UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-07151
-------
THE CLOROX COMPANY
- ---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-0595760
- ---------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification number)
1221 Broadway - Oakland, California 94612 - 1888
- ---------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, (including area code) (510) 271-7000
--------------
(Former name, former address and former fiscal year, if changed
since last report)
- ---------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed
all report required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
------------ ---------------
As of December 31, 1998 there were 103,723,864 shares outstanding
of the registrant's common stock (par value - $1.00), the
registrant's only outstanding class of stock.
- ---------------------------------------------------------------------
Total pages 24 1
THE CLOROX COMPANY
PART 1. Financial Information Page No.
--------------------- ---------
Item 1. Financial Statements
Condensed Statements of Consolidated
Earnings
Three and Six Months Ended
December 31, 1998 and 1997 3
Condensed Consolidated Balance Sheets
December 31, 1998 and June 30, 1998 4
Condensed Statements of Consolidated
Cash Flows
Six Months Ended December 31, 1998
and 1997 5
Notes to Condensed Consolidated
Financial Statements 6-16
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 17-22
Item 5. Other information 23-24
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Statements of Consolidated Earnings
---------------------------------------------
(In thousands, except per-share amounts)
Three Months Ended Six Months Ended
------------------------------------ -----------------------------------
12/31/98 12/31/97 12/31/98 12/31/97
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 648,172 $ 591,795 $1,334,055 $ 1,241,079
---------- ------------ ---------- -----------
Costs and Expenses
Cost of products sold 283,927 258,189 572,478 537,883
Selling, delivery and
administration 148,262 139,789 290,880 270,188
Advertising 90,585 83,408 182,177 174,952
Research and development 13,952 13,007 26,901 24,613
Interest expense 16,667 16,525 35,463 32,019
Other (income) expense, net 3,529 (242) 379 (1,601)
---------- ------------ ---------- ------------
Total costs and expenses 556,922 510,676 1,108,278 1,038,054
---------- ----------- ---------- ------------
Earnings before Income Taxes 91,250 81,119 225,777 203,025
Income Taxes 33,304 31,636 82,409 79,179
---------- ------------ ---------- -----------
Net Earnings $ 57,946 $ 49,483 $ 143,368 $ 123,846
========== =========== ========== ============
Earnings per Common Share
Basic $ 0.56 $ 0.48 $ 1.38 $ 1.20
Diluted 0.55 0.47 1.36 1.17
Weighted Average Shares
Outstanding
Basic 103,628 103,393 103,616 103,305
Diluted 105,735 105,429 105,732 105,427
Dividends per Share $ 0.36 $ 0.32 $ 0.72 $ 0.64
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
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<CAPTION>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Consolidated Balance Sheets
-------------------------------------
(In thousands)
12/31/98 6/30/98
------------ -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term investments $ 102,242 $ 89,681
Accounts receivable, less allowance 365,468 411,868
Inventories 228,742 211,913
Prepaid expenses and other 45,035 45,354
Deferred income taxes 18,753 23,242
------------ -----------
Total current assets 760,240 782,058
Property, Plant and Equipment - Net 604,025 596,293
Brands, Trademarks, Patents and Other Intangibles 1,254,862 1,240,532
Investments in Affiliates 84,247 84,449
Other Assets 343,051 310,018
------------ -----------
Total $ 3,046,425 $ 3,013,350
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 116,528 $ 154,348
Accrued liabilities 183,908 268,583
Short-term debt 659,256 768,616
Income taxes payable 38,855 15,370
Current maturities of long-term debt 1,392 1,517
------------ -----------
Total current liabilities 999,939 1,208,434
Long-term Debt 508,454 316,260
Other Obligations 220,055 203,000
Deferred Income Taxes 178,784 200,421
Stockholders' Equity
Common stock 110,844 110,844
Additional paid-in capital 95,613 84,124
Retained earnings 1,455,702 1,382,943
Treasury shares, at cost (410,845) (391,864)
Accumulated other comprehensive income (loss) (101,083) (89,861)
Other (11,038) (10,951)
------------ -----------
Stockholders' Equity 1,139,193 1,085,235
------------ -----------
Total $ 3,046,425 $ 3,013,350
============ ============
See Notes to Condensed Consolidated Financial Statements.
4
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<CAPTION>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Statements of Consolidated Cash Flows
-------------------------------------------------
(In thousands)
Six Months Ended
--------------------------------------
12/31/98 12/31/97
-------------- --------------
<S> <C> <C>
Operations:
Net earnings $ 143,368 $ 123,846
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 70,838 65,005
Deferred income taxes 3,528 2,855
Other (6,884) (2,669)
Effects of changes in:
Accounts receivable 49,554 15,750
Inventories (14,628) (48,726)
Prepaid expenses 319 4,597
Accounts payable (39,343) (26,909)
Accrued liabilities (79,011) (84,816)
Income taxes payable 23,368 1,221
-------------- --------------
Net cash provided by operations 151,109 50,154
Investing Activities:
Property, plant and equipment (47,244) (39,681)
Disposal of property, plant and equipment 4,057 1,686
Businesses purchased (57,473) (80,120)
Other (39,437) (48,468)
-------------- --------------
Net cash used for investment (140,097) (166,583)
-------------- --------------
Financing Activities:
Short-term debt borrowings - 13,407
Short-term debt repayments (387,540) (161,719)
Long-term debt and other obligations borrowings 201,235 193,736
Long-term debt and other obligations repayments (6,461) (61,525)
Commercial paper, net 277,480 186,451
Cash dividends (74,574) (65,999)
Treasury stock purchased (32,455) (33,815)
Issuance of common stock under employee stock plans and other 23,864 (4,255)
-------------- --------------
Net cash provided by financing 1,549 66,281
-------------- --------------
Net Increase (Decrease) in Cash and Short-Term Investments 12,561 (50,148)
Cash and Short-Term Investments:
Beginning of period 89,681 101,046
-------------- --------------
End of period $ 102,242 $ 50,898
============== ==============
See Notes to Condensed Financial Statements.
5
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
- ------------------------------------------------------
(1) The condensed consolidated financial information for the
three and six months ended December 31, 1998 and 1997 has not
been audited but, in the opinion of management, includes all
adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the consolidated results
of operations, financial position, and cash flows of The
Clorox Company and its subsidiaries (the "Company"). The
results of the three and six months ended December 31, 1998
and 1997 should not be considered as necessarily indicative
of the results for the respective year.
(2) Inventories at December 31, 1998 and at June 30, 1998
consisted of (in thousands):
12/31/98 6/30/98
--------- -------
Finished goods and work in process $150,591 $130,185
Raw materials and supplies 78,151 81,728
--------- -------
Total $228,742 $211,913
========= ========
(3) Businesses purchased for the six months ended December 31,
1998 and December 31, 1997 totalling $57,473,000 and $ 80,120,000,
respectively, were funded using a combination of cash and debt
and were accounted for as purchases. These acquisitions in 1998
included a bleach and cleaners business in Venezuela, an
insecticide business in Korea, a cleaning brand business in
Australia and an increase in ownership in Tecnoclor, S.A. in
Colombia.
(4) In July 1998, the Company refinanced $150,000,000 of
commercial paper by entering into a Deutsche Mark denominated
financing arrangement with private investors. In October 1998,
the private investors exercised an option to finance an
additional $50,000,000 under the same terms of this financing
arrangement. The Company entered into a series of swaps with
notional amounts totaling $200,000,000 to eliminate foreign
currency exposure risk generated by this Deutsche Mark
denominated obligation. The swaps effectively convert the
Company's 2.876% fixed Deutsche Mark obligation to a floating
U.S. dollar rate of 90 day LIBOR less 278 basis points or an
effective rate of approximately 3%.
In December 1998, the Company redeemed preference shares totalling
$387,540,000 which was classified as short-term debt.
This financing was replaced with commercial paper
borrowings at a rate of approximately 5.2%.
6
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
- ----------------------------------------------------
(5) SFAS 128 requires dual presentation of basic and diluted
earnings per share (EPS) on the face of all earnings statements
issued after December 15, 1997 for all entities with complex
capital structures. Basic EPS is computed by dividing net
earnings by the weighted average number of common shares
outstanding each period. Diluted EPS is computed by dividing
net earnings by the diluted weighted average number of common
shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur from common shares issuable
through stock options, restricted stock, warrants and other
convertible securities. The weighted average number of shares
outstanding (denominator) used to calculate basic EPS is reconciled
to those used in calculating diluted EPS as follows (in thousands):
<TABLE>
<CAPTION>
Weighted Average Number of Shares Outstanding
---------------------------------------------------------------
Three Months Ended Six Months Ended
----------------------- -----------------------
12/31/98 12/31/97 12/31/98 12/31/97
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Basic 103,628 103,393 103,616 103,305
Stock options 2,068 1,987 2,075 2,073
Other 39 49 41 49
-------- --------- -------- --------
Diluted 105,735 105,429 105,732 105,427
======== ========= ======== =========
</TABLE>
(6) Effective July 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting of Comprehensive
Income. Comprehensive income for the Company includes net income
and foreign currency translation adjustments that are excluded
from net income but included as a component of total stockholders'
equity. Comprehensive income for the three and six months ended
December 31, 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- ------------------------------
12/31/98 12/31/97 12/31/98 12/31/97
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net Earnings $ 57,946 $ 49,483 $143,368 $123,846
Other comprehensive
income (loss):
Foreign currency
translation
adjustments 5,793 (22,967) (11,222) (27,867)
-------- --------- -------- ---------
Comprehensive Income $ 63,739 $ 26,516 $132,146 $ 95,979
========= ========= ======== ==========
</TABLE>
(7) Certain reclassifications of prior periods' amounts have
been made to accounts receivable, accrued liabilities,
interest expense and other (income) expense to conform with
the current period presentation.
7
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
- ----------------------------------------------------
(8) Subsequent Event - Completion of First Brands Corporation Merger
On January 29, 1999, the Company completed the First Brands
Corporation ("First Brands") merger when the Company's wholly
owned subsidiary, Pennant, Inc. ("Pennant"), merged into
First Brands. As a result of the merger ("Merger"), First
Brands became a wholly owned subsidiary of the Company and
continues to operate its business as the Company's subsidiary.
First Brands develops, manufactures, markets and sells consumer
products under the Glad, Scoop Away, and STP brands, among
others. The Merger is structured to be treated as a pooling of
interests for accounting purposes.
Pursuant to the Agreement and Plan of Reorganization and Merger
dated as of October 18, 1998 among the Company, First Brands,
and Pennant ("Merger Agreement"), First Brands' stockholders
received in the Merger the right to receive .349 of a share
of the Company's common stock in exchange for each share of
First Brands' common stock, with cash paid in lieu of fractional
shares. Pursuant to the Merger, approximately 40,320,500 shares
of First Brands' common stock were converted into approximately
14,071,850 shares of the Company's common stock. In addition,
options to acquire 1,755,010 shares of First Brands' common
stock were converted to 612,484 options to acquire shares of the
Company's common stock. As a result of the Merger, Clorox also
assumed approximately $440 million of First Brands' debt. See
also the discussion in "Management's Discussion and Analysis"
under "Subsequent Event - Completion of First Brands Corporation
Acquisition."
(9) Pro forma financial information
The following unaudited pro forma combined condensed
consolidated financial statements have been prepared to
give effect to the Merger, using the pooling of interests
method of accounting.
No adjustments to the unaudited pro forma combined condensed
consolidated financial information have been made to conform
the accounting policies of the combined company, as the
nature and amounts of such adjustments are deemed insignificant.
Certain reclassifications have been made to conform First
Brands' balance sheet and income and expense to the Company's
classifications as of December 31, 1998. The share information
used in the unaudited pro forma information assumes the actual
exchange ratio of .349.
The unaudited pro forma combined condensed consolidated balance
sheet as of December 31, 1998 gives effect to the Merger as if
it had occurred on December 31, 1998, and combines the unaudited
consolidated balance sheet of the Company and the unaudited
consolidated balance sheet of First Brands as of December 31, 1998.
The unaudited pro forma combined condensed consolidated statements
of earnings for all periods presented give effect to the Merger
as if it had occurred at the beginning of the periods presented.
For purposes of the unaudited pro forma combined condensed
consolidated statements of earnings, First Brands' consolidated
statements of earnings for the three and six months ended
December 31, 1997 and 1998 have been combined with the Company's
consolidated statements of earnings for the three and six months
ended December 31, 1997 and 1998, respectively.
8
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
- ----------------------------------------------------
The Company and First Brands estimate they will incur combined
aggregate direct transaction costs of approximately $15.5
million associated with the Merger, consisting of transaction
fees for investment bankers, attorneys, accountants and other
related costs. These nonrecurring transaction costs will be
charged to operations upon consummation of the Merger. It is
expected that following the Merger, the Company will incur
additional nonrecurring costs currently estimated to be
approximately $125 million, including non-cash charges
currently estimated at $30 million. No estimate for these
charges has been reflected in the pro forma combined
condensed consolidated balance sheet or pro forma combined
condensed statements of earnings. There can be no assurance
that the Company will not incur additional charges in excess
of $140.5 million to reflect transaction costs and costs
associated with the Merger or that management will be successful
in its efforts to integrate the operations of the two companies.
The unaudited pro forma combined condensed consolidated
financial information is presented for illustrative purposes
only and is not necessarily indicative of the financial
position or results of operations that would have actually
been reported had the Merger occurred at the beginning of the
periods presented (or as of December 31, 1998), nor is it
necessarily indicative of the financial position or results of
operations of the Company in the future. Such unaudited pro
forma combined condensed consolidated financial statements are
based upon the respective historical consolidated financial
statements and notes thereto of the Company and First Brands
and do not incorporate, nor do they assume, any benefits from
cost savings or synergies that the Company may realize after the
Merger.
9
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<CAPTION>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
----------------------------------------------------
Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet (a), (b)
(In thousands)
December 31, 1998
----------------------------------------------------------------------
Pro Forma
Adjusments and Pro Forma
Clorox First Brands Reclassifications Combined
------------- ---------------- -------------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and short-term investments $ 102,242 $ 22,472 $ $ 124,714
Accounts and notes receivable, net 365,468 106,322 (25,799)(ii) 445,991
Inventories 228,742 151,912 380,654
Prepaid expenses and other 45,035 4,417 49,452
Deferred income taxes 18,753 12,591 31,344
------------- ---------------- -------------------- ------------
Total current assets 760,240 297,714 (25,799) 1,032,155
------------- ---------------- -------------------- ------------
Property, Plant and Equipment - Net 604,025 420,269 1,024,294
Brands, Trademarks, Patents and Other
Intangibles 1,254,862 333,961 1,588,823
Investments in Affiliates 84,247 - 5,853 (ii) 90,100
Other Assets 343,051 48,899 (5,853)(ii) 386,097
------------- ---------------- -------------------- ------------
Total $ 3,046,425 $ 1,100,843 $ (25,799) $ 4,121,469
============== ================= =================== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 116,528 $ 43,127 $ $ 159,655
Accrued liabilities 183,908 71,919 (25,799)(ii) 230,028
Accrued merger costs - - 15,500 (i) 15,500
Short-term debt and notes payable 659,256 4,665 663,921
Income taxes payable 38,855 18,417 57,272
Current maturities of long-term debt 1,392 3,280 4,672
------------- ---------------- -------------------- ------------
Total current liabilities 999,939 141,408 (10,299) 1,131,048
Long-term Debt 508,454 429,414 937,868
Other Obligations 220,055 28,248 248,303
Deferred Income Taxes 178,784 79,389 258,173
Stockholders' Equity
Common stock and additional
paid in capital 206,457 152,929 359,386
Retained earnings 1,455,702 424,720 (15,500)(i) 1,864,922
Treasury shares, at cost (410,845) (125,872) (536,717)
Accumulated other comprehensive income (101,083) (29,393) (130,476)
Other (11,038) - (11,038)
------------- ---------------- -------------------- ------------
Stockholders' Equity 1,139,193 422,384 (15,500) 1,546,077
------------- ---------------- -------------------- ------------
Total $ 3,046,425 $ 1,100,843 $ (25,799) $ 4,121,469
============= ================= ==================== =============
See notes to unaudited pro forma combined condensed consolidated financial statements.
10
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<CAPTION>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
----------------------------------------------------
Unaudited Pro Forma Combined Condensed Consolidated Statements of Earnings (a), (c), (d)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31 December 31
1998 1997 1998 1997
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 946,961 $ 887,768 $1,911,631 $1,801,573
Costs and Expenses
Cost of products sold 458,570 435,147 916,716 880,145
Selling, delivery and administration 201,213 188,560 392,568 363,754
Advertising 122,322 115,660 236,775 228,534
Research and development 15,281 14,499 29,646 27,410
Restructuring - 2,700 - 2,700
Interest expense 25,184 25,517 52,666 49,272
Other (income) expense, net 6,790 2,712 7,562 4,914
--------- --------- ---------- ---------
Total costs and expenses 829,360 784,795 1,635,933 1,556,729
--------- --------- ---------- ---------
Earnings before Income Taxes and
cumulative effect of change in
accounting principle 117,601 102,973 275,698 244,844
Income Taxes 43,523 40,183 101,878 95,518
--------- --------- ---------- ---------
Earnings before cumulative effect of
change in accounting principle $ 74,078 $ 62,790 $ 173,820 $ 149,326
========= ========= ========== =========
Earnings per Common Share
before cumulative effect of change
in accounting principle
Basic $ 0.63 $ 0.54 $ 1.48 $ 1.27
Diluted 0.62 0.52 1.45 1.25
Weighted Average Shares Outstanding
Basic 117,294 117,247 117,261 117,202
Diluted 119,799 119,614 119,674 119,632
See notes to unaudited pro forma combined condensed consolidated financial statements.
11
</TABLE>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
- ----------------------------------------------------
(a) Pro forma basis of presentation
The unaudited condensed statements of earnings for the three
and six months ended December 31, 1997 and 1998 reflect the
combination of the statements of earnings of the Company and First
Brands for those periods. No adjustments have been made in these
pro forma combined condensed consolidated financial statements to
conform the accounting policies of the combined company, as the
nature and amounts of such adjustments are deemed insignificant.
The unaudited pro forma combined condensed consolidated
financial statements reflect the issuance of 13,858,522 shares
of the Company's Common Stock in exchange for an aggregate of
39,709,232 shares of First Brands' Common Stock outstanding as
of December 31, 1998 in connection with the Merger, based on the
actual Exchange Ratio of .349 (which uses an average closing
price for the Company's Common Stock of $111.86 per share) as set
forth in the following table:
Shares of First Brands' Common Stock outstanding
as of December 31, 1998 39,709,232
Exchange Ratio .349
--------------
Number of shares of the Company's Common
Stock exchanged for
First Brands Common Stock 13,858,522
Number of shares of the Company's Common
Stock outstanding at
December 31, 1998 103,723,864
--------------
Number of shares of the Company's Common
Stock outstanding at December 31, 1998
after giving effect to the Merger 117,582,386
===============
(b) Unaudited pro forma combined condensed consolidated balance sheet
(i) The Company and First Brands estimate they will incur
combined aggregate direct transaction costs of approximately $15.5
million associated with the Merger, consisting of transaction fees
for investment bankers, attorneys, accountants and other related
costs. These non-recurring transaction costs will be charged
to operations upon consummation of the Merger. These charges
have been reflected in the unaudited pro forma combined condensed
consolidated balance sheet but have not been included in the
unaudited pro forma combined condensed consolidated statement of
earnings.
(ii) Represents certain reclassifications to conform
First Brands' balance sheet classifications to the Company's
balance sheet classifications at December 31, 1998.
12
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
- ----------------------------------------------------
(iii) It is expected that, following the Merger, the
Company will incur additional nonrecurring costs currently
estimated to be approximately $125,000,000, including
non-cash charges estimated at $30,000,000, in connection
with the Merger. No estimate for these charges has been
reflected in the pro forma combined condensed consolidated
balance sheet or combined condensed consolidated statements
of earnings. There can be no assurance that the Company
will not incur additional charges in excess of $125,000,000
to reflect additional nonrecurring costs associated with
the Merger, or that management will be successful in its
efforts to integrate the operations of the two companies.
(c) Unaudited pro forma combined condensed consolidated
statement of earnings
The following are certain classifications of historical
results of operations of the Company and First Brands and
their pro forma combined amounts included in the unaudited
pro forma combined condensed consolidated statements of
earnings. Certain reclassifications were made to the
historical results of First Brands to conform to the
Company's classifications. These pro forma amounts
reflect the Merger as if it were effected for all periods
presented on the following two pages.
13
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
----------------------------------------------------
Unaudited Pro Forma Combined Condensed Consolidated Statements of Earnings
(In thousands)
Three Months Ending December 31, 1998 Six Months Ending December 31, 1998
--------------------------------------------- -----------------------------------------
Pro Forma Pro Forma
Reclass- Pro Forma Reclass- Pro Forma
Clorox First Brands ifications Combined Clorox First Brands ifications Combined
--------- ------------- ----------- ---------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 648,172 $ 314,386 $ (15,597) $ 946,961 $1,334,055 $ 605,895 $ (28,319) $1,911,631
Costs and Expenses
Cost of products
sold 283,927 196,158 (21,515) 458,570 572,478 385,017 (40,779) 916,716
Selling, delivery
and administration 148,262 79,319 (26,368) 201,213 290,880 145,039 (43,351) 392,568
Depreciation and
amortization - 3,798 (3,798) - - 7,802 (7,802) -
Advertising 90,585 - 31,737 122,322 182,177 - 54,598 236,775
Research and
development 13,952 - 1,329 15,281 26,901 - 2,745 29,646
Restructuring - - - - - - - -
Interest expense 16,667 7,140 1,377 25,184 35,463 14,339 2,864 52,666
Discount on sale
of receivables - 1,377 (1,377) - - 2,864 (2,864) -
Other (income)
expense, net 3,529 243 3,018 6,790 379 913 6,270 7,562
--------- ------------- ----------- ---------- ---------- ------------- ----------- ----------
Total costs and
expenses 556,922 288,035 (15,597) 829,360 1,108,278 555,974 (28,319) 1,635,933
--------- ------------- ----------- ---------- ---------- ------------- ----------- ----------
Earnings before
income taxes and
cumulative effect
of change in
accounting principle 91,250 26,351 - 117,601 225,777 49,921 - 275,698
Income Taxes 33,304 10,219 - 43,523 82,409 19,469 - 101,878
--------- ------------- ----------- ---------- ---------- ------------- ----------- ----------
Earnings before
cumulative effect
of change in
accounting principle $ 57,946 $ 16,132 $ - $ 74,078 $ 143,368 $ 30,452 $ - $ 173,820
========= ============= =========== ========== ========== ============== ========== ==========
14
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
----------------------------------------------------
Unaudited Pro Forma Combined Condensed Consolidated Statements of Earnings
(In thousands)
Three Months Ending December 31, 1997 Six Months Ending December 31, 1997
--------------------------------------------- -----------------------------------------
Pro Forma Pro Forma
Reclass- Pro Forma Reclass- Pro Forma
Clorox First Brands ifications Combined Clorox First Brands ifications Combined
--------- ------------- ----------- ---------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 591,795 $ 309,282 $ (13,309) $ 887,768 $1,241,079 $ 578,762 $ (18,268) $ 1,801,573
Costs and Expenses
Cost of products
sold 258,189 196,994 (20,036) 435,147 537,883 380,189 (37,927) 880,145
Selling, delivery
and administration 139,789 75,406 (26,635) 188,560 270,188 129,317 (35,751) 363,754
Depreciation and
amortization - 3,595 (3,595) - - 7,455 (7,455) -
Advertising 83,408 - 32,252 115,660 174,952 - 53,582 228,534
Research and
development 13,007 - 1,492 14,499 24,613 - 2,797 27,410
Restructuring - 2,700 - 2,700 - 2,700 - 2,700
Interest expense 16,525 7,843 1,149 25,517 32,019 14,957 2,296 49,272
Discount on sale of
receivables - 1,149 (1,149) - - 2,296 (2,296) -
Other (income)
expense, net (242) (259) 3,213 2,712 (1,601) 29 6,486 4,914
--------- ------------- ----------- ---------- ---------- ------------- ----------- ----------
Total costs
and expenses 510,676 287,428 (13,309) 784,795 1,038,054 536,943 (18,268) 1,556,729
--------- ------------- ----------- ---------- ---------- ------------- ----------- ----------
Earnings before income
taxes and
cumulative effect of
change in accounting
principle 81,119 21,854 - 102,973 203,025 41,819 - 244,844
Income Taxes 31,636 8,547 - 40,183 79,179 16,339 - 95,518
--------- ------------- ----------- ---------- ---------- ------------- ----------- ----------
Earnings before
cumulative effect of
change in accounting
principle $ 49,483 $ 13,307 $ - $ 62,790 $ 123,846 $ 25,480 $ - $ 149,326
========= ============= =========== ========== ========== ============== ========== ==========
15
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
- ----------------------------------------------------
(d) Unaudited pro forma earnings per share
The following table reconciles the number of shares used in
the pro forma earnings per share computations to the number of s
hares set forth in the Company's and First Brands' historical
statements of earnings (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
1998 1997 1998 1997
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Shares used in calculations:
Historical basic shares - Clorox 103,628 103,393 103,616 103,305
--------- ---------- --------- ----------
Historical basic shares -
First Brands 39,157 39,696 39,098 39,819
Conversion ratio .349 .349 .349 .349
--------- ---------- --------- ----------
13,666 13,854 13,645 13,897
--------- ---------- --------- ----------
Pro forma combined basic shares 117,294 117,247 117,261 117,202
========= ========== ========= ==========
Historical diluted shares - Clorox 105,735 105,429 105,732 105,427
--------- ---------- --------- ----------
Historical diluted shares -
First Brands 40,299 40,644 39,948 40,703
Conversion ratio .349 .349 .349 .349
--------- ---------- --------- ----------
14,064 14,185 13,942 14,205
--------- ---------- --------- ----------
Pro forma combined
diluted shares 119,799 119,614 119,674 119,632
========= ========== ========= ==========
16
</TABLE>
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
- ---------------------------------------------
Results of Operations
- ---------------------
Comparison of the Three Months Ended December 31, 1998
- -------------------------------------------------------
with the Three Months Ended December 31, 1997
- ------------------------------------------------
Diluted earnings per share increased 17% to $0.55 from $0.47 a
year ago and net earnings grew 17% to $57,946,000 from $49,483,000
a year ago.
Net sales increased 10% to $648,172,000 primarily due to a
13% volume increase. Increased trade spending in Latin America
depressed sales growth relative to volume growth. Volume growth
was due to both increases in existing brands and the introduction
of new products. Domestic products such as Formula 409
cleaners, Clorox toilet bowl cleanser, Clorox 2 color-safe
bleach, Hidden Valley bottled dressings, and cat litter
products contributed to this quarterly growth. Introduction
of new products such as Rain Clean Pine-Sol dilutable cleaner,
Lemon Fresh Pine-Sol cleaner and antibacterial spray, and
Tilex Fresh Shower daily shower cleaner also fueled this
volume growth. Clorox liquid bleach volume was favorably
impacted by a second quarter price increase in the prior
year which resulted in lower shipments in the prior year second
quarter. Volume performance of charcoal products benefited
from the late season warm weather extending the barbecue
season. International shipments increased primarily due to
acquisition activity partially offset by lower volumes
experienced by the Company's Asian businesses due to economic
instability. Declines in the Company's Asian operations have
not materially impacted the Company.
Gross margin as a percent of sales remained relatively flat
in comparison with the prior year.
Selling, delivery, and administration expenses increased
approximately 6% from a year ago primarily due to continued
growth and expenditures related to investment in international
infrastructure, partially offset by a reduction in corporate
administration costs primarily due to reduced use of outside
contractors related to the Company's Year 2000 effort.
Increased advertising spending is driven by increased domestic
volume activity and the introduction of new products, partially
offset by lower international spending.
Other expense includes costs associated with the redemption
of redeemable subsidiary preference shares, classifed as short-term
debt, in December 1998, and the effect of translation on certain
international operations.
Income tax expense as a percent of pretax earnings declined to
36.5% from 39% principally due to international investment
activities and international operations.
17
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
- ---------------------------------------------
Results of Operations
- ---------------------
Comparison of the Six Months Ended December 31, 1998
- ----------------------------------------------------
with the Six Months Ended December 31, 1997
- -------------------------------------------
Diluted earnings per share increased 16% to $1.36 from $1.17 a
year ago and net earnings grew 16% to $143,368,000 from
$123,846,000 a year ago.
Net sales increased 7% to $1,334,055,000 primarily due to a 9%
volume increase. The volume growth is attributable primarily
to strong performance from the Company's domestic products,
new product launches, and increased international shipments due
to acquisitions. These increases are partially offset by
weakened volume performance experienced by the Company's Asian
businesses and volume decreases in the Company's insecticide
business.
Gross margin as a percent of sales improved 43 basis points
from the preceding year primarily from on-going cost savings
initiatives programs and lower raw material costs.
Selling, delivery, and administration expenses increased
approximately 8% from a year ago primarily due to continued
growth and expenditures related to investment in international
infrastructure. Increased advertising spending is driven by
increased domestic volume and introduction of new products
partially offset by lower international spending.
Interest expense increased approximately $3,444,000 from the
prior year primarily due to the issuance of new debt to fund
business growth and international acquisitions.
Other expense includes costs associated with the redemption of
redeemable subsidiary preference shares in December 1998,
classifed as short-term debt in December 1998, and
the effect of translation on certain international operations.
Income tax expense as a percent of pretax earnings declined
to 36.5% from 39% principally due to international investment
activities and international operations.
18
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
- ------------------------------------------------
Liquidity and Capital Resources
- ---------------------------------
The Company's financial position and liquidity remain strong due to
cash provided by operations during the quarter. Normal seasonal
variations experienced by the Company's seasonal businesses
and higher shipment volumes recorded in the prior year fourth
quarter by the Company's domestic household products business
were the primary drivers causing reductions in receivables,
payables, and accrued liabilities and the increase in inventories.
International acquisitions since June 30, 1998 totalled $57,473,000
and were funded using a combination of cash and debt. These
acquisitions included a bleach and cleaners business in Venezuela,
an insecticide business in Korea, a cleaning brand business in
Australia, and an increase in ownership in Tecnoclor, S.A. in
Colombia.
In September 1996, the Board of Directors authorized a share
repurchase program to offset the dilutive effect of employee
stock option exercises. During the six month period ended
December 31, 1998, 400,000 shares were acquired at a cost of
$32,455,000. The Company has discontinued this share repurchase
program in connection with the First Brands Corporation
acquisition described below. As a result, the issuance of shares
pursuant to the Company's stock incentive plans may have a
dilutive effect.
The Company has approved the use of interest rate derivative
instruments such as interest rate swaps in order to manage the
impact of interest rate movements on interest expense. These
instruments have the effect of converting fixed rate interest
to floating, or floating to fixed. The conditions under which
derivatives can be used are set forth in a Company Policy
Statement that includes a specific prohibition on the use of
any leveraged derivatives. In July 1998, the Company refinanced
$150,000,000 of commercial paper by entering into a Deutsche
Mark denominated financing arrangement with private investors.
The private investors exercised an option to finance an
additional $50,000,000 under the same terms of this financing
arrangement in October 1998. The Company entered into a series
of swaps with notional amounts totalling $200,000,000 to
eliminate foreign currency exposure risk generated by this
Deutsche Mark denominated obligation. The swaps effectively
convert the Company's 2.876% fixed Deutsche Mark obligation to
a floating U.S. dollar rate of 90 day LIBOR less 278 basis
points or an effective rate of approximately 3%.
In December 1998, the Company redeemed preference shares
totalling $387,540,000 which was classifed as short-term debt.
This financing was replaced with commercial paper borrowings
at a rate of approximately 5.2%.
As of December 31, 1998, the Company has increased its available
lines of credit from $550 million to $750 million. Management
believes the Company has adequate access to additional capital
from other public and private sources should the need arise.
19
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
- ---------------------------------------------
Year 2000 Compliance
- --------------------
Many financial information and operations systems used today
may be unable to interpret dates after December 31, 1999
because these systems allow only two digits to indicate the
year in a date. Consequently, these systems are unable to
distinguish January 1, 2000 from January 1, 1900, which could
have adverse consequences on the operations of an entity and
the integrity of information processing. This potential
problem is referred to as the "Year 2000" or "Y2K" issue.
In 1997, the Company established a corporate-wide program to
address Y2K issues. This effort is comprehensive and encompasses
software, hardware, electronic data interchange, networks,
personal computers, manufacturing and other facilities,
embedded chips, century certification, supplier and customer
readiness, contingency planning, and domestic and
international operations.
In the United States and Canada, the Company is currently on
schedule and is over 70% complete as of December 31, 1998,
excluding plant floor efforts. The Company has replaced or
upgraded most of its critical business applications and
systems and has completed approximately 20% of its century
testing for these systems. The target date to repair or
replace the remaining critical business information systems
is March 31, 1999. In international operations other than
Canada, the Company is currently in the remediation phase
for its critical business systems and is approximately 75%
complete. The target date to repair or replace the
remaining international systems is June 30, 1999.
The Company has completed the assessment of its plant floor
systems and equipment, and has finalized its remediation
plans for its domestic and Canadian plant facilities. The
Company expects to complete its plant floor assessment and
remediation plans for its international operations by April 30,
1999. The target date to complete all domestic and
international manufacturing plant floor and facilities
efforts is September 30, 1999. The Company has prioritized
its third-party relationships as critical, severe or
sustainable, has completed the assessment phase for third
parties (except for assessment of its key customers which
is scheduled to be complete in March 1999, and certain
international suppliers which is expected to be complete by
June 30, 1999), has requested a Y2K contract warranty in
many new key contracts and is developing contingency plans
for critical third parties, including key customers,
suppliers and other service providers.
If necessary modifications and conversions by the Company
are not made on a timely basis, or if key third parties are
not Y2K compliant, Y2K problems could have a material
adverse effect on the Company's operations. The Company's
most reasonably likely worst case scenario is a regional
utility failure that would interrupt manufacturing
operations and distribution centers in the affected region.
To mitigate this risk, and to address the possible
uncertainty of whether the Company will be able to solve
all potential Y2K issues, the Company has begun contingency
planning for its critical operations, including key third-party
relationships, and will require written contingency plans for
these areas. The Company has completed approximately twenty
percent (20%) of its contingency planning efforts and expects
to complete all of its contingency planning by September 30, 1999.
20
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
- ---------------------------------------------
Y2K costs are expensed as incurred and funded through operating
cash flows. Through December 31, 1998, the Company has
expensed incremental remediation costs of $18.8 million with
remaining incremental remediation costs estimated at $12
million. In addition, through December 31, 1998, the Company
has expensed accelerated strategic upgrade costs of $12.3
million with anticipated remaining accelerated strategic
upgrade costs of $4 million. The Company spent approximately
17% of its 1998 fiscal year information technology budget,
and expects to spend approximately 16% of its 1999 fiscal
year information technology budget, on Y2K remediation issues.
As of December 31, 1998, the Company has spent approximately
40% of its 1999 fiscal year Y2K program budget. The Company
has not deferred any critical information technology projects
because of its Year 2000 program efforts, which are primarily
being addressed through a dedicated team within the Company's
information technology group. Time and cost estimates are
based on currently available information and could be affected
by the ability to correct all relevant computer codes and
equipment, and the Y2K readiness of the Company's business
partners, among other factors.
On January 29, 1999, the Company completed the First Brands
Merger when the Company's wholly owned subsidiary, Pennant,
merged into First Brands. The Company has not yet completed
the assessment of the Merger's impact on its Y2K costs and
the Company's summary above does not include the impact of
the First Brands Merger. The Company expects that its
overall Y2K costs will increase, however, based on a
preliminary Y2K assessment of First Brands' business systems,
plant floors, and facilities. Y2K efforts of both the Company
and First Brands are being combined and the Company will
extend its comprehensive Y2K program to First Brands' Y2K
efforts. Although First Brands' timetables may affect the
target dates and contingency plans of the Company's original
Y2K program, the Company still expects to be Y2K compliant
for the merged companies before the arrival of January 1, 2000.
Subsequent Event - Completion of First Brands Corporation Merger
- ----------------------------------------------------------------
On January 29, 1999, the Company completed the First Brands
Merger when the Company's wholly owned subsidiary, Pennant,
merged into First Brands. As a result of the Merger,
First Brands became a wholly owned subsidiary of the Company
and continues to operate its business as the Company's
subsidiary. First Brands develops, manufactures, markets
and sells consumer products under the Glad, Scoop Away,
and STP brands, among others. The Merger is structured to
be treated as a pooling of interests for accounting purposes.
Pursuant to the Merger Agreement, First Brands' stockholders
received in the Merger the right to receive .349 of a share
of the Company's common stock in exchange for each of their
shares of First Brands' common stock, with cash paid in
lieu of fractional shares. Pursuant to the Merger,
approximately 40,320,500 shares of First Brands' common stock
were converted into approximately 14,071,850 shares of the
Company's common stock. In addition, options to acquire
1,755,010 shares of First Brands' common stock were converted
to options to acquire 612,484 shares of the Company's
common stock. As a result of the Merger, the Company also
assumed approximately $440 million of First Brands' debt.
As is generally the case with mergers, there can be no
assurance that the Company will be able to successfully
integrate or profitably manage the First Brands businesses.
In addition, there can be no assurance that, following the
Merger, the First Brands businesses will achieve sales levels,
profitability, cost savings or synergies that justify the
investment made or that the acquisition will be accretive to
earnings in any future period.
21
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
- ---------------------------------------------
Subsequent Event - Completion of First Brands Corporation Merger
- ----------------------------------------------------------------
(Continued)
- ------------
The Company expects to incur significant costs (currently
estimated to be approximately $140.5 million, including non-cash
charges currently estimated at $30 million) in connection with
the Merger to reflect transaction-related expenses as well as
expenses relating to the integration of First Brands. This
amount is an estimate only and is therefore subject to change.
In addition, there can be no assurance that the Company will
not incur additional costs associated with the Merger.
22
PART I - FINANCIAL INFORMATION (Continued)
Item 5. Other Information
- ---------------------------
Acquisition or Disposition of Assets
- ------------------------------------
On January 29, 1999, the Company completed the First Brands
Merger as discussed in Item 2. First Brands develops,
manufactures, markets and sells consumer products under
the Glad, Scoop Away, and STP brands, among others. The
Merger is structured to be treated as a pooling of
interests for accounting purposes.
Pursuant to the Merger Agreement, First Brands' stockholders
received in the Merger the right to receive .349 of a share
of the Company's common stock in exchange for each of their
shares of First Brands' common stock, with cash paid in
lieu of fractional shares. Pursuant to the Merger,
approximately 40,320,500 shares of First Brands' common
stock were converted into approximately 14,071,850 shares
of the Company's common stock. In addition, options to
acquire 1,755,010 shares of First Brands' common stock were
converted to options to acquire 612,484 shares of the
Company's common stock. As a result of the Merger, the
Company also assumed approximately $440 million of First
Brands' debt.
Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Merged.
First Brands' statements of earnings and cash flow and balance
sheets for the fiscal years ended June 30, 1996, June 30, 1997
and June 30, 1998 are hereby incorporated by reference to the
First Brands Annual Report on Form 10-K for and as of the year
ended June 30, 1998. First Brands' statements of earnings and
cash flow and balance sheets for the three months ended
September 30, 1997 and September 30, 1998, respectively, are
hereby incorporated by reference to the First Brands' Quarterly
Report on Form 10-Q for and as of the quarter ended September 30,
1998. The pertinent portions of those reports so incorporated
by reference are attached as Exhibits 99.1 and 99.2, respectively.
(b) Pro Forma Financial Information.
Pro forma financial information relating to the First Brands
merger is contained in (i) Footnote 9 to the financial statements
included in this Form 10-Q and (ii) the Proxy Statement/Prospectus
contained in the Company's Form S-4 Registration Statement
(333-69455) ("S-4 Registration Statement"), which information
is incorporated herein by this reference.
23
PART I - FINANCIAL INFORMATION (Continued)
Item 5. Other Information
- ---------------------------
(c) Exhibits.
Exhibit No. Description
- ----------- -----------
2 Agreement and Plan of Reorganization and Merger,
dated as of October 18, 1998, by and among the
Company, First Brands and Pennant (filed as
Appendix A to the S-4 Registration Statement
(333-69455), which appendix is incorporated
herein by this reference)
99.1 First Brands' consolidated statements of income and
cash flow for the fiscal years ended June 30,
1996, June 30, 1997 and June 30, 1998 and
consolidated balance sheet as of June 30, 1997
and June 30, 1998 (pages 17 to 32 of the First
Brands' Annual Report on Form 10-K for and as
of the year ended June 30, 1998)
99.2 First Brands' consolidated statements of income
and cash flow for the three months ended September 30,
1997 and September 30, 1998 and consolidated balance
sheet as of June 30, 1997 and September 30, 1998
(pages 3 to 9 of the First Brands' Quarterly Report
on Form 10-Q for and as of the quarter ended
September 30, 1998)
99.3 Consent of Independent Auditor of First Brands to
inclusion of Exhibits 99.1 and 99.2
Cautionary Statement
- ---------------------
Except for historical information, matters discussed in this
Form 10-Q, including statements about future growth or the
realization of benefits from the First Brands' transaction, are
forward-looking statements based on management's estimates,
assumptions and projections. In addition to the factors discussed
in this Form 10-Q, important factors that could cause results to
differ materially from management's expectations are described
in "Forward-Looking Statements and Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operation" in the Company's Annual Report on Form 10-K for the year
ending June 30, 1998, as updated from time to time in the
Company's SEC filings. Those factors include, but are not
limited to, marketplace conditions and events, the Company's
cost, risks inherent in international operations, the success
of new products, integration of acquisitions, and environmental,
regulatory and intellectual property matters, and with respect
to the First Brands' transaction, risks related to the
successful management of the acquired businesses.
The acquisition of First Brands can be expected to present
challenges to management, including the integration of the
operations, technologies and personnel of the companies, and
special risks, including unanticipated liabilities and
contingencies, and diversion of management attention.
24
S I G N A T U R E
-----------------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
THE CLOROX COMPANY
(Registrant)
DATE February 12, 1999 BY /s/ HENRY J. SALVO, JR.
----------------- ----------------------
Henry J. Salvo, Jr.
Vice-President - Controller
First Brands Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------
June 30, June 30, June 30,
(Dollars in thousands, except per share data) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,203,670 $1,119,898 $1,073,022
Cost of goods sold 775,870 713,203 687,103
Selling, general and administrative expenses 291,156 268,086 241,711
Amortization and other depreciation 14,585 13,411 15,607
Restructuring expense (Note 3) 2,700 19,000 --
Interest expense and amortization of debt discount and expenses 29,604 20,383 17,546
Discount on sale of receivables (Note 5) 4,561 3,992 3,963
Other income (expense), net (500) 1,575 1,827
- ------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes, extraordinary loss and
cumulative effect of change in accounting principle 84,694 83,398 108,919
Provision for income taxes (Note 14) 32,364 32,533 43,819
- ------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss and cumulative effect of change in
accounting principle 52,330 50,865 65,100
Extraordinary loss relating to the repurchase of subordinated
debt, net of taxes (Note 11) -- (633) --
Cumulative effect of change in accounting principle, net of taxes (Note 2) (6,922) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 45,408 $ 50,232 $ 65,100
====================================================================================================================================
Per common share (Note 1):
Basic:
Income before extraordinary loss and cumulative effect of change
in accounting principle $ 1.32 $ 1.25 $ 1.56
Extraordinary loss -- (0.02) --
Cumulative effect of change in accounting principle (0.17) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.15 $ 1.23 $ 1.56
====================================================================================================================================
Diluted:
Income before extraordinary loss and cumulative effect of change
in accounting principle $ 1.29 $ 1.22 $ 1.53
Extraordinary loss -- (0.02) --
Cumulative effect of change in accounting principle (0.17) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.12 $ 1.20 $ 1.53
====================================================================================================================================
Weighted average outstanding common shares (Note 1):
Basic 39,615,855 40,771,610 41,661,624
Diluted 40,501,876 41,756,802 42,600,021
====================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements
17
<PAGE>
First Brands Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Years Ended
---------------------------
June 30, June 30,
(Dollars in thousands, except per share data) 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,029 $ 7,465
Accounts and notes receivable
(net of allowances for doubtful accounts and
discounts of $8,297 and $6,842) (Note 5) 118,326 134,554
Inventories (Note 1) 155,480 151,976
Deferred tax assets (Note 14) 11,827 15,992
Prepaid expenses 10,170 9,434
- ----------------------------------------------------------------------------------------
Total current assets 307,832 319,421
Property, plant and equipment
(net of accumulated depreciation of $160,529 and
$141,691) (Notes 1 and 6) 419,755 377,128
Patents, trademarks, proprietary technology and
other intangibles (net of accumulated amortization
of $204,916 and $192,631) (Notes 1 and 7) 284,849 310,095
Deferred charges and other assets
(net of accumulated amortization of $52,687 and $52,029) 47,765 40,137
- ----------------------------------------------------------------------------------------
Total assets $1,060,201 $1,046,781
========================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
18
<PAGE>
First Brands Corporation and Subsidiaries
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
Years Ended
---------------------------------
June 30, June 30,
(Dollars in thousands, except per share data) 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable $ 4,562 $ 8,432
Current maturities of long-term debt (Note 11) 3,384 2,811
Accrued income and other taxes (Note 14) 8,253 7,373
Accounts payable 71,692 61,877
Accrued liabilities (Note 9) 92,919 106,084
- -------------------------------------------------------------------------------------------------
Total current liabilities 180,810 186,577
Long-term debt (Note 11) 388,054 380,467
Deferred tax liability (Note 14) 78,788 65,348
Other long-term obligations (Note 15) 26,401 20,473
Preferred stock, $1 par value, 10,000,000
shares authorized; none issued -- --
Common stock, $0.01 par value, 120,000,000 shares
authorized; 43,553,846 shares issued at June 30, 1998
and 43,394,044 shares issued at June 30, 1997 435 434
Capital in excess of par value 134,166 130,994
Cumulative foreign currency translation adjustment (27,556) (12,455)
Common stock in treasury, at cost; 4,407,000 shares at
June 30, 1998 and 3,355,000 shares at June 30, 1997 (123,039) (96,837)
Retained earnings 402,142 371,780
- -------------------------------------------------------------------------------------------------
Total stockholders' equity 386,148 393,916
- -------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,060,201 $1,046,781
=================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
19
<PAGE>
First Brands Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Years Ended June 30, 1998, 1997 and 1996
--------------------------------------------------------------------------------------
Cumulative
Common Stock Capital Foreign
---------------------- In Excess Currency
Shares Par of Par Translation Retained Treasury
(Dollars in thousands) Outstanding Value Value Adjustment Earnings Stock Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1995 20,935,314 $221 $120,914 $(7,173) $278,649 $(40,433) $352,178
Cash dividends (Note 1) -- -- -- -- (9,903) -- (9,903)
Exercise of stock options 199,196 2 4,470 -- -- -- 4,472
Tax benefit related to the exercise
of employee stock options -- -- 1,256 -- -- -- 1,256
Net income -- -- -- -- 65,100 -- 65,100
Purchase of treasury stock (279,300) -- -- -- -- (12,130) (12,130)
Foreign currency translation
adjustment -- -- -- (2,148) -- -- (2,148)
Two-for-one stock split 20,795,376 208 (208) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1996 41,650,586 $431 $126,432 $(9,321) $333,846 $(52,563) $398,825
Cash dividends (Note 1) -- -- -- -- (12,298) -- (12,298)
Exercise of stock options 253,458 3 3,350 -- -- -- 3,353
Tax benefit related to the exercise
of employee stock options -- -- 1,212 -- -- -- 1,212
Net income -- -- -- -- 50,232 -- 50,232
Purchase of treasury stock (1,865,000) -- -- -- -- (44,274) (44,274)
Foreign currency translation
adjustment -- -- (3,134) -- -- (3,134)
- -----------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1997 40,039,044 $434 $130,994 $(12,455) $371,780 $(96,837) $393,916
Cash dividends (Note 1) -- -- -- -- (15,046) -- (15,046)
Exercise of stock options 159,802 1 2,101 -- -- -- 2,102
Tax benefit related to the exercise
of employee stock options -- -- 1,071 -- -- -- 1,071
Net income -- -- -- -- 45,408 -- 45,408
Purchase of treasury stock (1,052,000) -- -- -- -- (26,202) (26,202)
Foreign currency translation
adjustment -- -- -- (15,101) -- -- (15,101)
- -----------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1998 39,146,846 $435 $134,166 $(27,556) $402,142 $(123,039) $386,148
====================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
20
<PAGE>
First Brands Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
June 30, June 30, June 30,
(in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $45,408 $50,232 $65,100
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 44,427 41,448 38,282
Restructuring expense 2,700 19,000 --
Deferred income taxes 19,722 5,808 25,808
Amortization of gain on sale/leaseback -- (909) (1,580)
Cumulative effect of change in accounting principle 6,922 -- --
Loss on repurchase of subordinated notes -- 633 --
Change in non-cash current assets and liabilities, net of effect of
businesses acquired:
(Increase) in accounts receivable (5,712) (25,674) (12,052)
(Increase) decrease in inventories (8,239) 4,405 11,836
(Increase) in prepaid expenses (1,072) (3,942) (1,048)
Increase (decrease) in accrued income and other taxes 5,712 4,306 (7,263)
Increase (decrease) in accounts payable 12,207 (9,808) (10,937)
(Decrease) in accrued liabilities (14,184) (14,700) (36,171)
Other changes (4,053) (1,440) (3,687)
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 58,430 19,127 3,188
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 103,838 69,359 68,288
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (44,480) (41,960) (42,293)
Acquisition of leased assets (44,208) (22,320) (9,797)
Acquisition of businesses, net of cash acquired -- (160,210) (32,255)
Retirements of plant and equipment 8,218 1,109 1,072
Purchase and installation of software (13,514) (10,564) (5,518)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash (used) by investing activities (93,984) (233,945) (88,791)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in revolving credit facilities, net 18,899 135,143 35,000
(Decrease) increase in other borrowings, net (728) 4,149 (3,835)
Increase in securitization of accounts receivable, net 15,000 15,000 10,000
Issuance of 7 1/4% senior subordinated notes, net of underwriting discount -- 149,025 --
Repurchase of 9 1/8% senior subordinated notes -- (100,000) --
Proceeds from settlement of Prestone note receivable -- 13,000 --
Proceeds from exercise of stock options 2,102 3,353 4,472
Purchase of common stock for treasury (26,202) (44,274) (12,130)
Dividends paid (14,361) (11,671) (9,903)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (5,290) 163,725 23,604
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,564 (861) 3,101
Cash and cash equivalents at beginning of year 7,465 8,326 5,225
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 12,029 $ 7,465 $ 8,326
==================================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
21
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant
Accounting Policies
First Brands Corporation and subsidiaries ("First Brands" or the "Company")
engages in the development, manufacture, marketing and sale of consumer products
sold under branded and private labels. Principal branded products include: GLAD
and GLAD-LOCK (plastic wrap and bags); GLADWARE (plastic containers); STP (oil
and fuel additives and other specialty automotive appearance products); SCOOP
AWAY, EVER CLEAN, EVERFRESH and JOHNNY CAT (cat litters); and STARTERLOGG and
HEARTHLOGG (wood fire starters and fire logs).
Basis of Presentation
The accompanying financial statements reflect the consolidated accounts of the
Company for all periods presented. All material intercompany transactions and
balances have been eliminated. To prepare financial statements in conformity
with generally accepted accounting principles, management must make a number of
assumptions and estimates which affect the reported amounts of assets and
liabilities and the disclosure of contingent liabilities at the date of the
financial statement, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. All
information presented is for a fiscal year, unless otherwise noted.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method for substantially all inventories in the
United States. In general, the average cost or FIFO method is used by the
international operations.
Inventories were composed of the following as of June 30, 1998 and 1997:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- -------------------------------------------------
<S> <C> <C>
Raw materials $ 34,160 $ 34,518
Work in process 5,485 5,795
Finished goods 115,835 111,663
- -------------------------------------------------
$155,480 $151,976
=================================================
</TABLE>
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Expenditures for replacements
are capitalized and the replaced assets are retired. Depreciation is calculated
on a straight-line basis over the estimated useful lives of the respective
assets for accounting purposes. The Company capitalizes interest on major fixed
asset additions during construction. Interest capitalized totaled $2,297,000,
$1,864,000 and $2,017,000 in 1998, 1997 and 1996, respectively.
Patents, Trademarks, Proprietary Technology and Other Intangibles
Patents, trademarks, proprietary technology and other intangibles are carried at
cost less accumulated amortization which is calculated on a straight-line basis
over the estimated useful lives of the assets, not to exceed 40 years.
Deferred Charges and Other Assets
Deferred charges and other assets include financing costs that are amortized
over the terms of the respective financing agreements, as well as long-term
notes receivable, purchased software, investments and assets relating to the
securitization of accounts receivable.
Research and Development
Research and development expenditures are charged to expense as incurred.
Expenditures were $4,778,000, $5,043,000 and $4,789,000 in 1998, 1997 and 1996,
respectively.
Income and Dividends per Share
During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 replaces primary
and fully diluted earnings per share ("EPS") with basic and diluted EPS, and
requires dual presentation of basic and diluted EPS on the face of the income
statement for all companies with complex capital structures. Basic EPS
represents the earnings available for each common share outstanding during the
period. Diluted EPS reflects earnings available for each common share after the
affect of all potentially dilutive common shares, such as options, warrants and
convertible securities. The number of weighted average shares used to calculate
diluted EPS differs slightly from those shares used to calculate basic EPS due
to the effect of employee stock options.
Cash dividends declared for fiscal 1998, 1997 and 1996 were $0.38, $0.30 and
$0.24 per share, respectively.
Statement of Cash Flows
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid investments with a maturity of three months or less at the date of
purchase to be cash equivalents.
22
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $32,705 $18,821 $23,674
Income Taxes $16,378 $27,385 $34,380
====================================================================
</TABLE>
Interest payments during fiscal 1996 include $6,325,000 paid in settlement of
an IRS audit.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the customer.
Risk Management
The Company periodically enters into various hedging transactions to minimize
the effect of fluctuations in currency exchange rates, raw material pricing and
interest rates. The foreign currency forward contracts limit the Company's
exposure to currency fluctuations associated with certain transactions, while
raw material contracts stabilize a portion of the costs associated with the
Company's resin purchases. Interest rate swaps allow the Company to better
balance its interest rate exposure between fixed and floating interest rates.
The Company does not hold or issue these financial instruments for trading
purposes.
Foreign Currency Translation
The assets and liabilities of the international subsidiaries are translated to
U.S. dollars using the exchange rates in effect at the balance sheet date.
Results of operations are translated at the average monthly exchange rate.
Resulting adjustments are recorded in a separate component of stockholders'
equity as "Cumulative foreign currency translation adjustment."
Reclassification
Certain amounts for fiscal 1997 and 1996 have been reclassified to conform to
the fiscal year 1998 classifications.
2. Accounting Change
During the second quarter of fiscal 1998, the Company changed its accounting
policy for costs associated with the business process re-engineering activities
which relate to the Company's information system upgrade. In accordance with the
Financial Accounting Standards Board ("FASB") Emerging Issues Task Force Issue
No. 97-13, the Company is now expensing these process re-engineering costs.
Prior to fiscal 1998, the Company capitalized these costs, intending to amortize
them over a five to seven year period commencing with the implementation of the
new information system. The cumulative effect of the accounting change principle
resulted in a charge to earnings of $11,434,000 ($6,922,000 after taxes or $0.17
per diluted share). On a pro forma basis, the Company's reported net income for
fiscal 1997 and 1996 would have been reduced by $5,069,000 ($0.12 per diluted
share) and $1,022,000 ($0.02 per diluted share), respectively.
3. Restructuring
In fiscal 1997, the Company recorded a $19,000,000 restructuring charge
($11,590,000 after taxes or $0.28 per diluted share), for initiatives aimed at
streamlining certain operating and administrative functions, reducing costs and
improving operating efficiencies. During fiscal 1998, an additional charge of
$2,700,000 ($1,668,000 after taxes or $0.04 per diluted share), was recorded to
reflect greater than anticipated participation in the early retirement program
along with revisions to earlier estimates, principally costs associated with
employees. The total charge of $21,700,000 was composed of a $10,000,000 charge
for employee related costs, primarily an early retirement window package and
related costs to obtain personnel reductions and $11,700,000 related to asset
write-downs and disposals, mainly of a distribution facility and adjacent office
center in East Hartford, Connecticut. Substantially all restructuring
liabilities have been paid or settled during fiscal 1998.
4. Acquisitions and Divestitures
Acquisitions
During fiscal 1998, the Company's New Zealand subsidiary acquired, for
approximately $750,000, the XLO sponge brand in the New Zealand market. In
fiscal 1997, the Company's South African subsidiary acquired 76% of the
outstanding stock of Sealapac (PVT) LTD., a Zimbabwe manufacturer and marketer
for the consumer products and commercial markets.
On March 14, 1997, the Company purchased, for approximately $160,000,000,
the NationalPak business in Australia and New Zealand from National Foods
Limited. NationalPak manufacturers and markets consumer products such as plastic
wrap and bags, aluminum foil and wiping cloths under the GLAD, CHUX, OSO, MONO
and ROTA brand names. The acquisition was funded by long-term borrowings in the
United States, Canada, Australia and New Zealand (see Note 11). During fiscal
1998, the Company sold to local management a 4.4% interest in the Australian
subsidiary.
On March 19, 1996, the Company purchased, for approximately $32,000,000,
the net assets of Forest Technology Incorporated, the manufacturer and marketer
of the STARTERLOGG and HEARTHLOGG brand of wood fire starters and fire logs.
All of the above business and brand acquisitions have been accounted for by
the purchase method, and accord-
23
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
ingly, the results of operations of NationalPak, Forest Technology, Sealapac and
XLO are included in the Company's Consolidated Statements of Income from the
respective dates of acquisition. The excess of costs over net assets acquired
for the NationalPak and Forest Technology acquisitions were $63,100,000 and
$30,100,000, respectively, and are being amortized over a forty year period on a
straight line basis.
Divestitures
During fiscal 1997, the Company sold its SIMONIZ wax and polish business. The
gain associated with the sale of the SIMONIZ business is reflected in Other
income (expense), net in the fiscal 1997 Consolidated Statement of Income.
Early in fiscal 1995, First Brands sold the Prestone antifreeze/coolant and
car care business to Prestone Products Corporation ("Prestone"). During fiscal
1997, Prestone repaid a $13,000,000 loan (which for financial reporting purposes
was valued at $9,000,000 at the time of the divestiture), resulting in a gain of
approximately $2,700,000 that is reflected in Other income (expense), net, in
the Consolidated Statement of Income.
5. Accounts Receivable
During fiscal 1998, the Company exercised its option to terminate a previous
agreement to sell up to $100,000,000 in eligible trade accounts receivable.
After terminating its previous agreement, the Company entered into a new three
year agreement, with an automatic yearly renewal provision thereafter, for the
sale of $100,000,000 in fractional ownership interest in a defined pool of
eligible receivables. The new program increases the receivable pool which may be
considered eligible, reduces the yearly service fees and provides for a lower
discount rate. As of June 30, 1998 the entire $100,000,000 had been sold,
reflecting a $15,000,000 increase over the prior year-end balance. The amounts
sold are presented as reductions in accounts receivable on the accompanying
Consolidated Balance Sheets. The costs associated with this program are reported
as "Discount on sale of receivables."
6. Property, Plant and Equipment
Property, plant and equipment as of June 30, 1998 and 1997 consisted of:
<TABLE>
<CAPTION>
Useful
(In thousands) 1998 1997 Lives
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Land and
Improvements $ 14,052 $ 18,713 --
Buildings 70,552 77,847 30-40 years
Machinery and
Equipment 479,060 404,019 13-15 years
Other 16,620 18,240 3-5 years
- -------------------------------------------------------------------------
580,284 518,819
Less: Accumulated
depreciation (160,529) (141,691)
- -------------------------------------------------------------------------
$ 419,755 $ 377,128
=========================================================================
</TABLE>
Depreciation expense was $31,009,000, $29,042,000 and $25,149,000 in fiscal
1998, 1997 and 1996, respectively.
7. Patents, Trademarks, Proprietary Technology and Other Intangibles
The Company periodically reviews the carrying value of intangible assets to
determine whether the carrying amount of an asset is recoverable. The primary
indicators of recoverability are current or forecasted profitability of the
related acquired business, measured as profit before interest and amortization
of the related intangible assets compared to their carrying values. For the
three-year periods ended June 30, 1998, 1997 and 1996 there were no material
adjustments to the carrying values of intangible assets resulting from these
evaluations.
Patents, trademarks, proprietary technology and other intangibles as of June 30,
1998 and 1997 consisted of:
<TABLE>
<CAPTION>
Useful
(In thousands) 1998 1997 Lives
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Trademarks $ 117,201 $ 116,866 40 years
Patents, proprietary
technology and
other intangibles 163,371 162,658 10-17 years
Excess of cost over
net assets
acquired 209,193 223,202 40 years
- -------------------------------------------------------------------------
489,765 502,726
Less: Accumulated
amortization (204,916) (192,631)
- -------------------------------------------------------------------------
$ 284,849 $ 310,095
=========================================================================
</TABLE>
24
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Notes Payable
The Notes payable consisted of international subsidiaries' working capital
borrowings with local banks totaling $4,562,000 and $8,432,000 at June 30, 1998
and 1997, respectively. The international credit facilities, which aggregate
$17,456,000, are generally secured by the assets of the respective international
subsidiary, with approximately $2,024,000 at one international subsidiary
guaranteed by First Brands Corporation (U.S.). The Company also borrows against
an unsecured domestic line of credit and at June 30, 1998 and 1997, the entire
$15,000,000 available under this facility was unused. The average borrowings
outstanding and average interest rates charged during fiscal 1998 and 1997 were
$14,600,000 at 11.3% and $10,750,000 at 10.2%, respectively.
9. Accrued Liabilities
Accrued liabilities as of June 30, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest $ 5,764 $ 6,494
Employee benefits and wages 9,410 9,295
Marketing and sales programs 44,997 54,384
Raw material purchases 16,220 14,314
Other 16,528 21,597
- --------------------------------------------------------------------------------
$92,919 $106,084
================================================================================
</TABLE>
10. Financial Instruments
The Company has entered into various interest rate swap agreements to transform
a portion of its variable rate debt into fixed rate obligations. According to
the provisions of these agreements, the Company will pay between 5.45% and 7.07%
fixed interest for up to five years and will receive floating rate counter
payments (5.64% at June 30, 1998). A majority of the swap agreements provide for
a five year renewal at the counterparties discretion. The difference between
interest paid and received is included as an adjustment to interest expense. The
notional amount of the contracts is approximately $127,000,000. The fair value
of each swap agreement may generate a gain or loss depending on the estimated
amounts that the Company would pay to terminate the agreement based on the
prevailing and anticipated interest rates at the reporting dates.
To limit the impact of exchange rate fluctuations resulting from
anticipated inventory purchases and intercompany transactions, the Company
periodically enters into foreign currency contracts. Outstanding contracts
totaled approximately $24,775,000 and $40,875,000 as of June 30, 1998 and 1997,
respectively. Contracts outstanding as of June 30, 1998 will mature over the
next ten years.
The Company has entered into various contracts to partially stabilize the
cost, at or below the market average over the last four years, of its
polyethylene resin requirements. Fixed price contracts cover about 37% of the
Company's domestic resin requirements and have various maturities through 2006.
There is also a "collar" contract protecting a range of prices covering an
additional 20% of the Company's domestic resin requirements.
The Company considers the risks associated with its interest, currency and
resin contracts to be relatively low because of the Company's policy to only
enter into agreements with strong credit worthy counterparties. Gains and losses
on the currency impact of cross border transactions and the effect of foreign
currency contracts are recorded in Other income (expense), net in the
Consolidated Statement of Income. During fiscal 1998 a net credit of $1,900,000
was recorded from these transactions and during fiscal 1997 the net loss was
immaterial. Gains and losses on resin and interest contracts are recognized into
earnings when the related transactions being hedged are completed. There were no
significant gains or losses associated with these contracts in fiscal 1998 and
1997.
Other financial instruments include cash and cash equivalents, accounts and
notes receivable, notes payable, accounts payable and long-term debt. Because of
the short-term nature of cash and cash equivalents, accounts and notes
receivable, notes payable and accounts payable, their carrying value
approximates fair value. A portion of the Company's long-term debt consists of
variable rate instruments, therefore the carrying value approximates fair value.
The fair value of the Company's long-term fixed rate debt approximates the
carrying value as of June 30, 1998 and 1997.
25
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Long-term Debt
First Brands had the following long-term debt as of June 30, 1998 and 1997:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Senior Debt(a):
$300,000,000 Revolving Credit
Facility, 5 year term expiring
February 2002, interest at prime
rate, LIBOR plus .275% or CD rate
plus .4%; facility fee of .15% $190,000 $162,000
$59,354,000 Australian and New Zealand
Credit Facility, 7 year term
expiring March 2004, interest at
local Bill Rate plus .7% 42,745 58,727
$9,575,000 Canadian Credit Facility,
5 year term expiring March 2002,
interest at Canadian prime rate,
LIBOR plus .425% or Canadian
Bankers Acceptance plus .425% 3,424 8,619
Other 5,269 3,932
- --------------------------------------------------------------------------------
241,438 233,278
Less current maturities (3,384) (2,811)
- --------------------------------------------------------------------------------
Senior Debt 238,054 230,467
Subordinated Debt(b):
7 1/4% Senior Notes Due 2007 150,000 150,000
- --------------------------------------------------------------------------------
$388,054 $380,467
================================================================================
</TABLE>
(a) The Company's revolving credit facility is unsecured and requires no
compensating balance, however it does have certain restrictive covenants,
the most significant of which relates to the ratio of debt to equity,
dividend payments and stock repurchases.
The seven-year $59,354,000 Australian and New Zealand credit facility is
composed of two parts; one of which was used to acquire the NationalPak
business (see Note 4) and a second part that can be used for working capital
needs. There are fixed periodic payments associated with the acquisition
borrowing and the working capital borrowing can be drawn on and repaid at
NationalPak's discretion. The facility is secured by the accounts
receivable, inventory and fixed assets of NationalPak.
The five-year $9,575,000 Canadian credit facility requires fixed periodic
payments. The facility is secured by the accounts receivable, inventory and
fixed assets of the Canadian business.
(b) The $150,000,000, 7 1/4% Senior Notes (the "7 1/4% Notes") which were issued
during fiscal 1997 will become due on March 1, 2007. Proceeds from the sale
of the 7 1/4% Notes were used to redeem all of the Company's previously
issued 9 1/8% Senior Subordinated Notes (the "9 1/8% Notes") and to reduce
bank debt. The write-off of unamortized issuance costs and other expenses
associated with the repurchase of the 9 1/8% Notes was recorded as an
extraordinary charge on the Company's Consolidated Statement of Income.
The 7 1/4% Note Indenture contains certain restrictive covenants and
limitations the most significant of which relates to the Company's right to
incur debt and to engage in certain sale and leaseback transactions.
First Brands was in compliance with all the covenants of the senior and
subordinated debt agreements at June 30, 1998.
Principal payments due on long-term debt (including current maturities)
will require the following future payments: $3,384,000 in fiscal 1999,
$4,223,000 in fiscal 2000, $4,834,000 in fiscal 2001, $199,002,000 in fiscal
2002, $6,309,000 in fiscal 2003 and $173,686,000 thereafter.
12. Leases
During fiscal 1998, the Company acquired all remaining domestic production
equipment which had been previously leased. These assets were associated with
sale and leaseback agreements and were classified as operating leases in
accordance with SFAS No. 13 "Accounting for Leases."
The Company leases various warehousing, production and office facilities
under operating lease agreements. Lease terms generally range from one to
fifteen years with options to renew.
Lease commitments under non-cancelable operating leases extending for one
year or more require the following future payments: $5,955,000 in 1999,
$5,200,000 in 2000, $4,680,000 in 2001, $4,185,000 in 2002, $3,950,000 in 2003
and $13,785,000 thereafter. The total rental expense under operating leases was
$10,338,000, $16,035,000 and $20,856,000 for the years ended June 30, 1998, 1997
and 1996, respectively.
13. Capital Stock
First Brands has four stock option plans ("the plans") three of which are for
certain key employees and one for non-employee directors. The plans' objectives
are to establish a direct link between the financial interest of eligible
employees and the performance of the Company and to attract and retain the most
qualified personnel. Stock options are primarily performance-based and have
terms that are not more than ten years from the date of grant. The exercise
price for
26
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
stock options may not be less than the fair market value of the Common Stock on
the date of grant and such options will vest over a period determined by the
Compensation Committee of the Board of Directors. As of June 30, 1998, the total
number of options available for grant are 2,017,652.
Options granted to certain personnel contain restricted and limited stock
appreciation rights ("LSAR's"). LSAR's may be granted in tandem with a stock
option grant or at any time following the stock option grant and are only
exercisable upon a change of control of the Company. LSAR's will exercise
automatically following certain changes in control of the Company, and upon such
exercise the grantee, in cancellation of the underlying stock options, will
receive cash equal to the excess of the fair market value of each share of
Common Stock subject to the limited stock appreciation right over the exercise
price of the underlying stock option. LSAR's have been granted with respect to
1,288,000 shares.
A summary of the options transactions for the years ended June 30, 1998,
1997 and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding,
beginning of fiscal
year 3,257,472 2,943,822 2,613,380
Options granted--
per share
$22.53-$28.25 20,000 573,000 669,000
Options exercised--
per share
$9.50-$22.52 (159,802) (253,350) (328,558)
Options canceled--
per share
$16.38-$28.25 (26,500) (6,000) (10,000)
- --------------------------------------------------------------------------------
Options outstanding,
end of fiscal year 3,091,170 3,257,472 2,943,822
- --------------------------------------------------------------------------------
Exercisable at June 30 1,934,670 2,028,472 2,287,822
================================================================================
</TABLE>
The following tables set forth information regarding stock options
outstanding and those options which are exercisable as of June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS Weighted Weighted
OUTSTANDING Stock Average Average
Range of Options Exercise Remaining
Exercise Prices Outstanding Price Life
- -----------------------------------------------------------------------------
<C> <C> <C> <C>
$9.50-$12.66 699,170 $11.81 2.7
$14.66-$22.60 1,786,000 $18.03 6.2
$26.00-$28.25 606,000 $25.87 8.8
- -----------------------------------------------------------------------------
3,091,170 $18.16 5.9
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
OPTIONS Weighted
EXERCISABLE Stock Average
Range of Options Exercise
Exercise Prices Exercisable Price
- -------------------------------------------------------------------------------
<S> <C> <C>
$9.50-$12.66 699,170 $11.81
$14.66-$22.60 1,192,500 $15.79
$26.00-$28.25 43,000 $23.84
- -------------------------------------------------------------------------------
1,934,670 $14.53
===============================================================================
</TABLE>
The Company adopted the disclosure-only provision of SFAS No. 123
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for its time vested option plans. If the Company had elected to
adopt the recognition provision of SFAS No. 123, income and per share amounts
would be the following:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before
extraordinary loss and
accounting change:
As reported $52,330 $50,865 $65,100
Pro forma 51,744 50,265 64,461
Basic earnings per share:
As reported $ 1.32 $ 1.25 $ 1.56
Pro forma 1.31 1.23 1.55
Diluted earnings per share:
As reported $ 1.29 $ 1.22 $ 1.53
Pro forma 1.28 1.20 1.51
================================================================================
</TABLE>
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model based on the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 1.5% 1.3% 1.3%
Risk free interest rate 5.5% 5.3% 5.3%
Expected volatility rate 42.6% 25.8% 21.9%
Expected life 7.7 years 7.6 years 7.3 years
===============================================================================
</TABLE>
14. Income Taxes
The geographic components of earnings before income taxes, extraordinary loss
and cumulative change in accounting principle are as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $74,951 $75,790 $100,236
International 9,743 7,608 8,683
- --------------------------------------------------------------------------------
$84,694 $83,398 $108,919
================================================================================
</TABLE>
27
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Total income taxes for the years ended June 30, 1998, 1997 and 1996 were
allocated as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before
extraordinary loss and
cumulative change in
accounting principle $32,364 $32,533 $43,819
Extraordinary loss -- (415) --
Cumulative change in
accounting principle (4,512) -- --
Stockholders' equity, for
compensation expense
for tax purposes in
excess of amounts
recognized for financial
reporting purposes (1,071) (1,212) (1,256)
- --------------------------------------------------------------------------------
$26,781 $30,906 $42,563
================================================================================
</TABLE>
Income tax expense attributable to income before extraordinary loss and
cumulative change in accounting principle for the years ended June 30, 1998,
1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 6,765 $20,418 $11,640
State 1,071 3,539 2,566
Foreign 4,806 2,768 3,805
- -------------------------------------------------------------------------------
Total current 12,642 26,725 18,011
- -------------------------------------------------------------------------------
Deferred:
Federal 17,037 4,638 20,916
State 3,355 1,028 5,275
Foreign (670) 142 (383)
- -------------------------------------------------------------------------------
Total deferred 19,722 5,808 25,808
- -------------------------------------------------------------------------------
$32,364 $32,533 $43,819
===============================================================================
</TABLE>
The fiscal 1998 increase in deferred income tax expense and decrease in
current income tax expense relate primarily to information system expenditures,
restructuring charges and changes in various accruals.
Income tax expense attributable to income before extraordinary loss differs
from the amounts computed by applying the U.S. federal tax rate of 35 percent to
pre-tax income before extraordinary loss as a result of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected"
tax expense $29,643 $29,189 $38,122
Adjustments resulting
from:
Amortization of
goodwill 788 703 440
State income taxes,
net of federal
income tax benefit 2,877 2,919 4,713
Foreign income tax in
excess of statutory
rate 726 238 478
Other, net (1,670) (516) 66
- --------------------------------------------------------------------------------
Actual tax expense $32,364 $32,533 $43,819
================================================================================
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1998 and 1997 are presented below:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets:
Accounts receivable reserves $ 2,557 $ 2,969
Difference between book and
tax basis of inventories 3,539 3,882
Accrued liabilities, not
deductible until paid 5,731 9,141
- -------------------------------------------------------------------------------
Total current deferred tax assets 11,827 15,992
- -------------------------------------------------------------------------------
Long-term deferred tax assets:
Pensions, other post employment
benefits and deferred
compensation 9,127 6,423
Intangible asset, not
amortized for tax 7,344 7,374
- -------------------------------------------------------------------------------
Total long-term deferred tax assets 16,471 13,797
- -------------------------------------------------------------------------------
Long-term deferred tax liabilities:
Plant and equipment, principally
due to differences in
depreciation (82,472) (73,373)
Deferred charges, principally
purchase accounting and
information systems (11,715) (4,110)
Foreign subsidiaries (1,072) (1,662)
- -------------------------------------------------------------------------------
Total long-term deferred
tax liabilities (95,259) (79,145)
- -------------------------------------------------------------------------------
Long-term deferred tax
liability, net (78,788) (65,348)
- -------------------------------------------------------------------------------
Net deferred tax liability $(66,961) $(49,356)
================================================================================
</TABLE>
28
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Management of the Company has determined, based on the Company's history of
operating earnings and its expected income, that operating income will more
likely than not be sufficient to fully utilize these deferred tax assets as they
mature.
The Company has not provided for Federal income taxes on the undistributed
income of its international subsidiaries because it is the Company's intention
to reinvest such undistributed income. Cumulative undistributed earnings for
which no U.S. tax has been provided were $51,403,000, $48,787,000 and
$44,921,000 for the years ended June 30, 1998, 1997 and 1996 respectively.
15. Employee Benefits
Retirement Plans
In the U.S., First Brands maintains a non-contributory defined benefit
retirement plan ("pension plan") for some employees and a defined contribution
pre and post-tax savings plans ("savings plan") for all employees.
The Company contributes to the savings plan account of each eligible
employee. Any regular employee of First Brands or its domestic subsidiaries is
eligible to participate in the amended savings plan. The Company matches 50% of
employee contributions up to the lower of statutory limits or 3% of base pay.
Savings plan expense for the years ended June 30, 1998, 1997 and 1996 totaled
$2,442,000, $2,194,000 and $2,028,000, respectively. The Company also maintains
a noncontributory profit sharing plan, to which it provides a profit sharing
contribution to each eligible employee's account in the savings plan. The
contribution is discretionary and is based on the Company's operating
performance. The Company's profit sharing contributions are in the form of
existing issued and outstanding shares of First Brands Common Stock. The costs
associated with the profit sharing plan were approximately $423,000, $445,000
and $730,000 for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
The pension plan for First Brands in the U.S., and certain of its
international subsidiaries provides defined benefits that are based on years of
credited service, highest average compensation (as defined) and the primary
social security benefit. Beginning January 2000, in the U.S. the pension plan
formula changes to a defined benefit plan based on years of credited service and
career average compensation. Pension plan assets primarily consist of corporate
equities, as well as corporate and government fixed income obligations.
Contributions to the plan are based upon the projected unit credit actuarial
cost funding method and are limited to amounts that are currently deductible for
tax purposes. Prior service costs are amortized on a straight-line basis over
the average remaining service period for active plan participants.
The Company's U.S. early retirement program (see Note 3) resulted in a
special actuarial termination charge of $1,400,000 for fiscal 1997. This charge
was increased by an additional $28,000 during fiscal 1998 to reflect actual
participation in the early retirement program. The Company's Canadian subsidiary
terminated its defined pension plan and transferred all eligible employees to a
new group registered retirement savings plan ("RRSP") which provides essentially
the same benefits as the former plan. As a result of the plan termination, the
Company recognized a $530,000 curtailment gain during fiscal 1997. Costs
associated with the Canadian RRSP were approximately $250,000 for fiscal 1998.
The following table sets forth the combined domestic and international
plans' net pension cost, funded status and amounts recognized in the Company's
Consolidated Financial Statements at June 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net pension cost
included the following
components:
Service cost--
benefits earned
during the period $ 3,229 $ 3,275 $ 3,455
Interest cost on
projected benefit
obligations 6,307 6,177 4,984
Actual return on plan
assets (6,724) (6,898) (6,838)
Net amortization and
deferral (797) (816) (81)
Cost of Special
termination benefit 28 1,400 --
Curtailment (gain) -- (530) --
- --------------------------------------------------------------------------------
$ 2,043 $ 2,608 $ 1,520
================================================================================
</TABLE>
29
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of funded status:
Vested accumulated benefit
obligation $ 74,250 $ 57,755
Non-vested accumulated benefit
obligation 8,104 6,753
- --------------------------------------------------------------------------------
Accumulated benefit obligation 82,354 64,508
Additional liability based on
projected compensation 14,793 18,251
- --------------------------------------------------------------------------------
Projected benefit obligation 97,147 82,759
Fair value of plan assets 89,489 80,375
- --------------------------------------------------------------------------------
Plan assets less than projected
benefit obligation 7,658 2,384
Unrecognized prior service
benefit 6,940 7,577
Unrecognized net (loss) (3,499) (407)
- --------------------------------------------------------------------------------
Net pension liability recognized in
the consolidated balance sheet 11,099 9,554
================================================================================
</TABLE>
To calculate the expense and liability associated with its pension plans,
the Company utilizes the following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
DOMESTIC
Discount rate 7.0% 8.0% 8.0%
Compensation
increase rate 4.0% 4.5% 4.5%
Expected long-term
return on plan assets 9.5% 9.5% 9.5%
INTERNATIONAL
Discount rate 5.5% 6.0%-8.5% 8.5%
Compensation
increase rate 4.0% 4.0%-5.0% 5.0%
Expected long-term
return on plan assets 7.0% 7.5%-8.5% 8.5%
- -----------------------------------------------------------------------------
</TABLE>
In the U.S. federal law restricts the amount of benefits that can be paid
from a qualified plan. First Brands maintains an unfunded non-qualified plan,
the effect of which is to award retirement benefits to all employees on a
uniform basis. Expenses associated with this plan were $485,000, $564,000,
$297,000 during 1998, 1997 and 1996, respectively.
Postretirement Benefits
The Company provides certain medical and life insurance benefits for retirees
and their dependents in the United States. Employees who have reached the age of
55, and have met the Company's minimum service requirements, become eligible for
these benefits. The medical and life insurance benefits available are partially
contributory in nature, and it is the Company's practice to fund these benefits
as incurred. Retirees outside the United States are generally covered by locally
sponsored government programs.
Following is an analysis of postretirement benefit costs for fiscal 1998,
1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 274 $ 370 $ 297
Interest cost 1,371 1,129 1,112
Unrecognized net (gain) -- (36) --
Amortization of prior
service cost 92 92 --
Amortization of
transition obligation 583 583 583
- --------------------------------------------------------------------------------
Net postretirement
benefit cost 2,320 2,138 1,992
Cost of special
termination benefit 183 1,600 --
- --------------------------------------------------------------------------------
$ 2,503 $ 3,738 $ 1,992
================================================================================
</TABLE>
During fiscal 1997, the Company announced an early retirement program (see
Note 3) for which it recorded a special actuarial termination charge of
$1,600,000. This charge was increased by an additional $183,000 during fiscal
1998 to reflect actual participation in the early retirement program.
The Company's accumulated postretirement benefit obligation (the transition
obligation) at June 30, 1998 and 1997 is composed of the following components:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 13,551 $ 7,926
Fully eligible active plan
participants 1,033 3,011
Active plan participants not
fully eligible 5,157 5,770
- --------------------------------------------------------------------------------
Total 19,741 16,707
Unrecognized transition obligation (8,798) (9,381)
Unrecognized prior service cost (1,140) (1,232)
Unrecognized gain (loss) (115) 2,202
- --------------------------------------------------------------------------------
Accrued unfunded postretirement
benefit cost $ 9,688 $ 8,296
================================================================================
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7% and 8% for fiscal 1998 and 1997, respectively. The
assumed health care cost trend rate used to measure the accumulated
postretirement benefit obligation was 9.5% in 1998 and is expected to gradually
decline .5% per year to an ultimate rate of 5% in fiscal year 2007. A 1%
increase in the assumed health care cost trend rate for each year would increase
the accumulated
30
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
postretirement benefit obligation as of June 30, 1998 by $670,000 and increase
the service and interest cost for 1998 by $62,000.
16. Commitments, Contingencies and Related Parties
Litigation
The Company is subject to various claims and contingencies related to lawsuits,
taxes, environmental and other matters arising out of the normal course of
business. Management believes that the ultimate liability, if any, arising from
these claims and contingencies is not likely to have a material adverse effect
on the Company's annual results of operations or financial condition.
Related Parties
Beginning in January, 1997, Alfred E. Dudley, a Director and former Chairman of
the Company, was retained as a consultant. For these services, he was paid a
yearly consulting fee of $100,000 in fiscal 1998 and 1997.
The Company has utilized the services of Lee Hill Incorporated, a marketing
services company, of which James R. McManus, a Director of First Brands, was the
owner. For fiscal 1998 the total fees paid to Lee Hill Incorporated were
$118,000. During September 1997, Mr. McManus sold his interest in Lee Hill.
The Company believes that each of the related party transactions described
above were on terms as fair to the Company as could have been obtained from
unaffiliated third parties.
Other
The Company is a party to a contract with Union Carbide that provides for the
purchase of a substantial portion of the Company's primary raw material
requirements for plastic wrap and bags through December 31, 1999. The pricing
provisions in the Company's present supply contracts are designed to be
responsive to market conditions of the relevant raw materials.
17. Geographic Segment Data
The following is a summary of net sales, operating profit, and identifiable
assets in the United States and internationally in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
United States $ 972,638 $ 954,411 $ 932,183
International 231,032 165,487 140,839
- -------------------------------------------------------------------------------
$ 1,203,670 $ 1,119,898 $ 1,073,022
===============================================================================
Operating profit:
United States $ 118,663 $ 130,032 $ 135,500
International 23,493 15,355 12,513
Less Corporate
Expense (20,097) (20,189) (19,412)
Restructuring
Expense (2,700) (19,000) --
- --------------------------------------------------------------------------------
$ 119,359 $ 106,198 $ 128,601
================================================================================
Identifiable assets:
United States $ 876,092 $ 835,821 $ 775,447
International 184,109 210,960 85,433
- --------------------------------------------------------------------------------
$ 1,060,201 $ 1,046,781 $ 860,880
================================================================================
</TABLE>
Operating profit reflects net sales less cost of goods sold, selling,
general and administrative expenses, amortization and other depreciation and
restructuring expenses.
Included in U.S. revenues are export sales totaling $36,780,000,
$42,076,000 and $37,055,000 during the years ended June 30, 1998, 1997 and 1996,
respectively. The Company does not believe that it is dependent on any single
customer, however, net sales to its largest customer accounted for approximately
12% of total sales for the years ended June 30, 1998, 1997 and 1996.
18. Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive income
and its components in a full set of financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of prior year financial statements is required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which expands annual financial statement
disclosures about operating segments and establishes disclosure requirements
concerning a company's products, customers and geographic areas. Selected
information about operating segments is also required for interim financial
reports issued to shareholders. Financial statement disclosures for prior
periods are required to be restated.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which amends the disclosure
requirements previously established by SFAS No. 87, 88 and 106. The new
disclosure requirements are intended to
31
<PAGE>
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
standardize the reporting of pensions and other postretirement benefits. While
SFAS No. 132 does not change the measurement or recognition requirements of
those plans, it does require some new information from plan sponsors and allows
for the elimination of other information which is no longer considered useful.
Restatement of disclosure for earlier periods is required, unless such
information is not readily available.
The Company plans to adopt each of the above pronouncements in its fiscal
year beginning July 1, 1998. While the adoption of SFAS No. 130, 131 and 132
will have no impact on First Brands results of operations, cash flows or
financial position, the Company is currently evaluating the appropriate format
of disclosure for each pronouncement.
19. Subsequent Event
On July 2, 1998, the Company entered into an agreement to acquire, for
approximately $53,000,000, the HANDI WIPES and WASH 'N DRI brands from the
Colgate-Palmolive Company. The acquisition, which will be accounted for as a
purchase, is expected to be completed during the first quarter of fiscal 1999
and will be financed through borrowings from the Company's revolving credit
facility.
20. Quarterly Financial Data (Unaudited)
Year Ended June 30, 1998
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------
(In thousands, except Sept. 30, Dec. 31, Mar. 31, June 30,
per share amounts) 1997 1997 1998 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $269,480 $309,282 $296,414 $328,494
Gross profit 86,285 112,288 105,436 123,791
Income before
cumulative
change(a) 12,173 13,307 16,038 10,812
Net income 12,173 6,385 16,038 10,812
Per common
share:
Basic
Income
before
cumulative
change(a) $0.30 $0.33 $0.41 $0.28
Net income $0.30 $0.16 $0.41 $0.28
- --------------------------------------------------------------------------------
Diluted
Income
before
cumulative
change(a) $0.30 $0.33 $0.40 $0.27
Net income $0.30 $0.16 $0.40 $0.27
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1997
Quarters Ended
--------------------------------------------------------
(In thousands, except Sept. 30, Dec. 31, Mar. 31, June 30,
per share amounts) 1996 1996 1997 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $255,597 $279,952 $264,886 $319,463
Gross profit 88,189 101,719 96,122 120,182
Income before
extraordinary
loss(a) 18,007 15,351 16,054 1,453
Net income 18,007 15,351 15,421 1,453
Per common
share:
Basic
Income
before
extraordinary
loss(a) $0.44 $0.38 $0.40 $0.04
Net income $0.44 $0.38 $0.38 $0.04
- --------------------------------------------------------------------------------
Diluted
Income
before
extraordinary
loss(a) $0.43 $0.37 $0.39 $0.04
Net income $0.43 $0.37 $0.37 $0.04
================================================================================
</TABLE>
(a) The fourth quarter of fiscal 1997 and the second quarter of fiscal 1998,
include a $19,000 and $2,700 charge for restructuring expenses,
respectively.
32
<PAGE>
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
-------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
(in thousands - except per share amounts)
Net sales........................................ $ 291,509 $ 269,480
Cost of goods sold............................... 188,859 183,195
Selling, general and
administrative expenses........................ 65,720 53,911
Amortization and other depreciation.............. 4,004 3,860
Interest expense and amortization of debt
discount and expense........................... 7,199 7,114
Discount on sale of receivables.................. 1,487 1,147
Other income (expense), net...................... (670) (288)
--------- ----------
Income before provision for income taxes......... 23,570 19,965
Provision for income taxes....................... 9,250 7,792
--------- -------
Net income....................................... $ 14,320 $ 12,173
======== ========
Basic earnings per common share (Note 6):
Net income.................................... $ 0.37 $ 0.30
======= =======
Based on the following number of shares.......... 39,039 39,942
====== ======
Diluted earnings per common share (Note 6):
Net income....................................... $ 0.36 $ 0.30
======= =======
Based on the following number of shares.......... 39,677 40,775
====== ======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-3-
<PAGE>
FIRST BRANDS CORPORATION
------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
(dollars in thousands - except share amounts) 1998 1998
--------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and cash equivalents........................... $ 19,115 $ 12,029
Accounts and notes receivable - net................. 95,103 130,874
Inventories......................................... 154,106 155,480
Deferred tax assets................................. 12,209 11,827
Prepaid expenses.................................... 4,564 10,170
-------------- -----------
Total current assets.............................. 285,097 320,380
Property, plant and equipment (net of accumulated
depreciation of $169,126 and $160,529)............ 418,199 419,755
Patents, trademarks, proprietary technology
and other intangibles (net of accumulated
amortization of $207,857 and $204,916)............ 332,505 284,849
Deferred charges and other assets (net of
accumulated amortization of $53,166 and $52,687).. 35,404 35,217
------------- ----------
Total assets.............................. $ 1,071,205 $ 1,060,201
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities
Notes payable....................................... $ 4,280 $ 4,562
Current maturities of long-term debt................ 3,184 3,384
Accrued income and other taxes...................... 15,871 8,253
Accounts payable.................................... 40,294 71,692
Accrued liabilities................................. 67,837 92,919
------------- ---------
Total current liabilities...................... 131,466 180,810
Long-term debt...................................... 443,785 388,054
Deferred taxes payable.............................. 79,023 78,788
Other long-term obligations......................... 26,955 26,401
Stockholders' Equity
Preferred stock, $1 par value, 10,000,000
shares authorized; none issued.................... - -
Common stock, $0.01 par value, 120,000,000 shares
authorized and 43,553,846 shares issued at September 30,
1998 and June 30, 1998............................ 435 435
Capital in excess of par value...................... 134,166 134,166
Cumulative foreign currency translation adjustment.. (31,310) (27,556)
Common stock in treasury, at cost; 4,534,000 shares at
September 30, 1998 and 4,407,000 shares at June 30, 1998 (125,872) (123,039)
Retained earnings................................... 412,557 402,142
------------ ----------
Total stockholders' equity..................... 389,976 386,148
------------ ----------
Total liabilities and stockholders' equity $ 1,060,201 $ 1,071,205
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-4-
<PAGE>
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1998
---------------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Capital Foreign
Common in Excess Currency
Stock of Par Translation Treasury Retained
(in thousands) Par Value Value Adjustment Stock Earnings Total
--------- --------- ----------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance as of
June 30, 1998 ......... $ 435 $ 134,166 $ (27,556) $ (123,039) $ 402,142 $ 386,148
Cash Dividends ......... -- -- -- -- (3,905) (3,905)
Purchase of
Treasury Stock ........ -- -- -- (2,833) -- (2,833)
Net Income ............. -- -- -- -- 14,320 14,320
Foreign Currency
Translation Adjustment -- -- (3,754) -- -- (3,754)
--------- --------- --------- --------- --------- --------- ---------
Balance as of
September 30, 1998 .... $ 435 $ 134,166 $ (31,310) $ (125,872) $ 412,557 $ 389,976
========= ========= ========== =========== ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-5-
<PAGE>
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
-------------- -------------
<S> <C> <C>
(in thousands)
Cash flows from operating activities:
Net income ............................................. $ 14,320 $ 12,173
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................ 13,214 11,625
Deferred income taxes ................................ 214 2,997
Change in certain non-cash current assets and liabilities:
Decrease in accounts receivable ................... 34,841 32,897
(Increase) in inventories ......................... (39) (12,642)
Decrease in prepaid expenses ...................... 5,558 252
Increase in accrued income and other taxes ........ 7,697 3,557
(Decrease) in accounts payable .................... (31,076) (15,212)
(Decrease) in accrued liabilities ................. (24,686) (32,552)
Other changes .......................................... 546 1,984
-------- --------
Total adjustments .................................. 6,269 (7,094)
-------- --------
Net cash provided by operating activities ................ 20,589 5,079
-------- --------
Cash flows from investing activities:
Capital expenditures .................................. (9,667) (8,234)
Acquisition of leased assets .......................... -- (10,208)
Acquisition of business ............................... (53,000) --
Purchase and installation of information system ....... (1,237) (2,727)
-------- --------
Net cash (used for) investing activities ................. (63,904) (21,169)
-------- --------
Cash flows from financing activities:
Increase in credit facility borrowings, net .......... 57,331 26,345
(Decrease) increase in other borrowings, net ......... (181) 14,522
(Decrease) in securitization of accounts receivable .. --
(15,000)
Proceeds from exercise of stock options .............. -- 787
Purchase of common stock for treasury ................ (2,833) (5,627)
Dividends paid ....................................... (3,916) (3,207)
-------- --------
Net cash provided by financing activities ............... 50,401 17,820
-------- --------
Net increase in cash and cash equivalents ................ 7,086 1,730
Cash and cash equivalents at beginning of period ......... 12,029 7,465
-------- --------
Cash and cash equivalents at end of period ............... $ 19,115 $ 9,195
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-6-
<PAGE>
FIRST BRANDS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements include all adjustments (all of which were of a normal
recurring nature) necessary to fairly present the results of operations for the
interim periods. All material intercompany transactions and balances have been
eliminated. The results of operations for the three month period ended September
30, 1998 are not necessarily indicative of the results for a full year.
First Brands Corporation ("First Brands" or the "Company") is engaged in the
development, manufacture, marketing and sale of consumer products under branded
and private labels. Principal branded products include: GLAD and GLAD-LOCK
(plastic wrap and bags); GLADWARE (plastic containers); HANDI WIPES and WASH `N
DRI (cleaning cloths); STP (oil and fuel additives and other specialty
automotive products); SCOOP AWAY, EVER CLEAN, EVERFRESH and JONNY CAT (cat
litters) and STARTERLOGG (fire starters) and HEARTHLOGG (fire logs).
INVENTORIES
Inventories were comprised of:
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
----------- --------
(in thousands)
<S> <C> <C>
Raw materials................................... $ 33,261 $ 34,160
Work-in-process................................. 5,416 5,485
Finished goods.................................. 115,429 115,835
--------- ---------
Total....................................... $ 154,106 $ 155,480
========= =========
</TABLE>
2. Long-term Debt
First Brands had long-term debt outstanding as of September 30, 1998 and June
30, 1998 as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------- --------
(in thousands)
<S> <C> <C>
$300,000,000 Revolving Credit Facility, 5 year term expiring February 2002,
interest at prime rate, LIBOR plus .275% or CD rate plus .4%; facility
fee of .15% ............................................................. $ 247,000 $ 190,000
$150,000,000 7 1/4% Senior Notes Due 2007 ................................. 150,000 150,000
$54,717,000 Australian and New Zealand Credit
Facility, 7 year term expiring September 2004,
interest at local Bill Rate plus .7% ................................... 38,996 42,745
$9,139,000 Canadian Credit Facility, 5 year term expiring September 2002,
interest at Canadian prime rate, LIBOR plus .425% or Canadian
Bankers Acceptance plus .425% .......................................... 5,493 3,424
Other ..................................................................... 5,480 5,269
--------- ---------
446,969 391,438
Less: current maturities .................................................. (3,184) (3,384)
--------- ---------
Total long-term debt .......................................................... $ 443,785 $ 388,054
========= =========
</TABLE>
-7-
<PAGE>
The Company's revolving credit facility is unsecured, however, it does contain
certain restrictive covenants pertaining to the ratio of debt to equity,
dividend payments and stock repurchases.
The Australian and New Zealand credit facility is composed of two parts; one of
which was used to acquire the NationalPak business and a second part which can
be used for working capital needs. There are fixed periodic payments associated
with the acquisition borrowing. The working capital borrowing can be drawn on
and repaid at NationalPak's discretion. The facility is secured by the accounts
receivable, inventory and fixed assets of NationalPak.
The Canadian credit facility requires fixed periodic payments. The facility is
secured by the accounts receivable, inventory and fixed assets of the Canadian
business.
The 7 1/4% Note Indenture contains certain restrictive covenants and limitations
principally relating to the Company's right to incur debt and to engage in
certain sale and leaseback transactions.
First Brands was in compliance with the covenants of all debt agreements at
September 30, 1998.
3. ACCOUNTS RECEIVABLE
The Company is engaged in a program to sell up to $100,000,000 in fractional
ownership interest in a defined pool of eligible trade accounts receivable. As
of September 30, 1998 the entire $100,000,000 had been sold. The amounts sold
are reflected as a reduction in accounts receivable on the accompanying
Consolidated Condensed Balance Sheets and costs associated with this program are
recorded on the Consolidated Condensed Statements of Income as discount on sale
of receivables.
4. NOTES PAYABLE
Notes payable at September 30, 1998 of $4,280,000 consisted of the Company's
international subsidiaries' working capital borrowings with local lenders. The
Company's international working capital credit facilities aggregate $16,978,000
and are generally secured by the assets of the respective subsidiaries, with
approximately $2,000,000 of the availability at one subsidiary being guaranteed
by First Brands Corporation (U.S.). The Company also borrows against an
unsecured domestic line of credit and at September 30, 1998, the entire
$15,000,000 available under this facility was unused.
5. TAXES
The provision for income tax expense for the three months ended September 30,
1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
Three Months
Ended
September 30,
---------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Current:
Federal...................... $ 6,683 $ 3,200
State........................ 1,454 754
Foreign...................... 899 841
------ ------
Total current............ 9,036 4,795
Deferred:
Federal...................... 87 2,397
State........................ 19 531
Foreign...................... 108 69
------- -------
Total deferred........... 214 2,997
------ -----
Total provision...... $ 9,250 $ 7,792
===== =====
</TABLE>
-8-
<PAGE>
6. EARNINGS PER SHARE AND DIVIDENDS
Basic earnings per share ("EPS") represents the earnings available to each
common share outstanding during the reporting period. Diluted EPS reflects the
earnings available to each common share after the effect of dilutive stock
options. For the Company, the numerator is constant for both the basic and
diluted calculation. The denominator used in the diluted EPS calculation was
increased by 638,000 and 833,000 common share equivalents pertaining to stock
options for the three months ended September 30, 1998 and 1997, respectively.
The Company has paid its shareholders quarterly cash dividends of $0.10 and
$0.08 per share for the first quarter of fiscal 1999 and 1998, respectively.
7. ACQUISITION
On August 31, 1998, the Company acquired, for approximately $53,000,000, the
HANDI WIPES and WASH `N DRI business from the Colgate-Palmolive Company. This
business is the leader in sales of reusable cleaning cloths and individually
wrapped pre-moistened towelettes in the U.S. and Puerto Rico. The
acquisition was accounted for as a purchase and was financed through borrowings
from the Company's revolving credit facility.
8. COMPREHENSIVE INCOME
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", which establishes standards
for reporting and displaying comprehensive income and its components. The only
component of comprehensive income which affects the Company is foreign currency
translation adjustments. Since the Company does not provide for U.S. taxes on
undistributed foreign earnings, the impact of foreign currency translation
adjustments is not tax effected. Comprehensive income for the three months ended
September 30, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
Three Months
Ended
September 30,
---------------
1998 1997
---- ----
(thousands)
<S> <C> <C>
Net income................................. $ 14,320 $ 12,173
Foreign currency translation adjustments... (3,754) (2,699)
------- -------
Comprehensive income....................... $ 10,566 $ 9,474
======== =========
</TABLE>
Accumulated other comprehensive income as of September 30, 1998 and June 30,
1998 consisted solely of foreign currency translation adjustments with debit
balances of $31,310,000 and $27,556,000, respectively.
9. SUBSEQUENT EVENTS
On October 18, 1998, the Company's Board of Directors approved an Agreement and
Plan of Merger, providing for the acquisition of First Brands by The Clorox
Company. In the merger, each outstanding share of First Brands stock will be
converted into a fraction of a Clorox share with a value equal to $39, provided
the average closing price of Clorox stock stays between $80 and $115 in the 10
day period ending 5 days before the date of the merger. If the average closing
price of Clorox stock is higher than $115 during such period, each outstanding
share of First Brands stock will be converted into 0.3391 of a Clorox share. If
the average closing price of Clorox stock is less than $80 during such period,
each share of First Brands stock will be converted into 0.4875 of a Clorox
share. The transaction, which is expected to be completed in the first quarter
of calendar 1999, will be treated as a pooling of interests for accounting
purposes and is structured to be non-taxable to stockholders (except for cash
received in lieu of fractional shares).
-9-
Exhibit 99.3
Independent Auditors' Consent
The Board of Directors
The Clorox Company:
We consent to the inclusion of our audit reports dated
August 6, 1998, relating to the consolidated balance
sheets of First Brands Corporation and subsidiaries as
of June 30, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows
for each of the years in the three year period ended
June 30, 1998, and the related schedule, which audit
reports appear in the June 30, 1998 annual report on
Form 10-K of First Brands Corporation, in the Quarterly
Report on Form 10-Q of The Clorox Company for the
fiscal quarter ended December 31, 1998.
Also with respect to such Quarterly Report, we acknowledge
our awareness of the use therein of our report dated
October 23, 1998 related to our review of the First Brands
Corporation interim financial information as of and for
the three months ended September 30, 1998.
Pursuant to Rule 436(c) under the Securities Act of
1933, such report is not considered part of a registration
statement prepared or certified by an accountant or a
report prepared or certified by an accountant within
the meaning of sections 7 and 11 of the Act.
/S/ KPMG LLP
New York, New York
February 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF THE CLOROX COMPANY FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1998,
AS PRESENTED IN THE CLOROX COMPANY'S FORM 10-Q FILED FOR SUCH PERIOD, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 49395
<SECURITIES> 52847
<RECEIVABLES> 366989
<ALLOWANCES> 1521
<INVENTORY> 228742
<CURRENT-ASSETS> 760240
<PP&E> 1165944
<DEPRECIATION> 561919
<TOTAL-ASSETS> 3046425
<CURRENT-LIABILITIES> 999939
<BONDS> 508454
0
0
<COMMON> 110844
<OTHER-SE> 1028349
<TOTAL-LIABILITY-AND-EQUITY> 3046425
<SALES> 1334055
<TOTAL-REVENUES> 1334055
<CGS> 572478
<TOTAL-COSTS> 1072436
<OTHER-EXPENSES> 379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35463
<INCOME-PRETAX> 225777
<INCOME-TAX> 82409
<INCOME-CONTINUING> 143368
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143368
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF THE CLOROX COMPANY FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1997,
AS PRESENTED IN THE CLOROX COMPANY'S FORM 10-Q FILED FOR SUCH PERIOD, AND AS
RESTATED HEREIN, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 36003
<SECURITIES> 14895
<RECEIVABLES> 346980
<ALLOWANCES> 1521
<INVENTORY> 219711
<CURRENT-ASSETS> 680111
<PP&E> 1071040
<DEPRECIATION> 500229
<TOTAL-ASSETS> 2831744
<CURRENT-LIABILITIES> 800936
<BONDS> 702185
0
0
<COMMON> 110845
<OTHER-SE> 885553
<TOTAL-LIABILITY-AND-EQUITY> 2831744
<SALES> 1241079
<TOTAL-REVENUES> 1241079
<CGS> 537883
<TOTAL-COSTS> 1007636
<OTHER-EXPENSES> (1601)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32019
<INCOME-PRETAX> 203025
<INCOME-TAX> 79179
<INCOME-CONTINUING> 123846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123846
<EPS-PRIMARY> 1.2
<EPS-DILUTED> 1.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF THE CLOROX COMPANY FOR THE FISCAL QUARTER ENDED DECEMBER 31, 1996,
AS PRESENTED IN THE CLOROX COMPANY'S FORM 10-Q FILED FOR THAT PERIOD, AND AS
RESTATED HEREIN, AND IS INCORPORATATED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000021076
<NAME> THE CLOROX COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 80911
<SECURITIES> 0
<RECEIVABLES> 303523
<ALLOWANCES> 1521
<INVENTORY> 189853
<CURRENT-ASSETS> 622238
<PP&E> 1017559
<DEPRECIATION> 448373
<TOTAL-ASSETS> 2711088
<CURRENT-LIABILITIES> 648861
<BONDS> 793350
0
0
<COMMON> 110844
<OTHER-SE> 888005
<TOTAL-LIABILITY-AND-EQUITY> 2711088
<SALES> 1120988
<TOTAL-REVENUES> 1120988
<CGS> 492987
<TOTAL-COSTS> 921934
<OTHER-EXPENSES> (4959)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22242
<INCOME-PRETAX> 181771
<INCOME-TAX> 72346
<INCOME-CONTINUING> 109425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109425
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.04
</TABLE>
