UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (MARK ONE) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) X OF THE SECURITIES EXCHANGE ACT OF 1934 - - For the quarterly period ended December 31, 1995 ----------------- 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 No.) 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, 1995 there were 51,910,594 shares outstanding of the registrant's common stock (par value - $1.00), the registrant's only outstanding class of stock. - ------------------------------------------------------------------ Total pages 10 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, 1995 and 1994 3 Condensed Consolidated Balance Sheets December 31, 1995 and June 30, 1995 4 Condensed Statements of Consolidated Cash Flows Six Months Ended December 31, 1995 and 1994 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 7-9 2 -
<TABLE> <CAPTION> 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 -------------------------------- -------------------------------- 12/31/95 12/31/94 12/31/95 12/31/94 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net Sales $ 466,789 $ 414,454 $ 985,275 $ 890,821 Costs and Expenses Cost of products sold 213,171 183,963 444,504 394,097 Selling, delivery and administration 102,378 91,885 201,034 181,356 Advertising 66,628 68,007 139,110 138,974 Research and development 11,205 10,817 21,407 20,917 Interest expense 7,588 5,163 15,360 10,089 Other expense (income), net 2,196 (2,164) 1,629 (1,802) ------- ------- ------- ------- Total costs and expenses 403,166 357,671 823,044 743,631 ------- ------- ------- ------- Earnings before income taxes 63,623 56,783 162,231 147,190 Income Taxes 25,712 22,688 65,541 59,914 ------- ------- ------- ------- Net Earnings $ 37,911 $ 34,095 $ 96,690 $ 87,276 ========== ========== ========== ========== Earnings per Common Share $ 0.73 $ 0.64 $ 1.85 $ 1.64 Dividends per Share $ 0.53 $ 0.48 $ 1.06 $ 0.96 Weighted Average Shares Outstanding 52,089 53,274 52,222 53,341 See Notes to Condensed Consolidated Financial Statements. 3 - </TABLE>
<TABLE> <CAPTION> PART I - FINANCIAL INFORMATION (Continued) Item 1. Financial Statements The Clorox Company and Subsidiaries Condensed Consolidated Balance Sheets ------------------------------------- (In thousands) 12/31/95 6/30/95 ---------------- --------------- <S> <C> <C> ASSETS - ------ Current Assets Cash and short-term investments $ 105,866 $ 137,330 Accounts receivable, less allowance 220,371 311,868 Inventories 157,524 121,095 Deferred income taxes 11,575 11,495 Prepaid expenses 16,219 18,543 ---------------- --------------- Total current assets 511,555 600,331 Property, Plant and Equipment - Net 533,208 524,972 Brands, Trademarks, Patents and Other Intangibles 599,880 592,792 Investments in Affiliates 94,225 96,385 Other Assets 120,355 92,192 ---------------- --------------- Total $ 1,859,223 $ 1,906,672 ================ =============== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities Accounts payable $ 89,462 $ 122,763 Accrued liabilities 187,754 234,595 Income taxes payable 11,991 6,283 Commercial paper and notes payable 168,526 115,303 Current maturities of long-term debt 395 379 ---------------- --------------- Total current liabilities 458,128 479,323 Long-term Debt 249,487 253,079 Other Obligations 80,987 85,129 Deferred Income Taxes 136,957 145,228 Put Option Obligations 17,259 - Stockholders' Equity Common Stock 55,422 55,422 Additional paid-in capital 109,068 108,347 Retained earnings 1,011,177 971,380 Treasury shares, at cost (228,813) (168,217) Cumulative translation adjustments and other (30,449) (23,019) ---------------- --------------- Stockholders' Equity 916,405 943,913 ---------------- --------------- Total $ 1,859,223 $ 1,906,672 ================ =============== See Notes to Condensed Consolidated Financial Statements. 4 - </TABLE>
<TABLE> <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 -------------------------------------- 12/31/95 12/31/94 ------------- -------------- <S> <C> <C> Operations: Earnings from continuing operations $ 96,690 $ 87,276 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 55,669 51,445 Deferred income taxes 3,300 5,400 Other 12,532 10,230 Effects of changes in: Accounts receivable 91,497 71,938 Inventories (33,505) (50,089) Prepaid expenses 2,243 2,460 Accounts payable (33,385) (19,886) Accrued liabilities (44,049) (42,100) Income taxes payable (5,863) (4,078) ------------- -------------- Net cash provided by operations 145,129 112,596 Investing Activities: Property, plant and equipment (30,658) (28,803) Disposal of property, plant and equipment 770 550 Businesses purchased (61,665) (24,165) Other (22,168) (18,083) ------------- -------------- Net cash used for investment (113,721) (70,501) Financing Activities: Short-term borrowings 6,031 Long-term debt and other obligations repayments (12,696) (207) Commercial paper, net 53,223 44,038 Cash dividends (55,537) (51,298) Treasury stock purchased (50,150) (26,682) Employee stock plans 2,288 4,458 ------------- -------------- Net cash used for financing (62,872) (23,660) ------------- -------------- (Decrease) Increase in Cash and Short-Term Investments (31,464) 18,435 Cash and Short-Term Investments: Beginning of period 137,330 115,922 ------------- -------------- End of period $ 105,866 $ 134,357 ============= ============== See Notes to Condensed Consolidated Financial Statements. 5 - </TABLE>
PART I - FINANCIAL INFORMATION (Continued) Item 1. Financial Statements The Clorox Company and Subsidiaries Notes to Condensed Consolidated Financial Statements ---------------------------------------------------- (1) The summarized financial information for the three and six months ended December 31, 1995 and 1994 has not been audited but, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations, financial position, and cash flows of The Clorox Company and subsidiaries (the Company) have been made. The results of the three and six months ended December 31, 1995 and 1994 should not be considered as necessarily indicative of the results for the entire year. (2) Inventories at December 31, 1995 and at June 30, 1995 consisted of (in thousands): 12/31/95 6/30/95 -------- ------- Finished goods and work in process $ 99,147 $ 71,102 Raw materials and supplies 58,377 49,993 -------- -------- Total $157,524 $121,095 ======== ======== (3) Stock Repurchases The Company's Board of Directors in July 1995, authorized a $100,000,000 share repurchase program which is planned for completion during fiscal year 1996. The shares will be purchased on the open market. Shares reacquired will be held as treasury shares and are available for reissuance for corporate uses. Through December 31, 1995, 697,000 shares had been repurchased at a cost of $50,150,000. (4) Acquisitions for the six months ended December 31, 1995 of $61,665,000 were funded from cash provided from operations and included the Black Flag line of insecticides, the acquisition of the remaining minority interest of our business in Argentina, and other business interests in Mexico. These acquisitions were accounted for as purchases. (5) Put Option Obligations The Company sold 240,000 put options and purchased 240,000 call options during the second quarter of fiscal 1996 with various strike prices (average of $71.91 per share) that expire at various times through September 30, 2005. Upon exercise, each put option obligates the Company to purchase one share of its common stock at the strike price and each call option allows the Company to purchase one share of its common stock at the strike price. The aggregate exercise price of $17,259,000 has been classified as put option obligations with a corresponding increase in treasury stock at December 31, 1995. 6 -
PART I - FINANCIAL INFORMATION (Continued) Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition --------------------------------------------- Results of Operations --------------------- Comparison of the Three Months Ended December 31, 1995 ------------------------------------------------------ with the Three Months Ended December 31, 1994 --------------------------------------------- Earnings per share increased 14 percent to $.73 from $.64, and net earnings increased 11 percent to $37,911,000 from $34,095,000 a year ago principally due to a 13 percent increase in net sales driven by a 13 percent increase in volume. Record shipments were recorded for our home cleaning business unit which includes Formula 409, Soft Scrub, Pine-Sol and Clorox toilet bowl cleaners. This business unit achieved its twelfth consecutive quarterly increase in shipments. Combat insecticides and Kingsford charcoal shipments were also up strongly. Brita water filtration systems shipped record quarterly volumes reflecting strong growth in all trade channels and the acquisition in January 1995 of the Brita business in Canada. Our international business growth during the quarter was principally due to volume from businesses acquired in fiscal 1995. Cost of products sold as a percentage of net sales was 45.7 and 44.4 percent in the current and year ago quarters, respectively. Gross margins are anticipated to remain at approximately 55 percent for the remainder of the fiscal year. Selling, delivery, and administration expense increased 11 percent over the year ago period principally due to continued investment in international infrastructure, and costs implementing our customer interface project. Advertising expense decreased 2 percent over the year ago period principally due to reductions in sales promotion activities (e.g. couponing). However, media spending has increased versus a year ago and we expect it to increase for the full year in line with sales. Interest expense increased $2,425,000 over the year ago period due to higher levels and rates on commercial paper, and additional indebtedness related to the Brita Canada acquisition of January 1995. 7 -
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, 1995 ---------------------------------------------------- with the Six Months Ended December 31, 1994 ------------------------------------------- Earnings per share increased 13 percent to $1.85 from $1.64, and net earnings increased 11 percent to $96,690,000 from $87,276,000 a year ago principally due to a 11 percent increased in net sales driven by a 10 percent increase in volume. Record shipments were recorded in both the first and second quarters for our home cleaning business unit which includes Formula 409, Soft Scrub, Pine-Sol and Clorox toilet bowl cleaners. Combat insecticides and Kingsford charcoal shipments were both up in volume versus the year ago period. Brita water filtration systems shipped record volumes that reflect continued strong growth in all trade channels and the acquisition in January 1995 of the Brita business in Canada. International volume growth was principally due to volume from businesses acquired in fiscal 1995. Cost of products sold was 45.1 and 44.2 percent in the current and year ago periods respectively. Gross margins are expected to remain at approximately 55 percent for the remiander of the fiscal year. Selling, delivery and administration expense increased 11 percent over the year ago period principally due to continued investment in international infrastructure, and costs implementing our customer interface project. Advertising expense was about even with a year ago. Included in advertising expense is a shift from sales promotion to media spending which improves the overall efficiency of the advertising effort. Interest expense increased $5,271,000 over a year ago due to higher levels and rates on commercial paper, and additional indebtedness related to the Brita Canada acquisition of January 1995. 8 -
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 which increased $32,533,000 over the year ago period, principally due to the liquidation of June 30, 1995 receivables including those with seasonal dating terms for payment this period. Decreases in accounts receivable and accounts payable, and increases in inventory balances from June 30, 1995 reflect normal seasonal variation, principally due to the charcoal and insecticides businesses. We expect inventories to increase during the next fiscal quarter to support the seasonal charcoal and insecticides businesses. In July 1995, the Board of Directors approved a $100,000,000 share repurchase program which is planned for completion during this fiscal year, subject to market conditions and business opportunities which may arise. Through the six month period ended December 31, 1995, 697,000 shares at a cost of $50,150,000 were reacquired, of which 418,400 shares at a cost of $31,331,000 were reacquired during the second quarter. The Company also sold 240,000 put options on the Company's stock during the second quarter as a hedge of certain future stock option exercises. The options sold were unexpired and unexercised at December 31, 1995. The Company has approved the use of interest rate derivative instruments such as interest rate swaps in order to manage the impact of interest rate movements on interest expense. These instruments have the effect of converting fixed rate interest to floating, or floating to fixed. The conditions under which derivatives can be used are set forth in a Company Policy Statement and include a restriction on the amount of such activity to a designated portion of existing debt, a limit on the term of any derivative transaction, and a specific prohibition on the use of any leveraged derivatives. Management believes the Company has access to additional capital through existing lines of credit and from public and private sources should the need arise. 9 -
S I G N A T U R E Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE CLOROX COMPANY (Registrant) DATE BY /S/ HENRY J. SALVO, JR. ----------------- ----------------------- Henry J. Salvo, Jr. Vice-President - Controller 10 --