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 September 30, 2000
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
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(Exact name of registrant as specified in its charter)
Delaware 31-0595760
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification number
1221 Broadway - Oakland, California 94612 - 1888
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(Address of principal executive offices)
Registrant's telephone number,
(including area code) (510) 271-7000
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(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
As of September 30, 2000 there were 235,589,069 shares outstanding
of the registrant's common stock (par value - $1.00), the
registrant's only outstanding class of stock.
THE CLOROX COMPANY
PART I. Financial Information Page No.
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Item 1. Financial Statements
Condensed Consolidated Statements
of Earnings
Three Months Ended September 30,
2000 and 1999 3
Condensed Consolidated Balance
Sheets
September 30, 2000 and
June 30, 2000 4
Condensed Consolidated Statements
of Cash Flows
Three Months Ended September 30,
2000 and 1999 5
Notes to Condensed Consolidated
Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 9 - 11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Consolidated Statements of Earnings
(In millions, except share and per-share amounts)
<TABLE>
<CAPTION>
Three Months Ended
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9/30/00 9/30/99
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<S> <C> <C>
Net Sales $ 985 $ 942
Cost and Expenses
Cost of products sold 549 517
Selling and administration 123 127
Advertising 110 116
Research and development 14 14
Merger, restructuring and asset impairment - 2
Interest expense 26 23
Other expense, net 8 6
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Total costs and expenses 830 805
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Earnings before income taxes and cumulative effect
of change in accounting principle 155 137
Income taxes 55 50
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Earnings before cumulative effect of change in
accounting principle 100 87
Cumulative effect of change in accounting principle (2) -
-------- -------
Net Earnings $ 98 $ 87
======== =======
Earnings per Common Share
Basic
Earnings before cumulative effect of change
in accounting principle $ 0.43 $ 0.37
Cumulative effect of change in accounting principle (0.01) -
-------- -------
Net earnings $ 0.42 $ 0.37
======== =======
Diluted
Earnings before cumulative effect of change
in accounting principle $ 0.42 $ 0.36
Cumulative effect of change in accounting principle (0.01) -
-------- -------
Net earnings $0.41 $0.36
======== =======
Weighted Average Shares Outstanding (in thousands)
Basic 235,522 237,020
Diluted 238,568 240,578
Dividends per Share $ 0.21 $ 0.20
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
9/30/00 6/30/00
-------- --------
<S> <C> <C>
ASSETS
------
Current Assets
Cash and short-term investments $ 189 $ 254
Receivables - net 516 624
Inventories 378 376
Prepaid expenses and other 170 175
Deferred income taxes 24 25
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Total current assets 1,277 1,454
Property, Plant and Equipment - Net 1,063 1,079
Brands, Trademarks, Patents and Other Intangibles - Net 1,513 1,536
Investments in Affiliates 110 110
Other Assets 175 174
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Total $ 4,138 $ 4,353
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
Accounts payable $ 219 $ 319
Accrued liabilities 359 397
Accrued merger and restructuring 11 16
Commercial paper and other short-term debt 647 768
Income taxes payable 63 36
Current maturities of long-term debt 206 5
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Total current liabilities 1,505 1,541
Long-term Debt 389 590
Other Obligations 197 204
Deferred Income Taxes 221 224
Stockholders' Equity
Common stock 250 250
Additional paid-in capital 128 127
Retained earnings 2,120 2,068
Treasury shares, at cost (451) (451)
Accumulated other comprehensive net losses (204) (183)
Other (17) (17)
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Stockholders' equity 1,826 1,794
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Total $ 4,138 $ 4,353
======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In millions)
Three Months Ended
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9/30/00 9/30/99
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<S> <C> <C>
Operations:
Net earnings $ 98 $ 87
Adjustments to reconcile to net cash provided by
operations:
Depreciation and amortization 54 48
Deferred income taxes 2 2
Other 13 1
Changes in:
Accounts receivable 107 30
Inventories (5) 1
Prepaid expenses and other 5 8
Accounts payable (100) (1)
Accrued liabilities (34) (32)
Accrued merger and restructuring (5) (9)
Income taxes payable 27 10
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Net cash provided by operations 162 145
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Investing Activities:
Purchases of property, plant and equipment (18) (24)
Businesses acquired - (7)
Other (31) (14)
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Net cash used for investing (49) (45)
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Financing Activities:
Commercial paper and other short-term debt
borrowings (repayments), net (124) (26)
Long-term debt borrowings 2 13
Long-term debt repayments (3) (2)
Cash dividends (49) (47)
Treasury stock purchased and related premiums (4) (43)
Settlement of share repurchase and option contracts - 76
Issuance of common stock for employee stock plans and other 2 5
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Net cash used for financing (176) (24)
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Effect on cash of exchange rate changes (2) 1
Net increase (decrease) in cash and short-term investments (65) 77
Cash and short-term investments:
Beginning of period 254 132
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End of period $ 189 $ 209
======== =======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(In millions, except share and per-share amounts)
1) The condensed consolidated financial statements for the three
months ended September 30, 2000 and 1999 have not been audited but,
in the opinion of management, include all adjustments (consisting
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").
2) Inventories at September 30, 2000 and at June 30, 2000
consisted of:
9/30/00 6/30/00
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Finished goods and work in process $ 257 $ 250
Raw materials and supplies 121 126
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Total $ 378 $ 376
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3) The Company's 8.8% non-callable notes due August 2001, totaling
$200 million, are included in current maturities of long-term debt
as of September 30, 2000. Such amounts were included in long-term
debt as of June 30, 2000.
4) Effective July 1, 2000, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." The statement
requires that an entity recognize all derivatives as either
assets or liabilities. The transition adjustment to implement
this new standard on July 1, 2000, which is presented as a cumulative
effect of change in accounting principle, reduced earnings by
$2 million (net of tax of $1 million) and increased other
comprehensive income by $10 million (net of tax of $7 million).
At September 30, 2000, the Company had interest rate swaps, derivative
commodity contracts and foreign exchange contracts. The
interest rate swaps were designated as fair value hedges of
both fixed and variable debt obligations and were recorded
with a fair value of $5 million in long-term debt. The
derivative commodity contracts with a net fair value of
$2 million were designated as cash flow hedges of raw
material purchases and were recorded as follows: $5 million
in other assets, $2 million in other long-term obligations and
$1 million in current liabilities. The Company also had a derivative
commodity contract with a fair value of $4 million that did not
qualify for hedge accounting treatment which had been recorded to
other long-term obligations with the offset to both cumulative effect
of change in accounting principle and current earnings. The foreign
exchange contracts were designated as fair value hedges of foreign
currency denominated debt, with a fair value of $5 million, and
were recorded as follows: $4 million as an addition to long-term
debt and $1 million in current liabilities.
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(In millions, except share and per-share amounts)
5) Basic earnings per share (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 each 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 shares used in
calculating diluted EPS as follows (in thousands):
Weighted Average Number
of Shares Outstanding
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Three Months Ended
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9/30/00 9/30/99
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Basic 235,522 237,020
Stock options 2,292 3,539
Share repurchase and hedging contracts 671 -
Other 83 19
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Diluted 238,568 240,578
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6) Comprehensive income for the Company includes net income, foreign
currency translation adjustments and derivative gains or losses that
are excluded from net income but included as a separate component of
total stockholders' equity. Comprehensive income for the three
month period ended September 30, 2000 and 1999 is as follows:
Three Months Ended
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9/30/00 9/30/99
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Net Earnings $ 98 $ 87
Other comprehensive income(loss)
Foreign currency translation
adjustments (22) (5)
Cumulative effect of change in
accounting principle 10 -
Net derivative loss (9) -
------------- -------------
Total comprehensive income $ 77 $ 82
============= =============
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(In millions, except share and per-share amounts)
7) The Company's operating segments are as follows:
U. S. Household Products and Canada: Includes cleaning, bleach and
other home care products, and water filtration products marketed in
the United States and all products marketed in Canada.
U. S. Specialty Products: Includes charcoal, automotive care,
cat litter, insecticides, food products, professional products and
the food storage and disposal categories.
International Operations: Includes operations outside the
United States and Canada.
Corporate, Interest and Other: Includes certain unallocated
administrative costs, goodwill amortization, interest income, interest
expense, merger-related costs, and other income and expense.
Each segment is individually managed with separate operating results
that are reviewed regularly by the chief operating decision maker.
The following table shows operating segment information.
<TABLE>
<CAPTION>
Earnings Before Income Taxes and
Cumulative Effect of Change in
Net Sales Accounting Principle
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Three Months Ended Three Months Ended
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9/30/00 9/30/99 9/30/00 9/30/99
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<S> <C> <C> <C> <C>
U.S. Household Products and Canada $ 425 $ 401 $ 139 $ 132
U.S. Specialty Products 419 404 102 97
International Operations 141 137 19 13
Corporate, Interest and Other - - (105) (105)
------- ------- ------- -------
Total Company $ 985 $ 942 $ 155 $ 137
======= ======= ======= =======
</TABLE>
8) On November 1, 2000, the Company entered into an agreement with
Brita GmbH to acquire the right to the Brita trademark and other
intellectual property in North and South America and certain other
net assets. The purchase price and terms of the agreement are expected
to be completed by November 20, 2000.
9) Certain reclassifications have been made to prior-period amounts
to conform to the current period presentation.
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
Comparison of the Three Months Ended September 30, 2000
with the Three Months ended September 30, 1999
Diluted earnings per share increased 14% to 41 cents from 36 cents
a year ago, and net earnings increased 13% to $98 million from $87
million a year ago. Improved earnings were principally due to
volume increases and cost savings initiatives.
Net sales increased 5% to $985 million due to an overall 6%
increase in the Company's volumes. Volume growth was achieved
in each of the Company's segments. The U.S. Household Products
and Canada segment's net sales increased 6% due to an increase of
7% in the segment's shipments. This volume growth resulted from
the strong performance of Clorox Disinfecting Wipes and Meadow
Fresh Pine-Sol cleaner, both introduced in the prior year, and
increases in shipments of Tilex and Clorox Clean-Up. The U.S.
Specialty Products segment's net sales increased 4% and its
volumes increased 3%. The volume growth was attributable to
higher shipments of Kingsford and Match Light Charcoal resulting
from favorable weather conditions, greater shipments of Scoop
Away cat litter achieved from the successful repositioning of
this line, and higher volume gains recorded for the Armor All
protectants and tire care products. Also contributing to the
increase in net sales was the favorable impact from lower promotional
spending. Offsetting these increases were lower volumes from
the Company's food storage and disposal business and the STP
product line due to the elimination of low-margin, non-strategic
items as well as a shift in assortment mix in the food storage
and disposal business. The International segment's net sales
increased 4% and its volumes, driven by the acquisition of Bon
Bril in the prior year's fourth quarter, increased 10%.
Offsetting this increase was the unfavorable impact resulting
from foreign currency movements in Australia, New Zealand and
Chile, and from a shift in product mix and higher promotional
spending in Latin America.
Cost of products sold as a percentage of sales increased to 56%
compared to 55% in the previous year due to higher resin,
packaging and other raw material costs and an unfavorable
assortment mix resulting from recent launches of new products.
Partially offsetting these increases were cost savings generated
from shifting automotive care manufacturing in-house from
co-packers.
Selling and administrative expenses decreased 3% to $123
million due to restructuring the Company's Asia operations
during the fourth quarter of the prior year, bringing sales
and distribution activities in-house in major Latin America
markets, and from lower market research spending. These
savings were partially offset by higher commission expense
resulting from volume increases.
Advertising expense decreased 5% as a result of higher
advertising costs in the year ago period to support the STP
business and the launch of new products in the food and
laundry businesses.
Interest expense increased from the prior year due to rising
interest rates.
Other expense, net, increased due to lower interest income,
equity earnings and royalty income.
The cumulative effect of change in accounting principle of
$2 million (net of tax of $1 million) was recognized as a
transition adjustment as of July 1, 2000 due to the implementation
of SFAS No. 133, "Accounting for Derivative Investments and
Hedging Activities".
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Financial Condition, Liquidity and Capital Resources
The Company's financial position and liquidity remains strong due to
continuing cash flow provided by operations during the past fiscal year
and for the quarter ended September 30, 2000. The decrease in
receivables corresponds with lower sales in the first quarter as
compared with the fourth quarter of the prior year and reflects the
seasonal nature of charcoal and certain international businesses.
The slight increase in inventories reflects an inventory build in the
seasonal business. Decreases in accounts payable and accrued liabilities
reflect timing of promotional spending and inventory purchases.
The Company's 8.8% non-callable notes due August 2001, totaling $200 million,
are now included in current maturities of long-term debt since they are
due within the next twelve months.
On November 1, 2000, the Company entered into an agreement with Brita GmbH
to acquire the right to the Brita trademark and other intellectual
property in North and South America and certain other net assets. The
acquisition will be funded by cash provided by short-term borrowings. The
purchase price and terms of the agreement are expected to be completed by
November 20, 2000.
Management believes the Company has access to sufficient capital
through existing lines of credit and, should the need arise, from
other public and private sources.
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Cautionary Statement
Except for historical information, matters discussed above and in
the financial statements and footnotes, including statements about
future growth, profitability, costs, expectations, plans or
objectives, are forward-looking statements based on management's
estimates, assumptions and projections. These forward-looking
statements are subject to risks and uncertainties, and actual
results could differ materially from those discussed above and
in the financial statements and footnotes. Important factors
that could affect performance and cause results to differ
materially from management's expectations are described in
"Forward-Looking Statements and Risk Factors" in the Company's
Annual Report on Form 10-K for the year ending June 30, 2000,
and in the Company's subsequent SEC filings. Those factors
include, but are not limited to, marketplace conditions and events,
competitors' actions, the Company's costs, risks inherent in
litigation and international operations, the success of new products,
the integration of acquisitions and mergers, and environmental,
regulatory and intellectual property matters.
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 11/13/00 BY /s/ GREGORY S. FRANK
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Gregory S. Frank
Vice-President - Controller
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