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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] Transition Report to Section 13 or 15(d) of the Securities Exchange Act of
1934 For the transition period from ______________ to_______________ .
Commission File Number 1-11415
AMERICAN STANDARD COMPANIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3465896
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
One Centennial Avenue, P.O. Box 6820, Piscataway, New Jersey 08855-6820
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (732) 980-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $.01 par value New York Stock Exchange, Inc.
(and associated Common Stock Rights)
Securities registered pursuant to Section 12 (g) of the Act: None.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the Registrant as of the close of business on March 12, 2001
was approximately $4.3 billion based on the closing sale price of the common
stock on the New York Stock Exchange on that date.
Number of shares outstanding of each of the Registrant's classes of Common
Stock, as of the close of business on March 12, 2001:
Common Stock, $.01 par value 70,956,309 Shares
Documents incorporated by reference:
Part of the Form 10-K into
Document (Portions only) which document is incorporated.
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Annual Report to Stockholders for the year Parts I, II and IV
ended December 31, 2000
Definitive Proxy Statement dated March
April 2, 2001 for use in connection with
the Annual Meeting of Stockholders to be
held on May 3, 2001 Part III
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business. 3
Item 2. Properties. 16
Item 3. Legal Proceedings. 17
Item 4. Submission of Matters to a Vote of Security Holders. 18
Executive Officers of the Registrant. 19
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. 22
Item 6. Selected Financial Data. 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 24
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk
Item 8. Financial Statements and Supplementary Data. 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 24
PART III
Item 10. Directors and Executive Officers of the Registrant. 25
Item 11. Executive Compensation. 25
Item 12. Security Ownership of Certain Beneficial Owners and 25
Management.
Item 13. Certain Relationships and Related Transactions. 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 26
8-K.
Signatures 32
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PART I
ITEM 1. BUSINESS
American Standard Companies Inc. is a global, diversified manufacturer
of high quality, brand-name products in three major product groups: air
conditioning systems and services (62% of 2000 sales); bathroom and kitchen
fixtures and fittings (24% of 2000 sales); and vehicle control systems for heavy
and medium-sized trucks, buses, trailers, luxury cars and sport utility vehicles
(14% of 2000 sales). American Standard is one of the largest providers of
products and services in each of its three major business segments. The
Company's brand names include TRANE(R) and AMERICAN STANDARD(R) for air
conditioning systems, AMERICAN STANDARD(R), IDEAL STANDARD(R), STANDARD(R),
PORCHER(R), JADO(R), ARMITAGE SHANKS(R) and DOLOMITE(R), for plumbing products,
and WABCO(R) for vehicle control systems.
American Standard Companies Inc. (the "Company") is a Delaware
corporation formed in 1988 to acquire all the outstanding common stock of
American Standard Inc., a Delaware corporation ("American Standard Inc.")
incorporated in 1929. In 1999 the Company completed an internal reorganization
in which American Standard Inc. transferred ownership of essentially all its
non-U.S. subsidiaries and their intellectual property rights to another
wholly-owned subsidiary of the Company, American Standard International Inc., a
Delaware corporation ("ASII"). "American Standard" or "the Company" refers to
the Company, or to the Company and American Standard Inc. or ASII, including
their subsidiaries, as the context requires.
American Standard has adopted performance initiatives focused on three
areas:
- Sales growth, including:
- Expanding marketing efforts,
- Building brand awareness and
differentiation,
- Introducing new products and services,
- Geographic expansion.
- Margin improvement through:
- Materials management programs,
- Six Sigma and other productivity enhancing
actions.
- Financial initiatives, including:
- Tax rate reduction,
- Debt reduction,
- Improved asset utilization and return on
capital.
Actions that the Company is taking in support of these initiatives are
discussed below.
OVERVIEW OF BUSINESS SEGMENTS
American Standard has three business segments: Air Conditioning Systems
and Services, Plumbing Products and Vehicle Control Systems.
AIR CONDITIONING SYSTEMS AND SERVICES. American Standard is a leading
U.S. designer and producer of air conditioning systems and equipment for both
domestic and export sales. It also provides control systems, aftermarket service
and parts for its products, and performance contracting for the installation and
maintenance of heating, ventilation and air conditioning systems. American
Standard also manufactures air conditioning systems outside the United States.
Air Conditioning Systems and Services ("Trane") products are sold primarily
under the TRANE(R) and AMERICAN STANDARD(R) names. Sales to the commercial and
residential markets accounted for approximately 80% and 20%, respectively, of
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Trane's total sales in 2000. Approximately 65% of Trane's sales in 2000 were in
the replacement, renovation and repair markets, which have been less cyclical
than the new residential and commercial construction markets. Trane derived 76%
of its 2000 sales in the U.S. and 24% outside. Management believes Trane is well
positioned for growth because of its high quality, high efficiency brand-name
products; significant existing market shares; the introduction of new products,
services and features such as electronic controls; the expansion of its broad
distribution network; conversion to products utilizing
environmentally-preferable refrigerants; and expansion of operations in
developing market areas throughout the world, especially in Latin America and
the Asia-Pacific area.
PLUMBING PRODUCTS. American Standard is a leading producer of bathroom
and kitchen fixtures and fittings in Europe, the U.S. and several countries in
Latin America and Asia. Its products are marketed through retail and wholesale
sales channels for residential and commercial markets. Plumbing Products
manufactures and distributes its products under the AMERICAN STANDARD(R), IDEAL
STANDARD(R), STANDARD(R) and PORCHER(R) JADO(R), ARMITAGE SHANKS(R) and
DOLOMITE(R) names. Of Plumbing Products' 2000 sales, 65% was derived from
operations outside the United States. Management believes Plumbing Products is
well positioned for growth because of its strong brands, significant existing
market shares in a number of countries, new products and designs, and low-cost
manufacturing capability.
VEHICLE CONTROL SYSTEMS. Vehicle Control Systems ("WABCO") is a leading
manufacturer of braking and control systems for the worldwide commercial vehicle
industry. Its largest-selling products are braking control systems and related
electronic and other control systems, including antilock and electronic braking
systems ("ABS" and "EBS", respectively), marketed under the WABCO(R) name for
heavy and medium-size trucks, buses, trailers, luxury cars and sport utility
vehicles. WABCO supplies vehicle manufacturers such as DaimlerChrysler (Mercedes
and Freightliner), Volvo, Iveco (Fiat), Scania, RVI (Renault), PACCAR, Hino,
Nissan and Rover. Management believes that WABCO benefits from its strong market
positions in Europe, North America and Brazil and its growing position in Asia.
Management also believes WABCO's products are well positioned because of
increasing demand for ABS and EBS; sophisticated electronic control systems for
automated transmissions; air suspension systems and stability control systems;
and automatic climate control and door control systems. WABCO has a strong
reputation for technological innovation and is a leading systems development
partner with several major vehicle manufacturers.
COMPANY GOALS
The Company has three major performance goals designed to enhance
shareholder value. The initiatives described above, coupled with the Company's
demonstrated ability to achieve and sustain strong market positions, produce
high quality products, employ efficient business processes and capitalize on its
low-cost manufacturing capability, are the principal elements in achieving these
goals.
- Deliver premier customer service,
- Drive operational excellence,
- Meet financial objectives.
PREMIER CUSTOMER SERVICE
American Standard plans to accomplish its goal of delivering premier
customer service by identifying and meeting customer needs with:
- Superior products, services and solutions,
- Industry-leading order-to-delivery cycle times,
- A global presence to serve global customers,
- Technological leadership and product innovation to
meet changing customer needs, and
- An efficient and flexible distribution system.
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OPERATIONAL EXCELLENCE
Operational performance will be enhanced through the use of Six Sigma
techniques, Demand Flow Technology and materials management to:
- Improve manufacturing processes,
- Reduce unit costs,
- Increase productive capacity,
- Upgrade quality, and
- Improve speed.
SIX SIGMA
Six Sigma is a structured approach to significantly improve work
processes. Applications range, for example, from improving yields on the first
pass of products through the manufacturing process in a vitreous chinaware plant
to eliminating non-value added steps in administrative processes. Statistical
and qualitative tools are used to diagnose performance deficiencies, identify
and measure improvement opportunities and implement improved work methods to
sustain performance gains.
Management introduced Six Sigma initiatives across the Company in 2000,
with the objective of improving both manufacturing and administrative processes.
These objectives complement and leverage the efficiencies of Demand Flow
(described below) and significantly reduce process defects. Technical experts
(called Six Sigma Master Black Belts, Black Belts and Green Belts) are being
developed and deployed through aggressive training and project deployment
programs. By the end of 2000, 4 Master Black Belts, over 300 Black Belts and 150
Green belts had been trained or were in training. By the end of 2001, the
Company expects to have trained approximately 20 Master Black Belts, 700 Black
Belts and 600 Green Belts. Some of the benefits have already been realized with
respect to improved process cycle times and increased productivity resulting in
improved customer service.
DEMAND FLOW(R) TECHNOLOGY*
American Standard has applied Demand Flow to its businesses. With
Demand Flow principles, augmented by Six Sigma principles, products are produced
as and when required by customers, the production process is streamlined and
quality control is integrated into each step of the manufacturing process. The
benefits of Demand Flow include better customer service, quicker response to
changing market needs, improved quality control, higher productivity, increased
inventory turnover rates and reduced requirements for working capital and
manufacturing and warehouse space.
MATERIALS MANAGEMENT
The Materials Management initiative is centered on leveraging the
collective buying power of our multiple business units on a global basis to
reduce costs, improve purchasing efficiency, reduce the number of vendors and
improve supplier logistics. With material costs exceeding 50% of the cost of
sales, management believes that improvements realized through Materials
Management could result in substantial savings.
In 2000, the Materials Management initiative focused on hiring
experienced people, establishing processes and training. Management adopted
challenging goals for continuous performance improvement. Benefits from this
program were modest in 2000, but demonstrated the potential for improvements and
savings. During 2000, twelve teams were formed to manage purchases of certain
materials with a total annual cost of $100 million. The number of vendors was
reduced from more than 275 to less than 15 and annualized savings of $14 million
were achieved despite the program being in its early stages of implementation.
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* Demand Flow is a registered trademark of J-I-T Institute of Technology, Inc.
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FINANCIAL OBJECTIVES
The Company sets annual financial performance objectives for sales
growth, operating margin improvements, earnings per share growth and cash flow
generation. The programs discussed above associated with achieving premier
customer service and driving operational excellence are key to achieving these
objectives. In addition, the Company has established programs to:
- Reduce the effective tax rate through the use of
various tax planning alternatives.
- Reduce debt and interest expense.
- Improve asset utilization and return on capital.
LINKAGE OF GOALS WITH INCENTIVE COMPENSATION PLANS
Management has adopted incentive compensation plans that are directly
linked to achievement of the Company-wide goals described above. Management
believes the attainment of these goals will result in improved financial
performance and enhanced shareholder value.
AIR CONDITIONING SYSTEMS AND SERVICES SEGMENT
Air Conditioning Systems and Services became an American Standard
business with the 1984 acquisition of the Trane Company, a manufacturer and
distributor of air conditioning systems since 1913. Air conditioning systems are
sold primarily under the TRANE(R) and AMERICAN STANDARD(R) names. In 2000 Trane,
with revenues of $4,726 million, accounted for 62% of Company sales and 63% of
its segment income. Trane derived 24% of its 2000 sales from outside the United
States. Approximately 65% of Trane's sales in 2000 were in the replacement,
renovation and repair markets, which in general are less cyclical than the new
residential and commercial construction markets.
Trane manufactures two general types of air conditioning systems. The
first, called "unitary," is sold for residential and commercial applications,
and is a factory-assembled central air conditioning system which generally
encloses in one or two units all the components to cool or heat, clean, humidify
or dehumidify, and move air. The second, called "applied," is typically
custom-engineered for commercial use and involves on-site installation of
several different components of the air conditioning system. Trane is one of the
three largest global manufacturers of both unitary and applied air conditioning
systems.
Trane competes in all of its markets on the basis of service to
customers, product quality and reliability, technological leadership and
price/value.
Product and marketing programs have been, and are being, developed to
increase penetration in the growing replacement, repair, and servicing
businesses. Much of the equipment sold in the fast-growing air conditioning
markets of the 1960's and 1970's has been reaching the end of its useful life.
Also, equipment sold in the 1980's is likely to be replaced earlier than
originally expected with higher-efficiency products recently developed to meet
required efficiency standards and to capitalize on the availability of new
refrigerants which meet current and future environmental standards.
Many of the air conditioning systems manufactured by Trane utilize
HCFCs and in the past utilized CFCs as refrigerants. Various domestic and
international laws and regulations, principally the 1990 Clean Air Act
Amendments and the Montreal Protocol, require the eventual phase-out of the
production and use of these refrigerants because of their possible deleterious
effect on the earth's ozone layer if released into
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the atmosphere. Phase-in of substitute refrigerants necessitates replacement or
modification of much of the air conditioning equipment already installed, which
management believes created a significant market opportunity. In order to ensure
that Trane products will be compatible with the substitute refrigerants, Trane
has been working closely with the manufacturers that are developing substitute
refrigerants. Trane has also been active in supporting industry-wide efforts to
transition to these new fluids in an orderly and sensible fashion while
balancing key environmental issues such as ozone depletion on one hand and
global warming (greenhouse gas effects) on the other. See "General --Regulations
and Environmental Matters."
Various federal and state statutes, including the National Appliance
Energy Conservation Act of 1987, as amended, impose energy efficiency standards
for certain of Trane's unitary Air Conditioning Systems and Services. Although
Trane has been able to meet or exceed such standards to date, stricter standards
in the future will require additional research and development expense and
capital expenditures to both maintain compliance and continue to offer customers
choices.
The Company, Heatcraft Technologies Inc. (a subsidiary of Lennox
International Inc.) and Copesub, Inc., (a subsidiary of Emerson Electric Co.)
are partners in Alliance Compressors ("Alliance"), a joint venture which
manufactures compressors for use in air conditioning and refrigeration
equipment. The Company and Heatcraft Technologies Inc. each own a 24.5%
partnership interest and Copesub, Inc. owns the balance. Alliance develops,
manufactures, markets and sells, primarily to Trane and Lennox, scroll
compressors utilized mainly in residential central air conditioning
applications. Alliance operates principally from a facility in Natchitoches,
Louisiana.
In 2000, Air Conditioning Systems and Services sold its Calorex water
heating business for $68 million. Calorex was a non-core business that generated
approximately $40 million in annual sales.
At December 31, 2000, Trane had 31 manufacturing plants in 9 countries,
employing approximately 27,000 people.
In describing segment results beginning in 2000, the Company classifies
its air conditioning operations as "Commercial" (commercial applied equipment
and services and commercial unitary equipment and services) and "Residential"
(residential unitary equipment and services). The Company believes this grouping
is more meaningful because commercial applied and commercial unitary products
are closely related in terms of markets, customers and distribution channels,
whereas the residential market and distribution channel are distinctly
different. Previously, the Company classified air conditioning operations as
Applied or Unitary in describing its segment results.
COMMERCIAL SYSTEMS AND SERVICES
Commercial Systems and Services ("Commercial Systems"), which accounted
for 80% of Air Conditioning Systems and Services' 2000 sales, manufactures and
distributes applied and commercial unitary air conditioning systems and parts
throughout the world and provides related services. These products are for air
conditioning applications in commercial, industrial and institutional buildings.
Approximately 71% of Commercial Systems sales are in the U.S. and 29% in
international markets. Other major suppliers of commercial systems are Carrier,
York and McQuay.
In the U.S., Commercial Systems markets its products, parts and
services through 87 sales offices, 49 of which are company-owned and 38 of which
are franchised. Commercial Systems is continuing the process of acquiring
certain commercial sales and service offices, having acquired one office in
2000, five offices in 1999, six offices in 1998, seven in 1997 and three in
1996. In addition, a portion of commercial unitary products are sold through
independent wholesale distributors and dealer sales offices. Outside the U.S.,
Commercial Systems also has an extensive network of sales and service agencies,
both company-owned and franchised, to sell products and provide maintenance and
service.
Commercial Systems emphasizes becoming the total solution for its
customers' needs, providing
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equipment, controls, service, parts and performance contracting. During the last
four years, Commercial Systems continued to introduce new applied products,
broadening its line of high-efficiency centrifugal chillers, introducing new
water cooled series R chillers, expanding the air cooled series R chiller line
and introducing a new absorption chiller, a new water source heat pump and a new
line of low pressure air handlers. Sales of systems that automatically control a
building's performance, including energy consumption and air quality, continue
to grow as a percentage of total sales with new product introductions such as
Tracer Summit and wireless thermostats. Indoor air quality has emerged as a
significant application to be served by the Company's products and services.
Systems capabilities, coupled with equipment, service and parts have allowed
Trane to be active in the performance contracting business as a comfort systems
solution provider.
During the past five years Commercial Systems also successfully
introduced several new commercial unitary products including: an ultra-high
efficiency packaged air conditioner; modulating gas and variable frequency drive
large rooftop units; rooftop units with special features that appeal to national
accounts; and a large rooftop line (27.5 tons to 50 tons). The commercial
unitary business also concentrated on indoor air quality enhancements and new
capabilities for existing products. Early in 2001, Commercial Systems will
introduce a new commercial unitary product named Precedent(TM) with capacities
from 2 to 10 tons. Precedent provides improved indoor air quality and higher
efficiency, is easier to configure, easier to install and less expensive to
manufacture, having 20% fewer parts and being 30% smaller than the products it
replaces.
RESIDENTIAL SYSTEMS AND SERVICES
Residential Systems and Services ("Residential Systems"), which
accounted for 20% of Air Conditioning Systems and Services' 2000 sales,
manufactures and distributes products and provides related services for
residential applications, primarily in North America. This group benefits
significantly from the growth of the replacement market for residential unitary
air conditioning systems in North America. Other major suppliers in the
residential market are Carrier, York, Rheem, Lennox and Goodman Industries.
Residential unitary products range from 1 to 5 tons and include air
conditioners, heat pumps, air handlers, furnaces, coils and related controls and
accessories. These products are sold through independent wholesale distributors
and Company-owned sales offices with over 340 stocking locations to dealers and
contractors who sell and install the equipment. Residential Systems is also well
positioned in the retail sales channel through arrangements with a major home
improvement center and a major department store through which certain
residential central heating and air conditioning systems are marketed.
During the past few years, Residential Systems successfully introduced
several new products including: a line of multi-stage cooling and heat pump
units offering the industry's highest efficiencies; a unique line of outdoor
condensing units for the AMERICAN STANDARD(R) brand; and an ultra-high
efficiency gas furnace with variable speed airflow and gas combustion
components. In the fourth quarter of 2001, Residential Systems expects to launch
a major new residential split system cooling and heat pump product named
Pinnacle(TM) that will compete in a market covering about 50% of the total
residential air conditioning market in North America. Pinnacle, with capacities
of one to five tons, has a very consumer-oriented design and is of higher
quality and efficiency. It is also easier to install, safer to operate, utilizes
environmentally preferable refrigerants and is lower cost to manufacture,
requiring 60% fewer parts than the products it replaces.
INTERNATIONAL OPERATIONS
Trane has a significant presence outside North America. In the
Asia-Pacific region Trane has a manufacturing joint venture in China, operations
in Malaysia and Taiwan, and a sales and manufacturing joint venture in Thailand.
A Brazilian manufacturing plant and distribution operations were acquired in
1994. In Europe, the group operates plants in Epinal and Charmes, France, and in
Colchester, U.K. A joint venture in Egypt commenced operations in 1992 to serve
markets in the Middle East. Trane is also continuing to expand its
international distribution network. In addition, as part of a cost improvement
initiative, in 2000 the Company signed an agreement to outsource the
manufacture of mini-split air conditioners. The company will market these units
primarily in Asia and Latin America.
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E-BUSINESS
In 1999 Trane launched a segment-wide e-business initiative aimed at
providing contractors, engineers, national accounts and other key customers
access to Trane product and systems data necessary for them to select, purchase
and service Trane products. This "extranet" initiative, called the Trane
ComfortSite(TM), allows contractors in North America to access all pertinent
information on residential and light commercial products and service parts so
that they will be able to select, check availability, price, purchase and track
delivery of these goods on-line, 24 hours a day, 7 days a week.
SERVICE PARTS INITIATIVES
Trane recognizes the value of providing a convenient and reliable
source of repair parts to service all products and systems it manufactures. In
support of current and future Trane customers, a significant investment is being
made to expand the number of locations and provide easy access to parts needed
to maintain and repair all products that Trane manufactures and sells on a
world-wide basis.
PLUMBING PRODUCTS SEGMENT
Plumbing Products manufactures and distributes bathroom and kitchen
fixtures and fittings primarily under the IDEAL STANDARD(R), AMERICAN
STANDARD(R), STANDARD(R), PORCHER(R), JADO(R), ARMITAGE SHANKS(R) and
DOLOMITE(R) names. In 2000, Plumbing Products, with revenues of $1,803 million,
accounted for 24% of the Company's sales and 19% of its segment income. Plumbing
Products derived 65% of its total 2000 sales from operations outside the United
States.
Plumbing Products' sales were 53% from chinaware fixtures, 26% from
fittings (typically brass) and 8% from bathtubs, with the remainder consisting
of related plumbing products. Throughout the world these products are generally
sold through wholesalers and distributors and installed by plumbers and
contractors. In the U.S., a significant and growing number of products are sold
through home improvement centers. In total the residential market accounts for
approximately 75% of Plumbing Products' sales, with the commercial and
industrial markets providing the remainder.
Plumbing Products operates through three primary geographic groups:
Americas, Europe, and Asia. Plumbing Products' fittings operations are organized
as the Worldwide Fittings Group, with manufacturing facilities in Germany, the
U.K., Bulgaria, the U.S., Mexico, Thailand, South Korea and China. Worldwide
Fittings' sales and operating results are reported in the three primary
geographic groups within which it operates.
The Company sells products in Europe primarily under the brand names
IDEAL STANDARD(R), JADO(R), ARMITAGE SHANKS(R), DOLOMITE(R)and PORCHER(R). It
manufactures and distributes bathroom and kitchen fixtures and fittings through
subsidiaries or joint ventures in Germany, Italy, France, the United Kingdom,
Greece, the Czech Republic, Bulgaria and Egypt and distributes products in other
European countries. In November 1995 the Company acquired Porcher S.A.
("Porcher"), a French manufacturer and distributor of plumbing products in which
the Company previously had a minority ownership interest. The unprofitable
distribution portion of Porcher was sold to a major French plumbing distributor
in October 1998. This sale was part of a major restructuring program involving
the closure of five plants in Europe and the shift of manufacturing capacity to
lower-cost facilities in Bulgaria.
In February 1999, the Company acquired for approximately $427 million
the Bathrooms Division of Blue Circle Industries PLC, a manufacturer of ceramic
sanitaryware, brassware and integrated plumbing systems. The acquired business,
which operates principally under the names ARMITAGE SHANKS(R) and CERAMICA
DOLOMITE(R) ("Armitage/Dolomite"), had 1999 sales of $279 million (for 11 months
from the acquisition date). Armitage/Dolomite has 3 major manufacturing
facilities and 5 smaller facilities located in England and Italy. The primary
markets for its products are in England, Italy, Ireland and Germany. Management
believes that Armitage/Dolomite products complement the Company's current
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product lines and strengthen its competitive position in Europe. The acquisition
has been accounted for as a purchase. After allocating the purchase price to the
value of the assets acquired and liabilities assumed, goodwill of $300 million
was recorded.
In Asia the Company manufactures bathroom and kitchen fixtures and
fittings, selling under the names AMERICAN STANDARD(R), IDEAL STANDARD(R), and
STANDARD(R) through its wholly-owned operations in South Korea and Indonesia,
and its majority-owned operations in Thailand, the Philippines and Vietnam. The
group also operates in China through a majority-owned joint venture which has
ownership interests in six joint ventures and one wholly-owned subsidiary. See -
"Globalization".
Plumbing Products' Americas Group manufactures bathroom and kitchen
fixtures and fittings selling under the brand names AMERICAN STANDARD(R),
STANDARD(R), PORCHER(R) and JADO(R) in the U.S. and under the brand names
AMERICAN STANDARD(R), IDEAL STANDARD(R), and STANDARD(R) through its wholly
owned operations in Mexico, Canada and Brazil and its joint ventures in Central
America and the Dominican Republic.
The Company's plumbing products are sold in the replacement and
remodeling market and the new construction market. The replacement and
remodeling market accounts for about 60% of the Company's European and U.S.
sales but only about 40% of the sales in Asia, where new construction is more
important. In the U.S. and Europe the replacement and remodeling market has
historically been more stable than the new construction market and has shown
moderate growth over the past several years. With the exception of the U.K., the
new construction market in Europe has been weak since 1994. In the U.S. the new
construction market evidenced strong growth in the mid and late 1990's and the
first half of 2000 before declining in the second half. The new construction
market, in which builders or contractors make product selection, is more
price-competitive and volume-oriented than the replacement and remodeling
market. In the replacement and remodeling market, consumers make model
selections and, therefore, this market is more responsive to quality and design
than price, making it the principal market for higher-margin luxury products.
Through expansion of manufacturing in low-cost locations, Plumbing Products has
become more competitive, enabling it to increase sales of products in the lower
and middle segments of both the remodeling and new construction markets.
Plumbing Products is also continuing programs to expand its presence in
high-quality showrooms and showplaces featuring its higher-end products in
certain major countries. These programs, along with expanded sales training
activities, have enhanced the image of the Company's products with interior
designers, decorators, consumers and plumbers.
In the U.S., Plumbing Products are marketed through both the wholesale
and retail channels. The growing retail home center industry market channel has
become a significant part of U.S. sales and is expected to continue to grow in
the future, despite the economic slowdown in the latter part of 2000.
In an effort to capture a larger share of the replacement and
remodeling market, Plumbing Products has introduced a variety of new products
designed to suit customer tastes in particular countries. New offerings include
additional colors and ensembles, bathroom suites from internationally known
designers and electronically controlled products. Faucet technology is centered
on anti-leak, anti-scald and other features to meet emerging consumer and
legislative requirements. Plumbing Products recently introduced a faucet
(ClearTap(TM)) with an under-the-counter filtering system which delivers clear,
safe water directly from the tap.
Many of the Company's bathtubs sold in the U.S. are made from a
proprietary porcelain on metal composite, AMERICAST(R). Products made with
AMERICAST(R) have the durability of cast iron with only one-half the weight and
are characterized by greater resistance to breaking and chipping. AMERICAST(R)
products are easier to ship, handle and install and are less expensive to
produce than cast iron products. Use of this advanced composite has been
extended to kitchen sinks, bathroom lavatories and acrylic surfaced products.
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As of December 31, 2000, Plumbing Products employed approximately
27,000 people and, including affiliated companies, had 60 manufacturing plants
in 23 countries.
In the U.S., Plumbing Products has several important competitors,
including Kohler and, in selected product lines, Masco. There are also important
competitors in foreign markets, for the most part operating nationally.
Friederich Grohe, the major manufacturer of fittings in Europe, is a
pan-European competitor. In Europe, Sanitec and Roca are the major fixtures
competitors and, in Asia, Toto is the major competitor. Plumbing Products
competes in most of its markets on the basis of service to customers, product
quality and design, reliability and price.
VEHICLE CONTROL SYSTEMS SEGMENT
Operating under the WABCO(R) name, Vehicle Control Systems designs,
manufactures and sells brake and control systems primarily for the worldwide
commercial vehicle industry. WABCO's largest selling products are pneumatic
braking control systems and related electronic controls (ABS and EBS) and
conventional components for tractors, buses, trailers and utility vehicles. In
2000 WABCO, with sales of $1,069 million, accounted for 14% of the Company's
sales and 18% of its total segment income. The Company believes that WABCO is
the worldwide technology leader for braking, suspension and transmission
controls for commercial vehicles. Electronic controls, first introduced in ABS
in the early 1980's, are increasingly applied in other control systems sold to
the commercial vehicle industry. In 1998 WABCO began supplying electronic
controls to the luxury car market.
WABCO's products are sold directly to vehicle and component
manufacturers. Spare parts are sold through both original equipment
manufacturers and an independent distribution network. Although the business is
not dependent on a single or related group of customers, sales of truck braking
systems are dependent on the demand for heavy trucks. Some of the Company's
largest customers are DaimlerChrysler (Mercedes and Freightliner), Volvo, Iveco
(Fiat), Scania, RVI (Renault), Paccar, Hino, Nissan and Rover. WABCO's principal
competitor is a joint venture between Knorr and Honeywell. WABCO competes
primarily on the basis of customer service, quality and reliability of products,
technological leadership and price.
In the U.S., WABCO markets ABS, EBS and other vehicle control products
through its 50%-owned joint venture with Meritor Automotive Inc. (Meritor
WABCO). Meritor WABCO, which supplies the North American truck manufacturing
market, grew significantly from 1997 through 1999, in part because of
regulations mandating antilock braking systems on commercial vehicles. Although
truck production in North America declined significantly in 2000, Meritor WABCO
continued to expand its customer base and range of products sold to major truck
manufacturers.
The European market for new trucks, buses, trailers, and replacement
parts improved 5% in 2000 after declining slightly in 1999. In 1998 and 1997
markets had improved from a lower level in 1996. The Brazilian market improved
sharply in 2000 after having declined in 1999 and 1998. The North American
market declined significantly in 2000 following very significant increases in
1998 and 1999.
WABCO has developed an advanced electronic braking system, stability
control systems, electronically controlled air suspension systems, and automatic
climate-control and door-control systems for the commercial vehicle industry.
These systems have resulted in greater sales per vehicle for WABCO. During 1997
a major European truck manufacturer introduced its new heavy-duty truck line
which incorporated a significant number of WABCO products, including EBS. In
1998 WABCO entered the passenger car market with an advanced, electronically
controlled air suspension system - "Air Glide" now featured by the two leading
German luxury car manufacturers. WABCO is now expanding the Air Glide system
family to SUV and mid-range truck applications and to North America. WABCO
recently introduced electronic controls for automated transmissions in heavy
vehicles, a product that the Company believes will be very important in the
industry. Other new products under development include further
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advancements in electronic braking, stability and safety controls, as well as
driveline control and suspension control systems.
Vehicle Control Systems, headquartered in Europe, has manufacturing
subsidiaries in Brazil and Poland and a joint venture in China. In the United
States the Meritor WABCO joint venture grew rapidly from 1997 through 1999 as
federal regulations mandating ABS were fully phased in as of March 1999.
However, in 2000, the North American truck manufacturing market declined
significantly. The Company also has a majority-owned joint venture in the United
States with Cummins Engine Co. (WABCO Compressor Manufacturing Co., a
manufacturing joint venture formed in 1997 to produce air compressors designed
by WABCO), and another joint venture in Japan. In March 1999, WABCO acquired the
heavy vehicle business of Mando Machinery Corporation in South Korea.
At December 31, 2000, WABCO and affiliated companies employed
approximately 6,700 people and had 12 manufacturing facilities and 13 sales
organizations operating in 22 countries. Principal manufacturing operations are
in Germany, France, the United Kingdom, Poland, the Netherlands and Brazil.
WABCO has joint ventures in the United States (Meritor WABCO and WABCO
Compressor Manufacturing Co.), in Japan with Sanwa Seiki (WABCO Japan), in India
with TVS Group (Sundaram Clayton Ltd.) and in China.
DISCONTINUED OPERATIONS
In the fourth quarter of 2000, the company completed the sale of the
Medical Systems segment pursuant to a plan approved by the Company's Board of
Directors in the fourth quarter of 1999. The 1999 loss from discontinued
operations of $126 million consists of a loss from operations of $14 million,
net of tax benefit and a loss on disposition of $112 million, net of tax
benefit. Operating results, net assets and cash flows of the discontinued
Medical Systems segment have been reported separately from continuing operations
in the Consolidated Financial Statements which appear in the Company's 2000
Annual Report to Stockholders and are incorporated herein by reference in Item 8
of Part II of this report.
BUSINESS SEGMENT DATA
Information concerning revenues and segment profit attributable to each
of the Company's business segments and geographic areas is set forth in the
Company's 2000 Annual Report to Stockholders on page 14, "Five-Year Financial
Summary", under the caption "Segment Data", on pages 15 through 26 under the
caption entitled "Management's Discussion and Analysis", and on page 53 in Note
15 of Notes to Consolidated Financial Statements which are incorporated herein
by reference. Information concerning identifiable assets of each of the
Company's business segments is set forth on page 53 of the Company's 2000 Annual
Report to Stockholders in Note 15 of notes to Consolidated Financial Statements,
which is incorporated herein by reference.
GENERAL
RAW MATERIALS
The Company purchases a broad range of materials and components
throughout the world in connection with its manufacturing activities. Major
items include steel, copper tubing, aluminum, ferrous and nonferrous castings,
clays, motors, electronics and natural gas. The ability of the Company's
suppliers to meet performance and quality specifications and delivery schedules
is important to operations. The Company has integrated most of its important
suppliers into the Demand Flow manufacturing process by developing with them
just-in-time supply delivery schedules to coordinate with the Company's customer
demand and delivery schedules. The energy and materials required for its
manufacturing operations have been readily available, and the Company does not
foresee any significant shortages. Also see "Materials Management" on page 5
herein.
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PATENTS, LICENSES AND TRADEMARKS
The Company's operations are not dependent to any significant extent
upon any single or related group of patents, licenses, franchises or
concessions. The Company's operations also are not dependent upon any single
trademark, although some trademarks are identified with a number of the
Company's products and services and are of importance in the sale and marketing
of such products and services. Some of the more important of the Company's
trademarks are:
BUSINESS SEGMENT TRADEMARK
---------------- ---------
Air Conditioning Systems and Services TRANE(R)
AMERICAN STANDARD(R)
Plumbing Products AMERICAN STANDARD(R)
IDEAL STANDARD(R)
STANDARD(R)
PORCHER(R)
JADO(R)
ARMITAGE SHANKS(R)
DOLOMITE(R)
Vehicle Control Systems WABCO(R)
The Company from time to time has granted patent licenses to, and has
licensed technology from, other parties.
RESEARCH AND PRODUCT DEVELOPMENT
The Company made expenditures of $176 million in 2000, $156 million in
1999 and $143 million in 1998 for research and product development and for
product engineering in its three business segments. The expenditures for
research and product development alone were $126 million in 2000, $103 million
in 1999 and $97 million in 1998 and were incurred primarily by Vehicle Control
Systems and Air Conditioning Systems and Services. Vehicle Control Systems,
which expended the largest amount, has conducted research and development in
recent years on advanced electronic braking systems, heavy-duty disc brake
systems, and additional electronic control systems for commercial vehicles. Air
Conditioning Systems and Services' research and development expenditures were
primarily related to alternative refrigerants with less impact on the
environment, compressors, heat transfer surfaces, air flow technology, acoustics
and micro-electronic controls. Any amount spent on customer sponsored research
and development activities in these periods was insignificant.
REGULATIONS AND ENVIRONMENTAL MATTERS
The Company's U.S. operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the air, water and soil and establish standards for the
treatment, storage and disposal of solid and hazardous wastes. The Company
believes that it is in substantial compliance with such laws and regulations. A
number of the Company's plants are undertaking responsive actions to address
soil and groundwater issues. In addition, the Company is a party to a number of
remedial actions under various federal and state environmental laws and
regulations that impose liability on companies to clean up, or contribute to the
cost of cleaning up, sites at which hazardous wastes or materials were disposed
or released, including 24 proceedings under the Comprehensive Environmental
Response, Compensation and Liability Act (Superfund) and similar state
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statutes in which the Company has been named a potentially responsible party or
a third party by a potentially responsible party. Expenditures in 2000, 1999 and
1998 to evaluate and remediate such sites were not material. On the basis of the
Company's historical experience and information currently available, the Company
believes that these environmental actions will not have a material adverse
effect on its financial condition, results of operations or liquidity.
Additional sites may be identified for environmental remediation in the
future, including properties previously transferred by the Company and with
respect to which the Company may have contractual indemnification obligations.
The Company cannot estimate at this time the ultimate aggregate costs of all
remedial actions because of (a) uncertainties surrounding the nature and
application of environmental regulations, (b) the Company's lack of information
about additional sites at which it may be listed as a potentially responsible
party, (c) the level of clean-up that may be required at specific sites and
choices concerning the technologies to be applied in corrective actions, (d) the
number of contributors and the financial capacity of others to contribute to the
cost of remediation at specific sites and (e) the time periods over which
remediation may occur.
The Company's international operations are also subject to various
environmental statutes and regulations. Generally, these requirements tend to be
no more restrictive than those in effect in the United States. The Company
believes it is in substantial compliance with such existing domestic and foreign
environmental statutes and regulations.
The Company derived significant revenues in past years from sales of
Air Conditioning Systems and Services using chlorofluorocarbons ("CFCs"), and in
2000 and prior years from sales of products using hydrochloroflurocarbons
("HCFCs"). Use of CFCs, HCFCs and other ozone-depleting chemicals is to be
phased out over various periods of time under regulations that will require use
of substitute permitted refrigerants. Also, utilization of new refrigerants will
require replacement or modification of much existing air conditioning equipment.
The Company believes that these regulations will have the effect of generating
additional product sales and parts and service revenues, as existing air
conditioning equipment utilizing CFCs is converted to operate on environmentally
preferred refrigerants or replaced, although such conversion or replacement is
expected to occur only over a period of years, and the Company is unable to
estimate the magnitude or timing of such additional conversion or replacements.
The Company has been working closely with refrigerant manufacturers that are
developing refrigerant substitutes for CFCs and HCFCs, so that the Company's
products will be compatible with those substitutes. Although the Company
believes that its commercial, residential and light commercial products may
require modification for refrigerant substitutes, the costs of introducing
alternative refrigerants are not expected to have a material adverse impact on
the Company.
Certain federal and state statutes, including the National Appliance
Energy Conservation Act of 1987, as amended, impose energy efficiency standards
for certain of the Company's unitary Air Conditioning Systems and Services.
Although the Company has been able to meet or exceed such standards to date,
stricter standards in the future could require additional research and
development expense and capital expenditures to maintain compliance.
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EMPLOYEES
The Company employed approximately 61,000 people as of December 31,
2000 (excluding employees of unconsolidated joint venture companies). The
Company has a total of 17 labor union contracts in North America (covering
approximately 13,300 employees), nine of which expire in 2001 (covering
approximately 7,000 employees), four of which expire in 2002 (covering
approximately 3,600 employees) and two of which expire in 2003 (covering
approximately 2,200 employees). One of the contracts expiring in 2001 has been
renegotiated. There can be no assurance that the Company will successfully
negotiate the remaining labor contracts expiring during 2001 without a work
stoppage. However, the Company does not anticipate any problems in renegotiating
these contracts that would materially affect its results of operations.
In February 2001, 1,200 Air Conditioning Systems and services employees
went on strike for 30 days at the Lexington, Kentucky, manufacturing plant. In
January 1999, 1,900 Air Conditioning Systems and Services employees went on
strike for 22 days at the Clarksville, Tennessee, manufacturing plant. In
February 1998 1,100 Air Conditioning Systems and Services employees went on
strike for 30 days at the Lexington, Kentucky, manufacturing plant. In 1997, 150
employees went on strike for 77 days at the Rushville, Indiana, air conditioning
plant. Other than these strikes, the Company has not experienced any significant
work stoppages in North America in the last five years.
The Company also has a total of 40 labor contracts outside North
America (covering approximately 18,000 employees). In December 2000, there was a
twenty-day work stoppage at the chinaware manufacturing plant of the Indonesia
Plumbing Products subsidiary, involving 950 employees. In early 1996 there was a
5-week work stoppage at the two chinaware manufacturing plants of the
Philippines plumbing products subsidiary, involving 700 employees, where the
Company combined the two facilities. Other than the Indonesian and Philippines
work stoppages, the Company has not experienced any significant work stoppage in
the last five years outside North America.
Although the Company believes relations with its employees are
generally satisfactory, there can be no assurance that the Company will not
experience significant work stoppages in the future or that its relations with
employees will continue to be satisfactory.
CUSTOMERS
The business of the Company taken as a whole is not dependent upon any
single customer or a few customers.
INTERNATIONAL OPERATIONS
The Company conducts significant non-U.S. operations through
subsidiaries in most of the major countries of Western Europe, the Czech
Republic, Bulgaria, Poland, Canada, Brazil, Mexico, Central American countries,
China, Malaysia, the Philippines, Indonesia, South Korea, Thailand, Taiwan,
Vietnam and Egypt. In addition, the Company conducts business in these and other
countries through affiliated companies and partnerships in which the Company
owns 50% or less of the equity interest in the venture.
Because the Company has manufacturing operations in 27 countries,
fluctuations in currency exchange rates may have a significant impact on its
financial statements. Such fluctuations have much less effect on local operating
results, however, because the Company for the most part sells its products
within the countries in which they are manufactured. The asset exposure of
foreign operations to the effects of exchange volatility has been partly offset
by the denomination in foreign currencies of a portion of the Company's
borrowings.
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ITEM 2. PROPERTIES
As of December 31, 2000, the Company conducts its manufacturing
activities through 103 plants in 27 countries of which the principal facilities
are:
Business Segment Location Location Major Products Manufactured at Location
---------------- ----------------- ---------------------------------------
Air Conditioning Clarksville, TN Commercial unitary air conditioning
Systems and Services Fort Smith, AK Commercial unitary air conditioning
La Crosse, WI Applied air conditioning systems
Lexington, KY Air handling products
Macon, GA Commercial air conditioning systems
Pueblo, CO Applied air conditioning systems
Rushville, IN Air handling products
Trenton, NJ Residential gas furnaces and air handlers
Tyler, TX Residential air conditioning
Waco, TX Water source heat pumps and air handlers
Charmes, France Applied air conditioning systems
Epinal, France Unitary air conditioning systems
Taicang, China Applied and Unitary air conditioning systems
Taipei, Taiwan Unitary air conditioning systems
Sao Paulo, Brazil Unitary air conditioning systems
Plumbing Products Salem, OH Enameled-steel fixtures and acrylic bathtubs
Tiffin, OH Vitreous china
Trenton, NJ Vitreous china
Toronto, Canada Enameled-steel fixtures
Sevlievo, Bulgaria Vitreous china and brass plumbing fittings
Teplice, Czech Republic Vitreous china
Hull, England Vitreous china and acrylic bathtubs
Middlewich, England Vitreous china
Rugeley, England Vitreous china and acrylic bathtubs
Wolverhampton, England Brass plumbing fittings
Dole, France Vitreous china
Revin, France Vitreous china and bathtubs
Wittlich, Germany Brass plumbing fittings
West Java, Indonesia Vitreous china
Orcenico, Italy Vitreous china
Brescia, Italy Vitreous china
Trichiana, Italy Vitreous china
Aguascalientes, Mexico Vitreous china
Mexico City, Mexico Vitreous china
Monterrey, Mexico Brass plumbing fittings
Tlaxcala, Mexico Vitreous China
Manila, Philippines Vitreous china
Seoul, South Korea Brass plumbing fittings
Bangkok, Thailand Vitreous china
Tianjin, China Vitreous china
Beijing, China Enameled steel fixtures
Shanghai, China Vitreous china and brass plumbing fittings
Guangdong Province, China Vitreous china, plumbing fittings and bathtubs
enameled steel fixtures
Braking and Control Campinas, Brazil Vehicle Control Systems
Systems Leeds, England Vehicle Control Systems
Claye-Souilly, France Vehicle Control Systems
Hanover, Germany Vehicle Control Systems
Mannheim, Germany Foundation brakes
Wroclaw, Poland Vehicle Control Systems
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Except for the property located in Manila, Philippines which is leased,
all of the plants described above are owned by the Company or a subsidiary. The
Company considers that its properties are generally in good condition, are well
maintained, and are generally suitable and adequate to carry on the Company's
business.
In 2000 all Air Conditioning Systems and Services' plants operated near
capacity or moderately below capacity.
In 2000 Plumbing Products' plants worldwide operated at levels of
utilization which varied from country to country, but overall were satisfactory.
Vehicle Control Systems' plants generally operated at good utilization
levels in 2000.
ITEM 3. LEGAL PROCEEDINGS
In October 1999, in Haynes Trane Service Agency, Inc. and Frederick M.
Haynes v. American Standard, Inc., d/b/a The Trane Company, in the United States
District Court for the District of Colorado, verdicts were returned against the
Company for a total of $18 million in respect of claims of wrongful termination
of a distributorship agreement. The Company appealed the verdict to the United
States Court of Appeals for the Tenth Circuit. The Company believes material
errors were made at the trial level and that the captioned matter was wrongly
decided.
As a result of audits of the Company's German subsidiaries by The State
Finance Administration for the State of North Rhine-Westphalia, Germany for the
periods 1984 through 1990 and 1991 through 1994, the Company has previously
received two assessments for the 1984-1990 audit period which the Company has
been contesting. The Company believes, based on the opinion of our external
German legal counsel, that its German tax returns are substantially correct as
filed and that any adjustments would be inappropriate. Unless the Company is
otherwise able to reach a satisfactory resolution of these matters with the
German Tax Authority, the Company intends to contest vigorously the pending
assessments and any other amounts that may be assessed.
The first assessment was issued in 1992 and was for approximately $16
million of combined corporation and trade taxes and claimed a disallowance of a
deduction of interest expense related to an intercompany finance instrument.
Later in 1992 the amount of the assessment was deposited with the German tax
authorities as security for the disputed tax and a suit to recover that amount
was promptly commenced and is currently pending before the Tax Court for the
State of North Rhine-Westphalia in Cologne, Germany. As a result of making the
deposit, no interest will accrue on the amount under dispute. The second
assessment, received in March 1996, was for approximately $56 million of
combined corporation and trade taxes. Were the Company not to prevail in its
dispute of this assessment, the Company could be required to pay interest on the
assessed amount of approximately $18 million as of December 31, 1999. Interest
on assessed and unpaid taxes accrues, on a non-compounding basis, at the rate of
six percent per annum commencing fifteen months after the end of the tax year
for which the tax is assessed. The second assessment claimed primarily that
earnings of a Dutch subsidiary should have been recognized as income taxable in
Germany. In early 1997, the German tax authority agreed to accept a partial
deposit of $16 million in respect of the second assessment and the Company
commenced an administrative appeal of the assessment with the German tax
authority. The amounts paid in 1992 and 1997 were recorded as assets on the
Company's consolidated balance sheets because the Company, expecting to prevail
in litigation of these matters, would recover such amounts and, therefore,
appropriately accounted for them as receivables. This position is based upon the
opinion of the Company's external German legal counsel, referred to above, that
the Company's German tax returns are substantially correct as filed and that
adjustments would be inappropriate.
In 1998, in connection with the development of the Company's plan to
restructure its plumbing operations in Germany, the Company entered into
discussions with certain German regulatory authorities
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which could have resulted in an offer to settle the primary issue under dispute
with respect to the second assessment, including all corporation and trade taxes
and accrued interest. On January 22, 1999 the Company's administrative appeal of
the second assessment and any offer of settlement was rejected.
In February 1999, the Company filed notice of appeal with the German
Tax Court and moved to join its appeal of the first assessment with the appeal
of the second assessment. In addition, the Company requested an order from the
German tax authority staying its obligation to pay the amount of the second
assessment during the pendency of the appeal. The German Tax Authority is
obligated by law to grant an order staying payment of disputed tax until final
resolution of the matter if the assessment is subject to serious doubt. On March
15, 1999, the staying order was granted. The Company has agreed to leave the
amount already deposited with the German tax authority pending final resolution
of the dispute. In the ordinary course, it is anticipated that litigation of the
Company's appeal before the State Tax Court will require five to seven years and
that any appeal thereafter to the federal Supreme German Tax Court would require
an additional two or three years. Although the Company's 1998 proposal of
settlement was rejected, the Company has continued to pursue settlement on
appropriate terms.
The Company recorded a loss contingency in 1998 in the amount of the
deposits related to the first and second assessments, related trade taxes and
accrued interest thereon, which amount represents the amount for which the
Company would have been and is still willing to settle the issue related to the
second assessment. Based on the opinion of the Company's external German legal
counsel referred to above, the Company intends to vigorously contest and to
litigate these disputed German tax matters, and no additional contingency with
respect to such matters has been recorded. The Company believes that it has
adequately provided for all other German tax issues raised on audit.
With respect to the 1991-1994 audit period, the Company engaged in
significant transactions similar to those that gave rise to the assessments in
the prior audit period and, with respect to a matter related to the intercompany
instrument at issue in connection with the first assessment, the German tax
auditors have proposed an adjustment of approximately $40 million. In addition,
because the German tax authorities assessed additional taxes for the 1984-1990
audit period they might, after completing their audit of the later period,
propose further adjustments for the 1991-1994 audit period related to the
subject matter of the second assessment that might be as much as fifty percent
higher than the amount of the assessments in the first audit period. Although
the Company is unable to predict when the audit of its German tax returns for
the 1991-1994 period will be complete or the amount of any additional taxes that
may be assessed, the Company believes the audit may be completed prior to the
end of 2001.
If all matters currently under review by the German tax authorities
were made the subject of assessments and either no orders staying the payment of
such amounts following assessment or during the pendency of our appeal were
granted or the Company was finally determined to owe the full amount of all such
taxes, the Company could be required to pay all assessed amounts plus accrued
interest thereon. The total amount of any payments made with respect to the tax
matters described above, and the timing thereof, could have a material adverse
effect on the Company's cash flow and/or results of operation. See Note 8 of
Notes to Consolidated Financial Statements in the Company's 2000 Annual Report
to Shareholders incorporated by reference herein (see Item 14(a) of Part IV
hereof).
For a discussion of environmental issues see "Item 1. Business -
General - Regulations and Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's stockholders during the
fourth quarter of 2000.
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EXECUTIVE OFFICERS OF THE REGISTRANT
In reliance on General Instruction G to Form 10-K, information on
executive officers of the Registrant is included in this Part I. The following
table sets forth certain information as of March 1, 2001 with respect to each
person who is an executive officer of the Company:
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
Frederic M. Poses 58 Chairman and Chief Executive Officer, and Director
Lawrence B. Costello 53 Senior Vice President, Human Resources
G. Peter D'Aloia 56 Senior Vice President and Chief Financial Officer
W. Craig Kissel 49 Senior Vice President, Vehicle Control Systems
Marc R. Olivie 47 Senior Vice President, Plumbing Products
J. Paul McGrath 60 Senior Vice President, General Counsel and Secretary
James H. Schultz 52 Senior Vice President, Air Conditioning Systems and Services,
Worldwide Commercial Systems
Gary A. Brogoch 50 Vice President and Group Executive, Plumbing Products, Asia Pacific
Wilfried Delker 60 Vice President and Group Executive, Plumbing Products, Worldwide Fittings
Alberto Loreti 59 Vice President and Group Executive, Plumbing Products, Europe
R. Scott Massengill 38 Vice President and Treasurer
David R. Pannier 50 Vice President and Group Executive, Air Conditioning Systems and Services,
North American Unitary Products
G. Ronald Simon 59 Vice President and Controller
Each officer of the Company is elected by the Board of Directors to
hold office until the first Board meeting after the Annual Meeting of
Stockholders next succeeding his election.
None of the Company's officers has any family relationship with any
director or other officer. "Family relationship" for this purpose means any
relationship by blood, marriage or adoption, not more remote than first cousin.
Set forth below is the principal occupation of each of the executive
officers named above during the past five years.
Mr. Poses was elected Chief Executive Officer effective January 1,
2000. Prior to that, beginning in 1998, he was President and Chief Operating
Officer of AlliedSignal, Inc., having spent his entire 30-year business career
with that corporation. He was also a Director and Vice Chairman of AlliedSignal
from 1997 until October 22, 1999 following his election to the Board of American
Standard Companies Inc.
Mr. Costello joined the Company as Senior Vice President, Human
Resources, effective June 1, 2000. From April 1994 until that date, he served in
various capacities at Campbell Soup Company, including as Vice President, Global
Human Resources.
Mr. D'Aloia was elected Senior Vice President and Chief Financial
Officer effective February 1, 2000. Prior to that he was employed by Allied
Signal, Inc., most recently serving as Vice President - Business Development. He
spent 27 years with AlliedSignal, Inc. in diverse management positions,
including Vice President - Taxes, Vice President and Treasurer, Vice President
and Controller, and Vice President and Chief Financial Officer for the
Engineered Materials Sector.
Mr. Kissel was elected Senior Vice President, Vehicle Control Systems
in January 1998. Prior thereto he was Vice President of Air Conditioning Systems
and Services' Unitary Products Group since January 1992, becoming Group
Executive in March 1994.
Mr. Olivie was elected Senior Vice President of the Company on March 1,
2001, to serve as President of its Global Plumbing Products Sector, effective
May 1, 2001. He had been President and Chief Executive Officer of Armstrong
Floor Products, the largest business of Armstrong Holdings Inc. He joined that
company as President of its Worldwide Building Products Operations in 1996 and
prior
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thereto, worked for Sara Lee Corporation where he was President of its European
sportswear business.
Mr. McGrath joined the Company as Senior Vice President, General
Counsel and Secretary, effective January 17, 2000. From 1996 until that date, he
served as Senior Vice President, General Counsel and Secretary of FMC
Corporation and prior to that, was Vice President and General Counsel of
AlliedSignal's Engineered Materials business.
Mr. Schultz was elected Senior Vice President, Trane Commercial Systems
in October 2000 and previously served as Vice President and Group Executive,
Worldwide Applied Systems, Air Conditioning Systems and Services since January
1998. Prior thereto he served as Group Executive, North American Commercial
Group of Air Conditioning Systems and Services, since 1987.
Mr. Brogoch was elected Vice President in December 1994, and has served
as Group Executive of the Asia-Pacific Plumbing Group since the consolidation of
the Asia and China Plumbing Groups in February 1997. Prior thereto he was Group
executive of the China Plumbing Group from December 1994 until February 1997.
Mr. Delker was elected Vice President and Group Executive, Plumbing
Products, Worldwide Fittings, in April 1990.
Mr. Loreti was elected Vice President and Group Executive, Plumbing
Products, Europe, in March 1999. From November 1996 until March 1999 he was
Business Leader of the Company's Sanifrance operations in France and of the
Italian plumbing company. Prior thereto he was Managing Director and General
Manager of the Italian plumbing company since 1990.
Mr. Massengill joined the Company effective April 1, 2001, as Vice
President and Treasurer. He was Assistant Treasurer of Bristol-Myers Squibb
Company from 1999 to March 2001 and prior thereto, he spent four years from 1996
to 1999 with Allied Signal Inc. in various financial management positions.
Mr. Pannier was elected Vice President and Group Executive, North
American Unitary Products Group in January 1998. He served as Coach of Unitary
Products Group Marketing and Sales from July 1995 until December 1997, and prior
thereto as Vice President, Residential Marketing from November 1991 until July
1995.
Mr. Simon was elected Vice President and Controller in January 1992.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of the Company is listed on The New York Stock
Exchange (the "Exchange"). The common stock was first traded on the Exchange on
February 3, 1995 concurrent with the underwritten initial public offering of
shares of the Company's common stock at an initial price to the public of $20.00
per share (the "Offering"). Prior to the Offering there was no established
public trading market for the Company's shares.
In January 1995 the Company adopted a Restated Certificate of
Incorporation, Amended Bylaws and a Stockholder Rights Agreement. The Restated
Certificate of Incorporation authorizes the Company to issue up to 200,000,000
shares of common stock, par value $.01 per share, and 2,000,000 shares of
preferred stock, par value $.01 per share, of which the Board of Directors
designated 900,000 shares as a new series of Junior Participating Cumulative
Preferred Stock. Each outstanding share of common stock has associated with it
one right to purchase a specified amount of Junior Participating Cumulative
Preferred Stock at a stipulated price in certain circumstances relating to
changes in ownership of the common stock of the Company.
The number of holders of the common stock of the Company as of March
12, 2001, was approximately 36,000.
No dividends have been declared on the Company's common stock since the
Offering. The Company has no separate operations and its ability to pay
dividends or repurchase its common stock is dependent entirely upon the extent
to which it receives dividends or other funds from its wholly-owned
subsidiaries, American Standard Inc. and American Standard International Inc.
The terms of the Company's 1997 Credit Agreement restrict the payment of
dividends and other extensions of funds by American Standard Inc. and American
Standard International Inc. to the Company.
Set forth below are the high and low sales prices for shares of the
Company's common stock for each quarterly period in 1999 and 2000.
1999: High Low
----- ---- ---
First quarter $ 35-3/4 $ 31-3/8
Second quarter $ 49-7/16 $ 34-5/8
Third quarter $ 49-1/4 $ 38-3/8
Fourth quarter $ 46 $ 33-3/8
2000:
-----
First quarter $45-13/16 $34-5/16
Second quarter $45-15/16 $ 37-1/2
Third quarter $ 49-3/4 $ 41
Fourth quarter $ 49-1/2 $ 38-1/2
21
22
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31
----------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Sales $ 7,598 $ 7,190 $ 6,556 $ 5,958 $ 5,805
============ ============ ============ ============ ============
Segment income $ 840 $ 751 $ 658 $ 632 $ 605
Equity in net income of
unconsolidated joint ventures 30 37 27 12 3
Gain on sale of water heater
business (a) 57
Restructuring and asset
impairment charges (b) (70) (15) (197) -- (235)
Interest expense (199) (188) (188) (192) (198)
Corporate expenses (149) (134) (110) (105) (104)
------------ ------------ ------------ ------------ ------------
Income from continuing
operations before income taxes
and extraordinary item 509 451 190 347 71
Income taxes (194) (187) (141) (124) (105)
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing
operations before extraordinary
item (c) $ 315 $ 264 $ 49 $ 223 $ (34)
============ ============ ============ ============ ============
Per Common Share:
Income (loss) from continuing
operations before extraordinary
item:
Basic $ 4.49 $ 3.74 $ .68 $ 3.03 $ (.44)
============ ============ ============ ============ ============
Diluted $ 4.36 $ 3.63 $ .66 $ 2.93 $ (.44)
============ ============ ============ ============ ============
Average number of outstanding
common shares:
Basic 70,123,285 70,524,145 71,729,541 73,801,220 77,986,511
Diluted 72,197,672 72,666,406 73,672,018 76,167,486 77,986,511
BALANCE SHEET DATA (at end of
Period):
Total assets $ 4,745 $ 4,686 $ 4,107 $ 3,718 $ 3,520
Total debt 2,458 2,643 2,428 2,300 1,923
Stockholders' deficit (393) (497) (701) (610) (380)
(a) In 2000, the Company sold its Calorex water heater business for a gain
of $57 million ($52 million net of taxes, or $.72 per diluted share).
(b) In 2000, the company recorded restructuring and asset impairment
charges of $70 million ($51 million, net of tax benefits, or $.71 per
diluted share). These charges consisted of $48 million for Air
Conditioning Systems and Services, $12 million for Plumbing Products
and $15 million for Vehicle Control Systems, partly offset by a $5
million reduction of charges taken in prior years. In 1999, the Company
recorded restructuring and asset impairment charges of $15 million ($9
million, net of tax benefits, or $.13 per diluted share). The 1999
charges consisted of restructuring charges of $30 million principally
for Vehicle Control Systems and a $13 million impairment charge
relating to a minority equity interest in a non-core business, partly
offset by a reduction of charges taken in 1998 to
22
23
restructure North American Plumbing Products operations. In 1998, the
Company recorded restructuring and asset impairment charges of $197
million ($183 million, net of tax benefits, or $2.49 per diluted
share), including $185 million for Plumbing Products, $7 million for
Air Conditioning Systems and Services and $5 million for Vehicle
Control Systems. In 1996, upon the adoption of a new accounting
standard on impairment of assets, the Company incurred a non-cash
charge of $235 million, or $2.95 per diluted share.
(c) Retirements of debt in connection with debt refinancing in 1998 and
1997 resulted in extraordinary charges of $50 million (net of taxes of
$7 million) and $24 million (net of taxes of $6 million), respectively.
These charges included call premiums and the write-off of deferred debt
issuance costs (see Note 11 of Notes to Consolidated Financial
Statements included in the Company's 2000 Annual Report to Stockholders
and incorporated herein by reference).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of the financial condition and
results of operations of the Company is set forth on pages 15 through 26 of the
Company's 2000 Annual Report to Stockholders and is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are set
forth in the Company's 2000 Annual Report to Stockholders on pages 25 and 26
under the caption "Market Risk" and on page 51 in Note 13 to the financial
statements and are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference from the Company's 2000 Annual Report
to Stockholders are the financial statements and related information listed in
the Index to Financial Statements and Financial Statement Schedules on page 26
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
23
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for information regarding the Company's executive officers, the
information called for by this Item is incorporated in this report by reference
to the Company's definitive Proxy Statement dated April 2, 2001: under the
headings: "Stock Ownership" and "Item 1. Election of Directors", except for
information not deemed to be "soliciting material" or "filed" with the SEC,
information subject to Regulations 14A or 14C under the Exchange Act or
information subject to the liabilities of Section 18 of the Exchange Act.
For information concerning the executive officers of the Company, see
"Executive Officers of the Registrant" under Part I of this report.
None of the Company's directors or officers has any family relationship
with any other director or officer. ("Family relationship" for this purpose
means any relationship by blood, marriage or adoption, not more remote than
first cousin.)
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation and related matters is
set forth in the Company's definitive Proxy Statement dated April 2, 2001 as
follows: under the section entitled "Directors' Fees and Other Arrangements" on
pages 5 and 6 thereof, under the heading entitled "Executive Compensation" on
pages 9 through 13 thereof, under the heading entitled "Compensation Committee
Interlocks and Insider Participation" on page 18 and under the heading entitled
"Certain Relationships and Related Party Transactions" on page 18 thereof, and
is incorporated herein by reference except for the sections entitled "Management
Development and Nominating Committee Report on Compensation of Executive
Officers of the Company" and "Performance Graph" appearing on pages 15 through
18 except for information not deemed to be "soliciting material" or "filed" with
the SEC, information subject to Regulations 14A or 14C under the Exchange Act or
information subject to the liabilities of Section 18 of the Exchange Act.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning shares of common stock of the Company
beneficially owned by management and others is set forth under the heading
entitled "Stock Ownership" on pages 2 and 3 in the Company's definitive Proxy
Statement dated April 2, 2001 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated in this report by
reference to the Company's definitive Proxy Statement dated April 2, 2001 under
the section entitled "Certain Relationships and Related Party Transactions",
except for information not deemed to be "soliciting material" or "filed" with
the SEC, information subject to Regulations 14A or 14C under the Exchange Act or
information subject to the liabilities of Section 18 of the Exchange Act.
24
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. and 2. Financial statements and financial statement schedules
The financial statements and financial statement schedules listed
in the Index to Financial Statements and Financial Statement
Schedules on page 26 hereof incorporated herein by reference.
3. Exhibits
The exhibits to this Report are listed on the accompanying index
to exhibits and are incorporated herein by reference or are filed
as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
During the quarter ended December 31, 2000, the company filed no
Current Reports on Form 8-K.
25
26
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
COVERED BY
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
2000
ANNUAL REPORT
TO
STOCKHOLDERS
(PAGES)
-------
1. Financial Statements (incorporated by reference from
the Company's 2000 Annual Report to Stockholders)
Consolidated Balance Sheet at
December 31, 2000, and 1999 30
Years ended December 31, 2000, 1999, and 1998:
Consolidated Statement of Operations 29
Consolidated Statement of Cash Flows 32
Consolidated Statement of Stockholders' Deficit 34
Notes to Financial Statements 35-61
Segment Data 14, 53
Quarterly Data (Unaudited) 62, 63
Report of Independent Auditors 28
FORM 10-K
(PAGES)
-------
2. Report of Independent Auditors 34
Financial statement schedules, years ended
December 31, 2000, 1999, and 1998
I Condensed Financial Information of Registrant 35-38
II Valuation and Qualifying Accounts 39
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.
26
27
AMERICAN STANDARD COMPANIES INC.
INDEX TO EXHIBITS
(Item 14(a)3 - Exhibits Required by Item 601
of Regulation S-K and Additional Exhibits)
(The Commission File Number of American Standard Companies Inc. (formerly ASI
Holding Corporation), the Registrant (sometimes hereinafter referred to as
"Holding"), and for all Exhibits incorporated by reference, is 1-11415, except
those Exhibits incorporated by reference in filings made by American Standard
Inc. (the "Company") the Commission File Number of which is 33-64450. Prior to
filing its Registration Statement on Form S-2 on November 10, 1994, Holding's
Commission File Number was 33-23070.)
(3) (i) Restated Certificate of Incorporation of Holding; previously
filed as Exhibit 3(i) in Holding's Form 10-Q for the quarter
ended September 30, 1998, and herein incorporated by
reference.
(ii) Amended and Restated By-laws of Holding, previously filed as
Exhibit (3)(ii) in Holding's Form 10 - K for the fiscal year
ended December 31, 1999, and herein incorporated by reference.
(4) (i) Form of Common Stock Certificate; previously filed as Exhibit
4(i) in Amendment No. 3 to Registration Statement No. 33-56409
of Holding, filed January 5, 1995, and herein incorporated by
reference.
(ii) 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) to the Company's Form 10-K for the fiscal year ended
December 31, 1986, and herein incorporated by reference.
(iii) Instrument of Resignation, Appointment and Acceptance, dated
as of April 25, 1988 among 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) (ii)
above; previously filed as Exhibit (4) (ii) to Registration
Statement No. 33-64450 of the Company, filed June 16, 1993,
and herein incorporated by reference.
(iv) First Supplemental Indenture, dated as of February 1, 2000
among the Company, Holding and Wilmington Trust Company, as
Trustee, previously filed as Exhibit (4)(iv) in Holding's Form
10-K for the fiscal year ended December 31, 1999, and herein
incorporated by reference.
(v) Form of Senior Debt Indenture dated as of January 15, 1998
among the Company, Holding and The Bank of New York; filed as
Exhibit (4) (i) to Amendment No. 1 to Registration Statement
No. 333-32627 filed September 19, 1997, and herein
incorporated by reference.
(vi) Indenture dated as of January 15, 1998 among the Company,
Holding and The Bank of New York, Trustee; previously filed as
Exhibit 4.1 in Holding's Form 10- Q for the quarter ended
September 30, 1998, and herein incorporated by reference.
27
28
(vii) First Supplemental Indenture dated as of January 15, 1998
between the Company, Holding and The Bank of New York,
relating to the Company's 7.375% Senior Notes due 2008,
guaranteed by Holding; previously filed as Exhibit (4)(xi) in
Holding's Form 10-K for the fiscal year ended December 31,
1997, and herein incorporated by reference.
(viii) Second Supplemental Indenture dated as of February 13, 1998
between the Company, Holding and The Bank of New York relating
to the Company's 7-1/8% Senior Notes due 2003 and 7-5/8%
Senior Notes due 2010, guaranteed by Holding; previously filed
as Exhibit (4)(xii) in Holding's Form 10-K for the fiscal year
ended December 31, 1997, and herein incorporated by reference.
(ix) Third Supplemental Indenture dated as of April 13, 1998 to the
Indenture dated as of January 15, 1998 among the Company,
Holding and The Bank of New York relating to the 7-3/8% Senior
Notes due 2005; previously filed as Exhibit 4.2 in Holding's
Form 10-Q for the quarter ended September 30, 1998, and herein
incorporated by reference.
(x) Fourth Supplemental Indenture dated as of May 28, 1999 to the
Indenture dated as of January 15, 1998 among the Company,
Holding and The Bank of New York relating to the 8.25% Senior
Notes due; previously filed as Exhibit (4)(x) in Holding's
Form 10-K for the fiscal year ended December 31, 1999, and
herein incorporated by reference.
(xi) Fifth Supplemental Indenture dated as of May 28, 1999 to the
Indenture dated as of May 28, 1999 among the Company, Holding
and The Bank of New York relating to the 8.25% Senior Notes
due 2009; previously filed as Exhibit (4)(xi) in Holding's
Form 10-K for the fiscal year ended December 31, 1999, and
herein incorporated by reference.
(xii) Sixth Supplemental Indenture dated as of May 28, 1999 to the
Indenture dated as of May 28, 1999 among the Company, Holding
and The Bank of New York relating to the 7.125% Senior Notes
due 2006, previously filed as Exhibit (4)(xii) in Holding's
Form 10-K for the fiscal year ended December 31, 1999, and
herein incorporated by reference.
(xiii) Amended and Restated Credit Agreement, dated as of January 31,
1997, among Holding, the Company, certain subsidiaries of the
Company and the financial institutions listed therein, The
Chase Manhattan Bank, as Administrative Agent; Citibank, N.
A., as Documentation Agent; The Bank of Nova Scotia and
NationsBank, N. A., as Co-Syndication Agents; Bankers Trust
Company, Deutsche Bank AG, The Industrial Bank of Japan Trust
Company, The Sanwa Bank Limited, New York Branch and The
Sumitomo Bank, Ltd., as Senior Managing Agents; and The Bank
of New York, Banque Paribas, CIBC Inc., CIBC Wood Gundy plc,
Compagnie Financiere de CIC et de L'Union Europeenne, Credit
Lyonnais, New York Branch, Fleet National Bank, The Long Tem
Credit Bank of Japan, Limited and The Toronto-Dominion Bank,
as Managing Agents; previously filed as Exhibit (4) (xviii) to
Amendment No. 2 to Registration Statement No. 333-18015, filed
February 5, 1997, and herein incorporated by reference.
(xiv) First Amendment dated as of May 22, 1997 to the Amended and
Restated Credit Agreement dated as of January 31, 1997 among
Holding, the Company, certain subsidiaries of the Company, the
financial institutions party thereto and The Chase Manhattan
Bank, as administrative agent; previously filed as Exhibit 4
(a) to Holding's Report on Form 8-K dated October 24, 1997,
and herein incorporated by reference.
(xv) Second Amendment dated as of August 20, 1997 to the Amended
and Restated Credit Agreement dated as of January 31, 1997
among Holding, the Company, certain subsidiaries of the
Company, the financial institutions party thereto and The
Chase
28
29
Manhattan Bank, as administrative agent; previously filed as
Exhibit 4 (b) to Holding's Report on Form 8-K dated October
24, 1997, and herein incorporated by reference.
(xvi) Third Amendment dated as of August 7, 1998 to the Amended and
Restated Credit Agreement dated as of January 31, 1997 among
Holding, the Company, certain subsidiaries of the Company, the
financial institutions party thereto and The Chase Manhattan
Bank, as Administrative Agent; previously filed as Exhibit 4.3
in Holding's Form 10-Q for the quarter ended September 30,
1998, and herein incorporated by reference.
(xvii) Fourth Amendment dated as of December 22, 1998 to the Amended
and Restated Credit Agreement dated as of January 31, 1997
among Holding, the Company, certain subsidiaries of the
Company, the financial institutions party thereto and The
Chase Manhattan Bank, as Administrative Agent; previously
filed as Exhibit 4 in Holding's Form 8-K dated December 22,
1998, filed February 12, 1999, and herein incorporated by
reference.
(xviii) Fifth Amendment dated as of November 30, 1999 to the Amended
and Restated Credit Agreement dated as of January 31, 1997
among Holding, the Company, certain subsidiaries of the
Company, the financial institutions party thereto and The
Chase Manhattan Bank, as Administrative Agent; previously
filed as Exhibit (4)(xviii) in Holding's Form 10-K for the
fiscal year ended December 31, 1999, and herein incorporated
by reference.
(xix) Form of Sixth Amendment dated as of September 25, 2000 to the
Amended and Restated Credit Agreement dated as of January
31,1997 among Holding, the Company, certain subsidiaries of
Holding, the financial institutions party thereto and the
Chase Manhattan Bank, as Administrative Agent; previously
filed as Exhibit (4)(i) in Holding's Form 10-Q for the quarter
ended September 30, 2000, and herein incorporated by
reference.
(xx) Rights Agreement, dated as of January 5, 1995, between Holding
and Citibank N.A. as Rights Agent; previously filed as Exhibit
(4) (xxv) to Holding's Form 10-K for the fiscal year ended
December 31, 1994, and herein incorporated by reference.
(10)* (i) Employment Agreement of Frederic M. Poses, previously filed as
Exhibit (10) to Holding's Form 10-Q for the third quarter
ended September 30, 1999, and herein incorporated by
reference.
(ii) Amendment of Employment Agreement of Frederic M. Poses
referred to in Exhibit (10) (I) above, previously filed as
Exhibit (10)(xix) in Holding's Form 10-K for the fiscal year
ended December 31, 1999, and herein incorporated by reference.
(iii) Employment Agreement of J. Paul McGrath, filed herewith.
(iv) Employment Agreement of G. Peter D'Aloia, filed herewith.
(v) The American Standard Companies Inc. Employee Stock Purchase
Plan; previously filed as Exhibit (10)(i) in Holding's Form
10-K for the fiscal year ended December 31, 1997, and herein
incorporated by reference.
(vi) American Standard Companies Inc. Long-Term Incentive
Compensation Plan, as amended and restated as of May 4, 2000;
filed herewith.
- --------------
* Items in this section 10 constitute management contracts or compensatory plans
or arrangements with the exception of (10) (xviii), (xix) and (xx).
29
30
(vii) Trust Agreement for American Standard Companies Inc. Long-Term
Incentive Compensation Plan and American Standard Companies
Inc. Supplemental Incentive Compensation Plan, as amended and
restated in its entirety as of May 4, 2000; filed herewith.
(viii) American Standard Inc. Annual Incentive Plan, as amended and
restated as of May 4, 2000; filed herewith.
(ix) American Standard Inc. Executive Supplemental Retirement
Benefit Program, restated to include all amendments through
May 4, 2000; filed herewith.
(x) American Standard Inc. Supplemental Compensation Plan for
Outside Directors, as amended through December 4, 1997;
incorporated herein by reference to Exhibit (10) (v) to the
Company's Form 10-K for the fiscal year ended December 31,
1997.
(xi) Trust Agreement for the American Standard Inc. Supplemental
Compensation Plan for Outside Directors, dated March 7, 1996;
incorporated herein by reference to Exhibit (10) (vi) to the
Company's Form 10-K for the fiscal year ended December 31,
1997.
(xii) American Standard Companies Inc. Corporate Officer Severance
Plan, as amended and restated as of May 4, 2000; filed
herewith.
(xiii) Summary of terms of Unfunded Deferred Compensation Plan
adopted December 2, 1993; previously filed as Exhibit (10)
(xviii) to the Company's Form 10-K for the fiscal year ended
December 31, 1993, and herein incorporated by reference.
(xiv) American Standard Companies Inc. Stock Incentive Plan, as
amended through December 7, 2000, filed herewith.
(xv) Addendum to Stock Incentive Plan referred to in Exhibit (10)
(xiv) above to comply with local regulations in the United
Kingdom with respect to options granted in that country,
previously filed as Exhibit (10)(xii) in Holding's Form 10-K
for the fiscal year ended December 31, 1999, and herein
incorporated by reference.
(xvi) Addendum to Stock Incentive Plan referred to in Exhibit (10)
(xiv) above to comply with local regulations in France with
respect to options granted in that country, previously filed
as Exhibit (10)(xiii) in Holding's Form 10-K for the fiscal
year ended December 31, 1999, and herein incorporated by
reference.
(xvii) Form of Indemnification Agreement; previously filed as Exhibit
(10) (xxi) in Amendment No. 3 to Registration Statement No.
33-56409, filed January 5, 1995, and herein incorporated by
reference.
(xviii) Stock Disposition Agreement, dated as of December 16, 1996,
among Holding, Kelso & Company, L. P. and Kelso ASI Partners,
L. P.; previously filed as Exhibit (10) (i) to Registration
Statement No. 333-18015, filed December 17, 1996, and herein
incorporated by reference.
(xix) Form of Warrant Agreement between Holding and Citibank, N. A.
as Warrant Agent, included as Annex A to the Stock Disposition
Agreement described in (10) (xviii) above; previously filed as
Exhibit (10) (ii) to Registration Statement No. 333-18015,
filed December 17, 1996, and herein incorporated by reference.
30
31
(xx) Share Purchase Agreement dated February 2,1999 among Blue
Circle Industries PLC; Blue Circle Bathrooms Limited; Blue
Circle Home Products BV; Blue Circle Home Products
Beteiligungs-GmbH and Ideal Standard Limited; Ideal Standard
S.r.l.; WABCO Standard GmbH and U.S. Plumbing Products Inc.;
Ideal Standard IBV Limited; WABCO Standard Export Inc.;
previously filed as Exhibit 2 in Holding's Form 8-K, dated
December 22, 1998, filed February 12, 1999, and herein
incorporated by reference.
(12) Ratio of Earnings to Fixed Charges.
(13) 2000 Annual Report to Stockholders. Only those portions
specifically incorporated by reference are filed; no other
portions of the Annual Report to Stockholders are to be deemed
filed.
(21) Listing of Holding's subsidiaries.
(23) Consent of Ernst & Young LLP.
31
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN STANDARD COMPANIES INC.
By: /s/FREDERIC M. POSES
--------------------------------
(Frederic M. Poses)
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated:
/s/ FREDERIC M. POSES
-------------------------
(Frederic M. Poses) Chairman and Chief Executive Officer;
Director
(Principal Executive Officer)
/s/ G. PETER D'ALOIA
-------------------------
(G. Peter D'Aloia) Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ G. RONALD SIMON
-------------------------
(G. Ronald Simon) Vice President and Controller
(Principal Accounting Officer)
/s/ *
-------------------------
(Steven E. Anderson) Director
/s/ *
-------------------------
(Jared L. Cohon) Director
/s/ *
-------------------------
(Edward E. Hagenlocker) Director
/s/ *
-------------------------
(James F. Hardymon) Director
/s/ *
-------------------------
(Roger W. Parsons) Director
/s/ *
-------------------------
(J. Danforth Quayle) Director
/s/ *
-------------------------
(David M. Roderick) Director
*By /s/ J. PAUL MCGRATH
-------------------------
J. Paul McGrath
Attorney-in-fact
32
33
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this report (other than the historical financial
data and other statements of historical fact), including, without limitation,
statements as to management's expectations and belief, are forward-looking
statements. Forward-looking statements are made based upon management's good
faith expectations and belief concerning future developments and their potential
effect upon the Company. There can be no assurance that future developments will
be in accordance with such expectations or that the effect of future
developments on the Company will be those anticipated by management.
Forward-looking statements can be identified by the use of words such as
"believe," "expect," "plans," "strategy," "prospects," "estimate," "project,"
"anticipate" and other words of similar meaning in connection with a discussion
of future operating or financial performance. This report on Form 10-K includes
important information as to risk factors in the "Notes to Consolidated Financial
Statements" under the headings "Restructuring and Asset Impairment Charges",
Commitments and Contingencies" and "Financial Instruments" and in the section
titled "Management's Discussion and Analysis of Results of Operations and
Financial Position" under the headings, "Other Financial Summary Items",
"Liquidity and Capital Resources" and "Market Risks." This Report on Form 10-K
for 2000 also includes important information as to risk factors in the
"Business" and "Legal Proceedings" sections. Many important factors could cause
actual results to differ materially from management's expectations, including
the level of construction activity in the Company's Air Conditioning Systems and
Services' and Plumbing Products' markets and the level of truck and bus
production in the Company's Vehicle Control Systems markets; the timing of
completion and success in the start-up of new production facilities; changes in
U.S. or international economic conditions, such as inflation or interest rate
fluctuations or recessions in the Company's markets; pricing changes to the
Company's supplies or products or those of its competitors, and other
competitive pressures on pricing and sales; labor relations; integration of
acquired businesses; risks generally relating to the Company's international
operations, including governmental, regulatory or political changes; changes in
environmental, health or other regulations that may affect one or more of the
Company's products or potential products and the inability to obtain regulatory
approvals for one or more of the Company's potential products; changes in laws
or different interpretations of laws including the risk that German judicial
authorities will disagree with the opinions of the Company's German legal
counsel or that may affect the Company's expected effective tax rate for 2001;
and transactions or other events affecting the need for, timing and extent of
the Company's capital expenditures.
33
34
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of American Standard
Companies Inc. as of December 31, 2000 and 1999, and for each of the three years
in the period ended December 31, 2000, and have issued our report thereon dated
February 14, 2001. Our audits also included the financial statement schedules
listed in Item 14(a). 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 financial statement 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 set forth therein.
/S/ ERNST & YOUNG LLP
New York, New York
February 14, 2001
34
35
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS (PARENT COMPANY SEPARATELY)
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
Equity in net income (loss) of subsidiaries $ 315.2 $ 138.3 $ (16.3)
------- ------- --------
Net income (loss) $ 315.2 $ 138.3 $ (16.3)
======= ======= ========
SEE NOTES TO FINANCIAL STATEMENTS.
35
36
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT - (CONTINUED)
BALANCE SHEET (PARENT COMPANY SEPARATELY)
(DOLLARS IN MILLIONS)
DECEMBER 31,
------------
ASSETS
2000 1999
------- -------
Cash $ .1 $ --
Accounts receivable 1.2 --
Investment in subsidiaries 100.1 (145.2)
------- -------
Total assets $ 101.4 $(145.2)
======= =======
LIABILITIES
Loans payable to subsidiaries $ 494.3 $ 351.3
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value, 200,000,000 shares
authorized: issued and outstanding, 69,532,574 shares
in 2000; 70,742,538 shares in 1999
.7 .7
Capital surplus 617.8 595.1
Unearned compensation (8.0) --
Treasury stock (453.4) (363.3)
Accumulated deficit (238.0) (553.3)
Foreign currency translation effects (312.0) (175.7)
------- -------
Total stockholders' deficit (392.9) (496.5)
------- -------
$ 101.4 $(145.2)
======= =======
SEE NOTES TO FINANCIAL STATEMENTS.
36
37
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS (PARENT COMPANY SEPARATELY)
(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31,
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 315.2 $ 138.3 $ (16.3)
Adjustments to reconcile net income (loss)
to net cash provided by operating
Activities
Equity in net loss (income) of subsidiary (315.2) (138.3) 16.3
------- ------- -------
Net cash flow from operating activities -- -- --
------- ------- -------
Cash provided (used) by investing
activities:
Investment in subsidiary (17.1) (8.1) (4.9)
------- ------- -------
Net cash provided (used) by investing
Activities (17.1) (8.1) (4.9)
------- ------- -------
Cash provided (used) by financing activities:
Purchases of treasury stock (147.5) (4.2) (83.7)
Issuance of common stock 21.7 17.2 14.8
Loan from subsidiary 143.0 (4.9) 73.8
Other -- -- --
------- ------- -------
Net cash provided (used) by financing
Activities 15.2 8.1 4.9
------- ------- -------
Net change in cash and cash equivalents .1 -- --
Cash and cash equivalents beginning of year -- -- --
------- ------- -------
Cash and cash equivalents end of year $ .1 $ -- $ --
======= ======= =======
SEE NOTES TO FINANCIAL STATEMENTS.
37
38
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
ON REGISTRANT -- (CONTINUED)
NOTES TO FINANCIAL STATEMENTS (PARENT COMPANY SEPARATELY)
(A) The notes to the consolidated financial statements of American Standard
Companies Inc. (the "Parent Company") are an integral part of these
condensed financial statements.
(B) The Parent Company was organized in 1988 to acquire American Standard Inc.
American Standard Inc.'s common stock is owned solely by the Parent
Company. On December 31, 1999, the Parent Company became the sole owner of
all the common stock of American Standard International Inc. as a result of
a reorganization of subsidiary ownership within the Company.
(C) On July 9, 1998, the Company's Board of Directors approved a plan to
purchase up to $300 million of the Company's common stock, not to exceed
$100 million per plan year, during the three-year period ending July 9,
2001. Pursuant to this plan, the Company purchased 3.6 million shares in
2000 for $148 million, .1 million shares in 1999 for $4 million and 2.5
million shares in 1998 for $75 million. During 1998, the Company also
purchased .2 million shares of its common stock for $9 million, pursuant to
a previously authorized plan. In September 2000, the Board of Directors
extended the Company's authorization to repurchase annually up to $100
million of its Common Stock beyond July 9, 2001. These purchases were
funded with borrowings by American Standard Inc.'s 1997 Credit Agreement
which were loaned to the Parent Company under a non-interest-bearing
intercompany demand note.
38
39
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(DOLLARS IN THOUSANDS)
Description Foreign
Balance Additions Currency Balance
Beginning Charged to Other Translation End of
of Period Income Deductions Changes Effects Period
--------- ------ ---------- ------- ------- ------
2000:
Reserve deducted from assets:
Allowance for doubtful $ 45,903 $ 14,663 $(12,629)(A) $ (8,888) $ (2,308) $ 36,741
======== ======== ======== ======== ======== ========
accounts receivable
Reserve for post-retirement $436,106 $ 48,460 $(64,089)(B) $ 5,890(C) $(18,095) $408,272
======== ======== ======== ======== ======== ========
benefits
1999:
Reserve deducted from assets:
Allowance for doubtful
accounts receivable $ 33,264 $ 23,520 $(10,468)(A) $ 1,412 $ (1,825) $ 45,903
======== ======== ======== ======== ======== ========
Reserve for post-retirement
benefits $468,197 $ 71,562 $(56,107)(B) $ (4,866)(C) $(42,680) $436,106
======== ======== ======== ======== ======== ========
1998:
Reserve deducted from assets:
Allowance for doubtful
accounts receivable $ 28,885 $ 15,236 $ (8,289)(A) $ (1,660) $ (908) $ 33,264
======== ======== ======== ======== ======== ========
Reserve for post-retirement
benefits $428,385 $ 60,219 $(44,514)(B) $ 2,716 (D) $ 21,391 $468,197
======== ======== ======== ======== ======== ========
The reserve for postretirement benefits excludes the activity for currently
funded U.S. pension plans.
(A) Accounts charged off.
(B) Payments made during the year.
(C) Includes reclassifications to current liabilities, offset by effect of
acquisition of new businesses.
(D) Primarily includes reclassification from current liabilities.
39