Use the attached financial statements of Clorox to answer the following questions.
Profitability Ratios for 2003, 2004 and 2005
a) Calculate the Gross Margin (Use Gross Profit)
b) Calculate the Operating Margin (Use the Earnings from Continuing Operations before income taxes)
c) Calculate the Net Profit Margin (Use Net Earnings)
d) Comment on the profitability trends in their business.
2005 2004 2003 Yoars ended June 30 (dollars in miliors, except pershare amounts) 2$ 4,388 2$ 2$ 3,986 Net sales 4,162 Cost of products sold 2,493 2,331 2,171 Gross profit Soling and administrativo exponses Advertising costs Research and development costs Restructuring and asset impairment costs Interest expense Othor (incomo) axponse: 1,831 1,895 1,815 551 543 523 435 420 446 88 84 75 36 33 11 79 30 28 Equity aarnings and gain on exchango of Honkal Iborica, S.A. Other, not (25) (11) (2) (6) 2 Earnings from continuing operations bafore incomo taxas 729 752 718 Incomo taxes on continuing oparations 214 262 257 Reversal of deferred taxes from equity investment in Henkel Iberica, S.A. (2) Earnings from continuing oporations 517 490 461 Discontinuod oporations: Gain on exchange 550 Earnings from exchanged businesses Reversal of deferred taxes from exchanged businesses Lossos from Brazil oporations Income tax expense on discontinued operations 87 37 84 (4) (24) (26) (26) (14) Earnings from discontinued operations 579 59 32 2$ 2$ 24 493 Not carnings 1,006 549 Earnings per common share Basic 2$ 24 2$ Continuing operations Discontinuod operations Basic not carnings par common sharo 2.92 2.31 2.11 3.28 0.28 0.15 6.20 2.50 226 Diluted Continuing operations Discontinuod oporations Dilutod not carnings por common sharo 2$ 24 2$ 2.88 2.28 2.08 3.23 0.28 0.15 2$ 6.11 2$ 2.56 2.23 Weighted average common shares outstanding (in thousands) 176,586 179,176 218,174 Basic 211,683 Diluted 214,371 220,692 2005 2004 As of June 30 (dolars in milionn, exoept per sham amourte) Assets Curront assots 24 %24 Cash and cash oquivalonts Receivables, net Inventories 293 232 411 460 323 301 Othor curront assots 63 50 Total currant assets 1,090 1,043 Property, plant and equipment, net 999 1,052 Goodwill, not 743 742 Tradomarks and othor intangible assats, not 599 633 Other assets 186 364 2$ %24 Total assots 3,617 3,834 Liabilities and Stockholders' (Deficit) Equity Current liabilities Notes and loans payable Curront maturitios of long-torm dobt Accounts payablo 24 359 %24 289 347 310 Accrued liabilitios 614 643 26 Income taxes payable 24 Total curront liabiltios 1,348 1,268 Long-term debt 2,122 475 Other liabilities 377 618 82 Daforrod incomo taxos 174 Total liabilites 4,170 2,294 Stockholders' (deficit) equity Common stock: $1.00 par valuo; 750,000,000 sharos authorizod; 249,826,934 sharos issuod; and 151,683,314 and 212,988,540 shares outstanding at June 30, 2005 and 2004, respoctivaly Additional paid-in capital Retained earnings 250 250 328 301 3,684 2,846 (1,570) (274) (4,463) (336) (16) Treasury shares, at cost: 98,143,620 and 36,838,394 shares at June 30, 2005 and 2004, respectively Accumulatod othor comprohonsivo not lossos Unoarnod compansation (13) Stockholders' (deficit) equity (553) 1,540 Total labilitios and stockholders' (doficit) equity 2$ 3,617 3,834 Accumulated Additional Other Total Treasury Shares Shares (000 Common Stock Comprehensive Net Losses Cormpensation Paid-in Retained Unearmed Comprehensive Dollars in milione (except per-share amounts) Shares (000 Amount Capital Eamings Amount Total Income 249,827 $250 $2,270 $(10) $1,366 Balance at June 30, 2002 Comprohonsive income Not earnings $222 (26,817) $(1,070) $(296) $ 493 493 493 Translation adjustmonts 48 48 48 Tax effect on translation adjustments Translation related to (94) (94) (94) impairment charges Change in valuation of derivatives, net of tax of $(4) Minimum pension liability adjustments, net of tax 13 13 13 (5) (5) (5) (5) (5) (5) $ 450 Total comprehensive income Dividends paid ($0.88 per share) Employee stock plans Treasury stock purchased (193) (5) (193) 33 2,333 49 78 (11,666) (486) (486) Balance at June 30, 2003 Comprehensive income Net earnings 249,827 250 255 2,565 (36, 150) (1,507) (339) 1,215 (9) $ 549 549 549 Translation adjustments, net of tax of $1 3 Change in valuation of derivatives, net of tax of $2 (4) (4) (4) Minimum pension liability adjustments, net of tax 66 66 66 $ 614 Total comprehensive income Dividends paid ($1.08 por share) Employee stock plans Treasury stock purchased (229) (229) 4,275 (4,963) 46 (39) 157 (4) 160 (220) (220) 249,827 Balance at June 30, 2004 Comprehonsive income Net earnings Share Exchange with Henkel KGAA Translation adjustments resulting from the Henkel KGAA exchange, net of tax of S(10) Other translation adjustrments, not of tax of $(2) Chango in valuation of dorivativos, net of tax of S(3) Minimum pension liability adjustments, net of tax 250 301 (1,570) 2,846 (36,838) (274) (13) 1,540 $1,096 1,096 1,096 (61,387) (2,843) (2,843) 21 21 21 29 29 29 (118) (118) (118) $1,034 Total comprohonsive incomo Dividends paid ($1.10 per share) Dividends accrued ($0.28 per sharo) Employee stock plans Treasury stock purchased (201) (42) (15) (201) (42) 119 2,831 (2,750) 27 110 (3) (160) (160) $250 S(336) $328 $(16) (98,144) $(4,463) $(553) Balance at June 30, 2005 249,827 $3,684 2005 2004 2003 Years ended June 30 (dollars in millons) Operations: Eamings from continuing operations Adjustments to reconcile earnings from continuing operations to net cash provided by continuing operations: Depreciation and amortization $ 517 $ 490 $ 461 190 195 189 Deferred incormo taxos (45) 38 (20) 26 98 Restructuring and asset impairment activities Gain on exchange of Henkel Iberica, S.A. Not loss disposition of assets 11 30 (4) 36 Other 34 29 Changes in: Receivables, net 19 (10) (1) (44) 41 33 8. (17) (37) Inventorios Other current assets Accounts payable and accrued liabilities Income taxes payable Settlement of income tax contingency Pension contributions to qualified plans 59 72 22 86 (94) (41) 844 (55) 760 Net cash provided by continuing operations Net cash provided by discontinued operations Net cash provided by operations 728 37 55 43 765 899 803 Investing Activities: Capital expenditures Businosses acquired Proceeds from the sale of businesses (151) (170) (13) 203) 15 Low-income housing contributions Other (9) (17) (34) (234) (2) (236) (15) (154) (201) Net cash used for investing by continuing operations Net cash (used for) provided by investing by discontinued operations Net cash used for investing activities (154) (193) Financing Activities: Notes and loans payable, net Long-term debt borrowings Long-term debt ropayments Proceeds from option exercise pursuant to Venture Agreement Treasury stock acquired from related party, Henkel KGAA Treasury stock purchased from non affiliates Cash dividends paid Issuance of common stock for employee stock plans 68 (75) 30 1,635 (215) (27) 133 (2,119) (160) (201) 93 (1) (552) (65) (155) (229) (486) (193) 41 111 24 (596) Other Not cash usod for financing by continuing oporations Net cash (used for) provided by financing by discontinued operations Net cash used for financing activities (627) (9) (605) 10 (617) (552) Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents: Beginning of year End of year 61 60 (5) 177 $ 172 232 $ 293 172 $ 232 Supplemontal cash flow information: Cash paid for: Interest, net of amounts capitalized Incomo taxos, not of rofunds Non-cash investing and financing activities: Vonture Agroemant Equipment and technologies obtained Terminal obligation recorded Sharo Exchang Agroomont As part of the Share Exchange Agreement, the company obtained 61,386,509 sharos of its common stock in exchange for businesses valued at $745 and cash. Dividends declared but not paid 81 335 24 31 24 30 81 126 $ 125 24 125 $ 42
