SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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, 1997
OR
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-64450
AMERICAN STANDARD INC.
(Exact name of Registrant as specified in its charter)
Delaware 25-0900465
(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 principle 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 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, 1997 1,000
(shares)
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
The following summary statement of operations of American Standard Inc.
("the Company") and subsidiaries for the three months and six months ended June
30, 1997 and 1996 has not been audited, but management believes that all
adjustments, consisting of normal recurring items, necessary for a fair
presentation of financial data for those periods have been included. Results for
the three- and six-month periods of 1997 are not necessarily indicative of
results for the entire year.
AMERICAN STANDARD INC. AND SUBSIDIARIES
UNAUDITED SUMMARY STATEMENT OF OPERATIONS
(In millions)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----- ----- ----- ----
SALES $1,589 $1,519 $2,950 $2,883
------- ------ ------ ------
COST AND EXPENSES
Cost of sales 1,163 1,136 2,181 2,167
Selling and administrative expenses 258 230 494 457
Asset impairment loss - - - 235
Other expense 7 11 12 18
Interest expense 47 50 96 102
--- ------ ------ ----
1,475 1,427 2,783 2,979
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 114 92 167 (96)
Income taxes 40 33 60 50
--- ------ ------ ------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 74 59 107 (146)
Extraordinary loss on retirement of debt,
net of tax 15 - 23 -
--- ------ ------ ------
NET INCOME (LOSS) $ 59 $ 59 $ 84 $ (146)
====== ====== ======= =======
<FN>
See accompanying notes
</FN>
Item 1. Financial Statements (continued)
AMERICAN STANDARD INC. AND SUBSIDIARIES
UNAUDITED SUMMARY BALANCE SHEET
(Dollars in millionsexcept share data)
June 30, December 31,
1997 1996
CURRENT ASSETS
Cash and cash equivalents $ 51 $ 60
Accounts receivable 902 800
Inventories
Finished products 312 236
Products in process 77 78
Raw materials 102 95
---- --
491 409
Other current assets 121 117
---- ---
TOTAL CURRENT ASSETS 1,565 1,386
FACILITIES, less accumulated depreciation;
June 1997 - $583; Dec. 1996 - $577 997 1,006
GOODWILL 799 875
OTHER ASSETS 720 253
---- ---
TOTAL ASSETS $4,081 $3,520
====== ======
CURRENT LIABILITIES
Loans payable to banks $ 812 $ 109
Current maturities of long-term debt 20 73
Accounts payable 455 469
Accrued payrolls 186 152
Other accrued liabilities 481 433
---- ---
TOTAL CURRENT LIABILITIES 1,954 1,236
LONG-TERM DEBT 1,557 1,742
RESERVE FOR POSTRETIREMENT BENEFITS 439 473
OTHER LIABILITIES 471 452
---- ---
TOTAL LIABILITIES 4,421 3,903
STOCKHOLDER'S DEFICIT
Preferred stock, Series A, par value $.01,
1000 shares issued and outstanding - -
Common stock $.01 par value, 1,000 shares
issued and outstanding - -
Capital surplus 555 561
Accumulated deficit (687) (771)
Foreign currency translation effects (208) (173)
---- ---
TOTAL STOCKHOLDER'S DEFICIT (340) (383)
---- ---
$4,081 $3,520
====== ======
<FN>
See accompanying notes
</FN>
Item 1. Financial Statements (continued)
AMERICAN STANDARD INC. AND SUBSIDIARIES
UNAUDITED SUMMARY STATEMENT OF CASH FLOWS
(Dollars in millions)
Six Months Ended
June 30,
1997 1996
---- ----
CASH PROVIDED (USED) BY:
OPERATING ACTIVITIES:
Income (loss) before extraordinary item $ 107 $ (146)
Asset impairment loss - 235
Depreciation 63 60
Amortization of goodwill 14 14
Non-cash interest 29 32
Non-cash stock compensation 12 17
Changes in assets and liabilities:
Accounts receivable (129) (93)
Inventories (97) (53)
Accounts payable and other accruals 83 26
Other assets and liabilities (14) (45)
--- ---
Net cash provided by operating activities 68 47
--- ---
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (94) (75)
Investments in affiliated companies (1) (2)
Acquisition of medical diagnostic businesses (210) -
Other (2) 20
--- ---
Net cash used by investing activities (307) (57)
--- ---
FINANCING ACTIVITIES:
Net loan (to) from Parent (226) 3
Proceeds from issuance of long-term debt 380 3
Repayments of long-term debt, including
redemption premiums (615) (33)
Net change in revolving credit facility 705 (21)
Net change in other short-term debt 11 4
Other (24) (10)
--- ---
Net cash provided (used) by financing activities 231 (54)
--- ---
Effect of exchange rate changes on cash and
cash equivalents (1) (1)
--- ---
Net decrease in cash and cash equivalents (9) (65)
Cash and cash equivalents at beginning of period 60 89
--- ---
Cash and cash equivalents at end of period $ 51 $ 24
====== =====
<FN>
See accompanying notes
</FN>
AMERICAN STANDARD INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1. Public Offering of Parent Company Common Stock and Repurchase of
Parent Company Common Stock
In the first quarter of 1997 American Standard Companies Inc., the
Company's parent ("Parent Company") completed a secondary public offering of
12,429,548 shares of the Parent Company's common stock owned by Kelso ASI
Partners, L.P. ("ASI Partners"), the Parent Company's largest stockholder at
December 31, 1996, and the repurchase by the Parent Company from ASI Partners
of 4,628,755 shares of common stock of the Parent Company. In addition, the
Parent Company issued to ASI Partners 5-year warrants to purchase 3,000,000
shares of the Parent Company's common stock at $55 per share. See
Management's Discussion and Analysis of Financial Position and Results of
Operations - Liquidity and Capital Resources.
Note 2. Redemption of Senior Debentures
In May 1997 the Company redeemed its $250 million aggregate principal
amount of 11-3/8% Senior Debentures (at a redemption price of 105.69% of the
principal plus accrued interest) with borrowings under the 1997 bank credit
agreement ("the 1997 Credit Agreement"). As a result, the Company incurred an
extraordinary charge of $15 million, net of taxes, in the second quarter of
1997, including call premiums on the debentures and the write-off of deferred
debt issuance costs. See Management's Discussion and Analysis of Financial
Position and Results of Operations - Financial Review.
Note 3. Acquisition of Medical Diagnostics Businesses
On June 30, 1997, the Company acquired for approximately $210 million
the European medical diagnostic business (the "Sorin Business" or "Sorin") of
Sorin Biomedica S.p.A., an affiliate of the Fiat Group, and all the
outstanding shares of INCSTAR Corporation ("Incstar"), a biotechnology
company based in Stillwater, Minnesota, in which Sorin Biomedica S.p.A.
indirectly owned a 52% interest. This transaction will be accounted for as a
purchase. The Company is in the process of valuing the assets and liabilities
acquired and in connection therewith will be required to write off the value
of purchased research and development, which the Company believes could be
material. See Management's Discussion and Analysis of Financial Position and
Results of Operations - Liquidity and Capital Resources. At June 30, 1997 the
$210 million acquisition cost was included in "Other Assets" on the Balance
Sheet.
Note 4. Tax Matters
As described in Note 6 of Notes to Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the year ended December 31,
1996, there are pending German tax issues for the years 1984 through 1990.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
PART 1. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company achieved record sales and operating income in the second
quarter of 1997. Sales increased 5% to $1.6 billion and operating income
increased 6% to $178 million. Operating income for the first half of 1997 was
$297 million, an increase of 4% over the $286 million of operating income in the
first half of 1996, excluding an asset impairment charge. In the first quarter
of 1996 the Company adopted FAS 121 related to impairment of long-lived assets,
resulting in a non-cash charge of $235 million, approximately 90% of which
represented the write-down of goodwill, for which there was no tax benefit.
Operating losses for Medical Systems for 1996 have been reclassified to conform
with the 1997 presentation.
SUMMARY SEGMENT AND INCOME DATA
(Dollars in millions)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
Sales:
Air Conditioning Products $ 983 $ 924 $1,765 $1,682
Plumbing Products 367 372 710 720
Automotive Products 239 223 475 481
--- --- --- ---
Total sales $1,589 $1,519 $2,950 $2,883
====== ====== ====== ======
Operating income (loss) before
asset impairment loss:
Air Conditioning Products $ 118 $ 112 $ 187 $ 173
Plumbing Products 33 31 55 50
Automotive Products 31 28 63 70
Medical Systems (4) (5) (8) (7)
--- --- --- ---
178 166 297 286
Asset impairment loss:
Air Conditioning Products - - - (121)
Plumbing Products - - - (114)
--- --- --- ---
- - - (235)
--- --- --- ---
Total operating income 178 166 297 51
Equity in net income (loss) of
unconsolidated joint ventures 3 (1) 6 (2)
Interest expense (47) (50) (96) (102)
Corporate and other expenses (20) (23) (40) (43)
--- --- --- ---
Income (loss) before income taxes
and extraordinary item $ 114 $ 92 $ 167 $ (96)
===== ===== ==== =====
Results of Operations for the Second Quarter and First Six Months of 1997
Compared with the Second Quarter and First Six Months of 1996
Consolidated sales for the second quarter of 1997 were $1,589 million,
an increase of $70 million, or 5% (8% excluding the unfavorable effects of
foreign exchange), from $1,519 million in the second quarter of 1996. Sales
increased 6% for Air Conditioning Products and 7% for Automotive Products, while
sales for Plumbing Products decreased 1% compared with the second quarter of
1996. Operating income for the second quarter of 1997 was $178 million, an
increase of $12 million, or 6% (9% excluding the unfavorable effects of foreign
exchange), from $166 million in the second quarter of 1996. Operating income
increased 4% for Air Conditioning Products, 7% for Plumbing Products and 9% for
Automotive Products. The operating loss on Medical Systems was slightly less,
reflecting lower development expenses.
Consolidated sales for the first half of 1997 were $2,950 million, an
increase of $67 million, or 2% (5% excluding the unfavorable effects of foreign
exchange), from $2,883 million in the first half of 1996. Sales increased 5% for
Air Conditioning Products but declined 1% for both Plumbing Products and
Automotive Products. Operating income was $297 million for the first half of
1997, an increase of 4% (7% excluding the unfavorable effects of foreign
exchange), compared with $286 million in the first half of 1996 (excluding the
asset impairment charge previously mentioned). Operating income increased 7% for
Air Conditioning Products and 11% for Plumbing Products but declined 10% for
Automotive Products.
Sales of Air Conditioning Products increased 6% (8% excluding the
unfavorable effects of foreign exchange) to $983 million for the second quarter
of 1997 from $924 million for the second quarter of 1996 as a result of
continued strength in U.S. commercial business and higher volume in
international operations. Sales of applied and unitary commercial products in
the U.S. increased because of higher volumes resulting from improved markets and
gains in market share (for commercial unitary products), partly offset by lower
volume for residential products due to cooler than normal temperatures in many
of the company's markets. International sales for the second quarter of 1997
increased principally because of higher volumes in Latin America, especially
Mexico, and volume increases in the Far East and Middle East. Sales for Air
Conditioning Products for the first half of 1997 increased by 5% to $1,765
million from $1,682 million in the first half of 1996, primarily for the reasons
cited for the second quarter increase.
Operating income of Air Conditioning Products increased 4% (with little
effect from foreign exchange) to $118 million in the second quarter of 1997 from
$112 million in the 1996 quarter, primarily reflecting higher commercial product
volumes in the U.S. Operating income for international operations improved
modestly, reflecting increased volumes in Latin America, the Far East and Middle
East. Operating income for the first half of 1997, excluding the 1996 asset
impairment charge explained above, increased 7% essentially for the reasons
mentioned for the second quarter increase.
Sales of Plumbing Products declined 1% to $367 million in the second
quarter of 1997 from $372 million in the second quarter of 1996. Excluding the
unfavorable effects of foreign exchange, sales increased 4% over the second
quarter of 1996, reflecting an increase of more than 4% in international sales
and a gain of 2% in the U.S. The international sales increase resulted primarily
from increased volume in Latin America. Europe contributed a small increase but
continued to experience weak economic conditions, particularly in Germany, Italy
and France. Sales in the U.S. increased as a result of higher volumes of
fittings sold to the retail market channel. Sales of Plumbing Products for the
first half of 1997 decreased 1% to $710 million from $720 million in the first
half of 1996. Excluding unfavorable foreign exchange effects, sales increased by
3% for the first half of 1997 compared with the 1996 period due to the same
factors affecting the second quarter results and reflecting the adverse effect
of a five-week strike in the Philippines during the first quarter of 1996.
Operating income of Plumbing Products increased 7% (12% excluding the
unfavorable effects of foreign exchange) to $33 million for the second quarter
of 1997 from $31 million for the second quarter of 1996. In the U.S., operating
income improved because of higher sales, benefits of lower-cost product sourcing
from the Company's Mexican facilities and manufacturing cost improvements. For
international operations, operating income increased primarily because of
reduced costs in Europe. Operating income for the first half of 1997, excluding
the aforementioned 1996 asset impairment charge, increased by 11% (16% excluding
foreign exchange effects) from the first half of 1996, primarily for the reasons
mentioned for the second quarter and because of the first quarter 1996
Philippines strike.
Sales of Automotive Products for the second quarter of 1997 increased
7% (15% excluding the unfavorable effects of foreign exchange) to $239 million
from $223 million in the second quarter of 1996, primarily because of higher
volumes in Europe and higher product content per vehicle. Unit volume of truck
and bus production in western Europe increased 5% overall from the second
quarter of 1996, with a particularly strong gain in Germany. Sales of ABS
systems to the Company's U.S. joint venture nearly doubled, reflecting the new
regulations in effect for such systems on new heavy-duty trucks. Sales of
Automotive Products for the first half of 1997 declined slightly to $475 million
from $481 million in the first half of 1996. Excluding the unfavorable effects
of foreign exchange, first-half 1997 sales increased by 6% despite a small first
quarter decline, primarily for the reasons cited for the second quarter.
Operating income for Automotive Products for the second quarter of 1997
was $31 million, an increase of 9% (19% excluding the unfavorable effects of
foreign exchange) from $28 million in the second quarter of 1996. This reflected
the higher sales and improved margins due to productivity improvements, offset
partly by the ongoing effects of start-up costs on the new electronic braking
system product line. Operating income for Automotive Products for the first half
of 1997 was $63 million, a decrease of 10% (2% excluding the unfavorable effects
of foreign exchange) from $70 million in the first half of 1996 principally
reflecting declines in the first quarter of 1997 from the record-high first
quarter of 1996, offset partly by the aforementioned improvements for the second
quarter of 1997.
Financial Review
Interest expense decreased $3 million in the second quarter of 1997
compared to the year-earlier quarter as lower overall interest rates on debt
outstanding under the 1997 Credit Agreement more than offset the effect of
increased debt arising from the $208 million repurchase of shares of the
Company's common stock in February 1997 (see "Liquidity and Capital Resources").
In addition, on May 15, 1997, the Company redeemed its $250 million aggregate
principal amount of 11-3/8% Senior Debentures (at a redemption price of 105.69%
of the principal amount plus interest accrued to the redemption date) with
lower-rate borrowings under the 1997 Credit Agreement. The decrease in corporate
and other expenses is primarily attributable to higher equity in earnings of
unconsolidated joint ventures and reduced corporate expenses. The higher equity
income reflects the growth of Automotive Products' U.S. joint venture, the
benefits from restructuring Air Conditioning Products' scroll compressor venture
and increased profitability of Plumbing Products' expanding joint ventures in
the PRC.
The income tax provision for the second quarter of 1997 was $40
million, or 35.5% of pretax income compared with a provision of $33 million, or
36.3% of pretax income in the second quarter of 1996. Those effective tax rates
reflect improvements in U.S. income in both periods which enabled the Company to
recognize previously unrecognized tax benefits.
As a result of the redemption of the 11-3/8% Senior Debentures, the
second quarter of 1997 included an extraordinary charge of $15 million, net of
income taxes, attributable to call premiums and the write-off of unamortized
debt issuance costs. The first quarter of 1997 also included an extraordinary
charge for the write-off of unamortized debt issuance costs of $8 million, net
of income taxes, related to the retirement of debt upon completion of the 1997
Credit Agreement.
Liquidity and Capital Resources
Net cash provided by operating activities, after cash interest paid of
$67 million, was $68 million for the first six months of 1997, compared with net
cash provided of $47 million for the similar period of 1996. The $21 million
increase resulted primarily from higher earnings. Inventories and accounts
receivable increased in both six month periods reflecting increased sales
volumes and the seasonal pattern typical of the first half of the year. The
Company made capital expenditures of $95 million for the first half of 1997,
including $1 million of investments in affiliated companies, compared with
capital expenditures of $77 million in the first half of 1996, including $2
million of investments in affiliated companies.
In January 1997 the Company entered into the 1997 Credit Agreement.
This agreement, which expires in 2002, 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 for the issuance of letters of credit.
Borrowings under the Revolving Facilities by their terms are short-term. The
1997 Credit Agreement and certain other American Standard Inc. debt instruments
contain restrictive covenants and other requirements with which the Company
believes it is currently in compliance. The 1997 Credit Agreement provides lower
interest costs, significantly increased borrowing capacity, less restrictive
covenants and no scheduled principal payments until maturity in 2002.
At June 30, 1997, the Company had outstanding borrowings of $761
million under the Revolving Facilities. There was $554 million available under
the Revolving Facilities after reduction for borrowings and for $60 million of
letters of credit usage. In addition, at June 30, 1997, the Company's foreign
subsidiaries had $60 million available under overdraft facilities which can be
withdrawn by the banks at any time.
On May 5, 1997, the Parent Company announced a plan to repurchase from
time to time in the open market up to $100 million of its common stock during
the following twelve months. It is anticipated that shares repurchased pursuant
to this program will be available in connection with the exercise of stock
options and other of the Company's incentive compensation programs. Through June
30, 1997, the Company had repurchased $26 million of its common stock under this
program.
In the first quarter of 1997 the Parent Company completed (i) a
secondary public offering of 12,429,548 shares of the Parent Company's common
stock owned by ASI Partners (including 1,621,245 shares sold pursuant to the
underwriters' over-allotment option) (the "Secondary Offering") and (ii) the
share repurchase by the Parent Company from ASI Partners, the Parent Company's
largest stockholder at December 31, 1996, of 4,628,755 shares of common stock of
the Parent Company for $208 million (the "Share Repurchase"). In conjunction
with the Secondary Offering and the Share Repurchase, ASI Partners distributed
to certain of its partners 3,780,353 shares (the "Share Distribution") of the
Parent Company's common stock that it owned. In addition, the Parent Company
issued to ASI Partners 5-year warrants to purchase 3,000,000 shares of the
Parent Company's common stock at $55 per share, $10 per share over the public
offering price in the Secondary Offering. After the Secondary Offering, the
Share Distribution and the Share Repurchase, ASI Partners owned no common stock
of the Parent Company and is no longer entitled to designate any of the Parent
Company's directors. All of the shares sold in the Secondary Offering were
previously issued and outstanding shares, and the Parent Company received no
proceeds therefrom.
In January 1997 the Company announced formation of its Medical Systems
Group to pursue initiatives in the medical diagnostics field. For the last
several years the Company has supported the development of two small medical
diagnostic products groups focusing on test instruments using laser technology
and reagents. On June 30, 1997, the Company acquired the European medical
diagnostic business of Sorin Biomedica S.p.A., an affiliate of the Fiat Group
and all the outstanding shares of INCSTAR Corporation, a biotechnology company
based in Stillwater, Minnesota, in which Sorin Biomedica S.p.A. indirectly owned
a 52% interest. In 1996 the Sorin Business and Incstar had sales of
approximately $80 million and $40 million, respectively. The aggregate cost of
the acquisition was approximately $210 million, including fees and expenses, and
was funded with borrowings under the 1997 Credit Agreement. This transaction
will be accounted for as a purchase and the Company is in the process of valuing
the assets and liabilities acquired for purposes of allocating the purchase
price. In connection therewith, the Company will be required to write off the
value of assets associated with on-going research and development projects of
the businesses acquired. Because Sorin and Incstar both have a significant
number of research and development projects in process, the Company believes
that such write-off could be material.
As described in Note 6 of Notes to Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996,
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.
On August 1, 1997, American Standard Companies Inc. and its
wholly-owned subsidiary, American Standard Inc., jointly filed a shelf
registration statement with the Securities and Exchange Commission covering $1
billion of debt securities to be offered by American Standard Inc. and
unconditionally guaranteed by American Standard Companies Inc. Proceeds from the
sale of the securities, to be issued from time to time at market interest rates,
will be used for general corporate purposes including refinancing of outstanding
debt, stock repurchases, acquisitions, additions to working capital or capital
expenditures.
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 5. Other Information
For a discussion of a $1 billion debt shelf registration
statement jointly filed by American Standard Companies Inc. and its
wholly-owned subsidiary, American Standard Inc., on August 1, 1997,
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 quarter ended June 30, 1997, the
Company filed no reports on Form 8-K.
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 INC.
By: G. Ronald Simon
Vice President & Controller
(Principal Accounting Officer)
August 13, 1997
AMERICAN STANDARD INC.
INDEX TO EXHIBITS
(The File Number of the Registrant, American Standard Inc. is 33-64450)
Exhibit No. Description
(27) Financial Data Schedule