UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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 - -------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 31-0595760 - -------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification number 1221 Broadway - Oakland, California 94612 - 1888 - -------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, (510) 271-7000 (including area code) -------------------- - -------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all 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 March 31, 2000 there were 234,715,228 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. --------------------- -------- Item 1. Financial Statements Condensed Statements of Consolidated Earnings Three Months and Nine Months Ended March 31, 2000 and 1999 3 Condensed Consolidated Balance Sheets March 31, 2000 and June 30, 1999 4 Condensed Statements of Consolidated Cash Flows Nine Months Ended March 31, 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
PART I - FINANCIAL INFORMATION Item 1. Financial Statements The Clorox Company and Subsidiaries Condensed Statements of Consolidated Earnings (In millions, except share and per-share amounts) <TABLE> <CAPTION> Three Months Ended Nine Months Ended -------------------------- ------------------------- 3/31/00 3/31/99 3/31/00 3/31/99 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net Sales $ 1,034 $ 992 $ 2,930 $ 2,904 ----------- ----------- ----------- ----------- Cost and Expenses Cost of products sold 506 473 1,446 1,390 Selling, delivery and administration 190 195 564 588 Advertising 119 124 345 361 Research and development 15 15 44 44 Merger, integration, restructuring and asset impairment 13 100 21 100 Interest expense 25 23 71 75 Other expense, net 1 10 17 18 ----------- ----------- ----------- ----------- Total costs and expenses 869 940 2,508 2,576 ----------- ----------- ----------- ----------- Earnings before income taxes 165 52 422 328 Income taxes 59 30 153 132 ----------- ----------- ----------- ----------- Net Earnings $ 106 $ 22 $ 269 $ 196 =========== =========== =========== =========== Earnings per Common Share Basic $ 0.45 $ 0.09 $ 1.14 $ 0.83 Diluted 0.44 0.09 1.12 0.82 Weighted Average Shares Outstanding (in thousands) Basic 235,843 235,794 236,446 234,946 Diluted 238,848 240,440 239,894 239,590 Dividends per Share $ 0.20 $ 0.18 $ 0.60 $ 0.53 See Notes to Condensed Consolidated Financial Statements. </TABLE>
PART I - FINANCIAL INFORMATION (Continued) Item 1. Financial Statements The Clorox Company and Subsidiaries Condensed Consolidated Balance Sheets (In millions) <TABLE> <CAPTION> 3/31/00 6/30/99 ----------- ----------- <S> <C> <C> ASSETS - ------ Current Assets Cash and short-term investments $ 149 $ 132 Receivables, net 677 610 Inventories 402 319 Prepaid expenses and other 22 29 Deferred income taxes 23 26 ----------- ----------- Total current assets 1,273 1,116 Property, Plant and Equipment - Net 1,072 1,054 Brands, Trademarks, Patents and Other Intangibles - Net 1,547 1,497 Investments in Affiliates 114 104 Other Assets 345 361 ----------- ----------- Total $ 4,351 $ 4,132 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities Accounts payable $ 239 $ 206 Accrued liabilities 366 350 Accrued merger, integration, and restructuring 9 23 Short-term debt and notes payable 857 734 Income taxes payable 56 48 Current maturities of long-term debt 6 7 ----------- ----------- Total current liabilities 1,533 1,368 Long-term Debt 679 702 Other Obligations 190 255 Deferred Income Taxes 224 237 Stockholders' Equity Common stock 250 250 Additional paid-in capital 131 50 Retained earnings 1,984 1,842 Treasury shares, at cost (462) (392) Accumulated other comprehensive loss (164) (160) Other (14) (20) ----------- ----------- Stockholders' equity 1,725 1,570 ----------- ----------- Total $ 4,351 $ 4,132 =========== =========== See Notes to Condensed Consolidated Financial Statements. </TABLE>
<TABLE> <CAPTION> PART I - FINANCIAL INFORMATION (Continued) Item 1. Financial Statements The Clorox Company and Subsidiaries Condensed Statements of Consolidated Cash Flows (In millions) Nine Months Ended --------------------------- 3/31/00 3/31/99 ----------- ----------- <S> <C> <C> Operations: Net earnings $ 269 $ 196 Adjustments to reconcile to net cash provided by operating activities: Provision for inventory write downs and asset impairment 6 42 Depreciation and amortization 151 147 Deferred income taxes 13 5 Other - (2) Changes in (excluding effects of businesses acquired): Accounts receivable (58) 27 Inventories (78) (36) Prepaid expenses and other 7 5 Accounts payable 29 (53) Accrued liabilities 1 (97) Accrued merger, integration, and restructuring (14) 24 Income taxes payable 7 50 ----------- ----------- Net cash provided by operations 333 308 ----------- ----------- Investing Activities: Purchases of property, plant and equipment (103) (110) Proceeds from disposals of property, plant and equipment 5 5 Businesses acquired (101) (116) Other (57) (27) ----------- ----------- Net cash used for investing (256) (248) ----------- ----------- Financing Activities: Short-term debt and notes payable borrowings (repayments), net 125 (127) Long-term debt and other borrowings 15 201 Long-term debt and other repayments (28) (15) First Brands receivables financing program, net - (20) Cash dividends (142) (120) Treasury stock purchased (125) (33) Settlement of share repurchase and option contracts 82 - Issuance of common stock for employee stock plans and other 12 62 ----------- ----------- Net cash used for financing (61) (52) ----------- ----------- Effect on cash of exchange rate changes 1 - Net increase in cash and short-term investments 17 8 Cash and short-term investments: Beginning of period 132 102 ----------- ----------- End of period $ 149 $ 110 =========== =========== See Notes to Condensed Consolidated Financial Statements. </TABLE>
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 and nine months ended March 31, 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"). The Company's results reflect the January 29, 1999 merger with First Brands Corporation ("First Brands") which was accounted for as a pooling of interests. All historical financial information has been restated to include First Brands. The results for the three and nine months ended March 31, 2000 and 1999 should not be considered as necessarily indicative of the annual results for the respective years. 2) Inventories at March 31, 2000 and at June 30, 1999 consisted of: 3/31/00 6/30/99 --------- --------- Finished goods and work in process $ 283 $ 220 Raw materials and supplies 119 99 --------- --------- Total $ 402 $ 319 ========= ========= Inventory of certain First Brands' products were written down to their net realizable value, and cost of products sold includes a corresponding charge of $4 and $8 for the nine month periods ending March 31, 2000 and 1999, respectively. 3) International acquisitions since June 30, 1999 totaled $101 and were accounted for as purchases. These acquisitions included a cleaning utensil business in Colombia, Venezuela and Peru, an increase in ownership to 100% in Tecnoclor, S.A. in Colombia (previously 72% owned and fully consolidated), and a rubber glove business purchased in Australia. The acquisitions were funded using a combination of cash and debt. 4) 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 ------------------------------------------------- Three Months Ended Nine Months Ended ------------------------ ------------------------ 3/31/00 3/31/99 3/31/00 3/31/99 ------------ ---------- ----------- ------------ Basic 235,843 235,794 236,446 234,946 Stock options 2,955 4,610 3,402 4,604 Other 50 36 46 40 ------------ ---------- ----------- ------------ Diluted 238,848 240,440 239,894 239,590 ============ ========== =========== ============
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) Comprehensive income for the Company includes net income and foreign currency translation adjustments that are excluded from net income but included as a separate component of total stockholders' equity. Comprehensive income for the three and nine month periods ended March 31, 2000 and 1999 is as follows: Three Months Ended Nine Months Ended -------------------- -------------------- 3/31/00 3/31/99 3/31/00 3/31/99 --------- --------- ---------- --------- Net Earnings $ 106 $ 22 $ 269 $ 196 Foreign currency translation adjustments (3) (18) (4) (32) --------- --------- ---------- --------- Total comprehensive income $ 103 $ 4 $ 265 $ 164 ========= ========= ========== ========= 6) On January 29, 1999, the Company completed a merger with First Brands. Related merger, integration, restructuring and asset impairment charges through March 31, 2000 are as follows: <TABLE> <CAPTION> Merger and Asset Integration Restructuring Sub-Total Impairment Total ----------- ------------- --------- ---------- ----- <S> <C> <C> <C> <C> <C> Provision for merger, integration, restructuring, and asset impairment: For the year ended June 30, 1999 $36 $53 $89 $91 $180 For the nine months ended March 31, 2000 17 2 19 2 21 ----------- ------------- --------- ---------- ----- Total provision for merger, integration, restructuring and asset impairment through March 31, 2000 53 55 108 $93 $201 ========== ===== Total paid through March 31, 2000 (49) (50) (99) ----------- ------------- --------- Accrued liability as of March 31, 2000 $4 $5 $9 ============ ============= ========= </TABLE> Substantially all merger, integration, restructuring and asset impairment costs related to the First Brands merger have been recognized through March 31, 2000. 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: Household Products: 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, dressings, sauces, professional products and the food storage and disposal categories. International: Includes operations outside the United States and Canada. Corporate, Interest and Other: Includes certain non-allocated administrative and sales costs, goodwill amortization, interest income, interest expense, merger, integration and restructuring, 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. Net Sales --------------------------------------- Three Months Ended Nine Months Ended ------------------ ----------------- 3/31/00 3/31/99 3/31/00 3/31/99 ------- ------- ------- ------- Household Products $ 404 $ 373 $ 1,193 1,169 U.S. Specialty Products 469 460 1,273 1,272 International 161 159 464 463 ------- ------- ------- ------- Total Company $ 1,034 $ 992 $ 2,930 $ 2,904 ======== ======== ======== ======== Earnings Before Income Taxes Three Months Ended Nine Months Ended ------------------ ----------------- 3/31/00 3/31/99 3/31/00 3/31/99 ------- ------- ------- ------- Household Products $ 118 $ 128 $ 370 $ 386 U.S. Specialty Products 135 124 325 315 International 24 17 63 43 Corporate, Interest and Other (112) (217) (336) (416) ------- ------- ------- ------- Total Company $ 165 $ 52 $ 422 $ 328 ======== ======== ======== ======== 8) In September 1999, in response to declines in the Company's stock price in the first quarter, the Board of Directors authorized a common stock repurchase and hedging program intended to reduce or eliminate dilution when shares are issued in accordance with the Company's various stock compensation plans. The Company had canceled a prior share repurchase and hedging program (previously authorized in September 1996 by the Board of Directors to offset the dilutive effects of employee stock exercises) when it merged with First Brands. From inception of the new program through March 31, 2000, a total of 3,123,000 shares were acquired at a cost of $125.
PART I - FINANCIAL INFORMATION (Continued) Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Diluted earnings per share increased to $0.44 from $0.09 for the quarter ended March 31, 2000 and increased to $1.12 from $0.82 for the nine months ended March 31, 2000. Net earnings increased to $106 million from $22 million for the quarter ended March 31, 2000 and increased to $269 million from $196 million for the nine months ended March 31, 2000. Improved earnings were principally due to a reduction in merger, restructuring and asset impairment costs. The Company's results reflect the January 29, 1999 merger with First Brands Corporation ("First Brands"). The merger was accounted for as a pooling of interests and all historical financial information has been restated to include First Brands. Net sales for the third quarter of fiscal 2000 increased 4% to $1,034 million mostly due to the results achieved from the Company's household products and U.S. specialty products segments. The increase in the household products segment's net sales was mostly achieved from the introduction of new products such as Liquid-Plumr Foaming Pipe Snake, Clorox Disinfecting Spray and Wipes, Ultra Clorox liquid bleach and Clorox FreshCare fabric refresher and dry clean products. Partially offsetting this increase were lower shipments of Tilex and Pine-Sol products and higher promotional spending to support new products. The U.S. specialty products segment's net sales results were favorably impacted by record shipments of Hidden Valley dressings and the introduction of K C Masterpiece marinades. Net sales for the nine-month period ended March 31, 2000 increased 1% to $2,930 million primarily due to the Company's household products segment's increase of 2% in sales over the year ago period. Contributing to this increase were new product launches and the full year results of the Handi Wipes business acquired in the prior year. Higher promotional spending to support new products and lower shipments of Tilex Fresh Shower, due to higher volumes in the prior year during its launch, partially offset this increase. The U.S. specialty products and international segments' sales performance also added $2 million to the Company's increase in net sales. The increase in U.S. specialty products segment's net sales was due to new product launches, higher charcoal shipments driven by both continued category consumption growth and a strong presence in warehouse clubs, and higher shipments from Hidden Valley bottled dressings. These increases were partially offset by the negative impact of prior year First Brands inefficient trade-promotional practices, which the Company is continuing to eliminate. The increase in the international segment's sales growth was driven by higher shipments and acquisitions that were partially offset by currency devaluations and higher promotional spending. Cost of products sold as a percentage of sales increased to 48.9% from 47.7% for the quarter ended March 31, 2000 and increased to 49.4% from 47.9% for the nine months ended March 31, 2000. These increases were primarily due to higher resin costs and start-up costs associated with the introduction of Ultra Clorox liquid bleach and other new products. Additionally, cost of products sold includes a charge of $4 million and $8 million at March 31, 2000 and March 31, 1999, respectively, for the write down of certain First Brands inventories. These increases were somewhat offset by cost savings initiatives throughout the Company's domestic and international business units. Selling, delivery and administrative expenses decreased 3% to $190 million for the quarter ended March 31, 2000 and decreased 4% to $564 million for the nine months ended March 31, 2000. These decreases were achieved mostly from continued benefits from combining the former First Brands businesses with Clorox, savings from lower commission expense primarily due to the consolidation of the Company's broker network, the consolidation of the Company's logistics network and the integration of the sales force in Latin America. Advertising expense decreased to $119 million from $124 million for the quarter ended March 31, 2000 and decreased to $345 million from $361 million for the nine months ended March 31, 2000. The savings were primarily due to changing certain First Brands couponing practices and to the consolidation of advertising agencies. Higher media spending to support the introduction of new products and former First Brands businesses partially offset these savings. Merger, integration, restructuring and asset impairment for the three and nine months ended March 31, 2000 primarily reflect costs associated with the closure of First Brands distribution centers and relocation and retention bonuses paid to former First Brands employees. Additionally, $2 million of asset impairment losses were recognized in the quarter ended March 31, 2000 for the write-down of property, plant and equipment related to the Company's fire logs business.
PART I - FINANCIAL INFORMATION (Continued) Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Interest expense increased to $25 million from $23 million for the quarter ended March 31, 2000 and decreased to $71 million from $75 million for the nine months ended March 31, 2000. The increase for the three-month period primarily reflects rising interest rates and an increase in borrowings in the third quarter to fund acquisitions, seasonal inventory builds and share repurchases. The decrease for the nine-month period was due to the refinancing of former First Brands debt at lower interest rates made possible by Clorox's more favorable credit rating and the termination of the First Brands trade receivables financing program, partly offset by rising interest rates and an increase in borrowings. Other expense, net decreased to $1 million from $10 million for the quarter ended March 31, 2000 primarily due to higher interest and royalty incomes, prior year costs associated with the termination of debt, and losses on the disposal of assets incurred in the prior year. Income tax expense as a percent of pretax earnings decreased to 36% from 58% for the quarter ended March 31, 2000 and decreased to 36% from 40% for the nine months ended March 31, 2000 principally due to non-deductible merger related costs recorded in the prior year three and nine month periods.
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 flow provided by operations during the year. Receivables have increased from June 30, 1999 partly due to the Company's strategic focus on expanding the business in Latin America as well as domestic sales growth. The increase in inventories reflects seasonality and inventory builds resulting from new product launches. Increases in accounts payable and accrued liabilities result from timing of promotional spending and inventory purchases. International acquisitions since June 30, 1999 totaled $101 million and were funded using a combination of cash and debt. These acquisitions included a cleaning utensil business in Colombia, Venezuela and Peru, an increase in ownership to 100% in Tecnoclor, S.A. in Colombia (previously 72% owned and fully consolidated), and a rubber glove business purchased in Australia. In September 1999, in response to declines in the Company's stock price in the first quarter, the Board of Directors authorized a common stock repurchase and hedging program intended to reduce or eliminate dilution when shares are issued in accordance with the Company's various stock compensation plans. The Company had canceled a prior share repurchase and hedging program (previously authorized in September 1996 by the Board of Directors to offset the dilutive effects of employee stock exercises) when it merged with First Brands. During the nine-month period ended March 31, 2000, a total of 3,123,000 shares were acquired at a cost of $125 million. On September 15, 1999, the Company settled share repurchase agreements and options contracts realizing cash proceeds of approximately $82 million. On the same day, the Company entered into two new share repurchase transactions whereby the Company contracted for future delivery of 2,260,000 shares on September 15, 2002 and 2,260,000 shares on September 15, 2004, each for a strike price of $43 per share. In November 1999, the Company entered into an agreement to purchase an additional 1,000,000 shares on December 1, 2003 at a price of $46.32 per share. On November 17, 1999, the stockholders approved an amendment of the Company's Certificate of Incorporation to increase the authorized capital of the Company to consist of 750,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, each with a par value of $1.00 per share. 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, 1999, 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, including First Brands, and environmental, regulatory and intellectual property matters.
PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (10) Material Contracts (viii) The Clorox Company Supplemental Executive Retirement Plan Restated (July 17, 1991 amended May 18, 1994, January 17, 1996 and January 29, 2000)
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 May 11, 2000 BY /S/ GREGORY S. FRANK ------------ -------------------- Gregory S. Frank Vice-President - Controller
INDEX TO EXHIBITS Exhibit Number Description of Exhibit - -------------- ------------------------------------------------ 10(viii) The Clorox Company Supplemental Executive Retirement Plan Restated (July 17, 1991 amended May 18, 1994, January 17, 1996 and January 19, 2000)