##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q



|           | 
|---------- | 
|(Mark One) | 

|    |  |                                                        
|--- |  | -------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|    |  | SECURITIES EXCHANGE ACT OF 1934                        

For the quarterly period ended September 30, 2003

OR


|     |  |                                                         
|---- |  | --------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|     |  | SECURITIES EXCHANGE ACT OF 1934                         

For the transition period from          to          .

Commission file number 1-11415

AMERICAN STANDARD COMPANIES INC.


(Exact name of Registrant as specified in its charter)


|                                                                                              |  |                                                
|--------------------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)                       |  | 13-3465896
(I.R.S. Employer
Identification No.)
|                                                                                              |  |                                                
|One Centennial Avenue, P.O. Box 6820, Piscataway, NJ
(Address of principal executive offices) |  | 08855-6820
(Zip Code)                          
|                                                                                              |  |                                                
|Registrants telephone number, including area code                                            |  | (732) 980-6000                                 

Indicate by check mark whether the Registrant; (1) has filed all reports
required t o be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

[X] Yes      [  ] No


Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act)

[X] Yes        [  ] No


Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

|                                             |  |                  
|-------------------------------------------- |  | -----------------
|Common stock, $.01 par value, outstanding at |  |                  
|October 27, 2003                             |  | 72,805,047 shares





---

TABLE OF CONTENTS



|                                          |                                                                                               |  |  |  |  |  |  | 
|----------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART 1. FINANCIAL INFORMATION            
|                                          | Item 1. Financial Statements                                                                 
|NOTES TO FINANCIAL STATEMENTS            
|PART 1. FINANCIAL INFORMATION            
|                                          | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                          | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                          | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION               
|                                          | Item 1. Legal Proceedings                                                                    
|                                          | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                                
|INDEX TO EXHIBITS                        
|EX-12: RATIO OF EARNINGS TO FIXED CHARGES
|EX-31.1: CERTIFICATION                   
|EX-31.2: CERTIFICATION                   
|EX-32.1: CERTIFICATION                   
|EX-32.2: CERTIFICATION                   



---



##### Table of Contents






PART 1. FINANCIAL INFORMATION




Item 1. Financial Statements

American Standard Companies Inc. (the Company) is a Delaware corporation
that owns all the outstanding common stock of American Standard Inc. and
American Standard International Inc. (ASII), both Delaware corporations.
American Standard or the Company as well as we, us or our will refer
to the Company, or to the Company and American Standard Inc. and ASII including
their subsidiaries, as the context requires.

AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
UNAUDITED SUMMARY STATEMENT OF INCOME
(Dollars in millions except per share amounts)

|                                   |                                     |         |         |                    |            |                   |         |         |            |      |         |         |            |   |         |         |            | 
|---------------------------------- | ----------------------------------- | ------- | ------- | ------------------ | ---------- | ----------------- | ------- | ------- | ---------- | ---- | ------- | ------- | ---------- | - | ------- | ------- | ---------- | 
|                                   |                                     |         |         | Three Months Ended |            | Nine Months Ended
|                                   |                                     |         |         | September 30,      |            | September 30,    
|                                   |                                     |         |         |                    |            |                  
|                                   |                                     |         |         | 2003               |            | 2002              |         | 2003    |            | 2002
|                                   |                                     |         |         |                    |            |                   |         |         |            |     
|Sales                              |                                     | $       | 2,234.4 |                    |            | $                 | 2,070.1 |         |            | $    | 6,450.0 |         |            | $ | 5,918.5 |        
|                                   |                                     |         |         |                    |            |                   |         |         |            |      |         |         |            |   |         |        
|Costs and expenses:                |                                     |         |         |                    |            |                   |         |         |            |      |         |         |            |   |         |        
|                                   | Cost of sales                       |         |         | 1,683.6            |            |                   |         | 1,564.4 |            |      |         | 4,870.1 |            |   |         | 4,473.9 |           
|                                   | Selling and administrative expenses |         |         | 338.0              |            |                   |         | 303.7   |            |      |         | 997.2   |            |   |         | 888.6   |           
|                                   | Other (income) expense              |         |         | 6.6                |            |                   |         | (.7     | )          |      |         | 29.7    |            |   |         | 12.7    |           
|                                   | Interest expense                    |         |         | 28.6               |            |                   |         | 31.7    |            |      |         | 88.9    |            |   |         | 97.8    |           
|                                   |                                     |         |         |                    |            |                   |         |         |            |      |         |         |            |   |         |        
|                                   |                                     |         | 2,056.8 |                    |            |                   | 1,899.1 |         |            |      | 5,985.9 |         |            |   | 5,473.0 |        
|                                   |                                     |         |         |                    |            |                   |         |         |            |      |         |         |            |   |         |        
|Income before income taxes         |                                     |         | 177.6   |                    |            |                   | 171.0   |         |            |      | 464.1   |         |            |   | 445.5   |        
|Income taxes                       |                                     |         | 55.1    |                    |            |                   | 56.9    |         |            |      | 143.9   |         |            |   | 148.4   |        
|                                   |                                     |         |         |                    |            |                   |         |         |            |      |         |         |            |   |         |        
|Net income                         |                                     | $       | 122.5   |                    |            | $                 | 114.1   |         |            | $    | 320.2   |         |            | $ | 297.1   |        
|                                   |                                     |         |         |                    |            |                   |         |         |            |      |         |         |            |   |         |        
|Net income per common share:       |                                     |         |         |                    |            |                   |         |         |            |      |         |         |            |   |         |        
|                                   |                                     | Basic   |         | $                  | 1.69       |                   |         | $       | 1.58       |      |         | $       | 4.44       |   |         | $       | 4.11       | 
|                                   |                                     |         |         |                    |            |                   |         |         |            |      |         |         |            |   |         |        
|                                   |                                     | Diluted |         | $                  | 1.66       |                   |         | $       | 1.55       |      |         | $       | 4.36       |   |         | $       | 4.04       | 
|                                   |                                     |         |         |                    |            |                   |         |         |            |      |         |         |            |   |         |        
|Average common shares outstanding: |                                     |         |         |                    |            |                   |         |         |            |      |         |         |            |   |         |        
|                                   |                                     | Basic   |         |                    | 72,343,739 |                   |         |         | 72,267,482 |      |         |         | 72,120,344 |   |         |         | 72,316,859 | 
|                                   |                                     | Diluted |         |                    | 73,778,953 |                   |         |         | 73,515,925 |      |         |         | 73,456,720 |   |         |         | 73,641,199 | 

See accompanying notes

2



---



##### Table of Contents



Item 1. Financial Statements (continued)

AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
UNAUDITED SUMMARY BALANCE SHEET
(Dollars in millions, except share data)

|                                                                                                  |                                                                                                                                   |   |                                                     |         |               |        |              |        |   |        |  
|------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | - | --------------------------------------------------- | ------- | ------------- | ------ | ------------ | ------ | - | ------ | -
|                                                                                                  |                                                                                                                                   |   |                                                     |         | September 30, |        | December 31,
|                                                                                                  |                                                                                                                                   |   |                                                     |         | 2003          |        | 2002        
|                                                                                                  |                                                                                                                                   |   |                                                     |         |               |        |             
|Current assets:                                                                                   |                                                                                                                                   |   |                                                     |         |               |        |              |       
|                                                                                                  | Cash and cash equivalents                                                                                                         |   | $                                                   | 201.5   |               |        | $            | 96.6   |  
|                                                                                                  | Accounts receivable, less allowance for doubtful
accounts:Sept. 2003 - $41.2; Dec. 2002 - $38.1                                   |   |                                                     | 1,153.3 |               |        |              | 881.4  |  
|                                                                                                  | Inventories:                                                                                                                      |   |                                                     |         |               |        |              |        |  
|                                                                                                  |                                                                                                                                   |   | Finished products                                   |         |               | 542.3  |              |        |   | 486.1  |  
|                                                                                                  |                                                                                                                                   |   | Products in process                                 |         |               | 174.3  |              |        |   | 138.1  |  
|                                                                                                  |                                                                                                                                   |   | Raw materials                                       |         |               | 163.5  |              |        |   | 146.5  |  
|                                                                                                  | Other current assets                                                                                                              |   |                                                     | 298.2   |               |        |              | 265.7  |  
|                                                                                                  |                                                                                                                                   |   |                                                     |         |               |        |              |       
|Total current assets                                                                              |                                                                                                                                   |   | 2,533.1                                             |         |               |        | 2,014.4      |       
|Facilities, less accumulated
depreciation:Sept. 2003 - $901.2; Dec. 2002 - $773.2                 |                                                                                                                                   |   | 1,453.8                                             |         |               |        | 1,430.1      |       
|Goodwill, less accumulated amortization:Sept
2003 - $387.5; Dec. 2002 - $370.9                    |                                                                                                                                   |   | 1,061.4                                             |         |               |        | 1,012.8      |       
|Capitalized software costs, less accumulated
amortization:Sept. 2003 - $180.6; Dec. 2002 - $131.7 |                                                                                                                                   |   | 233.4                                               |         |               |        | 242.0        |       
|Debt
issuance costs, net of accumulated amortization:Sept
2003 - $21.2; Dec. 2002 - $17.4         |                                                                                                                                   |   | 22.4                                                |         |               |        | 26.5         |       
|Other assets                                                                                      |                                                                                                                                   |   | 478.7                                               |         |               |        | 418.0        |       
|                                                                                                  |                                                                                                                                   |   |                                                     |         |               |        |              |       
|Total assets                                                                                      |                                                                                                                                   | $ | 5,782.8                                             |         |               | $      | 5,143.8      |       
|                                                                                                  |                                                                                                                                   |   |                                                     |         |               |        |              |       
|Current liabilities:                                                                              |                                                                                                                                   |   |                                                     |         |               |        |              |       
|                                                                                                  | Loans payable to banks                                                                                                            |   | $                                                   | 86.0    |               |        | $            | 36.3   |  
|                                                                                                  | Current portion of long-term debt                                                                                                 |   |                                                     | 3.1     |               |        |              | 4.5    |  
|                                                                                                  | Accounts payable                                                                                                                  |   |                                                     | 727.9   |               |        |              | 601.6  |  
|                                                                                                  | Accrued payrolls                                                                                                                  |   |                                                     | 259.2   |               |        |              | 281.0  |  
|                                                                                                  | Current portion of warranties                                                                                                     |   |                                                     | 129.1   |               |        |              | 118.0  |  
|                                                                                                  | Taxes on income                                                                                                                   |   |                                                     | 198.7   |               |        |              | 98.9   |  
|                                                                                                  | Other accrued liabilities                                                                                                         |   |                                                     | 693.9   |               |        |              | 525.3  |  
|                                                                                                  |                                                                                                                                   |   |                                                     |         |               |        |              |       
|Total current liabilities                                                                         |                                                                                                                                   |   | 2,097.9                                             |         |               |        | 1,665.6      |       
|Long-term debt                                                                                    |                                                                                                                                   |   | 1,716.1                                             |         |               |        | 1,918.4      |       
|Reserve for post-retirement benefits                                                              |                                                                                                                                   |   | 632.8                                               |         |               |        | 623.3        |       
|Warranties                                                                                        |                                                                                                                                   |   | 211.3                                               |         |               |        | 197.9        |       
|Other liabilities                                                                                 |                                                                                                                                   |   | 536.7                                               |         |               |        | 508.8        |       
|                                                                                                  |                                                                                                                                   |   |                                                     |         |               |        |              |       
|Total liabilities                                                                                 |                                                                                                                                   |   | 5,194.8                                             |         |               |        | 4,914.0      |       
|Shareholders equity:                                                                             |                                                                                                                                   |   |                                                     |         |               |        |              |       
|                                                                                                  | 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: 72,640,527 in 2003; 72,613,736 in 2002 |   |                                                     | .7      |               |        |              | .7     |  
|                                                                                                  | Capital surplus                                                                                                                   |   |                                                     | 744.7   |               |        |              | 724.4  |  
|                                                                                                  | Unearned compensation                                                                                                             |   |                                                     | (1.1    | )             |        |              | (2.3   | )
|                                                                                                  | Treasury stock                                                                                                                    |   |                                                     | (562.6  | )             |        |              | (534.6 | )
|                                                                                                  | Retained earnings                                                                                                                 |   |                                                     | 748.2   |               |        |              | 428.0  |  
|                                                                                                  | Accumulated other comprehensive income:                                                                                           |   |                                                     |         |               |        |              |        |  
|                                                                                                  |                                                                                                                                   |   | Foreign currency translation effects                |         |               | (268.3 | )            |        |   | (309.2 | )
|                                                                                                  |                                                                                                                                   |   | Deferred gain (loss) on hedge contracts, net of tax |         |               | 2.4    |              |        |   | (2.0   | )
|                                                                                                  |                                                                                                                                   |   | Minimum pension liability adjustment, net of tax    |         |               | (76.0  | )            |        |   | (75.2  | )
|                                                                                                  |                                                                                                                                   |   |                                                     |         |               |        |              |       
|Total shareholders equity                                                                        |                                                                                                                                   |   | 588.0                                               |         |               |        | 229.8        |       
|                                                                                                  |                                                                                                                                   |   |                                                     |         |               |        |              |       
|                                                                                                  |                                                                                                                                   | $ | 5,782.8                                             |         |               | $      | 5,143.8      |       
|                                                                                                  |                                                                                                                                   |   |                                                     |         |               |        |              |       

See accompanying notes

3



---



##### Table of Contents



Item 1. Financial Statements (continued)

AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
UNAUDITED SUMMARY STATEMENT OF CASH FLOWS
(Dollars in millions)

|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |      |        |        |        |  
|------------------------------------------------------------ | --------------------- | ----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------- | ------ | ----------------- | ------ | ---- | ------ | ------ | ------ | -
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        | Nine months ended
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        | September 30,    
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                  
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        | 2003              |        | 2002
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |     
|Cash provided (used) by:                                     |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |     
|                                                             | Operating activities: |                                                                         |                                                                                            |                                                                                  |        |                   |        |      |       
|                                                             |                       | Net income                                                              |                                                                                            | $                                                                                | 320.2  |                   |        | $    | 297.1  |       
|                                                             |                       | Adjustments to reconcile net income to net cash provided by operations: |                                                                                            |                                                                                  |        |                   |        |      |        |       
|                                                             |                       |                                                                         |                                                                                            | Depreciation                                                                     |        |                   | 117.9  |      |        |        | 111.1  |  
|                                                             |                       |                                                                         |                                                                                            | Amortization of capitalized software and other intangibles                       |        |                   | 62.2   |      |        |        | 44.1   |  
|                                                             |                       |                                                                         |                                                                                            | Non-cash stock compensation                                                      |        |                   | 46.7   |      |        |        | 40.9   |  
|                                                             |                       |                                                                         |                                                                                            | Equity in net income of unconsolidated joint
ventures, net of dividends received |        |                   | (9.2   | )    |        |        | (8.1   | )
|                                                             |                       |                                                                         |                                                                                            | Other                                                                            |        |                   | (4.0   | )    |        |        |       |  
|                                                             |                       |                                                                         |                                                                                            | Changes in assets and liabilities:                                               |        |                   |        |      |        |        |        |  
|                                                             |                       |                                                                         |                                                                                            | Accounts receivable                                                              |        |                   | (241.3 | )    |        |        | (103.3 | )
|                                                             |                       |                                                                         |                                                                                            | Inventories                                                                      |        |                   | (73.5  | )    |        |        | (75.4  | )
|                                                             |                       |                                                                         |                                                                                            | Accounts payable                                                                 |        |                   | 98.7   |      |        |        | 16.6   |  
|                                                             |                       |                                                                         |                                                                                            | Other accrued liabilities and taxes                                              |        |                   | 228.4  |      |        |        | 32.2   |  
|                                                             |                       |                                                                         |                                                                                            | Post-retirement benefits                                                         |        |                   | (18.2  | )    |        |        | (24.7  | )
|                                                             |                       |                                                                         |                                                                                            | Other assets                                                                     |        |                   | (96.7  | )    |        |        | (68.3  | )
|                                                             |                       |                                                                         |                                                                                            | Other long-term liabilities                                                      |        |                   | 42.6   |      |        |        | 84.9   |  
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |     
|                                                             |                       |                                                                         | Net cash provided by operating activities before
proceeds from initial sale of receivables |                                                                                  |        | 473.8             |        |      |        | 347.1  |       
|                                                             |                       |                                                                         |                                                                                            | Proceeds from initial sale of receivables, net                                   |        |                   |       |      |        |        | 81.4   |  
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |     
|                                                             |                       |                                                                         | Net cash provided by operating activities                                                  |                                                                                  |        | 473.8             |        |      |        | 428.5  |       
|                                                             | Investing activities: |                                                                         |                                                                                            |                                                                                  |        |                   |        |      |       
|                                                             |                       | Purchase of property, plant and equipment                               |                                                                                            |                                                                                  | (102.2 | )                 |        |      | (91.1  | )     
|                                                             |                       | Investments in affiliated companies and other businesses                |                                                                                            |                                                                                  | (24.3  | )                 |        |      | (22.0  | )     
|                                                             |                       | Investments in computer software                                        |                                                                                            |                                                                                  | (29.4  | )                 |        |      | (30.3  | )     
|                                                             |                       | Proceeds from dissolution of receivables financing joint venture        |                                                                                            |                                                                                  |       |                   |        |      | 25.8   |       
|                                                             |                       | Other                                                                   |                                                                                            |                                                                                  | 5.5    |                   |        |      | 13.6   |       
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |     
|                                                             |                       |                                                                         | Net cash used by investing activities                                                      |                                                                                  |        | (150.4            | )      |      |        | (104.0 | )     
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |     
|                                                             | Financing activities: |                                                                         |                                                                                            |                                                                                  |        |                   |        |      |       
|                                                             |                       | Proceeds from issuance of long-term debt                                |                                                                                            |                                                                                  | 32.7   |                   |        |      |       |       
|                                                             |                       | Repayments of long-term debt                                            |                                                                                            |                                                                                  | (128.7 | )                 |        |      | (39.8  | )     
|                                                             |                       | Net change in revolving credit facilities                               |                                                                                            |                                                                                  | (145.2 | )                 |        |      | (167.2 | )     
|                                                             |                       | Net change in other short-term debt                                     |                                                                                            |                                                                                  | 47.4   |                   |        |      | 24.8   |       
|                                                             |                       | Purchases of treasury stock                                             |                                                                                            |                                                                                  | (105.2 | )                 |        |      | (135.7 | )     
|                                                             |                       | Proceeds from exercise of stock options                                 |                                                                                            |                                                                                  | 39.3   |                   |        |      | 51.4   |       
|                                                             |                       | Proceeds from foreign exchange forward contracts                        |                                                                                            |                                                                                  | 36.4   |                   |        |      |       |       
|                                                             |                       | Other                                                                   |                                                                                            |                                                                                  | 5.4    |                   |        |      | 5.6    |       
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |     
|                                                             |                       |                                                                         | Net cash used by financing activities                                                      |                                                                                  |        | (217.9            | )      |      |        | (260.9 | )     
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |     
|Effect of exchange rate changes on cash and
cash equivalents |                       |                                                                         | (.6                                                                                        | )                                                                                |        |                   | .1     |     
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |     
|Net increase in cash and cash equivalents                    |                       |                                                                         | 104.9                                                                                      |                                                                                  |        |                   | 63.7   |     
|Cash and cash equivalents at beginning of period             |                       |                                                                         | 96.6                                                                                       |                                                                                  |        |                   | 82.1   |     
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |     
|Cash and cash equivalents at end of period                   |                       | $                                                                       | 201.5                                                                                      |                                                                                  |        | $                 | 145.8  |     
|                                                             |                       |                                                                         |                                                                                            |                                                                                  |        |                   |        |     
|Cash interest paid                                           |                       | $                                                                       | 86.4                                                                                       |                                                                                  |        | $                 | 94.9   |     
|Cash taxes paid                                              |                       | $                                                                       | 26.8                                                                                       |                                                                                  |        | $                 | 109.7  |     

See accompanying notes

4



---



##### Table of Contents



AMERICAN STANDARD COMPANIES INC.




NOTES TO FINANCIAL STATEMENTS


Note 1. Basis of Financial Statement Presentation

The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring items, considered necessary
for a fair presentation of financial data have been included. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the entire year. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and accompanying notes included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2002. Certain reclassifications of
amounts reported in the prior year have been made to conform to the 2003
classifications.

Note 2. Comprehensive Income

Total comprehensive income consisted of the following (dollars in
millions):

|                                                    |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |   | 
|--------------------------------------------------- | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | - | 
|                                                    | Three months ended |       | Nine
months ended
|                                                    | September 30,      |       | September 30,    
|                                                    |                    |       |                  
|                                                    | 2003               |       | 2002              |  | 2003 |       | 2002
|                                                    |                    |       |                   |  |      |       |     
|Net income                                          | $                  | 122.5 |                   |  | $    | 114.1 |      |  | $ | 320.2 |   |  | $ | 297.1 |  
|Foreign currency translation effects                |                    | (12.8 | )                 |  |      | (56.5 | )    |  |   | 40.9  |   |  |   | (16.2 | )
|Deferred gain (loss) on hedge
contracts, net of tax |                    | 2.6   |                   |  |      | (6.7  | )    |  |   | 4.4   |   |  |   | (3.7  | )
|Minimum pension liability adjustment                |                    |      |                   |  |      |      |      |  |   | (.8   | ) |  |   |      |  
|                                                    |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|Total comprehensive income                          | $                  | 112.3 |                   |  | $    | 50.9  |      |  | $ | 364.7 |   |  | $ | 277.2 |  
|                                                    |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  

Note 3. Earnings Per Share

The average number of outstanding shares of common stock used in computing
diluted earnings per share for the three months ended September 30, 2003 and
2002 included 1,435,214 and 1,248,443 average incremental shares, respectively,
for the assumed exercise of stock options. The nine-month periods ended
September 30, 2003 and 2002 included 1,336,376 and 1,324,340 average
incremental shares, respectively.

Note 4. Debt

In January 2003, a European subsidiary of the Company issued 30
million ($34 million) of 7.59% Guaranteed Senior Bonds due 2013 in a private
placement as part of changes in the financial structure and organization of its
European subsidiaries. The Company guarantees the bonds. The proceeds were
used to repay borrowings under bank credit agreements.

5



---



##### Table of Contents



Note 5. Stock-Based Compensation

The Company has three stock-based compensation plansthe 2002 Omnibus
Incentive Plan, the Stock Incentive Plan and the Employee Stock Purchase Plan
(ESPP)  which are described in Note 12 of Notes to Financial Statements in
the Companys 2002 Annual Report on Form 10-K. Under the first two plans, the
Company has granted options to employees and directors to acquire a fixed
number of shares of the Companys common stock at a specified price, and also
has made grants of restricted shares. Under the ESPP, employees are entitled
to purchase shares of the Companys common stock at a discount of 15% from the
market price on the date of purchase. The Company accounts for these plans
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25),and related
Interpretations. Compensation cost is not recorded for substantially all
options granted because the option exercise price was equal to the market value
of the underlying common stock on the date of grant. Nor is compensation cost
recorded for the 15% discount on shares purchased under the ESPP, which is not
considered compensation under APB 25. Compensation cost is recorded for the
value of restricted share awards, amortized over the vesting period of the
award.

The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation,as amended by FASB
Statement No. 148, Accounting for Stock-Based CompensationTransition and
Disclosure,to stock-based employee compensation (dollars in millions except
per share data).

|                                                                                                                                                              |                     |   |                    |      |                   |   |       |      |      |   |       |      |  |   |       |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | - | ------------------ | ---- | ----------------- | - | ----- | ---- | ---- | - | ----- | ---- |  | - | ----- | ---- | 
|                                                                                                                                                              |                     |   | Three Months Ended |      | Nine Months Ended
|                                                                                                                                                              |                     |   | September 30,      |      | September 30,    
|                                                                                                                                                              |                     |   |                    |      |                  
|                                                                                                                                                              |                     |   | 2003               |      | 2002              |   | 2003  |      | 2002
|                                                                                                                                                              |                     |   |                    |      |                   |   |       |      |     
|Net income, as reported                                                                                                                                       |                     | $ | 122.5              |      |                   | $ | 114.1 |      |      | $ | 320.2 |      |  | $ | 297.1 |     
|Deduct: Total stock-based compensation
expense determined under fair value based
method for all stock option awards, net of tax,
and discounts under the ESPP |                     |   | 4.9                |      |                   |   | 5.9   |      |      |   | 15.0  |      |  |   | 17.2  |     
|                                                                                                                                                              |                     |   |                    |      |                   |   |       |      |      |   |       |      |  |   |       |     
|Pro forma net income                                                                                                                                          |                     | $ | 117.6              |      |                   | $ | 108.2 |      |      | $ | 305.2 |      |  | $ | 279.9 |     
|                                                                                                                                                              |                     |   |                    |      |                   |   |       |      |      |   |       |      |  |   |       |     
|Earnings per share:                                                                                                                                           |                     |   |                    |      |                   |   |       |      |      |   |       |      |  |   |       |     
|                                                                                                                                                              | Basicas reported   |   | $                  | 1.69 |                   |   | $     | 1.58 |      |   | $     | 4.44 |  |   | $     | 4.11 | 
|                                                                                                                                                              |                     |   |                    |      |                   |   |       |      |      |   |       |      |  |   |       |     
|                                                                                                                                                              | Basicpro forma     |   | $                  | 1.63 |                   |   | $     | 1.50 |      |   | $     | 4.23 |  |   | $     | 3.87 | 
|                                                                                                                                                              |                     |   |                    |      |                   |   |       |      |      |   |       |      |  |   |       |     
|                                                                                                                                                              | Dilutedas reported |   | $                  | 1.66 |                   |   | $     | 1.55 |      |   | $     | 4.36 |  |   | $     | 4.04 | 
|                                                                                                                                                              |                     |   |                    |      |                   |   |       |      |      |   |       |      |  |   |       |     
|                                                                                                                                                              | Dilutedpro forma   |   | $                  | 1.59 |                   |   | $     | 1.47 |      |   | $     | 4.15 |  |   | $     | 3.80 | 
|                                                                                                                                                              |                     |   |                    |      |                   |   |       |      |      |   |       |      |  |   |       |     

The weighted average fair value per option of grants made during the three
months and nine months ended September 30, 2003 was $21.03 and for the
corresponding periods of 2002 was $18.24. The fair value of the stock options
was estimated at the date of grant using the Black-Scholes option-pricing model
with the following assumptions: risk-free interest rate of 2.76% in 2003 and
2.49% in 2002; volatility of 28% and 29% in 2003 and 2002, respectively; an
expected average life of 5 years in 2003 and 2002; and a dividend yield of
zero.

6



---



##### Table of Contents



Note 6. Warranties, Guarantees, Commitments and Contingencies

In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others.The
Company adopted the disclosure requirements of that Interpretation effective
December 31, 2002. The accounting requirements of that Interpretation were
effective January 1, 2003 and had no material effect on the Company.

Products sold by the Company are covered by a basic limited warranty with
terms and conditions that vary depending upon the product and country in which
sold. The limited warranty covers the equipment, parts and labor (in certain
cases) necessary to satisfy the warranty obligation for a period ranging from
one to ten years generally, and for the lifetime of certain bath and kitchen
faucets. The Company estimates the costs that may be incurred under its
warranty obligations and records a liability in the amount of such costs at the
time product revenue is recognized. Factors that affect the Companys warranty
liability include the number of units sold, historical and anticipated rates of
warranty claims, and cost per claim. The Company periodically assesses the
adequacy of its recorded warranty liabilities and adjusts the amounts as
necessary. Costs to satisfy warranty claims are charged as incurred to the
accrued warranty liability.

The Company also sells a variety of extended warranty contracts for up to
ten years on certain air conditioning products. Revenues from the sales of
extended warranties are deferred and amortized on a straight-line basis over
the terms of the contracts or based upon historical experience. Actual costs
to satisfy claims on extended warranty contracts are charged to cost of sales
as incurred and were $9.6 million and $6.8 million for the three months ended
September 30, 2003 and 2002, respectively, and $26.0 million and $20.8 million
for the nine months ended September 30, 2003 and 2002, respectively. Total
warranty expense was $46.0 million and $37.9 million for the three months ended
September 30, 2003 and 2002, respectively, and $124.1 million and $116.1
million for the nine-month periods then ended, respectively.

Following is a summary of changes in the Companys product warranty
liability for the three and nine months ended September 30, 2003 and 2002
(dollars in millions).

|                                                                                                                |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                |  | Three Months Ended |        | Nine Months Ended
|                                                                                                                |  | September 30,      |        | September 30,    
|                                                                                                                |  |                    |        |                  
|                                                                                                                |  | 2003               |        | 2002              |  | 2003 |        | 2002
|                                                                                                                |  |                    |        |                   |  |      |        |     
|Balance of basic warranty costs accrued and
deferred income on extended warranty
contracts, beginning of period |  | $                  | 334.9  |                   |  | $    | 326.9  |      |  | $ | 315.9  |   |  | $ | 299.9  |  
|Warranty costs accrued                                                                                          |  |                    | 40.5   |                   |  |      | 40.3   |      |  |   | 100.5  |   |  |   | 102.3  |  
|Extended warranty contracts sold                                                                                |  |                    | 18.5   |                   |  |      | 12.3   |      |  |   | 50.3   |   |  |   | 39.1   |  
|Warranty claims settled                                                                                         |  |                    | (38.6  | )                 |  |      | (32.2  | )    |  |   | (91.5  | ) |  |   | (75.9  | )
|Amortization of deferred income
on extended warranty contracts                                                  |  |                    | (10.8  | )                 |  |      | (8.5   | )    |  |   | (32.4  | ) |  |   | (28.8  | )
|Increases (decreases) in pre-existing warranties, net                                                           |  |                    | (4.1   | )                 |  |      | (9.2   | )    |  |   | (2.4   | ) |  |   | (7.0   | )
|                                                                                                                |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Balance of basic warranty costs accrued and
deferred income on extended warranty
contracts, end of period       |  |                    | 340.4  |                   |  |      | 329.6  |      |  |   | 340.4  |   |  |   | 329.6  |  
|Current portion included in current liabilities                                                                 |  |                    | (129.1 | )                 |  |      | (133.7 | )    |  |   | (129.1 | ) |  |   | (133.7 | )
|                                                                                                                |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Long-term warranty liability                                                                                    |  | $                  | 211.3  |                   |  | $    | 195.9  |      |  | $ | 211.3  |   |  | $ | 195.9  |  
|                                                                                                                |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  

7



---



##### Table of Contents



The Company has commitments and performance guarantees, including energy
savings guarantees totaling $33 million as of September 30, 2003, extending
from 2003 to 2024, under long-term contracts related to its air conditioning
equipment, system controls, and service and maintenance. Through September 30,
2003, the Company has experienced no net losses under such arrangements and
considers the probability of losses to be unlikely.

The Company fully and unconditionally guarantees the payment obligations
under all the Companys Senior Notes that were issued by its wholly owned
subsidiary American Standard Inc. See Note 8 of Notes to Financial Statements.
The Company also guarantees other debt obligations issued by other
subsidiaries, including obligations under a $46 million Euro-denominated credit
facility and $34 million of Euro-denominated Senior Bonds.

Note 7. Effect of Recently Issued Accounting Standards

The Financial Accounting Standards Board (FASB) has recently issued
several new Statements and Interpretations.For the disclosures required by
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
CompensationTransition and Disclosure, see Note 5 of Notes to Financial
Statements. For the disclosures required by Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others,see Note 6 of Notes to Financial
Statements. Other Statements and Interpretations recently issued by the FASB
that are applicable to the Company have little or no immediate effect and will
have an effect in the future only in the event the Company enters into
transactions governed by those statements. Those included statements No. 143,
Accounting for Asset Retirement Obligations;No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets;No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 (leases), and
Technical Corrections; No. 146, Accounting for Costs Associated with Exit or
Disposal Activities;No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities;and No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
Interpretation No. 46, Consolidation of Variable Interest Entities,which will
become effective for the Company in the fourth quarter of 2003, is being
evaluated by the Company and is expected to have little impact.

8



---



##### Table of Contents



Note 8. Supplemental Consolidating Condensed Financial Information

The Companys 100% owned subsidiary, American Standard Inc. (ASI) issued
all of the Companys Senior Notes. American Standard Companies Inc. (the
Parent Company) fully and unconditionally guarantees the payment obligations
under these securities (the ASI Public Debt). In lieu of providing separate
financial statements for ASI, included is the accompanying 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
income for the three months and nine months ended September 30, 2003 and 2002,
statements of cash flows for the nine months ended September 30, 2003 and 2002
and balance sheets as of September 30, 2003 and December 31, 2002 for the
Parent Company, ASI, and the subsidiaries of the Parent Company which are not
subsidiaries of ASI (the Other Subsidiaries). None of the Other Subsidiaries
guarantees the ASI Public Debt. The equity method of accounting is used to
reflect investments of the Parent Company in ASI and Other Subsidiaries.

CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
(Unaudited)

|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |       |       |   |        |              |        |   |         |         |         | 
|-------------------------------------------------------------------------------- | -------------------------------------- | -------------- | ----- | ------ |  | ------------ | ------- | ------------ | ------- | ----- | ------- | ----- | ----- | - | ------ | ------------ | ------ | - | ------- | ------- | ------- | 
|                                                                                 |                                        |                |       | Parent |  |              |         |              |         | Other |         |       |       |   |        | Consolidated
|(Dollars in millions)                                                            |                                        | Company        |       | ASI    |  | Subsidiaries |         | Eliminations |         | Total
|                                                                                 |                                        |                |       |        |  |              |         |              |         |      
|Sales                                                                            |                                        |                |       |        |  | $            | 1,240.4 |              |         | $     | 1,136.7 |       |       | $ | (142.7 | )            |        | $ | 2,234.4 |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |       |       |   |        |              |        |   |         |        
|Costs and expenses:                                                              |                                        |                |       |        |  |              |         |              |         |       |         |       |       |   |        |              |        |   |         |        
|                                                                                 | Cost of sales                          |                |       |        |  |              |         | 956.2        |         |       |         | 870.1 |       |   |        | (142.7       | )      |   |         | 1,683.6 |        
|                                                                                 | Selling and administrative expenses    |                |       |        |  |              |         | 189.7        |         |       |         | 148.3 |       |   |        |              |        |   |         | 338.0   |        
|                                                                                 | Other (income) expense                 |                |       |        |  |              |         | 34.2         |         |       |         | (27.6 | )     |   |        |              |        |   |         | 6.6     |        
|                                                                                 | Interest expense                       |                |       |        |  |              |         | 25.8         |         |       |         | 2.8   |       |   |        |              |        |   |         | 28.6    |        
|                                                                                 | Intercompany interest expense (income) |                |       |        |  |              |         | (2.4         | )       |       |         | 2.4   |       |   |        |              |        |   |         |        |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |       |       |   |        |              |        |   |         |        
|                                                                                 |                                        | Total expenses |       |        |  |              |         |              | 1,203.5 |       |         |       | 996.0 |   |        |              | (142.7 | ) |         |         | 2,056.8 | 
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |       |       |   |        |              |        |   |         |        
|Income before income taxes and equity in
net income of consolidated subsidiaries |                                        |                |       |        |  |              | 36.9    |              |         |       | 140.7   |       |       |   |       |              |        |   | 177.6   |        
|Income taxes                                                                     |                                        |                |       |        |  |              | 12.4    |              |         |       | 42.7    |       |       |   |        |              |        |   | 55.1    |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |       |       |   |        |              |        |   |         |        
|Income before equity in net income of
consolidated subsidiaries                  |                                        |                |       |        |  |              | 24.5    |              |         |       | 98.0    |       |       |   |       |              |        |   | 122.5   |        
|Equity in net income of consolidated
subsidiaries                                |                                        | $              | 122.5 |        |  |              |        |              |         |       |        |       |       | $ | (122.5 | )            |        |   |        |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |       |       |   |        |              |        |   |         |        
|Net income                                                                       |                                        | $              | 122.5 |        |  | $            | 24.5    |              |         | $     | 98.0    |       |       | $ | (122.5 | )            |        | $ | 122.5   |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |       |       |   |        |              |        |   |         |        

9



---



##### Table of Contents



Note 8. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(Unaudited)

|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |        |        |              |         |         |         | 
|-------------------------------------------------------------------------------- | -------------------------------------- | -------------- | ----- | ------ |  | ------------ | ------- | ------------ | ------- | ----- | ------- | ------- | ------- | - | ------ | ------ | ------ | ------------ | ------- | ------- | ------- | 
|                                                                                 |                                        |                |       | Parent |  |              |         |              |         |       | Other   |         |         |   |        |        |        | Consolidated
|(Dollars in millions)                                                            |                                        | Company        |       | ASI    |  | Subsidiaries |         | Eliminations |         | Total
|                                                                                 |                                        |                |       |        |  |              |         |              |         |      
|Sales                                                                            |                                        |                |       |        |  | $            | 3,514.7 |              |         | $     | 3,292.0 |         |         | $ | (356.7 | )      |        | $            | 6,450.0 |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|Costs and expenses:                                                              |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|                                                                                 | Cost of sales                          |                |       |        |  |              |         | 2,705.3      |         |       |         | 2,521.5 |         |   |        | (356.7 | )      |              |         | 4,870.1 |        
|                                                                                 | Selling and administrative expenses    |                |       |        |  |              |         | 550.4        |         |       |         | 446.8   |         |   |        |        |        |              |         | 997.2   |        
|                                                                                 | Other expense                          |                |       |        |  |              |         | 29.0         |         |       |         | .7      |         |   |        |        |        |              |         | 29.7    |        
|                                                                                 | Interest expense                       |                |       |        |  |              |         | 80.4         |         |       |         | 8.5     |         |   |        |        |        |              |         | 88.9    |        
|                                                                                 | Intercompany interest expense (income) |                |       |        |  |              |         | (1.9         | )       |       |         | 1.9     |         |   |        |        |        |              |         |        |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|                                                                                 |                                        | Total expenses |       |        |  |              |         |              | 3,363.2 |       |         |         | 2,979.4 |   |        |        | (356.7 | )            |         |         | 5,985.9 | 
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|Income before income taxes and equity in
net income of consolidated subsidiaries |                                        |                |       |        |  |              | 151.5   |              |         |       | 312.6   |         |         |   |       |        |        |              | 464.1   |        
|Income taxes                                                                     |                                        |                |       |        |  |              | 53.0    |              |         |       | 90.9    |         |         |   |        |        |        |              | 143.9   |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|Income before equity in net income of
consolidated subsidiaries                  |                                        |                |       |        |  |              | 98.5    |              |         |       | 221.7   |         |         |   |       |        |        |              | 320.2   |        
|Equity in net income of consolidated
subsidiaries                                |                                        | $              | 320.2 |        |  |              |        |              |         |       |        |         |         | $ | (320.2 | )      |        |              |        |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|Net income                                                                       |                                        | $              | 320.2 |        |  | $            | 98.5    |              |         | $     | 221.7   |         |         | $ | (320.2 | )      |        | $            | 320.2   |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |        |        |              |         |        

CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 30, 2003
(Unaudited)

|                                               |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |         |         | 
|---------------------------------------------- | ------------------------------------ | ------------------------------------------ | ------- | ------ | ------- | ------------ | ------- | ------------ | -------- | ----- | ------ | ------- | ------- | - | -------- | ------------ | -------- | - | ------- | ------- | ------- | 
|                                               |                                      |                                            |         | Parent |         |              |         |              |          | Other |        |         |         |   |          | Consolidated
|(Dollars in millions)                          |                                      | Company                                    |         | ASI    |         | Subsidiaries |         | Eliminations |          | Total
|                                               |                                      |                                            |         |        |         |              |         |              |          |      
|ASSETS                                         |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |        
|Current assets:                                |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |        
|                                               | Cash and cash equivalents            |                                            | $       | .6     |         |              | $       | 17.9         |          |       | $      | 183.0   |         |   |          |              |          |   | $       | 201.5   |        
|                                               | Accounts receivable, net             |                                            |         |        |         |              |         | 522.2        |          |       |        | 631.1   |         |   |          |              |          |   |         | 1,153.3 |        
|                                               | Inventories                          |                                            |         |        |         |              |         | 356.1        |          |       |        | 524.0   |         |   |          |              |          |   |         | 880.1   |        
|                                               | Other current assets                 |                                            |         |        |         |              |         | 194.0        |          |       |        | 104.2   |         |   |          |              |          |   |         | 298.2   |        
|                                               |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |        
|                                               |                                      | Total current assets                       |         |        | .6      |              |         |              | 1,090.2  |       |        |         | 1,442.3 |   |          |              |          |   |         |         | 2,533.1 | 
|Facilities, net                                |                                      |                                            |         |        |         |              | 577.2   |              |          |       | 876.6  |         |         |   |          |              |          |   | 1,453.8 |        
|Goodwill, net                                  |                                      |                                            |         |        |         |              | 132.9   |              |          |       | 928.5  |         |         |   |          |              |          |   | 1,061.4 |        
|Investment in subsidiaries                     |                                      |                                            | 1,285.5 |        |         |              |         |              |          |       |        |         |         | $ | (1,285.5 | )            |          |   |        |        
|Other assets                                   |                                      |                                            |         |        |         |              | 537.5   |              |          |       | 197.0  |         |         |   |          |              |          |   | 734.5   |        
|                                               |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |        
|                                               |                                      | Total assets                               |         | $      | 1,286.1 |              |         | $            | 2,337.8  |       |        | $       | 3,444.4 |   |          | $            | (1,285.5 | ) |         | $       | 5,782.8 | 
|                                               |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |        
|LIABILITIES AND SHAREHOLDERS
(DEFICIT) EQUITY |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |        
|Current liabilities:                           |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |        
|                                               | Loans payable to banks               |                                            |         |        |         |              | $       | 40.0         |          |       | $      | 46.0    |         |   |          |              |          |   | $       | 86.0    |        
|                                               | Current maturities of long-term debt |                                            |         |        |         |              |         | 1.8          |          |       |        | 1.3     |         |   |          |              |          |   |         | 3.1     |        
|                                               | Other current liabilities            |                                            |         |        |         |              |         | 971.4        |          |       |        | 1,037.4 |         |   |          |              |          |   |         | 2,008.8 |        
|                                               |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |        
|                                               |                                      | Total current liabilities                  |         |        |         |              |         |              | 1,013.2  |       |        |         | 1,084.7 |   |          |              |          |   |         |         | 2,097.9 | 
|Long-term debt                                 |                                      |                                            |         |        |         |              | 1,621.6 |              |          |       | 94.5   |         |         |   |          |              |          |   | 1,716.1 |        
|Reserve for postretirement benefits            |                                      |                                            |         |        |         |              | 334.0   |              |          |       | 298.8  |         |         |   |          |              |          |   | 632.8   |        
|Intercompany accounts, net                     |                                      | $                                          | 698.1   |        |         |              | 280.1   |              |          |       | (978.2 | )       |         |   |          |              |          |   |        |        
|Other long-term liabilities                    |                                      |                                            |         |        |         |              | 451.2   |              |          |       | 296.8  |         |         |   |          |              |          |   | 748.0   |        
|                                               |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |        
|                                               |                                      | Total liabilities                          |         |        | 698.1   |              |         |              | 3,700.1  |       |        |         | 796.6   |   |          | $            |         |   |         |         | 5,194.8 | 
|                                               |                                      | Total shareholders (deficit) equity       |         |        | 588.0   |              |         |              | (1,362.3 | )     |        |         | 2,647.8 |   |          |              | (1,285.5 | ) |         |         | 588.0   | 
|                                               |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |        
|                                               |                                      | Total liabilities and shareholders
equity |         | $      | 1,286.1 |              |         | $            | 2,337.8  |       |        | $       | 3,444.4 |   |          | $            | (1,285.5 | ) |         | $       | 5,782.8 | 
|                                               |                                      |                                            |         |        |         |              |         |              |          |       |        |         |         |   |          |              |          |   |         |        

10



---



##### Table of Contents



Note 8. Supplemental Consolidating Condensed Financial Information
(continued)

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(Unaudited)

|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |        |       |        |        |  
|--------------------- | ------------------------------------------------------------ | ----------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------------------------------------ | ----- | ------------ | ------ | ------------ | ----- | ------ | ----- | ----- | ----- | ----- | ------ | - | ------ | ------------ | ----- | ------ | ----- | ------ | ------ | -
|                      |                                                              |                                                                         |                                                          |                                                                                |       | Parent       |        |              |       |        |       | Other |       |       |        |   |        | Consolidated
|(Dollars in millions) |                                                              | Company                                                                 |                                                          | ASI                                                                            |       | Subsidiaries |        | Eliminations |       | Total 
|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |       
|Cash provided by:     |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |       
|                      | Operating activities:                                        |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |        |      
|                      |                                                              | Net income                                                              |                                                          | $                                                                              | 320.2 |              |        | $            | 98.5  |        |       | $     | 221.7 |       |        | $ | (320.2 | )            |       | $      | 320.2 |       
|                      |                                                              | Adjustments to reconcile net income to net
cash provided by operations: |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |        |       |       
|                      |                                                              |                                                                         |                                                          | Depreciation and amortization                                                  |       |              |        |              |       |        | 71.7  |       |       |       | 108.4  |   |        |              |       |        |       |        | 180.1  |  
|                      |                                                              |                                                                         |                                                          | Equity in earnings of unconsolidated joint
ventures, net of dividends received |       |              |        |              |       |        | (4.2  | )     |       |       | (5.0   | ) |        |              |       |        |       |        | (9.2   | )
|                      |                                                              |                                                                         |                                                          | Non-cash stock compensation                                                    |       |              |        |              |       |        | 46.7  |       |       |       |        |   |        |              |       |        |       |        | 46.7   |  
|                      |                                                              |                                                                         |                                                          | Equity in net income of subsidiaries                                           |       |              | (320.2 | )            |       |        |       |       |       |       |        |   |        |              | 320.2 |        |       |        |       |  
|                      |                                                              |                                                                         |                                                          | Other                                                                          |       |              |        |              |       |        | (2.8  | )     |       |       | (1.2   | ) |        |              |       |        |       |        | (4.0   | )
|                      |                                                              |                                                                         |                                                          | Changes in assets and liabilities:                                             |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |        |       |        |        |  
|                      |                                                              |                                                                         |                                                          | Accounts receivable                                                            |       |              |        |              |       |        | (68.4 | )     |       |       | (172.9 | ) |        |              |       |        |       |        | (241.3 | )
|                      |                                                              |                                                                         |                                                          | Inventories                                                                    |       |              |        |              |       |        | (2.2  | )     |       |       | (71.3  | ) |        |              |       |        |       |        | (73.5  | )
|                      |                                                              |                                                                         |                                                          | Accounts payable                                                               |       |              |        |              |       |        | 77.4  |       |       |       | 21.3   |   |        |              |       |        |       |        | 98.7   |  
|                      |                                                              |                                                                         |                                                          | Other accrued liabilities and taxes                                            |       |              |        |              |       |        | 45.5  |       |       |       | 182.9  |   |        |              |       |        |       |        | 228.4  |  
|                      |                                                              |                                                                         |                                                          | Post-retirement benefits                                                       |       |              |        |              |       |        | (13.8 | )     |       |       | (4.4   | ) |        |              |       |        |       |        | (18.2  | )
|                      |                                                              |                                                                         |                                                          | Other assets                                                                   |       |              |        |              |       |        | 52.8  |       |       |       | (149.5 | ) |        |              |       |        |       |        | (96.7  | )
|                      |                                                              |                                                                         |                                                          | Other long-term liabilities                                                    |       |              |        |              |       |        | 51.5  |       |       |       | (8.9   | ) |        |              |       |        |       |        | 42.6   |  
|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |       
|                      |                                                              | Net cash provided by
operating activities                               |                                                          |                                                                                |      |              |        |              | 352.7 |        |       |       | 121.1 |       |        |   |       |              |       |        | 473.8 |       
|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |       
|                      | Investing activities:                                        |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |        |      
|                      |                                                              |                                                                         | Purchase of property, plant and equipment                |                                                                                |       |              |        |              |       | (40.2  | )     |       |       | (62.0 | )      |   |        |              |       |        |       | (102.2 | )     
|                      |                                                              |                                                                         | Investments in affiliated companies and
other businesses |                                                                                |       |              |        |              |       |        |       |       |       | (24.3 | )      |   |        |              |       |        |       | (24.3  | )     
|                      |                                                              |                                                                         | Investments in computer software                         |                                                                                |       |              |        |              |       | (16.9  | )     |       |       | (12.5 | )      |   |        |              |       |        |       | (29.4  | )     
|                      |                                                              |                                                                         | Other                                                    |                                                                                |       |              |        |              |       | .7     |       |       |       | 4.8   |        |   |        |              |       |        |       | 5.5    |       
|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |       
|                      | Net cash used by investing activities                        |                                                                         |                                                          |                                                                               |       |              |        | (56.4        | )     |        |       | (94.0 | )     |       |        |  |        |              |       | (150.4 | )    
|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |       
|                      | Financing activities:                                        |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |        |      
|                      |                                                              |                                                                         | Proceeds from issuance of long-term debt                 |                                                                                |       |              |        |              |       |        |       |       |       | 32.7  |        |   |        |              |       |        |       | 32.7   |       
|                      |                                                              |                                                                         | Repayments of long-term debt                             |                                                                                |       |              |        |              |       | (125.8 | )     |       |       | (2.9  | )      |   |        |              |       |        |       | (128.7 | )     
|                      |                                                              |                                                                         | Net change in revolving credit facilities                |                                                                                |       |              |        |              |       | (144.5 | )     |       |       | (.7   | )      |   |        |              |       |        |       | (145.2 | )     
|                      |                                                              |                                                                         | Net change in other short-term debt                      |                                                                                |       |              |        |              |       | 40.0   |       |       |       | 7.4   |        |   |        |              |       |        |       | 47.4   |       
|                      |                                                              |                                                                         | Purchases of treasury stock                              |                                                                                |       | (105.2       | )      |              |       |        |       |       |       |       |        |   |        |              |       |        |       | (105.2 | )     
|                      |                                                              |                                                                         | Net change in intercompany accounts                      |                                                                                |       | 61.1         |        |              |       | (61.6  | )     |       |       | .5    |        |   |        |              |       |        |       |       |       
|                      |                                                              |                                                                         | Proceeds from exercise of stock options                  |                                                                                |       | 39.3         |        |              |       |        |       |       |       |       |        |   |        |              |       |        |       | 39.3   |       
|                      |                                                              |                                                                         | Proceeds from foreign exchange forward contracts         |                                                                                |       |              |        |              |       | 36.4   |       |       |       |       |        |   |        |              |       |        |       | 36.4   |       
|                      |                                                              |                                                                         | Other                                                    |                                                                                |       | 5.4          |        |              |       |        |       |       |       |       |        |   |        |              |       |        |       | 5.4    |       
|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |       
|                      | Net cash provided (used) by financing activities             |                                                                         |                                                          | .6                                                                             |       |              |        | (255.5       | )     |        |       | 37.0  |       |       |        |  |        |              |       | (217.9 | )    
|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |       
|                      | Effect of exchange rate changes on cash
and cash equivalents |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       | (.6   | )     |       |        |   |        |              |       | (.6    | )    
|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |       
|                      | Net increase in cash and cash equivalents                    |                                                                         |                                                          | .6                                                                             |       |              |        | 40.8         |       |        |       | 63.5  |       |       |        |  |        |              |       | 104.9  |      
|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |       
|                      | Cash and cash equivalents a
beginning of period              |                                                                         |                                                          |                                                                                |       |              |        | (22.9        | )     |        |       | 119.5 |       |       |        |   |        |              |       | 96.6   |      
|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |       
|                      | Cash and cash equivalents at end of period                   |                                                                         | $                                                        | .6                                                                             |       |              | $      | 17.9         |       |        | $     | 183.0 |       |       | $      |  |        |              | $     | 201.5  |      
|                      |                                                              |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |       |        |   |        |              |       |       

11



---



##### Table of Contents



Note 8. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002
(Unaudited)

|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |       |       |       |   |        |       |       |              |         |         |         | 
|-------------------------------------------------------------------------------- | -------------------------------------- | -------------- | ----- | ------ |  | ------------------ | ------- | ------------ | ------- | ----- | ----- | ----- | ----- | - | ------ | ----- | ----- | ------------ | ------- | ------- | ------- | 
|                                                                                 |                                        |                |       | Parent |  |                    |         |              |         |       |       |       |       |   |        |       |       | Consolidated
|(Dollars in millions)                                                            |                                        | Company        |       | ASI    |  | Other Subsidiaries |         | Eliminations |         | Total
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |      
|Sales                                                                            |                                        |                |       |        |  | $                  | 1,200.1 |              |         | $     | 902.1 |       |       | $ | (32.1  | )     |       | $            | 2,070.1 |        
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |       |       |       |   |        |       |       |              |         |        
|Costs and expenses:                                                              |                                        |                |       |        |  |                    |         |              |         |       |       |       |       |   |        |       |       |              |         |        
|                                                                                 | Cost of sales                          |                |       |        |  |                    |         | 906.0        |         |       |       | 690.5 |       |   |        | (32.1 | )     |              |         | 1,564.4 |        
|                                                                                 | Selling and administrative expenses    |                |       |        |  |                    |         | 165.8        |         |       |       | 137.9 |       |   |        |       |       |              |         | 303.7   |        
|                                                                                 | Other (income) expense                 |                |       |        |  |                    |         | (2.5         | )       |       |       | 1.8   |       |   |        |       |       |              |         | (.7     | )      
|                                                                                 | Interest expense                       |                |       |        |  |                    |         | 29.5         |         |       |       | 2.2   |       |   |        |       |       |              |         | 31.7    |        
|                                                                                 | Intercompany interest expense (income) |                |       |        |  |                    |         | (1.7         | )       |       |       | 1.7   |       |   |        |       |       |              |         |        |        
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |       |       |       |   |        |       |       |              |         |        
|                                                                                 |                                        | Total expenses |       |        |  |                    |         |              | 1,097.1 |       |       |       | 834.1 |   |        |       | (32.1 | )            |         |         | 1,899.1 | 
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |       |       |       |   |        |       |       |              |         |        
|Income before income taxes and equity in
net income of consolidated subsidiaries |                                        |                |       |        |  |                    | 103.0   |              |         |       | 68.0  |       |       |   |       |       |       |              | 171.0   |        
|Income taxes                                                                     |                                        |                |       |        |  |                    | 35.5    |              |         |       | 21.4  |       |       |   |        |       |       |              | 56.9    |        
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |       |       |       |   |        |       |       |              |         |        
|Income before equity in net income of
consolidated subsidiaries                  |                                        |                |       |        |  |                    | 67.5    |              |         |       | 46.6  |       |       |   |       |       |       |              | 114.1   |        
|Equity in net income of consolidated
subsidiaries                                |                                        | $              | 114.1 |        |  |                    |        |              |         |       |      |       |       | $ | (114.1 | )     |       |              |        |        
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |       |       |       |   |        |       |       |              |         |        
|Net income                                                                       |                                        | $              | 114.1 |        |  | $                  | 67.5    |              |         | $     | 46.6  |       |       | $ | (114.1 | )     |       | $            | 114.1   |        
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |       |       |       |   |        |       |       |              |         |        

CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(Unaudited)

|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |         |         |         |   |        |        |        |              |         |         |         | 
|-------------------------------------------------------------------------------- | -------------------------------------- | -------------- | ----- | ------ |  | ------------------ | ------- | ------------ | ------- | ----- | ------- | ------- | ------- | - | ------ | ------ | ------ | ------------ | ------- | ------- | ------- | 
|                                                                                 |                                        |                |       | Parent |  |                    |         |              |         |       |         |         |         |   |        |        |        | Consolidated
|(Dollars in millions)                                                            |                                        | Company        |       | ASI    |  | Other Subsidiaries |         | Eliminations |         | Total
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |      
|Sales                                                                            |                                        |                |       |        |  | $                  | 3,440.8 |              |         | $     | 2,704.2 |         |         | $ | (226.5 | )      |        | $            | 5,918.5 |        
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|Costs and expenses:                                                              |                                        |                |       |        |  |                    |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|                                                                                 | Cost of sales                          |                |       |        |  |                    |         | 2,606.5      |         |       |         | 2,093.9 |         |   |        | (226.5 | )      |              |         | 4,473.9 |        
|                                                                                 | Selling and administrative expenses    |                |       |        |  |                    |         | 486.8        |         |       |         | 401.8   |         |   |        |        |        |              |         | 888.6   |        
|                                                                                 | Other expense                          |                |       |        |  |                    |         | 1.8          |         |       |         | 10.9    |         |   |        |        |        |              |         | 12.7    |        
|                                                                                 | Interest expense                       |                |       |        |  |                    |         | 90.9         |         |       |         | 6.9     |         |   |        |        |        |              |         | 97.8    |        
|                                                                                 | Intercompany interest (income) expense |                |       |        |  |                    |         | (1.4         | )       |       |         | 1.4     |         |   |        |        |        |              |         |        |        
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|                                                                                 |                                        | Total expenses |       |        |  |                    |         |              | 3,184.6 |       |         |         | 2,514.9 |   |        |        | (226.5 | )            |         |         | 5,473.0 | 
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|Income before income taxes and equity in
net income of consolidated subsidiaries |                                        |                |       |        |  |                    | 256.2   |              |         |       | 189.3   |         |         |   |       |        |        |              | 445.5   |        
|Income taxes                                                                     |                                        |                |       |        |  |                    | 88.5    |              |         |       | 59.9    |         |         |   |        |        |        |              | 148.4   |        
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|Income before equity in net income of
consolidated subsidiaries                  |                                        |                |       |        |  |                    | 167.7   |              |         |       | 129.4   |         |         |   |       |        |        |              | 297.1   |        
|Equity in net income of consolidated
subsidiaries                                |                                        | $              | 297.1 |        |  |                    |        |              |         |       |        |         |         |   | (297.1 | )      |        |              |        |        
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |         |         |         |   |        |        |        |              |         |        
|Net income                                                                       |                                        | $              | 297.1 |        |  | $                  | 167.7   |              |         | $     | 129.4   |         |         | $ | (297.1 | )      |        | $            | 297.1   |        
|                                                                                 |                                        |                |       |        |  |                    |         |              |         |       |         |         |         |   |        |        |        |              |         |        

12



---



##### Table of Contents



Note 8. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 2002

|                                               |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |         |         | 
|---------------------------------------------- | ------------------------------------ | ---------------------------------------------------- | - | ------ | ----- | ------ | - | ------- | -------- | ------- | - | ------- | ------- | ----- | - | ------ | ------ | -------- | - | ------- | ------- | 
|                                               |                                      |                                                      |   |        |       |        |   |         |          |         |   | Other   |         |       |   |        |        | Consoli-
|                                               |                                      |                                                      |   | Parent |       |        |   |         |          | Subsid- |   | Elimin- |         | dated
|(Dollars in millions)                          |                                      | Company                                              |   | ASI    |       | iaries |   | ations  |          | Total  
|                                               |                                      |                                                      |   |        |       |        |   |         |          |        
|ASSETS                                         |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        
|Current assets:                                |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        
|                                               | Cash and cash equivalents            |                                                      |   |        |       |        | $ | (22.9   | )        |         | $ | 119.5   |         |       |   |        |        |          | $ | 96.6    |        
|                                               | Accounts receivable, net             |                                                      |   |        |       |        |   | 453.3   |          |         |   | 428.1   |         |       |   |        |        |          |   | 881.4   |        
|                                               | Inventories                          |                                                      |   |        |       |        |   | 353.9   |          |         |   | 416.8   |         |       |   |        |        |          |   | 770.7   |        
|                                               | Other current assets                 |                                                      |   |        |       |        |   | 178.9   |          |         |   | 86.8    |         |       |   |        |        |          |   | 265.7   |        
|                                               |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        
|                                               |                                      | Total current assets                                 |   |        |       |        |   |         | 963.2    |         |   |         | 1,051.2 |       |   |        |        |          |   |         | 2,014.4 | 
|                                               | Facilities, net                      |                                                      |   |        |       |        |   | 575.2   |          |         |   | 854.9   |         |       |   |        |        |          |   | 1,430.1 |        
|                                               | Goodwill, net                        |                                                      |   |        |       |        |   | 133.0   |          |         |   | 879.8   |         |       |   |        |        |          |   | 1,012.8 |        
|                                               | Investment in subsidiaries           |                                                      | $ | 860.2  |       |        |   |        |          |         |   |        |         |       | $ | (860.2 | )      |          |   |        |        
|                                               | Other assets                         |                                                      |   |        |       |        |   | 624.2   |          |         |   | 62.3    |         |       |   |        |        |          |   | 686.5   |        
|                                               |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        
|                                               |                                      | Total assets                                         |   | $      | 860.2 |        |   | $       | 2,295.6  |         |   | $       | 2,848.2 |       |   | $      | (860.2 | )        |   | $       | 5,143.8 | 
|                                               |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        
|LIABILITIES AND SHAREHOLDERS
(DEFICIT) EQUITY |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        
|Current liabilities:                           |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        
|                                               | Loans payable to banks               |                                                      |   |        |       |        |   |         |          |         | $ | 36.3    |         |       |   |        |        |          | $ | 36.3    |        
|                                               | Current maturities of long-term debt |                                                      |   |        |       |        | $ | 2.4     |          |         |   | 2.1     |         |       |   |        |        |          |   | 4.5     |        
|                                               | Other current liabilities            |                                                      |   |        |       |        |   | 836.4   |          |         |   | 788.4   |         |       |   |        |        |          |   | 1,624.8 |        
|                                               |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        
|                                               |                                      | Total current liabilities                            |   |        |       |        |   |         | 838.8    |         |   |         | 826.8   |       |   |        |        |          |   |         | 1,665.6 | 
|                                               | Long-term debt                       |                                                      |   |        |       |        |   | 1,864.2 |          |         |   | 54.2    |         |       |   |        |        |          |   | 1,918.4 |        
|                                               | Reserve for post-retirement benefits |                                                      |   |        |       |        |   | 347.0   |          |         |   | 276.3   |         |       |   |        |        |          |   | 623.3   |        
|                                               | Intercompany accounts, net           |                                                      | $ | 630.4  |       |        |   | 232.0   |          |         |   | (862.4  | )       |       |   |        |        |          |   |        |        
|                                               | Other long-term liabilities          |                                                      |   |        |       |        |   | 400.3   |          |         |   | 306.4   |         |       |   |        |        |          |   | 706.7   |        
|                                               |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        
|                                               |                                      | Total liabilities                                    |   |        | 630.4 |        |   |         | 3,682.3  |         |   |         | 601.3   |       |   | $      |       |          |   |         | 4,914.0 | 
|                                               |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        
|                                               |                                      | Total shareholders equity (deficit)                 |   |        | 229.8 |        |   |         | (1,386.7 | )       |   |         | 2,246.9 |       |   |        | (860.2 | )        |   |         | 229.8   | 
|                                               |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        
|                                               |                                      | Total liabilities and shareholders equity (deficit) |   | $      | 860.2 |        |   | $       | 2,295.6  |         |   | $       | 2,848.2 |       |   | $      | (860.2 | )        |   | $       | 5,143.8 | 
|                                               |                                      |                                                      |   |        |       |        |   |         |          |         |   |         |         |       |   |        |        |          |   |        

13



---



##### Table of Contents



Note 8. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(Unaudited)

|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |        |       |        |        |  
|--------------------- | ------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------------------------------------ | ----- | ------------ | ------ | ------------ | ----- | ------ | ----- | ----- | ----- | ------ | ------ | - | ------ | ------------ | ----- | ------ | ----- | ------ | ------ | -
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       | Parent       |        |              |       |        |       | Other |       |        |        |   |        | Consolidated
|(Dollars in millions) |                                                                                            | Company                                                                 |                                                          | ASI                                                                            |       | Subsidiaries |        | Eliminations |       | Total 
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |       
|Cash provided by:     |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       
|                      | Operating activities:                                                                      |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |        |      
|                      |                                                                                            | Net income                                                              |                                                          | $                                                                              | 297.1 |              |        | $            | 167.7 |        |       | $     | 129.4 |        |        | $ | (297.1 | )            |       | $      | 297.1 |       
|                      |                                                                                            | Adjustments to reconcile net income to net
cash provided by operations: |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |        |       |       
|                      |                                                                                            |                                                                         |                                                          | Depreciation and amortization                                                  |       |              |        |              |       |        | 64.0  |       |       |        | 91.2   |   |        |              |       |        |       |        | 155.2  |  
|                      |                                                                                            |                                                                         |                                                          | Equity in earnings of unconsolidated joint
ventures, net of dividends received |       |              |        |              |       |        | (6.8  | )     |       |        | (1.3   | ) |        |              |       |        |       |        | (8.1   | )
|                      |                                                                                            |                                                                         |                                                          | Non-cash stock compensation                                                    |       |              |        |              |       |        | 40.9  |       |       |        |        |   |        |              |       |        |       |        | 40.9   |  
|                      |                                                                                            |                                                                         |                                                          | Equity in net income of subsidiaries                                           |       |              | (297.1 | )            |       |        |       |       |       |        |        |   |        |              | 297.1 |        |       |        |       |  
|                      |                                                                                            |                                                                         |                                                          | Changes in assets and liabilities:                                             |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |        |       |        |        |  
|                      |                                                                                            |                                                                         |                                                          | Accounts receivable                                                            |       |              | .3     |              |       |        | (25.7 | )     |       |        | (77.9  | ) |        |              |       |        |       |        | (103.3 | )
|                      |                                                                                            |                                                                         |                                                          | Inventories                                                                    |       |              |        |              |       |        | (38.5 | )     |       |        | (36.9  | ) |        |              |       |        |       |        | (75.4  | )
|                      |                                                                                            |                                                                         |                                                          | Accounts payable                                                               |       |              |        |              |       |        |       |       |       |        | 16.6   |   |        |              |       |        |       |        | 16.6   |  
|                      |                                                                                            |                                                                         |                                                          | Other accrued liabilities and taxes                                            |       |              |        |              |       |        | 166.7 |       |       |        | (134.5 | ) |        |              |       |        |       |        | 32.2   |  
|                      |                                                                                            |                                                                         |                                                          | Post-retirement benefits                                                       |       |              |        |              |       |        | (24.3 | )     |       |        | (.4    | ) |        |              |       |        |       |        | (24.7  | )
|                      |                                                                                            |                                                                         |                                                          | Other assets                                                                   |       |              |        |              |       |        | (97.9 | )     |       |        | 29.6   |   |        |              |       |        |       |        | (68.3  | )
|                      |                                                                                            |                                                                         |                                                          | Other long-term liabilities                                                    |       |              |        |              |       |        | 81.8  |       |       |        | 3.1    |   |        |              |       |        |       |        | 84.9   |  
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       
|                      | Net cash provided by operating activities
before proceeds from initial sale of receivables |                                                                         |                                                          | .3                                                                             |       |              |        | 327.9        |       |        |       | 18.9  |       |        |        |  |        |              |       | 347.1  |      
|                      | Proceeds from initial sale of receivables, net                                             |                                                                         |                                                          |                                                                                |       |              |        | (100.7       | )     |        |       | 182.1 |       |        |        |   |        |              |       | 81.4   |      
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       
|                      | Net cash provided by operating activities                                                  |                                                                         |                                                          | .3                                                                             |       |              |        | 227.2        |       |        |       | 201.0 |       |        |        |  |        |              |       | 428.5  |      
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       
|                      | Investing activities:                                                                      |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |        |      
|                      |                                                                                            |                                                                         | Purchase of property, plant and equipment                |                                                                                |       |              |        |              |       | (37.9  | )     |       |       | (53.2  | )      |   |        |              |       |        |       | (91.1  | )     
|                      |                                                                                            |                                                                         | Investments in affiliated companies and
other businesses |                                                                                |       |              |        |              |       | (22.0  | )     |       |       |        |        |   |        |              |       |        |       | (22.0  | )     
|                      |                                                                                            |                                                                         | Investments in computer software                         |                                                                                |       |              |        |              |       | (16.4  | )     |       |       | (13.9  | )      |   |        |              |       |        |       | (30.3  | )     
|                      |                                                                                            |                                                                         | Proceeds from dissolution of partnership                 |                                                                                |       |              |        |              |       | 25.8   |       |       |       |        |        |   |        |              |       |        |       | 25.8   |       
|                      |                                                                                            |                                                                         | Other                                                    |                                                                                |       |              |        |              |       | 3.0    |       |       |       | 10.6   |        |   |        |              |       |        |       | 13.6   |       
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       
|                      | Net cash used by investing activities                                                      |                                                                         |                                                          |                                                                               |       |              |        | (47.5        | )     |        |       | (56.5 | )     |        |        |  |        |              |       | (104.0 | )    
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       
|                      | Financing activities:                                                                      |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |        |      
|                      |                                                                                            |                                                                         | Repayments of long-term debt                             |                                                                                |       |              |        |              |       | (38.6  | )     |       |       | (1.2   | )      |   |        |              |       |        |       | (39.8  | )     
|                      |                                                                                            |                                                                         | Net change in revolving credit facilities                |                                                                                |       |              |        |              |       | (217.5 | )     |       |       | 50.3   |        |   |        |              |       |        |       | (167.2 | )     
|                      |                                                                                            |                                                                         | Net change in other short-term debt                      |                                                                                |       |              |        |              |       | 17.9   |       |       |       | 6.9    |        |   |        |              |       |        |       | 24.8   |       
|                      |                                                                                            |                                                                         | Purchases of treasury stock                              |                                                                                |       | (135.7       | )      |              |       |        |       |       |       |        |        |   |        |              |       |        |       | (135.7 | )     
|                      |                                                                                            |                                                                         | Net change in intercompany accounts                      |                                                                                |       | 78.4         |        |              |       | 72.9   |       |       |       | (151.3 | )      |   |        |              |       |        |       |       |       
|                      |                                                                                            |                                                                         | Proceeds from exercise of stock options                  |                                                                                |       | 51.4         |        |              |       |        |       |       |       |        |        |   |        |              |       |        |       | 51.4   |       
|                      |                                                                                            |                                                                         | Other                                                    |                                                                                |       | 5.6          |        |              |       |        |       |       |       |        |        |   |        |              |       |        |       | 5.6    |       
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       
|                      | Net cash used by financing activities                                                      |                                                                         |                                                          | (.3                                                                            | )     |              |        | (165.3       | )     |        |       | (95.3 | )     |        |        |  |        |              |       | (260.9 | )    
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       
|                      | Effect of exchange rate changes on cash
and cash equivalents                               |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       | .1    |       |        |        |   |        |              |       | .1     |      
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       
|                      | Net increase in cash and
cash equivalents                                                  |                                                                         |                                                          |                                                                               |       |              |        | 14.4         |       |        |       | 49.3  |       |        |        |  |        |              |       | 63.7   |      
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       
|                      | Cash and cash equivalents at
beginning of period                                           |                                                                         |                                                          |                                                                               |       |              |        | 3.1          |       |        |       | 79.0  |       |        |        |  |        |              |       | 82.1   |      
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       
|                      | Cash and cash equivalents at end of period                                                 |                                                                         | $                                                        |                                                                               |       |              | $      | 17.5         |       |        | $     | 128.3 |       |        | $      |  |        |              | $     | 145.8  |      
|                      |                                                                                            |                                                                         |                                                          |                                                                                |       |              |        |              |       |        |       |       |       |        |        |   |        |              |       |       

14



---



##### Table of Contents



Note 9. Segment Data

Summary Segment and Income Statement Data
(Dollars in millions)
(Unaudited)

|                                                      |                                       |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |         | 
|----------------------------------------------------- | ------------------------------------- | - | ------------------ | ------- | ----------------- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                                      |                                       |   | Three months ended |         | Nine months ended
|                                                      |                                       |   | September 30,      |         | September 30,    
|                                                      |                                       |   |                    |         |                  
|                                                      |                                       |   | 2003               |         | 2002              |   | 2003    |         | 2002
|                                                      |                                       |   |                    |         |                   |   |         |         |     
|Sales:                                                |                                       |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|                                                      | Air Conditioning Systems and Services |   | $                  | 1,349.9 |                   |   | $       | 1,288.6 |      |   | $       | 3,789.3 |  |   | $       | 3,648.7 | 
|                                                      | Bath and Kitchen                      |   |                    | 556.7   |                   |   |         | 510.5   |      |   |         | 1,668.4 |  |   |         | 1,491.2 | 
|                                                      | Vehicle Control Systems               |   |                    | 327.8   |                   |   |         | 271.0   |      |   |         | 992.3   |  |   |         | 778.6   | 
|                                                      |                                       |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|                                                      |                                       | $ | 2,234.4            |         |                   | $ | 2,070.1 |         |      | $ | 6,450.0 |         |  | $ | 5,918.5 |        
|                                                      |                                       |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|Segment income:                                       |                                       |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|                                                      | Air Conditioning Systems and Services |   | $                  | 165.7   |                   |   | $       | 170.1   |      |   | $       | 428.7   |  |   | $       | 434.8   | 
|                                                      | Bath and Kitchen                      |   |                    | 43.0    |                   |   |         | 37.1    |      |   |         | 113.8   |  |   |         | 119.0   | 
|                                                      | Vehicle Control Systems               |   |                    | 42.4    |                   |   |         | 30.3    |      |   |         | 137.1   |  |   |         | 102.3   | 
|                                                      |                                       |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|                                                      |                                       |   | 251.1              |         |                   |   | 237.5   |         |      |   | 679.6   |         |  |   | 656.1   |        
|Equity in net income of unconsolidated joint ventures |                                       |   | 7.4                |         |                   |   | 8.4     |         |      |   | 18.5    |         |  |   | 19.7    |        
|                                                      |                                       |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|                                                      |                                       |   | 258.5              |         |                   |   | 245.9   |         |      |   | 698.1   |         |  |   | 675.8   |        
|Interest expense                                      |                                       |   | (28.6              | )       |                   |   | (31.7   | )       |      |   | (88.9   | )       |  |   | (97.8   | )      
|Corporate and other expenses                          |                                       |   | (52.3              | )       |                   |   | (43.2   | )       |      |   | (145.1  | )       |  |   | (132.5  | )      
|                                                      |                                       |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        
|Income before income taxes                            |                                       | $ | 177.6              |         |                   | $ | 171.0   |         |      | $ | 464.1   |         |  | $ | 445.5   |        
|                                                      |                                       |   |                    |         |                   |   |         |         |      |   |         |         |  |   |         |        

For a comparative analysis of this Summary Segment and Income Statement Data,
see Managements Discussion and Analysis of Financial Condition and Results of
Operations on the following pages.

15



---



##### Table of Contents






PART 1. FINANCIAL INFORMATION




Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations for the Third Quarter and First Nine Months of 2003
Compared with the Third Quarter and First Nine Months of 2002

The following discussion and analysis addresses year-to-year changes in
the line items shown in the Summary Segment and Income Statement Data in Note
9 of Notes to Financial Statements. Year-over-year changes in sales and
segment income and, in certain cases, operating margins, are presented both
with and without the effects of foreign exchange translation. Year-over-year
changes in sales for the Bath and Kitchen segment are also presented with and
without the incremental sales resulting from an acquisition in the first
quarter of 2003. Management believes that presenting the analysis excluding
those effects is helpful in assessing the overall performance of the business
on a comparative basis from year to year. To determine the year-over-year
change without the effects of foreign exchange translation, sales and segment
income for the current year periods are translated at the average exchange
rates for the prior year periods.

Sales in the third quarter of 2003 were $2.234 billion, an increase of
$164 million, or 8% (4% excluding favorable foreign exchange translation
effects), from $2.070 billion in the third quarter of 2002. Sales increased
5% for Air Conditioning Systems and Services, 9% for Bath and Kitchen and 21%
for Vehicle Control Systems.

Segment income for the third quarter of 2003 was $251.1 million, an
increase of $13.6 million, or 6% (3% excluding favorable foreign exchange
translation effects), from $237.5 million of segment income in the third
quarter of 2002. Segment income increases of 16% for Bath and Kitchen and 40%
for Vehicle Control Systems were slightly offset by a decrease of 3% for Air
Conditioning Systems and Services.

Sales for the first nine months of 2003 were $6.450 billion, an increase
of $531.5 million, or 9% (4% excluding favorable foreign exchange translation
effects), from $5.919 billion in the first nine months of 2002. Sales
increased 4% for Air Conditioning Systems and Services, 12% for Bath and
Kitchen and 27% for Vehicle Control Systems.

Segment income was $679.6 million for the first nine months of 2003, an
increase of 4% (a decrease of 1% excluding favorable foreign exchange
translation effects) from $656.1 million in the first nine months of 2002.
Segment income increased 34% for Vehicle Control Systems but decreased 1% for
Air Conditioning Systems and Services and 4% for Bath and Kitchen.

Sales of Air Conditioning Systems and Services increased 5% (3% excluding
favorable foreign exchange translation effects) to $1.350 billion for the
third quarter of 2003, from $1.289 billion for the third quarter of 2002.
This increase resulted primarily from continued strength in residential
product sales, improvements in commercial unitary and international markets,
and continuing growth in the parts, services and solutions business. Those
positives were partly offset by lower sales in the North American and European
applied equipment market, which continued to be very weak and price
competitive. Sales of residential air conditioning products were up 8% versus
the third quarter of last year, on top of an unusually high 27% increase in
the third quarter of last year, when the weather was much warmer than normal
and we caught up on some unfulfilled demand from the second quarter. We
continue
16Table of Contents

to outperform the domestic residential unitary market, which we estimate was
up 2% for the third quarter of this year compared with last years third
quarter, based upon data published by ARI (Air-Conditioning & Refrigeration
Institute) for July and August, and our estimate for September. Our
residential products distributors experienced good sell-through of our
products to dealers in the quarter, resulting in their inventory levels
remaining low versus historical levels. In addition, combined factory and
distributor inventory levels ended the third quarter approximately even with
the average levels since 1992, even though the market has grown substantially.
We also continued to see growth in our marketing arrangement with Home Depot
through which certain residential central heating and air conditioning systems
are offered. Consumers continue to look for reliability and efficiency
options. Our high-efficiency product lines capitalize on this demand. As we
enter the heating season in North America, sales of our high-efficiency
furnaces are up strongly for the first nine months of 2003 compared with the
same period last year. In our Commercial air conditioning business, we
outperformed the equipment markets on a global basis. Improvements in our
commercial unitary product line sales partly offset both the lower applied
equipment volume in the U.S. and Europe, and the effect of significant global
price pressures. We continued to experience the weakness in the North
American commercial equipment market that we have seen over the past three
years. Customers continued to defer replacement of equipment, which accounts
for 60 to 70% of our equipment sales, and we estimate that non-residential
construction activity in the U.S. declined approximately 4% in the quarter.
The commercial equipment market in the U.S. was down an estimated 6% in the
first nine months of 2003 (based upon preliminary ARI data for commercial
unitary markets and our own estimates for applied markets), following drops of
11% in 2002 and 8% in 2001. For the third quarter of 2003, global commercial
equipment sales, about half of our total air conditioning sales, were flat
(down approximately 1% excluding favorable foreign exchange translation
effects) compared with third-quarter 2002 sales. Sales outside the U.S.,
which are substantially commercial, grew 10% (4% excluding favorable foreign
exchange translation effects), led by strong growth in Asia. Sales in our
parts, services and solutions business increased 8% in the third quarter (6%
excluding favorable foreign exchange translation effects). We experienced
relatively strong growth in parts, where customers have less discretion to
defer purchases, and lower growth in services and solutions, where customers
have more flexibility to defer spending. We ended the quarter with a backlog
of $605 million, down slightly compared to both the third quarter of last year
and second quarter 2003 levels. Sales for Air Conditioning Systems and
Services for the first nine months of 2003 increased by 4% (2% excluding
favorable foreign exchange translation effects) to $3.789 billion from $3.649
billion in the first nine months of 2002, primarily for the same reasons
explaining the third quarter increase.

Segment income of Air Conditioning Systems and Services decreased 3%
(with little effect from foreign exchange translation) to $165.7 million in
the third quarter of 2003 from $170.1 million in the third quarter of 2002.
Segment operating margin declined to 12.3% for the third quarter of 2003 from
13.2% in the prior-year quarter. The benefits from materials management and
Six Sigma productivity initiatives and volume growth in the residential and
commercial unitary businesses essentially offset cost escalations and sales
price decreases in our applied equipment business. The net effect of those
factors, together with an increase in our continuing investments in the
business, resulted in an overall decline in segment operating income and
margin. Our increased investments in the business consisted primarily of
additional expenditures on service capabilities in the commercial business,
marketing, advertising and salespeople in the residential business, and
product design and manufacturing capabilities. Segment income for the first
nine months of 2003 decreased 1% (2% excluding favorable foreign exchange
translation effects) to $428.7 million from $434.8 million in the first nine
months of 2002, essentially for the reasons mentioned for the third quarter
decrease.

17



---



##### Table of Contents



Sales of Bath and Kitchen increased 9% (4% excluding favorable foreign
exchange translation effects) to $556.7 million in the third quarter of 2003,
from $510.5 million in the third quarter of 2002. Excluding sales of $6.3
million from a small acquisition in Europe completed in the first quarter of
2003, sales increased 8% (3% excluding favorable foreign exchange translation
effects). Sales in the Americas increased 3% (2% excluding favorable foreign
exchange translation effects), which came on top of 13% growth in the third
quarter of 2002 (14% excluding foreign exchange effects) when sales were
helped by the expansion of our Whirlpool program at Home Depot. Sales in the
quarter benefited from our expanded faucet business and the continued success
of our total bathroom concept in the retail channel, selling integrated
suites of products. Examples of these are the Standard Collection at Home
Depot, introduced in 2002, and the Sottini suites, introduced near the end of
2002 at Lowes, both of which continued to experience good sales growth. In the
wholesale channel, increased sales of high-end faucets contributed to margin
expansion in the quarter. Our new Champion toilet, with Americas Best
Flushing System, established strong presence and achieved good distribution in
the wholesale channel in the third quarter of 2003 at product margins that are
better than the category average. We believe Champion will have a positive
impact on sales and margins in both wholesale and retail. In Europe, where
our business is larger and our margin structure is better, sales increased 14%
(3% excluding favorable foreign exchange translation effects). Excluding both
the favorable foreign exchange effect and sales of $6.3 million from a small
acquisition we made in the first quarter, our sales were flat in markets that
were down modestly. We continue spending to reinforce our strong market
positions in Europe. In Asia, sales increased 19% (17% excluding favorable
foreign exchange translation effects), off a small but growing base. The new
residential market continues to be strong in China, and our sales
significantly outgrew the market, which we estimate was up 8%. Sales in Korea
and Thailand also increased strongly in the quarter, resulting from successful
new suite introductions. Sales of Bath and Kitchen for the first nine months
of 2003 increased 12% (4% excluding favorable foreign exchange translation
effects) to $1.668 billion from $1.491 billion in the first nine months of
2002. This increase was due principally to the same factors affecting third
quarter sales.

Segment income of Bath and Kitchen increased 16% (15% excluding favorable
foreign exchange translation effects) to $43.0 million for the third quarter
of 2003 from $37.1 million in the third quarter of 2002. Operating margin was
7.7%, up from 6.3% in the second quarter of this year and up from 7.3% from
the third quarter last year. Segment income and margins for the third
quarter of 2003 benefited from
fixing the operational issues that adversely affected our results over the
last nine months of 2002 and the first half of 2003. Those benefits were partly
offset by continued investment in new performance products, new suite
introductions, and our total bathroom strategy. Segment income for the
first nine months of 2003 decreased 4% (12% excluding favorable foreign
exchange translation effects) to $113.8 million from $119.0 million in the
first nine months of 2002. The decrease resulted primarily because the
improvements in the third quarter were more than offset by second-quarter
expenses of approximately $6.5 million related to headcount reductions in the
Americas and Europe and closing a plant in Italy, together with the adverse
affect in the first half of the year from lower prices and an unfavorable
sales mix of lower-margin products.

Sales of Vehicle Control Systems for the third quarter of 2003 were
$327.8 million, an increase of 21% (8% excluding favorable foreign exchange
translation effects) from $271.0 million in the third quarter of 2002. The
increase was attributable to increased content per vehicle, including new
applications, and continued globalization of our technology. We had strong
performance in truck and bus brake control systems and transmission control
systems, and in air suspension systems for luxury cars and sport utility
vehicles. Sales in Europe, our largest market, increased 21% (5% excluding
favorable foreign exchange

18



---



##### Table of Contents



translation effects) in the third quarter, outperforming the European truck and bus market decline
of 1%. Sales were flat in North America, outperforming an estimated market
decline of 5%. In Asia and Latin America, our sales also outperformed truck
and bus markets in the quarter. Backlog at quarter end was $546 million, up
17%(12% excluding favorable foreign exchange translation effects) from the
third quarter last year and up 8% from second quarter 2003 levels. Sales of
Vehicle Control Systems for the first nine months of 2003 increased 27% (10%
excluding favorable foreign exchange translation effects) to $992.3 million
from $778.6 million in the first nine months of 2002, primarily for the
reasons cited for the third quarter increase.

Segment income for Vehicle Control Systems for the third quarter of 2003
increased 40% (24% excluding favorable foreign exchange translation effects)
to $42.4 million from $30.3 million in the third quarter of 2002. Segment
operating margin was 12.9%, up 170 basis points (160 basis points excluding
favorable foreign exchange translation effects) from 11.2% in the third
quarter of last year. The improvement in operating income and margins
primarily reflected volume leverage, savings from materials management and Six
Sigma initiatives, and the absence of higher warranty costs incurred in the
third quarter of 2002. Segment income for Vehicle Control Systems for the
first nine months of 2003 was $137.1 million, an increase of 34% (14%
excluding favorable foreign exchange translation effects) from $102.3 million
in the first nine months of 2002, primarily for the reasons cited for the
third quarter increase.

Other Summary Segment and Income Data Items

Equity in net income of unconsolidated joint ventures decreased to $7.4
million for the third quarter of 2003 from $8.4 million for the third quarter
of 2002 and was $18.5 million for the first nine months of 2003, compared with
$19.7 million in the first nine months of 2002. The decrease in the quarter
and nine months resulted primarily from our decision to terminate our
receivables discounting JV with TransAmerica in the third quarter of last
year; a decision which has resulted in lower interest costs.

Interest expense decreased by $3.1 million in the third quarter of 2003
and by $8.9 million in the first nine months of 2003 compared to the
year-earlier quarter and nine months, primarily due to lower average debt
balances.

Corporate and other expenses, as shown on the Summary Segment and Income
Statement Data table in Note 9 of Notes to Financial Statements, increased by
$9.1 million in the third quarter of 2003 and by $12.6 million in the first
nine months of 2003 compared to the year-earlier quarter and nine months.
Those increases primarily reflected adverse foreign exchange effects and
escalations in pension, medical and insurance costs. Corporate and other
expenses primarily include some of the expenses classified as selling and
administrative expenses in the Unaudited Statement of Income on page 2.
Corporate and other expenses also include certain items classified in Other
expense (income) in the Unaudited Statement of Income. Period-to-period
changes in the significant components of Other expense (income) are explained
by the comments in this paragraph on corporate expenses, and in the first
paragraph of this section on equity in net income of unconsolidated joint
ventures.

The income tax provision for the third quarter of 2003 was $55.1 million
and for the first nine months of 2003 was $143.9 million, or 31.0% of income
before income taxes. Those compared with provisions of $56.9 million and
$148.4 million, or 33.3% of income before income taxes in the same periods of
2002. The estimated effective income tax rate remained

19



---



##### Table of Contents



at 31.0% for 2003 and
is lower than the rate in 2002 primarily because of a more efficient tax
structure.

Liquidity and Capital Resources

Net cash provided by operating activities, was $473.8 million for the
first nine months of 2003. This compared with net cash provided of $347.1
million, excluding proceeds from the initial sale of receivables, for the
first nine months of 2002. The $126.7 million increase resulted primarily
because the first nine months of 2002 included a $55 million payment of a
German tax settlement, and because other net tax payments in general were
approximately $28 million lower in the first nine months of 2003 than in 2002.
Other factors contributing to the increase were higher net income and higher
accrued taxes thereon, and higher depreciation and amortization. All of these
favorable factors were partly offset by higher net working capital usage
(accounts receivable, inventories and accounts payable). Accounts receivable
increased (a use of cash) more in the first nine months of 2003 than in the
first nine months of 2002, primarily reflecting sales growth and slower
payments by customers. Inventories increased (a use of cash) by like amounts
in the first nine months of both years, primarily reflecting growth. Accounts
payable increased (a source of cash) more in 2003 than in 2002, primarily
reflecting growth in the business and higher inventory levels. Proceeds from
the initial sale of receivables under a financing arrangement established in
Europe in the first nine months of 2002, less a decrease in receivables sold
under a new financing arrangement in the U.S., added a net $81.4 million to
total cash provided by operating activities in the first nine months of 2002.

In investing activities, the Company made capital expenditures of $126.5
million for the first nine months of 2003, including $24.3 million of
investments in affiliated companies and other businesses. This compared with
capital expenditures of $113.1 million in the first nine months of 2002,
including $22.0 million of investments in affiliated companies and other
businesses. The Company also invested $29.4 million in computer software in
2003 and $30.3 million in 2002. Investing activities in 2002 were partly
offset by the return of invested capital and accumulated earnings of $25.8
million from dissolution of the U.S. receivables financing joint venture, and
proceeds of $13.6 million from the sale of miscellaneous assets.

The excess of cash provided by operating activities over cash used by
investing activities in the first nine months of 2003 was $323.4 million and
was used to fund net financing activities of $217.9 million, resulting in a
net increase in cash of $104.9 million (including a small foreign exchange
effect). Financing expenditures consisted primarily of net debt repayments of
$193.8 million and the purchase of approximately 1.5 million shares of the
Companys common stock for $105.2 million pursuant to the Companys share
repurchase program. Those expenditures were partly offset by cash proceeds of
$39.3 million realized from the exercise of stock options and cash proceeds of
$36.4 million from foreign exchange forward contracts related to Euro and
Sterling receivables sold under the European receivables securitization
program, and other miscellaneous amounts. This compares with an excess of
cash provided by operating activities over cash used for investing activities
in the first nine months of 2002 which totaled $324.5 million and was used to
fund net financing activities of $260.9 million, resulting in a net increase
in cash of $63.7 million. Financing expenditures in the 2002 period consisted
of net debt repayments of $182.2 million and the purchase of approximately 2
million shares of the Companys common stock for $135.7 million pursuant to
the Companys share repurchase program, partly offset by proceeds realized
from the exercise of stock options of $51.4 million and other miscellaneous
amounts.

20



---



##### Table of Contents



The Company redeemed its 7 1/8% Senior Notes on their due date, February
15, 2003, for $129.5 million, including accrued interest. Those notes were
classified as long-term debt as of December 31, 2002 because the Company had
the ability and the intent to fund their redemption with borrowings under its
five-year facility discussed below.

In January 2003, a European subsidiary of the Company issued 30
million ($34 million) of 7.59% Guaranteed Senior Bonds due 2013 in a private
placement as part of some changes in the financial structure and organization
of its European subsidiaries. The Company guarantees the bonds. The proceeds
were used to repay borrowings under bank credit agreements.

On January 8, 2002, the company redeemed all of the 9 1/4% Sinking Fund
Debentures, at a redemption price 102.313% of the face amount of the bonds
plus unpaid interest up to the redemption date. The total redemption cost of
$38.7 million was funded with lower-cost borrowings under the Companys bank
credit agreements

The Company has two primary bank credit agreements. The agreements
provide the Company with senior unsecured revolving credit facilities
aggregating $1.15 billion as follows: (a) a five-year, $1 billion
multi-currency facility which expires in 2006 and (b) a 364-day U.S. dollar
facility that was amended and restated on November 5, 2002 in the amount of
$150 million with an expiration date of November 4, 2003. The 364-day
facility has an option to renew for an additional 364 days. The Company will
not renew this facility on its expiration date but will refinance it under the
long-term, five-year facility and has therefore classified borrowings
thereunder as long-term debt in the balance sheet as of September 30, 2003.

The primary credit agreements contain various covenants that limit, among
other things, indebtedness, liens, sale and leaseback transactions, subsidiary
indebtedness including preferred stock, mergers, consolidations, dissolutions
and asset sales, investments or acquisitions, dividends and redemptions of
capital stock, loans and advances, and certain other business activities. The
covenants also require the Company to meet certain financial tests: ratio of
consolidated debt to EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization), and consolidated free cash flow to interest expense. The
Company is currently in compliance with the covenants contained in the credit
agreements.

At September 30, 2003, the Company had borrowings of $343 million
outstanding under its primary bank credit agreements. There was $684 million
available under those agreements after reduction for borrowings and for $123
million of letters of credit usage. The Company has $27 million available
under other bank credit facilities after reduction for borrowings of $42
million. In addition, the Company had $196 million available at September 30,
2003, under overdraft facilities that can be withdrawn by the banks at any
time.

The Company believes that the amounts available from operating cash
flows, funds available under its credit agreements and future borrowings under
the remaining $540 million of a $1 billion shelf registration statement filed
with the Securities and Exchange Commission in 1998 will be sufficient to meet
its expected operating needs and planned capital expenditures for the
foreseeable future.

The Company employs several means to manage its liquidity and is not
dependent upon any one source of funding. In addition to funds available from
operating cash flows, bank credit agreements and the public debt and equity
markets, the Company uses two principal off-balance sheet techniques:
operating leases and receivables securitization. Operating leases are
employed as an alternative to purchasing certain property, plant and
equipment. Future rental commitments under all non-cancelable leases have not
changed significantly

21



---



##### Table of Contents



from the amounts disclosed in the Companys Annual
Report on Form 10-K for the year ended December 31, 2002. To reduce its
borrowing cost, during 2002 the Company established new accounts receivable
securitization facilities in Europe and the U.S., and terminated a previously
existing arrangement in the U.S. The amounts of advances from conduits for
receivables sold under these securitization programs have increased from $376
million at December 31, 2002, to $437 million at September 30, 2003.

Disclosure Regarding 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. Forward-looking statements can be identified by the use of words
such as believe, expect, plans, strategy, prospects, estimate,
project, anticipate, intends and other words of similar meaning in
connection with a discussion of future operating or financial performance.
This Report on Form 10-Q includes important information as to risk factors in
the section titled Managements Discussion and Analysis of Financial
Condition and Results of Operations. Many important factors could cause
actual results, for a given quarter or year, to differ materially from
managements expectations, including:



| |  |  the level of construction activity in the Companys Air Conditioning
Systems and Services and Bath and Kitchen markets and the level of truck
and bus production in the Companys Vehicle Control Systems markets;
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  the extent to which the Company will be able to realize the estimated
savings from Materials Management and Six Sigma initiatives;                                                                                 
|
| |  |  unpredictable difficulties or delays in the development of new product
technology, or acceptance by customers of new products;                                                                                     
|
| |  |  changes in U.S. or international economic conditions, such as inflation,
interest rate fluctuations, foreign exchange 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;                                                                           
|
| |  |  increased difficulties in obtaining a consistent supply of basic
materials like steel, aluminum, copper, clays, electronics and natural gas
at stable pricing levels;                                              
|
| |  |  labor relations; integration of acquired businesses;                                                                                                                                                               
|
| |  |  difficulties in obtaining or retaining the management and other human
resource competencies that the Company needs to achieve its business
objectives;                                                             
|
| |  |  the impact on the Company or a segment from the loss of a customer or a
few customers;                                                                                                                             
|
| |  |  risks generally relating to the Companys international operations,
including governmental, regulatory or political changes;                                                                                       

22



---



##### Table of Contents





| |  |  changes in environmental, health or other regulations that may affect one
or more of the Companys products or potential products;                                                                                                                                                                            
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  significant changes in the number of future asbestos claims, significant
changes in the cost to defend and resolve such claims, changes in the law
and procedures relating to claims, changes in the financial viability of
insurance carriers and defendants and changes in other assumptions of the
Company;
|
| |  |  changes in laws or different interpretations of laws that may affect the
Companys expected effective tax rate for 2003;                                                                                                                                                                                      
|
| |  |  transactions or other events affecting the need for, timing and extent of
the Companys capital expenditures;                                                                                                                                                                                                 
|
| |  |  the extent of and the costs at which the Company effects repurchases of
its common stock; and                                                                                                                                                                                                                 
|
| |  |  the extent to which the Company plans to reduce outstanding debt.                                                                                                                                                                                                                                             




Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes to the disclosure on this matter made in
the Companys Annual Report on Form 10-K for the year ended December 31, 2002.




Item 4. Controls and Procedures

The Company has established a Disclosure Controls Committee that assists
the Chief Executive Officer and Chief Financial Officer in their evaluation of
the Companys disclosure controls and procedures. Our Chief Executive Officer
and Chief Financial Officer have concluded, based on their evaluation of our
disclosure controls and procedures, as defined in the Securities Exchange Act
of 1934, Rule 13a-15(e), that such disclosure controls and procedures are
effective as of September 30, 2003.

23



---



##### Table of Contents






PART II. OTHER INFORMATION




Item 1. Legal Proceedings.

Over the years, the Company has been named as a defendant in numerous
lawsuits alleging various asbestos-related personal injury claims arising
primarily from sales of low-risk-profile products, such as boilers and brake
shoes. The Company believes it has ample insurance coverage and has never
received an unfavorable court judgment.

The Company has recorded both its estimated liabilities for asbestos
claims and its probable recovery from insurance carriers and other entities
responsible for indemnifying such claims separately on its balance sheet. The
amount of the recorded liability is based on the Companys assessment of
current claims, the status of ongoing litigation, defense strategies, and
settlement initiatives and past experience. The Companys analysis of
insurance coverage and recoveries from other entities responsible for
indemnifying the Company includes the insurers financial strength, the
insurance payments made to date, stated deductibles and the advice of
insurance coverage counsel. While the Company has substantial insurance
coverage for future claims, additional developments may occur that could
affect the Companys estimate of asbestos liabilities and recoveries. No
liability has been recorded for unknown asbestos claims and the Company cannot
reasonably estimate the number of future claims and the cost of disposing such
claims; however, the Company believes that it is not reasonably possible that
a net loss material to the liquidity and financial condition of the Company
has been incurred in excess of the amounts recorded.




Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits.



| |  |  | The exhibits listed on the accompanying Index to Exhibits are filed
as part of this quarterly report on Form 10-Q.
| |  |  | ------------------------------------------------------------------------------------------------------------------

(b)  Reports on Form 8-K:



| |  |  | During the quarter ended September 30, 2003, the Company filed a
Current Report on Form 8-K dated July 16, 2003, and furnishing
information under Items 7 and 9. This 8-K contained, as an exhibit,
a press release pertaining to the financial results of the Company
for the quarter ended June 30, 2003.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24



---



##### Table of Contents






SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

| |  |                                  |                              
| |  | -------------------------------- | -----------------------------
| |  | AMERICAN STANDARD COMPANIES INC.
| |  |                                  |                              
| |  |                                  | /s/ Richard S. Paradise      
| |  |                                  |                              
| |  |                                  | Vice President and Controller
| |  |                                  | (Chief Accounting Officer)   

October 29, 2003

25



---



##### Table of Contents



AMERICAN STANDARD COMPANIES INC.




INDEX TO EXHIBITS

(The File Number of the Registrant, American Standard Companies Inc. is 1-11415)

|            |  |                                                                                                                                                     
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                         
|            |  |                                                                                                                                                     
|(12)        |  | Ratio of Earnings to Fixed Charges                                                                                                                  
|            |  |                                                                                                                                                     
|(31.1)      |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                              
|            |  |                                                                                                                                                     
|(31.2)      |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                              
|            |  |                                                                                                                                                     
|(32.1)      |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|            |  |                                                                                                                                                     
|(32.2)      |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002

26