<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
The Clorox Company
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
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[CLOROX LOGO]
THE CLOROX COMPANY
---------
NOTICE OF 1999 ANNUAL MEETING
PROXY STATEMENT
AND
ANNUAL FINANCIAL STATEMENTS
-------------
ANNUAL MEETING OF
STOCKHOLDERS
NOVEMBER 17, 1999
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<PAGE>
[LOGO]
THE CLOROX COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 17, 1999
The Annual Meeting of Stockholders of The Clorox Company, a Delaware corporation
(the "Company"), will be held at 9:00 A.M. on Wednesday, November 17, 1999, at
the offices of the Company, 1221 Broadway, Oakland, California, for the
following purposes:
1. To elect a board of thirteen directors to hold office until the next
annual election of directors;
2. To consider and vote upon an amendment of the Company's Certificate of
Incorporation to increase the number of shares of authorized Common Stock
of the Company;
3. To ratify the selection of Deloitte & Touche LLP, certified public
accountants, for the fiscal year ending June 30, 2000; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The board of directors has fixed the close of business on September 20, 1999 as
the record date for determining the stockholders entitled to notice of, and to
vote at, the meeting and any adjournment thereof. A list of such stockholders
will be available at the time and place of the meeting and, during the ten days
prior to the meeting, at the office of the Secretary of the Company at 1221
Broadway, Oakland, California.
A copy of the Company's Annual Report for the fiscal year ended June 30, 1999 is
included with this mailing.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. EVEN IF YOU
PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL READ THE ENCLOSED PROXY
STATEMENT AND THE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, AND THEN VOTE
(1) BY COMPLETING, SIGNING, DATING AND MAILING THE PROXY CARD IN THE ENCLOSED
POSTAGE PRE-PAID ENVELOPE, OR (2) BY CALLING THE TOLL-FREE NUMBER LISTED ON THE
PROXY CARD, OR (3) VIA THE INTERNET AS INDICATED ON THE PROXY CARD. THIS WILL
NOT LIMIT YOUR RIGHT TO ATTEND OR VOTE AT THE MEETING.
By Order of the Board of Directors
[SIGNATURE]
Peter D. Bewley,
SENIOR VICE PRESIDENT -- GENERAL
COUNSEL
AND SECRETARY
September 29, 1999
<PAGE>
THE CLOROX COMPANY
1221 BROADWAY
OAKLAND, CALIFORNIA 94612
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of proxies
by the board of directors of The Clorox Company, a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders of the Company, to be
held at 9:00 A.M. on November 17, 1999 at the above offices of the Company (the
"Annual Meeting").
THE PROXY
A stockholder giving the enclosed proxy may revoke it at any time before it is
used by giving written notice of revocation to the Secretary of the Company or
by voting in person at the Annual Meeting.
VOTING AT THE ANNUAL MEETING
All share numbers in this proxy statement give effect to the two-for-one stock
split declared July 20, 1999, effected in the form of a stock dividend paid
August 23, 1999 on all shares of the Company's common stock, $1.00 par value
(the "Common Stock"), outstanding as of the close of business on July 30, 1999.
The only voting securities of the Company are its shares of Common Stock, of
which 236,295,123 shares were outstanding and entitled to vote at the close of
business on September 20, 1999. Only stockholders of record at the close of
business on September 20, 1999 are entitled to vote at the Annual Meeting. The
holders of the Common Stock are entitled to one vote per share on each matter
submitted to a vote of stockholders.
The holders of a majority of the issued and outstanding Common Stock, present in
person or by proxy, will constitute a quorum for the transaction of business at
the Annual Meeting or any adjournment thereof. Abstentions and broker non-votes
are counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Abstentions are not counted as votes cast
on the proposed election of directors, but will have the same legal effect as a
vote against the proposed amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock and
the proposed ratification of the appointment of independent auditors. Broker
non-votes are not counted as votes cast on any matter to which they relate.
This proxy statement and the accompanying proxy are first being sent or given to
stockholders on or about September 29, 1999.
PROPOSAL NO. 1:
NOMINEES FOR ELECTION AS DIRECTORS
At the Annual Meeting, thirteen persons will be elected as members of the board
of directors, each for a one-year term. The Nominating Committee of the board of
directors has nominated the thirteen persons listed below for election at the
Annual Meeting. All of such nominees were elected at the Company's Annual
Meeting of Stockholders held on November 18, 1998, except Mr. Robert Matschullat
and Ms. Elaine Chao.
The proxies given to the proxyholders will be voted or not voted as directed
and, if no direction is given, will be voted FOR these thirteen nominees. The
board of directors knows of no reason why any of these nominees should be unable
or unwilling to serve. However, if for any reason any nominee should be unable
or unwilling to serve, the proxies will be voted for the election of such other
person to the office of director
1
<PAGE>
as the board of directors may nominate in the place of such nominee. Directors
will be elected by a plurality of the shares represented and voting at the
meeting.
Certain information with respect to each nominee appears on the following pages,
including age, period or periods served as a director, position (if any) with
the Company, business experience during at least the past five years and
directorships of other publicly-owned corporations.
<TABLE>
<CAPTION>
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<S> <C> <C>
NAME, PRINCIPAL OCCUPATION DIRECTOR
AND OTHER INFORMATION SINCE
<CAPTION>
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<S> <C> <C>
DANIEL BOGGAN, JR. Senior Vice President, the National 1990
Collegiate Athletic Association.
Mr. Boggan became Senior Vice President of the National
Collegiate Athletic Association in 1996, after having been
Group Executive Director for Education Services for the
National Collegiate Athletic Association since November 1994.
Previously, he had been Vice Chancellor for business and
administrative services at the University of
California at Berkeley since 1986. Prior to that, he served
several cities and two counties as a senior manager. Mr. [PHOTO]
Boggan is a director of Payless Shoesource, Inc. and serves
on various local boards. Age: 53.
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ELAINE L. CHAO Distinguished Fellow, The Heritage Foundation. 1999
Ms. Chao is a Distinguished Fellow at The Heritage Foundation
(tax-exempt public policy institute) and Chairman of the
Asian Studies Center Advisory Council. Prior to that, Ms.
Chao was President and Chief Executive Officer of United Way
of America (non-profit charitable organization) from 1992 to
1996. Previously, she was also Director
of the Peace Corps (world's largest volunteer organization)
and Deputy Secretary of the U.S. Department of
Transportation. Ms. Chao is a director of Dole Food Company, [PHOTO]
Inc., C.R. Bard, Inc., Northwest Airlines, Inc., and NASD,
Inc. Age: 46.
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JOHN W. COLLINS Former President and Chief Operating Officer 1993
of the Company.
Mr. Collins was President and Chief Operating Officer of the
Company from March 1986 through December 1989. He was also a
Director of the Company from July 1983 through October 1989.
Beginning January 1990, he was on a paid leave of absence,
which extended until his retirement on December 31, 1993. He
was not active in the
Company's affairs from January 1990 until his reelection to [PHOTO]
the board of directors in January 1993. Age: 68.
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</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
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NAME, PRINCIPAL OCCUPATION DIRECTOR
AND OTHER INFORMATION SINCE
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<S> <C> <C>
URSULA FAIRCHILD Private Investor and Member of the 1976
Supervisory Board of Henkel KGaA.
Ms. Fairchild is a private investor, as well as a member of
the Supervisory Board of Henkel KGaA, Duesseldorf, Germany
(manufacturer of household products and chemicals). She is a
member of the Henkel family, which controls Henkel KGaA, and
is nominated pursuant to an understanding between the Company
and Henkel KGaA (see Certain
Relationships and Transactions, page 10 below). Age: 68. [PHOTO]
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TULLY M. FRIEDMAN Chairman and Chief Executive Officer, 1997
Friedman, Fleischer & Lowe, LLC.
Mr. Friedman is the Chairman and Chief Executive Officer of
Friedman, Fleischer & Lowe, LLC (a private investment firm).
Prior to that, Mr. Friedman was a founding partner of Hellman
& Friedman (a private investment firm) and a managing
director and general partner of Salomon Brothers, Inc. He is
a director of Levi Strauss & Co., Inc.,
Mattel, Inc., McKesson Corp. and on the advisory board of
Tevecap, S.A. Mr. Friedman is also a member of the executive [PHOTO]
committee, a trustee, and the treasurer of the American
Enterprise Institute. Age: 57.
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JUERGEN MANCHOT Vice-Chairman of the Shareholders' Commit- 1989
tee, Henkel KGaA.
Dr. Manchot is the Vice-Chairman of the Shareholders'
Committee of Henkel KGaA, Duesseldorf, Germany (manufacturer
of household products and chemicals). He is a member of the
Henkel family, which controls Henkel KGaA, and is nominated
pursuant to an understanding between the Company and Henkel
KGaA (see Certain Relation-
ships and Transactions, page 10 below). Dr. Manchot is a [PHOTO]
director of Transaction Network Services Inc. Age: 62.
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</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
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NAME, PRINCIPAL OCCUPATION DIRECTOR
AND OTHER INFORMATION SINCE
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<S> <C> <C>
ROBERT W. MATSCHULLAT Vice Chairman and Chief Financial 1999
Officer of The Seagram Company Ltd.
Mr. Matschullat is the Vice Chairman and Chief Financial
Officer of The Seagram Company Ltd. (a global company
engaging in two business segments: entertainment and spirits
and wine). Prior to joining The Seagram Company Ltd. in 1995,
Mr. Matschullat served as head of worldwide banking for
Morgan Stanley & Co. Incorporated,
and was one of six management members of the Morgan Stanley
Group board of directors. He is a director of The Seagram [PHOTO]
Company Ltd. and USA Networks, Inc. Age: 51.
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DEAN O. MORTON Retired Executive Vice President and Chief 1991
Operating Officer, Hewlett-Packard Company.
Mr. Morton was the Executive Vice President, Chief Operating
Officer and a Director of Hewlett-Packard Company
(manufacturer of computer systems and test and measurement
instruments) until his retirement in 1992. Mr. Morton is a
director of ALZA Corporation, KLA-Tencor Inc., Centigram
Communications Corporation and BEA
Systems Inc. He is a trustee of The State Street Research
Group of Funds, The State Street Research Portfolios, Inc. [PHOTO]
and The Metropolitan Series Fund Inc. Age: 67.
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KLAUS MORWIND Executive Vice President, Personally Liable 1995
Associate, and Member of Management Board, Henkel KGaA.
Dr. Morwind is Executive Vice President, Personally Liable
Associate and a member of the Management Board of Henkel
KGaA, Duesseldorf, Germany (manufacturer of household
products and chemicals). He joined Henkel KGaA in 1969 and
held several management positions before assuming his current
responsibility. Dr. Morwind is
nominated pursuant to an understanding between the Company
and Henkel KGaA (see Certain Relationships and Transactions, [PHOTO]
page 10 below). Age: 56.
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</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
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NAME, PRINCIPAL OCCUPATION DIRECTOR
AND OTHER INFORMATION SINCE
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<S> <C> <C>
EDWARD L. SCARFF Private Investor. 1986
Mr. Scarff has been a private investor for more than five
years. From 1983 through 1994, he was Chairman of the Board
and Chief Executive Officer of Arcata Corporation (commercial
printer and manufacturer of redwood lumber). Mr. Scarff is a
director of Unicon International Ltd., Channel Master LLC,
IMPCO Technologies and is
General Partner of Questor Management Co. Age: 68. [PHOTO]
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LARY R. SCOTT Executive Vice President, Arkansas Best 1989
Corporation.
Mr. Scott was elected as Executive Vice President of Arkansas
Best Corporation (holding company with a multi-industry
composition) in January 1996. Previously, he had been
Chairman and Chief Executive Officer of WorldWay Corporation
from May 1993 until January 1996. Prior to that, Mr. Scott
was President and Chief Executive Officer of
Consolidated Freightways, Inc. (a worldwide transportation [PHOTO]
company). Age: 63.
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G. CRAIG SULLIVAN Chairman of the Board and Chief Executive 1992
Officer of the Company.
Mr. Sullivan has been Chairman of the Board and Chief
Executive Officer of the Company since July 1, 1992.
Previously, he was Vice Chairman and Chief Executive Officer
(May-June, 1992); Group Vice President (1989-1992); Vice
President -- Household Products (1984-1989); and Vice
President -- Food Service Products
(1981-1984). He joined the Company in 1971. Mr. Sullivan is a [PHOTO]
director of Levi Strauss & Co., Inc. Age: 59.
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</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
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NAME, PRINCIPAL OCCUPATION DIRECTOR
AND OTHER INFORMATION SINCE
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<S> <C> <C>
C. A. (AL) WOLFE Retired President, U.S. Division, DDB 1991
Needham Worldwide, and President, Al Wolfe Associates, Inc.
Mr. Wolfe is the President of Al Wolfe Associates, Inc., a
marketing and advertising consulting firm. He is the retired
President of the U.S. Division of DDB Needham Worldwide, a
major advertising agency. Previously, Mr. Wolfe had been
Executive Vice President of N.W. Ayer and Executive Vice
President and General Manager of Wells, Rich,
Greene advertising agencies. He is a director of Dolphin [PHOTO]
Software, Inc. Age: 67.
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</TABLE>
ORGANIZATION OF THE BOARD OF DIRECTORS
The board of directors has established five standing committees: the Executive
Committee, the Finance Committee, the Audit Committee, the Nominating Committee,
and the Employee Benefits and Management Compensation Committee. The Finance,
Audit, Nominating, and Employee Benefits and Management Compensation Committees
consist only of non-management, independent directors.
EXECUTIVE COMMITTEE. The Executive Committee, consisting of directors Collins,
Fairchild, Friedman, Manchot, Morton, Scarff and Sullivan, is delegated all of
the powers of the board of directors except certain powers reserved by law to
the full board. In addition to being available to meet between regular board
meetings on occasions when board action is required but the convening of a full
board is impracticable, the Executive Committee is authorized to handle special
assignments as requested from time to time by the board. The Executive Committee
held no meetings during fiscal year 1999.
FINANCE COMMITTEE. The Finance Committee consists of directors Boggan, Collins,
Friedman, Manchot, Matschullat, Morton, Morwind and Scarff and, working with the
Company's finance and operating personnel, considers and recommends to the board
major financial policies and actions of the Company. The Finance Committee held
5 meetings during fiscal year 1999.
AUDIT COMMITTEE. The Audit Committee, composed of directors Fairchild,
Matschullat, Morwind, Scarff, Scott and Wolfe, is the principal link between the
board and the Company's independent public accountants. The Audit Committee
makes recommendations to the board regarding selection and employment of the
Company's independent auditors and, working with the Company's internal and
external auditors, monitors internal audit and control procedures. The Audit
Committee held 4 meetings during fiscal year 1999.
NOMINATING COMMITTEE. Directors Boggan, Fairchild, Scarff and Wolfe are members
of the Nominating Committee. The Nominating Committee identifies and recommends
to the board of directors prospective candidates to be considered as nominees
for election to the board. The Nominating Committee will consider board nominee
recommendations by stockholders which are submitted in writing to the Company's
Secretary, together with biographical and business experience information
regarding the nominee and other information that is required by Article II,
Section 11 of the Company's by-laws. The Nominating Committee held 5 meetings
during fiscal year 1999.
6
<PAGE>
COMPENSATION COMMITTEE. The Employee Benefits and Management Compensation
Committee (the "Compensation Committee") consists of directors Fairchild,
Friedman, Manchot, Morton and Scott. The Compensation Committee establishes and
monitors the policies under which compensation is paid or awarded to the
Company's executive officers, determines executive compensation, grants stock
options, restricted stock, performance units and other cash or stock awards
under the Company's executive incentive compensation and stock incentive plans,
and reviews pension and other retirement plans for adequacy and compliance with
applicable regulations. The Compensation Committee held 4 meetings during fiscal
year 1999.
The board of directors held nine meetings during fiscal year 1999. All directors
attended more than 75% of the meetings of the board and committees of which they
were members during fiscal year 1999, except for Dr. Manchot, who attended 50%
of such meetings.
Non-management directors received an annual fee of $28,750 for the 1999 fiscal
year. In addition, each non-management director received $1,000 for each board
meeting attended and $875, increased to $1,000 in January 1999, for each
committee meeting attended. The chairperson of each committee received $675 in
addition for each committee meeting until January 1, 1999, when each committee
chairperson's extra compensation was changed to an additional $3,000 annual fee.
In addition, each non-management director is entitled to receive $1,000 per day
for any special assignment requested of any such director by the board. No
special assignment fees were paid in fiscal year 1999. Directors may elect to
defer all or a part of such compensation pursuant to the terms of the Company's
Independent Directors' Stock-Based Compensation Plan (the "Directors'
Stock-Based Compensation Plan"). Management directors receive no extra
compensation for their service as directors.
Under the Directors' Stock-Based Compensation Plan, a director may annually
elect to receive all or a portion of her or his annual retainer and meeting fees
in the form of cash, Common Stock, deferred cash or deferred stock units. In
addition, each non-employee director also receives an annual grant of $10,000 of
deferred stock units. Interest accrues on deferred amounts at an annual interest
rate equal to Wells Fargo Bank's prime lending rate in effect on January 1 of
each year (7.75% at January 1, 1999). Each deferred stock unit represents a
hypothetical share of Common Stock, and a participant's deferred stock unit
account is increased by Common Stock dividends paid by the Company. Upon
termination of service as a director, the amounts accrued for the director under
the Directors' Stock-Based Compensation Plan are paid out in cash and/or Common
Stock in five annual installments or, at the director's election, in one lump
sum payment of cash and/or Common Stock.
Pursuant to the Company's 1993 Directors' Stock Option Plan, each non-management
director received a grant of stock options covering 2,000 shares of Common Stock
during fiscal year 1999 and will receive a grant covering 2,000 shares of Common
Stock in subsequent fiscal years for which she or he continues to serve as a
director. In addition, Mr. Robert Matschullat received an initial grant of stock
options covering 8,000 shares of Common Stock during fiscal year 1999 in
connection with joining the board of directors. Stock options under the 1993
Directors' Stock Option Plan vest in two equal installments on each of the first
two anniversary dates of the grant date and have an exercise price equal to the
fair market value on the grant date.
Other than the non-management director fees, the deferred stock unit grants
under the Directors' Stock-Based Compensation Plan, and the stock option grants
under the Directors' Stock Option Plan, directors who are not employees of the
Company do not receive any additional form of direct compensation, nor do they
participate in any of the Company's employee benefit plans.
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table shows, as of July 31, 1999, the holdings of the Common Stock
by (i) any entity or person known to the Company to be the beneficial owner of
more than 5% of the Common Stock, (ii) each
7
<PAGE>
director and each of the five executive officers named in the Summary
Compensation Table on page 15 (the "Named Officers"), and (iii) all directors
and executive officers of the Company as a group:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) PERCENT OF CLASS(3)
- ------------------------------------------ ------------------------------ ---------------------
<S> <C> <C>
HC Investments, Inc.(4) 61,712,400 26.0%
Daniel Boggan, Jr. 8,548 *
Elaine L. Chao(5) 0 *
John W. Collins 65,000 *
Ursula Fairchild 29,000 *
Tully M. Friedman 5,000 *
Gerald E. Johnston 240,582 *
Peter N. Louras 454,578 *
Juergen Manchot 21,000 *
Robert W. Matschullat 140 *
Dean O. Morton 25,000 *
Klaus Morwind 14,600 *
Lawrence S. Peiros 175,022 *
Karen M. Rose 188,416 *
Edward L. Scarff 37,000 *
Lary R. Scott 31,080 *
G. Craig Sullivan 1,393,826 *
C. A. (Al) Wolfe 17,000 *
All directors and executive officers as a
group (31 persons)(6) 4,409,720 1.9%
</TABLE>
- ---------
NOTES:
* Does not exceed 1% of the outstanding shares.
(1) Correspondence to all executive officers and directors of the Company may be
mailed c/o the Company to 1221 Broadway, Oakland, California 94612. The
address of HC Investments, Inc. is 1100 North Market Street, Suite 780,
Wilmington, Delaware 19801.
(2) Each beneficial owner listed has sole voting and dispositive power (or
shares such power with her or his spouse) concerning the shares indicated.
These totals include the following number of shares of Common Stock which
such persons have the right to acquire through stock options exercisable
within 60 days of July 31, 1999: Mr. Sullivan -- 1,265,504; Mr. Louras --
416,640; Mr. Johnston -- 203,040; Mr. Peiros -- 136,508; Ms. Rose --
156,060; Mr. Boggan--7,400; Mr. Friedman -- 5,000; Ms. Chao and Mr.
Matschullat -- 0; Dr. Morwind--13,000; Mr. Wolfe -- 9,000; each of the other
non-employee directors -- 17,000; and all directors, Named Officers and
other executive officers as a group -- 3,699,692. The numbers in the table
above include the following numbers of shares of Common Stock which the
executive officers had the right to acquire on August 17, 1999 pursuant to
vested performance units granted between April 1996 and March 1998: Mr.
Sullivan -- 47,768; Mr. Johnston -- 18,184; Mr. Peiros -- 14,160; Ms. Rose
-- 14,208; and all Named Officers and other executive officers as a group --
168,880. The numbers in the table above do not include the following number
of shares of Common Stock which the executive officers have the right to
acquire upon the termination of their service as employees pursuant to
vested performance units granted between April 1996 and March 1998: Mr.
Sullivan -- 47,768; Mr. Louras -- 24,072; and all Named Officers and other
executive officers as a group -- 92,656. The numbers in the table above do
not include the following numbers of shares of Common Stock which the
executive officers have the right to acquire upon the termination of their
service as employees pursuant to deferred stock units granted in December
1995 in exchange for the cancellation of certain restricted stock, and
through deferred
8
<PAGE>
stock unit dividends thereon: Mr. Sullivan -- 83,116; Mr. Louras -- 28,330;
Mr. Johnston -- 15,990; Mr. Peiros -- 10,908; Ms. Rose -- 10,596; and all
Named Officers and other executive officers as a group -- 215,353. The
numbers in the table above do not include the following number of shares of
Common Stock which the non-employee directors have the right to acquire upon
the termination of their service as directors pursuant to deferred stock
units granted under the Directors' Stock-Based Compensation Plan: Mr. Boggan
-- 4,718; Mr. Collins -- 3,606; Ms. Fairchild -- 14,916; Mr. Friedman --
1,960; Dr. Manchot -- 3,840; Ms. Chao and Mr. Matschullat -- 0; Mr. Morton
-- 5,278; Dr. Morwind -- 5,448; Mr. Scarff -- 30,582; Mr. Scott -- 6,544;
and Mr. Wolfe -- 3,888.
(3) On July 31, 1999, there were 237,180,812 shares of Common Stock issued and
outstanding.
(4) Indirect wholly-owned U.S. subsidiary of Henkel KGaA of Duesseldorf, Germany
(manufacturer of household products and chemicals).
(5) Ms. Chao became a director of the Company on September 15, 1999.
(6) Pursuant to Rule 3b-7 under the Securities Exchange Act of 1934, executive
officers include the Named Officers and all the vice presidents of the
Company.
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<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company and Henkel KGaA are parties to a June 1981 letter agreement (as
amended in July 1986 and March 1987, the "Letter Agreement"), relating to
ownership by Henkel KGaA of Common Stock and representation on the Company's
board of directors. The Letter Agreement assures Henkel KGaA of the right to
nominate for election to the board a minimum of two representatives so long as
Henkel KGaA beneficially owns at least 5% of the outstanding shares of Common
Stock. Under the Letter Agreement, Henkel KGaA's maximum permitted ownership of
Common Stock without consultation with the Company is limited to 30%, and Henkel
KGaA has affirmed that it considers its investment in the Company as long-term
and its role in the Company as that of a significant minority stockholder
without an active role in the management of the Company.
The Company and Henkel KGaA have entered into certain joint manufacturing,
marketing and product development arrangements in the United States and
internationally, either directly or through affiliates or joint venture
collaboration. No such arrangements, either individually or in the aggregate,
were material to the Company or Henkel KGaA during fiscal year 1999.
During fiscal year 1995, in connection with joining the Company, Frank A.
Tataseo, Vice President -- Sales of the Company, received a five-year $150,000
mortgage loan without interest from the Company, which loan remained outstanding
during fiscal year 1999.
EMPLOYEE BENEFITS AND MANAGEMENT COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The membership of the Compensation Committee consists entirely of directors who
have never been employees of the Company (see page 7).
COMPENSATION PHILOSOPHY.
The Compensation Committee determines executive compensation levels and policies
designed to:
- Motivate each executive toward the achievement of the Company's short and
long-term goals, as reflected in its strategic business plans and its
statement of principles and values;
- Be competitive with comparable organizations;
- Be based on both the Company performance and the individual's
contributions to the Company's results;
- Ensure that a significant proportion of each executive's total
compensation be at-risk incentive compensation in order to emphasize the
relationship between pay and performance; and
- Align the interests of executives with those of stockholders through the
use of equity-based incentive awards.
COMPENSATION OF EXECUTIVE OFFICERS.
The key components of the executive compensation program are base annual salary,
annual short-term incentive awards in the form of stock or cash under the
Company's 1996 Executive Incentive Compensation Plan (the "EIC Plan"), and
long-term incentive awards in the form of stock options and performance units
under the Company's 1996 Stock Incentive Plan. The Compensation Committee
regularly compares executive compensation to a compensation comparator group, as
described below. The compensation guidelines are determined by the Compensation
Committee based upon competitive data collected from the compensation comparator
group and internal ranking within the executive officer group. General targeted
competitive levels for base annual salary and annual, at-risk short-term
incentive awards are the 50th percentile of such compensation comparator group.
General targeted competitive levels for at-risk,
10
<PAGE>
long-term compensation are also the 50th percentile with opportunities at the
75th percentile of such compensation comparator group for superior financial
performance. There is opportunity for the executive officers to earn more than
the targeted levels if the Company's performance exceeds the measures discussed
in this report and less when performance falls below the targeted levels.
BASE ANNUAL SALARY. Base annual salaries for executive officers are determined
by the following factors: (1) parity to market; (2) the individual's
performance; (3) promotions resulting in increases in responsibility; and (4)
equity in relationship to other executive positions within the Company. With the
assistance of the Company's compensation consulting firm, surveys are conducted
of benchmark positions in the compensation comparator group, 18 other peer
companies, most of which compete with the Company in one or more of its primary
businesses or compete with the Company for management talent. Those which are
not direct competitors are in closely-related fields. The Compensation Committee
takes into account both the size and performance of the Company relative to the
size and performance of the companies in the compensation comparator group. It
also considers the competitiveness of the entire compensation package of the
Company's executive officers compared to the compensation comparator group. The
Compensation Committee reviews which companies are selected for compensation
analysis and updates the composition of the compensation comparator group
periodically. For fiscal year 1999, the Compensation Committee established
target salaries for executive officers which approximated the 50th percentile or
median level of benchmarked positions with the compensation comparator group. An
individual executive officer's actual salary versus the established target
salary depends upon the executive officer's performance, as judged by her or his
immediate superior and the chief executive officer. The chief executive
officer's performance is judged by the Compensation Committee. The performance
of the other five executive officers who serve as members of the management
executive committee is judged by the chief executive officer and the
Compensation Committee together.
EXECUTIVE INCENTIVE COMPENSATION PLAN. For fiscal year 1999, the EIC Plan, as
it applied to executive officers, established a linkage between the annual bonus
awards and both the Company's performance and the performance of the executive
officers. The Compensation Committee believes that awards under the EIC Plan
should include a reward for superior performance and an element of adverse
consequences for poor financial results, including no EIC Plan award funding for
the Company's financial performance component described below unless the Company
achieves corporate financial performance measures previously established by the
Compensation Committee. Those targets were exceeded in fiscal year 1999.
For the EIC Plan, the Compensation Committee divided the executive officer group
into two subcategories: the executive officers who serve as members of the
management executive committee and the other executive officers. As of June 30,
1999, the six executive officers serving as members of the management executive
committee were the Named Officers in the Summary Compensation Table on page 15
plus Peter D. Bewley, Senior Vice President -- General Counsel and Secretary.
For the management executive committee officers, 75% of the EIC Plan award was
determined by achieving corporate financial performance measures previously
established by the Compensation Committee based on a computation consisting of
targeted operating margin level, asset turnover rate and net sales growth. The
targeted corporate financial measures were exceeded as measured at the end of
fiscal year 1999.
The remaining 25% of the EIC Plan award was based on achieving pre-established
individual objectives related to goals that may not be measured by traditional
accounting tools, including projects aimed at improving the capability of the
Company to grow, the effectiveness of the Company's processes and people and
cost savings projects. Individual objectives and the weight given each
individual objective were the same for the members of the management executive
committee.
The target EIC Plan award for the management executive committee members ranged
from 50-80% of base annual salary at June 30, 1999 (100% for the chief executive
officer) if the corporate financial performance and individual objectives were
achieved. The maximum EIC Plan award potential was 100-160% of base annual
salary at June 30, 1999 (200% for the chief executive officer) if the goals were
11
<PAGE>
substantially exceeded, and the minimum EIC Plan award was 0 if the goals came
in substantially lower than the targets. All EIC Plan awards are determined by
the chief executive officer and the Compensation Committee or, in the chief
executive officer's case, by the Compensation Committee. The EIC Plan awards to
members of the executive officer group, other than the management executive
committee members, were determined based on (i) the same corporate financial
performance measures; and (ii) achieving individual objectives, including, for
operating division officers, operating division financial performance measures
and other individual objectives, and for staff executive officers, individual
objectives, such as the achievement of selected strategic goals and the
successful development of human resources. Individual objectives and the weight
given each individual objective varied from person to person depending on job
responsibilities. The target EIC Plan award for these other members of the
executive officer group was 40-50% of base annual salary at June 30, 1999 if
goals were achieved up to a maximum of 80-100% if the goals were substantially
exceeded and down to a minimum of 0 if the goals came in substantially lower
than the targets.
LONG-TERM COMPENSATION. A major goal of the Compensation Committee is to create
strong alignment between the executive officers and stockholders. This alignment
is achieved through the design of incentive plans and through actual stock
ownership. In furtherance of this goal, in September 1993, the Compensation
Committee began departing from its previous practice of annual grants of stock
options and restricted stock and began awarding three-year grants. Consequently,
in September 1993 and April 1996, the Company awarded larger grants, which were
to be in place of smaller annual grants in September of 1993, 1994, 1995, and
April of 1996, 1997 and 1998, respectively. The Compensation Committee believes
that these larger, but less frequent, grants were very effective in focusing the
officers on creation of stockholder value.
To continue that objective and in anticipation of the expiration of the 1996
awards, the Compensation Committee approved a new 3-year grant to all executive
officers in May 1999, intended to replace smaller grants in 1999, 2000 and 2001.
Details of the awards to the named officers are set forth in the Option Grant
table on page 17. The fiscal year 1999 grants continued the Compensation
Committee's past practice of targeting overall compensation to the 50th
percentile of comparable positions from the compensation comparator companies.
The Compensation Committee granted additional stock options to each executive
officer which would have the possibility of lifting the executive officer's
stock-based compensation component from the 50th to the 75th percentile based on
the Company's performance. Except for such additional stock options, the stock
options awarded to executive officers in fiscal year 1999 had ten-year lives and
one-third of the number of option shares will vest on each of June 30, 2001,
2002, and 2003. Those option shares vesting on June 30, 2001 have an exercise
price of $53.9063, the fair market value on the option grant date. Option shares
vesting on June 30, 2002 and 2003 have exercise prices of $59.2969 and $67.3828,
premiums of 10% and 25%, respectively, over the $53.9063 fair market value on
the option grant date.
The additional stock options granted in May 1999, have an exercise price of
$67.3828 and will vest on June 30, 2006, but could vest earlier if the Company
meets certain performance criteria. Specifically, if the total stockholder
return (stock price appreciation plus dividends paid) of the Common Stock
between May 1, 1999 and June 30, 2001 is at or above the 75th percentile
measured against a financial comparator group of consumer products companies,
then 50% of the stock options will vest on June 30, 2001. If the total
stockholder return of the common stock between May 1, 1999 and June 30, 2002, is
at or above the 75th percentile measured against the financial comparator group,
then all unvested shares will vest. The financial comparator group is comprised
of companies that compete with the Company in one or more of its businesses or
are tracked by the same investment analysts and therefore compete with the
Company for investors. The Compensation Committee periodically reviews and
updates the list of financial comparator companies. Currently, there are 24
financial comparator companies.
In fiscal year 1999, performance units were issued to executive officers with
vesting to be determined based on the relative total stockholder return of the
Common Stock measured against two comparator groups:
12
<PAGE>
first, the total stockholder return of the companies included in Standard &
Poor's 500 Stock Index, and second, the total stockholder return of stocks of
the financial comparator group. If the Company's total stockholder return is at
or above the 60th percentile relative to the stockholder returns of the two
groups as measured at the end of fiscal year 2002, the restrictions on the
performance units will lapse on that day. If the restrictions do not lapse on
that date and the Company's total stockholder return is at or above the 50th
percentile at the end of fiscal year 2003, the performance units will vest at
that time. If, at the end of fiscal year 2003, the Company's total stockholder
return is at or above the 40th percentile, but below the 50th percentile, half
of the performance units will vest and the other half will be forfeited. If, at
the end of fiscal year 2003, the Company's total stockholder return is below the
40th percentile, all of the performance units will be forfeited. Details of the
awards to the Named Officers are included in the Long-term Incentive Awards
table on page 19.
The Compensation Committee has endorsed target stock ownership levels by
executive officers to be achieved by fiscal year 1999, based on the fair market
value of the Common Stock at that time. The levels are the equivalent of four
times base annual salary for the chief executive officer, three times base
annual salary for the other executive officers who serve as members of the
management executive committee, and two times base annual salary for other
executive officers. No stock options will be counted in determining ownership
levels, which will be based on shares of Common Stock held, including restricted
stock, performance shares, performance units and shares held via the Company's
Employee Retirement Investment Plan, a profit sharing plan which includes 401(k)
features. All executive officers have achieved their target stock ownership
levels.
BENEFITS. The Company provides various employee benefit programs to its
executive officers, including medical and life insurance benefits, retirement
benefits, an employee stock purchase plan and the Employee Retirement Investment
Plan. Except for the Supplemental Executive Retirement Plan and the Nonqualified
Deferred Compensation Plan described on page 21 and some non-material
perquisites given to executive officers, these benefit programs are generally
available to all employees of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION.
The Compensation Committee increased Mr. Sullivan's base annual salary on
October 1, 1998 from $800,000 to $900,000. In determining the amount of Mr.
Sullivan's salary increase for fiscal year 1999, the Compensation Committee took
into consideration the Company's overall performance for fiscal year 1998. The
Company's achievements for fiscal year 1998 included a total stockholder return
of 47%, placing the Company well above the total stockholder return of the S&P
500 and a composite index of the S&P household products index and housewares
index; net sales growth of 8%; an increase in net earnings of 19%; a net profit
margin of close to 11%; and an all-time record high 28.4% return on equity from
continuing operations. Mr. Sullivan's salary increase was also determined based
on parity to the median level of comparable positions in the compensation
comparator group and his tenure as chief executive officer.
Mr. Sullivan's EIC Plan award for fiscal year 1999 was based upon the weighted
corporate financial performance measures (75%) and individual objectives (25%)
established by the Compensation Committee as described above. The targets were
exceeded, and Mr. Sullivan's EIC Plan award formula called for a payment of
$1,185,800.
As described above, Mr. Sullivan received a 3-year grant of stock options and
performance units awards during fiscal year 1999. Other than making awards at a
higher percentage of his base annual salary, the Compensation Committee did not
treat Mr. Sullivan's Stock Incentive Plan or EIC Plan awards differently from
other members of the management executive committee.
13
<PAGE>
ONGOING REVIEW OF COMPENSATION.
The Company's compensation consulting firm conducts an ongoing review of the
Company's existing executive compensation programs for the Compensation
Committee to continue to ensure the programs support the future direction of the
Company and the principles on which executive compensation is based. The
Compensation Committee reserves the right to select and/or to meet independently
with any consultant at its discretion. The Compensation Committee has access to
and reviews independent compensation data relating to executive compensation at
other companies. The Compensation Committee has developed performance goals,
which have been approved by the Company's stockholders, to qualify the bulk of
the EIC Plan awards and all stock-based long-term compensation to the five
highest paid executive officers for exclusion from the federal $1 million tax
deductibility limit pursuant to Section 162(m) of the Internal Revenue Code of
1986, as amended. The Compensation Committee's policy seeks to balance the
interests of the Company in maintaining flexible incentive plans and how the
Company benefits from the compensation package paid to any executive officer
against the possible loss of a tax deduction when taxable compensation for any
of the five highest paid executive officers exceeds $1 million per year.
Dean O. Morton, Chair Juergen Manchot
Ursula Fairchild Lary R. Scott
Tully M. Friedman
(Members of the Compensation Committee)
COMPENSATION INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for the prior fiscal year were
directors Fairchild, Friedman, Manchot, Morton and Scott. None of these persons
is or has been an officer or employee of the Company or any of its subsidiaries.
In addition, there are no Compensation Committee interlocks between the Company
and other entities involving the Company's executive officers and board members
who serve as executive officers of such entities.
14
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for each of the last three
fiscal years earned by or paid or awarded to the chief executive officer of the
Company and the four other most highly compensated executive officers of the
Company (the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
AWARDS
-------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES PAYOUTS
---------------------------------- STOCK UNDERLYING ----------
OTHER ANNUAL AWARD(S) OPTIONS/ LTIP ALL OTHER
SALARY BONUS COMPENSATION ($)(1)(2) SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) (3)(4) (#)(2)(4) ($)(4)(5) ($)(6)
- ----------------------------------- ---- -------- ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
G. Craig Sullivan.................. 1999 $875,000 $1,186,000 -- -- 1,200,000 $4,009,779 $149,754
Chairman of the Board and 1998 $781,250 $1,117,000 -- -- -- $ 114,337 $200,761
Chief Executive Officer 1997 $716,250 $ 939,100 -- -- -- $ 103,618 $155,820
Gerald E. Johnston................. 1999 $410,417 $ 419,600 -- -- 372,800 $ 751,817 $ 58,367
President and Chief 1998 $313,750 $ 340,400 -- -- -- $ 11,638 $ 70,705
Operating Officer 1997 $277,500 $ 285,100 -- $23,796 50,828 $ 10,547 $ 47,130
Peter N. Louras.................... 1999 $347,500 $ 321,400 -- -- 184,200 $ 995,257 $ 52,562
Group Vice President 1998 $320,000 $ 340,400 -- -- -- $ 15,406 $ 74,376
1997 $301,250 $ 310,500 -- -- -- $ 13,962 $ 61,593
Lawrence S. Peiros................. 1999 $286,667 $ 224,200 -- -- 157,400 $ 585,445 $ 41,950
Group Vice President 1998 $234,750 $ 255,000 -- $24,830 -- $ 9,062 $ 50,190
1997 $213,500 $ 187,900 -- $18,545 -- $ 8,213 $ 40,503
Karen M. Rose...................... 1999 $275,000 $ 221,500 -- -- 139,600 $ 595,059 $ 37,720
Group Vice President -- 1998 $235,500 $ 215,600 -- $16,331 10,400 $ 15,171 $ 43,178
Chief Financial Officer 1997 $188,500 $ 126,900 -- $12,629 -- $ 13,110 $ 36,155
</TABLE>
- ---------
(1) Pursuant to the EIC Plan, in fiscal years 1998 and 1997, executive officers
were able to elect some or all of their annual bonus plan awards in Common
Stock rather than cash. Those executive officers electing stock received a
premium equal to 10% of the gross amount elected to be paid in Common Stock
based on the fair market value on September 1, 1998 and September 2, 1997,
respectively. Such stock awards are subject to transfer restrictions for two
years from the date of grant or the premium will be forfeited. The premium
is included in the Restricted Stock Awards column in the Long-Term
Compensation portion of this table. The net number of shares and value of
the EIC Plan annual bonus amounts paid in Common Stock awards, after
deductions to the base awards made for income tax purposes, were as follows:
for fiscal year 1998, -- 0 shares ($0) for Messrs. Sullivan, Louras and
Johnston; base award -- 3,362 shares ($160,535) and premium -- 520 shares
($24,830) for Mr. Peiros; and base award -- 1,666 shares ($79,552) and
premium -- 342 shares ($16,331) for Ms. Rose; and for fiscal year 1997, -- 0
shares ($0) for Messrs. Sullivan and Louras; base award -- 4,630 shares
($153,875) and premium -- 716 shares ($23,796) for Mr. Johnston; base award
-- 3,604 shares ($119,777) and premium -- 558 shares ($18,545) for Mr.
Peiros; and base award -- 2,460 shares ($81,756) and premium -- 380 shares
($12,629) for Ms. Rose. The bonus amounts include a holiday bonus of $200
per person in each year.
(2) Amounts include awards earned for the years indicated. To continue its
objective of focusing the executive officers on creation of stockholder
value and in anticipation of the expiration of fiscal year 1996 awards, the
Compensation Committee approved a new 3-year grant of stock options and
performance units to all executive officers in fiscal year 1999. Other
Annual Compensation did not exceed the lesser of either $50,000 or 10% of
the total of annual salary and bonus reported for any Named Officer.
15
<PAGE>
(3) The value of all restricted stock awards set forth in the table above was
determined by multiplying the fair market value of the Common Stock on the
date of grant by the number of shares awarded. As of June 30, 1999, the
number and value of aggregate restricted stock award holdings, based on the
fair market value of $52.4503 on June 30, 1999, were as follows: 0 shares
($0) for Messrs. Sullivan and Louras; 716 shares ($37,554) for Mr. Johnston;
1,078 shares ($56,541) for Mr. Peiros; and 722 shares ($37,869) for Ms.
Rose. Dividends are paid on shares of restricted stock awarded commencing
from the date of grant.
(4) In the event of a "change of control," "business combination," or complete
liquidation or dissolution of the Company, all restrictions on restricted
stock and performance units end and all stock options become exercisable. A
change of control generally will be deemed to occur if any person or entity
becomes the beneficial owner, directly or indirectly, of a specified
percentage of the then outstanding shares of Common Stock or has, directly
or indirectly, a specified percentage of the combined voting power of the
then outstanding securities entitled to vote for directors. For all persons
or entities other than Henkel KGaA, the specified percentage is 20%. For
Henkel KGaA, the specified percentage is that agreed to between the Company
and Henkel KGaA pursuant to the Letter Agreement, which currently is 30%.
See "Certain Relationships and Transactions" on page 10. A business
combination generally will be deemed to occur in the event of a
reorganization, merger or sale of substantially all of the assets of the
Company, subject to certain exceptions. A feature of the Stock Incentive
Plan is the stock withholding election, pursuant to which a recipient may
elect to have the Company withhold shares of Common Stock to pay any
withholding tax liability that arises when the restrictions on the
restricted stock are released or when non-qualified stock options are
exercised, respectively. In both cases, the value of shares which may be
withheld is based on the per share price of the Common Stock on the
Composite Transactions Report for the New York Stock Exchange on the last
business day before the withholding is made.
(5) The amounts reflect dividends received from deferred stock units granted in
December 1995 in exchange for the cancellation of certain restricted stock
and from performance units granted in April 1996. In addition, the amounts
for fiscal year 1999 include the value of performance units granted between
April 1996 and March 1998, which vested on June 30, 1999. Based on their
value on the earliest settlement date of August 17, 1999, the number and
value of the vested performance units granted between April 1996 and March
1998 were as follows: 95,536 units ($3,881,150) for Mr. Sullivan; 18,184
units ($738,725) for Mr. Johnston; 24,072 units ($977,925) for Mr. Louras;
14,160 units ($575,250) for Mr. Peiros; and 14,208 units ($577,200) for Ms.
Rose.
(6) Except for amounts received under the Nonqualified Deferred Compensation
Plan, the amounts shown in the column are pursuant to programs provided to
salaried employees generally and represent actual Company contributions
under the Company's Employee Retirement Investment Plan and the Nonqualified
Deferred Compensation Plan, and term life insurance premiums paid by the
Company for the benefit of each respective Named Officer, respectively, in
the following amounts: for fiscal year 1999, $11,200, $137,204 and $1,350
for Mr. Sullivan; $11,950, $45,667 and $750 for Mr. Johnston; $11,950,
$40,049 and $563 for Mr. Louras; $11,950, $29,527 and $473 for Mr. Peiros;
and $11,950, $25,350 and $420 for Ms. Rose; for fiscal year 1998, $11,200,
$188,361 and $1,200 for Mr. Sullivan; $11,950, $58,267 and $488 for Mr.
Johnston; $11,950, $61,938 and $488 for Mr. Louras; $11,950, $37,827 and
$413 for Mr. Peiros; and $11,950, $30,838 and $390 for Ms. Rose; and for
fiscal year 1997, $18,200, $136,532 and $1,088 for Mr. Sullivan; $18,950,
$27,760 and $420 for Mr. Johnston; $18,950, $42,186 and $457 for Mr. Louras;
$11,376, $28,800 and $327 for Mr. Peiros; and $11,376, $24,491 and $288 for
Ms. Rose.
16
<PAGE>
OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables show options and stock appreciation rights ("SARs") granted
or exercised during fiscal year 1999 to or by the Named Officers, and the value
of the options and SARs held by the Named Officers at the end of fiscal year
1999.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
------------------------------------------ -------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/ SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SHARE)(1) DATE(3) 0%(4) 5%(4) 10%(4)
- ------------------------------ ------------- -------------- ------------ ---------- ----- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
G. Craig Sullivan............. 126,600 2.79% $53.9063 05/06/09 -0- $ 4,291,911 $10,876,545
126,600 2.79% $59.2969 05/06/09 -0- $ 3,609,455 $10,194,089
126,600 2.79% $67.3828 05/06/09 -0- $ 2,585,780 $ 9,170,414
820,200 18.06% $67.3828 12/31/06 -0- $16,752,422 $59,412,113
Gerald E. Johnston............ 54,000 1.19% $53.9063 05/06/09 -0- $ 1,830,673 $ 4,639,285
54,000 1.19% $59.2969 05/06/09 -0- $ 1,539,578 $ 4,348,190
54,000 1.19% $67.3828 05/06/09 -0- $ 1,102,939 $ 3,911,551
210,800 4.64% $67.3828 12/31/06 -0- $ 4,305,548 $15,269,536
Peter N. Louras............... 27,400 0.60% $53.9063 05/06/09 -0- $ 928,897 $ 2,354,007
27,400 0.60% $59.2969 05/06/09 -0- $ 781,193 $ 2,206,304
27,400 0.60% $67.3828 05/06/09 -0- $ 559,640 $ 1,984,750
102,000 2.25% $67.3828 12/31/06 -0- $ 2,083,330 $ 7,388,485
Lawrence S. Peiros............ 23,400 0.52% $53.9063 05/06/09 -0- $ 793,292 $ 2,010,357
23,400 0.52% $59.2969 05/06/09 -0- $ 667,150 $ 1,884,215
23,400 0.52% $67.3828 05/06/09 -0- $ 477,940 $ 1,695,005
87,200 1.92% $67.3828 12/31/06 -0- $ 1,781,043 $ 6,316,430
Karen M. Rose................. 20,800 0.46% $53.9063 05/06/09 -0- $ 705,148 $ 1,786,984
20,800 0.46% $59.2969 05/06/09 -0- $ 593,023 $ 1,674,858
20,800 0.46% $67.3828 05/06/09 -0- $ 424,836 $ 1,506,671
77,200 1.70% $67.3828 12/31/06 -0- $ 1,576,795 $ 5,592,069
</TABLE>
- ---------
(1) In fiscal year 1999, stock option grants continued the Compensation
Committee's past practice of targeting overall compensation to the 50th
percentile of comparable positions from the compensation comparator group
(as described in the Compensation Committee Report on page 10). The
Compensation Committee granted additional stock options to each executive
officer which would have the possibility of lifting the executive officer's
stock-based compensation component from the 50th to the 75th percentile.
Except for such additional stock options, the stock options awarded to
executive officers in fiscal year 1999 had ten-year lives and one-third of
the number of option shares will vest on each of June 30, 2001, 2002, and
2003. Option shares vesting on June 30, 2001 have an exercise price of
$53.9063, the fair market value on the option grant date. Option shares
vesting on June 30, 2002 and 2003 have exercise prices of $59.2969 and
$67.3828, premiums of 10% and 25%, respectively, over the $53.9063 fair
market value on the option grant date. The additional stock options will
vest in seven years, on June 30, 2006, but could vest earlier based on the
relative total stockholder return (stock
17
<PAGE>
price appreciation plus dividends paid) of the Common Stock measured against
the total stockholder return of an index of stocks of the financial
comparator group (as described in the Compensation Committee Report on page
12). If, on average, the Company's total stockholder return is at or above
the 75th percentile relative to the stockholder return of the financial
comparator group as measured at the end of fiscal year 2001, 50 percent of
the restrictions on the additional stock options will lapse on June 30,
2001. If, on average, the Company's total stockholder return is at or above
the 75th percentile relative to the stockholder returns of the financial
comparator group as measured at the end of fiscal year 2002, 100 percent (or
50 percent if 50 percent vested on June 30, 2001) of the restrictions on the
additional stock options will lapse on June 30, 2002. Any additional stock
options that vest on June 30, 2001 or June 30, 2002, will not expire until
May 6, 2009. Any additional stock options that vest on June 30, 2006 will
expire on December 31, 2006. The stock options granted during fiscal year
1999 are intended to cover the next three fiscal years. In the event of a
"change of control" (as described in footnote (4) to the Summary
Compensation Table on page 16), all stock options become exercisable.
(2) The total number of options/SARs granted to employees of the Company in
fiscal year 1999 represented 4,541,544 shares of Common Stock. The potential
realizable value (excluding dividends) of such options at assumed annual
rates of appreciation of 5% and 10% from the dates of their respective
grants to the end of the option terms using the appropriate prices above
would be $105,399,331 and $330,197,328, respectively.
(3) The 5% and 10% assumed rates of appreciation are shown in response to
requirements of the rules of the Securities and Exchange Commission. There
can be no assurance that the market value of the Common Stock will
appreciate in the assumed manner. The column reflecting no appreciation in
market value is intended for illustrative purposes only. The market value of
the Common Stock on May 6, 1999, the date of grant of the above options, was
$53.9063 per share.
(4) Based on the fair market value of $52.4503 of the outstanding shares of
Common Stock on June 30, 1999 and not including dividends, the potential
realizable value at assumed annual rates of Common Stock appreciation of 5%
and 10% for a ten-year period for all stockholders would be $7,815,090,766
and $19,804,974,399, respectively. The potential realizable value at assumed
annual rates of appreciation of 5% and 10% rates on the options of the Named
Officers from the date of grant to the end of the ten-year option terms
would be $47,390,591 and $154,221,860 respectively. Thus, the Named
Officers' potential realizable value as a percentage of all stockholders'
gain would be 0.61% in the event of a 5% assumed annual rate of appreciation
and 0.78% in the event of a 10% assumed annual rate of appreciation.
Further, the potential realizable value of all employee options as a
percentage of all stockholders' gain would be 1.35% in the event of a 5%
assumed annual rate of appreciation and 1.67% in the event of a 10% assumed
annual rate of appreciation over the ten-year option terms.
18
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FY-END AT FY-END ($)
SHARES ACQUIRED VALUE (#) EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE(1) UNEXERCISABLE(1)(2)
- ----------------------------- --------------- ------------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
G. Craig Sullivan............ 245,156 $ 10,945,703 1,265,504/1,403,888 $ 41,894,455/$5,743,331
Gerald E. Johnston........... 77,484 $ 3,083,609 203,040/412,272 $ 6,492,322/$1,102,025
Peter N. Louras.............. 0 0 416,640/235,576 $ 14,501,436/$1,447,213
Lawrence S. Peiros........... 0 0 136,508/187,620 $ 4,418,905/$851,269
Karen M. Rose................ 42,404 $ 1,810,950 156,060/170,416 $ 5,078,563/$776,245
</TABLE>
- ---------
(1) The number of shares covered and the value of the unexercisable options
listed relate to stock options granted under the 1987 Stock Option Plan or
the 1996 Stock Incentive Plan. In the event of a "change of control,"
"business combination" or complete liquidation or dissolution of the Company
(as described in footnote (4) to the Summary Compensation Table on page 16),
all stock options become exercisable.
(2) The value of the unexercised options was determined by multiplying the
number of shares subject to unexercised options on the fiscal year end, June
30, 1999, by $52.4503, the fair market value of the Common Stock on such
date, minus the exercise price of each unexercised option.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
The table below reflects awards to the Named Officers during fiscal year 1999
under The Clorox Company 1996 Stock Incentive Plan. If conditions are met, such
awards are redeemable in shares of Common Stock.
<TABLE>
<CAPTION>
(A) (B) (C)
NUMBER OF SHARES, UNITS PERFORMANCE OR OTHER PERIOD UNTIL
OR OTHER MATURATION
NAME RIGHTS (#)(1) OR PAYMENT (2)
- ----------------------------- ------------------------- ----------------------------------
<S> <C> <C>
G. Craig Sullivan............ 105,200 6/30/02, 6/30/03 or Forfeited
Gerald E. Johnston........... 49,600 6/30/02, 6/30/03 or Forfeited
Peter N. Louras.............. 25,200 6/30/02, 6/30/03 or Forfeited
Lawrence S. Peiros........... 21,600 6/30/02, 6/30/03 or Forfeited
Karen M. Rose................ 19,200 6/30/02, 6/30/03 or Forfeited
</TABLE>
- ---------
(1) To continue its objective of focusing the executive officers on creation of
stockholder value and in anticipation of the expiration of fiscal year 1996
awards, the Compensation Committee approved a new 3-year grant of
performance units to all executive officers in May 1999. The May 1999 grants
could vest on June 30, 2002 based on the relative total stockholder return
(stock price appreciation plus dividends paid) of the Common Stock measured
against two comparator groups: first, the total stockholder return of the
companies included in Standard & Poor's 500 Stock Index and second, the
total stockholder return of an index of stocks of the financial comparator
group (as described in the Compensation Committee Report on page 12). If the
Company's total stockholder return is at or above the 60th percentile
relative to the stockholder returns of the two groups as measured at the end
of fiscal year 2002, the restrictions on the performance units will lapse on
that day. If the restrictions do not lapse on that date and the Company's
total stockholder return is at or above the 50th percentile at the end of
fiscal year 2003, the performance units will vest at that time. If, at the
end of fiscal year 2003, the Company's total stockholder return is at or
above the 40th percentile, but below the 50th percentile, half of the
performance units will vest and the other half will be forfeited. If, at the
end of fiscal year 2003, the Company's total stockholder return is below the
40th percentile, all of the performance units will be forfeited. The
performance units are redeemable in an equal number of shares of Common
Stock.
(2) In the event of a "change of control" (as described in footnote (4) to the
Summary Compensation Table on page 16), all performance units become
exercisable.
19
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return of the Common
Stock for the last five fiscal years with the cumulative total return of the
Standard & Poor's 500 Stock Index and a composite index composed of the Standard
& Poor's Household Products Index and the Standard & Poor's Housewares Index for
a five-year period ending June 30, 1999. The composite index is weighted based
on market capitalization as of the end of each quarter during each of the last
five years. The graph lines merely connect the prices on the dates indicated and
do not reflect fluctuations between those dates.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
The Clorox Company Combined Index S&P 500
<S> <C> <C> <C>
6/94 100 100 100
6/95 138 133 126
6/96 193 170 159
6/97 295 253 214
6/98 434 313 279
6/99 491 325 342
</TABLE>
The foregoing report of the Compensation Committee of the board of directors on
executive compensation and the performance graph that appears immediately above
shall not be deemed to be soliciting material or to be filed under the
Securities Act of 1933 or the Securities Exchange Act of 1934, or incorporated
by reference in any document so filed.
PENSION BENEFITS
Pension benefits are paid to executive officers under three different plans: the
Pension Plan, the Nonqualified Deferred Compensation Plan and the Supplemental
Executive Retirement Plan ("SERP").
20
<PAGE>
The Company's Pension Plan is a noncontributory "cash balance" defined benefit
plan qualified under pertinent income tax laws. Essentially all salaried
employees as well as nonunion hourly employees with at least one year of service
participate in the Pension Plan. Prior to July 1, 1996, benefits were calculated
based on career average compensation. Effective July 1, 1996, participants in
the plan accrue benefits equal to 3% of qualified earnings each year. Qualified
earnings include base annual salary and bonus. Participants' benefits are
adjusted each quarter by an interest factor. Participants meeting certain age
and years of service levels will receive the greater of the benefits calculated
under the career average compensation formula and the cash balance formula.
Except for Lawrence S. Peiros who will receive benefits calculated under the
cash balance formula, each of the Named Officers met the age and years of
service levels and will receive the greater of the benefits under the current
and prior formulas. A participant is fully vested in her or his benefit after 5
years of service.
The Nonqualified Deferred Compensation Plan provides additional benefits equal
to the employer-provided benefits that plan participants do not receive under
the Pension Plan because of Internal Revenue Code limits. This plan has the same
five-year vesting provision as the Pension Plan.
The purpose of the SERP is to provide executive officers a fixed objective of
55% of the average annual compensation for the three consecutive years of
highest compensation. Compensation consists of base annual salary and the EIC
Plan bonus. For the Named Officers, those amounts are shown in the salary and
bonus columns of the Summary Compensation Table on page 15 . There is a minimum
service requirement of ten years. SERP benefits are offset by the annuity value
of amounts received from primary social security, the Pension Plan and Company
contributions to the Employee Retirement Investment Plan and Nonqualified
Deferred Compensation Plan.
Assuming retirement at age 65, fiscal year 1999 annual base salary and bonus and
no future increase in such compensation and an interest rate of 8%, the SERP
benefits for the Named Officers will exceed benefits under the other plans. The
retirement benefits shown in the table below are based on the SERP, calculated
for an unmarried person, on a straight life annuity basis, based on retirement
at age 65 with 15 or more years of service with the Company. They would be
proportionately reduced for early retirement or for shorter years of service to
a minimum of 10 years. Thus, the table below shows what would be received by the
Named Officers under the three plans for pension benefits, taken collectively.
<TABLE>
<CAPTION>
15 OR MORE
YEARS OF
COMPENSATION(1) SERVICE
- ------------------------------------------------------------------------------ --------------
<S> <C>
$500,000...................................................................... $ 275,000
$600,000...................................................................... $ 330,000
$700,000...................................................................... $ 385,000
$800,000...................................................................... $ 440,000
$900,000...................................................................... $ 495,000
$1,000,000.................................................................... $ 550,000
$1,100,000.................................................................... $ 605,000
$1,200,000.................................................................... $ 660,000
$1,300,000.................................................................... $ 715,000
$1,400,000.................................................................... $ 770,000
$1,500,000.................................................................... $ 825,000
$1,600,000.................................................................... $ 880,000
$1,700,000.................................................................... $ 935,000
$1,800,000.................................................................... $ 990,000
$1,900,000.................................................................... $ 1,045,000
$2,000,000.................................................................... $ 1,100,000
$2,100,000.................................................................... $ 1,155,000
$2,200,000.................................................................... $ 1,210,000
$2,300,000.................................................................... $ 1,265,000
</TABLE>
- ---------
(1) The number of years of credited service for each of the Named Officers are:
Mr. Sullivan, 28; Mr. Johnston, 17; Mr. Louras, 19; Mr. Peiros, 18; and Ms.
Rose, 21.
21
<PAGE>
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
The Company has entered into employment agreements with each of the Named
Officers named in the Summary Compensation Table on page 15 above. The term of
the employment agreement for Mr. Sullivan is five years and for each of the
other Named Officers is three years. Such agreement terms are "evergreen" in
that they maintain a five-year term, in the case of the chief executive officer,
or a three-year term, in the case of the other Named Officers, unless either
party gives five-years' notice of termination, in the case of the chief
executive officer's employment agreement, and three-years' notice of
termination, in the case of the other Named Officers' employment agreements. The
employment agreements are also terminable at any time by the Company for
"Cause," as that term is defined in them, or "at will" by either the Named
Officer or the Company. In the case of an "at will" termination by the Company,
a Named Officer is entitled to receive annually severance benefits of her or his
then current base salary, plus 75% of her or his target EIC Plan award for the
previous fiscal year, for the length of the remaining term of her or his
employment agreement, subject to offset for other earned income. The Named
Officer is also entitled to continue to participate in the Company's medical and
dental insurance programs for the same period. In addition, the Named Officer
would receive a pro-rated EIC Plan award for the year in which termination
occurs.
The Company has entered into change of control agreements with each of the Named
Officers. Within a three-year period of a "change of control," "business
combination" or complete dissolution or liquidation of the Company (as described
in footnote (4) to the Summary Compensation Table on page 16), a Named Officer
may terminate her or his employment in the event of a reduction or elimination
in rank, responsibilities, compensation or benefits, and he may also terminate
his employment absent such reasons within a 30-day period following the first
anniversary of the change of control. In the event of such termination, the
Named Officer will receive a lump sum amount equal to his then current base
salary, plus 100% of her or his target EIC Plan award for the then current
fiscal year, multiplied by the change of control benefit multiple under the
change of control agreements. For the Named Officers, such multiple is three. In
addition, a Named Officer is entitled to continue to participate in the
Company's medical and dental insurance programs for the remaining term of her or
his change of control agreement. The Named Officer would also receive a
pro-rated EIC Plan award for the year in which termination occurs. If payments
received under the change of control agreements are subject to tax under Section
4999 of the Internal Revenue Code of 1986, as amended (which deals with certain
payments contingent on a change of control), the Company will make an additional
payment to the Named Officer in respect of such tax.
The Company has also entered into employment agreements and change of control
agreements on similar terms with each of the other executive officers of the
Company. The termination notice periods for these agreements range from three
years to one year depending upon the executive officer's level in the
organization and her or his tenure as an executive officer.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and Securities and Exchange
Commission regulations require the Company's directors, certain officers and
greater than ten percent stockholders to file reports of ownership on Form 3 and
changes in ownership on Forms 4 or 5 with the Securities and Exchange
Commission. The Company undertakes to file such forms on behalf of the reporting
directors or officers pursuant to a power of attorney given to certain
attorneys-in-fact. The reporting officers, directors and ten percent
stockholders are also required by Securities and Exchange Commission rules to
furnish the Company with copies of all Section 16(a) reports they file.
Based solely on its review of copies of such reports received or written
representations from such executive officers, directors and ten percent
stockholders, the Company believes that all Section 16(a) filing requirements
applicable to its directors, executive officers and ten percent stockholders
were complied with during fiscal year 1999, except that Mr. Steven S.
Silberblatt filed an amended Form 5 in August 1999
22
<PAGE>
to disclose a stock option grant received before he became an executive officer,
which was inadvertently omitted from his Form 3 filing, and Mr. Anthony Biebl
and Ms. Janet Brady filed amended Form 5's in September 1999 to disclose
charitable stock gifts that were previously inadvertently not reported.
PROPOSAL NO. 2:
ADOPTION OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation currently authorizes 375,000,000
shares of Common Stock, par value $1.00 per share, and 5,000,000 shares of
Preferred Stock, par value $1.00 per share. On July 20, 1999, the board of
directors declared a two-for-one stock split of the Company's Common Stock on
all shares held of record as of the close of business on July 30, 1999. After
giving effect to the stock split, the Company had 237,351,774 shares of Common
Stock outstanding on August 23, 1999, and stock options and performance units
exercisable for or payable in 14,105,764 shares of Common Stock were outstanding
on such date.
The board of directors has adopted, subject to approval by stockholders at the
Annual Meeting, an amendment of the Company's Certificate of Incorporation
("Amendment") to increase the authorized capital of the Company. The proposed
Amendment provides that the Company's authorized stock would consist of
750,000,000 shares of Common Stock, with a par value of $1.00 per share, and
5,000,000 shares of Preferred Stock, with a par value of $1.00 per share. Thus,
the Amendment does not increase or otherwise affect the number of authorized
shares of Preferred Stock which may be issued by the Company. The provisions of
Article Four of the Certificate of Incorporation as proposed to be amended are
set forth in Appendix A to this proxy statement.
The board of directors believes that as a result of the stock split and taking
into account outstanding options, deferred stock units and performance units, it
would be advisable for the Company to have additional authorized shares
available for use in future transactions involving the issuance of shares of the
Company's Common Stock. The additional shares, if so authorized, could be issued
at the discretion of the board of directors without any further action by the
stockholders, except as required by applicable law or regulation, in connection
with acquisitions, efforts to raise additional capital for the Company, and
other corporate purposes. Except for its existing director and employee
stock-based compensation plans, the Company currently has no plans or
commitments that would involve the issuance of additional shares of Common
Stock.
Authorizing the Company to issue more shares than currently authorized by the
Certificate of Incorporation will not affect materially any substantive rights,
powers or privileges of holders of outstanding Common Stock.
This proposal is not the result of management's knowledge of any specific effort
to accumulate the Company's securities or to obtain control of the Company by
means of a merger, tender offer, proxy solicitation in opposition to management
or otherwise. The Company is not submitting this proposal to enable it to
frustrate any efforts by another party to acquire a controlling interest. The
submission of this proposal is not a part of any plan by the Company's
management to render the takeover of the Company more difficult.
The board of directors recommends the adoption of the following resolution which
will be presented to the Annual Meeting:
RESOLVED, that the stockholders of The Clorox Company hereby
approve the amendment of The Clorox Company's Certificate of
Incorporation to increase the authorized capital of The Clorox
Company as set forth in Appendix A.
The persons designated in the enclosed proxy will vote your shares FOR approval
unless instructions to the contrary are indicated in the enclosed proxy. The
affirmative vote of a majority of the outstanding shares of Common Stock is
required to approve the amendment of the Company's Certificate of Incorporation.
23
<PAGE>
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ADOPTION OF THE
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND UNANIMOUSLY
RECOMMENDS THAT THE HOLDERS OF SHARES OF COMMON STOCK VOTE "FOR" PROPOSAL NO. 2.
PROPOSAL NO. 3:
RATIFICATION OF CERTIFIED PUBLIC ACCOUNTANTS
The Audit Committee of the board of directors has recommended, and the board of
directors has selected, Deloitte & Touche LLP, certified public accountants, for
the fiscal year ending June 30, 2000. Deloitte & Touche LLP has been so engaged
since 1957. During fiscal year 1999, Deloitte & Touche LLP examined the
Company's consolidated financial statements, made limited reviews of the interim
financial reports, reviewed filings with the Securities and Exchange Commission
and provided general advice regarding related accounting matters.
Ratification of the selection of Deloitte & Touche LLP by stockholders is not
required by law. However, as a matter of policy, such selection is being
submitted to the stockholders for ratification at the Annual Meeting (and it is
the present intention of the board of directors to continue this policy). The
board of directors recommends the adoption of the following resolution which
will be presented to the Annual Meeting:
RESOLVED, that the stockholders of The Clorox Company hereby
ratify the selection of Deloitte & Touche LLP, certified public
accountants, for the fiscal year ending June 30, 2000.
The persons designated in the enclosed proxy will vote your shares FOR
ratification unless instructions to the contrary are indicated in the enclosed
proxy. If the stockholders fail to ratify the selection of this firm, the board
of directors will reconsider the matter. The affirmative vote of a majority of
the shares of Common Stock represented and voted at the Annual Meeting is
required to ratify the selection of Deloitte & Touche LLP.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting to respond to appropriate questions and to make a statement
should they desire to do so.
OTHER BUSINESS
The board of directors is not aware of any other matters to come before the
Annual Meeting. If any matter not mentioned herein is properly brought before
the Annual Meeting, the persons named in the enclosed proxy will have
discretionary authority to vote all proxies with respect thereto in accordance
with their judgment and Rule 14a-4 under the Securities Exchange Act of 1934.
OTHER INFORMATION
Consolidated financial statements for the Company are attached as Appendix B to
this proxy statement and are included in the Annual Report on Form 10-K for the
fiscal year ending June 30, 1999 filed with the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. A copy of the 1999
Form 10-K (excluding exhibits) will be furnished, without charge, by calling
Clorox Shareholder Direct at 1-888-CLX-NYSE (259-6973) toll-free, 24 hours a
day, seven days a week.
SOLICITATION OF PROXIES
The Company has not retained an outside firm in connection with the solicitation
of the enclosed proxy. However, executive officers, directors and regular
employees of the Company, who will receive no extra compensation for their
services, may solicit proxies by telephone, telegraph, facsimile or personal
call.
24
<PAGE>
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Stockholders who may wish to present proposals for inclusion in the Company's
proxy material and for consideration at the 2000 annual meeting must submit such
proposals in writing to the Secretary at the address shown on the top of the
notice accompanying this proxy statement not later than June 1, 2000. Any
proposal submitted with respect to the Company's 2000 Annual Meeting of
Stockholders later than May 31, 2000 will be considered untimely for purposes of
Rule 14a-4 under the Securities Exchange Act of 1934 if notice thereof is
received by the Company later than September 8, 2000.
By Order of the Board of Directors
[SIGNATURE]
Peter D. Bewley,
SENIOR VICE PRESIDENT -- GENERAL
COUNSEL
AND SECRETARY
September 29, 1999
25
<PAGE>
APPENDIX A
AMENDMENT TO CERTIFICATE OF INCORPORATION
The first paragraph and sentence of ARTICLE FOUR of the Certificate of
Incorporation of The Clorox Company is hereby amended to read as follows:
The total number of shares of stock which the corporation shall
have authority to issue is 755,000,000 shares, consisting of
750,000,000 shares of Common Stock having a par value of $1.00 per
share and 5,000,000 shares of Preferred Stock having a par value
of $1.00 per share.
A-1
<PAGE>
APPENDIX B
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF WORLDWIDE OPERATIONS
The landmark event for the Company in 1999 was the completion of the First
Brands Corporation ("First Brands") merger on January 29, 1999. As a result of
the merger, First Brands became a wholly owned subsidiary of the Company and
continues to operate its business as a subsidiary. Prior to a recent corporate
restructuring, First Brands developed, manufactured, marketed and sold consumer
products under the GLAD, SCOOP AWAY, HANDI WIPES and STP brands, among others.
The merger was accounted for as a pooling of interests and all historical
financial information has been restated as if the combination had been in effect
for all periods presented. First Brands was renamed "The Glad Products Company"
late in fiscal year 1999 as part of a corporate restructuring following the
merger.
The Company reported record unit volumes and sales in 1999. Diluted earnings per
share declined 28% from 1998 due primarily to the impact of merger, integration,
restructuring and asset impairment charges during 1999. Merger, integration,
restructuring and asset impairment costs had the effect of reducing diluted
earnings per share by 42% from 1998. Shipments for the Company, excluding First
Brands businesses, grew by 7% from 1998. Comparative unit volume for the
recently merged First Brands businesses will be available using the Company's
standard unit volume reporting methodology starting with fiscal year 2000.
Net sales increased by 3% from 1998 due to volume increases in the Company's
base businesses and the acquisition of a business in Korea, partially offset by
lower sales for the recently merged First Brands businesses, the unfavorable mix
of certain products sold and currency devaluations. The lower First Brands sales
were mainly the result of the elimination of inefficient trade promotion
practices that encouraged heavy stocking of inventory by trade customers in
previous years. Record volumes were achieved for the following brands: CLOROX
liquid bleach, FORMULA 409 cleaners, CLOROX CLEAN-UP cleaners, PINE-SOL
cleaners, CLOROX toilet bowl cleaner, TILEX FRESH SHOWER daily shower cleaner,
FRESH STEP and FRESH SCOOP cat litters, KINGSFORD charcoal, HIDDEN VALLEY
dressings and K C MASTERPIECE barbecue sauce. For 1999, significant launches
included CLOROX ADVANTAGE liquid bleach, CLOROX FRESHCARE fabric refresher and
BRITA faucet-mounted water filters, all in the U.S., and CLOROX liquid bleach in
Brazil. The growth in 1998 net sales of 8% was principally due to the inclusion
of the First Brands' NationalPak business in Australia, the ARMOR ALL business
for a full year and other acquisition activities, as well as record volumes in
1998 for PINE-SOL cleaners, FORMULA 409 carpet cleaner, TILEX cleaners, HIDDEN
VALLEY bottled dressings and FRESH STEP SCOOP scoopable cat litter, and the
introduction of new products in 1998.
Cost of products sold as a percentage of sales improved, declining to 48.3% in
1999, down from 48.5% and 48.8% in 1998 and 1997, respectively. Obsolete
inventory related to the First Brands businesses totaling $8 million was written
off during 1999. Improvements in 1999 were the result of numerous cost-savings
projects, including line dedication in the U.S. Home Care and Cleaning business,
additional bottle-making capacity added during the year, and improvements in the
ARMOR ALL business. The improvement in 1998 versus 1997 reflects efficiencies
resulting from cost-savings initiatives implemented in prior years throughout
the supply chain, as well as slight price declines in certain of the Company's
raw materials, and further integration of the Company's ARMOR ALL business. This
improvement was mostly offset by a less favorable product mix and lower margins
associated with the introduction costs of GLADWARE containers and EVERFRESH
clumping litter products.
Advertising expenses declined by 3% in 1999 due to a reduction in sales
promotion spending on First Brands products that was deemed to be ineffective
and a shift in timing of new product advertising spending to fiscal year 2000.
Advertising expenses increased 2% in 1998, reflecting increased media and sales
promotion support.
B-1
<PAGE>
Merger and integration (transaction and other related costs) charges of $36
million were recognized in 1999. In addition, other restructuring costs and
provisions for asset impairment of $53 million and $91 million, respectively,
were recognized in 1999. Restructuring activities primarily related to the
consolidation of administration and distribution functions, the reduction in
employee headcount of approximately 270 positions primarily at the First Brands'
headquarters location in Danbury, Connecticut and at sales offices, and the
termination of related leases and other contracts. Asset impairment losses were
recognized for the write-off of software development and other costs and the
write-down to expected realizable value of certain intangible assets in the
Company's insecticide business and certain international assets. It is expected
that additional merger-related costs of approximately $22 million will be
incurred during fiscal year 2000 and will be reported as merger costs at that
time.
Restructuring costs of $19 million in 1997 reflect charges recorded by First
Brands for initiatives aimed at streamlining certain operating and
administrative functions. In 1998, First Brands recorded an additional $3
million related to these initiatives.
Interest expense decreased by $7 million in 1999 primarily as a result of the
refinancing of the First Brands debt at more favorable rates. Interest expense
increased by $24 million in 1998 due to borrowings to fund acquisitions, the
Company's share-repurchase program and purchases of capital assets resulting
from the acquisition of previously leased assets.
Other expense, net increased in 1999 primarily due to higher amortization of
intangibles, the effect of currency translation on certain international
operations, and miscellaneous equipment write-downs related to production of
CLOROX 2 liquid bleach. Other expense, net in 1998 increased due to higher
amortization of intangibles and lower interest income, which was somewhat offset
by higher amounts of equity earnings from affiliates and royalty income.
The cumulative effect of the change in accounting principle of $7 million was
recorded in 1998 by First Brands to expense previously capitalized costs related
to certain business process re-engineering activities (in accordance with the
Financial Accounting Standards Board Emerging Issues Task Force Issue No.
97-13).
The effective tax rate was 42.8%, 37.1% and 39.9% in 1999, 1998 and 1997,
respectively. The higher tax rate in 1999 was primarily attributable to the tax
effect of merger, integration, restructuring and asset impairment costs. Merger,
integration, restructuring and asset impairment costs had the effect of
increasing the Company's tax rate from 36.9% to 42.8%. The lower tax rate for
1998 was primarily attributable to international investment activities and
international operations.
Diluted earnings per share decreased $0.40, or 28%, in 1999 due primarily to
merger, integration, restructuring and asset impairment costs. Merger,
integration, restructuring and asset impairment costs had the effect of reducing
diluted earnings per share by $0.60, or 42%, offset by improved earnings driven
by volume growth and lower advertising expense, all as described above. The
increase in diluted earnings per share in 1998 compared to 1997 was primarily a
function of the volume growth, the reduction in the effective tax rate, and
lower restructuring costs partially offset by the cumulative effect of the
change in accounting principle, all as described above. Diluted earnings per
share before merger, integration, restructuring and asset impairment costs is
not a generally accepted accounting performance measure.
FINANCIAL POSITION AND LIQUIDITY
Cash provided by operations was $588 million in 1999, $417 million in 1998 and
$432 million in 1997. The increase in 1999 was due principally to decreased
working capital requirements. Working capital changes from 1998 included
decreases in accounts receivable (excluding the impact of $100 million from the
Company's trade receivable financing program which was discontinued in 1999 and
is classified as financing activities) and inventories, and an increase in
accrued merger, integration and restructuring liabilities, which were offset
partially by decreases in accounts payable and accrued liabilities. The increase
B-2
<PAGE>
in accounts receivable was principally due to the discontinued receivables
financing program, offset by improved collections from the Company's
international businesses and the effect of foreign exchange translation. These
cash flow improvements were offset partially by an overall increase in June 1999
sales experienced by most of the Company's businesses. Lower inventory levels in
1999 reflect higher June sales, a decline in promotional activities, tighter
management of back-up stocks and the implementation of a new international
logistic strategy. Accrued merger, integration and restructuring liabilities
include accruals for severance, lease and contract cancellation costs. Accrued
liabilities decreased from 1998 primarily due to the timing of domestic
promotional activities and a reduction in accruals associated with the
acquisition of the ARMOR ALL business. Accounts payable decreased from 1998
primarily due to lower purchases resulting from First Brands' decreased June
volume.
Cash provided by operations decreased in 1998 as a result of increased working
capital requirements, principally related to longer collection terms for the
international, ARMOR ALL and BRITA businesses.
In 1999, the Company terminated several of its financing agreements that were in
part offset by increases in commercial paper borrowings and a new financing
arrangement completed during the year. In December 1998, the Company redeemed
preference shares totaling $388 million, which were previously classified as
short-term debt. In February 1999, the Company terminated First Brands'
revolving credit facility agreement and the related interest rate swap
agreements. Costs associated with terminating the swap agreements were $3
million and are included in merger and integration costs. In June 1999, the
Company terminated its $100 million program to finance receivables. In 1999, the
Company entered into a $200 million Deutsche mark denominated financing
arrangement with private investors. As part of this financing transaction, the
Company entered into a series of swaps with notional amounts totaling $200
million to eliminate foreign currency exposure risk generated by this Deutsche
mark denominated obligation. The swaps effectively convert the Company's 2.9%
fixed Deutsche mark obligation to a floating U.S. dollar rate of 90 day LIBOR
less 278 basis points or an effective rate of approximately 3%.
During 1999, the Company invested $116 million in new businesses, including the
U.S. acquisition of the HANDI WIPES and WASH 'N DRI businesses. International
acquisitions included the MISTOLIN bleach and household cleaner business in
Venezuela, the HOMEKEEPER insecticide business in Korea, the GUMPTION household
cleaner business in Australia, as well as a 12% increase in ownership in the
Company's joint venture company, Tecnoclor S.A., in Colombia.
During 1998, the Company invested $149 million in new international businesses.
These acquisitions included the CLOROSUL bleach business, the SUPER GLOBO bleach
and cleaner business and the X-14 cleaner business, all in Brazil, the ARELA
cleaner business in Chile, three smaller acquisitions in Southeast Asia,
Australia and New Zealand, and an additional investment in Mexico.
During 1997, the Company invested $630 million in new businesses, including the
ARMOR ALL car care business, purchased for $360 million. Other businesses
acquired were the NationalPak business in Australia and New Zealand, the Shell
Group's line of household products in Chile, the PINOLUZ pine cleaner business
in Argentina and the LIMPIDO brand bleach business and an increase in Tecnoclor
S.A., both in Colombia.
Dividends paid in 1999 were $162 million or $0.71 per share. On July 20, 1999,
the Company's Board of Directors authorized a 2-for-1 split of its common stock
effective August 23, 1999, in the form of a stock dividend for stockholders of
record at the close of business on July 30, 1999. The Company also made a
2-for-1 stock split on September 2, 1997 to stockholders of record as of July
28, 1997. All share and per-share information in the accompanying Consolidated
Financial Statements reflects these stock splits.
In 1999, 1998 and 1997, cash flows from operations exceeded cash needs for
capital expenditures, dividends and scheduled debt service. The Company believes
that cash flow from operations, supplemented by financing expected to be
available from external sources, will provide sufficient liquidity for the
foreseeable future. At June 30, 1999, the Company had credit agreements with
available credit totaling
B-3
<PAGE>
$1.1 billion, which expire on dates ranging from November 1999 to April 2002.
These agreements are with a syndication of banks and can be used as a supplement
to internal cash flows. There were no borrowings under these agreements at June
30, 1999. The credit agreements require maintenance of a minimum net worth of
$704 million.
The Company also has indentures and loan agreements related to the First Brands
businesses. Such agreements contain certain restrictive covenants and
limitations, the most significant of which relates to the Company's right to
incur certain indebtedness and to engage in certain sale and leaseback
transactions. Based on the Company's working capital requirements, the current
availability under its credit agreements, and its ability to generate positive
cash flows from operations, the Company does not believe that such limitations
will have a material effect on the Company's long-term liquidity. The Company
believes that it will have the funds necessary to meet all of its above
described financing requirements and all other fixed obligations. Should the
Company undertake strategic acquisitions, requiring funds in excess of its
internally generated cash flow, it might be required to incur additional debt.
Depending upon conditions in the financial markets, the availability of
acceptable terms, and other factors, the Company may consider the issuance of
debt or other securities to finance acquisitions, to refinance debt or to fund
other activities for general business purposes.
In September 1999, in response to recent declines in the Company's stock price,
the Board of Directors authorized a common stock repurchase program intended to
reduce or eliminate dilution when shares are issued in accordance with the
Company's 1987 Long-Term Compensation Program, the 1996 Stock Incentive Plan,
the 1993 Directors' Stock Option Plan and the Independent Directors' Stock-Based
Compensation Plan, as well as the First Brands 1989 Long Term Incentive Plan and
the First Brands 1994 Performance Stock Option and Incentive Plan. The Company
had canceled a prior share repurchase program (previously authorized in
September 1996 by the Board of Directors to offset the dilutive effects of
employee stock exercises) when it merged with First Brands. Prior to the
cancellation of the September 1996 program, the Company had repurchased 800,000
shares for $33 million in 1999, 1,694,000 shares for $70 million in 1998, and
1,854,000 shares for $54 million in 1997. As part of the repurchase program
during 1998, the Company entered into two share repurchase transactions whereby
the Company contracted for the future delivery of 800,000 shares of Clorox stock
on October 27, 2000 and 800,000 shares of Clorox stock on October 23, 2002. The
aggregate redemption cost is $68 million, including a premium of $13 million on
the transaction.
MARKET-SENSITIVE DERIVATIVES AND FINANCIAL INSTRUMENTS
The Company is exposed to the impact of interest rates, foreign currency
fluctuations, commodity prices and changes in the market value of its
investments. The Company has certain restrictions on the usage of derivatives,
including a restriction limiting the amount of derivatives to the amount of the
designated portion of existing debt and a prohibition of the use of any
leveraged instrument. Derivative contracts are entered into for non-trading
purposes with several major credit worthy institutions thereby minimizing the
risk of credit loss. In the normal course of business, the Company employs
practices and procedures to manage its exposure to changes in interest rates,
foreign currencies and commodity prices using a variety of financial
instruments.
The Company's objective in managing its exposure to changes in interest rates,
foreign currencies and commodity prices is to limit the impact of fluctuations
on earnings and cash flow and, in the case of interest rate changes, to lower
its overall borrowings costs. To achieve its objectives, the Company primarily
uses interest rate swaps and forward and futures contracts to manage its net
exposure to interest rate changes related to its portfolio of borrowings,
foreign currency and commodity risks.
For 1999 and 1998, the Company's exposure to market risk has been estimated
using sensitivity analysis, which is defined as the change in the fair value of
a derivative or financial instrument assuming a hypothetical 10% adverse change
in market rates or prices. The results of the sensitivity analysis are
B-4
<PAGE>
summarized below. Actual changes in interest rates or market prices may differ
from the hypothetical changes.
The Company has market risk exposure to changing interest rates, primarily in
the United States. Interest rate risk is managed through the use of a
combination of fixed and floating rate debt. Interest rate swaps may be used to
adjust interest rate risk exposures when appropriate, based on market
conditions. These instruments have the effect of converting fixed rate
instruments to floating, or floating to fixed. Changes in interest rates would
result in gains or losses in the market value of the Company's fixed-rate debt
instruments and the Company's interest rate swap agreements which convert debt
instruments from floating to fixed, due to differences between current market
rates and the rates governing these. Based on the results of the sensitivity
analysis, at June 30, 1999 and June 30, 1998, the Company's estimated market
exposure for interest rates was $13 million and $15 million, respectively.
The Company seeks to minimize the impact of foreign currency fluctuations by
hedging transactional exposures with foreign currency forward contracts. In
addition, the Company has hedged certain net investments with similar
instruments. The Company's foreign currency transactional exposures exist
primarily with the Australian dollar and Japanese yen. Cash flow exposure
related to the Company's hedge of a foreign investment is in the Argentine peso.
At June 30, 1999 and June 30, 1998, there were no material foreign currency
exposures that were not hedged. The foreign exchange sensitivity analysis
includes forward contracts and other financial instruments affected by foreign
exchange risk. Based on the hypothetical change in foreign currency exchange
rates, the net unrealized losses at June 30, 1999 and 1998 would be $4 million
at each date.
Commodity futures and swap contracts are used to manage cost exposures on
certain raw material purchases resulting in relatively stable costs for these
commodities. The commodity price sensitivity analysis includes commodity futures
and swap contracts affected by commodity price risk. Based on the results of the
sensitivity analysis, at June 30, 1999 and June 30, 1998, the Company's
estimated market exposure for commodity prices was $17 million and $20 million,
respectively.
YEAR 2000 COMPLIANCE
Many financial information and operations systems used today may be unable to
interpret dates after December 31, 1999 because these systems allow only two
digits to indicate the year in a date. Consequently, these systems may not
distinguish January 1, 2000 from January 1, 1900, which could have adverse
consequences on the operations of an entity and the integrity of information
processing. This issue is commonly referred to as the "Year 2000" or "Y2K"
problem.
In 1997, the Company established a comprehensive corporate-wide program to
address Y2K issues. This effort encompasses software, hardware, electronic data
interchange, networks, personal computers, manufacturing and other facilities,
embedded chips, century certification, supplier and customer readiness,
contingency planning and domestic and international operations. Following the
Company's January 29, 1999 merger with First Brands, the Company has
incorporated First Brands (since renamed The Glad Products Company) and its
subsidiaries into the Company's comprehensive Y2K compliance program.
As of June 30, 1999, the Company has completed its Y2K compliance efforts on 96%
of its critical United States and Canadian business systems through retirement,
upgrades or replacements, and has century certified 95% of these systems through
testing. The target date to complete all remaining key domestic Y2K work is
September 30, 1999. The upgrade or replacement of the Company's critical
international systems is 90% complete as of June 30, 1999. The target date to
complete all remaining key international Y2K work is September 30, 1999. The
Company has completed 70% of its compliance efforts for plant floor equipment,
instrumentation and facilities for both domestic and international locations and
is on schedule to complete all key plant floor and facility remediation by
September 30, 1999.
B-5
<PAGE>
The Company has prioritized its third-party relationships as critical, severe or
sustainable for all operations. The Company has completed its third party
assessment for all operations, other than those of the former First Brands
companies. The Company expects to complete its assessment of third party
relationships for the former First Brands companies by September 30, 1999. The
Company has also requested a Y2K contract warranty in many new key contracts and
is developing contingency plans for critical third parties, including key
customers, suppliers and other service providers.
If necessary modifications and conversions by the Company are not made on a
timely basis, or if key third parties are not Y2K compliant, Y2K problems could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's most reasonably likely worst case
scenario is a regional utility failure that would interrupt manufacturing
operations and distribution centers in the affected region. To mitigate this
risk, and to address the possible uncertainty of whether the Company will be
able to solve potential Y2K issues, the Company has begun contingency planning
for its critical operations, which includes key third-party relationships and
written contingency plans. The Company has completed approximately 50% of its
documented contingency planning efforts for the United States and Canada,
excluding the operations of the former First Brands companies. Contingency
planning is also underway for international locations. The Company expects to
complete all of its documented contingency planning by September 30, 1999.
During the final quarter of calendar year 1999, the Company will implement many
of the details of the documented contingency plans, such as testing and
execution of contingency plans, and establishing a command center to monitor
activities, resolve issues and communicate status information as the Company
enters the new year.
Y2K costs are expensed as incurred and funded through operating cash flows.
Through June 30, 1999, the Company has expensed incremental remediation costs of
$19 million with remaining incremental remediation costs estimated at $4
million. In addition, through June 30, 1999, the Company has expensed
accelerated strategic upgrade costs of $18 million with anticipated remaining
accelerated strategic upgrade costs of $1 million. The Company spent
approximately 6.4% of its 1999 fiscal year information technology budget, and
expects to spend approximately 4.2% of its fiscal year 2000 budget, on Y2K
remediation issues. The Company has not deferred any critical information
technology projects because of its Year 2000 program efforts, which are
primarily being addressed through a joint team of the Company's business and
information technology resources. Time and cost estimates are based on currently
available information and could be affected by the ability to correct all
relevant computer codes and equipment, and the Y2K readiness of the Company's
business partners, among other factors. Given the inherent risks for a project
of this magnitude and the resources required, the timing and costs involved
could differ materially from those anticipated by the Company. There can be no
assurance that the Y2K program will be completed on schedule or within budget.
ENVIRONMENTAL MATTERS
The Company is committed to an ongoing program of comprehensive, long-term
environmental assessment of its facilities. This program is implemented by the
Company's Department of Health, Safety and Environment with guidance from legal
counsel. During each facility assessment, compliance with applicable
environmental laws and regulations is evaluated and the facility is reviewed in
an effort to identify possible future environmental liabilities. The Company
believes that there are no potential future environmental liabilities that will
have a material adverse effect on its financial position or future operating
results, although no assurance can be given with respect to the ultimate outcome
of any such matters. This premise is based on the probable future costs of
environmental liabilities without offset for expected insurance recoveries or
discounting for present value.
CAUTIONARY STATEMENT
Except for historical information, matters discussed above and in the financial
statements and footnotes, including statements about future plans, objectives,
expectations, growth or profitability, are forward-
B-6
<PAGE>
looking statements based on management's estimates, assumptions and projections.
These forward-looking statements are subject to risks and uncertainties, and
actual results could differ materially from those discussed in this Appendix B
to the 1999 Proxy Statement of the Company. Important factors that could affect
performance and cause results to differ materially from management's
expectations are described in "Forward-Looking Statements and Risk Factors" in
the Company's Annual Report on Form 10-K for the year ending June 30, 1999,
which is expected to be filed with the SEC on or about September 28, 1999, and
in subsequent SEC filings. Those factors include, but are not limited to,
marketplace conditions and events, the Company's costs, risks inherent in
litigation and international operations, the success of new products, the
integration of acquisitions and mergers, including First Brands, and
environmental, regulatory and intellectual property matters. These
forward-looking statements speak only as of the date of this document.
B-7
<PAGE>
FINANCIAL HIGHLIGHTS
THE CLOROX COMPANY
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1999 1998 % CHANGE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS, EXCEPT SHARE AND PER-SHARE AMOUNTS.
<S> <C> <C> <C>
Net Sales...................................................... $ 4,003 $ 3,898 3
Net Earnings................................................... $ 246 $ 343 (28)
Stockholders' Equity........................................... $ 1,570 $ 1,473 7
Per Common Share
Net Earnings
Basic...................................................... $ 1.05 $ 1.46 (28)
Diluted.................................................... $ 1.03 $ 1.43 (28)
Dividends.................................................... $ 0.71 $ 0.63 13
Stockholders' Equity......................................... $ 6.67 $ 6.32 6
Weighted Average Shares Outstanding (in thousands)
Basic........................................................ 235,364 234,666 0
Diluted...................................................... 240,002 239,540 0
</TABLE>
- ---------
Reflects 2-for-1 stock split effective August 23, 1999.
B-8
<PAGE>
STATEMENTS OF CONSOLIDATED EARNINGS
THE CLOROX COMPANY
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS, EXCEPT SHARE AND PER-SHARE AMOUNTS.
<S> <C> <C> <C>
Net Sales........................................................ $ 4,003 $ 3,898 $ 3,623
--------- --------- ---------
Costs and Expenses
Cost of products sold (including write-down of obsolete
inventory of $8 in 1999, relating to First Brands)........... 1,932 1,889 1,767
Selling, delivery and administration........................... 804 784 717
Advertising.................................................... 474 491 481
Research and development....................................... 62 61 56
Merger, integration, restructuring and asset impairment........ 180 3 19
Interest expense............................................... 97 104 80
Other expense, net............................................. 24 10 4
--------- --------- ---------
Total costs and expenses................................... 3,573 3,342 3,124
--------- --------- ---------
Earnings before income taxes and cumulative effect of change in
accounting principle........................................... 430 556 499
Income taxes..................................................... 184 206 199
--------- --------- ---------
Earnings before cumulative effect of change in accounting
principle...................................................... 246 350 300
Cumulative effect of change in accounting principle.............. - (7) -
--------- --------- ---------
Net Earnings..................................................... $ 246 $ 343 $ 300
--------- --------- ---------
--------- --------- ---------
Earnings per Common Share
Basic
Earnings before cumulative effect of change in accounting
principle.................................................. $ 1.05 $ 1.49 $ 1.27
Cumulative effect of change in accounting principle.......... - (.03) -
--------- --------- ---------
Net Earnings................................................. $ 1.05 $ 1.46 $ 1.27
--------- --------- ---------
--------- --------- ---------
Diluted
Earnings before cumulative effect of change in accounting
principle.................................................. $ 1.03 $ 1.46 $ 1.25
Cumulative effect of change in accounting principle.......... - (.03) -
--------- --------- ---------
Net Earnings................................................. $ 1.03 $ 1.43 $ 1.25
--------- --------- ---------
--------- --------- ---------
Weighted Average Shares Outstanding (in thousands)
Basic.......................................................... 235,364 234,666 235,042
Diluted........................................................ 240,002 239,540 239,346
</TABLE>
See Notes to Consolidated Financial Statements.
B-9
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1999 1998
<S> <C> <C>
- -------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS, EXCEPT SHARE AND PER-SHARE AMOUNTS.
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term investments........................................ $ 132 $ 102
Receivables, net....................................................... 610 522
Inventories............................................................ 319 367
Prepaid expenses and other............................................. 29 56
Deferred income taxes.................................................. 26 35
--------- ---------
Total current assets................................................. 1,116 1,082
--------- ---------
Property, Plant and Equipment -- Net..................................... 1,054 1,016
--------- ---------
Brands, Trademarks, Patents and Other Intangibles -- Net................. 1,497 1,525
--------- ---------
Investments in Affiliates................................................ 104 90
--------- ---------
Other Assets............................................................. 361 352
--------- ---------
Total.................................................................... $ 4,132 $ 4,065
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable....................................................... $ 206 $ 226
Accrued liabilities.................................................... 350 353
Accrued merger, integration and restructuring.......................... 23 -
Short-term debt and notes payable...................................... 734 773
Income taxes payable................................................... 48 24
Current maturities of long-term debt................................... 7 5
--------- ---------
Total current liabilities............................................ 1,368 1,381
--------- ---------
Long-term Debt........................................................... 702 704
--------- ---------
Other Obligations........................................................ 255 228
--------- ---------
Deferred Income Taxes.................................................... 237 279
--------- ---------
Stockholders' Equity
Common stock, $1.00 par value, 375,000,000 shares authorized,
249,826,934 shares issued at June 30, 1999 and 249,013,686 shares
issued at June 30, 1998.............................................. 250 249
Additional paid-in capital............................................. 50 -
Retained earnings...................................................... 1,842 1,743
Treasury shares, at cost, 14,516,180 shares and 16,026,916 shares at
June 30, 1999 and June 30, 1998, respectively........................ (392) (392)
Accumulated other comprehensive loss................................... (160) (116)
Other.................................................................. (20) (11)
--------- ---------
Stockholders' equity................................................. 1,570 1,473
--------- ---------
Total.................................................................... $ 4,132 $ 4,065
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
B-10
<PAGE>
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
THE CLOROX COMPANY
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE
STOCK CAPITAL EARNINGS SHARES INCOME (LOSS)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS, EXCEPT PER-SHARE AMOUNTS.
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996
As previously reported........................... $ 125 $ 116 $ 1,413 $ (251) $ (43)
2-for-1 stock split effective August 23, 1999.... 125 (116) (9)
----- ----- ----------- ----- -----
Balance, June 30, 1996........................... $ 250 $ - $ 1,404 $ (251) $ (43)
Comprehensive income
Net earnings................................... 300
Translation adjustments........................ (17)
Total comprehensive income.......................
Dividends ($.56 per share)..................... (132)
Employee stock plans and other................. 15 (1) 16
Clorox treasury stock acquired................. (54)
First Brands treasury stock acquired........... (1) (15) (29)
----- ----- ----------- ----- -----
Balance, June 30, 1997........................... 249 - 1,542 (289) (60)
Comprehensive income
Net earnings................................... 343
Translation adjustments........................ (57)
Minimum pension liability adjustments.......... 1
Total comprehensive income.......................
Dividends ($.63 per share)..................... (147)
Employee stock plans and other................. 21 10 35
Clorox treasury stock acquired and related
premium...................................... (83)
First Brands treasury stock acquired........... (21) (5)
Share repurchase obligations................... (55)
----- ----- ----------- ----- -----
Balance, June 30, 1998........................... 249 - 1,743 (392) (116)
Comprehensive income
Net earnings................................... 246
Translation adjustments........................ (43)
Minimum pension liability adjustments.......... (1)
Total comprehensive income.......................
Dividends ($.71 per share)..................... (162)
Employee stock plans and other................. 1 50 15 33
Treasury stock acquired........................ (33)
----- ----- ----------- ----- -----
Balance, June 30, 1999........................... $ 250 $ 50 $ 1,842 $ (392) $ (160)
----- ----- ----------- ----- -----
----- ----- ----------- ----- -----
<CAPTION>
TOTAL
COMPREHENSIVE
OTHER TOTAL INCOME
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
IN MILLIONS, EXCEPT PER-SHARE AMOUNTS.
<S> <C> <C> <C>
Balance, June 30, 1996
As previously reported........................... $ (11) $ 1,349
2-for-1 stock split effective August 23, 1999.... -
--- ---------
Balance, June 30, 1996........................... $ (11) $ 1,349
Comprehensive income
Net earnings................................... 300 $ 300
Translation adjustments........................ (17) (17)
-----
Total comprehensive income....................... $ 283
-----
-----
Dividends ($.56 per share)..................... (132)
Employee stock plans and other................. (1) 29
Clorox treasury stock acquired................. (54)
First Brands treasury stock acquired........... (45)
--- ---------
Balance, June 30, 1997........................... (12) 1,430
Comprehensive income
Net earnings................................... 343 $ 343
Translation adjustments........................ (57) (57)
Minimum pension liability adjustments.......... 1 1
-----
Total comprehensive income....................... $ 287
-----
-----
Dividends ($.63 per share)..................... (147)
Employee stock plans and other................. 1 67
Clorox treasury stock acquired and related
premium...................................... (83)
First Brands treasury stock acquired........... (26)
Share repurchase obligations................... (55)
--- ---------
Balance, June 30, 1998........................... (11) 1,473
Comprehensive income
Net earnings................................... 246 $ 246
Translation adjustments........................ (43) (43)
Minimum pension liability adjustments.......... (1) (1)
-----
Total comprehensive income....................... $ 202
-----
-----
Dividends ($.71 per share)..................... (162)
Employee stock plans and other................. (9) 90
Treasury stock acquired........................ (33)
--- ---------
Balance, June 30, 1999........................... $ (20) $ 1,570
--- ---------
--- ---------
</TABLE>
See Notes to Consolidated Financial Statements, reflects 2-for-1 stock split
effective August 23, 1999.
B-11
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
THE CLOROX COMPANY
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS.
<S> <C> <C> <C>
Operations:
Net earnings........................................................ $ 246 $ 343 $ 300
Adjustments to reconcile to net cash provided by operations:
Write-off of obsolete inventory................................... 8 - -
Provision for asset impairment.................................... 91 - -
Cumulative effect of change in accounting principle............... - 7 -
Depreciation and amortization..................................... 202 182 168
Deferred income tax............................................... (29) 52 8
Other............................................................. (14) (1) (6)
Effects of changes in:
Accounts receivable............................................. 24 (76) (27)
Inventories..................................................... 40 (47) (20)
Prepaid expenses................................................ 2 1 (8)
Accounts payable................................................ (19) 21 (36)
Accrued liabilities............................................. (9) (67) 23
Accrued merger, integration and restructuring................... 23 3 19
Income taxes payable............................................ 23 (1) 11
--------- --------- ---------
Net cash provided by operations................................. 588 417 432
--------- --------- ---------
Investing Activities:
Property, plant and equipment acquired.............................. (176) (190) (161)
Businesses purchased................................................ (116) (149) (630)
Disposal of property, plant and equipment........................... 16 19 7
Other............................................................... (37) (81) (22)
--------- --------- ---------
Net cash used for investment.................................... (313) (401) (806)
--------- --------- ---------
Financing Activities:
Revolving credit facilities borrowings (repayments), net............ (199) 19 135
Long-term borrowings................................................ 205 3 348
Long-term debt and other obligations repayments..................... (16) (66) (119)
Short-term borrowings (repayments).................................. (33) 202 194
First Brands financing program, net................................. (100) 15 15
Cash dividends...................................................... (162) (147) (132)
Treasury stock acquired and related premium......................... (33) (109) (99)
Employee stock plans and other...................................... 93 64 42
--------- --------- ---------
Net cash provided by (used for) financing....................... (245) (19) 384
--------- --------- ---------
--------- --------- ---------
Effect of exchange rate changes on cash............................... - (4) -
Net increase (decrease) in cash and short-term investments............ 30 (7) 10
Cash and short-term investments:
Beginning of year................................................... 102 109 99
--------- --------- ---------
End of year......................................................... $ 132 $ 102 $ 109
--------- --------- ---------
--------- --------- ---------
Supplemental Disclosure:
Cash paid for:
Interest (net of amounts capitalized)............................. $ 98 $ 105 $ 71
Income taxes...................................................... 85 113 148
Non-cash transactions:
Liabilities assumed with businesses purchased..................... $ - $ 28 $ 126
Share repurchase and other obligations............................ - 79 -
</TABLE>
See Notes to Consolidated Financial Statements.
B-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
On January 29, 1999, the Company completed a merger with First Brands
Corporation ("First Brands"). The merger has been accounted for as a pooling of
interests. Accordingly, all historical financial information has been restated
to include First Brands for all periods presented. Additional information
pertaining to the merger is presented in Note 2.
The Company is principally engaged in the production and marketing of nondurable
consumer products through grocery stores, mass merchandisers and other retail
outlets. The consolidated financial statements include the statements of the
Company and its majority-owned and controlled subsidiaries. Minority investments
in foreign entities are accounted for under the equity method, the most
significant of which is a 20% equity investment in Henkel Iberica, S.A. of
Spain. All significant intercompany transactions and accounts are eliminated in
consolidation.
STOCK-SPLIT
On July 20, 1999, the Company's Board of Directors authorized a 2-for-1 split of
its common stock, effective August 23, 1999, in the form of a stock dividend for
stockholders of record at the close of business on July 30, 1999. All share and
per-share amounts in the accompanying consolidated financial statements have
been restated to give effect to the stock split.
On July 15, 1997, the Company's Board of Directors authorized a 2-for-1 split of
its common stock, effective September 2, 1997, in the form of a stock dividend
for stockholders of record at the close of business on July 28, 1997. All share
and per-share amounts in the accompanying consolidated financial statements have
been restated to give effect to the stock split.
ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts and related disclosures. Actual
results could differ from estimates and assumptions made.
SHORT-TERM INVESTMENTS
Short-term investments consist of money market and other high quality
instruments with an initial maturity of three months or less and are stated at
cost, which approximates market value.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost of the majority of
the domestic inventories, excluding First Brands, is determined on the last-in,
first-out (LIFO) method. Cost of the remainder of the inventories, including
First Brands, is determined on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is calculated by
the straight-line method over estimated useful lives ranging from 20-30 years
for improvements, 20-40 years for buildings and 3-15 years for machinery and
equipment. Carrying values are reviewed periodically for impairment
B-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
BRANDS, TRADEMARKS, PATENTS AND OTHER INTANGIBLES
Brands, trademarks, patents and other intangible assets arising from
transactions after October 30, 1970 are amortized over their estimated useful
lives not to exceed 40 years. Carrying values are reviewed periodically and a
determination of impairment is made based on estimates of future cash flows,
undiscounted and without interest charges.
FORWARD PURCHASE FINANCING AGREEMENTS
In connection with the financing of an acquisition in Argentina in 1996 and the
acquisition of the Brita water systems business in Canada in 1995, the Company
entered into forward purchase agreements with third parties whereby the Company
has purchased preferred stock of certain of its foreign subsidiaries for future
delivery from third parties who have the right to acquire this preferred stock
according to the terms of certain subscription agreements. The forward purchases
of the preferred stock are recorded as other assets and are being accreted to
redemption amounts on a straight-line basis over the terms of the agreements. If
the third parties fail to acquire the subsidiary preferred stock at maturity of
the subscription agreements, the accreted amounts of the forward purchase
agreements will be due to the Company.
INCOME TAXES
The Company uses the asset and liability method to account for income taxes.
FOREIGN CURRENCY TRANSLATION
Local currencies are the functional currencies for most of the Company's foreign
operations. Assets and liabilities are translated using the exchange rates in
effect at the balance sheet date. Income and expenses are translated at the
average exchange rates during the year. Translation gains and losses and the
effects of exchange rate changes on transactions designated as hedges of net
foreign investments are reported in accumulated other comprehensive income or
loss in stockholders' equity. Transaction and foreign currency translation gains
and losses where the U.S. dollar is the functional currency are included in
other income.
EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net earnings by the weighted
average number of common shares outstanding each period. Diluted earnings per
share are computed by dividing net earnings by the diluted weighted average
number of common shares outstanding during the period. Diluted earnings per
share reflects the potential dilution from common shares issuable through stock
options, restricted stock and performance unit grants.
DERIVATIVE FINANCIAL INSTRUMENTS
The use of financial instruments, principally swap, forward and option
contracts, is limited to purposes other than trading and includes management of
interest rate movements, foreign currency exposure and commodity exposure. They
are treated as off-balance sheet items. Interest rate swap agreements are
B-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accounted for using the settlement basis of accounting. As such, no gains or
losses are recorded for movements in the swaps' values during the term of the
agreements. Foreign currency forward contracts are used to hedge certain
short-term and long-term instruments and to hedge the impact of exchange rate
fluctuations resulting from anticipated inventory purchases and intercompany
transactions. Gains or losses on hedges of existing assets are included in the
carrying amounts and are recognized in earnings when those assets are
liquidated. Gains or losses arising from hedges of firm commitments and
anticipated transactions are recognized in earnings or as an adjustment of
carrying amounts when the hedged transaction occurs.
STOCK-BASED COMPENSATION
The Company continues to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Compensation cost for stock options,
if any, is measured as the excess of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock. Restricted stock awards are recorded as compensation cost over the
requisite vesting periods based on the market value on the date of grant.
Compensation cost for shares issued under performance share plans is recorded
based upon the current market value of the Company's stock at the end of each
period.
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair-value based method of accounting for stock-based employee
compensation plans. The Company has elected to remain on its current method of
accounting as described above and has adopted the disclosure requirements of
SFAS No. 123. (See Note 14).
IMPACT OF NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 137, issued in
June 1999, delayed the effective date of the statement to fiscal quarters in
fiscal years beginning after June 15, 2000. The Company is currently evaluating
the impact of this new accounting standard on the Company's consolidated
financial position and results of operations.
RECLASSIFICATIONS
Certain accounts receivable and accrued liabilities have been reclassified to
conform with the current period presentation.
2. MERGER, INTEGRATION, RESTRUCTURING AND ASSET IMPAIRMENT
Merger, integration, restructuring and asset impairment were $180, $3 and $19 in
1999, 1998 and 1997, respectively. The $180 of merger costs recorded in 1999
includes $156 of merger, integration, restructuring and asset impairment
incurred in connection with the First Brands merger. The remaining amount of $24
B-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
2. MERGER, INTEGRATION, RESTRUCTURING AND ASSET IMPAIRMENT (CONTINUED)
reflects an asset impairment loss recognized for the write-down of certain
insecticide brands and certain international assets. In 1997, First Brands
recorded $19 of restructuring charges for initiatives aimed at streamlining
certain operating and administrative functions. During 1998, First Brands
recorded an additional $3 related to these initiatives.
Merger and integration (transaction and other related costs), restructuring and
asset impairment costs were recognized during the year ended June 30, 1999 in
connection with the merger and other asset impairments. Details of these costs
are as follows:
<TABLE>
<CAPTION>
MERGER AND ASSET
INTEGRATION RESTRUCTURING SUB-TOTAL IMPAIRMENT TOTAL
------------- --------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Transaction fees and expenses........................ $ 17 $ - $ 17 $ - $ 17
Employee severance and other related costs........... 4 37 41 - 41
Contract cancellations............................... - 12 12 - 12
Write-off of software development and other costs.... - - - 67 67
Other................................................ 15 4 19 24 43
----- ----- ----- ----- ---------
Total provision for merger, integration,
restructuring and asset impairment................. 36 53 89 $ 91 $ 180
----- ---------
----- ---------
Total paid through June 30, 1999..................... (31) (35) (66)
----- ----- -----
Accrued liability as of June 30, 1999................ $ 5 $ 18 $ 23
----- ----- -----
----- ----- -----
</TABLE>
Restructuring activities primarily relate to the elimination of redundancies and
the consolidation of administration and distribution functions, the reduction in
employee headcount of approximately 270 positions, primarily at the First
Brands' headquarters location in Danbury, Connecticut and at sales offices, and
the termination of lease and other contractual obligations.
Total estimated merger, integration, restructuring and asset impairment costs
are approximately $210. Of such estimated merger-related and asset impairment
costs, $180 was recognized in 1999 and $8 of obsolete First Brands inventory was
written off in 1999. The Company expects to incur additional merger and related
costs of approximately $22 over the remainder of the 1999 calendar year and such
costs will be recognized and reported as merger and restructuring costs as
incurred.
Pursuant to the merger agreement, First Brands' stockholders obtained the right
to receive .349 of a share of the Company's common stock in exchange for each
share of First Brands' common stock, with cash paid in lieu of fractional
shares. Pursuant to the merger, 40.3 million shares of First Brands' common
stock were converted into 28.2 million shares (or 14.1 million shares prior to
restatement for the 2-for-1 stock split effective August 23, 1999) of the
Company's common stock. In addition, options to acquire 1.8 million shares of
First Brands' common stock were converted to 1.2 million options (or .6 million
shares prior to restatement for the 2-for-1 stock split effective August 23,
1999) to acquire shares of the Company's common stock. In connection with the
merger, Clorox also assumed approximately $435 of First Brands' debt. There were
no transactions between the Company and First Brands prior to the merger.
B-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
2. MERGER, INTEGRATION, RESTRUCTURING AND ASSET IMPAIRMENT (CONTINUED)
The following presents certain historical financial data pertaining to the
Company and First Brands prior to the merger in January 1999. Certain
reclassifications were made to the historical results of First Brands to conform
to the Company's classifications.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
DECEMBER 31 JUNE 30
------------- --------------------
1998 1998 1997
------------- --------- ---------
<S> <C> <C> <C>
Net Sales
Clorox.................................................... $ 1,334 $ 2,741 $ 2,533
First Brands.............................................. 605 1,204 1,120
Reclassifications......................................... (28) (47) (30)
------ --------- ---------
Net Sales............................................... $ 1,911 $ 3,898 $ 3,623
------ --------- ---------
------ --------- ---------
Net Earnings
Clorox.................................................... $ 143 $ 298 $ 250
First Brands.............................................. 31 45 50
------ --------- ---------
Net Earnings............................................ $ 174 $ 343 $ 300
------ --------- ---------
------ --------- ---------
</TABLE>
3. ACCOUNTING CHANGE
In 1998, First Brands changed its accounting policy for costs associated with
the business process re-engineering activities to expense such costs as incurred
in accordance with the FASB Emerging Issues Task Force Issue No. 97-13.
Previously capitalized costs of $11 ($7 after taxes or $0.03 per diluted share)
were charged to operations in 1998 as cumulative effect of change in accounting
principle.
4. ACQUISITIONS
Acquisitions made in years 1999, 1998 and 1997 accounted for as purchases are
summarized below.
Acquisitions in 1999 totaled $116. These acquisitions included the domestic
purchase of the HANDI WIPES and WASH 'N DRI businesses and the international
purchases of the MISTOLIN bleach and household cleaner business in Venezuela,
the HOMEKEEPER insecticide business in Korea, the GUMPTION household cleaner
business in Australia, as well as a 12% increase in ownership in the Company's
Tecnoclor S.A. joint venture in Colombia. Approximately $105 of the acquisition
cost has been allocated to brands, trademarks and other intangibles to be
amortized over estimated lives not to exceed 40 years. Purchases included, at
fair value, assets of $11.
International acquisitions in 1998 totaled $149 and included the CLOROSUL bleach
business, the SUPER GLOBO bleach and cleaner business and the X-14 cleaner
business, all in Brazil, the ARELA cleaner business in Chile, three smaller
acquisitions in Southeast Asia, Australia and New Zealand, and an additional
investment in Mexico. Approximately $144 of the acquisition cost has been
allocated to brands, trademarks and other intangibles to be amortized over
estimated lives not to exceed 40 years. Purchases included, at fair value,
assets of $34 and the assumption of liabilities of $29.
B-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
4. ACQUISITIONS (CONTINUED)
Acquisitions in 1997 totaled $630. On December 31, 1996, the Company purchased
The Armor All Products Corporation for $360, which markets the leading line of
automotive appearance products. Net assets acquired, at fair values, included
working capital assets of $51 and liabilities of $68, property, plant and
equipment of $8, and intangible assets of $369, principally brands and
trademarks, which are being amortized over 40 years. On March 14, 1997, First
Brands purchased the NationalPak business in Australia and New Zealand for $160.
NationalPak manufactures and markets consumer products such as plastic wrap and
bags, aluminum foil and wiping cloths under the GLAD, CHUX, OSO, MONO and ROTA
brand names. Net assets acquired, at fair values, included working capital
assets of $23, and liabilities of $22, property, plant and equipment of $33, and
intangible assets of $126, which are being amortized over 40 years. Other
businesses purchased for $110 included the Shell Group's line of household
products in Chile, the PINOLUZ pine cleaner business in Argentina and the
LIMPIDO brand bleach business and an increase in ownership in Tecnoclor S.A.,
both in Colombia. Net assets, acquired at fair value, included net working
capital of $10, property, plant and equipment of $2, and intangible assets of
$98, which are being amortized over periods not to exceed 40 years.
Operating results of acquired businesses are included in consolidated net
earnings from the date of acquisition. All acquisitions were funded from cash
provided by operations, long-term debt or commercial paper.
5. TRADE RECEIVABLE FINANCING PROGRAM
During the fourth quarter of 1999, the Company terminated First Brands' program
to sell up to $100 in fractional ownership interest in a defined pool of
eligible trade accounts receivable. Accounts receivable in the accompanying
consolidated balance sheets are reported net of amounts sold pursuant to this
program and related costs are charged to earnings as interest expense when the
receivables were sold. The effective interest rate for this program was
approximately 5.5%, 5.9% and 5.1% in 1999, 1998 and 1997, respectively.
6. INVENTORIES
The major classes are:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Finished goods and work in process............................................ $ 220 $ 251
Raw materials and supplies.................................................... 99 116
--------- ---------
Total......................................................................... $ 319 $ 367
--------- ---------
--------- ---------
</TABLE>
Had the cost of LIFO inventories been determined using the FIFO method,
inventory amounts would have been higher by approximately $12 at June 30, 1999
and $13 at June 30, 1998. The LIFO method was used to value approximately 38% of
the inventory at June 30, 1999 and 37% at June 30, 1998.
B-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
7. PROPERTY, PLANT AND EQUIPMENT -- NET
The major classes are:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Land and improvements...................................................... $ 91 $ 89
Buildings.................................................................. 391 381
Machinery and equipment.................................................... 1,198 1,155
Construction in progress and other......................................... 161 78
--------- ---------
Total...................................................................... 1,841 1,703
Less accumulated depreciation.............................................. 787 687
--------- ---------
Net........................................................................ $ 1,054 $ 1,016
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $115 in 1999, $109 in 1998 and $102 in 1997.
8. BRANDS, TRADEMARKS, PATENTS AND OTHER INTANGIBLES -- NET
The major classes are:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Brands and trademarks...................................................... $ 1,730 $ 1,664
Patents and other intangibles.............................................. 316 302
--------- ---------
Total...................................................................... 2,046 1,966
Less accumulated amortization.............................................. 549 441
--------- ---------
Net........................................................................ $ 1,497 $ 1,525
--------- ---------
--------- ---------
</TABLE>
At June 30, 1999 and 1998, respectively, brands and trademarks totaling $1,459
and $1,466 are amortized over 40 years, and $27 and $25 are amortized over 30
years, and $202 and $131 are amortized over 20 years. Amounts totaling $42
relating to transactions prior to October 31, 1970 are not amortized. Patents
and other intangibles are amortized over lives ranging from 5 to 20 years.
9. OTHER ASSETS
The major components are:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Forward purchase financing agreements......................................... $ 177 $ 167
Other......................................................................... 184 185
--------- ---------
Total......................................................................... $ 361 $ 352
--------- ---------
--------- ---------
</TABLE>
Forward purchase financing agreements represent the cost to acquire preferred
stock of certain foreign subsidiaries at various dates in the future. The
difference between cost and the third party subscription price of the preferred
stock is being accreted on a straight-line basis over five years. The amount of
accretion included in other income was $10 in 1999, 1998 and 1997.
The remaining other assets primarily include financing costs that are amortized
over the terms of the respective financing agreements, long-term notes
receivable, purchased software and deferred pension costs.
B-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
10. ACCRUED LIABILITIES
Advertising costs of $180 are included in accrued liabilities at June 30, 1999
and 1998.
11. DEBT
Short-term debt and notes payable include:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Commercial paper.............................................................. $ 726 $ 379
Notes payable and other....................................................... 8 394
--------- ---------
Total......................................................................... $ 734 $ 773
--------- ---------
--------- ---------
</TABLE>
In 1999, the Company redeemed preference shares totaling $388, which had been
classified as other short-term debt. These shares were issued in 1998 and 1997
when the Company entered into sterling denominated agreements for the issuance
of redeemable subsidiary preference shares to private investors. The Company
also terminated related swap agreements that covered both foreign currency and
interest rate exposures. Costs to terminate the swap agreements were
approximately $7 and are included in other expense, net. Dividend payments on
the preference shares were classified as interest expense.
Long-term debt includes:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
8.8% Non-callable notes due August 2001(a)........................................................ $ 200 $ 200
Preferred interest transferable securities due July 2003 with a preferred dividend rate of
2.9%(b)......................................................................................... 200 -
7 1/4% senior notes due 2007(c)................................................................... 150 150
Bank loans due through March 2007, at rates ranging from 5.9% to 7.9%............................. 98 101
Senior debt:
$300 revolving credit facility, five-year term expiring February 2002, interest varies at prime
rate, LIBOR plus .275% or CD rate plus .4%; facility fee of .15%(d)........................... - 190
$67 Australian and New Zealand credit facility, seven-year term expiring March 2004, interest at
local Bill Rate plus .7%(e)................................................................... 35 43
Other............................................................................................. 19 20
--------- ---------
Total............................................................................................. $ 702 $ 704
--------- ---------
--------- ---------
</TABLE>
- ---------
(a) At June 30, 1999 and June 30, 1998, the Company had interest rate swaps that
converted $50 and $100, respectively, of the 8.8% notes from a fixed to a
floating rate resulting in effective borrowing rates of 8.1% in 1999, 8.3%
in 1998 and 8.5% in 1997.
(b) In 1999, the Company entered into a Deutsche mark denominated financing
arrangement with private investors. The Company also entered into a series
of swaps with notional amounts totaling $200 to eliminate foreign currency
exposure risk generated by this fixed Deutsche mark obligation. The swaps
effectively convert the Company's 2.9% fixed Deutsche mark obligation to a
floating U.S. dollar rate of 90 day LIBOR less 278 basis points (effective
rate of approximately 3%). Dividend payments on preference shares are
classified as interest expense.
B-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
11. DEBT (CONTINUED)
(c) The 7 1/4% Note Indenture contains certain restrictive covenants and
limitations, the most significant of which relates to the Company's right to
incur debt and to engage in certain sale and leaseback transactions.
(d) At June 30, 1998, the Company had interest rate swaps totaling $105 that
converted the Company's variable rate debt into fixed obligations. In 1999,
the interest rate swaps were terminated in connection with the termination
of the revolving credit facility agreement. Costs associated with
terminating the swap agreements were approximately $3 and are included in
merger, integration, restructuring and asset impairment costs.
(e) The seven-year $67 Australian and New Zealand credit facility is composed of
(1) amounts used to acquire the NationalPak business (see Note 4) and (2)
amounts used for working capital needs. There are fixed periodic payments
associated with the acquisition borrowing. The working capital borrowing can
be drawn on and repaid at NationalPak's discretion. The facility is secured
by the accounts receivable, inventory and fixed assets of NationalPak. At
June 30, 1999 and June 30, 1998, the Company had interest rate swaps
totaling $26 and $22, respectively, that converted the Company's variable
rate debt into fixed obligations.
The weighted average interest rate for short-term debt outstanding was 5.2%,
5.1% and 5.5% for 1999, 1998 and 1997, respectively. At June 30, 1999 and 1998,
net of foreign currency swap agreements, the fair value of long-term debt was
$723 and $720, respectively, and the fair values of short-term debt approximates
the carrying value for those years.
The Company has credit agreements totaling up to $1.1 billion which expire on
dates ranging from November 1999 to April 2002. There are no borrowings under
any of these agreements. They are available for general corporate purposes and
for the support of additional commercial paper issuance. The credit agreements
require maintenance of minimum net worth of $704.
Long-term debt maturities as of June 30, 1999 are $6, $83, $209, $25, $216 and
$163 in 2000, 2001, 2002, 2003, 2004 and thereafter, respectively.
12. FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments, principally swaps,
forward contracts and options to enhance its ability to manage risk, including
interest rate, foreign currency, commodity prices and share repurchases which
exist as part of its ongoing business operations. These contracts hedge
transactions and balances for periods consistent with the related exposures and
do not constitute investments independent of these exposures. The Company does
not hold or issue financial instruments for trading purposes, nor is it a party
to any leveraged contracts.
Interest rate swap agreements are used to reduce financing costs and to achieve
a desired proportion of variable and fixed rate debt. Amounts paid or received
on hedges related to debt are included in interest expense. At June 30, 1999 and
June 30, 1998, the notional amount of interest rate swaps was $278 and $227, and
the unrealized (gain) or loss was approximately $4 and ($1), respectively. (See
Note 11).
The Company uses foreign exchange contracts, including swap and forward currency
contracts, to hedge existing foreign-exchange exposures. Foreign currency
contracts require the Company, at a future date, either to buy or sell foreign
currency in exchange for U.S. dollars to offset an unhedged exposure. Such
B-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
12. FINANCIAL INSTRUMENTS (CONTINUED)
currency contracts existed at June 30, 1999 and 1998 for Argentine pesos,
Canadian dollars, Japanese yen, Australian dollars and certain other currencies.
Foreign exchange contracts with notional amounts totaling $67 and $86 were
outstanding at June 30, 1999 and 1998, respectively. Unrealized losses for each
of those years were approximately $2. Contracts outstanding as of June 30, 1999
will mature over the next 9 years. The Company manages its future Deutsche mark
exposure with foreign currency swap agreements (see Note 11). These agreements
provide for an exchange of notional amounts at a future date, enabling the
Company to offset future foreign currency cash exposures and converting Deutsche
mark liability to U.S. dollar liability, thus mitigating exposure to increasing
costs associated with foreign currency movements.
The Company uses commodity futures contracts to hedge the price on a portion of
raw material purchases used in the manufacturing process and swap contracts to
hedge the market risk of diesel fuel included as part of carrier contracts.
Contract maturities correlate to actual purchases and contract values are
reflected in the cost of the related commodity. The Company also uses contracts,
including a "collar" contract, with various maturities partially to stabilize
the cost of its polyethylene resin requirements. These contracts cover a portion
of the Company's domestic and foreign resin requirements. Unrealized losses on
open contracts at June 30, 1999 and June 30, 1998 were approximately $6 and $23,
respectively.
Equity put options and forward contracts are used in connection with the
Company's common share repurchase programs (see Note 13).
The carrying values of cash, short-term investments, accounts and notes
receivable, notes payable, accounts payable, forward purchase financing
agreements and other financial instruments approximate their fair values at June
30, 1999 and 1998. The Company has used market information for similar
instruments and applied judgment in estimating fair values. See Note 11 for fair
values of short-term and long-term debt.
Exposure to counterparty credit risk is considered low because these agreements
have been entered into with major credit worthy institutions with strong credit
ratings and they are expected to perform fully under the terms of the
agreements.
13. STOCKHOLDERS' EQUITY
In addition to common stock, the Company is authorized to issue 5 million shares
of preferred stock with a par value of $1 per share, none of which is
outstanding.
In September 1996, the Board of Directors authorized a share repurchase program
to offset the dilutive effect of employee stock exercises. This program was
canceled when the Company merged with First Brands. The Company repurchased
800,000 shares for $33 in 1999, 1,694,000 shares for $70 in 1998 and 1,854,000
shares for $54 in 1997. As part of the repurchase program during 1998, the
Company entered into two share repurchase transactions whereby the Company
contracted for the future delivery of 800,000 shares of the Company stock on
October 27, 2000 and 800,000 shares of the Company stock on October 23, 2002.
The specified strike prices are $34.25 per share and $34.31 per share,
respectively. The aggregate redemption cost of $55 is included in other
obligations with a corresponding increase in treasury stock. The Company paid an
aggregate cash premium of $13 on these transactions which has been recorded as
treasury stock.
The Company sold and purchased 2.2 million and 1.0 million put and call options
during 1997 and 1996, respectively, with various strike prices (average of
$23.93 per share) that expire on various dates through September 30, 2005. Upon
exercise, each put option requires the Company to purchase, and each call option
allows the Company to purchase, one share of its common stock at the strike
price.
B-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
14. STOCK COMPENSATION PLANS
At June 30, 1999, the Company had stock-based compensation plans described below
that include the pre-merger plans of First Brands. Pursuant to the merger,
options to acquire 1.8 million shares of First Brands' common stock were
converted to 1.2 million options (or .6 million shares prior to restatement for
the 2-for-1 stock split effective August 23, 1999) to acquire shares of the
Company stock (see Note 2). The Company has various stock option plans that
provide for the granting of stock options to officers, key employees and
directors. The 1996 Stock Incentive Plan ("1996 Plan") is the only plan with
stock option awards currently available for grant; the 1996 Plan and prior plans
have shares exercisable at June 30, 1999. The Company is authorized to grant
options for up to 14 million common shares under the 1996 Plan, of which 6
million have been granted. Options outstanding under the Company's plans (except
First Brands options which became exercisable upon the merger) have been granted
at prices which are either equal to or above the market value of the stock on
the date of grant, vest over a one to seven-year period, and expire ten years
after the grant date.
The status of the Company's stock options plans at June 30 is summarized below:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Outstanding at June 30, 1996............ 15,590 $17
Granted................................. 1,692 27
Exercised............................... (2,304) 12
Cancelled............................... (752) 20
------ ---
Outstanding at June 30, 1997............ 14,226 18
Granted................................. 1,282 36
Exercised............................... (2,630) 14
Cancelled............................... (438) 25
------ ---
Outstanding at June 30, 1998............ 12,440 21
Granted................................. 4,590 60
Exercised............................... (3,174) 20
Cancelled............................... (216) 35
------ ---
Outstanding at June 30, 1999............ 13,640 34
------ ---
------ ---
Options exercisable at:
June 30, 1999........................... 7,618 19
June 30, 1998........................... 8,204 17
June 30, 1997........................... 6,936 14
</TABLE>
Had compensation expense for the Company's various stock-based compensation
plans been determined based upon fair values at the grant dates for awards under
those plans in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net earnings and earnings per share would
B-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
14. STOCK COMPENSATION PLANS (CONTINUED)
have been reduced to the following pro forma amounts. The pro forma effects of
applying SFAS No. 123 are not indicative of future amounts because this
statement does not apply to awards granted prior to 1996.
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Earnings before cumulative effect of change in accounting principle
As reported........................................................ $ 246 $ 350 $ 300
Pro forma.......................................................... 235 343 295
Earnings per share before cumulative effect of change in accounting
principle
Basic
As reported...................................................... $ 1.05 $ 1.49 $ 1.27
Pro forma........................................................ 1.00 1.46 1.26
Diluted
As reported...................................................... $ 1.03 $ 1.46 $ 1.25
Pro forma........................................................ 0.98 1.43 1.23
</TABLE>
The weighted average fair value of each option granted during 1999, 1998 and
1997, estimated on the grant date using the Black-Scholes option pricing model,
was $13.16 per share, $8.83 per share and $7.27 per share, respectively. The
following assumptions were used to estimate the fair value of the 1999, 1998 and
1997 options granted:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ----------------------------- -----------------------------
COMBINED CLOROX FIRST BRANDS CLOROX FIRST BRANDS
--------------- --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Dividend yield..................... 1.3% 2% 1.5% 2% 1.3%
Expected volatility................ 29.5% 21% 42.6% 19% 25.8%
Risk-free interest rate............ 4.4% to 5.7% 5.3% to 6.5% 5.5% 6.4% to 6.6% 5.3%
Expected life...................... 3 to 6 years 3 to 5 years 7.7 years 4 to 6 years 7.6 years
</TABLE>
Summary information about the Company's stock options outstanding at June 30,
1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL WEIGHTED AVERAGE EXERCISABLE WEIGHTED AVERAGE
EXERCISE PRICE AT 6/30/99 PERIODS IN YEARS EXERCISE PRICE AT 6/30/99 EXERCISE PRICE
- -------------- -------------- ----------------- ---------------- -------------- ----------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 9 - $20 5,498 4.2 $ 16 5,496 $ 16
21 - 33 2,448 6.3 24 1,632 24
33 - 44 1,986 8.5 38 488 37
44 - 55 436 9.3 53 2 44
56 - 67 3,272 9.7 66 - 56
- -------------- ------ --- ----- ----- -----
$ 9 - $67 13,640 6.7 $ 34 7,618 $ 19
- -------------- ------ --- ----- ----- -----
- -------------- ------ --- ----- ----- -----
</TABLE>
B-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
15. LEASES
The Company leases transportation equipment and various manufacturing,
warehousing and office facilities. Most leases are classified as operating
leases and will expire over the next 17 years. Future total minimum lease
payments are $39, and do not exceed $9 in any one year. Rental expense was $18
in 1999, $24 in 1998 and $27 in 1997.
Space not occupied by the Company in its headquarter building is let to other
tenants under operating leases expiring by 2008. Future minimum rentals to be
received are $5 and do not exceed $1 in any one year.
16. OTHER (INCOME) EXPENSE, NET
The major components are:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Amortization of intangibles............................................ $ 61 $ 57 $ 51
Equity in earnings of affiliates....................................... (21) (17) (14)
Interest income........................................................ (7) (5) (10)
Royalty income......................................................... (7) (11) (8)
Other, net............................................................. (2) (14) (15)
--- --- ---
Total.................................................................. $ 24 $ 10 $ 4
--- --- ---
--- --- ---
</TABLE>
17. INCOME TAXES
Income tax expenses are:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal............................................................. $ 175 $ 119 $ 150
State............................................................... 25 16 23
Foreign............................................................. 13 19 18
--------- --------- ---------
Total current......................................................... 213 154 191
--------- --------- ---------
Deferred
Federal............................................................. (26) 43 5
State............................................................... (2) 7 1
Foreign............................................................. (1) 2 2
--------- --------- ---------
Total deferred........................................................ (29) 52 8
--------- --------- ---------
Total expense......................................................... $ 184 $ 206 $ 199
--------- --------- ---------
--------- --------- ---------
</TABLE>
The effective income tax rates were 42.8%, 37.1% and 39.9% in 1999, 1998 and
1997, respectively. The higher tax rate for 1999 was primarily attributable to
the tax effect of merger-related and restructuring costs. The difference between
the U.S. statutory rate of 35% and the effective tax rate in each year is due
primarily to state income taxes, net of federal benefits, of 3%, 2.9% and 3.1%
in 1999, 1998 and 1997,
B-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
17. INCOME TAXES (CONTINUED)
respectively, merger-related and restructuring costs of 5.9% in 1999, and taxes
on foreign earnings of 1.7% in 1997.
Undistributed earnings of foreign subsidiaries that are considered to be
reinvested indefinitely totaled $118 at June 30, 1999.
The net deferred income tax assets (liabilities), both current and non-current
at June 30, result from the tax effects of the following temporary differences:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Amortization and depreciation................................................ $ (172) $ (165)
Safe harbor lease agreements................................................. (18) (21)
Unremitted foreign earnings.................................................. (46) (49)
Post employment benefits..................................................... 43 35
Merger related and restructuring costs....................................... 21 -
Other........................................................................ (39) (44)
--------- ---------
Net deferred tax liability................................................... $ (211) $ (244)
--------- ---------
--------- ---------
</TABLE>
18. EMPLOYEE BENEFIT PLANS
RETIREMENT INCOME PLANS
The Company has defined benefit pension plans for substantially all its domestic
employees and certain of its international subsidiaries. Benefits are based on
either employee years of service and compensation or a stated dollar amount per
year of service. The Company is the sole contributor to the plans in amounts
deemed necessary to provide benefits and to the extent deductible for federal
income tax purposes. Assets of the plans consist primarily of stocks and bonds.
The accumulated benefit obligation and fair value of plan assets for the pension
plans with accumulated benefit obligations in excess of plan assets were $1 and
$0, respectively, as of June 30, 1999 and $4 and $0, respectively, as of June
30, 1998.
The $1 cost of special termination benefits in 1999 relates to the closure of
certain facilities acquired with the First Brands merger. The $1 cost of special
termination benefits in 1997 resulted from an early retirement program at First
Brands.
RETIREMENT HEALTH CARE
The Company provides certain health care benefits for employees who meet age,
participation and length of service requirements at retirement. The plans pay
stated percentages of covered expenses after annual deductibles have been met.
Benefits paid take into consideration payments by Medicare. The plans are
unfunded and the Company has the right to modify or terminate certain of these
plans.
The assumed health care cost trend rate used in measuring the accumulated
post-retirement benefit obligation ("APBO") was 9% for Clorox and 8.5% for First
Brands for years 1999 and 2000. The Clorox assumed rates gradually decrease to
5.25% for 2003 and years thereafter. The First Brands assumed rates gradually
decrease to 5% for 2006 and years thereafter. Changes in these rates can have a
significant effect
B-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
18. EMPLOYEE BENEFIT PLANS (CONTINUED)
on amounts reported. A one percentage point increase in the trend rates would
increase the June 30, 1999 APBO by $8 and increase 1999 expense by $1. The
discount rate used to determine the APBO was 7.75%.
Summarized information of the Company's retirement income and retirement health
care plans are as follows:
<TABLE>
<CAPTION>
RETIREMENT
RETIREMENT INCOME PLANS HEALTH CARE
------------------------------------ --------------------
1999 1998 1999 1998
----------------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
Change in benefit obligations
Benefit obligation at beginning of year...................... $ 267 $ 231 $ 73 $ 65
Service cost................................................. 12 10 3 3
Interest cost................................................ 19 18 5 5
Plan amendments.............................................. (9) 4 - -
Reduction in prior service cost due to remeasurement......... (1) - - -
Actuarial (gain)/loss........................................ (21) 24 - 4
Benefits paid................................................ (27) (19) (4) (4)
Special termination benefits................................. 7 - - -
Effect of foreign currency changes........................... - (1) - -
----- ----- --- ---
Benefit obligation at end of year............................ 247 267 77 73
Change in plan assets
Fair value of assets at beginning of year.................... 307 278 - -
Actual return on plan assets................................. 36 53 - -
Employee contribution........................................ - - - -
Employer contribution........................................ 8 1 4 4
Benefits paid................................................ (27) (24) (4) (4)
Effect of foreign currency changes........................... - (1) - -
----- ----- --- ---
Fair value of plan assets at end of year..................... 324 307 0 0
Funded (unfunded) status..................................... 77 40 (77) (73)
Unrecognized transition obligation/(asset)................... (2) (4) 7 9
Unrecognized prior service cost.............................. (14) (4) 2 1
Unrecognized (gain)/loss..................................... (54) (19) (7) (6)
----- ----- --- ---
Prepaid/(accrued) benefit cost............................... $ 7 $ 13 $ (75) $ (69)
----- ----- --- ---
----- ----- --- ---
Amount recognized in the balance sheets consists of:
Prepaid benefit cost......................................... 25 26 - -
Accrued benefit liability.................................... (18) (14) (75) (69)
Accumulated other comprehensive income....................... - 1 - -
----- ----- --- ---
Net amount recognized........................................ $ 7 $ 13 $ (75) $ (69)
----- ----- --- ---
----- ----- --- ---
Weighted-average assumptions as of June 30:
Discount rate................................................ 6% to 7.75% 5.5% to 7.5% 7.75% 7%
Rate of compensation increase................................ 3% to 7% 0% to 7% N/A N/A
Expected return on plan assets............................... 7% to 9.5% 7% to 9.5% N/A N/A
</TABLE>
B-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
18. EMPLOYEE BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
RETIREMENT RETIREMENT
INCOME PLANS HEALTH CARE
---------------- ----------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit
cost
Service cost..................... $ 12 $ 10 $ 9 $ 3 $ 3 $ 3
Employee contributions........... - - - - - -
Interest cost.................... 19 18 17 5 5 4
Expected return on plan assets... (26) (23) (21) - - -
Amortization of unrecognized
items
Transition
obligation/(asset)........... (2) (2) (2) 1 1 1
Prior service cost............. - (1) (1) - - -
Net (gain)/loss................ 3 - 1 - (1) (1)
Termination benefits and
curtailment losses............. 1 (1) 1 1 - 2
---- ---- ---- ---- ---- ----
Total net periodic benefit
cost........................... 7 1 4 10 8 9
Termination benefits related to
First Brands merger............ 6 - - - - -
---- ---- ---- ---- ---- ----
Total expense.................... $ 13 $ 1 $ 4 $ 10 $ 8 $ 9
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
</TABLE>
The expenses of employee termination related to the First Brands merger were
charged to merger, integration, restructuring and asset impairment costs. The
Company has defined contribution plans for most of its domestic employees not
covered by collective bargaining agreements. Cost is based on the Company's
profitability and on participants' deferrals. The aggregate cost of the defined
contribution and multi-employer pension plans was $21 in 1999, $26 in 1998 and
$24 in 1997.
19. INDUSTRY SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," in 1999 and information regarding the Company's
operating segments is shown below. Each segment is individually managed with
separate operating results that are reviewed regularly by the chief operating
decision maker. The operating segments include:
- U.S. Home Care and Cleaning: Includes cleaning, bleach and other home care
products, and professional products.
- U.S. Specialty Products: Includes charcoal, automotive care, cat litter
and insecticide categories.
- U.S. Food, Food Preparation and Storage: Includes dressings, sauces, water
filtration, food storage and disposal products.
- International Operations: Includes operations outside the United States.
- Corporate, Interest and Other: Includes certain non-allocated
administrative costs, goodwill amortization, interest income, interest
expense, merger, integration, restructuring and asset impairment costs,
and other income and expense. Corporate assets include cash, marketable
securities, the Company's headquarters and research and development
facilities.
B-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
19. INDUSTRY SEGMENT INFORMATION (CONTINUED)
The following table represents operating segment information:
<TABLE>
<CAPTION>
U.S.
------------------------------------- CORPORATE,
HOME FOOD, FOOD INTEREST
FISCAL CARE AND SPECIALTY PREPARATION INTERNATIONAL AND TOTAL
YEAR CLEANING PRODUCTS AND STORAGE OPERATIONS OTHER COMPANY
----------- ----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales........................... 1999 $ 1,298 $ 905 $ 1,062 $ 738 - $ 4,003
1998 1,220 908 1,012 758 - 3,898
1997 1,168 839 1,002 614 - 3,623
Earnings before Tax................. 1999 414 218 256 73 $ (531) 430
1998 362 220 226 111 (363) 556
1997 338 203 220 81 (343) 499
Identifiable Assets................. 1999 1,066 525 913 1,020 608 4,132
1998 1,056 502 726 1,071 710 4,065
1997 1,008 476 649 984 682 3,799
Capital Spending.................... 1999 52 24 43 28 29 176
1998 26 24 81 33 26 190
1997 20 21 56 39 25 161
Depreciation and Amortization....... 1999 39 28 41 43 51 202
1998 40 27 35 41 39 182
1997 45 22 32 31 38 168
Interest Expense.................... 1999 - - - - 97 97
1998 - - - - 104 104
1997 - - - - 80 80
</TABLE>
Sales to the Company's largest customer, Wal-Mart Stores, Inc. and its
affiliates, were 18%, 15% and 14% of consolidated net sales in 1999, 1998 and
1997, respectively.
20. CONTINGENT LIABILITIES
The Company is subject to various lawsuits and claims, which include contract
disputes, environmental issues, product liability, patent and trademark matters,
advertising and taxes. Although the results of litigation cannot be predicted
with certainty, it is the opinion of management, after consultation with
counsel, that the ultimate disposition of these matters, to the extent not
previously provided for, will not have a material adverse effect, individually
or in the aggregate, on the Company's financial position, results of operations
or liquidity. It is possible that the Company's cash flows and results of
operations in particular quarterly and annual periods could be affected by the
one-time impacts of the resolution of the above contingencies.
B-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE CLOROX COMPANY
(MILLIONS OF DOLLARS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
21. EARNINGS PER SHARE
A reconciliation of the weighted average number of shares outstanding (in
thousands) used to calculate basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Basic........................................................ 235,364 234,666 235,042
Stock options and other...................................... 4,638 4,874 4,304
--------- --------- ---------
Diluted...................................................... 240,002 239,540 239,346
--------- --------- ---------
--------- --------- ---------
</TABLE>
B-30
<PAGE>
RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
The Company's management is responsible for the integrity and objectivity of the
above financial statements. In fulfilling this responsibility, management
maintains an effective system of internal accounting controls and supports a
comprehensive internal audit program.
The Board of Directors has an Audit Committee consisting of independent
directors. The Audit Committee meets regularly with management, internal
auditors and Deloitte & Touche LLP, independent auditors. Deloitte & Touche LLP
and the internal auditors have full authority to meet with the Audit Committee,
either with or without management representatives present.
Deloitte & Touche LLP have completed their audit of the accompanying
consolidated financial statements. Their report appears below.
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of The Clorox Company:
We have audited the accompanying consolidated balance sheets of The Clorox
Company and its subsidiaries (the "Company") as of June 30, 1999 and 1998, and
the related statements of consolidated earnings, consolidated stockholders'
equity and consolidated cash flows for the years ended June 30, 1999, 1998 and
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements give
retroactive effect to the merger of the Company and First Brands Corporation,
which has been accounted for as a pooling of interests as described in Note 1 to
the consolidated financial statements. We did not audit the balance sheet of
First Brands Corporation as of June 30, 1998, or the related statements of
earnings, stockholders' equity and cash flows of First Brands Corporation for
the years ended June 30, 1998 and 1997, which statements reflect total assets of
$1,060,201,000 as of June 30, 1998, and total revenues of $1,203,670,000 and
$1,119,898,000 for the years ended June 30, 1998 and 1997, respectively. These
statements were audited by other auditors whose report (which as to 1998
contains an explanatory paragraph as to the change in accounting principle
described in Note 3 to the consolidated financial statements) has been furnished
to us, and our opinion, insofar as it relates to the amounts included for First
Brands Corporation for 1998 and 1997, is based solely on the report of such
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company at June 30, 1999 and
1998, and the consolidated results of its operations and its cash flows for the
years ended June 30, 1999, 1998, and 1997 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Oakland, California
August 23, 1999
B-31
<PAGE>
QUARTERLY DATA
THE CLOROX COMPANY
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER(2) QUARTER(2) YEAR
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
<CAPTION>
IN MILLIONS, EXCEPT PER-SHARE AMOUNTS.
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1999
Net Sales................... $ 964 $ 947 $ 992 $1,100 $4,003
Cost of Products Sold....... 458 459 473 542 1,932
Net Earnings................ 100 74 22 50 246
Per Common Share(1)
Net Earnings
Basic..................... $0.42 $0.32 $0.09 $ 0.21 $ 1.05
Diluted................... 0.42 0.31 0.09 0.21 1.03
Dividends................... 0.17 0.18 0.18 0.18 0.71
Market Price (NYSE)
High...................... 55 15/16 58 11/16 66 15/32 62 7/8 66 15/32
Low....................... 39 11/16 40 53 29/32 46 1/4 39 11/16
Year-end.................. 53 13/32
Year ended June 30, 1998
Net Sales................... $ 914 $ 888 $ 967 $1,129 $3,898
Cost of Products Sold....... 445 435 461 548 1,889
Net Earnings................ 86 56 92 109 343
Per Common Share(1)
Net Earnings
Basic..................... $0.37 $0.24 $0.39 $ 0.46 $ 1.46
Diluted................... 0.36 0.23 0.38 0.46 1.43
Dividends................... 0.15 0.16 0.16 0.16 0.63
Market Price (NYSE)
High...................... 37 3/16 40 1/16 44 31/32 48 5/16 48 5/16
Low....................... 31 32 7/16 37 3/16 39 9/16 31
Year-end.................. 47 13/16
</TABLE>
- ---------
(1) Reflects 2-for-1 stock split effective August 23, 1999.
(2) Net earnings for the third and fourth quarters of fiscal 1999 include the
effect of significant merger, integration, restructuring and asset
impairment costs.
B-32
<PAGE>
FIVE-YEAR FINANCIAL SUMMARY
THE CLOROX COMPANY
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
<CAPTION>
(IN MILLIONS, EXCEPT SHARE AND PER-SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales.................................... $ 4,003 $ 3,898 $ 3,623 $ 3,265 $ 2,996
--------- --------- --------- --------- ---------
Percent change............................... 2.7 7.6 11.0 9.0 3.4
--------- --------- --------- --------- ---------
Cost of products sold........................ 1,932 1,889 1,767 1,631 1,478
Operating expenses........................... 1,340 1,336 1,254 1,079 1,027
Other........................................ 121 114 84 76 78
Merger and integration, restructuring and
asset impairment........................... 180 3 19 - -
--------- --------- --------- --------- ---------
Total costs and expenses..................... 3,573 3,342 3,124 2,786 2,583
--------- --------- --------- --------- ---------
Earnings before income taxes, extraordinary
loss and cumulative effect of change in
accounting principle....................... 430 556 499 479 413
Income taxes................................. 184 206 199 192 169
--------- --------- --------- --------- ---------
Earnings before extraordinary loss and
cumulative effect of change in accounting
principle.................................. 246 350 300 287 244
Extraordinary loss relating to the repurchase
of subordinated debt, net of taxes......... - - - - (4)
Cumulative effect of change in accounting
principle.................................. - (7) - - -
--------- --------- --------- --------- ---------
Net earnings................................. $ 246 $ 343 $ 300 $ 287 240
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Percent change................................. (28.3) 14.3 4.5 19.6 (11.8)
COMMON STOCK
Weighted average shares outstanding (in
thousands)(1)
Basic...................................... 235,364 234,666 235,042 236,818 241,886
Diluted.................................... 240,002 239,540 239,346 239,746 244,124
Net earnings
Basic...................................... $ 1.05 $ 1.46 $ 1.27 $ 1.21 $ 0.99
Diluted.................................... 1.03 1.43 1.25 1.20 0.98
Dividends.................................... 0.71 0.63 0.56 0.51 0.45
Stockholders' equity at end of year.......... 6.67 6.32 6.10 5.74 5.41
OTHER DATA
Property, plant and equipment-net............ 1,054 1,016 948 871 816
Property additions........................... 176 190 161 137 123
Long-term debt............................... 702 704 946 556 419
Percent return on net sales.................. 6.1 8.8 8.3 8.8 8.0
Total assets................................. 4,132 4,065 3,799 3,017 2,717
Stockholders' equity......................... 1,570 1,473 1,430 1,349 1,296
Percent return on average stockholders'
equity..................................... 16.1 23.9 21.7 21.9 18.8
</TABLE>
- ---------
(1) Reflects 2-for-1 stock split effective August 23, 1999.
B-33
<PAGE>
Recycle Logo
Printed on Recycled Paper
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE CLOROX COMPANY
The undersigned, whose signature appears on the reverse, hereby appoints G. C.
SULLIVAN, P. D. BEWLEY and K. M. ROSE, and each of them, proxies with full
power of substitution for and in the name of the undersigned to vote all the
shares of Common Stock of The Clorox Company which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Stockholders
to be held on November 17, 1999, and at any and all adjournments thereof, on
all matters that may properly come before the meeting.
Your shares will be voted as directed on this card. If signed and no
direction is given for any item, it will be voted in favor of Items 1, 2 and 3.
To vote by telephone or Internet, please see the reverse of this card. To
vote by mail, please sign and date this card on the reverse, tear off at the
perforation, and mail promptly in the enclosed postage-paid envelope.
If you have any comments or a change of address, mark the appropriate box on
---------------------------
the reverse side and use the following space:
- ----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. BY RETURNING YOUR VOTING INSTRUCTIONS PROMPTLY, YOU CAN
AVOID THE INCONVENIENCE OF RECEIVING FOLLOW-UP MAILINGS PLUS HELP
THE COMPANY AVOID ADDITIONAL EXPENSES.
- --------------------------------------------------------------------------------
DETACH PROXY CARD HERE IF YOU ARE VOTING BY MAIL AND RETURN IN ENCLOSED ENVELOPE
CLOROX HAS EXPANDED THE SERVICES AVAILABLE ON OUR SHAREHOLDER DIRECT LINE.
Call 1-888-CLX-NYSE (1-888-259-6973) to access our expanded Clorox
Shareholder Direct Services. Use the menu below to navigate through the
options available to you:
Press 1 Delayed Stock Quote
Press 2 Dividend/Earnings Information
Press 3 News Releases
Press 4 Printed Materials Requests
Press 1 to request faxed press releases
Press 2 to request a mailed copy of available printed materials
Press 5 Shareholder Services
Press 1 to reach our transfer agent
Press 2 to reach Clorox Investor Relations
Press 6 Frequently Asked Questions
Log onto our web site at http://www.clorox.com/investors to view many of
these same items online or to request mailed materials. You can even sign up
for our news by email service.
[LOGO]
- --------------------------------------------------------------------------------
<PAGE>
/X/ PLEASE MARK 0129
CHOICES IN BLUE OR
BLACK INK AS IN
THIS SAMPLE.
The Board of Directors unanimously recommends a vote FOR the election
of the nominees for director and FOR proposals 2 and 3.
<TABLE>
<S> <C> <C> <C> <C>
FOR WITHHELD
Nominees
- -------- 1. Election of Directors / / / /
01 Daniel Boggan, Jr. 05 Tully M. Friedman 09 Klaus Morwind (See list to the left.)
02 Elaine L. Chao 06 Juergen Manchot 10 Edward L. Scharff
03 John W. Collins 07 Robert W. Matschullat 11 Lary R. Scott
04 Ursula Fairchild 08 Dean O. Morton 12 G. Craig Sullivan For, except vote withheld
13 C. A. (Al) Wolfe from the following
nominee(s):
----------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to approve an / / / / / /
amendment of The Clorox
Company's Certificate of
Incorporation to increase
the number of shares of
authorized Common Stock
of The Clorox Company.
3. Proposal to ratify the / / / / / /
selection of Deloitte
& Touche LLP, certified
public accountants, for
the fiscal year ending
June 30, 2000.
Check this box if you have / /
comments or a change of
address and use the back of
this card.
Check this box if you wish / /
to attend and vote at the
meeting.
</TABLE>
SIGNATURE(S) DATE
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NOTE: Your signature should conform with your name as printed above. If signing
as attorney, executor, administrator, trustee or guardian, please give your full
title. If stock is owned by a partnership or corporation, please indicate your
capacity in signing the proxy. If stock is held in joint partnership, all
co-owners must sign. Please sign, date and return promptly.
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DETACH PROXY CARD HERE IF YOU ARE VOTING BY MAIL AND RETURN IN ENCLOSED ENVELOPE
THE CLOROX COMPANY--ANNUAL MEETING--NOVEMBER 17, 1999 [LOGO]
CLOROX OFFERS PHONE OR INTERNET VOTING
24 hours a day, 7 days a week
ON A TOUCH-TONE PHONE, CALL TOLL-FREE 1-877-779-8683 (OUTSIDE THE US,
CANADA, PUERTO RICO AND THE US VIRGIN ISLANDS, CALL 201-536-8073). YOU WILL
HEAR THESE INSTRUCTIONS:
- - Enter the last four digits from your social security number.
- - Enter the control number from the box above, just below the perforation.
- - You will then have two options:
OPTION 1: To vote as the Board of Directors recommends on all three
proposals; or
OPTION 2: To vote on each proposal separately.
- - Your vote will be repeated to you and you will be asked to confirm it.
LOG ONTO THE INTERNET AND TYPE: http://www.eproxyvote.com/clx
- - Have your proxy card ready and follow the instructions.
- - You will be able to elect to receive future mailings via the Internet.
Your electronic vote authorizes the proxies named on the reverse of this card to
vote your shares to the same extent as if you marked, signed, dated and returned
the proxy card.
IF YOU HAVE VOTED BY PHONE OR INTERNET, PLEASE DO NOT RETURN THE PROXY CARD.
THANK YOU FOR VOTING!
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