<PAGE>   1

                               [GRAPHIC OMITTED]

                                   RAISING THE
                                    standard.

                AMERICAN STANDARD COMPANIES INC.'99 annual report
<PAGE>   2

                                AMERICAN STANDARD

[GRAPHIC OMITTED]
[LOGO] TRANE

With 1999 sales of $4.3 billion, Trane air conditioning is our largest business,
manufacturing at 31 plants in nine countries. Trane is 1 in commercial systems
and services in the US. Long recognized as the technology leader, Trane produces
the most efficient, lowest-emission chillers on the market. Today, half of the
large chillers cooling commercial buildings in North America are manufactured by
Trane. In residential central air conditioning systems, Trane is the premier
brand.

Trane sets the standard for managing the comfort and quality of indoor air.

[GRAPHIC OMITTED]
[LOGO] American Standard

The world's leading producer of bathroom and kitchen chinaware fixtures and
brass faucets for commercial and residential markets, American Standard operates
56 plants in 22 countries. Sales in 1999 totaled $1.8 billion. Our products are
recognized worldwide for award-winning designs, outstanding craftsmanship and
lifetime dependability.

American Standard sets the standard with one of the most extensive lines of
water-saving fixtures and faucets.

[GRAPHIC OMITTED]
[LOGO] WABCO

WABCO is the technology leader in advanced electronic systems for vehicle motion
and braking control. WABCO, with 1999 sales of $1.1 billion, operates 15 plants
in 11 countries. WABCO was the first to introduce anti-lock brakes for
heavy-duty vehicles and today is the world's leading producer of electronic
braking, traction and stability systems.

WABCO sets the standard for enhanced road safety.

Powerful brands. Market-leading positions. Global diversity. High profitability.
These provide a solid foundation for consistent growth and superior financial
returns.
<PAGE>   3

                           customers         shareowners
                                    employees

                                american standard

                               IN YOUR EYES . . .

How you see us makes all the difference in our Company's ability to grow and be
profitable. That's true whether you're a customer sizing up our products and
services, an employee thinking about your future, or an investor evaluating our
performance. Doing things right in the eyes of our customers means we gain their
loyalty. Doing things right in the eyes of our employees means a well-motivated
workforce. And doing things right in the eyes of our shareowners means an
appreciating stock price. At American Standard we want to know how you see
things. Because we don't want to be the best in our own eyes. We want to be the
best in yours.
<PAGE>   4

                                CHAIRMAN'S LETTER

                                [PHOTOS OMITTED]

                               to our shareowners:

When I joined American Standard in October of 1999, I knew I had joined a global
company with three market leading businesses, powerful brands, technological
prowess and Demand Flow manufacturing processes that had become a model for the
manufacturing sector. What I learned during the months since is that the Company
has enormous potential to build on its great heritage and raise the standard of
excellence, thereby significantly enhancing shareowner value. We will fulfill
this potential by strengthening the value we bring to our customers and
providing opportunities to develop and grow for our employees. I am delighted to
accept this responsibility.

                               A STRONG FOUNDATION

      Financial Performance. 1999 was a very good year for American Standard, as
sales from ongoing businesses rose 10% to $7.2 billion. Operating earnings
reached $751 million, a 14% increase over the prior year, and earnings per share
from continuing operations increased to $3.76, 19% better than 1998.

      Customer Relationships. Another measure of the Company's performance in
1999 was the endorsement of our customers: Sears, Roebuck and Co. chose our
Trane brand air conditioners as the premier product to be sold through its 800
HomeCentral locations in the U.S. Volvo selected WABCO, our vehicle controls
business, as its global supplier of pneumatic systems for its heavy-duty trucks.
Marriott Hotels chose American Standard as the preferred supplier of all its
hotel bathroom products, and Home Depot selected our plumbing products business
as its supplier of the year for the third consecutive year.

      These kinds of customer relationships have enabled American Standard and
Ideal Standard to become global market leaders in bathroom and kitchen products,
WABCO to become the global market leader in electronic braking systems, and
Trane to hold the number one position in the North American commercial air
conditioning market.

      DFT and Low Cost Manufacturing. We have become the vendor of choice for so
many leading customers in large part due to the success of American Standard's
Demand Flow(R) Technology (DFT), a manufacturing system that has enabled our
businesses to deliver


    ---------
    AMERICAN
--2-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   5

                                CHAIRMAN'S LETTER

--------------------------------------------------------------------------------

                                [PHOTO OMITTED]

                                  a tribute...

   Emmanuel "Mano" Kampouris showed great leadership in successfully steering
American Standard through a highly leveraged buyout and leading its re-emergence
  as a publicly traded company with strong businesses and a renewed focus. He
     established Demand Flow Technology as the cornerstone of the Company's
transformation, building a solid foundation that will serve as a springboard for
                      our future performance and success.

--------------------------------------------------------------------------------

exactly what customers want, exactly when they need it, on time each and every
time. DFT has enabled the Company to reduce its operating working capital to
2.6% of sales. Few manufacturing companies match this level.

      As the Company improved its processes, it also lowered its manufacturing
costs with a shift of production to lower cost facilities. Our ability to source
our products rapidly and cost-effectively in Eastern Europe, Asia or North
America, as customer demand requires, has been critical to our global business
success.

                              RAISING THE STANDARD

      As strong as our foundation is, I am convinced that American Standard can
do even better. We will focus on initiatives to strengthen our customer
relationships, lower costs by managing materials better, eliminating waste and
improving quality through Six Sigma technology, and reduce our debt level. Each
initiative will significantly enhance our profitability.

      Strengthening Our Customer Relationships. We will continue to improve our
responsiveness to our customers, understanding both their product and service
needs. Consistent with this, we will also work relentlessly to maintain our
technological edge, making sure that our products and services set the standard
for innovation and performance.

      Our new product introductions will be greater and broader than ever. We
will introduce a new line of high efficiency chillers with advanced, proprietary
controls for servicing and remote monitoring. A residential unitary air
conditioning line called Pinnacle(R), which uses next generation refrigerants
that are environmentally friendly, is being developed. Advanced generation
electronic braking and stability control will be introduced for both large


-----------------------------------------AMERICAN STANDARD '99 annual report--3-
<PAGE>   6

                                CHAIRMAN'S LETTER

trucks and trailers. And a new line of whirlpool tubs will expand our luxury
product offerings. The list goes on as we create new products and services to
meet our customers' requirements.

      Lowering Materials Costs. American Standard has reduced materials costs on
average 1 to 2% each year. There is an opportunity to reduce costs more
significantly, however, through better materials management. In 1999, the
Company bought $4 billion of raw materials, components and services --
everything from copper coils to freight forwarding services to health insurance.
But many of these purchases were fragmented. We lacked the power of consolidated
purchasing and had no coordinated initiative to bring our costs down. Going
forward, we will create a materials management focus with the goal of buying
better, sourcing better from fewer suppliers or reengineering our products to
take out costs. We will pare the costs of buying those same materials and
services continuously, achieving a reduction of 5 1/2% by 2003. That translates
into significant cost savings.

      Introducing Six Sigma. We will take our Demand Flow processes to the next
level through the application of Six Sigma, a system for improving products and
services through a statistical measure of quality. Demand Flow Technology
transformed the Company by focusing on processes to capture and swiftly fulfill
customer orders. Six Sigma complements and enhances DFT by making the work
performed in these processes defect free. For example, 37 ceramic toilets or
sinks out of every 100 initially "fired" in our kilns have defects. In the Six
Sigma quality system, a 37% defect rate equates to Two Sigma. By improving our
quality to a Three Sigma level, which equates to a 7% defect rate (not yet a
near perfect Six Sigma score -- less than 1% defect rate) we can add a dollar
per share to our earnings. This is just one example of how Six Sigma can improve
everything we do.

      Reducing Debt. American Standard's debt level at the end of 1999 was
approximately $2.6 billion. We have set a goal of bringing that debt down to
$1.5 billion by 2003 through a combination of improved operating cash flow, the
sale of our medical systems business and other actions.

                                ACHIEVABLE GOALS

      The goals we have set are realistic and achievable. Reaching them will
take drive, energy and focus, qualities our 57,000 employees worldwide have
demonstrated in the


    ---------
    AMERICAN
--4-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   7

                                CHAIRMAN'S LETTER


                                [PHOTO OMITTED]
                                     Fred Poses

                              raising the standard.

progress the Company has made in the past. Our employees, who own 25% of
American Standard's common stock, have a vital stake in the Company's future and
are motivated to think and behave like owners.

      However, success will require new skills and new talent which we are
committed to infuse. American Standard will build its learning organization,
making diverse learning opportunities available to enable our employees to grow
and develop further. Six Sigma is just one learning opportunity among many that
will help our employees develop new skills. We have already engaged Six Sigma
experts, known as Black Belts, to work with our businesses. They will have a
dual role: to improve our Sigma performance while teaching our employees Six
Sigma skills.

      We have begun to add outstanding people to our leadership team, including
Peter D'Aloia, our new chief financial officer, and Paul McGrath, our new
general counsel. Jared Cohen and James Hardymon, who joined the Board of
Directors in the past year, bring important experience and perspective to our
Board.

      Being new to American Standard, I respect and appreciate the contribution
of my predecessor, Emmanuel Kampouris, who built up and passed on a company with
tremendous strengths and tremendous opportunities.

      I am proud to be a part of this great company and look forward to "raising
the standard," making American Standard the best in the eyes of our customers,
employees and shareowners.

      Thank you for your support.

/s/ Fred Poses

Fred Poses
Chairman and Chief Executive Officer


-----------------------------------------AMERICAN STANDARD '99 annual report--5-
<PAGE>   8

                                AMERICAN STANDARD

                                [PHOTOS OMITTED]
IN THE EYES OF OUR
                                    customers

          ...your needs are ever-changing, and we must change with you,
               providing - intelligent ways to meet your needs now
                and long-term, - quality-engineered products, and
           - value you can see in the products and services we offer.
                              We want your loyalty.


    ---------
    AMERICAN
----STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   9

                               [GRAPHIC OMITTED]

                              --------------------
                              AMERICAN STANDARD OF
                              --------------------
                                   excellence.


[LOGO] TRANE it's hard to stop a Trane------------------------------------------
<PAGE>   10

                                AMERICAN STANDARD

                                [PHOTOS OMITTED]

                               IN THE EYES OF OUR
                                    employees

                     ...a job doesn't have to be just a job.
           It can be - a unique, challenging and rewarding experience,
           - an opportunity to think and behave like an entrepreneur,
           - an opportunity to learn new skills and grow in new ways.
                    We want you to make us a better company.


    ---------
    AMERICAN
----STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   11

                              --------------------
                              AMERICAN STANDARD OF
                              --------------------
                                   excellence.


[LOGO] American
       Standard  we want you to love your bathroom------------------------------
<PAGE>   12

                                AMERICAN STANDARD

                               IN THE EYES OF OUR
                                   shareowners

    ...numbers don't drive success, but are the result of doing things right.
      Our aim is to be a company that - is first to market with new ideas
                and products, - recognizes and acts on the right
                business opportunities, - outperforms the market
                 continually. We want to create wealth for you.


    ---------
    AMERICAN
----STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   13

                                [GRAPHIC OMITTED]

                              --------------------
                              AMERICAN STANDARD OF
                              --------------------
                                   excellence.


WABCO [LOGO] safety in motion---------------------------------------------------
<PAGE>   14

                                american standard



                               IN THE EYES OF OUR

                               [GRAPHICS OMITTED]

                         customers                shareowners
                                   employees


    ---------
    AMERICAN
----STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   15

                               [GRAPHICS OMITTED]

                                   -----------
                                   RAISING THE
                                   -----------
                                    standard.

                                                                  AMERICAN
                                                                  --------
                                                                raising the
                                                                  --------
                                                                  STANDARD


--------------------------------------------------------------------------------
<PAGE>   16

                               FINANCIAL CONTENTS

Board of Directors                                                            15

Five-Year Financial Summary                                                   16

Management's Discussion
and Analysis

  Overview                                                                    18

  Air Conditioning Systems
  and Services                                                                19

  Plumbing Products                                                           20

  Vehicle Control Systems                                                     22

  Other Financial Summary Items                                               22

  Liquidity and Capital Resources                                             24

Management's Report                                                           30

Report of Independent Auditors                                                31

Financial Statements

  Consolidated Statement
  of Operations                                                               32

  Consolidated Statement
  of Cash Flows                                                               33

  Consolidated Balance Sheet                                                  34

  Consolidated Statement
  of Stockholders' Deficit                                                    36

Notes to Consolidated
Financial Statements                                                          37


    ---------
    AMERICAN
----STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   17

Board of Directors

American Standard Companies Inc.

Frederic M. Poses (B-Chairman)
Chairman and Chief Executive Officer
American Standard Companies Inc.

Steven E. Anderson (C-Chairman)
Retired National Partner in
Charge-Industries
KPMG Peat Marwick
New York, NY

Jared L. Cohon (A)
President
Carnegie Mellon University
Pittsburgh, PA

James F. Hardymon (C)
Retired Chairman and
Chief Executive Officer
Textron, Inc.

George H. Kerckhove
Vice President
American Standard Companies Inc.

Roger W. Parsons (A-Chairman) (B)
Former Chief Executive
Rea Brothers Group PLC
London, United Kingdom

J. Danforth Quayle (A) (C)
Former Vice President of
the United States
Paradise Valley, AZ

David M. Roderick (A) (B) (C)
Chairman
Earle M. Jorgensen Company
Brea, CA
Retired Chairman
USX Corporation
Pittsburgh, PA

Member of:

(A)   Management Development and Nominating Committee
(B)   Executive Committee
(C)   Audit Committee


-----------------------------------------AMERICAN STANDARD '99 annual report-15-
<PAGE>   18

Five-Year Financial Summary

American Standard Companies Inc.

<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
(Dollars in millions, except per share data)                            1999          1998          1997         1996         1995
====================================================================================================================================
<S>                                                                 <C>           <C>           <C>           <C>           <C>
SEGMENT DATA
Sales:
  Air Conditioning Systems and Services                             $ 4,337       $ 3,940       $ 3,567       $ 3,437       $ 2,953
  Plumbing Products                                                   1,755         1,510         1,439         1,452         1,270
  Vehicle Control Systems                                             1,098         1,106           952           916           998
------------------------------------------------------------------------------------------------------------------------------------
                                                                    $ 7,190       $ 6,556       $ 5,958       $ 5,805       $ 5,221
------------------------------------------------------------------------------------------------------------------------------------
Segment income:
  Air Conditioning Systems and Services                             $   453       $   386       $   386       $   372       $   276
  Plumbing Products                                                     164           119           119           110           120
  Vehicle Control Systems                                               134           153           127           123           155
------------------------------------------------------------------------------------------------------------------------------------
                                                                        751           658           632           605           551
Equity in net income of unconsolidated joint ventures                    37            27            12             3             7
Restructuring and asset impairment charges (a)                          (15)         (197)           --          (235)           --
Interest expense                                                       (188)         (188)         (192)         (198)         (213)
Corporate expenses                                                     (134)         (110)         (105)         (104)         (111)
------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes
  and extraordinary item                                                451           190           347            71           234
Income taxes                                                           (187)         (141)         (124)         (105)          (85)
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
  extraordinary item                                                $   264       $    49       $   223       $   (34)      $   149
====================================================================================================================================
  Per share:
    Basic                                                           $  3.74       $   .68       $  3.03       $  (.44)      $  2.00
    Diluted                                                         $  3.63       $   .66       $  2.93       $  (.44)      $  1.97
</TABLE>


    ---------
    AMERICAN
-16-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   19

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
(Dollars in millions, except per share data)                               1999         1998         1997         1996         1995
====================================================================================================================================
<S>                                                                      <C>          <C>          <C>          <C>          <C>
OTHER DATA
Net cash provided by continuing operations                               $  512       $  477       $  444       $  366       $  355
Demand Flow Performance:
  Average inventory turnover (b)(d)                                         8.9x         9.2x         9.0x         9.4x         8.4x
  Operating working capital as a percent of sales (c)(d)                    2.6%         2.9%         4.7%         4.9%         4.9%
</TABLE>

(a)   In 1999, the Company recorded restructuring and asset impairment charges
      of $15 million ($9 million, net of tax benefits, or $.13 per diluted
      share). These consist 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 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 Statement of
      Financial Accounting Standards No. 121 on impairment of assets, the
      Company incurred a non-cash charge of $235 million, or $2.95 per diluted
      share. See Note 5 of Notes to Consolidated Financial Statements and
      Management's Discussion and Analysis which follows.
(b)   Twelve-month average inventory turnover, exclusive of significant
      acquisitions, with each month calculated using the prospective three
      month's cost of sales annualized, divided by inventories as of each month
      end.
(c)   Operating working capital as of year end, divided by annualized fourth
      quarter sales. Operating working capital is defined as net accounts
      receivable and adjusted inventories less accounts payable, accrued
      payrolls and other accrued liabilities.
(d)   These Demand Flow Performance measurements use amounts determined
      differently than they would be under generally accepted accounting
      principles and may not necessarily be used by other companies. The Company
      believes these measurements are important to understanding performance
      under Demand Flow Technology.


-----------------------------------------AMERICAN STANDARD '99 annual report-17-
<PAGE>   20

Management's Discussion and Analysis

American Standard Companies Inc.

OVERVIEW

The Company achieved record sales and segment income in 1999 for the fifth
consecutive year primarily as a result of strong performance by Air Conditioning
Systems and Services and continued improvement in Plumbing Products, including
the effect of the acquisition of Armitage/Dolomite described in the Plumbing
Products Segment section below. These results were attained despite continued
economic weakness in the Far East and Latin America, a softening in the European
commercial vehicle market and the unfavorable effects of foreign exchange. The
sales and segment income amounts reflect results from continuing operations
only, as the Medical Systems business is reported as a discontinued operation.
Sales for 1999 were $7.2 billion, an increase of 10% from $6.6 billion in 1998.
Segment income was $751 million, an increase of 14% from $658 million in 1998,
and up 17% excluding the unfavorable effects of foreign exchange. Income from
continuing operations in 1999 was $264 million, or $3.63 per diluted share,
including net restructuring and asset impairment charges of $15 million ($9
million, net of tax benefits, or $.13 per diluted share). This compares with
income from continuing operations before extraordinary item in 1998 of $49
million, or $.66 per diluted share, including restructuring and asset impairment
charges of $197 million ($183 million, net of tax benefits, or $2.49 per diluted
share). Excluding such restructuring and asset impairment charges, income from
continuing operations before extraordinary item increased 18% to $273 million in
1999 from $232 million in 1998.

RESULTS OF OPERATIONS FOR 1999 COMPARED WITH 1998 AND 1998 COMPARED WITH 1997

Consolidated sales for 1999 were $7,190 million, an increase of $634 million, or
10% (11% excluding the unfavorable effects of changes in foreign exchange), from
$6,556 million in 1998. Sales increased 10% for Air Conditioning Systems and
Services and 16% for Plumbing Products, but declined slightly for Vehicle
Control Systems.

Consolidated sales for 1998 were $6,556 million, an increase of $598 million,
or 10% (12% excluding the unfavorable effects of changes in foreign exchange),
from $5,958 million in 1997. Sales increased 10% for Air Conditioning Systems
and Services, 5% for Plumbing Products and 16% for Vehicle Control Systems.

Segment income for 1999 was $751 million, an increase of $93 million, or 14%
(16% excluding the unfavorable effects of foreign exchange), from
$658 million in 1998. Segment income increased 17% for Air Conditioning Systems
and Services and 38% for Plumbing Products but decreased 12% for Vehicle Control
Systems.

Segment income for 1998 was $658 million, an increase of $26 million, or 4% (6%
excluding the unfavorable effects of foreign exchange), from $632 million in
1997. Segment income increased 20% for Vehicle Control Systems, and was flat for
Air Conditioning Systems and Services and Plumbing Products.

--------------------------------------------------------------------------------
                                   1999 Sales
                                  $7.2 Billion

 [The following tables were represented as pie charts in the printed material.]

<TABLE>
<CAPTION>
             BUSINESSES                              GEOGRAPHY
<S>                           <C>            <C>                  <C>
Air Conditioning              60%            U.S.                 53%
Vehicle Controls              15%            Europe               31%
Plumbing                      25%            Other                16%
</TABLE>

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
                              1999 Segment Income
                                  $751 Million

 [The following tables were represented as pie charts in the printed material.]

<TABLE>
<CAPTION>
             BUSINESSES                              GEOGRAPHY
<S>                           <C>            <C>                  <C>
Air Conditioning              60%            U.S.                 67%
Plumbing                      22%            Europe               29%
Vehicle Controls              18%            Other                 4%
</TABLE>
--------------------------------------------------------------------------------


    ---------
    AMERICAN
-18-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   21

RESULTS OF OPERATIONS BY BUSINESS SEGMENT

AIR CONDITIONING SYSTEMS AND SERVICES BUSINESS SEGMENT

<TABLE>
<CAPTION>
                                                    Year Ended December 31,
(Dollars in millions)                         1999           1998          1997
--------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>
Sales                                       $4,337         $3,940         $3,567
Segment income                              $  453         $  386         $  386
</TABLE>

Sales of Air Conditioning Systems and Services increased 10% (with little effect
from foreign exchange) to $4,337 million for 1999 from $3,940 million for 1998.
Worldwide Applied Systems sales increased 12% and Worldwide Unitary Systems
sales increased 8%. In 1998, sales of Air Conditioning Systems and Services
increased 10% (12% excluding foreign exchange effects) to $3,940 million from
$3,567 million for 1997. Worldwide Applied Systems sales increased 8% and
Worldwide Unitary Systems sales increased 13%. Commercial markets account for
approximately 75% of Air Conditioning Systems and Services' total sales.
Approximately 65% of total sales are to the replacement, renovation and repair
markets.

Segment income of Air Conditioning Systems and Services in 1999 increased 17%
(with little effect from foreign exchange) to $453 million from $386 million in
1998. The increase was attributable primarily to higher volumes in the U.S. in
commercial applied and unitary products and to improved margins in the
international applied business, primarily in Europe. Overall margins improved
from 9.8% in 1998 to 10.4% in 1999. Segment income of Air Conditioning Systems
and Services in 1998 was $386 million, at the same level as in 1997, but
increased 1% excluding the unfavorable effects of foreign exchange. An increase
in Worldwide Unitary Systems was substantially offset by a decrease in Worldwide
Applied Systems.

Worldwide Applied Systems--In 1999, Worldwide Applied Systems' sales increased
12% (with little effect from foreign exchange) as a result of strong market
growth and higher volumes in the U.S. and Europe. U.S. markets expanded as
replacement and renovation continued to grow and commercial construction
remained near record high levels. Markets outside the U.S. were mixed, with
Europe up slightly while markets in Asia and Latin America were down. U.S. sales
of commercial applied products increased 17% because of higher volumes,
reflecting continued strength in the U.S. commercial equipment business, market
share gains and the acquisition of sales and service offices. Recently acquired
sales and service offices contributed 3% of the increase. Sales increased 3% in
International Applied Systems as increases in Canada and Europe were partly
offset by decreases in Latin America and Asia. Segment income for Worldwide
Applied Systems increased 26% in 1999 as a result of improved volume in the
U.S., plus cost improvements in international businesses, primarily Europe.

In 1998, Worldwide Applied Systems' sales increased 8% (10% excluding foreign
exchange effects) primarily reflecting higher volumes in the U.S. from improved
markets and the acquisition of additional commercial sales and service
businesses, together with higher volumes in Europe and the Middle East. Those
improvements were partly offset by the effects of

--------------------------------------------------------------------------------

                Air Conditioning Systems and Services 1999 Sales
                                  $4.3 Billion

 [The following tables were represented as pie charts in the printed material.]

<TABLE>
<S>                                     <C>
Commercial                              75%
Residential                             25%
</TABLE>

<TABLE>
<S>                                     <C>
U.S.                                    76%
Other                                   17%
Europe                                   7%
</TABLE>

<TABLE>
<S>                                     <C>
Replacement, Renovation and Repair      65%
New Commercial Construction             25%
Residential New Construction            10%
</TABLE>


-----------------------------------------AMERICAN STANDARD '99 annual report-19-
<PAGE>   22

Management's Discussion and Analysis (continued)

American Standard Companies Inc.

competitive pricing pressures on chillers and the adverse effects of foreign
exchange. Segment income for Worldwide Applied Systems decreased 27% in 1998
from the 1997 level as a result of global pricing pressure, lower margins in
Europe, lower volumes in the Far East and a strike at the Lexington air handling
products facility in the first quarter of 1998.

Worldwide Unitary Systems--In 1999, sales of Worldwide Unitary Systems increased
8% (with little effect from foreign exchange). This growth occurred primarily in
the U.S., as volume improved over a strong prior year performance. This
principally reflected the effects of warmer-than-normal weather on U.S. sales of
residential products and increased volumes in the U.S. commercial unitary
business. Outside the U.S., improved sales of unitary systems were led by
increases in Europe and Asia. Segment income for Worldwide Unitary Systems
increased 12% in 1999 (with little effect from foreign exchange), principally
reflecting higher U.S. volume.

In 1998, sales of Worldwide Unitary Systems increased 13% (14% excluding foreign
exchange effects) over 1997 sales. Sales in the U.S. for unitary commercial and
residential products increased 14%, driven by strong new construction and
increased replacement demand due to warmer-than-normal summer weather. Outside
the U.S., improved sales of unitary systems were led by strong increases in
Europe and Latin America. Segment income for Worldwide Unitary Systems increased
29% in 1998 from the 1997 level (with little effect from foreign exchange),
principally reflecting higher U.S. volume and margin increases.

Backlog--The worldwide backlog for Air Conditioning Systems and Services
remained at a high level as of December 31, 1999, at $661 million, an increase
of 1% from the year-earlier level, excluding foreign exchange effects. This high
level reflected continued strength in major markets and improvements in the Far
East and Latin America.

PLUMBING PRODUCTS BUSINESS SEGMENT

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
(Dollars in millions)                         1999           1998           1997
--------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>
Sales                                       $1,755         $1,510         $1,439
Segment income                              $  164         $  119         $  119
</TABLE>

Sales by Plumbing Products were $1,755 million in 1999, an increase of 16% (20%
excluding the unfavorable effects of foreign exchange), from $1,510 million in
1998. The increase (excluding exchange) primarily reflected a 16% sales gain in
the U.S. and a 35% gain for Europe. The increase in Europe included the effect
of the acquisition in February 1999 of the Bathrooms Division of Blue Circle
Industries PLC, consisting of two principal businesses: Armitage Shanks, a
United Kingdom manufacturer, and Ceramica Dolomite, an Italian manufacturer
("Armitage/Dolomite"). Sales of Plumbing Products were $1,510 million in 1998
compared with $1,439 million in 1997, an increase of 5% (9% excluding exchange).
The increase (excluding exchange) primarily resulted from sales gains in the
Americas and the Far East.

--------------------------------------------------------------------------------

                               Plumbing 1999 Sales
                                  $1.8 Billion

 [The following tables were represented as pie charts in the printed material.]

<TABLE>
<S>                                     <C>
Residential                             75%
Commercial                              25%
</TABLE>

<TABLE>
<S>                                     <C>
Europe                                  51%
U.S.                                    31%
Other                                   18%
</TABLE>

<TABLE>
<S>                                     <C>
Replacement and Remodeling              60%
New Construction                        40%
</TABLE>


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Segment income of Plumbing Products was $164 million for 1999, an increase of
38% (44% excluding the unfavorable effects of foreign exchange), from $119
million for 1998. This increase (excluding exchange) was mainly due to increases
of 68% in Europe (which includes the effect of the Armitage/Dolomite
acquisition) and 50% in the U.S., both driven by volume increases and cost
reductions that expanded margins to 9.3% from 7.9%. These gains were tempered by
a modest increase in Latin America and a small decrease in the Far East. Segment
income of Plumbing Products was $119 million for 1998, the same as for 1997, but
increased 5% excluding the unfavorable effects of foreign exchange, because of a
40% gain in the Americas, partly offset by a 16% decline in Europe and the Far
East.

Americas--In 1999, Plumbing Products sales in the Americas increased 6% (10%
excluding foreign exchange effects) compared with 1998. Sales in the U.S. grew
16% due to strong markets (more than 5% expansion) and market share gains in
both the wholesale and retail market channels. Renovation and remodeling in the
U.S., driven by the large retail home center expansion, continued to grow and
new housing starts remained at high levels. The Company believes that the
multi-year trend of sales and market share growth in the U.S. retail market
channel will continue and lead to increased Company sales because of strong
product and brand-name recognition. The gain in the U.S. was partly offset by
decreased sales in Latin America where markets were down significantly. Segment
income for the Americas increased 27%, driven primarily by strong volume
increases in the U.S. and the benefits of lower-cost sourcing from expanded
facilities in Mexico.

In 1998, Plumbing Products sales in the Americas increased 14% (17% excluding
foreign exchange effects) compared with 1997. Sales in the U.S. grew 15% due to
strong markets and market share gains, primarily attributable to higher volumes
with major home improvement retailers and expansion in the wholesale channel. In
addition, sales increased 10% in Latin America, primarily on higher volume in
Mexico. The increase in segment income for the Americas was primarily due to
higher volumes and the benefits of lower-cost sourcing from expanded facilities
in Mexico.

Europe--In 1999, sales for Europe increased 30% (35% excluding foreign exchange
effects) compared with 1998 sales. The European increase included $279 million
of sales from the Armitage/Dolomite businesses acquired in February 1999 (see
Note 4 of Notes to Financial Statements), partly offset by a reduction of $58
million of sales related to the divestiture of French distribution operations in
the fourth quarter of 1998. Excluding the acquisition and the divestiture, sales
in Europe increased modestly, essentially in line with market growth. Segment
income in Europe increased 61% (68% excluding foreign exchange), principally due
to the Armitage/Dolomite acquisition and cost improvements from the
restructuring of European operations as part of a lower-cost sourcing program.

In 1998, sales for Europe were flat (excluding foreign exchange effects)
compared with 1997 because of weak economic conditions and the loss of sales by
the French distribution operations which were sold in the fourth quarter of
1998. Segment income in Europe declined 9% (7% excluding foreign exchange),
principally due to the effects of weak economic conditions and
restructuring-related inefficiencies.

Far East--In 1999, Far East sales and segment income both declined
slightly as operations continued to suffer from adverse economic conditions in
the region. In 1998, Far East sales increased 5% (37% excluding foreign exchange
effects) compared with 1997. The exchange-adjusted increase was principally
attributable to the effect of consolidating operations in China following the
acquisition of a majority interest in that operation in the fourth quarter of
1997. Other Far East operations suffered from adverse economic conditions in the
region. Segment income in the Far East declined in 1998 because of weak economic
conditions in most parts of the region.

Backlog--Plumbing Products' backlog as of December 31, 1999, was $154 million,
an increase of 93% from December 31, 1998 (excluding foreign exchange effects),
reflecting improvements in Europe (including the effect of the Armitage/Dolomite
acquisition) and the U.S.


-----------------------------------------AMERICAN STANDARD '99 annual report-21-
<PAGE>   24

Management's Discussion and Analysis (continued)

American Standard Companies Inc.

VEHICLE CONTROL SYSTEMS BUSINESS SEGMENT

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
(Dollars in millions)                         1999           1998           1997
--------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>
Sales                                       $1,098         $1,106         $  952
Segment income                              $  134         $  153         $  127
</TABLE>

Vehicle Control Systems' sales for 1999 were $1,098 million, down 1% (up 4%
excluding unfavorable foreign exchange effects), from $1,106 million in 1998.
Increased shipments of anti-lock braking systems (ABS) to the Company's U.S.
braking systems marketing joint venture, higher product content per vehicle on
new models introduced in 1998 and sales by the U.S. compressor manufacturing
joint venture were more than offset by exchange effects. Increased export sales
to the U.S. in 1999 reflected the full phase-in of regulations requiring ABS on
all new heavy-duty trucks and trailers, and a 21% increase in U.S. truck
production. Sales to European commercial vehicle manufacturers declined slightly
in 1999, as unit volumes of truck and bus production in Western Europe decreased
1% from 1998 levels. Brazilian sales also declined, as truck production
decreased 28%.

Vehicle Control Systems' sales for 1998 were $1,106 million, an increase
of 16% (18% excluding the unfavorable effects of foreign exchange), from $952
million in 1997. This gain was driven primarily by increased commercial vehicle
production, higher product content per vehicle and increased export sales. Unit
volume of truck and bus production in Western Europe increased 16% compared with
1997. Original equipment sales volumes were higher in almost all markets for
commercial vehicle braking and other control systems, including increased sales
to trailer manufacturers. Export sales from Europe more than doubled, primarily
from sales of ABS to the Company's North American braking systems joint venture.
Sales of original equipment declined in Brazil, where truck production declined
due to weak economic conditions.

--------------------------------------------------------------------------------

                       Vehicle Control Systems 1999 Sales
                                  $1.1 Billion

<TABLE>
<S>                                <C>
Europe                             81%
U.S.                               14%
Other                               5%
</TABLE>

<TABLE>
<S>                                <C>
OEM Conventional                   42%
Electronic                         32%
Aftermarket                        26%
</TABLE>

--------------------------------------------------------------------------------

Segment income decreased $19 million ($10 million excluding the unfavorable
effects of foreign exchange) to $134 million in 1999, from $153 million in 1998.
This was primarily the result of warranty costs (for a problem the Company
believes it has solved) and increased product development spending, partly
offset by increased income from the U.S. compressor manufacturing joint venture.
Overall margin declined from 13.7% in 1998 to 12.2% in 1999. The decline in
segment income, however, was substantially offset by increased equity income
from the U.S. marketing joint venture which expanded its market-leading
position, shipping more than 600,000 anti-lock braking systems to the North
American commercial vehicle market in 1999, an increase of 33% over the prior
year.

Segment income for Vehicle Control Systems was $153 million in 1998, an increase
of 20% (22% excluding the unfavorable effects of foreign exchange) from $127
million in 1997. This increase was principally in Europe and resulted from the
higher volume and improved margins due to productivity improvements. These
factors were partly offset by the effects of higher development and maintenance
costs in Europe, lower volume in Brazil and start-up costs of the new,
majority-owned joint ventures in the U.S. and China.

Backlog--Vehicle Control Systems' backlog as of December 31, 1999, was $405
million, an increase of 2% from December 31, 1998 (excluding the unfavorable
effects of foreign exchange), reflecting small improvements in several
locations.

OTHER FINANCIAL SUMMARY ITEMS

The increase in equity in net income of unconsolidated joint ventures for 1997
through 1999 primarily reflects the strong growth of Vehicle Control


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<PAGE>   25

Systems' North American braking systems marketing joint venture. The increase
also reflects benefits from the restructuring of Air Conditioning Systems and
Services' scroll compressor joint venture in 1997 and increased income from the
Company's financing joint venture.

In 1998, the Company committed to restructuring plans designed to achieve lower
product costs and improved operating efficiency. Accordingly, the Company
recorded charges totaling $197 million ($183 million net of tax benefits)
comprised of $185 million for Plumbing Products, $7 million for Air Conditioning
Systems and Services and $5 million for Vehicle Control Systems. The Plumbing
Products charge included costs related to the closure of five plants in Europe
and two in North America, a loss on the sale of the French plumbing distribution
operations, write-off of related goodwill and a workforce reduction of
approximately 1,600 people. The Air Conditioning Systems and Services charge
reflected the closure of one plant in Australia, one plant in Europe and a
workforce reduction of 115 people. The Vehicle Control Systems' charge related
to the closure of three plants in Europe and a workforce reduction of 75 people.
The charge of $197 million was comprised of non-cash asset write-downs of $87
million and accrued charges of $110 million, of which approximately $56 million
were paid in 1999 and $19 million in 1998.

In 1999, the Company recorded a $15 million restructuring and asset impairment
charge that reflects several elements. During the fourth quarter of 1999
management re-evaluated its plan to close one of its plumbing plants in North
America. Management and employees at that plant improved operating efficiency
and lowered costs which, together with better-than-expected improvements in the
market and the Company's market share, led to the decision not to close that
plant. This reduced the number of people to be terminated in North America by
approximately 280. The Company also was able to sell the other North American
plumbing plant on more favorable terms than initially contemplated. Those two
principal reductions and other smaller reductions to estimated severance and
facilities costs resulted in a reversal of $29 million of amounts accrued in
1998.

Management also re-evaluated the restructuring plans for Vehicle Control
Systems and decided to transfer additional manufacturing capacity to a facility
under construction in Poland, where labor costs are lower. This resulted in
additional charges of $17 million for the closure of five manufacturing
facilities in Europe and one in Japan, the termination of approximately 625
employees in Europe and 25 in Japan. In addition, certain estimated charges
recorded in 1998 were increased to reflect current estimates which resulted in
additional charges incurred in 1999 of $14 million. Those increases included
changes in severance and other employee-related costs (especially in Spain where
significantly higher payments are now anticipated) and higher facilities closure
costs. The 1999 charge also includes a $13 million impairment charge related to
a minority equity interest in a non-core business. The Company expects to pay
the December 31, 1999 balance of $29 million by the end of 2000. See Note 5 of
Notes to Consolidated Financial Statements.

Interest expense for 1999 was the same as 1998 as lower overall interest rates,
achieved through 1998 and 1999 debt refinancings, offset the effect of increased
debt from the Armitage/Dolomite acquisition. In February 1999, the Company
acquired Armitage/Dolomite for $427 million. In May 1999, the Company completed
the sale of the equivalent of $460 million of Senior Notes, with an average
interest rate of 7.7%, and redeemed $150 million of its 10 7/8% Senior Notes.
Interest expense decreased $4 million in 1998 compared with 1997, as lower
average interest rates achieved through debt refinancing more than offset the
effect of increased debt arising from share repurchases and the medical
diagnostics businesses acquisition in June 1997. On June 1, 1998, the Company
redeemed the $741 million principal amount of its 10 1/2% Senior Subordinated
Discount Debentures and the $200 million principal amount of its 9 7/8% Senior
Subordinated Notes with lower-rate Senior Notes, as described below. During
1998, the Company purchased $84 million of its common stock and during 1997
purchased $311 million of its common stock and acquired the medical diagnostics
businesses for $212 million (see "Liquidity and Capital Resources").


-----------------------------------------AMERICAN STANDARD '99 annual report-23-
<PAGE>   26

Management's Discussion and Analysis (continued)

American Standard Companies Inc.

Corporate expenses for 1999 totaled $134 million, compared with $110 million in
1998 and $105 million in 1997. The increase in 1999 reflects the costs
associated with certain Company officer transitions, a one-time charge related
to pension benefits and increased financing fees paid to the Company's financial
services joint venture resulting from increased volumes in the U.S. businesses.

The income tax provisions for 1999, 1998 and 1997 were $187 million, $141
million and $124 million, respectively. The effective income tax rate was 41.5%
in 1999 and 74.4% in 1998. The 1998 provision reflects an unusually high
effective tax rate because there was little tax benefit on the restructuring
charges incurred in 1998. Excluding those restructuring charges, the effective
rate for 1998 was 40.0% of income from continuing operations before income taxes
and extraordinary item. The 1998 rate also reflects foreign tax effects that
include a loss contingency related to certain German tax matters, substantially
offset by reversal of a U.S. deferred tax liability related to foreign
investments. The 1999 and 1998 rates also reflect the effects of rate
differences and withholding taxes related to foreign operations, nondeductible
goodwill amortization and higher state income taxes in the U.S. The 35.6% rate
for 1997 is somewhat lower primarily because of higher levels of taxable income
in the U.S., which enabled the Company to recognize previously unrecognized tax
benefits. No similar benefits were available in 1999 and 1998. See Note 8 of
Notes to Consolidated Financial Statements. The Company expects that its
effective income tax rate in 2000 will be reduced to approximately 39% because
of an internal reorganization of the Company's subsidiary ownership which should
be more tax efficient.

As a result of the redemption of debt in 1998 and 1997 with refinancing
proceeds, those years included extraordinary charges of $50 million (net of
taxes of $7 million) and $24 million (net of taxes of $6 million), respectively,
including call premiums and the write-off of unamortized debt issuance costs.
See the following section, "Liquidity and Capital Resources" and Note 11 of
Notes to Consolidated Financial Statements for a description of these
transactions.

In the fourth quarter of 1999, the Board of Directors of the Company approved a
plan for the sale of non-core business assets consisting of the Medical Systems
businesses. The Company expects to complete the sale in the second quarter of
2000. Accordingly, Medical Systems is reported as a discontinued operation in
the accompanying Consolidated Statement of Operations and the Company's net
investment in that operation is reported as net assets of discontinued
operations held for sale in the accompanying Consolidated Balance Sheet. All
prior periods presented have been restated to reflect these classifications,
including applicable footnotes. The loss from discontinued operations in 1999
includes a loss from operations of $14 million (net of income tax benefit of $9
million), and an estimated loss on disposition of $112 million (net of income
tax benefit of $8 million). The loss on disposition includes estimated operating
losses in 2000 projected through the expected date of sale.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities, after cash interest paid of $181
million, was $474 million for 1999, compared with $462 million for 1998. The
increase resulted primarily from higher income and increased depreciation and
amortization, partly offset by differences in the timing of accruals and
disbursements in the two periods, particularly the restructuring accrual.
Operating working capital as a percentage of sales improved to 2.6% in 1999,
from 2.9% in 1998, primarily as a result of reductions in working capital in
Plumbing Products and Vehicle Control Systems. Net investing activities totaled
$836 million, principally due to the acquisition of Armitage/Dolomite for $427
million and capital expenditures of $327 million (including $53 million of
investments in affiliated companies)--see "Capital Expenditures." Net cash
provided by financing activities of $361 million reflected net incremental
borrowing which, together with cash provided by operations, funded the net
investing activities.

In January 1997, the Company entered into an amended bank credit agreement ("the
1997 Credit Agreement"). This agreement, which requires no


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<PAGE>   27

repayment of principal prior to its expiration in 2002, provides the Company
with senior secured credit facilities aggregating $1.75 billion as follows: (a)
a $750 million U.S. dollar revolving credit facility and a $625 million
multi-currency revolving credit facility (the "Revolving Facilities"), which by
their nature are short term and (b) a $375 million multi-currency periodic
access credit facility. Up to $500 million of the Revolving Facilities may be
used to issue letters of credit. The 1997 Credit Agreement contains restrictive
covenants and other requirements with which the Company believes it is currently
in compliance. The Company believes that the amounts available from operating
cash flows, funds available under its 1997 Credit Agreement and future
borrowings under the remaining portion of a $1 billion shelf registration
statement filed with the Securities and Exchange Commission in 1998 ("the 1998
Shelf Registration") will be sufficient to meet its expected operating needs and
planned capital expenditures for the foreseeable future. Obligations under the
1997 Credit Agreement are guaranteed by the Company and significant foreign and
domestic subsidiaries and are secured by a pledge of the stock of nearly all
such subsidiaries. See Note 11 of Notes to Consolidated Financial Statements.

In the first half of 1998, the Company completed public offerings of $1 billion
principal amount of Senior Notes with interest rates ranging from 7 1/8% to
7 5/8% and maturity dates from 2003 to 2010. The Senior Notes are issued by
American Standard Inc. and unconditionally guaranteed by American Standard
Companies Inc. On June 1, 1998, the Company used the net proceeds of these
offerings (approximately $963 million, net of underwriting discounts and
interest rate hedge costs) to redeem its 10 1/2% Senior Subordinated Discount
Debentures and 9 7/8% Senior Subordinated Notes. The total amount required to
complete these redemptions, including call premiums, was $954 million, net of
the effect of settlement of certain interest rate swap transactions related to
the Senior Subordinated Discount Debentures.

In December 1998, the 1997 Credit Agreement was amended to permit American
Standard to issue up to an additional $500 million principal amount of senior or
subordinated unsecured debt securities, to reorganize ownership of certain
subsidiaries and intellectual property rights (see Note 16 of Notes to
Consolidated Financial Statements), and to lower the interest coverage ratios
and increase the debt coverage ratios applicable to the Company beginning for
periods ending December 31, 1998. The purpose of the amendment was primarily to
accommodate the refinancing of $150 million of American Standard's 10 7/8%
senior notes due May 15, 1999 and the financing of other proposed capital
expenditures, including the acquisition of Armitage/Dolomite described below.

In November 1999, the 1997 Credit Agreement was amended to permit the Company to
sell its Medical Systems business and to increase the limit on annual lease
payments.

On May 28, 1999, the Company completed the sale of the equivalent of $460
million of Senior Notes, with an average interest rate of 7.7%, issued in three
series: 250 million Euro Senior Notes due 2006; 100 million U.S. Dollar Senior
Notes due 2009 and 60 million Sterling Senior Notes due 2009. Net proceeds of
$452 million from the offering were applied to refinance borrowings incurred to
pay $150 million of 10 7/8% Senior Notes at maturity on May 15, 1999 and to
refinance a substantial portion of the purchase price of the Armitage/Dolomite
acquisition described below. The May 28, 1999 sale of Senior Notes, which are
not subject to redemption, was made pursuant to the 1998 Shelf Registration.
Debt securities sold under the 1998 Shelf Registration are issued by American
Standard Inc. and unconditionally guaranteed by American Standard Companies Inc.
The Company intends to use the net proceeds from any future sales of such debt
securities under the 1998 Shelf Registration for general corporate purposes,
which may include certain investments, acquisitions, additions to working
capital or capital expenditures.

On February 2, 1999, the Company acquired Armitage/Dolomite, a manufacturer of
ceramic sanitaryware, brassware and integrated plumbing systems, for
approximately $427 million (including fees and expenses) with borrowings under
the Company's 1997 Credit Agreement. The acquired business


-----------------------------------------AMERICAN STANDARD '99 annual report-25-
<PAGE>   28

Management's Discussion and Analysis (continued)

American Standard Companies Inc.

consists of two principle businesses: Armitage Shanks, a United Kingdom
manufacturer, and Ceramica Dolomite, an Italian manufacturer. The acquired
business has facilities in the United Kingdom and Italy, and employs
approximately 3,200 people. The primary markets for its products are in the
United Kingdom, Italy, Ireland and Germany. Armitage/Dolomite had 1999 sales of
$279 million (for the eleven months following the acquisition). This transaction
was accounted for as a purchase and the results of operations have been included
in the accompanying financial statements since the date of acquisition. The
purchase price was allocated based upon the fair value of the assets acquired
and liabilities assumed at the date of acquisition. This resulted in an excess
of purchase price over the value of net assets acquired (goodwill) of $300
million which is being amortized over 40 years.

At December 31, 1999, the Company's total indebtedness was $2.6 billion and
annual scheduled debt maturities, excluding the 1997 Credit Agreement, were $19
million, $12 million, $13 million, $135 million and $8.6 million for the years
2000 through 2004, respectively. The Company had remaining availability under
the 1997 Credit Agreement of approximately $643 million after reduction for
borrowings and for $73 million of outstanding letters of credit. The Company's
foreign subsidiaries had $79 million available at December 31, 1999, under
overdraft facilities which can be withdrawn by the banks at any time. In
addition, the Company's operations in China have $18 million available under
bank credit facilities after reduction for borrowings of $17 million and letters
of credit usage of $20 million.

In 1997, the Company completed a secondary public offering of 12,429,548 shares
of the Company's common stock owned by Kelso ASI Partners, L.P. ("ASI
Partners"), then the Company's largest stockholder. In conjunction therewith,
the Company purchased from ASI Partners 4,628,755 shares of the Company's common
stock for $208 million, plus fees and expenses, and issued to ASI Partners
warrants, expiring in February 2002, to purchase 3,000,000 shares of the
Company's common stock at $55 per share (the "Exercise Price"). The warrants
entitle holders to receive cash or shares, at the Company's option, based on the
difference between the market value of the Company's common stock and the
Exercise Price. All shares sold in the secondary public offering were previously
issued and outstanding, and the Company received no proceeds therefrom (see Note
12 of Notes to Consolidated Financial Statements).

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
year, during the three-year period ending July 2001. During 1999, the Company
purchased .1 million shares for $4 million and in 1998 purchased 2.7 million
shares of its common stock for $84 million, 2.5 million of which shares were
purchased for $75 million pursuant to this plan.

During 1997, the Company purchased 6.9 million shares of its common stock for
$311 million, including the above-referenced shares purchased from ASI Partners.

The Company is a partner in American Standard Financial Services, a financial
services partnership with Transamerica Commercial Finance Corporation. The
partnership offers inventory and consumer financing, and plans to provide other
lending programs. Programs thus far implemented have enhanced the Company's cash
flow and equity income.

The Company does not currently intend to pay dividends and is limited in the
amount it may pay under the terms of the 1997 Credit Agreement.

The Company has previously disclosed that German tax authorities have raised
questions regarding the treatment of certain significant matters in connection
with examinations of the tax returns of the Company's German subsidiaries for
the years 1984 through 1994. Having proposed to settle one of the issues under
dispute, the Company recorded a loss contingency in 1998. See Note 8 of Notes to
Consolidated Financial Statements.


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CAPITAL EXPENDITURES

The Company's capital expenditures (including investments in affiliated
companies) for 1999 were $327 million, compared with $267 million for 1998. The
increase for 1999 related primarily to higher capital expenditures for Air
Conditioning Systems and Services. Capital spending in 1999 was devoted
primarily to shifting production to lower-cost locations, expansion of
manufacturing capacity to meet demand, equipment for new products, and continued
implementation of Demand Flow Technology.

Capital expenditures for Air Conditioning Systems and Services for 1999 were
$155 million, including $38 million of investments in affiliated companies, an
increase of 69% from the $91 million of capital spending in 1998, including $5
million of investments in affiliated companies. Major expenditures included
projects related to new products and product improvements, capacity expansion
and improvements related to Demand Flow Technology and productivity. In
addition, Air Conditioning Systems and Services spent $15 million for the
acquisition of sales offices.

Plumbing Products' capital expenditures for 1999 were $123 million (including
investments in affiliated companies of $10 million), compared with capital
expenditures of $126 million in 1998, a decrease of 2%. Expenditures in 1999
included completion of expansion of a chinaware plant in Mexico and expansion of
the fittings plant in Bulgaria, offset by reduced spending in most other
locations.

Capital expenditures for Vehicle Control Systems in 1999 were $49 million
(including investments in affiliated companies of $5 million), compared with $50
million in 1998. Expenditures in 1999 were primarily related to capacity
expansion in Europe to serve the U.S. market and satisfy increased demand for
electronic products, and commencement of construction of a new facility in
Poland.

The Company believes capital spending in recent years has been sufficient for
maintenance purposes, important product and process redesigns, expansion
projects and strategic investments and acquisitions. The Company expects to
continue investing to expand and modernize its existing facilities and
affiliated companies and to consider entering into joint ventures and making
complementary acquisitions. The Company expects to make capital expenditures in
2000, excluding acquisitions of U.S. air conditioning commercial sales and
service operations, of approximately $230 million.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 2000. Management believes that
the adoption of Statement No. 133 will not have a significant effect on the
Company's results of operations or financial position. See the description of
hedging activities in the Market Risk section below.

CYCLICAL AND SEASONAL NATURE OF BUSINESS

The preponderance of Air Conditioning Systems and Services and Plumbing Products
sales are to the replacement, remodeling and repair markets. In 1999, only about
6% of the Company's sales were associated with new housing in the United States
and about 12% were associated with new commercial construction in the United
States, both of which are cyclical. The Company's geographic diversity mitigates
the effects of fluctuations in individual new construction markets. Vehicle
Control Systems' sales are dependent to a large extent on production levels of
medium-sized and heavy trucks and buses, particularly in Europe, which have been
cyclical.


-----------------------------------------AMERICAN STANDARD '99 annual report-27-
<PAGE>   30

Management's Discussion and Analysis (continued)

American Standard Companies Inc.

Total Company sales and related segment income tend to be seasonally higher in
the second and third quarters of the year because summer in the U.S. and other
Northern Hemisphere markets is the peak season for sales of Air Conditioning
Systems and Services. In addition, a significant percentage of Air Conditioning
Systems and Services' sales are attributable to U.S. residential and commercial
construction activity, which is generally higher in the second and third
quarters of the year.

YEAR 2000 READINESS DISCLOSURE

The following is a Year 2000 Readiness Disclosure in accordance with the Year
2000 Information and Readiness Disclosure Act.

Year 2000 compliance plan. The Company successfully completed a comprehensive
plan to become Year 2000 compliant at all of its locations worldwide and has
experienced no significant problems. All operating locations functioned normally
with uninterrupted service to customers in the first two months of 2000 and no
significant problems were reported by any of the Company's customers. The
Company will continue to monitor all systems throughout the year 2000.

Costs. The Company's cost to become Year 2000 compliant was approximately $22
million. Of this, approximately $15 million was charged to expense as incurred,
including internal and external labor to repair or modify existing software, and
costs of consultants employed at various locations to assist with implementation
of the Company's plan. The balance of the cost was for replacement hardware and
software that was capitalized. These costs were generally not incremental to
existing information technology budgets, as existing internal resources were
redeployed and the costs of consultants employed were less than 10% of total
Year 2000 costs. There were no significant deferrals of information technology
projects because of the Company's response to Year 2000 issues. Information
technology planning has incorporated client server and Year 2000 initiatives for
several years and, therefore, there was little effect on the Company's
operations because of unexpected deferrals of projects important to growth or
competitiveness. All costs were funded from operating cash flows or other
resources available to the Company. Costs to become Year 2000 compliant did not
have a material adverse effect on the Company's financial position, results of
operations or cash flows.

MARKET RISK

The Company is exposed to fluctuations in the price of major raw material
commodities used in the manufacturing process, foreign currency fluctuations and
interest rate changes. From time to time the Company enters into agreements to
reduce its commodity price, foreign currency and interest rate risks. Such
agreements hedge only specific transactions or commitments and the Company does
not enter into speculative hedges. To minimize the risk of counter-party
nonperformance, such agreements are made only through major financial
institutions with significant experience in such financial instruments.

To minimize the risk of fluctuations in the market price of major raw material
commodities, such as copper and aluminum used in the manufacturing process, the
Company may enter commodity forward contracts to effectively fix the cost of the
commodity. Maturity dates of the contracts are scheduled to coincide with market
purchases of the commodity. Cash proceeds or payments between the Company and
the counter-party at maturity of the contracts are recognized as an adjustment
to the cost of the commodity purchased. The Company generally does not enter
commodity hedges extending beyond eighteen months. The notional value of
commodity forward contracts outstanding as of December 31, 1999 and 1998, was
$49 million and $24 million, respectively. A 10% change in the price of
commodities hedged would change the fair value of the hedge contracts by $6
million as of December 31, 1999 and $2 million as of December 31, 1998.

The Company conducts significant non-U.S. operations through subsidiaries in
most of the major countries of Western Europe, Canada, Brazil, Mexico, Bulgaria,
the Czech Republic, Central American countries, China, Malaysia,


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<PAGE>   31

the Philippines, Indonesia, South Korea, Thailand, Taiwan, Australia and Egypt.
In addition, the Company conducts business in these and other countries through
affiliated companies and partnerships in which the Company owns 50% or less of
the stock or partnership interest. Because the Company has manufacturing
operations in 29 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 mitigated by the denomination in foreign currencies of a portion of
the Company's borrowings.

However, since the Company sells certain finished products in currencies
different than the currency of the subsidiary which manufactured the products,
the Company is exposed to foreign currency risk on such transactions. The
Company hedges some of this risk by entering foreign currency forward contracts
that effectively fix the manufacturing cost. Cash settlement proceeds or
payments upon maturity of the contracts are included in the price of the
transaction hedged. The Company generally does not enter currency hedges
extending beyond one year. The notional value of foreign exchange forward
contracts outstanding as of December 31, 1999 and 1998, was $13 million and $12
million, respectively. A 10% change in the exchange rate of the currencies
hedged would change the fair value of the contracts by $1 million at both
December 31, 1999 and 1998. See Note 13 to the financial statements for more
information on financial instruments.

A portion of the Company's debt bears interest at rates that vary with changes
in the London Interbank Offered Rate (LIBOR). As of December 31, 1999, $1.0
billion of the Company's total debt bore interest at variable rates. It has been
the Company's practice to maintain a significant portion of its debt at fixed
interest rates. As of December 31, 1999, approximately 62% of the Company's
total debt was at fixed rates.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

Certain of the 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. 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; 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 tax counsel; the impact of the Far East
economic situation; and transactions or other events affecting the need for,
timing and extent of the Company's capital expenditures.


-----------------------------------------AMERICAN STANDARD '99 annual report-29-
<PAGE>   32

Management's Report on Financial Statements

American Standard Companies Inc.

The accompanying consolidated balance sheet at December 31, 1999 and 1998, and
related consolidated statements of operations, stockholders' deficit and cash
flows for the years ended December 31, 1999, 1998 and 1997, have been prepared
in conformity with generally accepted accounting principles, and the Company
believes the statements set forth a fair presentation of financial condition and
results of operations. The Company believes that the accounting systems and
related controls which it maintains are sufficient to provide reasonable
assurance that the financial records are reliable for preparing financial
statements and maintaining accountability for assets. The concept of reasonable
assurance is based on the recognition that the cost of a system of internal
control must be related to the benefits derived and that the balancing of those
factors requires estimates and judgment. Reporting on the financial affairs of
the Company is the responsibility of its principal officers, subject to audit by
independent auditors who are engaged to express an opinion on the Company's
financial statements. The Board of Directors has an Audit Committee of outside
Directors which meets periodically with the Company's financial officers,
internal auditors and the independent auditors and monitors the accounting
affairs of the Company.


/s/ Frederic M. Poses        /s/ G. Peter D'Aloia           /s/ G. Ronald Simon

Frederic M. Poses            G. Peter D'Aloia               G. Ronald Simon
Chairman and                 Senior Vice President and      Vice President and
Chief Executive Officer      Chief Financial Officer        Controller

February 11, 2000


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<PAGE>   33

Report of Independent Auditors

The Board of Directors and Stockholders
American Standard Companies Inc.

We have audited the accompanying consolidated balance sheet of American Standard
Companies Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Standard
Companies Inc. at December 31, 1999 and 1998, and the consolidated results of
its operations and its consolidated cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.


                                                /s/ Ernst & Young LLP


New York, New York
February 11, 2000


-----------------------------------------AMERICAN STANDARD '99 annual report-31-
<PAGE>   34

Consolidated Statement of Operations

American Standard Companies Inc.

<TABLE>
<CAPTION>
                                                                                                 Year Ended December 31,
(Dollars in thousands, except share data)                                                 1999            1998              1997
====================================================================================================================================
<S>                                                                                  <C>              <C>              <C>
Sales                                                                                $  7,189,500     $  6,555,349     $  5,957,782
------------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
  Cost of sales                                                                         5,406,605        4,949,476        4,456,022
  Selling and administrative expenses                                                   1,146,280        1,028,505          936,282
  Restructuring and asset impairment charges                                               14,692          197,300               --
  Other (income) expense                                                                  (17,447)           1,971           26,407
  Interest expense                                                                        187,837          188,347          192,083
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        6,737,967        6,365,599        5,610,794
------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and extraordinary item              451,533          189,750          346,988
Income taxes                                                                              187,386          141,249          123,696
------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before extraordinary item                               264,147           48,501          223,292
Discontinued operations:
  Loss from operations, net of income tax benefit                                          13,847           14,909          103,432
  Loss from disposal, net of income tax benefit                                           112,000               --               --
------------------------------------------------------------------------------------------------------------------------------------
    Loss from discontinued operations                                                     125,847           14,909          103,432
------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item                                                          138,300           33,592          119,860
------------------------------------------------------------------------------------------------------------------------------------
Extraordinary loss on retirement of debt, net of taxes                                         --          (49,909)         (23,637)
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common shares                                        $    138,300     $    (16,317)    $     96,223
====================================================================================================================================
Per common share:
  Basic:
    Income from continuing operations                                                $       3.74     $       0.68     $       3.03
    Loss from discontinued operations                                                       (1.78)           (0.21)           (1.40)
    Extraordinary loss on retirement of debt                                                   --            (0.70)           (0.32)
------------------------------------------------------------------------------------------------------------------------------------
    Net income (loss)                                                                $       1.96     $      (0.23)    $       1.30
====================================================================================================================================
Diluted:
    Income from continuing operations                                                $       3.63     $       0.66     $       2.93
    Loss from discontinued operations                                                       (1.73)           (0.20)           (1.36)
    Extraordinary loss on retirement of debt                                                   --            (0.68)           (0.31)
------------------------------------------------------------------------------------------------------------------------------------
    Net income (loss)                                                                $       1.90     $      (0.22)    $       1.26
====================================================================================================================================
Average outstanding common shares:
  Basic                                                                                70,524,145       71,729,541       73,801,220
  Diluted                                                                              72,666,406       73,672,018       76,167,486
</TABLE>

See notes to consolidated financial statements.


    ---------
    AMERICAN
-32-STANDARD--------------------------------------------------------------------
    COMPANIES
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<PAGE>   35

Consolidated Statement of Cash Flows

American Standard Companies Inc.

<TABLE>
<CAPTION>
                                                                                                  Year Ended December 31,
(Dollars in thousands)                                                                       1999           1998            1997
====================================================================================================================================
<S>                                                                                       <C>            <C>            <C>
Cash provided (used) by:
  Operating activities:
    Income before extraordinary item                                                      $   138,300    $    33,592    $   119,860
    Adjustments to reconcile net income to net cash provided by operating activities:
      Non-cash restructuring and asset impairment charges (reversals)                          (7,347)        87,361             --
      Loss from discontinued operations                                                       125,847         14,909        103,432
      Depreciation                                                                            148,315        130,681        122,759
      Amortization of goodwill and other intangibles                                           53,744         45,396         36,464
      Non-cash interest                                                                         7,206         31,599         59,857
      Non-cash stock compensation                                                                  --          6,228          9,930
      Changes in assets and liabilities:
        Accounts receivable                                                                   (58,541)       (89,787)       (41,190)
        Inventories                                                                           (20,546)       (31,449)       (23,246)
        Accounts payable and accrued payrolls                                                  73,662         90,667         26,075
        Postretirement benefits                                                                14,609         14,647          8,485
        Other long-term liabilities                                                           (13,145)        (1,002)        46,301
        Other, net                                                                             49,470        144,089        (24,508)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations                                                    511,574        476,931        444,219
------------------------------------------------------------------------------------------------------------------------------------
Net cash (used) by discontinued operations                                                    (37,798)       (14,832)       (12,569)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                     473,776        462,099        431,650
------------------------------------------------------------------------------------------------------------------------------------
Investing activities:
  Purchases of property, plant and equipment                                                 (274,474)      (245,761)      (241,669)
  Investments in affiliated companies and other businesses                                    (52,839)       (22,432)       (56,925)
  Investments in computer software                                                            (85,546)       (59,989)       (35,048)
  Acquisition of businesses, net of cash acquired                                            (426,999)            --       (212,270)
  Proceeds from disposals of property, plant and equipment                                     17,048         31,676         12,649
  Other                                                                                       (13,035)       (16,507)        18,696
------------------------------------------------------------------------------------------------------------------------------------
Net cash (used) by investing activities                                                      (835,845)      (313,013)      (514,567)
------------------------------------------------------------------------------------------------------------------------------------
Financing activities:
  Proceeds from issuance of long-term debt                                                    483,520      1,012,125        401,543
  Repayments of long-term debt, including redemption premiums                                (198,137)      (996,578)      (655,335)
  Net change in revolving credit facilities                                                    51,685        (23,860)       622,559
  Net change in other short-term debt                                                          21,442          4,912          8,673
  Purchases of treasury stock                                                                  (4,186)       (83,667)      (310,654)
  Proceeds from exercise of stock options                                                       6,987          7,724          7,644
  Financing costs and other                                                                       128        (33,984)       (18,099)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities                                              361,439       (113,328)        56,331
Effect of exchange rate changes on cash and cash equivalents                                   (1,195)           118         (5,941)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                           (1,825)        35,876        (32,527)
Cash and cash equivalents at beginning of period                                               63,048         27,172         59,699
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                                $    61,223    $    63,048    $    27,172
====================================================================================================================================
</TABLE>

See notes to consolidated financial statements.


-----------------------------------------AMERICAN STANDARD '99 annual report-33-
<PAGE>   36

Consolidated Balance Sheet

American Standard Companies Inc.

<TABLE>
<CAPTION>
                                                                                                        Year Ended December 31,
(Dollars in thousands, except share data)                                                             1999                  1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                <C>                    <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                                        $   61,223             $   63,048
  Accounts receivable, less allowance for doubtful accounts--
    1999, $45,903; 1998, $33,264                                                                      986,338                895,605
  Inventories                                                                                         504,183                439,475
  Future income tax benefits                                                                           48,770                 41,338
  Net assets of discontinued operations held for sale                                                  50,780                138,829
  Other current assets                                                                                 74,253                 86,511
------------------------------------------------------------------------------------------------------------------------------------
      Total current assets                                                                          1,725,547              1,664,806
Facilities, at cost, net of accumulated depreciation                                                1,414,183              1,211,025
Other assets:
  Goodwill, net of accumulated amortization--
    1999, $278,162; 1998, $246,707                                                                    991,120                759,857
  Debt issuance costs, net of accumulated amortization--
    1999, $15,315; 1998, $9,542                                                                        42,079                 40,225
  Other                                                                                               513,058                430,632
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   $4,685,987             $4,106,545
====================================================================================================================================
</TABLE>


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<PAGE>   37

<TABLE>
<CAPTION>
                                                                                                        Year Ended December 31,
(Dollars in thousands, except share data)                                                              1999                1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                 <C>                 <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Loans payable to banks                                                                            $   736,883         $   731,968
  Current maturities of long-term debt                                                                   19,210             168,682
  Accounts payable                                                                                      577,992             529,055
  Accrued payrolls                                                                                      225,205             197,085
  Other accrued liabilities                                                                             626,260             570,457
  Taxes on income                                                                                       101,070             113,977
------------------------------------------------------------------------------------------------------------------------------------
      Total current liabilities                                                                       2,286,620           2,311,224
Long-term debt                                                                                        1,886,739           1,527,518
Other long-term liabilities:
  Postretirement benefits                                                                               436,106             468,197
  Deferred tax liabilities                                                                               55,199              48,327
  Other                                                                                                 517,823             452,263
------------------------------------------------------------------------------------------------------------------------------------
      Total liabilities                                                                               5,182,487           4,807,529
Commitments and contingencies
Stockholders' deficit:
  Preferred stock, 2,000,000 shares authorized; none issued and outstanding
  Common stock, $.01 par value, 200,000,000 shares authorized; shares issued
    and outstanding--1999, 70,742,538; 1998, 69,924,615                                                     707                 699
  Capital surplus                                                                                       595,086             594,041
  Treasury stock                                                                                       (363,351)           (379,607)
  Accumulated deficit                                                                                  (553,281)           (691,581)
  Foreign currency translation effects                                                                 (175,661)           (224,536)
------------------------------------------------------------------------------------------------------------------------------------
      Total stockholders' deficit                                                                      (496,500)           (700,984)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    $ 4,685,987         $ 4,106,545
====================================================================================================================================
</TABLE>

See notes to consolidated financial statements.


-----------------------------------------AMERICAN STANDARD '99 annual report-35-
<PAGE>   38

Consolidated Statement of Stockholders' Deficit

American Standard Companies Inc.

<TABLE>
<CAPTION>


                                                        Common   Capital   Subscriptions    Treasury   Accumulated
(Dollars in thousands)                                  Stock    Surplus    Receivable       Stock       Deficit
===================================================================================================================
<S>                                                   <C>        <C>          <C>          <C>         <C>
Balance at December 31, 1996                          $    786   $563,873     $  (395)     $      --   $(771,487)
  Net income                                                --         --          --             --      96,223
  Foreign currency translation                              --         --          --             --          --

    Total comprehensive income

  Treasury stock purchased                                 (70)        --          --       (310,654)         --
  Stock options exercised including tax benefit              4      8,717          --             --          --
  Other common stock issued and tax benefits                --     14,378          --          1,101          --
  Payments on subscriptions                                 --         --         334             --          --
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                               720    586,968         (61)      (309,553)   (675,264)
  Net loss                                                  --         --          --             --     (16,317)
  Foreign currency translation                              --         --          --             --          --

    Total comprehensive income

  Treasury stock purchased                                 (28)        --          --        (88,707)         --
  Stock options exercised including tax benefit              4     11,910          --             --          --
  Common stock issued to Employee Stock Purchase Plan        2     (2,486)         --          8,711          --
  Other common stock issued                                  1     (2,351)         --          9,942          --
  Payments on subscriptions                                 --         --          61             --          --
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                               699    594,041          --       (379,607)   (691,581)
  Net income                                                --         --          --             --     138,300
  Foreign currency translation                              --         --          --             --          --

    Total comprehensive income

  Treasury stock purchased                                  (1)        --          --         (4,185)         --
  Stock options exercised including tax benefit              3      8,099          --             --          --
  Common stock issued to Employee Stock Purchase Plan        3     (2,732)         --         10,203          --
  Other common stock issued                                  3     (4,322)         --         10,238          --
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999                          $    707   $595,086     $    --      $(363,351)  $(553,281)
===================================================================================================================

<CAPTION>
                                                          Foreign
                                                          Currency     Compre-
                                                         Translation   hensive
(Dollars in thousands)                                     Effects     Income
================================================================================
<S>                                                      <C>           <C>
Balance at December 31, 1996                            $(173,158)
  Net income                                                   --     $  96,223
  Foreign currency translation                            (39,435)      (39,435)
                                                                      ---------
    Total comprehensive income                                        $  56,788
                                                                      =========
  Treasury stock purchased                                     --
  Stock options exercised including tax benefit                --
  Other common stock issued and tax benefits                   --
  Payments on subscriptions                                    --
-----------------------------------------------------------------
Balance at December 31, 1997                             (212,593)
  Net loss                                                     --     $ (16,317)
  Foreign currency translation                            (11,943)      (11,943)
                                                                      ---------
    Total comprehensive income                                        $ (28,260)
                                                                      =========
  Treasury stock purchased                                     --
  Stock options exercised including tax benefit                --
  Common stock issued to Employee Stock Purchase Plan          --
  Other common stock issued                                    --
  Payments on subscriptions                                    --
-----------------------------------------------------------------
Balance at December 31, 1998                             (224,536)
  Net income                                                   --     $ 138,300
  Foreign currency translation                             48,875        48,875
                                                                      ---------
    Total comprehensive income                                        $ 187,175
                                                                      =========
  Treasury stock purchased                                     --
  Stock options exercised including tax benefit                --
  Common stock issued to Employee Stock Purchase Plan          --
  Other common stock issued                                    --
-----------------------------------------------------------------
Balance at December 31, 1999                            $(175,661)
=================================================================
</TABLE>

See notes to consolidated financial statements.


    ---------
    AMERICAN
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<PAGE>   39

Notes to Consolidated Financial Statements

American Standard Companies Inc.

NOTE 1. Description of Company

American Standard Companies Inc. (the "Company") is a Delaware corporation that
has as its only significant assets all the outstanding common stock of American
Standard Inc. and American Standard International Inc. ("ASII"), both Delaware
corporations. Hereinafter, "American Standard" or "the Company" will refer to
the Company, or to the Company and American Standard Inc. and ASII, including
their subsidiaries, as the context requires.

American Standard is a global diversified manufacturer of high quality,
brand-name products in three major business groups: air conditioning systems and
services for commercial, institutional and residential buildings; plumbing
fixtures and fittings for bathrooms and kitchens; and vehicle control systems
for medium-sized and heavy trucks, buses, trailers and utility vehicles.

NOTE 2. Accounting Policies

Financial Statement Presentation--The consolidated financial statements include
the accounts of majority-owned subsidiaries; intercompany transactions are
eliminated. Investments in unconsolidated joint ventures are included at cost
plus the Company's equity in undistributed earnings.

Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. The most significant estimates included in the preparation of the
financial statements are related to postretirement benefits, income taxes,
warranties and asset lives.

Foreign Currency Translation--Adjustments resulting from translating foreign
functional currency assets and liabilities into U.S. dollars are recorded in a
american standard'99 annual report separate component of stockholders' equity.
Gains or losses resulting from transactions in other than the functional
currency are reflected in the Consolidated Statement of Operations, except for
transactions which hedge net investments in a foreign entity and intercompany
transactions of a long-term investment nature. For operations in countries that
have hyper-inflationary economies, net income includes gains and losses from
translating assets and liabilities at year-end rates of exchange, except for
inventories and facilities, which are translated at historical rates.

The losses from foreign currency transactions and translation losses in
countries with hyper-inflationary economies reflected in expense were $1.2
million in 1999, $6.5 million in 1998 and $4.2 million in 1997.

Revenue Recognition--Sales are recorded when shipment occurs and title passes to
a customer.

Cash Equivalents--Cash equivalents include all highly liquid investments with a
maturity of three months or less when purchased.

Inventories--Inventory costs are determined principally by the use of the
last-in, first-out (LIFO) method, and are stated at the lower of such cost or
realizable value.

Facilities--The Company capitalizes costs, including interest during
construction, of fixed asset additions, improvements, and betterments that add
to productive capacity or extend the asset life. Maintenance and repair
expenditures are expensed as incurred.

Computer Software--In 1999, the Company adopted Statement of
Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use, issued by the American Institute of Certified Public
Accountants and effective for fiscal years beginning after December 31, 1998. In
accordance with the provisions of that statement, the Company capitalizes the
costs of obtaining or developing computer software, including


-----------------------------------------AMERICAN STANDARD '99 annual report-37-
<PAGE>   40

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

directly-related payroll costs. The Company amortizes those costs predominantly
over five to seven years, beginning when the software is ready for its intended
use.

Goodwill--Goodwill is amortized over 40 years. The carrying value is reviewed if
the facts and circumstances, such as significant declines in sales, earnings or
cash flows or material adverse changes in the business climate, suggest that it
may be impaired. If this review indicates that goodwill will not be recoverable,
as determined based on the estimated undiscounted cash flows of the entity
acquired, impairment is measured by comparing the carrying value of goodwill to
fair value. Fair value is determined based on quoted market values, discounted
cash flows or appraisals. In addition, the Company assesses long-lived assets
for impairment under Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. Under those rules, goodwill associated with assets acquired in a
purchase business combination is included in impairment evaluations when events
or circumstances indicate that the carrying amount of those assets may not be
recoverable.

Debt Issuance Costs--The costs related to the issuance of debt are capitalized
and amortized to interest expense using the effective interest method over the
lives of the related debt.

Warranties--The Company provides for estimated warranty costs at the time of
sale. Revenues from the sales of extended warranty contracts are deferred and
amortized on a straight-line basis over the terms of the
contracts except when historical evidence indicates otherwise. Warranty
obligations beyond one year are included in other long-term liabilities.

Postretirement Benefits--Postretirement pension benefits are provided for
substantially all employees of the Company, both in the United States and
abroad. In the United States the Company also provides various postretirement
health care and life insurance benefits for certain of its employees. Such
benefits are accounted for on an accrual basis using actuarial assumptions.

Depreciation--Depreciation and amortization are computed on the straight-line
method based on the estimated useful life of the asset or asset group.

Research and Development Expenses--Research and development costs are expensed
as incurred. The Company expended approximately $156 million in 1999, $143
million in 1998 and $149 million in 1997 for research activities and product
development and for product engineering. Expenditures for research and product
development only were $103 million, $97 million and $99 million in the
respective years.

Income Taxes--Deferred income taxes are determined on the liability method, and
are recognized for all temporary differences between the tax bases of assets and
liabilities and their reported amounts in the consolidated financial statements.
No provision is made for U.S. income taxes applicable to undistributed earnings
of foreign subsidiaries that are indefinitely reinvested.

Advertising Expense--The cost of advertising is expensed as incurred.
The Company incurred $105 million, $106 million and $111 million of advertising
costs in 1999, 1998 and 1997, respectively.

Earnings Per Share--Basic earnings per share have been computed using the
weighted average number of common shares outstanding. For 1999, 1998 and 1997,
the average number of outstanding common shares used in computing diluted
earnings per share included 2,142,261, 1,942,477 and 2,366,266 average
incremental shares, respectively, from the assumed exercise of stock options
issued under the Company's Stock Incentive Plan (see Note 12).

Comprehensive Income--Comprehensive income consists solely of net income and
foreign currency translation adjustments and is presented in


    ---------
    AMERICAN
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<PAGE>   41

the Consolidated Statement of Stockholders' Deficit. The Company's investments
in its foreign subsidiaries are considered to be permanently invested and no
provision for income taxes on the related foreign exchange translation
adjustments of those subsidiaries has been recorded.

Financial Instruments with Off-Balance-Sheet Risk--The Company from time to time
enters into agreements to reduce its foreign currency, commodity price and
interest rate risks. Gains and losses from underlying rate or price changes are
included in income unless the contract hedges a net investment in a foreign
entity, a firm commitment, or related debt instrument, in which case gains and
losses are included as a component of foreign currency translation effects in
stockholders' equity or included as a component of the transaction (see Note
13).

Stock Based Compensation--The Company grants to employees options to acquire a
fixed number of shares of the Company's common stock with an exercise price
equal to the market value of the shares at the date of grant. Accordingly, the
Company recognizes no compensation expense for stock option grants under APB
Opinion No. 25, Accounting for Stock Issued to Employees.

NOTE 3. Discontinued Operations

In the fourth quarter of 1999, the Board of Directors of the Company approved a
plan for the sale of non-core business assets consisting of the Medical Systems
segment. The Company expects to complete the sale in the second quarter of 2000.
Accordingly, Medical Systems is reported as a discontinued operation in the
accompanying Consolidated Statement of Operations and the Company's net
investment in that operation is reported in the accompanying Consolidated
Balance Sheet as assets of discontinued operations held for sale. All prior
periods presented have been restated to reflect these classifications, including
applicable footnotes.

The loss on sale includes a provision for estimated operating losses in 2000
projected through the expected date of sale. The estimate is based upon certain
assumptions about the timing of the sale and expected proceeds. Actual amounts
may differ.

Summarized results of the discontinued Medical Systems segment are as follows
(dollars in millions):

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                                1999        1998         1997
--------------------------------------------------------------------------------
<S>                                           <C>          <C>         <C>
Sales                                         $  97.2      $ 97.6      $  49.7
================================================================================
Loss from operations before
  income tax benefit                          $ (22.6)     $(24.3)     $ (19.9)
Income tax benefit                                8.8         9.4          6.8
--------------------------------------------------------------------------------
Loss from operations                            (13.8)      (14.9)       (13.1)
--------------------------------------------------------------------------------
Write-off of purchased research and
  development with no tax benefit                  --          --        (90.3)
--------------------------------------------------------------------------------
Loss on sale, including provision for
  operating losses in 2000 to the date
  of sale, before income tax benefit           (120.0)         --           --
Income tax benefit (a)                            8.0          --           --
--------------------------------------------------------------------------------
Loss on sale                                   (112.0)         --           --
--------------------------------------------------------------------------------
Loss from discontinued operations             $(125.8)     $(14.9)     $(103.4)
================================================================================
</TABLE>

(a)   The income tax benefit on this loss is less than the benefit at statutory
      rates because the disposition generated capital losses that can be
      utilized only if future capital gains arise, which is not reasonably
      assured.

NOTE 4. Acquisition of Armitage/Dolomite

On February 2, 1999, the Company acquired the Bathrooms Division of Blue Circle
Industries PLC, a manufacturer of ceramic sanitaryware, brassware and integrated
plumbing systems, for $427 million, including fees and expenses and net of cash
acquired, with borrowings under the Company's 1997 Credit Agreement. The
acquired business consists of two principal


-----------------------------------------AMERICAN STANDARD '99 annual report-39-
<PAGE>   42

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

businesses, Armitage Shanks, a United Kingdom manufacturer, and Ceramica
Dolomite, an Italian manufacturer ("Armitage/Dolomite"). The acquired business
has facilities in the United Kingdom and Italy, and employs approximately 3,200
people. The primary markets for its products are in the United Kingdom, Italy,
Ireland and Germany.

This transaction was accounted for as a purchase and the results of operations
have been included in the accompanying financial statements since the date of
acquisition. The purchase price was allocated based upon the fair value of the
assets acquired and liabilities assumed at the date of acquisition. This
resulted in an excess of purchase price over the value of net assets acquired
(goodwill) of $300 million which is being amortized over 40 years.

In 1999, Armitage/Dolomite had sales of $279 million for the eleven months since
the date of acquisition.

NOTE 5. Restructuring and Asset Impairment Charges

In 1998, the Company committed to restructuring plans designed to achieve lower
product costs and improved efficiency. Key elements of the plans include the
transfer of significant manufacturing capacity to locations with lower labor
costs and the sale of certain assets. In connection therewith, the Company
determined that certain long-lived assets were impaired. Accordingly, in the
second half of 1998 the Company recorded charges totaling $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.

The Plumbing Products charge of $185 million reflected the planned closure of
five plants in Europe and two in North America. The charge included a loss on
the sale of the French plumbing distribution operations, costs related to a
workforce reduction of approximately 1,600 people and, applying the criteria of
FAS 121, write-downs of impaired fixed assets and related goodwill. The Air
Conditioning Systems and Services charge of $7 million resulted from the closure
of one plant in Australia, one plant in Europe and a workforce reduction of 115
people. The Vehicle Control Systems charge of $5 million primarily reflected a
workforce reduction of 75 people in Europe related to outsourcing certain
machining work to lower-cost outside vendors and the closure of three small
plants.

In 1999, the Company recorded a $15 million restructuring and asset impairment
charge which reflects several elements. During the fourth quarter of 1999
management re-evaluated its plan to close one of the plumbing plants in North
America. Management and employees at that plant improved operating efficiency
and lowered costs which, together with better-than-expected improvements in the
market and the Company's market share, led to the decision not to close that
plant. This reduced the number of people to be terminated in North America by
approximately 280. The Company also was able to sell the other North American
plumbing plant on more favorable terms than initially contemplated. Those two
principal reductions and other smaller reductions to estimated severance and
facilities costs resulted in a reversal of $29 million of amounts accrued in
1998. Management also re-evaluated the restructuring plans for Vehicle Control
Systems and decided to transfer additional manufacturing capacity to a facility
to be constructed in Poland, where labor costs are lower. This resulted in
additional charges of $17 million for the closure of five manufacturing
facilities in Europe and one in Japan, the termination of approximately 625 more
employees in Europe and 25 in Japan. In addition, certain estimated charges
recorded in 1998 were increased to reflect current estimates which resulted in
additional charges incurred in 1999 of $14 million. Those increases included
changes in severance and other employee-related costs (especially in Spain where
significantly higher payments are now anticipated) and higher facilities closure
costs. The 1999 charge also includes a $13 million impairment charge related to
a minority equity interest in a non-core business, as the Company does not
expect to recover its investment.


    ---------
    AMERICAN
-40-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   43

Following is a summary of the restructuring and asset impairment charges accrued
and activity through December 31, 1999 (dollars in millions):

<TABLE>
<CAPTION>
                                                                                                     Additional
                                                           Non-cash       Payments        Reversal    Charges    Non-cash   Balance
                                                 Initial   Write-off   --------------      of 1998    Accrued    Write-off  Dec. 31,
                                                 Charge     in 1998    1998      1999      Charges    in 1999     in 1999     1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>        <C>       <C>       <C>        <C>        <C>         <C>        <C>
Termination payments to employees                $ 48.9     $   --    $ 10.4    $ 39.0     $  3.2     $ 20.5      $   --     $ 16.8
Other employee costs                               33.4         --       4.3      11.0       10.7         --          --        7.4
Facilities write-downs (a)                         87.0       71.1        --       4.7        9.9        8.9         8.9        1.3
Loss on sale of French distribution business (b)   19.1       14.9       3.6        .6         --         --          --         --
Impairment of investment in non-core business        --         --        --        --         --       12.6        12.6         --
Other                                               8.9        1.4        .2        .6        5.0        1.4          --        3.1
------------------------------------------------------------------------------------------------------------------------------------
                                                 $197.3     $ 87.4    $ 18.5    $ 55.9     $ 28.8     $ 43.4      $ 21.5     $ 28.6
====================================================================================================================================
</TABLE>

(a)   Includes goodwill write-off of $31.3 million in 1998 related to an asset
      impairment charge for the French plumbing manufacturing operations.
(b)   Includes goodwill write-off of $12.3 million.

The Company expects that essentially all of the $29 million balance as of
December 31, 1999 will be utilized by the end of 2000.

The accrued termination payments to employees are for severance payments after
termination. Other employee costs include negotiated supplemental payments to
pension funds and other payments to union organizations for the benefit of
terminated employees. After the decisions not to close one of the North America
plumbing plants and to close additional Vehicle Control Systems plants, 2,260
employees are being terminated, including 1,810 hourly factory workers and 450
salaried administrative personnel. Of these, 1,365 had been terminated as of
December 31, 1999.

The facilities being closed and written down include 7 owned and 6 leased
manufacturing plants, and the related manufacturing equipment. The owned plants
are being held for disposal and, accordingly, were written down to the lower of
carrying amount or fair value, less costs to sell. As of December 31, 1999,
three of the facilities have been sold. Four others are being held for sale.
Leases on the six rented facilities will be terminated upon payment of
obligations specified or negotiated under the lease contracts. Manufacturing
equipment being scrapped was written off and equipment being sold has been
written down to the lower of carrying amount or fair value, less costs to sell.
The net carrying value of land, buildings and equipment held for sale as of
December 31, 1999 was $7.2 million. The closure of certain facilities
necessitates the investigation of potential environmental contamination or the
legal or regulatory requirement to remediate the facility. In addition, the sale
of one facility contractually obligates the Company to demolish and remediate
the site.

Approximately one-half of other restructuring costs are leasehold termination
costs, with the remainder consisting of cash grants forfeited upon closure of a
facility in Italy and other miscellaneous costs.


-----------------------------------------AMERICAN STANDARD '99 annual report-41-
<PAGE>   44

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

The tax benefit on the total charge is at lower than normal rates because the
goodwill write-off is not deductible for tax purposes and in certain countries
the tax benefits on these charges are not expected to be realized.

NOTE 6. Other Income (Expense)

Other income (expense) was as follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
(Dollars in millions)                                  1999      1998      1997
--------------------------------------------------------------------------------
<S>                                                   <C>       <C>      <C>
Interest Income                                       $ 4.7     $ 6.9    $  5.9
Equity in net income of
 unconsolidated joint ventures                         36.9      27.4      11.9
Minority interest                                       2.6      (1.5)    (10.1)
Accretion expense                                     (14.4)    (22.9)    (26.7)
Foreign exchange loss                                  (5.9)     (6.7)     (2.2)
Other, net                                             (6.5)     (5.2)     (5.2)
--------------------------------------------------------------------------------
                                                      $17.4     $(2.0)   $(26.4)
================================================================================
</TABLE>

The Company has investments in affiliates that are accounted for on the equity
method. The most significant of these investments is Meritor WABCO Vehicle
Control Systems ("Meritor/WABCO"). Meritor/WABCO, in which the Company has a 50%
equity ownership, is a U.S. sales and marketing organization serving truck,
trailer and bus manufacturers and aftermarket distribution for Vehicle Control
Systems.

NOTE 7. Postretirement Benefits

The Company sponsors postretirement benefit plans covering substantially all
employees, including an Employee Stock Ownership Plan (the "ESOP") for the
Company's U.S. salaried employees and certain U.S. hourly employees. The ESOP is
an individual account, defined contribution plan. Shares of the Company's common
stock held by the ESOP are allocated to the accounts of eligible employees
(primarily through basic allocations of 3% of covered compensation and a
matching Company contribution of up to 6% of covered compensation invested in
the Company's 401(k) savings plan by employees). The Company has funded basic
and matching allocations to the ESOP accounts through weekly contributions of
cash since May 1997. Prior to that date, the Company funded the ESOP with shares
of the Company's common stock based upon the closing price each Friday for
shares of the Company's common stock quoted on the New York Stock Exchange. The
Company intends to fund the ESOP in future years through contributions of cash
or shares of the Company's common stock.

Benefits under defined benefit pension plans on a worldwide basis are generally
based on years of service and employees' compensation during the last years of
employment. In the United States the Company also provides various
postretirement health care and life insurance benefits for certain of its
employees. Funding decisions are based upon the tax and statutory considerations
in each country. Accretion expense is the implicit interest cost associated with
amounts accrued and not funded and is included in "other expense." At December
31, 1999, funded plan assets related to pensions were held primarily in fixed
income and equity funds. Postretirement health and life insurance benefits are
funded as incurred.


    ---------
    AMERICAN
-42-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   45

The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ending December 31,
1999 and 1998, and a statement of the funded status as of December 31, 1999 and
1998:

<TABLE>
<CAPTION>
                                                             1999         1999        1999         1998          1998         1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                        Domestic                               Domestic
                                                           Domestic     Health &     Foreign      Domestic     Health &     Foreign
                                                           Pension      Life Ins.    Pension      Pension      Life Ins.    Pension
(Dollars in millions)                                      Benefits     Benefits     Benefits     Benefits     Benefits     Benefits
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>          <C>          <C>           <C>         <C>          <C>
Reconciliation of benefit obligation:
  Obligation at beginning of year                          $ 441.9      $ 201.8      $ 528.5       $403.4      $ 191.4      $ 470.0
  Service cost                                                12.1          6.5         29.0          9.5          5.8         21.2
  Interest cost                                               30.6         13.7         26.5         28.2         13.1         25.6
  Participant contributions                                     --          4.3          3.5           --          4.0          2.1
  Plan amendments                                             16.4           --          2.8          6.9           --           --
  Actuarial (gain) loss                                      (54.3)       (16.6)       (33.1)        21.5          3.4         21.9
  Acquisitions                                                  --           --         88.6           --           --           --
  Benefit payments                                           (28.3)       (16.6)       (34.8)       (27.6)       (15.9)       (27.7)
  Foreign exchange effects                                      --           --        (51.3)          --           --         15.4
------------------------------------------------------------------------------------------------------------------------------------
  Obligation at end of year                                $ 418.4      $ 193.1      $ 559.7       $441.9      $ 201.8      $ 528.5
====================================================================================================================================
Reconciliation of fair value of plan assets:
  Fair value of plan assets at beginning of year           $ 440.0      $    --      $ 262.4       $386.0      $    --      $ 241.6
  Actual return on assets                                     76.0           --         57.5         69.9           --         27.5
  Acquisition                                                   --           --         94.8           --           --           --
  Employer contributions                                      10.0         12.3         32.0         11.7         11.9         21.0
  Participant contributions                                     --          4.3          3.5           --          4.0          2.1
  Benefit payments                                           (28.3)       (16.6)       (34.8)       (27.6)       (15.9)       (27.7)
  Other expenses                                                --           --         (1.0)          --           --           --
  Foreign exchange effects                                      --           --         (8.4)          --           --         (2.1)
------------------------------------------------------------------------------------------------------------------------------------
  Fair value of plan assets at end of year                 $ 497.7      $    --      $ 406.0       $440.0      $    --      $ 262.4
====================================================================================================================================
Funded Status at December 31:
  Funded status                                            $  79.3      $(193.1)     $(153.7)      $ (1.9)     $(201.8)     $(266.1)
  Unrecognized prior service cost                             41.7         (8.0)         7.3         27.7         (8.8)         7.4
  Unrecognized net actuarial (gain) loss                    (168.3)        13.7        (76.6)       (72.5)        31.4         (7.3)
------------------------------------------------------------------------------------------------------------------------------------
Net amount recognized                                      $ (47.3)     $(187.4)     $(223.0)      $(46.7)     $(179.2)     $(266.0)
====================================================================================================================================
</TABLE>


-----------------------------------------AMERICAN STANDARD '99 annual report-43-
<PAGE>   46

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

The following tables provide a summary of plans with assets in excess of
accumulated benefit obligations and plans with accumulated benefit obligations
in excess of assets for the foreign and domestic pension benefits as of December
31:

<TABLE>
<CAPTION>
                                                                    1999               1999              1998               1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                  Assets in         Accumulated        Assets in         Accumulated
                                                                  Excess of           Benefit          Excess of           Benefit
                                                                 Accumulated        Obligations       Accumulated        Obligations
                                                                   Benefit         in Excess of         Benefit         in Excess of
(Dollars in millions)                                            Obligations          Assets          Obligations          Assets
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>                <C>                <C>
Domestic pension benefits:
  Projected benefit obligation                                     $387.2             $ 31.2             $421.2             $ 20.7
  Accumulated benefit obligation                                    379.4               23.7              413.7               14.5
  Fair value of plan assets                                         497.7                 --              440.0                 --
  Accrued benefit liabilities                                       (21.0)             (26.3)             (30.9)             (15.8)

Foreign pension benefits:
  Projected benefit obligation                                     $276.4             $283.3             $214.4             $314.1
  Accumulated benefit obligation                                    240.1              258.6              191.1              283.8
  Fair value of plan assets                                         385.3               20.7              240.1               22.3
  Prepaid benefit costs (accrued benefit liabilities)                54.8             (277.8)              39.4             (305.4)
</TABLE>

The projected benefit obligation for postretirement benefits was determined
using the following assumptions:

<TABLE>
<CAPTION>
                                                                             1999           1999             1998           1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                            Domestic      Foreign          Domestic        Foreign
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>         <C>                 <C>         <C>
Weighted-average assumptions as of December 31:
  Discount rate                                                              8.00%       4.25%-7.25%         6.75%       3.00%-6.50%
  Long-term rate of inflation                                                2.80%        0.5%-2.30%         2.80%        0.5%-1.80%
  Merit and promotion increase                                               1.70%             1.70%         1.70%             1.70%
  Rate of return on plan assets                                              9.00%       3.50%-6.50%         9.00%       4.00%-8.25%
</TABLE>


    ---------
    AMERICAN
-44-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   47

The weighted-average annual assumed rate of increase in the health care cost
trend rate is 5% for 2000 and is assumed to remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. A change in the assumed rate of one percentage point for each future
year would have the following effects:

<TABLE>
<CAPTION>
(Dollars in millions)                           1% Increase       1% Decrease
--------------------------------------------------------------------------------
<S>                                                <C>               <C>
Effect on the health care component of
  accumulated postretirement obligation            $13.5             $12.6
Effect on total of service and interest cost
  components of net periodic postretirement
  health care benefit cost                         $ 3.0             $ 2.7
</TABLE>

Total postretirement costs were:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
(Dollars in millions)                                  1999      1998      1997
--------------------------------------------------------------------------------
<S>                                                   <C>       <C>       <C>
Pension benefits                                      $ 51.8    $ 42.1    $ 39.5
Health and life insurance benefits                      20.4      18.8      17.2
--------------------------------------------------------------------------------
Defined benefit plan cost                               72.2      60.9      56.7
Defined contribution plan cost,
  principally ESOP                                      46.2      39.9      32.1
--------------------------------------------------------------------------------
Total postretirement cost, including
  accretion expense                                   $118.4    $100.8    $ 88.8
================================================================================
</TABLE>

Postretirement cost had the following components:

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                           1999          1999        1998         1998          1997        1997
------------------------------------------------------------------------------------------------------------------------------------
                                                                       Health &                  Health &                  Health &
                                                          Pension      Life Ins.    Pension      Life Ins.    Pension      Life Ins.
(Dollars in millions)                                     Benefits     Benefits     Benefits     Benefits     Benefits     Benefits
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>          <C>          <C>          <C>          <C>          <C>
Service cost-benefits earned during the period             $ 41.1       $  6.5       $ 30.7       $  5.8       $ 26.3       $  4.7
Interest cost on the projected benefit obligation            57.1         13.7         53.8         13.1         53.9         12.9
Less assumed return on plan assets:
  Actual return on plan assets                             (133.5)          --        (97.4)          --       (107.4)          --
  Excess asset gain deferred                                 77.4           --         49.4           --         63.2           --
------------------------------------------------------------------------------------------------------------------------------------
                                                            (56.1)          --        (48.0)          --        (44.2)          --
Amortization of prior service cost                            4.9          (.8)         4.0          (.7)         3.0          (.7)
Amortization of net (gain) loss                               4.8          1.0           .4           .6           .5           .3
------------------------------------------------------------------------------------------------------------------------------------
Defined benefit plan cost                                    51.8         20.4         40.9         18.8         39.5         17.2
------------------------------------------------------------------------------------------------------------------------------------
Curtailment loss                                               --           --          1.2           --           --           --
------------------------------------------------------------------------------------------------------------------------------------
Net defined benefit plan cost after curtailments           $ 51.8       $ 20.4       $ 42.1       $ 18.8       $ 39.5       $ 17.2
====================================================================================================================================
Accretion expense reflected in "other expense"             $   .7       $ 13.7       $  9.8       $ 13.1       $ 13.8       $ 12.9
====================================================================================================================================
</TABLE>

Amortization of prior service costs are computed on the straight-line method
over the average remaining service period of active participants.


-----------------------------------------AMERICAN STANDARD '99 annual report-45-
<PAGE>   48

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

NOTE 8. Income Taxes

The Company's income (loss) from continuing operations before income taxes and
extraordinary item, and the applicable provision (benefit) for income taxes
were:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
(Dollars in millions)                              1999      1998         1997
--------------------------------------------------------------------------------
<S>                                               <C>       <C>          <C>
Income (loss) from continuing operations
  before income taxes and extraordinary item:
    Domestic                                      $298.1    $216.2(a)    $196.3
    Foreign                                        153.4     (26.5)(a)    150.7
--------------------------------------------------------------------------------
                                                  $451.5    $189.7       $347.0
--------------------------------------------------------------------------------
Provision (benefit) for income taxes:
  Current:
    Domestic                                      $116.9    $ 92.2       $103.3
    Foreign                                         42.2     111.8         67.2
--------------------------------------------------------------------------------
                                                   159.1     204.0        170.5
--------------------------------------------------------------------------------
  Deferred:
    Domestic                                        17.2     (66.1)       (42.9)
    Foreign                                         11.1       3.3         (3.9)
--------------------------------------------------------------------------------
                                                    28.3     (62.8)       (46.8)
--------------------------------------------------------------------------------
  Total provision                                 $187.4    $141.2       $123.7
================================================================================
</TABLE>

(a)   Includes $197.3 million of restructuring expense in 1998: domestic $19.0
      million; foreign $178.3 million. Associated tax benefits were $13.6
      million: domestic $7.6 million; foreign $6.0 million.

A reconciliation between the actual income tax expense provided and the income
taxes computed by applying the statutory federal income tax rate of 35% in 1999,
1998 and 1997 to the income (loss) before income taxes and extraordinary item is
as follows:

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
(Dollars in millions)                               1999       1998       1997
--------------------------------------------------------------------------------
<S>                                                <C>        <C>        <C>
Tax provision at statutory rate                    $158.0     $ 66.4     $121.5
Increase (decrease) in valuation allowance           35.7       41.4      (26.7)
Nondeductible goodwill amortization and
  goodwill write-offs                                 7.5       23.1        8.0
Reversal of deferred taxes on
  foreign investments                                  --      (50.1)        --
Other foreign tax effects                           (21.4)      55.0       14.3
State tax provision                                   1.5        1.3        1.7
Other, net                                            6.1        4.1        4.9
--------------------------------------------------------------------------------
Total provision                                    $187.4     $141.2     $123.7
================================================================================
</TABLE>

The increase in the valuation allowance in 1999 of $35.7 million and the
increase in the valuation allowance in 1998 of $41.4 million was primarily
attributable to the generation of foreign net operating loss carryforwards
(primarily related to restructuring charges in 1998) that are not expected to be
realized. The decrease in the valuation allowance in 1997 of $26.7 million, net
of a $12.4 million valuation allowance on the generation of foreign net
operating loss carryforwards and foreign tax credit carryforwards, was primarily
attributable to the fact that management believes it is more likely than not
that all of the net domestic deferred tax assets will be realized.

In 1991, in accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, the Company provided $50.1 million of deferred U.S.
taxes with respect to a transaction which had the effect of reducing the U.S.
tax basis, but not the book basis of its investment in a foreign subsidiary.
Under U.S. tax law, no mechanism was available in 1991 or later years to
eliminate this book and tax basis difference without incurring $50.1 million of
U.S. tax cost. Therefore, the Company provided $50.1 million to reflect this
future U.S. tax liability. In December 1998, the Company completed legal
reorganizations of certain foreign operations.


    ---------
    AMERICAN
-46-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   49

These reorganizations, coupled with two new U.S. tax law changes effective from
January 1997 and July 1998, respectively, permitted the Company to make a tax
election to treat, for U.S. tax purposes only, certain significant foreign
operations as a branch rather than a subsidiary without incurring any U.S. tax
cost. This election gives the Company greater future consistency with respect to
U.S. and foreign taxation of the subject businesses. This election also
eliminated the difference between the book and tax basis in the foreign
subsidiary. As a result, the $50.1 million deferred U.S. tax provided in 1991
was reversed as of December 31, 1998. The other foreign tax effects in 1998 of
$55.0 million include a loss contingency related to certain German tax matters,
rate differences and withholding taxes.

The following table details the gross deferred tax liabilities and assets and
the related valuation allowances:

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
(Dollars in millions)                                        1999       1998
--------------------------------------------------------------------------------
<S>                                                         <C>        <C>
Deferred tax liabilities:
  Facilities (accelerated depreciation, capitalized
    interest and purchase accounting differences)           $133.4     $122.0
  Inventory (LIFO and purchase accounting differences)        (1.8)      (2.3)
  Employee benefits                                           10.9        7.0
  Other                                                       77.6       49.0
--------------------------------------------------------------------------------
                                                             220.1      175.7
--------------------------------------------------------------------------------
Deferred tax assets:
  Postretirement benefits                                    131.8      133.5
  Warranties                                                  92.2       76.3
  Foreign net operating losses and tax credits               134.7       99.0
  Reserves                                                    74.4       69.9
  Other                                                        3.5        6.1
  Valuation allowances                                      (134.7)     (99.0)
--------------------------------------------------------------------------------
                                                             301.9      285.8
--------------------------------------------------------------------------------
  Net deferred tax assets                                   $ 81.8     $110.1
================================================================================
</TABLE>

Deferred tax assets related to foreign tax credits and foreign net operating
loss carryforwards have been reduced by a valuation allowance since realization
is dependent in part on the generation of future foreign source income as well
as on income in the legal entity which gave rise to tax losses. The foreign tax
credits and net operating losses are available for utilization in future years.
In some tax jurisdictions the carryforward period is limited to as little as
five years; in others it is unlimited.

As a result of the allocation of purchase accounting (principally goodwill)
to foreign subsidiaries, the book basis in the net assets of the foreign
subsidiaries exceeds the related U.S. tax basis in the subsidiaries' stock. Such
investments are considered permanent in duration and accordingly, no deferred
taxes have been provided on such differences, which are significant. It is
impracticable because of the complex legal structure of the Company and the
numerous tax jurisdictions in which the Company operates to determine such
deferred taxes.

Cash taxes paid were $146 million, $117 million and $105 million in the years
1999, 1998 and 1997, respectively.

As a result of audits of the Company's German subsidiaries by The State Finance
Administration for the State of North Rhine-Westphalia, Germany (the "German Tax
Authority") 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
external German legal counsel, that the Company's 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.


-----------------------------------------AMERICAN STANDARD '99 annual report-47-
<PAGE>   50

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

The first assessment was issued in 1992 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
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 the Company's appeal of the first assessment with its appeal
of the second assessment. In addition, the Company requested an order from the
German tax authority staying the obligation to pay the amount of the second
assessment during the pendency of the Company's 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.


    ---------
    AMERICAN
-48-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   51

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 willing in 1998 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.

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 2000.

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 the Company's 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, together with the amount of all related trade taxes. 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
liquidity, cash flow and/or results of operation and, consequently, impair the
Company's competitive position. In addition, the Company might need to raise
additional capital and no assurance can be given as to the availability of debt
or equity financing if such need were to arise.

NOTE 9. Inventories

The components of inventories are as follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
(Dollars in millions)                                    1999              1998
--------------------------------------------------------------------------------
<S>                                                     <C>               <C>
Finished products                                       $285.6            $264.9
Products in process                                       98.9              88.8
Raw materials                                            119.7              85.8
--------------------------------------------------------------------------------
Inventories at cost                                     $504.2            $439.5
================================================================================
</TABLE>

The carrying cost of inventories approximates current cost.


-----------------------------------------AMERICAN STANDARD '99 annual report-49-
<PAGE>   52

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

NOTE 10. Facilities

The components of facilities, at cost, are as follows:

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
(Dollars in millions)                                        1999         1998
--------------------------------------------------------------------------------
<S>                                                        <C>          <C>
Land                                                       $   67.3     $   72.2
Buildings                                                     500.2        454.8
Machinery and Equipment                                     1,259.6      1,161.8
Improvements in progress                                      158.5        108.6
--------------------------------------------------------------------------------
Gross facilities                                            1,985.6      1,797.4
Less: accumulated depreciation                                571.4        586.4
--------------------------------------------------------------------------------
Net facilities                                             $1,414.2     $1,211.0
================================================================================
</TABLE>

NOTE 11. Debt

In January 1997, the Company entered into the 1997 Credit Agreement which
requires no repayment of principal prior to its expiration in January 2002. This
agreement provides the Company and certain subsidiaries (the "Borrowers") with
senior secured credit facilities aggregating $1.75 billion to all Borrowers as
follows: (a) a $750 million U.S. dollar revolving credit facility and a $625
million multi-currency revolving credit facility (the "Revolving Facilities")
and (b) a $375 million multi-currency periodic access credit facility (the
"Periodic Access Facility").

Each loan outstanding under the Revolving Facilities is due at the end
of each interest period (a maximum of six months). The Company may, however,
concurrently reborrow the outstanding obligations subject to compliance with
applicable conditions of the 1997 Credit Agreement. Borrowings under the
Revolving Facilities and the Periodic Access Facility bear interest at the
London interbank offered rate ("LIBOR") plus 0.75%. This rate is subject to
adjustment and will change based on the Company's financial leverage ratio.

Excluding the 1997 Credit Agreement which expires in 2002, the amounts of
long-term debt maturing in years 2000 through 2004 are: 2000--$19.2 million;
2001--$12.2 million; 2002--$12.5 million; 2003--$134.6 million and 2004--$8.6
million.

In December 1998, the 1997 Credit Agreement was amended to permit American
Standard to issue up to an additional $500 million in aggregate principal amount
of senior or subordinated unsecured debt securities, to reorganize ownership of
certain subsidiaries and intellectual property rights (see Note 16 of Notes to
Financial Statements) and to lower the interest coverage ratios and increase the
debt coverage ratios applicable to the Company, beginning for periods ending
December 31, 1998. The purpose of the amendment was primarily to accommodate the
refinancing of $150 million of American Standard's 10 7/8% senior notes due May
15, 1999 and the financing of capital expenditures, including the acquisition of
Armitage/Dolomite. See Note 4 of Notes to Consolidated Financial Statements.

In November 1999, the 1997 Credit Agreement was amended to permit American
Standard to sell its Medical Systems business and to increase the limit on
annual lease payments.


    ---------
    AMERICAN
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    COMPANIES
    ---------
<PAGE>   53

In the first half of 1998, the Company completed public offerings of $1 billion
principal amount of Senior Notes with interest rates ranging from 7 1/8% to
7 5/8% and maturity dates from 2003 to 2010. The Senior Notes are issued by
American Standard Inc. and unconditionally guaranteed by American Standard
Companies Inc. On June 1, 1998, the Company used the net proceeds of these
offerings (approximately $963 million, net of underwriting discounts and
interest rate hedge costs) to redeem its 10 1/2% Senior Subordinated Discount
Debentures and 9 7/8% Senior Subordinated Notes. The total amount required to
complete these redemptions, including call premiums, was $954 million, net of
the effect of the settlement of certain interest rate swap transactions related
to the Senior Subordinated Discount Debentures.

On May 28, 1999, American Standard Inc. completed the sale of the equivalent of
$460 million of Senior Notes, with an average interest rate of 7.7%, issued in
three series: 250 million Euro Senior Notes due 2006; 100 million U.S. Dollar
Senior Notes due 2009 and 60 million Sterling Senior Notes due 2009. Net
proceeds of $452 million from the offering were applied to refinance borrowings
incurred to pay $150 million of 10 7/8% Senior Notes at maturity on May 15, 1999
and to refinance a substantial portion of the purchase price of the
Armitage/Dolomite acquisition. See Note 4 of Notes to Consolidated Financial
Statements. The May 28, 1999 sale of Senior Notes, which are not subject to
redemption, was made pursuant to a shelf registration statement jointly filed by
American Standard Companies Inc. and its wholly-owned subsidiary American
Standard Inc. covering $1 billion of senior debt (the "1998 Shelf
Registration"). Debt securities sold under the 1998 Shelf Registration are
issued by American Standard Inc. and unconditionally guaranteed by American
Standard Companies Inc. The Company intends to use the net proceeds from any
future sales of such debt securities under the 1998 Shelf Registration for
general corporate purposes, which may include certain investments, acquisitions,
additions to working capital or capital expenditures.

As a result of the redemption of debt in 1998 and 1997, the Consolidated
Statement of Operations included extraordinary charges of $50 million (net of
taxes of $7 million) and $24 million (net of taxes of $6 million), respectively
including call premiums and the write-off of deferred debt issuance costs.

Short-term--The Revolving Facilities provide for aggregate borrowings of up to
$1.375 billion for general corporate purposes, of which up to $500 million may
be used for the issuance of letters of credit and $40 million of which is
available for same-day short-term borrowings. The Company currently pays a
commitment fee of 0.1875% per annum on the unused portion of the Revolving
Facilities and a fee of 0.75% per annum plus issuance fees for letters of
credit. At December 31, 1999, there were $659 million of borrowings outstanding
under the Revolving Facilities and $73 million of letters of credit. Remaining
availability under the Revolving Facilities was $643 million, which is available
to redeem certain outstanding public debt securities of American Standard Inc.
and for other general corporate purposes. Borrowings under the Revolving
Facilities by their terms are short-term. Average borrowings under the Revolving
Facilities for 1999, 1998 and 1997 were $901 million, $509 million and $574
million, respectively.

Other short-term borrowings are available outside the United States under
informal credit facilities and are typically in the form of overdrafts. At
December 31, 1999, the Company had $60 million of such foreign short-term debt
outstanding at an average interest rate of 7.02% per annum. The


-----------------------------------------AMERICAN STANDARD '99 annual report-51-
<PAGE>   54

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

Company also had an additional $79 million of unused foreign facilities. The
banks may revoke these facilities at any time. The Company also has credit
facilities for its operations in China totaling $55 million, of which $17
million was outstanding as of December 31, 1999, with remaining availability of
$18 million after $20 million letters of credit usage.

Average short-term borrowings for 1999, 1998 and 1997 were $1,004 million, $571
million and $639 million, respectively, at weighted average interest rates of
5.30%, 5.60% and 6.38%, respectively. Total short-term borrowings outstanding at
December 31, 1999, 1998 and 1997 were $737 million, $732 million and $718
million, respectively, at weighted average interest rates of 6.4%, 5.1% and
6.0%, respectively.

Long-term--Long-term is recorded at face amount, net of unamortized discount,
and debt denominated in foreign currencies is reported at its U.S. dollar
equivalent as follows:

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
(Dollars in millions)                                        1999        1998
--------------------------------------------------------------------------------
<S>                                                        <C>         <C>
1997 Credit Agreement                                      $  352.7    $  394.5
9 1/4% sinking fund debentures, due in installments
  from 2000 to 2010                                            82.5       105.0
10 7/8% senior notes due 1999                                    --       150.0
7 1/8% senior notes, $125 million, due 2003                   124.6       124.5
7 3/8% senior notes, $250 million, due 2005                   249.0       248.8
7.125% Euro senior notes, $251 million, due 2006              250.5          --
7 3/8% senior notes $350 million, due 2008                    349.7       349.6
8.25% senior notes, $100 million, due 2009                     99.9          --
8.25% Sterling senior notes, $97 million, due 2009             95.5          --
7 5/8% senior notes, $275 million, due 2010                   274.0       273.9
Other long-term debt                                           27.5        49.9
--------------------------------------------------------------------------------
                                                            1,905.9     1,696.2
Less current maturities                                        19.2       168.7
--------------------------------------------------------------------------------
                                                           $1,886.7    $1,527.5
================================================================================
</TABLE>

Interest costs capitalized as part of the cost of constructing facilities for
the years ended December 31, 1999, 1998, and 1997, were $3.3 million, $4.5
million and $3.8 million, respectively. Cash interest paid in those years on all
outstanding indebtedness amounted to $181 million, $140 million and $135
million, respectively.

The U.S. Dollar equivalent of the 1997 Credit Agreement loans and the effective
weighted average interest rates were:

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
(Dollars in millions)                                          1999       1998
--------------------------------------------------------------------------------
<S>                                                          <C>        <C>
Periodic access loans:
  Deutschemark loans at 3.69% in 1999;
     4.38% in 1998                                           $  325.3   $  362.7
  Dutch guilder loans at 3.69% in 1999;
     4.33% in 1998                                               27.4       31.8
--------------------------------------------------------------------------------
Total Credit Agreement long-term loans                          352.7      394.5
Revolver loans at 6.28% in 1999; 4.7% in 1998                   659.0      672.7
--------------------------------------------------------------------------------
Total Credit Agreement loans                                 $1,011.7   $1,067.2
================================================================================
</TABLE>

The 9 1/4% Sinking Fund Debentures are redeemable at the Company's option, in
whole or in part, at redemption prices declining from 103.2% in 2000 to 100% in
2006 and thereafter. The Company may, however, on any sinking fund payment date,
elect to redeem an additional $15 million principal amount of the sinking fund
debentures. The 10 7/8% Senior Notes were redeemed by the Company on their May
15, 1999 due date. None of the Senior Notes outstanding as of December 31, 1999,
are redeemable by the Company prior to maturity.

Obligations under the 1997 Credit Agreement are guaranteed by the Company,
American Standard Inc. and significant domestic subsidiaries of American
Standard Inc. (with foreign borrowings also guaranteed by certain foreign
subsidiaries) and are secured by a pledge of the stock of American Standard Inc.
and its subsidiaries.


    ---------
    AMERICAN
-52-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   55

The 1997 Credit Agreement contains various covenants that limit, among other
things, mergers and asset sales, indebtedness, dividends on and redemption of
capital stock of the Company, voluntary prepayment of certain other indebtedness
of the Company (including its outstanding debentures and notes), rental expense,
liens, capital expenditures, investments or acquisitions, the use of proceeds
from asset sales, intercompany transactions and transactions with affiliates and
certain other business activities. The covenants also require the Company to
meet certain financial tests. The Company believes it is currently in compliance
with the covenants contained in the 1997 Credit Agreement, as amended.

NOTE 12. Capital Stock

The Company's 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 the ownership of the common stock of the
Company.

In 1997, the Company completed a secondary public offering of 12,429,548 shares
of the Company's common stock owned by ASI Partners, then the Company's largest
shareholder. In conjunction therewith, the Company purchased from ASI Partners
4,628,755 shares of the Company's common stock for $208 million plus fees and
expenses. The Company financed the share purchase with borrowings under the 1997
Credit Agreement. All of the shares sold in the secondary offering were
previously issued and outstanding, and the Company received no proceeds
therefrom. In addition, the Company also issued to ASI Partners warrants
expiring in February 2002 to purchase 3,000,000 shares of common stock of the
Company at $55 per share (the "Exercise Price"). The warrants entitle holders to
receive cash or shares, at the Company's option, based on the difference between
the market value of the Company's common stock and the Exercise Price. The
estimated fair value of these warrants at the date issued was $9.34 per share
using the Black-Scholes option-pricing model and assumptions similar to those
used for valuing the Company's stock options as described below.

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
year, during the three-year period ending July 2001. During 1999, the Company
purchased 113,600 shares of its common stock for $4 million pursuant to this
plan and in 1998 purchased 2,675,750 shares for $84 million, of which 2,479,450
shares were purchased for $75 million pursuant to this plan. During 1997, the
Company purchased 6,949,655 shares of its common stock for $311 million,
including the shares purchased from ASI Partners.

The Company has a Stock Incentive Plan (the "Stock Plan") under which awards may
be granted to officers and other key executives and employees in the form of
stock options, stock appreciation rights, restricted stock or restricted units.
In 1998, the Board of Directors authorized an increase of 5 million shares under
the plan to be issued from available treasury shares. The maximum number of
shares or units that may be issued under the Stock Plan and other incentive
bonus plans is 12,604,475, of which 7,604,475 may


-----------------------------------------AMERICAN STANDARD '99 annual report-53-
<PAGE>   56

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

be granted as incentive stock options. Stock option awards granted under the
Stock Plan vest ratably over three years on the anniversary date of the awards
and are exercisable over a period of ten years.

A summary of stock option activity and related information for 1997, 1998 and
1999 follows:

<TABLE>
<CAPTION>
                                                      Weighted-      Weighted-
                                                       Average        Average
                                                       Exercise     Fair Value
                                       Shares           Price        of Grants
--------------------------------------------------------------------------------
<S>                                   <C>              <C>             <C>
Outstanding--December 31, 1996        4,701,174        $ 20.06
Granted                               1,273,250          41.33         $14.13
Exercised                              (396,224)         20.00
Forfeited                               (58,515)         22.36
--------------------------------------------------------------------------------
Outstanding--December 31, 1997        5,519,685          24.93
Granted                               1,426,000          40.77         $15.26
Exercised                              (460,016)         20.42
Forfeited                              (101,517)         32.29
--------------------------------------------------------------------------------
Outstanding--December 31, 1998        6,384,152          28.69
Granted                               2,445,750          35.00         $13.97
Exercised                              (352,491)         23.54
Forfeited                              (178,876)         36.34
--------------------------------------------------------------------------------
Outstanding--December 31, 1999        8,298,535          30.61
================================================================================
Exercisable at end of year:
  1997                                2,661,450
  1998                                4,162,423
  1999                                5,285,206
</TABLE>

On January 1, 2000, the Chief Executive Officer of the Company was granted an
award of 250,000 shares of restricted stock. Such shares vest ratably over three
years beginning January 1, 2003. In addition, on February 2, 2000, the Company
granted awards in the form of options to purchase 925,000 shares.

Exercise prices for options outstanding as of December 31, 1999, ranged from $20
to $47.56. The weighted-average remaining contractual life of those options is
6.2 years. As of December 31, 1999, there were 2,866,976 shares available for
grant under the plan and other incentive bonus plans.

The Company has elected to follow APB 25 and related interpretations
in accounting for stock options and accordingly has recognized no compensation
expense. Had compensation cost been determined based upon the fair value at the
grant date for awards consistent with the methodology prescribed by Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
the Company's net income and net income per diluted share in 1999 would have
decreased by $13.7 million and $.19, respectively; the net loss and net loss per
diluted share in 1998 would have increased by $9.5 million and $.13,
respectively; and net income and net income per diluted share in 1997 would have
decreased by $12.1 million and $.16, respectively. The fair value of these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions: risk-free interest rate of
6.8% in 1999, 5.1% in 1998 and 5.6% in 1997; volatility of 31% in 1999, 32% in
1998 and 25% in 1997; an expected life of 5 years in 1999, 1998 and 1997; and a
dividend yield of zero. These estimated expense amounts are not necessarily
indicative of amounts in years beyond 1999.


    ---------
    AMERICAN
-54-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   57

In 1997, stockholders approved the establishment of the Employee Stock Purchase
Plan commencing January 1, 1998. The Company has implemented the plan in as many
countries worldwide as is reasonably practical, given the applicable regulations
in such countries. Upon enrollment, employees purchase shares of the Company's
common stock at the end of each calendar quarter, through payroll deductions, at
a discount of 15% from the market price, as quoted on the New York Stock
Exchange on the last trading day of each calendar quarter. Annual purchases are
limited to a maximum of $21,250 per employee. Shares purchased under the plan
are deposited with a custodian and must be held for one year before they may be
sold. The Company funds the plan as soon as practicable after the close of each
quarter with either treasury shares or newly issued shares, at the Company's
discretion. In 1999 and 1998, employees purchased 229,368 and 197,078 shares,
respectively, under this plan.

NOTE 13. Financial Instruments

From time to time, the Company enters into transactions to manage its financial
market risk, including commodity price, foreign exchange and interest rate risk.
These transactions involve contracts and financial instruments with
off-balance-sheet risk. To minimize the risk of counter-party nonperformance,
such agreements are made only through major financial institutions with
significant experience in such financial instruments. Such agreements hedge only
specific transactions or commitments. The Company does not enter speculative
hedges.

To minimize the risk of fluctuations in the market price of major raw material
commodities, such as copper and aluminum used in the manufacturing process, the
Company may enter commodity forward contracts to effectively fix the cost of the
commodity. Maturity dates of the contracts are scheduled to coincide with market
purchases of the commodity. Cash proceeds or payments between the Company and
the counter-party at maturity of the contracts are recognized as an adjustment
to the cost of the commodity purchased. The Company generally does not enter
commodity hedges extending beyond eighteen months.

Since the Company sells certain finished products in currencies different than
the currency of the subsidiary which manufactured the products, the Company is
exposed to foreign currency risk on such transactions. The Company hedges some
of this risk by entering foreign currency forward contracts that effectively fix
the manufacturing cost. Cash settlement proceeds or payments upon maturity of
the contracts are included in the price of the transaction hedged. The Company
generally does not enter currency hedges extending beyond one year.

The notional amount and estimated fair value of hedging contracts at December
31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                               1999               1998
--------------------------------------------------------------------------------
                                        Notional   Fair     Notional   Fair
(Dollars in millions)                    Value     Value     Value     Value
--------------------------------------------------------------------------------
<S>                                      <C>       <C>       <C>       <C>
Commodity forward contracts              $49.3     $61.4     $23.8     $22.0
Foreign currency forward contracts        13.2      13.3      11.6      11.7
</TABLE>


-----------------------------------------AMERICAN STANDARD '99 annual report-55-
<PAGE>   58

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

The estimated fair values of other financial instruments at December 31, 1999
approximate carrying amounts except as follows:

<TABLE>
<CAPTION>
                                                          Carrying        Fair
(Dollars in millions)                                       Value         Value
--------------------------------------------------------------------------------
<S>                                                        <C>           <C>
9 1/4% sinking fund debentures                             $ 82.5        $ 81.7
7 1/8% senior notes due 2003                                124.6         119.5
7 3/8% senior notes due 2005                                249.0         236.3
7 3/8% senior notes due 2008                                349.7         321.1
7.125% Euro senior notes due 2006                           250.5         256.2
8.25% senior notes due 2009                                  99.9          95.9
8.25% Sterling senior notes due 2009                         95.5          98.0
7 5/8% senior notes due 2010                                274.0         251.3
</TABLE>

The fair values presented above are estimates as of December 31, 1999 and are
not necessarily indicative of amounts for which the Company could settle
currently or indicative of the intent or ability of the Company to dispose of or
liquidate such instruments.

The fair values of the Company's 1997 Credit Agreement loans were estimated to
approximate their carrying value using indicative market quotes obtained from a
major bank. The fair values of senior notes and sinking fund debentures were
based on indicative market quotes obtained from a major securities dealer. The
fair values of other loans were estimated by the Company to approximate their
carrying value.

NOTE 14. Commitments and Contingencies

Future minimum rental commitments under the terms of all noncancellable
operating leases in effect at December 31, 1999, are: 2000--$61 million;
2001--$50 million; 2002--$40 million; 2003--$33 million; 2004--$29 million and
thereafter--$56 million. Net rental expenses for operating leases were $87
million, $69 million and $64 million for the years ended December 31, 1999,
1998, and 1997, respectively.

The Company and certain of its subsidiaries are parties to a number of pending
legal and tax proceedings. The Company is also subject to federal, state and
local environmental laws and regulations and is involved in environmental
proceedings concerning the investigation and remediation of numerous sites,
including certain facilities in the process of being closed (see Note 5). In
those instances where it is probable as a result of such proceedings that the
Company will incur costs which can be reasonably determined, the Company has
recorded a liability. The Company believes that these legal, tax and
environmental proceedings will not have a material adverse effect on its
consolidated financial position, cash flows or results of operations.

In October 1999, verdicts were returned against the Company totaling
$18 million related to claims of a terminated sales agent and distributor of air
conditioning equipment. The Company is currently seeking relief from the
verdicts at the trial court level and, if necessary, will appeal the verdicts,
believing that substantial errors were made during the trial and that the issues
before the trial court were wrongly decided. Therefore, the Company has made no
provision for loss related to this matter at December 31, 1999.

The tax returns of the Company's German subsidiaries are currently under
examination by the German tax authorities (see Note 8).


    ---------
    AMERICAN
-56-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   59

NOTE 15. Segments

In addition to the segment data in the following table, see also the Five-Year
Financial Summary on page 14 and Management's Discussion and Analysis on pages
15 through 27.

<TABLE>
<CAPTION>
SEGMENT DATA
(Dollars in millions)                                1999       1998       1997
--------------------------------------------------------------------------------
<S>                                               <C>        <C>        <C>
Sales:
  Air Conditioning Systems and Services           $ 4,337    $ 3,940    $ 3,567
  Plumbing Products                                 1,755      1,510      1,439
  Vehicle Control Systems                           1,098      1,106        952
--------------------------------------------------------------------------------
                                                  $ 7,190    $ 6,556    $ 5,958
--------------------------------------------------------------------------------
Segment income:
  Air Conditioning Systems and Services           $   453    $   386    $   386
  Plumbing Products                                   164        119        119
  Vehicle Control Systems                             134        153        127
--------------------------------------------------------------------------------
                                                      751        658        632
Equity in net income of unconsolidated
  joint ventures                                       37         27         12
Restructuring and asset impairment charges            (15)      (197)        --
Interest expense                                     (188)      (188)      (192)
Corporate expenses                                   (134)      (110)      (105)
--------------------------------------------------------------------------------
Income from continuing operations before
  income taxes and extraordinary item             $   451    $   190    $   347
--------------------------------------------------------------------------------
Sales--Geographic distribution (a):
  United States                                   $ 3,840    $ 3,383    $ 2,956
  Europe                                            2,270      2,061      1,897
  Germany (included in Europe)                        695        693        590
  Other                                             1,295      1,269      1,243
  Eliminations                                       (215)      (157)      (138)
--------------------------------------------------------------------------------
    Total sales                                   $ 7,190    $ 6,556    $ 5,958
--------------------------------------------------------------------------------
Segment income--Geographic distribution:
  United States                                   $   505    $   438    $   382
  Europe                                              215        174        167
  Other                                                31         46         83
--------------------------------------------------------------------------------
    Total segment income                          $   751    $   658    $   632
--------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
SEGMENT DATA (continued)
(Dollars in millions)                                     1999     1998     1997
--------------------------------------------------------------------------------
<S>                                                     <C>      <C>      <C>
Assets
  Air Conditioning Systems and Services                 $2,028   $1,807   $1,577
  Plumbing Products                                      1,673    1,094    1,092
  Vehicle Control Systems                                  684      766      676
--------------------------------------------------------------------------------
    Total identifiable assets                           $4,385   $3,667   $3,345
--------------------------------------------------------------------------------
Geographic distribution:
  United States                                         $1,567   $1,405   $1,266
  Europe                                                 1,946    1,426    1,321
  Other                                                    872      836      758
--------------------------------------------------------------------------------
    Total identifiable assets                            4,385    3,667    3,345
Prepaid charges                                             42       40       23
Cash and cash equivalents                                   61       63       27
Net assets of discontinued operations held for sale         51      139      139
Corporate assets                                           147      198      184
--------------------------------------------------------------------------------
    Total assets                                        $4,686   $4,107   $3,718
--------------------------------------------------------------------------------
Goodwill included in assets:
  Air Conditioning Systems and Services                 $  224   $  199   $  196
  Plumbing Products                                        460      201      229
  Vehicle Control Systems                                  307      359      350
--------------------------------------------------------------------------------
    Total goodwill                                      $  991   $  759   $  775
--------------------------------------------------------------------------------
Capital expenditures
  Air Conditioning Systems and Services                 $  155   $   91   $  102
  Plumbing Products                                        123      126      154
  Vehicle Control Systems                                   49       50       42
--------------------------------------------------------------------------------
    Total capital expenditures                          $  327   $  267   $  298
--------------------------------------------------------------------------------
Depreciation and amortization:
  Air Conditioning Systems and Services                 $   71   $   66   $   63
  Plumbing Products                                         80       59       53
  Vehicle Control Systems                                   51       51       43
--------------------------------------------------------------------------------
    Total depreciation and amortization                 $  202   $  176   $  159
--------------------------------------------------------------------------------
</TABLE>

(a)   Revenues from external customers are classified by country of origin.


-----------------------------------------AMERICAN STANDARD '99 annual report-57-
<PAGE>   60

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

NOTE 16. Supplemental Consolidating Condensed Financial Information

All of the Company's Senior Notes and the 9 1/4% Sinking Fund Debentures were
issued by its wholly owned subsidiary, American Standard Inc. ("ASI"). American
Standard Companies Inc. (the "Parent Company") fully and unconditionally
guarantees the payment obligations under these securities. In lieu of providing
separate audited financial statements for ASI, the Company has included the
accompanying audited consolidating condensed financial information. Management
believes that separate financial statements of ASI are not material to
investors. The following supplemental financial information sets forth, on an
unconsolidated basis, statements of operations and statements of cash flows for
the years ended December 31, 1999, 1998 and 1997, and balance sheets as of
December 31, 1999 and 1998 for the Parent Company and ASI, and for the Company's
non-guarantor subsidiaries ("Other Subsidiaries") for 1999 only. On December 31,
1999 the Company completed an internal reorganization whereby ASI transferred
ownership of essentially all foreign subsidiaries and their intellectual
property rights to another wholly owned subsidiary, American Standard
International Inc. Therefore, prior to 1999, there were no non-guarantor
subsidiaries. The equity method of accounting is used to reflect investments of
the Parent Company in ASI and Other Subsidiaries.

CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                              Parent                                    Consolidated
(Dollars in millions)                                                         Company         ASI        Eliminations       Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>         <C>             <C>           <C>
Sales                                                                                       $7,189.5                      $7,189.5
Costs and expenses:
  Cost of sales                                                                              5,406.6                       5,406.6
  Selling and administrative expenses                                                        1,146.3                       1,146.3
  Restructuring and asset impairment charges                                                    14.7                          14.7
  Other income                                                                                 (17.4)                        (17.4)
  Interest expense                                                                             187.8                         187.8
------------------------------------------------------------------------------------------------------------------------------------
    Total expenses                                                                           6,738.0                       6,738.0
------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and equity
  in net income of consolidated subsidiary                                                     451.5                         451.5
Income taxes                                                                                   187.4                         187.4
------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before equity in net income of
  consolidated subsidiary                                                                      264.1                         264.1
Loss from discontinued operations                                                              125.8                         125.8
Equity in net income of subsidiary                                              $138.3            --        $(138.3)            --
------------------------------------------------------------------------------------------------------------------------------------
Net income                                                                      $138.3      $  138.3        $(138.3)      $  138.3
====================================================================================================================================
</TABLE>


    ---------
    AMERICAN
-58-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   61

CONSOLIDATING CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                  Parent                       Other                    Consolidated
(Dollars in millions)                                             Company        ASI       Subsidiaries   Eliminations      Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>            <C>           <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                    $    11.1      $   50.1                     $   61.2
  Accounts receivable, net                                                         448.6         537.7                        986.3
  Inventories                                                                      243.3         260.9                        504.2
  Net assets held for sale                                                          50.8          --                           50.8
  Other current assets                                                              38.4          84.6                        123.0
------------------------------------------------------------------------------------------------------------------------------------
    Total current assets                                                           792.2         933.3                      1,725.5
  Facilities, net                                                                  503.3         910.9                      1,414.2
  Goodwill, net                                                                    148.3         842.8                        991.1
  Investment in subsidiaries                                      $(145.2)            --            --      $   145.2            --
  Intercompany receivable                                                           42.7         825.6         (868.3)           --
  Loan receivable from parent                                                      351.3            --         (351.3)           --
  Other assets                                                                     455.0         100.2                        555.2
------------------------------------------------------------------------------------------------------------------------------------
    Total assets                                                  $(145.2)     $ 2,292.8      $3,612.8      $(1,074.4)     $4,686.0
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
  Loans payable to banks                                                       $   585.6      $  151.3                     $  736.9
  Current maturities of long-term debt                                              18.4            .8                         19.2
  Other current liabilities                                                        749.8         780.7                      1,530.5
------------------------------------------------------------------------------------------------------------------------------------
    Total current liabilities                                                    1,353.8         932.8                      2,286.6
  Long-term debt                                                                 1,555.5         331.2                      1,886.7
  Reserve for postretirement benefits                                              204.4         231.7                        436.1
  Intercompany payable                                                             825.6          42.7      $  (868.3)           --
  Loan payable to subsidiary                                      $ 351.3             --            --         (351.3)           --
  Other long-term liabilities                                                      299.2         273.9                        573.1
------------------------------------------------------------------------------------------------------------------------------------
    Total liabilities                                               351.3        4,238.5       1,812.3       (1,219.6)      5,182.5
------------------------------------------------------------------------------------------------------------------------------------
    Total stockholders' (deficit) equity                           (496.5)      (1,945.7)      1,800.5          145.2        (496.5)
------------------------------------------------------------------------------------------------------------------------------------
    Total liabilities and stockholders' (deficit) equity          $(145.2)     $ 2,292.8      $3,612.8      $(1,074.4)     $4,686.0
====================================================================================================================================
</TABLE>


-----------------------------------------AMERICAN STANDARD '99 annual report-59-
<PAGE>   62

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW FOR THE YEAR ENDED
DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                  Parent                    Other                       Consolidated
(Dollars in millions)                                             Company       ASI      Subsidiaries    Eliminations       Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>       <C>           <C>              <C>           <C>
Cash provided (used) by:
  Operating activities:
    Net income                                                    $ 138.3     $ 138.3                       $(138.3)       $ 138.3
    Adjustments to reconcile net income to net cash
     provided by operations:
      Non-cash restructuring and asset impairment
        charges (reversals)                                                      (7.3)                                        (7.3)
      Loss from discontinued operations                                         125.8                                        125.8
      Depreciation and amortization                                             202.1                                        202.1
      Non-cash interest                                                           7.2                                          7.2
      Equity in net income of subsidiary                           (138.3)         --                         138.3             --
      Changes in assets and liabilities:
        Accounts receivable                                                     (58.5)                                       (58.5)
        Inventories                                                             (20.5)                                       (20.5)
        Accounts payable and accrued payrolls                                    73.7                                         73.7
        Postretirement benefits                                                  14.6                                         14.6
        Other, net                                                               36.2                                         36.2
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations                             --       511.6                            --          511.6
Net cash (used) by discontinued operations                                      (37.8)                                       (37.8)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                              --       473.8                            --          473.8
------------------------------------------------------------------------------------------------------------------------------------
  Investing activities:
    Purchase of property, plant and equipment                                  (274.5)                                      (274.5)
    Investments in affiliated companies                              (8.1)      (52.8)                          8.1          (52.8)
    Investments in computer software                                            (85.5)                                       (85.5)
    Acquisitions of businesses                                                 (427.0)                                      (427.0)
    Other                                                                         4.0                                          4.0
------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities                                (8.1)     (835.8)                          8.1         (835.8)
------------------------------------------------------------------------------------------------------------------------------------
  Financing activities:
    Proceeds from issuance of long-term debt                                    483.5                                        483.5
    Repayments of long-term debt                                               (198.1)                                      (198.1)
    Net change in revolving credit facility                                      51.7                                         51.7
    Net change in other short-term debt                                          21.4                                         21.4
    Purchases of treasury stock                                      (4.2)       (4.2)                          4.2           (4.2)
    Decrease in loan from subsidiary                                 (4.9)                                      4.9             --
    Cash transferred (to) from affiliate                                        (50.1)      $50.1                               --
    Other                                                            17.2         7.1                         (17.2)           7.1
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                             8.1       311.3        50.1              (8.1)         361.4
Effect of exchange rate changes on cash and cash equivalents                     (1.2)                                        (1.2)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                   --       (51.9)       50.1                --           (1.8)
Cash and cash equivalents at beginning of year                                   63.0                                         63.0
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                            $  --     $  11.1       $50.1            $   --        $  61.2
====================================================================================================================================
</TABLE>


    ---------
    AMERICAN
-60-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   63

CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                                Parent                                  Consolidated
(Dollars in millions)                                                           Company      ASI       Eliminations        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>      <C>               <C>         <C>
Sales                                                                                      $6,555.3                      $6,555.3
Costs and expenses:
  Cost of sales                                                                             4,949.5                       4,949.5
  Selling and administrative expenses                                                       1,028.5                       1,028.5
  Restructuring and asset impairment charges                                                  197.3                         197.3
  Other expense                                                                                 2.0                           2.0
  Interest expense                                                                            188.3                         188.3
------------------------------------------------------------------------------------------------------------------------------------
    Total expenses                                                                          6,365.6                       6,365.6
------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes, extraordinary item
  and equity in net loss of consolidated subsidiary                                           189.7                         189.7
Income taxes                                                                                  141.2                         141.2
------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before extraordinary item and equity in
  net loss of consolidated subsidiary                                                          48.5                          48.5
Loss from discontinued operations                                                             (14.9)                        (14.9)
Extraordinary loss on retirement of debt                                                      (49.9)                        (49.9)
Equity in net loss of subsidiary                                                  $(16.3)        --          $16.3             --
------------------------------------------------------------------------------------------------------------------------------------
Net loss                                                                          $(16.3)  $  (16.3)         $16.3       $  (16.3)
====================================================================================================================================
</TABLE>


-----------------------------------------AMERICAN STANDARD '99 annual report-61-
<PAGE>   64

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

CONSOLIDATING CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                              Parent                                  Consolidated
(Dollars in millions)                                                         Company        ASI        Eliminations      Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>          <C>             <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                                  $  63.1                       $  63.1
  Accounts receivable, net                                                                     895.6                         895.6
  Inventories                                                                                  439.5                         439.5
  Net assets held for sale                                                                     138.8                         138.8
  Other current assets                                                                         127.8                         127.8
------------------------------------------------------------------------------------------------------------------------------------
    Total current assets                                                                     1,664.8                       1,664.8
  Facilities, net                                                                            1,211.0                       1,211.0
  Goodwill, net                                                                                759.9                         759.9
  Investment in subsidiaries                                                   $(344.8)                     $ 344.8           --
  Loan receivable from parent                                                                  356.2         (356.2)          --
  Other assets                                                                                 470.8                         470.8
------------------------------------------------------------------------------------------------------------------------------------
    Total assets                                                               $(344.8)     $4,462.7        $ (11.4)      $4,106.5
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
  Loans payable to banks                                                                    $  732.0                      $  732.0
  Current maturities of long-term debt                                                         168.7                         168.7
  Other current liabilities                                                                  1,410.6                       1,410.6
------------------------------------------------------------------------------------------------------------------------------------
    Total current liabilities                                                                2,311.3                       2,311.3
  Long-term debt                                                                             1,527.5                       1,527.5
  Reserve for postretirement benefits                                                          468.2                         468.2
  Loan payable to subsidiary                                                   $ 356.2                      $(356.2)          --
  Other long-term liabilities                                                                  500.5                         500.5
------------------------------------------------------------------------------------------------------------------------------------
    Total liabilities                                                            356.2       4,807.5         (356.2)       4,807.5
------------------------------------------------------------------------------------------------------------------------------------
    Total stockholders' (deficit) equity                                        (701.0)       (344.8)         344.8         (701.0)
------------------------------------------------------------------------------------------------------------------------------------
    Total liabilities and stockholders' (deficit) equity                       $(344.8)     $4,462.7        $ (11.4)      $4,106.5
====================================================================================================================================
</TABLE>


    ---------
    AMERICAN
-62-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   65

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW FOR THE YEAR ENDED
DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                           Parent                                      Consolidated
(Dollars in millions)                                                      Company          ASI       Eliminations         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>             <C>           <C>
Cash provided (used) by:
  Operating activities:
    Net income                                                             $ (16.3)       $ (16.3)        $ 16.3        $  (16.3)
    Adjustments to reconcile net income to net cash
     provided by operations:
      Non-cash restructuring and asset impairment charges                                    87.4                           87.4
      Loss from discontinued operations                                                      14.9                           14.9
      Depreciation and amortization                                                         176.1                          176.1
      Non-cash interest                                                                      31.6                           31.6
      Non-cash stock compensation                                                             6.2                            6.2
      Extraordinary loss on retirement of debt                                               49.9                           49.9
      Equity in net loss of subsidiary                                        16.3                         (16.3)             --
      Changes in assets and liabilities:
        Accounts receivable                                                                 (89.8)                         (89.8)
        Inventories                                                                         (31.4)                         (31.4)
        Accounts payable and accrued payrolls                                                90.7                           90.7
        Postretirement benefits                                                              14.6                           14.6
        Other, net                                                                          143.0                          143.0
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations                                      --          476.9             --           476.9
Net cash (used) by discontinued operations                                                  (14.8)                         (14.8)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                       --          462.1             --           462.1
------------------------------------------------------------------------------------------------------------------------------------
  Investing activities:
    Purchase of property, plant and equipment                                              (245.8)                        (245.8)
    Investments in affiliated companies                                       (4.9)         (22.4)           4.9           (22.4)
    Investments in computer software                                                        (60.0)                         (60.0)
    Other                                                                                    15.2                           15.2
------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities                                         (4.9)        (313.0)           4.9          (313.0)
------------------------------------------------------------------------------------------------------------------------------------
  Financing activities:
    Proceeds from issuance of long-term debt                                              1,012.1                        1,012.1
    Repayments of long-term debt                                                           (996.6)                        (996.6)
    Net change in revolving credit facility                                                 (23.9)                         (23.9)
    Net change in other short-term debt                                                       4.9                            4.9
    Purchases of treasury stock                                              (83.7)         (83.7)          83.7           (83.7)
    Increase in loan from subsidiary                                          73.8                         (73.8)             --
    Other                                                                     14.8          (26.1)         (14.8)          (26.1)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities                               4.9         (113.3)          (4.9)         (113.3)
Effect of exchange rate changes on cash and cash equivalents                                   .1                             .1
------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents                                       --           35.9             --            35.9
Cash and cash equivalents at beginning of year                                               27.1                           27.1
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                   $    --        $  63.0         $   --        $   63.0
====================================================================================================================================
</TABLE>


-----------------------------------------AMERICAN STANDARD '99 annual report-63-
<PAGE>   66

Notes to Consolidated Financial Statements (continued)

American Standard Companies Inc.

CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                Parent                                  Consolidated
(Dollars in millions)                                                           Company         ASI       Eliminations      Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>         <C>              <C>          <C>
Sales                                                                                        $5,957.8                      $5,957.8
Costs and expenses:
  Cost of sales                                                                               4,456.0                       4,456.0
  Selling and administrative expenses                                                           936.3                         936.3
  Other expense                                                                                  26.4                          26.4
  Interest expense                                                               $ 1.4          192.1         $ (1.4)         192.1
  Interest income                                                                 (1.4)                          1.4             --
------------------------------------------------------------------------------------------------------------------------------------
    Total expenses                                                                  --        5,610.8             --        5,610.8
------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes, extraordinary item
  and equity in net income of consolidated subsidiary                                           347.0                         347.0
Income taxes                                                                                    123.7                         123.7
------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before extraordinary item and equity in
  net income of consolidated subsidiary                                                         223.3                         223.3
Loss from discontinued operations                                                              (103.4)                       (103.4)
Extraordinary loss on retirement of debt                                                        (23.7)                        (23.7)
Equity in net income of subsidiary                                                96.2             --          (96.2)            --
------------------------------------------------------------------------------------------------------------------------------------
Net income                                                                       $96.2       $   96.2         $(96.2)      $   96.2
====================================================================================================================================
</TABLE>


    ---------
    AMERICAN
-64-STANDARD--------------------------------------------------------------------
    COMPANIES
    ---------
<PAGE>   67

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW FOR THE YEAR ENDED
DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                Parent                                  Consolidated
(Dollars in millions)                                                           Company       ASI       Eliminations        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>         <C>            <C>             <C>
Cash provided (used) by:
  Operating activities:
    Net income                                                                  $  96.2     $  96.2        $ (96.2)        $  96.2
    Adjustments to reconcile net income to net cash provided by operations:
      Loss from discontinued operations                                                       103.4                          103.4
      Depreciation and amortization                                                           159.2                          159.2
      Non-cash interest                                                                        59.9                           59.9
      Non-cash stock compensation                                                               9.9                            9.9
      Extraordinary loss on retirement of debt                                                 23.6                           23.6
      Equity in net income of subsidiary                                          (96.2)                      96.2
      Changes in assets and liabilities:
        Accounts receivable                                                                   (41.2)                         (41.2)
        Inventories                                                                           (23.2)                         (23.2)
        Accounts payable and accrued payrolls                                                  26.1                           26.1
        Postretirement benefits                                                                 8.5                            8.5
        Other, net                                                                             21.8                           21.8
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations                                           --       444.2           --             444.2
Net cash (used) by discontinued operations                                                    (12.6)                         (12.6)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                            --       431.6           --             431.6
------------------------------------------------------------------------------------------------------------------------------------
  Investing activities:
    Purchase of property, plant and equipment                                                (241.7)                        (241.7)
    Investments in affiliated companies                                            (1.2)      (56.9)           1.2           (56.9)
    Investments in computer software                                                          (35.0)                         (35.0)
    Acquisitions of businesses                                                               (212.3)                        (212.3)
    Other                                                                          16.9        31.3          (16.9)           31.3
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities                                   15.7      (514.6)         (15.7)         (514.6)
------------------------------------------------------------------------------------------------------------------------------------
  Financing activities:
    Proceeds from issuance of long-term debt                                                  401.5                          401.5
    Repayments of long-term debt                                                             (655.3)                        (655.3)
    Net change in revolving credit facility                                                   622.6                          622.6
    Net change in other short-term debt                                                         8.7                            8.7
    Purchases of treasury stock                                                  (310.7)     (310.7)         310.7          (310.7)
    Loan from subsidiary                                                          291.9                     (291.9)
    Other                                                                           3.1       (10.4)          (3.1)          (10.4)
------------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities                                  (15.7)       56.4           15.7            56.4
Effect of exchange rate changes on cash and cash equivalents                                   (5.9)                          (5.9)
------------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                            --       (32.5)            --           (32.5)
Cash and cash equivalents at beginning of year                                                 59.7                           59.7
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                        $    --     $  27.2        $    --         $  27.2
====================================================================================================================================
</TABLE>


-----------------------------------------AMERICAN STANDARD '99 annual report-65-
<PAGE>   68

(Unaudited) Quarterly Data

American Standard Companies Inc.

<TABLE>
<CAPTION>
1999
(Dollars in millions, except per share data)                              First           Second          Third(b)         Fourth(a)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>              <C>              <C>
Sales                                                                   $1,649.1         $1,910.6         $1,876.3         $1,753.5
Cost of sales                                                            1,238.5          1,411.8          1,405.6          1,350.7
Income from continuing operations before income taxes                       83.9            158.9            133.4             75.3
Income taxes                                                                35.0             65.6             55.4             31.4
------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations                                           48.9             93.3             78.0             43.9
Loss from discontinued operations                                           (2.2)            (3.3)            (6.3)          (114.0)
------------------------------------------------------------------------------------------------------------------------------------
  Net income (loss)                                                     $   46.7         $   90.0         $   71.7         $  (70.1)
====================================================================================================================================
Per common share:
  Basic
    Income from continuing operations                                   $    .70         $   1.32         $   1.10         $    .62
    Loss from discontinued operations                                       (.03)            (.05)            (.09)           (1.61)
------------------------------------------------------------------------------------------------------------------------------------
    Net income (loss)                                                   $    .67         $   1.28         $   1.02         $   (.99)
====================================================================================================================================
  Diluted
    Income from continuing operations                                   $    .68         $   1.28         $   1.07         $    .62
    Loss from discontinued operations                                       (.03)            (.05)            (.09)           (1.61)
------------------------------------------------------------------------------------------------------------------------------------
    Net income (loss)                                                   $    .65         $   1.23         $    .98         $   (.99)
====================================================================================================================================
Average number of common shares (thousands):
  Basic                                                                   70,221           70,463           70,671           70,733
  Diluted                                                                 71,903           73,139           73,169           70,733
Range of prices on common stock:
  High                                                                  $ 35 3/4         $49 7/16         $ 49 1/4         $ 46
  Low                                                                   $ 31 1/8         $34 5/8          $ 38 3/8         $ 33 3/8
</TABLE>


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    AMERICAN
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<PAGE>   69

<TABLE>
<CAPTION>
1998
(Dollars in millions, except per share data)                                  First          Second        Third(b)     Fourth(a)(b)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>             <C>             <C>
Sales                                                                      $1,468.1        $1,769.6        $1,705.1        $1,612.5
Cost of sales                                                               1,111.3         1,301.9         1,285.2         1,251.1
Income (loss) from continuing operations before income taxes and
  extraordinary item                                                           64.8           135.9            77.6           (88.5)
Income taxes                                                                   27.1            55.4            37.3            21.4
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before extraordinary item             37.7            80.5            40.3          (109.9)
Loss from discontinued operations                                              (1.5)           (2.6)           (4.2)           (6.7)
Extraordinary loss on retirement of debt                                         --           (49.9)             --              --
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                          $   36.2        $   28.0        $   36.1        $ (116.6)
====================================================================================================================================
Per common share:
  Basic
    Income (loss) from continuing operations before extraordinary item     $    .52        $   1.11        $    .56        $  (1.57)
    Loss from discontinued operations                                          (.02)           (.04)           (.06)           (.09)
    Extraordinary loss on retirement of debt                                     --            (.69)             --              --
------------------------------------------------------------------------------------------------------------------------------------
    Net income (loss)                                                      $    .50        $    .39        $    .50        $  (1.66)
====================================================================================================================================
  Diluted
    Income (loss) from continuing operations before extraordinary item     $    .51        $   1.07        $    .54        $  (1.57)
    Loss from discontinued operations                                          (.02)           (.03)           (.06)           (.09)
    Extraordinary loss on retirement of debt                                     --            (.67)             --              --
------------------------------------------------------------------------------------------------------------------------------------
    Net income (loss)                                                      $    .49        $    .37        $    .49        $  (1.66)
====================================================================================================================================
Average number of common shares (thousands):
  Basic                                                                      72,096          72,473          72,150          70,215
  Diluted                                                                    74,291          74,972          74,207          70,215
Range of prices on common stock:
  High                                                                     $ 48 1/4        $ 49 1/4        $48 7/16        $ 37 7/8
  Low                                                                      $ 37 3/8        $ 39 7/8        $24 5/16        $ 21 5/8
</TABLE>

(a)   The fourth quarter of 1999 included net restructuring charges of $15
      million ($9 million, net of tax benefits).
(b)   The third quarter of 1998 included restructuring charges of $35 million
      ($29 million, net of tax benefits). The fourth quarter of 1998 included a
      restructuring charge of $162 million ($154 million, net of tax benefits).


-----------------------------------------AMERICAN STANDARD '99 annual report-67-
<PAGE>   70

Corporate Officers

American Standard Companies Inc.

Frederic M. Poses
Chairman and Chief Executive Officer

G. Peter D'Aloia
Senior Vice President and Chief
Financial Officer

J. Paul McGrath
Senior Vice President, General Counsel
and Secretary

Thomas S. Battaglia
Vice President and Treasurer

George H. Kerckhove
Vice President

Raymond D. Pipes
Vice President, Investor Relations

G. Ronald Simon
Vice President and Controller

Robert M. Wellbrock
Vice President, Taxes

--------------------------------------------------------------------------------
AIR CONDITIONING SYSTEMS AND SERVICES

Roberto Canizares M.
Vice President,
Air Conditioning Systems and Services,
Worldwide Applied Systems, Distribution

David R. Pannier
Vice President and Group Executive,
Air Conditioning Systems and Services,
North American Unitary Products

James H. Schultz
Vice President and Group Executive,
Air Conditioning Systems and Services,
Worldwide Applied Systems
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
PLUMBING PRODUCTS

Alexander A. Apostolopoulos
Vice President, Plumbing Products,
Product and Business Development

Gary A. Brogoch
Vice President and Group Executive,
Plumbing Products, Asia Pacific

Wilfried Delker
Vice President and Group Executive,
Plumbing Products, Worldwide Fittings

Alberto Loreti
Vice President and Group Executive,
Plumbing Products, Europe

G. Eric Nutter
Vice President and Group Executive,
Americas Plumbing Products Group
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
VEHICLE CONTROL SYSTEMS

W. Craig Kissel
Senior Vice President,
Vehicle Control Systems

Michael Broughton
Vice President,
Vehicle Control Systems,
Leeds Operations

Jean-Claude Montauze
Vice President,
Vehicle Control Systems,
Claye-Souilly Operations

Wolfgang Voss
Vice President,
Vehicle Control Systems,
Order Fulfillment
--------------------------------------------------------------------------------


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<PAGE>   71

Corporate Information

American Standard Companies Inc.

Corporate Headquarters
One Centennial Avenue
Piscataway, NJ 08855-6820
Tel: (732) 980-6000
Web Site Address:
www.americanstandard.com

BUSINESS OPERATIONS

AIR CONDITIONING SYSTEMS AND SERVICES

Worldwide Applied Systems
The Trane Company
3600 Pammel Creek Road
La Crosse, WI 54601-7599
Tel: (608) 787-2000
Web Site Address: www.trane.com

International Unitary Systems
Trane International Unitary Systems
1789 Chaussee De Wavre
1160 Brussels, Belgium
Tel: (32) 2/6638380

North American Unitary Products
The Trane Company
6200 Troup Highway
Tyler, TX 75707
Tel: (903) 581-3200
Web Site Address: www.trane.com

PLUMBING PRODUCTS

Americas, Worldwide Fittings
American Standard
One Centennial Avenue
Piscataway, NJ 08855-6820
Tel: (732) 980-3000
Web Site Address:
www.americanstandard-us.com

Asia Pacific
World Standard Ltd.
14-16/F. St. John's Building
33 Garden Road
Central Hong Kong
Tel: (852) 2/971-3688

Europe Plumbing Products
Ideal Standard
Boulevard du Souverain, 348
Box 1
1160 Brussels, Belgium
Tel: (32) 2/678-0911
Web Site Address:
www.idealstandard.com

VEHICLE CONTROL SYSTEMS

WABCO Automotive Product Group
Boulevard du Souverain, 348
Box 1
1160 Brussels, Belgium
Tel: (32) 2/663-0120
Web Site Address:
www.wabco-auto.com

Annual Meeting
May 4, 2000, at 11:30 AM (EDT)
American Standard College
One Centennial Avenue
Piscataway, NJ 08855

Transfer Agent and Registrar
Citibank, NA
111 Wall Street
New York, NY 10005

Stock Exchange Listing
New York Stock Exchange
Ticker Symbol: ASD

Additional Information

A copy of the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission is available without charge. A copy may be either printed
from the Company's corporate website or requested from:

  Investor Relations
  One Centennial Avenue
  Piscataway, NJ 08855-6820
  Tel: (732) 980-6095

ASD Newsline No.
Tel: 1-888-ASD-News


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<PAGE>   72

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    One Centennial Avenue Piscataway, NJ 08855-6820 www.americanstandard.com