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, 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
October 31, 2000 69,329,711 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 Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $1,961 $1,877 $5,829 $ 5,436
------ ------ ------ -------
COST AND EXPENSES
Cost of sales 1,475 1,406 4,358 4,056
Selling and administrative expenses 288 289 900 864
Other (income) expense (1) 2 (4) (2)
Interest expense 51 47 149 141
------ ------ ------ -------
1,813 1,744 5,403 5,059
------ ------ ------ -------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 148 133 426 377
Income taxes 59 55 169 156
------ ------ ------ -------
INCOME FROM CONTINUING OPERATIONS 89 78 257 221
Loss from discontinued operations, net of tax - (6) - (12)
------ ------ ------ -------
NET INCOME $ 89 $ 72 $ 257 $ 209
====== ===== ====== =======
PER COMMON SHARE
Basic: Income from continuing operations $ 1.28 $ 1.11 $ 3.65 $ 3.13
Loss from discontinued operations - (.09) - (.17)
------ ------ ------ -------
Net income $ 1.28 $ 1.02 $ 3.65 $ 2.96
====== ====== ====== =======
Diluted: Income from continuing operations $ 1.23 $ 1.07 $ 3.54 $ 3.02
Loss from discontinued operations - (.09) - (.16)
------ ------ ------ -------
Net income $ 1.23 $ .98 $ 3.54 $ 2.86
====== ====== ====== =======
Average common shares outstanding
Basic 69,805,720 70,671,462 70,362,842 70,553,622
Diluted 72,381,511 73,169,250 72,504,612 73,095,981
<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>
September 30, December 31,
2000 1999
--------- -------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 81 $ 61
Accounts receivable 1,167 986
Inventories
Finished products 370 286
Products in process 126 99
Raw materials 114 120
---- ----
610 505
Net assets of discontinued operations
held for sale 50 51
Other current assets 128 123
---- ----
TOTAL CURRENT ASSETS 2,036 1,726
FACILITIES, less accumulated depreciation:
Sept. 2000 - $587, Dec. 1999 - $571 1,371 1,414
GOODWILL 915 991
OTHER ASSETS 644 555
---- ----
TOTAL ASSETS $4,966 $4,686
====== ======
CURRENT LIABILITIES
Loans payable to banks $ 80 $ 737
Current maturities of long-term debt 28 19
Accounts payable 587 578
Accrued payrolls 235 225
Other accrued liabilities 896 728
---- ----
TOTAL CURRENT LIABILITIES 1,826 2,287
LONG-TERM DEBT 2,554 1,887
RESERVE FOR POSTRETIREMENT BENEFITS 398 436
OTHER LIABILITIES 540 572
---- ----
TOTAL LIABILITIES 5,318 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; 69,489,115
Shares issued and outstanding
In 2000; 70,742,538 in 1999 1 1
Capital surplus and other 597 595
Treasury stock (444) (363)
Accumulated deficit (296) (553)
Foreign currency translation effects (210) (176)
---- ----
TOTAL STOCKHOLDERS' DEFICIT (352) (496)
---- ----
$4,966 $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>
Nine months ended
September 30,
-----------------
2000 1999
---- ----
<S> <C> <C>
CASH PROVIDED BY:
OPERATING ACTIVITIES:
Net income $257 $209
Adjustments to reconcile net income
to net cash used by operations:
Loss from discontinued operations - 12
Depreciation and amortization 162 148
Other non-cash items 6 5
Changes in assets and liabilities:
Accounts receivable (218) (190)
Inventories (118) (39)
Accounts payable and other accruals 66 62
Other assets and liabilities 55 37
---- ----
Net cash provided by continuing activities 210 244
Net cash (used) by discontinued operations (13) (27)
---- ----
Net cash provided by operating activities 197 217
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (135) (136)
Investments in affiliated companies
and other businesses (29) (41)
Investment in computer software (46) (57)
Acquisition of Armitage/Dolomite,
net of cash acquired - (427)
Other 11 8
---- ----
Net cash (used) by investing activities (199) (653)
---- ----
FINANCING ACTIVITIES:
Repayments of long-term debt (51) (174)
Net change in credit facility 192 115
Net change in other short-term debt (4) 13
Purchases of treasury stock (131) (4)
Proceeds from issuance of long-term debt - 460
Other 18 6
---- ----
Net cash provided by financing activities 24 416
---- ----
Effect of exchange rate changes on cash and
cash equivalents (2) -
---- ----
Net increase (decrease) in cash and cash equivalents 20 (20)
Cash and cash equivalents at beginning of period 61 63
---- ----
Cash and cash equivalents at end of period $ 81 $ 43
===== ====
<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 fourth 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 nine months ended September 30, 2000
(dollars in millions):
<TABLE>
<CAPTION>
Paid in
Balance first nine Balance
Dec. 31, months of Sept. 30,
1999 2000 2000
------ ------ ------
<S> <C> <C> <C>
Termination and other
employee costs $ 24.2 $ 5.9 $18.3
Other 4.4 1.0 3.4
------ ------ ------
$ 28.6 $ 6.9 $21.7
====== ====== =====
</TABLE>
The Company expects that essentially all of the $21.7 million balance as of
September 30, 2000 will be utilized by the end of the first half of 2001. Of the
2,260 employees being terminated, 1,405 had been terminated as of September 30,
2000.
Note 3. Comprehensive Income
Total comprehensive income, consisting of net income and foreign currency
translation effects, for the three months ended September 30, 2000 and 1999 was
$121 million and $47 million, respectively, and for the nine months ended
September 30, 2000 and 1999 was $223 million and $239 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 September 30, 2000 and
1999 included 2,575,791 and 2,497,788 average incremental shares, respectively,
for the assumed exercise of stock options and vesting of restricted stock
awards. The nine-month periods ended September 30, 2000 and 1999 included
2,141,770 and 2,542,359 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 nine months ended
September 30, 2000 and 1999, and balance sheets as of September 30, 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 SEPTEMBER 30, 2000
(Unaudited)
<CAPTION>
Parent Other Consolidated
(Dollars in millions) Company ASI Subsidiaries Eliminations Total
------- --- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $1,253 $758 $(50) $1,961
------ ---- ---- ------
Costs and expenses:
Cost of sales 945 580 (50) 1,475
Selling and
administrative expenses 162 131 (5) 288
Other (income) expense 8 (14) 5 (1)
Interest expense 43 8 - 51
------ ---- ---- ------
Total expenses 1,158 705 (50) 1,813
------ ---- ---- ------
Income before income taxes
and equity in net income
of consolidated subsidiaries 95 53 - 148
Income taxes 39 20 - 59
------ ---- ---- ------
Income before equity in net
income of consolidated
subsidiaries 56 33 - 89
Equity in net income of
consolidated subsidiaries $ 89 - - $(89) -
---- ------ ---- ---- ------
Net income $ 89 $ 56 $ 33 $(89) $ 89
==== ====== ==== ==== ======
</TABLE>
<PAGE>
Note 7. Supplemental Consolidating Condensed Financial Information (continued)
<TABLE>
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
<CAPTION>
Parent Other Consolidated
(Dollars in millions) Company ASI Subsidiaries Eliminations Total
------- --- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $3,646 $2,338 $(155) $ 5,829
------ ------ ----- -------
Costs and expenses:
Cost of sales 2,767 1,747 (156) 4,358
Selling and administrative expenses 505 412 (17) 900
Other (income) expense 9 (31) 18 (4)
Interest expense 126 23 - 149
------ ------ ----- -------
Total expenses 3,407 2,151 (155) 5,403
------ ------ ----- -------
Income before income taxes and equity in
net income of consolidated subsidiaries 239 187 - 426
Income taxes 98 71 - 169
------ ------ ----- -------
Income before equity in net income of
consolidated subsidiaries 141 116 - 257
Equity in net income of consolidated
subsidiaries $257 - - $(257) -
---- ------ ------ ----- -------
Net income $257 $ 141 $ 116 $(257) $ 257
==== ====== ====== ===== =====
</TABLE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
<CAPTION>
Parent Consolidated
(Dollars in millions) Company ASI Eliminations Total
------- --- ------------ ------------
<S> <C> <C> <C> <C>
Sales $1,877 $1,877
------ ------
Costs and expenses:
Cost of sales 1,406 1,406
Selling and administrative expenses 289 289
Other expense 2 2
Interest expense 47 47
------ ------
Total expenses 1,744 1,744
------ ------
Income from continuing operations before income taxes
and equity in net income of consolidated 133 133
subsidiaries
Income taxes 55 55
------ ------
Income from continuing operations before equity in
net income of consolidated subsidiaries 78 78
Loss from discontinued operations (6) (6)
Equity in net income of consolidated subsidiaries $72 $ (72) -
--- ------ ----- ------
-
Net income $72 $ 72 $ (72) $ 72
=== ====== ===== ======
</TABLE>
<PAGE>
Note 7. Supplemental Consolidating Condensed Financial Information (continued)
<TABLE>
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
<CAPTION>
Parent Consolidated
(Dollars in millions) Company ASI Eliminations Total
<S> <C> <C> <C> <C>
Sales $5,436 $5,436
------ ------
Costs and expenses:
Cost of sales 4,056 4,056
Selling and administrative expenses 864 864
Other income (2) (2)
Interest expense 141 141
------ ------
Total expenses 5,059 5,059
------ ------
Income from continuing operations before income taxes
and equity in net income of consolidated 377 377
subsidiaries
Income taxes 156 156
------ ------
Income from continuing operations before equity in
net income of consolidated subsidiaries 221 221
Loss from discontinued operations (12) (12)
Equity in net income of consolidated subsidiaries $ 209 $ (209) -
------ ------ ------ ------
-
Net income $ 209 $ 209 $ (209) $ 209
====== ====== ====== ======
</TABLE>
<PAGE>
Note 7. Supplemental Consolidating Condensed Financial Information (continued)
<TABLE>
CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 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 $ 5 $ 76 $ 81
Accounts receivable, net 571 596 1,167
Inventories 215 395 610
Net assets of discontinued operations
held for sale 50 - 50
Other current assets 70 70 $(12) 128
------ ------ ------ ------
Total current assets 911 1,137 (12) 2,036
Facilities, net 483 888 1,371
Goodwill, net 132 783 915
Investment in subsidiaries $128 - - (128) -
Other assets 454 190 644
---- ------ ------ ------ ------
Total assets $128 $1,980 $ 2,998 $ (140) $ 4,966
==== ====== ======= ====== =======
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY
Current liabilities:
Loans payable to banks $ 80 $ 80
Current maturities of long-term debt $ 26 2 28
Other current liabilities 956 774 $ (12) 1,718
------ ------ ------ ------
Total current liabilities 982 856 (12) 1,826
Long-term debt 2,071 483 2,554
Reserve for postretirement benefits 195 203 398
Intercompany accounts, net $480 349 (829) -
Other long-term liabilities 326 214 540
---- ------ ------ ------ ------
Total liabilities 480 3,923 927 (12) 5,318
---- ------ ------ ------ ------
Total stockholders' (deficit) equity (352) (1,943) 2,071 (128) (352)
---- ------ ------ ------ ------
Total liabilities and stockholders' $128 $1,980 $2,998 $ (140) $ 4,966
(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 NINE MONTHS ENDED SEPTEMBER 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 $257 $141 $116 $(257) $257
Adjustments to reconcile net income to net
cash provided (used) by operations:
Depreciation and amortization - 54 108 162
Other non-cash items 6 - 6
Equity in net income of subsidiaries (257) 257 -
Changes in assets and liabilities:
Accounts receivable (118) (100) (218)
Inventories 26 (144) (118)
Accounts payable and other accruals 2 64 - 66
Other assets and liabilities (2) 1 56 55
---- ---- ---- ---- ----
Net cash provided by continuing operations - 174 36 - 210
Net cash used by discontinued operations (13) - (13)
---- ---- ---- ---- ----
Net cash provided by operating activities - 161 36 - 197
---- ---- ---- ---- ----
Investing Activities:
Purchase of property, plant and equipment (11) (124) (135)
Investments in affiliated companies and
other businesses (16) 16 (29)
(29)
Investments in computer software (27) (19) (46)
Other (5) 16 11
---- ---- ---- ---- ----
Net cash used by investing activities (16) (27) (156) - (199)
---- ---- ---- ---- ----
Financing activities:
Repayments of long-term debt (47) (4) (51)
Net change in credit facility 36 156 192
Net change in other short-term debt - (4) (4)
Purchases of treasury stock (131) - - (131)
Increase in loan from subsidiary 129 (129) - -
Other 18 - - 18
---- ---- ---- ---- ----
Net cash provided (used) by financing activities 16 (140) 148 - 24
---- ---- ---- ---- ----
Effect of exchange rate changes on cash and
cash equivalents - - (2) - (2)
---- ---- ---- ---- ----
Net increase (decrease) in cash and cash
Equivalents - (6) 26 - 20
---- ---- ---- ---- ----
Cash and cash equivalents at beginning of
Period 11 50 61
---- ---- ---- ---- ----
Cash and cash equivalents at end of period $ - $ 5 $ 76 $ - $ 81
==== ==== ==== ==== ====
</TABLE>
<PAGE>
Note 7. Supplemental Consolidating Condensed Financial Information (continued)
<TABLE>
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 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 $209 $209 $(209) $209
Adjustments to reconcile net income to net
cash provided (used) by operations:
Loss from discontinued operations 12 12
Depreciation and amortization 148 148
Other non-cash items 5 5
Equity in net income of subsidiary (209) - 209 -
Changes in assets and liabilities:
Accounts receivable (190) (190)
Inventories (39) (39)
Accounts payable and other accruals 62 62
Other assets and liabilities 37 37
---- ---- ----- ----
Net cash provided by continuing operations - 244 - 244
Net cash used by discontinued operations (27) (27)
---- ---- ----- ----
Net cash provided by operating activities - 217 - 217
---- ---- ----- ----
Purchase of property, plant and equipment (136) (136)
Investments in affiliated companies and
other businesses (2) (41) 2 (41)
Investments in computer software (57) (57)
Acquisition of Armitage/Dolomite (427) (427)
Other 8 8
---- ---- ----- ----
Net cash used by investing activities (2) (653) 2 (653)
---- ---- ----- ----
Financing activities:
Proceeds from issuance of long-term debt 460 460
Repayments of long-term debt (174) (174)
Net change in credit facility 115 115
Net change in other short-term debt 13 13
Purchases of treasury stock (4) - (4)
Change in intercompany accounts, net (6) 6 -
Other 12 (4) (2) 6
---- ---- ----- ----
Net cash provided by financing activities 2 416 (2) 416
---- ---- ----- ----
Effect of exchange rate changes on cash
and cash equivalents - -
---- ---- ----- ----
Net increase (decrease) in cash and
cash equivalents - (20) - (20)
Cash and cash equivalents at beginning of period 63 63
---- ---- ----- ----
Cash and cash equivalents at end of period $ - $ 43 $ - $ 43
==== ==== ===== ====
</TABLE>
<PAGE>
Note 8. Segment Data
<TABLE>
Summary Segment and Income Data
(Dollars in millions)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
2000 1999 2000 1999
--------- -------- --------- -------
<S> <C> <C> <C> <C>
Sales:
Air Conditioning Systems and Services $ 1,257 $ 1,179 $ 3,616 $ 3,309
Plumbing Products 450 443 1,389 1,316
Vehicle Control Systems 254 255 824 811
------- ------- ------- -------
$ 1,961 $ 1,877 $ 5,829 $ 5,436
======= ======= ======= =======
Segment income:
Air Conditioning Systems and Services $ 162 $ 141 $ 430 $ 369
Plumbing Products 40 42 130 122
Vehicle Control Systems 30 27 112 103
------- -------- --------- -------
232 210 672 594
Equity in net income of unconsolidated
joint ventures 7 9 26 27
------- -------- --------- -------
239 219 698 621
Interest expense 51 47 149 141
Corporate and other expenses 40 39 123 103
------- -------- --------- -------
Income from continuing operations
before income taxes $ 148 $ 133 $ 426 $ 377
======== ======== ========= =======
</TABLE>
For a comparative analysis of this Summary Segment and Income Data, see
Management's Discussion and Analysis of Financial Position and Results of
Operations.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Third Quarter and First Nine Months of 2000
Compared with the Third Quarter and First Nine Months of 1999
The Company achieved record third quarter sales in 2000 of $1,961
million, an increase of $84 million, or 4% (8% excluding unfavorable foreign
exchange effects), from $1,877 million in the third quarter of 1999. Sales
increased 7% for Air Conditioning Systems and Services and 2% for Plumbing
Products, but were flat for Vehicle Control Systems.
Segment income for the third quarter of 2000 was also a record at $232
million, an increase of $22 million, or 10% (14% excluding foreign exchange
effects), from $210 million in the third quarter of 1999. Segment income
increased 15% for Air Conditioning Systems and Services and 11% for Vehicle
Control Systems, but declined 5% for Plumbing Products.
Sales for the first nine months of 2000 were $5,829 million, an
increase of $393 million, or 7% (12% excluding foreign exchange effects),
from $5,436 million in the first nine months of 1999. Sales increased 9% for
Air Conditioning Systems and Services, 6% for Plumbing Products and 2% for
Vehicle Control Systems. Segment income was $672 million for the first nine
months of 2000, an increase of 13% (16% excluding the unfavorable effects of
foreign exchange), compared with $594 million in the first nine months of
1999. Segment income increased 17% for Air Conditioning Systems and Services,
7% for Plumbing Products and 9% 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 for Air Conditioning Systems and Services were $1,257 million for
the third quarter of 2000, an increase of 7% (8% excluding unfavorable
foreign exchange effects) from $1,179 million for the third quarter of 1999
due to strong worldwide commercial business. Worldwide commercial applied and
commercial unitary sales increased 10% (12% excluding foreign exchange
effects) due to significant gains in the U.S. equipment and service
businesses, as well as in the Far East. This double-digit growth globally was
a strong performance relative to market growth. U.S. sales of commercial
products increased because of higher volumes, reflecting continued strength
in the U.S. replacement, renovation and repair markets and increased market
share, which more than offset the effect of modest slowing in commercial
construction. Sales benefited from expansion of the national and 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. Sales outside the
U.S., which are substantially commercial, improved significantly in the Far
East outside of China, and grew solidly in Latin America and Europe which
benefited from a new line of high-efficiency chillers. The recovery in the
Far East was driven primarily by expansion of the global accounts business
and stronger markets. Residential sales in the U.S., which represent less
than 12% of total Company sales, declined because the effects of
cooler-than-normal weather in the Midwest and Northeast more than offset
increases in the warmer Sunbelt markets. In addition, 1999 sales had
benefited from a warmer-than-normal summer in most areas of the U.S. The
residential business decline, however, was less than the overall market
decline. Sales for Air Conditioning Systems and Services for the first nine
months of 2000 increased 9% (12% excluding foreign exchange effects) to
$3,616 million from $3,309 million in the first nine months of 1999,
primarily for the same reasons explaining the third quarter increase.
<PAGE>
Segment income for Air Conditioning Systems and Services increased 15%
(with little effect from foreign exchange) to $162 million in the third
quarter of 2000 from $141 million in the 1999 third quarter, as margins
improved from 12.0% to 12.9%. This improvement was entirely attributable to
the global commercial business that benefited from increased volume in the
U.S., Far East and Europe. Segment income for the residential business
declined from an exceptionally good prior-year performance, primarily
reflecting the effects of weather variations year-to-year. Segment income for
the first nine months of 2000 increased 17% (with little foreign exchange
effect) to $430 million from $369 million in the first nine months of 1999.
This gain resulted essentially for the reasons mentioned for the third
quarter increase and first-half earnings gains for the residential business
which exceeded the third-quarter decline.
Sales for Plumbing Products increased 2% (8% excluding unfavorable
foreign exchange effects) to $450 million in the third quarter of 2000 from
$443 million in the third quarter of 1999, primarily as a result of
improvements in Europe, Asia and the Americas. Excluding foreign exchange,
European sales increased primarily on higher volume, reflecting improving
economic conditions and market share gains. The continuing improvement in
Asian economies resulted in volume increases in that region, including a
small gain in China. Sales in the Americas increased despite a slowing in the
U.S. market. U.S. sales increased, with fittings sales up sharply and
fixtures sales flat. Latin American sales increased moderately. Sales of
Plumbing Products for the first nine months of 2000 increased 6% (12%
excluding foreign exchange effects) to $1,389 million from $1,316 million in
the first nine months of 1999. This increase was due principally to the same
factors affecting third-quarter sales, except that the U.S. market slow-down
had little effect on first-half fixtures sales.
Segment income of Plumbing Products for the third quarter of 2000 was
$40 million, a decrease of 5% (but an increase of 3% excluding unfavorable
foreign exchange effects) from $42 million for the 1999 third quarter. The
increase (excluding foreign exchange) was principally attributable to volume
increases in Europe and the Far East and in U.S. fittings. European
operations continue to benefit from the restructuring implemented as part of
a lower-cost sourcing program. In the Americas fixtures business, segment
income and margins declined because its cost structure was adversely affected
by higher energy costs, currency effects and higher labor costs in Latin
America. Margin expansion was achieved in Europe, Asia and in the U.S.
fittings business, but as a result of the degradation in the Americas
fixtures business, overall margins declined from 9.5% in the third quarter of
1999 to 8.9% in the third quarter of 2000. Segment income for the first nine
months of 2000 increased by 7% (11% excluding foreign exchange effects) to
$130 million from $122 million for the first nine months of 1999, primarily
due to volume increases and cost improvements, tempered somewhat by lower
third quarter results for the Americas fixtures business.
Sales of Vehicle Control Systems for the third quarter of 2000 were
flat at $254 million, but increased 10% excluding unfavorable foreign
exchange effects. The increase (excluding foreign exchange effects) resulted
from improved market demand, increased penetration with core products, new
vehicle control system products (higher content per vehicle) and volume
expansion in Asia. Unit volumes of truck and bus production increased 7% in
Western Europe in the third quarter of 2000 compared with the 1999 third
quarter. Additionally, sales increased significantly in Brazil, primarily as
a result of a sharp increase in that country's commercial vehicle production.
Shipments of anti-lock braking systems to the Company's U.S. braking systems
joint venture decreased 10% as U.S. truck production declined 22%. Sales of
Vehicle Control Systems for the first nine months of 2000 were $824 million,
an increase of 2% (12% excluding unfavorable foreign exchange effects) from
$811 million in the first nine months of 1999 primarily for the reasons
explaining the third quarter increase.
<PAGE>
Segment income for Vehicle Control Systems for the third quarter of
2000 increased $3 million ($7 million excluding unfavorable foreign exchange
effects) to $30 million from $27 million in the third quarter of 1999. This
primarily reflected higher volumes in Europe and Asia, together with a
smaller gain in Brazil. Margins improved from 10.6% in the third quarter of
1999 to 11.8% in the third quarter of 2000. Segment income for Vehicle
Control Systems for the first nine months of 2000 was $112 million, an
increase of 9% (26% excluding unfavorable foreign exchange effects) from $103
million in the first nine months of 1999, principally for the same reasons
cited for the third quarter increase.
Other Summary Income Data Items
Equity in net income of unconsolidated joint ventures was $7 million in
the third quarter of 2000, compared with $9 million in the year-earlier
quarter, and was $26 million in the first nine months of 2000 compared with
$27 million in the 1999 nine months. This reflected 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. Earnings of Air
Conditioning Systems and Services' compressor manufacturing joint venture and
the Company's financial services joint venture were essentially even with
last year.
Interest expense increased by $4 million in the third quarter of 2000
and by $8 million in the first nine months of 2000 compared to the
year-earlier quarter and first nine months, primarily due to higher average
interest rates. Corporate and other expenses increased by $1 million in the
third quarter of 2000 and by $20 million in the first nine months of 2000
compared to the year-earlier quarter and first nine months. These increases
were mainly due to: increased minority interest in higher income of
consolidated joint ventures; transition costs due to management changes;
increased receivables discount fees paid to the financial services joint
venture as a result of higher sales; and higher incentive compensation
accruals due to profitability improvement.
The income tax provision for the third quarter of 2000 was $59 million
and for the first nine months of 2000 was $169 million, or 39.75% of income
from continuing operations, compared with provisions of $55 million and $156
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.
<PAGE>
Liquidity and Capital Resources
Net cash provided by operating activities, after cash interest paid of
$146 million, was $197 million for the first nine months of 2000, compared
with net cash provided of $217 million for the same period of 1999. The $20
million decrease resulted primarily from an increase in net working capital.
Accounts receivable and inventories increased in the first nine months of
both years, primarily reflecting overall growth of the Company. The
receivables increase of $218 million in the first nine months of 2000 was
moderately larger than the nine-month 1999 increase of $190 million primarily
because of growth and a small increase in average days outstanding. The
inventory increase in 2000 of $118 million was substantially larger than in
1999, as turnover was nine-tenths of a turn lower and reflected a decision to
increase certain air conditioning inventories to serve customers better in
the North American market. 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 $164 million for the first
nine months of 2000, including $29 million of investments in affiliated
companies and other businesses. This compared with capital expenditures of
$177 million in the 1999 period, including $41 million of investments in
affiliated companies and other businesses (but excluding the
Armitage/Dolomite acquisition described below). The Company also invested $46
million in computer software in the first nine months of 2000, compared with
$57 million in the 1999 period. Additionally, in the first nine months of
2000, the Company purchased approximately 3.2 million shares of its common
stock for $131 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.
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 closed on November 6, 2000
and completed the Company's exit from the medical business.
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. In
September 2000, the 1997 Credit Agreement was amended to extend the Company's
authorization annually to repurchase up to $100 million of its Common Stock
beyond July 9, 2001, to expand the Company's authorization, for hedging
purposes, to enter into commodity purchase or option agreements and credit
derivative agreements, and to increase the amount of equity the Company is
authorized to invest in its receivable financing venture.
<PAGE>
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 September 30, 2000, the Company had borrowings of $769 million
outstanding under the Revolving Facilities. There was $523 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
$73 million available at September 30, 2000, under overdraft facilities that
can be withdrawn by the banks at any time. In addition, the Company's
operations in China have $16 million available under bank credit facilities
after reduction for borrowings of $19 million and letters of credit usage of
$20 million.
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. 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.
On May 28, 1999, American Standard Inc. 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. The May 28, 1999 sale of
Senior Notes, which are not subject to redemption, was made pursuant to the
1998 Shelf Registration (see Note 4 of Notes to Financial Statements). 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.
As described in Note 7 of Notes to Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the year ended December 31,
1998, 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>
Information Concerning Forward-Looking Statements
Certain of the statements contained in this report (other than the
historical financial data and other statements of historical fact) including,
without limitation, statements as to management's expectations and belief,
are forward-looking statements. Forward-looking statements are made based
upon management's good faith expectations and belief concerning future
developments and their potential effect upon the Company. There can be no
assurance that future developments will be in accordance with such
expectations or that the effect of future developments on the Company will be
those anticipated by management. Forward-looking statements can be identified
by the use of words such as "believe," "expect," "plans," "strategy,"
"prospects," "estimate," "project," "anticipate" and other words of similar
meaning in connection with a discussion of future operating or financial
performance. This Report on Form 10-Q includes important information as to
risk factors in the "Notes to Financial Statements" under the headings
"Restructuring and Asset Impairment Charges," "Tax Matters," and "Impact of
Recently Issued Accounting Standards" and in the section titled "Management's
Discussion and Analysis of Results of Operations and Financial Position."
Many important factors could cause actual results to differ materially from
management's expectations, including the level of construction activity in
the Company's Air Conditioning Systems and Services' and Plumbing Products'
markets; the timing of completion and success in the start-up of new
production facilities; changes in U.S. or international economic conditions,
such as inflation or interest rate fluctuations or recessions in the
Company's markets; pricing changes to the Company's supplies or products or
those of its competitors, and other competitive pressures on pricing and
sales; labor relations; integration of acquired businesses; risks generally
relating to the Company's international operations, including governmental,
regulatory or political changes; changes in environmental, health or other
regulations that may affect one or more of the Company's products or
potential products and the inability to obtain regulatory approvals for one
or more of the Company's potential products; changes in laws or different
interpretations of laws including the risk that German judicial authorities
will disagree with the opinions of the Company's German tax counsel;
transactions or other events affecting the need for, timing and extent of the
Company's capital expenditures; the extent of and the costs at which the
Company effects repurchases of its common stock; and the extent to which the
Company reduces outstanding debt.
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. During the fiscal quarter ended
September 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)
November 14, 2000
<PAGE>
AMERICAN STANDARD COMPANIES INC.
INDEX TO EXHIBITS
(The File Number of the Registrant, American Standard Companies Inc. is 1-11415)
Exhibit No. Description
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(4) (i) Form of Sixth Amendment dated as of September 25, 2000 to the
Amended and Restated Credit Agreement dated as of January 31,
1997 among the Company, certain subsidiaries of the Company,
the financial institutions party thereto and the Chase
Manhattan Bank, as Administrative Agent; filed herewith.
(12) Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
