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 September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-14946
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 September 30, 1996
- ----------------------------- ---------------------------------
Common Stock, $0.01 par value 21,364,822 shares
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
==============================
Pages
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Consolidated Balance Sheets
September 30, 1996 and March 31, 1996 3
Consolidated Statements of Income
Three and six months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
Six months ended September 30, 1996 and 1995 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
Exhibit Index 12
PART 1. FINANCIAL INFORMATION
==============================
ARMOR ALL PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, March 31,
1996 1996
-------- --------
(in thousands)
ASSETS
- ------
Current Assets
Cash and cash equivalents $ 54,915 $ 20,894
Accounts receivable 30,625 72,009
Inventories 7,161 12,643
Deferred taxes 2,252 2,770
Prepaid expenses 8,000 1,462
------- -------
Total current assets 102,953 109,778
Property - net 8,799 9,414
Goodwill 24,830 25,394
Patents and Trademarks 13,665 14,297
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Total assets $150,247 $158,883
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 8,278 $ 13,654
Payable to McKesson 978 2,224
Accrued selling expenses 7,079 9,503
Accrued compensation 2,031 1,495
Dividends payable 3,418 3,411
Other liabilities 3,487 5,049
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Total current liabilities 25,271 35,336
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Deferred Income Taxes 535 572
------- -------
Stockholders' Equity
Common stock 214 213
Other capital 62,341 61,739
Unearned compensation - restricted stock (1,163) (1,230)
Retained earnings 63,673 62,871
Cumulative translation adjustment (624) (618)
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Total stockholders' equity 124,441 122,975
------- -------
Total liabilities and
stockholders' equity $150,247 $158,883
======= =======
See accompanying financial notes.
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ARMOR ALL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
--------------- ---------------
1996 1995 1996 1995
------ ------ ------ ------
(in thousands except per share amounts)
REVENUES $37,393 $39,772 $92,701 $89,996
------ ------ ------ ------
COSTS AND EXPENSES
Cost of sales 17,105 18,225 42,031 42,619
Selling, general
and administrative 14,543 16,736 37,194 36,244
Amortization of intangibles 618 614 1,235 1,227
------ ------ ------ ------
Total costs and expenses 32,266 35,575 80,460 80,090
------ ------ ------ ------
OPERATING INCOME 5,127 4,197 12,241 9,906
Interest Income 638 471 919 722
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 5,765 4,668 13,160 10,628
Income Taxes 2,421 1,961 5,527 4,464
------ ------ ------ ------
NET INCOME $ 3,344 $ 2,707 $ 7,633 $ 6,164
====== ====== ====== ======
EARNINGS PER COMMON SHARE $.16 $.13 $.36 $.29
DIVIDENDS PER COMMON SHARE $.16 $.16 $.32 $.32
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 21,354 21,290 21,343 21,283
See accompanying financial notes.
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ARMOR ALL PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
September 30,
-------------------
1996 1996
-------- --------
(in thousands)
Operating Activities
Net income $ 7,633 $ 6,164
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 2,048 1,968
Deferred income taxes 481 247
Other 67 (325)
------ ------
Total 10,229 8,054
------ ------
Effect of changes in
Accounts receivable 41,384 54,839
Inventories 5,482 (951)
Prepaid expenses (6,538) (9,728)
Accounts payable (5,376) (11,129)
Accrued selling expenses (2,424) (5,926)
Accrued compensation 536 (1,125)
Income and other taxes payable (591) (5,429)
Other liabilities (971) (1,368)
------ ------
Total 31,502 19,183
------ ------
Net cash provided by operating activities 41,731 27,237
------ ------
Investing Activities
Capital expenditures (198) (337)
Other (44) 119
------ ------
Net cash used by investing activities (242) (218)
------ ------
Financing Activities
Payable to McKesson (1,246) (1,157)
Issuance of common stock 602 353
Dividends paid (6,824) (6,808)
------ ------
Net cash used by financing activities (7,468) (7,612)
------ ------
Net increase in cash and cash equivalents 34,021 19,407
Cash and cash equivalents at
beginning of period 20,894 22,249
------ ------
Cash and cash equivalents at end of period $54,915 $41,656
====== ======
See accompanying financial notes.
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ARMOR ALL PRODUCTS CORPORATION
FINANCIAL NOTES
1. BASIS OF PRESENTATION
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 September 30, 1996
and the results of its operations and its cash flows for the
six-month periods ended September 30, 1996 and 1995. Such
adjustments were of a normal recurring nature.
The results of operations for the six-month periods ended
September 30, 1996 and 1995 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, 1996. That report has previously been filed
with the Securities and Exchange Commission as an exhibit to the
Annual Report on Form 10-K.
2. CASH MANAGEMENT
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 its operating
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.
Included in cash and cash equivalents in the accompanying
consolidated balance sheets are the following amounts invested in
the cash management program: $48,723,000 at 5.4% on September 30,
1996 and $17,359,000 at 5.3% on March 31, 1996.
-6-
ARMOR ALL PRODUCTS CORPORATION
FINANCIAL NOTES
3. INVENTORIES
Inventories are comprised of the following:
September 30, March 31,
1996 1996
------ ------
(in thousands)
Finished goods 5,986 11,714
Raw materials 1,175 929
------ ------
Total $ 7,161 $12,643
====== ======
4. PREPAID EXPENSES
Prepaid expenses at September 30, 1996 includes
approximately $6,150,000 of payments related to fiscal year 1997
media advertising. The Company allocates the annual media
advertising expense among interim periods in proportion to
estimated annual sales volume. In addition, prepaid expenses at
September 30, 1996 includes approximately $1,350,000 of media
advertising purchased on a forward buying basis for airing in
fiscal 1998.
5. INTEREST INCOME
Interest income is comprised of the following:
Three months ended Six months ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
Interest income - McKesson $623 $445 $870 $653
Interest income - other 15 26 49 69
--- --- --- ---
Interest income $638 $471 $919 $722
=== === === ===
-7-
ARMOR ALL PRODUCTS CORPORATION
FINANCIAL REVIEW
Results of Operations
- ---------------------
Revenues decreased $2.4 million or 6.0% in the quarter ended
September 30, 1996 in comparison with the prior year quarter.
The decrease was primarily attributable to lower shipments of
Automotive products in the United States and Canada, reflecting a
weakness in orders from the retail sector for the entire
automotive appearance products industry. In addition, revenues
were adversely affected by a change in the timing of shipments of
the Company's annual holiday promotional packs; a higher
percentage of the seasonal total of such packs will be shipped
during the third quarter this year. Home Care revenues were
lower primarily because the prior year quarter included strong
initial shipments to retailers of Armor All(R) Vinyl Siding Wash,
which was introduced in February 1995 and has the leading market
share in its category. International revenues were higher due to
increased shipments to Europe and the Caribbean.
Revenues increased $2.7 million or 3.0% in the six-month period
ended September 30, 1996 in comparison with the comparable period
in the prior year. The increase was primarily attributable to
higher Automotive shipments in the United States and Canada. The
principal contributors to this increase were shipments of two new
products launched in December 1995: Armor All(R) Armor Plate(R)
Paint Protectant and Armor All(R) FlashBlack(TM) Tire Shine.
Revenues from shipments of the Company's flagship product, Armor
All(R) Protectant, were slightly higher than in the prior year
period. The Automotive revenue comparison benefited from the
timing of spring promotional shipments in the current year. Home
Care revenues were lower principally because the prior year
shipments included (1) a large new customer's order to fill
initial inventory requirements and (2) the aforementioned launch
of Armor All(R) Vinyl Siding Wash. In addition, the current year
period was adversely affected by cautious retailer buying due to
a weather-related slow start to the spring season. International
revenues were higher, mainly reflecting increased shipments to
Europe and the Caribbean.
Cost of sales as a percentage of revenues was 45.7% and 45.8% in
the quarters ended September 30, 1996 and 1995, respectively, and
45.3% and 47.4% in the respective six-month periods. The lower
percentages in the current year were due to several factors,
including a favorable Automotive product mix, lower raw materials
costs, lower inventory carrying costs, and a selling price
increase on certain Automotive products in November 1995. The
-8-
ARMOR ALL PRODUCTS CORPORATION
FINANCIAL REVIEW
percentage decrease was much lower in the second quarter than in
the six-month period because the aforementioned favorable factors
were largely offset by the effects of an unfavorable mix of Home
Care shipments and the absorption of fixed manufacturing and
distribution costs over the lower Automotive and Home Care sales
volume.
Selling, general and administrative expense as a percentage of
sales was 38.9% and 42.1% in the quarters ended September 30,
1996 and 1995, respectively, and 40.1% and 40.3% in the
respective six-month periods. The decreases in the current year
principally reflect a reduction in the spending level for
marketing expenses. The percentage decrease was much higher in
the second quarter than in the six-month period primarily due to
the higher costs associated with spring Automotive shipments, as
discussed above, as well as to other differences in the timing of
expenses.
Interest income increased $0.2 million in the second quarter and
six-month period mainly due to higher cash balances resulting
from the Company's efforts to reduce inventory and other working
capital balances.
Financial Resources and Liquidity
- ---------------------------------
The Company's working capital requirements fluctuate during the
year, traditionally peaking in the spring due to extended payment
terms offered in connection with the Company's winter sales
promotional activities. Cash inflow is strongest during the
summer months as these receivables are collected. This pattern
resulted in cash flow from operations of $41.7 million and $27.2
million in the six-month periods ended September 30, 1996 and
1995, respectively. The higher cash inflow in the current year
was primarily due to successful inventory reduction measures,
higher net income, and changes in the timing of payments for
media advertising and certain payables and accrued liabilities.
These factors were partially offset by lower collections of
accounts receivable due to a lower receivables balance at the
beginning of the current fiscal year than at the beginning of the
prior fiscal year.
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 meet its needs, as defined in its annual
capital and operating plans.
-9-
PART II. OTHER INFORMATION
===========================
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended September 30, 1996.
-10-
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: November 14, 1996 By /s/Michael G. McCafferty
----------------------------------
Michael G. McCafferty
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-11-
EXHIBIT INDEX
Exhibit
Number Description
- ------- ---------------------------------------------
27 Financial Data Schedule
-12-
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