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 September 30, 1997
------------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-07151
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THE CLOROX COMPANY
- ---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 31-0595760
- ---------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
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 September 30, 1997 there were 103,334,845 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
Three Months Ended
September 30, 1997 and 1996 3
Condensed Consolidated Balance Sheets
September 30, 1997 and June 30, 1997 4
Condensed Statements of Consolidated
Cash Flows
Three Months Ended
September 30, 1997 and 1996 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 7-8
2
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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
-----------------------------
9/30/97 9/30/96
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Net Sales $ 649,284 $ 590,773
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Costs and Expenses
Cost of products sold 279,694 257,361
Selling, delivery and administration 130,399 116,594
Advertising 91,544 88,974
Research and development 11,606 10,498
Interest expense 15,494 10,497
Other income (1,359) (1,973)
------------- -------------
Total costs and expenses 527,378 481,951
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Earnings before Income Taxes 121,906 108,822
Income Taxes 47,543 43,312
------------- --------------
Net Earnings $ 74,363 $ 65,510
============= =============
Earnings per Common Share $ 0.72 $ 0.64
Dividends per Share $ 0.32 $ 0.29
Weighted Average Shares Outstanding 103,217 103,092
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 Consolidated Balance Sheets
-------------------------------------
(In thousands)
9/30/97 6/30/97
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ASSETS
- ------
Current Assets
Cash and short-term investments $ 87,371 $ 101,046
Accounts receivable, less allowance 333,568 356,996
Inventories 186,612 170,340
Prepaid expenses 16,664 22,534
Deferred income taxes 21,533 22,581
--------------- -------------
Total current assets 645,748 673,497
Property, Plant and Equipment - Net 573,636 570,645
Brands, Trademarks, Patents and Other
Intangibles 1,206,379 1,186,951
Investments in Affiliates 96,635 93,004
Other Assets 284,778 253,855
--------------- -------------
Total $ 2,807,176 $ 2,777,952
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts payable $ 140,807 $ 143,360
Accrued liabilities 258,749 358,785
Short-term debt 241,395 369,973
Income taxes payable 54,415 17,049
Current maturities of long-term debt 45 3,551
--------------- -------------
Total current liabilities 695,411 892,718
Long-term Debt 756,299 565,926
Other Obligations 119,012 112,539
Deferred Income Taxes 161,534 170,723
Stockholders' Equity
Common stock 110,845 110,844
Additional paid-in capital 67,979 66,803
Retained earnings 1,249,448 1,207,524
Treasury shares, at cost (288,243) (289,075)
Cumulative translation adjustments and other (65,109) (60,050)
--------------- -------------
Stockholders' Equity 1,074,920 1,036,046
--------------- -------------
Total $ 2,807,176 $ 2,777,952
=============== =============
See Notes to Condensed Consolidated Financial Statements.
4
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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)
Three Months Ended
-----------------------------
9/30/97 9/30/96
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Operations:
Net earnings $ 74,363 $ 65,510
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 36,680 26,744
Deferred income taxes 2,216 840
Other (9,555) 5,315
Effects of changes in:
Accounts receivable 16,883 42,103
Inventories (16,272) (8,273)
Prepaid expenses 5,870 (3,084)
Accounts payable 1,524 (28,635)
Accrued liabilities (98,011) (3,770)
Income taxes payable 36,007 25,042
----------- -----------
Net cash provided by operations 49,705 121,792
Investing Activities:
Property, plant and equipment (18,375) (23,033)
Disposal of property, plant and equipment 1,123 515
Businesses purchased (37,910) (22,207)
Other (34,915) (17,043)
----------- -----------
Net cash used for investment (90,077) (61,768)
----------- -----------
Financing Activities:
Short-term borrowing 13,407 -
Short-term repayments (148,312) -
Long-term borrowings 193,287 968
Long-term debt and other obligations repayments (5,434) (6,942)
Commercial paper, net 2,821 (5,348)
Cash dividends (32,918) (29,888)
Treasury stock purchased (4,820) -
Employee stock plans 8,666 7,109
----------- -----------
Net cash provided by (used for) financing 26,697 (34,101)
----------- -----------
Net (Decrease) Increase in Cash and Short-Term Investments (13,675) 25,923
Cash and Short-Term Investments:
Beginning of period 101,046 90,828
----------- -----------
End of period $ 87,371 $ 116,751
=========== ============
See Notes to Condensed Financial Statements
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
----------------------------------------------------
(1) The summarized financial information for the three months
ended September 30, 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 months ended September 30, 1997
should not be considered as necessarily indicative of
the results for the respective year.
(2) Inventories at September 30, 1997 and at June 30, 1997
consisted of (in thousands):
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9/30/97 6/30/97
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Finished goods and work in process $ 115,783 $ 109,189
Raw materials and supplies 70,829 61,151
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Total $ 186,612 $ 170,340
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(3) Businesses purchased totalling $37,910 and $22,207 during
the quarters ended September 30, 1997 and 1996,
respectively, were funded using a combination of cash and
long-term borrowings and were accounted for as purchases.
(4) 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 EPS is computed as net earnings
divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the
potential dilution that could occur from common shares
issuable through stock options, restricted stock,
warrants and other convertible securities. The effect
on earnings per share under SFAS No. 128 would not have
been significantly different than earnings per share
currently reported for the periods.
(5) 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.
6
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 September 30, 1997
with the Three Months Ended September 30, 1996
-----------------------------------------------
Earnings per share increased 13% to 72 cents from 64 cents a
year ago and reflect a 2 for 1 stock split on September 2, 1997.
Net earnings grew 14% to $74,363,000 from $65,510,000 a year
ago based upon a 10% increase in net sales to $649,284,000.
Growth in earnings and net sales is due to a 10% increase in
volume versus the year ago period. One half of the volume
growth is due to Armor All with the remainder due primarily
to growth in the base businesses. Domestic brands having
record volumes and contributing to the quarterly growth include
Clorox liquid bleach, Match Light instant-lighting charcoal
briquets, Fresh Step Scoop brand of cat litter, and K.C.
Masterpiece barbecue sauces. The insecticides business
experienced a first quarter volume decline which was due in
part to fair weather in key parts of the country and overall
category softness.
Gross margins as a percent of net sales improved approximately
half a percentage point versus the year ago period principally
due to the efficiencies achieved through cost savings
initiatives such as our household products manufacturing
strategy, the consolidation of production in our food business,
and significant improvements in our Latin American businesses
where economies of scale are being achieved through
acquisitions, and consolidation of production activities.
Selling, delivery, and administrative expense increased 12%
versus the year ago period due to both the continued growth and
investment in International infrastructure, and expenses related
to integrating Armor All.
Advertising expense increased slightly versus a year ago and is
anticipated to grow for the year in line with sales. Last
year's expense was relatively high as a percent of sales in first
quarter and moderated over the balance of the fiscal year.
Interest expense increased approximately $5,000,000 versus the
year ago period principally due prior year's acquisition
activities.
Income tax expense as a percent of pretax earnings declined from
39.8% to 39.0% principally due to an increasing share of
earnings from International operations located in countries with
lower statutory tax rates.
7
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
---------------------------------------------
Liquidity and Capital Resources
-------------------------------
The Company's financial position and liquidity remain strong due
to cash provided by operations during the quarter. Accounts
receivable and accounts payable decreased from June 30, 1997
primarily due to normal seasonality of the charcoal and
insecticides businesses. Inventories are higher due to
international growth, as well as increased Brita volume. We
expect inventories to increase during the next two fiscal
quarters to support the seasonal charcoal and insecticides
businesses. The reduction in accrued liabilities 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.
Acquisitions since June 30, 1997 totaled $37,910,000 and were
financed using a combination of cash provided by operations
and long-term borrowings. These acquisitions included the
Clorosul bleach business in Brazil and two smaller acquisitions
in Southeast Asia and Australia and resulted in the increase
in Brands, Trademarks, Patents and Other Intangibles.
In September 1996, the Board of Directors authorized a share
repurchase program to offset the dilutive effect of employee
stock option exercises. The Company expects to issue between
400,000 and 500,000 shares of stock each year pursuant to its
stock based compensation plan and intends to repurchase
approximately the number of shares issued over time subject to
market conditions and business opportunities which may arise.
During the three month period ended September 30, 1997, 70,000
shares at a cost of $4,820,000 were reacquired.
The Company has approved the use of interest rate derivative
instruments such as interest rate swaps in order to manage
the impact of interest rate movements on interest expense.
These instruments have the effect of converting fixed rate
interest to floating, or floating to fixed. The conditions
under which derivatives can be used are set forth in a Company
Policy Statement and include a restriction on the amount of
such activity to a designated portion of existing debt, a limit
on the term of any derivative transaction, and a specific
prohibition on the use of any leveraged derivatives. 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 and an effective cost of 5.7%.
The Company entered into a series of swaps to eliminate foreign
currency exposure risk generated by this Sterling denominated
obligation.
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.
8
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 /s/ Henry J. Salvo, Jr.
--------------------- --------------------------
Henry J. Salvo, Jr.
Vice-President Controller
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF THE CLOROX COMPANY FOR THE FISCAL QUARTER ENDED SEPTEMBER 30,
1997, AS PRESENTED IN THE CLOROX COMPANY'S FORM 10-Q FOR SUCH PERIOD, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 48096
<SECURITIES> 39275
<RECEIVABLES> 335089
<ALLOWANCES> 1521
<INVENTORY> 186612
<CURRENT-ASSETS> 645748
<PP&E> 1066303
<DEPRECIATION> 492667
<TOTAL-ASSETS> 2807176
<CURRENT-LIABILITIES> 695411
<BONDS> 756299
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<COMMON> 110845
<OTHER-SE> 964075
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<SALES> 649284
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<CGS> 279694
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</TABLE>
