprovisionofthisdefinition,anyitemsofincome,gain,lossordeductionthatarespeciallyallocatedpursuanttoSection3.2willnotbetakenintoaccountincomputingNetProfitsorNetLoss.
“Non-ExclusiveField”means(i)[***]outsideoftheExclusiveFieldof[***]productsoftheGladGlobalBusinessintheExclusiveFieldasoftheClosingDate,including[***]oftheGladGlobalBusinessand/orthe[***]and(ii)[***]brandedwithaGladGlobalBusinesstrademarksoldto[***]GladGlobalBusinessproducts[***].
“OrdinaryJVInterest”means,withrespecttoanyJVPartner,itsundividedparticipationinterestintheJointVenture(otherthananyparticipationinterestrepresentedbytheClassAInterest,ClassBInterestorClassCInterest,asapplicable).TheOrdinaryJVInterestofeachJVPartnerwillbeexpressedasapercentageoftheaggregateOrdinaryJVInterestsofallJVPartners.TheOrdinaryJVInterestsoftheJVPartnersmaybeadjustedfromtimetotimeasprovidedinthisAgreement.TheinitialOrdinaryJVInterestofeachJVPartnerasoftheClosingwillbeassetforthinSection2.5hereof.
“P&GDisclosureSchedule”meansascheduledatedasoftheOriginalDatedeliveredbyP&GtoClorox,whichidentifiesexceptionsandothermatterswithrespecttotherepresentationsandwarrantiesoftheP&GPartiescontainedinSections4.1and4.3.
“P&GEquipment”meanstheequipmentdescribedonExhibitChereto.
“P&GEquipmentTransferDocuments”meanssuchinstrumentsoftransfer,withappropriateinstrumentsoftitle,informandsubstancereasonablysatisfactorytoClorox,toeffectivelytransfertheP&GEquipmentasprovidedinSection2.3hereof.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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“P&GLicenseAgreement”meanstheIntellectualPropertyLicenseAgreementtobedatedandexecutedasoftheClosingDateintheformattachedheretoasExhibitA,providingforthelicenseofcertainIntellectualPropertybyP&GSub.
“P&GPartners”meansP&GSubandanyPermittedTransfereeofP&GSubthathasbeenTransferredalloranypartoftheJVInterestheldbyP&G.
“P&GServicesAgreement”meanstheProductDevelopmentandServicesAgreementtobedatedandexecutedasoftheClosingDateintheformattachedheretoasExhibitB,providingforcertainservicestobeprovidedbyP&G.
“PermittedLiens”means(i)LiensforTaxesthat(x)arenotyetdueordelinquentor(y)arebeingcontestedingoodfaithbyappropriateproceedings;(ii)statutoryLiensorlandlords’,carriers’,warehousemen’s,mechanics’,suppliers’,materialmen’s,repairmen’sorotherlikeLiensarisingintheordinarycourseofbusiness;(iii)Liensincurredordepositsmadeinconnectionwithworkers’compensation,unemploymentinsuranceandothertypesofsocialsecurityorsimilarbenefits;(iv)Liensincurredordepositsmadetosecuretheperformanceoftenders,bids,leases,statutoryobligations,suretyandappealbonds,governmentcontracts,performancebondsandotherobligationsoflikenature;(v)astoanyrealpropertyleaseswithrespecttowhichtherelevantentityisalessee,anyLieneffectingtheinterestofthelandlordthereunderand(vi)Lienstheexistenceofwhichdonotandwillnothave,individuallyorintheaggregate,aMaterialAdverseEffect.
“PermittedTransfer”meansaTransferofallorpartofanyJVInteresttoaPermittedTransferee.
“PermittedTransferee”means:
(i)inthecaseoftheCloroxPartiesandanyPermittedTransfereeofanyCloroxParty:(A)Clorox,(B)anySubsidiaryofClorox,(C)anyPersonthat,togetherwithitsAffiliates,hasacquiredallorsubstantiallyalloftheGladGlobalBusinessfromtheCloroxPartiesortheirPermittedTransferees,and(D)anyotherPersontotheextentP&GhasgivenitspriorwrittenconsenttosuchTransfer;and
(ii)inthecaseofP&GSubandanyPermittedTransfereeofP&GSub,(A)P&G,(B)anySubsidiaryofP&Gand(C)anyotherPersontotheextentCloroxhasgivenitspriorwrittenconsenttosuchTransfer.
“Person”meansanyindividual,corporation,limitedliabilitycompany,partnership,trust,jointstockcompany,businesstrust,unincorporatedassociation,jointventureorotherformofbusinessorlegalentityorGovernmentalAuthority.
“PrimeRate”meanstherateofinterestperannumpubliclyannouncedfromtimetotimebyCitibank,N.A.asitsprimerateineffectatitsprincipalofficeinNewYork,NewYork;eachchangeinthePrimeRatewillbeeffectivefromandincludingthedatesuchchangeispubliclyannouncedasbeingeffective.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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“Property”meanstheassetsattributedtotheJointVenture,bothtangibleandintangible.
“PWCReport”meansthereportofPriceWaterhouseCoopersdatedOctober4,2002withrespecttotheGladBusinessandtheGladExistingInternationalBusinesspreviouslyprovidedbyCloroxtoP&G.
“RawMaterialTechnology”meanstechnologyusedintheproductionof[***]thatcanbeusedintheproductionofproducts[***].
“Regulations”meansthefederalincometaxregulationspromulgatedbytheTreasuryDepartmentundertheCode,assuchregulationsmaybeamendedfromtimetotime.AllreferenceshereintoaspecificsectionoftheRegulationswillbedeemedalsotorefertoanycorrespondingprovisionsofsucceedingRegulations.
“RelatedAgreements”means,collectively,(i)theP&GLicenseAgreement,(ii)theP&GServicesAgreement,(iii)theP&GEquipmentTransferDocuments,(iv)theJVSublicenseAgreementsand(v)theGladLicenseAgreements.
“RelatedLocalIntellectualProperty”means,foranyInternationalLicensee,theIntellectualPropertylicensedtosuchInternationalLicenseeundertheapplicableGladLicenseAgreementandJVSublicenseAgreement.
“Reserves”meanscashfundssetasidefromCapitalContributionsorgrosscashrevenuesasreserves.Such“Reserves”willbemaintainedinamountsanduponsuchtimingasisreasonablydeemednecessarybytheBoardtofinanceanyworkingcapitalrequirementsand/ortopaytaxes,insurance,debtservice,repairs,replacements,renewals,capitalexpendituresorothercostsorexpensestobeattributedtotheJointVentureinaccordancewiththeJVAccountingPrinciplesinthefourFiscalQuartersfollowingthedatesuchReservesarebeingestablishedthatwillnotbefundedfromAvailableCashFlowbasedonthethen-currentfinancialforecastsoftheJointVenture.
“SignificantContracts”meansanycontractthatwouldberequiredtobesubmittedtotheboardofdirectorsofCloroxinaccordancewiththepoliciesofCloroxforauthorizationandapprovalofcontractstowhichCloroxoritsSubsidiariesareapartyassuchpoliciesareineffectasoftheOriginalDate.
“SpecificTechnology”meansanytechnology(asitmaybemodifiedwith[***]forspecificapplication[***])thathasspecificapplication[***],includingbutnotlimitedtotechnologythathasa[***]orotherwiseisofspecificutility[***].AnytechnologythatisnotSpecificTechnologyisGeneralTechnology.
“Subsidiary”ofanyPersonmeansanycorporation,partnership,limitedliabilitycompany,jointventureorotherlegalentityofwhichsuchPerson(eitheraloneorthroughortogetherwithanyotherSubsidiary)ownsorhastherighttoacquire,directlyorindirectly,50%ormoreofthestockorotherequityintereststheholderofwhichisgenerallyentitledtovotefortheelectionoftheboardofdirectorsorothergoverningbodyofsuchcorporationorotherlegalentity.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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“Taxes”meansallformsoftaxation,duties,leviesandimposts,whetheroftheUnitedStatesorelsewhereincludingincome,chargeablegains,alternativeoradd-onminimum,grossreceipts,sales,use,advalorem,valueadded,franchise,capital,paid-upcapital,profits,greenmail,license,environmental(includingtaxesunderSection59AoftheInternalRevenueCodeof1986,asamended),withholding,payroll,employment,excise,severance,stamp,occupation,premium,realorpersonalproperty,windfallprofit,custom,dutyorothertax,(includingnationalinsurancecontributions)togetherwithanyinterestoranypenaltyoradditiontotax.
“ThirdParty”meansaPersonotherthantheCloroxParties,theP&GPartiesortheirrespectiveAffiliates.
“Transfer”meanstotransfer,sell,hypothecate,encumberorassign,directlyorindirectly,providedthataChangeofControlofCloroxwillnotbeconsideredaTransferofanyJVInterestheldbyanyCloroxPartnerforpurposeshereof,andaChangeofControlofP&GwillnotbeconsideredaTransferofanyJVInterestheldbyanyP&GPartnerforpurposeshereof.
Section1.2OtherDefinitions.
ThefollowingtermsaredefinedintheSectionsindicated:
Term Section
AdditionalAmount 2.6(e)AdditionalContribution 2.6(f)Agreement PreambleArm’sLengthTerms 5.3(a)(v)AuthorizedPersons 7.3(b)(iii)Board 5.1(a)CallRight 6.5(b)CapitalAccount 2.9(a)ChangeofControlNotice 6.4(a)(i)ClassASpecialAmount 3.4(c)(ii)
ClassCSpecialAmount 3.4(c)(i)Clorox PreambleCloroxContribution 2.2(a)(i)CloroxBenefitPlans 4.2(o)CloroxExcludedAssets 2.2(b)CloroxIndemnifiedParties 10.2CloroxParties PreambleCloroxRetainedLiabilities 2.2(c)CloroxServices 7.1(a)Closing 2.1ClosingDate 2.1CompetingBusiness 7.2(c)ConfidentialInformation 7.3(b)DeadlockNotice 6.5(b)(i)DefinedBenefitPlans 7.5(d)
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Term Section
DistributionShortfall 3.4(c)(v)Escalation 5.3(b)ExistingInternationalBalanceSheets 4.2(a)(vii)ExistingProduct 7.2(b)(vii)
FDA 4.2(h)GladLeadershipTeam 5.1(e)HSRAct 7.5(a)IndemnifiedParties 10.2IndemnifyingParty 10.3InitialTerm 6.3(a)IPTransferees 11.12(c)JVAccountingPrinciples 9.1(a)LeasedRealProperty 4.2(e)LossesandExpenses 10.1NegativeCashFlow 2.6(b)NewCountry 7.8OptionExercisePeriod 2.7(a)OptionPrice 2.7(a)OriginalAgreement RecitalsOriginalDate RecitalsOwnedRealProperty 4.2(e)P&G PreambleP&GSub PreambleP&GContribution 2.3(a)(ii)P&GIndemnifiedParties 10.1P&GObservers 5.1(b)P&GOption 2.7(a)P>rue-Up 2.6(c)P&GParties PreambleP&GVeto 5.3(b)ParentLoans 2.6(a)Party PreambleProRataPortion 7.5(d)ProhibitedLicenseAmounts 3.4(b)PurchaserPlan 7.5(d)PutRight 6.4(a)ResolutionPeriod 5.3(b)RevisedValuation 6.8(a)QuarterlyFinancials 2.6(b)SEC 4.2(a)(v)SECDocuments 4.2(a)(v)SupplementalSchedule 7.5(e)
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Term SectionTag-AlongRight 6.6(a)TaxMattersPartner 9.2(b)Third-PartySale 6.7(a)Term 6.3(a)
WorkingCapital 4.2(a)(ii)
Section1.3OtherDefinitionalProvisions;Interpretation.
Thewords“hereof,”“herein”and“hereunder”andwordsofsimilarimportwhenusedinthisAgreementwillrefertothisAgreementasawholeandnottoanyparticularprovisionofthisAgreement,andsectionandsubsectionreferencesaretothisAgreementunlessotherwisespecified.TheheadingsinthisAgreementareincludedforconvenienceofreferenceonlyandwillnotlimitorotherwiseaffectthemeaningorinterpretationofthisAgreement.Wheneverthewords“include,”“includes”or“including”areusedinthisAgreement,theywillbedeemedtobefollowedbythewords“withoutlimitation.”Thephrases“thedateofthisAgreement,”“thedatehereof”andtermsofsimilarimport,unlessthecontextotherwiserequires,willbedeemedtorefertothedatesetforthinthefirstparagraphofthisAgreement.Themeaningsgiventotermsdefinedhereinwillbeequallyapplicabletoboththesingularandpluralformsofsuchterms.AllmatterstobeagreedtobyanyPartyhereundermustbeagreedtoinwritingbysuchPartyunlessotherwiseindicatedherein.
ARTICLEII
CONTRIBUTIONSANDALLOCATIONSOFINTEREST
Section2.1ClosingofJointVenture.
SubjecttothesatisfactionorwaiveroftheconditionssetforthinArticleVIII,theclosingofthetransactionscontemplatedbySections2.2and2.3(the“Closing”)willtakeplaceasofthecloseofbusinessPacificTimeonJanuary31,2003attheofficesofCloroxinOakland,California,oratsuchothertimeandplaceasmaybemutuallyagreedtobytheParties(the“ClosingDate”).ThePartiesagreethattheactualexchangeofanydocuments,certificatesassetsoranyotherobjectrequiredtobedeliveredatClosingwilltakeplaceatsuchothertimeandplaceeitherbeforeorafterthecloseofbusinessPacificTimeonJanuary31,2003,asthePartiesreasonablydetermine.
Section2.2CloroxContributionandRelatedMatters.
(a)FromandaftertheClosing,thefollowinginterestsandLiabilitiesoftheCloroxPartiesandtheirSubsidiarieswillbeattributedto,andforincomeTaxpurposeswillbedeemedownedorassumedby,theJointVenture,exceptasprovidedinSection2.2(b)belowwithrespecttoCloroxExcludedAssetsandSection2.2(c)belowwithrespecttoCloroxRetainedLiabilities:
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(i)theinterestoftheCloroxPartiesandtheirrespectiveSubsidiariesontheClosingDateinallofthebusinesses,assets,rightsandproperties(w)reflectedintheGladBalanceSheetexceptassetforthinSchedule2.2(a)(i)hereto,(x)setforthinSection2.2(a)(iii)(C)oftheCloroxDisclosureSchedule(totheextentanasset),(y)subjecttotheJVAccountingPrinciples,totheextentandonlytotheextentutilizedinorrelatedtotheGladBusiness,notreflectedintheGladBalanceSheet,providedthattheJointVentureandtheGladBusinessshallcontinuetohavetherighttouse(inthesamemanner,tothesameextentandonthesameterms)anybusinesses,assets,rightsandpropertiesoftheCloroxPartiesandtheirSubsidiariesthatwouldhavebeenincludedinthisclause(y)butfortheapplicationoftheJVAccountingPrinciplesor(z)subjecttotheJVAccountingPrinciples,totheextentandonlytotheextentutilizedinorrelatedtotheGladBusiness,acquiredafterthedateofsuchGladFinancialStatementsandpriortotheClosingandincluding,fortheavoidanceofdoubt,therightsoftheCloroxPartiesundertheGladLicenseAgreementsasoftheClosingandintheIntellectualPropertylicensedthereunder(collectively,the“CloroxContribution”),andwhichCloroxContributionwillbeallocatedamongtheCloroxPartiesassetforthintheContributionAllocationStatementandforincomeTaxpurposeswillbedeemedcontributedtotheJointVenture;
(ii)subjecttotheJVAccountingPrinciples,theinterestoftheCloroxPartiesandtheirSubsidiariesinanybusiness,asset,rightorpropertyacquiredduringtheTermbytheCloroxPartiestotheextentandonlytotheextentutilizedinorrelatedtotheGladBusiness(fortheavoidanceofdoubt,forincomeTaxpurposes,suchinterestsshallbedeemedtobeacquiredbytheJointVentureratherthancontributedbytheCloroxParties);
(iii)allLiabilitiesoftheCloroxPartiesandtheirSubsidiariestotheextentandonlytotheextent(A)reflectedintheGladBalanceSheetexceptassetforthinSchedule2.2(a)(iii)hereto,(B)incurredorassumedbytheGladBusinessintheordinarycourseofbusinessafterthedateofsuchGladBalanceSheetandpriortotheClosingthatwouldbereflectedascurrentLiabilitiesonabalancesheetoftheGladBusinessasoftheClosingpreparedinaccordancewiththeJVAccountingPrinciples,butexcludinganycurrentLiabilitiesarisingfromthirdpartylitigationclaims,(C)setforthinSection2.2(a)(iii)(C)oftheCloroxDisclosureSchedule(totheextentaLiability),(D)arisingoutoftheconductoftheGladBusinessortheownershiporpossessionofanybusiness,assets,rightsorpropertyoftheGladBusinessduringtheTermor(E)assumedorincurredduringtheTermbytheCloroxPartiesortheirSubsidiariesinaccordancewiththetermshereofwithrespecttotheGladBusiness,providedthatIndebtednesswillbeattributedtotheJointVentureonlytotheextentthattheprovisionsofArticleVhereofwithrespecttoapprovalsarecompliedwithandtheproceedsofsuchIndebtednessareutilizedintheGladBusinesstofinanceexpendituresthatcannotbefinancedbyDistributableCashFlow;and
(iv)allNetIncomeandNetLossandAvailableCashFlowarisinginrespectoftheforegoingandproceedsofanydispositionthereof.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
17
Foravoidanceofdoubt,theinterestsinclauses(i)through(iv)abovewillnotincludeanyinterestsintheGladLicensedBusinessotherthantheinterestsrepresentedbytheGladLicenseAgreementsandnoforeignSubsidiaryofCloroxthatconductstheGladLicensedBusinesswillbeaJVPartnerhereunder.
(b)ThefollowinginterestsoftheCloroxPartiesandtheirSubsidiarieswillbeexcludedfromtheJointVentureandwillnotbeattributedtotheJointVenture(collectively,the“CloroxExcludedAssets”),andfromandaftertheClosingtheJointVenturewillnotincludeanyinterestinanyofthefollowing:
(i)allrightsoftheCloroxPartiesandtheirSubsidiariesunderthisAgreement;
(ii)allinterestsinanybusiness,asset,rightorpropertysold,transferredorotherwisedisposedofafterthedateoftheGladFinancialStatementsandpriortotheClosingintheordinarycourseoftheGladBusinessandnotinviolationofSection7.7hereof;
(iii)allcashandcashequivalentsasoftheClosingotherthanpettycashwithrespecttotheGladBusiness;
(iv)allrefundsorcreditswithrespecttoanyTaxespaidorincurredbyCloroxoritsSubsidiariespriortotheClosingDate,excepttotheextentreflectedontheGladBalanceSheet;
(v)allrefundsorcreditswithrespecttoanyincomeTaxesofCloroxoritsSubsidiariesotherthanrefundsofnon-U.S.incomeTaxesthatwereattributedtotheJointVenturepursuanttoSection2.2(c)(ii);
(vi)allcapitalstockorotherequityinterestsofCloroxanditsSubsidiaries;and
(vii)allrightsoftheCloroxPartiesarisingoutoforinconnectionwithanyRetainedLiabilities,includingwithoutlimitationanycauseofaction,rightofrecovery,rightofset-offorcounterclaim.
(c)FromandaftertheClosing,noneofthefollowingLiabilitieswillbeattributedtotheJointVenture(“CloroxRetainedLiabilities”):
(i)anyLiability(A)arisingoutoforrelatingtotheconductoftheGladBusinessortheownershiporpossessionofanybusiness,assets,rightsorpropertyoftheGladBusinesspriortotheClosingDateor(B)assumedorincurredpriortotheClosingDatebytheCloroxPartiesortheirSubsidiaries,exceptforanyLiabilitiesdescribedinclause(A),(B)or(C)ofSection2.2(a)(iii);
(ii)(A)anyLiabilitywithrespecttoincomeTaxesoftheCloroxPartiesandtheirSubsidiaries,exceptforincomeTaxesimposedbyaTaxauthorityofaforeignjurisdictioninwhichtheJointVentureisconducting(orcausingtobeconducted)theGladBusiness,and(B)anyLiabilityoftheCloroxPartiesandtheirSubsidiarieswithrespecttoTaxesresultingfromeffectingtheCloroxContributionatClosing;
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(iii)anyLiabilityarisingoutoforrelatingtotheCloroxExcludedAssets;
(iv)anyLiabilitywithrespecttothematterssetforthinSection2.2(c)(iv)oftheCloroxDisclosureSchedule;
(v)anyLiabilityoftheCloroxPartiestotheP&GPartiesarisingoutoforrelatedtoanybreachofthisAgreementoranyRelatedAgreementbytheCloroxPartiesortheirSubsidiaries,evenifarisingoutoforrelatedtoconductoftheGladBusinessortheownershiporpossessionofanybusiness,asset,rightorpropertyoftheGladBusinessduringtheTerm;and
(vi)anyLiabilityforwhichtheCloroxPartiesortheirSubsidiarieshaveotherwiseagreedtobeliableandnothaveattributedtotheGladBusinesspursuanttothisAgreementoranyRelatedAgreement.
Section2.3ContributionbyP&GandRelatedMatters.
(a)AsoftheClosing,thefollowinginterestsoftheP&GPartieswillbeattributedto,andforTaxpurposes,willbedeemedcontributedtotheJointVenture:
(i)alicensetocertainIntellectualPropertyrightslicensedtotheCloroxPartiesassetforthintheP&GLicenseAgreement;and
(ii)alltitle,rightandinteresttotheP&GEquipment,thetitletowhichP&GEquipmentwillbeconveyedtooneormoreCloroxPartiesattheClosing,freeandclearofallLiens,exceptforPermittedLiens(collectivelyclauses(i)and(ii),the“P&GContribution”).
(b)FromandaftertheClosing:
(i)therightsoftheCloroxPartiesundertheP&GLicenseAgreementandtheJVSublicenseAgreementswillbeattributedtotheJointVenture;
(ii)theright,titleandinterestoftheCloroxPartiestotheP&GEquipmentwillbeattributedtotheJointVenture;and
(iii)allNetIncomeandNetLossandAvailableCashFlowarisinginrespectoftheforegoingandproceedsofanydispositionthereofwillalsobeattributedtotheJointVenture.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(c)TheP&GPartieswillmakethefollowingdeliveriesontheClosingDateandduringtheTerminconnectionwiththerightsgrantedundertheP&GLicenseAgreement:
(i)WithinareasonabletimeaftertheClosingDate,theP&GPartieswilldelivertoCloroxforuseintheGladBusinessallKnowHowincludedinthe[***]mediumontheClosingDate;
(ii)OnandaftertheClosingDate,theP&GPartieswilldelivertoCloroxforuseintheGladBusiness(A)allKnowHow[***],aspromptlyascommerciallypracticableafteranysuchKnowHow[***];and
(iii)IntheeventthatanyKnowHowisnecessaryfortheCloroxParties’useorpracticeofanyP>echnology,butdoesnot,asoftheClosingDateoranylaterdate,[***]thentheP&GParties,atClorox’srequest,willpromptly(x)providetheCloroxPartieswith[***]toClorox.
Section2.4NatureofJVInterest
AnOrdinaryJVInterestrepresentsanundividedparticipationinterestintheGladBusinessandeachJVInterestrepresentsarighttoreceiveincomeandlosses,cashflowandproceedswithrespectthereto,asdescribedherein.AJVInterestdoesnotrepresent,andwillnotbedeemedtoconvey,adirectownershipinterestinanyoftheproperties,assetsorotherrightsoftheGladBusiness,titletowhichwillbeheldbytheCloroxParties,norwillitresultintheassumptionbytheP&GPartiesofanyLiabilitiesoftheGladBusiness.ForincomeTaxpurposesonly,aJVInterestrepresentsacapitalandprofitsinterestintheJointVenture.
Section2.5InitialAllocationsofInterestandCapitalAccounts.
(a)InconsiderationfortheCloroxContribution,attheClosingtheCloroxPartieswillhaveanaggregateinitialOrdinaryJVInterestofninetypercent(90%),theClassAInterestandtheClassBInterestandanaggregateCapitalAccountbalanceaswillbemutuallyagreedbythePartiespriortoClosing.TheJVInterestsandCapitalAccountbalanceofeachindividualCloroxPartyasoftheClosingwillbedeterminedbyCloroxinaccordancewiththeContributionAllocationStatement,butinnoeventwilltheaggregateJVInterestsandCapitalAccountsbalancesoftheCloroxPartiesasoftheClosingexceedthoseprovidedinthefirstsentenceofthisSection2.5(a).
(b)InconsiderationfortheP&GContribution,attheClosingP&GSubwillhaveaninitialOrdinaryJVInterestoftenpercent(10%),theClassCInterestandanaggregateCapitalAccountbalanceaswillbemutuallyagreedbythePartiespriortoClosing.AllJVInterestsandCapitalAccountbalancesoftheP&GPartiesasoftheClosingwillbedeemedtobeownedsolelyandexclusivelybyP&GSub.P&GisapartytothisAgreementforpurposesofguaranteeingtheperformanceofallobligationsofP&GSubandtoperformdirectlycertainobligationspursuanttothisAgreement.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section2.6AdditionalCapitalCallsandParentLoans.
(a)AlladditionalcapitalcontributionsthatwillbeattributedtotheJointVenturewillbemadeinaccordancewiththisSection2.6.Intheeventadditionalfundsarerequiredtofinancespecificcapital,acquisitionorextraordinaryexpendituresoftheGladBusiness,suchfundsmaybeprovidedbytheJVPartnersasloansattributedtotheJointVenture(“ParentLoans”)orasadditionalcontributionsofcapital,ineachcaseasprovidedinthisSection2.6.TheBoardmay,fromtimetotime,issueCapitalCalls,requestingtheJVPartnerstomakeadditionalcontributionsofcapitalinproportiontotheirrespectiveOrdinaryJVInterestsinordertofinanceexpendituresoftheGladBusinessifbasedonthethen-currentfinancialforecastsoftheJointVenture(i)suchexpenditurescannotbefundedentirelyoutofDistributableCashFlowforsuchFiscalQuarterand(ii)ifParentLoansareusedtofinancesuchexpenditures,theAvailableCashFlowduringthenext[***]willbeinsufficienttorepayinfullallParentLoansthatwouldbeoutstandingimmediatelyaftersuchnewParentLoansareincurred.EachJVPartneragreesthatCapitalCallsissuedtoanyJVPartnerwillbepaidbytheJVPartneratitselection.Theremedyfornon-paymentofanyCapitalCallswillbelimitedtotheremedysetforthinthisSection2.6andsuchnon-paymentwillnotbeabreachofthisAgreementpursuanttothisSection2.6(a).Exceptasotherwiserequiredbylaw,noJVPartnerwillberequiredtomakeanyadditionalcontributionstothecapitalattributedtotheJointVenture.AllcapitalcontributionstobeattributedtotheJointVenturewillbepaidbytheJVPartnerstotheaccountoftheCloroxPartnerdesignatedbyCloroxtoreceivesuchcapitalcontributions.
(b)Intheeventthatadditionalfundsarerequiredtofinancespecificcapital,acquisitionorextraordinaryexpendituresoftheGladBusiness,andthethen-currentfinancialforecastsoftheJointVentureindicatethat(i)suchexpenditurescanbefundedentirelyoutofDistributableCashFlowforthatFiscalQuarteror(ii)ifParentLoansareusedtofinancesuchexpenditures,theAvailableCashFlowduringthenext[***]willbesufficienttorepayinfullallParentLoansthatwouldbeoutstandingimmediatelyaftersuchnewParentLoansareincurred,theCloroxPartnerswillprovidesuchadditionalfundsasaParentLoanhavingatermof[***].IntheeventthatAvailableCashFlowforanyFiscalQuarterassetforthinthequarterlyfinancialstatementsoftheJointVentureforsuchFiscalQuartertobedeliveredpursuanttoSection9.1(c)(the“QuarterlyFinancials”)isanegativenumber(suchnumber,the“NegativeCashFlow”)(x)lessthan$[***]andtheaggregateoutstandingParentLoansbytheCloroxPartnerswouldnotexceed$[***]iftheamountofsuchNegativeCashFlowweretreatedasaParentLoanor(y)ifParentLoansareusedtofundtheNegativeCashFlow,theAvailableCashFlowduringthenext[***]willbesufficienttorepayinfullallParentLoansthatwouldbeoutstandingimmediatelyaftersuchnewParentLoansareincurred,thentheamountoftheNegativeCashFlowwillbetreatedasaParentLoanbytheCloroxPartners,whichParentLoanwillbedeemedtohavebeenmadeasofthelastdayoftheFiscalQuartertowhichtheNegativeCashFlowrelates.
(c)IntheeventthatthereisNegativeCashFlowforanyFiscalQuarterthatwillnotbetreatedasaParentLoaninaccordancewithSection2.6(b),thenwithinthree(3)BusinessDaysofdeliveryoftheQuarterlyFinancialspursuanttoSection9.1(c),theBoardwillissueaCapitalCalltoP&GSubinanamount(the“P>rue-Up”)equalto:(i)theaggregateamountoftheOrdinaryJVInterestsheldbytheP&GPartners[***](ii)theNegativeCashFlow.IntheeventtheP&GPartnerspaysuchCapitalCall,(A)theproceedsthereofwillbepaidtotheCloroxPartnerdesignatedbyClorox,(B)theP&GPartnerswillbedeemedtohavemadeacapitalcontributiontotheJointVentureintheamountoftheP>rue-Up,(C)eachoftheCloroxPartnerswillbedeemedtohavemadeacapitalcontributiontotheJointVentureintheamountof(x)theamountoftheOrdinaryJVInterestheldbysuchCloroxPartner[***](y)theNegativeCashFlowand(D)therespectiveOrdinaryJVInterestsofthePartieswillnotbeadjustedwithrespecttosuchcapitalcontributionsorsuchCapitalCallpaidbyP&GSubordeemedpaidbytheCloroxPartners.IntheeventtheP&GPartnersdeclinetopaysuchCapitalCall,theCloroxPartnerswillbedeemedtohaveadvancedtheamountoftheNegativeCashFlow,whichmaybetreatedasaloanoracontributionbytheCloroxPartnersattheirelectionasprovidedinSection2.6(e)below.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(d)AllParentLoanswillbearinterestcalculatedontheoutstandingprincipalamountthereofforeachdayfromthedatesuchParentLoanismadeuntilitispaidinfullat[***]plus[***]percent([***]%)perannumpayableonaquarterlybasis,andpaymentswithrespecttoanyParentLoanswillbecreditedfirsttoaccruedinterest.SubjecttotheprovisionsofSection3.4(b)(iv),eachParentLoanwillhaveamaturitydateofthelastdayoftheTerm.
(e)SubjecttotheprovisionsofSection2.6(c)hereof,intheeventofthefailureofanyP&GPartnertomakefullandtimelypaymentofanyadditionalcapitalcontributionrequiredbyanyCapitalCallpursuanttothisSection2.6,theCloroxPartnerswillbedeemedtohaveadvancedtotheJointVenturetheentireunpaidamount.SubjecttotheprovisionsofSection2.6(c)hereof,suchadvanceaswellasanyotheramountsthatwouldhavebeendeemedpaidbytheCloroxPartneronitsownbehalfwithrespecttosuchCapitalCalliftheP&GPartnershadpaidsuchCapitalCallinfull(togetherwithsuchadvance,the“AdditionalAmount”)will,attheelectionoftheadvancingCloroxPartner,betreatedineitherofthefollowingmanners:
(i)theAdditionalAmountmaybetreatedasaParentLoan;or
(ii)theAdditionalAmountmaybetreatedasacontributionbytheCloroxPartnerpayingsuchAdditionalAmountattributedtotheJointVentureofalloranyportionofsuchunpaidCapitalCall.
(f)EffectiveuponthemakingofanadditionalcapitalcontributionbyaCloroxPartnerpursuanttoSection2.6(e)(ii)(an“AdditionalContribution”),theOrdinaryJVInterestofeachJVPartnerwillberecalculatedasthatpercentageequaltoafraction:
(i)[***]ofwhichisequaltothesumof(A)(x)theOrdinaryJVInterestofsuchJVPartnerpriortotheAdditionalContribution[***]by(y)theaggregateFairMarketValueofallOrdinaryJVInterestspriortotheAdditionalContributionplus(B)theamount,ifany,oftheAdditionalContributionmadebysuchJVPartner,and
(ii)[***]ofwhichisequaltothesumof(A)theaggregateFairMarketValueofallOrdinaryJVInterestspriortotheAdditionalContribution[***](B)theaggregateamountofallAdditionalContributionsbyalltheJVPartnersmadeatthesametimeassuchAdditionalContribution.
ForpurposesofthisSection2.6(f),priortothethree-yearanniversaryoftheClosingDate,theFairMarketValueofalltheOrdinaryJVInterestswillbenolessthan$[***]plustheaggregateamountofAdditionalContributionsmadeordeemedmadepriortothedateasofwhichsuchFairMarketValueisbeingdetermined.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Bywayofillustration,intheeventtheOrdinaryJVInterestsheldbytheJVPartnersremainunchangedfromtheClosingDateandtheP&GOptionhasnotbeenexercised,andanAdditionalContributionismadebyaCloroxPartnerintheamountof$[***]andtheFairMarketValueforallOrdinaryJVInterestspriortosuchAdditionalContributionisequalto$[***]theOrdinaryJVInterestsheldbytheP&GPartnerswouldbeanaggregateof[***]%andtheOrdinaryJVInterestsheldbytheCloroxPartnerswouldbeanaggregateof[***]%,calculatedasfollows:
[***]%=[***]
[***]%=[***]
Section2.7P&GOption.
(a)DuringtheperiodcommencingontheClosingDateandendingonJanuary1,2008(the“OptionExercisePeriod”),theP&GPartnerswillhavetheoption(the“P&GOption”)toacquirefromtheCloroxPartnersall(butnotlessthanall)of(x)aportionoftheCloroxPartners’OrdinaryJVInterestsequaltotenpercent(10%)ofthetotalOrdinaryJVInterestsasofthedateoftheclosingoftheexerciseoftheP&GOptionand(y)theClassAInterest.The[***]pricetobepaidbyP&GSubtotheCloroxPartners(the“OptionPrice”)willbedeterminedasfollows:
(i)$[***]plustheAdjustmentAmount,ifany,intheeventtheP&GOptionisexercisedonorbeforeJanuary1,2004;
(ii)$133millionplustheAdjustmentAmount,ifany,iftheP&GOptionisexercisedafterJanuary1,2004andonorbeforeJanuary1,2005;
(iii)$[***]plustheAdjustmentAmount,ifany,iftheP&GOptionisexercisedafterJanuary1,2005andonorbeforeJanuary1,2006;
(iv)$[***]plustheAdjustmentAmount,ifany,iftheP&GOptionisexercisedafterJanuary1,2006andonorbeforeJanuary1,2007;and
(v)$[***]plustheAdjustmentAmount,ifany,iftheP&GOptionisexercisedafterJanuary1,2007andonorbeforeJanuary1,2008.
(b)IftheP&GPartnerswishtoexercisetheP&GOption,P&Gwillprovideten(10)BusinessDayspriorwrittennoticetoClorox.TheclosingwithrespecttoanyexerciseoftheP&GOptionwilltakeplaceonthetenthBusinessDayafterexercisebytheP&GPartnersoftheP&GOption,providedthatifallorders,consentsandapprovalsofGovernmentalAuthoritieslegallyrequiredfortheclosingofsuchsalewillnothavebeenobtainedorwillnotbeineffect,orifanywaitingperiodundertheHSRActwillnothaveexpiredorbeenterminated,suchclosingwillbedelayeduntilthetenthBusinessDayaftersuchorders,consentsandapprovalswillbeobtainedandineffectandsuchwaitingperiod,ifany,willhaveexpiredorbeenterminated.PaymentoftheOptionPricewillbebyimmediatelyavailablefundstotheaccountsdesignatedbyClorox.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section2.8RightswithRespecttoCapital.
(a)NoJVPartnerwillhavetherighttowithdraw,orreceiveanyreturnof,itsCapitalContribution,andnoCapitalContributionmaybereturnedintheformofpropertyotherthancashexceptasspecificallyprovidedherein.
(b)ExceptasexpresslyprovidedinthisAgreement,noCapitalContributionofanyJVPartnerwillbearanyinterestorotherwiseentitlethecontributingJVPartnertoanycompensationforuseofthecontributedcapital.
Section2.9CapitalAccounts.
(a)TherewillbeestablishedforeachJVPartneronthebooksoftheJointVentureacapitalaccount(“CapitalAccount”)thatwillbemaintainedinaccordancewiththisSection2.9.
(b)IntheeventaJVPartnertransfersaJVInterestinaccordancewiththetermsofthisAgreement,thetransfereewillsucceedtotheCapitalAccountofthetransferortotheextentitrelatestothetransferredJVInterest.
(c)TheCapitalAccountofeachJVPartnerwillbeincreasedby:
(i)suchJVPartner’scashcontributionsattributedtoanddeemedcontributedtotheJointVenture(includingdeemedcashcontributionsequaltotheamountoforganizationalexpensesincurredbysuchJVPartneronbehalfoftheJointVenture);
(ii)theCarryingValueofpropertyattributedtoanddeemedcontributedbysuchJVPartner(netofLiabilitiessecuredbysuchcontributedpropertythattheJointVentureisconsideredtohaveattributedtoitorsuchpropertyissubjecttounderCodeSection752);
(iii)allitemsofNetProfitsallocatedtosuchJVPartnerpursuanttoArticleIIIorotherprovisionsofthisAgreement,and
(iv)allitemsofincomeandgainspeciallyallocatedtosuchJVPartnerpursuanttoSection3.2.
(d)TheCapitalAccountofeachJVPartnerwillbedecreasedby:
(i)theamountofcashdistributedtosuchJVPartnerasadistributionwithrespecttotheJointVenture;
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(ii)theCarryingValueofallactualanddeemeddistributionsofPropertymadetosuchJVPartnerasadistributionwithrespecttotheJointVenturepursuanttothisAgreement(netofLiabilitiessecuredbysuchdistributedPropertythattheJVPartnerisconsideredtoassumeortakesubjecttounderCodeSection752);
(iii)allitemsofNetLossallocatedtosuchJVPartnerpursuanttoArticleIIIorotherprovisionsofthisAgreement;and
(iv)allitemsofdeduction,expenseorlossspeciallyallocatedtosuchJVPartnerspursuanttoSection3.2.
(e)TheprovisionsofthisAgreementrelatingtothemaintenanceofCapitalAccountsareintendedtocomplywithRegulationsSection1.704-1(b)(2)(iv),andwillbeinterpretedandappliedinamannerconsistentwithsuchRegulationsSection.TotheextentsuchprovisionsareinconsistentwithsuchRegulationsSectionorareincompletewithrespectthereto,CapitalAccountswillbemaintainedandadjustmentstheretowillbemadeinaccordancewithsuchRegulationsSection;provided,however,thatnosuchadjustmentwillhaveanyeffectontheamountdistributablehereundertoanyJVPartner.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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ARTICLEIII
ALLOCATIONSANDDISTRIBUTIONS
Section3.1AllocationofNetProfitsandLosses.
(a)ExceptasotherwiseprovidedinthisArticleIII,NetProfitsandNetLossoftheJointVentureineachFiscalYearwillbeallocatedamongtheJVPartnersinaccordancewiththeirrespectiveOrdinaryJVInterests.
(b)NotwithstandingSection3.1(a)above,NetProfitswithrespecttoeachofthefirsteightFiscalQuartersoftheJointVenturewillbeallocatedamongtheJVPartnersasfollows:
(i)withrespecttothefirstfourFiscalQuartersoftheJointVenture,NetProfitswillbeallocatedonehundredpercent(100%)totheCloroxPartners(proratainaccordancewiththeirrespectiveOrdinaryJVInterests);providedthat,ifP&GSubexercisestheP&GOptiononorpriortothefirstdayofanysuchFiscalQuarter,NetProfitsforsuchFiscalQuarterwillbeallocated(subjecttoadjustmentpursuanttoSection2.6(f))ninetypercent(90%)totheCloroxPartners(proratainaccordancewiththeirrespectiveJVInterests)andtenpercent(10%)totheP&GPartners(proratainaccordancewiththeirrespectiveOrdinaryJVInterests);
(ii)withrespecttothefifththrougheighthFiscalQuartersoftheJointVenture,NetProfitswillbeallocated(subjecttoadjustmentpursuanttoSection2.6(f))ninety-fivepercent(95%)totheCloroxPartners(proratainaccordancewiththeirrespectiveOrdinaryJVInterests)andfivepercent(5%)totheP&GPartners(proratainaccordancewiththeirrespectiveOrdinaryJVInterests);providedthat,ifP&GSubexercisestheP&GOptiononorpriortothefirstdayofanysuchFiscalQuarter,NetProfitsforsuchFiscalQuarterwillbeallocated(subjecttoadjustmentpursuanttoSection2.6(f))eighty-fivepercent(85%)totheCloroxPartners(proratainaccordancewiththeirrespectiveOrdinaryJVInterests)andfifteenpercent(15%)totheP&GPartners(proratainaccordancewiththeirrespectiveOrdinaryJVInterests);and
(iii)notwithstandingtheprovisionsofSection3.1(b)(i)and(ii)above,NetProfitswithrespecttoanysale,transferorotherdispositionofanybusinessorassetsoftheGladBusinessoutsidetheordinarycourseoftheGladBusinessduringthefirsteightFiscalQuarterswillbeallocatedamongtheJVPartnersproratainaccordancewiththeirrespectiveOrdinaryJVInterests.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section3.2SpecialAllocations.
ForpurposesofthefollowingprovisionsofthisSection3.2,theCloroxPartnerswillberegardedasasingleJVPartnerwithasingleCapitalAccount.Notwithstandinganythingcontainedhereintothecontrary:
(a)IfaJVPartnerwouldatanytimereceive,butforthisSection3.2(a),anallocationofdeduction,loss,orexpenditurethatwouldcauseorincreaseadeficitbalanceinsuchJVPartner’sCapitalAccountinexcessofanyamountofsuchdeficitbalancethattheJVPartnerisobligatedtorestoreordeemedobligatedtorestore(asdeterminedinaccordancewithTreasuryRegulationSection1.704-1(b)(2)(ii)(c)),thentheportionofsuchallocationthatwouldcauseorincreasesuchdeficitCapitalAccountbalancewillbespeciallyallocatedtotheotherJVPartners,ifany,withpositiveCapitalAccountbalancesinproportiontosuchbalances.ThelosslimitationunderthisSection3.2(a)isintendedtocomplywithTreasuryRegulationSection1.704-1(b)(2)(ii)(d),includingthereductionsdescribedinsubparagraphs(4),(5)and(6)therein.
(b)IfinanyFiscalYearaJVPartnerreceivesanadjustment,allocationordistributiondescribedinTreasuryRegulationSection1.704-1(b)(2)(ii)(d)(4),(5)or(6),itemsofJointVentureincomeandgainwillbespeciallyallocatedtoeachsuchJVPartnerinanamountandmannersufficienttoeliminate,totheextentrequiredbytheTreasuryRegulations,theCapitalAccountdeficitofsuchJVPartnerasquicklyaspossibleprovidedthatanallocationpursuanttothisSection3.2(b)willbemadeonlyifandtotheextentthatsuchJVPartnerwouldhaveaCapitalAccountdeficitafterallotherallocationsprovidedforinthisArticleIIIhavebeententativelymadeasifthisSection3.2(b)werenotintheAgreement.ThisSection3.2(b)isintendedtoqualifyandbeconstruedasa“qualifiedincomeoffset”withinthemeaningofTreasuryRegulationSection1.704-1(b)(2)(ii)(d)andwillbeinterpretedconsistentlytherewith.
(c)IfthereisanetdecreaseinminimumgainattributedtotheJointVentureorJVPartnernonrecoursedebtminimumgain(determinedinaccordancewiththeprinciplesofTreasuryRegulationSections1.704-2(d)and1.704-2(i))duringanyJointVenturetaxableyear,theJVPartnerswillbeallocateditemsofincomeandgainattributedtotheJointVentureforsuchyear(and,ifnecessary,subsequentyears)inanamountequaltotheirrespectivesharesofsuchnetdecreaseduringsuchyear,determinedpursuanttoTreasuryRegulationSections1.704-2(g)and1.704-2(i)(5).TheitemstobesoallocatedwillbedeterminedinaccordancewithTreasuryRegulationSection1.704-2(f).ThisSection3.2(c)isintendedtocomplywiththeminimumgainchargebackrequirementsinsuchTreasuryRegulationsandwillbeinterpretedconsistentlytherewith,includingthatnochargebackwillberequiredtotheextentoftheexceptionsprovidedinTreasuryRegulationSections1.704-2(f)and1.704-2(i)(4).
(d)TheallocationprovisionssetforthinthisArticleIIIandtheotherprovisionsofthisAgreementrelatingtothemaintenanceofCapitalAccountsareintendedtocomplywithTreasuryRegulationSection1.704-1(b)andwillbeinterpretedandappliedinamannerconsistentwithsuchRegulations;providedhoweverthatsuchprovisionswillnotaffecttheeconomicrightsofanyJVPartner,includingrightstodistributionswithrespecttotheJointVenture.
(e)Anyspecialallocationsofitemsofincome,gain,lossordeductionspursuanttoSections3.2(a),(b)and(c)willbetakenintoaccountincomputingsubsequentallocationspursuanttoSection3.1andthisSection3.2,sothatthenetamountofanyitemssoallocatedwill,totheextentpossible,beequaltothenetamountthatwouldhavebeenallocatedtoeachsuchJVPartnerpursuanttotheprovisionsofthisArticleIIIifsuchspecialallocationshadnotoccurred.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(f)Intheeventthatanyfees,interest,orotheramountspaidtoanyJVPartneroranyAffiliatethereofpursuanttothisAgreementoranyotheragreementattributedtotheJointVenturewithanyJVPartnerorAffiliatethereofprovidingforthepaymentofsuchamount,anddeductedbytheJointVentureinrelianceonSection707(a)and/or707(c)oftheCode,aredisallowedasdeductionstotheJointVentureonitsfederalincometaxreturnandaretreatedasJointVenturedistributions,then:
(i)theNetProfitsorNetLoss,asthecasemaybe,fortheFiscalYearinwhichsuchfees,interest,orotheramountswerepaidwillbeincreasedordecreased,asthecasemaybe,bytheamountofsuchfees,interest,orotheramountsthataretreatedasJointVenturedistributions;and
(ii)therewillbeallocatedtotheJVPartnertowhich(ortowhoseAffiliate)suchfees,interest,orotheramountswerepaid,priortotheallocationspursuanttoSection3.1,anamountofgrossincomefortheFiscalYearequaltotheamountofsuchfees,interest,orotheramountsthataretreatedasJointVenturedistributions.
(g)PriortotheallocationofNetProfitsandNetLossespursuanttoSection3.1,thefollowingallocationsshallbemadeforeachFiscalYear:
(i)TheholderoftheClassAInterestwillbespeciallyallocatedroyaltyincomeattributabletoroyaltypaymentsmadeundertheGladLicenseAgreementsforsuchFiscalYearinanamountofroyaltypayments[***]totheaggregateamountsdistributabletotheholderoftheClassAInterestunderSection3.5(b)(i)hereof(withoutregardtodistributionstreatedasguaranteedpaymentsundersuchSection)ineachFiscalQuarterinsuchFiscalYear.RoyaltyincomeallocatedtotheClassAInteresthereunderwillbeallocatedamongthevarioussourcesofsuchroyaltyincomeinthesamemanneraswithholdingtaxesarecalculatedunderthedefinitionof“DeemedWithholdingTaxes”.TheholderoftheClassAInterestwillalsobespeciallyallocatedincomeforsuchFiscalYearinan[***]oftheIPAllocationAmountswithrespecttoIPAcquisitionsforsuchFiscalYearandwillbespeciallyallocatedallincomeattributabletoGladLicenseTerminationAmountspaidforsuchFiscalYear;
(ii)AftertheallocationspursuanttoSection3.2(g)(i)aremade,theholderoftheClassBInterestwillbespeciallyallocatedroyaltyincomeattributabletoroyaltypaymentsmadeundertheGladLicenseAgreementsforsuchFiscalYearinanamount[***]royaltypaymentsreceivedundertheGladLicenseAgreementsforsuchFiscalYear,[***]theamountofroyaltyincomeallocatedtotheClassAInterestunderSection3.2(g)(i)forsuchFiscalYear.TheholderoftheClassBInterestwillalsobespeciallyallocatedincomeforsuchFiscalYear[***]IPAcquisitionPriceswithrespecttoIPAcquisitions,ifany,forsuchFiscalYearinexcessoftheaggregateIPAllocationAmountsincludedinthecalculationoftheClassASpecialAmountandtheClassCSpecialAmountforeachFiscalQuarterinsuchFiscalYear;
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(iii)TheholderoftheClassCInterestwillbespeciallyallocatedroyaltyincomeattributabletoroyaltypaymentsmadeundertheJVSublicenseAgreementsinsuchFiscalYearinanamountofroyaltypayments[***]royaltypaymentsreceivedundertheJVSublicenseAgreementsforsuchFiscalYear.TheholderoftheClassCInterestwillalsobespeciallyallocatedincomeforsuchFiscalYearinanamount[***]oftheIPAllocationAmountswithrespecttoIPAcquisitionsforsuchFiscalYearandwillbespeciallyallocated[***]attributabletoJVSublicenseTerminationAmountspaidforsuchFiscalYear;
(iv)TheCloroxPartnerswillbespeciallyallocatedalldeductionsarisingfromthepaymentofguaranteedpaymentspursuanttoSection3.5(a)andSection3.5(b)hereofinsuchFiscalYearandshallbespeciallyallocated[***]attributabletoProhibitedLicenseAmountsreceivedonbehalfoftheJointVentureinsuchFiscalYear;and
(v)EachJVPartnerwillbespeciallyallocatedalldeductionsarisingfromtheamortizationoforganizationalexpenses(withinthemeaningofSection709(b)oftheCode)incurredbysuchJVPartneronbehalfoftheJointVenture.
Section3.3Section704(c)Allocation.
(a)Forincometaxpurposesonly,eachitemofincome,gain,loss,anddeductionwithrespecttoanyProperty,theCarryingValueofwhichdiffersfromitsadjustedtaxbasisforfederalincometaxpurposes,willbeallocatedinaccordancewiththeprinciplesofSection704(c)oftheCodesoastotakeintoaccountthevariationbetweentheadjustedtaxbasisofsuchPropertyanditsCarryingValue.ForpurposesofapplyingtheprinciplesofSection704(c)oftheCode,theJointVenturewillusethetraditionalmethoddescribedinTreasuryRegulationSection1.704-3(b)orsuchothermethodsastheJVPartnersunanimouslyagree.
(b)SubjecttotheprovisionsofSection3.3(a),itemsofincome,gain,loss,deductionandcredittobeallocatedforincometaxpurposeswillbeallocatedforeachFiscalYearamongtheJVPartnersinthesamemannerandonthesamebasisasNetProfitsandNetLossareallocated,takingintoaccountspecialallocationsmadepursuanttoSection3.2.
Section3.4DistributionsofAvailableCashFlow.
(a)AftermakingdistributionsofDistributableCashFlowpursuanttoSection3.4(c)foranyFiscalQuarter,allremainingDistributableCashFlowattributedtotheJointVentureforsuchFiscalQuarterwillbedistributedbytheCloroxPartnersinaccordancewiththisSection3.4(a).IfAvailableCashFlowasshownintheQuarterlyFinancialsforanyFiscalQuarterresultsintheDistributableCashFlowforthatFiscalQuarterbeingapositivenumber,adistributionwithrespecttosuchFiscalQuarterwillbemadebytheCloroxPartnerstotheP&GPartnerswithinthree(3)BusinessDaysafterdeliveryofsuchQuarterlyFinancialsandeachCloroxPartnerwillbedeemedtohavereceivedadistributiononthatsamedate.AlldistributionsmadebytheCloroxPartnerspursuanttothisSection3.4willbein[***]totheaccountdesignatedbytheP&GPartnerstoCloroxinwriting.ExceptasotherwiseprovidedinthisSection3.4orArticleVI,alldistributionsofDistributableCashFlowfromanyFiscalQuarterwillbemadetotheJVPartnersproratainaccordancewiththeirrespectiveOrdinaryJVInterestsasofthelastdayofsuchFiscalQuartersothattheamountdistributedtotheP&GPartnerswillequalitsOrdinaryJVInterestasofsuchdaymultipliedbytheaggregateamountofDistributableCashFlow.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(b)NotwithstandingtheprovisionsofSection3.4(a),aftermakingdistributionsofDistributableCashFlowpursuanttoSection3.4(c),
(i)withrespecttothefirstfourFiscalQuartersoftheJointVenture,theremainingDistributableCashFlowwillbedistributedonehundredpercent(100%)totheCloroxPartners(proratainaccordancewiththeirrespectiveOrdinaryJVInterests);providedthatiftheP&GPartnersexercisetheP&GOptiononorpriortothefirstdayofanysuchFiscalQuarter,suchDistributableCashFlowforsuchFiscalQuarterwillbedistributed(subjecttoadjustmentpursuanttoSection2.6(f))ninetypercent(90%)totheCloroxPartners(proratainaccordancewiththeirrespectiveOrdinaryJVInterests)andtenpercent(10%)totheP&GPartners;
(ii)withrespecttothefifththrougheighthFiscalQuartersoftheJointVenture,theremainingDistributableCashFlowwillbedistributed(subjecttoadjustmentpursuanttoSection2.6(f))ninety-fivepercent(95%)totheCloroxPartners(proratainaccordancewiththeirrespectiveOrdinaryJVInterests)andfivepercent(5%)totheP&GPartners;providedthatiftheP&GPartnersexercisestheP&GOptiononorpriortothefirstdayofanysuchFiscalQuarter,suchDistributableCashFlowforsuchFiscalQuarterwillbedistributed(subjecttoadjustmentpursuanttoSection2.6(f))eighty-fivepercent(85%)totheCloroxPartners(proratainaccordancewiththeirrespectiveOrdinaryJVInterests)andfifteenpercent(15%)toP&GPartners;and
(iii)notwithstandingtheprovisionsofSection3.4(b)(i)and(ii)above,distributionsofDistributableCashFlowconsistingofthenetcashproceedsofanysale,transferorotherdispositionofanybusinessorassetsoftheGladBusinessoutsidetheordinarycourseoftheGladBusinessduringthefirsteightFiscalQuarterswillbemadetotheJVPartnersproratainaccordancewiththeirrespectiveOrdinaryJVInterestsasofthelastdayofsuchFiscalQuarter.
(c)PriortoanydistributionsofDistributableCashFlowunderSections3.4(a)or3.4(b),DistributableCashFlowforanyFiscalQuarterwillbedistributedinaccordancewiththisSection3.4(c)inthefollowingorderofpriority:
(i)IntheeventofoneormoreInternationalAcquisitionsthathaverelatedIPAcquisitionsinaFiscalQuarter,theholderoftheClassCInterestwillbeentitledtoadistributionwithrespecttosuchFiscalQuarterofDistributableCashFlowinanamountequaltothesumoftheaggregateIPAllocationAmountswithrespecttoallsuchInternationalAcquisitionsinsuchFiscalYear(the“ClassCSpecialAmount”);
(ii)IntheeventofoneormoreInternationalAcquisitionsthathaverelatedIPAcquisitionsinaFiscalQuarter,theholderoftheClassAInterestwillalsobeentitledtoadistributionwithrespecttosuchFiscalQuarterofDistributableCashFlowequaltothesumoftheaggregateIPAllocationAmountswithrespecttoallsuchInternationalAcquisitionsinsuchFiscalQuarter(the“ClassASpecialAmount”);
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(iii)TheholderoftheClassBInterestwillbeentitledtoadistributionwithrespecttoeachFiscalQuarterofDistributableCashFlowinanamountequaltotheaggregateroyaltypaymentsreceivedundertheGladLicenseAgreements(netofwithholdingtaxesimposedonsuchroyaltypayments)forsuchFiscalQuarter,minustheamountdistributabletotheholderoftheClassAInterestunderSection3.5(b)(i)forsuchFiscalQuarter;
(iv)TheholderoftheClassBInterestwillbeentitledtoaspecialdistributionwithrespecttoeachFiscalQuarterofDistributableCashFlowequaltotheaggregateIPAcquisitionPrices,ifany,forsuchFiscalQuarter,lessthesumoftheClassASpecialAmountandtheClassCSpecialAmountforsuchFiscalQuarter;and
(v)IntheeventthereisinsufficientDistributableCashFlowinanyFiscalQuartertopaytheamountsotherwisedistributableunderthisSection3.4(c)(a“DistributionShortfall”),thereshallbeaprioritydistributionofDistributableCashFlowinthenextsucceedingFiscalQuarterintheamountofsuchDistributionShortfall(andallpriorDistributionShortfallstotheextentadistributionhasnotbeenmadewithrespecttoanysuchDistributionShortfallunderthisSection3.4(c)(v))intheorderofprioritysetforthinthisSection3.4(c)tothePartieswhoweretheholdersoftheClassAInterest,ClassBInterestandClassCInterestatthetimeofsuchDistributionShortfall.NotwithstandinganythingsetforthinthisSection3.4tothecontrary,distributionsunderthisSection3.4(c)(v)shallbemadebeforeanydistributionsaremadeunderSections3.4(c)(i)through(iv),inclusive,foraFiscalQuarter.
AnydistributionsofDistributableCashFlowpursuanttothisSection3.4(c)willreducetheamountofDistributableCashFlowavailablefordistributionpursuanttoSection3.4(a)and3.4(b)hereof.
(d)TotheextentthereareanyoutstandingParentLoans,andthereisAvailableCashFlowinanyFiscalQuarter,thenallAvailableCashFlowwillbeimmediatelyappliedtowardsoutstandingParentLoansandaccruedandunpaidinterestthereonuntilallParentLoansandaccruedinterestthereonwillhavebeenrepaidinfull.AslongasanyParentLoansremainoutstanding,nodistributionswillbemadepursuanttothisSection3.4inrespectoftheJVInterests.
(e)ThePartiesacknowledgethatitisexpectedthattheGladGlobalBusinesswillparticipateinClorox’scentralizedcashmanagementsystemandthatanycashgeneratedbytheGladGlobalBusinessmaybeusedbyCloroxinitsdiscretion,subjecttotheotherprovisionsofthisAgreementandtheRelatedAgreements.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section3.5DistributionsofIPRelatedAmounts.
TheholdersoftheClassCInterestandtheClassAInterestshallbeentitledtodistributionsofthefollowingamountsreceivedundertheJVSublicenseAgreementsandtheGladLicenseAgreements,whichamountsshallbedistributedorpaid,asthecasemaybe,bytheCloroxPartnersonbehalfoftheJointVentureintheorderandprioritysetforthbelowforanyFiscalQuarter:
(a)TheholderoftheClassCInterestwillbeentitledtodistributionsof(i)allroyaltiespaidundertheJVSublicenseAgreementsforsuchFiscalQuarter(netofwithholdingtaxesimposedonsuchroyaltypayments),and(ii)allJVSublicenseTerminationAmountspaidundertheJVSublicenseAgreementsforsuchFiscalQuarter(netofwithholdingtaxesimposedonsuchJVSublicenseTerminationAmounts).IntheeventtheforegoingamountspayableunderanyJVSublicenseAgreementarenotpermittedtobepaidasaresultoflegalrestrictionsinalocaljurisdictionofanInternationalLicensee,theholderoftheClassCInterestshallbeentitledtoreceive,andtheCloroxPartnersonbehalfoftheJointVentureshallcausetobepaid,anamountequaltotheshortfall(reducedbyanywithholdingtaxesthatwouldhavebeenimposedhadthefullamountsdueactuallybeenpaidbytheInternationalLicensee).TheamountofsuchpaymentshallbetreatedasaguaranteedpaymentunderSection707(c)oftheCode.Fortheavoidanceofdoubt,noP&GPartnershallberequiredtocontributeorotherwisefund,directlyorindirectly,suchguaranteedpayments.IftheInternationalLicenseeislaterpermittedbythelocaljurisdictiontomakeroyaltypaymentsthatwerepreviouslyprohibited,theamountofsuchpaymentsreceivedshallbedistributedtotheCloroxPartners.
(b)TheholderoftheClassAInterestwillbeentitledtodistributionsof(i)royaltiespaidundertheGladLicenseAgreementsforsuchFiscalQuarterinanamountequaltotheClassARoyaltyAmount(or,intheeventtheaggregateroyaltypaymentspaidundertheGladLicenseAgreementsforsuchFiscalQuarter(netofwithholdingtaxesimposedonsuchroyaltypayments)arelessthantheClassARoyaltyAmount,suchlesseramountofroyaltypayments)and(ii)allGladLicenseTerminationAmountspaidundertheGladLicenseAgreementsforsuchFiscalQuarter(netofwithholdingtaxesimposedonsuchamounts).IntheeventtheP&GOptionhasbeenexercised,totheextent(x)theaggregateroyaltypaymentsundertheGladLicenseAgreementsforaFiscalQuarterarelessthantheClassARoyaltyAmountforsuchFiscalQuarteror(y)GladLicenseTerminationAmountsarenotpermittedtobepaidasaresultoflegalrestrictionsinalocaljurisdictionofanInternationalLicensee,theholderoftheClassAInterestwillbeentitledtoreceive,andtheCloroxPartnersonbehalfoftheJointVentureshallcausetobepaidanamountequaltosuchshortfall(inthecaseofclause(y),reducedbyanywithholdingtaxesthatwouldhavebeenimposedhadthefullamountsdueactuallybeenpaidbytheInternationalLicensee).TheamountofsuchpaymentshallberegardedasaguaranteedpaymentunderSection707(c)oftheCode.Fortheavoidanceofdoubt,noP&GPartnershallberequiredtocontributeorotherwisefund,directlyorindirectly,suchguaranteedpayments.IftheInternationalLicenseeislaterpermittedbythelocaljurisdictiontomakeroyaltypaymentsthatwerepreviouslyprohibited,theamountofsuchpaymentsreceivedshallbedistributedtotheCloroxPartners(suchamounts,togetherwiththeamountsdescribedinthelastsentenceofSection3.5(a)hereof,shallbereferredtoas“ProhibitedLicenseAmounts”).
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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ARTICLEIV
REPRESENTATIONSANDWARRANTIES
Section4.1RepresentationsandWarrantiesofalltheParties.
EachoftheCloroxPartiesherebyjointlyandseverallyrepresentsandwarrantstotheP&GPartieswithrespecttoeachGladParty,andeachoftheP&GPartiesherebyjointlyandseverallyrepresentsandwarrantstoeachoftheCloroxPartieswithrespecttoeachoftheP&GParties,asfollows,ineachcasesubjecttotheexceptionssetforthontheCloroxDisclosureSchedule,ortheP&GDisclosureSchedule,asapplicable:
(a)OrganizationandAuthority.SuchPartyisdulyorganized,validlyexistingandingoodstandingunderthelawsofitsjurisdictionoforganization,andhastherequisitepowerandauthoritytoown,leaseandoperateitspropertiesandtoconductitsbusinessasnowconductedbyit.SuchPartyhasallrequisitepowerandauthoritytoenterintothisAgreementandtheRelatedAgreementstowhichitisapartyandtoperformitsobligationshereunderandthereunder.SuchPartyisqualifiedtodobusinessandisingoodstandingasaforeigncorporation,partnershiporotherentity,asapplicable,inalljurisdictionsinwhichitconductsitsbusiness,exceptwherethefailuretobesoqualifieddoesnotandwillnot,individuallyorintheaggregate,haveaMaterialAdverseEffect.
(b)Authorization.Theexecution,deliveryandperformancebysuchPartyofthisAgreementandtheRelatedAgreements,ineachcasetowhichitisaparty,andtheconsummationbysuchPartyofthetransactionscontemplatedherebyandtherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthepartofsuchParty.ThisAgreementhasbeen,andeachoftheRelatedAgreementswillontheClosingDatebe,ineachcasetowhichitisaparty,dulyexecutedanddeliveredbysuchPartyandconstitutesor,inthecaseoftheRelatedAgreements,uponexecutionthereofbyallotherappropriatepartieswillconstitute,avalidandlegallybindingobligationofsuchParty,enforceableagainstitinaccordancewithitsterms,subjecttotheeffectsofbankruptcy,insolvency,fraudulentconveyance,reorganization,moratoriumandothersimilarlawsrelatingtooraffectingcreditors’rightsgenerally,generalequitableprinciples(whetherconsideredinaproceedingatequityoratlaw)andanimpliedcovenantofgoodfaithandfairdealing.
(c)ConsentsandApprovals;NoConflicts.Theexecution,deliveryandperformancebysuchPartyofthisAgreementandtheRelatedAgreements,ineachcasetowhichitisaparty,andtheconsummationbysuchPartyofthetransactionscontemplatedherebyandtherebywillnot(i)conflictwithorresultinabreachofanyprovisionofthecharterorbylaws(orequivalentgoverningdocuments)ofsuchParty,(ii)requireanyconsent,approval,authorizationorpermitof,orfilingwithornotificationto,anyGovernmentalAuthority,(iii)requiretheconsentorapprovalofanyPerson(otherthanaGovernmentalAuthority)orviolateorconflictwith,orresultinabreachofanyprovisionof,constituteadefault(oraneventwhichwithnoticeorlapseoftimeorbothwouldbecomeadefault)orgivetoanythirdpartyanyrightoftermination,cancellation,amendmentoraccelerationunder,orresultinthecreationofaLienonanyoftheassetsattributedtotheJointVentureunder,anyoftheterms,conditionsorprovisionsofanycontractorlicensetowhichsuchPartyisapartyorbywhichitoritsassetsorpropertyarebound,or(iv)violateorconflictwithanyorder,writ,injunction,decree,statute,ruleorregulationapplicabletosuchParty;otherthananymattersdescribedinclauses(ii),(iii)and(iv)abovewhich,individuallyorintheaggregate,donotandwillnothaveaMaterialAdverseEffect.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(d)CertainFees.NeithersuchPartynoranyofitsofficers,directorsoremployees,onbehalfofsuchParty,hasemployedanybrokerorfinderorincurredanyotherLiabilityforanybrokeragefees,commissionsorfinders’feesinconnectionwithtransactionscontemplatedhereby.
Section4.2RepresentationsandWarrantiesoftheCloroxParties.
EachoftheCloroxPartiesherebyjointlyandseverallyrepresentsandwarrantstotheP&GPartiesasfollows,ineachcasesubjecttotheexceptionssetforthontheCloroxDisclosureSchedule:
(a)FinancialStatements.
(i)TheGladFinancialStatementswerederivedfromthebooksandrecordsoftheGladBusiness.TheGladBalanceSheethasbeenpreparedinaccordancewiththemethodologiessetforthinthePWCReportconsistentlyapplied.TheincomestatementincludedintheGladFinancialStatementshasbeenpreparedinaccordancewiththeJVAccountingPrinciples.TheapplicationoftheJVAccountingPrincipleswillnotaffectthestatementofresultsofoperationsincludedintheGladFinancialStatements.TheGladFinancialStatementsfairlyandtrulypresentinaccordancewiththeJVAccountingPrinciplesthefinancialpositionoftheGladBusinessasatJune30,2002andtheresultsofitsoperationsfortheyearthenended,beforedeductionsforanyincomeTaxesandaftercertaininternaladjustmentsindicatedinthenotesthereto.
(ii)AsoftheClosing,theGladBusinesswillhavesufficientWorkingCapitaltooperatetheGladBusinessaftertheClosingintheordinarycourseconsistentwithpastpractice.Forpurposeshereof,“WorkingCapital”iscalculatedas(i)thecurrentassetsoftheGladBusinessattributedtotheJointVentureminus(ii)thecurrentLiabilitiesoftheGladBusinessattributedtotheJointVenture,preparedandcalculatedasprovidedintheimmediatelyprecedingsentence.
(iii)ExceptasandtotheextentdisclosedintheGladBalanceSheetand,exceptforLiabilitiesincurredinconnectionwiththetransactionscontemplatedbythisAgreementandtheRelatedAgreements,therearenoLiabilitiesoftheGladBusiness,thatwouldberequiredtobereflectedon,orreservedagainst,inaconsolidatedbalancesheetoftheGladBusinessinaccordancewiththeJVAccountingPrinciples,exceptfor(x)Liabilitieswhich,singlyorintheaggregate,donotandwillnothaveaMaterialAdverseEffect,and(y)LiabilitiesincurredsubsequenttothedateofsuchbalancesheetbytheGladBusinessintheordinarycourseofbusinessconsistentwithpastpractice.
(iv)AnyhedgearrangementsincludedintheLiabilitiestobeattributedtotheGladGlobalBusinesspursuanttoSection2.2(a)(iii)(c)relatetotheunderlyingbusinessoperationsoftheGladGlobalBusinessandarenotheldforspeculativepurposes.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(v)Cloroxhasfiledonatimelybasisallforms,reportsanddocumentsrequiredtobefiledwiththeUnitedStatesSecuritiesandExchangeCommission(the“SEC”)sinceJuly1,2001(allforms,reportsanddocumentsfiledbyCloroxwiththeSECsinceJuly1,2001arereferredtohereinasthe“SECDocuments”).TheSECDocuments(A)compliedastoforminallmaterialrespectswiththerequirementsoftheSecuritiesActof1933,asamended,ortheExchangeActof1934,asamended,asthecasemaybe,andtherulesandregulationsthereunder,eachasineffectonthedatesofiledoramended,and(B)didnotatthetimetheywerefiled(orifamendedorsupersededbyafilingpriortothedateofthisAgreement,thenonthedateofsuchfiling)containanyuntruestatementofamaterialfactoromittostateamaterialfactrequiredtobestatedthereinornecessaryinordertomakethestatementstherein,inthelightofthecircumstancesunderwhichtheyweremade,notmisleading.
(vi)ThemostrecentauditedannualfinancialstatementsandunauditedquarterlyfinancialstatementsincludedintheSECDocumentswerepreparedinaccordancewithGAAPappliedonaconsistentbasisthroughouttheperiodsinvolved(exceptasmaybeindicatedinthenotestheretoorintheSECDocuments),andeachfairlypresentstheconsolidatedfinancialpositionofCloroxanditsSubsidiariesattherespectivedatesthereofandtheconsolidatedresultsoftheiroperationsandcashflowsfortheperiodsindicated,exceptthattheunauditedinterimfinancialstatementswereoraresubjecttonormalandrecurringyear-endadjustmentsanddonotcontainallofthefootnotedisclosuresrequiredbyGAAP.
(vii)EachofthebalancesheetssetforthinthePWCReportwithrespecttotheGladExistingInternationalBusinessinCanada,AustraliaandNewZealand(the“ExistingInternationalBalanceSheets”)hasbeenpreparedinaccordancewiththemethodologiessetforthinthePWCReportconsistentlyapplied,andisaccuratebasedonsuchmethodologies.TheapplicationoftheJVAccountingPrinciplestotheExistingInternationalBalanceSheetswillnotaffectthestatementofresultsofoperationsincludedinthePWCReportwithrespecttotheGladExistingInternationalBusinessinCanada,AustraliaandNewZealand.TheincomestatementsincludedinthePWCReportwithrespecttotheGladExistingInternationalBusinessinCanada,AustraliaandNewZealandfairlyandtrulypresentinaccordancewiththeJVAccountingPrinciplestheresultsofoperationsoftheGladExistingInternationalBusinessinsuchcountriesinaccordancewiththeJVAccountingPrinciples,excludingcostsincludedthereinthatwouldbechargedthroughtheCloroxServicesinaccordancewithExhibitF.
(viii)TherearenoLiabilitiesoftheGladExistingInternationalBusinessinSouthAfrica,CostaRica,HongKong,PhilippinesandKorea,singlyorintheaggregate,which,inlightofthebusiness,properties,assetsandcashflowoftheGladExistingInternationalBusinessinsuchcountries,doorwillhaveamaterialadverseeffectuponthebusiness,properties,financialconditionorresultsofoperationsoftheGladExistingInternationalBusinessoraMaterialAdverseEffect.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(b)AbsenceofCertainChangesorEvents.SinceJune30,2002,theGladPartieshaveconductedtheGladGlobalBusinessinallmaterialrespectsonlyintheordinarycourse,consistentwithpastpracticeandexceptasreflectedintheGladFinancialStatements,sincesuchdatetherehasnotbeen,priortothedatehereof,(i)anymaterialadversechangeinthebusiness,properties,financialconditionorresultsofoperationsoftheGladGlobalBusiness,exceptasmayarisefromorrelatetochangesingeneraleconomicconditionsinthegeographicregionsinwhichtheGladGlobalBusinessoperatesor(ii)anydamage,destruction,loss,conversion,condemnationortakingbyeminentdomainrelatedtoanymaterialpropertyorassetsoftheGladGlobalBusinessexceptforsuchmattersthat,individuallyorintheaggregate,donotandwillnothaveaMaterialAdverseEffectrelatedtotheGladGlobalBusiness.
(c)SufficiencyofandTitletoProperties;AbsenceofLiensandEncumbrances.TheCloroxPartiesandtheirSubsidiarieshavegoodtitletoallproperties,assetsandotherrightsreflectedasownedbytheCloroxPartiesontheGladBalanceSheetoracquiredafterthedateofsuchGladBalanceSheetandpriortotheClosingDate,aswellasallotherproperties,assetsandotherrightsincludedintheCloroxContribution,freeandclearofallLiens(otherthanPermittedLiens),exceptforanysuchproperties,assetsorotherrightssold,transferredorotherwisedisposedofafterthedateoftheGladBalanceSheetandpriortotheClosingintheordinarycourseoftheGladBusinessandnotinviolationofSection7.7hereof.TheGladPartiesandtheirSubsidiarieswillownorhavetherighttouseallproperties,assetsandotherrightsusedtogeneratetheincomereflectedintheincomestatementsincludedinthePWCReportwithrespecttotheGladExistingInternationalBusinessexceptforanysuchproperties,assetsorotherrightssold,transferredorotherwisedisposedofafterthedateofsuchincomestatementsandpriortotheClosingintheordinarycourseoftheGladExistingInternationalBusinessandnotinviolationofSection7.7hereof.
(d)Properties,Contracts,PermitsandOtherData.Allrights,licenses,leases,registrations,applications,contracts,commitmentsandotheragreementsoftheGladGlobalBusinessorbywhichtheassetsusedintheGladGlobalBusinessareboundareinfullforceandeffectandarevalidandenforceableinaccordancewiththeirrespectivetermsexceptforsuchfailurestobeinfullforceandeffectandvalidandenforceablethatdonotandwillnot,individuallyorintheaggregate,haveaMaterialAdverseEffect.TheGladPartiesarenotinbreachordefaultintheperformanceoftheirobligationsthereunderwithrespecttotheGladGlobalBusinessandnoeventhasoccurredorhasfailedtooccurwherebyanyoftheotherpartiestheretohavebeenorwillbereleasedtherefromorwillbeentitledtorefusetoperformthereunder,exceptforsuchmatterswhichdonotandwillnotindividuallyorintheaggregate,aMaterialAdverseEffect.
(e)RealProperty.WithrespecttoanyrealpropertyownedbytheGladPartiesandusedintheGladGlobalBusiness(the“OwnedRealProperty”),theGladPartieshavegoodtitletosuchparcel,freeandclearofallLiens,exceptforPermittedLiens,and(i)therearenoleases,subleases,licensesoragreementsgrantingtoanypartyorpartiestherightofuseoroccupancyofanyportionofsuchOwnedRealProperty;andtherearenooutstandingoptionsorrightsoffirstrefusaltopurchasesuchparcel,oranyportionthereoforinteresttherein,ineachcaseexceptas,individuallyorintheaggregate,donotandwillnothaveaMaterialAdverseEffect.WithrespecttoanyrealpropertyleasedbytheGladPartiesandusedintheGladGlobalBusiness(the“LeasedRealProperty”),noneoftheGladPartieshasassigned,transferred,conveyed,mortgaged,deededintrustorencumberedanyinterestintheleaseholdorsubleaseholdunderanyLeasedRealPropertyandtherearenoleases,subleases,licensesoragreementsgrantingtoanythirdpartyorpartiestherightofuseoroccupancyofanyportionofanyLeasedRealProperty,ineachcaseexceptasdonotandwillnothaveaMaterialAdverseEffect.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(f)LegalProceedings.AsofthedateofthisAgreement,thereisnomateriallitigation,proceedingorgovernmentalinvestigationtowhichanyGladPartyisapartypendingor,totheknowledgeoftheCloroxParties,threatenedagainsttheGladPartiesortheirrespectiveSubsidiariesarisingoutoforrelatedtotheGladGlobalBusinessorassetsusedintheGladGlobalBusinessorthetransactionscontemplatedbythisAgreementorwhichseekstorestrainorenjointheconsummationofanyofthetransactionscontemplatedhereby.TheGladPartiesarenotapartytowithrespecttotheGladGlobalBusiness,noraretheassetsusedintheGladGlobalBusinesssubjectto,anymaterialjudgment,writ,decree,injunctionororderenteredbyanycourtorGovernmentalAuthority(domesticorforeign).
(g)LaborControversies.(i)Therehavebeennolaborstrikes,slow-downs,workstoppagesorlock-outsduringthepastthreeyears,norisanysuchstrike,slow-down,workstoppageorlock-outpendingor,totheknowledgeoftheCloroxParties,threatenedwithrespecttothecurrentorformeremployeesoftheGladPartiesperformingserviceswithrespecttotheGladGlobalBusinessand(ii)theGladPartiesarenotpartywithrespecttotheGladGlobalBusinesstoanycollectivebargainingagreement,contract,letterofunderstandingor,totheknowledgeoftheCloroxParties,anyotheragreement,formalorinformalwithanylaborunionororganization.
(h)IntellectualPropertyandTechnology.TheGladPartiesown,orarelicensedtouse,allIntellectualPropertyusedintheGladGlobalBusinessasofthedatehereofandasusedduringthe[***].ThepatentsandtrademarksusedintheGladGlobalBusinessareunexpiredandhavenotbeenabandonedotherthanpursuanttoareasonablebusinessdecisionmadeintheordinarycourseofbusiness.ThepatentsandtrademarksoftheGladGlobalBusinessarevalidandenforceable.TotheknowledgeoftheCloroxParties,theIntellectualPropertyusedintheGladGlobalBusinessisnotbeingInfringedbyanythirdparty.TheconductoftheGladGlobalBusiness,includingtheuseorpracticeofthepatentsintheGladGlobalBusinessandtheuseofthetrademarksintheGladGlobalBusiness,consistentwithpastpracticeduringthe[***]doesnotInfringeuponormisappropriatetheIntellectualPropertyofanythirdparty.Exceptasexpresslyprovidedinthe[***]noneoftherightsofCloroxoritsAffiliatestoanyIntellectualPropertyusedintheGladGlobalBusinesswillbeimpairedbythetransactionsprovidedforherein.Therearenocurrentlypendingclaims(whetherprivateorgovernmental)againstanyoftheGladParties,ortotheirknowledgethreatened,thatseektolimittheirrighttouseanyoftheIntellectualPropertyusedbytheGladPartiesinconductingtheGladGlobalBusinessorallegingthattheuseofanyIntellectualPropertybytheGladPartiesdoesnotcomplywithanygovernmentalregulation,orthatseektocancelorquestionthevalidity,enforceability,ownershiporuseofanyIntellectualPropertyusedintheGladGlobalBusiness.TheGladPartieshavetakenallreasonablestepstoprotect,maintainandsafeguardtheIntellectualPropertyusedintheGladGlobalBusiness.Thefoodstorage,bags,wrapsandcontainerproductsoftheGladBusinesscontainonlysubstancesthatarefood-contactsafeasdeterminedbytheUnitedStatesFoodandDrugAdministration(“FDA”)anddonotcontainanyothersubstancesthatrequireapprovaloftheFDAoranyotherGovernmentalAuthority.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(i)GovernmentLicenses,Permits,Etc.TheGladPartieshavealllicenses,permits,consents,approvals,authorizations,qualificationsandordersofGovernmentalAuthoritiesrequiredfortheconductoftheGladGlobalBusinessaspresentlyconductedbytheGladPartiesconsistentwithpastpractice,exceptwherefailuredoesnotandwillnot,individuallyorintheaggregate,haveaMaterialAdverseEffect.
(j)ConductofBusinessinCompliancewithRegulatoryandContractualRequirements.TheGladPartieshavecompliedinconductingtheGladGlobalBusinesswithallapplicablelaws,ordinances,regulationsorordersorotherrequirementsofanyGovernmentalAuthority,includingallrules,regulationsandadministrativeordersrelatingtoanti-competitivepractices,discrimination,employment,healthandsafety,exceptforsuchmatterswhichdonotandwillnothave,individuallyorintheaggregate,aMaterialAdverseEffect.
(k)EnvironmentalMatters.Exceptformattersthat,individuallyorintheaggregate,donotandwillnothaveaMaterialAdverseEffect,(i)therearenoMaterialsofEnvironmentalConcernatanypropertyownedorleasedbytheGladPartiesandusedintheconductoftheGladGlobalBusinessthathaveorwillgiverisetoanyLiabilityunderanyEnvironmentalLaw;and(ii)nojudicial,administrative,orarbitralproceeding(includinganynoticeofviolationorallegedviolation)underanyEnvironmentalLawtowhichanyGladPartyis,ortotheknowledgeoftheCloroxPartieswillbe,namedasapartyispendingor,totheknowledgeoftheCloroxParties,threatenedwithrespecttotheGladGlobalBusiness.
(l)TaxMatters.
Exceptformattersthat,individuallyorintheaggregate,donotandwillnot,haveaMaterialAdverseEffect:
(i)(x)theGladPartieshave(A)dulyandtimelyfiledwiththeappropriatetaxauthorityallTaxreturnsrequiredtobefiledbyorwithrespecttotheGladGlobalBusiness,and(B)paidinfullallTaxesduebyorinrespectoftheGladGlobalBusinessforallperiods;and(y)theGladPartieshave,inrespectoftheGladGlobalBusiness,properlywithheldamountsforTaxesfromitsemployeesandhasmadeallremittancesofamountsrequiredtobewithheldand,withrespecttosuchemployees,hasfiledallTaxreturnsandreportsrequiredtobefiledwithanytaxauthority;
(ii)thereisnoexistingTaxauditorproceedingbetweenanyGladPartyandanyTaxauthoritywithrespectto,orwhichmayhaveaneffecton,theGladGlobalBusiness;therearenoclaimsforTaxesthathavebeenassertedorproposedinwritingagainstanyGladPartywithrespectto,orwhichmayhaveaneffecton,theGladGlobalBusiness;and
(iii)therearenoLiensforTaxes,noranypendingorthreatenedLiensforTaxes,uponanypropertyorassetsoftheGladGlobalBusiness,exceptforLiensforcurrentTaxesnotyetdue.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(m)EntireBusiness.Exceptfor(i)theCloroxExcludedAssets,(ii)theproperties,assetsandotherrightsusedbyCloroxanditsSubsidiariestoconducttheCloroxServicesand(iii)theproperties,assetsandotherrightsusedbytheGladPartiestoconducttheGladExistingInternationalBusiness,theCloroxContributionconstitutesalloftheproperties,assets,contractsandotherrightsnecessaryfortheconductoftheGladGlobalBusinessascurrentlyconductedbytheGladPartiesconsistentwithpastpractice.
(n)AffiliateTransactions.ExceptfortransactionsandothermatterssubjecttotheJVAccountingPrinciplesortheRelatedAgreementsandfortheCloroxServices,therearenoagreements,arrangements,undertakingsorothertransactionsbetweentheGladGlobalBusinessandanyotherbusinessordivisionofClorox,exceptfortransactionsintheordinarycourseofbusinessontermscomparableinallmaterialrespectstothosethatitwouldobtaininacomparablearm’slengthtransactionwithathirdpartythatisnotanAffiliate.
(o)EmployeeBenefitMatters.Eachemployeebenefitplan,severance,change-in-controloremploymentplan,programoragreement,stockoption,bonusplan,orincentiveplanorprogramoftheGladPartieswithrespecttoemployeesengagedinconductingtheGladGlobalBusiness(suchplans,the“CloroxBenefitPlans”)hasbeenadministeredandisincompliancewiththetermsofsuchCloroxBenefitPlanandallapplicablelaws,rulesandregulationsexceptwherethefailurethereofdoesnotandwillnot,individuallyorintheaggregate,resultinLiabilitythathasorwillhaveaMaterialAdverseEffect.NolitigationoradministrativeorotherproceedinginvolvinganyCloroxBenefitPlanhasoccurredor,totheknowledgeoftheCloroxParties,isthreatenedwhereanadversedeterminationwouldresultinLiabilitythathasorwillhaveaMaterialAdverseEffect.
(p)Insurance.TheGladPartieshaveinsurancepolicieswithrespecttotheassetsandLiabilitiesattributedtotheGladGlobalBusinessthatareofthetypeandinamountsthatareadequatetoprotectandconducttheGladGlobalBusiness.ThereisnomaterialclaimbyCloroxoranyofitsSubsidiariespendingunderanyofsuchinsurancepolicies.
Section4.3RepresentationsandWarrantiesofP&G.
EachoftheP&GPartiesherebyjointlyandseverallyrepresentsandwarrantstotheCloroxPartiesasfollows,subjecttotheexceptionssetforthontheP&GDisclosureSchedule:
(a)P&GEquipment.TheP&GPartiesortheirAffiliateshave,andattheClosingtheCloroxPartieswillreceive,goodandmarketabletitletotheP&GEquipment,freeandclearofallLiensexceptforPermittedLiens.TheP&GEquipmentisingoodconditionand,totheextentinstalled,hasbeenreasonablymaintainedconsistentwithstandardsgenerallyfollowedintheindustry,andissuitableforuseasitiscurrentlyusedandascurrentlyexpectedtobeusedinconnectionwiththeGladGlobalBusinessaftertheClosing.
(b)LegalProceedings.AsofthedateofthisAgreement,thereisnomateriallitigation,proceedingorgovernmentalinvestigationtowhichtheP&GPartiesortheirAffiliatesisapartypendingor,totheknowledgeoftheP&GParties,threatenedagainstP&GoritsSubsidiariesorrelatingtotheP&GEquipmentorthetransactionscontemplatedbythisAgreementorwhichseekstorestrainorenjointheconsummationofanyofthetransactionscontemplatedhereby.NoneoftheP&GPartiesisapartyto,noristheP&GEquipmentsubjectto,anymaterialjudgment,writ,decree,injunctionororderenteredbyanycourtorGovernmentalAuthority(domesticorforeign).
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section4.4SurvivalofRepresentationsandWarranties
TherepresentationsandwarrantiesgivenbythePartiesinthisArticleIVandcontainedinthecertificatesdeliveredpursuanttoArticleVIIIwillsurviveuntiltheeighteen(18)monthanniversaryoftheClosingDate,atwhichtimesuchrepresentationsandwarrantieswillterminateandhavenofurtherforceoreffectexceptforanyclaimofbreachthathasbeenmadeinwritingtoClorox(inthecaseofanybreachofrepresentationorwarrantybytheCloroxParties)ortheP&GParties(inthecaseofanybreachofrepresentationorwarrantybytheP&GParties)priortosuchtermination.
ARTICLEV
GOVERNANCE
Section5.1BoardofManagers.
(a)Theday-to-daybusinessoftheJointVenturewillbemanagedbytheCloroxPartners,underthedirectionandcontroloftheboardofmanagersoftheJointVenture(the“Board”).TheBoardwillconsistoffive(5)managersorsuchothernumber(butinnoeventfewerthanthree(3))asmaybeestablishedfromtimetotimebytheBoard.TheCloroxPartnersandtheP&GPartnerswillbeentitledtorepresentationontheBoardinproportiontotheirrespectiveJVInterests,providedthatthenumberofmanagersthateachoftheCloroxPartners(together)andtheP&GPartners(together)mayappointwillberoundedtothenearestwholenumber.Notwithstandingtheforegoing,duringtheTerm,theP&GPartners(together)willhavetherighttoappointatleastonememberoftheBoard.TheremainingmembersoftheBoardwillbeappointedbytheCloroxPartners,providedthat,intheeventthetotalnumberofmembersisadjusted,theCloroxPartnerswillinallcaseshavetherighttoappointamajorityoftheBoard.IntheeventtheP&GPartnersexercisetheP&GOption,theP&GPartners’representationontheBoardwillbeadjusted,ifnecessary,soastocomplywiththisSection5.1(a).EachJVPartnerwillhavetherighttoremoveanddesignatereplacementsofthosemembersoftheBoardappointedbyit,andeachJVPartneragreestotakeanyactionsnecessarytocausesuchdesignationsorremovalsinaccordancewiththisSection5.1tobegivenimmediateeffect,andtogiveeffecttodecisionsoftheBoardvalidlytakeninaccordancewiththetermshereof.TheinitialBoardwillconsistofWarwickEvery-Burns,WayneDelker,GregFrankandLarryPeirosastheCloroxPartners’appointeesandRobertMcDonaldastheP&GPartners’appointee.ReplacementBoardmembersdesignatedbytheP&GPartnerswillbereasonablyacceptabletoClorox.TheBoardwillappointbymajorityvoteoneofitsmembersappointedbytheCloroxPartnerstopresideatmeetingsoftheBoard.
(b)TheP&GPartnerswillalsobeentitledtodesignateinwritingtoCloroxuptotwo(2)representativesreasonablysatisfactorytoCloroxtoattendallmeetingsoftheBoardinanonvotingobservercapacity(the“P&GObservers”).Suchrepresentativeswillreceivecopiesofallnotices,minutes,consents,andothermaterialsasandwhenprovidedtothemembersoftheBoard,providedthatallsuchrepresentativesmustagreetobeboundbythesamepoliciesandagreementsrelatingtoconfidentialitywithrespecttoinformationconcerningtheJointVentureasapplytothemembersoftheBoardappointedbytheP&GPartners.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(c)Notwithstandingtheforegoing,theprovisionsofthisArticleVwillnotentitleanyPersontoreceiveanyinformationfromanyCloroxPartnerintheeventandtotheextentthat:(i)suchinformationwouldbesubjecttoattorney-clientorotherlegally-recognizedprivilegeexceptforitsbeingprovidedtosuchPersonand(A)basedonthereasonableadviceofitscounseltheCloroxPartnerdeterminesthatsuchprivilegewouldnolongerbeavailableintheeventtheinformationwasdisclosedtosuchPersonand(B)theCloroxPartnerdesirestoretaintheavailabilityofsuchprivilegewithrespecttosuchinformation,(ii)suchinformationissubjecttoconfidentialityobligationsoftheCloroxPartnerstothirdparties,whichobligationsexistedpriortothedateofthisAgreementandwouldbebreachedbythedisclosuretosuchPersonor(iii)suchinformationisdeterminedbyCloroxreasonablyandingoodfaithasbeinginformationthatcouldbeusedbytheP&GPartnerstothecompetitivedisadvantageofanybusinessofoperationsofCloroxanditsSubsidiariesotherthantheGladGlobalBusiness.Notwithstandingtheforegoing,thePartiesacknowledgeandagreethattheyintendtominimizetheamountofinformationnotsharedbytheCloroxPartnerswiththeP&GPartnerswithrespecttotheGladGlobalBusiness.Accordingly,theCloroxPartnersagreetousetheir[***]effortstoidentifyandimplementappropriatemeanstosharesuchinformationwhileatthesametimeprotectingtheinterestsoftheJointVentureandtheCloroxPartners.
(d)TheBoardhas,subjecttothecontroloftheJVPartners,generalsupervision,directionandcontrolofthebusinessoftheJointVenture.TheBoardwillhavethegeneralpowersanddutiestypicallyvestedintheboardofdirectorsofacorporationandallotherpowersanddutiesovertheJointVentureanditsbusinessexceptasexpresslyprovidedelsewhereinthisAgreement,providedthatthepoweroftheBoardwillbenogreaterthanthepowersoftheboardofdirectorsorequivalentgoverningbodyofanyotherbusinessunitofClorox,andtheoperationsoftheGladBusinesswillremainsubjecttoinallrespects,andtheprovisionsofthisSection5.1willinnowayaffect,anyrequirementsforapprovaloftheboardofdirectorsofCloroxwithrespecttoanymatter.CertainspecificitemsthatwillbesubjecttoBoard-levelauthorizationareidentifiedinSections5.3,5.4and5.5hereof.
(e)TheJointVenturewillbemanagedintheUnitedStatesonaday-to-daybasisbyaGladLeadershipTeam(“GladLeadershipTeam”)thatwillconsistoftheexecutivemanagementteamfortheGladBusinessandwillreporttotheBoard.ThecompositionoftheGladLeadershipTeamwillconsistprimarilyofrepresentativesof[***].TheP&GPartners[***]GladLeadershipTeam[***]positiontobedeterminedbytheBoard,andsubjecttothe[***].Therepresentatives[***]ontheGladLeadershipTeamwill[***]willbeattributedtothe[***].
(f)ThepersonsdesignatedbytheP&GPartnersasBoardmembers,P&GObserversand[***]willallbeemployeesofP&GoritsSubsidiarieswhohavesufficientseniority,knowledgeandexperiencetocontributetothesuccessoftheGladBusiness.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(g)NomemberoftheBoardorP&GObserverwillreceiveanycompensationforservingasBoardmemberornon-votingobserverontheBoard,otherthanreimbursementforreasonableout-of-pocketexpensesfortraveltoandfrommeetingsoftheBoard,whichreimbursementwillbepaidbythePartyappointingsuchBoardmemberornon-votingobserver.
(h)Notwithstandinganythingtothecontrarycontainedherein,butsubjecttotheprovisionsofSection7.1hereof,allmattersrelatingtothepricingofintercompanytransfersandchargesbetweenoramonganyoftheCloroxPartnerswillbedecidedbytheCloroxPartners,intheirsolediscretion,andtheBoardwillhavenocontrolwhatsoeveroversuchmatters,providedthatsuchintercompanytransfersandchargesareconsistentwiththeJVAccountingPrinciples,thisAgreementandtheRelatedAgreementsandtheeffectsofallsuchintercompanytransfersandchargesonthecalculationofNetProfitsandNetLossoftheJointVentureareeliminatedtherefrominaccordancewiththeJVAccountingPrinciples.
(i)TheBoardwillhavetherighttoformoneormorecommitteesoftheBoardandtodelegateauthoritytosuchcommitteesinitsdiscretion,providedthattheformationofanycommittee,itssize,theidentityofitsmembers,andthescopeofauthoritytobedelegatedtoitwillallsubjecttotheunanimousapprovaloftheBoard.
Section5.2MeetingsoftheBoard.
(a)TheBoardwillmeetatleastsix(6)timesayearforthefirsttwoFiscalYearsoftheJointVentureandfour(4)timesannuallythereafter.RegularmeetingsoftheBoardwillbescheduledwithatleastfive(5)BusinessDaysnotice.SpecialmeetingsoftheBoardforanypurposemaybecalledatanytimebythepersonselectedtopresideatmeetingsoftheBoard,uponatleasttwo(2)BusinessDaysnoticeunlesswaivedbyeachmemberoftheBoard.NoticeofthetimeandplaceofanymeetingoftheBoardwillbegiventoeachBoardmember(i)personallycommunicatedtothembytelephone,andconfirmedinwritingbyfacsimileorelectronicmail,or(ii)communicatedbyFederalExpressorothercomparableovernightcourierservice(receiptrequested).
(b)MeetingsoftheBoardwillbeheldattheJointVenture’sofficesinOakland,California,unlesssomeotherplaceisdesignatedinthenoticeofthemeeting.AnymemberoftheBoardmayparticipateinameetingbyconferencetelephoneorsimilarmediumsolongasallmembersoftheBoardparticipatinginsuchmeetingcanhearoneanotherandanysuchmemberwillcounttowardsthedeterminationofthepresenceofaquorum.AccurateminutesofanymeetingoftheBoardwillbemaintainedbythepersondesignatedbytheBoardforthatpurpose.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(c)AquorumforanymeetingoftheBoardwillrequirethepresenceof(x)amajorityofthetotalnumberofincumbentmembersoftheBoardand(y)atleastonememberappointedbytheP&GPartners,whichmembermustbeavotingmember.AnyBoardmembermayappointanotherindividualtoactinhisorhersteadforaparticularBoardmeetingbyexecutingawrittenproxythatisdeliveredtotheBoardatthemeetingandfiledwiththerecordsoftheBoardwithrespecttosuchmeeting.AnyBoardmembermakingsuchanappointmentwillseekingoodfaithtoprovidethatthepersonappointedwillbeofcomparableseniorityand/orexperiencewithrespecttotheJointVenturetosuchBoardmember.ExceptasotherwisesetforthinthisAgreement,anactionordecisionoftheBoardwillrequiretheconsentorvoteofamajorityofitsmembers.ExceptasotherwiseprovidedinthisAgreementorbyapplicablelaw,theactionofamajorityofthemembersoftheBoardpresentatanymeetingatwhichthereisaquorum,whendulyassembled,isvalid.Ameetingatwhichaquorumisinitiallypresentmaycontinuetotransactbusiness,notwithstandingthewithdrawalofmembersoftheBoard,ifanyactiontakenisapprovedbyamajorityoftherequiredquorumforsuchmeeting.IfatanymeetingoftheBoardthathasbeendulycalledornoticed,noBoardmember(s)appointedbytheP&GPartnersarepresent,suchmeetingwillbeadjournedandreconvenedintwo(2)BusinessDays,unlesssuchadjournmenthasbeenwaivedbyeachofthemembersoftheBoard.NoticeoftherevisedmeetingdatewillbegiventoeachBoardmemberpursuanttotheforegoingprovisionsexcludingthenumberofdaysofadvancenotice.NotwithstandingtheotherprovisionsofthisSection5.2(c),intheeventthatnoBoardmember(s)appointedbytheP&GPartnersarepresentatsuchreconvenedmeeting,suchmeetingwillbedeemedtohaveaquorumifamajorityofthetotalnumberofBoardmembersispresent.MeetingsoftheBoardwillbedelayedonlyonceforlackofparticipationoftheBoardmember(s)appointedbytheP&GPartners.Forpurposesofclarification,allreferencestomember(s)appointedbyP&GPartnersaretoP&GPartners’votingmember(s)notBoardObservers.
(d)Withrespecttoameetingwhichhasnotbeendulycalledornoticedpursuanttotheforegoingprovisions,alltransactionscarriedoutatthemeetingareasvalidasiftheyhadbeencarriedoutatameetingregularlycalledandnoticedif:(i)allmembersoftheBoardarepresentatthemeeting,andsignawrittenconsenttotheholdingofsuchmeeting,(ii)amajorityofthemembersoftheBoardarepresentandifthosenotpresentsignawaiverofnoticeofsuchmeetingoraconsenttoholdingthemeetingoranapprovaloftheminutesthereof,whetherpriortooraftertheholdingofsuchmeeting,whichwaiver,consentorapprovalwillbefiledwiththeotherrecordsoftheJointVentureor(iii)allmembersoftheBoardattendameetingwithoutnoticeanddonotprotestpriortothemeetingoratitscommencementthatnoticewasnotgiventothem.
(e)AnyactionrequiredorpermittedtobetakenbytheBoardmaybetakenwithoutameetingandwillhavethesameforceandeffectasiftakenbyavoteofBoardatameetingproperlycalledandnotice,ifauthorizedbyawritingsignedindividuallyorcollectivelybyall,butnotlessthanall,themembersoftheBoard.SuchconsentwillbefiledwiththerecordsoftheJointVenture.
(f)AreasonablydetailedagendaforanymeetingoftheBoardwillbesuppliedtoeachmemberoftheBoardatthesametimenoticeofthemeetingisgiven,togetherwithotherappropriatedocumentationrelatingtoitemsonsuchagenda.AnymemberoftheBoardwishingtoplaceamatterontheagendaofanymeetingmaydosobycommunicatingwiththepersonselectedtopresideatmeetingsoftheBoard.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section5.3P&GVetoRights.
(a)NotwithstandinganythinginthisAgreementtothecontrary,duringtheTerm,noneofthefollowingactionswillbetakenbytheCloroxPartnersortheirSubsidiaries,regardlessofwhethersuchactionswillhavebeenapprovedbytheboardofdirectorsofCloroxoranyCloroxPartner,withouteither(x)thepriorwrittenconsentoftheP&GPartnersor(y)theapprovalofamajorityoftheBoardmembersappointedbytheP&GPartners:
(i)anyissuanceofanyJVInteresttoanyPersonotherthanasexpresslyprovidedinthisAgreement;
(ii)theincurrenceorassumptionofanyIndebtednesstobeattributedtotheJointVenture(otherthanParentLoansattributedtotheJointVenturepursuanttoSection2.6)thatwouldresultintheaggregateoutstandingIndebtednessattributedtotheJointVentureandtheGladLicensedBusinessatthetimesuchIndebtednessisincurredorassumed(otherthanParentLoansattributedtotheJointVenturepursuanttoSection2.6andAffiliateLoansattributedtotheGladLicensedBusiness)tobeinexcessof[***]$[***]percent([***]%)oftheannualnetsalesattributedtotheJointVentureandtheGladLicensedBusinessforthepriorfourFiscalQuarters;
(iii)anypurchaseorotheracquisitionofanybusiness,divisionorPersonthatwillbeattributedtotheJointVentureforconsideration(whichwillincludethepurchaseprice,plustheaggregateof(A)anyIndebtednessassumedand(B)anyLiabilitiesassumedthatinthegoodfaithestimationoftheBoardatthetimetherelevantacquisitionagreementisexecutedwillnotbesatisfiedfromcashflowoftheacquiredbusinessorassets)inexcessof[***]$[***]percent([***]%)oftheannualnetsalesattributedtotheJointVentureandtheGladLicensedBusinessduringthepriorfourFiscalQuarters;
(iv)subjecttotheprovisionsofSection7.5(c),anysale,transferorotherdispositioninanysingletransactionorseriesofrelatedtransactions(A)ofanybusiness,divisionorPersonattributedtotheJointVenture,or(B)otherthanintheordinarycourseoftheconductoftheGladBusinessofanyassetsattributedtotheJointVenture,whichassets(x)arenotobsolete,(y)areutilizedinamaterialmannerintheGladBusinessatthetimeofsuchsale,and(z)arenotbeingreplacedwithassetsofcomparableutilityorvaluetotheGladBusiness,providedthatineachcasesuchbusiness,division,Personorassetshaveavalueinexcessof[***]$[***]percent([***]%)oftheannualnetsalesattributedtotheJointVentureandtheGladLicensedBusinessduringthepriorfourFiscalQuarters,andprovidedfurtherthatthisSection5.3(a)(iv)willnotapplywithrespecttoanysaleofallorsubstantiallyallthebusiness,assetsandpropertiesattributedtotheJointVenture;
(v)exceptasprovidedinthisAgreementortheRelatedAgreements,anytransactionwithrespecttotheGladBusinessbetweenCloroxandanyAffiliateofCloroxunless(x)(A)suchtransactionis[***]orislessthan$[***]and(B)thetermsofsuchtransactiontobeattributedtotheJointVenturearenolessfavorablethanthosethatwouldbeobtainedinacomparablearm’slengthtransactionwithathirdpartythatisnotCloroxoranAffiliateofClorox(“Arm’sLengthTerms”),(y)anyeffectsofsuchtransactionthatwouldbeattributedtotheJointVenturewillbeeliminatedpursuanttotheJVAccountingPrinciplesor(z)suchtransactionisotherwiseprovidedforpursuanttotheJVAccountingPrinciples;
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(vi)anydistributionsmadetotheJVPartnerswithrespecttotheJVInterestsotherthanfromDistributableCashFlow;
(vii)anyinternalrestructuringofthemethodbywhichClorox’slegalownershipoftheGladBusinessisheldbyCloroxanditsSubsidiariesthat,basedonthefactsandcircumstancesknownatthetimesuchrestructuringisapproved,hasorwillhaveamaterialadverseeffectonthebusiness,properties,financialcondition,resultsofoperationsorprospectsoftheGladBusiness;
(viii)anychangesintheaccountingpoliciesoftheJointVenturesoastodifferfromtheJVAccountingPrinciples,exceptasrequiredbyGovernmentalAuthoritiesorexceptasrequiredtoconformtoageneralchangebeingmadebyCloroxtoitsaccountingpoliciesasineffectthroughoutitsbusinessesthat,basedonthefactsandcircumstancesknownatthetimesuchchangeisapproved,donotandwillnotadverselyaffecttherelativeeconomicinterestshereunderoftheP&GPartners,ontheonehand,andtheCloroxPartners,ontheotherhand;
(ix)theGladBusiness[***];
(x)anyterminationofany[***],anyfailuretorenewthetermofany[***]oranychangetothe[***]termsofany[***]ineachcasepriortotheearlierof(A)terminationof[***]and(B)any[***];and
(xi)anyterminationofany[***],anyfailuretorenewthetermofany[***]oranychangetothe[***]termsofany[***],ineachcasepriortotheearlierof(A)terminationofthe[***]and(B)any[***].
(b)IntheeventthattheBoarddesigneesoftheP&GPartnersfailtoapproveanyactionapprovedbyamajorityoftheBoardandtheJointVentureisprohibitedfromtakingsuchaction(a“P&GVeto”),theP&GPartnersandCloroxwillattempttoresolvesuchdisputebyimmediatelysubmittingitforresolutiontotherespectivechiefexecutiveofficersofCloroxandP&G.Thechiefexecutiveofficerswillnegotiateingoodfaithtoresolvethedisputeinatleastoneface-to-facemeetingtooccurwithinthirty(30)days(theprocessofsuchsubmissionandnegotiationisreferredtohereinas“Escalation”).IfthechiefexecutiveofficersofCloroxandP&Gareunabletoresolvethedisputewithinthirty(30)days,theJointVenturewillbeprohibitedfromtakingsuchactionandCloroxwillhavetheabilitytoexerciseitsCallRightpursuanttoSection6.5(b)(i),ifandonlytotheextentapplicable(suchthirty(30)dayperiod,the“ResolutionPeriod”).
Section5.4BusinessPlan,BudgetandReportstotheBoard.
(a)ThepreliminarybusinessplanfortheJointVenturehasbeenpresentedtotheP&GPartiesandagreeduponbytheParties.ThepreliminarybusinessplanwithrespecttotheuseoftheP&GParties’proprietaryForceflexandImpresstechnologies,whichtechnologiesarethesubjectoflicensesundertheP&GLicenseAgreement,isattachedasExhibitD.Allsubsequentbusinessplansaswellasthelong-termstrategicplanfortheJointVenturewillbesubmittedforapprovaltotheBoard,inaprocessthatwillbeconsistentwiththesubmissionandapprovalprocessofCloroxfortheboardofdirectorsofClorox.Thebusinessplanandthelong-termstrategicplanwillberegularlyreviewedbymanagement,andmaterialproposedrevisionstothethen-currentbusinessplanandlong-termstrategicplanwillbesubmittedtotheBoardforapproval.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(b)ThepreliminarybudgetfortheJointVentureisattachedasExhibitE.AllsubsequentbudgetsfortheJointVenturewillbesubmittedforapprovaltotheBoard,inaprocessthatwillbeconsistentwiththesubmissionandapprovalprocessofCloroxfortheboardofdirectorsofClorox.Thebudgetwillberegularlyreviewedbymanagement,andmaterialproposedrevisionstothethen-currentbudgetwillbesubmittedtotheBoardforapproval.
(c)TheBoardwilldeterminetheadditionalreportsandotherinformationabouttheJointVenturethatistobeprovidedtothemembersoftheBoardonascheduled,periodicbasis.
AdditionalinformationabouttheJointVenturewillbeprovidedtoindividualmembersoftheBoarduponreasonablerequest,providedthatitisunderstoodthatsuchrequestsshouldnotbeundulyburdensomeorotherwiseofsuchanatureastointerferewiththecustomaryoperationsoftheGladBusinessorcausetheGladBusinesstooperateotherthanintheordinarycourse.
Section5.5AdditionalItemsforBoardApproval.
(a)AnycandidatetobecomeamemberoftheGladLeadershipTeammustbesubmittedtoandapprovedbytheBoardpriortobecomingamemberofsuchGladLeadershipTeam.TheBoardwillhavetherighttomeetwithanysuchcandidatepriortoactingwithrespecttohimorher,andiftheBoarddeclinestodosothentheP&GPartnerswillhaveanopportunitytomeetwithsuchcandidatepriortotheBoardactingwithrespecttosuchcandidate.TheBoardmayalsodesignateotherkeyemployeepositionsintheGladBusinesswithrespecttowhichitmustapprovethecandidates,andwhichtheBoardwillhavetherighttointerviewpriortotheirappointment(andwhichtheP&GPartnerswillhaveanopportunitytomeetwithiftheBoarddeclines).
(b)AllnewSignificantContractstobeattributedtotheJointVentureinwhole,andtheportionsofanySignificantContractstobeattributedtotheJointVentureinpart,willbesubmittedtoandsubjecttotheapprovaloftheBoard,inaprocessthatwillbeconsistentwiththesubmissionandapprovalprocessofCloroxfortheboardofdirectorsofClorox.
(c)TheestablishmentofadirectpresenceorexclusivedistributorshiparrangementinanycountrywhereCloroxanditsAffiliatesdonotconductbusinessdirectlyorthroughanexclusivedistributorwithrespecttotheGladGlobalBusinessbrandsasoftheClosingwillbesubmittedtoandsubjecttotheapprovaloftheBoard,inaprocessthatwillbeconsistentwiththesubmissionandapprovalprocessofCloroxfortheboardofdirectorsofClorox.
(d)Any(i)assumptionorincurrenceofIndebtedness(otherthanParentLoans)inexcessof$[***]or(ii)purchaseorotheracquisitionandanysale,transferorotherdispositionofanybusiness,divisionorPersonthatwillbeattributedtotheGladBusinessthatwillnotbesubjecttothepriorconsentofP&GpursuanttoSections5.3(a)(ii),5.3(a)(iii)or5.3(a)(iv)hereofwillbesubmittedtoandsubjecttotheapprovaloftheBoard.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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ARTICLEVI
TRANSFERSOFINTEREST;TERMANDTERMINATION
Section6.1General;RestrictionsonTransfers.
(a)NoJVPartnermayTransferalloranypartofitsJVInterestsexcepttoaPermittedTransferee,orpursuanttoSection2.7hereof.Forpurposesofclarification,intheeventCloroxengagesinanyThird-PartySale,Cloroxwillassigntothetransferee,andthetransfereewillassume,thisAgreementaspartofsuchThird-PartySaleaswellasallRelatedAgreementsotherthanthoseRelatedAgreementsthatbytheirtermswillterminateinconnectionwithsuchThird-PartySale.AllTransfersofJVInterestswillbeeffectedbywrittennoticeofsuchTransfertotheJointVenture.Uponreceiptofsuchnotice,theJVInterestsoftheJVPartnerswillbemodifiedtoreflectanyTransfereffectedinaccordancewiththisAgreement.Notwithstandingtheforegoing,anysale,transferorassignmentofaJVInterestorthisAgreementtoaSubsidiaryofthetransferringPartywillnotrelievethetransferringPartyofitsobligationshereunder
(b)NoJVPartnerwillTransferalloranypartofitsJVInteresttoanyPerson(includinganyPermittedTransfereethatisnotalreadyboundbythetermsofthisAgreement)withoutsuchtransfereeexecutingandthetransferringPartydeliveringtotheBoardandanynon-transferringPartyawrittenagreementtobeboundbythetermsofthisAgreementandallRelatedAgreementsinformandsubstancereasonablysatisfactorytotheBoardandthenon-transferringParties.AnyTransferbyaJVPartnerofalloranypartofitsJVInterestmustbeincompliancewithallapplicablefederalandstatesecuritieslaws,andtheprovisionsofthisSection6.1(b)andtheotherprovisionsofthisArticleVI.
(c)AnyTransferorattemptedTransferbyaJVPartnerinviolationofthisSection6.1willbenullandvoidandofnoforceoreffectwhatever.EachJVPartnerwhoisatransferringPartyherebyfurtheragreestoholdtheJointVentureandeveryotherJVPartneranditsAffiliateswhollyandcompletelyharmlessfromanycost,Liability,ordamage(includingLiabilitiesforincometaxesandcostsofenforcingthisindemnity)incurredbyanyofsuchindemnifiedPersonsasaresultofaTransferoranattemptedTransferinviolationofthisAgreement.Fortheavoidanceofdoubt,theprovisionsofthisSection6.1donotlimitinanyrespectanyTransferbyanyCloroxPartnerofanybusiness,assetsorpropertiesoftheGladBusiness,includingwithoutlimitationaThirdPartySalepursuanttoSection6.7hereof;provided,suchCloroxPartnerhasassignedtothetransfereeandthetransfereehasassumedthisAgreementandallRelatedAgreementstotheextentrequiredbythetermsofSection6.1.
Section6.2EffectofTransfersonDistributionsamongJVPartners.
UpontheoccurrenceofaPermittedTransferofaJVInterestduringanyFiscalYear,NetProfits,NetLosses,eachitemthereof,andallotheritemsattributedtosuchJVInterestforsuchFiscalYearwillbedividedandallocatedbetweenthetransferorandthetransfereebytakingintoaccounttheirvaryinginterestsduringtheFiscalYearinaccordancewithCodeSection706(d),usinganyconventionspermittedbylawandselectedbytheBoard.ExceptasotherwiseprovidedinSection3.4(c)(v),alldistributionsonorbeforethedateofaPermittedTransferwillbemadetothetransferor,andalldistributionsthereafterwillbemadetothetransferee.Solelyforpurposesofmakingsuchallocationsanddistributions,aPermittedTransferwillberecognizedupontheBoard’sreceiptof(i)writtennoticestatingthedatesuchInterestwastransferredandsuchotherinformationastheBoardmayreasonablyrequireand(ii)thewrittenagreementtobeexecutedbythePermittedTransfereeagreeingtobeboundbythetermsofthisAgreementpursuanttotherequirementsofSection6.1hereof.TheBoardwillincurnoLiabilityformakingallocationsanddistributionsinaccordancewiththeprovisionsofthisSection6.2whetherornottheBoardhasknowledgeofanyTransferofownershipofanyJVInterest.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section6.3TermofJointVenture.
(a)ThetermoftheJointVenture(the“Term”)willcommenceattheClosingandwillexpireonthetwenty-yearanniversaryoftheClosingDate(the“InitialTerm”),unlessearlierterminatedpursuanttotheprovisionsofSections6.4,6.5,6.6or6.7hereof.EithertheP&GPartnersorCloroxmaydeliverwrittennoticetotheothernotlessthanfive(5)yearspriortotheendoftheInitialTermrequestingthattheTermbeextendedforanadditionalten(10)yearsaftertheendoftheInitialTerm.IfthePartyreceivingthenoticeagreestosuchextension,theTermwillterminateonthethirty-yearanniversaryoftheClosingDate,unlessearlierterminatedpursuanttotheprovisionsofSections6.4,6.5,6.6or6.7hereof.IfthePartyreceivingthenoticedoesnotagreetosuchextension,theTermwillautomaticallyterminateattheendoftheInitialTerm.TheexpirationoftheTermwillnotrelieveanyPartyfromanyliabilityitmayhavetoanyotherPartyarisingoutoforrelatingtoactsoromissionspriortosuchexpiration.
(b)TheprovisionsofSection6.3,7.2,7.3,7.4,9.1(b)and9.2,andArticlesXandXIshallsurviveanyterminationorexpiration,inwholeorinpart,ofthisAgreement.TheterminationorexpirationofthisAgreementwillnotrelieveeitherPartyofanyliabilityitmayhavetotheotherPartyarisingoutoforrelatingtoactsoromissionsoccurringpriortoexpirationortermination.
Section6.4P&GPutRights.
(a)TheP&GPartnerswillhavetherighttoselltoClorox,anduponexerciseofsuchrightClorox(ortheCloroxPartnerdesignatedbyClorox)willberequiredtopurchase,all(butnotlessthanall)oftheP&GPartners’JVInterests,includingtheP&GOption(ifthesaleistooccurduringtheOptionExercisePeriodandtheP&GOptionisnotyetexercised)(the“PutRight”)intheeventof(x)anyChangeofControlofCloroxassetforthinSection6.4(a)(i)belowor(y)thefailuretocurecertainbreachesbyCloroxPartnersassetforthinSection6.4(a)(ii)below.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(i)IntheeventaCloroxChangeofControloccursduringtheTerm,CloroxwillprovidetheP&GPartnerswithwrittennoticeoftheCloroxChangeofControl(a“ChangeofControlNotice”)within[***]aftertheclosingofthetransactionresultingintheCloroxChangeofControl.TheP&GPartnersmayirrevocablyexercisetheirPutRightinconnectionwithsuchCloroxChangeofControlbydeliveringwrittennoticeofsuchirrevocableexercisetoCloroxwithin[***]daysafterthereceiptoftheChangeofControlNotice.ThepurchasepricepayablebyCloroxtotheP&GPartnersforsuchJVInterestsandtheP&GOption(ifunexercisedbutexercisable)willbepaidtotheP&GPartnersandwillbecashequaltotheFairMarketValueoftheirrespectiveJVInterestsandtheP&GOption(ifunexercised,butexercisable)asofthedateofclosingofsuchCloroxChangeofControl,butwillbereducedbytheapplicableServicesTerminationAmount,ifany,pursuanttoSection6.8hereof.IftheP&GPartnersdonotdeliverawrittenexercisenoticetoCloroxwithinthe[***]periodreferredtoabove,thePutRightwillterminateandCloroxwillhavenofurtherobligationwithrespecttothePutRightwithrespecttosuchCloroxChangeofControl,providedthatsuchterminationwillnotinanywayaffectandtheP&GPartnerswillretainallrightspursuanttothisSection6.4withrespecttoanyfutureCloroxChangeofControl.
(ii)IntheeventaCloroxPartnerknowinglybreachesinanymaterialrespectamaterialobligationofaCloroxPartnerundertheprovisionsofthisAgreementoranyRelatedAgreementduringtheTerm,theP&GPartnerswillhavetherighttoprovideCloroxwithwrittennoticeofsuchbreach.TheCloroxPartnerswillthenhaveaperiodof[***]toattempttocuresuchbreach(whichperiodwillbesuspendedtotheextentCloroxiscontestingthebreachingoodfaith).IftheCloroxPartnersdonotcuresuchbreachinallmaterialrespectswithinsuch[***]period,theP&GPartnersandCloroxwillattempttoresolvesuchdisputebyEscalation.IfthechiefexecutiveofficersofCloroxandP&Gareunabletoresolvethedisputewithinthirty(30)days,P&GPartnersmayexerciseitsPutRightinconnectionwithsuchmaterialbreachwithin[***]aftertheendofsuchthirty-dayperiod.ThepurchasepricepayablebyCloroxtotheP&GPartnersforsuchJVInterestsandtheP&GOption(ifunexercised,butexercisable)willbecashequaltoFairMarketValueoftheP&GPartners’JVInterestsandtheP&GOption(ifunexercised,butexercisable)asofthedateof[***]withrespecttosuchbreach,providedthatforpurposesofthisSection6.4(a)(ii),theFairMarketValueofP&GPartners’initialOrdinaryJVInterestoftenpercent(10%)andClassCInterestduringtheperiodcommencingontheClosingDateandendingonthe[***]anniversaryoftheClosingDatewillbeanaggregateofnolessthan$140million.IftheP&GPartnersdonotdeliveranexercisenoticetoCloroxwithinthe[***]periodreferredtoabove,theirPutRightwillterminateandCloroxwillhavenofurtherobligationwithrespecttothePutRightwithrespecttosuchCloroxPartnerbreachandanyrelatedmattersofwhichtheP&GPartnershaveactualknowledge,providedthatsuchterminationwillnotinanywayaffectandtheP&GPartnerswillretainallrightspursuanttothisSection6.4withrespecttoanyfutureCloroxPartnerbreach.Inaddition,theP&GPartnerswillhavetheright,butnottheobligation,toterminatetheP&GServicesAgreementatthetimeofexerciseofitsPutRightpursuanttothisSection6.4(a)(ii).
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(b)TheclosingofanysaleofaJVInterestpursuanttoexercisebyP&GSubofaPutRightpursuanttothisSection6.4willtakeplaceattheprincipalofficeofCloroxonthe[***]afterfinaldeterminationofFairMarketValueoftheJVInterestbeingsold,providedthatallmaterialorders,consentsandapprovalsofGovernmentalAuthoritieslegallyrequiredfortheclosingofsuchsalewillhavebeenobtainedandbeineffect.Atsuchclosing,Clorox(ortheCloroxPartnerdesignatedbyClorox)willdeliverthepurchasepriceinimmediatelyavailablefundsintheappropriateamount(unlessotherconsiderationhasbeenmutuallyagreeduponbytheP&GPartnersandClorox).TheP&GPartnerswilldelivertheirJVIntereststoClorox(ortheCloroxPartnerdesignatedbyClorox)freeandclearofallLiens,andtheTermoftheJointVenturewillterminateasofsuchclosing.
Section6.5CloroxPurchaseofP&GJVInterest.
(a)IntheeventofanyterminationorexpirationoftheTerminaccordancewithSection6.3,Clorox(ortheCloroxPartnerdesignatedbyClorox)willpurchase,andtheP&GPartnerswillberequiredtoselltoCloroxorsuchCloroxPartner,alloftheJVInterestsheldbytheP&GPartners.IntheeventofapurchasebyCloroxpursuanttothisSection6.5(a)duetoaterminationoftheTerm,thepurchasepricefortheJVInterestsoftheP&GPartnerswillbetheFairMarketValueofsuchJVInterests,whichFairMarketValuewillbecalculatedasofthedateonwhichtheTermistoterminate.
(b)Cloroxwillalsohavetheright,butnottheobligation,topurchase,anduponexerciseofClorox’srighttheP&GPartnerswillberequiredtoselltoClorox(ortheCloroxPartnerdesignatedbyClorox),alloftheP&GPartners’JVInterests,includingtheP&GOptionifsuchexercisebyCloroxiswithintheOptionExercisePeriodandtheP&GOptionisnotyetexercised,(the“CallRight”)foracashpurchasepriceofFairMarketValueintheeventof(x)thefailuretoresolvecertainP&GVetoeswithintheResolutionPeriodassetforthinSection6.5(b)(i)belowor(y)thefailuretocurecertainbreachesbyP&GPartnersassetforthinSection6.5(b)(ii)below.
(i)IntheeventCloroxandtheP&GPartnersfailpursuanttoSection5.3(b)toresolveadisputewithrespecttoaP&GVetopursuantto(A)Section5.3(a)(iii),(B)Section5.3(a)(iv)or(C)Section5.3(a)(v)withrespecttoatransactionthatisonArm’sLengthTerms,CloroxwillhavetherighttoexerciseitsCallRightbyprovidingwrittennoticetotheP&GPartnersofsuchexercise(a“DeadlockNotice”)within[***]oftheendoftheResolutionPeriod,andifCloroxdoesnotprovidetheP&GPartnerswithaDeadlockNoticeinatimelymannerinaccordancewiththisSection6.5(b)(i),allrightsofCloroxtoexerciseitsCallRightwithrespecttosuchP&GVetowillterminate,providedthatsuchterminationwillnotinanywayaffectandCloroxwillretainallrightspursuanttothisSection6.5withrespecttoanyfutureP&GVeto.FairMarketValueoftheP&GPartners’JVInterestsandtheP&GOption(ifexercisablebutunexercised)forpurposesofapurchasepursuanttothisSection6.5(b)(i)willbedeterminedasofthedateofthe[***],providedthatforpurposesofthisSection6.5(b)(i),theFairMarketValueoftheP&GPartnersinitialOrdinaryJVInterestoftenpercent(10%)andClassCInterestduringtheperiodcommencingontheClosingDateandendingonthe[***]anniversaryoftheClosingDatewillbeanaggregateofnolessthan$140million.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(ii)IntheeventaP&GPartnerknowinglybreachesinanymaterialrespectamaterialobligationofaP&GPartnerundertheprovisionsofthisAgreementoranyRelatedAgreementduringtheTerm,CloroxwillhavetherighttoprovidetheP&GPartnerswithwrittennoticeofsuchbreach.TheP&GPartnerswillthenhaveaperiodof[***]toattempttocuresuchbreach(whichperiodwillbesuspendedtotheextenttheP&GPartnersarecontestingthebreachingoodfaith).IftheP&GPartnersdonotcuresuchbreachinallmaterialrespectswithinsuch[***]period,theP&GPartnersandCloroxwillattempttoresolvesuchdisputebyEscalation.IfthechiefexecutiveofficersofCloroxandtheP&GPartnersareunabletoresolvethedisputewithinthirty(30)days,CloroxmayexerciseitsCallRightinconnectionwithsuchmaterialbreachwithin[***]aftertheendofsuchthirty-dayperiod.ThepurchasepricepayablebyCloroxtotheP&GPartnersforsuchJVInterestsandtheP&GOption(ifunexercisedbutexercisable)willbecashequaltoFairMarketValue[***]withrespecttosuchbreach.IfCloroxdoesnotdeliveranexercisenoticetotheP&GPartnerswithinthe[***]periodreferredtoabove,itsCallRightwillterminateandtheP&GPartnerswillhavenofurtherobligationwithrespecttotheCallRightwithrespecttosuchP&GPartnerbreachandanyrelatedmattersofwhichCloroxhasactualknowledge,providedthatsuchterminationwillnotinanywayaffectandCloroxwillretainallrightspursuanttothisSection6.4withrespecttoanyfutureP&GPartnerbreach.Inaddition,Cloroxwillhavetheright,butnottheobligation,toterminatetheP&GServicesAgreementatthetimeofexerciseofitsCallRightpursuanttothisSection6.5(b)(ii).
(c)TheclosingofanysaleofaJVInterestandtheP&GOptionpursuanttoanexercisebyCloroxofaCallRightpursuanttothisSection6.5willtakeplaceattheprincipalofficeofCloroxonthe[***]afterfinaldeterminationofFairMarketValueoftheJVInterestbeingsold,providedthatallmaterialorders,consentsandapprovalsofGovernmentalAuthoritieslegallyrequiredfortheclosingofsuchsalewillhavebeenobtainedandbeineffect.Atsuchclosing,Clorox(ortheCloroxPartnerdesignatedbyClorox)willdeliverthepurchasepriceinimmediatelyavailablefundsintheappropriateamount(unlessotherconsiderationhasbeenmutuallyagreeduponbytheP&GPartnersandClorox).TheP&GPartnerswilldelivertheirJVIntereststoClorox(ortheCloroxPartnerdesignatedbyClorox)freeandclearofallLiens,andtheTermoftheJointVenturewillterminateasofsuchclosing.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section6.6Tag-AlongRights.
(a)Withrespecttoanyproposeddirectorindirectsale,transferorassignment(whichwillnotincludeabonafidepledgeofassets)byanyCloroxPartnerofallorsubstantiallyalloftheGladGlobalBusiness(otherthansuchasale,transferorassignmenttoaCloroxAffiliate),Cloroxwillhavetheobligation,andeachP&GPartnerwillhavetheright(the“Tag-AlongRight”),torequiretheproposedtransfereetopurchasefromeachP&GPartnerall,butnotlessthanall,itsJVInterests,andtheP&GOptioniftheTag-AlongRightisexercisedduringtheOptionExercisePeriodandtheP&GOptionisnotyetexercised,atapriceequaltoFairMarketValue,anduponthesameothertermsandconditionsastobegiventotheCloroxPartners,providedthatinordertobeentitledtoexercisetheirTag-AlongRight,theP&GPartnersmustagreetogivethesameindemnitiesastheCloroxPartnersagreetomakeinconnectionwiththeproposedsale,transferorassignment,whichobligationswillbebornebytheP&GPartnersonaproratabasisbasedontherelativeOrdinaryJVInterestsofalltheJVPartnersbutinthecaseofeachP&GPartnerwillinnoeventexceedtenpercent(10%)ofthesaleproceedsreceivedbysuchP&GPartner.Inaddition,thepurchasepricepayabletotheP&GPartnerswillbereducedbytheapplicableServicesTerminationAmount,ifany,pursuanttoSection6.8hereof.WithrespecttotheP&GOptioniftheP&GOptionisunexercisedbutexercisable,theP&GPartnerswillreceivefromtheproceedsotherwisepayabletotheCloroxPartnerstheamountbywhichtheFairMarketValueoftheOrdinaryJVInterestandClassAInterestsubjecttotheP&GOptionexceedstheOptionPrice.ThepurchasepricepayabletotheP&GPartnersfortheP&GOption(iftheP&GOptionisunexercised,butexercisable)willthereforebethegreaterof(i)zeroand(ii)anamountequalto(x)theFairMarketValueoftheOrdinaryJVInterestandClassAInteresttobeacquiredbytheP&GPartnersuponexerciseoftheP&GOptionminus(y)thethen-applicableOptionPrice(andtheamountofthepurchasepricepayabletotheCloroxPartieswillbereducedbyanequalamount).UponcompletionofsuchsaletheP&GOptionwillterminate.
(b)CloroxmustgivenoticetotheP&GPartnersofeachproposedsale,transferorassignment(whichwillnotincludeabonafidepledgeofassets)givingrisetoaTag-AlongRightatleast[***]priortotheproposedconsummationofsuchsale,transferorassignment,settingforththeJVInterestproposedtobesosold,transferredorassigned,thenameandaddressoftheproposedtransferee,theproposedamountofconsiderationthereforandtermsandconditionsagreedtobytheproposedtransferee.TheTag-AlongRightmustbeexercisedbyaP&GPartnerwithin[***]daysfollowingreceiptoftheCloroxnotice,bydeliveryofawrittenirrevocablenoticetoCloroxindicatingexerciseoftheTag-AlongRight.IftheproposedtransfereefailstocompleteitspurchasefromanyP&GPartnerthathasproperlyexerciseditstag-alongrights,thenCloroxwillnotbepermittedtomaketheproposedTransfer,andanysuchattemptedsale,transferorassignmentwillbevoidandofnoeffect.IfaP&GPartnerexercisesitsTag-AlongRights,theclosingofthepurchasewilltakeplaceconcurrentlywithandaspartoftheclosingofthesaleoftheGladGlobalBusiness,andtheTermoftheJointVenturewillterminateasofsuchclosing.
Section6.7DragAlongRights.
(a)IfatanytimeduringtheTerm,anyCloroxPartnerentersintoanagreementtoconsummateatransactionconstitutingadirectorindirectsaleofallorsubstantiallyalloftheGladGlobalBusiness(otherthanaCloroxChangeofControl)(a“Third-PartySale”),thenuponthewrittendemandofClorox,eachP&GPartnerwillagreetosellallitsJVInterests,andtheP&GOptioniftheThird-PartySaleisduringtheOptionExercisePeriodandtheP&GOptionisnotyetexercised,andatapriceequaltotheFairMarketValueforsuchJVInterests,anduponthesameothertermsandconditionsastobegiventotheCloroxPartners,providedthatinordertobeentitledtoexercisetheirrightsinconnectionwithaThirdPartySale,theP&GPartnersmustagreetogivethesameindemnitiesastheCloroxPartnersagreetomakeinconnectionwiththeproposedsale,transferorassignment,whichobligationswillbebornebytheP&GPartnersonaproratabasisbasedontherelativeOrdinaryJVInterestsofallJVPartnersbutinthecaseofeachP&GPartnerwillinnoeventexceedtenpercent(10%)ofthesaleproceedsreceivedbysuchP&GPartner.Notwithstandingtheforegoing,withrespecttoanyaThird-PartySalethatoccurspriorto[***]anniversaryoftheClosingDate,thepurchasepricetobepaidtotheP&GPartnersinsuchThird-PartySaleforP&G’sinitialOrdinaryJVInterestoftenpercent(10%)andClassCInterestwillbeanaggregateofnolessthan$140million.WithrespecttotheP&GOptioniftheP&GOptionisunexercisedbutexercisable,theP&GPartnerswillreceivefromtheproceedsotherwisepayabletotheCloroxPartnerstheamountbywhichtheFairMarketValueoftheOrdinaryJVInterestandClassAInterestsubjecttotheP&GOptionexceedstheOptionPrice.ThepurchasepricepayabletotheP&GPartnersfortheP&GOption(iftheP&GOptionisunexercised,butexercisable)willthereforebethegreaterof(i)zeroand(ii)anamountequalto(x)theFairMarketValueoftheOrdinaryJVInterestandClassAInteresttobeacquiredbyP&GuponexerciseoftheP&GOptionminus(y)thethen-applicableOptionPrice(andtheamountofthepurchasepricepayabletotheCloroxPartieswillbereducedbyanequalamount).UponcompletionofsuchsaletheP&GOptionwillterminate.CloroxagreesitwillnotenterintoaThird-PartySale,unlessotherwiseagreedbytheP&GPartners,withoutobtaininganopinionfromanationally-recognizedinvestmentbankingfirmselectedbyClorox,whichinvestmentbankingfirmisnototherwiseentitledtoanyfinancialadvisor’sorsimilarfeeinconnectionwiththeThird-PartySale,[***].
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(b)CloroxmayexerciseitsrightsinconnectionwithaThird-PartySaleatanytimeduringtheTermuponwrittennoticetotheP&GPartners,settingforththenameandaddressoftheproposedtransferee,theproposedamountofconsiderationthereforandtermsandconditionsagreedtobytheproposedtransferee,providedthatCloroxwilluse[***]effortstogivenoticetotheP&GPartnersatleast[***]priortotheproposedconsummationofanysuchThird-PartySale.EachP&GPartnerwillconsenttoandraisenoobjectionstotheproposedtransactionandwilltakeallotheractionsnecessaryordesirabletocausetheconsummationofsuchThird-PartySaleonthetermsproposedbyClorox.IfCloroxexercisesitsrightstocauseasalepursuanttothisSection6.7,theclosingofthepurchasewilltakeplaceconcurrentlywithandaspartoftheclosingofthesaleoftheGladGlobalBusiness,andtheTermoftheJointVenturewillterminateasofsuchclosing.IftheproposedtransfereefailstocompleteitspurchasefromanyP&GPartnerattheclosingofanyThird-PartySale,thenCloroxwillnotbepermittedtomaketheproposedThird-PartySale,andanysuchattemptedsale,transferorassignmentwillbevoidandofnoeffect.
(c)Cloroxfurtheragreesthatintheeventthatit[***]ThirdPartySale,itwillnotifytheP&GPartnersandiftheP&GPartnersnotifiesCloroxinwritingwithin[***]ofreceiptofsuchnoticethatP&Ghasmadeagoodfaithdeterminationtopursue[***],CloroxandP&Gwillnegotiate[***]dayswithrespectto[***]byP&Gofthe[***]ontermssatisfactorytoeachofCloroxandP&G,providedthattheprovisionsofthisSection6.7(c)willinnowayobligateCloroxtonotifyornegotiatewithP&GintheeventCloroxreceivesa[***]foraThirdPartySale,andprovidedfurtherthatitisunderstoodthatintheeventP&GandCloroxdonotenterintoabindingagreementwithrespecttosuchapurchaseontermsandconditionssatisfactorytoeachPartyinitssolediscretionwithinsuch[***]dayperiod,Cloroxwillhavetherightthereafterto[***]intoaThirdPartySalewithanyotherPerson.
Section6.8ServicesTerminationAmount.
(a)IntheeventtheP&GServicesAgreementisterminatedbyP&GpursuanttoSection8.2(b)oftheP&GServicesAgreementinconnectionwithanexercisebyP&GPartnersoftheirPutRightpursuanttoSection6.4(a)(i)hereofortheirTag-AlongRightpursuanttoSection6.6hereof,theaggregatepurchasepricepayabletotheP&GPartnerswithrespecttotheirJVInterestspursuanttosuchSections6.4(a)and6.6,asapplicable,willbereducedasfollows:
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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DateofP&GNoticeofTermination PurchasePriceReductionOntheClosingDate $[***]Ontheone-yearanniversaryoftheClosingDate $[***]Onthetwo-yearanniversaryoftheClosingDate $[***]Onthethree-yearanniversaryoftheClosingDate $[***]Onthefour-yearanniversaryoftheClosingDate $[***]Onthefive-yearanniversaryoftheClosingDate $[***]Onthesix-yearanniversaryoftheClosingDate $[***]Ontheseven-yearanniversaryoftheClosingDate $[***]Ontheeight-yearanniversaryoftheClosingDate $[***]Onthenine-yearanniversaryoftheClosingDate $[***]Onandaftertheten-yearanniversaryoftheClosingDate [***]
TotheextentthatthedateoftheP&Gnoticeofterminationisdeliveredotherthanononeoftheanniversarydatereferencedabove,thepurchasepricereductionwillequalthesumofthepurchasepricereductionontheimmediatelysucceedinganniversarydatereferencedaboveplustheproductof(i)thenumberofdaysuntiltheimmediatelysucceedinganniversarydatedividedby365and(ii)thepurchasepricereductionamountontheimmediatelyprecedinganniversarydateminusthepurchasepricereductionamountontheimmediatelysucceedinganniversarydate.
ARTICLEVII
CERTAINAGREEMENTS
Section7.1Personnel;ProvisionofServices.
(a)DuringtheTerm,theCloroxPartieswillmakecertaincorporateservicesandemployeesavailabletoprovideservicestotheGladBusinessandtheGladLicensedBusinessontermsandconditionsasdetailedonExhibitF(suchservices,the“CloroxServices”).ThecostoftheCloroxServiceswithrespecttotheGladBusinessandtheGladLicensedBusinesswillbeattributedtotheJointVentureassetforthonsuchExhibitF,whichExhibitFwillbeconsistentwiththeJVAccountingPrinciples.ExhibitFalsosetsforthprovisionsprovidingforthemodificationorterminationoftheCloroxServices.AllcostsandexpensesthatwillotherwisebeattributedtotheJointVentureortheGladLicensedBusinesswithrespecttoemployeesofCloroxortheCloroxPartieswillbeattributedsolelyinaccordancewiththeJVAccountingPrinciples.UndernocircumstanceswilltheCloroxServicesbeconsideredfortaxpurposestobegiveninexchangeforanyportionoftheCloroxParties’JVInterest.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(b)DuringtheTerm,P&GwillmakecertainservicesandemployeesavailabletoprovideservicestotheGladBusinessandtheGladLicensedBusinessontermsandconditionsasprovidedintheP&GServicesAgreementattachedasExhibitBhereto.Inaddition,P&GwillhavetherighttoproposethatadditionalemployeesprovideservicestotheGladBusinessandtheGladLicensedBusinessfromtimetotimeinbusinessfunctionsinwhichP&GthinkssuchemployeeswouldbeofbenefittotheGladBusinessortheGladLicensedBusiness,asthecasemaybe.AnysuchproposalsbyP&GwithrespecttotheGladBusinesswillbereviewedbytheGladLeadershipTeamandtheBoard,andmustbeapprovedbytheBoardpriortobeingimplemented.AnysuchproposalsbyP&GwithrespecttotheGladLicensedBusinesswillbereviewedbyTheGladProductsCompanyandtheInternationalAffiliateconductingtherelevantGladLocalBusiness.AnysuchemployeeswillbeprovidedtotheGladBusinessortheGladLicensedBusiness,asthecasemaybe,attheiractualcosttoP&GanditsSubsidiaries,whichcostwillbeattributedtotheJointVentureinamannerconsistentwiththeJVAccountingPrinciples.
Section7.2Non-Competition.
(a)InordertofurtherthebusinessoftheJointVentureandtoprotecttheIntellectualPropertyandothercontributionsofthePartiestotheJointVenture,eachofCloroxandP&GagreesthatduringtheTerm,andP&Gagreesthatfor[***]thereafter(unlessotherwiseprovidedherein),itwillnot,anditwillcauseitsSubsidiariesnotto,directlyorindirectlyconduct,engagein,manage,own,operate,investinorlicensetherighttouseanytrademark,tradenameorSpecificTechnologyforuseinconnectionwith,anyCompetingBusinessanywhereintheworldotherthanthroughtheJointVentureandtheGladGlobalBusiness.
(b)Notwithstandingtheforegoing,theprovisionsofthisSection7.2willnotprohibit,restrictorpreventClorox,P&GortheirrespectiveSubsidiariesfrom:
(i)engagingina[***]solongastheaggregaterevenuestoCloroxanditsSubsidiariesorP&GanditsSubsidiaries,asapplicable,fromallsuch[***],
(ii)acquiringnotmorethan[***]percent([***]%)ofanyclassofpubliclytradedequitysecuritiesofanyPerson,
(iii)acquiring[***]percent([***]%)ormoreofanyclassofcapitalstockofanyPersonthatdirectlyorindirectlythroughoneormoreSubsidiariesorotherwisehasa[***]operationsaslongas(x)such[***]percent([***]%)ofsuchacquiredPerson’s[***]acquisitionand(y)theportionofsuchPerson’sbusinessthatengagesinthe[***]issoldordisposedofnolaterthan[***]afterthe[***]byClorox,P&GortheirrespectiveSubsidiaries(asapplicable),
(iv)investinginanyPerson[***]operationsaslongas(w)such[***]percent([***]%)ofsuchacquiredPerson’s[***]acquisition,(x)suchinvestment[***]percent([***]%)ofany[***]interestsofsuchPerson,(y)theinvestordoesnot,directlyorindirectly,directorcausethedirectionof,orparticipatein,the[***]ofsuchPerson,and(z)thePersonthatdirectlyorindirectly[***]anditsSubsidiarieswill[***](A)anytrademarkortradenameoftheinvestororanyoftheinvestor’sAffiliates[***]or(B)any[***]owned,licensedorotherwiseheldbytheinvestororanyoftheinvestor’sAffiliates,
(v)withrespectto[***]withrespecttowhich(A)thelicenseofanyP>echnologyhasterminatedpursuanttoSection7.1oftheP&GLicenseAgreementand(B)theGladGlobalBusinessdoesnotconductanybusinessinsuchcountryorlicenseanythirdpartytoconductsuchbusiness,
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(vi)[***]if(A)thelicenseofanyP>echnologyforuse[***]hasterminatedpursuanttoSection7.1oftheP&GLicenseAgreementand(B)theJointVenture[***]anybusinessinthe[***]orlicenseanythirdparty[***]suchbusiness,
(vii)[***]directlyorindirectly[***]or[***]anyproductcurrently[***]or[***]by[***](“ExistingProduct”)whichExistingProductwouldbedeemed[***],or
(viii)[***],co-marketingproductsofP&GoritsSubsidiariesthatare[***]withproductsofathirdpartyCompetingBusinessthatare[***].
(c)AsusedinthisSection7.2,“CompetingBusiness”meansthe[***]bags,wraps,strawsorcoveredcontainers[***]butexcluding[***].
(d)TherestrictionscontainedinthisSection7.2willterminatewithrespecttoP&GanditsSubsidiariesintheeventofanexercisebyP&GofitsPutRightpursuanttoSection6.4(a)(ii)hereof.TheexpirationorterminationofthisSection7.2willnotaffectanyoftheParties’rightsundertheP&GLicenseAgreement.
(e)InordertofurtherthebusinessoftheJointVentureandtoprotecttheIntellectualPropertyandothercontributionsofthePartiestotheJointVenture,duringtheTermofthisAgreementandfor[***],P&G[***].Forpurposesofclarification,P&Gwillnotbedeemedtobeinbreachhereofifanyproductsbasedon[***]byacustomerorbroker(orasubsequentcustomerorbroker)[***],solongasP&GanditsSubsidiaries[***].NothinghereinwillpreventP&GoritsSubsidiariesfromsellingtoanythirdparty[***](exceptassetforthintheimmediatelyprecedingtwosentences).
Section7.3Confidentiality;Non-Disclosure.
(a)EachofCloroxandP&Gwill,andwillcausetheirrespectiveSubsidiaries,directors,officers,employeesandanyotherPersontowhomsuchPartydisclosesinformationwithrespecttotheJointVenture,toholdinconfidencealldocumentsfurnishedtoit,byoronbehalfoftheotherPartyinconnectionwiththetransactionscontemplatedbythisAgreement.ForpurposesofthisSection7.3,referencestoinformationofaPartyortodisclosureofinformationbyortoaPartyshallineachcaseincludeinformationof,disclosurebyanddisclosuretoAffiliatesofsuchParty.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(b)DuringtheTerm,CloroxandP&GandtheirrespectiveSubsidiaries,directors,officers,employeesandotherrepresentativeswillbegivenaccesstonon-public,proprietaryinformationthatrelatestotheother’spast,present,andfutureresearch,development,businessactivities,products,services,andtechnicalknowledge,aswellasnon-publicinformationrelatingtotheGladGlobalBusinessandtheJointVenture,includingwithoutlimitationtheinformationprovidedwithrespecttotheGladGlobalBusinessandtheJointVenturetotheBoard,themembersoftheGladLeadershipTeam,andtheP&GObserversandthefinancialandotherinformationmadeavailabletothePartiespursuanttoSections7.9and9.1hereof(collectively,“ConfidentialInformation”).ThePartiesacknowledgethatcertainoftheConfidentialInformationcouldbeusedbyonePartytothecompetitivedisadvantageofthebusinessoroperationsoftheotherPartyunrelatedtotheJointVentureortheGladGlobalBusiness,andthereforeagreeasfollowswithrespecttoalltheConfidentialInformation:
(i)theConfidentialInformationofthedisclosingPartymaybeusedbythereceivingPartyonlyinconnectionwiththeJointVentureandtheGladGlobalBusiness;
(ii)eachPartyagreestoprotect,andtocausetheirrespectiveSubsidiaries,directors,officers,employeesandanyotherPersontowhomsuchPartydisclosesConfidentialInformationoftheotherParty,toprotecttheconfidentialityoftheConfidentialInformationoftheotherinthesamemannerthatitprotectstheconfidentialityofitsownproprietaryandconfidentialinformationoflikekind,butinnoeventwilleitherPartyexerciselessthanreasonablecareinprotectingsuchConfidentialInformation;
(iii)accesstoanyConfidentialInformationoftheotherPartywillberestrictedto(A)themembersoftheBoardand(B)theP&GObservers,membersoftheGladLeadershipTeam,andthoseotheremployeesandotherpersonnelofthePartiesthat(x)aremadeavailabletoperformserviceswithrespecttotheJointVentureortheGladLicensedBusinesspursuanttoSection7.1asprovidedtherein,or(y)otherwiseneedtoknowsuchConfidentialInformationforpurposesofconductingthebusinessoftheJointVentureortheGladLicensedBusinessorimplementingthisAgreementoranyRelatedAgreement(collectively,“AuthorizedPersons”).EachPartywillcausetheAuthorizedPersonsofsuchPartynottodiscloseanyConfidentialInformationtoanyotherPersonwhoisnotanAuthorizedPerson.EachPartywillestablishinternalethicalwallsandotherpoliciesandproceduresreasonablysatisfactorytotheotherPartytopreventthedisclosureofConfidentialInformationoftheotherPartyotherthantoAuthorizedPersonsandotherthanforthepurposesofprovidingservicestoorotherwiseconductingthebusinessoftheJointVentureorimplementingthisAgreementoranyRelatedAgreement;
(iv)allConfidentialInformationmadeavailablehereunder,includingcopiesthereof,willbereturnedordestroyeduponthefirsttooccurof(A)theterminationoftheJointVentureor(B)anyrequestbythedisclosingParty,unlessthereceivingPartyisotherwiseallowedtoretainsuchConfidentialInformation.EitherPartymayretain,subjecttothetermsofthisSection7.3,copiesoftheother’sConfidentialInformationrequiredforcompliancewithrecordkeepingorqualityassurancerequirementsorotherapplicablelegalrequirements;and
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(v)nothinginthisAgreementwillprohibitorlimitClorox’sorP&G’s(ortheirSubsidiaries’)useofinformation(including,butnotlimitedto,ideas,concepts,know-how,techniques,andmethodologies)(A)previouslyknowntoitwithoutanobligationofconfidence,(B)independentlydevelopedbyorforit,(C)acquiredbyitfromathirdpartywhichisnot,toitsknowledge,underanobligationofconfidencewithrespecttosuchinformation,or(D)whichisorbecomespubliclyavailablethroughnobreachofthisAgreement.Foravoidanceofdoubt,thisSection7.3doesnotlimitthedisclosurebytheCloroxPartiesofinformationwithrespecttotheGladGlobalBusinesstoCloroxanditsSubsidiariesintheeventsuchinformationdoesnotincludeanyConfidentialInformationdisclosedbytheP&GParties.
(c)EachPartyfurtheracknowledgeandagreethatitispossiblethatcertainusesofitsownConfidentialInformationcouldbedetrimentaltotheJointVentureortheGladGlobalBusiness,andeachPartywilluse[***]effortstoavoidanysuchdetrimentaluse.
(d)NotwithstandingtheprovisionsofthisSection7.3,thePartiesagreethateachoftheotherPartiesmaydiscloseConfidentialInformationtooneormorethirdpartiesinaduediligenceinvestigationbeingconductedbysuchthirdpartyinconnectionwithaThirdPartySaleoratransactionthatwouldresultinaCloroxChangeofControl,inthecaseoftheCloroxPartners,oratransactionthatwouldresultinaP&GChangeofControl,inthecaseoftheP&GPartners.PriortoanydisclosureofConfidentialInformationpursuanttothisSection7.3(d),thethirdpartytowhomsuchinformationistobedisclosedmusthaveagreedtokeepinconfidenceallConfidentialInformationtobedisclosedtosuchthirdparty,andthePartyheretodisclosingsuchConfidentialInformationwillberesponsibleforanydisclosureoftheConfidentialInformationbysuchthirdparty.
Section7.4Non-Solicitation.
EachofCloroxandP&GagreesthatthesolicitationforemploymentbyitoritsSubsidiariesofemployeesoftheotherPartywhomthesolicitingPartybecomesawareofasaresultoftheJointVentureortheGladLicensedBusinesswouldhaveanadverseimpactontheParties.EachofCloroxandP&GagreesthatduringtheTermandfor[***]thereafteritwill,anditwillcauseitsSubsidiariesto,take[***]stepstopreventitsemployeesfrommakingsuchsolicitations;touse[***]effortstocauseitselfanditsSubsidiariestoenforcesuchprohibition;and,totheextentthatitbecomesawareofanysuchsolicitationoccurringwithinitselforanyofitsSubsidiaries,totake[***]actiontocausesuchsolicitationtoimmediatelycease.Intheeventofanybreachofthesenon-solicitationobligations,thePartiesagreetoconductgoodfaithdiscussionsandnegotiationstodetermineamutuallyacceptablemeansofaddressingsuchbreach,providedthatinnoeventwilltherebeanypenaltyforanyinadvertentbreachofthisprovisionbyanyParty.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section7.5AgreementtoCooperate;FurtherAssurances;OtherMatters.
(a)SubjecttothetermsandconditionsofthisAgreement,eachofthePartieswilluseallreasonableeffortstotake,orcausetobetaken,allactionsandtodo,orcausetobedone,allthingsnecessary,properoradvisableunderapplicablelawsandregulationstoconsummateandmakeeffectivethetransactionscontemplatedbythisAgreement,includingprovidinginformationandusingreasonableeffortstoobtainallnecessaryorappropriatewaivers,consentsandapprovals,andeffectingallnecessaryregistrationsandfilings,andwillactivelytakeallreasonablestepstopursuesuchwaivers,consentsandapprovalsforaperiodnottoexceedthree(3)months,afterwhichperiodeitherCloroxorP&GwillhavetherighttoterminatethisAgreementifsuchwaivers,consentsandapprovalshavenotbeenreceivedsuchthattheconditiontoclosingsetforthinSection8.1(b)hasnotbeensatisfiedoriftheClosinghasnototherwiseoccurred.ThePartieswilltimelyandpromptlymakeallfilingswhichmayberequiredbyeachoftheminconnectionwiththeconsummationofthetransactionscontemplatedherebyundertheHart-Scott-RodinoAntitrustImprovementsactof1976,asamended,andtherulesandregulationsthereunder(the“HSRAct”)andanysimilarforeignlegislation.EachPartywillfurnishtotheothersuchnecessaryinformationandassistanceassuchPartymayreasonablyrequestinconnectionwiththepreparationofanynecessaryfilingsorsubmissionsbyittoanyU.S.orforeigngovernmentalagency,includinganyfilingsnecessaryundertheprovisionsoftheHSRAct.NotwithstandinganythingtothecontraryinthisAgreement,noPartynoranyoftheirAffiliateswillberequiredtomakeanydisposition,includinganydispositionof,oranyagreementtoholdseparate,anySubsidiary,assetorbusiness,andnoPartynoranyoftheirAffiliateswillberequiredtocomplywithanyconditionorundertakingortakeanyactionwhich,individuallyorintheaggregate,wouldmateriallyadverselyaffecttheeconomicbenefitstosuchPartyofthetransactionscontemplatedherebyandbytheRelatedAgreements,takenasawholeoradverselyaffectanyotherbusinessofsuchPartyoritsAffiliates.IncaseatanytimeaftertheClosingDateanyfurtheractionisnecessaryordesirabletocarryoutthepurposesofthisAgreement,theproperofficersanddirectorsofthePartiesandtheirrespectiveAffiliateswillexecutesuchfurtherdocuments(includingassignments,acknowledgmentsandconsentsandotherinstrumentsoftransfer)andwilltakesuchfurtheractionaswillbenecessaryordesirabletoeffectsuchtransferandtootherwisecarryoutthepurposesofthisAgreement,ineachcasetotheextentnotinconsistentwithapplicablelaw.
(b)P&Gwillhavetheright[***]year,uponreasonablenoticetoCloroxtohaveanindependentpublicaccountingfirmreviewandauditthatportionofthebooks,recordsandaccountsoftheGladBusinesswithrespecttothosetransactionsattributedtotheGladBusinessthatarebetweenCloroxandanyAffiliateofCloroxforwhichtheconsentofP&GisnotsoughtpursuanttoSection5.3(a)(v)byreasonofsuchtransactionsbeingwithinthescopeofSection5.3(a)(v)(x).P&GagreestocauseanyreviewconductedpursuanttothisSection7.5(b)tobeconductedinamannersoasnottounreasonablyinterferewiththenormalbusinessoperationsoftheGladBusiness.
(c)IntheeventtheCloroxPartnersoranyoftheirSubsidiarieswishto[***]ofanybusiness,division,PersonorassetforwhichtransactiontheconsentoftheP&GPartnersisrequiredpursuantto[***],CloroxwillnotifytheP&GPartnersandiftheP&GPartnersnotifiesCloroxinwritingwithin[***]ofreceiptofsuchnoticethattheP&GPartnershasmadea[***]topursuea[***]business,division,Personorasset,CloroxandtheP&GPartnerswillnegotiate[***]foraperiodnottoexceed[***]withrespectto[***]bytheP&GPartnersofsuchbusiness,division,Personorasset,onterms[***]CloroxandtheP&GPartners,providedthatitisunderstoodthatintheeventtheP&GPartnersandCloroxdonotenterintoabindingagreementwithrespectto[***]toeachPartyin[***]withinsuch[***]dayperiod,Cloroxwillhavetherightthereafterto[***]andenterintoa[***]ofsuchbusiness,division,PersonorassetwithanyotherPerson.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(d)IntheeventofaThird-PartySalebyClorox,CloroxwilldeterminetheactuarialliabilitieswithrespecttothepensionsofanydefinedbenefitpensionplansmaintainedbyCloroxoranyAffiliatewhicharesubjecttothefundingrequirementsofSection412oftheCodeinwhichpersonnelengagedintheGladGlobalBusinessatthetimeoftheproposedsaleareparticipating(the“DefinedBenefitPlans”),basedonthesameactuarialassumptionsthatCloroxusestofundtheDefinedBenefitPlansovertime.CloroxwilldeterminetheprorataportionofthoseactuarialliabilitiesattributabletoGladGlobalBusinesspersonnelwhowillbecomeemployeesofthepurchaserinconnectionwiththeproposedsale(the“ProRataPortion”)assumedascomparedtothetotalactuarialliabilitiesfortheDefinedBenefitPlans.Cloroxwillproposethatthepurchaseracceptaspin-offoftheProRataPortiontoatax-qualifieddefinedbenefitpensionplanmaintainedbythepurchaserforitsownemployees(a“PurchaserPlan”)tosuchassetsforthebenefitoftheGladGlobalBusinesspersonnelwhobecomeemployeesofthepurchaserinconnectionwiththeproposedsale.TotheextentthepurchasernegotiatesatransactioninwhichanamountdifferentfromtheProRataPortionisspunofffromtheDefinedBenefitPlanstothePurchaserPlanthen(i)ifthepurchaseracceptsanamountlessthantheProRataPortion,P&GSubwillreceiveanamountequalto(A)itsOrdinaryJVInterestpercentagemultipliedby(B)thedifferencebetweentheProRataPortionandtheactualamountacceptedbythepurchaserand(ii)ifthepurchaseracquiresmorethantheProRataPortion,P&GSub’spurchasepricereceivedforitsinterestintheJointVenturewillbedecreasedbyanamountequalto(A)itsOrdinaryJVInterestpercentagemultipliedby(B)thedifferencebetweentheamountproposedbyCloroxinaccordancewiththeimmediatelyprecedingsentenceandtheactualamountacceptedbythepurchaser.Withrespecttoanypost-retireehealthcarebenefitsnotassumedbythethirdpartypurchaser,theJVPartnerswilldividethatexpensebetweenthem,basedontheirproportionateshareoftheactuarialliabilitieswithrespecttosuchbenefitprogramscalculatedonthebasisoftheirrelativeOrdinaryJVInterests.
(e)PriortotheClosing,theCloroxPartieswilldelivertotheP&GPartiesasupplementtoSchedules2.2(a)(i)and2.2(a)(iii)settingforththeamountsoftheeliminationsandadditionsreferencedtherein(the“SupplementalSchedule”).
Section7.6PublicStatements.
BeforeanyPartyoranyAffiliateofsuchPartywillreleaseanyinformationconcerningthisAgreementorthematterscontemplatedherebywhichisintendedforormayresultinpublicdisseminationthereof,theywillcooperatewiththeotherParties,willfurnishdraftsofalldocumentsorproposedoralstatementstotheotherParties,providetheotherPartiestheopportunitytoreviewandcommentuponanysuchdocumentsorstatementsandwillnotreleaseorpermitreleaseofanysuchinformationwithouttheconsentoftheotherParties,excepttotheextentrequiredbyapplicablelawortherulesofanysecuritiesexchangeorautomatedquotationsystemonwhichitssecuritiesorthoseofanyofitsAffiliatesaretraded.
Section7.7ConductofBusiness.
(a)TheCloroxPartiesagreethatpriortotheClosingDate,withoutthepriorwrittenconsentoftheP&GPartners,whichconsentwillnotbeunreasonablywithheld,asmaybeexpresslypermittedorcontemplatedbythisAgreementorasmaybesetforthinSection7.7oftheCloroxDisclosureSchedulehereto,theCloroxPartieswillcausetheGladGlobalBusiness:
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(i)tobeconductedintheusual,regularandordinarycourseofbusinessconsistentwithpastpractice,andwilluse[***]effortstopreserveintacttheGladGlobalBusiness,keepavailabletheservicesoftheiremployeesandpreservetheirrelationshipswithcustomers,suppliers,licensees,licensors,distributors,agentsandothershavingbusinessdealingswiththeGladGlobalBusiness;
(ii)to(A)maintainitsinventoryofsupplies,partsandothermaterialsandkeepitsbooksofaccount,recordsandfiles,ineachcaseintheordinarycourseofbusinessconsistentwithpastpractice,(B)maintainitspromotionalactivitiesandexpendituresintheordinarycourseofbusinessconsistentwithpastpracticeand(C)maintaininfullforceandeffectpropertydamage,liabilityandotherinsurancewithrespecttotheGladGlobalBusinessanditsassetsandpropertiesprovidingcoverageagainstsuchrisksandinatleasttheamountsasprovidedbytheinsurancepoliciescurrentlymaintainedbytheCloroxPartieswithrespecttotheGladGlobalBusinesstotheextentreasonablyavailable;
(iii)nottosell,transferorotherwisedisposeofanybusiness,assets,rightsorpropertiesoftheGladGlobalBusinessotherthan(A)salesofobsoleteorworn-outequipmentorotherassetsnolongerusedintheGladGlobalBusinessnotexceedingavalueinexcessof$[***]individuallyor$[***]intheaggregate,(B)salesofinventoryintheordinarycourseofbusiness,(C)sales,transfersorotherdispositionsofassetsorpropertiesthatwillbereplacedpriortotheClosingwithassetsorpropertiesofacomparablevalueorutilitythatwillbeattributedtotheGladGlobalBusinessor(D)sales,transfersordispositionsintheordinarycourseoftheGladGlobalBusinessconsistentwithpastpracticeandnotexceedingavalueinexcessof$[***]individuallyor$[***]intheaggregatenototherwiseincludedintheforegoingclauses(A)through(C);and
(iv)nottotakeanyactionforwhichtheconsentoftheP&GPartnerswouldberequiredaftertheClosingDatepursuanttoSection5.3(a)hereof.
(b)NotwithstandingtheprovisionsofSection7.7(a),thePartiesagreethatcashandcashequivalents(excludingpettycash)oftheGladGlobalBusinesspriortoClosingwillbeaCloroxExcludedAssetpursuanttotheprovisionsofSection2.2(b)hereof.TheCloroxPartieswillhavetherighttoremoveanysuchcashorcashequivalents(excludingpettycash)fromtheGladGlobalBusinesspriortotheClosing,subjecttotherepresentationandwarrantycontainedinSection4.2(a)(ii)hereof.
(c)TheP&GPartiesagreethatpriortotheClosingDate,withoutthepriorwrittenconsentofClorox,theP&GPartieswillnotsell,transferorotherwisedisposeof(i)anyP&GEquipmentor(ii)theForceflexTechnologyorImpressTechnology(ineachcaseassuchtermsaredefinedintheP&GLicenseAgreement)tobelicensedtotheCloroxPartiespursuanttotheP&GLicenseAgreement.TheP&GPartiesagreethattheywillcomplywiththeprovisionsofSection7.4oftheformofLicenseAgreementattachedasExhibitA,whichprovisionsareincorporatedbyreferenceherein.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section7.8InternationalRelationships.
ThePartieshaveagreedthattotheextenttheGladGlobalBusinessexpandstoestablishoperationsinanycountryotherthantheUnitedStates,Canada,AustraliaNewZealand,China,Philippines,HongKong,CostaRica,KoreaandSouthAfrica(a“NewCountry”),thePartieswillenterarelationshipinsuchNewCountry,whichrelationshipwill,attheelectionoftheCloroxPartners,either(a)haveastructureandbeontermssubstantiallysimilartothoseundertheJVSublicenseAgreementsandtheGladLicenseAgreementsfortheInternationalLicenseesor(b)havethestructureandbeonthetermssetforthonExhibitGhereto,ineachcaseunlessthePartiesmutuallydeterminethatsuchstructurewouldresultinmaterialadversetaxconsequencestoP&GorClorox,inwhichcaseP&GandCloroxwillnegotiateingoodfaithtomodifythestructureasnecessarytoavoidsuchadversetaxconsequences.ThePartiesdonotintendfortheprovisionsofthisSection7.8tospecifyanyparticularoperationalstructuretobeusedinanyNewCountryortosetinadvancecompensationtobereceivedbyP&GoritsAffiliatesinconnectionwithanyservicesthatmaybeprovidedbyP&GoritsAffiliatesasaserviceprovidertotheoperationsinsuchNewCountry.ThePartiesagreetouseall[***]effortsandtonegotiateingoodfaithtocompletethedocumentationnecessarytoimplementanysuchrelationship.Fortheavoidanceofdoubt,intheeventthatnotwithstandingtheprovisionsofthisSection7.8,thePartiesareunabletoagreeupontheimplementationofanysuchrelationshipinanycountry,suchfailurewillnotpreventtheGladGlobalBusinessfromenteringintooperationinthecountryinquestion.
Section7.9SublicensesofP&GIntellectualProperty.
(a)TotheextentTheGladProductsCompanyoritsAffiliates,onbehalfoftheJointVenture,sublicensesanyoftheIntellectualPropertylicensedtoitbyP&GSubundertheP&GLicenseAgreementtoanyAffiliateofClorox,eachofTheGladProductsCompanyandtheotherCloroxPartiesagreeasfollowsduringthetermofanysuchsublicense:
(i)to[***]withrespectto[***]relatingtothelicenseesunderanysuchsublicensesandthe[***]conductedbysuchlicensees.ForpurposesofthisSection7.9(a),materialitywillbejudgedbasedontheGladLicensedBusinesstakenasawhole,providedthat(i)[***]GladLocalBusiness,(ii)any[***]inexcessof$[***]and(iii)any[***]thatwillbeattributedtoanyGladLocalBusinessthat[***]willbedeemedtobematerial;
(ii)toprovideP&GSubwithcopiesoftheinformationandreportssuchPartyreceivesfromthelicenseesunderanysuchsublicenses,anduponthereasonablerequestofP&GSub,obtainfromthelicenseesundersuchsublicenses,additionalinformationconcerningtheGladLicensedBusiness;
(iii)notto[***],totheextentsuchPartyhastherightunderanysuchsublicenseto[***]withrespecttotheJointVentureandtheGladBusiness;and
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(iv)touse[***]effortstocausethelicenseesunderanysuchsublicensestoconducttheGladLocalBusinessesconductedbysuchlicenseesinamannernotinconsistentwiththeoverallstrategicdirectionoftheGladBusiness,butsubjecttolocalmarketconditionsandothercircumstancesofthejurisdictionsinwhichsuchGladLocalBusinessesareconducted.
(b)P&Gwillhavetheright[***]year,uponreasonablenoticetoTheGladProductsCompany,tohaveanindependentpublicaccountingfirmreviewandauditthebooks,recordsandaccountsoftheGladLicensedBusiness,atP&G’sexpense.P&GagreestocauseanyreviewconductedpursuanttothisSection7.9(b)tobeconductedinamannersoasnottounreasonablyinterferewiththenormalbusinessoperationsoftheGladLicensedBusiness.
ARTICLEVIII
CONDITIONSPRECEDENTTOCLOSING
Section8.1ConditionstoEachParty’sObligations.
TherespectiveobligationsofeachPartytoconsummatethetransactionscontemplatedbythisAgreementtooccurattheClosingwillbesubjecttothefulfillmentofthefollowingconditionsonorpriortotheClosingDate:
(a)nostatute,rule,regulation,executiveorder,decree,orpreliminaryorpermanentinjunctionwillhavebeenenacted,entered,promulgatedorenforcedbyanystate,federalorforeigncourtofcompetentjurisdictionorGovernmentalAuthoritywhichprohibitsconsummationofthetransactionscontemplatedbythisAgreementandtheRelatedAgreements,whethertemporary,preliminaryorpermanent;provided,however,thatsubjecttothetermsofthisAgreementthePartieswillusetheir[***]effortstohavesuchorder,decreeorinjunctionvacated;
(b)thewaitingperiodapplicabletotheconsummationofthetransactionscontemplatedbythisAgreementundertheHSRActwillhaveexpiredorbeenearlierterminated;and
(c)allorders,consentsandapprovalsofGovernmentalAuthoritieslegallyrequiredfortheconsummationofthetransactionscontemplatedbythisAgreementwillhavebeenobtainedandbeineffectattheClosingDate,exceptthoseforwhichfailuretoobtainsuchconsentsandapprovalswouldnot,individuallyorintheaggregate,haveamaterialadverseeffectupontheCompanyoritsfuturebusinessorresultsofoperations.
Section8.2ConditionstotheClosingObligationsoftheCloroxParties.
TheobligationsoftheCloroxPartiestoconsummatethetransactionscontemplatedbythisAgreementtooccurattheClosingwillbesubjecttothefulfillmentofthefollowingadditionalconditions:
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(a)TheP&GPartieswillhaveperformedinallmaterialrespectstheirobligationsunderthisAgreementandanyRelatedAgreementrequiredtobeperformedbythematorpriortotheClosingDate,andtherepresentationsandwarrantiesoftheP&GPartiessetforthinthisAgreement(i)thatarequalifiedastoMaterialAdverseEffectwillbetrueandcorrectinallrespectsand(ii)thatarenotsoqualifiedwillbetrueandcorrectinallmaterialrespectsatandasoftheClosingDateasifmadeatandasofsuchtime,excepttotheextentthatanysuchrepresentationorwarrantyspecificallyspeakstoaspecifieddate,inwhichcasesuchrepresentationorwarrantywillhavebeentrueandcorrectasofsuchdate,andtheCloroxPartieswillhavereceivedacertificatetosucheffectdatedtheClosingDatesignedonbehalfoftheP&GPartiesbyanexecutiveofficerthereof;and
(b)TheP&GPartieswillhavedulyauthorized,executedanddeliveredtotheCloroxPartiesatorpriortotheClosingDateeachoftheRelatedAgreementstowhichitisaparty,andeachsuchRelatedAgreementswillbeinfullforceandeffect.
Section8.3ConditionstotheClosingObligationsoftheP&GParties.
TheobligationsoftheP&GPartiestoconsummatethetransactionscontemplatedbythisAgreementtooccurattheClosingwillbesubjecttothefulfillmentofthefollowingadditionalconditions:
(a)theCloroxPartieswillhaveperformedinallmaterialrespectstheirobligationsunderthisAgreementandanyRelatedAgreementrequiredtobeperformedbythematorpriortotheClosingDate,andtherepresentationsandwarrantiesoftheCloroxPartiessetforthinthisAgreement(i)thatarequalifiedastoMaterialAdverseEffectwillbetrueandcorrectinallrespectsand(ii)thatarenotsoqualifiedwillbetrueandcorrectinallmaterialrespectsatandasoftheClosingDateasifmadeatandasofsuchtime,excepttotheextentthatanysuchrepresentationorwarrantyspecificallyspeakstoaspecifieddate,inwhichcasesuchrepresentationorwarrantywillhavebeentrueandcorrectasofsuchdate,andinthecaseofeachoftherepresentationsandwarrantiestotheextentrelatingtotheGladExistingInternationalBusinesswillnotbesubjecttoanyexceptionsotherthanassetforthintheCloroxDisclosureSchedulethatwouldreasonablybeexpectedtohaveaMaterialAdverseEffect,andtheP&GPartieswillhavereceivedacertificatetosucheffectdatedtheClosingDatesignedonbehalfoftheCloroxPartiesbyanexecutiveofficerofClorox;
(b)eachCloroxPartywillhavedulyauthorized,executedanddeliveredtotheP&GPartiesatorpriortotheClosingDateeachoftheRelatedAgreementstowhichitisaparty,andeachsuchRelatedAgreementwillbeinfullforceandeffect;and
(c)theCloroxPartiesshallhavedeliveredtheSupplementalScheduletotheP&GParties.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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ARTICLEIX
ACCOUNTING;TAXMATTERS
Section9.1Accounting.
(a)TheaccountingprinciplesandpoliciesadoptedwithrespecttotheJointVenturearesetforthonExhibitHhereto(the“JVAccountingPrinciples”).TheJVAccountingPrinciplesshallalsoapplytotheconductoftheGladLicensedBusiness.
(b)EachJVPartnerwillbesuppliedwithestimatesofincomeandotherinformationnecessarytoenablesuchJVPartnertoprepareinatimelymanneritsU.S.federal,stateandlocalincomeestimatedtaxreturns(andextensionpayments,ifany)andsuchotherfinancialorotherstatementsandreportsthattheBoarddeemsappropriate;providedthateachJVPartnerwillbeprovidedwithcopiesofScheduleK-1fortheJointVentureforsuchFiscalYearnolaterthanseven(7)calendarmonthsaftertheendofthefirsttwoFiscalYearsoftheJointVentureandnolaterthansix(6)calendarmonthsaftertheendofanyFiscalYearthereafter.
(c)Within(i)sixty(60)daysaftertheendofeachofthefirsteightFiscalQuarters,andaftertheendofanyFiscalQuarterthereafter,(A)forty-five(45)dayswithrespecttotheGladBusinessand(B)sixty(60)dayswithrespecttoeachGladLocalBusinessand(ii)120daysafterthecloseofeachofthefirsttwoFiscalYearsoftheJointVentureandwithinninety(90)daysaftertheendofanyFiscalYearthereafter,theBoardwillcausetobepreparedinaccordancewiththeJVAccountingPrinciplesandsubmittedtoeachJVPartnerthebalancesheetoftheGladBusinessandeachGladLocalBusinessasoftheendofsuchperiodandastatementofincomeorlossandastatementofcashflowsoftheGladBusinessandeachGladLocalBusinessforsuchperiod.
(d)TheCloroxPartnerswillkeeporcausetobekeptbooksandrecordspertainingtothebusinessattributedtotheJointVentureshowingallofitsassetsandLiabilities,receiptsanddisbursements,realizedprofitsandlosses,JVPartner’sCapitalAccountsandalltransactionsattributedtotheJointVenture.SuchbooksandrecordsoftheJointVenturewillbekeptattheGladBusinessheadquartersinOakland,CaliforniaandtheJVPartnersandtheirrepresentativeswillatallreasonabletimeshavefreeaccesstheretoforthepurposeofinspectingorcopyingthesame.
(e)IncaseofaTransferofallorpartoftheJVInterestofanyJVPartner,theBoardmaycausetheJointVenturetoelect,pursuanttoSection734,743and754oftheCodetoadjustthebasisoftheassetsattributedtotheJointVenture;provided,however,theelectionunderSection754will[***]totheBoard’sdiscretionandsuchelectionwillbemadetimelyif[***]inconnectionwith[***].
(f)ThePartiesacknowledgeandagreethatfromtimetotimeduringtheTerm,astheGladBusinesschanges,adjustmentsmaybecomenecessarytotheJVAccountingPrinciplesortheprovisionsofthisAgreementtomaintaintheintendedrelativeeconomicinterestsofthePartieshereunderaswellastheintendedeconomicbenefitstothePartiesofthisJointVentureaseffectedbythisAgreementasoftheClosing.ThePartiesagreetonegotiateingoodfaithtoamendtheJVAccountingPrinciplesandthisAgreementasmaybenecessarytomaintainsuchrelativeeconomicinterestsandintendedeconomicbenefits,andanysuchadjustmentoramendmentpursuanttothisSection9.1(f)mustbemutuallyagreeduponbyalltheJVPartners.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(g)Clorox’sinternalauditgroupwillperformareviewatleastonceevery24monthsofthefinancialstatementsandprocessesandproceduresoftheGladBusiness,whichreviewwillbeconductedinamannerconsistentwiththatusedforscheduledperiodicreviewsbysuchinternalauditgroupofotherCloroxbusinesses.ThereportwithrespecttosuchreviewwillbeprovidedtotheBoard.
(h)P&Gwillhavetheright[***]year,uponreasonablenoticetoCloroxtohaveanindependentpublicaccountingfirmreviewandauditthebooks,recordsandaccountsoftheGladBusiness,atP&G’sexpense.P&GagreestocauseanyreviewconductedpursuanttothisSection9.1(h)tobeconductedinamannersoasnottounreasonablyinterferewiththenormalbusinessoperationsoftheGladBusiness.
Section9.2TaxMatters.
(a)ThetaxableyearoftheJointVenturewillbethesameasitsFiscalYear.
(b)TheJVPartnersagreeandacknowledgethattheJointVenturewillnotbesubjecttotheprovisionsofSections6221,et.seq.,oftheCode.TheJVPartnersfurtheragreethattheJointVenturewillnotelect,norwillanyJVPartner,theBoard,oranyotherPerson,electonbehalfoftheJointVenture,tocausetheJointVenturetobesubjecttosaidunifiedTaxProceedings.Accordingly,noJVPartnerwillhaveanyauthoritytorepresenttheJointVenturebeforetheInternalRevenueServiceorotherTaxauthorityinaunifiedTaxproceeding,norwillanyJVPartnerhaveauthoritytosignanyconsent,enterintoanysettlementagreement,extendthestatuteoflimitations,compromiseanyTaxdispute,ortakeanyotheractionregardingaTaxauditproceedingonbehalfofanyotherJVPartner(exceptthatCloroxPartiesmaytakesuchactionsonbehalfofotherCloroxParties).EachofCloroxandP&GSubagreetokeeptheotherinformedastotheprogressofTaxaudits,examinationsandproceedingsofsuchPartiesortheirAffiliatesthatrelatetoTaxitemsattributabletotheJointVenture.
(c)TheBoardwillcausetobepreparedallfederal,stateandlocaltaxreturnsoftheJointVentureforeachyearforwhichsuchreturnsarerequiredtobefiledandwillcausesuchreturnstobetimelyfiled.TheBoardwilldeterminetheappropriatetreatmentofeachitemofincome,gain,loss,deductionandcreditattributedtotheJointVentureandtheaccountingmethodsandconventionsunderthetaxlawsoftheUnitedStates,theseveralStatesandotherrelevantjurisdictionsastothetreatmentofanysuchitemoranyothermethodorprocedurerelatedtothepreparationofsuchtaxreturns.EachJVPartneragreesthatitwilltakenopositiononitstaxreturnsinconsistentwiththepositiontakenontheJointVenture’staxreturns.TheBoardonbehalfoftheJointVenturemaymakeallelectionsforfederalincometaxpurposes;providedthat,ifsuchelectionwouldhaveamaterialadverseeffectonP&G,theBoardwillprovidenoticetoandconsultP&Gregardingsuchelection.
(d)TheJVPartnersintendfortheJointVenturetobetreatedasapartnershipforU.S.federal,stateandlocalincometaxpurposes,andnoJVPartner(noranyPersonactingonbehalfoftheJointVenture)willtakeanyactioninconsistentwithsuchtreatment.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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ARTICLEX
INDEMNIFICATION
Section10.1IndemnificationbyCloroxPartners.
FromandaftertheClosingDate,theCloroxPartnerswilljointlyandseverallyindemnifyandholdharmlesstheP&GPartiesandtheirrespectiveAffiliates,andtherespectivedirectors,officers,employeesandagentsofanyoftheforegoingandanyoftheheirs,executors,successorsandassignsofanyoftheforegoing(collectively,the“P&GIndemnifiedParties”)fromandagainstanyandalldamages,claims,losses,expenses,costs,obligationsandLiabilitiesincluding,withoutlimitingthegeneralityoftheforegoing,Liabilitiesforallreasonableattorneys’feesandexpenses(includingattorneyandexpertfeesandexpensesincurredtoenforcesuccessfullythetermsofthisAgreement)(collectively,“LossesandExpenses”)sufferedorincurredbyanysuchP&GIndemnifiedPartyarisingfrom,relatingtoorotherwiseinrespectof,(a)anybreachof,orinaccuracyin,anyrepresentationorwarrantyoftheCloroxPartiescontainedinthisAgreementorinthecertificatedeliveredbytheCloroxPartiespursuanttoSection8.3(a)ofthisAgreement,(b)anybreachofanycovenantorotheragreementoftheCloroxPartiescontainedinthisAgreement,and(c)anyCloroxRetainedLiabilities.TheaggregateindemnificationobligationsoftheCloroxPartnerspursuanttotheforegoingclause(a),togetherwiththeindemnificationobligationsofsuchPersonswithrespecttobreachesofrepresentationsandwarrantiesundertheP&GLicenseAgreement,willbelimitedtoamaximumof$28,000,000,andtheCloroxPartnerswillhavenoindemnificationobligationswithrespecttosuchclause(a)unlesstheaggregateofallLossesandExpensesrelatingtheretoandwithrespecttobreachesofrepresentationsandwarrantiesundertheP&GLicenseAgreementforwhichtheCloroxPartnerswould,butforthisprovision,beliableexceedsonacumulativebasisanamountequalto$3,000,000,andthenonlytotheextentofanysuchexcess.Anyclaimsforindemnificationpursuanttosuchclause(a)mustbemadepriortothedatethatiseighteen(18)monthsaftertheClosingDate.FromandaftertheClosingDate,theCloroxPartnerswillfurtherjointlyandseverallyindemnifyandholdharmlesstheP&GIndemnifiedPartiesfromandagainstanyandallLossesandExpensesarisingoutoforrelatedtoanythirdpartyclaimthatanyP&GIndemnifiedPartyhasanyLiabilityorobligationwithrespecttoanyLiabilityattributedtotheJointVentureorarisingoutoforrelatedtotheGladBusinessortheGladLicensedBusiness,providedthatsuchindemnificationwillnotapplytoanyLiabilityorobligationforwhichanyP&GIndemnifiedPartyhasagreedtoprovideindemnificationorisotherwiseexpresslyliableforpursuanttothetermsoftheRelatedAgreements.
Section10.2IndemnificationbyP&GPartners.
FromandaftertheClosingDate,theP&GPartnerswillindemnifyandholdharmlesseachoftheCloroxPartnersandtheirrespectiveAffiliates,andtherespectivedirectors,officers,employeesandagentsofanyoftheforegoing,andanyoftheheirs,executors,successorsandassignsofanyoftheforegoing(collectively,the“CloroxIndemnifiedParties”andtogetherwiththeP&GIndemnifiedParties,the“IndemnifiedParties”)fromandagainstanyandallLossesandExpensessufferedorincurredbyanysuchCloroxIndemnifiedPartyarisingfrom,relatingtoorotherwiseinrespectof,(a)anybreachof,orinaccuracyin,anyrepresentationorwarrantyoftheP&GPartiescontainedinthisAgreementorinthecertificatedeliveredbytheP&GPartiespursuanttoSection8.2(a)ofthisAgreement,(b)anybreachofanycovenantorotheragreementoftheP&GPartiescontainedinthisAgreementand(c)anyPermittedLiensexistingasoftheClosingwithrespecttotheP&GEquipment.TheaggregateindemnificationobligationsoftheP&GPartnerspursuanttotheforegoingclause(a),togetherwiththeindemnificationobligationsofsuchPersonswithrespecttobreachesofrepresentationsandwarrantiesundertheP&GLicenseAgreement,willbelimitedtoamaximumof$28,000,000,andtheP&GPartnerswillhavenoindemnificationobligationswithrespecttosuchclause(a)orwithrespecttobreachesofrepresentationsandwarrantiesundertheP&GLicenseAgreement,unlesstheaggregateofallLossesandExpensesrelatingtheretoforwhichtheP&GPartnerswould,butforthisprovision,beliableexceedsonacumulativebasisanamountequalto$3,000,000,andthenonlytotheextentofanysuchexcess.Anyclaimsforindemnificationpursuanttosuchclause(a)mustbemadepriortothedatethatiseighteen(18)monthsaftertheClosingDate.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section10.3Third-PartyClaims.
IfaclaimbyathirdpartyismadeagainstanIndemnifiedPartyhereunder,andifsuchIndemnifiedPartyintendstoseekindemnitywithrespecttheretounderthisArticleX,suchIndemnifiedPartywillpromptlynotifyClorox,inthecaseofaP&GIndemnifiedParty,orP&G,inthecaseofaCloroxIndemnifiedParty(suchpersontobenotified,the“IndemnifyingParty”)inwritingofsuchclaimssettingforthsuchclaimsinreasonabledetail,providedthatfailureofsuchIndemnifiedPartytogivepromptnoticeasprovidedhereinwillnotrelievetheIndemnifyingPartyofanyofitsobligationshereunder,excepttotheextentthattheIndemnifyingPartyismateriallyprejudicedbysuchfailure.TheIndemnifyingPartywillhavetwenty(20)daysafterreceiptofsuchnoticetoundertake,throughcounselofitsownchoosing,subjecttothereasonableapprovalofsuchIndemnifiedParty,andatitsownexpense,thesettlementordefensethereof,andtheIndemnifiedPartywillcooperatewithitinconnectiontherewith;provided,however,thattheIndemnifiedPartymayparticipateinsuchsettlementordefensethroughcounselchosenbysuchIndemnifiedParty,providedthatthefeesandexpensesofsuchcounselwillbebornebysuchIndemnifiedParty.IftheIndemnifyingPartywillassumethedefenseofaclaim,itwillnotsettlesuchclaimwithoutthepriorwrittenconsentoftheIndemnifiedParty,(a)unlesssuchsettlementincludesasanunconditionaltermthereofthegivingbytheclaimantofareleaseoftheIndemnifiedPartyfromallLiabilitywithrespecttosuchclaimor(b)ifsuchsettlementinvolvestheimpositionofequitableremediesortheimpositionofanymaterialobligationsonsuchIndemnifiedPartyotherthanfinancialobligationsforwhichsuchIndemnifiedPartywillbeindemnifiedhereunder.IftheIndemnifyingPartywillassumethedefenseofaclaim,thefeesofanyseparatecounselretainedbytheIndemnifiedPartywillbebornebysuchIndemnifiedPartyunlessthereexistsaconflictbetweenthemastotheirrespectivelegaldefenses(otherthanonethatisofamonetarynature),inwhichcasetheIndemnifiedPartywillbeentitledtoretainseparatecounsel,thereasonablefeesandexpensesofwhichwillbereimbursedbytheIndemnifyingParty.IftheIndemnifyingPartydoesnotnotifytheIndemnifiedPartywithintwenty(20)daysafterthereceiptoftheIndemnifiedParty’snoticeofaclaimofindemnityhereunderthatitelectstoundertakethedefensethereof,theIndemnifiedPartywillhavetherighttocontest,settleorcompromisetheclaimbutwillnottherebywaiveanyrighttoindemnitythereforpursuanttothisAgreement.TheindemnificationprovisionssetforthinthisArticleXarethesoleandexclusivemeansofrecoveryofmoneydamageswithrespecttothematterscoveredherein,exceptforfraud.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section10.4LimitationonLossesandExpenses
Notwithstandinganythingtothecontrarycontainedherein,noIndemnifyingPartywillbeliableforanypunitivedamagespursuanttothisAgreementoranyoftheRelatedAgreements(itbeingunderstoodthatanypunitivedamagespaidbyanyIndemnifiedPartytoanythirdpartywillbeconsidereddirectdamagesnotsubjecttothisSection10.4).
ARTICLEXI
MISCELLANEOUS
Section11.1AmendmentsandWaivers.
ThisAgreementmaybeamendedonlybyawritteninstrumentexecutedbyCloroxandtheP&GPartners.AnyamendmenteffectedinaccordancewiththeimmediatelyprecedingsentencewillbebindingonallofthePartiestothisAgreement.NofailureordelaybyanyPartyinexercisinganyright,powerorprivilegehereunderwilloperateasawaiverthereofnorwillanysingleorpartialexercisethereofprecludeanyotherorfurtherexercisethereofortheexerciseofanyotherright,powerorprivilege.
Section11.2Successors,AssignsandTransferees.
TheprovisionsofthisAgreementwillbebindinguponandwillinuretothebenefitofthePartiesandtheirrespectivesuccessorsandPermittedTransferees,eachofwhichwillagreeinawritingreasonablysatisfactoryinformandsubstancetoCloroxandtheP&GPartnerstobecomeaPartyheretoandbeboundtothesameextentherebyasthetransferorthathastransferredtheJVInterest.NoPartytothisAgreementmayassignanyofitsrightsorobligationsunderthisAgreementtoanypersonotherthanaPermittedTransfereewithoutthepriorwrittenconsentoftheotherParties.
Section11.3Notices.
Anynoticesorothercommunicationsrequiredorpermittedhereunderwillbesufficientlygivenif(a)deliveredpersonally,(b)transmittedbyfacsimile(withwrittentransmissionconfirmation),(c)mailedbycertifiedorregisteredmail(returnreceiptrequested)(inwhichcasesuchnoticewillbedeemedgivenonthethirddayaftersuchmailing)or(d)sentbyovernightFederalExpressorotherovernightcourier(withwrittendeliveryconfirmation),addressedasfollowsortosuchotheraddressofwhichthePartiesmayhavegivennotice:
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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TotheCloroxPartners:
TheCloroxCompany1221BroadwayOakland,CA94612Attention:GeneralCounselFacsimile:(510)271-1696Telephone:(510)271-4737E-mail:[email protected]
TotheP&GPartners:
TheProcter&GambleCompanyOneP&GPlazaCincinnati,OH45202Attention:JeffreyD.Weedman,VicePresidentFacsimile:(513)983-0911Telephone:(513)983-1921E-mail:[email protected]
Withcopiesto:
TheProcter&GambleCompanyOneP&GPlazaCincinnati,OH45202Attention:ChrisWaltherTelecopy:(513)983-2611Telephone:(513)983-8469E-mail:[email protected]
Section11.4Integration.
ThisAgreement,theRelatedAgreementsandthedocumentsreferredtohereinortherein,ordeliveredpursuantheretoorthereto,containtheentireunderstandingofthePartieswithrespecttothesubjectmatterhereofandthereof.Therearenoagreements,representations,warranties,covenantsorundertakingswithrespecttothesubjectmatterhereofandthereofotherthanthoseexpresslysetforthhereinandtherein.ThisAgreementsupersedesallotherprioragreementsandunderstandingsbetweenthePartieswithrespecttosuchsubjectmatter.
Section11.5Severability.
Ifoneormoreoftheprovisions,paragraphs,words,clauses,phrasesorsentencescontainedherein,ortheapplicationthereofinanycircumstances,isheldinvalid,illegalorunenforceableinanyrespectforanyreason,thevalidity,legalityandenforceabilityofanysuchprovision,paragraph,word,clause,phraseorsentenceineveryotherrespectandoftheremainingprovisions,paragraphs,words,clauses,phrasesorsentenceshereofwillnotbeinanywayimpaired,itbeingintendedthatallrights,powersandprivilegesofthePartieswillbeenforceabletothefullestextentpermittedbylaw.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section11.6Counterparts.
ThisAgreementmaybeexecutedintwoormorecounterparts,andbydifferentPartiesonseparatecounterpartseachofwhichwillbedeemedanoriginal,butallofwhichwillconstituteoneandthesameinstrument.
Section11.7GoverningLaw.
ThisAgreementwillbeconstruedinaccordancewith,andtherightsofthePartieswillbegovernedby,thelawsoftheStateofNewYork.
Section11.8Arbitration.
(a)ThePartieswillattemptingoodfaithtoresolvethroughnegotiationanydispute,claimorcontroversyarisingoutoforrelatingtothisAgreement.EitherCloroxortheP&GPartnersmayinitiatenegotiationsonbehalfoftheCloroxPartnersortheP&GPartners,asthecasemaybe,byprovidingwrittennoticeinletterformtotheotherParty,settingforththesubjectofthedisputeandthereliefrequested.Therecipientofsuchnoticewillrespondinwritingwithinfivedayswithastatementofitspositiononandrecommendedsolutiontothedispute.Ifthedisputeisnotresolvedbythisexchangeofcorrespondence,thenrepresentativesofeachofCloroxandtheP&GPartnerswithfullsettlementauthoritywillmeetatamutuallyagreeabletimeandplacewithinten(10)daysofthedateoftheinitialnoticeinordertoexchangerelevantinformationandperspectives,andtoattempttoresolvethedispute.Ifthedisputeisnotresolvedbythesenegotiations,thematterwillbesubmittedtoJAMS,oritssuccessor,formediation.
(b)EitherCloroxortheP&GPartnersmaycommencemediationonbehalfoftheCloroxPartnersortheP&GPartners,asthecasemaybe,byprovidingtoJAMSandtheotherPartyawrittenrequestformediation,settingforththesubjectofthedisputeandthereliefrequested.ThePartieswillcooperatewithJAMSandwithoneanotherinselectingamediatorfromJAMS’panelofneutrals,andinschedulingthemediationproceedings.ThePartiescovenantthattheywillparticipateinthemediationingoodfaith,andthatClorox,ontheonehand,andtheP&GPartners,ontheotherhand,willshareequallyinitscosts.Alloffers,promises,conductandstatements,whetheroralorwritten,madeinthecourseofthemediationbyanyoftheParties,theiragents,employees,expertsandattorneys,andbythemediatororanyJAMSemployees,areconfidential,privilegedandinadmissibleforanypurpose,includingimpeachment,inanyarbitrationorotherproceedinginvolvingtheParties,providedthatevidencethatisotherwiseadmissibleordiscoverablewillnotberenderedinadmissibleornon-discoverableasaresultofitsuseinthemediation.EitherCloroxortheP&GPartnersmayinitiatearbitrationonbehalfoftheCloroxPartnersortheP&GPartners,asthecasemaybe,withrespecttothematterssubmittedtomediationbyfilingawrittendemandforarbitrationatanytimefollowingtheinitialmediationsessionor45daysafterthedateoffilingthewrittenrequestformediation,whicheveroccursfirst.ThemediationmaycontinueafterthecommencementofarbitrationifthePartiessodesire.UnlessotherwiseagreedbytheParties,themediatorwillbedisqualifiedfromservingasarbitratorinthecase.TheprovisionsofthisSection11.8maybeenforcedbyanycourtofcompetentjurisdiction,andthePartyseekingenforcementwillbeentitledtoanawardofallcosts,feesandexpenses,includingattorneys’fees,tobepaidbythePartyagainstwhomenforcementisordered.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(c)Anydispute,claimorcontroversyarisingoutoforrelatingtothisAgreementorthebreach,termination,enforcement,interpretationorvaliditythereof,includingthedeterminationofthescopeorapplicabilityofthisAgreementtoarbitrate,whichisnotresolvedthroughnegotiationormediation,willbedeterminedbyarbitrationconductedinOakland,CA,beforeasolearbitratorbasedinthestateofNewYork,inaccordancewiththelawsoftheStateofNewYorkforagreementsmadeinandtobeperformedinthatState.ThearbitrationwillbeadministeredbyJAMSpursuanttoitsComprehensiveArbitrationRulesandProceduresunlessCloroxandtheP&GPartnersagreetouseitsStreamlinedArbitrationRulesandProcedures.Thearbitrator’sdecisionandawardwithrespecttothedisputereferredtowillbefinalandbindingonthePartiesandmaybeenteredinanycourtwithjurisdiction,andthePartieswillabidebysuchdecisionandaward.
(d)Thearbitratorwill,initsaward,allocateallofthecostsofthearbitration(andthemediation,ifapplicable),includingthefeesofthearbitratorandthereasonableattorneys’feesoftheprevailingParty,againstthePartywhodidnotprevail,ifany.
Section11.9InjunctiveRelief.
EachofthePartiesacknowledgesandagreesthatpendingtheoutcomeofanyarbitrationproceedingpursuanttoSection11.8,eachofthePartieswillbeentitledtoaninjunction,restrainingorderorotherequitablerelieftopreventbreachesoftheprovisionsofthisAgreementandtheRelatedAgreementsinanycourtofcompetentjurisdictionsolelyforthepurposeofmaintainingthestatusquo,inadditiontoanyotherremedytowhichtheymaybeentitledpursuanttothetermshereof.
Section11.10Expenses.
ExceptassetforthinthisAgreementandtheRelatedAgreements,whetherornotthetransactionscontemplatedbythisAgreementareconsummated,alllegalandothercostsandexpensesincurredinconnectionwiththisAgreementandtheRelatedAgreementsandthetransactionscontemplatedherebywillbepaidbythePartyincurringsuchcosts.
Section11.11NoThirdPartyBeneficiaries.
ExceptfortherightsoftheIndemnifiedPartiespursuanttoArticleX,nothinginthisAgreement,expressorimplied,isintendedtoconferuponanyPerson,otherthanthePartiesortheirrespectivesuccessorsandpermittedassigns,anyrights,remedies,benefits,obligationsorLiabilitiesofanynaturewhatsoeverunderorbyreasonofthisAgreement.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section11.12GuaranteesbyCloroxandP&G.
(a)InconsiderationoftheP&GPartiesenteringintothisAgreement,CloroxherebyfullyandunconditionallyguaranteesthateachoftheCloroxPartieswillfullyperformanddischargewhendueallofitsobligationsandLiabilitiesunderthisAgreementandeachoftheRelatedAgreements,includingbutnotlimitedtofullandpunctualpaymentanddischargewhendueofalloftheCloroxParties’indemnificationobligationstotheP&GIndemnifiedPartiesunderthisAgreementandeachoftheRelatedAgreements.TheguaranteeofCloroxpursuanttothisSection11.12(a)isanabsolute,unconditionalandcontinuingguaranteeofthefullandpunctualpaymentandperformancebytheCloroxPartiesofsuchobligationsandLiabilitieswhendueandnotoftheircollectibilityonlyandisinnowayconditioneduponanyrequirementthattheP&GPartiesfirstattempttocollectanyoftheobligationsorLiabilitiesfromtheCloroxParties,oruponanyothercontingencywhatsoever.TheobligationsofCloroxhereunderareabsoluteandunconditionalregardlessofthevalidityorenforceabilityofthisAgreementoranyoftheRelatedAgreementsagainstanyCloroxPartner.CloroxherebywaivesanylegalorequitabledefensetotheenforceabilityoftheprovisionsofthisSection11.12(a).
(b)InconsiderationoftheCloroxPartiesenteringintothisAgreement,P&GherebyfullyandunconditionallyguaranteesthateachoftheP&GPartieswillfullyperformanddischargewhendueallofitsobligationsandLiabilitiesunderthisAgreementandeachoftheRelatedAgreements,includingbutnotlimitedtofullandpunctualpaymentanddischargewhendueofalloftheP&GParties’indemnificationobligationstotheP&GIndemnifiedPartiesunderthisAgreementandeachoftheRelatedAgreements.TheguaranteeofP&GpursuanttothisSection11.12(b)isanabsolute,unconditionalandcontinuingguaranteeofthefullandpunctualpaymentandperformancebytheP&GPartiesofsuchobligationsandLiabilitieswhendueandnotoftheircollectibilityonlyandisinnowayconditioneduponanyrequirementthattheCloroxPartiesfirstattempttocollectanyoftheobligationsorLiabilitiesfromtheP&GParties,oruponanyothercontingencywhatsoever.TheobligationsofP&GhereunderareabsoluteandunconditionedregardlessofthevalidityorenforceabilityofthisAgreementoranyoftheRelatedAgreementsagainstanyP&GPartner.P&GherebywaivesanylegalorequitabledefensetotheenforceabilityoftheprovisionsofthisSection11.12(b).
(c)InconsiderationoftheCloroxPartiesenteringintothisAgreementandtheLicenseAgreement,P&GherebyfullyandunconditionallyguaranteesthatanyPersontowhomanyIntellectualPropertysubjecttotheP&GLicenseAgreementistransferredinaccordancewithSection7.3oftheP&GLicenseAgreementandanysubsequentPersonstowhomsuchIntellectualPropertymaybetransferred(collectively,“IPTransferees”)willfullyperformanddischargewhenduealloftheirobligationsandLiabilitiesundertheP&GLicenseAgreement,includingbutnotlimitedtoanylicensesgrantedpursuanttoArticle2,Article3orArticle6oftheP&GLicenseAgreement.TheguaranteeofP&GpursuanttothisSection11.12(b)isanabsolute,unconditionalandcontinuingguaranteeofthefullandpunctualpaymentandperformancebytheIPTransfereesofsuchobligationsandLiabilitieswhendueandnotoftheircollectibilityonlyandisinnowayconditioneduponanyrequirementthattheCloroxPartiesfirstattempttocollectanyoftheobligationsorLiabilitiesfromtheIPTransferees,oruponanyothercontingencywhatsoever.TheobligationsofP&GhereunderareabsoluteandunconditionalregardlessofthevalidityorenforceabilityoftheLicenseAgreementagainstanyIPTransferee.P&GherebywaivesanylegalorequitabledefensetotheenforceabilityoftheprovisionsofthisSection11.12(c).
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section11.13EffectivenessofAmendmentandRestatement,Representations,WarrantiesandAgreements.
ThisAgreementamendsandrestatescertainprovisionsoftheOriginalAgreementandrestatesthetermsoftheOriginalAgreementintheirentirety.AllamendmentstotheOriginalAgreementeffectedbythisAgreement,andallothercovenants,agreements,termsandprovisionsofthisAgreementshallhaveeffectasoftheOriginalDateunlessexpresslystatedotherwise.ThisAgreementshallbeeffectiveasofthedatethatcopieshereofhavebeenexecutedanddeliveredbyeachoftheParties.EachoftherepresentativesandwarrantiesmadeinthisAgreementshallbedeemedtobemadeonandasoftheOriginalDateandnotmadeasofthedatehereof.
[REMAINDEROFPAGEINTENTIONALLYLEFTBLANK.]
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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INWITNESSWHEREOF,eachoftheundersignedhasexecutedthisAgreementorcausedthisAgreementtobeexecutedonitsbehalfasofthedatefirstwrittenabove.
THECLOROXCOMPANYBy:/s/LarryPeiros
Name:LarryPeiros Title:GroupVicePresident
THEGLADPRODUCTSCOMPANYBy: /s/LarryPeiros
Name:LarryPeiros Title:VicePresident
GLADMANUFACTURINGCOMPANYBy: /s/LarryPeiros
Name:LarryPeiros Title:VicePresident
CLOROXSERVICESCOMPANYBy: /s/LarryPeiros
Name:LarryPeiros Title:VicePresident
[SignaturePagetoAmendedandRestatedJointVentureAgreement]
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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THECLOROXSALESCOMPANY
By:/s/LarryPeiros Name:LarryPeirosTitle:VicePresident
CLOROXINTERNATIONALCOMPANY
By: /s/LarryPeiros Name:LarryPeirosTitle:VicePresident
THEPROCTER&GAMBLECOMPANY
By: /s/JeffreyD.Weedman Name:JeffreyD.WeedmanTitle:VicePresident,ExternalBusinessDevelopment&GlobalLicensing
PROCTER&GAMBLERHD,INC.
By: /s/JeffreyD.Weedman Name:JeffreyD.WeedmanTitle:Attorney-in-fact
[SignaturePagetoAmendedandRestatedJointVentureAgreement]
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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ExhibitCDescriptionofP&GEquipment
[***]
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
ExhibitDPreliminaryBusinessPlan
[***]
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
ExhibitEPreliminaryBudget
[***]
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
EXHIBITFCLOROXCORPORATESERVICES
1.CloroxServicesandPersonnel.CloroxwillprovidetotheGladGlobalBusinesspayroll,productsupply,projectmanagement,humanresourceservices,informationsystemsservices,facilitiesservices,treasury,tax,financialsystemandaccountingservices,legalservicesandothercorporateservicescurrentlyprovidedbyClorox,whicharereferredtoas“CloroxServices”forpurposesofthisAgreement.CloroxwillprovideorwillcausetobeprovidedtotheGladGlobalBusinesstheCloroxServicesatsuchlevelsastheGladGlobalBusinessmayrequirefromtimetotime.TheBoardwillreviewonanannualbasisthecostsandqualityoftheCloroxServicesanddeterminewhetheritcontinuestobeinthebestinterestoftheGladGlobalBusinessforCloroxtocontinuetoprovideallsuchservices.TheGladLeadershipTeamwillmonitortheCloroxServicesonanongoingbasisandwillreporttotheBoardonanannualbasisastotheresultsofitsreviewoftheCloroxServicesandwillprovidetheBoardwithanyrecommendationsforchangesintheCloroxServices.TheBoardwillpromptlyactonanysuchrecommendationbytheGladLeadershipTeam.
2. FeesforCloroxServices.ThefeesCloroxwillallocatetotheGladGlobalBusinessfortheCloroxServices(the“ServiceFees”)shallbeconsistentwiththeJVAccountingPrinciplesandwillincludeapportionedamountsforfacilitiesleasesandsupplies,salaries,bonusesandbenefits(includingpensionplancosts)ofCloroxemployeeswhoperformtheCloroxServices,operatingsupplies,utilities,telephone,computersand/orotherexpensesasappropriate.CloroxandtheGladGlobalBusinesswilluse[***]effortstoidentifyCloroxServicesthatcanbeassumedbytheGladGlobalBusinessandnolongerprovidedbyCloroxcorporate(“AssumedServices”).Inaddition,iftheGladGlobalBusinesscanobtainanyCloroxServicefromathirdpartyat[***]thantheallocatedcostofCloroxprovidingsuchCloroxService,itiscontemplatedthattheGladGlobalBusinesswilloutsourcesuchserviceanditwillnolongerbeprovidedbyCloroxcorporate(“OutsourcedServices”and,togetherwiththeAssumedServices,the“PushDownServices”).TotheextentaCloroxServicebecomesaPushDownServiceinanycalendaryear,theServiceFeeforsuchyearwillbereducedbyanamount(the“PushDownCredit”)equaltowhatthecostofprovidingsuchCloroxServiceforthatremainderofthecalendaryear(i.e.afterthepushdownoccurs)wouldhavebeenbasedonthecostofprovidingsuchCloroxServiceduringthesameperiodofthepriorcalendaryear(determinedinaccordancewiththeJVAccountingPrinciples).TotheextentthattheBoardoftheJointVentureunanimouslydeterminestoobtainanyadditionalcorporateservicesfromClorox(“IncrementalServices”)inanycalendaryear,theServiceFeeforsuchyearwillbeincreasedbyanamount(the“SupplementalAmount”)equaltothecostofprovidingsuchIncrementalServices(whichwillthereafterbedeemedCloroxServices)fortheremainderofthatcalendaryear.
(a)TheBaseServiceFeeallocatedtotheGladGlobalBusinessforcalendaryear2003(the“2003BaseServiceFee”)willequal[***]%ofthe
aggregatenetsalesoftheGladGlobalBusinessforcalendaryear2002,asadjustedforthechangeintheConsumerPriceIndexduringcalendaryear2002(i.e.ifnetsalesin2002were$[***]millionandtheConsumerPriceIndexincreasedby[***]%,the2003BaseServiceFeewouldequal$[***]).TheactualServiceFeepayablefor2003willequalthe2003BaseServicesFee[***]thePushDownCreditfor2003[***]theSupplementalAmountfor2003,ifany
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
(b)ThebaseServiceFee(the“BaseServiceFee”)allocatedtotheGladGlobalBusinessforeachcalendaryear(the“RelevantYear”)commencingin2004willequaltheServiceFeeactuallypaidintheimmediatelyprecedingcalendaryear[***]thePushDownAdjustmentfortheimmediateprecedingcalendaryear[***]theIncrementalServicesAdjustmentfortheimmediatelyprecedingcalendaryear,asadjustedforthechangeintheConsumerPriceIndexduringtheimmediatelyprecedingcalendaryear(i.e.ifthe2003ServiceFeewas$[***],thePushDownAdjustmentfor2003was$[***],theIncrementalServicesAdjustmentwaszeroandtheConsumerPriceIndexincreasedby[***]%theBaseServiceFeewouldequal$[***]).TheactualServiceFeepayablefortheRelevantYearwillequaltheBaseServiceFeefortheRelevantYear[***]thePushDownCreditfortheRelevantYear[***]theSupplementalAmountfortheRelevantYear,subjecttotheCapandFloordescribedbelow.
The“PushDownAdjustment”foranycalendaryearwillequalthesumof(x)theamountthatthePushDownCreditwouldhavebeeninsuchyearhadallCloroxServicesthatbecamePushDownServicesinthatcalendaryearbecomePushDownServicesonthefirstdayofthatcalendaryear[***](y)theactualPushDownCreditforthatcalendaryear.The“IncrementalServicesAdjustment”foranycalendaryearwillequalthesumof(A)theamountthattheSupplementalAmountwouldhavebeeninsuchyearhadallservicesthatbecameIncrementalServicesinthatcalendaryearbecomeIncrementalServicesonthefirstdayofthatcalendaryear[***](B)theactualSupplementalAmountforthatcalendaryear.
(c)Ineachcalendaryearbeginningin2004,theServicesFeewillnotbelessthantheFloorAmount(asdefinedbelow)forthatcalendaryearoftheaggregatenetsalesoftheCloroxGlobalBusinesstheimmediatelyprecedingcalendaryearnorgreaterthantheCapAmount(asdefinedbelow)forthatcalendaryearoftheaggregatenetsalesoftheCloroxGlobalBusinesstheimmediatelyprecedingcalendaryear.TheFloorAmountwillinitiallyequal[***]%andtheCapAmountwillinitiallyequal[***]%.Beginningin2004theFloorAmountandtheCapAmountwillbesubjecttoadjustmentannuallyasfollows:
(i)AtsuchtimeasthesumofallPushDownCredits[***]allPushDownAdjustments[***]allSupplementalAmounts[***]allIncremental
ServicesAdjustmentsoccurringinorpriortoaspecificcalendaryear(the“BaseYear”)exceeds[***]%oftheaggregatenetsalesoftheGladGlobalBusinessintheBaseYear(thepercentageamountbywhichtheyexceed[***]%isreferredtoasthe“InitialAdjustmentAmount”),theFloorAmountandtheCapAmountfortheimmediatelysucceedingcalendaryearwillbereducedbytheInitialAdjustmentAmount.TheFloorAmountandtheCapAmountwillremainatsuchlowerlevelsunlessanduntilfurtheradjustedpursuanttothisparagraph(c).
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
2
(ii)TotheextentthatanyadditionalPushDownServicesareimplementedaftertheBaseYear(eachyearinwhichanysuchadditionalPushDownServiceisimplementedisreferredtohereinasan“AdjustmentYear”),thentheFloorAmountandtheCapAmountfortheimmediatelysucceedingyearwillbereducedbythepercentoftheaggregatenetsalesoftheGladGlobalBusinessintheAdjustmentYearrepresentedbythesumofthePushDownCreditforsuchAdjustmentYearplusthePushDownAdjustmentforsuchAdjustmentYear,providedthattheFloorAmountandtheCapAmountshallinnoeventbelessthan[***].TheFloorAmountandtheCapAmountwillremainatsuchlowerlevelsunlessanduntilfurtheradjustedpursuanttothisparagraph(c).
(iii) TotheextentthattheBoardoftheJointVentureunanimouslydeterminestoobtainanyIncrementalServicesaftertheBaseYear(eachyearinwhichanysuchadditionalIncrementalServicesarefirstobtainedisreferredtohereinasa“SupplementalAdjustmentYear”),thentheFloorAmountandtheCapAmountfortheimmediatelysucceedingyearwillbeincreasedbythepercentoftheaggregatenetsalesoftheGladGlobalBusinessintheSupplementalAdjustmentYearrepresentedbythesumoftheSupplementalAmountforsuchSupplementalAdjustmentYearplustheIncrementalServicesAdjustmentforsuchAdjustmentYear.TheFloorAmountandtheCapAmountwillremainatsuchincreasedlevelsunlessanduntilfurtheradjustedpursuanttothisparagraph(c).
(d)TheaggregatePushDownCreditsfor2003and2004plustheaggregatePushDownAdjustmentsfor2003and2004willequalatleast$[***].
(e) The“ConsumerPriceIndex”meanstheConsumerPriceIndexofUrbanConsumers,WestRegionAllItems(baseperiod1982-1984=100),aspublishedbytheBureauofLaborStatisticsoftheUnitedStatesDepartmentofLaboror,ifsuchindexisnolongerpublishedorthemethodofcomputationthereofissubstantiallymodified,analternativeindexofsimilarweightingandgeographicfocusselectedbytheBoard.
3. Payments.AllServiceFeesallocatedtotheJointVenturepursuanttothisExhibitFshallbesettledquarterlyinarrearsbytheappropriateaccountingentries.AllServiceFeesallocatedtotheJointVenturehereunderwillbeexpensesattributabletotheJointVentureinaccordancewiththeJointVentureAccountingPrinciples.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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4. Outsourcing.AnyoftheCloroxServicesmaybeterminatedbytheBoardatanytimeduringtheTermoftheJointVentureandtherebybecomeOutsourcedServices,upon180dayspriorwrittennoticetoCloroxspecifyingtheCloroxServicestobeterminatedandthedateofsuchtermination,intheeventtheBoarddetermines(i)thattheGladGlobalBusinesscanobtainsuchservicesfromathirdpartyatalowercosttotheGladGlobalBusinessor(ii)thatitisotherwiseinthebestinterestoftheGladBusinesstodiscontinuesuchCloroxServices.Clorox’sactualdirectcostsincurredinconnectionwiththeterminationofanyCloroxServicesthatbecomeOutsourcedServiceswillbeattributedtotheGladGlobalBusiness.
5. RelationshipoftheParties.AllpersonsemployedbyCloroxoritsaffiliatesintheperformanceoftheCloroxServicesshallbethesoleresponsibilityof
CloroxanditsaffiliatesandP&Gshallhavenoobligationorresponsibilitywithrespecttheretoexceptasexpresslyprovidedherein.ThepersonsassignedbyCloroxtoprovidetheCloroxServicesshallatalltimesremainemployeesofCloroxoritsAffiliates,asapplicable,andshallnot,foranypurposes,beorbedeemedtobeemployeesofanyofP&GandP&Gshallhavenoobligationorresponsibilitywithrespectthereto,includingresponsibilityforpaymentofcompensation,benefits,insuranceandtaxesrelatedtosuchpersonsexceptasexpresslyprovidedherein.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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EXHIBITGTERMSOFINTERNATIONALRELATIONSHIPS
Structure NewEntityThroughUSJointVenture.InthosecountriesinwhichtheGladbusinessdoesnotcurrentlyoperate,theCloroxPartieswillformanentityinthelocalcountry,whichmaybeeitheracorporationorpass-throughentityforUnitedStatestaxpurposes.ThenewlyformedentitywillbeanassetdeemedattributedtotheUnitedStatesJointVenture.IfthelocalentityistreatedasacorporationforUnitedStatestaxpurposes,P&Gwillbedirectlyissuedoneshareofspecialvotingstockequalto10%ofthevoteinsuchentity,providedthatsuchshareshallnotcarryanydissenter’sappraisalorsimilarrights,andthatwithrespecttoanymatterthatrequiresavoteorconsentoftheshareholdersofsuchcorporation,P&GshallagreetovotesuchsharesinthesamemannerthatCloroxvoteswithrespecttoallmattersotherthanthosematterswithrespecttowhichP&Ghasavetorightasdescribedbelowunder“Governance–P&GVeto”.
Contribution.TheCloroxParties,onbehalfofthejointventure,willcontributeorlicenseIntellectualPropertyrightsassociatedwiththeGladbusinesstothenewlyformedentityandwillcontributecashattributabletothejointventuretofundstart-upcosts.CashdistributionsfromtheforeignentitytotheCloroxPartiesandproceedsfromthesaleofaninterestinsuchentityreceivedbytheCloroxPartieswillbedistributedtothepartiesunderthetermsoftheJVAgreement.
Distributions.TheforeignentitywilldistributeorpayDistributableCashFlow(eitherbydistributionsorroyaltypayments)ofsuchentitytotheCloroxPartiesonanannualbasisor,intheeventthenetprofitsofthebusinessintheapplicablejurisdictionexceed$[***]perannum,onaquarterlybasis.Fortheavoidanceofdoubt,DistributableCashFlowwillbereducedbyapplicableforeignincomeandothertaxes.Also,fortheavoidanceofdoubt,P&GwillbeentitledtoitsshareofSection902(income)and/orSection901(withholding)taxcreditswithrespecttosuchDistributableCashFlow.
Governance InternationalBoard.Theinternationaloperationsofthejointventurewillbegovernedbyaboardofmanagers(the“InternationalBoard”)
thatwillhaveauthoritytomakedecisionswithrespecttotheoperationsinallcountriesotherthantheUnitedStatesinthesamemannerastheBoardwithrespecttotheUnitedStatesoperations.
● Composition.TheInternationalBoardwillconsistofthesamemembersastheBoardfortheUnitedStatesbusiness,withthesameboardobserversbeingappointedbyP&G.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
● MeetingandProcedures.RegularmeetingsoftheInternationalBoardwillbescheduledtooccurimmediatelybeforeoraftertheUnitedStatesBoardmeetings.ThetermswithrespecttothegovernanceoftheinternationaloperationwillbesubstantiallyidenticaltotheJointVentureagreementfortheUnitedStates,includingwithrespecttomeetingnotice,voting,quorum,proxiesandothersimilarproceduralrequirements,disclosureofinformation,expensereimbursementandothermattersaddressedinSections5.1and5.2oftheJVAgreementwithrespecttotheBoardintheUnitedStates.
● OtherBoardApprovals.TheBoardshallreviewandapprovethebudget,businessplanandotheractionstobetakenbythe
internationalbusinessinthesamemannerasdetailedinSection5.4and5.5oftheJVAgreementwithrespecttotheUnitedStatesoperations.
P&GVeto.P&GwillhavethesamevetorightswithrespecttointernationaloperationsasitdoesintheUnitedStates(subjecttothesamedollarandotherthresholds).VetoeswillbesubjecttothesameresolutionprocedureasprovidedinSection5.3oftheJVAgreement.
LocalGovernance.ThegeneralmanagersoftheGladbusinessineachcountryoutsideoftheUnitedStateswillreporttotheInternationalBoard.Totheextentrequiredbylocallaw,localpartnershipentitiesmayhaveaboardordirectorsorothersimilargoverningbodyinadditiontotheInternationalBoard,butnosuchlocalboardorgoverningbodyshallhavetheauthoritytotakeanyactionforwhichapprovaloftheInternationalBoardorP&Gisrequiredpriortosuchapprovalbeingobtained.
Transfer TransferRestrictions.Theinterestsofthepartiesinthelocalpartnershipandlicenseagreementsdescribedabovewillbesubjecttothe
samerestrictionsontransferassetforthintheJVAgreement.
Tag-AlongandDrag-Along.Internationally,theP&Gaffiliatewillhavethesametag-alongrightsineachcountryonequivalenttermsasithaswithrespecttotheJointVentureintheUnitedStates.TheCloroxaffiliatewillalsohaveequivalentdrag-alongrightsineachcountry,includingwithrespecttoanysaleoftheGladbusinessintherelevantcountrythatisnotpartofthesaleoftheentireGladbusiness.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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EXHIBITHJointVentureAccountingPrinciples
GeneralApproach1. Createanaccountingframeworkthattotheextentpossibleissimple,sustainableandaccurate.2. StartwithClorox’sGAAPfinancialstatementsforeachofCloroxandtherelevantsubsidiariesasabasisforpreparingthepro-formafinancialstatements
fortheGladGlobalBusinessineachcountry.3. ConsistentapplicationofCloroxandGladGlobalBusinessaccountingpolicies,principles,andprocesses.
a. AccountingPrinciples.TheaccountingprinciplesofCloroxandtheGladGlobalBusinesswillbethesameinmanyrespects,buttotheextenttheydiffertheseJointVentureAccountingPrincipleswillgovern.AnychangestotheaccountingprinciplesoftheGladGlobalBusinesswillbesubjecttoP&G’sconsentrightspursuanttoSections5.3(a)and9.1(f)ofthisAgreement,andanyotherprovisionsofthisAgreement(orthisExhibit)requiringtheconsentofP&G.TheinitialaccountingprinciplesoftheGladGlobalBusinesswillbethesameasthoseofCloroxanditssubsidiaries,exceptwithrespecttoCloroxcorporateoverheadallocationsandasprovidedinthisExhibitH.
b. AccountingPolicies.TheaccountingpoliciesfortheGladGlobalBusinesscanbechangedasrequiredbyGAAP,therulesandregulationsoftheSecuritiesandExchangeCommissionorstatementsoftheFinancialStandardsAccountingBoard.TheaccountingpoliciescanalsobechangedinconnectionwithchangestoClorox’soverallaccountingpolicies,butinallcasessubjecttoP&G’sconsentrightspursuanttoSections5.3(a)and9.1(f)ofthisAgreementandanyotherprovisionsofthisAgreement(orthisExhibit)requiringtheconsentofP&G.
DirectCostsandAllocatedCosts
4. ThePWCreport,thesourcedocumentsreferencedinthePWCreportandtheothermaterialsunderlyingthePWCReportprovidethebasisforhowindirectcostswereallocatedanddirectcostswereidentifiedasofJune30,2002.TheseallocationsandidentificationswillbeusedduringtheTerm,andchangestothoseallocationsandidentificationsmayonlybemadeconsistentwiththisExhibitandwithExhibitF(CloroxServices).
5. TotheextentanycoststhatareattributabletotheGladGlobalBusinessonanallocatedbasisunderExhibitFaresubsequentlyidentifiedasdirectcostsattributabletotheGladGlobalBusiness,iftheycanbecharged100%totheGladGlobalBusiness,CloroxwillcausethemtobedirectlychargedtotheGladGlobalBusinesstotheextentreasonablypracticable.
6. TotheextentcostsattributabletotheGladGlobalBusinesscannotbedirectlyidentifiedfortheGladGlobalBusinesstheywillbeallocatedonmutuallyagreeduponbasisandinaccordancewiththisExhibitandwithExhibitF,whereapplicable.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
7. TheGladGlobalBusinesswillcontinuouslyworktoimprovetheaccuracyofanyallocatedcostsattributedtotheGladGlobalBusinessonanon-goingbasis.
8. Capitalspendingondirectproperty,plantandequipment(e.g.used100%bytheGladGlobalBusiness)willbedirectcostsoftheGladGlobalBusiness.Capitalspendingonsharedmanufacturing,distributionandproductdevelopmentassetsusedintheGladGlobalBusinesswillbesharedproratabaseduponanallocationprocesstobemutuallyagreedtobyCloroxandP&G.IfthePartiescannotagreeonsuchprocessthematterwillbesubjecttoEscalationand,ifnotresolvedbyEscalation,byarbitrationastotheappropriateprorataallocation.
ReviewsandAudits
9. Allallocationsinallgeographiesforallallocatedcosts(i.e.thosecoststhatcannotbesolelyattributedtotheGladGlobalBusiness)willbereviewedanddocumentedannuallytofacilitateconsistencyanddisclosure.
10. Clorox’sinternalauditfunctionwillreviewtheGladGlobalBusiness’financialsandprocessesinamannerandfrequencyconsistentwithCloroxinternalauditprocedures.FortheUnitedStatesGladBusinessandforeachcountrywherethereisaGladGlobalBusinesswithannualrevenuesinexcessofthegreaterof(x)U.S.$[***]or(y)[***]%oftheGladGlobalBusiness’saggregateannualrevenue(initially,CanadaandAustralia),theseauditswillbeperformedatleastonceevery24months,andthesereportswillbesharedwiththeBoard.
CashFundingPreferences
11. TheGladGlobalBusinessmayfunditsownglobalcashrequirementsinternally(whichmayrequireloansbetweenGladbusinessesindifferentcountries)beforeseekingaParentLoan,andthePartiesexpectthatitwillgenerallyseektofundsuchamountsinternallyratherthanseekingaParentLoan.
BalanceSheetPreparation
12. Foreachcountry,assetsandliabilitiesdirectlyattributabletotheGladGlobalBusinesswillbeincludedonthepro-formabalancesheetoftheGladGlobalBusiness.a. SharedAssetsandLiabilitiesotherthanFixedAssets.WhereassetsandliabilitiesotherthanFixedAssetsarenotsolelyattributabletotheGlad
GlobalBusinessbutaresharedwithotherCloroxbusinessesinthecountry,theywillbeallocatedonafairsharebasistotheGladGlobalBusiness.b. SharedFixedAssets.AnyfixedassetsharedwithaCloroxbusinessotherthantheGladGlobalBusinesswillnotbeallocatedtotheGladGlobal
Businessunlessotherwisemutuallyagreed.ItistheintentionofthePartiesthatanysignificantcapitalinvestmentssharedwithabusinessotherthantheGladGlobalBusinesswillbesharedonaproratabasisbaseduponanallocationprocesstobemutuallyagreedtobyCloroxandP&G.IfthePartiescannotagreeonsuchprocessthematterwillbesubjecttoEscalationand,ifnotresolvedbyEscalation,astotheappropriateprorataallocation.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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c.AllocationMethodologyChanges.AnychangeinallocationmethodologymustbeapprovedbytheP&GBoardmember.13. TotheextentpossibleandpracticalallassetsandliabilitiesheldbyCloroxcorporatebutattributable100%totheGladGlobalBusinesswillbepushed
downtothepro-formabalancesheet.Totheextentthisisnotpossible,anappropriatedisclosurewillbeprovided.14. TotheextenteitherCloroxorP&Gadoptstheaccountingpositionofexpensingitsstockoptions,itwillbeabletoattributetheoptionexpensewith
respecttothepersonnelengagedintheGladbusinesstotheGladGlobalBusinesstotheextentsuchexpenseisadirectcost.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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EXHIBITISUBLICENSEAGREEMENT
ThisSublicenseAgreement(this“Agreement”),datedasofJanuary31,2003(the“EffectiveDate”),byandbetweenTheGladProductsCompany,aDelawarecorporation(“Licensor”),and_________,a__________1(“Licensee”)(each,a“Party”andcollectively,the“Parties”).
WITNESSETH:
WHEREAS,Licensor,Procter&GambleRHDInc.,anOhiocorporation(“P&GSub”),andcertainAffiliatesofLicensorandP&GSub,respectively,haveenteredintoanAmendedandRestatedJointVentureAgreementwithrespecttotheGladGlobalBusiness,datedasofJanuary31,2003(assuchagreementmaybeamended,supplementedorotherwisemodifiedinaccordancewiththetermsthereof,the“JVAgreement”);
WHEREAS,LicensorandP&GSubhaveenteredintoaLicenseAgreement,datedasofJanuary31,2003(assuchagreementmaybeamended,supplementedorotherwisemodifiedinaccordancewiththetermsthereof,the“P&GLicenseAgreement”)providing,amongotherthings,forthelicensebyP&GSubtoLicensorofcertainIntellectualProperty(asdefinedbelow)foruseintheGladGlobalBusiness,subjecttothetermsandconditionsthereof;
WHEREAS,LicensorandLicenseehaveagreedtoenterintothisAgreementproviding,subjecttothetermsandconditionscontainedherein,forthesublicensebyLicensortoLicenseeofcertainIntellectualPropertylicensedtoLicensorbyP&GSubundertheP&GLicenseAgreement,subjecttothetermsandconditionshereofandthereof;
WHEREAS,LicensorandLicenseehaveenteredintoaTechnologyandTrademarkLicenseAgreement,datedasofJanuary31,2003(assuchagreementmaybeamended,supplementedorotherwisemodifiedinaccordancewiththetermsthereof,the“GladLicenseAgreement”)providing,amongotherthings,forthelicensebyLicensortoLicenseeofcertainIntellectualProperty(asdefinedbelow)foruseintheGladGlobalBusiness,subjecttothetermsandconditionsthereof;and
WHEREAS,capitalizedtermsusedbutnotdefinedhereinshall,asthecontextrequires,havethemeaningsetforthineithertheJVAgreementortheP&GLicenseAgreement.
NOW,THEREFORE,forgoodandvaluableconsideration,thereceiptandsufficiencyofwhichisherebyacknowledged,thePartiesagreeasfollows:
____________________
1LicenseAgreementswillbeenteredintowiththeCloroxaffiliatesoperatingtheGladbusinessineachofAustralia,Canada,NewZealand,SouthAfrica,CostaRica,China,HongKong,PhilippinesandKorea.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
Article1.Definitions.
Section1.1Definitions
“Action”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“AdditionalP&GImprovements”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“AdditionalP>echnology”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“AffiliateLoans”shallmeanfundsprovidedbyCloroxoritsAffiliatesasloansattributedtotheGladLocalBusinesspursuanttoSection9.3hereof.
“AvailableLocalCashFlow”shallmean,withrespecttoanyFiscalQuarterorotherperiod,withoutregardtoanyRoyaltypayablehereunder,thesumofallcashreceiptsduringsuchFiscalQuarterorotherperiodattributedtotheGladLocalBusinessfromanyandallsourcesotherthanthecashproceedsofanyIndebtedness,plusallReservesoftheGladLocalBusinessasofthecloseofbusinessonthelastdayoftheprecedingFiscalQuarterorotherperiod,plusinterestonsuchReservesatClorox’s30-daycommercialpaperborrowingrate(or,ifCloroxisunabletoobtaincommercialpaper,Clorox’sshorttermcostofborrowing),plusthesumofallroyaltypaymentsmadebyLicenseeundertheGladLicenseAgreementduringsuchperiod,minusallproceedsattributedtotheGladLocalBusinessfromanyInternationalAcquisition,minusallcashdisbursementsattributedtotheGladLocalBusinessforanyandallpurposesduringsuchFiscalQuarterorotherperiod((x)includingloanrepayments(otherthanAffiliateLoans),interestpayments(otherthaninrespectofAffiliateLoans),capitalimprovementsandreplacementsbut(y)excludingdisbursementsfundedbythecashproceedsofanyIndebtednessattributedtotheGladLocalBusiness(otherthanAffiliateLoans)and(z)excludinganycashdividendstoCloroxoritsAffiliatesandanyRoyaltiespaidunderthisAgreement)andareasonableallowanceasofthelastdayofsuchFiscalQuarterorotherperiodforReserves,contingenciesandanticipatedobligationsasdeterminedbytheLicensee,determinedinaccordancewiththeJVAccountingPrinciples.
“CallRight”shallhavethemeaningsetforthintheJVAgreement.
“Clorox”shallmeanTheCloroxCompany,aDelawarecorporation.
“CollaborativeImprovements”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“CollaborativeInventions”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“CollaborativeInventionsProsecutingParty”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“CoreP&GImprovements”shallhavethemeaningsetforthintheP&GLicenseAgreement.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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“CoreP>echnology”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“DistributableLocalCashFlow”shallmean,withrespecttoanyFiscalQuarterorotherperiod,AvailableLocalCashFlowforsuchFiscalQuarterorotherperiod[***]theamountofAvailableLocalCashFlowrequiredtobeappliedtotherepaymentofAffiliateLoansandaccruedinterestthereoninaccordancewiththeimmediatelysucceedingsentence.TotheextentthereareanyoutstandingAffiliateLoanswithrespecttotheGladLocalBusinessandthereisAvailableLocalCashFlowinanyFiscalQuarter,thenallAvailableLocalCashFlowwillbeimmediatelyappliedtowardssuchoutstandingAffiliateLoansandaccruedandunpaidinterestthereonuntilallAffiliateLoansandaccruedinterestthereonwillhavebeenrepaidinfull.AslongasanyAffiliateLoansremainoutstanding,DistributableLocalCashFlowwillbe[***].
“ExclusiveField”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“ExistingInternationalBalanceSheet”shallhavethemeaningsetforthintheJVAgreement.
“FairMarketValue”shallhavethemeaningsetforthintheJVAgreement.
“Field”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“FiscalQuarter”shallmeaneachthree(3)calendarmonthperiodendingonMarch31,June30,September30andDecember31or,inthecaseofthefirstFiscalQuarterhereunder,theperiodfromthedatehereofthroughMarch31,2003.
“GAAP”shallmeangenerallyacceptedaccountingprinciplesasineffectintheUnitedStates(orsuchotherjurisdictionasmaybespecifiedherein)consistentlyapplied.
“GladLocalBusiness”shallmeantheGladGlobalBusinessconductedbytheLicenseeintheTerritory.
“GladR&DTeam”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“GovernmentalAuthority”shallmeananynationorgovernment,anystateorotherpoliticalsubdivisionthereof,andanyentityexercisingexecutive,legislative,judicial,regulatoryoradministrativefunctionsoforpertainingtogovernment.
“Improvements”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“Indebtedness”shallmeanallobligationsforborrowedmoney,includingguarantees,andallreimbursementobligationsinrespectofoutstandinglettersofcredit(measuredassumingsuchlettersofcreditaredrawninfull).
“Infringe”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“IntellectualProperty”shallhavethemeaningsetforthintheP&GLicenseAgreement.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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“InternationalAcquisition”shallmeanthesale,dispositionorothertransfertoaThirdPartyofallorsubstantiallyalloftheequityinterestsofLicenseeorofallorsubstantiallyallthebusiness,assetsandpropertiesofLicenseeusedintheGladLocalBusiness,butexcluding(i)anytransactioninconnectionwithwhichthePutRightortheCallRightisexercised,(ii)anyThird-PartySaleinconnectionwithwhichCloroxexercisesitsrighttocauseasaleand(iii)anytransactioninconnectionwithwhichtheTag-AlongRightisexercised.
“IPAcquisition”shallhavethemeaningsetforthintheJVAgreement.
“JVAccountingPrinciples”shallhavethemeaningsetforthintheJVAgreement.
“KnowHow”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“Liabilities”means,astoanyPerson,alldebts,liabilitiesandobligations,direct,indirect,absoluteorcontingentofsuchPerson,whetheraccrued,vestedorotherwise,whetherknownorunknownandwhetherornotactuallyreflected,orrequiredbyGAAPtobereflected,insuchPerson’sbalancesheet.
“Non–ExclusiveField”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“P&GCompetitiveBusinessLine”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“P>echnology”shallmeantheCoreP>echnologyandtheAdditionalP>echnology.
“Patents”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“Person”shallmeananyindividual,corporation,limitedliabilitycompany,partnership,trust,jointstockcompany,businesstrust,unincorporatedassociation,jointventureorotherformofbusinessorlegalentityorGovernmentalAuthority.
“PrimeRate”shallmeantherateofinterestperannumpubliclyannouncedfromtimetotimebyCitibank,N.A.asitsprimerateineffectatitsprincipalofficeinNewYork,NewYork;eachchangeinthePrimeRatewillbeeffectivefromandincludingthedatesuchchangeispubliclyannouncedasbeingeffective.
“ProsecutingParty”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“PutRight”shallhavethemeaningsetforthintheJVAgreement.
“RelatedAgreements”shallhavethemeaningsetforthintheJVAgreement.
“Reserves”shallmeancashfundssetasidefromgrosscashrevenuesasreserves.Such“Reserves”willbemaintainedinamountsanduponsuchtimingasisreasonablydeemednecessarybytheLicenseetofinanceanyworkingcapitalrequirementsand/ortopaytaxes,insurance,debtservice,repairs,replacements,renewals,capitalexpendituresorothercostsorexpensestobeattributedtotheGladLocalBusinessinaccordancewiththeJVAccountingPrinciplesinthefourFiscalQuartersfollowingthedatesuchReservesarebeingestablishedthatwillnotbefundedfromAvailableLocalCashFlowbasedonthethen-currentfinancialforecastsoftheGladLocalBusiness.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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“ServicesAgreement”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“Tag-AlongRight”shallhavethemeaningsetforthintheJVAgreement.
“TeamInventions”shallhavethemeaningsetforthintheP&GLicenseAgreement.
“Territory”shallmean[theCommonwealthofAustralia][Canada][NewZealand][theRepublicofSouthAfrica][theRepublicofCostaRica][thePeople’sRepublicofChina][HongKong][theRepublicofthePhilippines][theRepublicofKorea].
“ThirdParty”shallhavethemeaningsetforthintheJVAgreement.
“Third-PartySale”shallhavethemeaningsetforthintheJVAgreement.
“Trademarks”shallhavethemeaningsetforthintheP&GLicenseAgreement.
Section1.2OtherDefinitions.
ThefollowingtermsaredefinedintheSectionsindicated:
Term SectionEffectiveDate PreambleExcludedLocalAssets 9.2(b)GladLicenseAgreement RecitalsInternationalAcquisition 7.2(a)JVAgreement RecitalsLicensee PreambleLicensor PreambleNegativeCashFlow 9.3(a)P&GLicenseAgreement RecitalsP&GSub RecitalsParty PreambleRetainedLocalLiabilities 9.2(c)Royalty 9.1(a)TerminationFee 7.2(a)
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Article2.CoreP>echnology.
Section2.1Licensee’sLicenseintheField.SubjecttothetermsandconditionsofthisAgreement,LicensorherebygrantstoLicenseearightandlicensetousetheCoreP>echnology(includinganyandallCoreP&GImprovementsdeemedtobeCoreP>echnologypursuanttotheprovisionsofSection2.3(b)oftheP&GLicenseAgreement)intheFieldthroughouttheTerritory,includingwithoutlimitationtherightandlicense,intheFieldthroughouttheTerritory,to(i)practiceandusethePatentsandKnowHowincludedintheCoreP>echnology,(ii)market,make,havemade,sellanddistributeproductsbyoronbehalfofLicenseeinconnectionwiththeGladLocalBusiness,(iii)makeCoreP&GImprovementsand(iv)sublicensesuchrightstotheCoreP>echnology.ThelicensesgrantedintheTerritorypursuanttothisSection2.1areexclusiveintheExclusiveFieldandnon-exclusiveintheNon–ExclusiveField.InnoeventshallthelicensegrantedtoLicenseepursuanttothisSection2.1beinterpretedasbeingbroaderinanyrespectthanthelicensegrantedtoLicensorpursuanttoSection2.1oftheP&GLicenseAgreement.
Section2.2CoreP&GImprovements.
(a)Ownership.ThePartiesacknowledgeandagreethat,asbetweenP&G(oritsSubsidiaries)andLicensee(onbehalfofitselfanditsAffiliates),P&G(oritsSubsidiaries)isandshallbethesoleandexclusiveownerofallright,titleandinterest,includinganyandallIntellectualPropertyrights,inandtoanyandallCoreP&GImprovements,whetherdevelopedbyoronbehalfofP&G(oritsSubsidiaries),LicensororLicensee(onbehalfofitselfanditsAffiliates).
(b)Licensee’sNon–ExclusiveLicensetoCertainCoreP&GImprovementsOutsidetheField.Intheeventthat,duringtheTermoftheServicesAgreementthe[***](or,aftertheterminationorexpirationoftheServicesAgreement[***])participatesinthedevelopmentofanyCoreP&GImprovements,then,totheextentsuchCoreP&GImprovementsare[***]CollaborativeImprovementspursuanttotheP&GLicenseAgreement,LicensorherebygrantstoLicenseeanon-exclusiverightandlicensetousesuchCoreP&GImprovementsthroughouttheTerritoryinconnectionwith[***]thatis[***],includingwithoutlimitationtherightandlicense,solelyfortheforegoingpurposes,to(i)practiceandusethePatentsandKnowHowincludedinsuchCoreP&GImprovements,(ii)market,make,havemade,sellanddistributeproductsbyoronbehalfofLicensee,CloroxoritsSubsidiaries,(iii)makeImprovementsbaseduponorderivedfromsuchCoreP&GImprovementsand(iv)sublicensesuchrightssolelytomanufacturersofproductsofLicensee,CloroxoritsSubsidiariesandtoCloroxandSubsidiariesofClorox.InnoeventshallthelicensegrantedtoLicenseepursuanttothisSection2.2(b)beinterpretedasbeingbroaderinanyrespectthanthelicensegrantedtoLicensorpursuanttoSection2.3(c)oftheP&GLicenseAgreement.
(c)ClarificationofLicensee’sRights.Fortheavoidanceofdoubt,(i)anyandallCoreP&GImprovementsdevelopedbyP&GoritsSubsidiarieswithouttheparticipationofthe[***]or[***]([***])and(ii)anyandallCoreP&GImprovementsthatconstitute[***]shallnotbesubjecttothelicensessetforthinSection2.2(b),butshallbesubjecttothelicensessetforthinSection2.1.ThelicensegrantedpursuanttoSection2.2(b)shallonlyapplytothatportionoftheCoreP&GImprovementsthatisincrementaltotheCoreP>echnology.ExceptfortheCoreP&GImprovementsthatdonot[***]CollaborativeImprovements,Licensee(onbehalfofitselfanditsAffiliates)shallnothavetherighttouseanyCoreP>echnologyoutsideoftheField,irrespectiveofwhetheranyCoreP&GImprovementslicensedpursuanttoSection2.2(b)arebaseduponorderivedfromsuchCoreP>echnology.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(d)NoticeofImprovements.IntheeventLicensee(onbehalfofitselforitsAffiliates)developsanyCoreP&GImprovements,LicenseeshallpromptlyprovideLicensorwithwrittennoticethereof.
Article3.AdditionalP>echnology.
Section3.1Licensee’sLicenseintheField.SubjecttothetermsandconditionsofthisAgreement,LicensorherebygrantstoLicenseearightandlicensetousetheAdditionalP>echnology(includinganyandallP&GImprovementsdeemedtobeAdditionalP>echnologypursuanttotheprovisionsoftheP&GLicenseAgreement),andallIntellectualPropertyrightstherein,intheFieldthroughouttheTerritory,includingwithoutlimitationtherightandlicense,intheFieldthroughouttheTerritory,to(i)practicethePatentsandKnowHowincludedintheAdditionalP>echnology,(ii)market,make,havemade,sellanddistributeproductsbyoronbehalfofLicenseeinconnectionwiththeGladLocalBusiness,(iii)makeAdditionalP&GImprovementsand(iv)sublicensesuchrightstotheAdditionalP>echnology.ThelicensesgrantedintheTerritorypursuanttothisSection3.1areexclusiveintheExclusiveFieldandnon-exclusiveintheNon–ExclusiveField.InnoeventshallthelicensegrantedtoLicenseepursuanttothisSection3.1beinterpretedasbeingbroaderinanyrespectthanthelicensegrantedtoLicensorpursuanttoSection3.1oftheP&GLicenseAgreement.
Section3.2AdditionalP&GImprovements.
(a)Ownership.ThePartiesacknowledgeandagreethat,asbetweenP&G(oritsSubsidiaries)andLicensee(onbehalfofitselfanditsAffiliates),P&G(oritsSubsidiaries)isandshallbethesoleandexclusiveownerofallright,titleandinterest,includingallIntellectualPropertyrights,inandtoanyandallAdditionalP&GImprovements,whetherdevelopedbyoronbehalfofP&G(oritsSubsidiaries),LicensororLicensee(onbehalfofitselfanditsAffiliates).
(b)Licensee’sNon–ExclusiveLicenseOutsidetheField.Intheeventthat,duringtheTermoftheServicesAgreementthe[***](or,aftertheterminationorexpirationoftheServicesAgreement[***])participatesinthedevelopmentofanyAdditionalP&GImprovements,then,totheextentsuchAdditionalP&GImprovementsare[***]CollaborativeImprovementspursuanttotheP&GLicenseAgreement,LicensorherebygrantstoLicenseeanon-exclusiverightandlicensetousesuchAdditionalP&GImprovementsthroughouttheTerritoryinconnection[***]thatis[***],includingwithoutlimitationtherightandlicense,solelyfortheforegoingpurposes,to(i)practiceandusethePatentsandKnowHowincludedinsuchAdditionalP&GImprovements,(ii)market,make,havemade,sellanddistributeproductsbyoronbehalfofLicensee,CloroxoritsSubsidiaries,(iii)makeImprovementsbaseduponorderivedfromsuchAdditionalP&GImprovementsand(iv)sublicensesuchrightssolelytomanufacturersofproductsofLicensee,CloroxoritsSubsidiariesandtoCloroxandSubsidiariesofClorox.InnoeventshallthelicensegrantedtoLicenseepursuanttothisSection3.1(b)beinterpretedasbeingbroaderinanyrespectthanthelicensegrantedtoLicensorpursuanttoSection3.1(c)oftheP&GLicenseAgreement.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(c)ClarificationofLicensee’sRights.Fortheavoidanceofdoubt,(i)anyandallAdditionalP&GImprovementsdevelopedbyP&GoritsSubsidiarieswithouttheparticipationofthe[***]or[***]and(ii)anyandallAdditionalP&GImprovementsthatconstitute[***]shallnotbesubjecttothelicensessetforthinSection3.2(b),butshallbesubjecttothelicensessetforthinSection3.1.ThelicensegrantedpursuanttoSection3.2(b)shallonlyapplytothatportionoftheAdditionalP&GImprovementsthatisincrementaltotheAdditionalP>echnology.ExceptfortheAdditionalP&GImprovementsthatdonot[***]CollaborativeImprovements,Licensee(onbehalfofitselfanditsAffiliates)shallnothavetherighttouseanyAdditionalP>echnologyoutsideoftheField,irrespectiveofwhetheranyAdditionalP&GImprovementslicensedpursuanttoSection3.2(b)arebaseduponorderivedfromsuchAdditionalP>echnology.
(d)NoticeofImprovements.IntheeventLicensee(onbehalfofitselforitsAffiliates)developsanyAdditionalP&GImprovements,LicenseeshallpromptlyprovideLicensorwithwrittennoticethereof.
Section3.3EffectofExpirationorTerminationoftheJVAgreementonSection3.1andSection3.2.IntheeventofanyexpirationorterminationoftheTermundertheJVAgreement,thelicensesgrantedtoLicenseeinSection3.1and,ifapplicable,Section3.2shallautomaticallyterminatetotheextentthelicensetoLicensorterminatesundertheP&GLicenseAgreement.ThisSection3.3shallhavenoeffectonanyAdditionalP&GImprovementsdevelopedbyoronbehalfofLicensororLicenseeaftertheterminationorexpirationoftheTermoftheJVAgreement,whichshallcontinuetoremainsubjecttothelicensesgrantedtoLicenseeinSection3.1andSection3.2.
Article4.TrademarksandOtherIntellectualProperty.
Section4.1LicenseGrant.SubjecttothetermsandconditionsofthisAgreement,LicensorherebygrantstoLicenseeanexclusive(assetforthinSection4.2)rightandlicensetousetheTrademarksintheFieldthroughouttheTerritory,includingwithoutlimitation,therightandlicensetosublicensesuchrightsintheFieldthroughouttheTerritory.InnoeventshallthelicensegrantedtoLicenseepursuanttothisSection4.1beinterpretedasbeingbroaderinanyrespectthanthelicensegrantedtoLicensorpursuanttoSection6.1oftheP&GLicenseAgreement.
Section4.2Exclusivity.ThelicensesgrantedtoLicenseepursuanttoSection4.1areexclusivewithrespecttouseoftheTrademarksintheFieldintheTerritory.
Section4.3TrademarkUse.LicenseeagreestomaintainandpreservethequalityoftheTrademarksandtousetheTrademarksingoodfaithandinadignifiedmanner,consistentwithP&GSub’sandLicensor’shighstandardsofandreputationforquality,andinaccordancewithgoodtrademarkpracticewherevertheTrademarksareused.BothPartiesagreetousetheTrademarksonlyinconnectionwithgoodsandservicesthatpossessacharacterandqualityconsistentwiththereputationandhighstandardsassociatedwithLicensor,P&GSuband/ortheTrademarks.LicenseesagreethatanyandallgoodwillarisingfromLicensee’suseoftheTrademarksshallinuresolelytothebenefitofP&GSub,aslicensortoLicensorundertheP&GLicenseAgreement.UpontherequestofLicensor,Licenseeshall,totheextentreasonable,provideLicensorwitharepresentativesampleofLicensee’suseoftheTrademarks.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section4.4GladBaseIPandGladImprovements.ThePartiesacknowledgeandagreethat,asbetweenLicensorandLicensee,Licensorshallbethesoleandexclusiveownerofallright,titleandinterest,includingallIntellectualPropertyrights,inandtoanyandallGladBaseIPandanyandallGladImprovements.Licenseeherebyacknowledgesandagreesthatitisboundby,anditsrightshereunderareinallrespectssubjectto,thelicensegrantsofLicensorcontainedinArticle4oftheP&GLicenseAgreement.
Section4.5NewInventions.ThePartiesacknowledgeandagreethat,asbetweenLicensorandLicensee,Licensorshallbethesoleandexclusiveownerofallright,titleandinterest,includingallIntellectualPropertyrights,inandtoanyandallNewInventions.Licenseeherebyacknowledgesandagreesthatitisboundby,anditsrightshereunderareinallrespectssubjectto,thelicensegrantsofLicensorcontainedinArticle5oftheP&GLicenseAgreement.Licenseeshallnot,andshallnotauthorizethirdpartiesto,(a)useanyTeamInventionsoutsideoftheFieldintheTerritoryinconnectionwitha[***]thatisa[***]or(b)usetheCollaborativeInventionsintheTerritoryoutsideoftheFieldortomanufactureaproductinsidetheFieldforuse,saleordistributionoutsideoftheFieldorprovideanyinformationorassistancetoanythirdpartyrelatedthereto.
Article5.OtherAgreements.
Section5.1TransfersandEncumbrancesofIntellectualProperty.NothinginthisAgreementshallpreventLicensorfromtransferringanyIntellectualPropertyrightsthatare,inwholeorinpart,subjecttoalicenseorobligationunderthisAgreement.NothinginthisAgreementshallpreventLicensorfromencumberinganyIntellectualPropertyrightsthatare,inwholeorinpart,subjecttoalicenseorobligationunderthisAgreement.
Section5.2IntellectualPropertyProtection.LicenseeagreestonotifyLicensorimmediatelyafteritbecomesawareofanyactualorthreatenedInfringementoftheP>echnologyortheTrademarksoranyCollaborativeInventions.LicenseeagreestocooperatefullywiththeProsecutingPartyortheCollaborativeInventionProsecutingParty,asthecasemaybe,duringthecourseofanysuchActionandtofulfillallreasonablerequestsforassistancebytheProsecutingPartyortheCollaborativeInventionProsecutingParty,includingwithoutlimitationagreeingtobejoinedasapartytosuchAction.
Section5.3InformationwithRespecttoGladLocalBusiness.DuringthetermofthisAgreement,LicenseewillprovideLicensorwithcopiesof[***]ofits[***]and[***]forits[***]priortofinalizingsuch[***],and[***]tothethen-currentversions[***],and[***]withrespecttosuch[***].LicenseewillalsoprovideLicensorwithadditionalreportsandotherinformationabouttheGladLocalBusinessasisprovidedtothemembersofitsboardofdirectorsorotherequivalentgoverningbodyonascheduled,periodicbasis,aswellasanyadditionalinformationuponthereasonablerequestofLicensor.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section5.4ConsentRights.LicenseeagreesthatduringthetermofthisAgreement,withoutthepriorconsentofLicensor,itwillnot,andwillcauseitsSubsidiariesnotto,takeanyofthefollowingactions:
(a)theincurrenceorassumptionofanyIndebtednesstobeattributedtotheGladLocalBusinesspursuanttoSection9.2(otherthanAffiliateLoanspursuanttoSection9.3)thatwouldresultintheaggregateoutstandingIndebtednessattributedtotheGladLocalBusinessatthetimesuchIndebtednessisincurredorassumed(otherthanAffiliateLoans)tobeinexcess[***]percent([***]%)ofAvailableLocalCashFlowforthepriorfourFiscalQuarters;
(b)anypurchaseorotheracquisitionofanybusiness,divisionorPersonthatwillbeattributedtotheGladLocalBusinesspursuanttoSection9.2;
(c)anysale,transferorotherdispositioninanysingletransactionorseriesofrelatedtransactionsofanybusiness,divisionorPersonattributedtotheGladLocalBusinesspursuanttoSection9.2,
(d)anysale,transferorotherdispositioninanysingletransactionorseriesofrelatedtransactions,otherthanintheordinarycourseoftheconductoftheGladLocalBusinessofanyassetsattributedtoit,whichassets(x)arenotobsolete,(y)areutilizedinamaterialmannerintheGladLocalBusinessatthetimeofsuchsale,and(z)arenotbeingreplacedwithassetsofcomparableutilityorvaluetotheGladLocalBusiness,providedthatineachcasesuchbusiness,division,Personorassetshaveavaluein[***]of[***]([***]%)ofAvailableLocalCashFlowforthepriorfourFiscalQuarters;
(e)exceptasprovidedintheJVAgreementortheRelatedAgreements,anytransactionwithrespecttotheGladLocalBusinessbetweenLicenseeoranyofitsSubsidiaries,ontheonehand,andCloroxoranyAffiliateofClorox,ontheotherhand,unless(x)(A)suchtransactionis[***]orislessthan$[***]and(B)thetermsofsuchtransactiontobeattributedtotheGladLocalBusinessarenolessfavorablethanthosethatwouldbeobtainedinacomparablearm’slengthtransactionwithathirdpartythatisnotCloroxoranAffiliateofCloroxor(y)suchtransactionisprovidedforpursuanttotheJVAccountingPrinciples;
(f)anyinternalrestructuringofthemethodbywhichthelegalownershipoftheGladLocalBusinessisheldbyLicenseeanditsSubsidiariesthat,basedonthefactsandcircumstancesknownatthetimesuchrestructuringisapproved,hasorwillhaveamaterialadverseeffectonthebusiness,properties,financialcondition,resultsofoperationsorprospectsoftheGladLocalBusiness;
(g)anychangesintheaccountingpoliciesoftheLicenseesoastodifferfromtheJVAccountingPrinciples,exceptasrequiredbyGovernmentalAuthorities;and
(h)theGladLocalBusiness[***].
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Article6.OtherIntellectualPropertyMatters.
Section6.1NoticesandLegends.Licenseeshallapplyoruseallnoticesandlegends,includingpatentmarkings,requiredbyapplicablelaworregulationstopreserveandprotectthevalueandvalidityofanyIntellectualPropertylicensedpursuanttothisAgreement,includingapplyingorusinganynoticesorlegendsreasonablyrequestedbyLicensor.
Section6.2NoContest.Licenseeagreesnottodirectlyorindirectlyquestion,attack,contestorinanyothermannerimpugnanyIntellectualPropertylicensedtoitpursuanttothetermsofthisAgreement,ortheenforceabilityofthisAgreement,includingwithoutlimitation,inanyActioninwhichenforcementofaprovisionofthisAgreementissought;norshallLicenseewillinglybecomeapartyadversetoLicensororP&GSubinanActioninwhichathirdpartyconteststhesame.
Section6.3AssignmentandFurtherAssurances.NotwithstandinganyotherprovisionofthisAgreement,intheeventthatLicenseeisheldto,orbecomestheownerofanyIntellectualPropertythatisintendedtobeownedbyLicensororP&GSubpursuanttothetermsofthisAgreementortheP&GLicenseAgreement,LicenseeherebyassignspermanentlytheentiretyofsuchrightstoLicensororP&GSub,asthecasemaybe,andshall,duringthetermofthisAgreementandafteranyexpirationorterminationhereof,executesuchdocumentsasLicensorandP&GSubreasonablymayrequestfromtimetotimetoensurethatallsuchIntellectualPropertyrightsresideintheproperparty.
Section6.4ReservationofRights.AllIntellectualPropertyrightsnotexpresslygrantedpursuanttothisAgreementarereservedtotheownerofsuchIntellectualProperty.
Article7.TermandTermination.
Section7.1TerminationbyLicensor.TheinitialtermofthisAgreementshallbefive(5)years,whichtermshallberenewableforsuccessivefive(5)yearperiodsthereafterattheoptionoftheLicensoruponwrittennotice.ThetermofthisAgreementmaybeterminatedbyLicensoratanytimeupon[***]noticetoLicensee.ThetermofthisAgreementmaybeterminatedbyLicenseeonlyasprovidedinSection7.2(a)hereof.NofurtherRoyaltyshallaccruehereunderafterthetermination(ordeemedterminationpursuanttoSection7.2)ofthisAgreement.
Section7.2InternationalAcquisitionTransaction.
(a)IntheeventofanInternationalAcquisitioninwhichthereisnoIPAcquisition,LicenseewillbedeemedtohaveterminatedthisAgreement.Uponsuchdeemedtermination,LicenseewillberequiredtopayLicensoraterminationfee(the“TerminationFee”)inanamountequalto[***]([***]%)oftheFairMarketValueoftheGladLocalBusiness.
(b)IntheeventofanInternationalAcquisitioninwhichthereisanIPAcquisition,LicensorwillbedeemedtohaveterminatedthisAgreementandnoTerminationFeeshallbedueorpayable.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Article8.RepresentationsandWarranties.
Section8.1OfBothParties.LicensorandLicenseeeachrepresentsandwarrantstotheotherPartythat,asoftheEffectiveDate:
(a)ThewarrantingPartyisdulyorganizedandvalidlyexistingunderthelawsofthejurisdictionofitsorganization,andhasfullpower,authorityandlegalrighttoexecute,deliverandperformthisAgreement,andhastakenallnecessaryactiontoauthorizetheexecution,deliveryandperformanceofthisAgreement;
(b)ThisAgreementhasbeendulyexecutedanddeliveredbythewarrantingParty.ThisAgreementisalegal,validandbindingobligationofthewarrantingParty,enforceableagainstsuchPartyinaccordancewithitsterms,subjecttotheeffectofanyapplicablebankruptcy,insolvency,reorganization,moratoriumorsimilarlawsaffectingcreditors’rightsandremediesgenerally,andsubject,astoenforceability,totheeffectofgeneralprinciplesofequity(regardlessofwhetherenforcementisconsideredinaproceedingatlaworinequity);and
(c)ThewarrantingPartyisnotsubjecttoanyjudgment,order,injunction,decreeorawardofanycourt,administrativeagencyorgovernmentalbodythatwouldormightinterferewithitsperformanceofanyofitsmaterialobligationshereunder.
Section8.2NoOtherRepresentationsorWarranties.NeitherPartymakesanyrepresentationsorwarrantiesotherthanasexpresslysetforthinthisArticle.
Article9.RoyaltiesandCashFlow.
Section9.1Royalties.
(a)AsconsiderationfortherightsgrantedinArticles2,3and4,LicenseeshallpayLicensoraroyalty(the“Royalty”)onaquarterlybasisinarrearsassetforthbelow:
(i)WithrespecttothefirstfourFiscalQuartersoftheJointVenture,theRoyaltyshallbe[***];
(ii)WithrespecttothefifththrougheighthFiscalQuartersoftheJointVenture,theRoyaltyshallbeanamount[***]to[***]percent([***]%)ofDistributableLocalCashFlow;
(iii)WithrespecttotheninthandallsucceedingFiscalQuartersoftheJointVentureduringthetermofthisAgreement,theRoyaltyshallbeanamount[***]to[***]percent([***]%)ofDistributableLocalCashFlow.
(b)TheRoyaltywithrespecttoanyFiscalQuarterwillbepaidbyLicenseetoLicensorwithinthree(3)BusinessDaysafterdeliveryofthefinancialstatementswithrespecttotheGladLocalBusinessforsuchFiscalQuarterpursuanttotheJVAgreementinimmediatelyavailablefundstotheaccountdesignatedbyLicensortoLicenseeinwriting.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section9.2DeterminingAvailableLocalCashFlow.ForthepurposesofdeterminingAvailableLocalCashFlow:
(a)Fromandafterthedatehereof,subjecttotheJVAccountingPrinciples,thefollowinginterestsandLiabilitiesofLicenseeandotherrelevantsubsidiariesofCloroxwillbeattributedtotheGladLocalBusinessforpurposesofdeterminingAvailableLocalCashFlow,exceptasprovidedinSection9.2(b)belowwithrespecttoExcludedLocalAssetsandSection9.2(c)belowwithrespecttoRetainedLocalLiabilities:
(i)theinterestofLicenseeanditsSubsidiariesonthedatehereofinallofthebusinesses,assets,rightsandpropertiesofLicenseetotheextentandonlytotheextentutilizedinorrelatedtotheGladLocalBusiness;
(ii)subjecttotheJVAccountingPrinciples,theinterestofLicenseeanditsSubsidiariesinanybusiness,asset,rightorpropertyacquiredduringtheTermbyLicenseeoritsSubsidiariestotheextentandonlytotheextentutilizedinorrelatedtotheGladLocalBusiness;
(iii)allLiabilitiesofLicenseeanditsSubsidiariestotheextentandonlytotheextent[(A)reflectedintheExistingInternationalBalanceSheetwithrespecttotheGladLocalBusiness,(B)incurredorassumedbytheGladBusinessintheordinarycourseofbusinessafterthedateofsuchGladBalanceSheetandpriortothedatehereofthatwouldbereflectedascurrentLiabilitiesonabalancesheetoftheGladLocalBusinessasofthedatehereof,butexcludinganycurrentLiabilitiesarisingfromthirdpartylitigationclaims,(C)]2[(A)incurredorassumedbytheGladLocalBusinessintheordinarycourseofbusinesspriortothedatehereofthatwouldbereflectedascurrentLiabilitiesonabalancesheetoftheGladLocalBusiness,butexcludinganycurrentLiabilitiesarisingfromthirdpartylitigationclaims,(B)]3arisingoutoftheconductoftheGladLocalBusinessortheownershiporpossessionofanybusiness,assets,rightsorpropertyusedintheGladLocalBusinessafterthedatehereofor[(D)][(C)]assumedorincurredafterthedatehereofbytheLicenseeandotherSubsidiariesofCloroxinaccordancewiththetermshereofwithrespecttotheGladLocalBusiness,providedthatIndebtednesswillbeattributedtotheGladLocalBusinessonlytotheextentpermittedtobeincurredpursuanttotheprovisionsofSection5.4(a);and
(iv)netincomeandnetlossesandAvailableLocalCashFlowarisinginrespectoftheforegoingandproceedsofanydispositionthereof.
(b)ThefollowinginterestsofLicenseeanditsSubsidiarieswillbeexcludedfromtheGladLocalBusinessandwillnotbeattributedtotheGladLocalBusiness(collectively,the“ExcludedLocalAssets”),andfromandafterthedatehereoftheGladLocalBusinesswillnotincludeanyinterestinanyofthefollowingforpurposesofdeterminingAvailableLocalCashFlow:
(i)allrightsofLicenseeunderthisAgreement;
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2 UsethisversiononlyforAustralia,CanadaandNewZealand.3 UsethisversiononlyforSouthAfrica,CostaRica,China,HongKong,PhilippinesandKorea.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(ii)[allinterestsinanybusiness,asset,rightorpropertysold,transferredorotherwisedisposedofpriortothedatehereofintheordinarycourseoftheGladLocalBusinessandnotinviolationofthetermsoftheJVAgreement;]4
(iii)allcashandcashequivalentsasofthedatehereofotherthanpettycashwithrespecttotheGladLocalBusiness;
(iv)allrefundsorcreditswithrespecttoanyTaxespaidorincurredbyLicensee;
(v)allcapitalstockorotherequityinterestsofLicensee,CloroxandanyotherSubsidiariesofClorox;and
(vi)allrightsoftheLicenseeandotherSubsidiariesofCloroxarisingoutoforinconnectionwithanyRetainedLiabilities,includingwithoutlimitationanycauseofaction,rightofrecovery,rightofset-offorcounterclaim.
(c)Fromandafterthedatehereof,noneofthefollowingLiabilitieswillbeattributedtotheGladLocalBusiness(“RetainedLocalLiabilities”)forpurposesofdeterminingAvailableLocalCashFlow:
(i)anyLiability(A)arisingoutoforrelatingtotheconductoftheGladLocalBusinessortheownershiporpossessionofanybusiness,assets,rightsorpropertyusedintheGladLocalBusinesspriortothedatehereofor(B)assumedorincurredpriortothedatehereofbyLicenseeand/orotherSubsidiariesofClorox,exceptforanyLiabilitiesdescribedin[clause(A)or(B)]5[clause(A)]6ofSection9.2(a)(iii);
(ii)anyLiabilitywithrespecttoincomeTaxesofLicenseeandotherSubsidiariesofClorox;
(iii)anyLiabilityarisingoutoforrelatingtotheExcludedAssets;
(iv)anyLiabilityoftheLicensee,CloroxandotherSubsidiariesofCloroxtotheLicensorarisingoutoforrelatedtoanybreachofthisAgreementoranyRelatedAgreementbyLicensee,CloroxandotherSubsidiariesofClorox,evenifarisingoutoforrelatedtoconductoftheGladLocalBusinessortheownershiporpossessionofanybusiness,asset,rightorpropertyusedintheGladLocalBusinessafterthedatehereof;and
(v)anyLiabilityforwhichLicenseeand/orotherCloroxSubsidiarieshaveotherwiseagreedtobeliableandnothaveattributedtotheGladLocalBusinesspursuanttothisAgreementoranyRelatedAgreement.
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4 IncludeonlyforAustralia,CanadaandNewZealand.5 UseonlyforAustralia,CanadaandNewZealand.6 UseonlyforSouthAfrica,CostaRica,China,HongKong,PhilippinesandKorea.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section9.3AffiliateLoans.
(a)IntheeventthatAvailableCashFlowforanyFiscalQuarterassetforthinthequarterlyfinancialstatementsoftheGladBusinessintheTerritoryforsuchFiscalQuarterisanegativenumber(suchnumber,the“NegativeCashFlow”)thentheamountoftheNegativeCashFlowwillbetreatedasanAffiliateLoan,whichAffiliateLoanwillbedeemedtohavebeenmadeasofthelastdayoftheFiscalQuartertowhichtheNegativeCashFlowrelates.
(b)AllAffiliateLoanswillbearinterestcalculatedontheoutstandingprincipalamountthereofforeachdayfromthedatesuchAffiliateLoanismadeuntilitispaidinfullatPrimeRateplus[***]percent([***]%)perannumpayableonaquarterlybasis,andpaymentswithrespecttoanyAffiliateLoanswillbecreditedfirsttoaccruedinterest.EachAffiliateLoanwillhaveamaturitydateofthedateonwhichthisAgreementisterminated.
Section9.4ForeignCurrencyExchange.
Indeterminingtheamountofroyaltiesandotheramountspayablehereunder,suchamountsshallfirstbedeterminedinthenationalcurrencyinwhichsoldandthenconvertedintoitsequivalentinUnitedStatesDollarsat:(i)therateofUnitedStatesDollarstothenationalcurrencyoftheTerritoryapplicabletothetransferoffundsarisingfromthistypeoftransactionasestablishedbytheexchangecontrolauthoritiesoftheTerritoryforthelastbusinessdayofthecalendarquarterforwhichpaymentismade;or(ii)ifthereisnoapplicableratesoestablished,atthesellingrateforUnitedStatesDollarstotheapplicablenationalcurrencyaspublishedbyleadingcommercialbanksintheTerritory,forthelastbusinessdayofsuchcalendarquarter;or(iii)ifthereisnoratesopublished,atthebuyingratefortheapplicablenationalcurrencytoUnitedStatesDollarsaspublishedbyleadingNewYork,NewYorkbanksforthelastbusinessdayofsuchcalendarquarter.Licenseeshallbearresponsibilityforallexpensesofcurrencyconversionandtransmission.
Article10.MiscellaneousProvisions.
Section10.1Assignment.Licensormayassign,transferorotherwisesublicenseitsrightsunderthisAgreement,inwholeorinpart,toanyotherpartywithoutthepriorwrittenconsentoftheLicensee.Licenseemaynotassign,transferorotherwisesublicenseitsrightsunderthisAgreement,inwholeorinpart,toanyotherpartywithoutthepriorwrittenconsentofLicensor.Anypurportedtransfer,assignmentorsublicenseofthisAgreementortherightsgrantedhereunderthatisnotexpresslypermittedbythisAgreementshallbenullandvoidabinitioandofnoforceoreffect.
Section10.2Arbitration.Anydispute,claimorcontroversyarisingoutoforrelatingtothisAgreementshallbesubjecttothedisputeresolutionproceedingssetforthinSection11.8oftheJVAgreement.
Section10.3ForceMajeure.ShouldeitherPartybepreventedfromperformingitsobligationsunderthisAgreementbyaneventofforcemajeure,suchasanearthquake,typhoon,flood,fire,actofwar,actofthepublicenemy,actofterrorism,actofGodoranyotherunforeseeneventthehappeningandconsequencesofwhichareunpreventableandunavoidable,thepreventedPartyshallnotifytheotherPartybythemostexpedientmeansavailable(fax,telexorexpressmailbeingacceptableinanyevent)withoutanydelay,andwithinfifteen(15)daysthereafterprovidedetailedinformationoftheeventsand,ifapplicableandavailable,avaliddocumentforevidenceissuedbytherelevantpublicnotaryorganizationexplainingthereasonforitsinabilitytoperformordelayintheperformanceofallorpartofthisAgreement.ThePartiesshalldiscussingoodfaith,takingintoaccounttheeffectsoftheforcemajeureandotherunforeseeneventsontheperformanceoftheobligationsunderthisAgreement,whetherto(a)exemptthepreventedPartyfromperformingpartorallofitsobligationsunderthisAgreementor(b)delaytheperformanceoftheaffectedobligationsunderthisAgreement.Intheabsenceofanysuchagreement,noPartyshallbeexcusedfromitsperformancehereunderoncetheeventofforcemajeurehassubsided.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section10.4FurtherAssurances.ThePartiesagreetoexecutesuchfurtherdocumentationandperformsuchfurtheractions,includingtherecordationofsuchdocumentationwithappropriateauthorities,asmaybereasonablyrequestedbytheotherPartyheretotoevidence,effectuateandfurtherthepurposesandintentssetforthinthisAgreement.
Section10.5AmendmentsandWaivers.ThisAgreementmaybeamendedonlybyawritteninstrumentexecutedbybothParties.AnyamendmenteffectedinaccordancewiththeimmediatelyprecedingsentencewillbebindingonallofthePartiestothisAgreement.NofailureordelaybyanyPartyinexercisinganyright,powerorprivilegehereunderwilloperateasawaiverthereofnorwillanysingleorpartialexercisethereofprecludeanyotherorfurtherexercisethereofortheexerciseofanyotherright,powerorprivilege.
Section10.6Notices.AnynoticesorothercommunicationsrequiredorpermittedhereunderwillbegiveninaccordancewiththeprovisionssetforthinSection11.3oftheJVAgreement.
Section10.7Integration.ThisAgreement,theJVAgreement,theotherRelatedAgreementsandthedocumentsreferredtohereinortherein,ordeliveredpursuantheretoorthereto,containtheentireunderstandingofthePartieswithrespecttothesubjectmatterhereofandthereof.Therearenoagreements,representations,warranties,covenantsorundertakingswithrespecttothesubjectmatterhereofandthereofotherthanthoseexpresslysetforthhereinandtherein.ThisAgreementsupersedesallotherprioragreementsandunderstandingsbetweenthepartieswithrespecttothesubjectmatterhereof.
Section10.8Severability.Ifoneormoreoftheprovisions,paragraphs,words,clauses,phrasesorsentencescontainedherein,ortheapplicationthereofinanycircumstances,isheldinvalid,illegalorunenforceableinanyrespectforanyreason,thevalidity,legalityandenforceabilityofanysuchprovision,paragraph,word,clause,phraseorsentenceineveryotherrespectandoftheremainingprovisions,paragraphs,words,clauses,phrasesorsentenceshereofwillnotbeinanywayimpaired,itbeingintendedthatallrights,powersandprivilegesofthepartiesheretowillbeenforceabletothefullestextentpermittedbylaw.
Section10.9Counterparts.ThisAgreementmaybeexecutedintwoormorecounterparts,andbydifferentPartiesonseparatecounterpartseachofwhichwillbedeemedanoriginal,butallofwhichwillconstituteoneandthesameinstrument.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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Section10.10GoverningLaw.ThisAgreementwillbeconstruedinaccordancewith,andtherightsofthePartieswillbegovernedby,thelawsoftheStateofNewYork.
Section10.11InjunctiveRelief.EachofthePartiesacknowledgesandagreesthatpendingtheoutcomeofanyarbitrationproceedingpursuanttoSection11.8oftheJVAgreement,eachofthePartiesheretowillbeentitledtoaninjunction,restrainingorderorotherequitablerelieftopreventbreachesoftheprovisionsofthisAgreement,theJVAgreementortheotherRelatedAgreementsinanycourtofcompetentjurisdictionsolelyforthepurposeofmaintainingthestatusquo,inadditiontoanyotherremedytowhichtheymaybeentitledpursuanttothetermshereof.
Section10.12ThirdPartyBeneficiaries.P&GSubshallbeathirdpartybeneficiaryofthisAgreementandshallhavetherighttoenforcetherightsofLicensorhereundersolelytotheextentthatLicenseebreachesthisAgreementandLicensorfailstoenforcesuchrightswithinthirty(30)daysbeingrequestedbyP&Gtodoso.ExceptasexpresslyprovidedinthisSection10.12,nothinginthisAgreement,expressorimplied,isintendedtoconferuponanyPerson,otherthanthePartiesheretoortheirrespectivesuccessorsandpermittedassigns,anyrights,remedies,benefits,obligationsorliabilitiesofanynaturewhatsoeverunderorbyreasonofthisAgreement.
Section10.13NoAgency.Nothinghereincontainedshallbeconstruedtoconstituteeitherpartyheretoaspartnerorjointventurerorasagentorotherrepresentativeoftheother.Licenseeisnotgrantedanyright,powerorauthoritytoassumeorcreateanyobligation,expressorimplied,onbehalfofLicensororinLicensor’sname,ortomakeanypurchaseforLicensor’saccount,ortobindLicensorinanymannerorthingwhatsoever.Licenseeshallhavenoright,powerorauthoritytoacceptsummonsorlegalprocessforLicensor.Intheiroperationshereunder,LicensorandLicenseeshallbeindependentcontractorsretainingcompletecontroloverandbearingsoleliabilityforeachoftheirownoperationsandemployees.
[Theremainderofthispagehasbeenintentionallyleftblank]
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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INWITNESSWHEREOF,thePartiesheretohaveexecutedthisAgreement,effectiveasofthedatefirstabovewritten.
THEGLADPRODUCTSCOMPANYBy:
Name:Title:
[NAMEOFCLOROXAFFILIATE]
By:Name:Title:
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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EXHIBITJ
TECHNOLOGYANDTRADEMARKLICENSEAGREEMENT
BETWEEN
THEGLADPRODUCTSCOMPANY,ASLICENSOR
AND
______________________,ASLICENSEE
DATED:JANUARY31,2003
TECHNOLOGYANDTRADEMARKLICENSEAGREEMENT
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
ThisAgreementisdatedasofJanuary31,2003between:
(PARTIES)
Name,Address, TelephoneandFacsimile IdentifiedHereinAsTheGladProductsCompany “Licensor”1221BroadwayOakland,California94612UnitedStatesofAmerica
Attention:CorporateSecretaryTelephone:510-271-7000Facsimile:510-271-1652
“Licensee”Attention:DirectorTelephone:Facsimile:
PartiestoAgreement
(RECITALS)
CloroxandClorox’saffiliates,includingLicensor,areengagedinthebusinessofmanufacturing(orcausingtohavemanufactured),distributingandsellingthepremiumqualityconsumerproductssetforthinExhibitA(the“Products”).
LicensoristheownerofthecommonlawrightsandotherrightsintheTrademarksintheTerritoryandtheowneroftheTechnologyintheTerritory.
LicenseedesirestousetheTechnologytomanufacture,produceandpackagetheProducts,andtodistributeandselltheProductsundertheTrademarksintheTerritory.
Subjecttothetermsandconditionscontainedherein,LicensordesirestograntLicenseethelicensessetforthhereinsothatLicenseecanmanufacture,produce,package,distributeandselltheProductsintheTerritoriesbearingtheTrademarks.
LicensorandLicenseearesimultaneouslyinconnectionherewithenteringintoaSublicenseAgreementproviding,subjecttothetermsandconditionscontainedtherein,forthesublicensebyLicensortoLicenseeofcertainIntellectualPropertylicensedtoLicensorbyP&GSubundertheP&GLicenseAgreement.
CertaincapitalizedtermsshallhavethemeaningsetforthinArticle30hereof.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(EXHIBITS)
ThefollowingexhibitsareattachedtothisAgreementandareincorporatedhereinandmadeaparthereof:
Exhibit Content A DescriptionofProducts B DescriptionofTerritoryC DescriptionofRoyaltyD SupersededAgreement(s)
(AGREEMENT)
Thepartiesheretoagreeasfollows:
ARTICLEI.GRANT
(a)LicensorgrantstoLicensee,subjecttotheprovisionsofthisAgreement,arightandlicensetousetheTrademarksintheTerritory,inthemanufacture,packaging,production,distribution,sale,offerforsale,advertisement,promotionoranyothermannerofusewhatsoeveronorinrelationtotheProducts,whichrightshallbeexclusiveintheTerritory,andLicenseeherewithacceptssuchgrantundersuchtermsandconditions.
(b)LicensorgrantstoLicensee,subjecttotheprovisionsofthisAgreement,arightandlicensetousetheTechnologyintheTerritory,inconnectionwiththemanufacture,packaging,production,distribution,sale,offerforsale,advertisement,promotionoforinrelationtotheProducts,whichrightshallbeexclusiveintheTerritory,andLicenseeherewithacceptssuchgrantundersuchtermsandconditions.
(c)Notwithstandingtheforegoing,therightsandlicensesgrantedtoLicenseepursuanttothisArticle1shallbenon-exclusivewithrespecttoanyIntellectualPropertytowhichLicensorhasgrantedalicensetoP&GSubpursuanttotheP&GLicenseAgreement.
ARTICLE2.AMENDMENTSTOEXHIBITA
(a)Licensormay,fromtimetotimebywrittennoticestoLicensee,amendExhibitAattachedheretobyaddingto,revisingand/orupdating,deletingfromorlimitingtheProductscoveredbythisAgreementtoreflectchanges,additions,orrevisionsinitsProductline,thetrademarksassociatedwithsuchProductsoritspracticesorpolicieswithrespecttotheconductofitsbusiness.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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ARTICLE3.ROYALTIES
(a)InconsiderationoftherightsgrantedunderthisAgreement,LicenseeagreestopayLicensorroyaltiesassetforthonExhibitC.
(b)RoyaltiesshallbebasedonLicensee’sbillingprice(setinaccordancewithLicensee’sandLicensor’smutualagreement)onallProductssoldbyLicenseeaftertheeffectivedateofthisAgreement,whethersoldtoadistributorappointedhereunderortoothercustomersofLicensee.AnyProductsgivenawayfreebyLicenseeshallforthepurposesofthisArticlebetreatedasproductssoldatsaidbillingpriceineffectatthedateofshipmentbyLicensee.TheProductssoldbyLicenseehereundershallbeconsideredas“sold”wheninvoicedwhetherornottheamountinvoicediscollectedfromLicensee’sdistributor,orifnotinvoiced,whenshippedordelivered.IntheeventthatanyoftheProductsonwhicharoyaltyhasbeenpaidhereunderbyLicenseearereturnedandacceptedforcredit,LicenseeshallbecreditedwiththeroyaltyalreadypaidbyLicenseeonaccountofsaidProductsagainsttheamountoftheroyaltiessubsequentlyaccruinghereunder.
(c)Theroyaltiespayablehereundershallbepaidquarterlywithinthirty(30)daysfollowingtheendofeachcalendarquarteronanestimatedbasis,withanadjustmentwithinninety(90)daysafterthecloseofLicensee’sfiscalyear.RoyaltiesshallbetransferredinUnitedStatesDollarstoLicensoratitsaddresssetforthaboveorasinstructedbyLicensor.
(d)Indeterminingtheamountofroyaltiesandotheramountspayable,theNetSalesoftheProductsshallfirstbedeterminedinthenationalcurrencyinwhichsoldandthenconvertedintoitsequivalentinUnitedStatesDollarsat:(i)therateofUnitedStatesDollarstothenationalcurrencyoftheTerritoryapplicabletothetransferoffundsarisingfromthistypeoftransactionasestablishedbytheexchangecontrolauthoritiesoftheTerritoryforthelastbusinessdayofthecalendarquarterforwhichpaymentismade;or(ii)ifthereisnoapplicableratesoestablished,atthesellingrateforUnitedStatesDollarstotheapplicablenationalcurrencyaspublishedbyleadingcommercialbanksintheTerritory,forthelastbusinessdayofsuchcalendarquarter;or(iii)ifthereisnoratesopublished,atthebuyingratefortheapplicablenationalcurrencytoUnitedStatesDollarsaspublishedbyleadingNewYork,NewYorkbanksforthelastbusinessdayofsuchcalendarquarter.Licenseeshallbearresponsibilityforallexpensesofcurrencyconversionandtransmission.
(e)RoyaltiesduebutnotpaidtoLicensor,foranyreasonwhatsoever,shallbesegregatedandnotcommingledwithmoniesofLicenseeandshallbehandledinaccordancewithwritteninstructionsfromLicensor.
(f)Licenseefromtimetotimeshallprepareallapplications,reportsandotherdocumentswhichmayberequiredbythegovernmentintheTerritoryinorderthatremittancesmaybemadeinaccordancewiththisAgreement.
(g)Notwithstandingtheabove,noroyaltiesshallbepayableonanyProductspurchasedbyLicenseefromLicensororLicensor’saffiliatedcompaniesandresoldbyLicensee,butthisexceptionshallnotapplyifLicenseechoosestopurchasecomponentsofProductsfromLicensor.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(h)LicenseeagreestokeepaccuratebooksofaccountofitssalesoftheProductsandtoprovideLicensorwithquarterlyroyaltystatementswithinten(10)daysfollowingtheendofeachcalendarquarterinsuchformasLicensormayprescribesettingforth,ataminimum,thefollowinginformationfortheprecedingcalendarquarter:(i)theNetSalesvalueandunitsofLicensee’ssalesoftheProducts,(ii)theamountofanyroyaltypaymentdueLicensor,and(iii)allotherinformationnecessarytoshowthebasisorbasesonwhichsuchpaymenthasbeencomputed.Incasenopaymentisdueforanycalendarquarter,LicenseeshallsoreporttoLicensorwithinten(10)daysfollowingtheendofsuchcalendarquarter.Licenseeagreestopermititsbooksandrecordstobeexaminedatreasonabletimesduringbusinesshourstotheextentnecessarytoverifytheroyaltiestobepaidhereunder,andtopermitcopiesoforextractsfromanybooks,accounts,receipts,papersorotherdocumentsinthepossessionorunderthecontrolofLicenseeandrelatinginwholeorinparttotheProductsmanufacturedandsoldbyLicensee,suchexaminationandcopyingtobemadebyLicensor’sagentsatLicensor’sexpense.Licenseeagreestomaintainsaiddocumentsforaminimumperiodofthree(3)years.
ARTICLE4.QUALITYCONTROL
(a)StandardsofQuality
LicenseeshallusetheTrademarksonlyonProductsthatmeetLicensor’sspecificationsandhighstandardsofqualityandworkmanshipforsuchProducts.
LicenseeundertakestoimplementinfullLicensor’sestablishedproceduresfortheinspectionandqualitycontroloffinishedProductscoveredbythisAgreement.
LicenseeshallgenerallyensurethatallProductsarefreefromanydefectsorotherfaultsindesign,workmanship,andmaterialsandconformwithanypre-productionsamplesapprovedpursuanttoArticle4(b)hereinbelow,andnoProductsthatfailtomeetthequalitystandardsofLicensorshallbeintroducedtothemarket.
AlllabelsandlabelingusedfortheProductsshallhavethepriorwrittenapprovalofLicensor.LicenseeagreestofollowanyinstructionsofLicensorwithrespecttothelabelsfortheProducts,andtomaintainLicensor’shighstandardswithrespecttothequalityoflabelsfortheProducts.
LicensorandLicenseeagreethattheProductsmanufacturedbyLicenseeasofthedateofthisAgreementmeetthequalitystandardsrequiredbyLicensorpursuanttothisAgreement.
(b)ProductSamples
RepresentativesamplesoftheProducts(includingtheirpackaging)initiallyandthereafteratLicensor’srequest,shallbefurnishedbyLicenseetoLicensorataplacedesignatedbyLicensorinsufficientquantitysoastoenableLicensortodeterminethequalityofsuchProducts.LicensorshallrunsuchtestsontheProductsasitmaydeemexpedient,andshalladviseLicenseeinwritingwhetherthequalitystandardsmaintainedbyLicensoraremet.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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IntheeventanyoftheProductsdonotcomplywiththeproductstandardsmaintainedbyLicensor,LicenseeshallatLicensee’sownexpenseundertakeadiligentinquirytodeterminethereasonforsuchnon-conformingProducts,theextentofsuchnon-conformingProducts,andcorrectallsuchnon-conformingProducts,or,ifthiscannotbedone,destroysuchProductsandbearthelosssufferedinthisconnection.LicenseeshallreporttoLicensorthecauseofsuchproblems,theextentofthenon-conformingProductsfound,andLicensee’scorrectionordestructionofsuchProducts.LicenseeshallimplementimmediatelyanyinstructionsreceivedfromLicensorregardingchangesormodificationsintheproductsand/ortheirmanufactureorpackaging.
(c)AccesstoPremises
LicensorshallhavetherighttohaveLicensor’srepresentativesvisitLicensee’sfacilitiesfromtimetotimetoinspecttheProductstoinsurethattheycomplywithLicensor’sspecificationsandstandardsofquality,andLicenseeshallcooperatewithsuchrepresentativeandcomplywithanydirectionsissuedbytherepresentative.
ARTICLE5.SALESEFFORTS
Licenseerepresentsthatitisfullyabletoquantitativelymeetthedemandsof,andisabletosupply,thenationalmarketsfortheProductsintheTerritory.Licenseeshalluseits[***]atalltimesduringthetermofthisAgreementtopromoteandexpandthesalesoftheProducts.Thesizeofthesalesorganization,thecompetenceofthestaffandthequalityofthesaleseffortsshallbesatisfactorytoLicensorandshallmeasureupinallrespectstoLicensor’sstandardsofexcellence.LicenseeandLicensorshall,fromtimetotime,mutuallyconsultwithoneanotherconcerningLicensee’ssalesefforts.
Withinten(10)daysoftheendofeachcalendarquarter,LicenseeshallsubmittoLicensor,insuchdetailasLicensormayrequest,astatementwithrespecttothesalesmadebyLicenseeduringthesalesquarter.EachsuchstatementshallbecertifiedascorrectbyanofficerofLicensee.DuringthetermofthisAgreementamarketingplanshallbemutuallyagreeduponforeachyear.
Licenseealsoagreesto:
(a)CarryandmaintainstocksoftheProductsthat,inLicensor’sopinion,aresufficienttosatisfymarketrequirements.
(b)KeepandmaintaintrueandaccuraterecordsofalltransactionsinvolvingtheProducts,includinginventory,purchasesandsalesandpromotionalexpenditures,whichshallbeavailabletoLicensorforinspection.
(c)Complywithallgovernmentallaws,regulationsandpracticeswithrespecttotheconductofLicensee’sbusiness.
(d)ObeyandcomplywithreasonabledirectionsandinstructionsgivenbyLicensor.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(e)NotmakeanyrepresentationorgiveanywarrantyrelatingtoorinconnectionwiththeProducts,exceptasspecificallyauthorizedbyLicensor.
(f)MaintainacustomercomplaintreportingsystemthatwillbemadeavailabletoLicensor.
(g)SetbillingpricesandanydiscountsfortheProductsatlevelsmutuallyagreeduponinadvancebyLicenseeandLicensor.
(h)NotappointadistributorwithoutLicensor’spreviouswrittenauthorization.
ARTICLE6.PRODUCTREGISTRATIONS
LicenseeshallmakeeveryreasonableefforttoinvestigateandadviseLicensorofallrequiredpermitsorregistrationsoftheProductswithgovernmentalauthoritiesintheTerritory;and,atLicensor’srequest,applyfor,obtainandmaintain,onLicensor’sbehalf,allsuchnecessaryproductregistrationsandpermits.
UponterminationofthisAgreementforanyreason,Licenseeshalltakesuchaction,executesuchassignmentsorconsentsandotherwisedosuchthingsasmaybereasonablynecessarytotransferallproductregistrationsandpermitstoLicensororitsdesignee(s),and/ortootherwisepermitorfacilitatethemanufactureorimportationandsaleoftheProductsintheTerritorybyLicensororanypartyLicensormaydesignate.
ARTICLE7.TECHNOLOGYANDTRADEMARKS
(a)LicenseerecognizesandacknowledgesthatLicensor,orLicensor’saffiliatedcompanies,aretheowners,assigneesorlicenseesintheTerritoryoftheTechnologyandtheTrademarks,includingallcommonlawrightsrelatedtoLicensee’suseoftheTrademarks,andthegoodwillandreputationrelatedtotheTrademarksgeneratedthroughsuchuse,andvariousproprietaryandancillaryrightsrelatedtotheTrademarksandtheProductsincludingtradenames,tradedress,packagedesigns,emblems,designs,copyrightsandanyregistrationsthereof(hereinafterreferredtoasthe“Properties”)usedonvariousProductsand/orinrelatedadvertisingliterature.LicenseeacknowledgesthevalidityoftheTechnology,TrademarksandPropertiesandLicensor’s,and/orLicensor’saffiliatedcompanies’titletoandrightsintheTechnology,TrademarksandthePropertiesandrecognizesthehighvalueofsuchrightstothebusinessandgoodwillofLicensor.LicenseeacknowledgesthatanygoodwillcreatedthroughtheuseoftheTrademarksbyLicenseebelongstoLicensorexclusively.
(b)LicenseeshallnotdisputethevalidityofortitletotheTechnology,TrademarksorPropertiesoropposeanyapplicationbyLicensor,orLicensor’saffiliatedcompanies,toregisterorprotecttheTechnology,TrademarksorthePropertiesandshallnot,directlyorindirectly,takeanyactionwhichmightimpairtheseproprietaryrightsorthebusinessandgoodwillofLicensor.
(c)Licenseewillnot,directlyorindirectly,seektoregisteranyimitationortranslationoftheTrademarksortheProperties.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(d)LicenseeshallnotuseanyoftheTechnology,TrademarksorthePropertiesexceptasapprovedbyLicensor.Licenseeshallinnowaymodify,addtooromitanyoftheTrademarksorthePropertiesappliedtotheProducts,advertisingorpromotionalmaterialpursuanttothisAgreement,withoutthewrittenconsentofLicensor.LicenseeshallnotuseinconnectionwiththesaleoforanycommercialdealingwithanyoftheProductsanyothertrademark,orothermatterwhichisconfusinglyordeceptivelysimilartoanyoftheTrademarksorProperties.
(e)Licensee,withoutthewrittenconsentofLicensor,shallnotuseanyofLicensee’sowntrademarksortradenamesinmarketingtheProducts.ThisprovisionshallnotrestrictLicenseeinthenormaluseofLicensee’sregularbusinessname.LicenseeshallnotusetheTrademarksorvariationsthereofinLicensee’sregisteredtradeorcorporatename.
(f)ShouldLicenseebecomeawareofanytradepracticesoractionsorthreatenedactionsbythirdpartiesthatmayinjurethebusinesswhichLicenseeconductspursuanttothisAgreementorthebusinessorgoodwillofLicensorincludinginfringement,misappropriation,impairment,dilution,violationand/orpassingoff(“Infringement”)oftheTechnology,TrademarksortheProperties,fulldetailsofthesameshallbepromptlysuppliedtoLicensor.LicenseeshallinnoeventtakeanyactiontopreventorremedysuchInfringementortradepracticeswithoutLicensor’swrittenauthorization.LicensororanypartiesauthorizedbyLicensorshallhavethesolerighttotakeordirectsuchactionasLicensormaydeemproperagainstsuchparties.LicenseeshalljoinwithLicensorintakingactionagainstsuchpartiesifLicensorsorequests.
(g)Licensorand/orLicensor’saffiliatedcompanieswillpoliceandprotecttheTechnologyandTrademarksintheTerritorytothebestofLicensor’sabilityandassumethecostsofprosecutinginfringersinthosecases,whichintheopinionofLicensor’slegalcounsel,meritlegalaction.LicensorshallrenewandmaintaintheTechnologyandTrademarksaccordingtothelegalrequirementsoftheTerritory.LicenseeshallassistLicensorinpolicing,protecting,renewingandmaintainingtheTechnologyandTrademarksby(i)providingsamplesofProducts,(ii)providingevidenceofuse,(iii)providingLicensorwithguidanceandassistanceastothelegalrequirementsoftheTerritoryand(iv)executingdocumentsandtakingsuchotheractionsasmayberequiredtorenewandmaintainorotherwiseeffectLicensor’sownershipoftheTechnologyandTrademarks.
(h)UponexpirationorterminationofthisAgreementforanyreason,Licensee,atLicensee’sownexpense,shallforthwithremoveallreferencestoLicensororanyoftheTrademarksorPropertiesoranywork,design,marking,sloganorlegendassociatedtherewithfromthebusinesspremises,plant,products,materials,suppliesandequipmentofLicensee,andfromallbusinesspaper,stationeryandadvertisingusedormaintainedbyLicensee(includingtelephoneandbusinesslistings),andLicenseeshallnotthereafterholdforthinanymannerthatLicenseehasaconnectionwithLicensor,theTrademarks,PropertiesortheProducts.LicenseethereaftershallnotusetheTrademarksoranytermsordevicessimilartotheTrademarks.
(i)Licenseeshallapplyoruseallnoticesandlegends,includingpatentmarkings,requiredbyapplicablelaworregulationstopreserveandprotectthevalueandvalidityoftheTechnologyandTrademarkslicensedpursuanttothisAgreement,includingapplyingorusinganynoticesorlegendsreasonablyrequestedbyLicensor.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(j)IntheeventLicenseedevelopsanyimprovementstotheTechnology,LicenseeshallpromptlyprovideLicensorwithwrittennoticethereof.
(k)LicenseeagreesthatLicensoristhesoleandexclusiveowneroftheTechnologyandtheTrademarksandthatnothinginthisAgreementorotherwiseshallconferonLicenseeanyright,titleorinterestinortotheTechnologyorTrademarksotherthanasexpresslysetforthinthisAgreement.IntheeventthatLicenseeisheldto,orbecomestheownerofanyTechnology,TrademarksorPropertiesthatisintendedtobeownedbyLicensorpursuanttothetermsofthisAgreement,LicenseeherebyassignspermanentlytheentiretyofsuchrightstoLicensorandshall,duringthetermofthisAgreementandafteranyexpirationorterminationhereof,executesuchdocumentsasLicensorreasonablymayrequestfromtimetotimetoensurethatallsuchrightsresideinLicensor.
(l)NothinginthisAgreementshallpreventLicensorfromtransferringorencumberingtheTechnologyorTrademarksthataresubjecttoalicenseorobligationunderthisAgreement.
ARTICLE8.WARRANTIESANDDISCLAIMERS
NeitherpartywarrantstotheotherthattheProductsthatLicenseemaymanufactureorsellpursuanttothisAgreementwillnotInfringeanyIntellectualPropertyortrademarkrightpossessedbyanythirdparties.
ARTICLE9.COMPETITION
InordertoensureLicensee’sundividedattentionandmaximumeffortsonbehalfoftheProducts,Licenseeagreesnottomanufacture,market,sellordistributeproductswhichwouldcompetewiththeProductsduringthetermofthisAgreement.
ARTICLE10.EFFECTIVENESSANDTERMOFAGREEMENT
ThisAgreementshallbeeffectiveasofthedatefirstwrittenabove.TheinitialtermofthisAgreementshallbefive(5)years,whichtermshallberenewableforsuccessivefive(5)yearperiodsthereafterattheoptionoftheLicensoruponwrittennotice.ThetermofthisAgreementmaybeterminatedbyLicensoratanytimeupon[***]noticetoLicensee.ThetermofthisAgreementmaybeterminatedbyLicenseeonlyasprovidedinArticle11(a)hereof.NofurtherRoyaltyshallaccruehereunderafterthetermination(ordeemedterminationpursuanttoArticle11)ofthisAgreement.
ARTICLE11.INTERNATIONALACQUISITIONTRANSACTION
(e)IntheeventofanInternationalAcquisitioninwhichthereisnoIPAcquisition,LicenseewillbedeemedtohaveterminatedthisAgreement.Uponsuchdeemedtermination,LicenseewillberequiredtopayLicensoraterminationfee(the“TerminationFee”)inanamount[***]to[***]percent([***]%)oftheFairMarketValueoftheGladLocalBusiness
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(f)IntheeventofanInternationalAcquisitioninwhichthereisanIPAcquisition,LicensorwillbedeemedtohaveterminatedthisAgreementandnoTerminationFeeshallbedueorpayable.
ARTICLE12.OBLIGATIONSUPONTERMINATION
IntheeventofanyexpirationorterminationofthisAgreement:
(a)LicenseewillreturntoLicensor,labels,packagingandadvertisingorotherpromotionalmaterialsrelatingtoanyoftheProducts.LicensoratLicensor’ssoleoptionshallhavetherighttotakebackatthelowerofmarketpriceorincrementalcost,anysuchlabels,printsandliterature,andLicenseeshallbeobligedtoreturntoLicensorwithoutchargeallmaterialsreceivedwithoutcost.
(b)Licenseeshallhavetheobligationtocompletethemanufactureofallgoodsinprocess.LicensororLicensor’sdesignee,atLicensor’ssoleoption,shallhavetherighttopurchaseallrawmaterials,packagingmaterialsandfinishedgoodsstillinstockafterfillingoutstandingorderstothedateoftermination.ThepricepayabletoLicenseewithrespecttosuchmaterialsandfinishedgoodsshallbethelowerofmarketpriceorLicensee’sincrementalcost.LicensorinLicensor’ssolediscretionmayallowLicenseetosellfinishedgoodsstillinstockafterthefillingofoutstandingorders,accordingtothedistributionandpricingschedulethatwasineffectforthequarterpriortotermination.
(c)LicenseeagreesthatfromthedateofexpirationorterminationofthisAgreement,noneoftheTechnologyorTrademarksoranytermsordevicessimilarthereto,ortothePropertiesshallbeusedbyLicensee.Licenseeshallassoonasitispractical,ensurethatanyreferencetoanyTrademarksonitsproducts,premises,vehiclesordocumentsareremoved.UponterminationorexpirationofthisAgreementLicenseeshallimmediatelyceasealluseoftheTechnologyand,atLicensor’option,promptly,return,deleteordestroyalltangibleembodimentsoftheTechnologyinLicensee’spossessionorcontrol.
(d)Allroyalties,feesandotheramountspayablebyLicenseetoLicensorthroughthedateofsuchexpirationorterminationshallbecomeimmediatelydue.
ARTICLE13.INDEMNITY
(a)LicenseeagreestoindemnifyandholdLicensorharmlessfromandagainstanyloss,claim,liability,action,causeofactionordamages(includingallcostsandattorneys’fees)foranyinjuryordamagesoccurringtothirdparties,ortheirproperty,inconnectionwiththeProductsmanufacturedorsoldbyLicenseeandforsuchpurposetomaintaininsurance,ifsuchisavailablewithintheTerritory,forthebenefitofLicenseeandLicensorwithsuchcompanyorcompaniesandcontainingsuchlimitsasaresatisfactorytoLicensor.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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(b)LicenseeshallalsoindemnifyandholdLicensorharmlessfromanyliability,loss,damageorexpense,includingreasonableattorneys’feesandexpenses,arisingoutofanyclaimorsuitinvolvingthemanufacture,labeling,sale,distributionoradvertisementoftheProductsbyLicenseeinviolationofanylaworregulationoftheTerritoryorcountryofexport.
(c)LicensorshallnotifyLicenseeofanysuchclaimorsuit,andLicenseeshallhavetherighttodefenditselfand,ifLicensorconsents,alsodefendLicensorthroughcounselofLicensee’schoiceprovidedsuchcounselisacceptabletoLicensor.LicensorshallalsobefreetoretainLicensor’sowncounsel,inwhichcaseLicensor’sreasonableattorneys’feesandexpensesshallbecoveredbytheindemnitysetforthinthisArticle13.
ARTICLE14.TAXES
LicenseeagreestoprocureatLicensee’ssolecostanyrequiredregistrationsorgovernmentalapprovalofthisAgreementandtopayanyandallstamp,registrationandimporttaxesandallothertaxesanddutieswhichmaybeleviedonLicensorand/orLicenseebygovernmentalentitieswithintheTerritory.Anytaxes,feesorotherchargesimposedbyanygovernmentoranystateintheTerritoryuponthisAgreementoruponthepaymentstobemadetoLicensorshallbepaidbyLicensee,bothatminimumratesandfinalcomputations,forandonbehalfofLicensorandsuchcostsmaynotbedeductedbyLicenseefromroyaltiesastheybecomedue.Except,however,LicenseemaywithholdfromamountspayableunderthisAgreementthenonresidentincometaxofLicensor,ifrequiredbylaw.LicenseeshallfurnishtoLicensoralloriginaltaxreceiptsorotherdocumentationnecessaryforLicensortoverifypaymentofanytax,fee,orchargeandtoreceiveaforeigntaxcreditortaxdeduction.Ifsuchnonresidentincometaxesarewithheld,LicenseewillsupplyLicensorwithofficialgovernmentreceiptswhichindicatetheamountoftaxanddatethetaxwaspaid.
ARTICLE15.FORCEMAJEURE
ThefailurebyeitherpartytoperformanytermofthisAgreementwhencausedbyorresultingfromfire,floods,embargoes,governmentregulations,war,actsofwar(whetherwarbedeclaredornot),insurrections,riots,civilcommotions,strikes,lockouts,jobactions,ActsofGodoranyothercausebeyondthecontrolofsuchparty,andwhichisaresultthereof,shallnotconstituteadefaultorbreachunderanytermofthisAgreementunlessthesaidpartyfailstoresumenormaloperationswithinonehundredeighty(180)days,inwhichcasetheotherpartymaydeclareadefault.
ARTICLE16.ASSIGNMENTANDSUBLICENSES
Licenseemaynotassign,pledge,hypothecate,giveasecurityinterestin,encumber,orotherwisetransferanyinterestinthisAgreementoritsobligations,rights,claims,interestsormoniesdueortobecomeduehereunder,oranymaterialsbearinganyoftheTrademarks,withoutthepriorwrittenconsentofLicensor.ThisAgreementshallbebindinguponandinuretothebenefitofthepartiesheretoandtheirsuccessorsandpermittedassigns.Notwithstandingtheforegoing,subjecttothetermsandconditionsofthisAgreement,LicenseemaysublicensetheTechnologyandTrademarkstoonlythosepersonsorentitiesthatagreetoabidebyandupholdthetermsandconditionsofthisAgreement(includingpaymentofallroyaltiesandotherfeesrelatedtotheuseoftheTechnologyandtheTrademarkshereunder).
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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ARTICLE17.NOAGENCY
Nothinghereincontainedshallbeconstruedtoconstituteeitherpartyheretoaspartnerorjointventurerorasagentorotherrepresentativeoftheother.Licenseeisnotgrantedanyright,powerorauthoritytoassumeorcreateanyobligation,expressorimplied,onbehalfofLicensororinLicensor’sname,ortomakeanypurchaseforLicensor’saccount,ortobindLicensorinanymannerorthingwhatsoever.Licenseeshallhavenoright,powerorauthoritytoacceptsummonsorlegalprocessforLicensor.Intheiroperationshereunder,LicensorandLicenseeshallbeindependentcontractorsretainingcompletecontroloverandbearingsoleliabilityforeachoftheirownoperationsandemployees.
ARTICLE18.AMENDMENTS
ThisAgreementshallnotbechanged,modified,abrogatedorsupersededunlessbyawritingsignedbybothparties.
ARTICLE19.SEVERABILITY
ShouldanypartorprovisionofthisAgreementbeheldunenforceableorinconflictwiththelawofanyjurisdiction,thevalidityoftheremainingpartsorprovisionsshallnotbeaffectedbysuchholdingunlessthepartorprovisionwhichisheldtobeunenforceableorinconflictwiththelawofthejurisdictionisanessentialtermofthecontractinwhicheventthecontractshallbedeemedterminated.
ARTICLE20.CAPTIONS
ThetitlesoftheArticlesofthisAgreementareintendedonlytofacilitatereferenceandshallnotbeusedininterpretingthemeaningofthisAgreement.
ARTICLE21.TRANSLATION
ShouldthisAgreementbetranslatedintoanyotherlanguagebutEnglish,theEnglishversionshallremaincontrollingandprevailonanyquestionofinterpretationorotherwise.
ARTICLE22.NOWAIVER
NoneofthetermsofthisAgreementmaybewaivedexceptbyawritingsignedbythewaivingparty.Thefailureofeitherpartyheretotoenforce,orthedelaybyeitherpartyinenforcing,anyofitsrightsunderthisAgreementshallnotbedeemedacontinuingwaiveroramodificationthereofandeitherpartymay,withinthetimeprovidedbyapplicablelaw,commenceappropriatelegalactiontoenforceanyorallofsuchrights.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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ARTICLE23.GOVERNINGLAW
ThisAgreementshallbegovernedandconstruedinaccordancewiththelawsoftheStateofCalifornia,UnitedStatesofAmericaandthelawsoftheUnitedStatesofAmericaasappliedtherein,inbothcaseswithoutregardtotheconflictoflawprinciplesthereof.TheactsorlawsofaforeigngovernmentshallnotbeconsideredforcemajeureorotherwiseexcuseadeparturefromthisAgreement.ItistheintentofthepartiesthattheirrelationsunderthisAgreementbegovernedexclusivelyasspecifiedherein.AnycontroversyorclaimarisingoutoforrelatingtothisAgreement,orthebreachthereof,shallbesettledbybindingarbitrationinOakland/SanFrancisco,CaliforniainaccordancewiththeCommercialArbitrationRulesoftheAmericanArbitrationAssociation,andjudgmentupontheawardmaybeenteredinanycourthavingjurisdictionthereof.Thepartiesherebywaiveanyclaimwhatsoeverthatanysuchcontroversyorclaimisnonarbitrableonthegroundsofpublicpolicy.Thearbitrator(s)shallhavethepowerto:(1)ordersuchdiscoveryas,inthearbitrator(s)discretion,shallcontributetoajustandspeedyresolutionofthecontroversyorclaimandtoimposesanctionsforbreachesofsuchorders;(2)awardattorneys’feesandcoststoapartyprevailingonacontroversyorclaimorpartthereof;and(3)awardpreliminaryandfinalinjunctionsandawardsofspecificperformance,itbeingtheintentofthepartiesthatsuchreliefbegrantedliberally.AnyarbitratorshallbefluentintheEnglishlanguageandfamiliarwiththeconsumerproductsindustry.ThearbitrationproceedingwillbeheldintheEnglishlanguageandallopinionsandawardswillbeissuedinEnglish.Thecostsofthearbitrationandenforcementoftheawardshallbeanissuedeterminedbythearbitrator(s).Eachofthepartiesheretowillbeentitledtoaninjunction,restrainingorderorotherequitablerelieftopreventbreachesoftheprovisionsofthisAgreement.
ARTICLE24.LOCALLAWSANDSTANDARDSOFBUSINESSCONDUCT
(a)LicenseeacknowledgesLicensee’sresponsibilitiesunderthelocallawsandregulationsapplicabletoLicensee’soperationunderthisAgreementandwillalwaysconductLicensee’sbusinessunderthisAgreementinamannermeetingthehighestethicalstandards.
(b)AnyfailureofLicenseetoabidebythisArticlethatbringsharmorinjurytothename,goodwill,orreputationofLicensororLicensor’saffiliatedcompanies,theTrademarks,ortheProductsshallbegroundsforterminationofthisAgreementbyLicensor.
ARTICLE25.RECORDATIONOFAGREEMENT
ThisAgreement,oranextracthereof,mayberecordedatthediscretionofLicensorintheproperofficesandregistriesintheTerritoryandLicenseeshallexecuteanydocumentsconsideredbyLicensortobenecessarytoeffectsuchrecordation.IntheeventoftheterminationofthisAgreement,LicenseeshallexecuteanydocumentsconsideredbyLicensornecessarytoeffectcancellationoftherecordationofthisAgreement,andLicensormaycancelsuchrecordationwithouttheconsentofLicensee.
ARTICLE26.NOTICES
Anynotice,offerordemanddesiredorrequiredtobegivenhereundershallbeinwritinganddeemedgivenwhenpersonallydeliveredorsentbyfirstclassregisteredorcertifiedairmailorbyfacsimileaddressedasrespectivelysetforthaboveunder“PARTIES”,ortosuchotheraddressasanypartyshallhavepreviouslydesignatedbysuchanotice.Anynoticesodeliveredpersonallyshallbedeemedtobereceivedonthedateofreceipteddelivery,anynoticegivenbyregisteredairmailshallbedeemedtohavebeenreceived5daysafterthesamehasbeenposted,andanyfacsimileshallbedeemedtobereceivedonthebusinessdayfollowingthedateofthefacsimile.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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ARTICLE27.INTEGRATION
ThisAgreementcontainstheentireunderstandingofthepartieswithrespecttothesubjectmatterhereof.Therearenoagreements,representations,warranties,covenantsorundertakingswithrespecttothesubjectmatterhereofandthereofotherthanthoseexpresslysetforthherein.ThisAgreementsupersedesallotherprioragreementsandunderstandingsbetweenthepartieswithrespecttothesubjectmatterhereof,includingtheagreements,ifany,setforthonExhibitD,whichshall,upontheexecutionofthisAgreement,terminateandbeofnofurtherforceoreffect.
ARTICLE28.THIRDPARTYBENEFICIARIES
P&GSubshallbeathirdpartybeneficiaryofthisAgreementandshallhavetherighttoenforcetherightsofLicensorhereundersolelytotheextentthatLicenseebreachesthisAgreementandLicensorfailstoenforcesuchrightswithinthirty(30)daysbeingrequestedbyP&Gtodoso.ExceptasexpresslyprovidedinthisArticle28,nothinginthisAgreement,expressorimplied,isintendedtoconferuponanyperson,otherthanthepartiesheretoortheirrespectivesuccessorsandpermittedassigns,anyrights,remedies,benefits,obligationsorliabilitiesofanynaturewhatsoeverunderorbyreasonofthisAgreement.
ARTICLE29.COUNTERPARTS
ThisAgreementmaybeexecutedinanynumberofcounterparts,andbythedifferentpartiesonseparatecounterpartseachofwhichwillbedeemedanoriginal,butallofwhichwillconstituteoneandthesameinstrument.
ARTICLE30.DEFINITIONS
Thefollowingterms,asusedinthisAgreement,shallhavethedefinitionssetforthinthisArticle30andconstitutepartofthetermsandconditionsofthisAgreement:
“Affiliate”shallmeananyentitythatisadirectorindirectsubsidiaryofaparty,includinganyentitythatisatleast[***]%owned,directlyorindirectly,byaparty,oranyentitythatowns,directlyorindirectly,atleast[***]%ofaparty,orotherwisecontrolsoriscontrolledbyaparty,orwhichisajointventurewhichisatleast[***]%ownedbyapartyoranotheraffiliateofaparty.
“CallRight”shallhavethemeaningsetforthintheJVAgreement.
“Clorox”shallmeanTheCloroxCompany,aDelawarecorporation.
“FairMarketValue”shallhavethemeaningsetforthintheJVAgreement.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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“GladGlobalBusiness”shallhavethemeaningsetforthintheJVAgreement.
“GladLocalBusiness”shallmeantheGladGlobalBusinessconductedbytheLicenseeintheTerritory.
“Infringement”shallhavethemeaningsetforthinArticle7(f)hereof.
“IntellectualProperty”shallmeananyandallintellectualproperty,including,withoutlimitation,patents,copyrights,software,tradesecrets,technology,inventions,specifications,know-how,processes,formulae,productdescriptionsandothertechnicalorproprietaryinformation.
“InternationalAcquisition”shallmeanthesale,dispositionorothertransfertoaThirdPartyofallorsubstantiallyalloftheequityinterestsofLicenseeorofallorsubstantiallyallthebusiness,assetsandpropertiesofLicenseeusedintheGladLocalBusiness,butexcluding(i)anytransactioninconnectionwithwhichthePutRightortheCallRightisexercised,(ii)anyThird-PartySaleinconnectionwithwhichCloroxexercisesitsrighttocauseasaleand(iii)anytransactioninconnectionwithwhichtheTag-AlongRightisexercised.
“IPAcquisition”shallhavethemeaningsetforthintheJVAgreement.
“JVAgreement”shallmeantheAmendedandRestatedJointVentureAgreement,datedasofJanuary31,2003,betweenLicensor,P&GSubandcertainoftheirrespectiveAffiliates,assuchagreementmaybeamended,supplementedorotherwisemodifiedinaccordancewiththetermsthereof.
“P&GLicenseAgreement”shallmeantheLicenseAgreement,datedasofJanuary31,2003,betweenP&GSubandLicensor,assuchagreementmaybeamended,supplementedorotherwisemodifiedinaccordancewiththetermsthereof.
“P&GSub”shallmeanProcter&GambleRHDInc.,anOhiocorporation.
“PriorAgreement”shallhavethemeaningsetforthinArticle27hereof.
“Products”shallmeantheproductssetforthinExhibitA,asmaybeamendedfromtimetotimepursuanttoArticle2herein.
“Properties”shallhavethemeaningsetforthinArticle7(a)hereof.
“PutRight”shallhavethemeaningsetforthintheJVAgreement.
“Tag-AlongRight”shallhavethemeaningsetforthintheJVAgreement.
“Technology”shallmeananyandallIntellectualPropertyownedorheldbyLicensor,fromtimetotime,whichLicensorhastherighttolicenseorsublicensetoLicensee,thatisusedorusefulinconnectionwiththemanufacture,packaging,production,distribution,sale,offerforsale,advertisement,promotionoforinrelationtotheProducts,expresslyexcludingtheIntellectualPropertylicensedtoLicensorundertheP&GLicenseAgreement.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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“TerminationFee”shallhavethemeaningsetforthinArticle11(a)hereof.
“Territory”shallmeantheterritoriessetforthinExhibitB.
“Third-PartySale”shallhavethemeaningsetforthintheJVAgreement.
“Trademarks”shallmeananyandalltrademarks,servicemarks,tradenames,brandnames,corporatenames,domainnames,URLs,logosandtradedress,togetherwiththegoodwillsymbolizedbyanyoftheforegoingandallcommonlawrightsrelatingtoanyoftheforegoing,ownedorheldbyLicensor,fromtimetotime,whichLicensorhastherighttolicenseorsublicensetoLicensee,thatisusedorusefulinthemanufacture,packaging,production,distribution,sale,offerforsale,advertisement,promotionoranyothermannerofusewhatsoeveronorinrelationtotheProducts,expresslyexcludinganytrademarks,servicemarks,tradenames,brandnames,corporatenames,domainnames,URLs,logosortradedresslicensedtoLicensorundertheP&GLicenseAgreement.
INWITNESSWHEREOF,thisAgreementhasbeenexecutedasofthedatefirstabovewritten.
(“Licensor”) (“Licensee”)
THEGLADPRODUCTSCOMPANY
By: By:
Name: Name
Title: Title
SignaturePage
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
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EXHIBITA
DESCRIPTIONOFPRODUCTS
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
EXHIBITB
DESCRIPTIONOFTERRITORY
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
EXHIBITC
DESCRIPTIONOFROYALTY
LicenseeagreestopayLicensorroyaltiesasfollows:
ForProductssoldbearingtheTrademarks:
“NetSales”shallbedefinedasthegrossamountbilledfortheProductslesstradeorquantitydiscounts,creditsorallowances.
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
EXHIBITD
SUPERSEDEDAGREEMENT(S)
THEPORTIONSOFTHISAGREEMENTIDENTIFIEDBYTHESYMBOL“[***]”HAVEBEENOMITTEDANDFILEDSEPARATELYWITHTHESECURITIESANDEXCHANGECOMMISSIONPURSUANTTOACONFIDENTIALTREATMENTREQUEST.
Exhibit21
NameofCompany JurisdictionofIncorporation1221Olux,LLC Delaware6570DonlonGroup,LLC DelawareA&MProductsManufacturingCompany DelawareAndoverProperties,Inc. DelawareAplicare,Inc. ConnecticutBeesInternationalCorporation JapanBritaCanadaCorporation NovaScotiaBritaCanadaHoldingsCorporation NovaScotiaBritaGP OntarioBritaLP OntarioBritaManufacturingCompany DelawareTheBritaProductsCompany DelawareBGP(Switzerland)S.a.r.l. SwitzerlandBurt’sBees,Inc. DelawareBurt'sBeesAustraliaPtyLtd. AustraliaBurt’sBeesInternationalHoldings DelawareBurt’sBeesLicensing,LLC DelawareTheBurt’sBeesProductsCompany DelawareCaltechIndustries,Inc. MichiganCBee(Europe)Limited UnitedKingdomChesapeakeAssuranceLimited HawaiiCloroxAfrica(Proprietary)Ltd. SouthAfricaCloroxAfricaHoldings(Proprietary)Ltd. SouthAfricaCloroxArgentinaS.A. ArgentinaCloroxAustraliaPty.Ltd. AustraliaCloroxBrazilHoldingsLLC DelawareClorox(CaymanIslands)Ltd. CaymanIslandsCloroxChileS.A. ChileCloroxChina(Guangzhou)Ltd. Guangzhou,P.R.C.CloroxCommercialCompany DelawareTheCloroxCompanyofCanadaLtd. Canada(Federal)CloroxdeCentroAmerica,S.A. CostaRicaCloroxdeColombiaS.A. ColombiaCloroxdeMexico,S.A.deC.V. MexicoCloroxdePanamaS.A. PanamaCloroxdelEcuadorS.A.Ecuaclorox EcuadorCloroxDiamondProductionCompany DelawareCloroxDominicanaS.R.L. DominicanRepublicClorox(Europe)FinancingS.a.r.l. LuxembourgCloroxHealthcareHoldings,LLC DelawareCloroxHoldingsPty.Limited AustraliaCloroxHongKongLimited HongKongCloroxHungaryLiquidityManagementKft HungaryTheCloroxInternationalCompany DelawareCloroxInternationalHoldings,LLC DelawareCloroxInternationalPhilippines,Inc. ThePhilippinesCloroxLuxembourgS.a.r.l. LuxembourgClorox(Malaysia)Sdn.Bhd. MalaysiaCloroxManufacturingCompany DelawareCloroxManufacturingCompanyofPuertoRico,Inc. PuertoRicoCloroxMexicanaS.deR.L.deC.V. Mexico
NameofCompany JurisdictionofIncorporationCloroxNewZealandLimited NewZealandTheCloroxOutdoorProductsCompany DelawareCloroxPeruS.A. PeruTheCloroxPetProductsCompany TexasCloroxProfessionalProductsCompany DelawareTheCloroxSalesCompany DelawareCloroxServicesCompany DelawareCloroxServiciosCorporativosS.deR.L.deC.V. MexicoCloroxSpain,S.L. SpainCloroxSpainHoldings,S.L. SpainCloroxSub-SaharaAfricaLimited KenyaClorox(Switzerland)S.a.r.l. SwitzerlandCloroxUruguayS.A. UruguayTheConsumerLearningCenter,Inc. DelawareCorporacionCloroxdeVenezuela,S.A. VenezuelaCLXRealtyCo. DelawareEvolutionSociedadS.A. UruguayFabricantedeProductosPlasticos,S.A.deC.V. MexicoFirstBrands(Bermuda)Limited BermudaFirstBrandsCorporation DelawareFirstBrandsdoBrasilLtda. BrazilFirstBrandsMexicana,S.A.deC.V. MexicoFullyWillLimited HongKongGazoontite,LLC DelawareGladManufacturingCompany DelawareTheGladProductsCompany DelawareTheHouseholdCleaningProductsCompanyofEgyptLtd. EgyptTheHVFoodProductsCompany DelawareHVManufacturingCompany DelawareInvermarkS.A. ArgentinaJinglesLLC DelawareKaflexS.A. ArgentinaKingsfordManufacturingCompany DelawareTheKingsfordProductsCompany,LLC DelawareLerwoodHoldingsLimited BritishVirginIslandsTheMexcoCompany DelawareMohamedAliAbudawoodforIndustryandPartnersforIndustryCompanyLtd. SaudiArabiaNationalCleaningProductsCompanyLimited SaudiArabiaPaulsboroPackagingInc. NewJerseyPetroplusProductosAutomotivosS.A. BrazilPetroplusSulComercioExteriorS.A. BrazilReNewLifeAcquisitionCorporation DelawareReNewLifeCanadaInc. OntarioReNewLifeFormulas,Inc. FloridaReNewLifeHoldingsCorporation DelawareRoundRidgeProductionCompany DelawareSoyVayEnterprises,Inc. CaliforniaSTPdoBrasilLtda. BrazilYuhan-CloroxCo.,Ltd. Korea
Exhibit23
CONSENTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
WeconsenttotheincorporationbyreferenceinthefollowingRegistrationStatements:
(1)RegistrationStatement(FormS-3No.333-200722)andintherelatedProspectusesofTheCloroxCompany,and(2) RegistrationStatements(FormS-8Nos.33-41131,includingposteffectiveamendmentsNo.1andNo.2,33-56565,33-56563,333-29375,333-16969,333-
44675,333-86783,333-131487,333-69455,includingposteffectiveamendmentNo.1,333-90386,includingtheposteffectiveamendmentNo.1,and333-193913)ofTheCloroxCompany;
ofourreportsdatedAugust16,2016,withrespecttotheconsolidatedfinancialstatementsandscheduleofTheCloroxCompanyandtheeffectivenessofinternalcontroloverfinancialreportingofTheCloroxCompanyincludedinthisAnnualReport(Form10-K)oftheCloroxCompanyfortheyearendedJune30,2016.
/s/Ernst&YoungLLP
SanFrancisco,CAAugust16,2016
Exhibit31.1
CERTIFICATION
I,BennoDorer,certifythat: 1. IhavereviewedthisannualreportonForm10-KofTheCloroxCompany;2 Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatements
made,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancial
condition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;4. Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeAct
Rules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
a) designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensure
thatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
b) designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,to
providereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithU.S.generallyacceptedaccountingprinciples;
c) evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessof
thedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
d) disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’sinternalcontroloverfinancialreporting.
5. Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,tothe
registrant’sauditorsandtheauditcommitteeoftheregistrant’sboardofdirectors(orpersonsperformingtheequivalentfunctions):
a) allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,summarizeandreportfinancialinformation;and
b) anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant’sinternalcontrolover
financialreporting.
Date:August16,2016
/s/BennoDorerBennoDorerChairmanandChiefExecutiveOfficer
Exhibit31.2
CERTIFICATION
I,StephenM.Robb,certifythat:
1. IhavereviewedthisannualreportonForm10-KofTheCloroxCompany;2. Basedonmyknowledge,thisreportdoesnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactnecessarytomakethestatements
made,inlightofthecircumstancesunderwhichsuchstatementsweremade,notmisleadingwithrespecttotheperiodcoveredbythisreport;3. Basedonmyknowledge,thefinancialstatements,andotherfinancialinformationincludedinthisreport,fairlypresentinallmaterialrespectsthefinancial
condition,resultsofoperationsandcashflowsoftheregistrantasof,andfor,theperiodspresentedinthisreport;4. Theregistrant’sothercertifyingofficerandIareresponsibleforestablishingandmaintainingdisclosurecontrolsandprocedures(asdefinedinExchangeAct
Rules13a-15(e)and15d-15(e))andinternalcontroloverfinancialreporting(asdefinedinExchangeActRules13a-15(f)and15d-15(f))fortheregistrantandhave:
a) designedsuchdisclosurecontrolsandprocedures,orcausedsuchdisclosurecontrolsandprocedurestobedesignedunderoursupervision,toensure
thatmaterialinformationrelatingtotheregistrant,includingitsconsolidatedsubsidiaries,ismadeknowntousbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportisbeingprepared;
b) designedsuchinternalcontroloverfinancialreporting,orcausedsuchinternalcontroloverfinancialreportingtobedesignedunderoursupervision,to
providereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithU.S.generallyacceptedaccountingprinciples;
c) evaluatedtheeffectivenessoftheregistrant’sdisclosurecontrolsandproceduresandpresentedinthisreportourconclusionsabouttheeffectivenessof
thedisclosurecontrolsandprocedures,asoftheendoftheperiodcoveredbythisreportbasedonsuchevaluation;and
d) disclosedinthisreportanychangeintheregistrant’sinternalcontroloverfinancialreportingthatoccurredduringtheregistrant’smostrecentfiscalquarter(theregistrant’sfourthfiscalquarterinthecaseofanannualreport)thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,theregistrant’sinternalcontroloverfinancialreporting.
5. Theregistrant’sothercertifyingofficerandIhavedisclosed,basedonourmostrecentevaluationofinternalcontroloverfinancialreporting,tothe
registrant’sauditorsandtheauditcommitteeoftheregistrant’sboardofdirectors(orpersonsperformingtheequivalentfunctions):
a) allsignificantdeficienciesandmaterialweaknessesinthedesignoroperationofinternalcontroloverfinancialreportingwhicharereasonablylikelytoadverselyaffecttheregistrant’sabilitytorecord,process,summarizeandreportfinancialinformation;and
b) anyfraud,whetherornotmaterial,thatinvolvesmanagementorotheremployeeswhohaveasignificantroleintheregistrant’sinternalcontrolover
financialreporting.
Date:August16,2016
/s/StephenM.RobbStephenM.RobbExecutiveVicePresident-ChiefFinancialOfficer
Exhibit32
CERTIFICATION
InconnectionwiththeperiodicreportofTheCloroxCompany(the"Company")onForm10-KfortheperiodendedJune30,2016,asfiledwiththeSecuritiesandExchangeCommission(the"Report"),we,BennoDorer,ChairmanandChiefExecutiveOfficeroftheCompany,andStephenM.Robb,ChiefFinancialOfficeroftheCompany,herebycertifyasofthedatehereof,solelyforpurposesofTitle18,Chapter63,Section1350oftheUnitedStatesCode,thattoourknowledge:
(1)theReportfullycomplieswiththerequirementsofSection13(a)or15(d),asapplicable,oftheSecuritiesExchangeActof1934,and
(2) theinformationcontainedintheReportfairlypresents,inallmaterialrespects,thefinancialconditionandresultsofoperationsoftheCompanyatthedatesandfortheperiodsindicated.
ThisCertificationhasnotbeen,andshallnotbedeemed,“filed”withtheSecuritiesandExchangeCommission.
Date:August16,2016
/s/BennoDorer BennoDorerChairmanandChiefExecutiveOfficer /s/StephenM.Robb StephenM.RobbExecutiveVicePresident–ChiefFinancialOfficer
Exhibit99.1
MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS
TheCloroxCompany(Dollarsinmillions,exceptshareandpersharedata)
Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations(MD&A)isdesignedtoprovideareaderofTheCloroxCompany’s(theCompanyorClorox)financialstatementswithanarrativefromtheperspectiveofmanagementontheCompany’sfinancialcondition,resultsofoperations,liquidityandcertainotherfactorsthatmayaffectfutureresults.Incertaininstances,parentheticalreferencesaremadetorelevantsectionsoftheNotestoConsolidatedFinancialStatementstodirectthereadertoafurtherdetaileddiscussion.ThissectionshouldbereadinconjunctionwiththeConsolidatedFinancialStatementsandSupplementaryDataincludedinthisAnnualReportonForm10-K.
Thefollowingsectionsareincludedherein:
● ExecutiveOverview● ResultsofOperations● FinancialPositionandLiquidity● Contingencies● QuantitativeandQualitativeDisclosuresaboutMarketRisk● RecentlyIssuedAccountingStandards● CriticalAccountingPoliciesandEstimates● SummaryofNon-GAAPFinancialMeasures
EXECUTIVEOVERVIEW
Cloroxisaleadingmultinationalmanufacturerandmarketerofconsumerandprofessionalproductswithapproximately8,000employeesworldwideasofJune30,2016andfiscalyear2016netsalesof$5,761.Cloroxsellsitsproductsprimarilythroughgroceryandmassretailoutlets,e-commercechannels,wholesaledistributorsandmedicalsupplydistributors.Cloroxmarketssomeofthemosttrustedandrecognizedconsumerbrandnames,includingitsnamesakebleachandcleaningproducts,Pine-Sol®cleaners,Liquid-Plumr®clogremovers,Poett®homecareproducts,FreshStep®catlitter,Glad®bags,wrapsandcontainerproducts,Kingsford®charcoal,RenewLife®digestivehealthproducts,HiddenValley®dressingsandsauces,Brita®water-filtrationproductsandBurt’sBees®naturalpersonalcareproducts.TheCompanyalsomarketsbrandsthroughprofessionalserviceschannels,includinginfectioncontrolproductsforthehealthcareindustryunderCloroxHealthcare®,HealthLink®,Aplicare®andDispatch®brands.TheCompanymanufacturesproductsinmorethanadozencountriesandsellstheminmorethan100markets.
TheCompanyprimarilymarketsitsleadingbrandsinmidsizedcategoriesconsideredtobefinanciallyattractive.MostoftheCompany’sproductscompetewithothernationallyadvertisedbrandswithineachcategoryandwith“privatelabel”brands.
TheCompanyoperatesthroughstrategicbusinessunitsthatareaggregatedintothefollowingfourreportablesegmentsbasedontheeconomicsandnatureoftheproductssold:
● Cleaningconsistsoflaundry,homecareandprofessionalproductsmarketedandsoldintheUnitedStates.Productswithinthissegmentincludelaundryadditives,includingbleachproductsundertheClorox®brandandClorox2®stainfighterandcolorbooster;homecareproducts,primarilyundertheClorox®,Formula409®,Liquid-Plumr®,Pine-Sol®,S.O.S®andTilex®brands;naturallyderivedproductsundertheGreenWorks®brand;andprofessionalcleaninganddisinfectingproductsundertheClorox®,Dispatch®,Aplicare®,HealthLink®andCloroxHealthcare®brands.
● Householdconsistsofcharcoal,catlitter,digestivehealthproductsandbags,wrapsandcontainerproductsmarketedandsoldintheUnitedStates.ProductswithinthissegmentincludecharcoalproductsundertheKingsford®andMatchLight®brands;catlitterproductsundertheFreshStep®,ScoopAway®
andEverClean®brands;digestivehealthproductsundertheRenewLife®brand;andbags,wrapsandcontainersundertheGlad®brand.
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● Lifestyleconsistsoffoodproducts,water-filtrationsystemsandfiltersandnaturalpersonalcareproductsmarketedandsoldintheUnitedStates.Productswithinthissegmentincludedressingsandsauces,primarilyundertheHiddenValley®,KCMasterpiece®andSoyVay®brands;water-filtrationsystemsandfiltersundertheBrita®brand;andnaturalpersonalcareproductsundertheBurt’sBees®brand.
● InternationalconsistsofproductssoldoutsidetheUnitedStates.Productswithinthissegmentincludelaundry,homecare,water-filtration,digestivehealthproducts,charcoalandcatlitterproducts,dressingsandsauces,bags,wrapsandcontainersandnaturalpersonalcareproducts,primarilyundertheClorox®
,Glad®,PinoLuz®,Ayudin®,Limpido®,Clorinda®,Poett®,Mistolin®,Lestoil®,BonBril®,Brita®,GreenWorks®,Pine-Sol®,AguaJane®
,Chux®,RenewLife®,Kingsford®,FreshStep®,ScoopAway®,EverClean®,KCMasterpiece®,HiddenValley®andBurt’sBees®brands.
Non-GAAPFinancialMeasures
ThisExecutiveOverview,thesucceedingsectionsofMD&AandExhibit99.3includecertainfinancialmeasuresthatarenotdefinedbyaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica(U.S.GAAP).Thesemeasures,whicharereferredtoasnon-GAAPmeasures,arelistedbelow.
● Currency-neutralnetsalesgrowthrepresentsU.S.GAAPnetsalesgrowthexcludingtheimpactofthechangeinforeigncurrencyexchangerates.● Economicprofit(EP)isdefinedbytheCompanyasearningsfromcontinuingoperationsbeforeincometaxes,excludingnoncashU.S.GAAPrestructuring
andintangibleassetimpairmentcosts,andinterestexpense;lessanamountoftaxbasedontheeffectivetaxrateandlessachargeequaltoaveragecapitalemployedmultipliedbyacostofcapitalrate.
● Freecashflowandfreecashflowasapercentageofnetsales.Freecashflowiscalculatedasnetcashprovidedbycontinuingoperationslesscapitalexpendituresrelatedtocontinuingoperations.
● Earningsfromcontinuingoperationsbeforeinterestandtaxes(EBIT)margin(theratioofEBITtonetsales)● Debttoearningsfromcontinuingoperationsbeforeinterest,taxes,depreciationandamortization,andnoncashintangibleassetimpairmentchargesratio
(ConsolidatedLeverageratio)
Foradiscussionofthesemeasuresandthereasonsmanagementbelievestheyareusefultoinvestors,referto“SummaryofNon-GAAPFinancialMeasures”below.ForadiscussionoftheConsolidatedLeverageratio,pleasereferto“CreditArrangements”below.ThisMD&AandExhibit99.3includereconciliationsofthesenon-GAAPmeasurestothemostdirectlycomparablefinancialmeasurescalculatedandpresentedinaccordancewithU.S.GAAP.
FiscalYear2016FinancialHighlights
Adetaileddiscussionofstrategicgoals,keyinitiativesandresultsofoperationsisincludedbelow.Keyfiscalyear2016financialresultsaresummarizedasfollows:
● TheCompany’sfiscalyear2016netsalesincreasedby2%,from$5,655infiscalyear2015to$5,761infiscalyear2016,reflectinghighervolumeandthebenefitofpriceincreases,partiallyoffsetbyunfavorableforeigncurrencyexchangeratesandhighertradepromotionspending.Onacurrency-neutralbasis,netsalesincreased5%.
● Grossmarginincreased150basispointsto45.1%infiscalyear2016from43.6%infiscalyear2015,reflectingthebenefitsoffavorablecommoditycosts,costsavingsandpriceincreases,partiallyoffsetbyhighermanufacturingandlogisticscosts,increasedtradepromotionspending,andtheimpactofunfavorableforeigncurrencyexchangerates.
● TheCompanyreportedearningsfromcontinuingoperationsof$648infiscalyear2016comparedto$606infiscalyear2015.TheCompanyreportedearningsfromcontinuingoperationsbeforeincometaxesof$983infiscalyear2016,comparedto$921infiscalyear2015.
● TheCompanydelivereddilutednetEPSfromcontinuingoperationsinfiscalyear2016of$4.92,anincreaseofapproximately8%fromfiscalyear2015dilutednetEPSof$4.57.
● EPincreasedto$490infiscalyear2016comparedto$458infiscalyear2015(refertothereconciliationofEPtoearningsfromcontinuingoperationsbeforeincometaxesinExhibit99.3).
● TheCompany’snetcashflowsprovidedbycontinuingoperationswere$768infiscalyear2016,comparedto$858infiscalyear2015reflectinghighertaxpaymentsandhigherperformance-basedincentivecompensationpaymentsinfiscalyear2016relatedtotheCompany’sstrongfiscalyear2015financialresults.Freecashflowwas$596or10%ofnetsalesinfiscalyear2016,adecreasefrom$733or13%ofnetsalesinfiscalyear2015.
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● TheCompanypaid$398incashdividendstostockholdersinfiscalyear2016comparedto$385incashdividendsinfiscalyear2015.InMay2016,theCompanyannouncedanincreaseof4%inthequarterlycashdividendfromprioryear.Infiscalyear2016,theCompanyrepurchasedapproximately2millionsharesofitscommonstockatacostof$254.
● OnMay2,2016,theCompanyacquiredRenewLife,aleadingbrandindigestivehealthfor$290.ResultsforRenewLife’sdomesticbusinessarereflectedintheHouseholdreportablesegmentandresultsforRenewLife’sinternationalbusinessarereflectedintheInternationalreportablesegment.IncludedintheCompany’sresultsforfiscalyear2016was$21ofRenewLife’sglobalnetsales.
StrategicGoalsandInitiatives
TheCloroxCompany’s2020Strategyservesasitsstrategicgrowthplan,directingtheCompanytothehighestvalueopportunitiesforlong-term,profitablegrowthandtotalshareholderreturn.
Thelong-termfinancialgoalsreflectedintheCompany’s2020Strategyincludeannualnetsalesgrowthof3-5%,annualEBITmargingrowthof25-50basispointsandannualfreecashflowof10-12%ofnetsales.Cloroxanticipatesusingfreecashflowtoinvestinthebusiness,maintainappropriatedebtlevelsandreturnexcesscashtostockholders.
Infiscalyear2017,Cloroxanticipatesongoingmacroeconomicchallengesthatmayimpactitssalesandmargins,includingunfavorableforeigncurrencyexchangerates,particularlyinArgentina,andacontinuationofchallenginginternationaleconomies.TheCompanyismonitoringanticipatedslowerU.S.categorygrowth,drivenprimarilybyexpectedcompetitiveactivityandchangestocommoditycostsandmanufacturingandlogisticscosts.
TheCompany’spriorityinfiscalyear2017remainsinvestingstronglyinitsU.S.businesses,particularlyinits“3D”demand-creationmodelofDesire,DecideandDelight,includingadvertisingandtradepromotionspending.TheCompanyisalsofocusedonproductinnovationtodelightanddeliversuperiorvaluetoconsumers.Importantly,theCompanywillworktocontinuetoimproveitsmarginsbydrivingcostsavingsinitiativesandslowingthegrowthofsellingandadministrativeexpensesbydrivingoutlow-valueactivity.
AstheCompanyexecutesits2020Strategy,aparticularfocuson“StrategyAccelerators,”willhelpdriveinvestmentdecisionswiththegoaltodeliverprofitablelong-termgrowth:
● Acceleratingportfoliomomentumreallocatesresourcestofaster-growingcountries,categoriesandbrandsintheportfolioorfocusesinvestmentinnewcategorieswithgrowthtailwindsliketheCompany’srecentacquisitionofRenewLifedigestivehealthproducts.
● Accelerating3Dtechnologytransformationreflectsanemphasisindigitalcommunicationsthatcandelivermoretargetedmessagesbasedonhowconsumersresearch,shopandbuytheirproducts.TheCompanycontinuestoinvestindigitalmarketingandsocialmediaandisfocusedondrivingitse-commercebusiness.
● AcceleratinginnovationacrosstheCompany’s3Ddemand-creationmodelofDesire,DecideandDelightwillcontinuetosupportcategorygrowthandmarketshareimprovement.TheCompanyisfocusedondeliveringsuperiorvaluetoconsumersthroughtheintroductionofnewproductsandproductimprovements.
● AcceleratingtheCompany’sgrowthcultureinvolvesfosteringaworkenvironmentwhereemployeesdirectlysupporttheCompany’sefforttodriveprofitablegrowth.Thegrowthculturevisionprovidesaframeworktodeliveronthatgoalthroughfivecallstoaction:puttheconsumerfirst,becurious,thinkboldly,embracechangeandactlikeanowner.
Lookingforward,theCompanywillcontinuetoexecuteagainstits2020Strategyandseektoachieveitsgoalstodeliverlong-termprofitablegrowth.
RESULTSOFOPERATIONS
Unlessotherwisenoted,management’sdiscussionandanalysiscomparesresultsofcontinuingoperationsfromfiscalyear2016tofiscalyear2015,andfiscalyear2015tofiscalyear2014,withpercentageandbasispointcalculationsbasedonroundednumbers,exceptforpersharedataandtheeffectivetaxrate.
3
CONSOLIDATED RESULTS
Continuingoperations
Net sales infiscalyear2016increased2%.Volumeincreased4%reflectinghighershipmentsinallreportablesegmentsandmostsignificantlyinCleaning,HouseholdandLifestyle.HighershipmentsintheCleaningsegmentweredrivenbyHomeCareandProfessionalProducts,partiallyoffsetbyLaundry;highershipmentsintheHouseholdsegmentwereprimarilyduetotheacquisitionoftheRenewLifebusiness,Charcoal,andBagsandWraps,partiallyoffsetbyCatLitter;andhighershipmentsintheLifestylesegmentprimarilywereduetoNaturalPersonalCareandDressingandSauces.Volumeoutpacednetsalesprimarilyduetounfavorableforeigncurrencyexchangeratesandhighertradepromotionspending,partiallyoffsetbythebenefitofpriceincreases.
Netsalesinfiscalyear2015increased3%.Volumeincreased2%,reflectinghigherproductshipmentsintheInternationalsegment,primarilyduetogrowthinLatinAmerica,Canada,EuropeandAsia;highershipmentsofBurt’sBees®naturalpersonalcareproducts,largelyduetoinnovationinlipandfacecareproductscombinedwithdistributiongains;highershipmentsofcleaningandhealthcareproductsintheprofessionalproductsbusiness;highershipmentsofClorox®toiletbowlcleanerduetoincreasedmerchandisingactivitiesanddistributiongains;andhighershipmentsofKingsford®charcoalproductsbehindincreasedmerchandisingsupporttolaunchthestartofthegrillingseason.VolumeresultsalsoreflectedlowershipmentsofClorox®liquidbleachduetotheFebruary2015priceincrease,categorysoftnessandincreasedcompetition;andlowershipmentsofBrita®water-filtrationproducts,primarilyduetocontinuingcategorysoftnessandincreasedcompetition.Thevariancebetweenvolumeandnetsaleswasprimarilyduetothebenefitofpriceincreases,partiallyoffsetbyunfavorableforeigncurrencyexchangerates.Onacurrency-neutralbasis,netsalesincreasedabout5%.
Gross margin ,definedasgrossprofitasapercentageofnetsales,infiscalyear2016increased150basispointsfrom43.6%to45.1%.Grossmarginexpansioninfiscalyear2016wasdrivenbythebenefitsoffavorablecommoditycosts,strongcostsavingsandpriceincreases,partiallyoffsetbyhighermanufacturingandlogisticscosts,increasedtradepromotionspendingandtheimpactofunfavorableforeigncurrencyexchangerates.
Grossmargin,definedasgrossprofitasapercentageofnetsales,infiscalyear2015increased90basispointsfrom42.7%to43.6%.Grossmarginexpansioninfiscalyear2015wasdrivenbythebenefitsofcostsavingsandpriceincreases,partiallyoffsetbytheimpactofhighermanufacturingandlogisticscosts.
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Expenses
%Change %ofNetsales
2016 2015 2014 2016to2015
2015to2014 2016 2015 2014
Sellingandadministrativeexpenses $ 806 $ 798 $ 751 1% 6% 14.0% 14.1% 13.6%Advertisingcosts 587 523 503 12 4 10.2 9.2 9.1Researchanddevelopmentcosts 141 136 125 4 9 2.4 2.4 2.3
Selling and administrative expenses wererelativelyflatinfiscalyear2016.
Sellingandadministrativeexpensesincreased6%infiscalyear2015,primarilyfromhigherperformance-basedincentivecostsasaresultoffiscalyearfinancialperformanceexceedingfinancialtargets.Expensesintheprioryearreflectedlowerperformance-basedincentivecostswhentheCompany’sresultsfellbelowfinancialtargets.Inaddition,theCompanycontinuedtoexperienceinflationarypressuresininternationalmarkets.Theseincreaseswerepartiallyoffsetbythebenefitofcostsavings,one-timecostsinfiscalyear2014relatedtothechangeininformationtechnology(IT)serviceprovidersandaone-timeimpactrelatedtoachangeintheCompany’slong-termdisabilityplaninfiscalyear2015tobringitmoreinlinewiththemarketplace.
Advertising costs asapercentageofnetsalesincreasedduringfiscalyear2016mainlytodriveawarenessandtrialbehindinnovationandmaintainthehealthoftheCompany’scorebusiness.TheCompany’sU.S.retailadvertisingspendwasapproximately11%ofnetsalesduringtheyear.
Advertisingcostsasapercentageofnetsalesincreasedslightlyduringfiscalyear2015,reflectingcontinuedsupportbehindtheCompany’sbrands,includingdrivingthetrialofnewproducts.TheCompany’sU.S.retailadvertisingspendwasapproximately10%ofnetsalesduringtheyear.
Research and development costs asapercentageofnetsaleswasflatinfiscalyear2016.
Researchanddevelopmentcostsincreasedslightlyasapercentageofnetsalesinfiscalyear2015,drivenbyhigherperformance-basedincentivecosts.
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Interest expense, Other (income) expense, net, and the effective tax rate on earnings
2016 2015 2014
Interestexpense $ 88 $ 100 $ 103Otherincome,net (7) (13) (10)Incometaxesoncontinuingoperations 335 315 305
Interest expense decreased$12infiscalyear2016,primarilyduetoalowerweighted-averageinterestrateontotaldebt.
Interestexpensedecreased$3infiscalyear2015,primarilyduetoalowerweighted-averageinterestrateonlong-termdebtresultingfromtheissuanceofseniornotesinDecember2014andthematuritiesofseniornotesinJanuary2015,combinedwithlessinterestexpenseonalowerbalanceofcommercialpaperthroughoutfiscalyear2015.
Other (income) expense, net ,of$(7)infiscalyear2016included$(15)ofincomefromequityinvestees,$(11)gainonthesaleoftheLosAngelesbleachmanufacturingfacility,partiallyoffsetby$9ofnoncashassetimpairmentchargesand$8ofamortizationoftrademarksandotherintangibleassets.
Other(income)expense,net,of$(13)infiscalyear2015included$(14)ofincomefromequityinvestees,$(13)gainonthesaleofrealestateassetsbyalow-incomehousingpartnershipand$(4)ofinterestincome,partiallyoffsetby$9offoreigncurrencyexchangelosses,$8ofamortizationoftrademarksandotherintangibleassetsand$3ofnoncashassetimpairmentcharges.
Other(income)expense,net,of$(10)infiscalyear2014included$(13)ofincomefromequityinvestees,$(5)ofinsuranceandlitigationsettlementsandothersmalleritems,partiallyoffsetby$8ofamortizationoftrademarksandotherintangibleassetsand$3ofnoncashassetimpairmentcharges.
The effective tax rate on earnings was34.1%,34.2%and34.6%infiscalyears2016,2015and2014,respectively.Theeffectivetaxrateinfiscalyear2016comparedtofiscalyear2015wasessentiallyflat.Thelowereffectivetaxrateinfiscalyear2015comparedtofiscalyear2014wasprimarilyduetohigheruncertaintaxpositionreleases,partiallyoffsetbyhighertaxonforeignearnings,infiscalyear2015.
Diluted net earnings per share
%Change
2016 2015 2014 2016to2015
2015to2014
DilutednetEPSfromcontinuingoperations $ 4.92 $ 4.57 $ 4.39 8% 4%
Dilutednetearningspershare(EPS)fromcontinuingoperationsincreased$0.35,drivenbythebenefitsofhighersalesandgrossmarginexpansion,partiallyoffsetbyincreasedadvertisinginvestments.
DilutednetEPSfromcontinuingoperationsincreased$0.18infiscalyear2015,drivenbythebenefitsofhighersalesandgrossmarginexpansion,partiallyoffsetbyincreasedsellingandadministrativeexpenses,primarilyfromhigherperformance-basedincentivecostsasaresultoffiscalyearfinancialperformanceexceedingfinancialtargets.Expensesintheprioryearreflectedlowerperformance-basedincentivecostswhentheCompany’sresultsfellbelowfinancialtargets.Increasedinvestmentsintotaldemand-buildingprogramsalsoreducedfiscalyeardilutedEPS.
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DiscontinuedOperations
OnSeptember22,2014,CloroxVenezuelaannouncedthatitwasdiscontinuingitsoperations,effectiveimmediately,andseekingtosellitsassets.Sincefiscalyear2012,CloroxVenezuelawasrequiredtosellmorethantwothirdsofitsproductsatpricesfrozenbytheVenezuelangovernment.Duringthissameperiod,CloroxVenezuelaexperiencedsuccessiveyearsofhyperinflationresultinginsignificantsustainedincreasesinitsinputcosts,includingpackaging,rawmaterials,transportationandwages.Asaresult,CloroxVenezuelahadbeensellingitsproductsataloss,resultinginongoingoperatinglosses.CloroxVenezuelarepeatedlymetwithgovernmentauthoritiesinanefforttohelpthemunderstandtherapidlydecliningstateofthebusiness,includingtheneedforimmediate,significantandongoingpriceincreasesandothercriticalremedialactionstoaddresstheseadverseimpacts.BasedontheVenezuelangovernment’srepresentations,CloroxVenezuelahadexpectedsignificantpriceincreaseswouldbeforthcomingmuchearlier;however,thepriceincreasessubsequentlyapprovedwereinsufficientandwouldhavecausedCloroxVenezuelatocontinueoperatingatasignificantlossintotheforeseeablefuture.Assuch,CloroxVenezuelawasnolongerfinanciallyviableandwasforcedtodiscontinueitsoperations.
OnSeptember26,2014,theCompanyreportedthatVenezuelanVicePresidentJorgeArreazaannounced,withendorsementbyPresidentNicolásMaduro,thattheVenezuelangovernmenthadoccupiedtheSantaLucíaandGuacaraproductionfacilitiesofCloroxVenezuela.OnNovember6,2014,theCompanyreportedthattheVenezuelangovernmenthadpublishedaresolutiongrantingagovernment-sponsoredSpecialAdministrativeBoardfullauthoritytorestartandoperatethebusinessofCloroxVenezuela,therebyreaffirmingthegovernment'sexpropriationofCloroxVenezuela’sassets.Further,PresidentNicolásMaduroannouncedthegovernment'sintentiontofacilitatetheresumedproductionofbleachandothercleaningproductsatCloroxVenezuelaplants.Healsoannouncedhisapprovalofafinancialcredittoinvestinrawmaterialsandproductionattheplants.TheseactionsbytheVenezuelangovernmentweretakenwithouttheconsentorinvolvementofCloroxVenezuela,itsparentCloroxSpainS.L.(CloroxSpain)oranyoftheiraffiliates.CloroxVenezuela,CloroxSpainandtheiraffiliatesreservedtheirrightsunderallapplicablelawsandtreaties.SincetheexitofCloroxVenezuelainthefirstquarteroffiscalyear2015,theCompanyhasrecognized$49inafter-taxexitcostsandotherrelatedexpenseswithindiscontinuedoperationsrelatedtotheexitofCloroxVenezuela.TheCompanybelievesitisreasonablypossiblethatitwillrecognize$1to$11inafter-taxexitcostsandotherrelatedexpensesindiscontinuedoperationsforCloroxVenezueladuringfiscalyears2017through2019,foratotalof$50to$60overtheentirefive-yearperiod.
SeeNotestoConsolidatedFinancialStatementsformoreinformationregardingdiscontinuedoperationsofCloroxVenezuela.
UnrelatedtoCloroxVenezuela,inthefiscalyearendedJune30,2015,theCompanyrecognized$32ofpreviouslyunrecognizedtaxbenefitsrelatingtootherdiscontinuedoperationsupontheexpirationoftheapplicablestatuteoflimitations.RecognitionofthesepreviouslydisclosedtaxbenefitshadnoimpactontheCompany’scashflowsorearningsfromcontinuingoperationsforthefiscalyearendedJune30,2015.
SEGMENT RESULTS FROM CONTINUING OPERATIONS
ThefollowingpresentstheresultsfromcontinuingoperationsoftheCompany’sreportablesegmentsandcertainunallocatedcostsreflectedinCorporate(seeNotestoConsolidatedFinancialStatementsforareconciliationofsegmentresultstoconsolidatedresults):
Cleaning
%Change
2016 2015 2014
2016to2015
2015to2014
Netsales $1,912 $1,824 $1,776 5% 3%Earningsfromcontinuingoperationsbeforeincometaxes 511 445 428 15 4
7
Fiscalyear2016versusfiscalyear2015:Volume,netsalesandearningsfromcontinuingoperationsbeforeincometaxesincreasedby6%,5%and15%,respectively,duringfiscalyear2016.BothvolumeandnetsalesgrowthweredrivenprimarilybyhighershipmentsacrossseveralHomeCarebrands,includingClorox®disinfectingwipesresultingfromincreasedmerchandisingsupportandexpandedwarehouseclubdistribution,andinProfessionalProductsmainlyincleaningproducts.TheseincreaseswerepartiallyoffsetbylowershipmentsinLaundry,primarilyduetotheimpactoftheFebruary2015priceincreaseonClorox®liquidbleach.Volumeoutpacednetsalesduetounfavorableproductmix.Theincreaseinearningsfromcontinuingoperationsbeforeincometaxeswasmainlyduetonetsalesgrowth,thebenefitoffavorablecommoditycosts,strongcostsavings,andthegainonthesaleoftheCompany’sLosAngelesbleachmanufacturingfacility,partiallyoffsetbyhighermanufacturingandlogisticscostsandincreasedadvertisinginvestments.
Fiscalyear2015versusfiscalyear2014:Volume,netsalesandearningsfromcontinuingoperationsbeforeincometaxesincreasedby2%,3%and4%,respectively,duringfiscalyear2015.BothvolumeandnetsalesgrewprimarilyduetohighershipmentsofClorox®toiletbowlcleanerandClorox®disinfectingwipesinHomeCare,behindincreasedmerchandisingactivities.TheProfessionalProductsDivisionalsogrewvolume,whichwasdrivenprimarilybydistributiongainsacrossanumberofbrands.TheseincreaseswerepartiallyoffsetbylowershipmentsofClorox®liquidbleachinLaundry,primarilyduetotheFebruary2015priceincrease.Netsalesgrowthoutpacedvolumegrowthprimarilyduetothebenefitofpriceincrease.Theincreaseinearningsfromcontinuingoperationsbeforeincometaxeswasdrivenbythebenefitofsalesgrowthandcostsavings,partiallyoffsetbyanincreaseindemand-buildinginvestments.
Household
%Change
2016 2015 2014 2016to2015
2015to2014
Netsales $ 1,862 $ 1,794 $ 1,709 4% 5%Earningsfromcontinuingoperationsbeforeincometaxes 428 375 326 14 15
Fiscalyear2016versusfiscalyear2015:Volume,netsalesandearningsfromcontinuingoperationsbeforeincometaxesincreasedby3%,4%and14%,respectively,duringfiscalyear2016.BothvolumegrowthandnetsalesgrowthweredrivenbytheacquisitionoftheRenewLifebusiness,highershipmentsofCharcoalresultingfromincreasedmerchandisingsupportandincreasedshipmentsacrossseveralGlad®products,includingcontinuedstrengthinpremiumtrashbags.TheseincreaseswerepartiallyoffsetbylowershipmentsofCatLitter,largelyduetocontinuingcompetitiveactivity.Netsalesgrowthoutpacedvolumegrowth,primarilyduetofavorableproductmixandthebenefitofpriceincreases,partiallyoffsetbyhighertradepromotionspending,mainlyinBagsandWraps.Theincreaseinearningsfromcontinuingoperationsbeforeincometaxeswasmainlyduetonetsalesgrowth,thebenefitoffavorablecommoditycostsandstrongcostsavings,partiallyoffsetbyhighermanufacturingandlogisticscostsandincreasedadvertisinginvestments.
Fiscalyear2015versusfiscalyear2014:Volume,netsalesandearningsfromcontinuingoperationsbeforeincometaxesincreasedby2%,5%and15%,respectively,duringfiscalyear2015.BothvolumegrowthandnetsalesgrowthweredrivenbyhighershipmentsofKingsford®charcoalproductsbehindincreasedmerchandisingactivities.NetsalesgrowthoutpacedvolumegrowthprimarilyduetothebenefitsofpriceincreasesonGlad®bagsandwraps.Theincreaseinearningsfromcontinuingoperationsbeforeincometaxeswasdrivenbystrongsalesgrowthandthebenefitofcostsavings,partiallyoffsetbyanincreaseindemandbuildinginvestmentsandmanufacturingandlogisticscosts.
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Lifestyle
%Change
2016 2015 2014
2016to2015
2015to2014
Netsales $ 990 $ 950 $ 936 4% 1%Earningsfromcontinuingoperationsbeforeincometaxes 251 257 258 (2) -
Fiscalyear2016versusfiscalyear2015:Volumeandnetsalesincreaseby5%and4%,respectively,whileearningsfromcontinuingoperationsbeforeincometaxesdecreased2%duringfiscalyear2016.BothvolumegrowthandnetsalesgrowthwereprimarilydrivenbyhighershipmentsofBurt’sBees®NaturalPersonalCarelargelyduetoinnovationinlipandfacecareandhighershipmentsofHiddenValley®bottledsaladdressingsduetoinnovation.Volumegrowthoutpacednetsalesgrowthprimarilyduetoincreasedtradepromotionspending.Thedecreaseinearningsfromcontinuingoperationsbeforeincometaxeswasprimarilyduetoincreasedadvertisinginvestmentstosupportnewproductsandincreasedsellingandadministrativeexpensestosupportinnovationandgrowth,partiallyoffsetbynetsalesgrowthandcostsavings.
Fiscalyear2015versusfiscalyear2014:Netsalesandvolumebothincreasedby1%,whileearningsfromcontinuingoperationsbeforeincometaxesremainedflatduringfiscalyear2015.BothnetsalesgrowthandvolumegrowthweredrivenbyhighershipmentsofBurt’sBees®naturalpersonalcareproducts,largelyduetoinnovationinlipandfacecareproductscombinedwithdistributiongains.TheincreasewaspartiallyoffsetbylowershipmentsofBrita®water-filtrationproducts,primarilyduetocontinuingcategorysoftnessandincreasedcompetition.Flatearningsfromcontinuingoperationsbeforeincometaxesreflectedlowercommoditycosts,costsavingsandfavorableproductmix.Theseincreaseswereoffsetbyhighermanufacturingandlogisticscostsanddemandbuildinginvestments.
International
%Change
2016 2015 2014
2016to2015
2015to2014
Netsales $ 997 $1,087 $1,093 (8)% (1)%Earningsfromcontinuingoperationsbeforeincometaxes 66 79 99 (16) (20)
Fiscalyear2016versusfiscalyear2015:Volumeincreased1%,whilenetsalesandearningsfromcontinuingoperationsbeforeincometaxesdecreasedby8%and16%,respectively,duringfiscalyear2016.Volumegrewprimarilyduetohighershipments,mainlyinCanada,whichincludedthebenefitofRenewLifeacquisition,Mexico,andEurope,partiallyoffsetbylowershipmentsincertainotherLatinAmericancountrieslargelyduetotheimpactofpriceincreasestakentooffsetinflationarypressures.Thedeclineinnetsaleswasprimarilyduetounfavorableforeigncurrencyexchangeratesacrossmultiplecountries,includingtheimpactofthesignificantdevaluationoftheArgentinepeso,partiallyoffsetbythebenefitofpriceincreases.Thedecreaseinearningsfromcontinuingoperationsbeforeincometaxeswasprimarilyduetolowernetsales,unfavorableforeigncurrencyexchangerates,inflationarypressureonmanufacturingandlogisticscostsandhigheradvertisingcosts,offsetbythebenefitsofpriceincreasesandcostsavings.
Fiscalyear2015versusfiscalyear2014:Volumeincreased3%,whilenetsalesandearningsfromcontinuingoperationsbeforeincometaxesdecreased1%and20%,respectively,duringfiscalyear2015.VolumegrewprimarilyduetohighershipmentsinLatinAmerica,Canada,EuropeandAsia.Volumegrowthoutpacednetsalesgrowthprimarilyduetounfavorableforeigncurrencyexchangerates,partiallyoffsetbythebenefitofpriceincreasesandfavorableproductmix.Thedecreaseinearningsfromcontinuingoperationsbeforeincometaxeswasprimarilydrivenbyunfavorableforeigncurrencyexchangeratesandinflationacrossmultiplecountries,primarilyinArgentina(see“Argentina”below),whichresultedinhighersellingandadministrativeexpenses,highermanufacturingandlogisticscostsandhighercommoditycosts.Thesedecreasesinearningswerepartiallyoffsetbythebenefitofpriceincreases,favorableproductmixandcostsavings.
9
Argentina
TheCompanyoperatesinArgentinathroughcertainwhollyownedsubsidiaries(collectively,“CloroxArgentina”).NetsalesfromCloroxArgentinarepresentedapproximately3%and4%forthefiscalyearsendedJune30,2016and2015,respectively,oftheCompany’sconsolidatednetsalesforthoseperiods.TheoperatingenvironmentinArgentinaandtheLatinAmericaregioncontinuestopresentbusinesschallenges,includingsignificantdevaluingcurrencyandinflation.
CloroxArgentinamanufacturesproductsatthreeplantsthatitownsandoperatesacrossArgentinaandmarketsthoseproductstoconsumersthroughoutthecountry.ProductsareadvertisednationallyandsoldtoconsumersthroughwholesalersandretailoutletslocatedthroughoutArgentina.SalesaremadeprimarilythroughtheuseofCloroxArgentina’ssalesforce.SmallamountsofproductsproducedinArgentinaareexportedeachyear,includingsalestotheCompany’ssubsidiarieslocatedprimarilyinLatinAmerica.CloroxArgentinaobtainsitsrawmaterialsalmostentirelyfromlocalsources.TheCompanyalsoconductsresearchanddevelopmentactivitiesatitsownedfacilityinBuenosAires,Argentina.Additionally,CloroxArgentinaperformsmarketing,legal,andvariousothersharedserviceactivitiestosupporttheCompany’sLatinAmericanoperations.CloroxArgentinainturnbenefitsfromsharedserviceactivitiesperformedwithinothergeographiclocations,suchasinformationtechnologysupportandmanufacturingtechnicalassistance.
ForthefiscalyearendedJune30,2016and2015,thevalueoftheArgentinepeso(ARS)declined39%and10%,respectively.AsofJune30,2016,usingtheexchangerateof15ARSperU.S.dollar(USD),CloroxArgentinahadtotalassetsof$77,includingcashandcashequivalentsof$22,netreceivablesof$13,inventoriesof$19,netproperty,plantandequipmentof$15andintangibleassetsexcludinggoodwillof$3.GoodwillforArgentinaisaggregatedandassessedforimpairmentattheLatinAmericareportingunitlevel,whichispartoftheCompany’sInternationalreportablesegment.Basedontheresultsoftheannualimpairmenttestperformedinthefourthquarteroffiscalyear2016,thefairvalueoftheLatinAmericareportingunitexceededitscarryingvaluebymorethan20%andreflectedunfavorableforeigncurrencyexchangeratesacrossseveralcountriesandtheCompany’sexpectationsofcontinuedchallengesfromtheLatinAmericaregion.AlthoughArgentinaisnotcurrentlydesignatedasahighlyinflationaryeconomyforaccountingpurposes,furthervolatilityanddeclinesintheexchangerateareexpectedinthefuture,whichwouldhaveanadditionaladverseimpactonCloroxArgentina’snetsales,netearnings,andnetmonetaryassetposition.
TheCompanyiscloselymonitoringdevelopmentsinArgentinaandistakingstepsintendedtomitigatetheadverseconditions,buttherecanbenoassurancesthattheseactionswillbeabletomitigatetheseconditions.
Corporate
%Change
2016 2015 2014 2016to2015
2015to2014
Lossesfromcontinuingoperationsbeforeincometaxes $ (273) $(235) $(227) 16% 4%
Corporateincludescertainnon-allocatedadministrativecosts,interestincome,interestexpenseandothernon-operatingincomeandexpenses.Corporateassetsincludecashandcashequivalents,propertyandequipment,otherinvestmentsanddeferredtaxes.
Fiscalyear2016versusfiscalyear2015:Theincreaseinlossesfromcontinuingoperationsbeforeincomewasprimarilyduetohighercurrentyearbenefitsandperformance-basedemployeeincentivecostsincludingtheprioryearchangeintheCompany’slong-termdisabilityplantobringitmoreinlinewiththemarketplace,absenceoftheprioryear’sgainonthesaleofrealestateassetsbyalow-incomehousingpartnershipandincreasedcurrentyearinformationtechnologyspendingtosupporttheCompany’sinitiatives.Thiswaspartiallyoffsetbylowercurrentyearinterestexpenseprimarilyduetoalowerweighted-averageinterestrateontotaldebt.
Fiscalyear2015versusfiscalyear2014:Theincreaseinlossesfromcontinuingoperationsbeforeincometaxeswasprimarilyduetohigherperformance-basedincentivecostsasaresultoffiscalyearfinancialperformanceexceedingfinancialtargets,comparedtotheprioryearwhichreflectedlowerperformance-basedincentivecostswhentheCompany’sresultsfellbelowfinancialtargets.Thisfactorwaspartiallyoffsetbycostsavings,againonthesaleofrealestateassetsbyalow-incomehousingpartnershipandbenefitsfromachangeintheCompany’slong-termdisabilityplantobringitmoreinlinewiththemarketplace.
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FINANCIALPOSITIONANDLIQUIDITY
Management’sdiscussionandanalysisoftheCompany’sfinancialpositionandliquiditydescribesitsconsolidatedoperating,investingandfinancingactivitiesfromcontinuingoperations,contractualobligationsandoff-balancesheetarrangements.
ThefollowingtablesummarizescashactivitiesfromcontinuingoperationsfortheyearsendedJune30:
2016 2015 2014
Netcashprovidedbycontinuingoperations $ 768 $ 858 $ 786Netcashusedforinvestingactivities (430) (106) (137)Netcashusedforfinancingactivities (316) (696) (592)
TheCompany’scashpositionincludesamountsheldbyforeignsubsidiariesand,asaresult,therepatriationofcertaincashbalancesfromsomeoftheCompany’sforeignsubsidiariescouldresultinadditionaltaxcostsinexcessoftaxbenefits.However,thesecashbalancesheldbyforeignsubsidiariesaregenerallyavailablewithoutlegalrestrictiontofundlocalbusinessoperations.
Inaddition,aportionoftheCompany’scashbalanceisheldinU.S.dollarsbyforeignsubsidiaries,whosefunctionalcurrencyistheirlocalcurrency.SuchU.S.dollarbalancesarereportedontheforeignsubsidiaries’books,intheirfunctionalcurrency,withtheimpactfromforeigncurrencyexchangeratedifferencesrecordedinOther(income)expense,net.TheCompany’scashholdingsatJune30wereasfollows:
2016 2015 2014
U.S.dollarbalancesheldbyU.S.dollarfunctionalcurrencysubsidiariesandatparent $ 249 $ 221 $ 180Non-U.S.dollarbalancesheldbynon-U.S.dollarfunctionalcurrencysubsidiaries 133 142 132U.S.dollarbalancesheldbynon-U.S.dollarfunctionalcurrencysubsidiaries 19 19 12Non-U.S.dollarbalancesheldbyU.S.dollarfunctionalcurrencysubsidiaries - - 5Total $ 401 $ 382 $329
TheCompany’stotalcashbalancewas$401asofJune30,2016,ascomparedto$382asofJune30,2015.Theincreaseof$19wasprimarilyattributableto$768ofnetcashprovidedbycontinuingoperations,largelyoffsetbycashusedininvestingactivitiesof$430,whichincludedthe$290acquisitionofRenewLifeand$172incapitalexpenditures,andcashusedinfinancingactivitiesof$316,whichincludedcashdividendsof$398andsharerepurchasesof$254,partiallyoffsetbyproceedsfromtheissuanceofcommonstockforemployeestockplansof$210andincrementalborrowingsof$126.
TheCompany’stotalcashbalancewas$382asofJune30,2015,ascomparedto$329asofJune30,2014.Theincreaseof$53wasprimarilyattributableto$858ofnetcashprovidedbycontinuingoperations,$495ofnetproceedsfromtheDecember2014long-termdebtissuanceand$251ofproceedsfromtheissuanceofcommonstockforemployeestockplans.Theseincreaseswerepartiallyoffsetby$575ofrepaymentsoflong-termdebt,$434ofsharerepurchases,$385ofdividendpayments,$125ofcapitalexpendituresand$48ofrepaymentsofcommercialpaperborrowings.
OperatingActivities
Netcashprovidedbycontinuingoperationsdecreasedto$768infiscalyear2016from$858infiscalyear2015.Thedecreasereflectedhigherpaymentsinthecurrentyearforbothtaxesandperformance-basedemployeeincentivecompensationrelatedtotheCompany’sstrong2015fiscalyearresults.Thesefactorswerepartiallyoffsetbyhigherearningsfromcontinuingoperationsinfiscalyear2016and$25inprioryearpaymentstosettleinterest-ratehedgesrelatedtotheCompany’sissuanceoflong-termdebt.
Netcashprovidedbycontinuingoperationsincreasedto$858infiscalyear2015from$786infiscalyear2014.Theincreasewasprimarilyduetothecompany’sfiscalyearperformance,includingsolidnetsalesgrowthandmarginexpansion.Othercontributingfactorsincludelowerperformance-basedincentivepaymentsrelatedtothecompany'sfiscalyear2014performanceandlowertaxpaymentsinthecurrentperiod,aswellastheinitialfundingofthecompany'snon-qualifieddeferredcompensationplanintheyear-agoperiod.Thesebenefitswerepartiallyoffsetby$25inpaymentstosettleinterest-ratehedgesrelatedtothecompany'sissuanceoflong-termdebtinDecember2014.
11
InvestingActivities
Capitalexpenditureswere$172,$125and$137,respectively,infiscalyears2016,2015and2014.Capitalspendingasapercentageofnetsaleswas3.0%,2.2%and2.5%forfiscalyears2016,2015and2014,respectively.Theincreaseinfiscalyear2016wasduetoadditionalcapitalspendingtodrivecostsavingsandtosupportinnovationandgrowth.Therelativelyflatfiscalyear2015capitalspendingasapercentageofnetsaleswasduetoprudentmanagementofcapitalspendingagainstmanufacturing,technologyandfacilityprojectswhichmeetgrowth,efficiency,replacementorcompliancerequirements.
InApril2016,theCompanysolditsLosAngelesbleachmanufacturingfacility,resultingin$20incashproceedsfrominvestingactivitiesandagainof$(11)recordedinOther(income)expense,net,ontheconsolidatedstatementofearningsfortheyearendedJune30,2016.InSeptember2015,theCompanysolditscorporatejettoanunrelatedpartyforcashproceedsof$11.
InApril2015,alow-incomehousingpartnership,inwhichtheCompanywasalimitedpartner,solditsrealestateholdings.Therealpropertysaleresultedin$15incashproceedsfrominvestingactivitiesandagainof$(14)recordedinOther(income)expense,net,ontheconsolidatedstatementofearningsfortheyearendedJune30,2015.
Acquisition
OnMay2,2016,theCompanyacquiredRenewLife,aleadingbrandindigestivehealth.Theamountpaidwas$290fundedthroughcommercialpaper.
Free cash flow
2016 2015 2014
Netcashprovidedbycontinuingoperations $ 768 $ 858 $ 786Less:capitalexpenditures (172) (125) (137)Freecashflow $ 596 $ 733 $ 649Freecashflowasapercentageofnetsales 10.3% 13.0% 11.8%
FinancingActivities
Capital Resources and Liquidity
Netcashusedforfinancingactivitieswas$316infiscalyear2016,ascomparedto$696infiscalyear2015.Netcashusedforfinancingactivitieswaslowerinfiscalyear2016,mainlydrivenbytheincreaseinnetborrowingstofundtheRenewLifeacquisition.
Netcashusedforfinancingactivitieswas$696infiscalyear2015,ascomparedto$592infiscalyear2014.Netcashusedforfinancingactivitieswashigherinfiscalyear2015duetoanetreductioninlong-termdebtandanincreaseinsharerepurchasesanddividendspaid.Thesefactorswerepartiallyoffsetbyanincreaseinproceedsfromtheissuanceofcommonstockforemployeestockplans.
Credit Arrangements
AsofJune30,2016,theCompanyhada$1,100revolvingcreditagreement(theCreditAgreement),whichexpiresinOctober2019.TherewerenoborrowingsundertheCreditAgreementasofJune30,2016or2015,andtheCompanybelievesthatborrowingsundertheCreditAgreementareandwillcontinuetobeavailableforgeneralcorporatepurposes.Theagreementincludescertainrestrictivecovenantsandlimitations.Theprimaryrestrictivecovenantisamaximumratiooftotaldebttoearningsbeforeinterest,taxes,depreciationandamortizationandintangibleassetimpairment(ConsolidatedEBITDA)forthetrailingfourquarters(ConsolidatedLeverageratio),asdefinedanddescribedintheCreditAgreement,of3.50.
12
ThefollowingtablesetsforththecalculationoftheConsolidatedLeverageratioasofJune30,usingConsolidatedEBITDAforthetrailingfourquarters,ascontractuallydefined:
2016
Earningsfromcontinuingoperations $ 648Addback:Interestexpense 88Incometaxexpense 335Depreciationandamortization 165Noncashintangibleassetimpairmentcharges 9Deduct: Interestincome 5ConsolidatedEBITDA $1,240Totaldebt $ 2,320ConsolidatedLeverageratio 1.87
TheCompanywasincompliancewithallrestrictivecovenantsandlimitationsinthecreditagreementasofJune30,2016,andanticipatesbeingincompliancewithallrestrictivecovenantsfortheforeseeablefuture.TheCompanycontinuestomonitorthefinancialmarketsandassessitsabilitytofullydrawonitsrevolvingcreditagreement,andcurrentlyexpectsthatanydrawingontheagreementwillbefullyfunded.
Ofthe$28offoreignandothercreditlinesasofJune30,2016,$5wasoutstandingandtheremainderof$23wasavailableforborrowing.Ofthe$29offoreignandothercreditlinesasofJune30,2015,$4wasoutstandingandtheremainderof$25wasavailableforborrowing.
Short-term Borrowings
TheCompany’snotesandloanspayableincludeU.S.commercialpaperissuedbytheparentcompanyandashort-termloanheldbyanon-U.S.subsidiary.Theseshort-termborrowingshavestatedmaturitieslessthanoneyearandprovidesupplementalfundingforsupportingoperations.ThelevelofU.S.commercialpaperborrowingsgenerallyfluctuatedependingupontheamountandtimingofoperatingcashflowsandpaymentsforitemssuchasdividends,incometaxes,sharerepurchasesandpensioncontributions.TheaveragebalanceofU.S.commercialpaperborrowingsoutstandingwas$371and$104forthefiscalyearendedJune30,2016and2015,respectively.
Long-term Borrowings
InNovember2015,$300oftheCompany’sseniornoteswithanannualfixedinterestrateof3.55%becamedueandwererepaidusingcommercialpaperborrowingsandcashonhand.
InJanuary2015,$575oftheCompany’sseniornoteswithanannualfixedinterestrateof5.00%becamedueandwererepaidusingthenetproceedsfromtheDecember2014debtissuanceandcommercialpaperborrowings.
InDecember2014,underashelfregistrationstatementfiledwiththeSECthatwillexpireinDecember2017,theCompanyissued$500ofseniornoteswithanannualfixedinterestrateof3.50%.Interestonthenotesispayablesemi-annuallyinJuneandDecemberandthenoteshaveamaturitydateofDecember15,2024.Thenotescarryaneffectiveinterestrateof4.10%,whichincludestheimpactfromthesettlementofinterestrateforwardcontractsinDecember2014(seeNotestoConsolidatedFinancialStatements).ThenotesrankequallywithalloftheCompany’sexistingseniorindebtedness.
13
BasedontheCompany’sworkingcapitalrequirements,anticipatedabilitytogeneratepositivecashflowsfromoperationsinthefuture,investment-gradecreditratings,demonstratedaccesstolong-andshort-termcreditmarketsandcurrentborrowingavailabilityundercreditagreements,theCompanybelievesitwillhavethefundsnecessarytomeetitsfinancingrequirementsandotherfixedobligationsastheybecomedue.TheCompanymayconsiderothertransactionswhichmayrequiretheissuanceofadditionallong-and/orshort-termdebtorothersecuritiestofinanceacquisitions,repurchaseshares,refinancedebtorfundotheractivitiesforgeneralbusinesspurposes.SuchtransactionscouldrequirefundsinexcessoftheCompany’scurrentcashlevelsandavailablecreditlines,andtheCompany’saccesstoorcostofsuchadditionalfundscouldbeadverselyaffectedbyanydecreaseincreditratings,whichwerethefollowingasofJune30:
2016 2015
Short-termLong-termShort-termLong-termStandardandPoor’s A-2 BBB+ A-2 BBB+Moody’s P-2 Baal P-2 Baa1
Share Repurchases and Dividend Payments
TheCompanyhastwosharerepurchaseprograms:anopen-marketpurchaseprogramwithanauthorizedaggregatepurchaseamountofupto$750,allofwhichwasavailableforsharerepurchasesasofbothJune30,2016and2015,andaprogramtooffsettheanticipatedimpactofsharedilutionrelatedtoshare-basedawards(theEvergreenProgram),whichhasnoauthorizationlimitastoamountortimingofrepurchases.
SharerepurchasesunderauthorizedprogramswereasfollowsduringthefiscalyearsendedJune30:
2016 2015 2014
Amount Shares(000) Amount
Shares(000) Amount
Shares(000)
Open-marketpurchaseprograms $ - - $ - - $ - -EvergreenProgram 254 2,151 434 4,016 260 3,046Total $ 254 2,151 $ 434 4,016 $ 260 3,046
DividendspershareandtotaldividendsamountpaidwereasfollowsduringthefiscalyearsendedJune30:
2016 2015 2014
Dividendspersharedeclared $3.11 $2.99 $2.87Totaldividendspaid 398 385 368
Contractual Obligations
TheCompanyhadcontractualobligationsasofJune30,2016,payableormaturinginthefollowingfiscalyears:
2017 2018 2019 2020 2021 Thereafter Total
Long-termdebtmaturitiesincludinginterestpayments $ 72 460 48 47 47 1,495 $ 2,169Notesandloanspayable 523 - - - - - 523
Purchaseobligations(1) 150 54 37 12 2 1 256Capitalleases 3 2 1 - - - 6Operatingleases 49 45 38 32 29 135 328
Paymentsrelatedtononqualifiedpostretirementplans(2) 17 18 16 16 15 70 152
Ventureagreementterminalobligation(3) - - - - - 448 448Total $ 814 $ 579 $ 140 $ 107 $ 93 $ 2,149 $ 3,882
14
(1)Purchaseobligationsaredefinedaspurchaseagreementsthatareenforceableandlegallybindingandthatcontainspecifiedordeterminablesignificantterms,includingquantity,priceandtheapproximatetimingofthetransaction.Forpurchaseobligationssubjecttovariablepriceand/orquantityprovisions,anestimateofthepriceand/orquantityhasbeenmade.ExamplesoftheCompany’spurchaseobligationsincludecontractstopurchaserawmaterials,commitmentstocontractmanufacturers,commitmentsforinformationtechnologyandrelatedservices,advertisingcontracts,capitalexpenditureagreements,softwareacquisitionandlicensecommitmentsandservicecontracts.Therawmaterialcontractsincludedaboveareenteredintoduringtheregularcourseofbusinessbasedonexpectationsoffuturepurchases.ManyoftheserawmaterialcontractsareflexibletoallowforchangesintheCompany’sbusinessandrelatedrequirements.Ifsuchchangesweretooccur,theCompanybelievesitsexposurecoulddifferfromtheamountslistedabove.AnyamountsreflectedintheconsolidatedbalancesheetsasAccountspayableandaccruedliabilitiesareexcludedfromthetableabove.
(2) Thisamountrepresentsexpectedpaymentsthrough2026.Basedontheaccountingrulesforretirementandpostretirementbenefitplans,theliabilitiesreflectedintheCompany’sconsolidatedbalancesheetsdifferfromtheseexpectedfuturepayments(seeNotestoConsolidatedFinancialStatements).
(3) TheCompanyhasaventureagreementwithTheProcter&GambleCompany(P&G)fortheCompany’sGlad®bags,wrapsandcontainersbusiness.AsofJune30,2016and2015,P&Ghada20%interestintheventure.TheagreementwithP&GwillexpireinJanuary2023,unlessthepartiesdecideonorpriortoJanuary2018,toextendthetermoftheagreementforanother10years.Uponterminationoftheagreement,theCompanyisrequiredtopurchaseP&G’sinterestforcashatfairvalueasestablishedbypredeterminedvaluationprocedures.AsofJune30,2016,theestimatedfairvalueofP&G’sinterestwas$448,ofwhich$302hasbeenrecognizedandisreflectedinOtherliabilitiesintheCompany’sJune30,2016ConsolidatedBalanceSheet.Thedifferencebetweentheestimatedfairvalueandtheamountrecognized,andanyfuturechangesinthefairvalueofP&G’sinterest,ischargedtoCostofproductssoldonastraight-linebasisovertheremaininglifeoftheagreement.TheestimatedfairvalueofP&G’sinterestincreasedsignificantlyin2016andmayincreaseordecreaseupuntilanysuchpurchasebytheCompanyofP&G’sinterest.ThesechangeswillaffecttheamountoffuturechargestoCostofproductssold.RefertoNotestoConsolidatedFinancialStatementsforfurtherdetails.
Off-Balance Sheet Arrangements
Inconjunctionwithdivestituresandothertransactions,theCompanymayprovidetypicalindemnifications(e.g.,indemnificationsforrepresentationsandwarrantiesandretentionofpreviouslyexistingenvironmental,taxandemployeeliabilities)thathavetermsthatvaryindurationandinthepotentialamountofthetotalobligationand,inmanycircumstances,arenotexplicitlydefined.TheCompanyhasnotmade,nordoesitbelievethatitisprobablethatitwillmake,anypaymentsrelatingtoitsindemnifications,andbelievesthatanyreasonablypossiblepaymentswouldnothaveamaterialadverseeffect,individuallyorintheaggregate,ontheCompany’sconsolidatedfinancialstatementstakenasawhole.
TheCompanyhadnotrecordedanyliabilitiesontheaforementionedindemnificationsasofJune30,2016and2015.
AsofJune30,2016and2015,theCompanywasapartytolettersofcreditof$10and$11,respectively,bothprimarilyrelatedtooneofitsinsurancecarriers,ofwhich$0hadbeendrawnupon.
CONTINGENCIES
AsummaryofcontingenciesiscontainedinNote12ofNotestoConsolidatedFinancialStatements.
QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK
Asamultinationalcompany,theCompanyisexposedtotheimpactofforeigncurrencyfluctuations,changesincommodityprices,interest-rateriskandothertypesofmarketrisk.
Inthenormalcourseofbusiness,whereavailableatareasonablecost,theCompanymanagesitsexposuretomarketriskusingcontractualagreementsandavarietyofderivativeinstruments.TheCompany’sobjectiveinmanagingitsexposuretomarketriskistolimittheimpactoffluctuationsonearningsandcashflowthroughtheuseofswaps,forwardpurchasesandfuturescontracts.Derivativecontractsareenteredintofornon-tradingpurposeswithmajorcredit-worthyinstitutions,therebydecreasingtheriskofcreditloss.
15
TheCompanyusesdifferentmethodologies,whennecessary,toestimatethefairvalueofitsderivativecontracts.TheestimatedfairvaluesofthemajorityoftheCompany’scontractsarebasedonquotedmarketprices,tradedexchangemarketpricesorbrokerpricequotations,andrepresenttheestimatedamountsthattheCompanywouldpayorreceivetoterminatethecontracts.
SensitivityAnalysisforDerivativeContracts
Forfiscalyears2016and2015,theCompany’sexposuretomarketriskwasestimatedusingsensitivityanalyses,whichillustratethechangeinthefairvalueofaderivativefinancialinstrumentassuminghypotheticalchangesinforeignexchangerates,commoditypricesorinterestrates.Theresultsofthesensitivityanalysesforforeigncurrencyderivativecontracts,commodityderivativecontractsandinterestratecontractsaresummarizedbelow.Actualchangesinforeignexchangerates,commoditypricesorinterestratesmaydifferfromthehypotheticalchanges,andanychangesinthefairvalueofthecontracts,realorhypothetical,wouldbepartlytofullyoffsetbyaninversechangeinthevalueoftheunderlyinghedgeditems.
ThechangesinthefairvalueofderivativesarerecordedaseitherassetsorliabilitiesintheconsolidatedbalancesheetswithanoffsettonetearningsorOthercomprehensiveincome(loss),dependingonwhetherornot,foraccountingpurposes,thederivativeisdesignatedandqualifiedasacashflowhedge.DuringthefiscalyearsendedJune30,2016,2015and2014,theCompanyhadnohedginginstrumentsdesignatedasfairvaluehedges.IntheeventtheCompanyhascontractsnotdesignatedashedgesforaccountingpurposes,theCompanyrecognizesthechangesinthefairvalueofthesecontractsintheconsolidatedstatementofearnings.
Foreign Currency Risk
TheCompanyseekstominimizetheimpactofcertainforeigncurrencyfluctuationsbyhedgingtransactionalexposureswithforeigncurrencyforwardcontracts.Basedonahypotheticaldecreaseof10%inthevalueoftheU.S.dollarasofJune30,2016andJune30,2015,theestimatedfairvalueoftheCompany’sthen-existingforeigncurrencyderivativecontractswoulddecreaseby$9and$12,respectively,withthecorrespondingimpactincludedinAccumulatedothercomprehensiveincome(loss).Basedonahypotheticalincreaseof10%inthevalueoftheU.S.dollarasofJune30,2016andJune30,2015,theestimatedfairvalueoftheCompany’sthen-existingforeigncurrencyderivativecontractswouldincreaseby$7and$10,respectively,withthecorrespondingimpactincludedinAccumulatedothercomprehensiveincome(loss).
Commodity Price Risk
TheCompanyisexposedtochangesinthepriceofcommoditiesusedasrawmaterialsinthemanufacturingofitsproducts.TheCompanyusesvariousstrategiestomanagecostexposuresoncertainrawmaterialpurchaseswiththeobjectiveofobtainingmorepredictablecostsforthesecommodities,includinglong-termcommoditypurchasecontractsandcommodityderivativecontracts,whereavailableatareasonablecost.Duringfiscalyears2016and2015,theCompany’srawmaterialsexposurespertainingtoderivativecontractsexistedwithjetfuelandsoybeanoil.Basedonahypotheticaldecreaseorincreaseof10%inthesecommoditypricesasofJune30,2016,andJune30,2015,theestimatedfairvalueoftheCompany’sthen-existingcommodityderivativecontractswoulddecreaseorincreaseby$3and$4,respectively,withthecorrespondingimpactincludedinAccumulatedothercomprehensiveincome(loss).
Interest Rate Risk
TheCompanyisexposedtointerestratevolatilitywithregardtoexistingshort-termborrowings,primarilycommercialpaper,andanticipatedfutureissuancesoflong-termdebt.Weightedaverageinterestratesforcommercialpaperborrowingshavebeenlessthan1%duringfiscalyears2016and2015.Assumingaveragevariableratedebtlevelsduringfiscalyears2016and2015,a100basispointincreaseininterestrateswouldincreaseinterestexpensefromcommercialpaperbyapproximately$4and$1,respectively.Assumingaveragevariableratedebtlevelsinfiscalyears2016and2015,adecreaseininterestratestozeropercentwoulddecreaseinterestexpensefromcommercialpaperby$3and$1,respectively.
TheCompanyisalsoexposedtointerestratevolatilitywithregardtoanticipatedfutureissuancesofdebt.PrimaryexposuresincludemovementsinU.S.Treasuryrates.TheCompanyusedinterestrateforwardcontractstoreduceinterestratevolatilityonfixedratelong-termdebtduringfiscalyear2015,buthadnointerestrateforwardcontractpositionsduringfiscalyear2016,andnooutstandingcontractsasofJune30,2016.
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RECENTLYISSUEDACCOUNTINGSTANDARDS
TheCompanyplanstoadoptAccountingStandardsUpdate(ASU)No.2016-09,“Compensation-StockCompensation(Topic718):ImprovementstoEmployeeShare-BasedPaymentAccounting,”inthefirstquarteroffiscalyear2017.Whiletheactualbenefitrealizedmayvarysignificantlygiventheinherentuncertaintyinpredictingfutureshare-basedtransactions,theCompanycurrentlyestimatesthattheadoptionwillresultinapproximatelya4percentagepointbenefittotheCompany’shistoricaleffectivetaxrateof34%to35%forfiscalyear2017.Asummaryofallrecentlyissuedaccountingstandards,includingASU2016-09,iscontainedinNote1ofNotestoConsolidatedFinancialStatements.
CRITICALACCOUNTINGPOLICIESANDESTIMATES
Themethods,estimates,andjudgmentstheCompanyusesinapplyingitsmostcriticalaccountingpolicieshaveasignificantimpactontheresultstheCompanyreportsinitsconsolidatedfinancialstatements.Specificareasrequiringtheapplicationofmanagement’sestimatesandjudgmentinclude,amongothers,assumptionspertainingtoaccrualsforconsumerandtrade-promotionprograms,stock-basedcompensationcosts,pensionandpost-employmentbenefitcosts,futurecashflowsassociatedwithimpairmenttestingofgoodwillandotherlong-livedassets,creditworthinessofcustomers,uncertaintaxpositions,taxvaluationallowancesandlegal,environmentalandinsurancematters.Accordingly,adifferentfinancialpresentationcouldresultdependingonthejudgments,estimatesorassumptionsthatareused.ThemostcriticalaccountingpoliciesandestimatesarethosethataremostimportanttotheportrayaloftheCompany’sfinancialconditionandresults,andrequiretheCompanytomakethemostdifficultandsubjectivejudgments,oftenestimatingtheoutcomeoffutureeventsthatareinherentlyuncertain.TheCompany’smostcriticalaccountingpoliciesandestimatesarerelatedto:revenuerecognition;valuationofgoodwillandintangibleassets;employeebenefits,includingestimatesrelatedtostock-basedcompensationandretirementincomeplans;andincometaxes.TheCompany’scriticalaccountingpoliciesandestimateshavebeenreviewedwiththeAuditCommitteeoftheBoardofDirectors.AsummaryoftheCompany’ssignificantaccountingpoliciesandestimatesiscontainedinNote1ofNotestoConsolidatedFinancialStatements.
RevenueRecognition
Salesarerecognizedasrevenuewhentheriskoflossandtitlepasstothecustomerandwhenallofthefollowinghaveoccurred:afirmsalesarrangementexists,pricingisfixedordeterminableandcollectionisreasonablyassured.Salesarerecordednetofallowancesfortradepromotions,coupons,returnsandotherdiscounts.TheCompanyroutinelycommitstoone-timeorongoingtrade-promotionprogramswithcustomers.Programsincludeshelf-pricereductions,end-of-aisleorin-storedisplaysoftheCompany’sproductsandgraphicsandothertrade-promotionactivitiesconductedbythecustomer.Costsrelatedtotheseprogramsarerecordedasareductionofsales.TheCompany’stradepromotionaccrualsareprimarilybasedonestimatedvolumeandincorporatehistoricalsalesandspendingtrendsbycustomerandcategory.Thedeterminationoftheseestimatedaccrualsrequiresjudgmentandmaychangeinthefutureasaresultofchangesincustomerpromotionparticipation,particularlyfornewprogramsandforprogramsrelatedtotheintroductionofnewproducts.Finaldeterminationofthetotalcostofapromotionisdependentuponcustomersprovidinginformationaboutproofofperformanceandotherinformationrelatedtothepromotionalevent.Thisprocessofanalyzingandsettlingtrade-promotionprogramswithcustomerscouldimpacttheCompany’sresultsofoperationsandtradepromotionaccrualsdependingonhowactualresultsoftheprogramscomparetooriginalestimates.IftheCompany’stradepromotionaccrualestimatesasofJune30,2016weretodifferby10%,theimpactonnetsaleswouldbeapproximately$11.
GoodwillandOtherIntangibleAssets
TheCompanytestsitsgoodwillandotherindefinite-livedintangibleassetsforimpairmentannuallyinthefiscalfourthquarterunlessthereareindicationsduringadifferentinterimperiodthattheseassetsmayhavebecomeimpaired.
Goodwill
Consistentwithfiscalyear2015,theCompany’sreportingunitsforgoodwillimpairmenttestingpurposesareitsdomesticStrategicBusinessUnits(SBUs),Canada,LatinAmericaandAMEA(Asia,MiddleEast,EuropeandAustralia,NewZealand,andSouthAfrica).ThesereportingunitsarecomponentsoftheCompany’sbusinessthatareeitheroperatingsegmentsoronelevelbelowanoperatingsegmentandforwhichdiscretefinancialinformationisavailablethatisreviewedbythemanagersoftherespectiveoperatingsegments.Noinstancesofimpairmentwereidentifiedduringthefiscalyear2016annualimpairmentreview.AlloftheCompany’sreportingunitshadfairvaluesthatexceededrecordedvalues.However,futurechangesinthejudgments,assumptionsandestimatesthatareusedintheimpairmenttestingforgoodwillandindefinite-livedintangibleassetsasdescribedbelowcouldresultinsignificantlydifferentestimatesofthefairvalues.
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Initsevaluationofgoodwillimpairment,theCompanyhastheoptiontofirstassessqualitativefactorssuchasmaturityandstabilityofthereportingunit,magnitudeofexcessfairvalueovercarryingvaluefromtheprioryear’simpairmenttesting,otherreportingunitoperatingresultsaswellasneweventsandcircumstancesimpactingtheoperationsatthereportingunitlevel.Iftheresultofaqualitativetestindicatesapotentialforimpairment,aquantitativetestisperformed.Thequantitativetestisatwo-stepprocess.Inthefirststep,theCompanycomparestheestimatedfairvalueofeachreportingunittoitscarryingvalue.Inallinstances,theestimatedfairvalueexceededthecarryingvalueofthereportingunit.Hadtheestimatedfairvalueofanyreportingunitbeenlessthanitscarryingvalue,theCompanywouldhaveperformedasecondsteptodeterminetheimpliedfairvalueofthereportingunit’sgoodwill.Ifthecarryingamountofareportingunit’sgoodwillhadexceededitsimpliedfairvalue,animpairmentchargewouldhavebeenrecordedforthedifferencebetweenthecarryingamountandtheimpliedfairvalueofthereportingunit’sgoodwill.
Todeterminethefairvalueofareportingunitaspartofitsquantitativetest,theCompanyusesadiscountedcashflow(DCF)approach,asitbelievesthatthisapproachisthemostreliableindicatorofthefairvalueofitsbusinessesandthefairvalueoftheirfutureearningsandcashflows.Underthisapproach,theCompanyestimatesthefuturecashflowsofeachreportingunitanddiscountsthesecashflowsatarateofreturnthatreflectstheirrelativerisk.ThecashflowsusedintheDCFareconsistentwiththosetheCompanyusesinitsinternalplanning,whichgivesconsiderationtoactualbusinesstrendsexperienced,andthebroaderbusinessstrategyforthelongterm.TheotherkeyestimatesandfactorsusedintheDCFinclude,butarenotlimitedto,futuresalesvolumes,revenueandexpensegrowthrates,changesinworkingcapital,foreignexchangerates,currencydevaluation,inflationandaperpetuitygrowthrate.Changesinsuchestimatesortheapplicationofalternativeassumptionscouldproducedifferentresults.
Trademarks and Other Indefinite-Lived Intangible Assets
Fortrademarksandotherintangibleassetswithindefinitelives,theCompanyperformsaquantitativeanalysistotestforimpairment.Whenaquantitativetestisperformed,theestimatedfairvalueofanassetiscomparedtoitscarryingamount.Ifthecarryingamountofsuchassetexceedsitsestimatedfairvalue,animpairmentchargeisrecordedforthedifferencebetweenthecarryingamountandtheestimatedfairvalue.TheCompanyusestheincomeapproachtoestimatethefairvalueofitstrademarksandotherintangibleassetswithindefinitelives.Thisapproachrequiressignificantjudgmentsindeterminingboththeassets’estimatedcashflowsaswellastheappropriatediscountandforeignexchangeratesappliedtothosecashflowstodeterminefairvalue.Changesinsuchestimatesortheuseofalternativeassumptionscouldproducedifferentresults.
Duringfiscalyear2016,theCompanyrecognized$9ofintangibleassetimpairmentcharges,ofwhich$6relatedtotheAplicare®trademarkwithintheCleaningsegment.TheAplicare®trademarkimpairmentwasrecognizedbasedontheanticipatedimpactonfutureresultsfromacompetitivemarketentrant.NoinstancesofimpairmentwereidentifiedasaresultoftheCompany’sfourthquarterannualimpairmentreview.
Finite-Lived Intangible Assets
Finite-livedintangibleassetsarereviewedforpossibleimpairmentwhenevereventsorchangesincircumstancesoccurthatindicatethatthecarryingamountofanasset(orassetgroup)maynotberecoverable.TheCompany’simpairmentreviewrequiressignificantmanagementjudgment,includingestimatingthefuturesuccessofproductlines,futuresalesvolumes,revenueandexpensegrowthrates,alternativeusesfortheassetsandestimatedproceedsfromthedisposaloftheassets.TheCompanyreviewsbusinessplansforpossibleimpairmentindicators.Impairmentoccurswhenthecarryingamountoftheasset(orassetgroup)exceedsitsestimatedfutureundiscountedcashflowsandtheimpairmentisviewedasotherthantemporary.Whenimpairmentisindicated,animpairmentchargeisrecordedforthedifferencebetweentheasset’scarryingvalueanditsestimatedfairvalue.Dependingontheasset,estimatedfairvaluemaybedeterminedeitherbyuseofaDCFmodelorbyreferencetoestimatedsellingvaluesofassetsinsimilarcondition.Theuseofdifferentassumptionswouldincreaseordecreasetheestimatedfairvalueofassetsandwouldincreaseordecreaseanyimpairmentmeasurement.
EmployeeBenefits
TheCompany’scriticalaccountingpoliciesandestimatesinthisarearelatetoitsstock-basedcompensationandretirementincomeprograms.
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Stock-based Compensation
TheCompanygrantsvariousnonqualifiedstock-basedcompensationawardstoeligibleemployees,includingstockoptions,performanceunitsandrestrictedstock.Thestock-basedcompensationexpenseandrelatedincometaxbenefitrecognizedintheconsolidatedstatementofearningsinfiscalyear2016were$45and$17,respectively.AsofJune30,2016,therewas$53ofunrecognizedcompensationcostsrelatedtonon-vestedstockoptions,restrictedstockandperformanceunitawards,whichareexpectedtoberecognizedoveraweightedaverageremainingvestingperiodofoneyear.TheCompanyestimatesthefairvalueofeachstockoptionawardonthedateofgrantusingtheBlack-Scholesvaluationmodel,whichrequiresmanagementtomakeestimatesregardingexpectedoptionlife,stockpricevolatilityandotherassumptions.Groupsofemployeesthathavesimilarhistoricalexercisebehaviorareconsideredseparatelyforvaluationpurposes.Thetotalnumberofstockoptionsexpectedtovestisadjustedbyactualandestimatedforfeitures.Changestotheactualandestimatedforfeitureswillresultinacumulativecatch-upadjustmentintheperiodofchange.
TheuseofdifferentassumptionsintheBlack-Scholesvaluationmodelcouldleadtoadifferentestimateofthefairvalueofeachstockoption.TheexpectedvolatilityisbasedonimpliedvolatilityfrompubliclytradedoptionsontheCompany’sstockatthedateofgrant,historicalimpliedvolatilityoftheCompany’spubliclytradedoptionsandotherfactors.IftheCompany’sassumptionforthevolatilityrateisincreasedbyonepercentagepoint,thefairvalueofoptionsgrantedinfiscalyear2016wouldhaveincreasedby$1.Theexpectedlifeofthestockoptionsisbasedonobservedhistoricalexercisepatterns.IftheCompany’sassumptionfortheexpectedlifeisincreasedbyoneyear,thefairvalueofoptionsgrantedinfiscalyear2016wouldhaveincreasedbylessthan$1.
TheCompany’sperformanceunitgrantsprovidefortheissuanceofcommonstocktocertainmanagerialstaffandexecutivemanagementiftheCompanyachievesspecifiedperformancetargets.Theperformanceperiodisthreeyearsandthepayoutdeterminationismadeattheendofthethree-yearperformanceperiod.Thefairvalueofeachgrantissuedisestimatedonthedateofgrantbasedonthecurrentmarketpriceofthestock.Thetotalamountofcompensationexpenserecognizedreflectsestimatedforfeitureratesandtheinitialassumptionthatperformancegoalswillbeachieved.Compensationexpenseisadjustedbasedonmanagement’sassessmentoftheprobabilitythatperformancegoalswillbeachieved.Ifsuchgoalsarenotmetoritisdeterminedthatachievementofperformancegoalsisnotprobable,previouslyrecognizedcompensationexpenseistruedupinthecurrentperiodtoreflecttheexpectedpayoutlevel.Actualresultscouldmateriallydifferfrompreviousestimates.Ifitisdeterminedthattheperformancegoalswillbeexceeded,additionalcompensationexpenseisrecognized,subjecttoacapof150%oftarget.
Retirement Income Plans
Thedeterminationofnetperiodicpensioncostisbasedonactuarialassumptionsincludingadiscountratetoreflectthetimevalueofmoney,thelong-termrateofreturnonplanassets,employeecompensationratesanddemographicassumptionstodeterminetheprobabilityandtimingofbenefitpayments.Theselectionofassumptionsisbasedonhistoricaltrendsandknowneconomicandmarketconditionsatthetimeofvaluation.Theexpectedlong-termrateofreturnassumptionisbasedonananalysisofhistoricalexperienceoftheportfolioandthesummationofprospectivereturnsforeachassetclassinproportiontothefund’scurrentassetallocation.Theactualnetperiodicpensioncostcoulddifferfromtheexpectedresultsbecauseactuarialassumptionsandestimatesareused.Inthecalculationofpensionexpenserelatedtodomesticplansfor2016,theCompanyusedabeginning-of-yeardiscountrateassumptionof4.2%andalong-termrateofreturnonplanassetsassumptionof4.3%.Theuseofadifferentdiscountrateorlong-termrateofreturnondomesticplanassetscansignificantlyimpactpensionexpense.Forexample,asofJune30,2016,adecreaseof100basispointsinthediscountratewouldincreasethedomesticretirementincomeplans’pensionliabilitybyapproximately$63,anddecreasefiscalyear2016domesticretirementincomeplans’pensionexpenseby$2.A100basispointdecreaseinthelong-termrateofreturnonplanassetswouldincreasefiscalyear2016domesticretirementincomeplans’pensionexpenseby$4.Attheendoffiscalyear2016,thelong-termrateofreturnisassumedtobe4.7%forthedomesticplanassets.Thischangeisaresultofthechangeintheplan’stargetinvestmentallocation.TheCompanyalsohasdefinedbenefitpensionplansforeligibleinternationalemployees,includingCanadianemployees,anddifferentassumptionsareusedinthedeterminationofpensionexpenseforthoseplans,asappropriate.SeeNotestoConsolidatedFinancialStatementsforfurtherdiscussionofpensionandotherretirementplanobligations.
IncomeTaxes
TheCompany’seffectivetaxrateisbasedonincomebytaxjurisdiction,statutorytaxratesandtaxplanningopportunitiesavailabletotheCompanyinthevariousjurisdictionsinwhichtheCompanyoperates.SignificantjudgmentisrequiredindeterminingtheCompany’seffectivetaxrateandinevaluatingitstaxpositions.
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TheCompanymaintainsvaluationallowanceswhenitislikelythatalloraportionofadeferredtaxassetwillnotberealized.ChangesinvaluationallowancesfromperiodtoperiodareincludedintheCompany’sincometaxprovisionintheperiodofchange.Indeterminingwhetheravaluationallowanceiswarranted,theCompanytakesintoaccountsuchfactorsaspriorearningshistory,expectedfutureearnings,unsettledcircumstancesthat,ifunfavorablyresolved,wouldadverselyaffecttheutilizationofadeferredtaxasset,statutorycarry-backandcarry-forwardperiodsandtaxstrategiesthatcouldpotentiallyenhancethelikelihoodofrealizationofadeferredtaxasset.ValuationallowancesmaintainedbytheCompanyrelatemostlytodeferredtaxassetsarisingfromtheCompany’scurrentlyanticipatedinabilitytousenetoperatinglossesincertainforeigncountries.
Inadditiontovaluationallowances,theCompanyprovidesforuncertaintaxpositionswhensuchtaxpositionsdonotmeetcertainrecognitionthresholdsormeasurementstandards.Amountsforuncertaintaxpositionsareadjustedinquarterswhennewinformationbecomesavailableorwhenpositionsareeffectivelysettled.
AsofJune30,2016,theliabilityrecordedforuncertaintaxpositions,excludingassociatedinterestandpenalties,wasapproximately$37.Sinceauditoutcomesandthetimingofauditsettlementsaresubjecttosignificantuncertainty,liabilitiesforuncertaintaxpositionsareexcludedfromthecontractualobligationstable(seeNotestoConsolidatedFinancialStatements).
UnitedStatesincometaxesandforeignwithholdingtaxesarenotprovidedwhenforeignearningsareindefinitelyreinvested.TheCompanydetermineswhetheritsforeignsubsidiarieswillinvesttheirundistributedearningsindefinitelyandreassessesthisdeterminationonaperiodicbasis.AchangetotheCompany’sdeterminationmaybewarrantedbasedontheCompany’sexperienceaswellasplansregardingfutureinternationaloperationsandexpectedremittances.ChangesintheCompany’sdeterminationwouldlikelyrequireanadjustmenttotheincometaxprovisioninthequarterinwhichthedeterminationismade.
SUMMARYOFNON-GAAPFINANCIALMEASURES
Thenon-GAAPfinancialmeasuresincludedinthisMD&AandExhibit99.3andthereasonsmanagementbelievestheyareusefultoinvestorsaredescribedbelow.ThesemeasuresshouldbeconsideredsupplementalinnatureandarenotintendedtobeasubstitutefortherelatedfinancialinformationpreparedinaccordancewithU.S.GAAP.Inaddition,thesemeasuresmaynotbethesameassimilarlynamedmeasurespresentedbyothercompanies.
Freecashflowiscalculatedasnetcashprovidedbycontinuingoperationslesscapitalexpendituresrelatedtocontinuingoperations.TheCompany’smanagementusesthismeasureandfreecashflowasapercentageofnetsalestohelpassessthecashgenerationabilityofthebusinessandfundsavailableforinvestingactivities,suchasacquisitions,investinginthebusinesstodrivegrowthandfinancingactivities,includingdebtpayments,dividendpaymentsandsharerepurchases.Freecashflowdoesnotrepresentcashavailableonlyfordiscretionaryexpenditures,sincetheCompanyhasmandatorydebtservicerequirementsandothercontractualandnon-discretionaryexpenditures.Referto“Freecashflow”and“Freecashflowasapercentageofnetsales”aboveforareconciliationofthesenon-GAAPmeasures.
EBITrepresentsearningsfromcontinuingoperationsbeforeincometaxes,interestincomeandinterestexpense.EBITmarginistheratioofEBITtonetsales.Thecompany'smanagementbelievesthesemeasuresprovideusefuladditionalinformationtoinvestorsabouttrendsinthecompany'soperationsandareusefulforperiod-over-periodcomparisons.
Currency-neutralnetsalesgrowthrepresentsU.S.GAAPnetsalesgrowthexcludingtheimpactofthechangeinforeigncurrencyexchangerates.TheCompany’smanagementbelievesthesemeasuresprovideusefuladditionalinformationtoinvestorsaboutchangesintheCompany’scorebusinessoperationswithouttheunpredictabilityandvolatilityofcurrencyfluctuations.Thefollowingtablepresentsthecurrency-neutralnetsalesgrowthreconciliationforfiscalyear2016:
2016
Netsalesgrowth–GAAP 2%Less:foreignexchangeimpact (3)Currency-neutralnetsalesgrowth–non-GAAP 5%
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Economicprofit(EP)isdefinedbytheCompanyasearningsfromcontinuingoperationsbeforeincometaxes,excludingnoncashU.S.GAAPrestructuringandintangibleassetimpairmentcosts,andinterestexpense;lessanamountoftaxbasedontheeffectivetaxrateandlessachargeequaltoaveragecapitalemployedmultipliedbyacostofcapitalrate.EPisakeyfinancialmetrictheCompany’smanagementusestoevaluatebusinessperformanceandallocateresources,andisacomponentindeterminingemployeeincentivecompensation.TheCompany’smanagementbelievesEPprovidesadditionalperspectivetoinvestorsaboutfinancialreturnsgeneratedbythebusinessandrepresentsprofitgeneratedoverandabovethecostofcapitalusedbythebusinesstogeneratethatprofit.RefertoExhibit99.3forareconciliationofEPtoearningsfromcontinuingoperationsbeforeincometaxes.
CAUTIONARYSTATEMENT
ThisAnnualReportonForm10-K(thisReport),includingtheexhibitsheretoandtheinformationincorporatedbyreferenceherein,contains“forward-lookingstatements”withinthemeaningofSection27AoftheSecuritiesActof1933,asamended,andSection21EoftheSecuritiesExchangeActof1934,asamended,andsuchforward-lookingstatementsinvolverisksanduncertainties.Exceptforhistoricalinformation,statementsaboutfuturevolume,sales,foreigncurrencies,costs,costsavings,margin,earnings,earningspershare,dilutedearningspershare,foreigncurrencyexchangerates,cashflows,plans,objectives,expectations,growthorprofitability,areforward-lookingstatementsbasedonmanagement’sestimates,assumptionsandprojections.Wordssuchas“could,”“may,”“expects,”“anticipates,”“targets,”“goals,”“projects,”“intends,”“plans,”“believes,”“seeks,”“estimates,”“predicts”andvariationsonsuchwords,andsimilarexpressionsthatreflectourcurrentviewswithrespecttofutureeventsandoperationalandfinancialperformance,areintendedtoidentifysuchforward-lookingstatements.Theseforward-lookingstatementsareonlypredictions,subjecttorisksanduncertainties,andactualresultscoulddiffermateriallyfromthosediscussed.Importantfactorsthatcouldaffectperformanceandcauseresultstodiffermateriallyfrommanagement’sexpectationsaredescribedinthesectionsentitled“RiskFactors”and“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”inthisReport,asupdatedfromtimetotimeintheCompany’sSecuritiesandExchangeCommissionfilings.Thesefactorsinclude,butarenotlimitedto:
● intensecompetitionintheCompany’smarkets;● worldwide,regionalandlocaleconomicconditionsandfinancialmarketvolatility;● theabilityoftheCompanytodrivesalesgrowth,increasepriceandmarketshare,growitsproductcategoriesandachievefavorableproductandgeographic
mix;● volatilityandincreasesincommoditycostssuchasresin,sodiumhypochloriteandagriculturalcommodities,andincreasesinenergy,transportationorother
costs;● dependenceonkeycustomersandrisksrelatedtocustomerconsolidationandorderingpatterns;● risksrelatedtorelianceoninformationtechnologysystems,includingpotentialsecuritybreaches,cyber-attacks,privacybreachesordatabreachesthat
resultintheunauthorizeddisclosureofconsumer,customer,employeeorCompanyinformation,orserviceinterruptions;● costsresultingfromgovernmentregulations;● theabilityoftheCompanytosuccessfullymanageglobalpolitical,legal,taxandregulatoryrisks,includingchangesinregulatoryoradministrativeactivity;● risksrelatedtointernationaloperations,includingpoliticalinstability;government-imposedpricecontrolsorotherregulations;foreigncurrencyexchange
ratecontrols,includingperiodicchangesinsuchcontrols,fluctuationsanddevaluations;laborclaims,laborunrestandinflationarypressures,particularlyinArgentina;andpotentialharmandliabilitiesfromtheuse,storageandtransportationofchlorineincertaininternationalmarketswherechlorineisusedintheproductionofbleach;andthepossibilityofnationalization,expropriationofassetsorothergovernmentaction;
● risksrelatingtoacquisitions,newventuresanddivestitures,andassociatedcosts,includingthepotentialforassetimpairmentchargesrelatedto,amongothers,intangibleassetsandgoodwill;
● theabilityoftheCompanytodevelopandintroducecommerciallysuccessfulproducts;● supplydisruptionsandotherrisksinherentinrelianceonalimitedbaseofsuppliers;● theimpactofproductliabilityclaims,laborclaimsandotherlegalproceedings,includinginforeignjurisdictions● thesuccessoftheCompany’sbusinessstrategies;● theabilityoftheCompanytoimplementandgenerateanticipatedcostsavingsandefficiencies;● theCompany’sabilitytoattractandretainkeypersonnel;● theCompany’sabilitytomaintainitsbusinessreputationandthereputationofitsbrands;● environmentalmatters,includingcostsassociatedwiththeremediationofpastcontaminationandthehandlingand/ortransportationofhazardous
substances;● theimpactofnaturaldisasters,terrorismandothereventsbeyondtheCompany’scontrol;● theCompany’sabilitytomaximize,assertanddefenditsintellectualpropertyrights;● anyinfringementorclaimedinfringementbytheCompanyofthird-partyintellectualpropertyrights;
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● risksrelatedtothepotentialincreaseintheCompany’spurchasepriceforP&G’sinterestintheGlad®businessandtheimpactfromthedecisiononwhetherornottoextendthetermoftherelatedagreementwithP&G;
● theeffectoftheCompany’sindebtednessandcreditratingonitsbusinessoperationsandfinancialresults;● risksrelatedtotheCompany’sdiscontinuationofoperationsinVenezuela;● theCompany’sabilitytopayanddeclaredividendsorrepurchaseitsstockinthefuture;● theCompany’sabilitytomaintainaneffectivesystemofinternalcontrols,includingaftercompletingacquisitions;● uncertaintiesrelatingtotaxpositions,taxdisputesandchangesintheCompany’staxrate;● theaccuracyoftheCompany’sestimatesandassumptionsonwhichitsearningsguidanceisbased;and● theimpactsofpotentialstockholderactivism.
TheCompany’sforward-lookingstatementsinthisReportarebasedonmanagement’scurrentviewsandassumptionsregardingfutureeventsandspeakonlyasoftheirdates.TheCompanyundertakesnoobligationtopubliclyupdateorreviseanyforward-lookingstatements,whetherasaresultofnewinformation,futureeventsorotherwise,exceptasrequiredbythefederalsecuritieslaws.
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MANAGEMENT’SREPORTONINTERNALCONTROLOVERFINANCIALREPORTING
TheCompany’smanagementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting.TheCompany’sinternalcontroloverfinancialreportingisaprocessdesignedunderthesupervisionofitsChiefExecutiveOfficerandChiefFinancialOfficertoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoftheCompany’sfinancialstatementsforexternalreportinginaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditionsorthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
ManagementevaluatedtheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingusingthecriteriasetforthbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO)inInternalControl-IntegratedFrameworkpublishedin2013.Management,underthesupervisionandwiththeparticipationoftheCompany’sChiefExecutiveOfficerandChiefFinancialOfficer,assessedtheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingatJune30,2015,andconcludedthatitiseffective.
ManagementhasexcludedRenewLifefromitsassessmentofinternalcontroloverfinancialreportingasofJune30,2016becauseRenewLifewasacquiredbytheCompanyonMay2,2016.Theacquiredbusiness’internalcontroloverfinancialreportingandrelatedprocesseshavenotbeenintegratedintotheCompany’sexistingsystemsandinternalcontroloverfinancialreporting,andhavebeenexcludedfrommanagement’sassessmentoftheeffectivenessofinternalcontroloverfinancialreportingasofJune30,2016.RenewLife,whichisincludedintheJune30,2016consolidatedfinancialstatements,constitutes$344and$284oftotalandnetassets,respectively,asofJune30,2016and$21and$(6)ofnetsalesandnetearnings,respectively,fortheyearthenended.
TheCompany’sindependentregisteredpublicaccountingfirm,Ernst&YoungLLP,hasauditedtheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingasofJune30,2016.
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REPORTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
TheBoardofDirectorsandStockholdersofTheCloroxCompany
WehaveauditedtheaccompanyingconsolidatedbalancesheetsofTheCloroxCompanyasofJune30,2016and2015,andtherelatedconsolidatedstatementsofearnings,comprehensiveincome,stockholders’equityandcashflowsforeachofthethreeyearsintheperiodendedJune30,2016.OurauditsalsoincludedthefinancialstatementscheduleinExhibit99.2.ThesefinancialstatementsandschedulearetheresponsibilityoftheCompany’smanagement.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsandschedulebasedonouraudits.
WeconductedourauditsinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion.
Inouropinion,thefinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,theconsolidatedfinancialpositionofTheCloroxCompanyatJune30,2016and2015,andtheconsolidatedresultsofitsoperationsanditscashflowsforeachofthethreeyearsintheperiodendedJune30,2016,inconformitywithU.S.generallyacceptedaccountingprinciples.Also,inouropinion,therelatedfinancialstatementschedule,whenconsideredinrelationtothebasicfinancialstatementstakenasawhole,presentsfairlyinallmaterialrespectstheinformationsetforththerein.
Wealsohaveaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates),TheCloroxCompany’sinternalcontroloverfinancialreportingasofJune30,2016,basedoncriteriaestablishedinInternalControl-IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(2013framework)andourreportdatedAugust16,2016expressedanunqualifiedopinionthereon.
/s/Ernst&YoungLLP
SanFrancisco,CAAugust16,2016
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REPORTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM
TheBoardofDirectorsandStockholdersofTheCloroxCompany
WehaveauditedTheCloroxCompany’sinternalcontroloverfinancialreportingasofJune30,2016,basedoncriteriaestablishedinInternalControl-IntegratedFrameworkissuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(2013framework)(theCOSOcriteria).TheCloroxCompany’smanagementisresponsibleformaintainingeffectiveinternalcontroloverfinancialreporting,andforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreportingincludedintheaccompanyingManagement’sReportonInternalControlOverFinancialReporting.Ourresponsibilityistoexpressanopiniononthecompany’sinternalcontroloverfinancialreportingbasedonouraudit.
WeconductedourauditinaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates).Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,testingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk,andperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditprovidesareasonablebasisforouropinion.
Acompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
AsindicatedintheaccompanyingManagement’sReportonInternalControlOverFinancialReporting,management’sassessmentofandconclusionontheeffectivenessofinternalcontroloverfinancialreportingdidnotincludetheinternalcontrolsofRenewLife,whichisincludedintheJune30,2016consolidatedfinancialstatementsofTheCloroxCompanyandconstituted$344and$284oftotalandnetassets,respectively,asofJune30,2016and$21and$(6)ofnetsalesandnetearnings,respectively,fortheyearthenended.OurauditofinternalcontroloverfinancialreportingofTheCloroxCompanyalsodidnotincludeanevaluationoftheinternalcontroloverfinancialreportingofRenewLife.
Inouropinion,TheCloroxCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofJune30,2016,basedontheCOSOcriteria.
Wealsohaveaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates),theconsolidatedbalancesheetsasofJune30,2016and2015,andtherelatedconsolidatedstatementsofearnings,comprehensiveincome,stockholders’equity,andcashflowsforeachofthethreeyearsintheperiodendedJune30,2016ofTheCloroxCompanyandourreportdatedAugust16,2016expressedanunqualifiedopinionthereon.
/s/Ernst&YoungLLP
SanFrancisco,CAAugust16,2016
25
CONSOLIDATEDSTATEMENTSOFEARNINGSTheCloroxCompany
YearsendedJune30
Dollarsinmillions,exceptshareandpersharedata 2016 2015 2014
Netsales $ 5,761 $ 5,655 $ 5,514Costofproductssold 3,163 3,190 3,158Grossprofit 2,598 2,465 2,356Sellingandadministrativeexpenses 806 798 751Advertisingcosts 587 523 503Researchanddevelopmentcosts 141 136 125Interestexpense 88 100 103Other(income)expense,net (7) (13) (10)Earningsfromcontinuingoperationsbeforeincometaxes 983 921 884Incometaxesoncontinuingoperations 335 315 305Earningsfromcontinuingoperations 648 606 579Lossesfromdiscontinuedoperations,netoftax - (26) (21)Netearnings $ 648 $ 580 $ 558Netearnings(losses)pershareBasicContinuingoperations $ 5.01 $ 4.65 $ 4.47Discontinuedoperations - (0.20) (0.16)Basicnetearningspershare $ 5.01 $ 4.45 $ 4.31DilutedContinuingoperations $ 4.92 $ 4.57 $ 4.39Discontinuedoperations - (0.20) (0.16)Dilutednetearningspershare $ 4.92 $ 4.37 $ 4.23Weightedaveragesharesoutstanding(inthousands)Basic 129,472 130,310 129,558Diluted 131,717 132,776 131,742
SeeNotestoConsolidatedFinancialStatements
26
CONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINCOMETheCloroxCompany
YearsendedJune30Dollarsinmillions 2016 2015 2014
Earningsfromcontinuingoperations $648 $606 $579Lossesfromdiscontinuedoperations,netoftax - (26) (21)Netearnings 648 580 558Othercomprehensive(losses)income:Foreigncurrencyadjustments,netoftax (53) (54) (37)Netunrealizedgains(losses)onderivatives,netoftax 9 (14) (9)Pensionandpostretirementbenefitadjustments,netoftax (24) (17) (4)Totalothercomprehensive(losses)income,netoftax (68) (85) (50)Comprehensiveincome $ 580 $ 495 $ 508
SeeNotestoConsolidatedFinancialStatements
27
CONSOLIDATEDBALANCESHEETSTheCloroxCompany
AsofJune30
Dollarsinmillions,exceptshareandpersharedata 2016 2015
ASSETSCurrentassetsCashandcashequivalents $ 401 $ 382Receivables,net 569 519Inventories,net 443 385Othercurrentassets 72 143Totalcurrentassets 1,485 1,429Property,plantandequipment,net 906 918Goodwill 1,197 1,067Trademarks,net 657 535Otherintangibleassets,net 78 50Otherassets 195 165Totalassets $ 4,518 $ 4,164LIABILITIESANDSTOCKHOLDERS’EQUITYCurrentliabilitiesNotesandloanspayable $ 523 $ 95Currentmaturitiesoflong-termdebt - 300Accountspayableandaccruedliabilities 1,035 979Incometaxespayable - 31Totalcurrentliabilities 1,558 1,405Long-termdebt 1,797 1,796Otherliabilities 784 750Deferredincometaxes 82 95Totalliabilities 4,221 4,046CommitmentsandcontingenciesStockholders’equityPreferredstock:$1.00parvalue;5,000,000sharesauthorized;noneissuedoroutstanding - -Commonstock:$1.00parvalue;750,000,000sharesauthorized;158,741,461sharesissuedasofJune30,2016and2015;and129,355,263and128,614,310sharesoutstandingasofJune30,2016and2015,respectively 159 159Additionalpaid-incapital 868 775Retainedearnings 2,163 1,923Treasuryshares,atcost:29,386,198and30,127,151sharesasofJune30,2016and2015,respectively (2,323) (2,237)Accumulatedothercomprehensivenet(losses)income (570) (502)Stockholders’equity 297 118Totalliabilitiesandstockholders’equity $ 4,518 $ 4,164
SeeNotestoConsolidatedFinancialStatements
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CONSOLIDATEDSTATEMENTSOFSTOCKHOLDERS’EQUITYTheCloroxCompany
CommonStock AdditionalPaid-inCapital
TreasuryShares Accumulated
OtherComprehensive
Net(Losses)IncomeDollarsinmillions Shares(000) Amount
RetainedEarnings
Shares(000) Amount Total
BalanceasofJune30,2013 158,741$ 159$ 661$1,561 (28,375) $(1,868) $(367) $ 146
Netearnings 558 558
Othercomprehensiveloss (50) (50)
Accrueddividends (374) (374)
Stock-basedcompensation 36 36
Otheremployeestockplanactivities 12 (6) 1,476 92 98
Treasurystockpurchased (3,046) (260) (260)
BalanceasofJune30,2014 158,741 159 709 1,739 (29,945) (2,036) (417) 154
Netearnings 580 580
Othercomprehensiveloss (85) (85)
Accrueddividends (391) (391)
Stock-basedcompensation 32 32
Otheremployeestockplanactivities 34 (5) (4,198) 233 262
Treasurystockpurchased 4,016 (434) (434)
BalanceasofJune30,2015 158,741 159 775 1,923 (30,127) (2,237) (502) 118
Netearnings 648 648
Othercomprehensiveloss (68) (68)
Accrueddividends (406) (406)
Stock-basedcompensation 45 45
Otheremployeestockplanactivities 48 (2) 2,892 168 214
Treasurystockpurchased (2,151) (254) (254)
BalanceasofJune30,2016 158,741 $ 159 $ 868 $ 2,163 (29,386) $ (2,323) $ (570) $ 297
SeeNotestoConsolidatedFinancialStatements
29
CONSOLIDATEDSTATEMENTSOFCASHFLOWSTheCloroxCompanyYearsendedJune30Dollarsinmillions 2016 2015 2014
Operatingactivities:Netearnings $ 648 $ 580 $ 558Deduct:Lossesfromdiscontinuedoperations,netoftax - (26) (21)Earningsfromcontinuingoperations 648 606 579Adjustmentstoreconcileearningsfromcontinuingoperationstonetcashprovidedbycontinuingoperations:Depreciationandamortization 165 169 177Stock-basedcompensation 45 32 36Deferredincometaxes 5 (16) (21)Settlementofinterestrateforwardcontracts - (25) -Other 1 (17) 6Changesin:Receivables,net (52) 6 20Inventories,net (45) (25) 1Othercurrentassets 6 6 5Accountspayableandaccruedliabilities 57 93 (12)Incometaxespayable (62) 29 (5)Netcashprovidedbycontinuingoperations 768 858 786Netcashprovidedby(usedfor)discontinuedoperations 10 16 (19)Netcashprovidedbyoperations 778 874 767Investingactivities:Capitalexpenditures (172) (125) (137)Businessacquired,netofcashacquired (290) - -Other 32 19 -Netcashusedforinvestingactivitiesfromcontinuingoperations (430) (106) (137)Netcashusedforinvestingactivitiesbydiscontinuedoperations - - (1)Netcashusedforinvestingactivities (430) (106) (138)Financingactivities:Notesandloanspayable,net 426 (48) (60)Long-termdebtborrowings,netofissuancecosts - 495 -Long-termdebtrepayments (300) (575) -Treasurystockpurchased (254) (434) (260)Cashdividendspaid (398) (385) (368)Issuanceofcommonstockforemployeestockplansandother 210 251 96Netcashusedforfinancingactivities (316) (696) (592)Effectofexchangeratechangesoncashandcashequivalents (13) (19) (7)Netincreaseincashandcashequivalents 19 53 30Cashandcashequivalents:Beginningofyear 382 329 299Endofyear $ 401 $ 382 $ 329Supplementalcashflowinformation:Interestpaid $ 79 $ 104 $ 76Incometaxespaid,netofrefunds 323 236 312Noncashfinancingactivities:Cashdividendsdeclaredandaccrued,butnotpaid 104 99 95
SeeNotestoConsolidatedFinancialStatements
30
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTSTheCloroxCompany
(Dollarsinmillions,exceptshareandpersharedata)
NOTE1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES
NatureofOperationsandBasisofPresentation
TheCompanyisprincipallyengagedintheproduction,marketingandsalesofconsumerproductsthroughmassretailoutletsandgrocery,e-commercechannels,wholesaledistributorsandmedicalsupplydistributors.TheconsolidatedfinancialstatementsincludethestatementsoftheCompanyanditswhollyownedandcontrolledsubsidiaries.Allsignificantintercompanytransactionsandaccountswereeliminatedinconsolidation.Certainprioryearreclassificationsweremadeintheconsolidatedfinancialstatementsandrelatednotestotheconsolidatedfinancialstatementstoconformtothecurrentyearpresentation.
EffectiveSeptember22,2014,theCompany’sVenezuelaaffiliate,CorporaciónCloroxdeVenezuelaS.A.(CloroxVenezuela),discontinueditsoperations.Consequently,theCompanypresentsthefinancialresultsofCloroxVenezuelaasadiscontinuedoperationintheconsolidatedfinancialstatementsforallperiodspresentedherein.
UseofEstimates
ThepreparationoftheseconsolidatedfinancialstatementsinconformitywithgenerallyacceptedaccountingprinciplesintheUnitedStatesofAmerica(U.S.GAAP)requiresmanagementtoreachopinionsastoestimatesandassumptionsthataffectreportedamountsandrelateddisclosures.Specificareasrequiringmanagement’sopiniononestimatesandjudgmentsincludeassumptionspertainingtoaccrualsforconsumerandtrade-promotionprograms,stock-basedcompensationcosts,pensionandpost-employmentbenefitcosts,futurecashflowsassociatedwithimpairmenttestingofgoodwillandotherlong-livedassets,thecreditworthinessofcustomers,uncertaintaxpositions,taxvaluationallowancesandlegal,environmentalandinsurancematters.Actualresultscouldmateriallydifferfromestimatesandassumptionsmade.
CashandCashEquivalents
Cashequivalentsconsistofhighlyliquidinstruments,timedepositsandmoneymarketfundswithaninitialmaturityatpurchaseofthreemonthsorless.Thefairvalueofcashandcashequivalentsapproximatesthecarryingamount.
TheCompany’scashpositionincludesamountsheldbyforeignsubsidiariesand,asaresult,therepatriationofcertaincashbalancesfromsomeoftheCompany’sforeignsubsidiariescouldresultinadditionaltaxcostsintheUnitedStatesandincertainforeignjurisdictions.However,thesecashbalancesaregenerallyavailablewithoutlegalrestrictiontofundlocalbusinessoperations.Inaddition,aportionoftheCompany’scashbalanceisheldinU.S.dollarsbyforeignsubsidiaries,whosefunctionalcurrencyistheirlocalcurrency.SuchU.S.dollarbalancesarereportedontheforeignsubsidiaries’books,intheirfunctionalcurrency,withtheimpactfromforeigncurrencyexchangeratedifferencesrecordedinOther(income)expense,net.TheCompany’scashholdingswereasfollowsasofJune30:
2016 2015
U.S.dollarbalancesheldbyU.S.dollarfunctionalcurrencysubsidiariesandatparent $249 $221Non-U.S.dollarbalancesheldbynon-U.S.dollarfunctionalcurrencysubsidiaries 133 142U.S.dollarbalancesheldbynon-U.S.dollarfunctionalcurrencysubsidiaries 19 19Non-U.S.dollarbalancesheldbyU.S.dollarfunctionalcurrencysubsidiaries - -Total $ 401 $ 382
AsofJune30,2016and2015,theCompanyhad$4and$3ofrestrictedcash,respectively,whichisprimarilyrelatedtofiscalyear2012acquisitions.RestrictedcashwasincludedinOtherassetsasofJune30,2016andinOthercurrentassetsasofJune30,2015.
31
NOTE1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
Inventories
Inventoriesarestatedatthelowerofcostormarket.Whennecessary,theCompanyprovidesallowancestoadjustthecarryingvalueofitsinventorytothelowerofcostormarket,includinganycoststosellordispose.Appropriateconsiderationisgiventoobsolescence,excessiveinventorylevels,productdeteriorationandotherfactorsinevaluatingnetrealizablevalueforthepurposesofdeterminingthelowerofcostormarket.
Property,PlantandEquipmentandFinite-LivedIntangibleAssets
Property,plantandequipmentandfinite-livedintangibleassetsarestatedatcost.Depreciationandamortizationexpensearecalculatedbythestraight-linemethodusingtheestimatedusefullivesorlivesdeterminedbyleasecontractsfortherelatedassets.Thetablebelowprovidesestimatedusefullivesofproperty,plantandequipmentbyassetclassification.
Estimated
UsefulLives
Buildingsandleaseholdimprovements 10-40yearsLandimprovements 10-30yearsMachineryandequipment 3-15yearsComputerequipment 3-5yearsCapitalizedsoftwarecosts 3-7years
Property,plantandequipmentandfinite-livedintangibleassetsarereviewedforimpairmentwhenevereventsorchangesincircumstancesoccurthatindicatethatthecarryingamountofanasset(orassetgroup)maynotbefullyrecoverable.Theriskofimpairmentisinitiallyassessedbasedonanestimateoftheundiscountedcashflowsatthelowestlevelforwhichidentifiablecashflowsexist.Impairmentoccurswhenthecarryingvalueoftheassetexceedstheestimatedfutureundiscountedcashflowsgeneratedbytheasset.Whenimpairmentisindicated,animpairmentchargeisrecordedforthedifferencebetweenthecarryingvalueoftheassetanditsestimatedfairmarketvalue.Dependingontheasset,estimatedfairmarketvaluemaybedeterminedeitherbyuseofadiscountedcashflowmodelorbyreferencetoestimatedsellingvaluesofassetsinsimilarcondition.
CapitalizationofSoftwareCosts
TheCompanycapitalizescertainqualifyingcostsincurredintheacquisitionanddevelopmentofsoftwareforinternaluse,includingthecostsofthesoftware,materials,consultants,interestandpayrollandpayroll-relatedcostsforemployeesduringtheapplicationdevelopmentstage.Internalandexternalcostsincurredduringthepreliminaryprojectstageandpostimplementation-operationstage,mainlytrainingandmaintenancecosts,areexpensedasincurred.Oncetheapplicationissubstantiallycompleteandreadyforitsintendeduse,qualifyingcostsareamortizedonastraight-linebasisoverthesoftware’sestimatedusefullife.
ImpairmentReviewofGoodwillandIndefinite-LivedIntangibleAssets
TheCompanytestsitsgoodwill,trademarkswithindefinitelivesandotherindefinite-livedintangibleassetsannuallyforimpairmentinthefiscalfourthquarterunlessthereareindicationsduringadifferentinterimperiodthattheseassetsmayhavebecomeimpaired.
Withrespecttogoodwill,theCompanyhastheoptiontofirstassessqualitativefactorssuchasmaturityandstabilityofthereportingunit,magnitudeofexcessfairvalueovercarryingvaluefromtheprioryear’simpairmenttesting,otherreportingunitspecificoperatingresultsaswellasneweventsandcircumstancesimpactingtheoperationsatthereportingunitlevel.Iftheresultofaqualitativetestindicatesapotentialforimpairmentofareportingunit,aquantitativetestisperformed.Thequantitativetestisatwo-stepprocess.Inthefirststep,theCompanycomparestheestimatedfairvalueofthereportingunittoitscarryingvalue.Inallinstances,theestimatedfairvalueexceededthecarryingvalueofthereportingunit.Hadtheestimatedfairvalueofanyreportingunitbeenlessthanitscarryingvalue,theCompanywouldhaveperformedasecondsteptodeterminetheimpliedfairvalueofthereportingunit’sgoodwill.Ifthecarryingamountofareportingunit’sgoodwillhadexceededitsimpliedfairvalue,animpairmentchargewouldhavebeenrecordedforthedifferencebetweenthecarryingamountandtheimpliedfairvalueofthereportingunit’sgoodwill.
32
NOTE1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
Todeterminethefairvalueofareportingunitaspartofitsquantitativetest,theCompanyusesadiscountedcashflow(DCF)approach,asitbelievesthatthisapproachisthemostreliableindicatorofthefairvalueofitsbusinessesandthefairvalueoftheirfutureearningsandcashflows.Underthisapproach,theCompanyestimatesthefuturecashflowsofeachreportingunitanddiscountsthesecashflowsatarateofreturnthatreflectstheirrelativerisk.ThecashflowsusedintheDCFareconsistentwiththosetheCompanyusesinitsinternalplanning,whichgivesconsiderationtoactualbusinesstrendsexperienced,andthebroaderbusinessstrategyforthelongterm.TheotherkeyestimatesandfactorsusedintheDCFinclude,butarenotlimitedto,futuresalesvolumes,revenueandexpensegrowthrates,changesinworkingcapital,foreignexchangerates,currencydevaluation,inflationandaperpetuitygrowthrate.Changesinsuchestimatesortheapplicationofalternativeassumptionscouldproducedifferentresults.
Fortrademarksandotherintangibleassetswithindefinitelives,theCompanyperformsaquantitativeanalysistotestforimpairment.Whenaquantitativetestisperformed,theestimatedfairvalueofanassetiscomparedtoitscarryingamount.Ifthecarryingamountofsuchassetexceedsitsestimatedfairvalue,animpairmentchargeisrecordedforthedifferencebetweenthecarryingamountandtheestimatedfairvalue.TheCompanyusestheincomeapproachtoestimatethefairvalueofitstrademarksandotherintangibleassetswithindefinitelives.Thisapproachrequiressignificantjudgmentsindeterminingboththeassets’estimatedcashflowsaswellastheappropriatediscountandforeignexchangeratesappliedtothosecashflowstodeterminefairvalue.Changesinsuchestimatesortheuseofalternativeassumptionscouldproducedifferentresults.
Stock-basedCompensation
TheCompanygrantsvariousnonqualifiedstock-basedcompensationawardstoeligibleemployees,includingstockoptionsandperformanceunits.
Forstockoptions,theCompanyestimatesthefairvalueofeachawardonthedateofgrantusingtheBlack-Scholesvaluationmodel,whichrequiresmanagementtomakeestimatesregardingexpectedoptionlife,stockpricevolatilityandotherassumptions.Groupsofemployeesthathavesimilarhistoricalexercisebehaviorareconsideredseparatelyforvaluationpurposes.TheCompanyestimatesstockoptionforfeituresbasedonhistoricaldataforeachemployeegrouping.Thetotalnumberofstockoptionsexpectedtovestisadjustedbyactualandestimatedforfeitures.Changestotheactualandestimatedforfeitureswillresultinacumulativecatch-upadjustmentintheperiodofchange.Compensationexpenseisrecordedbyamortizingthegrantdatefairvaluesonastraight-linebasisoverthevestingperiod,adjustedforestimatedforfeitures.
TheCompany’sperformanceunitgrantsprovidefortheissuanceofcommonstocktocertainmanagerialstaffandexecutivemanagementiftheCompanyachievesspecifiedperformancetargets.Thenumberofsharesissuedaredependentuponvestingandtheachievementofspecifiedperformancetargets.Theperformanceperiodisthreeyearsandthepayoutdeterminationismadeattheendofthethree-yearperformanceperiod.Performanceunitgrantsreceivedividendsearnedduringthevestingperioduponvesting.Thefairvalueofeachgrantissuedisestimatedonthedateofgrantbasedonthecurrentmarketpriceofthestock.Thetotalamountofcompensationexpenserecognizedreflectsestimatedforfeitureratesandtheinitialassumptionthatperformancegoalswillbeachieved.Compensationexpenseisadjustedbasedonmanagement’sassessmentoftheprobabilitythatperformancegoalswillbeachieved.Ifsuchgoalsarenotmetoritisdeterminedthatachievementofperformancegoalsisnotprobable,previouslyrecognizedcompensationexpenseistruedupinthecurrentperiodtoreflecttheexpectedpayoutlevel.Ifitisdeterminedthattheperformancegoalswillbeexceeded,additionalcompensationexpenseisrecognized,subjecttoacapof150%.
Cashflowsresultingfromtaxdeductionsinexcessofthecumulativecompensationcostrecognizedforstock-basedpaymentarrangements(excesstaxbenefits)areprimarilyclassifiedasfinancingcashinflows.
33
NOTE1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
EmployeeBenefits
TheCompanyaccountsforitsdefinedbenefitretirementincomeandretirementhealthcareplansusingactuarialmethods.Thesemethodsuseanattributionapproachthatgenerallyspreads“planevents”overtheservicelivesorexpectedlifetime(forfrozenplans)ofplanparticipants.Examplesofplaneventsareplanamendmentsandchangesinactuarialassumptionssuchastheexpectedreturnonplanassets,discountrate,rateofcompensationincreaseandcertainemployee-relatedfactors,suchasretirementageandmortality.Theprincipleunderlyingtheattributionapproachisthatemployeesrenderserviceovertheiremploymentperiodonarelatively“smooth”basisand,therefore,thestatementofearningseffectsofretirementincomeandretirementhealthcareplansarerecognizedinthesamepattern.Oneoftheprincipalassumptionsusedinthenetperiodicbenefitcostcalculationistheexpectedreturnonplanassets.Therequireduseofanexpectedreturnonplanassetsmayresultinrecognizedpensionexpenseorincomethatdiffersfromtheactualreturnsofthoseplanassetsinanygivenyear.Overtime,however,thegoalisfortheexpectedlong-termreturnstoapproximatetheactualreturnsand,therefore,theexpectationisthatthepatternofincomeandexpenserecognitionshouldcloselymatchthepatternoftheservicesprovidedbytheparticipants.TheCompanyusesamarket-relatedvaluemethodforcalculatingplanassetsforpurposesofdeterminingtheamortizationofactuarialgainsandlosses.Thedifferencesbetweenactualandexpectedreturnsarerecognizedinthenetperiodicbenefitcostcalculationovertheaverageremainingserviceperiodorexpectedlifetime(forfrozenplans)oftheplanparticipantsusingthecorridorapproach.Underthisapproach,onlyactuarialgains(losses)thatexceed5%ofthegreateroftheprojectedbenefitobligationorthemarket-relatedvalueofassetsareamortizedtopensionexpensebytheCompany.Indevelopingitsexpectedreturnonplanassets,theCompanyconsidersthelong-termactualreturnsrelativetothemixofinvestmentsthatcompriseitsplanassetsandalsodevelopsestimatesoffutureinvestmentreturnsbyconsideringexternalsources.
TheCompanyrecognizesanactuarial-basedobligationattheonsetofdisabilityforcertainbenefitsprovidedtoindividualsafteremployment,butbeforeretirement,thatincludemedical,dental,vision,lifeandotherbenefits.
EnvironmentalCosts
TheCompanyisinvolvedincertainenvironmentalremediationandongoingcomplianceactivities.Accrualsforenvironmentalmattersarerecordedonasite-by-sitebasiswhenitisprobablethataliabilityhasbeenincurredandbaseduponareasonableestimateoftheliability.TheCompany’saccrualsreflecttheanticipatedparticipationofotherpotentiallyresponsiblepartiesinthoseinstanceswhereitisprobablethatsuchpartiesarelegallyresponsibleandfinanciallycapableofpayingtheirrespectivesharesoftherelevantcosts.Theseaccrualsareadjustedperiodicallyasassessmentandremediationeffortsprogressorasadditionaltechnicalorlegalinformationbecomeavailable.Actualcoststobeincurredatidentifiedsitesinfutureperiodsmayvaryfromtheestimates,giventheinherentuncertaintiesinevaluatingenvironmentalexposures.TheaccrualforenvironmentalmattersisincludedinAccountspayableandaccruedliabilitiesandOtherliabilitiesintheCompany’sconsolidatedbalancesheetsonanundiscountedbasisduetouncertaintyregardingthetimingoffuturepayments.
RevenueRecognition
Salesarerecognizedasrevenuewhentheriskoflossandtitlepasstothecustomerandwhenallofthefollowinghaveoccurred:afirmsalesarrangementexists,pricingisfixedordeterminableandcollectionisreasonablyassured.Salesarerecordednetofallowancesfortradepromotions,coupons,returnsandotherdiscounts.TheCompanyroutinelycommitstoone-timeorongoingtrade-promotionprogramswithcustomersandconsumercouponprogramsthatrequiretheCompanytoestimateandaccruetheexpectedcostsofsuchprograms.Programsincludeshelfpricereductions,end-of-aisleorin-storedisplaysoftheCompany’sproductsandgraphicsandothertrade-promotionactivitiesconductedbythecustomer.Couponsarerecognizedasaliabilitywhendistributedbaseduponexpectedconsumerredemptions.TheCompanymaintainsliabilitiesrelatedtotheseprogramsfortheestimatedexpensesincurred,butnotpaid,attheendofeachperiod.Trade-promotionandcouponredemptioncostsarerecordedasareductionofsales.
TheCompanyprovidesanallowancefordoubtfulaccountsbasedonitshistoricalexperienceandongoingassessmentofitscustomers’creditrisk.Receivableswerepresentednetofanallowancefordoubtfulaccountsof$5and$4asofJune30,2016and2015,respectively.Receivables,net,includednon-customerreceivablesof$9and$12asofJune30,2016and2015,respectively.
34
NOTE1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
CostofProductsSold
CostofproductssoldrepresentsthecostsdirectlyrelatedtothemanufactureanddistributionoftheCompany’sproductsandprimarilyincludesrawmaterials,packaging,contractmanufacturingfees,shippingandhandling,warehousing,packagedesign,depreciation,amortization,directandindirectlaborandoperatingcostsfortheCompany’smanufacturinganddistributionfacilitiesincludingsalary,benefitcostsandincentivecompensation,androyaltiesandotherchargesrelatedtotheCompany’sGlad®VentureAgreement(seeNote10).
Costsassociatedwithdevelopinganddesigningnewpackagingareexpensedasincurredandincludedesign,artwork,filmsandlabeling.ExpensesforfiscalyearsendedJune30,2016,2015and2014were$11,$11and$12,respectively,allofwhichwerereflectedinCostofproductssoldordiscontinuedoperations,asappropriate,intheconsolidatedstatementsofearnings.
SellingandAdministrativeExpenses
SellingandadministrativeexpensesrepresentcostsincurredbytheCompanyingeneratingrevenuesandmanagingthebusinessandincludemarketresearch,commissionsandcertainadministrativeexpenses.Administrativeexpensesincludesalary,benefits,incentivecompensation,professionalfeesandservices,softwareandlicensingfeesandotheroperatingcostsassociatedwiththeCompany’snon-manufacturing,non-researchanddevelopmentstaff,facilitiesandequipment.
AdvertisingandResearchandDevelopmentCosts
TheCompanyexpensesadvertisingandresearchanddevelopmentcostsintheperiodincurred.
IncomeTaxes
TheCompanyusestheassetandliabilitymethodtoaccountforincometaxes.Deferredtaxassetsandliabilitiesarerecognizedfortheanticipatedfuturetaxconsequencesattributabletodifferencesbetweenfinancialstatementamountsandtheirrespectivetaxbasis.ManagementreviewstheCompany’sdeferredtaxassetstodeterminewhethertheirvaluecanberealizedbaseduponavailableevidence.Avaluationallowanceisestablishedwhenmanagementbelievesthatitismorelikelythannotthatsomeportionofitsdeferredtaxassetswillnotberealized.ChangesinvaluationallowancesfromperiodtoperiodareincludedintheCompany’staxprovisionintheperiodofchange.Inadditiontovaluationallowances,theCompanyprovidesforuncertaintaxpositionswhensuchtaxpositionsdonotmeetcertainrecognitionthresholdsormeasurementstandards.Amountsforuncertaintaxpositionsareadjustedinquarterswhennewinformationbecomesavailableorwhenpositionsareeffectivelysettled.
U.S.incometaxexpenseandforeignwithholdingtaxesareprovidedonunremittedforeignearningsthatarenotindefinitelyreinvestedatthetimetheearningsaregenerated.Whereforeignearningsareindefinitelyreinvested,noprovisionforU.S.incomeorforeignwithholdingtaxesismade.WhencircumstanceschangeandtheCompanydeterminesthatsomeoralloftheundistributedearningswillberemittedintheforeseeablefuture,theCompanyaccruesanexpenseinthecurrentperiodforU.S.incometaxesandforeignwithholdingtaxesattributabletotheanticipatedremittance.
ForeignCurrencyTransactionsandTranslation
LocalcurrenciesarethefunctionalcurrenciesforsubstantiallyalloftheCompany’sforeignoperations.Whenthetransactionalcurrencyisdifferentthanthefunctionalcurrency,transactiongainsandlossesareincludedasacomponentofOther(income)expense,net.Inaddition,certainassetsandliabilitiesdenominatedincurrenciesdifferentthanaforeignsubsidiary’sfunctionalcurrencyarereportedonthesubsidiary’sbooksinitsfunctionalcurrency,withtheimpactfromexchangeratedifferencesrecordedinOther(income)expense,net.AssetsandliabilitiesofforeignoperationsaretranslatedintoU.S.dollarsusingtheexchangeratesineffectatthebalancesheetdate,whileincomeandexpensesaretranslatedattheaveragemonthlyexchangeratesduringtheyear.
35
NOTE1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
GainsandlossesonforeigncurrencytranslationsarereportedasacomponentofOthercomprehensiveincome(loss).DeferredtaxesarenotprovidedoncumulativetranslationadjustmentswheretheCompanyexpectsearningsofaforeignsubsidiarytobeindefinitelyreinvested.TheincometaxeffectofcurrencytranslationadjustmentsrelatedtoforeignsubsidiariesandjointventuresforwhichearningsarenotconsideredindefinitelyreinvestedisrecordedasacomponentofdeferredtaxeswithanoffsettoOthercomprehensiveincome(loss).
DerivativeInstruments
TheCompany’suseofderivativeinstruments,principallyswaps,futuresandforwardcontracts,islimitedtonon-tradingpurposesandisdesignedtopartiallymanageexposuretochangesincommodityprices,interestratesandforeigncurrencies.TheCompany’scontractsarehedgesfortransactionswithnotionalamountsandperiodsconsistentwiththerelatedexposuresanddonotconstituteinvestmentsindependentoftheseexposures.
Thechangesinthefairvalue(i.e.,gainsorlosses)ofaderivativeinstrumentarerecordedaseitherassetsorliabilitiesintheconsolidatedbalancesheetswithanoffsettonetearningsorOthercomprehensiveincome(loss)dependingonwhether,foraccountingpurposes,ithasbeendesignatedandqualifiesasanaccountinghedgeand,ifso,onthetypeofhedgingrelationship.Thecriteriausedtodetermineifhedgeaccountingtreatmentisappropriateare:(a)formaldesignationanddocumentationofthehedgingrelationship,theriskmanagementobjectiveandhedgingstrategyathedgeinception;(b)eligibilityofhedgeditems,transactionsandcorrespondinghedginginstrument;and(c)effectivenessofthehedgingrelationshipbothatinceptionofthehedgeandonanongoingbasisinachievingthehedgingobjectives.Forthosederivativeinstrumentsdesignatedandqualifyingashedginginstruments,theCompanymustdesignatethehedginginstrumenteitherasafairvaluehedgeorasacashflowhedge.TheCompanydesignatesitscommodityforwardandfuturecontractsforforecastedpurchasesofrawmaterials,interestrateforwardcontractsforforecastedinterestpayments,andforeigncurrencyforwardcontractsforforecastedpurchasesofinventoryascashflowhedges.DuringthefiscalyearsendedJune30,2016,2015and2014,theCompanyhadnohedginginstrumentsdesignatedasfairvaluehedges.
Forderivativeinstrumentsdesignatedandqualifyingascashflowhedges,theeffectiveportionofgainsorlossesisreportedasacomponentofOthercomprehensiveincome(loss)andreclassifiedintoearningsinthesameperiodorperiodsduringwhichthehedgedtransactionaffectsearnings.Fromtimetotime,theCompanymayhavecontractsnotdesignatedashedgesforaccountingpurposes,forwhichitrecognizeschangesinthefairvalueintheconsolidatedstatementofearningsinthecurrentperiod.Cashflowsfromhedgingactivitiesareclassifiedasoperatingactivitiesintheconsolidatedstatementsofcashflows.
RecentlyIssuedAccountingStandards
InMarch2016,theFinancialAccountingStandardsBoard(FASB)issuedAccountingStandardsUpdate(ASU)No.2016-09,“Compensation-StockCompensation(Topic718):ImprovementstoEmployeeShare-BasedPaymentAccounting,”whichsimplifiesseveralaspectsoftheaccountingforshare-basedpaymenttransactions,includingrequiringexcesstaxbenefitsanddeficienciestoberecognizedasincometaxbenefitorexpenseintheconsolidatedstatementofearningsandexcesstaxbenefitsanddeficienciestobeclassifiedasanoperatingactivityintheconsolidatedstatementofcashflows.ThenewguidanceiseffectivefortheCompanybeginninginthefirstquarteroffiscalyear2018,withearlyadoptionpermitted.TheCompanyisplanningtoadoptthestandardinthefirstquarteroffiscalyear2017.Whiletheactualbenefitrealizedmayvarysignificantlygiventheinherentuncertaintyinpredictingfutureshare-basedtransactions,theCompanycurrentlyestimatesthattheadoptionwillresultinapproximatelya4percentagepointbenefittotheCompany’shistoricaleffectivetaxrateof34%to35%forfiscalyear2017.
InFebruary2016,theFASBissuedASUNo.2016-02,“Leases(Topic842),”whichrequireslesseestorecognizearight-of-useassetandleaseliabilityforallleaseswithtermsofmorethan12months.Recognition,measurementandpresentationwilldependonclassificationasafinanceoroperatinglease.ASU2016-02alsorequiresexpandeddisclosuresaboutleasingarrangements.ThenewguidanceiseffectivefortheCompanybeginninginthefirstquarteroffiscalyear2020,withearlyadoptionpermitted.TheCompanyiscurrentlyevaluatingtheimpactthatadoptionofthisguidancewillhaveonitsconsolidatedfinancialstatements.
InNovember2015,theFASBissuedASUNo.2015-17,“IncomeTaxes(Topic740):BalanceSheetClassificationofDeferredTaxes,”whichrequiresalldeferredtaxliabilitiesandassetstobeclassifiedasnoncurrent.TheCompanyadoptedthestandardinthefourthquarteroffiscalyear2016onaprospectivebasisaspermitted.Priorperiodbalanceshavenotbeenretrospectivelyadjusted.
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NOTE1.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES(Continued)
InApril2015,theFinancialAccountingStandardsBoard(FASB)issuedAccountingStandardsUpdate(ASU)No.2015-03,“SimplifyingthePresentationofDebtIssuanceCost,”whichrequiresthatdebtissuancecostsrelatedtoarecognizeddebtliabilitybepresentedinthebalancesheetasadirectdeductionfromthecarryingamountofthatdebtliability,consistentwithdebtdiscounts.ThenewguidanceiseffectivefortheCompanybeginninginthefirstquarteroffiscalyear2017,withearlyadoptionpermitted.TheCompanydoesnotexpecttheadoptionofthisguidancewillhaveasignificantimpactonitsconsolidatedfinancialstatements.
InFebruary2015,theFASBissuedASUNo.2015-02,“AmendmentstotheConsolidationAnalysis,”whichchangestheguidanceforevaluatingwhethertoconsolidatecertainlegalentities.Theamendmentsmodifytheevaluationofwhetherlimitedpartnershipsandsimilarlegalentitiesarevariableinterestentities("VIEs")orvotinginterestentities.ThenewguidanceiseffectivefortheCompanybeginninginthefirstquarteroffiscalyear2017,withearlyadoptionpermitted.TheCompanydoesnotexpecttheadoptionofthisguidancewillhaveasignificantimpactonitsconsolidatedfinancialstatements.
InMay2014,theFASBissuedASUNo.2014-09,“RevenuefromContractswithCustomers(Topic606),”whichreplacesmostexistingU.S.GAAPrevenuerecognitionguidanceandisintendedtoimproveandconvergewithinternationalstandardsthefinancialreportingrequirementsforrevenuefromcontractswithcustomers.ThecoreprincipleofASU2014-09isthatanentityshouldrecognizerevenueforthetransferofgoodsorservicesequaltotheamountthatitexpectstobeentitledtoreceiveforthosegoodsorservices.ASU2014-09alsorequiresadditionaldisclosuresaboutthenature,timinganduncertaintyofrevenueandcashflowsarisingfromcontractswithcustomers,includinginformationaboutsignificantjudgmentsandchangesinjudgments.ThenewguidanceiseffectivefortheCompanybeginninginthefirstquarteroffiscalyear2019,withtheoptiontoearlyadoptinthefirstquarteroffiscalyear2018.TheCompanyiscurrentlyevaluatingtheimpactthatadoptionofthisguidancewillhaveonitsconsolidatedfinancialstatements.
NOTE2.DISCONTINUEDOPERATIONS
OnSeptember22,2014,CloroxVenezuelaannouncedthatitwasdiscontinuingitsoperations,effectiveimmediately,andseekingtosellitsassets.Sincefiscalyear2012,CloroxVenezuelawasrequiredtosellmorethantwothirdsofitsproductsatpricesfrozenbytheVenezuelangovernment.Duringthissameperiod,CloroxVenezuelaexperiencedsuccessiveyearsofhyperinflationresultinginsignificantsustainedincreasesinitsinputcosts,includingpackaging,rawmaterials,transportationandwages.Asaresult,CloroxVenezuelahadbeensellingitsproductsataloss,resultinginongoingoperatinglosses.CloroxVenezuelarepeatedlymetwithgovernmentauthoritiesinanefforttohelpthemunderstandtherapidlydecliningstateofthebusiness,includingtheneedforimmediate,significantandongoingpriceincreasesandothercriticalremedialactionstoaddresstheseadverseimpacts.BasedontheVenezuelangovernment’srepresentations,CloroxVenezuelahadexpectedsignificantpriceincreaseswouldbeforthcomingmuchearlier;however,thepriceincreasessubsequentlyapprovedwereinsufficientandwouldhavecausedCloroxVenezuelatocontinueoperatingatasignificantlossintotheforeseeablefuture.Assuch,CloroxVenezuelawasnolongerfinanciallyviableandwasforcedtodiscontinueitsoperations.
OnSeptember26,2014,theCompanyreportedthatVenezuelanVicePresidentJorgeArreazaannounced,withendorsementbyPresidentNicolásMaduro,thattheVenezuelangovernmenthadoccupiedtheSantaLucíaandGuacaraproductionfacilitiesofCloroxVenezuela.OnNovember6,2014,theCompanyreportedthattheVenezuelangovernmenthadpublishedaresolutiongrantingagovernment-sponsoredSpecialAdministrativeBoardfullauthoritytorestartandoperatethebusinessofCloroxVenezuela,therebyreaffirmingthegovernment'sexpropriationofCloroxVenezuela’sassets.Further,PresidentNicolásMaduroannouncedthegovernment'sintentiontofacilitatetheresumedproductionofbleachandothercleaningproductsatCloroxVenezuelaplants.Healsoannouncedhisapprovalofafinancialcredittoinvestinrawmaterialsandproductionattheplants.TheseactionsbytheVenezuelangovernmentweretakenwithouttheconsentorinvolvementofCloroxVenezuela,itsparentCloroxSpainS.L.(CloroxSpain)oranyoftheiraffiliates.CloroxVenezuela,CloroxSpainandtheiraffiliatesreservedtheirrightsunderallapplicablelawsandtreaties.
Withthisexit,thefinancialresultsofCloroxVenezuelaarereflectedasdiscontinuedoperationsintheCompany’sconsolidatedfinancialstatements.TheresultsofCloroxVenezuelahavehistoricallybeenpartoftheInternationalreportablesegment.
NetsalesforCloroxVenezuelawere$0,$11and$77forthefiscalyearsendedJune30,2016,2015and2014,respectively.
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NOTE2.DISCONTINUEDOPERATIONS(Continued)
Thefollowingtableprovidesasummaryofgains(losses)fromdiscontinuedoperationsforCloroxVenezuelaandgains(losses)fromdiscontinuedoperationsotherthanCloroxVenezuelafortheyearsendedJune30:
2016 2015 2014
OperatinglossesfromCloroxVenezuelabeforeincometaxes $ - $ (6) $ (23)ExitcostsandotherrelatedexpensesforCloroxVenezuela (2) (78) -TotallossesfromCloroxVenezuelabeforeincometaxes (2) (84) (23)IncometaxbenefitattributabletoCloroxVenezuela 2 29 6TotallossesfromCloroxVenezuela,netoftax - (55) (17)Gains(losses)fromdiscontinuedoperationsotherthanCloroxVenezuela,netoftax - 29 (4)Lossesfromdiscontinuedoperations,netoftax $ - $(26) $(21)
UnrelatedtoCloroxVenezuela,inthefiscalyearendedJune30,2015,$32ofgrossunrecognizedtaxbenefitsrelatingtootherdiscontinuedoperationsforperiodspriortofiscalyear2015wererecognizedupontheexpirationoftheapplicablestatuteoflimitations.RecognitionofthesepreviouslydisclosedtaxbenefitshadnoimpactontheCompany’scashfloworearningsfromcontinuingoperationsforthefiscalyearsendedJune30,2015and2014.(SeeNote18)
Summary of Operating Losses, Asset Charges and Other Costs
Thefollowingprovidesabreakdownof(losses)gainsfromdiscontinuedoperationsforCloroxVenezuelaandgainsfromdiscontinuedoperationsotherthanCloroxVenezuelaforthefiscalyearsendedJune30:
2016 2015
OperatinglossesfromCloroxVenezuelabeforeincometaxes $ - $(6)Netassetcharges:Inventories - (11)Property,plantandequipment - (16)Trademarkandotherintangibleassets - (6)Otherassets - (2)Otherexitandbusinessterminationcosts:Severance - (3)Recognitionofdeferredforeigncurrencytranslationloss - (30)Other (2) (10)TotallossesfromCloroxVenezuelabeforeincometaxes (2) (84)IncometaxbenefitattributabletoCloroxVenezuela 2 29TotallossesfromCloroxVenezuela,netoftax - (55)GainsfromdiscontinuedoperationsotherthanCloroxVenezuela,netoftax - 29Lossesfromdiscontinuedoperations,netoftax $ - $(26)
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NOTE2.DISCONTINUEDOPERATIONS(Continued)
PriortoCloroxVenezuelabeingconsolidatedundertherulesgoverningthepreparationoffinancialstatementsinahighlyinflationaryeconomy,cumulativetranslationgains(losses)wereincludedasacomponentofAccumulatedothercomprehensivenet(losses)income.Thechargeof$30todiscontinuedoperationsinSeptember2014representstherecognitionoftheselossesasaresultofCloroxVenezueladiscontinuingitsoperationseffectiveSeptember22,2014.
Financial Reporting: Hyperinflation and the Selection of Exchange Rates
Duetoasustainedinflationaryenvironment,thefinancialstatementsofCloroxVenezuelaareconsolidatedundertherulesgoverningthepreparationoffinancialstatementsinahighlyinflationaryeconomy.Assuch,CloroxVenezuela’snon-U.S.dollar(non-USD)monetaryassetsandliabilitieswereremeasuredintoU.S.dollars(USD)eachreportingperiodwiththeresultinggainsandlossesnowreflectedindiscontinuedoperations.
SubsequenttoCloroxVenezueladiscontinuingoperationsinSeptember2014,theVenezuelangovernmenthascontinuedtoevolveitscurrencyexchangemechanisms;however,thesechangeshavenothadamaterialimpactontheCompany’sfinancialresultsbecausethebalanceofnetbolivarassetsandliabilitiesonthelocalbooksofCloroxVenezuelawas$0asofbothJune30,2016and2015.AsofJune30,2016and2015,thelocalbooksofCloroxVenezuelacarriedanetassetpositionof$0.Inaddition,asofJune30,2016and2015,theCompanyheld$0and$13,respectively,oftaxassetbalancesrelatedtoCloroxVenezuelainCorporateinthereconciliationoftheresultsoftheCompany’sreportablesegmentstoconsolidatedresults.
NOTE3.BUSINESSESACQUIRED
OnMay2,2016,theCompanyacquired100percentofReNewLifeHoldingsCorporation(RenewLife),aleadingbrandindigestivehealth.Theamountpaidwas$290fundedthroughcommercialpaper.Theamountpaidof$290representstheaggregatepurchasepricelesscashacquired.ThepurchaseoftheRenewLifebusinessreflectstheCompany’sstrategytoacquireleadingbrandswithattractivemarginsingrowthcategories.ResultsforRenewLife’sU.S.businessarereflectedintheHouseholdreportablesegmentandresultsforRenewLife’sinternationalbusinessarereflectedintheInternationalreportablesegment.IncludedintheCompany’sresultsforfiscalyear2016was$21ofRenewLife’sglobalnetsales.
TheassetsandliabilitiesofRenewLifewererecordedattheirrespectiveestimatedfairvaluesasofthedateoftheacquisitionusinggenerallyacceptedaccountingprinciplesforbusinesscombinations.Theexcessofthepurchasepriceoverthefairvalueofthenetidentifiableassetsacquiredhasbeenallocatedtogoodwill.GoodwillrecordedprimarilyreflectsthevalueofexpandingtheCompany’sportfoliofurtherintothehealthandwellnessarena.
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NOTE3.BUSINESSESACQUIRED(Continued)
ThefollowingtablesummarizestheestimatedfairvaluesofRenewLife’sassetsacquiredandliabilitiesassumedandrelateddeferredincometaxesasoftheacquisitiondate.Duetothetimingoftheacquisition,thefairvalueoftheassetsacquiredandliabilitiesassumedarebasedonapreliminaryvaluationandtheCompany’sestimatesandassumptionsaresubjecttochangewithinthemeasurementperiod.Theprimaryareasofthepurchasepricethatarenotyetfinalizedarerelatedtogoodwillandincometaxes.Theweighted-averageestimatedusefullifeofintangibleassetssubjecttoamortizationis15years.
2016
RenewLife
Goodwill $ 137Trademarks 134Customerrelationships 36Property,plantandequipment 3Workingcapital,net 41Deferredincometaxes (61)PurchasePrice $290
Proformaresultsreflectingtheacquisitionwerenotpresentedbecausetheacquisitiondidnotmeetthethresholdrequirementsforadditionaldisclosure.
NOTE4.INVENTORIES
InventoriesconsistedofthefollowingasofJune30:
2016 2015
Finishedgoods $ 361 $ 316Rawmaterialsandpackaging 111 101Workinprocess 3 3LIFOallowances (32) (35)Total $443 $385
Thelast-in,first-out(LIFO)methodwasusedtovalueapproximately38%ofinventoriesasofJune30,2016and2015,respectively.Thecarryingvaluesforallotherinventoriesaredeterminedonthefirst-in,first-out(FIFO)method.TheeffectonearningsoftheliquidationofLIFOlayerswasabenefitof$0,$0and$2forthefiscalyearsendedJune30,2016,2015and2014,respectively.
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NOTE5.OTHERCURRENTASSETS
OthercurrentassetsconsistedofthefollowingasofJune30:
2016 2015
Deferredtaxassets(a) $ - $ 99Prepaidexpenses 70 39Other 2 5Total $72 $143
(a)TheCompanyprospectivelyadoptedASUNo.2015-17,"IncomeTaxes(Topic740):BalanceSheetClassificationofDeferredTaxes,"requiringalldeferredtaxassetsandliabilitiestobeclassifiedasnoncurrent.SeeNote1and18forfurtherdetails.
NOTE6.PROPERTY,PLANTANDEQUIPMENT,NET
Thecomponentsofproperty,plantandequipment,net,consistedofthefollowingasofJune30:
2016 2015
Machineryandequipment $ 1,607 $ 1,608Buildings 524 515Capitalizedsoftwarecosts 368 371Landandimprovements 118 122Constructioninprogress 112 65Computerequipment 88 76
2,817 2,757Less:Accumulateddepreciationandamortization (1,911) (1,839)Total $ 906 $ 918
IncludedinMachineryandequipmentaboveare$12ofcapitalleasesasofJune30,2016and2015,respectively.Accumulateddepreciationforassetsundercapitalleaseswas$3and$2asofJune30,2016and2015,respectively.
IncludedinLandandimprovementsaboveare$3and$2ofassetretirementobligationsasofJune30,2016and2015,respectively,fortwoleasedproperties.Theliabilityof$1and$2incurredinfiscalyear2016and2015,respectively,wasrecordedinOtherliabilities.
Depreciationandamortizationexpenserelatedtoproperty,plantandequipment,net,was$157,$157and$161infiscalyears2016,2015and2014,respectively,whichincludesdepreciationofassetsundercapitalleases.Thisalsoincludesamortizationofcapitalizedsoftwareof$16,$19and$22infiscalyears2016,2015and2014,respectively.
Non-cashcapitalexpenditureswere$10,$18and$0infiscalyears2016,2015and2014,respectively.
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NOTE7.GOODWILL,TRADEMARKSANDOTHERINTANGIBLEASSETS
ThechangesinthecarryingamountofgoodwillbyreportablesegmentforthefiscalyearsendedJune30,2016and2015wereasfollows:
Goodwill
Cleaning Lifestyle Household International Total
BalanceJune30,2014 $ 323 $ 244 $ 85 $ 449 $ 1,101Effectofforeigncurrencytranslation - - - (34) (34)BalanceJune30,2015 323 244 85 415 1,067Acquisition - - 122 15 137Effectofforeigncurrencytranslation - - - (7) (7)BalanceJune30,2016 $323 $244 $ 207 $423 $1,197
ThechangesinthecarryingamountoftrademarksandotherintangibleassetsforthefiscalyearsendedJune30wereasfollows:
AsofJune30,2016 AsofJune30,2015
Gross
carryingamount
Accumulatedamortization
Netcarryingamount
Grosscarryingamount
Accumulatedamortization
Netcarryingamount
Trademarksnotsubjecttoamortization $ 647 $ - $ 647 $ 524 $ - $ 524Trademarkssubjecttoamortization 32 22 10 33 22 11Otherintangibleassets:Technologyandproductformulae 137 134 3 137 133 4Other 221 146 75 188 142 46Total $ 1,037 $ 302 $ 735 $ 882 $ 297 $ 585
Finite-livedintangibleassetsareamortizedovertheirestimatedusefullives,generallyrangingfrom2to30years.AmortizationexpenserelatingtotheCompany’sintangibleassetswas$8,$12and$15fortheyearsendedJune30,2016,2015and2014,respectively.Estimatedamortizationexpensefortheseintangibleassetsis$10,$9,$9,$9and$8forfiscalyears2017,2018,2019,2020and2021,respectively.
Duringfiscalyear2016,theCompanyrecognized$9ofintangibleassetimpairmentcharges,ofwhich$6relatedtotheAplicare®trademarkwithintheCleaningsegment.TheAplicare®trademarkimpairmentwasrecognizedbasedontheanticipatedimpactonfutureresultsfromacompetitivemarketentrant.
NOTE8.ACCOUNTSPAYABLEANDACCRUEDLIABILITIES
AccountspayableandaccruedliabilitiesconsistedofthefollowingasofJune30:
2016 2015
Accountspayable $ 490 $ 431Compensationandemployeebenefitcosts 192 189Tradeandsalespromotion 127 115Dividends 108 103Other 118 141Total(a) $1,035 $979
(a)AccountspayableandaccruedliabilitieswerecombinedintoonefinancialstatementlineasofJune30,2016.Thechangehasbeenretrospectivelyappliedtoallperiodspresented.
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NOTE9.DEBT
Notesandloanspayable,whichmatureinlessthanoneyear,includedthefollowingasofJune30:
2016 2015
Commercialpaper $ 522 $ 93Foreignborrowings 1 2Total $523 $95
TheweightedaverageinterestratesincurredonaverageoutstandingnotesandloanspayableduringthefiscalyearsendedJune30,2016,2015and2014,includingfeesassociatedwiththeCompany’sundrawnrevolvingcreditfacility,were1.10%,2.05%and0.97%,respectively.TheweightedaverageeffectiveinterestratesoncommercialpaperbalancesasofJune30,2016and2015were0.82%and0.39%,respectively.
Long-termdebt,carriedatfacevaluenetofunamortizeddiscountsorpremiums,includedthefollowingasofJune30:
2016 2015
Seniorunsecurednotesanddebentures:3.55%,$300dueNovember2015 - 3005.95%,$400dueOctober2017 400 3993.80%,$300dueNovember2021 298 2983.05%,$600dueSeptember2022 599 5993.50%,$500dueDecember2024 500 500Total 1,797 2,096Less:Currentmaturitiesoflong-termdebt - (300)Long-termdebt $1,797 $1,796
Theweightedaverageinterestratesincurredonaverageoutstandinglong-termdebtduringthefiscalyearsendedJune30,2016,2015and2014,were4.37%,4.44%and4.56%,respectively.Theweightedaverageeffectiveinterestratesonlong-termdebtbalancesasofJune30,2016and2015,were4.41%and4.31%,respectively.
Long-termdebtmaturitiesasofJune30,2016,are$0,$400,$0,$0,$0and$1,400infiscalyears2017,2018,2019,2020,2021andthereafter,respectively.
InNovember2015,$300oftheCompany’sseniornoteswithanannualfixedinterestrateof3.55%becamedueandwererepaidusingcommercialpaperborrowingsandcashonhand.
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NOTE9.DEBT(continued)
InDecember2014,underashelfregistrationstatementfiledwiththeSECthatwillexpireinDecember2017,theCompanyissued$500ofseniornoteswithanannualfixedinterestrateof3.50%.Interestonthenotesispayablesemi-annuallyinJuneandDecemberandthenoteshaveamaturitydateofDecember15,2024.Thenotescarryaneffectiveinterestrateof4.10%,whichincludestheimpactfromthesettlementofinterestrateforwardcontractsinDecember2014(seeNote11).ThenotesrankequallywithalloftheCompany’sexistingseniorindebtedness.InJanuary2015,$575oftheCompany’sseniornoteswithanannualfixedinterestrateof5.00%becamedueandwererepaidusingthenetproceedsfromtheDecember2014debtissuanceandcommercialpaperborrowings.
TheCompany’sborrowingcapacityunderotherfinancingarrangementsasofJune30wasasfollows:
2016 2015
Revolvingcreditfacility $ 1,100 $ 1,100Foreigncreditlines 10 11Othercreditlines 18 18Total $1,128 $1,129
AsofJune30,2016,theCompanyhada$1,100revolvingcreditagreement(theCreditAgreement),whichexpiresinOctober2019.TherewerenoborrowingsundertheCreditAgreementasofJune30,2016or2015.Theagreementincludescertainrestrictivecovenantsandlimitations,withwhichtheCompanywasincomplianceasofJune30,2016.
Ofthe$28offoreignandothercreditlinesasofJune30,2016,$5wasoutstandingandtheremainderof$23wasavailableforborrowing.Ofthe$29offoreignandothercreditlinesasofJune30,2015,$4wasoutstandingandtheremainderof$25wasavailableforborrowing.
NOTE10.OTHERLIABILITIES
OtherliabilitiesconsistedofthefollowingasofJune30:
2016 2015
Employeebenefitobligations $ 335 $ 299Ventureagreementterminalobligation,net 302 294Taxes 40 38Other 107 119Total $784 $750
VentureAgreement
TheCompanyhasanagreementwithTheProcter&GambleCompany(P&G)fortheCompany’sGlad®bags,wrapsandcontainersbusiness.AsofJune30,2016and2015,P&Ghada20%interestintheventure.TheCompanypaysaroyaltytoP&Gforitsinterestintheprofits,lossesandcashflows,ascontractuallydefined,oftheGlad®business,whichisincludedinCostofproductssold.TheagreementwithP&GwillexpireinJanuary2023unlessthepartiesdecide,onorpriortoJanuary2018,toextendthetermoftheagreementforanother10years.Theagreementcanbeterminatedundercertaincircumstances,includingatP&G’soptionuponachangeincontroloftheCompanyor,ateitherparty’soption,uponthesaleoftheGlad®businessbytheCompany.
Uponterminationoftheagreement,theCompanyisrequiredtopurchaseP&G’sinterestforcashatfairvalueasestablishedbypredeterminedvaluationprocedures.AsofJune30,2016,theestimatedfairvalueofP&G’sinterestwas$448,ofwhich$302hasbeenrecognizedandisreflectedinOtherliabilitiesasnotedinthetableabove.Thedifferencebetweentheestimatedfairvalueandtheamountrecognized,andanyfuturechangesinthefairvalueofP&G’sinterest,ischargedtoCostofproductssoldonastraight-linebasisovertheremaininglifeoftheagreement.Followingtermination,theGlad®businesswillretaintheexclusivecoreintellectualpropertylicensescontributedbyP&Gonaroyalty-freebasisforthelicensedproductsmarketed.
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NOTE10.OTHERLIABILITIES(continued)
DeferredGainonSale-leasebackTransaction
InDecember2012,theCompanycompletedasale-leasebacktransactionunderwhichitsolditsgeneralofficebuildinginOakland,CAtoanunrelatedthirdpartyfornetproceedsof$108andenteredintoa15-yearoperatingleaseagreementwithrenewaloptionswiththebuyerforaportionofthebuilding.TheCompanydeferredrecognitionoftheportionofthetotalgainonthesalethatwasequivalenttothepresentvalueoftheleasepaymentsandwillcontinuetoamortizesuchamounttoearningsratablyovertheleaseterm.AsofJune30,2016and2015,thelong-termportionofthedeferredgainof$36and$40,respectively,wasincludedinOtherinthetableabove.
NOTE11.FINANCIALINSTRUMENTSANDFAIRVALUEMEASUREMENTS
Financialassetsandliabilitiesmeasuredatfairvalueonarecurringbasisintheconsolidatedbalancesheetsarerequiredtobeclassifiedanddisclosedinoneofthefollowingthreecategoriesofthefairvaluehierarchy:
Level1:Quotedmarketpricesinactivemarketsforidenticalassetsorliabilities.Level2:Observablemarket-basedinputsorunobservableinputsthatarecorroboratedbymarketdata.Level3:Unobservableinputsreflectingthereportingentity’sownassumptions.
AsofJune30,2016and2015,theCompany’sfinancialassetsandliabilitiesthatweremeasuredatfairvalueonarecurringbasisduringtheperiodincludedderivativefinancialinstruments,whichwereclassifiedaseitherLevel1orLevel2,andtrustassetstofundcertainoftheCompany’snonqualifieddeferredcompensationplans,whichwereclassifiedasLevel1.
FinancialRiskManagementandDerivativeInstruments
TheCompanyisexposedtocertaincommodity,foreigncurrencyandinterestraterisksrelatedtoitsongoingbusinessoperationsandusesderivativeinstrumentstomitigateitsexposuretotheserisks.
Commodity Price Risk Management
TheCompanymayusecommodityexchangetradedfuturesandover-the-counterswapcontracts,whicharegenerallynolongerthan2years,tofixthepriceofaportionofitsforecastedrawmaterialrequirements.Commoditypurchasecontractsaremeasuredatfairvalueusingmarketquotationsobtainedfromcommodityderivativedealers.
AsofJune30,2016,thenotionalamountofcommodityderivativeswas$30,ofwhich$16relatedtojetfuelswapsand$14relatedtosoybeanoilfutures.AsofJune30,2015,thenotionalamountofcommodityderivativeswas$47,ofwhich$27relatedtojetfuelswapsand$20relatedtosoybeanoilfutures.
Foreign Currency Risk Management
TheCompanymayalsoenterintocertainover-the-counterderivativecontractstomanageaportionoftheCompany’sforecastedforeigncurrencyexposureassociatedwiththepurchaseofinventory.Theseforeigncurrencycontractsgenerallyhavedurationsofnolongerthan2years.Theforeignexchangecontractsaremeasuredatfairvalueusinginformationquotedbyforeignexchangedealers.
ThenotionalamountsofoutstandingforeigncurrencyforwardcontractsusedbytheCompany’ssubsidiariestohedgeforecastedpurchasesofinventorywere$84and$105,respectively,asofJune30,2016and2015.
Interest Rate Risk Management
TheCompanymayenterintoover-the-counterinterestrateforwardcontractstofixaportionofthebenchmarkinterestratepriortotheanticipatedissuanceoffixedratedebtortomanagetheCompany’sleveloffixedandfloatingratedebt.TheinterestratecontractsaremeasuredatfairvalueusinginformationquotedbyU.S.governmentbonddealers.
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NOTE11.FINANCIALINSTRUMENTSANDFAIRVALUEMEASUREMENTS(Continued)
Duringfiscalyear2015,theCompanypaid$25tosettleinterestrateforwardcontractsrelatedtotheDecember2014issuanceof$500inseniornotes.ThesettlementpaymentsarereflectedasoperatingcashflowsintheconsolidatedstatementsofcashflowsforthefiscalyearendedJune30,2015.ThelossisreflectedinAccumulatedothercomprehensivenetlossontheconsolidatedbalancesheetsasofJune30,2016and2015,andisbeingamortizedintoInterestexpenseontheconsolidatedstatementsofearningsoverthe10-yeartermofthenotes.
TheCompanyhadnooutstandinginterestrateforwardcontractsasofJune30,2016and2015.
Counterparty Risk Management and Derivative Contract Requirements
TheCompanyutilizesavarietyoffinancialinstitutionsascounterpartiesforover-thecounterderivativeinstruments.TheCompanyentersintoagreementsgoverningtheuseofover-the-counterderivativeinstrumentsandsetsinternallimitsontheaggregateover-the-counterderivativeinstrumentpositionsheldwitheachcounterparty.CertaintermsoftheseagreementsrequiretheCompanyorthecounterpartytopostcollateralwhenthefairvalueofthederivativeinstrumentsexceedscontractuallydefinedcounterpartyliabilitypositionlimits.Ofthederivativeinstrumentsof$5and$8reflectedinAccountspayableandaccruedliabilitiesandOtherliabilitiesasofJune30,2016and2015,respectively,$4and$8,respectively,containedsuchterms.AsofbothJune30,2016and2015,neithertheCompanynoranycounterpartywasrequiredtopostanycollateralasnocounterpartyliabilitypositionlimitswereexceeded.
CertaintermsoftheagreementsgoverningtheCompany’sover-the-counterderivativeinstrumentsrequirethecreditratings,asassignedbyStandard&Poor’sandMoody’stotheCompanyanditscounterparties,toremainatalevelequaltoorbetterthantheminimumofaninvestmentgradecreditrating.IftheCompany’screditratingsweretofallbelowinvestmentgrade,thecounterpartiestothederivativeinstrumentscouldrequestfullcollateralizationonderivativeinstrumentsinnetliabilitypositions.AsofbothJune30,2016and2015,theCompanyandeachofitscounterpartieshadbeenassignedinvestmentgraderatingsbybothStandard&Poor’sandMoody’s.
CertainoftheCompany’sexchange-tradedfuturescontractsusedforcommoditypriceriskmanagementincluderequirementsfortheCompanytopostcollateralintheformofacashmarginaccountheldbytheCompany’sbrokerfortradesconductedonthatexchange.AsofJune30,2016and2015,theCompanymaintainedcashmarginbalancesrelatedtoexchange-tradedfuturescontractsof$1and$2,respectively,whichareclassifiedasOthercurrentassetsontheconsolidatedbalancesheets.
Trust Assets
TheCompanyhasheldinterestsinmutualfundsandcashequivalentsaspartoftrustassetsrelatedtocertainofitsnonqualifieddeferredcompensationplans.Theparticipants,whoaretheCompany’scurrentandformeremployees,inthedeferredcompensationplansmayselectamongcertainmutualfundsinwhichtheircompensationdeferralsareinvestedinaccordancewiththetermsoftheplanandwithintheconfinesofthetrustswhichholdthemarketablesecurities.ThetrustsrepresentvariableinterestentitiesforwhichtheCompanyisconsideredtheprimarybeneficiary,andtherefore,trustassetsareconsolidatedandincludedinOtherassetsintheconsolidatedbalancesheets.Theinterestsinmutualfundsaremeasuredatfairvalueusingquotedmarketprices.TheCompanyhasdesignatedthesemarketablesecuritiesastradinginvestments.
ThevalueofthetrustassetsrelatedtocertainoftheCompany’snonqualifieddeferredcompensationplansincreasedby$14ascomparedtoJune30,2015,primarilyduetocurrentyearemployees’contributionstotheseplans.
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NOTE11.FINANCIALINSTRUMENTSANDFAIRVALUEMEASUREMENTS(Continued)
FairValueofFinancialInstruments
ThefollowingtablesummarizesthefairvalueofCompany’sassetsandliabilitiesforwhichdisclosureoffairvalueisrequiredasofJune30:
2016 2015
Assets Balancesheetclassification
Fairvaluehierarchy
levelCarryingAmount
EstimatedFairValue
CarryingAmount
EstimatedFairValue
Investmentsincludingmoneymarketfunds Cashandcashequivalents(a) 1 $ 234$ 234$ 212$ 212
Timedeposits Cashandcashequivalents(a) 2 79 79 84 84Commoditypurchasederivativecontracts Othercurrentassets 1 1 1 - -Foreignexchangederivativecontracts Othercurrentassets 2 1 1 1 1Commoditypurchasederivativecontracts Otherassets 2 1 1 - -Trustassetsfornonqualifieddeferredcompensationplans Otherassets 1 52 52 38 38
$ 368 $ 368 $ 335 $ 335Liabilities
Notesandloanspayable Notesandloanspayable(b) 2 $ 523 $ 523 $ 95 $ 95
CommoditypurchasederivativecontractsAccountspayableandaccruedliabilities 2 1 1 8 8
ForeignexchangederivativecontractsAccountspayableandaccruedliabilities 2 4 4 - -
Currentmaturitiesoflong-termdebtandLong-termdebt
Currentmaturitiesoflong-termdebtandLong-term
debt(c) 2 1,797 1,922 2,096 2,137 $ 2,325 $ 2,450 $ 2,199 $ 2,240
(a)Cashandcashequivalentsarecomposedoftimedepositsandotherinterestbearinginvestmentsincludingmoneymarketfundswithoriginalmaturitydatesof90daysorless.Cashandcashequivalentsarerecordedatcost,whichapproximatesfairvalue.
(b) NotesandloanpayableiscomposedofU.S.commercialpaperand/orothersimilarshort-termdebtsissuedbynon-U.S.subsidiaries,allofwhicharerecordedatcost,whichapproximatesfairvalue.(c) Currentmaturitiesoflong-termdebtandLong-termdebtarerecordedatcost.ThefairvalueofLong-termdebt,includingcurrentmaturities,wasdeterminedusingsecondarymarketpricesquotedby
corporatebonddealers,andisclassifiedasLevel2.
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NOTE11.FINANCIALINSTRUMENTSANDFAIRVALUEMEASUREMENTS(Continued)
Derivatives
TheCompanydesignatesitscommodityforwardandfuturecontractsforforecastedpurchasesofrawmaterials,interestrateforwardcontractsforforecastedinterestpayments,andforeigncurrencyforwardcontractsforforecastedpurchasesofinventoryascashflowhedges.
TheeffectsofderivativeinstrumentsdesignatedashedginginstrumentsonOthercomprehensiveincome(loss)andnetearningswereasfollowsduringthefiscalyearsendedJune30:
Gains(losses)recognizedinothercomprehensivenetloss
2016 2015 2014
Commoditypurchasederivativecontracts $ (4) $ (13) $ 2Interestratederivativecontracts - (12) (13)Foreignexchangederivativecontracts (3) 7 (3)Total $(7) $(18) $(14)
Gains(losses)reclassifiedfromaccumulatedothercomprehensivenetlossandrecognized
innetearnings
2016 2015 2014
Commoditypurchasederivativecontracts $ (13) $ (5) $ -Interestratederivativecontracts (6) (5) (4)Foreignexchangederivativecontracts 1 3 4Total $ (18) $ (7) $ -
Thegains(losses)reclassifiedfromAccumulatedothercomprehensivenet(losses)incomeandrecognizedinearningsduringthefiscalyearsendedJune30,2016,2015and2014,forcommoditypurchaseandforeignexchangecontractswereincludedinCostofproductssold,andforinterestratecontractswereincludedinInterestexpense.
Theestimatedamountoftheexistingnetgain(loss)inAccumulatedothercomprehensivenet(losses)incomeasofJune30,2016,whichisexpectedtobereclassifiedintoearningswithinthenexttwelvemonths,is$(11).Gainsandlossesonderivativeinstrumentsrepresentingeitherhedgeineffectivenessorhedgecomponentsexcludedfromtheassessmentofeffectivenessarerecognizedintheconsolidatedstatementofearnings.DuringeachofthefiscalyearsendedJune30,2016,2015and2014,hedgeineffectivenesswasnotsignificant.
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NOTE12.OTHERCONTINGENCIESANDGUARANTEES
Contingencies
TheCompanyisinvolvedincertainenvironmentalmatters,includingresponseactionsatvariouslocations.TheCompanyhadarecordedliabilityof$14and$12asofJune30,2016and2015,respectively,foritsshareofaggregatefutureremediationcostsrelatedtothesematters.OnematterinDickinsonCounty,Michigan,forwhichtheCompanyisjointlyandseverallyliable,accountedforasubstantialmajorityoftherecordedliabilityasofbothJune30,2016and2015.TheCompanyhasagreedtobeliablefor24.3%oftheaggregateremediationandassociatedcostsforthismatterpursuanttoacost-sharingarrangementwithathirdparty.Withtheassistanceofenvironmentalconsultants,theCompanymaintainsanundiscountedliabilityrepresentingitscurrentbestestimateofitsshareofthecapitalexpenditures,maintenanceandothercoststhatmaybeincurredoveranestimated30-yearremediationperiod.Currently,theCompanycannotaccuratelypredictthetimingoffuturepaymentsthatmaybemadeunderthisobligation.Inaddition,theCompany’sestimatedlossexposureissensitivetoavarietyofuncertainfactors,includingtheefficacyofremediationefforts,changesinremediationrequirementsandthefutureavailabilityofalternativeclean-uptechnologies.AlthoughitisreasonablypossiblethattheCompany’sexposuremayexceedtheamountrecorded,anyamountofsuchadditionalexposures,orrangeofexposures,isnotestimableatthistime.
TheCompanyissubjecttovariouslegalproceedings,claimsandotherlosscontingencies,including,withoutlimitation,losscontingenciesrelatingtocontractualarrangements,productliability,patentsandtrademarks,advertising,laborandemployment,environmental,healthandsafetyandothermatters.Withrespecttotheseproceedings,claimsandotherlosscontingencies,whileconsiderableuncertaintyexists,intheopinionofmanagementatthistime,theultimatedispositionofthesematters,totheextentnotpreviouslyprovidedfor,willnothaveamaterialadverseeffect,eitherindividuallyorintheaggregate,ontheCompany’sconsolidatedfinancialstatementstakenasawhole.
Guarantees
Inconjunctionwithdivestituresandothertransactions,theCompanymayprovidetypicalindemnifications(e.g.,indemnificationsforrepresentationsandwarrantiesandretentionofpreviouslyexistingenvironmental,taxandemployeeliabilities)thathavetermsthatvaryindurationandinthepotentialamountofthetotalobligationand,inmanycircumstances,arenotexplicitlydefined.TheCompanyhasnotmade,nordoesitbelievethatitisprobablethatitwillmake,anymaterialpaymentsrelatingtoitsindemnifications,andbelievesthatanyreasonablypossiblepaymentswouldnothaveamaterialadverseeffect,eitherindividuallyorintheaggregate,ontheCompany’sconsolidatedfinancialstatementstakenasawhole.
TheCompanyhadnotrecordedanyliabilitiesontheaforementionedindemnificationsasofJune30,2016and2015.
TheCompanywasapartytolettersofcreditof$10and$11asofJune30,2016and2015,respectively,primarilyrelatedtooneofitsinsurancecarriers,ofwhich$0hadbeendrawnupon.
NOTE13.LEASESANDOTHERCOMMITMENTS
TheCompanyleasesvariousproperty,plant,andequipmentincludingoffice,warehousing,andmanufacturingfacilities,inadditiontocertainmanufacturingandinformationtechnologyequipment.TheCompanyexpectsthat,inthenormalcourseofbusiness,existingcontractswillberenewedorreplacedbyotherleases.Rentalexpenseforalloperatingleaseswas$77,$76and$71infiscalyears2016,2015and2014,respectively.
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NOTE13.LEASESANDOTHERCOMMITMENTS(Continued)
ThefutureminimumannualleasecommitmentsrequiredundertheCompany’sexistingnon-cancelableoperatingandcapitalleaseagreementsasofJune30,2016,wereasfollows:
Year Operatingleases Capitalleases
2017 $ 49 $ 32018 45 22019 38 12020 32 -2021 29 -Thereafter 135 -Total $328 $6
TheCompanyisalsoapartytocertainpurchaseobligations,whicharedefinedaspurchaseagreementsthatareenforceableandlegallybindingandthatcontainspecifiedordeterminablesignificantterms,includingquantity,priceandtheapproximatetimingofthetransaction.ExamplesoftheCompany’spurchaseobligationsincludecontractstopurchaserawmaterials,commitmentstocontractmanufacturers,commitmentsforinformationtechnologyandrelatedservices,advertisingcontracts,capitalexpenditureagreements,softwareacquisitionandlicensecommitmentsandservicecontracts.TheCompanyentersintopurchaseobligationsbasedonexpectationsoffuturebusinessneeds.Forpurchaseobligationssubjecttovariablepriceand/orquantityprovisions,anestimateofthepriceand/orquantityhasbeenmade.ManyofthesepurchaseobligationsareshortterminnatureandareflexibletoallowforchangesintheCompany’sbusinessandrelatedrequirements.AsofJune30,2016,theCompany’spurchaseobligationswereasfollows:
Year PurchaseObligations
2017 $ 1502018 542019 372020 122021 2Thereafter 1Total $ 256
NOTE14.STOCKHOLDERS’EQUITY
TheCompanyhastwosharerepurchaseprograms:anopen-marketpurchaseprogramwithanauthorizedaggregatepurchaseamountofupto$750,allofwhichwasavailableforsharerepurchasesasofbothJune30,2016and2015,andaprogramtooffsettheanticipatedimpactofsharedilutionrelatedtoshare-basedawards(theEvergreenProgram),whichhasnoauthorizationlimitastoamountortimingofrepurchases.
SharerepurchasesunderauthorizedprogramswereasfollowsduringthefiscalyearsendedJune30:
2016 2015 2014
AmountShares(in000's) Amount
Shares(in000's) Amount
Shares(in000's)
Open-marketpurchaseprograms $ - -$ - -$ - -EvergreenProgram 254 2,151 434 4,016 260 3,046Total $ 254 2,151 $ 434 4,016 $ 260 3,046
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NOTE14.STOCKHOLDERS’EQUITY(Continued)
Dividendspersharedeclaredandpaid,respectively,duringthefiscalyearsendedJune30wereasfollows:
2016 2015 2014
Dividendspersharedeclared $3.11 $2.99 $2.87Dividendspersharepaid 3.08 2.96 2.84
AccumulatedOtherComprehensiveNet(Losses)Income
ChangesinAccumulatedothercomprehensivenet(losses)incomebycomponentwereasfollowsforthefiscalyearsendedJune30:
Foreigncurrencyadjustments
Netunrealizedgains
(losses)onderivatives
Pensionandpostretirement
benefitadjustments
AccumulatedOther
ComprehensiveIncome
BalanceJune30,2013 $ (209) $ (30) $ (128) $ (367)Othercomprehensive(loss)incomebeforereclassifications (26) (15) (16) (57)Amountsreclassifiedfromaccumulatedothercomprehensivenetlosses - - 8 8Incometaxbenefit(expense) (11) 6 4 (1)Netcurrentperiodothercomprehensiveincome(loss) (37) (9) (4) (50)BalanceJune30,2014 (246) (39) (132) (417)Othercomprehensive(loss)incomebeforereclassifications (92) (18) (29) (139)Amountsreclassifiedfromaccumulatedothercomprehensivenetlosses - 7 - 7Recognitionofdeferredforeigncurrencytranslationloss 30 - - 30Incometaxbenefit(expense) 8 (3) 12 17Netcurrentperiodothercomprehensiveincome(loss) (54) (14) (17) (85)BalanceJune30,2015 (300) (53) (149) (502)Othercomprehensive(loss)incomebeforereclassifications (43) (7) (38) (88)Amountsreclassifiedfromaccumulatedothercomprehensivenetlosses - 18 - 18Incometaxbenefit(expense) (10) (2) 14 2Netcurrentperiodothercomprehensiveincome(loss) (53) 9 (24) (68)BalanceJune30,2016 $ (353) $ (44) $ (173) $ (570)
Includedinforeigncurrencyadjustmentsarere-measurementlossesonlong-termintercompanyloanswheresettlementisnotplannedoranticipatedintheforeseeablefuture.ForthefiscalyearsendedJune30,2016,2015and2014,Othercomprehensivelossesontheseloanstotaled$14,$9and$12,respectively,andtherewerenoamountsreclassifiedfromAccumulatedothercomprehensivenet(losses)income.
PensionandpostretirementbenefitreclassificationadjustmentsarereflectedinCostofproductssold,SellingandadministrativeexpensesandResearchanddevelopmentcosts.
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NOTE15.NETEARNINGSPERSHARE(EPS)
Thefollowingisthereconciliationoftheweightedaveragenumberofsharesoutstanding(inthousands)usedtocalculatebasicnetEPStothoseusedtocalculatedilutednetEPSforthefiscalyearsendedJune30:
2016 2015 2014
Basic 129,472 130,310 129,558Dilutiveeffectofstockoptionsandother 2,245 2,466 2,184Diluted 131,717 132,776 131,742Antidilutivestockoptionsandother 42 23 -
NOTE16.STOCK-BASEDCOMPENSATIONPLANS
InNovember2012,theCompany’sstockholdersvotedtoapprovetheamendedandrestated2005StockIncentivePlan(thePlan).ThePlanpermitstheCompanytograntvariousnonqualifiedstock-basedcompensationawards,includingstockoptions,restrictedstock,performanceunits,deferredstockunits,stockappreciationrightsandotherstock-basedawards.TheprimaryamendmentreflectedinthePlanwasanincreaseofapproximately3millioncommonsharesthatmaybeissuedforstock-basedcompensationpurposes.AsofJune30,2016,theCompanyisauthorizedtograntuptoapproximately8millioncommonsharesunderthePlan,and,asofJune30,2016,approximately8millioncommonshareswereavailableforgrant.
Compensationcostandtherelatedincometaxbenefitrecognizedforstock-basedcompensationplanswereclassifiedasindicatedbelowforthefiscalyearsendedJune30:
2016 2015 2014
Costofproductssold $ 6 $ 4 $ 4Sellingandadministrativeexpenses 35 25 29Researchanddevelopmentcosts 4 3 3Totalcompensationcost $ 45 $ 32 $ 36Relatedincometaxbenefit $ 17 $ 12 $ 13
Cashreceivedduringfiscalyears2016,2015and2014fromstockoptionsexercisedunderallstock-basedpaymentarrangementswas$180,$230and$86,respectively.TheCompanyissuessharesforstock-basedcompensationplansfromtreasurystock.TheCompanymayrepurchasesharesunderitsEvergreenProgramtooffsettheestimatedimpactofsharedilutionrelatedtostock-basedawards(seeNote14).
Detailsregardingthevaluationandaccountingforstockoptions,restrictedstockawards,performanceunitsanddeferredstockunitsfornon-employeedirectorsfollow.
StockOptions
Thefairvalueofeachstockoptionawardgrantedduringfiscalyears2016,2015and2014wasestimatedonthedateofgrantusingtheBlack-Scholesvaluationmodelandassumptionsnotedinthefollowingtable:
2016 2015 2014
Expectedlife 5.6years 5.6to5.8years 5.7yearsWeighted-averageexpectedlife 5.6years 5.7years 5.7yearsExpectedvolatility 16.43%to17.3% 16.3%to18.6% 18.4%to18.5%Weighted-averagevolatility 17.2% 16.6% 18.5%Risk-freeinterestrate 1.3%to1.7% 1.4%to2.0% 1.8%to1.9%Weighted-averagerisk-freeinterestrate 1.7% 1.9% 1.8%Dividendyield 2.5%to2.8% 2.8%to3.4% 3.4%Weighted-averagedividendyield 2.8% 3.3% 3.4%
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NOTE16.STOCK-BASEDCOMPENSATIONPLANS(Continued)
Theexpectedlifeofthestockoptionsisbasedonobservedhistoricalexercisepatterns.TheexpectedvolatilityisbasedonimpliedvolatilityfrompubliclytradedoptionsontheCompany’sstockatthedateofgrant,historicalimpliedvolatilityoftheCompany’spubliclytradedoptionsandotherfactors.Therisk-freeinterestrateisbasedontheimpliedyieldonaU.S.Treasuryzero-couponissuewitharemainingtermequaltotheexpectedtermoftheoption.Thedividendyieldisbasedontheprojectedannualdividendpaymentpershare,dividedbythestockpriceatthedateofgrant.
DetailsoftheCompany’sstockoptionactivitiesaresummarizedbelow:
NumberofShares
(Inthousands)
Weighted-AverageExercisePrice
perShare
AverageRemainingContractual
Life AggregateIntrinsicValue
OptionsoutstandingasofJune30,2015 8,357 $ 76 7years $ 236Granted 1,317 112Exercised (2,633) 69Cancelled (214) 95OptionsoutstandingasofJune30,2016 6,827 $ 85 7years $366OptionsvestedasofJune30,2016 3,555 $ 74 5years $ 228
Theweighted-averagefairvaluepershareofeachoptiongrantedduringfiscalyears2016,2015and2014,estimatedatthegrantdateusingtheBlack-Scholesoptionpricingmodelwas$13.21,$9.65and$9.69,respectively.Thetotalintrinsicvalueofoptionsexercisedinfiscalyears2016,2015and2014was$142,$140and$42,respectively.
StockoptionawardsoutstandingasofJune30,2016,havebeengrantedatpricesthatareequaltothemarketvalueofthestockonthedateofgrant.Stockoptiongrantsgenerallyvestoverfouryearsandexpirenolaterthantenyearsafterthegrantdate.TheCompanyrecognizescompensationexpenseratablyoverthevestingperiod.AsofJune30,2016,therewas$16oftotalunrecognizedcompensationcostrelatedtonon-vestedoptions,whichisexpectedtoberecognizedoveraremainingweighted-averagevestingperiodofoneyear,subjecttoforfeiturechanges.
RestrictedStockAwards
Thefairvalueofrestrictedstockawardsisestimatedonthedateofgrantbasedonthemarketpriceofthestockandisamortizedtocompensationexpenseonastraight-linebasisovertherelatedvestingperiods,whicharegenerallythreetofouryears.Thetotalnumberofrestrictedstockawardsexpectedtovestisadjustedbyactualandestimatedforfeitures.Restrictedstockgrantsreceivedividenddistributionsearnedduringthevestingperioduponvesting.
AsofJune30,2016,therewas$1oftotalunrecognizedcompensationcostrelatedtonon-vestedrestrictedstockawards,whichisexpectedtoberecognizedoveraremainingweighted-averagevestingperiodofoneyear.Thetotalfairvalueofthesharesthatvestedineachofthefiscalyears2016,2015and2014was$1,respectively.Theweighted-averagegrant-datefairvalueofawardsgrantedwas$128.91,$95.67and$89.25pershareforfiscalyears2016,2015and2014,respectively.
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NOTE16.STOCK-BASEDCOMPENSATIONPLANS(Continued)
AsummaryofthestatusoftheCompany’srestrictedstockawardsispresentedbelow:
NumberofShares
(Inthousands)
Weighted-AverageGrantDateFairValueperShare
RestrictedstockawardsasofJune30,2015 18 $ 91Granted 5 129Vested (9) 88Forfeited (1) 106RestrictedstockawardsasofJune30,2016 13 $ 108
PerformanceUnits
AsofJune30,2016,therewas$37inunrecognizedcompensationcostrelatedtonon-vestedperformanceunitgrantsthatisexpectedtoberecognizedoveraremainingweighted-averageperformanceperiodofoneyear.Theweighted-averagegrant-datefairvalueofawardsgrantedwas$92.35,$89.75and$84.45pershareforfiscalyears2016,2015and2014,respectively.
AsummaryofthestatusoftheCompany’sperformanceunitawardsispresentedbelow:
NumberofShares
(Inthousands)
Weighted-AverageGrantDateFairValueperShare
PerformanceunitawardsasofJune30,2015 1,123 $ 79Granted 286 92Distributed (377) 70Forfeited (80) 87PerformanceunitawardsasofJune30,2016 952 $ 90PerformanceunitsvestedanddeferredasofJune30,2016 157 $ 58
Thenon-vestedperformanceunitsoutstandingasofJune30,2016and2015were794,000and944,000,respectively,andtheweightedaveragegrantdatefairvaluewas$95.18and$81.92pershare,respectively.Totalsharesvestedduringfiscalyear2016were354,000,whichhadaweightedaveragegrantdatefairvaluepershareof$72.11.Duringfiscalyear2016,$25ofthevestedawardswaspaidbytheissuanceofsharesand$1ofthevestedawardswasdeferred.Deferredsharescontinuetoearndividends,whicharealsodeferred.Thetotalfairvalueofsharesvestedwas$26,$24and$0duringfiscalyears2016,2015and2014,respectively.Uponvesting,therecipientsofthegrantsreceivethedistributionassharesor,ifpreviouslyelectedbyeligiblerecipients,asdeferredstock.
DeferredStockUnitsforNonemployeeDirectors
NonemployeedirectorsreceiveannualgrantsofdeferredstockunitsundertheCompany’sdirectorcompensationprogramandcanelecttoreceivealloraportionoftheirannualretainersandfeesintheformofdeferredstockunits.Thedeferredstockunitsreceivedividenddistributions,whicharereinvestedasdeferredstockunits,andarerecognizedattheirfairvalueonthedateofgrant.EachdeferredstockunitrepresentstherighttoreceiveoneshareoftheCompany’scommonstockfollowingthecompletionofadirector’sservice.
Duringfiscalyear2016,theCompanygranted13,000deferredstockunits,reinvesteddividendsof6,000unitsanddistributed16,000shares,whichhadaweighted-averagefairvalueongrantdateof$126.65,$124.03and$62.70pershare,respectively.AsofJune30,2016,244,000unitswereoutstanding,whichhadaweighted-averagefairvalueonthegrantdateof$71.13pershare.
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NOTE17.OTHER(INCOME)EXPENSE,NET
ThemajorcomponentsofOther(income)expense,net,forthefiscalyearsendedJune30were:
2016 2015 2014
Incomefromequityinvestees $ (15) $ (14) $ (13)Interestincome (5) (4) (3)Lowincomehousingpartnershipgains,net - (13) -Foreignexchangetransactionlosses,net 1 9 1Amortizationoftrademarksandotherintangibleassets 8 8 8Intangibleassetimpairmentcharges 9 3 3Other (5) (2) (6)Total $ (7) $(13) $(10)
InApril2016,theCompanysolditsLosAngelesbleachmanufacturingfacility,previouslyreportedintheCleaningsegment,whichresultedin$20incashproceedsfrominvestingactivitiesandagainof$(11)includedinOtherinthetableabovefortheyearendedJune30,2016.
Duringfiscalyear2016,theCompanyrecognized$9ofintangibleassetimpairmentcharges,ofwhich$6relatedtotheAplicare®trademarkwithintheCleaningsegment.TheAplicare®trademarkimpairmentwasrecognizedbasedontheanticipatedimpactonfutureresultsfromacompetitivemarketentrant.
InvestmentinLow-IncomeHousingPartnerships
TheCompanyowns,directlyorindirectly,limitedpartnershipinterestsinlow-incomehousingpartnerships,whichareaccountedforusingtheequitymethodofaccounting.Thesepartnershipsareconsideredtobevariableinterestentities;however,theCompanydoesnotconsolidatethembecauseitdoesnothavethepowertodirectthepartnerships’activitiesthatsignificantlyimpacttheireconomicperformance.Thepurposeofthepartnershipsistodevelopandoperatelow-incomehousingrentalproperties.Thegeneralpartners,whotypicallyhold1%ofthepartnershipinterests,arethirdpartiesunrelatedtotheCompanyanditsaffiliates,andareresponsibleforcontrollingandmanagingthebusinessandfinancialoperationsofthepartnerships.Asalimitedpartner,theCompanyisnotresponsibleforanyoftheliabilitiesandobligationsofthepartnershipsnordothepartnershipsortheircreditorshaveanyrecoursetotheCompanyotherthanforthecapitalrequirements.Allavailabletaxbenefitsfromlow-incomehousingtaxcreditsprovidedbythepartnershipswereclaimedasoffiscalyear2012.Theriskthatpreviouslyclaimedlow-incomehousingtaxcreditsmightberecapturedorotherwiseretroactivelyinvalidatedisconsideredremote.
InApril2015,alow-incomehousingpartnership,inwhichtheCompanywasalimitedpartner,solditsrealestateholdings.Therealpropertysaleresultedin$15incashproceedsfrominvestingactivitiesandagainof$(14)recordedtoOther(income)expense,net,ontheconsolidatedstatementofearningsfortheyearendedJune30,2015.
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NOTE18.INCOMETAXES
Theprovisionforincometaxesoncontinuingoperations,bytaxjurisdiction,consistedofthefollowingforthefiscalyearsendedJune30:
2016 2015 2014
CurrentFederal $254 $265 $247State 31 28 34Foreign 45 38 45Totalcurrent 330 331 326 DeferredFederal 11 (13) (19)State 1 (1) 2Foreign (7) (2) (4)Totaldeferred 5 (16) (21)Total $ 335 $ 315 $ 305
Thecomponentsofearningsfromcontinuingoperationsbeforeincometaxes,bytaxjurisdiction,consistedofthefollowingforthefiscalyearsendedJune30:
2016 2015 2014
UnitedStates $900 $829 $754Foreign 83 92 130Total $ 983 $ 921 $ 884
AreconciliationofthestatutoryfederalincometaxratetotheCompany’seffectivetaxrateoncontinuingoperationsfollowsforthefiscalyearsendedJune30:
2016 2015 2014
Statutoryfederaltaxrate 35.0% 35.0% 35.0%Statetaxes(netoffederaltaxbenefits) 2.1 2.1 2.6Taxdifferentialonforeignearnings 0.5 (0.3) (0.3)Domesticmanufacturingdeduction (2.4) (2.1) (2.3)Changeinvaluationallowance 0.5 0.6 0.6Otherdifferences (1.6) (1.1) (1.0)Effectivetaxrate 34.1% 34.2% 34.6%
ApplicableU.S.incometaxesandforeignwithholdingtaxeshavenotbeenprovidedonapproximately$216ofundistributedearningsofcertainforeignsubsidiariesasofJune30,2016,becausetheseearningsareconsideredindefinitelyreinvested.Theestimatednetfederalincometaxliabilitythatcouldariseiftheseearningswerenotindefinitelyreinvestedisapproximately$56.ApplicableU.S.incomeandforeignwithholdingtaxesareprovidedontheseearningsintheperiodsinwhichtheyarenolongerconsideredindefinitelyreinvested.
Taxbenefitsresultingfromstock-basedpaymentarrangementsthatareinexcessofthetaxbenefitsrecordedinnetearningsoverthevestingperiodofthosearrangements(excesstaxbenefits)arerecordedasincreasestoAdditionalpaid-incapital.Excesstaxbenefitsofapproximately$51,$42,and$11wererealizedandrecordedtoAdditionalpaid-incapitalforfiscalyears2016,2015and2014,respectively.
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NOTE18.INCOMETAXES(Continued)
Thecomponentsofnetdeferredtaxassets(liabilities)asofJune30areshownbelow:
2016 2015
Deferredtaxassets(a)Compensationandbenefitprograms $ 193 $ 191BasisdifferencerelatedtoVentureAgreement 30 30Accrualsandreserves 34 43Inventorycosts 21 19Netoperatinglossandtaxcreditcarryforwards 48 41Other 54 61Subtotal 380 385Valuationallowance (37) (34)Totaldeferredtaxassets 343 351Deferredtaxliabilities(a)Fixedandintangibleassets (325) (277)Low-incomehousingpartnerships (23) (22)Unremittedforeignearnings (16) (7)Other (25) (24)Totaldeferredtaxliabilities (389) (330)Netdeferredtaxassets(liabilities) $ (46) $ 21
(a)TheCompanyprospectivelyadoptedASUNo.2015-17,"IncomeTaxes(Topic740):BalanceSheetClassificationofDeferredTaxes,"requiringalldeferredtaxassetsandliabilitiestobeclassifiedasnoncurrent.SeeNote1forfurtherdetails.
TheCompanyperiodicallyreviewsitsdeferredtaxassetsforrecoverability.AvaluationallowanceisestablishedwhentheCompanybelievesthatitismorelikelythannotthatsomeportionofitsdeferredtaxassetswillnotberealized.Valuationallowanceshavebeenprovidedtoreducedeferredtaxassetstoamountsconsideredrecoverable.DetailsofthevaluationallowancewereasfollowsasofJune30:
2016 2015
Valuationallowanceatbeginningofyear $ (34) $ (51)Netdecrease/(increase)forotherforeigndeferredtaxassets 3 15Netdecrease/(increase)forforeignnetoperatinglosscarryforwardsandtaxcredits (6) 2Valuationallowanceatendofyear $ (37) $ (34)
AsofJune30,2016,theCompanyhadforeigntaxcreditcarryforwardsof$15forU.S.incometaxpurposeswithexpirationdatesbetweenfiscalyears2024and2025.Taxcreditcarryforwardsinforeignjurisdictionsof$19haveexpirationdatesinfiscalyear2031.Taxcreditcarryforwardsinforeignjurisdictionsof$1canbecarriedforwardindefinitely.Taxbenefitsfromforeignnetoperatinglosscarryforwardsof$16haveexpirationdatesbetweenfiscalyears2017and2036.Taxbenefitsfromforeignnetoperatinglosscarryforwardsof$12canbecarriedforwardindefinitely.
TheCompanyfilesincometaxreturnsintheU.S.federalandvariousstate,localandforeignjurisdictions.ThefederalstatuteoflimitationshasexpiredforalltaxyearsthroughJune30,2012.Variousincometaxreturnsinstateandforeignjurisdictionsarecurrentlyintheprocessofexamination.
TheCompanyrecognizesinterestandpenaltiesrelatedtouncertaintaxpositionsasacomponentofincometaxexpense.AsofJune30,2016and2015,thetotalbalanceofaccruedinterestandpenaltiesrelatedtouncertaintaxpositionswas$3and$10,respectively.Interestandpenaltiesrelatedtouncertaintaxpositionsincludedinincometaxexpenseresultedinanetbenefitof$1,anetbenefitof$1,andanetexpenseof$3infiscalyears2016,2015and2014,respectively.
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NOTE18.INCOMETAXES(Continued)
ThefollowingisareconciliationofthebeginningandendingamountsoftheCompany’sgrossunrecognizedtaxbenefits:
2016 2015 2014
Unrecognizedtaxbenefitsatbeginningofyear $ 38 $ 71 $ 69Grossincreases-taxpositionsinpriorperiods 3 3 3Grossdecreases-taxpositionsinpriorperiods (3) (8) (5)Grossincreases-currentperiodtaxpositions 8 6 7Grossdecreases-currentperiodtaxpositions - - -Lapseofapplicablestatuteoflimitations (4) (34) (1)Settlements (5) - (2)Unrecognizedtaxbenefitsatendofyear $ 37 $ 38 $ 71
IncludedinthebalanceofunrecognizedtaxbenefitsasofJune30,2016,2015and2014,arepotentialbenefitsof$27,$27and$58,respectively,whichifrecognized,wouldaffectnetearnings.DuringthefiscalyearendedJune30,2015,$32ofgrossunrecognizedtaxbenefitsrelatingtootherdiscontinuedoperationsforperiodspriortofiscalyear2015wererecognizedupontheexpirationoftheapplicablestatuteoflimitations.RecognitionofthesepreviouslydisclosedtaxbenefitshadnoimpactontheCompany’scashfloworearningsfromcontinuingoperationsforthefiscalyearsendedJune30,2016,2015and2014.
NOTE19.EMPLOYEEBENEFITPLANS
RetirementIncomePlans
EffectiveJuly1,2011,andaspartofasetoflong-term,cost-neutralenhancementstotheCompany’soverallemployeebenefitplans,thedomesticqualifiedretirementincomepensionplanwasfrozenforserviceaccrualandeligibilitypurposesformostparticipants,however,interestcreditshavecontinuedtoaccrueonparticipantbalances.AsofJune30,2016and2015,thebenefitsofthedomesticpensionplanarebasedoneitheremployeeyearsofserviceandcompensationorastateddollaramountperyearofservice.TheCompanyisthesolecontributortotheplaninamountsdeemednecessarytoprovidebenefitsandtotheextentdeductibleforfederalincometaxpurposes.Assetsoftheplanconsistprimarilyofinvestmentsincashequivalentsandcommoncollectivetrusts.
TheCompanycontributed$15toitsdomesticqualifiedpensionplanduringfiscalyear2016.Nocontributionsweremadeinfiscalyear2015and2014.TheCompany’sfundingpolicyforitsqualifiedplansistocontributeamountssufficienttomeetminimumfundingrequirementsassetforthinemployeebenefittaxlawsplusadditionalamountsastheCompanymaydeterminetobeappropriate.SubsequenttoJune30,2016,theCompanymadea$15discretionarycontributiontothepensionplan.
Contributionsmadetothedomesticnon-qualifiedpensionplanswere$16,$13and$13infiscalyears2016,2015and2014,respectively.
RetirementHealthCarePlans
TheCompanyprovidescertainhealthcarebenefitsforemployeeswhomeetage,participationandlengthofservicerequirementsatretirement.Theplanspaystatedpercentagesofcoveredexpensesafterannualdeductibleshavebeenmetorstatedreimbursementsuptoaspecifieddollarsubsidyamount.BenefitspaidtakeintoconsiderationpaymentsbyMedicareforthedomesticplan.Theplansarefundedasclaimsarepaid,andtheCompanyhastherighttomodifyorterminatecertainplans.
Theassumeddomestichealthcarecosttrendrateusedinmeasuringtheaccumulatedbenefitobligation(ABO)was6.75%forbothmedicalandprescriptiondrugsforfiscalyear2016.Theserateshavebeenassumedtograduallydecreaseeachyearuntilanassumedultimatetrendof4.5%isreachedin2037.ThehealthcarecosttrendrateassumptionhasaminimaleffectontheamountsreporteddueprimarilytotheexistenceofbenefitcapprovisionsintheCompany’sdomesticplan.Assuch,theeffectofahypothetical100basispointincreaseordecreaseintheassumeddomestichealthcarecosttrendrateonthetotalserviceandinterestcostcomponentsaswellasthepostretirementbenefitobligationwouldhavebeenimmaterialforeachofthefiscalyearsendedJune30,2016,2015and2014.
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NOTE19.EMPLOYEEBENEFITPLANS(Continued)
FinancialInformationRelatedtoRetirementIncomeandRetirementHealthCare
SummarizedinformationfortheCompany’sretirementincomeandretirementhealthcareplansasofandforthefiscalyearsendedJune30isasfollows:
RetirementIncome Retirement
HealthCare
2016 2015 2016 2015
Changeinbenefitobligations:Projectedbenefitobligationasofbeginningofyear $ 639 $ 641 $ 45 $ 49Servicecost 1 2 - -Interestcost 26 25 2 2Actuarialloss(gain) 51 14 2 -Planamendments (1) - - (1)Translationandotheradjustments (1) (5) - (2)Benefitspaid (42) (38) (2) (3)Projectedbenefitobligationasofendofyear 673 639 47 45 Changeinplanassets:Fairvalueofassetsasofbeginningofyear $ 409 $ 432 $ - $ -Actualreturnonplanassets 26 6 - -Employercontributions 31 13 2 3Benefitspaid (42) (38) (2) (3)Translationandotheradjustments (1) (4) - -Fairvalueofplanassetsasofendofyear 423 409 - -Accruedbenefitcost,netfundedstatus $(250) $(230) $ (47) $ (45)Amountrecognizedinthebalancesheetsconsistsof:Pensionbenefitassets $ 1 $ 2 $ - $ -Currentaccruedbenefitliability (14) (16) (3) (3)Non-currentaccruedbenefitliability (237) (216) (44) (42)Accruedbenefitcost,net $ (250) $ (230) $ (47) $ (45)
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NOTE19.EMPLOYEEBENEFITPLANS(Continued)
RetirementincomeplanswithABOinexcessofplanassetsasofJune30wereasfollows:
PensionPlans OtherRetirementPlans
2016 2015 2016 2015
Projectedbenefitobligation $575 $538 $76 $80Accumulatedbenefitobligation 574 538 76 80Fairvalueofplanassets 399 385 - -
TheABOforallpensionplanswas$596,$559and$563asofJune30,2016,2015and2014,respectively.
ThenetcostsoftheretirementincomeandhealthcareplansforthefiscalyearsendedJune30includedthefollowingcomponents:
RetirementIncome RetirementHealthCare
2016 2015 2014 2016 2015 2014
Servicecost $ 1 $ 2 $ 3 $ - $ - $ 1Interestcost 26 25 27 2 2 2Expectedreturnonplanassets (17) (20) (25) - - -Amortizationofunrecognizeditems 10 12 11 (3) 2 (4)Total $ 20 $ 19 $ 16 $ (1) $ 4 $ (1)
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NOTE19.EMPLOYEEBENEFITPLANS(Continued)
ItemsnotyetrecognizedasacomponentofpostretirementexpenseasofJune30,2016,consistedof:
RetirementIncome Retirement
HealthCareNetactuarialloss(gain) $ 296 $ (13)Priorservicebenefit - (6)Netdeferredincometax(assets)liabilities (111) 7Accumulatedothercomprehensiveloss(income) $ 185 $ (12)
Netactuarialloss(gain)recordedinAccumulatedothercomprehensivenet(losses)incomeforthefiscalyearendedJune30,2016,includedthefollowing:
RetirementIncome Retirement
HealthCareNetactuarialloss(gain)asofbeginningofyear $264 $ (17)Amortizationduringtheyear (10) 2Loss(gain)duringtheyear 42 2Netactuarialloss(gain)asofendofyear $ 296 $ (13)
TheCompanyusesthestraight-lineamortizationmethodforunrecognizedpriorservicecostsandbenefits.Infiscalyear2017,theCompanyexpectstorecognize,onapre-taxbasis,$11ofthenetactuariallossasacomponentofnetperiodicbenefitcostforthePensionPlans.Inaddition,infiscalyear2017,theCompanyexpectstorecognize,onapre-taxbasis,$1ofthenetactuarialgainasacomponentofnetperiodicbenefitcostfortheretirementhealthcareplans.
Weighted-averageassumptionsusedtoestimatetheactuarialpresentvalueofbenefitobligationsasofJune30wereasfollows:
RetirementIncome RetirementHealthCare2016 2015 2016 2015
Discountrate 3.42% 4.20% 3.42% 4.16%Rateofcompensationincrease 2.92% 3.37% n/a n/a
Weighted-averageassumptionsusedtoestimatethenetperiodicpensionandotherpostretirementbenefitcostsasofJune30wereasfollows:
RetirementIncome
2016 2015 2014
Discountrate 4.20% 4.05% 4.39%Rateofcompensationincrease 3.37% 4.46% 3.44%Expectedreturnonplanassets 4.34% 5.28% 6.61%
RetirementHealthCare
2016 2015 2014
Discountrate 4.16% 4.00% 4.33%
Theexpectedlong-termrateofreturnassumptionisbasedonananalysisofhistoricalexperienceoftheportfolioandthesummationofprospectivereturnsforeachassetclassinproportiontothefund’scurrentassetallocation.
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NOTE19.EMPLOYEEBENEFITPLANS(Continued)
ExpectedbenefitpaymentsfortheCompany’spensionandotherpostretirementplansasofJune30,2016,wereasfollows:
RetirementIncome RetirementHealthCare
2017 $ 39 $ 32018 52 32019 39 32020 39 22021 39 2Fiscalyears2022through2026 193 12
Expectedbenefitpaymentsarebasedonthesameassumptionsusedtomeasurethebenefitobligationsandincludeestimatedfutureemployeeservice.
ThetargetallocationsandweightedaverageassetallocationsbyassetcategoryoftheinvestmentportfoliofortheCompany’sdomesticretirementincomeplansasofJune30were:
%TargetAllocation %ofPlanAssets
2016 2015 2016 2015
U.S.equity 11% 11% 11% 11%Internationalequity 12 12 11 12Fixedincome 74 74 74 74Other 3 3 4 3Total 100% 100% 100% 100%
Thetargetassetallocationisdeterminedbasedontheoptimalbalancebetweenriskandreturnand,attimes,maybeadjustedtoachievetheplan’soverallinvestmentobjectivetogeneratesufficientresourcestopaycurrentandprojectedplanobligationsoverthelifeofthedomesticqualifiedretirementincomeplan.
62
NOTE19.EMPLOYEEBENEFITPLANS(Continued)
Thefollowingtablesetsforthbylevelwithinthefairvaluehierarchy,theretirementincomeplans’assetscarriedatfairvalueasofJune30:
2016
Level1 Level2 Total
Cashequivalents $ 2 $ - $ 2CommoncollectivetrustsBondfunds - 307 307Internationalequityfunds - 56 56Domesticequityfunds - 44 44Realestatefund - 14 14Totalcommoncollectivetrusts - 421 421Totalassetsatfairvalue $ 2 $ 421 $ 423
2015
Level1 Level2 Total
Cashequivalents $ 3 $ - $ 3CommoncollectivetrustsBondfunds - 295 295Internationalequityfunds - 59 59Domesticequityfunds - 41 41Realestatefund - 11 11Totalcommoncollectivetrusts - 406 406Totalassetsatfairvalue $ 3 $406 $409
ThecarryingvalueofcashequivalentsapproximatesitsfairvalueasofJune30,2016and2015.
63
NOTE19.EMPLOYEEBENEFITPLANS(Continued)
Commoncollectivetrustfundsarenotpubliclytradedand,therefore,areclassifiedasLevel2.Theyarevaluedatanetassetvalueunitpricedeterminedbytheportfolio’ssponsorbasedonthefairvalueofunderlyingassetsheldbythecommoncollectivetrustfundonJune30,2016and2015.
Thecommoncollectivetrustsareinvestedinvarioustruststhatattempttoachievetheirinvestmentobjectivesbyinvestingprimarilyinothercollectiveinvestmentfundswhichhavecharacteristicsconsistentwitheachtrust’soverallinvestmentobjectiveandstrategy.
DefinedContributionPlans
TheCompanyhasdefinedcontributionplansformostofitsdomesticemployees.TheplansincludeTheCloroxCompany401(k)Plan,TheCloroxCompany2011NonqualifiedDefinedContributionPlanandtheExecutiveRetirementPlan.Theaggregatecostofthedomesticdefinedcontributionplanswas$45,$45and$43infiscalyears2016,2015and2014,respectively.IncludedintheaggregatecostwasthecostofTheCloroxCompany401(k)Planof$41,$42and$38infiscalyears2016,2015and2014,respectively.TheCompanyalsohasdefinedcontributionplansforcertaininternationalemployees.Theaggregatecostoftheseforeignplanswas$3forthefiscalyearsendedJune30,2016,2015and2014.
NOTE20.SEGMENTREPORTING
TheCompanyoperatesthroughstrategicbusinessunitsthatareaggregatedintothefollowingfourreportablesegmentsbasedontheeconomicsandnatureoftheproductssold:
● Cleaningconsistsoflaundry,homecareandprofessionalproductsmarketedandsoldintheUnitedStates.Productswithinthissegmentincludelaundryadditives,includingbleachproductsundertheClorox®brandandClorox2®stainfighterandcolorbooster;homecareproducts,primarilyundertheClorox®,Formula409®,Liquid-Plumr®,Pine-Sol®,S.O.S®andTilex®brands;naturallyderivedproductsundertheGreenWorks®brand;andprofessionalcleaninganddisinfectingproductsundertheClorox®,Dispatch®,Aplicare®,HealthLink®andCloroxHealthcare®brands.
● Householdconsistsofcharcoal,catlitter,digestivehealthproductsandbags,wrapsandcontainerproductsmarketedandsoldintheUnitedStates.ProductswithinthissegmentincludecharcoalproductsundertheKingsford®andMatchLight®brands;catlitterproductsundertheFreshStep®,ScoopAway®
andEverClean®brands;digestivehealthproductsundertheRenewLife®brand;andbags,wrapsandcontainersundertheGlad®brand.● Lifestyleconsistsoffoodproducts,water-filtrationsystemsandfiltersandnaturalpersonalcareproductsmarketedandsoldintheUnitedStates.Products
withinthissegmentincludedressingsandsauces,primarilyundertheHiddenValley®,KCMasterpiece®andSoyVay®brands;water-filtrationsystemsandfiltersundertheBrita®brand;andnaturalpersonalcareproductsundertheBurt’sBees®brand.
● InternationalconsistsofproductssoldoutsidetheUnitedStates.Productswithinthissegmentincludelaundry,homecare,water-filtration,digestivehealthproducts,charcoalandcatlitterproducts,dressingsandsauces,bags,wrapsandcontainersandnaturalpersonalcareproducts,primarilyundertheClorox®
,Glad®,PinoLuz®,Ayudin®,Limpido®,Clorinda®,Poett®,Mistolin®,Lestoil®,BonBril®,Brita®,GreenWorks®,Pine-Sol®,AguaJane®
,Chux®,RenewLife®,Kingsford®,FreshStep®,ScoopAway®,EverClean®,KCMasterpiece®,HiddenValley®andBurt’sBees®brands.
Certainnon-allocatedadministrativecosts,interestincome,interestexpenseandvariousothernon-operatingincomeandexpensesarereflectedinCorporate.Corporateassetsincludecashandcashequivalents,propertyandequipment,otherinvestmentsanddeferredtaxes.
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NOTE20.SEGMENTREPORTING(Continued)
FiscalYear Cleaning Household Lifestyle International Corporate Total
Company
Netsales 2016 $1,912 $1,862 $990 $ 997 $ $5,7612015 1,824 1,794 950 1,087 - 5,6552014 1,776 1,709 936 1,093 - 5,514
Earnings(losses)fromcontinuingoperationsbeforeincometaxes 2016 511 428 251 66 (273) 983
2015 445 375 257 79 (235) 9212014 428 326 258 99 (227) 884
Incomefromequityinvestees 2016 - - - 15 - 152015 - - - 14 - 142014 - - - 13 - 13
Totalassets 2016 883 1,092 880 1,057 606 4,5182015 876 725 860 1,057 646 4,164
Capitalexpenditures 2016 44 83 18 24 3 1722015 35 50 11 25 4 1252014 37 53 11 31 5 137
Depreciationandamortization 2016 61 60 19 21 4 1652015 52 67 19 24 7 1692014 49 67 19 25 17 177
Significantnoncashchargesincludedinearnings(losses)fromcontinuingoperationsbeforeincometaxes:Share-basedcompensation 2016 10 8 5 1 21 45
2015 8 7 4 1 12 322014 11 9 5 1 10 36
65
NOTE20.SEGMENTREPORTING(Continued)
AllintersegmentsalesareeliminatedandarenotincludedintheCompany’sreportablesegments’netsales.
NetsalestotheCompany’slargestcustomer,WalmartStores,Inc.anditsaffiliates,were27%,26%and27%ofconsolidatednetsalesforeachofthefiscalyearsendedJune30,2016,2015and2014,respectively,andoccurredineachoftheCompany’sreportablesegments.Noothercustomersaccountedformorethan10%ofconsolidatednetsalesinanyofthesefiscalyears.Duringfiscalyears2016,2015and2014,theCompany’sfivelargestcustomersaccountedfor46%,45%,and45%ofitsconsolidatednetsalesforeachofthethreefiscalyears,respectively.
ThreeoftheCompany’sproductlineshaveaccountedfor10%ormoreofconsolidatednetsalesduringeachofthepastthreefiscalyears.Infiscalyears2016,2015and2014,salesofliquidbleachrepresentedapproximately13%,14%and13%oftheCompany’sconsolidatednetsales,respectively,approximately25%,26%,and26%ofnetsalesintheCleaningsegmentforeachsuchyears,respectively,andapproximately27%,27%and28%ofnetsalesintheInternationalsegment,respectively.Salesoftrashbagsrepresentedapproximately13%,14%and13%oftheCompany’sconsolidatednetsalesineachofthefiscalyears2016,2015and2014,respectively,andapproximately37%,38%and36%ofnetsalesintheHouseholdsegment,respectively,foreachsuchyears.Salesofcharcoalrepresentedapproximately11%oftheCompany’sconsolidatednetsalesandapproximately34%ofnetsalesintheHouseholdsegmentinfiscalyears2016,2015and2014.
Netsalesandproperty,plantandequipment,net,bygeographicareaasofandforthefiscalyearsendedJune30wereasfollows:
FiscalYear
UnitedStates Foreign
TotalCompany
Netsales 2016 $4,805$ 956$5,7612015 4,609 1,046 5,6552014 4,466 1,048 5,514
Property,plantandequipment,net 2016 $ 799 $ 107 $ 9062015 801 117 918
NOTE21.RELATEDPARTYTRANSACTIONS
TheCompanyholdsvariousequityinvestmentswithownershippercentagesofupto50%inanumberofconsumerproductsbusinesses,mostofwhichoperateoutsidetheUnitedStates.Theequityinvestments,presentedinOtherassetsaccountedforundertheequitymethod,were$59asofthefiscalyearsendedJune30,2016and2015.TheCompanyhasnoongoingcapitalcommitments,loanrequirements,guaranteesoranyothertypesofarrangementsunderthetermsofitsagreementsthatwouldrequireanyfuturecashcontributionsordisbursementsarisingoutofanequityinvestment.
TransactionswiththeCompany’sequityinvesteestypicallyrepresentpaymentsforcontractmanufacturingandpurchasesofrawmaterials.Paymentstorelatedparties,includingequityinvestees,forsuchtransactionsduringthefiscalyearsendedJune30,2016,2015and2014were$57,$55and$57,respectively.ReceiptsfromandendingaccountsreceivableandpayablebalancesrelatedtotheCompany’srelatedpartieswerenotsignificantduringorasoftheendofeachofthefiscalyearspresented.
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NOTE22.UNAUDITEDQUARTERLYDATA
Dollarsinmillions,exceptmarketpriceandpersharedata QuartersEnded
September30 December31 March31 June30 TotalYearFiscalyearendedJune30,2016
Netsales $ 1,390 $ 1,345 $ 1,426 $ 1,600 $ 5,761
Costofproductssold 765 745 780 873 3,163
Earningsfromcontinuingoperations 173 151 159 165 648
(Losses)earningsfromdiscontinuedoperations,
netoftax (1) (2) 3 - -
Netearnings 172 149 162 165 648
Percommonshare:
Basic
Continuingoperations $ 1.34 $ 1.16 $ 1.23 $ 1.28 $ 5.01
Discontinuedoperations (0.01) (0.01) 0.02 - -
Basicnetearningspershare $ 1.33 $ 1.15 $ 1.25 $ 1.28 $ 5.01
Diluted
Continuingoperations $ 1.32 $ 1.14 $ 1.21 $ 1.26 $ 4.92
Discontinuedoperations (0.01) (0.01) 0.02 - -
Dilutednetearningspershare $ 1.31 $ 1.13 $ 1.23 $ 1.26 $ 4.92
Dividendsdeclaredpercommonshare $ 0.77 $ 0.77 $ 0.77 $ 0.80 $ 3.11
Marketprice(NYSE)
High $ 119.75 $ 131.78 132.19 $ 138.41 $ 138.41
Low 104.26 114.06 122.40 119.23 104.26
Year-end 138.39
FiscalyearendedJune30,2015
Netsales $ 1,352 $ 1,345 $ 1,401 $ 1,557 $ 5,655
Costofproductssold 774 773 796 847 3,190
Earningsfromcontinuingoperations 145 128 144 189 606
Lossesfromdiscontinuedoperations,
netoftax (55) (3) 30 2 (26)
Netearnings 90 125 174 191 580
Percommonshare:
Basic
Continuingoperations $ 1.12 $ 0.98 $ 1.09 $ 1.46 $ 4.65
Discontinuedoperations (0.42) (0.02) 0.22 0.02 (0.20)
Basicnetearningspershare $ 0.70 $ 0.96 $ 1.31 $ 1.48 $ 4.45
Diluted
Continuingoperations $ 1.10 $ 0.97 $ 1.08 $ 1.44 $ 4.57
Discontinuedoperations (0.42) (0.02) 0.22 0.02 (0.20)
Dilutednetearningspershare $ 0.68 $ 0.95 $ 1.30 $ 1.46 $ 4.37
Dividendsdeclaredpercommonshare $ 0.74 $ 0.74 $ 0.74 $ 0.77 $ 2.99
Marketprice(NYSE)
High $ 112.70 $ 112.65 $ 106.36 $ 98.31 $ 112.70
Low 103.77 102.95 95.19 86.03 86.03
Year-end 104.02
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FIVE-YEARFINANCIALSUMMARYTheCloroxCompany
YearsendedJune30
Dollarsinmillions,exceptpersharedata 2016 2015 2014 2013 2012
OPERATIONSNetsales $5,761 $5,655 $5,514 $5,533 $5,379Grossprofit 2,598 2,465 2,356 2,391 2,272Earningsfromcontinuingoperations $ 648 $ 606 $ 579 $ 573 $ 535(Losses)earningsfromdiscontinuedoperations,netoftax - (26) (21) (1) 6Netearnings $ 648 $ 580 $ 558 $ 572 $ 541COMMONSTOCKEarningspershareContinuingoperationsBasic $ 5.01 $ 4.65 $ 4.47 $ 4.37 $ 4.09Diluted 4.92 4.57 4.39 4.31 4.05Dividendsdeclaredpershare $ 3.11 $ 2.99 $ 2.87 $ 2.63 $ 2.44
AsofJune30
Dollarsinmillions 2016 2015 2014 2013 2012
OTHERDATATotalassets $ 4,518 $ 4,164 $ 4,258 $ 4,311 $ 4,355Long-termdebt 1,797 1,796 1,595 2,170 1,571
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Exhibit99.2
VALUATIONANDQUALIFYINGACCOUNTSANDRESERVES(Dollarsinmillions)
ColumnA ColumnB ColumnC ColumnD ColumnEAdditions Deductions
Description
Balanceatbeginningofperiod
Chargedtocostsandexpenses
Creditedtocostsandexpenses
Creditedtootheraccounts
Balanceatend
ofperiod
AllowancefordoubtfulaccountsYearendedJune30,2016 $ (4) $ (1) $ - $ - $ (5)YearendedJune30,2015 (3) (1) - - (4)YearendedJune30,2014 (5) - 2 - (3)LIFOallowanceYearendedJune30,2016 $ (34) $ (1) $ - $ 3 $ (32)YearendedJune30,2015 (36) - - 2 (34)YearendedJune30,2014 (40) - 3 1 (36)ValuationallowanceondeferredtaxassetsYearendedJune30,2016 $ (34) $ (5) $ - $ 2 $ (37)YearendedJune30,2015 (51) (4) - 21 (34)YearendedJune30,2014 (36) (25) - 10 (51)
1
Exhibit99.3
THECLOROXCOMPANYRECONCILIATIONOFECONOMICPROFIT(UNAUDITED)(1)
Dollarsinmillions FY16 FY15 FY14
Earningsfromcontinuingoperationsbeforeincometaxes $ 983 $ 921 $ 884NoncashU.S.GAAPrestructuringandintangibleassetimpairmentcosts 9 1 3Interestexpense 88 100 103Earningsfromcontinuingoperationsbeforeincometaxes,noncashU.S.GAAPrestructuringandintangibleassetimpairmentcosts,andinterestexpense $ 1,080 $ 1,022 $ 990Incometaxesonearningsfromcontinuingoperationsbeforeincometaxes,noncashU.S.GAAPrestructuringandintangibleassetimpairmentcostsandinterestexpense(2) 368 350 342Adjustedaftertaxprofit $ 712 $ 672 $ 648
Averagecapitalemployed(3) 2,472 2,393 2,494
Capitalcharge(4) 222 214 225Economicprofit(1)(Adjustedaftertaxprofitlesscapitalcharge) $ 490 $ 458 $ 423
(1)Economicprofit(EP)isdefinedbytheCompanyasearningsfromcontinuingoperationsbeforeincometaxes,excludingnoncashU.S.GAAPrestructuringandintangibleassetimpairmentcosts,andinterestexpense;lessanamountoftaxbasedontheeffectivetaxrate,andlessachargeequaltoaveragecapitalemployedmultipliedbyacostofcapitalrate.EPisakeyfinancialmetricthattheCompany’smanagementusestoevaluatebusinessperformanceandallocateresources,andisacomponentindeterminingemployeeincentivecompensation.TheCompany’smanagementbelievesEPprovidesadditionalperspectivetoinvestorsaboutfinancialreturnsgeneratedbythebusinessandrepresentsprofitgeneratedoverandabovethecostofcapitalusedbythebusinesstogeneratethatprofit.
(2) Thetaxrateappliedistheeffectivetaxrateonearningsfromcontinuingoperations,whichwas34.1%,34.2%and34.6%infiscalyears2016,2015and2014,respectively.
(3) Totalcapitalemployedrepresentstotalassetslessnon-interestbearingliabilities.AdjustedcapitalemployedrepresentstotalcapitalemployedadjustedtoaddbackcurrentyearaftertaxnoncashU.S.GAAPrestructuringandintangibleassetimpairmentcosts.Averagecapitalemployedistheaverageofadjustedcapitalemployedforthecurrentyearandtotalcapitalemployedfortheprioryear,basedonyear-endbalances.Seebelowfordetailsoftheaveragecapitalemployedcalculation:
Totalassets $ 4,518$ 4,164$ 4,258Less:Accountspayableandaccruedliabilities(5) 1,032 976 912Incometaxespayable - 31 8Otherliabilities(5) 784 745 768Deferredincometaxes 82 95 103Non-interestbearingliabilities 1,898 1,847 1,791Totalcapitalemployed 2,620 2,317 2,467AftertaxnoncashU.S.GAAPrestructuringandintangibleassetimpairmentcosts 6 1 2Adjustedcapitalemployed $ 2,626 $ 2,318 $ 2,469Averagecapitalemployed $ 2,472 $ 2,393 $ 2,494
(4)Capitalchargerepresentsaveragecapitalemployedmultipliedbyacostofcapital,whichwas9%forallfiscalyearspresented.Thecalculationofcapitalchargeincludestheimpactofroundingnumbers.
(5) AccountspayableandaccruedliabilitieswerecombinedintoonefinancialstatementlineasofJune30,2016.Thechangehasbeenretrospectivelyappliedtoallperiodspresented.AccountspayableandaccruedliabilitiesandOtherLiabilitiesareadjustedtoexcludeinterest-bearingliabilities.
1
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