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Operations and Financial Condition 9-12
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)
Three Months Ended
9/30/99 9/30/98
- -
Net Sales
$ 942 $ 965
- -
Costs and Expenses
Cost of products sold
462 458
Selling, delivery and administration
182 191
Advertising
116 115
Research and development
14 14
Merger, integration and restructuring
2 -
Interest expense
23 28
Other expense, net
6 1
- -
Total costs and expenses
805 807
- -
Earnings before income taxes
137 158
Income taxes
50 58
- -
Net Earnings
$ 87 $ 100
=========== ===========
Earnings per Common Share
Basic $ 0.37 $ 0.42
Diluted
0.36 0.42
Weighted Average Shares Outstanding (in thousands)
Basic 237,020 234,458
Diluted 240,578 238,968
Dividends per Share
$ 0.20 $ 0.17
See Notes to Condensed Consolidated Financial Statements. 3
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
9/30/99 6/30/99
- -
ASSETS
-
Current Assets
Cash and short-term investments $ 209 $ 132
Receivables, net
580 610
Inventories
320 319
Prepaid expenses and other
20 29
Deferred income taxes
25 26
- -
Total current assets 1,154 1,116
Property, Plant and Equipment - Net 1,049 1,054
Brands, Trademarks, Patents and Other Intangibles - Net 1,485 1,497
Investments in Affiliates
109 104
Other Assets
364 361
- -
Total $ 4,161 $ 4,132
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 205 $ 206
Accrued liabilities
318 350
Accrued merger, integration, and restructuring
14 23
Short-term debt and notes payable
711 734
Income taxes payable
58 48
Current maturities of long-term debt
8 7
- -
Total current liabilities 1,314 1,368
Long-term Debt
704 702
Other Obligations
193 255
Deferred Income Taxes
228 237
Stockholders' Equity
Common stock
250 250
Additional paid-in capital
128 50
Retained earnings 1,891 1,842
Treasury shares, at cost
(367) (392)
Accumulated other comprehensive loss
(165) (160)
Other
(15) (20)
- -
Stockholders' Equity 1,722 1,570
- -
Total $ 4,161 $ 4,132
============= =============
See Notes to Condensed Consolidated Financial Statements.
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and Subsidiaries
Condensed Statements of Consolidated Cash Flows
(In millions)
Three Months Ended
9/30/99 9/30/98
------------- ------------
Operations:
Net earnings
$ 87 $ 100
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation and amortization
48 48
Deferred income taxes
2 3
Other
(4) (3)
Effects of changes in (excluding effects of
businesses purchased):
Accounts receivable
30 101
Inventories
1 (1)
Prepaid expenses and other
8 5
Accounts payable
(1) (60)
Accrued liabilities
(32) (97)
Accrued merger, integration, and restructuring
(9) -
Income taxes payable
10 46
------------- ------------
Net cash provided by operations
140 142
------------- ------------
Investing Activities:
Property, plant and equipment
(24) (31)
Businesses purchased
(7) (91)
Other
(14) (34)
------------- ------------
Net cash used for investing
(45) (156)
------------- ------------
Financing Activities:
Credit facilities and short-term debt repayments, net
(26) (45)
Long-term debt and other borrowings
13 149
Long-term debt and other repayments
(2) (3)
Cash dividends
(47) (41)
Treasury stock purchased
(49) (28)
Termination of share repurchase and options contracts
82 -
Issuance of common stock under employee stock plans and
other 10 7
------------- ------------
Net cash provided by (used for) financing
(19) 39
Effect of exchange rate changes on cash
1 1Net Increase in Cash and Short-Term Investments
77 26Cash and Short-Term Investments:
Beginning of period
132 102
------------- ------------
End of period
$ 209 $ 128
============= ============
See Notes to Condensed Consolidated Financial Statements.
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 information for the
three months ended September 30, 1999 and 1998 is unaudited but,
in the opinion of management, includes all adjustments (consisting
of normal recurring and merger related 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"). The merger was accounted for as a pooling of interests
and all historical financial information has been restated to
include First Brands. The results for the three months ended
September 30, 1999 and 1998 should not be considered as necessarily
indicative of the annual results for the respective years.
(2) Inventories at September 30, 1999 and at June 30, 1999
consisted of:
9/30/99 6/30/99
--------- ---------
Finished goods and work in process $ 219 $ 220
Raw materials and supplies 101 99
--------- ---------
Total $ 320 $ 319
========= =========
(3) 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 used in
calculating diluted EPS as follows (in thousands):
Weighted
Average Number
of Shares Outstanding
-------------------------
Three Months Ended
-------------------------
9/30/99 9/30/98
---------- ----------
Basic 237,020 234,458
Stock options 3,539 4,348
Other 19 162
---------- ----------
Diluted 240,578 238,968
========== ==========
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial Statements
The Clorox Company and SubsidiariesNotes to Condensed Consolidated Financial Statements
(In millions, except share and per-share amounts)
(4) 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 months ended
September 30, 1999 and 1998 is as follows:
Three Months Ended
-----------------------------------
9/30/99 9/30/98
----------- ----------
Net Earnings $ 87 $ 100
Other comprehensive
loss:Foreign currency
translation
adjustments (5) (22)
----------- ----------
Comprehensive
Income $ 82 $ 78
(5) On January 29, 1999, the Company completed a merger with
First Brands. Related merger, integration, restructuring
and asset impairment charges through September 30, 1999 are
as follows:
Merger
Asset
and Integration Restructuring Sub-Total Impairment Total
---------------------- ------------- --------- ----------- ----------
Provision for merger,
integration, restructuring,
and asset impairment:
For the year ended
June 30, 1999 $ 36 $ 53 $ 89 $ 91 $ 180For the three months ended
September 30, 1999 1 1 2 - 2
---------------------- ------------- --------- ----------- ----------Total provision for merger,
integration, restructuring
and asset impairment through
September 30, 1999 37 54 91 $ 91 $ 182
========== ==========Total paid through
September 30, 1999 (33) (44) (77)
---------------------- ------------- ---------Accrued liability as of
September 30, 1999 $ 4 $ 10 $ 14
====================== ============= =========
Total merger, integration, restructuring and asset impairment
costs are now estimated to be approximately $210. Of such
estimated merger-related and asset impairment costs, $182 has
been recognized to date and $8 of obsolete First Brands'
inventory was written off in 1999. The Company expects to
incur an additional $20 over the remainder of the fiscal year
and such costs will be recognized and reported as merger and
restructuring costs as incurred.
PART I - FINANCIAL INFORMATION (Continued)
Item 1. Financial StatementsThe Clorox Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(In millions, except share and per-share amounts)
(6) As a result of several recent executive promotions and
management realignments, operating segment information has
been revised to reflect the Company's current organizational
structure and management responsibilities. The Company's
operating segments are as follows:
Household Products: Includes cleaning, bleach and other home
care products, professional products, and water filtration
products marketed in the United States and Canada.
U. S. Specialty Products: Includes charcoal, automotive care,
cat litter, insecticides, dressings, sauces, and 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.
Earnings
Net Sales Before Income Taxes
--------------------- -------------------------
Three Months Ended Three Months Ended
--------------------- -------------------------
9/30/99 9/30/98 9/30/99 9/30/98
--------- --------- ---------- ----------
Household Products $ 401 $ 415 $ 132 $ 136U.S. Specialty
Products 404 409 97 101
International 137 141 13 9Corporate, Interest
and Other - - (105) (88)
--------- --------- ---------- ----------
Total Company $ 942 $ 965 $ 137 $ 158
========= ========= ========== ==========
(7) In September 1999, in response to recent declines in the
Company's stock price, the Board of Directors authorized a
common stock repurchase 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 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. Additionally, on September 15, 1999, the
Company closed share repurchase agreements and options
contracts realizing cash proceeds of approximately $82.
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.
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, 1999
with the Three Months Ended September 30, 1998
Diluted earnings per share decreased 14% to 36 cents from 42 cents
a year ago and net earnings declined 13% to $87 million from $100
million a year ago. 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 decreased 2% to $942 million. The decline resulted
primarily from lower household products shipments which in the prior
year were buoyed by the extraordinary success achieved from launching
Tilex Fresh Shower and Pine Sol cleaners, and an increase in
international promotional activities in the current period. These
declines are partially offset by the recent introduction of new
products such as Clorox Disinfecting Spray, Liquid-Plumr Foaming Pipe
Snake, Clorox FreshCare fabric refresher, and Clorox Advantage
bleach, strong volume performance from the Company's charcoal
business, increased volumes from the Korean Homekeeper
insecticide business acquired in calendar year 1998, and growth
in Australia and New Zealand.
Cost of products sold as a percentage of sales increased to
49.0% as compared to 47.5% in the year ago period due to higher
resin prices. The Company was able to somewhat soften the
impact of higher resin prices through its domestic and international
cost savings initiatives.
Selling, delivery and administrative expenses decreased
approximately 5% from the prior year period, reflecting a savings
on both domestic and international commission expense mostly due
to the consolidation of the Company's broker network, and a
reduction in headcount due to the combination of the Clorox and
First Brands headquarters in Oakland, California.
Advertising expense was virtually unchanged from the year ago
period. Increased media spending to support First Brands'
businesses and the recent introduction of new products was offset
by savings from changing certain First Brands couponing practices.
Merger, integration and restructuring of approximately $2 million
primarily reflect relocation expenses and retention bonuses paid
to former First Brands employees. The Company expects to incur
an additional $20 million over the remainder of the fiscal year
and such costs will be recognized and reported as merger and
restructuring costs as incurred.
Interest expense decreased from the prior year due to the
refinancing of former First Brands debt at lower interest rates
made possible by Clorox's more favorable credit rating.
Other expense, net increased approximately $5 million versus the
year ago period primarily due to lower interest and equity income.
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. The
declines in accounts receivable, accounts payable and accrued
liabilities from June 30, 1999 are partly reflective of lower
volumes as well as normal seasonality experienced by some of
the Company's businesses.
In September 1999, in response to recent declines in the Company's
stock price, the Board of Directors authorized a common stock
repurchase 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 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.
Additionally, on September 15, 1999, the Company terminated existing
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.
Management believes the Company has access to additional capital
through existing lines of credit and from public and private
sources should the need arise.
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 may not 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 issue is commonly referred to as the "Year 2000"
or "Y2K" problem.
In 1997, the Company established a comprehensive corporatewide
program to address Y2K issues. This effort 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. Following the
Company's January 29, 1999 merger with First Brands, the Company
has incorporated First Brands (since renamed The Glad Products Company)
and its subsidiaries into the Company's comprehensive Y2K compliance
program.
As of September 30, 1999, the Company has completed all of its
Y2K
compliance efforts on all of its critical United States and Canadian
business systems through retirement, upgrades or replacements, and
has century certified these systems through testing. The upgrade
or replacement of the Company's critical international systems is 95%
complete as of September 30, 1999. The target to complete all
remaining key international Y2K work is during the fourth calendar
quarter. The Company has completed all of its compliance efforts
for critical plant floor equipment, instrumentation and facilities
and its third party assessment for all of its operations. The Company
has also requested a Y2K contract warranty in many new key contracts.
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
business, financial condition and 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
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
mitigate this risk, and to address the possible uncertainty of
whether the Company has solved all potential Y2K issues, the
Company has developed contingency plans for its critical
operations and third party relationships, including key
customers, suppliers and other service providers. The Company
has completed all of its written contingency plans, except for
its international operations which are scheduled to be finalized
during the fourth calendar quarter. During the final quarter
of calendar year 1999, the Company will implement many of the
details of the documented contingency plans, such as testing
and execution of contingency plans, and establishing a command
center to monitor activities, resolve issues and communicate
status information as the Company enters the new year.
Y2K costs are expensed as incurred and funded through operating
cash flows. Through September 30, 1999, the Company has expensed
incremental remediation costs of $19.6 million with remaining
incremental remediation costs estimated at $2.8 million. In
addition, through September 30, 1999, the Company has expensed
accelerated strategic upgrade costs of $18.7 million with
anticipated remaining accelerated strategic upgrade costs of
$0.8 million. The Company spent approximately 6.4% of its 1999
fiscal year information technology budget, and expects to spend
approximately 3.6% of its fiscal year 2000 budget, on Y2K
remediation issues. The Company has not deferred any critical
information technology projects because of its Year 2000 program
efforts, which are primarily being addressed through a joint team
of the Company's business and information technology resources.
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. Given the
inherent risks and required resources for a project of this
magnitude, the timing and costs involved could differ materially
from those anticipated by the Company. There can be no assurance
that the Y2K program will be completed on schedule or within budget.
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, 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, 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.
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 November 9, 1999 BY /s/ GREGORY S. FRANK
Gregory S. Frank
Vice-President - Controller
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF THE CLOROX COMPANY FOR THE FISCAL QUARTER ENDED SEPTEMBER 30,
1998, AS PRESENTED IN THE CLOROX COMPANY'S FROM 10-Q FILED FOR SUCH PERIOD, AND
AS RESTATED HEREIN, AND IS INCORPORATED BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF THE CLOROX COMPANY FOR THE FISCAL QUARTER ENDED SEPTEMBER 30,
1999, AS PRESENTED IN THE CLOROX COMPANY'S FORM 10-Q FILED FOR SUCH PERIOS, AND
IS INCORPORATED BY ITS REFERENCE TO SUCH FINANCIAL STATEMENTS.