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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
/ / Transition Report 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, NEW JERSEY 08855-6820
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (908) 980-6000
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
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. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. (Not applicable; Registrant has outstanding no equity securities
required to be registered under the Securities Exchange Act of 1934.)
Aggregate market value of the voting stock (common stock) held by non-affiliates
of the Registrant: Not applicable; all of the voting stock of the Registrant is
owned by its parent, American Standard Companies Inc.
Number of shares outstanding of each of the Registrant's classes of common
stock, as of the close of business on March 11, 1996:
Common Stock, $.01 par value 1,000 Shares
Documents incorporated by reference: None
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (J) (1) (a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED
DISCLOSURE FORMAT.
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TABLE OF CONTENTS
(Reduced disclosure format)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I
Item 1. Business. 1
Item 2. Properties. 5
Item 3. Legal Proceedings. 6
Item 4. Not required under reduced disclosure format as contemplated by General
Instruction J to Form 10-K.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. 7
Item 6. Not required under reduced disclosure format as contemplated by General
Instruction J to Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (reduced disclosure format). 8
Item 8. Financial Statements and Supplementary Data. 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 31
PART III
Items 10, 11, 12, and 13 are not required under reduced disclosure
format as contemplated by General Instruction J to Form 10-K
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 31
</TABLE>
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PART I
ITEM 1. BUSINESS
American Standard Inc. (the "Company"), is a Delaware corporation incorporated
in 1929. All of its outstanding common stock is owned by American Standard
Companies Inc., a Delaware corporation that was formed in 1988 by Kelso &
Company, L.P. ("Kelso") to acquire American Standard Inc. Hereinafter, "American
Standard" or "the Company" will refer to the Company, to American Standard
Companies Inc. or to American Standard Inc., including its subsidiaries, as the
context requires.
American Standard is a globally-oriented manufacturer of high quality,
brand-name products in three major product groups: air conditioning systems (57%
of 1995 sales); bathroom and kitchen fixtures and fittings (24% of 1995 sales);
and braking and control systems for medium-sized and heavy trucks, buses,
trailers and utility vehicles (19% of 1995 sales). American Standard is a market
leader in each of these business segments in the principal geographic areas in
which it competes. The Company's brand names include TRANE(R) and AMERICAN
STANDARD(R) for air conditioning systems, AMERICAN STANDARD(R), IDEAL
STANDARD(R), STANDARD(R) and PORCHER(R) for plumbing products and WABCO(R) and
PERROT(R) for braking and related systems. The Company emphasizes
technologically advanced products such as air conditioning systems that utilize
energy-efficient compressors and environmentally-preferred refrigerants,
water-saving plumbing products and commercial vehicle braking and related
systems (including antilock braking systems, "ABS") utilizing electronic
controls. At December 31, 1995, American Standard had 102 manufacturing
facilities in 34 countries.
OVERVIEW OF BUSINESS SEGMENTS
American Standard operates three business segments: Air Conditioning Products,
Plumbing Products and Automotive Products.
AIR CONDITIONING PRODUCTS. American Standard is a leading U.S. manufacturer of
air conditioning systems for both domestic and export sales, and also
manufactures air conditioning systems outside the United States. Air
conditioning products are sold primarily under the TRANE(R) and AMERICAN
STANDARD(R) names by the Trane Company ("Trane"). Sales to the commercial and
residential markets accounted for approximately 75% and 25%, respectively, of
Trane's total sales in 1995. Approximately 60% of Trane's sales in 1995 was in
the replacement, renovation and repair markets which have been less cyclical
than the new residential and commercial construction markets. Management
believes that Trane is well positioned for growth because of its high quality,
brand-name products, significant existing market shares, the introduction of new
product features such as electronic controls, the expansion of its broad
distribution network, conversion to products utilizing environmentally-preferred
refrigerants and expansion of operations to developing market areas throughout
the world, principally the Asia-Pacific area and Latin America.
Air Conditioning Products began with the 1984 acquisition by the Company of the
Trane Company, a manufacturer and distributor of air conditioning products since
1913. In 1995 Trane, with revenues of $2,953 million, accounted for
approximately 57% of the Company's sales and 49% of its operating income.
Outside the United States, Trane derived 21% of its sales in 1995 from
manufacturing operations and 7% from U.S. exports.
Trane manufactures three general types of air conditioning systems. The first,
called "unitary," which is sold for residential and commercial applications, is
a factory-assembled central air conditioning system which generally encloses in
one or two units all the components to cool or
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heat, clean, dehumidify or humidify, and move air. The second, called "applied,"
is typically custom-engineered for commercial use and involves field
installation of several different components of the air conditioning system.
Trane is a world leader in both unitary and applied air conditioning products.
The third type, called "mini-split," is a small unitary air conditioning system,
generally for residential use, which operates without air ducts. Trane
manufactures and distributes mini-split units principally in the Far East and
Europe.
Product and marketing programs have been, and are being, developed to increase
penetration in the growing replacement, repair, and servicing businesses, in
which margins are generally higher than on sales of original equipment. Much of
the equipment sold in the fast-growing air conditioning markets of the 1960's
and 1970's is reaching the end of its useful life. Also, equipment sold in the
1980's is likely to be replaced earlier than originally expected with
higher-efficiency products recently developed to meet required efficiency
standards and to capitalize on the availability of environmentally-preferred
refrigerants.
At December 31, 1995, Air Conditioning Products had 31 manufacturing plants in 9
countries, employing approximately 19,100 people.
PLUMBING PRODUCTS. American Standard is a leading manufacturer in Europe, the
U.S. and a number of other countries of bathroom and kitchen fixtures and
fittings for the residential and commercial construction markets and retail
sales channels. Plumbing Products manufactures and distributes its products
under the AMERICAN STANDARD(R), IDEAL STANDARD(R), STANDARD(R) and PORCHER(R)
names. Of Plumbing Products' 1995 sales, 71% was derived from operations outside
the United States and 29% from within. Management believes that Plumbing
Products is well positioned for growth due to the high quality of its brand-name
products, significant existing market shares in a number of countries and the
expansion of existing operations in developing market areas throughout the world
(principally the Far East, Latin America and Eastern Europe).
In 1995 Plumbing Products, with revenues of $1,270 million, accounted for 24 %
of the Company's sales and 22 % of its operating income. Plumbing Products
derived approximately 71 % of its total 1995 sales from operations outside the
United States.
Of Plumbing Products' sales, 53% consists of vitreous china fixtures, 26%
consists of fittings (typically brass), 7% consists of bathtubs, and the
remainder consists of related plumbing products. Throughout the world these
products are generally sold through wholesalers and distributors and installed
by plumbers and contractors. In total the residential market accounts for
approximately 75% of Plumbing Products' sales, with the commercial and
industrial markets providing the remaining 25%.
Plumbing Products operates through four primary geographic groups: European
Plumbing Products, U.S. Plumbing Products, Americas International and the Far
East Group. Plumbing Products' fittings operations, the Worldwide Fittings
Group, which has primary responsibility for faucet technology, product
development and manufacturing, with manufacturing facilities in Germany,
Bulgaria, the U.S., and Mexico. Worldwide Fittings sales and operating results
are reported in the four primary geographic groups within which it operates.
European Plumbing Products, which sells products primarily under the brand names
IDEAL STANDARD(R) and PORCHER(R), manufactures and distributes bathroom and
kitchen fixtures and fittings through subsidiaries or joint ventures in Germany,
Italy, France, England, Greece, the Czech Republic, Spain, Portugal, and Egypt.
In November 1995 the Company acquired substantially all of the remaining
outstanding common shares and convertible bonds of
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Etablissement Porcher ("Porcher"), a French manufacturer and distributor of
plumbing products in which the Company previously had an ownership interest of
32.88%. The $25 million cost of the acquisition was funded with a borrowing
under the Company's revolving credit facilities. In addition $31 million of
Porcher debt was assumed. In 1995 Porcher had sales of $216 million.
U.S. Plumbing Products manufactures bathroom and kitchen fixtures and fittings,
selling under the brand names AMERICAN STANDARD(R) and STANDARD(R) in the United
States. Americas International manufactures bathroom and kitchen fixtures and
fittings, selling under the names AMERICAN STANDARD(R), IDEAL STANDARD(R), and
STANDARD(R) through its wholly owned operations in Mexico, Canada, and Brazil
and its majority-owned subsidiaries in Central America.
The Far East Group manufactures bathroom and kitchen fixtures and fittings,
selling under the names AMERICAN STANDARD(R), IDEAL STANDARD(R), and STANDARD(R)
through its wholly owned operations in South Korea, its majority-owned
operations in Thailand and the Philippines, and its manufacturing joint venture
in Indonesia and is developing a new joint venture in Vietnam. The Company is
also significantly expanding its operations in the PRC.
At December 31, 1995, Plumbing Products employed approximately 18,000 people
and, including affiliated companies, had 57 manufacturing plants in 24
countries.
AUTOMOTIVE PRODUCTS. Automotive Products ("WABCO") is a leading manufacturer,
primarily in Europe and Brazil, of braking and related systems for the
commercial and utility vehicle industry. Its most important products are
pneumatic braking systems and related electronic and other control systems
(including ABS) marketed under the WABCO(R) name for medium-size and heavy
trucks, tractors, buses, trailers and utility vehicles. WABCO supplies vehicle
manufacturers such as Mercedes-Benz, Volvo, Iveco (Fiat), RVI (Renault) and
Rover. Management believes that WABCO is well positioned to benefit from its
strong market positions in Europe and Brazil and increasing demand for ABS and
other sophisticated electronic control systems in a number of markets (including
the U.S. commercial market, where phase-in of ABS has been mandated beginning in
1997), as well as from the technological advances embodied in the Company's
products and its close relationships with a number of vehicle manufacturers.
In 1995 WABCO, with sales of $998 million, accounted for 19 % of the Company's
sales and 29% of its operating income. The Company believes that WABCO is a
worldwide technological leader in the heavy truck and bus braking industry.
Electronic controls, first introduced in ABS in the early 1980's, are
increasingly applied in other systems sold to the commercial vehicle industry.
WABCO's products are sold directly to vehicle and component manufacturers. Spare
parts are sold through both original equipment manufacturers and an independent
distribution network. Although the business is not dependent on a single or
related group of customers, sales of truck braking systems are dependent on the
demand for heavy trucks. Some of the Company's important customers are
Mercedes-Benz, Volvo, Iveco (Fiat), RVI (Renault) and Rover. Principal
competitors are Knorr, Robert Bosch, and Bendix.
Through 1995 the WABCO(R) ABS system, which the Company believes leads the
market, has been installed in approximately one million heavy trucks, buses, and
trailers worldwide since 1981. Annual sales volume in Europe has significantly
increased in recent years to approximately 175,000 units in 1995 and to 56,000
units annually in other markets, primarily the United States and Japan. In
addition, WABCO has developed electronically controlled pneumatic gear shifting
systems, electronically controlled air suspension systems, and automatic
climate-control and door-control systems for the commercial vehicle industry.
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WABCO and affiliated companies have 14 manufacturing facilities and 7 sales
organizations operating in 17 countries. Principal manufacturing operations are
in Germany, France, the United Kingdom, and Brazil. WABCO has joint ventures in
the United States with Rockwell International (Rockwell WABCO), in Japan with
Sanwa Seiki (SANWAB), in India with TVS Group (Clayton Sundaram) and in the PRC.
There is also a licensee in the PRC.
In January 1994 the Company acquired Perrot, a German brake manufacturer.
Through this acquisition the Company is able to offer complete brake systems for
trucks, buses and trailers, especially in the important and growing air-disc
brake business.
At December 31, 1995, WABCO employed approximately 5,700 people.
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ITEM 2. PROPERTIES
At December 31, 1995 the Company conducted its manufacturing activities through
102 plants in 34 countries, of which the principal facilities are as follows:
<TABLE>
<CAPTION>
BUSINESS
SEGMENT LOCATION MAJOR PRODUCTS MANUFACTURED AT LOCATION
------- -------- ---------------------------------------
<S> <C> <C>
Air Conditioning Clarksville, TN Commercial unitary air conditioning
Products Fort Smith, AK Commercial unitary air conditioning
La Crosse, WI Applied air conditioning systems
Lexington, KY Air handling products
Macon, GA Commercial air conditioning systems
Pueblo, CO Applied air conditioning systems
Rushville, IN Air handling products
Trenton, NJ Residential gas furnaces and air handlers
Tyler, TX Residential air conditioning
Waco, TX Water source heat pumps and air handling
products
Charmes, France Applied air conditioning systems
Epinal, France Applied air conditioning systems
Mirecourt, France Mini-splits and air handling products
Plumbing Products Salem, OH Enameled-steel fixtures and acrylic bathtubs
Tiffin, OH Vitreous china
Trenton, NJ Vitreous china
Toronto, Canada Vitreous china and enameled-steel fixtures
Hull, England Vitreous china and acrylic bathtubs
Middlewich, England Vitreous china
Dole, France Vitreous china and acrylic bathtubs
Neuss, Germany Vitreous china
Wittlich, Germany Brass plumbing fittings
Orcenico, Italy Vitreous china
Brescia, Italy Vitreous china
Mexico City, Mexico Vitreous china, water heaters
Monterrey, Mexico Brass plumbing fittings
Manila, Philippines Vitreous china
Seoul, South Korea Brass plumbing fittings
Bangkok, Thailand Vitreous china
Automotive Campinas, Brazil Braking equipment
Products Leeds, England Braking equipment
Claye-Souilly, France Braking equipment
Hanover, Germany Braking equipment
Mannheim, Germany Foundation brakes
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
The Company's U.S. operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the air, water and soil and establish standards for the
treatment, storage and disposal of solid and hazardous wastes. A number of the
Company's plants are in the process of making changes or modifications to comply
with such laws and regulations as well as undertaking response actions to
address soil and groundwater issues at certain of its facilities. The Company is
a party to a number of remedial actions under various federal and state
environmental laws and regulations that impose liability on companies to clean
up, or contribute to the cost of cleaning up, sites at which hazardous wastes or
materials were disposed or released, including approximately 30 proceedings
under the Comprehensive Environmental Response, Compensation and Liability Act
and similar state statutes in which the Company has been named a potentially
responsible party or a third party by a potentially responsible party.
Expenditures in 1993, 1994 and 1995 to evaluate and remediate such sites were
not material. On the basis of the Company's historical experience and
information currently available, the Company believes that these environmental
actions will not have a material adverse effect on its financial condition,
results of operations or liquidity.
Additional sites may be identified for environmental remediation in the future,
including properties previously transferred by the Company and with respect to
which the Company may have contractual indemnification obligations. The Company
cannot estimate at this time the ultimate aggregate costs of all remedial
actions because of (a) uncertainties surrounding the nature and application of
environmental regulations, (b) the Company's lack of information about
additional sites at which it may be listed as a potentially responsible party,
(c) the level of clean-up that may be required at specific sites and choices
concerning the technologies to be applied in corrective actions, (d) the number
of contributors and the financial capacity of others to contribute to the cost
of remediation at specific sites and (e) the time periods over which remediation
may occur.
American Standard Inc. is the defendant in a lawsuit brought by Entech Sales &
Service, Inc., on behalf of an alleged class of contractors engaged in the
service and repair of commercial air conditioning equipment. The suit, filed on
March 5, 1993 in the United States District Court for the Northern District of
Texas, alleges principally that the manner in which Air Conditioning Products
distributes repair service parts for its equipment violates the Federal
antitrust laws. It demands $680 million in damages (which would be subject to
trebling under the antitrust laws) and injunctive relief. American Standard Inc.
has filed an answer denying all claims of violation and is defending itself
vigorously. In July 1994, the district court denied class certification with
respect to two of the three violations alleged in the suit. These alleged
violations may now only be asserted by Entech on its own behalf. With respect to
the one claim that was certified as a class action, alleging a price fixing
conspiracy, management believes, on the basis of the facts known to it that the
claim is without merit. In management's opinion the litigation will not have any
material adverse effect on the financial position, cash flows, or results of
operations of the Company.
On May 31, 1994, the Company's Salem, Ohio plant received a Request for
Information Pursuant to the Clean Air Act from the U.S. Environmental Protection
Agency (Region 5). This request was fully complied with by July 22, 1994. During
the development of the response, American Standard noted several questions
concerning the status of certain air sources. On August 2, 1994, American
Standard Inc. proposed to enter consensual "Findings and Orders" with the Ohio
Environmental Protection Agency to resolve these questions. On November 17, 1995
the Company reached a verbal agreement with the Ohio EPA which would result in
the Company
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being assessed a penalty of $25,000. The Company expects to finalize this
agreement in the first half of 1996
On December 15, 1992 the Company, along with 15 other major manufacturers of
plumbing fittings, was sued in the Superior Court of the State of California,
County of San Francisco by the State of California. The same companies were sued
in a companion case, filed the same day, by the Natural Resources Defense
Council and a second environmental group. In each case, plaintiffs sought
injunctive relief, civil penalties and compensatory damages, alleging, inter
alia, that faucets sold by the parties discharged lead into drinking water in
excess of minimum standards allegedly established by Proposition 65. Both cases
were settled in November of 1995 for a minimal amount without any admission of
liability. The Company agreed that 95% of its fittings sold in California would
meet agreed upon lead leachate standards by the year 2000. The majority of the
Company's fittings already meet these standards and the Company foresees no
difficulties in meeting the settlement deadlines. No penalties, restitution or
other damages were paid.
For a discussion of German tax issues see Note 5 of Notes to Consolidated
Financial Statements (see Item 14(a) of Part IV hereof).
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's only issued and outstanding common equity, 1,000 shares of common
stock, $.01 par value, is owned by American Standard Companies Inc. There is no
established public trading market for these shares.
There were no dividends declared on the Company's common stock in 1994 or 1995.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (reduced disclosure format)
The following should be read in conjunction with the Company's consolidated
financial statements and notes thereto included elsewhere herein.
The Company achieved record sales and operating income in 1995, a
significant improvement compared with 1994, primarily as a result of higher
volumes, market share gains and improved margins, especially in the Air
Conditioning and Automotive Products segments. In the first quarter of 1995
American Standard Companies Inc. completed the initial public offering of its
common stock (the "IPO"), the net proceeds of which, totaling $281 million, were
used to repay indebtedness, contributing to lower interest expense for the year.
Consolidated sales for 1995 were $5,221 million, an increase of $764
million, or 17% (15% excluding the favorable effects of changes in foreign
exchange rates), from $4,457 million in 1994. Sales increased for all three
segments with gains of 19% for Air Conditioning Products, 4% for Plumbing
Products and 31% for Automotive Products.
Operating income for 1995 was $534 million, an increase of $179 million,
or 50% (46% excluding the favorable effects of foreign exchange), from $355
million in 1994. Operating income increased 42% for Air Conditioning Products,
8% for Plumbing Products and 150% for Automotive Products. Operating income for
1994 included charges of $26 million related to employee severance, the
consolidation of production facilities and the implementation of other cost
reduction actions. In 1994 the Company also provided $14 million for losses on
operating assets expected to be disposed of prior to the expiration of their
originally estimated useful lives. Excluding those special charges from 1994,
operating income in 1995 increased 35% (31% excluding favorable foreign exchange
effects) from an adjusted operating income of $395 million in 1994. Excluding
such special charges and the favorable effects of foreign exchange, operating
income increased 38% for Air Conditioning Products and 85% for Automotive
Products but declined by 11% for Plumbing Products.
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------
Sales:
<S> <C> <C> <C>
Air Conditioning Products $ 2,953 $ 2,480 $ 2,100
Plumbing Products 1,270 1,218 1,167
Automotive Products 998 759 563
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$ 5,221 $ 4,457 $ 3,830
======= ======= =======
Operating Income:
Air Conditioning Products $ 259 $ 182 (a) $ 133 (a)
Plumbing Products 120 111 (a) 108 (a)
Automotive Products 155 62 (a) 41 (a)
------- ------- -------
534 355 282
Interest expense (213) (259) (278)
Corporate items (94) (111)(b) (85)
------- ------- -------
Income (loss) before income taxes and extraordinary item $ 227 $ (15) $ (81)
======= ======= =======
</TABLE>
(a) Includes $40 million of special charges in 1994 (and the related tax
benefit of $7 million) applicable to consolidation of production
facilities, employee severance, other cost reduction actions, and a
provision for loss on the early disposition of certain assets; and $8
million in 1993 related to plant shutdowns and other cost reduction actions
as follows (in millions):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Air Conditioning Products $ 7 $ 5
Plumbing Products 19 1
Automotive Products 14 2
--- ---
$40 $ 8
=== ===
</TABLE>
(b) Includes a one-time special charge of $20 million in 1994 incurred in
connection with the amendment of certain agreements in anticipation of the
Company's initial public stock offering.
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Sales of Air Conditioning Products increased 19% (with little effect from
foreign exchange) to $2,953 million for 1995 from $2,480 million for 1994, as a
result of significant sales gains in the U.S. and expanding international sales.
Commercial markets account for approximately 75% of Air Conditioning Products'
total sales. Over 60% of total sales is to the replacement, renovation and
repair markets.
Operating income of Air Conditioning Products increased 42% to $259
million in 1995 from $182 million in 1994. The increase was attributable
primarily to the effects of higher volumes in both U.S. and international
operations and further reflects that 1994 included special charges of $7 million
related to the consolidation of production facilities, employee severance and
other cost reduction actions.
Sales of Plumbing Products increased 4% (with little overall effect from
foreign exchange) to $1,270 million in 1995 from $1,218 million in 1994, as
sales improved 1% for international operations and 12% for U.S. operations. The
sales gain for international operations was primarily attributable to volume and
price gains in Italy and to a lesser extent in Greece and the United Kingdom
("U.K."), partly offset by lower sales in Germany, France, Canada and Mexico as
a result of weak economic conditions in those countries. Sales in the U.S.
increased because of improved markets and expanded distribution through retail
sales channels. A basic shift from the wholesale distribution channel to the
retail sales channel has been growing in recent years, a trend the Company
believes will continue and lead to increased sales because of strong product and
brand-name recognition. Retail markets accounted for 26% of total 1995 U.S.
plumbing products sales, up from 24% in 1994.
Operating income of Plumbing Products was $120 million for 1995 compared
with $111 million for 1994, an increase of 8% (4% excluding foreign exchange
effects), because of improved results in the U.S., reduced by lower operating
income for international operations. In 1994 operating income for U.S.
operations included a provision of $14 million related to certain assets that
will be disposed of prior to the expiration of their originally estimated useful
lives. Overall Plumbing Products' results were also negatively affected in 1994
by a provision of $5 million related to employee severance and other cost
reduction actions. Excluding such provisions and the effects of foreign exchange
from 1994, 1995 operating income would have decreased 11% from 1994. The
decrease in operating income for international operations in 1995 was
principally due to the aforementioned market weakness in Germany, France, Canada
and Mexico, start-up expenses of new operations in the Far East, operating
difficulties in the Czech Republic and lower profitability in Brazil and Korea.
In addition, because Italian and U.K. operations purchase products from Germany,
the strength of the Deutschemark against Italian and U.K. currencies resulted in
Italian and U.K. product cost increases that could not be fully recovered
through pricing. Operating results in the U.S. improved substantially, to near
break even, due to higher sales and lower-cost sourcing from expanded facilities
in Mexico, partly offset by costs related to the realignment of U.S.
manufacturing operations.
Sales of Automotive Products for 1995 were $998 million, an increase of
$239 million, or 31% (20% excluding the favorable effects of foreign exchange),
from $759 million in 1994, due to higher volume, partly offset by the effects of
lower prices on electronic products. Unit volume of truck and bus production in
Western Europe and aftermarket sales improved 23% and 16%, respectively, in
1995. Sales volumes were significantly higher in all markets for commercial
vehicle braking and other control systems and in the U.K. for the growing
utility vehicle business in that country. In Brazil demand also increased, as
truck production grew 11% over the prior year.
Operating income for Automotive Products was $155 million in 1995, an
increase of 150% (85% excluding both the favorable effects of foreign exchange
and special charges of $14 million in 1994 related to employee severance and the
consolidation of production facilities). This increase was primarily
attributable to the substantially higher sales volume as well as higher margins
achieved through implementation of manufacturing process improvements, a reduced
salaried workforce, productivity gains and other cost reduction actions.
Interest expense decreased $46 million in 1995 compared with 1994 because
of reduced debt (due to the application of the net proceeds from the IPO and
cash flow) together with the effect of lower overall interest rates. Corporate
items in 1994 included a special charge of $20 million paid in connection with
the amendment of certain agreements in anticipation of the IPO. Excluding that
special charge, corporate items increased modestly in 1995 because of higher
accretion expense related to postretirement benefits, partly offset by higher
equity in net income of unconsolidated joint ventures.
The income tax provision for 1995 was $85 million at an effective income
tax rate of 37.5% on income (before income
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taxes and extraordinary item) of $227 million. In 1994 the income tax provision
was $62 million, despite a loss (before income taxes and extraordinary item) of
$15 million. As a result of higher levels of taxable income in the U.S. in 1995
and expected in 1996, the Company was able to recognize previously unrecognized
tax benefits. The 1994 provision reflected the taxes payable on profitable
foreign operations, while tax benefits were not available to offset losses on
U.S. operations. The provision for 1994 was adversely affected by less favorable
tax treatment with respect to certain foreign items, particularly in Germany.
See Note 5 of Notes to Consolidated Financial Statements.
As a result of the redemption of debt in 1995 and 1994 with proceeds of
refinancings, those years included extraordinary charges of $30 million and $9
million, respectively (including call premiums, the write-off of unamortized
debt issuance costs), on which no tax benefits were recorded.
In the first quarter of 1995 the Company completed the 1995 Refinancing
begun in the fourth quarter of 1994 consisting of the October Borrowing, the IPO
and the 1995 Credit Agreement (see Note 8 of Notes to Consolidated Financial
Statements for a description and definitions). The October Borrowing (totaling
$325 million) was used primarily to redeem $317 million of high interest rate
bonds with lower-rate bank debt; the net proceeds of the IPO (totaling $281
million) were used to repay indebtedness; and the proceeds of the 1995 Credit
Agreement (which provided a secured, multi-currency, multi-borrower facility
aggregating $1.0 billion) replaced outstanding borrowings under the Company's
previous bank credit agreement, including the October Borrowing.
RECENTLY ISSUED ACCOUNTING STANDARD
In March 1995 the FASB issued 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. The Company will adopt FAS 121 in the first
quarter of 1996 and is in the process of accumulating the necessary data but has
not completed all of the analyses required. FAS 121 requires companies to review
long-lived assets, including related goodwill, for impairment at the lowest
level for which there are identifiable, independently generated cash flows.
Events and circumstances in some operating units, primarily in Canada, Mexico
and France, indicate that the assets and the related goodwill might be impaired.
Based upon preliminary indications, the Company believes that it will incur a
non-cash charge of about $200 million.
10
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The accompanying consolidated balance sheet at December 31, 1995 and 1994, and
related consolidated statements of operations, stockholder's deficit and cash
flows for the years ended December 31, 1995, 1994 and 1993, have been prepared
in conformity with generally accepted accounting principles, and the Company
believes the statements set forth a fair presentation of financial condition and
results of operations. The Company believes that the accounting systems and
related controls which it maintains are sufficient to provide reasonable
assurance that the financial records are reliable for preparing financial
statements and maintaining accountability for assets. The concept of reasonable
assurance is based on the recognition that the cost of a system of internal
control must be related to the benefits derived and that the balancing of those
factors requires estimates and judgment. Reporting on the financial affairs of
the Company is the responsibility of its principal officers, subject to audit by
independent auditors who are engaged to express an opinion on the Company's
financial statements. The Board of Directors has an Audit Committee of outside
Directors which meets periodically with the Company's financial officers,
internal auditors and the independent auditors and monitors the accounting
affairs of the Company.
American Standard Inc.
February 26, 1996
11
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
American Standard Inc.
We have audited the accompanying consolidated balance sheet of American Standard
Inc. as of December 31, 1995 and 1994, and the related consolidated statements
of operations, stockholder's deficit, and cash flows for each of the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Standard
Inc. at December 31, 1995 and 1994, and the consolidated results of its
operations and its consolidated cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
New York, New York
February 26, 1996
12
<PAGE> 15
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
American Standard Inc. 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31, (Dollars in thousands)
<S> <C> <C> <C>
SALES $ 5,221,476 $ 4,457,465 $ 3,830,462
----------- ----------- -----------
Costs and expenses:
Cost of sales 3,887,024 3,377,271 2,902,562
Selling and administrative expenses 853,783 778,550 692,229
Other expense 40,489 57,381 38,281
Interest expense 213,326 259,437 277,860
----------- ----------- -----------
4,994,622 4,472,639 3,910,932
----------- ----------- -----------
Income (loss) before income taxes and extraordinary item 226,854 (15,174) (80,470)
INCOME TAXES 85,070 62,512 36,165
----------- ----------- -----------
Income (loss) before extraordinary item 141,784 (77,686) (116,635)
Extraordinary loss on retirement of debt (30,129) (8,735) (91,932)
----------- ----------- -----------
Net income (loss) 111,655 (86,421) (208,567)
PREFERRED DIVIDEND -- -- (8,624)
----------- ----------- -----------
Net income (loss) applicable to common shares $ 111,655 $ (86,421) $ (217,191)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 16
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
American Standard Inc. 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
At December 31, (Dollars in thousands except share data)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 88,704 $ 92,749
Accounts receivable, less allowance for doubtful accounts - 1995, $27,330; 1994, $19,569 771,024 595,239
Inventories 362,340 323,220
Future income tax benefits 29,645 22,379
Other current assets 43,213 30,956
----------- -----------
Total current assets 1,294,926 1,064,543
Facilities, at cost, net of accumulated depreciation 924,492 812,684
Other assets
Goodwill, net of accumulated amortization - 1995, $249,410; 1994, $208,973 1,081,622 1,053,042
Debt issuance costs, net of accumulated amortization - 1995, $8,638; 1994, $23,928 39,267 64,095
OTHER 179,340 161,754
----------- -----------
$ 3,519,647 $ 3,156,118
=========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities
Loans payable to banks $ 240,040 $ 70,271
Current maturities of long-term debt 72,908 141,640
Accounts payable 438,170 350,489
Accrued payrolls 171,378 140,297
Other accrued liabilities 328,138 319,174
Taxes on income 45,968 46,822
----------- -----------
Total current liabilities 1,296,602 1,068,693
Long-term debt
1,770,098 2,152,291
Other long-term liabilities
Reserve for postretirement benefits 482,398 437,708
Deferred tax liabilities 44,761 37,650
Other 305,341 235,976
----------- -----------
Total liabilities 3,899,200 3,932,318
Commitments and contingencies
Stockholder's deficit
Preferred stock, Series A, $.01 par value, 1,000 shares issued and outstanding -- --
Common stock, $.01 par value, 1,000 shares authorized,
issued and outstanding -- --
Capital surplus
519,866 214,634
Accumulated deficit (724,769) (836,424)
Foreign currency translation effects (174,650) (151,721)
Minimum pension liability adjustment -- (2,689)
-----------
Total stockholder's deficit (379,553) (776,200)
----------- -----------
$ 3,519,647 $ 3,156,118
=========== ===========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 17
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
American Standard Inc. 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, (Dollars in thousands)
<S> <C> <C> <C>
Cash provided (used) by:
Operating activities:
Income (loss) before extraordinary item $ 141,784 $ (77,686) $ (116,635)
Depreciation (including asset loss provision in 1994) 109,999 122,944 106,041
Amortization of goodwill 33,396 31,472 30,807
Non-cash interest 63,930 67,837 76,492
Non-cash stock compensation 29,014 28,479 25,679
Changes in assets and liabilities:
Accounts receivable (124,482) (69,991) (48,680)
Inventories 8,236 13,092 47,321
Accounts payable and accrued payrolls 53,971 63,413 40,124
Postretirement benefits 33,531 21,290 22,687
Other long-term liabilities 22,419 32,795 13,271
Other, net (24,092) 22,941 3,734
----------- ----------- -----------
Net cash provided by operating activities 347,706 256,586 200,841
----------- ----------- -----------
Investing activities:
Purchases of property, plant and equipment (164,193) (105,741) (90,474)
Investments in affiliated companies (42,395) (23,971) (7,556)
Proceeds from disposals of property, plant and equipment 19,428 14,783 4,003
Other 4,055 (2,071) 4,514
----------- ----------- -----------
Net cash used by investing activities (183,105) (117,000) (89,513)
----------- ----------- -----------
Financing activities:
Capital contribution from parent 270,004 -- --
Loan from parent 4,823 -- --
Minority partners' contributions to PRC venture 26,246 -- --
Proceeds from issuance of long-term debt 469,776 336,160 1,405,557
Repayments of long-term debt, including redemption premiums (1,020,004) (439,762) (1,427,989)
Net change in revolving credit facilities 124,768 30,816 7,000
Net change in other short-term debt (18,312) (10,044) (61,600)
Purchases of parent company common stock (10,989) (16,927) (12,194)
Financing costs and other (13,477) (2,441) (76,762)
----------- ----------- -----------
Net cash used by financing activities (167,165) (102,198) (165,988)
Effect of exchange rate changes on cash and cash equivalents (1,481) 2,124 (3,652)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (4,045) 39,512 (58,312)
Cash and cash equivalents at beginning of period 92,749 53,237 111,549
----------- ----------- -----------
Cash and cash equivalents at end of period $ 88,704 $ 92,749 $ 53,237
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 18
CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIT
American Standard Inc.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
(Dollars in thousands) Foreign
Currency
Capital Accumulated Translation
Surplus Deficit Effects
<S> <C> <C> <C>
Balance at December 31, 1992 $ 210,409 $(541,436) $ (86,872)
Net loss -- (208,567) --
American Standard Companies Inc.
common stock repurchased (12,869) -- --
Capital contribution from parent 5,313 -- --
Excess of value over cost of ESOP shares
allocated to employees 17,094 -- --
Stock dividend on exchange-
able preferred stock (8,624) -- --
Issuance of Series A Preferred Stock 10 -- --
Foreign currency translation -- -- (62,348)
--------- --------- ---------
Balance at December 31, 1993 211,333 (750,003) (149,220)
Net loss -- (86,421) --
American Standard Companies Inc.
common stock repurchased (16,761) -- --
Capital contribution from parent 4,925 -- --
Excess of value over cost of ESOP shares
allocated to employees 15,137 -- --
Foreign currency translation -- -- (2,501)
--------- --------- ---------
Balance at December 31, 1994 214,634 (836,424) (151,721)
Net income -- 111,655 --
American Standard Companies Inc.
common stock repurchased (6,877) -- --
Capital contribution of IPO
proceeds from parent 268,993 -- --
Other capital contributions from parent,
principally related to ESOP 43,116 -- --
Foreign currency translation -- -- (22,929)
--------- --------- ---------
Balance at December 31, 1995 $ 519,866 $(724,769) $(174,650)
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE COMPANY
American Standard Inc. (the "Company") is a Delaware corporation incorporated in
1929. All of its outstanding common stock is owned by American Standard
Companies Inc., a Delaware corporation that was formed in 1988 by Kelso and
Company, L.P. ("Kelso") to effect the acquisition of American Standard Inc. For
financial statement purposes the acquisition has been accounted for under the
purchase method. Hereinafter, "American Standard" or "the Company" will refer to
the Company, American Standard Companies Inc., or to American Standard Inc.,
including its subsidiaries, as the context requires.
American Standard is a global manufacturer of high quality, brand-name
products in three major product groups: air conditioning systems, bathroom and
kitchen fixtures and fittings; and braking and control systems for medium-sized
and heavy trucks, buses, trailers and utility vehicles. Information on the
Company's operations by segment and geographic area is included on pages 8, 28
and 29 of this report.
NOTE 2. ACCOUNTING POLICIES
Financial Statement Presentation -- The consolidated financial statements
include the accounts of majority-owned subsidiaries; intercompany transactions
are eliminated. Investments in unconsolidated joint ventures are included at
cost plus the Company's equity in undistributed earnings. Certain amounts in the
financial statements and notes thereto for 1994 and 1993 have been reclassified
to conform with the 1995 presentation.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The most
significant estimates included in the preparation of the financial statements
are related to post-retirement benefits, income taxes, warranties and asset
lives.
Foreign Currency Translation -- Adjustments resulting from translating foreign
functional currency assets and liabilities into U.S. dollars are recorded in a
separate component of stockholder's equity. Gains or losses resulting from
transactions in other than the functional currency are reflected in the
Consolidated Statement of Operations, except for transactions which hedge net
investments in a foreign entity and intercompany transactions of a long-term
investment nature. For operations in countries that have hyper-inflationary
economies, net income includes gains and losses from translating assets and
liabilities at year-end rates of exchange, except for inventories and
facilities, which are translated at historical rates.
The losses from foreign currency transactions and translation losses in
countries with hyper-inflationary economies reflected in expense were $4.5
million in 1995, $9.9 million in 1994 and $21.9 million in 1993.
Revenue Recognition -- Sales are recorded when shipment to a customer occurs.
Cash Equivalents -- Cash equivalents include all highly liquid investments with
a maturity of three months or less when purchased.
Inventories -- Inventory costs are determined principally by the use of the
last-in, first-out (LIFO) method, and are stated at the lower of such cost or
realizable value.
Facilities -- The Company capitalizes costs, including interest during
construction, of fixed asset additions, improvements, and betterments that add
to productive capacity or extend the asset life. Maintenance and repair
expenditures are charged against income. Significant investment grants are
amortized into income over the period of benefit.
Goodwill -- Goodwill is being amortized over 40 years. The carrying value of
goodwill for each business segment is reviewed if the facts and circumstances,
such as significant declines in sales, earnings or cash flows or material
adverse changes in the business climate, suggest that it may be impaired. If any
impairment is indicated as a result of such reviews, the Company would measure
it using techniques such as comparing the undiscounted cash flow of the business
to its book value including goodwill or by obtaining appraisals of the related
business.
17
<PAGE> 20
Impact of Recently Issued Accounting Standards -- In March 1995 the FASB issued
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.
See "Recently Issued Accounting Standard" in Management's Discussion and
Analysis.
Debt Issuance Costs -- The costs related to the issuance of debt are capitalized
and amortized to interest expense using the effective interest method over the
lives of the related debt.
Warranties -- The Company provides for estimated warranty costs at the time of
sale. Revenues from the sales of extended warranty contracts are deferred and
amortized on a straight-line basis over the terms of the contracts. Warranty
obligations beyond one year are included in other long-term liabilities.
Postretirement Benefits -- Postretirement pension benefits are provided for
substantially all employees of the Company, both in the United States and
abroad. In the United States the Company also provides various postretirement
health care and life insurance benefits for certain of its employees. Such
benefits are accounted for on an accrual basis using actuarial assumptions.
Depreciation -- Depreciation and amortization are computed on the straight-line
method based on the estimated useful life of the asset or asset group.
Research and Development Expenses -- Research and development costs are expensed
as incurred. The Company expended approximately $133 million in 1995, $123
million in 1994, and $114 million in 1993 for research activities and product
development and for product engineering. Expenditures for research and product
development only were $49 million, $44 million, and $47 million in the
respective years.
Income Taxes -- Deferred income taxes are determined on the liability method,
and are recognized for all temporary differences between the tax bases of assets
and liabilities and their reported amounts in the financial statements. No
provision is made for U.S. income taxes applicable to undistributed earnings of
foreign subsidiaries that are indefinitely reinvested.
Advertising Expense -- The cost of advertising is expensed as incurred. The
Company incurred $92 million, $84 million and $76 million of advertising costs
in 1995, 1994 and 1993, respectively.
Financial Instruments with Off-Balance-Sheet Risk -- The Company from time to
time enters into agreements to reduce its foreign currency and interest rate
risks. Gains and losses from underlying rate changes are included in income
unless the contract hedges a net investment in a foreign entity, a firm
commitment, or related debt instrument, in which case gains and
18
<PAGE> 21
losses are deferred as a component of foreign currency translation effects in
stockholder's equity or included as a component of the transaction. At December
31, 1995 and 1994, the Company did not have material foreign currency or
interest rate agreements outstanding.
Stock Based Compensation -- American Standard Companies Inc. grants stock
options for a fixed number of shares to employees with an exercise price equal
to the fair value of the shares at the date of grant. American Standard
Companies Inc. accounts for stock option grants in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees, and intends to continue this
method in the future. Accordingly, American Standard Companies Inc. recognizes
no compensation expense for the stock option grants.
NOTE 3. OTHER EXPENSE
Other income (expense) was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------
Year Ended December 31, (Dollars in millions)
<S> <C> <C> <C>
Interest income $ 8.9 $ 8.2 $ 8.5
Royalties 4.1 3.5 2.6
Equity in net income (loss)
of unconsolidated
joint ventures 7.1 4.0 (0.1)
Minority interest (12.2) (13.3) (14.0)
Accretion expense (36.5) (26.1) (30.5)
Other, net (a) (11.9) (33.7) (4.8)
------- ------- -------
$ (40.5) $ (57.4) $ (38.3)
======= ======= =======
</TABLE>
(a)The 1994 amount includes a one-time special charge of $20 million incurred in
connection with the amendment of certain agreements in anticipation of the
initial public offering.
NOTE 4. POSTRETIREMENT BENEFITS
The Company sponsors postretirement pension benefit plans covering substantially
all employees, including an Employee Stock Ownership Plan (the "ESOP") for the
Company's U.S. salaried employees and certain U.S. hourly employees. The ESOP is
an individual account, defined contribution plan. As a result of the IPO (as
defined herein)in the first quarter of 1995, the valuation of ESOP shares has
been based on the closing price for shares of American Standard Companies Inc.'s
common stock quoted on the New York Stock Exchange. Through December 31, 1994,
the valuation of the ESOP shares had been determined by independent appraisals.
By December 31, 1994, all of the common stock initially acquired by the ESOP was
allocated to the accounts of eligible employees (primarily through basic
allocations of 3% of covered compensation and a matching Company contribution of
up to 6% of covered compensation invested in the Company's 401(k) savings plan
by employees). In 1995 the Company funded basic and matching allocations to the
ESOP accounts totaling $31.1 million (including $4.6 million accrued at December
31, 1994) with shares of common stock of American Standard Companies Inc. which
were contributed to the Company. The Company intends to fund the ESOP in future
years through contributions of cash or shares of American Standard Companies
Inc.'s common stock.
Benefits under defined benefit pension plans on a worldwide basis are
generally based on years of service and employees' compensation during the last
years of employment. In the United States the Company also provides various
postretirement health care and life insurance benefits for certain of its
employees. Funding decisions are based upon the tax and statutory considerations
in each country. Accretion expense is the implicit interest cost associated with
amounts accrued and not funded and is included in "other expense". At December
31, 1995, funded plan assets related to pensions were held primarily in fixed
income and equity funds. Postretirement health and life insurance benefits are
funded as incurred.
19
<PAGE> 22
The Company's postretirement plans' funded status and amounts recognized
in the balance sheet at December 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1995 1995
- ----------------------------------------------------------------------------------------------------
(Dollars in millions) Assets in Accumulated
Excess of Benefit Health and
Accumulated Obligations Life
Benefit in Excess of Insurance
Obligations Assets Benefits
Actuarial present value of benefit obligations:
<S> <C> <C> <C>
Vested $ 124.8 $ 613.5 $ --
Non-vested 2.6 44.2 --
-------- -------- --------
Accumulated benefit obligations 127.4 657.7 --
Additional amounts related to projected pay increases 25.9 39.4 --
-------- -------- --------
Total projected benefit obligations 153.3 697.1 186.9
-------- -------- --------
Assets and book reserves relating to such benefits:
Market value of funded assets 184.7 325.9 --
Reserve (asset) for postretirement benefits net of
recognized overfunding (39.6) 361.3 161.0
Additional minimum liability -- 9.7 --
-------- -------- --------
145.1 696.9 161.0
-------- -------- --------
Assets and book reserves in excess of (less than)
projected benefit obligations $ (8.2) $ (.2) $ (25.9)
======== ======== ========
Consisting of:
Unrecognized prior services benefit (cost) $ (9.7) $ (5.8) $ 9.8
Unrecognized net gain (loss) from changes in
actuarial assumptions and experience 1.5 5.6 (35.7)
Pension liability adjustment to stockholder's deficit -- -- --
-------- -------- --------
$ (8.2) $ (.2) $ (25.9)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1994 1994 1994
- ---------------------------------------------------------------------------------------------------
(Dollars in millions) Assets in Accumulated
Excess of Benefit Health and
Accumulated Obligations Life
Benefit in Excess Insurance
Obligations of Assets Benefits
Actuarial present value of benefit obligations:
<S> <C> <C> <C>
Vested $ 106.8 $ 528.9 $ --
Non-vested 5.1 29.1 --
-------- -------- --------
Accumulated benefit obligations 111.9 558.0 --
Additional amounts related to projected pay increases 15.8 34.1 --
-------- -------- --------
Total projected benefit obligations 127.7 592.1 160.5
-------- -------- --------
Assets and book reserves relating to such benefits:
Market value of funded assets 160.5 271.4 --
Reserve (asset) for postretirement benefits net of
recognized overfunding (37.6) 309.8 158.7
Additional minimum liability -- 15.5 --
-------- -------- --------
122.9 596.7 158.7
-------- -------- --------
Assets and book reserves in excess of (less than)
projected benefit obligations $ (4.8) $ 4.6 $ (1.8)
======== ======== ========
Consisting of:
Unrecognized prior services benefit (cost) $ (8.0) $ .7 $ 10.7
Unrecognized net gain (loss) from changes in
actuarial assumptions and experience 3.2 1.2 (12.5)
Pension liability adjustment to stockholder's deficit -- 2.7 --
-------- -------- --------
$ (4.8) $ 4.6 $ (1.8)
======== ======== ========
</TABLE>
At December 31, 1995, the projected benefit obligation related to health
and life insurance benefits for active employees was $71.9 million and for
retirees was $115.0 million.
For certain plans, the additional minimum liability recorded by the
Company as part of its reserve for postretirement benefits was $9.7 million at
December 31, 1995 ($15.5 million at December 31, 1994). The additional minimum
liability is the excess of the accumulated benefit obligation over plan assets
and accumulated benefit provisions. In connection with providing for the
additional minimum liability, an intangible asset was recorded, to the extent of
unrecognized prior service costs, which amounted to $9.7 million at December 31,
1995 ($12.8 million at December 31, 1994). The net charge in stockholder's
deficit was zero at December 31, 1995 ($2.7 million at December 31, 1994).
20
<PAGE> 23
The projected benefit obligation for postretirement benefits was
determined using the following assumptions:
<TABLE>
<CAPTION>
1995 1995 1994 1994
- --------------------------------------------------------------------------------------
Domestic Foreign Domestic Foreign
<S> <C> <C> <C> <C>
Discount rate 7.00% 4.25%-8.25% 8.25% 5.75%-9.25%
Long-term rate of inflation 2.80% 1.55%-5.05% 2.80% 1.75%-5.25%
Merit and promotion increase 1.70% 1.70% 1.70% 1.70%
Rate of return on plan assets 9.00% 6.00%-9.50% 8.50% 7.25%-8.35%
</TABLE>
The weighted-average annual assumed rate of increase in the health care
cost trend rate is 8% for 1996 and is assumed to decrease gradually to 5% for
1999 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example, a
change in the assumed rate of one percentage point for each future year would
change the accumulated postretirement benefit obligation as of December 31,
1995, by $13.5 million and the annual postretirement cost by $1.6 million.
Total postretirement costs were:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------
Year Ended December 31, (Dollars in millions)
<S> <C> <C> <C>
Pension benefits $ 48.3 $ 35.9 $ 37.5
Health and life
insurance benefits 15.5 16.3 17.8
------- ------- -------
Defined benefit plan cost 63.8 52.2 55.3
Defined contribution
plan cost, principally ESOP 27.4 24.7 22.4
------- ------- -------
Total postretirement cost,
including accretion expense $ 91.2 $ 76.9 $ 77.7
======= ======= =======
</TABLE>
Postretirement cost had the following components:
<TABLE>
<CAPTION>
1995 1995 1994 1994 1993 1993
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, (Dollars in millions) Health & Health & Health &
Pension Life Ins. Pension Life Ins. Pension Life Ins.
Benefits Benefits Benefits Benefits Benefits Benefits
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits earned during the period $ 24.6 $ 3.3 $ 23.6 $ 3.8 $ 20.1 $ 3.4
Interest cost on the projected benefit obligation 58.1 12.8 47.0 12.3 50.6 14.1
Less assumed return on plan assets:
Actual loss (return) on plan assets (107.1) -- 13.0 -- (78.8) --
Excess (shortfall) deferred 69.7 -- (49.5) -- 42.9 --
-------- ------- ------- ------- ------- -------
(37.4) -- (36.5) -- (35.9) --
Other, including amortization of prior service cost 3.0 (.6) 1.8 .2 2.7 .3
-------- ------- ------- ------- ------- -------
Defined benefit plan cost $ 48.3 $ 15.5 $ 35.9 $ 16.3 $ 37.5 $ 17.8
======== ======= ======= ======= ======= =======
Accretion expense reclassified to "other expense" $ 23.7 $ 12.8 $ 13.8 $ 12.3 $ 16.4 $ 14.1
======== ======= ======= ======= ======= =======
</TABLE>
21
<PAGE> 24
NOTE 5. INCOME TAXES
The Company's income (loss) before income taxes and extraordinary item, and the
applicable provision (benefit) for income taxes were:
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------
Year Ended December 31, (Dollars in millions)
<S> <C> <C> <C>
Income (loss) before income taxes
and extraordinary item:
Domestic $ -- $ (157.0) $ (168.4)
FOREIGN 226.9 141.8 87.9
Pre-tax income (loss) $ 226.9 $ (15.2) $ (80.5)
Provision (benefit) for income taxes:
Current:
Domestic $ 15.7 $ 10.5 $ 12.4
Foreign 69.6 57.7 43.0
85.3 68.2 55.4
Deferred:
Domestic (7.3) .8 1.1
Foreign 7.1 (6.5) (20.3)
(.2) (5.7) (19.2)
Total provision $ 85.1 $ 62.5 $ 36.2
</TABLE>
A reconciliation between the actual income tax expense provided and the
income taxes computed by applying the statutory federal income tax rate of 35%
in 1995, 1994 and 1993 to the income (loss) before income taxes and
extraordinary item is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
Year Ended December 31, (Dollars in millions)
<S> <C> <C> <C>
Tax provision (benefit)
at statutory rate $ 79.4 $ (5.3) $ (28.2)
Nondeductible goodwill
amortization 11.9 10.0 10.4
Nondeductible ESOP
allocations 3.5 6.8 6.1
Rate differences and
withholding taxes related
to foreign operations 19.2 47.1 18.7
Foreign exchange 1.2 (4.3) (7.0)
State tax benefits (.5) (5.3) (5.5)
Other, net 1.7 (7.9) 8.7
Increase (decrease) in
valuation allowance (31.3) 21.4 33.0
------- ------- -------
Total provision $ 85.1 $ 62.5 $ 36.2
======= ======= =======
</TABLE>
In addition to the 1995 valuation allowance decrease of $31.3 million and
the 1994 and 1993 valuation allowance increases of $21.4 million and $33.0
million, respectively, shown above, valuation allowances of $10.5 million, $3.2
million and $32.1 million, respectively, were also provided for the tax benefits
related to the extraordinary losses on retirement of debt (see Note 8).
The following table details the gross deferred tax liabilities and assets
and the related valuation allowances:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------
At December 31, (Dollars in millions)
<S> <C> <C>
Deferred tax liabilities:
Facilities (accelerated depreciation,
capitalized interest and purchase
accounting differences) $ 138.8 $ 142.3
Inventory (LIFO and purchase
accounting differences) 10.3 15.4
Employee benefits 3.5 .6
Foreign investments 50.1 50.1
Other 44.8 31.1
-------- --------
247.5 239.5
-------- --------
Deferred tax assets:
Postretirement benefits 132.7 128.2
Warranties 53.8 35.7
Alternative minimum tax 16.7 19.4
Foreign tax credits and
net operating losses 34.4 44.0
Reserves 69.5
69.0
Other 23.3 46.7
VALUATION ALLOWANCES (98.0) (118.8)
-------- --------
232.4 224.2
-------- --------
Net deferred tax liabilities $ 15.1 $ 15.3
======== ========
</TABLE>
Deferred tax assets related to foreign tax credits, net operating loss
carryforwards and future tax deductions have been reduced by a valuation
allowance since realization is dependent in part on the generation of future
foreign source income as well as on income in the legal entity which gave rise
to tax losses. Other deferred tax assets have not been reduced by valuation
allowances because of carrybacks and existing deferred tax credits which reverse
in the carryforward period.
22
<PAGE> 25
In 1995 the valuation allowance was reduced as a result of the reversal of
existing deferred tax benefits and higher levels of taxable income in the U.S.
in 1995 and expected in 1996. Although realization is not assured, management
believes it is more likely than not that all of the resulting net deferred tax
asset will be realized. The amount of the net deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced. The foreign tax
credits and net operating losses are available for utilization in future years.
In some tax jurisdictions the carryforward period is limited to as little as
five years; in others it is unlimited.
As a result of the allocation of purchase accounting (principally
goodwill) to foreign subsidiaries, the book basis in the net assets of the
foreign subsidiaries exceeds the related U.S. tax basis in the subsidiaries'
stock. Such investments are considered permanent in duration, and accordingly no
deferred taxes have been provided on such differences, which are significant. It
is impracticable because of the complex legal structure of the Company and the
numerous tax jurisdictions in which the Company operates to determine such
deferred taxes.
Cash taxes paid were $90 million, $70 million, and $41 million in the
years 1995, 1994 and 1993, respectively.
In connection with examinations of the tax returns of the Company's German
subsidiaries for the years 1984 through 1990, the German tax authorities have
raised questions regarding the treatment of certain significant matters. In
prior years the Company paid approximately $21 million (at December 31, 1995
exchange rates) of a disputed German income tax. A suit is pending to obtain a
refund of this tax. In March 1996 the Company received an assessment, which it
has appealed, for additional taxes of approximately $80 million (at December 31,
1995 exchange rates) (principally relating to the 1988 to 1990 period), plus
interest, for the tax return years under audit. In addition, significant
transactions similar to those which gave rise to such assessment occurred in
years subsequent to 1990. Having assessed additional taxes for the 1988-1990
period, the German tax authorities might, after future tax audits, propose tax
adjustments for years 1991 to 1993 that could be as much as 50% higher. The
Company, on the basis of the opinion of legal counsel, believes the German tax
returns are substantially correct as filed and any such adjustments would be
inappropriate and intends to vigorously contest any adjustments which have been
or may be assessed. Accordingly, the Company has not recorded any loss
contingency at December 31, 1995 with respect to such matters.
Under German law, the authorities may demand immediate payment of the
amount assessed prior to final resolution of the issues. The Company believes,
on the basis of the opinion of legal counsel, that it is highly likely that a
suspension of payment pending final resolution would be obtained. If immediate
payment were required, the Company expects that it would be able to make such
payment from available sources of liquidity or credit support.
As a result of German tax legislation, first effective in 1994, the
Company's tax provision in Germany was higher in 1994 and in 1995 and will
continue to be in the future. As a result of this German tax legislation and the
related additional tax provisions, the Company believes its tax exposure to the
major issues under the audit referred to above will be reduced for 1994, 1995
and future years.
American Standard Inc. makes substantial interest payments to its indirect
wholly-owned Netherlands subsidiary. Prior to 1995, these interest payments had
been exempt from U.S. withholding tax under an income tax treaty between the
United States and the Netherlands. Under a provision in a new treaty such
interest payments starting in 1995 could have become subject to a 15% U.S.
withholding tax, except that the Company received a favorable ruling from the
IRS making a determination that no U.S. withholding tax was imposed for 1995.
The Company believes, based on the ruling exempting 1995 interest payments from
U.S. withholding tax, that its request for a subsequent ruling covering such
interest payments in 1996 (and later years) should also receive favorable IRS
action. If the subsequent IRS ruling request is not resolved favorably,
additional withholding taxes of approximately $8 million per year could be
imposed on the Company commencing in 1996. In such case the Company would
consider alternatives designed to mitigate the increased withholding taxes;
however, there is no assurance that such alternatives could be found.
23
<PAGE> 26
NOTE 6. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------
At December 31, (Dollars in millions)
<S> <C> <C>
Finished products $ 190.7 $ 160.2
Products in process 84.7 82.5
Raw Materials 86.9 80.5
-------- -------
Inventories at cost $ 362.3 $ 323.2
======== =======
</TABLE>
The carrying cost of inventories approximates current cost.
NOTE 7. FACILITIES
The components of facilities, at cost, are as follows:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------
At December 31, (Dollars in millions)
<S> <C> <C>
Land $ 74.3 $ 65.8
Buildings 356.3 325.7
Machinery and Equipment 888.3 776.2
Improvements in progress 119.2 75.2
---------- ----------
Gross facilities 1,438.1 1,242.9
Less: Accumulated Depreciation 513.6 430.2
---------- ----------
Net facilities $ 924.5 $ 812.7
========== ==========
</TABLE>
NOTE 8. DEBT
The 1995 Refinancing -- In the first quarter of 1995 the Company completed a
major refinancing (the "1995 Refinancing") consisting of: (i) the October 1994
amendment to the Company's 1993 credit agreement ("1993 Credit Agreement") which
provided an additional term loan of $325 million (the "October Borrowing"), the
proceeds of which were used to redeem $317 million in aggregate principal amount
of the Company's 141/4% Subordinated Discount Debentures Due 2003 and 123/4%
Junior Subordinated Debentures Due 2003 and to pay redemption premiums of $4.4
million and debt issuance and other costs in November 1994; (ii) the IPO (see
Note 9), the net proceeds of which, totaling $281 million, were used to repay
indebtedness; and (iii) the February 1995 amendment and restatement of the 1993
Credit Agreement (as so amended and restated, the "1995 Credit Agreement"),
which provided a secured multi-currency, multi-borrower credit facility
aggregating $1.0 billion, the proceeds of which were used to replace outstanding
borrowings under the 1993 Credit Agreement.
The 1995 Credit Agreement provides American Standard Inc. and certain
subsidiaries (the "Borrowers") an aggregate, secured facility of $1.0 billion
available to all Borrowers as follows: (a) a $100 million U.S. Dollar Term Loan
Facility (the "Term Loan Facility") which expires in 2000; (b) a $250 million
U.S. Dollar Revolving Credit Facility and a $300 million Multi-currency
Revolving Credit Facility (the "Revolving Facilities") which expire in 2002; and
(c) a $350 million Multi-currency Periodic Access Credit Facility (the "Periodic
Access Facility") which expires in 2002.
The 1995 Credit Agreement provides lower interest costs, increased
borrowing capacity, less restrictive covenants and lower annual scheduled debt
maturities through 2001. Each of the outstanding revolving loans is due at the
end of each interest period (a maximum of six months). The Company may, however,
concurrently reborrow the outstanding obligations subject to compliance with
applicable conditions of the 1995 Credit Agreement.
Borrowings under the Term Loan Facility bear interest at the London
interbank offered rate ("LIBOR") plus 1.5% and borrowings under the Periodic
Access Facility bear interest at LIBOR plus 1.75%. Loans under the Revolving
Facilities bear interest at the prime rate plus .75% or LIBOR plus 1.75%. These
initial rates are subject to reduction in the event the Company attains certain
financial ratios.
As a result of the redemption of debt in 1995, 1994 and 1993 the
Consolidated Statement of Operations included extraordinary charges of $30
million, $9 million and $92 million, respectively (including call premiums, the
write-off of deferred debt issuance costs, and in 1993 the loss on cancellation
of foreign currency swap contracts) on which no tax benefit was recorded (see
Note 5).
24
<PAGE> 27
Short-term -- The Revolving Facilities under the 1995 Credit Agreement provide
for aggregate borrowings of up to $550 million, of which up to $200 million may
be used for the issuance of letters of credit and $40 million of which is
available for same-day short-term borrowings. The Company pays a commitment fee
of 0.375% per annum on the unused portion of the Revolving Facilities and a fee
of 1.75% plus issuance fees for letters of credit. At December 31, 1995, there
were $180 million of borrowings outstanding under the Revolving Facilities and
$58 million of letters of credit. Remaining availability under the Revolving
Facilities was $312 million. Borrowings under the Revolving Facilities are
short-term by their terms and since approximately $218 million of long-term debt
under the 1993 Credit Agreement was replaced with loans under the Revolving
Facilities, a significantly larger amount of debt has been classified as
short-term subsequent to the 1995 Refinancing. Average borrowings under the
revolving credit facilities available under bank credit agreements for 1995,
1994, and 1993, were $278 million, $73 million, and $39 million, respectively.
Each Revolving Facilities borrowing is due at the end of the respective interest
period (a maximum of six months). The Company may, however, concurrently
reborrow such amounts subject to compliance with applicable conditions of the
1995 Credit Agreement.
Other short-term borrowings are available outside the United States under
informal credit facilities and are typically in the form of overdrafts. At
December 31, 1995, the Company had $60 million of such foreign short-term debt
outstanding at an average interest rate of 10.96% per annum. The Company also
had an additional $91 million of unused foreign facilities. These facilities may
be withdrawn by the banks at any time.
Average short-term borrowings for 1995, 1994 and 1993 were $334 million,
$119 million and $118 million, respectively, at weighted average interest rates
of 7.85%, 9.40% and 8.97%, respectively. Total short-term borrowings outstanding
at December 31, 1995, 1994 and 1993 were $240 million, $70 million, and $38
million, respectively, at weighted average interest rates of 7.9%, 10.7%, and
10.3%, respectively.
Long-term -- Long-term debt was as follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------
At December 31, (Dollars in millions)
<S> <C> <C>
Bank credit agreements $ 432.1 $ 940.0
9 1/4% sinking fund debentures, due in
installments from 1997 to 2016 150.0 150.0
10 7/8% senior notes due 1999 150.0 150.0
11 3/8% senior debentures due 2004 250.0 250.0
9 7/8% senior subordinated notes due 2001 200.0 200.0
10 1/2% senior subordinated discount
debentures (net of unamortized
discount of $162.2 million in 1995;
$221.4 million in 1994) due in
installments from 2003 to 2005 578.5 529.3
Other Long-Term Debt 82.4 74.6
---------- ----------
1,843.0 2,293.9
Less current maturities 72.9 141.6
---------- ----------
$ 1,770.1 $ 2,152.3
========== ==========
</TABLE>
As of December 31, 1995, the amounts of long-term debt maturing in years
1996 through 2000 were: 1996-$73 million; 1997-$74 million; 1998-$84 million;
1999-$233 million; and 2000-$101 million.
Interest costs capitalized as part of the cost of constructing facilities
for the years ended December 31, 1995, 1994, and 1993, were $4.0 million, $2.9
million, and $2.7 million, respectively. Cash interest paid for those same years
on all outstanding indebtedness amounted to $161 million, $186 million, and $198
million, respectively.
25
<PAGE> 28
The 1995 Credit Agreement loans and effective weighted average interest
rates in effect at December 31, 1995, were:
- -------------------------------------------------------------
U.S. Dollar Equivalent (Dollars in millions)
<TABLE>
<S> <C> <C>
Periodic access loans:
Deutschemark loans at 5.39% $ 282.5
British sterling loans at 8.23% 34.8
Dutch Guilder Loans At 5.23% 24.8
--------
Total periodic access loans 342.1
Term loans:
U.S. dollar loans at 6.91% 90.0
--------
Total 1995 Credit Agreement
long-term loans 432.1
Revolver loans at 6.9% 179.8
--------
Total 1995 Credit Agreement loans $ 611.9
========
</TABLE>
The 1993 Credit Agreement loans and effective weighted average interest rates in
effect at December 31, 1994 were as follows:
- -------------------------------------------------------------
U.S. Dollar Equivalent (Dollars in millions)
<TABLE>
<S> <C>
Periodic access loans at 8.23% $ 174.6
Term loans at 8.68% 765.4
--------
Total 1993 Credit Agreement long-term loans 940.0
Revolver loans at 9.7% 38.0
--------
Total 1993 Credit Agreement loans $ 978.0
========
</TABLE>
The 9 7/8% Senior Subordinated Notes may be redeemed at the Company's
option, in whole or in part, on and after June 1, 1998, at redemption prices
declining from 102.82% in 1998 to 100% on June 1, 2000, and thereafter. The
10 1/2% Senior Subordinated Discount Debentures may be redeemed at the Company's
option, in whole or in part, on and after June 1, 1998, at redemption prices
declining from 104.66% in 1998 to 100% on June 1, 2002, and thereafter. The
payment of the principal and interest on the 97/8% Senior Subordinated Notes and
on the 10 1/2% Senior Subordinated Discount Debentures (together the "Senior
Subordinated Debt") is subordinated in right of payment to the payment when due
of all Senior Debt (as defined in the related indenture) of the Company,
including all indebtedness under the credit agreements, the 9 1/4% Sinking Fund
Debentures, the 10 7/8% Senior Notes, and the 11 3/8% Senior Debentures (the
said notes and debentures together the "Senior Securities").
The 9 1/4% Sinking Fund Debentures are redeemable at the Company's option,
in whole or in part, at redemption prices declining from 104.625% in 1996 to
100% in 2006 and thereafter. The 10 7/8% Senior Notes are not redeemable by the
Company. The 11 3/8% Senior Debentures are redeemable at the option of the
Company, in whole or in part, on or after May 15, 1997, at redemption prices
declining from 105.69% in 1997 to 100% on May 15, 2002, and thereafter.
Obligations under the 1995 Credit Agreement are guaranteed by American
Standard Inc. and significant domestic subsidiaries of American Standard Inc.
(with foreign borrowings also guaranteed by certain foreign subsidiaries) and
are secured by U.S., Canadian, and U.K. properties, plant and equipment; by
liens on receivables, inventories, intellectual property and other intangibles;
and by a pledge of the stock of American Standard Inc. and nearly all shares of
subsidiary stock. In addition, the obligations of American Standard Inc. under
the Senior Securities are secured, to the extent required by the related
indentures, by mortgages on the principal U.S. properties of American Standard
Inc. equally and ratably with the indebtedness under the 1995 Credit Agreement.
The 1995 Credit Agreement contains various covenants that limit, among
other things, mergers and asset sales, indebtedness, dividends on and redemption
of capital stock of the Company, voluntary prepayment of certain other
indebtedness, of the Company (including its outstanding debentures and notes),
rental expense, liens, capital expenditures, investments or acquisitions, the
use of proceeds from asset sales, intercompany transactions and transactions
with affiliates and certain other business activities. The covenants also
require the Company to meet certain financial tests. The Company believes it is
currently in compliance with the covenants contained in the 1995 Credit
Agreement.
26
<PAGE> 29
The indentures related to the Company's debentures and notes contain
various covenants which, among other things, limit debt and preferred stock of
the Company and its subsidiaries, dividends on and redemption of capital stock
of the Company and its subsidiaries, redemption of certain subordinated
obligations of the Company, the use of proceeds from asset sales and certain
other business activities. The Company believes it is currently in compliance
with the covenants of those indentures.
In November 1995 the Company acquired substantially all of the remaining
outstanding common shares and convertible bonds of Etablissement Porcher
("Porcher"), a French manufacturer and distributor of plumbing products in which
the Company previously had an ownership interest of 32.88%. The $25 million cost
of the acquisition was funded with a borrowing under the Revolving Facilities.
In addition $31 million of Porcher debt was assumed. In 1995 Porcher had sales
of $216 million and was accounted for as an unconsolidated joint venture.
In December 1995 the Company completed arrangements to establish air
conditioning operations in the People's Republic of China ("PRC") through a
holding company, A-S Air Conditioning Products Limited ("ASAP") in which a 64.4%
owned subsidiary has a 50.4% ownership interest. The Company contributed to ASAP
its 50% interest (valued at $10 million) in a Hong Kong joint venture (which
imports and distributes air conditioning products) and is committed to
contribute $20 million in cash, $8 million of which had been contributed as of
December 31, 1995. Minority investors are committed to contribute $62 million,
of which $26 million had been contributed as of December 31, 1995. In
conjunction with the acquisition by ASAP of majority ownership positions in
three manufacturing joint ventures, ASAP assumed debt of $21 million.
NOTE 9. PUBLIC OFFERINGS OF COMMON STOCK OF AMERICAN STANDARD COMPANIES INC.
In the first quarter of 1995 American Standard Companies Inc. sold 15,112,300
shares of its common stock at $20 per share in its initial public offering (the
"IPO"), which yielded net proceeds of $281 million (including proceeds from the
exercised portion of the underwriters' over-allotment option and after deducting
underwriting discounts and expenses) which were transferred to American Standard
Inc. and used to reduce indebtedness. Of the total net proceeds transferred,
$269 million was contributed to the capital of American Standard Inc. and $12
million was loaned under an intercompany demand note. The IPO and an amended
bank credit agreement were both part of a major refinancing completed in the
first quarter of 1995 (see Note 8).
In September 1995 American Standard Companies Inc. completed a secondary
offering (the "Secondary Offering" and together with the IPO, the "Offerings")
of 22,500,000 shares of its common stock, substantially all of which shares were
owned by Kelso ASI partners, L.P., ("ASI Partners"), the largest stockholder of
American Standard Companies Inc. All of the shares sold in the Secondary
Offering were previously issued and outstanding shares, and the Company received
no proceeds therefrom. After the Offerings, ASI Partners owned approximately 27%
of the outstanding common stock of American Standard Companies Inc. and for so
long as ASI Partners continues to own at least 20% of the outstanding common
stock, will retain the right to designate four nominees for election to the
eleven member Board of Directors of American Standard Companies Inc.
In January 1995 American Standard Companies Inc. established the Stock
Incentive Plan (the "Stock Plan") under which awards may be granted to officers
and other key executives and employees in the form of stock options, stock
appreciation rights, restricted stock, or restricted units in shares of common
stock of American Standard Companies Inc. The maximum number of shares or units
that may be issued under the Stock Plan is 7,604,475. Stock options to purchase
4,998,000 shares at the initial public offering price of $20 per
27
<PAGE> 30
share were awarded to approximately 900 employees in the first quarter of 1995.
The awards vest ratably over three years and are exercisable over a period of
ten years.
A summary of changes in stock options of American Standard Companies Inc.
during 1995 is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Number Price
of Shares per Share
<S> <C> <C>
Initial awards granted in
February 1995 4,998,000 $ 20.00
Other awards granted 8,000 $20.00-$26.50
Cancelled (32,000) $ 20.00
---------
Outstanding at December 31,1995 4,974,000 $20.00-$26.50
=========
As of December 31, 1995:
Options exercisable None
Available for grant 2,630,475
</TABLE>
NOTE 10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of selected financial instruments at December 31,
1995, approximates carrying amounts except as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
(Dollars in millions) Carrying Fair
Amount Value
<S> <C> <C>
10 7/8% senior notes $ 150 $ 165
11 3/8% senior debentures 250 276
9 7/8% senior subordinated notes 200 216
10 1/2% senior subordinated
discount debentures 579 635
9 1/4% sinking fund debentures 150 155
</TABLE>
The fair values presented above are estimates as of December 31, 1995, and
are not necessarily indicative of amounts the Company could realize or settle
currently or indicative of the intent or ability of the Company to dispose of or
liquidate such instruments.
The fair values of the Company's 1995 Credit Agreement loans are estimated
using indicative market quotes obtained from a major bank. The fair values of
senior notes, senior debentures, senior subordinated notes, senior subordinated
discount debentures and sinking fund debentures are based on indicative market
quotes obtained from a major securities dealer. The fair values of other loans
approximate their carrying value.
NOTE 11. RELATED PARTY TRANSACTIONS
In 1993 and 1994 the Company paid Kelso and Company, L.P. ("Kelso"), an
affiliate of ASI Partners, the largest shareholder of American Standard
Companies Inc., an annual fee of $2.75 million for providing management
consulting and advisory services. In December 1994 the Company paid Kelso a
one-time fee of $20 million in connection with the amendment of certain
agreements in anticipation of the IPO of American Standard Companies Inc.,
including an amendment eliminating future payments of the $2.75 million annual
fee but providing for the continuation of such services.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Future minimum rental commitments under the terms of all noncancellable
operating leases in effect at December 31, 1995, were: 1996 - $54 million; 1997
- - $46 million; 1998 - $38 million; 1999 - $29 million; 2000 - $25 million; and
thereafter - $46 million. Net rental expenses for operating leases were $59
million, $45 million, and $34 million for the years ended December 31, 1995,
1994, and 1993, respectively.
The Company and certain of its subsidiaries are parties to a number of
pending legal and tax proceedings. The Company is also subject to federal, state
and local environmental laws and regulations and is involved in environmental
proceedings concerning the investigation and remediation of numerous sites. In
those instances where it is probable as a result of such proceedings that the
Company will incur costs which can be reasonably determined, the Company has
recorded a liability. The Company believes that these legal, tax and
environmental proceedings will not have a material adverse effect on its
consolidated financial position, cash flows or results of operations.
The tax returns of the Company's German subsidiaries are currently under
examination by the German tax authorities (see Note 5).
NOTE 13. SEGMENT DATA
Identifiable assets as of December 31, 1995, 1994 and 1993 and sales and
operating income by geographic location for the years then ended are shown in
the following tables. Sales and operating income by segment are shown in
Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 8.
28
<PAGE> 31
<TABLE>
<CAPTION>
Segment Data 1995 1994 1993
- ----------------------------------------------------------------------------------------
Year Ended December 31, (Dollars in millions)
<S> <C> <C> <C>
Sales-Geographic distribution:
United States $ 2,809 $ 2,465 $ 2,096
Europe 1,917 1,572 1,315
Other 692 550 483
Eliminations (197) (130) (64)
------- ------- -------
Total sales $ 5,221 $ 4,457 $ 3,830
======= ======= =======
Operating Income-Geographic distribution:
United States $ 244 $ 168 $ 125
Europe 243 144 118
Other 47 43 39
------- ------- -------
Total operating income $ 534 $ 355 $ 282
======= ======= =======
Assets
Air Conditioning Products $ 1,432 $ 1,223 $ 1,167
Plumbing Products 1,088 957 960
Automotive Products 805 755 652
------- ------- -------
Total identifiable assets $ 3,325 $ 2,935 $ 2,779
======= ======= =======
Geographic distribution:
United States $ 1,075 $ 1,025 $ 1,013
Europe 1,557 1,343 1,196
Other 693 567 570
------- ------- -------
Total identifiable assets 3,325 2,935 2,779
======= ======= =======
Prepaid charges 39 64 82
Future income tax benefits 30 22 25
Cash and cash equivalents 89 93 53
Corporate assets 37 42 52
------- ------- -------
Total assets $ 3,520 $ 3,156 $ 2,991
======= ======= =======
Goodwill included in assets:
Air Conditioning Products $ 334 $ 331 $ 337
Plumbing Products 302 295 296
Automotive Products 446 427 393
------- ------- -------
Total goodwill $ 1,082 $ 1,053 $ 1,026
======= ======= =======
Capital expenditures:
Air Conditioning Products $ 70 $ 45 $ 38
Plumbing Products 93 55 46
Automotive Products 44 30 14
------- ------- -------
Total capital expenditures $ 207 $ 130 $ 98
======= ======= =======
Depreciation and amortization:
Air Conditioning Products $ 51 $ 51 $ 53
Plumbing Products 50 64(a) 49
Automotive Products 42 39 35
------- ------- -------
Total depreciation and amortization $ 143 $ 154 $ 137
======= ======= =======
</TABLE>
(a) Includes an asset loss provision of $14 million.
29
<PAGE> 32
<TABLE>
<CAPTION>
Quarterly Data (Unaudited) 1995
- -------------------------------------------------------------------------------------------------------------------
(Dollars in millions) First Second Third Fourth
<S> <C> <C> <C> <C>
Sales $1,225.2 $1,370.8 $1,316.3 $1,311.2
Cost of sales 909.1 1,008.5 975.1 994.3
Income before income taxes and extraordinary item 45.4 85.0 67.0 29.5
Income taxes 18.9 35.5 23.6 7.1
-------- -------- -------- --------
Income before extraordinary item 26.5 49.5 43.4 22.4
Extraordinary loss on retirement of debt (30.1) -- -- --
-------- -------- -------- --------
Net income (loss) $ (3.6) $ 49.5 $ 43.4 $ 22.4
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1994
- -------------------------------------------------------------------------------------------------------------------
(Dollars in millions) First Second(a) Third Fourth(b)
<S> <C> <C> <C> <C>
Sales $ 989.6 $ 1,130.5 $ 1,188.8 $ 1,148.6
Cost of sales 746.3 857.3 883.5 890.2
Income (loss) before income taxes and extraordinary item 3.4 3.5 26.2 (48.3)
Income taxes 16.7 14.9 15.1 15.8
-------- ---------- ---------- ----------
Income (loss) before extraordinary item (13.3) (11.4) 11.1 (64.1)
Extraordinary loss on retirement of debt -- -- -- (8.7)
-------- ---------- ---------- ----------
Net income (loss) $ (13.3) $ (11.4) $ 11.1 $ (72.8)
======== ========== ========== ==========
</TABLE>
(a)Results for the second quarter of 1994 included pre-tax charges of $40
million ($33 million after tax) related to employee severance, consolidation
of production facilities, the implementation of cost reduction actions, and a
provision for losses on operating assets expected to be disposed of prior to
the expiration of their originally estimated useful lives.
(b)The fourth quarter of 1994 included a one-time special charge of $20 million
in connection with the amendment of certain agreements in anticipation of the
IPO.
30
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
Not required under reduced disclosure format at contemplated by General
Instruction J to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2. Financial statements and financial statement schedules
The financial statements and financial statement schedules are
listed in the accompanying index to financial statements on page
33 of this annual report on Form 10-K. The financial statements
indicated on the index appearing on page 33 hereof are
incorporated herein by reference.
1 3. Exhibits
The exhibits to this Report are listed on the accompanying index
to exhibits and are incorporated herein by reference or are filed
as part of this annual report on Form 10-K.
(b) Reports on Form 8-K for the quarter ended December 31, 1995.
The Company filed no current reports on Form 8-K during the
fourth quarter ended December 31, 1995.
31
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN STANDARD INC.
By: /s/ EMMANUEL A. KAMPOURIS
----------------------
(Emmanuel A. Kampouris)
Chairman, President and Chief Executive Officer
March 29 , 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 29, 1996:
<TABLE>
<S> <C>
/s/ EMMANUEL A. KAMPOURIS
- ------------------------------
(Emmanuel A. Kampouris) Chairman, President and Chief Executive Officer; Director
(Principal Executive Officer)
/s/ FRED A. ALLARDYCE
- ------------------------------
(Fred A. Allardyce) Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ G. RONALD SIMON
- ------------------------------
(G. Ronald Simon) Vice President and Controller
(Principal Accounting Officer)
/s/ STEVEN E. ANDERSON
- ------------------------------
(Steven E. Anderson) Director
/s/ HORST HINRICHS
- ------------------------------
(Horst Hinrichs) Director
/s/ GEORGE H. KERCKHOVE
- ------------------------------
(George H. Kerckhove) Director
/s/ SHIGERU MIZUSHIMA
- ------------------------------
(Shigeru Mizushima) Director
/s/ FRANK T. NICKELL
- ------------------------------
(Frank T. Nickell) Director
/s/ ROGER W. PARSONS
- ------------------------------
(Roger W. Parsons) Director
/s/ J. DANFORTH QUAYLE
- ------------------------------
(J. Danforth Quayle) Director
/s/ DAVID M. RODERICK
- ------------------------------
(David M. Roderick) Director
/s/ JOHN RUTLEDGE
- ------------------------------
(John Rutledge) Director
/s/ JOSEPH S. SCHUCHERT
- ------------------------------
(Joseph S. Schuchert) Director
</TABLE>
32
<PAGE> 35
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
COVERED BY
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
<TABLE>
<S> <C>
1. Financial Statements
Consolidated Balance Sheet at
December 31, 1995, and 1994 14
Years ended December 31, 1995, 1994, and 1993:
Consolidated Statement of Operations 13
Consolidated Statement of Cash Flows 15
Consolidated Statement of Stockholder's Deficit 16
Notes to Financial Statements 17-29
Segment Data 8 and 29
Quarterly Data (Unaudited) 30
Report of Independent Auditors 12
2. Financial statement schedule, years ended
December 31, 1995, and 1993
II Valuation and Qualifying Accounts 35
</TABLE>
All other schedules have been omitted because the information is not applicable
or is not material or because the information required is included in the
financial statements or the notes thereto.
33
<PAGE> 36
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of American Standard Inc.
as of December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, and have issued our report thereon dated February 26,
1996 (included elsewhere in this Annual Report on Form 10-K). Our audits also
included the financial statement schedule of American Standard Inc. listed in
Item 14(a). This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young LLP
New York, New York
February 26, 1996
34
<PAGE> 37
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
DESCRIPTION FOREIGN
BALANCE ADDITIONS CURRENCY BALANCE
BEGINNING CHARGED TO OTHER TRANSLATION END OF
OF PERIOD INCOME DEDUCTIONS CHANGES EFFECTS PERIOD
<S> <C> <C> <C> <C> <C> <C>
1995:
Reserve deducted from assets:
Allowance for doubtful
accounts receivable $ 19,569 $ 10,811 $ 6,064(A) $ 2,662 $ 352 $ 27,330
==============================================================================================================================
Reserve for post-retirement
benefits $437,708 $ 52,190 $(21,808)(B) $ (5,761)(C) $ 20,069 $482,398
==============================================================================================================================
1994:
Reserve deducted from
assets:
Allowance for doubtful
accounts receivable $ 15,666 $ 10,208 $ (6,868)(A) $ 533 $ 30 $ 19,569
==============================================================================================================================
Reserve for post-retirement
benefits $387,038 $ 44,352 $(23,062)(B) $ 3,188(D) $ 26,192 $437,708
==============================================================================================================================
1993:
Reserve deducted from
assets:
Allowance for doubtful
accounts receivable $ 12,827 $ 10,118 $ (6,584)(A) $ - $ (695) $ 15,666
==============================================================================================================================
Reserve for post-retirement
benefits $368,868 $ 48,827 $(25,815)(B) $11,832 (E) $(16,674) $387,038
==============================================================================================================================
</TABLE>
The reserve for postretirement benefits excludes the activity for currently
funded U.S. pension plans.
(A) Accounts charged off.
(B) Payments made during the year.
(C) Includes $6 million reduction in minimum pension liability.
(D) Includes $3 million reduction in minimum pension liability primarily
offset by $5 million from acquisition of new business.
(E) Includes $19 million increase in minimum pension liability offset by a
$7 million reduction resulting from curtailment of certain plans.
35
<PAGE> 38
AMERICAN STANDARD INC.
INDEX TO EXHIBITS
(Item 14(a)3 - Exhibits Required by Item 601
of Regulation S-K and Additional Exhibits)
(The Commission File Number of American Standard Inc., the Registrant (sometimes
hereinafter referred to as the "Company"), and for all Exhibits incorporated by
reference, is 33-64450, except those Exhibits incorporated by reference in
filings made by American Standard Companies Inc. (formerly named ASI Holding
Corporation) ( "Holding") the Commission File Number of which is 1-11415; prior
to filing its Registration Statement on Form S-2 on November 10, 1994, Holding's
Commission File Number was 33-23070.)
(3) (i) Restated Certificate of Incorporation of American Standard Inc.
(the "Company"); previously filed as Exhibit (3)(i) in the
Company's Form 10-Q for the quarter ended June 30, 1995, and
herein incorporated by reference.
(ii) Amended By-laws of the Company, as adopted May 4, 1995;
previously filed as Exhibit (3) (ii) in the Company's Form 10-Q
for the quarter ended June 30, 1995, and herein incorporated by
reference.
(4) (i) Indenture, dated as of November 1, 1986, between the Company
and Manufacturers Hanover Trust Company, Trustee, including the
form of 9-1/4% Sinking Fund Debenture Due 2016 issued pursuant
thereto on December 9, 1986, in the aggregate principal amount of
$150,000,000; previously filed as Exhibit (4) (iii) in the
Company's Form 10-K for the fiscal year ended December 31, 1986,
and herein incorporated by reference.
(ii) Instrument of Resignation, Appointment and Acceptance, dated as
of April 25, 1988 among the Company, Manufacturers Hanover Trust
Company (the "Resigning Trustee") and Wilmington Trust Company
(the "Successor Trustee"), relating to resignation of the
Resigning Trustee and appointment of the Successor Trustee under
the Indenture referred to in Exhibit (4) (i) above; previously
filed as Exhibit (4) (ii) in Registration Statement No. 33-64450
of the Company under the Securities Act of 1933, as amended, and
herein incorporated by reference.
(iii) Indenture dated as of May 15, 1992, between the Company and First
Trust National Association, Trustee, relating to the Company's
10-7/8% Senior Notes due 1999, in the aggregate principal amount
of $150,000,000; previously filed as Exhibit (4) (i) in the
Company's Form 10-Q for the quarter ended June 30, 1992, and
herein incorporated by reference.
36
<PAGE> 39
(iv) Form of 10-7/8% Senior Notes due 1999 included as Exhibit A to
the Indenture described in (4) (iii) above.
(v) Indenture dated as of May 15, 1992, between the Company and First
Trust National Association, Trustee, relating to the Company's
11-3/8% Senior Debentures due 2004, in the aggregate principal
amount of $250,000,000; previously filed as Exhibit (4) (iii) to
the Company's Form 10-Q for the quarter ended June 30, 1992, and
herein incorporated by reference.
(vi) Form of 11-3/8% Senior Debentures due 2004 included as Exhibit A
to the Indenture described in (4) (v) above.
(vii) Form of Indenture, dated as of June 1, 1993, between the Company
and United States Trust Company of New York, as Trustee, relating
to the Company's 9-7/8% Senior Subordinated Notes Due 2001;
previously filed as Exhibit (4) (xxxi) in Amendment No. 1 to
Registration Statement No. 33-61130 of the Company under the
Securities Act of 1933, as amended, and herein incorporated by
reference.
(viii) Form of Note evidencing the 9-7/8% Senior Subordinated Notes Due
2001 included as Exhibit A to the Form of Indenture referred to
in (4) (vii) above.
(ix) Form of Indenture, dated as of June 1, 1993, between the Company
and United States Trust Company of New York, as Trustee, relating
to the Company's 10-1/2% Senior Subordinated Discount Debentures
Due 2005; previously filed as Exhibit (4) (xxxiii) in Amendment
No. 1 to Registration Statement No. 33-61130 of the Company under
the Securities Act of 1933, as amended, and herein incorporated
by reference.
(x) Form of Debenture evidencing the 10-1/2% Senior Subordinated
Discount Debentures Due 2005 included as Exhibit A to the Form of
Indenture referred to in (4) (ix) above.
(xi) Assignment and Amendment Agreement, dated as of June 1, 1993,
among the Company, Holding, certain subsidiaries of the Company,
Bankers Trust Company, as agent under the 1988 Credit Agreement,
the financial institutions named as Lenders in the 1988 Credit
Agreement and certain additional Lenders and Chemical Bank, as
Administrative Agent and Arranger; previously filed as Exhibit
(4) (xiii) in Amendment No. 1 to Registration Statement No.
33-64450 of the Company under the Securities Act of 1933, as
amended, and herein incorporated by reference.
(xii) Credit Agreement, dated as of June 1, 1993, among the Company,
Holding, certain subsidiaries of the Company and the lending
institutions listed therein, Chemical Bank, as Administrative
Agent and Arranger; Bankers Trust Company, The Bank of Nova
Scotia, The Chase Manhattan Bank, N.A., Deutsche Bank AG, The
Long-Term Credit Bank of Japan, Ltd., New York
37
<PAGE> 40
Branch, and NationsBank of North Carolina, N.A., as Managing
Agents, and Banque Paribas, Citibank, N.A., and Compagnie
Financiere de CIC et de l'Union Europeenne, New York Branch, as
Co-Agents (the "1993 Credit Agreement"); previously filed as
Exhibit (4) (xiv) in Amendment No. 1 to Registration Statement
No. 33-64450 of the Company under the Securities Act of 1933, as
amended, and herein incorporated by reference.
(xiii) First Amendment, Consent and Waiver, dated as of February 10,
1994, to the 1993 Credit Agreement referred to in (4) (xii)
above; previously filed as Exhibit (4) (xvii) in the Company's
Form 10-K for the fiscal year ended December 31, 1993, and herein
incorporated by reference.
(xiv) Second Amendment, dated as of October 21, 1994, to the 1993
Credit Agreement referred to in paragraph (4) (xii) above;
previously filed as Exhibit (4) (xviii) in Registration Statement
No. 33-56409 of Holding under the Securities Act of 1933, as
amended, filed November 10, 1994, and herein incorporated by
reference.
(xv) Assignment and Amendment Agreement dated as of February 9, 1995,
among Holding, the Company, certain subsidiaries of the Company,
and the financial institutions listed in Schedule I thereto (the
"Original Lenders"); the financial institutions listed in
Schedule II thereto (the "Continuing Lenders"), including
Chemical Bank as Administrative Agent for the Original Lenders
and Continuing Lenders and as Collateral Agent for the Original
Lenders and Continuing Lenders; previously filed as Exhibit (4)
(xvi) by Holding in its Form 10-K for the fiscal year ended
December 31, 1994, and herein incorporated by reference.
(xvi) Amended and Restated Credit Agreement, dated as of February 9,
1995, among Holding, the Company, certain subsidiaries of the
Company and the lending institutions listed therein, Chemical
Bank, as Administrative Agent; Citibank, N.A. and NationsBank,
N.A. (Carolinas), as Senior Managing Agents; Bank of America
Illinois, The Bank of Nova Scotia, Bankers Trust Company, The
Chase Manhattan Bank, N.A., Compagnie Financiere de CIC et de
L'Union Europeenne, Credit Suisse, Deutsche Bank AG, The
Industrial Bank of Japan Trust Company, The Long-Term Credit Bank
of Japan, Limited and The Sumitomo Bank, Ltd., as Managing
Agents; and The Bank of New York, Canadian Imperial Bank of
Commerce, The Fuji Bank, Limited and The Sanwa Bank Limited, as
Co-Agents (the "1995 Credit Agreement"), with exhibits but
without schedules. (The 1995 Credit Agreement replaces the 1993
Credit Agreement referred to in Exhibit (4) (xii) above, but the
Security documents and the Guarantee Documents entered into
pursuant to the 1993 Credit Agreement continue in force and
effect as amended by the Credit Documents Amendment Agreement
dated as of February 9, 1995 described in Exhibit (4) (xvii)
below); previously filed as Exhibit (4) (xvii) in Holding's Form
10-K for the fiscal year ended December 31, 1994, and herein
incorporated by reference. (Schedules I, II and III to the 1995
Credit
38
<PAGE> 41
Agreement are previously filed as Exhibit (4) (v) in Holding's
Form 10-Q for the quarter ended March 31, 1995, and herein
incorporated by reference.)
(xvii) Credit Documents Amendment Agreement dated as of February 9,
1995, among Holding, the Company, certain domestic and foreign
subsidiaries of the Company, and Chemical Bank, as Administrative
Agent and as Collateral Agent for the Lenders under the 1995
Credit Agreement described in Exhibit (4) (xvi) above; previously
filed as Exhibit (4) (xviii) in Holding's Form 10-K for the
fiscal year ended December 31, 1994, and herein incorporated by
reference.
(xviii) First Amendment, dated as of March 15, 1995, to the 1995 Credit
Agreement referred to in (4) (xvi) above; previously filed as
Exhibit (4) (vi) in Holding's Form 10-Q for the quarter ended
March 31, 1995, and herein incorporated by reference.
(xix) Amended and Restated Stockholders Agreement, dated as of December
2, 1994, among Holding, Kelso ASI Partners, L.P. and the
Management Stockholders named therein; previously filed as
Exhibit (4) (xxi) in Amendment No. 1 to Holding's Registration
Statement No. 33-56409 under the Securities Act of 1933, as
amended, filed December 20, 1994, and herein incorporated by
reference.
(xx) Rights Agreement, dated as of January 5, 1995, between Holding
and Citibank, N.A. as Rights Agent; previously filed as Exhibit
(4) (xxv) in Holding's Form 10-K for the fiscal year ended
December 31, 1994, and herein incorporated by reference.
(10) *(i) American Standard Inc. Long-Term Incentive Compensation Plan, as
amended and restated as of February 3, 1995; previously filed as
Exhibit (10) (i) in the Company's Form 10-K for the fiscal year
ended December 31, 1994, and herein incorporated by reference.
(ii) Trust Agreement for American Standard Inc. Long-Term Incentive
Compensation Plan and Supplemental Incentive Plan, as amended and
* Items in this series 10 consist of management contracts or compensatory
plans or arrangements with exception of (10) (v) and (vi).
39
<PAGE> 42
restated as of February 3, 1995; previously filed as Exhibit (10)
(ii) in the Company's Form 10-K for the fiscal year ended
December 31, 1994, and herein incorporated by reference.
(iii) American Standard Inc. Annual Incentive Plan; previously filed as
Exhibit (10) (vii) in the Company's Form 10-K for the fiscal year
ended December 31, 1988, and herein incorporated by reference.
(iv) American Standard Inc. Executive Supplemental Retirement Benefit
Program, as restated to include all amendments through July 6,
1995. Filed herewith.
(v) Consulting Agreement made July 1, 1988, with Kelso & Company,
L.P. concerning general management and financial consulting
services to the Company; previously filed as Exhibit (10) (xviii)
to the Company's Form 10-K for the fiscal year ended December 31,
1988, and herein incorporated by reference.
(vi) Agreement, dated as of December 2, 1994, among Holding, the
Company and Kelso & Company, L.P., amending the Consulting
Agreement referred to in paragraph (10) (v) above; previously
filed as Exhibit (10) (xi) in Amendment No. 1 to Registration
Statement No. 33-56409 under the Securities Act of 1933, as
amended, filed December 20, 1994, and herein incorporated by
reference.
(vii) American Standard Inc. Supplemental Compensation Plan for Outside
Directors, as amended through February 3, 1995; previously filed
as Exhibit (10) (xii) to the Company's Form 10-K for the fiscal
year ended December 31, 1994, and herein incorporated by
reference.
(viii) ASI Holding Corporation 1989 Stock Purchase Loan Program;
previously filed as Exhibit (10) (i) to Holding's Form 10-Q for
the quarter ended September 30, 1989, and herein incorporated by
reference.
(ix) Corporate Officers Severance Plan adopted in December, 1990,
effective April 27, 1991; previously filed as Exhibit (10) (xix)
to the Company's Form 10-K for the fiscal year ended December 31,
1990, and herein incorporated by reference.
(x) Estate Preservation Plan adopted in December, 1990; previously
filed as Exhibit (10) (xx) to the Company's Form 10-K for the
fiscal year ended December 31, 1990, and herein incorporated by
reference.
(xi) Amendment adopted in March 1993 to Estate Preservation Plan
referred to in (10) (x) above; previously filed as Exhibit (10)
(xvii) to the Company's
40
<PAGE> 43
Form 10-K for the fiscal year ended December 31, 1993, and herein
incorporated by reference.
(xii) Summary of terms of Unfunded Deferred Compensation Plan, adopted
December 2, 1993; previously filed as Exhibit (10) (xviii) to the
Company's Form 10-K for the fiscal year ended December 31, 1993,
and herein incorporated by reference.
(xiii) American Standard Companies Inc. Stock Incentive Plan; previously
filed as Exhibit (10) (xx) in Amendment No. 3 to Holding's
Registration Statement No. 33-56409 under the Securities Act, as
amended, filed January 5, 1995, and herein incorporated by
reference.
(xiv) American Standard Inc. and Subsidiaries 1996-1998 Supplemental
Incentive Compensation Plan adopted October 6, 1995; filed as an
Exhibit to Holding's definitive Proxy Statement for its 1996
Annual Meeting of Stockholders, and herein incorporated by
reference.
(27) Financial Data Schedule.
41
<PAGE> 1
Exhibit 10 -iv
AMERICAN STANDARD INC.
EXECUTIVE SUPPLEMENTAL RETIREMENT BENEFIT PROGRAM
Restated to include all amendments through
July 6, 1995
<PAGE> 2
ARTICLE I
DEFINITIONS
For all purposes of the Program the following definitions shall apply, with
words in the masculine gender including, where appropriate, the feminine gender:
Actuarial Equivalent means, with respect to any monthly payments referred
to in Article IV, the lump sum payment which is the present value as of
the date of commencement of such monthly payments, determined using the
following actuarial assumptions:
(a) Mortality Table - 1983 Basic Group Annuity Mortality Table for males
projected to 1988 with Scale H; and
(b) Interest - the lesser of
(1) 120% of the annual interest rate used by the Pension Benefit
Guaranty Corporation to value immediate annuities for plans
terminating as of the date as of which the applicant's monthly
pension payments would otherwise commence; and
(2) the average yield of long-term U.S. Treasury bonds issued
during the one month period ending one month before the date
as of which the applicant's monthly pension payments would
otherwise commence, as published in the Federal Reserve
Bulletin under the heading "Composite Index: Over 10 Years
(long-term)," such average yield to be rounded to the nearest
.25%;
provided that, for purposes of calculating a lump sum payment to a
Prior Participant or his Surviving Spouse the interest rate applied
to calculate that portion of such lump sum attributable to such
Prior Participant's Special Years of Service shall be multiplied by
sixty and four-tenths percent (60.4%).
Average Monthly Earnings of a Participating Employee means his total
Compensation for the three (3) calendar Years of Service (or such lesser
number of calendar years as may constitute his Years of Service) in his
last ten (10) calendar Years of Service (including in such ten (10)
calendar years the year in which his Service is broken), during which his
total Compensation was the highest, divided by thirty-six (36) (or such
lesser number as may constitute the number of calendar months of his Years
of Service).
Board means the Board of Directors of the Corporation.
Code means the Internal Revenue Code of 1986, as amended.
Committee means the Committee constituted under Article III, Section 2
hereof.
Compensation means, for any calendar year, the total remuneration (other
than remuneration that is not treated as "Compensation" under and for
purposes of the Retirement Plan) for Service rendered by a Participating
Employee during such year, including any annual incentive compensation
awarded to him with respect to such year, without regard to the year in
which such incentive compensation is received; provided that Compensation
shall not include any payments under the American Standard Inc. Management
Partners' Bonus Plan or Long-Term Incentive Compensation Plan.
2
<PAGE> 3
Corporation means American Standard Inc. and its successors and any
predecessor corporation merged with or into, or any business acquired by,
American Standard Inc.
Employee means an employee of the Corporation or a Subsidiary Company.
ESOP Offset means two (2) times the value, as of the date when a
Participating Employee's Service is broken, of the Basic Company
Contributions to his account under the American-Standard Employee Stock
Ownership Plan.
Other Post-Retirement Benefits means, with respect to a Participating
Employee, his ESOP Offset, plus all amounts paid or payable to him or his
Surviving Spouse under or with respect to the Retirement Plan (including
any monthly pension payable hereunder because it exceeds the maximum
limitation on pension amounts imposed by Section 415 of the Code), the
American Standard Profit Sharing Plan and any other non-governmental
defined benefit or defined contribution employee pension plan (except the
Savings and Stock Ownership Plan of American Standard Inc. and
Participating Subsidiary Companies and the American Standard Employee
Stock Ownership Plan) to which the Corporation, any Subsidiary Company or
any previous employer of such Participating Employee had made
contributions, provided that in calculating such amounts the following
shall apply:
(a) Any Other Post-Retirement Benefit which is offset under the terms of
the Retirement Plan shall be offset under this Program;
(b) Such amounts shall include lump sum and installment distributions
which, together with all Other Post Retirement Benefits, shall be
expressed as an Actuarially Equivalent lifetime annuity payable
monthly.
(c) Such amounts shall exclude benefits to the extent attributable to
ontributions made by such Participating Employee; and
(d) Such amounts shall reflect reductions for early commencement of
benefits, if any.
Participating Employee means any Employee (including, unless the context
otherwise requires, an Employee who is a Prior Participant) who has been
and so long as he remains an officer of the Corporation elected as such by
the Board, but such term shall not include the Chairman of the Board on
January 1, 1991.
Prior Participant means any one of Emmanuel A. Kampouris, William A. Klug
and James E. Mack, so long as he is a Participating Employee.
Primary Social Security Benefit shall have the meaning ascribed to that
term in and by the Retirement Plan. In the event that the Participating
Employee provides the Committee with the actual amount of his Social
Security Benefit plus the amounts, if any, payable to such Employee under
a foreign social insurance or pension system (which is comparable in
nature to the U.S. Social Security System) then the total of such amounts
if less than the U.S. Primary Social Security Benefit as defined in the
Retirement Plan shall be deemed the Participating Employee's Primary
Social Security Benefit for the purposes of this Program.
Program means the Amended and Restated Executive Supplemental Retirement
Benefit Program of American Standard Inc., as set forth in this document
and as amended from time to time.
Retirement Plan means the Retirement Plan of American Standard Inc. and
Participating Subsidiary Companies, as in effect immediately before the
amendments thereto made as of June 30, 1988.
3
<PAGE> 4
Service and Years of Service shall have the meanings ascribed to those
terms in and by the Retirement Plan.
Special Average Monthly Earnings of a Prior Participant means his total
Compensation for the three (3) calendar Years of Service during which his
Compensation was the highest in the ten (10) calendar Years of Service
ending with and including the earlier of the year in which his Service is
broken and the year 1991, divided by thirty-six (36).
Special Years of Service of a Prior Participant means his Years of Service
through the earlier of the month immediately preceding the month in which
his Service is broken and March, 1991.
Subsidiary Company means any corporation organized and existing under the
laws of a state, district or territory of the United States at least fifty
percent (50%) of whose outstanding voting stock is owned, directly or
indirectly, by the Corporation or another Subsidiary Company.
Surviving Spouse means the person to whom a Participating Employee or
former Participating Employee was legally married on the earlier of the
date of his retirement or death.
4
<PAGE> 5
ARTICLE II
PURPOSE
The purpose of the Program is to further the achievement of corporate goals of
the Corporation by providing improved retirement income as a component of
executive compensation, by providing retirement income not subject to the limits
imposed on retirement plans qualified under Section 401(a) of the Code, and by
assisting in recruiting and retaining senior executives.
5
<PAGE> 6
ARTICLE III
AMENDMENT, CONTINUATION, ADMINISTRATION
Section 1 - Amendment and Continuation
The Board shall have the right to suspend or terminate the Program at any time
and, at any time or from time to time, to amend its terms; provided, however,
that no such action shall effect a forfeiture or a reduction in the amount of
any benefit under the Program that
(a) an Employee who had been a Participating Employee for at least
twelve (12) months prior to the month in which such action is
authorized or
(b) the Surviving Spouse of such an Employee
would otherwise have been entitled to receive if such Employee had died on, or
retired as of the first of the month coinciding with or following, the effective
date of such action or, if later, the date of its authorization. Notwithstanding
any such suspension, termination or amendment, the Corporation and Subsidiary
Companies will at all times be free to establish other programs, similar or
different, for the benefit of any Employees.
Section 2 - Administration
The Program shall be administered by a committee of the Board (the "Committee")
which is appointed by the Board. No member of such Committee shall be eligible
to participate in the Program. The Committee shall interpret the Program,
establish administrative policies, guidelines and rules and designate
Participating Employees thereunder, and take any other action necessary or
desirable for the proper operation of the Program. All such interpretations,
policies, guidelines, rules, designations and actions shall be final and binding
upon the Corporation, all Subsidiary Companies, all Employees and all
Participating Employees.
6
<PAGE> 7
ARTICLE IV
ELIGIBILITY FOR AND AMOUNT OF BENEFITS
Section 1 - Upon Retirement at or After Age Sixty-five
Any Participating Employee who, after completing at least five (5) Years of
Service, ceases to be an Employee on or after his sixty-fifth (65th) birthday
shall receive from the Corporation, no later than the thirtieth (30th) day of
the month coincident with or immediately succeeding his sixty-fifth (65th)
birthday (or the month in which he ceases to be an Employee, if later), a single
lump sum payment which shall be the Actuarial Equivalent of a monthly payment,
commencing with such month and continuing for his lifetime, in an amount equal
to the sum of (i) the excess of
(a) four percent (4%) of his Average Monthly Earnings, multiplied by the
number, not in excess of ten (10), of his Years of Service, plus
(b) one percent (1%) of his Average Monthly Earnings, multiplied by the
number of his Years of Service accumulated after his first ten (10)
Years of Service (to a maximum of twenty percent (20%) of such
Average Monthly Earnings),
over the sum of
(c) such Participating Employee's Other Post-Retirement Benefits, plus
(d) his Primary Social Security Benefit;
and (ii) the monthly pension, if any, which is not payable to him from the
Retirement Plan because of the maximum limitations on pension amounts imposed by
Section 415 of the Code.
Notwithstanding the foregoing, the Actuarial Equivalent of the monthly payment
derived under this Section 1 shall not, with respect to a Prior Participant, be
less than the amount that would have been derived
A. if clauses (a), (b) and (c) above had read as follows:
(a-1) five percent (5%) of his Special Average Monthly Earnings,
multiplied by the number, not in excess of ten (10), of his
Special Years of Service, plus
(b-1) one percent (1%) of his Special Average Monthly Earnings,
multiplied by the number of his Special Years of Service
accumulated after his first ten (10) Special Years of
Service (to a maximum of twenty percent (20%) of such
Special Average Monthly Earnings),
(c-1) such Prior Participant's Other Post-Retirement Benefits,
exclusive of his ESOP Offset, expressed as an Actuarially
Equivalent amount payable for the life of the Prior
Participant, with fifty percent (50%) continuation of such
amount to his Surviving Spouse;
B. if, in the case of a Prior Participant who ceases to be an Employee on
or before April 27, 1991, his Special Years of Service for purposes of
the above clauses (a-1) and (b-1), but not for purposes of calculating
his Special Average Monthly Earnings or for any other purpose, meant
his Special Years of Service plus, in the case of Mr. Kampouris, three
(3) additional Special Years of Service, and in the
7
<PAGE> 8
cases of Messrs. Klug and Mack, two (2) additional Special Years of
Service (provided that in no case shall any such Prior Participant be
deemed, for purposes of this sentence, to have more Special Years of
Service than the Years of Service he would have had if his employment
had terminated on the first of the month coinciding with or next
following his sixty-fifth (65th) birthday); and
C. if the monthly amount calculated pursuant to this sentence were
payable for the life of such Prior Participant, with continuation for
the life of his Surviving Spouse of fifty percent (50%), minus one
percent (1%) for each year by which the age of such Surviving Spouse
is more than five (5) years lower than that of such Prior Participant,
of the sum of the amount determined under clauses (a-1) and (b-1)
above, less fifty percent (50%) of the sum of the amount determined
under clauses (c-1) and (d) above.
Section 2 - Upon Employment Termination Before Age Sixty-five
Any Participating Employee who ceases to be an Employee after completing at
least five (5) Years of Service, but before his sixty-fifth (65th) birthday
shall receive from the Corporation, no later than the thirtieth (30th) day of
the month designated in writing by such Participating Employee to the Committee
(which month shall not be earlier than the month immediately following his
fifty-fifth (55th) birthday), a single lump sum payment which shall be the
Actuarial Equivalent of a monthly payment, commencing with the month so
designated by such Participating Employee and continuing for his lifetime, in an
amount equal to the product of the amounts determined in clauses (a), (b) and
(c) below, with such result reduced by the amount in clauses (d) and (e) below
and increased by the amount in clause (f) below.
(a) The monthly payment that such Participating Employee would have
received computed under the below (i) and (ii), if he had remained
an Employee (with no change in his Average Monthly Earnings) until,
and if he had retired on, his sixty-fifth (65th) birthday:
(i) four percent (4%) of his Average Monthly Earnings,
multiplied by the number, not in excess of ten (10), of his
Years of Service, plus
(ii) one percent (1%) of his Average Monthly Earnings, multiplied
by the number of his Years of Service accumulated after his
first ten (10) Years of Service (to a maximum of twenty
percent (20%) of such Average Monthly Earnings);
(b) A fraction
(i) the numerator of which is the number of his Years of
Service, and
(ii) the denominator of which is the number of Years of Service
he would have accumulated if he had remained an Employee
until his sixty-fifth (65th) birthday;
(c) The percentage determined according to attained age (in years and
completed months) on date of commencement of monthly payments, in
accordance with the following table with values for non-integral
ages to be determined by interpolation:
<TABLE>
<CAPTION>
Attained Age on Date of
Commencement Percentage
---------------------- ----------
<S> <C>
64 .97
63 .93
62 .88
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C>
61 .82
60 .75
59 .68
58 .61
57 .54
56 .47
55 or younger .40
</TABLE>
(d) Such Participating Employee's Other Post-Retirement Benefits;
(e) Such Participating Employee's Primary Social Security Benefit,
multiplied by clauses (b) and (c) above, or the Participating
Employee's actual Social Security Benefit (or other comparable
benefits), if so provided by the Participating Employee;
(f) Such Participating Employee's monthly pension, if any, reduced (if
applicable) for early commencement, which is not payable to him from
the Retirement Plan because of the maximum limitations on pension
amounts imposed by Section 415 of the Code.
Notwithstanding the foregoing, the Actuarial Equivalent of the monthly amount
derived under this Section 2 shall not, with respect to a Prior Participant, be
less than the amount that would have been derived
A. if clauses (a) through (c) above had read as follows:
(a-1) The monthly payment that such Prior Participant would have
received computed under the below (i) and (ii), if he had
remained an Employee (with no change in his Special Average
Monthly Earnings) until, and if he had retired on, his
sixty-fifth (65th) birthday:
(i) five percent (5%) of his Special Average Monthly
Earnings, multiplied by the number, not in excess of
ten (10), of his Special Years of Service, plus
(ii) one percent (1%) of his Special Average Monthly
Earnings, multiplied by the number of his Special
Years of Service accumulated after his first ten
(10) Years of Service (to a maximum of 20% of such
Special Average Monthly Earnings),
(b-1) A fraction
(i) the numerator of which is the number of his Special
Years of Service, and
(ii) the denominator of which is the number of Years of
Service he would have accumulated if he had remained
an Employee until his sixty-fifth (65th) birthday,
(c-1) The percentage determined according to attained age (in
years and completed months) on date of commencement of
monthly payments, in accordance with the following table
with values for non-integral ages to be determined by
interpolation:
<TABLE>
<CAPTION>
Attained Age on Date of
Commencement Percentage
---------------------- ----------
<S> <C>
64 .93
63 .86
62 .79
61 .72
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C>
60 .65
59 .61
58 .57
57 .53
56 .49
55 .45
</TABLE>
(d-1) Such Prior Participant's Other Post-Retirement Benefits,
exclusive of his ESOP Offset, expressed as an Actuarial
Equivalent amount payable for the life of the Prior
Participant, with fifty percent (50%) continuation of such
amount to his Surviving Spouse,
(e-1) Such Prior Participant's Primary Social Security Benefit,
multiplied by clauses (b-1) and (c-1) above, or the Prior
Participant's actual Social Security benefit (or other
comparable benefits), if so provided by the Prior
Participant,
B. if, in the case of a Prior Participant who ceases to be an Employee on
or before April 27, 1991, his Special Years of Service for purposes of
the above clauses (a-1) and (b-1), but not for purposes of calculating
his Special Average Monthly Earnings or for any other purpose, meant
his Special Years of Service plus, in the case of Mr. Kampouris, three
(3) additional Special Years of Service, and in the case of Messrs.
Klug and Mack, two (2) additional Special Years of Service (provided
that in no case shall any Prior Participant be deemed, for purposes of
this sentence, to have more Special Years of Service than he would
have had if his employment had terminated on the first of the month
coinciding with or next following his sixty-fifth (65th) birthday);
and
C. if such monthly amount calculated pursuant to this sentence were
payable for the life of the Prior Participant, with continuation for
the life of his Surviving Spouse of fifty percent (50%), minus one
percent (1%) for each year by which the age of such Surviving Spouse
is more than five (5) years lower than that of such Prior Participant,
of the sum of the amount determined under clauses (a-1) and (b-1)
above, less fifty percent (50%) of the sum of the amounts determined
under clauses (c-1) and (e) above.
Section 3 - Upon Death Before Retirement
If a Participating Employee is married, and has accumulated at least five (5)
Years of Service when he ceases to be an Employee due to his death, his
Surviving Spouse shall receive from the Corporation, no later than the thirtieth
(30th) day of the month immediately succeeding the month of his death, a single
lump sum payment which shall be the Actuarial Equivalent of a monthly payment,
commencing with such succeeding month and continuing for the lifetime of such
Surviving Spouse, in an amount equal to the product of the amounts determined in
the below clauses (a), (b), (c) and (d), with such result reduced by the amounts
in the below clauses (e) and (f).
(a) The monthly payment that the Participating Employee would have
received computed under the below (i) and (ii), if he had remained
an Employee (with no change in his Average Monthly Earnings) until,
and if he had retired on, his sixty-fifth (65th) birthday:
(i) four percent (4%) of his Average Monthly Earnings,
multiplied by the number, not in excess of ten (10), of his
Years of Service, plus
10
<PAGE> 11
(ii) one percent (1%) of his Average Monthly Earnings, multiplied
by the number of his Years of Service accumulated after his
first ten (10) Years of Service (to a maximum of 20% of such
Average Monthly Earnings),
(b) A fraction
(i) the numerator of which is the number of his Years of
Service, and
(ii) the denominator of which is the number of Years of Service
he would have accumulated if he had remained an Employee
until his sixty-fifth (65th) birthday,
(c) Fifty percent (50%), minus one percent (1%) for each full year by
which the age of the Surviving Spouse is more than five (5) years
lower than that of the Participating Employee,
(d) The percentage specified in clause (c) of Section 2 for the
Participating Employee's age at the time of his death,
(e) The Participating Employee's Other Post-Retirement Benefits,
(f) The Participating Employee's Primary Social Security Benefit,
multiplied by clauses (b), (c), and (d) above.
Notwithstanding the foregoing, the monthly amount derived under this Section 3
shall not, with respect to the Surviving Spouse of a Prior Participant, be less
than the amount that would have been derived if clauses (a) through (f) above
had read as follows:
(a-1) The monthly payment that such Prior Participant would have received
computed under the below (i) and (ii), if he had remained an
Employee (with no change in his Special Average Monthly Earnings)
until, and if he had retired on, his sixty-fifth (65th) birthday:
(i) five percent (5%) of his Special Average Monthly Earnings,
multiplied by the number, not in excess of ten (10), of his
Years of Service, plus
(ii) one percent (1%) of his Special Average Monthly Earnings,
multiplied by the number of his Special Years of Service
accumulated after his first ten (10) Special Years of
Service (to a maximum of 20% of such Special Average Monthly
Earnings),
(b-1) A fraction
(i) the numerator of which is the number of his Special Years of
Service, and
(ii) the denominator of which is the number of Years of Service
he would have accumulated if he had remained an Employee
until his sixty-fifth (65th) birthday,
(c-1) Fifty percent (50%), minus one percent (1%) for each full year by
which the age of the Surviving Spouse is more than five (5) years
lower than that of the Prior Participant,
(d-1) The percentage specified in clause (c-1) of Section 2 for the Prior
Participant's age at the time of his death,
(e-1) The Prior Participant's Other Post-Retirement Benefits, exclusive of
his ESOP Offset,
11
<PAGE> 12
(f-1) Such Prior Participant's Primary Social Security Benefit, multiplied
by clauses (b-1), (c-1) and (d-1) above, or the Prior Participant's
actual Social Security benefit (or other comparable benefits), if so
provided by the Prior Participant.
Section 4 - Upon Death After Termination of Employment
If a Participating Employee described in Section 2 of this Article IV is married
when he dies after the termination of his employment but before his receipt of
the lump sum payment to which he is entitled under said Section, his Surviving
Spouse shall receive from the Corporation, no later than the thirtieth (30th)
day of the month immediately following the month of his death, a single lump sum
payment which shall be the Actuarial Equivalent of the single lump sum payment
that such Participating Employee would have received if the month that he
designated for purposes of said Section 2 had been the later of the month of his
death and the month of his fifty-fifth (55th) birthday and if he had survived
through such month, reduced by fifty percent (50%), minus one percent (1%) for
each year by which the age of the Surviving Spouse is more than five (5) years
lower than that of the Participating Employee.
12
<PAGE> 13
ARTICLE V
FORFEITURES AND LIMITATIONS
Section 1 - Forfeiture of Benefits
Except with respect to the accrued benefit payable hereunder to a Prior
Participant (or his Surviving Spouse) based on such Prior Participant's Special
Years of Service and his Special Average Monthly Earnings, if the Committee
determines that any Participating Employee (or any recipient of a benefit under
the Program who had been a Participating Employee) has, while or at any time
after he ceased to be an Employee, directly or indirectly engaged in any
occupation in competition with, or has wrongfully disclosed trade secrets of or
confidential information relating to, or has intentionally done any act
materially harmful to the interests of, the Corporation or any Subsidiary
Company, the Committee may in its sole discretion terminate or annul the payment
of such benefit.
Section 2 - Inalienability of Benefits
No sale, transfer, anticipation, assignment, pledge or encumbrance of any kind,
at law or in equity, of any benefit under this Program shall be permitted or
recognized under any circumstances, and no benefit under this Program shall be
subject to attachment or other legal process.
Section 3 - Other Limitations
No benefit payable under the Program shall give rise to any offset or shall be
included in any reduction pursuant to Article III or any other provision of the
Retirement Plan or have any similar effect on any other benefit payable under
any other private benefit plan to which the Corporation or any Subsidiary
Company shall have contributed. Otherwise, the Committee may from time to time
determine whether the total benefits payable to any individual under the Program
and all other private benefit plans to which the Corporation or any Subsidiary
Company shall have contributed shall be subject to any limitation as to amount
other than as provided elsewhere in the Program and/or in such other private
plans, and, if so, shall determine the amount of such limitation.
13
<PAGE> 14
Section 4 - Minimum Benefit
Effective December 31, 1993, for a Prior Participant, a minimum benefit
calculated in accordance with the benefit formulas set forth in Section 1 or 2
of Article IV on the basis of his Special Average Monthly Earnings and Special
Years of Service shall be deemed fixed as of December 31, 1993 with respect to
all elements of such formulas, including such Prior Participant's Primary Social
Security Benefit (which for this purpose shall be determined as if the date of
retirement occurred in the year 1993), but excluding the Actuarial Equivalent of
such benefit.
For any Participating Employee, the portion of his benefit payable under Section
1 or 2 of Article IV which is attributable to his Years of Service and Average
Monthly Earnings through December 31, 1993 shall not be less than a minimum,
which shall be deemed fixed as of December 31, 1993 and shall be calculated on
the basis of (x) a Primary Social Security Benefit determined for a retirement
occurring December 31, 1993, but increased by five percent (5%) per annum for
each whole calendar year between December 31, 1993 and the actual date of
retirement and (y) an ESOP offset determined as of December 31, 1993 and
increased by twenty percent (20%) per annum for each whole calendar year between
December 31, 1993 and the actual date of retirement. This provision shall not
apply, however, to calculation of the Actuarial Equivalent of the portion of a
Participating Employee's benefit under Section 1 or 2 of Article VI attributable
to Years of Service and Average Monthly Earnings through December 31, 1993.
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 63,528
<SECURITIES> 5,176
<RECEIVABLES> 798,354
<ALLOWANCES> 27,330
<INVENTORY> 362,340
<CURRENT-ASSETS> 1,294,926
<PP&E> 1,438,052
<DEPRECIATION> 513,560
<TOTAL-ASSETS> 3,519,647
<CURRENT-LIABILITIES> 1,296,602
<BONDS> 1,770,098
0
0
<COMMON> 0
<OTHER-SE> (379,553)
<TOTAL-LIABILITY-AND-EQUITY> 3,519,647
<SALES> 5,221,476
<TOTAL-REVENUES> 5,221,476
<CGS> 3,887,024
<TOTAL-COSTS> 3,887,024
<OTHER-EXPENSES> 40,489
<LOSS-PROVISION> 4,922
<INTEREST-EXPENSE> 213,326
<INCOME-PRETAX> 226,854
<INCOME-TAX> 86,070
<INCOME-CONTINUING> 141,784
<DISCONTINUED> 0
<EXTRAORDINARY> (30,129)
<CHANGES> 0
<NET-INCOME> 111,655
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
