UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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
THE CLOROX COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 31-0595760
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1221 Broadway - Oakland, California 94612 - 1888
(Address of principal executive offices)
Registrant's telephone number, (510)-271-7000
(including area code)
(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, 1994 there were outstanding 53,340,117 shares of
Registrant's Common Stock (par-value - $1.00), its only class
outstanding.
Total pages 11 1
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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
3/31/94 3/31/93 3/31/94 3/31/93
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Net Sales $ 481,928 $ 435,559 $1,302,516 $1,157,570
Costs and Expenses
Cost of products sold 211,964 185,897 569,178 497,304
Selling, delivery and administration 87,640 85,093 249,465 230,610
Advertising 82,363 72,197 226,920 195,160
Research and development 10,945 9,839 31,311 29,823
Interest expense 4,383 5,509 13,051 14,856
Other (income) expense, net 1,261 392 (7,765) (4,534)
Total costs and expenses 398,556 358,927 1,082,160 963,219
Earnings from Continuing Operations
before Income Taxes 83,372 76,632 220,356 194,351
Income Taxes 33,857 30,106 93,941 76,400
Earnings from Continuing Operations 49,515 46,526 126,415 117,951
Earnings (Losses) from and Gain on Sale of
Discontinued Operations - (1,106) 32,064 (692)
Net Earnings $ 49,515 $ 45,420 $ 158,479 $ 117,259
Earnings per Common Share
Continuing Operations $ 0.93 $ 0.85 $ 2.35 $ 2.16
Discontinued Operations - (0.02) 0.59 (0.01)
Total $ 0.93 $ 0.83 $ 2.94 $ 2.15
Dividends per Share $ 0.45 $ 0.42 $ 1.35 $ 1.26
Weighted Average Shares Outstanding 53,448 54,749 53,949 54,661
See Notes to Condensed Consolidated Financial Statements.
2
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PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
3/31/94 6/30/93
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ASSETS
Current Assets
Cash and short-term investments $ 114,330 $ 71,164
Accounts receivable, less allowance 281,815 226,675
Inventories 148,961 105,890
Deferred income taxes 20,007 19,360
Prepaid expenses 10,080 16,369
Net assets of discontinued operations - 92,320
Total current assets 575,193 531,778
Property, Plant and Equipment - Net 545,504 538,101
Brands, Trademarks, Patents and Other Intangibles - Net 555,525 463,941
Investments in Affiliates 69,711 68,179
Other Assets 61,356 47,231
Total $ 1,807,289 $ 1,649,230
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 68,916 $ 84,243
Accrued liabilities 229,392 226,775
Income taxes payable 24,026 20,585
Commercial paper 181,496 39,486
Current maturities of long-term debt 341 481
Total current liabilities 504,171 371,570
Long-term Debt 216,209 204,000
Other Obligations 62,519 50,663
Deferred Income Taxes 147,788 143,703
Stockholders' Equity
Common Stock 55,422 55,422
Additional paid-in capital 106,247 105,483
Retained earnings 849,185 762,162
Treasury shares, at cost (110,232) (23,357)
Cumulative translation adjustments (24,020) (20,416)
Stockholders' Equity 876,602 879,294
Total $ 1,807,289 $ 1,649,230
See Notes to Condensed Consolidated Financial Statements. 3
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PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Statements of Consolidated Cash Flows
(In thousands)
Nine Months Ended
3/31/94 3/31/93
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Operations:
Earnings from continuing operations $ 126,415 $ 117,951
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 70,631 63,026
Deferred income taxes 16,205 16,200
Other 2,820 1,115
Effects of changes in:
Accounts receivable (48,482) (18,529)
Inventories (36,995) (36,576)
Prepaid expenses (1,362) 3,429
Accounts payable (16,195) (35,956)
Accrued liabilities (7,834) (39,686)
Income taxes payable 921 9,977
Net cash provided by continuing operations 106,124 80,951
Net cash (used) provided by discontinued operations (21,097) 6,195
Net cash provided by operations 85,027 87,146
Investing Activities:
Property, plant and equipment (37,901) (54,772)
Disposal of property, plant and equipment 6,790 3,833
Businesses sold 159,293 -
Businesses purchased (139,054) -
Other (23,732) (30,284)
Net cash used for investment (34,604) (81,223)
Financing Activities:
Long-term borrowings 17,669 339
Long-term debt repayments (1,187) (419)
Commercial paper, net 142,010 35,036
Cash dividends (73,086) (68,856)
Treasury stock purchased (99,906) -
Employee stock plans 7,243 5,900
Net cash used for financing (7,257) (28,000)
Net Increase (Decrease) in Cash and Short-Term Investments 43,166 (22,077)
Cash and Short-Term Investments:
Beginning of period 71,164 69,024
End of period $ 114,330 $ 46,947
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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 nine months ended
March 31, 1994 and 1993 has not been audited, but in the
opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation
of the results of operations, financial position, and cash
flows of The Clorox Company and subsidiaries (the Company)
have been made. The results of the nine months ended March 31,
1994 should not be considered as necessarily indicative of the
results for the entire year.
(2) The Company sold Prince Castle in June 1993, the frozen foods
business in July 1993 and its bottled water business in
September 1993. These businesses have been reported as
discontinued operations.
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Results of discontinued operations are classified separately in the statements of consolidated earnings and include
(in thousands):
Three
Months
Ended Nine Months Ended
3/31/93 3/31/94 3/31/93
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Net Sales $ 40,988 $ 18,700 $ 129,439
Earnings (losses) from operations before
income taxes $ (1,793) $ 1,043 $ (1,140)
Income taxes (687) 409 (448)
Net earnings (losses) from discontinued operations (1,106) 634 (692)
Gain on sale of businesses - 42,177 -
Income taxes - 10,747 -
Net gain on sale of businesses - 31,430 -
Earnings (losses) from and gain on sale of
discontinued operations $ (1,106) $ 32,064 $ (692)
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The net assets of the discontinued operations were segregated
in the June 30, 1993 consolidated balance sheet and were
comprised of the following (in thousands):
Assets $ 105,678
Liabilities 13,358
Net assets $ 92,320
The assets consisted primarily of accounts receivable, inventories,
property, plant and equipment and intangibles, and liabilities
consisted primarily of accounts payable and accrued liabilities.
5
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PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(3) On January 31, 1994, the Company acquired and accounted for
as a purchase, the S.O.S products business of Miles, Inc. for
$121,000,000 subject to adjustments as specified in the purchase
agreement. The acquisition included the S.O.S. brand of soap
pads and other cleaning products in the U.S. and Canada,
manufacturing facilities, and certain items of working capital.
Approximately $97,000,000 of the purchase price has been allocated
to brands, trademarks and other intangibles to be amortized over
an estimated life of 40 years. The acquisition was funded from
cash and short term borrowings.
Results of operations after the acquisition date are included
in the Condensed Statements of Consolidated Earnings presented
herein. Presented below is certain pro forma operating information
for the nine month periods ended March 31, 1994 and 1993, assuming
that this acquisition had taken place at the beginning of the
respective periods. The pro forma information includes adjustments
for interest expense that would have been incurred to finance the
purchase, additional depreciation based on the fair market value
of the property, plant, and equipment acquired and the
amortization of intangibles arising from the transaction.
The pro forma financial information is not necessarily
indicative of the results of operations as they would have been
had the transactions been effected on the assumed date.
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Nine Months Ended
(In thousands, except per share amounts) 3/31/94 3/31/93
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Net Sales $ 1,349,929 $ 1,227,253
Earnings from continuing operations $ 123,495 $ 120,062
Net earnings $ 155,559 $ 119,370
Earnings per common share, continuing
operations basis $ 2.29 $ 2.20
Net earnings per common share $ 2.88 $ 2.18
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6
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PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(4) Inventories consisted of (in thousands):
3/31/94 6/30/93
Finished goods and work in
process $ 101,490 $ 64,162
Raw materials and supplies 47,471 41,728
Total $ 148,961 $ 105,890
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(5) Other expense (income), net consisted of (in thousands):
Three Months Ended Nine Months Ended
3/31/94 3/31/93 3/31/94 3/31/93
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Interest income $ (1,007) $ (623) $ (3,789) $ (2,222)
Equity earnings of affiliates (521) (2,083) (4,016) (6,821)
Amortization of intangibles 6,650 5,291 18,176 15,994
Other income (3,861) (2,193) (18,136) (11,485)
Total $ 1,261 $ 392 $ (7,765) $ (4,534)
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(6) Stock Repurchases
In 1989, the Company commenced a program to repurchase up to
5 million shares of its outstanding stock through periodic
open market and block transactions. These shares will be held
in the Company's treasury and reissued for corporate uses.
Through March 31, 1994, 3,674,515 shares had been repurchased
under this plan to date, with 1,883,300 shares repurchased
in July through March of 1994.
7
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PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
Comparision of the Three Months Ended March 31, 1994
with the Three Months Ended March 31, 1993
Net sales were a third quarter record and increased 11% primarily
due to successful new product introductions, sales from S.O.S
brands acquired on January 31, 1994, and the consolidation of
an Argentine subsidiary in which Clorox increased its interest
to 90% in June, 1993. New products which provided third
quarter's sales and volume growth included Liquid Plumr build
up remover, Tilex soap scum remover, and two Clorox toilet bowl
cleaners. Net sales for the Company's Brita water filtration
business were up strongly versus the year ago quarter. Price
increases contributed less than 1% to the increase in sales.
Clorox charcoal brands, salad dressings and other food brands
volumes were up 15% versus the year ago quarter, while its bleach
brands were down 7%.
Gross margins were 56% in 1994 and 57% in 1993. The slight
decline was due to the consolidation of the Company's Argentine
subsidiary. Materials and plant operating costs remained flat
on a per unit basis versus the year ago period. Gross margins
are expected to remain at approximately the fiscal 1993 level
for most of the Company's domestic product lines this fiscal year.
Research and development expense was up 11% versus the prior year
and remained the same as a percentage of sales. New product
activity is expected to remain at a high level, though spending
should continue at current levels due to efforts made to shorten
development times and to improvements in efficiency in the research
and development function. Selling, delivery, and administration
expenses were up 3% principally due to the consolidation of the
Argentine subsidiary. These costs were down slightly for the
domestic businesses, and remained the same as a percentage of
sales. The reduction in the growth of these expenses continued
as the Company makes progress towards its objective of achieving
a $25 million reduction in annual operating expenses by the end
of fiscal 1995.
Advertising expense was up 14% versus 1993 and the Company
expects it to be up significantly for the year as new product
introductions will continue to be at high levels and established
brands will continue to receive strong support.
The effective tax rate for the quarter was 40.6% versus 39.3%
for 1993, and reflects the recently enacted 1% increase in
statutory rates resulting in approximately $800,000 in additional
taxes versus the prior year. The 1% rate increase will affect
all future quarters.
8
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PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
Comparision of the Nine Months Ended March 31, 1994
with the Nine Months Ended March 31, 1993
Net sales were a nine month record and increased 13% primarily
due to successful new product introductions, sales from S.O.S
brands acquired on January 31, 1994, and the consolidation of an
Argentine subsidiary in which Clorox increased its interest to
90% in June 1993. New products which provided this period's
sales and volume growth included Liquid Plumr build up remover,
Tilex soap scum remover, Formula 409 glass and surface cleaner
and two Clorox toilet bowl cleaners. Net sales for the Company's
Brita water filtration business were up strongly versus the year
ago period.
Gross margins were 56% in 1994 and 57% in 1993. The slight
decline was due to the consolidation of the Company's Argentine
subsidiary. Material and plant operating costs were flat on a
per unit basis. The Company does not anticipate that material
costs will rise significantly during the year and efforts continue
to contain plant operating costs growth. Gross margins should
remain at approximately this level for most of the Company's
domestic product lines in fiscal year 1994.
Research and development expense increased 5% versus a year ago,
but has remained steady as a percent of sales. New product
activity is expected to remain at a high level, though spending
should continue at current levels due to efforts made to shorten
development times and improve efficiency in the research and
development function. Selling, delivery and administration
expenses were up 8% principally due to the consolidation of
the Argentine subsidiary, but were down slightly as percentage
of sales versus 1993. Nine month earnings reflect the continuing
efforts that began in first quarter to reduce the growth of these
expenses. The reduction in the growth of these expenses continued
as the Company makes progress towards its objective of achieving a
$25 million reduction in annual operating expenses by the end of
fiscal 1995.
Advertising expense increased 16% versus 1993, and the Company
expects it to be up significantly this year as new product
introductions will continue at high levels and established
brands will continue to receive strong support.
Interest expense is down due to lower average commercial paper
borrowing in 1994 versus 1993, and the favorable effect of
interest rate swaps.
Other income was up $3,200,000 versus 1993 principally due to one
time gains from the sales of idle property and the Company's grill
business. Offsetting these increases were lower equity earnings
and higher amortization of intangibles attributable to the increase
in ownership of the Argentine business, and 1993's one time
reversal of 1991 restructuring allowances due to lower than
anticipated costs.
The effective tax rate was 42.6% in 1994 versus 39.3% in 1993. The
increase is primarily due to the recently enacted tax law that
increased the statutory tax rate by 1%, and the retroactive effect
of the increase for the January through June 1993 period, and a
related adjustment of deferred taxes. The 1% increase in the
statutory tax rate resulted in approximately $2,200,000 additional
tax expense from continuing operations, while the two latter
non-recurring items increased this period's expense by $4,000,000.
Income from discontinued operations in 1994 includes the gain on
sale of the food service and the bottled water businesses of
$31,430,000 net of $10,747,000 in taxes, and operating income
of $1,043,000 net of $409,000 in taxes. All discontinued
operations were sold by the end of the first quarter.
9
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PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Financial Position
The Company's financial position and liquidity continue to be
strong principally due to cash provided by operations, and the
completed sales of the bottled water and frozen foods discontinued
operations during the first quarter, offset by the January 31, 1994
cash purchase of the S.O.S products business for $121,000,000.
Increases in receivables, inventories and commercial paper since
June 30, 1993 reflect the normal seasonal pattern of the charcoal
briquet and insecticides businesses. In the third quarter every
year, the Company encourages retailers to restock for the new
season for these businesses by offering longer than normal payment
terms extended to the fourth fiscal quarter. Accrued liabilities
were up significantly principally due to higher levels of
advertising planned for the second half of the fiscal year.
Brands, trademarks, and other intangibles increased principally due
to the acquisition of the S.O.S products businesses.
The Board of Directors approved a stock repurchase program in 1989.
The program authorized the repurchase of up to 5,000,000 shares of
Clorox stock at a cost not to exceed $250,000,000. Through
March 31, 1994, 3,674,515 shares at a cost of $171,227,000 were
repurchased. The Company intended to repurchase $100,000,000 of
Clorox stock this year, and has completed this phase of the
program by repurchasing 1,883,300 shares at a cost of $99,906,000.
The Company sold 600,000 put options on Clorox stock during the
first quarter in support of the shares repurchase program, all
of which expired unexercised by February 22, 1994.
Management believes that the Company has sufficient access to
additional capital at favorable terms through existing lines of
credit and from public and private services should the need arise.
10
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S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
THE CLOROX COMPANY
(Registrant)
DATE _________________ BY /HENRY J. SALVO, JR./
Henry J. Salvo, Jr.
Vice-President - Controller
11
