CLOROX CO /DE/ - FORM 8-K - EX-99.1 - UNAUDITED PRO FORMA INCOME STATEMENTS - November 5, 2010

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8-K - CURRENT REPORT - CLOROX CO /DE/clorox_8k.htm

THE CLOROX COMPANY
UNAUDITED PRO FORMA FINANCIAL STATEMENT INFORMATION
 
On November 5, 2010, The Clorox Company (the Company) completed the sale (the Transaction) of substantially all of its global auto care businesses (the Auto Businesses), which consist of the business of developing, formulating, supplying, manufacturing, packaging, marketing, selling and distributing certain appearance and performance products specifically formulated and sold under the brand names Armor All, STP, Oomph!, Son of a Gun, Tuff Stuff and Car Buddy for use with motor vehicles worldwide, pursuant to the terms of a Purchase and Sale Agreement (the Purchase Agreement) with Viking Acquisition Inc. (the Purchaser) dated September 21, 2010. The Purchaser is owned by affiliates of Avista Capital Holdings, L.P.
 
The Company received cash consideration for the Auto Businesses in the amount of $756 million. The Company will also receive cash flows of approximately $30 million related to working capital that was retained by the Company as part of the Purchase Agreement. In addition, pursuant to the Purchase Agreement, a subsequent adjustment to the purchase price may be made based upon the Auto Businesses’ worldwide inventory and working capital of the U.K. Auto Business on the date that the Transaction was completed.
 
The unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2010 is based on the Company’s balance sheet as of September 30, 2010, after giving effect to the sale as if it had occurred as of September 30, 2010. The unaudited Pro Forma Condensed Consolidated Statements of Earnings for the fiscal years ended June 30, 2010, 2009 and 2008 give effect to the sale of the Auto Businesses as if it had occurred on July 1, 2007. The Company has not presented the unaudited Pro Forma Condensed Consolidated Statements of Earnings for the three months ended September 30, 2010 and 2009, as the results of operations of the Auto Businesses were reported as discontinued operations in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, filed with the Securities and Exchange Commission ("SEC") on November 3, 2010.
 
The unaudited Pro Forma Condensed Consolidated Statements of Earnings for the years ending June 30, 2010, 2009 and 2008 have been derived from the audited Consolidated Financial Statements of the Company included in its fiscal 2010 Annual Report on Form 10-K. The unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2010 has been derived from the unaudited Condensed Financial Statements included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2010. The unaudited pro forma financial statement information is based upon available information and assumptions that the Company believes are reasonable.
 
The unaudited pro forma financial information has been provided for informational purposes only. The pro forma information is not necessarily indicative of what the Company's financial position or results of operations actually would have been had the sale occurred as of the dates indicated. In addition, the unaudited pro forma condensed consolidated financial information does not purport to project the future financial position or operating results of the Company. The unaudited pro forma financial statement information, including the notes thereto, should be read in conjunction with the historical financial statements of the Company included in its fiscal 2010 Annual Report on 10-K and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, that have been filed with the SEC.
 
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THE CLOROX COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2010
(Dollars in millions, except share amounts)
 
    As of September 30, 2010
        As Reported (1) Pro Forma
Adjustments		            Pro Forma
ASSETS                                 
Current assets                        
       Cash and cash equivalents   $ 286     $ 748   (2) $      1,034  
       Receivables, net     480       -       480  
       Inventories, net     370       -       370  
       Assets held for sale     472       (472 ) (3)   -  
       Other current assets     113       -       113  
              Total current assets     1,721       276       1,997  
Property, plant and equipment, net     965       -       965  
Goodwill     1,317       -       1,317  
Trademarks, net     552       -       552  
Other intangible assets, net     93       -       93  
Other assets     145       -       145  
Total assets   $           4,793     $              276     $ 5,069  
LIABILITIES AND STOCKHOLDERS' EQUITY                        
Current liabilities                        
       Notes and loans payable   $ 506     $ -     $ 506  
       Current maturities of long-term debt     300       -       300  
       Accounts payable     379       -       379  
       Accrued liabilities     425       5   (4)   430  
       Income taxes payable     87       36   (5)   123  
              Total current liabilities     1,697       41       1,738  
Long-term debt     2,124       -       2,124  
Other liabilities     669       32   (6)   701  
Deferred income taxes     24       -       24  
              Total liabilities     4,514       73       4,587  
Contingencies                        
Stockholders' equity:                        
Common stock: $1.00 par value; 750,000,000 shares authorized;                        
       158,741,461 shares issued at September 30, 2010 and June 30, 2010;                        
       and 139,443,276 and 138,764,511 shares outstanding at
       September 30, 2010 and June 30, 2010, respectively
     159       -       159  
Additional paid-in capital     608       -       608  
Retained earnings     1,053       203   (7)   1,256  
Treasury shares, at cost: 19,298,185 and 19,976,950 shares                        
       at September 30, 2010 and June 30, 2010, respectively     (1,204 )     -       (1,204 )
Accumulated other comprehensive net losses     (337 )     -       (337 )
Stockholders' equity     279       203       482  
Total liabilities and stockholders' equity   $ 4,793     $ 276     $ 5,069  
                         

See accompanying notes to unaudited pro forma condensed consolidated financial statements
 
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THE CLOROX COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in millions, except per share amounts)
 
  Year Ended June 30, 2010
  As Reported (8) Auto
Businesses		 (9)  Pro Forma
Net sales $ 5,534   $ 300   $ 5,234
Cost of products sold   3,057     142     2,915
                                 
Gross profit   2,477     158     2,319
                 
Selling and administrative expenses   747     13     734
Advertising costs   518     24     494
Research and development costs   119     1     118
Restructuring and asset impairment costs   4     -     4
Interest expense   139     -     139
Other expense, net   25     -     25
                 
Earnings from continuing operations before income taxes   925     120     805
Income taxes on continuing operations   322     43     279
                 
Earnings from continuing operations $ 603   $ 77   $ 526
                 
Earnings per share from continuing operations (10)                
       Basic $ 4.28         $ 3.73
       Diluted $ 4.24         $ 3.69
                 
Weighted average shares outstanding (in thousands)                
       Basic   140,272           140,272
       Diluted   141,534           141,534
 
See accompanying notes to unaudited pro forma condensed consolidated financial statements
 
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THE CLOROX COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in millions, except per share amounts)
 
    Year Ended June 30, 2009
        As Reported (8) Auto
Businesses		 (9) Pro Forma
Net sales   $      5,450            $      292            $      5,158
Cost of products sold     3,104     150     2,954
                   
Gross profit     2,346     142     2,204
                   
Selling and administrative expenses     715     12     703
Advertising costs     499     25     474
Research and development costs     114     1     113
Restructuring and asset impairment costs     20     1     19
Interest expense     161     -     161
Other expense, net     26     1     25
                   
Earnings from continuing operations before income taxes     811     102     709
Income taxes on continuing operations     274     39     235
                   
Earnings from continuing operations   $ 537   $ 63   $ 474
                   
Earnings per share from continuing operations (10)                  
       Basic   $ 3.82         $ 3.38
       Diluted   $ 3.79         $ 3.35
                    
Weighted average shares outstanding (in thousands)                  
       Basic     139,015           139,015
       Diluted     140,169           140,169
 
See accompanying notes to unaudited pro forma condensed consolidated financial statements
 
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THE CLOROX COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in millions, except per share amounts)
 
  Year Ended June 30, 2008
  As Reported (8) Auto
Businesses		 (9) Pro Forma
Net sales $            5,273              $            319              $       4,954  
Cost of products sold   3,098       156       2,942  
                       
Gross profit   2,175       163       2,012  
                       
Selling and administrative expenses   690       14       676  
Advertising costs   486       26       460  
Research and development costs   111       1       110  
Restructuring and asset impairment costs   36       1       35  
Interest expense   168       -       168  
Other income, net   (9 )     (1 )     (8 )
                       
Earnings from continuing operations before income taxes   693       122       571  
Income taxes on continuing operations   232       46       186  
                       
Earnings from continuing operations $ 461     $ 76     $ 385  
                       
Earnings per share from continuing operations (10)                      
       Basic $ 3.27             $ 2.73  
       Diluted $ 3.23             $ 2.70  
                       
Weighted average shares outstanding (in thousands)                      
       Basic   139,633               139,633  
       Diluted   141,197               141,197  
                       
See accompanying notes to unaudited pro forma condensed consolidated financial statements
 
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THE CLOROX COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
 
(1)       
Represents balances as reported on the unaudited Condensed Consolidated Balance Sheet included in the Company's Form 10-Q for the quarter ended September 30, 2010.
 
(2)
Represents cash proceeds received from the Purchaser, net of transaction costs shown as follows:
 
          Proceeds from the Purchaser $ 756  
  Cash paid for transaction costs   (8 )
  Total adjustments to cash and cash equivalents $     748  
         
(3)        Represents balances pertaining to accounts receivable, inventories, prepaid expenses, other current assets, property, plant and equipment, goodwill, trademarks, accounts payable, accrued liabilities, other current liabilities and net deferred taxes that were classified as assets held for sale in the Condensed Consolidated Balance Sheet as of September 30, 2010 included in the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2010.
 
(4) Represents estimated other transaction costs of $3 million and settlement costs of $2 million that are expected to be accrued in connection with the sale.
 
(5) Represents adjustments for estimated taxes payable on the portion of the gain on sale to be recorded during the Company’s second quarter of fiscal year 2011 of $123 million (See note 7 below) partially offset by estimated deferred tax assets of $86 million related to assets held for sale and estimated income tax benefit on other transaction costs of $1 million.
 
(6) Represents uncertain tax positions related to discontinued operations.
 
(7) Represents the portion of the estimated gain on the sale to be recorded by the Company during its second quarter of fiscal year 2011.

          Estimated pre-tax gain on sale $ 326  
  Estimated tax provision on gain on sale (at the blended statutory rate of 37.89%)   (123 )
  Total adjustment to retained earnings $     203  
         
(8)        Represents results of operations as reported on the audited Consolidated Statements of Operations included in the Company's fiscal 2010 Annual Report on Form 10-K.
 
(9) Represents results of operations of the Auto Businesses. For fiscal years 2008 and 2009, tax effects have been determined based on the statutory rates in effect during each of those years. For fiscal year 2010, tax effects have been determined based on the Company’s actual effective tax rate.
 
(10) The Company computes earnings per share (EPS) on an unrounded basis using the two-class method which is an earnings allocation formula that determines EPS for common stock and participating securities. The following are reconciliations of net earnings from continuing operations to net earnings from continuing operations applicable to common stock, used to calculate pro forma basic and diluted EPS for fiscal years ended June 30:

            2010       2009       2008
  Net earnings from continuing operations $     526   $     474   $     385
  Less: Earnings allocated to participating securities   3     5     5
  Net earnings from continuing operations applicable to common stock $ 523   $ 469   $ 380
                   
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