##### 



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|CHECK BOX |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|--------- |  | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2001

OR



|BOX |  | 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 1-11415AMERICAN STANDARD COMPANIES INC.(Exact name of Registrant as specified in its charter)

|                                                     |  |                    
|---------------------------------------------------- |  | -------------------
|Delaware                                             |  | 13-3465896         
|                                                    
|                                                    
|                                                    
|                                                    
|(State or other jurisdiction of                      |  | (I.R.S. Employer   
|                                                    
|                                                    
|                                                    
|                                                    
|incorporation or organization)                       |  | Identification No.)
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |  |                    
|                                                    
|                                                    
|                                                    
|                                                    
|One Centennial Avenue, P.O. Box 6820, Piscataway, NJ |  | 08855-6820         
|                                                    
|                                                    
|                                                    
|                                                    
|(Address of principal executive offices)             |  | (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 to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

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 31, 2001 |  | 71,766,182 shares





---



##### 






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.
Hereinafter, American Standard or the Company will refer to the Company or
to the Company and American Standard Inc. and ASII, including their
subsidiaries, as the context requires.




AMERICAN STANDARD 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,    
|                                   |                                     |         |       |                    |            |                  
|                                   |                                     |         |       | 2001               |            | 2000              |       | 2001  |            | 2000
|                                   |                                     |         |       |                    |            |                   |       |       |            |     
|SALES                              |                                     | $       | 1,885 |                    |            | $                 | 1,961 |       |            | $    | 5,715 |       |            | $ | 5,829 |      
|                                   |                                     |         |       |                    |            |                   |       |       |            |      |       |       |            |   |       |      
|COST AND EXPENSES                  |                                     |         |       |                    |            |                   |       |       |            |      |       |       |            |   |       |      
|                                  
|                                  
|                                  
|                                  
|                                   | Cost of sales                       |         |       | 1,416              |            |                   |       | 1,475 |            |      |       | 4,270 |            |   |       | 4,358 |           
|                                  
|                                  
|                                  
|                                  
|                                   | Selling and administrative expenses |         |       | 282                |            |                   |       | 288   |            |      |       | 869   |            |   |       | 900   |           
|                                  
|                                  
|                                  
|                                  
|                                   | Other expense (income)              |         |       | 1                  |            |                   |       | (1    | )          |      |       | 3     |            |   |       | (4    | )         
|                                  
|                                  
|                                  
|                                  
|                                   | Interest expense                    |         |       | 42                 |            |                   |       | 51    |            |      |       | 133   |            |   |       | 149   |           
|                                   |                                     |         |       |                    |            |                   |       |       |            |      |       |       |            |   |       |      
|                                   |                                     |         | 1,741 |                    |            |                   | 1,813 |       |            |      | 5,275 |       |            |   | 5,403 |      
|                                   |                                     |         |       |                    |            |                   |       |       |            |      |       |       |            |   |       |      
|                                   |                                     |         |       |                    |            |                   |       |       |            |      |       |       |            |   |       |      
|                                  
|                                  
|                                  
|                                  
|INCOME BEFORE INCOME TAXES         |                                     |         | 144   |                    |            |                   | 148   |       |            |      | 440   |       |            |   | 426   |      
|                                  
|                                  
|                                  
|                                  
|Income taxes                       |                                     |         | 54    |                    |            |                   | 59    |       |            |      | 165   |       |            |   | 169   |      
|                                   |                                     |         |       |                    |            |                   |       |       |            |      |       |       |            |   |       |      
|NET INCOME                         |                                     | $       | 90    |                    |            | $                 | 89    |       |            | $    | 275   |       |            | $ | 257   |      
|                                   |                                     |         |       |                    |            |                   |       |       |            |      |       |       |            |   |       |      
|NET INCOME PER COMMON SHARE:       |                                     |         |       |                    |            |                   |       |       |            |      |       |       |            |   |       |      
|                                  
|                                  
|                                  
|                                  
|                                   |                                     | Basic   |       | $                  | 1.25       |                   |       | $     | 1.28       |      |       | $     | 3.86       |   |       | $     | 3.65       | 
|                                   |                                     |         |       |                    |            |                   |       |       |            |      |       |       |            |   |       |      
|                                   |                                     | Diluted |       | $                  | 1.23       |                   |       | $     | 1.23       |      |       | $     | 3.76       |   |       | $     | 3.54       | 
|                                   |                                     |         |       |                    |            |                   |       |       |            |      |       |       |            |   |       |      
|Average common shares outstanding: |                                     |         |       |                    |            |                   |       |       |            |      |       |       |            |   |       |      
|                                  
|                                  
|                                  
|                                  
|                                   |                                     | Basic   |       |                    | 71,837,275 |                   |       |       | 69,805,720 |      |       |       | 71,317,942 |   |       |       | 70,362,842 | 
|                                  
|                                  
|                                  
|                                  
|                                   |                                     | Diluted |       |                    | 73,448,426 |                   |       |       | 72,381,511 |      |       |       | 73,073,934 |   |       |       | 72,504,612 | 

See accompanying notes

2



---



##### 



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,
|                                           |                                                                                                                                  |   | 2001          |       | 2000        
|                                           |                                                                                                                                  |   |               |       |             
|CURRENT ASSETS                             |                                                                                                                                  |   |               |       |              |   |       |      
|                                          
|                                          
|                                          
|                                          
|Cash and cash equivalents                  |                                                                                                                                  | $ | 95            |       |              | $ | 85    |      
|                                          
|                                          
|                                          
|                                          
|Accounts receivable                        |                                                                                                                                  |   | 1,142         |       |              |   | 1,027 |      
|                                          
|                                          
|                                          
|                                          
|Inventories                                |                                                                                                                                  |   |               |       |              |   |       |      
|                                          
|                                          
|                                          
|                                          
|Finished
products                          |                                                                                                                                  |   | 443           |       |              |   | 381   |      
|                                          
|                                          
|                                          
|                                          
|                                           | Products in process                                                                                                              |   |               | 140   |              |   |       | 117   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Raw materials                                                                                                                    |   |               | 115   |              |   |       | 108   | 
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|                                           |                                                                                                                                  |   | 698           |       |              |   | 606   |      
|                                          
|                                          
|                                          
|                                          
|Other current assets                       |                                                                                                                                  |   | 174           |       |              |   | 161   |      
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|TOTAL CURRENT ASSETS                       |                                                                                                                                  |   | 2,109         |       |              |   | 1,879 |      
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|                                          
|                                          
|                                          
|                                          
|FACILITIES, less accumulated depreciation: |                                                                                                                                  |   |               |       |              |   |       |      
|                                          
|                                          
|                                          
|                                          
|                                           | September 2001 - $635; Dec. 2000 - $604                                                                                          |   |               | 1,339 |              |   |       | 1,383 | 
|                                          
|                                          
|                                          
|                                          
|GOODWILL                                   |                                                                                                                                  |   | 935           |       |              |   | 935   |      
|                                          
|                                          
|                                          
|                                          
|OTHER ASSETS                               |                                                                                                                                  |   | 600           |       |              |   | 548   |      
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|TOTAL ASSETS                               |                                                                                                                                  | $ | 4,983         |       |              | $ | 4,745 |      
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|                                          
|                                          
|                                          
|                                          
|CURRENT LIABILITIES                        |                                                                                                                                  |   |               |       |              |   |       |      
|                                          
|                                          
|                                          
|                                          
|Loans payable to banks                     |                                                                                                                                  | $ | 77            |       |              | $ | 84    |      
|                                          
|                                          
|                                          
|                                          
|Current maturities of long-term debt       |                                                                                                                                  |   | 26            |       |              |   | 12    |      
|                                          
|                                          
|                                          
|                                          
|Accounts payable                           |                                                                                                                                  |   | 638           |       |              |   | 660   |      
|                                          
|                                          
|                                          
|                                          
|Accrued payrolls                           |                                                                                                                                  |   | 209           |       |              |   | 215   |      
|                                          
|                                          
|                                          
|                                          
|Other accrued liabilities                  |                                                                                                                                  |   | 892           |       |              |   | 836   |      
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|TOTAL CURRENT LIABILITIES                  |                                                                                                                                  |   | 1,842         |       |              |   | 1,807 |      
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|                                          
|                                          
|                                          
|                                          
|LONG-TERM DEBT                             |                                                                                                                                  |   | 2,266         |       |              |   | 2,376 |      
|                                          
|                                          
|                                          
|                                          
|RESERVE FOR POSTRETIREMENT BENEFITS        |                                                                                                                                  |   | 430           |       |              |   | 408   |      
|                                          
|                                          
|                                          
|                                          
|OTHER LIABILITIES                          |                                                                                                                                  |   | 575           |       |              |   | 547   |      
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|TOTAL LIABILITIES                          |                                                                                                                                  |   | 5,113         |       |              |   | 5,138 |      
|                                          
|                                          
|                                          
|                                          
|STOCKHOLDERS DEFICIT                      |                                                                                                                                  |   |               |       |              |   |       |      
|                                          
|                                          
|                                          
|                                          
|                                           | Preferred stock, 2,000,000 shares authorized,
none issued and outstanding                                                        |   |               |      |              |   |       |      | 
|                                          
|                                          
|                                          
|                                          
|                                           | Common stock $.01 par value, 200,000,000
shares authorized; 71,797,312 shares issued
and outstanding in 2001; 69,532,574 in 2000 |   |               | 1     |              |   |       | 1     | 
|                                          
|                                          
|                                          
|                                          
|Capital surplus and other                  |                                                                                                                                  |   | 672           |       |              |   | 609   |      
|                                          
|                                          
|                                          
|                                          
|Treasury stock                             |                                                                                                                                  |   | (511          | )     |              |   | (453  | )    
|                                          
|                                          
|                                          
|                                          
|Retained earnings (accumulated deficit)    |                                                                                                                                  |   | 37            |       |              |   | (238  | )    
|                                          
|                                          
|                                          
|                                          
|Deferred loss on hedge contracts           |                                                                                                                                  |   | (5            | )     |              |   |      |      
|                                          
|                                          
|                                          
|                                          
|Foreign currency translation effects       |                                                                                                                                  |   | (324          | )     |              |   | (312  | )    
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|                                          
|                                          
|                                          
|                                          
|TOTAL STOCKHOLDERS DEFICIT                |                                                                                                                                  |   | (130          | )     |              |   | (393  | )    
|                                           |                                                                                                                                  |   |               |       |              |   |       |      
|                                           |                                                                                                                                  | $ | 4,983         |       |              | $ | 4,745 |      
|                                           |                                                                                                                                  |   |               |       |              |   |       |      

See accompanying notes

3



---



##### 



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,    
|                                                     |                                                  |                                                              |                                     |                                     |      |                  
|                                                     |                                                  |                                                              |                                     |                                     |      | 2001              |      | 2000
|                                                     |                                                  |                                                              |                                     |                                     |      |                   |      |     
|CASH PROVIDED BY:                                    |                                                  |                                                              |                                     |                                     |      |                   |      |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | OPERATING ACTIVITIES:                            |                                                              |                                     |                                     |      |                   |      |      |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Net income                                                   |                                     | $                                   | 275  |                   |      | $    | 257  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Adjustments to reconcile net income                          |                                     |                                     |      |                   |      |      |      |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  |                                                              | To net cash provided by operations: |                                     |      |                   |      |      |      |   |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  |                                                              |                                     | Depreciation and amortization       |      |                   | 170  |      |      |   | 162  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  |                                                              |                                     | Other non-cash items                |      |                   | 51   |      |      |   | 6    |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  |                                                              |                                     | Changes in assets and liabilities:  |      |                   |      |      |      |   |      |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  |                                                              |                                     | Accounts receivable                 |      |                   | (126 | )    |      |   | (218 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  |                                                              |                                     | Inventories                         |      |                   | (94  | )    |      |   | (118 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  |                                                              |                                     | Accounts payable and other accruals |      |                   | (55  | )    |      |   | 66   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  |                                                              |                                     | Other assets and liabilities        |      |                   | 61   |      |      |   | 55   |  
|                                                     |                                                  |                                                              |                                     |                                     |      |                   |      |     
|                                                     |                                                  | Net cash provided by continuing operations                   |                                     |                                     | 282  |                   |      |      | 210  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Net cash used by discontinued operations                     |                                     |                                     |     |                   |      |      | (13  | )
|                                                     |                                                  |                                                              |                                     |                                     |      |                   |      |     
|                                                     |                                                  | Net cash provided by operating activities                    |                                     |                                     | 282  |                   |      |      | 197  |  
|                                                     |                                                  |                                                              |                                     |                                     |      |                   |      |     
|                                                     | INVESTING ACTIVITIES:                            |                                                              |                                     |                                     |      |                   |      |      |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Purchase of property, plant and equipment                    |                                     |                                     | (104 | )                 |      |      | (135 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Investments in affiliated companies and other businesses     |                                     |                                     | (31  | )                 |      |      | (29  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Investment in computer software                              |                                     |                                     | (42  | )                 |      |      | (46  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Other                                                        |                                     |                                     | 37   |                   |      |      | 11   |  
|                                                     |                                                  |                                                              |                                     |                                     |      |                   |      |     
|                                                     |                                                  | Net cash used by investing activities                        |                                     |                                     | (140 | )                 |      |      | (199 | )
|                                                     |                                                  |                                                              |                                     |                                     |      |                   |      |     
|                                                     | FINANCING ACTIVITIES:                            |                                                              |                                     |                                     |      |                   |      |      |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Repayments of long-term debt                                 |                                     |                                     | (3   | )                 |      |      | (51  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Net change in credit facility                                |                                     |                                     | (83  | )                 |      |      | 192  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Net change in other short-term debt                          |                                     |                                     | (7   | )                 |      |      | (4   | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Purchases of treasury stock                                  |                                     |                                     | (92  | )                 |      |      | (131 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Proceeds from exercise of stock options                      |                                     |                                     | 84   |                   |      |      | 18   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Purchase of warrants                                         |                                     |                                     | (35  | )                 |      |      |     |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                  | Other                                                        |                                     |                                     | 5    |                   |      |      |     |  
|                                                     |                                                  |                                                              |                                     |                                     |      |                   |      |     
|                                                     | Net cash (used) provided by financing activities |                                                              |                                     | (131                                | )    |                   |      | 24   |     
|                                                     |                                                  |                                                              |                                     |                                     |      |                   |      |     
|                                                     |                                                  | Effect of exchange rate changes on cash and
cash equivalents |                                     |                                     | (1   | )                 |      |      | (2   | )
|                                                     |                                                  |                                                              |                                     |                                     |      |                   |      |     
|Net increase (decrease) in cash and cash equivalents |                                                  |                                                              | 10                                  |                                     |      |                   | 20   |     
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of period     |                                                  |                                                              | 85                                  |                                     |      |                   | 61   |     
|                                                     |                                                  |                                                              |                                     |                                     |      |                   |      |     
|Cash and cash equivalents at end of period           |                                                  | $                                                            | 95                                  |                                     |      | $                 | 81   |     
|                                                     |                                                  |                                                              |                                     |                                     |      |                   |      |     

See accompanying notes

4



---



##### 



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 accounting principles generally accepted in
the United States 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 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, 2000.

Note 2. New Credit Agreement

On November 6, 2001, the Company entered into two new bank credit agreements,
which replaced the 1997 credit agreement (the 1997 Credit Agreement). The
new credit agreements provide the Company and certain subsidiaries (the
Borrowers) with senior unsecured revolving credit facilities aggregating $1.3
billion available to all Borrowers as follows: (a) a five-year, $1 billion
multi-currency revolving credit facility which expires in 2006 and (b) a
364-day, $300 million U.S. dollar revolving credit facility which expires
November 5, 2002 with an option to renew for an additional 364 days.

The Company pays a facilities fee of .225% per annum on the five-year facility
and .175% per annum on the 364-day facility (whether or not borrowed), and
borrowings thereunder bear interest generally at the London Interbank Offered
Rate (LIBOR) plus 1.025% and 1.075% per annum, respectively. These LIBOR
spreads are subject to adjustment should the Companys bank-debt rating change.
The Company also pays 1.025% per annum plus issuance fees for letters of
credit.

The aggregate borrowings of up to $1.3 billion available under the new
facilities can be used for general corporate purposes, of which up to $250
million may be used for issuing letters of credit and up to $150 million for
same-day, short-term borrowings. Each loan outstanding under these facilities
is due at the end of each interest period (a maximum of 12 months). The Company
may, however, concurrently reborrow the outstanding obligations subject to
compliance with certain conditions contained in the agreements.

The Company, American Standard Inc., American Standard International Inc. and
certain of their domestic subsidiaries guarantee obligations under the new
credit agreements. In addition, significant foreign subsidiaries guarantee
obligations of certain foreign borrowers under the new credit agreements.

The new 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

5



---



##### 



Amortization), and consolidated free cash flow to interest expense. The Company
believes it is currently in compliance with the covenants contained in the new
credit agreements.

At September 30, 2001, there were $891 million of borrowings outstanding and
$11 million of letters of credit issued under the 1997 Credit Agreement,
leaving availability thereunder of $748 million. In addition, there were $90
million of letters of credit issued under a temporary letter of credit facility
established to facilitate transition to the new credit agreements. Those
borrowings and letters of credit were refinanced under the new credit
agreements. See Managements Discussion and Analysis of Financial Condition
and Results of Operations  Liquidity and Capital Resources.

Note 3. Restructuring and Asset Impairment Charges

2000 Restructuring Program

As described in Note 5 of Notes to Consolidated Financial Statements included
in the Companys Annual Report on Form 10-K for the year ended December 31,
2000, in 2000 the Company committed to worldwide restructuring plans designed
to improve efficiency through the transfer of production to locations with
lower product costs, the closure of manufacturing and administrative
facilities, outsourcing production of certain products, capitalizing on
synergistic opportunities in several businesses and upgrading the effectiveness
of the organization. This program is designed to enhance shareholder value and
improve the Companys competitive position in its markets. In connection
therewith, in the fourth quarter of 2000 the Company recorded a net
restructuring and asset impairment charge of $70 million ($51 million net of
tax benefits, or $.71 per diluted share). This charge was comprised of $26
million for Air Conditioning Systems and Services, $34 million for Plumbing
Products and $15 million for Vehicle Control Systems, net of a $5 million
reversal of unneeded restructuring charges recorded previously for the
1998-1999 restructuring program described below. The Air Conditioning Systems
and Services charge includes costs related to a workforce reduction of 700
people to integrate international operations, costs of non-cancelable lease
obligations no longer to be used, and an asset impairment charge. The Plumbing
Products charge includes an asset impairment write-down related to closure of
one plant in the U.S. and a related workforce reduction of 250 people.
Production is being transferred to other facilities in the U.S. and Mexico. The
Plumbing Products charge also includes termination costs for a workforce
reduction of 350 people related to the centralization and realignment of
certain functions in Western Europe, the Americas and Asia to eliminate
redundancies. The Vehicle Control Systems charge primarily reflects the
transfer of production to a lower-labor cost facility in Poland and
consolidation of certain operations and administrative functions in Western
Europe to eliminate redundancies, resulting in a net workforce reduction of 450
people.

A total of 1,750 people are being terminated under this program, of which 1,410
had been terminated as of September 30, 2001.

6



---



##### 



Following is a summary of the 2000 restructuring program and asset impairment
charges (dollars in millions):

|                                              |  |         |      |           |  |          |      |         |  |          |      |         |  |   |      |  |  |   |      | 
|--------------------------------------------- |  | ------- | ---- | --------- |  | -------- | ---- | ------- |  | -------- | ---- | ------- |  | - | ---- |  |  | - | ---- | 
|                                              |  | Initial |      | Non-cash  |  | Balance  |      |         |  |          |      | Balance
|                                              |  | Charge  |      | Write-off |  | Dec. 31, |      | Paid in |  | Sept 30,
|                                              |  | in 2000 |      | in 2000   |  | 2000     |      | 2001    |  | 2001    
|                                              |  |         |      |           |  |          |      |         |  |         
|Termination payments and other
employee costs |  | $       | 47.4 |           |  | $        |     |         |  | $        | 47.4 |         |  | $ | 24.3 |  |  | $ | 23.1 | 
|                                             
|                                             
|                                             
|                                             
|Asset impairments                             |  |         | 24.1 |           |  |          | 24.1 |         |  |          |     |         |  |   |     |  |  |   |     | 
|                                             
|                                             
|                                             
|                                             
|Other                                         |  |         | 3.7  |           |  |          |     |         |  |          | 3.7  |         |  |   | .8   |  |  |   | 2.9  | 
|                                              |  |         |      |           |  |          |      |         |  |          |      |         |  |   |      |  |  |   |      | 
|                                              |  | $       | 75.2 |           |  | $        | 24.1 |         |  | $        | 51.1 |         |  | $ | 25.1 |  |  | $ | 26.0 | 
|                                              |  |         |      |           |  |          |      |         |  |          |      |         |  |   |      |  |  |   |      | 

The Company expects that essentially all of the $26 million balance as of
September 30, 2001 related to this restructuring program will be utilized by
the end of 2001.

1998-1999 Restructuring Program

As of September 30, 2001, the unutilized balance of accrued charges for this
program was $4.3 million, all of which the Company expects will be paid by the
end of 2001.

Note 4. Comprehensive Income

Total comprehensive income, consisting of net income, foreign currency
translation effects and deferred losses on hedge contracts, was $75 million and
$121 million for the three months ended September 30, 2001 and 2000,
respectively, and $260 million and $223 million for the nine months ended
September 30, 2001 and 2000, respectively.

Note 5. Tax Matters

As described in Note 8 of Notes to Consolidated Financial Statements in the
Companys Annual Report on Form 10-K for the year ended December 31, 2000,
there are pending German tax issues for the years 1984 through 1994. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources.

Note 6. 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, 2001 and
2000 included 1,611,151 and 2,575,791 average incremental shares, respectively,
for the assumed exercise of stock options. The nine-month periods ended
September 30, 2001 and 2000 included 1,755,992 and 2,141,770 average
incremental shares, respectively.

Note 7. Impact of Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations,and No. 142,
Goodwill and Other Intangible Assets,effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests. Other intangible assets will continue to be
amortized over their useful lives.

7



---



##### 



The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of the Statement is expected to result in an
increase in net income of approximately $30 million, or $.41 per share
annually. During 2002, the Company will perform the first of the required
impairment tests of goodwill and indefinite-lived intangible assets and has not
yet determined what effect, if any, the results of these tests will have on the
results of operations or financial position of the Company.

Note 8. Supplemental Consolidating Condensed Financial Information

All of the Companys Senior Notes and the 9 1/4% Sinking Fund Debentures were
issued by its wholly owned subsidiary, American Standard Inc. (ASI). American
Standard Companies Inc. (the Parent Company) fully and unconditionally
guarantees the payment obligations under these securities (the Companys
Public Debt). In lieu of providing separate financial statements for ASI, the
Company has included 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, 2001 and 2000, statements of cash
flows for the nine months ended September 30, 2001 and 2000 and balance sheets
as of September 30, 2001 and December 31, 2000 for the Parent Company and ASI,
and the subsidiaries of the Parent Company which are not subsidiaries of ASI
(the Other Subsidiaries). None of the Other Subsidiaries guarantees the
Public Debt of ASI. 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, 2001
(Unaudited)

|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |       |       | 
|-------------------------------------------------------------------------------- | -------------------------------------- | -------------- | -- | ------ |  | ------------ | ----- | ------------ | ----- | ----- | --- | --- | --- | - | --- | ------------ | --- | - | ----- | ----- | ----- | 
|                                                                                 |                                        |                |    | Parent |  |              |       |              |       | Other |     |     |     |   |     | Consolidated
|(Dollars in millions)                                                            |                                        | Company        |    | ASI    |  | Subsidiaries |       | Eliminations |       | Total
|                                                                                 |                                        |                |    |        |  |              |       |              |       |      
|Sales                                                                            |                                        |                |    |        |  | $            | 1,114 |              |       | $     | 835 |     |     | $ | (64 | )            |     | $ | 1,885 |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Costs and expenses:                                                              |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of sales                          |                |    |        |  |              |       | 850          |       |       |     | 630 |     |   |     | (64          | )   |   |       | 1,416 |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Selling and administrative expenses    |                |    |        |  |              |       | 152          |       |       |     | 130 |     |   |     |              |     |   |       | 282   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Other (income) expense                 |                |    |        |  |              |       | (5           | )     |       |     | 6   |     |   |     |              |     |   |       | 1     |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Interest expense                       |                |    |        |  |              |       | 35           |       |       |     | 7   |     |   |     |              |     |   |       | 42    |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Intercompany interest expense (income) |                |    |        |  |              |       | 4            |       |       |     | (4  | )   |   |     |              |     |   |       |      |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|                                                                                 |                                        | Total expenses |    |        |  |              |       |              | 1,036 |       |     |     | 769 |   |     |              | (64 | ) |       |       | 1,741 | 
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|Income before income taxes and equity in
net income of consolidated subsidiaries |                                        |                |    |        |  |              | 78    |              |       |       | 66  |     |     |   |    |              |     |   | 144   |      
|Income taxes                                                                     |                                        |                |    |        |  |              | 30    |              |       |       | 24  |     |     |   |    |              |     |   | 54    |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|Income before equity in net income of
consolidated subsidiaries                  |                                        |                |    |        |  |              | 48    |              |       |       | 42  |     |     |   |    |              |     |   | 90    |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Equity in net income of consolidated
subsidiaries                                |                                        | $              | 90 |        |  |              |      |              |       |       |    |     |     | $ | (90 | )            |     |   |      |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Net income                                                                       |                                        | $              | 90 |        |  | $            | 48    |              |       | $     | 42  |     |     | $ | (90 | )            |     | $ | 90    |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      

8



---



##### 



Note 8. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)

|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |       |       | 
|-------------------------------------------------------------------------------- | -------------------------------------- | -------------- | --- | ------ |  | ------------ | ----- | ------------ | ----- | ----- | ----- | ----- | ----- | - | ---- | ------------ | ---- | - | ----- | ----- | ----- | 
|                                                                                 |                                        |                |     | Parent |  |              |       |              |       | Other |       |       |       |   |      | Consolidated
|(Dollars in millions)                                                            |                                        | Company        |     | ASI    |  | Subsidiaries |       | Eliminations |       | Total
|                                                                                 |                                        |                |     |        |  |              |       |              |       |      
|Sales                                                                            |                                        |                |     |        |  | $            | 3,341 |              |       | $     | 2,551 |       |       | $ | (177 | )            |      | $ | 5,715 |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Costs and expenses:                                                              |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of sales                          |                |     |        |  |              |       | 2,526        |       |       |       | 1,921 |       |   |      | (177         | )    |   |       | 4,270 |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Selling and administrative expenses    |                |     |        |  |              |       | 476          |       |       |       | 393   |       |   |      |              |      |   |       | 869   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Other (income) expense                 |                |     |        |  |              |       | (18          | )     |       |       | 21    |       |   |      |              |      |   |       | 3     |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Interest expense                       |                |     |        |  |              |       | 107          |       |       |       | 26    |       |   |      |              |      |   |       | 133   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Intercompany interest expense (income) |                |     |        |  |              |       | 16           |       |       |       | (16   | )     |   |      |              |      |   |       |      |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                 |                                        | Total expenses |     |        |  |              |       |              | 3,107 |       |       |       | 2,345 |   |      |              | (177 | ) |       |       | 5,275 | 
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|Income before income taxes and equity in
net income of consolidated subsidiaries |                                        |                |     |        |  |              | 234   |              |       |       | 206   |       |       |   |     |              |      |   | 440   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Income taxes                                                                     |                                        |                |     |        |  |              | 89    |              |       |       | 76    |       |       |   |     |              |      |   | 165   |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|Income before equity in net income of
consolidated subsidiaries                  |                                        |                |     |        |  |              | 145   |              |       |       | 130   |       |       |   |      |              |      |   | 275   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Equity in net income of consolidated
subsidiaries                                |                                        | $              | 275 |        |  |              |      |              |       |       |      |       |       |   | (275 | )            |      |   |      |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|Net income                                                                       |                                        | $              | 275 |        |  | $            | 145   |              |       | $     | 130   |       |       | $ | (275 | )            |      | $ | 275   |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      

CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 30, 2001
(Unaudited)

|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |       |       |  
|---------------------------------------------- | ------------------------------------ | ---------------------------------------------------- | --- | ------ | ---- | ------------ | ----- | ------------ | ------ | ----- | ---- | --- | ----- | - | ---- | ------------ | ---- | - | ----- | ----- | ----- | -
|                                               |                                      |                                                      |     | Parent |      |              |       |              |        | Other |      |     |       |   |      | Consolidated
|(Dollars in millions)                          |                                      | Company                                              |     | ASI    |      | Subsidiaries |       | Eliminations |        | Total
|                                               |                                      |                                                      |     |        |      |              |       |              |        |      
|ASSETS                                         |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                              
|                                              
|                                              
|                                              
|Current assets:                                |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                              
|                                              
|                                              
|                                              
|                                               | Cash and cash equivalents            |                                                      |     |        |      |              | $     | 13           |        |       | $    | 82  |       |   |      |              |      |   | $     | 95    |      
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts receivable, net             |                                                      |     |        |      |              |       | 527          |        |       |      | 615 |       |   |      |              |      |   |       | 1,142 |      
|                                              
|                                              
|                                              
|                                              
|                                               | Inventories                          |                                                      |     |        |      |              |       | 349          |        |       |      | 349 |       |   |      |              |      |   |       | 698   |      
|                                              
|                                              
|                                              
|                                              
|                                               | Other current assets                 |                                                      |     |        |      |              |       | 102          |        |       |      | 72  |       |   |      |              |      |   |       | 174   |      
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      | Total current assets                                 |     |        |      |              |       |              | 991    |       |      |     | 1,118 |   |      |              |      |   |       |       | 2,109 |  
|                                              
|                                              
|                                              
|                                              
|Facilities, net                                |                                      |                                                      |     |        |      |              | 521   |              |        |       | 818  |     |       |   |      |              |      |   | 1,339 |      
|                                              
|                                              
|                                              
|                                              
|Goodwill, net                                  |                                      |                                                      |     |        |      |              | 136   |              |        |       | 799  |     |       |   |      |              |      |   | 935   |      
|                                              
|                                              
|                                              
|                                              
|Investment in subsidiaries                     |                                      | $                                                    | 406 |        |      |              |      |              |        |       |     |     |       | $ | (406 | )            |      |   |      |      
|                                              
|                                              
|                                              
|                                              
|Other assets                                   |                                      |                                                      |     |        |      |              | 465   |              |        |       | 135  |     |       |   |     |              |      |   | 600   |      
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      | Total assets                                         |     | $      | 406  |              |       | $            | 2,113  |       |      | $   | 2,870 |   |      | $            | (406 | ) |       | $     | 4,983 |  
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|LIABILITIES AND STOCKHOLDERS
(DEFICIT) EQUITY |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                              
|                                              
|                                              
|                                              
|Current liabilities:                           |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                              
|                                              
|                                              
|                                              
|                                               | Loans payable to banks               |                                                      |     |        |      |              |       |              |        |       | $    | 77  |       |   |      |              |      |   | $     | 77    |      
|                                              
|                                              
|                                              
|                                              
|                                               | Current maturities of long-term debt |                                                      |     |        |      |              | $     | 25           |        |       |      | 1   |       |   |      |              |      |   |       | 26    |      
|                                              
|                                              
|                                              
|                                              
|                                               | Other current liabilities            |                                                      |     |        |      |              |       | 962          |        |       |      | 777 |       |   |      |              |      |   |       | 1,739 |      
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      | Total current liabilities                            |     |        |      |              |       |              | 987    |       |      |     | 855   |   |      |              |      |   |       |       | 1,842 |  
|                                              
|                                              
|                                              
|                                              
|Long-term debt                                 |                                      |                                                      |     |        |      |              | 2,203 |              |        |       | 63   |     |       |   |      |              |      |   | 2,266 |      
|                                              
|                                              
|                                              
|                                              
|Reserve for postretirement benefits            |                                      |                                                      |     |        |      |              | 214   |              |        |       | 216  |     |       |   |      |              |      |   | 430   |      
|                                              
|                                              
|                                              
|                                              
|Intercompany accounts, net                     |                                      | $                                                    | 536 |        |      |              | 82    |              |        |       | (618 | )   |       |   |      |              |      |   |      |      
|                                              
|                                              
|                                              
|                                              
|Other long-term liabilities                    |                                      |                                                      |     |        |      |              | 316   |              |        |       | 259  |     |       |   |      |              |      |   | 575   |      
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      | Total liabilities                                    |     |        | 536  |              |       |              | 3,802  |       |      |     | 775   |   |      | $            |     |   |       |       | 5,113 |  
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      | Total stockholders (deficit) equity                 |     |        | (130 | )            |       |              | (1,689 | )     |      |     | 2,095 |   |      |              | (406 | ) |       |       | (130  | )
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      | Total liabilities and stockholders (deficit) equity |     | $      | 406  |              |       | $            | 2,113  |       |      | $   | 2,870 |   |      | $            | (406 | ) |       | $     | 4,983 |  
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      

9



---



##### 



Note 8. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)

|                         |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |      |      |     |      |  
|------------------------ | ------------------------------------------ | ------------------------------------------------------------ | ------------------------------------------------------------------------------ | -------------------------------------------------------- | - | ------------ | ---- | ------------ | --- | ----- | ---- | ----- | --- | --- | ---- | - | - | ------------ | --- | ---- | ---- | --- | ---- | -
|                         |                                            |                                                              |                                                                                |                                                          |   | Parent       |      |              |     |       |      | Other |     |     |      |   |   | Consolidated
|(Dollars in millions)    |                                            | Company                                                      |                                                                                | ASI                                                      |   | Subsidiaries |      | Eliminations |     | Total
|                         |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |      
|Cash provided (used) by: |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |     
|                        
|                        
|                        
|                        
|                         | Operating activities:                      |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |      |     
|                        
|                        
|                        
|                        
|                         |                                            |                                                              | Net income                                                                     |                                                          | $ | 275          |      |              | $   | 145   |      |       | $   | 130 |      |   | $ | (275         | )   |      | $    | 275 |     
|                        
|                        
|                        
|                        
|                         |                                            |                                                              | Adjustments to reconcile net income to net
cash provided (used) by operations: |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |      |      |     |     
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Depreciation and amortization                            |   |              |      |              |     |       | 75   |       |     |     | 95   |   |   |              |     |      |      |     | 170  |  
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Other non-cash items                                     |   |              |      |              |     |       | 51   |       |     |     |      |   |   |              |     |      |      |     | 51   |  
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Equity in net income of subsidiaries                     |   |              | (275 | )            |     |       |      |       |     |     |      |   |   |              | 275 |      |      |     |     |  
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Changes in assets and liabilities:                       |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |      |      |     |      |  
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Accounts receivable                                      |   |              | 1    |              |     |       | (35  | )     |     |     | (92  | ) |   |              |     |      |      |     | (126 | )
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Inventories                                              |   |              |      |              |     |       | (22  | )     |     |     | (72  | ) |   |              |     |      |      |     | (94  | )
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Accounts payable and other accruals                      |   |              |      |              |     |       | (80  | )     |     |     | 25   |   |   |              |     |      |      |     | (55  | )
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Other assets and liabilities                             |   |              | (1   | )            |     |       |      |       |     |     | 62   |   |   |              |     |      |      |     | 61   |  
|                         |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |     
|                         |                                            | Net cash provided (used) by operating
activities             |                                                                                |                                                          |  |              |      |              | 134 |       |      |       | 148 |     |      |   |  |              |     |      | 282  |    
|                         |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |     
|                         | Investing activities:                      |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |      |     
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Purchase of property, plant and equipment                |   |              |      |              |     |       | (54  | )     |     |     | (50  | ) |   |              |     |      |      |     | (104 | )
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Investments in affiliated companies and
other businesses |   |              |      |              |     |       |      |       |     |     | (31  | ) |   |              |     |      |      |     | (31  | )
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Investments in computer software                         |   |              |      |              |     |       | (21  | )     |     |     | (21  | ) |   |              |     |      |      |     | (42  | )
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Other                                                    |   |              |      |              |     |       | 22   |       |     |     | 15   |   |   |              |     |      |      |     | 37   |  
|                         |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |     
|                         | Net cash used by investing activities      |                                                              |                                                                                |                                                         |   |              |      | (53          | )   |       |      | (87   | )   |     |      |  |   |              |     | (140 | )   
|                         |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |     
|                         | Financing activities:                      |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |      |     
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Repayments of long-term debt                             |   |              |      |              |     |       | (1   | )     |     |     | (2   | ) |   |              |     |      |      |     | (3   | )
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Increase (decrease) in credit facility usage             |   |              |      |              |     |       | 328  |       |     |     | (411 | ) |   |              |     |      |      |     | (83  | )
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Net change in other short-term debt                      |   |              |      |              |     |       |      |       |     |     | (7   | ) |   |              |     |      |      |     | (7   | )
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Purchases of treasury stock                              |   |              | (92  | )            |     |       |      |       |     |     |      |   |   |              |     |      |      |     | (92  | )
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Net change in inter-company accounts                     |   |              | 38   |              |     |       | (414 | )     |     |     | 376  |   |   |              |     |      |      |     |     |  
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Proceeds from exercise of stock options                  |   |              | 84   |              |     |       |      |       |     |     |      |   |   |              |     |      |      |     | 84   |  
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Purchase of warrants                                     |   |              | (35  | )            |     |       |      |       |     |     |      |   |   |              |     |      |      |     | (35  | )
|                        
|                        
|                        
|                        
|                         |                                            |                                                              |                                                                                | Other                                                    |   |              | 5    |              |     |       |      |       |     |     |      |   |   |              |     |      |      |     | 5    |  
|                         |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |     
|                         |                                            | Net cash provided (used) by financing activities             |                                                                                |                                                          |  |              |      |              | (87 | )     |      |       | (44 | )   |      |   |  |              |     |      | (131 | )  
|                         |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |     
|                         |                                            | Effect of exchange rate changes on cash and
cash equivalents |                                                                                |                                                          |  |              |      |              |    |       |      |       | (1  | )   |      |   |  |              |     |      | (1   | )  
|                         |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |     
|                         |                                            | Net increase in cash and cash
equivalents                    |                                                                                |                                                          |  |              |      |              | (7  | )     |      |       | 17  |     |      |   |  |              |     |      | 10   |    
|                        
|                        
|                        
|                        
|                         |                                            | Cash and cash equivalents at beginning of
period             |                                                                                |                                                          |  |              |      |              | 19  |       |      |       | 66  |     |      |   |  |              |     |      | 85   |    
|                         |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |     
|                         | Cash and cash equivalents at end of period |                                                              | $                                                                              |                                                         |   |              | $    | 12           |     |       | $    | 83    |     |     | $    |  |   |              | $   | 95   |     
|                         |                                            |                                                              |                                                                                |                                                          |   |              |      |              |     |       |      |       |     |     |      |   |   |              |     |     

10



---



##### 



Note 8. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)

|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |       |       | 
|-------------------------------------------------------------------------------- | -------------------------------------- | -------------- | -- | ------ |  | ------------ | ----- | ------------ | ----- | ----- | --- | --- | --- | - | --- | ------------ | --- | - | ----- | ----- | ----- | 
|                                                                                 |                                        |                |    | Parent |  |              |       |              |       | Other |     |     |     |   |     | Consolidated
|(Dollars in millions)                                                            |                                        | Company        |    | ASI    |  | Subsidiaries |       | Eliminations |       | Total
|                                                                                 |                                        |                |    |        |  |              |       |              |       |      
|Sales                                                                            |                                        |                |    |        |  | $            | 1,253 |              |       | $     | 758 |     |     | $ | (50 | )            |     | $ | 1,961 |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|Costs and expenses:                                                              |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of sales                          |                |    |        |  |              |       | 945          |       |       |     | 580 |     |   |     | (50          | )   |   |       | 1,475 |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Selling and administrative expenses    |                |    |        |  |              |       | 162          |       |       |     | 131 |     |   |     | (5           | )   |   |       | 288   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Other (income) expense                 |                |    |        |  |              |       | 1            |       |       |     | (7  | )   |   |     | 5            |     |   |       | (1    | )    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Interest expense                       |                |    |        |  |              |       | 43           |       |       |     | 8   |     |   |     |             |     |   |       | 51    |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Intercompany interest expense (income) |                |    |        |  |              |       | 7            |       |       |     | (7  | )   |   |     |              |     |   |       |      |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                        | Total expenses |    |        |  |              |       |              | 1,158 |       |     |     | 705 |   |     |              | (50 | ) |       |       | 1,813 | 
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|Income before income taxes and equity in
net income of consolidated subsidiaries |                                        |                |    |        |  |              | 95    |              |       |       | 53  |     |     |   |    |              |     |   | 148   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Income taxes                                                                     |                                        |                |    |        |  |              | 39    |              |       |       | 20  |     |     |   |    |              |     |   | 59    |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|Income before equity in net income of
consolidated subsidiaries                  |                                        |                |    |        |  |              | 56    |              |       |       | 33  |     |     |   |    |              |     |   | 89    |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Equity in net income of consolidated
subsidiaries                                |                                        | $              | 89 |        |  |              |      |              |       |       |    |     |     | $ | (89 | )            |     |   |      |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Net income                                                                       |                                        | $              | 89 |        |  | $            | 56    |              |       | $     | 33  |     |     | $ | (89 | )            |     | $ | 89    |      
|                                                                                 |                                        |                |    |        |  |              |       |              |       |       |     |     |     |   |     |              |     |   |       |      

CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)

|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |       |       | 
|-------------------------------------------------------------------------------- | -------------------------------------- | -------------- | --- | ------ |  | ------------ | ----- | ------------ | ----- | ----- | ----- | ----- | ----- | - | ---- | ------------ | ---- | - | ----- | ----- | ----- | 
|                                                                                 |                                        |                |     | Parent |  |              |       |              |       | Other |       |       |       |   |      | Consolidated
|(Dollars in millions)                                                            |                                        | Company        |     | ASI    |  | Subsidiaries |       | Eliminations |       | Total
|                                                                                 |                                        |                |     |        |  |              |       |              |       |      
|Sales                                                                            |                                        |                |     |        |  | $            | 3,646 |              |       | $     | 2,338 |       |       | $ | (155 | )            |      | $ | 5,829 |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Costs and expenses:                                                              |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of sales                          |                |     |        |  |              |       | 2,767        |       |       |       | 1,747 |       |   |      | (156         | )    |   |       | 4,358 |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Selling and administrative expenses    |                |     |        |  |              |       | 505          |       |       |       | 412   |       |   |      | (17          | )    |   |       | 900   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Other (income) expense                 |                |     |        |  |              |       | (7           | )     |       |       | (15   | )     |   |      | 18           |      |   |       | (4    | )    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Interest expense                       |                |     |        |  |              |       | 126          |       |       |       | 23    |       |   |      |             |      |   |       | 149   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Intercompany interest expense (income) |                |     |        |  |              |       | 16           |       |       |       | (16   | )     |   |      |             |      |   |       |      |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                        | Total expenses |     |        |  |              |       |              | 3,407 |       |       |       | 2,151 |   |      |              | (155 | ) |       |       | 5,403 | 
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|Income before income taxes and equity in
net income of consolidated subsidiaries |                                        |                |     |        |  |              | 239   |              |       |       | 187   |       |       |   |     |              |      |   | 426   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Income taxes                                                                     |                                        |                |     |        |  |              | 98    |              |       |       | 71    |       |       |   |     |              |      |   | 169   |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|Income before equity in net income of
consolidated subsidiaries                  |                                        |                |     |        |  |              | 141   |              |       |       | 116   |       |       |   |     |              |      |   | 257   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Equity in net income of consolidated
subsidiaries                                |                                        | $              | 257 |        |  |              |      |              |       |       |      |       |       | $ | (257 | )            |      |   |      |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Net income                                                                       |                                        | $              | 257 |        |  | $            | 141   |              |       | $     | 116   |       |       | $ | (257 | )            |      | $ | 257   |      
|                                                                                 |                                        |                |     |        |  |              |       |              |       |       |       |       |       |   |      |              |      |   |       |      

11



---



##### 



Note 8. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 2000
(Unaudited)

|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |       |       |  
|---------------------------------------------- | ------------------------------------ | ---------------------------------------------------- | --- | ------ | ---- | ------------ | ----- | ------------ | ------ | ----- | ---- | --- | ----- | - | ---- | ------------ | ---- | - | ----- | ----- | ----- | -
|                                               |                                      |                                                      |     | Parent |      |              |       |              |        | Other |      |     |       |   |      | Consolidated
|(Dollars in millions)                          |                                      | Company                                              |     | ASI    |      | Subsidiaries |       | Eliminations |        | Total
|                                               |                                      |                                                      |     |        |      |              |       |              |        |      
|ASSETS                                         |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                              
|                                              
|                                              
|                                              
|Current assets:                                |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                              
|                                              
|                                              
|                                              
|                                               | Cash and cash equivalents            |                                                      |     |        |      |              | $     | 19           |        |       | $    | 66  |       |   |      |              |      |   | $     | 85    |      
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts receivable, net             |                                                      | $   | 1      |      |              |       | 492          |        |       |      | 534 |       |   |      |              |      |   |       | 1,027 |      
|                                              
|                                              
|                                              
|                                              
|                                               | Inventories                          |                                                      |     |        |      |              |       | 327          |        |       |      | 279 |       |   |      |              |      |   |       | 606   |      
|                                              
|                                              
|                                              
|                                              
|                                               | Other current assets                 |                                                      |     |        |      |              |       | 101          |        |       |      | 60  |       |   |      |              |      |   |       | 161   |      
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      | Total current assets                                 |     |        | 1    |              |       |              | 939    |       |      |     | 939   |   |      |              |      |   |       |       | 1,879 |  
|                                              
|                                              
|                                              
|                                              
|Facilities, net                                |                                      |                                                      |     |        |      |              | 516   |              |        |       | 867  |     |       |   |      |              |      |   | 1,383 |      
|                                              
|                                              
|                                              
|                                              
|Goodwill, net                                  |                                      |                                                      |     |        |      |              | 143   |              |        |       | 792  |     |       |   |      |              |      |   | 935   |      
|                                              
|                                              
|                                              
|                                              
|Investment in subsidiaries                     |                                      |                                                      | 100 |        |      |              |      |              |        |       |     |     |       | $ | (100 | )            |      |   |      |      
|                                              
|                                              
|                                              
|                                              
|Other assets                                   |                                      |                                                      |     |        |      |              | 410   |              |        |       | 138  |     |       |   |      |              |      |   | 548   |      
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      | Total assets                                         |     | $      | 101  |              |       | $            | 2,008  |       |      | $   | 2,736 |   |      | $            | (100 | ) |       | $     | 4,745 |  
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                              
|                                              
|                                              
|                                              
|LIABILITIES AND STOCKHOLDERS
(DEFICIT) EQUITY |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                              
|                                              
|                                              
|                                              
|Current liabilities:                           |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                              
|                                              
|                                              
|                                              
|                                               | Loans payable to banks               |                                                      |     |        |      |              |       |              |        |       | $    | 84  |       |   |      |              |      |   | $     | 84    |      
|                                              
|                                              
|                                              
|                                              
|                                               | Current maturities of long-term debt |                                                      |     |        |      |              | $     | 10           |        |       |      | 2   |       |   |      |              |      |   |       | 12    |      
|                                              
|                                              
|                                              
|                                              
|                                               | Other current liabilities            |                                                      |     |        |      |              |       | 908          |        |       |      | 803 |       |   |      |              |      |   |       | 1,711 |      
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      | Total current liabilities                            |     |        |      |              |       |              | 918    |       |      |     | 889   |   |      |              |      |   |       |       | 1,807 |  
|                                              
|                                              
|                                              
|                                              
|Long-term debt                                 |                                      |                                                      |     |        |      |              | 1,889 |              |        |       | 487  |     |       |   |      |              |      |   | 2,376 |      
|                                              
|                                              
|                                              
|                                              
|Reserve for postretirement benefits            |                                      |                                                      |     |        |      |              | 193   |              |        |       | 215  |     |       |   |      |              |      |   | 408   |      
|                                              
|                                              
|                                              
|                                              
|Intercompany accounts, net                     |                                      | $                                                    | 494 |        |      |              | 456   |              |        |       | (950 | )   |       |   |      |              |      |   |      |      
|                                              
|                                              
|                                              
|                                              
|Other long-term liabilities                    |                                      |                                                      |     |        |      |              | 355   |              |        |       | 192  |     |       |   |      |              |      |   | 547   |      
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      | Total liabilities                                    |     |        | 494  |              |       |              | 3,811  |       |      |     | 833   |   |      | $            |     |   |       |       | 5,138 |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                      | Total stockholders (deficit) equity                 |     |        | (393 | )            |       |              | (1,803 | )     |      |     | 1,903 |   |      |              | (100 | ) |       |       | (393  | )
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      
|                                               |                                      | Total liabilities and stockholders
(deficit) equity |     | $      | 101  |              |       | $            | 2,008  |       |      | $   | 2,736 |   |      | $            | (100 | ) |       | $     | 4,745 |  
|                                               |                                      |                                                      |     |        |      |              |       |              |        |       |      |     |       |   |      |              |      |   |       |      

12



---



##### 



Note 8. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)

|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |      |     |      |      |  
|------------------------ | ------------------------------------------------------------ | ------------------------------------------------------------------------------ | ----------------------------------------- | -------------------------------------------------------- | --- | ------------ | ---- | ------------ | --- | ----- | ---- | ----- | --- | ---- | ---- | - | ---- | ------------ | --- | ---- | --- | ---- | ---- | -
|                         |                                                              |                                                                                |                                           |                                                          |     | Parent       |      |              |     |       |      | Other |     |      |      |   |      | Consolidated
|(Dollars in millions)    |                                                              | Company                                                                        |                                           | ASI                                                      |     | Subsidiaries |      | Eliminations |     | Total
|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |      
|Cash provided (used) by: |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |     
|                        
|                        
|                        
|                        
|                         | Operating activities:                                        |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |      |    
|                        
|                        
|                        
|                        
|                         |                                                              | Net income                                                                     |                                           | $                                                        | 257 |              |      | $            | 141 |       |      | $     | 116 |      |      | $ | (257 | )            |     | $    | 257 |     
|                        
|                        
|                        
|                        
|                         |                                                              | Adjustments to reconcile net income to net
cash provided (used) by operations: |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |      |     |     
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                |                                           | Depreciation and amortization                            |     |              |     |              |     |       | 54   |       |     |      | 108  |   |      |              |     |      |     |      | 162  |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                |                                           | Other non-cash items                                     |     |              |      |              |     |       | 6    |       |     |      |     |   |      |              |     |      |     |      | 6    |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                |                                           | Equity in net income of subsidiaries                     |     |              | (257 | )            |     |       |      |       |     |      |      |   |      |              | 257 |      |     |      |     |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                |                                           | Changes in assets and liabilities:                       |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |      |     |      |      |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                |                                           | Accounts receivable                                      |     |              |      |              |     |       | (118 | )     |     |      | (100 | ) |      |              |     |      |     |      | (218 | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                |                                           | Inventories                                              |     |              |      |              |     |       | 26   |       |     |      | (144 | ) |      |              |     |      |     |      | (118 | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                |                                           | Accounts payable and other accruals                      |     |              | 2    |              |     |       | 64   |       |     |      |     |   |      |              |     |      |     |      | 66   |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                |                                           | Other assets and liabilities                             |     |              | (2   | )            |     |       | 1    |       |     |      | 56   |   |      |              |     |      |     |      | 55   |  
|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |     
|                         |                                                              | Net cash provided by continuing operations                                     |                                           |                                                          |    |              |      |              | 174 |       |      |       | 36  |      |      |   |     |              |     |      | 210 |     
|                        
|                        
|                        
|                        
|                         |                                                              | Net cash used by discontinued operations                                       |                                           |                                                          |     |              |      |              | (13 | )     |      |       |     |      |      |   |      |              |     |      | (13 | )   
|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |     
|                         |                                                              | Net cash provided by operating activities                                      |                                           |                                                          |    |              |      |              | 161 |       |      |       | 36  |      |      |   |     |              |     |      | 197 |     
|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |     
|                         | Investing Activities:                                        |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |      |    
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                | Purchase of property, plant and equipment |                                                          |     |              |      |              |     | (11   | )    |       |     | (124 | )    |   |      |              |     |      |     | (135 | )   
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                |                                           | Investments in affiliated companies and
other businesses |     |              | (16  | )            |     |       | 16   |       |     |      | (29  | ) |      |              |     |      |     |      | (29  | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                | Investments in computer software          |                                                          |     |              |      |              |     | (27   | )    |       |     | (19  | )    |   |      |              |     |      |     | (46  | )   
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                | Other                                     |                                                          |     |              |      |              |     | (5    | )    |       |     | 16   |      |   |      |              |     |      |     | 11   |     
|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |     
|                         | Net cash used by investing activities                        |                                                                                |                                           | (16                                                      | )   |              |      | (27          | )   |       |      | (156  | )   |      |      |  |      |              |     | (199 | )  
|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |     
|                         | Financing activities:                                        |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |      |    
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                | Repayments of long-term debt              |                                                          |     |              |      |              |     | (47   | )    |       |     | (4   | )    |   |      |              |     |      |     | (51  | )   
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                | Net change in credit facility             |                                                          |     |              |      |              |     | 36    |      |       |     | 156  |      |   |      |              |     |      |     | 192  |     
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                | Net change in other short-term debt       |                                                          |     |              |      |              |     |      |      |       |     | (4   | )    |   |      |              |     |      |     | (4   | )   
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                | Purchases of treasury stock               |                                                          |     | (131         | )    |              |     |      |      |       |     |     |      |   |      |              |     |      |     | (131 | )   
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                | Proceeds from exercise of stock options   |                                                          |     | 18           |      |              |     |       |      |       |     |      |      |   |      |              |     |      |     | 18   |     
|                        
|                        
|                        
|                        
|                         |                                                              |                                                                                | Net change in intercompany accounts       |                                                          |     | 129          |      |              |     | (129  | )    |       |     |     |      |   |      |              |     |      |     |     |     
|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |     
|                         | Net cash provided (used) by financing activities             |                                                                                |                                           | 16                                                       |     |              |      | (140         | )   |       |      | 148   |     |      |      |  |      |              |     | 24   |    
|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |     
|                         | Effect of exchange rate changes on cash and
cash equivalents |                                                                                |                                           |                                                         |     |              |      |             |     |       |      | (2    | )   |      |      |  |      |              |     | (2   | )  
|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |     
|                         | Net increase (decrease) in cash and cash equivalents         |                                                                                |                                           |                                                         |     |              |      | (6           | )   |       |      | 26    |     |      |      |  |      |              |     | 20   |    
|                        
|                        
|                        
|                        
|                         | Cash and cash equivalents at beginning of period             |                                                                                |                                           |                                                          |     |              |      | 11           |     |       |      | 50    |     |      |      |   |      |              |     | 61   |    
|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |     
|                         | Cash and cash equivalents at end of period                   |                                                                                | $                                         |                                                         |     |              | $    | 5            |     |       | $    | 76    |     |      | $    |  |      |              | $   | 81   |    
|                         |                                                              |                                                                                |                                           |                                                          |     |              |      |              |     |       |      |       |     |      |      |   |      |              |     |     

13



---



##### 



Note 9. Segment Data

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

|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |       | 
|----------------------------------------------------- | ------------------------------------- | - | ------------------ | ----- | ----------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                                      |                                       |   | Three Months Ended |       | Nine Months Ended
|                                                      |                                       |   | September 30,      |       | September 30,    
|                                                      |                                       |   |                    |       |                  
|                                                      |                                       |   | 2001               |       | 2000              |   | 2001  |       | 2000
|                                                      |                                       |   |                    |       |                   |   |       |       |     
|Sales:                                                |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Air Conditioning Systems and Services |   | $                  | 1,208 |                   |   | $     | 1,257 |      |   | $     | 3,620 |  |   | $     | 3,616 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Plumbing Products                     |   |                    | 453   |                   |   |       | 450   |      |   |       | 1,373 |  |   |       | 1,389 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Vehicle Control Systems               |   |                    | 224   |                   |   |       | 254   |      |   |       | 722   |  |   |       | 824   | 
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                      |                                       | $ | 1,885              |       |                   | $ | 1,961 |       |      | $ | 5,715 |       |  | $ | 5,829 |      
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|Segment income:                                       |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Air Conditioning Systems and Services |   | $                  | 153   |                   |   | $     | 162   |      |   | $     | 447   |  |   | $     | 430   | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Plumbing Products                     |   |                    | 43    |                   |   |       | 40    |      |   |       | 122   |  |   |       | 130   | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Vehicle Control Systems               |   |                    | 27    |                   |   |       | 30    |      |   |       | 107   |  |   |       | 112   | 
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                      |                                       |   | 223                |       |                   |   | 232   |       |      |   | 676   |       |  |   | 672   |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|Equity in net income of unconsolidated joint ventures |                                       |   | 3                  |       |                   |   | 7     |       |      |   | 14    |       |  |   | 26    |      
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                      |                                       |   | 226                |       |                   |   | 239   |       |      |   | 690   |       |  |   | 698   |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|Interest expense                                      |                                       |   | 42                 |       |                   |   | 51    |       |      |   | 133   |       |  |   | 149   |      
|                                                     
|                                                     
|                                                     
|                                                     
|Corporate and other expenses                          |                                       |   | 40                 |       |                   |   | 40    |       |      |   | 117   |       |  |   | 123   |      
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|Income from continuing operations
before income taxes |                                       | $ | 144                |       |                   | $ | 148   |       |      | $ | 440   |       |  | $ | 426   |      
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      



| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For a comparative analysis of this Summary Segment and Income Data, see Managements Discussion and Analysis of Financial Position and Results of Operations.

14



---



##### 



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 2001
Compared with the Third Quarter and First Nine Months of 2000

The Companys sales in the third quarter of 2001 were $1,885 million, a
decrease of $76 million, or 4% (2% excluding unfavorable foreign exchange
effects), from record third quarter sales of $1,961 million in 2000. Sales
decreased 4% for Air Conditioning Systems and Services and 12% for Vehicle
Control Systems but increased 1% for Plumbing Products.

Segment income for the third quarter of 2001 was $223 million, a decrease
of $9 million, or 4% (3% excluding foreign exchange effects), from $232
million in the third quarter of 2000. Segment income decreased 6% for Air
Conditioning Systems and Services and 10% for Vehicle Control Systems, but
increased 8% for Plumbing Products.

Sales for the first nine months of 2001 were $5,715 million, a decrease
of $114 million, or 2% (an increase of 1% excluding foreign exchange effects),
from $5,829 million in the first nine months of 2000. Sales were flat for Air
Conditioning Systems and Services, down 1% for Plumbing Products and down 12%
for Vehicle Control Systems. Segment income was $676 million for the first
nine months of 2001, an increase of 1% (3% excluding the unfavorable effects
of foreign exchange), compared with $672 million in the first nine months of
2000. Segment income increased 4% for Air Conditioning Systems and Services,
but decreased 6% for Plumbing Products and 4% for Vehicle Control Systems.

Sales for Air Conditioning Systems and Services were $1,208 million for
the third quarter of 2001, a decrease of 4% (3% excluding unfavorable foreign
exchange effects) from $1,257 million for the third quarter of 2000 due to
lower volume in the commercial equipment business. This decline was
substantially less than the decline suffered by the air conditioning markets
as a whole. We believe that in the U.S., the commercial unitary markets were
down 18%, the applied markets down approximately 5% and residential markets
down 1.5%. The Company's worldwide commercial applied and commercial unitary sales
decreased 6% (5% excluding foreign exchange effects). The decrease resulted
principally from lower commercial equipment volumes in the U.S., as new
projects and replacement programs were deferred. That decline was
substantially offset by growth in the U.S. service, parts and solutions
business. Sales outside the U.S., which are substantially commercial, were
essentially flat when adjusted for divestitures and foreign exchange, with
gains in Europe and Canada offset by declines in Latin America, Asia and the
Middle East. Residential sales in the U.S. increased 5%, benefiting from the
Companys strong position in the premium market, expanding distribution
(including Sears and Home Depot in the retail channel), and continuing share
gains in both cooling systems and furnaces. The market trend toward
higher-efficiency units evident last year and in the first half of 2001
continued in the third quarter. The residential business gain was achieved
despite the residential market decline and generally cooler-than-normal
weather. Sales for Air Conditioning Systems and Services for the first nine
months of 2001 were essentially flat (but increased 1% excluding foreign
exchange effects) at $3,620 million compared with $3,616 million in the first
nine months of 2000. Volume gains in the first half of the year were offset
by the third quarter decrease.

Segment income for Air Conditioning Systems and Services decreased 6%
(with little effect from foreign exchange) to $153 million in the third
quarter of 2001 from $162 million in

15



---



##### 



the third quarter of 2000, as margins declined from 12.9% to 12.7%. This
decrease was almost entirely attributable to the U.S. commercial equipment
business that suffered from decreased volume. That decline was partly offset
by increased segment income for the residential business because of share
gains, a shift in customer demand to higher-capacity, higher-efficiency
products and cost improvements. Segment income for the first nine months of
2001 increased 4% (with little foreign exchange effect) to $447 million from
$430 million in the first nine months of 2000. Volume gains achieved in 2001
in the services, parts and solutions business, and improvements in the
residential business as described above exceeded the third-quarter decline
experienced in the commercial equipment business.

Sales for Plumbing Products increased 1% (3% excluding unfavorable
foreign exchange effects) to $453 million in the third quarter of 2001 from
$450 million in the third quarter of 2000. The exchange-adjusted increase was
the result of gains in Europe and the Americas. The European increase (2%
excluding foreign exchange) reflected volume increases from the acquisition of
two small fittings manufacturers. Otherwise, European sales were flat. The
overall European economy was slightly weaker. Sales in the Americas increased
4% (5% excluding foreign exchange effects) due to growth of 5% in the U.S. and
4% in Latin America, excluding exchange effects. The increase in the U.S. was
relatively strong considering that the economy softened and markets declined,
and when compared to the third quarter of 2000 which grew 11%. Sales through
both the retail and wholesale channels expanded. Record sales of faucets were
achieved in the quarter as market share in the retail channel increased.
Sales of Plumbing Products for the first nine months of 2001 decreased 1%
(increased 3% excluding unfavorable foreign exchange effects) to $1,373
million from $1,389 million in the first nine months of 2000. This
exchange-adjusted increase was due principally to the same factors affecting
third quarter sales.

Segment income of Plumbing Products for the third quarter of 2001 was $43
million, an increase of 8% (10% excluding unfavorable foreign exchange
effects) from $40 million for the 2000 third quarter. The increase was
principally attributable to volume increases in Europe and Latin America and
in U.S. faucets. European operations benefited from improved productivity
resulting from the restructuring implemented as part of a lower-cost sourcing
program. Margins increased from 8.9% in the third quarter of 2000 to 9.5% in
the third quarter of 2001. Segment income for the first nine months of 2001
decreased 6% (1% excluding unfavorable foreign exchange effects) to $122
million from $130 million in the first nine months of 2000. First-half
declines more than offset third quarter improvements. The overall nine-month
decrease was primarily attributable to product mix, higher energy costs,
manufacturing performance issues in the Americas and expenses related to the
transition of production capacity to Mexico, partly offset by savings derived
from materials management and Six Sigma initiatives.

Sales of Vehicle Control Systems for the third quarter of 2001 were $224
million, a decrease of 12% (8% excluding unfavorable foreign exchange effects)
from $254 million in the third quarter of 2000 primarily because of a
significant deterioration in the North American commercial vehicle market and
a softening in European markets. Unit volumes of truck and bus production
decreased 25% in the U.S. and 11% in Western Europe compared with the third
quarter of 2000. Sales generally declined less than the markets, as new
products, new applications with existing customers, geographic expansion and
market penetration tempered the effects of the cyclical nature of the
commercial vehicle markets. Sales in Europe (excluding export sales to the
Companys U.S. marketing joint venture) were down 8% from the third quarter of
2000 in a market that declined 11%. Similarly, sales of anti-lock braking
systems to the U. S. marketing joint venture declined less than the markets in
which the Company participates. Sales of Vehicle Control Systems for the
first nine months of 2001 decreased 12% (6% excluding unfavorable foreign
exchange effects)

16



---



##### 



to $722 million from $824 million in the first nine months of 2000, primarily
for the reasons cited for the third quarter decrease.

Segment income for Vehicle Control Systems for the third quarter of 2001
decreased $3 million ($2 million excluding unfavorable foreign exchange
effects) to $27 million from $30 million in the third quarter of 2000. This
primarily reflected lower volumes. Despite the lower volumes, margins
improved from 11.8% in the third quarter of 2000 to 12.1% in the third quarter
of 2001. Margins are benefiting from a structural reduction in cost as
labor-intensive production continues to be shifted to the new facility in
Poland and from productivity enhancements including Six Sigma and materials
management initiatives. Segment income for Vehicle Control Systems for the
first nine months of 2001 was $107 million, a decrease of 4% (increase of 3%
excluding unfavorable foreign exchange effects) from $112 million in the first
nine months of 2000, principally for the same reasons cited for the third
quarter decrease.

Other Summary Income Data Items

Equity in net income of unconsolidated joint ventures was $3 million in
the third quarter of 2001, compared with $7 million in the year-earlier
quarter, and was $14 million in the first nine months of 2001 compared with
$26 million in the first nine months of 2000. These decreases reflect the
significant decline in the North American truck manufacturing market and its
effect on Vehicle Control Systems U.S. braking systems marketing joint
venture. Earnings of Air Conditioning Systems and Services compressor
manufacturing joint venture and the Companys financial services joint venture
were essentially even with last year.

Interest expense decreased by $9 million in the third quarter of 2001 and
by $16 million in the first nine months of 2001 compared with the year-earlier
periods, because of lower average debt balances and lower average interest
rates. Corporate and other expenses in the third quarter of 2001 were flat
with last years third quarter and decreased by $6 million for the first nine
months of 2001 compared to the year-earlier nine months, reflecting changes in
various accounts.

The income tax provision for the third quarter of 2001 was $54 million
and for the first nine months of 2001 was $165 million, or 37.5% of pre-tax
income, compared with provisions of $59 million and $169 million, or 39.75% of
pre-tax income in the comparable periods of 2000. The effective income tax
rate is lower in 2001 primarily because of various tax planning initiatives.

On October 16, 2001, the company announced that it would be reducing its
salaried workforce by about 1,000 people in anticipation of continued weak
economic conditions. This workforce reduction will result in a pre-tax charge
in the fourth quarter of about $25 million or 21 cents per share after taxes.
The Company estimates that it will realize about $40 million in savings in
2002 as a result of this action.

Liquidity and Capital Resources

Net cash provided by operating activities, after cash interest paid of
$132 million, was $282 million for the first nine months of 2001, compared
with net cash provided of $197 million for the same period of 2000. The $85
million improvement resulted primarily from higher net income, higher non-cash
compensation charges because Company contributions to the Employee Stock
Ownership Plan (ESOP) were funded with shares of common stock in 2001 but with
cash in 2000, and lower working capital usage. In addition, depreciation and
amortization were somewhat higher in 2001. Accounts receivable and

17



---



##### 



inventories increased in the first nine months of both years. The
receivables increase in 2001 was smaller than the 2000 increase primarily
because sales in our businesses leveled off in 2001 whereas in 2000 sales
increased 12% in local currencies. The inventory increase in both periods
reflected a decision to increase certain air conditioning and plumbing
products inventories to serve customers better. The increase in 2001 was
lower than in 2000 because growth in the business was significantly lower in
2001 than in 2000. Accounts payable and accruals decreased in 2001 (a use of
cash) and increased in 2000 (a source of cash) and reflected much smaller
growth of the business in 2001 and timing differences in accruals and
payments. In investing activities, the Company made capital expenditures of
$104 million for the first nine months of 2001, including $31 million of
investments in affiliated companies and other businesses. This compared with
capital expenditures of $135 million in the first nine months of 2000,
including $29 million of investments in affiliated companies and other
businesses. The Company also invested $42 million in computer software in the
first nine months of 2001, compared with $46 million in the 2000 period, and
received proceeds of $27 million from sale and leaseback transactions in 2001.
In financing activities, the Company realized proceeds from the exercise of
stock options of $84 million in 2001, compared with $18 million in 2000. The
company purchased approximately 1.5 million shares of its common stock for $92
million in the first nine months of 2001 pursuant to the Companys share
repurchase program, compared with the purchase of approximately
3.2 million shares for $131 million in the first nine months of 2000. Under this program
the Company has been authorized by the Board of Directors to repurchase
additional shares at a cost of up to $72 million through July 7, 2002.
Additionally, the company bought back warrants for the purchase of
3 million shares of the Companys common stock held by Kelso ASI Partners, L. P. for $35
million in the second quarter of 2001.

On November 6, 2001, the Company entered into two new bank credit
agreements, which replaced the 1997 Credit Agreement (see Note 2 to Financial
Statements). The new agreements provide the Company with senior unsecured
revolving credit facilities aggregating $1.3 billion as follows: (a) a
five-year, $1 billion multi-currency facility which expires in 2006 and (b) a
364-day, $300 million U.S. dollar facility which expires November 5, 2002,
with an option to renew for an additional 364 days.

The aggregate borrowings of up to $1.3 billion available under the new
facilities can be used for general corporate purposes, of which up to $250
million may be used for issuing letters of credit and up to $150 million for
same-day, short-term borrowings. Each loan outstanding under these facilities
is due at the end of each interest period (a maximum of 12 months). The
Company may, however, concurrently reborrow the outstanding obligations
subject to compliance with certain conditions contained in the new agreements.

The Company, American Standard Inc., American Standard International Inc.
and certain of their domestic subsidiaries guarantee obligations under the new
credit agreements. In addition, significant foreign subsidiaries guarantee
obligations of certain foreign borrowers under the new credit agreements.

The new 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 believes it is currently in compliance with the covenants contained in
the new credit agreements.

18



---



##### 



At September 30, 2001, there were $891 million of borrowings outstanding
and $11 million of letters of credit issued under the 1997 Credit Agreement,
leaving availability thereunder of $748 million. In addition, there were $90
million of letters of credit issued under a temporary letter of credit
facility established to facilitate transition to the new credit agreements.
Those borrowings and letters of credit were refinanced under the new credit
agreements. The Company chose to reduce the total funding available under its
bank credit arrangements because improved cash flows, the reduction in total
debt outstanding and improved credit rating have made alternative sources of
financing more readily available to the Company. The Companys foreign
subsidiaries also had $77 million available at September 30, 2001, under
overdraft facilities that can be withdrawn by the banks at any time. In
addition, the Companys operations in China have $17 million available under
bank credit facilities after reduction for borrowings of $18 million and
letters of credit usage of $20 million. The Company believes that the amounts
available from operating cash flows, funds available under its new credit
agreements and future borrowings under the remaining $540 million of a $1
billion shelf registration filed with the Securities and Exchange Commission
in 1998 (the 1998 Shelf Registration) will be sufficient to meet its
expected operating needs and planned capital expenditures for the foreseeable
future.

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

As described in Note 8 of Notes to Consolidated Financial Statements in
the Companys Annual Report on Form 10-K for the year ended December 31, 2000,
there are pending German Tax issues for the years 1984 through 1990. There
has been no change in the status of these issues since that report was filed.

Information Concerning Forward-Looking Statements

Certain of the statements contained in this report (other than the
historical financial data and other statements of historical fact) including,
without limitation, statements as to managements expectations and belief, are
forward-looking statements. Forward-looking statements are made based upon
managements good faith expectations and belief concerning future developments
and their potential effect upon the Company. There can be no assurance that
future developments will be in accordance with such expectations or that the
effect of future developments on the Company will be those anticipated by
management. Forward-looking statements can be identified by the use of words
such as believe, expect, plans, strategy, prospects, estimate,
project, anticipate and other words of similar meaning in connection with
a discussion of future operating or financial performance. This Report on
Form 10-Q includes important information as to risk factors in the Notes to
Financial Statements under the headings Restructuring and Asset Impairment
Charges, Tax Matters, and in the section titled Managements Discussion
and Analysis of Results of Operations and Financial Position. Many important
factors could cause actual results to differ materially from managements
expectations, including the level

19



---



##### 



of construction activity in the Companys Air Conditioning Systems and
Services and Plumbing Products markets and the level of truck and bus
production in the Companys Vehicle Control Systems markets; the ability of
the Company to implement its restructuring program as planned; the extent to
which the Company will be able to realize the estimated savings from the
salaried workforce reduction: the timing of completion and success in the
start-up of new production facilities; changes in U.S. or international
economic conditions, such as inflation or interest rate fluctuations or
recessions in the Companys markets; pricing changes to the Companys supplies
or products or those of its competitors, and other competitive pressures on
pricing and sales; labor relations; integration of acquired businesses; risks
generally relating to the Companys international operations, including
governmental, regulatory or political changes; changes in environmental,
health or other regulations that may affect one or more of the Companys
products or potential products; changes in laws or different interpretations
of laws including the risk that German judicial authorities will disagree with
the opinions of the Companys German tax counsel or that may affect the
Companys expected effective tax rate for 2001; 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 reduces
outstanding debt.

20



---



##### 



PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

For a discussion of German tax issues see Managements Discussion and
Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resources in Part I of this report which is incorporated herein by
reference.

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 fiscal quarter ended September 30,
2001, the Company filed no Current Reports on Form 8-K.

21



---



##### 



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/ G. Ronald Simon
Vice President and Controller
(Principal Accounting Officer)
|                 
|                 
|                 
|                 
|                  |  |                                                                                 
|                 
|                 
|                 
|                 
|                  |  |                                                                                 
|                 
|                 
|                 
|                 
|                  |  |                                                                                 
|                 
|                 
|                 
|                 
|                  |  |                                                                                 
|                 
|                 
|                 
|                 
|November 12, 2001 |  |                                                                                 

22



---



##### 



AMERICAN STANDARD COMPANIES INC.
INDEX TO EXHIBITS

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

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(10)(i)     |  | Five-Year Credit Agreement, dated as of November 6, 2001,
among the Company, American Standard Inc., American Standard
International Inc., certain subsidiaries of the Company and
the financial institutions listed therein, The Chase Manhattan
Bank, as Administrative Agent; Issuing Bank and Swingline
Lender; Chase Manhattan International Limited, as London Agent
and Italian Agent; Bank of America, N.A., Citibank, N.A. and
Deutsche Bank AG as Syndication Agents; The Industrial Bank of
Japan Trust Company and Lloyds TSB Bank PLC as Documentation
Agents; and JP Morgan as Advisor, Lead Arranger and Book
Manager; filed herewith.
|           
|           
|           
|           
|(10)(ii)    |  | 364-Day Credit Agreement, dated as of November 6, 2001, among
the Company, American Standard Inc., American Standard
International Inc., certain subsidiaries of the Company and
the financial institutions listed therein, The Chase Manhattan
Bank, as Administrative Agent and Swingline Lender; Bank of
America, N.A., Citibank, N.A. and Deutsche Bank AG as
Syndication Agents; The Industrial Bank of Japan Trust Company
and Lloyds TSB Bank PLC as Documentation Agents; and JP Morgan
as Advisor, Lead Arranger and Book Manager; filed herewith.                                                                                          
|           
|           
|           
|           
|(12)        |  | Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

23