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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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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 principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 980-6000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, $.01 par value, outstanding at
April 30, 1996 1,000 shares
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated summary statement of operations of American
Standard Inc. (the "Company") and subsidiaries for the three months ended March
31, 1996 and 1995 has not been audited, but management believes that all
adjustments, consisting of normal recurring items, necessary for a fair
presentation of financial data for those periods have been included. Results
for the first quarter of 1996 are not necessarily indicative of results for the
entire year.
AMERICAN STANDARD INC. AND SUBSIDIARIES
UNAUDITED SUMMARY STATEMENT OF OPERATIONS
(Dollars in millions)
THREE MONTHS ENDED
-------------------
MARCH 31,
--------------
1996 1995
-------- --------
SALES $1,364.3 $1,223.2
-------- --------
COST AND EXPENSES
Cost of sales 1,029.0 909.1
Selling and administrative expenses 226.0 200.6
Asset impairment loss 235.2 -
Other expense 7.6 10.7
Interest expense 51.5 57.4
-------- --------
1,549.3 1,177.8
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (185.0) 45.4
Income taxes 18.2 18.9
-------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (203.2) 26.5
Extraordinary loss on retirement of debt - (30.1)
-------- --------
NET LOSS $ (203.2) $ (3.6)
======== ========
See accompanying notes
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Item 1. Financial Statements (continued)
AMERICAN STANDARD INC. AND SUBSIDIARIES
UNAUDITED SUMMARY BALANCE SHEET
(Dollars in millions)
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 32.6 $ 88.7
Accounts receivable 816.4 771.0
Inventories
Finished products 236.4 190.7
Products in process 94.4 84.7
Raw materials 99.1 86.9
-------- --------
429.9 362.3
Other current assets 80.3 72.9
-------- --------
TOTAL CURRENT ASSETS 1,359.2 1,294.9
FACILITIES, less accumulated depreciation;
Mar. 1996 - $524.5; Dec. 1995- $513.6 910.3 924.5
GOODWILL 859.4 1,081.6
OTHER ASSETS 225.4 218.6
-------- --------
TOTAL ASSETS $3,354.3 $3,519.6
======== ========
CURRENT LIABILITIES
Loans payable to banks $ 240.2 $ 240.0
Current maturities of long-term debt 69.7 72.9
Accounts payable 443.2 438.2
Accrued payrolls 164.2 171.4
Other accrued liabilities 402.6 374.1
-------- --------
TOTAL CURRENT LIABILITIES 1,319.9 1,296.6
LONG-TERM DEBT 1,747.0 1,770.1
RESERVE FOR POSTRETIREMENT BENEFITS 502.3 482.4
OTHER LIABILITIES 356.2 350.1
-------- --------
TOTAL LIABILITIES 3,925.4 3,899.2
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIT
Preferred stock, Series A, 1,000 shares issued
and outstanding, par value $.01 - -
Common stock, 1,000 shares issued and
outstanding, $.01 par value. - -
Capital surplus 530.1 519.9
Accumulated deficit (928.0) (724.8)
Foreign currency translation effects (173.2) (174.7)
-------- --------
TOTAL STOCKHOLDER'S DEFICIT (571.1) (379.6)
-------- --------
$3,354.3 $3,519.6
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See accompanying notes
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Item 1. Financial Statements (continued)
AMERICAN STANDARD INC. AND SUBSIDIARIES
UNAUDITED SUMMARY STATEMENT OF CASH FLOWS
(Dollars in millions)
THREE MONTHS ENDED
MARCH 31,
--------
1996 1995
-------- --------
CASH PROVIDED (USED) BY:
OPERATING ACTIVITIES:
Income (loss) before extraordinary item $(203.2) $ 26.5
Asset impairment loss 235.2 -
Depreciation 31.6 27.1
Amortization of goodwill 6.6 8.2
Non-cash interest 16.4 16.3
Non-cash stock compensation 7.9 6.8
Changes in assets and liabilities:
Accounts receivable (41.1) (88.3)
Inventories (60.0) (60.2)
Accounts payable and other accruals 9.5 39.0
Other assets and liabilities (5.2) 49.2
------- --------
Net cash (used) provided by operating activities (2.3) 24.6
------- --------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (35.7) (19.4)
Investments in affiliated companies (1.5) (5.3)
Other 18.1 6.2
------- --------
Net cash used by investing activities (19.1) (18.5)
------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock - 280.5
Proceeds from issuance of long-term debt - 450.2
Repayments of long-term debt (29.4) (960.0)
Net change in revolving credit facility (7.8) 222.9
Net change in other short-term debt 11.6 (14.0)
Other (8.5) (16.0)
------- --------
Net cash used by financing activities (34.1) (36.4)
------- --------
Effect of exchange rate changes on cash and
cash equivalents (.6) -
------- --------
Net decrease in cash and cash equivalents (56.1) (30.3)
Cash and cash equivalents at beginning of period 88.7 92.7
------- --------
Cash and cash equivalents at end of period $ 32.6 $ 62.4
======= ========
See accompanying notes
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AMERICAN STANDARD INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("FAS 121"), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, resulting in a
non-cash charge of $235 million, or $3.04 per share. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."
NOTE 2. TAX MATTERS
As described in Note 5 of Notes to Consolidated Financial Statements
in the Company's Annual Report on Form 10-K for the year ended December 31,
1995, there are pending German tax issues for the years 1984 through 1990. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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PART 1. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Effective January 1, 1996 the Company adopted FAS 121 related to impairment
of long-lived assets. Applying the criteria established by FAS 121, the
Company concluded that certain assets and related goodwill of its Canadian,
French and Mexican operating units were impaired. As a result, the Company
recorded a non-cash charge of $235 million, over 90% of which was the
write-down of goodwill, for which there is no tax benefit. This charge
included $121 million for Air Conditioning Products' operations in Canada and
France, and $114 million for Plumbing Products' operations in Canada and
Mexico. Excluding this charge, operating income was $125 million in the first
quarter of 1996, essentially the same as the $126 million of operating income
in the first quarter of 1995.
SUMMARY SEGMENT AND INCOME DATA
(Dollars in millions)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
---------
1996 1995
---- ----
Sales:
Air Conditioning Products $ 758 $ 643
Plumbing Products 348 323
Automotive Products 258 257
------ ------
Total sales $1,364 $1,223
====== ======
Operating income before asset impairment loss:
Air Conditioning Products $ 61 $ 42
Plumbing Products 22 41
Automotive Products 42 43
------ ------
125 126
Asset impairment loss:
Air Conditioning Products (121) -
Plumbing Products (114) -
------ ------
(235) -
------ ------
Total operating income (loss) (110) 126
Interest expense (52) (57)
Corporate items (23) (24)
------ ------
Income (loss) before income taxes and
extraordinary item $ (185) $ 45
====== ======
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RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF 1996 COMPARED WITH THE FIRST
QUARTER OF 1995
Consolidated sales for the first quarter of 1996 were $1,364 million,
an increase of $141 million, or 12% (with little effect from foreign exchange),
from $1,223 million in the first quarter of 1995. Sales increased 18% for Air
Conditioning Products and 8% for Plumbing Products, while sales for Automotive
Products were at essentially the same level as the 1995 quarter.
Operating income (excluding the asset impairment charge previously
mentioned) was $125 million for the first quarter of 1996 (with little effect
from foreign exchange), compared with $126 million in the first quarter of
1995. Operating income increased 45% for Air Conditioning Products, remained at
the same high level as in the prior year quarter for Automotive Products, but
declined 46% for Plumbing Products.
Sales of Air Conditioning Products increased 18% to $758 million for
the first quarter of 1996 from $643 million for the comparable quarter of 1995,
as a result of strong gains in sales of applied and unitary commercial systems
in all markets, higher volumes of residential products in the U.S. and sales of
the new operations in the People's Republic of China ("PRC"). Sales of
commercial products in the U.S. increased because of improved markets, demand
for chiller replacement (due to the ban on CFC refrigerant production), higher
prices and gains in market share. Residential sales were up due to increased
preseason distributor stocking and higher prices. International sales of Air
Conditioning Products for the first quarter of 1996 increased principally
because of sales in the new PRC operations and small volume increases in most
other businesses.
Operating income of Air Conditioning Products, excluding the asset
impairment charge, increased 45% to $61 million in the first quarter of 1996
from $42 million in the 1995 quarter, primarily reflecting expanded commercial
and residential product sales in the U. S. Despite significantly higher sales
(primarily in the PRC), operating income for international operations was
essentially unchanged. European operations suffered from weak economic
conditions and the new PRC operations were near break-even, while operating
results in other operations improved modestly from results in the first quarter
of 1995.
Sales of Plumbing Products increased 8% (with little effect from
foreign exchange) to $348 million in the first quarter of 1996 from $323
million in the first quarter of 1995 primarily as a result of the sales of the
French manufacturer Porcher (the acquisition of which was completed in November
1995). Excluding Porcher, sales decreased 6% overall, as international sales
declined 10%, partly offset by a 4% sales increase for U.S. operations. The
decrease in international sales occurred in Europe, particularly in Germany,
Italy and France, which suffered from weaker economic conditions, and the
Philippines, which was affected by a five-week strike, offset partly by
increased volume in the Middle East. Sales in the U.S. increased as a result
of higher volumes in retail market channels, higher prices and a favorable
product sales mix.
Operating income of Plumbing Products, excluding the asset impairment
charge, decreased 46% to $22 million for the first quarter of 1996 from $41
million for the 1995 period. For international operations, operating income
declined primarily because of the weaker European markets, particularly in
Germany, and the effects of the Philippines strike. In the U.S., operating
income improved because of the higher sales, benefits of lower-cost product
sourcing and manufacturing cost improvements.
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Sales of Automotive Products for the first quarter of 1996 were $258
million, essentially the same as the sales in the first quarter of 1995 (with
little effect from foreign exchange). Unit volume of truck and bus production
in western Europe remained high and aftermarket sales were stable overall,
whereas trailer, export and Brazilian markets declined.
Operating income of $42 million for Automotive Products for the 1996
quarter, despite no growth in sales, remained at the same high level as the $43
million earned in the first quarter of 1995. This reflected productivity
improvements offsetting higher manufacturing costs.
FINANCIAL REVIEW
Interest expense decreased $5 million in the first quarter of 1996
compared to the year-earlier quarter primarily as a result of reduced debt
balances from application of the net proceeds from the initial public offering
of the Company's common stock in February 1995 together with lower overall
interest rates on debt outstanding under the Company's 1995 bank credit
agreement (the "1995 Credit Agreement"). Corporate costs were essentially the
same in the first quarter of both years.
The income tax provision for the first quarter of 1996 was $18
million, or 36.3% of pretax income (excluding the asset impairment charge on
which there is no tax benefit) compared with a provision of $19 million, or
41.6% of pretax income in the first quarter of 1995. Continued improvements in
U.S. income in 1996 enabled the Company to recognize previously unrecognized
tax benefits, resulting in a lower effective tax rate.
As a result of the redemption of debt in the first quarter of 1995
upon completion of a refinancing, the first quarter of 1995 included an
extraordinary charge of $30 million attributable to the write-off of
unamortized debt issuance costs, for which no tax benefit was available.
CASH FLOWS
Net cash used by operating activities, after cash interest paid of $15
million, was $2 million for the first quarter of 1996, compared with net cash
provided of $25 million for the similar period of 1995. The $27 million
decrease resulted primarily from timing differences on payments, especially for
income taxes. The Company made capital expenditures of $37 million for the
first quarter of 1996, including $2 million of investments in affiliated
companies compared with capital expenditures of $25 million in the first
quarter of 1995, including $5 million of investments in affiliated companies.
The principal financing activity during the first quarter of 1996 was a
scheduled debt repayment of $25 million.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had outstanding borrowings of $168
million under the Revolving Facilities. There was $323 million available under
the Revolving Facilities after reduction for borrowings and for $59 million of
letters of credit usage. In addition, at March 31, 1996, the Company's foreign
subsidiaries had $93 million available under overdraft facilities which can be
withdrawn by the banks at any time.
The 1995 Credit Agreement contains various covenants that limit
certain activities and transactions and require the Company to meet certain
financial tests. Certain other American Standard Inc. debt instruments also
contain financial tests and other covenants. The Company believes it is
currently in compliance with the covenants contained in the 1995 Credit
Agreement and other debt instruments.
As described in Note 5 of Notes to Consolidated Financial Statements
in the Company's Annual Report on Form 10-K for the year ended December 31,
1995, there are pending German Tax issues for the years 1984 through 1990.
There has been no change in the status of these issues since that report was
filed.
PART II. OTHER INFORMATION
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 March 31, 1996, the Company filed no reports
on Form 8-K.
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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 and Controller)
(also signing as Principal
Accounting Officer)
May 15, 1996
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AMERICAN STANDARD INC.
INDEX TO EXHIBITS
Exhibit No. Description
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(27) Financial Data Schedule
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