<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1995.
REGISTRATION NO. 33-61651
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
Form S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
AMERICAN STANDARD COMPANIES INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
13-3465896
(I.R.S. Employer
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.
Vice President, General Counsel & 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.
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
(212) 909-6000
Michael A. Becker, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(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.
------------------------
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: /X/
------------------------
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.
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<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
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 AUGUST 28, 1995
17,500,000 SHARES
AMERICAN STANDARD COMPANIES INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------
Of the 17,500,000 shares of Common Stock offered, 12,250,000 shares are
being offered hereby in the United States and 5,250,000 shares are being offered
in a concurrent international offering outside the United States (collectively,
the "Offerings"). The initial public offering price and the aggregate
underwriting discount per share will be identical for both Offerings. See
"Underwriting".
All of the shares of Common Stock offered are being sold by Kelso ASI
Partners, L.P. ("ASI Partners"), currently the Company's majority stockholder,
and certain of the Company's management stockholders (collectively, the "Selling
Stockholders"). After giving effect to the Offerings, ASI Partners will remain
the Company's single largest stockholder. See "Principal and Selling
Stockholders".
The last reported sale price of the Common Stock, which is listed under the
symbol "ASD", on the New York Stock Exchange on August 25, 1995, was $28 1/8 per
share. See "Price Range of Common Stock and Dividend Policy".
SEE "RISK FACTORS" ON PAGES 10 - 16 FOR CERTAIN RISK FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
-------------------
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 SELLING
OFFERING PRICE DISCOUNT(1) STOCKHOLDERS(2)
---------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total(3)............................. $ $ $
</TABLE>
- ------------
(1) The Company, American Standard Inc. and the Selling Stockholders have agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933.
(2) Estimated expenses of approximately $1,100,000 will be paid by the Company.
(3) ASI Partners has granted the U.S. Underwriters an option for 30 days after
the date of this Prospectus to purchase up to an additional 1,837,500 shares
at the initial public offering price per share, less the underwriting
discount, solely to cover over-allotments. Additionally, an over-allotment
option on 787,500 shares has been granted by ASI Partners as part of the
international offering. If such options are exercised in full, the total
initial public offering price, underwriting discount and proceeds to Selling
Stockholders 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 , 1995.
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
S.G.WARBURG & CO. INC.
------------------------
The date of this Prospectus is , 1995.
<PAGE> 4
AVAILABLE INFORMATION
American Standard Companies Inc. (formerly named ASI Holding
Corporation)(the "Company") is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 7th Floor, New
York, New York 10048. Copies of such materials can be obtained upon written
request from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, such material
may also be inspected and copied at the offices of the New York Stock Exchange,
Inc. (the "NYSE"), 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as 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 does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. 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. For further information,
reference is hereby made to the Registration Statement.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (File No. 1-11415) with the
Commission pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, including portions incorporated therein of the
Company's definitive Proxy Statement dated March 27, 1995.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995.
3. All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Shares.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference, other than exhibits to
such information (unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to the Company, One
Centennial Avenue, P.O. Box 6820, Piscataway, NJ 08855-6820, Attention: Office
of the Secretary, telephone: (908) 980-6000.
------------------------
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified shall not be deemed to
constitute a part of this Prospectus except as so modified, and any statement so
superseded shall not be deemed to constitute part of this Prospectus.
AMERICAN STANDARD(R), IDEAL STANDARD(R), STANDARD(R), TRANE(R) and WABCO(R)
are registered trademarks of American Standard Inc. PERROT(R) is a registered
trademark of Deutsche Perrot-Bremsen GmbH, a subsidiary of the Company. DEMAND
FLOW(R) is a registered trademark of J-I-T Institute of Technology, Inc.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY 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> 5
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 or incorporated by reference in this Prospectus. American
Standard Companies Inc. (the "Company") 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 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 (56%
of 1994 sales); bathroom and kitchen fixtures and fittings (27% of 1994 sales);
and braking and control systems for medium-sized and heavy trucks, buses,
trailers and utility vehicles (17% of 1994 sales). American Standard is a market
leader in each of these business segments in the principal geographic areas in
which it competes. The Company's brand names include TRANE(R) and AMERICAN
STANDARD(R) for air conditioning systems, AMERICAN STANDARD(R), IDEAL
STANDARD(R) 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 $4.5 billion and $355
million, respectively, in 1994. Sales and operating income were $2.6 billion and
$288 million, respectively, in the first six months of 1995, compared with $2.1
billion and $177 million, respectively, in the first six months of 1994. During
the first six months of 1995, sales from operations outside the United States
represented approximately 49% of the Company's total sales. At June 30, 1995
American Standard had 94 manufacturing facilities in 32 countries.
American Standard's business strategy is to promote growth in sales and
earnings. 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 ("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 continues to apply
principles of DEMAND FLOW(R) technology ("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> 6
BUSINESS SEGMENTS
American Standard operates three business segments: Air Conditioning
Products, Plumbing Products and Automotive Products.
AIR CONDITIONING PRODUCTS. American Standard is a leading U.S.
manufacturer of air conditioning systems for both domestic and export sales, and
also manufactures air conditioning systems outside the United States. Air
Conditioning Products manufactures "applied" (custom engineered, site-assembled)
and "unitary" (self-contained, factory-assembled) air conditioning systems that
are sold primarily under the TRANE(R) and AMERICAN STANDARD(R) names. Air
Conditioning Products' sales to the commercial and residential markets
represented approximately 75% and 25%, respectively, of Air Conditioning
Products' total sales in 1994 and the first six months of 1995. Approximately
60% of Air Conditioning Products' sales in these periods was to the replacement,
renovation and repair markets, which have been less cyclical than the new
residential and commercial construction markets. Of Air Conditioning Products'
1994 worldwide sales, approximately 84% was derived from U.S. operations
(including 7% related to export sales) and 16% was derived from operations
outside the United States.
Air Conditioning Products' sales increased to $1,425 million in the first
six months of 1995, compared with $1,168 million in the first half of 1994. This
increase was due principally to increased market shares, higher replacement,
renovation and repair 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, the expansion of its broad distribution
network and conversion to products utilizing environmentally-preferred
refrigerants.
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. Of Plumbing
Products' worldwide 1994 sales, approximately 72% was derived from operations
outside the United States and 28% was derived from operations in the United
States.
Plumbing Products' sales increased to $645 million in the first six months
of 1995, compared to $597 million in the first half of 1994, due principally to
increased sales to replacement and retail "do-it-yourself" markets, as well as
increased levels of commercial construction activity, and the favorable effects
of changes in foreign exchange rates. 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).
AUTOMOTIVE PRODUCTS. American Standard is a leading manufacturer,
primarily in Europe and Brazil, of braking and related systems for the
commercial and utility vehicle industry. Its most important products are
pneumatic braking systems and related electronic and other control systems
(including ABS) marketed under the WABCO(R) name for medium-size and heavy
trucks, tractors, buses, trailers and utility vehicles. American Standard
supplies vehicle manufacturers such as Mercedes-Benz, Volvo, Iveco (Fiat), RVI
(Renault) and Rover.
Automotive Products' sales increased to $524 million in the first six
months of 1995, compared to $355 million in the first half of 1994, due
principally to increased levels of commercial vehicle production in Europe and
Brazil, as well as the favorable effects of changes in foreign exchange rates.
Management believes that Automotive Products is well positioned to benefit from
improved market conditions in Europe and Brazil and increasing demand for ABS
and other sophisticated electronic control systems in a number of markets
(including the commercial vehicle market in the United States, where phase-in of
ABS has been mandated beginning in 1997), as well as from the
4
<PAGE> 7
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 "-- Automotive Products Segment".
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. See
"Business -- Strategy -- Globalization".
Air Conditioning Products plans to continue to expand its operations in the
Far East, Latin America and Europe. In 1994, it established a joint venture in
Australia, and in 1995, a joint venture in the PRC, where it is currently
negotiating to establish several other joint ventures. Air Conditioning Products
also continues to expand its sales forces in the Far East and Latin America.
Plumbing Products has entered new markets through joint ventures in Eastern
Europe, Spain, Portugal and Vietnam 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"), in which
American Standard has a current ownership position of approximately 28% and
effective control over day-to-day operations. ASPPL, which had total assets of
approximately $125 million at June 30, 1995, 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.
Automotive Products, headquartered in Europe, has 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.
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 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.
Demand Flow has been implemented in substantially all of American
Standard's production facilities. American Standard believes that its
implementation of Demand Flow 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
almost tripled. Principally as a result of the implementation of Demand Flow,
American Standard achieved an aggregate $264 million reduction in inventories
from December 31, 1989 through December 31, 1994, while sales have grown 34% for
the same period. 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".
5
<PAGE> 8
OWNERSHIP
The Company was formed in 1988 by Kelso & Company, L.P. ("Kelso") to effect
the acquisition (the "Acquisition") of American Standard Inc. Assuming no
exercise of the Underwriters' over-allotment options, after giving effect to the
Offerings and a distribution by ASI Partners to certain of its limited partners
of shares of Common Stock in conjunction with the Offerings, ASI Partners
will own approximately 35% of the Company's Common Stock. The recipients of such
distributions have agreed with ASI Partners and the Underwriters not to offer,
sell or otherwise dispose of such shares of Common Stock prior to September 30,
1996 without the prior written consent of ASI Partners and Goldman, Sachs & Co.
The remainder of the Company's Common Stock will be owned approximately %
by the public (including purchasers of Shares in the Offerings), approximately
13% by the American-Standard Employee Stock Ownership Plan (the "ESOP") and
approximately 8% by certain current officers and employees of American Standard.
See "Principal and Selling Stockholders -- Shares Eligible for Future Sale".
Pursuant to the Company's Stock Incentive Plan (the "Stock Plan"), options to
purchase approximately 5.0 million shares (exercisable at $20 per share, the
initial public offering price in the Company's February 1995 initial public
offering of Common Stock (the "IPO")) were granted to officers and other key
executive and management employees of the Company and its subsidiaries or
minority-owned joint ventures in connection with the IPO. Such options vest in
equal installments on the first, second and third anniversaries of the date of
grant. An additional 2.6 million shares (for a total of 7.6 million) are
available for subsequent grants under the Stock Plan. In addition, the Company
will fund the ESOP at an annual rate of approximately $25 million through
contributions of cash or shares of Common Stock (including newly issued shares
valued at their then current market value). The Company expects to fund such
contributions through the issuance of shares of Common Stock commencing in the
third quarter of 1995.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the Selling Stockholders:
U.S. Offering.......................................................... 12,250,000 shares
International Offering................................................. 5,250,000 shares
------------
Total.................................................................. 17,500,000 shares
------------
------------
Common Stock to be outstanding after the Offerings(1).................... 76,147,445 shares
NYSE Symbol.............................................................. ASD
</TABLE>
- ---------------
(1) Based upon shares outstanding at June 30, 1995. Excludes outstanding
management stock options that are not currently exercisable covering
approximately 5.0 million shares, and up to an additional 2.6 million shares
that may be issued in the future under the Stock Plan.
USE OF PROCEEDS
All of the shares of Common Stock offered hereby are being offered by the
Selling Stockholders. The Company will receive no proceeds from the Offerings.
PRICE RANGE OF COMMON STOCK
Since February 3, 1995, as part of the IPO, the Common Stock has traded on
the NYSE under the symbol "ASD". The following table sets forth the high and low
reported sale prices for the Common Stock as quoted by the NYSE for the periods
indicated.
<TABLE>
<CAPTION>
MARKET PRICE
--------------
CALENDAR PERIOD HIGH LOW
-------------------------------------------------------------------- ---- -----
<S> <C> <C>
1995
First Quarter (from February 3, 1995)............................... $ 25 $19 5/8
Second Quarter...................................................... 28 1/4 24 1/4
Third Quarter (through August 25, 1995)............................. 30 3/8 26
</TABLE>
See "Price Range of Common Stock and Dividend Policy".
RISK FACTORS
Prospective purchasers of the Shares should consider carefully the specific
risk factors set forth under "Risk Factors", as well as the other information
set forth or incorporated by reference in this Prospectus.
6
<PAGE> 9
1995 REFINANCING
OVERVIEW
In the first quarter of 1995 the Company completed a major refinancing (the
"1995 Refinancing") begun in the fourth quarter of 1994. The 1995 Refinancing,
which reduced the amount of debt outstanding and reduced the Company's borrowing
rates, consisted of: (i) the October 1994 amendment of the Company's 1993 credit
agreement (the "1993 Credit Agreement"), which amendment provided for an
additional term loan of $325 million (the "October Borrowing"), the proceeds of
which were used, in November 1994, to redeem $317 million of American Standard
Inc.'s high interest rate bonds with lower-rate bank debt; (ii) the IPO, which
yielded net proceeds of approximately $281 million which were used to reduce
indebtedness; and (iii) the February 1995 amendment and restatement of the 1993
Credit Agreement (as so amended and restated, the "1995 Credit Agreement"), a
secured, multi-currency, multi-borrower facility aggregating $1.0 billion, the
proceeds of which, among other things, refinanced existing borrowings (including
the October Borrowing). The 1995 Credit Agreement provides reduced borrowing
rates, increased borrowing capacity, less restrictive covenants and lower annual
scheduled debt maturities through 2001.
SUMMARY PRO FORMA EFFECTS
The following summary unaudited pro forma financial data give effect to the
1995 Refinancing as if the same had occurred at the beginning of each of the
periods presented. The pro forma statement of operations data do not reflect
extraordinary charges of $9 million in 1994 and $30 million in the first half of
1995 related to the write-off of debt issuance costs and premiums paid with
respect to debt retired or repaid in connection with the 1995 Refinancing. In
addition, 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. See "1995 Refinancing -- Pro
Forma Effects", the Consolidated Financial Statements of the Company and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED
ENDED JUNE 30,
DECEMBER 31, -----------------------
1994 1994 1995
------------ ---------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales..................................................... $4,457 $2,120 $2,594
Cost of sales.......................................... 3,377 1,604 1,918
Selling and administrative expenses.................... 779 366 416
Other expense.......................................... 57 14 19
Interest expense....................................... 209 102 107
---------- --------- ---------
Income before income taxes and
extraordinary item..................................... 35 34 134
Income taxes.............................................. 62 32 54
---------- --------- ---------
Income (loss) before extraordinary item................... $ (27) $ 2 $ 80
---------- --------- ---------
---------- --------- ---------
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item................... $ (.36) $ .03 $ 1.06
Average number of outstanding common shares............... 75.0 75.0 75.8
</TABLE>
7
<PAGE> 10
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, 1994 and
the six month periods ended June 30, 1994 and 1995. The summary annual
historical financial data are derived from the Company's Consolidated Financial
Statements. Information for the six months ended June 30, 1994 and 1995 is
derived from unaudited interim financial statements which reflect, in the
opinion of the Company, all adjustments, which include only normal recurring
adjustments, necessary for a fair presentation of the financial data for such
periods. Results for interim periods are not necessarily indicative of results
for the full year. See the Consolidated Financial Statements of the Company and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -----------------
1992 1993 1994 1994 1995
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED FINANCIAL DATA:
STATEMENT OF OPERATIONS DATA:
Sales............................................ $ 3,792 $ 3,830 $ 4,457 $ 2,120 $ 2,594
Cost of sales.................................. 2,852 2,903 3,377 1,604 1,918
Selling and administrative expenses............ 679 692 779 366 416
Other expense.................................. 24 38 57 14 19
Interest expense............................... 289 278 259 129 111
--------- --------- --------- --------- ---------
- - - - -
Income (loss) before income taxes and
extraordinary item............................. (52) (81) (15) 7 130
Income taxes..................................... 5 36 62 32 54
--------- --------- --------- --------- ---------
- - - - -
Income(loss) before extraordinary item........... (57) (117) (77) (25) 76
Extraordinary loss on retirement of debt......... -- (92) (9) -- (30)
--------- --------- --------- --------- ---------
- - - - -
Net income (loss)................................ (57) (209) (86) (25) 46
Preferred dividend............................... (16) (8) -- -- --
--------- --------- --------- --------- ---------
- - - - -
Net income (loss) applicable to common shares.... $ (73) $ (217) $ (86) $ (25) $ 46
========== ========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item.......... $ (1.24) $ (2.11) $ (1.29) $ (.41) $ 1.04
Extraordinary loss on retirement of debt......... -- (1.55) (.15) -- (.41)
--------- --------- --------- --------- ---------
- - - - -
Net income (loss) per common share............... $ (1.24) $ (3.66) $ (1.44) $ (.41) $ .63
========== ========== ========== ========== ==========
Average number of outstanding common shares...... 58.6 59.3 59.9 59.9 73.0
OTHER DATA:
Depreciation expense............................. $ 112 $ 106 $ 123 $ 69 $ 56
Amortization of goodwill......................... 33 31 31 15 17
EBIT (a)......................................... 237 197 244 136 241
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.................................. $ 292 $ 80 $ (14) $ 88 $ (62)
Goodwill (net)................................... 1,102 1,026 1,053 1,028 1,088
Total assets..................................... 3,126 2,987 3,156 3,215 3,424
Total debt....................................... 2,145 2,336 2,364 2,406 2,120
Exchangeable preferred stock..................... 133 -- -- -- --
Stockholders' deficit............................ (449) (723) (798) (727) (467)
</TABLE>
- ---------------
(a) EBIT is the sum of (i) income (loss) before income taxes and extraordinary
item and (ii) interest expense.
8
<PAGE> 11
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -----------------
1992 1993 1994 1994 1995
------- ------- ------- ------- -------
(IN MILLIONS)
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
SEGMENT FINANCIAL DATA:
SALES:
Air Conditioning Products........................ $ 1,892 $ 2,100 $ 2,480 $ 1,168 $ 1,425
Plumbing Products................................ 1,170 1,167 1,218 597 645
Automotive Products.............................. 730 563 759 355 524
--------- --------- --------- --------- ---------
- - - - -
$ 3,792 $ 3,830 $ 4,457 $ 2,120 $ 2,594
========== ========== ========== ========== ==========
OPERATING INCOME:
Air Conditioning Products........................ $ 104 $ 133 $ 182 $ 98 $ 128
Plumbing Products................................ 108 108 111 59 73
Automotive Products.............................. 88 41 62 20 87
--------- --------- --------- --------- ---------
- - - - -
$ 300 $ 282 $ 355 $ 177 $ 288
========== ========== ========== ========== ==========
ADJUSTED OPERATING INCOME(A):
Air Conditioning Products........................ $ 138 $ 189 $ 105 $ 128
Plumbing Products................................ 109 130 78 73
Automotive Products.............................. 43 76 34 87
--------- --------- --------- ---------
- - - -
$ 290 $ 395 $ 217 $ 288
========== ========== ========== ==========
</TABLE>
- ---------------
(a) Excludes the following special charges incurred in 1993 and the first six
months of 1994 applicable to consolidation of production facilities,
employee severance, other cost reduction actions and a provision for the
early disposition of certain assets:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Air Conditioning Products............................... $5 $ 7
Plumbing Products....................................... 1 19
Automotive Products..................................... 2 14
--
---
$8 $40
== ===
</TABLE>
9
<PAGE> 12
RISK FACTORS
Prospective purchasers of the Shares should consider carefully the
following risk factors, as well as other information set forth or incorporated
by reference 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 June 30, 1995, the Company's total
indebtedness was approximately $2.1 billion, including short-term debt and the
current portion of long-term debt. See "Capitalization". American Standard Inc.
also had the ability as of June 30, 1995 to incur $237 million of additional
indebtedness under revolving credit facilities and the Company's foreign
subsidiaries had an additional $62 million available under overdraft facilities.
At June 30, 1995, American Standard had scheduled principal payments of
approximately $34 million for the second half of 1995 and amounts ranging from
$66 million to $223 million for the years 1996 through 1999. American Standard
intends to use cash generated by operations to reduce its indebtedness and for
general corporate purposes. 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's substantial leverage could have important consequences,
including: limiting the Company's ability to obtain additional financing; the
need to use substantial portions of operating cash flow to meet interest and
principal repayment obligations; exposure to interest rate fluctuations due to
floating interest rates; increased vulnerability to changes in general economic
conditions, competitive pressures and changes in government regulations; and
potential limitations on its ability to realize some or all of the benefit of
significant business opportunities.
In addition, the 1995 Credit Agreement contains various covenants that
limit, among other things, mergers and asset sales, indebtedness, dividends on
and redemption of capital stock, voluntary prepayment of certain other
indebtedness, rental expense, liens, capital expenditures, investments or
acquisitions, the use of proceeds from asset sales, intercompany transactions
and transactions with affiliates and certain other business activities. The
covenants also require American Standard Inc. to meet certain financial tests.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
American Standard's operating results and cash flow improved from 1993 to
1994 and have improved further in the first six months of 1995 compared with the
first half of 1994. To meet its debt service obligations with operating cash
flow and comply with the covenants and restrictions contained in the 1995 Credit
Agreement, the Company will have to sustain the level of operating results and
cash flow achieved in 1994. Although its interest costs and debt service
obligations have been reduced as a result of the 1995 Refinancing, 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, business and other factors, including prevailing economic conditions,
that are beyond its control. To avoid potential non-compliance with the
covenants and restrictions contained in its previous credit agreements, the
Company from time to time has had to obtain waivers and amendments. The Company
believes it is currently in compliance with the covenants contained in the 1995
Credit Agreement, but it may have to obtain similar waivers or amendments in the
future. Failure to meet such debt service obligations or comply with such
covenants could lead to a default which would allow the acceleration of
principal and interest payment obligations. In the event of default, there can
be no assurance that the Company could restructure its obligations in a way
satisfactory to its lenders. Default under the agreements governing the
indebtedness of the Company could have a significant adverse effect on the
market value and marketability of the Common Stock.
10
<PAGE> 13
HISTORICAL LOSSES THROUGH 1994
The Company had net income of $46 million for the six months ended June 30,
1995, compared with a net loss of $25 million for the same period in 1994. Since
the Acquisition in 1988, American Standard has had net losses (after income
taxes, cumulative effects of changes in accounting methods and extraordinary
losses on retirement of debt) of $227 million in 1989, $54 million in 1990, $143
million in 1991, $57 million in 1992, $209 million in 1993 and $86 million in
1994. The Company's results of operations reflect the effects of purchase
accounting and significant interest expense resulting from its highly leveraged
capital structure. Results of operations in 1991, 1992 and 1993 were also
affected by recessions in 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.
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 1994, despite a consolidated
net loss of $86 million, the Company incurred income taxes, principally outside
the U.S., of $62 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 believes its borrowings in foreign currencies
mitigate the effect of fluctuating currency exchange rates. Nonetheless, changes
in certain exchange rates could adversely affect the Company's results of
operations. 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 it believes to be correct relating to the various tax laws
(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 experience adverse tax and other financial consequences.
In connection with examinations of certain 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 $22 million (using June 30, 1995
exchange rates) of a disputed German income tax. A suit is pending to obtain a
refund of this tax. During the first quarter of 1995, the Company received the
first of two expected reports of the German tax authorities on audit findings
for tax years 1984 through 1990. This first report was silent on one of the
major issues under audit, which had represented over one-third of the potential
total adjustments that the Company earlier anticipated the German tax
authorities might propose for the years 1984 through 1990. While there can be no
11
<PAGE> 14
assurance, the Company believes it is now unlikely that this issue will be
pursued further by the German tax authorities.
During the second quarter of 1995, the Company received the second report
on audit findings for tax years 1988 through 1990. On the basis of the second
report, and assuming that the matter is not first resolved by administrative
appeals procedures, the remaining proposed adjustments could ultimately lead to
litigation regarding disputed taxes (principally for the 1988 through 1990
period) of up to approximately $80 million (using June 30, 1995 exchange rates),
plus interest. 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 continue to propose adjustments
for the 1988-1990 period, they might, after future tax audits, also propose tax
adjustments for years 1991-1993, that could be as much as 50% higher than the
comparable adjustments for the years 1988 through 1990. American Standard, on
the basis of the opinion of German legal counsel, Meilicke & Partner, 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 has not recorded any loss
contingency at June 30, 1995 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 would 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 the first six months of 1995 were higher in Germany and
will be higher thereafter. 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, 1995 and
future years.
American Standard Inc. makes substantial interest payments to its indirect
wholly-owned Netherlands subsidiary. These interest payments had been exempt
from U.S. withholding tax under an income tax treaty between the United States
and the Netherlands. Under a provision in a new treaty such payments would have
become subject to 15% U.S. withholding tax, except that the Company received a
ruling from the Internal Revenue Service ("IRS") making a determination that no
U.S. withholding tax will be imposed for 1995. The Company believes, based on
the ruling exempting 1995 interest payments from U.S. withholding tax, that its
request for a subsequent ruling covering 1996 (and later years) should also
receive favorable IRS action. If the subsequent IRS ruling request is not
resolved favorably, additional withholding taxes of approximately $11 million
per year could be imposed on the Company commencing in 1996. In such case, the
Company would consider alternatives designed to mitigate the increased
withholding taxes; however, there is no assurance that such alternatives could
be found.
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
replacement, renovation and repair markets (approximately 60% of their 1994
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 1994 sales).
Automotive Products' sales are highly dependent on
12
<PAGE> 15
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 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, 1994 and the first six months of 1995 to evaluate
and remediate such sites were not material. On the basis of the Company's
historical experience and information currently available, the Company believes
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
sales of air conditioning products using chlorofluorocarbons ("CFCs") and
hydrochlorofluorocarbons ("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 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. The Company has been working closely with the
manufacturers of refrigerants that are
13
<PAGE> 16
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 currently in production 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 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 40,000 people (excluding employees of
unconsolidated joint venture companies) at June 30, 1995. The Company has a
total of 18 labor union contracts in North America (covering approximately 8,500
employees), two of which were to have expired in 1995 (covering approximately
940 employees) and seven of which expire in 1996 (covering approximately 4,800
employees). Both of the contracts expiring in 1995 and a contract covering
approximately 200 Canadian employees which expired in the last quarter of 1994
have been successfully renegotiated. There can be no assurance that the Company
will successfully renegotiate the labor contracts expiring during 1996 without
work stoppages. However, the Company does not anticipate having problems
renegotiating any 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.
PRINCIPAL STOCKHOLDERS
The Company, ASI Partners and certain management stockholders are parties
to a stockholders' agreement (the "Amended Stockholders Agreement") which
provides that ASI Partners may designate for nomination 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. After giving effect to the Offerings
and a distribution by ASI Partners to certain of its limited partners of
shares of Common Stock in conjunction with the Offerings, ASI Partners
will own approximately 35% of the then outstanding Common Stock. If ASI Partners
were to own less than 35% of the outstanding Common Stock, it would no longer
have the ability to designate a majority of the nominees for election to the
Board of Directors of the Company. ASI Partners will retain the ability to
designate nominees for election to the Board of Directors (four nominees to the
eleven-member Board, for so long as ASI Partners owns less than 35% but more
than 20% of the outstanding Common Stock, and one nominee, as long as ASI
Partners owns at least 10% but less than 20% of the outstanding Common Stock)
and thereby can influence the Company's corporate policies. See "-- Shares
Eligible for Future Sale" and "Principal and Selling Stockholders".
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
The Company's Restated Certificate of Incorporation, Amended By-Laws and
Stockholder Rights Plan contain provisions that may have the effect of making
more difficult an acquisition of
14
<PAGE> 17
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 1995 Credit Agreement and the indentures
governing certain of American Standard Inc.'s publicly-held debt securities
permit the lenders under the 1995 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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 10 of Notes to Consolidated Financial Statements.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect that future sales of shares, or
the availability of shares for future sale, will have on the market price of the
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock (including shares issued upon the exercise of stock options), or
the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock.
On June 30, 1995, there were 76,147,445 shares of Common Stock outstanding.
Shares owned by persons other than "affiliates" of the Company are freely
tradeable without restriction or future registration under the Securities Act.
After giving effect to the Offerings and the distribution referred to below, ASI
Partners, the ESOP and certain management stockholders that may be deemed
"affiliates" of the Company will own approximately , 10,141,623 and
1,069,213 outstanding shares of Common Stock, respectively. ASI Partners and
certain management stockholders were granted certain registration rights in
connection with the IPO. The Company, the Selling Stockholders and certain
management stockholders have agreed with the Underwriters not to offer, sell or
otherwise dispose of any shares of Common Stock other than pursuant to the
Offerings for a period of 90 days after the date of this Prospectus without the
prior written consent of the representatives of the Underwriters. The foregoing
agreements are subject to certain exceptions. ASI Partners has distributed
shares of Common Stock to its partners, and may in the future sell or otherwise
dispose of Common Stock, including additional distributions to its partners.
An aggregate of approximately shares of Common Stock are expected to
be distributed by ASI Partners to certain of its limited partners in lieu of
cash in conjunction with the Offerings. The recipients of such distributions
have agreed with ASI Partners and the Underwriters not to offer, sell or
otherwise dispose of such shares of Common Stock prior to September 30, 1996
without the prior written consent of ASI Partners and Goldman, Sachs & Co.
In addition, stock options covering approximately 5.0 million shares of
Common Stock (exercisable at $20 per share, the initial public offering price in
the February 1995 IPO) were granted pursuant to the Stock Plan in connection
with the IPO and will become exercisable in three equal installments on the
first, second and third anniversaries of the date of grant. American Standard
will register under the Securities Act the approximately 7.6 million shares of
Common Stock (including the aforementioned option shares) that may be issued
pursuant to the Stock Plan prior to the time any options become exercisable. In
addition, the Company will fund the ESOP at an annual rate of approximately $25
million through contributions of cash or shares of Common Stock (including newly
issued shares valued at their then current market value). The Company expects to
fund such contributions through the issuance of shares of Common Stock
commencing in the third quarter of 1995. See "Principal and Selling
Stockholders -- Shares Eligible for Future Sale".
15
<PAGE> 18
DILUTION
The difference between the initial public offering price per share of the
Shares and the net tangible deficit per share of Common Stock constitutes
immediate dilution to investors in the Offerings. At June 30, 1995, the Company
had a tangible net deficit (representing the difference between tangible assets
and liabilities) of approximately $1.6 billion, or approximately $20.97 per
share. Purchasers of Shares in the Offerings will experience immediate and
substantial dilution of $49.10 per share (based on an assumed initial public
offering price of $28 1/8 per share, the closing market price on the NYSE on
August 25, 1995).
16
<PAGE> 19
THE COMPANY
American Standard is a globally-oriented manufacturer of high quality,
brand-name products in three major product groups: air conditioning systems (56%
of 1994 sales); bathroom and kitchen fixtures and fittings (27% of 1994 sales);
and braking and control systems for medium-sized and heavy trucks, buses,
trailers and utility vehicles (17% of 1994 sales). American Standard is a market
leader in each of these business segments in the principal geographic areas in
which it competes. The Company's brand names include TRANE(R) and AMERICAN
STANDARD(R) for air conditioning systems, AMERICAN STANDARD(R), IDEAL
STANDARD(R) 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'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 the effects of purchase
accounting and reflect a highly leveraged capital structure. See "Risk
Factors -- Substantial Leverage" and "-- Historical Losses Through 1994".
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 last
reported sale price of the Common Stock on the NYSE on August 25, 1995 ($28 1/8
per share), the 44.6 million shares of Common Stock then owned by ASI Partners
had a market value of approximately $1.25 billion. Based on the above-mentioned
trading price, ASI Partners would receive approximately $491 million from the
sale of Common Stock in the Offerings (prior to the deduction of the
underwriting discount). In connection with the IPO, Kelso received certain fees.
See "Principal and Selling Stockholders".
USE OF PROCEEDS
All of the shares of Common Stock offered hereby are being offered by the
Selling Stockholders. The Company will receive no proceeds from the Offerings.
17
<PAGE> 20
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Since February 3, 1995, as part of the IPO, the Common Stock has been
traded on the NYSE under the symbol "ASD". The following table sets forth the
high and low reported sale prices for the Common Stock as quoted by the NYSE for
the periods indicated.
<TABLE>
<CAPTION>
MARKET PRICE
--------------
CALENDAR PERIOD HIGH LOW
- ---------------------------------------------------------------------------- ----- -----
<S> <C> <C>
1995
First Quarter (from February 3, 1995)....................................... $ 25 $19 5/8
Second Quarter.............................................................. 28 1/4 24 1/4
Third Quarter (through August 25, 1995)..................................... 30 3/8 26
</TABLE>
The last reported sale price for the Common Stock by the NYSE on August 25,
1995 was $28 1/8 per share. As of such date, the Company had approximately 76.1
million shares of Common Stock outstanding. The number of holders of record of
the Common Stock as of June 30, 1995 was 473.
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 1995 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 dividends in the future 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> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company and its
subsidiaries at June 30, 1995. This table should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto included elsewhere
in this Prospectus. All amounts are translated where applicable using June 30,
1995 currency exchange rates.
<TABLE>
<CAPTION>
JUNE 30, 1995
---------------------
ACTUAL
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SHORT-TERM DEBT:
Loans payable to banks.................................................. $ 35.0
Revolving credit facility............................................... 261.1
Current maturities of long-term debt.................................... 66.4
--------
Total short-term debt................................................ 362.5
LONG-TERM DEBT:
1995 Credit Agreement................................................... 449.5
9 1/4% Sinking Fund Debentures.......................................... 150.0
10 7/8% Senior Notes.................................................... 150.0
11 3/8% Senior Debentures............................................... 250.0
9 7/8% Senior Subordinated Notes........................................ 200.0
10 1/2% Senior Subordinated Discount Debentures......................... 549.6
Other loans............................................................. 74.6
--------
1,823.7
Less current maturities................................................. (66.4)
--------
Total long-term debt................................................. 1,757.3
STOCKHOLDERS' DEFICIT:
Preferred Stock, par value $.01 per share, 2,000,000 shares authorized;
none issued and outstanding.......................................... --
Common Stock, par value $.01 per share, 200,000,000 shares authorized;
76,147,445 shares issued and outstanding............................. .8
Capital surplus and other............................................... 488.5
Accumulated deficit..................................................... (790.5)
Foreign currency translation effects.................................... (163.0)
Minimum pension liability adjustment.................................... (2.7)
--------
Total stockholders' deficit.......................................... (466.9)
--------
Total capitalization................................................. $ 1,652.9
========
</TABLE>
19
<PAGE> 22
1995 REFINANCING
OVERVIEW
In the first quarter of 1995 the Company completed the 1995 Refinancing
begun in the fourth quarter of 1994. The 1995 Refinancing, which reduced the
amount of debt outstanding and reduced the Company's borrowing rates, consisted
of: (i) the October Borrowing which provided for an additional term loan of $325
million, the proceeds of which were used, in November 1994, to redeem $317
million of American Standard Inc.'s high interest rate bonds with lower-rate
bank debt; (ii) the IPO, which yielded net proceeds of approximately $281
million which were used to reduce indebtedness; and (iii) the 1995 Credit
Agreement, which amended and restated the 1993 Credit Agreement to provide a
secured, multi-currency, multi-borrower facility aggregating $1.0 billion, the
proceeds of which, among other things, refinanced existing borrowings (including
the October Borrowing). The 1995 Credit Agreement provides reduced borrowing
rates, increased borrowing capacity, less restrictive covenants and lower annual
scheduled debt maturities through 2001. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
PRO FORMA EFFECTS
The following unaudited pro forma financial data give effect to the 1995
Refinancing as if the same had occurred at the beginning of each of the periods
presented. 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 date or at the beginning of the period indicated or to project the
Company's financial position or results of operations for any future date or
period.
For additional information, see the Consolidated Financial Statements of
the Company 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".
20
<PAGE> 23
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1994 JUNE 30, 1995
------------------------- ------------------------- -------------------------
ACTUAL PRO FORMA(a) ACTUAL PRO FORMA(a) ACTUAL PRO FORMA(A)
---------- ------------ ---------- ------------ ---------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales.................. $4,457 $4,457 $2,120 $2,120 $2,594 $2,594
Cost of sales........ 3,377 3,377 1,604 1,604 1,918 1,918
Selling and
administrative
expenses........... 779 779 366 366 416 416
Other expense........ 57 57 14 14 19 19
Interest expense..... 259 209 129 102 111 107
---------- ------------ ---------- ------------ ---------- ------------
Income (loss) before
income taxes and
extraordinary item... (15) 35 7 34 130 134
Income taxes........... 62 62 32 32 54 54
---------- ------------ ---------- ------------ ---------- ------------
Income (loss) before
extraordinary item... $ (77) $ (27) $ (25) $ 2 $ 76 $ 80
========= =========== ========= =========== ========= ===========
INCOME (LOSS) PER COMMON
SHARE:
Income (loss) before
extraordinary item... $(1.29) $ (.36) $ (.41) $ .03 $ 1.04 $ 1.06
Average number of
outstanding common
shares............... 59,933,435 75,045,735 59,890,438 75,002,737 72,954,598 75,828,280
</TABLE>
- ---------------
(a) Pro forma interest expense reflects (i) the exclusion of interest expense
and amortization of debt issuance costs with respect to the 14 1/4%
Subordinated Discount Debentures and the 12 3/4% Junior Subordinated
Debentures prior to redemption in November 1994; and (ii) the lower
interest expense and amortization of debt issue costs as a result of the
refinancing of the 1993 Credit Agreement with the 1995 Credit Agreement for
the 1994 periods.
Pro forma interest expense for the six months ended June 30, 1995 excludes
approximately five weeks' interest expense and amortization of debt
issuance costs with respect to the debt redeemed with the net proceeds of
the IPO and the 1995 Credit Agreement.
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 of $9
million in 1994 and $30 million in the first half of 1995 related to the
write-off of debt issuance costs and premiums paid with respect to debt
retired or repaid in connection with the 1995 Refinancing. No tax benefit
is expected to be available with respect to such extraordinary charges.
21
<PAGE> 24
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,
1994, and the six months ended June 30, 1994 and 1995. The selected annual
historical consolidated financial data are derived from the Company's
Consolidated Financial Statements. Information for the six months ended June 30,
1994 and 1995 is derived from unaudited interim financial statements which
reflect, in the opinion of the Company, all adjustments, which include only
normal recurring adjustments, necessary for 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 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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------- -------------------------
1990 1991 1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales......................... $ 3,637 $ 3,595 $ 3,792 $ 3,830 $ 4,457 $ 2,120 $ 2,594
Cost of sales............... 2,750 2,752 2,852 2,903 3,377 1,604 1,918
Selling and administrative
expenses.................. 630 615 679 692 779 366 416
Other expense............... 5 8 24 38 57 14 19
Loss on sale of Tyler
Refrigeration............. -- 22 -- -- -- -- --
Interest expense............ 294 286 289 278 259 129 111
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes, extraordinary item
and cumulative effects of
changes in accounting
methods..................... (42) (88) (52) (81) (15) 7 130
Income taxes.................. 12 23 5 36 62 32 54
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item and
cumulative effects of
changes in accounting
methods..................... (54) (111) (57) (117) (77) (25) 76
Extraordinary loss on
retirement of debt(a)....... -- -- -- (92) (9) -- (30)
Cumulative effects of change
in accounting methods....... -- (32)(b) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)............. (54) (143) (57) (209) (86) (25) 46
----------- ----------- ----------- ----------- ----------- ----------- -----------
Preferred dividend(c)......... 12 (14) (16) (8) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) applicable
to common shares............ $ (66) $ (157) $ (73) $ (217) $ (86) $ (25) $ 46
========== ========== ========== ========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON
SHARE:
Income (loss) before
extraordinary item and
cumulative effects of
changes in accounting
methods..................... $ (1.12) $ (2.14) $ (1.24) $ (2.11) $ (1.29) $ (.41) $ 1.04
Extraordinary loss on
retirement of debt.......... -- -- -- (1.55) (.15) -- (.41)
Cumulative effects of changes
in accounting methods....... -- (.55) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) per common
share....................... $ (1.12) $ (2.69) $ (1.24) $ (3.66) $ (1.44) $ (.41) $ .63
========== ========== ========== ========== ========== ========== ==========
Average number of outstanding
common shares............... 58,597,918 58,338,195 58,636,118 59,313,073 59,933,435 59,890,438 72,954,598
OTHER DATA:
Depreciation expense.......... $ 109 $ 107 $ 112 $ 106 $ 123 $ 69 $ 56
Amortization of goodwill...... 33 33 33 31 31 15 17
EBIT(d)....................... 252 198 237 197 244 136 241
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............... $ 347 $ 228 $ 292 $ 80 $ (14) $ 88 $ (62)
Goodwill (net)................ 1,323 1,208 1,102 1,026 1,053 1,028 1,088
Total assets.................. 3,488 3,270 3,126 2,987 3,156 3,215 3,424
Total debt.................... 2,287 2,180 2,145 2,336 2,364 2,406 2,120
Exchangeable preferred
stock (c)................... 104 117 133 -- -- -- --
Stockholder's deficit......... (200) (350) (449) (723) (798) (727) (467)
</TABLE>
Footnotes appear on the following page.
22
<PAGE> 25
- ---------------
(a) As a result of redemptions of debt in 1993 with the net proceeds of a
refinancing and in 1994 with the net proceeds of the October Borrowing,
1993 and 1994 included extraordinary charges of $92 million and $9 million,
respectively (including call premiums, the write-off of deferred debt
issuance costs, and, in 1993, loss on cancellation of foreign currency swap
contracts) on which there was no tax benefit (see Notes 7 and 10 of Notes
to Consolidated Financial Statements). The six months ended June 30, 1995
included an extraordinary charge of $30 million in connection with debt
repayment resulting from the 1995 Refinancing.
(b) 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).
(c) In June 1993 the exchangeable preferred stock was exchanged for 12 3/4%
Junior Subordinated Debentures which were redeemed on November 21, 1994.
(d) EBIT is the sum of (i) income (loss) before income taxes, extraordinary item
and cumulative effects of changes in accounting methods and (ii) interest
expense.
23
<PAGE> 26
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
six months ended June 30, 1995 compared to the first six months of 1994, for
1994 compared to 1993 and for 1993 compared to 1992. As a result of the
Acquisition in 1988, American Standard's results of operations include the
effects of purchase accounting and reflect a highly leveraged capital structure.
Results of operations have also been adversely affected by special 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,
particularly in 1992-1993, in the Company's markets. The results of Air
Conditioning Products are also affected by seasonal factors. See
"-- Cyclicality; Seasonality". Operating results improved in 1994 and the first
six months of 1995, due principally to volume increases and cost reductions in
the Air Conditioning Products and Automotive Products segments.
SALES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1992 1993 1994 1994 1995
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Air Conditioning Products............................ $1,892 $2,100 $2,480 $1,168 $1,425
Plumbing Products.................................... 1,170 1,167 1,218 597 645
Automotive Products.................................. 730 563 759 355 524
------ ------ ------ ------ ------
Sales.............................................. $3,792 $3,830 $4,457 $2,120 $2,594
====== ====== ====== ====== ======
</TABLE>
OPERATING INCOME
AND
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1992 1993 1994 1994 1995
----- ----- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Air Conditioning Products......................... $ 104 $ 133 $ 182 $ 98 $ 128
Plumbing Products................................. 108 108 111 59 73
Automotive Products............................... 88 41 62 20 87
---- ---- ---- --- ---
Operating income................................ 300 282(a) 355(a) 177(a) 288
Interest expense.................................. (289) (278) (259) (129) (111)
Corporate items(b)................................ (63) (85) (111) (41) (47)
---- ---- ---- --- ---
Income (loss) before income taxes and
extraordinary item.............................. $ (52) $ (81) $ (15) $ 7 $ 130
==== ==== ==== === ===
</TABLE>
- ---------------
(a) Includes special charges of $40 million in the first half of 1994
applicable to consolidation of production facilities, employee severance,
other cost reduction actions and a provision for loss on the early
disposition of certain assets; and $8 million in 1993 related to plant
shutdowns and other cost reduction actions.
(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. In 1994 such
expenses included a one-time special charge of $20 million in the fourth
quarter in connection with the amendment of certain agreements in
anticipation of the IPO.
24
<PAGE> 27
RESULTS OF OPERATIONS FOR FIRST SIX MONTHS OF 1995 COMPARED WITH FIRST SIX
MONTHS OF 1994
Consolidated sales for the first half of 1995 were $2,594 million, an
increase of $474 million, or 22% (18% excluding the favorable effects of foreign
exchange), from $2,120 million in the first half of 1994. Sales increased for
all three segments with gains of 22% for Air Conditioning Products, 8% for
Plumbing Products and 48% for Automotive Products.
Consolidated operating income for the first half of 1995 was $288 million,
an increase of $111 million, or 63% (54% excluding the favorable effects of
foreign exchange), from $177 million in the first half of 1994. There were $40
million of special charges in the first six months of 1994 relating to
consolidation of production facilities, employee severance, cost reduction
actions and loss on early disposition of assets. Excluding these charges from
the 1994 period, operating income improved 33% in the first half of 1995 from an
adjusted operating income of $217 million in the comparable 1994 period.
Excluding such special charges from the 1994 period, operating income increased
22% for Air Conditioning Products and 156% for Automotive Products, but declined
6% for Plumbing Products.
AIR CONDITIONING PRODUCTS SEGMENT
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1994 1995
------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
SALES:
U.S. portion...................................... $ 995 $1,135
International portion............................. 173 290
----- -----
Total........................................ $1,168 $1,425
===== =====
OPERATING INCOME (LOSS):
U.S. portion...................................... $ 105 $ 120
International portion............................. (7) 8
----- -----
Total........................................ $ 98(a) $ 128
===== =====
</TABLE>
-----------------------
(a) Includes special charges of $7 million related to employee
severance and other cost reduction actions.
The U.S. portion of Air Conditioning Products is composed of the Unitary
Products Group, the North American Commercial Group (excluding Canada) and
exports from the United States 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 North American Commercial Group.
Sales of Air Conditioning Products increased 22% (with little effect from
foreign exchange) to $1,425 million for the six months ended June 30, 1995, from
$1,168 million for the comparable period of 1994 as a result of strong gains in
U.S. and international sales of applied and unitary commercial systems. Markets
in the United States continued to improve in 1995 in both the commercial
new-construction and the commercial and residential replacement markets. Sales
of commercial products in the United States increased 19% because of improved
markets, demand for chiller replacement (accelerated because of the impending
ban on CFC refrigerant production), gains in market share and increased sales of
newer, higher-efficiency products. Residential sales were up 11% due to
increased purchases by distributors in anticipation of peak summer demand and
favorable product shifts (to heat pumps from cooling units and to outdoor from
indoor equipment). International sales of Air Conditioning Products for the
first half of 1995 increased principally because of volume increases in the Far
East, Europe and Latin America.
25
<PAGE> 28
Operating income of Air Conditioning Products increased 31% (with little
effect from foreign exchange) to $128 million in the first half of 1995 from $98
million in the first half of 1994. Excluding special charges of $7 million from
the 1994 period, operating income increased 22%. This improvement primarily
reflected expanded commercial product sales in the United States and improved
results in international operations (principally Europe), as well as a small
gain in the Far East on the reorganization and sale of certain Hong Kong
operations in connection with establishing joint ventures directly in the PRC.
Operating income for residential products declined substantially because of
lower prices (due to competitive pressures) and increased raw material costs.
BACKLOG. The worldwide backlog for Air Conditioning Products as of June 30,
1995 was $617 million, an increase of 35% from June 30, 1994, excluding the
favorable effects of foreign exchange. The increase was a result of improved
markets and market share for U.S. commercial products, 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>
SIX MONTHS
ENDED
JUNE 30,
---------------
1994 1995
---- ----
(DOLLARS IN
MILLIONS)
<S> <C> <C>
SALES:
International portion................................. $441 $463
U.S. portion.......................................... 156 182
----- -----
----- -----
Total............................................ $597 $645
========== ==========
OPERATING INCOME (LOSS):
International portion................................. $ 76 $ 72
U.S. portion.......................................... (17) 1
----- -----
----- -----
Total............................................ $ 59(a) $ 73
========== ==========
</TABLE>
-----------------------
(a) Includes special charges of $19 million related to a provision for
loss on the early disposition of certain assets, employee severance and
other cost reduction actions.
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 United States.
Sales of Plumbing Products increased 8% (5% excluding the favorable effects
of foreign exchange) to $645 million in the first half of 1995 from $597 million
in the first half of 1994. The exchange-adjusted improvement resulted from a
sales increase of 16% for U.S. operations, while international operations were
flat compared with the first half of the prior year. Sales in the United States
increased as a result of higher volumes in both wholesale and retail market
channels offset partly by an unfavorable shift in sales mix to lower-priced
products. For international operations, sales increases in Italy, the United
Kingdom ("U.K."), the Philippines and Thailand (primarily from higher volumes)
were offset by sales decreases in Germany and France (as markets softened
unexpectedly during the second quarter), in Mexico and Canada (because of poor
economic conditions) and in South Korea (due to lower exports).
26
<PAGE> 29
Operating income of Plumbing Products for the first half of 1995 was $73
million, an increase of 24% (13% excluding the positive effects of foreign
exchange) compared with $59 million for the first half of 1994. Excluding both
foreign exchange effects and the special charges of $19 million from the 1994
period, operating income declined 13%, principally due to a 14% decline for
international operations which was partly offset by a small improvement for U.S.
operations. For international operations, operating income, as so adjusted for
such special charges, declined primarily because of the market weakness in
Germany and France, lower results in Canada and Mexico, costs associated with
implementation of manufacturing process improvements, as well as start-up
expenses of new Far East operations. In addition, because Italian and U.K.
operations purchase products from Germany, the strength of the Deutschemark
against Italian and U.K. currencies resulted in Italian and U.K. product cost
increases not being fully recovered through pricing. In the United States,
adjusted first half results improved modestly due to the higher volumes, partly
offset by the effect of an unfavorable product mix, the inability to fully
recover material and labor cost increases due to competitive pressures, and the
ongoing costs of implementation of process improvements.
BACKLOG. Plumbing Products' backlog as of June 30, 1995 was $180 million, a
decrease of 5% from June 30, 1994 (excluding the favorable effects of foreign
exchange), primarily the result of market softness in Europe. 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.
AUTOMOTIVE PRODUCTS SEGMENT
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1994 1995
---- ----
(DOLLARS IN
MILLIONS)
<S> <C> <C>
SALES.................................................... $355 $524
OPERATING INCOME......................................... 20(a) 87
</TABLE>
- ---------------
(a) Includes special charges of $14 million related to employee
severance and the consolidation of production facilities.
Sales of Automotive Products for the first half of 1995 were $524 million,
an increase of 48% (30% excluding the favorable effects of foreign exchange)
from $355 million in the first half of 1994. Unit volume of truck and bus
production in Western Europe improved 28% and aftermarket sales grew
approximately 20%. The foreign exchange-adjusted sales increase was the result
of significantly higher volumes, led by Germany and France reflecting the
increased commercial vehicle production in Western Europe, the U.K. as a result
of the growing utility vehicle business in that country and in Brazil as a
result of a 35% increase in truck production. Sales also increased in all other
major markets in which the Company has operations.
Operating income for Automotive Products increased to $87 million in the
first half of 1995, an increase of 122% excluding both the favorable effects of
foreign exchange and special charges of $14 million from the 1994 period. This
significant increase was primarily attributable to the substantially higher
sales volume in improved markets in nearly all European countries and Brazil, as
well as higher margins due to increasing benefits of the implementation of
manufacturing process improvements, a reduced salaried work force and other cost
reductions.
27
<PAGE> 30
BACKLOG. Automotive Products' backlog as of June 30, 1995, was $365
million, an increase of 25% from June 30, 1994 (excluding the favorable effects
of foreign exchange), as a result of the significantly improved markets. 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.
FINANCIAL REVIEW
Interest expense decreased by $18 million in the first half of 1995
compared to the first half of 1994 primarily as a result of reduced debt
balances due to application of the net proceeds from the IPO and lower overall
interest costs (see "-- Liquidity and Capital Resources"). Corporate items
increased moderately in the first half of 1995 primarily because of higher
accretion expense related to postretirement benefits as well as expenses of a
corporate advertising campaign initiated in 1995.
The income tax provisions for the six months ended June 30, 1995 and 1994,
were $54 million and $32 million, respectively, on income before income taxes
and extraordinary item of $130 million and $7 million, respectively. These
provisions reflected the taxes payable on profitable foreign operations, offset
partly in the 1995 period by tax benefits from U.S. and certain foreign net
operating losses. The unusual relationship between the pre-tax results and the
tax provision for the 1994 period is explained by tax rate differences and
withholding taxes on foreign earnings as well as by the nondeductibility for tax
purposes of the amortization of goodwill and other purchase accounting
adjustments and of the share allocations made by the Company's ESOP. Through
1994 the ESOP allocations were made from a plan established in 1988 through a
reversion of excess pension plan assets. In 1995 and future years, Company
contributions of either cash or stock to fund ESOP allocations should be tax
deductible.
As a result of the repayment of debt in the first quarter of 1995 upon
completion of the 1995 Refinancing (see "-- Liquidity and Capital Resources"),
the six month period ended June 30, 1995, included an extraordinary charge of
$30 million attributable to the write-off of unamortized debt issuance costs,
for which no tax benefit was available.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, after cash interest paid of $85
million, was $84 million for the first half of 1995, compared with $41 million
for the first half of 1994. The $43 million increase resulted primarily from
improved operating results. The Company made capital expenditures of $73 million
for the first half of 1995, including $17 million of investments in affiliated
companies (see "-- Capital Expenditures"). Inventories and receivables increased
during the first half of 1995 reflecting the increased sales volume and the
seasonal pattern typical of the first six months of the year. The principal
financing activities during the first six months of 1995 were related to the
1995 Refinancing described below.
At June 30, 1995, the Company's total indebtedness was $2,120 million and
the Company had scheduled debt maturities of $34 million in the second half of
1995 and $66 million, $69 million, $80 million and $223 million for the years
1996 through 1999, respectively. To meet its debt service obligations with
operating cash flow and comply with the covenants and restrictions contained in
the 1995 Credit Agreement, the Company will have to sustain the improved levels
of operating results and cash flow attained in 1994. The Company believes that
the amounts available from operating cash flows, funds available under the
Revolving Facilities and future debt or equity financings will be sufficient to
meet its expected operating needs and planned capital expenditures for the
foreseeable future.
In the first quarter of 1995 the Company completed the 1995 Refinancing
begun in the fourth quarter of 1994 consisting of the October Borrowing, the IPO
and the 1995 Credit Agreement.
28
<PAGE> 31
The 1995 Credit Agreement provides reduced borrowing rates, increased
borrowing capacity, less restrictive covenants and lower annual scheduled debt
maturities through 2001. On June 30, 1995, the weighted average interest rate
per annum on borrowings under the 1995 Credit Agreement was 7.0%.
The 1995 Credit Agreement provides American Standard Inc. and certain
subsidiaries (the "Borrowers") with a secured facility aggregating $1.0 billion
available to all Borrowers as follows: (a) a $250 million U.S. Dollar Revolving
Credit Facility and a $300 million Multi-currency Revolving Credit Facility (the
"Revolving Facilities") which expire in 2002; (b) a $100 million U.S. Dollar
Term Loan Facility (the "Term Loan Facility") which expires in 2000; and (c) a
$350 million Multi-currency Periodic Access Credit Facility ("Periodic Access
Facility") which expires in 2002.
The Revolving Facilities currently provide for aggregate borrowings from
time to time of up to $550 million for general corporate 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 Facilities may be used for same day
short term borrowings ("Swingline Loans"). Each of its outstanding revolving
loans is due at the end of the respective interest period (a maximum of six
months). The Company may, however, concurrently reborrow the outstanding
obligations subject to compliance with applicable conditions of the 1995 Credit
Agreement.
At June 30, 1995 the Company had outstanding borrowings of $261 million
under the Revolving Facilities. There was $237 million available under the
Revolving Facilities after reduction for borrowings and for $52 million of
outstanding letters of credit. In addition, at June 30, 1995, the Company's
foreign subsidiaries had $62 million available (after reduction for borrowings
of $35 million) under overdraft facilities which can be withdrawn by the banks
at any time.
The Term Loan Facility is due and payable in ten semiannual installments
payable on the last day of February and August of each year commencing on August
31, 1995. Each installment shall be in an aggregate principal amount of $10
million with the final installment equal to the unpaid principal amount. The
Periodic Access Facility is reduced by (a) $15 million on August 31, 1995 and on
the last day of each February and August thereafter through and including the
last day of February 1998, (b) $25 million on each of August 31, 1998, February
28, 1999 and August 31, 1999, (c) $35 million on each of February 29, 2000,
August 31, 2000 and February 28, 2001 and (d) $40 million on each of August 31,
2001 and on February 28, 2002 and the Company must repay any loans outstanding
thereunder to the extent they exceed the remaining commitment.
Borrowings bear interest based on a reserve adjusted London inter-bank
offered rate plus a margin, or, in the case of U.S. Dollar denominated
borrowings, based on Chemical Bank's alternate base rate plus a margin.
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 those
currencies obtainable for the Swingline Loans.
All obligations of the Borrowers under the 1995 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.
In addition, the 1995 Credit Agreement contains various covenants that
limit, among other things, mergers and asset sales, indebtedness, dividends on
and redemption of capital stock, voluntary prepayment of certain other
indebtedness, rental expense, liens, capital expenditures, investments or
acquisitions, the use of proceeds from asset sales, intercompany transactions
and transactions with affiliates and certain other business activities. The
covenants also require
29
<PAGE> 32
American Standard Inc. to meet certain financial tests. Certain other American
Standard Inc. debt instruments also contain financial and other covenants.
In order to maintain compliance with the covenants and restrictions
contained in its previous bank credit agreements, the Company from time to time
has had to obtain waivers and amendments. The Company believes it is currently
in compliance with the covenants contained in the 1995 Credit Agreement, but may
have to obtain similar waivers or amendments in the future.
The 1995 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.
For a description of certain other American Standard Inc. debt instruments,
see Note 10 of Notes to Consolidated Financial Statements.
In connection with examinations of certain 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 $22 million (using June 30, 1995
exchange rates) of a disputed German income tax. A suit is pending to obtain a
refund of this tax. During the first quarter of 1995, the Company received the
first of two expected reports of the German tax authorities on audit findings
for tax years 1984 through 1990. This first report was silent on one of the
major issues under audit, which had represented over one-third of the potential
total adjustments that the Company earlier anticipated the German tax
authorities might propose for the years 1984 through 1990. While there can be no
assurance, the Company believes it is now unlikely that this issue will be
pursued further by the German tax authorities.
During the second quarter of 1995, the Company received the second report
on audit findings for tax years 1988 through 1990. On the basis of the second
report, and assuming that the matter is not first resolved by administrative
appeals procedures, the remaining proposed adjustments could ultimately lead to
litigation regarding disputed taxes (principally for the 1988 through 1990
period) of up to approximately $80 million (using June 30, 1995 exchange rates),
plus interest. 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 continue to propose adjustments
for the 1988-1990 period, they might, after future tax audits, also propose tax
adjustments for years 1991-1993, that could be as much as 50% higher than the
comparable adjustments for the years 1988 through 1990. American Standard, on
the basis of the opinion of German legal counsel, Meilicke & Partner, 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 has not recorded any loss
contingency at June 30, 1995, 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 would 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 the first six months of 1995 were higher in Germany and
will be higher thereafter. As a result of this German tax legislation and the
related additional tax provisions, the Company believes its
30
<PAGE> 33
exposure to the issues under the audit referred to above will be reduced for
1994, 1995 and future years.
American Standard Inc. makes substantial interest payments to its indirect
wholly-owned Netherlands subsidiary. These interest payments had been exempt
from U.S. withholding tax under an income tax treaty between the United States
and the Netherlands. Under a provision in a new treaty such payments would have
become subject to 15% U.S. withholding tax, except that the Company received a
ruling from the IRS making a determination that no U.S. withholding tax will be
imposed for 1995. The Company believes, based on the ruling exempting 1995
interest payments from U.S. withholding tax, that its request for a subsequent
ruling covering 1996 (and later years) should also receive favorable IRS action.
If the subsequent IRS ruling request is not resolved favorably, additional
withholding taxes of approximately $11 million per year could be imposed on the
Company commencing in 1996. In such case, the Company would consider
alternatives designed to mitigate the increased withholding taxes; however,
there is no assurance that such alternatives could be found.
CAPITAL EXPENDITURES
The Company's capital expenditures for the first six months of 1995 were
$73 million, including $17 million of investments in affiliated companies,
compared with $45 million (including $13 million of investments in affiliated
companies) for the first six months of 1994. The increase for 1995 relates
primarily to investments in affiliated companies, expansion in newer operations,
new products, expansion to meet market demand and the continuing implementation
of Demand Flow. The Company expects that capital expenditures (including
investments in affiliates) will increase approximately 40% for 1995 compared
with 1994.
On August 28, 1995, a subsidiary of the Company filed with the French stock
exchange authorities a proposal to acquire by means of a tender offer up to all
the outstanding shares and convertible bonds not currently owned by the Company
of Etablissements Porcher ("Porcher"), a French manufacturer and distributor of
plumbing products in which the Company presently has an equity ownership
interest of 32.88%. The transaction is subject, among other things, to approval
by the French stock exchange authorities and the French Treasury Department.
Assuming all the shares and convertible bonds of Porcher not currently owned by
the Company are acquired in the tender offer, the total cash cost to acquire
such shares and convertible bonds is expected to be approximately $25 million,
which will be funded with a borrowing under the Company's Revolving Facilities.
In addition, based on Porcher's June 30, 1995 balance sheet, approximately $35.7
million of debt will be assumed as a result of the consolidation of 100% of
Porcher. For the six months ended June 30, 1995, Porcher had net sales of
approximately $110 million and earnings before interest and income taxes of
approximately $2 million.
Although American Standard from time to time considers making acquisitions,
or additional joint venture investments, relating to its major product groups,
it has no material pending acquisitions or investments. The Company could
finance such acquisitions or investments in various ways, including through
additional borrowings under the 1995 Credit Agreement up to specified limits.
The Company's capital expenditures for the year 1994 were $130 million
compared with $98 million for 1993, an increase of 33%. The increase for 1994
relates primarily to investments in affiliated companies ($24 million in 1994
compared to $8 million in 1993), modernization of recent acquisitions, new
products and the continuing implementation of Demand Flow.
Capital expenditures for Air Conditioning Products for the year 1994 were
$45 million, including $6 million of investments in affiliates, an increase of
18% over the $38 million of capital spending in 1993. Major expenditures
included projects related to Demand Flow, new products such as the Voyager III
(medium-tonnage product line), changes related to new refrigerant requirements
and capacity expansion.
31
<PAGE> 34
Plumbing Products' capital expenditures for the year 1994 were $55 million,
including $10 million of investments in affiliated companies, compared with
capital expenditures of $46 million in 1993 (including investments of $8 million
in affiliated companies), an increase of 20% (25% excluding the effects of
foreign exchange). Expenditures for 1994 included cash investments in affiliates
in the PRC 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.
Capital expenditures for Automotive Products for the year 1994 were $30
million, including investments in affiliated companies of $8 million (Deutsche
Perrot-Bremsen GmbH ("Perrot") and WABCO Espana), approximately double the 1993
capital expenditures of $14 million. Major projects included construction of a
test track in Germany, continued implementation of Demand Flow and
cost-reduction projects.
RESULTS OF OPERATIONS FOR 1994 COMPARED WITH 1993 AND 1993 COMPARED WITH 1992
Consolidated sales for 1994 were $4,457 million, an increase of $627
million, or 16% (with little effect from foreign exchange), from $3,830 million
in 1993. Sales increased for all three segments with gains of 18% for Air
Conditioning Products, 4% for Plumbing Products and 35% for Automotive Products.
Consolidated sales for 1993 of $3,830 million were up 1% (6% excluding the
unfavorable effects of foreign exchange) from $3,792 million in 1992. A 1993
sales increase of 11% for Air Conditioning Products was partly offset by a
decline for Automotive Products of 23% (16% excluding the unfavorable effects of
foreign exchange). Sales for Plumbing Products from 1992 to 1993 were flat (but
increased by 9% excluding the unfavorable effects of foreign exchange).
Operating income for 1994 was $355 million, an increase of $73 million, or
26% (with little effect from foreign exchange), from $282 million in 1993 as a
result of gains in each segment, especially Automotive Products and Air
Conditioning Products. Operating income for 1994 included charges of $26 million
related to employee severance, the consolidation of production facilities and
the implementation of other cost reduction actions. In 1994 the Company also
provided $14 million for losses on operating assets expected to be disposed of
prior to the expiration of their originally estimated useful lives. The year
1993 included $8 million of charges for plant shutdowns and other cost reduction
actions. Excluding those charges from the respective years, operating income
would have increased to $395 million from $290 million, or 36%, in 1994 over
1993.
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. The 1993 increase in operating income of
28% for Air Conditioning Products was more than offset by a 53% decrease in
operating income for Automotive Products. Plumbing Products' operating income
from 1992 to 1993 was flat (but increased 15% excluding the unfavorable effects
of foreign exchange).
Interest expense for 1994 decreased $19 million compared to 1993 primarily
as a result of lower overall interest rates achieved through a 1993 refinancing.
Corporate items increased in 1994 principally because of a special charge of $20
million paid in connection with the amendment of certain agreements in
anticipation of the IPO. Corporate items increased $22 million in 1993 compared
to 1992 primarily as a result of foreign exchange losses, higher minority
interest charges and lower equity in net income of affiliated companies.
The income tax provisions for 1994 and 1993 were $62 million and $36
million, respectively, despite losses (before income taxes and extraordinary
items) of $15 million and $81 million for 1994 and 1993, respectively. These
provisions reflected the taxes payable on profitable foreign operations, offset
partly in 1993 by tax benefits from certain foreign net operating losses. The
provision for 1994 was adversely affected by less favorable tax treatment with
respect to certain
32
<PAGE> 35
foreign items, primarily in Germany. Other factors contributing to the unusual
relationship between the pre-tax results and the tax provision for both years
are the nondeductibility for tax purposes of the amortization of goodwill and
the effects of other purchase accounting adjustments and the share allocations
made by the ESOP as well as tax rate differences and withholding taxes on
foreign earnings. See Note 7 of Notes to Consolidated Financial Statements.
As a result of the redemption of debt in 1994 with the proceeds of the
October Borrowing (see "1995 Refinancing" and "-- Liquidity and Capital
Resources") and in 1993 as a result of a refinancing, 1994 and 1993 included
extraordinary charges of $9 million and $92 million, respectively (including
call premiums, the write-off of unamortized debt issuance costs and in 1993 the
loss on cancellation of foreign currency swap contracts), on which no tax
benefit was available.
AIR CONDITIONING PRODUCTS SEGMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
SALES:
U.S. portion.............................. $1,572 $1,786 $2,087
International portion..................... 320 314 393
------ ------ ------
Total................................ $1,892 $2,100 $2,480
====== ====== ======
OPERATING INCOME (LOSS):
U.S. portion.............................. $ 112 $ 148 $ 195
International portion..................... (8) (15) (13)
------ ------ ------
Total................................ $ 104 $ 133(a) $ 182(a)
====== ====== ======
</TABLE>
-----------------------
(a) Includes special charges of $5 million in 1993 and $7 million in
1994.
Sales of Air Conditioning Products increased 18% to $2,480 million in 1994
from $2,100 million in 1993, as a result of significant sales gains in the
United States and expanding international sales. The 1994 increase followed a
gain of 11% in 1993 from $1,892 million in 1992. Sales in the United States
improved significantly from depressed 1992 levels, primarily as a result of
recovery in commercial and residential replacement and new-construction markets.
Commercial markets represent approximately 75% of Air Conditioning Products'
total sales. Over 60% of U.S. sales for Air Conditioning Products is from the
replacement, renovation and repair markets. The U.S. sales increase in both
years was primarily attributable to the improved markets and gains in market
share. International sales decreased in 1993 due to the economic decline in
Europe.
Operating income of Air Conditioning Products increased 37% to $182 million
in 1994 from $133 million in 1993. This gain was primarily the result of
increased operating income in the United States due to higher sales together
with cost reductions. Operating income for 1993 of $133 million was up 28% from
$104 million in 1992, attributable to gains achieved in U.S. operations.
United States. In 1994 U.S. sales increased 17% over those of 1993. Sales
of commercial products increased 18% because of higher volume (as a result of
improved markets and gains in market share, higher export sales, and the
acquisition of additional sales offices) and a shift to newer, larger-capacity,
higher-efficiency products, offset partly by the effect of lower prices for
certain products due to competitive pressures. Residential sales were up 15% due
to improved replacement and new-construction markets and share gains primarily
attributable to the success of new and redesigned products introduced recently
and improved distribution channels. The increased sales, together with cost
reductions, resulted in a 32% increase in U.S. operating income in 1994 over
1993.
33
<PAGE> 36
In 1993 sales of commercial products increased by 11% over the 1992 sales
level, primarily from volume increases (principally due to improved markets and
increased market share) and increased revenue from Company-owned sales offices
(acquisitions and volume growth). Residential product sales were up 18%, driven
by the improved market, the effects of an unusually hot summer in northern areas
of the United States, and an increase in housing starts. Operating income in the
United States improved 32% due to the sales increases and cost reductions.
International. International sales increased 25% in 1994, due principally
to volume increases in the Far East and Latin America. Despite significantly
higher sales, international operations incurred an operating loss similar to
that of 1993. Latin American and Far East operations declined slightly,
reflecting costs of expansion. Offsetting these declines was an improvement in
European results, although still a loss because of continued poor economic
conditions and competitive pricing pressures.
In 1993 international sales decreased 2%. Higher volumes in the Far East
and Mexico were more than offset by lower sales in Europe (lower prices and
volumes in a declining market). Operating results for international operations
declined primarily as the result of a larger operating loss in Europe because of
the weak markets and lower margins. Overall, operating income from Far East and
Latin America operations was essentially unchanged from 1992.
PLUMBING PRODUCTS SEGMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
SALES:
International portion..................... $ 885 $ 865 $ 884
U.S. portion.............................. 285 302 334
------ ------ ------
Total................................ $1,170 $1,167 $1,218
====== ====== ======
OPERATING INCOME (LOSS):
International portion..................... $ 124 $ 131 $ 138
U.S. portion.............................. (16) (23) (27)
------ ------ ------
Total................................ $ 108 $ 108(a) $ 111(a)
====== ====== ======
</TABLE>
-----------------------
(a) Includes special charges of $1 million in 1993 and $19 million in
1994.
Sales of Plumbing Products increased 4% (6% excluding the unfavorable
effects of foreign exchange) to $1,218 million in 1994 from $1,167 million in
1993. The exchange-adjusted improvement resulted from sales increases of 4% for
international operations and 11% for the U.S. operations. The sales gain for the
international operations was led by volume and price gains as economic
conditions in several countries (particularly the U.K. and Germany) showed
modest improvement over the prior year. The strength of the European operations
has been sales in the replacement market, which has more than made up for the
effects of poor new-construction markets. Sales also increased in Thailand,
Korea and Mexico, all on higher volumes. These increases were offset partly by
lower sales in Canada and Brazil where poor economic conditions continued, and
by the effect of the deconsolidation of operations in the PRC which in April
1994 were contributed to the new joint venture operating in that country. Sales
in the United States increased as a result of improved markets and an expanded
retail customer base. A basic shift from the wholesale distribution channel to
the retail sales channel has been developing over recent years, a trend the
Company believes will continue and will result in increased sales because of
strong product and brand-name recognition. Retail markets accounted for 24% of
the total 1994 U.S. plumbing products sales, up from 20% in 1993.
34
<PAGE> 37
Operating income of Plumbing Products was $111 million for 1994 compared
with $108 million for 1993 as a result of improvements in international
operations. Operating income gains reflected the sales improvements and cost
reductions in most operations. In the United States improvements from increased
sales and cost reductions at manufacturing facilities were more than offset by a
provision of $14 million related to certain assets that will be disposed of
prior to the expiration of their originally estimated useful lives. Overall
Plumbing Products' results were also negatively affected by a provision of $5
million related to employee severance and other cost reduction actions, compared
to $1 million of similar charges in 1993. Excluding such provisions from the
respective years, operating income would have increased to $130 million from
$109 million, or 19%, in 1994 from 1993.
Sales of Plumbing Products in 1993 at $1,167 million 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). For the international
operations sales increased on an exchange-adjusted basis, primarily because of
price increases in Italy, Germany, the U.K., Brazil and Greece and because of
the consolidation of Incesa (a previously unconsolidated group of Central
American joint ventures) effective January 1, 1993. Sales also increased because
of higher volume and prices in Thailand, the PRC and the Philippines. Sales in
the United States increased largely as a result of increased export sales and to
a lesser extent from price increases, a more favorable sales mix and an increase
in the retail sales channel.
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%. This exchange-adjusted increase occurred
primarily because of the price gains, cost reductions resulting from
restructuring, and efficiency improvements in the U.K., France, Italy and
Germany. Gains were also realized in Brazil, Thailand, and the PRC because of
higher prices and volumes and from the consolidation of the Incesa group, partly
offset by lower results in Mexican chinaware operations. The increased operating
loss for the U.S. operations in 1993 was due to lower margins on both domestic
and export sales, increased advertising costs and other expenses associated with
expansion of the retail sales channel.
AUTOMOTIVE PRODUCTS SEGMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1992 1993 1994
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
SALES............................................... $730 $563 $759
OPERATING INCOME.................................... 88 41(a) 62(a)
</TABLE>
-----------------------
(a) Includes special charges of $2 million in 1993 and $14 million in
1994.
Sales of Automotive Products for 1994 were $759 million, an increase of
$196 million, or 35%, from $563 million in 1993. Unit volume of truck and bus
production in Western Europe improved significantly and aftermarket sales grew
solidly. Sales of Perrot, a German brake manufacturer which the Company acquired
in January 1994, accounted for $62 million of the gain. 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 Automotive Products was $62 million in 1994, an
increase of 51% compared with $41 million in 1993. The increase was primarily
attributable to increased sales volume and the effect of cost reductions, partly
offset by a loss experienced by Perrot. Operating income for 1994 reflected
charges of $14 million related to employee severance and the consolidation of
production facilities. Charges of a similar nature in 1993 totalled $2 million.
Excluding those
35
<PAGE> 38
charges from the respective years, operating income would have increased to $76
million from $43 million, or 77%, in 1994 over 1993.
Sales of Automotive Products in 1993 were $563 million, down 23% from $730
million in 1992 (16% excluding the unfavorable effects of foreign exchange). The
sales decrease was due primarily to a volume decline 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 Automotive Products has
operations. Original equipment sales volume in Europe was down 22% and
aftermarket business was down 10%. Volume in Brazil was slightly higher in 1993
than in 1992.
Operating income for Automotive Products in 1993 decreased 53% (50%
excluding unfavorable 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 and the provisions related to employee severance. Those effects
were partly offset by the favorable effects of cost reductions in manufacturing
from Demand Flow implementation and reduced operating expenses.
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
replacement, renovation and repair markets (approximately 60% of their 1994
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 1994 sales). The
following table presents a summary of statistics on U.S. non-residential
construction activity and housing starts for the years 1989 through the first
half of 1995.
<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.............. 942 4 1,288 7
1994.............. 1,090 16 1,466 14
1995(c)........... 1,172 8 1,308 (11)
</TABLE>
- ---------------
(a) Source: F.W. Dodge Division, McGraw Hill, Inc.
(b) Source: U.S. Department of Commerce, Bureau of Census.
(c) Preliminary six months data annualized.
36
<PAGE> 39
Automotive 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 1995 (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.............. 278 22 109 17
1995(b)........... 341 23 130 19
</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 six months data annualized.
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.
37
<PAGE> 40
BUSINESS
American Standard is a globally-oriented manufacturer of high quality,
brand-name products in three major product groups: air conditioning systems (56%
of 1994 sales); bathroom and kitchen fixtures and fittings (27% of 1994 sales);
and braking and control systems for medium-sized and heavy trucks, buses,
trailers and utility vehicles (17% of 1994 sales). American Standard is a market
leader in each of these business segments in the principal geographic areas in
which it competes. The Company's brand names include TRANE(R) and AMERICAN
STANDARD(R) for air conditioning systems, AMERICAN STANDARD(R), IDEAL
STANDARD(R) 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. At June 30, 1995, American
Standard had 94 manufacturing facilities in 32 countries.
American Standard's business strategy is to promote growth in sales and
earnings. 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 continues 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 Automotive Products.
AIR CONDITIONING PRODUCTS. American Standard is a leading U.S.
manufacturer of air conditioning systems for both domestic and export sales, and
also manufactures air conditioning systems outside the United States. Air
Conditioning Products manufactures "applied" (custom engineered, site-assembled)
and "unitary" (self-contained, factory-assembled) air conditioning systems that
are sold primarily under the TRANE(R) and AMERICAN STANDARD(R) names. Air
Conditioning Products' sales to the commercial and residential markets
represented approximately 75% and 25%, respectively, of Air Conditioning
Products' total sales in 1994 and the first six months of 1995. Approximately
60% of Air Conditioning Products' sales in these periods was to the replacement,
renovation and repair markets, which have been less cyclical than the new
residential and commercial construction markets. Of Air Conditioning Products'
1994 worldwide sales, approximately 84% was derived from U.S. operations
(including 7% related to export sales) and 16% was derived from operations
outside the United States. 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, the
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expansion of its broad distribution network and conversion to products utilizing
environmentally-preferred refrigerants.
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. Of Plumbing
Products' worldwide 1994 sales, approximately 72% was derived from operations
outside the United States and 28% was derived from operations in 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).
AUTOMOTIVE PRODUCTS. American Standard is a leading manufacturer,
primarily in Europe and Brazil, of braking and related systems for the
commercial and utility vehicle industry. Its most important products are
pneumatic braking systems and related electronic and other control systems
(including ABS) marketed under the WABCO(R) name for medium-size and heavy
trucks, tractors, buses, trailers and utility vehicles. American Standard
supplies vehicle manufacturers such as Mercedes-Benz, Volvo, Iveco (Fiat), RVI
(Renault) and Rover. Management believes that Automotive Products is well
positioned to benefit from improved market conditions in Europe and Brazil and
increasing demand for ABS and other sophisticated electronic control systems in
a number of markets (including the commercial vehicle market in the United
States, where phase-in of ABS has been mandated beginning in 1997), as well as
from the technological advances embodied in the Company's products and its close
relationships with a number of vehicle manufacturers.
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. In 1994, it established a joint venture in
Australia, and in 1995, a joint venture in the PRC, where it is currently
negotiating to establish several other joint ventures. Air Conditioning Products
also continues to expand its sales forces in the Far East and Latin America.
Plumbing Products has entered new markets through joint ventures in Eastern
Europe, Spain, Portugal and Vietnam 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"), in which
American Standard has a current ownership position of approximately 28% and
effective control over day-to-day operations. ASPPL, which had total assets of
approximately $125 million at June 30, 1995, 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 is expected to increase over time to up to
51% of the equity of ASPPL through reinvestment of royalties and management fees
and may increase above that level through additional stock purchases.
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Automotive Products, headquartered in Europe, has 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.
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 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, most of American Standard's employees worldwide had been
trained in Demand Flow which has been implemented in substantially all of
American Standard's production facilities as of June 30, 1995. In addition,
American Standard is implementing Demand Flow in its acquired operations such as
Perrot, a German brake manufacturer acquired in January 1994. American Standard
is also applying Demand Flow to administrative functions and is reengineering
its organizational structure to manage its businesses based on processes instead
of functions.
American Standard believes that its implementation of Demand Flow 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 almost tripled. Principally as a result
of the implementation of Demand Flow, American Standard achieved an aggregate
$264 million reduction in inventories from December 31, 1989 through December
31, 1994, while sales have grown 34% for the same period. American Standard
further believes that as a result of the introduction of Demand Flow, employee
productivity has risen significantly, 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) and
AMERICAN STANDARD(R) names. In 1994 Air Conditioning Products, with revenues of
$2,480 million, accounted for approximately 56% of the Company's sales and 51%
of its operating income. Air Conditioning Products derived approximately 16% of
its sales in 1994 from operations outside the United States and over half from
the replacement, renovation and repair markets, which in general are less
cyclical than the new residential and commercial construction markets.
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, humidify or dehumidify, 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, renovation and repair
businesses, in which margins are higher than on
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sales of original equipment. Much of the equipment sold in the fast-growing air
conditioning markets of the 1960's and 1970's is reaching the end of its useful
life. Also, equipment sold in the 1980's is likely to be replaced earlier than
originally expected with higher efficiency products recently developed to meet
required efficiency standards and to capitalize on the availability of
environmentally-preferred refrigerants.
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 new scroll
compressor being developed for use primarily in residential air conditioners is
expected to begin in 1995, with startup scheduled for 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
HCFCs and in the past utilized CFCs 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 has created 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 being 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 June 30, 1995 Air Conditioning Products had 28 manufacturing plants in 8
countries, employing approximately 17,700 people.
Air Conditioning Products comprises three operating groups: Unitary
Products, North American Commercial, and International.
UNITARY PRODUCTS GROUP
Unitary Products, which accounted for approximately 42% of Air Conditioning
Products' 1994 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, Goodman Industries, Inter-City Products, Lennox and Rheem.
Commercial unitary products range from 2 to 120 tons and 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
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strip malls. These products are sold through 81 commercial sales offices in 121
locations. 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.
NORTH AMERICAN COMMERCIAL GROUP
North American Commercial Group (formerly named Commercial Systems Group),
which accounted for approximately 37% of Air Conditioning Products' 1994 sales,
manufactures and distributes products in the United States for sale in the
United States and Canada for air conditioning applications in larger commercial,
industrial, and institutional buildings. Other major suppliers of commercial
systems are Carrier, McQuay and York.
North American Commercial Group 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 acquired the Albany, New
York office and expects to continue to acquire major sales offices from its
franchisees.
Over the last few years the North American Commercial Group 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' 1994 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
North American Commercial 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, the
group opened a plant in late 1991 in Mirecourt to build mini-splits and air
moving products known as fan coils utilizing Demand Flow. 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
North American Commercial 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.
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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 as well as a joint venture in the PRC, where it is currently
negotiating the establishment of several other joint ventures. An important new
product for the Far East markets, which went into production in 1992 in
Malaysia, is a double-walled air handler designed for ease of manufacture and
compatibility with the Demand Flow manufacturing 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 1994 Plumbing Products, with revenues of
$1,218 million, accounted for 27% of the Company's sales and 31% of its
operating income. Plumbing Products derived approximately 73% of its total 1994
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 24% of
U.S. Plumbing Products' sales in 1994. 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, U.S. Plumbing Products and Americas International
(Canada, Mexico and Central and South America), 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 United States, 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 32.88% of Porcher, a 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. On August 28, 1995, a subsidiary of the Company filed with the French
stock exchange authorities a proposal to acquire by means of a tender offer up
to all the outstanding shares and convertible bonds of Porcher not currently
owned by the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Capital Expenditures".
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 and is developing a new joint venture in Vietnam. The Company is
also significantly expanding its operations in the PRC. See -- "Globalization".
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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.
In 1994 the new construction market in Europe continued a recovery which began
in some countries in 1993 after declining generally for several years. However,
in the first half of 1995, markets softened in Europe, especially in Germany and
France. In the U.S. the residential new construction market hit its recent low
in early 1991, recovered somewhat through 1994, then declined again in the first
half of 1995. The U.S. non-residential new construction market hit its recent
low in 1992 but has recovered somewhat through 1994 and into the first six
months of 1995. In general, 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 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 24% of U.S. Plumbings' sales
in 1994, 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 United States. 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 AMERICAST(R) composite 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.
At June 30, 1995 Plumbing Products employed approximately 16,400 people
and, including affiliated companies, had 52 manufacturing plants in 22
countries.
U.S. Plumbing Products has several important competitors, including Kohler
and Masco in selected product lines. There are also important competitors in
foreign markets, for the most part
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operating nationally. Friederich Grohe, 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.
AUTOMOTIVE PRODUCTS SEGMENT
Automotive Products manufactures air brake and related systems for the
commercial vehicle industry in Europe and Brazil and markets under the WABCO(R)
name. Automotive 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 1994 Automotive Products, with sales of $759 million, accounted for
17% of the Company's sales and 17% of its operating income. The Company believes
that Automotive Products is a worldwide technological leader in the heavy truck
and bus braking industry. Electronic controls, first introduced in ABS in the
early 1980's, are increasingly applied in other systems sold to the commercial
vehicle industry.
The Company's automotive 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 Bendix, Knorr and Robert Bosch.
The European market for new trucks, buses, trailers, and replacement parts
recovered strongly in 1994 and continued to improve in the first half of 1995
after significant declines in 1992 and 1993. 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 continued its recovery which
began in 1993 after declining in 1992.
Through 1994 the WABCO(R) ABS system, which the Company believes leads the
market, has been installed in approximately 726,000 heavy trucks, buses, and
trailers worldwide since 1981. Annual sales volume in Europe has significantly
increased in recent years to approximately 132,000 units in 1994 and to 44,000
units annually in other markets, primarily the United States and Japan. In
addition, Automotive Products has developed electronically controlled pneumatic
gear shifting systems, electronically controlled air suspension systems, and
automatic climate-control and door-control systems for the commercial vehicle
industry. These systems have resulted in greater sales per vehicle for
Automotive Products. Significant progress was made in recent years 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, Automotive Products has developed and implemented
an electronic data interchange system, which links certain customers directly to
Automotive Products' information systems, providing timely, accurate information
and just-in-time delivery to the customer.
Automotive Products and affiliated companies have 14 manufacturing
facilities and 7 sales organizations operating in 17 countries. Principal
manufacturing operations are in Germany, France, the United Kingdom, and Brazil.
Automotive 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 has been gaining acceptance in the
United States and Japan, where Automotive Products participates through its
joint venture operations. Rockwell WABCO is now a supplier of WABCO systems to
Freightliner, Mack, Volvo-GM, Kenworth, Peterbilt
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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. In March 1995, the U.S. Department of
Transportation, National Highway Traffic Safety Administration adopted amended
federal regulations which require that new medium and heavy vehicles be equipped
with ABS. These amended regulations will be phased in over a two-year period
beginning in March 1997. Automotive Products believes it is in a good position
to take advantage of this opportunity.
At June 30, 1995, Automotive Products and affiliated companies had 14
manufacturing plants, employing approximately 5,900 people and operations in 17
countries.
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:
<TABLE>
<CAPTION>
BUSINESS SEGMENT TRADEMARK
- -------------------------- --------------------
<S> <C>
Air Conditioning Products TRANE(R)
AMERICAN STANDARD(R)
Plumbing Products AMERICAN STANDARD(R)
IDEAL STANDARD(R)
STANDARD(R)
Automotive Products WABCO(R)
PERROT(R)
</TABLE>
The Company from time to time has granted patent licenses to, and has
licensed technology from, other parties.
RESEARCH AND PRODUCT DEVELOPMENT
The Company made expenditures of $118 million in 1994, $110 million in
1993, and $110 million in 1992 for research and product development and for
product engineering. The expenditures for research and product development only
were $39 million in 1994, $43 million in 1993 and $40 million in 1992 and were
incurred primarily by Automotive Products and Air Conditioning Products.
Automotive 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
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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. Computer software product development costs
capitalized amounted to $2 million in each of 1994 and 1993.
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
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, 1994 and the first six months of 1995 to evaluate
and remediate such sites were not material. On the basis of the Company's
historical experience and information currently available, the Company believes
that these environmental actions will not have a material adverse effect on its
financial condition, results of operations or liquidity.
Additional sites may be identified for environmental remediation in the
future, including properties previously transferred by the Company and with
respect to which the Company may have contractual indemnification obligations.
The Company cannot estimate at this time the ultimate aggregate costs of all
remedial actions because of (a) uncertainties surrounding the nature and
application of environmental regulations, (b) the Company's lack of information
about additional sites at which it may be listed as a potentially responsible
party, (c) the level of clean-up that may be required at specific sites and
choices concerning the technologies to be applied in corrective actions, (d) the
number of contributors and the financial capacity of others to contribute to the
cost of remediation at specific sites and (e) the time periods over which
remediation may occur.
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 ("ppb") of lead leachate
from faucets in drinking water.
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<PAGE> 50
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 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. The dismissal was upheld on
appeal.
A tentative settlement has been reached whereby all fittings sold in
California must meet an 11 ppb leachate level by December 1996 and 95% of all
fittings sold in California must meet a standard of 5 ppb by December 1999. The
Company believes it can meet these levels. Warnings will be required for
fittings that do not meet the 5 ppb standard. In connection with the proposed
settlement the Company made no admission of liability and paid no penalty.
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 of CFCs. In November 1992 the Montreal Protocol was amended
in Copenhagen, Denmark, to phase out all production except for 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.
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The Company continues to derive substantial revenues from servicing and
repairing installed equipment that use Class I substances. The emissions from
servicing and repairing of equipment that use 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
currently in production 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 expected to be
reflected in product pricing and accordingly are not expected to have a material
adverse impact on the Company.
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<PAGE> 52
PROPERTIES
At June 30, 1995, the Company conducted its manufacturing activities
through 94 plants in 32 countries, of which the principal facilities are as
follows:
<TABLE>
<CAPTION>
BUSINESS SEGMENT LOCATION MAJOR PRODUCTS MANUFACTURED AT LOCATION
- ----------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Air Conditioning Clarksville, TN Commercial unitary air conditioning
Products Fort Smith, AK Commercial unitary air conditioning
La Crosse, WI Applied air conditioning systems
Lexington, KY Air handling products
Macon, GA Commercial air conditioning systems
Pueblo, CO Applied air conditioning systems
Rushville, IN Air handling products
Trenton, NJ Residential gas furnaces and air handlers
Tyler, TX Residential air conditioning
Waco, TX Water source heat pumps and air handling
products
Charmes, France Applied air conditioning systems
Epinal, France Applied air conditioning systems
Mirecourt, France Mini-splits and air handling products
Plumbing Products Salem, OH Enameled-steel fixtures and acrylic bathtubs
Tiffin, OH Vitreous china
Trenton, NJ Vitreous china
Toronto, Canada Vitreous china and enameled-steel fixtures
Hull, England Vitreous china and acrylic bathtubs
Middlewich, England Vitreous china
Dole, France Vitreous china and acrylic bathtubs
Neuss, Germany Vitreous china
Wittlich, Germany Brass plumbing fittings
Orcenico, Italy Vitreous china
Brescia, Italy Vitreous china
Mexico City, Mexico Vitreous china, water heaters
Monterrey, Mexico Brass plumbing fittings
Bangkok, Thailand Vitreous china
Seoul, South Korea Brass plumbing fittings
Manila, Philippines Vitreous china
Automotive Campinas, Brazil Braking equipment
Products Leeds, England Braking equipment
Claye-Souilly, France Braking equipment
Hanover, Germany Braking equipment
Mannheim, Germany Foundation brakes
</TABLE>
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 1995 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 1995 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 1995 Credit Agreement. Through joint ventures, the
Company participates in the operation of (or is in the process of constructing)
up to eight plants in the PRC, and operates one plant in each of
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<PAGE> 53
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 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.
Automotive Products' plants generally operated moderately below capacity in
1994.
EMPLOYEES
The Company employed approximately 40,000 people (excluding employees of
unconsolidated joint venture companies) at June 30, 1995. The Company has a
total of 18 labor union contracts in North America (covering approximately 8,500
employees), two of which were to have expired in 1995 (covering approximately
940 employees) and seven of which expire in 1996 (covering approximately 4,800
employees). Both of the contracts expiring in 1995 and a contract covering
approximately 200 Canadian employees which expired in the last quarter of 1994
have been successfully renegotiated. There can be no assurance that the Company
will successfully renegotiate the labor contracts expiring during 1996 without
work stoppages. However, the Company does not anticipate having problems
renegotiating any 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.
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 in these
and other countries through affiliated companies and partnerships in which the
Company owns 50% or less of the stock or partnership interest.
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
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<PAGE> 54
accounting perspective; however, since the Acquisition in 1988, the effects of
exchange volatility have been ameliorated by the denomination in foreign
currencies of a portion of the Company's borrowings.
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. In July 1994, the district court denied class certification with
respect to two of the three violations alleged in the suit. These alleged
violations may now only be asserted by Entech on its own behalf. With respect to
the one claim 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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<PAGE> 55
PRINCIPAL AND SELLING STOCKHOLDERS
Set forth below is the number of shares of Common Stock, the only
outstanding voting stock of the Company, beneficially owned as of June 30, 1995
by each Selling Stockholder, each Director, the Chief Executive Officer and the
four other most highly compensated executive officers of the Company (the "Named
Officers"), all Directors and executive officers of the Company as a group, and
each 5% holder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED NUMBER OWNED
PRIOR TO OFFERINGS OF AFTER OFFERINGS
--------------------- SHARES ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------ ---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Kelso ASI Partners, L.P.(a)(c)...... 44,573,656 59% 17,463,500 (b) %
Joseph S. Schuchert................. (c) (c) (c) (c)
Frank T. Nickell.................... (c) (c) (c) (c)
Emmanuel A. Kampouris(d)(e)......... 573,707 * 0 573,707 *
George H. Kerckhove(d)(e)........... 293,680 * 35,000 258,680 *
Horst Hinrichs(d)(e)................ 236,826 * 0 236,826 *
Fred A. Allardyce(d)(e)............. 294,298 * 0 294,298 *
Luigi Gandini(d)(e)................. 18,001 * 0 18,001 *
Jean-Claude Montauze(d)............. 11,250 * 1,500 9,750 *
Steven E. Anderson(d)............... 0 * 0 0 *
Shigeru Mizushima(d)................ 0 * 0 0 *
Roger W. Parsons(d)................. 0 * 0 0 *
J. Danforth Quayle(d)............... 0 * 0 0 *
David M. Roderick(d)................ 0 * 0 0 *
John Rutledge(d).................... 0 * 0 0 *
American-Standard Employee Stock
Ownership Plan (the "ESOP")(e).... 10,141,623 13% 0 10,141,623 13%
All current directors and executive
officers of the Company and
American Standard Inc. as a
group(f).......................... 46,834,782 62% 17,500,000 (b) %
</TABLE>
- ---------------
* Less than one percent.
(a) Assumes no exercise on the over-allotment options covering 2,625,000 shares
of Common Stock granted to the Underwriters by ASI Partners. If the
over-allotment options are exercised in full, ASI Partners will own %
of the Company's Common Stock after giving effect to the Offerings.
(b) Total reflects shares proposed to be sold in the Offerings, 426,344 shares
previously distributed to withdrawing limited partners, and an additional
shares estimated to be distributed to certain limited partners of ASI
Partners in lieu of cash in conjunction with the Offerings.
(c) Messrs. Schuchert and Nickell, each a director of American Standard Inc. and
of the Company, and Messrs. George E. Matelich and Thomas R. Wall IV 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. The business address for such persons is c/o Kelso & Company,
Inc., 21st Floor, 350 Park Avenue, New York, N.Y. 10022.
(d) 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. In addition, Mr. Kerckhove was elected Senior Vice President,
Plumbing Products, in June 1990. Messrs. Allardyce and Gandini
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<PAGE> 56
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. 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.
(e) The business address for the ESOP is c/o American Standard Inc., One
Centennial Avenue, P.O. Box 6820, Piscataway, New Jersey 08855-6820.
Fidelity Management Trust Company is the trustee of the ESOP. Its business
address is 82 Devonshire Street, Boston, Massachusetts 02109. As of June
30, 1995, 10,087,483 of the shares held in the ESOP were allocated to ESOP
participants, including 204,972 shares allocated to all executive officers
of the Company as a group. The number of shares shown for executive
officers in the table above includes shares allocated to their accounts in
the ESOP. Shares in the ESOP which are not allocated to participant
accounts are voted by the ESOP trustee in the same proportion as the shares
in the allocated accounts are voted. Participants direct the vote of their
ESOP account shares. Until termination of employment a participant cannot
dispose of shares in his ESOP account. The shares allocated to the Named
Officers' ESOP accounts as of June 30, 1995 are as follows: Mr. Kampouris,
11,307 shares; Mr. Kerckhove, 11,180 shares; Mr. Hinrichs, 11,826 shares;
Mr. Allardyce, 11,798 shares; and Mr. Gandini, 6,751 shares.
The number of shares shown for Named Officers in the table above does not
reflect shares of Common Stock issued as part of the payouts under the
Long-Term Incentive Compensation Plan ("LTIP") and held for them in trust
under a trust agreement. Shares in the trust are voted by the trustee as
directed pursuant to the terms of the LTIP. Until termination of
employment, a beneficiary of the trust cannot dispose of shares credited to
his account. Shares of Common Stock in the Named Officers' accounts in the
trust are as follows: Mr. Kampouris, 13,742 shares; Mr. Kerckhove, 6,283
shares; Mr. Hinrichs, 5,545 shares; Mr. Allardyce, 3,834 shares; and Mr.
Gandini, 3,710 shares. The shares in the trust accounts for all executive
officers as a group total 67,438 shares.
Also not included above are 60,230 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.
(f) Out of such 46,834,782 shares, 44,573,656 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. The number of
shares shown includes shares allocated to the ESOP accounts of the
executive officers.
An affiliate of Kelso is the holder of all the outstanding shares (1,000)
of the non-voting Series A Preferred Stock of American Standard Inc.
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 ASI Partners, Mr. Schuchert is also a member of the Management Development
and Nominating 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, after approval by a committee of the
Company's disinterested
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<PAGE> 57
directors and the Board of Directors, the Consulting Agreement was amended (the
"Amended Consulting Agreement") 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.
In connection with the IPO, and following approval by the Company's
disinterested directors and the Board of Directors, the Company, ASI Partners
and certain management stockholders entered into the Amended Stockholders
Agreement that 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 consisting of: (i) 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); (ii) 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 (iii) 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.
In addition, pursuant to the Amended Stockholders Agreement, ASI Partners
has agreed to (i) provide, and cause each of its Affiliates (as defined) 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 each of
its Affiliates 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 each of its Affiliates 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, any
Affiliate 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
or any of its Affiliates which owns Common Stock and, if objected to by a
majority of the members of the Board of Directors not affiliated with ASI
Partners, not to acquire, and cause each such Affiliate not to acquire,
additional shares of Common Stock or any assets of the Company.
The Amended Stockholders Agreement also 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 stockholders are also entitled to such "piggyback" registration
rights pursuant to the Amended Stockholders Agreement. Pursuant to the Amended
Stockholders Agreement, the Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including liabilities under the
Securities Act.
American Standard Inc. also has 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
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<PAGE> 58
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.
Mr. Schuchert, a director of the Company and American Standard Inc., has
formed a general partnership, SW Investment Associates, for the purpose of
acquiring an equity interest in BSG Laboratories Inc., a newly-formed company
developing audio speaker and noise abatement systems. Among the investors in the
partnership, all of which will be general partners, are American Standard Inc.
and certain executive officers of American Standard Inc., who agreed in April
1995 to invest in SW Investment Associates. Mr. Schuchert, who is also a general
partner in Kelso American Standard Partners, L.P. (the general partner of ASI
Partners) and a general partner of SW Investment Associates, has invested
approximately $500,000 therein. American Standard Inc., Mr. Kampouris and 14
other officers of American Standard Inc. have agreed to invest $700,000,
$120,000 and $195,000, respectively, in the partnership, which will constitute
an aggregate ownership interest therein of 20%.
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 28% 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. Certain executive officers, including
Messrs. Kampouris, Kerckhove and Allardyce, and the employees of the Company and
its subsidiaries, purchased an indirect interest of less than 1% in ASPPL.
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 a non-exclusive distributor of the Company's
plumbing products in Japan. Its transactions as distributor with American
Standard Inc. 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 Inc. also entered into leasing transactions
with an affiliate of Daido Hoxan Inc. 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 13% owner of the Company's shares.
Fidelity was paid by the Company approximately $207,000 in 1994 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.
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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 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.
See "Risk Factors -- Principal Stockholders" and "The Acquisition" for
additional information regarding ASI Partners' investment in the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect that future sales of shares, or
the availability of shares for future sale, will have on the market price of the
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock (including shares issued upon the exercise of stock options), or
the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock.
On June 30, 1995, there were 76,147,445 shares of Common Stock outstanding.
Shares owned by persons other than "affiliates" of the Company are freely
tradeable without restriction or future registration under the Securities Act.
After giving effect to the Offerings and the distribution referred to below, ASI
Partners, the ESOP and certain management stockholders that may be deemed
"affiliates" of the Company will own approximately , 10,141,623 and
1,069,213 outstanding shares of Common Stock, respectively. ASI Partners and
certain management stockholders were granted certain registration rights in
connection with the IPO. The Company, the Selling Stockholders and certain
management stockholders have agreed with the Underwriters not to offer, sell or
otherwise dispose of any shares of Common Stock other than pursuant to the
Offerings for a period of 90 days after the date of this Prospectus without the
prior written consent of the representatives of the Underwriters. The foregoing
agreements are subject to certain exceptions. ASI Partners has distributed
shares of Common Stock to its partners, and may in the future sell or otherwise
dispose of Common Stock, including additional distributions to its partners.
An aggregate of approximately shares of Common Stock are expected
to be distributed by ASI Partners to certain of its limited partners in lieu of
cash in conjunction with the Offerings. The recipients of such distributions
have agreed with ASI Partners and the Underwriters not to offer, sell, or
otherwise dispose of such shares of Common Stock prior to September 30, 1996
without the prior written consent of ASI Partners and Goldman, Sachs & Co.
In addition, stock options covering approximately 5.0 million shares of
Common Stock (exercisable at $20 per share, the initial public offering price in
the February 1995 IPO) were granted pursuant to the Stock Plan in connection
with the IPO and will become exercisable in three equal installments on the
first, second and third anniversaries of the date of grant. American Standard
will register under the Securities Act the approximately 7.6 million shares of
Common Stock (including the aforementioned option shares) that may be issued
pursuant to the Stock Plan prior to the time any options become exercisable. In
addition, the Company will fund the ESOP at an annual rate of approximately $25
million through contributions of cash or shares of Common Stock (including newly
issued shares valued at their then current market value). The Company expects to
fund such contributions through the issuance of shares of Common Stock
commencing in the third quarter of 1995.
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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.
COMMON STOCK
The Restated Certificate of Incorporation authorizes the Company to issue
up to 200 million shares of Common Stock, par value $.01 per share. At June 30,
1995, approximately 76.1 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 "Principal and Selling Stockholders". Holders of
Common Stock have no preemptive rights to subscribe for or purchase any
additional shares of capital stock issued by the Company. All outstanding shares
of Common Stock, including the Shares, are 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 authorizes the Company to issue 2
million shares of preferred stock, par value $.01 per share, in one or more
series, and authorizes 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 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. serves as transfer agent and registrar for the Common Stock.
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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 1995 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 "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 10 of Notes to Consolidated Financial Statements.
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. 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
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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. 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 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
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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
IPO, the Company had authorized approximately 116.2 million unissued and
unreserved shares of Common Stock and 2.0 million 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. See "Principal and Selling
Stockholders -- Shares Eligible for Future Sale". 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 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
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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, has or 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
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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 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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UNDERWRITING
Subject to the terms and conditions of the U.S. Underwriting Agreement, the
Selling Stockholders have 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, Smith Barney Inc.
and S.G.Warburg & Co. Inc. are acting as representatives, has severally agreed
to purchase from the Selling Stockholders, 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..............................................
S.G.Warburg & Co. Inc.........................................
---------
Total.......................................... 12,250,000
=========
</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 initial public offering price and other selling terms may from time
to time be varied by the representatives.
The Company and the Selling Stockholders have 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 5,250,000 Shares in an international offering
outside the United States. The initial public offering price and aggregate
underwriting discount 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 Underwriters
are Goldman Sachs International, CS First Boston Limited, Morgan Stanley & Co.
International Limited, SBC Warburg, a division of Swiss Bank Corporation, 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 in excess of 10% 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 price to public 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 Selling
Stockholders 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 Swiss Bank Corporation are
investors in investment funds sponsored by Kelso, which funds are not investors
in the Company.
65
<PAGE> 68
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 50 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.
ASI Partners 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
1,837,500 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. ASI Partners has granted the International Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 787,500 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.
The Company, the Selling Stockholders and certain management stockholders
have agreed not to offer, sell or otherwise dispose of any shares of Common
Stock for a period of 90 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 Offerings and shares of
Common Stock issued to the ESOP or consistent with the provisions of the Stock
Plan. The foregoing agreements are subject to certain exceptions. In addition,
an aggregate of approximately shares of Common Stock are expected to
be distributed by ASI Partners to certain of its limited partners in lieu of
cash in conjunction with the Offerings. The recipients of such distributions
have agreed with ASI Partners and the Underwriters not to offer, sell or
otherwise dispose of such shares of Common Stock prior to September 30, 1996
without the prior written consent of ASI Partners and Goldman, Sachs & Co. Such
consent may be provided without prior notice to holders of the Common Stock or
to the markets where such securities are traded. See "Principal and Selling
Stockholders -- Shares Eligible for Future Sale".
The Common Stock is traded on the New York Stock Exchange.
The representatives of the Underwriters have in the past provided and may
continue to provide investment banking services to the Company and Kelso.
66
<PAGE> 69
The Company, American Standard Inc. and the Selling Stockholders 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,
1993 and 1994, and for each of the three years in the period ended December 31,
1994 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, 1994 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.
Certain information with respect to German tax matters has been included
herein in reliance upon the authority of Meilicke & Partner as experts in German
tax matters.
67
<PAGE> 70
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<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, 1994................................... F-4
Consolidated Balance Sheets
as of December 31, 1993 and 1994.............................................. F-5
Consolidated Statement of Cash Flows
for the three years ended December 31, 1994................................... F-6
Consolidated Statement of Stockholders' Equity
(Deficit) for the three years ended December 31, 1994......................... F-7
Notes to Consolidated Financial Statements...................................... F-8
Segment Data.................................................................... F-24
Quarterly Data.................................................................. F-26
Unaudited Interim Financial Statements:
Consolidated Summary Statement of Operations for the six months ended
June 30, 1994 and 1995........................................................ F-27
Consolidated Summary Balance Sheet as of June 30, 1995.......................... F-28
Consolidated Summary Statement of Cash Flows for the six months ended
June 30, 1994 and 1995........................................................ F-29
Notes to Consolidated Summary Financial Statements.............................. F-30
</TABLE>
F-1
<PAGE> 71
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated balance sheets at December 31, 1993 and 1994,
and related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years ended December 31, 1992, 1993 and 1994,
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
February 16, 1995
F-2
<PAGE> 72
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
New York, New York
February 16, 1995
F-3
<PAGE> 73
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Sales.............................................. $3,791,929 $3,830,462 $4,457,465
---------- ---------- ----------
Cost and expenses:
Cost of sales.................................... 2,852,230 2,902,562 3,377,271
Selling and administrative expenses.............. 678,742 692,229 778,550
Other expense.................................... 24,672 38,281 57,381
Interest expense................................. 288,851 277,860 259,437
---------- ---------- ----------
3,844,495 3,910,932 4,472,639
---------- ---------- ----------
Loss before income taxes and extraordinary item.... (52,566) (80,470) (15,174)
Income taxes....................................... 4,672 36,165 62,512
---------- ---------- ----------
Loss before extraordinary item..................... (57,238) (116,635) (77,686)
Extraordinary loss on retirement of debt (Note
10).............................................. -- (91,932) (8,735)
---------- ---------- ----------
Net loss........................................... (57,238) (208,567) (86,421)
Preferred dividend................................. (15,707) (8,624) --
---------- ---------- ----------
Net loss applicable to common shares............... $ (72,945) $ (217,191) $ (86,421)
========== ========== ==========
Per common share:
Loss before extraordinary item................... $ (1.24) $ (2.11) $ (1.29)
Extraordinary loss on retirement of debt......... -- (1.55) (.15)
---------- ---------- ----------
Net loss........................................... $ (1.24) $ (3.66) $ (1.44)
========== ========== ==========
Average number of outstanding common shares........ 58,636,118 59,313,073 59,933,435
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 74
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------
1993 1994
---------- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents....................................... $ 53,237 $ 92,749
Accounts receivable, less allowance for doubtful
accounts -- 1993, $15,666; 1994, $19,569..................... 507,322 595,239
Inventories..................................................... 325,819 323,220
Future income tax benefits...................................... 24,562 22,379
Other current assets............................................ 30,743 30,956
---------- ----------
Total current assets.................................... 941,683 1,064,543
Facilities, at cost net of accumulated depreciation............... 820,523 812,684
Other assets
Goodwill, net of accumulated amortization 1993, $169,879; 1994,
$208,973..................................................... 1,025,774 1,053,042
Debt issuance costs, net of accumulated amortization -- 1993,
$9,670; 1994, $23,928........................................ 78,102 64,095
Other........................................................... 120,997 161,754
---------- ----------
$2,987,079 $3,156,118
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C> <C>
Current liabilities
Loans payable to banks........................................... $ 38,036 $ 70,271
Current maturities of long-term debt............................. 105,939 141,640
Accounts payable................................................. 307,326 350,489
Accrued payrolls................................................. 99,758 140,297
Other accrued liabilities........................................ 263,322 329,174
Taxes on income.................................................. 47,003 46,822
---------- ----------
Total current liabilities................................ 861,384 1,078,693
Long-term debt..................................................... 2,191,737 2,152,291
Other long-term liabilities
Reserve for postretirement benefits.............................. 387,038 437,708
Deferred tax liabilities......................................... 45,625 37,650
Other............................................................ 224,108 247,405
---------- ----------
Total liabilities........................................ 3,709,892 3,953,747
Commitments and contingencies
Stockholders' deficit
Preferred stock $.01 par value, 2,000,000 shares authorized;
none issued and outstanding................................... -- --
Common stock, $.01 par value, 200,000,000 shares authorized;
61,424,123 shares issued and outstanding in 1993; 60,932,457
in 1994....................................................... 614 609
Capital surplus.................................................. 188,369 194,236
Subscriptions receivable......................................... (2,588) (1,640)
ESOP shares...................................................... (4,331) --
Accumulated deficit.............................................. (750,003) (836,424)
Foreign currency translation effects............................. (149,220) (151,721)
Minimum pension liability adjustment............................. (5,654) (2,689)
---------- ----------
Total stockholders' deficit.............................. (722,813) (797,629)
---------- ----------
$2,987,079 $3,156,118
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 75
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash provided (used) by:
Operating activities:
Loss before extraordinary item..................... $ (57,238) $(116,635) $ (77,686)
Depreciation (including asset loss provision in
1994)........................................... 111,643 106,041 122,944
Amortization of goodwill........................... 33,064 30,807 31,472
Non-cash interest.................................. 65,527 65,031 53,288
Non-cash stock compensation........................ 23,076 25,679 28,479
Amortization of debt issuance costs................ 5,983 11,461 14,549
Loss (gain) on sale of fixed assets................ (660) 2,963 1,259
Changes in assets and liabilities:
Accounts receivable............................. (20,081) (48,680) (69,991)
Inventories..................................... 44,163 47,321 13,092
Accounts payable and accrued payrolls........... (8,308) 40,124 63,413
Postretirement benefits......................... 22,074 22,687 21,290
Income taxes.................................... (48,974) (4,232) (3,927)
Other long-term liabilities..................... 3,805 13,271 32,795
Other, net...................................... (428) 5,003 25,609
--------- --------- ---------
Net cash provided by operating activities............ 173,646 200,841 256,586
--------- --------- ---------
Investing activities:
Purchases of property, plant and equipment......... (87,409) (90,474) (105,741)
Investments in affiliated companies................ (20,608) (7,556) (23,971)
Proceeds from disposals of property, plant and
equipment....................................... 11,133 4,003 14,783
Other.............................................. 10,703 4,514 (2,071)
--------- --------- ---------
Net cash used by investing activities................ (86,181) (89,513) (117,000)
--------- --------- ---------
Financing activities:
Proceeds from issuance of long-term debt........... 394,159 1,405,557 336,160
Repayment of long-term debt, including redemption
premiums........................................ (490,059) (1,427,989) (439,762)
Net change in revolving credit facility............ -- 7,000 30,816
Net change in other short-term debt................ 41,675 (61,600) (10,044)
Common stock repurchases........................... (10,950) (12,194) (16,927)
Other financing costs.............................. (9,897) (76,762) (2,441)
--------- --------- ---------
Net cash used by financing activities................ (75,072) (165,988) (102,198)
--------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents........................................ (6,234) (3,652) 2,124
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents........................................ 6,159 (58,312) 39,512
Cash and cash equivalents at beginning of period..... 105,390 111,549 53,237
--------- --------- ---------
Cash and cash equivalents at end of period........... $ 111,549 $ 53,237 $ 92,749
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 76
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
COMMON CAPITAL SUBSCRIPTIONS ESOP ACCUMULATED TRANSLATION
STOCK SURPLUS RECEIVABLE SHARES DEFICIT EFFECTS
------ -------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991................ $628 $203,288 $(3,969) $(15,039) $(484,198) $ (50,696)
Net loss.................................. -- -- -- -- (57,238) --
Common stock repurchased.................. (9) (13,121) -- -- -- --
Common stock issued....................... 2 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................ 621 191,979 (3,316) (9,527) (541,436) (86,872)
Net loss.................................. -- -- -- -- (208,567) --
Common stock repurchased.................. (10) (16,662) -- -- -- --
Common stock issued....................... 3 4,582 -- -- -- --
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................ 614 188,369 (2,588) (4,331) (750,003) (149,220)
Net loss.................................. -- -- -- -- (86,421) --
Common stock repurchased.................. (7) (13,244) -- -- -- --
Common stock issued....................... 2 3,974 -- -- -- --
Payments on subscriptions................. -- -- 948 -- -- --
ESOP shares allocated to employees........ -- 15,137 -- 4,331 -- --
Foreign currency translation.............. -- -- -- -- -- (2,501)
---- -------- -------- -------- --------- ----------
Balance at December 31, 1994................ $609 $194,236 $(1,640) $ -- $(836,424) $ (151,721)
==== ======== ======== ======== ========= ==========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 77
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE COMPANY
American Standard Companies Inc. (the "Company") 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. The Company was formed in 1988 by Kelso & Company, L.P.
("Kelso") to effect the acquisition (the "Acquisition") of American Standard
Inc. For financial statement purposes the Acquisition has been accounted for
under the purchase method. The Company changed its name from ASI Holding
Corporation to American Standard Companies Inc. in November 1994. In the first
quarter of 1995 the Company completed an initial public offering of shares of
its common stock (see Note 2).
NOTE 2. CAPITAL STOCK AND INITIAL PUBLIC STOCK OFFERING
In the first quarter of 1995 American Standard Companies Inc. sold
15,112,300 shares of its common stock at $20 per share in an initial public
offering (the "IPO"), which yielded net proceeds of approximately $281 million
(including proceeds from the exercised portion of the underwriters'
over-allotment option and after deducting underwriting discounts and expenses)
which were used to reduce indebtedness. The IPO and an amended bank credit
agreement were both part of a major refinancing completed in the first quarter
of 1995 (see Note 10). Had the IPO and the amended bank credit agreement been
completed as of January 1, 1994, interest expense in 1994 would have been
reduced by approximately $50 million and the loss before extraordinary item
would have been approximately $27 million ($.36 per common share).
In December 1994 the Company adopted an Amended and Restated Stockholders
Agreement and in January 1995 adopted a Restated Certificate of Incorporation,
Amended By-laws and a Stockholder Rights Agreement. The Restated Certificate of
Incorporation authorizes the Company to issue up to 200,000,000 shares of common
stock, par value $.01 per share and 2,000,000 shares of preferred stock, par
value $.01 per share of which the Board of Directors designated 900,000 shares
as a new series of Junior Participating Cumulative Preferred Stock. After giving
effect to the IPO and to a 2.5 to 1 split of the common stock effected in
December 1994, approximately 76,000,000 shares of common stock were issued and
outstanding. Each outstanding share of common stock has associated with it one
right to purchase a specified amount of Junior Participating Cumulative
Preferred Stock at a stipulated price in certain circumstances relating to
changes in the ownership of the common stock of the Company. After the Offering,
Kelso ASI Partners, L.P. ("ASI Partners") an affiliate of Kelso, owned
approximately 59% of the outstanding common stock of the Company and retains the
right to elect a majority of the directors of the Company and thereby to
determine the Company's corporate policies, the persons constituting its
management and the outcome of corporate actions requiring stockholder approval.
The Amended and Restated Stockholders Agreement provides that Kelso may
designate as nominees 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.
NOTE 3. 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.
F-8
<PAGE> 78
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation
Assets and liabilities of foreign operations where the functional currency
is other than the U.S. dollar 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 stockholders' 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 functional currency) are
included in net income except for those resulting from transactions which hedge
a net foreign currency exposure or long-term intercompany transactions of an
investment nature. For operations in countries that have hyper-inflationary
economies, net income includes gains and losses from translating assets and
liabilities at year-end rates of exchange, except for inventories and
facilities, which are translated at historical rates.
The losses from foreign currency transactions and translation losses in
countries with hyper-inflationary economies reflected in expense were $9.9
million in 1994, $21.9 million in 1993, and $19.3 million in 1992.
The allocation of purchase costs increased the net asset exposure of
foreign operations; however, since 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.
Revenue Recognition
Sales are recorded when shipment to a customer occurs.
Cash Equivalents
Cash equivalents include all highly liquid investments with a maturity of
three months or less when purchased.
Inventories
Inventory costs are determined 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.
Facilities
The Company capitalizes costs, including interest during construction, of
fixed asset additions, improvements, and betterments that add to productive
capacity or extend the asset life. Maintenance and repair expenditures are
charged against income. Significant investment grants are amortized into income
over the period of benefit.
Goodwill
Goodwill is being amortized over 40 years. The carrying value of goodwill
for each business is reviewed if the facts and circumstances, such as
significant declines in sales, earnings or cash flows or material adverse
changes in the business climate, suggest that it may be impaired. If any
impairment is indicated as a result of such reviews, the Company would measure
it using techniques such as comparing the undiscounted cash flow of the business
to its book value including goodwill or by obtaining appraisals of the related
business. To date no indications of impairment have arisen as to any material
portion of goodwill.
F-9
<PAGE> 79
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Debt Issuance Costs
The costs related to the issuance of debt are capitalized and amortized to
interest expense using the effective interest method over the lives of the
related debt.
Warranties
The Company provides for estimated warranty costs at the time of sale.
Warranty obligations beyond one year are included in other long-term
liabilities. Revenues from the sales of extended warranty contracts are deferred
and amortized on a straight-line basis over the terms of the contracts.
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
certain of its employees. Such benefits are accounted for on an accrual basis
using actuarial assumptions, where appropriate.
Depreciation
Depreciation and amortization are computed on the straight-line method
based on the estimated useful life of the asset or asset group.
Research and Development Expenses
Research and development costs are expensed as incurred except for costs
incurred (after technological feasibility is established) for computer software
products expected to be sold. The Company expended approximately $118 million in
1994, $110 million in 1993, and $110 million in 1992 for research activities and
product development and for product engineering. Expenditures for research and
product development only were $39 million, $43 million, and $40 million in the
respective years. Computer software product development costs capitalized
amounted to $2 million in each of 1994 and 1993.
Income Taxes
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 along with 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.
F-10
<PAGE> 80
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 agreements in the management of
foreign currency and interest rate exposures. Gains and losses from underlying
rate changes are included in income unless the contract hedges a net investment
in a foreign entity, a firm commitment, or related debt instrument in which case
gains and losses are deferred as a component of foreign currency translation
effects in stockholders' equity or included as a component of the transaction.
NOTE 4. STOCK INCENTIVE PLAN
In January 1995 the Company established the Stock Incentive Plan (the
"Stock Plan") under which awards may be granted to officers and other key
executives and employees in the form of stock options, stock appreciation
rights, restricted stock, or restricted units. The maximum number of shares or
units 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 IPO in the first
quarter of 1995, or approximately 7,600,000 shares. Stock options to purchase
4,998,000 shares at the initial public offering price of $20 per share were
awarded to approximately 900 employees in the first quarter of 1995. The awards
vest ratably over three years and are exercisable over a period of ten years.
NOTE 5. OTHER EXPENSE
Other income (expense) was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Interest income........................................ $ 8.7 $ 8.5 $ 8.2
Royalties.............................................. 3.8 2.6 3.5
Equity in net income (loss) of affiliated companies.... 4.9 (0.1) 4.0
Minority interest...................................... (9.8) (14.0) (13.3)
Accretion expense...................................... (29.8) (30.5) (26.1)
Other, net(a).......................................... (2.5) (4.8) (33.7)
------ ------ ------
$(24.7) $(38.3) $(57.4)
====== ====== ======
</TABLE>
- ---------------
(a) The 1994 amount includes a one-time special charge of $20 million incurred
in connection with the amendment of certain agreements in anticipation of
the initial public offering.
NOTE 6. 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 of common
stock of the Company. The ESOP is an individual account, defined contribution
plan. Through December 31, 1994, the valuation of the ESOP shares has been
F-11
<PAGE> 81
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determined by independent appraisals. By December 31, 1994, all of the common
stock initially acquired by the ESOP was allocated to the accounts of eligible
employees (primarily through basic allocations of 3% of covered compensation and
a matching Company contribution of up to 6% of covered compensation invested in
the Company's 401(k) savings plan by employees). The Company intends to fund the
ESOP in future years through contributions of cash or shares of the Company's
common stock.
Benefits under defined benefit pension plans on a worldwide basis are
generally based on years of service and employees' compensation during the last
years of employment. In the United States the Company also provides various
postretirement health care and life insurance benefits for certain of its
employees. Funding decisions are based upon the tax and statutory considerations
in each country. Accretion expense is the implicit interest cost associated with
amounts accrued and not funded and is included in "other expense". At December
31, 1994, funded plan assets related to pensions were held primarily in fixed
income and equity funds. Postretirement health and life insurance benefits are
not prefunded.
F-12
<PAGE> 82
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's postretirement plans' funded status and amounts recognized in
the balance sheet at December 31, 1993 and 1994 were:
<TABLE>
<CAPTION>
1993 1994
------------------------------------- -------------------------------------
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................. $ 105.2 $ 511.1 $ 106.8 $ 528.9
Non-vested............. 4.5 30.4 5.1 29.1
Accumulated benefit
obligations............ 109.7 541.5 111.9 558.0
Additional amounts
related to projected
pay increases.......... 12.1 46.0 15.8 34.1
----------- ----------- ----------- -----------
Total projected benefit
obligations............ 121.8 587.5 $ 175.4 127.7 592.1 $ 160.5
----------- ----------- --------- ----------- ----------- ---------
Assets and book reserves
relating to such
benefits:
Market value of funded
assets.............. 166.9 303.8 -- 160.5 271.4 --
Reserve (asset) for
postretirement
benefits net of
recognized
overfunding......... (36.8) 257.7 154.9 (37.6) 309.8 158.7
Additional minimum
liability.............. -- 19.0 -- -- 15.5 --
----------- ----------- --------- ----------- ----------- ---------
130.1 580.5 154.9 122.9 596.7 158.7
----------- ----------- --------- ----------- ----------- ---------
Assets and book reserves
in excess of (less
than) projected benefit
obligations............ $ 8.3 $ (7.0) $ (20.5) $ (4.8) $ 4.6 $ (1.8)
========== ========== ======== ========== ========== ========
Consisting of:
Unrecognized prior
services benefit
(cost).............. $ (6.6) $ 3.4 $ 10.3 $ (8.0) $ .7 $ 10.7
Unrecognized net gain
(loss) from
actuarial
experience.......... 14.9 (16.0) (30.8) 3.2 1.2 (12.5)
Pension liability
adjustment to
stockholders'
deficit............. -- 5.6 -- -- 2.7 --
----------- ----------- --------- ----------- ----------- ---------
$ 8.3 $ (7.0) $ (20.5) $ (4.8) $ 4.6 $ (1.8)
========== ========== ======== ========== ========== ========
</TABLE>
F-13
<PAGE> 83
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994, the projected benefit obligation related to health
and life insurance benefits for active employees was $58.7 million and for
retirees was $101.8 million.
For certain plans, the additional minimum liability recorded by the Company
as part of its reserve for postretirement benefits was $15.5 million at December
31, 1994 ($19 million at December 31, 1993). The additional minimum liability is
the excess of the accumulated benefit obligation over plan assets and
accumulated benefit provisions. In connection with providing for the additional
minimum liability, an intangible asset was recorded, to the extent of
unrecognized prior service costs, which amounted to $12.8 million at December
31, 1994 ($13.4 million at December 31, 1993). The net charge in stockholders'
deficit was $2.7 million at December 31, 1994 (reduced from $5.6 million at
December 31, 1993).
The projected benefit obligation for postretirement benefits was determined
using the following assumptions:
<TABLE>
<CAPTION>
1993 1994
---------------------- ----------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Discount rate................................. 7.25% 4.50%-8.50% 8.25% 5.75%-9.25%
Long-term rate of inflation................... 2.80% .50%-5.00% 2.80% 1.75%-5.25%
Merit and promotional increase................ 1.70% 1.50% 1.70% 1.70%
Rate of return on plan assets................. 8.75% 6.25%-9.50% 8.50% 7.25%-8.35%
</TABLE>
The weighted-average annual assumed rate of increase in the health care
cost trend rate is 9% for 1995 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,
1994, by $11 million and the annual postretirement cost by $1.4 million.
Postretirement cost had the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1992 1993 1994
------------------- ------------------- -------------------
HEALTH & HEALTH & HEALTH &
LIFE LIFE LIFE
PENSION INS. PENSION INS. PENSION INS.
BENEFITS BENEFITS BENEFITS BENEFITS BENEFITS BENEFITS
-------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits earned during
the period............................. $ 21.7 $ 3.0 $ 20.1 $ 3.4 $ 23.6 $ 3.8
Interest cost on the projected benefit
obligation............................. 50.4 13.7 50.6 14.1 47.0 12.3
Less assumed return on plan assets:
Actual loss (return) on plan assets.... (35.7) -- (78.8) -- 13.0 --
Excess (shortfall) deferred............ (2.6) -- 42.9 -- (49.5) --
-------- -------- -------- -------- -------- --------
(38.3) -- (35.9) -- (36.5) --
Other, including amortization of prior
service cost........................... 1.6 -- 2.7 .3 1.8 .2
-------- -------- -------- -------- -------- --------
Defined benefit plan cost................ $ 35.4 $ 16.7 $ 37.5 $ 17.8 $ 35.9 $ 16.3
======= ======= ======= ======= ======= =======
Accretion expense reclassified to "other
expense"............................... $ 16.1 $ 13.7 $ 16.4 $ 14.1 $ 13.8 $ 12.3
======= ======= ======= ======= ======= =======
</TABLE>
F-14
<PAGE> 84
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total postretirement costs were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1992 1993 1994
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Pension benefits......................................... $35.4 $37.5 $35.9
Health and life insurance benefits....................... 16.7 17.8 16.3
----- ----- -----
Defined benefit plan cost................................ 52.1 55.3 52.2
Defined contribution plan cost(a)........................ 20.4 22.4 24.7
----- ----- -----
Total postretirement cost, including accretion expense... $72.5 $77.7 $76.9
===== ===== =====
</TABLE>
- ---------------
(a) Principally ESOP cost.
NOTE 7. INCOME TAXES
The Company's loss before income taxes and extraordinary item, and the
applicable provision (benefit) for income taxes were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Income (loss) before income taxes and
extraordinary item:
Domestic........................................ $(170.1) $(168.4) $(157.0)
Foreign......................................... 117.5 87.9 141.8
------- ------- -------
Pre-tax loss............................ (52.6) (80.5) (15.2)
Provision (benefit) for income taxes:
Current:
Domestic..................................... 5.1 12.4 10.5
Foreign...................................... 63.0 43.0 57.7
------- ------- -------
68.1 55.4 68.2
Deferred:
Domestic..................................... (35.8) 1.1 .8
Foreign...................................... (27.6) (20.3) (6.5)
------- ------- -------
(63.4) (19.2) (5.7)
------- ------- -------
Total provision......................... $ 4.7 $ 36.2 $ 62.5
======== ======== ========
</TABLE>
F-15
<PAGE> 85
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1994 and 1993 and 34% in 1992 to the loss before income taxes and
extraordinary item is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1992 1993 1994
------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Tax benefit at statutory rate........................... $(17.9) $(28.2) $(5.3)
Nondeductible goodwill charged to operations............ 10.5 10.4 10.0
Nondeductible ESOP allocations.......................... 4.9 6.1 6.8
Rate differences and withholding taxes related to
foreign
operations............................................ 1.4 18.7 47.1
Foreign exchange........................................ (6.3) (7.0) (4.3)
State tax benefits...................................... (3.3) (5.5) (5.3)
Other, net.............................................. 5.5 8.7 (7.9)
Increase in valuation allowance......................... 9.9 33.0 21.4
------ ------ -----
Total provision......................................... $ 4.7 $ 36.2 $62.5
====== ====== =====
</TABLE>
In addition to the 1994 and 1993 valuation allowance increases of $21.4
million and $33.0 million respectively, shown above, valuation allowances of
$3.2 million and $32.1 million, respectively, were also provided for the tax
benefits related to the extraordinary losses on retirement of debt (see Note
10). The 1993 valuation allowance and certain withholding taxes have been
adjusted to reflect the actual 1993 tax returns as filed.
The following table details the gross deferred tax liabilities and assets
and the related valuation allowances:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1993 1994
------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Facilities (accelerated depreciation, capitalized interest and
purchase accounting differences)............................ $141.1 $142.3
Inventory (LIFO and purchase accounting differences)........... 18.5 15.4
Employee benefits.............................................. 11.0 .6
Foreign investments............................................ 50.1 50.1
Other.......................................................... 26.2 31.1
------ ------
246.9 239.5
------ ------
Deferred tax assets:
Employee benefits (pensions and other postretirement
benefits)................................................... 110.7 128.2
Warranties..................................................... 37.4 35.7
Alternative minimum tax........................................ 19.4 19.4
Foreign tax credits and net operating losses................... 47.8 44.0
Reserves....................................................... 58.7 69.0
Other.......................................................... 46.0 46.7
Valuation allowances........................................... (94.2) (118.8)
------ ------
225.8 224.2
------ ------
Net deferred tax liabilities................................... $ 21.1 $ 15.3
====== ======
</TABLE>
F-16
<PAGE> 86
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $70 million, $41 million, and $56 million in the years
1994, 1993 and 1992, respectively.
In connection with examinations of the tax returns of the Company's German
subsidiaries for the years 1984 through 1990, the German tax authorities have
raised questions regarding the treatment of certain significant matters. In
prior years the Company paid approximately $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 $120 million (at December 31,
1994, exchange rates) (principally relating to the 1988 to 1990 period), plus
interest, for the tax return years under audit. In addition, significant
transactions similar to those which gave rise to such possible adjustments
occurred in years subsequent to 1990. If the 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 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, 1994, 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 believes, on the basis of
opinion of legal counsel, that it is highly likely that a suspension of payment
pending final resolution would be obtained. If immediate payment were required,
the Company expects that it would be able to make such payment from available
sources of liquidity or credit support but that future cash flows 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
provision in Germany was higher in 1994 and will be higher in the future. 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
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
F-17
<PAGE> 87
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
NOTE 8. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1993 1994
------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Finished products.............................................. $169.0 $160.2
Products in process............................................ 78.0 82.5
Raw materials.................................................. 78.8 80.5
------ ------
Inventories at cost....................................... $325.8 $323.2
====== ======
</TABLE>
The carrying cost of inventories approximates current cost as a result of
purchase accounting adjustments which are offset by LIFO reserves.
NOTE 9. FACILITIES
The components of facilities, at cost, are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1993 1994
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Land........................................................ $ 66.2 $ 65.8
Buildings................................................... 314.6 325.7
Machinery and equipment..................................... 739.9 776.2
Improvements in progress.................................... 54.4 75.2
-------- --------
Gross facilities............................................ 1,175.1 1,242.9
Less: accumulated depreciation.............................. 354.6 430.2
-------- --------
Net facilities.............................................. $ 820.5 $ 812.7
======== ========
</TABLE>
NOTE 10. DEBT
The 1995 Refinancing -- In the first quarter of 1995 the Company completed
a major refinancing (the "1995 Refinancing") consisting of: (i) the October 1994
amendment to the Company's 1993 credit agreement ("1993 Credit Agreement") which
provided an additional term loan of $325 million (the "October Borrowing"), the
proceeds of which were used to redeem $316.8 million in aggregate principal
amount of the Company's 14 1/4% Subordinated Discount Debentures Due 2003 and
12 3/4% Junior Subordinated Debentures Due 2003 and to pay redemption premiums
of $4.4 million and debt issuance and other costs in November 1994; (ii) the IPO
(see Note 2), the net proceeds of which, totaling $281 million, were used to
repay indebtedness; and (iii) the February
F-18
<PAGE> 88
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995 amendment and restatement of the 1993 Credit Agreement (as so amended and
restated, the "1995 Credit Agreement"), which provided a secured multi-currency,
multi-borrower credit facility aggregating $1.0 billion, the proceeds of which
were used to replace outstanding borrowings under the 1993 Credit Agreement.
The 1995 Credit Agreement provides to American Standard Inc. and certain
subsidiaries (the "Borrowers") an aggregate, secured facility of $1.0 billion
available to all Borrowers as follows: (a) a $100 million U.S. Dollar Term Loan
Facility (the "Term Loan Facility") which expires in 2000; (b) a $250 million
U.S. Dollar Revolving Credit Facility and a $300 million Multi-currency
Revolving Credit Facility (the "Revolving Facilities") which expire in 2002; and
(c) a $350 million Multi-currency Periodic Access Credit Facility (the "Periodic
Access Facility") which expires in 2002.
The 1995 Credit Agreement provides lower interest costs, increased
borrowing capacity, less restrictive covenants and lower annual scheduled debt
maturities through 2001. Each of the outstanding revolving loans is due at the
end of each interest period (a maximum of six months). The Company may, however,
concurrently reborrow the outstanding obligations subject to compliance with
applicable conditions of the 1995 Credit Agreement.
After giving effect to the IPO and the 1995 Credit Agreement, the Company's
total indebtedness (including short-term debt) was approximately $2,129 million,
compared to $2,364 million at December 31, 1994, and the amounts of long-term
debt maturing from 1995 through 1999 were: 1995 -- $40 million; 1996 -- $64
million; 1997 -- $70 million; 1998 -- $81 million; and 1999 -- $231 million.
Borrowings under the Term Loan Facility bear interest at the London
interbank offered rate ("LIBOR") plus 1.5% and borrowings under the Periodic
Access Facility bear interest at LIBOR plus 1.75%. The Company pays a commitment
fee of 0.375% per annum on the unused portion of the Revolving Facilities and a
fee of 1.75% plus issuance fees for letters of credit. These rates are subject
to reduction in the event the Company attains certain financial ratios.
As a result of the redemption of debt in 1994 with the net proceeds of the
October Borrowing and in 1993 as a result of a 1993 refinancing, 1994 and 1993
included extraordinary charges of $9 million and $92 million, respectively,
related to the debt retired (including call premiums, the write-off of deferred
debt issuance costs, and in 1993 the loss on cancellation of foreign currency
swap contracts) on which there was no tax benefit (see Note 7). In addition, the
first quarter of 1995 will include an extraordinary charge of $30 million in
connection with the debt repayment resulting from the 1995 Refinancing.
Short-term
At December 31, 1994, there were $38 million of short-term borrowings
outstanding and $52 million of letters of credit outstanding under the 1993
Credit Agreement. Average borrowings under the revolving credit facilities
available under bank credit agreements for 1994, 1993, and 1992 were $73
million, $39 million, and $14 million, respectively.
The Revolving Facilities under the 1995 Credit Agreement provide for
aggregate borrowings of up to $550 million for general corporate 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). Loans under the Revolving Facilities bear interest at the prime rate
plus .75% or LIBOR plus 1.75% (subject to reduction in the event the Company
attains certain financial ratios). After completing the 1995 Refinancing, there
were $293 million of borrowings outstanding under the Revolving Facilities and
$52 million of letters of credit. Availability under the Revolving Facilities
was
F-19
<PAGE> 89
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$205 million. The Revolving Facilities are short-term borrowings by their terms
under the 1995 Credit Agreement, and since approximately $218 million of
long-term debt under the 1993 Credit Agreement was replaced with loans under the
Revolving Facilities, a significantly larger amount of debt will be classified
as short-term subsequent to the 1995 Refinancing.
Other short-term borrowings are available outside the United States under
informal credit facilities and are typically a result of overdrafts. At December
31, 1994, the Company had $32 million of such foreign short-term debt
outstanding at an average interest rate of 11.2% 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.
Average short-term borrowings for 1994, 1993 and 1992 were $119 million,
$118 million and $104 million, respectively, at weighted average interest rates
of 9.40%, 8.97%, and 11.90%, respectively. Total short-term borrowings
outstanding at December 31, 1994, 1993 and 1992 were $70 million, $38 million,
and $99 million, respectively, at weighted average interest rates of 10.7%,
10.3%, and 12.5%, respectively.
Long-term
Long-term debt was as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1993 1994
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
1993 credit agreement..................................... $ 689.9 $ 940.0
9 1/4% sinking fund debentures, due in installments from
1997 to 2016............................................ 150.0 150.0
10 7/8% senior notes due 1999............................. 150.0 150.0
11 3/8% senior debentures due 2004........................ 250.0 250.0
9 7/8% senior subordinated notes due 2001................. 200.0 200.0
10 1/2% senior subordinated discount debentures (net of
unamortized discount of $272.9 million in 1993; $221.4
million in 1994) due in installments from 2003 to
2005.................................................... 477.8 529.3
14 1/4% subordinated discount debentures.................. 175.0 --
12 3/4% junior subordinated debentures (Note 11).......... 141.8 --
Other long-term debt...................................... 63.1 74.6
-------- --------
Total long-term debt...................................... 2,297.6 2,293.9
Less current maturities................................... 105.9 141.6
-------- --------
$2,191.7 $2,152.3
======== ========
</TABLE>
Interest costs capitalized as part of the cost of constructing facilities
for the years ended December 31, 1994, 1993, and 1992, were $2.9 million, $2.7
million, and $3.1 million, respectively. Cash interest paid for those same years
on all outstanding indebtedness amounted to $186 million, $198 million, and $210
million, respectively.
F-20
<PAGE> 90
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1993 Credit Agreement loans and effective weighted average interest
rates in effect at December 31, were as follows:
<TABLE>
<CAPTION>
U.S. DOLLAR
EQUIVALENT
-------------------
1993 1994
------ ------
(IN MILLIONS)
<S> <C> <C>
Periodic access loans:
British sterling loans at 7.85% in 1993; 8.59% in
1994.................................................. $ 95.8 $101.3
Deutschemark loans at 9.06% in 1993; 7.56% in 1994...... 49.4 50.9
Canadian dollar loans at 6.5% in 1993; 8.44% in 1994.... 20.2 7.5
French franc loans at 9.17% in 1993; 8.00% in 1994...... 18.5 14.9
Italian lira loans at 12.19% in 1993.................... 8.7 --
------ ------
Total periodic access loans........................ 192.6 174.6
------ ------
Term loans:
Tranche A U.S. dollar loans at 6.5% in 1993; 9.25% in
1994.................................................. 225.0 222.2
Tranche B Deutschemark loans at 7.88% in 1993; 7.31% in
1994.................................................. 172.3 136.0
Tranche C U.S. dollar loans at 6.01% in 1993; 8.40% in
1994.................................................. 100.0 82.2
Tranche D U.S. dollar loans at 8.94% in 1994............ -- 325.0
------ ------
Total term loans................................... 497.3 765.4
------ ------
Total 1993 credit agreement long-term loans.................. 689.9 940.0
Revolver loans at 7.5% in 1993; 9.7% in 1994................. 7.0 38.0
------ ------
Total 1993 credit agreement loans.................. $696.9 $978.0
====== ======
</TABLE>
The 9 7/8% Senior Subordinated Notes may be redeemed at the Company's
option, in whole or in part, on and after June 1, 1998, at redemption prices
declining from 102.82% in 1998 to 100% on June 1, 2000, and thereafter. The
10 1/2% Senior Subordinated Discount Debentures may be redeemed at the Company's
option, in whole or in part, on and after June 1, 1998, at redemption prices
declining from 104.66% in 1998 to 100% on June 1, 2002, and thereafter. The
payment of the principal and interest on the 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 credit agreements, the 9 1/4% Sinking Fund
Debentures, the 10 7/8% Senior Notes, and the 11 3/8% Senior Debentures (the
said notes and debentures together the "Senior Securities").
The 9 1/4% Sinking Fund Debentures are redeemable at the Company's option,
in whole or in part, at redemption prices declining from 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.
Obligations under the 1995 Credit Agreement are guaranteed by American
Standard Inc. and significant domestic subsidiaries of American Standard Inc.
(with foreign borrowings also guaranteed by certain foreign subsidiaries) and
are secured by U.S., Canadian, and U.K. properties, plant and equipment; by
liens on receivables, inventories, intellectual property and other intangibles;
and by a pledge of the stock of American Standard Inc. and nearly all shares of
subsidiary stock. In
F-21
<PAGE> 91
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
addition, the obligations of American Standard Inc. under the Senior Securities
are secured, to the extent required by the related indentures, by mortgages on
the principal U.S. properties of American Standard Inc. equally and ratably with
the indebtedness under the 1995 Credit Agreement.
The 1995 Credit Agreement contains various covenants that limit, among
other things, 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 previous bank credit agreements, the
Company from time to time had to obtain waivers and amendments. The Company
believes it is currently in compliance with the covenants of the 1995 Credit
Agreement 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, 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 11. 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. In November 1994 the debentures were redeemed with
part of the proceeds of the October Borrowing.
NOTE 12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of selected financial
instruments at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -----
(DOLLARS IN
MILLIONS)
<S> <C> <C>
1993 credit agreement loans...................................... $940 $ 940
10 7/8% senior notes............................................. 150 152
11 3/8% senior debentures........................................ 250 257
9 7/8% senior subordinated notes................................. 200 194
10 1/2% senior subordinated discount debentures.................. 529 480
9 1/4% sinking fund debentures................................... 150 136
Other loans...................................................... 75 75
</TABLE>
The fair values presented above are estimates as of December 31, 1994 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-22
<PAGE> 92
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following methods and assumptions were used by the Company in
estimating the fair value of financial instruments held:
Long- and short-term debt: The fair values of the Company's 1993 Credit
Agreement loans are estimated using indicative market quotes obtained from a
major bank. The fair values of senior notes, senior debentures, senior
subordinated notes, senior subordinated discount debentures and sinking fund
debentures are based on indicative market quotes obtained from a major
securities dealer. The fair values of other loans approximate their carrying
value.
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
NOTE 13. RELATED PARTY TRANSACTIONS
Since 1988 the Company has paid Kelso an annual fee of $2.75 million for
providing management consulting and advisory services. In December 1994 the
Company paid Kelso a one-time fee of $20 million in connection with the
amendment of certain agreements in anticipation of the Company's initial public
offering including an amendment eliminating future payments of the $2.75 million
annual fee, but providing for the continuation of such 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.
NOTE 14. COMMITMENTS AND CONTINGENCIES
Future minimum rental commitments under the terms of all noncancellable
operating leases in effect at December 31, 1994, were: 1995 -- $32 million;
1996 -- $29 million; 1997 -- $22 million; 1998 -- $16 million; 1999 -- $12
million; and thereafter -- $38 million. Net rental expenses for operating leases
were $45 million, $34 million, and $32 million for the years ended December 31,
1994, 1993, and 1992, respectively.
The Company and certain of its subsidiaries are parties to a number of
pending legal and tax proceedings. The Company is also subject to federal, state
and local environmental laws and regulations and is involved in environmental
proceedings concerning the investigation and remediation of numerous sites. In
those instances where it is probable that the Company will incur costs as a
result of such proceedings which can be reasonably determined, the Company has
recorded a liability. The Company believes that these legal, tax and
environmental proceedings will not have a material adverse effect on its
consolidated financial position, cash flows or results of operations.
The tax returns of the Company's German subsidiaries are currently under
examination by the German tax authorities (see Note 7).
NOTE 15. SEGMENT DATA
Sales and operating income by geographic location for the years ended
December 31, 1994, 1993, and 1992, are shown in the following tables.
Identifiable assets are also shown as at years ended 1994, 1993, and 1992.
F-23
<PAGE> 93
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
SEGMENT DATA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
SALES
Air Conditioning Products.................................... $1,892 $2,100 $2,480
Plumbing Products............................................ 1,170 1,167 1,218
Automotive Products.......................................... 730 563 759
------ ------ ------
Total sales........................................ $3,792 $3,830 $4,457
------ ------ ------
Geographic distribution:
United States................................................ $1,877 $2,096 $2,465
Europe....................................................... 1,588 1,315 1,572
Other........................................................ 392 483 550
Eliminations................................................. (65) (64) (130)
------ ------ ------
Total sales........................................ $3,792 $3,830 $4,457
------ ------ ------
OPERATING INCOME
Air Conditioning Products.................................... $ 104 $ 133 $ 182
Plumbing Products............................................ 108 108 111
Automotive Products.......................................... 88 41 62
------ ------ ------
Total operating income(a).......................... $ 300 $ 282 $ 355
------ ------ ------
Geographic distribution:
United States................................................ $ 96 $ 125 $ 168
Europe....................................................... 180 118 144
Other........................................................ 24 39 43
------ ------ ------
Total operating income.................................. 300 282 355
Financing and corporate items(b)............................. 352 363 370
------ ------ ------
Loss before income taxes and extraordinary item.............. (52) (81) (15)
Income taxes................................................. 5 36 62
------ ------ ------
Loss before extraordinary item............................... $ (57) $ (117) $ (77)
====== ====== ======
</TABLE>
- ---------------
(a) Includes special charges of $40 million in 1994 applicable to consolidation
of production facilities, employee severance, other cost reduction actions,
and a provision for loss on the early disposition of certain assets; and $8
million in 1993 related to plant shutdowns and other cost reduction actions.
(b) Includes a one-time special charge of $20 million in 1994 incurred in
connection with the amendment of certain agreements in anticipation of the
Company's IPO.
F-24
<PAGE> 94
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
SEGMENT DATA -- (CONTINUED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
ASSETS:
Air Conditioning Products.................................... $1,156 $1,167 $1,223
Plumbing Products............................................ 1,002 960 957
Automotive Products.......................................... 722 652 755
------ ------ ------
Total identifiable assets.......................... $2,880 $2,779 $2,935
------ ------ ------
Geographic distribution:
United States.............................................. $1,016 $1,013 $1,025
Europe..................................................... 1,370 1,196 1,343
Other...................................................... 494 570 567
------ ------ ------
Total identifiable assets.......................... 2,880 2,779 2,935
------ ------ ------
Prepaid charges............................................ 51 78 64
Future income tax benefits................................. 33 25 22
Cash and cash equivalents.................................. 113 53 93
Corporate assets........................................... 49 52 42
------ ------ ------
Total assets............................................... $3,126 $2,987 $3,156
====== ====== ======
CAPITAL EXPENDITURES:
Air Conditioning Products.................................. $ 33 $ 38 $ 45
Plumbing Products.......................................... 48 46 55
Automotive Products........................................ 27 14 30
------ ------ ------
Total capital expenditures......................... $ 108 $ 98 $ 130
====== ====== ======
DEPRECIATION AND AMORTIZATION:
Air Conditioning Products.................................. $ 55 $ 53 $ 51
Plumbing Products.......................................... 49 49 64
Automotive Products........................................ 37 35 39
------ ------ ------
Total depreciation and amortization................ $ 141 $ 137 $ 154
====== ====== ======
</TABLE>
F-25
<PAGE> 95
AMERICAN STANDARD COMPANIES INC.
(FORMERLY ASI HOLDING CORPORATION)
QUARTERLY DATA
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994
---------------------------------------------
FIRST SECOND(a) THIRD FOURTH(b)
------ -------- -------- --------
<S> <C> <C> <C> <C>
Sales........................................... $989.6 $1,130.5 $1,188.8 $1,148.6
Cost of sales................................... 746.3 857.3 883.5 890.2
Income (loss) before income taxes and
extraordinary item............................ 3.4 3.5 26.2 (48.3)
Income taxes.................................... 16.7 14.9 15.1 15.8
------ -------- -------- --------
Income (loss) before extraordinary item......... (13.3) (11.4) 11.1 (64.1)
Extraordinary loss on retirement of debt........ -- -- -- (8.7)
------ -------- -------- --------
Net income (loss)..................... $(13.3) $ (11.4) $ 11.1 $ (72.8)
====== ======== ======== ========
Per common share:
Income (loss) before extraordinary item....... $ (.22) $ (.19) $ .19 $ (1.07)
Extraordinary loss on retirement of debt...... -- -- -- (.15)
------ -------- -------- --------
Net income (loss)..................... $ (.22) $ (.19) $ .19 $ (1.22)
====== ======== ======== ========
Average number of common shares and equivalents
(thousands)................................... 59,804 59,977 59,954 59,999
</TABLE>
- ---------------
(a) Results for the second quarter of 1994 included pre-tax charges of $40
million ($34 million after tax) related to employee severance, consolidation
of production facilities, the implementation of cost reduction actions, and
a provision for losses on operating assets expected to be disposed of prior
to the expiration of their originally estimated useful lives.
(b) The fourth quarter of 1994 included a one-time special charge of $20 million
in connection with the amendment of certain agreements in anticipation of
the initial public offering of the Company's common stock.
<TABLE>
<CAPTION>
1993
-------------------------------------------
FIRST SECOND(c) 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 item............................. (9.5) (28.2) 4.1 (46.9)
Income taxes..................................... 8.1 6.1 7.2 14.8
------ ------ ------ ------
Loss before extraordinary item................... (17.6) (34.3) (3.1) (61.7)
Extraordinary loss on retirement of debt......... -- (91.9) -- --
------ ------ ------ ------
Net loss............................... $(17.6) $(126.2) $ (3.1) $(61.7)
====== ====== ====== ======
Per common share:
Loss before extraordinary item................. $ (.37) $ (.65) $ (.05) $(1.04)
Extraordinary loss on retirement of debt....... -- (1.55) -- --
------ ------ ------ ------
Net loss............................... $ (.37) $ (2.20) $ (.05) $(1.04)
====== ====== ====== ======
Average number of common shares and equivalents
(thousands).................................... 59,247 59,390 59,225 59,390
</TABLE>
- ---------------
(c) The second quarter of 1993 included $8 million of charges for plant
shutdowns and other cost reduction actions.
F-26
<PAGE> 96
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
UNAUDITED CONSOLIDATED SUMMARY STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1994 1995
-------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Sales........................................................... $2,120.1 $2,594.0
Cost and expenses
Cost of sales.............................................. 1,603.6 1,917.6
Selling and administrative expenses........................ 366.5 415.7
Other expense.............................................. 14.4 19.1
Interest expense........................................... 128.7 111.2
-------- --------
2,113.2 2,463.6
Income before income taxes and extraordinary item............... 6.9 130.4
Income taxes.................................................... 31.6 54.4
-------- --------
Income (loss) before extraordinary item......................... (24.7) 76.0
Extraordinary loss on retirement of debt........................ -- (30.1)
-------- --------
Net income (loss)............................................... $ (24.7) $ 45.9
======== ========
Income (loss) per common share:
Income (loss) before extraordinary item.................... $ (.41) $ 1.04
Extraordinary loss on retirement of debt................... -- (.41)
-------- --------
Net income (loss) per common share......................... $ (.41) $ .63
======== ========
Average number of outstanding shares............................ 59,890,438 72,954,598
</TABLE>
See accompanying notes.
F-27
<PAGE> 97
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
UNAUDITED CONSOLIDATED SUMMARY BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1995
-------------
<S> <C>
(DOLLARS IN
MILLIONS)
ASSETS
Current Assets
Cash and cash equivalents.................................................. $ 26.5
Accounts receivable........................................................ 758.4
Inventories
Finished products....................................................... 235.6
Products in process..................................................... 97.8
Raw materials........................................................... 98.5
--------
431.9
Other current assets....................................................... 67.2
--------
Total Current Assets............................................... 1,284.0
Facilities, less accumulated depreciation of $501.4.......................... 833.4
Goodwill..................................................................... 1,088.1
Other Assets................................................................. 218.8
--------
$ 3,424.3
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Loans payable to banks..................................................... $ 296.1
Current maturities of long-term debt....................................... 66.4
Accounts payable........................................................... 378.5
Accrued payrolls........................................................... 169.4
Other accrued liabilities.................................................. 435.4
--------
Total Current Liabilities.......................................... 1,345.8
Long-Term Debt............................................................... 1,757.3
Other Liabilities............................................................ 788.1
--------
Total Liabilities.................................................. 3,891.2
Commitments and Contingencies
Stockholders' Deficit
Preferred stock, $.01 par value, 2,000,000 shares authorized; none issued
and outstanding......................................................... --
Common stock $.01 par value, 200,000,000 shares authorized; 76,147,445
shares issued and outstanding........................................... .8
Capital surplus and other.................................................. 488.5
Accumulated deficit........................................................ (790.5)
Foreign currency translation effects....................................... (163.0)
Minimum pension liability adjustment....................................... (2.7)
--------
Total Stockholders' Deficit........................................ (466.9)
--------
$ 3,424.3
========
</TABLE>
See accompanying notes.
F-28
<PAGE> 98
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
UNAUDITED CONSOLIDATED SUMMARY STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1994 1995
------ -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Cash provided (used) by:
Operating activities:
Income (loss) before extraordinary item.............................. $(24.7) $ 76.0
Depreciation (including asset loss provision in 1994)................ 68.7 55.8
Amortization of goodwill............................................. 15.4 16.6
Non-cash interest.................................................... 26.0 28.5
Amortization of debt issuance costs.................................. 7.3 3.2
Non-cash stock compensation.......................................... 14.6 15.2
Changes in assets and liabilities:
Accounts receivable................................................ (92.5) (148.8)
Inventories........................................................ (69.3) (96.7)
Accounts payable and other accruals................................ 77.9 109.7
Other assets and liabilities....................................... 17.5 24.6
----- -------
Net cash provided by operating activities................................. 40.9 84.1
----- -------
Investing activities:
Purchases of property, plant and equipment........................... (32.4) (56.3)
Investments in affiliated companies.................................. (12.6) (17.1)
Other................................................................ 9.0 10.6
----- -------
Net cash used by investing activities..................................... (36.0) (62.8)
----- -------
Financing activities:
Proceeds from issuance of common stock............................... -- 302.2
Costs of issuance of common stock.................................... -- (21.7)
Proceeds from issuance of long-term debt............................. 6.1 450.5
Repayments of long-term debt......................................... (65.1) (994.7)
Net change in revolving credit facility.............................. 53.7 197.7
Net change in other short-term debt.................................. (6.1) (5.4)
Common stock repurchases............................................. (5.5) (3.4)
Other................................................................ -- (13.1)
----- -------
Net cash used by financing activities..................................... (16.9) (87.9)
----- -------
Effect of exchange rate changes on cash and cash equivalents.............. 2.0 .4
----- -------
Net decrease in cash and cash equivalents................................. (10.0) (66.2)
Cash and cash equivalents at beginning of period.......................... 53.2 92.7
----- -------
Cash and cash equivalents at end of period................................ $ 43.2 $ 26.5
===== =======
</TABLE>
See accompanying notes.
F-29
<PAGE> 99
AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
(FORMERLY ASI HOLDING CORPORATION)
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS
(1) The accompanying consolidated summary statement of operations of
American Standard Companies Inc. (the "Company") and subsidiaries for the six
months ended June 30, 1994 and 1995 has not been audited, but management
believes that all adjustments, consisting of normal recurring items, necessary
for a fair presentation of financial data for those periods have been included.
Results for the first six months of 1995 are not necessarily indicative of
results for the entire year.
(2) Included in the six months ended June 30, 1994, are special 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.
(3) As described in Note 7 of Notes to Consolidated Financial Statements
for the year ended December 31, 1994, there are pending German tax issues. In
connection with examinations of certain 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 $22 million (using June 30, 1995 exchange
rates) of a disputed German income tax. A suit is pending to obtain a refund of
this tax. During the first quarter of 1995, the Company received the first of
two expected reports of the German tax authorities on audit findings for tax
years 1984 through 1990. This first report was silent on one of the major issues
under audit, which had represented over one-third of the potential total
adjustments that the Company earlier anticipated the German tax authorities
might propose for the years 1984 through 1990. While there can be no assurance,
the Company believes it is now unlikely that this issue will be pursued further
by the Germany tax authorities.
During the second quarter of 1995, the Company received the second report
on audit findings for tax years 1988 through 1990. On the basis of the second
report, and assuming that the matter is not first resolved by administrative
appeals procedures, the remaining proposed adjustments could ultimately lead to
litigation regarding disputed taxes (principally for the 1988 through 1990
period) of up to approximately $80 million (using June 30, 1995 exchange rates),
plus interest. 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 continue to propose adjustments
for the 1988-1990 period, they might, after future tax audits, also propose tax
adjustments for years 1991-1993, that could be as much as 50% higher than the
comparable adjustments for the years 1988 through 1990. American Standard, on
the basis of the opinion of German legal counsel, Meilicke & Partner, 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 has not recorded any loss
contingency at June 30, 1995 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 would 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.
F-30
<PAGE> 100
As a result of recent changes in German tax legislation, the Company's tax
provisions in 1994 and the first six months of 1995 were higher in Germany and
will be higher thereafter. 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, 1995 and
future years.
American Standard Inc. makes substantial interest payments to its indirect
wholly-owned Netherlands subsidiary. These interest payments had been exempt
from U.S. withholding tax under an income tax treaty between the United States
and the Netherlands. Under a provision in a new treaty such payments would have
become subject to 15% U.S. withholding tax except that the Company received a
ruling from the IRS making a determination that no U.S. withholding tax will be
imposed for 1995. The Company believes, based on the ruling exempting 1995
interest payments from U.S. withholding tax, that its request for a subsequent
ruling covering 1996 (and later years) should also receive favorable IRS action.
If the subsequent IRS ruling request is not resolved favorably, additional
withholding taxes of approximately $11 million per year could be imposed on the
Company commencing in 1996. In such case, the Company would consider
alternatives designed to mitigate the increased withholding taxes; however,
there is no assurance that such alternatives could be found.
F-31
<PAGE> 101
- ------------------------------------------------------
- ------------------------------------------------------
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>
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 2
Prospectus Summary..................... 3
Risk Factors........................... 10
The Company............................ 17
The Acquisition........................ 17
Use of Proceeds........................ 17
Price Range of Common Stock and
Dividend Policy...................... 18
Capitalization......................... 19
1995 Refinancing....................... 20
Selected Historical Consolidated
Financial Data....................... 22
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 24
Business............................... 38
Principal and Selling Stockholders..... 53
Description of Capital Stock........... 58
Underwriting........................... 65
Legal Matters.......................... 67
Experts................................ 67
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
17,500,000 SHARES
AMERICAN STANDARD
COMPANIES INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------------
LOGO
------------------------------
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
S.G.WARBURG & CO. INC.
REPRESENTATIVES OF THE U.S. UNDERWRITERS
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 102
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 AUGUST 28, 1995
17,500,000 SHARES
AMERICAN STANDARD COMPANIES INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------
Of the 17,500,000 shares of Common Stock offered, 5,250,000 shares are
being offered hereby in an international offering outside the United States and
12,250,000 shares are being offered in a concurrent U.S. offering (collectively,
the "Offerings"). The initial public offering price and the aggregate
underwriting discount per share will be identical for both Offerings. See
"Underwriting".
All of the shares of Common Stock offered are being sold by Kelso ASI
Partners, L.P., ("ASI Partners"), currently the Company's majority stockholder,
and certain of the Company's management stockholders (collectively the "Selling
Stockholders"). After giving effect to the Offerings, ASI Partners will remain
the Company's single largest stockholder. See "Principal and Selling
Stockholders".
The last reported sale price of the Common Stock, which is listed under the
symbol "ASD", on the New York Stock Exchange on August 25, 1995, was $28 1/8 per
share. See "Price Range of Common Stock and Dividend Policy".
SEE "RISK FACTORS" ON PAGES 10-16 FOR CERTAIN RISK FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
-------------------
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 SELLING
OFFERING PRICE DISCOUNT(1) STOCKHOLDERS(2)
---------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total(3)............................. $ $ $
</TABLE>
- ------------
(1) The Company, American Standard Inc. and the Selling Stockholders have agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933.
(2) Estimated expenses of approximately $1,100,000 will be paid by the Company.
(3) ASI Partners has granted the International Underwriters an option for 30
days after the date of this Prospectus to purchase up to an additional
787,500 shares at the initial public offering price per share, less the
underwriting discount, solely to cover over-allotments. Additionally, an
over-allotment option on 1,837,500 shares has been granted by ASI Partners
as part of the U.S. offering. If such options are exercised in full, the
total initial public offering price, underwriting discount and proceeds to
Selling Stockholders 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 , 1995.
GOLDMAN SACHS INTERNATIONAL
CS FIRST BOSTON LIMITED
MORGAN STANLEY & CO.
INTERNATIONAL
SBC WARBURG
A DIVISION OF
SWISS BANK
CORPORATION
SMITH BARNEY INC.
-------------------
The date of this Prospectus is , 1995.
<PAGE> 103
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
AVAILABLE INFORMATION
American Standard Companies Inc. (formerly named ASI Holding
Corporation)(the "Company") is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 7th Floor, New
York, New York 10048. Copies of such materials can be obtained upon written
request from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, such material
may also be inspected and copied at the offices of the New York Stock Exchange,
Inc. (the "NYSE"), 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as 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 $.01 per share (the "Common Stock"), offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement as permitted by the rules and regulations
of the Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete;
with respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. For further information,
reference is hereby made to the Registration Statement.
------------------------
This Prospectus does not constitute an offer to sell or the solicitation of
an offer to buy the Shares in any jurisdiction in which such offer or
solicitation is unlawful. There are restrictions on the offer and sale of the
Shares in the United Kingdom. All applicable provisions of the Financial
Services Act 1986 and the Companies Act 1985 with respect to anything done by
any person in relation to the Shares in, from, or otherwise involving the United
Kingdom must be compled with. See "Underwriting".
In this Prospectus, reference to "dollars", "U.S.$" and $ are United States
dollars.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (File No. 1-11415) with the
Commission pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, including portions incorporated therein of the
Company's definitive Proxy Statement dated March 27, 1995.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995.
3. All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Shares.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference, other than exhibits to
such information (unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to the Company, One
Centennial Avenue, P.O. Box 6820, Piscataway, NJ 08855-6820, Attention: Office
of the Secretary, telephone: (908) 980-6000.
------------------------
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified shall not be deemed to
constitute a part of this Prospectus except as so modified, and any statement so
superseded shall not be deemed to constitute part of this Prospectus.
------------------------
AMERICAN STANDARD(R), IDEAL STANDARD(R), STANDARD(R), TRANE(R) and WABCO(R)
are registered trademarks of American Standard Inc. PERROT(R) is a registered
trademark of Deutsche Perrot-Bremsen GmbH, a subsidiary of the Company. DEMAND
FLOW(R) is a registered trademark of J-I-T Institute of Technology, Inc.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY 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> 104
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
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.
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
65
<PAGE> 105
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
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.
66
<PAGE> 106
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions of the International Underwriting
Agreement, the Selling Stockholders have agreed to sell to each of the
International Underwriters named below, and each of such International
Underwriters, for whom Goldman Sachs International, CS First Boston Limited,
Morgan Stanley & Co. International Limited, SBC Warburg, a division of Swiss
Bank Corporation ("SBC Warburg"), and Smith Barney Inc., are acting as
representatives, has severally agreed to purchase from the Selling Stockholders,
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................................
CS First Boston Limited....................................
Morgan Stanley & Co. International Limited.................
SBC Warburg................................................
Smith Barney Inc...........................................
------------
Total............................................ 5,250,000
===============
</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 initial public offering price and other selling terms may from time
to time be varied by the representatives.
The Company and the Selling Stockholders have 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 12,250,000 Shares in an offering in the United States. The initial public
offering price and aggregate underwriting discount per share for the two
Offerings are identical. The closing of the offering made hereby is a condition
to the closing of the U.S. offering, and vice versa. The representatives of the
U.S. Underwriters are Goldman Sachs & Co., CS First Boston Corporation, Morgan
Stanley & Co. Incorporated, Smith Barney Inc. and S.G.Warburg & Co. 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 in excess of 10% 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 price to public 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 Selling
Stockholders 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
67
<PAGE> 107
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Swiss Bank Corporation 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 50
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.
ASI Partners has granted the International Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 787,500 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. ASI Partners 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 1,837,500 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.
The Company, the Selling Stockholders and certain management stockholders
have agreed not to offer, sell or otherwise dispose of any shares of Common
Stock for a period of 90 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 Offerings and shares of
Common Stock issued to the ESOP or consistent with the provisions of the Stock
Plan. The foregoing agreements are subject to certain exceptions. In addition,
an aggregate of approximately shares of Common Stock are expected to be
distributed by ASI Partners to certain of its limited partners in lieu of cash
in conjunction with the Offerings. The recipients of such distributions have
agreed with ASI Partners and the Underwriters not to offer, sell or otherwise
dispose of such shares of Common Stock prior to September 30, 1996 without the
prior written consent of ASI Partners and Goldman, Sachs & Co. Such consent may
be provided without prior notice to holders of the Common Stock or to the
markets where such securities are traded. See "Principal and Selling
Stockholders -- Shares Eligible for Future Sale".
68
<PAGE> 108
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
The Common Stock is traded on the New York Stock Exchange.
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, American Standard Inc. and the Selling Stockholders 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,
1993 and 1994, and for each of the three years in the period ended December 31,
1994 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, 1994 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.
Certain information with respect to German tax matters has been included
herein in reliance upon the authority of Meilicke & Partner as experts in German
tax matters.
69
<PAGE> 109
[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>
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 2
Prospectus Summary..................... 3
Risk Factors........................... 10
The Company............................ 17
The Acquisition........................ 17
Use of Proceeds........................ 17
Price Range of Common Stock and
Dividend Policy...................... 18
Capitalization......................... 19
1995 Refinancing....................... 20
Selected Historical Consolidated
Financial Data....................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 24
Business............................... 38
Principal and Selling Stockholders..... 53
Description of Capital Stock........... 58
Certain United States Tax Consequences
to Non-U.S. Holders.................. 65
Underwriting........................... 67
Legal Matters.......................... 69
Experts................................ 69
Index to Consolidated Financial
Statements and Supplementary Data.... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
17,500,000 SHARES
AMERICAN STANDARD
COMPANIES INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------------
LOGO
------------------------------
GOLDMAN SACHS INTERNATIONAL
CS FIRST BOSTON LIMITED
MORGAN STANLEY & CO.
INTERNATIONAL
SBC WARBURG
A DIVISION OF SWISS BANK CORPORATION
SMITH BARNEY INC.
REPRESENTATIVES OF THE INTERNATIONAL UNDERWRITERS
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration fee....................................................... $ 186,070
NASD fee............................................................... 30,500
Blue Sky fees and expenses............................................. 20,000
Transfer agent's fees.................................................. 10,000
Printing and engraving expenses........................................ 260,000
Legal fees and expenses................................................ 275,000
Accounting fees and expenses........................................... 175,000
Miscellaneous.......................................................... 143,430
----------
Total......................................................... $1,100,000
=========
</TABLE>
None of the expenses will be borne by the Selling Stockholders.
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
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<PAGE> 111
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.
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
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<PAGE> 112
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 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
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<PAGE> 113
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 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.
The File Number of American Standard Companies Inc., the Registrant (the
"Company"), and for all Exhibits incorporated by reference is 1-11415, except
those Exhibits incorporated by reference in filings made by American Standard
Inc. ("American Standard Inc.") whose File Number is 33-64450 (formerly 1-470).
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------
<C> <C> <S>
(1) Form of U.S. Underwriting Agreement.
(4) (i) Form of Common Stock Certificate; previously filed as Exhibit 4(i) in
Amendment No. 3 to Registration Statement No. 33-56409 of the Company under
the Securities Act of 1933, as amended, filed January 5, 1995, and herein
incorporated by reference.
</TABLE>
<TABLE>
<C> <C> <S>
(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.
</TABLE>
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<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------
<C> <C> <S>
(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 February 9, 1995, among the
Company, American Standard Inc., certain subsidiaries of American Standard
Inc., and the financial institutions listed in Schedule I thereto (the
Original Lenders); the financial institutions listed in Schedule II thereto
(the Continuing Lenders), including Chemical Bank as Administrative Agent for
the Original Lenders and Continuing Lenders and as Collateral Agent for the
Original Lenders and Continuing Lenders; previously filed as Exhibit 4(xvi)
by the Company in its Form 10-K for the fiscal year ended December 31, 1994,
and herein incorporated by reference.
(xiii) Amended and Restated Credit Agreement, dated as of February 9, 1995, among
the Company, American Standard Inc., certain subsidiaries of American
Standard Inc. and the lending institutions listed therein, Chemical Bank, as
Administrative Agent; Citibank, N.A. and NationsBank, N.A. (Carolinas), as
Senior Managing Agents; Bank of America Illinois, The Bank of Nova Scotia,
Bankers Trust Company, The Chase Manhattan Bank, N.A., Compagnie Financiere
de CIC et de L'Union Europeenne, Credit Suisse, Deutsche Bank AG, The
Industrial Bank of Japan Trust Company, The Long-Term Credit Bank of Japan,
Limited and The Sumitomo Bank, Ltd., as Managing Agents; and The Bank of New
York, Canadian Imperial Bank of Commerce, The Fuji Bank, Limited and The
Sanwa Bank Limited, as Co-Agents, with exhibits but without schedules;
previously filed as Exhibit 4 (xvii) by the Company in its Form 10-K for the
fiscal year ended December 31, 1994 (Schedules I, II, and III previously
filed by the Company in its Form 10-Q for the quarter ended March 31, 1995),
and herein incorporated by reference.
(xiv) Credit Documents Amendment Agreement dated as of February 9, 1995, among the
Company, American Standard Inc., certain domestic and foreign subsidiaries of
American Standard Inc., and Chemical Bank, as Administrative Agent and as
Collateral Agent for the Lenders under the Amended and Restated Credit
Agreement dated as of February 9, 1995, described in Exhibit 4 (xvii) above;
previously filed as Exhibit 4 (xviii) by the Company in its Form 10-K for the
fiscal year ended December 31, 1994, and herein incorporated by reference.
(xv) First Amendment, dated as of March 15, 1995, to the Amended and Restated
Credit Agreement referred to in 4(xvii) above; previously filed as Exhibit
4(vi) by the Company in its Form 10-Q for the quarter ended March 31, 1995,
and herein incorporated by reference.
</TABLE>
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<PAGE> 115
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------
<C> <C> <S>
(xvi) 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; previously filed as Exhibit 4(xxi) in Amendment No. 1 to
Registration Statement No. 33-56409 of the Company under the Securities Act
of 1933, as amended, filed December 20, 1994, and herein incorporated by
reference.
(xvii) Rights Agreement, dated as of January 5, 1995 between the Company and
Citibank, N.A. as Rights Agent; previously filed as Exhibit 4(xxv) by the
Company in its Form 10-K for the year ended December 31, 1994, and herein
incorporated by reference.
(5) Opinion of Debevoise & Plimpton regarding the legality of the securities
being registered.
(23) (i) Consent of Ernst & Young LLP.
(ii) Consent of Debevoise & Plimpton, included in the opinion of Debevoise &
Plimpton filed as Exhibit (5).
(iii) Consent of Meilicke & Partner.+
(24) Powers of Attorney.+
(27) Financial Data Schedule; previously filed as Exhibit 27 by the Company in its
Form 10-Q for the quarter ended June 30, 1995, and herein incorporated by
reference.
</TABLE>
- ---------------
+ Previously filed
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.
(D) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee
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<PAGE> 116
benefit plan's annual report pursuant to section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement 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> 117
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-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Piscataway, State of New Jersey on
August 28, 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. 1 to the Registration Statement has been signed below by the following
persons in the capacities indicated on August 28, 1995.
<TABLE>
<C> <S>
/s/ EMMANUEL A. KAMPOURIS Chairman, President and Chief Executive Officer;
- ------------------------------------- Director
(Emmanuel A. Kampouris) (Principal Executive Officer)
/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>
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<PAGE> 118
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
- --------------- ----------------------------------------------------------------- -----------
<C> <C> <S> <C>
(1) Form of U.S. Underwriting Agreement.
(4) (i) Form of Common Stock Certificate; previously filed as Exhibit
4(i) in Amendment No. 3 to Registration Statement No. 33-56409 of
the Company under the Securities Act of 1933, as amended, filed
January 5, 1995, and herein incorporated by reference.
</TABLE>
<TABLE>
<C> <C> <S> <C>
(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>
<PAGE> 119
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
- --------------- ----------------------------------------------------------------- -----------
<S> <C> <C> <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 February 9, 1995,
among the Company, American Standard Inc., certain subsidiaries
of American Standard Inc., and the financial institutions listed
in Schedule I thereto (the Original Lenders); the financial
institutions listed in Schedule II thereto (the Continuing
Lenders), including Chemical Bank as Administrative Agent for the
Original Lenders and Continuing Lenders and as Collateral Agent
for the Original Lenders and Continuing Lenders; previously filed
as Exhibit 4(xvi) by the Company in its Form 10-K for the fiscal
year ended December 31, 1994, and herein incorporated by
reference.
(xiii) Amended and Restated Credit Agreement, dated as of February 9,
1995, among the Company, American Standard Inc., certain
subsidiaries of American Standard Inc. and the lending
institutions listed therein, Chemical Bank, as Administrative
Agent; Citibank, N.A. and NationsBank, N.A. (Carolinas), as
Senior Managing Agents; Bank of America Illinois, The Bank of
Nova Scotia, Bankers Trust Company, The Chase Manhattan Bank,
N.A., Compagnie Financiere de CIC et de L'Union Europeenne,
Credit Suisse, Deutsche Bank AG, The Industrial Bank of Japan
Trust Company, The Long-Term Credit Bank of Japan, Limited and
The Sumitomo Bank, Ltd., as Managing Agents; and The Bank of New
York, Canadian Imperial Bank of Commerce, The Fuji Bank, Limited
and The Sanwa Bank Limited, as Co-Agents, with exhibits but
without schedules; previously filed as Exhibit 4 (xvii) by the
Company in its Form 10-K for the fiscal year ended December 31,
1994 (Schedules I, II, and III previously filed by the Company in
its Form 10-Q for the quarter ended March 31, 1995), and herein
incorporated by reference.
(xiv) Credit Documents Amendment Agreement dated as of February 9,
1995, among the Company, American Standard Inc., certain domestic
and foreign subsidiaries of American Standard Inc., and Chemical
Bank, as Administrative Agent and as Collateral Agent for the
Lenders under the Amended and Restated Credit Agreement dated as
of February 9, 1995, described in Exhibit 4 (xvii) above;
previously filed as Exhibit 4 (xviii) by the Company in its Form
10-K for the fiscal year ended December 31, 1994, and herein
incorporated by reference.
(xv) First Amendment, dated as of March 15, 1995, to the Amended and
Restated Credit Agreement referred to in 4(xvii) above;
previously filed as Exhibit 4(vi) by the Company in its Form 10-Q
for the quarter ended March 31, 1995, and herein incorporated by
reference.
</TABLE>
<PAGE> 120
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGES
- --------------- ----------------------------------------------------------------- -----------
<C> <C> <S> <C>
(xvi) 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; previously filed as
Exhibit 4(xxi) in Amendment No. 1 to Registration Statement No.
33-56409 of the Company under the Securities Act of 1933, as
amended, filed December 20, 1994, and herein incorporated by
reference.
(xvii) Rights Agreement, dated as of January 5, 1995 between the Company
and Citibank, N.A. as Rights Agent; previously filed as Exhibit
4(xxv) by the Company in its Form 10-K for the year ended
December 31, 1994, and herein incorporated by reference.
(5) Opinion of Debevoise & Plimpton regarding the legality of the
securities being registered.
(23) (i) Consent of Ernst & Young LLP.
(ii) Consent of Debevoise & Plimpton, included in the opinion of
Debevoise & Plimpton filed as Exhibit (5).
(iii) Consent of Meilicke & Partner.+
(24) Powers of Attorney.+
(27) Financial Data Schedule; previously filed as Exhibit 27 by the
Company in its Form 10-Q for the quarter ended June 30, 1995, and
herein incorporated by reference.
</TABLE>
- ---------------
+ Previously filed
<PAGE> 1
EXHIBIT 1
AMERICAN STANDARD COMPANIES INC.
12,250,000 SHARES
COMMON STOCK
($.01 PAR VALUE)
------------------------
UNDERWRITING AGREEMENT
(U.S. VERSION)
------------------------
, 1995
Goldman, Sachs & Co.
CS First Boston Corporation
Morgan Stanley & Co. Incorporated
Smith Barney Inc.
S.G. Warburg & Co. Inc.
As representatives of the several
Underwriters named in Schedule I
hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Kelso ASI Partners, L.P. ("ASI Partners") and certain other stockholders
named in Schedule II hereto (collectively, the "Selling Stockholders") of
American Standard Companies Inc., a Delaware corporation (the "Company"),
propose, subject to the terms and conditions stated herein, to sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
12,250,000 shares (the "Firm Shares") and, at the election of the Underwriters,
up to 1,837,500 additional shares (the "Optional Shares") of Common Stock ($.01
par value) ("Stock") of the Company (the Firm Shares and the Optional Shares
that the Underwriters elect to purchase pursuant to Section 2 hereof being
collectively called the "Shares"). The Company's only significant asset is all
the outstanding common stock of American Standard Inc., a Delaware corporation
("ASI").
It is understood and agreed to by all parties that the Selling
Stockholders, the Company and ASI are concurrently entering into an agreement
(the "International Underwriting Agreement") providing for the sale by the
Selling Stockholders of up to a total of 6,037,500 shares of Stock (the
"International Shares"), including the overallotment option thereunder, through
arrangements with certain underwriters outside the United States (the
"International Underwriters"), for whom Goldman Sachs International, CS First
Boston Limited, Morgan Stanley & Co. International Limited, SBC Warburg, a
division of Swiss Bank Corporation, and Smith Barney Inc. are acting as lead
managers. Anything herein or therein to the contrary notwithstanding, the
respective closings under this Agreement and the International Agreement are
hereby expressly made conditional on one another. The Underwriters hereunder and
the International Underwriters are simultaneously entering into an Agreement
between U.S. and International Underwriting Syndicates (the "Agreement between
Syndicates") which provides, among other things, for the transfer of shares of
Stock between the two syndicates. Two forms of prospectus are to be used in
connection with the offering and sale of shares of Stock contemplated by the
foregoing, one relating to the Shares hereunder and the other relating to the
International Shares. The latter form of prospectus will be identical to the
former except for certain substitute pages as included in the registration
statement and amendments thereto as mentioned below. Except as used in Sections
2, 3, 4, 9 and 11 herein, and except as the context may otherwise require,
references hereinafter to the Shares shall include all the shares of Stock which
may be sold pursuant to either this Agreement or the International Underwriting
Agreement, and references herein to any prospectus whether in preliminary or
final form, and whether as amended or supplemented, shall include both the U.S.
and the international versions
<PAGE> 2
thereof. All terms used but not otherwise defined herein shall have the meanings
ascribed to such terms in the Prospectus (as hereinafter defined).
1. (a) The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(i) A registration statement on Form S-3 (File No. 33-61651) in
respect of the Shares has been filed with the Securities and Exchange
Commission (the "Commission"); such registration statement and any
post-effective amendment thereto, each in the form heretofore delivered to
you, and, excluding exhibits thereto but including all documents
incorporated by reference in the prospectus contained therein, to you for
each of the other Underwriters, have been declared effective by the
Commission in such form; no other document with respect to such
registration statement or document incorporated by reference therein has
heretofore been filed with the Commission; and no stop order suspending the
effectiveness of such registration statement has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in such registration
statement or filed with the Commission pursuant to Rule 424(a) of the rules
and regulations of the Commission under the Securities Act of 1933, as
amended (the "Act"), is hereinafter called a "Preliminary Prospectus"; the
various parts of such registration statement, including all exhibits
thereto and including (x) the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act
in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the registration statement at the time it was
declared effective and (y) the documents incorporated by reference in the
prospectus contained in the registration statement at the time such part of
the registration statement became effective, each as amended at the time
such part of the registration statement became effective, are hereinafter
collectively called the "Registration Statement"; such final prospectus, in
the form first filed pursuant to Rule 424(b) under the Act, is hereinafter
called the "Prospectus"; and any reference herein to any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act (as information included in such documents incorporated by
reference may have been amended or modified in the Registration Statement
or the Prospectus), as of the date of such Preliminary Prospectus or
Prospectus, as the case may be; any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be deemed
to refer to and include any documents filed after the date of such
Preliminary Prospectus or Prospectus, as the case may be, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
incorporated by reference in such Preliminary Prospectus or Prospectus, as
the case may be; and any reference to any amendment to the Registration
Statement shall be deemed to refer to and include any annual or quarterly
report of the Company and any other documents filed by this Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act that is
incorporated by reference in the Registration Statement;
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, complied as to form in all
material respects with the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by any Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(iii) The documents incorporated by reference in the Prospectus, when
they were filed with the Commission, complied as to form in all material
respects with the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder, and
none of such documents contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and any further documents so
filed and incorporated by reference in the Prospectus or any further
amendment or supplement thereto, when such documents are filed with the
Commission, will comply as to form in all
2
<PAGE> 3
material respects to the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by any Underwriter through Goldman, Sachs & Co.
expressly for use therein;
(iv) The Registration Statement complies as to form, and the
Prospectus and any further amendments or supplements to the Registration
Statement or the Prospectus will comply as to form, in all material
respects with the requirements of the Act and the rules and regulations of
the Commission thereunder and do not and will not, as of the applicable
effective date as to the Registration Statement and any amendment thereto
and as of the applicable filing date as to the Prospectus and any amendment
or supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through Goldman, Sachs & Co.
expressly for use therein;
(v) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, which loss or interference would have a material
adverse effect, or would reasonably (based on information available to the
Company) be expected to have a prospective material adverse effect, on the
general affairs, financial position, stockholders' equity or consolidated
results of operations of the Company and its subsidiaries taken as a whole
(a "Material Adverse Effect"), otherwise than as set forth or contemplated
in the Prospectus; and, since the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock (other than, as contemplated by the
Registration Statement or the Prospectus, or pursuant to the
American-Standard Employee Stock Ownership Plan (the "ESOP") or other
employee incentive or benefit plans) or any increase in the long-term debt
of the Company or any of its subsidiaries or any change that would have a
Material Adverse Effect otherwise than as set forth or contemplated in the
Prospectus (including, without limitation, borrowings in the ordinary
course of business under the Revolving Credit Facility);
(vi) The Company and its principal subsidiaries listed on Exhibit A
hereto (the "Principal Subsidiaries") have good title (or a comparable
interest with respect to foreign real property) with respect to their real
properties (other than liens, encumbrances, equities or claims existing
under or permitted by the 1995 Credit Agreement) and good and sufficient
title (other than liens, encumbrances, equities or claims existing under or
permitted by the 1995 Credit Agreement) to all of their other respective
properties and assets reflected in the most recent consolidated balance
sheet contained in the Prospectus, in each case except for (w) assets
disposed of since the date of such consolidated balance sheet and prior to
the date of this Agreement in the ordinary course of business, (x) assets
acquired or disposed of since the date of such consolidated balance sheet
in accordance with this Agreement, (y) assets held under capital leases and
(z) defects that in the aggregate do not result in a Material Adverse
Effect;
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, except where the failure to possess such power or authority,
or to be so qualified, would not have a Material Adverse Effect; and each
Principal Subsidiary has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation;
3
<PAGE> 4
(viii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform in all material respects to the description
of the capital stock contained in the Prospectus; and all of the issued
shares of capital stock of each Principal Subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable and
(except for directors' qualifying shares and except as set forth in the
Prospectus) are owned directly or indirectly by the Company, free and clear
of all liens, encumbrances, equities or claims (other than liens,
encumbrances, equities or claims existing under or permitted by the 1995
Credit Agreement);
(ix) The compliance by the Company and ASI with all of the provisions
of this Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or any of its Principal Subsidiaries is a party or by which the
Company or any of its Principal Subsidiaries is bound or to which any of
the property or assets of the Company or any of its Principal Subsidiaries
is subject, nor will such action result in any violation of the provisions
of the Restated Certificate of Incorporation or Amended By-laws of the
Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of
its Principal Subsidiaries or any of their properties except, in each case
(other than with respect to such Restated Certificate of Incorporation and
Amended By-laws), for such conflicts, violations, breaches or defaults
which would not have a Material Adverse Effect or impair the Company's
ability to perform its obligations hereunder or under the International
Underwriting Agreement; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the consummation by the Company or ASI of
the transactions contemplated by this Agreement and the International
Underwriting Agreement, except the registration under the Act of the Shares
and such consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign securities or Blue
Sky laws in connection with the purchase and distribution of the Shares by
the Underwriters and the International Underwriters;
(x) Neither the Company nor any of its Principal Subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default in
the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound except (other
than in respect of such Certificate of Incorporation or By-laws) for such
defaults which would not have a Material Adverse Effect;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute a
summary of the terms of the Stock, constitute in all material respects a
fair summary of such terms and the statements set forth in the Prospectus
under the caption "Business -- General -- Regulation and Environmental
Matters" and the statements set forth in the International Prospectus under
the caption "Certain United States Tax Consequences To Non-U.S. Holders,"
insofar as they purport to summarize Federal laws of the United States
referred to thereunder, fairly summarize such laws in all material
respects;
(xii) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(xiii) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
controlled by a company required to register as an investment company, as
such terms are defined in the Investment Company Act of 1940, as amended
(the "Investment Company Act");
4
<PAGE> 5
(xiv) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(xv) Ernst & Young LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries, is an
independent public accountant as required by the Act and the rules and
regulations of the Commission thereunder; and
(xvi) Except as referenced in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
(b) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this Agreement,
the International Underwriting Agreement and, with respect to each Selling
Stockholder indicated on Schedule II with an asterisk (an "Individual
Selling Stockholder"), the Power of Attorney and the Custody Agreement
hereinafter referred to, and for the sale and delivery of the Shares to be
sold by such Selling Stockholder hereunder, have been obtained; and such
Selling Stockholder has full right, power and authority to enter into this
Agreement, the International Underwriting Agreement, and, with respect to
each Individual Selling Stockholder, the Power of Attorney and the Custody
Agreement and to sell, assign, transfer and deliver the Shares to be sold
by such Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and under the International Underwriting Agreement and the
compliance by such Selling Stockholder with all of the provisions of this
Agreement, and, with respect to each Individual Selling Stockholder, the
Power of Attorney and the Custody Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any statute, indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder is
bound or to which any of the property or assets of such Selling Stockholder
is subject, nor will such action result in any violation of the provisions
of the Partnership Agreement of such Selling Stockholder if such Selling
Stockholder is a partnership or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over such Selling Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to each Time
of Delivery (as defined in Section 4 hereof) such Selling Stockholder will
have, good and valid title to the Shares to be sold by such Selling
Stockholder hereunder, free and clear of all liens, encumbrances, equities
or claims; and, upon delivery of such Shares and payment therefor pursuant
hereto and pursuant to the International Underwriting Agreement, good and
valid title to such Shares, free and clear of all liens, encumbrances,
equities or claims, will pass to the several Underwriters and the several
International Underwriters (assuming that the several Underwriters and the
several International Underwriters are without notice of any adverse claim,
as defined in the Uniform Commercial Code as adopted in the State of New
York (the "Code") and are otherwise bona fide purchasers for the purposes
of the Code and that such Underwriters' and International Underwriters'
rights are not limited by subsection (4) of Section 8-302 of the Code);
(iv) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, such
Selling Stockholder shall not offer, sell, contract to sell or otherwise
dispose of, except as provided hereunder or under the International
Underwriting Agreement, any Stock or any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent
the right to receive, Stock or any such substantially similar securities
(other than upon the conversion or exchange of
5
<PAGE> 6
convertible or exchangeable securities outstanding as of, the date of this
Agreement), without your prior written consent;
(v) With respect to ASI Partners, ASI Partners will distribute
approximately shares of Common Stock to its partners concurrently
with the First Time of Delivery (as hereinafter defined in Section 4(a))
and it will receive a written agreement of each such partners that they
will not offer, sell or otherwise dispose of such shares during the period
beginning from the date hereof and continuing to September 30, 1996,
without the prior written consent of ASI Partners and Goldman, Sachs & Co.
(vi) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares;
(vii) The Preliminary Prospectus and the Registration Statement did,
and the Prospectus and any further amendments or supplements to the
Registration Statement and the Prospectus, when they become effective or
are filed with the Commission, as the case may be, will conform in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder and will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading provided that, with respect to each Selling Stockholder, this
clause (vii) shall apply only to the extent that any statements or
omissions made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto are made in reliance
upon and in conformity with written information furnished to the Company
by, or on behalf of, such Selling Stockholder expressly for use therein
(including, without limitation, pursuant to the Power of Attorney, if any);
provided further that, for all purposes of this Agreement and the
International Underwriting Agreement, the only information furnished to the
Company by ASI Partners expressly for use in any Preliminary Prospectus,
the Registration Statement, the Prospectus or any amendment or supplement
thereto, are the statements pertaining to the number of shares owned and
the number of shares proposed to be sold by ASI Partners and its affiliates
under the caption "Principal and Selling Stockholders."
(viii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(ix) Certificates in negotiable form representing all of the Shares to
be sold by such Individual Selling Stockholder hereunder and under the
International Underwriting Agreement have been placed in custody under a
Custody Agreement, in the form heretofore furnished to you (the "Custody
Agreement"), duly executed and delivered by such Individual Selling
Stockholder to [Name of Custodian], as custodian (the "Custodian"), and
such Individual Selling Stockholder has duly executed and delivered a Power
of Attorney, in the form heretofore furnished to you (the "Power of
Attorney"), appointing the persons indicated in Schedule II hereto, and
each of them, as such Individual Selling Stockholder's attorneys-in-fact
(the "Attorneys-in-Fact") with authority to execute and deliver this
Agreement and the International Underwriting Agreement on behalf of such
Individual Selling Stockholder, to determine the purchase price to be paid
by the Underwriters and the International Underwriters to the Selling
Stockholders as provided in Section 2 hereof, to authorize the delivery of
the Shares to be sold by such Individual Selling Stockholder hereunder and
otherwise to act on behalf of such Individual Selling Stockholder in
connection with the transactions contemplated by this Agreement and the
Custody Agreement; and
(x) The Shares represented by the certificates held in custody for
such Individual Selling Stockholder under the Custody Agreement are subject
to the interests of the Underwriters and the International Underwriters
hereunder and under the International Underwriting Agreement, respectively;
the arrangements made by such Individual Selling Stockholder for such
custody, and the appointment by
6
<PAGE> 7
such Individual Selling Stockholder of the Attorneys-in-Fact by the Power
of Attorney, are to that extent irrevocable; the obligations of the
Individual Selling Stockholders hereunder and under the International
Underwriting Agreement shall not be terminated by operation of law, whether
by the death or incapacity of any Individual Selling Stockholder or, in the
case of an estate or trust, by the death or incapacity of any executor or
trustee or the termination of such estate or trust or, in the case of a
partnership or corporation, by the dissolution of such partnership or
corporation, or by the occurrence of any other event; if any Individual
Selling Stockholder or any such executor or trustee should die or become
incapacitated, or if any such estate or trust should be terminated, or if
any such partnership or corporation should be dissolved, or if any other
such event should occur, before the delivery of the Shares hereunder,
certificates representing the Shares shall be delivered by or on behalf of
the Selling Stockholders in accordance with the terms and conditions of
this Agreement and, with respect to an Individual Selling Stockholder, of
the Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant
to the Powers of Attorney shall be as valid as if such death, incapacity,
termination, dissolution or other event had not occurred, regardless of
whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity, termination, dissolution or
other event.
2. Subject to the terms and conditions herein set forth, (a) each of the
Selling Stockholders agrees, severally and not jointly, to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from each of the Selling Stockholders, at a purchase price per share of
$[ ], the number of Firm Shares (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number of
Firm Shares to be sold by each of the Selling Stockholders as set forth opposite
their respective names in Schedule II hereto by a fraction, the numerator of
which is the aggregate number of Firm Shares to be purchased by such Underwriter
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all of the Underwriters from all of the Selling Stockholders hereunder, (b) in
the event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, ASI Partners agrees to sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from ASI Partners, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
ASI Partners hereby grants to the Underwriters the right to purchase at
their election up to 1,837,500 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to ASI
Partners, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be purchased
and the date on which such Optional Shares are to be delivered, as determined by
you but in no event earlier than the First Time of Delivery (as defined in
Section 4 hereof) or, unless you and ASI Partners otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours prior
notice to ASI Partners and the Attorney-in-Fact, shall be delivered by or on
behalf of ASI Partners and the Attorney-in-Fact to Goldman, Sachs & Co., for the
account of such Underwriter, against payment by or on behalf of such Underwriter
of the purchase price therefor by certified or official bank check or checks,
payable to the order of each of the Selling Stockholders, as their interests may
appear, in New York Clearing House funds. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
7
<PAGE> 8
below) with respect thereto at the office of Goldman, Sachs & Co., 85 Broad
Street, New York, New York 10004 (the "Designated Office"). The time and date of
such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m.,
New York City time, on [ ], 1995 or such other time and date as
Goldman, Sachs & Co., ASI Partners and the Attorney-in-Fact may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on
the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and ASI Partners may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery," such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery," and each such time and date for delivery is herein
called a "Time of Delivery."
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(l) hereof, will be delivered at the offices of Cahill
Gordon & Reindel, 80 Pine Street, New York, N.Y. 10005 (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at 3:00 p.m., New York
City time, on the New York Business Day next preceding such Time of Delivery, at
which meeting the final drafts of the documents to be delivered pursuant to the
preceding sentence will be available for review by the parties hereto. For the
purposes of this Section 4, "New York Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus prior to the last Time of Delivery which shall be disapproved by
you promptly after reasonable notice thereof; to advise you, promptly after
it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish you with copies thereof; to file promptly all reports and any
definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of the Prospectus and for so
long as the delivery of a prospectus is required in connection with the
offering or sale of the Shares; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of
any order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or (to the
Company's knowledge) threatening of any proceeding for any such purpose, or
of any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use their best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may reasonably request and to
comply with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete
the distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation, file a
general consent to service of process, or subject itself to taxation in any
jurisdiction;
(c) Prior to 1:00 p.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus
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in New York City in such quantities as you may reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time any
event shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary during such period to amend or
supplement the Prospectus or to file under the Exchange Act any document to
be incorporated by reference in the Prospectus in order to comply with the
Act or the Exchange Act, to notify you and upon your request to file such
document and to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the
Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a prospectus
in connection with sales of any of the Shares at any time nine months or
more after the time of issue of the Prospectus, upon your request but at
the expense of such Underwriter, to prepare and deliver to such Underwriter
as many copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) To make generally available to the Company's securityholders as
soon as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations thereunder (including, at the option of the Company,
Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 90 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder and under the International Underwriting Agreement, any Stock or
common equity securities of the Company that are substantially similar to
the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option plans or other plans for the benefit of
employees (including, without limitation, the ESOP) or the Stockholders
Rights Agreement existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement), without your prior written consent;
(f) To furnish to the Company's stockholders as soon as practicable
after the end of each fiscal year an annual report (including a balance
sheet and statements of income, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail; and
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional publicly available information
concerning the business and financial condition of the Company as you may
from time to time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission).
6. The Company and ASI covenant and agree with the several Underwriters
that (a) the Company and ASI, jointly and severally, will pay or cause to be
paid the following: (i) the fees, disbursements and expenses of the Company's
and the Selling Stockholders' counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements thereto
and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) the cost of
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printing or producing any Agreement among Underwriters, this Agreement, the
International Underwriting Agreement, the Agreement between Syndicates, the
Selling Agreement, the Blue Sky Memorandum, closing documents (including
compilations thereof) and any other documents in connection with the offering,
purchase, sale and delivery of the Shares; (iii) all expenses in connection with
the qualification of the Shares for offering and sale under state securities
laws as provided in Section 5(b) hereof, including the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey; (iv) the filing fees
incident to, and the reasonable fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(v) the cost of preparing stock certificates; (vi) the cost and charges of any
transfer agent or registrar; (vii) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section; (viii) the fees and expenses of the
Attorneys-in-Fact and the Custodian; and (ix) all expenses and taxes incident to
the sale and delivery of the Shares to be sold by the Selling Stockholders to
the Underwriters hereunder. In connection with clause (b) of the preceding
sentence, Goldman, Sachs & Co. agrees to pay New York State stock transfer tax,
and the Company and ASI, jointly and severally, agree to reimburse Goldman,
Sachs & Co. for associated carrying costs if such tax payment is not rebated on
the day of payment and for any portion of such tax payment not rebated. It is
understood, however, that except as provided in this Section, and Sections 8 and
11 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and the Selling Stockholders herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed in all material respects all of their
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; and
all requests for additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction;
(b) Cahill Gordon & Reindel, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the matters covered in paragraphs (i), (ii) (only with
respect to the description of the Stock contained in the Prospectus),
(iii), and the first clause of (vii) relating to compliance as to form of
subsection (c) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) Debevoise & Plimpton, counsel for the Company, shall have
furnished to you their written opinion, dated such Time of Delivery, in
form and substance reasonably satisfactory to you, to the effect that:
(i) Each of the Company and ASI has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of Delaware, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company issued concurrently with the consummation of the Acquisition
have been duly authorized, validly issued and are fully paid and
non-assessable and conform as to legal matters in all material respects
to the description of the Stock contained in the Prospectus;
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(iii) This Agreement and the International Underwriting Agreement
have been duly authorized, executed and delivered by the Company;
(iv) No consent, approval, authorization, order, registration or
qualification of or with any State of New York or Delaware or U.S.
Federal court or governmental agency or body is required for the sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act of the Shares, and such
consents, approvals, authorizations, registrations or qualifications as
may be required under state or foreign securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters (as to which such
counsel need not express an opinion);
(v) The statements set forth in the Prospectus under the caption
"Business -- General -- Regulation and Environmental Matters" and the
statements set forth in the International Prospectus under the caption
"Certain United States Tax Consequences To Non-U.S. Holders," insofar as
they purport to summarize Federal laws of the United States referred to
thereunder, fairly summarize such laws in all material respects;
(vi) The Company is not an "investment company" or an entity
"controlled" by a company required to register as an "investment
company", as such terms are defined in the Investment Company Act; and
(vii) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to such
Time of Delivery (other than the documents incorporated by reference
therein and other than the financial statements and related schedules
and other financial information contained or incorporated by reference
therein, as to which such counsel need express no belief) comply as to
form in all material respects with the requirements of the Act and the
rules and regulations thereunder; and they do not know of any contracts
or other documents of a character required to be filed as an exhibit to
the Registration Statement or required to be incorporated by reference
into the Prospectus which are not filed or incorporated by reference as
required.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that such counsel has not checked the accuracy or
completeness of, or otherwise verified, and is not passing upon and assumes no
responsibility for the accuracy or completeness of, the information contained or
incorporated by reference in the Registration Statement or the Prospectus, or
any amendment or supplement thereto, except to the limited extent set forth in
the concluding clause of Section 7(c)(ii) above, in the course of the
preparation of the Registration Statement and the Prospectus by the Company,
such counsel participated in conferences with representatives of the Company,
the independent public accountants of the Company and the Representatives and
their counsel with respect thereto, and that such counsel's examination of the
Registration Statement and the Prospectus and such counsel's participation in
the above-mentioned conferences did not cause such counsel to believe that the
Registration Statement or any amendment thereto (except as to the financial
statements and related schedules and other financial information contained
therein, as to which such counsel need not express a belief), at the time the
Registration Statement or amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus or any amendment or supplement thereto (other than the
financial statements and related schedules and other financial information
contained or incorporated by reference therein, as to which such counsel need
not express a belief), at the time it was filed pursuant to Rule 424(b) or on
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
In rendering such opinion, such counsel may state that they express no
opinion other than as to the laws of the State of New York, the General
Corporation Law of the State of Delaware and the Federal laws of the United
States. No persons other than you shall be entitled to rely on such opinion, and
such opinion may not be furnished or referred to, or quoted from to, any other
person;
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(d) Richard A. Kalaher, Esq., General Counsel for the Company and ASI,
shall have furnished to you his written opinion, dated such Time of Delivery, in
form and substance reasonably satisfactory to you, to the effect that:
(i) The Company has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of each
jurisdiction in which it owns or leases properties or conducts any business
so as to require such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect;
(ii) All shares of the issued capital stock of the Company (other that
shares issued concurrently with the consummation of the Acquisition) have
been duly authorized, validly issued and are fully paid and non-assessable;
(iii) Each Principal Subsidiary incorporated within the United States
(a "U.S. Principal Subsidiary"), other than ASI, has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation; and all of the issued shares of capital
stock of each U.S. Principal Subsidiary and of ASI have been duly and
validly authorized and issued, are fully paid and non-assessable, and
(except for directors' qualifying shares and except as otherwise set forth
in the Prospectus) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims (other than liens,
encumbrances, equities or claims existing under or permitted by the 1995
Credit Agreement) (such counsel being entitled to rely in respect of the
opinion in this clause upon opinions of local counsel and in respect to
matters of fact upon certificates of officers of the Company or its
subsidiaries and of government officials, provided that such counsel shall
state that he believes that both you and he are justified in relying upon
such opinions and certificates);
(iv) To the best of such counsel's knowledge and other than as set
forth or contemplated in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is a
party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect; and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(v) Neither the Company nor any of its U.S. Principal Subsidiaries is
in violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument known to such
counsel to which it is a party or by which it or any of its properties may
be bound except (other than with respect to such Certificate of
Incorporation or By-laws) for such defaults which would not have a Material
Adverse Effect;
(vi) The compliance by the Company and ASI with all of the provisions
of this Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument known to such
counsel to which the Company or any of its U.S. Principal Subsidiaries is a
party or by which the Company or any of its U.S. Principal Subsidiaries is
bound or to which any of the property or assets of the Company or any of
its U.S. Principal Subsidiaries is subject, nor will such action result in
any violation of the provisions of the Restated Certificate of
Incorporation or Amended By-laws of the Company or any statute or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or any of
its U.S. Principal Subsidiaries or any of their properties except, in each
case (other than with respect to such Restated Certificate of Incorporation
and Amended By-laws), for such conflicts, violations, breaches or defaults
which would not have a Material Adverse Effect or impair the Company's
ability to perform its obligations hereunder or under the International
Underwriting Agreement; and
(vii) The documents incorporated by reference in the Prospectus (other
than the financial statements and related schedules and other financial
information contained therein, as to which such
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counsel need express no belief), when they were filed with the Commission,
complied as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission thereunder.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that such counsel has not checked the accuracy or
completeness of, or otherwise verified, and is not passing upon and assumes no
responsibility for the accuracy or completeness of, the information contained or
incorporated by reference in the Registration Statement or the Prospectus, or
any amendment or supplement thereto, in the course of the preparation of the
Registration Statement and the Prospectus by the Company, such counsel
participated in conferences with representatives of the Company, the independent
public accountants of the Company and the Representatives and their counsel with
respect thereto, and that such counsel's examination of the Registration
Statement and the Prospectus and such counsel's participation in the
above-mentioned conferences did not cause such counsel to believe that the
Registration Statement or any amendment thereto (except as to the financial
statements and related schedules and other financial information contained
therein, as to which such counsel need not express a belief), at the time the
Registration Statement or amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus or any amendment or supplement thereto (other than the
financial statements and related schedules and other financial information
contained or incorporated by reference therein, as to which such counsel need
not express a belief), at the time it was filed pursuant to Rule 424(b) or on
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
In rendering such opinion, such counsel may state that he expresses no
opinion other than as to the laws of the State of New York, the General
Corporation Law of the State of Delaware and the Federal laws of the United
States. No persons other than you shall be entitled to rely on such opinion, and
such opinion may not be furnished or referred to, or quoted from, any other
person;
(e) Counsel for foreign Principal Subsidiaries of the Company satisfactory
to the Representatives shall have furnished to you their written opinion, dated
such Time of Delivery, in form and substance reasonably satisfactory to you, to
the effect that:
(i) Each foreign Principal Subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the issued
shares of capital stock of each such foreign Principal Subsidiary have been
duly and validly authorized and issued, are fully paid and non-assessable,
and (except for directors' qualifying shares and except as otherwise set
forth in the Prospectus) are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims (other than
liens, encumbrances, equities and claims existing under or permitted by the
1995 Credit Agreement), except where the failure to be in good standing
would not have a Material Adverse Effect;
(ii) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending to which any foreign Principal Subsidiary is a party or of which
any property of any such foreign Principal Subsidiary is the subject which,
if determined adversely to such subsidiary, would individually or in the
aggregate have a Material Adverse Effect; and, to the best of such
counsel's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others; and
(iii) No foreign Principal Subsidiary is in violation of its
Certificate of Incorporation or By-laws or other organizational documents
or in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument known to
such counsel to which it is a party or by which it or any of its properties
may be bound except (other than with respect to such Certificate of
Incorporation or By-laws or other organizational documents) for such
defaults which would not have a Material Adverse Effect;
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(f) The respective counsel for each of the Selling Stockholders, as
indicated in Schedule II hereto, each shall have furnished to you their written
opinion with respect to each of the Selling Stockholders for whom they are
acting as counsel, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) A Power-of-Attorney and a Custody Agreement have been duly
executed and delivered by such Individual Selling Stockholder and
constitute valid and binding agreements of such Individual Selling
Stockholder in accordance with their terms;
(ii) This Agreement has been duly executed and delivered by or on
behalf of such Selling Stockholder; and the sale of the Shares to be sold
by such Selling Stockholder hereunder and the compliance by such Selling
Stockholder with all of the provisions of this Agreement, and, with respect
to any Individual Selling Stockholder, the Power-of-Attorney and the
Custody Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound or to
which any of the property or assets of such Selling Stockholder is subject,
nor will such action result in any violation of the provisions of the
Partnership Agreement of such Selling Stockholder if such Selling
Stockholder is a partnership or any order, rule or regulation known to such
counsel and applicable to the transactions contemplated by this Agreement
of any court or governmental agency or body having jurisdiction over such
Selling Stockholder or the property of such Selling Stockholder (where the
consequences of such conflict, breach, violation or default would affect
the ability of such Selling Stockholder to sell its Shares to the
Underwriters pursuant to this Agreement or materially affect the ability of
such Selling Stockholder to perform its other obligations under this
Agreement, except that such counsel shall not express any opinion as to
compliance with the registration or filing requirements or disclosure
provisions of the securities laws of the United States or the securities or
blue sky laws of any other jurisdiction, such counsel shall not express any
opinion as to the enforceability of the indemnification or contribution
provisions of Article 8 of this Agreement and such counsel shall not
express any opinion as to the accuracy or completeness of the Registration
Statement or Prospectus);
(iii) No consent, approval, authorization or order of any court or
governmental agency or body is required to be obtained by such Selling
Stockholder for the consummation of the transactions contemplated by this
Agreement in connection with the Shares to be sold by such Selling
Stockholder hereunder, except [name any such consent, approval,
authorization or order] which [has] [have] been duly obtained and [is]
[are] in full force and effect, such as have been obtained under the Act
and such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of such Shares by the
Underwriters;
(iv) Upon due delivery and payment for the Shares to be sold by such
Selling Stockholder at the First Time of Delivery as provided for in this
Agreement, the Underwriters will have good and valid title to the Shares so
transferred, free and clear of any liens, encumbrances, equities or claims
(assuming that the Underwriters are without notice of any adverse claim, as
defined in the Code and are otherwise bona fide purchasers for the purposes
of the Code and that such Underwriters' rights are not limited by
subsection (4) of Section 8-302 of the Code).
In rendering the opinion in paragraph (iv), such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate,
and such counsel's opinion shall be limited to the laws of the State of New
York, the General Corporation Law of the State of Delaware and the federal laws
of the United States;
(g) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Ernst & Young shall
have
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furnished to you a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect set forth in
Annex I hereto;
(h) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus, and
(ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock (other than
pursuant to the ESOP or other employee incentive or benefit plans) or any
increase in the long-term debt of the Company or any of its subsidiaries or any
development involving a Material Adverse Effect, otherwise than as set forth or
contemplated in the Prospectus (including, without limitation, borrowings in the
ordinary course of business under the Revolving Credit Facility), the effect of
which, in any such case described in clause (i) or (ii), is in the judgment of
the Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(i) On or after the date hereof (i) no downgrading shall have occurred in
the rating accorded the Company's debt securities by any "nationally recognized
statistical rating organization", as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall
have publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Company's debt securities;
(j) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange; (ii) a suspension or material
limitation in trading in the Company's securities on the New York Stock
Exchange; (iii) a general moratorium on commercial banking activities declared
by either Federal or New York State authorities; or (iv) the outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war, if the effect of any such event
specified in this clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(k) The Shares to be sold at such Time of Delivery shall have been duly
listed on the Exchange;
(l) The Company has obtained and delivered to the Underwriters executed
copies of an agreement from each of the persons listed on Exhibit B hereto,
substantially in the Form of Exhibit C hereto;
(m) ASI Partners has obtained and delivered to the Underwriters executed
copies of an agreement from each of its partners who is to receive a
distribution of shares of Stock, substantially to the effect set forth in
Subsection 1(b)(v) hereof in form and substance satisfactory to you;
(n) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(o) The Company and the Selling Stockholders shall have furnished or caused
to be furnished to you at such Time of Delivery certificates of officers of the
Company, ASI and the Selling Stockholders satisfactory to you as to the accuracy
of the representations and warranties of the Company, ASI and the Selling
Stockholders herein at and as of such Time of Delivery, as to the performance by
the Company, ASI and the Selling Stockholders of all of their obligations
hereunder to be performed at or prior to such Time of Delivery, as to the
matters set forth in subsections (a) and (h) of this Section 7 and as to such
other matters as you may reasonably request.
8. (a) The Company and ASI, jointly and severally, will indemnify and hold
harmless each Underwriter against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter may become
15
<PAGE> 16
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that neither
the Company nor ASI shall be liable (i) in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs &
Co. expressly for use therein and (ii) with respect to any Preliminary
Prospectus to the extent that any such loss, claim, damage or liability of such
Underwriter results solely from the fact that such Underwriter sold Common Stock
to a person as to whom the Company or ASI shall establish that there was not
sent by commercially reasonable means, at or prior to the written confirmation
of such sale, a copy of the Prospectus in any case where such delivery is
required by the Act, if the Company or ASI has previously furnished copies
thereof in sufficient quantity to such Underwriter and the loss, claim, damage
or liability of such Underwriter results from an untrue statement or omission of
a material fact contained in the Preliminary Prospectus that was corrected in
the Prospectus.
(b) Each of the Selling Stockholders will, severally and not jointly,
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Selling Stockholder expressly for use therein;
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred in connection with investigating or defending any such action or claim
as such expenses are incurred; provided, however, that the amount of each
indemnity under this subsection (b) shall be limited to an amount equal to the
total net proceeds received by such Selling Stockholder from the offering of the
Shares purchased under this Agreement.
(c) The Company and ASI will jointly and severally, indemnify and hold
harmless each Selling Stockholder against any losses, claims, damages or
liabilities, joint or several, to which such Selling Stockholder may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and will
reimburse each Selling Stockholder for any legal or other expenses reasonably
incurred by such Selling Stockholder in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Company and ASI shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Selling
Stockholder expressly for use therein.
(d) Each Underwriter will, severally and not jointly, indemnify and hold
harmless the Company, ASI and each Selling Stockholder against any losses,
claims, damages or liabilities to which the Company, ASI or
16
<PAGE> 17
such Selling Stockholder may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Goldman, Sachs & Co. expressly for use therein; and will reimburse the
Company, ASI and each Selling Stockholder for any legal or other expenses
reasonably incurred by the Company, ASI or such Selling Stockholder in
connection with investigating or defending any such action or claim as such
expenses are incurred.
(e) Promptly after receipt by an indemnified party under subsection (a),
(b), (c) or (d) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(f) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a), (b),
(c) or (d) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company, ASI and the Selling Stockholders on the one hand and
the Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (e) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company, ASI and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company, ASI and the Selling Stockholders on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares purchased
under this Agreement (before deducting expenses) received by the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters with respect to the Shares purchased under this Agreement,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged
17
<PAGE> 18
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, ASI or the
Selling Stockholders on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the foregoing, no
indemnifying Selling Stockholder shall be obligated to make contributions
hereunder which are on a basis other than specified in subsection (b) of this
Section 8 or in the aggregate exceed the amount for which it would have been
liable pursuant to subsection (b) of this Section 8 had indemnification been
available thereunder.
The Company, ASI, each of the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (f) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (f). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (f) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (f), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. Notwithstanding the provisions of
this subsection (f), no indemnifying Selling Stockholder shall be required to
contribute any amount in excess of the amount of total net proceeds received by
such indemnifying Selling Stockholder from the offerings of the Shares purchased
under this Agreement. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (f) to contribute are several in
proportion to their respective underwriting obligations and not joint. Each
Selling Stockholder's obligations in this subsection (f) to contribute are
several and not joint.
(g) The obligations of the Company, ASI and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company, ASI and
the respective Selling Stockholders may otherwise have and shall extend, upon
the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company or any Selling Stockholder within the
meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Selling Stockholders shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Selling Stockholders
that you have so arranged for the purchase of such Shares, or the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Selling Stockholders shall have the right to postpone such
Time of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of
18
<PAGE> 19
all the Shares to be purchased at such Time of Delivery, then the Selling
Stockholders shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number of
all the Shares to be purchased at such Time of Delivery, or if the Selling
Stockholders shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriters to purchase and of ASI
Partners to sell the Optional Shares) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Stockholders, except for the expenses to be borne by the Company and the
Underwriters as provided in Section 6 hereof and the indemnity and contribution
agreements in Section 8 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company, ASI, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, ASI or any of the Selling Stockholders, or any
officer or director or controlling person of the Company, ASI or any of the
Selling Stockholders, and shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
none of the Company, ASI or the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason, any Shares are not delivered by or on behalf of the
Selling Stockholders as provided herein, the Company and ASI, jointly and
severally, will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company and
ASI shall then be under no further liability to any Underwriter in respect of
the Shares not so delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder (other than as provided in Section 1(b)(v)),
you shall act on behalf of each of the Underwriters, and the parties hereto
shall be entitled to act and rely upon any statement, request, notice or
agreement on behalf of any Underwriter made or given by you jointly or by
Goldman, Sachs & Co. on behalf of you as the Representatives; and in all
dealings with any Selling Stockholder hereunder, you and the Company shall be
entitled to act and rely upon any statement, request, notice or agreement on
behalf of such Selling Stockholder made or given by such Selling Stockholder or
any or all of the Attorneys-in-Fact for any Individual Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; and if to the Company or ASI shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; and if to any Selling Stockholder
shall be delivered or sent by mail, telex or facsimile transmission to the
address of the Selling Stockholder set forth on Schedule II; provided, however,
that any notice to an Underwriter pursuant to Section 8(c) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Underwriter
at its address set forth in its Underwriters' Questionnaire, or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by you upon request. Any such statements, requests,
notices or agreements shall take effect at the time of receipt thereof.
19
<PAGE> 20
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company, ASI, the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and ASI and each person who controls the Company, ASI, any Selling
Stockholder or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us one for the Company, one for ASI, one for ASI Partners and for each
of the Representatives plus one for each counsel and the Custodian counterparts
hereof, and upon the acceptance hereof by you, on behalf of each of the
Underwriters, this letter and such acceptance hereof shall constitute a binding
agreement between each of the Underwriters, the Company, ASI and each of the
Selling Stockholders. It is understood that your acceptance of this letter on
behalf of each of the Underwriters is pursuant to the authority set forth in a
form of Agreement among Underwriters (U.S. Version), the form of which shall be
submitted to the Company and the Selling Stockholders for examination upon
request, but without warranty on your part as to the authority of the signers
thereof.
Very truly yours,
AMERICAN STANDARD COMPANIES INC.
By:
--------------------------------------
Name:
Title:
AMERICAN STANDARD INC.
By:
--------------------------------------
Name:
Title:
KELSO ASI PARTNERS L.P.
By:
--------------------------------------
Name:
Title:
20
<PAGE> 21
[OTHER SELLING STOCKHOLDERS]
By:
--------------------------------------
Name:
Title:
As Attorney-in-Fact acting on behalf
of each of the Individual Selling
Stockholders named in Schedule II to
this Agreement
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
MORGAN STANLEY & CO. INCORPORATED
SMITH BARNEY INC.
S.G. WARBURG & CO. INC.
By:
- --------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the
Underwriters
21
<PAGE> 22
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
- ----------------------------------------------------------- ---------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co. ......................................
CS First Boston............................................
Morgan Stanley & Co. Incorporated..........................
Smith Barney Inc. .........................................
S.G. Warburg & Co. Inc. ...................................
Total............................................ 12,250,000 1,837,500
=========== ==========
</TABLE>
<PAGE> 23
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF SOLD IF
FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
--------------- ------------------
<S> <C> <C>
The Selling Stockholder(s).................. 1,837,500
ASI Partners..............................
*[Name of Selling Stockholder](a).........
Total.............................
========== =========
12,250,000 1,837,500
</TABLE>
- ---------------
(a) This Selling Stockholder is represented by [Name and Address of Counsel] and
has appointed [Names of Attorneys-in-Fact (not less than two)], and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
ADDRESS FOR NOTICES:
<PAGE> 24
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included or incorporated by reference in the Registration Statement or the
Prospectus comply as to form in all material respects with the applicable
accounting requirements of the Act or the Exchange Act, as applicable, and
the related published rules and regulations thereunder;
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus and/or
included in the Company's quarterly report on Form 10-Q incorporated by
reference into the Prospectus; and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published
rules and regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations;
(iv) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included or incorporated by reference
in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) (i) the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus and/or included or incorporated by reference
in the Company's Quarterly Reports on Form 10-Q incorporated by
reference in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Exchange Act
and the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus or included in the
Company's Quarterly Reports on Form 10-Q incorporated by reference in
the Prospectus, for them to be in conformity with generally accepted
accounting principles;
(B) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the Prospectus do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of those
statements;
(C) as of , 1995, there have been any changes in the
consolidated capital stock or any increase in the consolidated long-term
debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or increases in stockholders' deficit or
other items specified by the Representatives, or any increases or
decreases in any items specified by the
<PAGE> 25
Representatives, in each case as compared with amounts shown in the
latest balance sheet included or incorporated by reference in the
Prospectus, except in each case for changes, increases or decreases
which the Prospectus discloses have occurred or may occur, which may
result from exchange rate movements, which may result from the award of
shares net of repurchases or which are described in such letter; and
(D) for the period from the date of the latest financial statements
included or incorporated by reference in the Prospectus to the specified
date referred to in clause (C) there were any decreases in consolidated
net revenues or consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period of
the preceding year and with any other period of corresponding length
specified by the Representatives, except in each case for increases or
decreases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(v) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (iv) above, they have carried out
certain specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus (excluding
documents incorporated by reference) or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representatives
or in documents incorporated by reference in the Prospectus specified by
the Representatives, and have compared certain of such amounts, percentages
and financial information with the accounting records of the Company and
its subsidiaries and have found them to be in agreement.
<PAGE> 26
EXHIBIT A
PRINCIPAL SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION
NAME OF INCORPORATION
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<S> <C>
American Standard Inc..................................................... Delaware
Wabco Standard Trane Inc.................................................. Canada (Ontario)
Wabco Westinghouse Equipments Automobiles SNC............................. France
Societe Trane............................................................. France
Wabco Standard GmbH....................................................... Germany
Wabco GmbH (formerly Wabco Westinghouse Fahrzeugbremsen).................. Germany
Ideal Standard GmbH....................................................... Germany
Ideal Standard SPA........................................................ Italy
Wabco Standard Trane BV................................................... Netherlands
American Standard Sanitaryware Thailand................................... Thailand
American Standard UK Ltd.................................................. United Kingdom
</TABLE>
<PAGE> 27
EXHIBIT B
AMERICAN STANDARD COMPANIES INC.
MANAGEMENT STOCKHOLDERS LIST
<TABLE>
<CAPTION>
NAME SHARES
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<S> <C>
</TABLE>
<PAGE> 1
Exhibit 5 & 23(ii)
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
(212) 909-6000
August 28, 1995
American Standard Companies Inc.
One Centennial Avenue
P.O. Box 6820
Piscataway, New Jersey 08855-6820
American Standard Companies Inc.
Registration Statement on Form S-3
Dear Sirs:
We have acted as counsel to American Standard Companies Inc., a
Delaware corporation (the "Registrant"), in connection with a Registration
Statement on Form S-3 (File No. 33-61651) (the "Registration Statement") filed
by the Registrant with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the "Act"),
relating to (a) 17,500,000 shares (the "Firm Shares") of the Registrant's
Common Stock, par value $.01 per share (the "Common Stock"), being offered by
the Selling Stockholders referred to in the Registration Statement and (b) up
to an additional 2,625,000 shares of Common Stock that may be sold by one of
the Selling Stockholders (the "Option Shares") pursuant to the exercise of the
underwriters' over-allotment options (such Option Shares, together with the
Firm Shares, the "Selling Stockholders Shares").
In so acting, we have examined and relied upon the originals, or copies
certified or otherwise identified to
<PAGE> 2
American Standard 2 August 28, 1995
Companies Inc.
our satisfaction, of such records, documents, certificates and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below.
We are of the opinion that the Selling Stockholders Shares are duly
authorized, validly issued, fully paid and non-assessable under the laws of the
State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus forming a part thereof. In giving such
consent, we do not thereby concede that we are within the category of person
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
<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 February 16, 1995 in Amendment No. 1 to the Registration
Statement (Form S-3, No. 33-61651) and related Prospectus of American Standard
Companies Inc. for the registration of 20,125,000 shares of its common stock.
We also consent to the incorporation by reference therein of our report with
respect to the financial statement schedules of American Standard Companies
Inc. for the years ended December 31, 1994, 1993 and 1992 included in the
Annual Report on Form 10-K for 1994 filed with the Securities and Exchange
Commission.
Ernst & Young LLP
New York, New York
August 25, 1995
