<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1995.
REGISTRATION NO. 33-56409
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 4
TO
FORM S-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
AMERICAN STANDARD COMPANIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3465896
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Centennial Avenue
P.O. Box 6820
Piscataway, NJ 08855-6820
(908) 980-6000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
Richard A. Kalaher, Esq.
Acting General Counsel & Acting Secretary
American Standard Companies Inc.
One Centennial Avenue
P.O. Box 6820
Piscataway, NJ 08855-6820
(908) 980-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
Copies to:
Paul H. Wilson, Jr., Esq. Michael A. Becker, Esq.
Debevoise & Plimpton Cahill Gordon & Reindel
875 Third Avenue 80 Pine Street
New York, New York 10022 New York, New York 10005
(212) 909-6000 (212) 701-3000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering in the United States (the "U.S. Prospectus")
and one to be used in a concurrent international offering outside the United
States (the "International Prospectus"). The U.S. Prospectus and the
International Prospectus are identical except for the front and back cover
pages, the inside front cover page, the sections entitled "Underwriting" and
"Certain United States Tax Consequences to Non-U.S. Holders" (the section
entitled "Certain United States Tax Consequences to Non-U.S. Holders" appears
only in the International Prospectus) and certain cross-references relating
thereto. The form of U.S. Prospectus is included herein and is followed by those
pages to be used in the International Prospectus which differ from, or are in
addition to, those in the U.S. Prospectus. Each of the alternate pages for the
International Prospectus included herein is labeled "Alternate Page for
International Prospectus".
<PAGE> 3
AMERICAN STANDARD COMPANIES INC.
CROSS REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501(b),
SHOWING LOCATION OF INFORMATION REQUIRED BY ITEMS ON FORM S-2
<TABLE>
<CAPTION>
FORM S-2 ITEM NUMBER AND CAPTIONS LOCATION OR CAPTION IN PROSPECTUS
- --------------------------------- ---------------------------------
<S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................ Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.............. Prospectus Summary; Certain Investment
Considerations; Summary Historical
Financial Data; Summary Pro Forma
Financial Data
4. Use of Proceeds............................. Use of Proceeds
5. Determination of Offering Price............. Underwriting
6. Dilution.................................... Dilution
7. Selling Security Holders.................... *
8. Plan of Distribution........................ Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered................................ Description of Capital Stock
10. Interests of Named Experts and Counsel...... *
11. Information with Respect to the Registrant
(a) Description of Business................. Prospectus Summary; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business
(b) Financial Statements.................... Consolidated Financial Statements
(c) Industry Segments....................... Prospectus Summary; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business
(d) Market Price and Dividends on
Registrant's Common Equity and Related
Stockholders' Matters.................. Dividend Policy; Description of Capital
Stock
(e) Selected Financial Data................. Pro Forma Financial Data; Selected
Historical Consolidated Financial Data
(f) Supplementary Financial Information..... Selected Historical Consolidated Financial
Data and Consolidated Financial Statements
(g) Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(h) Disagreements with Accountants on
Accounting and Financial Disclosure.... *
12. Incorporation of Certain Information by
Reference................................. Inside Front Cover Page
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Part II
</TABLE>
- ---------------
*Not applicable or answer is in the negative.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 31, 1995
14,500,000 SHARES
AMERICAN STANDARD COMPANIES INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
-------------------
Of the 14,500,000 shares of Common Stock offered, 10,000,000 shares are
being offered hereby in the United States and 4,500,000 shares are being offered
in a concurrent international offering outside the United States. The initial
public offering price and the aggregate underwriting discount per share are
identical for both offerings (collectively, the "Offerings"). See
"Underwriting".
All of the shares of Common Stock offered are being issued and sold by the
Company. None of the Company's current stockholders, including Kelso ASI
Partners, L.P. ("ASI Partners"), the Company's majority stockholder, the
American-Standard Employee Stock Ownership Plan or management stockholders, will
sell any Common Stock in the Offerings. Upon completion of the Offerings, ASI
Partners will own approximately 60% of the outstanding Common Stock and will
retain the power to elect a majority of the Company's directors and thereby to
determine the Company's corporate policies.
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price per share will be between $19 and $22. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "CERTAIN INVESTMENT CONSIDERATIONS" FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been authorized for listing on the New York Stock
Exchange, subject to official notice of issuance.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
---------------------------------------------------------------
<S> <C> <C> <C>
Per Share................ $ $ $
Total(3)................. $ $ $
</TABLE>
- ------------
(1) The Company and American Standard Inc. have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $2,900,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days after
the date of this Prospectus to purchase up to an additional 1,500,000 shares
at the initial public offering price per share, less the underwriting
discount, solely to cover over-allotments. Additionally, an over-allotment
option on 675,000 shares has been granted by the Company as part of the
international offering. If such options are exercised in full, the total
initial public offering price, underwriting discount and proceeds to the
Company will be $ , $ and $ , respectively. See
"Underwriting".
-------------------
The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York, on
or about February , 1995.
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
------------------------
The date of this Prospectus is February , 1995.
<PAGE> 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
American Standard Companies Inc. (formerly named ASI Holding Corporation)
(the "Company") has filed with the Securities and Exchange Commission (the
"Commission"), pursuant to Section 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), an Annual Report on Form 10-K for the year
ended December 31, 1993 (the "1993 10-K"), Quarterly Reports on Form 10-Q for
the fiscal quarters ended March 31, June 30 and September 30, 1994 and an
amended Quarterly Report on Form 10-Q/A for the fiscal quarter ended March 31,
1994 (the "1994 10-Qs") and a Current Report on Form 8-K, dated November 10,
1994 (the "8-K"), which are hereby incorporated by reference in and made a part
of this Prospectus (to the extent not superseded hereby).
Any statements contained in the 1993 10-K, the 1994 10-Qs or the 8-K shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The 1993 10-K, the 1994 10-Qs and the 8-K, without exhibits, are available
without charge upon request directed to: Office of the Secretary, American
Standard Companies Inc., One Centennial Avenue, P.O. Box 6820, Piscataway, NJ
08855-6820 ((908) 980-6000).
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-2 (the "Registration Statement", which term shall encompass all amendments
thereto) under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares (the "Shares") of its common stock, par value $.01
per share (the "Common Stock") offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement as permitted
by the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. Items of information omitted from this Prospectus but contained
in the Registration Statement may be inspected and copied without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following regional
offices of the Commission: 14th Floor, 500 West Madison Street, Chicago,
Illinois 60661; and 7 World Trade Center, New York, New York 10048. Copies of
such material can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at
prescribed rates.
The Company complies with the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Commission. All such information may be inspected and copied at the public
reference facilities maintained by the Commission at the locations referred to
above. The Common Stock has been authorized for listing on the New York Stock
Exchange (the "NYSE") subject to official notice of issuance, and copies of such
material will also be available for inspection at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 6
[INSIDE FRONT COVER 1]
[AMERICAN STANDARD LOGO]
[TRANE LOGO]
[PICTURE 1]
TRANE XL1200 [PICTURE 2]
RESIDENTIAL COOLING UNIT
TRANE CENTRAVAC(R)
CENTRIFUGAL CHILLER
[PICTURE 3]
TRANE LIGHT COMMERCIAL
ROOFTOP HEATING AND COOLING UNIT [PICTURE 4]
TRANE TRACER SUMMIT(TM)
BUILDING MANAGEMENT SYSTEM
[PICTURE 5]
TRANE MODULAR CLIMATE CHANGER(R)
AIR HANDLER
<PAGE> 7
[INSIDE FRONT COVER 2]
[AMERICAN STANDARD LOGO] [IDEAL STANDARD LOGO]
[PICTURE 6] [PICTURE 7]
[PICTURE 8] [PICTURE 9]
[WABCO LOGO]
[PICTURE 10]
COMPRESSORS
RESERVOIRS
AIR DRYERS
CONTROL VALVES
SUSPENSION CONTROLS ANTILOCK BRAKING SYSTEMS
CLUTCH SERVO TRACTION CONTROL
GEAR SHIFT CONTROLS SLACK ADJUSTERS
CAB LEVELLING VALVE ACTUATORS
CLIMATE CONTROLS FOUNDATION BRAKES
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
included elsewhere in this Prospectus. American Standard Companies Inc. is a
Delaware corporation that has as its only significant asset all the outstanding
common stock of American Standard Inc., a Delaware corporation ("American
Standard Inc."). Hereinafter, "American Standard" or "the Company" will refer to
the Company, or to the Company and American Standard Inc., including its
subsidiaries, as the context requires. Unless otherwise indicated, all
information set forth in this Prospectus (i) gives effect to a 2.5 to 1 split of
the Common Stock effected in December 1994, (ii) assumes an initial public
offering price of $20.50 per share and (iii) assumes no exercise of the
over-allotment options to be granted to the U.S. Underwriters and the
International Underwriters (collectively, the "Underwriters").
THE COMPANY
GENERAL
American Standard is a globally-oriented manufacturer of high quality,
brand-name products in three major product groups: air conditioning systems (55%
of 1993 sales); bathroom and kitchen fixtures and fittings (30% of 1993 sales);
and braking systems for medium-sized and heavy trucks, buses, trailers and
utility vehicles (15% of 1993 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) for air conditioning
systems, AMERICAN-STANDARD(R), IDEAL-STANDARD(R) and STANDARD(R) for plumbing
products and WABCO(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")) that utilize electronic controls.
American Standard had sales and operating income of $3.8 billion and $282
million, respectively, in 1993. Sales and operating income were $3.3 billion and
$291 million, respectively, in the first nine months of 1994, compared with $2.9
billion and $244 million, respectively, in the first nine months of 1993. During
the first nine months of 1994, sales from operations outside the United States
represented approximately 45% of the Company's total sales. At September 30,
1994 American Standard had 94 manufacturing facilities in 32 countries.
American Standard's business strategy is to promote growth in sales and
operating income. Key elements of this strategy are:
- INCREASE MARKET SHARES. The Company plans to increase the market
shares of its products by developing, manufacturing and selling high
quality, technologically advanced products and by providing superior
customer service.
- EXPAND SALES IN DEVELOPING MARKETS. The Company plans to build on its
historical global presence by focusing a significant portion of its
new business activities (principally through joint ventures in which
the Company has operating control) in developing market areas with the
potential for high economic growth and/or demand for the Company's
products, such as the Far East, including the People's Republic of
China, Latin America and Eastern Europe.
- CONTINUE APPLICATION OF DEMAND FLOW. To build on its position as a
leader in each of its industries, the Company plans to continue to
apply Demand Flow methods ("Demand Flow") to all its businesses. The
Company's use of Demand Flow is designed to streamline processes,
improve product quality, enhance customer service and reduce product
cycle times, while improving efficiency, reducing working capital
needs and lowering costs. Demand Flow, which the Company began to
apply in 1990, has resulted in significant benefits.
3
<PAGE> 9
BUSINESS SEGMENTS
American Standard operates three business segments: Air Conditioning
Products, Plumbing Products and Transportation 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 manufactures "applied" (custom engineered, site-assembled)
and "unitary" (self-contained, factory-assembled) air conditioning systems that
are sold primarily under the TRANE(R)name. Over one-half of Air Conditioning
Products' sales in 1993 and the first nine months of 1994 was in the
replacement, repair and service markets which have been less cyclical than the
new residential and commercial construction markets. Air Conditioning Products'
sales in these periods to the commercial and residential markets represented
approximately 75% and 25%, respectively, of total Air Conditioning Products'
sales.
Air Conditioning Products' sales increased to $1,861 million in the first
nine months of 1994, compared with $1,556 million in the first nine months of
1993. This increase was due principally to increased market shares, higher
replacement, repair and service revenues and increased levels of new residential
and commercial construction activity. Management believes that Air Conditioning
Products 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 and environmentally-preferred refrigerants,
and the expansion of its broad distribution network.
PLUMBING PRODUCTS. American Standard is a leading manufacturer in Europe
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) and STANDARD(R) names.
Plumbing Products' sales increased to $905 million in the first nine months
of 1994, compared to $875 million in the first nine months of 1993, due
principally to increased sales to the replacement and retail "do-it-yourself"
markets as well as increased levels of new residential and commercial
construction activity. Of Plumbing Products' worldwide 1993 sales, approximately
74% were derived from operations outside the United States. 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).
TRANSPORTATION PRODUCTS. Transportation Products is a leading
manufacturer, primarily in Europe and Brazil, of brake 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 antilock braking systems) marketed under the WABCO(R) name for
medium-size and heavy trucks, tractors, buses, trailers and utility vehicles.
American Standard supplies vehicle manufacturers such as Mercedes-Benz, Volvo,
Iveco (Fiat), RVI (Renault) and Rover.
Transportation Products' sales increased to $543 million in the first nine
months of 1994, compared to $420 million in the first nine months of 1993, due
principally to increased levels of commercial vehicle production in Europe and
Brazil and the addition of sales of Deutsche Perrot-Bremsen GmbH ("Perrot"), a
German brake manufacturer acquired in January 1994. Management believes that
Transportation Products is well positioned to benefit from improved market
conditions in Europe and Brazil and increasing demand in a number of markets
(including the U.S. commercial and utility vehicle markets) for ABS and other
sophisticated electronic control systems, as well as from the technological
advances embodied in the Company's products and its close relationships with a
number of vehicle manufacturers.
See "Business -- Air Conditioning Products Segment"; "-- Plumbing Products
Segment" and "-- Transportation Products Segment".
4
<PAGE> 10
GLOBALIZATION
American Standard has historically had a significant global presence. One
of its major strategic objectives is to continue to expand that presence,
through the growth of existing operations and the establishment of new
operations in developing market areas in the Far East, Latin America and Eastern
Europe. The Company often uses joint ventures with local manufacturing and
distribution partners to facilitate risk sharing and to allow the Company to
benefit from the additional expertise of local market participants.
Air Conditioning Products plans to continue to expand its operations in the
Far East, Latin America and Europe. It has recently established a joint venture
in Australia and is establishing joint ventures in the People's Republic of
China ("PRC"). Air Conditioning Products also recently expanded its sales forces
in the Far East and Latin America.
Plumbing Products has entered new markets through joint ventures in the Far
East, Eastern Europe, Spain and Portugal and is continuing to expand using this
approach. Plumbing Products is significantly expanding its operations in the PRC
through its affiliate, A-S China Plumbing Products Limited ("ASPPL"), to which
American Standard is obligated to contribute $10 million and has contributed an
operation valued at $20 million for an initial ownership position of 27% with
effective control over day-to-day operations. In April 1994, ASPPL received
other capital commitments of $82.5 million. As of December 15, 1994, ASPPL had
drawn down approximately $6.7 million of American Standard's $10.0 million
capital commitment and approximately $55 million of the capital commitments of
its other investors. ASPPL is expanding its operations to Beijing, Tianjin,
Shanghai and Guangzhou in order to provide a full product line of fixtures,
fittings and bathtubs throughout the PRC market.
Transportation Products, headquartered in Europe, has recently acquired a
business in Spain, is in the process of establishing joint ventures in Eastern
Europe and the PRC, and plans to expand its existing joint ventures in Japan and
the United States.
See "Business -- Strategy -- Globalization".
DEMAND FLOW
To build on its position as a leader in each of its industries and to
increase sales and operating income, American Standard began in 1990 to apply
Demand Flow methods to its businesses. Under Demand Flow, products are produced
as and when required by the customer, the production process is streamlined, and
quality control is integrated into each step of the manufacturing process. The
benefits of Demand Flow include better customer service, quicker response to
changing market needs, improved quality control, higher productivity, increased
inventory turnover rates and reduced requirements for working capital and
manufacturing and warehouse space.
Demand Flow has been implemented in substantially all of American
Standard's production facilities. American Standard believes that its
implementation of Demand Flow methods has achieved significant benefits. Product
cycle time (the time from the beginning of the manufacturing of a product to its
completion) has been reduced and, on average, inventory turnover rates have more
than doubled. Principally as a result of the implementation of Demand Flow,
American Standard achieved an aggregate $251 million reduction in inventories
for the years 1990 through 1993. American Standard is also applying Demand Flow
to administrative functions and is re-engineering its organizational structure
to manage its businesses based on processes instead of functions.
See "Business -- Strategy -- Demand Flow Technology".
5
<PAGE> 11
OWNERSHIP
The Company was formed in 1988 by Kelso & Company, L.P. ("Kelso") to effect
the acquisition (the "Acquisition") of American Standard Inc. The Company
changed its name from ASI Holding Corporation to American Standard Companies
Inc. in November 1994. Upon completion of the Offerings, the Company's Common
Stock will be owned approximately 60% by Kelso ASI Partners, L.P., an affiliate
of Kelso ("ASI Partners"), approximately 19% by purchasers of Shares in the
Offerings, approximately 14% by the American-Standard Employee Stock Ownership
Plan (the "ESOP") and approximately 7% by certain current and former officers
and employees of American Standard. In addition, pursuant to the Company's Stock
Incentive Plan (the "Stock Plan"), up to 7,550,595 shares of Common Stock
(assuming no exercise of the Underwriters' over-allotment options) will be
issuable to officers and other key executive and management employees of the
Company and its subsidiaries or minority owned joint ventures. Stock options
covering 5,000,000 shares of Common Stock are expected to be granted pursuant to
the Stock Plan at the initial public offering price in connection with the
Offerings. See "Management -- Stock Incentive Plan".
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the Company:
U.S. Offering.......................................................... 10,000,000 shares
International Offering................................................. 4,500,000 shares
------------
Total.................................................................. 14,500,000 shares
------------
------------
Common Stock to be outstanding after the Offerings(1).................... 75,505,950 shares
NYSE Symbol.............................................................. ASD
</TABLE>
- ---------------
(1) Based upon shares outstanding at December 20, 1994, and exclusive of (i) up
to 2,175,000 shares subject to over-allotment options to be granted by the
Company to the Underwriters and (ii) 5,000,000 shares of Common Stock
issuable upon exercise of stock options expected to be granted at the
initial public offering price in connection with the Offerings. See
"Underwriting" and "Management -- Stock Incentive Plan".
USE OF PROCEEDS
Net proceeds of the Offerings, estimated to be approximately $278 million
(assuming an initial public offering price of $20.50 per share and after
deducting estimated underwriting discounts and commissions and expenses of the
Offerings), will be used to reduce American Standard's bank borrowings. At
September 30, 1994, after giving effect to a $325 million borrowing incurred in
October 1994 (the "October Borrowing"), the Company would have had borrowings
aggregating approximately $1.0 billion outstanding under its existing credit
agreement (the "Existing Credit Agreement"). The proceeds of the October
Borrowing were used to redeem on November 21, 1994 all of the outstanding
14 1/4% Subordinated Discount Debentures Due 2003 (the "14 1/4% Subordinated
Discount Debentures") and 12 3/4% Junior Subordinated Debentures Due 2003 (the
"12 3/4% Junior Subordinated Debentures") of American Standard Inc., which
aggregated $316.8 million in principal amount. See "Use of Proceeds" and
"-- Recent Financial Results and Developments -- New Credit Facility."
CERTAIN INVESTMENT CONSIDERATIONS
Prospective purchasers of the Shares should consider carefully the specific
investment considerations set forth under "Certain Investment Considerations",
as well as the other information set forth in this Prospectus.
6
<PAGE> 12
SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth summary historical financial data of the
Company for each of the three years in the period ended December 31, 1993 and
the nine months ended September 30, 1993 and 1994. The summary historical
financial data were derived from the Company's Consolidated Financial
Statements. Information for the nine months ended September 30, 1993 and 1994 is
derived from unaudited interim financial statements which reflect, in the
opinion of the Company, all adjustments, which include only normal recurring
adjustments, necessary to a fair presentation of the financial data for such
periods. Results for interim periods are not necessarily indicative of results
for the full year.
For additional information, see the Consolidated Financial Statements of
the Company and the accompanying notes thereto included elsewhere in this
Prospectus. The following table should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -----------------------
1991 1992 1993 1993 1994
---------- ---------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED FINANCIAL DATA:
STATEMENT OF OPERATIONS DATA:
Sales......................................................... $ 3,595 $ 3,792 $ 3,830 $ 2,851 $ 3,309
Cost of sales............................................... 2,752 2,852 2,903 2,133 2,487
Selling and administrative expenses......................... 615 679 692 512 570
Other....................................................... 30(a) 24 38 27 25
Interest expense............................................ 286 289 278 213 194
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes, extraordinary loss and
cumulative effects of changes in accounting methods......... (88) (52) (81) (34) 33
Income taxes.................................................. 23 5 36 21 47
---------- ---------- ---------- ---------- ----------
Loss before extraordinary loss and cumulative effects of
changes in accounting methods............................... (111) (57) (117) (55) (14)
Extraordinary loss on retirement of debt...................... -- -- (92) (92) --
Cumulative effects of changes in accounting methods........... (32) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss...................................................... (143) (57) (209) (147) (14)
Preferred dividend............................................ (14) (16) (8) (8) --
---------- ---------- ---------- ---------- ----------
Net loss applicable to common shares.......................... $ (157) $ (73) $ (217) $ (155) $ (14)
========== ========== ========== ========== ==========
OTHER DATA:
Depreciation expense.......................................... $ 107 $ 112 $ 106 $ 81 $ 81
Amortization of goodwill...................................... 33 33 31 23 23
EBIT(b)....................................................... 198 237 197 179 227
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................................... $ 228 $ 292 $ 80 $ 165 $ 101
Goodwill (net)................................................ 1,208 1,102 1,026 1,063 1,074
Total assets.................................................. 3,270 3,126 2,987 3,154 3,281
Total debt.................................................... 2,180 2,145 2,336 2,424 2,375
Exchangeable preferred stock.................................. 117 133 -- -- --
Stockholders' deficit......................................... (350) (449) (723) (646) (690)
</TABLE>
SEGMENT FINANCIAL DATA:
<TABLE>
<S> <C> <C> <C> <C> <C>
SALES:
Air Conditioning Products..................................... $ 1,836 $ 1,892 $ 2,100 $ 1,556 $ 1,861
Plumbing Products............................................. 1,018 1,170 1,167 875 905
Transportation Products....................................... 741 730 563 420 543
---------- ---------- ---------- ---------- ----------
$ 3,595 $ 3,792 $ 3,830 $ 2,851 $ 3,309
========== ========== ========== ========== ==========
OPERATING INCOME:
Air Conditioning Products..................................... $ 55(a) $ 104 $ 133 $ 123 $ 164
Plumbing Products............................................. 66 108 108 87 88
Transportation Products....................................... 121 88 41 34 39
---------- ---------- ---------- ---------- ----------
$ 242 $ 300 $ 282 $ 244 $ 291
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(a) Includes $22 million loss on the sale of Tyler Refrigeration.
(b) EBIT represents the sum of (i) income (loss) before income taxes,
extraordinary loss and cumulative effects of changes in accounting methods
and (ii) interest expense.
7
<PAGE> 13
SUMMARY OF HISTORICAL OPERATING RESULTS
As a result of the Acquisition, American Standard's results of operations
include purchase accounting adjustments and reflect a highly leveraged capital
structure. Results of operations in periods reflected in the preceding table
(including the nine months ended September 30, 1994) have also been adversely
affected by charges related to employee severance, consolidation of production
facilities, other cost reduction actions and asset dispositions. The results of
all three of the Company's business segments are cyclical, and have been
affected by recessions in a number of the Company's markets (including Europe).
Operating results improved in the first nine months of 1994, due principally to
volume increases and cost reductions in each of the Company's business segments.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
RECENT FINANCIAL RESULTS AND DEVELOPMENTS
RECENT FINANCIAL RESULTS. The factors that contributed to the improvements
in the Company's results of operations for the first nine months of 1994
continued during the fourth quarter. Based upon preliminary results of
operations for October and November, and forecasted sales for December, the
Company estimates that consolidated sales for all of 1994 will be approximately
$4.4 billion, an increase of approximately 16% from $3.8 billion in 1993.
Operating income is estimated to be in the range of $345 million to $360 million
for all of 1994, as compared to $282 million in 1993. After interest expense,
corporate costs, income taxes, and an extraordinary loss on the retirement of
debt, the Company estimates that it will incur a 1994 net loss in the range of
$85 million to $100 million, as compared with a net loss of $209 million in
1993. The 1994 estimates are based upon preliminary interim results for October
and November and upon management's forecast of December results. The Company's
estimates are also subject to completion of year-end accounting and audit. The
1994 estimated net loss reflects (i) charges totalling approximately $40 million
($34 million after tax) related to employee severance, consolidation of
production facilities, other cost reduction actions and asset obsolescence, (ii)
a fee of $20 million paid in December to Kelso in connection with the amendment
of the Company's consulting agreement as well as various covenants made and
responsibilities assumed by Kelso (see "Management -- Compensation Committee
Interlocks and Insider Participation") and (iii) an extraordinary loss of $9
million upon retirement of debt. The 1993 net loss included (i) charges
totalling $8 million (with no tax benefit) related to employee severance,
consolidation of production facilities and other cost reduction actions and (ii)
an extraordinary loss of $92 million (with no tax benefit) upon retirement of
debt.
At December 31, 1994, the Company had outstanding borrowings of $38 million
under the Existing Credit Agreement's revolving credit facility. At December 31,
1994, there was $152 million available under such revolving credit facility
after reduction for borrowings and for $52 million of outstanding letters of
credit.
NEW CREDIT FACILITY. The Company has retained Chemical Bank as
administrative agent and is negotiating to amend and restate the Existing Credit
Agreement to provide for lower interest costs, increased borrowing capacity and
less restrictive covenants. Such amended and restated credit facility (the "New
Credit Facility") is expected to take the form of a secured multi-currency,
multi-borrower term and revolving credit facility aggregating $1.0 billion. As
of December 15, 1994, the Company had obtained non-binding commitments
significantly in excess of the $1.0 billion amount sought. There can be no
assurance given that the New Credit Facility will be obtained, and the Offerings
are not conditioned on the arrangement of, or borrowings under, the New Credit
Facility. See "Use of Proceeds", "Capitalization" and "Pro Forma Financial
Data".
8
<PAGE> 14
SUMMARY PRO FORMA FINANCIAL DATA
The following summary unaudited pro forma financial data give effect to the
Offerings and the application of the net proceeds therefrom to reduce term
borrowings under the Existing Credit Agreement, which was increased by the
October Borrowing, and the planned refinancing of the remaining balance of the
Existing Credit Agreement with the New Credit Facility. The summary pro forma
financial data also give effect to the October Borrowing and the application of
the net proceeds therefrom to redeem all outstanding 14 1/4% Subordinated
Discount Debentures and 12 3/4% Junior Subordinated Debentures. In addition, as
noted in the Pro Forma Financial Data contained elsewhere in this Prospectus,
certain adjustments have been made in the pro forma statement of operations data
for the year ended December 31, 1993 and for the nine months ended September 30,
1993 to give effect to a refinancing (the "1993 Refinancing") which was
completed in July 1993. The pro forma statement of operations data have been
prepared assuming that each of the Offerings, the October Borrowing, the New
Credit Facility and the application of the net proceeds therefrom had occurred
at January 1, 1993. The pro forma statement of operations data exclude
extraordinary charges estimated at $41 million related to the write-off of debt
issuance costs and premiums paid with respect to debt retired or repaid in
connection with the Offerings, the October Borrowing and the New Credit
Facility. Of such extraordinary charges, approximately $9 million will occur in
the fourth quarter of 1994 and approximately $32 million in the first quarter of
1995. The 1993 pro forma statement of operations data also reflect the capital
structure of the Company as it existed after the 1993 Refinancing as if it had
occurred on January 1, 1993. The pro forma balance sheet data have been prepared
assuming that each of the Offerings, the October Borrowing, the New Credit
Facility and the application of the net proceeds therefrom occurred on September
30, 1994. The pro forma data are based upon available information and certain
assumptions that management believes are reasonable, including the assumption
that the New Credit Facility will be entered into. The pro forma financial data
do not purport to represent what the Company's financial position or results of
operations would actually have been had the transactions in fact occurred on the
assumed dates or at the beginning of the periods indicated or to project the
Company's financial position or results of operations for any future date or
period.
For additional information, see "Pro Forma Financial Data" and the
Consolidated Financial Statements of the Company and the accompanying notes
thereto included elsewhere in this
Prospectus. The following table should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1993 1993 1994
------------ -------------- --------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................................ $ 3,830 $ 2,851 $ 3,309
Cost of sales.................................. 2,903 2,133 2,487
Selling and administrative expenses............ 692 512 570
Other expense.................................. 38 27 25
Interest expense............................... 207 155 156
------------ -------------- --------------
Income (loss) before income taxes and
extraordinary loss............................. (10) 24 71
Income taxes................................... 36 21 47
------------ -------------- --------------
Income (loss) before extraordinary loss.......... $ (46) $ 3 $ 24
=========== ============ ============
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary loss.......... $ (.62) $ .04 $ .33
Average number of outstanding common shares and
equivalents.................................... 73,813,073 73,787,348 74,411,525
BALANCE SHEET DATA (AT SEPTEMBER 30, 1994):
Working capital deficit.......................... $ (35)
Total assets..................................... 3,248
Total debt....................................... 2,105
Stockholders' deficit............................ (453)
</TABLE>
The pro forma statement of operations data reflect no change to the tax
provision as the impact of decreased interest expense reduces U.S. domestic
losses for which no tax benefit has been provided.
9
<PAGE> 15
CERTAIN INVESTMENT CONSIDERATIONS
Prospective purchasers of the Shares should consider carefully the
following investment considerations, as well as other information set forth in
this Prospectus.
SUBSTANTIAL LEVERAGE
In connection with its 1988 acquisition of American Standard Inc., the
Company incurred substantial indebtedness, resulting in its highly leveraged
capital structure. See "The Acquisition." At September 30, 1994, the Company's
total indebtedness was approximately $2.4 billion, including short-term debt and
the current portion of long-term debt. See "Capitalization." At September 30,
1994, after giving effect to the Offerings and the October Borrowing, American
Standard will have scheduled annual principal payments ranging from
approximately $105 million to $120 million for the years 1995 through 1998.
American Standard intends to use cash generated by operations to reduce its
indebtedness and, subject to restrictions imposed by the terms of the Existing
Credit Agreement or, if entered into, the New Credit Facility (the Existing
Credit Agreement or the New Credit Facility, as appropriate, the "Credit
Agreement"), for capital investments and acquisitions. Subject to restrictions
in its debt instruments, the Company may also incur additional indebtedness from
time to time to finance expansion through capital expenditures, acquisitions or
joint ventures or to fund other expenditures. American Standard is not currently
planning to make any material acquisitions.
American Standard's substantial leverage could have important consequences,
including the following: (i) the Company's ability to obtain additional
financing for working capital, capital expenditures or other purposes could be
impaired; (ii) a substantial portion of the Company's cash flow from operations
will be required to meet interest and principal repayment obligations; (iii)
American Standard may be more highly leveraged than its competitors, which may
place it at a competitive disadvantage in each of the highly competitive
businesses in which it operates; (iv) the Company's indebtedness under the
Credit Agreement bears interest at floating rates, exposing the Company to
increases in interest rates; and (v) the Company's high degree of leverage
increases its vulnerability to changes in general economic conditions, to
competitive pressures and to adverse changes in government regulation and may
limit its ability to capitalize on significant business opportunities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
The Existing Credit Agreement contains covenants that, among other things,
restrict (a) mergers, certain sales of assets (including stock of subsidiaries)
and changes in business or the conduct of business of the Company and its
subsidiaries, (b) liens, mortgages or other encumbrances on their assets, (c)
sale/leaseback transactions, (d) operating leases, (e) dividends and
distributions on, and repurchases and redemptions of, capital stock of American
Standard Inc., and issuances and sales of stock of American Standard Inc. and
its subsidiaries, (f) voluntary prepayments, purchases, redemptions or
defeasance of other indebtedness, or required payments of principal or interest
thereon during any event of default under the Existing Credit Agreement, (g)
loans and other investments, including capital expenditures, investments in
subsidiaries and joint ventures, (h) intercompany transactions and (i)
transactions with affiliates. Certain American Standard Inc. debt instruments
also contain financial and other covenants. See "Certain Indebtedness --
Existing Credit Agreement -- Covenants" and "-- Certain Other Indebtedness --
Certain Covenants; Events of Default".
American Standard's operating results and cash flow in the first nine
months of 1994 improved from the level attained in the same period of 1993. See
the Company's Unaudited Interim Financial Statements -- Summary Statement of
Operations and Summary Statement of Cash Flows. To meet its debt service
obligations with operating cash flow and comply with the covenants and
restrictions contained in the Credit Agreement, the Company will have to sustain
this improved level of operating results and cash flow. Although its interest
costs and debt service obligations will be reduced as a result of the Offerings,
there can be no assurance that the Company will be able to sustain that level of
improved results, particularly because the Company's results depend
significantly on financial,
10
<PAGE> 16
business and other factors, including prevailing economic conditions that are
beyond its control. If American Standard were unable to meet its debt service
obligations, or to comply with applicable covenants, the Company could be in
default under the Credit Agreement as well as in respect of other borrowings. In
the event of such defaults, the lenders under the Credit Agreement and other
holders of such defaulted indebtedness could elect to declare all amounts
borrowed thereunder to be due and payable, together with accrued and unpaid
interest, and the lenders' commitments to make further revolving credit loans
under the Credit Agreement could be terminated. If the Company were unable to
repay such accelerated indebtedness to the lenders thereof, such lenders could
proceed against any collateral securing that indebtedness. If the indebtedness
under the Credit Agreement and American Standard's other debt instruments were
to be accelerated, there could be no assurance that the Company could
restructure its obligations in a way satisfactory to such lenders under the
Credit Agreement and the holders of other indebtedness or, failing such
restructuring that the assets of the Company would be sufficient to repay such
indebtedness in full. In any case, any default under the agreements governing
the indebtedness of the Company and its subsidiaries could have a significant
adverse effect on the market value and marketability of the Common Stock. To
avoid potential non-compliance with the covenants and restrictions contained in
the Existing Credit Agreement, as well as in its previous credit agreement, the
Company has from time to time had to obtain waivers and amendments. While the
Company believes it is currently in compliance with the covenants contained in
the Existing Credit Agreement, no assurance can be given that, if needed, the
Company will be able to obtain similar waivers or amendments in the future under
the Existing Credit Agreement or the New Credit Facility. American Standard will
seek covenants in the New Credit Facility that are more favorable to the Company
than those contained in the Existing Credit Agreement, but there can be no
assurance that the Company will be successful.
HISTORICAL LOSSES
Since the Acquisition in 1988, American Standard has had net losses (after
income taxes, cumulative effects of changes in accounting methods and
extraordinary loss on retirement of debt) of $227 million in 1989, $54 million
in 1990, $143 million in 1991, $57 million in 1992 and $209 million in 1993. In
addition, the Company had a net loss of $14 million for the nine months ended
September 30, 1994, compared with a net loss of $147 million for the same period
in 1993. The Company's results of operations have reflected purchase accounting
adjustments and significant interest expense resulting from its highly leveraged
capital structure. Results of operations in 1991, 1992 and 1993 were further
affected by recessions in a number of the Company's markets. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
INTERNATIONAL OPERATIONS
The Company has substantial operations and assets located outside the
United States, primarily in Western Europe as well as other countries. See Note
15 of the Notes to Consolidated Financial Statements. International operations
are subject to a number of special risks, including currency exchange rate
fluctuations, trade barriers, exchange controls, governmental expropriation,
political risks and risks of increases in taxes. In addition, various
jurisdictions outside the United States have laws limiting the right and ability
of non-U.S. subsidiaries and affiliates to pay dividends and remit earnings to
affiliated companies unless specified conditions are met.
Earnings of international subsidiaries are subject to income taxes of
non-U.S. jurisdictions that reduce cash flow available to meet required debt
service and other obligations of the Company. In 1993, despite a consolidated
net loss of $209 million, the Company paid cash income taxes, principally
outside the U.S., of $41 million.
The Company's financial performance on a U.S. dollar-denominated basis has
historically been significantly affected by changes in currency exchange rates.
Although the Company does not currently engage in significant foreign exchange
hedging activities, the Company's borrowings in foreign currencies mitigate the
effect of fluctuating currency exchange rates. Nonetheless, adverse changes in
certain exchange rates could impair the Company's ability to meet its interest
and
11
<PAGE> 17
principal obligations with respect to its U.S. dollar-denominated debt. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
TAX MATTERS
The Company has from time to time reorganized and restructured, and may in
the future reorganize and restructure, its international operations based on
certain assumptions about the various tax (including capital gains and
withholding tax) laws, U.S. and international tax treaty developments,
international currency exchange and capital repatriation laws and other relevant
laws of a variety of non-U.S. jurisdictions. While management believes that such
assumptions are correct, there can be no assurance that taxing or other
authorities will reach the same conclusion. If such assumptions are incorrect,
or if such laws were changed or modified, the Company may suffer adverse tax and
other financial consequences.
In connection with examinations of the tax returns of American Standard's
German subsidiaries for the years 1984 through 1990, the German tax authorities
have raised questions regarding the treatment of certain significant matters.
The Company has paid approximately $20 million (using September 30, 1994
exchange rates) of a disputed German income tax. A suit is pending to obtain a
refund of this tax. The Company anticipates that the German tax authorities may
propose other adjustments (principally relating to the 1988 to 1990 period)
resulting in additional taxes of up to approximately $120 million (using
September 30, 1994 exchange rates), plus interest, for the tax return years
under audit. In addition, significant transactions similar to those which gave
rise to the possible adjustments referred to above occurred in years subsequent
to 1990. If the German tax authorities should propose adjustments for the
1988-1990 period, they might, after future tax audits, propose tax adjustments
that are comparable for years 1991 to 1993. American Standard, on the basis of
the opinion of German legal counsel, believes the tax returns are substantially
correct as filed and any such adjustments would be inappropriate and intends to
contest vigorously any adjustments which have been or may be assessed.
Accordingly, the Company had not recorded any loss contingency at September 30,
1994 with respect to such matters.
Under German tax law, if an assessment is made for the years under audit,
the authorities may demand immediate payment of the amount assessed prior to
final resolution of the issues. (The same principles would apply as to any
assessment in connection with possible audits for subsequent years.) American
Standard believes, however, on the basis of the opinion of German 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 will be able to meet such payment from available sources of liquidity or
credit support but that future cash flows and capital expenditures, and
subsequent results of operations for any particular quarterly or annual period,
could be adversely affected.
As a result of recent changes in German tax legislation, the Company's tax
provisions in 1994 and thereafter will be higher in Germany. As a result of this
German tax legislation and the related additional tax provisions, the Company
believes its exposure to the issues under the audit referred to above will be
reduced for 1994 and future years.
American Standard Inc. makes substantial annual interest payments to its
indirect wholly-owned Netherlands subsidiary. These interest payments have been
exempt from U.S. withholding tax under an income tax treaty between the United
States and the Netherlands. A provision in a new treaty raises the possibility
that such payments may become subject to 15% U.S. withholding tax. The Company
has filed a Competent Authority request with the Internal Revenue Service
("IRS") seeking a determination that no withholding tax will be imposed. The
Company believes, based upon a recent IRS News Release that authorizes the
requested relief, that the Competent Authority request will be resolved
favorably. If the Competent Authority request is not resolved favorably,
additional withholding taxes of approximately $12 million per year could be
imposed on the Company commencing in 1996. In such case, the Company will
consider alternatives designed to
12
<PAGE> 18
mitigate such increased withholding taxes; however, there is no assurance that
such alternatives will be found.
CYCLICALITY; SEASONALITY
American Standard's businesses are cyclical. Although the exposure of Air
Conditioning Products and Plumbing Products to cyclicality in the new
construction market is somewhat mitigated by their increasing emphasis on the
service, repair and replacement markets (approximately 60% of their 1993 sales),
which have been less cyclical, Air Conditioning Products' and Plumbing Products'
sales to the new construction market continue to constitute a substantial
portion of their sales (approximately 40% of their 1993 sales). Transportation
Products' sales are highly dependent on production levels of medium-sized and
heavy trucks and buses, particularly in Europe, which also have been cyclical.
For a more detailed discussion of U.S. non-residential construction activity and
housing starts, and Western European commercial vehicle production, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Cyclicality; Seasonality".
Total Company sales tend to be seasonally higher in the second and third
quarters of the year because a significant percentage of Air Conditioning
Products' sales is attributable to residential and commercial construction
activity, which is generally higher in the second and third quarters of the
year, and because Summer is the peak season for sales of air conditioning
products.
ENVIRONMENTAL CONSIDERATIONS
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 which impose liability on companies to clean
up, or contribute to the cost of cleaning up, sites at which their 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 1992, 1993 and the first nine months of 1994 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
these remedial 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 required at specific sites and choices
concerning 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.
The Company's international operations are also subject to various
environmental statutes and regulations. Generally, these requirements tend to be
no more restrictive than those in effect in the United States. The Company
believes it is in substantial compliance with such existing domestic and foreign
environmental statutes and regulations.
The Company has derived significant revenues in 1993 and prior years from
the sale of air conditioning products using chlorofluorocarbons ("CFCs") and
hydrochlorofluorocarbons
13
<PAGE> 19
("HCFCs"). Use of CFCs, HCFCs and other ozone-depleting chemicals is to be
phased out over various periods of time under regulations that will require use
of substitute permitted refrigerants. Also, adoption of new refrigerants will
require replacement or modification of much of the air conditioning equipment
already installed. The Company believes that these regulations have begun to
have the effect of generating additional product sales and parts and service
revenues, as existing air conditioning equipment operating on CFCs is converted
to operate on environmentally-preferred refrigerants or replaced. This is likely
to happen only over a number of years and the Company is unable to estimate
reliably the magnitude or timing of additional conversion or replacements. The
Company has been working with the manufacturers of refrigerants that are
developing substitutes for the CFCs and HCFCs to be phased out so that its
products will be compatible with the substitutes. Although the Company believes
that its commercial products will not require substantial modification to use
substitutes, residential and light commercial products produced by the Company
and its competitors may require modification for substitute refrigerants. The
costs of the substitution of alternative refrigerants are industry-wide product
modification costs that are expected to be reflected in product pricing and
accordingly are not expected to have a material adverse impact on the Company.
See "Business -- General -- Regulations and Environmental Matters".
LABOR RELATIONS
The Company employed approximately 38,500 people (excluding employees of
unconsolidated joint venture companies) at September 30, 1994. The Company has a
total of 18 labor union contracts in North America (covering approximately 8,500
employees), one of which expired in the last quarter of 1994 (covering
approximately 200 Canadian employees who are continuing to work), two of which
expire in 1995 (covering approximately 940 employees) and seven of which expire
in 1996 (covering approximately 4,800 employees). There can be no assurance that
the Company will successfully negotiate either a new contract with such Canadian
employees or the labor contracts expiring during 1995 or 1996 without work
stoppages. However, the Company does not anticipate any problems in
renegotiating those contracts that would materially affect its results of
operations.
In 1994, 230 Plumbing Products' employees went on strike for 64 days at the
Landsdowne (Toronto), Canada chinaware manufacturing plant. In 1991, 1,200 Air
Conditioning Products employees went on strike for 54 days at the LaCrosse,
Wisconsin facility and, in 1989, 1,300 Air Conditioning Products workers went on
strike for 40 days at the Clarksville, Tennessee facility. Other than these
strikes, the Company has not experienced any other significant work stoppages
since 1985. The Company also has a total of 40 labor contracts outside North
America (covering approximately 18,000 employees), where the Company has not
experienced any significant work stoppage in the last five years.
Although the Company believes relations with its employees are generally
satisfactory, there can be no assurance that the Company will not experience
significant work stoppages in the future or that its relations with employees
will continue to be satisfactory.
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of the Offerings, ASI Partners will own approximately 60%
of the then outstanding Common Stock and will retain the power to elect a
majority of the directors of the Company and thereby to determine American
Standard's corporate policies, the persons constituting its management and the
outcome of corporate actions requiring stockholder approval. An existing
stockholders agreement, entered into in connection with the Acquisition, has
been amended and restated (the "Amended Stockholders Agreement"). The Amended
Stockholders Agreement provides that Kelso may nominate for election a majority
of the Company's Board of Directors for so long as ASI Partners continues to own
at least 35% of the outstanding Common Stock. See "Management -- Executive
Officers and Directors," "-- Compensation Committee Interlocks and Insider
Participation," "Certain Transactions and Relationships" and "Security Ownership
of Certain Beneficial Owners".
14
<PAGE> 20
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
The Company's Restated Certificate of Incorporation, Amended Bylaws and
Stockholder Rights Plan contain provisions that may, if a majority of the shares
of the Company's Common Stock is no longer owned by ASI Partners, have the
effect of making more difficult an acquisition of control of the Company that
has not been approved by the Company's Board of Directors. See "Description of
Capital Stock -- Certain Provisions Relating to Changes in Control".
In addition, the terms of the Existing Credit Agreement and the indentures
governing certain of American Standard Inc.'s publicly-held debt securities
permit the lenders under the Existing Credit Agreement and the holders of such
debt securities, respectively, to accelerate payments or require redemption upon
certain events which constitute a change of control of the Company or American
Standard Inc. Such change in control provisions could limit the Company's
ability to complete future equity financings. The Offerings will not constitute
a change of control under such provisions. See "Certain Indebtedness".
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of the Offerings, the Company will
have outstanding approximately 75.5 million shares of Common Stock, including
shares of Common Stock beneficially owned by current stockholders (including ASI
Partners, the ESOP and officer and employee stockholders and employee benefit
plans). The 14.5 million shares of Common Stock to be sold in the Offerings will
be eligible for resale without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), in the public market
after the consummation of the Offerings by persons other than affiliates of the
Company (as defined in Rule 144 under the Securities Act). Sales of Common Stock
without registration may also be made outside the United States pursuant to
Regulation S under the Securities Act. Stock options covering five million
shares of Common Stock are expected to be granted pursuant to the Stock Plan at
the initial public offering price in connection with the Offerings. Such options
will become exercisable in three equal installments on the first, second and
third anniversaries of grant. See "Management -- Stock Incentive Plan". American
Standard will register under the Securities Act shares of Common Stock issuable
pursuant to the Stock Plan (a total of 7,550,595 shares, assuming no exercise of
the Underwriters' over-allotment options) prior to the issuance of such shares.
The Company may issue additional Common Stock to the ESOP over the next several
years. Shares of Common Stock distributed to ESOP beneficiaries (generally upon
such beneficiaries' retirement or termination) will also be generally available
for resale without further registration by non-affiliates. Sales of Common Stock
by affiliates of the Company will be subject to Rule 144 under the Securities
Act.
ASI Partners and management stockholders, who will beneficially own
approximately 49,385,000 outstanding shares of Common Stock immediately
following the consummation of the Offerings, have agreed with the Underwriters
not to offer, sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of the representatives of the Underwriters. Following the expiration or
waiver of the foregoing restrictions and any applicable holding periods under
Rule 144, such shares of Common Stock will be available for sale into the public
market pursuant to Rule 144 (including the volume and other limitations set
forth therein) or otherwise and could impair the Company's future ability to
raise capital through an offering of its equity securities. Most of such shares
were issued more than three years ago, and thus are subject to resale without
being subject to the holding periods established by Rule 144. Pursuant to the
Amended Stockholders Agreement, ASI Partners has been granted certain demand
registration rights and ASI Partners, together with certain executive officers
and other employees of the Company who own Common Stock, have been granted
certain "piggyback" registration rights in connection with future offerings of
Common Stock. See "Management -- Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions and Relationships".
15
<PAGE> 21
Sales of substantial amounts of the Common Stock in the public market, or
the prospect of such sales, could materially adversely affect the market price
of the Common Stock. See "Shares Eligible for Future Sale".
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. Although the Common Stock has been authorized, subject to official notice
of issuance, for listing on the New York Stock Exchange, no assurance can be
given that an active trading market will be created or sustained. The initial
public offering price was determined by negotiations among the Company and
representatives of the Underwriters based on several factors and will not
necessarily reflect the market price of the Common Stock following the
Offerings. See "Underwriting".
DILUTION
At September 30, 1994, the Company had a tangible net deficit of
approximately $1.8 billion, or $29.99 per share. Purchasers of Shares in the
Offerings will experience immediate and substantial dilution in the net tangible
book value of their Common Stock. At an assumed initial public offering price of
$20.50 per share, investors in the Offerings will experience dilution in net
tangible book value per share of $41.35. See "Dilution".
16
<PAGE> 22
THE COMPANY
American Standard is a globally-oriented manufacturer of high quality,
brand-name products in three major product groups: air conditioning systems (55%
of 1993 sales); bathroom and kitchen fixtures and fittings (30% of 1993 sales);
and braking systems for medium-sized and heavy trucks, buses, trailers and
utility vehicles (15% of 1993 sales). American Standard is a market leader in
each of these business segments in the principal geographic areas in which they
compete. The Company's brand names include TRANE(R) for air conditioning
systems, AMERICAN-STANDARD(R), IDEAL-STANDARD(R) and STANDARD(R) for plumbing
products and WABCO(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 ABS) that utilize electronic controls. See "Business".
The Company is a Delaware corporation formed by Kelso in 1988 to effect the
Acquisition. The Company changed its name from ASI Holding Corporation to
American Standard Companies Inc. in November 1994. The Company's only
significant asset is the common stock of American Standard Inc., a Delaware
corporation which was incorporated in 1929 following the merger of American
Radiator Company and Standard Sanitary Manufacturing Company, each of which
traced its roots to the nineteenth century. Kelso is a private merchant banking
firm specializing in leveraged buyout transactions.
THE ACQUISITION
The Acquisition of American Standard Inc. by the Company was effected
through a cash tender offer in April 1988 and a subsequent merger in June 1988.
The aggregate purchase price of the Acquisition was approximately $3.2 billion
(including assumed debt), financed by approximately $350 million in equity
financing (including $275 million from the sale of Common Stock) and by
approximately $2.8 billion in new or assumed debt. As a result of the
Acquisition, the Company's results of operations include purchase accounting
adjustments and reflect a highly leveraged capital structure. See "Certain
Investment Considerations -- Substantial Leverage" and "-- Historical Losses".
As part of the equity financing for the Acquisition, ASI Partners purchased
45 million shares of Common Stock at a price of $4 per share. Based on the
estimated initial public offering price of $20.50 per share, the 45 million
shares of Common Stock owned by ASI Partners would have a market value of
approximately $923 million. ASI Partners will not sell any shares in connection
with the Offerings. In connection with the Acquisition, Kelso received certain
investment banking fees, and also entered into a Consulting Agreement with
American Standard Inc., pursuant to which Kelso agreed to provide general
management and financial consulting services in return for an annual fee. In
connection with the Offerings, and based on Kelso's agreement, set forth in a
December 1994 amendment to the Consulting Agreement, to provide ongoing
consulting services without further annual consulting fees (other than
reimbursement of expenses), to release any claims for fees in respect of past
services, to make certain covenants with respect to Common Stock owned by ASI
Partners or its affiliates, and to undertake additional administrative
responsibilities as manager of ASI Partners and such affiliates, American
Standard made a one-time payment of $20 million to Kelso in December 1994. The
amendment to the Consulting Agreement, and the covenants made and additional
responsibilities assumed by Kelso, are described in "Certain Transactions and
Relationships" and "Management -- Compensation Committee Interlocks and Insider
Participation".
USE OF PROCEEDS
The net proceeds of the Offerings, estimated to be approximately $278
million (assuming an initial public offering price of $20.50 per share and after
deducting estimated underwriting discounts and commissions and expenses of the
Offerings), will be used to reduce American Standard's bank borrowings. At
September 30, 1994, after giving effect to the October Borrowing, the Company
17
<PAGE> 23
would have had available borrowing capacity of approximately $1.2 billion and
outstanding borrowings aggregating approximately $1.0 billion under the Existing
Credit Agreement. On September 30, 1994, the weighted average interest rate per
annum on borrowings under the Existing Credit Agreement was 7.9%. The proceeds
of the October Borrowing were used to redeem on November 21, 1994 all
outstanding 14-1/4% Subordinated Discount Debentures and 12-3/4% Junior
Subordinated Debentures of American Standard Inc., aggregating $316.8 million in
principal amount. See "Pro Forma Financial Data".
The Company has retained Chemical Bank as administrative agent and is
negotiating to amend and restate the Existing Credit Agreement as the New Credit
Facility to provide for lower interest costs, increased borrowing capacity and
less restrictive covenants. The Company has also engaged Citibank, N.A. and
NationsBank, N.A. (Carolinas) as senior managing agents for the New Credit
Facility, together with an additional 10 managing agents. The New Credit
Facility is expected to take the form of a secured multi-currency,
multi-borrower term and revolving credit facility aggregating $1.0 billion. As
of December 15, 1994, the Company had obtained non-binding commitments
significantly in excess of the $1.0 billion amount sought. After giving effect
to such amendment and restatement, the Offerings and the application of net
proceeds therefrom, the Company expects that it would have approximately $200
million of available borrowing capacity under the New Credit Facility, which is
approximately $100 million more than would have been available under the
Existing Credit Agreement (after giving effect to application of net proceeds of
the Offerings). There can be no assurance given that the New Credit Facility
will be obtained, and the Offerings are not conditioned on the arrangement of,
or borrowings, under the New Credit Facility.
DIVIDEND POLICY
The Company has not historically paid dividends on its Common Stock, and
does not currently intend to pay dividends. Moreover, the terms of certain debt
instruments (including the Existing Credit Agreement as well as a number of
American Standard Inc.'s publicly traded debt securities) prohibit or restrict
the payment of dividends and other extensions of funds by American Standard Inc.
to the Company. The declaration and timing of any future dividends will be
determined by the Company's Board of Directors, based on its results of
operations, financial condition, cash requirements, certain corporate law
requirements and other factors.
18
<PAGE> 24
DILUTION
The difference between the initial public offering price per share of the
Shares and the pro forma net tangible deficit per share of the Common Stock,
after giving effect to the Offerings, the October Borrowing and the New Credit
Facility, constitutes immediate dilution to investors in the Offerings. At
September 30, 1994, the Company had a tangible net deficit of approximately $1.8
billion, or $29.99 per share. Tangible net deficit per share of Common Stock
represents the difference between tangible assets and liabilities of the
Company, divided by the total number of shares of Common Stock outstanding.
After giving effect to the Offerings, the October Borrowing, the New Credit
Facility and the application of the net proceeds therefrom, the tangible net
deficit would be approximately $1.6 billion, or $20.85 per share. This
represents an immediate dilution of $41.35 per share to investors in the
Offerings. The following table illustrates such dilution.
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................. $ 20.50
Tangible net deficit per share at September 30, 1994.............. $(29.99)
Net increase per share attributable to the Offerings, the October
Borrowing and the New Credit Facility.......................... 9.14
-------
Pro forma tangible net deficit per share at September 30, 1994,
after giving effect to the Offerings, the October Borrowing and
the New Credit Facility........................................... (20.85)
-------
Dilution per share to investors in the Offerings.................... $(41.35)
========
</TABLE>
The following table summarizes, on a pro forma basis after giving effect to
the Offerings, the number of shares of Common Stock held by, and the effective
consideration and the average price per share paid by, the existing stockholders
and the investors in the Offerings.
<TABLE>
<CAPTION>
SHARES CONSIDERATION AVERAGE PRICE
HELD PAID PER SHARE
---------- ------------ -------------
<S> <C> <C> <C>
Current stockholders............................. 61,062,078 $264,000,000(a) $ 4.32
Investors in the Offerings....................... 14,500,000 $297,000,000 $ 20.50
</TABLE>
- ---------------
(a) The effective cash consideration paid by current stockholders at September
30, 1994, is represented by the sum of (i) capital surplus and (ii) stock
dividends on exchangeable preferred stock charged to capital surplus.
19
<PAGE> 25
CAPITALIZATION
The following table sets forth the capitalization of the Company and its
subsidiaries at September 30, 1994, and as adjusted to give effect to the
Offerings, the October Borrowing and the New Credit Facility and the redemption
of all outstanding 14 1/4% Subordinated Discount Debentures at 102.5% of par and
the 12 3/4% Junior Subordinated Debentures at par, and the redemption and
refinancing of borrowings under the Existing Credit Agreement. The accumulated
deficit, as adjusted, reflects a $40.8 million write-off of unamortized debt
issuance costs and premium costs related to the redemptions and repayments. This
table should be read in conjunction with the Company's Consolidated Financial
Statements and accompanying notes thereto included elsewhere in this Prospectus.
All amounts are translated where applicable using September 30, 1994 currency
exchange rates. Common Stock and capital surplus actual and as adjusted amounts
reflect the 2.5 to 1 stock split effected in December 1994.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
----------------------
AS
ACTUAL ADJUSTED
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
SHORT-TERM DEBT:
Loans payable to banks............................................. $ 30.0 $ 30.0
Revolving credit facility.......................................... 70.0 284.0
Current maturities of long-term debt............................... 130.1 38.1
-------- --------
Total short-term debt........................................... 230.1 352.1
LONG-TERM DEBT:
14 1/4% Subordinated Discount Debentures........................... 175.0 --
12 3/4% Junior Subordinated Debentures............................. 141.8 --
Existing Credit Agreement.......................................... 617.0 --
New Credit Facility................................................ -- 450.0
9 1/4% Sinking Fund Debentures..................................... 150.0 150.0
10 7/8% Senior Notes............................................... 150.0 150.0
11 3/8% Senior Debentures.......................................... 250.0 250.0
9 7/8% Senior Subordinated Notes................................... 200.0 200.0
10 1/2% Senior Subordinated Discount Debentures.................... 515.9 515.9
Other loans........................................................ 75.2 75.2
-------- --------
2,274.9 1,791.1
Less current maturities............................................ (130.1) (38.1)
-------- --------
Total long-term debt............................................ 2,144.8 1,753.0
STOCKHOLDERS' DEFICIT:
Preferred Stock, par value $.01 per share, 2,000,000 shares
authorized; no shares issued and outstanding.................... -- --
Common Stock, par value $.01 per share, 200,000,000 shares
authorized; 61,062,078 shares issued and outstanding;
(75,562,078 shares issued and outstanding, as adjusted)......... .6 .8
Capital surplus.................................................... 196.6 474.4
Accumulated deficit................................................ (763.6) (804.4)
Foreign currency translation effects............................... (115.4) (115.4)
Other.............................................................. (8.1) (8.1)
-------- --------
Total stockholders' deficit..................................... (689.9) (452.7)
-------- --------
Total capitalization.......................................... $1,685.0 $1,652.4
======== ========
</TABLE>
20
<PAGE> 26
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data give effect to the
Offerings and the application of the net proceeds therefrom to reduce term
borrowings under the Existing Credit Agreement, which was increased by the
October Borrowing, and the planned refinancing of the remaining balance of the
Existing Credit Agreement with the New Credit Facility. The pro forma financial
data also give effect to the October Borrowing and the application of the net
proceeds to redeem all outstanding 14 1/4% Subordinated Discount Debentures and
12 3/4% Junior Subordinated Debentures. In addition, as more fully described in
Note 8 of the Notes to Consolidated Financial Statements -- "Debt" under the
caption "The 1993 Refinancing", the Company completed a refinancing of its
existing debt structure in July 1993. As a result of the 1993 Refinancing, the
Company's previous credit facility was amended and restated into the Existing
Credit Agreement and offerings with respect to two new issues of debt (9 7/8%
Senior Subordinated Notes and 10 1/2% Senior Subordinated Discount Debentures)
were completed. The net proceeds of the Existing Credit Agreement and the new
debt issuances were used to replace the Company's previous credit facility
(which, in general, had higher rates of interest than the Existing Credit
Agreement), and to redeem all outstanding 12 7/8% Senior Subordinated Debentures
and a substantial portion of the 14 1/4% Subordinated Discount Debentures. The
Company is currently negotiating to amend the Existing Credit Agreement as the
New Credit Facility. See "Use of Proceeds".
Accordingly, for the latter half of 1993 and for 1994, the Company's
results reflect a lower cost capital structure than was in place prior to the
1993 Refinancing. The pro forma statement of operations data for the year ended
December 31, 1993 and for the nine months ended September 30, 1993 have been
adjusted at January 1, 1993 to reflect (i) the capital structure of the Company
as it existed after the 1993 Refinancing; (ii) the October Borrowings and the
use of the net proceeds therefrom to redeem the remaining outstanding 14 1/4%
Subordinated Discount Debentures at 102.5% of par and all outstanding 12 3/4%
Junior Subordinated Debentures at par; (iii) the application of the net proceeds
from the Offerings to reduce term borrowings under the Existing Credit
Agreement; and (iv) the planned refinancing of the remaining balance of the
Existing Credit Agreement with the New Credit Facility. The pro forma statement
of operations data for the nine months ended September 30, 1994 have been
adjusted to reflect the October Borrowing, the Offerings, the New Credit
Facility and the use of the proceeds therefrom to retire or repay debt as
described above as if the transactions had occurred on January 1, 1993. The pro
forma balance sheet data have been prepared assuming that each of the Offerings,
the New Credit Facility and the application of the net proceeds therefrom to
repay or retire debt had occurred on September 30, 1994. The pro forma data are
based upon available information and certain assumptions that management
believes are reasonable, including those set forth in the footnotes to the pro
forma financial data. The pro forma financial data do not purport to represent
what the Company's financial position or results of operations would actually
have been had the transactions in fact occurred on the assumed dates or at the
beginning of the periods indicated or to project the Company's financial
position or results of operations for any future date or period.
21
<PAGE> 27
For additional information, see the Consolidated Financial Statements of
the Company and the accompanying notes thereto included elsewhere in this
Prospectus. The following table should also be read in conjunction with
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1993 SEPTEMBER 30, 1993 SEPTEMBER 30, 1994
--------------------------- --------------------------- ---------------------------
ACTUAL(A) PRO FORMA(B) ACTUAL(A) PRO FORMA(B) ACTUAL(A) PRO FORMA(C)
---------- ------------ ---------- ------------ ---------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales...................... $ 3,830 $ 3,830 $ 2,851 $ 2,851 $ 3,309 $ 3,309
Cost of sales............ 2,903 2,903 2,133 2,133 2,487 2,487
Selling and
administrative
expenses............... 692 692 512 512 570 570
Other expense............ 38 38 27 27 25 25
Interest expense......... 278 207 213 155 194 156
---------- ------------ ---------- ------------ ---------- ------------
Income (loss) before income
taxes and extraordinary
loss..................... (81) (10) (34) 24 33 71
Income taxes............... 36 36 21 21 47 47
---------- ------------ ---------- ------------ ---------- ------------
Income (loss) before
extraordinary loss....... $ (117) $ (46) $ (55) $ 3 $ (14) $ 24
========== =========== ========== =========== ========== ===========
INCOME (LOSS) PER COMMON
SHARE(A):
Income (loss) before
extraordinary loss....... $ (2.11) $ (.62) $ (1.07) $ .04 $ (.23) $ .33
Average number of
outstanding common shares
and
equivalents.............. 59,313,073 73,813,073 59,287,348 73,787,348 59,911,525 74,411,525
BALANCE SHEET DATA (AT
SEPTEMBER 30, 1994):
Working capital
(deficit)................ $ 101 $ (35)
Total assets............... 3,281 3,248
Total debt................. 2,375 2,105
Stockholders' deficit...... (690) (453)
</TABLE>
- ---------------
(a) Income (loss) per common share and average number of outstanding common
shares and equivalents data reflect the 2.5 to 1 stock split effected in
December 1994.
(b) Pro forma interest expense for the year ended December 31, 1993 reflects (i)
twelve months' interest expense (at 8.94%) and amortization of debt
issuance costs with respect to the October Borrowing, and the exclusion of
twelve months' interest expense (or the preferred dividend on the 12 3/4%
Exchangeable Preferred Stock which was exchanged into the 12 3/4% Junior
Subordinated Debentures on June 30, 1993) and amortization of debt issuance
costs with respect to the 14 1/4% Subordinated Discount Debentures and the
12 3/4% Junior Subordinated Debentures redeemed; (ii) five months' interest
expense and amortization of debt issuance costs with respect to the debt
issued in connection with the 1993 Refinancing and the exclusion of five
months' interest expense and amortization of debt issuance costs with
respect to the debt replaced or redeemed in the 1993 Refinancing; (iii) the
exclusion of twelve months' interest expense on the portion of the Existing
Credit Agreement repaid with the net proceeds of the Offerings; and (iv)
the lower interest expense and amortization of debt issue costs for twelve
months as a result of the planned refinancing of the remaining balance of
the Existing Credit Agreement with the New Credit Facility.
Pro forma interest expense for the nine months ended September 30, 1993
reflects (i) nine months' interest expense (at 8.94%) and amortization of
debt issuance costs with respect to the October Borrowing, and the
exclusion of nine months' interest expense (or the preferred dividend on
the 12 3/4% Exchangeable Preferred Stock which was exchanged into the
12 3/4% Junior Subordinated Debentures on June 30, 1993) and amortization
of debt issuance costs with respect to the 14 1/4% Subordinated Discount
Debentures and the 12 3/4% Junior Subordinated Debentures redeemed; (ii)
five months' interest expense and amortization of debt issuance costs with
respect to the debt issued in connection with the 1993 Refinancing and the
exclusion of five months' interest expense and amortization of debt
issuance costs with respect to the debt replaced or redeemed in the 1993
22
<PAGE> 28
Refinancing; (iii) the exclusion of nine months' interest expense on the
portion of the Existing Credit Agreement repaid with the net proceeds of
the Offerings; and (iv) the lower interest expense and amortization of debt
issue costs for nine months as a result of the planned refinancing of the
remaining balance of the Existing Credit Agreement with the New Credit
Facility.
The Company expects that the New Credit Facility will bear interest at
floating rates. Based upon the September 30, 1994 pro forma balance of the
New Credit Facility outstanding a change of interest rates of 1/4 of one
percent would result in an annual change in interest expense of
approximately $2 million.
Pro forma interest expense on the 1993 Refinancing is based on the
effective interest rates for the 9 7/8% Senior Subordinated Notes and the
10 1/2% Senior Subordinated Discount Debentures, respectively, and at a
weighted average interest rate of 8.0% for borrowings under the Existing
Credit Agreement, based on rates in effect on borrowings under the Existing
Credit Agreement on June 2, 1993.
The pro forma statement of operations data reflect no change to the tax
provision as the impact of decreased interest expense reduces U.S. domestic
losses for which no tax benefit has been provided.
Pro forma statement of operations data exclude extraordinary charges
estimated at $41 million related to the write-off of debt issuance costs
and premiums paid with respect to debt retired or repaid in connection with
the Offerings, the October Borrowing and the New Credit Facility. Of such
extraordinary charges, approximately $9 million will occur in the fourth
quarter of 1994 and approximately $32 million will occur in the first
quarter of 1995. No tax benefit is expected to be available with respect to
such extraordinary charges.
See "Capitalization" for a description of the amounts of the respective
securities issued and amounts borrowed in connection with the Offerings,
the October Borrowing and the New Credit Facility and the use of proceeds
therefrom to retire or refinance other existing indebtedness of the
Company. See also Note 8 of the Notes to Consolidated Financial Statements
for a description of the 1993 Refinancing.
(c) Pro forma interest expense for the nine months ended September 30, 1994
reflects nine months' interest expense (at 8.94%) and amortization of debt
issuance costs with respect to the October Borrowing, and excludes nine
months' interest expense and amortization of debt issuance costs with
respect to the debt redeemed with the net proceeds of the Offerings, the
October Borrowing and the New Credit Facility.
The pro forma balance sheet data at September 30, 1994 reflect the net
proceeds of the Offerings (estimated at $278 million) and the expected
proceeds of New Credit Facility and the application of the proceeds
therefrom to redeem debt, to pay premiums in respect of the redeemed debt
and to pay debt issuance costs. In addition, the pro forma stockholders'
deficit at that date reflects the extraordinary charge ($41 million)
related to the write-off of debt issuance costs and premiums paid with
respect to debt retired or repaid in connection with the Offerings, the
October Borrowing and the New Credit Facility.
(d) The following table summarizes the pro forma adjustments to interest
expense:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1993 1993 1994
------------- -------------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Application of the October Borrowing to redeem
the 14 1/4% Subordinated Discount Debentures
and 12 3/4% Junior Subordinated Debentures.... $ (5) $ (1) $(11)
Effects of 1993 Refinancing..................... (28) (28) --
Effects of the application of the net proceeds
from the Offerings............................ (25) (20) (18)
Planned refinancing of the Existing Credit
Facility with the New Credit Facility......... (13) (9) (9)
------ ------ ------
$ (71) $(58) $(38)
=========== ============ ============
</TABLE>
23
<PAGE> 29
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of the Company for each of the five years in the period ended December 31,
1993, and the nine months ended September 30, 1993 and 1994. The selected
historical consolidated financial data were derived from the Company's
Consolidated Financial Statements. Information for the nine months ended
September 30, 1993 and 1994 is derived from unaudited interim financial
statements which reflect, in the opinion of the Company, all adjustments, which
include only normal recurring adjustments, necessary to a fair presentation of
the financial data for such periods. Results for interim periods are not
necessarily indicative of results for the full year. For additional information,
see the Consolidated Financial Statements of the Company and the accompanying
notes thereto included elsewhere in this Prospectus. The following table should
also be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------------------------- --------------------------
1989 1990 1991 1992 1993 1993 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................ $ 3,334 $ 3,637 $ 3,595 $ 3,792 $ 3,830 $ 2,851 $ 3,309
Cost of sales...... 2,488 2,750 2,752 2,852 2,903 2,133 2,487
Selling and
administrative
expenses......... 567 630 615 679 692 512 570
Other (income)
expense.......... (3) 5 8 24 38 27 25
Loss on sale of
Tyler
Refrigeration.... -- -- 22 -- -- -- --
Interest expense... 289 294 286 289 278 213 194
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from
continuing op-
erations before
income taxes,
extraordinary loss
and cumulative
effects of changes
in accounting
methods............ (7) (42) (88) (52) (81) (34) 33
Income taxes......... 26 12 23 5 36 21 47
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from continuing
operations before
extraordinary loss
and cumulative
effects of changes
in accounting
methods............ (33) (54) (111) (57) (117) (55) (14)
Loss from
discontinued
operations(a)...... (12) -- -- -- -- -- --
Extraordinary loss on
retirement of
debt(b)............ -- -- -- -- (92) (92) --
Cumulative effects of
changes in
accounting
methods............ (182)(c) -- (32)(d) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss............. (227) (54) (143) (57) (209) (147) (14)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Preferred
dividend(e)........ (11) (12) (14) (16) (8) (8) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss applicable
to common shares... $ (238) $ (66) $ (157) $ (73) $ (217) $ (155) $ (14)
=========== =========== =========== =========== =========== =========== ===========
LOSS PER COMMON
SHARE(f):
Loss from continuing
operations before
extraordinary loss
and cumulative
effects of changes
in accounting
methods............ $ (.77) $ (1.12) $ (2.14) $ (1.24) $ (2.11) $ (1.07) $ (.23)
Loss from
discontinued
operations......... (.20) -- -- -- -- -- --
Extraordinary loss on
retirement of
debt............... -- -- -- -- (1.55) (1.55) --
Cumulative effects of
changes in
accounting
methods............ (3.19) -- (.55) -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss per common
share.............. $ (4.16) $ (1.12) $ (2.69) $ (1.24) $ (3.66) $ (2.62) $ (.23)
=========== =========== =========== =========== =========== =========== ===========
Average number of
outstanding common
shares and
equivalents........ 57,163,750 58,597,918 58,338,195 58,636,118 59,313,073 59,287,348 59,911,525
OTHER DATA:
Depreciation
expense............ $ 109 $ 109 $ 107 $ 112 $ 106 $ 81 $ 81
Amortization of
goodwill........... 31 33 33 33 31 23 23
EBIT(g).............. 282 252 198 237 197 179 227
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital...... $ 426 $ 347 $ 228 $ 292 $ 80 $ 165 $ 101
Goodwill (net)....... 1,235 1,323 1,208 1,102 1,026 1,063 1,074
Total assets......... 3,592 3,488 3,270 3,126 2,987 3,154 3,281
Total debt........... 2,381 2,287 2,180 2,145 2,336 2,424 2,375
Exchangeable
preferred
stock(e)........... 91 104 117 133 -- -- --
Stockholders'
deficit............ (136) (200) (350) (449) (723) (646) (690)
</TABLE>
Footnotes appear on the following page.
24
<PAGE> 30
- ---------------
(a) Represents the operating losses of the discontinued Railway Braking business
sold in February 1990.
(b) The retirement of debt in connection with the 1993 Refinancing resulted in
an extraordinary charge of $92 million (including call premiums, the
write-off of deferred debt issuance costs, and loss on cancellation of
foreign currency swap contracts) on which there was no tax benefit (see
Notes 5 and 8 of Notes to Consolidated Financial Statements).
(c) The $182 million charge in 1989 represents the cumulative effect of the
change in accounting for income taxes upon the adoption of FAS 109. The
Company elected to adopt FAS 109 and to apply the provisions retroactively
to January 1, 1989.
(d) Represents the cumulative effect of the accounting changes related to
postretirement benefits other than pensions and warranty contract revenues
at January 1, 1991. The cumulative effect of these accounting changes
increased the postretirement benefit and warranty accruals at January 1,
1991 by $52 million and increased the net loss in the year by a total of
$32 million (net of the tax effect).
(e) In June 1993 the exchangeable preferred stock was exchanged for 12 3/4%
Junior Subordinated Debentures which were redeemed on November 21, 1994.
(f) Per share data and average number of outstanding common shares and
equivalents data reflect the 2.5 to 1 stock split effected in December 1994.
(g) EBIT represents the sum of (i) income (loss) from continuing operations
before income taxes, extraordinary loss and cumulative effects of changes in
accounting methods and (ii) interest expense.
25
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following sections summarize the Company's consolidated results of
operations and then discuss the results of its three operating segments for the
nine months ended September 30, 1994 compared to the first nine months of 1993,
for 1993 compared to 1992 and for 1992 compared to 1991. As a result of the
Acquisition, American Standard's results of operations include purchase
accounting adjustments and reflect a highly leveraged capital structure. Results
of operations in these periods (including the nine months ended September 30,
1994) have also been adversely affected by charges related to employee
severance, consolidation of production facilities, other cost reduction actions
and asset dispositions. The results of all three of the Company's business
segments are cyclical, and have been affected by recessions in a number of the
Company's markets (including Europe), and the results of Air Conditioning
Products are also affected by seasonal factors. See "-- Cyclicality;
Seasonality". Operating results improved in the first nine months of 1994, due
principally to volume increases and cost reductions in each of the Company's
business segments. See "Prospectus Summary -- Recent Financial Results and
Developments -- Recent Financial Results" for preliminary estimates of full year
1994 sales, operating income and net loss.
SALES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- -----------------
1991 1992 1993 1993 1994
------- ------- ------ ------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Air Conditioning Products(a)................................ $1,836 $1,892 $2,100 $1,556 $1,861
Plumbing Products........................................... 1,018 1,170 1,167 875 905
Transportation Products..................................... 741 730 563 420 543
------ ------ ------ ------ ------
Sales..................................................... $3,595 $3,792 $3,830 $2,851 $3,309
====== ====== ====== ====== ======
</TABLE>
OPERATING INCOME
AND
INCOME (LOSS) BEFORE INCOME TAXES, EXTRAORDINARY LOSS
AND CUMULATIVE EFFECTS OF CHANGES IN ACCOUNTING METHODS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------
1991 1992 1993 1993 1994
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Air Conditioning Products(a)................................. $ 55 $ 104 $ 133 $ 123 $ 164
Plumbing Products............................................ 66 108 108 87 88
Transportation Products...................................... 121 88 41 34 39
----- ----- ----- ----- -----
Operating income........................................... 242 300 282 244 291
Interest expense............................................. (286) (289) (278) (213) (194)
Corporate items(b)........................................... (44) (63) (85) (65) (64)
----- ----- ----- ----- -----
Income (loss) before income taxes, extraordinary loss and
cumulative effects of changes in accounting methods........ $ (88) $ (52) $ (81) $ (34) $ 33
===== ===== ===== ===== =====
</TABLE>
- ---------------
(a) For 1991 the amounts presented for Air Conditioning Products include the
following amounts for Tyler Refrigeration (which was sold on September 30,
1991): sales of $99 million and operating loss of $18 million (including a
$22 million loss on the sale).
(b) Corporate items include administrative and general expenses, accretion
charges on postretirement benefit liabilities, equity in net income (loss)
of affiliated companies, minority interest, foreign exchange transaction
gains and losses, and miscellaneous income and expense.
26
<PAGE> 32
CONSOLIDATED RESULTS OF OPERATIONS FOR FIRST NINE MONTHS OF 1994 COMPARED WITH
FIRST NINE MONTHS OF 1993
Consolidated sales for the first nine months of 1994 of $3,309 million
increased by $458 million, or 16% (with little effect from foreign exchange),
from $2,851 million in the first nine months of 1993. Sales increased for all
three segments with gains of 20% for Air Conditioning Products, 3% for Plumbing
Products and 29% for Transportation Products.
Operating income for the first nine months of 1994 was $291 million, an
increase of $47 million, or 19% (with little effect from foreign exchange), from
$244 million in the first nine months of 1993. Operating income increased 33%
for Air Conditioning Products, was flat for Plumbing Products, and increased 15%
for Transportation Products. Operating income for the nine months ended
September 30, 1994 reflected pre-tax charges of $26 million ($20 million after
tax) related to: employee severance ($20 million); the consolidation of
production facilities ($5 million); and the implementation of other cost
reduction actions ($1 million). Other than costs related to the consolidation of
production facilities, which costs will be liquidated over several years, the
charges will be paid by June 30, 1995. In the 1994 period, the Company also
provided $14 million (with no available tax benefit) of reserves for losses on
operating assets expected to be disposed of prior to the expiration of their
originally estimated useful lives. The first nine months of 1993 included $8
million of charges for plant shutdowns and other cost reduction actions.
Excluding those charges from the respective periods, operating income would have
increased to $331 million from $252 million, or 31%, in the 1994 period over the
1993 period.
AIR CONDITIONING PRODUCTS SEGMENT
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1993 1994
------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
SALES:
U.S. portion................................... $1,316 $1,579
International portion.......................... 240 282
------ ------
Total..................................... $1,556 $1,861
====== ======
OPERATING INCOME (LOSS):
U.S. portion................................... $ 131 $ 175
International portion.......................... (8) (11)
------ ------
Total..................................... $ 123 $ 164
====== ======
</TABLE>
The U.S. portion of Air Conditioning Products is composed of the Unitary
Products Group, the Commercial Systems Group (excluding Canada), and exports
from the U.S. by the International Group. The international portion consists of
the non-U.S.-based operations of the International Group and the Canadian
operations of the Commercial Systems Group.
Sales of Air Conditioning Products increased 20% (with little effect from
foreign exchange) to $1,861 million for the first nine months of 1994 from
$1,556 million for the first nine months of 1993. The Unitary Products Group
achieved a gain of 23% because of higher volume (as a result of improved markets
and gains in market share) and a shift to newer, larger-capacity,
higher-efficiency products, offset in part by the effect of lower prices for
certain products due to competitive pressures. Sales of the Commercial Systems
Group increased by 18% primarily because of improved markets, gains in market
share, and the acquisition of additional sales offices in the latter half of
1993. For the International Group, sales increased 17%, due principally to
volume increases in the Far East and Latin America.
27
<PAGE> 33
Operating income of Air Conditioning Products increased 33%, to $164
million in the first nine months of 1994 from $123 million in the first nine
months of 1993. This gain was primarily the result of increased operating income
for the Unitary Products Group and the Commercial Systems Group because of
higher sales and cost reductions. Despite higher sales, the International Group
experienced an overall decrease in operating results. A decline for the European
group was partly offset by a gain for the Far East and Latin America operations.
The decline in European group results was attributable to continued poor
economic conditions and competitive pricing pressures. The improvement in Far
East and Latin America groups was principally attributable to higher sales.
BACKLOG. The worldwide backlog for Air Conditioning Products as of
September 30, 1994 was $489 million, an increase of 33% from September 30, 1993,
excluding the favorable effects of foreign exchange. The increase was a result
of higher volume for the Commercial Systems Group and the commercial portion of
the Unitary Products Group, and expanded distribution channels and market
penetration in the Far East and Latin America. The backlog is comprised of
unshipped product orders taken in the ordinary course of business and recorded
at normal sales prices. Sales are recorded when shipment to a customer occurs.
The current backlog is expected to be filled during the next twelve months.
Although most backlog orders are cancellable, in whole or in part, by customers,
cancellations have not been material to date.
PLUMBING PRODUCTS SEGMENT
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1993 1994
---- ----
(DOLLARS IN
MILLIONS)
<S> <C> <C>
SALES:
International portion............................ $656 $659
U.S. portion..................................... 219 246
---- ----
Total....................................... $875 $905
==== ====
OPERATING INCOME (LOSS):
International portion............................ $105 $107
U.S. portion..................................... (18) (19)
---- ----
Total....................................... $ 87 $ 88
==== ====
</TABLE>
The international portion of Plumbing Products is composed of the European
Plumbing Products Group, the Americas International Group, and the Far East
Group. The U.S. portion is generated primarily by the U.S. Plumbing Products
Group and by export sales from the U.S.
Sales of Plumbing Products increased 3% (6% excluding the unfavorable
effects of foreign exchange) to $905 million in the first nine months of 1994
from $875 million in the first nine months of 1993. The exchange-adjusted
improvement resulted from sales increases of 4% for the European Plumbing
Products Group, 2% for the Far East and Americas International Groups on a
combined basis, and 12% for the U.S. Plumbing Products Group. Sales of the
European Plumbing Products Group increased primarily because of volume and price
gains as economic conditions in several countries (particularly the United
Kingdom ("U.K.") and Germany) showed modest improvement over the prior year
period. Exchange-adjusted sales increased for the Far East Group (primarily on
higher volumes in Thailand and Korea) but declined for the Americas
International Group (primarily because of lower sales in Canada where poor
economic conditions continued, offset partly by a gain in Mexico). Sales
increased for the Far East Group despite the deconsolidation of operations in
the PRC which in April 1994 were contributed to ASPPL. Sales of the U.S.
Plumbing Products Group increased as a result of improved markets and an
expanded retail customer base.
Operating income of Plumbing Products was $88 million in the first nine
months of 1994 compared with $87 million for the same period of 1993 (with
little effect from foreign exchange).
28
<PAGE> 34
Operating income for the European Plumbing Products Group increased due to price
and volume gains in the U.K. and Germany, and cost reductions in most
operations. Operating income of the Far East and Americas International Groups
on a combined basis decreased, as gains in most operations (due to the higher
sales, except in Canada) were more than offset by the effect of deconsolidation
of operations in the PRC. Improvements for the U.S. Plumbing Products Group from
increased sales and cost reductions at manufacturing facilities were more than
offset by a provision of $14 million related to certain assets (principally
machinery and equipment used in the production of chinaware) that will be
disposed of prior to the expiration of their originally estimated useful lives.
Overall Plumbing Products' results were also negatively affected by a provision
of $5 million related to employee severance, compared to $1 million of similar
charges in 1993. Excluding such provisions from the respective periods operating
income would have increased to $107 million from $88 million, or 22%, in the
1994 period from the 1993 period.
BACKLOG. Plumbing Products' backlog as of September 30, 1994 was $210
million, an increase of 16% from September 30, 1993 (excluding the favorable
effects of foreign exchange), primarily from expanded sales volume. The backlog
is comprised of unshipped product orders taken in the ordinary course of
business and recorded at normal sales prices. Sales are recorded when shipment
to a customer occurs. The current backlog is expected to be filled during the
next twelve months. Although most backlog orders are cancellable, in whole or in
part, by customers, cancellations have not been material to date.
TRANSPORTATION PRODUCTS SEGMENT
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1993 1994
----- -----
<S> <C> <C>
(DOLLARS IN
MILLIONS)
SALES................................................. $ 420 $ 543
OPERATING INCOME...................................... 34 39
</TABLE>
Sales of Transportation Products in the first nine months of 1994 were $543
million, an increase of 29% (with little effect from foreign exchange), from
$420 million in the first nine months of 1993. More than half of the gain
resulted from a 23% increase in the unit volume of truck and bus production in
Western Europe and a 5% increase in aftermarket sales. Approximately 37% of the
gain represented sales of Perrot ($46 million), a German brake manufacturer
which the Company acquired in January 1994. Sales volumes were significantly
higher in the U.K. (as a result of the growing utility vehicle business in that
country), in Sweden (where truck manufacturing increased by approximately 50%),
and in Brazil, France and Spain (where demand also increased).
Operating income for Transportation Products was $39 million in the first
nine months of 1994, an increase of 15% (with little effect from foreign
exchange) compared with $34 million in the first nine months of 1993. The
increase was primarily attributable to increased sales volume and the effect of
cost reductions, partly offset by a small loss experienced by Perrot. Operating
income for the 1994 period reflected charges of $14 million related to employee
severance ($10 million) and the consolidation of production facilities ($4
million). Charges of a similar nature in the 1993 nine-month period totalled $2
million. Excluding those charges from the respective periods, operating income
would have increased to $53 million from $36 million, or 47%, in the 1994 period
over the 1993 period.
BACKLOG. Transportation Products' backlog as of September 30, 1994, was
$293 million, an increase of 50% from September 30, 1993 (excluding the
favorable effects of foreign exchange), as a result of the significantly
improved volumes and the inclusion of backlog of Perrot. The backlog is
comprised of unshipped product orders taken in the ordinary course of business
and recorded at normal sales prices. Sales are recorded when shipment to a
customer occurs. The current backlog
29
<PAGE> 35
is expected to be filled during the next twelve months. Although most backlog
orders are cancellable, in whole or in part, by customers, cancellations have
not been material to date.
FINANCIAL REVIEW
The Company's financing and corporate costs for the first nine months of
1994 were $258 million, a decrease from $278 million in the first nine months of
1993. Interest expense decreased $19 million as a result of lower overall
interest rates on debt issued as part of the 1993 Refinancing, despite a $9
million increase in interest expense related to the 12 3/4% Junior Subordinated
Debentures issued in June 1993 in exchange for American Standard Inc.'s 12 3/4%
Exchangeable Preferred Stock.
For the nine months ended September 30, 1994 the income tax provision was
$47 million on income before income taxes, extraordinary loss and cumulative
effects of accounting changes of $33 million. The tax provision for the nine
months ended September 30, 1993 was $21 million despite a loss before income
taxes, extraordinary loss and cumulative effects of accounting changes of $34
million. These provisions reflected the annualized estimate of taxes payable on
those foreign operations that are expected to be profitable, offset partly in
the 1993 period by tax benefits from certain foreign net operating losses. The
provision for the first nine months of 1994 was adversely affected by less
favorable tax treatment with respect to certain foreign income, primarily in
Germany. See "-- Liquidity and Capital Resources". The unusual relationship
between the pre-tax results and the tax provision for both periods is explained
by the nondeductibility for tax purposes of the amortization of goodwill and
other purchase accounting adjustments and the share allocations made by the ESOP
as well as by tax rate differences and withholding taxes on foreign earnings.
As a result of the 1993 Refinancing, the 1993 nine-month period included an
extraordinary charge of $92 million related to the debt retired (including call
premiums, the write-off of unamortized debt issuance costs and the loss on
cancellation of foreign currency swap contracts), on which no tax benefit was
available.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, after cash interest paid of $114
million, was $127 million for the nine months ended September 30, 1994, compared
with $73 million in the first nine months of 1993. The $54 million increase
resulted primarily from improved operating results ($41 million), a non-cash
asset loss provision ($14 million) and an increase in timing differences in
funding ($51 million, principally accruals for severance and facilities
consolidations, income taxes and employee compensation), offset in part by a
decrease in non-cash interest costs ($13 million) and an increase in working
capital invested in operations during the 1994 period ($40 million, which was
principally attributable to higher sales volumes). The other principal source of
cash was net borrowings of $63 million under the Revolving Credit Facility (as
defined below). The principal uses of cash in the 1994 period were repayments of
$101 million of bank term loans and capital expenditures of $63 million,
including $13 million of investments in affiliated companies. See "-- Capital
Expenditures".
In connection with the Acquisition in 1988, American Standard incurred
substantial indebtedness, resulting in its highly leveraged capital structure.
At September 30, 1994, the Company's total indebtedness was approximately $2.4
billion, including short-term debt and the current portion of long-term debt. At
September 30, 1994, after giving effect to the Offerings and the October
Borrowing and the application of net proceeds therefrom, the Company's annual
scheduled debt maturities will range from approximately $105 million to $120
million for the years 1995 through 1998. To meet its debt service obligations
with operating cash flow and comply with the covenants and restrictions
contained in the Credit Agreement, the Company will have to sustain the improved
level of operating results and cash flow attained in the first nine months of
1994. The Company believes that the
30
<PAGE> 36
amounts available from operating cash flows, funds available under the Revolving
Credit Facility and future debt or equity financings will be sufficient to meet
its expected cash needs and planned capital expenditures for the foreseeable
future.
The Existing Credit Agreement currently provides for an aggregate facility
of approximately $1.2 billion as follows: (a) a $242 million multi-currency
revolving credit facility (the "Revolving Credit Facility") available to all
Borrowers (as defined); (b) a $176 million (at September 30, 1994 exchange
rates) multi-currency periodic access facility (the "Periodic Access Facility")
available to all Borrowers; and (c) four term loan facilities (each, a "Term
Loan Facility"), consisting of a $222 million U.S. dollar Tranche A facility
available to American Standard Inc.; a $136 million (at September 30, 1994
exchange rates) Deutschemark Tranche B facility available to WABCO Standard
GmbH; a $82 million U.S. dollar Tranche C facility available to all Borrowers;
and a $325 million U.S. dollar Tranche D Facility available to American Standard
Inc.
The Company is required to reduce to $50 million the amount of borrowings
outstanding under the Revolving Credit Facility for at least 30 consecutive days
in each 12-month period ending May 31. On August 31 of each year, the Revolving
Credit Facility is reduced by $8.3 million. In addition, the Company is required
to repay the full amount of each of its outstanding revolving loans at the end
of each interest period (a maximum of six months). The Company may, however,
immediately reborrow such amounts subject to compliance with applicable
conditions of the Existing Credit Agreement.
At September 30, 1994, the Company had outstanding borrowings of $70
million under the Revolving Credit Facility. At September 30, 1994, there was
$118 million available under the Revolving Credit Facility after reduction for
borrowings and for $54 million of outstanding letters of credit. In addition,
the Company's foreign subsidiaries had $60 million available under overdraft
facilities which can be withdrawn by the banks at any time. At December 31,
1994, the Company had outstanding borrowings of $38 million under the Existing
Credit Agreement's revolving credit facility. At December 31, 1994, there was
$152 million available under such revolving credit facility after reduction for
borrowings and for $52 million of outstanding letters of credit.
The Existing Credit Agreement contains various covenants that limit, among
other things, indebtedness, dividends on and redemptions of capital stock of the
Company, purchases and redemptions of other indebtedness of the Company
(including its outstanding debentures and notes), rental expense, liens, capital
expenditures, investments or acquisitions, disposal of assets, the use of
proceeds from asset sales, and certain other business activities and require the
Company to meet certain financial tests. Certain American Standard Inc. debt
instruments also contain financial and other covenants. See "Certain
Indebtedness -- Existing Credit Agreement -- Covenants" and "-- Certain Other
Indebtedness -- Certain Covenants; Events of Default". In order to maintain
compliance with the covenants and restrictions contained in its previous credit
agreement, the Company from time to time has had to obtain waivers and
amendments. In February 1994 the Company obtained an amendment to the Existing
Credit Agreement that among other things relaxed certain financial tests and
covenants, and facilitated the investment in an air conditioning joint venture
and the formation of a holding company to establish joint ventures in the PRC
for the manufacture and sale of plumbing products. While the Company believes it
is currently in compliance with the covenants contained in the Existing Credit
Agreement, no assurance can be given that, if needed, the Company will be able
to obtain similar waivers or amendments in the future under the Existing Credit
Agreement or the New Credit Facility. If American Standard were unable to meet
its debt service obligations, or to comply with applicable covenants, the
Company could be in default under the Credit Agreement as well as in respect of
other borrowings. Potential consequences of such a default are summarized in
"Certain Investment Considerations -- Substantial Leverage".
In July 1993 the Company completed a refinancing (the "1993 Refinancing")
that included (a) the issuance of $200 million principal amount of 9 7/8% Senior
Subordinated Notes Due 2001;
31
<PAGE> 37
(b) the issuance of approximately $751 million principal amount of 10-1/2%
Senior Subordinated Discount Debentures Due 2005, which yielded proceeds of
approximately $450 million; (c) the amendment and restatement of the Company's
previous credit agreement into the Existing Credit Agreement; and (d) the
application of the proceeds of such issuances and such borrowings as follows:
(i) the redemption on July 1, 1993, of all of the outstanding 12-7/8% Senior
Subordinated Debentures at a redemption price of 104.83% ($571.3 million), (ii)
the redemption on July 2, 1993 of a majority of the outstanding 14-1/4%
Subordinated Discount Debentures at a redemption price of 105% ($389.5 million),
(iii) the extension of the term of existing bank borrowings ($405 million of
term loans and $77 million of other bank debt including revolving credit debt),
(iv) the refunding of letters of credit ($58 million), and (v) payment of
related fees and expenses.
In connection with examinations of the tax returns of American Standard's
German subsidiaries for the years 1984 through 1990, the German tax authorities
have raised questions regarding the treatment of certain significant matters.
The Company has paid approximately $20 million (using September 30, 1994
exchange rates) of a disputed German income tax. A suit is pending to obtain a
refund of this tax. The Company anticipates that the German tax authorities may
propose other adjustments (principally relating to the 1988-1990 period)
resulting in additional taxes of approximately $120 million (using September 30,
1994 exchange rates), plus interest, for the tax return years under audit. In
addition, significant transactions similar to those which gave rise to the
possible adjustments referred to above occurred in years subsequent to 1990. If
the German tax authorities should propose adjustments for the 1988-1990 period,
they might, after future tax audits, propose tax adjustments that are comparable
for years 1991 to 1993. American Standard, on the basis of the opinion of German
legal counsel, believes the tax returns are substantially correct as filed and
any such adjustments would be inappropriate and intends to contest vigorously
any adjustments which have been or may be assessed. Accordingly, the Company had
not recorded any loss contingency at September 30, 1994, with respect to such
matters.
Under German tax law, if an assessment is made for the years under audit,
the authorities may demand immediate payment of the amount assessed prior to
final resolution of the issues. (The same principles would apply as to any
assessment in connection with possible audits for subsequent years.) American
Standard believes, however, on the basis of the opinion of German 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 will be able to meet such payment from available sources of liquidity or
credit support but that future cash flows and capital expenditures, and
subsequent results of operations for any particular quarterly or annual period,
could be adversely affected.
As a result of recent changes in German tax legislation, the Company's tax
provisions in 1994 and thereafter will be higher in Germany. As a result of this
German tax legislation and the related additional tax provisions, the Company
believes its exposure to the issues under the audit referred to above will be
reduced for 1994 and future years.
American Standard Inc. makes substantial annual interest payments to its
indirect wholly-owned Netherlands subsidiary. These interest payments have been
exempt from U.S. withholding tax under an income tax treaty between the United
States and the Netherlands. A provision in a new treaty raises the possibility
that such payments may become subject to 15% U.S. withholding tax. The Company
has filed a Competent Authority request with the Internal Revenue Service
seeking a determination that no withholding tax will be imposed. The Company
believes, based upon a recent IRS News Release that authorizes the requested
relief, that the Competent Authority request will be resolved favorably. If the
Competent Authority request is not resolved favorably, additional withholding
taxes of approximately $12 million per year could be imposed on the Company
commencing in 1996. In such case, the Company will consider alternatives
designed to mitigate such increased withholding taxes; however, there is no
assurance that such alternatives will be found.
32
<PAGE> 38
CAPITAL EXPENDITURES
The Company's capital expenditures for the first nine months of 1994 were
$63 million, including $13 million of investments in affiliated companies,
compared with $54 million (including $8 million of investments in affiliated
companies) for the first nine months of 1993. The increase for 1994 relates
primarily to investments in affiliated companies, expansion in newer operations,
new products, and the continuing implementation of Demand Flow.
The Company's capital expenditures for 1993 amounted to $98 million,
including investments of $8 million in affiliated companies. The amount of
capital expenditures was $10 million less than in 1992 ($6 million less
excluding the effects of foreign exchange). The Company believes capital
spending in recent years has been sufficient for maintenance purposes, important
product and process redesigns, expansion projects, and strategic investments.
Capital expenditures for the full year 1994 are expected to increase
approximately 30% over the 1993 amounts. The Company expects capital
expenditures, including investments in related companies, will increase 10% to
15% in 1995.
Capital expenditures for Air Conditioning Products for the first nine
months of 1994 were $21 million, including $2 million of investments in
affiliates. Major expenditures included projects related to Demand Flow and new
products such as the Voyager III (medium-tonnage product line), changes related
to new refrigerant requirements and capacity expansion. Total capital spending
for the full year 1994 is expected to be 25% higher than in 1993. Capital
expenditures were $38 million in 1993. This amount was 15% more than that of
1992. Capital expenditures in 1993 included projects related to Demand Flow and
spending on new products such as the Voyager III, the scroll compressor, and the
Series R chiller line, expansion of Voyager I and Voyager II capacity and
tooling and equipment for the American Standard line of air conditioning
products.
Plumbing Products' capital expenditures for the first nine months of 1994
were $24 million, including $3 million of investments in affiliated companies.
Expenditures for 1994 include cash investments in affiliates in the PRC and
Vietnam and expansion of capacity in other Far East operations, modernization of
the Czech Republic operations, completion of a brass fittings factory in Egypt,
and automatic glazing systems in Italy. Total capital expenditures for full year
1994 are expected to be approximately 15% higher than in 1993. Capital
expenditures in 1993 were $46 million, including investments of $8 million in
affiliated companies in France (Porcher) and the Czech Republic. Excluding the
investments in affiliated companies and the effects of foreign exchange, capital
spending in 1993 was 34% higher than in 1992 as a result of spending increases
in Europe and the Far East. Major projects included capacity expansion in
Thailand and China and various projects related to Demand Flow implementation.
Capital expenditures for Transportation Products in the first nine months
of 1994 were $18 million, including investments in affiliated companies of $8
million (Perrot and WABCO Espana). Major projects included construction of a
test track in Germany, continued implementation of Demand Flow, and
cost-reduction projects. Total capital expenditures for full year 1994 is
expected to be approximately double the 1993 level. Capital expenditures were
$14 million in 1993. Excluding the effects of foreign exchange, capital spending
in 1993 was 41% less than in 1992, a year with significant spending related to
Demand Flow cost-reduction projects in production and material flow.
CONSOLIDATED RESULTS OF OPERATIONS FOR 1993 COMPARED WITH 1992
Consolidated sales for 1993 were $3.83 billion, an increase of 1% (6%
excluding the unfavorable effects of foreign exchange) over $3.79 billion in
1992. A sales increase of 11% for Air Conditioning Products was partly offset by
a sales decline for Transportation Products of 23% (16% excluding the
unfavorable effects of foreign exchange). Sales for Plumbing Products were flat
(but up by 9% excluding the effects of foreign exchange).
Operating income for 1993 was $282 million, a decrease of $18 million, or
6% (but an increase of less than 1% excluding the unfavorable effects of foreign
exchange), from $300 million in 1992.
33
<PAGE> 39
The increase in operating income of 28% for Air Conditioning Products was more
than offset by a 53% decrease in operating income for Transportation Products.
Plumbing Products' operating income was flat (but increased 15% excluding the
unfavorable effects of foreign exchange). The gain for Air Conditioning Products
was the result of higher volume, increased sales of higher-margin products, the
benefits of manufacturing improvements, and the effects of restructuring and
cost-containment efforts undertaken in 1991 and 1992, offset partly by the costs
of further restructuring in 1993. For Plumbing Products the effects of increased
volume for the Far East Group were offset partly by lower margins for the U.S.
group and lower volumes and unfavorable foreign exchange effects for the
European group. Transportation Products' operating income decreased primarily as
a result of lower volumes due to reduced demand in depressed markets in Europe,
offset partly by the effects of improvements in manufacturing efficiency.
CONSOLIDATED RESULTS OF OPERATIONS FOR 1992 COMPARED WITH 1991
Consolidated sales for 1992 were $3.8 billion, an increase of 5% (4%
excluding the favorable effects of foreign exchange) over $3.6 billion in 1991.
The 1991 amount included the sales of Tyler Refrigeration, which was sold
September 30, 1991. Excluding Tyler Refrigeration, sales in 1992 were up 8% (7%
excluding favorable foreign exchange effects). Sales increases of 15% for
Plumbing Products and 9% for Air Conditioning Products (excluding Tyler
Refrigeration) were partly offset by a sales decline for Transportation Products
of 1% (6% excluding the favorable effects of foreign exchange).
Operating income for 1992 was $300 million, an increase of $58 million, or
24% (19% excluding the favorable effects of foreign exchange), from $242 million
in 1991. The 1991 amount included a loss for Tyler Refrigeration. Excluding
Tyler Refrigeration, operating income in 1992 was up 15% (10% excluding
favorable foreign exchange effects). Increases in operating income of 42% for
Air Conditioning Products and 64% for Plumbing Products were partly offset by a
27% decrease in operating income for Transportation Products. The gain for Air
Conditioning Products was the result of higher volume, increased sales of
higher-margin products, the benefits of manufacturing improvements,
restructuring and cost containment efforts, and the fact that 1991 also included
the effects of a work stoppage at the LaCrosse, Wisconsin, facility, partly
offset by decreased operating income for the International Group, principally in
Europe. In addition, approximately one-third of the gain in operating income for
Air Conditioning Products resulted because 1991 included an operating loss for
Tyler Refrigeration of $18 million (including a $22 million loss on the sale of
this division). Plumbing Products' operating income gain resulted from increased
prices and volumes, primarily in Europe and to a lesser extent in the United
States. Transportation Products' operating income decreased primarily as a
result of lower volumes due to reduced demand in depressed markets in Europe and
Brazil and lower prices offset partly by the favorable effects of foreign
exchange and improvements in manufacturing.
34
<PAGE> 40
RESULTS OF OPERATIONS BY SEGMENT
AIR CONDITIONING PRODUCTS SEGMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
SALES:
U.S. portion........................ $1,453 $1,572 $1,786
International portion............... 284 320 314
------ ------ ------
Subtotal....................... 1,737 1,892 2,100
Tyler Refrigeration................. 99 -- --
------ ------ ------
Total.......................... $1,836 $1,892 $2,100
====== ====== ======
OPERATING INCOME (LOSS):
U.S. portion........................ $ 58 $ 112 $ 148
International portion............... 15 (8) (15)
------ ------ ------
Subtotal....................... 73 104 133
Tyler Refrigeration................. (18)(a) -- --
------ ------ ------
Total.......................... $ 55 $ 104 $ 133
====== ====== ======
</TABLE>
---------------------
(a) Includes $22 million loss on the sale of Tyler Refrigeration.
1993 COMPARED WITH 1992. Sales and operating income of Air Conditioning
Products both increased in 1993 despite the continuing recession in U.S. and
Canadian commercial new construction and only moderate increase in residential
new construction in the U.S. and despite the economic decline in Europe. Sales
of Air Conditioning Products, which accounted for approximately 55% of the
Company's 1993 sales, increased by 11% (with little effect from foreign
exchange) to $2,100 million in 1993 from $1,892 million in 1992. There was a
significant sales increase for each of the three operating groups.
Operating income of Air Conditioning Products increased year to year by 28%
(with little effect from foreign exchange) to a record high of $133 million in
1993 from $104 million in 1992. The increase was attributable to gains achieved
by all three groups.
Unitary Products Group. In 1993 sales of the Unitary Products Group, which
accounted for approximately 42% of Air Conditioning Products sales, increased by
15% over the 1992 sales level. Residential markets were up 15%, as a result of
an unusually hot summer in the northern United States and a 7% increase in
housing starts. Sales of residential products increased by 18% year over year,
principally because of higher volumes driven by the improved market, increased
furnace sales in the replacement market, and a shift in the market to more
efficient products, offset partly by the continuation from 1992 of price
decreases due to competitive pressures. Commercial markets for unitary products
were up 9% overall from the 1992 markets, as the commercial replacement market
strengthened further. New-construction activity continued to struggle, however.
Sales of commercial unitary products increased by 10% overall, primarily as a
result of higher volume (driven by the strong replacement market for both light
and large commercial products); a shift to higher-priced, higher-tonnage
products; and a gain in market share for light commercial products due to the
success of the large Voyager products (packaged rooftop air conditioners). As a
result of these factors, together with product cost improvements, improved labor
productivity, and the benefits of organizational restructuring which reduced the
salaried workforce in 1992, the operating income for Unitary Products in 1993
increased by 43% year over year. This improvement was achieved even though 1993
included the initial start-up costs of the new national distribution center in
St. Louis, Missouri, and higher advertising costs.
Unitary Products' sales increased through the success of new and redesigned
products introduced recently and improved distribution channels. Commercial
products that were introduced
35
<PAGE> 41
included the 20-to-25-ton Voyager products in 1992, which more than doubled
market share in that size range; commercial microprocessor-controlled products;
a line of convertible air handlers; and rooftop and air cooled chiller products
using more efficient scroll compressors. Residential products introduced
included the AMERICAN-STANDARD(R) brand outdoor units and new lines of luxury
and conventional retail residential products.
Commercial Systems Group. Sales of the Commercial Systems Group, which
accounted for approximately 37% of Air Conditioning Products' sales, increased
10%, primarily on volume increases for most product lines, especially air
handling systems and water chillers (principally due to improved replacement
markets and increased market share), and increased revenue from Company-owned
sales offices (acquisitions and volume growth). These gains were partly offset
by lower volume in Canada, which continued to be adversely affected by
recession. The non-residential new-construction market increased 4% in the
United States in 1993, following decreases of 5% in 1992 and 17% in 1991. The
non-residential replacement market was up by 6% over 1992.
Operating income for Commercial Systems increased 12% in 1993 over the
recession-affected figure for 1992. The increase was primarily the result of
volume gains, improvements in manufacturing efficiency, operating expense
reductions, and the benefits of restructuring actions taken in 1992. The effects
of these factors were partly offset by slightly lower prices, increases in
material, labor, and benefit costs, the costs of additional restructuring
actions in 1993, and a larger loss in the weak Canadian market.
Product development emphasis for Commercial Systems in 1993 and 1992 was on
new compressor, heat transfer and microelectronic control technology; adaptation
of products to refrigerants that comply with recent government regulations;
energy-efficient products; products for the aftermarket and replacement market
(which exceeded the new-construction market in both 1993 and 1992); and products
redesigned to improve manufacturing productivity. This strategy benefited
operations in 1993 and 1992, and the Company expects that this product
development emphasis will result in greater sales over the next several years.
International Group. Sales of Air Conditioning Products' International
Group, which accounted for approximately 21% of Air Conditioning Products' 1993
sales, increased 7% from those of 1992 (10% excluding the unfavorable effect of
foreign exchange). Most of the gain was from higher volume in the Far East
(especially Hong Kong, Taiwan, and export sales from the U.S.) resulting from
expanded markets and increased penetration; higher export sales from the U.S. to
the Middle East (markets were significantly stronger) and Latin America
(improved penetration in a market that was up 20%); and higher volumes in
Mexico. These gains were partly offset by lower sales in Europe (lower prices
and volumes in a declining market). Markets were down in all European countries
except the U.K., but the effect was partly offset by increased revenues from
service companies acquired in 1992 and prior years. Market growth in the Far
East was 6% overall, led by the PRC market, which was up by 21%. The sales
growth in Hong Kong was driven by the very strong market in the PRC. Markets in
Thailand also grew, and the Latin American market grew by 20%.
Operating income for the International Group increased by approximately 39%
in 1993. The increase was primarily the result of higher export sales from the
U.S. to the Middle East and Far East, offset partly by a larger operating loss
in Europe primarily because of the weak markets and lower margins, costs related
to restructuring in response to the lower markets, and the unfavorable effects
of lower volume on factory performance. Overall, income from the Far East and
Latin America was essentially unchanged from the prior year, as volume gains
were offset by increased costs related to expansion of distribution channels and
joint ventures and development of new and improved products to support present
and future growth.
1992 COMPARED WITH 1991. Except as otherwise indicated, the following
discussion, including the financial comparisons, does not include the results of
Tyler Refrigeration or the $22 million loss on the sale of Tyler Refrigeration
in 1991.
36
<PAGE> 42
Sales and operating income of Air Conditioning Products both increased in
1992 even though U.S. and Canadian commercial and residential new construction
continued to be adversely affected by the recession in those countries and
despite the economic decline in Europe. Sales of Air Conditioning Products,
which accounted for approximately 50% of the Company's 1992 sales, increased by
9% (8% excluding the effects of foreign exchange) to $1,892 million in 1992 from
$1,737 million in 1991. There was a significant sales increase for each of the
three operating groups -- for the Unitary Products Group in both residential and
commercial products primarily because of higher volume and more favorable
product mix (partly offset by lower prices), for the Commercial Systems Group
primarily because of higher volume and prices, and for the International Group
principally because of increased volume in Europe and the Far East.
Operating income of Air Conditioning Products increased year to year by 42%
(with little effect from foreign exchange) to $104 million in 1992 from $73
million in 1991, and operating margins increased to 5.5% in 1992 from 4.2% in
1991. The increase was attributable to the sales gains of the three groups, the
benefits of manufacturing improvements and restructuring and cost containment in
the Unitary Products and Commercial Systems Groups, and the fact that in 1991
results of the Commercial Systems Group had been adversely affected by a 54-day
work stoppage at its LaCrosse, Wisconsin, facility. The impact of these factors
was partly offset by a decline in operating income for the International Group
caused by lower margins and costs related to the start-up of new facilities,
sales offices, and distribution channels.
Unitary Products Group. Sales in 1992 of the Unitary Products Group, which
accounted for approximately 41% of Air Conditioning Products sales, increased by
6% over the 1991 sales level. Commercial markets for unitary products were up 6%
overall from the depressed 1991 markets, as a very strong commercial replacement
market more than offset the effects of low new-construction activity. Sales of
commercial unitary products increased by 7% overall, primarily as a result of
higher volume (driven by the strong replacement market), a shift to
higher-priced, higher-tonnage products, and a gain in market share for light
commercial products. Residential markets were down 3.5% as poor replacement
activity, a result of an unseasonably cool summer, more than offset the 18%
increase in new housing starts. Despite this poorer market, sales of residential
products increased by 5% year over year, principally because of larger market
share, improved furnace markets, and a partial shift in the market to more
efficient products stimulated by Federal efficiency standards, offset partly by
price degradation due to competitive pressures. As a result of these factors,
together with benefits of manufacturing improvements, cost containment, and
organizational restructuring which reduced the salaried workforce, the operating
profit for Unitary Products in 1992 increased by 50% from the depressed level of
1991.
Unitary Products' sales in the commercial market increased through the
success of new and redesigned products introduced in 1991 and 1992 and improved
distribution channels. New and modified products in 1991 and 1992 included new
cost-reduced 20 to 25-ton Voyager products, commercial microprocessor-controlled
products, a new line of convertible air handlers, and rooftop and air-cooled
chiller products using more efficient scroll compressors.
Commercial Systems Group. Sales of the Commercial Systems Group, which
accounted for approximately 38% of Air Conditioning Products' sales, increased
9% primarily on volume increases in aftermarket replacement and parts sales,
increased revenue from Company-owned sales offices (volume growth and
acquisitions), and small price increases on most product lines. Other factors
contributing to the increase were higher sales of large applied systems and the
fact that in 1991 there was a 54-day work stoppage at the LaCrosse, Wisconsin,
plant. These gains were partly offset by lower volume in Canada, which continued
to be adversely affected by recession. The non-residential new construction
market dropped 5% in the United States in 1992, following a 17% decrease in
1991. The non-residential replacement market was even with 1991.
Operating income for Commercial Systems increased 129% in 1992 over the
recession-affected and work-interrupted level of 1991. The increase was
primarily the result of the volume and price
37
<PAGE> 43
gains, improvements in manufacturing efficiency, cost containment and
restructuring, and the fact that 1991 included the adverse impact of the
LaCrosse work stoppage. The effects of these factors were partly offset by
slightly lower gross margins, as the price increases did not completely recover
increases in material, labor and benefits costs.
International Group. Sales of Air Conditioning Products' International
Group, which accounted for approximately 21% of Air Conditioning Products' 1992
sales, increased 15% from those of 1991 (10% excluding the favorable effect of
foreign exchange). Most of the gain was from higher volumes in Mexico (two new
sales offices resulted in expanded distribution and penetration), the Far East
(especially Hong Kong and Singapore), the Middle East (markets were
significantly stronger), and Europe (sales of new products and increased
penetration despite declining markets). Markets were down in almost all European
countries except Italy, with the largest drop in the U.K., offset partly by
increased revenues from acquired service companies. Market growth in the Far
East was 9% overall, led by China, Singapore, and Korea. The sales growth in
Hong Kong was driven by the very strong market in China, even though the overall
market in Hong Kong was down. Markets in Malaysia and Indonesia also grew.
Operating income for the International Group decreased by approximately 68%
in 1992. The decline occurred in Europe, primarily because of the weak markets
and lower prices, costs related to the start-up of new facilities and new
distribution networks in the U.K. and France, costs related to the introduction
of new products, start-up costs of a company in Spain acquired near the end of
1991, and foreign exchange transaction losses from currency fluctuations in the
latter half of 1992. Income from the Far East and Latin America was essentially
unchanged from the prior year, as volume gains were offset by increased costs
related to expanded distribution channels, start-up of new joint ventures, and
development of new and improved products to support present and future growth.
PLUMBING PRODUCTS SEGMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
(DOLLARS IN MILLIONS)
SALES:
International portion...................... $ 783 $ 885 $ 865
U.S. portion............................... 235 285 302
------ ------ ------
Total................................. $1,018 $1,170 $1,167
====== ====== ======
OPERATING INCOME (LOSS):
International portion...................... $ 93 $ 124 $ 131
U.S. portion............................... (27) (16) (23)
------ ------ ------
Total................................. $ 66 $ 108 $ 108
====== ====== ======
</TABLE>
1993 COMPARED WITH 1992. Sales of Plumbing Products in 1993, at $1,167
million, which accounted for approximately 30% of the Company's 1993 sales, were
at essentially the same level as the $1,170 million of sales in 1992 (but
increased by 9% excluding the unfavorable effects of foreign exchange). Sales
increases of 42% for the Far East Group (46% excluding foreign exchange), 9% for
the Americas International Group (14% excluding foreign exchange), and 6% for
the U.S. Plumbing Products Group were offset partly by a sales decrease of 10%
for the European Plumbing Products Group (which had a 4% increase excluding the
effects of foreign exchange).
In 1993 operating income of Plumbing Products was $108 million, the same
amount as in 1992, but excluding the unfavorable effects of foreign exchange
operating income increased by 15%. The increase (on an exchange-adjusted basis)
was attributable primarily to increased profitability for the Far East Group and
for the Americas International Group, offset partly by a decline for the U.S.
group.
38
<PAGE> 44
European Plumbing Products Group. Sales of the European group, which
accounted for approximately 51% of Plumbing Products' sales for 1993, decreased
10% in 1993 from 1992 but increased by 4% excluding the unfavorable effects of
foreign exchange. The exchange-adjusted gain resulted from price increases,
especially in Italy, Germany, the U.K., and Greece, offset partly by lower
volume in most countries because of depressed markets. In Italy sales were up
with price increases for most product lines, offset partly by lower volume and a
less favorable product mix. The German market was stable in total, as price
gains were offset by volume and mix declines. Greece, which had been in
recession for three years, recovered somewhat in 1993. The European group's
strength has been sales in the replacement market, which has more than made up
for the effects of poor new-construction markets.
Operating income for the European group decreased 7% but increased 10%
excluding the effects of foreign exchange. This increase occurred primarily
because of the price gains and cost reductions resulting from restructuring and
efficiency improvements in the U.K., France, Italy, and Germany. Partly
offsetting those favorable effects were the effects of lower volumes and the
unfavorable effect on margins caused by the decline in value of many European
currencies against the Deutschemark. The increased cost of fittings purchased
from Germany could not be completely recovered through sales price increases in
most of the operations in other countries.
U.S. Plumbing Products Group. Sales of the U.S. group, which accounted for
approximately 26% of total 1993 Plumbing Products sales, increased 6% in 1993.
During 1993 the U.S. building industry continued to be adversely affected by the
low level of new construction, although non-residential construction increased
4% from 1992 and new residential construction continued to recover from the
lowest levels since the mid-1940's (up by 7% in 1993 and 18% in 1992 but still
below pre-1990 levels). A basic shift from wholesale distribution channels to
retail channels has been developing over the last few years, a trend the Company
believes will continue and will be beneficial to the Company because of strong
product and brand-name recognition. Retail markets account for 20% of the total
sales of the U.S. group. The growth of sales for the U.S. group was largely the
result of increased export sales from the U.S. and to a lesser extent price
increases on certain products, a more favorable sales mix, and a small increase
in the growing retail channel business. The overall gain in the retail business
was small because significant volume gains due to an expanding customer base
were partly offset by the loss of an important customer.
The operating loss for the U.S. group in 1993 was greater than that of the
prior year. Despite higher sales, operating results were poorer primarily
because of lower margins on both domestic and export sales, increased
advertising costs and other expenses associated with expansion of the retail
distribution channel, costs related to start-up and expansion of the
low-water-volume toilet line (now mandated for new construction), and factory
performance problems caused in part by the effects of fluctuating volumes. In
addition, costs were incurred in business system re-engineering activities
intended to improve customer service.
Americas International and Far East Groups. Combined sales of the Americas
International and Far East Groups, which accounted for approximately 23% of
total Plumbing Products sales, increased 21% in 1993 (26% excluding the effects
of foreign exchange). The sales gain was due primarily to the consolidation of
Incesa (a previously unconsolidated group of Central American joint ventures)
effective January 1, 1993, as a result of the purchase of additional shares of
stock, and to higher volume and prices in Thailand, the PRC, the Philippines,
and Brazil, offset partly by decreases in sales in Mexico, Canada, and Korea.
Combined operating income of the Americas International and Far East Groups
in 1993 increased 72% over the 1992 level. Gains were realized in all operations
except Mexican chinaware operations, which were adversely affected by poor
economic conditions and the uncertainty related to the North American Free Trade
Agreement. The increase was primarily from higher prices and volumes in Brazil,
Thailand, and the PRC, the consolidation of Incesa, and a smaller loss for
Mexican fittings operations.
39
<PAGE> 45
1992 COMPARED WITH 1991. Sales of Plumbing Products, which accounted for
approximately 31% of the Company's 1992 sales, increased by 15% in 1992 (14%
excluding the effects of foreign exchange) to $1,170 million from $1,018 million
in 1991. The improvement resulted from sales increases of 9% (7% excluding the
effects of foreign exchange) for the European Plumbing Products Group, 21% for
the U.S. Plumbing Products Group, 4% for the Americas International Group (7%
excluding foreign exchange), and 101% for the Far East (98% excluding foreign
exchange). Sales of the European group increased primarily because of increases
in prices and volumes in Italy and Germany, partly offset by lower volume in
France. The sales increase for the U.S. Plumbing Products Group reflected volume
increases for products introduced in 1991 and, to a lesser extent, price
increases on certain other products as well as an increase in the growing retail
channel business. Sales increased for the Americas International group primarily
because of higher prices and volume in Mexico and higher volume in Brazil,
offset by declines in Canada, and for the Far East Group because of the
consolidation in 1992 of the Thailand operations (previously an unconsolidated
joint venture) and higher volume in China.
In 1992 operating income of Plumbing Products increased 64% (56% excluding
the effects of foreign exchange) to $108 million from $66 million in 1991 and
the operating margin increased to 9.2% from 6.5%. The increase was attributable
primarily to increased profitability for the European group on higher prices and
volumes (especially in Italy and Germany). Results for the U.S. group, whose
operations continued to be unprofitable as a result of the recession in the U.S.
markets, improved because of higher prices and volumes. Operating profit of the
Americas International and Far East Groups also improved as a result of gains in
Mexico, Brazil, Korea and China, offset partly by lower profitability in Canada
and the Philippines, both of which were affected by poor economies.
European Plumbing Products Group. Sales of the European group, which
accounted for approximately 57% of Plumbing Products sales for 1992, increased
9% in 1992 over 1991, 7% excluding the favorable effects of foreign exchange.
The gain resulted primarily from price and volume increases, especially in Italy
and Germany, offset partly by lower volume in France from declining demand and
lower prices in England caused by a very poor market. In Italy sales were up 9%,
with gains for most product lines in price, volume and market share; however,
the market was trending down at year-end as the Italian government introduced
economic measures to reduce the public deficit. The German market was stable in
total but shifted to lower-value housing and economy products as eastern Germany
became a bigger factor. The gains in Germany were the result of higher volumes
and prices for brass fittings and luxury chinaware. European markets were down
overall, particularly in the U.K. which continued in an economic slump; France,
whose economy fell off significantly in the fourth quarter of 1992; and Greece,
which has been in recession for three years. The new-construction markets in
those three countries are in recession. The European group's strength has been
sales in the replacement market, which more than made up for the effects of poor
new-construction markets.
Operating income for the European group increased 28% (23% excluding the
effects of foreign exchange) primarily from the price and volume gains in Italy
and Germany and higher margins on German brass operations resulting from
improved manufacturing processes and cost containment, offset partly by lower
profitability in France because of decreased volume and in the U.K. because of
the recession. The recession continued to depress operating results in Greece.
U.S. Plumbing Products Group. Sales of the U.S. group, which accounted for
approximately 24% of total 1992 Plumbing Products sales, increased 21% in 1992.
During 1992 the U.S. building industry continued to be severely affected by the
low level of new construction, with non-residential construction down 5% from
1991 and with new residential construction recovering from the lowest levels
since the mid-1940's (though up by 18%, it was still low in historical terms).
The U.S. market for plumbing products was up an estimated 3% to 4%, with more
than half the gain occurring in the replacement and remodeling markets, which
accounts for about 60% of the total U.S. market. A basic shift from wholesale
distribution channels to retail channels has been developing over the last few
years, a trend the Company believes will continue and will be beneficial to the
Company
40
<PAGE> 46
because of strong product and brand-name recognition. Retail markets accounted
for 20% of the total sales of the U.S. group. The growth of sales for the U.S.
group was largely a result of the strength of retail business (which had a
significant increase in volume) and increased export sales from the U.S.,
together with smaller gains resulting from price increases and higher wholesaler
distribution sales. Sales of AMERICAST(R) products more than doubled in 1992,
and smaller volume gains were achieved for acrylic products, fixtures, and
faucets.
The operating loss for the U.S. group in 1992 was less than that of the
prior year. The improvement was primarily due to price increases and secondarily
to volume and margin gains (as a result of sourcing product from the Company's
Latin American plants), offset partly by non-recurring costs related to
implementation of improved manufacturing processes and the effects of a shift in
overall sales mix from commercial and luxury to lower-margin products.
Americas International and Far East Groups. Combined sales of the Americas
International and Far East Groups, which accounted for approximately 19% of
total Plumbing Products sales, increased 26% in 1992 (28% excluding the effects
of foreign exchange). The sales gain was due primarily to the consolidation in
1992 of a previously unconsolidated joint venture in Thailand and to a lesser
extent to price and volume increases in Mexico and Korea and higher volumes in
Brazil, offset partly by lower sales in Canada, which continued to be adversely
affected by severe recession.
Combined operating income of the Americas International and Far East Groups
in 1992 increased 134% over the 1991 level. Gains were realized in all
operations except Canada and the Philippines, both of which were adversely
affected by poor economies. The increase was primarily from price and volume
gains in Mexico and Korea, higher volume and margins in Brazil, and higher
volume in China.
TRANSPORTATION PRODUCTS SEGMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1991 1992 1993
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
SALES............................................ $741 $730 $563
OPERATING INCOME................................. 121 88 41
</TABLE>
1993 COMPARED WITH 1992. Sales of Transportation Products, which accounted
for 15% of the Company's 1993 sales, were $563 million, down 23% from $730
million in 1992 (16% excluding the effects of foreign exchange). The sales
decrease was due primarily to a volume decline in Germany as a result of a 30%
decrease in Western European truck and bus production, led by a 34% decline in
Germany, and a 23% decrease in Western European trailer production. Volumes were
also down in all other European countries in which Transportation Products has
operations, although at the end of 1993 sales and order trends were upward.
Volume in Brazil was slightly higher. Original equipment sales volume in Europe
was down 22%, and aftermarket business was down 10%. These declines affected
both conventional and electronic products.
Operating income for Transportation Products in 1993 decreased 53% (50%
excluding foreign exchange effects) to $41 million from $88 million in 1992,
principally because of the lower sales and production volume and the inability
to pass on material and labor cost increases in a very competitive, declining
market. In response to reduced production levels, plant employment was reduced
by 15%, the costs of which further depressed 1993 operating income. Those
effects were partly offset by the favorable effects of cost improvements in
manufacturing from Demand Flow implementation and reduced operating expenses.
Despite the market downturn, significant progress was made during 1993 in
obtaining market acceptance of electronically controlled air suspension systems
for commercial vehicles and for antilock braking systems on trailers.
41
<PAGE> 47
1992 COMPARED WITH 1991. Sales of Transportation Products, which accounted
for 19% of the Company's 1992 sales, were $730 million, down 1% from $741
million in 1991 (6% excluding the effects of foreign exchange). The sales
decrease was due primarily to a volume decline in Germany as a result of a
significant decrease in truck and bus production. Volumes were also down in
nearly all other European countries in which Transportation Products has
operations except the U.K. There was also a decline in prices of electronic
control products, primarily as a result of industry cost reductions.
Operating income for Transportation Products in 1992 decreased 27% (32%
excluding foreign exchange effects) to $88 million from $121 million in 1991
(with the operating margin decreasing to 12.1% from 16.3%), principally because
of the lower sales and production volume, lower prices, and increased spending
for product engineering. Plant employment was kept in line with reduced
production levels, but the costs associated with these reductions also depressed
1992 operating income. Those effects were partly offset by the favorable effects
of cost reductions and increases in efficiency achieved in manufacturing
operations.
CYCLICALITY; SEASONALITY
American Standard's businesses are cyclical. Although the exposure of Air
Conditioning Products and Plumbing Products to cyclicality in the new
construction market is somewhat mitigated by their increasing emphasis on the
service, repair and replacement markets (approximately 60% of their 1993 sales),
which have been less cyclical, Air Conditioning Products' and Plumbing Products'
sales to the new construction market continue to constitute a substantial
portion of their sales (approximately 40% of their 1993 sales). The following
table presents a summary of statistics on U.S. non-residential construction
activity and housing starts for the years 1989 through 1994.
<TABLE>
<CAPTION>
U.S. NON-RESIDENTIAL
CONTRACT AWARDS % CHANGE U.S. HOUSING STARTS % CHANGE
(MILLIONS OF SQUARE FEET)(A) YEAR TO YEAR (THOUSANDS OF UNITS)(B) YEAR TO YEAR
---------------------------- ------------ ----------------------- ------------
<S> <C> <C> <C> <C>
1989.............. 1,322 -1% 1,376 -8%
1990.............. 1,155 -13% 1,193 -13%
1991.............. 953 -17% 1,015 -15%
1992.............. 903 -5% 1,200 +18%
1993.............. 941 +4% 1,288 +7%
1994(c)........... 1,098 +17% 1,444 +12%
</TABLE>
- ------------
(a) Source: F.W. Dodge Division, McGraw Hill, Inc.
(b) Source: U.S. Department of Commerce, Bureau of Census.
(c) Preliminary data.
Transportation Products' sales are highly dependent on production levels of
medium-sized and heavy trucks and buses, particularly in Europe, which have also
been cyclical. The following table presents a summary of statistics on unit
production of trucks, buses, and trailers in excess of six tons in Western
Europe for the years 1989 through 1994 (units in thousands).
<TABLE>
<CAPTION>
WESTERN EUROPE % CHANGE WESTERN EUROPE % CHANGE
TRUCK AND BUS PRODUCTION(A) YEAR TO YEAR TRAILER PRODUCTION(A) YEAR TO YEAR
--------------------------- ------------ --------------------- ------------
<S> <C> <C> <C> <C>
1989........ 395 +4% 132 +9%
1990........ 355 -10% 134 +2%
1991........ 363 +2% 146 +9%
1992........ 323 -11% 121 -17%
1993........ 227 -30% 93 -23%
1994(b)..... 280 +23% 108 +16%
</TABLE>
- ------------
(a) Principal sources: Verband der Deutschen Automobilindustrie (Germany);
Society of Motor Manufacturers and Traders (United Kingdom); and Chambre
Syndicate des Constructeurs Automobiles (France).
(b) Preliminary data.
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<PAGE> 48
Total Company sales tend to be seasonally higher in the second and third
quarters of the year because a significant percentage of Air Conditioning
Products' sales is attributable to residential and commercial construction
activity, which is generally higher in the second and third quarters of the
year, and because Summer is the peak season for sales of air conditioning
products.
FINANCIAL REVIEW
1993 COMPARED WITH 1992
The Company's financing and corporate costs were $363 million and $352
million in 1993 and 1992, respectively. The principal causes of the increase
were effects of year-to-year changes in foreign exchange transaction gains and
losses, higher minority interest, lower equity income, higher accretion expense
on postretirement benefits, and lower miscellaneous income. Interest expense,
which accounted for most of these costs, decreased primarily because of lower
overall interest rates on new debt issued as part of the Refinancing (described
below), partly offset by additional interest expense as a result of the exchange
of the 12-3/4% Junior Subordinated Debentures for the 12-3/4% Exchangeable
Preferred Stock.
The tax provision for 1993 was $36 million despite a pre-tax loss of $81
million, whereas in 1992 the tax provision was $5 million on a pre-tax loss from
continuing operations of $52 million. The 1993 provision reflected taxes payable
on profitable foreign operations and was higher than in 1992 primarily because
no tax benefits were available on domestic losses. The unusual relationship
between the pre-tax losses and the tax provision is explained by the
nondeductibility for tax purposes of the amortization of goodwill and other
purchase accounting adjustments and the share allocations made by the ESOP as
well as by tax rate differences and withholding taxes on foreign earnings.
As a result of the 1993 Refinancing there was an extraordinary charge of
$92 million related to the debt retired (including call premiums, the write-off
of deferred debt issuance costs, and loss on cancellation of foreign currency
swap contracts) on which there was no tax benefit.
1992 COMPARED WITH 1991
The Company's financing and corporate costs were $352 million and $330
million in 1992 and 1991, respectively. The principal causes of the increase
were year-to-year effects of changes in foreign exchange transaction gains and
losses, higher minority interest, and lower miscellaneous income. Interest
expense and accretion expense on postretirement benefits, which accounted for
most of these costs, also increased.
The tax provision for 1992 was $5 million despite a pre-tax loss of $52
million, whereas in 1991 the tax provision was $23 million on a pre-tax loss
from continuing operations of $88 million. The 1992 provision reflected taxes
payable on profitable foreign operations, partly offset by available domestic
tax benefits. The 1992 provision was lower than in 1991 primarily because of
lower pre-tax earnings in foreign operations. In 1992, the provision was also
lower due to future income tax benefits resulting from carrybacks of foreign net
operating losses and the existence of deferred tax credits which reverse in the
carryforward period that is applicable to other foreign net operating losses.
The unusual relationship between the pre-tax losses and the tax provision is
explained by the nondeductibility for tax purposes of the amortization of
goodwill and other purchase accounting adjustments and the share allocations
made by the ESOP as well as by tax rate differences and withholding taxes on
foreign earnings.
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<PAGE> 49
BUSINESS
GENERAL
American Standard is a globally-oriented manufacturer of high quality,
brand-name products in three major product groups: air conditioning systems (55%
of 1993 sales); bathroom and kitchen fixtures and fittings (30% of 1993 sales);
and braking systems for medium-sized and heavy trucks, buses, trailers and
utility vehicles (15% of 1993 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) for air conditioning
systems, AMERICAN-STANDARD(R), IDEAL-STANDARD(R) and STANDARD(R) for plumbing
products and WABCO(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 ABS) that utilize electronic controls. At September 30, 1994,
American Standard had 94 manufacturing facilities in 32 countries.
American Standard's business strategy is to promote growth in sales and
operating income. Key elements of this strategy are:
- INCREASE MARKET SHARES. The Company plans to increase the market
shares of its products by developing, manufacturing and selling high
quality, technologically advanced products and by providing superior
customer service.
- EXPAND SALES IN DEVELOPING MARKETS. The Company plans to build on its
historical global presence by focusing a significant portion of its
new business activities (principally through joint ventures in which
the Company has operating control) in developing market areas with the
potential for high economic growth and/or demand for the Company's
products, such as the Far East, including the PRC, Latin America and
Eastern Europe.
- CONTINUE APPLICATION OF DEMAND FLOW. To build on its position as a
leader in each of its industries, the Company plans to continue to
apply Demand Flow to all its businesses. The Company's use of Demand
Flow is designed to streamline processes, improve product quality,
enhance customer service and reduce product cycle times, while
improving efficiency, reducing working capital needs and lowering
costs. Demand Flow, which the Company began to apply in 1990, has
resulted in significant benefits.
OVERVIEW OF BUSINESS SEGMENTS
American Standard operates three business segments: Air Conditioning
Products, Plumbing Products and Transportation 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 manufactures "applied" (custom engineered, site-assembled)
and "unitary" (self-contained, factory-assembled) air conditioning systems that
are sold primarily under the TRANE(R) name. Over one-half of Air Conditioning
Products' sales in 1993 and the first nine months of 1994 was in the
replacement, repair and service markets which have been less cyclical than the
new residential and commercial construction markets. Air Conditioning Products'
sales in these periods to the commercial and residential markets represented
approximately 75% and 25%, respectively, of Air Conditioning Products' total
sales. Management believes that Air Conditioning Products 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 and environmentally-preferred refrigerants and the expansion of its
broad distribution network.
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<PAGE> 50
PLUMBING PRODUCTS. American Standard is a leading manufacturer in Europe
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) and STANDARD(R) names. 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).
TRANSPORTATION PRODUCTS. Transportation Products is a leading manufacturer,
primarily in Europe and Brazil, of brake 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 antilock
braking systems) marketed under the WABCO(R) name for medium-size and heavy
trucks, tractors, buses, trailers and utility vehicles. American Standard
supplies vehicle manufacturers such as Mercedes-Benz, Volvo, Iveco (Fiat), RVI
(Renault) and Rover. Management believes that Transportation Products is well
positioned to benefit from improved market conditions in Europe and Brazil and
increasing demand in a number of markets (including the U.S. commercial and
utility vehicle markets) for ABS and other sophisticated electronic control
systems, as well as from the technological advances embodied in the Company's
products and its close relationships with a number of vehicle manufacturers.
STRATEGY
GLOBALIZATION
American Standard has historically had a significant global presence. One
of its major strategic objectives is to continue to expand that presence through
the growth of existing operations and the establishment of new operations in
developing market areas in the Far East, Latin America and Eastern Europe. The
Company often uses joint ventures with local manufacturing and distribution
partners to facilitate risk sharing and to allow the Company to benefit from the
additional expertise of local market participants.
Air Conditioning Products plans to continue to expand its operations in the
Far East, Latin America and Europe. It has recently established a joint venture
in Australia and is establishing joint ventures in the People's Republic of
China ("PRC"). Air Conditioning Products also recently expanded its sales forces
in the Far East and Latin America.
Plumbing Products entered new markets through joint ventures in Eastern
Europe, Spain and Portugal and is continuing to expand using this approach.
Plumbing Products is significantly expanding its operations in the PRC through
its affiliate ASPPL, to which American Standard is obligated to contribute $10
million and has contributed an operation valued at $20 million for an initial
ownership position of 27% with effective control over day-to-day operations. In
April 1994, ASPPL received other capital commitments of $82.5 million. As of
December 15, 1994, ASPPL had drawn down approximately $6.7 million of American
Standard's $10 million capital commitment and approximately $55 million of the
capital commitments of its other investors. ASPPL is expanding its operations to
Beijing, Tianjin, Shanghai and Guangzhou in order to provide a full product line
of fixtures, fittings, and bathtubs throughout the PRC market. ASPPL has entered
into six joint ventures with local business concerns which, together with one
wholly-owned operation, have received business licenses from Chinese government
authorities. These include two chinaware manufacturing facilities currently
under construction, an existing chinaware manufacturing facility being expanded
and two operating fittings plants and two operating steel tub factories. The
Company's ownership interest in ASPPL will increase over time to up to 51% of
the equity of ASPPL through mandatory reinvestment of royalties and management
fees in additional ASPPL shares.
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<PAGE> 51
Transportation Products, headquartered in Europe, has recently acquired a
business in Spain, is in the process of establishing joint ventures in the PRC
and Eastern Europe, and plans to expand its existing joint ventures in Japan and
the United States.
DEMAND FLOW TECHNOLOGY
To build on its position as a leader in each of its industries and to
increase sales and operating income American Standard began in 1990 to apply
Demand Flow methods to all its businesses. Under Demand Flow, products are
produced as and when required by the customer, the production process is
streamlined, and quality control is integrated into each step of the
manufacturing process. The benefits of Demand Flow include better customer
service, quicker response to changing market needs, improved quality control,
higher productivity, increased inventory turnover rates and reduced requirements
for working capital and manufacturing and warehouse space.
As part of American Standard's strategy to integrate Demand Flow into all
of its operations, over 70% of American Standard's 38,500 employees worldwide
had been trained in Demand Flow as of September 30, 1994. Demand Flow has been
implemented in substantially all of American Standard's production facilities.
In addition, American Standard is implementing Demand Flow methods in its
acquired operations such as Perrot. American Standard is also applying Demand
Flow to administrative functions and is re-engineering its organizational
structure to manage its businesses based on processes instead of functions.
American Standard believes that its implementation of Demand Flow methods
has achieved significant benefits. Product cycle time (the time from the
beginning of the manufacturing of a product to its completion) has been reduced
and, on average, inventory turnover rates have more than doubled. Principally as
a result of the implementation of Demand Flow, American Standard has achieved an
aggregate $251 million reduction in inventories for the years 1990 through 1993.
American Standard further believes that as a result of the introduction of
Demand Flow, employee productivity has risen significantly and customer service
has improved, and without reducing production capacity the Company has been able
to free more than three million square feet of manufacturing and warehouse
space, allowing for expansion, plant consolidation, or other uses.
AIR CONDITIONING PRODUCTS SEGMENT
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. Air conditioning products are sold primarily under the TRANE(R)
name. In 1993 Air Conditioning Products, with revenues of $2,100 million,
accounted for approximately 55% of the Company's sales and 47% of its operating
income. Air Conditioning Products derived approximately 15% of its sales in 1993
from operations outside the United States and over half from the replacement,
repair, and service markets, which in general are less cyclical than the new
residential and commercial construction market.
Air Conditioning Products 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 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. Air
Conditioning Products 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 higher than on sales of original equipment.
Much of the equipment sold in the fast-growing air conditioning markets
46
<PAGE> 52
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.
In May 1994 a subsidiary of the Company, Standard Compressors Inc.,
concluded the final arrangements for a partnership formed in December 1993 with
Heatcraft Technologies Inc., a subsidiary of Lennox International Inc., for the
manufacture of compressors for use in air conditioning and refrigeration
equipment. Each partner has a 50% interest in the partnership, called Alliance
Compressors, which initially will manufacture reciprocating compressors in a
section of the Company's existing facility in Tyler, Texas. Construction of a
new facility in Natchitoches, Louisiana, for the manufacture of a newly
developed scroll compressor for use primarily in residential air conditioners is
expected to begin in 1995, with startup scheduled for early 1996. In connection
with this arrangement, American Standard received $22.5 million, of which $8
million was for assets transferred and $14.5 million for an initial preferred
distribution. American Standard will receive two additional payments of $10
million each, dependent upon achieving technological and manufacturing
milestones in the development of the new scroll compressor.
Many of the products manufactured by Air Conditioning Products utilize CFCs
and HCFCs as refrigerants. Various federal and state laws and regulations,
principally the 1990 Clean Air Act Amendments, require the eventual phase-out of
the production and use of these chemicals because of their possible deleterious
effect on the earth's ozone layer if released into the atmosphere. Phase-in of
substitute refrigerants will require replacement or modification of much of the
air conditioning equipment already installed, which management believes will
present a new market opportunity. In order to ensure that the Company's products
will be compatible with the substitute refrigerants, Air Conditioning Products
has been working closely with the manufacturers that are developing substitutes
for those refrigerants to be phased out. Air Conditioning Products has incurred
and will continue to incur research and development costs in this effort. These
costs and the substitution of alternative refrigerants are not expected to have
a material adverse impact on Air Conditioning Products. See
"-- General -- Regulations and Environmental Matters."
Various federal and state statutes, including the National Appliance Energy
Conservation Act of 1987, as amended, impose energy efficiency standards for
certain of the Company's unitary air conditioning products. Although the Company
has been able to meet or exceed such standards to date, stricter standards in
the future could require substantial research and development expense and
capital expenditures to maintain compliance.
At September 30, 1994 Air Conditioning Products had 28 manufacturing plants
in 8 countries, employing 16,600 people.
Air Conditioning Products comprises three operating groups: Unitary
Products, Commercial Systems, and International.
UNITARY PRODUCTS GROUP
Unitary Products, which accounted for approximately 42% of Air Conditioning
Products' 1993 sales, manufactures and distributes products for commercial and
residential unitary applications in the United States. This group benefits the
most from the growth of the replacement market for residential and commercial
air conditioning systems. Other major suppliers in the unitary market are
Carrier, Intercity Products, Rheem, and Lennox.
Commercial unitary products range from 2 to 120 tons and also include
combinations of air conditioners, heat pumps, and gas furnaces, along with
variable-air-volume equipment and integrated control systems. Typical
applications are in retail stores, small-to-medium-size office buildings,
manufacturing plants, restaurants, and commercial buildings located in office
parks and strip malls. These products are sold through 81 commercial sales
offices in 121 locations.
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<PAGE> 53
Residential central air conditioning products range from 1 to 5 tons and include
air conditioners, heat pumps, air handlers, furnaces, and coils. These products
are sold through independent wholesale distributors and Company-owned sales
offices in over 250 locations to dealers and contractors who sell and install
the equipment.
During 1994 the Unitary Products Group successfully introduced several new
products, including a new line of outdoor condensing units for the
AMERICAN-STANDARD(R) brand; a new furnace line; micro-electronic controlled
large rooftop units, rooftop units with special features that appeal to national
accounts; and a large rooftop line (27.5 tons to 50 tons).
The Company also markets an AMERICAN-STANDARD(R) brand name product to
serve distributors who typically carry other products in addition to air
conditioning products.
COMMERCIAL SYSTEMS GROUP
Commercial Systems, which accounted for approximately 37% of Air
Conditioning Products' 1993 sales, manufactures and distributes products in the
United States for sale in the U.S. and Canada for air conditioning applications
in larger commercial, industrial, and institutional buildings. Other major
suppliers of commercial systems are Carrier, York, and McQuay.
Commercial Systems distributes its products through 100 sales offices.
Thirty of these offices are Company-owned and 70 are franchised. In 1993 the
Company acquired the franchises in New York City; Birmingham, Alabama; and
Columbia, South Carolina. In 1994 the Company acquired the Toronto, Canada, and
St. Louis, Missouri offices. In 1995 the Company has acquired the Albany, New
York office and expects to continue to acquire major sales offices from its
franchisees.
Over the last few years Commercial Systems has added additional aftermarket
business activities, such as emergency rentals of air conditioning equipment.
Also, the group has expanded its line to include components for converting
installed centrifugal chiller products to use more environmentally-preferred
refrigerants.
During 1993 and 1994 the Company successfully introduced a number of new
products such as the high-efficiency centrifugal chiller, expanded air cooled
series R chiller line, and the new fan coil line. Integrated Comfort Systems
continue to grow as a percentage of total sales. Indoor air quality is emerging
as a significant new application to be served by the Company's products and
services.
INTERNATIONAL GROUP
The International Group, which accounted for approximately 21% of Air
Conditioning Products' 1993 sales, manufactures applied and unitary products in
foreign facilities operated by subsidiaries and joint ventures and exports many
of the products manufactured in the United States by the Unitary Products and
Commercial Systems Groups.
Air Conditioning Products expects to continue the expansion of its presence
outside the U.S. In France, in addition to its plants in Epinal and Charmes, in
late 1991 the group opened a plant in Mirecourt to build mini-splits and air
moving products known as fan coils utilizing Demand Flow technology. The fan
coil line is tailored to the European market, and the mini-split products are
being sold in Europe, the Middle East, and the Far East. An operation was opened
in 1992 in Colchester, U.K., to provide large air handling products to the U.K.
Like the Commercial Systems Group, the International Group has an extensive
network of sales and service agencies, both Company-owned and franchised, to
provide maintenance and warranty service for its equipment installed around the
world. In 1992 a joint venture in Egypt commenced operations.
The Company has increased its presence in Asia by expanding its operations
in Malaysia, purchasing an air conditioning manufacturing and distribution firm
in Taiwan in 1990, and entering into a sales and manufacturing joint venture in
Thailand in 1991. The Company has recently established a joint venture in
Australia and is establishing joint ventures in the PRC. An important new
product for
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<PAGE> 54
the Far East markets, which went into production in 1992 in Malaysia, was a
double-walled air handler designed for ease of manufacture and compatibility
with the Demand Flow process.
PLUMBING PRODUCTS SEGMENT
Plumbing Products manufactures and distributes bathroom and kitchen
fixtures and fittings primarily under the IDEAL-STANDARD(R),
AMERICAN-STANDARD(R), and STANDARD(R) names. In 1993 Plumbing Products, with
revenues of $1,167 million, accounted for 30% of the Company's sales and 38% of
its operating income. Plumbing Products derived approximately 74% of its total
1993 sales from operations outside the United States.
Approximately 53% of Plumbing Products' sales 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 the United States sales through the
retail channel have continued to grow and accounted for approximately 20% of
U.S. Plumbing Products' sales in 1993. 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 three primary geographic groups:
European Plumbing Products, the Americas Group (comprising U.S. Plumbing
Products and Americas International), and the Far East Group. Plumbing Products'
fittings operations are organized as the Worldwide Fittings Group, which has
primary responsibility for faucet technology, product development, and
manufacturing, with manufacturing facilities in Europe, the U.S., and Mexico.
Worldwide Fittings sales and operating results are reported in the three primary
geographic groups within which it operates.
European Plumbing Products, which sells products primarily under the brand
name IDEAL-STANDARD(R), manufactures and distributes bathroom and kitchen
fixtures and fittings through subsidiaries or joint ventures in Germany, Italy,
France, England, Greece, the Czech Republic, Bulgaria, Spain, Portugal, and
Egypt. In 1991 the Company purchased 32% of Etablissements Porcher ("Porcher"),
a leading French manufacturer and distributor of plumbing products with
manufacturing facilities for ceramic fixtures, cast iron and acrylic bathtubs,
brass fittings, and plastic components in seven locations and with company-owned
distribution outlets throughout France.
U.S. Plumbing 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. The Company is also significantly expanding its operations in the
PRC. See "-- Globalization".
The market for the Company's plumbing products is divided into the
replacement and remodeling market and the new construction market. The
replacement and remodeling market accounts for about 60% of the European and
U.S. groups' sales but only about 40% of the sales of the Far East group, for
which new construction is more important. In the United States and Europe the
replacement and remodeling market has historically been more stable than the new
construction market and has shown moderate growth over the past several years.
The new construction market has generally been declining in Europe in recent
years. In the U.S. it hit its recent low in early 1991 but had some recovery in
1992, 1993 and 1994. The new construction market, in which the product selection
is made by builders or contractors, is more price-competitive and
volume-oriented than the replacement and remodeling market. In the replacement
and remodeling market consumers make
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<PAGE> 55
the model selection, and, therefore, this market is more responsive to quality
and design than price, making it the principal market for higher-margin luxury
products. Although management believes it must continue to offer a full line of
fixtures and fittings in order to support its distribution system, Plumbing
Products' current strategy is to focus on increasing its sales of higher-margin
products in the middle and upper segments of both the remodeling and new
construction markets.
Plumbing Products also has continued its programs to expand its presence in
high-quality showrooms and showplaces featuring its higher-end products in
certain major countries. These programs, along with expanded sales training
activities, have enhanced the image of the Company's products with interior
designers, decorators, consumers and plumbers.
In the United States a Retail Division has been established to focus on the
unique needs of the growing mass retail home center industry, using products
sourced from several of the Company's manufacturing locations throughout the
Americas. This market channel accounted for about 20% of U.S. Plumbings' sales
in 1993, and this proportion is expected to grow.
In an effort to capture a larger share of the replacement and remodeling
market, over the last few years Plumbing Products has introduced a variety of
new products designed to suit customer tastes in particular countries. New
offerings include additional colors and ensembles, bathroom suites from
internationally known designers, and electronically controlled products. Faucet
technology is centered on anti-leak, anti-scald and other features to meet
emerging consumer and legislative requirements.
Water-saving fixtures and fittings have been a major focus of Plumbing
Products for the past several years, particularly in light of recent water
shortages experienced in a number of areas of the U.S. The Company produces one
of the most extensive lines of water-saving fixtures available in the United
States. Manufacture of water-saving toilets was mandated for residential use by
federal law commencing in January 1994 and for commercial use in January 1997.
Many of the Company's bathtubs are made from a proprietary porcelain on
metal composite, AMERICAST(R), which has gained an increasing share of the
worldwide market. Products made from the composite AMERICAST(R) have the
durability of cast iron with only one-half the weight and are characterized by
improved resistance to breaking and chipping. AMERICAST(R) products are easier
to ship, handle, and install and are less expensive to produce than cast iron
products. Use of this advanced composite was extended to kitchen sinks, bathroom
lavatories and acrylic surfaced products during 1991 and 1992. In addition, new
techniques are being applied at all principal stages of production, including
CAD/CAM for mold-making; computer-controlled casting, drying and spraying; and
state-of-the-art kilns as well as faster ceramic molding techniques.
At September 30, 1994, Plumbing Products employed approximately 16,200
people and, including affiliated companies, had 52 manufacturing plants in 22
countries.
In the U.S. Plumbing Products has several important competitors, including
Kohler Company and Masco Corporation in selected product lines. There are also
important competitors in foreign markets, for the most part operating
nationally. Friederich Grohe GmbH, the major manufacturer of fittings in Europe,
is a pan-European competitor. In Europe Villeroy Boch and Sanitec are the major
fixtures competitors, and in the Far East Toto is the major competitor.
TRANSPORTATION PRODUCTS SEGMENT
Transportation Products manufactures air brake and related systems for the
commercial vehicle industry in Europe and Brazil and markets under the WABCO(R)
name. Transportation Products' most important products are pneumatic braking
systems and related electronic control and other systems and components
(including ABS) for medium-size and heavy trucks, tractors, buses, trailers and
utility vehicles. In 1993 Transportation Products, with sales of $563 million,
accounted for 15% of the Company's sales and 15% of its operating income. The
Company believes that Transportation Products is a worldwide technological
leader in the heavy truck and bus braking industry. Electronic
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<PAGE> 56
controls, first introduced in ABS in the early 1980's, are increasingly applied
in other systems sold to the commercial vehicle industry.
The Company's transportation 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.
The European market for new trucks, buses, trailers, and replacement parts
declined significantly in 1992 and 1993. Despite the decline in the replacement
market, Transportation Products' share of sales to that market increased.
European legislation mandating the phase-in of ABS beginning in 1991 has had a
positive impact on sales and is expected to continue to do so. The Brazilian
market recovered somewhat in 1993 after declining in 1992 because of political
and economic uncertainties.
The WABCO(R) ABS system, which the Company believes leads the market, has
been installed in over 550,000 heavy trucks, buses, and trailers in Europe since
1981. Annual sales volume has significantly increased in recent years to
approximately 120,000 units in 1993. The Company believes this volume increased
in 1994. In addition, Transportation Products has developed electronically
controlled pneumatic gearshifting systems, electronically controlled air
suspension systems, and automatic climate-control and door-control systems for
the commercial vehicle industry. These systems have resulted in greater sales
per vehicle for Transportation Products. Significant progress was made in 1992
and 1993 in market acceptance of electronically controlled systems. New products
under development are an advanced electronic braking system and additional
electronic drive line control systems. In addition, Transportation Products has
developed and implemented an electronic data interchange system, which links
certain customers directly to Transportation Products' information systems,
providing timely, accurate information and just-in-time delivery to the
customer.
Transportation Products and affiliated companies have 14 manufacturing
facilities and 7 sales organizations with operations in 17 countries. Principal
manufacturing operations are in Germany, France, the United Kingdom, and Brazil.
Transportation Products has joint ventures in the United States with Rockwell
International (Rockwell WABCO), in Japan with Sanwa Seiki (SANWAB), and in India
with TVS Group (Clayton Sundaram). There is also a licensee in the PRC.
In January 1994 the Company acquired Perrot, a German brake manufacturer.
Through this acquisition the Company will be able to offer complete brake
systems for trucks, buses and trailers, especially in the important and growing
air-disc brake business.
Since 1991 ABS for commercial vehicles have been gaining acceptance in the
United States and Japan, where Transportation Products participates through its
joint venture operations. Rockwell WABCO is now a supplier of WABCO systems to
Freightliner, Mack, Volvo-GM, Kenworth, Peterbilt, and other vehicle
manufacturers in North America. SANWAB supplies Hino, Nissan and trailer
manufacturers in Japan. In most European countries, ABS has become mandatory for
commercial vehicles. Should legislation or regulations making ABS mandatory
become effective in the United States or other countries, Transportation
Products is, it believes, in a good position to take advantage of the
opportunity.
At September 30, 1994, Transportation Products employed approximately 5,600
people.
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<PAGE> 57
GENERAL
RAW MATERIALS
The Company purchases a broad range of materials and components throughout
the world in connection with its manufacturing activities. Major items include
steel, copper tubing, aluminum, ferrous and nonferrous castings, clays, motors,
and electronics. The ability of the Company's suppliers to meet performance and
quality specifications and delivery schedules is important to its operations.
The Company is working closely with its suppliers to integrate them into the
Demand Flow manufacturing process by developing with them just-in-time supply
delivery schedules to coordinate with the Company's customer demand and delivery
schedules. The Company expects this closer working relationship to result in
better control of inventory quantities and quality and lower related overhead
and working capital costs. The energy and materials required for its
manufacturing operations have been readily available, and the Company does not
foresee any significant shortages.
PATENTS, LICENSES AND TRADEMARKS
The Company's operations are not dependent to any significant extent upon
any single or related group of patents, licenses, franchises or concessions. The
Company's operations also are not dependent upon any single trademark, although
some trademarks are identified with a number of the Company's products and
services and are of importance in the sale and marketing of such products and
services. Some of the more important of the Company's trademarks are:
BUSINESS SEGMENT TRADEMARK
- ---------------- ---------
Air Conditioning Products TRANE(R)
AMERICAN-STANDARD(R)
Plumbing Products AMERICAN-STANDARD(R)
IDEAL-STANDARD(R)
STANDARD(R)
Transportation Products WABCO(R)
WABCO
WESTINGHOUSE(R)
CLAYTON DEWANDRE
PERROT
The Company from time to time has granted patent licenses to, and has
licensed technology from, other parties.
RESEARCH AND PRODUCT DEVELOPMENT
The Company incurred costs of approximately $36 million in 1991, $40
million in 1992, $43 million in 1993 and $30 million for the nine months ended
September 30, 1994 on research activities and product development and
improvement. These expenditures were incurred primarily by Transportation
Products and Air Conditioning Products. Transportation Products, which expended
the largest amount, has conducted research and development in recent years on
advanced electronic braking systems, heavy-duty disc brake systems, and
additional electronic control systems for commercial vehicles. Air Conditioning
Products' research and development expenditures were primarily related to
alternative, environmentally-preferred refrigerants, compressors, heat transfer
surfaces, air flow technology, acoustics and micro-electronic controls. Any
amount spent on customer sponsored research and development activities in these
periods was insignificant.
REGULATIONS AND ENVIRONMENTAL MATTERS
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
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<PAGE> 58
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 1992, 1993 and the first nine months of 1994 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.
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 a consensual "Findings and Orders" with the Ohio
Environmental Protection Agency to resolve these questions. The potential for
and amount of any penalties is uncertain. However, the Company does not expect
that these matters will result in material liabilities.
The Company's international operations are also subject to various
environmental statutes and regulations. Generally, these requirements tend to be
no more restrictive than those in effect in the United States. The Company
believes it is in substantial compliance with such existing domestic and foreign
environmental statutes and regulations.
Although there is currently no federal standard for lead discharge into
drinking water, the Federal Safe Drinking Water Act imposes a limit on the lead
content of plumbing fittings of 8% by weight. In addition, the U.S.
Environmental Protection Agency is considering proposing a maximum federal
standard of approximately 11 to 15 parts per billion of lead leachate from
faucets in drinking water.
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. Pursuant to
Proposition 65, a discharge of lead into a source of drinking water in excess of
0.5 micrograms per day is prohibited, although the State of California has not
yet established any methodology for measuring this discharge. The Company
believes that the lead limitations should not apply to faucets because faucets
are not a "source" of drinking water as contemplated by the legislation (e.g.,
reservoirs, streams, etc.). The suits also claim that warnings provided with the
fittings relating to such lead discharge are inadequate. Although most of the
Company's fittings contain and discharge some amount of lead, the lead content
of the
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<PAGE> 59
Company's fittings is one of the lowest in the industry, and all of the
Company's fittings will fall below the proposed federal discharge standard and
fall below the current federal weight standards mentioned above. The Company
believes its exposure in the California suits is minimal, if any. The Company
also believes that its low-lead fittings and its continuing efforts to further
reduce lead content will afford the Company a competitive edge. The discharge
claim in the State's case has been dismissed and has been appealed.
In September 1987 the United States became a signatory to an international
agreement known as the Montreal Protocol on Substances that Deplete the Ozone
Layer (the "Montreal Protocol"). The Montreal Protocol requires its signatories
to reduce production and consumption of CFCs. In November 1992 the Montreal
Protocol was amended in Copenhagen, Denmark, to phase out all except critical
uses of CFCs by January 1, 1996, and to limit consumption of HCFCs beginning in
1996 and phase them out completely by 2030. In 1988 the EPA issued regulations
implementing the Montreal Protocol in the United States. Mexico, the Federal
Republic of Germany, the United Kingdom, France and other countries have also
become signatories to the Montreal Protocol. The manner in which these countries
implement the Montreal Protocol and regulate CFCs could differ from the approach
taken in the United States.
The 1990 Clean Air Act Amendments (the "CAAA") implement the Montreal
Protocol by establishing a program for limiting the production and use of CFCs
and other ozone-depleting chemicals. Under the CAAA the production and
consumption of "Class I substances," including CFCs, are being phased out, and
most are currently scheduled to be banned completely by 1996.
The EPA has taken final action to totally phase out production of CFCs by
1996 and phase out production of the long-lived HCFCs, such as HCFC-22, for use
in new equipment by 2010 and totally by 2020, while adopting the current CAAA
schedule for the short-lived HCFCs, such as HCFC-123, by phasing them out for
use in new equipment by 2020 and completely out of production in 2030.
The Company derived significant revenues in 1993 and prior years from sales
of air conditioning products utilizing Class I substances, particularly CFC-11.
However, the more recent versions of these products are designed to operate with
substitute short-lived Class II substances, such as HCFC-123, which, the Company
believes, under current proposals is not likely to be subject to a phase-out
accelerated from the 2020/2030 schedule of the CAAA, or with refrigerants that
do not affect ozone and are not regulated at all. Beginning with orders accepted
after January 1, 1993, Air Conditioning Products ceased selling CFC-11 with any
of its products.
The Company continues to derive substantial revenues from servicing and
repairing installed equipment that uses Class I substances. The emissions from
servicing and repairing of equipment that uses Class I substances were regulated
by the EPA beginning in mid-1993, although the Company does not expect these
regulations to have a material adverse effect on its financial condition or
results of operations. The Company believes that these regulations will have the
effect of generating additional product sales and parts and service revenues, as
existing air conditioning equipment operating on CFCs is converted to operate on
environmentally-preferred refrigerants or replaced, although this is likely to
happen only over a number of years and the Company is unable to estimate the
magnitude or timing of such additional conversion or replacements. In addition,
the Company currently offers a number of products that improve the operation of
existing installed equipment using alternative refrigerants.
Prior to the effectiveness of any prohibition on use of Class I or Class II
substances it will be necessary for the Company and its competitors to address
the need to substitute permitted refrigerants for the Class I and Class II
substances used in their products. Adoption of the new refrigerants will require
replacement or modification of much of the air conditioning equipment already
installed. The Company has been working closely with the manufacturers of
refrigerants that are developing substitutes for the CFCs and HCFCs to be phased
out in order to ensure that its products will be compatible with the
substitutes. Although the Company believes that its commercial products will not
require substantial modification to use substitutes, residential and light
commercial
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<PAGE> 60
products produced by the Company and its competitors may require modification
for substitute refrigerants. The costs of the substitution of alternative
refrigerants are industrywide product modification costs that are expected to be
reflected in product pricing and accordingly are not expected to have a material
adverse impact on the Company.
Various federal and state statutes, including the National Appliance Energy
Conservation Act of 1987, as amended, impose energy efficiency standards for
certain of the Company's unitary air conditioning products. Although the Company
has been able to meet or exceed such standards to date, stricter standards in
the future could require substantial research and development expense and
capital expenditures to maintain compliance.
PROPERTIES
At September 30, 1994 the Company conducted its manufacturing activities
through 94 plants in 32 countries, of which the principal ones 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 systems
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
Bangkok, Thailand Vitreous china
Seoul, South Korea Brass plumbing fittings
Manila, Philippines Vitreous china
Transportation 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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Except for the properties located in Mirecourt, France and Manila,
Philippines, all of the plants described above are owned by the Company or a
subsidiary. The properties listed above located in the United States, Canada,
and the U.K. are subject to mortgages securing the Company's obligations under
the Existing Credit Agreement. The Company is obligated to mortgage the
properties listed above located in France (other than the property located in
Mirecourt) to secure certain obligations under the Existing Credit Agreement and
related documents. In addition, to the extent required by the respective
indentures pursuant to which certain debt securities of American Standard Inc.,
were issued, the obligations of American Standard Inc. under such debt
instruments are secured by mortgages on principal U.S. properties equally and
ratably with indebtedness under the Existing Credit Agreement and certain
related indebtedness. See "Certain Indebtedness". Through joint ventures, the
Company participates in the operation (or is in the process of constructing) up
to seven plants in the PRC, and operates one plant in each of Indonesia and
India. The Company considers that its properties are generally in good
condition, are well maintained, and are generally suitable and adequate to carry
on the Company's business.
In 1994 several Air Conditioning Products' plants operated near capacity
and others operated moderately below capacity. In 1993 Air Conditioning
Products' plants, both in the United States and abroad, operated at satisfactory
levels of utilization which overall were moderately below capacity.
In 1994 Plumbing Products' plants outside the United States operated at
levels of utilization which varied from country to country but overall were
satisfactory. Potteries (plants which produce vitreous china goods) located in
the United States also operated at levels which management believes to be
satisfactory, while other domestic facilities operated well below capacity in
1993.
Transportation Products' plants generally operated moderately below
capacity in 1994 but above 1993 levels, which were significantly below capacity.
EMPLOYEES
The Company employed approximately 38,500 people (excluding employees of
unconsolidated joint venture companies) at September 30, 1994. The Company has a
total of 18 labor union contracts in North America (covering approximately 8,500
employees), one of which expired in the last quarter of 1994 (covering
approximately 200 Canadian employees who are continuing to work), two of which
expire in 1995 (covering approximately 940 employees) and seven of which expire
in 1996 (covering approximately 4,800 employees). There can be no assurance that
the Company will successfully negotiate either a new contract with such Canadian
employees or the labor contracts expiring during 1995 or 1996 without work
stoppages. However, the Company does not anticipate any problems in
renegotiating those contracts that would materially affect its results of
operations.
In 1994, 230 Plumbing Products employees went on strike for 64 days at the
Landsdowne (Toronto), Canada chinaware manufacturing plant. In 1991, 1,200 Air
Conditioning Products employees went on strike for 54 days at the LaCrosse,
Wisconsin facility and, in 1989, 1,300 Air Conditioning Products workers went on
strike for 40 days at the Clarksville, Tennessee facility. Other than these
strikes, the Company has not experienced any other significant work stoppages
since 1985. The Company also has a total of 40 labor contracts outside North
America (covering approximately 18,000 employees), where the Company has not
experienced any significant work stoppage in the last five years.
Although the Company believes relations with its employees are generally
satisfactory, there can be no assurance that the Company will not experience
significant work stoppages in the future or that its relations with employees
will continue to be satisfactory.
CUSTOMERS
The business of the Company taken as a whole is not dependent upon any
single customer or a few customers.
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INTERNATIONAL OPERATIONS
The Company conducts significant non-U.S. operations through subsidiaries
in most of the major countries of Western Europe, Canada, Brazil, Mexico,
Central American countries, Malaysia, the Philippines, South Korea, Thailand,
Taiwan, Australia and Egypt. In addition, the Company conducts business through
affiliated companies in which the Company owns 50% or less of the stock or the
partnership.
Because the Company has manufacturing operations in 32 countries,
fluctuations in currency exchange rates may have a significant impact on its
financial statements. Such fluctuations have much less effect on local operating
results, however, because the Company for the most part sells its products
within the countries in which they are manufactured. The allocation of purchase
costs which resulted from the Acquisition increased the asset exposure of
foreign operations from an accounting perspective; however, since the
Acquisition in 1988, the effects of exchange volatility have been ameliorated by
the fact that a portion of the Company's borrowings has been denominated in
foreign currencies.
LEGAL PROCEEDINGS
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, which
was 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. The district court recently 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
which was certified as a class action, alleging a price fixing conspiracy,
management believes that, on the basis of the facts now known to it, 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.
For a discussion of German tax issues see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources". For a discussion of environmental issues see
"-- General -- Regulations and Environmental Matters".
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of December 31, 1994,
with respect to each person who is an executive officer or director of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
<S> <C> <C>
Emmanuel A. Kampouris........ 60 Chairman, President and Chief Executive Officer, and Director
Horst Hinrichs............... 61 Senior Vice President, Transportation Products, and Director
George H. Kerckhove.......... 57 Senior Vice President, Plumbing Products, and Director
Fred A. Allardyce............ 53 Vice President and Chief Financial Officer
Alexander A. Apostolopoulos.. 52 Vice President and Group Executive, Americas, Plumbing Products
Thomas S. Battaglia.......... 52 Vice President and Treasurer
Gary A. Brogoch.............. 44 Vice President and Group Executive, Plumbing Products in PRC
Roberto Canizares M.......... 45 Vice President, Air Conditioning Products' Asia Pacific Zone
Wilfried Delker.............. 54 Vice President and Group Executive, Worldwide Fittings, Plumbing
Products
Adrian B. Deshotel........... 49 Vice President, Human Resources
Cyril Gallimore.............. 65 Vice President, Systems and Technology
Luigi Gandini................ 56 Vice President and Group Executive, European Plumbing Products
Daniel Hilger................ 54 Vice President and Group Executive, Air Conditioning Products in
Europe, Middle East and Africa
Joachim D. Huwendiek......... 64 Vice President, Automotive Products in Germany
Frederick W. Jaqua........... 73 Vice President and General Counsel and Secretary
Richard A. Kalaher........... 54 Acting General Counsel and Acting Secretary
W. Craig Kissel.............. 43 Vice President and Group Executive, Unitary Products Group
William A. Klug.............. 62 Vice President and Group Executive, Trane International
Jean-Claude Montauze......... 48 Vice President, Automotive Products in France
G. Eric Nutter............... 58 Vice President, Automotive Products in the United Kingdom
Raymond D. Pipes............. 45 Vice President and Group Executive, Plumbing Products in the Far
East
Bruce R. Schiller............ 50 Vice President, Compressor Business
James H. Schultz............. 46 Vice President and Group Executive, Commercial Systems Group
G. Ronald Simon.............. 53 Vice President and Controller
Wade W. Smith................ 44 Vice President, U.S. Plumbing Products
Benson I. Stein.............. 57 Vice President, General Auditor
Robert M. Wellbrock.......... 48 Vice President, Taxes
Steven E. Anderson*.......... 52 Director
Shigeru Mizushima............ 51 Director
Frank T. Nickell............. 47 Director
Roger W. Parsons*............ 53 Director
J. Danforth Quayle*.......... 48 Director
David M. Roderick............ 70 Director
John Rutledge................ 46 Director
Joseph S. Schuchert*......... 66 Director
</TABLE>
- ---------------
* The Management Development Committee functions as the compensation committee
of the Company. Since December 2, 1993, its members were Messrs. Quayle and
Schuchert and on September 1, 1994, Messrs. Anderson and Parsons also became
members of the Committee.
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Currently, directors are elected to hold office until the next annual
meeting of stockholders or until their successors are elected. Messrs.
Kampouris, Mizushima, Nickell, and Schuchert were elected in 1988; Mr. Kerckhove
in September 1990; Mr. Hinrichs in March 1991; Dr. Rutledge in March 1993; Mr.
Quayle in September 1993; Mr. Parsons in March 1994; Mr. Roderick in June 1994;
and Mr. Anderson in September 1994. In January 1995, the Company amended and
restated its Certificate of Incorporation (as so amended and restated, the
"Restated Certificate of Incorporation"). The Restated Certificate of
Incorporation divides the Board of Directors into three classes, each as nearly
equal in number as possible. At the annual meeting of stockholders in 1995,
directors of Class I shall be elected to hold office for a term expiring at the
annual meeting of stockholders to be held in 1996, directors of Class II shall
be elected to hold office for a term expiring at the annual meeting of
stockholders to be held in 1997, and directors of Class III shall be elected to
hold office for a term expiring at the annual meeting of stockholders to be held
in 1998. At each succeeding annual meeting of stockholders following such
initial classification and election, the respective successors of the directors
whose terms are expiring shall be elected for terms expiring at the annual
meeting of stockholders held in the third succeeding year.
The Company, ASI Partners and executive officers and certain other
management personnel of the Company who purchased shares of Common Stock
("Management Investors") entered into a Stockholders Agreement in connection
with the Acquisition that, among other things, provided for arrangements
regarding the control of the election of directors of the Company. These
provisions, which were superseded in the Amended Stockholders Agreement,
entitled the Management Investors to nominate at least two directors to the
Company's Board of Directors, entitled ASI Partners to nominate the other
directors, and obligated the Management Investors and ASI Partners to vote their
Common Stock in accordance with such nominations.
In connection with the Offerings, and following approval by the Company's
disinterested directors and the Board of Directors, the original Stockholders
Agreement was amended and restated. The Amended Stockholders Agreement entitles
ASI Partners to designate a number of director nominees which, if elected, will
result in an eleven-member Board of Directors of American Standard Companies
Inc. consisting of: (i) while ASI Partners and its Affiliates (as defined) own
at least 50% of the outstanding Common Stock, seven designees of ASI Partners
(at least one of whom will not be an Affiliate of ASI Partners or an officer of
the Company), and four designees of the directors not affiliated with ASI
Partners, none of whom will be an Affiliate of ASI Partners (at least one of
whom will not be an officer of the Company), (ii) while ASI Partners and its
Affiliates own less than 50% but at least 35% of the outstanding Common Stock,
six designees of ASI Partners, and five designees of the directors not
affiliated with ASI Partners (at least two of whom will not be Affiliates of ASI
Partners or officers of the Company); (iii) while ASI Partners and its
Affiliates own less than 35% but at least 20% of the outstanding Common Stock,
four designees of ASI Partners and seven designees of the directors not
affiliated with ASI Partners (at least three of whom will not be Affiliates of
ASI Partners or officers of the Company); and (iv) while ASI Partners and its
Affiliates own less than 20% but at least 10% of the outstanding Common Stock,
one designee of ASI Partners and ten designees of the Board of Directors. The
Amended Stockholders Agreement does not obligate any of the parties thereto to
vote its Common Stock in favor of the nominated directors. See "-- Compensation
Committee Interlocks and Insider Participation" and "Certain Transactions and
Relationships" for a description of other amendments to the Stockholders
Agreement and the Company's consulting agreement with Kelso.
The sole holder of the outstanding common stock of American Standard Inc.
is the Company, and the Company exclusively elects the directors of American
Standard Inc. Currently the directors of the Company are also the directors of
American Standard Inc.
Set forth below is the principal occupation of each of the executive
officers and directors named above during the past five years (except as noted,
all positions are with American Standard Inc.).
Mr. Kampouris was elected Chairman in December 1993 and President and Chief
Executive Officer in February 1989. Prior thereto he was Senior Vice President,
Building Products, from 1984
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<PAGE> 65
to February 1989. He is also a director of Daido Hoxan Inc. Mr. Kampouris has
served as a director of the Company since July 1988.
Mr. Hinrichs was elected Senior Vice President, Transportation Products, in
December 1990. Prior thereto he served as Vice President and Group Executive,
Automotive Products, from 1987 to 1990. Mr. Hinrichs has served as a director of
the Company since March 1991.
Mr. Kerckhove was elected Senior Vice President, Plumbing Products, in June
1990. Prior thereto he was Vice President and Group Executive of European
Plumbing Products from 1988 until June 1990. Mr. Kerckhove has served as a
director of the Company since September 1990.
Mr. Allardyce was elected Vice President and Chief Financial Officer in
January 1992. Prior thereto he served as Vice President and Controller from
February 1983 until December 1991.
Mr. Apostolopoulos was elected Vice President and Group Executive, Americas
International Plumbing Products, in December 1990. Prior thereto he served as
the executive in charge of Plumbing Products' joint ventures from September 1989
to November 1990 and Managing Director of the Company's Egyptian subsidiary from
July 1984 to August 1989.
Mr. Battaglia was elected Vice President and Treasurer in September 1991.
Prior thereto he was Assistant Treasurer from June 1977.
Mr. Brogoch was elected Vice President and Group Executive, Plumbing
Products in the PRC, in December 1994. Prior thereto he served as Vice President
of Plumbing Products' operations in the PRC from August 1993 until December
1994. Previously he served as Vice President of Finance and Planning, European
Plumbing Products from August 1991 until August 1993 and as Managing Director of
the Company's Indonesian joint venture from November 1986 to August 1991.
Mr. Canizares was elected Vice President, Air Conditioning Products' Asia
Pacific Zone, in December 1990. Prior thereto he served as the executive in
charge of this zone and Manager of Planning and Distribution from November 1986
to November 1990.
Mr. Delker was elected Vice President and Group Executive, Worldwide
Fittings, Plumbing Products, in April 1990. Prior thereto he served as executive
in charge of the Company's brass fittings manufacturing operations from June
1982 until March 1990.
Mr. Deshotel was elected Vice President, Human Resources, in January 1992.
Prior thereto he served as Group Vice President, Human Resources, for U.S.
Plumbing Products from January 1980 until December 1991.
Mr. Gallimore was elected Vice President, Systems and Technology, in
December 1990. Prior thereto he served as the executive in charge of
Manufacturing and Technology from 1984 to November 1990.
Mr. Gandini was elected Vice President and Group Executive, European
Plumbing Products, in July 1990. Prior thereto he served as General Manager of
Ideal Standard S.p.A., the Italian subsidiary of the Company, from January 1978
until June 1990.
Mr. Hilger was elected Vice President and Group Executive, Air Conditioning
Products, in Europe, Middle East and Africa, in June 1988.
Mr. Huwendiek was elected Vice President, Automotive Products in Germany,
in January 1992. Prior thereto he served as Managing Director of WABCO Germany
since June 1987.
Mr. Jaqua was elected Vice President and General Counsel and Secretary in
April 1989. Prior thereto he was Associate General Counsel and Assistant
Secretary. He is planning to retire in early 1995 and will be succeeded by Mr.
Kalaher.
Mr. Kalaher was elected Acting General Counsel and Acting Secretary in June
1994, having joined the Company in February 1994. Prior thereto, he was Vice
President and General Counsel of
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<PAGE> 66
AMAX Inc. (until its merger and spinoff to shareholders in November 1993, the
third largest aluminum and coal producer in the United States with operations
also in oil and gas, gold and molybdenum) from 1991 to 1994 and Vice President
and Associate General Counsel from 1985 to 1991.
Mr. Kissel was elected Vice President in charge of Air Conditioning
Products' Unitary Products Group in January 1992, becoming Group Executive in
March 1994. He served as Vice President, Sales and Distribution, for Air
Conditioning Products, from December 1990 until January 1992 and served as
divisional Senior Vice President in charge of U.S. Sales from January to
November 1990. He was in charge of Western Regional Sales from January 1989 to
January 1990.
Mr. Klug was elected Vice President in 1985 and has been Group Executive in
charge of Trane International since December 1993. He served as Group Executive,
Unitary Products Group, from April 1990 until December 1993. He was Group
Executive, North American Sales and Distribution, Air Conditioning Products,
from October 1987 to March 1990.
Mr. Montauze was elected Vice President, Automotive Products in France, in
October 1994. He served as Vice President of Finance and Controller of
Automotive Products at the Brussels headquarters from September 1989 until
September 1994. Prior thereto he was Financial Manager of the French
transportation business.
Mr. Nutter was elected Vice President, Automotive Products in the United
Kingdom, in January 1992. Prior thereto he served as Vice President and General
Manager of WABCO Transportation U.K. Limited, the United Kingdom transportation
subsidiary of the Company from March 1991 until December 1991 and Group Managing
Director of the United Kingdom transportation subsidiary from June 1987 until
February 1991.
Mr. Pipes was elected Vice President and Group Executive for the Far East
Region of Plumbing Products in May 1992. Prior thereto he served as Managing
Director of American Standard Inc.'s Philippine subsidiary from May 1990 until
April 1992 and was Vice President, Control & Finance, of U.S. Plumbing Products
Group from March 1985 until April 1990.
Mr. Schiller was elected Vice President, Compressor Business (Air
Conditioning Products) in March 1994. Prior thereto he served as General
Manager, Compressor Business Group, from May 1993 to February 1994 and Manager
and then General Manager of the Company's Tyler, Texas, facility from March 1986
to April 1993.
Mr. Schultz was elected Vice President and Group Executive, Commercial
Systems, in 1987.
Mr. Simon was elected Vice President and Controller in January 1992. Prior
thereto he served as Vice President and Controller of the Air Conditioning
Products' Commercial Systems Group from December 1984 to December 1991.
Mr. Wade W. Smith was elected Vice President, U.S. Plumbing Products, in
May 1992. Prior thereto he served as Vice President in charge of the Chinaware
Business Unit of U.S. Plumbing Products from February 1992 until April 1992 and
from April 1987 to February 1992 he was Vice President and General Manager of
the Building Automation Systems Division of the Commercial Systems Group of Air
Conditioning Products.
Mr. Stein was elected Vice President, General Auditor, in March 1994; from
December 1986 to February 1994 he was the Company's General Auditor.
Mr. Wellbrock was elected Vice President, Taxes, effective January 1, 1994.
Prior thereto he served as Director of Taxes from 1988 through 1993.
Mr. Anderson served as National Partner in Charge -- Industries of KPMG
Peat Marwick and a member of the firm's Management Committee from November 1990
until he retired in June 1994. Prior thereto his responsibilities have included
Partner in Charge of the Boston Audit Department and Managing Partner of the
Seattle office. He became a partner of the firm in 1977, having joined
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<PAGE> 67
the firm in 1967. He is a member of the AICPA. Mr. Anderson was elected as a
director of the Company on September 1, 1994.
Mr. Mizushima has been President and Chief Operating Officer of Daido Hoxan
Inc. since the merger in April 1993 of Hoxan Corporation with Daido Sanso
Company (a subsidiary of Air Products and Chemicals Inc.). Prior thereto Mr.
Mizushima was President of Hoxan Corporation, a position he held since 1984. He
is also a director of Daido Hoxan. Daido Hoxan Inc. is the second largest
supplier of industrial gases in Japan. One of its subsidiaries is a distributor
of American-Standard plumbing products in Japan. Mr. Mizushima has served as a
director of the Company since July 1988.
Mr. Nickell has been President and a director of Kelso & Companies, Inc.,
since March 1989. Kelso & Companies, Inc. is the general partner of Kelso &
Company, L.P. From 1984 to 1989 Mr. Nickell was a general partner of Kelso &
Company, L.P. He is also a director of The Bear Stearns Companies Inc., Club
Car, Inc., Earle M. Jorgensen Company, Harris Specialty Chemicals, Inc., King
Broadcasting Company and Tyler Refrigeration Corporation. Mr. Nickell has served
as a director of the Company since May 1988.
Mr. Parsons is Managing Director of Rea Brothers Group PLC ("Rea Brothers
Group"), which he joined in 1988 after a long banking career. Rea Brothers Group
is a U.K. holding company of subsidiaries engaged in the investment banking
business. He also holds directorships in several subsidiaries of Rea Brothers
Group. Mr. Parsons was elected as a director of the Company on March 2, 1994.
Mr. Quayle served as Vice President of the United States from January 1989
to January 1993. Since leaving that office Mr. Quayle has been associated with
Circle Investors, Inc. (an investment planning and consulting firm), and FX
Strategic Advisors, Inc. (an international trade consulting firm), both of which
he serves as Chairman. He is a Director of Central Newspapers, Inc. Mr. Quayle
has served as a director of the Company since September 1993.
Mr. Roderick joined the Board of Earle M. Jorgensen Company (a Kelso
affiliate engaged in the fabrication and sale of steel products) and was elected
its Chairman in 1994. He joined USX Corporation (formerly United States Steel
Corporation) in 1959, becoming Chairman of the Board and Chief Executive Officer
in 1979, retiring from the latter position in 1989 and from the USX Board in
1994. He is also a director of Aetna Life & Casualty Company, Texas Instruments
Incorporated, Kelso & Companies, Inc., Presbyterian University Hospital,
Pittsburgh Baseball Club and General Medical Corporation. He is also Vice
Chairman of the U.S. Korea Business Council. Mr. Roderick was elected as a
director of the Company on June 2, 1994.
Dr. Rutledge has been Chairman of Rutledge & Company, Inc., a merchant
banking firm, since January 1991. He is the founder and Chairman of Claremont
Economics Institute, an economic research firm established in 1975. He is also a
director of Earle M. Jorgensen Company, Lazard Freres Funds, Medical Specialties
Group, and Utendahl Capital Partners and is a special advisor to Kelso &
Companies, Inc. Dr. Rutledge has served as a director of the Company since March
1993.
Mr. Schuchert has been Chairman, Chief Executive Officer, and a director of
Kelso & Companies, Inc., since March 1989. Kelso & Companies, Inc. is the
general partner of Kelso. From 1984 to 1989 Mr. Schuchert was managing general
partner of Kelso & Company, L.P. He is also a director of Earle M. Jorgensen
Company. Mr. Schuchert has served as a director of the Company since May 1988.
On December 23, 1992, Kelso & Companies, Inc. and its Chief Executive
Officer, Mr. Schuchert, without admitting or denying the findings contained
therein, consented to an administrative order in respect of a Securities and
Exchange Commission ("Commission") inquiry relating to the 1990 acquisition of a
portfolio company by an affiliate of Kelso & Companies, Inc. The order found
that the tender offer filing by such affiliate in connection with the
acquisition did not comply fully with the Commission's tender offer reporting
requirements, and required Kelso & Companies, Inc. and Mr. Schuchert to comply
with these requirements in the future.
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<PAGE> 68
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Schuchert is a member of the Management Development Committee (the
Compensation Committee) of the Company's Board of Directors. He is Chairman and
Chief Executive Officer of Kelso & Companies, Inc. (the general partner of
Kelso) and a general partner of Kelso American Standard Partners, L.P., the
general partner of Kelso ASI Partners, L.P.
Pursuant to the Consulting Agreement, the Company paid Kelso an annual fee
of $2.75 million for providing management consulting and advisory services,
including those of Messrs. Schuchert and Nickell. The fee was subject to
reduction depending on the number of shares Kelso controlled of the Company or
American Standard Inc., with final termination when Kelso's ownership control
fell below 20 percent.
On December 2, 1994, after approval by the Company's disinterested
directors and the Board of Directors, the Consulting Agreement was amended and
on December 8, 1994 the Company paid Kelso a one-time fee of $20 million in
consideration of (i) Kelso's agreement in the amended Consulting Agreement to
provide ongoing consulting services requested by the Company, including in
connection with the Offerings, for the originally specified term of the
Consulting Agreement without further annual consulting fees (other than
reimbursement of expenses incurred in the performance of such services), (ii)
the release by Kelso of the Company for compensation in connection with all
services rendered or to be rendered by Kelso to the Company (other than
reimbursement of expenses incurred in the performance of such services), (iii)
the additional administrative responsibilities that Kelso will perform as
manager of ASI Partners in connection with the agreements described in the
following paragraph and (iv) the agreements described below insofar as they
apply to Kelso and its affiliates.
In order to facilitate the Offerings (which Kelso and ASI Partners deem to
be in the best interests of ASI Partners and the Company), Kelso has agreed to
(i) provide, and cause ASI Partners, any Affiliate (as defined) of Kelso or any
investment fund which Kelso controls and which owns Common Stock to provide,
advance notice to, and consult with, the Company a reasonable time prior to the
disposition of shares of Common Stock (other than in non-block trades on any
stock exchange or NASDAQ and other than to an Affiliate, pursuant to a public
offering or pursuant to the right of first offer contained in the Amended
Stockholders Agreement), (ii) use, and cause ASI Partners, any Affiliate of
Kelso or any investment fund which Kelso controls and which owns Common Stock to
use, reasonable efforts (consistent with fiduciary duties to their respective
investors) in connection with any sale by it or them of Common Stock not to
cause any undue fluctuations in the public markets for the Common Stock, (iii)
except as permitted by the Amended Stockholders Agreement, cause ASI Partners,
any Affiliate of Kelso and any investment fund controlled by Kelso which owns
Common Stock, not to initiate, propose or support any solicitation for the
approval of any stockholder proposal not supported by the Board of Directors,
(iv) not sell or otherwise dispose of, except in connection with a public
offering, or allow ASI Partners, any Affiliate of Kelso, or any investment fund
which Kelso controls and which owns Common Stock to sell or otherwise dispose
of, more than 15% of the Common Stock then outstanding without first offering to
the Company (or its designee) the right to purchase such shares for the same
price, and (v) provide advance notice to the Company of any proposed acquisition
of any additional shares of Common Stock or any assets of the Company by ASI
Partners, any Affiliate of Kelso or any investment fund which Kelso controls and
which owns Common Stock and, if objected to by a majority of the members of the
Board of Directors not affiliated with Kelso, not to acquire, and cause ASI
Partners, any Affiliate of Kelso and any investment fund which Kelso controls
not to acquire, additional shares of Common Stock or any assets of the Company.
The Amended Stockholders Agreement allows Kelso to designate nominees for
election to the Board of Directors, as described under "Management -- Executive
Officers and Directors," and entitles ASI Partners to demand registration rights
(the first three of which shall be at the Company's expense), as well as
"piggyback" registration rights in respect of registration statements filed by
the Company covering future offerings of Common Stock. The Management Investors
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<PAGE> 69
are also entitled to such "piggyback" registration rights pursuant to the
Amended Stockholders Agreement.
American Standard Inc. also entered into a transaction with Kelso Insurance
Services, Incorporated (an affiliate of Kelso) ("Kelso Insurance"), and American
Telephone and Telegraph Company ("AT&T") pursuant to which American Standard
Inc. as well as other Kelso affiliated companies participates in a
telecommunications network under which AT&T provides communications services to
the group at a special lower tariff rate. In connection with that transaction
American Standard Inc. has guaranteed a minimum annual usage by it of $2 million
for a period of five years commencing 1993 and Kelso Insurance has guaranteed
American Standard Inc.'s minimum usage to AT&T. No fee was paid by American
Standard Inc. to Kelso Insurance in connection with this transaction.
In August 1993 American Standard Inc. purchased a limited partnership
interest in Kelso Investment Associates V, L.P. ("KIA V") in exchange for its
commitment to make a capital contribution of $5 million to KIA V. KIA V was
formed to seek out business opportunities and invest primarily in equity
securities, leveraged buy-outs, and joint ventures. Kelso Partners V, L.P.
serves as the general partner of KIA V. The general partners of Kelso Partners
V, L.P., include Messrs. Schuchert and Nickell. Kelso & Company, L.P., is the
manager of KIA V and, as such, acts as investment adviser of KIA V. The
management fee relating to the interest held by American Standard Inc. has been
waived. As of December 20, 1994, an affiliate of Kelso has acquired 80% of the
Company's limited partnership interest in KIA V at a price equal to 80% of the
Company's net cost incurred to the date of such acquisition to obtain such
interest, thereby relieving the Company of 80% of the balance of its $5 million
capital contribution commitment. See "Certain Transactions and Relationships".
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EXECUTIVE COMPENSATION
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for 1993, 1992 and
1991, of those persons who were (i) at December 31, 1993, the chief executive
officer and the other four most highly compensated executive officers of the
Company and (ii) a former executive officer (such persons described in
subdivisions (i) and (ii) hereinafter collectively called the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
--------------------------------------------- COMPENSATION
NAME AND PRINCIPAL OTHER ANNUAL LTIP ALL OTHER
POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) PAYOUTS(4) COMPENSATION(5)
- -------------------- ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Emmanuel A.
Kampouris......... 1993 $ 562,500 $600,000 $ 337,500 $ 966,710 $ 131,564
Chairman, President 1992 525,000 500,000 337,500 1,085,316 117,951
& Chief 1991 525,000 500,000 (6) 842,000 (6)
Executive Officer
George H.
Kerckhove......... 1993 $ 334,500 $141,000 $ 169,500 $ 464,059 $ 33,016
Senior Vice 1992 319,000 148,000 169,500 490,456 32,344
President 1991 293,369 148,000 (6) 342,000 (6)
Horst Hinrichs...... 1993 $ 292,211 $127,000 $ 135,000 $ 399,548 $ 30,912
Senior Vice 1992 303,415 130,000 135,000 354,727 21,707
President 1991 269,444 160,000 (6) 307,000 (6)
Fred A. Allardyce... 1993 $ 250,000 $ 96,000 $ 169,500 $ 286,713 $ 28,430
Vice President & 1992 240,000 90,000 169,500 298,401 32,581
Chief Financial 1991 192,000 70,000 (6) 207,000 (6)
Officer
Luigi Gandini....... 1993 $ 250,916 $ 81,000 $ 0 $ 285,314 $ 27,676
Vice President 1992 243,950 88,600 0 286,625 27,957
1991 226,316 80,000 (6) 119,000 (6)
H. Thompson
Smith............. 1993 $ 342,500 $154,000 $ 90,000 $ 524,449 $ 29,398
former Senior Vice 1992 330,000 144,000 90,000 579,078 24,845
President 1991 300,000 152,000 (6) 419,000 (6)
</TABLE>
- ---------------
(1) Includes amounts deferred by each of the Named Officers under the Savings
Plan of American Standard Inc. and Participating Subsidiary Companies (the
"Savings Plan").
(2) Represents annual bonus earned for the year reported but paid in the
subsequent year. Annual bonuses may be deferred at the election of the
recipient.
(3) Amounts shown for 1993 represent payments under the Company's 1988
Management Partners' Bonus Plan; payments were at the rate of $.60 per share
of Common Stock owned by Named Officers on July 7, 1993, that had been
previously acquired through stock offerings in 1988.
(4) Amounts for 1993 represent payments under the Long-Term Incentive
Compensation Plan ("LTIP") for the achievement of the 1991-1993 performance
goal with payments (95.1% cash; 4.9% in shares of the Company's Common
Stock) made partly in 1993 and partly in 1994. The 1992 LTIP payouts
represent achievement of the 1990-1992 performance goal, with payment
approximately 80% in cash and 20% in shares of the Company's Common Stock
made partially in 1992 and partially in 1993. The shares were distributed to
a grantor's trust for the account of the Named Officers. The 1991 LTIP
payouts represent achievement of the 1989-1991 performance goal, with
payment (all cash) made in 1992. LTIP payouts may be deferred at the
election of the recipient.
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(5) Included in All Other Compensation for 1993 was the following:
<TABLE>
<CAPTION>
PREMIUMS FOR TERM ESOP COMPANY CONTRIBUTIONS
LIFE INSURANCE ALLOCATIONS TO SAVINGS PLAN
----------------- ----------- ---------------------
<S> <C> <C> <C>
E.A. Kampouris................... $ 110,338 $ 7,076 $14,150
G.H. Kerckhove................... 11,790 7,076 14,150
H. Hinrichs...................... 9,686 7,076 14,150
F.A. Allardyce................... 7,204 7,076 14,150
L. Gandini....................... 6,450 7,076 14,150
H.T. Smith....................... 8,172 7,076 14,150
</TABLE>
(6) Not required by Securities and Exchange Commission transitional rules.
RETIREMENT PLANS
TERMINATED PLAN
As a result of the change of control of American Standard Inc. in 1988, the
retirement plan of American Standard Inc. covering its U.S. salaried employees
was terminated as of June 30, 1988. Thereafter, the accrued benefits of all
participants through that date, all of which vested, are provided through
annuities purchased with the assets of the terminated plan (the "Terminated
Plan"). There were no further benefit accruals under the Terminated Plan after
June 30, 1988.
The annual retirement annuities that are payable to Named Officers,
assuming retirement at age 65 and no election of a joint and survivor option and
after giving effect to an offset for Social Security benefits, are as follows:
Mr. Kampouris, $90,662; Mr. Kerckhove, $109,828; Mr. Hinrichs, $72,945; Mr.
Allardyce, $25,764 and Mr. Smith, $22,426. Mr. Gandini did not participate in
the Terminated Plan.
SUPPLEMENTAL RETIREMENT PLAN
American Standard Inc. currently maintains a supplemental retirement plan
(the "Supplemental Plan") for most of its executive officers including all of
the Named Officers, with benefits, payable in the form of a single annual lump
sum settlement, that supplement, on the basis of a formula, their annual
retirement benefits (if any) under the Terminated Plan.
The table below shows the annualized target Supplemental Plan benefit
payable to a participant for life from normal retirement date (age 65) based on
years of service and covered compensation. If a participant dies after his
Supplemental Plan benefit vests but before he receives such benefit, his spouse
is entitled to Plan benefits, but in a reduced amount.
<TABLE>
<CAPTION>
HIGHEST 3-YEAR YEARS OF SERVICE
AVERAGE ANNUAL ------------------------------------------------
COMPENSATION 10 20 30 40
- -------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 250,000.......................... $ 100,000 $ 125,000 $ 150,000 $ 150,000
500,000.......................... $ 200,000 $ 250,000 $ 300,000 $ 300,000
750,000.......................... $ 300,000 $ 375,000 $ 450,000 $ 450,000
1,000,000.......................... $ 400,000 $ 500,000 $ 600,000 $ 600,000
1,250,000.......................... $ 500,000 $ 625,000 $ 750,000 $ 750,000
1,500,000.......................... $ 600,000 $ 750,000 $ 900,000 $ 900,000
</TABLE>
The Supplemental Plan benefits are based on credited years of service and
average annual compensation for the highest three calendar years of the final
ten calendar years of employment (not exceeding 60 percent of average annual
compensation for such years of service) and are reduced by an offset consisting
of certain other retirement benefits, including amounts payable under the
Terminated Plan, annual allocations to the executive officer's Employee Stock
Ownership Plan ("ESOP") accounts, and Social Security benefits. Benefits under
the Supplemental Plan are vested after five years of service or employment
continuation through age 65. Compensation used in
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<PAGE> 72
determining Supplemental Plan benefits (covered compensation) includes only
salary and bonus reflected in the Summary Compensation Table above. No covered
compensation of any Named Officer differs by more than 10% from the salary and
bonus set forth in the Summary Compensation Table.
As of December 31, 1993 the years of credited service under the
Supplemental Plan for the Named Officers are as follows: Mr. Kampouris, 28
years; Mr. Kerckhove, 32 years; Mr. Hinrichs, 35 years; Mr. Allardyce, 17 years;
Mr. Gandini, 33 years; and Mr. Smith, 13 years.
The current annual target benefit for Mr. Kampouris is approximately 20
percent higher than that shown in the above table since a different benefit
formula under the pre-1990 version of the Supplemental Plan applies to his
period of service and earnings prior to April 27, 1991. The method of
calculating the lump sum payable to Mr. Kampouris that is attributable to his
accrued benefit through April 27, 1991, has been adjusted to reflect the recent
increase in the Federal ordinary income tax rates.
An amendment to the Supplemental Plan in 1993 established minimum annual
lump sum payments for certain Named Officers which, after giving effect to Plan
offsets, are estimated as follows: Mr. Kampouris, $427,000; Mr. Kerckhove,
$37,000; Mr. Hinrichs, $143,000; and Mr. Gandini, $24,000.
LONG-TERM INCENTIVE COMPENSATION PLAN
LONG-TERM INCENTIVE COMPENSATION PLANS-AWARDS IN 1993
<TABLE>
<CAPTION>
PERFORMANCE
OR OTHER
NUMBER OF PERIOD ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNITS UNTIL NON-STOCK-PRICE-BASED PLANS
OR OTHER MATURATION -----------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Emmanuel A. Kampouris............ (a) 1/93-12/95 $ 499,350 $998,700 $1,997,400
Chairman, President & Chief
Executive Officer
George H. Kerckhove.............. (a) 1/93-12/95 $ 227,200 $459,400 $ 908,800
Senior Vice President
Horst Hinrichs................... (a) 1/93-12/95 $ 195,350 $390,700 $ 781,400
Senior Vice President
Fred A. Allardyce................ (a) 1/93-12/95 $ 165,000 $330,000 $ 660,000
Vice President & Chief Financial
Officer
Luigi Gandini.................... (a) 1/93-12/95 $ 138,639 $277,278 $ 554,556
Vice President
H. Thompson Smith................ (a) 1/93-12/95 $ 85,492 $170,983 $ 341,966
former Senior Vice President
</TABLE>
- ---------------
(a) Awards are denominated in dollars.
The above table shows the contingent target awards made in 1993 to each
Named Officer for the 1993-1995 performance period. The targets set for the
1993-1995 performance period are based on the achievement in 1995 of
predetermined company-wide increases in inventory turnover rates and a fixed
percentage of earnings (before interest and taxes) to sales. The threshold
reflects 50% of the target award; if the threshold level of inventory turnover
and earnings to sales is not achieved, no payouts are made. The maximum payout
is twice the target award and may be realized by achievement of inventory
turnover at a substantially increased rate or by a combination of an increase in
inventory turnover and percentage of earnings to sales above the threshold
level. Contingent awards are based on a participant's average annual base salary
during his participation
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<PAGE> 73
in the performance period, subject to prorated adjustment to reflect the
duration of his participation in the period. At the end of a performance period
a payment, in cash, notes or in Common Stock of the Company or a combination of
both, is made on the basis of the achievement of the goal. Termination of
employment may result in forfeiture or proration of the award, depending on the
nature of the termination. A Plan participant may defer payment of his award.
Payment of awards will not be made or will be deferred if an event of default
under American Standard Inc.'s loan agreements or debt indentures has occurred
or will occur as a result of such payment.
Shares of Common Stock distributable to Plan participants are delivered to
a grantor's trust for their benefit. The trust may be terminated following a
public offering or offerings in which 25% or more of the Company's Common Stock
is sold, at which time shares or cash credited to each participant's account is
to be distributed. Payment, however, may be deferred if an event of default
under American Standard Inc.'s loan agreements or debt indentures has occurred
or will occur as a result of such payment. Until distribution, assets of the
trust are subject to the claims of creditors of the Company or American Standard
Inc. Shares held by the trust are voted by the trustee in accordance with
American Standard Inc.'s directions.
SUPPLEMENTAL INCENTIVE PLAN
In March 1994, the Board of Directors of American Standard Inc. adopted the
American Standard Inc. and Subsidiaries 1994-1995 Supplemental Incentive
Compensation Plan (the "Supplemental Incentive Plan") that provides for awards
to executive officers, including all the Named Officers, non-officer executive
employees and certain non-executive management employees of American Standard
Inc. and its subsidiaries. These awards will be based on American Standard
Inc.'s consolidated 1995 operating earnings before interest and taxes. The
maximum award which may be paid under the Supplemental Incentive Plan for
participants in each of the three categories is determined by reference to
awards paid under American Standard Inc.'s Long-Term Incentive Plan, American
Standard Inc.'s Annual Incentive Plan and a specified dollar amount,
respectively. The Supplemental Incentive Plan requires a participant's continued
employment (except in cases of death, disability or retirement) until December
31, 1995 in order to receive an award under the Plan. The awards, if any, are
payable 50% in Common Stock and 50% in cash for officers and non-officer
executive employees and 100% in cash in the case of non-executive management
employees.
STOCK INCENTIVE PLAN
The Company's Board of Directors has adopted the Stock Incentive Plan (the
"Stock Plan") subject to stockholder approval. Under the Stock Plan, a
compensation committee of the Board of Directors (the "Committee") may grant
awards to officers and other key executive and management employees of the
Company and its subsidiaries or minority owned joint ventures. The Committee
will select the grantees from approximately 850 employees, including 27 officers
(including Messrs. Kampouris, Kerckhove, Hinrichs, Allardyce and Gandini). The
number of grantees may vary from year to year. The Committee may delegate to an
officer of the Company or a committee of officers of the Company the authority
to grant awards under the Stock Plan to employees who are not executive
officers.
The maximum number of shares of the Company's Common Stock that may be
issued under the Stock Plan is 10% of the number of shares of Common Stock
issued and outstanding as of the completion of the Offerings (including any
shares issued upon exercise of the Underwriters' over-allotment options), such
number to include the number of shares hereafter issued pursuant to other plans
for the benefit of employees (other than the ESOP). The shares may be unissued
shares or treasury shares. If there is a stock split, stock dividend,
recapitalization, or other relevant change affecting the Common Stock,
appropriate adjustments will be made in the number of shares that may be issued
in the future and in the number of shares and price under all outstanding grants
made before the event. If shares under a grant are not issued, those shares will
again be available for inclusion in future grants. Payment of cash in lieu of
shares generally will not be considered an
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<PAGE> 74
issuance of shares of Common Stock, except in the case of the exercise of a
stock appreciation right ("SAR") granted in tandem with a stock option.
GRANTS UNDER THE STOCK PLAN
The Committee has the authority to grant the following types of awards
under the Stock Plan: (1) stock options; (2) stock appreciation rights; (3)
restricted stock; and/or (4) restricted units. These awards may be granted
alone, in conjunction with, or in tandem with other awards under the Stock Plan
and/or cash awards outside the Stock Plan. The Committee may also grant awards
of Common Stock or restricted units either directly or on a deferred basis in
conjunction with other incentive programs to be established by the Company or
its subsidiaries.
STOCK OPTIONS. The Committee may grant nonqualified options and options
qualifying as incentive stock options under the Internal Revenue Code of 1986,
as amended (the "Code"). Incentive stock options ("ISOs") and non-qualified
stock options may be granted for such number of shares as the Committee shall
determine, except that, other than pursuant to the above-described adjustment,
no participant may be granted stock options in any 12-month period for more than
1,000,000 shares. The option price of either a non-qualified stock option or an
ISO will not be less than the fair market value of the underlying Common Stock
on the date of grant. To exercise an option, the grantee may pay the option
price in cash, or if permitted by the Committee, by delivering other shares of
Common Stock.
The term of each option will be fixed by the Committee but may not exceed
ten years from the date of grant. Unless otherwise determined by the Committee,
options will become exercisable in three equal installments on each of the first
three anniversaries of the date of grant. The exercisability of options may be
accelerated by the Committee.
STOCK APPRECIATION RIGHTS. The Committee may grant a SAR in conjunction
with, and subject to the same terms as, an option granted under the Stock Plan.
The Committee will determine the time or times at which a SAR may be exercised.
SARs may be exercised in installments, and the exercisability of SARs may be
accelerated by the Committee. If a grantee exercises a SAR, the grantee will
generally receive a payment equal to the excess of the fair market value of the
shares with respect to which the SAR is being exercised at the time of exercise
over the price of such shares as fixed by the Committee at the time the SAR was
granted. Payment may be made in cash, in shares, or in a combination of cash and
shares as the Committee determines.
RESTRICTED STOCK GRANTS. The Committee may also award shares of Common
Stock under a restricted stock grant. The grant will set forth a restriction
period (including, without limitation, a specified period of time and a period
related to the attainment of performance goals) during which the shares of
restricted stock granted will remain subject to forfeiture. The grantee can not
dispose of the shares prior to the expiration of the restriction period. During
this period, the grantee will generally have all the rights of a stockholder,
including the right to vote the shares and receive dividends. Each certificate
will bear a legend giving notice of the restrictions in the grant.
RESTRICTED UNIT GRANTS. The Committee may grant awards of restricted units,
and each such grant will set forth the terms of a restriction period in the same
manner as those applicable to the grant of restricted stock. With respect to
restricted units, no shares of Common Stock will actually be issued to a
participant at the time a restricted unit award is made. Rather, the Company
will establish a separate account for the participant and will record in such
account the number of restricted units awarded to the participant. The
Committee, in its sole discretion, will determine whether to credit to the
account of each recipient of a restricted unit award amounts equal to any
dividends paid by the Company with respect to the corresponding number of shares
of Common Stock ("dividend equivalents"). The participant will be entitled to
receive, upon the termination of the restricted period, one share of Common
Stock for each restricted unit with respect to which the restrictions have
lapsed ("vested unit") then credited to the recipient's account (or, at the
discretion of the Committee, cash in lieu thereof) plus cash equal to the any
dividend equivalents with respect to such vested units and any interest thereon.
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<PAGE> 75
PERFORMANCE RELATED AWARDS. To the extent required to ensure that an award
of restricted stock or restricted units granted subject to performance goals or
an award of Common Stock or restricted units in conjunction with other incentive
programs to be established by the Company or its subsidiaries is deductible by
the Company for federal income tax purposes, the maximum number of shares of
Common Stock a participant may receive subject to any such performance award in
any 12-month period shall not exceed 500,000 shares, subject to adjustment as
described above. The performance objectives for each of these awards shall be
determined over a measurement period or periods established by the Committee and
related to at least one of the following criteria, which may be determined
solely by reference to the performance of (i) the Company, (ii) a subsidiary,
(iii) an affiliate of the Company, or (iv) a division or unit of any of the
foregoing or based on comparative performance of any of the foregoing relative
to other companies: (A) earnings per share; (B) revenues; (C) operating cash
flow; (D) operating earnings; (E) working capital; (F) inventory turnover rates;
(G) earnings to sales ratio; and (H) return on capital.
TERMINATION OF EMPLOYMENT. Unless otherwise determined by the Committee,
the following will apply with respect to a participant's termination of
employment. In the event of termination of employment by reason of retirement,
long term disability or death, (i) restrictions on a pro rated portion of the
restricted units or shares of restricted stock shall lapse and any restricted
units or shares of restricted stock then outstanding as to which the period of
restriction does not lapse will be forfeited and (ii) any option or SAR which is
exercisable at the time of such termination may thereafter be exercised in the
case of retirement for a period of three years and in the case of disability or
death for a period of one year (or such shorter period as the Committee shall
determine at grant), subject in each case to the stated term of the option, and
any outstanding option or SAR which is not exercisable at the time of such
termination of employment will terminate. In the event a participant's
employment is terminated for Cause (as defined in the Stock Plan), all
outstanding options and SARs held by the participant shall terminate and any
restricted units or shares of restricted stock then outstanding as to which the
period of restriction has not lapsed will be forfeited. In the event of
termination of employment for any reason other than retirement, disability,
death or for Cause, (i) any options and SARs will be exercisable, to the extent
exercisable at the date of termination, for a period of 90 days, subject to the
stated term of the option, and any outstanding option or SAR which is not
exercisable at the time of such termination of employment will terminate, and
(ii) any restricted units or shares of restricted stock then outstanding as to
which the period of restriction has not lapsed will be forfeited.
CHANGE IN CONTROL PROVISIONS. The Stock Plan provides that, except as
provided below, in the event of a "Change in Control" (as defined in the Stock
Plan), all options and SARs will become immediately exercisable and the
restrictions applicable to outstanding restricted units and restricted stock
awards will lapse and the shares in question will fully vest. Notwithstanding
the foregoing, any participant who holds an option or SAR on the date of a
Change in Control, may elect, in lieu of acquiring the shares of Common Stock
covered by an option (or, in the case of an SAR, the amount of cash and Common
Stock such participant would otherwise be entitled to receive upon the
relinquishment of the option related to such SAR), to receive an amount in cash
equal to the excess of the highest price paid (or offered) for Common Stock
during the 60-day period immediately preceding or following the date of the
Change in Control over the exercise price for such option.
FEDERAL INCOME TAX ASPECTS. The following is a brief summary of the Federal
income tax consequences of awards made under the Stock Plan based upon the
Federal income tax laws in effect on the date hereof. This summary is not
intended to be exhaustive, and does not describe state or local tax
consequences.
INCENTIVE STOCK OPTIONS. No taxable income is realized by the participant
upon the grant or exercise of an ISO. If a participant does not sell the stock
received upon the exercise of an ISO ("ISO Shares") for at least two years from
the date of grant and within one year from the date of exercise, when the shares
are sold any gain (loss) realized will be long-term capital gain (loss). In such
circumstances, no deduction will be allowed to the Company for Federal income
tax purposes.
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If ISO Shares are disposed of prior to the expiration of the holding
periods described above, the participant generally will realize ordinary income
at that time equal to the excess, if any, of the fair market value of the shares
at exercise (or, if less, the amount realized on the disposition of the shares)
over the price paid for such ISO Shares. The Company will be entitled to deduct
any such recognized amount. Any further gain or loss realized by the participant
will be taxed as short-term or long-term capital gain or loss. Subject to
certain exceptions for disability or death, if an ISO is exercised more than
three months following the termination of the participant's employment, the
option will generally be taxed as a non-qualified stock option.
NON-QUALIFIED STOCK OPTIONS. No income is realized by the participant at
the time a non-qualified stock option is granted. Generally upon exercise of a
non-qualified stock option, the participant will realize ordinary income in an
amount equal to the difference between the price paid for the shares and the
fair market value of the shares on the date of exercise. The Company will be
entitled to a tax deduction in the same amount. Any appreciation (or
depreciation) after date of exercise will be either short-term or long-term
capital gain or loss, depending upon the length of time that the participant has
held the shares.
STOCK APPRECIATION RIGHTS. No income will be realized by a participant in
connection with the grant of an SAR. When the SAR is exercised, the participant
will generally be required to include as taxable ordinary income in the year of
exercise, an amount equal to the amount of cash and the fair market value of any
shares received. The Company will be entitled to a deduction at the time and in
the amount included in the participant's income by reason of the exercise. If
the participant receives common stock upon exercise of an SAR, the post-exercise
appreciation or depreciation will be treated in the same manner discussed above
under Non-Qualified Stock Options.
RESTRICTED STOCK. A participant receiving restricted stock generally will
recognize ordinary income in the amount of the fair market value of the
restricted stock at the time the stock is no longer subject to forfeiture, less
any consideration paid for the stock. The Company will be entitled to a
deduction at same time and in same amount. The holding period to determine
whether the participant has long-term or short-term capital gain or loss on a
subsequent sale generally begins when the restriction period expires, and the
participant's tax basis for such shares will generally equal the fair market
value of such shares on such date.
However, a participant may elect, under Section 83(b) of the Code, within
30 days of the grant of the stock, to recognize taxable ordinary income on the
date of grant equal to the excess of the fair market value of the shares of
restricted stock (determined without regard to the restrictions) over the
purchase price of the restricted stock. By reason of such an election, the
participant's holding period will commence on the date of grant and the
participant's tax basis will be equal to the fair market value of the shares on
that date (determined without regard to restrictions). Likewise, the Company
generally will be entitled to a deduction at that time in the amount that is
taxable as ordinary income to the participant. If shares are forfeited after
making such an election, the participant will be entitled to a deduction,
refund, or loss for tax purposes only in an amount equal to the purchase price
of the forfeited shares regardless of whether he made a Section 83(b) election.
RESTRICTED UNITS. A participant receiving a restricted unit award will not
have taxable income when the restricted units or the dividend equivalents are
credited to the participant's account. The participant will recognize ordinary
income equal to the fair market value of the Common Stock delivered (or the
amount of cash paid in lieu of such shares) plus the amount of cash and the fair
market value of any property credited to the participant's account as dividend
equivalents when the shares and/or cash are delivered or paid. The capital gain
or loss holding period for the Common Stock or other property will also commence
upon delivery of such stock or property. The Company will generally be entitled
to a deduction for the year and to the extent the participant has ordinary
income, provided in the case of payment in shares or other property that the
Company complies with applicable withholding requirements.
OTHER INFORMATION. The Company's Board of Directors may terminate or
suspend the Stock Plan at any time but such termination or suspension shall not
affect any stock options, SARs, or restricted unit and restricted stock awards
then outstanding under the Stock Plan. Unless termi-
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nated by action of the Company's Board of Directors, the Stock Plan will
continue in effect until December 1, 2004, but awards granted prior to such date
shall continue in effect until they expire in accordance with their terms. The
Company's Board of Directors may also amend the Stock Plan as it deems
advisable. The Company's Board of Directors presently intends to submit all
material amendments to the Stock Plan to the stockholders for their approval to
the extent required by Rule 16b-3 promulgated under the Exchange Act. The
Committee may amend the term of any award or option theretofore granted,
retroactively or prospectively, but no such amendment shall adversely affect any
such award or option without the holder's consent. Management believes that the
number of options and other awards that will be granted under the Stock Plan in
the future is not determinable. The number of shares of Common Stock subject to
options which are initially proposed to be granted under the Stock Plan to
Messrs. Kampouris, Kerckhove, Hinrichs, Allardyce and Gandini are 600,000,
170,000, 170,000, 170,000 and 100,000, respectively.
DIRECTORS' FEES AND OTHER ARRANGEMENTS
Each outside director is paid a fee of $6,750 per calendar quarter and in
addition receives a fee of $1,000 for each meeting of the Board or Committee
meeting attended. The only directors currently eligible for directors' fees are
directors who are neither employees of American Standard Inc. or Kelso. They are
Messrs. Anderson, Mizushima, Parsons, Quayle, Roderick and Rutledge. All
directors are reimbursed for reasonable expenses incurred in connection with
attendance at any meetings. No separate directors' fees are paid for attendance
at meetings of the Company that are held on the same day American Standard
Inc.'s Board of Directors meets.
A Supplemental Compensation Plan for Outside Directors ("Supplemental
Compensation Plan") was adopted in June 1989. A Plan Account was established for
each participating director at that time consisting of units equivalent to
$50,000 of Common Stock with each unit having a value of $19 per share, the
independently appraised value of the shares of Common Stock as of December 31,
1988. For the purpose of providing a measure of parity among the directors, the
$50,000 amount was increased to $100,000 for participating directors who became
Board Members after January 1, 1993, with such amount converted into units for
the account of such directors at the per share appraisal value of such stock as
of the December 31 immediately preceding commencement of Board membership. When
a participating director ceases to be a member of the Board, he or his
beneficiary will receive a cash payment equal to the number of units in his Plan
Account multiplied by the per-share value of Common Stock based on the then last
year-end appraisal. If a participating director is removed for cause, his entire
interest in the Plan is forfeited. Employee-directors and Messrs. Nickell and
Schuchert do not participate in this Plan.
CORPORATE OFFICERS SEVERANCE PLAN AND OTHER EMPLOYMENT OR SEVERANCE ARRANGEMENTS
The Board of Directors approved a severance plan for executive officers
(the "Officers Severance Plan"), effective April 27, 1991. The Officers
Severance Plan provides that any participant whose employment is involuntarily
terminated by American Standard Inc. without "Cause" (as defined in the Officers
Severance Plan) or who leaves American Standard Inc. for "Good Reason" (as
defined in the Officers Severance Plan) shall be paid an amount equal to the sum
of two (three in the case of the Chief Executive Officer) times such
participant's annual base salary at the rate in effect at the time of
termination, a proration of the then Annual Incentive Plan target award
(described previously), and one (two in the case of the Chief Executive Officer)
times such target award. In addition, group life, accident, and disability
insurance coverages, as well as group medical coverage, will be continued for up
to 24 (36 in the case of the Chief Executive Officer) months following such
officer's termination. The Named Officers (other than Mr. Smith, who retired in
December 1993) are participants in this Plan.
An agreement was entered into with H. Thompson Smith in December 1993
concerning the terms of his termination of employment and retirement. Under that
agreement he is entitled to receive his 1993 Annual Incentive Plan award in the
amount of $154,000 and will be entitled to receive the same amount in March
1995. In addition, Mr. Smith is retained as a consultant through 1995 at the
rate of $29,583 per month. In the event of Mr. Smith's death, the fees remaining
through
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the end of 1995 are payable in a lump sum to his spouse or estate. He is also
entitled to receive payments under American Standard Inc.'s Long-Term Incentive
Compensation Plan for the 1992-1994 and 1993-1995 performance periods in
accordance with its terms, such awards to be prorated to December 31, 1993. Mr.
Smith continues under American Standard Inc.'s medical and life insurance
programs through 1995.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Messrs. Schuchert and Nickell, directors of the Company and American
Standard Inc., are Chairman and Chief Executive Officer, and President,
respectively, of Kelso & Companies, Inc. (the general partner of Kelso), and are
general partners of Kelso American Standard Partners, L.P., the general partner
of Kelso ASI Partners, L.P. Mr. Schuchert is also a member of the Management
Development Committee (the compensation committee) of the Company's Board of
Directors.
In connection with the Acquisition, the Company and Kelso entered into a
consulting agreement (the "Consulting Agreement") pursuant to which the Company
agreed to pay Kelso an annual fee of $2.75 million (plus reimbursement of
expenses) in consideration for general management and financial consulting
services, with the amount of the fee declining at stated decreased levels of
stock ownership. On December 2, 1994 the Consulting Agreement was amended and on
December 8, 1994 the Company paid Kelso a one-time fee of $20 million in
consideration of Kelso's agreement in the amended Consulting Agreement to
provide ongoing consulting services without further annual consulting fees
(other than reimbursement of expenses), the release by Kelso of the Company from
the requirement to pay compensation for services rendered or to be rendered and
other consideration. See "Management -- Compensation Committee Interlocks and
Insider Participation". The Company and ASI Partners are also parties to the
Amended Stockholders Agreement. See "Management -- Executive Officers and
Directors".
American Standard Inc. also has entered into a transaction with Kelso
Insurance, and American Telephone and Telegraph Company ("AT&T") pursuant to
which the Company as well as other Kelso affiliated companies participates in a
telecommunications network under which AT&T provides communications services to
the group at a special lower tariff rate. In connection with that transaction
American Standard Inc. has guaranteed a minimum annual usage by it of $2 million
for a period of five years commencing 1993 and Kelso Insurance has guaranteed
American Standard Inc.'s minimum usage to AT&T. No fee was paid by American
Standard Inc. to Kelso Insurance in connection with this transaction.
In August 1993 American Standard Inc. purchased a limited partnership
interest in Kelso Investment Associates V, L.P. ("KIA V"), in exchange for its
commitment to make a capital contribution of $5 million to KIA V. KIA V was
formed to seek out business opportunities and invest primarily in equity
securities, leveraged buy-outs, and joint ventures. Kelso Partners V, L.P.
serves as the general partner of KIA V. The general partners of Kelso Partners
V, L.P. include Messrs. Schuchert and Nickell. Kelso is the manager of KIA V
and, as such, acts as investment adviser of KIA V. The management fee relating
to the interest held by American Standard Inc. has been waived. As of December
20, 1994, an affiliate of Kelso has acquired 80% of the Company's limited
partnership interest in KIA V at a price equal to 80% of the Company's net cost
incurred to the date of such acquisition to obtain such interest, thereby
relieving the Company of 80% of the balance of its $5 million capital
contribution commitment.
In September 1991, American Standard Inc., after a determination by its
Board of Directors of the fairness of the transaction and comparability with an
arm's-length transaction with a third party, sold Tyler Refrigeration to an
affiliate of Kelso for approximately $85 million plus the purchaser's assumption
of approximately $2 million of long-term debt. Part of the consideration
received by American Standard Inc. was 89,700 (pre-split) shares of Common Stock
owned by Management Investors employed by Tyler Refrigeration, which were valued
at $28.37 per share (pre-split) (the
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same valuation established for ESOP purposes at December 31, 1990). In addition,
the Company purchased approximately $3 million of preferred stock of the
purchaser.
The Company has invested in a Cayman Islands corporation, ASPPL, to be used
for the establishment of various joint ventures in the PRC. The Company has
approximately a 27% voting interest in ASPPL with provisions for effective
control over day-to-day operations. In 1994, shares in ASPPL were sold to
certain institutions and other investors, including certain executive officers
and employees of the Company and its subsidiaries.
Mr. Mizushima, a director of American Standard Inc. and the Company, is
President and Chief Operating Officer of Daido Hoxan Inc., a Japanese
corporation which currently has an approximately 13% limited partnership
interest in ASI Partners. Daido Hoxan Inc. and Kelso and its affiliates have
engaged in certain transactions, including transfers of limited partnership
interests in ASI Partners and the provision by Daido Hoxan Inc. of consulting
services. Daido Hoxan Inc. is the largest distributor of the Company's plumbing
products in Japan. Its transactions as distributor with American Standard and
its subsidiaries, which were on customary terms and in the ordinary course of
business, have not been material to either the Company or Daido Hoxan Inc.
American Standard also entered into leasing transactions with an affiliate of
Daido Hoxan whereby it has leased certain machinery and equipment on financial
terms that were comparable to those available from other leasing companies. The
leasing transactions were not material to either the Company or Daido Hoxan Inc.
Fidelity Management Trust Company ("Fidelity") is the owner of record of
the shares of the Company held by the ESOP, a 17% owner of the Company's shares.
Fidelity was paid by the Company approximately $180,000 in 1993 for services in
connection with administering the Company's ESOP and American Standard Inc.'s
Savings Plan.
Mr. Nickell's father is an officer and owns more than 10 percent of AC
Corporation, a contracting company which purchases air conditioning products
from the Company's Trane Division. Such purchases were on customary terms and in
the ordinary course of business and were not material to either the Company or
AC Corporation.
MANAGEMENT INVESTORS STOCKHOLDERS AGREEMENT
Under the Stockholders Agreement, pursuant to which Management Investors
purchased shares of Common Stock, the Company was obligated to repurchase,
subject to the limitations contained in the Company's lending arrangements and
debt instruments, such shares at certain fair market values in case of the
death, disability, retirement, or termination of employment of a Management
Investor. Shares were paid for within the constraints of the Company's lending
arrangement and debt instruments, as supplemented by a Schedule of Priorities
established by the Board of Directors. The Named Officers (other than Mr.
Gandini) and most of the executive officers were Management Investors and
parties to the Stockholders Agreement. The Amended Stockholders Agreement
deleted these provisions in their entirety effective upon the consent of a
majority in interest of the Management Investors.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is the number of shares of Common Stock (after giving
effect to the 2.5 to 1 stock split effected in December 1994), the only
outstanding voting stock of the Company, beneficially owned as of September 30,
1994 by each Director, each Named Officer, all Directors and executive officers
of the Company as a group, and each 5% holder.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS
- -------------------------------------------------------------- ------------- --------
<S> <C> <C>
Kelso ASI Partners, L.P.(a)................................... 45,000,000 74%
Joseph S. Schuchert(a)(d)..................................... 45,000,000 74%
Frank T. Nickell(a)(d)........................................ 45,000,000 74%
George E. Matelich(a)(d)...................................... 45,000,000 74%
Thomas R. Wall IV(a)(d)....................................... 45,000,000 74%
Emmanuel A. Kampouris(b)...................................... 562,500 *
George H. Kerckhove(b)........................................ 282,500 *
Horst Hinrichs(b)............................................. 225,000 *
Fred A. Allardyce(b).......................................... 282,500 *
Luigi Gandini(b).............................................. 11,250 *
H. Thompson Smith(b).......................................... 0 *
Steven E. Anderson(b)......................................... 0 *
Shigeru Mizushima(b).......................................... 0 *
Roger W. Parsons(b)........................................... 0 *
J. Danforth Quayle(b)......................................... 0 *
David M. Roderick(b).......................................... 0 *
John Rutledge(b).............................................. 0 *
American-Standard Employee Stock Ownership Plan (the
"ESOP")(c).................................................. 10,426,853 17%
All current directors and executive officers of the Company
and American Standard Inc. as a group(e).................... 47,063,000 77%
</TABLE>
- ---------------
* Less than one percent.
(a) The business address for such persons is c/o Kelso & Company, Inc., 21st
Floor, 350 Park Avenue, New York, N.Y. 10022.
(b) Mr. Kampouris is Chairman, President and Chief Executive Officer and a
director of American Standard Inc. and of the Company. Messrs. Hinrichs and
Kerckhove are Named Officers and directors of American Standard Inc. and of
the Company. Messrs. Allardyce and Gandini are Named Officers of American
Standard Inc. and of the Company and Messrs. Anderson, Mizushima, Parsons,
Quayle, Roderick and Rutledge are directors of American Standard Inc. and
of the Company. Mr. Smith was a Senior Vice President of the Company and
American Standard Inc. until his retirement in December 1993.
(c) The business address for the ESOP is c/o American Standard Inc., One
Centennial Avenue, P.O. Box 6820, Piscataway, New Jersey 08855-6820. At
September 30, 1994, giving effect to the 2.5 to 1 stock split, 9,956,033
Plan shares were allocated to executive officers of the Company and
American Standard Inc. and other ESOP participants. The number of shares
shown for executive officers in the table above does not reflect shares
allocated to their accounts in the ESOP. Shares in the ESOP account are
voted by the ESOP trustee as directed by the plan board (the board
administering the trust which currently consists of executive officers of
American Standard Inc.). However, participants may direct the vote of their
ESOP account shares in matters involving mergers, recapitalizations, or
dispositions of substantial assets. Until termination of employment a
participant cannot dispose of shares in his ESOP account. Shares
distributed to a participant on termination are subject to American
Standard Inc.'s right of first refusal. The shares in the Named Officers
ESOP accounts are as follows: Mr. Kampouris, 10,519 shares; Mr. Kerckhove,
10,417 shares; Mr. Hinrichs, 11,199 shares;
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Mr. Allardyce, 11,148 shares; and Mr. Gandini, 6,095 shares. The shares in
the ESOP accounts for all executive officers as a group total 193,302
shares.
The number of shares shown for executive officers in the table above also
does not reflect shares of Common Stock issued as part of the payouts under
the LTIP and held for them in trust under a trust agreement dated as of
January 1, 1993. Shares in the trust are voted by the trustee as directed
by American Standard Inc. Until termination of the trust, a beneficiary of
the trust cannot dispose of shares credited to his account. Shares in the
Named Officers' accounts in the trust are as follows: Mr. Kampouris, 13,742
shares; Mr. Kerckhove, 6,284 shares; Mr. Hinrichs, 5,545 shares; Mr.
Allardyce, 3,835 shares; Mr. Gandini, 3,710 shares; and Mr. Smith, 7,355
shares. The shares in the trust accounts for all executive officers as a
group total 68,150 shares.
Also not included above are 53,762 shares of Common Stock held in a similar
grantor's trust for the account of certain executive officers earned under
an employee incentive plan prior to their becoming officers.
(d) Messrs. Schuchert and Nickell, each a director of American Standard Inc. and
of the Company, and Messrs. Matelich and Wall may be deemed to share
beneficial ownership of shares owned of record by ASI Partners by virtue of
their status as general partners of Kelso American Standard Partners, L.P.,
the general partner of ASI Partners. Messrs. Schuchert, Nickell, Matelich
and Wall share investment and voting power with respect to securities owned
by ASI Partners. Messrs. Schuchert, Nickell, Matelich and Wall disclaim
beneficial ownership of such securities. See "Certain Transactions and
Relationships".
(e) Out of such 47,063,000 shares, 45,000,000 shares represent shares of Common
Stock owned by ASI Partners in which Messrs. Schuchert and Nickell, each a
director of the Company, may be deemed to share beneficial ownership by
virtue of their status as general partners of Kelso American Standard
Partners, L.P., the general partner of ASI Partners. Messrs. Schuchert and
Nickell disclaim beneficial ownership of such securities.
See "Certain Investment Considerations -- Control by Principal
Stockholders", "Management -- Executive Officers and Directors" and "The
Acquisition" for additional information regarding ASI Partners' investment in
the Common Stock and its ability to elect a majority of the Board of Directors
and thereby to determine the Company's corporate policies.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of the Offerings, the Company will
have outstanding approximately 75.5 million shares of Common Stock, including
approximately 61 million outstanding shares of Common Stock beneficially owned
by current stockholders (including ASI Partners, the ESOP, the Management
Investors and others). The 14.5 million shares of Common Stock to be sold in the
Offerings will be eligible for resale without restriction or further
registration under the Securities Act in the public market after consummation of
the Offerings by persons other than affiliates of the Company (as defined in
Rule 144 under the Securities Act). Sales of Common Stock without registration
may also be made outside the United States pursuant to Regulation S under the
Securities Act. Stock options covering five million shares of Common Stock are
expected to be granted pursuant to the Stock Plan at the initial public offering
price in connection with the Offerings. Such options will become exercisable in
three equal installments on the first, second and third anniversaries of grant.
See "Management -- Stock Incentive Plan". American Standard will register under
the Securities Act shares of Common Stock issuable pursuant to the Stock Plan (a
total of 7,550,595 shares, assuming no exercise of the Underwriters'
over-allotment options) prior to the issuance of such shares. Shares so
registered will be tradeable except to the extent that the holders thereof are
deemed to be "affiliates" of the Company, in which case the transferability of
such shares will be subject to the volume limitations set forth in Rule 144
under the Securities Act. The Company may issue additional Common Stock to the
ESOP over the next several years. Shares of
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Common Stock distributed to ESOP beneficiaries (generally upon such
beneficiaries' retirement or termination) will also be generally available for
resale without registration by non-affiliates. Sales of Common Stock by
affiliates of the Company will be subject to Rule 144 under the Securities Act.
ASI Partners and management stockholders, who will beneficially own
approximately 49,385,000 outstanding shares of Common Stock immediately
following the consummation of the Offerings, have agreed with the Underwriters
not to offer, sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of the representatives of the Underwriters. Following the expiration or
waiver of the foregoing restrictions and any applicable holding periods under
Rule 144, such shares of Common Stock will be available for sale in the public
market pursuant to Rule 144 under the Securities Act (including the volume and
other limitations set forth therein) or otherwise and could impair the Company's
future ability to raise capital through an offering of its equity securities.
Most of the currently outstanding shares of Common Stock were issued more than
three years ago, and thus are subject to resale without being subject to the
holding periods established by Rule 144. Pursuant to the Amended Stockholders
Agreement ASI Partners was granted certain demand registration rights, and ASI
Partners and certain executive officers and other employees of the Company who
own Common Stock were granted certain "piggyback" registration rights, in
connection with future offerings of the Common Stock. See
"Management -- Compensation Committee Interlocks and Insider Participation" and
"Certain Transactions and Relationships". The Company is unable to estimate the
number of shares of Common Stock that may be sold from time to time by the
Company's current stockholders because this will depend in part on the market
price for the Common Stock, the personal circumstances of the sellers and other
factors. See "Underwriting".
In general, under Rule 144 as presently in effect, if a period of at least
two years has elapsed since the later of the date shares of Common Stock that
are "restricted securities" (as defined in Rule 144 to include securities
acquired directly from an issuer or affiliate thereof in a transaction not
involving a public offering) were acquired from the Company or the date they
were acquired from an "affiliate" (as that term is defined in Rule 144) of the
Company, as applicable, then the holder of such restricted shares (including an
affiliate) is entitled to sell a number of shares within any three-month period
that does not exceed the greater of 1% of the then outstanding shares of Common
Stock (approximately 755,000 shares immediately after the consummation of the
Offerings, assuming that the Underwriters' over-allotment options are not
exercised) or the average weekly trading volume of the Common Stock on the New
York Stock Exchange during the four calendar weeks preceding such sale. The
holder may only sell such shares through unsolicited brokers' transactions.
Sales under Rule 144 are also subject to certain requirements pertaining to the
manner of such sales, notices of such sales and the availability of current
public information concerning American Standard. Affiliates may sell shares not
constituting restricted securities in accordance with the foregoing volume
limitations and other requirements but without regard to the two-year holding
period requirement. Restricted securities properly sold in reliance on Rule 144
are thereafter freely tradeable without restriction or registration under the
Securities Act, unless thereafter held by an "affiliate" of the Company.
Under Rule 144(k), if a period of at least three years has elapsed since
the later of the date restricted shares were acquired from the Company or the
date they were acquired from an affiliate of the Company, as applicable, then a
holder of such restricted shares who is not an affiliate of the Company at the
time of the sale and who has not been an affiliate of the Company for at least
three months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
Prior to the Offerings there has been no public market for the Common
Stock. The Company can make no predictions as to the effect, if any, that sales
of shares or the availability of shares for sale will have on market prices
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market, or the prospect of such sales, could
adversely affect the market price of the Common Stock.
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DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock and the
Stockholder Rights Agreement, dated January 5, 1995 (the "Rights Agreement"),
between the Company and Citibank, N.A., as Rights Agent, does not purport to be
complete and is qualified in its entirety by reference to applicable Delaware
law and to the provisions of the Company's Restated Certificate of Incorporation
and Amended By-Laws, and to the Rights Agreement. Copies of the forms of
Restated Certificate of Incorporation, Amended By-Laws and Rights Agreement have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part.
COMMON STOCK
The Restated Certificate of Incorporation will authorize the Company to
issue up to 200,000,000 shares of Common Stock, par value $.01 per share. At
December 20, 1994, after giving effect to the 2.5 to 1 split of the Common Stock
effected in December 1994, approximately 61 million shares of Common Stock were
issued and outstanding. Subject to the rights of the holders of any outstanding
shares of preferred stock and any restrictions that may be imposed by any lender
to the Company, holders of Common Stock are entitled to receive such dividends,
if any, as may be declared by the Board of Directors out of legally available
funds. In the event of the liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in the assets, if
any, remaining after payment of all of the Company's debts and liabilities and
the liquidation preference of any outstanding preferred stock.
Holders of Common Stock are entitled to one vote per share on any matter
submitted to the holders of Common Stock for a vote. Because holders of Common
Stock do not have cumulative voting rights in the election of directors, the
holders of a majority of the shares of Common Stock represented at a meeting can
elect all the directors. See "Management -- Executive Officers and Directors"
and "Security Ownership of Certain Beneficial Owners". Holders of Common Stock
will not have preemptive rights to subscribe for or purchase any additional
shares of capital stock issued by the Company. All outstanding shares of the
Common Stock are, and the Shares will be when issued, duly authorized, validly
issued, fully paid and nonassessable.
Each outstanding share of Common Stock (including the Shares to be sold in
the Offerings) will have associated with it one right to purchase a share of the
Company's preferred stock at a stipulated price in certain circumstances. See
"-- Certain Provisions Relating to Changes in Control -- Stockholder Rights
Plan".
PREFERRED STOCK
The Restated Certificate of Incorporation will authorize the Company to
issue 2,000,000 shares of preferred stock, par value $.01 per share, in one or
more series, and authorize the Board of Directors to designate the dividend
rights, preferences in liquidation and other rights, preferences, limitations
and restrictions of and upon shares of each series, including voting, redemption
and conversion rights. The Amended Stockholders Agreement provides that so long
as ASI Partners, together with its Affiliates (as defined), owns at least 35% of
the outstanding shares of Common Stock, the Company will not issue any shares of
Common Stock or preferred stock without ASI Partners' prior written consent,
except in connection with the Rights Agreement or pursuant to the Company's
Employee Stock Ownership Plan, the Stock Plan or any other plans for the benefit
of employees. In connection with the Rights Agreement, the Board of Directors
designated 900,000 shares of preferred stock as a new series of Junior
Participating Cumulative Preferred Stock. For a summary of the rights and
preferences of this series, see "-- Certain Provisions Relating to Changes in
Control -- Stockholder Rights Plan". It is not possible to state the actual
effect of the authorization and issuance of one or more other series of
preferred stock upon the rights of holders of Common Stock until the Board of
Directors determines the specific terms, rights and preferences
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of a series of preferred stock. See "-- Certain Provisions Relating to Changes
in Control -- Certain Effects of Authorized but Unissued Stock".
TRANSFER AGENT AND REGISTRAR
Citibank, N.A. has been appointed as the transfer agent and registrar for
the Common Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law ("Section 203")
prohibits certain persons ("interested stockholders") from engaging in a
"business combination" with a Delaware corporation for three years following the
date such persons become interested stockholders. Interested stockholders
generally include (i) persons who are the beneficial owners of 15% or more of
the outstanding voting stock of the corporation and (ii) persons who are
affiliates or associates of the corporation and who hold 15% or more of the
corporation's outstanding voting stock at any time within three years before the
date on which such a person's status as an interested stockholder is determined.
Subject to certain exceptions, a "business combination" includes, among other
things (i) mergers or consolidations, (ii) the sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets having an aggregate market value
equal to 10% or more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market value of
all the outstanding stock of the corporation, (iii) transactions that result in
the issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder, except pursuant to a transaction that effects a pro
rata distribution to all stockholders of the corporation, (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation that is owned directly or
indirectly by the interested stockholder or (v) any receipt by the interested
stockholder of the benefit (except proportionately as a stockholder) of any
loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
Section 203 does not apply to a business combination if (i) before a person
becomes an interested stockholder, the board of directors of the corporation
approves the transaction in which the interested stockholder became an
interested stockholder or approves the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (other than certain excluded shares) or (iii) following a
transaction in which the person became an interested stockholder, the business
combination is (a) approved by the board of directors of the corporation and (b)
authorized at a regular or special meeting of stockholders (and not by written
consent) by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
The Restated Certificate of Incorporation, Amended By-Laws and Stockholder
Rights Plan contain several provisions that may make the acquisition of control
of the Company by means of tender offer, open market purchases, a proxy contest
or otherwise more difficult if not approved by the Board of Directors. A summary
of those provisions is set forth below. In addition, certain events relating to
a change of control of the Company or American Standard Inc. will constitute an
event of default under the Existing Credit Agreement, and/or will entitle
holders of certain of American Standard Inc.'s debt securities to require
American Standard Inc. to repurchase such securities, which may indirectly make
more difficult the acquisition of control of the Company. See "Certain
Indebtedness".
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CLASSIFIED BOARD OF DIRECTORS. The Restated Certificate of Incorporation
divides the Board of Directors into three classes. Each class will be nearly
equal in number as possible. At each annual meeting of stockholders, directors
will be elected to succeed those directors whose terms have expired, and each
newly elected director will serve for a three-year term. See "Management --
Executive Officers and Directors". American Standard believes that a classified
Board of Directors will help assure the continuity and stability of the Board of
Directors and the Company's business strategies and policies. The classified
board provision could increase the likelihood that, in the event of a takeover
of the Company, incumbent directors will retain their positions. In addition,
the classified board provision will help insure that the Board of Directors, if
confronted with an unsolicited proposal from a third party that has acquired a
block of the voting stock of the Company, will have sufficient time to review
the proposal and appropriate alternatives and to seek the best available result
for all stockholders. With a classified board, directors may only be removed for
cause, except as provided in the Restated Certificate of Incorporation. The
Restated Certificate of Incorporation provides that so long as ASI Partners,
together with its Affiliates, owns at least 35% of the outstanding shares of
Common Stock, directors may be removed by the requisite vote of stockholders
with or without cause. Pursuant to the Amended Stockholders Agreement, so long
as ASI Partners, together with its Affiliates (as defined), owns at least 10% of
the outstanding shares of Common Stock, ASI Partners will have the right,
exercisable at any time, to designate a certain number of nominees for election
to the Board of Directors. See "Management -- Executive Officers and Directors."
To exercise that right, ASI Partners may call a special meeting of stockholders
or request that the stockholders act by written consent to vote on the election
of director nominees ASI Partners is entitled to designate in accordance with
such right and the removal of directors designated by ASI Partners, in which
case the Company would prepare the requisite proxy statement or information
statement for the Company's stockholders. The Amended By-Laws provide that
vacant directorships (to the extent not filled by stockholders as described
above) may be filled by the remaining directors, provided that, so long as ASI
Partners, together with its Affiliates, owns at least 10% of the outstanding
shares of Common Stock, ASI Partners will have the exclusive right to designate
for nomination for election by such remaining directors an individual to fill
any vacancy created by removal, death or resignation of a director designated
for nomination by ASI Partners pursuant to the Amended Stockholders Agreement
and directors not affiliated with ASI Partners shall have the exclusive right to
designate for nomination for election by such remaining directors an individual
to fill any vacancy created by removal or death or resignation of a director
designated for election by such non-affiliated directors pursuant to the Amended
Stockholders Agreement.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS. The Restated
Certificate of Incorporation prohibits stockholders from taking action by
written consent in lieu of an annual or special meeting, and thus stockholders
will only be able to take action at an annual or special meeting called in
accordance with the Amended By-Laws, except that so long as ASI Partners,
together with its Affiliates, owns at least 10% of the outstanding shares of
Common Stock, stockholder action may be taken by written consent in order to
vote on director nominees designated by ASI Partners pursuant to the Amended
Stockholders Agreement or the removal of directors designated by ASI Partners.
The Amended By-Laws provide that special meetings of stockholders may only be
called by (i) the Chief Executive Officer or (ii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors or (iii) for purposes of voting on director nominees designated by ASI
Partners pursuant to the Amended Stockholders Agreement or the removal of
directors designated by ASI Partners, ASI Partners, so long as ASI Partners,
together with its Affiliates, owns at least 10% of the outstanding shares of
Common Stock. Special meetings will not be able to be called by the stockholders
(except by ASI Partners as provided above).
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Amended By-Laws establish advance notice procedures with regard
to stockholder proposals and the nomination, other than by or at the direction
of the Board of Directors or a committee thereof, of candidates for election as
directors. These procedures provide that notice of stockholder proposals and
stockholder nominations for the election of directors at an annual meeting must
be in writing and received by the Secretary of the Company no later than 50 days
prior to such annual meeting (or if less than 50 days' notice of a meeting of
stockholders is given, stockholder proposals and
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nominations must be delivered to the Secretary of the Company no later than the
close of business on the seventh day following the day notice was mailed).
Stockholder proposals and nominations for the election of directors at a special
meeting must be in writing and received by the Secretary of the Company no later
than the close of business on the tenth day following the day on which notice of
the meeting was mailed or public disclosure of the date of the meeting was made,
whichever occurs first. The Amended By-Laws provide that the foregoing advance
notice requirements applicable to stockholder proposals and nominations for, and
the election of, directors, will not apply to ASI Partners so long as ASI
Partners, together with its Affiliates, owns at least 10% of the outstanding
shares of Common Stock. The form of written notice of stockholder nominations
must set forth certain information with respect to each nominee who is not an
incumbent director.
CERTAIN VOTING REQUIREMENTS. A 65% vote is required to amend or repeal
certain provisions of the Amended By-Laws and to amend or repeal certain
provisions of the Restated Certificate of Incorporation, including those:
authorizing directors to issue rights (such as the Rights referred to below);
relating to directors and to the nomination and election of directors; limiting
the liability and authorizing the indemnification of directors; permitting
directors to take into account not only the interests of stockholders but also
certain other interests; requiring action by stockholders to be taken at a
meeting of stockholders and not by written consent; and dealing with amendments
to the Restated Certificate of Incorporation.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES. The Restated Certificate
of Incorporation provides the Company's directors will not be liable to the
Company or its stockholders for monetary damages resulting from breaches of
their fiduciary duties as directors. Directors remain liable: for breaches of
their duty of loyalty to the Company or its stockholders; for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; under Section 174 of the Delaware General Corporation Law; and for
transactions from which a director derives improper personal benefit. In
addition, the Company will enter into indemnification agreements with its
directors which provide indemnification to the fullest extent permitted by the
Delaware General Corporation Law. The Restated Certificate of Incorporation also
provides that a director, in determining what he reasonably believes to be the
best interests of American Standard, shall consider the interests of the
stockholders and, in his or her discretion, may consider any of the following:
the interests of American Standard's employees, suppliers, creditors and
customers; the state of the U.S. and global economy; community and societal
interests; and the long-term as well as the short-term interests of the Company
and its stockholders, including the possibility that these interests may be best
served by the continued independence of the Company.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK. After consummation of the
Offerings, the Company will have authorized approximately 117,000,000 unissued
and unreserved shares of Common Stock and 2,000,000 unissued shares of preferred
stock. Of the unissued shares of preferred stock, 900,000 shares were designated
by the Board of Directors as Junior Cumulative Participating Preferred Stock.
See "-- Certain Provisions Relating to Changes in Control-Stockholder Rights
Plan". The unissued and unreserved shares of Common Stock and of preferred stock
may be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital and for facilitating corporate
acquisitions. The Amended Stockholders Agreement provides that so long as ASI
Partners, together with its Affiliates, owns at least 35% of the outstanding
shares of Common Stock, the Company will not issue any such shares of Common
Stock or preferred stock without ASI Partners' prior written consent, except in
connection with the Rights Agreement or pursuant to the ESOP, the Stock Plan and
other employee benefit plans. The Company may issue additional Common Stock to
the ESOP over the next several years. Except pursuant to the ESOP, the Stock
Plan, and other employee benefit plans, the Company does not currently have any
plans to issue additional shares of Common Stock or preferred stock. One of the
effects of issued and unreserved shares of capital stock may be to enable the
Board of Directors to render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby to protect the continuity of its
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management. If, for example, the Board of Directors were to determine that a
takeover proposal was not in American Standard's best interests, such shares
could be issued by the Board of Directors without stockholder approval in one or
more private transactions or other transactions that might prevent or render
more difficult or costly the completion of the takeover transactions by diluting
the voting or other rights of the proposed acquiror or insurgent stockholder
group, by creating a substantial voting block in institutional or other hands
that might undertake to support the position of the incumbent Board of
Directors, by effecting an acquisition that might complicate or preclude the
takeover, or otherwise.
STOCKHOLDER RIGHTS PLAN. On January 4, 1995 the Board of Directors declared
a dividend distribution of one right ("Right") for each outstanding share of
Common Stock outstanding on January 4, 1995 (the "Record Date"). As a result,
each outstanding share of Common Stock, including the Shares sold in the
Offerings, and shares of Common Stock thereafter issued during the term of the
Rights Agreement, will have associated with it one Right. Each Right entitles
the registered holder to purchase from the Company one one-hundredth of a share
of the Company's Junior Participating Cumulative Preferred Stock, par value $.01
per share (the "Participating Preferred Stock"), at a price of $100 per one
one-hundredth of a share (the "Purchase Price"), subject to adjustment.
Until the earlier to occur of (a) ten business days following the time (the
"Stock Acquisition Time") of a public announcement by the Company that a person
or group of affiliated or associated persons (other than (i) ASI Partners or any
of its affiliates or their immediate transferees (provided that any such
transferee holding 15% or more of the outstanding Common Stock does not acquire
any additional shares of Common Stock except from ASI Partners or any of its
affiliates), (ii) any employee benefit plan of the Company, including the ESOP
or (iii) directors, officers and employees of American Standard as a group) has
acquired beneficial ownership (as defined in the Rights Agreement) of 15% or
more of the outstanding shares of Common Stock (such 15% beneficial owner, an
"Acquiring Person"), or (b) ten business days, or such later date as may be
determined by the Board of Directors, after the date of the commencement or
announcement by a person of an intention to make a tender offer or exchange
offer for an amount of Common Stock which, together with the shares of such
stock already owned by such person, constitutes 15% or more of the outstanding
shares of Common Stock (the earlier of such dates being called the "Distribution
Date"), the Rights will be evidenced by the certificates representing the Common
Stock. The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Stock certificates issued after the Record Date, upon transfer or new
issuance of the Common Stock, will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any of the Common Stock
certificates will also constitute the transfer of the Rights associated with the
shares of Common Stock represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Right Certificates") will be mailed to holders of record of the Common Stock
as of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on January 5, 2005, unless earlier redeemed by the Company as described
below.
The Purchase Price payable, and the number of shares of Participating
Preferred Stock or other securities or property issuable upon exercise of the
Rights, are subject to customary anti-dilution protections.
In the event that after the Stock Acquisition Time the Company is acquired
in a merger or other business combination transaction or 50% or more of its
assets, cash flow or earning power are sold or otherwise transferred, proper
provision shall be made so that each holder of a Right shall thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, the number of shares of common stock of the acquiring company
which at the time of
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such transaction would have a market value (as defined in the Rights Agreement)
of two times the exercise price of the Right. In the event that the Company were
the surviving corporation of a
merger and its Common Stock were changed or exchanged, proper provision shall be
made so that each holder of a Right will thereafter have the right to receive
upon exercise that number of shares of common stock of the other party to the
transaction having a market value of two times the exercise price of the Right.
In the event that a person or group becomes an Acquiring Person (otherwise
than pursuant to a tender offer or exchange offer for all outstanding shares of
Common Stock at a price and on terms which are determined to be fair and in the
best interests of the Company and its stockholders by a majority of the members
of the Board of Directors who are not Acquiring Persons or representatives or
nominees of or affiliated or associated with an Acquiring Person and who either
were members of the Board of Directors prior to the Stock Acquisition Time or
subsequently became a member and whose election thereto was approved by a
majority of the directors who were not Acquiring Persons or representatives or
nominees of or affiliated or associated with an Acquiring Person ("Continuing
Directors")), proper provision shall be made so that each holder of a Right
(other than Rights that are beneficially owned by the Acquiring Person, which
will thereafter be void) will thereafter have the right to receive upon exercise
that number of shares of Common Stock having a market value (as defined in the
Rights Agreement) of two times the exercise price of the Right. A person or
group will not be an Acquiring Person if the Board of Directors determines that
such person or group became an Acquiring Person inadvertently and such person or
group promptly divests itself of a sufficient number of shares of Common Stock
so that such person or group is no longer an Acquiring Person.
At any time prior to the earlier of (i) ten business days after the Stock
Acquisition Time and (ii) January 5, 2005, the Company, by resolution of the
Board of Directors, may redeem the Rights in whole, but not in part, at a price
of $.01 per Right (the "Redemption Price"). If such resolution is adopted
following the Stock Acquisition Time, it will be effective only with the
concurrence of a majority of the Continuing Directors and only if the Continuing
Directors constitute a majority of the members of the Board of Directors then in
office. The Company may, by resolution of the Board of Directors at any time
prior to the Stock Acquisition Time, extend the time in which the Rights may be
redeemed. Immediately upon the action of the Board of Directors electing to
redeem the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person of 50% or more of the outstanding Common Stock, the
Board of Directors (with the concurrence of a majority of the Continuing
Directors and only if the Continuing Directors constitute a majority of the
members of the Board of Directors) may exchange the Rights (other than Rights
beneficially owned by such Acquiring Person, which have become void), in whole
or in part, for Common Stock at an exchange ratio of one share of Common Stock
per Right (subject to adjustment).
Each share of Participating Preferred Stock purchasable upon exercise of
the Rights will have a minimum preferential dividend of $100 per year, but will
be entitled to receive, in the aggregate, a dividend of 100 times the dividend
declared on a share of Common Stock. In the event of liquidation, dissolution or
winding-up of the Company, the holders of the shares of Participating Preferred
Stock will be entitled to receive a minimum liquidation payment of $100 per
share, but will be entitled to receive an aggregate liquidation payment equal to
100 times the payment to be made per share of Common Stock. Each share of
Participating Preferred Stock will have 100 votes, voting together with the
shares of Common Stock. In addition, if dividends on the Participating Preferred
Stock are in arrears for four consecutive quarterly payment periods, the holders
of the Participating Preferred Stock will have the right, voting as a class, to
elect two members of the Board of Directors. In the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each share of Participating Preferred Stock will be entitled to
receive 100 times the
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amount and type of consideration received per share of Common Stock. The rights
of the shares of Participating Preferred Stock as to dividends and liquidation,
and in the event of mergers and consolidations, are protected by anti-dilution
provisions.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The Rights and the Rights Agreement can be amended by the Board of
Directors in any respect (including, without limitation, any extension of the
period in which the Rights may be redeemed) at any time prior to the Stock
Acquisition Time. From and after such time, without the approval of all holders
of the Common Stock or all holders of the Rights, the Board of Directors, by a
majority of the Continuing Directors, provided that the Continuing Directors
constitute a majority of the Board, may only supplement or amend the Rights
Agreement in order (i) to cure any ambiguity, (ii) to correct or supplement any
provision contained in the Rights Agreement which may be defective or
inconsistent with any other provision in the Rights Agreement (iii) to shorten
or lengthen any time period under the Rights Agreement or (iv) to make any
changes or supplements which the Company and the Rights Agent may deem necessary
or desirable which shall not adversely affect the interests of the holders of
Right Certificates (other than an Acquiring Person or an affiliate or associate
thereof).
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CERTAIN INDEBTEDNESS
EXISTING CREDIT AGREEMENT
The Company, American Standard Inc. and certain of its subsidiaries entered
into an Assignment and Amendment Agreement, dated as of June 1, 1993, relating
to the 1988 Credit Agreement, with Bankers Trust Company, as agent under the
1988 Credit Agreement, the financial institutions named as Banks in the 1988
Credit Agreement, certain of such financial institutions desiring to continue as
lenders to the Company and certain additional financial institutions named
therein (collectively, the "Lenders") and Chemical Bank, as Administrative Agent
and Arranger for the Lenders. On June 2, 1993, the 1988 Credit Agreement was
amended and restated in the form of a Credit Agreement, dated as of June 1, 1993
(as amended, modified or supplemented to the date hereof the "Existing Credit
Agreement"), Chemical Bank succeeded Bankers Trust Company as agent, the
outstanding loans and commitments were restructured and increased to provide for
a multi-currency, multi-borrower facility initially in an aggregate amount of $1
billion. On October 21, 1994, the Existing Credit Agreement was amended to
provide for the making of an additional term loan of $325 million to the Company
(the "October Borrowing"), the proceeds of which were applied to redeem on
November 21, 1994 all of the $316.8 million in aggregate principal amount of
American Standard Inc.'s 14 1/4% Subordinated Discount Debentures and 12 3/4%
Junior Subordinated Debentures. The following summaries of certain provisions of
the Existing Credit Agreement do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the Existing Credit
Agreement and the definitions therein of terms not defined in this Prospectus.
The Existing Credit Agreement currently provides for an aggregate facility
of approximately $1.2 billion as follows: (a) a $242 million multi-currency
revolving credit facility (the "Revolving Credit Facility") available to all
Borrowers (as defined); (b) a $176 million (at September 30, 1994 exchange
rates) multi-currency periodic access credit facility (the "Periodic Access
Facility") available to all Borrowers; and (c) four term loan facilities (each,
a "Term Loan Facility"), consisting of a $222 million U.S. Dollar Tranche A
Facility available to American Standard Inc., a $136 million (at September 30,
1994 exchange rates) Deutschemark Tranche B Facility available to WABCO Standard
GmbH, an $82 million U.S. Dollar Tranche C Facility available to all Borrowers
and a $325 million U.S. Dollar Tranche D Facility available to American Standard
Inc.
THE REVOLVING CREDIT FACILITY
The Revolving Credit Facility currently provides for aggregate borrowings
from time to time of up to $242 million for working capital purposes, of which
up to $200 million may consist of outstanding or unreimbursed letters of credit.
In addition, up to $40 million of the Revolving Credit Facility may be used for
same day short term borrowings ("Swingline Loans").
American Standard Inc. pays a commitment fee at the rate of 0.5% per annum
on the unused portion of the Lenders' commitments under the Revolving Credit
Facility, excluding any outstanding Swingline Loans. American Standard Inc. is
required to reduce to $50 million the amount of borrowings outstanding under the
Revolving Credit Facility for at least 30 consecutive days in each calendar
year. On August 31 each year, the Revolving Credit Facility is reduced by
$8,300,000. In addition, American Standard Inc. is required to repay the full
amount of each of its outstanding revolving loans at the end of each interest
period (a maximum of six months). American Standard Inc. may, however, reborrow
such amounts subject to compliance with applicable conditions under the Credit
Agreement.
THE PERIODIC ACCESS AND TERM FACILITIES
The Periodic Access Loans must be reduced by (a) $22,500,000 on the last
day of each February and August through and including February 28, 1997 and (b)
$10,417,000 on the last day of each February and August thereafter through the
last day of February 2000. Loans under the Periodic Access Facility ("Periodic
Access Loans") may be shifted among the borrowers during a particular 30-day
period every twelve months.
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<PAGE> 91
The outstanding principal balance of the Tranche A Term Loan is payable in
semi-annual installments of $37,500,000 on the last day of February and August
of each year, commencing August 31, 1997.
The outstanding principal balance of the Tranche B Term Loan, subject to
exchange rate fluctuations, is payable in semi-annual installments, on the last
day of February and August of each year. Each installment is to be equal to
12.5% of the aggregate principal amount of the initial Tranche B Term Loan.
The outstanding principal balance of the Tranche C Term Loans is payable in
semi-annual installments of $8,350,000 on the last day of February and August of
each year. Tranche C Term Loans may be assigned from one borrower to another
during a particular 30-day period every twelve months, subject to certain
conditions.
The outstanding principal balance of the Tranche D Loan is payable on the
last day of each February and August in equal semi-annual installments of
$5,000,000 in the years 1995 through 1997, $12,500,000 in year 1998, $42,500,000
in the years 1999 and 2000, with a final payment of $100,000,000 on February 28,
2001.
OTHER VOLUNTARY AND MANDATORY PREPAYMENTS
In addition to the scheduled principal payments described above, the
Existing Credit Agreement requires principal prepayments in an amount equal to
75% of Excess Cash Flow for any fiscal year (or 50%, in the case of any fiscal
year during which the ratio of Free Cash Flow (as defined) of American Standard
Inc. to Consolidated Cash Fixed Charges (as defined) is 2 to 1 or greater) and
in amounts equal to the Net Cash Proceeds of certain sales of assets and
specified percentages of the Net Cash Proceeds from certain issuances of equity
securities. In addition, partial prepayments of Revolving Credit and Periodic
Access Loans may be required in some cases if such Loans exceed the Lenders'
Revolving Credit and Periodic Access Loan Commitments as a result of currency
fluctuations.
INTEREST
Borrowings may bear interest based on a reserve adjusted London inter-bank
offered rate, or, in the case of U.S. Dollar denominated borrowings, based on
Chemical Bank's Alternate Base Rate. Swingline Loans in currencies other than
U.S. Dollars will bear interest based on the average rate for overnight deposits
for like principal amounts in the relevant currency obtainable by the Swingline
Lender. On September 30, 1994, the weighted average interest rate per annum on
borrowings under the Existing Credit Agreement was 7.9%.
SECURITY
All obligations of the borrowers under the Existing Credit Agreement are
guaranteed by the Company, American Standard Inc. and the significant Domestic
Subsidiaries of American Standard Inc. All such obligations of foreign borrowers
are also guaranteed by certain foreign subsidiaries. The Loans and guarantee
obligations are secured by mortgages and liens on the significant properties and
other assets (including inventory, receivables, contract rights and
intangibles), and pledges of the capital stock, of American Standard Inc. and
certain of its domestic and foreign subsidiaries.
COVENANTS
The Existing Credit Agreement contains covenants that, among other things,
restrict (a) mergers, certain sales of assets (including stock of subsidiaries)
and changes in business or the conduct of business of the Company, American
Standard Inc. and its subsidiaries, (b) liens, mortgages or other encumbrances
on their assets, (c) sale/leaseback transactions, (d) operating
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<PAGE> 92
leases, (e) dividends and distributions on, and repurchases and redemptions of,
capital stock of American Standard Inc. and the Company, and issuances and sales
of stock of the Company, American Standard Inc. and its subsidiaries, (f)
voluntary prepayments, purchases, redemptions or defeasance of other
Indebtedness, or required payments of principal or interest thereon during any
event of default under the Existing Credit Agreement, (g) loans and other
investments, including investments in subsidiaries and joint ventures, (h)
intercompany transactions and (i) transactions with affiliates.
The ability of American Standard Inc. to comply with the covenants and
restrictions contained in the Credit Agreement may be affected by events beyond
its control, and American Standard Inc. will be required to sustain the
improved operating results achieved in 1994 to remain in compliance with such
covenants and restrictions. There can be no assurance that such improved
results will be sustained. The breach of any of these covenants or restrictions
could result in a default under the Credit Agreement which could have the same
consequences as a payment default described above under "Certain Investment
Considerations -- Substantial Leverage". In order to avoid potential
non-compliance with the covenants and restrictions contained in the Existing
Credit Agreement, as well as its predecessor credit agreement, American
Standard Inc. from time to time has had to obtain waivers and amendments. No
assurance can be given that American Standard Inc. will be able to obtain
similar waivers or amendments in the future under the Existing Credit Agreement
or the New Credit Facility. American Standard Inc. is seeking to obtain
covenants in the New Credit Facility that are more favorable to American
Standard Inc. than those contained in the Existing Credit Agreement.
CERTAIN FINANCIAL COVENANTS AND RATIOS
DEBT. American Standard Inc. and its subsidiaries may not create, incur,
assume, guarantee or permit to exist any Indebtedness, including Intercompany
Indebtedness, except among other things: (a) the obligations under the Existing
Credit Agreement; (b) enumerated Indebtedness of American Standard Inc. and its
subsidiaries outstanding on June 1, 1993; (c) the Debentures; (d) certain
Intercompany Indebtedness; (e) certain Indebtedness and Guarantees resulting
from sales of receivables; (f) up to $25,000,000 in additional letters of credit
obtained outside the Existing Credit Agreement in the ordinary course of
business; (g) up to $25,000,000 in secured Indebtedness of 95% or less owned
subsidiaries; (h) Indebtedness incurred to finance permitted Capital
Expenditures and permitted Capital Leases; (i) Indebtedness of subsidiaries
existing at the time they become subsidiaries; (j) Indebtedness of subsidiaries
which are not Credit Parties or incurred before they become Credit Parties, or
of American Standard Inc.'s Mexican and Brazilian subsidiaries, in an aggregate
principal amount at any time outstanding which, together with the Indebtedness
referred to in clause (f) above, is not in excess of $100,000,000 or, after the
occurrence of a Deleveraging Event, $150,000,000; and (k) additional unsecured
Indebtedness incurred by certain Credit Parties not exceeding $5,000,000.
CAPITAL EXPENDITURES AND CAPITAL LEASES. American Standard Inc. and its
subsidiaries may not make any Capital Expenditures or incur Capital Lease
Obligations in any year (except for certain existing projects) in excess of $150
million in 1994 and 1995, and increasing amounts thereafter. Additional amounts
of Capital Expenditures may be made depending on those made in each immediately
preceding year and available cumulative Excess Cash Flow. The sum of the
aggregate amount of Capital Lease Obligations of the Company and its
subsidiaries (except for certain existing projects) plus the aggregate amount of
other Indebtedness incurred to finance Capital Expenditures may not exceed $10
million in 1994 and any subsequent fiscal year or $50 million at any time
outstanding.
FINANCIAL TESTS, RATIOS. American Standard Inc. must satisfy certain
financial tests, as follows:
(a) American Standard Inc. may not permit Consolidated EBITDA for the
periods beginning on July 1, 1993, and ending on the last day of each quarter
(in each case taken as a single accounting
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<PAGE> 93
period) to be less than specified amounts, which progressively increase. Through
December, 31, 1995, such amounts are as follows and thereafter continue to
increase:
<TABLE>
<CAPTION>
DATE AMOUNT
---- ------
<S> <C>
September 30, 1994.................................................. $ 470,000,000
December 31, 1994................................................... $ 555,000,000
March 31, 1995...................................................... $ 630,000,000
June 30, 1995....................................................... $ 750,000,000
September 30, 1995.................................................. $ 925,000,000
December 31, 1995................................................... $1,045,000,000
</TABLE>
(b) American Standard Inc. may not permit the ratio of (i) Consolidated
Senior Debt at any time during any fiscal quarter to (ii) Consolidated Capital
Funds of American Standard Inc. at such time to exceed specified ratios. Through
December 31, 1995, such ratios are as follows and thereafter continue to
decrease progressively:
<TABLE>
<CAPTION>
QUARTER ENDING RATIO
-------------- -----
<S> <C>
1994: Last Day of Third Fiscal Quarter.................................. 1.50 : 1.00
Last Day of Fourth Fiscal Quarter................................. 2.70 : 1.00
1995: Last Day of First Fiscal Quarter.................................. 2.60 : 1.00
Last Day of Second Fiscal Quarter................................. 2.40 : 1.00
Last Day of Third Fiscal Quarter.................................. 2.20 : 1.00
Last Day of Fourth Fiscal Quarter................................. 2.00 : 1.00
</TABLE>
(c) American Standard Inc. may not permit the ratio of (i) Free Cash Flow
to (ii) Consolidated Cash Fixed Charges measured on specified measuring dates,
in each case for the specified period to exceed certain ratios, which continue
to increase after 1994. Through December 31, 1995, the measuring dates, periods
and ratios are as follows:
<TABLE>
<CAPTION>
MEASURING DATE PERIOD RATIO
-------------- ------ -----
<S> <C> <C>
September 30, 1994 Twelve Months Ended on Measuring Date 1.35 : 1.00
December 31, 1994 Twelve Months Ended on Measuring Date 1.55 : 1.00
March 31, 1995 Twelve Months Ended on Measuring Date 1.55 : 1.00
June 30, 1995 Twelve Months Ended on Measuring Date 1.65 : 1.00
September 30, 1995 Twelve Months Ended on Measuring Date 1.75 : 1.00
December 31, 1995 Twelve Months Ended on Measuring Date 1.90 : 1.00
</TABLE>
EVENTS OF DEFAULT
The Existing Credit Agreement contains customary Events of Default,
including payment defaults, failure of representations to be true in any
material respect, covenant defaults, defaults in respect of other Indebtedness,
bankruptcy, certain judgments, ERISA defaults, and a change of control of the
Company or American Standard Inc.
EXISTING CREDIT AGREEMENT DEFINITIONS
The following definitions apply to the Existing Credit Agreement provisions
described above. Capitalized terms used without definition in the description of
the Existing Credit Agreement are used as defined in the Existing Credit
Agreement.
"Consolidated Capital Funds" means, with respect to any person at any time,
the sum of (i) Consolidated Net Worth of such person at such time and (ii) the
outstanding principal amount of the Subordinated Indebtedness of such person at
such time; provided that, with respect to any Subordinated Indebtedness issued
with "original issue discount", the amount of such Subordinated
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<PAGE> 94
Indebtedness is the accreted amount thereof, determined on the date Consolidated
Capital Funds is being determined.
"Consolidated EBITDA" means for any person, without duplication, for any
period for which such amount is being determined, the sum for such period of (i)
Consolidated Net Income (as defined to exclude after-tax gains, but not pre-tax
losses, on sales of assets out of the ordinary course of business and to exclude
premium expense and write-offs of financing costs in connection with prepayments
or redemptions of Indebtedness), (ii) provision for taxes based on income, (iii)
Consolidated Interest Expense and (iv) other non-cash items (including
depreciation expense and amortization expense) reducing Consolidated Net Income,
all as determined on a consolidated basis for such person and its Consolidated
Subsidiaries in accordance with GAAP.
"Consolidated Net Worth" means, with respect to any person, as at any date
of determination, the sum of the capital stock and additional paid-in capital
plus retained earnings (or minus accumulated deficit) of such person and its
Consolidated Subsidiaries on a consolidated after-tax basis determined in
accordance with GAAP, less the sum of the capital stock and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of such person and
its Consolidated Subsidiaries as of June 30, 1993, and excluding (i) premium
expense and write-offs of financing costs deducted in connection with the
prepayment or redemption of Indebtedness subsequent to June 30, 1993, and (ii)
after-tax gains on the sales of assets out of the ordinary course of business of
such person and its Consolidated Subsidiaries subsequent to June 30, 1993.
"Credit Parties" means the Company, American Standard Inc., the Borrowers,
certain Subsidiaries enumerated in the Existing Credit Agreement, and any
additional Subsidiaries which become Subsidiary Guarantors or members of
Standard Europe, a European Economic Interest Grouping, and includes most
significant Subsidiaries of the Company in North America, Europe and Brazil.
"Deleveraging Event" means the receipt by the Company of gross cash
proceeds aggregating $500,000,000 or more from one or more issuances by the
Company of its Common Stock.
"Free Cash Flow" means, for any person, for any period, Consolidated EBITDA
for such period minus Consolidated Capital Expenditures for such period.
CERTAIN OTHER INDEBTEDNESS
The following summaries of certain American Standard Inc. debt instruments
do not purport to be complete and each is qualified in its entirety by reference
to the relevant indenture, copies of which have been filed as exhibits to the
Registration Statement.
SINKING FUND DEBENTURES
In 1986, American Standard Inc. issued $150 million aggregate principal
amount of 9 1/4% Sinking Fund Debentures Due 2016 (the "Sinking Fund
Debentures"). The Sinking Fund Debentures are secured, equally and ratably with
indebtedness under the Existing Credit Agreement and certain related
indebtedness, by mortgages on the principal U.S. properties of American Standard
Inc.
The Sinking Fund Debentures are redeemable at the option of American
Standard Inc., in whole or in part, at redemption prices declining from 105.55%
in 1994 to 100% in 2006 and thereafter. Notwithstanding the foregoing
provisions, the Sinking Fund Debentures may not be redeemed prior to December 1,
1996, as part of, or in anticipation of, any refunding operation by the
application, directly or indirectly, of moneys borrowed having an interest cost
to American Standard Inc. of less than 9 1/4% per annum.
American Standard Inc. is required to provide for the retirement, by
redemption, of $7.5 million principal amount of Sinking Fund Debentures on or
before December 1 in each of the years 1997 to 2015, inclusive, at a redemption
price equal to 100% of the principal amount thereof plus accrued interest to the
redemption date. At its option, American Standard Inc. may redeem on each
Sinking Fund payment date an additional $15 million principal amount of Sinking
Fund Debentures, at such redemption price. The right to exercise such optional
redemption is not cumulative.
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<PAGE> 95
SENIOR NOTES
On May 20, 1992, American Standard Inc. issued $150 million aggregate
principal amount of the 10 7/8% Senior Notes Due 1999 (the "Senior Notes"). To
the extent required under the indenture relating thereto, the Senior Notes are
secured equally and ratably with the other Senior Securities (as defined),
indebtedness under the Existing Credit Agreement and certain related
indebtedness, by mortgages on the principal U.S. properties of American Standard
Inc.
The Senior Notes may not be redeemed at the option of American Standard
Inc. There is no mandatory sinking fund for the Senior Notes. The Senior Note
indenture has provisions requiring American Standard Inc. to offer to repurchase
Senior Notes upon the occurrence of a change of control of the Company or
American Standard Inc.
SENIOR DEBENTURES
On May 20, 1992, American Standard Inc. issued $250 million aggregate
principal amount of the 11 3/8% Senior Debentures Due 2004 (the "Senior
Debentures"). To the extent required under the indenture relating thereto, the
Senior Debentures are secured, equally and ratably with the other Senior
Securities (as defined), indebtedness under the Existing Credit Agreement and
certain related indebtedness, by mortgages on the principal U.S. properties of
American Standard Inc.
The Senior Debentures may not be redeemed prior to May 15, 1997.
Thereafter, the Senior Debentures may be redeemed at the option of American
Standard Inc., in whole or in part, at redemption prices declining from 105.69%
in 1997 to 100% in 2002 and thereafter. There is no mandatory sinking fund for
the Senior Debentures.
The Senior Debenture indenture has provisions requiring American Standard
Inc. to offer to repurchase Senior Debentures upon the occurrence of a change of
control of the Company or American Standard Inc.
9 7/8% SENIOR SUBORDINATED NOTES
On June 1, 1993, American Standard Inc. issued $200 million aggregate
principal amount of the 9 7/8% Senior Subordinated Notes Due 2001 (the "9 7/8%
Senior Subordinated Notes"). The 9 7/8% Senior Subordinated Notes are unsecured.
The payment of the principal of, premium, if any, and interest on the 9 7/8%
Senior Subordinated Notes is subordinated in right of payment, as set forth in
the Senior Subordinated Note indenture, to the payment when due of all Senior
Debt (as defined in the Senior Subordinated Note indenture).
The 9 7/8% Senior Subordinated Notes may not be redeemed prior to June 1,
1998. Thereafter, the 9 7/8% Senior Subordinated Notes may be redeemed at the
option of American Standard Inc., in whole or in part, at redemption prices
declining from 102.82% in 1998 to 100% in 2000 and thereafter. There is no
mandatory sinking fund for the 9 7/8% Senior Subordinated Notes.
The Senior Subordinated Note indenture has provisions requiring American
Standard Inc. to offer to repurchase 9 7/8% Senior Subordinated Notes upon the
occurrence of a change of control of the Company or American Standard Inc.
10 1/2% SENIOR SUBORDINATED DISCOUNT DEBENTURES
On June 1, 1993, American Standard Inc. issued $750.7 million aggregate
principal amount of the 10 1/2% Senior Subordinated Discount Debentures Due 2005
(the "10 1/2% Senior Subordinated Discount Debentures"). Interest payments on
the 10 1/2% Senior Subordinated Discount Debentures are not required prior to
December 1, 1998. Commencing December 1, 1998, interest on the 10 1/2% Senior
Subordinated Discount Debentures at 10 1/2% per annum is payable semiannually on
June 1 and December 1 of each year. The 10 1/2% Senior Subordinated Discount
Debentures are unsecured. The payment of the principal of, premium, if any, and
interest on the 10 1/2% Senior Subordinated
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<PAGE> 96
Discount Debentures is subordinated in right of payment, as set forth in the
Senior Subordinated Discount Debenture Indenture, to the payment when due of all
Senior Debt (as defined in the Senior Subordinated Discount Debenture Indenture)
of American Standard Inc.
Except as set forth below, the 10 1/2% Senior Subordinated Discount
Debentures may not be redeemed prior to June 1, 1998. Thereafter, the 10 1/2%
Senior Subordinated Discount Debentures may be redeemed at the option of
American Standard Inc., in whole or in part, at redemption prices declining from
104.66% in 1998 to 100% in 2002 and thereafter.
In the event that on or prior to June 1, 1996, American Standard Inc.
receives from the sale of its common stock or the Common Stock of the Company
aggregate net proceeds of at least $250 million, American Standard Inc. may, at
its option, use all or a portion of such proceeds to redeem up to 35% of the
original principal amount of the 10 1/2% Senior Subordinated Discount
Debentures, on not less than 30 nor more than 60 days' notice and within 75 days
of such sale, at a redemption price equal to the following percentages of
Accreted Amount (as defined in the Senior Subordinated Discount Debenture
indenture) at the date of redemption:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
-------------------------------------------- ----------------
<S> <C>
1994........................................ 110.50%
1995........................................ 109.33
1996........................................ 108.16
</TABLE>
American Standard Inc. is required to provide for the retirement, by
redemption of $187.7 million principal amount of 10 1/2% Senior Subordinated
Discount Debentures on each of June 1, 2003, and June 1, 2004, in each case at a
redemption price equal to 100% of the principal amount thereof, plus accrued
interest to the redemption date. Such redemptions are calculated to retire
approximately 50% of the principal amount of the 10 1/2% Senior Subordinated
Discount Debentures prior to maturity. In addition, the Senior Subordinated
Discount Debenture Indenture has provisions requiring American Standard Inc. to
offer to repurchase 10 1/2% Senior Subordinated Discount Debentures upon the
occurrence of a change of control of the Company or American Standard Inc.
CERTAIN COVENANTS; EVENTS OF DEFAULT
The indentures relating to the Sinking Fund Debentures, Senior Notes,
Senior Debentures, 9 7/8% Senior Subordinated Notes and 10 1/2% Senior
Subordinated Discount Debentures contain various restrictive covenants that,
among other things, impose limitations on American Standard Inc. and its
subsidiaries with respect to: (i) the incurrence of indebtedness by American
Standard Inc. and its subsidiaries; (ii) the declaration or payment of dividends
and the redemption or purchase of the capital stock or certain indebtedness of
American Standard Inc. and its subsidiaries; (iii) the issuance of preferred
stock by subsidiaries of American Standard Inc.; (iv) the ability of American
Standard Inc.'s subsidiaries to enter into agreements which restrict their
ability to declare and pay dividends and other distributions; (v) the sale or
other disposition of assets of American Standard Inc. or capital stock of its
subsidiaries; (vi) the ability of American Standard Inc. and its subsidiaries to
engage in transactions with affiliates; (vii) consolidations, mergers and sales
of all or substantially all the assets of American Standard Inc. and its
subsidiaries; (viii) the ability of American Standard Inc. and certain of its
subsidiaries to enter into certain sale and leaseback arrangements; and (ix) the
ability of American Standard Inc. and its subsidiaries to grant mortgages or
liens on their principal properties.
The indentures relating to the Senior Notes, the Senior Debentures, the
9 7/8% Senior Subordinated Notes and the 10 1/2% Senior Subordinated Discount
Debentures contain provisions requiring American Standard Inc. to offer to
repurchase such securities upon the occurrence of a change of control of the
Company or American Standard Inc.
The indentures relating to the Sinking Fund Debentures, Senior Notes,
Senior Debentures, 9 7/8% Senior Subordinated Notes and 10 1/2% Senior
Subordinated Discount Debentures contain various events of default, including,
among other things, (i) default by American Standard Inc. in the payment of
principal or interest or any mandatory sinking fund payment on the relevant
security;
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<PAGE> 97
(ii) failure by American Standard Inc. to comply with the covenants contained in
the relevant indenture; (iii) failure by American Standard Inc. to comply with
its obligations under any "Successor Corporation" section, if contained in the
relevant indenture; (iv) failure by American Standard Inc. or certain of its
subsidiaries to pay their respective indebtedness within any applicable grace
period after final maturity or acceleration of such indebtedness because of a
default, where the total amount of debt unpaid or accelerated exceeds a
specified amount ranging from $10 million to $25 million (as set forth in the
relevant indenture); (v) failure of certain subsidiaries to pay their respective
indebtedness within any applicable grace period after final maturity or
acceleration of such indebtedness because of a default, where the total amount
unpaid or accelerated exceeds $50 million; (vi) certain events of bankruptcy,
insolvency or reorganization of American Standard Inc. or certain of its
subsidiaries; and (vii) any judgment or decree for the payment of money in
excess of $25 million (to the extent not covered by insurance or a bond) being
rendered against American Standard Inc. or certain of its subsidiaries, which
judgment or decree is not discharged, waived or the execution thereof stayed
within a period of 60 days.
UNDERWRITING
Subject to the terms and conditions of the U.S. Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., CS First Boston
Corporation, Morgan Stanley & Co. Incorporated, and Smith Barney Inc. are acting
as representatives, has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
U.S. UNDERWRITERS COMMON STOCK
----------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co........................................
CS First Boston Corporation................................
Morgan Stanley & Co. Incorporated..........................
Smith Barney Inc...........................................
------------
Total............................................ 10,000,000
===============
</TABLE>
Under the terms and conditions of the U.S. Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the Shares, if any are
taken.
The U.S. Underwriters propose to offer the Shares in part directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus, and in part to certain securities dealers at such price less a
concession of $ per share. The U.S. Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the Shares are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the international offering
(the "International Underwriters") providing for the concurrent offer and sale
of 4,500,000 Shares in an international offering outside the United States. The
offering price and aggregate underwriting discounts and commissions per share
for the two offerings are identical. The closing of the offering made hereby is
a condition to the closing of the international offering, and vice versa. The
representatives of the International
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<PAGE> 98
Underwriters are Goldman Sachs International, S.G. Warburg Securities Ltd., CS
First Boston Limited and Morgan Stanley & Co. International.
An affiliate of Smith Barney Inc. and an affiliate of CS First Boston
Corporation own indirect equity interests in ASI Partners which, after giving
effect to the Offerings, will own approximately 60% of the outstanding Common
Stock of the Company. Accordingly, the provisions of Schedule E to the By-Laws
of the National Association of Securities Dealers, Inc. apply to the Offerings,
and the initial public offering price can be no higher than that recommended by
a "qualified independent underwriter" meeting certain standards. In accordance
with this requirement, Goldman, Sachs & Co. has served in such role and has
recommended a price in compliance with the requirements of Schedule E. Goldman,
Sachs & Co. in its role as qualified independent underwriter has performed due
diligence investigations and reviewed and participated in the preparation of
this Prospectus and the Registration Statement of which this Prospectus forms a
part. The representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority except in accordance with Schedule E. In
addition, an affiliate of Smith Barney Inc., affiliates of CS First Boston
Corporation and an affiliate of S.G. Warburg Securities Ltd. are investors in
investment funds sponsored by Kelso, which funds are not investors in the
Company.
Pursuant to an agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of the
U.S. Underwriters named herein has agreed or will agree pursuant to the
Agreement Between that, as a part of the distribution of the Shares offered
hereby and subject to certain exceptions, it will offer, sell or deliver the
Shares offered hereby and other shares of Common Stock, directly or indirectly,
only in the United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction (the "United States") and to U.S. persons, which term shall mean,
for purposes of this paragraph: (a) any individual who is a resident of the
United States or (b) any corporation, partnership or other entity organized in
or under the laws of the United States or any political subdivision thereof and
whose office most directly involved with the purchase is located in the United
States. Each of the International Underwriters has agreed or will agree pursuant
to the Agreement Between that, as a part of the distribution of the Shares
offered as a part of the international offering, and subject to certain
exceptions, it will (i) not, directly or indirectly, offer, sell or deliver
shares of Common Stock (a) in the United States or to any U.S. persons or (b) to
any person whom it believes intends to reoffer, resell or deliver the shares in
the United States or to any U.S. persons, and (ii) cause any dealer to whom it
may sell such shares at any concession to agree to observe a similar
restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
1,500,000 additional shares of Common Stock to cover over-allotments, if any, at
the initial public offering price, less the underwriting discount, as set forth
in this Prospectus. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the total number of shares. The U.S. Underwriters may exercise
such option only to cover over-allotments in connection with the sale of the
shares. The Company has granted the International Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 675,000 additional shares of Common Stock, solely to cover
over-allotments, at the initial public offering price less the underwriting
discount, as set forth on the cover page of this Prospectus.
93
<PAGE> 99
At the Company's request, the Underwriters have agreed to make available
shares of Common Stock for sale at the initial public offering price to
officers, directors, employees and certain other persons associated with the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent that these persons purchase such shares.
Any such shares not purchased will be offered by the Underwriters to the general
public on the same basis as the other shares offered hereby.
The Company and certain existing stockholders (including ASI Partners) have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock for
a period of 180 days after the date of this Prospectus without the prior written
consent of the representatives of the Underwriters, except for the shares of
Common Stock offered in connection with the concurrent U.S. and international
offerings and shares of Common Stock issued pursuant to the Stock Plan. Such
consent may be provided without prior notice to holders of the Common Stock or
to the markets where such securities are traded.
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price was negotiated among American Standard
and the representatives of the U.S. Underwriters and the International
Underwriters. Among the factors considered in determining the initial public
offering price of the Common Stock, in addition to prevailing market conditions,
were the Company's historical performance, estimates of the business potential
and earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
The Common Stock has been authorized for listing, subject to official
notice of issuance, on the New York Stock Exchange. In order to meet one of the
requirements for listing the Common Stock on the New York Stock Exchange, the
U.S. Underwriters have undertaken to sell lots of 100 or more shares to a
minimum of 2,000 beneficial holders.
The representatives of the Underwriters have in the past provided and may
continue to provide investment banking services to the Company and Kelso.
The Company and American Standard Inc. have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by Debevoise
& Plimpton, New York, New York. Debevoise & Plimpton also acts and may hereafter
act as counsel to Kelso and its affiliates, including ASI Partners. Certain
legal matters in connection with the Offerings will be passed upon for the
Underwriters by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1992 and 1993, and for each of the three years in the period ended December 31,
1993 appearing in this Prospectus and the Registration Statement and the
consolidated financial statements of the Company appearing in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein or included herein or incorporated herein by
reference, and have been so included or incorporated by reference in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
94
<PAGE> 100
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<S> <C>
Audited Financial Statements:
Responsibility for Financial Statements....................................... F-2
Report of Independent Auditors................................................ F-3
Consolidated Statement of Operations
for the three years ended December 31, 1993................................. F-4
Consolidated Balance Sheet
as of December 31, 1992 and 1993............................................ F-5
Consolidated Statement of Stockholders' Equity
(Deficit) for the three years ended December 31, 1993....................... F-6
Consolidated Statement of Cash Flows
for the three years ended December 31, 1993................................. F-7
Notes to Consolidated Financial Statements.................................... F-8
Segment Data.................................................................. F-25
Quarterly Data................................................................ F-27
Unaudited Interim Financial Statements:
Summary Statement of Operations for the nine months ended
September 30, 1993 and 1994................................................. F-28
Summary Balance Sheet as of September 30, 1994................................ F-29
Summary Statement of Cash Flows for the nine months ended
September 30, 1993 and 1994................................................. F-30
Notes to Summary Financial Statements......................................... F-31
</TABLE>
F-1
<PAGE> 101
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated balance sheets at December 31, 1992 and 1993,
and related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years ended December 31, 1991, 1992 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 that 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 non-employee 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 COMPANIES INC.
(formerly ASI Holding Corporation)
New York, New York
March 14, 1994
F-2
<PAGE> 102
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
American Standard Companies Inc.
We have audited the accompanying consolidated balance sheets of American
Standard Companies Inc. (formerly ASI Holding Corporation) and subsidiaries as
of December 31, 1993 and 1992, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 1993. 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 Companies Inc. and subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
New York, New York
March 14, 1994
F-3
<PAGE> 103
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1991 1992 1993
---------- ---------- ----------
<S> <C> <C> <C>
Sales.............................................. $3,595,267 $3,791,929 $3,830,462
---------- ---------- ----------
Costs and expenses
Cost of sales.................................... 2,752,068 2,852,230 2,902,562
Selling and administrative expenses.............. 614,259 678,742 692,229
Other expenses................................... 8,082 24,672 38,281
Interest expense (includes debt issuance cost
amortization of $5,335 for 1991, $5,983 for
1992 and $11,461 for 1993).................... 286,316 288,851 277,860
Loss on sale of Tyler Refrigeration.............. 22,391 -- --
---------- ---------- ----------
3,683,116 3,844,495 3,910,932
---------- ---------- ----------
Loss before income taxes, extraordinary loss and
cumulative effects of changes in accounting
methods.......................................... (87,849) (52,566) (80,470)
Income taxes....................................... 23,033 4,672 36,165
---------- ---------- ----------
Loss before extraordinary loss and cumulative
effects of changes in accounting methods......... (110,882) (57,238) (116,635)
Extraordinary loss on retirement of debt (Note
8)............................................... -- -- (91,932)
Cumulative effects of changes in accounting
methods (Notes 2 and 3).......................... (32,291) -- --
---------- ---------- ----------
Net loss........................................... (143,173) (57,238) (208,567)
Preferred dividend................................. (13,855) (15,707) (8,624)
---------- ---------- ----------
Net loss applicable to common shares............... $ (157,028) $ (72,945) $ (217,191)
========== ========== ==========
Loss per common share:
Loss from continuing operations before
extraordinary loss and cumulative effects of
changes in accounting methods.................... $ (2.14) $ (1.24) $ (2.11)
Extraordinary loss on retirement of debt........... -- -- (1.55)
Cumulative effects of changes in accounting
methods.......................................... (.55) -- --
---------- ---------- ----------
Net loss per common share.......................... $ (2.69) $ (1.24) $ (3.66)
========== ========== ==========
Average number of outstanding common shares and
equivalents...................................... 58,338,195 58,636,118 59,313,073
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 104
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1992 1993
---------- ----------
<S> <C> <C>
Current assets
Cash and certificates of deposit................................ $ 111,549 $ 53,237
Cash in escrow.................................................. 1,722 932
Accounts receivable, less allowance for doubtful accounts --
1992, $12,827; 1993, $15,666................................. 468,731 507,322
Inventories..................................................... 384,857 325,819
Future income tax benefits...................................... 33,192 24,562
Other current assets............................................ 31,199 29,811
---------- ----------
Total current assets.................................... 1,031,250 941,683
Facilities, at cost net of accumulated depreciation............... 832,811 820,523
Other assets
Goodwill, net of accumulated amortization -- 1992, $141,858;
1993, $169,879............................................... 1,101,716 1,025,774
Debt issuance costs, net of accumulated amortization -- 1992,
$77,776; 1993, $9,670........................................ 51,308 78,102
Other........................................................... 109,333 120,997
---------- ----------
$3,126,418 $2,987,079
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C> <C>
Current liabilities
Loans payable to banks.......................................... $ 99,150 $ 38,036
Current maturities of long-term debt............................ 13,458 105,939
Accounts payable................................................ 271,855 307,326
Accrued payrolls................................................ 105,400 99,758
Other accrued liabilities....................................... 230,335 263,322
Taxes on income................................................. 18,848 47,003
---------- ----------
Total current liabilities............................... 739,046 861,384
Long-term debt.................................................... 2,032,064 2,191,737
Other long-term liabilities
Reserve for postretirement benefits............................. 368,868 387,038
Deferred tax liabilities........................................ 73,307 45,625
Other........................................................... 228,521 224,108
---------- ----------
Total liabilities....................................... 3,441,806 3,709,892
Commitments and contingencies
Exchangeable preferred stock...................................... 133,176 --
Stockholders' deficit
Common stock, $.01 par value, 200,000,000 shares authorized;
59,021,468 shares issued and outstanding in 1992, 59,645,838
in 1993...................................................... 590 596
Capital surplus................................................. 191,997 188,387
Subscriptions receivable........................................ (3,316) (2,588)
ESOP shares..................................................... (9,527) (4,331)
Accumulated deficit............................................. (541,436) (750,003)
Foreign currency translation effects............................ (86,872) (149,220)
Minimum pension liability adjustment............................ -- (5,654)
---------- ----------
Total stockholders' deficit............................. (448,564) (722,813)
---------- ----------
$3,126,418 $2,987,079
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 105
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
SUB- CURRENCY
CAPITAL SCRIPTIONS ESOP ACCUMULATED TRANSLATION
SURPLUS RECEIVABLE SHARES DEFICIT EFFECTS
------- ---------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990..... $216,041 $ (5,055) $(22,084) $(341,025) $ (48,549)
Net loss -- Year 1991.......... -- -- -- (143,173) --
Common stock repurchased....... (17,809) -- -- -- --
Common stock issued............ 6,010 -- -- -- --
Payments on subscriptions...... -- 1,086 -- -- --
ESOP shares allocated to
employees................... 12,928 -- 7,045 -- --
Stock dividend on exchangeable
preferred stock............. (13,855) -- -- -- --
Foreign currency translation... -- -- -- -- (2,147)
-------- -------- -------- --------- ----------
Balance at December 31, 1991..... 203,315 (3,969) (15,039) (484,198) (50,696)
Net loss -- Year 1992.......... -- -- -- (57,238) --
Common stock repurchased....... (13,130) -- -- -- --
Common stock issued............ 3,103 -- -- -- --
Payments on subscriptions...... -- 653 -- -- --
ESOP shares allocated to
employees................... 14,416 -- 5,512 -- --
Stock dividend on exchangeable
preferred stock............. (15,707) -- -- -- --
Foreign currency translation... -- -- -- -- (36,176)
-------- -------- -------- --------- ----------
Balance at December 31, 1992..... 191,997 (3,316) (9,527) (541,436) (86,872)
Net loss -- Year 1993.......... -- -- -- (208,567) --
Common stock repurchased....... (16,665) -- -- -- --
Common stock issued............ 4,585 -- -- -- --
Payments on subscriptions...... -- 728 -- -- --
ESOP shares allocated to
employees................... 17,094 -- 5,196 -- --
Stock dividend on exchangeable
preferred stock............. (8,624) -- -- -- --
Foreign currency translation... -- -- -- -- (62,348)
-------- -------- -------- --------- ----------
Balance at December 31, 1993..... $188,387 $ (2,588) $ (4,331) $(750,003) $ (149,220)
======== ======== ======== ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 106
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1991 1992 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash provided (used) by:
Operating activities:
Loss before extraordinary loss and cumulative effects of
changes in accounting methods.............................. $(110,882) $ (57,238) $(116,635)
Loss on Tyler Refrigeration sale............................. 22,391 -- --
Depreciation................................................. 107,153 111,643 106,041
Amortization of goodwill..................................... 33,036 33,064 30,807
Non-cash interest............................................ 56,859 65,527 65,031
Non-cash stock compensation.................................. 25,980 23,076 25,679
Amortization of debt issuance costs.......................... 5,335 5,983 11,461
Loss (gain) on sale of fixed assets.......................... (2,736) (660) 2,963
Changes in assets and liabilities:
Accounts receivable........................................ 2,615 (20,081) (48,680)
Inventories................................................ 60,364 44,163 47,321
Accounts payable and accrued payrolls...................... 49,516 (8,308) 40,124
Postretirement benefits.................................... 14,273 22,074 22,687
Income taxes............................................... (53,708) (48,974) (4,232)
Other long-term liabilities................................ 23,334 3,805 13,271
Other, net................................................. 7,211 (428) 5,003
--------- --------- ---------
Net cash provided by operating activities...................... $ 240,741 $ 173,646 $ 200,841
--------- --------- ---------
Investing activities:
Purchases of property, plant and equipment................... $ (90,713) $ (87,409) $ (90,474)
Investments in affiliated companies.......................... (19,734) (20,608) (7,556)
Cash of subsidiaries consolidated............................ -- 10,703 4,514
Proceeds from disposals of property, plant and equipment..... 12,703 11,133 4,003
Investment in Tyler Holdings preferred stock................. (2,780) -- --
Net proceeds from asset sales................................ 81,470 -- --
--------- --------- ---------
Net cash used by investing activities.......................... (19,054) (86,181) (89,513)
--------- --------- ---------
Financing activities:
Proceeds from issuance of notes and debentures............... -- 388,750 650,000
Proceeds from Term Loans..................................... -- -- 750,000
Repayment of Term Loans...................................... (159,629) (448,664) (454,630)
Redemptions of debentures.................................... -- (5,000) (915,851)
Premiums on redemption of debentures......................... -- -- (44,866)
Proceeds of Revolving Credit Facility........................ -- -- 7,000
Net change in short-term debt................................ (3,741) 41,675 (61,600)
Proceeds of other long-term debt............................. 40,023 5,409 5,557
Payments on other long-term debt............................. (35,309) (36,395) (12,642)
Common stock repurchased in Tyler Refrigeration sale......... (2,545) -- --
ESOP stock repurchases....................................... (10,142) (5,950) (7,194)
Common stock repurchases..................................... (4,919) (5,000) (5,000)
Payments on stock subscriptions receivable................... 616 653 482
Purchase of untendered shares related to acquisition......... (1,455) (959) (690)
Other financing costs........................................ -- (9,591) (76,554)
--------- --------- ---------
Net cash used by financing activities.......................... (177,101) (75,072) (165,988)
--------- --------- ---------
Increase in cash and certificates of deposit excluding
translation effects.......................................... 44,586 12,393 (54,660)
Effect of exchange rate changes on cash and certificates of
deposit...................................................... (246) (6,234) (3,652)
--------- --------- ---------
Net increase (decrease) in cash and certificates of deposit.... 44,340 6,159 (58,312)
Cash and certificates of deposit at beginning of period........ 61,050 105,390 111,549
--------- --------- ---------
Cash and certificates of deposit at end of period.............. $ 105,390 $ 111,549 $ 53,237
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 107
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
American Standard Companies Inc. (the "Company") is a Delaware corporation
that was formed in 1988 by an affiliate of Kelso & Company L.P. ("Kelso"), an
investment banking firm that specializes in leveraged buyouts. On March 21,
1988, the Kelso affiliate commenced a tender offer (the "Tender Offer") for all
of the common stock of American Standard Inc. at $78 per share in cash. On April
27, 1988, the Kelso affiliate completed the Tender Offer with the purchase of
approximately 95% of the shares of American Standard Inc.
Pursuant to an Agreement and Plan of Merger, a merger was consummated (the
"Merger") on June 29, 1988, whereby American Standard Inc. became a wholly owned
subsidiary of the Company. At that time the remaining shares of American
Standard Inc.'s common stock were converted into the right to receive cash of
$78 per share. Hereinafter "American Standard" or "the Company" will refer to
the Company or to the Company and American Standard Inc. including its
subsidiaries, as the context requires. The Tender Offer, Merger, and related
transactions are hereinafter referred to as the "Acquisition." For financial
statement purposes the Acquisition has been accounted for under the purchase
method.
NOTE 2. ACCOUNTING POLICIES
Consolidation
The financial statements include on a consolidated basis the results of all
majority-owned subsidiaries. All material intercompany transactions are
eliminated. Investments in affiliated companies are included at cost plus the
Company's equity in their net results.
Translation of Foreign Financial Statements
Assets and liabilities of most foreign operations are translated at
year-end rates of exchange, and the income statements are translated at the
average rates of exchange for the period. Gains or losses resulting from
translating foreign currency financial statements are accumulated in a separate
component of stockholder's equity until the entity is sold or substantially
liquidated.
Gains or losses resulting from foreign currency transactions (transactions
denominated in a currency other than the entity's local currency) are included
in net income. For operations in countries that have high rates of inflation,
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.
Revenue Recognition
Sales are recorded when shipment to a customer occurs.
Statement of Cash Flows
Cash and certificates of deposit include all highly liquid investments with
an original maturity of three months or less.
Inventories
Inventory costs are determined by the use of the last-in, first-out (LIFO)
method on a worldwide basis, and inventories are stated at the lower of such
cost or realizable value.
F-8
<PAGE> 108
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 foreign investment grants are amortized into
income over the period of benefit.
Goodwill
Goodwill is being amortized over 40 years. In connection with its Employee
Stock Ownership Plan, the Company obtains an annual valuation of its businesses.
The results of such valuation are compared to the net book value of the
Company's operating segments including an allocated portion of goodwill and
debt. To date, such comparisons have indicated no impairment to the carrying
value of goodwill.
Debt Issuance Costs
The costs related to the issuance of debt are amortized using the interest
method over the lives of the related debt.
Warranties
The Company provides for estimated warranty costs at the time of sale.
Warranty obligations beyond one year are included in other long-term
liabilities.
The Company changed its method of accounting for revenues from extended
warranty contracts at the beginning of 1991 to conform with the FASB Technical
Bulletin, "Accounting for Separately Priced Extended Warranty and Product
Maintenance Contracts." The bulletin requires the deferral of the revenue from
the sales of such contracts and amortization thereof on a straight-line basis
over the terms of the contracts. The cumulative effect of this accounting change
for all contracts in place as of December 31, 1990, increased the net loss in
1991 by $7 million, net of income tax benefit. The effect on the 1991 net loss,
excluding the cumulative effect upon adoption, was not material.
Leases
The asset values of capitalized leases are included with facilities, and
the associated liabilities are included with long-term debt.
Postretirement Benefits
Postretirement 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
some of its employees. Effective January 1, 1991, such costs are calculated in
accordance with Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("FAS 106").
Depreciation
Depreciation and amortization are computed on the straight-line method
based on the estimated useful life of the asset or asset group.
F-9
<PAGE> 109
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Research and Development Expenses
Research and development costs are expensed as incurred except for costs
incurred (after technological feasibility is established) for computer software
products expected to be sold. The Company expensed costs of approximately $36
million in 1991, $40 million in 1992, and $41 million in 1993 for research
activities and product development. Computer software product development costs
capitalized in 1993 amounted to $2 million.
Income Taxes
In 1991 the Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"), and elected to apply the
provisions retroactively to January 1, 1989.
The Company recognizes deferred tax assets for the tax effects of items
that will be deducted for tax purposes in later years together with the tax
effects of income items included in current reporting for tax purposes but in
later years for financial statement purposes and the effects of certain tax
attributes such as net operating losses.
The Company provides for United States income taxes and foreign withholding
taxes on foreign earnings expected to be repatriated. Deferred tax liabilities
are provided on the excess of the financial statement basis over the tax basis
of certain assets, primarily for inventories and fixed assets, including fair
value adjustments resulting from purchase accounting in connection with the
Acquisition; fixed assets due to accelerated depreciation deductions for tax
purposes; and non-permanent investments in certain foreign subsidiaries.
Earnings per share
Earnings per share have been computed using the weighted average number of
common shares outstanding. All share amounts and earnings per share data have
been adjusted to reflect the 2.5 to 1 stock split effected in December 1994.
Financial Instruments with Off-Balance-Sheet Risk
The Company from time to time enters into foreign currency exchange
agreements in the management of foreign currency exposure. Gains and losses from
exchange rate changes are included in income unless the contract hedges a net
investment in a foreign entity or a firm commitment, in which case gains and
losses are deferred as a component of foreign currency translation effects in
stockholder's equity or included as a component of the transaction.
NOTE 3. POSTRETIREMENT BENEFITS
The Company sponsors postretirement 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. In 1988 in
conjunction with the Acquisition the ESOP purchased 12,500,000 shares (adjusted
for the 100 to 1 stock split in 1990 and 2.5 to 1 split in 1994) of common stock
of the Company. The ESOP is an individual account, defined contribution plan.
The valuation of the ESOP shares is determined by independent appraisals. The
common stock acquired by the ESOP is being allocated to the accounts of eligible
employees over a period not exceeding eight plan years, including basic
allocation of 3% of covered compensation and a matching Company contribution of
up to 6% of covered compensation invested in the Company's savings plan by
employees.
F-10
<PAGE> 110
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension plan benefits 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 some 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, 1993, funded plan assets related to
pensions were held primarily in fixed income and equity funds. Postretirement
health and life insurance benefits are not prefunded.
Effective January 1, 1991, the Company changed its method of accounting for
postretirement benefits other than pensions to conform with FAS 106. The
cumulative effect of this change increased the recorded obligation for such
benefits by $40 million, thereby increasing the net loss in 1991 by $25 million
(net of the related income tax benefit). The effect of the change on the 1991
net loss, excluding the cumulative effect upon adoption, was not material.
F-11
<PAGE> 111
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the Company's postretirement plans' funded
status and amounts recognized in the balance sheet at December 31, 1992 and
1993.
<TABLE>
<CAPTION>
1992 1993
------------------------------------- -------------------------------------
ASSETS IN ACCUMULATED ASSETS IN ACCUMULATED
EXCESS OF BENEFIT HEALTH EXCESS OF BENEFIT HEALTH
ACCUMULATED OBLIGATIONS AND LIFE ACCUMULATED OBLIGATIONS AND LIFE
BENEFIT IN EXCESS INSURANCE BENEFIT IN EXCESS INSURANCE
OBLIGATIONS OF ASSETS BENEFITS OBLIGATIONS OF ASSETS BENEFITS
----------- ----------- --------- ----------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested................. $ 92.0 $ 466.8 $ 105.2 $ 511.1
Non-vested............. 4.0 28.3 4.5 30.4
------- ------- ------- -------
Accumulated benefit
obligations............ 96.0 495.1 109.7 541.5
Additional amounts
related to projected
pay increases.......... 10.8 48.1 12.1 46.0
------- ------- ------- -------
Total projected benefit
obligations............ 106.8 543.2 $ 167.5 121.8 587.5 $ 175.4
------- ------- ------- ------- ------- -------
Assets and book reserves
relating to such
benefits:
Market value of funded
assets.............. 141.7 292.1 -- 166.9 303.8 --
Reserve (asset) for
post-retirement
benefits net of
recognized
overfunding......... (38.9) 254.8 151.8 (36.8) 257.7 154.9
Additional minimum
liability........... -- -- -- -- 19.0 --
------- ------- ------- ------- ------- -------
102.8 546.9 151.8 130.1 580.5 154.9
------- ------- ------- ------- ------- -------
Assets and book reserves
in excess of (less
than) projected benefit
obligations............ $ (4.0) $ 3.7 $ (15.7) $ 8.3 $ (7.0) $ (20.5)
======= ======= ======= ======= ======= =======
Consisting of:
Unrecognized prior
service benefit
(cost).............. $ (6.3) $ (3.9) $ -- $ (6.6) $ 3.4 $ 10.3
Unrecognized net gain
(loss) from
actuarial
experience.......... 2.3 7.6 (15.7) 14.9 (16.0) (30.8)
Pension liability
adjustment to
stockholders'
equity.............. -- -- -- -- 5.6 --
------- ------- ------- ------- ------- -------
$ (4.0) $ 3.7 $ (15.7) $ 8.3 $ (7.0) $ (20.5)
======= ======= ======= ======= ======= =======
</TABLE>
At December 31, 1993, the projected benefit obligation related to health
and life insurance benefits for active employees was $53.6 million and for
retirees was $121.8 million.
F-12
<PAGE> 112
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted-average annual assumed rate of increase in the health care
cost trend rate is 10% for 1994 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,
1993, by $14.5 million and the annual postretirement cost by $1.9 million.
At December 31, 1993, the Company recognized an additional minimum
liability amounting to $19 million for certain plans, which is reflected in the
reserve for postretirement benefits. The minimum liability is the excess of the
accumulated obligation over plan assets and book reserves. In addition, the
Company has offset the additional liability by recording an intangible asset of
$13.4 million, to the extent of unrecognized prior service cost, and a charge to
stockholder's equity of $5.6 million.
The projected benefit obligation for postretirement benefits was determined
using the assumptions in the following table:
<TABLE>
<CAPTION>
1992 1993
---------------------- ----------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Discount rate......................... 8.50% 7.00%-10.00% 7.25% 4.50%-8.50%
Long-term rate of inflation........... 4.50% 2.50%-6.00% 2.80% .50%-5.00%
Merit and promotional increase........ 1.70% 2.00% 1.70% 1.50%
Rate of return on plan assets......... 8.75% 7.25%-10.25% 8.75% 6.25%-9.50%
</TABLE>
Postretirement cost had the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1991 1992 1993
---------------------- --------------------- ---------------------
HEALTH & HEALTH & HEALTH &
PENSION LIFE INS. PENSION LIFE INS. PENSION LIFE INS.
BENEFITS BENEFITS* BENEFITS BENEFITS BENEFITS BENEFITS
-------- ---------- -------- --------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits earned during
the period....................... $ 20.7 $ 2.6 $ 21.7 $ 3.0 $ 20.1 $ 3.4
Interest cost on the projected
benefit obligation............... 49.2 12.6 50.4 13.7 50.6 14.1
Less assumed return on plan assets:
Actual return on plan assets..... (71.3) -- (35.7) -- (78.8) --
Excess (shortfall) deferred...... 33.2 -- (2.6) -- 42.9 --
------ ------ ------ ----- ------ -----
(38.1) -- (38.3) -- (35.9) --
Other, incl. amortization of prior
service cost..................... .6 -- 1.6 -- 2.7 .3
------ ------ ------ ----- ------ -----
Defined benefit plan cost.......... $ 32.4 $ 15.2 $ 35.4 $16.7 $ 37.5 $17.8
====== ====== ====== ===== ====== =====
Accretion expense reclassified to
"other expense".................. $ 15.3 $ 12.6 $ 16.1 $13.7 $ 16.4 $14.1
====== ====== ====== ===== ====== =====
</TABLE>
- ---------------
* Excludes the cumulative effect of adoption of FAS 106 of $39.7 million.
F-13
<PAGE> 113
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total postretirement costs were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1991 1992 1993
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Pension benefits........................................... $32.4 $35.4 $37.5
Health and life insurance benefits......................... 15.2 16.7 17.8
----- ----- -----
Defined benefit plan cost.................................. 47.6 52.1 55.3
Defined contribution plan cost(a).......................... 20.0 20.4 22.4
----- ----- -----
Total postretirement cost, including accretion expense..... $67.6 $72.5 $77.7
===== ===== =====
</TABLE>
- ---------------
(a) Principally ESOP cost.
NOTE 4. OTHER EXPENSE
Other income (expense) was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1991 1992 1993
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Interest income........................................ $ 8.3 $ 8.7 $ 8.5
Royalties.............................................. 2.5 3.8 2.6
Equity in net income (loss) of affiliated companies.... 10.2 4.9 (0.1)
Minority interest...................................... (3.1) (9.8) (14.0)
Accretion expense...................................... (27.9) (29.8) (30.5)
Other, net............................................. 1.9 (2.5) (4.8)
------ ------ ------
$ (8.1) $(24.7) $(38.3)
====== ====== ======
</TABLE>
The decrease in equity in net income of affiliated companies and the
increase in minority interest in 1993 and 1992 compared with 1991 were primarily
the result of consolidation of the plumbing companies in Thailand, the People's
Republic of China, and Incesa, previously unconsolidated joint ventures.
F-14
<PAGE> 114
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. INCOME TAXES
The Company's loss before income taxes, extraordinary loss, and cumulative
effects of changes in accounting methods ("pre-tax income (loss)") and the
applicable provision (benefit) for income taxes were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1991 1992 1993
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Pre-tax income (loss):
Domestic.......................................... $(272.6) $(170.1) $(223.2)
Foreign........................................... 184.8 117.5 142.7
------- ------- -------
Pre-tax loss.............................. (87.8) (52.6) (80.5)
Provision (benefit) for income taxes:
Current:
Domestic....................................... 5.1 5.1 12.4
Foreign........................................ 71.3 63.0 43.0
------- ------- -------
76.4 68.1 55.4
Deferred:
Domestic....................................... (52.4) (35.8) 1.1
Foreign........................................ (1.0) (27.6) (20.3)
------- ------- -------
(53.4) (63.4) (19.2)
------- ------- -------
Total provision........................... $ 23.0 $ 4.7 $ 36.2
======== ======== ========
</TABLE>
A reconciliation between the actual income tax expense provided and the
income tax benefit computed by applying the statutory federal income tax rate of
35% in 1993 and 34% in 1992 and 1991 to the pre-tax loss is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1991 1992 1993
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Tax benefit at statutory rate.......................... $(29.9) $(17.9) $(28.2)
Nondeductible goodwill charged to operations........... 10.6 10.5 10.4
Nondeductible goodwill related to operations sold...... 25.1* --
Nondeductible ESOP allocations......................... 4.6 4.9 6.1
Rate differences and withholding taxes related to
foreign operations................................... 4.7 1.4 9.0
Foreign exchange gains................................. (2.1) (6.3) (7.0)
State tax benefits..................................... (3.4) (3.3) (5.5)
Other, net............................................. 5.6 5.5 8.7
Increase in valuation allowance........................ 7.8 9.9 42.7
------ ------ ------
Total provision........................................ $ 23.0 $ 4.7 $ 36.2
====== ====== ======
</TABLE>
- ---------------
* Includes goodwill eliminated in the sale of Tyler Refrigeration.
In addition to the 1993 valuation allowance increase of $42.7 million shown
above, a valuation allowance of $32.1 million was also provided for the entire
amount of the tax benefit related to the
F-15
<PAGE> 115
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
extraordinary loss on retirement of debt (see Note 8 of Notes to Consolidated
Financial Statements).
The following table details the gross deferred liabilities and the gross
deferred tax assets and the related valuation allowances.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------
1992 1993
---- ----
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Facilities (accelerated depreciation, capitalized interest and
purchase accounting differences)........................... $ 154.1 $ 141.1
Inventory (LIFO and purchase accounting differences).......... 30.3 18.5
Employee benefits............................................. 6.6 11.0
Foreign investments........................................... 48.8 50.1
Other......................................................... 26.6 26.2
------- -------
266.4 246.9
------- -------
Deferred tax assets:............................................
Employee benefits (pensions and other postretirement
benefits).................................................. 97.7 110.7
Warranties.................................................... 30.0 37.4
Alternative minimum tax....................................... 21.8 19.4
Foreign tax credits and net operating losses.................. 42.3 57.5
Reserves...................................................... 45.1 58.7
Other......................................................... 18.5 46.0
Valuation allowances.......................................... (29.1) (103.9)
------- -------
226.3 225.8
------- -------
Net deferred tax liabilities.................................. $ 40.1 $ 21.1
======= =======
</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. 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 Acquisition (see Note 1) and 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 $79 million, $56 million, and $41 million in the years
1991, 1992, 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
F-16
<PAGE> 116
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
treatment of certain significant matters. The Company has paid approximately $20
million of a disputed German income tax. A suit is pending to obtain a refund of
this tax. The Company anticipates that the German tax authorities may propose
other adjustments resulting in additional taxes of approximately $105 million
(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 the possible adjustments referred to above occurred in years
subsequent to 1990. If the German tax authorities should propose adjustments for
the 1988-1990 period, they might, after future tax audits, propose tax
adjustments that are comparable for years 1991 to 1993. The Company, on the
basis of the opinion of German legal counsel, believes the 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 had not recorded any loss contingency at
December 31, 1993 with respect to such matters.
Under German tax law, if an assessment is made for the years presently
under audit, the authorities may demand immediate payment of the amount assessed
prior to final resolution of the issues. The Company however, believes, on the
basis of opinion of German 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 will be able to make such
payment from available sources of liquidity or credit support but that future
cash flows and capital expenditures and therefore subsequent results of
operations for any particular quarterly or annual period could be adversely
affected.
As a result of recent changes in German tax legislation, the Company's tax
provisions in 1994 and thereafter will be higher in Germany. As a result of this
German tax legislation and the related additional tax provisions, the Company
believes its exposure to the issues under the audit referred to above will be
reduced for 1994 and future years.
NOTE 6. INVENTORIES
The components of inventory are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1992 1993
------- -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Finished products.............................................. $200.6 $169.0
Products in process............................................ 95.8 78.0
Raw materials.................................................. 88.5 78.8
------ ------
Inventory at cost............................................ $384.9 $325.8
====== ======
</TABLE>
The carrying cost of inventories approximates current cost as a result of
purchase accounting adjustments being offset by LIFO reserves.
F-17
<PAGE> 117
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. FACILITIES
The components of facilities, at cost, are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1992 1993
---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Land.......................................................... $ 65.0 $ 66.2
Buildings..................................................... 310.2 314.6
Machinery and equipment....................................... 719.4 739.9
Improvements in progress...................................... 45.6 54.4
--------- ---------
Gross facilities.............................................. 1,140.2 1,175.1
Less: accumulated depreciation................................ 307.4 354.6
--------- ---------
Net facilities................................................ $ 832.8 $ 820.5
========= =========
</TABLE>
NOTE 8. DEBT
The 1993 Refinancing
In July 1993 the Company completed a refinancing (the "1993 Refinancing")
that included (a) the issuance of $200 million principal amount of 9 7/8% Senior
Subordinated Notes Due 2001; (b) the issuance of approximately $751 million
principal amount of 10 1/2% Senior Subordinated Discount Debentures Due 2005,
which yielded proceeds of approximately $450 million; (c) the amendment and
restatement of the Company's 1988 Credit Agreement (the "1988 Credit Agreement"
and as so amended and restated, the "Existing Credit Agreement") to establish a
$1 billion secured, multi-currency, multi-borrower credit facility; and (d) the
application of the proceeds of such issuances and such borrowings as follows:
(i) the redemption on July 1, 1993, of all of the outstanding 12 7/8% Senior
Subordinated Debentures Due 2000 (the "12 7/8% Senior Subordinated Debentures")
at a redemption price of 104.83% ($571.3 million), (ii) the redemption on July
2, 1993, of a majority of the outstanding 14 1/4% Subordinated Discount
Debentures Due 2003 (the "14 1/4% Subordinated Discount Debentures") at a
redemption price of 105% ($389.5 million), (iii) the refunding of bank
borrowings ($405 million of term loans and $77 million of other bank debt
including revolving credit debt), (iv) the refunding of letters of credit ($58
million), and (v) payment of related fees and expenses.
The Existing Credit Agreement provided to American Standard Inc. and
certain subsidiaries (the "Borrowers") a $1 billion facility as follows: (a) a
$250 million multi-currency revolving credit facility (the "Revolving Credit
Facility") available to all Borrowers, which expires in 2000; (b) a $225 million
multi-currency periodic access facility (the "Periodic Access Facility")
available to all Borrowers, which expires in 2000; and (c) three term loan
facilities (the "Term Loans") consisting of a $225 million U.S. dollar facility
("Tranche A") available to American Standard Inc., which expires in 2000; a $200
million Deutschemark facility ("Tranche B") available to a German subsidiary,
which expires in 1997; and a $100 million U.S. dollar facility ("Tranche C")
available to all Borrowers, which expires in 1999. In August 1993 the Company
repaid $50 million and the amount available under the Existing Credit Agreement
by its terms was reduced to $950 million.
Borrowings under the Periodic Access Facility and the Term Loans generally
bear interest at the London interbank offered rate ("LIBOR") plus 2 1/2% except
for the $225 million U.S. dollar facility, which bears interest at LIBOR plus
3%, and the $200 million Deutschemark facility, which bears
F-18
<PAGE> 118
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest at LIBOR plus 2%. The Company pays a commitment fee of 0.5% per annum
on the unused portion of the Revolving Credit Facility and a fee of 2.5% plus
issuance fees for letters of credit.
As a result of the 1993 Refinancing, results for the year ended December
31, 1993, included an extraordinary charge of $92 million related to the debt
retired (including call premiums, the write-off of deferred debt issuance costs,
and loss on cancellation of foreign currency swap contracts) on which there was
no tax benefit (see Note 5).
Short-term
The Revolving Credit Facility (the "Revolver") provides for aggregate
borrowings of up to $250 million for working capital purposes, 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 ("Swingline Loans"). At
December 31, 1993, there were $7 million of borrowings outstanding under the
Revolver and $66 million of letters of credit. Availability under the Revolver
at December 31, 1993, was $177 million. Average borrowings under this facility
and under the revolving credit facility available under the previous 1988 Credit
Agreement for 1993, 1992, and 1991 were $39 million, $14 million, and $44
million, respectively. The Revolver and the Swingline Loans bear interest at the
prime rate plus 1 1/2% or LIBOR plus 2 1/2%.
The Company is required to reduce to $50 million the amount of borrowings
outstanding under the Revolver for at least 30 consecutive days in each 12-month
period ending May 31. In December 1993 the Company met this requirement for the
12-month period ending May 31, 1994. Commencing August 31, 1994, the Revolver is
reduced by $8.3 million annually, with a final maturity on June 1, 2000. In
addition, the Company is required to repay the full amount of each of its
outstanding revolving loans at the end of each interest period (a maximum of six
months). The Company may, however, immediately reborrow such amounts subject to
compliance with applicable conditions of the Existing Credit Agreement.
Other short-term borrowings are available outside the United States under
informal credit facilities and are typically a result of overdrafts. At December
31, 1993, the Company had $31 million of such foreign short-term debt
outstanding at an average interest rate of 11% per annum. The Company also had
an additional $50 million of unused foreign facilities. These facilities may be
withdrawn by the banks at any time.
F-19
<PAGE> 119
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term
Long-term debt was as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1992 1993
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Existing Credit Agreement................................... $ -- $ 689.9
1988 Credit Agreement....................................... 402.3 --
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
10 1/2% senior subordinated discount debentures (net of
unamortized discount of $272.9 million in 1993) due in
installments from 2003
to 2005................................................... -- 477.8
12 7/8% senior subordinated debentures...................... 545.0 --
14 1/4% subordinated discount debentures (net of unamortized
discount of $36.3 million in 1992) due in installments
from 2002 to 2003......................................... 509.5 175.0
Other long-term debt........................................ 53.3 63.1
12 3/4% junior subordinated debentures due in installments
from 2001
to 2003 (Note 9).......................................... -- 141.8
Foreign currency swap contracts............................. (14.6) --
-------- --------
2,045.5 2,297.6
Less current maturities..................................... 13.4 105.9
-------- --------
$2,032.1 $2,191.7
======== ========
</TABLE>
The amounts of long-term debt maturing from 1995 through 1998 are:
1995-$126.3 million, 1996-$123.5 million, 1997-$121.2 million, 1998-$117.5
million.
Interest costs capitalized as part of the cost of constructing facilities
for the years ended December 31, 1991, 1992, and 1993, were $3.6 million, $3.1
million, and $2.7 million, respectively. Cash interest paid for those same years
on all outstanding indebtedness amounted to $224 million, $210 million, and $198
million, respectively.
F-20
<PAGE> 120
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Existing Credit Agreement loans, maturities, and effective weighted average
interest rates in effect at December 31, 1993, were as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR
EQUIVALENT
-----------
(IN MILLIONS)
<S> <C>
Periodic Access Facility, due in semi-annual installments from February
1994 to February 2000:
British sterling loans at 7.85%....................................... $ 95.8
Deutschemark loans at 9.06%........................................... 49.4
Canadian dollar loans at 6.50%........................................ 20.2
French franc loans at 9.17%........................................... 18.5
Italian lira loans at 12.19%.......................................... 8.7
-------
Total Periodic Access loans................................... 192.6
-------
Term Loans:
Tranche A U.S. dollar loans, due in semi-annual installments from
August 1997 to February 2000 at 6.50%.............................. 225.0
Tranche B Deutschemark loans, due in semi-annual installments from
February 1994 to February 1997 at 7.88%............................ 172.3
Tranche C U.S. dollar loans, due in semi-annual installments from
February 1994 to August 1999 at 6.01%.............................. 100.0
-------
Total Term Loans.............................................. 497.3
-------
Total Credit Agreement long-term loans.................................. 689.9
Revolver loans at 7.5%.................................................. 7.0
-------
Total Credit Agreement loans.................................. $ 696.9
=======
</TABLE>
Under the 1988 Credit Agreement the various term loans and effective
weighted average interest rates in effect at December 31, 1992, were as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR
EQUIVALENT
-----------
(IN MILLIONS)
<S> <C>
Deutschemark loans at 11.4%............................................. $ 249.8
Canadian dollar loans at 13.05%......................................... 152.5
-------
Total......................................................... $ 402.3
=======
</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 9 7/8% 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 Existing Credit Agreement and 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").
F-21
<PAGE> 121
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 9 1/4% Sinking Fund Debentures are redeemable at the Company's option,
in whole or in part, at redemption prices declining from 105.55% in 1994 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.
The 14 1/4% Subordinated Discount Debentures are redeemable at the
Company's option, in whole or in part, at redemption prices of 105% prior to
June 30, 1994, declining to 100% on and after June 30, 1995. The payment of the
principal and interest on the 14 1/4% Subordinated Discount Debentures issued by
the Company in 1988 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 Existing Credit Agreement, the Senior
Securities, and the Senior Subordinated Debt. The 14 1/4% Subordinated Discount
Debentures rank senior to the 12 3/4% Junior Subordinated Debentures (described
below).
The 12 3/4% Junior Subordinated Debentures may be redeemed, at the
Company's option, in whole or in part at a redemption price of 101.8% prior to
June 30, 1994, and at 100% thereafter. The payment of principal and interest on
the 12 3/4% Junior Subordinated Debentures 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 Existing Credit Agreement,
the Senior Securities, the Senior Subordinated Debt, and the 14 1/4%
Subordinated Discount Debentures.
Obligations under the Existing Credit Agreement are guaranteed by the
Company, 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 Existing Credit Agreement and certain related
indebtedness.
The Senior Subordinated Debt, the 14 1/4% Subordinated Discount Debentures,
and the 12 3/4% Junior Subordinated Debentures are unsecured.
The Existing Credit Agreement contains various covenants that limit, among
other things, indebtedness, dividends on and redemption of capital stock of the
Company, purchases and redemptions of other indebtedness of the Company
(including its outstanding debentures and notes), rental expense, liens, capital
expenditures, investments or acquisitions, disposal of assets, the use of
proceeds from asset sales, and certain other business activities and require the
Company to meet certain financial tests. In order to maintain compliance with
the covenants and restrictions contained in the 1988 Credit Agreement, the
Company from time to time has had to obtain waivers and amendments. In February
1994 the Company obtained an amendment to the Existing Credit Agreement that
among other things relaxed certain financial tests and covenants and facilitated
the investment in an air conditioning joint venture and the formation of a
holding company to establish joint ventures in the People's Republic of China
for the manufacture and sale of plumbing products. The Company currently
believes it will comply with the amended financial tests and covenants but may
have to obtain similar waivers or amendments in the future.
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,
F-22
<PAGE> 122
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
NOTE 9. EXCHANGE OF EXCHANGEABLE PREFERRED STOCK
On June 30, 1993, in exchange for all of the Company's outstanding shares
of 12 3/4% Exchangeable Preferred Stock, the Company issued $141.8 million of
12 3/4% Junior Subordinated Debentures Due 2003 to the holder of the
Exchangeable Preferred Stock. Those debentures were sold by the holder in a
registered public offering in August 1993. The Company received none of the
proceeds of this offering.
NOTE 10. FOREIGN CURRENCY TRANSLATION
Assets and liabilities of most foreign operations are translated at
year-end rates of exchange, and the resulting gains or losses, net of income tax
effects, are accumulated in a separate component of stockholder's equity.
Changes in exchange rates which gave rise to significant translation
effects included in stockholder's equity for the years ended December 31, 1991,
1992, and 1993, are summarized in the accompanying table.
<TABLE>
<CAPTION>
CHANGE IN END OF
PERIOD EXCHANGE RATE
---------------------------
1991 1992 1993
----- ------ ------
<S> <C> <C> <C>
British sterling........................................ (3)% (19)% (2)%
Canadian dollar......................................... -- (9) (4)
French franc............................................ (2) (6) (6)
Deutschemark............................................ (1) (6) (7)
Italian lira............................................ (2) (22) (14)
===== ====== ======
Translation loss included in stockholder's equity, net
of tax (dollars in millions).......................... $(2.1) $(36.2) $(62.3)
===== ====== ======
</TABLE>
The allocation of purchase costs increased the net asset exposure of
foreign operations; however, since June 29, 1988, the date of the Merger, the
effects of exchange volatility have been ameliorated by the fact that a portion
of the Company's borrowings has been denominated in foreign currencies.
The losses from foreign currency transactions and translation from
operations in countries with high inflation rates reflected in expense were
$14.4 million in 1991, $19.3 million in 1992, and $21.9 million in 1993.
NOTE 11. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Values of Financial Instruments" ("FAS 107"), requires disclosure
information about all financial instruments of a company except certain excluded
instruments and instruments for which it is not practicable to estimate fair
value. The fair values presented below are estimates as of December 31, 1993,
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.
F-23
<PAGE> 123
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and certificates of deposit: The carrying amount reported in the
balance sheet for cash and certificates of deposit approximates its fair
value.
Long- and short-term debt: The fair values of the Company's Existing
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, subordinated discount debentures, the sinking fund debentures,
and the junior subordinated debentures are based on indicative market
quotes obtained from a major securities dealer. The fair values of other
loans approximate their carrying value.
The carrying amounts and estimated fair values of selected financial
instruments at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -----
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Existing Credit Agreement loans................................... $697 $ 679
10 7/8% Senior notes.............................................. 150 163
11 3/8% senior debentures......................................... 250 276
9 7/8% senior subordinated notes................................. 200 208
10 1/2% senior subordinated discount debentures................... 478 505
14 1/4% subordinated discount debentures.......................... 175 184
9 1/4% sinking fund debentures................................... 150 152
12 3/4% junior subordinated debentures............................ 142 143
Other loans....................................................... 63 63
</TABLE>
NOTE 12. RELATED PARTY TRANSACTIONS
The Company has agreed to pay Kelso an annual fee of $2.75 million for
providing management consulting and advisory services. In June 1993 American
Standard Inc. issued 1,000 shares of a new, non-voting Series A Preferred Stock,
par value $.01 per share, for $10,000 to an affiliate of Kelso & Company. The
Company is committed to contribute $5 million of capital to a Kelso limited
partnership. In addition, Tyler Refrigeration was sold to an affiliate of Kelso
in 1991.
NOTE 13. LEASES
The cumulative minimum rental commitments under the terms of all
noncancellable operating leases in effect at December 31, 1993, were $108
million. Net rental expenses for operating leases were $28 million, $32 million,
and $34 million for the years ended December 31, 1991, 1992, and 1993,
respectively.
NOTE 14. COMMITMENTS AND CONTINGENCIES
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 that the Company will incur costs from such
proceedings and the amounts can be reasonably determined the Company has
recorded
F-24
<PAGE> 124
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 15. SEGMENT DATA
Sales and operating income by geographic location for the years ended
December 31, 1991, 1992, and 1993, are shown on the following page. Identifiable
assets are also shown as at years ended 1991, 1992, and 1993. See "Business" for
a description of each business segment.
F-25
<PAGE> 125
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
SEGMENT DATA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
SALES
Air Conditioning Products........................................................... $1,836 $1,892 $2,100
Plumbing Products................................................................... 1,018 1,170 1,167
Transportation Products............................................................. 741 730 563
------ ------ ------
Total sales................................................................. $3,595 $3,792 $3,830
------ ------ ------
Geographic distribution:
United States..................................................................... $1,890 $1,877 $2,096
Europe............................................................................ 1,491 1,588 1,315
Other............................................................................. 317 392 483
Eliminations...................................................................... (103) (65) (64)
------ ------ ------
Total sales................................................................. $3,595 $3,792 $3,830
------ ------ ------
OPERATING INCOME
Air Conditioning Products........................................................... $ 55* $ 104 $ 133
Plumbing Products................................................................... 66 108 108
Transportation Products............................................................. 121 88 41
------ ------ ------
Total segment operating income.............................................. $ 242 $ 300 $ 282
------ ------ ------
Geographic distribution:
United States..................................................................... $ 13* $ 96 $ 125
Europe............................................................................ 206 180 118
Other............................................................................. 23 24 39
------ ------ ------
Total operating income...................................................... 242 300 282
Financing and corporate items....................................................... 330 352 363
Loss before income taxes, extraordinary loss, and cumulative effect of changes in
accounting methods................................................................ (88) (52) (81)
Income taxes........................................................................ 23 5 36
------ ------ ------
Loss before extraordinary loss and cumulative effect of changes in accounting
methods........................................................................... $ (111) $ (57) $ (117)
====== ====== ======
</TABLE>
- ---------------
* Includes $22 million loss on the sale of Tyler Refrigeration.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
ASSETS
Air Conditioning Products........................................................... $1,174 $1,156 $1,167
Plumbing Products................................................................... 1,069 1,002 960
Transportation Products............................................................. 828 722 652
------ ------ ------
Total identifiable assets................................................... $3,071 $2,880 $2,779
------ ------ ------
Geographic distribution:
United States..................................................................... $1,015 $1,016 $1,013
Europe............................................................................ 1,577 1,370 1,196
Other............................................................................. 479 494 570
------ ------ ------
Total identifiable assets................................................... 3,071 2,880 2,779
Prepaid charges................................................................... 37 51 78
Future income tax benefits........................................................ 8 33 25
Cash and certificates of deposit.................................................. 108 113 54
Corporate assets.................................................................. 46 49 51
------ ------ ------
Total assets................................................................ $3,270 $3,126 $2,987
====== ====== ======
CAPITAL EXPENDITURES
Air Conditioning Products......................................................... $ 46 $ 33 $ 38
Plumbing Products................................................................. 40 48 46
Transportation Products........................................................... 24 27 14
------ ------ ------
Total segment capital expenditures.......................................... $ 110 $ 108 $ 98
====== ====== ======
DEPRECIATION AND AMORTIZATION
Air Conditioning Products......................................................... $ 56 $ 55 $ 53
Plumbing Products................................................................. 48 49 49
Transportation Products........................................................... 34 37 35
------ ------ ------
Total segment depreciation and amortization................................. $ 138 $ 141 $ 137
====== ====== ======
</TABLE>
F-26
<PAGE> 126
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
QUARTERLY DATA
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1992
----------------------------------------
FIRST SECOND THIRD FOURTH
------ ------- ------ ------
<S> <C> <C> <C> <C>
Sales............................................... $901.0 $ 995.9 $980.9 $914.1
Cost of sales....................................... 672.0 734.1 742.2 703.9
Income (loss) before income taxes................... (8.1) 11.4 (16.5) (39.3)
Tax provision (benefit)............................. 5.5 9.2 (1.5) (8.5)
------ ------- ------ ------
Net income (loss)......................... $(13.6) $ 2.2 $(15.0) $(30.8)
====== ======== ====== ======
Per share:
Net loss.................................. $ (.30) $ (.03) $ (.32) $ (.60)
====== ======== ====== ======
Average number of common shares (thousands)......... 58,348 58,675 58,668 58,765
</TABLE>
<TABLE>
<CAPTION>
1993
----------------------------------------
FIRST SECOND THIRD FOURTH
------ ------- ------ ------
<S> <C> <C> <C> <C>
Sales............................................... $879.4 $ 995.5 $976.5 $979.1
Cost of sales....................................... 650.5 754.5 727.7 769.9
Income (loss) before income taxes and extraordinary
loss.............................................. (9.5) (28.2) 4.1 (46.9)
Tax provision....................................... 8.1 6.1 7.2 14.8
------ ------- ------ ------
Loss before extraordinary loss...................... (17.6) (34.3) (3.1) (61.7)
Extraordinary loss (Note 8)......................... -- (91.9) -- --
------ ------- ------ ------
Net loss.................................. $(17.6) $(126.2) $ (3.1) $(61.7)
====== ======== ====== ======
Per share:
Loss before extraordinary loss...................... $ (.37) $ (.65) $ (.05) $(1.04)
Extraordinary loss.................................. -- (1.55) -- --
------ ------- ------ ------
Net loss.................................. $ (.37) $ (2.20) $ (.05) $(1.04)
====== ======== ====== ======
Average number of common shares (thousands)......... 59,248 59,390 59,225 59,390
</TABLE>
F-27
<PAGE> 127
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
UNAUDITED SUMMARY STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1993 1994
-------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Sales.......................................................... $ 2,851.4 $ 3,308.9
----------- -----------
Cost and expenses
Cost of sales............................................. 2,132.7 2,487.1
Selling and administrative expenses....................... 511.9 569.5
Other expense............................................. 26.8 24.9
Interest expense.......................................... 213.6 194.3
----------- -----------
2,885.0 3,275.8
Income (loss) before income taxes and extraordinary loss....... (33.6) 33.1
Income taxes................................................... 21.4 46.7
----------- -----------
Loss before extraordinary loss................................. (55.0) (13.6)
Extraordinary loss............................................. (91.9) --
----------- -----------
Net loss....................................................... (146.9) (13.6)
Preferred stock dividend....................................... (8.6) --
----------- -----------
Net loss applicable to common shares........................... $ (155.5) $ (13.6)
=========== ===========
Loss per common share:
Loss before extraordinary loss............................ $ (1.07) $ (.23)
Extraordinary loss........................................ (1.55) --
----------- -----------
Net loss per common share................................. $ (2.62) $ (.23)
=========== ===========
Average number of outstanding shares and equivalents........... 59,287,348 59,911,525
</TABLE>
See accompanying notes.
F-28
<PAGE> 128
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
UNAUDITED SUMMARY BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
(DOLLARS IN
MILLIONS)
ASSETS
Current Assets
Cash and certificates of deposit........................................... $ 62.9
Accounts receivable........................................................ 649.6
Inventories
Finished products....................................................... 237.6
Products in process..................................................... 88.0
Raw materials........................................................... 94.9
---------
420.5
Other current assets....................................................... 59.5
---------
Total Current Assets.................................................. 1,192.5
Facilities, less accumulated depreciation of $429.6.......................... 800.6
Goodwill..................................................................... 1,073.8
Other Assets................................................................. 213.8
---------
$ 3,280.7
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Loans payable to banks..................................................... $ 100.0
Current maturities of long-term debt....................................... 130.1
Accounts payable........................................................... 304.2
Accrued payrolls........................................................... 157.5
Other accrued liabilities.................................................. 363.5
Taxes on income............................................................ 36.5
---------
Total Current Liabilities............................................. 1,091.8
Long-Term Debt............................................................... 2,144.8
Other Liabilities............................................................ 734.0
---------
Total Liabilities..................................................... 3,970.6
Commitments and Contingencies
Stockholders' Deficit
Common stock $.01 par value, 200,000,000 shares authorized; 61,062,078
shares issued and outstanding in 1994................................... .6
Capital surplus............................................................ 196.6
Subscriptions receivable................................................... (2.1)
ESOP shares................................................................ (.4)
Accumulated deficit........................................................ (763.6)
Foreign currency translation effects....................................... (115.4)
Minimum pension liability adjustment....................................... (5.6)
---------
Total Stockholders' Deficit........................................... (689.9)
---------
$ 3,280.7
=========
</TABLE>
See accompanying notes.
F-29
<PAGE> 129
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
UNAUDITED SUMMARY STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1993 1994
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities:
Income-related:
Net loss before extraordinary loss..................................... $ (55.0) $ (13.6)
Depreciation and asset loss provisions................................. 81.0 95.3
Amortization of goodwill............................................... 23.2 23.4
Non-cash interest...................................................... 52.0 39.5
Accrued interest....................................................... 36.6 31.5
Amortization of debt issuance costs.................................... 8.4 11.0
Non-cash stock compensation............................................ 19.0 21.0
Changes in working capital invested in operations........................ (88.5) (128.4)
Timing differences in funding............................................ (3.3) 47.7
-------- --------
Net cash flow provided by operating activities............................. 73.4 127.4
-------- --------
Investing activities:
Purchase of property, plant and equipment................................ (46.3) (50.3)
Investment in affiliated companies....................................... (8.1) (12.9)
Proceeds from disposals of property, plant and equipment................. 2.1 11.1
Other.................................................................... 4.5 (2.1)
-------- --------
Net cash used by investing activities...................................... (47.8) (54.2)
-------- --------
Financing activities:
Proceeds from issuance of senior securities.............................. 650.0 --
Proceeds from term loans................................................. 750.0 --
Repayment of term loans.................................................. (454.6) (101.3)
Repayment of senior securities........................................... (915.9) --
Premiums on redemption of senior securities.............................. (44.9) --
Net revolver borrowings.................................................. 91.4 62.5
Net decrease in short-term debt.......................................... (54.6) (12.8)
Proceeds from other long-term debt....................................... 3.6 9.3
Repayments of other long-term debt....................................... (11.5) (16.6)
Common stock repurchases................................................. (3.6) (4.3)
ESOP stock repurchases................................................... (3.3) (3.7)
Repayment of stock subscriptions receivable.............................. .4 .4
Other financing costs.................................................... (77.0) --
-------- --------
Net cash used by financing activities...................................... (70.0) (66.5)
-------- --------
Decrease in cash and certificates of deposit excluding translation
effects.................................................................. (44.4) 6.7
Effect of exchange rate changes on cash and certificates of deposit........ (2.6) 3.0
-------- --------
Net decrease in cash and certificates of deposit........................... (47.0) 9.7
Cash and certificates of deposit at beginning of period.................... 111.5 53.2
-------- --------
Cash and certificates of deposit at end of period.......................... $ 64.5 $ 62.9
======== ========
</TABLE>
See accompanying notes.
F-30
<PAGE> 130
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO SUMMARY FINANCIAL STATEMENTS
(1) The accompanying summary statement of operations of American Standard
Companies Inc. (the "Company") and subsidiaries for the nine months ended
September 30, 1993 and 1994 has not been audited, but management believes that
all adjustments, consisting of normal recurring items, necessary to a fair
statement for those periods have been included. Results for the first nine
months of 1994 are not necessarily indicative of results for the entire year.
Share amounts and per share data have been adjusted to reflect the 2.5 to 1
split effected in December 1994.
(2) Included in the nine months ended September 30, 1994, are charges of
$26 million related to employee severance ($20 million), the consolidation of
production facilities ($5 million) and the implementation of other cost
reduction actions ($1 million), and $14 million of reserves for losses on
operating assets expected to be disposed of prior to the expiration of their
originally estimated useful lives. Of such amounts $36 million was included in
cost of sales. Other than costs related to the consolidation of production
facilities which will be liquidated over several years, the charges will be paid
by June 30, 1995.
(3) As described in Note 5 of Notes to Consolidated Financial Statements
for the year ended December 31, 1993, there are pending German tax issues for
the years 1984 through 1990. There has been no significant change in the status
of these issues since December 31, 1993.
(4) On October 21, 1994, the Existing Credit Agreement was amended to
provide for an additional term loan of $325 million (the "October Borrowing") to
the Company, the proceeds of which will be applied to redeem on November 21,
1994, all of the $316.8 million in aggregate principal amount of the Company's
12 3/4% Junior Subordinated Debentures and 14 1/4% Subordinated Discount
Debentures and to pay redemption premiums of $4.4 million and debt issue costs
of $3.8 million. The Company will incur an extraordinary loss estimated to be
$8.7 million related to the redemptions of debt described above. The Company
entered into an interest rate swap agreement to fix the interest rate on the
October Borrowing at 8.94% for a period of 105 days commencing October 25, 1994.
(5) The Company has filed a registration statement pursuant to which it
plans to offer common stock to the public. If completed, the offering is
anticipated to provide gross proceeds to the Company of approximately $300
million (assuming no exercise of the Underwriters' over-allotment options). The
net proceeds of this offering would be used to reduce bank borrowings.
F-31
<PAGE> 131
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference.............................. 2
Available Information.................. 2
Prospectus Summary..................... 3
Certain Investment Considerations...... 10
The Company............................ 17
The Acquisition........................ 17
Use of Proceeds........................ 17
Dividend Policy........................ 18
Dilution............................... 19
Capitalization......................... 20
Pro Forma Financial Data............... 21
Selected Historical Consolidated
Financial Data....................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 26
Business............................... 44
Management............................. 58
Certain Transactions and
Relationships........................ 73
Security Ownership of Certain
Beneficial Owners.................... 75
Shares Eligible for Future Sale........ 76
Description of Capital Stock........... 78
Certain Indebtedness................... 85
Underwriting........................... 92
Legal Matters.......................... 94
Experts................................ 94
Index to Consolidated Financial
Statements and Supplementary Data.... F-1
</TABLE>
14,500,000 SHARES
AMERICAN STANDARD
COMPANIES INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------------
[AMERICAN STANDARD LOGO]
------------------------------
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
================================================================================
<PAGE> 132
APPENDIX TO ELECTRONIC FORMAT DOCUMENT
DESCRIPTION OF INSIDE FRONT COVER PICTURES
PICTURE 1 - TRANE XL 1200 RESIDENTIAL COOLING UNIT
PICTURE 2 - TRANE CENTRAVAC(R) CENTRIFUGAL CHILLER
PICTURE 3 - TRANE LIGHT COMMERICAL ROOFTOP HEATING AND COOLING UNIT
PICTURE 4 - TRANE TRACER SUMMIT(TM) BUILDING MANAGEMENT SYSTEM
PICTURE 5 - TRANE MODULAR CLIMATE CHANGER(R) AIR HANDLER
PICTURE 6 - TUB
PICTURE 7 - VITREOUS CHINA FIXTURE; SINK
PICTURE 8 - FAUCETS
PICTURE 9 - FAUCETS
PICTURE 10 - WABCO COMMERCIAL VEHICLE COMPONENTS
<PAGE> 133
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED JANUARY 31, 1995
14,500,000 SHARES
AMERICAN STANDARD COMPANIES INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
-------------------
Of the 14,500,000 shares of Common Stock offered, 4,500,000 shares are
being offered hereby in an international offering outside the United States and
10,000,000 shares are being offered in a concurrent United States offering. The
initial public offering price and the aggregate underwriting discount per share
are identical for both offerings (collectively, the "Offerings"). See
"Underwriting".
All of the shares of Common Stock offered are being issued and sold by the
Company. None of the Company's current stockholders, including Kelso ASI
Partners, L.P., ("ASI Partners") the Company's majority stockholder, the
American-Standard Employee Stock Ownership Plan or management stockholders, will
sell any Common Stock in the Offerings. Upon completion of the Offerings, ASI
Partners will own approximately 60% of the outstanding Common Stock and will
retain the power to elect a majority of the Company's directors and thereby to
determine the Company's corporate policies.
Prior to the Offerings, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price per share will be between $19 and $22. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "CERTAIN INVESTMENT CONSIDERATIONS" FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been authorized for listing on the New York Stock
Exchange, subject to official notice of issuance.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
---------------------------------------------------------------
<S> <C> <C> <C>
Per Share................ $ $ $
Total(3)................. $ $ $
</TABLE>
- ------------
(1) The Company and American Standard Inc. have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $2,900,000 payable by the Company.
(3) The Company has granted the International Underwriters an option for 30 days
after the date of this Prospectus to purchase up to an additional 675,000
shares at the initial public offering price per share, less the underwriting
discount, solely to cover over-allotments. Additionally, an over-allotment
option on 1,500,000 shares has been granted by the Company as part of the
United States offering. If such options are exercised in full, the total
initial public offering price, underwriting discount and proceeds to the
Company will be $ , $ and $ , respectively. See
"Underwriting".
-------------------
The shares offered hereby are offered severally by the International
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that certificates for the shares will be ready for delivery in New York, New
York, on or about February , 1995.
GOLDMAN SACHS INTERNATIONAL S.G.WARBURG SECURITIES
CS FIRST BOSTON LIMITED MORGAN STANLEY & CO.
INTERNATIONAL
------------------------
The date of this Prospectus is February , 1995.
<PAGE> 134
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
American Standard Companies Inc. (formerly named ASI Holding Corporation)
(the "Company") has filed with the Securities and Exchange Commission (the
"Commission"), pursuant to Section 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), an Annual Report on Form 10-K for the year
ended December 31, 1993 (the "1993 10-K"), Quarterly Reports on Form 10-Q for
the fiscal quarters ended March 31, June 30 and September 30, 1994 and an
amended Quarterly Report on Form 10-Q/A for the fiscal quarter ended March 31,
1994 (the "1994 10-Qs") and a Current Report on Form 8-K, dated November 10,
1994 (the "8-K"), which are hereby incorporated by reference in and made a part
of this Prospectus (to the extent not superseded hereby).
Any statements contained in the 1993 10-K, the 1994 10-Qs or the 8-K shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The 1993 10-K, the 1994 10-Qs and the 8-K, without exhibits, are available
without charge upon request directed to: Office of the Secretary, American
Standard Companies Inc., One Centennial Avenue, P.O. Box 6820, Piscataway, NJ
08855-6820 ((908) 980-6000).
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-2 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares (the "Shares") of its common
stock, par value $.01 per share (the "Common Stock") offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
items of which are contained in schedules and exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete; with respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. Items of information omitted from
this Prospectus but contained in the Registration Statement may be inspected and
copied without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549
and at the following regional offices of the Commission: 14th Floor, 500 West
Madison Street, Chicago, Illinois 60661; and 7 World Trade Center, New York, New
York 10048. Copies of such material can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates.
The Company complies with the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Commission. All such information may be inspected and copied at the public
reference facilities maintained by the Commission at the locations referred to
above. The Common Stock has been authorized for listing on the New York Stock
Exchange (the "NYSE") subject to official notice of issuance, and copies of such
material will also be available for inspection at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
------------------------
This Prospectus does not constitute an offer to sell or the solicitation of
an offer to buy the Shares in any jurisdiction in which such offer or
solicitation is unlawful. There are restrictions on the offer and sale of the
Shares in the United Kingdom. All applicable provisions of the Financial
Services Act 1986 and the Companies Act 1985 with respect to anything done by
any person in relation to the Shares in, from, or otherwise involving the United
Kingdom must be complied with. See "Underwriting".
In this Prospectus, reference to "dollars", "U.S.$" and $ are United States
dollars.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 135
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
(ii) failure by American Standard Inc. to comply with the covenants contained in
the relevant indenture; (iii) failure by American Standard Inc. to comply with
its obligations under any "Successor Corporation" section, if contained in the
relevant indenture; (iv) failure by American Standard Inc. or certain of its
subsidiaries to pay their respective indebtedness within any applicable grace
period after final maturity or acceleration of such indebtedness because of a
default, where the total amount of debt unpaid or accelerated exceeds a
specified amount ranging from $10 million to $25 million (as set forth in the
relevant indenture); (v) failure of certain subsidiaries to pay their respective
indebtedness within any applicable grace period after final maturity or
acceleration of such indebtedness because of a default, where the total amount
unpaid or accelerated exceeds $50 million; (vi) certain events of bankruptcy,
insolvency or reorganization of American Standard Inc. or certain of its
subsidiaries; and (vii) any judgment or decree for the payment of money in
excess of $25 million (to the extent not covered by insurance or a bond) being
rendered against American Standard Inc. or certain of its subsidiaries, which
judgment or decree is not discharged, waived or the execution thereof stayed
within a period of 60 days.
CERTAIN UNITED STATES TAX
CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain United States Federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a person other than (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or of any State or (iii) an
estate or trust whose income is includable in gross income for United States
Federal income tax purposes regardless of its source (referred to hereafter as a
"non-U.S. holder").
The discussion is based on provisions of the Internal Revenue Code of 1986,
as amended (the "Code") and administrative and judicial interpretations as of
the date hereof, all of which are subject to change, possibly with retroactive
effect. Furthermore, this discussion does not consider specific facts and
circumstances that may be relevant to a particular holder's tax position.
Prospective purchasers are urged to consult a tax adviser with respect to the
United States Federal income and estate tax consequences of owning and disposing
of Common Stock, as well as any tax consequences under the laws of any other
taxing jurisdiction.
INCOME TAX
DIVIDENDS. Generally, dividends paid to a non-U.S. holder of Common Stock
will be subject to U.S. Federal income tax. Except in the case of dividends that
are effectively connected with the holder's conduct of a trade or business
within the United States, this tax is imposed and withheld at the rate of 30% of
the amount of the dividend, unless reduced by an applicable income tax treaty.
Currently, dividends paid to an address in a foreign country are presumed to be
paid to a resident of such country in determining the applicability of a treaty
for such purposes. However, the Internal Revenue Service has issued proposed
regulations which, if adopted, would require a non-U.S. holder to provide
certain certifications under penalties of perjury in order to obtain treaty
benefits.
Except as may be otherwise provided in an applicable income tax treaty,
dividends which are effectively connected with the non-U.S. holder's conduct of
a trade or business within the United States are subject to tax at ordinary
Federal income tax rates, which tax is not collected by withholding (except as
described below under "Backup Withholding and Information Reporting"). All or
part of any effectively connected dividends received by a foreign corporation
may also, under certain circumstances, be subject to an additional "branch
profits" tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Non-U.S. holders of Common Stock must comply with
certain certification and disclosure requirements to claim an exception from
withholding under the rules described in this paragraph.
92
<PAGE> 136
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
A non-U.S. holder that is eligible for a reduced rate of U.S. withholding
tax pursuant to a tax treaty may obtain a refund of any excess amounts withheld
by filing an appropriate claim for refund with the United States Internal
Revenue Service.
DISPOSITION OF COMMON STOCK. Generally, non-U.S. holders will not be
subject to United States Federal income tax (or withholding thereof) in respect
of gain recognized on a disposition of Common Stock unless (i) the gain is
effectively connected with the non-U.S. holder's conduct of a trade or business
within the United States (in which case the "branch profits" tax described above
may also apply if the holder is a foreign corporation), (ii) in the case of a
non-U.S. holder who is a non-resident alien individual and holds the Common
Stock as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year of the sale and certain other conditions are met;
or (iii) the Company is or has been a "United States real property holding
corporation" for Federal income tax purposes (which the Company does not believe
it has been or is currently) and the non-U.S. holder has held directly or
constructively more than 5% of the outstanding Common Stock within the five-year
period ending on the date of the disposition.
ESTATE TAX
If an individual non-U.S. holder owns, or is treated as owning, Common
Stock at the time of his or her death, such stock would be subject to U.S.
Federal estate tax imposed on the estates of nonresident aliens, in the absence
of a contrary provision contained in any applicable tax treaty.
BACKUP WITHHOLDING AND INFORMATION REPORTING
DIVIDENDS. Generally, dividends paid on Common Stock to a non-U.S. holder
at an address outside the United States will be exempt from backup withholding
tax and U.S. information reporting requirements (but not from regular
withholding tax discussed above).
BROKER SALES. Payments of proceeds from the sale of Common Stock by a
non-U.S. holder made to or through a foreign office of a broker generally will
not be subject to information reporting or backup withholding. However, certain
foreign offices, including the foreign offices of a U.S. broker, are subject to
information reporting unless the holder certifies its non-U.S status under
penalties of perjury or otherwise establishes its entitlement to an exemption.
Payments of proceeds from the sale of Common Stock by a non-U.S. holder to or
through a U.S. office of a broker are currently subject to both information
reporting and backup withholding at a rate of 31% unless the holder certifies
its status as a non-U.S. holder under penalties of perjury or otherwise
establishes an exemption.
A non-U.S. holder may obtain a refund of any excess amounts withheld under
the backup withholding rules by filing the appropriate claim for refund with the
IRS.
93
<PAGE> 137
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions of the International Underwriting
Agreement, the Company has agreed to sell to each of the International
Underwriters named below, and each of such International Underwriters, for whom
Goldman Sachs International, S.G. Warburg Securities Ltd., CS First Boston
Limited, and Morgan Stanley & Co. International are acting as representatives,
has severally agreed to purchase from the Company, the respective number of
shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
INTERNATIONAL UNDERWRITERS COMMON STOCK
-------------------------- ------------
<S> <C>
Goldman Sachs International................................
S.G. Warburg Securities Ltd................................
CS First Boston Corporation Limited........................
Morgan Stanley & Co. International.........................
---------
Total............................................ 4,500,000
=========
</TABLE>
Under the terms and conditions of the International Underwriting Agreement,
the International Underwriters are committed to take and pay for all of the
Shares, if any are taken.
The International Underwriters propose to offer the Shares in part directly
to the public at the initial public offering price set forth on the cover page
of this Prospectus, and in part to certain securities dealers at such price less
a concession of $ per share. The International Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
to certain brokers and dealers. After the Shares are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the representatives.
The Company has entered into an underwriting agreement (the "U.S.
Underwriting Agreement") with the underwriters of the U.S. offering (the "U.S.
Underwriters") providing for the concurrent offer and sale of 10,000,000 Shares
in an offering in the United States. The offering price and aggregate
underwriting discounts and commissions per share for the two offerings are
identical. The closing of the offering made hereby is a condition to the closing
of the international offering, and vice versa. The representatives of the U.S.
Underwriters are Goldman Sachs & Co., CS First Boston, Morgan Stanley & Co.
Incorporated and Smith Barney Inc.
An affiliate of Smith Barney Inc. and an affiliate of CS First Boston
Corporation own indirect equity interests in ASI Partners which, after giving
effect to the Offerings, will own approximately 60% of the outstanding Common
Stock of the Company. Accordingly, the provisions of Schedule E to the By-Laws
of the National Association of Securities Dealers, Inc. apply to the Offerings,
and the initial public offering price can be no higher than that recommended by
a "qualified independent underwriter" meeting certain standards. In accordance
with this requirement, Goldman, Sachs & Co. has served in such role and has
recommended a price in compliance with the requirements of Schedule E. Goldman,
Sachs & Co. in its role as qualified independent underwriter has performed due
diligence investigations and reviewed and participated in the preparation of
this Prospectus and the Registration Statement of which this Prospectus forms a
part. The representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority except in accordance with Schedule E.
94
<PAGE> 138
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
In addition, an affiliate of Smith Barney Inc., affiliates of CS First Boston
Corporation and an affiliate of S.G. Warburg Securities Ltd. are investors in
investment funds sponsored by Kelso, which funds are not investors in the
Company.
Pursuant to an agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of the
U.S. Underwriters has agreed or will agree pursuant to the Agreement Between
that, as a part of the distribution of the Shares offered as part of the U.S.
Offering and subject to certain exceptions, it will offer, sell or deliver the
Shares offered as part of the U.S. Offering and other shares of Common Stock,
directly or indirectly, only in the United States of America (including the
States and the District of Columbia), its territories, its possessions and other
areas subject to its jurisdiction (the "United States") and to U.S. persons,
which term shall mean, for purposes of this paragraph: (a) any individual who is
a resident of the United States or (b) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase is
located in the United States. Each of the International Underwriters named
herein has agreed or will agree pursuant to the Agreement Between that, as a
part of the distribution of the Shares offered hereby, and subject to certain
exceptions, it will (i) not, directly or indirectly, offer, sell or deliver
shares of Common Stock (a) in the United States or to any U.S. persons or (b) to
any person whom it believes intends to reoffer, resell or deliver the shares in
the United States or to any U.S. persons, and (ii) cause any dealer to whom it
may sell such shares at any concession to agree to observe a similar
restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the International Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 675,000 additional shares of Common Stock to cover over-allotments,
if any, at the initial public offering price, less the underwriting discount, as
set forth in this Prospectus. If the International Underwriters exercise their
over-allotment option, the International Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the total number of shares. The International
Underwriters may exercise such option only to cover over-allotments in
connection with the sale of the shares. The Company has granted the U.S.
Underwriters an option exercisable for 30 days after the date of this Prospectus
to purchase up to an aggregate of 1,500,000 additional shares of Common Stock,
solely to cover over-allotments, at the initial public offering price less the
underwriting discount, as set forth on the cover page of this Prospectus.
At the Company's request, the Underwriters have agreed to make available
shares of Common Stock for sale at the initial public offering price to
officers, directors, employees and certain other persons associated with the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent that these persons purchase such shares.
Any such shares not purchased will be offered by the Underwriters to the general
public on the same basis as the other shares offered hereby.
The Company and certain existing stockholders (including ASI Partners) have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock for
a period of 180 days after the date of this Prospectus without the prior written
consent of the representatives of the Underwriters, except for the shares of
Common Stock offered in connection with the concurrent U.S. and international
offerings and shares of Common Stock issued pursuant to the Stock Plan. Such
consent may be provided without prior notice to holders of the Common Stock or
to the markets where such securities are traded.
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price was negotiated among American Standard
and the representatives of the U.S.
95
<PAGE> 139
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Underwriters and the International Underwriters. Among the factors considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, were the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
The Common Stock has been authorized for listing, subject to official
notice of issuance, on the New York Stock Exchange. In order to meet one of the
requirements for listing the Common Stock on the New York Stock Exchange, the
U.S. Underwriters have undertaken to sell lots of 100 or more shares to a
minimum of 2,000 beneficial holders.
The representatives of the Underwriters have in the past provided and may
continue to provide investment banking services to the Company and Kelso.
The Company and American Standard Inc. have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by Debevoise
& Plimpton, New York, New York. Debevoise & Plimpton also acts and may hereafter
act as counsel to Kelso and its affiliates, including ASI Partners. Certain
legal matters in connection with the Offerings will be passed upon for the
Underwriters by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1992 and 1993, and for each of the three years in the period ended December 31,
1993 appearing in this Prospectus and the Registration Statement and the
consolidated financial statements of the Company appearing in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein or included herein or incorporated herein by
reference, and have been so included or incorporated by reference in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
96
<PAGE> 140
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference.............................. 2
Available Information.................. 2
Prospectus Summary..................... 3
Certain Investment Considerations...... 10
The Company............................ 17
The Acquisition........................ 17
Use of Proceeds........................ 17
Dividend Policy........................ 18
Dilution............................... 19
Capitalization......................... 20
Pro Forma Financial Data............... 21
Selected Historical Consolidated
Financial Data....................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 26
Business............................... 44
Management............................. 58
Certain Transactions and
Relationships........................ 73
Security Ownership of Certain
Beneficial Owners.................... 75
Shares Eligible for Future Sale........ 76
Description of Capital Stock........... 78
Certain Indebtedness................... 85
Certain United States Tax Consequences
to Non-U.S. Holders.................. 92
Underwriting........................... 94
Legal Matters.......................... 96
Experts................................ 96
Index to Consolidated Financial
Statements and Supplementary Data.... F-1
</TABLE>
14,500,000 SHARES
AMERICAN STANDARD
COMPANIES INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------------
[AMERICAN STANDARD LOGO]
------------------------------
GOLDMAN SACHS INTERNATIONAL
S.G.WARBURG SECURITIES
CS FIRST BOSTON LIMITED
MORGAN STANLEY & CO.
INTERNATIONAL
REPRESENTATIVES OF THE UNDERWRITERS
================================================================================
<PAGE> 141
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration fee....................................................... $ 126,515
NASD fee............................................................... 30,500
NYSE listing fee....................................................... 300,000
Blue Sky fees and expenses............................................. 28,000
Transfer agent's fees.................................................. 10,000
Printing and engraving expenses........................................ 400,000
Legal fees and expenses................................................ 600,000
Accounting fees and expenses........................................... 400,000
Premium for directors and officers insurance........................... 200,000
Miscellaneous.......................................................... 804,985
----------
Total.............................................................. $2,900,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was illegal. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his duty. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.
In accordance with the Delaware Law, the Restated Certificate of
Incorporation of the Company contains a provision to limit the personal
liability of the directors for violations of their fiduciary duty. This
provision eliminates each director's liability to the Company or its respective
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware Law providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which a director derived an
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence.
Subsection (b) of Article EIGHTH of the Company's Restated Certificate of
Incorporation provides for indemnification of directors and officers as follows:
(b) The Corporation shall indemnify, to the fullest extent now or
hereafter permitted by the General Corporation Law of the State of
Delaware, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that he or she is or was or has agreed to become a
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<PAGE> 142
Director or officer of the Corporation, or is or was serving or has agreed
to serve at the request of the Corporation as a Director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
or by reason of any action alleged to be taken or omitted in such capacity,
and may to the same extent indemnify any person who was or is a party or is
threatened to be made a party to such an action, suit or proceeding by
reason of the fact that he or she is or was or has agreed to become an
employee or agent of the Corporation, or is or was serving or has agreed to
serve at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with such action, suit or proceeding or any appeal
therefrom.
Article VI of the Amended By-Laws of the Company provides for
indemnification of directors and officers as follows:
Section 6.1. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was or has agreed to become a Director or officer of the Corporation, or is or
was serving or has agreed to serve at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he is or was or has agreed to become an employee or agent of
the Corporation, or is or was serving or has agreed to serve at the request of
the Corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the Corporation to procure a judgment in
its favor (1) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (2) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 6.2. Successful Defense. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
6.1 hereof or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 6.3. Determination That Indemnification Is Proper. Any
indemnification of a Director or officer of the Corporation under Section 6.1
hereof (unless ordered by a court) shall be made by the Corporation unless a
determination is made that indemnification of the Director or officer is not
proper in the circumstances because he has not met the applicable standard of
conduct set forth in Section 6.1 hereof. Any indemnification of an employee or
agent of the Corporation under Section 6.1 hereof (unless ordered by a court)
may be made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 6.1 hereof. Any such
determination shall be made (1) by a majority vote of the Directors who are not
parties to
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<PAGE> 143
such action, suit or proceeding, even though less than a quorum, or (2) if there
are no such Directors, or if such Directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
Section 6.4. Advance Payment of Expenses. Expenses (including attorneys'
fees) incurred by a Director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate. The Board of Directors may authorize the Corporation's
counsel to represent such Director, officer, employee or agent in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding.
Section 6.5. Procedure for Indemnification of Directors and Officers. Any
indemnification of a Director or officer of the Corporation under Sections 6.1
and 6.2, or advance of costs, charges and expenses to a Director or officer
under Section 6.4 of this Article, shall be made promptly, and in any event
within 30 days, upon the written request of the Director or officer. If a
determination by the Corporation that the Director or officer is entitled to
indemnification pursuant to this Article is required, and the Corporation fails
to respond within sixty days to a written request for indemnity, the Corporation
shall be deemed to have approved such request. If the Corporation denies a
written request for indemnity or advancement of expenses, in whole or in part,
or if payment in full pursuant to such request is not made within 30 days, the
right to indemnification or advances as granted by this Article shall be
enforceable by the Director or officer in any court of competent jurisdiction.
Such person's costs and expenses incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
action shall also be indemnified by the Corporation. It shall be a defense to
any such action (other than an action brought to enforce a claim for the advance
of costs, charges and expenses under Section 6.4 of this Article where the
required undertaking, if any, has been received by the Corporation) that the
claimant has not met the standard of conduct set forth in Section 6.1 of this
Article, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors, its
independent legal counsel, and its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 6.1 of this Article, nor the fact that there has
been an actual determination by the Corporation (including its Board of
Directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 6.6. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the General Corporation Law of the State of Delaware are in
effect. Any repeal or modification of these indemnification provisions shall not
affect any right or obligation then existing with respect to any state of facts
then or previously existing or any action, suit or proceeding previously or
thereafter brought or threatened based in whole or in part upon any such state
of facts. Such a "contract right" may not be modified retroactively without the
consent of such Director, officer, employee or agent.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.7. Insurance. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
Director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him or on his behalf in any such
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<PAGE> 144
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article, provided that such insurance is available on
acceptable terms, which determination shall be made by a vote of a majority of
the entire Board of Directors.
Section 6.8. Severability. If this Article VI or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The File Number of American Standard Companies Inc., the Registrant, and
for all Exhibits incorporated by reference is 33-23070, except those Exhibits
incorporated by reference in filings made by American Standard Inc. ("American
Standard Inc.") whose File Number is 1-470.
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------
<C> <C> <S>
(1) Form of U.S. Underwriting Agreement.+
(3) (i) Form of Restated Certificate of Incorporation of American Standard Companies
Inc. (the "Company").
(ii) Form of Amended By-Laws of the Company.
(4) (i) Form of Common Stock Certificate.+
(ii) Indenture, dated as of November 1, 1986, between American Standard Inc. 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) by American Standard Inc. in its Form 10-K for the fiscal year ended
December 31, 1986, and herein incorporated by reference.
(iii) Instrument of Resignation, Appointment and Acceptance, dated as of April 25,
1988 among American Standard Inc., 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 described in (4)(ii) above; previously
filed as Exhibit (4)(ii) in Registration Statement No. 33-64450 of American
Standard Inc. under the Securities Act of 1933, as amended, and herein
incorporated by reference.
</TABLE>
<TABLE>
<C> <C> <S>
(iv) Indenture dated as of May 15, 1992, between American Standard Inc. and First
Trust National Association, Trustee, relating to American Standard Inc.'s
10 7/8% Senior Notes due 1999, in the aggregate principal amount of
$150,000,000; previously filed as Exhibit (4)(i) by American Standard Inc. in
its Form 10-Q for the quarter ended June 30, 1992, and herein incorporated by
reference.
(v) Form of 10 7/8% Senior Notes due 1999 included as Exhibit A to the Indenture
described in (4)(iv) above.
(vi) Indenture dated as of May 15, 1992, between American Standard Inc. and First
Trust National Association, Trustee, relating to American Standard Inc.'s
11 3/8% Senior Debentures due 2004, in the aggregate principal amount of
$250,000,000; previously filed as Exhibit (4)(iii) by American Standard Inc. in
its Form 10-Q for the quarter ended June 30, 1992, and herein incorporated by
reference.
</TABLE>
- ---------------
+ Previously filed
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<PAGE> 145
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------
<C> <C> <S>
(vii) Form of 11 3/8% Senior Debentures due 2004 included as Exhibit A to the
Indenture described in (4)(vi) above.
(viii) Form of Indenture, dated as of June 1, 1993, between American Standard Inc. and
United States Trust Company of New York, as Trustee, relating to American
Standard Inc.'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
American Standard Inc. under the Securities Act of 1933, as amended, and herein
incorporated by reference.
(ix) 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(viii) above.
(x) Form of Indenture, dated as of June 1, 1993, between American Standard Inc. and
United States Trust Company of New York, as Trustee, relating to American
Standard Inc.'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 American Standard Inc. under the Securities Act of
1933, as amended, and herein incorporated by reference.
(xi) 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 (x) above.
(xii) Assignment and Amendment Agreement, dated as of June 1, 1993, among American
Standard Inc., the Company, certain subsidiaries of American Standard Inc.,
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 American Standard Inc. under the Securities Act of
1933, as amended, and herein incorporated by reference.
(xiii) Credit Agreement, dated as of June 1, 1993, among American Standard Inc., the
Company, certain subsidiaries of American Standard Inc. 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 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; previously filed as Exhibit (4)(xiv)
in Amendment No. 1 to Registration Statement No. 33-64450 of American Standard
Inc. under the Securities Act of 1933, as amended, and herein incorporated by
reference.
(xiv) First Amendment, Consent and Waiver, dated as of February 10, 1994, to the
Credit Agreement referred to in paragraph (4)(xiii) above; previously filed as
Exhibit (4)(xvii) by American Standard Inc. in its Form 10-K for the year ended
December 31, 1993, concurrently with the filing of the Company's Form 10-K for
the same year, and herein incorporated by reference.
(xv) Second Amendment, dated as of October 21, 1994, to the Credit Agreement,
referred to in paragraph (4)(xiii) above.+
(xvi) Stockholders Agreement, dated as of July 7, 1988, as amended as of August 1,
1988, among the Company, Kelso ASI Partners, L.P., and the Management
Stockholders named therein; previously filed as Exhibit 4.19 in Amendment No. 2
to Registration Statement No. 33-23070 of the Company under the Securities Act
of 1933, as amended, and herein incorporated by reference.
</TABLE>
- ---------------
+ Previously filed
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<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------- ------------------------------------------------------------------------------
<C> <C> <S>
</TABLE>
<TABLE>
<C> <C> <S>
(xvii) Amendment to Section 2.1 of the Stockholders Agreement referred to in
paragraph (4)(xvi) above, effective as of January 1, 1991; previously filed as
Exhibit (4)(xxvii) by the Company in its Form 10-K for the year ended December
31, 1992, and herein incorporated by reference.
(xviii) Supplement and Amendment, dated as of September 4, 1991, to the Stockholders
Agreement, dated as of July 7, 1988, as amended, referred to in paragraph
(4)(xvi) above; previously filed as Exhibit (4)(ii) by the Company in its Form
10-Q for the quarter ended September 30, 1991, and herein incorporated by
reference.
(xix) Revised Schedule of Priorities, effective as of September 5, 1991, as adopted
by the Board of Directors of the Company, pursuant to the Stockholders
Agreement dated as of July 7, 1988, as amended, referred to in paragraph
(4)(xvi) above; previously filed as Exhibit (4)(iii) by the Company in its
Form 10-Q for the quarter ended September 30, 1991, and herein incorporated by
reference.
(xx) Amended Paragraph 6.1 of the Stockholders Agreement referred to in paragraph
(4)(xvi) above, effective as of September 2, 1993; previously filed as Exhibit
(4)(xxi) by the Company in its Form 10-K for the fiscal year ended December
31, 1993, and herein incorporated by reference.
(xxi) Amended and Restated Stockholders Agreement, dated as of December 2, 1994,
among the Company, Kelso ASI Partners, L.P., and the Management Stockholders
named therein.+
(xxii) Form of Rights Agreement, dated as of January 5, 1995 between the Company and
Citibank, N.A. as Rights Agent [Exhibit C thereto; Rights Agreement and
Exhibits A & B thereto previously filed].
(5) Opinion of Debevoise & Plimpton regarding the legality of the securities being
registered.+
(10) (i) Agreement and Plan of Merger, dated as of March 16, 1988, among American
Standard Inc., ASI Acquisition Company and the Company and Offer Letter, dated
March 16, 1988, between the Company and Kelso & Company, L.P.; previously
filed as Exhibit 2 to American Standard Inc.'s Schedule 14D-9 filed March 21,
1988, in connection with the offer for all of the shares of American Standard
Inc.'s Common Stock by a corporation formed by Kelso & Company, L.P., and
herein incorporated by reference.
(ii) Amendment, dated June 3, 1988, to Agreement and Plan of Merger referred to in
paragraph (10)(i) above; previously filed as Exhibit 2.50 in Amendment No. 1
to the Registration Statement No. 33-22126 of American Standard Inc. under the
Securities Act of 1933, as amended, and herein incorporated by reference.
(iii) American Standard Inc. Long-Term Incentive Compensation Plan, as amended
through February 6, 1992; previously filed as Exhibit (10)(iv) by American
Standard Inc. in its Form 10-K for the fiscal year ended December 31, 1992,
and herein incorporated by reference.
(iv) Trust Agreement for American Standard Inc. Long-Term Incentive Compensation
Plan; previously filed as Exhibit (10)(iv) by American Standard Inc. in its
Form 10-K for the year ended December 31, 1993, concurrently with the filing
of the Company's Form 10-K for the same year, and herein incorporated by
reference.
(v) American Standard Inc. Annual Incentive Plan; previously filed as Exhibit
(10)(vii) by American Standard Inc. in its Form 10-K for the fiscal year ended
December 31, 1988, and herein incorporated by reference.
(vi) American Standard Inc. Management Partners' Bonus Plan, effective as of July
7, 1988; previously filed as Exhibit (10)(i) by American Standard Inc. in its
Form 10-Q for the quarter ended September 30, 1988, and herein incorporated by
reference; amendments to Plan adopted on June 7, 1990, previously filed as
Exhibit (4)(ii) by American Standard Inc. in its Form 10-Q for the quarter
ended June 30, 1990, and herein incorporated by reference.
</TABLE>
- ---------------
+ Previously filed
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<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------
<C> <C> <S>
(vii) American Standard Inc. Executive Supplemental Retirement Benefit Program, as
restated to include all amendments through December 31, 1993; previously filed
as Exhibit (10)(vii) by American Standard Inc. in its Form 10-K for the fiscal
year ended December 31, 1993, concurrently with the filings of the Company's
Form 10-K for the same year, and herein incorporated by reference.
(viii) Form of Composite American-Standard Employee Stock Ownership Plan incorporating
amendments through December 3, 1992; previously filed as Exhibit (10)(x) in
Registration Statement No. 33-61130 of American Standard Inc. under the
Securities Act of 1933, as amended, and herein incorporated by reference.
(ix) American-Standard Employee Stock Ownership Trust Agreement, dated as of
December 1, 1991, between ASI Holding Corporation and Fidelity Management Trust
Company (as successor to Citizens & Southern Trust Company (Georgia), N.A.), as
trustee; previously filed as Exhibit (10)(xiv) by American Standard Inc. in its
Form 10-K for the year ended December 31, 1991, and herein incorporated by
reference.
(x) Consulting Agreement, made July 1, 1988, with Kelso & Company, L.P. concerning
general management and financial consulting services to American Standard Inc.;
previously filed as Exhibit (10)(xviii) by American Standard Inc. in its Form
10-K for the fiscal year ended December 31, 1988, and herein incorporated by
reference.
(xi) Agreement, dated as of December 2, 1994, among the Company, American Standard
Inc. and Kelso & Company, L.P., amending the Consulting Agreement referred to
in paragraph (10)(x) above.+
(xii) American Standard Inc. Supplemental Compensation Plan for Outside Director; as
amended through September 1993; previously filed as Exhibit (10)(xv) by
American Standard Inc. in its Form 10-K for the year ended December 31, 1993,
and herein incorporated by reference.
(xiii) ASI Holding Corporation 1989 Stock Purchase Loan Program; previously filed as
Exhibit 10(i) by the Company in its Form 10-Q for the quarter ended September
30, 1989, and herein incorporated by reference.
(xiv) Corporate Officers Severance Plan adopted in December, 1990, effective April
27, 1991; previously filed as Exhibit 10(xix) by American Standard Inc. in its
Form 10-K for the fiscal year ended December 31, 1990, and herein incorporated
by reference.
(xv) Estate Preservation Plan adopted by American Standard Inc. in December, 1990;
previously filed as Exhibit (10)(xx) by American Standard Inc. in its Form 10-K
for the fiscal year ended December 31, 1990, and herein incorporated by
reference.
(xvi) Amendment adopted in March 1993 to Estate Preservation Plan referred to in
paragraph (10)(xv) above; previously filed as Exhibit (10)(xix) by American
Standard Inc. in its Form 10-K for the year ended December 31, 1993
concurrently with the filing of the Company's Form 10-K for the same year, and
herein incorporated by reference.
(xvii) Summary of terms of Unfunded Deferred Compensation Plan adopted December 2,
1993; previously filed as Exhibit (10)(xviii) by American Standard Inc. in its
Form 10-K for the year ended December 31, 1993 concurrently with the filing of
the Company's Form 10-K for the same year, and herein incorporated by
reference.
(xviii) Retirement/Consulting Agreement, dated December 28, 1993, between H. Thompson
Smith and American Standard Inc.; previously filed as Exhibit (10)(xix) by
American Standard Inc. in its Form 10-K for the year ended December 31, 1993
concurrently with the filing of the Company's Form 10-K for the same year, and
herein incorporated by reference.
</TABLE>
- ---------------
+ Previously filed
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<PAGE> 148
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------
<C> <C> <S>
(xix) Summary of the TNE Incentive Plan of American Standard Inc. and subsidiaries
previously filed as Exhibit (10)(i) by American Standard Inc. in its Form 10-Q
for the quarter ended March 31, 1994 concurrently with the filing of the
Company's Form 10-Q for the same period, and herein incorporated by reference.
(xx) American Standard Companies Inc. Stock Incentive Plan.+
(xxi) Form of Indemnification Agreement.+
(23) (i) Consent of Ernst & Young LLP.
(ii) Consent of Debevoise & Plimpton, included in the opinion of Debevoise &
Plimpton filed as Exhibit (5).+
(24) Powers of Attorney.+
(27) Financial Data Schedule.+
</TABLE>
- ---------------
+ Previously filed
B. FINANCIAL STATEMENT SCHEDULES
Financial statement schedules, years ended December 31, 1991, 1992 and 1993
Report of Ernst & Young LLP, Independent Auditors
III -- Condensed Financial Information of Registrant
IX -- Short-Term Borrowings
ITEM 17. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(B) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(C) The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
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<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 4 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Piscataway, State of New Jersey on
January 31, 1995.
AMERICAN STANDARD COMPANIES INC.
By: /s/ EMMANUEL A. KAMPOURIS
------------------------------
(Emmanuel A. Kampouris)
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed below by the following
persons in the capacities indicated on January 31, 1995.
<TABLE>
<S> <C>
/s/ EMMANUEL A. KAMPOURIS Chairman, President and Chief Executive Officer;
- ------------------------------------- Director (Principal Executive Officer)
(Emmanuel A. Kampouris)
/s/ FRED A. ALLARDYCE Vice President and Chief Financial Officer
- ------------------------------------- (Principal Financial Officer)
(Fred A. Allardyce)
/s/ G. RONALD SIMON Vice President and Controller (Principal Accounting
- ------------------------------------- Officer)
(G. Ronald Simon)
/s/ STEVEN E. ANDERSON* Director
- -------------------------------------
(Steven E. Anderson)
/s/ HORST HINRICHS* Director
- -------------------------------------
(Horst Hinrichs)
/s/ GEORGE H. KERCKHOVE* Director
- -------------------------------------
(George H. Kerckhove)
/s/ SHIGERU MIZUSHIMA* Director
- -------------------------------------
(Shigeru Mizushima)
/s/ FRANK T. NICKELL* Director
- -------------------------------------
(Frank T. Nickell)
/s/ ROGER W. PARSONS* Director
- -------------------------------------
(Roger W. Parsons)
/s/ J. DANFORTH QUAYLE* Director
- -------------------------------------
(J. Danforth Quayle)
/s/ DAVID M. RODERICK* Director
- -------------------------------------
(David M. Roderick)
/s/ JOHN RUTLEDGE* Director
- -------------------------------------
(John Rutledge)
/s/ JOSEPH S. SCHUCHERT* Director
- -------------------------------------
(Joseph S. Schuchert)
*By: /s/ RICHARD A. KALAHER
-----------------------
(Richard A. Kalaher,
as attorney-in-fact)
</TABLE>
II-9
<PAGE> 150
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
American Standard Companies Inc.
We have audited the consolidated financial statements of American Standard
Companies Inc., (formerly ASI Holding Corporation), as of December 31, 1993 and
1992, and for each of the three years in the period ended December 31, 1993, and
have issued our report thereon dated March 14, 1994 (included elsewhere in this
Amendment No. 4 to the Registration Statement on Form S-2). Our audits also
included the consolidated schedules listed in Item 16(b). These schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the consolidated schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be stated therein.
ERNST & YOUNG LLP
New York, New York
March 14, 1994
S-1
<PAGE> 151
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS (PARENT COMPANY SEPARATELY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
DECEMBER 31, DECEMBER 31,
1992 1993
------------ ------------
<S> <C> <C>
Interest income.................................................. $ 273 $ 188
Interest expense................................................. 273 188
Equity in net loss of subsidiary................................. (57,238) (208,567)
------------ ------------
Net loss.................................................... $(57,238) $ (208,567)
=========== ===========
</TABLE>
See notes to financial statements.
S-2
<PAGE> 152
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
BALANCE SHEET (PARENT COMPANY SEPARATELY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1992 1993
--------- ---------
<S> <C> <C>
ASSETS
Investment in subsidiary........................................... $(424,110) $(695,287)
========== ==========
LIABILITIES
Loan payable to subsidiary......................................... 3,316 2,588
Stock repurchase obligation (Note C)............................... 21,138 24,938
STOCKHOLDERS' DEFICIT
Common stock, $.01 par, 200,000,000 shares authorized; shares
issued and outstanding, 59,021,468 in 1992; 59,645,838 in 1993... 590 596
Capital surplus.................................................... 191,997 188,387
Subscriptions receivable........................................... (3,316) (2,588)
ESOP shares........................................................ (9,527) (4,331)
Accumulated deficit................................................ (541,436) (750,003)
Foreign currency translation effects............................... (86,872) (149,220)
Minimum pension liability adjustment............................... -- (5,654)
--------- ---------
Total stockholders' deficit.............................. (448,564) (722,813)
--------- ---------
$(424,110) $(695,287)
========== ==========
</TABLE>
See notes to financial statements.
S-3
<PAGE> 153
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS (PARENT COMPANY SEPARATELY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1992 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (57,238) $ (208,567)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Equity in net loss of subsidiary............................ 57,238 208,567
------------ ------------
Net cash flow from operating activities.......................... 0 0
------------ ------------
Cash provided (used) by investing activities:
Investment in subsidiary....................................... (3,103) (4,585)
Purchase of common stock by subsidiary......................... 10,950 12,194
------------ ------------
Net cash provided by investing activities........................ 7,847 7,609
------------ ------------
Cash provided (used) by financing activities:
Issuance of common stock....................................... 3,103 4,585
Common stock repurchased....................................... (10,950) (12,194)
Repayments on subscriptions receivable......................... 653 482
Repayment of loan from subsidiary.............................. (653) (482)
------------ ------------
Net cash used by financing activities............................ (7,847) (7,609)
------------ ------------
Net change in cash and cash equivalents.......................... $ 0 $ 0
=========== ===========
</TABLE>
See notes to the financial statements.
S-4
<PAGE> 154
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION ON REGISTRANT -- (CONTINUED)
NOTES TO FINANCIAL STATEMENTS (PARENT COMPANY SEPARATELY)
(A) The notes to the consolidated financial statements of American Standard
Companies Inc., formerly ASI Holding Corporation (the "Parent Company"),
are an integral part of these condensed financial statements.
(B) The Parent Company was organized by Kelso & Company,, L.P., a private
merchant banking firm, to participate in the acquisition of American
Standard Inc. American Standard Inc. is now a wholly owned subsidiary of
the Parent Company. The Parent Company has no other investments or
operations.
(C) The Parent Company has issued its Common Stock to numerous employees in
connection with the Acquisition and various employee benefit and incentive
plans including the ESOP. As no public market exists for the stock, the
Parent Company, to provide liquidity to employees who have terminated
employment, has made purchases of such employees' stock. Purchases are
based upon fair value appraisals obtained in connection with the ESOP. The
amount of such stock purchases is subject to annual limitations contained
in American Standard Inc.'s lending arrangements and debt instruments. As
the stock tendered for payment by terminated employees has exceeded the
amount available to be paid under the borrowing agreements described
previously, a liability for the unpaid tendered stock has been recorded on
the financial statements of the Parent Company with a concomitant reduction
in Common Stock and Capital Surplus.
S-5
<PAGE> 155
SCHEDULE IX -- SHORT-TERM BORROWINGS
YEARS ENDED DECEMBER 31, 1991, 1992, AND 1993
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
MAXIMUM AVERAGE
BALANCE WEIGHTED AMOUNT AMOUNT WEIGHTED
END AVERAGE AT OUTSTANDING AVERAGE
CATEGORY OF PERIOD INTEREST RATE MONTH END DURING PERIOD INTEREST RATE
- ---------------------------- --------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1991:
Payable to banks.......... $63 12.3% $ 167 $ 104 11.2%
1992:
Payable to banks.......... $99 12.5% $ 119 $ 104 11.9%
1993:
Payable to banks.......... $38 10.3% $ 160 $ 118 8.97%
</TABLE>
- ---------------
The weighted average interest rates for the period were computed by dividing the
actual interest expense for the period by average short-term borrowings for the
period.
S-6
<PAGE> 156
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------- ------------
<C> <C> <S> <C>
(1) Form of U.S. Underwriting Agreement.+
(3) (i) Form of Restated Certificate of Incorporation of American Standard
Companies Inc. (the "Company").......................................
(ii) Form of Amended By-Laws of the Company.
(4) (i) Form of Common Stock Certificate.+...................................
(ii) Indenture, dated as of November 1, 1986, between American Standard
Inc. 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) by American
Standard Inc. in its Form 10-K for the fiscal year ended December 31,
1986, and herein incorporated by reference...........................
(iii) Instrument of Resignation, Appointment and Acceptance, dated as of
April 25, 1988 among American Standard Inc., 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
described in (4)(ii) above; previously filed as Exhibit (4)(ii) in
Registration Statement No. 33-64450 of American Standard Inc. under
the Securities Act of 1933, as amended, and herein incorporated by
reference............................................................
(iv) Indenture dated as of May 15, 1992, between American Standard Inc.
and First Trust National Association, Trustee, relating to American
Standard Inc.'s 10 7/8% Senior Notes due 1999, in the aggregate
principal amount of $150,000,000; previously filed as Exhibit (4)(i)
by American Standard Inc. in its Form 10-Q for the quarter ended June
30, 1992, and herein incorporated by reference.......................
(v) Form of 10 7/8% Senior Notes due 1999 included as Exhibit A to the
Indenture described in (4)(iv) above.................................
(vi) Indenture dated as of May 15, 1992, between American Standard Inc.
and First Trust National Association, Trustee, relating to American
Standard Inc.'s 11 3/8% Senior Debentures due 2004, in the aggregate
principal amount of $250,000,000; previously filed as Exhibit
(4)(iii) by American Standard Inc. in its Form 10-Q for the quarter
ended June 30, 1992, and herein incorporated by reference............
(vii) Form of 11 3/8% Senior Debentures due 2004 included as Exhibit A to
the Indenture described in (4)(vi) above.............................
(viii) Form of Indenture, dated as of June 1, 1993, between American
Standard Inc. and United States Trust Company of New York, as
Trustee, relating to American Standard Inc.'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 American
Standard Inc. under the Securities Act of 1933, as amended, and
herein incorporated by reference.....................................
(ix) 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(viii)
above................................................................
</TABLE>
- ---------------
+ Previously filed
<PAGE> 157
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------- ------------
<C> <C> <S> <C>
(x) Form of Indenture, dated as of June 1, 1993, between American
Standard Inc. and United States Trust Company of New York, as
Trustee, relating to American Standard Inc.'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 American Standard Inc. under the Securities Act of 1933,
as amended, and herein incorporated by reference.....................
(xi) 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 (x) above...........................................
(xii) Assignment and Amendment Agreement, dated as of June 1, 1993, among
American Standard Inc., the Company, certain subsidiaries of American
Standard Inc., 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 American Standard Inc. under the Securities Act of 1933, as
amended, and herein incorporated by reference........................
(xiii) Credit Agreement, dated as of June 1, 1993, among American Standard
Inc., the Company, certain subsidiaries of American Standard Inc. 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 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; previously filed
as Exhibit (4)(xiv) in Amendment No. 1 to Registration Statement No.
33-64450 of American Standard Inc. under the Securities Act of 1933,
as amended, and herein incorporated by reference.....................
(xiv) First Amendment, Consent and Waiver, dated as of February 10, 1994,
to the Credit Agreement referred to in paragraph (4)(xiii) above;
previously filed as Exhibit (4)(xvii) by American Standard Inc. in
its Form 10-K for the year ended December 31, 1993, concurrently with
the filing of the Company's Form 10-K for the same year, and herein
incorporated by reference............................................
(xv) Second Amendment, dated as of October 21, 1994, to the Credit
Agreement, referred to in paragraph (4)(xiii) above.+................
(xvi) Stockholders Agreement, dated as of July 7, 1988, as amended as of
August 1, 1988, among the Company, Kelso ASI Partners, L.P., and the
Management Stockholders named therein; previously filed as Exhibit
4.19 in Amendment No. 2 to Registration Statement No. 33-23070 of the
Company under the Securities Act of 1933, as amended, and herein
incorporated by reference............................................
(xvii) Amendment to Section 2.1 of the Stockholders Agreement referred to in
paragraph (4)(xvi) above, effective as of January 1, 1991; previously
filed as Exhibit (4)(xxvii) by the Company in its Form 10-K for the
year ended December 31, 1992, and herein incorporated by
reference............................................................
</TABLE>
- ---------------
+ Previously filed
<PAGE> 158
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------- ------------
<C> <C> <S> <C>
(xviii) Supplement and Amendment, dated as of September 4, 1991, to the
Stockholders Agreement, dated as of July 7, 1988, as amended,
referred to in paragraph (4)(xvi) above; previously filed as Exhibit
(4)(ii) by the Company in its Form 10-Q for the quarter ended
September 30, 1991, and herein incorporated by reference.............
(xix) Revised Schedule of Priorities, effective as of September 5, 1991, as
adopted by the Board of Directors of the Company, pursuant to the
Stockholders Agreement dated as of July 7, 1988, as amended, referred
to in paragraph (4)(xvi) above; previously filed as Exhibit (4)(iii)
by the Company in its Form 10-Q for the quarter ended September 30,
1991, and herein incorporated by reference...........................
(xx) Amended Paragraph 6.1 of the Stockholders Agreement referred to in
paragraph (4)(xvi) above, effective as of September 2, 1993;
previously filed as Exhibit (4)(xxi) by the Company in its Form 10-K
for the fiscal year ended December 31, 1993, and herein incorporated
by reference.........................................................
(xxi) Amended and Restated Stockholders Agreement, dated as of December 2,
1994, among the Company, Kelso ASI Partners, L.P., and the Management
Stockholders named therein.+.........................................
(xxii) Form of Rights Agreement, dated as of January 5, 1995 between the
Company and Citibank, N.A. as Rights Agent [Exhibit C thereto; Rights
Agreement and Exhibits A & B thereto previously filed]...............
(5) Opinion of Debevoise & Plimpton regarding the legality of the
securities being registered.+........................................
(10) (i) Agreement and Plan of Merger, dated as of March 16, 1988, among
American Standard Inc., ASI Acquisition Company and the Company and
Offer Letter, dated March 16, 1988, between the Company and Kelso &
Company, L.P.; previously filed as Exhibit 2 to American Standard
Inc.'s Schedule 14D-9 filed March 21, 1988, in connection with the
offer for all of the shares of American Standard Inc.'s Common Stock
by a corporation formed by Kelso & Company, L.P., and herein
incorporated by reference............................................
(ii) Amendment, dated June 3, 1988, to Agreement and Plan of Merger
referred to in paragraph (10)(i) above; previously filed as Exhibit
2.50 in Amendment No. 1 to the Registration Statement No. 33-22126 of
American Standard Inc. under the Securities Act of 1933, as amended,
and herein incorporated by reference.................................
(iii) American Standard Inc. Long-Term Incentive Compensation Plan, as
amended through February 6, 1992; previously filed as Exhibit
(10)(iv) by American Standard Inc. in its Form 10-K for the fiscal
year ended December 31, 1992, and herein incorporated by
reference............................................................
(iv) Trust Agreement for American Standard Inc. Long-Term Incentive
Compensation Plan; previously filed as Exhibit (10)(iv) by American
Standard Inc. in its Form 10-K for the year ended December 31, 1993,
concurrently with the filing of the Company's Form 10-K for the same
year, and herein incorporated by reference...........................
</TABLE>
- ---------------
+ Previously filed
<PAGE> 159
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------- ------------
<C> <C> <S> <C>
(v) American Standard Inc. Annual Incentive Plan; previously filed as
Exhibit (10)(vii) by American Standard Inc. in its Form 10-K for the
fiscal year ended December 31, 1988, and herein incorporated by
reference............................................................
(vi) American Standard Inc. Management Partners' Bonus Plan, effective as
of July 7, 1988; previously filed as Exhibit (10)(i) by American
Standard Inc. in its Form 10-Q for the quarter ended September 30,
1988, and herein incorporated by reference; amendments to Plan
adopted on June 7, 1990, previously filed as Exhibit (4)(ii) by
American Standard Inc. in its Form 10-Q for the quarter ended June
30, 1990, and herein incorporated by reference.......................
(vii) American Standard Inc. Executive Supplemental Retirement Benefit
Program, as restated to include all amendments through December 31,
1993; previously filed as Exhibit (10)(vii) by American Standard Inc.
in its Form 10-K for the fiscal year ended December 31, 1993,
concurrently with the filings of the Company's Form 10-K for the same
year, and herein incorporated by reference...........................
(viii) Form of Composite American-Standard Employee Stock Ownership Plan
incorporating amendments through December 3, 1992; previously filed
as Exhibit (10)(x) in Registration Statement No. 33-61130 of American
Standard Inc. under the Securities Act of 1933, as amended, and
herein incorporated by reference.....................................
(ix) American-Standard Employee Stock Ownership Trust Agreement, dated as
of December 1, 1991, between ASI Holding Corporation and Fidelity
Management Trust Company (as successor to Citizens & Southern Trust
Company (Georgia), N.A.), as trustee; previously filed as Exhibit
(10)(xiv) by American Standard Inc. in its Form 10-K for the year
ended December 31, 1991, and herein incorporated by reference........
(x) Consulting Agreement, made July 1, 1988, with Kelso & Company, L.P.
concerning general management and financial consulting services to
American Standard Inc.; previously filed as Exhibit (10)(xviii) by
American Standard Inc. in its Form 10-K for the fiscal year ended
December 31, 1988, and herein incorporated by reference..............
(xi) Agreement, dated as of December 2, 1994, among the Company, American
Standard Inc. and Kelso & Company, L.P., amending the Consulting
Agreement referred to in paragraph (10)(x) above.+...................
(xii) American Standard Inc. Supplemental Compensation Plan for Outside
Director; as amended through September 1993; previously filed as
Exhibit (10)(xv) by American Standard Inc. in its Form 10-K for the
year ended December 31, 1993, and herein incorporated by
reference............................................................
(xiii) ASI Holding Corporation 1989 Stock Purchase Loan Program; previously
filed as Exhibit 10(i) by the Company in its Form 10-Q for the
quarter ended September 30, 1989, and herein incorporated by
reference............................................................
(xiv) Corporate Officers Severance Plan adopted in December, 1990,
effective April 27, 1991; previously filed as Exhibit 10(xix) by
American Standard Inc. in its Form 10-K for the fiscal year ended
December 31, 1990, and herein incorporated by reference..............
</TABLE>
- ---------------
+ Previously filed
<PAGE> 160
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------- ------------
<C> <C> <S> <C>
(xv) Estate Preservation Plan adopted by American Standard Inc. in
December, 1990; previously filed as Exhibit (10)(xx) by American
Standard Inc. in its Form 10-K for the fiscal year ended December 31,
1990, and herein incorporated by reference...........................
(xvi) Amendment adopted in March 1993 to Estate Preservation Plan referred
to in paragraph (10)(xv) above; previously filed as Exhibit (10)(xix)
by American Standard Inc. in its Form 10-K for the year ended
December 31, 1993 concurrently with the filing of the Company's Form
10-K for the same year, and herein incorporated by reference.........
(xvii) Summary of terms of Unfunded Deferred Compensation Plan adopted
December 2, 1993; previously filed as Exhibit (10)(xviii) by American
Standard Inc. in its Form 10-K for the year ended December 31, 1993
concurrently with the filing of the Company's Form 10-K for the same
year, and herein incorporated by reference...........................
(xviii) Retirement/Consulting Agreement, dated December 28, 1993, between H.
Thompson Smith and American Standard Inc.; previously filed as
Exhibit (10)(xix) by American Standard Inc. in its Form 10-K for the
year ended December 31, 1993 concurrently with the filing of the
Company's Form 10-K for the same year, and herein incorporated by
reference............................................................
(xix) Summary of the TNE Incentive Plan of American Standard Inc. and
subsidiaries previously filed as Exhibit (10)(i) by American Standard
Inc. in its Form 10-Q for the quarter ended March 31, 1994
concurrently with the filing of the Company's Form 10-Q for the same
period, and herein incorporated by reference.........................
(xx) American Standard Companies Inc. Stock Incentive Plan.+..............
(xxi) Form of Indemnification Agreement.+..................................
(23) (i) Consent of Ernst & Young LLP.
(ii) Consent of Debevoise & Plimpton, included in the opinion of Debevoise
& Plimpton filed as Exhibit (5).+
(24) Powers of Attorney.+
(27) Financial Data Schedule.+
</TABLE>
- ---------------
+ Previously filed
<PAGE> 1
Exhibit 3(i)
RESTATED
CERTIFICATE OF INCORPORATION
OF
AMERICAN STANDARD COMPANIES INC.
American Standard Companies Inc., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The Corporation was incorporated as ASI Holding
Corporation and its original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on March 15, 1988.
2. On April 4, 1990, the Board of Directors of the
Corporation unanimously adopted a resolution authorizing the amendment of the
Corporation's Certificate of Incorporation in accordance with Section 242 of
the General Corporation Law of the State of Delaware. The amendment increased
the authorized number of shares of the Corporation's common stock. In lieu of
a meeting and vote of the stockholders of the Corporation, the Corporation's
majority stockholder, by less than unanimous written consent dated April 13,
1990, approved the amendment of the Certificate of Incorporation and the taking
of the actions contemplated thereby, and such consent was filed with the
minutes of the proceedings of stockholders of the Corporation. Notice of such
action was given to all stockholders who did not consent in writing, all in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware. The Certificate of Amendment was filed with the
Secretary of State of the State of Delaware on April 19, 1990.
3. At a meeting duly held on December 5, 1991, the Board of
Directors of the Corporation adopted a resolution authorizing the amendment of
the Corporation's Certificate of Incorporation in accordance with Section 242
of the General Corporation Law of the State of Delaware. The amendment
decreased the authorized number of shares of the Corporation's common stock.
In lieu of a meeting and vote of the stockholders of the Corporation, the
Corporation's majority stockholder, by less than unanimous written consent
dated December 6, 1991, approved the
<PAGE> 2
amendment of the Certificate of Incorporation and the taking of the actions
contemplated thereby, and such consent was filed with the minutes of the
proceedings of stockholders of the Corporation. Notice of such action was
given to all stockholders who did not consent in writing, all in accordance
with the provisions of Section 228 of the General Corporation Law of the State
of Delaware. The Certificate of Amendment was filed with the Secretary of
State of the State of Delaware on December 20, 1991. A Certificate of
Correction was filed with the Secretary of State of the State of Delaware on
January 3, 1992, indicating the Certificate of Amendment had incorrectly stated
that the adoption of the resolution had been by unanimous written consent of
the Board of Directors of the Corporation.
4. At a meeting duly held on November 2, 1994, the Board
of Directors of the Corporation adopted a resolution authorizing the amendment
of the Corporation's Certificate of Incorporation in accordance with Section
242 of the General Corporation Law of the State of Delaware. The amendment
changed the name of the Corporation and required or permitted indemnification
of Directors, officers, employees and agents in accordance with Delaware law.
In lieu of a meeting and vote of the stockholders of the Corporation, the
Corporation's majority stockholder, by less than unanimous written consent
dated November 2, 1994, approved the amendment of the Certificate of
Incorporation and the taking of the actions contemplated thereby, and such
consent was filed with the minutes of the proceedings of stockholders of the
Corporation. Notice of such action was given to all stockholders who did not
consent in writing, all in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware. The Certificate of Amendment
was filed with the Secretary of State of the State of Delaware on November 9,
1994.
5. At a meeting duly held on December 1, 1994, the Board of
Directors of the Corporation adopted a resolution authorizing the amendment of
the Corporation's Certificate of Incorporation in accordance with Section 242
of the General Corporation Law of the State of Delaware. The amendment
increased the authorized number of shares of the Corporation's common stock,
provided for the issuance of up to 2,000,000 shares of preferred stock of the
Corporation, having such terms as the Board of Directors may determine, and
provided for other matters relating to such common stock and preferred stock.
In lieu of a meeting and vote of the stockholders of the Corporation, the
Corporation's majority
2
<PAGE> 3
stockholder, by less than unanimous written consent dated December 1, 1994,
approved the amendment of the Certificate of Incorporation and the taking of
the actions contemplated thereby, and such consent was filed with the minutes
of the proceedings of stockholders of the Corporation. Notice of such action
was given to all stockholders who did not consent in writing, all in accordance
with the provisions of Section 228 of the General Corporation Law of the State
of Delaware. The Certificate of Amendment was filed with the Secretary of
State of the State of Delaware on December 5, 1994.
6. At a meeting duly held on January 4, 1995, the Board of
Directors of the Corporation adopted a resolution authorizing the amendment and
restatement of the Corporation's Certificate of Incorporation as set forth
herein in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware. In lieu of a meeting and vote of the
stockholders of the Corporation, the Corporation's majority stockholder, by
less than unanimous written consent dated January 4, 1995, approved the
amendment and restatement of the Corporation's Certificate of Incorporation and
the taking of the actions contemplated thereby, and such consent was filed with
the minutes of the proceedings of stockholders of the Corporation. Notice of
such action was given to all stockholders who did not consent in writing, all
in accordance with the provisions of Section 228 of the General Corporation
Law of the State of Delaware.
7. Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware, this Restated Certificate of
Incorporation amends and restates the provisions of the Certificate of
Incorporation of the Corporation. The amendments have the effect of (i)
classifying the Board of Directors; (ii) authorizing the issuance of rights and
(iii) making such other changes as are proper under the General Corporation Law
of the State of Delaware and deemed necessary or appropriate by the Board of
Directors.
8. The text of the Certificate of Incorporation as heretofore
amended is hereby amended and restated to read in its entirety as follows:
FIRST: The name of the Corporation is American Standard
Companies Inc.
3
<PAGE> 4
SECOND: The Corporation's registered office in the State of
Delaware is at Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: The nature of the business of the Corporation is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: (a) The total number of shares of stock which the
Corporation shall have authority to issue is 200,000,000 shares of common
stock, par value $.01 per share (the "Common Stock"), and 2,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock").
(b) Each holder of Common Stock shall be entitled to one vote
for each share of Common Stock held of record by such holder and shall be
entitled to vote with respect to all matters as to which a stockholder of a
Delaware corporation would be entitled to vote.
(c) The Preferred Stock may be issued at any time and from
time to time in one or more series. The Board of Directors is hereby
authorized to provide for the issuance of shares of Preferred Stock in series
and, by filing a certificate of designation pursuant to the applicable
provisions of the General Corporation Law of the State of Delaware (hereinafter
referred to as a "Preferred Stock Certificate of Designation"), to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, preferences and rights of shares of
each such series and the qualifications, limitations and restrictions
thereof.
4
<PAGE> 5
The authority of the Board of Directors with respect to each
series of Preferred Stock shall include, but not be limited to, determination
of the following:
(i) the designation of the series, which may be by
distinguishing number, letter or title;
(ii) the number of shares of the series, which number the Board
of Directors may thereafter (except where otherwise provided in the
applicable Preferred Stock Certificate of Designation) increase or
decrease (but not below the number of shares thereof then
outstanding);
(iii) whether dividends, if any, shall be cumulative or
noncumulative and the dividend rate of the series;
(iv) the dates on which dividends, if any, shall be payable;
(v) the redemption rights and price or prices, if any, for
shares of the series;
(vi) the terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series;
(vii) the amounts payable on shares of the series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(viii) whether the shares of the series shall be convertible or
exchangeable into shares of any other class or series, or any other security,
of the Corporation or any other corporation, and, if so, the specification of
such other class or series or such other security, the conversion or exchange
price or prices or rate or rates, any adjustments thereof, the date or dates as
of which such shares shall be convertible or exchangeable and all other terms
and conditions upon which such conversion or exchange may be made;
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(ix) restrictions on the issuance of shares of the same series or
of any other class or series; and
(x) the voting rights, if any, of the holders of shares of
the series.
(d) The Common Stock shall be subject to the express terms of
the Preferred Stock and any series thereof.
(e) Except as may be required by law or as provided in this
Restated Certificate of Incorporation or in a Preferred Stock Certificate of
Designation, the Common Stock shall have the exclusive right to vote for the
election of Directors and for all other purposes, and holders of Preferred
Stock shall not be entitled to vote on any matter or receive notice of any
meeting of stockholders.
(f) The Corporation shall be entitled to treat the person in
whose name any share of its stock is registered as the owner thereof for all
purposes and shall not be bound to recognize any equitable or other claim to,
or interest in, such share on the part of any other person, whether or not the
Corporation shall have notice thereof, except as expressly provided by
applicable law.
FIFTH: The Board of Directors is hereby authorized to create
and issue, whether or not in connection with the issuance and sale of any of
its stock or other securities or property, and to retain outstanding, rights
entitling the holders thereof to purchase from the Corporation shares of stock
or other securities of the Corporation or any other corporation. The times at
which and the terms upon which such rights are to be issued will be determined
by the Board of Directors and set forth in the contracts or instruments that
evidence such rights. The authority of the Board of Directors with respect to
such rights shall include, but not be limited to, determination of the
following:
(a) The initial purchase price per share or other unit of the
stock or other securities or property to be purchased upon exercise of such
rights.
(b) Provisions relating to the times at which and the
circumstances under which such rights may be exercised or sold or otherwise
transferred, either together with or separately from, any other stock or other
securities of the Corporation.
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(c) Provisions which adjust the number or exercise price of
such rights, or amount or nature of the stock or other securities or property
receivable upon exercise of such rights, in the event of a combination, split
or recapitalization of any stock of the Corporation, a change in ownership of
the Corporation's stock or other securities or any portion thereof or a
reorganization, merger, consolidation, sale of assets or other occurrence
relating to the Corporation or any stock of the Corporation, and provisions
restricting the ability of the Corporation to enter into any such transaction
absent an assumption by the other party or parties thereto of the obligations
of the Corporation under such rights.
(d) Provisions which deny the holder of a specified percentage
of the outstanding stock or other securities of the Corporation, or having other
specified characteristics or status, the right to exercise such rights and/or
cause the rights held by such holder to become void.
(e) Provisions which permit the Corporation to redeem and
exchange such rights.
(f) The appointment of a rights agent with respect to such
rights.
SIXTH: In furtherance and not in limitation of the powers
conferred upon it by law, the Board of Directors shall have the power without
the assent or vote of the stockholders to adopt, amend, alter or repeal the
Amended By-Laws of the Corporation, except to the extent that the Amended
By-Laws or this Restated Certificate of Incorporation otherwise provide.
SEVENTH: (a) The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by this Restated Certificate of Incorpo-
7
<PAGE> 8
ration directed or required to be exercised or done by the stockholders.
(b) The number of Directors constituting the initial Board of Directors
shall be eleven (11) and thereafter the number of Directors shall be as set
forth in or pursuant to the Amended By-Laws of the Corporation, but shall not be
more than twenty-one (21). The Board of Directors shall be divided at the
annual meeting of stockholders to be held in 1995 into three classes, designated
Classes I, II and III, which shall be as nearly equal in number as possible. At
the annual meeting of stockholders to be held in 1995, Directors of Class I
shall be elected to hold office for a term expiring at the annual meeting of
stockholders to be held in 1996, Directors of Class II shall be elected to hold
office for a term expiring at the annual meeting of stockholders to be held in
1997 and Directors of Class III shall be elected to hold office for a term
expiring at the annual meeting of stockholders to be held in 1998. At each
succeeding annual meeting of stockholders following such initial classification
and election, the respective successors of the Directors whose terms are
expiring shall be elected for terms expiring at the annual meeting of
stockholders held in the third succeeding year. Vacancies in the Board of
Directors and newly created Directorships resulting from any increase in the
authorized number of Directors may be filled as provided in the Amended By-Laws.
The holders of a majority of the shares then entitled to vote at an election of
Directors may remove any Director or the entire Board of Directors, but only for
cause; provided, however, that so long as Kelso ASI Partners, L.P. ("ASI
Partners"), together with its Affiliates (as defined in the Amended and
Restated Stockholders Agreement, dated as of December 2, 1994 (the "Amended and
Restated Stockholders Agreement"), among the Corporation, ASI Partners and the
other stockholders of the Corporation parties thereto), owns at least 35% of the
outstanding Common Stock, Directors may be removed upon receipt of such
requisite vote of stockholders with or without cause. Notwithstanding the
foregoing, the election, term, removal and filling of vacancies with respect to
Directors elected separately by the holders of one or more series of Preferred
Stock shall not be governed by this Article SEVENTH, but rather shall be as
provided for in the Preferred Stock Certificate of Designation creating and
establishing such series of Preferred Stock.
(c) Advance notice of nominations by stockholders for the election of
Directors, and of stockholder proposals regarding action to be taken at any
meeting of stockholders, shall be given in the manner and to the extent provided
in the Amended By-Laws of the Corporation.
EIGHTH: (a) A Director shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director; provided that this provision shall not eliminate or limit
the liability of a Director (i) for any breach of his duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware, or
(iv) for any transaction from
8
<PAGE> 9
which the Director derives an improper personal benefit. If the General
Corporation Law of the State of Delaware is amended after the filing of this
Restated Certificate of Incorporation to authorize corporate action further
eliminating or limiting the personal liability of Directors, then the liability
of a Director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as so
amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing in respect
of any act or omission occurring prior to the time of such repeal or
modification.
(b) The Corporation shall indemnify, to the fullest extent
now or hereafter permitted by the General Corporation Law of the State of
Delaware, any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or she is or was or has agreed to become a Director or officer of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a Director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action alleged to be
taken or omitted in such capacity, and may to the same extent indemnify any
person who was or is a party or is threatened to be made a party to such an
action, suit or proceeding by reason of the fact that he or she is or was or
has agreed to become an employee or agent of the Corporation, or is or was
serving or has agreed to serve at the request of the Corporation as an employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with such action, suit or proceeding
or any appeal therefrom.
NINTH: A Director of the Corporation, in determining what he
reasonably believes to be in the best interests of the Corporation, shall
consider the interests of the Corporation's stockholders and, in his
discretion, may consider any of the following:
(a) The interests of the Corporation's employees, suppliers,
creditors and customers;
9
<PAGE> 10
(b) The state of the U.S. and global economy;
(c) Community and societal interests; and
(d) The long-term as well as short-term interests of the
Corporation and its stockholders, including the possibility that these
interests may be best served by the continued independence of the Corporation.
TENTH: Election of Directors at an annual or special meeting
of stockholders need not be by written ballot unless the Amended By-laws of the
Corporation shall so provide.
ELEVENTH: Cumulative voting for the election of Directors
shall not be permitted.
TWELFTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation, and the ability of the
stockholders to consent in writing to the taking of any action is hereby
specifically denied, provided, however, that so long as ASI Partners, together
with its Affiliates, owns at least 10% of the outstanding shares of the Common
Stock, stockholder action may be taken by written consent in order to vote on
Director nominees designated by ASI Partners pursuant to the Amended and
Restated Stockholders Agreement and to remove Directors designated for
nomination by ASI Partners pursuant to the Amended and Restated Stockholders
Agreement. The preceding sentence shall take effect on the day following the
closing date of the Corporation's initial underwritten public offering of
Common Stock. Except as otherwise required by law, special meetings of
stockholders of the Corporation may be called only by (i) the Chief Executive
Officer of the Corporation, (ii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized Directors
or (iii) for purposes of voting on Director nominees designated by ASI
Partners pursuant to the Amended and Restated Stockholders Agreement or the
removal of Directors designated for nomination by ASI Partners pursuant to the
Amended and Restated Stockholders Agreement, ASI Partners, so long as ASI
Partners, together with its Affiliates, owns at least 10% of the outstanding
Common Stock.
THIRTEENTH: The Corporation reserves the right at any time
and from time to time to amend, alter, change or repeal any provision contained
in this Restated Certificate of Incorporation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed
10
<PAGE> 11
herein or by applicable law, and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, Directors or any other persons
whomsoever by and pursuant to this Restated Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the right reserved
in this Article THIRTEENTH; provided, however, that any amendment or repeal of
Article EIGHTH of this Restated Certificate of Incorporation shall not
adversely affect any right or protection existing hereunder immediately prior
to such amendment or repeal; and provided, further, that Articles FIFTH, SIXTH,
SEVENTH, EIGHTH, NINTH, ELEVENTH, TWELFTH and THIRTEENTH of this Restated
Certificate of Incorporation shall not be amended, altered, changed or repealed
without the affirmative vote of the holders of at least 65% of the then
outstanding stock of the Corporation entitled to vote generally in the election
of Directors.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation
has been signed this 4th day of January 1995.
American Standard Companies Inc.
/s/ RICHARD A. KALAHER
------------------------------------
Name: Richard A. Kalaher
Title: Acting General Counsel &
Secretary
11
<PAGE> 1
Exhibit 3(ii)
================================================================================
AMERICAN STANDARD COMPANIES INC.
AMENDED BY-LAWS
As Adopted on January 4, 1995
================================================================================
<PAGE> 2
AMERICAN STANDARD COMPANIES INC.
AMENDED BY-LAWS
TABLE OF CONTENTS
PAGE
----
ARTICLE I
STOCKHOLDERS . . . . . . . . . . . . . . . . . . 1
Section 1.1. Annual Meetings . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Special Meetings . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Notice of Meetings; Waiver . . . . . . . . . . . . . . . . 2
Section 1.4. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6. Voting by Ballot . . . . . . . . . . . . . . . . . . . . . 3
Section 1.7. Adjournment . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.8. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.9. Organization; Procedure . . . . . . . . . . . . . . . . . 4
Section 1.10. Stockholder Proposals and Nominations
of Directors. . . . . . . . . . . . . . . . . . . . . . 4
Section 1.11. Inspectors of Elections . . . . . . . . . . . . . . . . . 5
Section 1.12. Opening and Closing of Polls. . . . . . . . . . . . . . . 6
Section 1.13. Consent of Stockholders in
Lieu of Meeting . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II
BOARD OF DIRECTORS . . . . . . . . . . . 7
Section 2.1. General Powers . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.2. Number and Term of Office . . . . . . . . . . . . . . . . 7
Section 2.3. Election of Directors . . . . . . . . . . . . . . . . . . 8
Section 2.4. Annual and Regular Meetings . . . . . . . . . . . . . . . 8
Section 2.5. Special Meetings; Notice . . . . . . . . . . . . . . . . . 9
Section 2.6. Quorum; Voting . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.7. Adjournment . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.8. Action Without a Meeting . . . . . . . . . . . . . . . . . 10
Section 2.9. Organization . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.10. Regulations; Manner of Acting . . . . . . . . . . . . . . 10
Section 2.11. Action by Telephonic Communications . . . . . . . . . . . 10
Section 2.12. Resignations . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.13. Removal of Directors . . . . . . . . . . . . . . . . . . . 11
Section 2.14. Vacancies and Newly Created
Directorships . . . . . . . . . . . . . . . . . . . . . 11
Section 2.15. Compensation . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.16. Reliance on Accounts and Reports, etc. . . . . . . . . . . 12
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PAGE
----
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES . . 12
Section 3.1. How Constituted . . . . . . . . . . . . . . . . . 12
Section 3.2. Powers . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.3. Proceedings . . . . . . . . . . . . . . . . . . . 14
Section 3.4. Quorum and Manner of Acting . . . . . . . . . . . 14
Section 3.5. Action by Telephonic Communications . . . . . . . 14
Section 3.6. Absent or Disqualified Members . . . . . . . . . . 14
Section 3.7. Resignations . . . . . . . . . . . . . . . . . . . 14
Section 3.8. Removal . . . . . . . . . . . . . . . . . . . . . 14
Section 3.9. Vacancies . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV
OFFICERS . . . . . . . . . . 15
Section 4.1. Number . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.2. Election . . . . . . . . . . . . . . . . . . . . . 15
Section 4.3. Salaries . . . . . . . . . . . . . . . . . . . . . 15
Section 4.4. Removal and Resignation; Vacancies . . . . . . . . 15
Section 4.5. Authority and Duties of Officers . . . . . . . . . 16
Section 4.6. The President . . . . . . . . . . . . . . . . . . 16
Section 4.7. Vice Presidents . . . . . . . . . . . . . . . . . 16
Section 4.8. The Secretary . . . . . . . . . . . . . . . . . . 17
Section 4.9. The Treasurer . . . . . . . . . . . . . . . . . . 18
Section 4.10. Additional Officers . . . . . . . . . . . . . . . 19
Section 4.11. Security . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE V
CAPITAL STOCK . . . . . . . . 19
Section 5.1. Certificates of Stock, Uncertificated
Shares . . . . . . . . . . . . . . . . . . . . 19
Section 5.2. Signatures; Facsimile . . . . . . . . . . . . . . 20
Section 5.3. Lost, Stolen or Destroyed Certificates . . . . . . 20
Section 5.4. Transfer of Stock . . . . . . . . . . . . . . . . 20
Section 5.5. Record Date . . . . . . . . . . . . . . . . . . . 21
Section 5.6. Registered Stockholders . . . . . . . . . . . . . 22
Section 5.7. Transfer Agent and Registrar . . . . . . . . . . . 22
ARTICLE VI
INDEMNIFICATION . . . . . . . . 23
Section 6.1. Nature of Indemnity . . . . . . . . . . . . . . . 23
Section 6.2. Successful Defense . . . . . . . . . . . . . . . . 24
ii
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PAGE
----
Section 6.3. Determination That Indemnification
Is Proper . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.4. Advance Payment of Expenses . . . . . . . . . . . . . . . 24
Section 6.5. Procedure for Indemnification of
Directors and Officers . . . . . . . . . . . . . . . . 25
Section 6.6. Survival; Preservation of Other Rights . . . . . . . . . . 25
Section 6.7. Insurance . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.8. Severability . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VII
OFFICES . . . . . . . . . . . . . . 27
Section 7.1. Registered Office . . . . . . . . . . . . . . . . . . . . 27
Section 7.2. Other Offices . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VIII
GENERAL PROVISIONS . . . . . . . . . . . 27
Section 8.1. Dividends . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.2. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.3. Execution of Instruments . . . . . . . . . . . . . . . . . 28
Section 8.4. Corporate Indebtedness . . . . . . . . . . . . . . . . . . 28
Section 8.5. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.6. Checks . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.7. Sale, Transfer, etc. of Securities . . . . . . . . . . . . 29
Section 8.8. Voting as Stockholder . . . . . . . . . . . . . . . . . . 29
Section 8.9. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.10. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 8.11. Books and Records; Inspection . . . . . . . . . . . . . . 30
ARTICLE IX
AMENDMENT OF AMENDED BY-LAWS . . . . . . . . . . 30
Section 9.1. Amendment . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE X
CONSTRUCTION . . . . . . . . . . . . . . 30
Section 10.1. Construction . . . . . . . . . . . . . . . . . . . . . . 30
iii
<PAGE> 5
AMERICAN STANDARD COMPANIES INC.
AMENDED BY-LAWS
As adopted on January 4, 1995
ARTICLE I
STOCKHOLDERS
Section 1.1. Annual Meetings. The annual meeting of the
stockholders of the Corporation for the election of Directors and for the
transaction of such other business as properly may come before such meeting
shall be held at such place, either within or without the State of Delaware,
and at 10:00 a.m. (local time) on the first Thursday in May (or, if such day is
a legal holiday, then on the next succeeding business day), or at such other
date and hour, as may be fixed from time to time by resolution of the Board of
Directors and set forth in the notice or waiver of notice of the meeting.
[Sections 211(a), (b).](1)
Section 1.2. Special Meetings. Special meetings of the
stockholders may be called at any time by the (i) Chief Executive Officer or
(ii) by the Board of Directors pursuant to a resolution adopted by a majority
of the total number of authorized Directors or (iii) for purposes of voting on
Director nominees designated by Kelso ASI Partners, L.P. ("ASI Partners")
pursuant to the Amended and Restated Stockholders Agreement, dated as of
December 2, 1994, among the Corporation, ASI Partners and the other
stockholders of the Corporation parties thereto or (the "Amended and Restated
Stockholders Agreement") or the removal of Directors designated for
nomination by ASI Partners pursuant to the Amended and Restated Stockholders
Agreement, ASI Partners, so long as ASI Partners, together with its Affiliates
(as defined in the Amended and Restated Stockholders Agreement), owns at least
10% of the outstanding shares of the Common Stock of the Corporation. Other
than as set forth herein, stockholders shall not be able to call special
meetings. Special meetings of the stockholders shall be held at such places,
within or without the State of Delaware, as shall be specified in the
respective notices or waivers of notice thereof. [Section 211(d).]
- -------------------
1. Citations are to the General Corporation Law of the State of
Delaware as in effect on December 20, 1994 (the "GCL"), and
are inserted for reference only, and do not constitute a
part of the Amended By-Laws.
<PAGE> 6
Section 1.3. Notice of Meetings; Waiver. The Secretary, Acting
Secretary or any Assistant Secretary shall cause written notice of the place,
date and hour of each meeting of the stockholders, and, in the case of a
special meeting, the purpose or purposes for which such meeting is called, to
be given personally or by mail, not less than ten nor more than sixty days
prior to the meeting, to each stockholder of record entitled to vote at such
meeting. If such notice is mailed, it shall be deemed to have been given to a
stockholder when deposited in the United States mail, postage prepaid, directed
to the stockholder at his address as it appears on the record of stockholders
of the Corporation, or, if he shall have filed with the Secretary or Acting or
Assistant Secretary of the Corporation a written request that notices to him be
mailed to some other address, then directed to him at such other address. Such
further notice shall be given as may be required by law.
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened. [Sections 222, 229.]
Section 1.4. Quorum. Except as otherwise required by law or
by the Restated Certificate of Incorporation, the presence in person or by
proxy of the holders of record of a majority of the shares entitled to vote at
a meeting of stockholders shall constitute a quorum for the transaction of
business at such meeting. [Section 216.]
Section 1.5. Voting. If, pursuant to Section 5.5 of these
Amended By-Laws, a record date has been fixed, every holder of record of shares
entitled to vote at a meeting of stockholders shall be entitled to one vote for
each share outstanding in his name on the books of the Corporation at the close
of business on such record date, provided, however, that the certificate of
designation pertaining to any series of the Corporation's preferred stock may
provide for a greater number of votes per share of such series. If no record
date has been fixed, then every holder of record of shares entitled to vote at
a meeting of stockholders shall be entitled to one vote (subject to the same
proviso as set forth in the immediately preceding
2
<PAGE> 7
sentence) for each share of stock standing in his name on the books of the
Corporation at the close of business on the day next preceding the day on which
notice of the meeting is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held.
Except as otherwise required by law, by the Restated Certificate of
Incorporation or by these Amended By-Laws, the vote of a majority of the shares
represented in person or by proxy at any meeting at which a quorum is present
shall be sufficient for the transaction of any business at such meeting.
[Sections 212(a), 216.]
Section 1.6. Voting by Ballot. No vote of the stockholders
need be taken by written ballot unless otherwise required by law. Any vote
which need not be taken by ballot may be conducted in any manner approved by
the meeting.
Section 1.7. Adjournment. If a quorum is not present at any
meeting of the stockholders, the stockholders present in person or by proxy
shall have the power to adjourn any such meeting from time to time until a
quorum is present. Notice of any adjourned meeting of the stockholders of the
Corporation need not be given if the place, date and hour thereof are announced
at the meeting at which the adjournment is taken, provided, however, that if
the adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed pursuant to Section 5.5 of these
Amended By-Laws, a notice of the adjourned meeting, conforming to the
requirements of Section 1.3 hereof, shall be given to each stockholder of
record entitled to vote at such meeting. At any adjourned meeting at which a
quorum is present, any business may be transacted that might have been
transacted on the original date of the meeting. [Section 222(c).]
Section 1.8. Proxies. Any stockholder entitled to vote at
any meeting of the stockholders or to express consent to or dissent from
corporate action without a meeting may authorize another person or persons to
vote at any such meeting and express such consent or dissent for him by proxy.
A stockholder may authorize a valid proxy by executing a written instrument
signed by such stockholder, or by causing his or her signature to be affixed to
such writing by any reasonable means including, but not limited to, by
facsimile signature, or by transmitting or authorizing the transmission of a
telegram, cablegram or other means of electronic transmission to the person
designated as the holder of the proxy, a proxy solicitation firm or a like
authorized agent. No such proxy shall be voted or acted upon after the
expiration of three years from the date of such proxy, unless such proxy
provides for a
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longer period. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases where applicable law provides
that a proxy shall be irrevocable. A stockholder may revoke any proxy which is
not irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or by filing another duly executed
proxy bearing a later date with the Secretary. Proxies by telegram, cablegram
or other electronic transmission must either set forth or be submitted with
information from which it can be determined that the telegram, cablegram or
other electronic transmission was authorized by the stockholder. Any copy,
facsimile telecommunication or other reliable reproduction of a writing or
transmission created pursuant to this section may be substituted or used in
lieu of the original writing or transmission for any and all purposes for which
the original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. [Sections 212(b),
(c), (d), (e).]
Section 1.9. Organization; Procedure. At every meeting of
stockholders the presiding officer shall be the President or, in the event of
his absence or disability, any Vice President or a presiding officer chosen by
a majority of the stockholders present in person or by proxy. The Secretary or
Acting Secretary, or in the event of his absence or disability, the Assistant
Secretary, if any, or if there be no Assistant Secretary, in the absence of the
Secretary or Acting Secretary, an appointee of the presiding officer, shall act
as Secretary of the meeting. The order of business and all other matters of
procedure at every meeting of stockholders may be determined by such presiding
officer.
Section 1.10. Stockholder Proposals and Nominations of
Directors. Nominations for election to the Board of Directors of the
Corporation at a meeting of the stockholders may be made by the Board of
Directors, or on behalf of the Board of Directors by a Nominating Committee
appointed by the Board of Directors, or (subject to compliance with the
remainder of this section) by any stockholder of the Corporation entitled to
vote for the election of Directors at such meeting. Any nominations, other
than those made by or on behalf of the Board of Directors or any such
Nominating Committee, and any proposal by any stockholder to transact any
corporate business at an annual or special stockholders meeting, shall be made
by written notice, mailed by certified mail, to the Secretary of the
Corporation and (i) in the case of an annual meeting, received no later than 50
days prior to the
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date of the annual meeting; provided, however, that if less than 50
days' advance notice of a meeting of stockholders is given to the stockholders,
such advance notice of proposed business or nomination by such stockholder
shall have been made or delivered to the Secretary or Acting Secretary of the
Corporation not later than the close of business on the seventh day following
the day on which the written notice of a meeting was mailed, and (ii) in the
case of a special meeting of stockholders, received not later than the close of
business on the tenth day following the day on which written notice of the date
of the meeting was mailed or public disclosure of the date of the meeting was
made, whichever occurs first; and provided, further, that the foregoing advance
notice requirements applicable to stockholder proposals and nominations of
Directors shall not apply to ASI Partners, so long as ASI Partners, together
with its Affiliates, owns at least 10% of the outstanding shares of the Common
Stock of the Corporation. Notwithstanding the foregoing, the inclusion of
stockholder proposals in proxy materials prepared by the Corporation shall be
governed by Rule 14a-8 under the Securities Exchange Act of 1934, as amended.
The form of written notice of Director nominations by a stockholder or
stockholders shall set forth as to each proposed nominee who is not an
incumbent Director (i) the name, age, business address, and if known, residence
address of each nominee proposed in such notice, (ii) the principal occupation
or employment of each such nominee, (iii) the number of shares of stock of the
Corporation which are beneficially owned by each such nominee and the
nominating stockholder, and (iv) any other information concerning the nominee
that must be disclosed regarding nominees in proxy solicitations pursuant to
Section 14(a) of the Securities Exchange Act of 1934, as amended, and the rules
under such section.
The Chairman of the Board, or in his absence the President, any
Vice President or the Secretary or Acting Secretary, may, if the facts warrant,
determine and declare to the meeting of stockholders that a nomination or a
proposal made by a stockholder was not made in accordance with the foregoing
procedure and that the defective nomination or proposal shall be disregarded.
Section 1.11. Inspectors of Elections. Preceding any meeting
of the stockholders, the Board of Directors shall appoint one or more persons
to act as Inspectors of Elections, and may designate one or more alternate
inspectors. In the event no inspector or alternate is able to act, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of the duties of
an inspector, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector shall:
(a) ascertain the number of shares outstanding and the voting power
of each;
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(b) determine the shares represented at a meeting and the validity
of proxies and ballots;
(c) count all votes and ballots;
(d) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors; and
(e) certify his or her determination of the number of shares
represented at the meeting, and his or her count of all votes and ballots.
The inspector may appoint or retain other persons or entities to assist in the
performance of the duties of inspector.
When determining the shares represented and the validity of
proxies and ballots, the inspector shall be limited to an examination of the
proxies, any envelopes submitted with those proxies, any information provided
in accordance with Section 1.8 of these Amended By-Laws, ballots and the
regular books and records of the Corporation. The inspector may consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers or their nominees or a similar
person which represent more votes than the holder of a proxy is authorized by
the record owner to cast or more votes than the stockholder holds of record.
If the inspector considers other reliable information as outlined in this
section, the inspector, at the time of his or her certification pursuant to (e)
of this section shall specify the precise information considered, the person or
persons from whom the information was obtained, when this information was
obtained, the means by which the information was obtained, and the basis for
the inspector's belief that such information is accurate and reliable.
[Sections 231(a), (b), (d).]
Section 1.12. Opening and Closing of Polls. The date and
time for the opening and the closing of the polls for each matter to be voted
upon at a meeting of stockholders shall be announced at the meeting. The
inspector of the election shall be prohibited from accepting any ballots,
proxies or votes nor any revocations thereof or changes thereto after the
closing of the polls, unless the Court of Chancery upon application by a
stockholder shall determine otherwise. [Section 231(c).]
Section 1.13. Consent of Stockholders in Lieu of Meeting.
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a
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duly called annual or special meeting of the stockholders of the Corporation,
and the ability of stockholders to consent in writing to the taking of any
action is hereby specifically denied, provided, however, that so long as ASI
Partners, together with its Affiliates, owns at least 10% of the outstanding
shares of the Common Stock of the Corporation, stockholder action may be
taken by written consent in order to vote on Director nominees designated by
ASI Partners pursuant to the Amended and Restated Stockholders Agreement or
the removal of Directors designated for nomination by ASI Partners pursuant to
the Amended and Restated Stockholders Agreement. The preceding sentence shall
take effect on the day following the closing date of the Corporation's initial
underwritten public offering of Common Stock. Every written consent permitted
by this section shall be delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
Every written consent permitted by this section shall bear the
date of signature of each stockholder who signs the consent and no written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered in the manner
required by law to the Corporation, written consents signed by a sufficient
number of holders to take action are delivered to the Corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made
to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not so consented in writing. [Section
228(a), (c), (d).]
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. General Powers. Except as may otherwise be
provided by law, by the Restated Certificate of Incorporation or by these
Amended By-Laws, the business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors which may exercise all such
powers of the Corporation. [Section 141(a).]
Section 2.2. Number and Term of Office. The number of
Directors constituting the entire Board of Direc-
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<PAGE> 12
tors shall be eleven (11), which number may be modified from time to time by
resolution of the Board of Directors, but in no event shall the number of
Directors be less than three (3) or greater than twenty-one (21); provided,
however, that so long as ASI Partners, together with its Affiliates, owns at
least 10% of the outstanding Common Stock of the Corporation, the number of
Directors constituting the entire Board of Directors shall be eleven (11), plus
any Directors elected by the holders of any class of the Corporation's
Preferred Stock. Each Director (whenever elected) shall hold office until his
successor has been duly elected and qualified, or until his earlier death,
resignation or removal. [Section 141(b).]
Section 2.3. Election of Directors. The members of the Board of
Directors elected by the holders of the Common Stock of the Corporation shall
be divided at the annual meeting of stockholders to be held in 1995 into three
classes, designated Classes I, II and III, which shall be as nearly equal in
number as possible. At the annual meeting of stockholders in 1995, Directors
of Class I shall be elected to hold office for a term expiring at the annual
meeting of stockholders to be held in 1996, Directors of Class II shall be
elected to hold office for a term expiring at the annual meeting of
stockholders to be held in 1997 and Directors of Class III shall be elected to
hold office for a term expiring at the annual meeting of stockholders to be
held in 1998. At each succeeding annual meeting of stockholders following such
initial classification and election, the respective successors of Directors
whose terms are expiring shall be elected for terms expiring at the annual
meeting of stockholders held in the third succeeding year. If the annual
meeting of stockholders for the election of Directors is not held on the date
designated therefor, the Directors shall cause the meeting to be held as soon
thereafter as convenient. At each meeting of the stockholders for the election
of Directors, provided a quorum is present, the Directors shall be elected by a
plurality of the votes validly cast in such election. Notwithstanding the
foregoing, the election, term, removal and filling of vacancies with respect to
Directors elected separately by the holders of one or more series of Preferred
Stock of the Corporation shall not be governed by this Article II, but rather
shall be as provided for in the resolutions adopted by the Board of Directors
creating and establishing such series of Preferred Stock. [Sections 141(d),
211(b), (c), 216.]
Section 2.4. Annual and Regular Meetings. The annual meeting of the
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of
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the stockholders at the place of such annual meeting of the stockholders.
Notice of such annual meeting of the Board of Directors need not be given. The
Board of Directors from time to time may by resolution provide for the holding
of regular meetings and fix the place (which may be within or without the State
of Delaware) and the date and hour of such meetings. Notice of regular
meetings need not be given, provided, however, that if the Board of Directors
shall fix or change the time or place of any regular meeting, notice of such
action shall be mailed promptly, or sent by facsimile transmission or telegram,
to each Director who shall not have been present at the meeting at which such
action was taken, addressed to him at his usual place of business, or shall be
delivered to him personally. Notice of such action need not be given to any
Director who attends the first regular meeting after such action is taken
without protesting the lack of notice to him, prior to or at the commencement
of such meeting, or to any Director who submits a signed waiver of notice,
whether before or after such meeting. [Section 141(g).]
Section 2.5. Special Meetings; Notice. Special meetings of
the Board of Directors shall be held whenever called by the President or, in
the event of his absence or disability, by any Vice President or by the
Secretary or Acting Secretary, at such place (within or without the State of
Delaware), date and hour as may be specified in the respective notices or
waivers of notice of such meetings. Special meetings of the Board of Directors
may be called on 24 hours' notice, if notice is given to each Director
personally or by telephone or telegram, or on five days' notice, if notice is
mailed to each Director, addressed to him at his usual place of business.
Notice of any special meeting need not be given to any Director who attends
such meeting without protesting the lack of notice to him, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting, and any business may be
transacted thereat. [Sections 141(g), 229.]
Section 2.6. Quorum; Voting. At all meetings of the Board of
Directors, the presence of a majority of the total authorized number of
Directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the Restated Certificate of Incorporation or these
Amended By-Laws, the vote of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors. [Section 141(b).]
Section 2.7. Adjournment. A majority of the Directors
present, whether or not a quorum is present, may
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adjourn any meeting of the Board of Directors to another time or place. No
notice need be given of any adjourned meeting unless the time and place of the
adjourned meeting are not announced at the time of adjournment, in which case
notice conforming to the requirements of Section 2.5 shall be given to each
Director.
Section 2.8. Action Without a Meeting. Any action required
or permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors. [Section 141(f).]
Section 2.9. Organization. Meetings of the Board of
Directors shall be presided over by the Chairman of the Board or, in his
absence or if such office is vacant, by the President, or in their absence by a
chairman chosen at the meeting. The Secretary or Acting Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.10. Regulations; Manner of Acting. To the extent
consistent with applicable law, the Restated Certificate of Incorporation and
these Amended By-Laws, the Board of Directors may adopt such rules and
regulations for the conduct of meetings of the Board of Directors and for the
management of the property, affairs and business of the Corporation as the
Board of Directors may deem appropriate. The Directors shall act only as a
Board, and the individual Directors shall have no power as such.
Section 2.11. Action by Telephonic Communications. Members
of the Board of Directors may participate in a meeting of the Board of
Directors by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this provision shall constitute
presence in person at such meeting. [Section 141(i).]
Section 2.12. Resignations. Any Director may resign at any
time by delivering a written notice of resignation, signed by such Director, to
the President or the Secretary or Acting Secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery. [Section 141(b).]
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Section 2.13. Removal of Directors. A Director may be removed only
for cause, upon the affirmative vote of the holders of a majority of the
outstanding shares of stock of the Corporation then entitled to vote at an
election of Directors, cast at a special meeting of stockholders called for the
purpose or at an annual meeting; provided, however, that so long as ASI
Partners, together with its Affiliates, owns at least 35% of the outstanding
Common Stock of the Corporation, Directors (including without limitation, any
Director elected pursuant to Section 2.14) may be removed upon receipt of the
requisite vote of stockholders with or without cause. Any vacancy in the Board
of Directors caused by any such removal may be filled at any such meeting by
the stockholders entitled to vote for the election of the Director so removed.
So long as ASI Partners, together with its Affiliates, owns at least 10% of
the outstanding shares of Common Stock of the Corporation, ASI Partners shall
be entitled to either (i) call a special meeting of stockholders or (ii)
notwithstanding anything contained in these Amended By-Laws to the contrary,
request that the stockholders act by written consent, to vote on the election
of Director nominees designated by ASI Partners pursuant to the Amended and
Restated Stockholders Agreement or the removal of Directors designated for
nomination by ASI Partners pursuant to the Amended and Restated Stockholders
Agreement. Notwithstanding the foregoing, the election, term, removal and
filling of vacancies with respect to Directors elected separately by the
holders of one or more series of Preferred Stock of the Corporation shall not
be governed by this Article II, but rather shall be as provided for in the
Preferred Stock certificate of designation creating and establishing such
series of Preferred Stock. [Section 141(k).]
Section 2.14. Vacancies and Newly Created Directorships. If any
vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal (and the stockholders shall not have filled such vacancy as
provided in Section 2.13 above) or otherwise, or if the authorized number of
Directors shall be increased, the Directors then in office shall continue to
act, and such vacancies or newly created directorships, as the case may be, may
be filled by a majority of Directors then in office, although less than a
quorum, provided that so long as ASI Partners, together with its Affiliates,
owns at least 10% of the outstanding shares of the Common Stock of the
Corporation, ASI Partners shall have the exclusive right, exercisable at any
time, to designate for nomination for election by such remaining Directors an
individual to fill any vacancy created by removal or death of or resignation of
a Director designated for nomination by ASI Partners pursuant to the
Amended and Restated Stockholders Agreement and Directors not affiliated with
ASI Partners shall similarly have the exclusive right, exercisable at any time,
to designate for nomination for election by such remaining Directors an
individual to fill any vacancy created by removal or death of or resignation of
a Director designated for election by such non-affiliated Directors
pursuant to the Amended and Restated Stockholders Agreement. A Director
elected by the Directors pursuant to this Section 2.14 to fill a vacancy or a
newly created directorship
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shall hold office until his successor has been elected and qualified or until
his earlier death, resignation or removal. [Section 223.]
Section 2.15. Compensation. The amount, if any, which each
Director shall be entitled to receive as compensation for his services as such
shall be fixed from time to time by resolution of the Board of Directors.
[Section 141(h).]
Section 2.16. Reliance on Accounts and Reports, etc. A
Director, or a member of any Committee designated by the Board of Directors
shall, in the performance of his duties, be fully protected in relying in good
faith upon the records of the Corporation and upon information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or Committees designated by the Board of Directors, or
by any other person as to the matters the member reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Corporation. [Section 141(e).]
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.1. How Constituted. The Board of Directors may, by
resolution adopted by a majority of the whole Board, designate one or more
Committees, including an Executive Committee, each such Committee to consist of
such number of Directors as from time to time may be fixed by the Board of
Directors. The Board of Directors may designate one or more Directors as
alternate members of any such Committee, who may replace any absent or
disqualified member or members at any meeting of such Committee. Thereafter,
members (and alternate members, if any) of each such Committee may be
designated at the annual meeting of the Board of Directors. Any such Committee
may be abolished or re-designated from time to time by the Board of Directors.
Each member (and each alternate member) of any such Committee (whether
designated at an annual meeting of the Board of Directors or to fill a vacancy
or otherwise) shall hold office until his successor shall have been designated
or until he shall cease to be a Director, or until his earlier death,
resignation or removal. [Section 141(c).]
Section 3.2. Powers. During the intervals between the
meetings of the Board of Directors, the Executive
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Committee, except as otherwise provided in this section, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the property, affairs and business of the Corporation, including
the power to declare dividends and to authorize the issuance of stock. Each
such other Committee, except as otherwise provided in this section, shall have
and may exercise such powers of the Board of Directors as may be provided by
resolution or resolutions of the Board of Directors. Neither the Executive
Committee nor any such other Committee shall have the power or authority:
(a) to amend the Restated Certificate of Incorporation
(except that a Committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of
stock adopted by the Board of Directors as provided in Section 151(a)
of the Delaware General Corporation Law, fix the designations and any
of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation
or the conversion into, or the exchange of such shares for, shares of
any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number
of shares of any series of stock or authorize the increase or decrease
of the shares of any series),
(b) to adopt an agreement of merger or consolidation,
(c) to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets,
(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or
(e) to amend the Amended By-Laws of the Corporation.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it. [Section 141(c).]
Section 3.3. Proceedings. Each such Committee may fix its
own rules of procedure and may meet at such place (within or without the State
of Delaware), at such
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time and upon such notice, if any, as it shall determine from time to time.
Each such Committee shall keep minutes of its proceedings and shall report such
proceedings to the Board of Directors at the meeting of the Board of Directors
next following any such proceedings.
Section 3.4. Quorum and Manner of Acting. Except as may be
otherwise provided in the resolution creating such Committee, at all meetings
of any Committee the presence of members (or alternate members) constituting a
majority of the total authorized membership of such Committee shall constitute
a quorum for the transaction of business. The act of the majority of the
members present at any meeting at which a quorum is present shall be the act of
such Committee. Any action required or permitted to be taken at any meeting of
any such Committee may be taken without a meeting, if all members of such
Committee shall consent to such action in writing and such writing or writings
are filed with the minutes of the proceedings of the Committee. The members of
any such Committee shall act only as a Committee, and the individual members of
such Committee shall have no power as such. [Section 141(c), (f).]
Section 3.5. Action by Telephonic Communications. Members of
any Committee designated by the Board of Directors may participate in a meeting
of such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting. [Section 141(i).]
Section 3.6. Absent or Disqualified Members. In the absence
or disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. [Section 141(c).]
Section 3.7. Resignations. Any member (and any alternate
member) of any Committee may resign at any time by delivering a written notice
of resignation, signed by such member, to the Chairman or the President.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
Section 3.8. Removal. Any member (and any alternate member)
of any Committee may be removed at any time,
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either for or without cause, by resolution adopted by a majority of the whole
Board of Directors.
Section 3.9. Vacancies. If any vacancy shall occur in any
Committee, by reason of disqualification, death, resignation, removal or
otherwise, the remaining members (and any alternate members) shall continue to
act, and any such vacancy may be filled by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.1. Number. The officers of the Corporation shall
be chosen by the Board of Directors and shall be a President, one or more Vice
Presidents, a Secretary, a Controller, a General Auditor and a Treasurer, and
it may, if it so determines, elect a Chairman of the Board of Directors from
among its members. The Board of Directors also may elect a Vice Chairman and
one or more Acting or Assistant Secretaries, Assistant Controllers and
Assistant Treasurers in such numbers as the Board of Directors may determine.
Any number of offices may be held by the same person, except that neither the
Chairman of the Board of Directors nor the President shall also hold the office
of Secretary. No officer, other than the Chairman or Vice Chairman, need be a
Director of the Corporation. [Section 142(a), (b).]
Section 4.2. Election. Unless otherwise determined by the
Board of Directors, the officers of the Corporation shall be elected by the
Board of Directors at the annual meeting of the Board of Directors, and shall
be elected to hold office until the next succeeding annual meeting of the Board
of Directors. In the event of the failure to elect officers at such annual
meeting, officers may be elected at any regular or special meeting of the Board
of Directors. Each officer shall hold office until his successor has been
elected and qualified, or until his earlier death, resignation or removal.
[Section 142(b).]
Section 4.3. Salaries. The salaries of all officers and
agents of the Corporation shall be fixed by the Board of Directors.
Section 4.4. Removal and Resignation; Vacancies. Any officer
may be removed for or without cause at any time by the Board of Directors. Any
officer may resign at any
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time by delivering a written notice of resignation, signed by such officer, to
the Board of Directors or the President or the Secretary or Acting Secretary.
Unless otherwise specified therein, such resignation shall take effect upon
delivery. Any vacancy occurring in any office of the Corporation, by death,
resignation, removal or otherwise, shall be filled by the Board of Directors.
[Section 142(b), (e).]
Section 4.5. Authority and Duties of Officers. The officers
of the Corporation shall have such authority and shall exercise such powers and
perform such duties as may be specified in these Amended By-Laws, except that
in any event each officer shall exercise such powers and perform such duties as
may be required by law. [Section 142(a).]
Section 4.6. The President. The President shall preside at
all meetings of the stockholders and Directors at which he is present in the
absence of the Chairman or Vice Chairman, shall be the chief executive officer
and the chief operating officer of the Corporation, shall have general control
and supervision of the policies and operations of the Corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect. He shall manage and administer the Corporation's business and affairs
and shall also perform all duties and exercise all powers usually pertaining to
the office of a chief executive officer and a chief operating officer of a
corporation. He shall have the authority to sign, in the name and on behalf of
the Corporation, checks, orders, contracts, leases, notes, drafts and other
documents and instruments in connection with the business of the Corporation,
and together with the Secretary or an Acting or Assistant Secretary,
conveyances of real estate and other documents and instruments to which the
seal of the Corporation is affixed. He shall have the authority to cause the
employment or appointment of such employees and agents of the Corporation as
the conduct of the business of the Corporation may require, to fix their
compensation, and to remove or suspend any employee or agent elected or
appointed by the President or the Board of Directors. The President shall
perform such other duties and have such other powers as the Board of Directors
or the Chairman may from time to time prescribe.
Section 4.7. Vice Presidents. Each Vice President shall
perform such duties and exercise such powers as may be assigned to him from
time to time by the President. In the absence of the President, the duties of
the President
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shall be performed and his powers may be exercised by such Vice President as
shall be designated by the President, or failing such designation, such duties
shall be performed and such powers may be exercised by each Vice President in
the order of their earliest election to that office, subject in any case to
review and superseding action by the President.
Section 4.8. The Secretary. The Secretary shall have the
following powers and duties:
(a) He shall keep or cause to be kept a record of all the
proceedings of the meetings of the stockholders and of the Board of
Directors in books provided for that purpose.
(b) He shall cause all notices to be duly given in
accordance with the provisions of these Amended By-Laws and as
required by law.
(c) Whenever any Committee shall be appointed pursuant to
a resolution of the Board of Directors, he shall furnish a copy of
such resolution to the members of such Committee.
(d) He shall be the custodian of the records and of the
seal of the Corporation and cause such seal (or a facsimile thereof)
to be affixed to all certificates representing shares of the
Corporation prior to the issuance thereof and to all instruments the
execution of which on behalf of the Corporation under its seal shall
have been duly authorized in accordance with these Amended By-Laws,
and when so affixed he may attest the same.
(e) He shall properly maintain and file all books,
reports, statements, certificates and all other documents and records
required by law, the Restated Certificate of Incorporation or these
Amended By-Laws.
(f) He shall have charge of the stock books and ledgers
of the Corporation and shall cause the stock and transfer books to be
kept in such manner as to show at any time the number of shares of
stock of the Corporation of each class issued and outstanding, the
names (arranged alphabetically or chronologically) and the addresses
of the holders of record of such shares, the number of shares held by
each holder and the date as of which each became such holder of record.
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(g) He shall sign (unless the Treasurer, an Assistant
Treasurer or Acting or Assistant Secretary shall have signed)
certificates representing shares of the Corporation the issuance of
which shall have been authorized by the Board of Directors.
(h) He shall perform, in general, all duties incident to
the office of Secretary and such other duties as may be specified in
these Amended By-Laws or as may be assigned to him from time to time
by the Board of Directors, or the President.
Section 4.9. The Treasurer. The Treasurer shall have the
following powers and duties:
(a) He shall have charge and supervision over and be
responsible for the moneys, securities, receipts and disbursements of
the Corporation, and shall keep or cause to be kept full and accurate
records of all receipts of the Corporation.
(b) He shall cause the moneys and other valuable effects
of the Corporation to be deposited in the name and to the credit of
the Corporation in such banks or trust companies or with such bankers
or other depositaries as shall be selected in accordance with Section
8.5 of these Amended By-Laws.
(c) He shall cause the moneys of the Corporation to be
disbursed by checks or drafts (signed as provided in Section 8.6 of
these Amended By-Laws) upon the authorized depositaries of the
Corporation and cause to be taken and preserved proper vouchers for
all moneys disbursed.
(d) He shall render to the Board of Directors or the
President, whenever requested, a statement of the financial condition
of the Corporation and of all his transactions as Treasurer, and
render a full financial report at the annual meeting of the
stockholders, if called upon to do so.
(e) He shall be empowered from time to time to require
from all officers or agents of the Corporation reports or statements
giving such information as he may desire with respect to any and all
financial transactions of the Corporation.
(f) He may sign (unless an Assistant Treasurer or the
Secretary or an Acting or Assistant Secretary shall
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have signed) certificates representing stock of the Corporation the
issuance of which shall have been authorized by the Board of
Directors.
(g) He shall perform, in general, all duties incident to
the office of treasurer and such other duties as may be specified in
these Amended By-Laws or as may be assigned to him from time to time
by the Board of Directors, or the President.
Section 4.10. Additional Officers. The Board of Directors
may appoint such other officers and agents as it may deem appropriate, and such
other officers and agents and the officers specified in Section 4.1 hereof not
covered in Sections 4.6 through 4.9 hereof shall hold their offices for such
terms and shall exercise such powers and perform such duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be authorized or prescribed by the Board of Directors. The
Board of Directors from time to time may delegate to any officer or agent the
power to appoint subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties. Any such officer
or agent may remove any such subordinate officer or agent appointed by him,
for or without cause. [Section 142(a), (b).]
Section 4.11. Security. The Board of Directors may require
any officer, agent or employee of the Corporation to provide security for the
faithful performance of his duties, in such amount and of such character as may
be determined from time to time by the Board of Directors. [Section 142(c).]
ARTICLE V
CAPITAL STOCK
Section 5.1. Certificates of Stock, Uncertificated Shares.
The shares of the Corporation shall be represented by certificates, provided
that the Board of Directors may provide by resolution or resolutions that some
or all of any or all classes or series of the stock of the Corporation, or
rights associated therewith shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until each
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock in the
Corporation represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a
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certificate signed by, or in the name of the Corporation, by the Chairman,
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Acting or Assistant Secretary, representing the number
of shares registered in certificate form. Such certificate shall be in such
form as the Board of Directors may determine, to the extent consistent with
applicable law, the Restated Certificate of Incorporation and these Amended
By-Laws. [Section 158.]
Section 5.2. Signatures; Facsimile. All of such signatures
on the certificate may be a facsimile, engraved or printed, to the extent
permitted by law. In case any officer, transfer agent or registrar who has
signed, or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
[Section 158.]
Section 5.3. Lost, Stolen or Destroyed Certificates. The
Board of Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of any such new certificate. [Section 167.]
Section 5.4. Transfer of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for
shares, duly endorsed or accompanied by appropriate evidence of succession,
assignment or authority to transfer, the Corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books. Within a reasonable time after the
transfer of uncertificated stock, the Corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a)
of the General Corporation Law of the State of Delaware. Subject to the
provisions of the Restated Certificate of Incorporation and these Amended
By-Laws, the Board of Directors may prescribe such additional
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rules and regulations as it may deem appropriate relating to the issue,
transfer and registration of shares of the Corporation. [Section 151(f).]
Section 5.5. Record Date. In order to determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted by the Board of Directors, and
which shall not be more than sixty nor less than ten days before the date of
such meeting. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
In order that the Corporation may determine the stockholders
entitled pursuant to these Amended By-Laws to consent to corporate action in
writing without a meeting, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which date shall not be
more than ten days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. If no record date has been fixed by
the Board of Directors, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is required by law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of
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business on the day on which the Board of Directors adopts the resolution
taking such prior action.
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights of the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
[Section 213.]
Section 5.6. Registered Stockholders. Prior to due surrender
of a certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so. [Section 159.]
Section 5.7. Transfer Agent and Registrar. The Board of
Directors may appoint one or more transfer agents and one or more registrars,
and may require all certificates representing shares to bear the signature of
any such transfer agents or registrars.
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ARTICLE VI
INDEMNIFICATION(2)
Section 6.1. Nature of Indemnity. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by
reason of the fact that he is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with
such action, suit or proceeding and any appeal therefrom, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding had no reasonable cause to believe his conduct was unlawful; except
that in the case of an action or suit by or in the right of the Corporation to
procure a judgment in its favor (1) such indemnification shall be limited to
expenses (including attorneys' fees) actually and reasonably incurred by such
person in the defense or settlement of such action or suit, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
- -----------
2. Section 145.
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The termination of any action, suit or proceeding by judgment,
order settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
Section 6.2. Successful Defense. To the extent that a
Director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in Section 6.1 hereof or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
Section 6.3. Determination That Indemnification is Proper.
Any indemnification of a Director or officer of the Corporation under Section
6.1 hereof (unless ordered by a court) shall be made by the Corporation unless
a determination is made that indemnification of the Director or officer is not
proper in the circumstances because he has not met the applicable standard of
conduct set forth in Section 6.1 hereof. Any indemnification of an employee or
agent of the Corporation under Section 6.1 hereof (unless ordered by a court)
may be made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 6.1 hereof. Any such
determination shall be made (1) by a majority vote of the Directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(2) if there are no such Directors, or if such Directors so direct, by
independent legal counsel in a written opinion, or (3) by the stockholders.
Section 6.4. Advance Payment of Expenses. Expenses
(including attorneys' fees) incurred by a Director or officer in defending any
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the Director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the Board of Directors deems
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appropriate. The Board of Directors may authorize the Corporation's counsel to
represent such Director, officer, employee or agent in any action, suit or
proceeding, whether or not the Corporation is a party to such action, suit or
proceeding.
Section 6.5. Procedure for Indemnification of Directors and
Officers. Any indemnification of a Director or officer of the Corporation
under Sections 6.1 and 6.2, or advance of costs, charges and expenses to a
Director or officer under Section 6.4 of this Article, shall be made promptly,
and in any event within 30 days, upon the written request of the Director or
officer. If a determination by the Corporation that the Director or officer is
entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If
the Corporation denies a written request for indemnity or advancement of
expenses, in whole or in part, or if payment in full pursuant to such request
is not made within 30 days, the right to indemnification or advances as granted
by this Article shall be enforceable by the Director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in
connection with successfully establishing his right to indemnification, in
whole or in part, in any such action shall also be indemnified by the
Corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for the advance of costs, charges and expenses under
Section 6.4 of this Article where the required undertaking, if any, has been
received by the Corporation) that the claimant has not met the standard of
conduct set forth in Section 6.1 of this Article, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, its independent legal counsel,
and its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 6.1
of this Article, nor the fact that there has been an actual determination by
the Corporation (including its Board of Directors, its independent legal
counsel, and its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
Section 6.6. Survival; Preservation of Other Rights. The
foregoing indemnification provisions shall be
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deemed to be a contract between the Corporation and each Director, officer,
employee and agent who serves in any such capacity at any time while these
provisions as well as the relevant provisions of the General Corporation Law of
the State of Delaware are in effect. Any repeal or modification of these
indemnification provisions shall not affect any right or obligation then
existing with respect to any state of facts then or previously existing or any
action, suit or proceeding previously or thereafter brought or threatened based
in whole or in part upon any such state of facts. Such a "contract right" may
not be modified retroactively without the consent of such Director, officer,
employee or agent.
The indemnification provided by this Article VI shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 6.7. Insurance. The Corporation shall purchase and
maintain insurance on behalf of any person who is or was or has agreed to
become a Director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him or on his behalf in any such capacity,
or arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article, provided that such insurance is available on acceptable terms, which
determination shall be made by a vote of a majority of the entire Board of
Directors.
Section 6.8. Severability. If this Article VI or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each Director
or officer and may indemnify each employee or agent of the Corporation as to
costs, charges and expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, including an action
by or in the right of the Corporation, to the fullest extent per-
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mitted by any applicable portion of this Article that shall not have been
invalidated and to the fullest extent permitted by applicable law.
ARTICLE VII
OFFICES
Section 7.1. Registered Office. The registered office of the
Corporation in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street in the City of Wilmington, County of New Castle.
Section 7.2. Other Offices. The Corporation may maintain
offices or places of business at such other locations within or without the
State of Delaware as the Board of Directors may from time to time determine or
as the business of the Corporation may require.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1. Dividends. Subject to any applicable provisions
of law and the Restated Certificate of Incorporation, dividends upon the shares
of the Corporation may be declared by the Board of Directors at any regular or
special meeting of the Board of Directors and any such dividend may be paid in
cash, property, shares of the Corporation's capital stock or rights to acquire
the same.
A member of the Board of Directors, or a member of any
Committee designated by the Board of Directors shall be fully protected in
relying in good faith upon the records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation by
any of its officers or employees, or Committees of the Board of Directors, or
by any other person as to matters the Director reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Corporation, as to the value and
amount of the assets, liabilities and/or net profits of the Corporation, or any
other facts pertinent to the existence and amount of surplus or other funds
from which dividends might properly be declared and paid. [Sections 172, 173.]
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Section 8.2. Reserves. There may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may similarly modify or abolish any
such reserve.
Section 8.3. Execution of Instruments. The President, any
Vice President, the Secretary or Acting Secretary or the Treasurer may enter
into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation. The Board of Directors or the President may
authorize any other officer or agent to enter into any contract or execute and
deliver any instrument in the name and on behalf of the Corporation. Any such
authorization may be general or limited to specific contracts or instruments.
Section 8.4. Corporate Indebtedness. No loan shall be
contracted on behalf of the Corporation, and no evidence of indebtedness shall
be issued in its name, unless authorized by the Board of Directors or the
President or any Vice President. Such authorization may be general or confined
to specific instances. Loans so authorized may be effected at any time for the
Corporation from any bank, trust company or other institution, or from any
firm, corporation or individual. All bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation issued for such
loans shall be made, executed and delivered as the Board of Directors or the
President or any Vice President shall authorize. When so authorized by the
Board of Directors or the President or any Vice President, any part of or all
the properties, including contract rights, assets, business or good will of the
Corporation, whether then owned or thereafter acquired, may be mortgaged,
pledged, hypothecated or conveyed or assigned in trust as security for the
payment of such bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation, and of the interest thereon, by instruments
executed and delivered in the name of the Corporation.
Section 8.5. Deposits. Any funds of the Corporation may be
deposited from time to time in such banks, trust companies or other
depositaries as may be determined by the Board of Directors or the President,
or by such officers or
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agents as may be authorized by the Board of Directors or the President or any
Vice President to make such determination.
Section 8.6. Checks. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
agent or agents of the Corporation, and in such manner, as the Board of
Directors or the President or any Vice President from time to time may
determine.
Section 8.7. Sale, Transfer, etc. of Securities. To the
extent authorized by the Board of Directors or by the President, any Vice
President, the Secretary or Acting Secretary or the Treasurer or any other
officers designated by the Board of Directors or the President may sell,
transfer, endorse, and assign any shares of stock, bonds or other securities
owned by or held in the name of the Corporation, and may make, execute and
deliver in the name of the Corporation, under its corporate seal, any
instruments that may be appropriate to effect any such sale, transfer,
endorsement or assignment.
Section 8.8. Voting as Stockholder. Unless otherwise
determined by resolution of the Board of Directors, the President or any Vice
President or the Secretary or Acting Secretary shall have full power and
authority on behalf of the Corporation to attend any meeting of stockholders of
any corporation in which the Corporation may hold stock, and to act, vote (or
execute proxies to vote) and exercise in person or by proxy all other rights,
powers and privileges incident to the ownership of such stock. Such officers
acting on behalf of the Corporation shall have full power and authority to
execute any instrument expressing consent to or dissent from any action of any
such corporation without a meeting. The Board of Directors may by resolution
from time to time confer such power and authority upon any other person or
persons.
Section 8.9. Fiscal Year. The fiscal year of the Corporation
shall commence on the first day of January of each year and shall terminate in
each case on December 31.
Section 8.10. Seal. The seal of the Corporation shall be
circular in form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to alteration by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
reproduced, or may be used in any other lawful manner.
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Section 8.11. Books and Records; Inspection. Except to the
extent otherwise required by law, the books and records of the Corporation
shall be kept at such place or places within or without the State of Delaware
as may be determined from time to time by the Board of Directors.
ARTICLE IX
AMENDMENT OF AMENDED BY-LAWS
Section 9.1. Amendment. These Amended By-Laws may be amended,
altered or repealed
(a) by resolution adopted by a majority of the Board of
Directors at any special or regular meeting of the Board if, in the
case of such special meeting only, notice of such amendment,
alteration or repeal is contained in the notice or waiver of notice of
such meeting; or
(b) at any regular or special meeting of the stockholders
upon the affirmative vote of a majority of the combined voting power
of the then outstanding stock of the Corporation entitled to vote
generally in the election of Directors, provided, however, that any
amendment, alteration or repeal of Article I, sections 1.2, 1.10 and
1.13 or Article VI as it pertains to Directors and officers, shall
require the affirmative vote of 65% of the combined voting power of the
then outstanding stock of the Corporation entitled to vote generally in
the election of Directors. In the case of such special meeting only,
notice of such amendment, alteration or repeal must be contained in
the notice or waiver of notice of such meeting. [Section 109(a).]
ARTICLE X
CONSTRUCTION
Section 10.1. Construction. In the event of any conflict
between the provisions of these Amended By-Laws as in effect from time to time
and the provisions of the Restated Certificate of Incorporation of the
Corporation as in effect from time to time, the provisions of such Restated
Certificate of Incorporation shall be controlling.
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EXHIBIT 4(xxii)
[RIGHTS AGREEMENT AND EXHIBITS A & B THERETO PREVIOUSLY FILED]
EXHIBIT C
American Standard Companies Inc.
(formerly named ASI Holding Corporation)
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On January 4, 1995, the Board of Directors of American Standard
Companies Inc. (formerly named ASI Holding Corporation) (the "Company")
declared a dividend distribution of one Right for each outstanding share of
Common Stock, par value $.01 per share (the "Common Stock"), of the Company.
The distribution was payable on January 5, 1995 to stockholders of record on
January 4, 1995 (the "Record Date"). Each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of its Junior
Participating Cumulative Preferred Stock, par value $.01 per share (the
"Preferred Stock") at a price of $100 per one one-hundredth of a share (the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement") between the
Company and Citibank, N.A., as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) ten business days following the time
(the "Stock Acquisition Time") of a public announcement by the Company that a
person or group of affiliated or associated persons (other than (x) directors,
officers and employees of the Company, American Standard Inc. ("ASI") and their
subsidiaries as a group, (y) Kelso ASI Partners, L.P. or any of its affiliates
("ASI Partners") or any of their immediate tranferees, provided any such
transferee holding 15% or more of the outstanding Common Stock does not acquire
any additional shares of Common Stock except from ASI Partners or its
affiliates, or (z) any employee benefit plan of the Company, ASI or their
subsidiaries including the American-Standard Employee Stock Ownership Plan) has
acquired beneficial ownership (as defined in the Rights Agreement) of 15% or
more of the outstanding shares of Common Stock of the Company (such 15%
beneficial owner, an "Acquiring Person"), or (ii) ten business days, or such
later date as may be determined by the Board of Directors of the Company, after
the date of the commencement or announcement by a person of an intention to
make a tender offer or exchange offer for an amount of Common Stock which,
together with the shares of such stock already owned by such person,
constitutes 15% or more of the outstanding shares of such Common Stock (the
earlier of such
<PAGE> 2
dates being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Company's Common Stock certificates outstanding as of the
Record Date, by such Common Stock certificate with a copy of this Summary of
Rights attached thereto. The Rights Agreement provides that, until the
Distribution Date, the Rights will be transferred with and only with the
Company's Common Stock. Until the Distribution Date (or earlier redemption or
expiration of the Rights), new Common Stock certificates issued after the
Record Date, upon transfer or new issuance of the Company's Common Stock, will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any of the Company's Common Stock certificates
outstanding as of the Record Date, even without a copy of this Summary of
Rights attached thereto, will also constitute the transfer of the Rights
associated with the shares of Common Stock represented by such certificate.
As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights (the "Right Certificates") will be mailed to holders of
record of the Company's Common Stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on January 5, 2005, unless earlier redeemed by the Company as
described below.
The Purchase Price payable, and the number of shares of Preferred Stock
or other securities or property issuable upon exercise of the Rights, are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of the
Preferred Stock, (ii) upon the fixing of a record date for the issuance to
holders of Preferred Stock of certain rights, options or warrants to subscribe
for shares of Preferred Stock or convertible securities at less than the
current market price of shares of Preferred Stock or (iii) upon the fixing of a
record date for the making of a distribution to holders of shares of Preferred
Stock of evidences of indebtedness or assets (excluding regular periodic cash
dividends not exceeding 125% of the last regular periodic cash dividend or
dividends payable in shares of Preferred Stock) or of subscription rights or
warrants (other than those referred to above). The number of Rights and number
of shares of Preferred Stock issuable upon the exercise of each Right are also
subject to
2
<PAGE> 3
adjustment in the event of a stock split, combination or stock dividend on the
Common Stock prior to the Distribution Date.
In the event that after the Stock Acquistion Time the Company is
acquired in a merger or other business combination transaction or 50% or more
of its assets, cash flow or earning power are sold or otherwise transferred,
proper provision shall be made so that each holder of a Right shall thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction would have a market
value (as defined in the Rights Agreement) of two times the exercise price of
the Right. In the event that the Company were the surviving corporation of a
merger and its Common Stock were changed or exchanged, proper provision shall
be made so that each holder of a Right will thereafter have the right to
receive upon exercise that number of shares of common stock of the acquiring
company having a market value of two times the exercise price of the Right.
In the event that a person or group becomes an Acquiring Person
(otherwise than pursuant to a tender offer or exchange offer for all
outstanding shares of Common Stock at a price and on terms which are determined
to be fair and in the best interests of the Company and its stockholders by a
majority of the members of the Board of Directors of the Company who are
Continuing Directors (as defined below), proper provision shall be made so that
each holder of a Right, other than Rights that were beneficially owned by the
Acquiring Person, which will thereafter be void, will thereafter have the right
to receive upon exercise that number of shares of Common Stock having a market
value (as defined in the Rights Agreement) of two times the excercise price of
the Right. A person or group will not be an Acquiring Person if the Board of
Directors of the Company determines that such person or group became an
Acquiring Person inadvertently and such person or group promptly divests itself
of a sufficient number of shares of Common Stock so that such person or group
is no longer an Acquiring Person.
At any time prior to the earlier of (i) ten business days after the
Stock Acquistion Time and (ii) January 5, 2005, the Company, by resolution of
its Board of Directors, may redeem the Rights in whole, but not in part, at a
price of $.01 per Right (the "Redemption Price"). If such resolution is
adopted following the Stock Acquistion
3
<PAGE> 4
Time, it will be effective only with the concurrence of a majority of the
members (the "Continuing Directors") of the Board of Directors of the Company
who are not Acquiring Persons or representatives or nominees of or affiliated
or associated with an Acquiring Person and who either were members of such
Board of Directors prior to the Stock Acquisition Time or subsequently became a
member and whose election thereto was approved by a majority of the directors
who were not Acquiring Persons or representatives or nominees of or affiliated
or associated with an Acquiring Person, and only if the Continuing Directors
constitute a majority of the number of Directors then in office. The Company
may, at any time prior to the Stock Acquisition Time, extend the time in which
the Rights may be redeemed. Immediately upon the action of the Board of
Directors of the Company electing to redeem the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be
to receive the Redemption Price.
At any time after a person becomes an Acquiring Person and prior to
the acquistion by such person of 50% or more of the outstanding Common Stock of
the Company, the Board of Directors of the Company (with the concurrence of a
majority of the Continuing Directors and only if the Continuing Directors
constitute a majority of the number of Directors then in office) may exchange
the Rights (other than Rights beneficially owned by such Acquiring Person which
have become void), in whole or in part, for Common Stock of the Company at an
exchange ratio of one share of Common Stock per Right (subject to adjustment).
Immediately upon the action of the Board of Directors of the Company ordering
the exchange of any Rights, the right to exercise such Rights will terminate
and the only right of a holder of such Rights shall be to receive that number
of shares of Common Stock equal to the number of such Rights held by such
holder multiplied by the exchange ratio.
Each share of Preferred Stock pruchasable upon exercise of the Rights
will have a minimum preferential dividend of $100.00 per year, but will be
entitled to receive, in the aggregate, a dividend of 100 times the dividend
declared on a share of Common Stock. In the event of liquidation, dissolution
or winding-up of the Company, the holders of the shares of Preferred Stock
will be entitled to recieve a minimum liquidation payment of $100.00 per
share, but will be entitled to receive an aggregate liquidation payment equal
to 100 times the payment to be made per share of Common Stock. Each share of
Preferred Stock will have
4
<PAGE> 5
100 votes, voting together with the shares of Common Stock. In addition, if
dividends on the Preferred Stock are in arrears for four consecutive quarterly
payment periods, the holders of the Preferred Stock will have the right, voting
as a class, to elect two members of the Board of Directors. In the event of
any merger, consolidation or other transaction in which shares of Common Stock
are exchanged, each share of Preferred Stock will be entitled to receive 100
times the amount and type of consideration received per share of Common Stock.
The rights of the shares of Preferred Stock as to dividends and liquidation,
and in the event of mergers and consolidations, are protected by anti-dilution
provisions.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
The Rights and the Rights Agreement can be amended by the Board of
Directors of the Company in any respect (including, without limitation, any
extension of the period in which the Rights may be redeemed) at any time prior
to the Stock Acquisition Time. From and after such a time, without the
approval of all holders of the Common Stock or all holders of the Rights, the
Board of Directors, by a majority of the Continuing Directors (provided that
the Continuing Directors constitute a majority of the Board) may only
supplement or amend the Rights Agreement in order (i) to cure any ambiguity,
(ii) to correct or supplement any provision contained in the Rights Agreement
which may be defective or inconsistent with any other provision in the Rights
Agreement, (iii) to shorten or lengthen any time period under the Rights
Agreement or (iv) to make any changes or supplements which the Company and the
Rights Agent may deem necessary or desirable which shall not adversely affect
the interests of the holders of Right Certificates (other than an Acquiring
Person or an affiliate or associate thereof).
A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
5
<PAGE> 1
EXHIBIT 23(i)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 14, 1994 in this Amendment No. 4 to the
Registration Statement (Form S-2, No. 33-56409) and related Prospectus of
American Standard Companies Inc. for the registration of common stock.
We also consent to the use of our report dated March 14, 1994, with respect to
the financial schedules of American Standard Companies Inc. for the years ended
December 31, 1992 and 1993 in this Amendment No. 4 to the Registration
Statement.
/s/ ERNST & YOUNG LLP
----------------------
ERNST & YOUNG LLP
New York, New York
January 31, 1995
