American Standard to sell bath/kitchen business

SPECIAL TO CONTRACTOR PISCATAWAY, N.J. American Standard announced Feb. 1 that it would split itself into three parts. It will sell the bath and kitchen business, spin off the vehicle control system business and rename the HVAC business, its largest segment, Trane. Upon completion of the plan, American Standard will focus on its global air conditioning systems and services business with 2006 sales

SPECIAL TO CONTRACTOR

PISCATAWAY, N.J. — American Standard announced Feb. 1 that it would split itself into three parts. It will sell the bath and kitchen business, spin off the vehicle control system business and rename the HVAC business, its largest segment, Trane.

Upon completion of the plan, American Standard will focus on its global air conditioning systems and services business with 2006 sales of $ 6.8 billion. Its bath and kitchen business had 2006 sales of $2.4 billion.

Its global vehicle control systems business, with 2006 sales of $2 billion, would become an independent, publicly traded company, expected to be known as WABCO. The company plans to implement the spinoff through a tax-free stock dividend of all WABCO common stock to American Standard shareowners, who would receive one share of WABCO common stock for every three shares of American Standard common stock currently owned. The company expects to complete the spinoff of WABCO and the sale of bath and kitchen by early fall.

"Looking to the future, our board concluded that the separation plan we are announcing today is the best way to enhance shareowner value," Chairman and CEO Fred Poses said. "Operating separately, the businesses will benefit from greater strategic focus, increased market recognition, improved capital flexibility, and an increased ability to attract, retain and motivate employees."

Standard & Poor's Ratings Services was less enthusiastic, stating on Feb. 1 that it placed its ratings, including its BBB corporate credit rating on American Standard Inc., on CreditWatch with negative implications.

"We currently view the substantial product, end market and geographic diversity, as well as relatively stable earnings provided by the existing portfolio of businesses, to be key factors in American Standard's BBB rating," credit analyst Pamela Rice said. "Therefore, we believe the loss of these segments could weaken the company's overall business risk profile and increase the volatility of its earnings and cash flows."

Rice further noted: "Based on our preliminary review of stand-alone credit quality, we believe there is a reasonable chance that American Standard's corporate credit rating will remain investment-grade. However, we will need to perform a more thorough analysis of the company, including its cash flow generation over a cycle."

The sales process for the company's bath and kitchen business was expected to begin in February. Proceeds from the sale are expected to be used to reduce liabilities of the remaining company, Trane, and to repurchase Trane's common stock.

Until the sale and spinoff are completed, American Standard expects to continue to pay its quarterly dividend of 18 cents per share. Trane and WABCO are expected to have capital structures and financial policies consistent with investment grade ratings. The company expects that Trane and WABCO will initially pay dividends that in total approximate the dividend currently paid by American Standard. Once WABCO is spun off, its board will determine its dividend policy.

Trane's headquarters will remain in Piscataway, and the company will continue to trade on the New York Stock Exchange using a new stock symbol to be announced. WABCO will be a U.S. company, with executive and administrative offices in Brussels, Belgium, and Piscataway. It is expected to be listed on the NYSE. The company will retain the right to use the American Standard brand name for its HVAC products.

Poses will continue as chairman and CEO through 2007 as planned, and an internal and external search is under way for his successor. The current directors of American Standard, with the exception of lead director Jim Hardymon, are expected to continue as board members of the company when it changes its name to Trane. Hardymon, in accordance with company governance guidelines, will retire from the board in May.

Continuing in their roles, in air conditioning systems and services, will be Craig Kissel, president/commercial systems, and Dave Pannier, president/ residential. As will Dale Elliott, president/ global bath and kitchen, and regional presidents Don Devine, Americas; John Rietveldt for Europe, Middle East and Africa; and Richard Ward, Asia Pacific.

Jacques Esculier, president/vehicle control systems for the past three years, will become CEO of WABCO. Hardymon-will serve as WABCO's non-executive chairman. Pete D'Aloia, American Standard's chief financial officer, will continue in his role and become a WABCO board member.

Air conditioning systems and services and vehicle control systems delivered strong results in fourth quarter 2006, Poses said, even though the company saw lower sales of residential HVAC products compared with a year ago when distributors were loading in new 13 SEER products to prepare for the conversion to higher energy-efficiency standards in January 2006.

"Warm weather in the quarter also slowed furnace sales," Poses said. "During the quarter, Bath and kitchen stabilized its sales and made significant operational progress under its new leadership team, and we'll start to see the financial benefits during 2007."

Bath and kitchen sales for the quarter were $585 million, up 1.6%. Segment income represented a loss of $3.7 million, down from income of $500,000 in fourth quarter 2005. The benefits from improved pricing, prior operational consolidations and materials productivity could not overcome the effects of higher commodity costs, decreased unit volume and lower conversion productivity as compared with fourth quarter 2005, the company said. Excluding the favorable impact of foreign exchange as well as operational consolidation expenses, adjusted segment income was $1.3 million, compared with $6.9 million in the fourth quarter 2005.