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 March 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 March 31, 1998 there were 103,881,950 shares outstanding of the
registrant's common stock (par-value - $1.00), the registrant's
only outstanding class of stock.
Total pages 10
1
THE CLOROX COMPANY
PART 1. Financial Information Page No.
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Item 1. Financial Statements
Condensed Statements of
Consolidated Earnings
Three and Nine Months Ended
March 31, 1998 and 1997 3
Condensed Consolidated Balance Sheets
March 31, 1998 and June 30, 1997 4
Condensed Statements of Consolidated
Cash Flows
Nine Months Ended March 31, 1998
and 1997 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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Statements of Consolidated Earnings
---------------------------------------------
(In thousands, except per-share amounts)
Three Months Ended Nine Months Ended
--------------------------------- --------------------------------
3/31/98 3/31/97 3/31/98 3/31/97
---------- ----------- ---------- ----------
Net Sales $ 680,540 $ 649,209 $1,921,619 $1,770,197
---------- ----------- ---------- ----------
Costs and Expenses
Cost of products sold 290,209 287,862 828,092 780,849
Selling, delivery and
administration 142,378 135,355 412,566 372,388
Advertising 93,856 84,543 268,808 254,427
Research and development 13,573 12,035 38,186 34,065
Interest expense 15,438 17,005 50,346 39,247
Other expense (income), net 693 2,603 (3,797) (2,356)
---------- ----------- ---------- ----------
Total costs and expenses 556,147 539,403 1,594,201 1,478,620
---------- ----------- ---------- ----------
Earnings before Income Taxes 124,393 109,806 327,418 291,577
Income Taxes 48,444 44,186 127,623 116,532
---------- ----------- ---------- ----------
Net Earnings $ 75,949 $ 65,620 $ 199,795 $ 175,045
========== =========== ========== ==========
Earnings per Common Share
Basic $ 0.73 $ 0.63 $ 1.93 $ 1.69
Diluted 0.72 0.62 1.89 1.66
Weighted Average Shares
Outstanding
Basic 103,704 103,480 103,438 103,314
Diluted 105,779 105,296 105,743 105,340
Dividends per Share $ 0.32 $ 0.29 $ 0.96 $ 0.87
See Notes to Condensed Consolidated Financial Statements.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Consolidated Balance Sheets
-------------------------------------
(In thousands)
3/31/98 6/30/97
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ASSETS
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Current Assets
Cash and short-term investments $ 75,499 $ 101,046
Accounts receivable, net 446,416 356,996
Inventories 237,182 170,340
Prepaid expenses 40,752 22,534
Deferred income taxes 18,418 22,581
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Total current assets 18,267 673,497
Property, Plant and Equipment - Net 570,276 570,645
Brands, Trademarks, Patents and Other Intangibles 1,219,137 1,186,951
Investments in Affiliates 89,096 93,004
Other Assets 279,128 253,855
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Total $ 2,975,904 $ 2,777,952
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 131,816 $ 143,360
Accrued liabilities 250,089 358,785
Short-term debt 462,178 369,973
Income taxes payable 37,417 17,049
Current maturities of long-term debt 45 3,551
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Total current liabilities 881,545 892,718
Long-term Debt 703,586 565,926
Other Obligations 124,162 112,539
Deferred Income Taxes 166,343 170,723
Share Repurchase Obligations 54,848 -
Stockholders' Equity
Common stock 110,845 110,844
Additional paid-in capital 80,557 66,803
Retained earnings 1,315,089 1,207,524
Treasury shares, at cost (363,608) (289,075)
Cumulative translation adjustments and other (97,463) (60,050)
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Stockholders' Equity 1,045,420 1,036,046
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Total $ 2,975,904 $ 2,777,952
See Notes to Condensed Consolidated Financial Statements. 4
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Statements of Consolidated Cash Flows
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(In thousands)
Nine Months Ended
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3/31/98 3/31/97
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Operations:
Net earnings $ 199,795 $ 175,045
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 95,912 92,312
Deferred income taxes 22,653 4,351
Other (10,291) (2,639)
Effects of changes in:
Accounts receivable (84,871) (55,297)
Inventories (64,944) (53,079)
Prepaid expenses 6,923 (1,250)
Accounts payable (13,430) (25,875)
Accrued liabilities (90,106) 6,635
Income taxes payable 14,547 19,311
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Net cash provided by operations 76,188 159,514
Investing Activities:
Property, plant and equipment (56,539) (56,196)
Disposal of property, plant and equipment 3,567 1,764
Businesses purchased (107,777) (460,336)
Other (40,885) (59,830)
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Net cash used for investment (201,634) (574,598)
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Financing Activities:
Short-term borrowing 13,407 -
Short-term debt repayments (161,719) -
Long-term borrowings 193,736 526,656
Long-term debt and other obligations repayments (61,549) (14,981)
Commercial paper, net 238,078 22,003
Cash dividends (99,149) (89,967)
Treasury stock purchased (47,380) (35,459)
Employee stock plans and other 24,475 29,736
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Net cash provided by financing 99,899 437,988
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Net (Decrease) Increase in Cash and Short-Term Investments (25,547) 22,904
Cash and Short-Term Investments:
Beginning of period 101,046 90,828
End of period $ 75,499 $ 113,732
============ =============
See Notes to Condensed Consolidated Financial Statements 5
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(1) The summarized financial information for the three and nine
months ended March 31, 1998 and 1997 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 its subsidiaries
(the "Company"). The results of the three and nine months ended
March 31, 1998 and 1997 should not be considered as necessarily
indicative of the results for the entire year.
(2) Inventories at March 31, 1998 and at June 30, 1997 consisted
of (in thousands):
3/31/98 6/30/97
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Finished goods and work in process $ 158,698 $ 109,189
Raw materials and supplies 78,484 61,151
Total $ 237,182 $ 170,340
(3) International businesses purchased for the nine months
ended March 31, 1998 totaling $107,777,000 were funded using a
combination of cash and long-term borrowings and were accounted
for as purchases. These acquisitions included an additional
investment in Mexico, the Clorosul bleach business and the Super
Globo bleach and cleaner businesses in Brazil and two smaller
acquisitions in Southeast Asia and Australia.
Acquisitions for the nine months ended March 31, 1997 totaled
$460,336,000 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. 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.
(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 Nine Months Ended
------------------------- -------------------------
3/31/98 3/31/97 3/31/98 3/31/97
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Basic 103,704 103,480 103,438 103,314
Stock options 2,027 1,790 2,257 2,000
Other 48 26 48 26
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Diluted 105,779 105,296 105,743 105,340
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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.
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
---------------------------------------------
Results of Operations
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Comparison of the Three Months Ended March 31, 1998
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with the Three Months Ended March 31, 1997
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Basic earnings per share increased 16 percent to 73 cents from
63 cents a year ago and net earnings increased 16 percent to
$75,949,000 from $65,620,000. Earnings per share reflect a
2-for-1 stock split on September 2, 1997.
Net sales increased 5 percent to $680,540,000 due primarily to
volume growth. The 5 percent volume increase was slightly
lower than the year to date increase due to the inclusion of
Armor All starting in the third quarter last year and timing
on shipments in our seasonal business units namely charcoal,
insecticides and Armor All. Shipments for these business units
were affected by promotional timing skewed toward fourth
quarter results.
In the U.S., total shipments were a third quarter record.
Domestic brands having record shipments and contributing to
quarterly growth include the Pine-Sol and Tilex franchises,
KC Masterpiece barbecue sauces, Brita water filtration systems
and the cat litter unit which includes the combined shipments
of Fresh Step Scoop and Fresh Step. These brands also recorded
strong year to date growth. Shipments of Clorox bleach
decreased slightly reflecting a price increase effective in
October 1997. Shipments in our international business
increased 12 percent of which approximately half was from
base businesses and the remainder from acquisitions. The
bleach and cleaner business acquired in Brazil is marketed
under the brand name of Super Globo. The Super Globo bleach
business combined with three other acquisitions announced
earlier this year provides us with continued expansion outside
the U.S.
Cost of goods sold as a percentage of sales was 42.6 and 44.3
percent in the current and year ago quarters, respectively.
The improvement reflects the impact of cost savings initiatives
throughout the product supply chain, improvement in our Latin
America businesses, benefits from the consolidation of Armor All,
and some slight price declines in several raw materials.
Advertising expense increased 11 percent principally due to our
continued investment in the health of our brands as well as
spending on new product introductions. We continue to anticipate
that for the full year advertising expense will increase in line
or slightly ahead of sales.
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
---------------------------------------------
Results of Operations
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Comparison of the Nine Months Ended March 31, 1998
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with the Nine Months Ended March 31, 1997
-----------------------------------------
Basic earnings per share increased 14 percent to $1.93 from $1.69
and net earnings increased 14 percent to $199,795,000 from
$175,045,000 a year ago principally due to a 9 percent increase
in net sales driven by a 9 percent increase in volume. Strong
shipment growth was recorded by Clorox 2 and bottled Hidden Valley
Ranch. Shipments in our international businesses increased 22
percent of which approximately half was from base businesses and
the remainder from acquisitions. Volume expansion was realized in
all international markets with the exception of Korea.
Cost of goods sold as a percentage of sales was 43.1 and 44.1
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 11 percent
due to continued investment in international infrastructure and
increased investment in information technology. 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 $11,099,000 versus the year ago period
principally due to additional borrowings to fund the prior year's
acquisition activity.
Income tax expense as a percent of pretax earnings declined from
40 percent to 39 percent principally due to an increasing share
of earnings from International operations located in countries
with lower statutory tax rates.
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 and accounts receivable 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 and the share repurchase program.
Acquisitions since June 30, 1997 totaled $107,777,000 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 and the Super
Globo bleach and cleaner businesses 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. Based on the Company's experience
the Company currently expects to issue between 1,200,000 and
1,500,000 shares of stock each year pursuant to its stock based
compensation plan, although such numbers may vary. The
Company intends to repurchase approximately the same number
of shares issued over time subject to market conditions and
business opportunities which may arise. During the nine month
period ended March 31, 1998, 440,000 shares at a cost of $34,187,000
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 149 basis points or
4.2% at March 31, 1998.
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.
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 May 8, 1998 BY /s/HENRY J. SALVO, JR.
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Henry J. Salvo, Jr.
Vice President - Controller