EXHIBIT 13
(to Form 10-K)
SECTIONS OF ANNUAL REPORT INCORPORATED BY REFERENCE
Management's Discussion and Analysis
The Clorox Company
Results of Operations
- ---------------------------
The Company's continuing operations again achieved record unit
volume in 1994, following record years in 1993 and 1992. The
increase in unit volume was principally due to the S.O.S
acquisition, the consolidation of an Argentine subsidiary in
which the Company increased its interest to 90 percent in June
1993, and the introduction of new products including Liquid-Plumr
build-up remover, Clorox Stain-Out soil and stain remover,
Clorox toilet bowl cleaners, Tilex soap scum remover, and Hidden
Valley Ranch kids' dressings. Also contributing to volume growth
were record shipments for Clorox liquid bleach, Pine-Sol cleaners,
and the Kingsford line of charcoal briquets.
Net sales increased 12 percent in 1994, following increases of
6 percent in 1993, and 5 percent in 1992. This year's growth
was primarily driven by volume increases from the acquisitions
and new product introductions described above. Price increases
on a few established brands were offset by a price decrease on
Pine-Sol cleaner and increased incentive trade promotions.
Cost of products sold as a percentage of net sales was 45
percent in 1994, and 44 percent in both 1993 and 1992.
Research and Development (R&D) expense increased 5 percent
over 1993 and 1992, but remained relatively constant as a
percent of net sales in 1994, while achieving a second
consecutive record year of new product introductions. In
1993, the R&D function began to implement several productivity
improvements to bring products to market faster and at lower
overall costs. These efficiencies were realized in 1994 and
the Company aims to continue to shorten development times
and further improve cost efficiency, while maintaining a
high level of new product activity in 1995.
Selling, delivery and administration (SD&A) expenses were up
10 percent over 1993 but decreased slightly as a percent of net
sales. Without the S.O.S and Argentine acquisitions, SD&A was
approximately one percentage point lower as a percent of net
sales (19 percent), versus 1993 and 1992. This cost reduction
is a reflection of several significant cost savings projects
including broker and advertising agency consolidations, the
initiation of a new logistics strategy, and improved budgetary
controls, all of which occurred or were initiated in 1994.
The Company will continue to focus on improving its cost
structure during 1995.
Total marketing spending, comprising trade promotions,
consumer promotions and advertising, increased versus 1993
levels. Advertising expense alone increased 18 percent
versus 1993 principally as a result of the Company's new
product introductions and line extensions in late 1993 and
during 1994. In spite of an overall increase in marketing
spending in 1993, advertising expense in 1993 decreased 8
percent from the 1992 level, reflecting a shift toward
trade promotions during 1993.
Interest expense, the majority of which relates to long-term
debt, was level with 1993. Interest expense related to
commercial paper borrowings to finance seasonal working
capital needs also was in line with 1993. Interest expense
is down significantly compared with 1992 principally due to
strong cash flows, which reduced the need for commercial
paper borrowings, and to lower interest rates.
The Company's effective tax rates were 41.3 percent,
39.0 percent, and 40.9 percent in 1994, 1993, and 1992,
respectively. The higher rate in 1994 was principally due
to a 1 percent increase in the statutory federal tax rate,
and the retroactive effect of that increase which was
reflected in 1994 earnings. The statutory rate increase
had the effect of reducing earnings per share from
continuing operations by $.11. The lower rate in 1993
versus 1992 primarily resulted from the favorable resolution
of tax liabilities in prior years.
Earnings per share from continuing operations in 1994
increased $.28 from 1993, a 9 percent increase which
was driven principally by the volume growth described
above and shares purchased in 1994 under the Company's
share repurchase program. Earnings per share in 1994
increased $.89 from 1993, which was in turn up $1.23 from
1992, the year which included a $.35 per share charge from
adopting the accounting standard for postretirement
health-care benefits. In early 1994, the Company sold its
bottled water and frozen foods businesses. Earnings per
share in 1994 include $.59 relating primarily to the gain
on the sale of these discontinued operations.
The Company adopted Statement of Financial Accounting
Standards No. 112 in 1994, and included the cumulative
expense, which was not material, in operations. This
statement requires the accrual of benefits provided by
the Company to former or inactive employees after
employment, but before retirement.
[GRAPHIC - BAR CHART - FILED UNDER COVER OF FORM SE]
18
Financial Position and Liquidity
- ------------------------------------
Cash flow from 1994 continuing operations was a record
$298,440,000 and resulted from record earnings supported
by a relatively modest increase in working capital. The
modest increase in working capital relative to the growth
of the business was largely due to management's focus on
the efficient utilization of working capital items, driven
by the Clorox Value Measure (CVM) economic value
measurement system that was implemented this year. The graph
on page 18 shows that CVM was on an upward trend during
the last two years. Favorable working capital changes
were moderated by the acceleration of income tax payments
due to the 1993 tax law changes. In 1993, cash provided by
operations was down from 1992 principally due to adverse
changes in working capital, primarily accounts receivable
and accounts payable.
Proceeds from the sale of discontinued operations generated
cash of $159,293,000 in 1994. The strong cash flows from
continuing operations and the sale of discontinued operations
enabled the Company's cash position at June 30, 1994 to
increase approximately $45,000,000 from a year ago to
approximately $116,000,000.
Dividends paid during 1994 amounted to $97,095,000, or
$1.80 per share. In July 1994, the Company announced a 6.7
percent increase in the quarterly dividend to $.48 per share
from $.45 per share, for a new annual rate of $1.92.
At June 30, 1994, the Company had a $200,000,000 credit
agreement with a syndication of banks which was renewed in
August 1994, and now expires in August 1995. Management
believes that the Company has access to additional bank
credit and the public debt markets should the need arise.
Commercial paper and other short-term borrowings and
long-term debt at year-end increased slightly from 1993
year-end.
On January 31, 1994, the Company purchased the S.O.S products
business for $116,488,000. The effect of this acquisition
was not dilutive to earnings in 1994. Also, during 1994,
the Company made additional foreign investments of
$25,949,000. During 1993, the Company had acquired a controlling
interest in its joint venture in Argentina that previously
had been accounted for on the equity basis and as of June 30,
1993 was consolidated.
Capital expenditures were $56,627,000, $77,637,000, and
$124,742,000 in 1994, 1993, and 1992, respectively.
Spending generally has been for expanded capacity,
process improvements, and environmental programs and
initiatives. Capital spending has declined significantly from
1992 as that year included the majority of the Company's
spending on its most recently built domestic facility, a bleach
plant in Aberdeen, Maryland.
In each of 1994, 1993, and 1992, cash flow from operations
has exceeded cash needs for capital expenditures, dividends,
and scheduled debt service, and is expected to do so again in
1995.
In 1989, the Company commenced a program to repurchase up to
5 million shares of its outstanding stock through periodic
open market and block transactions. These shares are and will
be held in the Company's treasury and reissued for corporate
uses. Through June 30, 1994, the Company had repurchased
3,674,515 shares, of which 1,883,000 shares at a cost of
$99,910,000 were acquired during 1994.
In order to manage the impact of interest rate movements on
interest expense and interest income, the Company has approved
the use of interest rate derivative instruments, such as
interest rate swaps. These instruments have the effect of
converting fixed rate interest to floating, or floating to
fixed. The conditions under which derivatives can be used
are set forth in a Company Policy Statement, and include a
restriction on the amount of such activity to a designated
portion of existing debt, a limit on the term of any
derivative transaction, and a specific prohibition on the
use of any leveraged derivatives.
Although not material, in 1994 the Company hedged its
exposure to certain foreign currency denominated supply
contracts and accounts receivable with foreign currency
contracts.
The Company is committed to an ongoing program of comprehensive,
long-term environmental assessment of its facilities.
This program is implemented by the CompanyUs Department of
Health, Safety and Environment, with guidance from the
Company's 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. Although
not material, at June 30, 1994 and 1993, the Company accrued
for the probable future costs of environmental liabilities
without offsetting for expected insurance recoveries or
discounting for present value.
[GRAPHIC - BAR CHART - FILED UNDER COVER OF FORM SE]
19
Statements of Consolidated Earnings
The Clorox Company
Years ended June 30 94 93 92
- ------------------------------------------------------------------------------------------------------
In thousands, except per-share amounts.
Net Sales $1,836,949 $1,634,171 $1,547,057
-------------------------------------------
Costs and Expenses
Cost of products sold 820,434 724,753 678,504
Selling, delivery and administration 359,360 328,088 307,436
Advertising 286,666 242,528 262,586
Research and development 44,558 42,445 42,052
Interest expense 18,424 18,856 24,627
Other expense (income), net 874 2,316 (7,245)
-------------------------------------------
Total costs and expenses 1,530,316 1,358,986 1,307,960
-------------------------------------------
Earnings Before Income Taxes 306,633 275,185 239,097
Income Taxes 126,640 107,267 97,903
-------------------------------------------
Earnings from Continuing Operations 179,993 167,918 141,194
Earnings (losses) from Discontinued Operations 32,064 (867) (23,429)
-------------------------------------------
Earnings Before Cumulative Effect of
Accounting Change 212,057 167,051 117,765
Cumulative Effect of Accounting Change (Note 1) - - (19,061)
-------------------------------------------
Net Earnings $ 212,057 $ 167,051 $ 98,704
===========================================
Earnings (losses) per Common Share
Continuing operations $ 3.35 $ 3.07 $ 2.60
Discontinued operations 0.59 (0.02) (0.43)
-------------------------------------------
Earnings before cumulative effect of
accounting change 3.94 3.05 2.17
Cumulative effect of accounting change - - (0.35)
-------------------------------------------
Net Earnings $ 3.94 $ 3.05 $ 1.82
===========================================
Weighted Average Shares Outstanding 53,800 54,698 54,366
===========================================
See Notes to Consolidated Financial Statements.
20
- --
Consolidated Balance Sheets
The Clorox Company
Years ended June 30 94 93
- -----------------------------------------------------------------------------------------------
In thousands, except share amounts.
Assets
Current Assets
Cash and short-term investments $ 115,922 $ 71,164
Accounts receivable, less allowance 249,843 226,675
Inventories 105,948 105,890
Deferred income taxes 18,548 19,360
Prepaid expenses 14,014 16,369
Net assets of discontinued operations (Note 2) - 92,320
----------------------------
Total current assets 504,275 531,778
----------------------------
Property, Plant and Equipment - Net 532,600 538,101
----------------------------
Brands, Trademarks, Patents and Other Intangibles - Net 520,042 463,941
----------------------------
Investments in Affiliates 83,368 68,179
----------------------------
Other Assets 57,284 47,231
----------------------------
Total $ 1,697,569 $ 1,649,230
============================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 97,728 $ 84,243
Accrued liabilities 227,197 226,775
Income taxes payable 7,599 20,585
Commercial paper 42,916 39,486
Current maturities of long-term debt 392 481
----------------------------
Total current liabilities 375,832 371,570
----------------------------
Long-term Debt 216,088 204,000
----------------------------
Other Obligations 63,187 50,663
----------------------------
Deferred Income Taxes 133,045 143,703
----------------------------
Stockholders' Equity
Common stock - authorized, 175,000,000 shares,
$1 par value; issued: 55,422,297 shares 55,422 55,422
Additional paid-in capital 106,554 105,483
Retained earnings 876,832 762,162
Treasury shares, at cost: 1994, 2,050,041 shares;
1993, 572,155 shares (107,146) (23,357)
Cumulative translation adjustments (22,245) (20,416)
----------------------------
Stockholders' equity 909,417 879,294
----------------------------
Total $ 1,697,569 $ 1,649,230
============================
See Notes to Consolidated Financial Statements.
21
- --
Statements of Consolidated Stockholders' Equity
The Clorox Company
Common Stock Additional Treasury Shares Cumulative
--------------------- Paid-in Retained ------------------- Translation
Shares Amount Capital Earnings Shares Amount Adjustments
- ------------------------------------------------------------------------------------------------------------------------
In thousands, except share and per-share amounts.
Balance, June 30, 1991 55,422,297 $ 55,422 $104,359 $ 681,479 (1,226,395) $(47,936) $ (9,048)
Net earnings 98,704
Dividends ($1.59 per share) (86,408)
Employee stock plans and other 890 (3,757) 349,191 12,911
Translation adjustments 7,125
-----------------------------------------------------------------------------------------
Balance, June 30, 1992 55,422,297 55,422 105,249 690,018 (877,204) (35,025) (1,923)
Net earnings 167,051
Dividends ($1.71 per share) (93,509)
Employee stock plans and other 234 (1,398) 305,049 11,668
Translation adjustments (18,493)
----------------------------------------------------------------------------------------
Balance, June 30, 1993 55,422,297 55,422 105,483 762,162 (572,155) (23,357) (20,416)
Net earnings 212,057
Dividends ($1.80 per share) (97,095)
Employee stock plans and other 1,071 (292) 405,414 16,121
Treasury shares acquired (1,883,300) (99,910)
Translation adjustments (1,829)
----------------------------------------------------------------------------------------
Balance, June 30, 1994 55,422,297 $ 55,422 $106,554 $ 876,832 (2,050,041) $(107,146) $(22,245)
See Notes to Consolidated Financial Statements.
22
- --
Statements of Consolidated Cash Flows
The Clorox Company
Years ended June 30 94 93 92
- ------------------------------------------------------------------------------------------------------------------
In thousands.
Operations:
Earnings from continuing operations $ 179,993 $ 167,918 $ 141,194
Adjustments to reconcile to net cash provided by
continuing operations:
Depreciation and amortization 94,120 83,607 76,507
Deferred income taxes 15,985 32,378 13,330
Other 25,985 9,412 6,849
Effects of changes in:
Accounts receivable (18,299) (36,266) 11,866
Inventories 5,691 (7,892) 183
Prepaid expenses 2,355 (2,850) 4,983
Accounts payable 13,485 (18,071) (5,399)
Accrued liabilities (8,134) 2,849 21,772
Income taxes payable (12,741) 3,498 6,010
------------------------------------------
Net cash provided by continuing operations 298,440 234,583 277,295
Net cash (used for) provided by discontinued operations (31,658) 10,877 29,398
------------------------------------------
Net cash provided by operations 266,782 245,460 306,693
------------------------------------------
Investing Activities:
Property, plant and equipment (56,627) (77,637) (124,742)
Net proceeds from sales of businesses 159,293 15,000 709
Businesses purchased (142,437) (31,547) (802)
Disposal of property, plant and equipment 11,264 3,759 1,580
Other (22,046) (24,938) (15,897)
------------------------------------------
Net cash used for investment (50,553) (115,363) (139,152)
------------------------------------------
Financing Activities:
Long-term borrowings 13,000 299 199,532
Long-term debt repayments (741) (1,236) (1,203)
Short-term borrowings (repayments), net 3,430 (42,469) (333,035)
Cash dividends (97,095) (93,509) (86,408)
Treasury shares acquired (99,910) - -
Employee stock plans 9,845 8,958 8,735
------------------------------------------
Net cash used for financing (171,471) (127,957) (212,379)
------------------------------------------
Net increase (decrease) in cash and short-term investments 44,758 2,140 (44,838)
Cash and short-term investments:
Beginning of year 71,164 69,024 113,862
------------------------------------------
End of year $ 115,922 $ 71,164 $ 69,024
===========================================
Cash Paid for:
Interest (net of amounts capitalized) $ 18,267 $ 18,616 $ 18,019
Income taxes 128,210 61,052 73,709
Noncash Transactions:
Liabilities arising from business purchased $ 7,200 $ - $ -
See Notes to Consolidated Financial Statements.
23
- --
Notes to Consolidated Financial Statements
The Clorox Company
1
Significant Accounting Policies
- ----------------------------------
Principles of Consolidation
The Company is principally engaged in the production and
marketing of nondurable consumer products to grocery stores
and other retail outlets. The consolidated financial statements
include the statements of the Company and its majority-owned
subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.
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 inventories is determined on the last-in,
first-out (LIFO) method. Cost for the remainder of the
inventories is determined generally on the first-in,
first-out (FIFO) method.
Brands, Trademarks, Patents
and Other Intangibles
Brands, trademarks, patents and other intangible assets
arising from transactions after October 31, 1970 are
amortized over their estimated useful lives up to a
maximum of 40 years. Carrying values are reviewed
periodically and a determination of impairment is
based on estimates of future cash flows, undiscounted
and without interest charges.
Investments in Affiliates
The Company holds minority investments in foreign entities
which are accounted for under the equity method. The most
significant investment is a 20 percent equity ownership in
Henkel Iberica, S.A. of Spain.
Income Taxes
The Company uses the liability method to account for
income taxes, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes".
Foreign Currency Translation
Foreign currency 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 are
reported primarily in stockholders' equity and are excluded
from net earnings.
Earnings per Common Share
Earnings per common share are computed by dividing net earnings
by the weighted average number of common shares outstanding
during the year. The potential dilution from the exercise of
stock options is not material.
Major Customer
Sales to the Company's largest customer, Wal-Mart Stores, Inc.
and affiliates, were 12% of consolidated net sales in 1994.
Accounting Changes
In 1992, the Company adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions". In adopting
SFAS No. 106, the Company elected to fully recognize
the accumulated postretirement benefit obligation as of July 1,
1991 (see Note 13). The cumulative effect of adoption
resulted in a charge to 1992 earnings of $19,061,000
($.35 per share), net of $11,832,000 tax benefit.
2
Discontinued Operations
- -------------------------
The Company sold its bottled water and frozen foods businesses
during the first quarter of 1994 for $159,293,000. The sale of
these businesses resulted in a net gain of $31,430,000. In June
1993, the Company sold its Prince Castle business which did
not result in a material gain or loss.
Results of discontinued operations are classified separately
in the Statements of Consolidated Earnings and include
(in thousands):
1994 1993 1992
- ---------------------------------------------------------------------------------------------------
Net sales $ 18,700 $ 173,291 $ 169,982
======================================
Earnings (losses) from operations
before income taxes $ 1,043 $ (1,437) $ (28,225)
Income tax (expense) benefit (409) 570 4,796
Net earnings (losses) from
discontinued operations 634 (867) (23,429)
--------------------------------------
Gain on sale of businesses 42,177 - -
Income taxes 10,747 - -
--------------------------------------
Net gain on sale of businesses 31,430 - -
--------------------------------------
Earnings (losses) from
discontinued operations $ 32,064 $ (867) $ (23,429)
The 1992 loss from operations includes the revaluation of certain
intangibles of the bottled water business based upon discounted
cash flows from future operations. The net assets of the
discontinued operations are segregated in the June 30, 1993
consolidated balance sheet and are comprised of the following
(in thousands):
1993
- -----------------------------------------------------------
Assets $ 105,678
Liabilities 13,358
- -----------------------------------------------------------
Net assets $ 92,320
===========
Assets consist primarily of accounts receivable, inventories,
24
- ---
property, plant and equipment and intangibles. Liabilities
consisted primarily of accounts payable and accrued
liabilities.
3
Acquisitions
- --------------
On January 31, 1994, the Company acquired and accounted for as
a purchase, the S.O.S products business of Miles Inc. The
acquisition cost of $116,488,000 included the S.O.S brand
of steel wool soap pads and other cleaning products in the
United States and Canada, manufacturing facilities, and
certain items of working capital. Approximately $98,850,000
of the purchase price has been allocated to brands and
trademarks to be amortized over 40 years. The purchase
included at fair value current assets of $9,200,000,
property, plant and equipment of $15,600,000, and the
assumption of current liabilities of $5,300,000 and a
postretirement health-care liability of $1,900,000. The
acquisition was funded from cash and short term borrowings.
Results of operations after the acquisition date are included
in the 1994 Statement of Consolidated Earnings. The following
pro forma information has been prepared assuming that this
acquisition had taken place at the beginning of the respective
periods. The pro forma information includes adjustments for
interest expense that would have been incurred to finance the
purchase, additional depreciation based on the fair market
value of the property, plant, and equipment acquired, and the
amortization of intangibles arising from the transaction. The
pro forma financial information is not necessarily indicative
of the results of operations as they would have been had the
transactions been effected on the assumed dates.
Year ended June 30 1994 1993
- ---------------------------------------------------------------
In thousands, except per share
amounts (unaudited)
Net sales $ 1,884,362 $ 1,722,845
Earnings from continuing
operations $ 177,070 $ 169,991
Net earnings $ 209,134 $ 169,124
Earnings per common share
from Continuing operations $ 3.29 $ 3.11
Net earnings per common share $ 3.89 $ 3.09
In addition, 1994 acquisitions included various foreign
investments of $25,949,000. During 1993, the Company purchased
an additional 39 percent interest in its joint venture in
Argentina bringing total ownership to 90 percent. This
investment had been accounted for on the equity method and
as of June 30, 1993 was consolidated.
4
Inventories
- ----------------
The major classes are (in thousands):
1994 1993
- --------------------------------------------------------------
Finished goods and work in process $ 69,280 $ 64,162
Raw materials and supplies 36,668 41,728
---------------------
Total $ 105,948 $ 105,890
=====================
Had the cost of inventories been determined using the FIFO
method, inventories would have been higher by approximately
$14,843,000 at June 30, 1994 and $14,735,000 at June 30, 1993.
The LIFO method was used to value 85 percent of the inventory
at June 30, 1994 and 88 percent at June 30, 1993.
5
Property, Plant and Equipment
- ---------------------------------
The major classes are (in thousands):
1994 1993
-------------------------
Land and improvements $ 59,005 $ 57,594
Buildings 261,964 262,198
Machinery and equipment 495,903 443,157
Construction in progress 33,650 51,304
--------------------------
Total 850,522 814,253
Less accumulated depreciation 317,922 276,152
--------------------------
Net $ 532,600 $ 538,101
==========================
Property, plant and equipment are stated at cost, reduced
in certain cases by valuation allowances. Depreciation is
calculated by the straight-line method over the estimated
useful lives of the depreciable assets. Depreciation expense
was $61,660,000 in 1994, $51,532,000 in 1993 and $44,467,000
in 1992.
6
Brands, Trademarks, Patents
and Other Intangibles - Net
- ---------------------------------
The major classes are (in thousands):
1994 1993
- --------------------------------------------------------------
Brands and trademarks $ 484,574 $ 406,594
Patents and other intangibles 129,076 129,006
Accumulated amortization (93,608) (71,659)
---------------------------
Net $ 520,042 $ 463,941
Brands and trademarks includes $41,708,000 of continuing value
arising from transactions prior to October 31, 1970.
25
- --
7
Accrued Liabilities
- -----------------------
Advertising costs included in accrued liabilities at June 30,
1994 and 1993 were $126,725,000 and $119,439,000, respectively.
8
Long-term Debt
- ------------------
The principal components are (in thousands):
1994 1993
--------------------------
8.8% Non-callable notes due August 1,
2001, includes net unamortized
premium Of $243 and $278,
respectively $200,243 $200,278
Other debt 16,237 4,203
------------------------
216,480 204,481
Less: current maturities 392 481
------------------------
Long-term debt $216,088 $204,000
The Company has a $200,000,000 credit agreement with a syndication
of banks which was renewed in August 1994, and now expires in
August 1995. The credit agreement requires maintenance of a
minimum net worth of $600,000,000. At June 30, 1994, the credit
agreement was available for general corporate purposes and for
the support of additional commercial paper issuance.
At June 30, 1994, the Company had four outstanding interest rate
swap agreements under which the Company receives average fixed
rates of 6.3 percent on a combined notional amount of
$100,000,000 and pays a floating rate based on LIBOR, an
average of 3.9 percent in 1994, as determined in six-month
intervals through October 16, 2001. At June 30, 1993, the
Company had one outstanding interest rate swap and received
6.8 percent fixed and paid 3.6 percent variable interest on
notional principal of $50,000,000. Original terms to maturity
ranged from 81/2 to 73/4 years. At June 30, 1994, the remaining
term for all the agreements was approximately seven years.
The transactions effectively convert a portion of the Company's
interest rate exposure on the 8.8 percent notes from a fixed
rate to a floating rate. The effect of swap agreements as a
hedge of the 8.8 percent fixed rate notes reduced interest
expense by $1,803,000 and $1,179,000, and resulted in effective
borrowing rates of 7.9 percent and 8.2 percent in years 1994
and 1993, respectively. The fair value of these agreements at
June 30, 1994 and 1993 was an unrealized (loss) gain of
($8,422,000) and $3,500,000, respectively, based on the
market prices for similar instruments. The fair value of
the 8.8 percent notes at June 30, 1994 and 1993 was
approximately $212,250,000 and $234,000,000, respectively,
based upon quoted market prices for the same or similar debt.
9
Stockholders' Equity
- --------------------------
In addition to common stock, the Company is authorized to
issue 5,000,000 shares of preferred stock with a par value
of $1 per share, none of which is outstanding. The Company
has a stock option plan under which options to purchase
shares of common stock may be granted to key employees.
The plan provides that the option price shall not be less
than the fair market value of the shares on the date of
grant and that no portion of the option may be exercised
beyond 10 years from that date. At June 30, 1994, there were
1,943,220 shares available for the granting of additional
options or other stock compensation awards. A summary of
changes in common stock options during 1994 and 1993 is:
Number Price
of Shares per Share
- ---------------------------------------------------------------
Outstanding at June 30, 1992 1,852,958 $7.28 - $40.94
Granted 397,629 43.75
Exercised (291,744) 7.28 - 40.94
Cancelled (73,920) 24.34 - 43.75
----------------------------
Outstanding at June 30, 1993 1,884,923 13.69 - 43.75
Granted 907,768 51.13 - 63.50
Exercised (296,849) 13.69 - 43.75
Cancelled (137,722) 20.00 - 52.94
----------------------------
Outstanding (held by 192
optionees) at June 30, 1994 2,358,120 $13.81 - $63.50
Options exercisable at:
June 30, 1994 1,163,598
June 30, 1993 1,161,607
10
Leases
- -------------
The Company leases transportation equipment and a limited number
of its manufacturing, warehousing and office facilities. Most
leases are classified as operating leases and will expire over
the next four years. Future minimum lease payments are
$11,847,000, and do not exceed $5,400,000 in any one year.
Rental expense for continuing operations was $11,875,000 in
1994, $14,365,000 in 1993, and $12,384,000 in 1992.
Space not occupied by the Company in its headquarters building
is let to other tenants under operating leases expiring through
1998. Future minimum rentals to be received are $5,448,000,
and do not exceed $1,900,000 in any one year.
26
- --
11
Other Expense (Income), Net
- ------------------------------
The major components are (in thousands):
1994 1993 1992
- ------------------------------------------------------------------------------------------------
Amortization of intangibles $ 23,896 $ 22,058 $ 22,962
Equity in earnings of affiliates (5,926) (9,979) (13,908)
Interest income (5,292) (2,931) (4,557)
Other, net (11,804) (6,832) (11,742)
----------------------------------------------
Total $ 874 $ 2,316 $ (7,245)
12
Income Taxes
- --------------------
Income tax expenses are (in thousands):
1994 1993 1992
- ------------------------------------------------------------------------------------------------
Current
Federal $ 86,686 $ 57,776 $ 62,332
State 17,562 13,815 12,789
Foreign 3,569 3,651 6,325
--------------------------------------------
Total current 107,817 75,242 81,446
--------------------------------------------
Deferred
Federal 16,416 26,635 13,028
State 1,173 4,147 2,129
Foreign 1,234 1,243 1,300
--------------------------------------------
Total deferred 18,823 32,025 16,457
--------------------------------------------
Total expense $ 126,640 $ 107,267 $ 97,903
============================================
Effective income tax rate 41.3% 39.0% 40.9%
============================================
The reconciliation between the Company's effective income tax
rate and the statutory federal income tax rate is as follows:
1994 1993 1992
---------------------
Federal statutory rate 35.0% 34.0% 34.0%
State income taxes, net
of federal tax benefit 3.9 4.2 4.1
Taxes on foreign earnings 1.1 1.2 2.4
Retroactive effect of federal
rate increase 1.0 - -
Other 0.3 (0.4) 0.4
----------------------
Effective income tax rate 41.3% 39.0% 40.9%
The net deferred income tax liabilities (assets), both current
and non-current at June 30, result from the tax effects of the
following temporary differences (in thousands):
1994 1993
--------------------
Amortization/depreciation $64,268 $87,016
Safe harbor lease agreements 32,145 33,232
Unremitted foreign earnings 35,057 30,841
Restructuring expense (12,812) (19,469)
Postretirement health benefits (18,402) (15,396)
Other 14,241 8,119
--------------------
Net $114,497 $124,343
The June 30, 1994 deferred income tax liability reflects a
$28,466,000 decrease which is not included in the 1994
deferred tax expense. This results from the reversal of a
prior year tax accrual recorded in conjunction with the
1991 purchase of Pine-Sol. The accrual was deemed unnecessary
as a result of the 1993 tax law change. The offset to this
adjustment was a reduction in brands, trademarks, patents and
other intangibles in 1994.
13
Employee Benefit Plans
- ---------------------------
Retirement Income Plans
The Company has defined benefit pension plans for substantially
all its domestic employees. Benefits are based on either
employee years of service and compensation or 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 components of pension expense are
(in thousands):
1994 1993 1992
------------------------------
Service cost - benefits earned
in current year $5,970 $5,646 $5,530
Interest on projected benefit
obligation 7,753 6,552 5,840
Return on plan assets:
Actual gain (2,762) (9,750) (7,946)
Deferral of the actual gain in
excess of (less than) the
assumed rate of 8% in 1994,
and 1993 and 9% in 1992 (6,029) 1,766 (442)
Other gains, including
amortization over 15 years
of the net pension
transition asset at
July 1, 1985 (790) (1,245) (1,369)
-----------------------------------
Total pension expense $4,142 $2,969 $1,613
===================================
27
- --
The plans' funded status at June 30 is as follows
(in thousands):
1994 1993
Actuarial present value of the
accumulated benefit obligation,
including vested benefits
of $84,027 in 1994 and $72,497 in 1993 $ 89,531 $ 75,674
====================
Plans' assets at market value 119,100 107,699
Projected benefit obligation, determined
using a discount rate of 8% and
including the effect of an assumed
annual increase in future compensation
levels of 4.5% in 1994 and 4% in 1993 111,846 91,466
---------------------
Excess of plans' assets over pension
obligation 7,254 16,233
Less deferrals:
Remaining unamortized balance of net
pension transition asset at July 1, 1985 (10,338) (11,985)
Prior service cost 5,748 2,817
---------------------
Other net losses (gains) 14,330 (679)
Accrued pension asset included in
other assets $ 16,994 $ 6,386
====================
The Company has defined contribution plans for most of its
domestic employees not covered by collective bargaining
agreements, to which it contributes based on its earnings or
participants' contributions. The Company also participates
in multi-employer pension plans for certain of its hourly-paid
production employees and contributes to those plans based on
collective bargaining agreements. The aggregate cost of the
defined contribution and multi-employer pension plans was
$12,753,000 in 1994, $11,570,000 in 1993, and $7,970,000 in 1992.
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 not
prefunded, and the Company has the right to modify or terminate
certain of these plans.
Postretirement health-care expense consists of the following
(in thousands):
1994 1993 1992
- ----------------------------------------------------------------
Service cost - benefits earned
in the current year $ 2,823 $ 2,898 $ 2,798
Interest on projected benefit
obligation 2,881 2,749 2,471
------------------------------
Total postretirement health-care
expense $ 5,704 $ 5,647 $ 5,269
=============================
Benefits paid were $1,058,000, $1,060,000 and $550,000 in 1994,
1993 and 1992, respectively.
The accumulated postretirement benefit obligation (APBO)
includes the following at June 30 (in thousands):
1994 1993
- -------------------------------------------------------------
Retirees $ 10,260 $ 8,359
Fully eligible active employees 6,731 7,608
Other active employees 21,976 24,232
Unrecognized net gains 6,599 -
-----------------------
Total unfunded accrued benefit
obligation included in other
obligations $ 45,566 $ 40,199
========================
Included in 1994 amounts is $1,900,000 representing the
assumption of postretirement health-care liabilities related
to the acquisition of the S.O.S brands. The assumed health-care
cost trend rate used in measuring the APBO was 12 percent for
1995, gradually declining to 5.5 percent over the next 10 years.
Changes in these rates can have a significant effect on
amounts reported. A one percentage point increase in the
trend rates would increase the 1994 accumulated postretirement
benefit obligation by $6,742,000 and increase 1994 expense by
$805,000. The discount rate used to determine the APBO was 8
percent.
Discontinued Operations
As a result of the Company's decision to discontinue operations
of its bottled water and frozen foods businesses, curtailment
gains of $2,104,000 for pension benefits and $1,228,000 for
postretirement health-care were recognized in 1994 in income
from discontinued operations.
Postemployment Benefits
The Financial Accounting Standards Board issued SFAS No. 112,
"Employers' Accounting for Postemployment Benefits", in November
1992. This Statement requires the accrual of benefits provided
by the Company to former or inactive employees after employment,
but before retirement. The Company adopted SFAS No. 112 in
1994, and included the cumulative expense, which was not
material, in operations.
14
Contingent Liabilities
- ---------------------------
The Company is subject to various lawsuits and claims
arising out of its businesses which include contracts,
environmental issues, product liability, patent and trademark
matters, and taxes. In the opinion of management, after
consultation with counsel, the disposition of these matters
will not have a material adverse effect, individually or in
the aggregate, on the Company's financial position, results
of operations, or liquidity.
28
- --
Responsibility for Consolidated
Financial Statements
The management of the Company is responsible for the integrity
and objectivity of the financial statements included in this
Annual Report. 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 Committee meets regularly with
management, internal auditors and Deloitte & Touche,
independent certified public accountants. Deloitte &
Touche and the internal auditors have full authority to meet
with the Audit Committee, either with or without management
representatives present.
Deloitte & Touche has completed its audit of the accompanying
consolidated financial statements. Their report appears below.
Independent Auditors' Report
[DELOITTE & TOUCHE LOGO]
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 as of
June 30, 1994 and 1993, and the related statements of
consolidated earnings, consolidated stockholders' equity and
consolidated cash flows for the years ended June 30, 1994,
1993, and 1992. 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.
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 provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of The Clorox Company and its subsidiaries at
June 30, 1994 and 1993, and the results of their
operations and their cash flows for the years ended
June 30, 1994, 1993 and 1992 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, in 1992 the Company changed its method of
accounting for postretirement benefits other than pensions
to conform with Statement of Financial Accounting
Standards No. 106.
/S/ DELIOTTE & TOUCHE
Deloitte & Touche
Oakland, California
August 10, 1994
29
- --
Financial Summary
The Clorox Company
Years ended June 30 94 93 92 91 90 89 88 87 86 85
- ----------------------------------------------------------------------------------------------------------------------------
In thousands,
except per-share
data.
Operations
Net sales $1,836,949 $1,634,171 $1,547,057 $1,468,370 $1,309,019 $1,199,293 $1,033,747 $ 934,985 $ 893,699 $ 873,162
------------------------------------------------------------------------------------------------------------
Percent change 12.4 5.6 5.4 12.2 9.1 16.0 10.6 4.6 2.4 8.8
------------------------------------------------------------------------------------------------------------
Cost of
products sold 820,434 724,753 678,504 672,405 601,322 548,434 450,527 422,149 415,542 418,457
Operating
expenses 690,584 613,061 612,074 677,468<F4>498,084 458,085 396,910 356,065 326,531 319,151
Other 19,298 21,172 17,382 21,315 (30,755) (28,189) (10,897) (17,588) (5,356) (6,482)
------------------------------------------------------------------------------------------------------------
Total costs
and expenses 1,530,316 1,358,986 1,307,960 1,371,188 1,068,651 978,330 836,540 760,626 736,717 731,126
------------------------------------------------------------------------------------------------------------
Earnings before
income taxes 306,633 275,185 239,097 97,182 240,368 220,963 197,207 174,359 156,982 142,036
Income taxes 126,640 107,267 97,903 37,361 87,456 79,718 73,460 75,394 70,389 62,125
------------------------------------------------------------------------------------------------------------
Earnings from
continuing
operations 179,993 167,918 141,194 59,821 152,912 141,245 123,747 98,965 86,593 79,911
Earnings (losses)
from
discontinued
operations 32,064<F1> (867) (23,429)<F2>(7,075) 714 (17,101)<F5> 8,823 5,934 9,017 6,213
Cumulative effect
of accounting
change - - (19,061)<F3> - - - - - - -
------------------------------------------------------------------------------------------------------------
Net earnings $ 212,057 $ 167,051 $ 98,704 $ 52,746 $ 153,626 $ 124,144 $ 132,570 $ 104,899 $ 95,610 $ 86,124
============================================================================================================
Percent change,
continuing
operations 7.2 18.9 136.0 (60.9) 8.3 14.1 25.0 14.3 8.4 10.2
Common Stock<F6>
Weighted average
shares
outstanding 53,800 54,698 54,366 54,063 54,873 55,333 55,127 54,652 54,268 53,942
Earnings (losses)
per common share:
Earnings from
continuing
operations $3.35 $3.07 $2.60 $1.11<F4> $2.79 $2.55 $2.26 $1.82 $1.60 $1.49
Earnings (losses)
from discontinued
operations 0.59<F1> (0.02) (0.43)<F2> (0.13) 0.01 (0.31)<F5> 0.16 0.11 0.17 0.12
Cumulative effect
of accounting
change - - (0.35)<F3> - - - - - - -
------------------------------------------------------------------------------------------------------------
Net earnings $3.94 $3.05 $1.82 $0.98 $2.80 $2.24 $2.42 $1.93 $1.77 $1.61
============================================================================================================
Dividends $1.80 $1.71 $1.59 $1.47 $1.29 $1.09 $0.92 $0.79 $0.70 $0.62
Stockholders'
equity at end
of year 17.04 16.03 14.92 14.47 15.00 14.19 13.19 11.51 10.31 9.18
Other Data
Continuing
operations
Working capital
(deficiency) $ 128,443 $ 160,208 $ (25,322) $ 115,626 $ 151,602 $ 265,569 $ 145,780 $ 225,596 $ 198,290 $ 160,031
Property, plant
and equipment
- net 532,600 538,101 508,629 441,794 441,681 348,526 312,068 207,712 193,503 165,000
Property
additions 56,627 72,141 114,353 89,009 134,099 66,551 135,702 48,630 59,408 37,858
Long-term
debt 216,088 204,000 203,627 405,341 5,807 5,192 20,739 24,513 33,626 35,935
Percent return
on net sales 9.8 10.3 9.1 4.1 11.7 11.8 12.0 10.6 9.7 9.2
Current ratio 1.3 1.4 0.9 1.3 1.7 1.9 1.5 2.3 2.2 1.9
Total assets 1,697,569 1,649,230 1,589,993 1,656,872 1,124,147 1,189,894 1,121,232 911,097 825,748 753,994
Stockholders'
equity 909,417 879,294 813,741 784,276 810,514 786,176 712,854 616,447 549,793 485,856
Percent return
on average
stockholders'
equity 24.2 19.8 12.3 6.4 19.1 16.4 19.9 18.0 18.5 18.8
[FN]
<F1> Includes net gain on the sale of discontinued businesses of
$31,430 or $.58 per share.
<F2> Includes special charges for the revaluation of certain
intangible assets. See Note 2 to Consolidated Financial
Statements.
<F3> Nonrecurring charge to recognize the accumulated
postretirement health benefit obligation at July 1, 1991,
resulting from the adoption of SFAS No. 106. See Note 1
to Consolidated Financial Statements. (Operating results
preceding 1992 were not restated for the adoption of this
new standard.)
<F4> Includes a charge for restructuring of $125,250 or $1.45
per share.
<F5> Includes net loss on the disposal of Olympic HomeCare
Products of $20,000 or $.36 per share.
<F6> Weighted average shares outstanding and
earnings per share from 1985 through 1989
assume full dilution from a note converted
during 1989.
30
- --
31
- --
CAPTION>
Quarterly Data
The Clorox Company
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------
In thousands, except per-share amounts.
Year Ended June 30, 1994
Net sales $ 449,744 $ 370,844 $ 481,928 $ 534,433 $ 1,836,949
Cost of products sold $ 193,828 $ 163,386 $ 211,964 $ 251,256 $ 820,434
Earnings from
Continuing operations $ 46,314 $ 30,586 $ 49,515 $ 53,578 $ 179,993
Discontinued operations 32,064<F1> - - - 32,064<F1>
---------------------------------------------------------------
Net earnings $ 78,378 $ 30,586 $ 49,515 $ 53,578 $ 212,057
Per common share
Net earnings $1.44<F1> $0.57 $0.93 $1.00 $3.94<F1>
Dividends 0.45 0.45 0.45 0.45 1.80
Market price (NYSE)
High 55 3/8 55 1/4 55 3/4 52 1/4 55 3/4
Low 47 1/8 51 1/2 47 1/4 47 47
Year-end 48 7/8
Price/earnings ratio, year end 12
Year Ended June 30, 1993
Net sales $ 394,657 $ 327,354 $ 435,559 $ 476,601 $1,634,171
Cost of products sold $ 170,135 $ 141,272 $ 185,897 $ 227,449 $ 724,753
Earnings (losses) from
Continuing operations $ 44,393 $ 27,032 $ 46,526 $ 49,967 $ 167,918
Discontinued operations 203 211 (1,106) (175) (867)
---------------------------------------------------------------
Net earnings $ 44,596 $ 27,243 $ 45,420 $ 49,792 $ 167,051
Per common share
Net earnings $0.82 $0.50 $0.83 $0.91 $3.05
Dividends 0.42 0.42 0.42 0.45 1.71
Market price (NYSE)
High 48 1/4 47 51 7/8 53 3/8 53 3/8
Low 41 1/8 40 3/4 44 46 3/4 40 3/4
Year-end 52 1/8
Price/earnings ratio, year end 17
[FN]
<F1> Includes net gain on the sale of discontinued businesses
of $31,430 or $.58 per share.
32
- --
The Company's Principal Retail Brands
United BBQ Bag Single-use, lightable bag of
States charcoal briquets
Brita Water filter systems
Clorox Regular, Fresh Scent and
Lemon Fresh liquid bleach
Clorox Toilet bowl cleanser and
automatic toilet bowl
cleaner
Clorox
Clean-Up Dilutable household cleaner
and spray cleaner
Clorox 2 Dry and liquid, and regular
and Lemon Fresh all-fabric
bleach
Combat Insecticides: ant and roach
bait stations; ant and roach
aerosols and foggers
Control Cat litter
Formula 409 All-purpose spray cleaner and
glass & surface cleaner
Fresh Step Cat litter
Hidden Valley
Ranch Bottled salad dressing; dry
salad dressing and party dip
mixes; bottled low-fat salad
dressing; bottled salad dress-
ings for kids
Hidden Valley
Ranch Seasoned mini-croutons
Salad Crispins
K.C. Masterpiece Barbecue sauce
Kingsford Charcoal briquets, charcoal
briquets with mesquite and
charcoal lighter
Kitchen Bouquet Browning and seasoning sauce
and gravy aid
Liquid-Plumr Drain opener, regular and
professional strength, and
build-up remover
Match Light Instant lighting charcoal
briquets
Pine-Sol Cleaner and spray cleaner
Scoop Fresh Scoopable cat litter
Soft Scrub Mild abrasive liquid cleanser,
regular, with bleach and with
lemon
S.O.S Steel wool soap pads and
home cleaning products
Stain Out Soil and stain remover
SuperBait Insecticides: roach bait
stations
Tackle Household cleaner disinfectant
Tilex Instant mildew remover and
soap scum remover
Tuffy Mesh scrubber
Professional Products
Hidden Valley Ranch Salad dressings
K.C. Masterpiece Barbecue sauce
Kitchen Bouquet Browning and seasoning sauce and
gravy aid
Clorox Liquid bleach
Clorox Toilet bowl cleanser
Clorox Clean-Up Dilutable cleaner
Formula 409 All-purpose spray cleaner and glass
& surface cleaner
Liquid-Plumr Drain opener
Pine-Sol Cleaner
Tilex Instant mildew remover
Maxforce Professional insecticides; ant and
roach baits; roach gel
Principal
International Markets
Argentina
Canada
Chile
Colombia
Dominican Republic
Egypt
Hong Kong
Hungary
Japan
Malaysia
Mexico
Panama
Poland
Puerto Rico
Republic of Korea
Saudi Arabia/Gulf States
Venezuela
Yemen Arab Republic
Clorox also exports products to more than
70 other countries.
36
- --