UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
- -- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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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
- --------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-0595760
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 report 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 March 31, 1997 there were 51,677,360 shares outstanding
of the registrant's common stock (par value - $1.00),
the registrant's only outstanding class of stock.
Total pages 11 1
THE CLOROX COMPANY
PART 1. Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Condensed Statements of Consolidated
Earnings
Three and Nine Months Ended
March 31, 1997 and 1996 3
Condensed Consolidated Balance Sheets
March 31, 1997 and June 30, 1996 4
Condensed Statements of Consolidated
Cash Flows
Nine Months Ended December 31, 1997
and 1996 5
Notes to Condensed Consolidated
Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 8-10
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 Nine Months Ended
------------------------------ ----------------------------
3/31/97 3/31/96 3/31/97 3/31/96
------- ------- ------- -------
Net Sales $ 649,209 $ 560,091 $ 1,770,197 $ 1,545,366
------- ------- --------- ---------
Costs and Expenses
Cost of products sold 287,862 255,570 780,849 700,074
Selling, delivery and
administration 135,355 114,686 372,388 315,720
Advertising 84,543 67,543 254,427 206,653
Research and development 12,035 11,103 34,065 32,510
Interest expense 17,005 10,753 39,247 26,113
Other expense (income), net 2,603 432 (2,356) 2,061
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Total costs and expenses 539,403 460,087 1,478,620 1,283,131
======= ======= ========= =========
Earnings before income taxes 109,806 100,004 291,577 262,235
Income Taxes 44,186 40,405 116,532 105,946
------- ------- ------- -------
Net Earnings $ 65,620 $ 59,599 $ 175,045 $ 156,289
======= ====== ======= =======
Earnings per Common Share $ 1.27 $ 1.15 $ 3.39 $ 3.00
Dividends per Share $ 0.58 $ 0.53 $ 1.74 $ 1.59
Weighted Average Shares
Outstanding 51,740 51,767 51,657 52,070
See Notes to Condensed Consolidated Financial Statements.
3
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Statements of Consolidated Balance Sheets
---------------------------------------------------
(In thousands, except per share amounts)
3/31/97 6/30/97
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ASSETS
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Current Assets
Cash and short-term investments $ 113,732 $ 90,828
Accounts receivable, less allowance 399,304 315,106
Inventories 201,220 138,848
Deferred income taxes 25,058 10,987
Prepaid expenses 19,326 18,076
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Total current assets 758,640 573,845
======= =======
Property, Plant and Equipment - Net 574,422 551,437
Brands, Trademarks, Patents and Other Intangibles 1,151,654 704,669
Investments in Affiliates 102,022 99,033
Other Assets 295,735 249,910
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Total $ 2,882,473 $ 2,178,894
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts payable $ 143,509 $ 155,366
Accrued liabilities 322,447 266,192
Income taxes payable 27,253 9,354
Commercial paper and notes payable 189,244 192,683
Current maturities of long-term debt 41 291
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Total current liabilities 682,494 623,886
Long-term Debt 907,570 356,267
Other Obligations 109,762 100,246
Deferred Income Taxes 157,781 148,408
Stockholders' Equity
Common Stock 55,422 55,422
Additional paid-in capital 120,276 111,782
Retained earnings 1,162,636 1,078,789
Treasury shares, at cost (262,069) (251,393)
Cumulative translation adjustments and other (51,399) (44,513)
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Stockholders' Equity 1,024,866 950,087
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Total $ 2,882,473 $ 2,178,894
========= ==========
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
-----------------------------------------------
(In thousands)
Nine Months Ended
--------------------------
3/31/97 6/30/97
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Operations:
Net earnings $ 175,045 $ 156,289
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization 92,312 90,677
Deferred income taxes 4,351 4,300
Other (2,639) 9,084
Effects of changes in:
Accounts receivable (55,297) 23,741
Inventories (53,079) (43,062)
Prepaid expenses (1,250) (13,885)
Accounts payable (25,875) (37,385)
Accrued liabilities 6,635 (23,203)
Income taxes payable 19,311 25,714
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Net cash provided by operations 159,514 192,270
Investing Activities:
Property, plant and equipment (56,196) (53,678)
Disposal of property, plant and equipment 1,764 2,791
Businesses purchased (460,336) (131,025)
Investment in other assets - (110,045)
Other (59,830) (58,448)
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Net cash used for investment (574,598) (350,405)
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Financing Activities:
Short-term borrowings - 11,160
Long-term borrowings 526,656 110,268
Long-term debt and other obligations repayments (14,981) (15,021)
Commercial paper, net 22,003 154,840
Cash dividends (89,967) (83,082)
Treasury stock (35,459) (82,932)
Employee stock plans 29,736 14,005
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Net cash provided by financing 437,988 109,238
======== =======
Increase (decrease) in Cash and Short-Term Investments 22,904 (48,897)
Cash and Short-Term Investments:
Beginning of period 90,828 137,330
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End of period $ 113,732 $ 88,433
============ ==============
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 nine months ended March 31, 1997 and 1996 has
not been audited but, in the opinion of management,
includes 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). The results of the three and nine
months ended March 31, 1997 and 1996 should not be
considered as necessarily indicative of the results
for the entire year.
(2) Inventories at March 31, 1997 and at June 30, 1996
consisted of (in thousands):
3/31/97 6/30/96
------- -------
Finished goods and
work in process $ 133,670 $ 82,261
Raw materials and
supplies 67,550 56,587
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Total $ 201,220 $ 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 has 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 were purchased during the nine months
ended March 31, 1997 for a total of $460,336,000
and included the acquisition of Armor All Products
Corporation for $360,144,000. The Armor All
acquisition occurred on December 31, 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,
working capital assets of $51,183,000 and
liabilities of $59,803,000, property plant and
equipment of $7,659,000, and intangible assets of
$369,000,000. 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.
6
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
----------------------------------------------------
Acquisitions for the nine months ended March 31,
1996 of $131,025,000 were funded from cash provided
from operations and borrowings, and included the
Poet San Juan business in Argentina consisting of
household cleaners and air fresheners, the
Electroquimicas Unidas S.A.C.I. business in Chile
consisting of household bleaches, the Black Flag
line of insecticides, the acquisition of the
remaining minority interest of the Company's
business in Argentina, and other business interests
in Mexico. These acquisitions were accounted for
as purchases. In connection with the acquisition
of certain foreign operations, an investment in
other assets was made as part of a cost efficient
financing strategy.
(5) Impact of New Accounting Standards
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), Earnings per Share
("EPS"). SFAS 128 requires dual presentation of
basic "EPS" and diluted EPS on the face of all
income statements issued after December 15, 1997
for all entities with complex capital structures.
Basic EPS is computed as net earnings divided by
the weighted average number of common shares
outstanding for the period. Diluted EPS reflects
the potential dilution that could occur from common
shares issuable through stock options, warrants and
other convertible securities. The proforma effect
assuming adoption of SFAS 128 at the beginning of
each fiscal year is presented below:
Three Months Ended Nine Months Ended
---------------------- ----------------------
3/31/97 3/31/96 3/31/97 3/31/96
------- ------- ------- -------
Basic $1.27 $1.15 $3.39 $3.00
Diluted $1.25 $1.14 $3.32 $2.96
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 Three Months Ended March 31, 1997
---------------------------------------------------
with the Three Months Ended March 31, 1996
-----------------------------------------
Earnings per share increased 10 percent to $1.27 from
$1.15, and net earnings increased 10 percent to
$65,620,000 from $59,599,000 a year ago principally due
to a 16 percent increase in net sales driven by a 18
percent increase in volume. Record shipments were
recorded for our Matchlight instant lighting charcoal
briquets, and by our insecticides and cat litter
businesses. Brita water filtration systems shipped
record quarterly volumes reflecting strong growth in all
trade channels. Foreign net sales were 17 percent of
total Company net sales, in both this and the year ago
quarter. Increased sales levels reflect the results of
acquisition activity, principally the effect of the Armor
All products acquisition on December 31, 1996, and
fiscal 1996 acquisitions in Latin America.
Cost of products sold as a percentage of net sales was
44.3 and 45.6 percent in the current and year ago
quarters, respectively. The improvement reflects the
results of certain cost savings measures, including
implementation of a new manufacturing strategy and
initiatives in the food business. 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 25 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 the Brita business to
solidify brand equity and maintain its current category
leadership.
Interest expense increased $6,252,000 over the year ago
period due to higher levels of commercial paper, and
additional indebtedness related to long-term borrowings
that funded acquisitions.
8
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 Nine Months Ended March 31, 1997
--------------------------------------------------
with the Nine Months Ended March 31, 1996
-----------------------------------------
Earnings per share increased 13 percent to $3.39 from
$3.00, and net earnings increased 12 percent to
$175,045,000 from $156,289,000 a year ago principally
due to a 15 percent increase in net sales driven by a
16 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 15 percent of total company sales for the year ago
quarter. Increased sales levels reflect the results of
acquisition activity, principally the effect of the Armor
All products acquisition on December 31, 1996, and fiscal
1996 acquisitions in Latin America.
Cost of products sold as a percent of net sales was 44.1
and 45.3 percent in the current and year ago periods,
respectively. The improvement reflects the results of
certain cost savings measures, including implementation
of a new manufacturing strategy and initiatives in the
food business. 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,
international acquisitions and costs related to
investments in information technology both domestic
and foreign.
Advertising expense increased 23 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. The Company anticipates
that for the full year advertising and sales promotion
should increase at about the same rate as the growth
of sales.
Interest expense increased $13,134,000 over a year ago
due to higher levels of commercial paper and additional
indebtedness to fund the current year acquisition activities.
9
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. Increases in accounts receivable and increases
in inventory balances from June 30, 1996 reflect normal
seasonal variations, principally due to the charcoal and
insecticides businesses, and the acquisition of the Armor
All business on December 31, 1996. Accrued expenses
increased from June 30, 1996 principally due to higher
levels of marketing support and acquisitions.
Acquisitions since June 30, 1996 totaled $460,336,000
and were financed using 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 fourth quarter. These acquisitions,
which included the Armor All line of car cleaning
products for $360,144,000, and acquisitions in Latin
America, resulted in the increase in Brands, Trademarks,
Patents and Other Intangibles.
In September 1996, the Board of Directors authorized a
share repurchase program to offset the dilutive effect
of employee stock option exercises. The Company expects
to issue between 400,000 and 500,000 shares of stock
each year pursuant to its stock based compensation plan
and intends to repurchase approximately the number of
shares issued over time subject to market conditions and
business opportunities which may arise. During the
three month period ended March 31, 1997, 289,000 shares
at a cost of $34,715,000 were reacquired.
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 such risk
factors, the Company refers readers to the Company's
Form 8-K Current Report which was filed on January 9, 1997.
10
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 May 14, 1997 BY /s/ HENRY J. SALVO, JR.
------------------------
Henry J. Salvo, Jr.
Vice-President - Controller
11