UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
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or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-07151
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THE CLOROX COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 31-0595760
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification number)
1221 Broadway - Oakland, California 94612 - 1888
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(Address of principal executive offices)
Registrant's telephone number, (510)-271-7000
(including area code) ---------------
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (
or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of December 31, 1996 there were 51,711,431 shares outstanding of
the registrant's common stock (par value - $1.00), the registrant's
only outstanding class of stock.
Total pages 10 1
THE CLOROX COMPANY
PART 1. Financial Information Page No.
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Item 1. Financial Statements
Condensed Statements of Consolidated
Earnings
Three and Six Months Ended
December 31, 1996 and 1995 3
Condensed Consolidated Balance Sheets
December 31, 1996 and June 30, 1996 4
Condensed Statements of Consolidated
Cash Flows
Six Months Ended December 31, 1996
and 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 7-9
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Statements of Consolidated Earnings
---------------------------------------------
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
-------------------------------- ------------------------------
12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- --------
Net Sales $ 530,215 $ 466,789 $1,120,988 $ 985,275
Costs and Expenses
Cost of products sold 235,626 213,171 492,987 444,504
Selling, delivery and
administration 120,439 102,378 237,033 201,034
Advertising 80,910 66,628 169,884 139,110
Research and development 11,532 11,205 22,030 21,407
Interest expense 11,745 7,588 22,242 15,360
Other (income) expense, net (2,986) 2,196 (4,959) 1,629
-------- -------- -------- --------
Total costs and expenses 457,266 403,166 939,217 823,044
======== ======== ======== ========
Earnings before income taxes 72,949 63,623 181,771 162,231
Income Taxes 29,034 25,712 72,346 65,541
-------- -------- -------- --------
Net Earnings $ 43,915 $ 37,911 $ 109,425 $ 96,690
======== ======== ======== ========
Earnings per Common Share $ 0.85 $ 0.73 $ 2.12 $ 1.85
Dividends per Share $ 0.58 $ 0.53 $ 1.16 $ 1.06
Weighted Average Shares Outstanding 51,685 52,089 51,615 52,222
See Notes to Condensed Consolidated Financial Statements.
3
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Consolidated Balance Sheets
-------------------------------------
(In thousands, except per share amounts)
12/31/96 6/30/96
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ASSETS
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Current Assets
Cash and short-term investments $ 80,911 $ 90,828
Accounts receivable, less allowance 302,002 315,106
Inventories 189,853 138,848
Deferred income taxes 24,110 10,987
Prepaid expenses 25,362 18,076
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Total current assets 622,238 573,845
Property, Plant and Equipment - Net 569,186 551,437
Brands, Trademarks, Patents and Other Intangibles 1,140,328 704,669
Investments in Affiliates 98,833 99,033
Other Assets 280,503 249,910
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Total $ 2,711,088 $ 2,178,894
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts payable $ 116,910 $ 155,366
Accrued liabilities 336,748 266,192
Income taxes payable 11,264 9,354
Commercial paper and notes payable 183,760 192,683
Current maturities of long-term debt 179 291
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Total current liabilities 648,861 623,886
Long-term Debt 793,350 356,267
Other Obligations 121,807 100,246
Deferred Income Taxes 148,221 148,408
Stockholders' Equity
Common Stock 55,422 55,422
Additional paid-in capital 114,663 111,782
Retained earnings 1,128,694 1,078,789
Treasury shares, at cost (252,692) (251,393)
Cumulative translation adjustments and other (47,238) (44,513)
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Stockholders' Equity 998,849 950,087
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Total $ 2,711,088 $ 2,178,894
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See Notes to Condensed Consolidated Financial Statements.
4
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Statements of Consolidated Cash Flows
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(In thousands)
Six Months Ended
-----------------------------------
12/31/96 12/31/95
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Operations:
Net earnings $ 109,425 $ 96,690
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation and amortization 59,783 55,669
Deferred income taxes 2,146 3,300
Other 5,303 12,532
Effects of changes in:
Accounts receivable 43,710 91,497
Inventories (41,838) (33,505)
Prepaid expenses (7,285) 2,243
Accounts payable (52,574) (33,385)
Accrued liabilities 19,194 (44,049)
Income taxes payable 817 (5,863)
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Net cash provided by operations 138,681 145,129
Investing Activities:
Property, plant and equipment (37,403) (30,658)
Disposal of property, plant and equipment 1,921 770
Businesses purchased (452,788) (61,665)
Other (23,386) (22,168)
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Net cash used for investment (511,656) (113,721)
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Financing Activities:
Short-term borrowings 7,671 -
Long-term borrowings 438,196 -
Long-term debt and other obligations repayments (4,637) (12,696)
Commercial paper, net (16,548) 53,223
Cash dividends (59,868) (55,537)
Treasury stock (11,752) (50,150)
Employee stock plans 9,996 2,288
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Net cash provided by (used for) financing 363,058 (62,872)
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Decrease in Cash and Short-Term Investments (9,917) (31,464)
Cash and Short-Term Investments:
Beginning of period 90,828 137,330
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End of period $ 80,911 $ 105,866
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See Notes to Condensed Consolidated Financial Statements.
5
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
----------------------------------------------------
(1) The summarized financial information for the three and six months
ended December 31, 1996 and 1995 has not been audited but, in
the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation
of the results of operations, financial position, and cash
flows of The Clorox Company and subsidiaries (the Company)
have been made. The results of the three and six months
ended December 31, 1996 and 1995 should not be considered
as necessarily indicative of the results for the entire year.
(2) Inventories at December 31, 1996 and at June 30, 1996
consisted of (in thousands):
12/31/96 6/30/96
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Finished goods and work
in process $ 122,495 $ 82,261
Raw materials and supplies 67,358 56,587
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Total $ 189,853 $ 138,848
(3) The aggregate exercise price of the put options, $17,259,000,
which was classified as other long-term obligations at June 30,
1996 have been reclassified to treasury stock at December 31,
1996 as a result of renegotiation of terms which resulted in
these transactions being classified as equity. The Company sold
240,000 put options and purchased 240,000 call options during
the second quarter of fiscal year 1996 with various strike
prices (average of $71.91 per share) that expire on various
dates through September 30, 2005. Upon exercise, each put option
requires the Company to purchase, and each call option allows the
Company to buy one share of its common stock at the strike price.
(4) Businesses purchased for the six months ended December 31,
1996 totaled $452,788,000 and included the acquisition of
Armor All Products Corporation for $360,144,000. The
acquisition occurred on December 30, 1996 with the completion
of a tender offer. The acquired business markets the leading
line of automotive cleaning products under the brand name
Armor All. Net assets acquired include cash of $48,000,000,
other net working capital of $1,100,000, property plant and
equipment of $9,177,000, and intangible assets of $358,000,000
Intangible assets, principally brands and trademarks, will be
amortized over 40 years. Other businesses purchased included
the Shell Group's non-core line of household products in Chile,
the Pinoluz brand of pine cleaner in Argentina, and the Limpido
brand of liquid bleach and an increase in ownership in
Tecnoclor, S.A., both in Colombia.
All acquisitions were accounted for as purchases and were
funded from cash provided by operations, long-term borrowings,
and commercial paper. Commercial paper expected to be refinanced
has been classified as Long-term Debt.
Acquisitions for the six months ended December 31, 1995 of
$61,665,000 were funded from cash provided from operations and
included the Black Flag line of insecticides, the acquisition
of the remaining minority interest of the business in Argentina,
and other business interests in Mexico. These acquisitions
were accounted for as purchases.
6
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
---------------------------------------------
Results of Operations
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Comparison of the Three Months Ended December 31, 1996
with the Three Months Ended December 31, 1995
---------------------------------------------
Earnings per share increased 16 percent to $.85 from $.73, and
net earnings increased 16 percent to $43,915,000 from $37,911,000
a year ago, principally due to a 14 percent increase in net
sales driven by a 13 percent increase in volume. Record shipments
were recorded for our home cleaning business unit which includes
Clean Up, S.O.S, Soft Scrub, and Clorox toilet bowl cleaners.
Clorox 2 Color-Safe bleach shipped its highest volume since the
second quarter of fiscal 1994. Combat insecticides and Kingsford
charcoal shipments were also up strongly. Brita water filtration
systems shipped record quarterly volumes reflecting strong growth
in all trade channels. Foreign net sales were 18 percent of
total Company net sales, up from 15 percent of total Company sales
for the year ago quarter. Increased sales levels reflect the
results of acquisition activity, principally in Latin America.
Cost of products sold as a percentage of net sales was 44.4 and
45.7 percent in the current and year ago quarters, respectively.
The improvement reflects the results of certain cost savings
measures, including our manufacturing strategy and our
initiative in the food business. These margins are anticipated
to remain at approximately these levels for the remainder of the
fiscal year.
Selling, delivery, and administration expense increased 18
percent over the year ago period principally due to continued
investment in international infrastructure, foreign acquisitions
and costs arising from investments in information technology
both domestically and abroad.
Advertising expense increased 21 percent over the year ago
period principally due to higher media spending as well as
sales promotion spending on new product activities, and spending
for our Brita business to solidify brand equity and maintain our
current category leadership.
Interest expense increased $4,157,000 over the year ago period
due to higher levels of commercial paper, and additional
indebtedness related to long-term borrowings that funded
acquisitions.
7
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
---------------------------------------------
Results of Operations
---------------------
Comparison of the Six Months Ended December 31, 1996
with the Six Months Ended December 31, 1995
---------------------------------------------
Earnings per share increased 15 percent to $2.12 from $1.85, and
net earnings increased 13 percent to $109,425,000 from $96,690,000
a year ago, principally due to a 14 percent increase in net
sales driven by a 14 percent increase in volume. Record shipments
were recorded for our home cleaning business unit which includes
Formula 409, Clean Up, Soft Scrub, S.O.S, Pine-Sol and Clorox
toilet bowl cleaners. Combat insecticides and cat litter
shipments were both up in volume versus the year ago period.
Brita water filtration systems shipped record volumes that
reflect continued strong growth in all trade channels.
Foreign net sales were 16 percent of total Company net sales,
up from 13 percent of total Company sales for the year ago
quarter. Increased sales levels reflect the results of
acquisition activity, principally in Latin America.
Cost of products sold as a percent of net sales was 44 and 45
percent in the current and year ago periods, respectively.
The improvement reflects the results of certain cost savings
measures, including our manufacturing strategy and our
initiative in the food business. These margins are expected to
remain at approximately this level for the remainder of the
fiscal year.
Selling, delivery and administration expense increased 18
percent over the year ago period principally due to continued
investment in international infrastructure, international
acquisitions and costs related to investments in information
technology both domestic and foreign.
Advertising expense increased 22 percent versus a year ago.
This increase reflects heavier media and sales promotion
expenses for new product introductions, and the spending to
solidify Brita's brand equity and maintain category leadership.
We anticipate that for the full year advertising and sales
promotion should increase at about the same rate as the growth
of sales.
Interest expense increased $6,882,000 over a year ago due to
higher levels of commercial paper and additional indebtedness
to fund the acquisition activities this year.
8
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
---------------------------------------------
Liquidity and Capital Resources
-------------------------------
The Company's financial position and liquidity remain strong
due to cash provided by operations during the period.
Decreases in accounts receivable and accounts payable, and
increases in inventory balances from June 30, 1996 reflect
normal seasonal variations, principally due to the charcoal
and insecticides businesses. Accrued expenses increased from
June 30, 1996 principally due to higher levels of marketing
support and acquisitions. We expect inventories to increase
during the next fiscal quarter to support the seasonal
charcoal and insecticides businesses.
Acquisitions since June 30, 1996 totaled $452,788,000 and were
financed from a combination of cash provided by operations,
long term borrowing, and commercial paper borrowing anticipated
to be refinanced on a long-term basis during the upcoming
quarter. These acquisitions, which included the Armor All
line of car cleaning products for $360,144,000, and acquisitions
in Latin America, were the principal causes for the increase
in Brands, Trademarks, Patents and Other Intangibles.
The Company has approved the use of interest rate derivative
instruments such as interest rate swaps in order to manage the
impact of interest rate movements on interest expense. 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.
Management believes the Company has access to additional capital
through existing lines of credit and from public and private
sources should the need arise.
The foregoing Management's Discussion and Analysis contains
"forward-looking" statements under applicable securities laws.
The Company cautions readers that actual results might differ
materially from those projected depending on a number of economic
and competitive risk factors. For a discussion of some of those
risk factors, the Company refers readers to the Company's Form
8-K Current Report which was filed on January 9, 1997.
9
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE CLOROX COMPANY
(Registrant)
DATE February 13, 1997 BY /s/ Henry J. Salvo, Jr.
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Henry J. Salvo, Jr.
Vice-President - Controller
10