UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transmission 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 Broadway, Oakland, CA 94612-1888
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (510) 271-7000
including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------ ------------------------
Common Stock, $1 par value New York Stock Exchange
Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE.
Indicate by check mark whether the registrant (1) has filed all
reports 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
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
Aggregate market value of voting stock held by non-affiliates
of the registrant at July 31, 1997: $5,023,617,408.
Number of shares of common stock outstanding at
July 31, 1997: 51,597,992 (prior to giving effect to the 2:1
stock split effected in the form of a dividend payable on
September 2, 1997).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Stockholders
for the Year Ended June 30, 1997 are incorporated by reference
into Parts I, II and IV of this Report. Portions of the
registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on November 19, 1997,
which will be filed with the United States Securities and
Exchange Commission within 120 days after the end of the
registrant's fiscal year ended June 30, 1997, are incorporated
by reference into Part III of this Report.
<PAGE>
PART I
ITEM l. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
The Company (the term "Company" as used herein includes the
registrant identified on the facing sheet, The Clorox
Company, and its subsidiaries, unless the context indicates
otherwise) was originally founded in Oakland, California in
1913 as the Electro-Alkaline Company. It was reincorporated
as Clorox Chemical Corporation in 1922, as Clorox Chemical
Co. in 1928, and as The Clorox Company (an Ohio corporation)
in 1957, when the business was acquired by The Procter &
Gamble Company. The Company was fully divested by The
Procter & Gamble Company in 1969 and, as an independent
company, was reincorporated in 1973 in California as The
Clorox Company. In 1986, the Company was reincorporated
in Delaware.
Portions of The Clorox Company Annual Report for the Year
Ended June 30, 1997 ("Annual Report") to its stockholders
are incorporated herein by specific reference.
During fiscal year 1997, the Company continued to focus on
expanding its domestic business, through internal
development of new products and line extensions of existing
products. The Company introduced 15 new products in the
U.S. during fiscal year 1997. It also continued its
strategy of considering strategic acquisitions and, in that
regard, entered the automotive appearance product market
with its acquisition of Armor All Products Corporation
during fiscal year 1997.
Internationally, the Company continued the implementation
of its strategy of expanding its laundry, household cleaning
and insecticide businesses to markets where these
categories are not yet fully developed, but where it
believes high potential exists. The Company made three
international acquisitions in fiscal year 1997, consisting
of the "Limpido" brand of liquid bleach in Colombia, the
"Pinoluz" brand of pine cleaner in Argentina, and the Shell
Group's insecticides and cleaning products business in
Chile. In addition, the Company introduced 24 new products
or line extensions in previously established international
operations.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company's operations are predominantly in one segment
- -- non-durable household consumer products. Such operations
include the production and marketing of non-durable
consumer products sold primarily through grocery and other
retail stores. Financial information for the last three
fiscal years attributable to the Company's operations is set
forth in the Consolidated Financial Statements, pages 24
through 37 of the Annual Report, incorporated herein by
this reference.
Unless otherwise stated, all share numbers and stock
prices in this Form 10-K give effect to the 2:1 stock split
declared July 15, 1997, effected in the form of a stock
dividend payable September 2, 1997 on all shares of Common
Stock outstanding as of the close of business on July 28,
1997.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
PRINCIPAL PRODUCTS. Products currently marketed in the
United States and certain foreign countries are listed on
the inside back cover (page 44) of the Annual Report,
incorporated herein by this reference.
PRINCIPAL MARKETS - METHODS OF DISTRIBUTION. Most non-
durable household consumer products are nationally
advertised and sold within the United States to grocery
stores through a network of brokers, and to mass
merchandisers, warehouse clubs, military and other retail
stores primarily through a direct sales force. The Company
also sells, within the United States, institutional versions
of specialty food and non-food products. Outside the
United States, the Company sells consumer products through
subsidiaries, licensees, distributors and joint venture
arrangements with local partners.
SOURCES AND AVAILABILITY OF RAW MATERIALS. The Company has
obtained ample supplies of all required raw materials and
packaging supplies, which, with a few exceptions, were
available from a wide variety of sources during fiscal
year 1997. Contingency plans have been developed for
single sourced supplier materials.
PATENTS AND TRADEMARKS. Although some products are
covered by patents, the Company does not believe that
patents, patent licenses or similar arrangements are
material to its business. Most of the Company's brand
name consumer products are protected by registered
trademarks. Its brand names and trademarks are extremely
important to its business and the Company pursues a course
of vigorous action against apparent infringements.
SEASONALITY. The only portions of the operations of the
Company which have any significant degree of seasonality
are the marketing of charcoal briquets, insecticides, and
automotive appearance products. Most sales of these
product lines occur in the third and fourth fiscal quarters.
Working capital to carry inventories built up in the off-
season and to extend terms to customers is generally
provided by internally generated funds plus commercial
paper lines of credit.
CUSTOMERS AND ORDER BACKLOG. During fiscal years 1995,
1996 and 1997, revenues from the Company's sales of its
products to Wal-Mart Stores, Inc. and its affiliated
companies were 13%, 14% and 15%, respectively, of the
Company's gross consolidated revenues. Except for this
relationship, the Company is not dependent upon any other
single customer or a few customers. Order backlog is not
a significant factor in the Company's business.
RENEGOTIATION. None of the Company's operations is subject
to renegotiation or termination at the election of the
Federal government.
COMPETITION. The markets for consumer products are highly
competitive and most of the Company's products compete with
other nationally advertised brands within each category,
and with "private label" brands and "generic" non-branded
products of grocery chains and wholesale cooperatives.
Competition is encountered from similar and alternative
products, many of which are produced and marketed by major
national concerns having financial resources greater than
those of the Company. Depending on the competitor, the
Company's products compete with competitive products on
price, quality or other benefits to consumers.
A newly introduced consumer product (whether improved or
newly developed) usually encounters intense competition
requiring substantial expenditures for advertising and
sales promotion. If a product gains consumer acceptance,
it normally requires continuing advertising and promotional
support to maintain relative market position.
RESEARCH AND DEVELOPMENT. The Company's operations
incurred expenses of approximately $50,489,000 in fiscal
year 1997, $45,821,000 in fiscal year 1996 and
$44,819,000 in fiscal year 1995 on research activities
relating to the development of new products or the
maintenance and improvement of existing products. None of
such research activity was customer sponsored.
ENVIRONMENTAL MATTERS. Historically, the Company has not
made material capital expenditures for environmental control
facilities or to comply with environmental laws and
regulations. However, in general, the Company does
anticipate spending increasing amounts annually for
facility upgrades and for environmental programs. The
amount of capital expenditures for environmental compliance
was not material in fiscal year 1997 and is not expected to
be material in the next fiscal year.
In addition, the Company is involved in certain other
environmental matters, including:
(i) The Company sold its architectural coatings business
in fiscal year 1990. In connection with the
disposition of those manufacturing facilities, the
Company retained responsibility for certain
environmental obligations. The financial reserve
established at the time of the sale is expected to
be adequate to cover the financial responsibilities
for environmental matters which may arise in the
future.
(ii) The Company was named as a potentially responsible
party ("PRP") by the Environmental Protection
Agency pursuant to the Spill Compensation and
Control Act, the Sanitary Landfill Closure and
Contingency Fund Act, and a section of the Solid
Waste Management Act, for a site in New Jersey.
Based on the Company's experience and because the
Company's level of involvement is extremely
limited, the Company does not expect that this
matter will represent a material cost to the Company
in the future.
(iii) The Company continues to operate a water treatment
operation at its former Oakland, California
manufacturing location. A financial reserve
established in an earlier year is considered by
management to be adequate to cover the future costs
or liability in connection with this manufacturing
location.
(iv) An explosion attributed to methane caused property
damage and personal injury in a residential area
near a site formerly operated by a subsidiary of
the Company in Kingsford, Michigan. The Company
was named as a PRP and jointly with other PRPs and
the Environmental Protection Agency is investigating
the site. The investigation is ongoing and the
Company's potential liability is not expected to be
material in the future.
(v) The Company was named as a PRP by the State of
Wisconsin for a site in Rice Lake, Wisconsin in
connection with the Company's former frozen foods
business. Based on the Company's experience and
because the Company's level of involvement was
limited, the Company does not expect that this
matter will represent a material cost to the
Company in the future.
(vi) The Company was named as a PRP by the Environmental
Protection Agency for a landfill site in Whittier,
California. Based on the Company's experience and
because the Company's level of involvement was
extremely limited, the Company does not expect that
this matter will represent a material cost to the
Company in the future.
(vii) The Company was served with a Notice of Violation
by the Environmental Protection Agency pursuant to
the Clean Air Act for a site operated by its
subsidiary in Beryl, West Virginia. Based on the
Company's experience, the Company does not expect
that this matter will represent a material cost to
the Company in the future.
(viii) The Company was served with a Notice of Violation
by the Environmental Protection Agency pursuant to
the Clean Air Act for a site in Chicago, Illinois.
Based on the Company 's experience, the Company
does not expect that this matter will represent a
material cost to the Company in the future.
Although the potential cost to the Company related to
ongoing environmental matters is uncertain due to such
factors as: the unknown magnitude of possible pollution and
clean-up costs; the complexity and evolving nature of
governmental laws and regulations and their interpretations;
and the timing, varying costs and effectiveness of
alternative clean-up technologies; based on its experience
and without offsetting for expected insurance recoveries or
discounting for present value, the Company does not expect
that such costs individually and in the aggregate will
represent a material cost to the Company or affect its
competitive position.
NUMBER OF PERSONS EMPLOYED. At the end of fiscal year 1997,
approximately 5,500 persons were employed by the Company.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS. This Form 10-K
contains "forward-looking" statements under applicable
securities laws. In addition, from time to time, the
Company may publish forward-looking statements relating to
such matters as anticipated financial performance, business
prospects, new products, research and development
activities, plans for international expansion, and similar
matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements.
In order to comply with the terms of the safe harbor, the
Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed
in the Company's forward-looking statements. The risks and
uncertainties that may affect operations, performance,
product development, and results of the Company's business
include those discussed elsewhere in this Form 10-K and
the following:
Fluctuations in Quarterly Operating Results and Stock Price.
Although the Company's recent historical operating results
have improved when compared with the same quarter in the
previous fiscal year, there can be no assurance that such
quarter-to-quarter comparisons will continue to improve,
or that if any improvement is shown, the degree of
improvement will meet investors' expectations. In addition,
sales volume growth, whether due to acquisitions or to
internal growth, can place burdens on the Company's
management resources and financial controls which, in turn,
can have a negative impact on operating results. The
Company's quarterly operating results will be influenced by
a host of factors which include the following: the
seasonality of its brands; the extent of competition; the
degree of market acceptance of new products and line
extensions; the mix of products sold in a given quarter;
changes in pricing policies by the Company and by its
competitors; acquisition costs and restructuring and other
charges associated with acquisitions; the ability of the
Company to develop, introduce, and market successful new
products and line extensions; the ability of the Company
to control its internal costs and the costs of its raw
materials and packaging materials; the Company's success
in expanding its international operations; changes in the
Company's strategy; personnel changes; and general economic
conditions. To a certain extent, the Company bases its
expense levels in anticipation of future revenues. If
revenue levels come in below such expectations, operating
results are likely to be adversely affected. Because of
all of these factors, the Company believes that quarter-to-
quarter comparisons of its results of operations should not
be relied upon as indications of future performance.
Future announcements concerning the Company or its
competitors, quarterly variations in operating results,
the introduction of new products and line extensions or
changes in product pricing policies by the Company or its
competitors, changes in earning estimates by analysts, or
changes in accounting policies, among other factors, could
cause the market price of the Company's common stock to
fluctuate substantially and have an adverse effect on the
price of the Company's common stock. In addition, stock
markets have experienced price and volume volatility and
such volatility in the future could have an adverse impact
on the Company's market price.
International Operations. The Company believes that its
international sales including exports, which were 16% of
net sales in fiscal year 1997, are likely to comprise an
increasing percentage of its total sales. As a result,
the Company will be increasingly subject to the risks
associated with foreign operations including economic or
political instability in its overseas markets, shipping
delays and fluctuations in foreign currency exchange rates
that may make its products more expensive in its foreign
markets, all of which could have a significant impact on
the Company's ability to sell its products on a timely
and competitive basis in foreign markets and may have a
materially adverse effect on the Company's results of
operations or financial position. The Company seeks to
limit foreign currency exchange risks through the use of
foreign currency forward contracts when practical, but
there can be no assurance that this strategy will be
successful. In addition, the Company's international
operations are subject to the risk of new and different
legal and regulatory requirements in local jurisdictions,
potential difficulties in staffing and managing local
operations, credit risk of local customers and
distributors, and potentially adverse tax consequences.
Importance of New Products and Line Extensions. In most
categories in which the Company competes, there are
frequent introductions of new products and line extensions.
Accordingly, an important factor in the Company's future
performance will be its ability to identify emerging
consumer and technological trends and to maintain and
improve the competitiveness of its products. However,
there can be no assurance that the Company will
successfully achieve those goals. Continued product
development and marketing efforts are subject to all the
risks inherent in the development of new products and line
extensions, including development delays, the failure of
new products and line extensions to achieve anticipated
levels of market acceptance, as well as the cost of failed
product introductions.
Integration of Acquisitions. One of the Company's
strategies is to increase its revenues and the markets it
serves through the acquisition of other businesses both in
the United States and overseas. There can be no assurance
that the Company will be able to identify, acquire, or
profitably manage additional companies or operations or
successfully integrate recent or future acquisitions into
its operations. In addition, there can be no assurance
that companies or operations acquired will be profitable
at the time of their acquisition or will achieve sales
levels and profitability that justify the investment made.
Environmental Matters. The Company is subject to various
environmental laws and regulations in the jurisdictions in
which it operates, including those relating to air
emissions, water discharges, the handling and disposal of
solid and hazardous wastes, and the remediation of
contamination associated with the use and disposal of
hazardous substances. The Company has incurred, and will
continue to incur, capital and operating expenditures and
other costs in complying with such laws and regulations in
both the United States and abroad. The Company is
currently involved in or has potential liability with
respect to the remediation of past contamination in the
operation of certain of its present and formerly owned and
leased facilities. In addition, certain of the Company's
present and former facilities have been or had been in
operation for many years, and over such time, some of
these facilities may have used substances or generated and
disposed of wastes that are or may be considered hazardous.
It is possible that such sites, as well as disposal sites
owned by third parties to which the Company has sent waste,
may in the future be identified and become the subject of
remediation. Accordingly, although the Company believes
that it is currently in substantial compliance with
applicable environmental requirements, it is possible the
Company could become subject to additional environmental
liabilities in the future which could result in a material
adverse effect on the Company's results of operations or
financial condition.
Intellectual Property. The Company relies on trademark,
trade secret, patent, and copyright law to protect its
intellectual property. There can be no assurance that
such intellectual property rights can be successfully
asserted in the future or will not be invalidated,
circumvented, or challenged. In addition, laws of certain
foreign countries in which the Company's products are or
may be sold do not protect the Company's intellectual
property rights to the same extent as the laws of the
United States. The failure of the Company to protect its
proprietary information and any successful intellectual
property challenges or infringement proceedings against
the Company could have a material adverse effect on the
Company's business, operating results, and financial
condition.
Government Regulation. The manufacture, packaging,
storage, distribution, and labeling of the Company's
products are all subject to extensive federal, state, and
foreign laws and regulations. For example, in the United
States, many of the Company's products are subject to
regulation by the Environmental Protection Agency, the Food
and Drug Administration, and the Consumer Product Safety
Commission. Most states have agencies which regulate in
parallel to these federal agencies. The failure to comply
with applicable laws and regulations could subject the
Company to civil remedies, including fines, injunctions,
recalls or seizures, as well as potential criminal
sanctions, any of which could have a material adverse
effect on the Company. Loss of or failure to obtain
necessary permits and registrations could delay or prevent
the Company from introducing new products, building new
facilities, or acquiring new businesses and could
adversely effect operating results.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES.
Net sales, pretax earnings and identifiable assets
related to foreign operations and export sales are 16%,
8% and 27%, respectively, for fiscal year 1997. See Note
17 of Notes to Consolidated Financial Statements, page 35
of the Annual Report, incorporated herein by this reference.
ITEM 2. PROPERTIES
PRODUCTION FACILITIES. The Company operates production and
major warehouse facilities for its operations in 17
locations throughout the United States, and in 24 locations
internationally. Most of the space is owned. Some space,
mainly for warehousing, is leased. No facilities were
either closed or sold during fiscal year 1997. The Company
considers its manufacturing and warehousing facilities to be
adequate to support its business.
OFFICES AND TECHNICAL CENTER. The Company's general
office building is owned and is located in Oakland,
California. The Company's Technical Center and Data
Center are owned and are located in Pleasanton, California.
Leased sales and other office facilities are located at a
number of manufacturing and other locations.
ENCUMBRANCES. None of the Company's owned facilities are
encumbered to secure debt owed by the Company, except that
the manufacturing facilities in Wheeling, Illinois and
Belle, Missouri secure industrial revenue bond indebtedness
incurred in relation to the construction or upgrade thereof.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and current positions of the executive
officers of the Company are set forth below:
<TABLE>
<CAPTION>
Name (Age) and Year Elected to
Current Position Title and Current Position(s)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
G. C. Sullivan (57) 1992 Chairman of the Board, Chief Executive Officer
and President
W. F. Ausfahl (57) 1983 Group Vice President and Chief Financial Officer
E. A. Cutter (58) 1992 Senior Vice President-General Counsel
and Secretary
G. E. Johnston (50) 1996 Group Vice President
P. N. Louras, Jr. (47) 1992 Group Vice President
D. C. Murray (61) 1996 Group Vice President
C. T. Alcantara (47) 1996 Vice President-Latin America
A. W. Biebl (47) 1992 Vice President-Product Supply
R. H. Bolte (57) 1995 Vice President-Corporate Marketing Services
J. M. Brady (43) 1993 Vice President-Human Resources
R. T. Conti (42) 1996 Vice President-Kingsford Products
C. M. Couric (50) 1995 Vice President and General Manager-Brita Products
L. Griffey (61) 1993 Vice President-International Manufacturing
R. C. Klaus (52) 1996 Vice President-Corporate Administration
L. S. Peiros (42) 1995 Vice President-Food Products Division
K. M. Rose (48) 1993 Vice President-Treasurer
H. J. Salvo, Jr. (49) 1991 Vice President-Controller
B. A. Sudbury (50) 1992 Vice President-Research and Development
F. A. Tataseo (43) l994 Vice President-Sales
C. E. Williams (48) 1993 Vice President-Information Services
</TABLE>
There is no family relationship between any of the above
named persons, or between any of such persons and any of
the directors of the Company or any persons nominated for
election as a director of the Company. See Item 10 of Part
III of this Form 10-K.
G. C. Sullivan, W. F. Ausfahl, E. A. Cutter, P. N. Louras,
Jr., L. Griffey, K. M. Rose, H. J. Salvo, and B. A. Sudbury
have been employed by the Company for at least the past
five years in the same respective positions as listed above.
The other executive officers have held the respective
positions described below for at least the past five years:
G. E. Johnston joined the Company in July 1981 as Regional
Sales Manager-Special Markets. Prior to his election as
Group Vice President effective July 1, 1996, he was Vice
President-Kingsford Products from November 17, 1993 through
June 1996, Vice President-Corporate Development from June
1992 through November 16, 1993, Director of Corporate
Development from 1991 through May 1992, and Director of
Business Development from September 1989 through 1991.
D. C. Murray joined the Company in February 1978 as Regional
Manager-Latin America and Asia. Prior to his election as
Group Vice President effective July 1, 1996, he was Vice
President-Household Products Division from April 1989
through June 30, 1996, Vice President-International from
November 1984 through April 1989, and Vice President-Latin
America and Asia from April 1982 through November 1984.
C. T. Alcantara joined the Company in 1992 as Area General
Manager-Latin America. Prior to his election as Vice
President-Latin America effective July 1, 1996, he left the
Company briefly from December 8, 1995 through March 31,
1996, when he returned as Area General Manager-Latin
America.
A. W. Biebl joined the Company in 1981 as Manufacturing
Manager, Food Service. Prior to his election as Vice
President-Manufacturing, Engineering and Distribution
effective June 1, 1992 (which title changed to Vice
President-Product Supply effective January 1997), he was
Vice President-Kingsford Products from 1989 through May
1992 and Vice President-Food Service Products from 1985
through 1989.
R. H. Bolte joined the Company in April 1982. Prior to
his election as Vice President-Corporate Marketing Services
in July 1995, he was Director of Advertising and Promotion
from June 1993 through June 1995 and Director of Media
Services from May 1982 through May 1993.
J. M. Brady joined the Company in 1976 as a brand assistant
in Marketing, Household Products. From November 1991 until
her election as Vice President-Human Resources in September
1993, she was Vice President-Corporate Marketing Services.
She was director of Corporate Marketing Services from August
1991 through November 1991, Director of Marketing, Kingsford
Products from 1989 through August 1991 and held various
marketing positions for Household Products and Kingsford
Products from 1987 through 1989.
R. T. Conti joined the Company in 1982 as Associate Region
Sales Manager, Household Products. Prior to his election
as Vice President-Kingsford Products effective July 1,
1996, he was Vice President-International from June 1992
through June 1996, Area General Manager-International for
Europe, Middle East and Africa from 1990 through May 1992
and Manager of Sales Planning for Household Products from
1987 through 1990.
C. M. Couric joined the Company in 1973 as a brand assistant
in the Household Products marketing organization. Prior to
his election in July 1995 as Vice President-Brita Products,
he had served as Director, Brita Operations from 1988
through June 1995 and as a Manager of Business Development
from 1984 through 1988.
R. C. Klaus joined the Company in 1977 as Regional Sales
Manager (Baltimore) for the Company's Household Products
Business. Prior to his election as Vice President-
Corporate Administration in November 1995, he was Vice
President-Clorox Professional Products from March 1994
through October 1995, and Vice President-Food Service
Products from May 1990 through March 1994.
L. S. Peiros joined the Company in 1982 and was elected
Vice President-Food Products Division effective July 1995.
From September 1993 until his election to his current
position he was Vice President-Corporate Marketing Services.
From June 1992 through August 1993 he was Director of
Marketing-Household Products and from August 1991 through
June 1992 he was Director of Marketing-Kingsford Products.
Prior to that he had served in various marketing positions
in both Household Products and Kingsford Products.
F. A. Tataseo joined the Company in October 1994 as Vice
President-Sales. Previously, he was employed by The
Pillsbury Company (Division of Grand Metropolitan Inc.)
as Vice President, Sales (March - September 1994), and as
Vice President, Direct Sales Force (June 1993 - February
1994); and by The Procter & Gamble Company as Sales
Merchandising Division Manager, Soap Sector (May 1992 -
May 1993); as Division Sales Manager, Laundry Products
Category (November 1990 - April 1993); and as Division
Sales Manager, Fabric Care Category (July 1988 - October
1990).
C. E. Williams joined the Company in May 1993 as Vice
President-Information Services. From 1987 until he joined
the Company, Mr. Williams was Director of Information
Services of the Fritz Companies, Inc.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) MARKET INFORMATION.
The principal markets for Clorox Common Stock are the New
York Stock Exchange and the Pacific Exchange. The high
and low sales prices quoted for New York Stock Exchange-
Composite Transactions Report for each quarterly period
during the past two fiscal years appears under "Quarterly
Data," page 38 of the Annual Report, incorporated herein
by this reference, and on July 31, 1997, the closing price
for the Company's stock was $69.906 per share.
(b) HOLDERS.
The approximate number of record holders of Clorox Common
Stock as of July 31, 1997 was 13,354 based on information
provided by the Company's transfer agent.
(c) DIVIDENDS.
The amount of quarterly dividends paid with respect to
Clorox Common Stock during the past two fiscal years appears
under "Quarterly Data," page 38 of the Annual Report,
incorporated herein by this reference.
ITEM 6. SELECTED FINANCIAL DATA
This information appears under "Financial Summary," pages
40 and 41 of the Annual Report, incorporated herein by
this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
This information appears under "Management's Discussion
and Analysis," pages 22 and 23 of the Annual Report,
incorporated herein by this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
This information appears under "Quantitative and Qualitative
Disclosures about Market Risk," page 39 of the Annual Report,
incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
These statements and data appear on pages 24 through 37
and 38 of the Annual Report, incorporated herein by
this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM l0. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
Information regarding each nominee for election as a
director, including those who are executive officers of the
Company, appears under "Nominees for Election as Directors"
of the definitive Proxy Statement of the Company, which
will be filed with the United States Securities and
Exchange Commission within 120 days after the end of the
registrant's fiscal year ended June 30, 1997 ("Proxy
Statement"), incorporated herein by this reference.
Pursuant to Instruction 3 to Item 401(b) of Regulation
S-K, information regarding the executive officers of the
registrant is reported in Part I of this Report.
The information required by Item 405 of Regulation S-K
appears under "Section 16(a) Beneficial Ownership
Reporting Compliance" of the Proxy Statement, incorporated
herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K appears
under "Organization of the Board of Directors," "Summary
Compensation Table," "Options and Stock Appreciation Rights,"
"Long-Term Incentive Plans -- Awards in Last Fiscal Year,"
"Comparative Stock Performance," "Compensation Interlocks and
Insider Participation," and "Pension Benefits" of the Proxy
Statement, all incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
Information concerning the only entity or person known to
the Company to be the beneficial owner of more than 5% of
its Common Stock appears under "Beneficial Ownership of
Voting Securities" of the Proxy Statement, incorporated
herein by this reference.
(b) SECURITY OWNERSHIP OF MANAGEMENT.
Information concerning the beneficial ownership of the
Company's Common Stock by each nominee for election as a
director and by all directors and executive officers as
a group appears under "Beneficial Ownership of Voting
Securities" of the Proxy Statement, incorporated herein
by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning transactions with directors,
nominees for election as directors, management and the
beneficial owner of more than 5% of the Company's Common
Stock appears under "Certain Relationships and
Transactions" of the Proxy Statement, incorporated herein
by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1) Financial Statements: Page
Financial Statements and Independent Copy
Auditors' Report Included
included in the Annual Report,
incorporated herein by this
reference:
Statements of Consolidated Earnings for
the years ended June 30, 1997, l996 and
l995
Consolidated Balance Sheets, June 30, 1997
and l996
Statements of Consolidated Stockholders'
Equity for the years ended June 30, 1997,
l996 and l995
Statements of Consolidated Cash Flows for
the years ended June 30, 1997, l996 and l995
Notes to Consolidated Financial Statements
Independent Auditors' Report
Quarterly Data
(2) Financial Statement Schedules have been omitted
because of the absence of conditions
under which they are required, or because the
information is shown elsewhere in this Form 10-K.
(3) Executive Compensation Plans and Arrangements:
Stock Option Plan (1977), amended 10/16/80, 7/21/82,
6/21/83, 10/19/83, 9/18/85, 11/20/85, 7/15/87
and 11/17/93 (Exhibit 10(i) to Annual Report on
Form 10-K for the year ended June 30, 1994)
Long-Term Compensation Program dated October 21, 1987,
amended 11/17/93 (Exhibit 10(ii) to Annual Report on
Form 10-K for the year ended June 30, 1994)
Officer Employment Agreement (form) (Exhibit 10(xi)
to the Annual Report on Form 10-K for the year ended
June 30, 1996)
Officer Change of Control Employment Agreement (form)
(Exhibit 10(xii) to the Annual Report on Form 10-K
for the year ended June 30, 1996)
Supplemental Executive Retirement Plan dated July 17,
1991 (Exhibit 10(x) to Annual Report on Form 10-K
for the year ended June 30, 1993)
Non-Qualified Deferred Compensation Plan (Exhibit 10
(xiii) to the Annual Report on Form 10-K for the year
ended June 30, 1996)
The Clorox Company 1995 Performance Unit Plan
(Exhibit 10(xiv) to the Annual Report on Form 10-K
for the year ended June 30, 1996)
The Clorox Company 1996 Stock Incentive Plan (Exhibit
10(xv) to the Annual Report on Form 10-K for the year
ended June 30, 1996)
The Clorox Company 1996 Executive Incentive
Compensation Plan (Exhibit 10(xvi) to the Annual
Report on Form 10-K for the year ended June 30, 1996)
The Clorox Company Value Sharing Plan, formerly The
Clorox Company Tax Reduction Investment Plan (Exhibit
4.3 to Amendment No. 2 dated July 12, 1996 to
Registration Statement on Form S-8 No. 33-41131 dated
June 10, 1991)
The Clorox Company Value Sharing Plan for Puerto Rico
(Exhibit 4 to Registration Statement on Form S-8 No.
333-16969 dated November 27, 1996)
The Clorox Company Independent Directors' Stock-Based
Compensation Plan (filed as Exhibit 10 (xix) to this
Annual Report on Form 10-K for the year ended June
30, 1997)
(b) Current Reports on Form 8-K during the fourth quarter
of fiscal year 1997:
None.
(c) Exhibits:
Index to Exhibits follows.
(d) (Not applicable)
Index to Exhibits
(2) (Not applicable)
(3)(i) Restated Certificate of Incorporation and Certificate
of Correction to Restated Certificate of Incorporation
of the Registrant (filed as Exhibit 4.1 to
Registration Statement on Form S-8 No. 333-16969 dated
November 27, 1996, incorporated herein by this
reference)
(ii) Bylaws (restated) of the Company (filed as Exhibit
3(ii) to Quarterly Report on Form 10-Q for the
quarter ended December 31, 1992, incorporated herein
by this reference)
(4)(i) Form of Indenture between the Company and Wachovia
Bank & Trust Company, N.A. as Trustee, regarding
$200,000,000 in 8.8% Notes due 2001 (filed as Exhibit
4 to Registration Statement on Form S-3 No. 33-4083
dated May 24, 1991, incorporated herein by this
reference)
(ii) Prospectus Supplement (to Prospectus dated July 9,
1991) giving terms of the Indenture referenced in
Exhibit 4 (i) above (filed on July 18, 1991,
supplementing the Registration Statement on Form S-3
No. 33-4083 dated May 24, 1991, and incorporated
herein by this reference)
(9) (Not applicable)
(10) Material contracts:
(i) Stock Option Plan (1977) (Amended l0/l6/80, 7/2l/82,
6/2l/83, l0/l9/83, 9/18/85, 11/20/85, 7/15/87 and
11/17/93) (filed as Exhibit 10(i) to Annual Report on
Form 10-K for the year ended June 30, 1994,
incorporated herein by this reference)
(ii) Long-Term Compensation Program dated October 21, 1987
(Amended 11/17/93) (filed as Exhibit 10(ii) to Annual
Report on Form 10-K for the year ended June 30, 1994,
incorporated herein by this reference)
(iii) Agreement between Henkel KGaA and the Company dated
June l8, l981 (filed as Exhibit (l0)(v) to Form 8
dated August 11, l983, incorporated herein by this
reference)
(iv) Agreement between Henkel GmbH (now Henkel KGaA) and
the Company dated July 3l, l974 (filed as Exhibit
(l0)(vi) to Form 8 dated August 11, l983, incorporated
herein by this reference)
(v) Agreement between Henkel KGaA and the Company dated
November l6, 1981 (filed as Exhibit (l0)(vii) to Form
8 dated August 11, l983, incorporated herein by this
reference)
(vi) Agreement between Henkel KGaA and the Company dated
July 16, 1986 (filed as Exhibit B to Current Report
on Form 8-K for March 19, 1987, incorporated herein
by this reference)
(vii) Agreement between Henkel KGaA and the Company dated
March 18, 1987 (filed as Exhibit A to Current Report
on Form 8-K for March 19, 1987, incorporated herein
by this reference)
(viii) Agreement between Henkel KGaA and the Company dated
January 16, 1992 (filed as Exhibit 10(xi) to Annual
Report on Form 10-K for the year ended June 30, 1992,
incorporated herein by this reference)
(ix) Supplemental Executive Retirement Plan dated July 17,
1991 (filed as Exhibit 10(x) to Annual Report on Form
10-K for the year ended June 30, 1993, incorporated
herein by this reference)
(x) 1993 Directors' Stock Option Plan dated November 17,
1993 (filed as Exhibit 10(xi) to Annual Report on Form
10-K for the year ended June 30, 1994, incorporated
herein by this reference)
(xi) Officer Employment Agreement (form) (filed as Exhibit
10(xi) to the Annual Report on Form 10-K for the year
ended June 30, 1996, incorporated herein by this
reference)
(xii) Officer Change of Control Employment Agreement (form)
(filed as Exhibit 10(xii) to the Annual Report on Form
10-K for the year ended June 30, 1996, incorporated
herein by this reference)
(xiii) Non-Qualified Deferred Compensation Plan (filed as
Exhibit 10(xiii) to the Annual Report on Form 10-K
for the year ended June 30, 1996, incorporated herein
by this reference)
(xiv) The Clorox Company 1995 Performance Unit Plan (filed
as Exhibit 10(xiv) to the Annual Report on Form 10-K
for the year ended June 30, 1996, incorporated herein
by this reference)
(xv) The Clorox Company 1996 Stock Incentive Plan (filed as
Exhibit 10(xv) to the Annual Report on Form 10-K for
the year ended June 30, 1996, incorporated herein by
this reference)
(xvi) The Clorox Company 1996 Executive Incentive
Compensation Plan (filed as Exhibit 10(xvi) to the
Annual Report on Form 10-K for the year ended June 30,
1996, incorporated herein by this reference)
(xvii) The Clorox Company Value Sharing Plan, formerly The
Clorox Company Tax Reduction Sharing Plan (Exhibit 4.3
to Amendment No. 2 dated July 12, 1996 to Registration
Statement on Form S-8 No. 33-41131 dated June 10, 1991,
incorporated herein by this reference)
(xviii) The Clorox Company Value Sharing Plan for Puerto Rico
(Exhibit 4 to Registration Statement on Form S-8 No.
333-16969 dated November 27, 1996, incorporated herein
by this reference)
(xix) The Clorox Company Independent Directors' Stock-Based
Compensation Plan
(11) (Not applicable)
(12) (Not applicable)
(13) Excerpt of 1997 Annual Report to Stockholders
(16) (Not applicable)
(l8) (Not applicable)
(21) Subsidiaries of the Company
(22) (Not applicable)
(23) Independent Auditors' Consent
(24) Power of Attorney (see page 17)
(27) Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the
Securities Exchange Act of l934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE CLOROX COMPANY
Date: September 17, 1997 By: /s/G. C. Sullivan
-------------------
G. C. Sullivan, Chairman of
the Board and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Edward A.
Cutter and Henry J. Salvo, Jr., jointly and severally,
attorneys-in-fact and agents, with full power of substitution,
for her or him in any and all capacities to sign any and all
amendments to this Form 10-K, and to file the same and all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying
and confirming all that each of said attorneys-in-fact and
agents, and his or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act
of l934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/G.C. Sullivan
- ------------------
G. C. Sullivan Chairman of the Board & September 17, 1997
Director (Chief Executive Officer)
/s/W. F. Ausfahl
- ------------------
W. F. Ausfahl Group Vice President & Director September 17, 1997
(Principal Financial Officer)
/s/D. Boggan, Jr.
- ------------------
D. Boggan, Jr. Director September 17, 1997
/s/J. W. Collins
- ------------------
J. W. Collins Director September 17, 1997
/s/U. Fairchild
- ------------------
U. Fairchild Director September 17, 1997
/s/J. Manchot
- ------------------
J. Manchot Director September 17, 1997
/s/D. O. Morton
- ------------------
D. O. Morton Director September 17, 1997
/s/K. Morwind
- ------------------
K. Morwind Director September 17, 1997
/s/E. L. Scarff
- ------------------
E. L. Scarff Director September 17, 1997
/s/L. R. Scott
- ------------------
L. R. Scott Director September 17, 1997
/s/F. N. Shumway
- -----------------
F. N. Shumway Director September 17, 1997
/s/J. A. Vohs
- -----------------
J. A. Vohs Director September 17, 1997
/s/C. A. Wolfe
- -----------------
C. A. Wolfe Director September 17, 1997
/s/H. J. Salvo, Jr.
- -------------------
H. J. Salvo, Jr. Vice President-Controller(Principal September 17, 1997
Accounting Officer)
</TABLE>
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.
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED EARNINGS
Years ended June 30 (in thousands, except per-share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Years ended June 30 (in thousands, except per-share amounts) 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
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.
</TABLE>
<PAGE>
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30 (in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
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
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$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
=========================================================================================================================
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
QUARTERLY DATA
In thousands, except per-share amounts. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL SUMMARY
Years ended June 30
(In thousands, except per-share data)
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
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
Argentina
Australia
Brazil
Canada
Chile
Colombia
Costa Rica
Czech Republic
Dominican Republic
Egypt
Hong Kong
Hungary
Indonesia
Japan
Malaysia
Mexico
Panama
People's Republic of China
Peru
Poland
Puerto Rico
Republic of Korea
Romania
Saudi Arabia/Gulf States
Singapore
Slovak Republic
Spain
Taiwan
Thailand
Uruguay
Venezuela
Yemen Arab Republic
EXHIBIT 21
(to Form 10-K)
THE CLOROX COMPANY
SUBSIDIARIES OF THE REGISTRANT
(100% owned unless otherwise indicated)
Subsidiaries Jurisdiction of Incorporation
- ---------------------- -----------------------------
1109346 Ontario Ltd. Canada
American Sanitary Company S.A. Costa Rica
American Sanitary Company
(Overseas) Inc. (51%) Cayman Islands
Amesco Ltd. (49%) Cayman Islands
Argus Holdings Inc. Delaware
Armor All Products Corporation Delaware
Armor All Products GmbH Germany
Armor All Products of Canada,
Inc. Canada
Ashlyn Limited United Kingdom
Brita America Inc. Nevada
Brita (Canada) Inc. Canada
Brita Ltd. (50%) Canada
The Brita Products Company Delaware
Brita (South America) Inc. (50%) Canada
Chesapeake Assurance Limited Hawaii
Clorox Argentina S.A. Argentina
Clorox (Australia) Pty. Ltd. Australia
Clorox (Barbados) Inc. Barbados
Clorox do Brasil Ltda. Brasil
The Clorox Company of Canada,
Ltd. Canada
Clorox (Cayman Islands) Ltd. Cayman Islands
Clorox Chile S.A. Chile
The Clorox China Company Delaware
Clorox Export Company, Inc. Barbados
The Clorox Far East Company
Limited Hong Kong
The Clorox (Guangzhou) Company People's Republic of China
Ltd. (95%)
The Clorox International Company Delaware
Clorox Korea Ltd. Korea
Clorox (Malaysia) Industries Sdn.
Bhd. Malaysia
Clorox (Malaysia) Sdn. Bhd. Malaysia
Clorox de Mexico, S. de R. L.
de C. V. Mexico
The Clorox Company of New New Zealand
Zealand Limited
Clorox del Pacifico S.A. (80%) Peru
Clorox de Panama S.A. Panama
Clorox del Peru S.A. Peru
Clorox Products Manufacturing
Company Delaware
The Clorox Professional Products
Company Delaware
The Clorox Company of Puerto Rico Delaware
The Clorox Sales Company Delaware
Clorox Services Company Delaware
The Clorox South Asia Company Delaware
Clorox Uruguay S.A. Uruguay
CLX Realty Co. Delaware
Corporacion Clorox de Venezuela,
S.A. Venezuela
EcuaClorox S.A. Ecuador
Electroquimicas Unidas S.A.C.I. Chile
Henkel Iberica, S.A. (20%) Spain
The Household Cleaning Products Egypt
Company of Egypt, Ltd. (49%)
The HV Food Products Company Delaware
HV Manufacturing Company Delaware
Kingsford Charcoal of Canada, Ltd. Canada
The Kingsford Products Company Delaware
Lynley Limited Delaware
The Mexco Company Delaware
Mohammed Ali Abudawood and Saudi Arabia
Company for Industry (30%)
National Cleaning Products Saudi Arabia
Company Limited (30%)
Productos Del Hogar, C.
por A. (49%) Dominican Republic
Rocha Color S.A. Uruguay
Sarah Resources Limited Canada
Tecnoclor S.A. Colombia
United Cleaning Products Mfg. Co. Yemen Arab Republic
Ltd. (33%)
Yuhan-Clorox Co., Ltd. (50%) Korea
DELOITTE & TOUCHE LLP
(LOGO)
50 Fremont St.
San Francisco, CA 94105-2230
Telephone (415) 247-4000
Facsimile (415) 247-4329
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in The Clorox Company
Registration Statements No. 33-4083 on Form S-3, and Nos. 33-41131,
33-41277, 2-88106 (Post-Effective Amendment No. 2), 33-24582,
33-56565, 33-56563, 333-29375 and 333-16969 on Form S-8 of our report
dated July 30, 1997, except for the second paragraph of Note 1 as
to which the date is September 2, 1997, incorporated by reference
in this Annual Report on Form 10-K of The Clorox Company for the
year ended June 30, 1997.
/s/ Deloitte & Touche LLP
September 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF THE CLOROX COMPANY, FOR THE FISCAL YEAR ENDED JUNE 30, 1997, AS
PRESENTED IN THE CLOROX COMPANY'S FORM 10-K FOR SUCH PERIOD, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000021076
<NAME> THE CLOROX COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 62579
<SECURITIES> 38467
<RECEIVABLES> 358,517
<ALLOWANCES> 1521
<INVENTORY> 170340
<CURRENT-ASSETS> 673497
<PP&E> 1045407
<DEPRECIATION> 474762
<TOTAL-ASSETS> 2777952
<CURRENT-LIABILITIES> 892718
<BONDS> 565926
0
0
<COMMON> 110844
<OTHER-SE> 925202
<TOTAL-LIABILITY-AND-EQUITY> 2777952
<SALES> 2532651
<TOTAL-REVENUES> 2532651
<CGS> 1123459
<TOTAL-COSTS> 2066273
<OTHER-EXPENSES> (5260)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55623
<INCOME-PRETAX> 416015
<INCOME-TAX> 166573
<INCOME-CONTINUING> 249442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 249442
<EPS-PRIMARY> 2.41
<EPS-DILUTED> 0
</TABLE>
THE CLOROX COMPANY
INDEPENDENT DIRECTORS' STOCK-BASED COMPENSATION PLAN
Table of Contents
Page
ARTICLE I INTRODUCTION
1.01 Establishment of Plan 1
1.01 Purpose of Plan 1
1.02 Effective Date of Plan 1
ARTICLE II DEFINITIONS 1
ARTICLE III CREDITS
3.01 Transition Credits 3
3.02 Automatic Credits 3
3.03 Elective Credits 4
ARTICLE IV ACCOUNTS AND INVESTMENTS
4.01 Accounts 5
4.02 Deferred Stock Units 5
4.03 Deferred Cash Accounts 6
4.04 Hypothetical Nature of Accounts
and Investments 6
ARTICLE V PAYMENTS
5.01 Entitlement to Payment 6
5.02 Payment Commencement Date 7
5.03 Form and Amount of Payment 7
ARTICLE VI ADMINISTRATION
6.01 In General 8
6.02 Plan Amendment and Termination 8
6.03 Reports to Participants 8
6.04 Delegation of Authority 8
ARTICLE VII CHANGE OF CONTROL
7.01 Change of Control Defined 9
7.02 Effect of Change of Control 10
ARTICLE VII MISCELLANEOUS
8.01 Rights Not Assignable 11
8.02 Certain Rights Reserved 11
8.03 Withholding Taxes 11
8.04 Incompetence 11
8.05 Inability to Locate Participants
and Beneficiaries 11
8.06 Successors 12
8.07 Usage 12
8.08 Severability 12
8.09 Governing Law 13
<PAGE>
ARTICLE I
ESTABLISHMENT AND PURPOSES OF PLAN
1.01 Establishment of Plan
The Company hereby establishes the Clorox Company Independent
Directors' Stock-Based Compensation Plan, a nonqualified
deferred compensation plan for the Independent Directors of
the Company. The Plan shall be an unfunded plan within the
meaning of the Internal Revenue Code of 1986, as amended.
It is intended that the Plan not cover employees and
therefore not be subject to the Employee Retirement
Income Security Act of 1974, as amended.
1.02 Purpose of Plan
The purpose of the Plan is to enhance the Company's ability
to attract and retain Independent Directors whose training,
experience and ability will promote the interests of the
Company and to directly align the interests of such
Independent Directors with the interests of the Company's
shareowners by providing compensation based on the value of
Clorox Common Stock. The Plan is designed to permit such
Independent Directors to defer the receipt of all or a
portion of the cash compensation otherwise payable to
them for services to the Company as members of the Board.
This Plan replaces the Company's Directors' Deferred
Compensation Plan and the Directors' Retirement Plan with
respect to persons who are the Independent Directors of the
Company on July 1, 1996, or who become such after that date.
1.03 Effective Date of Plan
Except as otherwise provided by Section 3.01, the Plan shall
apply only to a Participant's Director's Fees with respect
to service on and after July 1, 1996.
ARTICLE II
DEFINITIONS
Unless the context clearly indicates otherwise, the following
terms, when used in capitalized form in the Plan, shall have
the meanings set forth below:
Account shall mean a bookkeeping account established for a
Participant under Section 4.01.
Article shall mean an article of the Plan.
Beneficiary shall mean a Participant's beneficiary, designated
in writing and in a form and manner satisfactory to the Board,
or if a Participant fails to designate a beneficiary, or
if the Participant's designated Beneficiary predeceases
the Participant, the Participant's estate.
Board shall mean the Board of Directors of the Company.
Clorox Common Stock shall mean the common stock of the Company.
Closing Price shall mean, with respect to any date specified
by the Plan, the closing price of a share of Clorox Common
Stock on the composite tape of New York Stock Exchange issues
(or if there was no reported sale of Clorox Common Stock
on such date, on the next preceding day on which there was
such a reported sale).
Company shall mean The Clorox Company.
Deferred Stock Unit shall mean a hypothetical share of Clorox
Common Stock as described in Section 4.02.
Director's Fees shall mean the annual retainer and meeting
fees payable to a Participant for services to the Company
as an Independent Director. Director's Fees do not include
amounts credited to a Participant under Section 3.01 or
Section 3.02 hereof.
Exchange Act means the Securities Exchange Act of 1934,
as amended.
Independent Director means any individual who serves as a
member of the Board of Directors of the Company and who
is not an employee of the Company or any of its subsidiaries.
Participant means an Independent Director who is participating
in the Plan.
Payment Anniversary Date shall mean an anniversary of the
Payment Commencement Date.
Payment Commencement Date shall mean the first business day of
the Plan Year immediately following the Plan Year in which
the Participant terminates service as a member of the Board.
Plan shall mean this Clorox Company Independent Directors'
Stock-Based Compensation Plan, as set forth herein and as
amended from time to time.
Plan Year shall mean the calendar year.
Section shall mean a section of the Plan.
ARTICLE III
CREDITS
3.01 Transition Credits
(a) Retirement Plan Credits. As soon as practicable on
or after July 1, 1996, the Company shall credit to the
Account of each Participant a number of Deferred Stock Units
determined in accordance with the schedule set forth in
Appendix I to the Plan. The credits set forth in Appendix I
shall be provided in lieu of any benefits to which the
Participant otherwise would have been entitled under The
Clorox Company Directors' Retirement Plan as of its termination
on June 30, 1996.
(b) Deferred Compensation Plan Credits.
(1) Each Participant who has a balance standing to
his or her credit in the Directors' Deferred Compensation
Plan as of July 1, 1996, shall be permitted a one-time
election, on or before December 31, 1996, to convert all
or a portion of the balance standing to his or her credit
in the Directors' Deferred Compensation Plan to Deferred
Stock Units as of December 31, 1996. A Participant who
elects to convert all or a portion of his or her account
in the Directors' Deferred Compensation Plan to Deferred
Stock Units shall be credited with the number of Deferred
Stock Units determined by dividing the portion of his or
her account in the Directors' Deferred Compensation Plan on
December 31, 1996, for which such election is made by the
average of the daily Closing Price for the month of December
1996.
(2) A Participant who does not elect to convert all
of the balance standing to his or her credit in the Directors'
Deferred Compensation Plan to Deferred Stock Units shall have
the balance not converted transferred to a Deferred Cash
Account which, thereafter, shall be administered under the
terms of this Plan.
3.02 Automatic Credits
As of the last day of each Plan Year, the Company shall credit
Deferred Stock Units to each Participant's Deferred Stock Unit
Account equal to the number of Deferred Stock Units determined
by dividing Ten Thousand Dollars ($10,000) by the average of
the Closing Prices for the trading days in the month of
December. In the case of a Participant whose service as an
Independent Director terminates during the Plan Year, the
applicable dollar amount shall be determined by multiplying
Ten Thousand Dollars ($10,000) by a fraction, the numerator of
which shall be the number of full calendar quarters of service
as an Independent Director completed by the Participant during
the Plan Year and the denominator of which shall be four.
3.03 Elective Credits
(a) Subject to the provisions of this Section 3.03, a
Participant may make an irrevocable election, with respect
to each Plan Year, to receive all or a portion of his or her
Director's Fees for the year in the form of cash, shares of
Clorox Common Stock, deferred cash or Deferred Stock Units,
provided that an individual who becomes a Participant on the
Effective Date may elect to receive Director's Fees for the
first quarter of the Company's fiscal year 1997 only in the
form of cash or shares of Clorox Common Stock. An election
under this Section 3.03 shall be made in a form and manner
satisfactory to the Board and shall be effective for a Plan
Year only if made before the beginning of the Plan Year;
provided that (i) an individual who becomes a Participant
on the Effective Date may make an election to receive
Director's Fees in the form of cash, shares of Clorox Common
Stock, deferred cash or Deferred Stock Units for the second
quarter of the Company's fiscal year 1997 on or before
September 30, 1997, and (ii) any other individual who
becomes a Participant after the first day of a Plan Year
may make the election for that Plan Year within 30 days of
becoming a Participant. A Participant who does not file a
timely election for a Plan Year shall receive his or her
Director's Fees in cash.
(b) A Participant who elects to receive his or her
Director's Fees in the form of shares of Clorox Common Stock,
deferred cash, and/or Deferred Stock Units shall specify
the percentage of such Director's Fees (in multiples of 10%,
with an aggregate minimum of 50%) to be paid in the form
of shares of Clorox Common Stock, deferred cash or Deferred
Stock Units.
(c) A Participant who elects to receive shares of
Clorox Common Stock shall be distributed shares of Clorox
Common Stock as of the last day of each calendar quarter
equal to his or her accrued Director's Fees for the quarter,
multiplied by the percentage of such Director's Fees
previously selected by the Participant to be applied to the
purchase of shares of Clorox Common Stock, and divided by
the Closing Price as of the last trading day in such calendar
quarter. Cash shall be distributed in lieu of fractional
shares of Clorox Common Stock.
(d) A Participant who elects to receive deferred cash
shall have credited to his or her Deferred Cash Account as
of the last day of each calendar quarter an amount
determined by multiplying his or her accrued Director's
Fees for the quarter by the percentage of such Director's
Fees previously selected by the Participant to be received
as deferred cash.
(e) A Participant who elects to receive Deferred Stock
Units shall have credited to his or her Deferred Stock
Unit Account as of the last day of each calendar quarter
the number of Deferred Stock Units determined by multiplying
his or her accrued Director's Fees for the quarter by the
percentage of such Director's Fees previously selected by
the Participant to be applied to the purchase of Deferred
Stock Units, and dividing the product thereof by the Closing
Price as of the last trading day in such calendar quarter.
ARTICLE IV
ACCOUNTS AND INVESTMENTS
4.01 Accounts
A separate Account under the Plan shall be established
for each Participant. Such Account shall be (a) credited
with the amounts credited in accordance with Article III,
(b) credited (or charged, as the case may be) with the
investment results determined in accordance with Sections
4.02 and 4.03, and (c) charged with the amounts paid by
the Plan to or on behalf of the Participant in accordance
with Article V. Within each Participant's Account,
separate subaccounts (including, as necessary, a Deferred
Stock Unit Account and a Deferred Cash Account) shall be
maintained to the extent the Board determines them to be
necessary or useful in the administration of the Plan.
4.02 Deferred Stock Units
(a) Deemed Investment in Clorox Common Stock. Except
as provided in subsection (b), below, a Participant's
Deferred Stock Unit Account shall be treated as if it
were invested in Deferred Stock Units that are equivalent
in value to the fair market value of shares of Clorox
Common Stock in accordance with the following rules:
(1) Deemed Reinvestment Of Dividends. The number
of Deferred Stock Units credited to a Participant's
Deferred Stock Unit Account shall be increased on each
date on which a dividend is paid on Clorox Common Stock.
The number of additional Deferred Stock Units credited
to a Participant's Deferred Stock Unit Account as a result
of such increase shall be determined by (i) multiplying
the total number of Deferred Stock Units (excluding
fractional Deferred Stock Units) credited to the
Participant's Deferred Stock Unit Account immediately
before such increase by the amount of the dividend paid
per share of Clorox Common Stock on the dividend payment
date, and (ii) dividing the product so determined by the
Closing Price on the dividend payment date.
(2) Conversion Out of Deferred Stock Units. The
dollar value of the Deferred Stock Units credited to a
Participant's Deferred Stock Unit Account on any date shall
be determined by multiplying the number of Deferred Stock
Units (including fractional Deferred Stock Units) credited
to the Participant's Deferred Stock Unit Account by the
Closing Price on that date.
(3) Effect of Recapitalization. In the event of a
transaction or event described in this paragraph (3), the
number of Deferred Stock Units credited to a Participant's
Deferred Stock Unit Account shall be adjusted in such manner
as the Board, in its sole discretion, deems equitable. A
transaction or event is described in this paragraph (3) if
(i) it is a dividend (other than regular quarterly dividends)
or other distribution (whether in the form of cash, shares,
other securities, or other property), extraordinary cash
dividend, recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up,
spin-off, repurchase, or exchange of shares or other securities,
the issuance or exercisability of stock purchase rights, the
issuance of warrants or other rights to purchase shares or
other securities, or other similar corporate transaction or
event and (ii) the Board determines that such transaction or
event affects the shares of Clorox Common Stock, such that
an adjustment pursuant to this paragraph (3) is appropriate
to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the
Plan.
(b) Change in Deemed Investment Election. A Participant who
elects to receive distribution of his or her Accounts in
annual installments will continue to have his or her Deferred
Stock Unit Account credited with Deferred Stock Units during
the installment period.
4.03 Deferred Cash Accounts
Deferred Cash Accounts shall be credited with interest at
an annual rate for each Plan Year equal to the Prime Lending
Rate of Wells Fargo Bank as in effect on January 1 of such
year. Interest shall be accrued to the date of the actual
payment and shall be compounded on a calendar quarter basis.
4.04 Hypothetical Nature of Accounts and Investments
Each Account established under this Article IV shall be
maintained for bookkeeping purposes only. Neither the Plan
nor any of the Accounts established under the Plan shall hold
any actual funds or assets. The Deferred Stock Units established
hereunder shall be used solely to determine the amounts to be
paid hereunder, shall not be or represent an equity security of
the Company, shall not be convertible into or otherwise entitle a
Participant to acquire an equity security of the Company and shall
not carry any voting or dividend rights.
ARTICLE V
PAYMENTS
5.01 Entitlement to Payment
(a) Credits to a Participant's Account under Section 3.03
shall be in lieu of payment to the Participant of the related
Director's Fees. Any payment under the Plan with respect to
an Account shall be made as provided in this Article V. The
right of any person to receive one or more payments under the
Plan shall be an unsecured claim against the general assets
of the Company.
(b) Amounts credited to a Participant's Deferred Cash
Account shall be paid in cash and amounts credited to a
Participant's Deferred Stock Unit Account shall be paid in
shares of Clorox Common Stock, except that a cash payment
will be made with any final installment for any fraction of a
Deferred Stock Unit remaining in the Participant's Account.
Such fractional Deferred Stock Unit shall be valued at the
Closing Price on the date of settlement.
5.02 Payment Commencement Date
Payments to a Participant with respect to the Participant's
Account shall begin as of the Participant's Payment
Commencement Date; provided that if a Participant dies before
the Participant's Payment Commencement Date, payment of the
entire value of the Participant's Account shall be made to
the Participant's Beneficiary in accordance with the provisions
of Section 5.03 after the Board receives all documents and
other information that it requests in connection with the
payment.
5.03 Form and Amount of Payment
(a) Five Annual Installments. A Participant shall receive
his or her Account in five annual installments unless the
Participant elects to receive his or her benefits under the
Plan in the form of a lump-sum payment in accordance with
subsection (b), below. Annual installments shall be payable
to the Participant beginning as of the Payment Commencement
Date and continuing as of each Payment Anniversary Date
thereafter until all installments have been paid. The first
annual installment shall equal one-fifth (1/5th) of the
value of the Participant's Account(s), determined as of the
Payment Commencement Date. Each successive annual installment
shall equal the value of the Participant's Account(s),
determined as of the Payment Anniversary Date, multiplied by a
fraction, the numerator of which is one, and the denominator
of which is the excess of five over the number of installment
payments previously made (i.e., 1/4th, 1/3rd, etc.). If the
Participant dies before the Participant's Payment Commencement
Date, or after the Participant's Payment Commencement Date
but before all five installments have been paid, the remaining
installments shall be paid to the Participant's Beneficiary
in accordance with the schedule in this subsection (a).
(b) Lump Sum. A Participant may elect to receive his or her
Account under the Plan in the form of a lump-sum payment in
lieu of the five installment payments determined under
subsection (a), above. The lump sum shall be payable to the
Participant in cash and shares of Clorox Common Stock on the
Payment Commencement Date. An election under this subsection
(b) shall be made in a form and manner satisfactory to the
Board and shall be effective as to the Participant only if
made prior to termination of service with the Board of
Directors. If the Participant dies before his or her
Payment Commencement Date having elected to receive
benefits in the form of a lump sum, a lump sum payment
shall be made to the Participant's Beneficiary on the
Payment Commencement Date.
ARTICLE VI
ADMINISTRATION
6.01 In General
(a) The Plan shall be administered by the Board. The
Board shall act by vote or written consent of a majority
of its members.
(b) The Board shall have the discretionary authority
to interpret the Plan and to decide any and all matters
arising under the Plan, including without limitation the
right to determine eligibility for participation, benefits,
and other rights under the Plan; the right to determine
whether any election or notice requirement or other
administrative procedure under the Plan has been adequately
observed; the right to determine the proper recipient of
any distribution under the Plan; the right to remedy
possible ambiguities, inconsistencies, or omissions by
general rule or particular decision; and the right otherwise
to interpret the Plan in accordance with its terms. The
Board's determination on any and all questions arising out
of the interpretation or administration of the Plan shall
be final, conclusive, and binding on all parties.
6.02 Plan Amendment and Termination
The Board may amend, suspend, or terminate the Plan at any
time; provided that no amendment, suspension, or termination
of the Plan shall, without a Participant's consent, reduce
the Participant's benefits accrued under the Plan before the
date of such amendment, suspension, or termination. If the
Plan is terminated in accordance with this Section 6.02, the
terms of the Plan as in effect immediately before termination
shall determine the right to payment in respect of any amounts
that remain credited to a Participant's Account upon termination.
6.03 Reports to Participants
The Board shall furnish an annual statement to each Participant or,
if the Participant is deceased, the Participant's Beneficiary)
reporting the value of the Participant's Account as of the end
of the most recent Plan Year.
6.04 Delegation of Authority
The Board may delegate to officers of the Company any and all
authority with which it is vested under the Plan, and the Board
may allocate its responsibilities under the Plan among its members.
ARTICLE VII
CHANGE OF CONTROL
7.01 Change of Control Defined
A Change of Control shall be deemed to occur on
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20%, or in the case of Henkel KGaA, or any person
controlled by it ("Henkel"), more than the percentage unit
of the Company's issued common stock agreed to in paragraph
4(a) of the June 18, 1981, agreement between the Company and
Henkel, as amended, of either (i) the then outstanding
shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power
of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors
(the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change in
Control: (1) any acquisition directly from the Company;
(2) any acquisition by the Company, including any acquisition
which, by reducing the number of shares outstanding, is the
sole cause for increasing the percentage of shares
beneficially owned by any such Person or by Henkel to more
than the applicable percentage set forth above; (3) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or by any corporation
controlled by the Company; or (4) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of Section 7.01(c); or
(b) Individuals who, as of July 1, 1996, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent
to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board, and if Henkel is not the acquiring
person, any individual nominated as a representative of
Henkel pursuant to the agreement between Henkel and the
Company dated July 16, 1986, shall be considered as though
such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election
or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) Consummation by the Company of a reorganization,
merger or consolidation or sale or other disposition of a
ll or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business
Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and the Outstanding
Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common
stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election
of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation,
a corporation which as a result of such transaction owns the
Company or all of substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the
Outstanding Company Common Stock and the Outstanding Company
Voting Securities, as the case may be, (ii) no Person
(excluding any employee benefit plan (or related trust)
of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of
the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of
the members of the board of directors of the corporation
resulting from such Business Combination were members of
the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
7.02 Effect of Change of Control
(a) Notwithstanding any other provision in any other
Article of this Plan to the contrary, other than Section
8.08(b), (i) the value of all amounts deferred by a
Participant which have not yet been credited to the
Participant's Account and (ii) the value of such Participant's
Account shall be paid to such Participant in each case in
a lump-sum cash payment on the occurrence of a Change in
Control or as soon thereafter as practicable, but in no
event later than five days after the Change in Control.
The amount of cash credited to each Participant's Account
prior to determining the amount of cash to be paid from
the Account shall be determined by the Board (which, for
this purpose, shall be comprised of employee members of
the Board prior to the Change in Control) so as to reflect
fairly and equitably appropriate interest and dividends and
so as to reflect fairly and equitably such other facts and
circumstances as the Board deems appropriate, including,
without limitation, the recent price of shares of Clorox
Common Stock. For purposes of payments under this Article
VII, the value of a Deferred Stock Unit shall be computed
as the greater of (1) the Closing Price on or nearest the
date on which the Change of Control is deemed to occur, or
(2) the highest per share price for shares of Clorox Common
Stock actually paid in connection with the Change of Control.
ARTICLE VIII
MISCELLANEOUS
8.01 Rights Not Assignable
No payment due under the Plan shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, or charge in any other way. Any attempt
to anticipate, alienate, sell, transfer, assign, pledge,
encumber, or charge such payment in any other way shall be
void. No such payment or interest therein shall be liable
for or subject to the debts, contracts, liabilities, or torts
of any Participant or Beneficiary. If any Participant or
Beneficiary becomes bankrupt or attempts to anticipate,
alienate, sell, transfer, assign, pledge, encumber, or charge
in any other way any payment under the Plan, the Board may
direct that such payment be suspended and that all future
payments to which such Participant or Beneficiary otherwise
would be entitled be held and applied for the benefit of
such person, the person's children or other dependents, or
any of them, in such manner and in such proportions as the
Board may deem proper.
8.02 Certain Rights Reserved
Nothing in the Plan shall confer upon any person the right to
continue to serve as a member of the Board or to participate
in the Plan other than in accordance with its terms.
8.03 Withholding Taxes
The Board may make any appropriate arrangements to deduct from
all credits and payments under the Plan any taxes that the
Board reasonably determines to be required by law to be
withheld from such credits and payments.
8.04 Incompetence
If the Board determines, upon evidence satisfactory to the
Board, that any Participant or Beneficiary to whom a
benefit is payable under the Plan is unable to care for
his or her affairs because of illness or accident or
otherwise, any payment due under the Plan (unless prior
claim therefor shall have been made by a duly authorized
guardian or other legal representative) may be paid, upon
appropriate indemnification of the Board and the Company,
to the spouse of the Participant or Beneficiary or other
person deemed by the Board to have incurred expenses for
the benefit of and on behalf of such Participant or
Beneficiary. Any such payment shall be a complete discharge
of any liability under the Plan with respect to the amount so paid.
8.05 Inability to Locate Participants and Beneficiaries
Each Participant and Beneficiary entitled to receive a
payment under the Plan shall keep the Board advised of his
or her current address. If the Board is unable for a period
of 36 months to locate a Participant or Beneficiary to whom
a payment is due under the Plan, commencing with the first
day of the month as of which such payment first comes due,
the total amount payable to such Participant or Beneficiary
shall be forfeited. Should such a Participant or Beneficiary
subsequently contact the Board requesting payment, the Board
shall, upon receipt of all documents and other information
that it might request in connection with the payment, restore
and pay the forfeited payment in a lump sum, the value of
which shall not be adjusted to reflect any interest or other
type of investment earnings or gains for the period of forfeiture.
8.06 Successors
The provisions of the Plan shall bind and inure to the benefit
of the Company and its successors and assigns. The term
"successors" as used in the preceding sentence shall include
any corporation or other business entity that by merger,
consolidation, purchase, or otherwise acquires all or
substantially all of the business and assets of the Company,
and any successors and assigns of any such corporation or other
business entity.
8.07 Usage
(a) Titles and Headings. The titles to Articles
and the headings of Sections, subsections, and paragraphs in
the Plan are placed herein for convenience of reference only
and shall be of no force or effect in the interpretation of
the Plan.
(b) Number. The singular form shall include the
plural, where appropriate.
8.08 Severability
If any provision of the Plan is held unlawful or otherwise
invalid or unenforceable in whole or in part, such unlawfulness,
invalidity, or unenforceability shall not affect any other
provision of the Plan or part thereof, each of which shall
remain in full force and effect. If the making of any payment
or the provision of any other benefit required under the Plan
is held unlawful or otherwise invalid or unenforceable, such
unlawfulness, invalidity or unenforceability shall not prevent
any other payment or benefit from being made or provided under
the Plan, and if the making of any payment in full or the
provision of any other benefit required under the Plan in full
would be unlawful or otherwise invalid or unenforceable, then
such unlawfulness, invalidity, or unenforceability shall not
prevent such payment or benefit from being made or provided in
part, to the extent that it would not be unlawful, invalid, or
unenforceable, and the maximum payment or benefit that would
not be unlawful, invalid, or unenforceable shall be made or
provided under the Plan.
8.09 Governing Law
The Plan and all determinations made and actions taken under the
Plan shall be governed by and construed in accordance with the
laws of the State of California.
THE CLOROX COMPANY
Attest: /s/ E. A. Cutter
Date: September 18, 1996
<PAGE>
<TABLE>
CAPTION>
CLOROX BOARD OF DIRECTORS
DEFERRED STOCK UNIT PLAN
APPENDIX I
PENSION BENEFIT CONVERSION TO STOCK UNITS
NORMAL PRESENT VALUE NUMBER OF STOCK
RETIREMENT OF ACCRUED UNITS AT
DIRECTOR DATE BENEFIT AS OF 6/30/96
6/30/96 CONVERSION (1)
<S> <C> <C> <C>
BOGGAN 12/31/2015 $ 28,984 327.04
COLLINS 12/31/2000 $ 57,954 653.92
FAIRCHILD 12/31/2000 $172,221 1943.26
MANCHOT 12/31/2006 $ 62,893 709.65
MORTON 12/31/2002 $ 66,652 752.07
SCARFF 12/31/2000 $125,352 1414.41
SCOTT 12/31/2006 $ 61,242 691.02
SHUMWAY 12/31/1997 $166,445 1878.08
VOHS 12/31/1998 $127,427 1437.82
WOLFE 12/31/2002 $ 63,916 721.20
(1) Number of Stock Units equals PV of accrued benefit divided by the Closing Price on
June 28, 1996.
</TABLE>
