<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
File no. 333-18015
10,808,303 SHARES
AMERICAN STANDARD COMPANIES INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-------------------
Of the 10,808,303 shares of Common Stock offered, 8,646,642 shares are
being offered hereby in the United States and 2,161,661 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". Each share of Common Stock, including the shares offered hereby,
has associated with it one right to purchase a share of the Company's preferred
stock at a stipulated price in certain circumstances relating to changes in
ownership of the Company under the Company's stockholder rights agreement.
All of the shares of Common Stock offered are being sold by Kelso ASI
Partners, L.P. ("ASI Partners" or the "Selling Stockholder"). Concurrently with
the consummation of the Offerings, the Company will repurchase 6,250,000 shares
of Common Stock from ASI Partners at a price per share equal to the initial
public offering price, assuming no exercise of the Underwriters' over-allotment
options. See "The Selling Stockholder and Stockholder Transactions".
The last reported sale price of the Common Stock, which is listed under the
symbol "ASD", on the New York Stock Exchange on February 11, 1997 was $45 1/2
per share. See "Price Range of Common Stock and Dividend Policy".
SEE "RISK FACTORS" ON PAGES 11-15 FOR CERTAIN CONSIDERATIONS 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) STOCKHOLDER(2)
----------------- ---------------- --------------------
<S> <C> <C> <C>
Per Share............................ $45.00 $1.70 $43.30
Total(3)............................. $486,373,635 $18,374,115 $467,999,520
</TABLE>
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(1) The Company, American Standard Inc. and the Selling Stockholder have agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933.
(2) Estimated offering expenses of $1,000,000 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 1,296,996 shares
at the initial public offering price per share, less the underwriting
discount, solely to cover over-allotments. Additionally, an over-allotment
option on 324,249 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
Stockholder will be $559,329,660, $21,130,232 and $538,199,428,
respectively. See "Underwriting".
-------------------
The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York, on
or about February 18, 1997 against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO.
INCORPORATED
SBC WARBURG INC.
SMITH BARNEY INC.
------------------------
The date of this Prospectus is February 11, 1997.
<PAGE> 2
AVAILABLE INFORMATION
American Standard Companies Inc. (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 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611 and
7 World Trade Center, Suite 1300, 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 Commission maintains a Website that contains
reports, proxy and information statements and other information regarding
reporting companies under the Exchange Act, including the Company, at
http://www.sec.gov.
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 year ended December 31,
1995, including portions incorporated therein of the Company's
definitive Proxy Statement dated March 28, 1996.
2. The Company's Quarterly Reports on Form 10-Q/A for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996.
3. The descriptions of the Common Stock and the common stock rights
associated with each Share of Common Stock contained in the Registration
Statement on Form 8-A dated January 5, 1995, incorporated by reference
from the Company's Registration Statement on Form S-2 under the
Securities Act, Commission File Number 33-56409, under the captions
"Description of Capital Stock -- Common Stock" and "-- Stockholder
Rights Plan".
4. 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) and PORCHER(R) are
registered trademarks of Deutsche Perrot-Bremsen GmbH and Porcher S.A.,
respectively, subsidiaries 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.
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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 (57%
of 1995 sales); bathroom and kitchen fixtures and fittings (24% of 1995 sales);
and braking and control systems for medium-sized and heavy trucks, buses,
trailers and utility vehicles (19% of 1995 sales). American Standard is a market
leader in each of these business segments in the principal geographic areas in
which it competes. The Company's brand names include TRANE(R) and AMERICAN
STANDARD(R) for air conditioning systems, AMERICAN STANDARD(R), IDEAL
STANDARD(R), STANDARD(R) and PORCHER(R) for plumbing products and WABCO(R) and
PERROT(R) for braking and related systems. The Company emphasizes
technologically advanced products such as air conditioning systems that utilize
energy-efficient compressors and environmentally-preferred refrigerants,
water-saving plumbing products and commercial vehicle braking and related
systems (including antilock braking systems ("ABS")) that utilize electronic
controls.
American Standard had sales and operating income of $5.2 billion and $534
million, respectively, in 1995. Sales in the first nine months of 1996 were $4.4
billion, compared with $3.9 billion in the first nine months of 1995. Operating
income before asset impairment loss was $454 million in the first nine months of
1996, compared with operating income of $428 million in the first nine months of
1995. Including the asset impairment loss, operating income in the first nine
months of 1996 was $219 million. During the first nine months of 1996, sales
from operations outside the United States represented approximately 48% of the
Company's total sales. At September 30, 1996 American Standard had 103
manufacturing facilities in 35 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
3
<PAGE> 4
product cycle times, while improving efficiency, reducing working
capital needs and lowering costs. The Company believes that Demand
Flow, which it began to apply in 1990, has resulted in significant
benefits.
The Company is a Delaware corporation formed by Kelso & Company, L.P.
("Kelso") in 1988 to effect the acquisition (the "Acquisition") of American
Standard Inc. American Standard Inc. 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. The Company's
principal executive offices are located at One Centennial Avenue, P.O. Box 6820,
Piscataway, NJ 08855-6820, and its telephone number is (908) 980-6000.
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 1995 and the first nine months of 1996. 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'
1995 worldwide sales, approximately 79% was derived from U.S. operations
(including 7% related to export sales) and 21% was derived from operations
outside the United States.
Air Conditioning Products' sales increased to $2,602 million in the first
nine months of 1996, compared with $2,201 million in the first nine months of
1995. This increase was due principally to substantial volume increases and
price gains for applied and unitary commercial systems, higher volumes and
prices for residential products in the U.S. and sales by the new operations in
the PRC. 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,
the U.S. and a number of other countries of bathroom and kitchen fixtures and
fittings for the residential and commercial construction markets and retail
sales channels. Plumbing Products manufactures and distributes its products
under the AMERICAN STANDARD(R), IDEAL STANDARD(R), STANDARD(R) and PORCHER(R)
names. Of Plumbing Products' worldwide 1995 sales, approximately 71% was derived
from operations outside the United States and 29% was derived from operations in
the United States.
Plumbing Products' sales increased to $1,079 million in the first nine
months of 1996, compared to $952 million in the first nine months of 1995, due
principally to sales by Porcher, the French manufacturer acquired in the fourth
quarter of 1995, and higher sales in North American and Latin American
operations. 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
4
<PAGE> 5
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 decreased to $687 million in the first nine
months of 1996, compared to $757 million in the first nine months of 1995, due
principally to decreased levels of commercial vehicle production in Europe.
Management believes that Automotive Products is well positioned to benefit from
any future improvement in market conditions in Europe and Brazil and from
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 is 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.
See "Business -- Air Conditioning Products Segment"; "-- Plumbing Products
Segment" and "-- Automotive Products Segment".
The Company has recently announced formation of its Medical Systems Group
to pursue initiatives in the medical diagnostics field. See "Business -- Medical
Systems Group".
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. In 1995 and 1996, it established three joint ventures in the PRC to
become an integrated manufacturer, marketer and distributor of a broad range of
air conditioning systems and related products for residential and commercial
applications. Air Conditioning Products also continues to expand its sales
forces in the Far East, Latin America, the Middle East and India.
Plumbing Products has entered new markets through joint ventures in Eastern
Europe, Spain, Portugal and Vietnam and is continuing to expand using this
approach. In 1995, operations were expanded in France through the acquisition of
Porcher S.A. ("Porcher"). Plumbing Products has expanded 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 has expanded its
operations to Beijing, Tianjin, Shanghai and Guangzhou through seven joint
ventures in order to provide a full product line of fixtures, fittings and
bathtubs throughout the PRC market.
Automotive Products, headquartered in Europe, has since 1993 established a
joint venture in the PRC, acquired a business in Spain, is in the process of
establishing joint ventures in Eastern Europe and is expanding the volume of
business done through its existing joint ventures in the United States and
Japan.
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
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<PAGE> 6
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 approximately 44,000 employees
worldwide have been trained in Demand Flow, which has been implemented in
substantially all of American Standard's production facilities as of September
30, 1996. In addition, American Standard is implementing Demand Flow methods in
its acquired operations such as Perrot, a German brake manufacturer acquired in
January 1994, and Porcher, acquired in 1995. American Standard is also applying
Demand Flow to administrative functions and is re-engineering its organizational
structure to manage its businesses based on processes instead of functions.
American Standard believes that its implementation of Demand Flow has
achieved significant benefits. Product cycle time (the time from the beginning
of the manufacturing of a product to its completion) has been reduced and, on
average, inventory turnover rates have more than tripled since 1990. Principally
as a result of the implementation of Demand Flow, American Standard has reduced
inventories by 49% from December 31, 1989 through December 31, 1995, while
related sales have grown 57% 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.
THE SELLING STOCKHOLDER AND STOCKHOLDER TRANSACTIONS
The Company, ASI Partners and Kelso have entered into an agreement (the
"Stock Disposition Agreement") providing for the sale by ASI Partners of Shares
in the Offerings and the repurchase by the Company from ASI Partners of all
shares of Common Stock to be owned by ASI Partners after giving effect to the
Offerings and the distribution (the "Share Distribution") by ASI Partners of
shares of Common Stock to certain of its partners at their election
(collectively, the "Stockholder Transactions"). Concurrently with the
consummation of the Offerings, the Company will repurchase 6,250,000 shares of
Common Stock from ASI Partners at a price per share equal to the initial public
offering price (the "Share Repurchase"). To the extent the Underwriters'
over-allotment options are exercised, the number of shares that the Company will
repurchase will be reduced. The Company plans to finance the Share Repurchase
with borrowings under the Facilities (as defined).
The Stock Disposition Agreement also provides that the Company will issue
to ASI Partners warrants (the "Warrants") to purchase 3,000,000 shares of Common
Stock at a price per share equal to $10 above the initial public offering price.
If there is a change of control of the Company consummated in a manner specified
in the Stock Disposition Agreement (a "Transaction") prior to January 31, 1998
(or October 1, 1998 in certain cases), the agreement provides that the Company
would be required to make a cash payment to ASI Partners in respect of the
aggregate number of shares sold by ASI Partners in the Offerings and to the
Company pursuant to the Share Repurchase based on the excess, if any, of the
consideration per share received by holders of the Common Stock in the
Transaction over the cash price per share received by ASI Partners in the
Offerings and pursuant to the Share Repurchase. The Warrants would expire if a
Transaction occurs entitling ASI Partners to such a payment, and will not be
exercisable until the possibility of such a payment no longer exists.
Following the Offerings, the Share Repurchase and the Share Distribution,
ASI Partners will own no shares. See "Capitalization", "Pro Forma Financial
Data", "The Selling Stockholder and Stockholder Transactions" and
"Underwriting".
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The unaudited summary pro forma financial data presented below give effect
to the Share Repurchase from ASI Partners for a total cash purchase price of
approximately $281 million (6.25 million shares of Common Stock at the public
offering price of $45 per share) and related borrowings of approximately $281
million under the Facilities to fund such repurchase, in each case as if such
transactions had occurred at the beginning of each of the periods presented and
assuming no exercise of the Underwriters' over-allotment options. The
information presented below should be read in conjunction with "Summary
Historical Financial Data" and "Pro Forma Financial Data". The pro forma
financial data do not give effect to the Medical Systems Acquisitions (as
defined) and related borrowings. See "Business -- Medical Systems Group".
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
-------------------- --------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------ --------- ------ ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................................... $5,221 $ 5,221 $4,368 $ 4,368
Cost of sales................................ 3,887 3,887 3,282 3,282
Selling and administrative expenses.......... 854 854 684 684
Asset impairment loss(a)..................... -- -- 235 235
Other expense................................ 40 40 28 28
Interest expense............................. 213 232 151 164
------ ------- ------ -------
Income (loss) before income taxes and
extraordinary item........................... 227 208 (12) (25)
Income taxes.................................... 85 78 80 75
------ ------- ------ -------
Income (loss) before extraordinary item......... $ 142 $ 130 $ (92) $ (100)
====== ======= ====== =======
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item......... $ 1.90 $ 1.90 $(1.18)(a) $ (1.40)(a)
Average number of outstanding common shares..... 74.7 68.5 77.8 71.6
</TABLE>
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(a) Income before extraordinary item per share for the nine months ended
September 30, 1996 would have been $1.84 and $1.89 on an actual and pro
forma basis, respectively, if the asset impairment loss were excluded.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("FAS 121"), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, resulting in
a non-cash asset impairment charge in 1996 of $235 million, for which there
was no tax benefit.
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RECENT FINANCIAL RESULTS AND DEVELOPMENTS
RECENT FINANCIAL RESULTS. The Company's consolidated sales for 1996 were
$5.8 billion, an increase of 11% from $5.2 billion in 1995. Income before
extraordinary item (excluding the non-cash asset impairment charge of $235.2
million) was $188.5 million, or $2.42 per share, up 33% and 27%, respectively,
from income before extraordinary item in 1995 of $142 million, or $1.90 per
share. These results include the effects of the Company's restatement of its
financial statements for the first nine months of 1996 relating to the Company's
French subsidiary, Porcher S.A., which restatement increased the after-tax net
loss for such period by $6 million, or $.08 per share. See "Management's
Discussion and Analysis of Financial Position and Results of Operations".
Including the asset impairment charge, the net loss for 1996 was $46.7 million,
or $.60 per share. The information set forth herein for 1996 is unaudited.
The following table sets forth segment sales and operating income for 1995
and 1996.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1995 1996
------ -----------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Sales:
Air Conditioning Products................................... $2,953 $ 3,437
Plumbing Products........................................... 1,270 1,452
Automotive Products......................................... 998 916
------ ------
Total sales................................................. $5,221 $ 5,805
====== ======
Operating income before asset impairment loss:
Air Conditioning Products................................... $ 259 $ 353
Plumbing Products........................................... 120 110
Automotive Products......................................... 155 123
------ ------
534 586
Asset impairment loss:
Air Conditioning Products................................... -- (121)
Plumbing Products........................................... -- (114)
------ ------
-- (235)
------ ------
Total operating income................................... 534 351
Interest expense.............................................. (213) (198)
Corporate and other expenses.................................. (94) (95)
------ ------
Income before income taxes
and extraordinary item...................................... 227 58
Income taxes.................................................. (85) (105)
------ ------
Income (loss) before extraordinary item....................... $ 142 $ (47)
====== ======
Income (loss) per common share:
Income (loss) before extraordinary item..................... $ 1.90 $ (.60)
Average number of outstanding common shares................. 74.7 78.0
</TABLE>
Sales of Air Conditioning Products increased 16% to $3.4 billion as a
result of strong increases in both commercial and residential businesses in the
U.S., reflecting growth in the market and gains in market share. Sales by the
Company's new operations in the PRC, as well as sales gains elsewhere in the Far
East and in Europe, also contributed to the increase. Sales of Plumbing Products
increased 14% to $1.5 billion primarily as a result of the acquisition of
Porcher in the fourth quarter of 1995. Excluding Porcher, sales declined in
Europe, reflecting continued economic
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<PAGE> 9
weakness in most markets. However, solid growth in North America essentially
offset the decline in Europe. Sales of Automotive Products decreased 8% to $916
million, reflecting the decline in European commercial vehicle production in
1996.
Operating income for 1996, excluding the asset impairment charge, increased
10% to $586 million from $534 million in 1995. Operating income of Air
Conditioning Products, excluding the asset impairment charge, increased 36% to
$353 million as a result of higher volume and margin improvement in both
commercial and residential businesses in the U.S. The margin improvement
reflects higher pricing and cost improvements. Operating income of Plumbing
Products, excluding the asset impairment charge, declined 8% to $110 million,
reflecting the effects of continued weakness in European markets, particularly
in Germany and France, which were partially offset by higher volume and lower
manufacturing costs in both North and Latin American operations. Margins in
France were lower than in 1995 due to increased costs primarily at Porcher. The
Company is undertaking actions to better assimilate Porcher into its European
plumbing products operations and to improve operating performance. Operating
income of Automotive Products declined 20% to $123 million due to lower volumes
and start-up costs associated with new product introductions for customers' 1997
models. Improved levels of new orders late in 1996 are expected to lead to
improving results by the second quarter of 1997.
Corporate and other expense increased slightly from 1995. Increased
spending related to the existing businesses in the newly formed Medical Systems
Group was essentially offset by a gain related to the restructuring of the
Company's Alliance Compressors partnership. Interest expense declined to $198
million from $213 million in 1995, reflecting reduced indebtedness and lower
interest rates.
MEDICAL SYSTEMS GROUP. The Company recently announced formation of its
Medical Systems Group to pursue initiatives in the medical diagnostics field.
The Company has for the last several years had under development two small
medical diagnostic product groups focusing on test instruments using laser
technology and reagents. The Company had invested an aggregate of approximately
$40 million in the development of these businesses through September 30, 1996.
The Company decided to explore acquisitions to accelerate the
commercialization of its technology and expand the number of diagnostic tests
covered by its products. Accordingly, the Company on January 23, 1997 entered
into memoranda of understanding to acquire the European medical diagnostic
business (the "Sorin Business") of Sorin Biomedica S.p.A., an affiliate of the
Fiat Group, and all the outstanding shares of Incstar Corporation ("Incstar"), a
biotechnology company based in Stillwater, Minnesota, 52% of which is owned by
Sorin Biomedica S.p.A. Sales in 1995 were approximately $90 million for the
Sorin Business and approximately $45 million for Incstar. The aggregate cost of
the acquisitions (the "Medical Systems Acquisitions") is expected to be
approximately $220 million (including fees and expenses).
NEW CREDIT FACILITIES. In January 1997, the Company entered into the $1.75
billion amended and restated credit facilities (the "Facilities"), consisting of
$1.375 billion of revolving credit facilities and a $375 million periodic access
facility, which replaced the Company's previous $925 million credit facilities
(the "Previous Facilities"). Borrowings under the Facilities are available to
fund the Share Repurchase, to provide financing for the Medical Systems
Acquisitions, to redeem certain outstanding public debt securities of American
Standard Inc. and for other general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
TYCO ACQUISITION PROPOSALS; RECENT LITIGATION. The Company received
letters from Tyco International Ltd. ("Tyco") on September 30, October 17, and
December 5, 1996 setting forth proposals for a possible acquisition by Tyco of
all the shares of the Company's Common Stock, in each case for a combination of
cash and Tyco common stock. The final letter included a proposed purchase price
of $50 per share. The Company's Board of Directors reviewed the Tyco proposals,
consulted with its legal counsel and financial advisors and concluded that the
Company's strategies
9
<PAGE> 10
already in place are working and that the best way to increase the Company's
earnings and shareholder value is to focus on implementing these strategies as
an independent company. As a result, the Board of Directors concluded that the
Company would decline any interest in the proposals and Tyco was so informed.
There have been no discussions between the Company and Tyco concerning any of
the proposals and the Company contemplates none.
Two persons claiming to be shareholders of the Company and represented by
the same lawyers have filed separate class action and derivative lawsuits in the
Chancery Court of the State of Delaware against the Company, ASI Partners and
the directors of the Company alleging breaches of fiduciary duties in respect of
the rejection of the Tyco proposals and approval of the Stockholder
Transactions. The lawsuits seek to cause the Company to evaluate alternatives to
maximize value for the Company's public shareholders, to enjoin the Stockholder
Transactions and to recover damages in an unspecified amount. A person claiming
to be a holder of certain public debt securities of American Standard Inc. has
filed a class action lawsuit in New York Supreme Court seeking to enjoin the
Stockholder Transactions or to require the Company to redeem such debt
securities at the election of the securityholders. The Company believes that
these lawsuits are without merit and intends to contest them vigorously.
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.
10
<PAGE> 11
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 the Acquisition in 1988 of American Standard Inc., the
Company incurred substantial indebtedness, resulting in its highly leveraged
capital structure. At September 30, 1996, the Company's total indebtedness was
approximately $2.0 billion, including short-term debt and the current portion of
long-term debt. See "Capitalization". At September 30, 1996, American Standard
had scheduled principal payments of $78 million, $82 million and $235 million
for the years 1997, 1998 and 1999, respectively. The Company has entered into
the $1.75 billion Facilities, consisting of $1.375 billion of revolving credit
facilities and a $375 million periodic access facility, which replaced the
Company's $925 million Previous Facilities. At January 31, 1997, American
Standard Inc. had unused borrowing capacity under the Facilities of
approximately $1.2 billion.
The Company will borrow under the Facilities approximately $281 million
(approximately $208 million if the Underwriters exercise their over-allotment
options in full) in connection with the Stockholder Transactions. Borrowings
under the Facilities are also available to provide financing for the Medical
Systems Acquisitions, to redeem certain outstanding public debt securities of
American Standard Inc. and for other general corporate purposes. Subject to
restrictions in the Facilities and its other debt instruments, the Company may
incur additional indebtedness from time to time to finance capital expenditures,
joint ventures, acquisitions or other expenditures. If the Medical Systems
Acquisitions are consummated, borrowings under the Facilities would increase by
approximately $220 million.
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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
HISTORICAL LOSSES
Since the Acquisition in 1988 by Kelso, 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. In 1995 the Company had net income of $112 million and
in the first nine months of 1996 a net loss of $92 million (which includes a
$235 million non-cash asset impairment charge). 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 "Prospectus Summary -- Recent Financial Results and
Developments" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
INTERNATIONAL OPERATIONS
The Company conducts significant non-U.S. operations through subsidiaries
in most of the major countries of Western Europe, Brazil, the PRC, Thailand,
Mexico, the Philippines, Central American countries, Canada, Malaysia, South
Korea, Taiwan, Australia and Egypt. In addition, the
11
<PAGE> 12
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. The Company has manufacturing operations in 35 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.
The Company's financial performance on a U.S. dollar denominated basis can
be significantly affected by fluctuations in currency exchange rates. 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 asset exposure of foreign operations to the effects
of exchange volatility has been partly offset by the denomination in foreign
currencies of a portion of the Company's borrowings. The Company from time to
time enters into agreements in order to reduce its foreign currency exposure.
These agreements have not been and are not expected to be material. 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 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 (at September 30, 1996
exchange rates) of a disputed German income tax. A suit is pending to obtain a
refund of this tax. In March 1996 the Company received an assessment, which it
has appealed, for additional taxes of approximately $71 million (at September
30, 1996 exchange rates) (principally relating to the 1988 to 1990 period), plus
interest, for the tax return years under audit. In addition, significant
transactions similar to those which gave rise to such assessment occurred in
years subsequent to 1990. Having assessed additional taxes for the 1988-1990
period, the German tax authorities might, after future tax audits, propose tax
adjustments for years 1991 to 1993 that could be as much as 50% higher. The
Company, on the basis of the opinion of German legal counsel, Meilicke &
Partner, believes the German tax returns are substantially correct as filed and
any such adjustments would be inappropriate and intends to vigorously contest
any adjustments which have been or may be assessed. Accordingly, the Company has
not recorded any loss contingency at September 30, 1996 with respect to such
matters.
The Company has agreed with the German tax authorities to make a partial
security deposit in respect of the additional taxes and interest assessed in
March 1996. Approximately $13 million was paid in January 1997 and, in addition,
the Company will apply approximately $7 million of tax refunds due it to the
security deposit. The tax authorities have granted a staying order for the
balance of the additional taxes and interest assessed in March 1996, under which
no further payment or other security will be required from the Company before
litigation of the matter or a final resolution. During litigation, the Company
would expect renewal of the staying order. Upon final resolution, the Company
will be obligated to pay any tax liability in excess of the security deposit or
the Company will
12
<PAGE> 13
receive a refund of any excess security deposit (with interest accruing on the
additional tax from the date of assessment or the refund amount from the date of
deposit, respectively).
As a result of German tax legislation, first effective in 1994, the
Company's tax provision in Germany was higher in 1994, 1995 and 1996, and will
continue to be in the future. As a result of this German tax legislation and the
related additional tax provisions, the Company believes its tax exposure to the
major issues under the audit referred to above will be reduced starting in 1994
and continuing thereafter into future years.
GOVERNMENTAL REGULATION 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. The Company
believes that it is in substantial compliance with such laws and regulations. A
number of the Company's plants are undertaking responsive actions to address
soil and groundwater issues. In addition, the Company is a party to a number of
remedial actions under various federal and state environmental laws and
regulations that impose liability on companies to clean up, or contribute to the
cost of cleaning up, sites at which hazardous wastes or materials were disposed
or released, including approximately 30 proceedings under the Comprehensive
Environmental Response, Compensation and Liability Act and similar state
statutes, in which the Company has been named a potentially responsible party or
a third party by a potentially responsible party. Expenditures in 1993, 1994,
1995 and the first nine months of 1996 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 cleanup 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.
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 foreign
environmental statutes and regulations.
The Company derived significant revenues in 1996 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 developing substitutes for the CFCs and
HCFCs to be phased out, so that the Company's products will be compatible with
the substitutes. Although the Company believes that its commercial products
currently in production will
13
<PAGE> 14
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.
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.
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
The Company's Restated Certificate of Incorporation, Amended By-Laws and
stockholder rights agreement (the "Stockholder Rights Agreement"), as well as
the Stock Disposition Agreement, certain benefit plans and debt instruments,
contain provisions that may have the effect of making an acquisition of control
of the Company by means of tender offer, open market purchases, a proxy contest
or otherwise more difficult, discouraging acquisition bids for the Company or
limiting the price that certain acquirors might be willing to pay in the future
for shares of the Company's Common Stock.
The Restated Certificate of Incorporation and Amended By-Laws, among other
things, (i) provide for a classified board of directors, (ii) prohibit
stockholders from taking action by written consent in lieu of an annual or
special meeting, (iii) establish advance notice procedures with regard to
stockholder proposals and the nomination of candidates for election as directors
and (iv) require the affirmative vote of at least 65% of the shares entitled to
vote to amend or repeal certain provisions of the Restated Certificate of
Incorporation and the Amended By-Laws. The Restated Certificate of Incorporation
also provides that a director, in determining what he or she reasonably believes
to be the best interests of the Company, shall consider the interests of the
stockholders and, in his or her discretion, may consider any of the following:
the interests of the Company'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.
The Stock Disposition Agreement provides, that if a change of control
Transaction occurs prior to January 31, 1998 (or October 1, 1998 in certain
circumstances), the Company would be required to make a cash payment to ASI
Partners in respect of the aggregate number of Shares sold by ASI Partners in
the Offerings and to the Company in the Share Repurchase. Any such cash payment
would be based on the excess, if any, of the consideration per share received by
holders of the Common Stock in the Transaction over the cash price per share
received by ASI Partners in the Offerings and pursuant to the Share Repurchase.
Any such amounts payable to ASI Partners could have the effect of lowering the
price that certain prospective acquirors might be willing to pay in the future
for shares of the Company's Common Stock in a Transaction. See "The Selling
Stockholder and Stockholder Transactions".
Under the Stockholder Rights Agreement, each 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 relating to changes in ownership of the Common
Stock. The Company's Stock Incentive Plan provides that upon a change of control
of the Company all options and stock appreciation rights will become immediately
exercisable and restrictions applicable to outstanding restricted units and
restricted stock awards will lapse and the shares in question will fully vest.
Certain of the Company's incentive compensation plans also provide that, in the
event of a change of control of the Company, all performance targets of such
plans then in effect will be deemed to have been met and participants' rights to
14
<PAGE> 15
awards payable under such plans as a result thereof are immediately payable. In
addition, the trust agreement associated with such incentive compensation plans
provides that, in the event of a change of control, plan participants are
entitled to an immediate lump sum distribution of the cash value of their share
award accounts in the trust. American Standard Inc.'s Change of Control
Severance Plan provides that certain designated employees are eligible for
severance payments if such employees are terminated or effect a voluntary
termination under certain circumstances within 12 months after a change of
control.
The Company is subject to Section 203 of the Delaware General Corporation
Law, which limits transactions between a publicly held company and "interested
stockholders" (in general, those stockholders who, together with their
affiliates and associates, own 15% or more of a company's outstanding voting
stock). This provision also may have the effect of deterring certain potential
acquisitions of the Company.
In addition, the terms of the Facilities permit the lenders thereunder, and
the indentures governing certain of American Standard Inc.'s public debt
securities permit 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. The Offerings will
not constitute a change of control under such provisions.
15
<PAGE> 16
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is 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.................................................................. 32 26
Fourth Quarter................................................................. 31 7/8 26 1/4
1996
First Quarter.................................................................. 31 3/8 25 1/2
Second Quarter................................................................. 33 3/8 26 1/2
Third Quarter.................................................................. 35 1/4 28 1/8
Fourth Quarter................................................................. 39 3/4 34 1/4
1997
First Quarter (through February 11, 1997)...................................... 47 1/8 37 3/4
</TABLE>
The last reported sale price for the Common Stock by the NYSE on February
11, 1997 was $45 1/2 per Share.
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 Credit Agreement as well as the indentures related to
certain of American Standard Inc.'s public debt securities) prohibit or restrict
the payment of dividends or other distributions 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, applicable restrictive covenants and other factors. After the
Stockholder Transactions, the Company's ability to effect additional repurchases
of shares of Common Stock will be significantly limited under the terms of the
indentures related to certain of American Standard Inc.'s public debt
securities.
USE OF PROCEEDS
All of the Shares of Common Stock offered hereby are being offered by the
Selling Stockholder. The Company will receive no proceeds from the Offerings.
16
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company and its
subsidiaries at September 30, 1996 and at that date as adjusted to give effect
to the financing of the Stockholder Transactions with borrowings of
approximately $281 million under the Facilities (assuming no exercise of the
Underwriters' over-allotment options). See "The Selling Stockholder and
Stockholder Transactions". This table should be read in conjunction with the
Company's consolidated financial statements and notes thereto which have been
incorporated herein by reference. All amounts are translated where applicable
using September 30, 1996 currency exchange rates. The table does not give effect
to the Medical Systems Acquisitions and related borrowings. See
"Business -- Medical Systems Group".
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
ACTUAL ADJUSTED
-------- -----------
(IN MILLIONS)
<S> <C> <C>
Short-Term Debt:
Loans payable to banks............................................ $ 36 $ 36
Revolving Facilities.............................................. 145 426(a)
Current maturities of long-term debt.............................. 65 65
-------- -------
Total short-term debt.......................................... 246 527
Long-Term Debt:
Credit Agreement.................................................. 366 366
Other debt obligations............................................ 1,437 1,437
-------- -------
1,803 1,803
Less current maturities........................................... (65) (65)
-------- -------
Total long-term debt........................................... 1,738 1,738
-------- -------
Total Stockholders' Deficit......................................... (440) (721)(a)
-------- -------
Total capitalization.............................................. $ 1,544 $ 1,544
======== =======
</TABLE>
- ---------------
(a) Reflects borrowings of approximately $281 million under the Facilities to
repurchase from the Selling Stockholder 6.25 million shares of Common Stock
at the public offering price of $45 per share in connection with the
Stockholder Transactions (assuming no exercise of the Underwriters'
over-allotment options). If the Underwriters were to exercise their
over-allotment options in full (which would represent approximately 1.6
million Shares), the borrowings under the Facilities would be approximately
$208 million and total stockholders' deficit would be $648 million. As part
of the Stockholder Transactions, the Company will issue to ASI Partners
certain Warrants. See "The Selling Stockholder and Stockholder
Transactions". For a discussion of the Facilities, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
If the Medical Systems Acquisitions are consummated, borrowings under the
Facilities would increase by approximately $220 million.
17
<PAGE> 18
SUMMARY HISTORICAL FINANCIAL DATA
The following tables set forth summary historical financial data and
segment financial data of the Company for each of the three years in the period
ended December 31, 1995 and the nine month periods ended September 30, 1995 and
1996. The summary annual historical financial data are derived from the
Company's consolidated financial statements and notes thereto. Information for
the nine months ended September 30, 1995 and 1996 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. This table
should be read in conjunction with the Company's consolidated financial
statements and notes thereto which have been incorporated herein by reference.
The Company has restated its financial statements for the nine months ended
September 30, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED FINANCIAL DATA:
STATEMENT OF OPERATIONS DATA:
Sales............................................... $3,830 $4,457 $5,221 $3,910 $4,368
Cost of sales..................................... 2,903 3,377 3,887 2,893 3,282
Selling and administrative expenses............... 692 779 854 631 684
Asset impairment loss(a).......................... -- -- -- -- 235
Other expense..................................... 38 57 40 27 28
Interest expense.................................. 278 259 213 162 151
------ ------ ------ ------ ------
Income (loss) before income taxes and extraordinary
item.............................................. (81) (15) 227 197 (12)
Income taxes........................................ 36 62 85 78 80
------ ------ ------ ------ ------
Income(loss) before extraordinary item.............. (117) (77) 142 119 (92)
Extraordinary loss on retirement of debt (b)........ (92) (9) (30) (30) --
------ ------ ------ ------ ------
Net income (loss)................................... (209) (86) 112 89 (92)
Preferred dividend.................................. (8) -- -- -- --
------ ------ ------ ------ ------
Net income (loss) applicable to common shares....... $ (217) $ (86) $ 112 $ 89 $ (92)
====== ====== ====== ====== ======
NET INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item............. $(2.11) $(1.29) $ 1.90 $ 1.61 $(1.18)(a)
Extraordinary loss on retirement of debt............ (1.55) (.15) (.40) (.40) --
------ ------ ------ ------ ------
Net income (loss) per common share.................. $(3.66) $(1.44) $ 1.50 $ 1.21 $(1.18)(a)
====== ====== ====== ====== ======
Average number of outstanding common shares......... 59.3 59.9 74.7 74.0 77.8
OTHER DATA:
Depreciation expense................................ $ 106 $ 123 $ 110 $ 84 $ 91
Amortization of goodwill............................ 31 31 33 25 21
EBIT (c)............................................ 197 244 440 359 139
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital..................................... $ 80 $ (14) $ (12) $ (15) $ 148
Goodwill (net)...................................... 1,026 1,053 1,082 1,071 851
Total assets........................................ 2,987 3,156 3,520 3,434 3,445
Total debt.......................................... 2,336 2,364 2,083 2,070 1,984
Stockholders' deficit............................... (723) (798) (390) (419) (440)
</TABLE>
- ---------------
(a) Effective January 1, 1996 the Company adopted FAS 121, resulting in a
non-cash charge of $235 million, or $3.02 per share, for which there was no
tax benefit. Excluding the asset impairment loss, income before
extraordinary item would have been $1.84 per share.
(b) Reflects redemptions of debt in 1993, 1994 and 1995 which resulted in
extraordinary charges of $92 million, $9 million and $30 million,
respectively, including call premiums, the write-off of deferred debt
issuance costs. In addition, 1993 included a loss of approximately $15
million on cancellation of foreign currency swap contracts. There were no
tax benefits provided on these charges.
(c) EBIT is the sum of (i) income (loss) before income taxes and extraordinary
item and (ii) interest expense.
18
<PAGE> 19
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SEGMENT FINANCIAL DATA:
SALES:
Air Conditioning Products........................ $ 2,100 $ 2,480 $ 2,953 $ 2,201 $ 2,602
Plumbing Products................................ 1,167 1,218 1,270 952 1,079
Automotive Products.............................. 563 759 998 757 687
------- ------- ------- ------- -------
Total Sales........................................ $ 3,830 $ 4,457 $ 5,221 $ 3,910 $ 4,368
======= ======= ======= ======= =======
OPERATING INCOME BEFORE ASSET IMPAIRMENT LOSS AND
SPECIAL CHARGES:
Air Conditioning Products........................ $ 138 $ 189 $ 259 $ 209 $ 284
Plumbing Products................................ 109 130 120 96 79
Automotive Products.............................. 43 76 155 123 91
------- ------- ------- ------- -------
290 395 534 428 454
Asset impairment loss and special charges(a):
Air Conditioning Products........................ (5) (7) -- -- (121)
Plumbing Products................................ (1) (19) -- -- (114)
Automotive Products.............................. (2) (14) -- -- --
------- ------- ------- ------- -------
Total Operating Income............................. $ 282 $ 355 $ 534 $ 428 $ 219
======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Includes the non-cash charge of $235 million in the first quarter of 1996 as
a result of the adoption of FAS 121, for which there was no tax benefit, and
the special charges incurred in 1993 and 1994 applicable to consolidation of
production facilities, employee severance, other cost reduction actions and
a provision for the early disposition of certain assets.
19
<PAGE> 20
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data give effect to the Share
Repurchase from the Selling Stockholder of 6.25 million shares of Common Stock
for a total cash purchase price of approximately $281 million (at the public
offering price of $45 per share) and related borrowings of approximately $281
million under the Facilities, in each case as if such transactions had occurred
at the beginning of each of the periods presented and assuming no exercise of
the Underwriters' over-allotment options. The pro forma financial data are based
upon available information and certain assumptions that management believes are
reasonable, including those set forth in the footnotes thereto. The pro forma
financial data do not purport to represent what the Company's results of
operations would actually have been had the Stockholder Transactions in fact
occurred on the assumed date or at the beginning of the periods indicated or to
project the Company's results of operations for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "The Selling Stockholder and Stockholder Transactions". The pro
forma financial data do not give effect to the Medical Systems Acquisitions and
related borrowings. See "Business -- Medical Systems Group".
<TABLE>
<CAPTION>
YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- --------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales........................................ $5,221 $ 3,910 $4,368
Cost of sales............................. 3,887 2,893 3,282
Selling and administrative expenses....... 854 631 684
Asset impairment loss(a).................. -- -- 235
Other expense............................. 40 27 28
Interest expense(b)....................... 232 177 164
------ ------ ------
Income (loss) before income taxes and
extraordinary item........................ 208 182 (25)
Income taxes(b).............................. 78 73 75
------ ------ ------
Income (loss) before extraordinary item...... $ 130 $ 109 $ (100)
====== ====== ======
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item...... $ 1.90(a) $ 1.61(a) $(1.40)(a)
Average number of outstanding common
shares(b)................................. 68.5 67.8 71.6
</TABLE>
- ---------------
(a) Income before extraordinary item per share for the nine months ended
September 30, 1996 would have been $1.89 on a pro forma basis if the asset
impairment loss were excluded. Effective January 1, 1996, the Company
adopted FAS 121, resulting in a non-cash charge in 1996 of $235 million, for
which there was no tax benefit. Exercise of the Underwriters' over-allotment
option in full (which would represent approximately 1.6 million Shares)
would have no material effect on income before asset impairment loss and
extraordinary item per share on a pro forma basis for each of the periods
presented.
(b) The adjustment to reflect the repurchase of 6.25 million shares of Common
Stock from the Selling Stockholder for approximately $281 million increases
interest expense by $19 million, $15 million and $13 million and decreases
income taxes by $7 million, $5 million and $5 million for the year ended
December 31, 1995 and the nine months ended September 30, 1995 and 1996,
respectively.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW FOR THE THIRD QUARTER AND FIRST NINE MONTHS OF 1996
Operating income increased 15% to $161 million in the third quarter of 1996
from $140 million in the third quarter of 1995 on strong growth for Air
Conditioning Products and an improvement by Plumbing Products, offset partly by
a decrease for Automotive Products related to weak markets. Effective January 1,
1996 the Company adopted FAS 121 related to impairment of long-lived assets.
Applying the criteria established by FAS 121, the Company concluded that certain
assets and related goodwill of its Canadian, French and Mexican operating units
were impaired. As a result, the Company recorded a non-cash charge in the first
quarter of 1996 of $235 million, approximately 90% of which represented the
write-down of goodwill, for which there is no tax benefit. This charge included
$121 million for Air Conditioning Products' operations in Canada and France, and
$114 million for Plumbing Products' operations in Canada and Mexico. Excluding
this charge, operating income for the first nine months of 1996 was $454
million, an increase of 6% over the $428 million of operating income in the
first nine months of 1995.
The Company has restated its financial statements for each of the first
three quarters of 1996, reducing operating income by $3 million, $4 million and
$2 million, respectively, to properly record costs and expenses for Porcher
S.A., the French plumbing products manufacturer acquired in the fourth quarter
of 1995. Information provided in this section reflects such restatement. The
restatement had the effect of increasing the after-tax net loss for the nine
months ended September 30, 1996, by $6 million, or $.08 per share. New
management at Porcher has taken corrective action to prevent the recurrence of
similar errors which mainly resulted from implementation of new accounting
systems at Porcher.
SUMMARY SEGMENT AND INCOME DATA
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales:
Air Conditioning Products.......................... $ 776 $ 920 $2,201 $2,602
Plumbing Products.................................. 307 359 952 1,079
Automotive Products................................ 233 206 757 687
------ ------ ------ ------
Total sales........................................ $1,316 $1,485 $3,910 $4,368
====== ====== ====== ======
Operating income before asset impairment loss:
Air Conditioning Products.......................... $ 81 $ 111 $ 209 $ 284
Plumbing Products.................................. 23 29 96 79
Automotive Products................................ 36 21 123 91
------ ------ ------ ------
140 161 428 454
Asset impairment loss:
Air Conditioning Products.......................... -- -- -- (121)
Plumbing Products.................................. -- -- -- (114)
------ ------ ------ ------
-- -- -- (235)
------ ------ ------ ------
Total operating income.......................... 140 161 428 219
Interest expense..................................... (51) (49) (162) (151)
Corporate and other expenses (a)..................... (22) (27) (69) (80)
------ ------ ------ ------
Income (loss) before income taxes and
extraordinary item................................. $ 67 $ 85 $ 197 $ (12)
====== ====== ====== ======
</TABLE>
- ---------------
(a) Corporate and other expenses includes administrative, general and corporate
development 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.
21
<PAGE> 22
RESULTS OF OPERATIONS FOR THE THIRD QUARTER AND FIRST NINE MONTHS OF 1996
COMPARED WITH THE THIRD QUARTER AND FIRST NINE MONTHS OF 1995
Consolidated sales for the third quarter of 1996 were $1,485 million, an
increase of $169 million, or 13% (14% excluding the unfavorable effects of
foreign exchange), from $1,316 million in the third quarter of 1995. Sales
increased 19% for Air Conditioning Products and 17% for Plumbing Products, while
sales for Automotive Products decreased 12% compared with the third quarter of
1995. Operating income for the third quarter of 1996 was $161 million, an
increase of $21 million, or 15% (16% excluding the unfavorable effects of
foreign exchange), from $140 million in the third quarter of 1995. Operating
income increased 37% for Air Conditioning Products and 26% for Plumbing Products
but decreased 42% for Automotive Products.
Consolidated sales for the first nine months of 1996 were $4,368 million,
an increase of $458 million, or 12% (13% excluding the unfavorable effects of
foreign exchange), from $3,910 million in the first nine months of 1995. Sales
increased 18% for Air Conditioning Products and 13% for Plumbing Products, while
sales for Automotive Products declined 9%. Operating income (excluding the asset
impairment charge previously mentioned) was $454 million for the first nine
months of 1996, an increase of 6% (7% excluding the unfavorable effects of
foreign exchange), compared with $428 million in the first nine months of 1995.
Operating income for the first nine months of 1996 increased 36% for Air
Conditioning Products but declined 18% for Plumbing Products and 26% for
Automotive Products.
Sales of Air Conditioning Products increased 19% (with little effect from
foreign exchange) to $920 million for the third quarter of 1996 from $776
million for the comparable quarter of 1995. This improvement resulted from
substantial volume increases and price gains for applied and unitary commercial
systems; higher volumes and prices and a favorable shift to higher-efficiency,
higher-capacity products for residential products in the U.S.; and sales by the
new operations in the PRC. Sales of commercial products in the U.S. increased
because of improved markets, demand for chiller replacement (due to the ban on
CFC refrigerant production), higher prices and gains in market share.
Residential sales in the U.S. increased because of strong demand (particularly
in the replacement and renovation market), hot weather in some parts of the U.S.
and improved economic conditions. International sales for the third quarter of
1996 increased principally because of sales by the new PRC operations, along
with volume increases in most other businesses. Sales for Air Conditioning
Products for the first nine months of 1996 increased by 18% to $2,602 million
from $2,201 million in the first nine months of 1995, primarily for the reasons
cited for the third quarter increase.
Operating income of Air Conditioning Products increased 37% (with little
effect from foreign exchange) to $111 million in the third quarter of 1996 from
$81 million in the 1995 quarter, primarily reflecting expanded commercial and
residential product sales in the U.S. Despite higher sales (primarily in the
PRC), operating income for international operations was essentially unchanged.
The new PRC operations were at break even, while results in other operations
changed little from levels of the third quarter of 1995. Operating income for
the first nine months of 1996, excluding the asset impairment charge explained
above, increased 36% essentially for the reasons mentioned for the third quarter
increase.
Sales of Plumbing Products increased 17% (18% excluding the unfavorable
effects of foreign exchange) to $359 million in the third quarter of 1996 from
$307 million in the third quarter of 1995 primarily as a result of sales by
Porcher and higher sales in North and Latin American operations. Excluding
Porcher and foreign exchange effects, 1996 third quarter sales increased 3%
compared with the 1995 quarter, as a result of an 8% increase for U.S.
operations, while the international group was essentially flat despite the Latin
American gains. Sales in the U.S. increased as a result of higher volumes
(primarily in the retail market channel) and higher prices. For the
international group, volume gains in Latin American operations (primarily in
Mexico) were offset by a sales decline in Europe, particularly in Germany, Italy
and France which continued to experience weak
22
<PAGE> 23
economic conditions. Sales of Plumbing Products for the first nine months of
1996 increased 13% (14% excluding the unfavorable effects of foreign exchange)
to $1,079 million from $952 million in the first nine months of 1995. Excluding
Porcher and foreign exchange effects, sales decreased by 1% for the first nine
months of 1996 compared with the 1995 period as a result of the same factors
affecting the third quarter results and because of a five-week strike in the
Philippines that occurred in the first quarter of 1996.
Operating income of Plumbing Products increased 26% (27% excluding the
unfavorable effects of foreign exchange) to $29 million for the third quarter of
1996 from $23 million for the third quarter of 1995 as a result of a solid gain
in U.S. operating income, partly offset by a decline in international
operations. In the U.S., operating income improved because of the higher sales,
benefits of lower-cost product sourcing from the Company's Mexican facilities
and manufacturing and operating cost improvements. For international operations,
operating income gains in Latin America were more than offset by declines in the
weak European markets, particularly in Germany and France and, to a lesser
extent, in Italy. In addition, margins in France were lower than in the prior
year due to increased costs. The Company is undertaking actions to better
assimilate Porcher into its European plumbing products operations and to improve
operating performance. Despite a gain for U.S. operations, operating income for
the first nine months of 1996, excluding the aforementioned asset impairment
charge, declined by 18% (17% excluding foreign exchange effects) from the first
nine months of 1995 because of a decline in international operations in the
first half of 1996, including the effects of the first quarter Philippines
strike.
Sales of Automotive Products for the third quarter of 1996 decreased 12%
(10% excluding the unfavorable effects of foreign exchange) to $206 million from
$233 million in the third quarter of 1995, primarily because of a decline in
European commercial vehicle production as a result of market weakness and order
delays at several large customers in anticipation of new truck model
introductions. Unit volume of truck and bus production in Western Europe
decreased from the third quarter of 1995, especially in Germany and France.
Trailer, export and Brazilian markets also decreased, contributing to the sales
decline. Sales of Automotive Products for the first nine months of 1996
decreased 9% (7% excluding the unfavorable effects of foreign exchange) to $687
million from $757 million in the first nine months of 1995, primarily for the
reasons which caused declines in the third quarter.
Operating income for Automotive Products for the third quarter of 1996 was
$21 million, a decrease of 42% (39% excluding the unfavorable effects of foreign
exchange) from $36 million in the third quarter of 1995. This reflected the
lower sales and start-up costs associated with new product introductions on 1997
truck models, offset partly by productivity improvements. Operating income for
Automotive Products for the first nine months of 1996 decreased by 26% (24%
excluding the unfavorable effects of foreign exchange) to $91 million from $123
million in the first nine months of 1995, principally for the same reasons
described with respect to the third quarter.
FINANCIAL REVIEW
Interest expense decreased in the third quarter and first nine months of
1996 compared to the year-earlier periods, primarily as a result of reduced debt
together with lower overall interest rates under the Company's previous bank
credit agreement. The increase in corporate and other expenses for the third
quarter and first nine months of 1996 is primarily attributable to spending for
corporate development and lower equity in the net results of unconsolidated
joint ventures.
Income tax provisions for the three months and nine months ended September
30, 1996 were $29 million and $80 million, respectively, compared with
provisions of $24 million and $78 million in the corresponding periods of 1995.
Effective income tax rates for the third quarter and first nine months of 1996
were 34.5% and 35.6% of pretax income (excluding the asset impairment charge in
the nine month period on which there was no tax benefit), compared with rates of
35.2% and 39.5% in the corresponding year-earlier periods. Both third quarter
periods reflect reductions in the
23
<PAGE> 24
estimated full year tax rates. The lower effective tax rates resulted from
increased levels of U.S. income (enabling the Company to recognize previously
unrecognized tax benefits in both 1995 and 1996) and, in 1996, from
proportionately greater pretax income earned in the U.S. (at a lower effective
rate) compared to that earned in higher-rate jurisdictions in Europe and
elsewhere.
As a result of the redemption of debt in the first quarter of 1995 upon
completion of a refinancing, the first nine months of 1995 included an
extraordinary charge of $30 million attributable to the write-off of unamortized
debt issuance costs, for which no tax benefit was available.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, after cash interest paid of $87
million, was $200 million for the first nine months of 1996, compared with $202
million for the first nine months of 1995. Higher income before extraordinary
item (excluding the non-cash asset impairment loss of $235 million) along with
improved working capital utilization were offset primarily by higher payments of
income taxes. Inventory turnover as of September 30, 1996 improved one full turn
from September 30, 1995, and working capital as a percent of sales improved
nearly one percentage point. The Company made capital expenditures of $135
million for the first nine months of 1996, including $12 million of investments
in affiliated companies, compared with capital expenditures of $115 million in
the first nine months of 1995, which included $19 million of investments in
affiliated companies (see "-- Capital Expenditures"). Scheduled debt repayments
of $50 million were made during the first nine months of 1996.
At September 30, 1996, the Company's total indebtedness was $1,984 million
and the Company had scheduled debt maturities of $78 million, $82 million, and
$235 million for the years 1997, 1998 and 1999, respectively. In January 1997,
the Company entered into the $1.75 billion Facilities which replaced the
Company's $925 million Previous Facilities. Borrowings under the Facilities are
available to fund the Share Repurchase, to provide financing for the Medical
Systems Acquisitions, to redeem certain outstanding public debt securities of
American Standard Inc. and for other general corporate purposes. The Company's
previous credit agreement has been amended and restated to provide for the
Facilities.
The Company believes that the amounts available from operating cash flows,
funds available under the Facilities and future borrowings will be sufficient to
meet its expected operating needs and planned capital expenditures for the
foreseeable future.
The Facilities provide American Standard Inc. and certain subsidiaries (the
"Borrowers") with senior secured credit facilities aggregating $1.75 billion to
all Borrowers as follows: (a) a $750 million U.S. dollar revolving credit
facility and a $625 million multi-currency revolving credit facility and (b) a
$375 million multi-currency periodic access credit facility. Borrowings under
the Facilities will bear interest at rates lower than those previously in effect
under the Previous Facilities. There are no scheduled principal payments under
any of the facilities prior to 2002. Borrowings under the amended revolving
credit facilities will be short-term by their terms.
All obligations of the Borrowers under the Facilities are guaranteed by the
Company, American Standard Inc. and the subsidiaries of American Standard Inc.
that were guarantors under the Previous Facilities. The Facilities are secured
by pledges of the capital stock of American Standard Inc.'s domestic and foreign
subsidiaries to the same extent as under the Previous Facilities. Unlike the
Previous Facilities, the Facilities will not be secured by mortgages or liens on
any of the other properties or assets of the Company or any of its domestic and
foreign subsidiaries.
The Facilities contain various covenants that limit, among other things,
mergers and asset sales, indebtedness, dividends on and redemption of capital
stock of the Company, voluntary prepayment of certain other indebtedness, rental
expense, liens, capital expenditures, investments or acquisitions, the use of
proceeds from asset sales, intercompany transactions and transactions with
affiliates and certain other business activities. The covenants also require the
Company to meet
24
<PAGE> 25
certain financial tests. Certain other American Standard Inc. debt instruments
also contain financial and other covenants. The Company believes it is currently
in compliance with the covenants under the Facilities and its other debt
instruments.
In addition, the terms of the Facilities permit the lenders thereunder and
the indentures related to certain of American Standard Inc.'s public debt
securities permit the holders of such debt securities, respectively, to
accelerate payment or require redemption upon certain events which constitute a
change of control of the Company or American Standard Inc.
At September 30, 1996, the Company held swap agreements to hedge the
redemption value of a portion of its long-term debt and effectively change such
debt from a fixed interest rate of 10 1/2% to an average fixed rate of
approximately 7%. The redemption value hedged by the swaps is the fair value of
the debt at the commencement of the swaps. The swaps mature in June 1998 and
have a notional debt value of $147 million. These swap agreements are with major
financial institutions. The Company does not anticipate non-performance by such
counterparties.
The Company from time to time enters into agreements in order to reduce its
foreign currency exposure. These agreements have not been and are not expected
to be material.
In August 1996, the Company entered into a financial services partnership,
American Standard Financial Services, with Transamerica Commercial Finance
Corporation, a subsidiary of Transamerica Corporation, to provide a wide range
of financial services to support sales of the Company's products while reducing
cash requirements to expand its business. The partnership will offer inventory
and consumer financing, commercial leasing and asset-based lending programs,
which are expected to enhance the Company's cash flow.
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 (at September 30, 1996
exchange rates) of a disputed German income tax. A suit is pending to obtain a
refund of this tax. In March 1996 the Company received an assessment, which it
has appealed, for additional taxes of approximately $71 million (at September
30, 1996 exchange rates) (principally relating to the 1988 to 1990 period), plus
interest, for the tax return years under audit. In addition, significant
transactions similar to those which gave rise to such assessment occurred in
years subsequent to 1990. Having assessed additional taxes for the 1988-1990
period, the German tax authorities might, after future tax audits, propose tax
adjustments for years 1991 to 1993 that could be as much as 50% higher. The
Company, on the basis of the opinion of German legal counsel, Meilicke &
Partner, believes the German tax returns are substantially correct as filed and
any such adjustments would be inappropriate and intends to vigorously contest
any adjustments which have been or may be assessed. Accordingly, the Company has
not recorded any loss contingency at September 30, 1996 with respect to such
matters.
The Company has agreed with the German tax authorities to make a partial
security deposit in respect of the additional taxes and interest assessed in
March 1996. Approximately $13 million was paid in January 1997 and, in addition,
the Company will apply approximately $7 million of tax refunds due it to the
security deposit. The tax authorities have granted a staying order for the
balance of the additional taxes and interest assessed in March 1996, under which
no further payment or other security will be required from the Company before
litigation of the matter or a final resolution. During litigation, the Company
would expect renewal of the staying order. Upon final resolution, the Company
will be obligated to pay any tax liability in excess of the security deposit or
the Company will receive a refund of any excess security deposit (with interest
accruing on the additional tax from the date of assessment or the refund amount
from the date of deposit, respectively).
As a result of German tax legislation, first effective in 1994, the
Company's tax provision in Germany was higher in 1994, 1995 and 1996, and will
continue to be in the future. As a result of this German tax legislation and the
related additional tax provisions, the Company believes its tax
25
<PAGE> 26
exposure to the major issues under the audit referred to above will be reduced
starting in 1994 and continuing thereafter into 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 in 1996 from the IRS making a determination that no U.S. withholding tax
will be imposed for a fifteen-year period.
CAPITAL EXPENDITURES
American Standard from time to time has invested in the expansion and
modernization of its existing facilities and affiliated companies and considers
entering into and increasing investments in joint ventures and making
complementary acquisitions. Capital expenditures have been financed out of
operating cash flow and through borrowings under the Previous Facilities.
The Company's capital expenditures for the first nine months of 1996 were
$135 million, including $12 million of investments in affiliated companies,
compared with $115 million (including $19 million of investments in affiliated
companies) for the first nine months of 1995. The increase for 1996 relates
primarily to investments in affiliated companies, lower-cost product sourcing,
expansion in newer operations, new products, expansion to meet market demand and
the continuing implementation of Demand Flow.
The Company's capital expenditures for the year 1995 were $207 million
compared with $130 million for 1994, an increase of 59%. The increase for 1995
relates primarily to investments in affiliated companies ($42 million in 1995
compared to $24 million in 1994), modernization of recent acquisitions, new
products and the continuing implementation of Demand Flow. The Company expects
that capital expenditures (including investments in affiliates) will increase
approximately 10% for 1996 compared with 1995 and by approximately 15% in 1997.
Capital expenditures for Air Conditioning Products for 1995 were $70
million, including $11 million of investments in affiliates, an increase of 56%
over the $45 million of capital spending in 1994. Major expenditures included
investments in affiliates in the PRC and projects related to the expansion of
manufacturing capacity for large chillers, implementation of Demand Flow and new
products.
Plumbing Products' capital expenditures for the year 1995 were $93 million,
including $31 million of investments in affiliated companies (primarily
Porcher), compared with capital expenditures of $55 million in 1994 (including
investments of $10 million in affiliated companies), an increase of 69% (75%
excluding the effects of foreign exchange). Expenditures for 1995 included cash
investments in Porcher and affiliates in the PRC, expansion of capacity in
Mexico, expansion in Far East operations and modernization of the Czech Republic
operations.
Capital expenditures for Automotive Products for 1995 were $44 million,
compared with 1994 capital expenditures of $30 million, an increase of 47% (38%
excluding the effects of foreign exchange). Major projects included completion
of a test track in Germany, continued implementation of Demand Flow and
cost-reduction projects.
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 1995
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 1995 sales).
26
<PAGE> 27
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. Western European truck and bus production declined significantly
from its historical high in 1989 of approximately 395,000 trucks and buses in
excess of six tons to a recent low of approximately 227,000 units in 1993. While
production recovered in 1994 and 1995, to approximately 351,000 units in 1995,
it declined again in 1996 to an estimated 319,000 units on an annualized basis.
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.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Prospectus and in documents
incorporated herein by reference (other than the historical financial data and
other statements of historical fact), including, without limitation, statements
as to management's expectations and belief presented in "Prospectus Summary --
Recent Financial Results and Developments" and in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations," are
forward-looking statements. Forward-looking statements are made based upon
management's expectations and belief concerning future developments and their
potential effect upon the Company. There can be no assurance that future
developments will be in accordance with management's expectations or that the
effect of future developments on the Company will be those anticipated by
management. There are certain important factors that could cause actual results
to differ materially from estimates reflected in such forward-looking
statements, including the level of new construction activity in the Company's
Air Conditioning Products' and Plumbing Products' markets; production levels of
trucks and buses in the Company's Automotive Products' markets, particularly in
Western Europe; changes in U.S. or international economic conditions, such as
inflation, interest rate fluctuations or recessions in the Company's markets;
pricing changes to the Company's products or those of its competitors, and other
competitive pressures on pricing and sales; changes in the markets for medical
diagnostic products; integration of acquired businesses; risks generally
relating to the Company's international operations (see "Risk Factors --
International Operations" and "-- Tax Matters"); and transactions or other
events affecting the need for, timing and extent of the Company's capital
expenditures. See "Risk Factors" and "-- Results of Operations For the Third
Quarter and First Nine Months of 1996 Compared with the Third Quarter and First
Nine Months of 1995".
While the Company periodically reassesses material trends and uncertainties
affecting the Company's financial condition and results of operations in
connection with its preparation of management's discussion and analysis of
financial condition and results of operations contained in its quarterly and
annual reports, the Company does not intend to review or revise any particular
forward-looking statement referenced in this Prospectus or incorporated herein
by reference in light of future events.
27
<PAGE> 28
BUSINESS
American Standard is a globally-oriented manufacturer of high quality,
brand-name products in three major product groups: air conditioning systems (57%
of 1995 sales); bathroom and kitchen fixtures and fittings (24% of 1995 sales);
and braking and control systems for medium-sized and heavy trucks, buses,
trailers and utility vehicles (19% of 1995 sales). American Standard is a market
leader in each of these business segments in the principal geographic areas in
which it competes. The Company's brand names include TRANE(R) and AMERICAN
STANDARD(R) for air conditioning systems, AMERICAN STANDARD(R), IDEAL
STANDARD(R), STANDARD(R) and PORCHER(R) for plumbing products and WABCO(R) and
PERROT(R) for braking and related systems. The Company emphasizes
technologically advanced products such as air conditioning systems that utilize
energy-efficient compressors and environmentally-preferred refrigerants,
water-saving plumbing products and commercial vehicle braking and related
systems (including ABS) that utilize electronic controls. At September 30, 1996,
American Standard had 103 manufacturing facilities in 35 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. The
Company believes that Demand Flow, which it 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 1995 and the first nine months of 1996. 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'
1995 worldwide sales, approximately 79% was derived from U.S. operations
(including 7% related to export sales) and 21% 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,
the U.S. and a number of other countries of bathroom and kitchen fixtures and
fittings for the residential and commercial construction markets and retail
sales channels. Plumbing Products manufactures and distributes its products
under the AMERICAN STANDARD(R), IDEAL STANDARD(R), STANDARD(R) and PORCHER(R)
names. Of Plumbing Products' worldwide 1995 sales, approximately 71% was derived
from operations outside the United States and 29% 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 any future improvement in 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 is 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 continues to expand its operations in the Far
East, Latin America and Europe. In 1994, it established a joint venture in
Australia and continues to expand its sales forces in the Far East, Latin
America, the Middle East and India. In December 1995 the Company completed
arrangements for the development and expansion of its air conditioning business
in the PRC, to become an integrated manufacturer, marketer and distributor of a
broad range of air conditioning systems and related products for residential and
commercial applications. The Company and a minority investor established ASI
China Holdings Limited ("ASI China"), in which the Company has an initial
ownership interest of 64.4%, and formed A-S Air Conditioning Products Limited
("ASAP"), owned 50.4% by ASI China, to establish or acquire majority ownership
in up to five manufacturing joint ventures as well as sales and service
businesses in the PRC. The Company contributed to ASAP its 50% interest (valued
at $10 million) in a Hong Kong joint venture (which imports and distributes air
conditioning products) and has committed to contribute $20 million in cash, $8
million of which had been contributed as of December 31, 1995. The minority
investor in ASI China and third-party investors in ASAP have committed to
contribute a total of $62 million, $26 million of which had been contributed as
of December 31, 1995. As of December 31, 1995, ASAP had acquired majority
ownership in three manufacturing joint ventures and in conjunction therewith
assumed debt of $21 million.
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Plumbing Products has entered new markets through joint ventures in Eastern
Europe, Spain, Portugal and Vietnam and is continuing to expand using this
approach. In 1995, operations were expanded in France through the acquisition of
Porcher (see "--Plumbing Products Segment"). Plumbing Products continues to
expand 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 September 30,
1996, has expanded 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 seven joint ventures with
local business concerns which, together with one wholly-owned operation, have
received business licenses from Chinese government authorities. These include
two recently constructed chinaware manufacturing facilities, an existing
chinaware manufacturing facility being expanded, 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 through additional stock
purchases.
Automotive Products, headquartered in Europe, has since 1993 established a
joint venture in the PRC, acquired a business in Spain, is in the process of
establishing joint ventures in Eastern Europe and is expanding the volume of
business done through its existing joint ventures in the United States and
Japan.
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 approximately 44,000 employees
worldwide have been trained in Demand Flow which has been implemented in
substantially all of American Standard's production facilities as of September
30, 1996. In addition, American Standard is implementing Demand Flow in its
acquired operations such as Perrot, a German brake manufacturer acquired in
January 1994, and Porcher, acquired in 1995. 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 more than tripled since 1990. Principally
as a result of the implementation of Demand Flow, American Standard has reduced
inventories by 49% from December 31, 1989 through December 31, 1995, while
related sales have grown 57% 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
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products are sold primarily under the TRANE(R) and AMERICAN STANDARD(R) names.
In 1995 Air Conditioning Products, with revenues of $2,953 million, accounted
for approximately 57% of the Company's sales and 49% of its operating income.
Outside the United States, Air Conditioning Products derived 21% of its sales in
1995 from manufacturing operations and 7% from U.S. exports. Approximately 60%
of Air Conditioning Products sales in 1995 was 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 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 arrangements for a partnership, Alliance Compressors ("Alliance"),
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. On December 31, 1996, Alliance was
restructured to admit a new partner, Copesub, Inc., a subsidiary of Emerson
Electric Co. Following the restructuring, Standard Compressors Inc. and
Heatcraft Technologies Inc. each own a 24.5% interest in Alliance and Copesub,
Inc. owns a 51% interest. Alliance plans to develop, manufacture, market and
sell, primarily to companies related to Standard Compressors Inc. and Heatcraft
Technologies Inc., scroll compressors utilized mainly in residential central air
conditioning applications. Alliance will operate principally from a newly
constructed facility in Natchitoches, Louisiana.
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.
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
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date, stricter standards in the future could require substantial research and
development expense and capital expenditures to maintain compliance.
At September 30, 1996 Air Conditioning Products had 31 manufacturing plants
in 9 countries, employing approximately 20,300 people.
Air Conditioning Products comprises three operating groups: Unitary
Products, North American Commercial, and International.
UNITARY PRODUCTS GROUP
Unitary Products, which accounted for approximately 37% of Air Conditioning
Products' 1995 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, Rheem, Lennox, Goodman Industries and Inter-City Products.
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 strip malls. These products are sold through 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 and 1995 the Unitary Products Group successfully introduced
several new products, including a new line of outdoor condensing units for the
AMERICAN STANDARD(R) brand; a very high efficiency residential air conditioner;
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 commercial unitary business also
concentrated on enhancements and new capabilities for existing products.
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, which accounted for 42% of Air
Conditioning Products' 1995 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 95 sales
offices. Thirty-four of these offices are Company-owned and 61 are franchised.
The Company acquired the Toronto, Canada, and St. Louis, Missouri offices in
1994 and the Albany, New York and Nashville, Tennessee offices in 1995. In 1996,
the Company acquired the Grand Rapids, Michigan; Pittsburgh, Pennsylvania; and
New Haven, Connecticut offices 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 1994 and 1995 the Company continued its introduction of a number of
new products such as the high-efficiency centrifugal chiller, an expanded air
cooled series R chiller line, and the
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new fan coil line. Integrated Comfort Systems continues 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 Trane's
1995 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. 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.
Trane expects to continue the expansion of its presence outside the U.S. In
the Asia-Pacific region Trane recently established a joint venture in Australia
as well as three manufacturing joint ventures in the PRC (see "-- Strategy --
Globalization") and expanded its operations in Malaysia. In the early 1990's it
purchased an air conditioning manufacturing and distribution firm in Taiwan, and
entered into a sales and manufacturing joint venture in Thailand. In Europe, in
addition to its plants in Epinal and Charmes, France, the group opened plants in
Mirecourt and in Colchester, U.K., in 1992. A joint venture in Egypt commenced
operations in 1992 to serve markets in the Middle East.
PLUMBING PRODUCTS SEGMENT
Plumbing Products manufactures and distributes bathroom and kitchen
fixtures and fittings primarily under the IDEAL STANDARD(R), AMERICAN
STANDARD(R), STANDARD(R) and PORCHER(R) names. In 1995 Plumbing Products, with
revenues of $1,270 million, accounted for 24% of the Company's sales and 22% of
its operating income. Plumbing Products derived approximately 71% of its total
1995 sales from operations outside the United States.
Of Plumbing Products' sales, 53% consists of vitreous china fixtures, 26%
consists of fittings (typically brass), 7% consists of bathtubs, and the
remainder consists of related plumbing products. Throughout the world these
products are generally sold through wholesalers and distributors and installed
by plumbers and contractors. In total the residential market accounts for
approximately 75% of Plumbing Products' sales, with the commercial and
industrial markets providing the remaining 25%.
Plumbing Products operates through four primary geographic groups: European
Plumbing Products, U.S. Plumbing Products, Americas International and the Far
East Group. Plumbing Products' fittings operations are organized as the
Worldwide Fittings Group, which has primary responsibility for faucet
technology, product development and manufacturing, with manufacturing facilities
in Germany, Bulgaria, the U.S., and Mexico. Worldwide Fittings sales and
operating results are reported in the four primary geographic groups within
which it operates.
European Plumbing Products, which sells products primarily under the brand
names IDEAL STANDARD(R) and PORCHER(R), manufactures and distributes bathroom
and kitchen fixtures and fittings through subsidiaries or joint ventures in
Germany, Italy, France, England, Greece, the Czech Republic, Spain, Portugal,
and Egypt. In November 1995 the Company acquired substantially all of the
remaining outstanding common shares and convertible bonds of Porcher, a French
manufacturer and distributor of plumbing products in which the Company
previously had an ownership interest of 32.88%. The $25 million cost of the
acquisition was funded with a borrowing under the Company's revolving credit
facilities. In addition $31 million of Porcher debt was assumed. In 1995 Porcher
had sales of $216 million.
U.S. Plumbing Products manufactures bathroom and kitchen fixtures and
fittings, selling under the brand names AMERICAN STANDARD(R) and STANDARD(R) in
the United States. Americas
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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 "-- Strategy --
Globalization".
The market for the Company's plumbing products is divided into the
replacement and remodeling market and the new construction market. The
replacement and remodeling market accounts for about 60% of the European and
U.S. Groups' sales but only about 40% of the sales of the Far East Group, for
which new construction is more important. In the United States and Europe the
replacement and remodeling market has historically been more stable than the new
construction market and has shown moderate growth over the past several years.
In 1995 the new construction market in Europe declined slightly, especially in
Germany and France, after recovering somewhat in 1994 and 1993. In the U.S. the
new construction market hit its recent low in 1992 but had some recovery through
1995. 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.
U.S. Plumbing Products is focusing 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 26% of U.S. Plumbing Products' sales in 1995, and this
proportion is expected to grow.
In an effort to capture a larger share of the replacement and remodeling
market, over the last few years Plumbing Products has introduced a variety of
new products designed to suit customer tastes in particular countries. New
offerings include additional colors and ensembles, bathroom suites from
internationally known designers, and electronically controlled products. Faucet
technology is centered on anti-leak, anti-scald and other features to meet
emerging consumer and legislative requirements.
Water-saving fixtures and fittings have been a major focus of Plumbing
Products for the past several years, particularly in light of recent water
shortages experienced in a number of areas of the U.S. The Company produces one
of the most extensive lines of water-saving fixtures available in the United
States. Manufacture of water-saving toilets was mandated for residential use by
federal law since January 1994 and for commercial use in January 1997.
Many of the Company's bathtubs are made from a proprietary porcelain on
metal composite, AMERICAST(R), which has gained an increasing share of the
worldwide market. Products made from the composite AMERICAST(R) have the
durability of cast iron with only one-half the weight and are characterized by
improved resistance to breaking and chipping. AMERICAST(R) products are easier
to ship, handle and install and are less expensive to produce than cast iron
products. Use of this advanced composite was extended to kitchen sinks, bathroom
lavatories and acrylic surfaced products during the early 1990's.
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At September 30, 1996, Plumbing Products employed approximately 18,000
people and, including affiliated companies, had 58 manufacturing plants in 25
countries.
In the U.S., Plumbing Products has several important competitors, including
Kohler Company and Masco Corporation in selected product lines. There are also
important competitors in foreign markets, for the most part operating
nationally. Friederich Grohe GmbH, the major manufacturer of fittings in Europe,
is a pan-European competitor. In Europe Villeroy Boch and Sanitec are the major
fixtures competitors, and in the Far East Toto is the major competitor.
AUTOMOTIVE PRODUCTS SEGMENT
Operating under the WABCO(R) name, Automotive Products manufactures air
brake and related systems for the commercial vehicle industry in Europe and
Brazil. WABCO's 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
1995 WABCO, with sales of $998 million, accounted for 19% of the Company's sales
and 29% of its operating income. The Company believes that WABCO is a worldwide
technological leader in the heavy truck and bus braking industry. Electronic
controls, first introduced in ABS in the early 1980's, are increasingly applied
in other systems sold to the commercial vehicle industry.
WABCO's products are sold directly to vehicle and component manufacturers.
Spare parts are sold through both original equipment manufacturers and an
independent distribution network. Although the business is not dependent on a
single or related group of customers, sales of truck braking systems are
dependent on the demand for heavy trucks. Some of the Company's important
customers are Mercedes-Benz, Volvo, Iveco (Fiat), RVI (Renault) and Rover.
Principal competitors are Knorr, Robert Bosch, and Bendix.
The European market for new trucks, buses, trailers, and replacement parts
recovered in 1994 and 1995 after significant declines in 1992 and 1993, before
declining again in 1996. 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 has experienced a significant decline in 1996.
Through 1995 the WABCO(R) ABS system, which the Company believes leads the
market, has been installed in approximately one million heavy trucks, buses, and
trailers worldwide since 1981. Annual sales volume in Europe has significantly
increased in recent years to approximately 175,000 units in 1995 and to 56,000
units annually in other markets, primarily the United States and Japan. In
addition, WABCO has developed electronically controlled pneumatic gear shifting
systems, electronically controlled air suspension systems, and automatic
climate-control and door-control systems for the commercial vehicle industry.
These systems have resulted in greater sales per vehicle for WABCO. 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, WABCO has developed and implemented an electronic data interchange
system, which links certain customers directly to WABCO's information systems,
providing timely, accurate information and just-in-time delivery to the
customer.
At September 30, 1996 WABCO and affiliated companies employed approximately
5,700 people and had 14 manufacturing facilities and 7 sales organizations
operating in 17 countries. Principal manufacturing operations are in Germany,
France, the United Kingdom, and Brazil. WABCO has joint ventures in the United
States with Rockwell International (Rockwell WABCO) and with Cummins Engine Co.
Inc., in Japan with Sanwa Seiki (SANWAB), in India with TVS Group (Clayton
Sundaram) and in the PRC. There is also a licensee in the PRC.
In January 1994 the Company acquired Perrot, a German brake manufacturer.
Through this acquisition the Company is able to offer complete brake systems for
trucks, buses and trailers, especially in the important and growing air-disc
brake business.
Since 1991 ABS for commercial vehicles has been gaining acceptance in the
United States and Japan, where WABCO participates through its joint venture
operations. Rockwell WABCO is now a
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supplier of WABCO systems to Freightliner, Mack, Volvo-GM, Kenworth, Peterbilt
and other vehicle manufacturers in North America. SANWAB supplies Hino, Nissan
and trailer manufacturers in Japan. In most European countries, ABS has become
mandatory for commercial vehicles. 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 antilock brake systems (ABS). These amended regulations will be phased in
over a two-year period beginning in March 1997. WABCO believes it is in a good
position to take advantage of this opportunity.
MEDICAL SYSTEMS GROUP
The Company recently announced formation of its Medical Systems Group to
pursue initiatives in the medical diagnostics field. The Company has for the
last several years had under development two small medical diagnostic product
groups focusing on test instruments using laser technology and reagents. The
Company had invested an aggregate of approximately $40 million in the
development of these businesses through September 30, 1996.
The Company decided to explore acquisitions to accelerate the
commercialization of its technology and expand the number of diagnostic tests
covered by its products. Accordingly, the Company on January 23, 1997 entered
into memoranda of understanding to acquire the European medical diagnostic
business of Sorin Biomedica S.p.A., an affiliate of the Fiat Group, and all the
outstanding shares of Incstar Corporation, a biotechnology company based in
Stillwater, Minnesota, 52% of which is owned by Sorin Biomedica S.p.A.
The Sorin Business both develops and produces reagents to identify the
presence in blood of diseases and other substances that are indicative of a
medical patient's condition, and distributes equipment used to perform
diagnostic tests. The Sorin Business is headquartered in Saluggia, Italy, where
its manufacturing facility is located. The principal markets for the products of
the Sorin Business are Western Europe and the United States. Its sales in 1995
were approximately $90 million.
Incstar develops, manufactures and markets individual test reagents, test
kits and related products used by major hospitals, clinical reference
laboratories and researchers involved in diagnosing and treating immunological
conditions. Incstar also produces and markets histochemical antisera and natural
and synthetic peptides used in clinical diagnostic and medical research. Its
products focus on diagnostic tests for autoimmune, infectious disease,
endocrinology and bone and mineral metabolism product segments, utilizing a
variety of technologies. Incstar's sales in 1995 were approximately $45 million.
The Sorin Business and Incstar will be acquired in two transactions: (a)
the acquisition from Sorin of the Sorin Business and (b) the merger of a wholly
owned subsidiary of the Company with Incstar. The aggregate cost of the
acquisitions is expected to be approximately $220 million (including fees and
expenses). The transactions are subject to the negotiation of definitive
agreements as well as customary conditions, including regulatory consents and
approvals. The Incstar board of directors has approved the signing of a
memorandum of understanding of Incstar with the Company. The Sorin and the
Incstar transactions are each conditioned upon the closing of the other, which
closings are expected to occur in the first half of 1997.
The focus of the Company's existing medical businesses is on instruments
for obstetrical/gynecological and gastrointestinal tests. The products of its
subsidiary Sienna Biotech, Inc. are based on a core technology named Copalis(TM)
for Coupled Particle Light Scattering. Several of Sienna's products have
received clearance from the U.S. Food and Drug Administration ("FDA").
The Company's subsidiary Alimenterics, Inc. is developing certain clinical
laboratory systems for non-invasive diagnostics of gastrointestinal disorders
using an automated Laser Assisted Ratio Analyzer ("LARA(TM)") for the
measurement of stable isotopes in breath. Initial applications for
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regulatory approvals of Alimenterics products have been made in Europe and are
planned to be made to the FDA in 1997.
The Company believes that the Medical System Acquisitions will position it
to develop its medical products more quickly and effectively than would
otherwise have been possible. The Company may build this group further through
acquisitions of businesses that are complementary and would permit further
acceleration of development and distribution of its products as well as through
further research and development investments. There can be no assurance that the
Company will be successful in completing the Medical Systems Acquisitions.
The development, testing and distribution of medical products are subject
to extensive regulation, including in the United States by the FDA. Moreover,
the medical test market is competitive and many companies with such products
have substantially greater resources and experience than the Company. There is
no assurance that the Company's products will be successfully developed or
marketed.
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THE SELLING STOCKHOLDER AND STOCKHOLDER TRANSACTIONS
THE SELLING STOCKHOLDER
Prior to the Stockholder Transactions, ASI Partners owns 20,838,656 shares
of Common Stock, representing approximately 27% of the Company's Common Stock.
In the Offerings and the Share Repurchase, it is expected that ASI Partners will
sell an aggregate of 17,058,303 shares (10,808,303 Shares in the Offerings,
assuming no exercise of the Underwriters' over-allotment options, and assuming a
Share Repurchase of 6,250,000 shares). As promptly as practicable following the
closing of the Offerings, ASI Partners expects to distribute in the Share
Distribution to certain of its partners, at their election, 3,780,353 shares of
Common Stock that it currently owns. Following these transactions, ASI Partners
will own no Common Stock and will not be entitled to designate any of the
Company's directors. As part of the Stockholder Transactions, the Company will
issue the Warrants. See "--The Stockholder Transactions".
THE STOCKHOLDER TRANSACTIONS
The Company, ASI Partners and Kelso have entered into the Stock Disposition
Agreement providing for the sale by ASI Partners of shares in the Offerings and
the repurchase by the Company from ASI Partners of all shares of Common Stock to
be owned by ASI Partners after giving effect to the Offerings and the Share
Distribution. Concurrently with the consummation of the Offerings, the Company
will repurchase 6,250,000 shares of Common Stock from ASI Partners at a price
per share equal to the initial public offering price. To the extent the
Underwriters' over-allotment options are exercised, the number of shares that
the Company will repurchase will be reduced. The Company plans to finance the
Share Repurchase with borrowings under the Facilities.
The Stock Disposition Agreement also provides that the Company will issue
to ASI Partners 3,000,000 Warrants to purchase Common Stock at a price equal to
$10 above the initial public offering price (the "Exercise Price"). The Warrants
will entitle holders to purchase 3,000,000 shares of Common Stock at the
Exercise Price or, at the Company's election, to receive an amount in cash or a
designated number of shares based on the difference between the then market
value of the Company's Common Stock and the Exercise Price. The Company has
agreed that, upon exercise of any Warrant by ASI Partners or its direct or
indirect partners, the Company will exercise such election. In that case, the
Company may make payment in cash or shares, at its option. The Warrants will be
exercisable after the time that it is no longer possible for any cash payment to
be made to ASI Partners in respect of a Transaction and prior to the fifth
anniversary of the closing date of the Offerings.
If a Transaction occurs after the closing of the Offerings and prior to
January 31, 1998 (or October 1, 1998 in the case of a Transaction proposed prior
to January 31, 1998 either non-publicly in writing to the Company or orally to
the Company and discussed by the Company's Board of Directors, or publicly, and
not consummated or withdrawn as of January 31, 1998), the Stock Disposition
Agreement provides that the Company would be required to make a cash payment to
ASI Partners in respect of the aggregate number of shares sold by ASI Partners
in the Offerings and to the Company pursuant to the Share Repurchase. A
Transaction is specified in the agreement to include the sale of all or
substantially all of the shares of capital stock or all or substantially all of
the assets of the Company or the acquisition of majority control of the Company
by any person or group. The total cash payment would be equal to the excess, if
any, of the consideration per share received by holders of the Common Stock in
the Transaction over the cash price per share received by ASI Partners in the
Offerings and pursuant to the Share Repurchase, respectively, multiplied by the
number of Shares sold by ASI Partners in the Stockholder Transactions. If a
Transaction occurs entitling ASI Partners to such a payment, the Warrants would
not be exercisable and would expire upon the consummation of such Transaction.
See "Capitalization", "Pro Forma Financial Data" and "Underwriting". The Stock
Disposition Agreement includes such provisions in order to preserve
38
<PAGE> 39
for ASI Partners the stock price premium that it would otherwise have received
in such a Transaction if it were to occur within the time periods specified
above.
The Company entered into the Stock Disposition Agreement to facilitate the
sale by ASI Partners of its entire investment in the Company now, rather than
over an extended period of time, thereby enabling the Company to repurchase a
substantial number of its shares in one transaction while also increasing the
size and depth of the trading market for the Company's Common Stock. ASI
Partners is an investment partnership with an investment goal to realize
long-term capital gains for its investors. ASI Partners, which acquired its
investment in the Company in 1988, began the process of realizing on its
investment in the Company by selling shares in a registered secondary offering
in September 1995. ASI Partners entered into the Stock Disposition Agreement to
complete the realization of its investment in the Company and to provide for
distributions of the proceeds to its partners. Kelso advises ASI Partners with
respect to its investments generally and has advised ASI Partners in connection
with the Stockholder Transactions.
Two persons claiming to be shareholders of the Company and represented by
the same lawyers have filed separate class action and derivative lawsuits in the
Chancery Court of the State of Delaware against the Company, ASI Partners and
the directors of the Company alleging breaches of fiduciary duties in respect of
the rejection of the Tyco proposals and approval of the Stockholder
Transactions. The lawsuits seek to cause the Company to evaluate alternatives to
maximize value for the Company's public shareholders, to enjoin the Stockholder
Transactions and to recover damages in an unspecified amount. A person claiming
to be a holder of certain public debt securities of American Standard Inc. has
filed a class action lawsuit in New York Supreme Court seeking to enjoin the
Stockholder Transactions or to require the Company to redeem such debt
securities at the election of the securityholders. The Company believes that
these lawsuits are without merit and intends to contest them vigorously.
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<PAGE> 40
UNDERWRITING
Subject to the terms and conditions of the U.S. Underwriting Agreement, the
Selling Stockholder has agreed to sell to each of the U.S. Underwriters named
below, and each of such U.S. Underwriters has severally agreed to purchase from
the Selling Stockholder, the respective number of Shares set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
U.S. UNDERWRITERS COMMON STOCK
-------------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co........................................... 1,621,662
Morgan Stanley & Co. Incorporated............................. 1,621,660
SBC Warburg Inc............................................... 1,621,660
Smith Barney Inc.............................................. 1,621,660
Chase Securities Inc.......................................... 270,000
Cowen & Company............................................... 270,000
Dean Witter Reynolds Inc...................................... 270,000
Deutsche Morgan Grenfell Inc.................................. 270,000
Donaldson, Lufkin & Jenrette Securities Corporation........... 270,000
Prudential Securities Incorporated............................ 270,000
Salomon Brothers Inc.......................................... 270,000
Schroder Wertheim & Co. Incorporated.......................... 270,000
---------
Total.......................................... 8,646,642
=========
</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 offered hereby,
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 $1.02 per share. The U.S. Underwriters may allow, and such dealers
may reallow, a concession not in excess of $0.10 per share to certain brokers
and dealers. After the Shares are released for sale to the public, the offering
price and other selling terms may from time to time be varied by the U.S.
Underwriters.
The Company and the Selling Stockholder 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 2,161,661 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 International Underwriters are Goldman Sachs
International, Morgan Stanley & Co. International Limited, SBC Warburg, a
division of Swiss Bank Corporation, and Smith Barney Inc.
An affiliate of Smith Barney Inc. and affiliates of Chase Securities Inc.
own indirect equity interests in ASI Partners and will receive a portion of the
proceeds from the Offerings. In addition, an affiliate of Smith Barney Inc. and
affiliates of Chase Securities Inc. are investors in investment funds sponsored
by Kelso, which funds are not investors in the Company.
Pursuant to an agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of the
U.S. Underwriters named herein has agreed or will agree pursuant to the
Agreement Between that, as a part of the distribution of the Shares offered
hereby and subject to certain exceptions, it will offer, sell or deliver the
Shares offered hereby and other shares of Common Stock, directly or indirectly,
only in the United States of America (including the 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
40
<PAGE> 41
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
1,296,996 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 324,249 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 has agreed not to offer, sell or otherwise dispose of any
shares of Common Stock (other than pursuant to employee stock option plans,
other employee benefit plans or the Stockholder Rights Agreement) for a period
of 90 days after the date of this Prospectus without the prior written consent
of Goldman, Sachs & Co. In addition, ASI Partners expects to distribute
3,780,353 additional shares to certain of its partners as promptly as
practicable following the closing of the Offerings. See "The Selling Stockholder
and Stockholder Transactions". The recipients of such distributions have agreed
with ASI Partners and the Underwriters not to offer, sell or otherwise dispose
of such shares for a period of 180 days after the date of this Prospectus
without the prior written consent of ASI Partners and Goldman, Sachs & Co. Such
consents may be provided without prior notice to holders of the shares or to the
markets where such securities are traded.
The Common Stock is traded on the New York Stock Exchange.
The Underwriters have in the past provided and may continue to provide
investment banking services to the Company and Kelso. Chase Securities Inc. has
acted as arranger of, and The Chase Manhattan Bank, an affiliate of Chase
Securities Inc., is acting as administrative agent under, the Company's
Facilities.
The Company, American Standard Inc. and the Selling Stockholder 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, and has
acted as counsel to Kelso and ASI Partners in connection with the Stockholder
Transactions, in which the Company and its independent directors have been
separately advised by other counsel. 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.
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<PAGE> 42
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1995, and for each of the three years in the period ended December 31,
1995, incorporated by reference in this Prospectus from the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
incorporated herein by reference, and have been so incorporated by reference in
reliance upon such report 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.
42
<PAGE> 43
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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........................... 11
Price Range of Common Stock and
Dividend Policy...................... 16
Use of Proceeds........................ 16
Capitalization......................... 17
Summary Historical Financial Data...... 18
Pro Forma Financial Data............... 20
Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 21
Business............................... 28
The Selling Stockholder and
Stockholder Transactions............. 38
Underwriting........................... 40
Legal Matters.......................... 41
Experts................................ 42
</TABLE>
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- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
10,808,303 SHARES
AMERICAN STANDARD
COMPANIES INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------------
AMERICAN STANDARD COMPANIES LOGO
------------------------------
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO.
INCORPORATED
SBC WARBURG INC.
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
- ------------------------------------------------------
- ------------------------------------------------------
