SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 1-11415
AMERICAN STANDARD COMPANIES INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3465896
State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
One Centennial Avenue, P.O. Box 6820, Piscataway, NJ 08855-6820
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 980-6000
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.
X Yes No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock, $.01 par value, outstanding at
October 31, 1996
78,528,888
(shares)
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
American Standard Companies Inc. is a Delaware corporation organized in
March 1988, and has as its only investment all the outstanding common stock of
American Standard Inc. Hereinafter, "the Company" will refer to American
Standard Companies Inc. or to its subsidiary, American Standard Inc., as the
context requires.
The following summary statement of operations of the Company and
subsidiaries for the three months and nine months ended September 30, 1996 and
1995 has not been audited, but management believes that all adjustments,
consisting of normal recurring items, necessary for a fair presentation of
financial data for those periods have been included. Results for the three- and
nine-month periods are not necessarily indicative of results for the entire
year.
<TABLE>
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
UNAUDITED SUMMARY STATEMENT OF OPERATIONS
(In millions except
share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----- ----- ----- ----
<S> <C> <C> <C> <C>
SALES $ 1,485 $ 1,316 $ 4,368 $ 3,910
--------- -------- ------- ---------
COST AND EXPENSES
Cost of sales 1,114 975 3,277 2,893
Selling and administrative expenses 225 215 680 631
Asset impairment loss - - 235 -
Other expense 10 8 28 27
Interest expense 49 51 151 162
-- -- --- ---
1,398 1,249 4,371 3,713
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 87 67 (3) 197
Income taxes 30 24 83 78
-- -- -- --
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 57 43 (86) 119
Extraordinary loss on retirement of debt - - - (30)
--- --- --- ---
NET INCOME (LOSS) $ 57 $ 43 $ (86) $ 89
========= ======== ======== =========
Income (loss) per common share:
Income (loss) before extraordinary item $ .73 $ .57 $ (1.10) $ 1.61
Extraordinary loss on retirement of debt - - - (.40)
-------- -------- ------- -----
NET INCOME (LOSS) $ .73 $ .57 $ (1.10) $ 1.21
========= ========= ======== =========
Average number of outstanding common shares 78,241,940 76,190,840 77,813,214 73,987,678
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
Item 1. Financial Statements (continued)
<TABLE>
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
UNAUDITED SUMMARY BALANCE SHEET
(In millions
except share data)
<CAPTION>
September 30, December 31,
------------ -----------
1996 1995
<S> <C> <C>
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 69 $ 89
Accounts receivable 829 771
Inventories
Finished products 243 191
Products in process 93 84
Raw materials 96 87
-- --
432 362
Other current assets 88 73
-- --
TOTAL CURRENT ASSETS 1,418 1,295
FACILITIES, less accumulated depreciation;
Sept. 1996 - $564; Dec. 1995 - $514 928 924
GOODWILL 851 1,082
OTHER ASSETS 248 219
--- ---
TOTAL ASSETS $ 3,445 $ 3,520
======= =======
CURRENT LIABILITIES
Loans payable to banks $ 181 $ 240
Current maturities of long-term debt 65 73
Accounts payable 407 438
Accrued payrolls 166 172
Other accrued liabilities 445 384
--- ---
TOTAL CURRENT LIABILITIES 1,264 1,307
LONG-TERM DEBT 1,738 1,770
RESERVE FOR POSTRETIREMENT BENEFITS 502 482
OTHER LIABILITIES 375 351
--- ---
TOTAL LIABILITIES 3,879 3,910
STOCKHOLDERS' DEFICIT
Preferred stock, 2,000,000 shares authorized,
none issued and outstanding -- --
Common stock $.01 par value, 200,000,000 shares
authorized;78,452,608 shares issued and
outstanding in 1996; 76,733,010 in 1995 1 1
Capital surplus and other 556 509
Accumulated deficit (811) (725)
Foreign currency translation effects (180) (175)
---- ----
TOTAL STOCKHOLDERS' DEFICIT (434) (390)
---- ----
$ 3,445 $ 3,520
======= =======
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
<TABLE>
Item 1. Financial Statements (continued)
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED SUMMARY STATEMENT OF CASH FLOWS
(In millions)
<CAPTION>
Nine Months Ended
September 30,
<S> <C> <C>
1996 1995
CASH PROVIDED (USED) BY:
OPERATING ACTIVITIES:
Income (loss) before extraordinary item $ (86) $ 119
Asset impairment loss 235 -
Depreciation 91 84
Amortization of goodwill 21 25
Non-cash interest 47 48
Non-cash stock compensation 25 23
Changes in assets and liabilities:
Accounts receivable (58) (130)
Inventories (67) (86)
Accounts payable and other accruals 7 70
Other assets and liabilities (15) 49
--- ---
Net cash provided by operating activities 200 202
---- ---
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (123) (96)
Investments in affiliated companies (12) (19)
Other 20 13
--- ---
Net cash used by investing activities (115) (102)
----- -----
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock - 281
Minority partners' contributions to PRC venture 12 -
Proceeds from issuance of long-term debt 6 469
Repayments of long-term debt (67) (1,023)
Net change in revolving credit facility (31) 158
Net change in other short-term debt (18) (6)
Other (6) (18)
--- ---
Net cash used by financing activities (104) (139)
----- -----
Effect of exchange rate changes on cash and
cash equivalents (1) -
--- --
Net decrease in cash and cash equivalents (20) (39)
Cash and cash equivalents at beginning of period 89 93
--- --
Cash and cash equivalents at end of period $ 69 $ 54
======== =========
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1. Adoption of New Accounting Pronouncement
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("FAS 121"), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, resulting in a
non-cash charge of $235 million in the first quarter of 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
Note 2. Tax Matters
As described in Note 5 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, there
are pending German tax issues for the years 1984 through 1990. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Operating income increased 16% to $163 million in the third quarter of 1996
from $140 million in the third quarter of 1995 on strong growth for Air
Conditioning Products and an improvement by Plumbing Products, offset partly by
a decrease for Automotive Products related to weak markets. Effective January 1,
1996 the Company adopted FAS 121 related to impairment of long-lived assets. As
a result, the Company recorded a non-cash charge in the first quarter of 1996 of
$235 million, over 90% of which represented the write-down of goodwill, for
which there is no tax benefit. Excluding this charge, operating income for the
first nine months of 1996 was $463 million, an increase of 8% over the $428
million of operating income in the first nine months of 1995.
<PAGE>
<TABLE>
SUMMARY SEGMENT AND INCOME DATA
(in millions)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
----- ----- ----- ----
Sales:
Air Conditioning Products $ 920 $ 776 $2,602 $2,201
Plumbing Products 359 307 1,079 952
Automotive Products 206 233 687 757
--- --- --- ---
Total sales $1,485 $1,316 $4,368 $3,910
====== ====== ====== ======
Operating income before asset
impairment loss:
Air Conditioning Products $ 111 $ 81 $ 284 $ 209
Plumbing Products 31 23 88 96
Automotive Products 21 36 91 123
-- -- -- ---
163 140 463 428
Asset impairment loss:
Air Conditioning Products - - (121) -
Plumbing Products - - (114) -
--- --- ----- ---
- - (235) -
--- --- ----- ---
Total operating income 163 140 228 428
Interest expense (49) (51) (151) (162)
Corporate and other expenses (27) (22) (80) (69)
--- --- --- ---
Income (loss) before income
taxes and extraordinary item $ 87 $ 67 $ (3) $ 197
======== ======= ========= =======
</TABLE>
<PAGE>
Results of Operations for the Third Quarter and First Nine Months of 1996
Compared with the Third Quarter and First Nine Months of 1995
Consolidated sales for the third quarter of 1996 were $1,485 million, an
increase of $169 million, or 13% (14% excluding the unfavorable effects of
foreign exchange), from $1,316 million in the third quarter of 1995. Sales
increased 19% for Air Conditioning Products and 17% for Plumbing Products, while
sales for Automotive Products decreased 12% compared with the third quarter of
1995. Operating income for the third quarter of 1996 was $163 million, an
increase of $23 million, or 16% (17% excluding the unfavorable effects of
foreign exchange), from $140 million in the third quarter of 1995. Operating
income increased 37% for Air Conditioning Products and 35% for Plumbing Products
but decreased 42% for Automotive Products.
Consolidated sales for the first nine months of 1996 were $4,368 million,
an increase of $458 million, or 12% (13% excluding the unfavorable effects of
foreign exchange), from $3,910 million in the first nine months of 1995. Sales
increased 18% for Air Conditioning Products and 13% for Plumbing Products, while
sales for Automotive Products declined 9%. Operating income (excluding the asset
impairment charge previously mentioned) was $463 million for the first nine
months of 1996, an increase of 8% (9% excluding the unfavorable effects of
foreign exchange), compared with $428 million in the first nine months of 1995.
Operating income for the first nine months of 1996 increased 36% for Air
Conditioning Products but declined 8% for Plumbing Products and 26% for
Automotive Products.
Sales of Air Conditioning Products increased 19% (with little effect from
foreign exchange) to $920 million for the third quarter of 1996 from $776
million for the comparable quarter of 1995. This improvement resulted from
substantial volume increases and price gains for applied and unitary commercial
systems; higher volumes and prices and a favorable shift to higher-efficiency,
higher-capacity products for residential products in the U.S.; and sales by the
new operations in the People's Republic of China ("PRC"). Sales of commercial
products in the U.S. increased because of improved markets, demand for chiller
replacement (due to the ban on CFC refrigerant production), higher prices and
gains in market share. Residential sales in the U.S. increased because of strong
demand (particularly in the replacement and renovation market), hot weather in
some parts of the U.S. and improved economic conditions. International sales for
the third quarter of 1996 increased principally because of sales by the new PRC
operations, along with volume increases in most other businesses. Sales for Air
Conditioning Products for the first nine months of 1996 increased by 18% to
$2,602 million from $2,201 million in the first nine months of 1995, primarily
for the reasons cited for the third quarter increase.
Operating income of Air Conditioning Products increased 37% (with little
effect from foreign exchange) to $111 million in the third quarter of 1996 from
$81 million in the 1995 quarter, primarily reflecting expanded commercial and
residential product sales in the U.S. Despite higher sales (primarily in the
PRC), operating income for international operations was essentially unchanged.
The new PRC operations were at break even, while results in other operations
changed little from levels of the third quarter of 1995. Operating income for
the first nine months of 1996, excluding the asset impairment charge explained
above, increased 36% essentially for the reasons mentioned for the third quarter
increase.
<PAGE>
Sales of Plumbing Products increased 17% (18% excluding the unfavorable
effects of foreign exchange) to $359 million in the third quarter of 1996 from
$307 million in the third quarter of 1995 primarily as a result of sales by
Porcher, the French manufacturer acquired in the fourth quarter of 1995, and
higher sales in North and Latin American operations. Excluding Porcher and
foreign exchange effects, 1996 third quarter sales increased 3% compared with
the 1995 quarter, as a result of an 8% increase for U.S. operations, while the
international group was essentially flat despite the Latin American gains. Sales
in the U.S. increased as a result of higher volumes (primarily in the retail
market channel) and higher prices. For the international group, volume gains in
Latin American operations (primarily in Mexico) were offset by a sales decline
in Europe, particularly in Germany, Italy and France which continued to
experience weak economic conditions. Sales of Plumbing Products for the first
nine months of 1996 increased 13% (14% excluding the unfavorable effects of
foreign exchange) to $1,079 million from $952 million in the first nine months
of 1995. Excluding Porcher and foreign exchange effects, sales decreased by 1%
for the nine months of 1996 compared with the 1995 period as a result of the
same factors affecting the third quarter results and because of a five-week
strike in the Philippines that occurred in the first quarter of 1996.
Operating income of Plumbing Products increased 35% (37% excluding the
unfavorable effects of foreign exchange) to $31 million for the third quarter of
1996 from $23 million for the third quarter of 1995 as a result of a solid gain
in U.S. operating income, while international operations were flat overall. In
the U.S., operating income improved because of the higher sales, benefits of
lower-cost product sourcing from the Company's Mexican facilities and
manufacturing and operating cost improvements. For international operations,
operating income gains in Latin America were offset by declines in the weak
European markets, particularly in Germany and, to a lesser extent, in Italy and
France. Despite a gain for U.S. operations, operating income for the first nine
months of 1996, excluding the aforementioned asset impairment charge, declined
by 8% (7% excluding foreign exchange effects) from the first nine months of 1995
because of a decline in international operations in the first half of 1996,
including the effects of the first quarter Philippines strike.
Sales of Automotive Products for the third quarter of 1996 decreased 12%
(10% excluding the unfavorable effects of foreign exchange) to $206 million from
$233 million in the third quarter of 1995, primarily because of a decline in
European commercial vehicle production as a result of market weakness and order
delays at several large customers in anticipation of new truck model
introductions. Unit volume of truck and bus production in western Europe
decreased from the third quarter of 1995, especially in Germany and France.
Trailer, export and Brazilian markets also decreased, contributing to the sales
decline. Sales of Automotive Products for the first nine months of 1996
decreased 9% (7% excluding the unfavorable effects of foreign exchange) to $687
million from $757 million in the first nine months of 1995, primarily for the
reasons which caused declines in the third quarter.
Operating income for Automotive Products for the third quarter of 1996 was
$21 million, a decrease of 42% (39% excluding the unfavorable effects of foreign
<PAGE>
exchange) from $36 million in the third quarter of 1995. This reflected the
lower sales and start-up costs associated with new product introductions on 1997
truck models, offset partly by productivity improvements. Operating income for
Automotive Products for the first nine months of 1996 decreased by 26% (24%
excluding the unfavorable effects of foreign exchange) to $91 million from $123
million in the first nine months of 1995, principally for the same reasons
described with respect to the third quarter.
Financial Review
Interest expense decreased in the third quarter and first nine months of
1996 compared to the year-earlier periods, primarily as a result of reduced debt
together with lower overall interest rates under the Company's 1995 bank credit
agreement (the "1995 Credit Agreement"). The increase in corporate and other
expenses for the third quarter and nine months of 1996 is primarily attributable
to spending for corporate development and lower equity in the net results of
unconsolidated joint ventures.
Income tax provisions for the three months and nine months ended September
30, 1996 were $30 million and $83 million, respectively, compared with
provisions of $24 million and $78 million in the corresponding periods of 1995.
Effective income tax rates for the third quarter and nine months of 1996 were
34.5% and 35.6% of pretax income (excluding the asset impairment charge in the
nine month period on which there is no tax benefit), compared with rates of
35.2% and 39.5% in the corresponding year-earlier periods. Both third quarter
periods reflect reductions in the estimated full year tax rates. The lower
effective tax rates resulted from increased levels of U.S. income (enabling the
Company to recognize previously unrecognized tax benefits in both 1995 and 1996)
and, in 1996, from proportionately greater pretax income earned in the U.S. (at
a lower effective rate) compared to that earned in higher-rate jurisdictions in
Europe and elsewhere.
As a result of the redemption of debt in the first quarter of 1995 upon
completion of a refinancing, the first nine months of 1995 included an
extraordinary charge of $30 million attributable to the write-off of unamortized
debt issuance costs, for which no tax benefit was available.
Cash Flows
Net cash provided by operating activities, after cash interest paid of $87
million, was $200 million for the first nine months of 1996, compared with $202
million of net cash provided for the similar period of 1995. Higher income
before extraordinary item (excluding the non-cash asset impairment loss of $235
million) along with improved working capital utilization were offset by higher
payments on liabilities, especially income taxes. Inventory turnover as of
September 30, 1996, improved one full turn from September 30, 1995, and working
capital as a percent of sales improved nearly one percentage point. Capital
expenditures for the first nine months of 1996 were $135 million, including $12
million of investments in affiliated companies, compared with capital
expenditures of $115 million in the first nine months of 1995, including $19
million of investments
<PAGE>
in affiliated companies. Scheduled debt repayments of $50 million were made
during the first nine months of 1996.
Liquidity and Capital Resources
At September 30, 1996, the Company had outstanding borrowings of $145
million under the revolving facilities available under the 1995 Credit
Agreement. There was $347 million available under such revolving facilities
after reduction for borrowings and for $58 million of letters of credit usage.
In addition, at September 30, 1996, the Company's foreign subsidiaries had $70
million available under overdraft facilities which can be withdrawn by the banks
at any time.
The Company has entered into a financial services partnership, American
Standard Financial Services, with Transamerica Commercial Finance Corporation, a
subsidiary of Transamerica Corporation, to provide a wide range of financial
services to support sales of the Company's products while reducing cash
requirements to expand its business. The partnership will offer inventory and
consumer financing, commercial leasing and asset-based lending programs, which
are expected to enhance the Company's cash flow.
The 1995 Credit Agreement contains covenants that limit certain activities
of the Company and that require the Company to meet certain financial tests.
Certain debt instruments also contain financial tests and other covenants. The
Company believes it is currently in compliance with all such covenants.
As described in Note 5 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, there
are pending German Tax issues for the years 1984 through 1990. There has been no
change in the status of these issues since that report was filed.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
For a discussion of German tax issues see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" in Part I of this report which is incorporated herein by
reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The exhibits listed on the accompanying Index to Exhibits are
filed as part of this quarterly report on Form 10-Q.
(b) Reports on Form 8-K. Durig the quarter ended September 30, 1996, the
Company filed no reports on Form 8-K.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN STANDARD COMPANIES INC.
By: G. Ronald Simon
Vice President and Controller
(Principal Accounting Officer)
November 13, 1996
<PAGE>
AMERICAN STANDARD COMPANIES INC.
INDEX TO EXHIBITS
(The File Number of the Registrant, American Standard Companies Inc. is 1-11415)
Exhibit No. Description
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 67
<SECURITIES> 2
<RECEIVABLES> 864
<ALLOWANCES> 35
<INVENTORY> 432
<CURRENT-ASSETS> 1,418
<PP&E> 1,492
<DEPRECIATION> 564
<TOTAL-ASSETS> 3,445
<CURRENT-LIABILITIES> 1,264
<BONDS> 1,738
0
0
<COMMON> 1
<OTHER-SE> (435)
<TOTAL-LIABILITY-AND-EQUITY> 3,445
<SALES> 4,368
<TOTAL-REVENUES> 4,368
<CGS> 3,277
<TOTAL-COSTS> 3,277
<OTHER-EXPENSES> 943
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 151
<INCOME-PRETAX> (3)
<INCOME-TAX> 83
<INCOME-CONTINUING> (86)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> 0
</TABLE>
