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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended March 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to 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 Identification No.)
incorporation or organization)
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by nonaffiliates of the Registrant
at June 3, 1996: $149,176,759
Number of shares of common stock outstanding at June 3, 1996: 21,331,222
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended March 31, 1996 are incorporated by reference into Parts II and IV of this
report.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on July 26, 1996 are incorporated by reference into Part
III of this report.
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TABLE OF CONTENTS
PART I
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Item Pages
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1. Business.............................................................1
2. Properties...........................................................5
3. Legal Proceedings....................................................5
4. Submission of Matters to a Vote of Security Holders..................5
Executive Officers of the Registrant.................................6
PART II
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5. Market for the Registrant's Common Stock and
Related Stockholder Matters.........................................7
6. Selected Financial Data..............................................7
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................7
8. Financial Statements and Supplementary Data..........................7
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...........................................7
PART III
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10. Directors and Executive Officers of the Registrant.................8
11. Executive Compensation.............................................8
12. Security Ownership of Certain Beneficial Owners and Management.....8
13. Certain Relationships and Related Transactions.....................8
PART IV
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14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...9
Signatures........................................................10
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PART I
ITEM 1. BUSINESS
Substantially all of the Company's operations are currently in one
business segment, marketing branded appearance enhancement products targeted
primarily for the do-it-yourself automotive and home care markets. The Company
also sells certain of its automotive products to car wash operators and other
industrial users.
The Company's majority shareholder is McKesson Corporation
("McKesson"). Prior to May 1993, McKesson owned approximately 83% of the
Company's outstanding shares of common stock. In May 1993, McKesson reduced
its ownership level to approximately 57% through a sale of shares to the public.
McKesson subsequently reduced its ownership level to approximately 55% through a
donation of shares to a charitable foundation. In addition, McKesson has
outstanding debentures which are exchangeable into shares of the Company's
common stock owned by McKesson at a price of $25.94 per share at any time
through February 2004, subject to McKesson's right to pay cash equal to the
market price of the stock in lieu of making the exchange. If all such
debentures were actually exchanged, McKesson's ownership level would be reduced
to approximately 22%.
Products
The Company develops and markets a broad line of automotive appearance
chemicals under four brand names: Armor All/(R)/, Rain Dance/(R)/, Rally/(R)/
and No. 7/(R)/. The Company also markets home care products under the Armor
All/(R)/ and E-Z Deck Wash/ (R)/ brand names.
Automotive Brands
The Company develops and markets protectants, washes and other
cleaning aids under the Armor All/(R)/ name.
The Company's principal product, Armor All/(R)/ Protectant, is
designed to protect and beautify natural and synthetic polymer materials and is
primarily used on automobile surfaces made of rubber, vinyl and plastic, such as
dashboards, vinyl tops, door panels, tire sidewalls and rubber bumpers. Armor
All/(R)/Protectant Low-Gloss Natural Finish is a low-gloss version of Armor All
Protectant designed to minimize dashboard glare for consumers who prefer a less
shiny appearance. Sales of Armor All Protectant, including the low-gloss
version, accounted for 54% and 59% of the Company's revenues in fiscal 1996 and
1995, respectively.
Armor All/(R)/ Tire Foam/(R)/ Protectant is designed to clean, shine
and protect tire sidewalls without wiping. Armor All/(R)/ FlashBlack/TM /Tire
Shine, introduced in December 1995, also has a no-wipe formula and is designed
to give tires a wet-look luster. Armor All/(R)/ QuickSilver/TM/ Wheel Cleaner
is a spray-on wheel cleaner designed for use on wheels, wheel covers and
hubcaps. Armor All/(R)/ Leather Care Protectant is designed primarily to clean
and protect leather upholstery.
Armor All/(R)/ Armor Plate/(R)/ Paint Protectant, introduced in
December 1995, is a spray-on, wipe-off product designed to protect and shine the
painted surfaces of cars. Armor All/(R)/ Spot & Wash/TM/ Concentrate is a car
wash product designed to remove bugs, tar residue and tree sap from car
finishes. The Company also markets another car wash liquid concentrate and a
multi-purpose cleaner under the Armor All name. Armor All/(R)/ Express
Wash/TM/, introduced in certain International markets in March 1996, is a
waterless car wash designed for consumers who live in areas with legal
restrictions or other conditions which prevent them from using water to wash
their cars.
The Company markets polishes, paste and liquid waxes, and car wash products
under the Rain Dance brand and paste and liquid waxes under the Rally brand.
Under the No. 7 brand, the Company markets a variety of polishing and rubbing
compounds and other cleaning aids.
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Home Care Brands
The Company entered the home care market in January 1994 with the
acquisition of the E-Z Deck Wash/(R)/ and E-Z D/TM/ brands. The E-Z Deck Wash
product is designed to clean and restore wood surfaces, such as patio decks,
siding and fences. The acquired E-Z D brand products include a vinyl wash, a
paint preparation treatment and a roof wash. The E-Z Deck Wash and E-Z D
products are now being marketed under the Armor All name.
In February 1995, the Company introduced three new products under the Armor
All name. Armor All/(R)/ Deck Protector Waterproofing Sealer is designed to
restore the natural luster and sheen of wood and protects against water damage
on wood. Armor All/(R)/ Water Proofing Sealer can be used to protect against
water damage on most porous surfaces, including wood, brick, concrete, stucco
and masonry. Armor All/(R)/ Vinyl Siding Wash is designed to remove stains
caused by mold and mildew from vinyl siding without leaving a film.
In January 1996, the Company introduced Armor All/(R)/ Painted Wood Wash,
designed for cleaning painted wood siding and trim. Also in January 1996, the
Company introduced a line of Armor All/(R)/ Pressure Washing formulas in three
versions: a deck wash, a siding wash and a car wash.
Geographic Markets
The Company's products are sold predominantly in the United States and
Canada, with additional sales occurring in approximately 70 other countries. In
fiscal 1996, 87% of sales were in the United States, 4% in Canada and 9% in
other foreign countries, principally Australia, Germany, Japan, Mexico and the
United Kingdom. The Company does not have large fixed capital investments in
its foreign operations. Foreign currency exchange fluctuations have not had a
significant impact on the Company's operating results.
Sales and Marketing
In the United States and Canadian automotive appearance market, a sales force
of 12 employees accounted directly for over 50% of the Company's revenues in
fiscal 1996. In addition, the Company's sales force oversees 19 independent
manufacturers' representative organizations that also market the Company's
products. Primary customers include mass merchandise retailers, auto supply
stores, warehouse clubs, hardware stores and other retail outlets. The Company
believes that its automotive appearance products are sold at over 100,000 retail
outlets.
In the United States and Canadian home care market, a sales force of 6
employees oversees 19 manufacturers' representative organizations that market
the Company's products. Primary customers include home centers, do-it-yourself
warehouses, mass merchandise retailers and hardware stores.
The Company's largest customers represent a significant percentage of its
revenues. Sales to the Company's 20 largest customers accounted for 64%, 61%
and 65% of the Company's consolidated revenues in fiscal 1996, 1995 and 1994,
respectively. Sales to the Company's two largest customers, Wal-Mart Stores,
Inc. (and its affiliates) and Kmart Corporation (and its affiliates), accounted
for the following respective percentages of the Company's revenues: 20% and 10%
in fiscal 1996; 17% and 8% in fiscal 1995; and 17% and 8% in fiscal 1994.
The Company's direct sales force works closely with the Company's largest
customers on joint marketing and promotional activities. The Company also
assists its customers with inventory management supported, in certain cases, by
electronic data interchange ("EDI") links between the Company and the customer.
In addition, EDI provides the Company with valuable marketing information.
Among other things, the Company uses EDI point-of-sale statistics to analyze
geographic purchase patterns, measure the success of test marketing programs and
monitor sales of time-sensitive promotions.
The Company provides national advertising and promotional support and retail
merchandising management assistance, including product information and sales
training. The Company's promotional activities target both trade accounts and
retail consumers. Over the past four years, the Company has increased the
proportion of marketing funds
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which are offered to trade customers as fixed sums in return for specific
promotional activities, as opposed to more general cooperative advertising
arrangements. From time to time, the Company uses various retail sales
incentive devices, such as coupons, rebates, "Bonus Packs" (e.g., 10 ounces for
the price of 8), merchandise with attached free samples, and other special
offers to stimulate retail sales.
Retail sales of the Company's products are seasonal and are highest between
April and September. However, sales to the Company's trade customers are
highest in its fourth fiscal quarter (from January through March). Consistent
with industry practice, the Company offers extended payment terms in conjunction
with its winter promotional activities.
International sales are effected through sales offices in Canada and the
United Kingdom, through foreign distributors, and through a marketing and
distribution alliance with S. C. Johnson & Son, Inc. Under an agreement between
the Company and S.C. Johnson, S. C. Johnson is the exclusive distributor of
Armor All Protectant and certain of the Company's other products in Germany,
Japan and Mexico, subject to agreement with the Company on annual business and
marketing plans for each country. Under the agreement, S. C. Johnson pays
virtually all selling and marketing expenses and the Company and S.C. Johnson
share in the profits or losses. The S.C. Johnson agreement expires in June
2001, with automatic five-year renewals unless either party provides 12 months'
prior notice. The Company has the right to terminate the agreement on a
country-by-country basis if S.C. Johnson fails to meet certain revenue
objectives over specified periods, subject to S.C. Johnson's right to avoid
termination by compensating the Company for any shortfall.
Manufacturing and Packaging
The Company's products are manufactured in four principal locations in the
United States, one location in Canada and one location in Australia.
Protectants are manufactured at four of these locations, aerosol products at
one location, waxes at one location and home care products at one location.
The Company's products are manufactured by contract packagers. Management
believes that the existing packagers can accommodate the Company's production
needs for the foreseeable future. The Company's relationships with its three
most important packagers have lasted for 8, 11 and 23 years. Subject to
contractual arrangements, the Company periodically re-evaluates its selection of
packagers and believes that other acceptable packagers are readily available.
Products which comprise a majority of the Company's sales volume are
manufactured and distributed under full-service packaging agreements. In
general, the Company's full-service packagers are responsible for purchasing
product ingredients and approved component packaging materials. The Company
negotiates the raw material supply arrangements on behalf of its packagers. The
packagers blend, package and warehouse the finished product. With certain
exceptions, the full-service packagers own all the raw materials and finished
products in their possession and transfer title to the Company just prior to
shipment to the Company's customers. In the case of Armor All Protectant and
Armor All Tire Foam Protectant, the Company premixes a concentrate which it
sells to the packagers.
For most of its other products, the Company purchases finished goods from the
contract packagers and warehouses them until shipment to a customer.
During the past two years, the Company has reduced the percentage of its
volume which is manufactured under full-service arrangements. This reduction
resulted primarily from (a) the addition of several new products which must be
manufactured by packagers other than those which serve as distribution centers
and (b) a change in certain packaging and distribution sites to achieve
production and operational efficiencies. As a result, the Company owns a
greater percentage of finished goods inventories than in prior years. The
Company expects to maintain a mix of full-service and other packaging
arrangements in the future based on consideration of production and
transportation costs, unique manufacturing requirements and other factors.
The Company has alternative sources for the ingredients used in, and
packaging components for, all of its products. The Company has contracts with
certain suppliers to provide a continued supply of the primary chemical
ingredients and packaging components used in producing its products.
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Trademarks and Patents
The Company's principal trademarks are:
. Armor All/(R)/
. Symbol of a male Viking figure/(R)/
. Armor Plate/(R)/
. Rain Dance/(R)/
. Rally/(R)/
. No. 7/(R)/
. Tire Foam/(R)/
. Flashblack/TM/
. Quicksilver/TM/
. Spot & Wash/(R)/
. Express Wash /TM/
. Wax Pax/TM/
. E-Z Deck Wash/(R)/
. E-Z D/(R)/
The Company also owns other registered and unregistered trademarks. All of
the principal trademarks are registered in the United States and Canada. The
Armor All and Viking trademarks are also registered in over 80 other countries.
All of the other principal trademarks are also registered in at least several
other countries. The Company believes it has taken all necessary steps to
preserve the registration of its trademarks.
The Company owns a patent on Armor All Armor Plate Paint Protectant, Rain
Dance Wax and Armor All Spot & Wash Concentrate, and has applied for patents on
Armor All QuickSilver Wheel Cleaner and Armor All Vinyl Siding Wash. The
Company also owns a patent on an E-Z Deck Wash product and has other domestic
and foreign E-Z Deck Wash patents pending. In addition, the Company has the
exclusive right to use a supplier's patented formula to produce Armor All Deck
Protector. Management believes that the Company's trademarks are more important
assets than its patents and that the termination or invalidity of its patents
would not have a material adverse effect on the Company.
Competition
In the domestic protectant market, the Company has two principal competitors,
STP/(R)/ Son-of-a-Gun/(R)/ Protectant and Turtle Wax/(R)/ Formula 2001/(R)/
Protectant. Armor All Tire Foam Protectant has four principal competitors and
Armor All QuickSilver Wheel Cleaner has three principal competitors. Armor All
brand cleaner competes against many specialty automotive cleaner products.
Armor All brand wash products and all of the Rain Dance and Rally brand
products compete with numerous wash, wax and polish products in the automotive
aftermarket. The No. 7 brand products compete with many wash and specialty
cleaning products. Competition in international markets varies by country.
In the domestic home care products market, the E-Z Deck Wash brand product
has two principal competitors, Thompson's/(R)/ Deck Wash and Olympic/(R)/ Deck
Cleaner and several secondary competitors. Armor All Deck Protector and
WaterProofing Sealer each primarily compete against products marketed under the
Thompson's, Olympic and Behr brand names. Armor All Vinyl Siding Wash and Armor
All Painted Wood Wash primarily compete against multi-surface products marketed
under the Thompson's and Olympic brand names. The Armor All Power Washing
Formulas compete against products marketed by the manufacturers of power washer
machines; Coleman and Karcher are the principal brand names.
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Employees
At March 31, 1996, the Company employed 149 persons. None are represented by
unions. The Company believes its employee relations are good.
ITEM 2. PROPERTIES
The Company owns its headquarters facility located in Aliso Viejo,
California. The facility, which was built in 1989, comprises 45,000 square feet
of office space on a 4.6 acre site.
The Company also leases approximately 17,000 square feet of warehouse
space in Aliso Viejo, California. The facility is used primarily for
warehousing certain components, finished goods and promotional items. The
Company also mixes the Armor All Protectant and Armor All Tire Foam Protectant
concentrates and performs various special product-packaging functions at this
location. The Company utilizes space in various public warehouses in the
United States and abroad for temporary inventory storage and shipping.
The Company maintains automotive sales offices in Canada and the
United Kingdom, each with less than 2,000 square feet. It conducts its
principal automotive laboratory research and development activities at a leased
facility of approximately 5,000 square feet located near the Company's
headquarters in Aliso Viejo, California.
The Company conducts its principal home care marketing, sales and
research and development activities at two leased facilities in South Carolina
which aggregate approximately 14,000 square feet.
The Company believes that the aforementioned properties will be
sufficient to meet its needs for the next several years.
ITEM 3. LEGAL PROCEEDINGS
In addition to commitments and obligations which arise in the ordinary
course of business, the Company is subject to various claims, investigations,
proceedings and legal actions from time to time involving contracts, competitive
practices, advertising claims, trademark rights, product liability claims, tax
assessments, employment claims and other matters arising out of the conduct of
the Company's business. Management believes that, based on current knowledge,
the outcome of any such pending matters will not have a material adverse effect
on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended March 31, 1996.
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Executive Officers of the Registrant
The following table sets forth information concerning the executive
officers of the Registrant as of June 3, 1996.
There are no family relationships between any of the executive
officers or directors of the Registrant. The executive officers are elected
annually to serve until the first meeting of the Board of Directors following
the next annual meeting of stockholders and until their successors are elected
and have qualified, or until death, resignation or removal, whichever is sooner.
Name Age Position with Registrant and Business Experience
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David E. McDowell 53 Chairman of the Board since April 1992. Senior
Adviser to McKesson Corporation since May 1996;
formerly President, Chief Operating Officer and
a Director of McKesson from January 1992 until
May 1996. Vice President and General Manager,
Quality and Chief Information Officer of
International Business Machines Corporation
(IBM) from November 1990 until January 1992;
President of IBM's National Service Division
from July 1987 until November 1990.
Kenneth M. Evans 54 President and Chief Executive Officer and a
Director since April 1991. Service with the
Company - 5 years.
Michael G. McCafferty 57 Executive Vice President and Chief Financial
Officer since September 1995; Executive Vice
President and Chief Financial Officer of Mattel,
Inc. from 1993 to 1995; Senior Vice President
and Treasurer of Mattel, Inc. from 1985 to 1993.
Service with the Company - 9 months.
Michael A. Caron 45 Senior Vice President since October 1991;
President of Armor All International, a division
of the Company, since August 1993; Senior Vice
President-Marketing from October 1991 to August
1993 and Senior Vice President,
Marketing/International Operations from April
1989 to October 1991. Service with the Company -
11 years.
Gayle F. Metzler 42 Vice President, Human Resources since 1992; Vice
President, Personnel and Administration from
1988 to 1992. Service with the Company - 18
years.
Donald N. Weinberger 60 Vice President, Operations from 1989 to 1996.
Service with the Company - 7 years.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
The Company's Common Stock, par value of $0.01 per share, is traded in the
over-the-counter market under the symbol ARMR. The high and low closing prices
reported by the NASDAQ National Market System appear in financial note 13,
"Quarterly Financial Information" (unaudited) on page 23 of the 1996 Annual
Report to Stockholders, which information is incorporated by reference.
(b) Holders
The approximate number of record holders of the Company's common stock
as of May 15, 1996 was 300. The estimated number of beneficial holders was
2,800.
(c) Dividends
Dividend information is included in financial note 13, "Quarterly
Financial Information" (unaudited) on page 23 of the 1996 Annual Report to
Stockholders, which information is incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data appears on page 1 of the 1996 Annual Report to
Stockholders, which information is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations appears in the section entitled "Financial Review" on pages 12 to 14
of the 1996 Annual Report to Stockholders, which information is incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements appear on pages 15 to 23 of the 1996 Annual Report to
Stockholders, which financial statements are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company is incorporated by
reference from the Registrant's 1996 Proxy Statement. Certain information
relating to Executive Officers of the Company appears on page 6 of this Form
10-K Annual Report. The information with respect to this item required by Item
405 of Regulation S-K is incorporated by reference from the Registrant's 1996
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated by reference from
the Registrant's 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is incorporated by reference from
the Registrant's 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain transactions with McKesson and
management is incorporated by reference from the Registrant's 1996 Proxy
Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statement Schedules
The following consolidated financial statements of the Company, other
financial information and independent auditors' report are contained in the
1996 Annual Report to Stockholders and are incorporated by reference.
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Annual Report
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Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 1996 and 1995 15
Consolidated Statements of Income for the years
ended March 31, 1996, 1995 and 1994 16
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1996, 1995 and 1994 17
Consolidated Statements of Cash Flows for the years
ended March 31, 1996, 1995 and 1994 18
Notes to Consolidated Financial Statements 19
Independent Auditors' Report 24
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The following are included herein: 10-K Page
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Independent Auditors' Report 11
Consolidated Supplementary Financial Schedules for the years
ended March 31, 1996, 1995 and 1994
II. Valuation and Qualifying Accounts and Reserves 12
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Financial statements and schedules not included or incorporated by reference
herein have been omitted because of the absence of conditions under which they
are required or because the required information, where material, is shown in
the financial statements, financial notes or supplementary financial
information.
See Exhibit Index on pages 13 and 14.
The following exhibits listed on the Exhibit Index are included herein:
(10)J Armor All Products Corporation 1988 Restricted Stock Plan as amended
through November 16, 1995.
(10)R Settlement Agreement and Mutual General Release dated April 1, 1996
between the Company and its former Senior Vice President Consumer
Products.
(10)S Armor All Products Corporation Incentive Plan for Business Managers -
Fiscal 1997 adopted on March 19, 1996.
(13) Portions of the Company's Annual Report to Stockholders for the fiscal
year ended March 31, 1996.
(21) Subsidiaries of the Registrant.
(23) Independent Auditors' Consent.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended March 31,
1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: May 21, 1996
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By /s/Kenneth M. Evans
-----------------------------
Kenneth M. Evans
President and Chief Executive Officer
By /s/Michael G. McCafferty
-----------------------------
Michael G. McCafferty
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on May 21, 1996 by the following persons on behalf
of the Registrant and in the capacities indicated.
/s/William A. Armstrong /s/David E. McDowell
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William A. Armstrong, Director David E. McDowell,
Chairman of the Board and Director
/s/Jon S. Cartwright /s/Karen Gordon Mills
- ----------------------------- -----------------------------
Jon S. Cartwright, Director Karen Gordon Mills, Director
/s/Kenneth M. Evans
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Kenneth M. Evans, President Alan Seelenfreund, Director
and Chief Executive Officer
and Director
/s/David L. Mahoney
- -----------------------------
David L. Mahoney, Director
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Armor All Products Corporation:
We have audited the consolidated financial statements of Armor All Products
Corporation and subsidiaries as of March 31, 1996 and 1995, and for each of the
three years in the period ended March 31, 1996 and have issued our report
thereon dated April 25, 1996; such consolidated financial statements and report
are included in your 1996 Annual Report to Stockholders and are incorporated
herein by reference. Our audits also included the consolidated financial
schedule of Armor All Products Corporation, listed in Item 14(a). This
consolidated financial schedule is the responsibility of the Corporation's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such consolidated financial schedule, when considered in
relation to the basic consolidated financial statements, taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Costa Mesa, California
April 25, 1996
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Schedule II
ARMOR ALL PRODUCTS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(in thousands)
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Column A Column B Column C Column D Column E
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Additions Reductions
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Balance at Charged to Accounts Balance
Beginning Revenues Written Off, at End
Description of Year and Expenses Net of Recoveries of Year
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Year Ended March 31, 1996
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Reserves for:
Doubtful accounts
and cash discounts* $2,341 $3,663 $(3,306) $2,698
Year Ended March 31, 1995
- -------------------------
Reserves for:
Doubtful accounts
and cash discounts* 2,625 3,555 (3,839) 2,341
Year Ended March 31, 1994
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Reserves for:
Doubtful accounts
and cash discounts* 1,860 3,558 (2,793) 2,625
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* Included as a reduction of Accounts Receivable in the consolidated
balance sheets.
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EXHIBIT INDEX
Exhibit
Number Description
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(3)A* Certificate of Incorporation of the Company. (Exhibit 3.1 to
Form S-1 Registration Statement No. 33-07506).
(3)B* By-Laws of the Company as amended through July 22, 1994.
(Exhibit (3)B to Form 10-K Report for the fiscal year ended
March 31,1995).
(10)A* Services Agreement dated as of July 1, 1986 between the Company
and McKesson, as amended through March 23, 1993. (Exhibit (10)A
to Form 10-K Report for the fiscal year ended March 31, 1994).
(10)B* Tax Allocation Agreement dated as of July 1, 1986 between the
Company and McKesson. (Exhibit 10.2 to Form S-1 Registration
Statement No. 33-07506).
(10)C* Indemnity Agreement with Directors of the Company. (Exhibit 10.3
to Form S-1 Registration Statement No. 33-07506).
(10)D* Form of Termination Agreement dated as of May 15, 1994 between
the Company and certain corporate officers. (Exhibit (10)E to
Form 10-K Report for the fiscal year ended March 31, 1994).
(10)E* Form of Termination Agreement between the Company and its
President and Chief Executive Officer. (Exhibit (10)F to
Form 10-K Report for the fiscal year ended March 31, 1991).
(10)F* Supply Contract for Raw Materials (portions of which are not
disclosed pursuant to the Company's request for confidential
treatment). (Exhibit (10)G to Form 10-K Report for the fiscal
year ended March 31, 1992).
(10)G* Contract Packaging Agreement (portions of which are not
disclosed pursuant to the Company's request for confidential
treatment). (Exhibit (10)H to Form 10-K Report for the fiscal
year ended March 31, 1993).
(10)H* Armor All Products Corporation 1986 Stock Option Plan as amended
through January 21, 1993. (Exhibit (10)I to Form 10-K Report for
the fiscal year ended March 31, 1993).
(10)I* Armor All Products Corporation Deferred Compensation
Administration Plan. (Exhibit (19)C to Form 10-Q Report for the
quarter ended December 31, 1987).
(10)J Armor All Products Corporation 1988 Restricted Stock Plan as
amended through November 16, 1995.
* Document has heretofore been filed with the Commission and is incorporated by
reference and made a part hereof.
-13-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- ----------------------------------------------------------------
(10)K* Armor All Products Corporation 1988 Long-Term Incentive Plan as
amended through December 1, 1994. (Exhibit (10)L to Form 10-K
Report for the fiscal year ended March 31, 1995).
(10)L* Armor All Products Corporation 1989 Short-Term Incentive Plan.
(Exhibit (10)P to Form 10-K Report for the fiscal year ended
March 31, 1989).
(10)M* Armor All Products Corporation Supplemental Profit-Sharing
Investment Plan adopted August 1, 1989. (Exhibit (10)N to Form
10-K Report for the fiscal year ended March 31, 1994).
(10)N* Distribution Agreement between S.C. Johnson & Son, Inc. and
Armor All Products Corporation dated April 1, 1991 (portions of
which are not disclosed pursuant to the Company's request for
confidential treatment). (Exhibit (10)N to Form 10-K Report for
the fiscal year ended March 31, 1992).
(10)O* Letter Agreement dated November 4, 1993 amending the
Distribution Agreement between S. C. Johnson & Son, Inc. and the
Company (portions of which are not disclosed pursuant to the
Company's request for confidential treatment). (Exhibit (10)P to
Form 10-K Report for the fiscal year ended March 31, 1994) .
(10)P* Asset Purchase and Sale Agreement dated January 26, 1994 between
Agri-Products Special Markets, Inc. and the Company (portions of
which are not disclosed pursuant to the Company's request for
confidential treatment). (Exhibit (10)Q to Form 10-K Report for
the fiscal year ended March 31, 1994).
(10)Q* Separation Agreement dated February 13, 1995 between the Company
and its former Executive Vice President and Chief Financial
Officer. (Exhibit (10)R to Form 10-K Report for the fiscal year
ended March 31, 1995).
(10)R Settlement Agreement and Mutual General Release dated April 1,
1996 between the Company and its former Senior Vice President
Consumer Products.
(10)S Armor All Products Corporation Incentive Plan for Business
Managers -Fiscal 1997 adopted on March 19, 1996.
(13) Portions of the Company's Annual Report to Stockholders for the
fiscal year ended March 31, 1996.
(21) Subsidiaries of the Registrant.
(23) Independent Auditors' Consent.
(27) Financial Data Schedule.
* Document has heretofore been filed with the Commission and is incorporated by
reference and made a part hereof.
-14-
<PAGE>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
---------------------------------------------
1. Armor All Products Corporation 1986 Stock Option Plan as amended through
January 21, 1993.
2. Armor All Products Corporation Deferred Compensation Administration
Plan.
3. Armor All Products Corporation 1988 Restricted Stock Plan as amended
through November 16, 1995.
4. Armor All Products Corporation 1988 Long-Term Incentive Plan as amended
through December 1, 1994.
5. Armor All Products Corporation 1989 Short-Term Incentive Plan.
6. Armor All Products Corporation Supplemental Profit-Sharing Investment
Plan.
7. Form of Termination Agreement between the Company and its President and
Chief Executive Officer.
8. Form of Termination Agreement between the Company and certain executive
officers.
9. Separation Agreement dated February 13, 1995 between the Company and its
former Executive Vice President and Chief Financial Officer.
10. Settlement Agreement and Mutual Release dated April 1, 1996 between the
Company and its former Senior Vice President Consumer Products.
11. Armor All Products Corporation Incentive Plan for Business Managers -
Fiscal 1997 adopted on March 19, 1996.
-15-
<PAGE>
EXHIBIT (10)J
ARMOR ALL PRODUCTS CORPORATION
1988 RESTRICTED STOCK PLAN
--------------------------
(As Amended through November 16, 1995)
I. GENERAL
1. DEFINITIONS. Whenever used herein, the following terms
shall have the meanings set forth below:
(a) "Approved Retirement" shall mean any termination
of employment with the Corporation after attainment of age 65
(except termination for cause) or any retirement before age 65
with the approval of the Board.
(b) "Board" means the Board of Directors of the
Corporation.
(c) "Committee" means the Compensation Committee of
the Board, which shall consist of not less than three members of
the Board who shall be appointed by and serve at the pleasure of
the Board and who shall be "disinterested" within the meaning of
Rule 16b-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
No person who is a Participant may be a member of said Committee,
and any person who is appointed a member of said Committee and
who accepts such appointment shall, by virtue thereof, be
ineligible thereafter to be granted a Restricted Stock Grant
under the Plan.
(d) "Corporation" means Armor All Products
Corporation, a Delaware corporation.
(e) "Disability" or "Disabled" shall mean (1) a
physical or mental condition which, in the judgment of the
Committee based on competent medical evidence satisfactory to the
Committee, including, if required by the Committee, medical
evidence obtained by an examination conducted by a physician
selected by the Committee, renders an individual unable to engage
in any substantial gainful activity for the Corporation and which
impairment is likely to result in death or to be of long
continued and indefinite duration, or (2) a judicial declaration
of incompetence.
(f) "Eligible Employee" means any employee of the
Corporation or any Subsidiary (including employees who are
directors and/or officers) who, as determined by the Committee in
its sole discretion, has and exercises management functions and
responsibilities.
<PAGE>
2
(g) "Participant" means an individual to whom a
Restricted Stock Grant is granted under the Plan.
(h) "Plan" means the 1988 Restricted Stock Plan of the
Corporation as described herein.
(i) "Restricted Stock Grant" or "Grant" means a grant
described in Part II of the Plan which is made by the Corporation
and approved by the Committee under and pursuant to the Plan.
(j) "Stock" means the Common Stock, $0.01 par value,
of the Corporation.
(k) "Subsidiary" means a subsidiary of the Corporation
or an unincorporated organization controlled, directly or
indirectly, by either voting or equity control, by the
Corporation, including subsidiaries or unincorporated
organizations which may be created or acquired while the Plan is
in effect.
2. PURPOSE. The purpose of the Plan is to aid the
Corporation and its Subsidiaries in attracting, retaining and
motivating management employees with outstanding ability,
competence and potential. The Plan provides such employees with
a proprietary interest in the Corporation's success and progress
by granting to them shares of Stock in accordance with the terms
and conditions set forth below.
3. ADMINISTRATION. The Plan shall be administered by the
Committee. Subject to all the applicable provisions of the Plan,
the Committee is authorized to approve Restricted Stock Grants in
accordance with the Plan, to construe and interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to
the Plan, and to make all determinations and to take all actions
necessary or advisable for the Plan's administration. The
Committee shall act by vote or written consent of a majority of
its members. Whenever the Plan authorizes or requires the
Committee to take any action, make any determination or decision,
or form any opinion, then any such action, determination,
decision or opinion by or of the Committee shall be in the
absolute discretion of the Committee and shall be final and
binding upon all persons in interest, including the Corporation,
its shareholders, and all Eligible Employees.
4. SHARES OF STOCK UNDER THE PLAN. There may be granted
under the Plan an aggregate of not more than 220,000 shares of
<PAGE>
3
Stock, subject to adjustment as provided in Section 3 of Part III
of the Plan. Shares of Stock granted under the Plan may be
either treasury shares or authorized and unissued shares, or any
combination thereof. If, on or before termination of the Plan,
any shares of Stock shall be reacquired by the Corporation
pursuant to the termination provisions described in Section 1 of
Part II of the Plan or in the instruments evidencing the making
of Restricted Stock Grants, such shares may again be granted
under the Plan. Prior to the making of Restricted Stock Grants,
the Corporation shall be under no obligation to reserve or retain
in its treasury any particular number of shares of Stock at any
time, and no particular shares of Stock, whether issued or held
as treasury Stock, shall be identified as being available for
future Restricted Stock Grants under the Plan.
5. PARTICIPANTS. From time to time the Committee shall,
in its sole discretion, but subject to all of the provisions of
the Plan, determine which Eligible Employees will be granted
Restricted Stock Grants under the Plan and the number of shares
of Stock to be granted to each Participant and the terms,
conditions and restrictions of each such Restricted Stock Grant.
In making such determinations, the Committee shall take into
account the nature of services rendered and to be rendered by the
respective recipients, their present and potential contribution
to the Corporation's success and such other factors as the
Committee in its discretion deems relevant to the accomplishment
of the purposes of the Plan. In any year, the Committee may
approve the grant to any Eligible Employee of Restricted Stock
Grants subject to differing terms and conditions. The
Committee's decision to approve the grant of a Restricted Stock
Grant to an employee in any year shall not require the Committee
to approve the grant of a Restricted Stock Grant to that employee
in any other year or to any other employee in any year; nor shall
the Committee's decision with respect to the number of shares of
Stock or the terms, conditions and restrictions applicable to any
Restricted Stock Grant to be made to an employee in any year,
require the Committee to approve the grant of the same number of
shares of Stock or of Restricted Stock Grants with the same
terms, conditions and restrictions to that employee in any other
year or to any other employee in any year. The Committee shall
not be precluded from approving the grant of a Restricted Stock
Grant to any Eligible Employee solely because such employee
previously may have been granted a Restricted Stock Grant under
the Plan.
<PAGE>
4
6. RIGHTS WITH RESPECT TO SHARES OF STOCK. An Employee to
whom a Restricted Stock Grant has been made shall be notified of
the Grant. Upon written acceptance of the Grant by the Eligible
Employee, including the restrictions and other terms and
conditions described in the Plan and in the instrument evidencing
such Grant, the Corporation shall cause to be issued or
transferred to the name of the Eligible Employee a certificate or
certificates for the number of shares of Stock granted, subject
to the provisions of Part II hereof (including those related to
custody arrangements that may be established). The date of issue
or transfer of such shares of Stock on the books of the
Corporation shall be deemed to be the date of grant (hereinafter,
"date of grant") of the Restricted Stock Grant for all purposes
of the Plan. From and after the date of grant, the Eligible
Employee shall be a Participant and shall have absolute ownership
of such shares of Stock, including the right to vote and to
receive dividends thereon, subject to the terms, conditions and
restrictions described in the Plan and in the instrument
evidencing the grant of such Restricted Stock Grant.
7. EMPLOYMENT. In the absence of any specific agreement
to the contrary, no grant of a Restricted Stock Grant to a
Participant under the Plan shall affect any right of the
Corporation or any Subsidiary to terminate, with or without
cause, the Participant's employment at any time.
II. RESTRICTED STOCK
Each Restricted Stock Grant made under the Plan shall
contain the following terms, conditions and restrictions and such
additional terms, conditions and restrictions as may be
determined by the Committee; provided, however, that no
Restricted Stock Grant shall be subject to additional terms,
conditions and restrictions which are more favorable to a
Participant than the terms, conditions and restrictions set forth
elsewhere in this Plan.
1. RESTRICTIONS. Until the restrictions imposed on any
Restricted Stock Grant shall lapse, shares of Stock granted to a
Participant pursuant to a Restricted Stock Grant:
(a) shall not be sold, assigned, transferred, pledged,
hypothecated, or otherwise disposed of, and
(b) shall, if the Participant's continuous employment
<PAGE>
5
with the Corporation or any Subsidiary shall terminate for any
reason, except as provided in Section 3 of this Part II, be
returned to the Corporation forthwith, and all the rights of the
Participant to such shares shall immediately terminate; provided,
that if the Committee, in its sole discretion, shall within
ninety (90) days of such termination of employment, notify the
Participant in writing of its decision not to terminate the
Participant's rights in such shares, then the Participant shall
continue to be the owner of shares of Stock subject to such
continuing restrictions as the Committee may prescribe in such
notice. If the Participant's interests in the shares of Stock
granted pursuant to a Restricted Stock Grant shall be terminated,
such Participant shall forthwith deliver or cause to be delivered
to the Secretary or any Assistant Secretary of the Corporation
the certificate(s), if any, previously delivered to the
Participant for such shares of Stock, accompanied by such
endorsement(s) and/or instrument(s) of transfer as may be
required by the Secretary or any Assistant Secretary of the
Corporation.
2. LAPSE OF RESTRICTIONS. Subject to the provisions of
this Plan and the award agreements, the restrictions imposed on
any Restricted Stock Grant shall commence with the date of grant
and continue during a period set by the Committee. Within these
limits, the Committee may provide for the lapse of such
restrictions in installments where deemed appropriate.
3. TERMINATION OF EMPLOYMENT BY REASON OF DEATH,
DISABILITY OR APPROVED RETIREMENT. Any provisions of Section 1
of this Part II to the contrary notwithstanding, if a Participant
who has been in the continuous employment of the Corporation or a
Subsidiary since the date of grant of a Restricted Stock Grant to
such Participant shall, while in such employment, be terminated
as a result of death, Disability or Approved Retirement, then the
restrictions imposed on any Restricted Stock Grant shall lapse as
to all shares of Stock granted to such Participant pursuant to
such Restricted Stock Grant on the date of such event.
4. CHANGE IN CONTROL. In the event of a Change in Control
of the Corporation, or of its parent, McKesson Corporation (each
of which is referred to herein as "Corporation"), all
restrictions on outstanding Restricted Stock Grants shall
immediately lapse.
<PAGE>
6
For purposes of this Plan, a Change in Control shall
occur if any of the following occurs:
(a) any "person" (as defined in Sections 13(d) and
14(d) of the Exchange Act shall become the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing 30% or
more of the combined voting power of the Corporation's then
outstanding securities;
(b) there shall be consummated:
(i) any consolidation or merger of the
Corporation in which the Corporation is not the continuing or
surviving corporation or pursuant to which shares of the
Corporation's Stock would be converted into cash, securities or
other property, other than a merger of the Corporation in which
the holders of the Corporation's Stock immediately prior to the
merger have the same proportionate ownership of common stock of
the surviving corporation immediately after the merger, or
(ii) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Corporation;
(c) the stockholders of the Corporation approve a plan
or proposal for the liquidation or dissolution of the
Corporation; or
(d) during any period of two consecutive years,
individuals who at the beginning of such period constitute the
Board and any new director whose election by the Board or
nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning
of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a
majority thereof.
Provided, however, that none of the foregoing events
shall be deemed to be a Change in Control if the event or events
shall have been determined by the affirmative vote of at least a
majority of the members of the Board in office immediately prior
to such event or events not to be a Change in Control for
purposes of the Plan.
<PAGE>
7
5. AGREEMENT BY PARTICIPANT REGARDING WITHHOLDING TAXES.
Each Participant granted a Restricted Stock Grant shall be
subject to the following rules (as modified by the provisions of
Section 6 of this Part II):
(a) No later than the date as to which the
restrictions imposed on any Restricted Stock Grant shall lapse,
such Participant must pay to the Corporation, or make
arrangements satisfactory to the Committee regarding payment of
any federal, state or local taxes of any kind required by law to
be withheld with respect to the shares of Stock subject to the
Restricted Stock Grant.
(b) The Corporation and its Subsidiaries shall, to the
extent permitted by law, have the right to deduct from any
payment of any kind otherwise due to the Participant any federal,
state or local taxes of any kind required by law to be withheld
with respect to the shares of Stock subject to the Restricted
Stock Grant.
(c) A Participant may make an election to have the
Corporation retain some portion of the Restricted Stock Grant to
satisfy tax withholding requirements. The election must be made
in accordance with the following conditions:
(i) The election is made prior to the date on
which the amount to be withheld is determined;
(ii) The election is subject to the approval of
the Committee;
(iii) The election is made on or after August 1,
1992;
(iv) If the Participant is an officer of the
Corporation within the meaning of Section 16 of the Securities
Exchange Act of 1934, the election is made during the ten-day
period beginning on the third business day following the date of
release of the Corporation's quarterly and annual summary
statements of sales and earnings.
If a qualifying election is made, then upon the lapse of
restrictions, the Corporation will retain the number of shares of
stock having a value equal to the amount necessary to satisfy any
withholding requirements. Calculation of the number of shares to
be withheld shall be made based on the fair market value of the
Corporation's common Stock. Such fair market value shall be the
mean between the lowest reported bid price and the highest
reported asked price of the Stock in the over-the-counter market
<PAGE>
8
on the date the restrictions lapse, as reported by any
publication of general circulation selected by the Corporation
which regularly reports the market price of the Stock in such
market. In no event, however, shall the Corporation be required
to issue fractional shares of Stock.
The Committee shall be authorized to establish such rules,
forms and procedures as it deems necessary to implement the
foregoing.
6. ELECTION TO RECOGNIZE GROSS INCOME IN THE YEAR OF
GRANT. If any Participant properly elects within thirty (30)
days of the date of grant, to include in gross income for federal
income tax purposes an amount equal to the fair market value of
the shares of Stock granted on the date of grant, such
Participant shall pay to the Corporation, or make arrangements
satisfactory to the Committee to pay to the Corporation in the
year of such grant, any federal, state or local taxes required to
be withheld with respect to such shares. If such Participant
shall fail to make such payments, the Corporation and its
Subsidiaries shall, to the extent permitted by law, have the
right to deduct from any payment of any kind otherwise due to the
Participant any federal, state or local taxes of any kind
required by law to be withheld with respect to such shares of
Stock.
7. RESTRICTIVE LEGEND; CERTIFICATES MAY BE HELD IN
CUSTODY. Each certificate evidencing shares of Stock granted
pursuant to a Restricted Stock Grant may bear an appropriate
legend referring to the terms, conditions and restrictions
described in the Plan and in the instrument evidencing the
Restricted Stock Grant. Any attempt to dispose of such shares of
Stock in contravention of such terms, conditions and restrictions
shall be invalid. As provided in Section 6 of Part I, the
Committee may enact rules which provide that the certificates
evidencing such shares may be held in custody by a bank or other
institution, or that the Corporation may itself hold such shares
in custody, until restrictions thereon shall have lapsed.
8. ASSIGNABILITY. Except as provided in Section 9 of this
Part II, no benefit payable under or interest in the Plan shall
be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and any such
attempted action shall be void and no such benefit or interest
shall be in any manner liable for or subject to debts, contracts,
liabilities, engagements, or torts of any Participant or
<PAGE>
9
beneficiary. If any Participant or beneficiary shall become
bankrupt or shall attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge any benefit payable
under or interest in the Plan, then the Committee in its
discretion may hold or apply such benefit or interests or any
part thereof to or for the benefit of such Participant or his
beneficiary, his spouse, children, blood relatives, or other
dependents, or any of them, in such manner and in such
proportions as the Committee may consider proper.
9. DESIGNATION OF BENEFICIARY. Each Participant who shall
be granted a Restricted Stock Grant under the Plan may designate
a beneficiary or beneficiaries and may change such designation
from time to time by filing a written designation of
beneficiaries with the Committee on a form to be prescribed by
it; provided, that no such designation shall be effective unless
received prior to the death of such Participant.
10. RESTRICTIONS UPON MAKING OF RESTRICTED STOCK GRANTS.
The registration or qualification under any federal or state law
of any shares of Stock to be granted pursuant to Restricted Stock
Grants or the resale or other disposition of any such shares of
Stock by or on behalf of the Participants receiving such shares
may be necessary or desirable as a condition of or in connection
with such Restricted Stock Grants, and, in any such event, if the
Committee in its sole discretion so determines, delivery of the
certificates for such shares of Stock shall not be made until
such registration or qualification shall have been completed.
11. RESTRICTIONS UPON RESALE OF STOCK. If the shares of
Stock that have been granted to a Participant pursuant to the
terms of the Plan are not registered under the Securities Act of
1933, as amended ("Securities Act"), pursuant to an effective
registration statement, such Participant, if the Committee shall
deem it advisable, may be required to represent and agree in
writing (i) that any shares of Stock acquired by such Participant
pursuant to the Plan will not be sold except pursuant to an
effective registration statement under the Securities Act, or
pursuant to an exemption from registration under said Act and
(ii) that such Participant is acquiring such shares of Stock for
his or her own account and not with a view to the distribution
thereof.
<PAGE>
10
III. MISCELLANEOUS
1. EFFECTIVE DATE OF THE PLAN. The Plan shall become
effective upon its adoption by the Board, subject to the approval
thereof by the stockholders of the Corporation having at least a
majority of the voting power of all stock of the Corporation
present in person or represented by proxy and entitled to be
voted thereon at the Annual Meeting of Stockholders of the
Corporation to be held on July 29, 1988 or any reconvened
sessions thereof. Notwithstanding the provisions of Section 6 of
Part I, Participants shall not have the right to vote or receive
dividends on shares of Stock granted pursuant to Restricted Stock
Grants until the stockholders of the Corporation have approved
the Plan. Should the stockholders of the Corporation fail to
approve the Plan, the Plan and all outstanding Restricted Stock
Grants thereunder shall be null and void.
2. DURATION OF PLAN. The Plan shall remain in effect from
the effective date until terminated by the Board of Directors of
the Corporation. Termination of the Plan shall not affect any
Restricted Stock Grants previously granted pursuant thereto,
which shall remain in effect until their restrictions shall have
lapsed, all in accordance with their terms.
3. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If there
shall be any change in the Stock subject to the Plan or the Stock
subject to any Restricted Stock Grant granted hereunder, through
merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, stock dividend (in excess of 2%),
or other change in the corporate structure of the Corporation,
appropriate adjustments shall be made by the Committee in the
aggregate number of shares subject to the Plan and the number of
shares subject to outstanding Restricted Stock Grants in order to
preserve, but not to increase, the benefits of the Participant.
If the Corporation shall not be the surviving corporation in any
merger, consolidation, or reorganization, shares of Stock which
are converted into common stock or other securities of the
surviving corporation shall be subject to the same terms,
conditions and restrictions as applicable to such shares of Stock
immediately prior to conversion, unless such terms, conditions
and restrictions have lapsed pursuant to Section 3 of Part II
hereof.
For purposes of the foregoing, a change in the Stock subject
to the Plan or the Common Stock subject to any Restricted Stock
Grant granted hereunder shall include an extraordinary dividend
<PAGE>
11
or other extraordinary distribution (whether in cash, property,
securities or any combination thereof) with respect to such
Stock. Notwithstanding the first sentence of this Section 3, if
the Committee determines that a change (as hereinabove described)
shall have occurred in the Stock subject to the Plan or the Stock
subject to any Restricted Stock Grant granted hereunder, and that
adjustments in the aggregate number of shares subject to the Plan
and in the number of shares subject to outstanding Restricted
Stock Grants will not adequately preserve the benefits of the
Participant, then the Committee shall make such other adjustments
or arrangements (including providing for the issuance of cash,
property and/or securities in addition to or in lieu of shares of
Stock following such change) as in its sole judgment will be
adequate for such purpose.
4. EXPENSES OF PLAN. The expenses of the Plan shall be
borne by the Corporation.
5. AMENDMENT OR TERMINATION. The Board may, by
resolution, amend or terminate the Plan at any time; provided,
however, that, subject to the provisions of Section 3 of this
Part III, the Board may not, without approval by the holders of a
majority of the shares of Stock represented at a meeting of
stockholders called for that purpose, increase the number of
shares of Stock which may be granted under the Plan, change the
class of management employees eligible to participate in the
Plan, or otherwise materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements
with respect to eligibility for participation in the Plan. In
the event that a Restricted Stock Grant has been made to a
Participant, then no amendment of the Plan after the date as of
which such Restricted Stock Grant was made, shall adversely
affect any right of such Participant with respect to such
Restricted Stock Grant without the written consent of such
Participant.
IV. RESTRICTED INCENTIVE STOCK
The Committee is authorized to approve Restricted Incentive
Stock Grants ("RIS Grants") to Eligible Employees with respect to
nonqualified stock options granted to them by the Corporation on
or after the date the stockholders of the Corporation have
approved the Plan ("Stock Options"). The Committee, in its
discretion, shall grant RIS Grants to optionees in order to
encourage them to hold shares of Stock following exercise of
<PAGE>
12
Stock Options. RIS Grants shall be issued in accordance with the
provisions of the Plan applicable to Restricted Stock Grants and
shall have the same terms, conditions and restrictions as
Restricted Stock Grants (except for the provisions of Section 2
of Part II of the Plan). In addition, RIS Grants shall have the
following terms, conditions and restrictions:
1. On the date of exercise of a Stock Option (the
"Exercise Date"), the optionee who is the recipient of an RIS
Grant shall designate to the Secretary or Assistant Secretary of
the Corporation the number of Stock Option shares (the "Option
Shares") with respect to which he or she desires to receive
shares of Stock pursuant to the RIS Grant.
2. On the Exercise Date, an optionee shall be awarded,
pursuant to a RIS Grant, one share of Stock for every eight
Option Shares.
3. The Corporation shall hold certificates evidencing
shares of Stock granted pursuant to an RIS Grant and the related
Option Shares.
4. The restrictions imposed on any RIS Grant shall lapse
on the third anniversary of the Exercise Date provided that the
related Option Shares have not been sold, assigned, transferred,
pledged, hypothecated, or otherwise disposed of prior to such
third anniversary. If the related Option Shares have been so
disposed of, then all rights to the shares granted pursuant to
the RIS Grant shall immediately terminate.
<PAGE>
EXHIBIT (10)R
SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE
This Settlement Agreement and Mutual General Release
("Agreement") is entered into as of April 1, 1996, by and between
STEVEN L. KLIFF ("KLIFF"), an individual, and ARMOR ALL PRODUCTS
CORPORATION, a Delaware corporation ("ARMOR ALL"), and is
intended to effect a full release of all claims held by the
respective parties, except as limited below.
WHEREAS, KLIFF was employed by ARMOR ALL from September
of 1991 until January 12, 1996, most recently in the position of
Senior Vice President of Consumer Products;
WHEREAS, on or about January 12, 1996, ARMOR ALL
notified KLIFF that it had decided to terminate his employment
due to a desire to make a change in management structure,
effective immediately;
WHEREAS, a dispute arose between KLIFF and ARMOR ALL
concerning his employment relationship, the cessation thereof,
the reasons for that cessation and the statements allegedly made
about KLIFF by certain employees and agents of ARMOR ALL;
WHEREAS, KLIFF has asserted various employment claims
against ARMOR ALL and others, including claims for "breach of
employment contract," "wrongful termination in violation of
public policy," "violation of Labor Code Section 970,"
"fraudulent inducement," "interference with contractual
relations" and "defamation";
WHEREAS, KLIFF has demanded general, compensatory and
punitive damages, including damages for the emotional distress
and other personal injuries he allegedly suffered as a conse-
quence of said defendants' allegedly wrongful conduct;
WHEREAS, ARMOR ALL has denied any and all liability or
wrongdoing to KLIFF based on these or any other claims he has or
could have asserted;
WHEREAS, the parties to this Agreement desire to settle
and dispose of fully and completely any and all existing or
potential disputes, claims and demands arising out of or
attributable to the limited employment of KLIFF or the
termination thereof;
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In consideration of the covenants undertaken and the
releases contained in this Agreement, KLIFF and ARMOR ALL agree
as follows:
1. Non-Admission of Liability: ARMOR ALL expressly
denies any violation of any of its policies, procedures, state or
federal laws or regulations. Accordingly, while this Agreement
resolves all issues between KLIFF and ARMOR ALL relating to any
alleged violation of ARMOR ALL's policies or procedures or any
state or federal law or regulation, this Agreement does not
constitute an adjudication or finding on the merits and it is not
(and shall not be construed as) an admission by ARMOR ALL of any
violation of its policies, procedures, state or federal laws or
regulations. Moreover, neither this Agreement nor anything in
this Agreement shall be construed to be or shall be admissible in
any proceeding as evidence of or an admission by ARMOR ALL of any
violation of its policies, procedures, state or federal laws or
regulations. This Agreement may be introduced, however, in any
proceeding to enforce the Agreement. Such introduction shall be
pursuant to an order protecting its confidentiality.
2. Contract Damages Consideration: In consideration
of the covenants and releases set forth herein, ARMOR ALL agrees
to pay KLIFF the lump sum of Fifty Thousand Dollars and No Cents
($50,000.00). The parties agree that this sum represents a fair
and reasonable settlement of KLIFF's alleged claims for damages
for breach of contract. This payment shall be paid in the form
of a certified cashier's check made payable to KLIFF as follows:
"STEVEN L. KLIFF." Said sum is paid in settlement of all wage,
bonus and contract claims KLIFF may possess, and is not intended
to represent any alleged tort claims or personal injury damages,
which are to be satisfied by the payment of consideration in
Paragraph 3 below. KLIFF acknowledges and agrees that this
consideration will be subject to taxation and shall be reported
to the taxing authorities by the issuance of a Form 1099 at year
end. This consideration shall be delivered to KLIFF's attorney
within three (3) business days after a copy of this Agreement
signed by KLIFF has been delivered to counsel for ARMOR ALL.
3. Personal Injury Damages Consideration: As
additional consideration for the covenants and releases set forth
herein, ARMOR ALL agrees to pay KLIFF the sum of Three Hundred
Thousand Dollars ($300,000.00) (hereinafter, the "Payment"). The
Payment shall be paid in the form of a certified cashier's check
made payable to KLIFF through his counsel as follows: "Barry B.
Kaufman Client Trust Account." While ARMOR ALL expressly denies
any wrongdoing or liability to KLIFF, the parties agree that the
Payment represents a fair and reasonable settlement of KLIFF's
alleged claims for damages for personal injuries, humiliation,
personal embarrassment, physical or psychological injury, and
loss of personal self-esteem. The Payment is in settlement of
KLIFF's alleged wrongful termination, interference with contract,
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defamation and any other tort claims he may possess, and does not
represent payment for any alleged contract losses (which are
intended to be settled by the consideration set forth in
Paragraph 2 above). Accordingly, the parties regard the Payment
as one to be excluded from income pursuant to Section 104(a)(2)
of the Internal Revenue Code, and ARMOR ALL agrees that the
Payment will be paid in gross without withholding or deductions
(and shall not be reported to the taxing authorities as if it
were "wages" or "income" by the filing of a Form W-2 or Form
1099). ARMOR ALL shall deliver the Payment to KLIFF's attorney
within three (3) business days after a copy of this Agreement
signed by KLIFF has been delivered to counsel for ARMOR ALL.
4. Continuation of Health Insurance: As further
consideration for the covenants set forth herein, ARMOR ALL
agrees to pay KLIFF the sum of Five Thousand Five Hundred Sixty
Three Dollars and Eight Cents ($5,563.08) as reimbursement for
the cost of six months premiums on the HMO medical/group health
insurance policy through which KLIFF currently receives benefits
under COBRA. This payment shall be paid in the form of a
certified cashier's check made payable to KLIFF as follows:
"STEVEN L. KLIFF." KLIFF agrees to provide ARMOR ALL with proof
of enrollment in the HMO in which he is currently participating.
5. Stock Options: KLIFF presently holds options to
purchase shares of ARMOR ALL common stock under ARMOR ALL's 1986
Stock Option Plan. A complete and accurate summary of the
options currently held by KLIFF is attached hereto and designated
as Attachment "1." Under the terms of the Stock Option Plan,
KLIFF has until June 30, 1996, to exercise those options that are
vested as of January 31, 1996, the date of his separation.
6. Restricted Stock: KLIFF presently holds shares of
restricted stock granted to him under the 1988 Restricted Stock
Plan. A complete and accurate summary of KLIFF's Restricted
Stock Grants is attached hereto and designated as Attachment "2."
The restrictions on the Restricted Stock Grant made to KLIFF on
January 21, 1992, have been lifted. To the extent that KLIFF has
not received possession of the stock certificates memorializing
his ownership of said shares, he may do so at such time as he
forwards to ARMOR ALL the monies necessary to pay all appropriate
taxes.
7. Repayment of Indebtedness: By his signature
below, KLIFF agrees that within three (3) days after the
cashier's checks referred to in Paragraphs 2, 3 and 4 of this
Agreement have been delivered to his counsel, KLIFF agrees to pay
in full any and all indebtedness owed to ARMOR ALL arising out of
his employment with ARMOR ALL including, without limitation, the
loan made to him documented by KLIFF's Promissory Note in favor
of ARMOR ALL dated September 22, l995 (excluding any accrued but
unpaid interest charges, which ARMOR ALL agrees to waive and/or
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forgive). A summary of all such indebtedness is attached hereto
and designated as Attachment "3." With respect to repayment of
the above-mentioned Promissory Note, ARMOR ALL agrees to deliver
to KLIFF's counsel the original of said Promissory Note marked
"Paid In Full" and both dated and initialed by an authorized
representative of ARMOR ALL. By his signature to this Agreement,
KLIFF stipulates to the immediate entry of a Right to Attach
Order and Writ of Attachment in the event he defaults on this
repayment obligation (and waives any defenses thereto).
8. Litigation Cooperation: KLIFF agrees to make
himself reasonably available to cooperate in any actual or
anticipated litigation or arbitration matter or any federal or
state government agency investigation in which ARMOR ALL
reasonably requests his assistance based upon his duties with
ARMOR ALL. ARMOR ALL shall reimburse KLIFF for his reasonable
out-of-pocket expenses in connection with any such assistance.
9. Limited Rights Against Defendants: KLIFF agrees
that he will not seek, in any way, any payments or benefits based
upon his employment with ARMOR ALL, his separation from employ-
ment and/or conduct prior to the execution of this Agreement
other than as expressly set forth in this Agreement. KLIFF
waives any and all right or entitlement to any such payments or
benefits. KLIFF further agrees that he will not file any charge
or action, whether based on tort, express or implied contract, or
any federal, state or local law, statute or regulation relating
to his employment, his eligibility for benefits, or the
termination or terms and conditions of his employment. KLIFF
agrees that this Agreement may be pleaded as a complete bar to
any action or suit before any court or administrative body with
respect to any claim relating to his employment with ARMOR ALL or
the termination thereof.
10. Protection of "Proprietary Information": KLIFF
acknowledges that, in the course of his work as an employee of
ARMOR ALL, he has had access to Proprietary Information (as
defined below) concerning ARMOR ALL, its products, customers and
methods of doing business. KLIFF acknowledges that ARMOR ALL has
developed, compiled and otherwise obtained, often at great
expense, this information, which has great value to ARMOR ALL's
business. KLIFF agrees to hold in strict confidence and not
disclose any Proprietary Information, directly or indirectly, to
anyone outside of ARMOR ALL, or use, copy, publish or summarize
such information. KLIFF agrees to deliver promptly to ARMOR ALL
all tangible Proprietary Information which remains in his
possession or under his control.
11. "Proprietary Information" Defined: For purposes
of this Agreement, the reference to "proprietary information"
means all information and any idea in whatever form, tangible or
intangible, whether disclosed to or learned or developed by
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KLIFF, pertaining to or affecting the business of ARMOR ALL or
their parent or other affiliated companies or their clients,
consultants, or business associates unless: (a) the information
is or becomes publicly known through lawful means not requiring
the permission or license of ARMOR ALL; (b) the information was
rightfully in KLIFF's possession or part of his general knowledge
prior to his employment by ARMOR ALL or by virtue of his
activities not related to his employment by ARMOR ALL; (c) the
information is disclosed to KLIFF without confidential or
proprietary restriction by a third party who rightfully possesses
the information (without confidential or proprietary restriction
for the benefit of ARMOR ALL) and did not learn it, directly or
indirectly, from ARMOR ALL on a confidential basis. KLIFF and
ARMOR ALL further agree that the following information is
included, without limitation, in the definition of Proprietary
Information if the same is encompassed by the preceding sentence:
(i) processes, trade secrets, electronic codes, computer
software, source codes, proprietary techniques, inventions,
improvements and research projects; (ii) information about costs,
budgets, profits, markets, employees, sales and lists of
customers or vendors; (iii) plans for future development and new
product concepts and marketing; and (iv) all documents, books,
papers, drawings, models, sketches, studies, consultant's reports
and other data of any kind and description, including electronic
data recorded or retrieved by any means, that have been or will
be given to KLIFF by ARMOR ALL or its parent or other affiliated
companies, as well as written or oral instructions or comments.
12. No Disparagement: KLIFF covenants and agrees that
he will in no way disparage ARMOR ALL or their products,
services, employees, or business reputation to any person or
entity whether or not said person or entity is a current or
prospective supplier, customer or employee of ARMOR ALL. KLIFF
further covenants and agrees that he will not otherwise engage in
conduct which is not in good faith which disrupts, damages,
impairs or interferes with the business, reputation or employees
of ARMOR ALL. ARMOR ALL agrees not to make or publish, either
orally or in writing, any disparaging statement concerning KLIFF,
including his termination with ARMOR ALL, his services with ARMOR
ALL and matters relating to his employment.
13. Forum Selection: Any and all litigation relating
to state law causes of action arising out of this Separation
Agreement shall be heard exclusively in California state courts.
To that end, the parties to this Separation Agreement consent to
jurisdiction in California state courts and waive any defense of
lack of personal jurisdiction. Any and all litigation relating
to federal law causes of action arising out of this Separation
Agreement shall be heard exclusively in California federal
courts. The parties also consent to jurisdiction in California
federal courts and waive any defense of lack of personal
jurisdiction.
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14. Waiver of Future Employment: By his signature
below, KLIFF waives any rights to any continuing or future
relationship with ARMOR ALL, or any of them, and their parents,
subsidiaries and affiliates, past and resent, and agrees not to
knowingly seek a position as an employee with ARMOR ALL in the
future. Moreover, KLIFF agrees that ARMOR ALL have no obligation
to hire him as an employee in the future and further agrees that
he will not challenge, by administrative action, civil litigation
or otherwise, any future decision by ARMOR ALL not to hire him.
Nothing in this paragraph shall preclude KLIFF and ARMOR ALL, or
any of them, from agreeing between themselves to enter into some
contractual relationship in the future, whether as an employee,
independent contractor, agent or some other type of relationship.
15. Release of the Company: Except for those obliga-
tions created by or arising out of this Agreement for which
receipt or satisfaction has not been acknowledged herein, KLIFF
on behalf of himself, his descendants, ancestors, dependents,
heirs, executors, administrators, assigns, and successors, and
each of them, hereby covenants not to sue and fully releases and
discharges ARMOR ALL, and its parents, subsidiaries and
affiliates, past and present, and each of them, as well as its
and their trustees, directors, officers, agents, attorneys,
insurers, employees, stockholders, representatives, assigns, and
successors, past and present, and each of them, (hereinafter
together and collectively referred to as "Releasees"), with
respect to and from any and all claims, wages, demands, rights,
liens, agreements, contracts, covenants, damages, judgments,
liabilities, debts, controversies, costs, expenses, attorneys'
fees, causes of action or suits of any kind or nature whatsoever,
in law, equity or otherwise, whether now known or unknown, sus-
pected or unsuspected, or whether or not concealed or hidden,
arising out of, relating to, or in connection with, his employ-
ment relationship with ARMOR ALL and/or its affiliates or agents,
or any other transactions, occurrences, acts or omissions or any
loss, damage or injury whatsoever, which KLIFF now has, own or
hold, based upon, related to, or by reason of any contract
(express, implied-in-fact or implied-in-law), judgment, lien,
liability, claim, assignment, matter, cause, fact, thing, act or
omission whatsoever occurring or existing with any of the
Releasees at any time prior to and including the date hereof.
The release of claims contained herein specifically
includes, but is not limited to, any and all claims for wrongful
discharge, any and all forms of employment discrimination in
violation of any federal, state or local statute, ordinance or
executive order (including but not limited to, claims for dis-
crimination on the basis of race, color, religion, sex, national
origin, age, and/or mental or physical disability), and any and
all suits in tort (including, but not limited to, any claims for
fraud, misrepresentation, breach of fiduciary duty, defamation,
interference with contract or with prospective economic advan-
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tage, intentional infliction of emotional distress and/or
negligence), as well as any and all additional claims for damages
of any kind whatsoever arising out of, relating to or in
connection with KLIFF employment relationship with and/or
termination of employment by ARMOR ALL and/or its affiliates or
agents.
16. Release of Kliff: Except for those obligations
created by or arising out of this Agreement or as provided below,
ARMOR ALL and its parents, subsidiaries and affiliates, past and
present, and each of them, as well as its and their trustees,
directors, officers, agents, attorneys, insurers, employees,
stockholders, representatives, assigns, and successors, past and
present, and each of them, hereby covenants not to sue and fully
releases and discharges KLIFF from and with respect to any and
all claims, agreements, obligations, losses, damages, injuries,
demands and causes of action, known or unknown, suspected or
unsuspected, arising out of or in any way connected with KLIFF's
employment, independent contractor or other relationship with
ARMOR ALL, or any other occurrences, actions, omissions or claims
whatever, known or unknown, suspected or unsuspected, prior to
the date of this Agreement, which ARMOR ALL now owns or holds or
has at any time heretofore owned or held as against KLIFF.
17. General Release: Except as limited hereinabove,
it is the intention of KLIFF and ARMOR ALL in executing this
instrument that the same shall be effective as a bar to each and
every claim, demand and cause of action hereinabove specified. In
furtherance of this intention, the parties hereby expressly waive
any and all rights and benefits conferred upon them by the
provisions of SECTION 1542 OF THE CALIFORNIA CIVIL CODE and
expressly consent that this Agreement shall be given full force
and effect according to each and all of its express terms and
provisions, including those related to unknown and unsuspected
claims, demands and causes of action, if any, as well as those
relating to any other claims, demands and causes of action
hereinabove specified. SECTION 1542 provides:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH
THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN
HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
KLIFF and ARMOR ALL each acknowledges that each may hereafter
discover claims or facts in addition to or different from those
which each now knows or believes to exist with respect to the
subject matter of this Agreement and which, if known or suspected
at the time of executing this Agreement, may have materially
affected this settlement. Each hereby waives any right, claim or
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cause of action that might arise as a result of such different or
additional claims or facts. KLIFF and ARMOR ALL each acknowl-
edges that each understands the significance and consequence of
such release and such specific waiver of SECTION 1542, which have
been explained to them by their respective counsel.
18. Indemnification re: Claims: ARMOR ALL agrees to
defend and indemnify and hold harmless KLIFF of any and all
claims, causes of action or complaints made or filed by any party
regarding acts performed by KLIFF in the course and scope of his
employment with ARMOR ALL (to the extent permitted by Section 317
of the California Corporations Code, by Section 2802 of the
California Labor Code or any other applicable law or contractual
provision).
19. Confidentiality of Settlement Agreement: KLIFF
and ARMOR ALL, and each of them, each agree that the terms and
conditions of this Agreement shall remain confidential as between
the parties and each shall not disclose them to any other person,
except to KLIFF's spouse and to KLIFF or ARMOR ALL' professional
advisors, attorneys, board members or accountants. Without
limiting the generality of the foregoing, neither KLIFF nor ARMOR
ALL will respond to or in any way participate in or contribute to
any public discussion, notice or other publicity concerning, or
in any way relating to; execution of this Agreement or the events
(including any negotiations) which led to its execution;
provided, however, that nothing herein shall prevent disclosure
of the terms of this Agreement (a) by any officer of ARMOR ALL to
any other officer, director or employee of ARMOR ALL with a need
to know or (b) unless such disclosure is required by law
(including, without limitation, future S.E.C. filings of ARMOR
ALL). If asked about the resolution of the dispute between the
parties, KLIFF, his immediate family, attorneys, agents and
representatives may respond only that "My dispute with Armor All
has been resolved."
20. References: The parties agree that, if a
prospective employer of KLIFF requests a reference from an
officer of ARMOR ALL, KLIFF may direct that person to ARMOR ALL's
Chief Executive Officer, Kenneth M. Evans- ARMOR ALL agrees to
provide KLIFF with a letter of recommendation on the business
stationery of ARMOR ALL in the form attached hereto as Exhibit
"A." ARMOR ALL shall advise its employees and third parties that
KLIFF's employment ended as a result of his desire to pursue
other ventures.
21. Non-Assignment: KLIFF and ARMOR ALL each warrants
and represents that neither has heretofore assigned or
transferred to any person not a party to this Agreement any
released matter or any part or portion thereof, and each shall
defend, indemnify and hold harmless the other from and against
any claim (including the payment of attorneys' fees and costs
8
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actually incurred, whether or not litigation is commenced) based
on, in connection with or arising out of any such assignment or
transfer made.
22. Indemnification for Tax Liability: Although the
parties contemplate and intend that the consideration payable
under Paragraph 3 of this Agreement is in settlement of KLIFF's
personal injury damages and, therefore, should be non-taxable
under Section 104(a)(2) of the Internal Revenue Code, the parties
acknowledge that ARMOR ALL is not (and cannot be held to be) a
"guarantor" of the taxable status of the monies paid hereunder.
Accordingly, should such consideration ever be treated by any
taxing authority as if it were "taxable," KLIFF agrees that he
shall be exclusively liable for the payment of all federal and
state taxes (if any) which may be due as the result of the
Payment made to him pursuant to Paragraph 3 herein, and KLIFF
hereby represents that he shall make payments on such taxes (if
any) at the time and in the amount required of him. In addition,
KLIFF hereby agrees fully to defend, indemnify and hold harmless
ARMOR ALL from payment of any taxes, interest or penalties that
are required by any government agency at any time as the result
of the Payment. However, KLIFF shall have no liability for
indemnity or the payment of any such taxes, interest, penalties,
assessments or any other monies referred to herein in the event
that ARMOR ALL breaches the non-disclosure obligations set forth
in Paragraphs 3 or 19 of this Agreement by reporting the Payment
to any state or federal taxing authority as if it were "wages" or
"income," whether through the issuance of a Form W-2 or 1099, or
by some other means.
23. Warranty re Prior Representations: KLIFF and
ARMOR ALL warrant that in agreeing to the terms of this
Agreement, they have not relied upon any representations or
statements of the other regarding the subject matter hereof or
the basis or effect of this Agreement, other than those
representations or statements contained herein.
24. Counterparts/Facsimile Execution: This Agreement
may be executed in counterparts, and each counterpart, when
executed, shall have the efficacy of a signed original. Execution
and delivery of this Agreement by facsimile shall be deemed to be
equivalent to the execution and delivery of an original.
25. Construction: If any provision of this Agreement
or the application thereof is held invalid, the invalidity shall
not affect other provisions or applications of the Agreement,
which can be given effect without the invalid provisions or
applications. To this end, the provisions of this Agreement are
declared to be severable. This Agreement shall be deemed to have
been executed and delivered within the State of California, and
the rights and obligations of the parties hereunder shall be
construed and enforced in accordance with, and governed by, the
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laws of the State of California without regard to principles of
conflict of laws. Each party has cooperated in the drafting and
preparation of this Agreement. Hence, in any construction to be
made of this Agreement, the same shall not be construed against
any party on the basis that the party was the drafter. No waiver
of any breach of any term or provision of this Agreement shall be
construed to be, nor shall be, a waiver of any other breach of
this Agreement. No waiver shall be binding unless in writing and
signed by the party waiving the breach. All representations and
warranties contained in this Agreement shall survive its
execution, effectiveness and delivery.
26. Modification of Personnel File: ARMOR ALL agrees
to modify KLIFF's personnel file to remove any non-benefits
related documents (including, without limitation, any "Employment
Separation Notice") that state or reflect that KLIFF's employment
was involuntarilY terminated.
27. Costs and Expenses of this Dispute: Except as
specifically provided in Paragraph 22 above, each of the parties
hereto shall bear his/its own costs and expenses incurred in
connection with the disputes settled by this Agreement (and the
negotiation, drafting and consummation of this Agreement),
including all attorneys' fees.
28. Cooperation in Effecting Settlement: All parties
agree to cooperate fully and to execute any and all supplementary
documents and to take all additional actions that may be
necessary or appropriate to give full force to the basic terms
and intent of this Agreement and which are not inconsistent with
its terms. Subject to the provisions of Paragraph 22 above,
KLIFF agrees to assume full responsibility for contesting any
claim or assertion that the Payment (or any portion thereof)
should be treated as "taxable income," and to cooperate fully in
the defense of any such claim regarding the alleged taxability of
the Payment which is brought against ARMOR ALL.
29. Competency of Parties: Each of the parties
acknowledges, warrants, represents and agrees that in executing
and delivering this Agreement, they do so freely, knowingly and
voluntarily, that they had an opportunity to and did discuss its
terms and the implications thereof with legal counsel of their
choice, that they are fully aware of the contents and effect
thereof and that such execution and delivery is not the result of
any fraud, duress, mistake or undue influence whatsoever.
30. Warranty of Authority/No Other Claims: KLIFF and
ARMOR ALL each represents that they have the power and authority
to execute, deliver and perform this Agreement and to release the
claims that are purported to be released herein and that the
person executing this Agreement on behalf of each has the full
right and authority fully to commit and to bind each such party.
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KLIFF and ARMOR ALL represent that none of the claims purported
to be released herein has previously been assigned or otherwise
transferred to any other person or entity, by operation of law or
otherwise.
31. Entire Agreement: This Agreement constitutes and
contains the entire agreement and understanding concerning the
other subject matters addressed herein between the parties, and
supersedes and replaces all prior negotiations and all agreements
proposed or otherwise, whether written or oral, concerning the
subject matters hereof. This is a fully integrated document.
This Agreement may be amended only by a written instrument
designated an amendment to the Agreement and executed by the
parties hereto.
32. Headings: The various headings in the Agreement
are inserted for convenience only and shall not be deemed a part
of or in any manner affect this Agreement or any provision
hereof.
33. Limited Admissibility of Settlement Agreement:
Notwithstanding the confidentiality obligations set forth in
Paragraph 19 of this Agreement and/or Evidence Code Section 1152,
the parties acknowledge and agree that a fully executed copy of
the Agreement (whether an original or in counterparts) shall be
admissible as evidence in any proceeding to enforce its terms.
I have read the foregoing Agreement and I accept and
agree to the provisions it contains and hereby execute it
voluntarily with full understanding of its consequences.
EXECUTED this 17th day of April, 1996, at Aliso Viejo,
California.
ARMOR ALL PRODUCTS CORPORATION
By: /s/ Kenneth M. Evans
----------------------------
Kenneth M. Evans, President
I have read the foregoing Agreement and I accept and
agree to the provisions it contains and hereby execute it
voluntarily with full understanding of its consequences.
EXECUTED this 11th day of April, 1996, at Laguna Hills,
California.
/s/ STEVEN L. KLIFF
-----------------------------
Steven L. Kliff
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EXHIBIT 10(S)
ARMOR ALL PRODUCTS CORPORATION
INCENTIVE PLAN FOR BUSINESS MANAGERS
------------------------------------
FISCAL 1997
-----------
The name of this plan shall be the Armor All Products Corporation
Incentive Plan for Business Managers - Fiscal 1997 (the "Plan"). The Plan is
offered in addition to existing incentive plans during fiscal 1997.
A. PURPOSE
The purpose of this Plan is to provide key business managers of Armor All
Products Corporation (the "Company") with an extraordinary incentive to
significantly improve business results in the Company's fiscal year 1997 (the
"Plan Year"). The Plan is designed to link managers' interests more closely
with the interests of the Company's stockholders.
B. ADMINISTRATION
The Compensation Committee of the Company's Board of Directors (the
"Committee") shall have full power and authority, subject to the provisions of
the Plan, to designate Participants and to promulgate such rules and regulations
as it deems necessary for the proper administration of the Plan, to interpret
the provisions and supervise the administration of the Plan, and to take all
action in connection therewith or in relation to the Plan as it deems necessary
or advisable. Decisions and selections of the Committee shall be made by a
majority of its members and, if made pursuant to the provisions of the Plan,
shall be final. Any decision reduced to writing and signed by all of the
members of the Committee shall be fully effective as if it had been made at a
meeting duly held.
C. PARTICIPATION
Those key business managers of the Company designated by the Committee for
this purpose shall be the Participants in the Plan.
As soon as reasonably practicable after the designation of a key business
manager as a Participant by the Committee, that person will be notified of his
or her designation as a Participant.
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D. INDIVIDUAL TARGET AWARDS FOR PARTICIPANTS
The Individual Target Award for each Participant shall be determined by the
Committee at the time it designates a key business manager as a Participant in
the Plan. The amount of any actual award paid to any Participant may be greater
or less than the Individual Target Award. Neither the designation of an
employee as a Participant nor the establishment of an Individual Target Award
for a Participant shall affect the right of the Company, its subsidiaries or
affiliates to terminate the employment of such employee at any time and for any
reason, which right is hereby reserved.
E. BASIS OF AWARDS
Awards will be a percentage of each Participant's Individual Target Amount,
based on the Company's earnings per share for fiscal 1997, in accordance with
measures determined by the Committee. Awards will be based on performance
against objectives.
F. AWARD DETERMINATION
The Committee shall be responsible for making the final determination of
the amount, if any, to be paid to the Participant for fiscal year 1997. All
awards will be subject to the sole discretion of the Committee.
G. TIME OF PAYMENT OF AWARD
One-half of any award payable under this Plan shall be paid in a single sum
to the Participant during the Company's fiscal year 1998 as soon as reasonably
practicable after the amount of the award is determined. The balance of the
award shall be paid at the end of the Company's fiscal year 1998.
H. NO FUND
Awards paid under this Plan shall not be based on or payable from a "pool"
or any other separate fund.
I. EMPLOYMENT AT YEAR-END GENERALLY REQUIRED FOR AWARD
No award shall be made to any Participant who is not an active, full-time
employee of the Company or one of its subsidiaries or affiliates at the end of
the Plan Year and on the date each portion of the award is paid, except those
Participants whose active employment ended during such year because of death or
retirement under one of the Company's retirement plans, or other termination
with the express approval of the Company's Board of Directors.
-2-
<PAGE>
J. NONASSIGNMENT; PARTICIPANTS AS GENERAL CREDITORS
The interest of any Participant under the Plan shall not be assignable
either by voluntary or involuntary assignment or by operation of law, except by
designation of a beneficiary or beneficiaries to the extent allowed under the
Company's DCAP.
K. AMENDMENT
The Company reserves the right in its Board of Directors to amend the Plan
at any time; provided, however, that no such amendment adopted after the end of
the Company's fiscal year 1997 shall adversely affect the payment of any award.
In case any one or more of the provisions contained in the Plan shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of the Plan, but the Plan shall be construed as if such invalid, illegal or
unenforceable provisions had never been contained herein.
-3-
<PAGE>
EXHIBIT 13
Selected Financial Data
Armor All Products Corporation
<TABLE>
<CAPTION>
Years Ended March 31
(in thousands except per share amounts) 1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data
Revenues $186,326 $216,789 $182,257 $168,400 $145,910 $133,804
---------------------------------------------------------------
Increase (decrease) from prior year (14.1)% 18.9% 8.2% 15.4% 9.0% (19.1)%
Costs and expenses
Cost of sales 89,261 93,103 74,360 68,841 59,709 57,980
Selling, general and administrative 83,579 80,960 66,950 63,670 60,465 58,133
Amortization of intangibles 2,455 2,457 2,684 3,768 4,314 4,315
---------------------------------------------------------------
Total costs and expenses 175,295 176,520 143,994 136,279 124,488 120,428
---------------------------------------------------------------
Increase (decrease) from prior year (0.7)% 22.6% 5.7% 9.5% 3.4% (9.5)%
Operating income 11,031 40,269 38,263 32,121 21,422 13,376
Interest income (expense) - net 1,601 1,803 1,377 1,245 1,080 (704)
---------------------------------------------------------------
Income before income taxes 12,632 42,072 39,640 33,366 22,502 12,672
Income taxes 5,470 17,544 17,067 14,214 9,638 5,829
---------------------------------------------------------------
Net income $ 7,162 $ 24,528 $ 22,573 $ 19,152 $ 12,864 $ 6,843
===============================================================
Increase (decrease) from prior year (70.8)% 8.7% 17.9% 48.9% 88.0% (63.6)%
Earnings per common share $ .34 $ 1.16 $ 1.07 $ .91 $ .61 $ .33
===============================================================
Increase (decrease) from prior year (70.7)% 8.4% 17.6% 49.2% 84.8% (63.3)%
Return on average stockholders' equity1 5.6% 20.6% 21.0% 19.3% 13.9% 7.1%
===============================================================
Cash dividends per common share $ .64 $ .64 $ .64 $ .48 $ .48 $ .64
===============================================================
March 31 (in thousands) 1996 1995 1994 1993 1992 1991
===========================================================================================================
Balance Sheet Data
Working capital $ 74,442 $ 78,182 $ 64,349 $ 60,373 $ 46,149 $ 38,825
Current assets 109,778 121,566 99,225 93,429 68,485 65,788
Total assets 158,883 172,850 151,826 140,560 119,823 121,731
Total debt 0 0 0 0 0 6,549
Stockholders' equity 122,975 128,985 116,029 106,555 96,326 93,307
</TABLE>
1 Net income divided by monthly average equity.
1
<PAGE>
Financial Review
Armor All Products Corporation
Results of Operations
The Company's operating results declined significantly in fiscal 1996, as
revenues decreased $30.5 million, or 14%, and earnings per share decreased $.82,
or 71%, from fiscal 1995. The lower revenues were attributable to a decrease in
sales of automotive products in North America, partially offset by growth in
home care and international shipments. Profit margins were lower primarily due
to the absorption of fixed costs over a lower revenue base and to increases in
certain selling, marketing and manufacturing costs. Approximately $.21 of the
earnings per share reduction was due to $8.0 million of fiscal 1996 pretax
charges related to additional costs of correcting a spray actuator problem with
certain aerosol units of Armor All(R) QuickSilver Wheel Cleaner, provisions for
discontinued and excess inventory, and reserves for certain other items.
In fiscal 1995, the Company's operating results improved for the fourth
consecutive year, as revenues increased $34.5 million, or 19%, and earnings per
share increased $.09, or 8%, from fiscal 1994. The revenue growth was primarily
attributable to shipments of new products and to continued international
expansion. Earnings grew at a slower rate than revenues principally because of
the additional costs associated with (a) the introduction of new automotive and
home care products and (b) a market share building strategy for the Company's
flagship protectant product. In addition, fiscal 1995 earnings were reduced by
$.03 per share due to a $1.0 million pretax charge in connection with the
aforementioned wheel cleaner aerosol packaging problem.
Revenues
The following table sets forth a summary of revenues by major geographic region:
<TABLE>
<CAPTION>
Years Ended March 31 (in millions) 1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
United States and Canada $168.4 $199.7 $168.1
International 17.9 17.1 14.2
------------------------
Total $186.3 $216.8 $182.3
========================
Percentage change from prior year -14% +19% +8%
</TABLE>
The $31.3 million decrease (16%) in the Company's U.S./Canadian revenues in
fiscal 1996 was primarily due to weakness in consumer purchases in the
automotive appearance industry across almost all product categories. In
addition, retailers generally reduced their inventories during the year and
remained cautious with reorders during the new selling season. Also, the
Company's fiscal 1996 third and fourth quarter seasonal promotion program was
less aggressive than in the respective fiscal 1995 quarters, when the Company
instituted a market share building strategy for Armor All(R) Protectant; the
result of this strategy was that the market share of Armor All Protectant
increased. Partially offsetting the aforementioned factors were initial sales of
two new automotive products launched in December 1995: Armor All(R) Armor
Plate(R) Paint Protectant and Armor All(R) FlashBlack Tire Shine. In addition,
an approximate 5% selling price increase on certain automotive products in
November 1995 increased fiscal 1996 revenues by approximately $2.0 million.
Shipments of the Company's line of home care products increased significantly in
fiscal 1996, primarily due to (a) increased sales of three new products
introduced in February 1995: Armor All(R) Vinyl Siding Wash, Armor All(R) Deck
Protector and Armor All(R) WaterProofing Sealer and (b) initial sales of two new
products introduced in January 1996: Armor All(R) Painted Wood Wash and the
Armor All(R) Pressure Washer formulas.
The $31.6 million increase (19%) in the Company's U.S./Canadian revenues in
fiscal 1995 was primarily attributable to higher sales of Armor All QuickSilver
Wheel Cleaner, which since its introduction in December 1993 has become the
leader in its category. Another significant factor was higher sales of the
Company's line of home care products, including the E-Z Deck Wash(R) line
acquired in January 1994 and the aforementioned three new products introduced in
February 1995. Also contributing to the revenue growth were initial sales of
WaxPax(R) Instant Car Wax, introduced in December 1994, and higher sales of
Armor All(R) Spot & Wash Concentrate, introduced in December 1993. Sales of
the Company's line of protectant products, which includes Armor All Protectant,
Armor All(R) Protectant Low-Gloss Natural Finish, and Armor All(R) Tire Foam(R)
Protectant, were approximately the same as in the prior year. Sales of the
Company's line of waxes and washes were lower than in the prior year, generally
consistent with the decline in national wax/wash category consumer purchases.
Since there were no price increases during fiscal 1995 or 1994, all of the
revenue growth represented higher volume of product shipments.
The $0.8 million increase (5%) in international revenues in fiscal 1996
principally reflects strong growth in Europe and Asia, partially offset by lower
shipments to Mexico due to the adverse economic effects of the peso devaluation.
International growth has been attributable to the introduction of additional
products into the Company's existing markets as well as to the expansion of the
Company's business into new geographic markets.
The $2.9 million increase (20%) in international revenues in fiscal 1995
reflects higher shipments in all of the Company's principal geographic markets,
including Asia, Australia, Europe and Latin America.
2
<PAGE>
Operating Expenses
The following table sets forth the percentage relationships of operating
expenses and operating income to revenues for the fiscal years indicated. The
percentages have been adjusted to exclude the effects of the pretax charges of
$8.0 million and $1.0 million in fiscal 1996 and 1995, respectively. The fiscal
1996 charges affected revenues, cost of sales and selling, general and
administrative (SG+A) expenses, while the fiscal 1995 charge affected revenues
and cost of sales.
<TABLE>
<CAPTION>
Years Ended March 31 1996 1995 1994
- ------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of sales 45.5 42.6 40.8
Selling, general and administrative 43.1 37.3 36.7
Amortization of intangibles 1.3 1.2 1.5
----------------------
Operating income 10.1% 18.9% 21.0%
======================
</TABLE>
Cost of sales as a percentage of revenues in fiscal 1996 increased from fiscal
1995 for several principal reasons. Higher costs were incurred for an improved
Armor All(R) Protectant formula and for certain key raw materials and
components. Fixed costs were absorbed over lower automotive volume and the
Company incurred increased carrying costs associated with higher inventory
levels. In addition, the higher mix of home care and international products had
an adverse impact due to the lower margins associated with these developing
businesses. Partially offsetting these factors was the approximate 5% selling
price increase on certain automotive products effective in November 1995.
Cost of sales as a percentage of revenues in fiscal 1995 increased from
fiscal 1994 due to a combination of factors. Sales in fiscal 1995 were comprised
of a higher proportion of new automotive and home care products, which initially
have lower margins due to start-up costs, and certain promotional items. In
addition, the Company experienced higher costs of raw materials and components
in connection with a mid-year improvement in the Armor All Protectant formula
and inflation in certain chemical and paper markets.
SG&A expenses, excluding the aforementioned charges, were approximately the
same total dollar amount in fiscal 1996 as in fiscal 1995, but were higher as a
percentage of revenues. Reductions in variable selling expenses resulting from
lower automotive volume were offset by increases in costs associated with
automotive trade programs and new product introductions, expanded distribution
and new product launches in the home care and international businesses,
increased research and development, and higher legal and bad debt provisions.
Although the Company took measures to reduce certain administrative costs and
discretionary marketing and selling programs during fiscal 1996, the fixed
portions of such expenses were absorbed over the lower revenue base for the
year.
SG&A expenses as a percentage of revenues in fiscal 1995 increased from
fiscal 1994 primarily due to increases in selling and marketing expenses in the
United States automotive and home care operations. Automotive promotional
expenses increased due to the initiation of a market share building strategy for
Armor All Protectant and the launch of several new products. Home Care expenses
were higher mainly due to the costs involved in the launch of new products and
the promotion of the E-Z Deck Wash(R) business. Partially offsetting these
increases were the absorption of fixed administrative expenses over a higher
sales volume and a reduction in the provision for bad debts due to a decrease in
account write-offs.
Amortization expense principally relates to intangible assets associated
with the acquisition of the Company by McKesson in 1979, the Company's
acquisition of several wax and wash brands in September 1988, and the Company's
acquisition of two home care brands in January 1994. Amortization expense
remained relatively unchanged in fiscal 1996 and decreased by $0.2 million in
fiscal 1995.
Interest income decreased by $0.2 million in fiscal 1996 and increased by
$0.4 million in fiscal 1995 in comparison with the respective prior years. The
decrease in fiscal 1996 was primarily due to lower cash balances, while the
increase in fiscal 1995 primarily reflects higher interest rates.
The Company's effective income tax rates were 43.3%, 41.7% and 43.1% in
fiscal 1996, 1995 and 1994 respectively. The higher tax rate in fiscal 1996
arose primarily because the effect of fixed non-deductible intangible asset
amortization was absorbed over lower pretax income. The decrease in the tax rate
in fiscal 1995 was mainly due to lower foreign taxes incurred in certain
international operations. In addition, the fiscal 1994 tax rate reflected the
adverse effect 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
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 promotional activities. Cash inflow is strongest during
the
3
<PAGE>
summer months as these receivables are collected. Despite these seasonal
factors, at March 31, 1996, the Company had a $20.9 million balance of cash and
cash equivalents and no short-term or long-term debt.
The Company has historically not had substantial investments in inventory
as its contract packagers generally own the raw materials and finished goods in
their possession and transfer title to the Company just prior to shipment to the
Company's customers. Although this full service arrangement is still used for
products which constitute the majority of the Company's sales volume, the
Company incurred an $8.5 million increase in its inventories during fiscal 1995
due to a greater number of products which the Company purchases from packagers
upon the completion of production. This increase resulted primarily from (a)
the addition of several new products which are manufactured by packagers other
than those which serve as distribution centers and (b) a change in certain
packaging and distribution sites to achieve production and operational
efficiencies. During fiscal 1996, a small decrease in the Company's United
States automotive inventories was offset by small increases in home care and
Canadian inventories.
The Company's use of contract packagers permits it to avoid significant
investments in machinery and other fixed assets.
During fiscal 1996, 1995 and 1994, cash flow from operations was $13.7
million, $9.2 million, and $15.6 million, respectively. The higher cash inflow
in fiscal 1996 versus fiscal 1995 was mainly due to higher collections of
accounts receivable due to a higher receivables balance at the beginning of
fiscal 1996 than at the beginning of fiscal 1995. Partially offsetting this
factor were the Company's lower earnings in fiscal 1996 and reductions of
certain current liabilities in connection with the lower volume. The decrease
in net cash inflow in fiscal 1995 from fiscal 1994 was mainly attributable to
the higher receivables balance which arose in connection with growth in the
Company's sales volume, as well as to the aforementioned increase in the
Company's inventories.
Cash flows in fiscal 1994 were affected by the payment of $7.4 million to
acquire the E-Z Deck Wash(R) and E-Z D(R) brands, an increase in the dividend
rate and a reduction in short-term borrowings from McKesson.
The Company's sources of liquidity at March 31, 1996 included a $17.4
million balance under a cash management program administered by McKesson, $3.5
million of other cash balances, and a $3.0 million (Canadian) line of credit
with a Canadian bank that is renewable annually. In addition, as long as the
Company continues to participate in the cash management program, McKesson will
make available the cash necessary to provide the Company with sufficient funds
to meet its needs as defined in its annual capital and operating plans. There
are no advance notification requirements or other limitations on the Company's
access to cash under the program. Participation in the program is provided as
part of a Services Agreement with McKesson. Amounts deposited under the cash
management program are deposited in a separate bank account in the Company's
name. In the event that the Company ceases to participate in the cash
management program, the Company believes that it would be able to obtain a line
of credit from other sources at competitive terms.
The Company believes that its current sources of liquidity, combined with
cash flow from operations, will be sufficient to meet its needs for the
foreseeable future.
In April 1996, the Company announced its intention to repurchase up to one
million shares of its common stock. Such repurchases will be made from time to
time in open market or privately negotiated transactions with minority
shareholders. Prior to making any such repurchases, the Company will consider
various applicable factors, including the market price of the Company's stock
and the effect on the Company's cash balances.
4
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Armor All Products Corporation
March 31 (in thousands except share and per share amounts) 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 20,894 $ 22,249
Accounts receivable (less allowance for doubtful accounts
and cash discounts: 1996, $2,698 and 1995, $2,341) 72,009 84,865
Inventories 12,643 12,695
Deferred income taxes 2,770 956
Prepaid expenses 1,462 801
-------------------
Total Current Assets 109,778 121,566
Property - Net 9,414 9,373
Intangible Assets - Net 39,691 41,911
-------------------
Total Assets $158,883 $172,850
===================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 13,654 $ 17,385
Payable to McKesson 2,224 2,595
Accrued selling expenses 9,503 8,590
Accrued compensation 1,495 2,513
Income and other taxes payable 591 5,429
Dividends payable 3,411 3,404
Other liabilities 4,458 3,468
-------------------
Total Current Liabilities 35,336 43,384
-------------------
Deferred Income Taxes 572 481
-------------------
Stockholders' Equity
Preferred stock, $0.01 par value; 10,000,000 shares authorized;
no shares outstanding
Common stock, $0.01 par value; 40,000,000 shares authorized;
21,318,722 and 21,272,035 shares outstanding in 1996 and 1995 213 213
Other capital 61,739 61,157
Unearned compensation - restricted stock (1,230) (980)
Retained earnings 62,871 69,338
Cumulative translation adjustment (618) (743)
-------------------
Total Stockholders' Equity 122,975 128,985
-------------------
Total Liabilities and Stockholders' Equity $158,883 $172,850
===================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Consolidated Statements of Income
Armor All Products Corporation
<TABLE>
<CAPTION>
Years Ended March 31 (in thousands except per share amounts) 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $186,326 $216,789 $182,257
-----------------------------
Costs and expenses
Cost of sales 89,261 93,103 74,360
Selling, general and administrative 83,579 80,960 66,950
Amortization of intangibles 2,455 2,457 2,684
-----------------------------
Total costs and expenses 175,295 176,520 143,994
-----------------------------
Operating income 11,031 40,269 38,263
Interest income -- net 1,601 1,803 1,377
-----------------------------
Income before income taxes 12,632 42,072 39,640
Income taxes 5,470 17,544 17,067
-----------------------------
Net income $ 7,162 $ 24,528 $ 22,573
=============================
Earnings per common share $.34 $1.16 $1.07
=============================
Weighted average common shares outstanding 21,296 21,214 21,121
=============================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
Consolidated Statements of Stockholders' Equity
Armor All Products Corporation
<TABLE>
<CAPTION>
Unearned Total
Common Stock Compensation- Cumulative Stock-
Outstanding Other Restricted Retained Translation holders'
Shares Amount Capital Stock Earnings Adjustment Equity
(in thousands except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1993 21,085 $ 211 $57,968 $ (664) $49,333 $ (293) $106,555
Exercise of stock options 44 1 647 648
Issuance of restricted stock 36 704 (704) -
Redemption of common stock (1) (27) (27)
Amortization of restricted
stock cost 267 267
Issuance of shares to
profit-sharing plan 1 31 31
Net income 22,573 22,573
Dividends declared ($.64 per
share) (13,518) (13,518)
Translation adjustment (500) (500)
----------------------------------------------------------------------------
Balances, March 31, 1994 21,165 212 59,323 (1,101) 58,388 (793) 116,029
Exercise of stock options 95 1 1,486 1,487
Issuance of restricted stock 16 337 (337) -
Cancellation of restricted
stock (12) (135) 75 (60)
Redemption of common stock (1) (25) (25)
Amortization of restricted
stock cost 383 383
Issuance of shares to
profit-sharing plan 9 171 171
Net income 24,528 24,528
Dividends declared ($.64 per
share) (13,578) (13,578)
Translation adjustment 50 50
----------------------------------------------------------------------------
Balances, March 31, 1995 21,272 213 61,157 (980) 69,338 (743) 128,985
Exercise of stock options 53 728 728
Issuance of restricted stock 12 212 (212) -
Cancellation of restricted
stock (12) (246) 246 -
Redemption of common stock ( 6) (112) (112)
Restricted stock amortization and adjustment (284) (284)
Net income 7,162 7,162
Dividends declared ($.64 per
share) (13,629) (13,629)
Translation adjustment 125 125
----------------------------------------------------------------------------
Balances, March 31, 1996 21,319 $ 213 $61,739 $ (1,230) $62,871 $ (618) $122,975
============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
Consolidated Statements of Cash Flows
Armor All Products Corporation
<TABLE>
<CAPTION>
Armor All Products Corporation
Years Ended March 31 (in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 7,162 $ 24,528 $ 22,573
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 3,965 3,745 3,818
Deferred income taxes (1,723) (631) (551)
Other (284) 323 267
------------------------------
Total 9,120 27,965 26,107
------------------------------
Effect of changes in operating assets, net of the affects of business acquisition:
Accounts receivable 12,856 (16,902) (13,889)
Inventories 52 (8,513) 595
Prepaid expenses (661) (737) 485
Accounts payable (3,731) 6,462 1,474
Accrued selling expenses 913 (212) (271)
Accrued compensation (1,018) (156) (462)
Taxes payable and other liabilities (3,848) 1,327 1,537
------------------------------
Total 4,563 (18,731) (10,531)
------------------------------
Net cash provided by operating activities 13,683 9,234 15,576
------------------------------
Investing Activities
Cash paid for acquisition of E-Z Deck(R) Wash and E-Z D(R) brands - - (7,438)
Capital expenditures (1,551) (1,962) (1,377)
Other (110) (419) (683)
------------------------------
Net cash used in investing activities (1,661) (2,381) (9,498)
------------------------------
Financing Activities
Payable to McKesson (371) 1,069 (1,678)
Issuance of common stock 616 1,638 652
Dividends paid (13,622) (13,562) (12,659)
------------------------------
Net cash used in financing activities (13,377) (10,855) (13,685)
------------------------------
Net decrease in cash and cash equivalents (1,355) (4,002) (7,607)
Cash and cash equivalents at beginning of year 22,249 26,251 33,858
------------------------------
Cash and cash equivalents at end of year $ 20,894 $ 22,249 $ 26,251
==============================
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
Notes to Consolidated Financial Statements
Armor All Products Corporation
1. Organization and Significant Accounting Policies
Basis of Presentation: The accompanying consolidated financial statements
include the accounts of Armor All Products Corporation and all of its
subsidiaries ("the Company"). All significant intercompany balances and
transactions have been eliminated.
Business: Substantially all of the Company's operations are currently in one
business segment, marketing branded appearance enhancement products targeted
primarily for the do-it-yourself automotive and home care consumer markets. The
Company's products are sold under the following principal brand names: Armor
All(R), Rain Dance(R), Rally(R), No.7(R) and E-Z Deck Wash(R). The Company
sells its products primarily to retailers and distributors.
Relationship with McKesson Corporation: McKesson Corporation ("McKesson")
owned approximately 55% of the Company's outstanding shares of common stock as
of March 31, 1996. McKesson has outstanding debentures which are exchangeable
into shares of the Company's common stock owned by McKesson at a price of $25.94
per share at any time through February 2004, subject to McKesson's right to pay
cash equal to the market price of the stock in lieu of making the exchange. If
all of such debentures were actually exchanged, McKesson's ownership level would
be reduced to approximately 22%.
Transactions with McKesson: Certain expenses, principally payroll and employee
benefits, are paid on behalf of and charged to the Company by McKesson. The
Company uses certain resources and administrative staff of McKesson, including
financial, treasury, legal, corporate secretary, tax, audit and accounting
advice, and employee benefit, personnel and payroll services. The Company is
charged a fee for these and other services including insurance premiums at an
amount based on actual time or costs incurred. These charges, which are
included in selling, general and administrative expenses, were $603,000,
$620,000 and $669,000 in fiscal 1996, 1995 and 1994, respectively. The Company
believes that these expenses would not have been materially different if the
Company operated on a stand-alone basis. The Company also participates in a
cash management program administered by McKesson, as described in Note 2, and
files certain combined tax returns with McKesson, as described in Note 8.
Sales to divisions of McKesson were $578,000, $803,000 and $747,000 in
fiscal 1996, 1995 and 1994, respectively.
Foreign Currency Translation: Assets and liabilities of the Company's foreign
affiliates are translated at current exchange rates, while revenue and expenses
are translated at average rates prevailing during the year. Translation
adjustments of those affiliates for which the local currency is the functional
currency are reported as a component of stockholders' equity. Translation
adjustments of affiliates for which the U.S. dollar is the functional currency
are included in net income. All gains and losses on foreign currency
transactions are also included in net income. Foreign currency exchange
fluctuations did not have a material effect on the consolidated financial
statements in fiscal 1996, 1995 or 1994.
Fair Value of Financial Instruments: Carrying values approximate fair values
for financial instruments classified in the balance sheet as current assets and
current liabilities.
Revenue is recognized when products are shipped to customers.
Media advertising production costs are charged to expense in the period in which
the advertising first takes place. Total advertising and promotion expense
amounted to $57,551,000, $56,730,000 and $43,959,000 in fiscal 1996, 1995 and
1994, respectively.
Research and development costs are charged to expense as incurred.
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
liability method of accounting for deferred taxes.
Cash equivalents include all highly liquid investments purchased with a maturity
of three months or less.
Inventories are stated at the lower of first-in, first-out cost or market.
Property is stated at cost and depreciated on the straight-line method over
estimated useful lives of 3 to 30 years.
Intangible assets include (1) goodwill from the excess of McKesson's cost of
the Company over the fair value of net assets acquired, which is being amortized
over 40 years, (2) patents, trademarks, goodwill and other intangibles arising
from the purchase of the Rain Dance(R), Rally(R) and No. 7(R) brand product
lines in September 1988, which are being amortized over various periods ranging
from 4 to 25 years, (3) patents and trademarks arising from the purchase of the
9
<PAGE>
E-Z Deck Wash(R) and E-Z D(R) brand product lines in January 1994 (see Note 12),
which are being amortized over 15 years, and (4) other patents and trademarks
that are being amortized over various periods ranging from 5 to 20 years.
Amortization of intangible assets is recorded on a straight-line basis.
Periodically, management assesses whether there has been an impairment in the
carrying values of the Company's intangible assets. Based on this assessment,
management believes that there was no impairment at March 31, 1996.
Accrued selling expenses include media advertising related to new product
introductions, cooperative advertising, volume rebates and other trade incentive
programs, coupon redemption liabilities and sales commissions.
Earnings per common share are computed based on the weighted average number of
shares of common stock outstanding during the respective years. The dilutive
effect of stock options, which are considered to be common stock equivalents, is
immaterial.
Use of estimates: The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Recent Accounting Pronouncements: Statement of Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," becomes effective for the Company's fiscal year 1997. SFAS 121
prescribes the impairment evaluation method for long-lived property and
intangibles that are either used in operations or held for disposal. The
Company believes that adoption of this standard will not have a material effect
on the Company's financial position or results of operations.
Statement of Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," becomes effective for the Company's fiscal year 1997. SFAS 123
establishes new financial accounting and reporting standards for stock-based
compensation plans. Entities will be allowed to measure compensation expense
for stock-based compensation under SFAS 123 or the existing standard, which is
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities electing to remain with the APBO 25 accounting method will
be required to make pro forma disclosures of net income and earnings per share
as if the SFAS 123 accounting method had been applied. The Company plans to
adopt only the disclosure requirements of SFAS 123; therefore, such adoption
will not affect the Company's earnings or cash flows.
Reclassifications: Certain prior year amounts have been reclassified to conform
with the fiscal 1996 presentation.
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 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 by the Company for cash management program
transactions. The Company receives interest under the program through McKesson
on funds deposited in the separate bank account, or pays interest to McKesson on
funds received, at a rate equal to the monthly Federal Reserve Composite Rate
for 7-day commercial paper less 0.1% for funds deposited under the program and
plus 0.5% for funds borrowed from McKesson. The agreement provides that
McKesson will make available that amount of cash necessary to provide the
Company with sufficient funds to meet its needs as defined in its annual capital
and operating budget, and that the Company will pay McKesson an annual credit
facility fee of $25,000.
Included in cash and cash equivalents in the accompanying consolidated
balance sheets are the following amounts invested in the cash management program
and the interest rates earned thereon: $17,359,000 at 5.3% on March 31, 1996 and
$18,182,000 at 6.0% on March 31, 1995.
The Payable to McKesson of $2,224,000 and $2,595,000 at March 31, 1996 and
1995, respectively, consist of payroll, freight and other expenses paid by
McKesson on behalf of the Company. Such amounts were reimbursed to McKesson in
the first quarter of the respective subsequent fiscal years.
The Company also has a $3,000,000 (Canadian) line of credit with a Canadian
bank that is renewable annually and expires on March 31, 1997. Borrowings under
this line of credit bear interest at the Canadian prime rate (6.8% at March 31,
1996). There were no outstanding borrowings under the line of credit at March
31, 1996 or 1995.
10
<PAGE>
3. Interest Income - Net
Interest income - net, which approximates interest received and paid, is
comprised of the following:
<TABLE>
<CAPTION>
Years Ended March 31 (in thousands) 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income - McKesson (Note 2) $1,486 $1,656 $1,219
Interest income - other 124 154 163
Interest expense - other (9) (7) (5)
-------------------------
Total $1,601 $1,803 $1,377
=========================
</TABLE>
4. Accounts Receivable and Concentration of Credit Risk
The Company's principal customers are large mass merchandisers, automotive
supply stores, warehouse clubs, home centers, hardware stores and wholesalers.
The Company offers trade credit to its customers on terms customary to the
industry, which includes extended dating during seasonal promotion periods.
Sales to the Company's two largest customers accounted for the following
percentages of consolidated revenue: 20% and 10% in fiscal 1996; 17% and 8% in
fiscal 1995; and 17% and 8% in fiscal 1994. No other customer accounted for 5%
or more of consolidated revenues in any of these fiscal years. As of March 31,
1996, three customers accounted for an aggregate of 29% of outstanding trade
accounts receivable. Management maintains credit policies and performs ongoing
credit evaluations of its customers. Allowances for doubtful receivables are
established based on historical trends and factors surrounding the credit risk
of specific customers; actual credit losses have historically been within the
allowances provided.
5. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31 (in thousands) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 11,714 $ 10,338
Raw materials 929 2,357
-------------------
Total $ 12,643 $ 12,695
===================
</TABLE>
6. Property
Property is summarized as follows:
<TABLE>
<CAPTION>
March 31 (in thousands) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Land $ 2,439 $ 2,439
Building 3,810 3,810
Furniture and fixtures 2,049 1,786
Machinery and equipment 7,690 6,700
Leasehold improvements 251 78
-------------------
Total 16,239 14,813
Accumulated depreciation (6,825) (5,440)
-------------------
Property - net $ 9,414 $ 9,373
===================
</TABLE>
7. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
March 31 (in thousands) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 43,865 $ 43,865
Patents and trademarks 21,091 20,980
Other intangibles 11,090 11,090
-------------------
Total 76,046 75,935
Accumulated amortization (36,355) (34,024)
-------------------
Intangible assets - net $ 39,691 $ 41,911
===================
</TABLE>
8. Income Taxes
Through May 12, 1993, the Company was included in the consolidated federal
income tax returns of McKesson. On that date, as a result of a public stock
offering, McKesson's ownership of the Company fell below the 80% level required
for the Company to qualify for inclusion in such consolidated tax returns.
Accordingly, the Company now files separate federal income tax returns.
For the majority of its state income taxes, the Company continues to be
included in McKesson's combined tax returns. Such inclusion occurs in the tax
returns related to those states where the required ownership percentage is 50%
or more. The Company files separate income tax returns in other states and in
foreign countries.
The Company's aggregate income tax payments, including payments made to
McKesson and payments made directly to the applicable government taxing
authorities, amounted to $12,655,000, $16,768,000 and $16,970,000 in fiscal
1996, 1995 and 1994, respectively. Accrued income taxes owed to McKesson for
the Company's share of taxes reported on the consolidated and combined tax
returns amounted to $785,000 and $1,656,000 at March 31, 1996 and 1995,
respectively. These liabilities are included in income and other taxes payable
on the accompanying consolidated balance sheets. The Company's provisions for
income taxes, which have been computed as if the Company filed its tax returns
as a separate entity in all periods, consist of the following components:
<TABLE>
<CAPTION>
Years Ended March 31 (in thousands) 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 5,882 $14,115 $13,084
State 1,279 3,176 2,988
Foreign 32 884 1,546
---------------------------
Total current 7,193 18,175 17,618
---------------------------
Deferred
Federal (1,436) (526) (457)
State (287) (105) (94)
---------------------------
Total deferred (1,723) (631) (551)
---------------------------
Total provision $ 5,470 $17,544 $17,067
===========================
</TABLE>
11
<PAGE>
The reconciliations between the Company's effective tax rate and the statutory
federal income tax rate follow:
<TABLE>
<CAPTION>
Years Ended March 31 (in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 5.2 4.8 4.8
Foreign operations (0.7) 0.8 1.8
Retroactive effect of tax legislation - - 0.3
Amortization of certain intangible assets 3.8 1.1 1.2
---------------------------
Total 43.3% 41.7% 43.1%
===========================
</TABLE>
Deferred income taxes in the accompanying consolidated balance sheets are
comprised of the following:
<TABLE>
<CAPTION>
March 31 (in thousands) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory reserves $ 1,818 $ 252
Doubtful receivables 491 314
Employee benefit plans 357 893
Accrued selling expenses 340 487
Legal expense and other 1,119 485
----------------------------
Total 4,125 2,431
----------------------------
Deferred tax liabilities:
Depreciation and amortization (1,777) (1,800)
Other (150) (156)
----------------------------
Total (1,927) (1,956)
----------------------------
Net deferred tax asset $ 2,198 $ 475
============================
Net current $ 2,770 $ 956
Net non-current (572) (481)
----------------------------
Net deferred tax asset $ 2,198 $ 475
============================
</TABLE>
The Company has not recorded a valuation allowance for the net deferred tax
asset at March 31, 1996 because management believes such deferred taxes will be
fully recovered through deductions on the fiscal 1997 tax return or through
carryback to prior fiscal years.
The Company has not provided for U.S. federal income and foreign
withholding taxes on $3,071,000 of its Canadian subsidiary's undistributed
earnings as of March 31, 1996 because such earnings are intended to be
reinvested indefinitely. If these earnings were distributed, foreign tax
credits would become available under current U.S. law to reduce the effect on
the Company's overall tax liability.
9. Employee Benefit Plans
The Company's employees are eligible to participate in McKesson's health care,
retirement and certain other employee benefit plans. In addition, substantially
all employees are eligible to participate in the Company's profit-sharing
investment plan. The Company's contributions to the profit-sharing plan
consisted of the following: a cash payment in fiscal 1996, 8,869 shares of its
common stock in fiscal 1995 and a cash payment plus 1,637 shares of its common
stock in fiscal 1994. Compensation expense related to the McKesson and profit-
sharing plans amounted to $913,000, $995,000 and $879,000 in fiscal 1996, 1995
and 1994, respectively.
The 1986 Stock Option Plan provides for the granting of non-qualified
options to eligible key employees and directors of the Company to purchase up to
an aggregate of 1,300,000 shares of common stock. The exercise price of the
stock covered by each option may not be less than 85% of the fair market value
of such stock on the date the option is granted. Option information is as
follows:
<TABLE>
<CAPTION>
Years Ended March 31 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Option shares:
Outstanding at beginning of year 878,812 822,312 802,950
Granted 211,500 183,800 100,950
Exercised (53,425) (94,563) (44,238)
Cancelled (88,525) (32,737) (37,350)
-----------------------------------
Outstanding at year-end 948,362 878,812 822,312
===================================
Exercisable at year-end 540,419 478,144 422,157
===================================
Available for future grants at year-end 67,612 190,587 341,650
===================================
For outstanding options at year-end:
Range of exercise prices $10.19- $10.19- $10.19-
$22.63 $22.63 $22.63
Aggregate exercise price $15,848,000 $14,579,000 $12,413,000
Aggregate market value $15,529,000 $18,894,000 $15,830,000
</TABLE>
The 1988 Restricted Stock Plan provides for the granting of up to an aggregate
of 220,000 shares of the Company's common stock to key employees. As of March
31, 1996, there were 75,150 shares which remained available for future grants.
During fiscal 1996, 1995 and 1994, respectively, 12,300, 15,700 and 36,200
common shares were granted. In connection with the granting of these shares,
unearned compensation - restricted stock was recorded in the amount of $212,000,
$337,000 and $704,000 in fiscal 1996, 1995 and 1994, respectively. These
amounts represent the fair market value of the shares on the respective dates of
grant.
Recipients of restricted shares have all of the rights of common
stockholders except that the shares are held in custody by the Company and
cannot be disposed of until the restrictions have lapsed, which is generally
four years after the grant date. In addition, the majority of the grants made
in fiscal 1993 through 1996 provide that the restrictions will lapse only if
specified performance goals are met during the four-year period. The fair
market value of the shares on the grant date is amortized to compensation
expense over the vesting period. Due to the significant decline in the
Company's earnings during fiscal 1996, it became unlikely that the specified
performance goals for these grants would be met; accordingly, the previously-
recorded amortization for such shares was credited to expense. If a plan
participant's employment terminates during the vesting period, except under
certain specified conditions, the shares are cancelled and any amounts
previously amortized are credited to expense.
12
<PAGE>
10. Geographic Segments
The Company's foreign operations consist of offices and certain other facilities
in Canada and Europe. The Company exports products from the United States to
other geographic areas, principally Australia, Japan and Mexico. Information
for the Company's geographic operations is as follows:
<TABLE>
<CAPTION>
Years Ended March 31 (in thousands) 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
United States $161,567 $187,868 $156,429
Export 9,752 9,911 8,523
Foreign 15,007 19,010 17,305
----------------------------
Total $186,326 $216,789 $182,257
============================
Operating Income
United States and export $ 9,192 $ 36,906 $ 35,053
Foreign 1,839 3,363 3,210
----------------------------
Total $ 11,031 $ 40,269 $ 38,263
============================
Identifiable Assets at Year-End
United States and export $147,851 $160,130 $141,108
Foreign 11,032 12,720 10,718
----------------------------
Total $158,883 $172,850 $151,826
============================
</TABLE>
11. Commitments
In addition to commitments and obligations which arise in the ordinary course of
business, the Company is subject to various claims, investigations, proceedings,
tax assessments and legal actions from time to time arising out of the conduct
of the Company's business. Management believes that, based on current
knowledge, the outcome of any such pending matters will not have a material
adverse effect on the Company's financial position.
The Company leases equipment and certain warehouse, laboratory and office
facilities under operating leases that expire on various dates through February
2001. Rent expense included in operations, which primarily consists of
contingent rental payments based on the number of cases stored at independent
warehouses, was $2,980,000, $1,879,000, and $983,000 in fiscal 1996, 1995, and
1994, respectively. As of March 31, 1996, minimum lease payments under
operating leases with remaining noncancelable lease terms in excess of one year
were as follows: $379,000 in fiscal 1997; $233,000 in fiscal 1998; $238,000 in
fiscal 1999; $204,000 in fiscal 2000 and $152,000 in fiscal 2001.
12. Acquisition of E-Z Deck Wash and E-Z D Brands
On January 28, 1994, the Company purchased the E-Z Deck Wash and E-Z D brands of
home care products for approximately $7,500,000. This acquisition was accounted
for using the purchase method. Substantially all of the cost was allocated to
patents and trademarks, with a minor amount assigned to inventory and various
other assets and liabilities. Had this business been acquired at the beginning
of fiscal 1994, the pro-forma inclusion of its operating results would not have
had a significant effect on the reported consolidated revenues and net income in
fiscal 1994.
13. Quarterly Financial Information (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Years Ended March 31 (in thousands except per share amounts) Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Revenues $50,224 $39,772 $34,637 $61,693 $186,326
Gross profit 25,830 21,547 19,015 30,673 97,065
Net income(loss) 3,457 2,707 1,852 (854) 7,162
Earnings(loss) per common share $ .16 $ .13 $ .09 $ (.04) $ .34
Cash dividends per common share $ .16 $ .16 $ .16 $ .16 $ .64
Market prices per common share
High $22-1/2 $ 18 $19-1/2 $18-1/4 $ 22-1/2
Low 16-1/2 15 15-1/2 14-3/4 14-3/4
-------------------------------------------------
1995
Revenues $56,568 $41,135 $39,244 $79,842 $216,789
Gross profit 32,567 23,809 22,144 45,166 123,686
Net income 6,359 4,459 4,000 9,710 24,528
Earnings per common share $ .30 $ .21 $ .19 $ .46 $ 1.16
Cash dividends per common share $ .16 $ .16 $ .16 $ .16 $ .64
Market prices per common share
High $ 22 $23-1/4 $ 24 $23-3/8 $ 24
Low 18-1/4 20-1/2 18 18-3/4 18
</TABLE>
Due to the seasonal nature of the Company's business, revenues, gross profit and
net income are not generated evenly by quarter during the year. Sales activity
generally peaks in the fourth quarter of the fiscal year.
(a) In the fourth quarter of fiscal 1995, earnings per share were reduced
by approximately $.03 in connection with a charge for costs of the Company's
program to replace retailers' inventories of certain aerosol units of
QuickSilver Wheel Cleaner with new cans containing an improved actuator.
Earnings per share for that quarter were increased by $.01 due to the
retroactive effect of revising the annual effective tax rate from 42.7% to
41.7%.
(b) In the fourth quarter of fiscal 1996, earnings per share were reduced
by approximately $.21 in connection with charges consisting principally of
additional costs related to the QuickSilver aerosol replacement program,
provisions for discontinued and excess inventory, and reserves for certain other
items. Earnings per share for that quarter were reduced by $.01 due to the
retroactive effect of revising the annual effective tax rate from 42.0% to
43.3%.
13
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of Armor All Products Corporation:
We have audited the accompanying consolidated balance sheets of Armor All
Products Corporation and subsidiaries as of March 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended March 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Armor All Products Corporation
and subsidiaries as of March 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1996, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP Deloitte & Touche LLP
[LOGO]
DELOITTE & TOUCHE LLP
Costa Mesa, California
April 25, 1996
Management's Responsibility for Financial Statements
Armor All Products Corporation is responsible for the preparation and accuracy
of the financial statements and other information included in this report. The
financial statements have been prepared in conformity with generally accepted
accounting principles using, where appropriate, management's best estimates and
judgments.
In meeting its responsibility for the reliability of the financial
statements, management has developed and relies on the Company's system of
internal accounting control. The system is designed to provide reasonable
assurance that assets are safeguarded and that transactions are executed as
authorized and are properly recorded. The system is augmented by written
policies and procedures.
The Board of Directors reviews the financial statements and reporting
practices of the Company through its Audit Committee. The Committee meets
regularly with the independent auditors, internal auditors and management to
discuss audit scope and results and to consider internal control and financial
reporting matters. Both the independent and internal auditors have unrestricted
access to the Audit Committee.
/s/ Kenneth M. Evans /s/ Michael G. McCafferty
Kenneth M. Evans Michael G. McCafferty
President and Chief Executive Officer Executive Vice President and Chief
Financial Officer
14
<PAGE>
CORPORATE DIRECTORY
Armor All Products Corporation
Executive Officers
Kenneth M. Evans
President and
Chief Executive Officer
Michael G. McCafferty
Executive Vice President and
Chief Financial Officer
Michael A. Caron
Senior Vice President and
President of Armor All International
Gayle F. Metzler
Vice President,
Human Resources
Other Officers
Jon W. d'Alessio
Treasurer
Steven D. Booker
Vice President,
Sales-Automotive Division
Walter A. Hadzinsky
Vice President,
Information Systems
Niels F. Hayns
Vice President,
International-Americas
Lawrence R. Kahn
Vice President,
Marketing-Automotive Division
Robert J. Keller
Vice President,
Sales-Home Care Division
Mark D. Krikorian
Vice President and Controller
Richard A. Loomis
Vice President,
Marketing-Home Care Division
Nancy A. Miller
Vice President and Secretary
Philip Robinson
Vice President and Managing
Director - Europe
John F. Schueller
Vice President, Manufacturing
and Corporate Quality
Directors
David E. McDowell/1,2/
Chairman,
Armor All Products Corp.
Senior Adviser to McKesson Corp.
William A. Armstrong/1/
Vice President,
McKesson Corp.
Jon S. Cartwright1,/2/
Director Emeritus and Senior Adviser of the Center for Telecommunications Mgt.,
Graduate School of Business Administration,
University of Southern California
Kenneth M. Evans
President and
Chief Executive Officer,
Armor All Products Corp.
David L. Mahoney
Vice President and President,
Pharmaceutical Services Group, McKesson Corp.
Karen Gordon Mills/2/
President, MMP Group, Inc.
Alan Seelenfreund
Chairman and
Chief Executive Officer, McKesson Corp.
1 Member, Compensation Committee
2 Member, Audit Committee
- --------------------------------------------------------
Alan F. Rypinski
Chairman Emeritus, Founder
Annual Meeting Will be Held
July 26 in San Francisco
The annual meeting of Armor All Products Corp. shareholders will be held at
10:00 a.m. on Friday, July 26, 1996, in the Lobby Level Conference Room at 44
Montgomery Street, San Francisco. A proxy card and proxy statement will be
mailed to all shareholders approximately five weeks before the meeting. Proxy
cards should be signed, dated and returned promptly to ensure that all shares
are represented at the meeting and voted in accordance with the instructions of
their holders.
About Your Securities
and Records
The common stock of Armor All Products is traded in the over-the-counter market.
Prices are quoted on the NASDAQ Stock Market and may be found in the daily stock
tables carried by most newspapers, listed as "Armor." The ticker symbol for
Armor All Products is ARMR.
Continental Stock Transfer & Trust Co., Two Broadway, New York, NY 10004,
acts as transfer agent for Armor All Products and maintains all shareholder
records for the corporation.
Shareholders may obtain information relating to their share positions,
dividends, transfer requirements, lost certificates and other related matters by
telephoning Continental Stock Transfer at (800) 509-5586. Shareholders must
provide their tax identification number, the name(s) in which their shares are
registered and their record address when they request information. This service
is available to all shareholders Monday through Friday 9:00 a.m. to 5:00 p.m.
EST. Shareholders may also obtain this information by writing to: Assistant
Secretary, Armor All Products Corp., One Post Street, San Francisco, CA 94104.
Dividend Payments
Mailed Quarterly
"Shareholder of record" refers to a shareholder who is entitled to receive a
dividend on the "payable date" if he or she was listed as an Armor All
shareholder on the "record date" (approximately 3 to 4 weeks prior to the
payable date).
Quarterly dividends are mailed with the intent of reaching shareholders on
the first business day of January, April, July and October. Postal delays may
cause actual receipt dates to vary.
Tax Reports on
Dividend Income
Armor All is required to report to the Internal Revenue Service the total amount
of dividends paid to each shareholder during the preceding year. Form 1099,
which contains the information supplied by the transfer agent to the IRS for
each shareholder account, will be mailed to shareholders with the first dividend
check payable after the end of each calendar year.
Lost Checks and Certificates
Delayed delivery or lost dividend checks often result when a shareholder moves
and does not notify the transfer agent. Please immediately notify Continental
Stock Transfer in writing of any address changes.
Lost certificates may be replaced only after the issuance of an indemnity
bond, for which a premium of about 2% of the market value of the stock is
charged by an insurance company. Shareholders should generally deal directly
with their brokers and the transfer agent who maintains shareholder records.
However, if a problem arises that they cannot resolve, Armor All's Assistant
Secretary is available for assistance.
Additional Information Available to Shareholders
Questions about activities of the Company and operating results should be
directed to: Investor Relations, Armor All Products Corp., 6 Liberty, Aliso
Viejo, CA 92656; or call Investor Relations at (714) 362-0600.
Form 10-K Available
on Request
Shareholders may obtain copies of the corporation's Form 10-K annual report to
the Securities and Exchange Commission, without charge. Requests for this
document should be addressed to: Investor Relations, Armor All Products Corp., 6
Liberty, Aliso Viejo, CA 92656.
Armor All Products Corporation
6 Liberty
Aliso Viejo, CA 92656
(714) 362-0600
15
<PAGE>
Exhibit (21)
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the significant subsidiaries of the Company:
Jurisdiction of
Organization
---------------
Armor All Products GmbH .................................... Germany
Armor All Products of Canada, Inc........................... Canada
<PAGE>
Exhibit (23)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
52075-01 of Armor All Products Corporation on Form S-3 and Registration
Statement Nos. 33-16181, 33-33096 and 33-43987 of Armor All Products
Corporation on Form S-8 and of our reports dated April 25, 1996, appearing in
and incorporated by reference in this Annual Report on Form 10-K of Armor All
Products Corporation for the year ended March 31, 1996.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Costa Mesa, California
June 14, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000797975
<NAME> ARMOR-ALL-PRODUCTS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 20,894
<SECURITIES> 0
<RECEIVABLES> 74,707
<ALLOWANCES> 2,698
<INVENTORY> 12,643
<CURRENT-ASSETS> 109,778
<PP&E> 16,239
<DEPRECIATION> 6,825
<TOTAL-ASSETS> 158,883
<CURRENT-LIABILITIES> 35,336
<BONDS> 0
0
0
<COMMON> 213
<OTHER-SE> 122,762
<TOTAL-LIABILITY-AND-EQUITY> 158,883
<SALES> 186,326
<TOTAL-REVENUES> 186,326
<CGS> 89,261
<TOTAL-COSTS> 89,261
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,663
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,632
<INCOME-TAX> 5,470
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,162
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
