Management's Discussion and Analysis of Operations
Shares and per-share amounts restated to reflect 2-for-1
stock split that was effective September 2, 1997.
Results of Worldwide Operations
The Company's 1997 operations achieved record unit volumes,
sales and earnings per share after record years in 1996 and
1995. Volume for the Company's products grew by 15% over 1996
and was the primary driver of the 14% increase in net customer
sales. Net customer sales were up due to volume increases from
our base businesses, the Armor All acquisition, and other
businesses acquired during the current and prior year. Record
volumes were achieved by Clorox liquid bleach, Kingsford and
Match Light brands of charcoal briquets, Fresh Step and Fresh
Step Scoop brands of cat litter, K.C. Masterpiece barbecue
sauce and our Brita water filtration systems business. Without
Armor All, net customer sales would have grown 11%. The gain
in 1996 volume and net customer sales was principally due to
acquisition activities in Latin America, and record volumes
for Pine-Sol, Clorox toilet bowl cleaner, Clorox liquid bleach,
Clorox Clean-Up cleaner, Tilex products, Kingsford charcoal
briquets, and the Brita water filtration business in the United
States. Also affecting 1996 was the acquisition of Black Flag
insecticide in that year and the acquisition of Brita Canada
in 1995.
Cost of products sold as a percent of sales in 1997 improved
one percentage point from 1996 to 44% primarily due to the
implementation of a new manufacturing strategy last year that
enables us to achieve cost savings through consolidation of
production facilities. Additionally, our businesses in Latin
America are beginning to show significant improvement in
product costs due to efficiencies from consolidation of
production activities and economies of scale achieved from
acquisitions.
Research and development expenses increased 10% over 1996 and
remain at about 2% of net customer sales. Over the past few
years, productivity programs in the R & D function have
improved the cycle times for bringing new ideas to market and
have enabled us to control and make spending in this area
more effective.
Selling, delivery, and administration expenses increased 17%
over 1996, and remained at approximately 21% of net sales,
principally due to our continued investment in international
infrastructure, international acquisitions, and costs related
to investments in information technology both domestically and
abroad. New information technologies are being installed for
our international businesses to achieve future productivity
and cost improvements. Additionally, during 1997, we performed
a thorough analysis of the impact of modifying our computer
software for the Year 2000. We believe that all software
necessary to effectively operate and manage our businesses
will be replaced, modified or upgraded by the Year 2000, and
that any related costs will not have a material impact on the
operations, cash flows, or Financial condition of future
periods.
Advertising expense increased 22% over 1996. This increase
reflects higher levels of media and sales promotion spending
to support the introduction of new products, to ensure that
our established brand equities remain strong, and in particular
to solidify Brita's brand equity and category leadership.
Advertising expense in 1996 increased 5% over 1995. This lower
rate of increase was due to improved sales promotion efficiency
with continued investment in media.
Interest expense increased 45% from a year ago principally due
to an increase of approximately $390,000,000 in both short- and
long-term borrowing to fund 1997 acquisitions. Interest
expense increased $13,168,000 and $6,696,000 in 1996 and 1995,
respectively, due to additional borrowings to fund acquisitions
and our share-repurchase programs in those years.
The effective tax rate was 40% in 1997 and 1996, 41% in 1995,
and is anticipated to remain in this range for the foreseeable
future.
Other income (expense) net, is higher this year principally due
to a higher level of sales of nonoperating property in 1997,
non-recurring 1996 costs for manufacturing strategy
implementation, a higher level of investment earnings from tax
advantaged investments, offset by higher levels of amortization
expense from intangible assets acquired in both 1996 and 1997.
Earnings per share from continuing operations increased $0.27,
$0.25, and $0.21 over 1996, 1995, and 1994, respectively, and
represented a 13% compound annual growth since 1994. This per-
share growth is primarily a function of volume growth described
above and also reflects the results of our share repurchase
programs.
Foreign Operations
Net sales (excluding exports) increased 29% to $389,132,000
from 1996, and now represent 15% of the Company's revenues.
Net sales in 1996 increased 67% over 1995, and represented
14% and 9% of the Company's revenues in those periods,
respectively. Growth in net sales is due to growth in the base
business and acquisitions in Argentina, Chile, Puerto Rico,
and Colombia. The Armor All acquisition resulted in our first
presence in Australia and an expanded presence in Japan.
Earnings before income taxes increased 125% over 1996
principally due to unit volume growth, cost savings initiatives
and consolidation efforts. Pretax profit margins improved to 8%
of net sales from 5% in 1996. Further improvement is
anticipated as we grow this part of the business, begin to
realize economies of scale from strategic acquisitions, and
begin to see the benefits of newly initiated brand strategies.
Identifiable assets grew to $747,944,000 in 1997 from
$297,999,000 in 1995, and reflect growth that has come
principally from acquisitions of existing businesses abroad.
The local currency is the functional currency in most of our
businesses abroad. The Argentine peso and the Canadian dollar
represent the majority of our foreign currencies' exposure to
exchange rate changes. Movements in these and other foreign
currencies' exchange rates may have an impact on future
operating results as recorded in the Company's consolidated
net sales and earnings. Such movements are also reflected on
the balance sheet as changes in deferred translation, and as
foreign exchange gains or losses in earnings, both of which
were not material in 1997, 1996, and 1995. The Company's risk
management strategy has been to hedge certain material foreign
currency operating exposures with simple financial instruments
such as foreign currency forward contracts. In addition, the
Company has hedged certain net investments in foreign
investments with similar instruments when economic
circumstances warranted a risk averse strategy.
Financial Position and Liquidity
Cash provided by operations was $362,000,000 in 1997, and
followed a record $407,000,000 in 1996, and was the result of
record earnings in both periods and our continued focus on the
efficient utilization of resources driven by our Clorox Value
Measure (CVM) economic value measurement system put in place in
1993. CVM increased 10% in 1997 over 1996 despite a high level
of acquisition activity this year.
Working capital changes included increases in accounts
receivable, inventories, and accrued liabilities due to
international base business growth and acquisitions, as well as
domestic base business growth and the Armor All Products
Corporation acquisition. Accrued expenses grew primarily from
higher levels of advertising and sales promotion activities in
our domestic household products businesses. Short-term debt and
commercial paper increased over a year ago to fund the short-
term and seasonal cash needs of the businesses. Long-term debt
increased in 1997 and 1996 to help fund our acquisition
activities.
During 1997, we invested $469,701,000 in new businesses.
Armor All, purchased for $360,144,000, was the major
acquisition. Other businesses acquired were in Latin America
and 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 equity ownership in Tecnoclor S.A. in Colombia.
During 1996, we invested $165,231,000 in new businesses.
Foreign acquisitions included the Poett San Juan home
products business in Argentina, the largest business acquired,
and the Electroquimicas Unidos S.A.C.I. bleach business in
Chile. Domestic acquisitions included the Black Flag line of
insecticides and the Lestoil brand of home cleaning products.
During 1995, $97,651,000 was invested in new businesses, all
of which were outside the United States. The largest single
investment was Brita International Holdings, Inc. of Canada.
Dividends paid in 1997 were $119,963,000 or $1.16 per share.
On July 15,1997, we announced a 10.3% increase in the quarterly
dividend rate to $0.32 from $0.29 per share for a new annual
rate of $1.28. This is the twenty-first consecutive annual
dividend increase. The Company also announced a 2-for-1 stock
split distributable September 2 to stockholders of record on
July 28, 1997. This action is anticipated to result in higher
liquidity and a broader market for our stock. All share and
per-share information in the accompanying Consolidated
Financial Statements rejects the stock split.
In 1997, 1996, and 1995, cash flow from operations exceeded
cash needs for capital expenditures, dividends, and scheduled
debt service. We believe that cash flows from operations,
supplemented by financing expected to be available from
external sources, will provide sufficient liquidity for the
foreseeable future. At June 30, 1997, we had available a
$350,000,000 credit agreement expiring April 30, 2002 with a
syndication of banks as a supplement to internal cashflows.
Depending upon conditions in the financial markets and other
factors, the Company may from time to time consider the
issuance of debt or other securities, the proceeds of which
would be used to finance acquisitions, to refinance debt,
or for other general business purposes.
In September 1996, the Board of Directors authorized a share
repurchase program to offset the dilutive effect of employee
stock option exercises. We anticipate issuing 800,000 to
1,000,000 shares of stock each year due to stock-based
compensation plans and intend to repurchase approximately that
number of shares over time subject to market conditions and
business opportunities that may arise. During 1997, we
repurchased 927,000 shares at a cost of $54,063,000. During
1996, we completed a stock repurchase program authorized in
July 1995 by our Board of Directors under which 2,533,812
shares were repurchased at a cost of $98,112,000. During 1995,
we completed a stock repurchase program initiated in 1989 in
which 10,000,000 shares were repurchased. 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. They 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.
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,
1997 and 1996, expected costs have been accrued for the
probable future costs of environmental liabilities without
offset for expected insurance recoveries or discounting for
present value.
Quantitative and qualitative disclosures about market risk for
financial instruments and derivatives is presented on pg. 39.
Readers are cautioned that any discussion of future business
prospects is subject to risks and uncertainty, and actual
results could differ materially from those discussed in this
Annual Report. We refer readers to the Company's statement
entitled "Forward-Looking Statements and Risk Factors" which
was contained in its SEC Form 8-K filed on January 7, 1997.
It discusses the risk factors that are of particular importance
to the Company.
STATEMENTS OF CONSOLIDATED EARNINGS
Years ended June 30 (in thousands, except per-share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
NET SALES $2,532,651 $2,217,843 $1,984,170
- -----------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of products sold 1,123,459 1,007,200 892,172
Selling, delivery and administration 543,804 464,767 416,392
Advertising 348,521 285,015 271,730
Research and development 50,489 45,821 44,819
Interest expense 55,623 38,288 25,120
Other (income) expense, net (5,260) 6,365 (3,957)
- -----------------------------------------------------------------------------------------------------
Total costs and expenses 2,116,636 1,847,456 1,646,276
- -----------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 416,015 370,387 337,894
INCOME TAXES 166,573 148,295 137,062
- -----------------------------------------------------------------------------------------------------
NET EARNINGS $ 249,442 $ 222,092 $ 200,832
======================================================================================================
EARNINGS PER COMMON SHARE $ 2.41 $ 2.14 $ 1.89
======================================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 103,292 103,869 106,295
======================================================================================================
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
Years ended June 30 (in thousands, except per-share amounts) 1997 1996
- ------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 101,046 $ 90,828
Accounts receivable, less allowance 356,996 315,106
Inventories 170,340 138,848
Prepaid expenses 22,534 18,076
Deferred income taxes 22,581 10,987
- ------------------------------------------------------------------------------------------
Total Current Assets 673,497 573,845
- ------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT - NET 570,645 551,437
- ------------------------------------------------------------------------------------------
BRANDS, TRADEMARKS, PATENTS AND OTHER INTANGIBLES - NET 1,186,951 704,669
- ------------------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATES 93,004 99,033
- ------------------------------------------------------------------------------------------
OTHER ASSETS 253,855 249,910
- ------------------------------------------------------------------------------------------
TOTAL $2,777,952 $2,178,894
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 143,360 $ 155,366
Accrued liabilities 358,785 266,192
Short-term debt 369,973 192,683
Income taxes payable 17,049 9,354
Current maturities of long-term debt 3,551 291
- ------------------------------------------------------------------------------------------
Total Current Liabilities 892,718 623,886
- ------------------------------------------------------------------------------------------
LONG-TERM DEBT 565,926 356,267
- ------------------------------------------------------------------------------------------
OTHER OBLIGATIONS 112,539 100,246
- ------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 170,723 148,408
- ------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock - authorized, 375,000,000 shares, $1 par value 110,844 110,844
Additional paid-in capital 66,803 56,360
Retained earnings 1,207,524 1,078,789
Treasury shares, at cost (289,075) (251,393)
Cumulative translation adjustments and other (60,050) (44,513)
===========================================================================================
Stockholders' Equity 1,036,046 950,087
- -------------------------------------------------------------------------------------------
TOTAL $ 2,777,952 $2,178,894
===========================================================================================
See Notes to Consolidated Financial Statements.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
Cumulative
In thousands except share Common Stock Additional Treasury Shares Translation
----------------- Paid-In Retained -------------------- Adjustments
and per-share amounts Shares Amount Capital Earnings Shares Amount and Other
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1994
As previously reported 55,422,297 $55,422 $106,554 $ 876,832 (2,050,041) $(107,146) $(22,245)
2-for-1 stock split effective
September 2, 1997 55,422,297 55,422 (55,422) (2,050,041)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1994 110,844,594 110,844 51,132 876,832 (4,100,082) (107,146) (22,245)
Net earnings 200,832
Dividends ($0.96 per share) (102,272)
Employee stock plans
and other 1,793 (4,012) 710,422 17,199 (1,187)
Treasury stock acquired (2,650,970) (78,270)
Translation adjustments 413
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1995 110,844,594 110,844 52,925 971,380 (6,040,630) (168,217) (23,019)
Net earnings 222,092
Dividends ($1.06 per share) (110,447)
Employee stock plans
and other 3,435 (4,236) 725,500 14,936 (9,949)
Treasury stock acquired (2,533,812) (98,112)
Translation adjustments (11,545)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1996 110,844,594 110,844 56,360 1,078,789 (7,848,942) (251,393) (44,513)
Net earnings 249,442
Dividends ($1.16 per share) (119,963)
Employee stock plans
and other 10,443 (744) 1,095,886 16,381 (1,213)
Treasury stock acquired (927,000) (54,063)
Translation adjustments (14,324)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1997 110,844,594 $110,844 $66,803 $1,207,524 (7,680,056) $(289,075) $(60,050)
================================================================= ==========================================================
See Notes to Consolidated Financial Statements.
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years ended June 30 (in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
OPERATIONS
Net earnings $249,442 $222,092 $200,832
Adjustments to reconcile to net cash provided
by operations:
Depreciation and amortization 126,386 116,534 103,866
Deferred income taxes 2,120 2,020 15,386
Other (3,864) 16,057 7,498
Effects of changes in:
Accounts receivable (1,706) 27,447 (58,314)
Inventories (24,299) (5,132) (11,723)
Prepaid expenses (4,458) 7,653 (1,892)
Accounts payable (26,024) 17,890 21,771
Accrued liabilities 37,866 2,561 15,630
Income taxes payable 6,625 (457) (2,205)
- ------------------------------------------------------------------------------------------------------
Net cash provided by operations 362,088 406,665 290,849
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property, plant and equipment (95,188) (84,804) (62,911)
Businesses purchased (469,701) (165,231) (97,651)
Disposal of property, plant and equipment 6,116 2,671 8,707
Other (13,871) (47,312) (23,299)
- ------------------------------------------------------------------------------------------------------
Net cash used for investment (572,644) (294,676) (175,154)
- ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Long-term borrowings 199,077 110,000 47,298
Long-term debt and Other Obligations repayments (22,678) (14,732) (2,806)
Forward purchase financing agreements - (110,045) (31,138)
Short-term borrowings 193,926 50,763 62,115
Cash dividends (119,963) (110,447) (102,272)
Treasury stock acquired (54,063) (98,112) (78,270)
Employee stock plans and other 24,475 14,082 10,786
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing 220,774 (158,491) (94,287)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
short-term investments 10,218 (46,502) 21,408
Cash and short-term investments:
Beginning of year 90,828 137,330 115,922
- ------------------------------------------------------------------------------------------------------
End of year $101,046 $ 90,828 $137,330
======================================================================================================
CASH PAID FOR
Interest (net of amounts capitalized) $ 51,813 $ 36,576 $ 25,479
Income taxes 120,223 116,799 106,821
NONCASH TRANSACTIONS
Liabilities arising from businesses purchased $107,227 $ 75,690 $ 25,047
=====================================================================================================
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION The
Company is principally engaged in the production and marketing
of nondurable consumer products through grocery stores, mass
merchandiser and other retail outlets. The consolidated
financial statements include the statements of the Company and
its majority-owned and controlled subsidiaries. All significant
intercompany transactions and accounts are eliminated in
consolidation.
STOCK SPLIT On July 15, 1997, the Company's Board of
Directors authorized a 2-for-1 split of its common stock
effective September 2, 1997, in the form of a stock dividend
for stockholders of record at the close of business on July 28,
1997. All share and per-share amounts in the accompanying
consolidated financial statements have been restated to give
effect to the stock split.
ACCOUNTING ESTIMATES The preparation of consolidated
financial statements in conformity with generally accepted
accounting principles requires management to make estimates
and assumptions that affect reported amounts and related
disclosures. Actual results could differ from estimates and
assumptions made.
SHORT-TERM INVESTMENTS Short-term investments consist of
money market and other high-quality instruments with an initial
maturity of three months or less and are stated at cost, which
approximates market value.
INVENTORIES Inventories are stated at the lower of cost or
market. Cost of the majority of inventories is determined on
the last-in, first-out (LIFO) method. Cost of 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.
Carrying values are reviewed periodically for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
BRANDS, TRADEMARKS, PATENTS AND OTHER INTANGIBLES Brands,
trademarks, patents and other intangible assets arising from
transactions after October 30, 1970 are amortized over their
estimated useful lives 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%
equity ownership in Henkel Iberica, S.A. of Spain.
FORWARD PURCHASE FINANCING AGREEMENTS In connection with
the financing of an acquisition in Argentina in 1996 and the
acquisition of the Brita water filtration systems business in
Canada in 1995, the Company entered into forward purchase
agreements with third parties whereby the Company has purchased
preferred stock of certain of its foreign subsidiaries for
future delivery from third parties who have the right to
acquire this preferred stock according to the terms of certain
subscription agreements. The difference between the purchase
price and the subscription price of the preferred stock is
being accreted on a straight-line basis over the terms of
the agreements.
INCOME TAXES The Company uses the asset and liability
method to account for income taxes.
FOREIGN CURRENCY TRANSLATION Local currencies are the
functional currencies for most of the Company's foreign
operations. Assets and liabilities are translated using the
exchange rates in effect at the balance sheet date. Income and
expenses are translated at the average exchange rates during
the year. Translation gains and losses, and the effects of
exchange rate changes on transactions designated as hedges of
net foreign investments, are reported in stockholders' equity.
Transaction gains and losses and foreign currency gains and
losses where the U.S. dollar is the functional currency 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 its affiliates, were 15%, 14% and 13%
of consolidated net sales in 1997, 1996 and 1995, 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, accounts receivable, and net
investments in foreign subsidiaries and they are treated as
off-balance sheet items. Foreign currency forward contracts are
used to hedge certain short-term and long-term debt instruments
and are recognized when mark to market adjustments are made for
exchange rate changes. 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. Interest rate swap agreements are accounted for using
the settlement basis of accounting. As such, no gains or losses
are recorded for movements in the swaps' values during the
term of the agreements.
STOCK-BASED COMPENSATION The Company continues to account
for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Compensation cost
for stock options, if any, is measured as the excess of the
quoted market price of the Company's stock at the date of grant
over the amount an employee must pay to acquire the stock.
Restricted stock is recorded as compensation cost over the
requisite vesting periods based on the market value on the date
of grant. Compensation cost for shares issued under performance
share plans is recorded based upon the current market value of
the Company's stock at the end of each period.
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" established accounting
and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. The
Company has elected to remain on its current method of
accounting as described above, and has adopted the disclosure
requirements of SFAS No. 123.
IMPACT OF NEW ACCOUNTING STANDARDS In February 1997, the
Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings per Share" ("EPS"). SFAS No. 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
rejects the potential dilution that could occur from common
shares issuable through stock options, warrants and other
convertible securities. Basic EPS and diluted EPS for 1997,
1996 and 1995 are not materially different than the Earnings
per Common Share amounts shown on the Statements of
Consolidated Earnings for those years.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" which requires that an enterprise report,
by major components and as a single total, the change in its
net assets during the period from nonowner sources; and No.
131, "Disclosures about Segments of an Enterprise and Related
Information" which establishes annual and interim reporting
standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and
major customers. Adoption of these statements will not impact
the Company's consolidated financial position, results of
operations or cash flows, and any effect will be limited to the
form and content of its disclosures. Both statements are
effective for fiscal years beginning after December 15, 1997.
NOTE 2 ACQUISITIONS
Acquisitions in 1997 totaled $469,701,000 and included the
acquisition of Armor All Products Corporation for $360,144,000
on December 31, 1996. Armor All markets the leading line of
automotive cleaning products. Net assets acquired, at fair
values, included working capital assets of $51,183,000 and
liabilities of $67,485,000, and property, plant and equipment
of $7,659,000. Intangible assets of $368,787,000, principally
brands and trademarks, will be amortized over 40 years. Other
businesses purchased for $109,557,000 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. Net assets acquired, at fair value, included net
working capital of $9,427,000; property, plant and equipment
of $2,425,000; and brands, trademarks and intangibles of
$97,705,000, which will be amortized over periods of up to 40
years.
Acquisitions in 1996 totaled $165,231,000 and included Black
Flag insecticides, Lestoil cleaner, the Poett San Juan home
cleaning products business in Argentina, and the Electroquimicas
Unidas S.A.C.I. business in Chile. Approximately $143,019,000
of the acquisition cost has been allocated to brands,
trademarks and other intangibles to be amortized over estimated
lives of up to 40 years. Purchases included, at fair value,
assets of $97,902,000, and the assumption of liabilities of
$75,690,000.
Acquisitions in 1995, which totaled $97,651,000, included Brita
International Holdings, Inc., a Canadian-based manufacturer
and marketer of Brita water filtration systems, and eight
foreign investments. Approximately $96,337,000 of the
acquisition cost was allocated to brands, trademarks, and other
intangibles to be amortized over estimated lives of up to 40
years. Acquisitions included, at fair value, assets of
$26,361,000 and the assumption of liabilities of $25,047,000.
Operating results of acquired businesses are included in
consolidated net earnings from the date of acquisition. All
acquisitions were accounted for as purchases and were funded
from cash provided by operations, long-term debt, and
commercial paper.
NOTE 3 INVENTORIES
The major classes are (in thousands):
1997 1996
- -------------------------------------------------------------
Finished goods and work in process $109,189 $ 82,261
Raw materials and supplies 61,151 56,587
- -------------------------------------------------------------
Total $170,340 $138,848
=============================================================
Had the cost of inventories been determined using the FIFO
method, inventories would have been higher by approximately
$14,614,000 at June 30, 1997 and $13,320,000 at June 30, 1996.
The LIFO method was used to value approximately 60% of the
inventory at June 30, 1997 and 1996.
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
The major classes are (in thousands):
1997 1996
- ------------------------------------------------------------
Land and improvements $ 68,772 $ 63,474
Buildings 292,846 274,895
Machinery and equipment 647,158 577,015
Construction in progress 36,631 45,897
- ------------------------------------------------------------
Total 1,045,407 961,281
Less accumulated depreciation 474,762 409,844
- ------------------------------------------------------------
Net $ 570,645 $551,437
============================================================
Depreciation expense was $72,498,000 in 1997, $72,619,000 in
1996 and $66,886,000 in 1995.
NOTE 5 BRANDS, TRADEMARKS, PATENTS AND
OTHER INTANGIBLES-NET
The major classes are (in thousands):
1997 1996
- ------------------------------------------------------------
Brands and trademarks $1,204,479 $722,149
Patents and other intangibles 173,437 133,096
- ------------------------------------------------------------
Total 1,377,916 855,245
Less accumulated amortization 190,965 150,576
- ------------------------------------------------------------
Net $1,186,951 $704,669
============================================================
Brands and trademarks include $41,708,000 of continuing value
arising from transactions prior to October 31, 1970.
NOTE 6 OTHER ASSETS
The major components are (in thousands):
1997 1996
- ------------------------------------------------------------
Forward purchase
financing agreements $156,919 $146,524
Other 96,936 103,386
- ------------------------------------------------------------
Total $253,855 $249,910
============================================================
The cost to acquire preferred stock of certain foreign
subsidiaries according to terms of forward purchase financing
agreements was $141,183,000 during 1996. The difference
between cost and the third-party subscription price of the
preferred stock is being accreted on a straight-line basis
over five years. The amount of accretion included in other
income was $10,395,000 in 1997 and $5,341,000 in 1996.
NOTE 7 ACCRUED LIABILITIES
Advertising costs included in accrued liabilities at June
30, 1997 and 1996 were $167,847,000 and $121,877,000,
respectively.
NOTE 8 SHORT-TERM DEBT
The major components are (in thousands):
1997 1996
- ------------------------------------------------------------
Commercial paper $225,167 $167,241
Other 144,806 25,442
- ------------------------------------------------------------
Total $369,973 $192,683
============================================================
The weighted average borrowing rates on commercial paper
outstanding was 5.6% and 5.4%, respectively. Other in 1997
included $136,000,000 of redeemable subsidiary preference
shares. This borrowing arrangement was refinanced by commercial
paper borrowings in July 1997 at a rate of approximately 5.5%.
NOTE 9 LONG-TERM DEBT
The principal components are (in thousands):
1997 1996
- ------------------------------------------------------------
8.8% Non-callable notes due August
2001, including net unamortized
premium of $140 and $173,
respectively $200,140 $200,173
Redeemable subsidiary preference
shares due April 2002 with a
preferred dividend rate of 5.3% 195,540 -
Bank loans due March 2001, including
accrued unpaid interest of
$10,955 and $2,325 at
rates ranging from 3.5% to 7.9% 154,730 140,562
Other debt 19,067 15,823
- ------------------------------------------------------------
569,477 356,558
Less current maturities 3,551 291
- ------------------------------------------------------------
Long-term debt $565,926 $356,267
============================================================
In 1997, the Company issued redeemable preference shares of
one of its subsidiaries to private investors. These shares
have no voting rights and have a preference as to distributions.
Simultaneous with the issuance of the shares, the Company and
the private investors entered into a series of agreements
which effectively enforce redemption of the shares and provide
the private investors with no risk of ownership. The agreements
are denominated in foreign currencies which have been Fixed at
the above dollar values through the use of forward currency
agreements. Dividend payments on the preference shares are
classified as interest expense.
The Company has a $350,000,000 credit agreement with a
syndication of banks which expires on April 30, 2002. The
credit agreement requires maintenance of a minimum net worth
of $704,000,000. At June 30, 1997, there are no borrowings
under the credit agreement and it is available for general
corporate purposes and for the support of additional
commercial paper issuance.
Long-term debt repayments are scheduled to be $154,730,000,
$395,680,000, and $15,516,000 in 2001, 2002, and years
thereafter, respectively.
NOTE 10 FINANCIAL INSTRUMENTS
In order to manage the impact of interest rate movements, the
Company has various interest rate swap agreements. The
transactions effectively convert a portion of the Company's
interest rate exposure on its 8.8% Fixed rate non-callable
notes to a floating rate. The effect of the swap agreements on
the 8.8% Fixed rate notes reduced interest expense by $687,000,
$522,000 and $573,000 in 1997, 1996 and 1995, respectively,
and resulted in effective borrowing rates of approximately 8.5%
in each of these years. Under the terms of these agreements,
the Company agreed with other parties to exchange, at specified
intervals, the difference between Fixed-rate and floating-rate
interest amounts as calculated by reference to agreed upon
notional principal amounts. LIBOR is used as the variable rate
index for the calculation.
In 1996, the Company entered into a Canadian dollar interest
rate swap that converted a portion of the exposure of floating
interest rate Canadian debt to a Fixed rate of 6.3%. This swap
agreement resulted in an effective borrowing rate of 6.0% and
6.9% in 1997 and 1996.
Exposure to counterparty credit risk has been decreased by
entering into these agreements only with major financial
institutions that are expected to fully perform under the terms
of the swap agreements.
Notional amounts outstanding (in thousands) and weighted
average rates at June 30 are:
1997 1996
- -----------------------------------------------
Received Fixed/pay
floating - notional
amounts $100,000 $100,000
Weighted average
receive rate 6.3% 6.3%
Weighted average
pay rate 6.0% 5.9%
Pay Fixed/received
floating notional
amounts $ 25,665 $ 75,665
Weighted average
pay rate 6.7% 7.4%
Weighted average
receive rate 5.2% 6.4%
===============================================
Original terms to maturity were from 7 1/2 to 7 3/4 years
where Fixed rates are received and at June 30, 1997, the
remaining term for these agreements was approximately 4 years.
Original terms to maturity where Fixed rates are paid were
1 3/4 to 2 years. Two of these agreements expired during 1997
and the remaining agreement expires during 1998.
Foreign currency forward contracts may be used periodically
to manage foreign exchange risks associated with export sales
and purchases from foreign suppliers denominated in a foreign
currency, net investments in foreign subsidiaries, and other
third-party or intercompany foreign currency obligations. These
contracts are entered into with major financial institutions
thereby decreasing the risk of loss. Foreign currency forward
contracts with notional amounts totaling $427,677,000 and
$100,900,000 were outstanding at June 30, 1997 and 1996,
respectively. Included in 1997 are $331,500,000 of sterling
denominated notional amounts, and 1997 and 1996 amounts also
include $88,250,000 and $90,000,000, respectively, of Argentine
peso contracts. The balance of the 1997 amount and the 1996
amount is Canadian dollar denominated contracts and the
majority of these contracts will expire prior to June 30, 1998.
FAIR VALUES The Company has used market information for
similar instruments and applied judgment to estimate fair
values of financial instruments. The carrying values of cash
and short-term investments, accounts receivable and payable
approximate fair values due to their short-term nature.
The values of other financial instruments at June 30 are
(in thousands):
1997 1996
- --------------------------------------------------------------
Book Fair Book Fair
- --------------------------------------------------------------
Forward
purchase
financing
agreements $ 156,919 $ 156,919 $ 146,524 $ 146,524
Short-term debt (369,973) (375,455) (192,683) (192,683)
Long-term debt (565,926) (585,523) (356,267) (373,267)
Foreign
exchange
contracts(1) - 8,918 - (211)
Interest rate
swaps(1) - (2,460) - (4,095)
===============================================================
(1) Represents unrealized (gain), loss
NOTE 11 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 sold 1,100,000 and 480,000 put options and
purchased 1,100,000 and 480,000 call options during fiscal 1996
and 1997, respectively, with various strike prices (average of
$47.87 per share) that expire on various dates through
September 30, 2005. Upon exercise, each put option requires the
Company to purchase, and each call option allows the Company to
purchase one share of its common stock at the strike price. The
aggregate exercise price of the put options of $75,638,000 at
June 30, 1997 is netted against treasury shares within equity
and the aggregate exercise price of the 1996 put options,
$17,259,000, which was classified as Other Obligations at June
30, 1996, has been reclassified to treasury shares to conform
to the June 30, 1997 presentation as a result of the
renegotiation of option terms.
NOTE 12 STOCK COMPENSATION PLANS
The Company has three stock option plans that provide for the
granting of stock options to officers and key employees. The
objectives of these plans include attracting and retaining
the best personnel, providing for additional performance
incentives, and promoting the success of the Company by
providing employees the opportunity to acquire common stock.
The 1996 Stock Incentive Plan ("1996 Plan") is the only plan
with stock option awards available for grant; prior plans
have shares exercisable at June 30, 1997. The Company is
authorized to grant options for up to 7,000,000 common shares
under the 1996 Plan, of which 2,000 have been granted.
Options outstanding under the Company's three stock option
plans have been granted at prices which are either equal to or
above the market value of the stock on the date of grant, vest
over a three-, four-, or five-year period, and expire ten years
after the grant date.
The status of the Company's stock option plans is summarized
below as of June 30:
Number Weighted
of Shares Average
(in thousands) Exercise Price
- ------------------------------------------------------
Outstanding at
June 30, 1994 4,716 $ 22
Granted 774 26
Exercised (660) 17
Cancelled (70) 26
- ------------------------------------------------------
Outstanding at
June 30, 1995 4,760 23
Granted 2,958 41
Exercised (834) 19
Cancelled (116) 30
- ------------------------------------------------------
Outstanding at
June 30, 1996 6,768 32
Granted 646 48
Exercised (1,064) 23
Cancelled (374) 41
- ------------------------------------------------------
Outstanding (held by
215 optionees)
at June 30, 1997 5,976 $ 34
======================================================
Options exercisable at:
June 30, 1997 2,760 $ 26
June 30, 1996 2,848 23
June 30, 1995 2,658 20
======================================================
The Company continues to account for stock-based
compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", under which no compensation cost
for stock options is recognized for stock option awards
granted at or above fair market value. Had compensation
expense for the Company's three stock-based compensation
plans been determined based upon fair values at the grant
dates for awards under those plans in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation" the
Company's net earnings and earnings per share would have
been reduced to the pro forma amounts indicated at the above
right. The pro forma effects of applying SFAS 123 are not
indicative of future amounts because this statement does not
apply to awards granted prior to fiscal year 1996. Additional
stock option awards are anticipated in future years.
1997 1996
- -----------------------------------------------------
Net earnings (in thousands)
As reported $249,442 $222,092
Pro forma 244,357 220,576
Earnings per share
As reported $2.41 $2.14
Pro forma 2.37 2.13
=====================================================
The weighted average fair value of options granted during 1997
and 1996 estimated on the date of grant using the Black-Scholes
option-pricing model was $11.46 and $9.92, respectively. The
fair value of 1997 and 1996 options granted is estimated on
the date of grant using the following assumptions: dividend
yield of 3%, expected volatility of 19%, risk-free interest
rate range of 5.9% to 6.3% depending on grant date, and an
expected life ranging from 4 to 9 years.
Summary information about the Company's stock options
outstanding at June 30, 1997:
Outstanding Weighted Average Exercisable
Range of at 6/30/97 Contractual Weighted Average at 6/30/97 Weighted Average
Exercise Price (in thousands) Periods in Years Exercise Price (in thousands) Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
$16-$21 544 1.8 $19 544 $19
21- 29 1,650 6.2 25 1,450 25
29- 38 1,148 7.5 33 764 32
41- 49 2,602 9.2 44 2 48
49- 61 32 9.3 52 - -
- -------------------------------------------------------------------------------------------------------------------------
$16-$61 5,976 7.0 $34 2,760 $26
=========================================================================================================================
NOTE 13 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 total minimum lease payments
are $10,701,000, and do not exceed $4,511,000 in any one year.
Rental expense was $11,234,000 in 1997, $9,899,000 in 1996 and
$11,424,000 in 1995.
Space not occupied by the Company in its headquarters building
is let to other tenants under operating leases expiring through
2006. Future minimum rentals to be received are $4,117,000 and
do not exceed $1,264,000 in any one year.
NOTE 14 OTHER (INCOME) EXPENSE, NET
The major components are (in thousands):
1997 1996 1995
- -------------------------------------------------------------
Amortization
of intangibles $40,193 $30,439 $26,582
Equity in earnings
of affiliates (14,045) (9,793) (4,441)
Interest income (7,724) (8,132) (7,796)
Royalty income (8,391) (7,622) (7,110)
Other, net (15,293) 1,473 (11,192)
- -------------------------------------------------------------
Total $(5,260) $ 6,365 $(3,957)
=============================================================
NOTE 15 INCOME TAXES
Income tax expenses are (in thousands):
1997 1996 1995
- -------------------------------------------------------------
Current
Federal $129,762 $109,964 $ 96,444
State 19,189 22,532 19,778
Foreign 15,502 13,779 5,454
- -------------------------------------------------------------
Total current 164,453 146,275 121,676
- -------------------------------------------------------------
Deferred
Federal 501 778 12,232
State 277 709 688
Foreign 1,342 533 2,466
- -------------------------------------------------------------
Total deferred 2,120 2,020 15,386
- -------------------------------------------------------------
Total expense $166,573 $148,295 $137,062
=============================================================
Effective income
tax rate 40.0% 40.0% 40.6%
=============================================================
The reconciliation between the Company's effective income
tax rate and the statutory federal income tax rate is as
follows:
1997 1996 1995
- ------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal tax
benefit 3.0 4.0 3.9
Taxes on foreign
earnings 1.7 1.8 1.5
Other 0.3 (0.8) 0.2
Effective income
tax rate 40.0% 40.0% 40.6%
===========================================================
Undistributed earnings of foreign subsidiaries that are
considered to be reinvested indefinitely totaled $35,549,000 at
June 30, 1997.
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):
1997 1996
- ---------------------------------------------------------
Amortization/depreciation $ 71,092 $ 64,605
Safe harbor lease agreements 23,170 26,431
Unremitted foreign earnings 44,052 45,096
Post employment benefits (21,706) (19,143)
Other 31,534 20,432
- ---------------------------------------------------------
Total $148,142 $137,421
=========================================================
NOTE 16 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):
1997 1996 1995
- -------------------------------------------------------------
Service cost - benefits
earned in current
year $ 5,877 $ 6,238 $ 6,944
Interest on projected
benefit obligation 10,162 9,343 8,913
Return on plan assets:
Actual gain (30,131) (25,026) (19,347)
Deferral of the
actual gain in
excess of the
assumed rate of
8.75% in 1997
and 1996, and 8%
in 1995 16,146 12,831 9,702
Other gains, including
amortization over
15 years of the net
pension transition
asset at July 1, 1985 (1,212) (1,075) (701)
- -------------------------------------------------------------
Total pension expense $ 842 $ 2,311 $ 5,511
=============================================================
The plans' funded status at June 30 is as follows
(in thousands):
1997 1996
- ---------------------------------------------------------
Actuarial present value of the
accumulated benefit
obligation, including
vested benefits of $120,961
in 1997 and $106,508 in 1996 $125,393 $110,435
=========================================================
Plans' assets at market value 188,172 164,080
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% 140,389 129,721
- ---------------------------------------------------------
Excess of plans' assets over
projected benefit obligation 47,783 34,359
Less deferrals:
Remaining unamortized
balance of net pension
transition asset at
July 1, 1985 (5,397) (7,044)
Prior service cost (1,256) (2,049)
Other net gains (19,799) (5,157)
- ---------------------------------------------------------
Accrued pension asset
included in other assets $ 21,331 $ 20,109
=========================================================
The Company has defined contribution plans for most of its
domestic employees not covered by collective bargaining
agreements, to which it has contributed through June 30, 1995
based on its earnings or participants' contributions. Effective
July 1, 1995, the Company's contribution is based on the Clorox
Value Measure economic value measurement system, defined as net
operating earnings after tax less a capital charge for net
assets employed. 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
$20,800,000 in 1997, $17,006,000 in 1996, and $12,427,000
in 1995.
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):
1997 1996 1995
- -------------------------------------------------------------
Service cost - benefits
earned in the current year $2,038 $2,738 $2,643
Interest on accumulated
benefit obligation 3,392 3,365 3,041
- -------------------------------------------------------------
Total postretirement
health care expense $5,430 $6,103 $5,684
=============================================================
Benefits paid were $2,437,000, $1,306,000 and $1,191,000 in
fiscal years 1997, 1996 and 1995, respectively.
The accumulated postretirement benefit obligation (APBO)
includes the following at June 30 (in thousands):
1997 1996
- -------------------------------------------------------
Retirees $16,909 $11,892
Active employees 30,150 35,770
Deferral of net gains 9,351 5,755
- -------------------------------------------------------
Total unfunded accrued
benefit obligation
included in
other obligations $56,410 $53,417
=======================================================
The assumed health care cost trend rate used in measuring
the APBO was 6.5% for 1997, gradually declining to 5.5% in 1999
and years thereafter. 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, 1997
accumulated postretirement benefit obligation by $4,041,000
and increase 1997 expense by $599,000. The discount rate used
to determine the APBO was 8%.
NOTE 17 INDUSTRY SEGMENT INFORMATION
The Company's operations are predominately in the non-durable
consumer products industry and include the manufacture and
marketing of products through grocery and other retail stores.
Operations include those in the United States, Puerto Rico, and
foreign countries. Foreign operations are principally in Latin
American countries including Argentina, Brazil, Chile and
Mexico. Earnings before income taxes for domestic and foreign
operations represent operating profits, while corporate pretax
earnings and identifiable assets include interest income and
expense and other non-allocable items of earnings, all cash,
marketable securities, forward purchase financing agreements
and the corporate headquarters facility. Financial information
by geographic area for 1997, 1996 and 1995 is summarized as
follows:
NET SALES 1997 1996 1995
- --------------------------------------------------------
Domestic $2,143,519 $1,915,268 $1,802,993
Foreign 389,132 302,575 181,177
- --------------------------------------------------------
Total $2,532,651 $2,217,843 $1,984,170
========================================================
EARNINGS BEFORE
INCOME TAXES 1997 1996 1995
- --------------------------------------------------------
Domestic $ 486,836 $ 442,694 $ 412,627
Foreign 32,659 14,525 5,709
Corporate (103,480) (86,832) (80,442)
- ---------------------------------------------------------
Net $ 416,015 $ 370,387 $ 337,894
=========================================================
IDENTIFIABLE ASSETS 1997 1996 1995
- --------------------------------------------------------
Domestic $1,587,921 $1,210,884 $1,255,574
Foreign 747,944 534,251 297,999
Corporate 442,087 433,759 353,099
- --------------------------------------------------------
Total $2,777,952 $2,178,894 $1,906,672
========================================================
NOTE 18 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 auditors. Deloitte & Touche LLP and the internal
auditors have full authority to meet with the Audit Committee,
either with or without management representatives present.
Deloitte & Touche LLP have completed their audit of the
accompanying consolidated financial statements. Their report
follows.
INDEPENDENT AUDITORS' REPORT
THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF THE CLOROX COMPANY:
We have audited the accompanying consolidated balance sheets
of The Clorox Company and its subsidiaries (the Company) as
of June 30, 1997 and 1996, and the related statements of
consolidated earnings, consolidated stockholders' equity and
consolidated cash flows for the years ended June 30, 1997,
1996, and 1995. 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 Company at June 30, 1997 and 1996, and the results of their
operations and their cash flows for the years ended June 30,
1997, 1996 and 1995 in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP [LOGO]
Deloitte & Touche LLP
San Francisco, California
July 30, 1997, except for the second paragraph of
Note 1 as to which the date is September 2, 1997.
QUARTERLY DATA
In thousands, except per-share amounts. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED June 30, 1997
Net Sales $590,773 $530,215 $649,209 $762,454 $2,532,651
Cost of Products Sold 257,361 235,626 287,862 342,610 1,123,459
Net Earnings 65,510 43,915 65,620 74,397 249,442
PER COMMON SHARE
Net Earnings $ .64 $ .42 $ .64 $ .72 $ 2.41
Dividends .29 .29 .29 .29 1.16
Market Price (NYSE)
High 50 1/4 55 1/8 63 11/16 67 3/32 67 3/32
Low 43 7/16 47 1/2 48 5/8 55 43 7/16
Year-end 66 3/32
Price/earnings ratio, year end 27
YEAR ENDED June 30, 1996
Net Sales $518,486 $466,789 $560,091 $672,477 $2,217,843
Cost of Products Sold 231,333 213,171 255,570 307,126 1,007,200
Net Earnings 58,779 37,911 59,599 65,803 222,092
PER COMMON SHARE
Net Earnings $ .56 $ .36 $ .58 $ .64 $ 2.14
Dividends .27 .26 .27 .26 1.06
Market Price (NYSE)
High 36 11/16 39 5/8 44 11/16 44 9/16 44 11/16
Low 30 7/16 34 5/8 35 39 3/16 30 7/16
Year-end 44 5/16
Price/earnings ratio, year end 21
=======================================================================================================================
Share and per share amounts restated to reflect 2-for-1 stock split which was effective September 2, 1997.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about the Company's market
sensitive financial instruments and constitutes a "forward-
looking statement." The Company's major market risk exposure
is changing interest rates, primarily in the United States. The
Company's policy is to manage interest rates through use of
a combination of fixed and floating rate debt. Interest rate
swaps may be used to adjust interest rate exposures when
appropriate, based upon market conditions. A portion of the
Company's borrowings are denominated in foreign currencies
which exposes the Company to market risk associated with
exchange rate movements. The Company's policy generally
is to hedge major foreign currency cash exposures through
foreign exchange forward contracts. These contracts are entered
into with major financial institutions thereby minimizing the
risk of credit loss. All items described are non-trading and
are stated in U.S. dollars.
Fair Value
Expected maturity June 30,
dates (in thousands) 1998 1999 2000 2001 2002 Thereafter Total 1997
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Forward purchase agreements (a)
US $ denominated $150,000 $150,000 $120,765
Canadian $ denominated $ 43,678 43,678 36,154
DEBT
Current - commercial paper $233,973 233,973 233,973
Average interest rates 5.4%
Current - sterling denominated 136,000 136,000 141,482
Average interest rates 5.6%
Interest rate swaps 25,667 100,000 2,460
Non current - sterling denominated $195,540 195,540 199,200
Average interest rates 5.3%
Non current - Canadian $
denominated 20,718 20,718 20,718
Average interest rates 6.3%
Non current - U.S. $ denominated 134,012 200,000 $ 15,515 349,527 365,605
Average interest rates
- fixed 7.8% 8.8% 9.8%
Average interest rates
- variable 4.3%
FIRM COMMITMENTS,
FORWARD CONTRACTS
Contract notional amount -
sterling purchased 136,000 195,540 (8,198)(b)
Average contractual
exchange rate 1.60 1.63
========================================================================================================================
(a) Future maturities include accretion of earnings.
(b) Represents unrealized exchange gains related to hedge of sterling denominated debt.
FINANCIAL SUMMARY
Years ended June 30
(In thousands, except per-share data)
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net sales $2,532,651 $2,217,843 $1,984,170 $1,836,949 $1,634,171 $1 ,547,057 $1,468,370 $1,309,019 $1,199,293 $1,033,747
Percent
change 14.2 11.8 8.0 12.4 5.6 5.4 12.2 9.1 16.0 10.6
- ---------------------------------------------------------------------------------------------------------------------------
Cost of
products
sold 1,123,459 1,007,200 892,172 820,434 724,753 678,504 672,405 601,322 548,434 450,527
Operating
expenses 942,814 795,603 732,941 690,584 613,061 612,074 677,468(d) 498,084 458,085 396,910
Other 50,363 44,653 21,163 19,298 21,172 17,382 21,315 (30,755) (28,189) (10,897)
- ---------------------------------------------------------------------------------------------------------------------------
Total costs
and expenses 2,116,636 1,847,456 1,646,276 1,530,316 1,358,986 1,307,960 1,371,188 1,068,651 978,330 836,540
- ---------------------------------------------------------------------------------------------------------------------------
Earnings before
income taxes 416,015 370,387 337,894 306,633 275,185 239,097 97,182 240,368 220,963 197,207
Income taxes 166,573 148,295 137,062 126,640 107,267 97,903 37,361 87,456 79,718 73,460
- ---------------------------------------------------------------------------------------------------------------------------
Earnings from
continuing
operations 249,442 222,092 200,832 179,993 167,918 141,194 59,821 152,912 141,245 123,747
Earnings
(losses) from
discontinued
operations - - - 32,064(a) (867) (23,429)(b) (7,075) 714 (17,101)(e) 8,823
Cumulative effect
of accounting
change - - - - - (19,061)(c) - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings $ 249,442 $ 222,092 $ 200,832 $ 212,057 $ 167,051 $ 98,704 $ 52,746 $ 153,626 $ 124,144 $ 132,570
===========================================================================================================================
Percent change,
continuing
operations 12.3 10.6 11.6 7.2 18.9 136.0 (60.9) 8.3 14.1 25.0
COMMON STOCK(g)
Weighted average
shares out-
standing(f) 103,292 103,869 106,295 107,600 109,396 108,732 108,126 109,746 110,666 110,254
Earnings
(losses) per
common share:
Earnings from
continuing
operations $ 2.41 $ 2.14 $ 1.89 $ 1.68 $ 1.54 $ 1.30 $ .56(d)$ 1.40 $ 1.28 $ 1.13
Earnings
(losses) from
discontinued
operations - - - .29(a) (.01) (.21)(b) (.07) - (.16)(e) .08
Cumulative effect
of accounting
change - - - - - (.18)(c) - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings $ 2.41 $ 2.14 $ 1.89 $ 1.97 $ 1.53 $ .91 $ .49 $ 1.40 $ 1.12 $ 1.21
===========================================================================================================================
Dividends(g) $ 1.16 $ 1.06 $ .96 $ .90 $ .86 $ .80 $ .74 $ .65 $ .55 $ .46
Stockholders'
equity at end
of year(g) 10.04 9.23 9.01 8.52 8.02 7.46 7.24 7.50 7.10 6.60
OTHER DATA
Continuing
operations
Working capital
(deficiency) $(219,221)$ (50,041) $ 121,008 $ 128,443 $ 160,208 $ (25,322)$ 115,626 $ 151,602 $ 265,569 $ 145,780
Property,
plant and
equipment-net 570,645 551,437 524,972 532,600 538,101 508,629 441,794 441,681 348,526 312,068
Property
additions 95,188 84,804 62,911 56,627 72,141 114,353 89,009 134,099 66,551 135,702
Long-term
debt 565,926 356,267 253,079 216,088 204,000 203,627 405,341 5,807 5,192 20,739
Percent
return on
net sales 9.8 10.0 10.1 9.8 10.3 9.1 4.1 11.7 11.8 12.0
Current ratio 0.8 0.9 1.3 1.3 1.4 0.9 1.3 1.7 1.9 1.5
Total assets 2,777,952 2,178,894 1,906,672 1,697,569 1,649,230 1,589,993 1,656,872 1,124,147 1,189,894 1,121,232
Stockholders'
equity 1,036,046 950,087 943,913 909,417 879,294 813,741 784,276 810,514 786,176 712,854
Percent return
on average
stockholders'
equity 25.4 23.7 21.7 24.2 19.8 12.3 6.4 19.1 16.4 19.9
===========================================================================================================================
(a) Includes net gain on the sale of discontinued business of $31,430 or $0.29 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 $0.73 per share.
(e) Includes net loss on the disposal of Olympic HomeCare Products of $20,000, or $0.18 per share.
(f) Weighted average shares outstanding and earnings per share from 1988 through 1989 assume full dilution from a note
converted during 1989.
(g) Share and per-share amounts restated to reflect 2-for-1 stock split that was effective September 2, 1997.
PRINCIPAL RETAIL BRANDS, PRODUCTS & MARKETS
UNITED STATES
LAUNDRY CLEANING ADDITIVES
Clorox Liquid bleach
Clorox 2 Dry and liquid color-safe bleaches
Stain Out Soil and stain remover
HOME CLEANING
Clorox Toilet Bowl Toilet bowl cleanser, automatic toilet
bowl cleaner
Clorox Clean-Up Dilutable household cleaner
Formula 409 All-purpose spray cleaner, glass and surface
cleaner
Formula 409 Carpet cleaner
Lestoil Heavy-duty cleaner
Liquid-Plumr Drain opener, buildup remover, septic treatment
Pine-Sol Dilutable cleaner, spray cleaner
Soft Scrub Mild abrasive liquid cleanser, gel
S.O.S Steel wool soap pads, scrubber sponges
Tilex Instant mildew remover, soap scum remover Tuffy
Mesh scrubber
AUTOMOTIVE APPEARANCE
Armor All Protectants, cleaners, waxes and washes
Rain Dance Wax and washes
Rally Wax
No.7 Cleaning compound
CHARCOAL
BBQ Bag Single-use, lightable bag of charcoal briquets
Kingsford Charcoal briquets
Kingsford Lighter fluid
Match Light Instant-lighting charcoal briquets
INSECTICIDES
Black Flag Ant and roach, flying insect and other aerosols,
foggers and Roach Motel Combat Roach bait stations and
gel, ant bait stations, stakes and granules
CAT LITTER
Fresh Step Cat litter
Fresh Step Scoop
Scoopable cat litter
DRESSINGS & SAUCES
Hidden Valley Bottled salad dressing, dry salad dressing
mix, bottled fat-free salad dressing
Hidden Valley Dry party dip mix
Hidden Valley Salad Crispins Seasoned mini-croutons
K.C. Masterpiece Barbecue sauce
Kitchen Bouquet Browning and seasoning sauce and gravy aid
WATER FILTRATION SYSTEMS
Brita Water Filtration systems
PROFESSIONAL PRODUCTS
Clorox Germicidal bleach
Clorox Toilet bowl cleanser
Clorox Quat sanitizer and disinfectant
Clorox Clean-Up Dilutable cleaner
Pine-Sol Cleaner
Formula 409 Cleaners
PowerPack Professional dilution-control spray cleaners
S.O.S Pot & pan detergent, steel wool soap pads
Tilex Instant mildew remover, soap scum remover
Liquid-Plumr Drain opener
Hidden Valley Salad dressing
K.C. Masterpiece Barbecue sauce
Kitchen Bouquet Browning and seasoning sauce and gravy aid
Combat Insecticides
Maxforce Professional insecticides
PRINCIPAL INTERNATIONAL MARKETS
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