##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2002

OR

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

For the transition period from                      to                     .

Commission file number 1-11415

AMERICAN STANDARD COMPANIES INC.

(Exact name of Registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 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)                       |  | (Zip Code)                          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |  |                                     
|                                                              
|                                                              
|                                                              
|                                                              
|Registrants telephone number, including area code             |  | (732) 980-6000                      

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

[X]   Yes         [   ]   No

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

|                                                              |  |                   |  | 
|------------------------------------------------------------- |  | ----------------- |  | 
|Common stock, $.01 par value, outstanding at
October 31, 2002 |  | 72,461,586 shares





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TABLE OF CONTENTS



|                                                                                            |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART 1. FINANCIAL INFORMATION                                                              
|                                                                                            | Item 1. Financial Statements                                                                 
|AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES UNAUDITED SUMMARY STATEMENT OF INCOME    
|AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES UNAUDITED SUMMARY BALANCE SHEET          
|AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES UNAUDITED SUMMARY STATEMENT OF CASH FLOWS
|AMERICAN STANDARD COMPANIES INC. NOTES TO FINANCIAL STATEMENTS                             
|                                                                                            | Note 1. Basis of Financial Statement Presentation                                            
|                                                                                            | Note 2. Restructuring and Asset Impairment Charges                                           
|                                                                                            | Note 3. Comprehensive Income                                                                 
|                                                                                            | Note 4. Tax Matters                                                                          
|                                                                                            | Note 5. Earnings Per Share                                                                   
|                                                                                            | Note 6. Adoption of New Accounting Standard for Goodwill and Other Intangible Assets         
|                                                                                            | Note 7. Accounts Receivable Securitization Agreements                                        
|                                                                                            | Note 8. Impact of Other Recently Issued Accounting Standards                                 
|                                                                                            | Note 9. Debt                                                                                 
|                                                                                            | Note 10. Supplemental Consolidating Condensed Financial Information                          
|                                                                                            | Note 11. Commitments and Contingencies                                                       
|                                                                                            | Note 12. Segment Data                                                                        
|PART 1. FINANCIAL INFORMATION                                                              
|                                                                                            | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                            | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                                                            | Item 4. Controls and Procedures.                                                             
|PART II. OTHER INFORMATION                                                                 
|                                                                                            | Item 1. Legal Proceedings.                                                                   
|                                                                                            | Item 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURES                                                                                 
|CERTIFICATIONS                                                                             
|AMERICAN STANDARD COMPANIES INC. INDEX TO EXHIBITS                                         
|EX-10(I):FIRST AMENDMENT TO FIVE YEAR CREDIT AGMT.                                         
|EX-10(II): AMENDMENT AND RESTATEMENT AGREEMENT                                             
|EX-12: RATIO OF EARNINGS TO FIXED CHARGES                                                  
|EX-99.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER                                          
|EX-99.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER                                          



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##### 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. AND SUBSIDIARIES
UNAUDITED SUMMARY STATEMENT OF INCOME

(Dollars in millions except per share amounts)


|                                   |                                     |       |         |         |                    |            |                   |         |      |            |         |         |      |            |         |         |      |            | 
|---------------------------------- | ----------------------------------- | ----- | ------- | ------- | ------------------ | ---------- | ----------------- | ------- | ---- | ---------- | ------- | ------- | ---- | ---------- | ------- | ------- | ---- | ---------- | 
|                                   |                                     |       |         |         | Three Months Ended |            | Nine Months Ended
|                                   |                                     |       |         |         | September 30,      |            | September 30,    
|                                   |                                     |       |         |         |                    |            |                  
|                                   |                                     |       |         |         | 2002               |            | 2001              |         | 2002 |            | 2001   
|                                   |                                     |       |         |         |                    |            |                   |         |      |            |        
|Sales                              |                                     | $     | 2,070.1 |         |                    | $          | 1,885.0           |         |      | $          | 5,918.5 |         |      | $          | 5,715.1 |        
|                                   |                                     |       |         |         |                    |            |                   |         |      |            |         |         |      |            |         |        
|Costs and expenses:                |                                     |       |         |         |                    |            |                   |         |      |            |         |         |      |            |         |        
|                                  
|                                  
|                                  
|                                  
|                                   | Cost of sales                       |       |         | 1,564.4 |                    |            |                   | 1,415.8 |      |            |         | 4,473.9 |      |            |         | 4,269.9 |     
|                                  
|                                  
|                                  
|                                  
|                                   | Selling and administrative expenses |       |         | 303.7   |                    |            |                   | 281.8   |      |            |         | 888.6   |      |            |         | 868.7   |     
|                                  
|                                  
|                                  
|                                  
|                                   | Other (income) expense              |       |         | (.7     | )                  |            |                   | 1.7     |      |            |         | 12.7    |      |            |         | 3.9     |     
|                                  
|                                  
|                                  
|                                  
|                                   | Interest expense                    |       |         | 31.7    |                    |            |                   | 41.7    |      |            |         | 97.8    |      |            |         | 133.0   |     
|                                   |                                     |       |         |         |                    |            |                   |         |      |            |         |         |      |            |         |        
|                                   |                                     |       | 1,899.1 |         |                    |            | 1,741.0           |         |      |            | 5,473.0 |         |      |            | 5,275.5 |        
|                                   |                                     |       |         |         |                    |            |                   |         |      |            |         |         |      |            |         |        
|Income before income taxes         |                                     |       | 171.0   |         |                    |            | 144.0             |         |      |            | 445.5   |         |      |            | 439.6   |        
|                                  
|                                  
|                                  
|                                  
|Income taxes                       |                                     |       | 56.9    |         |                    |            | 54.0              |         |      |            | 148.4   |         |      |            | 164.9   |        
|                                   |                                     |       |         |         |                    |            |                   |         |      |            |         |         |      |            |         |        
|Net income                         |                                     | $     | 114.1   |         |                    | $          | 90.0              |         |      | $          | 297.1   |         |      | $          | 274.7   |        
|                                   |                                     |       |         |         |                    |            |                   |         |      |            |         |         |      |            |         |        
|Net income per common share:       |                                     |       |         |         |                    |            |                   |         |      |            |         |         |      |            |         |        
|                                  
|                                  
|                                  
|                                  
|                                   |                                     | Basic |         | $       | 1.58               |            |                   | $       | 1.25 |            |         | $       | 4.11 |            |         | $       | 3.86 |           
|                                   |                                     |       |         |         |                    |            |                   |         |      |            |         |         |      |            |         |        
|                                   |                                     |       | Diluted |         | $                  | 1.55       |                   |         | $    | 1.23       |         |         | $    | 4.04       |         |         | $    | 3.76       | 
|                                   |                                     |       |         |         |                    |            |                   |         |      |            |         |         |      |            |         |        
|Average common shares outstanding: |                                     |       |         |         |                    |            |                   |         |      |            |         |         |      |            |         |        
|                                  
|                                  
|                                  
|                                  
|                                   |                                     |       | Basic   |         |                    | 72,267,482 |                   |         |      | 71,837,275 |         |         |      | 72,316,859 |         |         |      | 71,317,942 | 
|                                  
|                                  
|                                  
|                                  
|                                   |                                     |       | Diluted |         |                    | 73,515,925 |                   |         |      | 73,448,426 |         |         |      | 73,641,199 |         |         |      | 73,073,934 | 

See accompanying notes

2



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##### Table of Contents



Item 1. Financial Statements (continued)




AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
UNAUDITED SUMMARY BALANCE SHEET

(Dollars in millions, except share data)


|                                               |                                                                                                  |                                                  |         |               |         |              |         |         |         |  
|---------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------------------------------------------ | ------- | ------------- | ------- | ------------ | ------- | ------- | ------- | -
|                                               |                                                                                                  |                                                  |         | September 30, |         | December 31,
|                                               |                                                                                                  |                                                  |         | 2002          |         | 2001        
|                                               |                                                                                                  |                                                  |         |               |         |             
|ASSETS                                         |                                                                                                  |                                                  |         |               |         |              |         |        
|                                              
|                                              
|                                              
|                                              
|Current assets:                                |                                                                                                  |                                                  |         |               |         |              |         |        
|                                              
|                                              
|                                              
|                                              
|                                               | Cash and cash equivalents                                                                        |                                                  | $       | 145.8         |         |              | $       | 82.1    |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts receivable, less allowance for doubtful
accounts: Sept. 2002 - $44.2; Dec. 2001 - $35.4 |                                                  |         | 1,031.5       |         |              |         | 998.3   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Inventories:                                                                                     |                                                  |         |               |         |              |         |         |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                  | Finished products                                |         |               | 429.9   |              |         |         | 378.1   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                  | Products in process                              |         |               | 144.6   |              |         |         | 135.3   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                  | Raw materials                                    |         |               | 169.3   |              |         |         | 143.7   |  
|                                               |                                                                                                  |                                                  |         |               |         |              |         |        
|                                               |                                                                                                  |                                                  | 743.8   |               |         |              | 657.1   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Other current assets                                                                             |                                                  |         | 236.4         |         |              |         | 158.9   |        
|                                               |                                                                                                  |                                                  |         |               |         |              |         |        
|                                               |                                                                                                  | Total current assets                             |         |               | 2,157.5 |              |         |         | 1,896.4 |  
|                                              
|                                              
|                                              
|                                              
|Facilities, less accumulated depreciation:     |                                                                                                  |                                                  |         |               |         |              |         |        
|                                              
|                                              
|                                              
|                                              
|                                               | Sept. 2002 - $746.7; Dec. 2001 - $657.8                                                          |                                                  |         | 1,362.6       |         |              |         | 1,362.8 |        
|                                              
|                                              
|                                              
|                                              
|Goodwill                                       |                                                                                                  |                                                  | 971.6   |               |         |              | 929.0   |        
|                                              
|                                              
|                                              
|                                              
|Other assets                                   |                                                                                                  |                                                  | 728.0   |               |         |              | 643.2   |        
|                                               |                                                                                                  |                                                  |         |               |         |              |         |        
|Total assets                                   |                                                                                                  | $                                                | 5,219.7 |               |         | $            | 4,831.4 |        
|                                               |                                                                                                  |                                                  |         |               |         |              |         |        
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT) |                                                                                                  |                                                  |         |               |         |              |         |        
|                                              
|                                              
|                                              
|                                              
|Current liabilities:                           |                                                                                                  |                                                  |         |               |         |              |         |        
|                                              
|                                              
|                                              
|                                              
|                                               | Loans payable to banks                                                                           |                                                  | $       | 85.7          |         |              | $       | 58.7    |        
|                                              
|                                              
|                                              
|                                              
|                                               | Current maturities of long-term debt                                                             |                                                  |         | 4.5           |         |              |         | 11.4    |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts payable                                                                                 |                                                  |         | 643.0         |         |              |         | 604.1   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued payrolls                                                                                 |                                                  |         | 292.6         |         |              |         | 265.2   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Other accrued liabilities                                                                        |                                                  |         | 842.5         |         |              |         | 748.9   |        
|                                               |                                                                                                  |                                                  |         |               |         |              |         |        
|                                               |                                                                                                  | Total current liabilities                        |         |               | 1,868.3 |              |         |         | 1,688.3 |  
|                                              
|                                              
|                                              
|                                              
|Long-term debt                                 |                                                                                                  |                                                  | 2,004.8 |               |         |              | 2,142.0 |        
|                                              
|                                              
|                                              
|                                              
|Reserve for post-retirement benefits           |                                                                                                  |                                                  | 489.0   |               |         |              | 489.5   |        
|                                              
|                                              
|                                              
|                                              
|Other liabilities                              |                                                                                                  |                                                  | 698.2   |               |         |              | 601.7   |        
|                                               |                                                                                                  |                                                  |         |               |         |              |         |        
|Total liabilities                              |                                                                                                  |                                                  | 5,060.3 |               |         |              | 4,921.5 |        
|                                              
|                                              
|                                              
|                                              
|Shareholders equity (deficit):                |                                                                                                  |                                                  |         |               |         |              |         |        
|                                              
|                                              
|                                              
|                                              
|                                               | Preferred stock, 2,000,000 shares authorized,
none issued and outstanding                        |                                                  |         |              |         |              |         |        |        
|                                              
|                                              
|                                              
|                                              
|                                               | Common stock $.01 par value, 200,000,000 shares
authorized; shares issued and outstanding:       |                                                  |         |               |         |              |         |         |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                  | 72,369,334 in 2002; 72,071,944 in 2001           |         |               | .7      |              |         |         | .7      |  
|                                              
|                                              
|                                              
|                                              
|                                               | Capital surplus                                                                                  |                                                  |         | 717.9         |         |              |         | 707.2   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Unearned compensation                                                                            |                                                  |         | (3.1          | )       |              |         | (5.2    | )      
|                                              
|                                              
|                                              
|                                              
|                                               | Treasury stock                                                                                   |                                                  |         | (545.8        | )       |              |         | (505.3  | )      
|                                              
|                                              
|                                              
|                                              
|                                               | Retained earnings                                                                                |                                                  |         | 354.1         |         |              |         | 57.0    |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accumulated other comprehensive income:                                                          |                                                  |         |               |         |              |         |         |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                  | Foreign currency translation effects             |         |               | (348.0  | )            |         |         | (331.8  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                  | Deferred loss on hedge contracts, net of tax     |         |               | (4.7    | )            |         |         | (1.0    | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                  | Minimum pension liability adjustment, net of tax |         |               | (11.7   | )            |         |         | (11.7   | )
|                                               |                                                                                                  |                                                  |         |               |         |              |         |        
|Total shareholders equity (deficit)           |                                                                                                  |                                                  | 159.4   |               |         |              | (90.1   | )      
|                                               |                                                                                                  |                                                  |         |               |         |              |         |        
|                                               |                                                                                                  | $                                                | 5,219.7 |               |         | $            | 4,831.4 |        
|                                               |                                                                                                  |                                                  |         |               |         |              |         |        

See accompanying notes

3



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##### Table of Contents



Item 1. Financial Statements (continued)




AMERICAN STANDARD COMPANIES INC. AND SUBSIDIARIES
UNAUDITED SUMMARY STATEMENT OF CASH FLOWS

(Dollars in millions)


|                                                             |  |                       |                                                                  |                                                                                            |  |                   |        |      |  |        |        |  
|------------------------------------------------------------ |  | --------------------- | ---------------------------------------------------------------- | ------------------------------------------------------------------------------------------ |  | ----------------- | ------ | ---- |  | ------ | ------ | -
|                                                             |  |                       |                                                                  |                                                                                            |  | Nine months ended
|                                                             |  |                       |                                                                  |                                                                                            |  | September 30,    
|                                                             |  |                       |                                                                  |                                                                                            |  |                  
|                                                             |  |                       |                                                                  |                                                                                            |  | 2002              |        | 2001
|                                                             |  |                       |                                                                  |                                                                                            |  |                   |        |     
|Cash provided (used) by:                                     |  |                       |                                                                  |                                                                                            |  |                   |        |     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  | Operating activities: |                                                                  |                                                                                            |  |                   |        |      |  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Net income                                                                                 |  | $                 | 297.1  |      |  | $      | 274.7  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Adjustments to reconcile net income
to net cash provided by operations:                    |  |                   |        |      |  |        |        |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Depreciation and amortization                                                              |  |                   | 155.2  |      |  |        | 169.6  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Non-cash stock compensation                                                                |  |                   | 40.9   |      |  |        | 46.6   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | German tax settlement paid                                                                 |  |                   | (55.0  | )    |  |        |       |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Job elimination expenses paid                                                              |  |                   | (26.4  | )    |  |        |       |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Restructuring charges paid                                                                 |  |                   | (4.1   | )    |  |        | (25.1  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Changes in assets and liabilities:                                                         |  |                   |        |      |  |        |        |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Accounts receivable                                                                        |  |                   | (103.3 | )    |  |        | (125.9 | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Inventories                                                                                |  |                   | (75.4  | )    |  |        | (93.5  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Accounts payable                                                                           |  |                   | 16.6   |      |  |        | (19.3  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Other accrued liabilities and taxes                                                        |  |                   | 117.7  |      |  |        | 67.6   |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Other assets                                                                               |  |                   | (76.4  | )    |  |        | (62.0  | )
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Other long-term liabilities                                                                |  |                   | 60.2   |      |  |        | 49.3   |  
|                                                             |  |                       |                                                                  |                                                                                            |  |                   |        |     
|                                                             |  |                       |                                                                  | Net cash provided by operating activities before
proceeds from initial sale of receivables |  |                   | 347.1  |      |  |        | 282.0  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       |                                                                  | Proceeds from initial sale of receivables, net                                             |  |                   | 81.4   |      |  |        |       |  
|                                                             |  |                       |                                                                  |                                                                                            |  |                   |        |     
|                                                             |  |                       |                                                                  | Net cash provided by operating activities                                                  |  |                   | 428.5  |      |  |        | 282.0  |  
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  | Investing activities: |                                                                  |                                                                                            |  |                   |        |      |  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Purchase of property, plant and equipment                        |                                                                                            |  | (91.1             | )      |      |  | (104.4 | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Investments in affiliated companies and other businesses         |                                                                                            |  | (22.0             | )      |      |  | (30.9  | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Investments in computer software                                 |                                                                                            |  | (30.3             | )      |      |  | (41.7  | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Proceeds from dissolution of receivables financing joint venture |                                                                                            |  | 25.8              |        |      |  |       |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Proceeds from sale and leaseback transactions                    |                                                                                            |  |                  |        |      |  | 26.6   |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Other                                                            |                                                                                            |  | 13.6              |        |      |  | 10.0   |       
|                                                             |  |                       |                                                                  |                                                                                            |  |                   |        |     
|                                                             |  |                       |                                                                  | Net cash used by investing activities                                                      |  |                   | (104.0 | )    |  |        | (140.4 | )
|                                                             |  |                       |                                                                  |                                                                                            |  |                   |        |     
|                                                             |  | Financing activities: |                                                                  |                                                                                            |  |                   |        |      |  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Repayments of long-term debt                                     |                                                                                            |  | (39.8             | )      |      |  | (3.5   | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Net change in revolving credit facilities                        |                                                                                            |  | (167.2            | )      |      |  | (82.6  | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Net change in other short-term debt                              |                                                                                            |  | 24.8              |        |      |  | (6.8   | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Purchases of treasury stock                                      |                                                                                            |  | (135.7            | )      |      |  | (92.1  | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Proceeds from exercise of stock options                          |                                                                                            |  | 51.4              |        |      |  | 83.9   |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Purchase of warrants                                             |                                                                                            |  |                  |        |      |  | (35.3  | )     
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             |  |                       | Other                                                            |                                                                                            |  | 5.6               |        |      |  | 5.5    |       
|                                                             |  |                       |                                                                  |                                                                                            |  |                   |        |     
|                                                             |  |                       |                                                                  | Net cash used by financing activities                                                      |  |                   | (260.9 | )    |  |        | (130.9 | )
|                                                             |  |                       |                                                                  |                                                                                            |  |                   |        |     
|Effect of exchange rate changes on cash and
cash equivalents |  |                       | .1                                                               |                                                                                            |  |                   | (.8    | )   
|                                                             |  |                       |                                                                  |                                                                                            |  |                   |        |     
|Net increase in cash and cash equivalents                    |  |                       | 63.7                                                             |                                                                                            |  |                   | 9.9    |     
|                                                            
|                                                            
|                                                            
|                                                            
|Cash and cash equivalents at beginning of period             |  |                       | 82.1                                                             |                                                                                            |  |                   | 85.4   |     
|                                                             |  |                       |                                                                  |                                                                                            |  |                   |        |     
|Cash and cash equivalents at end of period                   |  | $                     | 145.8                                                            |                                                                                            |  | $                 | 95.3   |     
|                                                             |  |                       |                                                                  |                                                                                            |  |                   |        |     

See accompanying notes

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##### Table of Contents






AMERICAN STANDARD COMPANIES INC.
NOTES TO FINANCIAL STATEMENTS




Note 1. Basis of Financial Statement Presentation

The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring items, considered necessary
for a fair presentation of financial data have been included. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the entire year. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and accompanying notes included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2001.




Note 2. Restructuring and Asset Impairment Charges

2000 Restructuring Program

As described in Note 5 of Notes to Financial Statements included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2001, in
2000, the Company announced a worldwide restructuring program that included
improving efficiency through the transfer of production to locations with lower
costs, the closure of manufacturing and administrative facilities, outsourcing
production of certain products, capitalizing on synergistic opportunities in
several businesses and termination costs related to upgrading the effectiveness
of the organization. In connection with this program, in the fourth quarter of
2000 the Company recorded a net restructuring and asset impairment charge of
$70 million ($51 million net of tax benefits, or $.71 per diluted share). This
charge was comprised of $26 million for Air Conditioning Systems and Services,
$34 million for Bath and Kitchen and $15 million for Vehicle Control Systems,
offset by a $5 million reversal of restructuring charges recorded previously
for a 1998-1999 restructuring program as the Company was able to complete the
activities at lower cost than originally estimated. The Air Conditioning
Systems and Services charge included costs related to a workforce reduction of
700 people to integrate international operations, costs of lease obligations on
properties no longer to be used, and asset impairment charges. The Bath and
Kitchen charge included an asset impairment write-down for the closure of one
plant in the U.S., a workforce reduction of 250 people and the transfer of
production to other facilities in the Americas. The Bath and Kitchen charge
also included termination costs for a workforce reduction of 350 people as a
result of the centralization and realignment of certain functions in Western
Europe, the Americas and Asia to eliminate redundancies. The Vehicle Control
Systems charge primarily reflects the transfer of production to the lower-labor
cost facility in Poland and consolidation of certain operations and
administrative functions in Western Europe to eliminate redundancies, resulting
in a net workforce reduction of 450 people.

In 2001 the majority of the actions described above were completed for
substantially the same amounts as originally accrued. With respect to the
other actions, the Company was able to settle certain items on more favorable
terms than expected and others on less favorable terms. Additionally, the
scope of certain activities was changed. For Air Conditioning Systems and
Services, the Company was able to release employees on more favorable terms
than originally contemplated and terminate lease obligations more favorably
than expected, resulting in a $5 million reversal of the accrual. However, the
Company incurred additional costs of $4 million, principally related to
discontinuing certain product lines in Europe. This additional cost was
charged to restructuring expense in 2001. For Vehicle Control Systems, the
Company did not undertake all of its planned activities for consolidating
administrative functions in Western Europe and therefore reversed $4 million of
the 2000 accrual. However, the scope of the production transfer to Poland

5



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##### Table of Contents



was expanded and accelerated, resulting in additional costs of $11 million,
primarily for severance, which was charged to restructuring expense in 2001.
Bath and Kitchen terminated fewer people than planned, resulting in a $3
million reversal of the 2000 accrual. However, in 2001 Bath and Kitchen
incurred additional restructuring costs, principally severance of $2 million in
North America.

Following is a summary of the 2000 restructuring program and asset
impairment charges through September 30, 2002 (dollars in millions):

|                                              |  |         |      |           |  |          |       |         |  |          |      |         |  |          |      |         |  |           |       |   |  |         |       |   |  |   |     |  |  |   |      |   |  |   |     | 
|--------------------------------------------- |  | ------- | ---- | --------- |  | -------- | ----- | ------- |  | -------- | ---- | ------- |  | -------- | ---- | ------- |  | --------- | ----- | - |  | ------- | ----- | - |  | - | --- |  |  | - | ---- | - |  | - | --- | 
|                                              |  | Initial |      | Non-Cash  |  | Balance  |       | Charges |  | Charges  |      |         |  |          |      | Balance |  |           |       |   |  | Balance
|                                              |  | Charge  |      | Write-off |  | Dec. 31, |       | Accrued |  | Reversed |      | Paid in |  | Dec. 31, |      | Paid in |  | Sept. 30,
|                                              |  | 2000    |      | in 2000   |  | 2000     |       | in 2001 |  | in 2001  |      | 2001    |  | 2001     |      | 2002    |  | 2002     
|                                              |  |         |      |           |  |          |       |         |  |          |      |         |  |          |      |         |  |          
|Termination payments and
other employee costs |  | $       | 47.4 |           |  | $        |      |         |  | $        | 47.4 |         |  | $        | 11.7 |         |  | $         | (9.4  | ) |  | $       | (44.8 | ) |  | $ | 4.9 |  |  | $ | (2.9 | ) |  | $ | 2.0 | 
|                                             
|                                             
|                                             
|                                             
|Asset impairments                             |  |         | 24.1 |           |  |          | (24.1 | )       |  |          |     |         |  |          |     |         |  |           |      |   |  |         |      |   |  |   |    |  |  |   |     |   |  |   |    | 
|                                             
|                                             
|                                             
|                                             
|Other                                         |  |         | 3.7  |           |  |          |      |         |  |          | 3.7  |         |  |          | 6.1  |         |  |           | (2.9  | ) |  |         | (5.5  | ) |  |   | 1.4 |  |  |   | (1.2 | ) |  |   | .2  | 
|                                              |  |         |      |           |  |          |       |         |  |          |      |         |  |          |      |         |  |           |       |   |  |         |       |   |  |   |     |  |  |   |      |   |  |   |     | 
|                                              |  | $       | 75.2 |           |  | $        | (24.1 | )       |  | $        | 51.1 |         |  | $        | 17.8 |         |  | $         | (12.3 | ) |  | $       | (50.3 | ) |  | $ | 6.3 |  |  | $ | (4.1 | ) |  | $ | 2.2 | 
|                                              |  |         |      |           |  |          |       |         |  |          |      |         |  |          |      |         |  |           |       |   |  |         |       |   |  |   |     |  |  |   |      |   |  |   |     | 

The Company expects that essentially all of the $2.2 million balance as of
September 30, 2002 related to the 2000 restructuring program will be utilized
in 2002.




Note 3. Comprehensive Income

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

|                                                    |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|--------------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                    |  | Three months ended |       | Nine months ended
|                                                    |  | September 30,      |       | September 30,    
|                                                    |  |                    |       |                  
|                                                    |  | 2002               |       | 2001              |  | 2002 |       | 2001
|                                                    |  |                    |       |                   |  |      |       |     
|Net income                                          |  | $                  | 114.1 |                   |  | $    | 90.0  |      |  | $ | 297.1 |   |  | $ | 274.7 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Foreign currency translation effects                |  |                    | (56.5 | )                 |  |      | (14.6 | )    |  |   | (16.2 | ) |  |   | (12.2 | )
|                                                   
|                                                   
|                                                   
|                                                   
|Deferred gain (loss) on hedge
contracts, net of tax |  |                    | (6.7  | )                 |  |      | (.3   | )    |  |   | (3.7  | ) |  |   | (4.6  | )
|                                                    |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  
|Total comprehensive income                          |  | $                  | 50.9  |                   |  | $    | 75.1  |      |  | $ | 277.2 |   |  | $ | 257.9 |  
|                                                    |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   |       |  




Note 4. Tax Matters

The Company had been in discussions and negotiations with The State
Finance Administration for North Rhine-Westphalia, Germany (the German Tax
Authority) concerning certain tax issues covering the years
1984 - 1994. For
the years 1984 - 1990, the Company received a tax assessment from the German
Tax Authority in the amount of $90 million. For years 1991 - 1994, the Company
anticipated a further assessment for an amount substantially greater than that
assessed for 1984 - 1990. On January 15, 2002, the Company settled all issues
for 1984 through 1994 for a cash payment of approximately $55 million plus $30
million previously deposited in escrow. Since the Company previously had
provided reserves for all issues, the settlement had no impact on results of
operations.

6



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##### Table of Contents






Note 5. 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, 2002 and
2001 included 1,248,443 and 1,611,151 average incremental shares, respectively,
for the assumed exercise of stock options. The nine-month periods ended
September 30, 2002 and 2001 included 1,324,340 and 1,755,992 average
incremental shares, respectively.




Note 6. Adoption of New Accounting Standard for Goodwill and Other Intangible Assets

In 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests. Other
intangible assets will continue to be amortized over their useful lives. The
Company began applying the new rules in the first quarter of 2002. Application
of the non-amortization provisions of FAS 142 resulted in a third quarter 2002
net income increase of $7.5 million, or $.10 per diluted share, an increase of
$22.4 million, or $.30 per diluted share for the nine months ended September
30, 2002, and is expected to result in an increase in net income of
approximately $30 million, or $.40 per diluted share annually. During the
first nine months of 2002, the Company performed the first of the required
impairment tests of goodwill and indefinite-lived intangible assets and
determined that there was no impairment.

Following is a summary of net income for the three months and nine months
ended September 30, 2002, compared with net income for the three months and
nine months ended September 30, 2001, as reported and as adjusted to exclude
goodwill amortization (dollars in millions):

|                                                           |                       |   |                    |      |                   |   |      |      |      |   |       |      |  |   |       |      | 
|---------------------------------------------------------- | --------------------- | - | ------------------ | ---- | ----------------- | - | ---- | ---- | ---- | - | ----- | ---- |  | - | ----- | ---- | 
|                                                           |                       |   | Three months ended |      | Nine months ended
|                                                           |                       |   | September 30,      |      | September 30,    
|                                                           |                       |   |                    |      |                  
|                                                           |                       |   | 2002               |      | 2001              |   | 2002 |      | 2001
|                                                           |                       |   |                    |      |                   |   |      |      |     
|Reported net income                                        |                       | $ | 114.1              |      |                   | $ | 90.0 |      |      | $ | 297.1 |      |  | $ | 274.7 |     
|                                                          
|                                                          
|                                                          
|                                                          
|Add goodwill amortization, net of
income taxes in 2001 (a) |                       |   |                   |      |                   |   | 7.5  |      |      |   |      |      |  |   | 22.4  |     
|                                                           |                       |   |                    |      |                   |   |      |      |      |   |       |      |  |   |       |     
|Adjusted net income                                        |                       | $ | 114.1              |      |                   | $ | 97.5 |      |      | $ | 297.1 |      |  | $ | 297.1 |     
|                                                           |                       |   |                    |      |                   |   |      |      |      |   |       |      |  |   |       |     
|Basic earnings per share:                                  |                       |   |                    |      |                   |   |      |      |      |   |       |      |  |   |       |     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Reported net income   |   | $                  | 1.58 |                   |   | $    | 1.25 |      |   | $     | 4.11 |  |   | $     | 3.86 | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Goodwill amortization |   |                    |     |                   |   |      | .11  |      |   |       |     |  |   |       | .31  | 
|                                                           |                       |   |                    |      |                   |   |      |      |      |   |       |      |  |   |       |     
|                                                           | Adjusted net income   |   | $                  | 1.58 |                   |   | $    | 1.36 |      |   | $     | 4.11 |  |   | $     | 4.17 | 
|                                                           |                       |   |                    |      |                   |   |      |      |      |   |       |      |  |   |       |     
|Diluted earnings per share:                                |                       |   |                    |      |                   |   |      |      |      |   |       |      |  |   |       |     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Reported net income   |   | $                  | 1.55 |                   |   | $    | 1.23 |      |   | $     | 4.04 |  |   | $     | 3.76 | 
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Goodwill amortization |   |                    |     |                   |   |      | .10  |      |   |       |     |  |   |       | .30  | 
|                                                           |                       |   |                    |      |                   |   |      |      |      |   |       |      |  |   |       |     
|                                                           | Adjusted net income   |   | $                  | 1.55 |                   |   | $    | 1.33 |      |   | $     | 4.04 |  |   | $     | 4.06 | 
|                                                           |                       |   |                    |      |                   |   |      |      |      |   |       |      |  |   |       |     



---

|(a) |  | In certain foreign countries goodwill amortization
is deductible for tax purposes, resulting in tax benefits of $.4
million and $1.2 million for the three and nine months ended
September 30, 2001.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Note 7. Accounts Receivable Securitization Agreements

To reduce its borrowing cost, in May and September 2002 the Company
established accounts receivable financing facilities in Europe and the U.S.
with major international banks. As part of these facilities, the Company
formed wholly-owned, special purpose subsidiaries (in Europe, the ESPE; in
the U.S., the USSPE; collectively, the SPEs) for the sole purpose of
buying and selling receivables generated by the Company. Under these
facilities the Company irrevocably and without recourse, transfers all
eligible accounts receivable to the SPEs which in turn, sell them, or
interests therein, to conduits administered by the banks. The assets of the
SPEs are not available to pay the claims of the Company, American Standard
Inc., or any other entity. The Company retains a subordinated interest in
the receivables sold of approximately 10% to 15% for ESPE and 40% for USSPE.
The conduits obtain the funds to purchase the interests in the receivables,
other than the retained interest, by selling commercial paper to third party
investors. Advances from the conduits to the SPEs are limited to
approximately $425 million (250 million, or approximately $250 million at
current exchange rates under the European facility, and $175 million under
the U.S. facility). These facilities are for three years, subject to annual
renewals and for the European facility, the maintenance of specified debt
rating levels, and for the U.S. facility, the maintenance of certain
financial covenants. The Company is currently in compliance with these
covenants.

The receivables sold are removed from the balance sheet since they meet
the applicable criteria of Statement of Financial Accounting Standards No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The Companys retained interest is recorded
at fair value in other current assets in the Companys Consolidated Balance
Sheet. Losses are recognized when the receivables are sold to the extent
that the cash and value of the retained interest is less than the net book
value of the receivables sold. Those losses amounted to $5.7 million for the
nine months ended September 30, 2002, and were recorded in other expenses in
the Statement of Income.

In addition, on August 31, 2002, the Company terminated its activities in
American Standard Financial Services, a financial services partnership with
Transamerica Commercial Finance Corporation that had previously provided
receivables financing in the U.S., and bought back $256 million of trade
receivables. The majority of these receivables were sold to the USSPE.

Following is a summary of receivables subject to the financing facilities
as of September 30, 2002, (in millions):

|                                                 |  |      |       |       |  |       |       |  |  |   |       | 
|------------------------------------------------ |  | ---- | ----- | ----- |  | ----- | ----- |  |  | - | ----- | 
|                                                 |  | ESPE |       | USSPE |  | Total
|                                                 |  |      |       |       |  |      
|Outstanding balances of receivables
sold to SPEs |  | $    | 254.4 |       |  | $     | 230.1 |  |  | $ | 484.5 | 
|                                                
|                                                
|                                                
|                                                
|Retained interest                                |  | $    | 31.8  |       |  | $     | 97.0  |  |  | $ | 128.8 | 
|                                                
|                                                
|                                                
|                                                
|Advances from conduits                           |  | $    | 249.6 |       |  | $     | 151.4 |  |  | $ | 401.0 | 

8



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##### Table of Contents



Following is a summary of cash flows received or paid on the initial
receivables transactions during the nine months ended September 30, 2002 (in
millions):

|                                                        |  |      |       |       |  |       |        |   |  |   |        |  
|------------------------------------------------------- |  | ---- | ----- | ----- |  | ----- | ------ | - |  | - | ------ | -
|                                                        |  | ESPE |       | USSPE |  | Total
|                                                        |  |      |       |       |  |      
|Cash flows from initial sale of receivables             |  | $    | 224.6 |       |  | $     | 154.9  |   |  | $ | 379.5  |  
|                                                       
|                                                       
|                                                       
|                                                       
|Less the effect of termination of
previous arrangements |  |      | (42.5 | )     |  |       | (255.6 | ) |  |   | (298.1 | )
|                                                        |  |      |       |       |  |       |        |   |  |   |        |  
|Proceeds from initial sale of receivables, net          |  | $    | 182.1 |       |  | $     | (100.7 | ) |  | $ | 81.4   |  
|                                                        |  |      |       |       |  |       |        |   |  |   |        |  

As of September 30, 2002, the interest rate on amounts outstanding under
the European facility was 1.83% and under the U.S. facility was 1.76%.




Note 8. Impact of Other Recently Issued Accounting Standards

In August 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets,effective for fiscal years beginning after
December 15, 2001. The statement establishes new rules on accounting for
impairments of long-lived assets and provides guidance on differentiating
between assets held and used, held for sale, and held for disposal other than
by sale. The new statement was adopted by the Company at the beginning of 2002
with no significant effect on the Companys results of operations or financial
position. Other FASB statements recently issued have little or no immediate
effect on the Company and will have an effect in the future only in the event
the Company enters into transactions governed by those statements. Those
statements included No. 143, Accounting for Asset Retirement Obligations;No.
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No.13 (leases), and Technical Corrections;and No. 146, Accounting
for Costs Associated with Exit or Disposal Activities.




Note 9. Debt

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

Effective November 5, 2002, the 364-day facility was renewed in the amount
of $150 million until November 4, 2003, and was classified as long-term debt in
the balance sheet as of September 30, 2002 because the Company had the ability
and the intent to renew it or to refinance it with borrowings under the
five-year facility.

The Companys 7 1/8% Senior Notes due February 15, 2003, have also been
classified as long-term debt as of September 30, 2002 because the Company has
the ability and the intent to refinance them with borrowings under the
five-year facility or future borrowings under the remaining $540 million of a
shelf registration statement filed with the Securities and Exchange Commission
in 1998.

9



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##### Table of Contents






Note 10. 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 (the ASI Public Debt). In lieu of
providing separate financial statements for ASI, included is the accompanying
consolidating condensed financial information. Management believes that
separate financial statements of ASI are not material to investors. The
following supplemental financial information sets forth, on an unconsolidated
basis, statements of income for the three months and nine months ended
September 30, 2002 and 2001, statements of cash flows for the nine months ended
September 30, 2002 and 2001 and balance sheets as of September 30, 2002 and
December 31, 2001 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, 2002
(Unaudited)

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

10



---



##### Table of Contents



Note 10. Supplemental Consolidating Condensed Financial Information (continued)

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

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

CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 30, 2002
(Unaudited)

|                                               |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |         |         | 
|---------------------------------------------- | ------------------------------------ | ------------------------------------------ | ----- | ------ | ----- | ------------ | ------- | ------------ | -------- | ----- | ------ | ----- | ------- | - | ------ | ------------ | ------ | - | ------- | ------- | ------- | 
|                                               |                                      |                                            |       | Parent |       |              |         |              |          | Other |        |       |         |   |        | Consolidated
|(Dollars in millions)                          |                                      | Company                                    |       | ASI    |       | Subsidiaries |         | Eliminations |          | Total
|                                               |                                      |                                            |       |        |       |              |         |              |          |      
|ASSETS                                         |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |        
|                                              
|                                              
|                                              
|                                              
|Current assets:                                |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |        
|                                              
|                                              
|                                              
|                                              
|                                               | Cash and cash equivalents            |                                            |       |        |       |              | $       | 17.5         |          |       | $      | 128.3 |         |   |        |              |        |   | $       | 145.8   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts receivable, net             |                                            | $     | .3     |       |              |         | 520.6        |          |       |        | 510.6 |         |   |        |              |        |   |         | 1,031.5 |        
|                                              
|                                              
|                                              
|                                              
|                                               | Inventories                          |                                            |       |        |       |              |         | 349.0        |          |       |        | 394.8 |         |   |        |              |        |   |         | 743.8   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Other current assets                 |                                            |       |        |       |              |         | 181.5        |          |       |        | 54.9  |         |   |        |              |        |   |         | 236.4   |        
|                                               |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |        
|                                               |                                      | Total current assets                       |       |        | .3    |              |         |              | 1,068.6  |       |        |       | 1,088.6 |   |        |              |        |   |         |         | 2,157.5 | 
|                                              
|                                              
|                                              
|                                              
|Facilities, net                                |                                      |                                            |       |        |       |              | 550.7   |              |          |       | 811.9  |       |         |   |        |              |        |   | 1,362.6 |        
|                                              
|                                              
|                                              
|                                              
|Goodwill, net                                  |                                      |                                            |       |        |       |              | 131.4   |              |          |       | 840.2  |       |         |   |        |              |        |   | 971.6   |        
|                                              
|                                              
|                                              
|                                              
|Investment in subsidiaries                     |                                      |                                            | 791.1 |        |       |              |        |              |          |       |       |       |         | $ | (791.1 | )            |        |   |        |        
|                                              
|                                              
|                                              
|                                              
|Other assets                                   |                                      |                                            |       |        |       |              | 558.3   |              |          |       | 169.7  |       |         |   |        |              |        |   | 728.0   |        
|                                               |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |        
|                                               |                                      | Total assets                               |       | $      | 791.4 |              |         | $            | 2,309.0  |       |        | $     | 2,910.4 |   |        | $            | (791.1 | ) |         | $       | 5,219.7 | 
|                                               |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |        
|LIABILITIES AND SHAREHOLDERS
(DEFICIT) EQUITY |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |        
|                                              
|                                              
|                                              
|                                              
|Current liabilities:                           |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |        
|                                              
|                                              
|                                              
|                                              
|                                               | Loans payable to banks               |                                            |       |        |       |              | $       | 18.0         |          |       | $      | 67.7  |         |   |        |              |        |   | $       | 85.7    |        
|                                              
|                                              
|                                              
|                                              
|                                               | Current maturities of long-term debt |                                            |       |        |       |              |         | 3.1          |          |       |        | 1.4   |         |   |        |              |        |   |         | 4.5     |        
|                                              
|                                              
|                                              
|                                              
|                                               | Other current liabilities            |                                            |       |        |       |              |         | 1,050.5      |          |       |        | 727.6 |         |   |        |              |        |   |         | 1,778.1 |        
|                                               |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |        
|                                               |                                      | Total current liabilities                  |       |        |       |              |         |              | 1,071.6  |       |        |       | 796.7   |   |        |              |        |   |         |         | 1,868.3 | 
|                                              
|                                              
|                                              
|                                              
|Long-term debt                                 |                                      |                                            |       |        |       |              | 1,946.2 |              |          |       | 58.6   |       |         |   |        |              |        |   | 2,004.8 |        
|                                              
|                                              
|                                              
|                                              
|Reserve for postretirement benefits            |                                      |                                            |       |        |       |              | 258.8   |              |          |       | 230.2  |       |         |   |        |              |        |   | 489.0   |        
|                                              
|                                              
|                                              
|                                              
|Intercompany accounts, net                     |                                      | $                                          | 632.0 |        |       |              | 145.6   |              |          |       | (777.6 | )     |         |   |        |              |        |   |        |        
|                                              
|                                              
|                                              
|                                              
|Other long-term liabilities                    |                                      |                                            |       |        |       |              | 401.4   |              |          |       | 296.8  |       |         |   |        |              |        |   | 698.2   |        
|                                               |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |        
|                                               |                                      | Total liabilities                          |       |        | 632.0 |              |         |              | 3,823.6  |       |        |       | 604.7   |   |        | $            |       |   |         |         | 5,060.3 | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                      | Total shareholders (deficit) equity       |       |        | 159.4 |              |         |              | (1,514.6 | )     |        |       | 2,305.7 |   |        |              | (791.1 | ) |         |         | 159.4   | 
|                                               |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |        
|                                               |                                      | Total liabilities and shareholders
equity |       | $      | 791.4 |              |         | $            | 2,309.0  |       |        | $     | 2,910.4 |   |        | $            | (791.1 | ) |         | $       | 5,219.7 | 
|                                               |                                      |                                            |       |        |       |              |         |              |          |       |        |       |         |   |        |              |        |   |         |        

11



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##### Table of Contents



Note 10. Supplemental Consolidating Condensed Financial Information (continued)

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

|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |        |       |        |        |  
|------------------------ |  | ------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------ | -- | ------------ | ------ | ------------ | ------ | ------ | ------ | ----- | ----- | ------ | ----- | - | - | ------------ | ----- | ------ | ----- | ------ | ------ | -
|                         |  |                                                                                                   |                                                                                |                                      |    | Parent       |        |              |        |        |        | Other |       |        |       |   |   | Consolidated
|(Dollars in millions)    |  | Company                                                                                           |                                                                                | ASI                                  |    | Subsidiaries |        | Eliminations |        | Total 
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |       
|Cash provided (used) by: |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       
|                        
|                        
|                        
|                        
|                         |  | Operating activities:                                                                             |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |        |       |       
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Net income                                                                     |                                      | $  | 297.1        |        |              | $      | 167.7  |        |       | $     | 129.4  |       |   | $ | (297.1       | )     |        | $     | 297.1  |       
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Adjustments to reconcile net income to net
cash provided (used) by operations: |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |        |       |        |       
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Depreciation and amortization        |    |              |        |              |        |        | 64.0   |       |       |        | 91.2  |   |   |              |       |        |       |        | 155.2  |  
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Non-cash stock compensation          |    |              |        |              |        |        | 40.9   |       |       |        |       |   |   |              |       |        |       |        | 40.9   |  
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | German tax settlement paid           |    |              |        |              |        |        |        |       |       |        | (55.0 | ) |   |              |       |        |       |        | (55.0  | )
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Job elimination expenses paid        |    |              |        |              |        |        | (17.8  | )     |       |        | (8.6  | ) |   |              |       |        |       |        | (26.4  | )
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Restructuring charges paid           |    |              |        |              |        |        | (2.2   | )     |       |        | (1.9  | ) |   |              |       |        |       |        | (4.1   | )
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Equity in net income of subsidiaries |    |              | (297.1 | )            |        |        |        |       |       |        |       |   |   |              | 297.1 |        |       |        |       |  
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Changes in assets and liabilities:   |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |        |       |        |        |  
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Accounts receivable                  |    |              | .3     |              |        |        | (25.7  | )     |       |        | (77.9 | ) |   |              |       |        |       |        | (103.3 | )
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Inventories                          |    |              |        |              |        |        | (38.5  | )     |       |        | (36.9 | ) |   |              |       |        |       |        | (75.4  | )
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Accounts payable                     |    |              |        |              |        |        |        |       |       |        | 16.6  |   |   |              |       |        |       |        | 16.6   |  
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Other accrued liabilities and taxes  |    |              |        |              |        |        | 186.7  |       |       |        | (69.0 | ) |   |              |       |        |       |        | 117.7  |  
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Other assets                         |    |              |        |              |        |        | (104.7 | )     |       |        | 28.3  |   |   |              |       |        |       |        | (76.4  | )
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   |                                                                                | Other long-term liabilities          |    |              |        |              |        |        | 57.5   |       |       |        | 2.7   |   |   |              |       |        |       |        | 60.2   |  
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       
|                         |  | Net cash provided (used) by operating activities
before proceeds from initial sale of receivables |                                                                                |                                      | .3 |              |        |              | 327.9  |        |        |       | 18.9  |        |       |   |  |              |       |        | 347.1 |       
|                        
|                        
|                        
|                        
|                         |  | Proceeds from initial sale of receivables, net                                                    |                                                                                |                                      |    |              |        |              | (100.7 | )      |        |       | 182.1 |        |       |   |   |              |       |        | 81.4  |       
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       
|                         |  | Net cash provided (used) by operating activities                                                  |                                                                                |                                      | .3 |              |        |              | 227.2  |        |        |       | 201.0 |        |       |   |  |              |       |        | 428.5 |       
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       
|                         |  | Investing activities:                                                                             |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |        |       |       
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Purchase of property, plant and equipment                                      |                                      |    |              |        |              |        | (37.9  | )      |       |       | (53.2  | )     |   |   |              |       |        |       | (91.1  | )     
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Investments in affiliated companies and
other businesses                       |                                      |    |              |        |              |        | (22.0  | )      |       |       |        |       |   |   |              |       |        |       | (22.0  | )     
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Investments in computer software                                               |                                      |    |              |        |              |        | (16.4  | )      |       |       | (13.9  | )     |   |   |              |       |        |       | (30.3  | )     
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Proceeds from dissolution of partnership                                       |                                      |    |              |        |              |        | 25.8   |        |       |       |        |       |   |   |              |       |        |       | 25.8   |       
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Other                                                                          |                                      |    |              |        |              |        | 3.0    |        |       |       | 10.6   |       |   |   |              |       |        |       | 13.6   |       
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       
|                         |  | Net cash used by investing activities                                                             |                                                                                |                                     |    |              |        | (47.5        | )      |        |        | (56.5 | )     |        |       |  |   |              |       | (104.0 | )    
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       
|                         |  | Financing activities:                                                                             |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |        |      
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Repayments of long-term debt                                                   |                                      |    |              |        |              |        | (38.6  | )      |       |       | (1.2   | )     |   |   |              |       |        |       | (39.8  | )     
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Net change in revolving credit facilities                                      |                                      |    |              |        |              |        | (217.5 | )      |       |       | 50.3   |       |   |   |              |       |        |       | (167.2 | )     
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Net change in other short-term debt                                            |                                      |    |              |        |              |        | 17.9   |        |       |       | 6.9    |       |   |   |              |       |        |       | 24.8   |       
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Purchases of treasury stock                                                    |                                      |    | (135.7       | )      |              |        |        |        |       |       |        |       |   |   |              |       |        |       | (135.7 | )     
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Net change in intercompany accounts                                            |                                      |    | 78.4         |        |              |        | 72.9   |        |       |       | (151.3 | )     |   |   |              |       |        |       |       |       
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Proceeds from exercise of stock options                                        |                                      |    | 51.4         |        |              |        |        |        |       |       |        |       |   |   |              |       |        |       | 51.4   |       
|                        
|                        
|                        
|                        
|                         |  |                                                                                                   | Other                                                                          |                                      |    | 5.6          |        |              |        |        |        |       |       |        |       |   |   |              |       |        |       | 5.6    |       
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       
|                         |  | Net cash provided (used) by financing activities                                                  |                                                                                | (.3                                  | )  |              |        | (165.3       | )      |        |        | (95.3 | )     |        |       |  |   |              |       | (260.9 | )    
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       
|                         |  | Effect of exchange rate changes on cash
and cash equivalents                                      |                                                                                |                                      |    |              |        |              |        |        |        | .1    |       |        |       |   |   |              |       | .1     |      
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       
|                         |  | Net increase (decrease) in cash and
cash equivalents                                              |                                                                                |                                     |    |              |        | 14.4         |        |        |        | 49.3  |       |        |       |  |   |              |       | 63.7   |      
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       
|                         |  | Cash and cash equivalents at
beginning of period                                                  |                                                                                |                                     |    |              |        | 3.1          |        |        |        | 79.0  |       |        |       |  |   |              |       | 82.1   |      
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       
|                         |  | Cash and cash equivalents at end of period                                                        | $                                                                              |                                     |    |              | $      | 17.5         |        |        | $      | 128.3 |       |        | $     |  |   |              | $     | 145.8  |      
|                         |  |                                                                                                   |                                                                                |                                      |    |              |        |              |        |        |        |       |       |        |       |   |   |              |       |       

12



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##### Table of Contents



Note 10. Supplemental Consolidating Condensed Financial Information (continued)

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

|                                                                                 |                                        |                |      |        |  |              |         |              |         |       |       |       |       |   |       |              |       |   |         |         |         | 
|-------------------------------------------------------------------------------- | -------------------------------------- | -------------- | ---- | ------ |  | ------------ | ------- | ------------ | ------- | ----- | ----- | ----- | ----- | - | ----- | ------------ | ----- | - | ------- | ------- | ------- | 
|                                                                                 |                                        |                |      | Parent |  |              |         |              |         | Other |       |       |       |   |       | Consolidated
|(Dollars in millions)                                                            |                                        | Company        |      | ASI    |  | Subsidiaries |         | Eliminations |         | Total
|                                                                                 |                                        |                |      |        |  |              |         |              |         |      
|Sales                                                                            |                                        |                |      |        |  | $            | 1,113.8 |              |         | $     | 835.3 |       |       | $ | (64.1 | )            |       | $ | 1,885.0 |        
|                                                                                 |                                        |                |      |        |  |              |         |              |         |       |       |       |       |   |       |              |       |   |         |        
|Costs and expenses:                                                              |                                        |                |      |        |  |              |         |              |         |       |       |       |       |   |       |              |       |   |         |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of sales                          |                |      |        |  |              |         | 849.7        |         |       |       | 630.2 |       |   |       | (64.1        | )     |   |         | 1,415.8 |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Selling and administrative expenses    |                |      |        |  |              |         | 151.9        |         |       |       | 129.9 |       |   |       |              |       |   |         | 281.8   |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Other (income) expense                 |                |      |        |  |              |         | (4.5         | )       |       |       | 6.2   |       |   |       |              |       |   |         | 1.7     |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Interest expense                       |                |      |        |  |              |         | 35.1         |         |       |       | 6.6   |       |   |       |              |       |   |         | 41.7    |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Intercompany interest expense (income) |                |      |        |  |              |         | 3.9          |         |       |       | (3.9  | )     |   |       |              |       |   |         |        |        
|                                                                                 |                                        |                |      |        |  |              |         |              |         |       |       |       |       |   |       |              |       |   |         |        
|                                                                                 |                                        | Total expenses |      |        |  |              |         |              | 1,036.1 |       |       |       | 769.0 |   |       |              | (64.1 | ) |         |         | 1,741.0 | 
|                                                                                 |                                        |                |      |        |  |              |         |              |         |       |       |       |       |   |       |              |       |   |         |        
|Income before income taxes and equity in
net income of consolidated subsidiaries |                                        |                |      |        |  |              | 77.7    |              |         |       | 66.3  |       |       |   |      |              |       |   | 144.0   |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Income taxes                                                                     |                                        |                |      |        |  |              | 29.5    |              |         |       | 24.5  |       |       |   |       |              |       |   | 54.0    |        
|                                                                                 |                                        |                |      |        |  |              |         |              |         |       |       |       |       |   |       |              |       |   |         |        
|Income before equity in net income of
consolidated subsidiaries                  |                                        |                |      |        |  |              | 48.2    |              |         |       | 41.8  |       |       |   |      |              |       |   | 90.0    |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Equity in net income of consolidated
subsidiaries                                |                                        | $              | 90.0 |        |  |              |        |              |         |       |      |       |       | $ | (90.0 | )            |       |   |        |        
|                                                                                 |                                        |                |      |        |  |              |         |              |         |       |       |       |       |   |       |              |       |   |         |        
|Net income                                                                       |                                        | $              | 90.0 |        |  | $            | 48.2    |              |         | $     | 41.8  |       |       | $ | (90.0 | )            |       | $ | 90.0    |        
|                                                                                 |                                        |                |      |        |  |              |         |              |         |       |       |       |       |   |       |              |       |   |         |        

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

|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |              |        |   |         |         |         | 
|-------------------------------------------------------------------------------- | -------------------------------------- | -------------- | ----- | ------ |  | ------------ | ------- | ------------ | ------- | ----- | ------- | ------- | ------- | - | ------ | ------------ | ------ | - | ------- | ------- | ------- | 
|                                                                                 |                                        |                |       | Parent |  |              |         |              |         | Other |         |         |         |   |        | Consolidated
|(Dollars in millions)                                                            |                                        | Company        |       | ASI    |  | Subsidiaries |         | Eliminations |         | Total
|                                                                                 |                                        |                |       |        |  |              |         |              |         |      
|Sales                                                                            |                                        |                |       |        |  | $            | 3,341.0 |              |         | $     | 2,551.4 |         |         | $ | (177.3 | )            |        | $ | 5,715.1 |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |              |        |   |         |        
|Costs and expenses:                                                              |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |              |        |   |         |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of sales                          |                |       |        |  |              |         | 2,526.3      |         |       |         | 1,920.9 |         |   |        | (177.3       | )      |   |         | 4,269.9 |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Selling and administrative expenses    |                |       |        |  |              |         | 475.5        |         |       |         | 393.2   |         |   |        |              |        |   |         | 868.7   |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Other (income) expense                 |                |       |        |  |              |         | (17.5        | )       |       |         | 21.4    |         |   |        |              |        |   |         | 3.9     |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Interest expense                       |                |       |        |  |              |         | 107.3        |         |       |         | 25.7    |         |   |        |              |        |   |         | 133.0   |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Intercompany interest expense (income) |                |       |        |  |              |         | 15.7         |         |       |         | (15.7   | )       |   |        |              |        |   |         |        |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |              |        |   |         |        
|                                                                                 |                                        | Total expenses |       |        |  |              |         |              | 3,107.3 |       |         |         | 2,345.5 |   |        |              | (177.3 | ) |         |         | 5,275.5 | 
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |              |        |   |         |        
|Income before income taxes and equity in
net income of consolidated subsidiaries |                                        |                |       |        |  |              | 233.7   |              |         |       | 205.9   |         |         |   |       |              |        |   | 439.6   |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Income taxes                                                                     |                                        |                |       |        |  |              | 89.0    |              |         |       | 75.9    |         |         |   |        |              |        |   | 164.9   |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |              |        |   |         |        
|Income before equity in net income of
consolidated subsidiaries                  |                                        |                |       |        |  |              | 144.7   |              |         |       | 130.0   |         |         |   |       |              |        |   | 274.7   |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Equity in net income of consolidated
subsidiaries                                |                                        | $              | 274.7 |        |  |              |        |              |         |       |        |         |         |   | (274.7 | )            |        |   |        |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |              |        |   |         |        
|Net income                                                                       |                                        | $              | 274.7 |        |  | $            | 144.7   |              |         | $     | 130.0   |         |         | $ | (274.7 | )            |        | $ | 274.7   |        
|                                                                                 |                                        |                |       |        |  |              |         |              |         |       |         |         |         |   |        |              |        |   |         |        

13



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##### Table of Contents



Note 10. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 2001
(Unaudited)

|                                               |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |         |         |  
|---------------------------------------------- | ------------------------------------ | ------------------------------------------ | - | ------ | ----- | ------------ | - | ------------ | -------- | ----- | - | ------ | ------- |  | - | ------------ | ------ | - | - | ------- | ------- | -
|                                               |                                      |                                            |   | Parent |       |              |   |              |          | Other |   |        |         |  |   | Consolidated
|(Dollars in millions)                          |                                      | Company                                    |   | ASI    |       | Subsidiaries |   | Eliminations |          | Total
|                                               |                                      |                                            |   |        |       |              |   |              |          |      
|ASSETS                                         |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        
|                                              
|                                              
|                                              
|                                              
|Current assets:                                |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Cash and cash equivalents            |                                            |   |        |       |              | $ | 3.1          |          |       | $ | 79.0   |         |  |   |              |        |   | $ | 82.1    |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts receivable, net             |                                            | $ | .5     |       |              |   | 464.6        |          |       |   | 533.2  |         |  |   |              |        |   |   | 998.3   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Inventories                          |                                            |   |        |       |              |   | 310.0        |          |       |   | 347.1  |         |  |   |              |        |   |   | 657.1   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Other current assets                 |                                            |   |        |       |              |   | 108.3        |          |       |   | 50.6   |         |  |   |              |        |   |   | 158.9   |        
|                                               |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        
|                                               |                                      | Total current assets                       |   |        | .5    |              |   |              | 886.0    |       |   |        | 1,009.9 |  |   |              |        |   |   |         | 1,896.4 |  
|                                              
|                                              
|                                              
|                                              
|                                               | Facilities, net                      |                                            |   |        |       |              |   | 544.8        |          |       |   | 818.0  |         |  |   |              |        |   |   | 1,362.8 |        
|                                              
|                                              
|                                              
|                                              
|                                               | Goodwill, net                        |                                            |   |        |       |              |   | 134.2        |          |       |   | 794.8  |         |  |   |              |        |   |   | 929.0   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Investment in subsidiaries           |                                            |   | 454.7  |       |              |   |              |          |       |   |        |         |  | $ | (454.7       | )      |   |   |        |        
|                                              
|                                              
|                                              
|                                              
|                                               | Other assets                         |                                            |   |        |       |              |   | 438.3        |          |       |   | 204.9  |         |  |   |              |        |   |   | 643.2   |        
|                                               |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        
|                                               |                                      | Total assets                               |   | $      | 455.2 |              |   | $            | 2,003.3  |       |   | $      | 2,827.6 |  |   | $            | (454.7 | ) |   | $       | 4,831.4 |  
|                                               |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        
|LIABILITIES AND SHAREHOLDERS
(DEFICIT) EQUITY |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        
|                                              
|                                              
|                                              
|                                              
|Current liabilities:                           |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Loans payable to banks               |                                            |   |        |       |              | $ | .1           |          |       | $ | 58.6   |         |  |   |              |        |   | $ | 58.7    |        
|                                              
|                                              
|                                              
|                                              
|                                               | Current maturities of long-term debt |                                            |   |        |       |              |   | 10.0         |          |       |   | 1.4    |         |  |   |              |        |   |   | 11.4    |        
|                                              
|                                              
|                                              
|                                              
|                                               | Other current liabilities            |                                            |   |        |       |              |   | 865.6        |          |       |   | 752.6  |         |  |   |              |        |   |   | 1,618.2 |        
|                                               |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        
|                                               |                                      | Total current liabilities                  |   |        |       |              |   |              | 875.7    |       |   |        | 812.6   |  |   |              |        |   |   |         | 1,688.3 |  
|                                              
|                                              
|                                              
|                                              
|                                               | Long-term debt                       |                                            |   |        |       |              |   | 2,137.8      |          |       |   | 4.2    |         |  |   |              |        |   |   | 2,142.0 |        
|                                              
|                                              
|                                              
|                                              
|                                               | Reserve for post-retirement benefits |                                            |   |        |       |              |   | 282.2        |          |       |   | 207.3  |         |  |   |              |        |   |   | 489.5   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Intercompany accounts, net           |                                            | $ | 545.3  |       |              |   | 20.7         |          |       |   | (566.0 | )       |  |   |              |        |   |   |        |        
|                                              
|                                              
|                                              
|                                              
|                                               | Other long-term liabilities          |                                            |   |        |       |              |   | 315.7        |          |       |   | 286.0  |         |  |   |              |        |   |   | 601.7   |        
|                                               |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        
|                                               |                                      | Total liabilities                          |   |        | 545.3 |              |   |              | 3,632.1  |       |   |        | 744.1   |  |   | $            |       |   |   |         | 4,921.5 |  
|                                               |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        
|                                               |                                      | Total shareholders (deficit) equity       |   |        | (90.1 | )            |   |              | (1,628.8 | )     |   |        | 2,083.5 |  |   |              | (454.7 | ) |   |         | (90.1   | )
|                                               |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        
|                                               |                                      | Total liabilities and shareholders equity |   | $      | 455.2 |              |   | $            | 2,003.3  |       |   | $      | 2,827.6 |  |   | $            | (454.7 | ) |   | $       | 4,831.4 |  
|                                               |                                      |                                            |   |        |       |              |   |              |          |       |   |        |         |  |   |              |        |   |   |        

14



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##### Table of Contents



Note 10. Supplemental Consolidating Condensed Financial Information (continued)

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

|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |        |       |       |        |  
|------------------------ | ------------------------------------------------------------ | ----------------------------------------- | ------------------------------------------------------------------------------ | -------------------------------------------------------- | -- | ------------ | ------ | ------------ | ----- | ----- | ------ | ----- | ----- | ----- | ------ | - | - | ------------ | ----- | ------ | ----- | ----- | ------ | -
|                         |                                                              |                                           |                                                                                |                                                          |    | Parent       |        |              |       |       |        | Other |       |       |        |   |   | Consolidated
|(Dollars in millions)    |                                                              | Company                                   |                                                                                | ASI                                                      |    | Subsidiaries |        | Eliminations |       | Total
|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |      
|Cash provided (used) by: |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |       
|                        
|                        
|                        
|                        
|                         |                                                              | Operating activities:                     |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |        |       |      
|                        
|                        
|                        
|                        
|                         |                                                              |                                           | Net income                                                                     |                                                          | $  | 274.7        |        |              | $     | 144.7 |        |       | $     | 130.0 |        |   | $ | (274.7       | )     |        | $     | 274.7 |       
|                        
|                        
|                        
|                        
|                         |                                                              |                                           | Adjustments to reconcile net income to net
cash provided (used) by operations: |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |        |       |       |       
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Depreciation and amortization                            |    |              |        |              |       |       | 74.7   |       |       |       | 94.9   |   |   |              |       |        |       |       | 169.6  |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Non-cash stock compensation                              |    |              |        |              |       |       | 46.6   |       |       |       |        |   |   |              |       |        |       |       | 46.6   |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Restructuring charges paid                               |    |              |        |              |       |       | (3.7   | )     |       |       | (21.4  | ) |   |              |       |        |       |       | (25.1  | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Equity in net income of subsidiaries                     |    |              | (274.7 | )            |       |       |        |       |       |       |        |   |   |              | 274.7 |        |       |       |       |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Changes in assets and liabilities:                       |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |        |       |       |        |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Accounts receivable                                      |    |              | 1.2    |              |       |       | (35.3  | )     |       |       | (91.8  | ) |   |              |       |        |       |       | (125.9 | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Inventories                                              |    |              |        |              |       |       | (21.8  | )     |       |       | (71.7  | ) |   |              |       |        |       |       | (93.5  | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Accounts payable                                         |    |              |        |              |       |       | (6.0   | )     |       |       | (13.3  | ) |   |              |       |        |       |       | (19.3  | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Other accrued liabilities and taxes                      |    |              |        |              |       |       | 18.2   |       |       |       | 49.4   |   |   |              |       |        |       |       | 67.6   |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Other assets                                             |    |              | (.9    | )            |       |       | (97.8  | )     |       |       | 36.7   |   |   |              |       |        |       |       | (62.0  | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Other long-term liabilities                              |    |              |        |              |       |       | 14.2   |       |       |       | 35.1   |   |   |              |       |        |       |       | 49.3   |  
|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |       
|                         |                                                              | Net cash provided by operating activities |                                                                                |                                                          | .3 |              |        |              | 133.8 |       |        |       | 147.9 |       |        |   |  |              |       |        | 282.0 |      
|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |       
|                         |                                                              | Investing activities:                     |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |        |       |      
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Purchase of property, plant and equipment                |    |              |        |              |       |       | (53.7  | )     |       |       | (50.7  | ) |   |              |       |        |       |       | (104.4 | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Investments in affiliated companies and
other businesses |    |              |        |              |       |       | (.4    | )     |       |       | (30.5  | ) |   |              |       |        |       |       | (30.9  | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Investments in computer software                         |    |              |        |              |       |       | (20.6  | )     |       |       | (21.1  | ) |   |              |       |        |       |       | (41.7  | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Other                                                    |    |              |        |              |       |       | 21.5   |       |       |       | 15.1   |   |   |              |       |        |       |       | 36.6   |  
|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |       
|                         | Net cash used by investing activities                        |                                           |                                                                                |                                                         |    |              |        | (53.2        | )     |       |        | (87.2 | )     |       |        |  |   |              |       | (140.4 | )    
|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |       
|                         | Financing activities:                                        |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |        |      
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Repayments of long-term debt                             |    |              |        |              |       |       | (1.3   | )     |       |       | (2.2   | ) |   |              |       |        |       |       | (3.5   | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Net change in revolving credit facilities                |    |              |        |              |       |       | 328.3  |       |       |       | (410.9 | ) |   |              |       |        |       |       | (82.6  | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Net change in other short-term debt                      |    |              |        |              |       |       |        |       |       |       | (6.8   | ) |   |              |       |        |       |       | (6.8   | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Purchases of treasury stock                              |    |              | (92.1  | )            |       |       |        |       |       |       |        |   |   |              |       |        |       |       | (92.1  | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Net change in intercompany accounts                      |    |              | 37.6   |              |       |       | (414.1 | )     |       |       | 376.5  |   |   |              |       |        |       |       |       |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Proceeds from exercise of stock options                  |    |              | 83.9   |              |       |       |        |       |       |       |        |   |   |              |       |        |       |       | 83.9   |  
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Purchase of warrants                                     |    |              | (35.3  | )            |       |       |        |       |       |       |        |   |   |              |       |        |       |       | (35.3  | )
|                        
|                        
|                        
|                        
|                         |                                                              |                                           |                                                                                | Other                                                    |    |              | 5.5    |              |       |       |        |       |       |       |        |   |   |              |       |        |       |       | 5.5    |  
|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |       
|                         | Net cash provided (used) by financing activities             |                                           |                                                                                | (.4                                                      | )  |              |        | (87.1        | )     |       |        | (43.4 | )     |       |        |  |   |              |       | (130.9 | )    
|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |       
|                         | Effect of exchange rate changes on cash
and cash equivalents |                                           |                                                                                |                                                          |    |              |        |              |       |       |        | (.8   | )     |       |        |   |   |              |       | (.8    | )    
|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |       
|                         | Net increase (decrease) in cash and
cash equivalents         |                                           |                                                                                | (.1                                                      | )  |              |        | (6.5         | )     |       |        | 16.5  |       |       |        |  |   |              |       | 9.9    |      
|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |       
|                         | Cash and cash equivalents at
beginning of period             |                                           |                                                                                | .1                                                       |    |              |        | 18.9         |       |       |        | 66.4  |       |       |        |  |   |              |       | 85.4   |      
|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |       
|                         | Cash and cash equivalents at end of period                   |                                           | $                                                                              |                                                         |    |              | $      | 12.4         |       |       | $      | 82.9  |       |       | $      |  |   |              | $     | 95.3   |      
|                         |                                                              |                                           |                                                                                |                                                          |    |              |        |              |       |       |        |       |       |       |        |   |   |              |       |       

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Note 11. Commitments and Contingencies

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

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

As of September 30, 2002, the Company has presented both its estimated
liability for asbestos claims and its probable recovery from insurance carriers
for such claims separately on its balance sheet. Previously, the Company
netted estimated liability and probable insurance recovery. While the
estimated liability and probable recovery amounts have not changed materially,
they each are presented as $67 million higher than the amount reflected in the
December 31, 2001, balance sheet. This change in presentation had no effect on
total net assets.

The recorded liability represents obligations that are probable and can be
reasonably estimated at September 30, 2002. The receivable represents the
probable recovery from insurance carriers. The amount of the recorded
liability is based on the Companys assessment of current claims, the status of
ongoing litigation, defense strategies, settlement initiatives and past
experience. The Companys analysis of insurance coverage includes the
insurers financial strength, the insurance payments made to date, stated
deductibles and the advice of insurance coverage counsel. The Company has
substantial insurance coverage for future claims that may have been incurred
but not yet reported. The Company believes that no material net loss has been
incurred in excess of the amounts recorded.

The Company has commitments and performance guarantees, including energy
savings guarantees, under long-term service and maintenance contracts related
to its air conditioning equipment and systems controls. Through 2001, the
Company has not experienced any losses related to performance guarantees.

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Note 12. Segment Data

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

|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |       | 
|----------------------------------------------------- | ------------------------------------- | - | ------------------ | ----- | ----------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                                      |                                       |   | Three Months Ended |       | Nine Months Ended
|                                                      |                                       |   | September 30,      |       | September 30,    
|                                                      |                                       |   |                    |       |                  
|                                                      |                                       |   | 2002               |       | 2001              |   | 2002  |       | 2001
|                                                      |                                       |   |                    |       |                   |   |       |       |     
|Sales:                                                |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Air Conditioning Systems and Services |   | $                  | 1,289 |                   |   | $     | 1,208 |      |   | $     | 3,649 |  |   | $     | 3,620 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Bath and Kitchen                      |   |                    | 510   |                   |   |       | 453   |      |   |       | 1,491 |  |   |       | 1,373 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Vehicle Control Systems               |   |                    | 271   |                   |   |       | 224   |      |   |       | 779   |  |   |       | 722   | 
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                      |                                       | $ | 2,070              |       |                   | $ | 1,885 |       |      | $ | 5,919 |       |  | $ | 5,715 |      
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|Segment income:                                       |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Air Conditioning Systems and Services |   | $                  | 170   |                   |   | $     | 153   |      |   | $     | 435   |  |   | $     | 447   | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Bath and Kitchen                      |   |                    | 37    |                   |   |       | 43    |      |   |       | 119   |  |   |       | 122   | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Vehicle Control Systems               |   |                    | 30    |                   |   |       | 27    |      |   |       | 102   |  |   |       | 107   | 
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                      |                                       |   | 237                |       |                   |   | 223   |       |      |   | 656   |       |  |   | 676   |      
|                                                     
|                                                     
|                                                     
|                                                     
|Equity in net income of unconsolidated joint ventures |                                       |   | 8                  |       |                   |   | 3     |       |      |   | 20    |       |  |   | 14    |      
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|                                                      |                                       |   | 245                |       |                   |   | 226   |       |      |   | 676   |       |  |   | 690   |      
|                                                     
|                                                     
|                                                     
|                                                     
|Interest expense                                      |                                       |   | 32                 |       |                   |   | 42    |       |      |   | 98    |       |  |   | 133   |      
|                                                     
|                                                     
|                                                     
|                                                     
|Corporate and other expenses                          |                                       |   | 42                 |       |                   |   | 40    |       |      |   | 133   |       |  |   | 117   |      
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      
|Income from continuing operations
before income taxes |                                       | $ | 171                |       |                   | $ | 144   |       |      | $ | 445   |       |  | $ | 440   |      
|                                                      |                                       |   |                    |       |                   |   |       |       |      |   |       |       |  |   |       |      

The Bath and Kitchen segment, previously known as Plumbing Products, was
renamed in the third quarter of 2002. For a comparative analysis of each line
item in this Summary Segment and Income Data, see Managements Discussion and
Analysis of Financial Condition and Results of Operations on the following
pages.

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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 2002
Compared with the Third Quarter and First Nine Months of 2001

The Companys sales in the third quarter of 2002 were a third-quarter
record $2,070 million, an increase of $185 million, or 10% (8% excluding
favorable foreign exchange effects), from $1,885 million in the third quarter
of 2001. Sales increased 7% for Air Conditioning Systems and Services, 13%
for Bath and Kitchen and 21% for Vehicle Control Systems.

Segment income for the third quarter of 2002 was $237 million, an
increase of $14 million, or 6% (5% excluding favorable foreign exchange
effects), from $223 million in the third quarter of 2001. Segment income
increased 11% for Air Conditioning Systems and Services and 11% for Vehicle
Control Systems, but decreased 14% for Bath and Kitchen. Effective January
2002, the Company adopted the new accounting standard that, among other
things, eliminated the amortization of goodwill. This change increased
segment income in the third quarter of 2002 by approximately $8 million  $2
million for Air Conditioning Systems and Services, $4 million for Bath and
Kitchen and $2 million for Vehicle Control Systems. Segment income for the
third quarter of 2002 would have increased by 3% if reported segment income
for the third quarter of 2001 were similarly adjusted to eliminate goodwill
amortization. See Note 6 of Notes to Financial Statements for a comparative
summary of the effects of this accounting change on net income and net income
per share for the third quarter and first nine months of 2002 and 2001.

Sales for the first nine months of 2002 were $5,919 million, an increase
of $204 million, or 4% (3% excluding favorable foreign exchange effects), from
$5,715 million in the first nine months of 2001. Sales increased 1% for Air
Conditioning Systems and Services, 9% for Bath and Kitchen and 8% for Vehicle
Control Systems. Segment income was $656 million for the first nine months of
2002, a decrease of 3% (4% excluding favorable foreign exchange effects),
compared with $676 million in the first nine months of 2001. Segment income
decreased 3% for Air Conditioning Systems and Services, 2% for Bath and
Kitchen and 5% for Vehicle Control Systems. Segment income for the first nine
months of 2002 would have decreased by 6% if reported segment income for the
first nine months of 2001 were similarly adjusted to eliminate goodwill
amortization.

Sales for Air Conditioning Systems and Services were $1,289 million for
the third quarter of 2002, an increase of 7% (6% excluding favorable foreign
exchange effects) from $1,208 million for the third quarter of 2001 due to
higher volume in all product lines except commercial equipment. This gain was
led by residential air conditioning sales in the U.S., which increased 27%,
and commercial parts, services and solutions sales, which increased 15%,
partly offset by a decrease in commercial equipment sales which declined 6%.
For residential air conditioning, strong demand for replacement units and
warmer-than-normal weather combined to lift the market, we believe, an
estimated 14%. In addition, the furnace market was up an estimated 6%.
Residential sales also benefited from our strong position in the premium,
high-efficiency market and low inventories industry-wide, which ended the
quarter at 10-year lows. Sales of new higher-efficiency models increased
substantially. Our

18



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##### Table of Contents



market share for residential products increased 2 percentage points year over
year, aided by second quarter unfulfilled demand, the successful introduction
of our new products and growth in the marketing arrangement with Home Depot
through which certain central residential heating and air conditioning systems
are offered. Sales of parts, services and solutions continued to grow and
were aided by a small benefit from the acquisition of a sales office in the
first quarter of 2002. Commercial equipment sales, which account for about
half of the air conditioning segment sales, continued to feel the effects of a
difficult economic environment, and were down 6% in the quarter, a smaller
decline than in the second quarter of the year. Commercial unitary equipment
sales decreased 12% and commercial applied equipment sales were flat. Our
share remained stable in these commercial markets which remain weak and price
competitive. We believe non-residential building construction in the U.S.
declined 13% in the third quarter of 2002, following a 7% drop in the second
quarter and a 14% drop in the first quarter. In North America, school and
health care markets continued to show strength while manufacturing and office
building markets are severely depressed. Sales outside the U.S., which are
substantially commercial, increased 6% overall (in local currencies),
reflecting strong growth in China offset by softness in Europe. Sales in the
Middle East increased modestly, while Latin America sales were down slightly
due to continued economic weakness. Sales for Air Conditioning Systems and
Services for the first nine months of 2002 increased 1% (with little effect
from foreign exchange) to $3,649 million from $3,620 million in the first nine
months of 2001, essentially for the same reasons cited for the third quarter
increase.

Segment income for Air Conditioning Systems and Services increased 11%
(10% excluding foreign exchange effects) to $170 million in the third quarter
of 2002 from $153 million in the third quarter of 2001, as margins increased
from 12.7% to 13.2%. This increase was primarily attributable to volume
growth in the residential business and a favorable shift in customer demand to
higher-capacity, higher-efficiency products with higher margins. Those gains
were offset partly by price and mix declines for the commercial business. The
positive impact of materials management and Six Sigma productivity initiatives
more than offset cost escalations and investments in new product initiatives.
The 2002 quarter also benefited from the lack of goodwill amortization
compared with the year-earlier quarter. If goodwill amortization were also
excluded from the third quarter of 2001, segment income would have increased
by 10% (with little effect from foreign exchange). Segment income for the
first nine months of 2002 decreased 3% (4% excluding the favorable effects of
foreign exchange and goodwill amortization from 2001) to $435 million from
$447 million in the first nine months of 2001, as decreases in the first half
of the year exceeded the third quarter gains described above.

Sales for Bath and Kitchen (previously known as Plumbing Products)
increased 13% (9% excluding favorable foreign exchange effects) to $510
million in the third quarter of 2002 from $453 million in the third quarter of
2001. The increase was the result of gains in the Americas, Europe and Asia.
Sales in the Americas increased 13% (14% in local currencies), which followed
a 15% increase in the second quarter, led by strong growth in North America
from continued strong demand in replacement and home improvement markets.
Sales benefited from the rollout of an expanded Whirlpool tub program at Home
Depot stores and growth in sales to Lowes home improvement stores. In
Europe, sales were up 12% (2% excluding favorable foreign exchange effects) as
we were able to gain market share in a difficult economic environment. Sales
also benefited from three small fittings businesses acquired in 2001. In
Asia, sales increased 16% (23% in local currencies), off a small but growing
base. Sales of Bath and Kitchen for the first nine

19



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##### Table of Contents



months of 2002 increased 9% (8% excluding favorable foreign exchange effects)
to $1,491 million from $1,373 million in the first nine months of 2001. The
increase was due principally to the same factors affecting third quarter
sales.

Segment income of Bath and Kitchen for the third quarter of 2002 was $37
million, a decrease of 14% (19% excluding favorable foreign exchange effects)
from $43 million for the 2001 third quarter. Margins decreased to 7.3% in the
third quarter of 2002 from 9.5% in the third quarter of 2001. The decrease in
segment income is attributable primarily to the operational issues identified
in the second quarter of this year in a U.S. plant and its associated
distribution centers, as well as at a plant in France. Although we had modest
improvement in those areas, we believe significant improvement will not be
achieved until after the end of the year. We continued to decrease costs and
improve productivity through materials management and Six Sigma initiatives
which offset cost escalations and several small, one-time costs. We also
continue to make investments in new marketing programs and new product suites
which are being funded by the sales growth they have generated. Segment
income was down in the Americas and Europe, and essentially flat in Asia.
Segment income in the quarter also benefited from the lack of goodwill
amortization. If goodwill amortization were excluded from the third quarter
of 2001, segment income would have been down 21% (24% excluding favorable
foreign exchange effects). Segment income for the first nine months of 2002
decreased 2% (12% excluding favorable foreign exchange effects and goodwill
amortization from 2001) to $119 million from $122 million in the first nine
months of 2001. The decrease resulted primarily for the same reasons as those
responsible for the third quarter decrease, moderated by somewhat better
first-half results.

Sales of Vehicle Control Systems for the third quarter of 2002 were $271
million, an increase of 21% (12% excluding favorable foreign exchange effects)
from $224 million in the third quarter of 2001 primarily because of a
significant increase in sales from Europe to our North American marketing
joint venture. The North American truck market experienced 27% growth as U.S.
customers actively purchased vehicles before the change in diesel engine
emissions regulations affecting trucks manufactured after October 1, 2002.
Sales in Europe, our largest market, grew 8% in local currencies (excluding
sales to the North American marketing joint venture), primarily as a result of
higher content per vehicle. This was achieved despite a decrease in unit
volumes of truck and bus production in Western Europe of 5% in the third
quarter following a 4% decline in the second quarter of 2002. Sales increased
22% (19% in local currencies) in Asia and fell 21% (3% in local currencies) in
Latin America. Our sales continue to outperform the heavy vehicle
manufacturing markets through sales of our new control systems, new
applications with existing customers, geographic expansion and market
penetration. Sales of Vehicle Control Systems for the first nine months of
2002 increased 8% (6% excluding foreign exchange effects) to $779 million from
$722 million in the first nine months of 2001, primarily for the reasons cited
for the third quarter increase.

Segment income for Vehicle Control Systems for the third quarter of 2002
increased 11% (6% excluding favorable foreign exchange effects) to $30 million
from $27 million in the third quarter of 2001. Segment income in the quarter
benefited from the lack of goodwill amortization. If goodwill amortization
were excluded from the third quarter of 2001, segment income would have
decreased 3% in local currencies. The decline in local currencies primarily
reflected lower pricing and higher warranty expense which more than offset
volume increases. Margins declined from 12.1% in the third quarter of 2001 to
11.1% in the third quarter of 2002. Productivity improvements from Six Sigma
and materials management

20



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##### Table of Contents



initiatives overcame other cost escalations. Segment income for Vehicle
Control Systems for the first nine months of 2002 was $102 million, a decrease
of 5% (12% excluding favorable foreign exchange effects and goodwill
amortization from 2001) from $107 million in the first nine months of 2001,
principally for the same reasons cited for the third quarter decrease.

Other Summary Segment and Income Data Items

Equity in net income of unconsolidated joint ventures was $8 million in
the third quarter of 2002, compared with $3 million in the year-earlier
quarter, and was $20 million in the first nine months of 2002 compared with
$14 million in the first nine months of 2001. These gains resulted from
increased income in the Alliance Compressor joint venture in the U.S., the
Vehicle Controls joint venture in India and the Meritor/WABCO marketing joint
venture in the U.S. Equity in net income of unconsolidated joint ventures is
included in Other (income) expense in the Statement of Income on page 2.

Interest expense decreased by $10 million in the third quarter of 2002
and by $35 million in the first nine months of 2002 compared with the
year-earlier periods, because of lower average debt balances and lower average
interest rates. Corporate and other expenses in the third quarter of 2002
increased $2 million compared with last years third quarter and increased by
$16 million for the first nine months of 2002 compared with the year-earlier
nine months, primarily reflecting higher pension, medical and insurance costs.
Corporate and other expenses shown in the Summary Segment and Income Data
table in Note 12 of Notes to Financial Statements primarily include some of
the expenses classified as selling and administrative expenses in the
Statement of Income on page 2. They also include certain items of Other
(income) expense in the Statement of Income. Most of the items in Other
(income) expense are included in segment income and period-to-period changes
in its components are explained in the relevant segment income paragraphs
above, by the comments in this paragraph on corporate expenses, or in the
preceding paragraph on equity in net income of unconsolidated joint ventures.

The income tax provision for the third quarter of 2002 was $57 million
and for the first nine months of 2001 was $148 million, or 33.3% of pre-tax
income for both periods, compared with provisions of $54 million and $165
million, or 37.5% of pre-tax income in the comparable periods of 2001. The
effective income tax rate is lower in 2001 primarily because of various tax
planning initiatives.

Net income for the third quarter of 2002 increased 27% to $114 million
from $90 million in the like period of 2001, and net income per diluted share
increased 26% to $1.55 from $1.23 per diluted share in 2001. For the first
nine months of 2002, net income increased 8% to $297 million and net income
per diluted share increased 7% to $4.04.

Liquidity and Capital Resources

Net cash provided by operating activities, excluding net proceeds from
the initial sales of receivables and after cash interest paid of $95 million,
was $347 million for the first nine months of 2002. This compared with net
cash provided of $282 million after cash interest paid of $132 million for the
first nine months of 2001. Net proceeds from the initial sale of receivables
under a new financing arrangement in Europe in the first half of 2002, less a
decrease in receivables sold under a new financing arrangement in the U.S. in
the third

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quarter of the year added $81 million to total cash provided by operating
activities in 2002 (see Note 7 of Notes to Financial Statements). Other
factors contributing to the increase were higher net income and lower net
working capital usage, partly offset by a $55 million payment as part of the
German tax settlement, a $50 million contribution to the Companys U.S.
pension plan and payments of job elimination costs accrued in the fourth
quarter of 2001.

In investing activities, the Company made capital expenditures of $113
million for the first nine months of 2002, including $22 million of
investments in affiliated companies and other businesses. This compared with
capital expenditures of $135 million in the first nine months of 2001,
including $31 million of investments in affiliated companies and other
businesses. The Company also invested $30 million in computer software in the
first nine months of 2002, compared with $42 million in the 2001 period, and
received a return of invested capital and accumulated earnings of $26 million
from the dissolution of the U.S. receivables financing joint venture. The
2001 period included proceeds of $27 million from sale and leaseback
transactions.

Most of the excess of cash provided by operating activities over cash
used for investing activities in the first nine months of 2002 was used to
fund financing activities of $261 million, primarily net debt repayments of
$182 million and the purchase of treasury stock of $136 million, partly offset
by proceeds realized from the exercise of stock options of $51 million. The
Company purchased 2.0 million shares of the Companys common stock pursuant to
the Companys share repurchase program. The net effect of all operating,
investing and financing activities for the first nine months of 2002 was an
increase in cash and cash equivalents of $64 million. This compares with
financing activities of $131 million in the first nine months of 2001,
including net debt repayments of $93 million and purchases of
1.5 million shares of treasury stock for $92 million, offset by proceeds realized from the
exercise of stock options of $84 million. In 2001 the Company also bought
back warrants for the purchase of 3 million shares of the Companys common
stock held by Kelso ASI Partners, L. P. for $35 million.

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

On November 6, 2001, the Company entered into two bank credit agreements.
The agreements provide the Company with senior unsecured revolving credit
facilities aggregating $1.3 billion as follows: (a) a five-year, $1 billion
multi-currency facility which expires in 2006 and (b) a 364-day, $300 million
U.S. dollar facility with an expiration date of November 5, 2002, with an
option to renew for an additional 364 days. The 364-day facility was renewed
in the amount of $150 million until November 4, 2003, and debt outstanding
thereunder was classified as long-term debt in the balance sheet as of
September 30, 2002, because the Company had the ability and the intent to
renew it or to refinance it with borrowings under the five-year facility.

The credit agreements contain various covenants that limit, among other
things, indebtedness, liens, sale and leaseback transactions, subsidiary
indebtedness including preferred stock, mergers, consolidations, dissolutions
and asset sales, investments or acquisitions, dividends and redemptions of
capital stock, loans and advances, and certain other business activities. The
covenants also require the Company to meet certain financial

22



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tests: ratio of consolidated debt to EBITDA (Earnings before Interest, Taxes,
Depreciation and Amortization), and consolidated free cash flow to interest
expense. The Company is currently in compliance with the covenants contained
in the credit agreements.

At September 30, 2002, the Company had borrowings of $626 million
outstanding under its bank credit agreements. There was $580 million
available under those agreements after reduction for borrowings and for $94
million of letters of credit usage. The Companys foreign subsidiaries had
$137 million available at September 30, 2002, under overdraft facilities that
can be withdrawn by the banks at any time. In addition, the Companys
operations in China have $16 million available under bank credit facilities
after reduction for letters of credit usage of $7 million.

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

The Companys 7 1/8% Senior Notes due February 15, 2003, have been
classified as long-term debt as of September 30, 2002 because the Company has
the ability and the intent to refinance them with borrowings under the
five-year facility or 1998 Shelf Registration.

As described in Note 4 of Notes to Financial Statements in Part I of this
Form 10-Q, in January 2002 the Company settled all issues of its proceedings
with German tax authorities for the years 1984 through 1994 for a cash payment
of approximately $55 million plus $30 million previously deposited in escrow.
Since the Company previously had provided adequate reserves for all issues,
the settlement had no impact on results of operations.

The Company employs several means to manage its liquidity and is not
dependent upon any one source of funding. In addition to funds available from
operating cash flows, bank credit agreements and the public debt and equity
markets, the Company uses two principal off-balance sheet techniques:
operating leases and receivables 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, 2001.

To reduce its borrowing cost, during the first nine months of 2002 the
Company established new accounts receivable financing facilities in Europe and
the U.S., and terminated a previously existing arrangement in the U.S. See
Note 7 of Notes to Financial Statements. As part of these facilities, the
Company formed wholly-owned, special purpose subsidiaries (the SPEs) for the
sole purpose of buying and selling receivables generated by the Company.
Under these facilities, the Company, irrevocably and without recourse,
transfers all eligible accounts receivable to the SPEs which in turn, sell
them, or interests therein, to conduits administered by the banks. The assets
of the SPEs are not available to pay the claims of the Company, American
Standard Inc., or any other entity. The Company retains a subordinated
interest in the receivables sold of approximately 10% to 15% in Europe and 40%
in the U.S. The conduits obtain the funds to purchase the interests in the
receivables, other than the retained interest, by selling commercial paper to
third party investors. Advances from the conduits to the SPEs are limited to
approximately $425 million

23



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(250 million, or approximately $250 million at current exchange rates under
the European facility, and $175 million under the U.S. facility). These
facilities are for three years, subject to annual renewals and for the
European facility, the maintenance of specified debt rating levels, and for
the U.S. facility, the maintenance of certain financial covenants. The
Company is currently in compliance with these covenants. The receivables sold
are removed from the balance sheet since they meet the applicable criteria of Statement
of Financial Accounting Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. The Companys retained interest is
recorded at fair value in other current assets in the Companys
Consolidated Balance Sheet. Losses are
recognized when the receivables are sold to the extent that the cash and value
of the retained interest is less than the net book value of the receivables
sold. Those losses amounted to $5.7 million for the nine months ended
September 30, 2002, and were recorded in other expenses in the Statement of
Income.

In addition, on August 31, 2002, the Company terminated its activities in
American Standard Financial Services, a financial services partnership with
Transamerica Commercial Finance Corporation that had previously provided
receivables financing in the U.S., and bought back $256 million of trade
receivables. The proceeds from the initial sale of receivables under the new
European and U.S. arrangements, net of the effect of termination of previously
existing arrangements, resulted in an increase in cash flows of $81 million
for the nine months ended September 30, 2002.

Disclosure Regarding Forward Looking Statements

Certain of the statements contained in this report (other than the
historical financial data and other statements of historical fact), including,
without limitation, statements as to managements expectations and belief, are
forward-looking statements. Forward-looking statements are made based upon
managements good faith expectations and belief concerning future developments
and their potential effect upon the Company. There can be no assurance that
future developments will be in accordance with such expectations or that the
effect of future developments on the Company will be those anticipated by
management. Forward-looking statements can be identified by the use of words
such as believe, expect, plans, strategy, prospects, estimate,
project, anticipate intends and other words of similar meaning in
connection with a discussion of future operating or financial performance.
This Report on Form 10-Q includes important information as to risk factors in
the Notes to Financial Statements under the headings Restructuring and
Asset Impairment Charges, and in the section titled 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 construction activity in the Companys Air
Conditioning Systems and Services and Bath and Kitchen markets and
the level of truck and bus production in the Companys Vehicle
Control Systems markets;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the ability of the Company to implement its restructuring
programs as planned;                                                                                                                                     
|
| |  |  | the extent to which the Company will be able to realize the
estimated savings from the salaried workforce reduction, and from
Materials Management and Six Sigma initiatives;                                      

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| |  |  | the timing of completion and success in the start-up of new production facilities;                                                                                                           
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 steel necessary
to avoid disruptions of operations at pricing levels which will not
have an unduly adverse effect on results of operations;
|
| |  |  | increased difficulties in obtaining a consistent supply of other
basic materials like aluminum, copper, clays, electronics and natural
gas at stable pricing levels;                         
|
| |  |  | labor relations; integration of acquired businesses;                                                                                                                                         
|
| |  |  | difficulties in obtaining or retaining the management and other
human resource competencies that the Company needs to achieve its
business objectives;                                       
|
| |  |  | the ability of the Company to effectively and timely implement
remedial programs to overcome operational issues in Bath and
Kitchens U.S. and French operations;                            
|
| |  |  | risks generally relating to the Companys international
operations, including governmental, regulatory or political changes;                                                                 
|
| |  |  | changes in environmental, health or other regulations that may
affect one or more of the Companys products or potential products;                                                           
|
| |  |  | changes in laws or different interpretations of laws that may
affect the Companys expected effective tax rate for 2002;                                                                     
|
| |  |  | transactions or other events affecting the need for, timing and
extent of the Companys capital expenditures;                                                                                
|
| |  |  | the extent of and the costs at which the Company effects
repurchases of its common stock; and                                                                                                
|
| |  |  | the extent to which the Company reduces outstanding debt.                                                                                                                                    

25



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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes to the disclosure on this matter made in
our Annual Report on Form 10-K for the year ended December 31, 2001.




Item 4. Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer have concluded,
based on their evaluation within 90 days of the filing date of this report,
that our disclosure controls and procedures are effective for gathering,
analyzing and disclosing the information we are required to disclose in our
reports filed under the Securities Exchange Act of 1934. There have been no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of the previously
mentioned evaluation.

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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 in respect of claims of
wrongful termination of a distributorship agreement. 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.

For a discussion of other commitments and contingencies, see Note 11 of
Notes to Financial Statements.




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.



| |  |  | On August 9, 2002, the Company filed a Current Report on Form 8-K
reporting that Frederic M. Poses, principal executive officer, and
G. Peter DAloia, principal financial officer, of the Company had
submitted sworn statements to the Securities and Exchange
Commission pursuant to Section 21(a)(1) of the Securities Exchange
Act of 1934.                                                                                            
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On August 29, 2002, the Company filed a Current Report on Form 8-K
reporting that on August 28, 2002, the U.S. Court of Appeals for
the 10th Circuit ruled in favor of the Company and reversed a 1999
jury award of $18 million in a suit alleging wrongful termination
of a distribution agreement, reinstated the Companys counterclaims
including fraud, and remanded to the trial court limited portions
of claimants initial claims.

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SIGNATURES

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.                            
|                 
|                 
|                 
|                 
|                  |  |                                                             
|                 
|                 
|                 
|                 
|November 14, 2002 |  | /s/ Richard S. Paradise                                     
|                  |  |                                                             
|                  |  | Vice President and Controller
(Principal Accounting Officer)
|                 
|                 
|                 
|                 
|                  |  |                                                             




CERTIFICATIONS

I, Frederic M. Poses, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of American
Standard Companies Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

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5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|      |  |                                                                 |  | 
|----- |  | --------------------------------------------------------------- |  | 
|Date: |  | November 14, 2002                                               |  | 
|     
|     
|     
|     
|      |  |                                                                 |  | 
|     
|     
|     
|     
|By:   |  | /s/ Frederic M. Poses
Frederic M. Poses
Chief Executive Officer |  | 
|     
|     
|     
|     
|      |  |                                                                 |  | 

I, G. Peter DAloia, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of American
Standard Companies Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                      

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|      |  |                                                                                      |  | 
|----- |  | ------------------------------------------------------------------------------------ |  | 
|Date: |  | November 14, 2002                                                                    |  | 
|     
|     
|     
|     
|      |  |                                                                                      |  | 
|     
|     
|     
|     
|By:   |  | /s/ G. Peter DAloia
G. Peter DAloia
Sr. Vice President and Chief Financial Officer |  | 

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AMERICAN STANDARD COMPANIES INC.
INDEX TO EXHIBITS

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

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(10)(i)     |  | First Amendment dated as of November 5, 2002, to the Five-Year
Credit Agreement dated as of November 6, 2001 among American
Standard Companies Inc., American Standard Inc., American
Standard International Inc., the Borrowing Subsidiaries from
time to time party thereto and; the Lenders from time to time
party thereto; JPMorgan Chase Bank, as Administrative Agent,
as Issuing Bank and as Swingline Lender; and J.P. Morgan
Europe Limited, as London Agent and as Belgian Agent.                                                                                                                 
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|           
|           
|           
|           
|(10)(ii)    |  | Amendment and Restatement Agreement dated as of November 5,
2002, in respect of the 364-Day Credit Agreement, among
American Standard Companies Inc., American Standard Inc.,
American Standard International Inc., the Borrowing
Subsidiaries party thereto, the Lenders party thereto,
JPMorgan Chase Bank, as Administrative Agent and Swingline
Lender; Bank of America, N.A., Citibank, N.A. and Lloyds TSB
Bank PLC as Syndication Agents; ABN AMRO Bank N.V., Barclays
Bank PLC, and Societe Generale, as Co-Syndication Agents; and
J.P. Morgan Securities Inc. as Lead Arranger and Sole
Bookrunner.
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|           
|           
|           
|           
|(12)        |  | Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|           
|           
|           
|           
|(99.1)      |  | Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|           
|           
|           
|           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|           
|           
|           
|           
|(99.2)      |  | Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                         

31