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 June 30, 2000
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 (732) 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
July 31, 2000 69,887,008 shares
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
American Standard Companies Inc. (the "Company") is a Delaware corporation
that has as its only significant assets all the outstanding common stock of
American Standard Inc. and American Standard International Inc. ("ASII"), both
Delaware Corporations. Hereinafter, "American Standard" or the "Company" will
refer to the Company or to the Company and American Standard Inc. and ASII,
including their subsidiaries, as the context requires.
<TABLE>
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
UNAUDITED SUMMARY STATEMENT OF OPERATIONS
(Dollars in millions except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------ ------ ------ ------
SALES $2,046 $1,911 $3,868 $3,559
------ ------ ------ ------
COST AND EXPENSES
Cost of sales 1,503 1,412 2,883 2,650
Selling and administrative expenses 316 294 612 576
Other (income) expense (1) (1) (4) (4)
Interest expense 49 47 98 93
------ ------ ------ ------
1,867 1,752 3,589 3,315
------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 179 159 279 244
Income taxes 71 66 111 101
------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS 108 93 168 143
Loss from discontinued operations, net of tax - (3) - (6)
------ ------ ------ ------
NET INCOME $ 108 $ 90 $ 168 $ 137
====== ====== ====== ======
PER COMMON SHARE
Basic: Income from continuing operations $1.54 $ 1.32 $2.38 $ 2.03
Loss from discontinued operations - (.05) - (.08)
------ ------ ------ ------
Net income $ 1.54 $ 1.28 $2.38 $ 1.95
====== ====== ====== ======
Diluted: Income from continuing operations $ 1.48 $ 1.28 $2.31 $ 1.97
Loss from discontinued operations - (.05) - (.08)
------ ------ ------ ------
Net income $ 1.48 $ 1.23 $2.31 $ 1.89
====== ====== ====== ======
Average common shares outstanding
Basic 70,263,450 70,463,006 70,644,465 70,342,896
Diluted 72,761,173 73,139,151 72,780,990 72,415,699
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
Item 1. Financial Statements (continued)
<TABLE>
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
UNAUDITED SUMMARY BALANCE SHEET
(Dollars in millions
except share data)
<CAPTION>
June 30, December 31,
2000 1999
---------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 92 $ 61
Accounts receivable 1,147 986
Inventories
Finished products 371 286
Products in process 121 99
Raw materials 120 120
----- -----
612 505
Net assets of discontinued operations
held for sale 52 51
Other current assets 126 123
----- -----
TOTAL CURRENT ASSETS 2,029 1,726
FACILITIES, less accumulated depreciation:
June 2000 - $593; Dec. 1999 - $571 1,387 1,414
GOODWILL 945 991
OTHER ASSETS 627 555
----- -----
TOTAL ASSETS $4,988 $4,686
====== ======
CURRENT LIABILITIES
Loans payable to banks $ 88 $ 737
Current maturities of long-term debt 14 19
Accounts payable 673 578
Accrued payrolls 233 225
Other accrued liabilities 853 728
----- -----
TOTAL CURRENT LIABILITIES 1,861 2,287
LONG-TERM DEBT 2,622 1,887
RESERVE FOR POSTRETIREMENT BENEFITS 415 436
OTHER LIABILITIES 537 572
----- -----
TOTAL LIABILITIES 5,435 5,182
STOCKHOLDERS' DEFICIT
Preferred stock, 2,000,000 shares
authorized, none issued and outstanding - -
Common stock $.01 par value, 200,000,000
shares authorized; 69,859,376
shares issued and outstanding
in 2000; 70,742,538 in 1999 1 1
Capital surplus and other 588 595
Treasury stock (409) (363)
Accumulated deficit (385) (553)
Foreign currency translation effects (242) (176)
----- -----
TOTAL STOCKHOLDERS' DEFICIT (447) (496)
----- -----
$4,988 $4,686
===== =====
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
Item 1. Financial Statements (continued)
<TABLE>
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
UNAUDITED SUMMARY STATEMENT OF CASH FLOWS
(Dollars in millions)
<CAPTION>
Six months ended
June 30,
----------------
2000 1999
---- ----
<S> <C> <C>
CASH PROVIDED (USED) BY:
OPERATING ACTIVITIES:
Net income $168 $137
Adjustments to reconcile net income
to net cash used by operations:
Loss from discontinued operations - 6
Depreciation and amortization 108 101
Other non-cash items 4 4
Changes in assets and liabilities:
Accounts receivable (177) (184)
Inventories (107) (45)
Accounts payable and other accruals 99 31
Other assets and liabilities 38 (16)
---- ----
Net cash provided by continuing activities 133 34
Net cash used by discontinued operations (10) (20)
---- ----
Net cash provided by operating activities 123 14
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (86) (77)
Investments in affiliated companies
and other businesses (27) (26)
Investment in computer software (31) (34)
Acquisition of Armitage/Dolomite,
net of cash acquired - (427)
Other 7 7
---- ----
Net cash used by investing activities (137) (557)
---- ----
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 460
Repayments of long-term debt (46) (171)
Net change in credit facility 171 220
Net change in other short-term debt 6 16
Purchases of treasury stock (94) (2)
Other 9 1
---- ----
Net cash provided by financing activities 46 524
---- ----
Effect of exchange rate changes on cash and
cash equivalents (1) 1
---- ----
Net increase (decrease) in cash and
cash equivalents 31 (18)
Cash and cash equivalents at beginning
of period 61 63
---- ----
Cash and cash equivalents at end of period $ 92 $ 45
==== ====
<FN>
See accompanying notes
</FN>
</TABLE>
<PAGE>
AMERICAN STANDARD COMPANIES INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Financial Statement Presentation
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of financial data have been included. The
results of operations for interim periods are not necessarily indicative of the
results that may be expected for the entire year. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and accompanying notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
In the fourth quarter of 1999, the Board of Directors of the Company approved a
plan for the sale of the Medical Systems segment. The Company expects to
complete the sale in the third quarter of 2000. Accordingly, Medical Systems is
reported as a discontinued operation in the accompanying Unaudited Summary
Statement of Operations and the Company's net investment in that segment is
reported in the accompanying Unaudited Summary Balance Sheet as Net assets of
discontinued operations held for sale. Financial statements for all prior
periods presented have been restated to reflect these classifications.
Borrowings under the revolving credit facilities of the Company's bank credit
agreement (the "1997 Credit Agreement") that were previously classified as
short-term debt, have been classified as long-term debt since March 31, 2000, as
the Company has the ability to refinance such borrowings with long-term debt
under the terms of the 1997 Credit Agreement.
Note 2. Restructuring and Asset Impairment Charges
As described in Note 5 of Notes to Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999,
in 1998 the Company committed to restructuring plans designed to achieve lower
product costs and improved efficiency. Key elements of the plans include the
transfer of significant manufacturing capacity to locations with lower labor
costs and the sale of certain assets. In connection therewith, the Company
determined that certain long-lived assets were impaired. Accordingly, in the
second half of 1998 the Company recorded charges totaling $197 million.
In 1999, after re-evaluating its plans, the Company recorded a net $15 million
restructuring and asset impairment charge that reflected: reversal of $29
million of unneeded amounts accrued in 1998 for certain Plumbing Products
facilities; accrual of additional charges of $17 million for the closure of five
Vehicle Control Systems manufacturing facilities; accrual of $14 million to
reflect current estimates of certain other charges; and a $13 million impairment
charge related to a minority equity investment that the Company does not expect
to recover.
<PAGE>
Following is a summary of the unpaid balances of the restructuring and asset
impairment accruals, and activity for the six months ended June 30, 2000
(dollars in millions):
<TABLE>
<CAPTION>
Paid in
Balance first six Balance
Dec. 31, months of June 30,
1999 2000 2000
------ ------ -------
<S> <C> <C> <C>
Termination and other
employee costs $ 24.2 $ 5.9 $ 18.3
Facilities write-downs 1.3 .9 .4
Other 3.1 .1 3.0
------ ------ -------
$ 28.6 $ 6.9 $ 21.7
====== ====== =======
<FN>
The Company expects that essentially all of the $21.7 million balance as of June
30, 2000 will be utilized by the end of 2000. Of the 2,260 employees being
terminated, 1,405 had been terminated as of June 30, 2000.
</FN>
</TABLE>
Note 3. Comprehensive Income
Total comprehensive income, consisting of net income and foreign currency
translation effects, for the three months ended June 30, 2000 and 1999 was $65
million and $127 million, respectively, and for the six months ended June 30,
2000 and 1999 was $102 million and $192 million, respectively.
Note 4. Tax Matters
As described in Note 8 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999, there
are pending German tax issues for the years 1984 through 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
Note 5. Earnings Per Share
The average number of outstanding shares of common stock used in computing
diluted earnings per share for the three months ended June 30, 2000 and 1999
included 2,497,723 and 2,676,145 average incremental shares, respectively, for
the assumed exercise of stock options and vesting of restricted stock awards.
The six-month periods ended June 30, 2000 and 1999 included 2,136,525 and
2,072,803 average incremental shares, respectively.
Note 6. Impact of Recently Issued Accounting Standards
In 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 2000. Management believes that
the adoption of Statement No. 133 will not have a significant effect on the
Company's results of operations or financial position.
<PAGE>
Note 7. Supplemental Consolidating Condensed Financial Information
All of the Company's Senior Notes and the 9 1/4% Sinking Fund
Debentures were issued by its wholly owned subsidiary, American Standard Inc.
("ASI"). American Standard Companies Inc. (the "Parent Company") fully and
unconditionally guarantees the payment obligations under these securities. In
lieu of providing separate financial statements for ASI, the Company has
included the accompanying consolidating condensed financial information.
Management believes that separate financial statements of ASI are not material
to investors. The following supplemental financial information sets forth, on an
unconsolidated basis, statements of operations and statements of cash flows for
the six months ended June 30, 2000 and 1999, and balance sheets as of June 31,
2000 and December 31, 1999 for the Parent Company and ASI, and the subsidiaries
of the Parent Company which are not subsidiaries of ASI (the "Other
Subsidiaries") for 2000 only. None of the Other Subsidiaries guarantee the debt
of ASI. On December 31, 1999 the Company completed an internal reorganization
whereby ASI transferred ownership of all the Other Subsidiaries and their
intellectual property rights to another wholly owned subsidiary, American
Standard International Inc. Prior to December 31, 1999, there were no Other
Subsidiaries. The equity method of accounting is used to reflect investments of
the Parent Company in ASI and Other Subsidiaries.
<TABLE>
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000
(Unaudited)
<CAPTION>
Parent Other Consolidated
(Dollars in millions) Company ASI Subsidiaries Eliminations Total
------ --- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Sales $1,306 $793 $(53) $2,046
----- ---- ----- ------
Costs and expenses:
Cost of sales 993 573 (63) 1,503
Selling and administrative expenses 189 140 (13) 316
Other (income) expense (33) 9 23 (1)
Interest expense 43 6 49
----- ---- ----- ------
Total expenses 1,192 728 (53) 1,867
----- ---- ----- ------
Income before income taxes and equity in
net income of consolidated subsidiaries 114 65 - 179
Income taxes 47 24 - 71
----- ---- ----- ------
Income before equity in net income of
consolidated subsidiaries 67 41 - 108
Equity in net income of consolidated $108 - - $ (108) -
---- ----- ---- ----- ------
subsidiaries
Net income $108 $ 67 $ 41 $ (108) $ 108
==== ========= ======== ======= ======
</TABLE>
<PAGE>
Note 7. Supplemental Consolidating Condensed Financial Information (continued)
------------------------------------------------------------------
<TABLE>
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
<CAPTION>
Parent Other Consolidated
(Dollars in millions) Company ASI Subsidiaries Eliminations Total
------- ---- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales $2,393 $1,580 $(105) $3,868
------- ------- ----- ------
Costs and expenses:
Cost of sales 1,821 1,167 (105) 2,883
Selling and administrative expenses 344 281 (13) 612
Other (income) expense - (17) 13 (4)
Interest expense 84 14 98
------- ------- ----- ------
Total expenses 2,249 1,445 (105) 3,589
------- ------- ----- ------
Income before income taxes and equity in
net income of consolidated subsidiaries 144 135 - 279
Income taxes 60 51 - 111
------- ------- ----- ------
Income before equity in net income of
consolidated subsidiaries 84 84 - 168
Equity in net income of consolidated $168 - - $(168) -
----- ------- ------- ----- ------
subsidiaries
Net income $168 $ 84 $ 84 $(168) $ 168
===== ========= ======= ===== =====
</TABLE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
(Unaudited)
<CAPTION>
Parent Consolidated
(Dollars in millions) Company ASI Eliminations Total
------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $1,911 $1,911
------ ------
Costs and expenses:
Cost of sales 1,412 1,412
Selling and administrative expenses 294 294
Other income (1) (1)
Interest expense 47 47
------ ------
Total expenses 1,752 1,752
------ ------
Income from continuing operations
before income taxes and equity
in net income of consolidated 159 159
subsidiaries
Income taxes 66 66
------ ------
Income from continuing operations
before equity in net income of
consolidated subsidiaries 93 93
Loss from discontinued operations (3) (3)
Equity in net income of subsidiaries $90 $ (90) -
--- ------ ------ ------
-
Net income $90 $ 90 $ (90) $ 90
==== ====== ====== ======
</TABLE>
<PAGE>
Note 7. Supplemental Consolidating Condensed Financial Information (continued)
------------------------------------------------------------------
<TABLE>
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
<CAPTION>
Parent Consolidated
(Dollars in millions) Company ASI Eliminations Total
------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Sales $3,559 $3,559
------- ------
Costs and expenses:
Cost of sales 2,650 2,650
Selling and administrative expenses 576 576
Other income (4) (4)
Interest expense 93 93
------- ------
Total expenses 3,315 3,315
------- ------
Income from continuing operations
before income taxes and equity
in net income of consolidated 244 244
subsidiaries
Income taxes 101 101
------- ------
Income from continuing operations
before equity in net income of
consolidated subsidiaries 143 143
Loss from discontinued operations (6) (6)
Equity in net income of subsidiaries $137 $ (137) -
---- ------- ------ ------
-
Net income $137 $ 137 $ (137) $ 137
==== ======= ======= ======
</TABLE>
<PAGE>
Note 7. Supplemental Consolidating Condensed Financial Information (continued)
------------------------------------------------------------------
<TABLE>
CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF JUNE 30, 2000
(Unaudited)
<CAPTION>
Parent Other Consolidated
(Dollars in millions) Company ASI Subsidiaries Eliminations Total
------- --- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15 $ 77 $ 92
Accounts receivable, net 542 605 1,147
Inventories 218 394 612
Net assets of discontinued operations
held for sale 52 - 52
Other current assets 71 68 $(13) 126
------- ------- ------- -------
Total current assets 898 1,144 (13) 2,029
Facilities, net 477 910 1,387
Goodwill, net 138 807 945
Investment in subsidiaries $ 7 - - (7) -
Other assets 495 132 627
----- ------- ------- ------- -------
Total assets $ 7 $2,008 $ 2,993 $ (20) $ 4,988
===== ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY
Current liabilities:
Loans payable to banks $ 88 $ 88
Current maturities of long-term debt $ 11 3 14
Other current liabilities 970 802 $ (13) $ 1,759
------- ------- ------- -------
Total current liabilities 981 893 (13) 1,861
Long-term debt 2,125 497 2,622
Reserve for postretirement benefits 195 220 415
Intercompany accounts, net $454 379 (833) -
Other long-term liabilities 312 225 537
----- ------- ------- ------- -------
Total liabilities 454 3,992 1,002 13) 5,435
----- ------- ------- ------- -------
Total stockholders' (deficit) equity ( 447) (1,984) 1,991 (7) (447)
----- ------- ------- ------- -------
Total liabilities and stockholders' $ 7 $2,008 $2,993 $ (20) $ 4,988
(deficit equity) ===== ======= ======= ====== =======
</TABLE>
<PAGE>
Note 7. Supplemental Consolidating Condensed Financial Information (continued)
------------------------------------------------------------------
<TABLE>
CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1999
<CAPTION>
Parent Other Consolidated
(Dollars in millions) Company ASI Subsidiaries Eliminations Total
------- --- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11 $ 50 $ 61
Accounts receivable, net 448 538 986
Inventories 244 261 505
Net assets of discontinued operations
held for sale 51 - 51
Other current assets 38 85 123
------ ------ ------
Total current assets 792 934 1,726
Facilities, net 503 911 1,414
Goodwill, net 148 843 991
Investment in subsidiaries $(145) - - $145 -
Other assets 455 100 555
------ ------ ------ ------ ------
Total assets $(145) $1,898 $2,788 $145 $4,686
====== ======= ======= ====== ======
LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY Current liabilities:
Loans payable to banks $ 586 $ 151 $ 737
Current maturities of long-term debt 18 1 19
Other current liabilities 750 781 1,531
------ ------ ------
Total current liabilities 1,354 933 2,287
Long-term debt 1,556 331 1,887
Reserve for postretirement benefits 204 232 436
Intercompany accounts, net $ 351 431 (782) -
Other long-term liabilities 299 273 572
------ ------ ------ ------
Total liabilities 351 3,844 987 5,182
Total stockholders' (deficit) equity (496) (1,946) 1,801 $145 (496)
------ ------ ----- ------ ------
Total liabilities and stockholders'
(deficit) equity $(145) $1,898 $2,788 $145 $4,686
====== ======= ======= ====== =======
</TABLE>
<PAGE>
Note 7. Supplemental Consolidating Condensed Financial Information (continued)
------------------------------------------------------------------
<TABLE>
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
<CAPTION>
Parent Other Consolidated
(Dollars in millions) Company ASI Subsidiaries Eliminations Total
--------------------- ------- --- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided (used) by:
Operating activities:
Net income $168 $ 84 $ 84 $(168) $ 168
Adjustments to reconcile net income to net
cash provided (used) by operations:
Depreciation and amortization - 35 73 108
Other non-cash items 4 - 4
Equity in net income of subsidiaries (168) 168 -
Changes in assets and liabilities:
Accounts receivable (89) (88) (177)
Inventories 25 (132) (107)
Accounts payable and other accruals 2 167 (69) (1) 99
Other assets and liabilities 1 (114) 150 1 38
------ ----- ----- ------ ------
Net cash provided by continuing operations 3 112 18 - 133
Net cash used by discontinued operations (10) - (10)
------ ----- ----- ------ ------
Net cash provided by operating activities 3 102 18 - 123
------ ----- ----- ------ ------
Investing Activities:
Purchase of property, plant and equipment (11) (75) (86)
Investments in affiliated companies and
other businesses (20) 20 (27)
(27)
Investments in computer software (19) (12) (31)
Other 13 (6) 7
------ ----- ----- ------ ------
Net cash used by investing activities (20) 3 (120) - (137)
------ ----- ----- ------ ------
Financing activities:
Repayments of long-term debt (43) (3) (46)
Net change in credit facility 43 128 171
Net change in other short-term debt - 6 6
Purchases of treasury stock (94) - (94)
Increase in loan from subsidiary 103 (103) - -
Other 8 2 (1) 9
------ ----- ----- ------ ------
Net cash provided (used) by financing activities 17 (101) 130 - 46
------ ----- ----- ------ ------
Effect of exchange rate changes on cash and
cash equivalents - - (1) - (1)
------ ----- ----- ------ ------
Net increase (decrease) in cash and cash
equivalents - 4 27 - 31
------ ----- ----- ------ ------
Cash and cash equivalents at beginning of
period 11 50 61
------ ----- ----- ------ ------
Cash and cash equivalents at end of period $ - $ 15 $ 77 $ - $ 92
======= ====== ======= ======= ======
</TABLE>
<PAGE>
Note 8. Supplemental Consolidating Condensed Financial Information (continued)
------------------------------------------------------------------
<TABLE>
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
<CAPTION>
Parent Consolidated
(Dollars in millions) Company ASI Eliminations Total
--------------------- ------- ----- ------------ ---------
<S> <C> <C> <C> <C>
Cash provided (used) by:
Operating activities:
Net income $137 $137 $(137) $137
Adjustments to reconcile net income to net
cash provided (used) by operations:
Loss from discontinued operations 6 6
Depreciation and amortization 101 101
Other non-cash items 4 4
Equity in net income of subsidiary (137) - 137 -
Changes in assets and liabilities:
Accounts receivable (184) (184)
Inventories (45) (45)
Accounts payable and other accruals 31 31
Other assets and liabilities (16) (16)
---- ---- ----- -----
Net cash used by continuing operations - 34 - 34
Net cash used by discontinued operations (20) (20)
---- ---- ----- -----
Net cash used by operating activities 14 14
---- ---- ----- -----
Investing activities:
Purchase of property, plant and equipment (77) (77)
Investments in affiliated companies and
other businesses (2) (26) 2 (26)
Investments in computer software (34) (34)
Acquisition of Armitage/Dolomite (427) (427)
Other 7 7
---- ---- ----- -----
Net cash used by investing activities (2) (557) 2 (557)
---- ---- ----- -----
Financing activities:
Proceeds from issuance of long-term debt 460 460
Repayments of long-term debt (171) (171)
Net change in credit facility 220 220
Net change in other short-term debt 16 16
Purchases of treasury stock (2) (2)
Change in intercompany accounts, net (4) 4
Other 8 (5) (2) 1
---- ---- ----- -----
Net cash provided by financing activities 2 524 (2) 524
---- ---- ----- -----
Effect of exchange rate changes on cash
and cash equivalents 1 1
---- ---- ----- -----
Net increase (decrease) in cash and
cash equivalents - (18) - (18)
Cash and cash equivalents at beginning of period 63 63
---- ---- ----- -----
Cash and cash equivalents at end of period $ - $ 45 $ - $ 45
==== ==== ==== ====
</TABLE>
<PAGE>
Note 8. Segment Data
<TABLE>
Summary Segment and Income Data
(Dollars in millions)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales:
Air Conditioning Systems and Services $ 1,293 $ 1,188 $ 2,359 $ 2,130
Plumbing Products 479 459 939 873
Vehicle Control Systems 274 264 570 556
------- ------- ------- -------
$ 2,046 $ 1,911 $ 3,868 $ 3,559
======= ======= ======= =======
Segment income:
Air Conditioning Systems and Services $ 174 $ 153 $ 268 $ 229
Plumbing Products 50 46 90 80
Vehicle Control Systems 38 36 82 76
------- ------- ------- -------
262 235 440 385
Equity in net income of unconsolidated
joint ventures ------- ------- ------- -------
9 9 19 17
271 244 459 402
Interest expense 49 47 98 93
Corporate and other expenses
------- ------- ------- -------
43 38 82 65
------- ------- ------- -------
Income from continuing operations
before income taxes $ 179 $ 159 $ 279 $ 244
======= ====== ======= =======
<FN>
For a comparative analysis of this Summary Segment and Income Data, see
Management's Discussion and Analysis of Financial Position and Results of
Operations.
</FN>
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations for the Second Quarter and First Six Months of 2000
Compared with the Second Quarter and First Six Months of 1999
The Company achieved record sales of $2,046 million in the second
quarter of 2000, an increase of $135 million, or 7% (10% excluding
unfavorable foreign exchange effects), from $1,911 million in the second
quarter of 1999. Sales increased 9% for Air Conditioning Systems and
Services, 4% for Plumbing Products and 4% for Vehicle Control Systems.
Segment income for the second quarter of 2000 was also a record at $262
million, an increase of $27 million, or 11% (14% excluding unfavorable
foreign exchange effects), from $235 million in the second quarter of 1999.
Segment income increased 14% for Air Conditioning Systems and Services, 9%
for Plumbing Products and 6% for Vehicle Control Systems.
Sales for the first half of 2000 were $3,868 million, an increase of
$309 million, or 9% (12% excluding unfavorable foreign exchange effects),
from $3,559 million in the first half of 1999. Sales increased 11% for Air
Conditioning Systems and Services, 8% for Plumbing Products and 3% for
Vehicle Control Systems. Segment income was $440 million for the first half
of 2000, an increase of 14% (18% excluding unfavorable foreign exchange
effects), compared with $385 million in the first half of 1999. Segment
income increased 17% for Air Conditioning Systems and Services, 13% for
Plumbing Products and 8% for Vehicle Control Systems.
The sales and segment income amounts reflect results from continuing
operations only, as the Medical Systems business is reported as a
discontinued operation.
Sales of Air Conditioning Systems and Services increased 9% (10%
excluding the effect of foreign exchange) to $1,293 million for the second
quarter of 2000, from $1,188 million for the second quarter of 1999.
Worldwide Applied Systems sales increased 9% (11% excluding foreign exchange
effects) due to strong performance in the U.S. commercial equipment business
and sales and service operations. U.S. sales of commercial applied products
increased because of higher volumes, reflecting continued strength in U.S.
markets and increased market share. Sales benefited from expansion of the
global accounts program, the acquisition of sales and service offices and
sales of Integrated Comfort Systems, which combine new high-efficiency
chillers, air handlers, terminal products and controls into one system.
Additionally, there was significant improvement in the Far East outside of
China, solid growth in Latin America and modest growth in Europe. Worldwide
Unitary Systems sales increased 8% (9% excluding foreign exchange effects)
primarily from higher volumes in U.S. residential and commercial operations
and a small increase in the international unitary business. U.S. unitary
sales increased primarily reflecting gains in market share for both
commercial and residential products and the effects of warmer-than-normal
weather. International unitary sales increased principally as a result of
volume improvements in Latin America and the Far East. Sales for Air
Conditioning Systems and Services for the first half of 2000 increased by 11%
(12% excluding foreign exchange effects) to $2,359 million from $2,130
million in the first half of 1999, primarily for the same reasons explaining
the second quarter increase.
<PAGE>
Segment income of Air Conditioning Systems and Services increased 14%
(with little effect from foreign exchange) to $174 million in the second
quarter of 2000 from $153 million in the second quarter of 1999 as margins
improved from 12.9% to 13.5%. Worldwide Applied Systems benefited from
improved volume in the U.S. and Far East (excluding China). Worldwide Unitary
Systems posted strong growth in the U.S. from volume increases and
strengthened outside the U.S. due to cost improvements. Segment income for
the first half of 2000 increased 17% (with little effect from foreign
exchange) to $268 million from $229 million in the first half of 1999,
essentially for the reasons mentioned for the second quarter increase.
Sales of Plumbing Products increased 4% (10% excluding unfavorable
foreign exchange effects) to $479 million in the second quarter of 2000, from
$459 million in the second quarter of 1999, primarily as a result of gains in
Europe and the Americas. The European increase (13% excluding foreign
exchange) reflected improving economic conditions and market share gains.
Sales in the Americas increased 9% (with little effect from foreign exchange)
due to strong growth in the U.S., partly offset by a decline in Latin
America. The U.S. sales increase resulted from higher volume, primarily
through expanding retail and wholesale channels and gains in market share.
Sales of Plumbing Products for the first half of 2000 increased 8% (13%
excluding unfavorable foreign exchange effects) to $939 million from $873
million in the first half of 1999. This increase was due principally to the
same factors affecting second quarter results.
Segment income of Plumbing Products for the second quarter of 2000 was
$50 million, an increase of 9% (14% excluding unfavorable foreign exchange
effects) from $46 million for the 1999 second quarter. The increase was
principally attributable to volume increases and cost improvements from the
restructuring of European operations as part of a low-cost sourcing program,
the Armitage/Dolomite acquisition and substantial volume improvements in the
U.S. The successful restructuring of both the Americas and European Plumbing
businesses has lowered their cost structures, resulting in improving trends
in margins and profitability. Margins improved from 10.0% in the second
quarter of 1999 to 10.4% in the second quarter of 2000. Segment income for
the first half of 2000 increased 13% (17% excluding unfavorable foreign
exchange effects) to $90 million from $80 million in the first half of 1999.
The increase resulted primarily for the same reasons as those responsible for
the second quarter increase.
Sales of Vehicle Control Systems for the second quarter of 2000 were
$274 million, an increase of 4% (13% excluding unfavorable foreign exchange
effects) from $264 million in the second quarter of 1999, primarily from
higher volume in Europe. Unit volumes of truck and bus production increased
7.5% in Western Europe in the second quarter of 2000 compared with the second
quarter of 1999. Sales increased because of the improved market, higher
product content per vehicle, gains in market share and expanding sales into
the non-heavy-duty truck market. Additionally, sales increased 30% in Brazil,
primarily as a result of a 16% increase in that country's commercial vehicle
production, and sales improved for the U.S. compressor manufacturing
business. Shipments of anti-lock braking systems to the Company's U.S.
braking systems joint venture decreased as U.S. truck production declined
12%. Sales of Vehicle Control Systems for the first half of 2000 increased 3%
(12% excluding unfavorable foreign exchange effects) to $570 million from
$556 million in the first half of 1999, primarily for the reasons cited for
the second quarter increase.
Segment income for Vehicle Control Systems for the second quarter of
2000 increased $2 million ($6 million excluding unfavorable foreign exchange
effects) to $38 million from $36 million in the second quarter of 1999. This
primarily reflected higher volumes and cost reductions in Europe. Margins
improved from 13.6% in the second quarter of 1999 to 13.9% in the second
quarter of 2000. Segment income for Vehicle Control Systems for the first
half of 2000 was $82 million, an increase of 8% (24% excluding unfavorable
foreign exchange effects) from $76 million in the first half of 1999,
principally for the same reasons cited for the second quarter increase.
<PAGE>
Other Summary Segment and Income Data Items
Equity in net income of unconsolidated joint ventures was $9 million in
the second quarter of 2000, the same as in the year-earlier quarter, and
increased to $19 million in the first half of 2000 from $17 million in the
1999 first half. This reflected growth of Air Conditioning Systems and
Services' compressor manufacturing joint venture and the Company's financial
services joint venture, offset by a decrease in earnings of Vehicle Control
Systems' U.S. braking systems joint venture, as a result of the slowdown in
U.S. heavy-duty truck production.
Interest expense increased by $2 million in the second quarter of 2000
and by $5 million in the first half of 2000 compared to the year-earlier
quarter and first half, primarily due to higher average interest rates.
Corporate and other expenses increased by $5 million in the second quarter of
2000 and by $17 million in the first half of 2000 compared to the
year-earlier quarter and first half. These increases were mainly due to:
higher incentive compensation accruals due to profitability improvement;
increased receivables discount fees paid to the financial services joint
venture as a result of higher sales; transition costs due to management
changes; and increased minority interest in income of consolidated joint
ventures.
The income tax provision for the second quarter of 2000 was $71 million
and for the first half of 2000 was $111 million, or 39.75% of income from
continuing operations, compared with provisions of $66 million and $101
million, or 41.5% of income from continuing operations in the comparable
periods of 1999. The effective income tax rate is lower in 2000 primarily
because of an internal reorganization of the Company's subsidiary ownership
that should be more tax efficient.
Liquidity and Capital Resources
Net cash provided by operating activities, after cash interest paid of
$94 million, was $123 million for the first six months of 2000, compared with
net cash provided of $14 million for the same period of 1999. The $109
million improvement resulted primarily from higher net income and favorable
changes in net working capital. Accounts receivable and inventories increased
in the first half of both years, reflecting the normal seasonal pattern of
the air conditioning business and overall growth of the Company. The
receivables increase of $177 million in the first half of 2000 was smaller
than the first-half 1999 increase primarily because the average days
outstanding improved by four days in the 2000 period versus two days in 1999.
The inventory increase in 2000 of $107 million was substantially larger than
in 1999, as turnover was four-tenths of a turn lower and reflected a decision
to increase certain air conditioning inventories to better serve customers in
the North American summer season. The increase in accounts payable and
accruals reflected growth of the business and timing differences in accruals
and payments. The Company made capital expenditures of $113 million for the
first half of 2000, including $27 million of investments in affiliated
companies and other businesses. This compared with capital expenditures of
$103 million in the 1999 period, including $26 million of investments in
affiliated companies and other businesses (but excluding the
Armitage/Dolomite acquisition described below). The Company also invested $31
million in computer software in the first six months of 2000, compared with
$34 million in the 1999 period. Additionally, in the first half of 2000, the
Company purchased approximately 2.4 million shares of its common stock for
$94 million pursuant to the Company's program, approved by the Board of
Directors in July 1998, to repurchase up to $300 million of shares of common
stock through July 8, 2001. Purchases under the repurchase plan are for the
purpose of offsetting the dilutive effects of stock-based awards under
certain of the Company's benefit plans. During 2000, the Company intends to
apply approximately one-third of its available free cash flow to stock re-
purchases and the majority of the remainder to repayment of debt.
<PAGE>
On August 3, 2000, the Company announced a definitive agreement to sell
its DiaSorin unit, the largest part of its medical business, to a group
consisting of SNIA, a high-tech industrial firm; Interbanca, a leading
Italian merchant bank; Iniziativa Piemonte, a private equity firm; and four
members of DiaSorin's current management. The sale, subject to regulatory
approvals, has been approved by the boards of all companies involved, and is
expected to close in the third quarter of 2000. This transaction will
complete the Company's exit from the medical business for approximately the
net recoverable value established in the fourth quarter of 1999.
In January 1997 the Company entered into the 1997 Credit Agreement
which requires no repayment of principal prior to its expiration in 2002 and
provides the Company with senior secured credit facilities aggregating $1.75
billion as follows: (a) a $750 million U.S. dollar revolving credit facility
and a $625 million multi-currency revolving credit facility (the "Revolving
Facilities"), and (b) a $375 million multi-currency periodic access credit
facility. Up to $500 million of the Revolving Facilities may be used to issue
letters of credit. The 1997 Credit Agreement contains restrictive covenants
and other requirements with which the Company believes it is currently in
compliance.
In December 1998, the 1997 Credit Agreement was amended to permit
American Standard to issue up to an additional $500 million principal amount
of senior or subordinated unsecured debt securities, to reorganize ownership
of certain subsidiaries and intellectual property rights, and to lower the
interest coverage ratios and increase the debt coverage ratios applicable to
the Company beginning for periods ending December 31, 1998. The purpose of
the amendment was primarily to accommodate the refinancing of $150 million of
American Standard's 10 7/8% senior notes due May 15, 1999 and the financing
of other proposed capital expenditures, including the acquisition of
Armitage/Dolomite described below. In November 1999, the 1997 Credit
Agreement was amended to increase the limit on annual lease payments and to
obtain consent for the Company to sell its Medical Systems business.
Borrowings under the revolving credit facilities of the Company's 1997
Credit Agreement that were previously classified as short-term debt, have
been classified as long-term debt since March 31, 2000, as the Company has
the ability to refinance such borrowings with long-term debt under the terms
of the 1997 Credit Agreement.
At June 30, 2000, the Company had borrowings of $793 million
outstanding under the Revolving Facilities. There was $499 million available
under the Revolving Facilities after reduction for borrowings and for $83
million of letters of credit usage. The Company's foreign subsidiaries had
$79 million available at June 30, 2000, under overdraft facilities that can
be withdrawn by the banks at any time. In addition, the Company's operations
in China have $17 million available under bank credit facilities after
reduction for borrowings of $18 million and letters of credit usage of $20
million.
<PAGE>
On May 28, 1999, the Company completed the sale of the equivalent of
$460 million of Senior Notes, with an average interest rate of 7.7%, issued
in three series: 250 million Euro Senior Notes due 2006; 100 million U.S.
Dollar Senior Notes due 2009 and 60 million Sterling Senior Notes due 2009.
Net proceeds of $452 million from the offering were applied to refinance
borrowings incurred to pay $150 million of 10 7/8% Senior Notes at maturity
on May 15, 1999 and to refinance a substantial portion of the purchase price
of the Armitage/Dolomite acquisition described below. The May 28, 1999 sale
of Senior Notes, which are not subject to redemption, was made pursuant to a
$1 billion shelf registration filed with the Securities and Exchange
Commission in November 1998 (the "1998 Shelf Registration"). Debt securities
sold under the 1998 Shelf Registration are issued by American Standard Inc.
and unconditionally guaranteed by American Standard Companies Inc. The
Company intends to use the net proceeds from any future sales of such debt
securities under the 1998 Shelf Registration for general corporate purposes,
which may include certain investments, acquisitions, additions to working
capital or capital expenditures.
On February 2, 1999, the Company acquired Armitage/Dolomite, a
manufacturer of ceramic sanitaryware, brassware and integrated plumbing
systems, for approximately $427 million (including fees and expenses) with
borrowings under the Company's 1997 Credit Agreement. The acquired business
consists of two principle businesses: Armitage Shanks, a United Kingdom
manufacturer, and Ceramica Dolomite, an Italian manufacturer. The acquired
business has facilities in the United Kingdom and Italy, and employs
approximately 3,200 people. The primary markets for its products are in the
United Kingdom, Italy, Ireland and Germany. Armitage/Dolomite had 1999 sales
of $279 million (for the eleven months following the acquisition). This
transaction was accounted for as a purchase and the results of operations
have been included in the accompanying financial statements since the date of
acquisition. The purchase price was allocated based upon the fair value of
the assets acquired and liabilities assumed at the date of acquisition. This
resulted in an excess of purchase price over the value of net assets acquired
(goodwill) of $300 million which is being amortized over 40 years.
As described in Note 8 of Notes to Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the year ended December 31,
1999, there are pending German Tax issues for the years 1984 through 1994.
There has been no change in the status of these issues since that report was
filed.
Disclosure Regarding Forward Looking Statements
Comments in this Quarterly Report on Form 10-Q contain certain
forward-looking statements that are based on management's good faith
expectations and belief concerning future developments. Actual results may
differ materially from these expectations as a result of many factors,
relevant examples of which are set forth in the Company's 1999 Annual Report
on Form 10-K and in the "Management's Discussion and Analysis" section of the
Company's 1999 Annual Report to Shareholders and Quarterly Reports on Form
10-Q.
<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 4. Submission of Matters to a Vote of Security Holders.
-------- ----------------------------------------------------
The Company's 2000 Annual Meeting of Stockholders ("Annual Meeting")
was held on May 4, 2000. At the Annual Meeting, the Company's stockholders:
(a) elected two Class II Directors with terms expiring at the Company's
Annual Meeting of Stockholders in 2003; (b) approved the Stock Incentive
Plan, the Annual Incentive Compensation Plan, the Long-Term Incentive
Compensation Plan and the LTIP Alternate Plan for purposes of Section 162(m)
of the Internal Revenue Code which denies a publicly-traded company a Federal
income tax deduction for compensation in excess of $1 million paid to certain
of its executive officers except to the extent that such compensation is paid
pursuant to a shareholder approved plan and upon the attainment of objective
performance criteria; and (c) ratified the selection of Ernst & Young LLP as
independent certified public accountants of the Company and its consolidated
subsidiaries for 2000.
Following the Annual Meeting, three Class I Directors, having terms
expiring in 2002, and three Class III Directors, having terms expiring in
2001, continued in office.
The following sets forth the results of voting at the Annual Meeting:
<TABLE>
<CAPTION>
Broker
Non
Matters For Against Abstentions Votes
<S> <C> <C> <C> <C>
Election of Directors*
---------------------
- For a term expiring at the Annual
Meeting of Stockholders in 2003
Frederic M. Poses 54,214,335 555,661 * 0
J. Danforth Quayle 53,863,879 906,118 * 0
Approval of the Stock Incentive Plan 44,196,426 10,415,751 186,031 0
------------------------------------
Approval of the Annual
Incentive Compensation Plan 53,435,749 1,171,623 190,835 0
---------------------------
Approval of the Long-Term Incentive
Compensation Plan 52,111,781 2,449,850 236,289 0
-----------------
Approval of the LTIP
Alternate Plan 51,877,597 2,694,722 225,600 0
--------------
Selection of Independent
Accountants 54,371,112 339,686 87,657 0
-----------
<FN>
* With respect to the election of directors, the form of proxy permitted
shareholders to check boxes indicating votes either "For" or "Withheld", or
to vote "For all except" and to name exceptions; votes relating to directors
designated above as "Against" include votes cast as "Withheld" and for named
exceptions.
</FN>
</TABLE>
<PAGE>
Item 5. Other Information.
As discussed in Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources, on August 3, 2000,
the Company announced its agreement to sell the DiaSorin medical business. Filed
as an exhibit to this Report is the company's press release announcing the
agreement.
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.
During the fiscal quarter ended June 30, 2000, the Company filed
no Current 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.
/s/ G. Ronald Simon
Vice President and Controller
(Principal Accounting Officer)
August 14, 2000
<PAGE>
AMERICAN STANDARD COMPANIES INC.
INDEX TO EXHIBITS
(The File Number of the Registrant, American Standard Companies Inc. is 1-11415)
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C> <C>
(12) Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(99) Press Release dated August 3, 2000
Relating to Sale of Medical Business
</TABLE>
