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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Clorox Company  

Years Ended June 30, 2002, 2001 and 2000

(Millions of Dollars, Except Share and Per-Share Amounts)

1. Significant Accounting Policies

NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION

The Company is principally engaged in the production and marketing of nondurable consumer products through grocery stores, mass merchandisers and other retail outlets. The consolidated financial statements include the statements of the Company and its majority-owned and controlled subsidiaries. Minority investments in foreign entities are accounted for under the equity method, the most significant of which is an equity investment in Henkel Iberica, S.A. of Spain. All significant intercompany transactions and accounts are eliminated in consolidation.

USE OF ESTIMATES

The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures. Specific areas, among others, requiring the application of management’s estimates and judgment include assumptions pertaining to credit worthiness of customers, future product volume and pricing estimates, accruals for coupon and promotion programs, foreign currency exchange rates, interest rates, discount rates, useful lives of assets, future cost trends, investment returns, tax strategies and other external market and economic conditions. Actual results could differ from estimates and assumptions made.

NEW ACCOUNTING STANDARDS

As of July 1, 2001, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires all business combinations entered into after June 30, 2001 to be accounted for under the purchase method. SFAS No. 142 sets forth new financial accounting and reporting standards for the acquisition of intangible assets, other than those acquired in a business combination, and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be reported separately from other identifiable intangible assets and no longer amortized but tested for impairment on an annual basis. The Company’s policy is to separately identify, value, and determine the useful lives for all intangible assets acquired in acquisitions occurring after June 30, 2001. Those assets with a definite life shall be amortized over such periods, and those with indefinite lives shall not be amortized, but tested for impairment. The annual impairment tests will be performed at the same time each year unless events suggest an impairment may have occurred in the interim. The Company tests for impairment by comparing the carrying value with the fair value of each reporting unit. An impairment loss is recorded for the excess of the carrying value over the fair value of the goodwill, trademarks and other intangible assets. In connection with the transition provisions for adopting this standard, the Company performed a transitional impairment test and found no impairment, and reviewed the classification of its intangible assets. Amounts determined to be other than goodwill were reallocated as of July 1, 2001. Approximately $301 was assigned to trademarks not subject to amortization and $23 to other intangible assets subject to amortization.

In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill and indefinite-lived trademarks effective July 1, 2001. The financial statement impact was to reduce amortization expense by $47 and increase net earnings by $34 (net of tax benefits of $13), or $0.14 per diluted share for the year ended June 30, 2002 compared to June 30, 2001.

A reconciliation of previously reported net earnings and earnings per share to the amounts adjusted to exclude goodwill and indefinite-lived trademarks amortization, net of the related income tax effect, follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended June 30

 

 


 

 

2002

 

2001

 

2000

 

 


 


 


Reported net earnings

 

$

322

 

 

$

323

 

 

$

394

 

 

Add: Goodwill and indefinite-lived trademarks amortization, net of tax benefits

 

 

 

 

 

34

 

 

 

31

 

 

 

 


 

 

 


 

 

 


 

Adjusted net earnings

 

$

322

 

 

$

357

 

 

$

425

 

 

 

 


 

 

 


 

 

 


 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Reported net earnings

 

$

1.39

 

 

$

1.37

 

 

$

1.67

 

 

Add: Goodwill and indefinite-lived trademarks amortization, net of tax benefits

 

 

 

 

 

0.14

 

 

 

0.13

 

 

 

 


 

 

 


 

 

 


 

Adjusted net earnings

 

$

1.39

 

 

$

1.51

 

 

$

1.80

 

 

 

 


 

 

 


 

 

 


 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Reported net earnings

 

$

1.37

 

 

$

1.35

 

 

$

1.64

 

 

Add: Goodwill and indefinite-lived trademarks amortization, net of tax benefits

 

 

 

 

 

0.14

 

 

 

0.13

 

 

 

 


 

 

 


 

 

 


 

Adjusted net earnings

 

$

1.37

 

 

$

1.49

 

 

$

1.77

 

 

 

 


 

 

 


 

 

 


 

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting requirements for retirement obligations associated with tangible long-lived assets. SFAS No. 143 is effective for fiscal year 2003. The Company is evaluating what impact, if any, SFAS No. 143 may have on its consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” that replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying value or fair value less costs to sell, whether reported in continuing operations or in discontinued operations. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet been incurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS No. 144 are effective for fiscal year 2003 and are to be applied prospectively.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (“EITF”) Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring activities, if any, initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of the Company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized.

CASH AND CASH EQUIVALENTS

Cash equivalents consist of money market and other high quality instruments with an initial maturity of three months or less. Such investments are stated at cost, which approximates market value.

INVENTORIES

Inventories are stated at the lower of cost or market (net realizable value). Cost for the majority of the domestic inventories, approximately 41% and 35% of inventories at June 30, 2002 and 2001, respectively, is determined on the last-in, first-out (LIFO) method. The cost method for all other inventories, including inventories of all international businesses, is determined on the first-in, first-out (FIFO) method. When necessary, the Company provides allowances to adjust the carrying value of its inventory to the lower of cost or net realizable value, including any costs to sell or dispose. Appropriate consideration is given to obsolescence, excessive inventory levels, product deterioration and other factors in evaluating net realizable value.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is calculated by the straight-line method over estimated useful lives generally ranging from 3-40 years. Property, plant and equipment is reviewed periodically for possible impairment in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets to be Disposed Of.” The Company’s impairment review is based on an undiscounted cash flow analysis of assets at the lowest level for which identifiable cash flows exist. Impairment occurs when the carrying value of the asset exceeds the future undiscounted cash flows and the impairment is viewed as other than temporary. When an impairment is indicated, the future cash flows are then discounted to determine the estimated fair value of the asset and an impairment charge is recorded for the difference between the carrying value and the net present value of future cash flows.

CAPITALIZED SOFTWARE COSTS

The Company follows the accounting guidance as specified in Statement of Position (SOP) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”. The Company capitalizes significant costs incurred in the acquisition or development of software for internal use, including the costs of the software, materials, consultants, interest and payroll and payroll-related costs for employees incurred in developing internal-use computer software once final selection of the software is made. Costs incurred prior to the final selection of software and costs not qualifying for capitalization are charged to expense. Capitalized software amortization expense was $18, $18, and $13, in fiscal years 2002, 2001 and 2000, respectively. The net book value of capitalized software costs included in other assets at June 30, 2002 and 2001 was $102 and $59, respectively.

EMPLOYEE BENEFITS

The Company has qualified and non-qualified defined benefit plans that cover substantially all of the Company’s domestic employees and certain of its international employees. The Company follows the accounting guidance as specified in SFAS No. 87, “Employers Accounting for Pensions,” for the recognition of net periodic pension cost. (See Note 17).

The Company provides certain health care benefits for employees who meet age, participation and length of service requirements at retirement. The Company follows the accounting guidance as specified in SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pension,” for the recognition of postretirement benefits. (See Note 17).

The Company provides for medical, dental, vision, life and other benefits to its employees. The Company accrues for estimated claims incurred but not reported based on estimates provided by its actuaries.

The Company follows the accounting guidance as specified in SFAS No. 112, “Employers Accounting for Postemployment Benefits”, for the recognition of certain disability benefits.

The Company has various incentive compensation programs, including a performance unit program and The Clorox Company Retirement Investment Plan (ERIP). Certain payments or contributions under these programs are subject to the Company achieving certain performance targets. The Company reviews these performance targets on a periodic basis and accrues for incentive compensation costs accordingly.

ENVIRONMENTAL COSTS

The Company is involved in various environmental remediation and on-going compliance activities. As sites are identified and assessed, the Company determines its potential environmental liability. The Company follows the accounting guidance as specified in SOP 96-1, “Environmental Remediation Liabilities”. Based on engineering studies and management judgment, the Company has estimated and accrued for future remediation and on-going monitoring costs on an undiscounted basis, and environmental expenditures are included in other expense, net.

RESTRUCTURING LIABILITIES

The Company follows the guidance of Emerging Issues Tasks Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring),” for recognition of liabilities and expenses associated with exit and disposal costs when facilities are partially or completely closed. Employee termination and severance costs are recognized at the time the group impacted has been notified. Other qualified exit and disposal costs are recognized at the time a plan has been approved by management.

REVENUE RECOGNITION

Customer sales are recognized as revenue when the risk of loss and title pass to the customer, generally at the time of shipment. Customer sales are recorded net of allowances for damaged goods returns, trade promotions, coupons and other discounts, which are recognized as a deduction from sales at the time of sale.

The Company routinely commits to one-time or on-going trade promotion and coupon programs with customers that require the Company to estimate and accrue the ultimate costs of such programs. The Company records an accrual at the end of each period for the earned, but unpaid costs related to the programs. Trade promotion and coupon costs are recorded as a deduction from sales. The Company also provides for an allowance for estimated damaged goods returns, which is recognized as a deduction from sales at the time of sale.

The Company provides for an allowance for doubtful accounts based on historical experience and a review of its receivables. Receivables are presented net of an allowance for doubtful accounts of $15 at both June 30, 2002 and 2001. The Company’s provision for doubtful accounts and deductions for charge-offs of receivables were $11 and $6, respectively, in fiscal year 2002, $5 and $3, respectively, in fiscal year 2001, and $8 and $5, respectively, in fiscal year 2000.

ADVERTISING

The Company expenses advertising costs in the year incurred.

INCOME TAXES

The Company uses the asset and liability method to account for income taxes, including recognition of deferred tax assets included in other current assets and liabilities for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax bases. Income tax expense is recognized currently for taxes payable on remittances of foreign earnings, while no provision for expense is made for taxes on foreign earnings that are deemed to be permanently reinvested. The Company reviews its deferred tax assets for recovery. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change. (See Note 16).

FOREIGN CURRENCY TRANSLATION

Local currencies are the functional currencies for most of the Company’s foreign operations. Assets and liabilities are translated using the exchange rates in effect at the balance sheet date. Income and expenses are translated at the average exchange rates during the year. Translation gains and losses not reflected in earnings are reported in accumulated other comprehensive net losses in stockholders’ equity. Deferred taxes are not provided on translation gains and losses where the Company expects earnings of a foreign subsidiary to be permanently reinvested. During fiscal year 2002, the Company has determined that, at this time, foreign earnings from certain countries and joint ventures are no longer permanently reinvested and, therefore, the income tax effects of $119 have been recorded to other assets with an offset to accumulated other comprehensive net losses. Transaction gains and losses where the U.S. dollar is the functional currency are included in other expense (income), net.

EARNINGS PER COMMON SHARE

Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding each period. Diluted earnings per share is computed by dividing net earnings by the diluted weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution from common shares issuable through stock options, restricted stock and share repurchase contracts.

DERIVATIVE INSTRUMENTS

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.” SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The effect of this new standard was a reduction of fiscal year 2001 net earnings of $2 (net of tax benefit of $1), which was recognized as a cumulative effect of a change in accounting principle and an increase in fiscal year 2001 accumulated other comprehensive income of $10 (net of tax benefit of $7). The ongoing effects are dependent on future market conditions and the Company’s hedging activities.

The use of derivative instruments, principally swap, forward and option contracts, is limited to non-trading purposes and includes management of interest rate movements, foreign currency exposure and commodity exposure. Most interest rate swaps and commodity purchase and foreign exchange contracts are designated as fair-value or cash-flow hedges of fixed and variable rate debt obligations, raw material purchase obligations, or foreign currency denominated debt instruments, based on certain hedge criteria. The criteria used to determine if hedge accounting treatment is appropriate are (a) the designation of the hedge to an underlying exposure, (b) whether or not overall risk is being reduced and (c) if there is correlation between the value of the derivative instrument and the underlying obligation. Changes in the fair value of such derivatives are recorded as either assets or liabilities in the balance sheet with an offset to current earnings or other comprehensive income, depending on whether the derivative is designated as a hedge transaction and the type of hedge transaction. For fair-value hedge transactions, changes in fair value of the derivative and changes in the fair value of the item being hedged are recorded in earnings. For cash-flow hedge transactions, changes in fair value of derivatives are reported as other comprehensive income and are recognized into earnings in the period or periods during which the hedge transaction effects earnings. The Company also has contracts with no hedging designations. At June 30, 2002 and 2001, the Company held a written put option contract for the purchase of resin that does not qualify for hedge accounting treatment. Additionally, in fiscal year 2002, the Company elected to discontinue hedge accounting treatment for its foreign exchange contracts that are considered immaterial. The financial statement impact of this change to the Company’s consolidated statement of earnings and balance sheet as of and for the fiscal year ended June 30, 2002 is insignificant. These contracts are accounted for by adjusting the carrying amount of the contracts to market and recognizing any gain or loss in other expense (income), net.

The Company uses several different methodologies to estimate the fair value of its derivative contracts. The estimated fair values of the Company’s interest rate swaps, certain commodity derivative contracts and foreign exchange contracts are based on quoted market prices, traded exchange market prices or broker quotes and represent the estimated amounts that the Company would pay or receive to terminate the contracts. The estimated fair values of the Company’s resin commodity contracts were previously determined using valuation models, including a Black-Scholes model for the written option, with forward resin market price curves provided by market makers. Starting in fiscal year 2002, the Company is using forward resin market price curves provided by other external sources because of a lack of available market quotations. Factors used to determine the fair value of the resin forward curve are based on resin market information, which considers many economic factors, including technology, labor, material and capital costs, capacity, world supply and demand.

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 whereby the options are granted at market price, and therefore no compensation costs are recognized. Compensation cost for stock options, if any, would be measured as the excess of the quoted market price of the Company’s stock at the date of grant over the amount an employee must pay to acquire the stock. Restricted stock awards are recorded as compensation cost over the requisite vesting periods based on the market value on the date of grant. Unearned compensation cost on restricted stock awards is shown as a reduction to stockholder’s equity. SFAS No. 123, “Accounting for Stock-Based Compensation,” established accounting and disclosure requirements using a fair-value based method of accounting for stock-based employee compensation plans. The Company has elected to retain its current method of accounting as described above and has adopted the disclosure requirements of SFAS No. 123. (See Note 13).

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation, including the reclassification of income related to the Company’s low income housing partnerships to income tax expense, previously reported as a part of other income, to conform to the current year’s presentation.

2. Merger, Restructuring and Asset Impairment

Merger, restructuring and asset impairment charges were $241, $59 and $36 in fiscal years 2002, 2001 and 2000, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

2000

 

 


 


 


Restructuring:

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance costs

 

$

23

 

 

$

1

 

 

$

5

 

 

Plant closure costs and other

 

 

9

 

 

 

3

 

 

 

6

 

 

 

 


 

 

 


 

 

 


 

 

 

Total restructuring

 

 

32

 

 

 

4

 

 

 

11

 

 

 

 


 

 

 


 

 

 


 

Asset impairment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill and other intangibles (including deferred translation and deferred charges)

 

 

196

 

 

 

8

 

 

 

7

 

 

Machinery and equipment

 

 

13

 

 

 

47

 

 

 

1

 

 

 

 


 

 

 


 

 

 


 

 

 

Total asset impairment

 

 

209

 

 

 

55

 

 

 

8

 

Merger costs

 

 

 

 

 

 

 

 

17

 

 

 

 


 

 

 


 

 

 


 

 

 

Total expense

 

$

241

 

 

$

59

 

 

$

36

 

 

 

 


 

 

 


 

 

 


 

Accrued restructuring at beginning of year

 

$

11

 

 

$

16

 

 

$

23

 

Payments

 

 

(29

)

 

 

(9

)

 

 

(35

)

Restructuring expense and merger costs, net

 

 

32

 

 

 

4

 

 

 

28

 

 

 

 


 

 

 


 

 

 


 

Accrued restructuring at end of year

 

$

14

 

 

$

11

 

 

$

16

 

 

 

 


 

 

 


 

 

 


 

During fiscal year 2002, the Company recorded $196 for the impairment of goodwill and trademarks associated with its businesses in Argentina, Brazil and Colombia. Other charges include severance related to the elimination of 369 positions in the Company’s Latin America division and approximately 260 positions from the Company’s U.S. divisions, the write-off of equipment and the closure of certain plants.

The $59 of merger, restructuring and asset impairment charges in fiscal year 2001 relates primarily to the obsolete equipment that was written off due to changes in technology, elimination of redundancies and discontinued product lines. The Company also closed its cat litter manufacturing plant in Wrens, Georgia during fiscal year 2001.

The $36 of merger, restructuring and asset impairment charges in fiscal year 2000 is primarily composed of First Brands merger-related costs and charges associated with the restructuring of the Company’s Asia operations.

3. Businesses Sold and Acquired

The aggregate sales price and estimated net pre-tax gain (included in other income) on the sale of the Maxforce professional insecticides business and the Himolene industrial trash can liner business were $65 and $33, respectively, for the fiscal year ended 2002. The aggregate sales price of the firelogs business was $2 in fiscal year 2001, with no gain or loss recognized on the sale.

Acquisitions in fiscal year 2001 totaled $126. These acquisitions included the purchase for $122 (or $116, net of cash acquired) from Brita GmbH of the rights to the Brita trademark and other intellectual property in North and South America, an increase in the Company’s ownership from 50% to 100% in Brita Limited and Brita South America Inc. and certain other net assets. The Company also increased its ownership to 100% in its two joint ventures in Costa Rica, previously 49% and 51% owned. The investments in Brita Limited, Brita South America Inc. and Costa Rica were previously accounted for under the equity method of accounting

and are fully consolidated from the date of acquisition. Net assets acquired included net working capital assets of $11, property, plant and equipment of $9, goodwill of $11 and trademarks and other intangible assets of $110 to be amortized over estimated lives of ten years, less the additional investment to acquire the remaining interest for $15. Because the Company previously owned 50% to 51% in these equity investments, only the incremental equity and its underlying net book value of the net assets were adjusted to their fair value.

Acquisitions in fiscal year 2000 totaled $120. These acquisitions included the Bon Bril cleaning utensils business in Colombia, Venezuela and Peru, the Agrocom S.A. distribution business in Argentina, an increase in ownership to 100% in Clorox de Colombia S.A. (formerly Tecnoclor, S.A. and previously 72% owned), and the Astra rubber glove business purchased in Australia. Net assets, acquired at fair value, included net working capital assets of $6, property, plant and equipment of $12, goodwill of $24 and trademarks and other intangible assets of $70 to be amortized over estimated lives of five years. In addition, approximately $8 was paid to acquire minority interests in Clorox de Colombia S.A.

Operating results of acquired businesses are included in the consolidated net earnings from the date of acquisition. All acquisitions were funded from cash provided by operations or debt. In any year presented, the operating results of businesses acquired were not significant to the consolidated results.

4. Inventories

Inventories at June 30 are comprised of the following:

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


Finished goods and work in process

 

$

194

 

 

$

219

 

Raw materials and packaging

 

 

87

 

 

 

122

 

LIFO allowances

 

 

(11

)

 

 

(11

)

Allowances for obsolescence

 

 

(12

)

 

 

(49

)

 

 

 


 

 

 


 

Total

 

$

258

 

 

$

281

 

 

 

 


 

 

 


 

The LIFO method was used to value approximately 41% of inventories at June 30, 2002, and 35% at June 30, 2001. If the cost of LIFO inventories had been determined using the FIFO method, inventory amounts would have increased by approximately $11 at June 30, 2002 and 2001. The effect on earnings of the liquidation of any LIFO layers was not material for fiscal years ended June 30, 2002, 2001 and 2000.

Inventories at June 30 are presented net of an allowance for inventory obsolescence as follows:

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


Allowance for inventory obsolescence at beginning of year

 

$

(49

)

 

$

(15

)

Provision for inventory obsolescence

 

 

(15

)

 

 

(54

)

Deductions for inventory write-offs

 

 

52

 

 

 

20

 

 

 

 


 

 

 


 

Allowance for inventory obsolescence at end of year

 

$

(12

)

 

$

(49

)

 

 

 


 

 

 


 

Provision for inventory obsolescence totaling $15, $54 and $15 was charged to cost of products sold during the fiscal years ended June 30, 2002, 2001 and 2000 respectively, and included charges of $39 in fiscal year 2001 that were related primarily to discontinued products, packaging, and unsuccessful product launches.

5. Property, Plant and Equipment

The components of property, plant and equipment at June 30 are as follows:

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


Land and improvements

 

$

97

 

 

$

93

 

Buildings

 

 

459

 

 

 

448

 

Machinery and equipment

 

 

1,173

 

 

 

1,256

 

Computer hardware

 

 

100

 

 

 

77

 

Construction in progress and other

 

 

41

 

 

 

97

 

 

 

 


 

 

 


 

 

 

 

1,870

 

 

 

1,971

 

Less accumulated depreciation

 

 

(948

)

 

 

(925

)

 

 

 


 

 

 


 

Net

 

$

922

 

 

$

1,046

 

 

 

 


 

 

 


 

Depreciation expense was $147, $134 and $121 in fiscal years 2002, 2001 and 2000, respectively.

6. Goodwill, Trademarks and Other Intangible Assets

Changes in the carrying amount of goodwill for the years ended June 30, 2002 and 2001 by operating segment are summarized below. Goodwill is net of accumulated amortization of $365 at June 30, 2001.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Household Products

 

 

 

 

 

 

 

 


 

 

 

Corporate

 

 

 

 

North

 

Latin America

 

Specialty

 

Interest

 

 

 

 

America

 

and Other

 

Products

 

and Other

 

Total

 

 


 


 


 


 


Balance as of June 30, 2000

 

$

369

 

 

$

415

 

 

$

408

 

 

$

77

 

 

$

1,269

 

Amortization

 

 

(12

)

 

 

(15

)

 

 

(11

)

 

 

(1

)

 

 

(39

)

Acquisitions

 

 

5

 

 

 

10

 

 

 

 

 

 

 

 

 

15

 

Asset impairment

 

 

 

 

 

(2

)

 

 

(4

)

 

 

 

 

 

(6

)

Translation adjustments and other

 

 

2

 

 

 

(13

)

 

 

2

 

 

 

 

 

 

(9

)

Reallocated to trademarks and other intangible assets

 

 

(243

)

 

 

(54

)

 

 

(20

)

 

 

(7

)

 

 

(324

)

 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

Balance as of June 30, 2001

 

 

121

 

 

 

341

 

 

 

375

 

 

 

69

 

 

 

906

 

Asset impairment

 

 

 

 

 

(63

)

 

 

 

 

 

 

 

 

(63

)

Translation adjustments and other

 

 

(2

)

 

 

(108

)

 

 

(5

)

 

 

 

 

 

(115

)

 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

Balance as of June 30, 2002

 

$

119

 

 

$

170

 

 

$

370

 

 

$

69

 

 

$

728

 

 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

Changes in trademarks and other intangible assets for the years ended June 30, 2002 and 2001 are summarized below. Trademarks and other intangible assets subject to amortization are net of accumulated amortization of $123 and $111 at June 30, 2002 and 2001, respectively. Trademarks not subject to amortization are net of accumulated amortization of $139 at June 30, 2001. Estimated amortization expense of trademarks and other intangible assets for each of the fiscal years 2003, 2004, 2005, 2006 and 2007 is $11, $8, $4, $3 and $3, respectively. Trademarks and other intangible assets are amortized over lives ranging from 5 to 40 years.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks and other intangible assets

 

 

 

 

 

 

subject to amortization

 

Trademarks

 

 

 

 


 

not subject to

 

 

 

 

Patents

 

Technology

 

Other

 

Sub-Total

 

amortization

 

Total

 

 


 


 


 


 


 


Net balance as of June 30, 2000

 

$

19

 

 

$

4

 

 

$

47

 

 

$

70

 

 

$

197

 

 

$

267

 

Acquisitions

 

 

 

 

 

13

 

 

 

 

 

 

13

 

 

 

93

 

 

 

106

 

Asset impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Amortization

 

 

(6

)

 

 

(2

)

 

 

(5

)

 

 

(13

)

 

 

(8

)

 

 

(21

)

Translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

(6

)

Reallocation from goodwill

 

 

 

 

 

 

 

 

23

 

 

 

23

 

 

 

301

 

 

 

324

 

 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

Net balance as of June 30, 2001

 

 

13

 

 

 

15

 

 

 

65

 

 

 

93

 

 

 

575

 

 

 

668

 

Asset impairment

 

 

 

 

 

 

 

 

(8

)

 

 

(8

)

 

 

(27

)

 

 

(35

)

Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

(6

)

Translation adjustment

 

 

 

 

 

 

 

 

(19

)

 

 

(19

)

 

 

(23

)

 

 

(42

)

Amortization

 

 

(5

)

 

 

(2

)

 

 

(5

)

 

 

(12

)

 

 

 

 

 

(12

)

 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

Net balance as of June 30, 2002

 

$

8

 

 

$

13

 

 

$

33

 

 

$

54

 

 

$

519

 

 

$

573

 

 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

During fiscal year 2002, the Company undertook a review of its domestic and international operations for impairment. The Company’s impairment review and methodology is based on internal valuations using a discounted cash flow approach that requires significant management judgment with respect to future volume, revenue and expense growth rates, changes in working capital use, foreign exchange rates, devaluation, inflation and the selection of an appropriate discount rate. Based on this review, the Company concluded that the goodwill, trademarks and other intangible assets associated with its domestic operations were not impaired but that certain international assets were impaired. The Company has recognized a pre-tax charge of $196 for the year ended June 30, 2002, to write-down goodwill and trademarks associated with its businesses in Argentina, Brazil and Colombia. A reassessment of the Company’s Brazilian strategy due to termination of a pending acquisition and a weakening economy, resulted in the recognition of an impairment loss of $57 for the year ended June 30, 2002, of which $34 was recorded to goodwill, $7 to deferred charges and $16 as a reduction in deferred translation. The Company recognized a pre-tax impairment loss of $39 in the year ended June 30, 2002 related to its Colombian business due to a weakening market and poor economic conditions in that country, of which $8 was recorded to goodwill, $22 to trademarks, and $9 as a reduction in deferred translation. The Company also recognized a pre-tax impairment loss of $100 for the year ended June 30, 2002 related to its Argentina business due to significant currency devaluations, a weakening market and poor economic conditions, of which $21 was recorded to goodwill, $13 to trademarks, and $66 as a reduction in deferred translation. The fair values were determined using the discounted present values of estimated future cash flows.

7. Other Assets

Other assets at June 30 are comprised of the following:

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


Tax effect of deferred translation

 

$

119

 

 

$

 

Deferred software costs, net

 

 

102

 

 

 

59

 

Equity investments in:

 

 

 

 

 

 

 

 

 

Henkel Iberica, S.A. of Spain

 

 

65

 

 

 

46

 

 

Other

 

 

39

 

 

 

44

 

Investment in low income housing partnerships

 

 

44

 

 

 

43

 

Investment fund

 

 

15

 

 

 

19

 

Qualified retirement income plans

 

 

 

 

 

23

 

Other

 

 

21

 

 

 

38

 

 

 

 


 

 

 


 

Total

 

$

405

 

 

$

272

 

 

 

 


 

 

 


 

TAX EFFECT OF DEFERRED TRANSLATION

At June 30, 2002, the tax effect associated with deferred currency translation adjustments of $119 for the Company’s foreign subsidiary and equity investments, is included in other assets with an offset to accumulated other comprehensive net losses. The income tax effects on other comprehensive income are not provided when foreign earnings are deemed to be permanently reinvested. During fiscal year 2002, the Company has determined that foreign earnings from certain countries and joint ventures are no longer permanently reinvested.

LOW INCOME HOUSING

The Company is a 99% limited partner in low income housing partnerships, which are accounted for on an equity basis. The purpose of the partnerships is to develop low-income housing rental properties. The Company’s estimated future contributions are approximately $23, $11, $7, $4, $2 and $4 in fiscal years 2003, 2004, 2005, 2006, 2007 and thereafter, respectively. These partnerships also generate tax credits that reduce the Company’s federal income tax liability. Tax credits net of amortization of the investment in the low income housing partnerships were $11 in both fiscal years 2002 and 2001 and $12 in fiscal year 2000. Other than the expected tax credits, the Company does not anticipate any cash distributions from these partnerships.

INVESTMENT FUND

The Company is a 99% limited partner in an investment fund with a $15 and $19 interest at June 30, 2002 and 2001, respectively, which is accounted for on an equity basis. The Company invested in the fund, as a more cost-effective alternative to traditional hedging strategies, to help manage a portion of its emerging markets foreign exchange and economic investment risk. The fund invests in financial instruments such as foreign currency options and foreign currency and interest rate swap agreements. The general partner, an unrelated party, manages the investment fund. The fund’s assets and liabilities are transacted primarily with two counter-parties. The assets in the investment fund carry a tax basis significantly in excess of book basis. The Company does not control the investment decisions of the fund, and therefore the amounts and timing of any realization of such tax basis is uncertain. The Company’s risk of loss is limited to the amount of its investment and it has no ongoing capital commitments, loan requirements, guarantees or any other types of arrangements with the fund or its general partner that would require any future cash contributions to the fund.

At June 30, 2002 and 2001, the investment fund consisted, at estimated fair value, of assets of $109 and $95, respectively, and liabilities of $94 and $76, respectively. Mark-to-market losses were $4 for the year ended June 30, 2002 and were insignificant for the years ended June 30, 2001 and 2000.

The fund’s financial instruments are measured and recorded at their estimated fair values based on prices obtained from securities exchanges or over-the-counter markets, quotations from brokers, or estimates of fair value when market quotations are not readily available. When market quotations are not readily available, such estimates are based on counter-party quotes and pricing models utilizing quoted values. Because of the inherent uncertainty of valuing these investments, the estimate of fair value may differ from the values that would have been used had a ready market existed and the differences could be material.

The fund’s liabilities primarily include non-recourse Euro denominated loans secured by the Euro denominated options. The loans are carried at face value plus accrued interest payable. The loans have an open maturity date and could be terminated by both parties at any time. The interest rates for the loans are based on three-month Euribor plus 0.25%.

8. Accrued Liabilities

Accrued liabilities at June 30 consist of the following:

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


Sales promotion costs

 

$

140

 

 

$

123

 

Taxes other than income

 

 

175

 

 

 

173

 

Compensation and employee benefit costs

 

 

90

 

 

 

40

 

Other

 

 

106

 

 

 

100

 

 

 

 


 

 

 


 

Total

 

$

511

 

 

$

436

 

 

 

 


 

 

 


 

9. Debt

Notes and loans payable, which mature in less than one year include the following at June 30:

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


Canadian dollar-denominated commercial paper

 

$

163

 

 

$

105

 

U.S. dollar-commercial paper

 

 

158

 

 

 

 

Notes payable

 

 

9

 

 

 

12

 

 

 

 


 

 

 


 

Total

 

$

330

 

 

$

117

 

 

 

 


 

 

 


 

At June 30, 2002 and 2001 the Company had $163 and $105, respectively, of Canadian dollar-denominated commercial paper that was fully hedged by a forward currency contract. The terms of the forward currency contract match the terms of the underlying commercial paper.

The weighted average interest rate for notes and loans payable was 2.8%, 6.1% and 6.4% for fiscal years 2002, 2001 and 2000, respectively. The carrying value of notes and loans payable at June 30, 2002 and 2001 approximates the fair value of such debt.

Long-term debt at June 30 includes the following:

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


Senior unsecured notes and debentures:

 

 

 

 

 

 

 

 

 

6.125%, $300 due February 2011

 

$

314

 

 

$

301

 

 

8.8%, $200 due July 2001

 

 

 

 

 

200

 

 

7.25%, $150 due March 2007

 

 

150

 

 

 

150

 

Preferred interest transferable securities, $200 due July 2003, with a preferred dividend rate of 4.6%

 

 

192

 

 

 

200

 

Industrial revenue bond, $13 due October 2003, interest at bond market association index, secured by manufacturing facility in Belle, Missouri

 

 

13

 

 

 

13

 

Foreign bank loans

 

 

11

 

 

 

23

 

 

 

 


 

 

 


 

Total

 

 

680

 

 

 

887

 

Less: current maturities

 

 

(2

)

 

 

(202

)

 

 

 


 

 

 


 

Long-term debt

 

$

678

 

 

$

685

 

 

 

 


 

 

 


 

The weighted average interest rate on long-term debt was 5.0%, 6.3% and 6.4% for fiscal years 2002, 2001 and 2000, respectively. The estimated fair value of long-term debt at June 30, 2002 and 2001 is $693 and $696, respectively.

At June 30, 2002 the Company had the following interest rate swaps:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate

 

 

 

 

Notional

 


 

Variable

Maturity Dates

 

Principal Amount

 

Paid

 

Received

 

Rate Index


 


 


 


 


February 2011

 

$

100

 

 

 

4.15

%

 

 

6.125

%

 

3 month LIBOR

February 2011

 

 

100

 

 

 

2.12

%

 

 

6.125

%

 

6 month LIBOR

July 2003

 

 

200

 

 

 

2.34

%

 

 

5.78

%

 

3 month LIBOR

The Company has domestic credit agreements of $550 that expire on various dates through March 2007. At June 30, 2002 there were no borrowings under any of these agreements, which are available for general corporate purposes and to support commercial paper issuance. In addition, the Company had $53 of foreign working capital credit lines and overdraft facilities at June 30, 2002, of which $33 is available for borrowing.

Certain of the Company’s unsecured notes, debentures and credit agreements contain restrictive covenants and limitations, including limitations on certain sale and leaseback transactions to the greater of $100, or 15% of the Company’s consolidated net tangible assets, as defined, and require the maintenance of a consolidated leverage ratio, as defined. The Company is in compliance with all restrictive covenants and limitations at June 30, 2002.

Debt maturities as of June 30, 2002 are $2, $207, $2, $2, $152 and $315 in fiscal years 2003, 2004, 2005, 2006, 2007 and thereafter, respectively.

10. Fair Value of Financial Instruments

The Company’s derivative financial instruments are recorded at fair value in the condensed consolidated balance sheets as assets (liabilities) at June 30 as follows:

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


Current assets:

 

 

 

 

 

 

 

 

 

Commodity purchase contracts

 

$

1

 

 

$

 

 

Foreign exchange contracts

 

 

2

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

15

 

 

 

2

 

 

Commodity purchase contracts

 

 

 

 

 

5

 

Current liabilities — foreign exchange contracts

 

 

(3

)

 

 

 

Long-term debt:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

(6

)

 

 

(7

)

 

Foreign exchange contracts

 

 

(1

)

 

 

5

 

Other long-term obligations — commodity option contracts

 

 

(9

)

 

 

(1

)

The Company utilizes derivative instruments, principally swaps, forward contracts and options to enhance its ability to manage risk, including interest rates, foreign currency fluctuations, commodity price changes and share repurchase obligations, which exist as part of its ongoing business operations. These contracts hedge transactions and balances for periods consistent with the related exposures and do not constitute investments independent of these exposures. The Company is not a party to any leveraged contracts.

The Company has policies with restrictions on the usage of derivatives, including a prohibition of the use of any leveraged instrument. Derivative contracts are entered into with several major creditworthy institutions, thereby minimizing the risk of credit loss. Exposure to counterparty credit risk is considered low because these agreements have been entered into with major credit-worthy institutions with strong credit ratings, and they are expected to perform fully under the terms of the agreements. In the normal course of business, the Company employs practices and procedures to manage its exposure to changes in interest rates, foreign currencies and commodity prices using a variety of derivative instruments.

Most interest rate swap, commodity purchase and foreign exchange contracts are designated as fair-value or cash-flow hedges of fixed and variable rate debt obligations, raw material purchase obligations, or foreign currency-denominated debt instruments. At June 30, 2002 and 2001, the Company also had certain derivative contracts with no hedging designations, including a written put option contract for the purchase of resin that does not qualify for hedge accounting treatment. These contracts are accounted for by adjusting the carrying amount of the contracts to market value, and recognizing any gain or loss in other income or expense.

Interest rate swap agreements are used to manage interest rate exposure and to achieve a desired proportion of variable and fixed rate debt. The Company also has preferred interest transferable securities, which is a Deutsche mark (DM) denominated financing arrangement. The Company manages its interest rate and DM risks through a series of swaps with notional amounts totaling $200 to eliminate foreign currency exposure risks and to effectively convert the Company’s 4.6% fixed DM obligation to a floating U.S. dollar rate of 90 day LIBOR less 133 basis points. The terms of the swap agreements match the terms of the underlying debt. The estimated amount of existing pre-tax gains for this swap agreement in accumulated other comprehensive net losses that is expected to be reclassified into earnings in fiscal year 2003 is approximately $7.

The Company uses foreign exchange contracts, including forward, swap and option contracts to hedge existing foreign exchange exposures. Foreign currency contracts require the Company, at a future date, to either buy or sell foreign currency in exchange for U.S. dollars and other currencies. Such currency contracts existed at June 30, 2002 and 2001 for Canadian dollars and certain other currencies. Contracts outstanding as of June 30, 2002 will mature over the next year.

The Company uses commodity futures contracts to fix the price on a portion of its raw material purchase requirements and swap contracts to hedge the market risk of diesel fuel included as part of carrier contracts. Contract maturities are correlated to actual purchases, and contract gains and losses are reflected as adjustments of the cost of the related item. The Company also uses swap and option contracts to fix the price and to partially stabilize the cost of its polyethylene resin requirements. These contracts cover a portion of the Company’s domestic resin requirements. The Company’s commodity contracts have varying maturities until December 2006. Considerable judgment is required in interpreting market data and developing assumptions to estimate the fair value of resin commodity contracts. Actual results could differ materially from estimates because of the volatility inherent in the resin markets where a 10% change in the forward resin market price curve would impact pre-tax expense by approximately $3 and accumulated other comprehensive net losses by approximately $7. The estimated amount of existing pre-tax net losses for commodity contracts in accumulated other comprehensive net losses that is expected to be reclassified into earnings in fiscal year 2003 is approximately $4. All hedges accorded hedge accounting treatment are considered highly effective.

The estimated notional and fair values of the Company’s derivative instruments are summarized below as of June 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


 

 

Notional

 

Fair Value

 

Notional

 

Fair Value

 

 


 


 


 


Derivative Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt-related contracts

 

$

400

 

 

$

8

 

 

$

350

 

 

$

 

 

Foreign exchange contracts

 

 

393

 

 

 

(1

)

 

 

335

 

 

 

(1

)

 

Commodity purchase contracts

 

 

90

 

 

 

1

 

 

 

126

 

 

 

5

 

 

Commodity option contracts

 

 

35

 

 

 

(9

)

 

 

46

 

 

 

(1

)

The carrying values of cash, short-term investments, accounts and notes receivable, accounts payable, forward purchase financing agreements and other derivative instruments approximate their fair values at June 30, 2002 and 2001. The Company has used market information for similar instruments and applied judgment in estimating fair values. See Note 9 for fair values of notes and loans payable and long-term debt.

11. Other Liabilities

Other liabilities consist of the following at June 30:

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


Qualified retirement income plans

 

$

43

 

 

$

2

 

Retirement healthcare costs

 

 

81

 

 

 

80

 

Non-qualified retirement income plans

 

 

25

 

 

 

20

 

Environmental costs

 

 

17

 

 

 

10

 

Other

 

 

65

 

 

 

82

 

 

 

 


 

 

 


 

Total

 

$

231

 

 

$

194

 

 

 

 


 

 

 


 

12. Stockholders’ Equity

As of December 31, 2000, the Company adopted the accounting and financial reporting standards in EITF Issue No. 00-19, “Determination of Whether Share Settlement is within the Control of the Company for Purposes of Applying EITF Issue No. 96-13, ‘Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock’ ”. The Company is using the “equity” treatment of accounting, which allows for classification of such contracts as treasury shares. At June 30, 2001, the Company had three share repurchase agreements totaling approximately $246, whereby the Company contracted for future delivery of 2,260,000 shares each on September 15, 2002 and on September 15, 2004, at a strike price of $43 per share, and for future delivery of 1,000,000 shares on November 1, 2003 at a strike price of $51.70 per share. All share repurchase contracts were settled as of June 30, 2002, including the settlement and delivery of 5,520,000 shares for $257 in fiscal year 2002 and the settlement and receipt of net cash proceeds of $76 in fiscal year 2000.

Treasury share purchases and related premiums were $412 (10,000,000 shares) in fiscal year 2002, $10 in fiscal year 2001, and $135 (or 3,123,000 shares) in fiscal year 2000. In July 2002, the Board of Directors authorized the Company to increase its previously announced share repurchase program by an additional $500. The share repurchase program was first announced in August 2001, with an authorization of $500, of which $417 of treasury share repurchases, excluding related premiums, has been spent with $83 remaining to be spent.

Accumulated other comprehensive net losses at June 30, 2002 and 2001 included cumulative translation adjustments, net of tax, of $249 and $237, respectively, estimated fair value of the Company’s derivative contracts, net of tax, of $(9) and $(5), respectively, and minimum pension liability of $68 and $3, respectively.

The Company has various employee restricted stock and performance unit programs. Compensation cost related to restricted stock programs was $5, $7 and $3, for the fiscal years ending 2002, 2001 and 2000, respectively. Compensation cost related to performance unit programs was $2 and $4 for the fiscal years ending 2001 and 2000, respectively. At June 30, 2002, the Company reviewed the vesting criteria for its performance unit programs for the Company’s officers and determined that the initial vesting criteria had not been met as of June 30, 2002 and may not be met as of June 30, 2003. As a result, the Company reversed its net accrued liability of $10 for the performance unit program, resulting in a net credit to income of $7.

13. Stock Compensation Plans

At June 30, 2002, the Company has various non-qualified stock-based compensation programs which include stock options, performance units and restricted stock awards. The Company’s various stock options plans, which include the pre-merger plans of First Brands, provide for the granting of stock options to officers, key employees and directors. The 1996 Stock Incentive Plan (“1996 Plan”) and the 1993 Directors’ Stock Option Plan are the only plans with stock option awards currently available for grant. The 1996 Plan, the 1993 Directors’ Stock Option Plan and prior plans have shares exercisable at June 30, 2002. Effective July 1, 2001, the Board authorized and reserved for issuance an additional 11.5 million common shares under the 1996 Plan. The Company is authorized to grant options for up to 25.5 million common shares under the 1996 Plan, of which 12.6 million common shares are remaining and could be granted in the future. The Company is authorized to grant options for up to 400,000 common shares under the 1993 Directors’ Stock Option Plan, of which 111,000 common shares are remaining and could be granted in the future. Options outstanding under the Company’s plans (except First Brands options which became exercisable upon the merger) have been granted at prices which are either equal to or above the market value of the stock on the date of grant, vest over a one to seven-year period, and expire no later than ten years after the grant date.

The following table gives information about the Company’s common stock that may be issued upon the exercise of options, performance units and restricted stock awards under all the Company’s existing non-qualified stock-based compensation programs at June 30, 2002:

 

 

 

 

 

Number of securities to be issued upon exercise (in thousands)

 

 

16,334

 

Weighted-average exercise price

 

$

31

 

Number of securities remaining for future issuance (in thousands)

 

 

12,757

 

The status of the Company’s stock option plans at June 30, 2002 is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

Weighted-Average

 

 

Shares

 

Exercise Price

 

 


 


 

 

(in thousands)

 

 

Outstanding at June 30, 1999

 

 

13,640

 

 

$

34

 

 

Granted

 

 

3,104

 

 

 

40

 

 

Exercised

 

 

(1,381

)

 

 

20

 

 

Cancelled

 

 

(301

)

 

 

44

 

 

 

 


 

 

 


 

Outstanding at June 30, 2000

 

 

15,062

 

 

 

36

 

 

Granted

 

 

3,077

 

 

 

36

 

 

Exercised

 

 

(1,077

)

 

 

19

 

 

Cancelled

 

 

(3,367

)

 

 

62

 

 

 

 


 

 

 


 

Outstanding at June 30, 2001

 

 

13,695

 

 

 

31

 

 

Granted

 

 

3,785

 

 

 

35

 

 

Exercised

 

 

(1,591

)

 

 

23

 

 

Cancelled

 

 

(677

)

 

 

38

 

 

 

 


 

 

 


 

Outstanding at June 30, 2002

 

 

15,212

 

 

$

33

 

 

 

 


 

 

 


 

Options exercisable at:

 

 

 

 

 

 

 

 

 

June 30, 2002

 

 

9,063

 

 

$

29

 

 

June 30, 2001

 

 

8,570

 

 

 

26

 

 

June 30, 2000

 

 

7,687

 

 

 

21

 

If compensation expense for the Company’s various stock option plans had been determined based upon fair values at the grant dates for awards under those plans in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”, then the Company’s pro-forma net earnings, basic and diluted earnings per common share would have been as follows for the fiscal years ended June 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

2000

 

 


 


 


Net earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported

 

$

322

 

 

$

323

 

 

$

394

 

 

Pro forma

 

 

296

 

 

 

286

 

 

 

373

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported

 

$

1.39

 

 

$

1.37

 

 

$

1.67

 

 

 

Pro forma

 

 

1.28

 

 

 

1.21

 

 

 

1.58

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported

 

$

1.37

 

 

$

1.35

 

 

$

1.64

 

 

 

Pro forma

 

 

1.26

 

 

 

1.19

 

 

 

1.56

 

The weighted-average fair value per share of each option granted during fiscal years 2002, 2001 and 2000, estimated as of the grant date using the Black-Scholes option pricing model, was $11.53, $12.76 and $12.43, respectively.

The following assumptions were used to estimate the fair value of fiscal year 2002, 2001 and 2000 option grants:

 

 

 

 

 

 

 

 

 

2002

 

2001

 

2000

 

 


 


 


Dividend yield

 

2.07%

 

2.28%

 

1.80%

Expected volatility

 

38.4%

 

38.9%

 

36.5%

Risk-free interest rate

 

3.5% to 4.8%

 

4.6% to 6.5%

 

5.7% to 6.8%

Expected life

 

4 to 5 years

 

4 to 5 years

 

3 to 6 years

Summary information about the Company’s stock options outstanding at June 30, 2002 is as follows (number of shares in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

Range of

 

 

 

Remaining

 

 

 

 

 

 

Exercise

 

Options

 

Contractual Life

 

Weighted-Average

 

Options

 

Weighted-Average

Price

 

Outstanding

 

in Years

 

Exercise Price

 

Exercisable

 

Exercise Price


 


 


 


 


 


$

10-$13

 

 

 

745

 

 

 

1.6

 

 

$

13

 

 

 

745

 

 

$

13

 

 

13- 20

 

 

 

1,024

 

 

 

2.2

 

 

 

16

 

 

 

1,024

 

 

 

16

 

 

20- 27

 

 

 

2,718

 

 

 

3.8

 

 

 

22

 

 

 

2,718

 

 

 

22

 

 

27- 34

 

 

 

80

 

 

 

5.7

 

 

 

33

 

 

 

63

 

 

 

33

 

 

34- 40

 

 

 

9,504

 

 

 

8.1

 

 

 

36

 

 

 

3,957

 

 

 

37

 

 

40- 47

 

 

 

250

 

 

 

7.5

 

 

 

44

 

 

 

153

 

 

 

43

 

 

47- 54

 

 

 

54

 

 

 

6.6

 

 

 

50

 

 

 

52

 

 

 

51

 

 

54- 61

 

 

 

342

 

 

 

6.8

 

 

 

54

 

 

 

342

 

 

 

54

 

 

61- 67

 

 

 

495

 

 

 

6.6

 

 

 

67

 

 

 

9

 

 

 

67

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

$

10-$67

 

 

 

15,212

 

 

 

6.5

 

 

$

33

 

 

 

9,063

 

 

$

29

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

14. Leases

The Company leases transportation equipment and various manufacturing, warehousing, and office facilities. Leases are classified as operating leases and will expire over the next 15 years. The Company expects that in the normal course of business, leases will be renewed or replaced by other leases. The following is a schedule by fiscal year of future minimum rental payments required under the non-cancelable operating lease agreements:

 

 

 

 

 

 

 

Future Minimum

Fiscal Year

 

Rental Payments


 


2003

 

$

30

 

2004

 

 

24

 

2005

 

 

18

 

2006

 

 

10

 

2007

 

 

10

 

Thereafter

 

 

15

 

 

 

 


 

Total

 

$

107

 

 

 

 


 

Rental expense for all operating leases was $56, $50 and $49 in fiscal years 2002, 2001 and 2000, respectively. Space not occupied by the Company in its headquarters building is rented to other tenants under operating leases expiring in 2008. Future minimum rentals to be received total $7 and do not exceed $2 in any one year.

15. Other Expense (Income), Net

The major components of other expense (income), net for the fiscal years ended June 30 are:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

2000

 

 


 


 


Amortization of trademarks and other intangible assets (and goodwill in 2001 and 2000)

 

$

12

 

 

$

60

 

 

$

55

 

Equity in earnings of unconsolidated affiliates

 

 

(16

)

 

 

(16

)

 

 

(17

)

Interest income

 

 

(4

)

 

 

(10

)

 

 

(10

)

Gain on sale of businesses, net

 

 

(33

)

 

 

 

 

 

 

Foreign exchange gains, net

 

 

(22

)

 

 

(2

)

 

 

(1

)

Other, net

 

 

37

 

 

 

15

 

 

 

9

 

 

 

 


 

 

 


 

 

 


 

Total other expense (income), net

 

$

(26

)

 

$

47

 

 

$

36

 

 

 

 


 

 

 


 

 

 


 

16. Income Taxes

The provision for income taxes consists of the following for the fiscal years ended June 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

2000

 

 


 


 


Current

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

147

 

 

$

132

 

 

$

164

 

 

State

 

 

16

 

 

 

23

 

 

 

25

 

 

Foreign

 

 

28

 

 

 

19

 

 

 

25

 

 

 

 


 

 

 


 

 

 


 

Total current

 

 

191

 

 

 

174

 

 

 

214

 

 

 

 


 

 

 


 

 

 


 

Deferred

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

1

 

 

 

(24

)

 

 

5

 

 

State

 

 

(3

)

 

 

(1

)

 

 

1

 

 

Foreign

 

 

(13

)

 

 

1

 

 

 

(4

)

 

 

 


 

 

 


 

 

 


 

Total deferred

 

 

(15

)

 

 

(24

)

 

 

2

 

 

 

 


 

 

 


 

 

 


 

Total expense (net of tax benefit of $1 on cumulative effect of change in accounting principle in fiscal year 2001)

 

$

176

 

 

$

150

 

 

$

216

 

 

 

 


 

 

 


 

 

 


 

The components of earnings (loss) before income taxes and cumulative effect of change in accounting principle are as follows for the fiscal years ended June 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

2000

 

 


 


 


United States

 

$

582

 

 

$

427

 

 

$

556

 

Foreign

 

 

(84

)

 

 

49

 

 

 

54

 

 

 

 


 

 

 


 

 

 


 

Total

 

$

498

 

 

$

476

 

 

$

610

 

 

 

 


 

 

 


 

 

 


 

Income taxes receivable at June 30, 2001 was $3 and is included in other current assets.

A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate follows for the fiscal years ended June 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

2000

 

 


 


 


Statutory federal tax rate

 

 

35.0

%

 

 

35.0

%

 

 

35.0

%

State taxes (net of federal tax benefits)

 

 

1.8

 

 

 

3.0

 

 

 

2.7

 

Incremental tax on foreign earnings

 

 

2.6

 

 

 

1.8

 

 

 

(1.1

)

Net reversal of prior year federal and state tax accruals

 

 

(3.6

)

 

 

(3.4

)

 

 

 

Brazil impairment loss

 

 

(2.8

)

 

 

 

 

 

 

Change in valuation allowance

 

 

7.7

 

 

 

(0.3

)

 

 

1.9

 

Low income housing tax credits

 

 

(2.3

)

 

 

(2.4

)

 

 

(1.9

)

Other differences

 

 

(3.1

)

 

 

(2.0

)

 

 

(1.2

)

 

 

 


 

 

 


 

 

 


 

Effective tax rate

 

 

35.3

%

 

 

31.7

%

 

 

35.4

%

 

 

 


 

 

 


 

 

 


 

Applicable U.S. income and foreign withholding taxes have not been provided on approximately $54 of undistributed earnings of certain foreign subsidiaries at June 30, 2002. Accumulated undistributed earnings of certain foreign subsidiaries are considered permanently reinvested and are not subject to such taxes.

The tax benefit related to the Company’s stock option plans is recorded as an increase to equity when realized. In fiscal years 2002, 2001 and 2000, the Company realized tax benefits of approximately $12, $9 and $14, respectively. Stock option tax benefits are reflected as part of operating cash flows.

The net deferred income tax assets (liabilities), both current and non-current at June 30, result from the tax effects of the following temporary differences:

 

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


Deferred taxes — current

 

 

 

 

 

 

 

 

 

Safe harbor lease agreements

 

$

(1

)

 

$

(2

)

 

Compensation and benefit programs

 

 

11

 

 

 

(2

)

 

Net operating loss and tax credit carryforwards

 

 

1

 

 

 

11

 

 

Inventory costs

 

 

6

 

 

 

2

 

 

Accruals and reserves

 

 

37

 

 

 

9

 

 

Other, net

 

 

4

 

 

 

8

 

 

 

 


 

 

 


 

 

 

Subtotal

 

 

58

 

 

 

26

 

 

Valuation allowance

 

 

(1

)

 

 

 

 

 

 


 

 

 


 

 

Total current assets, net

 

 

57

 

 

 

26

 

 

 

 


 

 

 


 

Deferred taxes — noncurrent

 

 

 

 

 

 

 

 

 

Basis difference in fixed and intangible assets

 

 

(118

)

 

 

(195

)

 

Safe harbor lease agreements

 

 

(11

)

 

 

(13

)

 

Unremitted foreign earnings

 

 

(11

)

 

 

(2

)

 

Compensation and benefit programs

 

 

43

 

 

 

37

 

 

Merger and restructuring costs

 

 

7

 

 

 

18

 

 

Income recorded for book purposes only

 

 

(23

)

 

 

(22

)

 

Net operating loss and tax credit carryforwards

 

 

33

 

 

 

42

 

 

Accruals and reserves

 

 

5

 

 

 

6

 

 

Mark-to-market adjustments

 

 

8

 

 

 

 

 

Interest

 

 

(10

)

 

 

(5

)

 

Other, net

 

 

 

 

 

15

 

 

 

 


 

 

 


 

 

 

Subtotal

 

 

(77

)

 

 

(119

)

 

Valuation allowance

 

 

(65

)

 

 

(28

)

 

 

 


 

 

 


 

 

Total noncurrent liabilities, net

 

 

(142

)

 

 

(147

)

 

 

 


 

 

 


 

 

Deferred tax liabilities — net

 

$

(85

)

 

$

(121

)

 

 

 


 

 

 


 

As of June 30, 2002, the Company has foreign tax credit carryforwards of $5 with expiration dates between fiscal years 2004 and 2007. The Company also has income tax credit carryforwards in foreign jurisdictions of $1, which have expiration dates between fiscal years 2003 and 2005, and $1, which may be carried forward indefinitely. The tax benefits from foreign net operating loss carryforwards of $25 have expiration dates between fiscal year 2003 and 2009. Additionally, the tax benefit from foreign net operating loss carryforwards of $2 may be carried forward indefinitely.

The Company reviews its deferred tax assets for recoverability. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Valuation allowances as of June 30, 2002 and 2001 were $66 and $28, respectively and have been provided to reduce deferred tax assets to amounts considered recoverable. Details of the valuation allowance at June 30 are as follows:

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

 


 


Valuation allowance at beginning of year

 

$

(28

)

 

$

(29

)

Impairment losses

 

 

(45

)

 

 

 

Other

 

 

7

 

 

 

1

 

 

 

 


 

 

 


 

Valuation allowance at end of year

 

$

(66

)

 

$

(28

)

 

 

 


 

 

 


 

17. Employee Benefit Plans

RETIREMENT INCOME PLANS

The Company has qualified and non-qualified defined benefit plans that cover substantially all of the Company’s domestic employees and certain of its international employees. Benefits are based on either employee years of service and compensation or a stated dollar amount per year of service. Except for its Canadian plan, which has both the Company and employees contributing to the plan, the Company is the sole contributor to the plans in amounts deemed necessary to provide benefits and to the extent deductible for federal income tax purposes. Assets of the plans consist primarily of marketable equity and debt security investments.

At June 30, 2002 and 2001, the Company had minimum pension liabilities of $68 and $3, respectively, which were recorded to accumulated other comprehensive net losses, with an offset to other liabilities. Minimum pension liability adjustments were required to recognize a liability equal to the unfunded accumulated benefit obligation based on the market value of the assets that decreased due to asset performance.

The projected benefit obligation, accumulated benefit obligation (“ABO”) and fair value of plan assets for those pension plans with an ABO in excess of plan assets were $288, $273 and $222, respectively, as of June 30, 2002 and $34, $28, and $23, respectively, as of June 30, 2001.

RETIREMENT HEALTH CARE

The Company provides certain health care benefits for employees who meet age, participation and length of service requirements at retirement. The health care plans were amended in fiscal year 2001 to limit the Company’s contribution to certain levels for non-union retirees. The plans pay stated percentages of covered expenses after annual deductibles have been met. Benefits paid take into consideration payments by Medicare. The plans are unfunded, and the Company has the right to modify or terminate certain of these plans.

The assumed health care cost trend rate used in measuring the accumulated post-retirement benefit obligation (“APBO”) was 15% for 2002-2003. These rates were assumed to gradually decrease by 2% for the next two years, then by 1% each year thereafter until an ultimate trend of 5.5% is reached in 2010-2011. Changes in these rates can have a significant effect on amounts reported. A one percentage point increase in the trend rates would increase the June 30, 2002 APBO by $1 and increase the fiscal year 2002 expense by less than $1. A one percentage point decrease in the trend rates would decrease the June 30, 2002 APBO by $1 and decrease the fiscal year 2002 expense by less than $1.

Summarized information for the Company’s retirement income and health care plans are as follows as of and for the fiscal years ended June 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement

 

 

Retirement Income Plans

 

Health Care

 

 


 


 

 

2002

 

2001

 

2002

 

2001

 

 


 


 


 


Change in benefit obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit obligation at beginning of year

 

$

308

 

 

$

278

 

 

$

77

 

 

$

79

 

 

Service cost

 

 

14

 

 

 

11

 

 

 

2

 

 

 

2

 

 

Interest cost

 

 

23

 

 

 

22

 

 

 

5

 

 

 

5

 

 

Plan amendments

 

 

1

 

 

 

4

 

 

 

(7

)

 

 

(14

)

 

Actuarial loss

 

 

14

 

 

 

15

 

 

 

4

 

 

 

9

 

 

Benefits paid

 

 

(25

)

 

 

(22

)

 

 

(6

)

 

 

(5

)

 

 

 


 

 

 


 

 

 


 

 

 


 

 

Benefit obligation at end of year

 

 

335

 

 

 

308

 

 

 

75

 

 

 

76

 

 

 

 


 

 

 


 

 

 


 

 

 


 

Change in plan assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of assets at beginning of year

 

 

288

 

 

 

331

 

 

 

 

 

 

 

 

Actual return on plan assets

 

 

(21

)

 

 

(27

)

 

 

 

 

 

 

 

Employee contribution

 

 

 

 

 

4

 

 

 

 

 

 

 

 

Employer contribution

 

 

3

 

 

 

2

 

 

 

6

 

 

 

5

 

 

Benefits paid

 

 

(25

)

 

 

(22

)

 

 

(6

)

 

 

(5

)

 

 

 


 

 

 


 

 

 


 

 

 


 

 

Fair value of plan assets at end of year

 

 

245

 

 

 

288

 

 

 

 

 

 

 

 

Unfunded status

 

 

(90

)

 

 

(20

)

 

 

(75

)

 

 

(76

)

 

Unrecognized prior service cost

 

 

(5

)

 

 

(7

)

 

 

(11

)

 

 

(5

)

 

Unrecognized loss

 

 

95

 

 

 

31

 

 

 

5

 

 

 

1

 

 

 

 


 

 

 


 

 

 


 

 

 


 

 

Prepaid/(accrued) benefit cost

 

$

 

 

$

4

 

 

$

(81

)

 

$

(80

)

 

 

 


 

 

 


 

 

 


 

 

 


 

Amount recognized in the balance sheets consists of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid benefit cost

 

$

9

 

 

$

28

 

 

$

 

 

$

 

 

Accrued benefit liability

 

 

(77

)

 

 

(27

)

 

 

(81

)

 

 

(80

)

 

Accumulated other comprehensive net losses

 

 

68

 

 

 

3

 

 

 

 

 

 

 

 

 

 


 

 

 


 

 

 


 

 

 


 

 

Net amount recognized

 

$

 

 

$

4

 

 

$

(81

)

 

$

(80

)

 

 

 


 

 

 


 

 

 


 

 

 


 

 

 

 

2002

 

 

 

2001

 

 

 

2002

 

 

 

2001

 

 

 

 


 

 

 


 

 

 


 

 

 


 

Weighted-average assumptions as of June 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

 

6.75% to 7.25

%

 

 

7% to 7.5

%

 

 

7.25

%

 

 

7.50

%

 

Rate of compensation increase

 

 

3.5% to 7.25

%

 

 

3.5% to 7.5

%

 

 

N/A

 

 

 

N/A

 

 

Expected return on plan assets

 

 

8% to 9.5

%

 

 

8% to 9.5

%

 

 

N/A

 

 

 

N/A

 

 

 

 

 

 

 

 

Retirement

 

Retirement

 

 

Income Plans

 

Health Plans

 

 


 


 

 

2002

 

2001

 

2000

 

2002

 

2001

 

2000

 

 


 


 


 


 


 


Components of net periodic benefit cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

14

 

 

$

12

 

 

$

12

 

 

$

2

 

 

$

2

 

 

$

3

 

 

Interest cost

 

 

23

 

 

 

21

 

 

 

18

 

 

 

5

 

 

 

5

 

 

 

5

 

 

Expected return on plan assets

 

 

(31

)

 

 

(31

)

 

 

(30

)

 

 

 

 

 

 

 

 

 

 

Amortization of unrecognized items

 

 

(1

)

 

 

(7

)

 

 

(6

)

 

 

(1

)

 

 

1

 

 

 

 

 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

 

Total net periodic benefit cost or (income)

 

 

5

 

 

 

(5

)

 

 

(6

)

 

 

6

 

 

 

8

 

 

 

8

 

 

Total benefits and curtailment gains

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

 

Total expense (income)

 

$

5

 

 

$

(5

)

 

$

(7

)

 

$

6

 

 

$

8

 

 

$

8

 

 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

 

 


 

The Company has defined contribution plans for most of its domestic employees not covered by collective bargaining agreements. The cost of those plans is based on the Company’s profitability and participants’ deferrals. The plans include The Clorox Company Employee Retirement Investment Plan (ERIP) which has two components, a 401(k) component and a profit sharing component. Employee contributions made to the 401(k) component are matched with the Company’s contributions. Company contributions to the profit sharing component are discretionary and are based on performance targets that are measured by the “Clorox Value Measure.” The aggregate cost of the defined contribution plans, including the ERIP, was $38 in fiscal year 2002, $3 in fiscal year 2001 and $15 in fiscal year 2000.

18. Industry Segment Information

Information regarding the Company’s operating segments is shown below. Each segment is individually managed with separate operating results that are reviewed regularly by the chief operating decision makers. Starting in fiscal year 2002, the Glad business unit is reported under the Household Products — North America segment and the European automotive care businesses are reported under the Specialty Products segment due to management realignment and organizational changes effective in fiscal year 2002. Information presented below for prior years has been reclassified to conform to the current year’s presentation of segment results. Intersegment sales are insignificant. The operating segments include:

 

 

 

 

• 

Household Products — North America: Includes cleaning, bleach, water filtration products, and the food storage and disposal categories marketed in the United States and all products marketed in Canada.

 

 

 

 

• 

Household Products — Latin America/Other: Includes operations outside the United States and Canada, excluding the European automotive care business.

 

 

 

 

18. Industry Segment Information (Continued)

The table below represents operating segment information as of and for the fiscal years ended June 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Household

 

 

 

 

 

 

 

 

 

 

Household

 

Products —

 

 

 

Corporate

 

 

 

 

 

 

Products —

 

Latin America/

 

Specialty

 

Interest

 

Total

 

 

Fiscal Year

 

North America

 

Other

 

Products

 

and Other

 

Company

 

 


 


 


 


 


 


Net sales

 

 

2002

 

 

$

2,198

 

 

$

559

 

 

$

1,304

 

 

$

 

 

$

4,061

 

 

 

 

2001

 

 

 

2,097

 

 

 

584

 

 

 

1,222

 

 

 

 

 

 

3,903

 

 

 

 

2000

 

 

 

2,175

 

 

 

605

 

 

 

1,209

 

 

 

 

 

 

3,989

 

Earnings (losses) before income

 

 

2002

 

 

 

535

 

 

 

(129

)

 

 

517

 

 

 

(425

)

 

 

498

 

 

taxes and cumulative effect of

 

 

2001

 

 

 

453

 

 

 

72

 

 

 

397

 

 

 

(446

)

 

 

476

 

 

change in accounting principle

 

 

2000

 

 

 

599

 

 

 

68

 

 

 

403

 

 

 

(460

)

 

 

610

 

Equity in earnings of affiliates

 

 

2002

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

 

 

 

2001

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

 

 

 

2000

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Identifiable assets

 

 

2002

 

 

 

1,403

 

 

 

740

 

 

 

876

 

 

 

611

 

 

 

3,630

 

 

 

 

2001

 

 

 

1,432

 

 

 

1,011

 

 

 

888

 

 

 

664

 

 

 

3,995

 

 

 

 

2000

 

 

 

1,593

 

 

 

1,062

 

 

 

987

 

 

 

711

 

 

 

4,353

 

Capital expenditures

 

 

2002

 

 

 

46

 

 

 

10

 

 

 

30

 

 

 

91

 

 

 

177

 

 

 

 

2001

 

 

 

62

 

 

 

31

 

 

 

32

 

 

 

67

 

 

 

192

 

 

 

 

2000

 

 

 

73

 

 

 

21

 

 

 

28

 

 

 

36

 

 

 

158

 

Depreciation and amortization

 

 

2002

 

 

 

82

 

 

 

23

 

 

 

26

 

 

 

59

 

 

 

190

 

 

 

 

2001

 

 

 

92

 

 

 

42

 

 

 

38

 

 

 

53

 

 

 

225

 

 

 

 

2000

 

 

 

82

 

 

 

36

 

 

 

35

 

 

 

48

 

 

 

201

 

Non-cash charges included in costs of products sold and

 

 

2002

 

 

 

9

 

 

 

200

 

 

 

 

 

 

 

 

 

209

 

 

merger, restructuring and asset

 

 

2001

 

 

 

60

 

 

 

10

 

 

 

24

 

 

 

 

 

 

94

 

 

impairment

 

 

2000

 

 

 

 

 

 

5

 

 

 

6

 

 

 

1

 

 

 

12

 

Corporate, Interest and Other includes certain non-allocated administrative costs, amortization of trademarks and other intangible assets (and goodwill in fiscal years 2001 and 2000), interest income, interest expense, and other income and expense. Merger, restructuring and asset impairment costs and related inventory write-offs totaling $237, $98, and $40 in fiscal years 2002, 2001 and 2000, respectively, have been allocated to the applicable segment. These charges by segment, have been allocated as follows: Household Products — North America, $14 in fiscal year 2002 and $61 in fiscal year 2001; Specialty Products, $26 in fiscal year 2001, and $6 in fiscal year 2000; Household Products — Latin America/ Other, $216 in fiscal year 2002, $11 in fiscal year 2001, $11 in fiscal year 2000; and Corporate, Interest and Other, $7 in fiscal year 2002 and $23 in fiscal year 2000. Corporate assets include cash and cash equivalents, the Company’s headquarters and research and development facilities. The aggregate net pre-tax gain on divestitures totaling $33 for fiscal year ended 2002 is included in the Specialty Products and Household Products — North America segments.

 

Net sales to the Company’s largest customer, Wal-Mart Stores, Inc. and its affiliates, were 23%, 20%, and 19% of consolidated net sales in fiscal years 2002, 2001 and 2000, respectively. The Household Products — North America and Specialty Products segments net sales to Wal-Mart Stores, Inc. and its affiliates were no greater than 29% and 21%, respectively, of net sales for those segments for any of the fiscal years ended June 30, 2002, 2001 and 2000. No other customer exceeded 6% of net sales in any year.

Sales of Clorox liquid bleach represent approximately 10% of total Company net sales. No other brand exceeded 10% of net sales in any year.

19. Commitments and Contingent Liabilities

The Company has entered into an obligation to purchase raw materials at various indexed prices through September 2010. Estimated annual purchase commitments based on annual requirements and current market prices are $5 in each of fiscal years 2003 through 2007, and $18 thereafter.

The Company is subject to various lawsuits and claims, which include contract disputes, environmental issues, product liability, patent and trademark, advertising and tax matters. Although the results of claims and litigation cannot be predicted with certainty, it is the opinion of management, after consultation with counsel, that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on the Company’s consolidated financial statements taken as a whole.

 

 

20. 

Earnings per Share

A reconciliation of the weighted average number of common shares outstanding (in thousands) used to calculate basic and diluted earnings per share is as follows for the fiscal years ended June 30:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2002

 

2001

 

2000

 

 


 


 


Basic

 

 

231,849

 

 

 

236,149

 

 

 

236,108

 

Stock options and other

 

 

2,855

 

 

 

3,334

 

 

 

3,506

 

 

 

 


 

 

 


 

 

 


 

Diluted

 

 

234,704

 

 

 

239,483

 

 

 

239,614

 

 

 

 


 

 

 


 

 

 


 

21. Quarterly Data (Unaudited)

The Company’s quarterly data is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended

 

 

 

 


 

 

 

 

September 30

 

December 31

 

March 31

 

June 30

 

Total Year(5)


 


 


 


 


 


 In millions, except per-share amounts.

 

 

 

 

 

 

 

 

 

 

Fiscal year ended June 30, 2002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$ <