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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q (Mark One) x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2004  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                      to                     . Commission file number 1-11415 AMERICAN STANDARD COMPANIES INC.  Delaware
    
    13-3465896(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 One Centennial Avenue, P.O. Box 6820, Piscataway, NJ
    
    08855-6820(Address of principal executive offices)
Registrants telephone number, including area code
    
    (Zip 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 o Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act) x Yes                      No o 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 25, 2004
    
    214,520,150 shares




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TABLE OF CONTENTS  PART 1. FINANCIAL INFORMATIONItem 1. Financial StatementsUNAUDITED SUMMARY CONSOLIDATED STATEMENT OF INCOMEUNAUDITED SUMMARY CONSOLIDATED BALANCE SHEETUNAUDITED SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSPART 1. FINANCIAL INFORMATIONItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal Proceedings.Item 2. Changes in Securities, and Use of Proceeds and Issuer Purchases of Equity SecuritiesItem 6. Exhibits and Reports on Form 8-KSIGNATUREINDEX TO EXHIBITSEX-10 SUPPLEMENTAL COMPENSATION PLANEX-12 RATIO OF EARNINGS TO FIXED CHARGESEX-31.1 CERTIFICATIONEX-31.2 CERTIFICATIONEX-32.1 CERTIFICATIONEX-32.2 CERTIFICATIONEX-99.1 EMPLOYMENT AGREEMENT    Table of Contents  
 PART 1. FINANCIAL INFORMATION 
 Item 1. Financial Statements American Standard Companies Inc. (the Company) is a Delaware corporation
that owns all the outstanding common stock of American Standard Inc. and
American Standard International Inc. (ASII), both Delaware corporations.
American Standard or the Company 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. 
 UNAUDITED SUMMARY CONSOLIDATED STATEMENT OF INCOME
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Sales
    
    $
    2,396.1
    
    
    $
    2,234.4
    
    
    $
    7,156.4
    
    
    $
    6,450.0Cost and expensesCost of sales
    
    
    1,736.4
    
    
    
    1,683.6
    
    
    
    5,225.7
    
    
    
    4,870.1Selling and administrative expenses
    
    
    421.4
    
    
    
    338.0
    
    
    
    1,275.7
    
    
    
    997.2Other expense
    
    
    9.6
    
    
    
    6.6
    
    
    
    18.1
    
    
    
    29.7Interest expense
    
    
    28.7
    
    
    
    28.6
    
    
    
    86.5
    
    
    
    88.92,196.1
    
    
    
    2,056.8
    
    
    
    6,606.0
    
    
    
    5,985.9Income before income taxes
    
    
    200.0
    
    
    
    177.6
    
    
    
    550.4
    
    
    
    464.1Income taxes
    
    
    44.0
    
    
    
    55.1
    
    
    
    150.1
    
    
    
    143.9Net income applicable to common shares
    
    $
    156.0
    
    
    $
    122.5
    
    
    $
    400.3
    
    
    $
    320.2Net income per common shareBasic
    
    $
    .73
    
    
    $
    .56
    
    
    $
    1.86
    
    
    $
    1.48Diluted
    
    $
    .71
    
    
    $
    .55
    
    
    $
    1.81
    
    
    $
    1.45Average common shares outstandingBasic
    
    
    214,183,685
    
    
    
    217,031,217
    
    
    
    214,961,619
    
    
    
    216,361,032Diluted
    
    
    219,924,015
    
    
    
    221,336,859
    
    
    
    220,726,658
    
    
    
    220,370,160
 See accompanying notes to the Consolidated Financial Statements 2




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Item 1. Financial Statements (continued) AMERICAN STANDARD COMPANIES INC. 
 UNAUDITED SUMMARY CONSOLIDATED BALANCE SHEET
  September 30,
    
    December 31,2004
    
    2003Current assets:Cash and cash equivalents
    
    $
    227.3
    
    
    $
    111.7Accounts receivable, less allowance for doubtful
accounts: September 2004 - $43.0; Dec. 2003
- $45.3
    
    
    1,259.9
    
    
    
    1,022.8Inventories:Finished products
    
    
    666.9
    
    
    
    571.8Products in process
    
    
    172.4
    
    
    
    181.4Raw materials
    
    
    243.1
    
    
    
    156.7Other current assets
    
    
    422.1
    
    
    
    446.3Total current assets
    
    
    2,991.7
    
    
    
    2,490.7Facilities, less accumulated depreciation:September 2004 - $1,045.8; Dec. 2003 - $963.5
    
    
    1,505.0
    
    
    
    1,515.4Goodwill, less accumulated amortization:September 2004 - $405.3; Dec. 2003 - $413.1
    
    
    1,109.7
    
    
    
    1,140.4Capitalized software costs, less accumulated
amortization: September 2004 - $246.9; Dec. 2003 -
$202.6
    
    
    221.8
    
    
    
    239.3Debt issuance costs, net of accumulated amortization:September 2004 - $26.9; Dec. 2003 - $22.4
    
    
    16.7
    
    
    
    21.2Other assets
    
    
    512.9
    
    
    
    471.7Total assets
    
    $
    6,357.8
    
    
    $
    5,878.7Current liabilities:Loans payable to banks
    
    $
    44.3
    
    
    $
    49.8Current portion of long-term debt
    
    
    2.2
    
    
    
    2.5Accounts payable
    
    
    837.8
    
    
    
    684.3Accrued payrolls
    
    
    323.6
    
    
    
    294.3Current portion of warranties
    
    
    168.9
    
    
    
    153.1Taxes on income
    
    
    161.7
    
    
    
    136.0Other accrued liabilities
    
    
    742.6
    
    
    
    713.5Total current liabilities
    
    
    2,281.1
    
    
    
    2,033.5Long-term debt
    
    
    1,622.4
    
    
    
    1,626.8Post-retirement benefits
    
    
    630.6
    
    
    
    657.4Warranties
    
    
    227.9
    
    
    
    202.9Other liabilities
    
    
    637.5
    
    
    
    644.3Total liabilities
    
    
    5,399.5
    
    
    
    5,164.9Shareholders equity:Preferred stock, 2,000,000 shares authorized,
none issued and outstanding
    
    
    
    
    
    
    Common stock $.01 par value, 560,000,000 shares
authorized; shares issued: 251,768,458 in 2004;
251,757,582 in 2003; and shares outstanding:214,316,549 in 2004; 217,914,978 in 2003
    
    
    2.5
    
    
    
    2.5Capital surplus
    
    
    784.3
    
    
    
    753.7Unearned compensation
    
    
    (.2
    )
    
    
    (.7
    )Treasury stock
    
    
    (766.2
    )
    
    
    (584.3
    )Retained earnings
    
    
    1,233.5
    
    
    
    833.2Accumulated other comprehensive income:Foreign currency translation effects
    
    
    (209.7
    )
    
    
    (204.5
    )Deferred gain on hedge contracts, net of tax
    
    
    7.4
    
    
    
    7.1Minimum pension liability adjustment, net of tax
    
    
    (93.3
    )
    
    
    (93.2
    )Total shareholders equity
    
    
    958.3
    
    
    
    713.8$
    6,357.8
    
    
    $
    5,878.7
 See accompanying notes to the Consolidated Financial Statements 3




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Item 1. Financial Statements (continued) AMERICAN STANDARD COMPANIES INC. 
 UNAUDITED SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
  Nine months endedSeptember 30,2004
    
    2003Cash provided by:Operating activities:Net income
    
    $
    400.3
    
    
    $
    320.2Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation
    
    
    127.6
    
    
    
    117.9Amortization of capitalized software and other intangibles
    
    
    65.9
    
    
    
    62.2Non-cash stock compensation
    
    
    45.5
    
    
    
    46.7Equity in earnings of unconsolidated joint
ventures, net of dividends received
    
    
    (12.0
    )
    
    
    (9.2
    )Other
    
    
    (1.2
    )
    
    
    (4.0
    )Changes in assets and liabilities:Accounts receivable
    
    
    (238.2
    )
    
    
    (241.3
    )Inventories
    
    
    (173.8
    )
    
    
    (73.5
    )Accounts payable
    
    
    145.5
    
    
    
    98.7Other accrued liabilities and taxes
    
    
    115.7
    
    
    
    228.4Post-retirement benefits
    
    
    (25.7
    )
    
    
    (18.2
    )Other current and long-term assets
    
    
    (20.5
    )
    
    
    (96.7
    )Other long-term liabilities
    
    
    33.5
    
    
    
    42.6Net cash provided by operating activities
    
    
    462.6
    
    
    
    473.8Investing activities:Purchase of property, plant and equipment
    
    
    (119.0
    )
    
    
    (102.2
    )Investments in affiliated companies and other businesses
    
    
    
    
    
    
    (24.3
    )Investments in computer software
    
    
    (30.7
    )
    
    
    (29.4
    )Loan to unconsolidated joint venture, net
    
    
    (17.9
    )
    
    
    Proceeds from sales of property, plant and equipment
    
    
    13.9
    
    
    
    5.5Net cash used by investing activities
    
    
    (153.7
    )
    
    
    (150.4
    )Financing activities:Proceeds from issuance of long-term debt
    
    
    0.8
    
    
    
    32.7Repayments of long-term debt
    
    
    (2.0
    )
    
    
    (128.7
    )Net change in revolving credit facilities
    
    
    7.6
    
    
    
    (145.2
    )Net change in other short-term debt
    
    
    (2.3
    )
    
    
    47.4Purchases of treasury stock
    
    
    (237.6
    )
    
    
    (105.2
    )Proceeds from exercise of stock options
    
    
    26.9
    
    
    
    39.3Proceeds from settlement of foreign exchange forward contracts
    
    
    5.4
    
    
    
    36.4Other
    
    
    7.1
    
    
    
    5.4Net cash used by financing activities
    
    
    (194.1
    )
    
    
    (217.9
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    0.8
    
    
    
    (0.6
    )Net increase in cash and cash equivalents
    
    
    115.6
    
    
    
    104.9Cash and cash equivalents at beginning of period
    
    
    111.7
    
    
    
    96.6Cash and cash equivalents at end of period
    
    $
    227.3
    
    
    $
    201.5Cash interest paid
    
    
    77.0
    
    
    
    86.4Cash taxes paid
    
    
    122.8
    
    
    
    26.8
 See accompanying notes to the Consolidated Financial Statements 4




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AMERICAN STANDARD COMPANIES INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Basis of Financial Statement Presentation The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, including normal recurring items, considered necessary for a fair
presentation of financial data have been included. The results of operations
for interim periods are not necessarily indicative of the results that may be
expected for the entire year. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
accompanying notes included in the Companys Annual Report on Form 10-K for the
year ended December 31, 2003. Preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the period. Management believes the most complex and sensitive
judgments, because of their significance to the consolidated financial
statements, result primarily from the need to make estimates about the effects
of matters that are inherently uncertain. Managements Discussion and Analysis
and Note 2 to the Consolidated Financial Statements in the Companys Annual
Report on Form 10-K for the calendar year 2003 describe the most significant
accounting estimates and policies used in preparation of the Consolidated
Financial Statements. Actual results in these areas could differ materially
from managements estimates. There have been no significant changes in the
Companys assumptions regarding critical accounting estimates during the first
nine months of 2004. All share and per-share amounts and the related shareholders equity
accounts in the accompanying consolidated financial statements and footnotes
for all periods presented reflect the three-for-one stock split that became
effective on May 27, 2004 as described in Note 4. Where appropriate, certain prior year amounts have been reclassified to
conform to our current presentation. Note 2. Effect of Recently Issued Accounting Standards The Financial Accounting Standards Board (FASB) has recently issued
several new Statements and Interpretations. For the disclosures required by
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, see Note 5 of Notes to Financial
Statements. For the interim period disclosures required by Statement No. 132
(revised 2003) Employers Disclosures about Pensions and Other Postretirement
Benefits,see Note 8 of Notes to Financial Statements. Some of the disclosure
requirements of the revised Statement No. 132 related to foreign plans and
certain other matters are not effective until 2005. For a discussion of the
impact of FASB Staff Position No. 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003, which addresses the accounting and disclosure required as a result of the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 enacted
on December 8, 2003, see Note 8 of Notes to Financial Statements. Other
Statements and Interpretations recently issued by the FASB that are applicable
to the Company have had no impact to the Company upon adoption. Those
statements included No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities;and No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity; 5




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Interpretation No. 46, Consolidation of Variable Interest Entities,parts of
which became effective for the Company in the first quarter of 2004. Note 3. Comprehensive Income Total comprehensive income consisted of the following (dollars in
millions): Three months ended
    
    Nine months endedSeptember 30 ,
    
    September 30 ,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    156.0
    
    
    $
    122.5
    
    
    $
    400.3
    
    
    $
    320.2Foreign currency translation effects
    
    
    0.2
    
    
    
    (12.8
    )
    
    
    (5.2
    )
    
    
    40.9Deferred gain (loss) on hedge
contracts, net of tax
    
    
    3.6
    
    
    
    2.6
    
    
    
    0.3
    
    
    
    4.4Minimum pension liability adjustment
    
    
    0.4
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.8
    )Total comprehensive income
    
    $
    160.2
    
    
    $
    112.3
    
    
    $
    395.3
    
    
    $
    364.7
 Note 4. 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, 2004 and
2003 included 5,740,330 and 4,305,642 average incremental shares, respectively,
for the assumed exercise of outstanding stock options. The nine-month periods
ended September 30, 2004 and 2003 included 5,765,038 and 4,009,128 average
incremental shares, respectively. Note 5. Capital Stock and Stock Split At the Annual Meeting on May 4, 2004, shareholders approved an amendment
to the Companys charter to increase the authorized shares of common stock from
200,000,000 shares to 560,000,000 shares, enabling the Company to complete a
three-for-one common stock split approved by the Board of Directors on February
5, 2004. The split became effective May 27, 2004, for holders of record as of
May 18, 2004. The par value of the common stock was maintained at the
pre-split amount of $0.01 per share. Accordingly, the Common Stock account in
Shareholders Equity was increased to reflect the increased number of shares
(at $0.01 per share) with a corresponding decrease in Capital Surplus for each
balance sheet presented. All share and per-share amounts in the accompanying
consolidated financial statements and footnotes for all periods presented
reflect the stock split on a retroactive basis. 6




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Following is a summary of net shares outstanding and shares issued or
reacquired during the first, second and third quarters of 2004. Number of Shares of Common StockTreasury
    
    Net SharesTotal Shares
    
    Shares
    
    OutstandingBalance, December 31, 2003
    
    
    251,757,582
    
    
    
    (33,842,604
    )
    
    
    217,914,978Shares issued upon exercise of stock options
    
    
    999
    
    
    
    768,228
    
    
    
    769,227Stock purchased for treasury
    
    
    
    
    
    
    (4,023,000
    )
    
    
    (4,023,000
    )Shares issued to ESOP
    
    
    
    
    
    
    408,570
    
    
    
    408,570Shares issued to ESPP
    
    
    315
    
    
    
    52,164
    
    
    
    52,479Other shares issued or (reacquired), net
    
    
    
    
    
    
    (139,215
    )
    
    
    (139,215
    )Balance, March 31, 2004
    
    
    251,758,896
    
    
    
    (36,775,857
    )
    
    
    214,983,039Shares issued upon exercise of stock options
    
    
    9,000
    
    
    
    398,503
    
    
    
    407,503Stock purchased for treasury
    
    
    
    
    
    
    (2,110,000
    )
    
    
    (2,110,000
    )Shares issued to ESOP
    
    
    
    
    
    
    404,042
    
    
    
    404,042Shares issued to ESPP
    
    
    291
    
    
    
    73,683
    
    
    
    73,974Other shares issued or (reacquired), net
    
    
    
    
    
    
    11,206
    
    
    
    11,206Balance, June 30, 2004
    
    
    251,768,187
    
    
    
    (37,998,423
    )
    
    
    213,769,764Shares issued upon exercise of stock options
    
    
    
    
    
    
    518,015
    
    
    
    518,015Stock purchased for treasury
    
    
    
    
    
    
    (429,000
    )
    
    
    (429,000
    )Shares issued to ESOP
    
    
    
    
    
    
    400,132
    
    
    
    400,132Shares issued to ESPP
    
    
    271
    
    
    
    50,853
    
    
    
    51,124Other shares issued or (reacquired), net
    
    
    
    
    
    
    6,514
    
    
    
    6,514Balance, September 30, 2004
    
    
    251,768,458
    
    
    
    (37,451,909
    )
    
    
    214,316,549
 Note 6. Stock-Based Compensation The Company has three stock-based compensation plans-the 2002 Omnibus
Incentive Plan, the Stock Incentive Plan and the Employee Stock Purchase Plan
(ESPP)  which are described in Note 11 of Notes to Financial Statements in
the Companys 2003 Annual Report on Form 10-K. Under the first two plans, the
Company has granted options to employees and directors to acquire a fixed
number of shares of the Companys common stock at a specified price, and also
has made grants of restricted shares. Under the ESPP, employees are entitled
to purchase shares of the Companys common stock at a discount of 15% from the
market price on the date of purchase. The Company accounts for these plans
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25),and related
Interpretations. Compensation cost is not recorded for substantially all
options granted because the option exercise price was equal to the market value
of the underlying common stock on the date of grant. Additionally,
compensation cost is not recorded for the 15% discount on shares purchased
under the ESPP, which is not considered compensation expense under APB 25.
Compensation cost is recorded for the value of restricted share awards,
amortized over the vesting period of the award. 7




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The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation,to stock-based
employee compensation (dollars in millions except per share data). Three Months Ended
    
    Nine Months EndedSeptember 30 ,
    
    September 30 ,2004
    
    2003
    
    2004
    
    2003Net income, as reported
    
    $
    156.0
    
    
    $
    122.5
    
    
    $
    400.3
    
    
    $
    320.2Deduct: Total stock-based compensation
expense determined under fair value based
method for all stock option awards, net of tax,
and discounts under the ESPP, net of tax
    
    
    4.4
    
    
    
    4.9
    
    
    
    13.7
    
    
    
    15.0Pro forma net income
    
    $
    151.6
    
    
    $
    117.6
    
    
    $
    386.6
    
    
    $
    305.2Earnings per share:Basic-as reported
    
    $
    .73
    
    
    $
    .56
    
    
    $
    1.86
    
    
    $
    1.48Basic-pro forma
    
    $
    .71
    
    
    $
    .54
    
    
    $
    1.80
    
    
    $
    1.41Diluted-as reported
    
    $
    .71
    
    
    $
    .55
    
    
    $
    1.81
    
    
    $
    1.45Diluted-pro forma
    
    $
    .69
    
    
    $
    .53
    
    
    $
    1.75
    
    
    $
    1.38
 The weighted average fair value per option of grants made during the three
months and nine months ended September 30, 2004 was $12.76 and for the
corresponding periods of 2003 was $7.01. The fair value of the stock options
was estimated at the date of grant using the Black-Scholes option-pricing model
with the following assumptions: risk-free interest rate of 3.44% in 2004 and
2.76% in 2003; volatility of 30.86% and 28.0% in 2004 and 2003, respectively;
an expected average life of 5 years in 2004 and 2003; and a dividend yield of
zero. Note 7. Warranties, Guarantees, Commitments and Contingencies Products sold by the Company are covered by a basic limited warranty with
terms and conditions that vary depending upon the product and country in which
it was sold. The limited warranty covers the equipment, parts and labor (in
certain cases) necessary to satisfy the warranty obligation for a period
ranging from one to ten years generally, and for the lifetime of certain bath
and kitchen faucets. The Company estimates the costs that may be incurred
under its warranty obligations and records a liability in the amount of such
costs at the time product revenue is recognized. Factors that affect the
Companys warranty liability include the number of units sold, historical and
anticipated rates of warranty claims, and cost per claim. At least once a
quarter the Company assesses the adequacy of its recorded warranty liabilities
and adjusts the amounts as necessary. Costs to satisfy warranty claims are
charged as incurred to the accrued warranty liability. The Company also sells a variety of extended warranty contracts for up to
ten years on certain air conditioning products. Revenues from the sales of
extended warranties are deferred and amortized on a straight-line basis over
the terms of the contracts or based upon historical experience. Actual costs
to satisfy claims on extended warranty contracts are charged to cost of sales
as incurred and were $10.2 million and $8.6 million for the three months ended
September 30, 2004 and 2003, respectively, and $28.0 million and $25.8 million
for the nine months ended September 30, 2004 and 2003, respectively. Total
warranty expense was $54.8 million and $45.7 million for the three months ended
September 30, 2004 and 2003, respectively, and $156.1 million and $127.1
million for the nine-month periods then ended, respectively. 8




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Following is a summary of changes in the Companys product warranty
liability for the three and nine months ended September 30, 2004 and 2003
(dollars in millions). Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Balance of basic warranty costs accrued and
deferred income on extended warranty
contracts, beginning of period
    
    $
    390.6
    
    
    $
    334.9
    
    
    $
    356.0
    
    
    $
    315.9Warranty costs accrued
    
    
    42.6
    
    
    
    33.4
    
    
    
    107.1
    
    
    
    97.9Deferred income on extended warranty contracts sold
    
    
    18.7
    
    
    
    18.7
    
    
    
    50.2
    
    
    
    50.9Warranty claims settled
    
    
    (40.1
    )
    
    
    (38.3
    )
    
    
    (96.3
    )
    
    
    (94.0
    )Amortization of deferred income
on extended warranty contracts
    
    
    (17.0
    )
    
    
    (12.0
    )
    
    
    (41.2
    )
    
    
    (33.7
    )Increases (decreases) in warranty estimates made in prior
periods, including foreign exchange translation effects, net
    
    
    2.0
    
    
    
    3.7
    
    
    
    21.0
    
    
    
    3.4Balance of basic warranty costs accrued and
deferred income on extended warranty
contracts, end of period
    
    
    396.8
    
    
    
    340.4
    
    
    
    396.8
    
    
    
    340.4Current portion included in current liabilities
    
    
    (168.9
    )
    
    
    (129.1
    )
    
    
    (168.9
    )
    
    
    (129.1
    )Long-term warranty liability
    
    $
    227.9
    
    
    $
    211.3
    
    
    $
    227.9
    
    
    $
    211.3
 The Company has commitments and performance guarantees, including energy
savings guarantees totaling $40 million as of September 30, 2004, extending
from 2004 to 2021 under long-term contracts related to its air conditioning
equipment and system controls. Through September 30, 2004 the Company has only
experienced one insignificant loss under such energy savings guarantees and
considers the probability of future losses to be unlikely. The Company also
guarantees debt of third parties in the amount of $4 million as of September
30, 2004. The Company fully and unconditionally guarantees the payment obligations
under all the Companys Senior Notes that were issued by its wholly owned
subsidiary American Standard Inc. See Note 9 of Notes to Financial Statements.
The Company also guarantees other debt obligations issued by other
subsidiaries, including obligations under a $50 million Euro-denominated credit
facility and $37 million of Euro-denominated Senior Bonds (both at September
30, 2004 exchange rates). Over the years, the Company has been named as a defendant in numerous
lawsuits alleging various asbestos-related personal injury claims arising
primarily from sales of low-risk-profile products, such as boilers and railroad
brake shoes. The Company believes it has ample insurance and has never had an
unfavorable court judgment. In these asbestos-related lawsuits, the Company is usually named as one of
a large group of defendants, often in excess of one hundred companies. Many of
these lawsuits involve multiple claimants, do not allege a connection between
any Company product and the claimed injury or disease, and/or do not contain
any allegations regarding the type of claimed injury or disease incurred. As a
result, numerous lawsuits have been placed and may remain on inactive or
deferred dockets, which some jurisdictions have established. Through September 30, 2004, there have been 147,836 claims filed against
the Company. At September 30, 2004, there were 122,989 pending claims,
compared with 116,199 at the end of 2003, and 96,638 and 52,169 at the end of
2002 and 2001, respectively, reflecting updated information for all prior
periods. Since receipt of its first asbestos claim more than fifteen years
ago, through September 30, 2004, the Company has resolved 24,847 claims, and
settlements of $49.5 million have been made, for an average payment per claim
of $1,992. These settlement payments have substantially been paid or
reimbursed or are expected to be substantially reimbursed by insurance. 9




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##### Table of Contents



The Company has recorded an obligation of $72.9 million as of September
30, 2004, that represents the Companys estimated payments to claimants
associated with pending asbestos claims. It also has recorded a related asset
of $51 million that represents the probable recoveries from insurance companies
for such payments to claimants. The amount of the estimated obligations is
based on the claims resolved, the assessment of claims pending, the status of
ongoing litigation, defense and settlement strategies, and an assessment of
other entities responsibilities for the claims. The amount of the probable
recoveries is based on an analysis of insurance coverage, the insurers
financial strength and insurance payments made to date. On July 15, 2004, the Company agreed to a settlement with a bankruptcy
trustee for a small portion of the Companys insurance coverage, of which $29.5
million was received in the third quarter of 2004. In connection
with the future liquidation of the bankruptcy trust the Company
expects to receive additional payments. Proceeds from this settlement in excess of amounts related to
known claims covered by these policies have been deferred until the liability,
if any, for unknown claims can be determined. Additional developments may occur that could affect the Companys estimate
of asbestos liabilities and recoveries, such as the nature of future claims,
the average payment to claimants and the amount of insurance recovery. No
liability has been recorded for unknown asbestos claims. However, the Company
has substantial insurance coverage for future claims. The Company believes that
it is not reasonably possible that a net loss material to the liquidity and
financial condition of the Company has been incurred. Note 8. Post-retirement Benefits In May 2004, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position (FSP) No. SFAS 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003,which addresses the accounting and disclosures required as a result of
the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
Act) enacted on December 8, 2003. The Act introduces a prescription drug
benefit under Medicare as well as a federal subsidy to sponsors of retiree
health care benefit plans that provide a benefit that is at least equivalent to
Medicare. Provisions of the Act will decrease the benefit obligation and net
post-retirement benefit cost of an employer that provides post-retirement
prescription drug coverage. Under the FSP, which is effective for the Company
in the third quarter of 2004, the decrease in the benefit obligation upon
initial adoption of the FSP was accounted for as an actuarial gain of $0.1
million. 10




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##### Table of Contents



Post-retirement pension, health and life insurance costs had the following
components for the three months and nine months ended
September 30, 2004 and 2003 (dollars in millions): Three Months Ended September 30,
    
    Nine Months Ended September 30,2004
    
    2004
    
    2003
    
    2003
    
    2004
    
    2004
    
    2003
    
    2003Health &
    
    
    
    
    
    Health &
    
    
    
    
    
    Health &
    
    
    
    
    
    Health &Pension
    
    Life Ins.
    
    Pension
    
    Life Ins.
    
    Pension
    
    Life Ins.
    
    Pension
    
    Life Ins.Benefits
    
    Benefits
    
    Benefits
    
    Benefits
    
    Benefits
    
    Benefits
    
    Benefits
    
    BenefitsService cost-benefits earned
during the period
    
    $
    6.7
    
    
    $
    1.9
    
    
    $
    1.1
    
    
    $
    8.8
    
    
    $
    41.9
    
    
    $
    5.8
    
    
    $
    22.7
    
    
    $
    12.8Interest cost on the projected
benefit obligation
    
    
    21.3
    
    
    
    4.4
    
    
    
    22.2
    
    
    
    (2.8
    )
    
    
    59.5
    
    
    
    13.1
    
    
    
    58.7
    
    
    
    5.9Less assumed return
on plan assets
    
    
    (16.8
    )
    
    
    
    
    
    
    (11.4
    )
    
    
    
    
    
    
    (49.6
    )
    
    
    
    
    
    
    (38.6
    )
    
    
    Amortization of prior
service cost
    
    
    1.7
    
    
    
    (1.1
    )
    
    
    1.9
    
    
    
    (0.7
    )
    
    
    4.6
    
    
    
    (3.3
    )
    
    
    4.9
    
    
    
    (3.1
    )Amortization of net loss
    
    
    2.3
    
    
    
    1.6
    
    
    
    1.3
    
    
    
    1.4
    
    
    
    7.0
    
    
    
    4.9
    
    
    
    4.3
    
    
    
    3.7Defined benefit plan cost
    
    
    15.2
    
    
    
    6.8
    
    
    
    15.1
    
    
    
    6.7
    
    
    
    63.4
    
    
    
    20.5
    
    
    
    52.0
    
    
    
    19.3Curtailment loss (gain)
    
    
    1.4
    
    
    
    (0.4
    )
    
    
    1.8
    
    
    
    
    
    
    
    1.4
    
    
    
    (0.4
    )
    
    
    1.8
    
    
    
    Net defined benefit plan cost
after curtailments
    
    $
    16.6
    
    
    $
    6.4
    
    
    $
    16.9
    
    
    $
    6.7
    
    
    $
    64.8
    
    
    $
    20.1
    
    
    $
    53.8
    
    
    $
    19.3Accretion expense (included
above) reflected in Other
expense
    
    $
    4.5
    
    
    $
    4.4
    
    
    $
    10.8
    
    
    $
    (2.8
    )
    
    $
    9.9
    
    
    $
    13.1
    
    
    $
    20.1
    
    
    $
    5.9
 Amortization of prior service cost is computed on the straight-line method
over the average remaining service period of active participants. During the first nine months of 2004, the Company contributed $54.3
million to its domestic pension and does not expect to make any additional
contributions during the fourth quarter of 2004. 11




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##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information All of the Companys Senior Notes were issued by its 100%-owned
subsidiary, American Standard Inc. (ASI). American Standard Companies Inc.
(the Parent Company) fully and unconditionally guarantees the payment
obligations under these securities ( ASI 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, 2004 and 2003, statements of cash flows for the nine months ended
September 30, 2004 and 2003 and balance sheets as of September 30, 2004 and
December 31, 2003, for the Parent Company, ASI, and the subsidiaries of the
Parent Company which are not subsidiaries of ASI (the Other Subsidiaries).
None of the Other Subsidiaries guarantees the ASI Public Debt. The equity
method of accounting is used to reflect investments of the Parent Company in
ASI and Other Subsidiaries. CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalSales
    
    $
    
    
    
    $
    1,223.6
    
    
    $
    1,211.6
    
    
    $
    (39.1
    )
    
    $
    2,396.1Costs and expenses:Cost of sales
    
    
    
    
    
    
    895.0
    
    
    
    880.5
    
    
    
    (39.1
    )
    
    
    1,736.4Selling and administrative expenses
    
    
    
    
    
    
    228.1
    
    
    
    193.3
    
    
    
    
    
    
    
    421.4Other (income) expense
    
    
    
    
    
    
    15.9
    
    
    
    (6.3
    )
    
    
    
    
    
    
    9.6Interest expense
    
    
    
    
    
    
    26.2
    
    
    
    2.5
    
    
    
    
    
    
    
    28.7Intercompany interest expense (income)
    
    
    
    
    
    
    0.9
    
    
    
    (0.9
    )
    
    
    
    
    
    
    Total expenses
    
    
    
    
    
    
    1,166.1
    
    
    
    1,069.1
    
    
    
    (39.1
    )
    
    
    2,196.1Income before income taxes and equity in
net income of consolidated subsidiaries
    
    
    
    
    
    
    57.5
    
    
    
    142.5
    
    
    
    
    
    
    
    200.0Income taxes
    
    
    
    
    
    
    18.7
    
    
    
    25.3
    
    
    
    
    
    
    
    44.0Income before equity in net income of
consolidated subsidiaries
    
    
    
    
    
    
    38.8
    
    
    
    117.2
    
    
    
    
    
    
    
    156.0Equity in net income of consolidated
subsidiaries
    
    
    156.0
    
    
    
    
    
    
    
    
    
    
    
    (156.0
    )
    
    
    Net income
    
    $
    156.0
    
    
    $
    38.8
    
    
    $
    117.2
    
    
    $
    (156.0
    )
    
    $
    156.0
 12




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##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information (continued) CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalSales
    
    $
    
    
    
    $
    3,687.5
    
    
    $
    3,731.8
    
    
    $
    (262.9
    )
    
    $
    7,156.4Costs and expenses:Cost of sales
    
    
    
    
    
    
    2,710.4
    
    
    
    2,778.2
    
    
    
    (262.9
    )
    
    
    5,225.7Selling and administrative expenses
    
    
    
    
    
    
    693.7
    
    
    
    582.0
    
    
    
    
    
    
    
    1,275.7Other expense
    
    
    
    
    
    
    25.0
    
    
    
    (6.9
    )
    
    
    
    
    
    
    18.1Interest expense
    
    
    
    
    
    
    77.6
    
    
    
    8.9
    
    
    
    
    
    
    
    86.5Intercompany interest expense (income)
    
    
    
    
    
    
    2.3
    
    
    
    (2.3
    )
    
    
    
    
    
    
    Total expenses
    
    
    
    
    
    
    3,509.0
    
    
    
    3,359.9
    
    
    
    (262.9
    )
    
    
    6,606.0Income before income taxes and equity in
net income of consolidated subsidiaries
    
    
    
    
    
    
    178.5
    
    
    
    371.9
    
    
    
    
    
    
    
    550.4Income taxes
    
    
    
    
    
    
    63.9
    
    
    
    86.2
    
    
    
    
    
    
    
    150.1Income before equity in net income of
consolidated subsidiaries
    
    
    
    
    
    
    114.6
    
    
    
    285.7
    
    
    
    
    
    
    
    400.3Equity in net income of consolidated
subsidiaries
    
    
    400.3
    
    
    
    
    
    
    
    
    
    
    
    (400.3
    )
    
    
    Net income
    
    $
    400.3
    
    
    $
    114.6
    
    
    $
    285.7
    
    
    $
    (400.3
    )
    
    $
    400.3
 CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 30, 2004
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalASSETSCurrent assets:Cash and cash equivalents
    
    $
    0.2
    
    
    $
    2.7
    
    
    $
    224.4
    
    
    
    
    
    
    $
    227.3Accounts receivable, net
    
    
    
    
    
    
    511.9
    
    
    
    748.0
    
    
    
    
    
    
    
    1,259.9Inventories
    
    
    
    
    
    
    512.2
    
    
    
    570.2
    
    
    
    
    
    
    
    1,082.4Other current assets
    
    
    
    
    
    
    280.5
    
    
    
    141.6
    
    
    
    
    
    
    
    422.1Total current assets
    
    
    0.2
    
    
    
    1,307.3
    
    
    
    1,684.2
    
    
    
    
    
    
    
    2,991.7Facilities, net
    
    
    
    
    
    
    564.0
    
    
    
    941.0
    
    
    
    
    
    
    
    1,505.0Goodwill, net
    
    
    
    
    
    
    112.2
    
    
    
    997.5
    
    
    
    
    
    
    
    1,109.7Investment in subsidiaries
    
    
    1,895.1
    
    
    
    
    
    
    
    
    
    
    $
    (1,895.1
    )Other assets
    
    
    
    
    
    
    512.0
    
    
    
    239.4
    
    
    
    
    
    
    
    751.4Total assets
    
    $
    1,895.3
    
    
    $
    2,495.5
    
    
    $
    3,862.1
    
    
    $
    (1,895.1
    )
    
    $
    6,357.8LIABILITIES AND SHAREHOLDERS
EQUITY (DEFICIT)Current liabilities:Loans payable to banks
    
    
    
    
    
    $
    20.0
    
    
    $
    24.3
    
    
    
    
    
    
    $
    44.3Current maturities of long-term debt
    
    
    
    
    
    
    1.6
    
    
    
    0.6
    
    
    
    
    
    
    
    2.2Other current liabilities
    
    
    
    
    
    
    1,016.5
    
    
    
    1,218.1
    
    
    
    
    
    
    
    2,234.6Total current liabilities
    
    
    
    
    
    
    1,038.1
    
    
    
    1,243.0
    
    
    
    
    
    
    
    2,281.1Long-term debt
    
    
    
    
    
    
    1,497.9
    
    
    
    124.5
    
    
    
    
    
    
    
    1,622.4Reserve for postretirement benefits
    
    
    
    
    
    
    287.8
    
    
    
    342.8
    
    
    
    
    
    
    
    630.6Intercompany accounts, net
    
    $
    937.0
    
    
    
    159.7
    
    
    
    (1,096.7
    )
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    486.6
    
    
    
    378.8
    
    
    
    
    
    
    
    865.4Total liabilities
    
    
    937.0
    
    
    
    3,470.1
    
    
    
    992.4
    
    
    
    
    
    
    
    5,399.5Total shareholders equity (deficit)
    
    
    958.3
    
    
    
    (974.6
    )
    
    
    2,869.7
    
    
    $
    (1,895.1
    )
    
    
    958.3Total liabilities and shareholders equity
(deficit)
    
    $
    1,895.3
    
    
    $
    2,495.5
    
    
    $
    3,862.1
    
    
    $
    (1,895.1
    )
    
    $
    6,357.8
 13




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##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information (continued) CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalCash provided by:Operating activities:Net income
    
    $
    400.3
    
    
    $
    114.6
    
    
    $
    285.7
    
    
    $
    (400.3
    )
    
    $
    400.3Adjustments to reconcile net income to net
cash provided by operations:Depreciation and amortization
    
    
    
    
    
    
    72.8
    
    
    
    120.7
    
    
    
    
    
    
    
    193.5Equity in earnings of unconsolidated joint
ventures, net of dividends received
    
    
    
    
    
    
    (6.0
    )
    
    
    (6.0
    )
    
    
    
    
    
    
    (12.0
    )Non-cash stock compensation
    
    
    
    
    
    
    45.5
    
    
    
    
    
    
    
    
    
    
    
    45.5Equity in net income of subsidiaries
    
    
    (400.3
    )
    
    
    
    
    
    
    
    
    
    
    400.3Other
    
    
    
    
    
    
    (1.2
    )
    
    
    
    
    
    
    
    
    
    
    (1.2
    )Changes in assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (31.6
    )
    
    
    (206.6
    )
    
    
    
    
    
    
    (238.2
    )Inventories
    
    
    
    
    
    
    (89.6
    )
    
    
    (84.2
    )
    
    
    
    
    
    
    (173.8
    )Accounts payable
    
    
    
    
    
    
    86.8
    
    
    
    58.7
    
    
    
    
    
    
    
    145.5Other accrued liabilities and taxes
    
    
    
    
    
    
    81.6
    
    
    
    34.1
    
    
    
    
    
    
    
    115.7Post-retirement benefits
    
    
    
    
    
    
    (32.2
    )
    
    
    6.5
    
    
    
    
    
    
    
    (25.7
    )Other current and long-term assets
    
    
    
    
    
    
    (4.0
    )
    
    
    (16.5
    )
    
    
    
    
    
    
    (20.5
    )Other long-term liabilities
    
    
    
    
    
    
    14.5
    
    
    
    19.0
    
    
    
    
    
    
    
    33.5Net cash provided by
operating activities
    
    
    
    
    
    
    251.2
    
    
    
    211.4
    
    
    
    
    
    
    
    462.6Investing activities:Purchase of property, plant and equipment
    
    
    
    
    
    
    (41.3
    )
    
    
    (77.7
    )
    
    
    
    
    
    
    (119.0
    )Investments in computer software
    
    
    
    
    
    
    (17.3
    )
    
    
    (13.4
    )
    
    
    
    
    
    
    (30.7
    )Loan to unconsolidated joint venture
    
    
    
    
    
    
    (17.9
    )
    
    
    
    
    
    
    
    
    
    
    (17.9
    )Proceeds from sales of property, plant and
equipment
    
    
    
    
    
    
    11.6
    
    
    
    2.3
    
    
    
    
    
    
    
    13.9Net cash used by investing activities
    
    
    
    
    
    
    (64.9
    )
    
    
    (88.8
    )
    
    
    
    
    
    
    (153.7
    )Financing activities:Proceeds from issuance of long-term debt
    
    
    
    
    
    
    .5
    
    
    
    .3
    
    
    
    
    
    
    
    .8Repayments of long-term debt
    
    
    
    
    
    
    (.7
    )
    
    
    (1.3
    )
    
    
    
    
    
    
    (2.0
    )Net change in revolving credit facilities
    
    
    
    
    
    
    17.0
    
    
    
    (9.4
    )
    
    
    
    
    
    
    7.6Net change in other short-term debt
    
    
    
    
    
    
    20.0
    
    
    
    (22.3
    )
    
    
    
    
    
    
    (2.3
    )Purchases of treasury stock
    
    
    (237.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (237.6
    )Net change in intercompany accounts
    
    
    205.2
    
    
    
    (156.9
    )
    
    
    (48.3
    )Proceeds from exercise of stock options
    
    
    26.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26.9Proceeds from settlement of foreign exchange
forward contracts
    
    
    
    
    
    
    5.4
    
    
    
    
    
    
    
    
    
    
    
    5.4Other
    
    
    5.6
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    7.1Net cash provided (used) by financing activities
    
    
    .1
    
    
    
    (113.2
    )
    
    
    (81.0
    )
    
    
    
    
    
    
    (194.1
    )Effect of exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    .8
    
    
    
    
    
    
    
    .8Net increase in cash and cash equivalents
    
    
    .1
    
    
    
    73.1
    
    
    
    42.4
    
    
    
    
    
    
    
    115.6Cash and cash equivalents at
beginning of period
    
    
    .1
    
    
    
    (70.4
    )
    
    
    182.0
    
    
    
    
    
    
    
    111.7Cash and cash equivalents at end of period
    
    $
    .2
    
    
    $
    2.7
    
    
    $
    224.4
    
    
    $
    
    
    
    $
    227.3
 14




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##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information (continued) CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalSales
    
    
    
    
    
    $
    1,240.4
    
    
    $
    1,136.7
    
    
    $
    (142.7
    )
    
    $
    2,234.4Costs and expenses:Cost of sales
    
    
    
    
    
    
    956.2
    
    
    
    870.1
    
    
    
    (142.7
    )
    
    
    1,683.6Selling and administrative expenses
    
    
    
    
    
    
    189.7
    
    
    
    148.3
    
    
    
    
    
    
    
    338.0Other (income) expense
    
    
    
    
    
    
    34.2
    
    
    
    (27.6
    )
    
    
    
    
    
    
    6.6Interest expense
    
    
    
    
    
    
    25.8
    
    
    
    2.8
    
    
    
    
    
    
    
    28.6Intercompany interest expense (income)
    
    
    
    
    
    
    (2.4
    )
    
    
    2.4
    
    
    
    
    
    
    
    Total expenses
    
    
    
    
    
    
    1,203.5
    
    
    
    996.0
    
    
    
    (142.7
    )
    
    
    2,056.8Income before income taxes and equity in
net income of consolidated subsidiaries
    
    
    
    
    
    
    36.9
    
    
    
    140.7
    
    
    
    
    
    
    
    177.6Income taxes
    
    
    
    
    
    
    12.4
    
    
    
    42.7
    
    
    
    
    
    
    
    55.1Income before equity in net income of
consolidated subsidiaries
    
    
    
    
    
    
    24.5
    
    
    
    98.0
    
    
    
    
    
    
    
    122.5Equity in net income of consolidated
subsidiaries
    
    $
    122.5
    
    
    
    
    
    
    
    
    
    
    
    (122.5
    )
    
    
    Net income
    
    $
    122.5
    
    
    $
    24.5
    
    
    $
    98.0
    
    
    $
    (122.5
    )
    
    $
    122.5
 CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalSales
    
    
    
    
    
    $
    3,514.7
    
    
    $
    3,292.0
    
    
    $
    (356.7
    )
    
    $
    6,450.0Costs and expenses:Cost of sales
    
    
    
    
    
    
    2,705.3
    
    
    
    2,521.5
    
    
    
    (356.7
    )
    
    
    4,870.1Selling and administrative expenses
    
    
    
    
    
    
    550.4
    
    
    
    446.8
    
    
    
    
    
    
    
    997.2Other expense
    
    
    
    
    
    
    29.0
    
    
    
    0.7
    
    
    
    
    
    
    
    29.7Interest expense
    
    
    
    
    
    
    80.4
    
    
    
    8.5
    
    
    
    
    
    
    
    88.9Intercompany interest expense (income)
    
    
    
    
    
    
    (1.9
    )
    
    
    1.9
    
    
    
    
    
    
    
    Total expenses
    
    
    
    
    
    
    3,363.2
    
    
    
    2,979.4
    
    
    
    (356.7
    )
    
    
    5,985.9Income before income taxes and equity in
net income of consolidated subsidiaries
    
    
    
    
    
    
    151.5
    
    
    
    312.6
    
    
    
    
    
    
    
    464.1Income taxes
    
    
    
    
    
    
    53.0
    
    
    
    90.9
    
    
    
    
    
    
    
    143.9Income before equity in net income of
consolidated subsidiaries
    
    
    
    
    
    
    98.5
    
    
    
    221.7
    
    
    
    
    
    
    
    320.2Equity in net income of consolidated
subsidiaries
    
    $
    320.2
    
    
    
    
    
    
    
    
    
    
    
    (320.2
    )
    
    
    Net income
    
    $
    320.2
    
    
    $
    98.5
    
    
    $
    221.7
    
    
    $
    (320.2
    )
    
    $
    320.2
 15




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##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information (continued) CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalCash provided (used) by:Operating activities:Net income
    
    $
    320.2
    
    
    $
    98.5
    
    
    $
    221.7
    
    
    $
    (320.2
    )
    
    $
    320.2Adjustments to reconcile net income to net
cash provided (used) by operations:Depreciation and amortization
    
    
    
    
    
    
    71.7
    
    
    
    108.4
    
    
    
    
    
    
    
    180.1Equity in earnings of unconsolidated joint
ventures, net of dividends received
    
    
    
    
    
    
    (4.2
    )
    
    
    (5.0
    )
    
    
    
    
    
    
    (9.2
    )Non-cash stock compensation
    
    
    
    
    
    
    46.7
    
    
    
    
    
    
    
    
    
    
    
    46.7Equity in net income of subsidiaries
    
    
    (320.2
    )
    
    
    
    
    
    
    
    
    
    
    320.2
    
    
    
    Other
    
    
    
    
    
    
    (2.8
    )
    
    
    (1.2
    )
    
    
    
    
    
    
    (4.0
    )Changes in assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (68.4
    )
    
    
    (172.9
    )
    
    
    
    
    
    
    (241.3
    )Inventories
    
    
    
    
    
    
    (2.2
    )
    
    
    (71.3
    )
    
    
    
    
    
    
    (73.5
    )Accounts payable
    
    
    
    
    
    
    77.4
    
    
    
    21.3
    
    
    
    
    
    
    
    98.7Other accrued liabilities and taxes
    
    
    
    
    
    
    45.5
    
    
    
    182.9
    
    
    
    
    
    
    
    228.4Post-retirement benefits
    
    
    
    
    
    
    (13.8
    )
    
    
    (4.4
    )
    
    
    
    
    
    
    (18.2
    )Other assets
    
    
    
    
    
    
    52.8
    
    
    
    (149.5
    )
    
    
    
    
    
    
    (96.7
    )Other long-term liabilities
    
    
    
    
    
    
    51.5
    
    
    
    (8.9
    )
    
    
    
    
    
    
    42.6Net cash provided by
operating activities
    
    
    
    
    
    
    352.7
    
    
    
    121.1
    
    
    
    
    
    
    
    473.8Investing activities:Purchase of property, plant and equipment
    
    
    
    
    
    
    (40.2
    )
    
    
    (62.0
    )
    
    
    
    
    
    
    (102.2
    )Investments in affiliated companies and
other businesses
    
    
    
    
    
    
    
    
    
    
    (24.3
    )
    
    
    
    
    
    
    (24.3
    )Investments in computer software
    
    
    
    
    
    
    (16.9
    )
    
    
    (12.5
    )
    
    
    
    
    
    
    (29.4
    )Other
    
    
    
    
    
    
    0.7
    
    
    
    4.8
    
    
    
    
    
    
    
    5.5Net cash used by investing activities
    
    
    
    
    
    
    (56.4
    )
    
    
    (94.0
    )
    
    
    
    
    
    
    (150.4
    )Financing activities:Proceeds from issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    32.7
    
    
    
    
    
    
    
    32.7Repayments of long-term debt
    
    
    
    
    
    
    (125.8
    )
    
    
    (2.9
    )
    
    
    
    
    
    
    (128.7
    )Net change in revolving credit facilities
    
    
    
    
    
    
    (144.5
    )
    
    
    (0.7
    )
    
    
    
    
    
    
    (145.2
    )Net change in other short-term debt
    
    
    
    
    
    
    40.0
    
    
    
    7.4
    
    
    
    
    
    
    
    47.4Purchases of treasury stock
    
    
    (105.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105.2
    )Net change in intercompany accounts
    
    
    61.1
    
    
    
    (61.6
    )
    
    
    0.5
    
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    39.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39.3Proceeds from foreign exchange forward
contracts
    
    
    
    
    
    
    36.4
    
    
    
    
    
    
    
    
    
    
    
    36.4Other
    
    
    5.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.4Net cash provided (used) by financing activities
    
    
    .6
    
    
    
    (255.5
    )
    
    
    37.0
    
    
    
    
    
    
    
    (217.9
    )Effect of exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    (0.6
    )Net increase (decrease) in cash and
cash equivalents
    
    
    .6
    
    
    
    40.8
    
    
    
    63.5
    
    
    
    
    
    
    
    104.9Cash and cash equivalents at
beginning of period
    
    
    
    
    
    
    (22.9
    )
    
    
    119.5
    
    
    
    
    
    
    
    96.6Cash and cash equivalents at end of period
    
    $
    .6
    
    
    $
    17.9
    
    
    $
    183.0
    
    
    $
    
    
    
    $
    201.5
 16




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##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information (continued) CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 2003
(Unaudited) Other
    
    
    
    
    
    Consoli-Parent
    
    
    
    
    
    Subsid-
    
    Elimin-
    
    dated(Dollars in millions)
    
    Company
    
    ASI
    
    iaries
    
    ations
    
    TotalASSETSCurrent assets:Cash and cash equivalents
    
    $
    .1
    
    
    $
    (70.4
    )
    
    $
    182.0
    
    
    
    
    
    
    $
    111.7Accounts receivable, net
    
    
    
    
    
    
    481.7
    
    
    
    541.1
    
    
    
    
    
    
    
    1,022.8Inventories
    
    
    
    
    
    
    422.6
    
    
    
    487.3
    
    
    
    
    
    
    
    909.9Other current assets
    
    
    
    
    
    
    256.5
    
    
    
    189.8
    
    
    
    
    
    
    
    446.3Total current assets
    
    
    .1
    
    
    
    1,090.4
    
    
    
    1,400.2
    
    
    
    
    
    
    
    2,490.7Facilities, net
    
    
    
    
    
    
    582.1
    
    
    
    933.3
    
    
    
    
    
    
    
    1,515.4Goodwill, net
    
    
    
    
    
    
    137.2
    
    
    
    1,003.2
    
    
    
    
    
    
    
    1,140.4Investment in subsidiaries
    
    
    1,441.1
    
    
    
    
    
    
    
    
    
    
    $
    (1,441.1
    )
    
    
    Other assets
    
    
    
    
    
    
    510.6
    
    
    
    221.6
    
    
    
    
    
    
    
    732.2Total assets
    
    $
    1,441.2
    
    
    $
    2,320.3
    
    
    $
    3,558.3
    
    
    $
    (1,441.1
    )
    
    $
    5,878.7LIABILITIES AND SHAREHOLDERS
(DEFICIT) EQUITYCurrent liabilities:Loans payable to banks
    
    
    
    
    
    $
    
    
    
    $
    49.8
    
    
    
    
    
    
    $
    49.8Current maturities of long-term debt
    
    
    
    
    
    
    1.5
    
    
    
    1.0
    
    
    
    
    
    
    
    2.5Other current liabilities
    
    
    
    
    
    
    863.4
    
    
    
    1,117.8
    
    
    
    
    
    
    
    1,981.2Total current liabilities
    
    
    
    
    
    
    864.9
    
    
    
    1,168.6
    
    
    
    
    
    
    
    2,033.5Long-term debt
    
    
    
    
    
    
    1,489.2
    
    
    
    137.6
    
    
    
    
    
    
    
    1,626.8Reserve for post-retirement benefits
    
    
    
    
    
    
    326.4
    
    
    
    331.0
    
    
    
    
    
    
    
    657.4Intercompany accounts, net
    
    $
    727.4
    
    
    
    251.4
    
    
    
    (978.8
    )
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    481.5
    
    
    
    365.7
    
    
    
    
    
    
    
    847.2Total liabilities
    
    
    727.4
    
    
    
    3,413.4
    
    
    
    1,024.1
    
    
    $
    
    
    
    
    5,164.9Total shareholders equity (deficit)
    
    
    713.8
    
    
    
    (1,093.1
    )
    
    
    2,534.2
    
    
    
    (1,441.1
    )
    
    
    713.8Total liabilities and shareholders equity (deficit)
    
    $
    1,441.2
    
    
    $
    2,320.3
    
    
    $
    3,558.3
    
    
    $
    (1,441.1
    )
    
    $
    5,878.7
 17




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##### Table of Contents



Note 10. Segment Data Summary Segment and Income Statement Data
(Dollars in millions)
(Unaudited) Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Sales:Air Conditioning Systems and Services
    
    $
    1,375.5
    
    
    $
    1,349.9
    
    
    $
    4,054.4
    
    
    $
    3,789.3Bath and Kitchen
    
    
    599.7
    
    
    
    556.7
    
    
    
    1,835.2
    
    
    
    1,668.4Vehicle Control Systems
    
    
    420.9
    
    
    
    327.8
    
    
    
    1,266.8
    
    
    
    992.3$
    2,396.1
    
    
    $
    2,234.4
    
    
    $
    7,156.4
    
    
    $
    6.450.0Segment income:Air Conditioning Systems and Services
    
    $
    168.8
    
    
    $
    165.7
    
    
    $
    467.6
    
    
    $
    428.7Bath and Kitchen
    
    
    54.6
    
    
    
    43.0
    
    
    
    155.8
    
    
    
    113.8Vehicle Control Systems
    
    
    56.9
    
    
    
    42.4
    
    
    
    169.2
    
    
    
    137.1280.3
    
    
    
    251.1
    
    
    
    792.6
    
    
    
    679.6Equity in net income of unconsolidated joint ventures
    
    
    6.8
    
    
    
    7.4
    
    
    
    21.8
    
    
    
    18.5287.1
    
    
    
    258.5
    
    
    
    814.4
    
    
    
    698.1Interest expense
    
    
    (28.7
    )
    
    
    (28.6
    )
    
    
    (86.5
    )
    
    
    (88.9
    )Corporate and other expenses
    
    
    (58.4
    )
    
    
    (52.3
    )
    
    
    (177.5
    )
    
    
    (145.1
    )Income before income taxes
    
    $
    200.0
    
    
    $
    177.6
    
    
    $
    550.4
    
    
    $
    464.1
 For a comparative analysis of this Summary Segment and Income Statement Data,
see Managements Discussion and Analysis of Financial Condition and Results of
Operations on the following pages. 18




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##### Table of Contents



PART 1. FINANCIAL INFORMATION 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for the Third Quarter and First Nine Months of 2004 Compared with the Third Quarter and First Nine Months of 2003 Overview We achieved record third-quarter sales, segment income and net income in
the third quarter of 2004. Earnings were $0.71 per diluted share, up 29% from
$0.55 per diluted share a year ago. Sales were $2.396 billion, up 7% from
$2.234 billion a year ago. Net income rose to $156.0 million from $122.5
million, up 27%. The effective income tax rate for the third quarter of 2004
was lower than the 31% rate we had expected because of a tax item. In prior
periods we had recorded a withholding tax liability for the possible
distribution of earnings of certain foreign subsidiaries. In the third-quarter
we have made a decision that these earnings will not be distributed as
dividends and in connection with the completion of our 2003 U.S. tax return
concluded that if they were to be distributed that they would no longer result
in a net tax. In connection with this item we recorded an $18 million tax
benefit. Economic conditions appear to be stabilizing in Europe, the U.S. economy
improved, although consumer confidence in the U.S. is still low, and growth in
Asia was relatively steady, with the exception of China. Segment income for
the third quarter of 2004 was $280.3 million, an increase of 12%, from
improvements in all segments, aided slightly by favorable foreign exchange
translation effects. Excluding favorable foreign exchange translation effects,
segment income for the quarter increased 9% over the third quarter of 2003.
Operating margins increased to 11.7% from 11.2% in the third quarter of 2003
despite absorbing streamlining costs of $7 million, primarily in the Bath and
Kitchen segment. For the first nine months of 2004, sales increased 11%,
segment income increased 17%, net income rose by 25% and earnings per diluted
share were up 25%. The following discussion and analysis addresses year-over-year changes in
the line items shown in the Summary Segment and Income Statement Data in Note
10 of Notes to Financial Statements. Year-over-year changes in segment sales
and segment income and, in certain cases, segment operating margins, for 2004
compared with 2003 are presented both with and without the effects of foreign
exchange translation. Presenting results of operations excluding the
translation effects of foreign exchange amounts is not in conformity with
generally accepted accounting principles (GAAP), but management analyzes the
data in this manner because it is useful to them in understanding the
operational performance of the business. Management also uses data adjusted in
this manner for purposes of determining incentive compensation. Accordingly,
management believes that presenting the analysis in this manner is also useful
to shareholders in understanding the core business segment operating results
and trends. Approximately half of our business is outside the U.S., therefore
changes in exchange rates can have a significant effect on results of
operations when presented in U.S. dollars. Changes in sales and segment income
excluding foreign exchange effects are calculated using current year sales and
segment income translated at prior year exchange rates. These additional
measurements are not meant to be a substitute for measurements prepared in
conformity with GAAP, nor to be considered in isolation. 19




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##### Table of Contents



Segment Operating Results Following is an analysis of changes in total sales, segment income and
operating margin for the Company for the third quarter of 2004 compared with
the third quarter of 2003, showing the effect of foreign exchange translation. Three Months EndedSeptember 30, 2004Excluding ForeignThree MonthsEnded
    
    
    
    
    
    
    
    
    
    Exchange TranslationSeptember 30,
    
    
    
    
    
    Percentage
    
    20042003
    
    2004
    
    Change
    
    Adjusted
    
    Percentage Change(Dollars in millions)
    
    Reported
    
    Reported
    
    Reported
    
    Amount
    
    AdjustedSegment sales
    
    $
    2,234.4
    
    
    $
    2,396.1
    
    
    
    7
    %
    
    $
    2,328.1
    
    
    
    4
    %Segment income
    
    $
    251.1
    
    
    $
    280.3
    
    
    
    12
    %
    
    $
    274.4
    
    
    
    9
    %Segment operating margin
    
    
    11.2
    %
    
    
    11.7
    %
    
    0.5 pts.
    
    
    11.8
    %
    
    0.6 pts.
 Sales in the third quarter of 2004 were $2.396 billion, an increase of
$162 million, or 7% (4% excluding favorable foreign exchange translation
effects), from $2.234 billion in the third quarter of 2003. Sales increased 2%
for Air Conditioning Systems and Services, 8% for Bath and Kitchen, and 28% for
Vehicle Control Systems. Segment income for the third quarter of 2004 was $280.3 million, an
increase of $29.2 million, or 12% (9% excluding favorable foreign exchange
translation effects), from $251.1 million in the third quarter of 2003.
Segment income increased 2% for Air Conditioning Systems and Services, 27% for
Bath and Kitchen and 34% for Vehicle Control Systems. Sales for the first nine months of 2004 were $7.156 billion, an increase
of $706 million, or 11% (7% excluding favorable foreign exchange translation
effects), from $6.450 billion in the first nine months of 2003. Sales
increased 7% for Air Conditioning Systems and Services, 10% for Bath and
Kitchen and 28% for Vehicle Control Systems. Segment income was $792.6 million for the first nine months of 2004, an
increase of $113 million or 17% (13% excluding favorable foreign exchange
translation effects), compared with $679.6 million in the first nine months of
2003. Segment income increased 9% for Air Conditioning Systems and Services,
37% for Bath and Kitchen and 23% for Vehicle Control Systems. Following is an analysis of changes in total sales, segment income and
operating margin for Air Conditioning Systems and Services for the third
quarter of 2004 compared with the third quarter of 2003, showing the effect of
foreign exchange translation. Three Months EndedSeptember 30, 2004Excluding ForeignThree MonthsEnded
    
    
    
    
    
    
    
    
    
    Exchange TranslationSeptember 30,
    
    
    
    
    
    Percentage
    
    20042003
    
    2004
    
    Change
    
    Adjusted
    
    Percentage Change(Dollars in millions)
    
    Reported
    
    Reported
    
    Reported
    
    Amount
    
    AdjustedSegment sales
    
    $
    1,349.9
    
    
    $
    1,375.5
    
    
    
    2
    %
    
    $
    1,365.3
    
    
    
    1
    %Segment income
    
    $
    165.7
    
    
    $
    168.8
    
    
    
    2
    %
    
    $
    168.0
    
    
    
    1
    %Segment operating margin
    
    
    12.3
    %
    
    
    12.3
    %
    
    0.0 pts.
    
    
    12.3
    %
    
    0.0 pts.
 20




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##### Table of Contents



Sales of Air Conditioning Systems and Services increased 2% (1% excluding
favorable foreign exchange translation effects) to $1.375 billion for the third
quarter of 2004, from $1.350 billion for the third quarter of 2003. This
increase resulted from solid sales performance in our global commercial
equipment business offset by a reduction in residential product sales. The commercial equipment market in the U.S. grew at a slower pace in the
third quarter of 2004 than in the third quarter of 2003. The U.S. commercial
equipment market was up an overall estimated 1.5% in the quarter, based upon
preliminary data published by ARI (Air-Conditioning & Refrigeration Institute)
for commercial unitary markets and our own estimates for applied markets,
following full year decreases of 4% in 2003, 11% in 2002, and 8% in 2001. The
commercial unitary market was up an estimated 1.5% following an 8% increase in
the second quarter. The applied equipment market was also up an estimated 1.5%
in the third quarter, following a 3.5% increase in the second quarter.
Internationally, markets in Europe and the Middle East continued to improve
slowly, while the Asia-Pacific region overall remained healthy. Our global
commercial equipment sales, which represent about 25% of total Company sales,
increased 6% (5% excluding favorable foreign exchange translation effects)
primarily driven by applied equipment sales, which increased 11% (10% excluding
favorable foreign exchange translation effects), while unitary product sales
were up 2% (1% excluding favorable foreign exchange translation) in the third
quarter. Sales growth in our applied equipment business was driven by growth in
Latin America, Europe and Asia offset by a decrease in the U.S. We saw some
modest improvements in selling prices in the U.S., which helped us compensate
for a decrease in market share. Sales growth in our commercial unitary product
line, was in line with the market growth in the Americas and Europe. We
experienced weakness in Asia, particularly China, which was impacted by credit
restrictions. We were able to realize some price improvements in the U.S. Our
global parts, services and solutions business grew 4% (3% excluding favorable
foreign exchange translation effects). Our controls and contracting business
was up strongly following good growth in the second quarter of 2004 offset by
cooler weather in the U.S., which reduced our parts sales and service revenues. Sales of our residential products declined 4% in the third quarter. This
follows a very strong second quarter, where we had a 25% sales increase.
Inventory at our distributors was slightly higher than normal at the end of the
second quarter of 2004 due to anticipated demand. This higher than normal
inventory and cooler weather in the U.S. negatively impacted our sales in the
third quarter of 2004. Preliminary data indicates that the inventory levels at
our distributors at the end of the third quarter of 2004 are back to historical
levels for this time of year. We saw some improvement in price in the third
quarter in our residential products business. We also announced an additional
price increase of up to 5% effective December 1, 2004. Sales of our high
efficiency units were up in the third quarter offsetting some of the negative
impacts previously mentioned. Segment income of Air Conditioning Systems and Services increased 2% (1%
excluding favorable foreign exchange translation effects) to $168.8 million in
the third quarter of 2004 from $165.7 million in the third quarter of 2003.
Margins were 12.3% in the third quarter of 2004 and 2003. We continue to
achieve strong results from our productivity initiatives, which partially
offset cost escalations. Volume and mix more than offset lower international
prices in our applied commercial equipment business and we absorbed commodity
cost increases, which cost us $28 million more than last year, principally
driven by a cost increase in steel. Segment income for the first nine months of
2004 increased 9% (with little effect from foreign exchange translation) to
$467.6 million from $428.7 million essentially for the reasons mentioned for
the third quarter increase. 21




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##### Table of Contents



Following is an analysis of changes in total sales, segment income and
operating margin for Bath and Kitchen for the third quarter of 2004 compared
with the third quarter of 2003, showing the effect of foreign exchange
translation. Three Months EndedSeptember 30, 2004Excluding ForeignThree MonthsEnded
    
    
    
    
    
    
    
    
    
    Exchange TranslationSeptember 30,
    
    
    
    
    
    Percentage
    
    20042003
    
    2004
    
    Change
    
    Adjusted
    
    Percentage Change(Dollars in millions)
    
    Reported
    
    Reported
    
    Reported
    
    Amount
    
    AdjustedSegment sales
    
    $
    556.7
    
    
    $
    599.7
    
    
    
    8
    %
    
    $
    572.3
    
    
    
    3
    %Segment income
    
    $
    43.0
    
    
    $
    54.6
    
    
    
    27
    %
    
    $
    53.0
    
    
    
    23
    %Segment operating margin
    
    
    7.7
    %
    
    
    9.1
    %
    
    1.4 pts.
    
    
    9.3
    %
    
    1.6 pts.
 Sales of Bath and Kitchen increased 8% (3% excluding favorable foreign
exchange translation effects) to $599.7 million in the third quarter of 2004,
from $556.7 million in the third quarter of 2003. Europe and the Americas had
positive sales growth, while sales in Asia were negatively impacted by actions
the Chinese government is taking to slow down growth. In Europe, our sales grew
12% (2% excluding favorable foreign exchange translation effects) in markets
that were essentially flat with last year. We are continuing to reinforce our
strong market positions across the continent. In the third quarter we launched
new suites and introduced new products for the showering and wellness markets,
the fastest growing segments in Europe. We continued to strengthen our position
in Eastern Europe, where growth continues to be strong. Sales in the Americas
increased 5% (with little effect from foreign exchange translation). Sales of
our new Champion toilet continue to expand and we continue to invest in
promotion. Both Home Depot and Lowes featured the Champion product line in
circulars, magazines and promotions and we continue to feature the Champion in
television advertisements. We believe these programs not only benefit the
Champion product line, but also help create awareness and interest in all
American Standard products. Additionally, we have increased our investments in
new products, marketing and brand programs. In Asia, sales were flat (with
little effect from foreign exchange translation). Weakness in China was offset
by growth in Korea and Thailand. In China, the residential market was down
approximately 10%. We were able to offset some of this weakness with additional
sales in the commercial business segment. Sales of Bath and Kitchen for the
first nine months of 2004 increased 10% (4% excluding favorable foreign
exchange translation effects) to $1.835 billion from $1.668 billion in the
first nine months of 2003. This increase was due principally to the same
factors affecting third quarter results. Segment income for Bath and Kitchen increased 27% (23% excluding favorable
foreign exchange translation effects) to $54.6 million for the third quarter of
2004 from $43 million in the third quarter of 2003. Margins increased to 9.1%
in the third quarter of 2004 from 7.7% in the third quarter of 2003 (up 160
basis points excluding unfavorable foreign exchange translation effects).
Segment income in the third quarter of 2004 included a $5 million charge for
streamlining costs related to a shift from high cost facilities to lower cost
facilities in Europe and workforce reductions throughout the Bath and Kitchen
business. These actions decreased margins by 80 basis points. Bath and Kitchen
margins in the third quarter of 2004 benefited from our productivity
initiatives, and improved pricing and mix in the Americas partially offset by
cost escalations, streamlining actions and our additional investments in new
products, suites and new advertising programs. Segment income for the first
nine months of 2004 increased 37% (31% excluding favorable foreign exchange
translation effects) to $155.8 million from $113.8 million in the first nine
months of 2003. The increase resulted primarily for the same reasons as those
responsible for the third quarter increase. 22




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##### Table of Contents



Following is an analysis of changes in total sales, segment income and
operating margin for Vehicle Control Systems for the third quarter of 2004
compared with the third quarter of 2003, showing the effect of foreign exchange
translation. Three Months EndedSeptember 30, 2004Excluding ForeignThree MonthsEnded
    
    
    
    
    
    
    
    
    
    Exchange TranslationSeptember 30,
    
    
    
    
    
    Percentage
    
    20042003
    
    2004
    
    Change
    
    Adjusted
    
    Percentage Change(Dollars in millions)
    
    Reported
    
    Reported
    
    Reported
    
    Amount
    
    AdjustedSegment sales
    
    $
    327.8
    
    
    $
    420.9
    
    
    
    28
    %
    
    $
    390.6
    
    
    
    19
    %Segment income
    
    $
    42.4
    
    
    $
    56.9
    
    
    
    34
    %
    
    $
    53.4
    
    
    
    26
    %Segment operating margin
    
    
    12.9
    %
    
    
    13.5
    %
    
    0.6 pts.
    
    
    13.7
    %
    
    0.8 pts.
 Sales of Vehicle Control Systems for the third quarter of 2004 were $420.9
million, an increase of 28% (19% excluding favorable foreign exchange
translation effects) from $327.8 million in the third quarter of 2003. The
increase, exclusive of foreign exchange effects, was driven by higher truck
builds, increased content per vehicle, including new applications, and strong
growth in our aftermarket business. Sales in Europe, our largest market,
increased 26% (14% excluding favorable foreign exchange translation effects) in
the third quarter. This was driven by a 37% (26% excluding favorable foreign
exchange translation effects) increase in sales to our European truck and bus
original equipment manufacturing customers, which outperformed the 18% increase
in the Western European truck and bus market. European aftermarket sales were
significantly better than the general European economy. Sales were up 44% in
North America (with little effect from foreign exchange translation),
outperforming the U.S. market. In Asia our sales were up 26% (21% excluding
favorable foreign exchange translation effects) and in Latin America our sales
were up 43% (44 % excluding unfavorable foreign exchange translation effects);
both regions outperformed truck and bus markets in the quarter. Backlog at
quarter end was $751 million, up 38% (29% excluding favorable foreign exchange
translation effects) from last year. Sales of Vehicle Control Systems for the
first nine months of 2004 increased 28% (17% excluding favorable foreign
exchange translation effects) to $1.267 billion from $992 million in the first
nine months of 2003, primarily for the reasons cited for the third quarter
increase. Segment income for Vehicle Control Systems for the third quarter of 2004
increased 34% (26% excluding favorable foreign exchange translation effects) to
$56.9 million from $42.4 million in the third quarter of 2003. Segment
operating margins increased to 13.5% from 12.9% in the third quarter of 2003.
Strong volume growth and productivity improvements were partially offset by
price reductions and an increase in warranty expense. Segment income for
Vehicle Control Systems for the first nine months of 2004 was $169.2 million,
an increase of 23% (12% excluding favorable foreign exchange translation
effects) from $137.1 million in the first nine months of 2003, primarily for
the reasons cited for the third quarter increase. Additionally, we settled a
warranty issue with one of our major customers which caused us to recognize an
incremental $14 million of warranty expense in the second quarter. Other Summary Segment and Income Data Items Equity in net income of unconsolidated joint ventures decreased to $6.8
million for the third quarter of 2004 from $7.4 million for the third quarter
of 2003 and increased to $21.8 million for the first nine months of 2004, from
$18.5 million in the first nine months of 2003. The decrease in the quarter
primarily resulted from weaker performance in our truck brake joint 23




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##### Table of Contents



venture in India and our air conditioning compressor joint venture in the U.S.
Both of these businesses performed better in the first half of 2004 than in the
first half of 2003, and overall contributed to the improvement for the first
nine months of 2004. Interest expense increased by $0.1 million in the third quarter of 2004
and decreased by $2.4 million for the first nine months of 2004 compared to the
year-earlier quarter and first nine months. The slight increase in the quarter
is due to higher average interest rates, which more than offset the impact of
lower average debt balances. For the first nine months of 2004 the decrease is
mainly due to lower average debt balances slightly offset by the impact of
higher average interest rates for the first nine months of 2004. Corporate and other expenses increased by $6.1 million in the third
quarter of 2004 and by $32.4 million in the first nine months of 2004 compared
to the year-earlier quarter and first nine months. The increase for
the third quarter was principally due to increased incentive compensation,
provisions for self-insurance, minority interest expense and Sarbanes-Oxley
related expenses. The increase in the first nine months related primarily to
the reasons cited for the third quarter increase as well as higher
post-employment costs and unfavorable realized foreign exchange transaction
effects. Corporate and other expenses, shown in the Summary Segment and Income
Statement Data table in Note 10 of Notes to Financial Statements, primarily
includes some of the expenses classified as selling and administrative expenses
in the Unaudited Summary Consolidated Statement of Income on page 2. Corporate
and other expenses also include certain items classified in Other expense in
the Unaudited Summary Consolidated Statement of Income. Period-to-period
changes in the significant components of Other expense are explained by the
comments in this paragraph on corporate expenses, and in the first paragraph of
this section on equity in net income of unconsolidated joint ventures. The income tax provision for the third quarter of 2004 was $44.0 million
and for the first nine months of 2004 was $150.1 million, or 22.0% and 27.3%,
respectively, of income before income taxes, compared with provisions of $55.1
million and $143.9 million, or 31.0% of income before income taxes in the same
periods of 2003. The effective income tax rates for the 2004 periods were
lower than the 31% rate we had expected because of two tax items. In prior
periods we had recorded a withholding tax liability for the possible
distribution of earnings of certain foreign subsidiaries. We have made a
decision that these earnings will not be distributed as dividends and in
connection with the completion of our 2003 U.S. tax return concluded that if
they were to be distributed that they would no longer result in a net tax. In
connection with this item we recorded an $18 million tax benefit in the third
quarter of 2004. Additionally, in the second quarter of 2004 we recognized the
benefit of a foreign net operating loss of $2.7 million previously considered
unrealizable. Liquidity and Capital Resources Net cash provided by operating activities was $462.6 million for the first
nine months of 2004, compared with net cash provided by operating activities of
$473.8 million for the same period of 2003. The $11.2 million decrease was
primarily the result of higher inventory levels, driven by increased raw
material commodity costs and higher tax payments in 2004. The higher tax
payments were the result of a tax refund received in 2003. These items were
partially offset by higher net income in 2004 and proceeds of $29.5 million
from the settlement with a bankruptcy trustee representing a small portion of
the Companys insurance carriers. See Note 6 of Notes to Consolidated
Financial Statements for more information on the insurance settlement. 24




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##### Table of Contents



In investing activities, we made capital expenditures of $119.0 million
for the first nine months of 2004. This compared with capital expenditures of
$126.5 million in the first nine months of 2003, including $24.3 million of
investments in affiliated companies and other businesses. We invested $30.7
million in computer software in the first nine months of 2004 and $29.4 million
in the first nine months of 2003. We also made a loan of $17.9 million to our
unconsolidated air conditioning compressors joint venture in the first nine
months of 2004. Investing activities in 2004 were partly offset by proceeds of
$13.9 million from the sale of miscellaneous assets, consisting primarily of
the sale of land in the U.S. for $9.4 million. The excess of cash provided by operating activities over cash used by
investing activities in the first nine months of 2004 was $308.9 million and
was used to fund net financing activities of $194.1 million. Additionally the
effect of exchange rate changes on cash and cash equivalents was $0.8 million.
This resulted in a net increase in cash of $115.6 million. Financing
expenditures consisted primarily of the purchase of approximately 6.6 million
shares of the Companys common stock for $237.6 million pursuant to the
Companys share repurchase program. Those expenditures were partly offset by
net borrowings of $4.1 million, cash proceeds of $26.9 million realized from
the exercise of stock options, $5.4 million realized from Sterling denominated
foreign exchange forward contracts and $7.1 million from other miscellaneous
transactions. This compares with an excess of cash provided by operating
activities over cash used by investing activities in the first nine months of
2003 totaling $323.4 million that was used to fund net financing activities of
$217.9 million, resulting in an increase in cash of $104.9 million. Financing
expenditures in the first nine months of 2003 consisted primarily of net debt
repayments of $193.8 million and the purchase of approximately 4.5 million
shares of the Companys common stock for $105.2 million pursuant to the
Companys share repurchase program. Those expenditures were partly offset by
cash proceeds of $39.3 million realized from the exercise of stock options,
cash proceeds of $36.4 million from foreign exchange forward contracts, and
$5.4 million from other miscellaneous transactions. We have one primary bank credit agreement. That agreement provides the
Company and certain subsidiaries (the Borrowers) with a senior, unsecured,
five-year $1 billion multi-currency revolving credit facility that expires in
November 2006. We did not renew a related 364-day, U.S. dollar revolving
credit facility of $150 million when it expired on November 4, 2003, because
amounts available under the five-year facility and other sources of financing
available were considered sufficient for Company needs. We also have a
Euro-denominated, 364-day bank credit agreement of $50 million (at September
30, 2004 exchange rates) that expires on October 31, 2004, and that was fully
utilized as of September 30, 2004. The Company intends to renew this
Euro-denominated 364-day bank credit agreement upon its expiration. Debt
outstanding under that agreement was classified as long-term debt in the
balance sheet as of September 30, 2004, because we have the ability and the
intent to renew it or to refinance it with borrowings under the five-year
facility. In addition, we have available, other non-U.S. lines of credit
totaling $23 million. The primary credit agreement contains 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. We are
currently in compliance with the covenants contained in the credit agreement. 25




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##### Table of Contents



At September 30, 2004, our total indebtedness was $1.669 billion. We had
remaining borrowing capacity under our primary bank credit agreement at
September 30, 2004, of $681 million after reduction for borrowings of $217
million and $102 million of outstanding letters of credit. We have $11 million
available under other bank credit facilities after reduction for letters of
credit usage of $12 million. In addition, we had $202 million available at
September 30, 2004, under overdraft facilities that can be withdrawn by the
banks at any time. In addition, we had other outstanding letters of credit
issued by other banks of $56 million as of September 30, 2004. We believe that the amounts available from operating cash flows, funds
available under our credit agreements and future borrowings under the remaining
$681 million of a $1 billion shelf registration statement filed with the
Securities and Exchange Commission in 1998 will be sufficient to meet our
expected operating needs and planned capital expenditures for the foreseeable
future. Off-Balance Sheet Arrangements We employ several means to manage our liquidity and are not dependent upon
any one source of funding. In addition to funds available from operating cash
flows, bank credit agreements and the public debt and equity markets, we use
two principal off-balance sheet techniques: operating leases and receivables
financing. Operating leases are employed as an alternative to purchasing
certain property, plant and equipment. Future rental commitments under all
non-cancelable leases have not changed significantly from the amounts disclosed
in the Companys Annual Report on Form 10-K for the year ended December 31,
2003. To reduce our borrowing cost, during 2002 we established new accounts
receivable financing facilities in Europe and the U.S., and terminated a
previously existing arrangement in the U.S. The amounts of receivables sold
under these securitization programs have not changed significantly from the
amounts disclosed in the Companys Annual Report on Form 10-K for the year
ended December 31, 2003. We have commitments and performance guarantees, including energy savings
guarantees totaling $40 million extending from 2004 to 2021, under long-term
contracts related to our air conditioning equipment and system controls.
Through September 30, 2004 we have only experienced one insignificant loss
under such energy savings guarantees and consider the probability of losses to
be unlikely. We also guarantee debt of third parties in the amount of $4
million as of September 30, 2004. Aggregate Contractual Obligations We have contractual obligations for long-term debt, leases, purchase
obligations, pension and post-retirement benefit plans and certain other
long-term liabilities that were summarized in a table of aggregate contractual
obligations as of December 31, 2003, in our 2003 Annual Report on Form 10-K.
There have been no material changes in those obligations since December 31,
2003. Disclosure Regarding Forward Looking Statements Certain of the statements contained in this report (other than the
historical financial data and other statements of historical fact), including,
without limitation, statements as to managements expectations and beliefs, are
forward-looking statements. Forward-looking statements are made based upon
managements good faith expectations and beliefs concerning future developments
and their potential effect upon the Company. There can be no 26




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##### Table of Contents



assurance that future developments will be in accordance with such expectations
or that the effect of future developments on the Company will be those
anticipated by management. Forward-looking statements can be identified by the
use of words such as believe, expect, plans, strategy, prospects,
estimate, project, anticipate, intends and other words of similar
meaning in connection with a discussion of future operating or financial
performance. This Report on Form 10-Q includes important information as to
risk factors in the sections titled Legal Proceedings and Managements
Discussion and Analysis of Financial Condition and Results of Operations.
Many important factors could cause actual results to differ materially from
managements expectations, including:  
    
    the level of end market activity in the Companys Air
Conditioning Systems and Services and Bath and Kitchen businesses and
the level of truck and bus production in the Companys Vehicle Control
Systems markets;
    
    the extent to which the Company will be able to realize the
estimated savings from Materials Management and Six Sigma initiatives;
    
    additional developments may occur that could affect the Companys
estimate of asbestos liabilities and recoveries, such as the nature of
future claims, the average payment to claimants, the amount of
insurance recovery or legislation affecting claims, criteria or
payout;
    
    unpredictable difficulties or delays in the development of new
product technology;
    
    changes in U.S. or international economic conditions, such as
inflation, interest rate fluctuations, foreign exchange rate
fluctuations or recessions in the Companys markets;
    
    pricing changes to the Companys supplies or products or those of
its competitors, and other competitive pressures on pricing and sales;
    
    increased difficulties in obtaining the supply of basic materials
such as steel, aluminum, copper, clays, electronics and natural gas
necessary to avoid disruptions of operations;
    
    increased difficulties in obtaining a consistent supply of those
basic materials at pricing levels which will not have an adverse
effect on results of operations;
    
    labor relations; integration of acquired businesses;
    
    difficulties in obtaining or retaining the management and other
human resource competencies that the Company needs to achieve its
business objectives;
    
    the impact on the Company or a segment from the loss of a
significant customer or a few customers;
    
    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 current products or future
products;
    
    assumptions made related to post-retirement benefits, including
rate of return on plan assets, the discount rate applied to projected
benefit obligations and the rate of increase in the health care cost
trend rate; 27




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##### Table of Contents




    
    changes in laws or different interpretations of laws that may
affect the Companys expected effective tax rate for 2004;
    
    transactions or other events affecting the need for, timing and
extent of the Companys capital expenditures.
    
    adoption of new accounting pronouncements promulgated by the FASB
or other accounting standard setting agencies. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes to the disclosure on this matter made in
the Companys Annual Report on Form 10-K for the year ended December 31, 2003. 
 Item 4. Controls and Procedures The Company has established a Disclosure Controls Committee that assists
the Chief Executive Officer and Chief Financial Officer in their evaluation of
the Companys disclosure controls and procedures. Our Chief Executive Officer
and Chief Financial Officer have concluded, based on their evaluation as of the
end of the period covered by this report, that our disclosure controls and
procedures, as defined in the Securities Exchange Act of 1934, Rule 13a-15(e),
are effective to ensure that the information required to be disclosed in the
reports that the Company files or submits under the Securities Act of 1934 is
recorded, processed summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. There have been
no changes in our internal control over financial reporting during the most
recent fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting. 28




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings In October 1999, in Haynes Trane Service Agency, Inc. and Frederick M.
Haynes v. American Standard, Inc., d/b/a The Trane Company,in the United
States District Court for the District of Colorado, verdicts were returned
against the Company for a total of $18 million on the claim that it wrongfully
terminated distribution agreements. On August 28, 2002, the appellate court
ruled in favor of the Company and vacated the $18 million judgment. The
appellate court also reinstated the Companys counterclaims, including fraud,
and remanded to the trial court limited portions of Haynes initial claims. The
trial court has scheduled a new trial on such claims to commence in late
February 2005. Over the years, the Company has been named as a defendant in numerous
lawsuits alleging various asbestos-related personal injury claims arising
primarily from sales of low-risk-profile products, such as boilers and railroad
brake shoes. The Company believes it has ample insurance and has never had an
unfavorable court judgment. In these asbestos-related lawsuits, the Company is usually named as one of
a large group of defendants, often in excess of one hundred companies. Many of
these lawsuits involve multiple claimants, do not allege a connection between
any Company product and the claimed injury or disease, and/or do not contain
any allegations regarding the type of claimed injury or disease incurred. As a
result, numerous lawsuits have been placed and may remain on inactive or
deferred dockets, which some jurisdictions have established. Through September 30, 2004, there have been 147,836 claims filed against
the Company. At September 30, 2004, there were 122,989 pending claims,
compared with 116,199 at the end of 2003, and 96,638 and 52,169 at the end of
2002 and 2001, respectively, reflecting updated information for all prior
periods. Since receipt of its first asbestos claim more than fifteen years
ago, through September 30, 2004, the Company has resolved 24,847 claims, and
settlements of $49.5 million have been made, for an average payment per claim
of $1,992. These settlement payments have substantially been paid or
reimbursed or are expected to be substantially reimbursed by insurance. The Company has recorded an obligation of $72.9 million as of September
30, 2004, that represents the Companys estimated payments to claimants
associated with pending asbestos claims. It also has recorded a related asset
of $51 million that represents the probable recoveries from insurance companies
for such payments to claimants. The amount of the estimated obligations is
based on the claims resolved, the assessment of claims pending, the status of
ongoing litigation, defense and settlement strategies, and an assessment of
other entities responsibilities for the claims. The amount of the probable
recoveries is based on an analysis of insurance coverage, the insurers
financial strength and insurance payments made to date. On July 15, 2004, the Company agreed to a settlement with a bankruptcy
trustee for a small portion of the Companys insurance coverage, of which $29.5
million was received in the third quarter of 2004. In connection with
the future liquidation of the bankruptcy trust the Company expects to
receive additional payments. Proceeds from this settlement in excess of amounts related to
known claims covered by these policies have been deferred until the liability,
if any, for unknown claims can be determined. Additional developments may occur that could affect the Companys estimate
of asbestos liabilities and recoveries, such as the nature of future claims,
the average payment to 29




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##### Table of Contents



claimants and the amount of insurance recovery. No liability has been recorded
for unknown asbestos claims. However, the Company has substantial insurance
coverage for future claims. The Company believes that it is not reasonably
possible that a net loss material to the liquidity and financial condition of
the Company has been incurred. 
 Item 2. Changes in Securities, and Use of Proceeds and Issuer Purchases of Equity Securities The Companys Board of Directors has on several occasions since 1998
approved expenditures under a program to purchase shares of the Companys
common stock in the open market. The Company has continually stated publicly
since 1998 its intention to repurchase shares of its common stock pursuant to
those authorizations. As of December 31, 2003, the unexpended authorization on
the current program was $313,032,214. A summary of the repurchase activity for
the first nine months of 2004 follows. All share and per-share amounts reflect
the three-for-one stock split effective May 27, 2004. ISSUER PURCHASES OF EQUITY SECURITIES Total Number
    
    Maximum Dollarof Shares
    
    Value of SharesPurchased as Part
    
    That May Yet BeTotal Number
    
    Average
    
    of Publicly
    
    Purchased Underof Shares
    
    Price Paid
    
    Announced Plans
    
    the PlansPeriod
    
    Purchased
    
    per Share
    
    or Programs
    
    or Programs (a)December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    313,032,214January 1-January 31
    
    
    1,083,000
    
    
    $
    34.87
    
    
    
    1,083,000
    
    
    $
    275,270,521February 1-February 29
    
    
    1,740,000
    
    
    $
    35.71
    
    
    
    1,740,000
    
    
    $
    213,138,314March 1-March 31
    
    
    1,200,000
    
    
    $
    37.03
    
    
    
    1,200,000
    
    
    $
    168,699,956Total first quarter
    
    
    4,023,000
    
    
    $
    35.88
    
    
    
    4,023,000April 1-April 30
    
    
    765,000
    
    
    $
    36.32
    
    
    
    765,000
    
    
    $
    140,914,596May 1-May 31
    
    
    1,124,000
    
    
    $
    35.19
    
    
    
    1,124,000
    
    
    $
    101,359,010June 1- June 30
    
    
    221,000
    
    
    $
    38.43
    
    
    
    221,000
    
    
    $
    92,866,217Total second quarter
    
    
    2,110,000
    
    
    $
    35.94
    
    
    
    2,110,000July 1-July 31
    
    
    0
    
    
    
    N/A
    
    
    
    0
    
    
    $
    92,866,217August 1-August 31
    
    
    315,000
    
    
    $
    37.45
    
    
    
    315,000
    
    
    $
    81,070,449September 1-September 30
    
    
    114,000
    
    
    $
    38.31
    
    
    
    114,000
    
    
    $
    76,703,368Total third quarter
    
    
    429,000
    
    
    $
    37.68
    
    
    
    429,000Total through Sept 30
    
    
    6,562,000
    (b)
    
    
    
    
    
    
    6,562,000
    
    
    $
    76,703,368
   (a)
    
    As of December 31, 2003, the Company had two unexpended
authorizations by the Board of Directors under its share repurchase
program. The first, authorized by the Board of Directors on February
6, 2003, approved the purchase of shares in an amount not to exceed
$150,000,000 with no expiration date. The unexpended balance of
$63,032,214 under that authorization as of December 31, 2003, was
used to repurchase shares in the first quarter of 2004. The second,
authorized by the Board on December 4, 2003, approved the purchase of
shares in an amount not to exceed $250,000,000, with no expiration
date. The Company has been repurchasing stock under this program in
the current year with a remaining unexpended balance of $76,703,368
at September 30, 2004. 30




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##### Table of Contents



(b)
    
    All Share repurchases were effected in accordance with the safe
harbor provisions of Rule 10b-18 of the Securities Exchange Act. 
 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: Report Date
    
    DescriptionJuly 19, 2004
    
    The financial results of the Company for the quarter
ended June 30, 2004 (Items 9 and 12).October 6, 2004
    
    Amendment to the Employment of Frederic M. Poses (Items
1.01 and 9.01 (c)).October 18, 2004
    
    The financial results of the Company for the quarter
ended September 30, 2004 (Items 2.02 and 7.01).
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SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. AMERICAN STANDARD COMPANIES INC./s/ Richard S. ParadiseRichard S. ParadiseVice President and Controller(Principal Accounting Officer)October 29, 2004
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##### Table of Contents



AMERICAN STANDARD COMPANIES INC. 
 INDEX TO EXHIBITS (The File Number of the Registrant, American Standard Companies Inc. is 1-11415) Exhibit No.
    
    Description10
    
    American Standard Companies Inc. Supplemental Compensation
Plan for Outside Directors (as amended and restated effective
October 7, 2004).12
    
    Ratio of Earnings to Fixed Charges31.1
    
    Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 200299.1
    
    Employment Agreement of James E. Dwyer.
 33