UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
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or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-07151
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THE CLOROX COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 31-0595760
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
1221 Broadway - Oakland, California 94612 - 1888
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(Address of principal executive offices)
Registrant's telephone number, (510)-271-7000
(including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
(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 December 31, 1997 there were 103,402,995 shares outstanding of
the registrant's common stock (par-value - $1.00), the registrant's
only outstanding class of stock.
Total pages 9 1
THE CLOROX COMPANY
PART 1. Financial Information Page No.
Item 1. Financial Statements
Condensed Statements of Consolidated Earnings
Six Months Ended December 31, 1997 and 1996 3
Condensed Consolidated Balance Sheets
December 31, 1997 and June 30, 1997 4
Condensed Statements of Consolidated Cash Flows
Six 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 Six Months Ended
----------------------------------- -----------------------------------
12/31/97 12/31/96 12/31/97 12/31/96
----------- ----------- ------------ ------------
Net Sales $ 591,795 $ 530,215 $ 1,241,079 $ 1,120,988
Costs and Expenses
Cost of products sold 258,189 235,626 537,883 492,987
Selling, delivery and
administration 139,789 120,439 270,188 237,033
Advertising 83,408 80,910 174,952 169,884
Research and
development 13,007 11,532 24,613 22,030
Interest expense 19,414 11,745 34,908 22,242
Other income, net (3,131) (2,986) (4,490) (4,959)
----------- ----------- ------------ ------------
Total costs and
expenses 510,676 457,266 1,038,054 939,217
----------- ----------- ------------ ------------
Earnings before
Income Taxes 81,119 72,949 203,025 181,771
Income Taxes 31,636 29,034 79,179 72,346
----------- ----------- ------------ ------------
Net Earnings $ 49,483 $ 43,915 $ 123,846 $ 109,425
=========== =========== ============ ============
Earnings per Common
Share
Basic $ 0.48 $ 0.42 $ 1.20 $ 1.06
Diluted 0.47 0.42 1.17 1.04
Weighted Average Shares
Outstanding
Basic 103,393 103,369 103,305 103,231
Diluted 105,429 105,051 105,427 104,979
Dividends per Share $ 0.32 $ 0.29 $ 0.64 $ 0.58
See Notes to Condensed Consolidated Financial Statements.
3
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
12/31/97 6/30/97
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ASSETS
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Current Assets
Cash and short-term investments $ 50,898 $ 101,046
Accounts receivable, less allowance 345,459 356,996
Inventories 219,711 170,340
Prepaid expenses 42,936 22,534
Deferred income taxes 21,107 22,581
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Total current assets 680,111 673,497
Property, Plant and Equipment - Net 570,811 570,645
Brands, Trademarks, Patents and Other Intangibles 1,204,187 1,186,951
Investments in Affiliates 95,678 93,004
Other Assets 280,957 253,855
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Total $ 2,831,744 $ 2,777,952
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
Accounts payable $ 116,842 $ 143,360
Accrued liabilities 249,390 358,785
Short-term debt 410,551 369,973
Income taxes payable 24,108 17,049
Current maturities of long-term debt 45 3,551
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Total current liabilities 800,936 892,718
Long-term Debt 702,185 565,926
Other Obligations 122,025 112,539
Deferred Income Taxes 155,352 170,723
Share Repurchase Obligations 54,848 -
Stockholders' Equity
Common stock 110,845 110,844
Additional paid-in capital 71,746 66,803
Retained earnings 1,267,787 1,207,524
Treasury shares, at cost (365,893) (289,075)
Cumulative translation adjustments and other (88,087) (60,050)
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Stockholders' Equity 996,398 1,036,046
Total $ 2,831,744 $ 2,777,952
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See Notes to Condensed Consolidated Financial Statements. 4
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Statements of Consolidated Cash Flows
(In thousands)
Six Months Ended
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12/31/97 12/31/96
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Operations:
Net earnings $ 123,846 109,425
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 65,005 59,783
Deferred income taxes 2,855 2,146
Other (2,669) 5,303
Effects of changes in:
Accounts receivable 13,523 43,710
Inventories (48,726) (41,838)
Prepaid expenses 4,597 (7,285)
Accounts payable (26,909) (52,574)
Accrued liabilities (82,589) 19,194
Income taxes payable 1,221 817
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Net cash provided by operations 50,154 138,681
Investing Activities:
Property, plant and equipment (39,681) (37,403)
Disposal of property, plant and equipment 1,686 1,921
Businesses purchased (80,120) (452,788)
Other (48,468) (23,386)
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Net cash used for investment (166,583) (511,656)
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Financing Activities:
Short-term borrowing 13,407 7,671
Short-term debt repayments (161,719) -
Long-term borrowings 193,736 438,196
Long-term debt and other obligations repayments (61,525) (4,637)
Commercial paper, net 186,451 (16,548)
Cash dividends (65,999) (59,868)
Treasury stock purchased (33,815) (11,752)
Employee stock plans and other (4,255) 9,996
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Net cash provided by financing 66,281 363,058
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Net Decrease in Cash and Short-Term Investments (50,148) (9,917)
Cash and Short-Term Investments:
Beginning of period 101,046 90,828
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End of period $ 50,898 $ 80,911
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See Notes to Condensed Financial Statements 5
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(1) The summarized financial information for the three and six
months ended December 31, 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 six months ended
December 31, 1997 and 1996 should not be considered as
necessarily indicative of the results for the entire year.
(2) Inventories at December 31, 1997 and at June 30, 1997
consisted of (in thousands):
12/31/97 6/30/97
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Finished goods and work in process $143,587 $109,189
Raw materials and supplies 76,124 61,151
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Total $219,711 $170,340
(3) International businesses purchased for the six months ended
December 31, 1997 totaling $80,120,000 were funded using a
combination of cash and long-term borrowings and were accounted
for as purchases.
Acquisitions for the six months ended December 31, 1996 totaled
$452,788,000 and included the Armor All Products Corporation for
$360,144,000. The acquisition occurred on December 31, 1996.
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.
These acquisitions were accounted for as purchases and were funded
from cash provided by operations, long-term borrowings and
commercial paper.
(4) The Company entered into two share repurchase transactions
during the second quarter of fiscal 1998 whereby Clorox contracted
for the future delivery of 400,000 shares of Clorox stock on
October 27, 2000 and 400,000 shares of Clorox stock on October 23,
2002. The specified strike prices are $68.50 and $68.62 per share.
The aggregate redemption cost of $54,848,000 has been classified
as share repurchase obligations with a corresponding increase in
treasury stock at December 31, 1997. The Company paid a premium
of $13,193,000 on this transaction which has been recorded as
treasury stock and at maturity will become part of the basis in
the repurchased shares.
6
(5) Impact of New Accounting Standard
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128
("SFAS 128"), Earnings per Share. SFAS 128 requires dual
presentation of basic EPS and diluted EPS on the face of all
earnings statements issued after December 15, 1997 for all
entities with complex capital structures. Basic earnings per
share is computed by dividing net earnings by the weighted
average number of common shares outstanding each period. Diluted
earnings per share are computed by dividing net earnings by the
diluted weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution
that could occur from common shares issuable through stock options,
restricted stock, warrants and other convertible securities.
The weighted average number of shares outstanding (denominator)
used to calculate basic earnings per share is reconciled to those
used in calculating diluted earnings per share as follows:
Weighted Average Number
of Shares Outstanding
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Three Months Ended Six Months Ended
--------------------------- --------------------------
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
Basic 103,393 103,369 103,305 103,231
Stock options 1,987 1,661 2,073 1,727
Other 49 21 49 21
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Diluted 105,429 105,051 105,427 104,979
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(6) 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.
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 December 31, 1997
with the Three Months Ended December 31, 1996
Basic earnings per share increased 13 percent to 48 cents from 42
cents a year ago and net earnings increased 13 percent to
$49,483,000 from $43,915,000. Earnings per share reflect a
2-for-1 stock split on September 2, 1997. Growth in earnings
and net sales were driven by a 13 percent volume increase.
Net sales increased 12 percent to $591,795,000 and lagged
slightly compared to the volume increase due to price
reductions on certain products as well as a change in the
overall product mix. Armor All and other acquisitions
contributed 6 percent to volume growth with the remainder due
to growth in base businesses. Domestic brands having record
shipments and contributing to quarterly growth include
Clorox 2, bottled Hidden Valley Ranch, KC Masterpiece barbecue
sauces, Brita water filtration systems and Match Light instant
lighting charcoal briquets. Clorox liquid bleach shipments
decreased slightly following a record first quarter reflecting
a price increase effective early in October. The insecticides
businesses experienced a quarter and a year-to-date volume
decline due to weather conditions and overall category
softness. Shipments in our international business increased
22 percent of which approximately half was from base
businesses and the remainder from acquisitions. The effect
of negative currency issues in Korea and Southeast Asia were
not material and we anticipate that further declines will not
materially effect our full year international results.
Cost of goods sold as a percentage of net sales was 43.6 and
44.4 percent in the current and year ago quarters,
respectively. The improvement reflects the impact of various
cost savings efforts across business units and improvement in
our Latin America businesses where economies of scale are
being achieved through acquisitions, and consolidation of
production activities.
Selling, delivery, and administration expense increased 16
percent over the year ago period due to continued investment
in international infrastructure, increased investment in
information technology and expenses related to integrating
Armor All. Advertising expense increased slightly over the
year ago period when spending was extremely high due to heavy
new product introduction late in the second quarter. We
anticipate that for the full year advertising expense will
increase in line with or slightly ahead of sales.
Interest expense increased $7,669,000 versus the year ago
period principally due to the prior year's acquisition activity.
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 Six Months Ended December 31, 1997
with the Six Months Ended December 31, 1996
Basic earnings per share increased 13 percent to $1.20 from $1.06
and net earnings increased 13 percent to $123,846,000 from
$109,425,000 a year ago principally due to an 11 percent increase
in net sales driven by a 12 percent increase in volume. Record
shipments were recorded by Match Light instant lighting charcoal
briquets and KC masterpiece barbecue sauces. Clorox liquid
bleach was up for the six months despite a slight decrease in
the second quarter. Shipments in our international businesses
increased 24 percent of which approximately half was from base
businesses and the remainder from acquisitions.
Cost of goods sold as a percentage of sales was 43.3 and 44.0 in
the current and year ago periods respectively. We anticipate
gross margins for the full year to be slightly favorable compared
to the prior fiscal year.
Selling, delivery and administration expense increased 14
percent due to continued investment in international infrastructure,
increased investment in information technology and expenses
related to integrating Armor All. Advertising expense increased
over the year ago period. For the full year we anticipate
advertising expense will increase in line with or slightly ahead
of sales.
Interest increased $12,666,000 versus the year ago period
principally due to the prior year's acquisition activity.
Income tax expense as a percent of pretax earnings declined from
39.8 percent to 39 percent principally due to an increasing share
of earnings from International operations located in countries
with lower statutory tax rates.
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. The
increase in inventories reflect normal seasonal variations,
principally due to the charcoal and insecticides business. The
reduction in accounts payable and accrued liabilities from June 30,
1997 is due in part to seasonality and higher levels of
advertising and sales promotion activities in our domestic
household products businesses recorded at June 30, 1997.
Increases in commercial paper borrowings and additional
long-term debt were used to supplement cash provided by
operations to fund acquisitions, the increase in other assets
and the share repurchase program.
Acquisitions since June 30, 1997 totaled $80,120,000 and were
financed using a combination of cash provided by operations
and long-term borrowings. These acquisitions included an
additional investment in Mexico, the Clorosul bleach business
in Brazil and two smaller acquisitions in Southeast Asia and
Australia.
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 six month period ended December 31, 1997, 280,000
shares at a cost of $20,622,000 were reacquired. As part of
the repurchase program the Company entered into two transactions
for the future delivery of 400,000 shares of Clorox stock on
October 27, 2000 and 400,000 shares of Clorox stock on October 23,
2002. The aggregate redemption cost is $54,848,000 and the Company
paid a premium of $13,193,000 on the transaction.
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. In September 1997, the Company
refinanced $192 million in commercial paper by entering into a
Sterling denominated financing arrangement with Abbey National
Bank. The Arrangement has a final maturity of April 2002. The
Company entered into a series of swaps with notional amounts
totaling $192 million to eliminate foreign currency exposure risk
generated by this Sterling denominated obligation. The swaps
effectively convert the Company's 5.7% fixed rate sterling
obligation to a floating U.S. dollar rate of Libor less 147
basis points or 4.25% at December 31, 1997.
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 10-K
Current Report which was filed on September 25, 1997.
10
S I G N A T U R E
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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
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(Registrant)
DATE February 12, 1998 BY /s/HENRY J. SALVO, JR.
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Henry J. Salvo, Jr.
Vice-President - Controller