Item 1. Business 1 Item 2.
Item 2. Properties 15 Item 3.
ITEM 3. LEGAL PROCEEDINGS
The Company has been made a defendant in a lawsuit brought by Entech Sales & Service, Inc., on behalf of a purported class of contractors engaged in the service and repair of commercial air conditioning equipment. The suit, which was filed on March 5, 1993, in the United States District Court for the Northern District of Texas, alleges principally that the manner in which Air Conditioning Products distributes repair service parts for its equipment violates Federal antitrust laws and demands $680 million in damages (which are subject to trebling under the antitrust laws) and injunctive relief. The Company has filed an answer denying all claims and is preparing to defend itself vigorously. The issue of whether Entech may maintain this action as a class action is pending before the court. In management's opinion the litigation should not have any material adverse effect on the financial position, cash flows, or results of operations of the Company.
There are no other material legal proceedings. For a discussion of German tax issues see "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources". For a discussion of environmental issues see "ITEM 1. BUSINESS -- Regulations and Environmental Matters."
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By a vote of a majority of the holders of the common stock of the Company dated as of December 2, 1993, the following individuals were elected as directors of the Company, each to serve in office until the next annual meeting of the stockholder of the Company or until such individual's respective successor shall have been elected and shall qualify, or until such individual's earlier death, resignation or removal as provided in the By-laws of the Company:
Horst Hinrichs Frank T. Nickell Emmanuel A. Kampouris J. Danforth Quayle George H. Kerckhove John Rutledge Shigeru Mizushima Joseph S. Schuchert
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) There is no established public trading market for shares of Holding common stock, par value $.01 per share. Shares of Holding common stock were sold to Kelso ASI Partners, L.P. ("ASI Partners"), the American Standard Inc. Employee Stock Ownership Plan ("ESOP"), and executive officers and other management personnel of American Standard Inc. and its subsidiaries (the "Management Investors"). The Management Investors purchased their shares pursuant to a Stockholders Agreement among ASI Partners, Holding, and the Management Investors, dated as of July 7, 1988, as amended ("Stockholders Agreement"). The Stockholders Agreement restricts transfers by Management Investors of Holding common stock for a period up to ten years after July 7, 1988, but obligates Holding, subject to restrictions contained in the Company's various debt agreements, to repurchase shares of Holding common stock in the case of death, disability, retirement, or other termination of employment of Management Investors. The repurchase by Holding is made at fair market value based on independent valuations, generally at year-end dates, with the valuation dates dependent on the election made by the Management Investor following employment termination. The timing of payment by Holding is subject to constraints of the debt agreements, as supplemented by a Schedule of Priorities established by Holding's Board of Directors, and by the valuation election of the Management Investor. Shares have been issued by the ESOP to participants, and additional shares have been issued in connection with other Company plans.
(b) The number of stockholders of record of Holding at March 10, 1994, was 287.
(c) Holding has no separate operations; its ability to pay dividends or repurchase its common stock will be totally dependent upon the extent to which it receives dividends or other funds from American Standard Inc. Covenants of the agreements under which the debt of the Company was issued substantially restrict American Standard Inc. from declaring any dividends, except to the extent necessary to permit Holding to make repurchases of its common stock (i) from participants to whom shares of common stock are distributed from the ESOP to the extent required by the terms thereof, or (ii) held by Management Investors (in the circumstances contemplated by the Stockholders Agreement) or credited to the accounts of officers and employees under the Company's incentive and savings plans, provided certain conditions are met and the aggregate amount of such purchases does not exceed specified limits in any calendar year, which under the most restrictive debt agreement is currently $5 million a year. Accordingly, no dividends can be expected to be paid by Holding at least until all borrowings under such agreements with the debt holders have been repaid.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
As a result of the Acquisition, results of operations include purchase accounting adjustments and reflect a highly leveraged capital structure. Sales Year Ended December 31, 1993 1992 1991 (Dollars in millions) Air Conditioning Products(a) $2,100 $ 1,892 $ 1,836 Plumbing Products 1,167 1,170 1,018 Transportation Products 563 730 741 Sales $3,830 $ 3,792 $ 3,595 ====== ======= =======
Operating Income (Loss) Before Income Taxes, Extraordinary Loss, and Cumulative Effects of Changes in Accounting Methods
Year Ended December 31, 1993 1992 1991 (Dollars in millions) Air Conditioning Products(a) $133 $ 104 $ 55 Plumbing Products 108 108 66 Transportation Products 41 88 121 Operating income 282 300 242
Interest expense (278) (289) (286) Corporate items(b) (85) (63) (44) Loss before income taxes, extraordinary loss, and cumulative effects of changes in accounting methods $(81) $ (52) $ (88) ==== ===== =====
(a) For 1991 the amounts presented for Air Conditioning Products include the following amounts for Tyler Refrigeration (which was sold on September 30, 1991): sales of $99 million and operating loss of $18 million (including a $22 million loss on the sale).
(b) Corporate items include administrative and general expenses, accretion charges on postretirement benefit liabilities, minority interest, foreign exchange transaction gains and losses, and miscellaneous income and expense.
The following section summarizes the Company's consolidated results of operations and then discusses the results of its three operating segments. The Company's businesses are cyclical. Air Conditioning Products and Plumbing Products are particularly affected by the level of residential and commercial building activity.
The following table presents a summary of statistics on U.S. non-residential construction activity and housing starts for the years 1989 through 1993.
U.S. Non- Residential Contract Awards U.S. Housing (Millions % Change Starts % Change of square Year (Thousands of Year feet)(a) to Year units)(b) to Year 1989 1,322 - 1% 1,376 - 8% 1990 1,155 -13% 1,193 -13% 1991 953 -17% 1,015 -15% 1992 903 - 5% 1,200 +18% 1993 (c) 930 + 3% 1,290 + 7%
(a) Source: F.W. Dodge Division, McGraw Hill, Inc.
(b) Source: U.S. Department of Commerce, Bureau of Census.
(c) Preliminary data.
The market for replacement sales and servicing of air conditioning and plumbing products, which accounts for a substantial portion of sales for Air Conditioning Products and Plumbing Products, is less cyclical and sometimes countercyclical.
The following table presents a summary of statistics on unit production of trucks, buses, and trailers in excess of six tons in Western Europe for the years 1989 through 1993 (units in thousands).
Western Europe % Change Western Europe % Change Truck and Bus Year Trailer Year Production(a) to Year Production(a) to Year
1989 376 4% 125 9% 1990 343 -9% 128 2% 1991 353 3% 139 9% 1992 314 -11% 115 -17% 1993 223 -29% 88 -23%
(a) Principal sources: Verband der Deutschen Automobilindustrie (Germany); Society of Motor Manufacturers and Traders (United Kingdom); and Chambre Syndicate des Constructeurs Automobiles (France).
1993 Compared with 1992
U.S. housing starts increased by 7% in 1993 from the 1992 level, which was up 18% over 1991 after four consecutive years of decline. U.S. non-residential contract awards increased by 3% in 1993 after five years of decline. The 1993 improvement in housing starts came in the second half of the year with third- and fourth-quarter starts up 10% and 12%, respectively, over the preceding quarter. The gain in non-residential awards occurred over the last nine months of 1993. Western European truck and bus production declined 29% in 1993 after an 11% decline in 1992. However, the rate of decline in the truck market slowed in the fourth quarter of 1993.
Consolidated sales for 1993 were $3.83 billion, an increase of 1% (6% excluding the unfavorable effects of foreign exchange) over the $3.79 billion for 1992. A sales increase of 11% for Air Conditioning Products was partly offset by a sales decline for Transportation Products of 23% (16% excluding the unfavorable effects of foreign exchange). Sales for Plumbing Products were flat (but up by 9% excluding the effects of foreign exchange).
Operating income for 1993 was $282 million, a decrease of $18 million, or 6% (but an increase of less than 1% excluding the effects of foreign exchange), from $300 million in 1992. The increase in operating income of 28% for Air Conditioning Products was more than offset by a 53% decrease in operating income for Transportation Products. Plumbing Products' operating income was flat (but increased 15% excluding the effects of foreign exchange). The gain for Air Conditioning Products was the result of higher volume, increased sales of higher-margin products, the benefits of manufacturing improvements, and the effects of restructuring and cost-containment efforts undertaken in 1991 and 1992, offset partly by the costs of further restructuring in 1993. For Plumbing Products the effects of increased volume for the Far East Group were offset partly by lower margins for the U.S. group and lower volumes and unfavorable foreign exchange effects for the European group. Transportation Products' operating income decreased primarily as a result of lower volumes due to reduced demand in depressed markets in Europe, offset partly by the effects of improvements in manufacturing efficiency.
Air Conditioning Products Segment
Year Ended December 31, 1993 1992 1991 (Dollars in millions)
Sales: Domestic portion $1,786 $1,572 $1,453 Foreign portion 314 320 284 Subtotal 2,100 1,892 1,737 Tyler Refrigeration - - 99 Total $2,100 $1,892 $1,836 ====== ====== ======
Operating income (loss): Domestic portion $ 148 $ 112 $ 58 Foreign portion (15) (8) 15 Subtotal 133 104 73 Tyler Refrigeration - - (18)(a) Total $ 133 $ 104 $ 55 ====== ====== ======
Assets $1,167 $1,156 $1,174 Goodwill and purchase accounting adjustments included in assets 372 398 417 Capital expenditures 38 33 46(b) Depreciation and amortization 53 55 56(c)
(a) Includes $22 million loss on the sale of Tyler Refrigeration.
(b) Includes capital expenditures of Tyler Refrigeration of $1 million.
(c) Includes depreciation and amortization of Tyler Refrigeration of $3 million.
The domestic portion of Air Conditioning Products is composed of the Unitary Products Group, the Commercial Systems Group (excluding Canada), and exports from the United States by the International Group. The foreign portion consists of the foreign-based operations of the International Group and the Canadian operations of the Commercial Systems Group.
Sales and operating income of Air Conditioning Products both increased in 1993 despite the continuing recession in U.S. and Canadian commercial new construction and only moderate increase in residential new construction in the U.S. and despite the economic decline in Europe. Sales of Air Conditioning Products, which accounted for approximately 55% of the Company's 1993 sales, increased by 11% (with little effect from foreign exchange) to $2,100 million in 1993 from $1,892 million in 1992. There was a significant sales increase for each of the three operating groups.
Operating income of Air Conditioning Products increased year to year by 28% (with little effect from foreign exchange) to a record high of $133 million in 1993 from $104 million in 1992. The increase was attributable to gains achieved by all three groups.
Unitary Products Group
In 1993 sales of the Unitary Products Group, which accounted for approximately 42% of Air Conditioning Products sales, increased by 15% over the 1992 sales level. Residential markets were up 15%, as a result of an unusually hot summer in the northern United States and a 7% increase in housing starts. Sales of residential products increased by 18% year over year, principally because of higher volumes driven by the improved market, increased furnace sales in the replacement market, and a shift in the market to more efficient products, offset partly by the continuation from 1992 of price degradation due to competitive pressures. Commercial markets for unitary products were up 9% overall from the 1992 markets, as the commercial replacement market strengthened further. New-construction activity continued to struggle, however. Sales of commercial unitary products increased by 10% overall, primarily as a result of higher volume (driven by the strong replacement market for both light and large commercial products); a shift to higher-priced, higher-tonnage products; and a gain in market share for light commercial products due to the success of the large Voyager products (packaged rooftop air conditioners). As a result of these factors, together with product cost improvements, improved labor productivity, and the benefits of organizational restructuring which reduced the salaried workforce in 1992, the operating income for Unitary Products in 1993 increased by 43% year over year. This improvement was achieved even though 1993 included the initial start-up costs of the new national distribution center in St. Louis, Missouri, and higher advertising costs.
Unitary Products' sales increased through the success of new and redesigned products introduced recently and improved distribution channels. Commercial products that were introduced included the 20-to-25-ton Voyager products in 1992, which more than doubled market share in that size range; commercial microprocessor-controlled products; a line of convertible air handlers; and rooftop and air cooled chiller products using more efficient scroll compressors. Residential products introduced included the American-Standard brand outdoor units and new lines of luxury and conventional retail residential products.
Commercial Systems Group
Sales of the Commercial Systems Group, which accounted for approximately 37% of Air Conditioning Products' sales, increased 10%, primarily on volume increases for most product lines, especially air handling systems and water chillers (principally due to improved replacement markets and increased market share), and increased revenue from Company-owned sales offices (acquisitions and volume growth). These gains were partly offset by lower volume in Canada, which continues to be adversely affected by recession. The non-residential new-construction market increased 3% in the United States in 1993, following decreases of 5% in 1992 and 17% in 1991. The non-residential replacement market was up by 6% over 1992.
Operating income for Commercial Systems increased 12% in 1993 over the recession-affected amount of 1992. The increase was primarily the result of volume gains, improvements in manufacturing efficiency, operating expense reductions, and the benefits of restructuring actions taken in 1992. The effects of these factors were partly offset by slightly lower prices, increases in material, labor, and benefit costs, the costs of additional restructuring actions in 1993, and a larger loss in the weak Canadian market.
Product development emphasis for Commercial Systems in 1993 and 1992 was on new compressor, heat transfer and microelectronic control technology; adaptation of products to refrigerants that comply with recent government regulations; energy-efficient products; products for the aftermarket and replacement market (which exceeded the new-construction market in both 1993 and 1992); and products redesigned to improve manufacturing productivity. This strategy benefited operations in 1993 and 1992, and the Company expects that this product development emphasis will result in greater sales over the next several years.
International Group
Sales of Air Conditioning Products' International Group, which accounted for approximately 21% of Air Conditioning Products' 1993 sales, increased 7% from those of 1992 (10% excluding the unfavorable effect of foreign exchange). Most of the gain was from higher volume in the Far East (especially Hong Kong, Taiwan, and export sales from the U.S.) resulting from expanded markets and increased penetration; higher export sales from the U.S. to the Middle East (markets were significantly stronger) and Latin America (improved penetration in a market that was up 20%); and higher volumes in Mexico. These gains were partly offset by lower sales in Europe (lower prices and volumes in a declining market). Markets were down in all European countries except the U.K., but the effect was partly offset by increased revenues from service companies acquired in 1992 and prior years. Market growth in the Far East was 6% overall, led by the PRC market, which was up by 21%. The sales growth in Hong Kong was driven by the very strong market in the PRC. Markets in Thailand also grew, and the Latin American market grew by 20%.
Operating income for the International Group increased by approximately 39% in 1993. The increase was primarily the result of higher export sales from the U.S. to the Middle East and Far East, offset partly by a larger operating loss in Europe primarily because of the weak markets and lower margins, costs related to restructuring in response to the lower markets, and the unfavorable effects of lower volume on factory performance. Overall, income from the Far East and Latin America was essentially unchanged from the prior year, as volume gains were offset by increased costs related to expansion of distribution channels and joint ventures and development of new and improved products to support present and future growth.
Environmental Matters
For a discussion of environmental matters see "Business -- Regulations and Environmental Matters."
Backlog
The worldwide backlog for Air Conditioning Products at the end of 1993 was $407 million, up 13% from 1992, excluding the effects of foreign exchange. The backlog increased as a result of increased volume for the Commercial Systems Group, market penetration and improved distribution channels in the Middle East and Far East, and sales growth for commercial Unitary Products.
Plumbing Products Segment
Year Ended December 31, 1993 1992 1991 (Dollars in millions)
Sales: Foreign portion $ 865 $ 885 $ 783 Domestic portion 302 285 235 Total $1,167 $1,170 $1,018 ====== ====== ====== Operating income (loss): Foreign portion $ 131 $ 124 $ 93 Domestic portion (23) (16) (27) Total $ 108 $ 108 $ 66 ====== ====== ======
Assets $ 960 $1,002 $1,069 Goodwill and purchase accounting adjustments included in assets 376 392 447 Capital expenditures 46 48 40 Depreciation and amortization 49 49 48
The foreign portion of Plumbing Products is composed of the European Plumbing Products Group, the Americas International Group, and the Far East Group. The domestic portion of sales and operating results is generated primarily by the U.S. Plumbing Products Group and by export sales from the U.S.
Sales of Plumbing Products in 1993, at $1,167 million, which accounted for approximately 30% of the Company's 1993 sales, were at essentially the same level as the $1,170 million of sales in 1992 (but increased by 9% excluding the unfavorable effects of foreign exchange). Sales increases of 42% for the Far East Group (46% excluding foreign exchange), 9% for the Americas International Group (14% excluding foreign exchange), and 6% for the U.S. Plumbing Products Group were offset partly by a sales decrease of 10% for the European Plumbing Products Group (which had a 4% increase excluding the effects of foreign exchange).
In 1993 operating income of Plumbing Products was $108 million, the same amount as in 1992, but excluding the unfavorable effects of foreign exchange operating income increased by 15%. The increase (on an exchange-adjusted basis) was attributable primarily to increased profitability for the Far East Group and for the Americas International Group, offset partly by a decline for the U.S. group.
European Plumbing Products Group
Sales of the European group, which accounted for approximately 51% of Plumbing Products' sales for 1993, decreased 10% in 1993 from 1992 but increased by 4% excluding the unfavorable effects of foreign exchange. The exchange-adjusted gain resulted from price increases, especially in Italy, Germany, the U.K., and Greece, offset partly by lower volume in most countries because of depressed markets. In Italy sales were up with price increases for most product lines, offset partly by lower volume and a less favorable product mix. The German market was stable in total, as price gains were offset by volume and mix declines. Greece, which had been in recession for three years, recovered somewhat in 1993. The European group's strength has been sales in the replacement market, which has more than made up for the effects of poor new-construction markets.
Operating income for the European group decreased 7% but increased 10% excluding the effects of foreign exchange. This increase occurred primarily because of the price gains and cost reductions resulting from restructuring and efficiency improvements in the U.K., France, Italy, and Germany. Partly offsetting those favorable effects were the effects of lower volumes and the unfavorable effect on margins caused by the decline in value of many European currencies agains the Deutschemark. The increased cost of fittings purchased from Germany could not be completely recovered through sales price increases in most of the operations in other countries.
U.S. Plumbing Products Group
Sales of the U.S. group, which accounted for approximately 26% of total 1993 Plumbing Products sales, increased 6% in 1993. During 1993 the U.S. building industry continued to be adversely affected by the low level of new construction, although non-residential construction increased 3% from 1992 and new residential construction continued to recover from the lowest levels since the mid-1940's (up by 7% in 1993 and 18% in 1992 but
still below pre-1990 levels). A basic shift from wholesale distribution channels to retail channels has been developing over the last few years, a trend the Company believes will continue and will be beneficial to the Company because of strong product and brand-name recognition. Retail markets now account for 20% of the total sales of the U.S. group. The growth of sales for the U.S. group was largely the result of increased export sales from the U.S. and to a lesser extent price increases on certain products, a more favorable sales mix, and a small increase in the growing retail channel business. The overall gain in the retail business was small because significant volume gains due to an expanding customer base were partly offset by the loss of an important customer.
The operating loss for the U.S. group in 1993 was greater than that of the prior year. Despite higher sales, operating results were poorer primarily because of lower margins on both domestic and export sales, increased advertising costs and other expenses associated with expansion of the retail distribution channel, costs related to start-up and expansion of the low-water-volume toilet line (now mandated for new construction), and factory performance problems caused in part by the effects of fluctuating volumes. In addition, costs were incurred in business system re-engineeering activities intended to improve customer service.
Americas International and Far East Groups
Combined sales of the Americas International and Far East Groups, which accounted for approximately 23% of total Plumbing Products sales, increased 21% in 1993 (26% excluding the effects of foreign exchange). The sales gain was due primarily to the consolidation of Incesa (a previously unconsolidated group of Central American joint ventures) effective January 1, 1993, as a result of the purchase of additional shares of stock, and to higher volume and prices in Thailand, the PRC, the Philippines, and Brazil, offset partly by decreases in sales in Mexico, Canada, and Korea.
Combined operating income of the Americas International and Far East Groups in 1993 increased 72% over the 1992 level. Gains were realized in all operations except Mexican chinaware operations, which were adversely affected by poor economic conditions and the uncertainty related to the North American Free Trade Agreement. The increase was primarily from higher prices and volumes in Brazil, Thailand, and the PRC the consolidation of Incesa, and a smaller loss for Mexican fittings operations.
Environmental Matters
For a discussion of environmental matters see "ITEM 1. BUSINESS -- Regulations and Environmental Matters."
Backlog
Plumbing Products' year-end 1993 backlog of $143 million was down 9% from 1992, excluding foreign exchange effects. The decrease resulted from a significant drop for European Plumbing Products (particularly Italy because of economic uncertainty, tempered somewhat by increases for England and Germany), and a drop in backlog for export sales from the U.S., partly offset by increases in the Far East (primarily Thailand).
Transportation Products Segment
Year Ended December 31, 1993 1992 1991 (Dollars in millions)
Sales $ 563 $730 $741 Operating income 41 88 121 Assets 652 722 828 Goodwill and purchase accounting adjustments included in assets 422 458 510 Capital expenditures 14 27 24 Depreciation and amortization 35 37 34
Sales of Transportation Products, which accounted for 15% of the Company's 1993 sales, were $563 million, down 23% from $730 million in 1992 (16% excluding the effects of foreign exchange). The sales decrease was due primarily to a volume decline in Germany as a result of a 29% decrease in Western European truck and bus production, led by a 34% decline in Germany, and a 23% decrease in Western European trailer production. Volumes were also down in all other European countries in which Transportation Products has operations, although at the end of 1993 sales and order trends were upward. Volume in Brazil was slightly higher. Original equipment sales volume in Europe was down 22%, and aftermarket business was down 10%. These declines affected both conventional and electronic products.
Operating income for Transportation Products in 1993 decreased 53% (50% excluding foreign exchange effects) to $41 million from $88 million in 1992, principally because of the lower sales and production volume and the inability to pass on material and labor cost increases in a very competitive, declining market. In response to reduced production levels, plant employment was reduced by 15%, the costs of which further depressed 1993 operating income. Those effects were partly offset by the favorable effects of cost improvements in manufacturing from Demand Flow implementa- tion and reduced operating expenses.
Despite the market downturn, significant progress was made during 1993 in obtaining market acceptance of electronically controlled air suspension systems for commercial vehicles and for antilock braking systems on trailers.
Backlog
Transportation Products' year-end 1993 order backlog of $185 million was 2% lower than the 1992 year-end backlog, excluding the effects of foreign exchange, as a result of the poor market conditions.
Financial Review
1993 Compared with 1992
The Company's financing and corporate costs were $363 million and $352 million in 1993 and 1992, respectively. The principal causes of the increase were effects of year-to-year changes in foreign exchange transaction gains and losses, higher minority interest, lower equity income, higher accretion expense on postretirement benefits, and lower miscellaneous income. Interest expense, which accounted for most of these costs, decreased primarily because of lower overall interest rates on new debt issued as part of the Refinancing (described below), partly offset by additional interest expense as a result of the exchange of the 12-3/4% Exchangeable Preferred Stock for the 12-3/4% Junior Subordinated Debentures.
The tax provision for 1993 was $36 million despite a pre-tax loss of $81 million, whereas in 1992 the tax provision was $5 million on a pre-tax loss from continuing operations of $52 million. The 1993 provision reflected taxes payable on profitable foreign operations and was higher than in 1992 primarily because no tax benefits were available on domestic losses. The unusual relationship between the pre-tax losses and the tax provision is explained by the nondeductibility for tax purposes of the amortization of goodwill and other purchase accounting adjustments and the share allocations made by the Company's ESOP as well as by tax rate differences and withholding taxes on foreign earnings.
As a result of the Refinancing in 1993 there was an extraordinary charge of $92 million related to the debt retired (including call premiums, the write-off of deferred debt issuance costs, and loss on cancellation of foreign currency swap contracts) on which there was no tax benefit.
Liquidity and Capital Resources
As a result of the Acquisition the Company's capital structure became highly leveraged. Net cash flow from operations, after cash interest expense of $195 million, was $201 million for the year ended December 31, 1993. Utilizing this cash flow and cash on hand at December 31, 1992, the Company devoted $98 million to capital expenditures, including $8 million of investments in affiliated companies, and repaid $50 million of term loans.
In July 1993 the Company completed a refinancing (the "Refinancing") that included (a) the issuance of $200 million principal amount of 9-7/8% Senior Subordinated Notes Due 2001; (b) the issuance of approximately $751 million principal amount of 10-1/2% Senior Subordinated Discount Debentures Due 2005, which yielded proceeds of approximately $450 million; (c) the amendment and restatement of the Company's 1988 Credit Agreement (the "1988 Credit Agreement" and as so amended and restated, the "Credit Agreement") to establish a $1 billion secured, multi-currency, multi-borrower credit facility; and (d) the application of the proceeds of
such issuances and such borrowings as follows: (i) the redemption on July 1, 1993, of all of the outstanding 12-7/8% Senior Subordinated Debentures Due 2000 at a redemption price of 104.83% ($571.3 million), (ii) the redemption on July 2, 1993, of a majority of the outstanding 14-1/4% Subordinated Discount Debentures Due 2003 at a redemption price of 105% ($389.5 million), (iii) the refunding of bank borrowings ($405 million of term loans and $77 million of other bank debt including revolving credit debt), (iv) the refunding of letters of credit ($58 million), and (v) payment of related fees and expenses.
The Credit Agreement provided to American Standard Inc. and certain subsidiaries (the "Borrowers") a $1 billion facility as follows: (a) a $250 million multi-currency revolving credit facility (the "Revolving Credit Facility") available to all Borrowers, which expires in 2000; (b) a $225 million multi-currency periodic access facility (the "Periodic Access Facility") available to all Borrowers, which expires in 2000; and (c) three term loan facilities (the "Term Loans") consisting of a $225 million U.S. dollar facility available to American Standard Inc., which expires in 2000; a $200 million Deutschemark facility available to a German subsidiary, which expires in 1997; and a $100 million U.S. dollar facility available to all Borrowers, which expires in 1999. In August 1993 the Company repaid $50 million, and the amount available under the Credit Agreement by its terms was reduced to $950 million.
The Company is required to reduce to $50 million the amount of borrowings outstanding under the Revolver for at least 30 consecutive days in each 12-month period ending May 31. In December 1993 the Company met this requirement for the 12 months ending May 31, 1994. Commencing August 31, 1994, the Revolver is reduced by $8.3 million annually, with a final maturity on June 1, 2000. In addition, the Company is required to repay the full amount of each of its outstanding revolving loans at the end of each interest period (a maximum of six months). The Company may, however, immediately reborrow such amounts subject to compliance with applicable conditions of the Credit Agreement.
The Credit Agreement provides the Company with increased operating and financial flexibility, including the ability to shift from time to time a portion of borrowings among borrowers and currencies. As a result of the Refinancing there was a significant reduction in annual interest expense, which was partly offset by additional interest expense on the 12-3/4% Junior Subordinated Debentures exchanged for the 12-3/4% Exchangeable Preferred Stock. The Company believes that the amounts available from operating cash flows and under the Revolving Credit Facility will be sufficient to meet its expected cash needs, including planned capital expenditures.
As described in Note 8 of Notes to Consolidated Financial Statements, the Credit Agreement contains various covenants that limit, among other things, indebtedness, dividends on and redemptions of capital stock of the Company, purchases and redemptions of other indebtedness of the Company (including its outstanding debentures and notes), rental expense, liens, capital expenditures, investments or acquisitions, disposal of assets, the use of proceeds from asset sales, and certain other business activities and require the Company to meet certain financial tests. In order to
maintain compliance with the covenants and restrictions contained in the 1988 Credit Agreement, the Company from time to time has had to obtain waivers and amendments. In February 1994 the Company obtained an amendment to the Credit Agreement that among other things relaxed certain financial tests and convenants, and facilitated the investment in an air conditioning joint venture and the formation of a holding company to establish joint ventures in the People's Republic of China for the manufacture and sale of plumbing products. The Company currently believes it will comply with the amended financial tests and covenants but may have to obtain similar amendments or waivers in the future.
On June 30, 1993, in exchange for all of the Company's outstanding shares of 12-3/4% Exchangeable Preferred Stock, the Company issued $141.8 million of 12-3/4% Junior Subordinated Debentures Due 2003 to the holder of the Exchangeable Preferred Stock. Those debentures were sold by the holder in a registered public offering in August 1993. The Company received none of the proceeds of this offering.
The indentures related to the Company's debentures and notes contain various covenants which, among other things, limit debt and preferred stock of the Company and its subsidiaries, dividends on and redemption of capital stock of the Company and its subsidiaries, redemption of certain subordinated obligations of the Company, the use of proceeds from asset sales, and certain other business activities.
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. The Company has paid approximately $20 million of a disputed German income tax. A suit is pending to obtain a refund of this tax. The Company anticipates that the German tax authorities may propose other adjustments resulting in additional taxes of approximately $105 million, plus penalties and interest for the tax return years under audit. In addition, significant transactions similar to those which gave rise to such possible adjustments occurred in years subsequent to 1990. The Company, on the basis of the opinion of legal counsel, believes the tax returns are substantially correct as filed and intends to vigorously contest any adjustments which have been or may be assessed. Accordingly, the Company had not recorded any loss contingency at December 31, 1993, with respect to such matters. Under German tax law the authorities may demand immediate payment of a tax assessment prior to final resolution of the issues. The Company also believes, on the basis of opinion of legal counsel, that it is highly likely that a suspension of payment will be obtained if additional taxes are assessed. However, if payment is required the Company expects that it will be able to meet such payment from available sources of liquidity or credit support but that future cash flows and capital expenditures, and therefore subsequent results of operations for any particular quarterly or annual period, could be adversely affected.
Capital Expenditures
The Company's capital expenditures for 1993 amounted to $98 million, including investments of $8 million in affiliated companies. The amount
of capital expenditures was $10 million less than in 1992 ($6 million less excluding the effects of foreign exchange). Decreases in capital spending by Plumbing Products and Transportation Products were partly offset by an increase in spending by Air Conditioning Products. The Company believes capital spending was sufficient for maintenance purposes, for important product and process redesigns, for expansion projects, and for strategic investments.
Capital expenditures by Air Conditioning Products were $38 million in 1993. This amount was 15% more than that of 1992. Capital expenditures in 1993 included continuing projects related to Demand Flow and spending on new products such as the Voyager III (medium-tonnage product line), the scroll compressor, and the Series R chiller line, expansion of Voyager I and Voyager II capacity and tooling and equipment for the American Standard product line.
Plumbing Products' capital expenditures in 1993 were $46 million, including investments of $8 million in affiliated companies in France (Porcher) and the Czech Republic. Excluding the investments in affiliated companies and the effects of foreign exchange, capital spending was 34% higher than in 1992 as a result of spending increases in Europe and the Far East. Major projects included capacity expansion in Thailand and China and various projects related to Demand Flow implementation.
Capital expenditures for Transportation Products totaled $14 million in 1993. Excluding the effects of foreign exchange, capital spending was 41% less than in 1992, a year with significant spending related to Demand Flow cost-reduction projects in production and material flow.
1992 Compared with 1991
U.S. housing starts increased by 18% in 1992 from the 1991 level, but non-residential contract awards decreased by 5%. Both of these economic indicators had declined in each of the previous four years.
Consolidated sales for 1992 were $3.8 billion, an increase of 5% (4% excluding the favorable effects of foreign exchange) over the $3.6 billion for 1991. The 1991 amount included the sales of Tyler Refrigeration, which was sold September 30, 1991. Excluding Tyler Refrigeration, sales in 1992 were up 8% (7% excluding foreign exchange effects). Sales increases of 15% for Plumbing Products and 9% for Air Conditioning Products (excluding Tyler Refrigeration) were partly offset by a sales decline for Transportation Products of 1% (6% excluding the favorable effects of foreign exchange).
Operating income for 1992 was $300 million, an increase of $58 million, or 24% (19% excluding the effects of foreign exchange), from $242 million in 1991. The 1991 amount included a loss for Tyler Refrigeration. Excluding Tyler Refrigeration, operating income in 1992 was up 15% (10% excluding foreign exchange effects.) Increases in operating income of 42% for Air Conditioning Products (excluding Tyler Refrigeration) and 64% for Plumbing Products were partly offset by a 27% decrease in operating income for Transportation Products.
Except as otherwise indicated, the following discussion, including the financial comparisons, does not include the results of Tyler Refrigeration or the $22 million loss on the sale of Tyler Refrigeration in 1991.
Air Conditioning Products Segment
Sales of Air Conditioning Products, which accounted for approximately 50% of the Company's 1992 sales, increased by 9% to $1,892 million in 1992 from $1,737 million in 1991. There was a significant sales increase for each of the three operating groups -- for the Unitary Products Group in both residential and commercial products primarily because of higher volume and more favorable product mix (partly offset by lower prices), for the Commercial Systems Group primarily because of higher volume and prices, and for the International Group principally because of increased volume in Europe and the Far East.
Operating income of Air Conditioning Products increased year to year by 42% (with little effect from foreign exchange) to $104 million in 1992 from $73 million in 1991. The increase was attributable to the sales gains, the benefits of manufacturing improvements and restructuring and cost containment in the Unitary Products and Commercial Systems Groups, and the fact that in 1991 results of the Commercial Systems Group had been adversely affected by a 54-day work stoppage at its LaCrosse, Wisconsin, facility. The impact of these factors was partly offset by a margin decline for the International Group and costs related to the start-up of new facilities, sales offices, and distribution channels.
Unitary Products Group
Sales in 1992 of the Unitary Products Group, which accounted for approximately 41% of Air Conditioning Products sales, increased by 6% over the 1991 sales level. Commercial markets for unitary products were up 6% overall from the depressed 1991 markets, as a very strong commercial replacement market more than offset the effects of low new-construction activity. Sales of commercial unitary products increased by 7% overall, primarily as a result of higher volume (driven by the strong replacement market), a shift to higher-priced, higher-tonnage products, and a gain in market share for light commercial products. Residential markets were down 3.5%, as poor replacement activity, a result of an unseasonably cool summer, more than offset the 18% increase in new housing starts. Despite this poorer market, sales of residential products increased by 5% year over year, principally because of larger market share, improved furnace markets, and a partial shift in the market to more efficient products stimulated by Federal standards, offset partly by price degradation due to competitive pressures. As a result of these factors, together with benefits of manufacturing improvements, cost containment, and organizational restructuring which reduced the salaried workforce, the operating profit for Unitary Products in 1992 increased by 50% from the depressed level of 1991.
Commercial Systems Group
Sales of the Commercial Systems Group, which accounted for approximately 38% of Air Conditioning Products' sales, increased 9% primarily on volume increases in aftermarket replacement and parts sales, increased revenue from Company-owned sales offices (volume growth and acquisitions), and small price increases on most product lines. Other factors contributing to the increase were higher sales of large applied systems and the fact that in 1991 there was a 54-day work stoppage at the LaCrosse, Wisconsin, plant. These gains were partly offset by lower volume in Canada, which was adversely affected by recession.
Operating income for Commercial Systems increased 129% in 1992 over the recession-affected and work-interrupted level of 1991. The increase was primarily the result of the volume and price gains, improvements in manufacturing efficiency, cost containment and restructuring, and the fact that 1991 included the adverse impact of the LaCrosse work stoppage. The effects of these factors were partly offset by slightly lower gross margins, as the price increases did not completely recover increases in material, labor and benefits costs.
International Group
Sales of Air Conditioning Products' International Group, which accounted for approximately 21% of Air Conditioning Products' 1992 sales, increased 15% from those of 1991 (10% excluding the favorable effect of foreign exchange). Most of the gain was from higher volumes in Mexico (two new sales offices resulted in expanded distribution and penetration), the Far East (especially Hong Kong and Singapore), the Middle East (markets were significantly stronger), and Europe (sales of new products and increased penetration despite declining markets). Markets were down in almost all European countries except Italy, with the largest drop in the U.K., offset partly by increased revenues from acquired service companies.
Operating income for the International Group decreased by approximately 68% in 1992. The decline occurred in Europe, primarily because of the weak markets and lower prices, costs related to the start-up of new facilities and new distribution networks in the U.K. and France, costs related to the introduction of new products, start-up costs of a company in Spain acquired near the end of 1991, and foreign exchange transaction losses from currency fluctuations in the latter half of 1992. Income from the Far East and Latin America was essentially unchanged from the prior year, as volume gains were offset by increased costs related to expanded distribution channels, start-up of new joint ventures, and development of new and improved products to support present and future growth.
Plumbing Products Segment
Sales of Plumbing Products, which accounted for approximately 31% of the Company's 1992 sales, increased by 15% in 1992 (14% excluding the effects of foreign exchange) to $1,170 million from $1,018 million in 1991. The improvement resulted from sales increases of 9% (7% excluding the effects of foreign exchange) for the European Plumbing Products Group, 21% for the U.S. Plumbing Products Group, 4% for the Americas International Group (7% excluding foreign exchange), and 101% for the Far East Group (98% excluding foreign exchange).
In 1992 operating income of Plumbing Products increased 64% (56% excluding the effects of foreign exchange) to $108 million from $66 million in 1991. The increase was attributable primarily to increased profitability for the European group on higher prices and volumes (especially in Italy and Germany) although improved results in the U.S., Americas International, and Far East groups contributed.
European Plumbing Products Group
Sales of the European group, which accounted for approximately 57% of Plumbing Products' sales for 1992, increased 9% in 1992 over 1991, 7% excluding the favorable effects of foreign exchange. The gain resulted primarily from price and volume increases, especially in Italy and Germany, offset partly by lower volume in France from declining demand and lower prices in the U.K. caused by a very poor market. In Italy sales were up 9%, with gains for most product lines in price, volume and market share. The gains in Germany were the result of higher volumes and prices for brass fittings and luxury chinaware.
Operating income for the European group increased 28% (23% excluding the effects of foreign exchange) primarily from the price and volume gains in Italy and Germany and higher margins on German brass operations resulting from improved manufacturing processes and cost containment, offset partly by lower profitability in France because of decreased volume and in the U.K. because of the recession. A recession depressed operating results in Greece.
U.S. Plumbing Products Group
Sales of the U.S. group, which accounted for approximately 24% of total 1992 Plumbing Products sales, increased 21% in 1992. During 1992 the U.S. building industry continued to be severely affected by the low level of new construction, with non-residential construction down 5% from 1991 and with new residential construction recovering from the lowest levels since the mid-1940's (though up by 18%, it was still low in historical terms). The U.S. market for plumbing products was up an estimated 3% to 4%, with more than half the gain occurring in the replacement and remodeling markets, which accounts for about 60% of the total U.S. market. The growth of sales for the U.S. group was largely a result of the strength of retail business (which had a significant
increase in volume and accounted for 20% of sales of the U.S. group in 1992) and increased export sales from the U.S., together with smaller gains resulting from price increases and higher wholesaler distribution sales. Sales of AMERICAST products more than doubled in 1992, and smaller volume gains were achieved for acrylic products, fixtures, and faucets.
The operating loss for the U.S. group in 1992 was less than that of the prior year. The improvement was primarily due to price increases and secondarily to volume and margin gains (as a result of sourcing product from the Company's Latin American plants), offset partly by non-recurring costs related to implementation of improved manufacturing processes and the effects of a shift in overall sales mix from commercial and luxury to lower-margin products.
Americas International and Far East Groups
Combined sales of the Americas International and Far East Groups, which accounted for approximately 19% of total Plumbing Products sales, increased 26% in 1992 (28% excluding the effects of foreign exchange). The sales gain was due primarily to the consolidation in 1992 of a previously unconsolidated joint venture in Thailand and to a lesser extent to price and volume increases in Mexico and Korea and higher volumes in Brazil, offset partly by lower sales in Canada, which were adversely affected by severe recession.
Combined operating income of the Americas International and Far East Groups in 1992 increased 134% over the 1991 level. Gains were realized in all operations except Canada and the Philippines, both of which were adversely affected by poor economies. The increase was primarily from price and volume gains in Mexico and Korea, higher volume and margins in Brazil, and higher volume in China.
Transportation Products Segment
Sales of Transportation Products, which accounted for 19% of the Company's 1992 sales, were $730 million, down 1% from $741 million in 1991 (6% excluding the effects of foreign exchange). The sales decrease was due primarily to a volume decline in Germany as a result of a significant decrease in truck and bus production. Volumes were also down in nearly all other European countries in which Transportation Products has operations except the U.K. There was also a decline in prices of electronic control products, primarily as a result of industry cost reductions.
Operating income for Transportation Products in 1992 decreased 27% (32% excluding foreign exchange effects) to $88 million from $121 million in 1991, principally because of the lower sales and production volume, lower prices, and increased spending for product engineering. Plant employment was kept in line with reduced production levels, but the costs associated with these reductions also depressed 1992 operating income. Those effects were partly offset by the favorable effects of cost reductions and increases in efficiency achieved in manufacturing operations.
Financial Review
1992 Compared with 1991
The Company's financing and corporate costs were $352 million and $330 million in 1992 and 1991, respectively. The principal causes of the increase were year-to-year effects of changes in foreign exchange transaction gains and losses, higher minority interest, and lower miscellaneous income. Interest expense and accretion expense on postretirement benefits, which accounted for most of these costs, also increased.
The tax provision for 1992 was $5 million despite a pre-tax loss of $52 million, whereas in 1991 the tax provision was $23 million on a pre-tax loss from continuing operations of $88 million. The 1992 provision reflected taxes payable on profitable foreign operations offset partly by available domestic tax benefits. The 1992 provision was lower than in 1991 primarily because of lower pre-tax earnings in foreign operations. In 1992 the provision was also lower because of future income tax benefits resulting from carrybacks of foreign net operating losses and the existence of deferred tax credits which reverse in the carryforward period applicable to other foreign net operating losses. The unusual relationship between the pre-tax losses and the tax provision is explained by the nondeductibility for tax purposes of the amortization of goodwill and other purchase accounting adjustments and the share allocations made by the Company's ESOP as well as by tax rate differences and withholding taxes on foreign earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated balance sheets at December 31, 1993 and 1992, and related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years ended December 31, 1993, 1992 and 1991, have been prepared in conformity with generally accepted accounting principles, and the Company believes the statements set forth a fair presentation of financial condition and results of operations. The Company believes that the accounting systems and related controls that it maintains are sufficient to provide reasonable assurance that the financial records are reliable for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance is based on the recognition that the cost of a system of internal control must be related to the benefits derived and that the balancing of those factors requires estimates and judgment. Reporting on the financial affairs of the Company is the responsibility of its principal officers, subject to audit by independent auditors, who are engaged to express an opinion on the Company's financial statements. The Board of Directors has an Audit Committee of non-employee Directors which meets periodically with the Company's financial officers, internal auditors, and the independent auditors and monitors the accounting affairs of the Company.
ASI Holding Corporation
New York, New York March 14, 1994
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Board of Directors ASI Holding Corporation
We have audited the accompanying consolidated balance sheets of ASI Holding Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ASI Holding Corporation and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles.
/s/Ernst & Young
Ernst & Young
New York, New York March 14, 1994
ASI HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollars in thousands except share amounts)
ASSETS At December 31, 1993 1992 Current assets Cash and certificates of deposit $ 53,237 $ 111,549 Cash in escrow 932 1,722 Accounts receivable, less allowance for doubtful accounts-- 1993, $15,666; 1992, $12,827 507,322 468,731 Inventories 325,819 384,857 Future income tax benefits 24,562 33,192 Other current assets 29,811 31,199 Total current assets 941,683 1,031,250 Facilities, at cost net of accumulated depreciation 820,523 832,811 Other assets Goodwill, net of accumulated amortization -- 1993, $169,879; 1992, $141,858 1,025,774 1,101,716 Debt issuance costs, net of accumulated amortization-- 1993 $9,670; 1992, $77,776 78,102 51,308 Other 120,997 109,333 $2,987,079 $3,126,418 ========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities Loans payable to banks $ 38,036 $ 99,150 Current maturities of long-term debt 105,939 13,458 Accounts payable 307,326 271,855 Accrued payrolls 99,758 105,400 Other accrued liabilities 263,322 230,335 Taxes on income 47,003 18,848 Total current liabilities 861,384 739,046 Long-term debt 2,191,737 2,032,064 Other long-term liabilities Reserve for postretirement benefits 387,038 368,868 Deferred tax liability 45,625 73,307 Other 224,108 228,521 Total liabilities 3,709,892 3,441,806 Commitments and contingencies Exchangeable preferred stock - 133,176 Stockholders' deficit Preferred stock, Series A, par value $.01, 1,000 shares issued and outstanding - - Common stock $.01 par value, 28,000,000 shares authorized; 23,858,335 shares issued and outstanding in 1993, 23,608,587 in 1992 239 236 Capital surplus 188,744 192,351 Subscriptions receivable (2,588) (3,316) ESOP shares (4,331) (9,527) Accumulated deficit (750,003) (541,436) Foreign currency translation effects (149,220) (86,872) Minimum pension liability adjustment (5,654) - Total stockholders' deficit (722,813) (448,564) $2,987,079 $3,126,418 =========== ==========
See notes to consolidated financial statements.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
ASI Holding Corporation ("Holding") is a Delaware corporation that was formed in 1988 by an affiliate of Kelso & Company L.P. ("Kelso"), an investment banking firm that specializes in leveraged buyouts. On March 21, 1988, the Kelso affiliate commenced a tender offer (the "Tender Offer") for all of the common stock of American Standard Inc. at $78 per share in cash. On April 27, 1988, the Kelso affiliate completed the Tender Offer with the purchase of approximately 95% of the shares of American Standard Inc.
Pursuant to an Agreement and Plan of Merger, a merger was consummated (the "Merger") on June 29, 1988, whereby American Standard Inc. became a wholly owned subsidiary of Holding. At that time the remaining shares of American Standard Inc.'s common stock were converted into the right to receive cash of $78 per share. Hereinafter "the Company" will refer to Holding or to its subsidiary, American Standard Inc., as the context requires. The Tender Offer, Merger, and related transactions are hereinafter referred to as the "Acquisition." For financial statement purposes the Acquisition has been accounted for under the purchase method.
Note 2. Accounting Policies
Consolidation
The financial statements include on a consolidated basis the results of all majority-owned subsidiaries. All material intercompany transactions are eliminated. Investments in affiliated companies are included at cost plus the Company's equity in their net results.
Translation of Foreign Financial Statements
Assets and liabilities of most foreign operations are translated at year-end rates of exchange, and the income statements are translated at the average rates of exchange for the period. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholder's equity until the entity is sold or substantially liquidated.
Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity's local currency) are included in net income. For operations in countries that have high rates of inflation, net income includes gains and losses from translating assets and liabilities at year-end rates of exchange, except for inventories and facilities, which are translated at historical rates.
Revenue Recognition
Sales are recorded when shipment to a customer occurs.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement of Cash Flows
Cash and certificates of deposit include all highly liquid investments with an original maturity of three months or less.
Inventories
Inventory costs are determined by the use of the last-in, first-out (LIFO) method on a worldwide basis, and inventories are stated at the lower of such cost or realizable value.
Facilities
The Company capitalizes costs, including interest during construction, of fixed asset additions, improvements, and betterments that add to productive capacity or extend the asset life. Maintenance and repair expenditures are charged against income. Significant foreign investment grants are amortized into income over the period of benefit.
Goodwill
Goodwill is being amortized over 40 years.
Debt Issuance Costs
The costs related to the issuance of debt are amortized using the interest method over the lives of the related debt.
Warranties
The Company provides for estimated warranty costs at the time of sale. Warranty obligations beyond one year are included in other long-term liabilities.
The Company changed its method of accounting for revenues from extended warranty contracts at the beginning of 1991 to conform with the FASB Technical Bulletin, "Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts." The bulletin requires the deferral of the revenue from the sales of such contracts and amortization thereof on a straight-line basis over the terms of the contracts. The cumulative effect of this accounting change for all contracts in place as of December 31, 1990, increased the net loss in 1991 by $7 million, net of income tax benefit. The effect on the 1991 net loss, excluding the cumulative effect upon adoption, was not material.
Leases
The asset values of capitalized leases are included with facilities, and the associated liabilities are included with long-term debt.
Postretirement Benefits
Postretirement benefits are provided for substantially all employees of the Company, both in the United States and abroad. In the United States the Company also provides various postretirement health care and
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
life insurance benefits for some of its employees. Effective January 1, 1991, such costs are calculated in accordance with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("FAS 106").
Depreciation
Depreciation and amortization are computed on the straight-line method based on the estimated useful life of the asset or asset group.
Research and Development Expenses
Research and development costs are expensed as incurred except for costs incurred (after technological feasibility is established) for computer software products expected to be sold. The Company expensed costs of approximately $41 million in 1993, $40 million in 1992, and $36 million in 1991 for research activities and product development. Computer software product development costs capitalized in 1993 amounted to $2 million.
Income Taxes
In 1991 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), and elected to apply the provisions retroactively to January 1, 1989.
The Company recognizes deferred tax assets for the tax effects of items that will be deducted for tax purposes in later years together with the tax effects of income items included in current reporting for tax purposes but in later years for financial statement purposes and the effects of certain tax attributes such as net operating losses.
The Company provides for United States income taxes and foreign withholding taxes on foreign earnings expected to be repatriated. Deferred tax liabilities are provided on the excess of the financial statement basis over the tax basis of certain assets, primarily for inventories and fixed assets, including fair value adjustments resulting from purchase accounting in connection with the Acquisition; fixed assets due to accelerated depreciation deductions for tax purposes; and non-permanent investments in certain foreign subsidiaries.
Earnings per share
Earnings per share have been computed using the weighted average number of common shares outstanding.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments with Off-Balance-Sheet Risk
The Company from time to time enters into foreign currency exchange agreements in the management of foreign currency exposure. Gains and losses from exchange rate changes are included in income unless the contract hedges a net investment in a foreign entity or a firm commitment, in which case gains and losses are deferred as a component of foreign currency translation effects in stockholder's equity or included as a component of the transaction.
Note 3. Postretirement Benefits
The Company sponsors postretirement benefit plans covering substantially all employees, including an Employee Stock Ownership Plan (the "ESOP") for the Company's U.S. salaried employees and certain U.S. hourly employees. In 1988 in conjunction with the Acquisition the ESOP purchased 5,000,000 shares (adjusted for a 100-for-1 stock split) of common stock of Holding. The ESOP is an individual account, defined contribution plan. The valuation of the ESOP shares is determined by independent appraisals. The common stock acquired by the ESOP is being allocated to the accounts of eligible employees over a period not exceeding eight plan years, including basic allocation of 3% of covered compensation and a matching Company contribution of up to 6% of covered compensation invested in the Company's savings plan by employees.
Pension plan benefits are generally based on years of service and employees' compensation during the last years of employment. In the United States the Company also provides various postretirement health care and life insurance benefits for some of its employees. Funding decisions are based upon the tax and statutory considerations in each country. Accretion expense is the implicit interest cost associated with amounts accrued and not funded and is included in "other expense". At December 31, 1993, funded plan assets related to pensions were held primarily in fixed income and equity funds. Postretirement health and life insurance benefits are not prefunded.
Effective January 1, 1991, the Company changed its method of accounting for postretirement benefits other than pensions to conform with FAS 106. The cumulative effect of this change increased the recorded obligation for such benefits by $40 million, thereby increasing the net loss in 1991 by $25 million (net of the related income tax benefit). The effect of the change on the 1991 net loss, excluding the cumulative effect upon adoption, was not material.
The following table sets forth the Company's postretirement plans' funded status and amounts recognized in the balance sheet at December 31, 1993 and 1992.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Other Expense
Other income (expense) was as follows:
Year Ended December 31, 1993 1992 1991 (Dollars in millions)
Interest income $ 8.5 $ 8.7 $ 8.3 Royalties 2.6 3.8 2.5 Equity in net income (loss) of affiliated companies (0.1) 4.9 10.2 Minority interest (14.0) (9.8) (3.1) Accretion expense (30.5) (29.8) (27.9) Other, net (4.8) (2.5) 1.9 $(38.3) $(24.7) $ (8.1) ====== ====== ======
The decrease in equity in net income of affiliated companies and the increase in minority interest in 1993 and 1992 compared with 1991 were primarily the result of consolidation of the plumbing companies in Thailand, the People's Republic of China, and Incesa, previously unconsolidated joint ventures.
Note 5. Income Taxes
The Company's loss before income taxes, extraordinary loss, and cumulative effects of changes in accounting methods ("pre-tax income (loss)") and the applicable provision (benefit) for income taxes were:
Year Ended December 31, 1993 1992 1991 (Dollars in millions) Pre-tax income (loss): Domestic $ (223.2) $ (170.1) $(272.6) Foreign 142.7 117.5 184.8 Pre-tax loss $ (80.5) $ (52.6) $ (87.8) Provision (benefit) for income taxes: Current: Domestic $ 12.4 $ 5.1 $ 5.1 Foreign 43.0 63.0 71.3 55.4 68.1 76.4 Deferred: Domestic 1.1 (35.8) (52.4) Foreign (20.3) (27.6) (1.0) (19.2) (63.4) (53.4) Total provision $ 36.2 $ 4.7 $ 23.0 ======== ======== =======
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the actual income tax expense provided and the income tax benefit computed by applying the statutory federal income tax rate of 35% in 1993 and 34% in 1992 and 1991 to the pre-tax loss is as follows:
Year Ended December 31, 1993 1992 1991 (Dollars in millions) Tax benefit at statutory rate $(28.2) $(17.9) $(29.9) Nondeductible goodwill charged to operations 10.4 10.5 10.6 Nondeductible goodwill related to operations sold - 25.1* Nondeductible ESOP allocations 6.1 4.9 4.6 Rate differences and withholding taxes related to foreign operations 9.0 1.4 4.7 Foreign exchange gains (7.0) (6.3) (2.1) State tax benefits (5.5) (3.3) (3.4) Other, net 8.7 5.5 5.6 Increase in valuation allowance 42.7 9.9 7.8 Total provision $ 36.2 $ 4.7 $ 23.0 ====== ====== ======
* Includes goodwill eliminated in the sale of Tyler Refrigeration.
In addition to the valuation allowance increase of $42.7 million shown above, a valuation allowance of $32.1 million was provided for the entire amount of the tax benefit related to the extraordinary loss on retirement of debt (see Note 8 of Notes to Consolidated Financial Statements).
The following table details the gross deferred liabilities and the gross deferred tax assets and the related valuation allowances.
At December 31, 1993 1992 (dollars in millions) Deferred tax liabilities: Facilities (accelerated depreciation, capitalized interest and purchase accounting differences) $ 141.1 $ 154.1 Inventory (LIFO and purchase accounting differences) 18.5 30.3 Employee benefits 11.0 6.6 Foreign investments 50.1 48.8 Other 26.2 26.6 246.9 266.4 Deferred tax assets: Employee benefits (pensions and other postretirement benefits) 110.7 97.7 Warranties 37.4 30.0 Alternative minimum tax 19.4 21.8 Foreign tax credits and net operating losses 57.5 42.3 Reserves 58.7 45.1 Other 46.0 18.5 Valuation allowances (103.9) (29.1) 225.8 226.3 Net deferred tax liabilities $ 21.1 $ 40.1 ========= ========
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets related to foreign tax credits, net operating loss carryforwards, and future tax deductions have been reduced by a valuation allowance since realization is dependent in part on the generation of future foreign source income as well as on income in the legal entity which gave rise to tax losses. Other deferred tax assets have not been reduced by valuation allowances because of carrybacks and existing deferred tax credits which reverse in the carryforward period. The foreign tax credits and net operating losses are available for utilization in future years. In some tax jurisdictions the carryforward period is limited to as little as five years; in others it is unlimited.
As a result of the Acquisition (see Note 1) and the allocation of purchase accounting (principally goodwill) to foreign subsidiaries, the book basis in the net assets of the foreign subsidiaries exceeds the related U.S. tax basis in the subsidiaries' stock. Such investments are considered permanent in duration, and accordingly no deferred taxes have been provided on such differences, which are significant. It is impracticable because of the complex legal structure of the Company and the numerous tax jurisdictions in which the Company operates to determine such deferred taxes.
Cash taxes paid were $41 million, $56 million, and $79 million in the years 1993, 1992, and 1991, respectively.
In connection with examinations of the tax returns of the Company's German subsidiaries for the years 1984 through 1990, the German tax authorities have raised questions regarding the treatment of certain significant matters. The Company has paid approximately $20 million of a disputed German income tax. A suit is pending to obtain a refund of this tax. The Company anticipates that the German tax authorities may propose other adjustments resulting in additional taxes of approximately $105 million, plus penalties and interest for the tax return years under audit. In addition, significant transactions similar to those which gave rise to such possible adjustments occurred in years subsequent to 1990. The Company, on the basis of the opinion of legal counsel, believes the tax returns are substantially correct as filed and intends to vigorously contest any adjustments which have been or may be assessed. Accordingly, the Company had not recorded any loss contingency at December 31, 1993 with respect to such matters. Under German tax law the authorities may demand immediate payment of a tax assessment prior to final resolution of the issues. The Company also believes, on the basis of opinion of legal counsel, that it is highly likely that a suspension of payment will be obtained if additional taxes are assessed. However, if payment is required, the Company expects that it will be able to make such payment from available sources of liquidity or credit support but that future cash flows and capital expenditures and therefore subsequent results of operations for any particular quarterly or annual period could be adversely affected.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Inventories
The components of inventory are as follows:
At December 31, 1993 1992 (Dollars in millions)
Finished products $169.0 $200.6 Products in process 78.0 95.8 Raw materials 78.8 88.5 Inventory at cost $325.8 $384.9 ====== ======
The carrying cost of inventories reflects purchase accounting adjustments and therefore exceeds current cost.
Note 7. Facilities
The components of facilities, at cost, are as follows:
At December 31, 1993 1992 (Dollars in millions)
Land $ 66.2 $ 65.0 Buildings 314.6 310.2 Machinery and equipment 739.9 719.4 Improvements in progress 54.4 45.6 Gross facilities 1,175.1 1,140.2 Less: accumulated depreciation 354.6 307.4 Net facilities $ 820.5 $ 832.8 ======== ========
Note 8. Debt
The 1993 Refinancing
In July 1993 the Company completed a refinancing (the "Refinancing") that included (a) the issuance of $200 million principal amount of 9-7/8% Senior Subordinated Notes Due 2001; (b) the issuance of approximately $751 million principal amount of 10-1/2% Senior Subordinated Discount Debentures Due 2005, which yielded proceeds of approximately $450 million; (c) the amendment and restatement of the Company's 1988 Credit Agreement (the "1988 Credit Agreement" and as so amended and restated, the "Credit Agreement") to establish a $1 billion secured, multi-currency, multi-borrower credit facility; and (d) the application of the proceeds of such issuances and such borrowings as follows: (i) the redemption on July 1, 1993, of all of the outstanding 12-7/8% Senior Subordinated Debentures Due 2000 (the "12-7/8% Senior Subordinated Debentures") at a redemption price of 104.83% ($571.3 million), (ii) the redemption on July 2, 1993, of
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a majority of the outstanding 14-1/4% Subordinated Discount Debentures Due 2003 (the "14-1/4% Subordinated Discount Debentures") at a redemption price of 105% ($389.5 million), (iii) the refunding of bank borrowings ($405 million of term loans and $77 million of other bank debt including revolving credit debt), (iv) the refunding of letters of credit ($58 million), and (v) payment of related fees and expenses.
The Credit Agreement provided to American Standard Inc. and certain subsidiaries (the "Borrowers") a $1 billion facility as follows: (a) a $250 million multi-currency revolving credit facility (the "Revolving Credit Facility") available to all Borrowers, which expires in 2000; (b) a $225 million multi-currency periodic access facility (the "Periodic Access Facility") available to all Borrowers, which expires in 2000; and (c) three term loan facilities (the "Term Loans") consisting of a $225 million U.S. dollar facility ("Tranche A") available to American Standard Inc., which expires in 2000; a $200 million Deutschemark facility ("Tranche B") available to a German subsidiary, which expires in 1997; and a $100 million U.S. dollar facility ("Tranche C") available to all Borrowers, which expires in 1999. In August 1993 the Company repaid $50 million and the amount available under the Credit Agreement by its terms was reduced to $950 million.
Borrowings under the Periodic Access Facility and the Term Loans generally bear interest at the London interbank offered rate ("LIBOR") plus 2-1/2% except for the $225 million U.S. dollar facility, which bears interest at LIBOR plus 3%, and the $200 million Deutschemark facility, which bears interest at LIBOR plus 2%. The Company pays a commitment fee of 0.5% per annum on the unused portion of the Revolving Credit Facility and a fee of 2.5% plus issuance fees for letters of credit.
As a result of the Refinancing, results for the year ended December 31, 1993, included an extraordinary charge of $92 million related to the debt retired (including call premiums, the write-off of deferred debt issuance costs, and loss on cancellation of foreign currency swap contracts) on which there was no tax benefit (see Note 5).
Short-term
The Revolving Credit Facility (the "Revolver") provides for aggregate borrowings of up to $250 million for working capital purposes, of which up to $200 million may be used for the issuance of letters of credit and $40 million of which is available for same-day short-term borrowings ("Swingline Loans"). At December 31, 1993, there were $7 million of borrowings outstanding under the Revolver and $66 million of letters of credit. Availability under the Revolver at December 31, 1993, was $177 million. Average borrowings under this facility and under the revolving credit facility available under the previous 1988 Credit Agreement for 1993, 1992, and 1991 were $39 million, $14 million, and $44 million, respectively. The Revolver and the Swingline Loans bear interest at the prime rate plus 1-1/2% or LIBOR plus 2-1/2%.
The Company is required to reduce to $50 million the amount of borrowings outstanding under the Revolver for at least 30 consecutive days in each 12-month period ending May 31. In December 1993 the Company met this requirement for the 12-month period ending May 31, 1994. Commencing August 31, 1994, the Revolver is reduced by $8.3 million annually, with a
AMERICAN STANDARD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
final maturity on June 1, 2000. In addition, the Company is required to repay the full amount of each of its outstanding revolving loans at the end of each interest period (a maximum of six months). The Company may, however, immediately reborrow such amounts subject to compliance with applicable conditions of the Credit Agreement.
Other short-term borrowings are available outside the United States under informal credit facilities and are typically a result of overdrafts. At December 31, 1993, the Company had $31 million of such foreign short-term debt outstanding at an average interest rate of 11% per annum. The Company also had an additional $50 million of unused foreign facilities. These facilities may be withdrawn by the banks at any time.
Long-term
Long-term debt was as follows:
At December 31, 1993 1992 (Dollars in millions)
Credit Agreement $ 689.9 $ - 1988 Credit Agreement - 402.3 9 1/4% sinking fund debentures, due in installments from 1997 to 2016 150.0 150.0 10 7/8% senior notes due 1999 150.0 150.0 11 3/8% senior debentures due 2004 250.0 250.0 9 7/8% senior subordinated notes due 2001 200.0 - 10 1/2% senior subordinated discount debentures (net of unamortized discount of $272.9 million in 1993) due in installments from 2003 to 2005 477.8 - 12 7/8% senior subordinated debentures - 545.0 14 1/4% subordinated discount debentures (net of unamortized discount of $36.3 million in 1992) due in installments from 2002 to 2003 175.0 509.5 Other long-term debt 63.1 53.3 12 3/4% junior subordinated debentures due in installments from 2001 to 2003 (Note 9) 141.8 - Foreign currency swap contracts - (14.6) 2,297.6 2,045.5 Less current maturities 105.9 13.4 $ 2,191.7 $ 2,032.1 ========= =========
The amounts of long-term debt maturing from 1995 through 1998 are: 1995-$126.3 million, 1996-$123.5 million, 1997 $121.2 million, 1998-$117.5 million.
Interest costs capitalized as part of the cost of constructing facilities for the years ended December 31, 1993, 1992, and 1991, were $2.7 million, $3.1 million, and $3.6 million, respectively. Cash interest paid for those same years on all outstanding indebtedness amounted to $198 million, $210 million, and $224 million, respectively.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Agreement loans, maturities, and effective weighted average interest rates in effect at December 31, 1993, were as follows:
U.S. Dollar Equivalent (in millions) Periodic Access Facility, due in semi-annual installments from February 1994 to February 2000: British sterling loans at 7.85% $ 95.8 Deutschemark loans at 9.06% 49.4 Canadian dollar loans at 6.50% 20.2 French franc loans at 9.17% 18.5 Italian lira loans at 12.19% 8.7 Total Periodic Access loans 192.6
Term Loans: Tranche A U.S. dollar loans, due in semi-annual installments from August 1997 to February 2000 at 6.50% 225.0 Tranche B Deutschemark loans, due in semi-annual installments from February 1994 to February 1997 at 7.88% 172.3 Tranche C U.S. dollar loans, due in semi-annual installments from February 1994 to August 1999 at 6.01% 100.0 Total Term Loans 497.3
Total Credit Agreement long-term loans 689.9
Revolver loans at 7.5% 7.0
Total Credit Agreement loans $ 696.9 ========
Under the 1988 Credit Agreement the various term loans and effective weighted average interest rates in effect at December 31, 1992, were as follows: U.S. Dollar Equivalent (in millions) Deutschemark loans at 11.4% $249.8 Canadian dollar loans at 13.05% 152.5 Total $402.3 ======
The 9-7/8% Senior Subordinated Notes may be redeemed at the Company's option, in whole or in part, on and after June 1, 1998, at redemption prices declining from 102.82% in 1998 to 100% on June 1, 2000, and thereafter. The 10-1/2% Senior Subordinated Discount Debentures may be redeemed at the Company's option, in whole or in part, on and after June 1, 1998, at redemption prices declining from 104.66% in 1998 to 100% on June 1, 2002, and thereafter. The payment of the principal and interest on the
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9-7/8% Senior Subordinated Notes and on the 10-1/2% Senior Subordinated Discount Debentures (together the "Senior Subordinated Debt") is subordinated in right of payment to the payment when due of all Senior Debt (as defined in the related indenture) of the Company, including all indebtedness under the Credit Agreement and the 9-1/4% Sinking Fund Debentures, the 10-7/8% Senior Notes, and the 11-3/8% Senior Debentures (the said notes and debentures together the "Senior Securities").
The 9-1/4% Sinking Fund Debentures are redeemable at the Company's option, in whole or in part, at redemption prices declining from 105.55% in 1994 to 100% in 2006 and thereafter. The 10-7/8% Senior Notes are not redeemable by the Company. The 11-3/8% Senior Debentures are redeemable at the option of the Company, in whole or in part, on or after May 15, 1997, at redemption prices declining from 105.69% in 1997 to 100% on May 15, 2002, and thereafter.
The 14-1/4% Subordinated Discount Debentures are redeemable at the Company's option, in whole or in part, at redemption prices of 105% prior to June 30, 1994, declining to 100% on and after June 30, 1995. The payment of the principal and interest on the 14-1/4% Subordinated Discount Debentures issued by the Company in 1988 is subordinated in right of payment to the payment when due of all Senior Debt (as defined in the related indenture) of the Company, including all indebtedness under the Credit Agreement, the Senior Securities, and the Senior Subordinated Debt. The 14-1/4% Subordinated Discount Debentures rank senior to the 12-3/4% Junior Subordinated Debentures (described below).
The 12-3/4% Junior Subordinated Debentures may be redeemed, at the Company's option, in whole or in part at a redemption price of 101.8% prior to June 30, 1994, and at 100% thereafter. The payment of principal and interest on the 12-3/4% Junior Subordinated Debentures is subordinated in right of payment to the payment when due of all Senior Debt (as defined in the related indenture) of the Company, including all indebtedness under the Credit Agreement, the Senior Securities, the Senior Subordinated Debt, and the 14-1/4% Subordinated Discount Debentures.
Obligations under the Credit Agreement are guaranteed by ASI Holding Corporation (the Company's parent), the Company, and significant domestic subsidiaries of the Company (with foreign borrowings also guaranteed by certain foreign subsidiaries) and are secured by U.S., Canadian, and U.K. properties, plant, and equipment; by liens on receivables, inventories, intellectual property, and other intangibles; and by a pledge of the Company's stock and nearly all shares of subsidiary stock. In addition, the obligations of the Company under the Senior Securities are secured, to the extent required by the related indentures, by mortgages on the principal U.S. properties of the Company equally and ratably with the indebtedness under the Credit Agreement and certain related indebtedness.
The Senior Subordinated Debt, the 14-1/4% Subordinated Discount Debentures, and the 12-3/4% Junior Subordinated Debentures are unsecured.
The Credit Agreement contains various covenants that limit, among other things, indebtedness, dividends on and redemption of capital stock of the Company, purchases and redemptions of other indebtedness of the Company (including its outstanding debentures and notes), rental expense, liens, capital expenditures, investments or acquisitions, disposal of assets, the
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
use of proceeds from asset sales, and certain other business activities and require the Company to meet certain financial tests. In order to maintain compliance with the covenants and restrictions contained in the 1988 Credit Agreement, the Company from time to time has had to obtain waivers and amend- ments. In February 1994 the Company obtained an amendment to the Credit Agreement that among other things relaxed certain financial tests and covenants and facilitated the investment in an air conditioning joint venture and the formation of a holding company to establish joint ventures in the People's Republic of China for the manufacture and sale of plumbing products. The Company currently believes it will comply with the amended financial tests and covenants but may have to obtain similar waivers or amendments in the future.
The indentures related to the Company's debentures and notes contain various covenants which, among other things, limit debt and preferred stock of the Company and its subsidiaries, dividends on and redemption of capital stock of the Company and its subsidiaries, redemption of certain subordinated obligations of the Company, the use of proceeds from asset sales, and certain other business activities.
Note 9. Exchange of Exchangeable Preferred Stock
On June 30, 1993, in exchange for all of the Company's outstanding shares of 12-3/4% Exchangeable Preferred Stock, the Company issued $141.8 million of 12-3/4% Junior Subordinated Debentures Due 2003 to the holder of the Exchangeable Preferred Stock. Those debentures were sold by the holder in a registered public offering in August 1993. The Company received none of the proceeds of this offering.
Note 10. Foreign Currency Translation
Assets and liabilities of most foreign operations are translated at year-end rates of exchange, and the resulting gains or losses, net of income tax effects, are accumulated in a separate component of stockholder's equity.
Changes in exchange rates which gave rise to significant translation effects included in stockholder's equity for the years ended December 31, 1993, 1992, and 1991, are summarized in the accompanying table.
Change in End of Period Exchange Rate Currency 1993 1992 1991
British sterling (2)% (19)% (3)% Canadian dollar (4) ( 9) - French franc (6) (6) (2) Deutschemark (7) (6) (1) Italian lira (14) (22) (2) ===== ===== ===== Translation loss included in stockholder's equity, net of tax (dollars in millions) $ (62.3) $ (36.2) $ (2.1) ====== ====== =====
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allocation of purchase costs increased the net asset exposure of foreign operations; however, since June 29, 1988, the date of the Merger, the effects of exchange volatility have been ameliorated by the fact that a portion of the Company's borrowings has been denominated in foreign currencies.
The losses from foreign currency transactions and translation from operations in countries with high inflation rates reflected in expense were $21.9 million in 1993, $19.3 million in 1992, and $14.4 million in 1991.
Note 11. Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Values of Financial Instruments" ("FAS 107"), requires disclosure information about all financial instruments of a company except certain excluded instruments and instruments for which it is not practicable to estimate fair value. The fair values presented below are estimates as of December 31, 1993, and are not necessarily indicative of amounts the Company could realize or settle currently or indicative of the intent or ability of the Company to dispose of or liquidate such instruments.
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and certificates of deposit: The carrying amount reported in the balance sheet for cash and certificates of deposit approximates its fair value.
Long- and short-term debt: The fair values of the Company's Credit Agreement loans are estimated using indicative market quotes obtained from a major bank. The fair values of senior notes, senior debentures, senior subordinated notes, senior subordinated discount debentures, subordinated discount debentures, the sinking fund debentures, and the junior subordinated debentures are based on indicative market quotes obtained from a major securities dealer. The fair values of other loans approximate their carrying value.
The carrying amounts and estimated fair values of selected financial instruments at December 31, 1993 are as follows: (dollars in millions) Carrying Fair Amount Value Credit Agreement loans $ 697 $ 679 10 7/8% senior notes 150 163 11 3/8% senior debentures 250 276 9 7/8% senior subordinated notes 200 208 10 1/2% senior subordinated discount debentures 478 505 14 1/4% subordinated discount debentures 175 184 9 1/4% sinking fund debentures 150 152 12-3/4% junior subordinated debentures 142 143 Other loans 63 63
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Related Party Transactions
The Company has agreed to pay Kelso an annual fee of $2.75 million for providing management consulting and advisory services. In June 1993 the Company issued 1,000 shares of a new, non-voting Series A Preferred Stock, par value $.01 per share, for $10,000 to an affiliate of Kelso & Company. The Company is committed to contribute $5 million of capital to a Kelso limited partnership. In addition, Tyler Refrigeration was sold to an affiliate of Kelso in 1991.
Note 13. Leases
The cumulative minimum rental commitments under the terms of all noncancellable operating leases in effect at December 31, 1993, were $108 million. Net rental expenses for operating leases were $34 million, $32 million, and $28 million for the years ended December 31, 1993, 1992, and 1991, respectively.
Note 14. Commitments and Contingencies
The Company and certain of its subsidiaries are parties to a number of pending legal and tax proceedings. The Company is also subject to federal, state and local environmental laws and regulations and is involved in environmental proceedings concerning the investigation and remediation of numerous sites. In those instances where it is probable that the Company will incur costs from such proceedings and the amounts can be reasonably determined the Company has recorded a liability. The Company believes that these legal, tax, and environmental proceedings will not have a material adverse effect on its consolidated financial position, cash flows, or results of operations.
The tax returns of the Company's German subsidiaries are currently under examination by the German tax authorities (see Note 5).
Note 15. Segment Data
Sales and operating income by geographic location for the years ended December 31, 1993, 1992, and 1991, are shown on the following page. Identifiable assets are also shown as at years ended 1993, 1992, and 1991. See "Business" for a description of each business segment and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for capital expenditures and depreciation and amortization.
ASI HOLDING CORPORATION AND SUBSIDIARIES QUARTERLY DATA (Unaudited) (Dollars in millions)
First Second Third Fourth Sales $879.4 $995.5 $976.5 $979.1 Cost of sales 650.5 754.5 727.7 769.9 Income (loss) before income taxes and extraordinary loss (9.5) (28.2) 4.1 (46.9) Tax provision 8.1 6.1 7.2 14.8 Loss before extraordinary loss (17.6) (34.3) (3.1) (61.7) Extraordinary loss (Note 8) - (91.9) - - Net loss $(17.6) $(126.2) $ (3.1) $(61.7) ====== ======= ====== ====== Per share: Loss before extraordinary loss $ (.92) $ (1.63) $ (.13) $(2.60) Extraordinary loss - (3.87) - - Net loss $ (.92) $ (5.50) $ (.13) $(2.60) ====== ======= ====== ====== Average number of common shares (thousands) 23,699 23,756 23,690 23,756
First Second Third Fourth Sales $901.0 $995.9 $980.9 $914.1 Cost of sales 672.0 734.1 742.2 703.9 Income (loss) before income taxes (8.1) 11.4 (16.5) (39.3) Tax provision (benefit) 5.5 9.2 (1.5) (8.5) Net income (loss) $(13.6) $ 2.2 $(15.0) $(30.8) ====== ======= ====== ====== Per share: Net loss $ (.74) $ (.07) $ (.81) $(1.49) ====== ======= ====== ====== Average number of common shares (thousands) 23,339 23,470 23,467 23,506
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCING DISCLOSURE.
Not applicable.
MANAGEMENT
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information as of March 31, 1994, with respect to each person who is an executive officer or director of the Company:
Name Age Position with Company
Emmanuel A. Kampouris 59 Chairman, President and Chief Executive Officer, and Director
Horst Hinrichs 61 Senior Vice President, Transportation Products, and Director
George H. Kerckhove 56 Senior Vice President, Plumbing Products, and Director
Fred A. Allardyce 52 Vice President and Chief Financial Officer
Alexander A. Apostolopoulos 51 Vice President and Group Executive, Americas, Plumbing Products
Thomas S. Battaglia 51 Vice President and Treasurer
Roberto Canizares M. 44 Vice President, Air Conditioning Products' Asia/America Zone
Wilfried Delker 53 Vice President and Group Executive, Worldwide Fittings, Plumbing Products
Adrian B. Deshotel 48 Vice President, Human Resources
Cyril Gallimore 65 Vice President, Systems and Technology
Luigi Gandini 55 Vice President and Group Executive, European Plumbing Products
Daniel Hilger 53 Vice President and Group Executive, Air Conditioning Products in Europe, Middle East and Africa
Joachim D. Huwendiek 63 Vice President, Automotive Products in Germany
Name Age Position with Company
Frederick W. Jaqua 72 Vice President and General Counsel and Secretary
W. Craig Kissel 42 Vice President and Group Executive, Unitary Products Group
William A. Klug 62 Vice President, Trane International
Philippe Lamothe 57 Vice President, Automotive Products in France
G. Eric Nutter 58 Vice President, Automotive Products in the United Kingdom
Raymond D. Pipes 44 Vice President and Group Executive, Plumbing Products in the Far East
Bruce R. Schiller 49 Vice President and Group Executive, Compressor Business
James H. Schultz 45 Vice President and Group Executive, Commercial Systems Group
G. Ronald Simon 52 Vice President and Controller
Wade W. Smith 43 Vice President, U.S. Plumbing Products
Benson I. Stein 56 Vice President, General Auditor
Robert M. Wellbrock 47 Vice President, Taxes
Shigeru Mizushima 50 Director
Roger W. Parsons 52 Director
Frank T. Nickell 46 Director
J. Danforth Quayle* 47 Director
John Rutledge 45 Director
Joseph S. Schuchert* 65 Director
* The Management Development Committee functions as the compensation committee of the Company. Since December 2, 1993, its members have been Messrs. Quayle and Schuchert. Prior thereto Mr. Schuchert and two other directors who retired in December, Richard M. Cyert and Edward Donley, served as members of the committee.
Directors are elected to hold office until the next annual meeting of stockholders or until their successors are elected. Messrs. Kampouris, Mizushima, Nickell, and Schuchert were elected in 1988; Mr. Kerckhove in September 1990; Mr. Hinrichs in March 1991; Dr. Rutledge in March 1993; Mr. Quayle in September 1993; and Mr. Parsons in March 1994.
Holding, Kelso ASI Partners, L.P. (the 73 percent owner of Holding) ("ASI Partners"), and executive officers and certain other management personnel of the Company who purchased shares of Holding common stock ("Management Investors") entered into a Stockholders Agreement that, among other things, provides for arrangements regarding the control of the election of directors of Holding.
Until the earlier of (i) the occurrence of a public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of Holding common stock to the public and underwritten by an investment banking firm of nationally recognized standing and (ii) July 7, 1998, the Management Investors as a group are entitled to nominate at least two directors to the Board of Directors of Holding, and ASI Partners is entitled to nominate the remaining directors. As a result, during such period ASI Partners will control the Board of Directors. To effectuate their rights, the Management Investors and ASI Partners have agreed in the Stockholders' Agreement to grant an irrevocable proxy to the Secretary of Holding to vote their shares of common stock in accordance with such nominations. Such grant of an irrevocable proxy terminates upon Holding's becoming subject to the proxy rules under the Securities Exchange Act of 1934. At present the Board of Directors of Holding consists of nine directors.
The sole holder of the outstanding common stock of American Standard Inc. is Holding, and Holding exclusively elects the directors of American Standard Inc. Currently the directors of Holding are also the directors of American Standard Inc.
Set forth below is the principal occupation of each of the executive officers and directors named above during the past five years (except as noted, all positions are with the Company).
Mr. Kampouris was elected Chairman in December 1993 and President and Chief Executive Officer in February 1989. Prior thereto he was Senior Vice President, Building Products, from 1984 to February 1989. He is also a director of Daido Hoxan Inc. Mr. Kampouris has served as a director of the Company since July 1988.
Mr. Hinrichs was elected Senior Vice President, Transportation Products, in December 1990. Prior thereto he served as Vice President and Group Executive, Automotive Products, from 1987 to 1990. Mr. Hinrichs has served as a director of the Company since March 1991.
Mr. Kerckhove was elected Senior Vice President, Plumbing Products, in June 1990. Prior thereto he was Vice President (from 1985 until June 1990) and Group Executive (from 1988 until June 1990) of European Plumbing Products. Mr. Kerckhove has served as a director of the Company since September 1990.
Mr. Allardyce was elected Vice President and Chief Financial Officer in January 1992. Prior thereto he served as Vice President and Controller from February 1983 until December 1991.
Mr. Apostolopoulos was elected Vice President and Group Executive, Americas Plumbing Products, in December 1990. Prior thereto he served as the executive in charge of Plumbing Products' joint ventures from September 1989 to November 1990 and Managing Director of the Company's Egyptian subsidiary from July 1984 to August 1989.
Mr. Battaglia was elected Vice President and Treasurer in September 1991. Prior thereto he was Assistant Treasurer.
Mr. Canizares was elected Vice President, Air Conditioning Products' Asia/America Zone, in December 1990. Prior thereto he served as the executive in charge of this zone and Manager of Planning and Distribution from November 1986 to November 1990.
Mr. Delker was elected Vice President and Group Executive, Worldwide Fittings, Plumbing Products, in April 1990. Prior thereto he served as executive in charge of the Company's brass fittings manufacturing operations from June 1982 until March 1990.
Mr. Deshotel was elected Vice President, Human Resources, in January 1992. Prior thereto he served as Group Vice President, Human Resources, for U.S. Plumbing Products from September 1986 until December 1991.
Mr. Gallimore was elected Vice President, Systems and Technology, in December 1990. Prior thereto he served as the executive in charge of Manufacturing and Technology from 1984 to November 1990.
Mr. Gandini was elected Vice President and Group Executive, European Plumbing Products, in July 1990. Prior thereto he served as General Manager of Ideal Standard S.p.A., the Italian subsidiary of the Company, from January 1978 until June 1990.
Mr. Hilger was elected Vice President and Group Executive, Air Conditioning Products, in Europe, Middle East and Africa, in June 1988.
Mr. Huwendiek was elected Vice President, Automotive Products in Germany, in January 1992. Prior thereto he served as Managing Director of WABCO Germany since June 1987.
Mr. Jaqua was elected Vice President and General Counsel and Secretary in April 1989. Prior thereto he was Associate General Counsel and Assistant Secretary.
Mr. Kissel was elected Vice President in charge of Air Conditioning Products' Unitary Products Group in January 1992, becoming Group Executive in March 1994. He served as Vice President, Sales and Distribution, for Air Conditioning Products, from December 1990 until January 1992 and served as divisional Senior Vice President in charge of U.S. Sales from January to November 1990. He was in charge of Western Regional Sales from January 1989 to January 1990.
Mr. Klug was elected Vice President in 1985 and has been in charge of Trane International since December 1993. He served as Group Executive, Unitary Products Group, from April 1990 until December 1993. He was Group Executive, North American Sales and Distribution, Air Conditioning Products, from October 1987 to March 1990.
Mr. Lamothe was elected Vice President, Automotive Products in France, in January 1992. He served as Group Vice President of the French transportation business during 1991 and prior thereto was General Manager of the French transportation subsidiary.
Mr. Nutter was elected Vice President, Automotive Products in the United Kingdom, in January 1992. Prior thereto he served as Vice President and General Manager of WABCO Transportation U.K. Limited, the United Kingdom transportation subsidiary of the Company from March 1991 until December 1991 and Group Managing Director of the United Kingdom transportation subsidiary from June 1987 until February 1991.
Mr. Pipes was elected Vice President and Group Executive for the Far East Region of Plumbing Products in May 1992. Prior thereto he served as Managing Director of the Company's Philippine subsidiary from May 1990 until April 1992 and was Group Vice President, Control & Finance, of U.S. Plumbing Products from March 1985 until April 1990.
Mr. Schiller was elected Vice President and Group Executive, Compressor Business (Air Conditioning Products) in March 1994. Prior thereto he served as General Manager, Compressor Business Group, from May 1993 to February 1994 and Manager and then General Manager of the Company's Tyler, Texas, facility from March 1986 to April 1993.
Mr. Schultz was elected Vice President and Group Executive, Commercial Systems, in 1987.
Mr. Simon was elected Vice President and Controller in January 1992. Prior thereto he served as Vice President and Controller of the Air Conditioning Products' Commercial Systems Group from December 1984 to December 1991.
Mr. Wade W. Smith was elected Vice President, U.S. Plumbing Products, in May 1992. Prior thereto he served as Group Vice President in charge of the Chinaware Business Unit of U.S. Plumbing Products from February 1992 until April 1992 and from April 1987 to February 1992 he was Vice President and General Manager of the Building Automation Systems Division of the Commercial Systems Group of Air Conditioning Products.
Mr. Stein was elected Vice President, General Auditor, in March 1994; from December 1986 to February 1994 he was the Company's General Auditor.
Mr. Wellbrock was elected Vice President, Taxes, effective January 1, 1994. Prior thereto he served as Director of Taxes from 1988 through 1993.
Mr. Mizushima has been President and Chief Operating Officer of Daido Hoxan Inc. since the merger in April 1993 of Hoxan Corporation with Daido Sanso Company (a subsidiary of Air Products and Chemicals Inc.). Prior thereto Mr. Mizushima was President of Hoxan Corporation, a position he held since 1984. He is also a director of Daido Hoxan. Daido Hoxan Inc is the second largest supplier of industrial gases in Japan. One of its subsidiaries is a distributor of American-Standard plumbing products in Japan. Mr. Mizushima has served as a director of the Company since July 1988.
Mr. Nickell has been President and a director of Kelso & Companies, Inc., since March 1989. Kelso & Companies, Inc. is the general partner of Kelso & Company, L.P. From 1984 to 1989 Mr. Nickell was a general partner of Kelso & Company, L.P. He is also a director of Club Car, Inc.; King Holding Corp; and Tyler Holdings Corporation. Mr. Nickell has served as a director of the Company since May 1988.
Mr. Parsons is Managing Director of Rea Brothers Group PLC ("Rea Brothers Group"), which he joined in 1988 after a long banking career. Rea Brothers Group is a U.K. holding company of subsidiaries engaged in the investment banking business. He also holds directorships in several subsidiaries of Rea Brothers Group. Mr. Parsons was elected as a director of the Company on March 2, 1994.
Mr. Quayle served as Vice President of the United States from January 1989 to January 1993. Since leaving that office Mr. Quayle has been associated with Circle Investors, Inc. (an investment planning and consulting firm), and FX Strategic Advisors, Inc. (an international trade consulting firm), both of which he serves as Chairman. He is a Director of Central Newspapers, Inc. Mr. Quayle has served as a director of the Company since September 1993.
Dr. Rutledge has been Chairman of Rutledge & Company, Inc., a merchant banking firm, since January 1991. He is the founder and Chairman of Claremont Economics Institute, an economic research firm established in 1975. He is also a director of Earle M. Jorgensen & Company, Lazard Freres Funds, Medical Specialties Group, and Utendahl Capital Partners and is a special advisor to Kelso & Company. Dr. Rutledge has served as a director of the Company since March 1993.
Mr. Schuchert has been Chairman, CEO, and a director of Kelso & Companies, Inc., since March 1989. Kelso & Companies, Inc. is the general partner of Kelso & Company, L.P. From 1984 to 1989 Mr. Schuchert was managing general partner of Kelso & Company, L.P. He is also a director of Earle M. Jorgensen & Company. Mr. Schuchert has served as a director of the Company since May 1988.
On December 23, 1992, Kelso & Company and its chief executive officer, Mr. Schuchert, without admitting or denying the findings contained therein, consented to an administrative order in respect of a Securities and Exchange Commission ("Commission") inquiry relating to the 1990 acquisition of a portfolio company by a Kelso affiliate. The order found that Kelso's tender offer filing in connection with the acquisition did not comply fully with the Commission's tender offer reporting requirements, and required Kelso and Mr. Schuchert to comply with these requirements in the future.
Compensation Committee Interlocks and Insider Participation
Mr. Schuchert is a member of the Management Development Committee (the Compensation Committee) of the Company's Board of Directors. He is Chairman of Kelso & Companies, Inc. (the general partner of Kelso & Company, L.P.) and a general partner of American Standard Partners, the general partner of Kelso ASI Partners.
The Company pays Kelso an annual fee of $2.75 million for providing management consulting and advisory services, including those of Messrs. Schuchert and Nickell. The fee is reduced depending on the number of shares Kelso controls of Holding or the Company, with final termination when Kelso's ownership control falls below 20 percent.
The Company also entered into a transaction with Kelso Insurance Services, Incorporated (an affiliate of Kelso) ("Kelso Insurance"), and American Telephone and Telegraph Company ("AT&T") pursuant to which the Company as well as other Kelso affiliated companies participates in a telecommunications network under which AT&T provides communications services to the group at a special lower tariff rate. In connection with that transaction the Company has guaranteed a minimum annual usage by it of $2 million for a period of five years commencing 1993. No fee was paid by the Company to Kelso Insurance in connection with this transaction.
In August 1993 the Company purchased a limited partnership interest in Kelso Investment Associates V, L.P. ("KIA V") in exchange for its commitment to make a capital contribution of $5 million to KIA V. KIA V was formed to seek out business opportunities and invest primarily in equity securities, leveraged buy-outs, and joint ventures. Kelso Partners V, L.P. serves as the general partner of KIA V. The general partners of Kelso Partners V, L.P., include Messrs. Schuchert and Nickell. Kelso & Co., L.P., is the manager of KIA V and, as such, acts as investment adviser of KIA V. The management fee relating to the interest held by the Company has been waived.
The Supplemental Plan benefits are based on credited years of service and average annual compensation for the highest three calendar years of the final ten calendar years of employment (not exceeding 60 percent of average annual compensation for such years of service) and are reduced by an offset consisting of certain other retirement benefits, including amounts payable under the Terminated Plan, annual allocations to the executive officer's Employee Stock Ownership Plan ("ESOP") accounts, and Social Security benefits. Benefits under the Supplemental Plan are vested after five years of service or employment continuation through age 65. Compensation used in determining Supplemental Plan benefits (covered compensation) includes only salary and bonus reflected in the Summary Compensation Table above. No covered compensation of any Named Officer differs by more than 10% from the salary and bonus set forth in the Summary Compensation Table.
The years of credited service under the Supplemental Plan for the Named Officers are as follows: Mr. Kampouris, 28 years; Mr. Hinrichs, 35 years; Mr. Kerckhove, 32 years; Mr. Allardyce, 17 years; Mr. Gandini, 33 years; and Mr. H.T. Smith, 13 years.
The current annual target benefit for Mr. Kampouris is approximately 20 percent higher than that shown in the above table since a different benefit formula under the pre-1990 version of the Supplemental Plan applies to his period of service and earnings prior to April 27, 1991. The method of calculating the lump sum payable to Mr. Kampouris that is attributable to his accrued benefit through April 27, 1991, has been adjusted to reflect the recent increase in the Federal ordinary income tax rates.
An amendment to the Supplemental Plan in 1993 established minimum annual lump sum payments for certain Named Officers which, after giving effect to Plan offsets, are estimated as follows: Mr. Kampouris, $427,000; Mr. Hinrichs, $143,000; Mr. Kerckhove, $37,000; and Mr. Gandini, $24,000.
Shares of Holding Common Stock distributable to Plan participants are delivered to a grantor's trust for their benefit. The trust will terminate following a public offering of Holding Common Stock, at which time shares or cash credited to each participant's account is to be distributed. Payment, however, may be deferred if an event of default under the Company's loan agreements or debt indentures has occurred or will occur as a result of such payment. Until distribution, assets of the trust are subject to the claims of creditors of Holding or the Company. Shares held by the trust are voted by the trustee in accordance with the Company's directions.
Directors' Fees and Other Arrangements
In the first half of 1993 each outside director was paid a fee of $5,000 per calendar quarter and in addition received a fee of $500 for each meeting of the Board attended; in the last half each outside director was paid a fee of $6,750 per calendar quarter and in addition received a fee of $1,000 for each meeting of the Board attended. Effective with the third quarter, an outside director is also paid $1,000 for attending a Committee meeting. (Previously an outside director was paid $500 for attending a Committee meeting not held on the day of a Board meeting.) The only directors currently eligible for directors' fees are directors who are neither employees of the Company or Kelso. They are Messrs. Mizushima, Parsons, Quayle, and Rutledge. All directors are reimbursed for reasonable expenses incurred in connection with attendance at any meetings. No separate directors' fees are paid for attendance at meetings of Holding that are held on the same day the Company's Board meets.
A Supplemental Compensation Plan for Outside Directors ("Supplemental Compensation Plan") was adopted in June 1989. A Plan Account was establish- ed for each participating director at that time consisting of units equivalent to $50,000 of Holding common stock with each unit having a value of $19 per share, the independently appraised value of the shares of Holding as of December 31, 1988. For the purpose of providing a measure of parity among the directors, the $50,000 amount was increased to $100,000 for participating directors who became Board Members after January 1, 1993, with such amount converted into units for the account of such directors at the rate of $42.96 per unit ($42.96 representing the independently appraised value of the shares of Holding as of December 31, 1992). When a participating director ceases to be a member of the Board, he or his beneficiary will receive a cash payment equal to the number of units in his Plan Account multiplied by the per-share value of Holding common stock based on the then last year-end appraisal. If a participating director is removed for cause, his entire interest in the Plan is forfeited. Employee-directors and Messrs. Nickell and Schuchert do not participate in this Plan.
Mr. Donley and Dr. Cyert, directors who retired in December 1993, each received a payment of $113,053 pursuant to the Supplemental Compensation Plan.
Corporate Officers Severance Plan and Other Employment or Severance Arrangements
The Board of Directors approved a severance plan for executive officers (the "Officers Severance Plan"), effective April 27, 1991. The Officers Severance Plan provides that any participant whose employment is involuntarily terminated by the Company without "Cause" (as defined in the Officers Severance Plan) or who leaves the Company for "Good Reason" (as defined in the Officers Severance Plan) shall be paid an amount equal to the sum of two (three in the case of the Chief Executive Officer) times such participant's annual base salary at the rate in effect at the time of termination, a proration of the then Annual Incentive Plan target award (described previously), and one (two in the case of the Chief Executive Officer) times such target award. In addition, group life, accident, and disability insurance coverages, as well as group medical coverage, will be continued for up to 24 (36 in the case of the Chief Executive Officer) months following such officer's termination. The Named Officers (other than Mr. Smith, who retired in December 1993) are participants in this Plan.
An agreement was entered into with H. Thompson Smith in December 1993 concerning the terms of his termination of employment and retirement. Under that agreement he is entitled to receive his 1993 Annual Incentive Plan award in the amount of $154,000 and will be entitled to receive the same amount in March 1995. In addition, Mr. Smith is retained as a consultant through 1995 at the rate of $29,583 per month. In the event of Mr. Smith's death, the fees remaining through the end of 1995 are payable in a lump sum to his spouse or estate. He is also entitled to receive payments under the Company's Long-Term Incentive Compensation Plan for the 1992-1994 and 1993-1995 performance periods in accordance with its terms, such awards to be prorated to December 31, 1993. Mr. Smith continues under the Company's medical and life insurance programs through 1995.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the common stock, $.01 par value, of American Standard Inc., the only voting stock of American Standard Inc., is owned by Holding. Set forth below is the number of shares of Common Stock, par value $.01 per share, of Holding, the only outstanding voting stock of Holding, beneficially owned as of March 10, 1994, by each Director and nominee, each Named Executive Officer, all Directors and executive officers of Holding as a group, and each 5% holder.
Shares Percent Name and Address Beneficially of Title of Class of Beneficial Owner Owned Class Holding common stock, par value - Kelso ASI Partners, L.P.(a) 18,000,000 73% $.01 per share ("ASI Partners") Joseph S. Schuchert(a) 18,000,000(d) 73% (d) Frank T. Nickell(a) 18,000,000(d) 73% (d) George E. Matelich(a) 18,000,000(d) 73% (d) Thomas R. Wall IV(a) 18,000,000(d) 73% (d) Emmanuel A. Kampouris(b) 225,000 * George H. Kerckhove(b) 113,000 * Horst Hinrichs(b) 90,000 * Fred A. Allardyce(b) 113,000 * American-Standard Employee Stock Ownership Plan(c) 4,267,710 17% All current directors and executive officers of Holding and the Company as a group 18,824,900(e) 77% (e)
* Less than one percent.
(a) The business address for such persons is c/o Kelso & Company, 350 Park Avenue, New York, N.Y. 10022.
(b) Mr. Kampouris is Chairman, President and Chief Executive Officer and a director of the Company and of Holding. Messrs. Hinrichs and Kerckhove are Named Officers and directors of the Company and of Holding, and Mr. Allardyce is a Named Officer of the Company and of Holding.
(c) The business address for the ESOP is c/o American Standard Inc., 1114 Avenue of the Americas, New York, N.Y. 10036. At December 31, 1993, 3,548,609 Plan shares were allocated to executive officers of Holding and the Company and other ESOP participants. The number of shares shown for executive officers in the table above does not reflect shares allocated to their accounts in the ESOP. Shares in the ESOP account are voted by the ESOP trustee as directed by the plan board (the board administering the trust which currently consists of executive officers of the Company). However, participants may direct the vote of their ESOP account shares in matters involving mergers, recapitalizations, or dispositions of substantial assets. Until termination of employment a participant cannot dispose of shares in his ESOP account. Shares distributed to a participant on termination are subject to the Company's right of first refusal. The shares in the Named Officers ESOP accounts are as follows: Mr. Kampouris, 3,995 shares; Mr. Kerckhove, 3,953 shares; Mr. Hinrichs, 4,266 shares; Mr. Allardyce, 4,246 shares; and Mr. Gandini, 2,225 shares. The shares in the ESOP accounts for all executive officers total 69,218 shares.
The number of shares shown for executive officers in the table above also does not reflect shares of Holding Common Stock issued as part of the payouts under the LTIP and held for them in trust under a trust agreement dated as of January 1, 1993. Shares in the trust are voted by the trustee as directed by the Company. Until termination of the trust, a beneficiary of the Trust cannot dispose of shares credited to his account. Shares in the Named Officers' accounts in the trust are as follows: Mr. Kampouris, 4,453 shares; Mr. Kerckhove, 2,012 shares; Mr. Hinrichs, 1,787 shares; Mr. Allardyce, 1,224 shares; and Mr. Gandini, 1,176 shares. The shares in the trust accounts for all executive officers total 28,620 shares.
Also not included above are 19,198 shares of ASI Holding common stock held in a similar grantor's trust for the account of certain executive officers. These were earned by them under an employee incentive plan prior to their becoming officers.
(d) Messrs. Schuchert and Nickell, each a director of the Company and of Holding, and Messrs. Matelich and Wall may be deemed to share beneficial ownership of shares owned of record by ASI Partners by virtue of their status as general partners of American Standard Partners, the general partner of ASI Partners. Messrs. Schuchert, Nickell, Matelich and Wall share investment and voting power with respect to securities owned by ASI Partners. See "Certain Transactions and Relationships." Dr. Cyert, who was a director of Holding and the Company until December 1993, is a limited partner in one of the Kelso partnerships that has invested in ASI Partners.
(e) Out of such 18,824,900 shares, 18,000,000 shares represent shares of Common Stock owned by ASI Partners in which Messrs. Schuchert and Nickell, each a director of Holding, may be deemed to share beneficial ownership by virtue of their status as general partners of American Standard Partners, the general partner of ASI Partners.
ITEM 13. CERTAIN TRANSACTIONS AND RELATIONSHIPS
Messrs. Schuchert and Nickell, directors of Holding and the Company, are Chairman and President, respectively, of Kelso & Companies, Inc. (the general partner of Kelso & Company, L.P.), and are general partners of American Standard Partners, the general partner of Kelso ASI Partners. Mr. Schuchert is also a member of the Management Development Committee (the compensation committee) of the Company's Board of Directors.
The Company pays Kelso an annual fee of $2.75 million for providing management consulting and advisory services, including those of Messrs. Schuchert and Nickell. The fee is reduced depending on the number of shares Kelso controls of Holding or the Company, with final termination when Kelso's ownership control falls below 20 percent.
The Company also has entered into a transaction with Kelso Insurance Services, Incorporated (an affiliate of Kelso) ("Kelso Insurance"), and American Telephone and Telegraph Company ("AT&T") pursuant to which the Company as well as other Kelso affiliated companies participates in a telecommunications network under which AT&T provides communications services to the group at a special lower tariff rate. In connection with that transaction the Company has guaranteed a minimum annual usage by it of $2 million for a period of five years commencing 1993. No fee was paid by the Company to Kelso Insurance in connection with this transaction.
In August 1993 the Company purchased a limited partnership interest in Kelso Investment Associates V, L.P. ("KIA V"), in exchange for its commitment to make a capital contribution of $5 million to KIA V. KIA V was formed to seek out business opportunities and invest primarily in equity securities, leveraged buy-outs, and joint ventures. Kelso Partners V, L.P. serves as the general partner of KIA V. The general partners of Kelso Partners V, L.P., include Messrs. Schuchert and Nickell. Kelso & Co., L.P. is the manager of KIA V and, as such, acts as investment adviser of KIA V. The management fee relating to the interest held by the Company has been waived.
The Company will invest in a Cayman Islands corporation, A-S China Plumbing Products Limited ("ASPPL"), to be used for the establishment of various joint ventures in the People's Republic of China. The Company will have a 21% voting interest in ASPPL. Shares in ASPPL will also be sold in a private placement to certain institutions and other investors, including certain executive officers and employees of the Company and its subsidiaries.
Mr. Mizushima, a director of the Company and of Holding, is President and Chief Operating Officer of Daido Hoxan Inc., a Japanese corporation which has an approximately 11 percent limited partnership interest in ASI Partners. Daido Hoxan Inc. is the largest distributor of the Company's plumbing products in Japan. Its transactions as distributor with the Company and its subsidiaries in 1992, which were on customary terms and in the ordinary course of business, were not material to either the Company or Daido Hoxan Inc. The Company also entered into leasing transactions with an affiliate of Daido Hoxan whereby it has leased certain machinery and equipment on financial terms that were comparable to those available from other leasing companies. The leasing transactions were not material to either the Company or Daido Hoxan Inc.
Fidelity Management Trust Company ("Fidelity") is the owner of record of the shares of Holding held by the ESOP, a 17% owner of Holding shares. Fidelity was paid by the Company approximately $180,000 in 1993 for services in connection with administering the Company's ESOP and Savings Plan.
Mr. Nickell's father is an officer and owns more than 10 percent of AC Corporation, a contracting company which purchases air conditioning products from the Company's Trane Division. Such purchases in 1993 were on customary terms and in the ordinary course of business and were not material to either the Company or AC Corporation.
Management Investors Stockholders Agreement
Under the Stockholders Agreement, pursuant to which Management Investors purchased shares of Holding common stock, Holding is obligated to repurchase, subject to the limitations contained in the Company's lending arrangements and debt instruments, such shares at certain fair market prices in case of the death, disability, retirement, or termination of employment of a Management Investor. Shares are paid for within the constraints of the Company's lending arrangement and debt instruments, as supplemented by a Schedule of Priorities established by Holding's Board of Directors. The Named Officers (other than Mr. Gandini) and most of the executive officers are Management Investors and parties to the Stockholders Agreement.
PART IV
ITEM 14. CONSOLIDATED EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1 and 2. Financial statements and financial statement schedules
The financial statements and schedules listed in the accompanying index to financial statements are filed as part of this annual report on Form 10-K.
3. Exhibits
The exhibits listed on the accompanying index to exhibits are filed as part of this annual report on Form 10-K.
Included in the exhibits are the following management contracts or compensatory plan arrangements required to be filed as exhibits pursuant to Item 14(c) of Form 10-K
American Standard Inc. Long-Term Incentive Compensation Plan, as amended Trust Agreement for American Standard Inc. Long-Term Incentive Compensation Plan American Standard Inc. Annual Incentive Plan American Standard Inc. Management Partner's Bonus Plan with amendments American Standard Inc. Executive Supplemental Retirement Benefit Program American Standard Employee Stock Ownership Plan with amendments Estate Preservation Plan with amendments Corporate Officers Severance Plan American Standard Inc. Supplemental Compensation Plan for Outside Directors ASI Holding Corporation 1989 Stock Purchase Loan Program Summary of Terms of Unfunded Deferred Compensation Plan Letter of Agreement with respect to H. Thompson Smith's retirement and consulting services
(b) Reports on Form 8-K for the quarter ended December 31, 1993.
None
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ASI HOLDING CORPORATION
By /s/ Emmanuel A. Kampouris (Emmanuel A. Kampouris) (Chairman, President and Chief Executive Officer)
March 30, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
/s/ Emmanuel A. Kampouris Director, Chairman and President March 30, 1994 (Emmanuel A. Kampouris) (Chief Executive Officer)
/s/ Fred A. Allardyce Vice President and Chief March 30, 1994 (Fred A. Allardyce) Financial Officer
/s/ G. Ronald Simon Vice President & Controller March 30, 1994 (G. Ronald Simon) (Principal Accounting Officer)
/s/ Horst Hinrichs Director March 30, 1994 (Horst Hinrichs)
/s/ George H. Kerckhove Director March 30, 1994 (George H. Kerckhove)
/s/ Shigeru Mizushima Director March 30, 1994 (Shigeru Mizushima)
/s/ Frank T. Nickell Director March 30, 1994 (Frank T. Nickell)
/s/ J. Danforth Quayle Director March 30, 1994 (J. Danforth Quayle)
/s/ Roger W. Parsons Director March 30, 1994 (Roger W. Parsons)
/s/ Joseph S. Schuchert Director March 30, 1994 (Joseph S. Schuchert)
/s/ John Rutledge Director March 30, 1994 (John Rutledge)
ASI HOLDING CORPORATION AND FINANCIAL STATEMENT SCHEDULES COVERED BY REPORT OF INDEPENDENT AUDITORS (Item 14 (a))
Form 10-K (Pages) 1. Financial Statements
Consolidated Balance Sheet at December 31, 1993 and 1992 42 Years ended December 31, 1993, 1992 and 1991, Consolidated Statement of Operations 41 Consolidated Statement of Stockholder's Equity (Deficit) 43 Consolidated Statement of Cash Flows 44-45 Notes to Consolidated Financial Statements 46-62 Segment Data 63 Segment data for capital expenditures, depreciation and amortization 23-29 Quarterly Data (Unaudited) 64 Report of Independent Auditors 40
2. Financial statement schedules, years ended December 31, 1993, 1992 and 1991 Report of Independent Auditors 84
III Condensed Financial Information of Registrant 85-88 V Facilities 89 VI Accumulated Depreciation of Facilities 90 VIII Reserves 91 IX Short-Term Borrowings 92 X Supplementary Income Statement Information 93
All other schedules have been omitted because the information is not applicable or is not material or because the information required is included in the financial statements or the notes thereto.
Report of Independent Auditors
Stockholders and Board of Directors ASI Holding Corporation
We have audited the consolidated financial statements of ASI Holding Corporation as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, and have issued our report thereon dated March 14, 1994 (included elsewhere in this Annual Report on Form-10K). Our audits also included the consolidated schedules listed in Item 14(a)2. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits.
In our opinion, the consolidated schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be stated therein.
/s/ Ernst & Young Ernst & Young
March 14, 1994
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS (Parent Company Separately) (Dollars in thousands)
Year Ended Year Ended December 31, December 31, 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (208,567) $ (57,238)
Adjustments to reconcile net loss to net cash provided by operating activities: Equity in net loss of subsidiary 208,567 57,238
- ---------------------------------------------------------------------
Net cash flow from operating activities 0 0
- ---------------------------------------------------------------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES: Investment in subsidiary (4,585) (3,103) Purchase of common stock by subsidiary 12,194 10,950
- ---------------------------------------------------------------------
Net cash provided by investing activities 7,609 7,847
- ---------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Issuance of common stock 4,585 3,103 Common stock repurchased (12,194) (10,950) Repayments on subscriptions receivable 482 653 Repayment of loan from subsidiary (482) (653) - ---------------------------------------------------------------------
Net cash used by financing activities (7,609) (7,847)
- ---------------------------------------------------------------------
Net change in cash and cash equivalents $ 0 $ 0 =====================================================================
See notes to the financial statements.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (cont'd) NOTES TO FINANCIAL STATEMENTS (Parent Company Separately)
(A) The notes to the consolidated financial statements of ASI Holding Corporation (the "Parent Company" or "Holding") are an integral part of these condensed financial statements.
(B) Holding was organized by Kelso & Company, L.P., a private merchant banking firm, to participate in the acquisition of American Standard Inc. American Standard Inc. is now a wholly owned subsidiary of Holding. Holding has no other investments or operations.
ASI HOLDING CORPORATION
INDEX TO EXHIBITS
(Item 14(a)3 - Exhibits Required by Item 601 of Regulation S-K and Additional Exhibits)
(The File Number of ASI Holding Corporation, the Registrant, and for all Exhibits incorporated by reference is 33-23070, except those Exhibits incorporated by reference in filings made by American Standard Inc. (the "Company") whose File Number is 1-470)
(3) (i) Certificate of Incorporation of ASI Holding Corporation ("Holding"); previously filed as Exhibit 3.1 in Registration Statement No. 33-23070 under the Securities Act of 1933, as amended, and herein incorporated by reference.
(ii) Amendment to Certificate of Incorporation amending Article FOURTH thereof; previously filed as Exhibit (3)(ii) in Holding's Form 10-K for the fiscal year ended December 31, 1991, and herein incorporated by reference.
(iii) By-laws of Holding; previously filed as Exhibit 3.2 in Registration Statement No. 33-23070 under the Securities Act of 1933, as amended, and herein incorporated by reference.
(4) (i) Indenture, dated as of November 1, 1986, between the Company and Manufacturers Hanover Trust Company, Trustee, including the form of 9-1/4% Sinking Fund Debenture Due 2016 issued pursuant thereto on December 9, 1986, in the aggregate principal amount of $150,000,000; previously filed as Exhibit 4(iii) in the Company's Form l0-K for the fiscal year ended December 31, 1986, and herein incorporated by reference.
(ii) Instrument of Resignation, Appointment and Acceptance, dated as of April 25, 1988 among the Company, Manufacturers Hanover Trust Company (the "Resigning Trustee") and Wilmington Trust Company (the "Successor Trustee"), relating to resignation of the Resigning Trustee and appointment of the Successor Trustee, under the Indenture referred to in Exhibit (4)(i) above; previously filed as Exhibit (4)(ii) in Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(iii) Form of Indenture, dated as of July 1, 1988, between the Company and Shawmut Bank Connecticut, National Association (formerly known as The Connecticut National Bank), as Trustee, relating to the Company's 14-1/4% Subordinated Discount Debentures due 2003; previously filed as Exhibit 4.3 in Amendment No. 2 to Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(iv) Form of Debenture evidencing the 14-1/4% Subordinated Discount Debentures due 2003 included as Exhibit A to the Form of Indenture referred to in (4)(iii) above.
(v) Indenture, dated as of May 15, 1992, between the Company and First Trust National Association, Trustee, relating to the Company's 10-7/8% Senior Notes due 1999, in the aggregate principal amount of $150,000,000; copy of Indenture previously filed as Exhibit (4)(i) by the Company in its Form 10-Q for the quarter ended June 30, 1992, and herein incorporated by reference.
(vi) Form of 10-7/8% Senior Notes due 1999 included as Exhibit A to the Indenture described in (4)(v) above.
(vii) Indenture dated as of May 15, 1992, between the Company and First Trust National Association, Trustee, relating to the Company's 11-3/8% Senior Debentures due 2004, in the aggregate principal amount of $250,000,000; copy of Indenture previously filed as Exhibit (4)(iii) by the Company in its Form 10-Q for the quarter ended June 30, 1992, and herein incorporated by reference.
(viii) Form of 11-3/8% Senior Debentures due 2004 included as Exhibit A to the Indenture described in (4)(vii) above.
(ix) Form of Indenture, dated as of June 1, 1993, between the Company and United States Trust Company of New York, as Trustee, relating to the Company's 9-7/8% Senior Subordinated Notes Due 2001; previously filed as Exhibit (4)(xxxi) in Amendment No. 1 to Registration Statement No. 33-61130 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(x) Form of Note evidencing the 9-7/8% Senior Subordinated Notes Due 2001 included as Exhibit A to the Form of Indenture referred to in (4)(ix) above.
INDEX TO EXHIBITS - (Continued)
(xi) Form of Indenture, dated as of June 1, 1993, between the Company and United States Trust Company of New York, as Trustee, relating to the Company's 10-1/2% Senior Subordinated Discount Debentures Due 2005; previously filed as Exhibit (4)(xxxiii) in Amendment No. 1 to Registration Statement No. 33-61130 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xii) Form of Debenture evidencing the 10-1/2% Senior Subordinated Discount Debentures Due 2005 included as Exhibit A to the Form of Indenture referred to in (4)(xi) above.
(xiii) Form of Indenture, dated as of October 25, 1990, as amended and restated as of June 15, 1993, between the Company and Shawmut Bank, N.A., as Trustee, relating to Company's 12-3/4% Junior Subordinated Debentures due 2003; previously filed as Exhibit (4)(xx) in Amendment No. 2 to Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xiv) Form of Debenture evidencing the 12-3/4% Junior Subordinated Debentures Due 2003 included as Exhibit A to the Form of Indenture referred to in (4)(xiii) above.
(xv) Assignment and Amendment Agreement, dated as of June 1, 1993, among the Company, Holding, certain subsidiaries of the Company, Bankers Trust Company, as agent under the 1988 Credit Agreement, the financial institutions named as Lenders in the 1988 Credit Agreement and certain additional Lenders and Chemical Bank, as Administrative Agent and Arranger; previously filed as Exhibit (4)(xiii) in Amendment No. 1 to Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xvi) Credit Agreement, dated as of June 1, 1993, among the Company, Holding, certain subsidiaries of the Company and the lending institutions listed therein, Chemical Bank, as Administrative Agent and Arranger; Bankers Trust Company, The Bank of Nova Scotia, The Chase Manhattan Bank, N.A., Deutsche Bank AG, The Long-Term Credit Bank of Japan, Ltd., New York Branch, and NationsBank of North Carolina, N.A., as Managing Agents, and Banque Paribas, Citibank, N.A., and Compagnie Financiere de CIC et de l'Union Europeenne, New York Branch, as Co-Agents; previously filed as Exhibit (4)(xiv) in Amendment No. 1 to Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(xvii) First Amendment, Consent and Waiver, dated as of February 10, 1994, to the Credit Agreement referred to in (4)(xvi) above; copy of Amendment is being filed as Exhibit (4)(xvii) by the Company in its Form 10-K for the year ended December 31, 1993, concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(xviii) Stockholders Agreement, dated as of July 7, 1988, as amended as of August 1, 1988, among Holding, Kelso ASI Partners, L.P., and the Management Stockholders named therein; previously filed as Exhibit 4.19 in Amendment No. 2 to the Registration Statement No. 33-23070 of Holding under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xix) Amendment to Section 2.1 of the Stockholders Agreement referred to in paragraph (4)(xviii) above, effective as of January 1, 1991; previously filed as Exhibit (4)(xxvii) by Holding in its Form 10-K for the fiscal year ended December 31, 1992, and herein incorporated by reference.
(xx) Supplement and Amendment dated as of September 4, 1991 to the Stockholders Agreement dated as of July 7, 1988, as amended, referred to in paragraph (4)(xviii) above; previously filed as Exhibit (4)(ii) in Holding's Form l0-Q for the quarter ended September 30, 1991, and herein incorporated by reference.
(xxi) Amended Paragraph 6.1 of the Stockholders Agreement referred to in paragraph (4)(xviii) above, effective as of September 2, 1993.
(xxii) Revised Schedule of Priorities, effective as of September 5, 1991, as adopted by the Board of Directors of Holding pursuant to the Stockholders Agreement dated as of July 7, 1988, as amended, referred to in paragraph (4)(xviii) above; previously filed as Exhibit (4)(iii) in Holding's Form l0-Q for the quarter ended September 30, 1991, and herein incorporated by reference.
(10) (i) Agreement and Plan of Merger, dated as of March 16, 1988, among the Company, ASI Acquisition Company and Holding and Offer Letter, dated March 16, 1988, between the Company and Kelso & Company, L.P.; previously filed as Exhibit 2 to the Company's Schedule 14D-9 filed March 21, 1988, in connection with the offer for all the shares of the Company's Common Stock by a corporation formed by Kelso & Company, L.P., and herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(ii) Amendment, dated June 3, 1988 to Agreement and Plan of Merger referred to in l0(i) above; previously filed as Exhibit 2.50 in Amendment No. 1 to the Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(iii) American Standard Inc. Long-Term Incentive Compensation Plan, as amended through February 6, 1992; previously filed as Exhibit (l0)(iv) by the Company in its Form l0-K for the year ended December 31, 1992, and herein incorporated by reference.
(iv) Trust Agreement for American Standard Inc. Long-Term Incentive Compensation Plan; copy of Trust Agreement being filed as Exhibit (10)(iv) by the Company in its Form 10-K for the year ended December 31, 1993, concurrently with the filing of Holding's Form 10-K for the same year, and herein incorporated by reference.
(v) American Standard Inc. Annual Incentive Plan; previously filed as Exhibit (l0)(vii) by the Company in its Form l0-K for the fiscal year ended December 31, 1988, and is herein incorporated by reference.
(vi) American Standard Inc. Management Partners' Bonus Plan effective as of July 7, 1988; previously filed as Exhibit (l0)(i) in the Company's Form l0-Q for the quarter ended September 30, 1988, and herein incorporated by reference; amendments to Plan adopted on June 7, 1990, previously filed as Exhibit (4)(ii) in the Company's Form l0-Q for the quarter ended June 30, 1990, and herein incorporated by reference.
(vii) American Standard Inc. Executive Supplemental Retirement Benefit Program, as restated to include all amendments through December 31, 1993; copy of restated program is being filed as Exhibit (10)(vii) by the Company in its Form 10-K for the year ended December 31, 1993, concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(viii) Stock Purchase Agreement, dated April 27, 1988, between ASI Acquisition Company and General Electric Capital Corporation (without schedules); previously filed as Exhibit 2.4 in Amended Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, and is herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(ix) Amendment, dated June 3, 1988, to Stock Purchase Agreement referred to in (l0)(viii) above; previously filed as Exhibit 2.6 in Amendment No. 1 in Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(x) Form of Composite American-Standard Employee Stock Ownership Plan incorporating amendments through December 3, 1992; previously filed as Exhibit (10)(x) in Registration Statement No. 33-61130 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xi) American-Standard Employee Stock Ownership Trust Agreement, dated as of December 1, 1991, between ASI Holding Corporation and Fidelity Management Trust Company (as successor to Citizens & Southern Trust Company (Georgia), N.A.), as trustee; previously filed as Exhibit (l0)(xiv) by the Company in its Form l0-K for the year ended December 31, 1991, and herein incorporated by reference.
(xii) Consulting Agreement made July 1, 1988, with Kelso & Company, L.P. concerning general management and financial consulting services to the Company; previously filed as Exhibit (l0)(xviii) in the Company's Form l0-K for the fiscal year ended December 31, 1988, and herein incorporated by reference.
(xiii) American Standard Inc. Supplemental Compensation Plan for Outside Directors as amended through September 1993; copy of Plan is being filed as Exhibit (10)(xv) by the Company in its Form l0-K for the year ended December 31, 1993 concurrently with the filing of Holding's 10-K for the same year and herein incorporated by reference.
(xiv) ASI Holding Corporation 1989 Stock Purchase Loan Program; previously filed as Exhibit (l0)(i) in Holding's Form l0-Q for the quarter ended September 30, 1989, and herein incorporated by reference.
(xv) Corporate Officers Severance Plan adopted by the Company in December, 1990, effective April 27, 1991; previously filed as Exhibit (l0)(xix) by the Company in its Form l0-K for the year ended December 31, 1990, and said Plan is herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(xvi) Estate Preservation Plan, adopted by the Company in December, 1990; previously filed as Exhibit (l0)(xx) by the Company in its Form l0-K for the year ended December 31, 1990, and said Plan is herein incorporated by reference.
(xvii) Amendment adopted in March 1993 to Estate Preservation Plan referred to in (10)(xvi) above; copy of Amendment is being filed as Exhibit (10)(xix) by the Company in its Form 10-K for the year ended December 31, 1993 concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(xviii) Summary of terms of Unfunded Deferred Compensation Plan adopted December 2, 1993; copy of Summary is being filed as Exhibit (10)(xviii) by the Company in its Form 10-K for the year ended December 31, 1993 concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(xix) Retirement/Consulting Agreement, dated December 28, 1993, between H. Thompson Smith and the Company; copy of Agreement is being filed as Exhibit (10)(xix) by Company in its Form 10-K for the year ended December 31, 1993 concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(21) Listing of Holding's subsidiaries.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
As a result of the Acquisition, results of operations include purchase accounting adjustments and reflect a highly leveraged capital structure. Sales Year Ended December 31, 1993 1992 1991 (Dollars in millions) Air Conditioning Products(a) $2,100 $ 1,892 $ 1,836 Plumbing Products 1,167 1,170 1,018 Transportation Products 563 730 741 Sales $3,830 $ 3,792 $ 3,595 ====== ======= =======
Operating Income (Loss) Before Income Taxes, Extraordinary Loss, and Cumulative Effects of Changes in Accounting Methods
Year Ended December 31, 1993 1992 1991 (Dollars in millions) Air Conditioning Products(a) $133 $ 104 $ 55 Plumbing Products 108 108 66 Transportation Products 41 88 121 Operating income 282 300 242
Interest expense (278) (289) (286) Corporate items(b) (85) (63) (44) Loss before income taxes, extraordinary loss, and cumulative effects of changes in accounting methods $(81) $ (52) $ (88) ==== ===== =====
(a) For 1991 the amounts presented for Air Conditioning Products include the following amounts for Tyler Refrigeration (which was sold on September 30, 1991): sales of $99 million and operating loss of $18 million (including a $22 million loss on the sale).
(b) Corporate items include administrative and general expenses, accretion charges on postretirement benefit liabilities, minority interest, foreign exchange transaction gains and losses, and miscellaneous income and expense.
The following section summarizes the Company's consolidated results of operations and then discusses the results of its three operating segments. The Company's businesses are cyclical. Air Conditioning Products and Plumbing Products are particularly affected by the level of residential and commercial building activity.
The following table presents a summary of statistics on U.S. non-residential construction activity and housing starts for the years 1989 through 1993.
U.S. Non- Residential Contract Awards U.S. Housing (Millions % Change Starts % Change of square Year (Thousands of Year feet)(a) to Year units)(b) to Year 1989 1,322 - 1% 1,376 - 8% 1990 1,155 -13% 1,193 -13% 1991 953 -17% 1,015 -15% 1992 903 - 5% 1,200 +18% 1993 (c) 930 + 3% 1,290 + 7%
(a) Source: F.W. Dodge Division, McGraw Hill, Inc.
(b) Source: U.S. Department of Commerce, Bureau of Census.
(c) Preliminary data.
The market for replacement sales and servicing of air conditioning and plumbing products, which accounts for a substantial portion of sales for Air Conditioning Products and Plumbing Products, is less cyclical and sometimes countercyclical.
The following table presents a summary of statistics on unit production of trucks, buses, and trailers in excess of six tons in Western Europe for the years 1989 through 1993 (units in thousands).
Western Europe % Change Western Europe % Change Truck and Bus Year Trailer Year Production(a) to Year Production(a) to Year
1989 376 4% 125 9% 1990 343 -9% 128 2% 1991 353 3% 139 9% 1992 314 -11% 115 -17% 1993 223 -29% 88 -23%
(a) Principal sources: Verband der Deutschen Automobilindustrie (Germany); Society of Motor Manufacturers and Traders (United Kingdom); and Chambre Syndicate des Constructeurs Automobiles (France).
1993 Compared with 1992
U.S. housing starts increased by 7% in 1993 from the 1992 level, which was up 18% over 1991 after four consecutive years of decline. U.S. non-residential contract awards increased by 3% in 1993 after five years of decline. The 1993 improvement in housing starts came in the second half of the year with third- and fourth-quarter starts up 10% and 12%, respectively, over the preceding quarter. The gain in non-residential awards occurred over the last nine months of 1993. Western European truck and bus production declined 29% in 1993 after an 11% decline in 1992. However, the rate of decline in the truck market slowed in the fourth quarter of 1993.
Consolidated sales for 1993 were $3.83 billion, an increase of 1% (6% excluding the unfavorable effects of foreign exchange) over the $3.79 billion for 1992. A sales increase of 11% for Air Conditioning Products was partly offset by a sales decline for Transportation Products of 23% (16% excluding the unfavorable effects of foreign exchange). Sales for Plumbing Products were flat (but up by 9% excluding the effects of foreign exchange).
Operating income for 1993 was $282 million, a decrease of $18 million, or 6% (but an increase of less than 1% excluding the effects of foreign exchange), from $300 million in 1992. The increase in operating income of 28% for Air Conditioning Products was more than offset by a 53% decrease in operating income for Transportation Products. Plumbing Products' operating income was flat (but increased 15% excluding the effects of foreign exchange). The gain for Air Conditioning Products was the result of higher volume, increased sales of higher-margin products, the benefits of manufacturing improvements, and the effects of restructuring and cost-containment efforts undertaken in 1991 and 1992, offset partly by the costs of further restructuring in 1993. For Plumbing Products the effects of increased volume for the Far East Group were offset partly by lower margins for the U.S. group and lower volumes and unfavorable foreign exchange effects for the European group. Transportation Products' operating income decreased primarily as a result of lower volumes due to reduced demand in depressed markets in Europe, offset partly by the effects of improvements in manufacturing efficiency.
Air Conditioning Products Segment
Year Ended December 31, 1993 1992 1991 (Dollars in millions)
Sales: Domestic portion $1,786 $1,572 $1,453 Foreign portion 314 320 284 Subtotal 2,100 1,892 1,737 Tyler Refrigeration - - 99 Total $2,100 $1,892 $1,836 ====== ====== ======
Operating income (loss): Domestic portion $ 148 $ 112 $ 58 Foreign portion (15) (8) 15 Subtotal 133 104 73 Tyler Refrigeration - - (18)(a) Total $ 133 $ 104 $ 55 ====== ====== ======
Assets $1,167 $1,156 $1,174 Goodwill and purchase accounting adjustments included in assets 372 398 417 Capital expenditures 38 33 46(b) Depreciation and amortization 53 55 56(c)
(a) Includes $22 million loss on the sale of Tyler Refrigeration.
(b) Includes capital expenditures of Tyler Refrigeration of $1 million.
(c) Includes depreciation and amortization of Tyler Refrigeration of $3 million.
The domestic portion of Air Conditioning Products is composed of the Unitary Products Group, the Commercial Systems Group (excluding Canada), and exports from the United States by the International Group. The foreign portion consists of the foreign-based operations of the International Group and the Canadian operations of the Commercial Systems Group.
Sales and operating income of Air Conditioning Products both increased in 1993 despite the continuing recession in U.S. and Canadian commercial new construction and only moderate increase in residential new construction in the U.S. and despite the economic decline in Europe. Sales of Air Conditioning Products, which accounted for approximately 55% of the Company's 1993 sales, increased by 11% (with little effect from foreign exchange) to $2,100 million in 1993 from $1,892 million in 1992. There was a significant sales increase for each of the three operating groups.
Operating income of Air Conditioning Products increased year to year by 28% (with little effect from foreign exchange) to a record high of $133 million in 1993 from $104 million in 1992. The increase was attributable to gains achieved by all three groups.
Unitary Products Group
In 1993 sales of the Unitary Products Group, which accounted for approximately 42% of Air Conditioning Products sales, increased by 15% over the 1992 sales level. Residential markets were up 15%, as a result of an unusually hot summer in the northern United States and a 7% increase in housing starts. Sales of residential products increased by 18% year over year, principally because of higher volumes driven by the improved market, increased furnace sales in the replacement market, and a shift in the market to more efficient products, offset partly by the continuation from 1992 of price degradation due to competitive pressures. Commercial markets for unitary products were up 9% overall from the 1992 markets, as the commercial replacement market strengthened further. New-construction activity continued to struggle, however. Sales of commercial unitary products increased by 10% overall, primarily as a result of higher volume (driven by the strong replacement market for both light and large commercial products); a shift to higher-priced, higher-tonnage products; and a gain in market share for light commercial products due to the success of the large Voyager products (packaged rooftop air conditioners). As a result of these factors, together with product cost improvements, improved labor productivity, and the benefits of organizational restructuring which reduced the salaried workforce in 1992, the operating income for Unitary Products in 1993 increased by 43% year over year. This improvement was achieved even though 1993 included the initial start-up costs of the new national distribution center in St. Louis, Missouri, and higher advertising costs.
Unitary Products' sales increased through the success of new and redesigned products introduced recently and improved distribution channels. Commercial products that were introduced included the 20-to-25-ton Voyager products in 1992, which more than doubled market share in that size range; commercial microprocessor-controlled products; a line of convertible air handlers; and rooftop and air cooled chiller products using more efficient scroll compressors. Residential products introduced included the American-Standard brand outdoor units and new lines of luxury and conventional retail residential products.
Commercial Systems Group
Sales of the Commercial Systems Group, which accounted for approximately 37% of Air Conditioning Products' sales, increased 10%, primarily on volume increases for most product lines, especially air handling systems and water chillers (principally due to improved replacement markets and increased market share), and increased revenue from Company-owned sales offices (acquisitions and volume growth). These gains were partly offset by lower volume in Canada, which continues to be adversely affected by recession. The non-residential new-construction market increased 3% in the United States in 1993, following decreases of 5% in 1992 and 17% in 1991. The non-residential replacement market was up by 6% over 1992.
Operating income for Commercial Systems increased 12% in 1993 over the recession-affected amount of 1992. The increase was primarily the result of volume gains, improvements in manufacturing efficiency, operating expense reductions, and the benefits of restructuring actions taken in 1992. The effects of these factors were partly offset by slightly lower prices, increases in material, labor, and benefit costs, the costs of additional restructuring actions in 1993, and a larger loss in the weak Canadian market.
Product development emphasis for Commercial Systems in 1993 and 1992 was on new compressor, heat transfer and microelectronic control technology; adaptation of products to refrigerants that comply with recent government regulations; energy-efficient products; products for the aftermarket and replacement market (which exceeded the new-construction market in both 1993 and 1992); and products redesigned to improve manufacturing productivity. This strategy benefited operations in 1993 and 1992, and the Company expects that this product development emphasis will result in greater sales over the next several years.
International Group
Sales of Air Conditioning Products' International Group, which accounted for approximately 21% of Air Conditioning Products' 1993 sales, increased 7% from those of 1992 (10% excluding the unfavorable effect of foreign exchange). Most of the gain was from higher volume in the Far East (especially Hong Kong, Taiwan, and export sales from the U.S.) resulting from expanded markets and increased penetration; higher export sales from the U.S. to the Middle East (markets were significantly stronger) and Latin America (improved penetration in a market that was up 20%); and higher volumes in Mexico. These gains were partly offset by lower sales in Europe (lower prices and volumes in a declining market). Markets were down in all European countries except the U.K., but the effect was partly offset by increased revenues from service companies acquired in 1992 and prior years. Market growth in the Far East was 6% overall, led by the PRC market, which was up by 21%. The sales growth in Hong Kong was driven by the very strong market in the PRC. Markets in Thailand also grew, and the Latin American market grew by 20%.
Operating income for the International Group increased by approximately 39% in 1993. The increase was primarily the result of higher export sales from the U.S. to the Middle East and Far East, offset partly by a larger operating loss in Europe primarily because of the weak markets and lower margins, costs related to restructuring in response to the lower markets, and the unfavorable effects of lower volume on factory performance. Overall, income from the Far East and Latin America was essentially unchanged from the prior year, as volume gains were offset by increased costs related to expansion of distribution channels and joint ventures and development of new and improved products to support present and future growth.
Environmental Matters
For a discussion of environmental matters see "Business -- Regulations and Environmental Matters."
Backlog
The worldwide backlog for Air Conditioning Products at the end of 1993 was $407 million, up 13% from 1992, excluding the effects of foreign exchange. The backlog increased as a result of increased volume for the Commercial Systems Group, market penetration and improved distribution channels in the Middle East and Far East, and sales growth for commercial Unitary Products.
Plumbing Products Segment
Year Ended December 31, 1993 1992 1991 (Dollars in millions)
Sales: Foreign portion $ 865 $ 885 $ 783 Domestic portion 302 285 235 Total $1,167 $1,170 $1,018 ====== ====== ====== Operating income (loss): Foreign portion $ 131 $ 124 $ 93 Domestic portion (23) (16) (27) Total $ 108 $ 108 $ 66 ====== ====== ======
Assets $ 960 $1,002 $1,069 Goodwill and purchase accounting adjustments included in assets 376 392 447 Capital expenditures 46 48 40 Depreciation and amortization 49 49 48
The foreign portion of Plumbing Products is composed of the European Plumbing Products Group, the Americas International Group, and the Far East Group. The domestic portion of sales and operating results is generated primarily by the U.S. Plumbing Products Group and by export sales from the U.S.
Sales of Plumbing Products in 1993, at $1,167 million, which accounted for approximately 30% of the Company's 1993 sales, were at essentially the same level as the $1,170 million of sales in 1992 (but increased by 9% excluding the unfavorable effects of foreign exchange). Sales increases of 42% for the Far East Group (46% excluding foreign exchange), 9% for the Americas International Group (14% excluding foreign exchange), and 6% for the U.S. Plumbing Products Group were offset partly by a sales decrease of 10% for the European Plumbing Products Group (which had a 4% increase excluding the effects of foreign exchange).
In 1993 operating income of Plumbing Products was $108 million, the same amount as in 1992, but excluding the unfavorable effects of foreign exchange operating income increased by 15%. The increase (on an exchange-adjusted basis) was attributable primarily to increased profitability for the Far East Group and for the Americas International Group, offset partly by a decline for the U.S. group.
European Plumbing Products Group
Sales of the European group, which accounted for approximately 51% of Plumbing Products' sales for 1993, decreased 10% in 1993 from 1992 but increased by 4% excluding the unfavorable effects of foreign exchange. The exchange-adjusted gain resulted from price increases, especially in Italy, Germany, the U.K., and Greece, offset partly by lower volume in most countries because of depressed markets. In Italy sales were up with price increases for most product lines, offset partly by lower volume and a less favorable product mix. The German market was stable in total, as price gains were offset by volume and mix declines. Greece, which had been in recession for three years, recovered somewhat in 1993. The European group's strength has been sales in the replacement market, which has more than made up for the effects of poor new-construction markets.
Operating income for the European group decreased 7% but increased 10% excluding the effects of foreign exchange. This increase occurred primarily because of the price gains and cost reductions resulting from restructuring and efficiency improvements in the U.K., France, Italy, and Germany. Partly offsetting those favorable effects were the effects of lower volumes and the unfavorable effect on margins caused by the decline in value of many European currencies agains the Deutschemark. The increased cost of fittings purchased from Germany could not be completely recovered through sales price increases in most of the operations in other countries.
U.S. Plumbing Products Group
Sales of the U.S. group, which accounted for approximately 26% of total 1993 Plumbing Products sales, increased 6% in 1993. During 1993 the U.S. building industry continued to be adversely affected by the low level of new construction, although non-residential construction increased 3% from 1992 and new residential construction continued to recover from the lowest levels since the mid-1940's (up by 7% in 1993 and 18% in 1992 but
still below pre-1990 levels). A basic shift from wholesale distribution channels to retail channels has been developing over the last few years, a trend the Company believes will continue and will be beneficial to the Company because of strong product and brand-name recognition. Retail markets now account for 20% of the total sales of the U.S. group. The growth of sales for the U.S. group was largely the result of increased export sales from the U.S. and to a lesser extent price increases on certain products, a more favorable sales mix, and a small increase in the growing retail channel business. The overall gain in the retail business was small because significant volume gains due to an expanding customer base were partly offset by the loss of an important customer.
The operating loss for the U.S. group in 1993 was greater than that of the prior year. Despite higher sales, operating results were poorer primarily because of lower margins on both domestic and export sales, increased advertising costs and other expenses associated with expansion of the retail distribution channel, costs related to start-up and expansion of the low-water-volume toilet line (now mandated for new construction), and factory performance problems caused in part by the effects of fluctuating volumes. In addition, costs were incurred in business system re-engineeering activities intended to improve customer service.
Americas International and Far East Groups
Combined sales of the Americas International and Far East Groups, which accounted for approximately 23% of total Plumbing Products sales, increased 21% in 1993 (26% excluding the effects of foreign exchange). The sales gain was due primarily to the consolidation of Incesa (a previously unconsolidated group of Central American joint ventures) effective January 1, 1993, as a result of the purchase of additional shares of stock, and to higher volume and prices in Thailand, the PRC, the Philippines, and Brazil, offset partly by decreases in sales in Mexico, Canada, and Korea.
Combined operating income of the Americas International and Far East Groups in 1993 increased 72% over the 1992 level. Gains were realized in all operations except Mexican chinaware operations, which were adversely affected by poor economic conditions and the uncertainty related to the North American Free Trade Agreement. The increase was primarily from higher prices and volumes in Brazil, Thailand, and the PRC the consolidation of Incesa, and a smaller loss for Mexican fittings operations.
Environmental Matters
For a discussion of environmental matters see "ITEM 1. BUSINESS -- Regulations and Environmental Matters."
Backlog
Plumbing Products' year-end 1993 backlog of $143 million was down 9% from 1992, excluding foreign exchange effects. The decrease resulted from a significant drop for European Plumbing Products (particularly Italy because of economic uncertainty, tempered somewhat by increases for England and Germany), and a drop in backlog for export sales from the U.S., partly offset by increases in the Far East (primarily Thailand).
Transportation Products Segment
Year Ended December 31, 1993 1992 1991 (Dollars in millions)
Sales $ 563 $730 $741 Operating income 41 88 121 Assets 652 722 828 Goodwill and purchase accounting adjustments included in assets 422 458 510 Capital expenditures 14 27 24 Depreciation and amortization 35 37 34
Sales of Transportation Products, which accounted for 15% of the Company's 1993 sales, were $563 million, down 23% from $730 million in 1992 (16% excluding the effects of foreign exchange). The sales decrease was due primarily to a volume decline in Germany as a result of a 29% decrease in Western European truck and bus production, led by a 34% decline in Germany, and a 23% decrease in Western European trailer production. Volumes were also down in all other European countries in which Transportation Products has operations, although at the end of 1993 sales and order trends were upward. Volume in Brazil was slightly higher. Original equipment sales volume in Europe was down 22%, and aftermarket business was down 10%. These declines affected both conventional and electronic products.
Operating income for Transportation Products in 1993 decreased 53% (50% excluding foreign exchange effects) to $41 million from $88 million in 1992, principally because of the lower sales and production volume and the inability to pass on material and labor cost increases in a very competitive, declining market. In response to reduced production levels, plant employment was reduced by 15%, the costs of which further depressed 1993 operating income. Those effects were partly offset by the favorable effects of cost improvements in manufacturing from Demand Flow implementa- tion and reduced operating expenses.
Despite the market downturn, significant progress was made during 1993 in obtaining market acceptance of electronically controlled air suspension systems for commercial vehicles and for antilock braking systems on trailers.
Backlog
Transportation Products' year-end 1993 order backlog of $185 million was 2% lower than the 1992 year-end backlog, excluding the effects of foreign exchange, as a result of the poor market conditions.
Financial Review
1993 Compared with 1992
The Company's financing and corporate costs were $363 million and $352 million in 1993 and 1992, respectively. The principal causes of the increase were effects of year-to-year changes in foreign exchange transaction gains and losses, higher minority interest, lower equity income, higher accretion expense on postretirement benefits, and lower miscellaneous income. Interest expense, which accounted for most of these costs, decreased primarily because of lower overall interest rates on new debt issued as part of the Refinancing (described below), partly offset by additional interest expense as a result of the exchange of the 12-3/4% Exchangeable Preferred Stock for the 12-3/4% Junior Subordinated Debentures.
The tax provision for 1993 was $36 million despite a pre-tax loss of $81 million, whereas in 1992 the tax provision was $5 million on a pre-tax loss from continuing operations of $52 million. The 1993 provision reflected taxes payable on profitable foreign operations and was higher than in 1992 primarily because no tax benefits were available on domestic losses. The unusual relationship between the pre-tax losses and the tax provision is explained by the nondeductibility for tax purposes of the amortization of goodwill and other purchase accounting adjustments and the share allocations made by the Company's ESOP as well as by tax rate differences and withholding taxes on foreign earnings.
As a result of the Refinancing in 1993 there was an extraordinary charge of $92 million related to the debt retired (including call premiums, the write-off of deferred debt issuance costs, and loss on cancellation of foreign currency swap contracts) on which there was no tax benefit.
Liquidity and Capital Resources
As a result of the Acquisition the Company's capital structure became highly leveraged. Net cash flow from operations, after cash interest expense of $195 million, was $201 million for the year ended December 31, 1993. Utilizing this cash flow and cash on hand at December 31, 1992, the Company devoted $98 million to capital expenditures, including $8 million of investments in affiliated companies, and repaid $50 million of term loans.
In July 1993 the Company completed a refinancing (the "Refinancing") that included (a) the issuance of $200 million principal amount of 9-7/8% Senior Subordinated Notes Due 2001; (b) the issuance of approximately $751 million principal amount of 10-1/2% Senior Subordinated Discount Debentures Due 2005, which yielded proceeds of approximately $450 million; (c) the amendment and restatement of the Company's 1988 Credit Agreement (the "1988 Credit Agreement" and as so amended and restated, the "Credit Agreement") to establish a $1 billion secured, multi-currency, multi-borrower credit facility; and (d) the application of the proceeds of
such issuances and such borrowings as follows: (i) the redemption on July 1, 1993, of all of the outstanding 12-7/8% Senior Subordinated Debentures Due 2000 at a redemption price of 104.83% ($571.3 million), (ii) the redemption on July 2, 1993, of a majority of the outstanding 14-1/4% Subordinated Discount Debentures Due 2003 at a redemption price of 105% ($389.5 million), (iii) the refunding of bank borrowings ($405 million of term loans and $77 million of other bank debt including revolving credit debt), (iv) the refunding of letters of credit ($58 million), and (v) payment of related fees and expenses.
The Credit Agreement provided to American Standard Inc. and certain subsidiaries (the "Borrowers") a $1 billion facility as follows: (a) a $250 million multi-currency revolving credit facility (the "Revolving Credit Facility") available to all Borrowers, which expires in 2000; (b) a $225 million multi-currency periodic access facility (the "Periodic Access Facility") available to all Borrowers, which expires in 2000; and (c) three term loan facilities (the "Term Loans") consisting of a $225 million U.S. dollar facility available to American Standard Inc., which expires in 2000; a $200 million Deutschemark facility available to a German subsidiary, which expires in 1997; and a $100 million U.S. dollar facility available to all Borrowers, which expires in 1999. In August 1993 the Company repaid $50 million, and the amount available under the Credit Agreement by its terms was reduced to $950 million.
The Company is required to reduce to $50 million the amount of borrowings outstanding under the Revolver for at least 30 consecutive days in each 12-month period ending May 31. In December 1993 the Company met this requirement for the 12 months ending May 31, 1994. Commencing August 31, 1994, the Revolver is reduced by $8.3 million annually, with a final maturity on June 1, 2000. In addition, the Company is required to repay the full amount of each of its outstanding revolving loans at the end of each interest period (a maximum of six months). The Company may, however, immediately reborrow such amounts subject to compliance with applicable conditions of the Credit Agreement.
The Credit Agreement provides the Company with increased operating and financial flexibility, including the ability to shift from time to time a portion of borrowings among borrowers and currencies. As a result of the Refinancing there was a significant reduction in annual interest expense, which was partly offset by additional interest expense on the 12-3/4% Junior Subordinated Debentures exchanged for the 12-3/4% Exchangeable Preferred Stock. The Company believes that the amounts available from operating cash flows and under the Revolving Credit Facility will be sufficient to meet its expected cash needs, including planned capital expenditures.
As described in Note 8 of Notes to Consolidated Financial Statements, the Credit Agreement contains various covenants that limit, among other things, indebtedness, dividends on and redemptions of capital stock of the Company, purchases and redemptions of other indebtedness of the Company (including its outstanding debentures and notes), rental expense, liens, capital expenditures, investments or acquisitions, disposal of assets, the use of proceeds from asset sales, and certain other business activities and require the Company to meet certain financial tests. In order to
maintain compliance with the covenants and restrictions contained in the 1988 Credit Agreement, the Company from time to time has had to obtain waivers and amendments. In February 1994 the Company obtained an amendment to the Credit Agreement that among other things relaxed certain financial tests and convenants, and facilitated the investment in an air conditioning joint venture and the formation of a holding company to establish joint ventures in the People's Republic of China for the manufacture and sale of plumbing products. The Company currently believes it will comply with the amended financial tests and covenants but may have to obtain similar amendments or waivers in the future.
On June 30, 1993, in exchange for all of the Company's outstanding shares of 12-3/4% Exchangeable Preferred Stock, the Company issued $141.8 million of 12-3/4% Junior Subordinated Debentures Due 2003 to the holder of the Exchangeable Preferred Stock. Those debentures were sold by the holder in a registered public offering in August 1993. The Company received none of the proceeds of this offering.
The indentures related to the Company's debentures and notes contain various covenants which, among other things, limit debt and preferred stock of the Company and its subsidiaries, dividends on and redemption of capital stock of the Company and its subsidiaries, redemption of certain subordinated obligations of the Company, the use of proceeds from asset sales, and certain other business activities.
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. The Company has paid approximately $20 million of a disputed German income tax. A suit is pending to obtain a refund of this tax. The Company anticipates that the German tax authorities may propose other adjustments resulting in additional taxes of approximately $105 million, plus penalties and interest for the tax return years under audit. In addition, significant transactions similar to those which gave rise to such possible adjustments occurred in years subsequent to 1990. The Company, on the basis of the opinion of legal counsel, believes the tax returns are substantially correct as filed and intends to vigorously contest any adjustments which have been or may be assessed. Accordingly, the Company had not recorded any loss contingency at December 31, 1993, with respect to such matters. Under German tax law the authorities may demand immediate payment of a tax assessment prior to final resolution of the issues. The Company also believes, on the basis of opinion of legal counsel, that it is highly likely that a suspension of payment will be obtained if additional taxes are assessed. However, if payment is required the Company expects that it will be able to meet such payment from available sources of liquidity or credit support but that future cash flows and capital expenditures, and therefore subsequent results of operations for any particular quarterly or annual period, could be adversely affected.
Capital Expenditures
The Company's capital expenditures for 1993 amounted to $98 million, including investments of $8 million in affiliated companies. The amount
of capital expenditures was $10 million less than in 1992 ($6 million less excluding the effects of foreign exchange). Decreases in capital spending by Plumbing Products and Transportation Products were partly offset by an increase in spending by Air Conditioning Products. The Company believes capital spending was sufficient for maintenance purposes, for important product and process redesigns, for expansion projects, and for strategic investments.
Capital expenditures by Air Conditioning Products were $38 million in 1993. This amount was 15% more than that of 1992. Capital expenditures in 1993 included continuing projects related to Demand Flow and spending on new products such as the Voyager III (medium-tonnage product line), the scroll compressor, and the Series R chiller line, expansion of Voyager I and Voyager II capacity and tooling and equipment for the American Standard product line.
Plumbing Products' capital expenditures in 1993 were $46 million, including investments of $8 million in affiliated companies in France (Porcher) and the Czech Republic. Excluding the investments in affiliated companies and the effects of foreign exchange, capital spending was 34% higher than in 1992 as a result of spending increases in Europe and the Far East. Major projects included capacity expansion in Thailand and China and various projects related to Demand Flow implementation.
Capital expenditures for Transportation Products totaled $14 million in 1993. Excluding the effects of foreign exchange, capital spending was 41% less than in 1992, a year with significant spending related to Demand Flow cost-reduction projects in production and material flow.
1992 Compared with 1991
U.S. housing starts increased by 18% in 1992 from the 1991 level, but non-residential contract awards decreased by 5%. Both of these economic indicators had declined in each of the previous four years.
Consolidated sales for 1992 were $3.8 billion, an increase of 5% (4% excluding the favorable effects of foreign exchange) over the $3.6 billion for 1991. The 1991 amount included the sales of Tyler Refrigeration, which was sold September 30, 1991. Excluding Tyler Refrigeration, sales in 1992 were up 8% (7% excluding foreign exchange effects). Sales increases of 15% for Plumbing Products and 9% for Air Conditioning Products (excluding Tyler Refrigeration) were partly offset by a sales decline for Transportation Products of 1% (6% excluding the favorable effects of foreign exchange).
Operating income for 1992 was $300 million, an increase of $58 million, or 24% (19% excluding the effects of foreign exchange), from $242 million in 1991. The 1991 amount included a loss for Tyler Refrigeration. Excluding Tyler Refrigeration, operating income in 1992 was up 15% (10% excluding foreign exchange effects.) Increases in operating income of 42% for Air Conditioning Products (excluding Tyler Refrigeration) and 64% for Plumbing Products were partly offset by a 27% decrease in operating income for Transportation Products.
Except as otherwise indicated, the following discussion, including the financial comparisons, does not include the results of Tyler Refrigeration or the $22 million loss on the sale of Tyler Refrigeration in 1991.
Air Conditioning Products Segment
Sales of Air Conditioning Products, which accounted for approximately 50% of the Company's 1992 sales, increased by 9% to $1,892 million in 1992 from $1,737 million in 1991. There was a significant sales increase for each of the three operating groups -- for the Unitary Products Group in both residential and commercial products primarily because of higher volume and more favorable product mix (partly offset by lower prices), for the Commercial Systems Group primarily because of higher volume and prices, and for the International Group principally because of increased volume in Europe and the Far East.
Operating income of Air Conditioning Products increased year to year by 42% (with little effect from foreign exchange) to $104 million in 1992 from $73 million in 1991. The increase was attributable to the sales gains, the benefits of manufacturing improvements and restructuring and cost containment in the Unitary Products and Commercial Systems Groups, and the fact that in 1991 results of the Commercial Systems Group had been adversely affected by a 54-day work stoppage at its LaCrosse, Wisconsin, facility. The impact of these factors was partly offset by a margin decline for the International Group and costs related to the start-up of new facilities, sales offices, and distribution channels.
Unitary Products Group
Sales in 1992 of the Unitary Products Group, which accounted for approximately 41% of Air Conditioning Products sales, increased by 6% over the 1991 sales level. Commercial markets for unitary products were up 6% overall from the depressed 1991 markets, as a very strong commercial replacement market more than offset the effects of low new-construction activity. Sales of commercial unitary products increased by 7% overall, primarily as a result of higher volume (driven by the strong replacement market), a shift to higher-priced, higher-tonnage products, and a gain in market share for light commercial products. Residential markets were down 3.5%, as poor replacement activity, a result of an unseasonably cool summer, more than offset the 18% increase in new housing starts. Despite this poorer market, sales of residential products increased by 5% year over year, principally because of larger market share, improved furnace markets, and a partial shift in the market to more efficient products stimulated by Federal standards, offset partly by price degradation due to competitive pressures. As a result of these factors, together with benefits of manufacturing improvements, cost containment, and organizational restructuring which reduced the salaried workforce, the operating profit for Unitary Products in 1992 increased by 50% from the depressed level of 1991.
Commercial Systems Group
Sales of the Commercial Systems Group, which accounted for approximately 38% of Air Conditioning Products' sales, increased 9% primarily on volume increases in aftermarket replacement and parts sales, increased revenue from Company-owned sales offices (volume growth and acquisitions), and small price increases on most product lines. Other factors contributing to the increase were higher sales of large applied systems and the fact that in 1991 there was a 54-day work stoppage at the LaCrosse, Wisconsin, plant. These gains were partly offset by lower volume in Canada, which was adversely affected by recession.
Operating income for Commercial Systems increased 129% in 1992 over the recession-affected and work-interrupted level of 1991. The increase was primarily the result of the volume and price gains, improvements in manufacturing efficiency, cost containment and restructuring, and the fact that 1991 included the adverse impact of the LaCrosse work stoppage. The effects of these factors were partly offset by slightly lower gross margins, as the price increases did not completely recover increases in material, labor and benefits costs.
International Group
Sales of Air Conditioning Products' International Group, which accounted for approximately 21% of Air Conditioning Products' 1992 sales, increased 15% from those of 1991 (10% excluding the favorable effect of foreign exchange). Most of the gain was from higher volumes in Mexico (two new sales offices resulted in expanded distribution and penetration), the Far East (especially Hong Kong and Singapore), the Middle East (markets were significantly stronger), and Europe (sales of new products and increased penetration despite declining markets). Markets were down in almost all European countries except Italy, with the largest drop in the U.K., offset partly by increased revenues from acquired service companies.
Operating income for the International Group decreased by approximately 68% in 1992. The decline occurred in Europe, primarily because of the weak markets and lower prices, costs related to the start-up of new facilities and new distribution networks in the U.K. and France, costs related to the introduction of new products, start-up costs of a company in Spain acquired near the end of 1991, and foreign exchange transaction losses from currency fluctuations in the latter half of 1992. Income from the Far East and Latin America was essentially unchanged from the prior year, as volume gains were offset by increased costs related to expanded distribution channels, start-up of new joint ventures, and development of new and improved products to support present and future growth.
Plumbing Products Segment
Sales of Plumbing Products, which accounted for approximately 31% of the Company's 1992 sales, increased by 15% in 1992 (14% excluding the effects of foreign exchange) to $1,170 million from $1,018 million in 1991. The improvement resulted from sales increases of 9% (7% excluding the effects of foreign exchange) for the European Plumbing Products Group, 21% for the U.S. Plumbing Products Group, 4% for the Americas International Group (7% excluding foreign exchange), and 101% for the Far East Group (98% excluding foreign exchange).
In 1992 operating income of Plumbing Products increased 64% (56% excluding the effects of foreign exchange) to $108 million from $66 million in 1991. The increase was attributable primarily to increased profitability for the European group on higher prices and volumes (especially in Italy and Germany) although improved results in the U.S., Americas International, and Far East groups contributed.
European Plumbing Products Group
Sales of the European group, which accounted for approximately 57% of Plumbing Products' sales for 1992, increased 9% in 1992 over 1991, 7% excluding the favorable effects of foreign exchange. The gain resulted primarily from price and volume increases, especially in Italy and Germany, offset partly by lower volume in France from declining demand and lower prices in the U.K. caused by a very poor market. In Italy sales were up 9%, with gains for most product lines in price, volume and market share. The gains in Germany were the result of higher volumes and prices for brass fittings and luxury chinaware.
Operating income for the European group increased 28% (23% excluding the effects of foreign exchange) primarily from the price and volume gains in Italy and Germany and higher margins on German brass operations resulting from improved manufacturing processes and cost containment, offset partly by lower profitability in France because of decreased volume and in the U.K. because of the recession. A recession depressed operating results in Greece.
U.S. Plumbing Products Group
Sales of the U.S. group, which accounted for approximately 24% of total 1992 Plumbing Products sales, increased 21% in 1992. During 1992 the U.S. building industry continued to be severely affected by the low level of new construction, with non-residential construction down 5% from 1991 and with new residential construction recovering from the lowest levels since the mid-1940's (though up by 18%, it was still low in historical terms). The U.S. market for plumbing products was up an estimated 3% to 4%, with more than half the gain occurring in the replacement and remodeling markets, which accounts for about 60% of the total U.S. market. The growth of sales for the U.S. group was largely a result of the strength of retail business (which had a significant
increase in volume and accounted for 20% of sales of the U.S. group in 1992) and increased export sales from the U.S., together with smaller gains resulting from price increases and higher wholesaler distribution sales. Sales of AMERICAST products more than doubled in 1992, and smaller volume gains were achieved for acrylic products, fixtures, and faucets.
The operating loss for the U.S. group in 1992 was less than that of the prior year. The improvement was primarily due to price increases and secondarily to volume and margin gains (as a result of sourcing product from the Company's Latin American plants), offset partly by non-recurring costs related to implementation of improved manufacturing processes and the effects of a shift in overall sales mix from commercial and luxury to lower-margin products.
Americas International and Far East Groups
Combined sales of the Americas International and Far East Groups, which accounted for approximately 19% of total Plumbing Products sales, increased 26% in 1992 (28% excluding the effects of foreign exchange). The sales gain was due primarily to the consolidation in 1992 of a previously unconsolidated joint venture in Thailand and to a lesser extent to price and volume increases in Mexico and Korea and higher volumes in Brazil, offset partly by lower sales in Canada, which were adversely affected by severe recession.
Combined operating income of the Americas International and Far East Groups in 1992 increased 134% over the 1991 level. Gains were realized in all operations except Canada and the Philippines, both of which were adversely affected by poor economies. The increase was primarily from price and volume gains in Mexico and Korea, higher volume and margins in Brazil, and higher volume in China.
Transportation Products Segment
Sales of Transportation Products, which accounted for 19% of the Company's 1992 sales, were $730 million, down 1% from $741 million in 1991 (6% excluding the effects of foreign exchange). The sales decrease was due primarily to a volume decline in Germany as a result of a significant decrease in truck and bus production. Volumes were also down in nearly all other European countries in which Transportation Products has operations except the U.K. There was also a decline in prices of electronic control products, primarily as a result of industry cost reductions.
Operating income for Transportation Products in 1992 decreased 27% (32% excluding foreign exchange effects) to $88 million from $121 million in 1991, principally because of the lower sales and production volume, lower prices, and increased spending for product engineering. Plant employment was kept in line with reduced production levels, but the costs associated with these reductions also depressed 1992 operating income. Those effects were partly offset by the favorable effects of cost reductions and increases in efficiency achieved in manufacturing operations.
Financial Review
1992 Compared with 1991
The Company's financing and corporate costs were $352 million and $330 million in 1992 and 1991, respectively. The principal causes of the increase were year-to-year effects of changes in foreign exchange transaction gains and losses, higher minority interest, and lower miscellaneous income. Interest expense and accretion expense on postretirement benefits, which accounted for most of these costs, also increased.
The tax provision for 1992 was $5 million despite a pre-tax loss of $52 million, whereas in 1991 the tax provision was $23 million on a pre-tax loss from continuing operations of $88 million. The 1992 provision reflected taxes payable on profitable foreign operations offset partly by available domestic tax benefits. The 1992 provision was lower than in 1991 primarily because of lower pre-tax earnings in foreign operations. In 1992 the provision was also lower because of future income tax benefits resulting from carrybacks of foreign net operating losses and the existence of deferred tax credits which reverse in the carryforward period applicable to other foreign net operating losses. The unusual relationship between the pre-tax losses and the tax provision is explained by the nondeductibility for tax purposes of the amortization of goodwill and other purchase accounting adjustments and the share allocations made by the Company's ESOP as well as by tax rate differences and withholding taxes on foreign earnings.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated balance sheets at December 31, 1993 and 1992, and related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years ended December 31, 1993, 1992 and 1991, have been prepared in conformity with generally accepted accounting principles, and the Company believes the statements set forth a fair presentation of financial condition and results of operations. The Company believes that the accounting systems and related controls that it maintains are sufficient to provide reasonable assurance that the financial records are reliable for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance is based on the recognition that the cost of a system of internal control must be related to the benefits derived and that the balancing of those factors requires estimates and judgment. Reporting on the financial affairs of the Company is the responsibility of its principal officers, subject to audit by independent auditors, who are engaged to express an opinion on the Company's financial statements. The Board of Directors has an Audit Committee of non-employee Directors which meets periodically with the Company's financial officers, internal auditors, and the independent auditors and monitors the accounting affairs of the Company.
ASI Holding Corporation
New York, New York March 14, 1994
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Board of Directors ASI Holding Corporation
We have audited the accompanying consolidated balance sheets of ASI Holding Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ASI Holding Corporation and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles.
/s/Ernst & Young
Ernst & Young
New York, New York March 14, 1994
ASI HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Dollars in thousands except share amounts)
ASSETS At December 31, 1993 1992 Current assets Cash and certificates of deposit $ 53,237 $ 111,549 Cash in escrow 932 1,722 Accounts receivable, less allowance for doubtful accounts-- 1993, $15,666; 1992, $12,827 507,322 468,731 Inventories 325,819 384,857 Future income tax benefits 24,562 33,192 Other current assets 29,811 31,199 Total current assets 941,683 1,031,250 Facilities, at cost net of accumulated depreciation 820,523 832,811 Other assets Goodwill, net of accumulated amortization -- 1993, $169,879; 1992, $141,858 1,025,774 1,101,716 Debt issuance costs, net of accumulated amortization-- 1993 $9,670; 1992, $77,776 78,102 51,308 Other 120,997 109,333 $2,987,079 $3,126,418 ========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities Loans payable to banks $ 38,036 $ 99,150 Current maturities of long-term debt 105,939 13,458 Accounts payable 307,326 271,855 Accrued payrolls 99,758 105,400 Other accrued liabilities 263,322 230,335 Taxes on income 47,003 18,848 Total current liabilities 861,384 739,046 Long-term debt 2,191,737 2,032,064 Other long-term liabilities Reserve for postretirement benefits 387,038 368,868 Deferred tax liability 45,625 73,307 Other 224,108 228,521 Total liabilities 3,709,892 3,441,806 Commitments and contingencies Exchangeable preferred stock - 133,176 Stockholders' deficit Preferred stock, Series A, par value $.01, 1,000 shares issued and outstanding - - Common stock $.01 par value, 28,000,000 shares authorized; 23,858,335 shares issued and outstanding in 1993, 23,608,587 in 1992 239 236 Capital surplus 188,744 192,351 Subscriptions receivable (2,588) (3,316) ESOP shares (4,331) (9,527) Accumulated deficit (750,003) (541,436) Foreign currency translation effects (149,220) (86,872) Minimum pension liability adjustment (5,654) - Total stockholders' deficit (722,813) (448,564) $2,987,079 $3,126,418 =========== ==========
See notes to consolidated financial statements.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
ASI Holding Corporation ("Holding") is a Delaware corporation that was formed in 1988 by an affiliate of Kelso & Company L.P. ("Kelso"), an investment banking firm that specializes in leveraged buyouts. On March 21, 1988, the Kelso affiliate commenced a tender offer (the "Tender Offer") for all of the common stock of American Standard Inc. at $78 per share in cash. On April 27, 1988, the Kelso affiliate completed the Tender Offer with the purchase of approximately 95% of the shares of American Standard Inc.
Pursuant to an Agreement and Plan of Merger, a merger was consummated (the "Merger") on June 29, 1988, whereby American Standard Inc. became a wholly owned subsidiary of Holding. At that time the remaining shares of American Standard Inc.'s common stock were converted into the right to receive cash of $78 per share. Hereinafter "the Company" will refer to Holding or to its subsidiary, American Standard Inc., as the context requires. The Tender Offer, Merger, and related transactions are hereinafter referred to as the "Acquisition." For financial statement purposes the Acquisition has been accounted for under the purchase method.
Note 2. Accounting Policies
Consolidation
The financial statements include on a consolidated basis the results of all majority-owned subsidiaries. All material intercompany transactions are eliminated. Investments in affiliated companies are included at cost plus the Company's equity in their net results.
Translation of Foreign Financial Statements
Assets and liabilities of most foreign operations are translated at year-end rates of exchange, and the income statements are translated at the average rates of exchange for the period. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholder's equity until the entity is sold or substantially liquidated.
Gains or losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity's local currency) are included in net income. For operations in countries that have high rates of inflation, net income includes gains and losses from translating assets and liabilities at year-end rates of exchange, except for inventories and facilities, which are translated at historical rates.
Revenue Recognition
Sales are recorded when shipment to a customer occurs.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement of Cash Flows
Cash and certificates of deposit include all highly liquid investments with an original maturity of three months or less.
Inventories
Inventory costs are determined by the use of the last-in, first-out (LIFO) method on a worldwide basis, and inventories are stated at the lower of such cost or realizable value.
Facilities
The Company capitalizes costs, including interest during construction, of fixed asset additions, improvements, and betterments that add to productive capacity or extend the asset life. Maintenance and repair expenditures are charged against income. Significant foreign investment grants are amortized into income over the period of benefit.
Goodwill
Goodwill is being amortized over 40 years.
Debt Issuance Costs
The costs related to the issuance of debt are amortized using the interest method over the lives of the related debt.
Warranties
The Company provides for estimated warranty costs at the time of sale. Warranty obligations beyond one year are included in other long-term liabilities.
The Company changed its method of accounting for revenues from extended warranty contracts at the beginning of 1991 to conform with the FASB Technical Bulletin, "Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts." The bulletin requires the deferral of the revenue from the sales of such contracts and amortization thereof on a straight-line basis over the terms of the contracts. The cumulative effect of this accounting change for all contracts in place as of December 31, 1990, increased the net loss in 1991 by $7 million, net of income tax benefit. The effect on the 1991 net loss, excluding the cumulative effect upon adoption, was not material.
Leases
The asset values of capitalized leases are included with facilities, and the associated liabilities are included with long-term debt.
Postretirement Benefits
Postretirement benefits are provided for substantially all employees of the Company, both in the United States and abroad. In the United States the Company also provides various postretirement health care and
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
life insurance benefits for some of its employees. Effective January 1, 1991, such costs are calculated in accordance with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("FAS 106").
Depreciation
Depreciation and amortization are computed on the straight-line method based on the estimated useful life of the asset or asset group.
Research and Development Expenses
Research and development costs are expensed as incurred except for costs incurred (after technological feasibility is established) for computer software products expected to be sold. The Company expensed costs of approximately $41 million in 1993, $40 million in 1992, and $36 million in 1991 for research activities and product development. Computer software product development costs capitalized in 1993 amounted to $2 million.
Income Taxes
In 1991 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), and elected to apply the provisions retroactively to January 1, 1989.
The Company recognizes deferred tax assets for the tax effects of items that will be deducted for tax purposes in later years together with the tax effects of income items included in current reporting for tax purposes but in later years for financial statement purposes and the effects of certain tax attributes such as net operating losses.
The Company provides for United States income taxes and foreign withholding taxes on foreign earnings expected to be repatriated. Deferred tax liabilities are provided on the excess of the financial statement basis over the tax basis of certain assets, primarily for inventories and fixed assets, including fair value adjustments resulting from purchase accounting in connection with the Acquisition; fixed assets due to accelerated depreciation deductions for tax purposes; and non-permanent investments in certain foreign subsidiaries.
Earnings per share
Earnings per share have been computed using the weighted average number of common shares outstanding.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Instruments with Off-Balance-Sheet Risk
The Company from time to time enters into foreign currency exchange agreements in the management of foreign currency exposure. Gains and losses from exchange rate changes are included in income unless the contract hedges a net investment in a foreign entity or a firm commitment, in which case gains and losses are deferred as a component of foreign currency translation effects in stockholder's equity or included as a component of the transaction.
Note 3. Postretirement Benefits
The Company sponsors postretirement benefit plans covering substantially all employees, including an Employee Stock Ownership Plan (the "ESOP") for the Company's U.S. salaried employees and certain U.S. hourly employees. In 1988 in conjunction with the Acquisition the ESOP purchased 5,000,000 shares (adjusted for a 100-for-1 stock split) of common stock of Holding. The ESOP is an individual account, defined contribution plan. The valuation of the ESOP shares is determined by independent appraisals. The common stock acquired by the ESOP is being allocated to the accounts of eligible employees over a period not exceeding eight plan years, including basic allocation of 3% of covered compensation and a matching Company contribution of up to 6% of covered compensation invested in the Company's savings plan by employees.
Pension plan benefits are generally based on years of service and employees' compensation during the last years of employment. In the United States the Company also provides various postretirement health care and life insurance benefits for some of its employees. Funding decisions are based upon the tax and statutory considerations in each country. Accretion expense is the implicit interest cost associated with amounts accrued and not funded and is included in "other expense". At December 31, 1993, funded plan assets related to pensions were held primarily in fixed income and equity funds. Postretirement health and life insurance benefits are not prefunded.
Effective January 1, 1991, the Company changed its method of accounting for postretirement benefits other than pensions to conform with FAS 106. The cumulative effect of this change increased the recorded obligation for such benefits by $40 million, thereby increasing the net loss in 1991 by $25 million (net of the related income tax benefit). The effect of the change on the 1991 net loss, excluding the cumulative effect upon adoption, was not material.
The following table sets forth the Company's postretirement plans' funded status and amounts recognized in the balance sheet at December 31, 1993 and 1992.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Other Expense
Other income (expense) was as follows:
Year Ended December 31, 1993 1992 1991 (Dollars in millions)
Interest income $ 8.5 $ 8.7 $ 8.3 Royalties 2.6 3.8 2.5 Equity in net income (loss) of affiliated companies (0.1) 4.9 10.2 Minority interest (14.0) (9.8) (3.1) Accretion expense (30.5) (29.8) (27.9) Other, net (4.8) (2.5) 1.9 $(38.3) $(24.7) $ (8.1) ====== ====== ======
The decrease in equity in net income of affiliated companies and the increase in minority interest in 1993 and 1992 compared with 1991 were primarily the result of consolidation of the plumbing companies in Thailand, the People's Republic of China, and Incesa, previously unconsolidated joint ventures.
Note 5. Income Taxes
The Company's loss before income taxes, extraordinary loss, and cumulative effects of changes in accounting methods ("pre-tax income (loss)") and the applicable provision (benefit) for income taxes were:
Year Ended December 31, 1993 1992 1991 (Dollars in millions) Pre-tax income (loss): Domestic $ (223.2) $ (170.1) $(272.6) Foreign 142.7 117.5 184.8 Pre-tax loss $ (80.5) $ (52.6) $ (87.8) Provision (benefit) for income taxes: Current: Domestic $ 12.4 $ 5.1 $ 5.1 Foreign 43.0 63.0 71.3 55.4 68.1 76.4 Deferred: Domestic 1.1 (35.8) (52.4) Foreign (20.3) (27.6) (1.0) (19.2) (63.4) (53.4) Total provision $ 36.2 $ 4.7 $ 23.0 ======== ======== =======
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation between the actual income tax expense provided and the income tax benefit computed by applying the statutory federal income tax rate of 35% in 1993 and 34% in 1992 and 1991 to the pre-tax loss is as follows:
Year Ended December 31, 1993 1992 1991 (Dollars in millions) Tax benefit at statutory rate $(28.2) $(17.9) $(29.9) Nondeductible goodwill charged to operations 10.4 10.5 10.6 Nondeductible goodwill related to operations sold - 25.1* Nondeductible ESOP allocations 6.1 4.9 4.6 Rate differences and withholding taxes related to foreign operations 9.0 1.4 4.7 Foreign exchange gains (7.0) (6.3) (2.1) State tax benefits (5.5) (3.3) (3.4) Other, net 8.7 5.5 5.6 Increase in valuation allowance 42.7 9.9 7.8 Total provision $ 36.2 $ 4.7 $ 23.0 ====== ====== ======
* Includes goodwill eliminated in the sale of Tyler Refrigeration.
In addition to the valuation allowance increase of $42.7 million shown above, a valuation allowance of $32.1 million was provided for the entire amount of the tax benefit related to the extraordinary loss on retirement of debt (see Note 8 of Notes to Consolidated Financial Statements).
The following table details the gross deferred liabilities and the gross deferred tax assets and the related valuation allowances.
At December 31, 1993 1992 (dollars in millions) Deferred tax liabilities: Facilities (accelerated depreciation, capitalized interest and purchase accounting differences) $ 141.1 $ 154.1 Inventory (LIFO and purchase accounting differences) 18.5 30.3 Employee benefits 11.0 6.6 Foreign investments 50.1 48.8 Other 26.2 26.6 246.9 266.4 Deferred tax assets: Employee benefits (pensions and other postretirement benefits) 110.7 97.7 Warranties 37.4 30.0 Alternative minimum tax 19.4 21.8 Foreign tax credits and net operating losses 57.5 42.3 Reserves 58.7 45.1 Other 46.0 18.5 Valuation allowances (103.9) (29.1) 225.8 226.3 Net deferred tax liabilities $ 21.1 $ 40.1 ========= ========
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets related to foreign tax credits, net operating loss carryforwards, and future tax deductions have been reduced by a valuation allowance since realization is dependent in part on the generation of future foreign source income as well as on income in the legal entity which gave rise to tax losses. Other deferred tax assets have not been reduced by valuation allowances because of carrybacks and existing deferred tax credits which reverse in the carryforward period. The foreign tax credits and net operating losses are available for utilization in future years. In some tax jurisdictions the carryforward period is limited to as little as five years; in others it is unlimited.
As a result of the Acquisition (see Note 1) and the allocation of purchase accounting (principally goodwill) to foreign subsidiaries, the book basis in the net assets of the foreign subsidiaries exceeds the related U.S. tax basis in the subsidiaries' stock. Such investments are considered permanent in duration, and accordingly no deferred taxes have been provided on such differences, which are significant. It is impracticable because of the complex legal structure of the Company and the numerous tax jurisdictions in which the Company operates to determine such deferred taxes.
Cash taxes paid were $41 million, $56 million, and $79 million in the years 1993, 1992, and 1991, respectively.
In connection with examinations of the tax returns of the Company's German subsidiaries for the years 1984 through 1990, the German tax authorities have raised questions regarding the treatment of certain significant matters. The Company has paid approximately $20 million of a disputed German income tax. A suit is pending to obtain a refund of this tax. The Company anticipates that the German tax authorities may propose other adjustments resulting in additional taxes of approximately $105 million, plus penalties and interest for the tax return years under audit. In addition, significant transactions similar to those which gave rise to such possible adjustments occurred in years subsequent to 1990. The Company, on the basis of the opinion of legal counsel, believes the tax returns are substantially correct as filed and intends to vigorously contest any adjustments which have been or may be assessed. Accordingly, the Company had not recorded any loss contingency at December 31, 1993 with respect to such matters. Under German tax law the authorities may demand immediate payment of a tax assessment prior to final resolution of the issues. The Company also believes, on the basis of opinion of legal counsel, that it is highly likely that a suspension of payment will be obtained if additional taxes are assessed. However, if payment is required, the Company expects that it will be able to make such payment from available sources of liquidity or credit support but that future cash flows and capital expenditures and therefore subsequent results of operations for any particular quarterly or annual period could be adversely affected.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Inventories
The components of inventory are as follows:
At December 31, 1993 1992 (Dollars in millions)
Finished products $169.0 $200.6 Products in process 78.0 95.8 Raw materials 78.8 88.5 Inventory at cost $325.8 $384.9 ====== ======
The carrying cost of inventories reflects purchase accounting adjustments and therefore exceeds current cost.
Note 7. Facilities
The components of facilities, at cost, are as follows:
At December 31, 1993 1992 (Dollars in millions)
Land $ 66.2 $ 65.0 Buildings 314.6 310.2 Machinery and equipment 739.9 719.4 Improvements in progress 54.4 45.6 Gross facilities 1,175.1 1,140.2 Less: accumulated depreciation 354.6 307.4 Net facilities $ 820.5 $ 832.8 ======== ========
Note 8. Debt
The 1993 Refinancing
In July 1993 the Company completed a refinancing (the "Refinancing") that included (a) the issuance of $200 million principal amount of 9-7/8% Senior Subordinated Notes Due 2001; (b) the issuance of approximately $751 million principal amount of 10-1/2% Senior Subordinated Discount Debentures Due 2005, which yielded proceeds of approximately $450 million; (c) the amendment and restatement of the Company's 1988 Credit Agreement (the "1988 Credit Agreement" and as so amended and restated, the "Credit Agreement") to establish a $1 billion secured, multi-currency, multi-borrower credit facility; and (d) the application of the proceeds of such issuances and such borrowings as follows: (i) the redemption on July 1, 1993, of all of the outstanding 12-7/8% Senior Subordinated Debentures Due 2000 (the "12-7/8% Senior Subordinated Debentures") at a redemption price of 104.83% ($571.3 million), (ii) the redemption on July 2, 1993, of
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a majority of the outstanding 14-1/4% Subordinated Discount Debentures Due 2003 (the "14-1/4% Subordinated Discount Debentures") at a redemption price of 105% ($389.5 million), (iii) the refunding of bank borrowings ($405 million of term loans and $77 million of other bank debt including revolving credit debt), (iv) the refunding of letters of credit ($58 million), and (v) payment of related fees and expenses.
The Credit Agreement provided to American Standard Inc. and certain subsidiaries (the "Borrowers") a $1 billion facility as follows: (a) a $250 million multi-currency revolving credit facility (the "Revolving Credit Facility") available to all Borrowers, which expires in 2000; (b) a $225 million multi-currency periodic access facility (the "Periodic Access Facility") available to all Borrowers, which expires in 2000; and (c) three term loan facilities (the "Term Loans") consisting of a $225 million U.S. dollar facility ("Tranche A") available to American Standard Inc., which expires in 2000; a $200 million Deutschemark facility ("Tranche B") available to a German subsidiary, which expires in 1997; and a $100 million U.S. dollar facility ("Tranche C") available to all Borrowers, which expires in 1999. In August 1993 the Company repaid $50 million and the amount available under the Credit Agreement by its terms was reduced to $950 million.
Borrowings under the Periodic Access Facility and the Term Loans generally bear interest at the London interbank offered rate ("LIBOR") plus 2-1/2% except for the $225 million U.S. dollar facility, which bears interest at LIBOR plus 3%, and the $200 million Deutschemark facility, which bears interest at LIBOR plus 2%. The Company pays a commitment fee of 0.5% per annum on the unused portion of the Revolving Credit Facility and a fee of 2.5% plus issuance fees for letters of credit.
As a result of the Refinancing, results for the year ended December 31, 1993, included an extraordinary charge of $92 million related to the debt retired (including call premiums, the write-off of deferred debt issuance costs, and loss on cancellation of foreign currency swap contracts) on which there was no tax benefit (see Note 5).
Short-term
The Revolving Credit Facility (the "Revolver") provides for aggregate borrowings of up to $250 million for working capital purposes, of which up to $200 million may be used for the issuance of letters of credit and $40 million of which is available for same-day short-term borrowings ("Swingline Loans"). At December 31, 1993, there were $7 million of borrowings outstanding under the Revolver and $66 million of letters of credit. Availability under the Revolver at December 31, 1993, was $177 million. Average borrowings under this facility and under the revolving credit facility available under the previous 1988 Credit Agreement for 1993, 1992, and 1991 were $39 million, $14 million, and $44 million, respectively. The Revolver and the Swingline Loans bear interest at the prime rate plus 1-1/2% or LIBOR plus 2-1/2%.
The Company is required to reduce to $50 million the amount of borrowings outstanding under the Revolver for at least 30 consecutive days in each 12-month period ending May 31. In December 1993 the Company met this requirement for the 12-month period ending May 31, 1994. Commencing August 31, 1994, the Revolver is reduced by $8.3 million annually, with a
AMERICAN STANDARD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
final maturity on June 1, 2000. In addition, the Company is required to repay the full amount of each of its outstanding revolving loans at the end of each interest period (a maximum of six months). The Company may, however, immediately reborrow such amounts subject to compliance with applicable conditions of the Credit Agreement.
Other short-term borrowings are available outside the United States under informal credit facilities and are typically a result of overdrafts. At December 31, 1993, the Company had $31 million of such foreign short-term debt outstanding at an average interest rate of 11% per annum. The Company also had an additional $50 million of unused foreign facilities. These facilities may be withdrawn by the banks at any time.
Long-term
Long-term debt was as follows:
At December 31, 1993 1992 (Dollars in millions)
Credit Agreement $ 689.9 $ - 1988 Credit Agreement - 402.3 9 1/4% sinking fund debentures, due in installments from 1997 to 2016 150.0 150.0 10 7/8% senior notes due 1999 150.0 150.0 11 3/8% senior debentures due 2004 250.0 250.0 9 7/8% senior subordinated notes due 2001 200.0 - 10 1/2% senior subordinated discount debentures (net of unamortized discount of $272.9 million in 1993) due in installments from 2003 to 2005 477.8 - 12 7/8% senior subordinated debentures - 545.0 14 1/4% subordinated discount debentures (net of unamortized discount of $36.3 million in 1992) due in installments from 2002 to 2003 175.0 509.5 Other long-term debt 63.1 53.3 12 3/4% junior subordinated debentures due in installments from 2001 to 2003 (Note 9) 141.8 - Foreign currency swap contracts - (14.6) 2,297.6 2,045.5 Less current maturities 105.9 13.4 $ 2,191.7 $ 2,032.1 ========= =========
The amounts of long-term debt maturing from 1995 through 1998 are: 1995-$126.3 million, 1996-$123.5 million, 1997 $121.2 million, 1998-$117.5 million.
Interest costs capitalized as part of the cost of constructing facilities for the years ended December 31, 1993, 1992, and 1991, were $2.7 million, $3.1 million, and $3.6 million, respectively. Cash interest paid for those same years on all outstanding indebtedness amounted to $198 million, $210 million, and $224 million, respectively.
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Agreement loans, maturities, and effective weighted average interest rates in effect at December 31, 1993, were as follows:
U.S. Dollar Equivalent (in millions) Periodic Access Facility, due in semi-annual installments from February 1994 to February 2000: British sterling loans at 7.85% $ 95.8 Deutschemark loans at 9.06% 49.4 Canadian dollar loans at 6.50% 20.2 French franc loans at 9.17% 18.5 Italian lira loans at 12.19% 8.7 Total Periodic Access loans 192.6
Term Loans: Tranche A U.S. dollar loans, due in semi-annual installments from August 1997 to February 2000 at 6.50% 225.0 Tranche B Deutschemark loans, due in semi-annual installments from February 1994 to February 1997 at 7.88% 172.3 Tranche C U.S. dollar loans, due in semi-annual installments from February 1994 to August 1999 at 6.01% 100.0 Total Term Loans 497.3
Total Credit Agreement long-term loans 689.9
Revolver loans at 7.5% 7.0
Total Credit Agreement loans $ 696.9 ========
Under the 1988 Credit Agreement the various term loans and effective weighted average interest rates in effect at December 31, 1992, were as follows: U.S. Dollar Equivalent (in millions) Deutschemark loans at 11.4% $249.8 Canadian dollar loans at 13.05% 152.5 Total $402.3 ======
The 9-7/8% Senior Subordinated Notes may be redeemed at the Company's option, in whole or in part, on and after June 1, 1998, at redemption prices declining from 102.82% in 1998 to 100% on June 1, 2000, and thereafter. The 10-1/2% Senior Subordinated Discount Debentures may be redeemed at the Company's option, in whole or in part, on and after June 1, 1998, at redemption prices declining from 104.66% in 1998 to 100% on June 1, 2002, and thereafter. The payment of the principal and interest on the
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9-7/8% Senior Subordinated Notes and on the 10-1/2% Senior Subordinated Discount Debentures (together the "Senior Subordinated Debt") is subordinated in right of payment to the payment when due of all Senior Debt (as defined in the related indenture) of the Company, including all indebtedness under the Credit Agreement and the 9-1/4% Sinking Fund Debentures, the 10-7/8% Senior Notes, and the 11-3/8% Senior Debentures (the said notes and debentures together the "Senior Securities").
The 9-1/4% Sinking Fund Debentures are redeemable at the Company's option, in whole or in part, at redemption prices declining from 105.55% in 1994 to 100% in 2006 and thereafter. The 10-7/8% Senior Notes are not redeemable by the Company. The 11-3/8% Senior Debentures are redeemable at the option of the Company, in whole or in part, on or after May 15, 1997, at redemption prices declining from 105.69% in 1997 to 100% on May 15, 2002, and thereafter.
The 14-1/4% Subordinated Discount Debentures are redeemable at the Company's option, in whole or in part, at redemption prices of 105% prior to June 30, 1994, declining to 100% on and after June 30, 1995. The payment of the principal and interest on the 14-1/4% Subordinated Discount Debentures issued by the Company in 1988 is subordinated in right of payment to the payment when due of all Senior Debt (as defined in the related indenture) of the Company, including all indebtedness under the Credit Agreement, the Senior Securities, and the Senior Subordinated Debt. The 14-1/4% Subordinated Discount Debentures rank senior to the 12-3/4% Junior Subordinated Debentures (described below).
The 12-3/4% Junior Subordinated Debentures may be redeemed, at the Company's option, in whole or in part at a redemption price of 101.8% prior to June 30, 1994, and at 100% thereafter. The payment of principal and interest on the 12-3/4% Junior Subordinated Debentures is subordinated in right of payment to the payment when due of all Senior Debt (as defined in the related indenture) of the Company, including all indebtedness under the Credit Agreement, the Senior Securities, the Senior Subordinated Debt, and the 14-1/4% Subordinated Discount Debentures.
Obligations under the Credit Agreement are guaranteed by ASI Holding Corporation (the Company's parent), the Company, and significant domestic subsidiaries of the Company (with foreign borrowings also guaranteed by certain foreign subsidiaries) and are secured by U.S., Canadian, and U.K. properties, plant, and equipment; by liens on receivables, inventories, intellectual property, and other intangibles; and by a pledge of the Company's stock and nearly all shares of subsidiary stock. In addition, the obligations of the Company under the Senior Securities are secured, to the extent required by the related indentures, by mortgages on the principal U.S. properties of the Company equally and ratably with the indebtedness under the Credit Agreement and certain related indebtedness.
The Senior Subordinated Debt, the 14-1/4% Subordinated Discount Debentures, and the 12-3/4% Junior Subordinated Debentures are unsecured.
The Credit Agreement contains various covenants that limit, among other things, indebtedness, dividends on and redemption of capital stock of the Company, purchases and redemptions of other indebtedness of the Company (including its outstanding debentures and notes), rental expense, liens, capital expenditures, investments or acquisitions, disposal of assets, the
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
use of proceeds from asset sales, and certain other business activities and require the Company to meet certain financial tests. In order to maintain compliance with the covenants and restrictions contained in the 1988 Credit Agreement, the Company from time to time has had to obtain waivers and amend- ments. In February 1994 the Company obtained an amendment to the Credit Agreement that among other things relaxed certain financial tests and covenants and facilitated the investment in an air conditioning joint venture and the formation of a holding company to establish joint ventures in the People's Republic of China for the manufacture and sale of plumbing products. The Company currently believes it will comply with the amended financial tests and covenants but may have to obtain similar waivers or amendments in the future.
The indentures related to the Company's debentures and notes contain various covenants which, among other things, limit debt and preferred stock of the Company and its subsidiaries, dividends on and redemption of capital stock of the Company and its subsidiaries, redemption of certain subordinated obligations of the Company, the use of proceeds from asset sales, and certain other business activities.
Note 9. Exchange of Exchangeable Preferred Stock
On June 30, 1993, in exchange for all of the Company's outstanding shares of 12-3/4% Exchangeable Preferred Stock, the Company issued $141.8 million of 12-3/4% Junior Subordinated Debentures Due 2003 to the holder of the Exchangeable Preferred Stock. Those debentures were sold by the holder in a registered public offering in August 1993. The Company received none of the proceeds of this offering.
Note 10. Foreign Currency Translation
Assets and liabilities of most foreign operations are translated at year-end rates of exchange, and the resulting gains or losses, net of income tax effects, are accumulated in a separate component of stockholder's equity.
Changes in exchange rates which gave rise to significant translation effects included in stockholder's equity for the years ended December 31, 1993, 1992, and 1991, are summarized in the accompanying table.
Change in End of Period Exchange Rate Currency 1993 1992 1991
British sterling (2)% (19)% (3)% Canadian dollar (4) ( 9) - French franc (6) (6) (2) Deutschemark (7) (6) (1) Italian lira (14) (22) (2) ===== ===== ===== Translation loss included in stockholder's equity, net of tax (dollars in millions) $ (62.3) $ (36.2) $ (2.1) ====== ====== =====
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allocation of purchase costs increased the net asset exposure of foreign operations; however, since June 29, 1988, the date of the Merger, the effects of exchange volatility have been ameliorated by the fact that a portion of the Company's borrowings has been denominated in foreign currencies.
The losses from foreign currency transactions and translation from operations in countries with high inflation rates reflected in expense were $21.9 million in 1993, $19.3 million in 1992, and $14.4 million in 1991.
Note 11. Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Values of Financial Instruments" ("FAS 107"), requires disclosure information about all financial instruments of a company except certain excluded instruments and instruments for which it is not practicable to estimate fair value. The fair values presented below are estimates as of December 31, 1993, and are not necessarily indicative of amounts the Company could realize or settle currently or indicative of the intent or ability of the Company to dispose of or liquidate such instruments.
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Cash and certificates of deposit: The carrying amount reported in the balance sheet for cash and certificates of deposit approximates its fair value.
Long- and short-term debt: The fair values of the Company's Credit Agreement loans are estimated using indicative market quotes obtained from a major bank. The fair values of senior notes, senior debentures, senior subordinated notes, senior subordinated discount debentures, subordinated discount debentures, the sinking fund debentures, and the junior subordinated debentures are based on indicative market quotes obtained from a major securities dealer. The fair values of other loans approximate their carrying value.
The carrying amounts and estimated fair values of selected financial instruments at December 31, 1993 are as follows: (dollars in millions) Carrying Fair Amount Value Credit Agreement loans $ 697 $ 679 10 7/8% senior notes 150 163 11 3/8% senior debentures 250 276 9 7/8% senior subordinated notes 200 208 10 1/2% senior subordinated discount debentures 478 505 14 1/4% subordinated discount debentures 175 184 9 1/4% sinking fund debentures 150 152 12-3/4% junior subordinated debentures 142 143 Other loans 63 63
ASI HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Related Party Transactions
The Company has agreed to pay Kelso an annual fee of $2.75 million for providing management consulting and advisory services. In June 1993 the Company issued 1,000 shares of a new, non-voting Series A Preferred Stock, par value $.01 per share, for $10,000 to an affiliate of Kelso & Company. The Company is committed to contribute $5 million of capital to a Kelso limited partnership. In addition, Tyler Refrigeration was sold to an affiliate of Kelso in 1991.
Note 13. Leases
The cumulative minimum rental commitments under the terms of all noncancellable operating leases in effect at December 31, 1993, were $108 million. Net rental expenses for operating leases were $34 million, $32 million, and $28 million for the years ended December 31, 1993, 1992, and 1991, respectively.
Note 14. Commitments and Contingencies
The Company and certain of its subsidiaries are parties to a number of pending legal and tax proceedings. The Company is also subject to federal, state and local environmental laws and regulations and is involved in environmental proceedings concerning the investigation and remediation of numerous sites. In those instances where it is probable that the Company will incur costs from such proceedings and the amounts can be reasonably determined the Company has recorded a liability. The Company believes that these legal, tax, and environmental proceedings will not have a material adverse effect on its consolidated financial position, cash flows, or results of operations.
The tax returns of the Company's German subsidiaries are currently under examination by the German tax authorities (see Note 5).
Note 15. Segment Data
Sales and operating income by geographic location for the years ended December 31, 1993, 1992, and 1991, are shown on the following page. Identifiable assets are also shown as at years ended 1993, 1992, and 1991. See "Business" for a description of each business segment and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for capital expenditures and depreciation and amortization.
ASI HOLDING CORPORATION AND SUBSIDIARIES QUARTERLY DATA (Unaudited) (Dollars in millions)
First Second Third Fourth Sales $879.4 $995.5 $976.5 $979.1 Cost of sales 650.5 754.5 727.7 769.9 Income (loss) before income taxes and extraordinary loss (9.5) (28.2) 4.1 (46.9) Tax provision 8.1 6.1 7.2 14.8 Loss before extraordinary loss (17.6) (34.3) (3.1) (61.7) Extraordinary loss (Note 8) - (91.9) - - Net loss $(17.6) $(126.2) $ (3.1) $(61.7) ====== ======= ====== ====== Per share: Loss before extraordinary loss $ (.92) $ (1.63) $ (.13) $(2.60) Extraordinary loss - (3.87) - - Net loss $ (.92) $ (5.50) $ (.13) $(2.60) ====== ======= ====== ====== Average number of common shares (thousands) 23,699 23,756 23,690 23,756
First Second Third Fourth Sales $901.0 $995.9 $980.9 $914.1 Cost of sales 672.0 734.1 742.2 703.9 Income (loss) before income taxes (8.1) 11.4 (16.5) (39.3) Tax provision (benefit) 5.5 9.2 (1.5) (8.5) Net income (loss) $(13.6) $ 2.2 $(15.0) $(30.8) ====== ======= ====== ====== Per share: Net loss $ (.74) $ (.07) $ (.81) $(1.49) ====== ======= ====== ====== Average number of common shares (thousands) 23,339 23,470 23,467 23,506
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCING DISCLOSURE.
Not applicable.
MANAGEMENT
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information as of March 31, 1994, with respect to each person who is an executive officer or director of the Company:
Name Age Position with Company
Emmanuel A. Kampouris 59 Chairman, President and Chief Executive Officer, and Director
Horst Hinrichs 61 Senior Vice President, Transportation Products, and Director
George H. Kerckhove 56 Senior Vice President, Plumbing Products, and Director
Fred A. Allardyce 52 Vice President and Chief Financial Officer
Alexander A. Apostolopoulos 51 Vice President and Group Executive, Americas, Plumbing Products
Thomas S. Battaglia 51 Vice President and Treasurer
Roberto Canizares M. 44 Vice President, Air Conditioning Products' Asia/America Zone
Wilfried Delker 53 Vice President and Group Executive, Worldwide Fittings, Plumbing Products
Adrian B. Deshotel 48 Vice President, Human Resources
Cyril Gallimore 65 Vice President, Systems and Technology
Luigi Gandini 55 Vice President and Group Executive, European Plumbing Products
Daniel Hilger 53 Vice President and Group Executive, Air Conditioning Products in Europe, Middle East and Africa
Joachim D. Huwendiek 63 Vice President, Automotive Products in Germany
Name Age Position with Company
Frederick W. Jaqua 72 Vice President and General Counsel and Secretary
W. Craig Kissel 42 Vice President and Group Executive, Unitary Products Group
William A. Klug 62 Vice President, Trane International
Philippe Lamothe 57 Vice President, Automotive Products in France
G. Eric Nutter 58 Vice President, Automotive Products in the United Kingdom
Raymond D. Pipes 44 Vice President and Group Executive, Plumbing Products in the Far East
Bruce R. Schiller 49 Vice President and Group Executive, Compressor Business
James H. Schultz 45 Vice President and Group Executive, Commercial Systems Group
G. Ronald Simon 52 Vice President and Controller
Wade W. Smith 43 Vice President, U.S. Plumbing Products
Benson I. Stein 56 Vice President, General Auditor
Robert M. Wellbrock 47 Vice President, Taxes
Shigeru Mizushima 50 Director
Roger W. Parsons 52 Director
Frank T. Nickell 46 Director
J. Danforth Quayle* 47 Director
John Rutledge 45 Director
Joseph S. Schuchert* 65 Director
* The Management Development Committee functions as the compensation committee of the Company. Since December 2, 1993, its members have been Messrs. Quayle and Schuchert. Prior thereto Mr. Schuchert and two other directors who retired in December, Richard M. Cyert and Edward Donley, served as members of the committee.
Directors are elected to hold office until the next annual meeting of stockholders or until their successors are elected. Messrs. Kampouris, Mizushima, Nickell, and Schuchert were elected in 1988; Mr. Kerckhove in September 1990; Mr. Hinrichs in March 1991; Dr. Rutledge in March 1993; Mr. Quayle in September 1993; and Mr. Parsons in March 1994.
Holding, Kelso ASI Partners, L.P. (the 73 percent owner of Holding) ("ASI Partners"), and executive officers and certain other management personnel of the Company who purchased shares of Holding common stock ("Management Investors") entered into a Stockholders Agreement that, among other things, provides for arrangements regarding the control of the election of directors of Holding.
Until the earlier of (i) the occurrence of a public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of Holding common stock to the public and underwritten by an investment banking firm of nationally recognized standing and (ii) July 7, 1998, the Management Investors as a group are entitled to nominate at least two directors to the Board of Directors of Holding, and ASI Partners is entitled to nominate the remaining directors. As a result, during such period ASI Partners will control the Board of Directors. To effectuate their rights, the Management Investors and ASI Partners have agreed in the Stockholders' Agreement to grant an irrevocable proxy to the Secretary of Holding to vote their shares of common stock in accordance with such nominations. Such grant of an irrevocable proxy terminates upon Holding's becoming subject to the proxy rules under the Securities Exchange Act of 1934. At present the Board of Directors of Holding consists of nine directors.
The sole holder of the outstanding common stock of American Standard Inc. is Holding, and Holding exclusively elects the directors of American Standard Inc. Currently the directors of Holding are also the directors of American Standard Inc.
Set forth below is the principal occupation of each of the executive officers and directors named above during the past five years (except as noted, all positions are with the Company).
Mr. Kampouris was elected Chairman in December 1993 and President and Chief Executive Officer in February 1989. Prior thereto he was Senior Vice President, Building Products, from 1984 to February 1989. He is also a director of Daido Hoxan Inc. Mr. Kampouris has served as a director of the Company since July 1988.
Mr. Hinrichs was elected Senior Vice President, Transportation Products, in December 1990. Prior thereto he served as Vice President and Group Executive, Automotive Products, from 1987 to 1990. Mr. Hinrichs has served as a director of the Company since March 1991.
Mr. Kerckhove was elected Senior Vice President, Plumbing Products, in June 1990. Prior thereto he was Vice President (from 1985 until June 1990) and Group Executive (from 1988 until June 1990) of European Plumbing Products. Mr. Kerckhove has served as a director of the Company since September 1990.
Mr. Allardyce was elected Vice President and Chief Financial Officer in January 1992. Prior thereto he served as Vice President and Controller from February 1983 until December 1991.
Mr. Apostolopoulos was elected Vice President and Group Executive, Americas Plumbing Products, in December 1990. Prior thereto he served as the executive in charge of Plumbing Products' joint ventures from September 1989 to November 1990 and Managing Director of the Company's Egyptian subsidiary from July 1984 to August 1989.
Mr. Battaglia was elected Vice President and Treasurer in September 1991. Prior thereto he was Assistant Treasurer.
Mr. Canizares was elected Vice President, Air Conditioning Products' Asia/America Zone, in December 1990. Prior thereto he served as the executive in charge of this zone and Manager of Planning and Distribution from November 1986 to November 1990.
Mr. Delker was elected Vice President and Group Executive, Worldwide Fittings, Plumbing Products, in April 1990. Prior thereto he served as executive in charge of the Company's brass fittings manufacturing operations from June 1982 until March 1990.
Mr. Deshotel was elected Vice President, Human Resources, in January 1992. Prior thereto he served as Group Vice President, Human Resources, for U.S. Plumbing Products from September 1986 until December 1991.
Mr. Gallimore was elected Vice President, Systems and Technology, in December 1990. Prior thereto he served as the executive in charge of Manufacturing and Technology from 1984 to November 1990.
Mr. Gandini was elected Vice President and Group Executive, European Plumbing Products, in July 1990. Prior thereto he served as General Manager of Ideal Standard S.p.A., the Italian subsidiary of the Company, from January 1978 until June 1990.
Mr. Hilger was elected Vice President and Group Executive, Air Conditioning Products, in Europe, Middle East and Africa, in June 1988.
Mr. Huwendiek was elected Vice President, Automotive Products in Germany, in January 1992. Prior thereto he served as Managing Director of WABCO Germany since June 1987.
Mr. Jaqua was elected Vice President and General Counsel and Secretary in April 1989. Prior thereto he was Associate General Counsel and Assistant Secretary.
Mr. Kissel was elected Vice President in charge of Air Conditioning Products' Unitary Products Group in January 1992, becoming Group Executive in March 1994. He served as Vice President, Sales and Distribution, for Air Conditioning Products, from December 1990 until January 1992 and served as divisional Senior Vice President in charge of U.S. Sales from January to November 1990. He was in charge of Western Regional Sales from January 1989 to January 1990.
Mr. Klug was elected Vice President in 1985 and has been in charge of Trane International since December 1993. He served as Group Executive, Unitary Products Group, from April 1990 until December 1993. He was Group Executive, North American Sales and Distribution, Air Conditioning Products, from October 1987 to March 1990.
Mr. Lamothe was elected Vice President, Automotive Products in France, in January 1992. He served as Group Vice President of the French transportation business during 1991 and prior thereto was General Manager of the French transportation subsidiary.
Mr. Nutter was elected Vice President, Automotive Products in the United Kingdom, in January 1992. Prior thereto he served as Vice President and General Manager of WABCO Transportation U.K. Limited, the United Kingdom transportation subsidiary of the Company from March 1991 until December 1991 and Group Managing Director of the United Kingdom transportation subsidiary from June 1987 until February 1991.
Mr. Pipes was elected Vice President and Group Executive for the Far East Region of Plumbing Products in May 1992. Prior thereto he served as Managing Director of the Company's Philippine subsidiary from May 1990 until April 1992 and was Group Vice President, Control & Finance, of U.S. Plumbing Products from March 1985 until April 1990.
Mr. Schiller was elected Vice President and Group Executive, Compressor Business (Air Conditioning Products) in March 1994. Prior thereto he served as General Manager, Compressor Business Group, from May 1993 to February 1994 and Manager and then General Manager of the Company's Tyler, Texas, facility from March 1986 to April 1993.
Mr. Schultz was elected Vice President and Group Executive, Commercial Systems, in 1987.
Mr. Simon was elected Vice President and Controller in January 1992. Prior thereto he served as Vice President and Controller of the Air Conditioning Products' Commercial Systems Group from December 1984 to December 1991.
Mr. Wade W. Smith was elected Vice President, U.S. Plumbing Products, in May 1992. Prior thereto he served as Group Vice President in charge of the Chinaware Business Unit of U.S. Plumbing Products from February 1992 until April 1992 and from April 1987 to February 1992 he was Vice President and General Manager of the Building Automation Systems Division of the Commercial Systems Group of Air Conditioning Products.
Mr. Stein was elected Vice President, General Auditor, in March 1994; from December 1986 to February 1994 he was the Company's General Auditor.
Mr. Wellbrock was elected Vice President, Taxes, effective January 1, 1994. Prior thereto he served as Director of Taxes from 1988 through 1993.
Mr. Mizushima has been President and Chief Operating Officer of Daido Hoxan Inc. since the merger in April 1993 of Hoxan Corporation with Daido Sanso Company (a subsidiary of Air Products and Chemicals Inc.). Prior thereto Mr. Mizushima was President of Hoxan Corporation, a position he held since 1984. He is also a director of Daido Hoxan. Daido Hoxan Inc is the second largest supplier of industrial gases in Japan. One of its subsidiaries is a distributor of American-Standard plumbing products in Japan. Mr. Mizushima has served as a director of the Company since July 1988.
Mr. Nickell has been President and a director of Kelso & Companies, Inc., since March 1989. Kelso & Companies, Inc. is the general partner of Kelso & Company, L.P. From 1984 to 1989 Mr. Nickell was a general partner of Kelso & Company, L.P. He is also a director of Club Car, Inc.; King Holding Corp; and Tyler Holdings Corporation. Mr. Nickell has served as a director of the Company since May 1988.
Mr. Parsons is Managing Director of Rea Brothers Group PLC ("Rea Brothers Group"), which he joined in 1988 after a long banking career. Rea Brothers Group is a U.K. holding company of subsidiaries engaged in the investment banking business. He also holds directorships in several subsidiaries of Rea Brothers Group. Mr. Parsons was elected as a director of the Company on March 2, 1994.
Mr. Quayle served as Vice President of the United States from January 1989 to January 1993. Since leaving that office Mr. Quayle has been associated with Circle Investors, Inc. (an investment planning and consulting firm), and FX Strategic Advisors, Inc. (an international trade consulting firm), both of which he serves as Chairman. He is a Director of Central Newspapers, Inc. Mr. Quayle has served as a director of the Company since September 1993.
Dr. Rutledge has been Chairman of Rutledge & Company, Inc., a merchant banking firm, since January 1991. He is the founder and Chairman of Claremont Economics Institute, an economic research firm established in 1975. He is also a director of Earle M. Jorgensen & Company, Lazard Freres Funds, Medical Specialties Group, and Utendahl Capital Partners and is a special advisor to Kelso & Company. Dr. Rutledge has served as a director of the Company since March 1993.
Mr. Schuchert has been Chairman, CEO, and a director of Kelso & Companies, Inc., since March 1989. Kelso & Companies, Inc. is the general partner of Kelso & Company, L.P. From 1984 to 1989 Mr. Schuchert was managing general partner of Kelso & Company, L.P. He is also a director of Earle M. Jorgensen & Company. Mr. Schuchert has served as a director of the Company since May 1988.
On December 23, 1992, Kelso & Company and its chief executive officer, Mr. Schuchert, without admitting or denying the findings contained therein, consented to an administrative order in respect of a Securities and Exchange Commission ("Commission") inquiry relating to the 1990 acquisition of a portfolio company by a Kelso affiliate. The order found that Kelso's tender offer filing in connection with the acquisition did not comply fully with the Commission's tender offer reporting requirements, and required Kelso and Mr. Schuchert to comply with these requirements in the future.
Compensation Committee Interlocks and Insider Participation
Mr. Schuchert is a member of the Management Development Committee (the Compensation Committee) of the Company's Board of Directors. He is Chairman of Kelso & Companies, Inc. (the general partner of Kelso & Company, L.P.) and a general partner of American Standard Partners, the general partner of Kelso ASI Partners.
The Company pays Kelso an annual fee of $2.75 million for providing management consulting and advisory services, including those of Messrs. Schuchert and Nickell. The fee is reduced depending on the number of shares Kelso controls of Holding or the Company, with final termination when Kelso's ownership control falls below 20 percent.
The Company also entered into a transaction with Kelso Insurance Services, Incorporated (an affiliate of Kelso) ("Kelso Insurance"), and American Telephone and Telegraph Company ("AT&T") pursuant to which the Company as well as other Kelso affiliated companies participates in a telecommunications network under which AT&T provides communications services to the group at a special lower tariff rate. In connection with that transaction the Company has guaranteed a minimum annual usage by it of $2 million for a period of five years commencing 1993. No fee was paid by the Company to Kelso Insurance in connection with this transaction.
In August 1993 the Company purchased a limited partnership interest in Kelso Investment Associates V, L.P. ("KIA V") in exchange for its commitment to make a capital contribution of $5 million to KIA V. KIA V was formed to seek out business opportunities and invest primarily in equity securities, leveraged buy-outs, and joint ventures. Kelso Partners V, L.P. serves as the general partner of KIA V. The general partners of Kelso Partners V, L.P., include Messrs. Schuchert and Nickell. Kelso & Co., L.P., is the manager of KIA V and, as such, acts as investment adviser of KIA V. The management fee relating to the interest held by the Company has been waived.
The Supplemental Plan benefits are based on credited years of service and average annual compensation for the highest three calendar years of the final ten calendar years of employment (not exceeding 60 percent of average annual compensation for such years of service) and are reduced by an offset consisting of certain other retirement benefits, including amounts payable under the Terminated Plan, annual allocations to the executive officer's Employee Stock Ownership Plan ("ESOP") accounts, and Social Security benefits. Benefits under the Supplemental Plan are vested after five years of service or employment continuation through age 65. Compensation used in determining Supplemental Plan benefits (covered compensation) includes only salary and bonus reflected in the Summary Compensation Table above. No covered compensation of any Named Officer differs by more than 10% from the salary and bonus set forth in the Summary Compensation Table.
The years of credited service under the Supplemental Plan for the Named Officers are as follows: Mr. Kampouris, 28 years; Mr. Hinrichs, 35 years; Mr. Kerckhove, 32 years; Mr. Allardyce, 17 years; Mr. Gandini, 33 years; and Mr. H.T. Smith, 13 years.
The current annual target benefit for Mr. Kampouris is approximately 20 percent higher than that shown in the above table since a different benefit formula under the pre-1990 version of the Supplemental Plan applies to his period of service and earnings prior to April 27, 1991. The method of calculating the lump sum payable to Mr. Kampouris that is attributable to his accrued benefit through April 27, 1991, has been adjusted to reflect the recent increase in the Federal ordinary income tax rates.
An amendment to the Supplemental Plan in 1993 established minimum annual lump sum payments for certain Named Officers which, after giving effect to Plan offsets, are estimated as follows: Mr. Kampouris, $427,000; Mr. Hinrichs, $143,000; Mr. Kerckhove, $37,000; and Mr. Gandini, $24,000.
Shares of Holding Common Stock distributable to Plan participants are delivered to a grantor's trust for their benefit. The trust will terminate following a public offering of Holding Common Stock, at which time shares or cash credited to each participant's account is to be distributed. Payment, however, may be deferred if an event of default under the Company's loan agreements or debt indentures has occurred or will occur as a result of such payment. Until distribution, assets of the trust are subject to the claims of creditors of Holding or the Company. Shares held by the trust are voted by the trustee in accordance with the Company's directions.
Directors' Fees and Other Arrangements
In the first half of 1993 each outside director was paid a fee of $5,000 per calendar quarter and in addition received a fee of $500 for each meeting of the Board attended; in the last half each outside director was paid a fee of $6,750 per calendar quarter and in addition received a fee of $1,000 for each meeting of the Board attended. Effective with the third quarter, an outside director is also paid $1,000 for attending a Committee meeting. (Previously an outside director was paid $500 for attending a Committee meeting not held on the day of a Board meeting.) The only directors currently eligible for directors' fees are directors who are neither employees of the Company or Kelso. They are Messrs. Mizushima, Parsons, Quayle, and Rutledge. All directors are reimbursed for reasonable expenses incurred in connection with attendance at any meetings. No separate directors' fees are paid for attendance at meetings of Holding that are held on the same day the Company's Board meets.
A Supplemental Compensation Plan for Outside Directors ("Supplemental Compensation Plan") was adopted in June 1989. A Plan Account was establish- ed for each participating director at that time consisting of units equivalent to $50,000 of Holding common stock with each unit having a value of $19 per share, the independently appraised value of the shares of Holding as of December 31, 1988. For the purpose of providing a measure of parity among the directors, the $50,000 amount was increased to $100,000 for participating directors who became Board Members after January 1, 1993, with such amount converted into units for the account of such directors at the rate of $42.96 per unit ($42.96 representing the independently appraised value of the shares of Holding as of December 31, 1992). When a participating director ceases to be a member of the Board, he or his beneficiary will receive a cash payment equal to the number of units in his Plan Account multiplied by the per-share value of Holding common stock based on the then last year-end appraisal. If a participating director is removed for cause, his entire interest in the Plan is forfeited. Employee-directors and Messrs. Nickell and Schuchert do not participate in this Plan.
Mr. Donley and Dr. Cyert, directors who retired in December 1993, each received a payment of $113,053 pursuant to the Supplemental Compensation Plan.
Corporate Officers Severance Plan and Other Employment or Severance Arrangements
The Board of Directors approved a severance plan for executive officers (the "Officers Severance Plan"), effective April 27, 1991. The Officers Severance Plan provides that any participant whose employment is involuntarily terminated by the Company without "Cause" (as defined in the Officers Severance Plan) or who leaves the Company for "Good Reason" (as defined in the Officers Severance Plan) shall be paid an amount equal to the sum of two (three in the case of the Chief Executive Officer) times such participant's annual base salary at the rate in effect at the time of termination, a proration of the then Annual Incentive Plan target award (described previously), and one (two in the case of the Chief Executive Officer) times such target award. In addition, group life, accident, and disability insurance coverages, as well as group medical coverage, will be continued for up to 24 (36 in the case of the Chief Executive Officer) months following such officer's termination. The Named Officers (other than Mr. Smith, who retired in December 1993) are participants in this Plan.
An agreement was entered into with H. Thompson Smith in December 1993 concerning the terms of his termination of employment and retirement. Under that agreement he is entitled to receive his 1993 Annual Incentive Plan award in the amount of $154,000 and will be entitled to receive the same amount in March 1995. In addition, Mr. Smith is retained as a consultant through 1995 at the rate of $29,583 per month. In the event of Mr. Smith's death, the fees remaining through the end of 1995 are payable in a lump sum to his spouse or estate. He is also entitled to receive payments under the Company's Long-Term Incentive Compensation Plan for the 1992-1994 and 1993-1995 performance periods in accordance with its terms, such awards to be prorated to December 31, 1993. Mr. Smith continues under the Company's medical and life insurance programs through 1995.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the common stock, $.01 par value, of American Standard Inc., the only voting stock of American Standard Inc., is owned by Holding. Set forth below is the number of shares of Common Stock, par value $.01 per share, of Holding, the only outstanding voting stock of Holding, beneficially owned as of March 10, 1994, by each Director and nominee, each Named Executive Officer, all Directors and executive officers of Holding as a group, and each 5% holder.
Shares Percent Name and Address Beneficially of Title of Class of Beneficial Owner Owned Class Holding common stock, par value - Kelso ASI Partners, L.P.(a) 18,000,000 73% $.01 per share ("ASI Partners") Joseph S. Schuchert(a) 18,000,000(d) 73% (d) Frank T. Nickell(a) 18,000,000(d) 73% (d) George E. Matelich(a) 18,000,000(d) 73% (d) Thomas R. Wall IV(a) 18,000,000(d) 73% (d) Emmanuel A. Kampouris(b) 225,000 * George H. Kerckhove(b) 113,000 * Horst Hinrichs(b) 90,000 * Fred A. Allardyce(b) 113,000 * American-Standard Employee Stock Ownership Plan(c) 4,267,710 17% All current directors and executive officers of Holding and the Company as a group 18,824,900(e) 77% (e)
* Less than one percent.
(a) The business address for such persons is c/o Kelso & Company, 350 Park Avenue, New York, N.Y. 10022.
(b) Mr. Kampouris is Chairman, President and Chief Executive Officer and a director of the Company and of Holding. Messrs. Hinrichs and Kerckhove are Named Officers and directors of the Company and of Holding, and Mr. Allardyce is a Named Officer of the Company and of Holding.
(c) The business address for the ESOP is c/o American Standard Inc., 1114 Avenue of the Americas, New York, N.Y. 10036. At December 31, 1993, 3,548,609 Plan shares were allocated to executive officers of Holding and the Company and other ESOP participants. The number of shares shown for executive officers in the table above does not reflect shares allocated to their accounts in the ESOP. Shares in the ESOP account are voted by the ESOP trustee as directed by the plan board (the board administering the trust which currently consists of executive officers of the Company). However, participants may direct the vote of their ESOP account shares in matters involving mergers, recapitalizations, or dispositions of substantial assets. Until termination of employment a participant cannot dispose of shares in his ESOP account. Shares distributed to a participant on termination are subject to the Company's right of first refusal. The shares in the Named Officers ESOP accounts are as follows: Mr. Kampouris, 3,995 shares; Mr. Kerckhove, 3,953 shares; Mr. Hinrichs, 4,266 shares; Mr. Allardyce, 4,246 shares; and Mr. Gandini, 2,225 shares. The shares in the ESOP accounts for all executive officers total 69,218 shares.
The number of shares shown for executive officers in the table above also does not reflect shares of Holding Common Stock issued as part of the payouts under the LTIP and held for them in trust under a trust agreement dated as of January 1, 1993. Shares in the trust are voted by the trustee as directed by the Company. Until termination of the trust, a beneficiary of the Trust cannot dispose of shares credited to his account. Shares in the Named Officers' accounts in the trust are as follows: Mr. Kampouris, 4,453 shares; Mr. Kerckhove, 2,012 shares; Mr. Hinrichs, 1,787 shares; Mr. Allardyce, 1,224 shares; and Mr. Gandini, 1,176 shares. The shares in the trust accounts for all executive officers total 28,620 shares.
Also not included above are 19,198 shares of ASI Holding common stock held in a similar grantor's trust for the account of certain executive officers. These were earned by them under an employee incentive plan prior to their becoming officers.
(d) Messrs. Schuchert and Nickell, each a director of the Company and of Holding, and Messrs. Matelich and Wall may be deemed to share beneficial ownership of shares owned of record by ASI Partners by virtue of their status as general partners of American Standard Partners, the general partner of ASI Partners. Messrs. Schuchert, Nickell, Matelich and Wall share investment and voting power with respect to securities owned by ASI Partners. See "Certain Transactions and Relationships." Dr. Cyert, who was a director of Holding and the Company until December 1993, is a limited partner in one of the Kelso partnerships that has invested in ASI Partners.
(e) Out of such 18,824,900 shares, 18,000,000 shares represent shares of Common Stock owned by ASI Partners in which Messrs. Schuchert and Nickell, each a director of Holding, may be deemed to share beneficial ownership by virtue of their status as general partners of American Standard Partners, the general partner of ASI Partners.
ITEM 13. CERTAIN TRANSACTIONS AND RELATIONSHIPS
Messrs. Schuchert and Nickell, directors of Holding and the Company, are Chairman and President, respectively, of Kelso & Companies, Inc. (the general partner of Kelso & Company, L.P.), and are general partners of American Standard Partners, the general partner of Kelso ASI Partners. Mr. Schuchert is also a member of the Management Development Committee (the compensation committee) of the Company's Board of Directors.
The Company pays Kelso an annual fee of $2.75 million for providing management consulting and advisory services, including those of Messrs. Schuchert and Nickell. The fee is reduced depending on the number of shares Kelso controls of Holding or the Company, with final termination when Kelso's ownership control falls below 20 percent.
The Company also has entered into a transaction with Kelso Insurance Services, Incorporated (an affiliate of Kelso) ("Kelso Insurance"), and American Telephone and Telegraph Company ("AT&T") pursuant to which the Company as well as other Kelso affiliated companies participates in a telecommunications network under which AT&T provides communications services to the group at a special lower tariff rate. In connection with that transaction the Company has guaranteed a minimum annual usage by it of $2 million for a period of five years commencing 1993. No fee was paid by the Company to Kelso Insurance in connection with this transaction.
In August 1993 the Company purchased a limited partnership interest in Kelso Investment Associates V, L.P. ("KIA V"), in exchange for its commitment to make a capital contribution of $5 million to KIA V. KIA V was formed to seek out business opportunities and invest primarily in equity securities, leveraged buy-outs, and joint ventures. Kelso Partners V, L.P. serves as the general partner of KIA V. The general partners of Kelso Partners V, L.P., include Messrs. Schuchert and Nickell. Kelso & Co., L.P. is the manager of KIA V and, as such, acts as investment adviser of KIA V. The management fee relating to the interest held by the Company has been waived.
The Company will invest in a Cayman Islands corporation, A-S China Plumbing Products Limited ("ASPPL"), to be used for the establishment of various joint ventures in the People's Republic of China. The Company will have a 21% voting interest in ASPPL. Shares in ASPPL will also be sold in a private placement to certain institutions and other investors, including certain executive officers and employees of the Company and its subsidiaries.
Mr. Mizushima, a director of the Company and of Holding, is President and Chief Operating Officer of Daido Hoxan Inc., a Japanese corporation which has an approximately 11 percent limited partnership interest in ASI Partners. Daido Hoxan Inc. is the largest distributor of the Company's plumbing products in Japan. Its transactions as distributor with the Company and its subsidiaries in 1992, which were on customary terms and in the ordinary course of business, were not material to either the Company or Daido Hoxan Inc. The Company also entered into leasing transactions with an affiliate of Daido Hoxan whereby it has leased certain machinery and equipment on financial terms that were comparable to those available from other leasing companies. The leasing transactions were not material to either the Company or Daido Hoxan Inc.
Fidelity Management Trust Company ("Fidelity") is the owner of record of the shares of Holding held by the ESOP, a 17% owner of Holding shares. Fidelity was paid by the Company approximately $180,000 in 1993 for services in connection with administering the Company's ESOP and Savings Plan.
Mr. Nickell's father is an officer and owns more than 10 percent of AC Corporation, a contracting company which purchases air conditioning products from the Company's Trane Division. Such purchases in 1993 were on customary terms and in the ordinary course of business and were not material to either the Company or AC Corporation.
Management Investors Stockholders Agreement
Under the Stockholders Agreement, pursuant to which Management Investors purchased shares of Holding common stock, Holding is obligated to repurchase, subject to the limitations contained in the Company's lending arrangements and debt instruments, such shares at certain fair market prices in case of the death, disability, retirement, or termination of employment of a Management Investor. Shares are paid for within the constraints of the Company's lending arrangement and debt instruments, as supplemented by a Schedule of Priorities established by Holding's Board of Directors. The Named Officers (other than Mr. Gandini) and most of the executive officers are Management Investors and parties to the Stockholders Agreement.
PART IV
ITEM 14. CONSOLIDATED EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1 and 2. Financial statements and financial statement schedules
The financial statements and schedules listed in the accompanying index to financial statements are filed as part of this annual report on Form 10-K.
3. Exhibits
The exhibits listed on the accompanying index to exhibits are filed as part of this annual report on Form 10-K.
Included in the exhibits are the following management contracts or compensatory plan arrangements required to be filed as exhibits pursuant to Item 14(c) of Form 10-K
American Standard Inc. Long-Term Incentive Compensation Plan, as amended Trust Agreement for American Standard Inc. Long-Term Incentive Compensation Plan American Standard Inc. Annual Incentive Plan American Standard Inc. Management Partner's Bonus Plan with amendments American Standard Inc. Executive Supplemental Retirement Benefit Program American Standard Employee Stock Ownership Plan with amendments Estate Preservation Plan with amendments Corporate Officers Severance Plan American Standard Inc. Supplemental Compensation Plan for Outside Directors ASI Holding Corporation 1989 Stock Purchase Loan Program Summary of Terms of Unfunded Deferred Compensation Plan Letter of Agreement with respect to H. Thompson Smith's retirement and consulting services
(b) Reports on Form 8-K for the quarter ended December 31, 1993.
None
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ASI HOLDING CORPORATION
By /s/ Emmanuel A. Kampouris (Emmanuel A. Kampouris) (Chairman, President and Chief Executive Officer)
March 30, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
/s/ Emmanuel A. Kampouris Director, Chairman and President March 30, 1994 (Emmanuel A. Kampouris) (Chief Executive Officer)
/s/ Fred A. Allardyce Vice President and Chief March 30, 1994 (Fred A. Allardyce) Financial Officer
/s/ G. Ronald Simon Vice President & Controller March 30, 1994 (G. Ronald Simon) (Principal Accounting Officer)
/s/ Horst Hinrichs Director March 30, 1994 (Horst Hinrichs)
/s/ George H. Kerckhove Director March 30, 1994 (George H. Kerckhove)
/s/ Shigeru Mizushima Director March 30, 1994 (Shigeru Mizushima)
/s/ Frank T. Nickell Director March 30, 1994 (Frank T. Nickell)
/s/ J. Danforth Quayle Director March 30, 1994 (J. Danforth Quayle)
/s/ Roger W. Parsons Director March 30, 1994 (Roger W. Parsons)
/s/ Joseph S. Schuchert Director March 30, 1994 (Joseph S. Schuchert)
/s/ John Rutledge Director March 30, 1994 (John Rutledge)
ASI HOLDING CORPORATION AND FINANCIAL STATEMENT SCHEDULES COVERED BY REPORT OF INDEPENDENT AUDITORS (Item 14 (a))
Form 10-K (Pages) 1. Financial Statements
Consolidated Balance Sheet at December 31, 1993 and 1992 42 Years ended December 31, 1993, 1992 and 1991, Consolidated Statement of Operations 41 Consolidated Statement of Stockholder's Equity (Deficit) 43 Consolidated Statement of Cash Flows 44-45 Notes to Consolidated Financial Statements 46-62 Segment Data 63 Segment data for capital expenditures, depreciation and amortization 23-29 Quarterly Data (Unaudited) 64 Report of Independent Auditors 40
2. Financial statement schedules, years ended December 31, 1993, 1992 and 1991 Report of Independent Auditors 84
III Condensed Financial Information of Registrant 85-88 V Facilities 89 VI Accumulated Depreciation of Facilities 90 VIII Reserves 91 IX Short-Term Borrowings 92 X Supplementary Income Statement Information 93
All other schedules have been omitted because the information is not applicable or is not material or because the information required is included in the financial statements or the notes thereto.
Report of Independent Auditors
Stockholders and Board of Directors ASI Holding Corporation
We have audited the consolidated financial statements of ASI Holding Corporation as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, and have issued our report thereon dated March 14, 1994 (included elsewhere in this Annual Report on Form-10K). Our audits also included the consolidated schedules listed in Item 14(a)2. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits.
In our opinion, the consolidated schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be stated therein.
/s/ Ernst & Young Ernst & Young
March 14, 1994
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS (Parent Company Separately) (Dollars in thousands)
Year Ended Year Ended December 31, December 31, 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (208,567) $ (57,238)
Adjustments to reconcile net loss to net cash provided by operating activities: Equity in net loss of subsidiary 208,567 57,238
- ---------------------------------------------------------------------
Net cash flow from operating activities 0 0
- ---------------------------------------------------------------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES: Investment in subsidiary (4,585) (3,103) Purchase of common stock by subsidiary 12,194 10,950
- ---------------------------------------------------------------------
Net cash provided by investing activities 7,609 7,847
- ---------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Issuance of common stock 4,585 3,103 Common stock repurchased (12,194) (10,950) Repayments on subscriptions receivable 482 653 Repayment of loan from subsidiary (482) (653) - ---------------------------------------------------------------------
Net cash used by financing activities (7,609) (7,847)
- ---------------------------------------------------------------------
Net change in cash and cash equivalents $ 0 $ 0 =====================================================================
See notes to the financial statements.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (cont'd) NOTES TO FINANCIAL STATEMENTS (Parent Company Separately)
(A) The notes to the consolidated financial statements of ASI Holding Corporation (the "Parent Company" or "Holding") are an integral part of these condensed financial statements.
(B) Holding was organized by Kelso & Company, L.P., a private merchant banking firm, to participate in the acquisition of American Standard Inc. American Standard Inc. is now a wholly owned subsidiary of Holding. Holding has no other investments or operations.
ASI HOLDING CORPORATION
INDEX TO EXHIBITS
(Item 14(a)3 - Exhibits Required by Item 601 of Regulation S-K and Additional Exhibits)
(The File Number of ASI Holding Corporation, the Registrant, and for all Exhibits incorporated by reference is 33-23070, except those Exhibits incorporated by reference in filings made by American Standard Inc. (the "Company") whose File Number is 1-470)
(3) (i) Certificate of Incorporation of ASI Holding Corporation ("Holding"); previously filed as Exhibit 3.1 in Registration Statement No. 33-23070 under the Securities Act of 1933, as amended, and herein incorporated by reference.
(ii) Amendment to Certificate of Incorporation amending Article FOURTH thereof; previously filed as Exhibit (3)(ii) in Holding's Form 10-K for the fiscal year ended December 31, 1991, and herein incorporated by reference.
(iii) By-laws of Holding; previously filed as Exhibit 3.2 in Registration Statement No. 33-23070 under the Securities Act of 1933, as amended, and herein incorporated by reference.
(4) (i) Indenture, dated as of November 1, 1986, between the Company and Manufacturers Hanover Trust Company, Trustee, including the form of 9-1/4% Sinking Fund Debenture Due 2016 issued pursuant thereto on December 9, 1986, in the aggregate principal amount of $150,000,000; previously filed as Exhibit 4(iii) in the Company's Form l0-K for the fiscal year ended December 31, 1986, and herein incorporated by reference.
(ii) Instrument of Resignation, Appointment and Acceptance, dated as of April 25, 1988 among the Company, Manufacturers Hanover Trust Company (the "Resigning Trustee") and Wilmington Trust Company (the "Successor Trustee"), relating to resignation of the Resigning Trustee and appointment of the Successor Trustee, under the Indenture referred to in Exhibit (4)(i) above; previously filed as Exhibit (4)(ii) in Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(iii) Form of Indenture, dated as of July 1, 1988, between the Company and Shawmut Bank Connecticut, National Association (formerly known as The Connecticut National Bank), as Trustee, relating to the Company's 14-1/4% Subordinated Discount Debentures due 2003; previously filed as Exhibit 4.3 in Amendment No. 2 to Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(iv) Form of Debenture evidencing the 14-1/4% Subordinated Discount Debentures due 2003 included as Exhibit A to the Form of Indenture referred to in (4)(iii) above.
(v) Indenture, dated as of May 15, 1992, between the Company and First Trust National Association, Trustee, relating to the Company's 10-7/8% Senior Notes due 1999, in the aggregate principal amount of $150,000,000; copy of Indenture previously filed as Exhibit (4)(i) by the Company in its Form 10-Q for the quarter ended June 30, 1992, and herein incorporated by reference.
(vi) Form of 10-7/8% Senior Notes due 1999 included as Exhibit A to the Indenture described in (4)(v) above.
(vii) Indenture dated as of May 15, 1992, between the Company and First Trust National Association, Trustee, relating to the Company's 11-3/8% Senior Debentures due 2004, in the aggregate principal amount of $250,000,000; copy of Indenture previously filed as Exhibit (4)(iii) by the Company in its Form 10-Q for the quarter ended June 30, 1992, and herein incorporated by reference.
(viii) Form of 11-3/8% Senior Debentures due 2004 included as Exhibit A to the Indenture described in (4)(vii) above.
(ix) Form of Indenture, dated as of June 1, 1993, between the Company and United States Trust Company of New York, as Trustee, relating to the Company's 9-7/8% Senior Subordinated Notes Due 2001; previously filed as Exhibit (4)(xxxi) in Amendment No. 1 to Registration Statement No. 33-61130 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(x) Form of Note evidencing the 9-7/8% Senior Subordinated Notes Due 2001 included as Exhibit A to the Form of Indenture referred to in (4)(ix) above.
INDEX TO EXHIBITS - (Continued)
(xi) Form of Indenture, dated as of June 1, 1993, between the Company and United States Trust Company of New York, as Trustee, relating to the Company's 10-1/2% Senior Subordinated Discount Debentures Due 2005; previously filed as Exhibit (4)(xxxiii) in Amendment No. 1 to Registration Statement No. 33-61130 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xii) Form of Debenture evidencing the 10-1/2% Senior Subordinated Discount Debentures Due 2005 included as Exhibit A to the Form of Indenture referred to in (4)(xi) above.
(xiii) Form of Indenture, dated as of October 25, 1990, as amended and restated as of June 15, 1993, between the Company and Shawmut Bank, N.A., as Trustee, relating to Company's 12-3/4% Junior Subordinated Debentures due 2003; previously filed as Exhibit (4)(xx) in Amendment No. 2 to Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xiv) Form of Debenture evidencing the 12-3/4% Junior Subordinated Debentures Due 2003 included as Exhibit A to the Form of Indenture referred to in (4)(xiii) above.
(xv) Assignment and Amendment Agreement, dated as of June 1, 1993, among the Company, Holding, certain subsidiaries of the Company, Bankers Trust Company, as agent under the 1988 Credit Agreement, the financial institutions named as Lenders in the 1988 Credit Agreement and certain additional Lenders and Chemical Bank, as Administrative Agent and Arranger; previously filed as Exhibit (4)(xiii) in Amendment No. 1 to Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xvi) Credit Agreement, dated as of June 1, 1993, among the Company, Holding, certain subsidiaries of the Company and the lending institutions listed therein, Chemical Bank, as Administrative Agent and Arranger; Bankers Trust Company, The Bank of Nova Scotia, The Chase Manhattan Bank, N.A., Deutsche Bank AG, The Long-Term Credit Bank of Japan, Ltd., New York Branch, and NationsBank of North Carolina, N.A., as Managing Agents, and Banque Paribas, Citibank, N.A., and Compagnie Financiere de CIC et de l'Union Europeenne, New York Branch, as Co-Agents; previously filed as Exhibit (4)(xiv) in Amendment No. 1 to Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(xvii) First Amendment, Consent and Waiver, dated as of February 10, 1994, to the Credit Agreement referred to in (4)(xvi) above; copy of Amendment is being filed as Exhibit (4)(xvii) by the Company in its Form 10-K for the year ended December 31, 1993, concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(xviii) Stockholders Agreement, dated as of July 7, 1988, as amended as of August 1, 1988, among Holding, Kelso ASI Partners, L.P., and the Management Stockholders named therein; previously filed as Exhibit 4.19 in Amendment No. 2 to the Registration Statement No. 33-23070 of Holding under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xix) Amendment to Section 2.1 of the Stockholders Agreement referred to in paragraph (4)(xviii) above, effective as of January 1, 1991; previously filed as Exhibit (4)(xxvii) by Holding in its Form 10-K for the fiscal year ended December 31, 1992, and herein incorporated by reference.
(xx) Supplement and Amendment dated as of September 4, 1991 to the Stockholders Agreement dated as of July 7, 1988, as amended, referred to in paragraph (4)(xviii) above; previously filed as Exhibit (4)(ii) in Holding's Form l0-Q for the quarter ended September 30, 1991, and herein incorporated by reference.
(xxi) Amended Paragraph 6.1 of the Stockholders Agreement referred to in paragraph (4)(xviii) above, effective as of September 2, 1993.
(xxii) Revised Schedule of Priorities, effective as of September 5, 1991, as adopted by the Board of Directors of Holding pursuant to the Stockholders Agreement dated as of July 7, 1988, as amended, referred to in paragraph (4)(xviii) above; previously filed as Exhibit (4)(iii) in Holding's Form l0-Q for the quarter ended September 30, 1991, and herein incorporated by reference.
(10) (i) Agreement and Plan of Merger, dated as of March 16, 1988, among the Company, ASI Acquisition Company and Holding and Offer Letter, dated March 16, 1988, between the Company and Kelso & Company, L.P.; previously filed as Exhibit 2 to the Company's Schedule 14D-9 filed March 21, 1988, in connection with the offer for all the shares of the Company's Common Stock by a corporation formed by Kelso & Company, L.P., and herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(ii) Amendment, dated June 3, 1988 to Agreement and Plan of Merger referred to in l0(i) above; previously filed as Exhibit 2.50 in Amendment No. 1 to the Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(iii) American Standard Inc. Long-Term Incentive Compensation Plan, as amended through February 6, 1992; previously filed as Exhibit (l0)(iv) by the Company in its Form l0-K for the year ended December 31, 1992, and herein incorporated by reference.
(iv) Trust Agreement for American Standard Inc. Long-Term Incentive Compensation Plan; copy of Trust Agreement being filed as Exhibit (10)(iv) by the Company in its Form 10-K for the year ended December 31, 1993, concurrently with the filing of Holding's Form 10-K for the same year, and herein incorporated by reference.
(v) American Standard Inc. Annual Incentive Plan; previously filed as Exhibit (l0)(vii) by the Company in its Form l0-K for the fiscal year ended December 31, 1988, and is herein incorporated by reference.
(vi) American Standard Inc. Management Partners' Bonus Plan effective as of July 7, 1988; previously filed as Exhibit (l0)(i) in the Company's Form l0-Q for the quarter ended September 30, 1988, and herein incorporated by reference; amendments to Plan adopted on June 7, 1990, previously filed as Exhibit (4)(ii) in the Company's Form l0-Q for the quarter ended June 30, 1990, and herein incorporated by reference.
(vii) American Standard Inc. Executive Supplemental Retirement Benefit Program, as restated to include all amendments through December 31, 1993; copy of restated program is being filed as Exhibit (10)(vii) by the Company in its Form 10-K for the year ended December 31, 1993, concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(viii) Stock Purchase Agreement, dated April 27, 1988, between ASI Acquisition Company and General Electric Capital Corporation (without schedules); previously filed as Exhibit 2.4 in Amended Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, and is herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(ix) Amendment, dated June 3, 1988, to Stock Purchase Agreement referred to in (l0)(viii) above; previously filed as Exhibit 2.6 in Amendment No. 1 in Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(x) Form of Composite American-Standard Employee Stock Ownership Plan incorporating amendments through December 3, 1992; previously filed as Exhibit (10)(x) in Registration Statement No. 33-61130 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xi) American-Standard Employee Stock Ownership Trust Agreement, dated as of December 1, 1991, between ASI Holding Corporation and Fidelity Management Trust Company (as successor to Citizens & Southern Trust Company (Georgia), N.A.), as trustee; previously filed as Exhibit (l0)(xiv) by the Company in its Form l0-K for the year ended December 31, 1991, and herein incorporated by reference.
(xii) Consulting Agreement made July 1, 1988, with Kelso & Company, L.P. concerning general management and financial consulting services to the Company; previously filed as Exhibit (l0)(xviii) in the Company's Form l0-K for the fiscal year ended December 31, 1988, and herein incorporated by reference.
(xiii) American Standard Inc. Supplemental Compensation Plan for Outside Directors as amended through September 1993; copy of Plan is being filed as Exhibit (10)(xv) by the Company in its Form l0-K for the year ended December 31, 1993 concurrently with the filing of Holding's 10-K for the same year and herein incorporated by reference.
(xiv) ASI Holding Corporation 1989 Stock Purchase Loan Program; previously filed as Exhibit (l0)(i) in Holding's Form l0-Q for the quarter ended September 30, 1989, and herein incorporated by reference.
(xv) Corporate Officers Severance Plan adopted by the Company in December, 1990, effective April 27, 1991; previously filed as Exhibit (l0)(xix) by the Company in its Form l0-K for the year ended December 31, 1990, and said Plan is herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(xvi) Estate Preservation Plan, adopted by the Company in December, 1990; previously filed as Exhibit (l0)(xx) by the Company in its Form l0-K for the year ended December 31, 1990, and said Plan is herein incorporated by reference.
(xvii) Amendment adopted in March 1993 to Estate Preservation Plan referred to in (10)(xvi) above; copy of Amendment is being filed as Exhibit (10)(xix) by the Company in its Form 10-K for the year ended December 31, 1993 concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(xviii) Summary of terms of Unfunded Deferred Compensation Plan adopted December 2, 1993; copy of Summary is being filed as Exhibit (10)(xviii) by the Company in its Form 10-K for the year ended December 31, 1993 concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(xix) Retirement/Consulting Agreement, dated December 28, 1993, between H. Thompson Smith and the Company; copy of Agreement is being filed as Exhibit (10)(xix) by Company in its Form 10-K for the year ended December 31, 1993 concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(21) Listing of Holding's subsidiaries.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the common stock, $.01 par value, of American Standard Inc., the only voting stock of American Standard Inc., is owned by Holding. Set forth below is the number of shares of Common Stock, par value $.01 per share, of Holding, the only outstanding voting stock of Holding, beneficially owned as of March 10, 1994, by each Director and nominee, each Named Executive Officer, all Directors and executive officers of Holding as a group, and each 5% holder.
Shares Percent Name and Address Beneficially of Title of Class of Beneficial Owner Owned Class Holding common stock, par value - Kelso ASI Partners, L.P.(a) 18,000,000 73% $.01 per share ("ASI Partners") Joseph S. Schuchert(a) 18,000,000(d) 73% (d) Frank T. Nickell(a) 18,000,000(d) 73% (d) George E. Matelich(a) 18,000,000(d) 73% (d) Thomas R. Wall IV(a) 18,000,000(d) 73% (d) Emmanuel A. Kampouris(b) 225,000 * George H. Kerckhove(b) 113,000 * Horst Hinrichs(b) 90,000 * Fred A. Allardyce(b) 113,000 * American-Standard Employee Stock Ownership Plan(c) 4,267,710 17% All current directors and executive officers of Holding and the Company as a group 18,824,900(e) 77% (e)
* Less than one percent.
(a) The business address for such persons is c/o Kelso & Company, 350 Park Avenue, New York, N.Y. 10022.
(b) Mr. Kampouris is Chairman, President and Chief Executive Officer and a director of the Company and of Holding. Messrs. Hinrichs and Kerckhove are Named Officers and directors of the Company and of Holding, and Mr. Allardyce is a Named Officer of the Company and of Holding.
(c) The business address for the ESOP is c/o American Standard Inc., 1114 Avenue of the Americas, New York, N.Y. 10036. At December 31, 1993, 3,548,609 Plan shares were allocated to executive officers of Holding and the Company and other ESOP participants. The number of shares shown for executive officers in the table above does not reflect shares allocated to their accounts in the ESOP. Shares in the ESOP account are voted by the ESOP trustee as directed by the plan board (the board administering the trust which currently consists of executive officers of the Company). However, participants may direct the vote of their ESOP account shares in matters involving mergers, recapitalizations, or dispositions of substantial assets. Until termination of employment a participant cannot dispose of shares in his ESOP account. Shares distributed to a participant on termination are subject to the Company's right of first refusal. The shares in the Named Officers ESOP accounts are as follows: Mr. Kampouris, 3,995 shares; Mr. Kerckhove, 3,953 shares; Mr. Hinrichs, 4,266 shares; Mr. Allardyce, 4,246 shares; and Mr. Gandini, 2,225 shares. The shares in the ESOP accounts for all executive officers total 69,218 shares.
The number of shares shown for executive officers in the table above also does not reflect shares of Holding Common Stock issued as part of the payouts under the LTIP and held for them in trust under a trust agreement dated as of January 1, 1993. Shares in the trust are voted by the trustee as directed by the Company. Until termination of the trust, a beneficiary of the Trust cannot dispose of shares credited to his account. Shares in the Named Officers' accounts in the trust are as follows: Mr. Kampouris, 4,453 shares; Mr. Kerckhove, 2,012 shares; Mr. Hinrichs, 1,787 shares; Mr. Allardyce, 1,224 shares; and Mr. Gandini, 1,176 shares. The shares in the trust accounts for all executive officers total 28,620 shares.
Also not included above are 19,198 shares of ASI Holding common stock held in a similar grantor's trust for the account of certain executive officers. These were earned by them under an employee incentive plan prior to their becoming officers.
(d) Messrs. Schuchert and Nickell, each a director of the Company and of Holding, and Messrs. Matelich and Wall may be deemed to share beneficial ownership of shares owned of record by ASI Partners by virtue of their status as general partners of American Standard Partners, the general partner of ASI Partners. Messrs. Schuchert, Nickell, Matelich and Wall share investment and voting power with respect to securities owned by ASI Partners. See "Certain Transactions and Relationships." Dr. Cyert, who was a director of Holding and the Company until December 1993, is a limited partner in one of the Kelso partnerships that has invested in ASI Partners.
(e) Out of such 18,824,900 shares, 18,000,000 shares represent shares of Common Stock owned by ASI Partners in which Messrs. Schuchert and Nickell, each a director of Holding, may be deemed to share beneficial ownership by virtue of their status as general partners of American Standard Partners, the general partner of ASI Partners.
ITEM 13.
ITEM 13. CERTAIN TRANSACTIONS AND RELATIONSHIPS
Messrs. Schuchert and Nickell, directors of Holding and the Company, are Chairman and President, respectively, of Kelso & Companies, Inc. (the general partner of Kelso & Company, L.P.), and are general partners of American Standard Partners, the general partner of Kelso ASI Partners. Mr. Schuchert is also a member of the Management Development Committee (the compensation committee) of the Company's Board of Directors.
The Company pays Kelso an annual fee of $2.75 million for providing management consulting and advisory services, including those of Messrs. Schuchert and Nickell. The fee is reduced depending on the number of shares Kelso controls of Holding or the Company, with final termination when Kelso's ownership control falls below 20 percent.
The Company also has entered into a transaction with Kelso Insurance Services, Incorporated (an affiliate of Kelso) ("Kelso Insurance"), and American Telephone and Telegraph Company ("AT&T") pursuant to which the Company as well as other Kelso affiliated companies participates in a telecommunications network under which AT&T provides communications services to the group at a special lower tariff rate. In connection with that transaction the Company has guaranteed a minimum annual usage by it of $2 million for a period of five years commencing 1993. No fee was paid by the Company to Kelso Insurance in connection with this transaction.
In August 1993 the Company purchased a limited partnership interest in Kelso Investment Associates V, L.P. ("KIA V"), in exchange for its commitment to make a capital contribution of $5 million to KIA V. KIA V was formed to seek out business opportunities and invest primarily in equity securities, leveraged buy-outs, and joint ventures. Kelso Partners V, L.P. serves as the general partner of KIA V. The general partners of Kelso Partners V, L.P., include Messrs. Schuchert and Nickell. Kelso & Co., L.P. is the manager of KIA V and, as such, acts as investment adviser of KIA V. The management fee relating to the interest held by the Company has been waived.
The Company will invest in a Cayman Islands corporation, A-S China Plumbing Products Limited ("ASPPL"), to be used for the establishment of various joint ventures in the People's Republic of China. The Company will have a 21% voting interest in ASPPL. Shares in ASPPL will also be sold in a private placement to certain institutions and other investors, including certain executive officers and employees of the Company and its subsidiaries.
Mr. Mizushima, a director of the Company and of Holding, is President and Chief Operating Officer of Daido Hoxan Inc., a Japanese corporation which has an approximately 11 percent limited partnership interest in ASI Partners. Daido Hoxan Inc. is the largest distributor of the Company's plumbing products in Japan. Its transactions as distributor with the Company and its subsidiaries in 1992, which were on customary terms and in the ordinary course of business, were not material to either the Company or Daido Hoxan Inc. The Company also entered into leasing transactions with an affiliate of Daido Hoxan whereby it has leased certain machinery and equipment on financial terms that were comparable to those available from other leasing companies. The leasing transactions were not material to either the Company or Daido Hoxan Inc.
Fidelity Management Trust Company ("Fidelity") is the owner of record of the shares of Holding held by the ESOP, a 17% owner of Holding shares. Fidelity was paid by the Company approximately $180,000 in 1993 for services in connection with administering the Company's ESOP and Savings Plan.
Mr. Nickell's father is an officer and owns more than 10 percent of AC Corporation, a contracting company which purchases air conditioning products from the Company's Trane Division. Such purchases in 1993 were on customary terms and in the ordinary course of business and were not material to either the Company or AC Corporation.
Management Investors Stockholders Agreement
Under the Stockholders Agreement, pursuant to which Management Investors purchased shares of Holding common stock, Holding is obligated to repurchase, subject to the limitations contained in the Company's lending arrangements and debt instruments, such shares at certain fair market prices in case of the death, disability, retirement, or termination of employment of a Management Investor. Shares are paid for within the constraints of the Company's lending arrangement and debt instruments, as supplemented by a Schedule of Priorities established by Holding's Board of Directors. The Named Officers (other than Mr. Gandini) and most of the executive officers are Management Investors and parties to the Stockholders Agreement.
PART IV
ITEM 14.
ITEM 14. CONSOLIDATED EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1 and 2. Financial statements and financial statement schedules
The financial statements and schedules listed in the accompanying index to financial statements are filed as part of this annual report on Form 10-K.
3. Exhibits
The exhibits listed on the accompanying index to exhibits are filed as part of this annual report on Form 10-K.
Included in the exhibits are the following management contracts or compensatory plan arrangements required to be filed as exhibits pursuant to Item 14(c) of Form 10-K
American Standard Inc. Long-Term Incentive Compensation Plan, as amended Trust Agreement for American Standard Inc. Long-Term Incentive Compensation Plan American Standard Inc. Annual Incentive Plan American Standard Inc. Management Partner's Bonus Plan with amendments American Standard Inc. Executive Supplemental Retirement Benefit Program American Standard Employee Stock Ownership Plan with amendments Estate Preservation Plan with amendments Corporate Officers Severance Plan American Standard Inc. Supplemental Compensation Plan for Outside Directors ASI Holding Corporation 1989 Stock Purchase Loan Program Summary of Terms of Unfunded Deferred Compensation Plan Letter of Agreement with respect to H. Thompson Smith's retirement and consulting services
(b) Reports on Form 8-K for the quarter ended December 31, 1993.
None
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ASI HOLDING CORPORATION
By /s/ Emmanuel A. Kampouris (Emmanuel A. Kampouris) (Chairman, President and Chief Executive Officer)
March 30, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
/s/ Emmanuel A. Kampouris Director, Chairman and President March 30, 1994 (Emmanuel A. Kampouris) (Chief Executive Officer)
/s/ Fred A. Allardyce Vice President and Chief March 30, 1994 (Fred A. Allardyce) Financial Officer
/s/ G. Ronald Simon Vice President & Controller March 30, 1994 (G. Ronald Simon) (Principal Accounting Officer)
/s/ Horst Hinrichs Director March 30, 1994 (Horst Hinrichs)
/s/ George H. Kerckhove Director March 30, 1994 (George H. Kerckhove)
/s/ Shigeru Mizushima Director March 30, 1994 (Shigeru Mizushima)
/s/ Frank T. Nickell Director March 30, 1994 (Frank T. Nickell)
/s/ J. Danforth Quayle Director March 30, 1994 (J. Danforth Quayle)
/s/ Roger W. Parsons Director March 30, 1994 (Roger W. Parsons)
/s/ Joseph S. Schuchert Director March 30, 1994 (Joseph S. Schuchert)
/s/ John Rutledge Director March 30, 1994 (John Rutledge)
ASI HOLDING CORPORATION AND FINANCIAL STATEMENT SCHEDULES COVERED BY REPORT OF INDEPENDENT AUDITORS (Item 14 (a))
Form 10-K (Pages) 1. Financial Statements
Consolidated Balance Sheet at December 31, 1993 and 1992 42 Years ended December 31, 1993, 1992 and 1991, Consolidated Statement of Operations 41 Consolidated Statement of Stockholder's Equity (Deficit) 43 Consolidated Statement of Cash Flows 44-45 Notes to Consolidated Financial Statements 46-62 Segment Data 63 Segment data for capital expenditures, depreciation and amortization 23-29 Quarterly Data (Unaudited) 64 Report of Independent Auditors 40
2. Financial statement schedules, years ended December 31, 1993, 1992 and 1991 Report of Independent Auditors 84
III Condensed Financial Information of Registrant 85-88 V Facilities 89 VI Accumulated Depreciation of Facilities 90 VIII Reserves 91 IX Short-Term Borrowings 92 X Supplementary Income Statement Information 93
All other schedules have been omitted because the information is not applicable or is not material or because the information required is included in the financial statements or the notes thereto.
Report of Independent Auditors
Stockholders and Board of Directors ASI Holding Corporation
We have audited the consolidated financial statements of ASI Holding Corporation as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, and have issued our report thereon dated March 14, 1994 (included elsewhere in this Annual Report on Form-10K). Our audits also included the consolidated schedules listed in Item 14(a)2. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits.
In our opinion, the consolidated schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be stated therein.
/s/ Ernst & Young Ernst & Young
March 14, 1994
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS (Parent Company Separately) (Dollars in thousands)
Year Ended Year Ended December 31, December 31, 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (208,567) $ (57,238)
Adjustments to reconcile net loss to net cash provided by operating activities: Equity in net loss of subsidiary 208,567 57,238
- ---------------------------------------------------------------------
Net cash flow from operating activities 0 0
- ---------------------------------------------------------------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES: Investment in subsidiary (4,585) (3,103) Purchase of common stock by subsidiary 12,194 10,950
- ---------------------------------------------------------------------
Net cash provided by investing activities 7,609 7,847
- ---------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES: Issuance of common stock 4,585 3,103 Common stock repurchased (12,194) (10,950) Repayments on subscriptions receivable 482 653 Repayment of loan from subsidiary (482) (653) - ---------------------------------------------------------------------
Net cash used by financing activities (7,609) (7,847)
- ---------------------------------------------------------------------
Net change in cash and cash equivalents $ 0 $ 0 =====================================================================
See notes to the financial statements.
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (cont'd) NOTES TO FINANCIAL STATEMENTS (Parent Company Separately)
(A) The notes to the consolidated financial statements of ASI Holding Corporation (the "Parent Company" or "Holding") are an integral part of these condensed financial statements.
(B) Holding was organized by Kelso & Company, L.P., a private merchant banking firm, to participate in the acquisition of American Standard Inc. American Standard Inc. is now a wholly owned subsidiary of Holding. Holding has no other investments or operations.
ASI HOLDING CORPORATION
INDEX TO EXHIBITS
(Item 14(a)3 - Exhibits Required by Item 601 of Regulation S-K and Additional Exhibits)
(The File Number of ASI Holding Corporation, the Registrant, and for all Exhibits incorporated by reference is 33-23070, except those Exhibits incorporated by reference in filings made by American Standard Inc. (the "Company") whose File Number is 1-470)
(3) (i) Certificate of Incorporation of ASI Holding Corporation ("Holding"); previously filed as Exhibit 3.1 in Registration Statement No. 33-23070 under the Securities Act of 1933, as amended, and herein incorporated by reference.
(ii) Amendment to Certificate of Incorporation amending Article FOURTH thereof; previously filed as Exhibit (3)(ii) in Holding's Form 10-K for the fiscal year ended December 31, 1991, and herein incorporated by reference.
(iii) By-laws of Holding; previously filed as Exhibit 3.2 in Registration Statement No. 33-23070 under the Securities Act of 1933, as amended, and herein incorporated by reference.
(4) (i) Indenture, dated as of November 1, 1986, between the Company and Manufacturers Hanover Trust Company, Trustee, including the form of 9-1/4% Sinking Fund Debenture Due 2016 issued pursuant thereto on December 9, 1986, in the aggregate principal amount of $150,000,000; previously filed as Exhibit 4(iii) in the Company's Form l0-K for the fiscal year ended December 31, 1986, and herein incorporated by reference.
(ii) Instrument of Resignation, Appointment and Acceptance, dated as of April 25, 1988 among the Company, Manufacturers Hanover Trust Company (the "Resigning Trustee") and Wilmington Trust Company (the "Successor Trustee"), relating to resignation of the Resigning Trustee and appointment of the Successor Trustee, under the Indenture referred to in Exhibit (4)(i) above; previously filed as Exhibit (4)(ii) in Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(iii) Form of Indenture, dated as of July 1, 1988, between the Company and Shawmut Bank Connecticut, National Association (formerly known as The Connecticut National Bank), as Trustee, relating to the Company's 14-1/4% Subordinated Discount Debentures due 2003; previously filed as Exhibit 4.3 in Amendment No. 2 to Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(iv) Form of Debenture evidencing the 14-1/4% Subordinated Discount Debentures due 2003 included as Exhibit A to the Form of Indenture referred to in (4)(iii) above.
(v) Indenture, dated as of May 15, 1992, between the Company and First Trust National Association, Trustee, relating to the Company's 10-7/8% Senior Notes due 1999, in the aggregate principal amount of $150,000,000; copy of Indenture previously filed as Exhibit (4)(i) by the Company in its Form 10-Q for the quarter ended June 30, 1992, and herein incorporated by reference.
(vi) Form of 10-7/8% Senior Notes due 1999 included as Exhibit A to the Indenture described in (4)(v) above.
(vii) Indenture dated as of May 15, 1992, between the Company and First Trust National Association, Trustee, relating to the Company's 11-3/8% Senior Debentures due 2004, in the aggregate principal amount of $250,000,000; copy of Indenture previously filed as Exhibit (4)(iii) by the Company in its Form 10-Q for the quarter ended June 30, 1992, and herein incorporated by reference.
(viii) Form of 11-3/8% Senior Debentures due 2004 included as Exhibit A to the Indenture described in (4)(vii) above.
(ix) Form of Indenture, dated as of June 1, 1993, between the Company and United States Trust Company of New York, as Trustee, relating to the Company's 9-7/8% Senior Subordinated Notes Due 2001; previously filed as Exhibit (4)(xxxi) in Amendment No. 1 to Registration Statement No. 33-61130 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(x) Form of Note evidencing the 9-7/8% Senior Subordinated Notes Due 2001 included as Exhibit A to the Form of Indenture referred to in (4)(ix) above.
INDEX TO EXHIBITS - (Continued)
(xi) Form of Indenture, dated as of June 1, 1993, between the Company and United States Trust Company of New York, as Trustee, relating to the Company's 10-1/2% Senior Subordinated Discount Debentures Due 2005; previously filed as Exhibit (4)(xxxiii) in Amendment No. 1 to Registration Statement No. 33-61130 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xii) Form of Debenture evidencing the 10-1/2% Senior Subordinated Discount Debentures Due 2005 included as Exhibit A to the Form of Indenture referred to in (4)(xi) above.
(xiii) Form of Indenture, dated as of October 25, 1990, as amended and restated as of June 15, 1993, between the Company and Shawmut Bank, N.A., as Trustee, relating to Company's 12-3/4% Junior Subordinated Debentures due 2003; previously filed as Exhibit (4)(xx) in Amendment No. 2 to Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xiv) Form of Debenture evidencing the 12-3/4% Junior Subordinated Debentures Due 2003 included as Exhibit A to the Form of Indenture referred to in (4)(xiii) above.
(xv) Assignment and Amendment Agreement, dated as of June 1, 1993, among the Company, Holding, certain subsidiaries of the Company, Bankers Trust Company, as agent under the 1988 Credit Agreement, the financial institutions named as Lenders in the 1988 Credit Agreement and certain additional Lenders and Chemical Bank, as Administrative Agent and Arranger; previously filed as Exhibit (4)(xiii) in Amendment No. 1 to Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xvi) Credit Agreement, dated as of June 1, 1993, among the Company, Holding, certain subsidiaries of the Company and the lending institutions listed therein, Chemical Bank, as Administrative Agent and Arranger; Bankers Trust Company, The Bank of Nova Scotia, The Chase Manhattan Bank, N.A., Deutsche Bank AG, The Long-Term Credit Bank of Japan, Ltd., New York Branch, and NationsBank of North Carolina, N.A., as Managing Agents, and Banque Paribas, Citibank, N.A., and Compagnie Financiere de CIC et de l'Union Europeenne, New York Branch, as Co-Agents; previously filed as Exhibit (4)(xiv) in Amendment No. 1 to Registration Statement No. 33-64450 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(xvii) First Amendment, Consent and Waiver, dated as of February 10, 1994, to the Credit Agreement referred to in (4)(xvi) above; copy of Amendment is being filed as Exhibit (4)(xvii) by the Company in its Form 10-K for the year ended December 31, 1993, concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(xviii) Stockholders Agreement, dated as of July 7, 1988, as amended as of August 1, 1988, among Holding, Kelso ASI Partners, L.P., and the Management Stockholders named therein; previously filed as Exhibit 4.19 in Amendment No. 2 to the Registration Statement No. 33-23070 of Holding under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xix) Amendment to Section 2.1 of the Stockholders Agreement referred to in paragraph (4)(xviii) above, effective as of January 1, 1991; previously filed as Exhibit (4)(xxvii) by Holding in its Form 10-K for the fiscal year ended December 31, 1992, and herein incorporated by reference.
(xx) Supplement and Amendment dated as of September 4, 1991 to the Stockholders Agreement dated as of July 7, 1988, as amended, referred to in paragraph (4)(xviii) above; previously filed as Exhibit (4)(ii) in Holding's Form l0-Q for the quarter ended September 30, 1991, and herein incorporated by reference.
(xxi) Amended Paragraph 6.1 of the Stockholders Agreement referred to in paragraph (4)(xviii) above, effective as of September 2, 1993.
(xxii) Revised Schedule of Priorities, effective as of September 5, 1991, as adopted by the Board of Directors of Holding pursuant to the Stockholders Agreement dated as of July 7, 1988, as amended, referred to in paragraph (4)(xviii) above; previously filed as Exhibit (4)(iii) in Holding's Form l0-Q for the quarter ended September 30, 1991, and herein incorporated by reference.
(10) (i) Agreement and Plan of Merger, dated as of March 16, 1988, among the Company, ASI Acquisition Company and Holding and Offer Letter, dated March 16, 1988, between the Company and Kelso & Company, L.P.; previously filed as Exhibit 2 to the Company's Schedule 14D-9 filed March 21, 1988, in connection with the offer for all the shares of the Company's Common Stock by a corporation formed by Kelso & Company, L.P., and herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(ii) Amendment, dated June 3, 1988 to Agreement and Plan of Merger referred to in l0(i) above; previously filed as Exhibit 2.50 in Amendment No. 1 to the Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(iii) American Standard Inc. Long-Term Incentive Compensation Plan, as amended through February 6, 1992; previously filed as Exhibit (l0)(iv) by the Company in its Form l0-K for the year ended December 31, 1992, and herein incorporated by reference.
(iv) Trust Agreement for American Standard Inc. Long-Term Incentive Compensation Plan; copy of Trust Agreement being filed as Exhibit (10)(iv) by the Company in its Form 10-K for the year ended December 31, 1993, concurrently with the filing of Holding's Form 10-K for the same year, and herein incorporated by reference.
(v) American Standard Inc. Annual Incentive Plan; previously filed as Exhibit (l0)(vii) by the Company in its Form l0-K for the fiscal year ended December 31, 1988, and is herein incorporated by reference.
(vi) American Standard Inc. Management Partners' Bonus Plan effective as of July 7, 1988; previously filed as Exhibit (l0)(i) in the Company's Form l0-Q for the quarter ended September 30, 1988, and herein incorporated by reference; amendments to Plan adopted on June 7, 1990, previously filed as Exhibit (4)(ii) in the Company's Form l0-Q for the quarter ended June 30, 1990, and herein incorporated by reference.
(vii) American Standard Inc. Executive Supplemental Retirement Benefit Program, as restated to include all amendments through December 31, 1993; copy of restated program is being filed as Exhibit (10)(vii) by the Company in its Form 10-K for the year ended December 31, 1993, concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(viii) Stock Purchase Agreement, dated April 27, 1988, between ASI Acquisition Company and General Electric Capital Corporation (without schedules); previously filed as Exhibit 2.4 in Amended Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, and is herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(ix) Amendment, dated June 3, 1988, to Stock Purchase Agreement referred to in (l0)(viii) above; previously filed as Exhibit 2.6 in Amendment No. 1 in Registration Statement No. 33-22126 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(x) Form of Composite American-Standard Employee Stock Ownership Plan incorporating amendments through December 3, 1992; previously filed as Exhibit (10)(x) in Registration Statement No. 33-61130 of the Company under the Securities Act of 1933, as amended, and herein incorporated by reference.
(xi) American-Standard Employee Stock Ownership Trust Agreement, dated as of December 1, 1991, between ASI Holding Corporation and Fidelity Management Trust Company (as successor to Citizens & Southern Trust Company (Georgia), N.A.), as trustee; previously filed as Exhibit (l0)(xiv) by the Company in its Form l0-K for the year ended December 31, 1991, and herein incorporated by reference.
(xii) Consulting Agreement made July 1, 1988, with Kelso & Company, L.P. concerning general management and financial consulting services to the Company; previously filed as Exhibit (l0)(xviii) in the Company's Form l0-K for the fiscal year ended December 31, 1988, and herein incorporated by reference.
(xiii) American Standard Inc. Supplemental Compensation Plan for Outside Directors as amended through September 1993; copy of Plan is being filed as Exhibit (10)(xv) by the Company in its Form l0-K for the year ended December 31, 1993 concurrently with the filing of Holding's 10-K for the same year and herein incorporated by reference.
(xiv) ASI Holding Corporation 1989 Stock Purchase Loan Program; previously filed as Exhibit (l0)(i) in Holding's Form l0-Q for the quarter ended September 30, 1989, and herein incorporated by reference.
(xv) Corporate Officers Severance Plan adopted by the Company in December, 1990, effective April 27, 1991; previously filed as Exhibit (l0)(xix) by the Company in its Form l0-K for the year ended December 31, 1990, and said Plan is herein incorporated by reference.
INDEX TO EXHIBITS - (Continued)
(xvi) Estate Preservation Plan, adopted by the Company in December, 1990; previously filed as Exhibit (l0)(xx) by the Company in its Form l0-K for the year ended December 31, 1990, and said Plan is herein incorporated by reference.
(xvii) Amendment adopted in March 1993 to Estate Preservation Plan referred to in (10)(xvi) above; copy of Amendment is being filed as Exhibit (10)(xix) by the Company in its Form 10-K for the year ended December 31, 1993 concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(xviii) Summary of terms of Unfunded Deferred Compensation Plan adopted December 2, 1993; copy of Summary is being filed as Exhibit (10)(xviii) by the Company in its Form 10-K for the year ended December 31, 1993 concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(xix) Retirement/Consulting Agreement, dated December 28, 1993, between H. Thompson Smith and the Company; copy of Agreement is being filed as Exhibit (10)(xix) by Company in its Form 10-K for the year ended December 31, 1993 concurrently with the filing of Holding's Form 10-K for the same year and herein incorporated by reference.
(21) Listing of Holding's subsidiaries.