SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14946
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ARMOR ALL PRODUCTS CORPORATION
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(Exact Name of Registrant as specified in its charter)
DELAWARE 33-0178217
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 Liberty, Aliso Viejo, California 92656
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(Address of principal executive offices) (Zip Code)
(714) 362-0600
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at December 31, 1993
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Common stock, $0.01 par value 21,125,921 Shares
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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Pages
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Consolidated Balance Sheets
December 31, 1993 and March 31, 1993 3
Consolidated Statements of Income
Three and nine months ended
December 31, 1993 and 1992 4
Consolidated Statements of Cash Flows
Nine months ended December 31, 1993 and 1992 5
Financial Notes 6 - 7
Financial Review 8 - 9
PART II. OTHER INFORMATION
===========================
Item
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6 Exhibits and Reports on Form 8-K 10
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PART 1. FINANCIAL INFORMATION
==============================
ARMOR ALL PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
December 31 March 31
1993 1993
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(in thousands)
ASSETS
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Current Assets
Cash and cash equivalents $ 53,157 $ 33,858
Accounts receivable 26,456 54,074
Inventories 3,904 4,715
Deferred income taxes 416 129
Prepaid expenses 2,423 653
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Total current assets 86,356 93,429
Property - net 8,630 8,451
Goodwill 27,932 28,778
Patents and Trademarks 8,746 9,177
Other Intangibles 53 725
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Total assets $131,717 $140,560
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
Accounts payable $ 6,302 $ 9,433
Payable to McKesson 1,150 5,893
Accrued selling expenses 5,648 9,073
Dividends payable 3,380 2,527
Accrued compensation 2,017 3,131
Other liabilities 2,529 2,999
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Total current liabilities 21,026 33,056
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Deferred Income Taxes 912 949
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Stockholders' Equity
Common stock 211 211
Other capital 58,608 57,968
Unearned compensation -
restricted stock (712) (664)
Retained earnings 52,310 49,333
Cumulative translation adjustment (638) (293)
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Total stockholders' equity 109,779 106,555
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Total liabilities and
stockholders' equity $131,717 $140,560
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See accompanying financial notes.
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ARMOR ALL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
December 31 December 31
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1993 1992 1993 1992
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(in thousands except per share amounts)
REVENUES $33,407 $30,927 $117,361 $108,413
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COSTS AND EXPENSES
Cost of sales 13,870 12,945 48,095 44,490
Selling, general and
administrative 13,087 12,132 45,144 42,734
Amortization of intangibles 494 803 2,102 2,966
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Total costs and expenses 27,451 25,880 95,341 90,190
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OPERATING INCOME 5,956 5,047 22,020 18,223
INTEREST INCOME 405 360 1,074 920
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INCOME BEFORE INCOME TAXES 6,361 5,407 23,094 19,143
INCOME TAXES 2,739 2,266 9,986 8,021
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NET INCOME $ 3,622 $ 3,141 $ 13,108 $ 11,122
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EARNINGS PER COMMON SHARE $ .17 $ .15 $ .62 $ .53
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DIVIDENDS PER COMMON SHARE $ .16 $ .12 $ .48 $ .36
======= ======= ======= =======
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 21,123 21,027 21,107 21,011
See accompanying financial notes.
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ARMOR ALL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
December 31
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1993 1992
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(in thousands)
Operating Activities
Net income $ 13,108 $ 11,122
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and amortization 3,067 3,952
Provision for losses on receivables 364 376
Deferred income taxes (211) (151)
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Total 16,328 15,299
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Effect of changes in
Accounts receivable 27,254 25,277
Inventories 811 1,254
Prepaid expenses (1,883) (1,215)
Accounts payable (3,131) (2,506)
Payable to McKesson (income taxes) (2,689) 0
Accrued selling expenses (3,425) (1,715)
Accrued compensation (1,114) 615
Other liabilities (470) 239
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Total 15,353 21,949
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Net cash provided by operating activities 31,681 37,248
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Investing Activities
Note receivable from affiliate 0 (2,385)
Capital expenditures (974) (449)
Other (497) (210)
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Net cash used by investing activities (1,471) (3,044)
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Financing Activities
Payable to McKesson (other) (2,054) 0
Issuance of common stock 421 1,094
Dividends paid (9,278) (7,556)
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Net cash used by financing activities (10,911) (6,462)
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Net increase in cash and cash equivalents 19,299 27,742
Cash and cash equivalents at beginning of period 33,858 15,708
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Cash and cash equivalents at end of period $ 53,157 $ 43,450
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See accompanying financial notes.
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ARMOR ALL PRODUCTS CORPORATION
FINANCIAL NOTES
1. BASIS OF PRESENTATION
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The accompanying consolidated financial statements present the
financial position and results of operations of Armor All Products
Corporation and its subsidiaries (the "Company"). In the opinion
of the Company, these unaudited consolidated financial statements
include all adjustments necessary for a fair presentation of its
financial position as of December 31, 1993 and the results of its
operations and its cash flows for the nine-month periods ended
December 31, 1993 and 1992. Such adjustments were of a normal
recurring nature.
The results of operations for the three and nine months ended
December 31, 1993 and 1992 are not necessarily indicative of the
results for the full years. It is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and related notes thereto
included in the Company's Annual Report to Shareholders for the
year ended March 31, 1993. That report has previously been filed
with the Securities and Exchange Commission as an exhibit to the
Company's Annual Report on Form 10-K.
Certain prior year amounts have been reclassified to conform
with the current year presentation.
2. PARENT COMPANY
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The Company is a subsidiary of McKesson Corporation
("McKesson"). During the nine-month period ended December 31,
1993, McKesson sold 5,175,000 of its shares of the Company's common
stock in a registered secondary offering and donated 250,000 shares
to the McKesson Foundation. These transactions reduced McKesson's
equity interest in the Company from 83% to 57%.
3. CASH MANAGEMENT
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Pursuant to an agreement with McKesson, the Company's U.S.
operations participate daily in a cash management program
administered by McKesson. Under this arrangement, the Company
invests any excess cash in the cash management program and has
unrestricted access to such invested cash to fund disbursements.
If the Company needs additional cash above the amount invested,
such cash requirements are met through borrowings from McKesson.
All amounts invested in the cash management program with McKesson
are deposited in a separate bank account in the Company's name,
which is used for cash management program transactions.
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ARMOR ALL PRODUCTS CORPORATION
FINANCIAL NOTES
Included in cash and cash equivalents in the accompanying
consolidated balance sheets are the following amounts invested in
the cash management program: $48,793,000 at a 3.1% interest rate
on December 31, 1993 and $30,025,000 at a 3.1% interest rate on
March 31, 1993.
4. PREPAID EXPENSES
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Prepaid expenses at December 31, 1993 include $2,152,000 of
payments related to media advertising. The Company allocates the
annual media advertising expense among interim periods in
proportion to estimated annual sales volume.
5. INTEREST INCOME
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Interest income is comprised of the following:
Three Months Nine Months
Ended Ended
December 31 December 31
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1993 1992 1993 1992
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(in thousands)
Interest income - McKesson $ 357 $ 341 $ 948 $ 808
Interest income - other 48 19 126 112
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Interest income $ 405 $ 360 $1,074 $ 920
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ARMOR ALL PRODUCTS CORPORATION
FINANCIAL REVIEW
Results of Operations
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Revenues increased $2.5 million or 8.0% in the quarter ended
December 31, 1993 from the corresponding quarter of the prior year.
This increase was primarily due to higher revenues in Canada, Asia
and Latin America, including certain favorable year-end pricing
settlements in connection with the international distribution
agreement with S. C. Johnson. Sales in the United States increased
moderately from the prior year quarter due to revenues from three
new products: Armor All-R Low-Gloss Protectant-TM, Armor All-R
QuickSilver-TM Wheel Cleaner and Armor All-R Spot & Wash-TM
Concentrate.
Revenues increased $8.9 million or 8.3% in the nine months
ended December 31, 1993 from the corresponding period of the prior
year. Sales in the United States were higher due to revenues from
the three new products mentioned above, as well as to the continued
strong growth of Armor All-R Tire Foam-TM Protectant and sales of
Rain Dance-R Light and Dark Car Formula Polishes. In addition,
international sales increased due to higher revenues from all of
the Company's principal foreign markets: Canada, Europe, Asia,
Latin America and Australia.
Cost of sales as a percentage of revenues was 41.5% and 41.9%
in the quarters ended December 31,1993 and 1992, respectively, and
41.0% in each of the respective nine-month periods. The decrease
in the current quarter was primarily attributable to the effect
of the aforementioned pricing settlements in connection with the
international distribution agreement with S.C. Johnson. For the
nine-month period, these settlements were offset primarily by a
lower-margin product mix and increased shipments of certain
promotional items.
Selling, general and administrative expense as a percentage of
revenues was 39.2% in each of the quarters ended December 31, 1993
and 1992, and 38.5% and 39.4% in the respective nine-month periods.
The decrease in the nine-month period is primarily due to the
absorption of media advertising and fixed administrative expenses
over a higher sales volume. Partially offsetting these factors was
the implementation of several new consumer promotion programs.
Amortization of intangible assets decreased $0.3 million in
the quarter ended December 31, 1993 and $0.9 million in the
nine-month period as certain intangibles became fully amortized.
The effective income tax rate was 43.1% and 41.9% in the
quarters ended December 31, 1993 and 1992, respectively, and 43.2%
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ARMOR ALL PRODUCTS CORPORATION
FINANCIAL REVIEW
and 41.9% in the respective nine-month periods. The higher
effective rates in the current year principally reflect the
enactment of the Omnibus Budget Reconciliation Act of 1993, which
increased the federal corporate income tax rate from 34% to 35%
retroactive to January 1993.
Financial Resources and Liquidity
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The Company's working capital requirements fluctuate during
the year, traditionally peaking in the spring due to extended
payment terms offered in connection with winter sales promotional
activities. Cash inflow is strongest during the summer months as
these receivables are collected. Reflecting these seasonal
factors, the Company had cash and cash equivalents of $53.2 million
with no outstanding debt at December 31, 1993.
This pattern resulted in cash flow from operations of $31.7
million and $37.2 million in the nine-month periods ended December
31, 1993 and 1992, respectively, as accounts receivable were
reduced from March 31 levels. Despite higher net income in the
current period, operating cash flow was lower primarily due to
the timing of payments for income taxes and certain advertising
and selling expenses.
As long as the Company continues to participate in the
McKesson cash management program, McKesson will make available to
the Company the amount of cash necessary to provide the Company
with sufficient funds to meets its needs as defined in its annual
capital and operating plans. The Company does not anticipate
borrowing any funds from McKesson during the remainder of this
fiscal year.
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PART II. OTHER INFORMATION
===========================
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended December 31, 1993.
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S I G N A T U R E
=================
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ARMOR ALL PRODUCTS CORPORATION
(Registrant)
Dated: January 28, 1994 /s/ Mervyn J. McCulloch
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Mervyn J. McCulloch
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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