MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Continuing operations again achieved record unit volume in 1995,
after record years in 1994 and 1993. The gain in 1995 volume was
principally due to a full year's ownership of the S.O.S business,
which was acquired in mid 1994, growth in the Brita water
filtration business in the United States, and record volumes for
Combat insecticides, Clorox liquid bleach, Clorox Clean-Up
dilutable cleaner, Tilex soap scum remover, Clorox toilet bowl
cleaner, professional strength Formula 409 cleaner, Pine-Sol
cleaner, and the Kingsford line of charcoal briquets. The
increase in unit volume for 1994 was principally due to the
S.O.S acquisition, the consolidation of an Argentine subsidiary
in which our interest increased to 90 percent in June 1993, and
the introduction of new products including Liquid-Plumr buildup
remover, Clorox Stain Out soil and stain remover, Clorox toilet
bowl cleaners, Tilex soap scum remover, and Hidden Valley Ranch
kids' dressings. Net sales increased 8 percent in 1995 following
increases of 12 percent in 1994 and 6 percent in 1993. This year's
growth was primarily driven by the S.O.S acquisition and the record
volumes described above. Price increases on a few established
brands were offset by a price decrease on Tilex in 1995 and by
a price decrease on Pine-Sol in 1994, and by increased incentive
trade promotions in 1995. Cost of products sold was 45 percent
of net sales in both 1995 and 1994, and 44 percent in 1993.
Research and Development (R&D) expense was up slightly over
1994, after increasing 5 percent over 1993. This was the third
consecutive record year for new product introductions and
reflects efficiencies achieved in the R&D function that began
in 1993 and were realized in 1994 to bring new products to
market faster and at lower overall costs. R&D activities are
anticipated to continue at current levels as a percent of sales.
We expect to continue to shorten development times and further
improve cost efficiencies while maintaining a high level of new
product activity in 1996. Selling, delivery, and administration
(SD&A) expenses increased 16 percent over 1994 and as a
percentage of net sales increased by 1.4 percentage points.
The increase in 1995 is principally attributable to the
strategic growth of our International business where we have
increased our overhead infrastructure through acquisitions
or through expanding our marketing activities in Latin America,
the Caribbean, Canada, the Pacific Rim, and Central Europe.
In addition, we incurred transition costs related to the
implementation of our new logistics strategy, and our new
Customer Interface project that will improve customer service.
SD&A increased approximately 10 percent in 1994 over 1993
principally due to the 1994 acquisition of S.O.S, and the
consolidation of our Argentine subsidiary. We continue to
focus on improving our cost structure and anticipate continued
spending during 1996 on our international infrastructure and
the Customer Interface initiative. Total marketing spending,
which includes trade promotions, consumer promotions and
advertising, increased 3 percent over 1994. Media advertising
levels increased while sales promotion, primarily couponing,
decreased in 1995 versus 1994. Advertising expense increased
18 percent from 1993 to 1994 principally due to heavy
introductory spending on new products in 1994. Interest expense,
the majority of which relates to long-term financing, increased
$6,696,000 in 1995 over 1994 due to additional borrowing in
1995 to finance the acquisition of Brita International Holdings,
Inc., expanded International activities financed by local
borrowings, and the effect of higher short-term interest
rates on commercial paper borrowings. The effective tax rates
were 40.6, 41.3, and 39.0 percent in 1995, 1994, and 1993,
respectively. The decrease in 1995 was principally due to the
effect in 1994 of the retroactive 1 percent increase in the
federal statutory tax rate that was reflected in 1994 earnings.
The 1995 increase over 1993 was due primarily to the ongoing
effect of the higher statutory tax rate. Earnings per share from
continuing operations increased $.43 in 1995 over 1994, a 13
percent increase, and $.28 in 1994 over 1993, both of which were
driven by the volume growth described above, and shares
repurchased in 1995 and 1994 under the share repurchase program.
Net earnings per share decreased in 1995 from 1994 due to the
inclusion in 1994 of $.59 per share earnings from discontinued
operations.
Financial Position and Liquidity
Cash flow from continuing operations was $290,849,000 in 1995 and
resulted from record earnings and our continued focus on efficient
utilization of resources driven by the Clorox Value Measure (CVM)
economic value measurement system implemented in 1994. CVM was
up 26 percent in 1995 over 1994 following two consecutive years
of 18 percent growth, versus our average long-term target of
12 percent. The 1995 increase in accounts receivable is
attributable to the acquisition of Brita International Holdings,
Inc. and other International acquisitions and new ventures.
Higher sales of Combat insecticides, Kingsford charcoal,
Brita water filtration systems, and our business in the Republic
of Korea also contributed to the increase. Higher levels of
inventories and accounts payable were principally due to
International acquisitions and new ventures. At June 30, 1995,
we had available a $350,000,000 credit agreement with a
syndication of banks which expires on May 31, 2000. We believe
we have access to additional bank credit and the public debt
markets should the need arise. During 1995, $97,651,000 was
used to invest in new businesses, all of which were outside
the United States. The largest single investment was Brita
International Holdings, Inc., of Canada. On January 1, 1994,
the S.O.S products business was acquired for $116,488,000.
Also, during 1994, additional foreign investments of
$25,949,000 were made. In 1993, we acquired a controlling
interest in our joint venture in Argentina that was previously
accounted for on the equity basis and as of June 30, 1993 was
consolidated. Capital expenditures were $62,911,000, $56,627,000,
and $77,637,000 in 1995, 1994, and 1993, respectively. Spending
generally has been for expanded capacity, process improvements,
and environmental programs and initiatives. Dividends paid in
1995 were $102,272,000, or $1.92 per share. In July 1995, we
announced a 10.4 percent increase in the quarterly dividend rate
to $.53, from $.48 per share for a new annual rate of $2.12 per
share.
In 1995, 1994, and 1993, cash flow from operations has exceeded
cash needs for capital expenditures, dividends, and scheduled
debt service. We anticipate similar strong cash flow again in
1996. Proceeds from the sale of discontinued operations generated
cash of $159,293,000 in 1994. We recently completed the stock
repurchase program initiated in 1989. Through June 30, 1995,
5,000,000 shares were repurchased, of which 1,325,485 shares at a
cost of $78,270,000 were acquired during 1995. In July 1995, our
Board of Directors authorized an additional $100,000,000 for a
share repurchase program planned to be completed during 1996.
These shares will be purchased on the open market. Reacquired
shares are held as treasury shares and are available for
reissuance for corporate uses. In order to manage the impact of
interest rate movements on interest expense and interest income,
we have 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.
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 of the use of any leveraged instrument. Other derivative
instruments used to hedge assets and anticipated transactions
include foreign currency contracts. These contracts were not
material in either 1995 or 1994. We are committed to an ongoing
program of comprehensive, long-term environmental assessment
of our 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. Although not material, at
June 30, 1995 and 1994, expected costs have been accrued for the
probable future costs of environmental liabilities without offset
for expected insurance recoveries, or discounting for present value.
Statements of Consolidated Earnings
The Clorox Company
Years ended June 30 95 94 93
In thousands, except per-share amounts.
Net Sales $ 1,984,170 $ 1,836,949 $ 1,634,171
- -------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of products sold 892,172 820,434 724,753
Selling, delivery and administration 416,392 359,360 328,088
Advertising 271,730 286,666 242,528
Research and development 44,819 44,558 42,445
Interest expense 25,120 18,424 18,856
Other (income) expense, net (3,957) 874 2,316
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,646,276 1,530,316 1,358,986
- -------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 337,894 306,633 275,185
Income Taxes 137,062 126,640 107,267
- -------------------------------------------------------------------------------------------------------------------
Earnings from Continuing Operations 200,832 179,993 167,918
Earnings (Losses) from Discontinued Operations - 32,064 (867)
- -------------------------------------------------------------------------------------------------------------------
Net Earnings $ 200,832 $ 212,057 $ 167,051
===================================================================================================================
Earnings (Losses) per Common Share
Continuing Operations $ 3.78 $ 3.35 $ 3.07
Discontinued Operations - 0.59 (0.02)
- -------------------------------------------------------------------------------------------------------------------
Net Earnings $ 3.78 $ 3.94 $ 3.05
===================================================================================================================
Weighted Average Shares Outstanding 53,147 53,800 54,698
See Notes to Consolidated Financial Statements.
<CAPTION
Consolidated Balance Sheets
The Clorox Company
Years ended June 30 95 94
In thousands, except share and per-share amounts.
Assets
Current Assets
Cash and short-term investments $ 137,330 $ 115,922
Accounts receivable, less allowance 311,868 249,843
Inventories 121,095 105,948
Deferred income taxes 11,495 18,548
Prepaid expenses 18,543 14,014
- ---------------------------------------------------------------------------------------------------
Total current assets 600,331 504,275
- ---------------------------------------------------------------------------------------------------
Property, Plant and Equipment - Net 524,972 532,600
- ---------------------------------------------------------------------------------------------------
Brands, Trademarks, Patents and Other Intangibles - Net 592,792 520,042
- ---------------------------------------------------------------------------------------------------
Investments in Affiliates 96,385 83,368
- ---------------------------------------------------------------------------------------------------
Other Assets 92,192 57,284
- ---------------------------------------------------------------------------------------------------
Total $1,906,672 $1,697,569
===================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 122,763 $ 97,728
Accrued liabilities 234,595 227,197
Income taxes payable 6,283 7,599
Commercial paper 115,303 42,916
Current maturities of long-term debt 379 392
- ---------------------------------------------------------------------------------------------------
Total current liabilities 479,323 375,832
- ---------------------------------------------------------------------------------------------------
Long-term Debt 253,079 216,088
- ---------------------------------------------------------------------------------------------------
Other Obligations 85,129 63,187
- ---------------------------------------------------------------------------------------------------
Deferred Income Taxes 145,228 133,045
- ---------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock - authorized,
175,000,000 shares, $1 par value 55,422 55,422
Additional paid-in capital 108,347 106,554
Retained earnings 971,380 876,832
Treasury shares, at cost (168,217) (107,146)
Cumulative translation adjustments and other (23,019) (22,245)
- ---------------------------------------------------------------------------------------------------
Stockholders' equity 943,913 909,417
- ---------------------------------------------------------------------------------------------------
Total $1,906,672 $1,697,569
===================================================================================================
See Notes to Consolidated Financial Statements.
Statements of Consolidated Stockholders' Equity
The Clorox Company
Cumulative
In thousands, except share Common Stock Additional Treasury Shares Translation
In thousands, except shares --------------- Paid-in Retained ------------------ Adjustments
and per-share amounts Shares Amount Capital Earnings Shares Amount and Other
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 stock 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)
Net earnings 200,832
Dividends ($1.92 per share) (102,272)
Employee stock plans
and other 1,793 (4,012) 355,211 17,199 (1,187)
Treasury stock acquired (1,325,485) (78,270)
Translation adjustments 413
- -------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 55,422,297 $55,422 $ 108,347 $ 971,380 (3,020,315) $(168,217) $(23,019)
=========================================================================================================================
See Notes to Consolidated Financial Statements.
Statements of Consolidated Cash Flows
The Clorox Company
Years ended June 30 95 94 93
In thousands.
Operations:
Earnings from continuing operations $ 200,832 $ 179,993 $ 167,918
Adjustments to reconcile to net cash provided by
continuing operations:
Depreciation and amortization 103,866 94,120 83,607
Deferred income taxes 15,386 15,985 32,378
Other 7,498 25,985 9,412
Effects of changes in:
Accounts receivable (58,314) (18,299) (36,266)
Inventories (11,723) 5,691 (7,892)
Prepaid expenses (1,892) 2,355 (2,850)
Accounts payable 21,771 13,485 (18,071)
Accrued liabilities 15,630 (8,134) 2,849
Income taxes payable (2,205) (12,741) 3,498
- ------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 290,849 298,440 234,583
Net cash (used for) provided by discontinued operations - (31,658) 10,877
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operations 290,849 266,782 245,460
Investing Activities:
Property, plant and equipment (62,911) (56,627) (77,637)
Net proceeds from sales of businesses - 159,293 15,000
Businesses purchased (97,651) (142,437) (31,547)
Disposal of property, plant and equipment 8,707 11,264 3,759
Other (54,437) (22,046) (24,938)
- ------------------------------------------------------------------------------------------------------------
Net cash used for investment (206,292) (50,553) (115,363)
- ------------------------------------------------------------------------------------------------------------
Financing Activities:
Long-term borrowings 47,298 13,000 299
Long-term debt repayments (2,806) (741) (1,236)
Short-term borrowings (repayments), net 62,115 3,430 (42,469)
Cash dividends (102,272) (97,095) (93,509)
Treasury stock acquired (78,270) (99,910) -
Employee stock plans 10,786 9,845 8,958
- ------------------------------------------------------------------------------------------------------------
Net cash used for financing (63,149) (171,471) (127,957)
- ------------------------------------------------------------------------------------------------------------
Net increase in cash and short-term investments 21,408 44,758 2,140
Cash and short-term investments:
Beginning of year 115,922 71,164 69,024
- ------------------------------------------------------------------------------------------------------------
End of year $ 137,330 $ 115,922 $ 71,164
============================================================================================================
Cash paid for:
Interest (net of amounts capitalized) $ 25,479 $ 18,267 $ 18,616
Income taxes 106,821 128,210 61,052
Noncash transactions:
Liabilities arising from business purchased $ 25,047 $ 7,200 $ -
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation
is calculated by the straight-line method over the estimated
useful lives of the depreciable assets.
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 up to a maximum of 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.
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 in
stockholders' equity; transaction gains and losses are included
in 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 each 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 13% and 12% of consolidated net sales in
1995 and 1994, respectively.
Derivative Financial Instruments
The use of financial instruments is limited to purposes other
than trading and includes management of interest rate movements
(interest rate swaps), and foreign currency exposure (forward
contracts) related to supply contracts and accounts receivable.
Both categories of financial instruments are treated as
off-balance sheet financial instruments. 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 deferred and recognized in earnings
or as an adjustment of carrying amounts when the hedged
transaction occurs.
2 Discontinued Operations
The Company sold its bottled water and frozen foods businesses
during 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):
94 93
Net sales $ 18,700 $ 173,291
=========================================================================================
Earnings (losses) from operations
before income taxes $ 1,043 $ (1,437)
Income tax (expense) benefits (409) 570
- ------------------------------------------------------------------------------------------
Net earnings (losses) from
discontinued operations 634 (867)
- ------------------------------------------------------------------------------------------
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)
3 Acquisitions
Acquisitions in 1995, totaling $97,651,000, were funded from
cash and other obligations and included Brita International
Holdings, Inc., a Canadian-based manufacturer and marketer of
Brita water filtration systems, and eight foreign investments,
all of which were accounted for as purchases. Approximately
$96,337,000 of the acquisition cost has been allocated to
brands, trademarks and other intangibles to be amortized
over estimated lives up to 40 years. Such purchases also
included at fair value, assets of $26,361,000, and the
assumption of liabilities of $25,047,000.
On January 31, 1994, the Company acquired the S.O.S products
business of Miles Inc., which was accounted for as a purchase.
The $116,488,000 acquisition included the S.O.S brand of 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, trademarks and other
intangibles to be amortized over an estimated life of 40
years. The purchase included, at fair value, current assets
of $9,200,000; property, plant and equipment of $15,600,000;
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 S.O.S 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 94 93
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.
4 Inventories
The major classes are (in thousands):
95 94
Finished goods and work in process $ 71,102 $ 69,280
Raw materials and supplies 49,993 36,668
- ----------------------------------------------------------
Total $121,095 $105,948
==========================================================
Had the cost of inventories been determined using the FIFO
method, inventories would have been higher by approximately
$14,218,000 at June 30, 1995 and $14,843,000 at June 30, 1994.
The LIFO method was used to value 74 percent of the inventory
at June 30, 1995 and 85 percent at June 30, 1994.
5 Property, Plant and Equipment
The major classes are (in thousands):
95 94
Land and improvements $ 60,083 $ 59,005
Buildings 263,509 261,964
Machinery and equipment 534,660 495,903
Construction in progress 31,622 33,650
- ---------------------------------------------------------
Total 889,874 850,522
Less accumulated depreciation 364,902 317,922
- ---------------------------------------------------------
Net $524,972 $532,600
=========================================================
Depreciation expense was $66,886,000 in 1995, $61,660,000
in 1994 and $51,532,000 in 1993.
6 Brands, Trademarks, Patents and Other Intangibles - Net
The major classes are (in thousands):
95 94
Brands and trademarks $ 583,902 $ 484,574
Patents and other intangibles 129,076 129,076
Accumulated amortization (120,186) (93,608)
- ----------------------------------------------------------
Net $ 592,792 $ 520,042
Brands and trademarks includes $41,708,000 of continuing value
arising from transactions prior to October 31, 1970.
7 Accrued Liabilities
Advertising costs included in accrued liabilities at June 30,
1995 and 1994 were $126,268,000 and $126,725,000, respectively.
8 Long-term Debt
The principal components are (in thousands):
95 94
8.8% Non-callable notes due
August 1, 2001,
includes net unamortized
premium of
$208 and $243, respectively $200,208 $200,243
Other debt 53,250 16,237
- --------------------------------------------------------------
253,458 216,480
Less: current maturities 379 392
- --------------------------------------------------------------
Long-term debt $253,079 $216,088
Fair values of the 8.8 percent notes at June 30, 1995 and 1994
were approximately $222,500,000 and $212,250,000, respectively,
based upon quoted market prices for similar debt. The Company
has a $350,000,000 credit agreement with a syndication of banks
which expires on May 31, 2000. The credit agreement requires
maintenance of a minimum net worth of $704,000,000. At June 30,
1995, the credit agreement is available for general corporate
purposes and for the support of additional commercial paper
issuance.
9 Financial Instruments
In order to manage the impact of interest rate movements, the
Company has entered into interest rate swap agreements. The
transactions effectively convert a portion of the Company's
interest rate exposure on its 8.8 percent fixed rate
non-callable notes to a floating rate. The effect of the
swap agreements on the 8.8 percent fixed rate notes reduced
interest expense by $573,000 and $1,803,000, and resulted
in effective borrowing rates of 8.5 percent and 7.9 percent
in years 1995 and 1994, respectively. Under the terms of
these agreements, the Company agrees with other parties to
exchange, at specified intervals, the difference between
fixed-rate and floating-rate interest amounts as calculated
by reference to agreed notional principal amounts. LIBOR is
used as the variable rate index for calculation. Exposure to
counterparty credit risk has been minimized by entering
into these agreements only with major financial institutions
that are expected to fully perform under the terms of the
swap agreements. The fair value of these instruments, shown
at the top of the next column, was determined based upon
market prices for similar instruments.
Notional amounts outstanding and weighted average rates at
June 30 are (in thousands):
95 94
Received fixed/pay floating -
notional amounts $100,000 $100,000
Weighted average receive rate 6.6% 6.6%
Weighted average pay rate 6.6% 3.9%
Pay fixed/received floating -
notional amounts $ 50,000 $ -
Weighted average pay rate 6.3% -
Weighted average receive rate 6.6% -
Fair value of interest rate swaps
(unrealized loss) $ (3,539) $ (8,422)
At June 30, 1995 the Company had four outstanding interest rate
swap agreements under which fixed rates are received and two
interest rate swap agreements under which fixed rates are paid.
At June 30, 1994, the Company had four outstanding interest rate
swap agreements under which fixed rates were received. Original
terms to maturity ranged from 7 3/4 to 8 1/2 years where fixed
rates are received and at June 30, 1995 the remaining term
for these agreements was approximately 6 years. Original
terms to maturity where fixed rates are paid were 1 3/4 to
2 years and at June 30, 1995 the remaining term for these
agreements was approximately 1 3/4 years. Foreign currency
forward contracts are used periodically to manage foreign
exchange risks associated with export sales and purchases
from foreign suppliers denominated in foreign currency. At
June 30, 1995, outstanding foreign currency forward
contracts to hedge purchases denominated in Canadian dollars
were approximately $17,937,000 and had fair values based
upon quoted market prices of approximately $18,363,000
with an unrealized gain of approximately $426,000.
10 Stockholders' Equity
<CAPTION
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
ten years from that date. Options which were outstanding at
June 30, 1995 become exercisable cumulatively over one, two
or three years from the grant date. At June 30, 1995,
1,572,538 shares were available for the granting of additional
options or other stock compensation awards. A summary of
changes in common stock options during 1995 and 1994 is:
Number
of Shares Price per Share
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 at June 30, 1994 2,358,120 13.81 - 63.50
Granted 386,897 48.88 - 57.20
Exercised (330,140) 13.81 - 54.63
Cancelled (35,114) 40.50 - 52.94
- -------------------------------------------------------------------------------------------
Outstanding (held by 203 optionees)
at June 30, 1995 2,379,763 $20.00 - $63.50
===========================================================================================
Options exercisable at:
June 30, 1995 1,328,838
June 30, 1994 1,163,598
11 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 five years. Future minimum lease payments are $8,532,000,
and do not exceed $4,300,000 in any one year. Rental expense for
continuing operations was $11,424,000 in 1995, $11,875,000 in 1994
and $14,365,000 in 1993.
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 $2,312,000 and do not
exceed $1,500,000 in any one year.
12 Other Expense (Income), Net
The major components are (in thousands):
95 94 93
Amortization of intangibles $ 26,582 $ 23,896 $ 22,058
Equity in earnings of affiliates (4,441) (5,926) (9,979)
Interest income (7,796) (5,292) (2,931)
Royalty income (7,110) (8,850) (7,361)
Other, net (11,192) (2,954) 529
- ----------------------------------------------------------------------------------------------
Total $ (3,957) $ 874 $ 2,316
==============================================================================================
13 Income Taxes
Income tax expenses are (in thousands):
95 94 93
Current
Federal $ 96,444 $ 86,686 $ 57,776
State 19,778 17,562 13,815
Foreign 5,454 3,569 3,651
- --------------------------------------------------------------------------------------------
Total current 121,676 107,817 75,242
- --------------------------------------------------------------------------------------------
Deferred
Federal 12,232 16,416 26,635
State 688 1,173 4,147
Foreign 2,466 1,234 1,243
- --------------------------------------------------------------------------------------------
Total deferred 15,386 18,823 32,025
- --------------------------------------------------------------------------------------------
Total expense $137,062 $126,640 $107,267
============================================================================================
Effective income tax rate 40.6% 41.3% 39.0%
The reconciliation between the Company's effective income tax rate and the statutory federal income tax rate
is as follows:
95 94 93
Federal statutory rate 35.0% 35.0% 34.0%
State income taxes,
net of federal tax benefit 3.9 3.9 4.2
Taxes on foreign earnings 1.5 1.1 1.2
Retroactive effect of federal
rate increase - 1.0 -
Other 0.2 0.3 (0.4)
- -----------------------------------------------------------------------------------------
Effective income tax rate 40.6% 41.3% 39.0%
=========================================================================================
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):
95 94
Amortization/depreciation $ 52,515 $ 64,268
Safe harbor lease agreements 29,401 32,145
Unremitted foreign earnings 45,473 35,057
Restructuring expense (3,676) (12,812)
Post employment benefits (17,712) (19,873)
Other 27,732 15,712
- -------------------------------------------------------------
Net $133,733 $114,497
14 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):
95 94 93
Service cost - benefits earned
in current year $ 6,944 $ 5,970 $ 5,646
Interest on projected benefit
obligation 8,913 7,753 6,552
Return on plan assets:
Actual gain (19,347) (2,762) (9,750)
Deferral of the actual gain
in excess of (less than)
the assumed rate of 8% 9,702 (6,029 1,766
Other gains, including amortization
over 15 years of the net pension
transition asset at July 1, 1985 (701) (790) (1,245)
- --------------------------------------------------------------
Total pension expense $ 5,511 $ 4,142 $ 2,969
The plan's funded status at June 30 is as follows (in thousands):
95 94
Actuarial present value of the
accumulated benefit obligation,
including vested benefits of
$95,410 in 1995 and $84,027 in 1994 $101,580 $ 89,531
=============================================================
Plans' assets at market value 141,385 119,100
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 1995 and 1994 124,119 111,846
- -------------------------------------------------------------
Excess of plans' assets over
pension obligation 17,266 7,254
Less deferrals:
Remaining unamortized balance of
net pension transition asset at
July 1, 1985 (8,691) (10,338)
Prior service cost 4,734 5,748
Other net losses 6,072 14,330
- --------------------------------------------------------------
Accrued pension asset included in
other assets $ 19,381 $ 16,994
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 $12,427,000 in 1995, $12,753,000 in 1994 and
11,570,000 in 1993.
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):
95 94 93
Service cost - benefits earned
in the current year $2,643 $2,823 $2,898
Interest on projected
benefit obligation 3,041 2,881 2,749
- ------------------------------------------------------------
Total postretirement
health care expense $5,684 $5,704 $5,647
============================================================
Benefits paid were $1,191,000, $1,058,000 and $1,060,000 in
fiscal years 1995, 1994 and 1993, respectively. The
accumulated postretirement benefit obligation (APBO) includes
the following at June 30 (in thousands):
95 94
Retirees $12,086 $10,260
Active employees 31,109 28,707
Deferral of net gains 5,425 6,599
- -----------------------------------------------------
Total unfunded accrued benefit
obligation included in other
obligations $48,620 $45,566
The assumed health care cost trend rate used in measuring the
APBO was 11.3 percent for 1995, gradually declining to 5.5
percent over the next nine 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 June 30, 1995 accumulated postretirement benefit obligation
by $6,958,000 and increase 1995 expense by $1,360,000. 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,
a curtailment gain of $2,104,000 for pension benefits and
$1,228,000 for retirement health-care was recognized in 1994.
15 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.
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 Audit Committee meets regularly
with management, internal auditors and Deloitte & Touche LLP,
independent certified public accountants. 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
[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 (the companies)
as of June 30, 1995 and 1994, and the related statements
of consolidated earnings, consolidated stockholders' equity
and consolidated cash flows for the years ended June 30, 1995,
1994, and 1993. These financial statements are the
responsibility of the companies' 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 companies at June 30, 1995 and 1994, and
the results of their operations and their cash flows for the
years ended June 30, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Oakland, California
August 9, 1995
Financial Summary
The Clorox Company
Years ended
June 30 95 94 93 92 91 90 89 88 87 86
In thousands,
except
per-share data.
Operations
Net sales $1,984,170 $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
- --------------------------------------------------------------------------------------------------------------------------
Percent
change 8.0 12.4 5.6 5.4 12.2 9.1 16.0 10.6 4.6 2.4
Cost of
products
sold 892,172 820,434 724,753 678,504 672,405 601,322 548,434 450,527 422,149 415,542
Operating
expenses 732,941 690,584 613,061 612,074 677,468(d) 498,084 458,085 396,910 356,065 326,531
Other 21,163 19,298 21,172 17,382 21,315 (30,755) (28,189) (10,897) (17,588) (5,356)
- --------------------------------------------------------------------------------------------------------------------------
Total costs
and
expenses 1,646,276 1,530,316 1,358,986 1,307,960 1,371,188 1,068,651 978,330 836,540 760,626 736,717
- --------------------------------------------------------------------------------------------------------------------------
Earnings
before
income taxes 337,894 306,633 275,185 239,097 97,182 240,368 220,963 197,207 174,359 156,982
Income taxes 137,062 126,640 107,267 97,903 37,361 87,456 79,718 73,460 75,394 70,389
- --------------------------------------------------------------------------------------------------------------------------
Earnings from
continuing
operations 200,832 179,993 167,918 141,194 59,821 152,912 141,245 123,747 98,965 86,593
Earnings
(losses)
from discon-
tinued
operations - 32,064(a) (867) (23,429)(b) (7,075) 714 (17,101)(e) 8,823 5,934 9,017
Cumulative
effect
of accounting
change - - - (19,061)(c) - - - - - -
- --------------------------------------------------------------------------------------------------------------------------
Net earnings $ 200,832 $ 212,057 $ 167,051 $ 98,704 $ 52,746 $ 153,626 $ 124,144 $ 132,570 $ 104,899 $ 95,610
==========================================================================================================================
Percent change,
continuing
operations 11.6 7.2 18.9 136.0 (60.9) 8.3 14.1 25.0 14.3 8.4
Common Stock
Weighted average
shares
outstanding(f) 53,147 53,800 54,698 54,366 54,063 54,873 55,333 55,127 54,652 54,268
Earnings (losses)
per common
share:
Earnings from
continuing
operations $3.78 $3.35 $3.07 $2.60 $1.11(d) $2.79 $2.55 $2.26 $1.82 $1.60
Earnings
(losses) from
discontinued
operations - 0.59(a) (0.02) (0.43)(b) (0.13) 0.01 (0.31)(e) 0.16 0.11 0.17
Cumulative
effect of
accounting
change - - - (0.35)(c) - - - - - -
Net earnings $3.78 $3.94 $3.05 $1.82 $0.98 $2.80 $2.24 $2.42 $1.93 $1.77
===========================================================================================================================
Dividends $1.92 $1.80 $1.71 $1.59 $1.47 $1.29 $1.09 $0.92 $0.79 $0.70
Stockholders'
equity at
end of year
(per share) 18.01 17.04 16.03 14.92 14.47 15.00 14.19 13.19 11.51 10.31
Other Data
Continuing
operations
Working
capital
(defic-
iency) $ 121,008 $ 128,443 $ 160,208 $ (25,322)$ 115,626 $ 151,602 $ 265,569 $ 145,780 $ 225,596 $ 198,290
Property,
plant
and
equipment
- net 524,972 532,600 538,101 508,629 441,794 441,681 348,526 312,068 207,712 193,503
Property
additions 62,911 56,627 72,141 114,353 89,009 134,099 66,551 135,702 48,630 59,408
Long-term
debt 253,079 216,088 204,000 203,627 405,341 5,807 5,192 20,739 24,513 33,626
Percent
return on
net sales 10.1 9.8 10.3 9.1 4.1 11.7 11.8 12.0 10.6 9.7
Current
ratio 1.3 1.3 1.4 0.9 1.3 1.7 1.9 1.5 2.3 2.2
Total assets 1,906,672 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
Stockholders'
equity 943,913 909,417 879,294 813,741 784,276 810,514 786,176 712,854 616,447 549,793
Percent return
on average
stockholders'
equity 21.7 24.2 19.8 12.3 6.4 19.1 16.4 19.9 18.0 18.5
(a) Includes net gain on the sale of discontinued business
of $31,430 or $.58 per share.
(b) Includes special charges for the revaluation of certain
intangible assets.
(c) Nonrecurring charge to recognize the accumulated
postretirement health benefit obligation at July 1,
1991, resulting from the adoption of SFAS No. 106.
Operating results preceding 1992 were not restated
for the adoption of this new standard.
(d) Includes a charge for restructuring of $125,250 or
$1.45 per share.
(e) Includes net loss on the disposal of Olympic HomeCare
Products of $20,000, or $.36 per share.
(f) Weighted average shares outstanding and earnings per
share from 1986 through 1989 assume full dilution
from a note converted during 1989.
Quarterly Data
The Clorox Company
1st 2nd 3rd 4th
In thousands, except per-share amounts. Quarter Quarter Quarter Quarter Year
Year ended June 30, 1995
Net Sales $476,367 $414,454 $499,060 $594,289 $1,984,170
Cost of Products Sold 210,134 183,963 225,997 272,078 892,172
Net Earnings 53,181 34,095 54,034 59,522 200,832
Per Common Share
Net Earnings $1.00 $0.64 $1.02 $1.13 $3.78
Dividends 0.48 0.48 0.48 0.48 1.92
Market Price (NYSE)
High 52 3/4 59 1/2 62 3/8 65 3/4 65 3/4
Low 47 3/4 51 1/4 55 1/4 56 47 3/4
Year-end 65 1/4
Price/earnings ratio, year end 17
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(a) - - - 32,064(a)
- ----------------------------------------------------------------------------------------------------------
Net Earnings $ 78,378 $ 30,586 $ 49,515 $ 53,578 $ 212,057
Per Common Share
Net Earnings $1.44(a) $0.57 $0.93 $1.00 $3.94(a)
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
(a) Includes net gain on the sale of discontinued businesses of
$31,430 or $.58 per share.
THE COMPANY'S PRINCIPLE RETAIL BRANDS
United States
BBQ Bag Single-use, lightable bag of 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 Dilutable household cleaner, spray cleaner and
Clean-Up gel
Clorox 2 Regular and Lemon Fresh dry and liquid all-fabric
bleaches
Combat Insecticides: ant and roach bait stations; ant
granules and stakes; roach gel; ant and roach
aerosols and fogger
Control Cat litter
Formula 409 All-purpose spray cleaner, Regular and Professional
Strength; glass and surface cleaner
Fresh Step Cat litter
Fresh Step
Scoop Scoopable cat litter
Hidden Bottled salad dressing, dry salad dressing and party
Valley dip mixes; bottled fat-free salad dressing;
Ranch ready-to-eat dips
Hidden Seasoned mini-croutons
Valley
Ranch
Salad
Crispins
K.C. Barbecue sauce
Master-
piece
Kingsford Charcoal briquets, charcoal briquets with
mesquite, charcoal lighter and wood smoke
chips
Kitchen
Bouquet Browning and seasoning sauce and gravy aid
Liquid- Drain opener, Regular and Professional
Plumr Strength; buildup remover; and septic
system treatment
Match Instant lighting charcoal briquets
Light
Pine-Sol Cleaner, Regular and Lemon Scent; spray cleaner
Soft Scrub Mild abrasive liquid cleanser: regular, with
bleach, and with lemon; and gel
S.O.S Steel wool soap pads: regular, lemon scent and
juniors; home cleaning products
Stain Out Soil and stain remover; liquid and spray
SuperBait Insecticides: roach bait stations
Tackle Household cleaner disinfectant
Tilex Instant mildew remover; soap scum remover
Tuffy Mesh scrubber
PROFESSIONAL PRODUCTS
Clorox Germicidal bleach
Clorox Toilet bowl cleanser
Clorox Professional system products; food service
degreaser, floor cleaner, drain build-up
remover, pot and pan detergent
Clorox Dilutable cleaner
Clean-Up
Combat Insecticides
Formula 409 All-purpose spray cleaner and glass & surface
cleaner
Hidden Salad dressings
Valley
Ranch
K.C. Barbecue sauce
Master-
piece
Kitchen Browning and seasoning sauce and gravy aid
Bouquet
Liquid- Drain opener
Plumr
Maxforce Professional insecticides; ant and roach baits,
roach gel
Pine-Sol Cleaner
Tilex Instant mildew remover
PRINCIPAL INTERNATIONAL MARKETS
Argentina Brazil Canada Chile Colombia Costa Rica Czech
Republic Dominican Republic Egypt Hong Kong Hungary
Japan Malaysia Mexico Panama People's Republic of China
Peru Poland Puerto Rico Republic of Korea
Saudi Arabia/Gulf States Slovak Republic Uruguay
Venezuela Yemen Arab Republic