American Standard Reports Record Second-Quarter Sales, EPS
PISCATAWAY, N.J., July 16 -- American Standard Companies Inc. today announced record second-quarter earnings of $1.83 per diluted share, up 7 percent from second quarter last year. These earnings are consistent with the company's April estimate for the quarter of $1.78-$1.88. Sales were a record $2.265 billion, up 9 percent from a year ago. Net income rose to $133.9 million, up 6 percent.
"We once again delivered solid results despite a tough economy," said Fred Poses, chairman and chief executive officer. "All three business segments continued to outperform their markets, even as they faced challenging conditions, including the third year of declines in the North American commercial air conditioning equipment market, unseasonably cool weather in certain parts of the U.S., lower truck and bus production in Europe and North America, and the temporary impact of SARS.
"Our investments in new products and marketing programs are strengthening our competitive positions, while our productivity programs and additional cost-reduction actions continue to produce significant savings needed in the current price-sensitive commercial and consumer markets. All our marketing and productivity efforts have built a strong foundation for continued short-term performance and long-term growth.
"With today's lack of economic vitality, we are narrowing our earnings range for the year to $5.40-$5.50 per diluted share, an increase of 7-9 percent over 2002. With an improvement in the economy, we'd exceed the new range. Last quarter, we said we needed an improvement in economic conditions to reach the high end of our 2003 earnings estimate of $5.40-$5.80 per diluted share. For the third quarter, we anticipate earnings in the range of $1.60-$1.68," said Poses.
"We're well on our way to achieving our cash flow targets, which are net cash provided by operating activities of $650-$690 million and free cash flow of $410-$450 million. In addition, we expect to reduce debt to our previously announced target of $1.7 billion by year-end," he said.
In the second quarter, net cash provided by operating activities was $205.3 million. Free cash flow was $164.9 million, $14.6 million better than a year ago. Segment income was $263.6 million, flat with the prior year. Total operating margin for the quarter was 11.6 percent, down 1.1 percentage points. The company reduced interest expense by $2.5 million because of lower average debt. Debt now stands at $2 billion, down from $2.6 billion at the end of 1999. The tax rate was 31 percent, down from 33.3 percent a year ago.
The tables following the news release text provide financial details, including a reconciliation of net cash provided by operating activities before proceeds from the initial sale of receivables to free cash flow, as well as results adjusted to show the impact of foreign exchange on sales, segment income and operating margin.
SECOND-QUARTER BUSINESS HIGHLIGHTS
AIR CONDITIONING SYSTEMS AND SERVICES sales were $1.356 billion, up 3 percent over second quarter last year, driven by strong growth in U.S. residential and international commercial air conditioning equipment sales as well as commercial parts, service and solutions. The North American market for commercial equipment declined for the third year. Segment income was $179.9 million, down 1 percent. Productivity initiatives and residential volume growth overcame the impact of volume and price weakness in the commercial equipment part of the air conditioning business as well as cost escalations. Continued spending on marketing, advertising and new product programs decreased operating margin by 0.6 percentage points to 13.3 percent.
During the quarter, Air Conditioning Systems and Services received a "best buy" award from Consumers Digest magazine for two of its residential models and launched national television advertising campaigns for its Trane and American Standard brands. In addition, large commercial air conditioning contracts signed during the quarter included ones for Allen County (Indiana) Library, Atlanta (Georgia) Public Schools, Harlandale (Texas) Independent School District, Mall Plaza Norte (Chile), New South Wales (Australia) Department of Health, Progressive Insurance and Wells Fargo. The company also added nine global/national accounts.
BATH AND KITCHEN sales increased 11 percent to $568.8 million. Segment income was $35.7 million, down 17 percent compared with last year. Unfavorable product mix, spending on new products and marketing programs, expenses associated with the previously announced closure of a plant in Italy and price pressure caused the segment income decline, which was lessened by productivity initiatives and the resolution of previously reported isolated operating issues. Operating margin was 6.3 percent, down 2.1 percentage points.
"During the quarter, we resolved Bath and Kitchen's operating issues, and we absorbed the expenses of a plant closing," said Poses. "We're now working hard to improve margins in this business for both the short- and long-term. Our investments in new products and marketing are enhancing sales growth and brand position and, along with our productivity and cost-reduction actions, will help produce a better product mix and operating margin for the future."
During the quarter, Bath and Kitchen introduced America's Best(TM) Flushing System in the new Champion toilet at the largest U.S. industry trade show and began taking orders from wholesalers in June. With independent testing that validates its top flushing performance, the Champion is seeing positive early acceptance. The Sottini brand, launched at Lowe's at the beginning of the year, is now in 500 stores and is selling well. The Standard Collection(TM) received Home Magazine's top new product award that the company accepted with Home Depot. In Europe, Bath and Kitchen unveiled new designer lines and "total bathroom" suites at major trade shows in Spain and the U.K., started brand repositioning efforts in France with a product road show and press event, and rolled out a super-shower product line to showrooms throughout Greece. In China, Bath and Kitchen launched 130 new models, which expanded the lifestyle product line named after various U.S. cities. The interest generated in these new models partially offset the temporary market decline caused by SARS.
VEHICLE CONTROL SYSTEMS second-quarter sales were $340.5 million, up 30 percent over second quarter last year. Because of increased content per vehicle, improved after-market sales and continued expansion into new segments, the business continued to outperform truck and bus markets around the world. In addition, Vehicle Control Systems expanded its global sales penetration. Segment income was $48 million, up 25 percent from second quarter last year. The combination of higher volume, favorable foreign exchange and productivity gains outpaced typical pricing patterns and cost escalations as well as increased spending on new products. In addition, the significant strengthening of the Euro during the quarter reduced the margin on sales primarily from Vehicle Control Systems to the U.S.-based Meritor WABCO joint venture. As a result of these factors, operating margin fell 0.6 percentage points to 14.1 percent.
Starting in the fourth quarter, DAF, a leading European truck producer and a division of PACCAR, a world leader in commercial vehicles, will include WABCO's electronic braking system in its new heavy-duty trucks. In addition, WABCO won a contract to supply electronic control units for air suspension systems on BMW's new 5 Series of luxury automobiles, which start production next year.
PLEASE NOTE: American Standard Chairman and CEO Frederic Poses and Chief Financial Officer Peter D'Aloia will discuss the company's performance and provide guidance on a two-way conference call for financial analysts at 9:30 a.m. EDT today. Related financial charts, reconciliation between GAAP and non-GAAP financial measures, and certain other information to be discussed on the conference call are available on the company's Web site, www.americanstandard.com. Reporters and the public are invited to listen to the call, which will be broadcast on the Web site and archived for one year. For those unable to connect to the company's Web site, you may listen via telephone. The dial-in number is (913) 981-4910. Please call five to ten minutes prior to the scheduled start time. The number of telephone connections is limited. A replay of the conference call will be available from 1:30 p.m. EDT today until 11:30 p.m. EDT on July 23. For the replay, please dial (719) 457-0820. The replay access code is 425524.
Comments in this news release contain certain forward-looking statements, which are based on management's good faith expectations and belief concerning future developments. Actual results may differ materially from these expectations as a result of many factors, relevant examples of which are set forth in the company's 2002 Annual Report on Form 10-K and in the "Management's Discussion and Analysis" section of the company's Quarterly Reports on Form 10-Q. American Standard does not undertake any obligation to update such forward-looking statements.
American Standard is a global manufacturer with market leading positions in three businesses: air conditioning systems and services, sold under the Trane(R) and American Standard(R) brands for commercial, institutional and residential buildings; bath and kitchen products, sold under such brands as American Standard(R) and Ideal Standard(R); and vehicle control systems, including electronic braking and air suspension systems, sold under the WABCO(R) name to the world's leading manufacturers of heavy-duty trucks, buses, SUVs and luxury cars. The company employs approximately 60,000 people and has manufacturing operations in 29 countries. American Standard is included in the S&P 500.
Additional information is available at http://www.americanstandard.com/. U.S. callers can listen to the latest news release and other corporate information by dialing (888) ASD-NEWS.
American Standard Companies Inc.
Consolidated Statement of Operations
(Unaudited)
In millions Three Months Ended June 30,
except per share data
2003 2002
Sales
Air Conditioning Systems and Services $1,355.7 $1,311.9
Bath & Kitchen 568.8 512.0
Vehicle Control Systems 340.5 262.6
Total $2,265.0 $2,086.5
Segment income
Air Conditioning Systems and Services $179.9 $182.5
Bath & Kitchen 35.7 43.0
Vehicle Control Systems 48.0 38.5
Total 263.6 264.0
Equity in net income of unconsolidated
joint ventures 6.7 5.9
270.3 269.9
Interest expense 30.1 32.6
Corporate and other expenses 46.2 48.3
Income before income taxes 194.0 189.0
Income taxes 60.1 62.9
Net income $133.9 $126.1
Net income per common share:
Basic $1.86 $1.74
Diluted $1.83 $1.71
Average outstanding common shares:
Basic 71.9 72.5
Diluted 73.2 73.9
American Standard Companies Inc.
Consolidated Statement of Operations
(Unaudited)
In millions Six Months Ended June 30,
except per share data
2003 2002
Sales
Air Conditioning Systems and Services $2,439.4 $2,360.2
Bath & Kitchen 1,111.7 980.6
Vehicle Control Systems 664.5 507.6
Total $4,215.6 $3,848.4
Segment income
Air Conditioning Systems and Services $262.9 $264.7
Bath & Kitchen 70.8 81.9
Vehicle Control Systems 94.7 72.0
Total 428.4 418.6
Equity in net income of unconsolidated
joint ventures 11.2 11.4
439.6 430.0
Interest expense 60.3 66.0
Corporate and other expenses 92.8 89.5
Income before income taxes 286.5 274.5
Income taxes 88.8 91.4
Net income $197.7 $183.1
Net income per common share:
Basic $2.75 $2.53
Diluted $2.70 $2.48
Average outstanding common shares:
Basic 72.0 72.3
Diluted 73.3 73.7
American Standard Companies Inc.
Data Supplement Sheet
This Data Supplement Sheet includes information on backlog and information excluding the effect of foreign exchange translation on operating results. Approximately half of the company's business is outside the U.S., therefore changes in exchange rates can have a significant impact on results when reported in U.S. Dollars. Management believes that excluding these effects is helpful in assessing the overall performance of the business.
In millions Three Months Ended Six Months Ended
June 30, June 30,
Repor- Repor- % % Repor- Repor- % %
ted ted Chg Chg ted ted Chg Chg
vs. vs. vs. vs.
2003 2002 2002 Excl. 2003 2002 2002 Excl.
FX(1) FX(1)
Air Conditioning
Systems and
Services
Sales 1,355.7 1,311.9 3% 2% 2,439.4 2,360.2 3% 2%
Segment
Income 179.9 182.5 -1% -2% 262.9 264.7 -1% -1%
Operating
Margin 13.3% 13.9% -0.6 -0.5 10.8% 11.2% -0.4 -0.3
pts pts pts pts
Backlog 610 628 -3% -4%
Bath & Kitchen
Sales 568.8 512.0 11% 2% 1,111.7 980.6 13% 4%
Segment Income 35.7 43.0 -17% -26% 70.8 81.9 -14% -25%
Operating
Margin 6.3% 8.4% -2.1 -2.3 6.4% 8.4% -2.0 -2.3
pts pts pts pts
Vehicle Control Systems
Sales 340.5 262.6 30% 9% 664.5 507.6 31% 10%
Segment Income 48.0 38.5 25% 3% 94.7 72.0 32% 10%
Operating
Margin 14.1% 14.7% -0.6 -0.9 14.3% 14.2% 0.1 0.0
pts pts pts pts
Backlog 504 482 5% 2%
Total Company
Sales 2,265.0 2,086.5 9% 3% 4,215.6 3,848.4 10% 4%
Segment
Income 263.6 264.0 0% -5% 428.4 418.6 2% -4%
Operating
Margin 11.6% 12.7% -1.1 -1.0 10.2% 10.9% -0.7 -0.8
pts pts pts pts
(1) Excluding the impact of foreign exchange translation on operating
results
American Standard Companies Inc.
Consolidated Balance Sheet
(Unaudited)
In millions June 30, December 31,
2003 2002
Current Assets:
Cash and cash equivalents $181.0 $96.6
Accounts receivable 1,155.7 881.4
Inventories:
Finished products 551.3 487.2
Products in process 165.3 137.6
Raw materials 176.4 145.9
893.0 770.7
Future income tax benefits 54.9 48.7
Other current assets 277.2 217.0
Total Current Assets 2,561.8 2,014.4
Net facilities 1,455.1 1,430.1
Goodwill 1,059.5 1,012.8
Capitalized software 239.7 242.0
Debt issuance costs 23.7 26.5
Other assets 443.2 418.0
Total Assets $5,783.0 $5,143.8
Current Liabilities:
Short-term debt $69.5 $40.8
Accounts payable 777.6 601.6
Accrued payrolls 256.8 281.0
Current portion of warranties 127.7 118.0
Taxes on income 169.4 98.9
Other accrued liabilities 640.5 525.3
Total Current Liabilities 2,041.5 1,665.6
Long-Term Debt 1,912.6 1,918.4
Other Long-Term Liabilities
Reserve for post-retirement benefits 667.9 623.3
Long term portion of warranties 207.2 197.9
Deferred taxes on income 118.7 108.9
Other liabilities 389.7 399.9
Total Liabilities 5,337.6 4,914.0
Shareholders' Equity
Preferred stock, 2,000,000
shares authorized -- --
none issued and outstanding
Common stock $.01 par value,
200,000,000 shares 0.7 0.7
authorized; shares issued and
outstanding: 72,094,908 in 2003;
72,613,736 in 2002
Capital surplus 736.0 724.4
Unearned compensation (1.5) (2.3)
Treasury stock (583.8) (534.6)
Retained earnings 625.7 428.0
Foreign currency translation effects (255.5) (309.2)
Deferred gain/(loss) on hedge
contracts, net of tax (0.2) (2.0)
Minimum pension liability
adjustment, net of tax (76.0) (75.2)
Total Shareholders' Equity 445.4 229.8
Total Liabilities & Shareholders' Equity $5,783.0 $5,143.8
American Standard Companies Inc.
Reconciliation of Net Cash Provided (Used) By Operating Activities
Before Proceeds from Initial Sale of Receivables to Free Cash Flow
(Unaudited)
In millions Three Months Ended June 30,
2003 2002
Cash provided by operating activities:
Net Income $133.9 $126.1
Adjustments to reconcile net
income to net cash provided by
operating activities 71.4 60.9
Net cash provided by operating
activities before proceeds from
initial sale of receivables 205.3 187.0
Proceeds from initial sale of receivables -- 182.0
Net cash provided by operating activities 205.3 369.0
Other deductions or additions to
reconcile to Free Cash Flow:
Purchases of property, plant,
equipment and computer software (40.4) (42.9)
Proceeds from disposals of property -- 6.2
Free cash flow with proceeds from
initial sale of receivables 164.9 332.3
Proceeds from initial sale of receivables -- (182.0)
Free cash flow without proceeds from
initial sale of receivables $164.9 $150.3
Note: This statement reconciles net cash provided (used) by operating
activities before proceeds from initial sale of receivables to
free cash flow. Management uses free cash flow, which is
not defined by US GAAP, to measure the Company's operating
performance. Free cash flow is also one of several measures
used to determine incentive compensation for certain employees.
American Standard Companies Inc.
Reconciliation of Net Cash Provided (Used) By Operating Activities
Before Proceeds from Initial Sale of Receivables to Free Cash Flow
(Unaudited)
In millions Six Months Ended June 30,
2003 2002
Cash provided by operating activities:
Net Income $197.7 $183.1
Adjustments to reconcile net
income to net cash provided by
operating activities 47.0 (0.7)
Net cash provided by operating
activities before proceeds from
initial sale of receivables 244.7 182.4
Proceeds from initial sale of receivables -- 182.0
Net cash provided by operating activities 244.7 364.4
Other deductions or additions to
reconcile to Free Cash Flow:
Purchases of property, plant,
equipment and computer software (80.9) (75.2)
Proceeds from disposals of property 0.3 9.4
Free cash flow with proceeds from
initial sale of receivables 164.1 298.6
Proceeds from initial sale of receivables -- (182.0)
Free cash flow without proceeds from
initial sale of receivables $164.1 $116.6
Note: This statement reconciles net cash provided (used) by operating
activities before proceeds from initial sale of receivables to
free cash flow. Management uses free cash flow, which is not
defined by US GAAP, to measure the Company's operating
performance. Free cash flow is also one of several measures
used to determine incentive compensation for certain employees.
American Standard Companies Inc.
Reconciliation of Net Cash Provided (Used) By Operating Activities
Before Proceeds from Initial Sale of Receivables to Free Cash Flow
(Unaudited)
In millions Twelve Months Ended December 31,
2003 Estimate 2002
Net cash provided by operating
activities before proceeds from
initial sale of receivables $650.0 - 690.0 $542.2
Proceeds from initial
sale of receivables -- 81.4
Net cash provided by
operating activities 650.0 - 690.0 623.6
Other deductions or additions to
reconcile to Free Cash Flow:
Purchases of property, plant,
equipment and computer software (230.0 - 250.0) (212.0)
Proceeds from disposals of property 0 - 10.0 21.4
Proceeds from initial sale of receivables -- (81.4)
Free cash flow without proceeds from
initial sale of receivables $410.0 - 450.0 $351.6
Note: This statement reconciles net cash provided (used) by operating
activities before proceeds from initial sale of receivables to
free cash flow. Management uses free cash flow, which is not
defined by US GAAP, to measure the Company's operating
performance. Free cash flow is also one of several measures
used to determine incentive compensation for certain employees.