##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION  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 June 30, 2004
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.
  Delaware
    
    13-3465896(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 One Centennial Avenue, P.O. Box 6820, Piscataway, NJ
    
    08855-6820(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code
    
    (732) 980-6000
 Indicate by check mark whether the Registrant; (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]  
Yes
  [  ]  No Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act) [X]   Yes   [  ]  No Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date. Common stock, $.01 par value, outstanding at
        July 22, 2004
    
    213,916,180 shares




---



TABLE OF CONTENTS  PART 1. FINANCIAL INFORMATIONItem 1. Financial StatementsUNAUDITED SUMMARY CONSOLIDATED STATEMENT OF INCOMEUNAUDITED SUMMARY CONSOLIDATED BALANCE SHEETUNAUDITED SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWSNOTES TO FINANCIAL STATEMENTSPART 1. FINANCIAL INFORMATIONItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Changes in Securities, and Use of Proceeds and Issuer Purchases of Equity SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other MatterItem 6. Exhibits and Reports on Form 8-KSIGNATUREINDEX TO EXHIBITSEX-3: AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATIONEX-10: CORPORATE OFFICER SEVERANCE PLANEX-10.1: ADDENDUM TO 2002 OMNIBUS INCENTIVE PLANEX-10.2:  ADDENDUM TO STOCK INCENTIVE PLANEX-10.3: SUMMARY OF EMPLOYMENT ARRANGEMENTEX-10.4: SUMMARY OF EMPLOYMENT ARRANGEMENTEX-12: RATIO OF EARNINGS TO FIXED CHARGESEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION    Table of Contents  
 PART 1. FINANCIAL INFORMATION 
 Item 1. Financial Statements American Standard Companies Inc. (the Company) is a Delaware corporation
that owns all the outstanding common stock of American Standard Inc. and
American Standard International Inc. (ASII), both Delaware corporations.
American Standard or the Company will refer to the Company, or to the
Company and American Standard Inc. and ASII including their subsidiaries, as
the context requires. 
 AMERICAN STANDARD COMPANIES INC.
UNAUDITED SUMMARY CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions except per share amounts) Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Sales
    
    $
    2,575.3
    
    
    $
    2,265.0
    
    
    $
    4,760.3
    
    
    $
    4,215.6Cost and expensesCost of sales
    
    
    1,884.5
    
    
    
    1,700.7
    
    
    
    3,489.3
    
    
    
    3,186.5Selling and administrative expenses
    
    
    433.4
    
    
    
    335.1
    
    
    
    854.3
    
    
    
    659.2Other expense
    
    
    1.1
    
    
    
    5.1
    
    
    
    8.5
    
    
    
    23.1Interest expense
    
    
    28.5
    
    
    
    30.1
    
    
    
    57.8
    
    
    
    60.32,347.5
    
    
    
    2,071.0
    
    
    
    4,409.9
    
    
    
    3,929.1Income before income taxes
    
    
    227.8
    
    
    
    194.0
    
    
    
    350.4
    
    
    
    286.5Income taxes
    
    
    68.1
    
    
    
    60.1
    
    
    
    106.1
    
    
    
    88.8Net income applicable to common shares
    
    $
    159.7
    
    
    $
    133.9
    
    
    $
    244.3
    
    
    $
    197.7Net income per common shareBasic
    
    $
    .75
    
    
    $
    .62
    
    
    $
    1.13
    
    
    $
    .92Diluted
    
    $
    .73
    
    
    $
    .61
    
    
    $
    1.10
    
    
    $
    .90Average common shares outstandingBasic
    
    
    214,235,352
    
    
    
    215,620,314
    
    
    
    215,354,861
    
    
    
    216,020,385Diluted
    
    
    220,035,235
    
    
    
    219,623,181
    
    
    
    221,132,378
    
    
    
    219,879,663
 See accompanying notes 2




---



##### Table of Contents



Item 1. Financial Statements (continued) 
 AMERICAN STANDARD COMPANIES INC.
UNAUDITED SUMMARY CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data) June 30,
    
    December 31,2004
    
    2003Current assets:Cash and cash equivalents
    
    $
    237.6
    
    
    $
    111.7Accounts receivable, less allowance for doubtful
accounts: June 2004 - $42.0; Dec. 2003 - $45.3
    
    
    1,311.8
    
    
    
    1,022.8Inventories:Finished products
    
    
    582.0
    
    
    
    571.8Products in process
    
    
    194.1
    
    
    
    181.4Raw materials
    
    
    193.9
    
    
    
    156.7Other current assets
    
    
    501.6
    
    
    
    446.3Total current assets
    
    
    3,021.0
    
    
    
    2,490.7Facilities, less accumulated depreciation: June
2004 - $1,006.9; Dec. 2003 - $963.5
    
    
    1,486.0
    
    
    
    1,515.4Goodwill, less accumulated amortization: June
2004 - $409.9; Dec. 2003 - $413.1
    
    
    1,116.5
    
    
    
    1,140.4Capitalized software costs, less accumulated
amortization: June 2004 - $230.1; Dec. 2003 - $202.6
    
    
    223.1
    
    
    
    239.3Debt issuance costs, net of accumulated
amortization: June 2004 - $25.7; Dec. 2003 - $22.4
    
    
    18.0
    
    
    
    21.2Other assets
    
    
    505.7
    
    
    
    471.7Total assets
    
    $
    6,370.3
    
    
    $
    5,878.7Current liabilities:Loans payable to banks
    
    $
    69.0
    
    
    $
    49.8Current portion of long-term debt
    
    
    2.2
    
    
    
    2.5Accounts payable
    
    
    874.9
    
    
    
    684.3Accrued payrolls
    
    
    310.8
    
    
    
    294.3Current portion of warranties
    
    
    172.0
    
    
    
    153.1Taxes on income
    
    
    151.9
    
    
    
    136.0Other accrued liabilities
    
    
    743.0
    
    
    
    713.5Total current liabilities
    
    
    2,323.8
    
    
    
    2,033.5Long-term debt
    
    
    1,742.7
    
    
    
    1,626.8Reserve for post-retirement benefits
    
    
    669.0
    
    
    
    657.4Warranties
    
    
    218.6
    
    
    
    202.9Other liabilities
    
    
    631.8
    
    
    
    644.3Total liabilities
    
    
    5,585.9
    
    
    
    5,164.9Shareholders equity:Preferred stock, 2,000,000 shares authorized,
none issued and outstanding
    
    
    
    
    
    
    Common stock $.01 par value, 560,000,000 shares
authorized; shares issued: 251,768,187 in 2004;
251,757,582 in 2003; and shares outstanding: 213,769,764 in 2004; 217,914,978 in 2003
    
    
    2.5
    
    
    
    2.5Capital surplus
    
    
    774.5
    
    
    
    753.7Unearned compensation
    
    
    (.4
    )
    
    
    (.7
    )Treasury stock
    
    
    (769.9
    )
    
    
    (584.3
    )Retained earnings
    
    
    1,077.5
    
    
    
    833.2Accumulated other comprehensive income:Foreign currency translation effects
    
    
    (209.9
    )
    
    
    (204.5
    )Deferred gain on hedge contracts, net of tax
    
    
    3.8
    
    
    
    7.1Minimum pension liability adjustment, net of tax
    
    
    (93.7
    )
    
    
    (93.2
    )Total shareholders equity
    
    
    784.4
    
    
    
    713.8$
    6,370.3
    
    
    $
    5,878.7
 See accompanying notes 3




---



##### Table of Contents



Item 1. Financial Statements (continued) 
 AMERICAN STANDARD COMPANIES INC.
UNAUDITED SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions) Six months endedJune 30,2004
    
    2003Cash provided by:Operating activities:Net income
    
    $
    244.3
    
    
    $
    197.7Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation
    
    
    83.5
    
    
    
    79.2Amortization of capitalized software and other intangibles
    
    
    43.6
    
    
    
    39.8Non-cash stock compensation
    
    
    30.0
    
    
    
    32.1Equity in earnings of unconsolidated joint
ventures, net of dividends received
    
    
    (10.5
    )
    
    
    (3.4
    )Other
    
    
    (.7
    )
    
    
    (6.9
    )Changes in assets and liabilities:Accounts receivable
    
    
    (301.0
    )
    
    
    (248.5
    )Inventories
    
    
    (71.6
    )
    
    
    (87.2
    )Accounts payable
    
    
    193.0
    
    
    
    148.2Other accrued liabilities and taxes
    
    
    104.1
    
    
    
    155.2Post-retirement benefits
    
    
    19.5
    
    
    
    20.5Other current and long-term assets
    
    
    (99.0
    )
    
    
    (92.2
    )Other long-term liabilities
    
    
    21.6
    
    
    
    10.2Net cash provided by operating activities
    
    
    256.8
    
    
    
    244.7Investing activities:Purchase of property, plant and equipment
    
    
    (67.2
    )
    
    
    (61.2
    )Investments in affiliated companies and other businesses
    
    
    
    
    
    
    (22.5
    )Investments in computer software
    
    
    (18.5
    )
    
    
    (19.6
    )Loan to unconsolidated joint venture, net
    
    
    (19.2
    )
    
    
    Proceeds from sales of property, plant and equipment
    
    
    9.9
    
    
    
    0.3Net cash used by investing activities
    
    
    (95.0
    )
    
    
    (103.0
    )Financing activities:Proceeds from issuance of long-term debt
    
    
    .2
    
    
    
    32.4Repayments of long-term debt
    
    
    (0.6
    )
    
    
    (127.2
    )Net change in revolving credit facilities
    
    
    136.9
    
    
    
    46.9Net change in other short-term debt
    
    
    21.7
    
    
    
    27.6Purchases of treasury stock
    
    
    (222.6
    )
    
    
    (90.6
    )Proceeds from exercise of stock options
    
    
    19.0
    
    
    
    16.5Proceeds from settlement of foreign exchange forward contracts
    
    
    5.7
    
    
    
    34.3Other
    
    
    3.7
    
    
    
    3.6Net cash used by financing activities
    
    
    (36.0
    )
    
    
    (56.5
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    .1
    
    
    
    (.8
    )Net increase in cash and cash equivalents
    
    
    125.9
    
    
    
    84.4Cash and cash equivalents at beginning of period
    
    
    111.7
    
    
    
    96.6Cash and cash equivalents at end of period
    
    $
    237.6
    
    
    $
    181.0Cash interest paid
    
    
    55.1
    
    
    
    61.7Cash taxes paid
    
    
    78.7
    
    
    
    2.6
 See accompanying notes 4




---



##### Table of Contents



AMERICAN STANDARD COMPANIES INC.
NOTES TO FINANCIAL STATEMENTS Note 1. Basis of Financial Statement Presentation The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring items, considered necessary
for a fair presentation of financial data have been included. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the entire year. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and accompanying notes included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2003. Preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Management believes the most complex and
sensitive judgments, because of their significance to the consolidated
financial statements, result primarily from the need to make estimates about
the effects of matters that are inherently uncertain. Managements Discussion
and Analysis and Note 2 to the Consolidated Financial Statements in the
Companys Annual Report on Form 10-K for the calendar year 2003, describe the
significant accounting estimates and policies used in preparation of the
Consolidated Financial Statements. Actual results in these areas could differ
materially from managements estimates. There have been no significant changes
in the Companys critical accounting estimates during the first half of 2004. All share and per-share amounts and the related shareholders equity
accounts in the accompanying consolidated financial statements and footnotes
for all periods presented reflect the three-for-one stock split that became
effective on May 27, 2004 as described in Note 4. Note 2. Comprehensive Income Total comprehensive income consisted of the following (dollars in
millions): Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income
    
    $
    159.7
    
    
    $
    133.9
    
    
    $
    244.3
    
    
    $
    197.7Foreign currency translation effects
    
    
    (12.2
    )
    
    
    65.2
    
    
    
    (5.4
    )
    
    
    53.7Deferred gain (loss) on hedge
contracts, net of tax
    
    
    (12.0
    )
    
    
    0.6
    
    
    
    (3.3
    )
    
    
    1.8Minimum pension liability adjustment
    
    
    (0.3
    )
    
    
    (1.1
    )
    
    
    (0.5
    )
    
    
    (0.8
    )Total comprehensive income
    
    $
    135.2
    
    
    $
    198.6
    
    
    $
    235.1
    
    
    $
    252.4
 5




---



##### Table of Contents



Note 3. Earnings Per Share The average number of outstanding shares of common stock used in computing
diluted earnings per share for the three months ended June 30, 2004 and 2003
included 5,799,883 and 4,002,867 average incremental shares, respectively, for
the assumed exercise of outstanding stock options. The six-month periods ended
June 30, 2004 and 2003 included 5,777,517 and 3,859,278 average incremental
shares, respectively. Note 4. Capital Stock and Stock Split At the Annual Meeting on May 4, 2004, shareholders approved an amendment
to the Companys charter to increase the authorized shares of common stock from
200,000,000 shares to 560,000,000 shares, enabling the Company to complete a
three-for-one common stock split approved by the Board of Directors on February
5, 2004. The split became effective May 27, 2004, for holders of record as of
May 18, 2004. The par value of the common stock was maintained at the
pre-split amount of $0.01 per share. Accordingly, the Common Stock account in
Shareholders Equity was increased to reflect the increased number of shares
(at $0.01 per share) with a corresponding decrease in Capital Surplus for each
balance sheet presented. All share and per-share amounts in the accompanying
consolidated financial statements and footnotes for all periods presented
reflect the stock split on a retroactive basis. Following is a summary of net shares outstanding and shares issued or
reacquired during the first and second quarters of 2004. Number of Shares of Common StockTreasury
    
    Net SharesTotal Shares
    
    Shares
    
    OutstandingBalance, December 31, 2003
    
    
    251,757,582
    
    
    
    (33,842,604
    )
    
    
    217,914,978Shares issued upon exercise of stock options
    
    
    999
    
    
    
    768,228
    
    
    
    769,227Stock purchased for treasury
    
    
    
    
    
    
    (4,023,000
    )
    
    
    (4,023,000
    )Shares issued to ESOP
    
    
    
    
    
    
    408,570
    
    
    
    408,570Shares issued to ESPP
    
    
    315
    
    
    
    52,164
    
    
    
    52,479Other shares issued or (reacquired), net
    
    
    
    
    
    
    (139,215
    )
    
    
    (139,215
    )Balance, March 31, 2004
    
    
    251,758,896
    
    
    
    (36,775,857
    )
    
    
    214,983,039Shares issued upon exercise of stock options
    
    
    9,000
    
    
    
    398,503
    
    
    
    407,503Stock purchased for treasury
    
    
    
    
    
    
    (2,110,000
    )
    
    
    (2,110,000
    )Shares issued to ESOP
    
    
    
    
    
    
    404,042
    
    
    
    404,042Shares issued to ESPP
    
    
    291
    
    
    
    73,683
    
    
    
    73,974Other shares issued or (reacquired), net
    
    
    
    
    
    
    11,206
    
    
    
    11,206Balance, June 30, 2004
    
    
    251,768,187
    
    
    
    (37,998,423
    )
    
    
    213,769,764
 6




---



##### Table of Contents



Note 5. Stock-Based Compensation The Company has three stock-based compensation plans  the 2002 Omnibus
Incentive Plan, the Stock Incentive Plan and the Employee Stock Purchase Plan
(ESPP)  which are described in Note 11 of Notes to Financial Statements in
the Companys 2003 Annual Report on Form 10-K. Under the first two plans, the
Company has granted options to employees and directors to acquire a fixed
number of shares of the Companys common stock at a specified price, and also
has made grants of restricted shares. Under the ESPP, employees are entitled
to purchase shares of the Companys common stock at a discount of 15% from the
market price on the date of purchase. The Company accounts for these plans
under the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25),and related
Interpretations. Compensation cost is not recorded for substantially all
options granted because the option exercise price was equal to the market value
of the underlying common stock on the date of grant. Nor is compensation cost
recorded for the 15% discount on shares purchased under the ESPP, which is not
considered compensation expense under APB 25. Compensation cost is recorded
for the value of restricted share awards, amortized over the vesting period of
the award. The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation,to stock-based
employee compensation (dollars in millions except per share data). Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Net income, as reported
    
    $
    159.7
    
    
    $
    133.9
    
    
    $
    244.3
    
    
    $
    197.7Deduct: Total stock-based compensation
expense determined under fair value based
method for all stock option awards, net of tax,
and discounts under the ESPP
    
    
    4.5
    
    
    
    5.1
    
    
    
    9.6
    
    
    
    10.1Pro forma net income
    
    $
    155.2
    
    
    $
    128.8
    
    
    $
    234.7
    
    
    $
    187.6Earnings per share:Basic  as reported
    
    $
    .75
    
    
    $
    .62
    
    
    $
    1.13
    
    
    $
    .92Basic  pro forma
    
    $
    .72
    
    
    $
    .60
    
    
    $
    1.09
    
    
    $
    .87Diluted  as reported
    
    $
    .73
    
    
    $
    .61
    
    
    $
    1.10
    
    
    $
    .90Diluted  pro forma
    
    $
    .71
    
    
    $
    .59
    
    
    $
    1.06
    
    
    $
    .85
 The weighted average fair value per option of grants made during the three
months and six months ended June 30, 2004 was $12.55 and for the corresponding
periods of 2003 was $6.99. The fair value of the stock options was estimated
at the date of grant using the Black-Scholes option-pricing model with the
following assumptions: risk-free interest rate of 3.12% in 2004 and 2.48% in
2003; volatility of 32.2% and 28.4% in 2004 and 2003, respectively; an expected
average life of 5 years in 2004 and 2003; and a dividend yield of zero. 7




---



##### Table of Contents



Note 6. Warranties, Guarantees, Commitments and Contingencies Products sold by the Company are covered by a basic limited warranty with
terms and conditions that vary depending upon the product and country in which
it was sold. The limited warranty covers the equipment, parts and labor (in
certain cases) necessary to satisfy the warranty obligation for a period
ranging from one to ten years generally, and for the lifetime of certain bath
and kitchen faucets. The Company estimates the costs that may be incurred
under its warranty obligations and records a liability in the amount of such
costs at the time product revenue is recognized. Factors that affect the
Companys warranty liability include the number of units sold, historical and
anticipated rates of warranty claims, and cost per claim. At least once a
quarter the Company assesses the adequacy of its recorded warranty liabilities
and adjusts the amounts as necessary. Costs to satisfy warranty claims are
charged as incurred to the accrued warranty liability. The Company also sells a variety of extended warranty contracts for up to
ten years on certain air conditioning products. Revenues from the sales of
extended warranties are deferred and amortized on a straight-line basis over
the terms of the contracts or based upon historical experience. Actual costs
to satisfy claims on extended warranty contracts are charged to cost of sales
as incurred and were $9.3 million and $8.4 million for the three months ended
June 30, 2004 and 2003, respectively, and $17.8 million and $16.4 million for
the six months ended June 30, 2004 and 2003, respectively. Total warranty
expense was $61.3 million and $38.9 million for the three months ended June 30,
2004 and 2003, respectively, and $101.3 million and $78.1 million for the
six-month periods then ended, respectively. Following is a summary of changes in the Companys product warranty
liability for the three and six months ended June 30, 2004 and 2003 (dollars in
millions). Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Balance of basic warranty costs accrued and
deferred income on extended warranty
contracts, beginning of period
    
    $
    364.6
    
    
    $
    321.7
    
    
    $
    356.0
    
    
    $
    315.9Warranty costs accrued
    
    
    38.1
    
    
    
    29.2
    
    
    
    64.5
    
    
    
    60.0Deferred income on extended warranty contracts sold
    
    
    16.6
    
    
    
    17.4
    
    
    
    31.4
    
    
    
    31.8Warranty claims settled
    
    
    (30.5
    )
    
    
    (25.0
    )
    
    
    (56.2
    )
    
    
    (52.9
    )Amortization of deferred income
on extended warranty contracts
    
    
    (12.1
    )
    
    
    (9.7
    )
    
    
    (24.1
    )
    
    
    (21.6
    )Increases (decreases) in warranty estimates made in prior
periods, including foreign exchange translation effects, net
    
    
    13.9
    
    
    
    1.3
    
    
    
    19.0
    
    
    
    1.7Balance of basic warranty costs accrued and
deferred income on extended warranty
contracts, end of period
    
    
    390.6
    
    
    
    334.9
    
    
    
    390.6
    
    
    
    334.9Current portion included in current liabilities
    
    
    (172.0
    )
    
    
    (127.7
    )
    
    
    (172.0
    )
    
    
    (127.7
    )Long-term warranty liability
    
    $
    218.6
    
    
    $
    207.2
    
    
    $
    218.6
    
    
    $
    207.2
 The Company has commitments and performance guarantees, including energy
savings guarantees totaling $39 million as of June 30, 2004, extending from
2004 to 2021, under long-term contracts related to its air conditioning
equipment and system controls. Through June 30, 2004 the Company has
experienced no net losses under such energy savings guarantees and considers
the probability of losses to be unlikely. The Company also guarantees debt of
third parties in the amount of $3 million as of June 30, 2004. 8




---



##### Table of Contents



The Company fully and unconditionally guarantees the payment obligations
under all the Companys Senior Notes that were issued by its wholly owned
subsidiary American Standard Inc. See Note 9 of Notes to Financial
Statements. The Company also guarantees other debt obligations issued by other
subsidiaries, including obligations under a $49 million Euro-denominated credit
facility and $36 million of Euro-denominated Senior Bonds (both at June 30,
2004 exchange rates). Over the years, the Company has been named as a defendant in numerous
lawsuits alleging various asbestos-related personal injury claims arising
primarily from sales of low-risk-profile products, such as boilers and railroad
brake shoes. The Company believes it has ample insurance and has never had an
unfavorable court judgment. In these asbestos-related lawsuits, the Company is usually named as one of
a large group of defendants, often in excess of one hundred companies. Many of
these lawsuits involve multiple claimants, do not allege a connection between
any Company product and the claimed injury or disease, and/or do not contain
any allegations regarding the type of claimed injury or disease incurred. As a
result, numerous lawsuits have been placed and may remain on inactive or
deferred dockets, which some jurisdictions have established. Through June 30, 2004, there have been 145,181 claims filed against the
Company. At June 30, 2004, there were 120,896 pending claims, compared with
116,020 at the end of 2003, and 96,463 and 52,171 at the end of 2002 and 2001,
respectively, reflecting updated information for all prior periods. Since
receipt of its first asbestos claim more than fifteen years ago, through June
30, 2004, the Company has resolved 24,285 claims, and settlements of $47.3
million have been made, for an average payment per claim of $1,948. These
settlement payments have substantially been paid or reimbursed or are expected
to be substantially reimbursed by insurance. The Company has recorded an obligation of $70 million as of June 30, 2004,
that represents the Companys estimated payments to claimants associated with
pending asbestos claims. It also has recorded a related asset of $47 million
that represents the probable recoveries from insurance companies for such
payments to claimants. The amount of the estimated obligations is based on the
claims resolved, the assessment of claims pending, the status of ongoing
litigation, defense and settlement strategies, and an assessment of other
entities responsibilities for the claims. The amount of the probable
recoveries is based on an analysis of insurance coverage, the insurers
financial strength and insurance payments made to date. Additional developments may occur that could affect the Companys estimate
of asbestos liabilities and recoveries, such as the nature of future claims,
the average payment to claimants and the amount of insurance recovery. No
liability has been recorded for unknown asbestos claims. However, the Company
has substantial insurance coverage for future claims. The Company believes that
it is not reasonably possible that a net loss material to the liquidity and
financial condition of the Company has been incurred. 9




---



##### Table of Contents



Note 7. Effect of Recently Issued Accounting Standards The Financial Accounting Standards Board (FASB) has recently issued
several new Statements and Interpretations. For the disclosures required by
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, see Note 5 of Notes to Financial
Statements. For the interim period disclosures required by Statement No. 132
(revised 2003) Employers Disclosures about Pensions and Other Postretirement
Benefits,see Note 8 of Notes to Financial Statements. Some of the disclosure
requirements of the revised Statement No. 132 related to foreign plans and
certain other matters are not effective until 2005. For a discussion of the
impact of FASB Staff Position No. 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003, which addresses the accounting and disclosure required as a result of the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 enacted
on December 8, 2003, see Note 8 of Notes to Financial Statements. Other
Statements and Interpretations recently issued by the FASB that are applicable
to the Company have had little or no immediate effect on the Company. Those
statements included No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities;and No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
Interpretation No. 46, Consolidation of Variable Interest Entities,parts of
which became effective for the Company in the first quarter of 2004, had no
impact. Note 8. Post-retirement Benefits In May 2004, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position (FSP) No. SFAS 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003,which addresses the accounting and disclosures required as a result of
the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
Act) enacted on December 8, 2003. The Act introduces a prescription drug
benefit under Medicare as well as a federal subsidy to sponsors of retiree
health care benefit plans that provide a benefit that is at least equivalent to
Medicare. Provisions of the Act will decrease the benefit obligation and net
post-retirement benefit cost of an employer that provides post-retirement
prescription drug coverage. Under the FSP, which is effective for the Company
in the third quarter of 2004, the decrease in the benefit obligation upon
initial adoption of the FSP will be accounted for as an actuarial gain. The
Company had previously elected to defer the effects of the Act under provisions
of an earlier FASB Staff Position that was superseded by this FSP. Therefore,
all measures of the benefit obligation and net post-retirement benefit costs
included in the accompanying financial statements do not reflect the effects of
the Act. The Company and its actuaries are reviewing the provisions of the Act
to determine its effect on the valuation of the Companys post-retirement
benefit plan and corresponding financial results, which are expected to be
insignificant based on preliminary estimates. 10




---



##### Table of Contents



Post-retirement pension, health and life insurance costs had the following
components for the three months and six months ended June 30, 2004 (dollars in
millions): Three Months Ended June 30,
    
    Six Months Ended June 30,2004
    
    2004
    
    2003
    
    2003
    
    2004
    
    2004
    
    2003
    
    2003Health &
    
    
    
    
    
    Health &
    
    
    
    
    
    Health &
    
    
    
    
    
    Health &Pension
    
    Life Ins.
    
    Pension
    
    Life Ins.
    
    Pension
    
    Life Ins.
    
    Pension
    
    Life Ins.Benefits
    
    Benefits
    
    Benefits
    
    Benefits
    
    Benefits
    
    Benefits
    
    Benefits
    
    BenefitsService cost-benefits earned
during the period
    
    $
    14.1
    
    
    $
    1.6
    
    
    $
    10.8
    
    
    $
    2.0
    
    
    $
    26.6
    
    
    $
    4.0
    
    
    $
    21.6
    
    
    $
    4.1Interest cost on the projected
benefit obligation
    
    
    19.4
    
    
    
    3.8
    
    
    
    18.8
    
    
    
    4.3
    
    
    
    40.6
    
    
    
    8.7
    
    
    
    36.5
    
    
    
    8.7Less assumed return
on plan assets
    
    
    (17.4
    )
    
    
    
    
    
    
    (14.9
    )
    
    
    
    
    
    
    (32.8
    )
    
    
    
    
    
    
    (27.2
    )
    
    
    Amortization of prior
service cost
    
    
    1.3
    
    
    
    (1.1
    )
    
    
    1.5
    
    
    
    (1.2
    )
    
    
    2.9
    
    
    
    (2.2
    )
    
    
    2.9
    
    
    
    (2.4
    )Amortization of net loss
    
    
    1.4
    
    
    
    1.2
    
    
    
    1.5
    
    
    
    1.2
    
    
    
    4.7
    
    
    
    3.2
    
    
    
    3.1
    
    
    
    2.3Defined benefit plan cost
    
    $
    18.8
    
    
    $
    5.5
    
    
    $
    17.7
    
    
    $
    6.3
    
    
    $
    42.0
    
    
    $
    13.7
    
    
    $
    36.9
    
    
    $
    12.7Accretion expense reflected
in Other expense
    
    $
    2.0
    
    
    $
    3.8
    
    
    $
    3.9
    
    
    $
    4.3
    
    
    $
    7.8
    
    
    $
    8.7
    
    
    $
    9.3
    
    
    $
    8.7
 Amortization of prior service cost is computed on the straight-line method
over the average remaining service period of active participants. The Company expects to contribute $54 million to the domestic pension
plans for the full year of 2004. 11




---



##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information All of the Companys Senior Notes were issued by its 100%-owned
subsidiary, American Standard Inc. (ASI). American Standard Companies Inc.
(the Parent Company) fully and unconditionally guarantees the payment
obligations under these securities ( ASI Public Debt). In lieu of providing
separate financial statements for ASI, the Company has included the
accompanying consolidating condensed financial information. Management believes
that separate financial statements of ASI are not material to investors. The
following supplemental financial information sets forth, on an unconsolidated
basis, statements of income for the three months and six months ended June 30,
2004 and 2003, statements of cash flows for the six months ended June 30, 2004
and 2003 and balance sheets as of June 30, 2004 and December 31, 2003, for the
Parent Company, ASI, and the subsidiaries of the Parent Company which are not
subsidiaries of ASI (the Other Subsidiaries). None of the Other Subsidiaries
guarantees the ASI Public Debt. The equity method of accounting is used to
reflect investments of the Parent Company in ASI and Other Subsidiaries. CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2004
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalSales
    
    
    
    
    
    $
    1,369.5
    
    
    $
    1,317.8
    
    
    $
    (112.0
    )
    
    $
    2,575.3Costs and expenses:Cost of sales
    
    
    
    
    
    
    1,002.1
    
    
    
    994.4
    
    
    
    (112.0
    )
    
    
    1,884.5Selling and administrative expenses
    
    
    
    
    
    
    246.0
    
    
    
    187.4
    
    
    
    
    
    
    
    433.4Other (income) expense
    
    
    
    
    
    
    (3.6
    )
    
    
    4.7
    
    
    
    
    
    
    
    1.1Interest expense
    
    
    
    
    
    
    25.6
    
    
    
    2.9
    
    
    
    
    
    
    
    28.5Intercompany interest expense (income)
    
    
    
    
    
    
    (.2
    )
    
    
    .2
    
    
    
    
    
    
    
    Total expenses
    
    
    
    
    
    
    1,269.9
    
    
    
    1,189.6
    
    
    
    (112.0
    )
    
    
    2,347.5Income before income taxes and equity in
net income of consolidated subsidiaries
    
    
    
    
    
    
    99.6
    
    
    
    128.2
    
    
    
    
    
    
    
    227.8Income taxes
    
    
    
    
    
    
    36.6
    
    
    
    31.5
    
    
    
    
    
    
    
    68.1Income before equity in net income of
consolidated subsidiaries
    
    
    
    
    
    
    63.0
    
    
    
    96.7
    
    
    
    
    
    
    
    159.7Equity in net income of consolidated
subsidiaries
    
    $
    159.7
    
    
    
    
    
    
    
    
    
    
    
    (159.7
    )
    
    
    Net income
    
    $
    159.7
    
    
    $
    63.0
    
    
    $
    96.7
    
    
    $
    (159.7
    )
    
    $
    159.7
 12




---



##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information (continued) CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalSales
    
    
    
    
    
    $
    2,464.0
    
    
    $
    2,520.6
    
    
    $
    (224.3
    )
    
    $
    4,760.3Costs and expenses:Cost of sales
    
    
    
    
    
    
    1,816.6
    
    
    
    1,897.0
    
    
    
    (224.3
    )
    
    
    3,489.3Selling and administrative expenses
    
    
    
    
    
    
    467.6
    
    
    
    386.7
    
    
    
    
    
    
    
    854.3Other expense
    
    
    
    
    
    
    5.7
    
    
    
    2.8
    
    
    
    
    
    
    
    8.5Interest expense
    
    
    
    
    
    
    51.4
    
    
    
    6.4
    
    
    
    
    
    
    
    57.8Intercompany interest expense (income)
    
    
    
    
    
    
    1.4
    
    
    
    (1.4
    )
    
    
    
    
    
    
    Total expenses
    
    
    
    
    
    
    2,342.7
    
    
    
    2,291.5
    
    
    
    (224.3
    )
    
    
    4,409.9Income before income taxes and equity in
net income of consolidated subsidiaries
    
    
    
    
    
    
    121.3
    
    
    
    229.1
    
    
    
    
    
    
    
    350.4Income taxes
    
    
    
    
    
    
    45.2
    
    
    
    60.9
    
    
    
    
    
    
    
    106.1Income before equity in net income of
consolidated subsidiaries
    
    
    
    
    
    
    76.1
    
    
    
    168.2
    
    
    
    
    
    
    
    244.3Equity in net income of consolidated
subsidiaries
    
    $
    244.3
    
    
    
    
    
    
    
    
    
    
    
    (244.3
    )
    
    
    Net income
    
    $
    244.3
    
    
    $
    76.1
    
    
    $
    168.2
    
    
    $
    (244.3
    )
    
    $
    244.3
 13




---



##### Table of Contents



CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF JUNE 30, 2004
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalASSETSCurrent assets:Cash and cash equivalents
    
    $
    1.4
    
    
    $
    24.8
    
    
    $
    211.4
    
    
    
    
    
    
    $
    237.6Accounts receivable, net
    
    
    
    
    
    
    556.7
    
    
    
    755.1
    
    
    
    
    
    
    
    1,311.8Inventories
    
    
    
    
    
    
    442.4
    
    
    
    527.6
    
    
    
    
    
    
    
    970.0Other current assets
    
    
    
    
    
    
    331.0
    
    
    
    170.6
    
    
    
    
    
    
    
    501.6Total current assets
    
    
    1.4
    
    
    
    1,354.9
    
    
    
    1,664.7
    
    
    
    
    
    
    
    3,021.0Facilities, net
    
    
    
    
    
    
    564.4
    
    
    
    921.6
    
    
    
    
    
    
    
    1,486.0Goodwill, net
    
    
    
    
    
    
    112.2
    
    
    
    1,004.3
    
    
    
    
    
    
    
    1,116.5Investment in subsidiaries
    
    
    1,712.8
    
    
    
    
    
    
    
    
    
    
    $
    (1,712.8
    )
    
    
    Other assets
    
    
    
    
    
    
    506.3
    
    
    
    240.5
    
    
    
    
    
    
    
    746.8Total assets
    
    $
    1,714.2
    
    
    $
    2,537.8
    
    
    $
    3,831.1
    
    
    $
    (1,712.8
    )
    
    $
    6,370.3LIABILITIES AND SHAREHOLDERS
EQUITY (DEFICIT)Current liabilities:Loans payable to banks
    
    
    
    
    
    $
    36.5
    
    
    $
    32.5
    
    
    
    
    
    
    $
    69.0Current maturities of long-term debt
    
    
    
    
    
    
    1.5
    
    
    
    0.7
    
    
    
    
    
    
    
    2.2Other current liabilities
    
    
    
    
    
    
    998.1
    
    
    
    1,254.5
    
    
    
    
    
    
    
    2,252.6Total current liabilities
    
    
    
    
    
    
    1,036.1
    
    
    
    1,287.7
    
    
    
    
    
    
    
    2,323.8Long-term debt
    
    
    
    
    
    
    1,611.3
    
    
    
    131.4
    
    
    
    
    
    
    
    1,742.7Reserve for
post-retirement benefits
    
    
    
    
    
    
    335.7
    
    
    
    333.3
    
    
    
    
    
    
    
    669.0Intercompany accounts, net
    
    $
    929.8
    
    
    
    111.7
    
    
    
    (1,041.5
    )
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    483.7
    
    
    
    366.7
    
    
    
    
    
    
    
    850.4Total liabilities
    
    
    929.8
    
    
    
    3,578.5
    
    
    
    1,077.6
    
    
    $
    
    
    
    
    5,585.9Total shareholders equity (deficit)
    
    
    784.4
    
    
    
    (1,040.7
    )
    
    
    2,753.5
    
    
    
    (1,712.8
    )
    
    
    784.4Total
liabilities and shareholders equity (deficit)
    
    $
    1,714.2
    
    
    $
    2,537.8
    
    
    $
    3,831.1
    
    
    $
    (1,712.8
    )
    
    $
    6,370.3
 14




---



##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information (continued) CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalCash provided by:Operating activities:Net income
    
    $
    244.3
    
    
    $
    76.1
    
    
    $
    168.2
    
    
    $
    (244.3
    )
    
    $
    244.3Adjustments to reconcile net income to net
cash provided by operations:Depreciation and amortization
    
    
    
    
    
    
    47.8
    
    
    
    79.3
    
    
    
    
    
    
    
    127.1Equity in earnings of unconsolidated joint
ventures, net of dividends received
    
    
    
    
    
    
    (6.2
    )
    
    
    (4.3
    )
    
    
    
    
    
    
    (10.5
    )Non-cash stock compensation
    
    
    
    
    
    
    30.0
    
    
    
    
    
    
    
    
    
    
    
    30.0Equity in net income of subsidiaries
    
    
    (244.3
    )
    
    
    
    
    
    
    
    
    
    
    244.3
    
    
    
    Other
    
    
    
    
    
    
    (.7
    )
    
    
    
    
    
    
    
    
    
    
    (.7
    )Changes in assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (74.8
    )
    
    
    (226.2
    )
    
    
    
    
    
    
    (301.0
    )Inventories
    
    
    
    
    
    
    (19.8
    )
    
    
    (51.8
    )
    
    
    
    
    
    
    (71.6
    )Accounts payable
    
    
    
    
    
    
    104.8
    
    
    
    88.2
    
    
    
    
    
    
    
    193.0Other accrued liabilities and taxes
    
    
    
    
    
    
    43.4
    
    
    
    60.7
    
    
    
    
    
    
    
    104.1Post-retirement benefits
    
    
    
    
    
    
    12.3
    
    
    
    7.2
    
    
    
    
    
    
    
    19.5Other current and long-term assets
    
    
    
    
    
    
    (52.6
    )
    
    
    (46.4
    )
    
    
    
    
    
    
    (99.0
    )Other long-term liabilities
    
    
    
    
    
    
    11.6
    
    
    
    10.0
    
    
    
    
    
    
    
    21.6Net cash provided by
operating activities
    
    
    
    
    
    
    171.9
    
    
    
    84.9
    
    
    
    
    
    
    
    256.8Investing activities:Purchase of property, plant and equipment
    
    
    
    
    
    
    (24.0
    )
    
    
    (43.2
    )
    
    
    
    
    
    
    (67.2
    )Investments in computer software
    
    
    
    
    
    
    (9.9
    )
    
    
    (8.6
    )
    
    
    
    
    
    
    (18.5
    )Loan to unconsolidated joint venture
    
    
    
    
    
    
    (19.2
    )
    
    
    
    
    
    
    
    
    
    
    (19.2
    )Proceeds from sales of property, plant and
equipment
    
    
    
    
    
    
    9.8
    
    
    
    .1
    
    
    
    
    
    
    
    9.9Net cash used by investing activities
    
    
    
    
    
    
    (43.3
    )
    
    
    (51.7
    )
    
    
    
    
    
    
    (95.0
    )Financing activities:Proceeds from issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    .2
    
    
    
    
    
    
    
    .2Repayments of long-term debt
    
    
    
    
    
    
    .4
    
    
    
    (1.0
    )
    
    
    
    
    
    
    (.6
    )Net change in revolving credit facilities
    
    
    
    
    
    
    138.0
    
    
    
    (1.1
    )
    
    
    
    
    
    
    136.9Net change in other short-term debt
    
    
    
    
    
    
    36.5
    
    
    
    (14.8
    )
    
    
    
    
    
    
    21.7Purchases of treasury stock
    
    
    (222.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (222.6
    )Net change in intercompany accounts
    
    
    201.0
    
    
    
    (213.8
    )
    
    
    12.8
    
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    19.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.0Proceeds from settlement of foreign exchange
forward contracts
    
    
    
    
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    5.7Other
    
    
    3.9
    
    
    
    (.2
    )
    
    
    
    
    
    
    
    
    
    
    3.7Net cash provided (used) by financing activities
    
    
    1.3
    
    
    
    (33.4
    )
    
    
    (3.9
    )
    
    
    
    
    
    
    (36.0
    )Effect of exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    .1
    
    
    
    
    
    
    
    .1Net increase in cash and cash equivalents
    
    
    1.3
    
    
    
    95.2
    
    
    
    29.4
    
    
    
    
    
    
    
    125.9Cash and
cash equivalents at beginning of period
    
    
    .1
    
    
    
    (70.4
    )
    
    
    182.0
    
    
    
    
    
    
    
    111.7Cash and cash equivalents at end of period
    
    $
    1.4
    
    
    $
    24.8
    
    
    $
    211.4
    
    
    $
    
    
    
    $
    237.6
 15




---



##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information (continued) CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2003
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalSales
    
    
    
    
    
    $
    1,239.6
    
    
    $
    1,137.8
    
    
    $
    (112.4
    )
    
    $
    2,265.0Costs and expenses:Cost of sales
    
    
    
    
    
    
    943.7
    
    
    
    869.4
    
    
    
    (112.4
    )
    
    
    1,700.7Selling and administrative expenses
    
    
    
    
    
    
    179.1
    
    
    
    156.0
    
    
    
    
    
    
    
    335.1Other (income) expense
    
    
    
    
    
    
    (5.7
    )
    
    
    10.8
    
    
    
    
    
    
    
    5.1Interest expense
    
    
    
    
    
    
    27.0
    
    
    
    3.1
    
    
    
    
    
    
    
    30.1Intercompany interest expense (income)
    
    
    
    
    
    
    (2.6
    )
    
    
    2.6
    
    
    
    
    
    
    
    Total expenses
    
    
    
    
    
    
    1,141.5
    
    
    
    1,041.9
    
    
    
    (112.4
    )
    
    
    2,071.0Income before income taxes and equity in
net income of consolidated subsidiaries
    
    
    
    
    
    
    98.1
    
    
    
    95.9
    
    
    
    
    
    
    
    194.0Income taxes
    
    
    
    
    
    
    35.1
    
    
    
    25.0
    
    
    
    
    
    
    
    60.1Income before equity in net income of
consolidated subsidiaries
    
    
    
    
    
    
    63.0
    
    
    
    70.9
    
    
    
    
    
    
    
    133.9Equity in net income of consolidated
subsidiaries
    
    $
    133.9
    
    
    
    
    
    
    
    
    
    
    
    (133.9
    )
    
    
    Net income
    
    $
    133.9
    
    
    $
    63.0
    
    
    $
    70.9
    
    
    $
    (133.9
    )
    
    $
    133.9
 CONSOLIDATING CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalSales
    
    
    
    
    
    $
    2,274.3
    
    
    $
    2,155.3
    
    
    $
    (214.0
    )
    
    $
    4,215.6Costs and expenses:Cost of sales
    
    
    
    
    
    
    1,749.1
    
    
    
    1,651.4
    
    
    
    (214.0
    )
    
    
    3,186.5Selling and administrative expenses
    
    
    
    
    
    
    360.7
    
    
    
    298.5
    
    
    
    
    
    
    
    659.2Other expense
    
    
    
    
    
    
    (5.2
    )
    
    
    28.3
    
    
    
    
    
    
    
    23.1Interest expense
    
    
    
    
    
    
    54.6
    
    
    
    5.7
    
    
    
    
    
    
    
    60.3Intercompany interest expense (income)
    
    
    
    
    
    
    .5
    
    
    
    (.5
    )
    
    
    
    
    
    
    Total expenses
    
    
    
    
    
    
    2,159.7
    
    
    
    1,983.4
    
    
    
    (214.0
    )
    
    
    3,929.1Income before income taxes and equity in
net income of consolidated subsidiaries
    
    
    
    
    
    
    114.6
    
    
    
    171.9
    
    
    
    
    
    
    
    286.5Income taxes
    
    
    
    
    
    
    40.6
    
    
    
    48.2
    
    
    
    
    
    
    
    88.8Income before equity in net income of
consolidated subsidiaries
    
    
    
    
    
    
    74.0
    
    
    
    123.7
    
    
    
    
    
    
    
    197.7Equity in net income of consolidated
subsidiaries
    
    $
    197.7
    
    
    
    
    
    
    
    
    
    
    
    (197.7
    )
    
    
    Net income
    
    $
    197.7
    
    
    $
    74.0
    
    
    $
    123.7
    
    
    $
    (197.7
    )
    
    $
    197.7
 16




---



##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information (continued) CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(Unaudited) Parent
    
    
    
    
    
    Other
    
    
    
    
    
    Consolidated(Dollars in millions)
    
    Company
    
    ASI
    
    Subsidiaries
    
    Eliminations
    
    TotalCash provided (used) by:Operating activities:Net income
    
    $
    197.7
    
    
    $
    74.0
    
    
    $
    123.7
    
    
    $
    (197.7
    )
    
    $
    197.7Adjustments to reconcile net income to net
cash provided (used) by operations:Depreciation and amortization
    
    
    
    
    
    
    47.7
    
    
    
    71.3
    
    
    
    
    
    
    
    119.0Equity in earnings of unconsolidated joint
ventures, net of dividends received
    
    
    
    
    
    
    (1.1
    )
    
    
    (2.3
    )
    
    
    
    
    
    
    (3.4
    )Non-cash stock compensation
    
    
    
    
    
    
    32.1
    
    
    
    
    
    
    
    
    
    
    
    32.1Equity in net income of subsidiaries
    
    
    (197.7
    )
    
    
    
    
    
    
    
    
    
    
    197.7
    
    
    
    Other
    
    
    
    
    
    
    (7.2
    )
    
    
    .3
    
    
    
    
    
    
    
    (6.9
    )Changes in assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (79.7
    )
    
    
    (168.8
    )
    
    
    
    
    
    
    (248.5
    )Inventories
    
    
    
    
    
    
    (10.9
    )
    
    
    (76.3
    )
    
    
    
    
    
    
    (87.2
    )Accounts payable
    
    
    
    
    
    
    113.1
    
    
    
    35.1
    
    
    
    
    
    
    
    148.2Other accrued liabilities and taxes
    
    
    
    
    
    
    21.4
    
    
    
    133.8
    
    
    
    
    
    
    
    155.2Post-retirement benefits
    
    
    
    
    
    
    20.2
    
    
    
    .3
    
    
    
    
    
    
    
    20.5Other assets
    
    
    
    
    
    
    (65.3
    )
    
    
    (26.9
    )
    
    
    
    
    
    
    (92.2
    )Other long-term liabilities
    
    
    
    
    
    
    5.7
    
    
    
    4.5
    
    
    
    
    
    
    
    10.2Net cash provided by
operating activities
    
    
    
    
    
    
    150.0
    
    
    
    94.7
    
    
    
    
    
    
    
    244.7Investing activities:Purchase of property, plant and equipment
    
    
    
    
    
    
    (23.8
    )
    
    
    (37.4
    )
    
    
    
    
    
    
    (61.2
    )Investments in affiliated companies and
other businesses
    
    
    
    
    
    
    
    
    
    
    (22.5
    )
    
    
    
    
    
    
    (22.5
    )Investments in computer software
    
    
    
    
    
    
    (11.7
    )
    
    
    (7.9
    )
    
    
    
    
    
    
    (19.6
    )Other
    
    
    
    
    
    
    
    
    
    
    .3
    
    
    
    
    
    
    
    .3Net cash used by investing activities
    
    
    
    
    
    
    (35.5
    )
    
    
    (67.5
    )
    
    
    
    
    
    
    (103.0
    )Financing activities:Proceeds from issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    32.4
    
    
    
    
    
    
    
    32.4Repayments of long-term debt
    
    
    
    
    
    
    (125.3
    )
    
    
    (1.9
    )
    
    
    
    
    
    
    (127.2
    )Net change in revolving credit facilities
    
    
    
    
    
    
    42.0
    
    
    
    4.9
    
    
    
    
    
    
    
    46.9Net change in other short-term debt
    
    
    
    
    
    
    20.0
    
    
    
    7.6
    
    
    
    
    
    
    
    27.6Purchases of treasury stock
    
    
    (90.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90.6
    )Net change in intercompany accounts
    
    
    70.8
    
    
    
    (42.4
    )
    
    
    (28.4
    )
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    16.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.5Other
    
    
    3.8
    
    
    
    34.1
    
    
    
    
    
    
    
    
    
    
    
    37.9Net cash provided (used) by financing activities
    
    
    .5
    
    
    
    (71.6
    )
    
    
    14.6
    
    
    
    
    
    
    
    (56.5
    )Effect of exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (.8
    )
    
    
    
    
    
    
    (.8
    )Net increase (decrease) in cash and
cash equivalents
    
    
    .5
    
    
    
    42.9
    
    
    
    41.0
    
    
    
    
    
    
    
    84.4Cash and
cash equivalents at beginning of period
    
    
    
    
    
    
    (22.9
    )
    
    
    119.5
    
    
    
    
    
    
    
    96.6Cash and cash equivalents at end of period
    
    $
    .5
    
    
    $
    20.0
    
    
    $
    160.5
    
    
    $
    
    
    
    $
    181.0
 17




---



##### Table of Contents



Note 9. Supplemental Consolidating Condensed Financial Information (continued) CONSOLIDATING CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 2003
(Unaudited) Other
    
    
    
    
    
    Consoli-Parent
    
    
    
    
    
    Subsid-
    
    Elimin-
    
    dated(Dollars in millions)
    
    Company
    
    ASI
    
    iaries
    
    ations
    
    TotalASSETSCurrent assets:Cash and cash equivalents
    
    $
    .1
    
    
    $
    (70.4
    )
    
    $
    182.0
    
    
    
    
    
    
    $
    111.7Accounts receivable, net
    
    
    
    
    
    
    481.7
    
    
    
    541.1
    
    
    
    
    
    
    
    1,022.8Inventories
    
    
    
    
    
    
    422.6
    
    
    
    487.3
    
    
    
    
    
    
    
    909.9Other current assets
    
    
    
    
    
    
    256.5
    
    
    
    189.8
    
    
    
    
    
    
    
    446.3Total current assets
    
    
    .1
    
    
    
    1,090.4
    
    
    
    1,400.2
    
    
    
    
    
    
    
    2,490.7Facilities, net
    
    
    
    
    
    
    582.1
    
    
    
    933.3
    
    
    
    
    
    
    
    1,515.4Goodwill, net
    
    
    
    
    
    
    137.2
    
    
    
    1,003.2
    
    
    
    
    
    
    
    1,140.4Investment in subsidiaries
    
    
    1,441.1
    
    
    
    
    
    
    
    
    
    
    $
    (1,441.1
    )
    
    
    Other assets
    
    
    
    
    
    
    510.6
    
    
    
    221.6
    
    
    
    
    
    
    
    732.2Total assets
    
    $
    1,441.2
    
    
    $
    2,320.3
    
    
    $
    3,558.3
    
    
    $
    (1,441.1
    )
    
    $
    5,878.7LIABILITIES AND SHAREHOLDERS
(DEFICIT) EQUITYCurrent liabilities:Loans payable to banks
    
    
    
    
    
    $
    
    
    
    $
    49.8
    
    
    
    
    
    
    $
    49.8Current maturities of long-term debt
    
    
    
    
    
    
    1.5
    
    
    
    1.0
    
    
    
    
    
    
    
    2.5Other current liabilities
    
    
    
    
    
    
    863.4
    
    
    
    1,117.8
    
    
    
    
    
    
    
    1,981.2Total current liabilities
    
    
    
    
    
    
    864.9
    
    
    
    1,168.6
    
    
    
    
    
    
    
    2,033.5Long-term debt
    
    
    
    
    
    
    1,489.2
    
    
    
    137.6
    
    
    
    
    
    
    
    1,626.8Reserve for post-retirement benefits
    
    
    
    
    
    
    326.4
    
    
    
    331.0
    
    
    
    
    
    
    
    657.4Intercompany accounts, net
    
    $
    727.4
    
    
    
    251.4
    
    
    
    (978.8
    )
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    481.5
    
    
    
    365.7
    
    
    
    
    
    
    
    847.2Total liabilities
    
    
    727.4
    
    
    
    3,413.4
    
    
    
    1,024.1
    
    
    $
    
    
    
    
    5,164.9Total shareholders equity (deficit)
    
    
    713.8
    
    
    
    (1,093.1
    )
    
    
    2,534.2
    
    
    
    (1,441.1
    )
    
    
    713.8Total liabilities and shareholders equity (deficit)
    
    $
    1,441.2
    
    
    $
    2,320.3
    
    
    $
    3,558.3
    
    
    $
    (1,441.1
    )
    
    $
    5,878.7
 18




---



##### Table of Contents



Note 10. Segment Data Summary Segment and Income Statement Data
(Dollars in millions)
(Unaudited) Three months ended
    
    Six months endedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Sales:Air Conditioning Systems and Services
    
    $
    1,515.6
    
    
    $
    1,355.7
    
    
    $
    2,678.9
    
    
    $
    2,439.4Bath and Kitchen
    
    
    634.2
    
    
    
    568.8
    
    
    
    1,235.6
    
    
    
    1,111.7Vehicle Control Systems
    
    
    425.5
    
    
    
    340.5
    
    
    
    845.8
    
    
    
    664.5$
    2,575.3
    
    
    $
    2,265.0
    
    
    $
    4,760.3
    
    
    $
    4,215.6Segment income:Air Conditioning Systems and Services
    
    $
    205.7
    
    
    $
    179.9
    
    
    $
    298.8
    
    
    $
    262.9Bath and Kitchen
    
    
    51.0
    
    
    
    35.7
    
    
    
    101.3
    
    
    
    70.8Vehicle Control Systems
    
    
    53.4
    
    
    
    48.0
    
    
    
    112.3
    
    
    
    94.7310.1
    
    
    
    263.6
    
    
    
    512.4
    
    
    
    428.4Equity in net income of unconsolidated joint ventures
    
    
    8.4
    
    
    
    6.7
    
    
    
    15.0
    
    
    
    11.2318.5
    
    
    
    270.3
    
    
    
    527.4
    
    
    
    439.6Interest expense
    
    
    (28.5
    )
    
    
    (30.1
    )
    
    
    (57.8
    )
    
    
    (60.3
    )Corporate and other expenses
    
    
    (62.2
    )
    
    
    (46.2
    )
    
    
    (119.2
    )
    
    
    (92.8
    )Income before income taxes
    
    $
    227.8
    
    
    $
    194.0
    
    
    $
    350.4
    
    
    $
    286.5
 For a comparative analysis of this Summary Segment and Income Statement Data,
see Managements Discussion and Analysis of Financial Position and Results of
Operations on the following pages. 19




---



##### Table of Contents



PART 1. FINANCIAL INFORMATION 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for the Second Quarter and First Six Months of 2004
Compared with the Second Quarter and First Six Months of 2003 Overview We achieved record second-quarter sales, segment income and net income in
the second quarter of 2004. Earnings were $0.73 per diluted share, up 20% from
$0.61 per diluted share a year ago, adjusted for the three-for-one stock split
effected in May 2004. Sales were $2.575 billion, up 14% from $2.265 billion a
year ago. Net income rose to $159.7 million from $133.9 million, up 19%. All
three business segments contributed to the gains, which were aided by favorable
foreign translation effects. We achieved these results in an improving
economic environment. Economic conditions appear to be stabilizing in Europe,
the U.S. economy improved and growth in Asia was steady. Segment income for
the second quarter of 2004 was $310.1 million, an increase of 18%, from strong
improvements in all segments, aided by favorable foreign exchange translation
effects. Excluding favorable foreign exchange translation effects, segment
income for the quarter increased 16% over the 2003 quarter. Operating margins
increased to 12.0% from 11.6% in the second quarter of 2003 despite absorbing
streamlining costs of $13 million, essentially all in Bath and Kitchen, and
incremental Vehicle Control Systems warranty expense of $14 million. For the
first half of 2004, sales increased 13%, segment income increased 20%, net
income rose by 24% and earnings per diluted share were up 22%. The following discussion and analysis addresses year-over-year changes in
the line items shown in the Summary Segment and Income Statement Data in Note
10 of Notes to Financial Statements. Year-over-year changes in segment sales
and segment income and, in certain cases, segment operating margins, for 2004
compared with 2003 are presented both with and without the effects of foreign
exchange translation. Presenting results of operations excluding certain
recorded amounts is not in conformity with generally accepted accounting
principles (GAAP), but management analyzes the data in this manner because it
is useful to them in understanding the operational performance of the business.
Management also uses data adjusted in this manner for purposes of determining
incentive compensation. Accordingly, management believes that presenting the
analysis in this manner is also useful to shareholders in understanding the
core business segment operating results and trends. Approximately half of our
business is outside the U.S., therefore changes in exchange rates can have a
significant effect on results of operations when presented in U.S. dollars.
Management consistently analyzes sales, segment income and segment operating
margins with and without the effects of foreign exchange translation and
believes these comparisons help shareholders better understand the effect of
foreign exchange translation on our results. Changes in sales and segment
income excluding foreign exchange effects are calculated using current year
sales and segment income translated at prior year exchange rates. These
additional measurements are not meant to be a substitute for measurements
prepared in conformity with GAAP, nor to be considered in isolation. 20




---



##### Table of Contents



Segment Operating Results Following is an analysis of changes in total sales, segment income and
operating margin for the Company for the second quarter of 2004 compared with
the second quarter of 2003, showing the effect of foreign exchange translation. Three Months EndedJune 30, 2004Three
    
    
    
    
    
    
    
    
    
    Excluding foreignMonthsEnded
    
    
    
    
    
    
    
    
    
    exchange translationJune 30,
    
    
    
    
    
    Percentage
    
    2004
    
    Percentage2003
    
    2004
    
    Change
    
    Adjusted
    
    Change(Dollars in millions)
    
    Reported
    
    Reported
    
    Reported
    
    Amount
    
    AdjustedSegment sales
    
    $
    2,265.0
    
    
    $
    2,575.3
    
    
    
    14
    %
    
    $
    2,519.8
    
    
    
    11
    %Segment income
    
    $
    263.6
    
    
    $
    310.1
    
    
    
    18
    %
    
    $
    306.1
    
    
    
    16
    %Segment operating margin
    
    
    11.6
    %
    
    
    12.0
    %
    
    
    0.4
    pts.
    
    
    12.1
    %
    
    
    0.5
    pts.
 Sales in the second quarter of 2004 were $2.575 billion, an increase of
$310 million, or 14% (11% excluding favorable foreign exchange translation
effects), from $2.265 billion in the second quarter of 2003. Sales increased
12% for both Air Conditioning Systems and Services and Bath and Kitchen, and
25% for Vehicle Control Systems. Segment income for the second quarter of 2004 was $310.1 million, an
increase of $46.5 million, or 18% (16% excluding favorable foreign exchange
translation effects), from $263.6 million in the second quarter of 2003.
Segment income increased 14% for Air Conditioning Systems and Services, 43% for
Bath and Kitchen and 11% for Vehicle Control Systems. Sales for the first half of 2004 were $4.760 billion, an increase of $544
million, or 13% (9% excluding favorable foreign exchange translation effects),
from $4.216 billion in the first half of 2003. Sales increased 10% for Air
Conditioning Systems and Services, 11% for Bath and Kitchen and 27% for Vehicle
Control Systems. Segment income was $512.4 million for the first half of 2004, an increase
of $84 million or 20% (15% excluding favorable foreign exchange translation
effects), compared with $428.4 million in the first half of 2003. Segment
income increased 14% for Air Conditioning Systems and Services, 43% for Bath
and Kitchen and 19% for Vehicle Control Systems. Following is an analysis of changes in total sales, segment income and
operating margin for Air Conditioning Systems and Services for the second
quarter of 2004 compared with the second quarter of 2003, showing the effect of
foreign exchange translation. Three Months EndedJune 30, 2004Three
    
    
    
    
    
    
    
    
    
    Excluding foreignMonthsEnded
    
    
    
    
    
    
    
    
    
    exchange translationJune 30,
    
    
    
    
    
    Percentage
    
    2004
    
    Percentage2003
    
    2004
    
    Change
    
    Adjusted
    
    Change(Dollars in millions)
    
    Reported
    
    Reported
    
    Reported
    
    Amount
    
    AdjustedSegment sales
    
    $
    1,355.7
    
    
    $
    1,515.6
    
    
    
    12
    %
    
    $
    1,506.0
    
    
    
    11
    %Segment income
    
    $
    179.9
    
    
    $
    205.7
    
    
    
    14
    %
    
    $
    205.3
    
    
    
    14
    %Segment operating margin
    
    
    13.3
    %
    
    
    13.6
    %
    
    
    0.3
    pts.
    
    
    13.6
    %
    
    
    0.3
    pts.
 21




---



##### Table of Contents



Sales of Air Conditioning Systems and Services increased 12% (11%
excluding favorable foreign exchange translation effects) to $1.516 billion for
the second quarter of 2004, from $1.356 billion for the second quarter of 2003.
This increase resulted from a strong performance in residential product sales,
improvements in commercial equipment and international markets, and continuing
growth in the parts, services and solutions business. The commercial equipment market in the U.S. was up overall an estimated 4%
in the quarter, based upon preliminary data published by ARI (Air-Conditioning
& Refrigeration Institute for commercial unitary markets and our own estimates
for applied markets), following full year decreases of 4% in 2003, 11% in 2002,
and 8% in 2001. The commercial unitary market was up an estimated 6% following
a 7% increase in the first quarter. The applied equipment market was up an
estimated 1.5% to 2% in the second quarter, following an almost 5% increase in
the first quarter. Internationally, markets in Europe strengthened, the Middle
East was flat, while the Asia-Pacific region overall remained healthy. Our
global commercial equipment sales, which represent about 25% of total Company
sales, increased 5% (4% excluding favorable foreign exchange translation
effects) as both unitary and applied equipment sales increased. Sales growth
in our commercial unitary product line, which was up 7% (6% excluding favorable
foreign exchange translation effects), was particularly strong in Europe, up
double digits and up mid-single digits in the Americas. This was slightly
higher than the market. In the applied business in the U.S., we did not pursue
low-margin business and therefore sacrificed some market share in the quarter.
While this approach has cost us some sales, we realized some improvement in
pricing related to the 2% to 3% price increases we announced in the first
quarter of 2004. Because of raw material cost inflation we have announced
additional price increases of 3% effective in August. The increasing demand for
unitary products in the U.S. has also led to better pricing. We realized price
improvements in the quarter which offset commodity cost inflation in unitary
products. Equipment prices, globally, were down modestly as the markets outside
the Americas continue to be more competitive. We ended the quarter with a
backlog of $637 million, down slightly from the first quarter and 1% ahead of
last years second quarter levels, both excluding foreign exchange effects.
Global sales in our parts, services and solutions business grew 10% (9%
excluding favorable foreign exchange translation effects) in the second
quarter, in line with our expectations both for 2004 and for the long term, and
slightly stronger than the 8% growth we experienced in the first quarter of
2004. Sales of our residential products continued to grow strongly, up 25%. We
continue to outperform the domestic residential unitary market, which we
estimate was up 15% for the second quarter of this year (based upon preliminary
ARI data for residential unitary products). Our distributors experienced
strong sell-through of our products to dealers in the quarter, resulting in
their inventory levels remaining low versus historical levels. In addition,
combined factory and distributor inventory levels ended the second quarter
approximately even with the average levels since 1992, even though the market
has grown substantially. In the marketplace, consumers continue to look for
reliability and efficiency options. Our high-efficiency product lines
capitalize on this demand. Trane and American Standard high efficiency units
offer consumers significant energy cost savings. We further strengthened our
residential distribution as we continued to upgrade our current dealer network,
sign up new dealers, and grow the Home Depot referral program. Sales through
the Home Depot program continue to gain momentum. Our overall share position in
residential air conditioning products grew in the quarter, and we are on track
to meet our annual goal of a one-half percentage point share increase. 22




---



##### Table of Contents



Segment income of Air Conditioning Systems and Services increased 14%
(with little effect from foreign exchange translation effects) to $205.7
million in the second quarter of 2004 from $179.9 million in the second quarter
of 2003. Margins were 13.6% in the second quarter of 2004, compared with 13.3%
for the second quarter of 2003. We continue to achieve strong results from our
productivity initiatives, which offset cost escalations. Volume and mix more
than offset international price deterioration in our applied commercial
equipment business and we absorbed commodity cost increases, particularly
steel. Segment income for the first half of 2004 increased 14% (13% excluding
favorable foreign exchange translation effects) to $298.8 million from $262.9
million essentially for the reasons mentioned for the second quarter increase. Following is an analysis of changes in total sales, segment income and
operating margin for Bath and Kitchen for the second quarter of 2004 compared
with the second quarter of 2003, showing the effect of foreign exchange
translation. Three Months EndedJune 30, 2004Three
    
    
    
    
    
    
    
    
    
    Excluding foreignMonthsEnded
    
    
    
    
    
    
    
    
    
    exchange translationJune 30,
    
    
    
    
    
    Percentage
    
    2004
    
    Percentage2003
    
    2004
    
    Change
    
    Adjusted
    
    Change(Dollars in millions)
    
    Reported
    
    Reported
    
    Reported
    
    Amount
    
    AdjustedSegment sales
    
    $
    568.8
    
    
    $
    634.2
    
    
    
    12
    %
    
    $
    611.8
    
    
    
    8
    %Segment income
    
    $
    35.7
    
    
    $
    51.0
    
    
    
    43
    %
    
    $
    50.6
    
    
    
    42
    %Segment operating margin
    
    
    6.3
    %
    
    
    8.0
    %
    
    
    1.7
    pts.
    
    
    8.3
    %
    
    
    2.0
    pts.
 Sales of Bath and Kitchen increased 12% (8% excluding favorable foreign
exchange translation effects) to $634.2 million in the second quarter of 2004,
from $568.8 million in the second quarter of 2003. All of our major regions
contributed to this strong performance. In Europe, our sales grew 13% (6%
excluding favorable foreign exchange translation effects). We are continuing to
reinforce our strong market positions across the continent. In the second
quarter we launched new suites and won several large commercial contracts. We
continued to strengthen our position in Eastern Europe with several new product
launches and the opening of a new luxury showroom in St. Petersburg, Russia.
Sales in the Americas increased 9% (with little effect from foreign exchange
translation). Sales of our new Champion toilet continue to expand and we
continue to invest in promotion which we believe benefits not only the Champion
product line, but helps create awareness and interest in all American Standard
products. The Champion product line was featured in the Home Depot catalogue.
At Lowes we rolled out a new retail suite, and the Champion has been launched
in the second quarter coinciding with our national media program. In Asia,
sales rose 13% (12% excluding favorable foreign exchange translation effects)
off a small but growing base, aided by continued promotional activities
surrounding our suites. Sales of Bath and Kitchen for the first half of 2004
increased 11% (5% excluding favorable foreign exchange translation effects) to
$1.236 billion from $1.112 billion in the first half of 2003. This increase
was due principally to the same factors affecting second quarter results. 23




---



##### Table of Contents



Segment income of Bath and Kitchen increased 43% (42% excluding favorable
foreign exchange translation effects) to $51.0 million for the second quarter
of 2004 from $35.7 million in the second quarter of 2003. Margins increased to
8.0% in the second quarter of 2004 from 6.3% in the second quarter of 2003 (up
200 basis points excluding unfavorable foreign exchange translation effects).
Segment income in the second quarter of 2004 included a $13 million charge for
streamlining costs related to the closure of a plant in Europe and additional
workforce reductions throughout the Bath and Kitchen business, which decreased
margins by 210 basis points. Bath and Kitchen margins in the second quarter of
2004 benefited from higher pricing in Europe, higher volume and mix, primarily
driven by increased sales of the Champion product line, and the absence of the
operational issues that burdened our results in the first half of last year.
Additionally, productivity offset both cost escalations and our additional
investments in new products, suites and new advertising programs. Segment
income for the first half of 2004 increased 43% (35% excluding favorable
foreign exchange translation effects) to $101.3 million from $70.8 million in
the first half of 2003. The increase resulted primarily for the same reasons
as those responsible for the second quarter increase. Following is an analysis of changes in total sales, segment income and
operating margin for Vehicle Control Systems for the second quarter of 2004
compared with the second quarter of 2003, showing the effect of foreign
exchange translation. Three Months EndedJune 30, 2004Three
    
    
    
    
    
    
    
    
    
    Excluding foreignMonthsEnded
    
    
    
    
    
    
    
    
    
    exchange translationJune 30,
    
    
    
    
    
    Percentage
    
    2004
    
    Percentage2003
    
    2004
    
    Change
    
    Adjusted
    
    Change(Dollars in millions)
    
    Reported
    
    Reported
    
    Reported
    
    Amount
    
    AdjustedSegment sales
    
    $
    340.5
    
    
    $
    425.5
    
    
    
    25
    %
    
    $
    402.1
    
    
    
    18
    %Segment income
    
    $
    48.0
    
    
    $
    53.4
    
    
    
    11
    %
    
    $
    50.2
    
    
    
    5
    %Segment operating margin
    
    
    14.1
    %
    
    
    12.5
    %
    
    
    -1.6
    pts.
    
    
    12.5
    %
    
    
    -1.6
    pts.
 Sales of Vehicle Control Systems for the second quarter of 2004 were
$425.5 million, an increase of 25% (18% excluding favorable foreign exchange
translation effects) from $340.5 million in the second quarter of 2003. The
increase, exclusive of foreign exchange effects, was driven by higher truck
builds, increased content per vehicle, including new applications and continued
globalization of our technology. Sales in Europe, our largest market, increased
23% (16% excluding favorable foreign exchange translation effects) in the
second quarter. This was driven by a 33% (26% excluding favorable
foreign exchange translation effects) increase in sales to our European
truck and bus original equipment manufacturing customers and the improvement in
aftermarket sales and outperformed the European truck and bus market, which we
believe, grew an estimated 21%. Sales were up 36% in North America (44%
excluding unfavorable foreign exchange translation effects), outperforming the
market. In Asia and Latin America, our sales also outperformed truck and bus
markets in the quarter. Backlog at quarter end was $699 million, up 39% (30%
excluding favorable foreign exchange translation effects) from last year. Sales
of Vehicle Control Systems for the first half of 2004 increased 27% (15%
excluding favorable foreign exchange translation effects) to $845.8 million
from $664.5 million in the first half of 2003, primarily for the reasons cited
for the second quarter increase. 24




---



##### Table of Contents



Segment income for Vehicle Control Systems for the second quarter of 2004
increased 11% (5% excluding favorable foreign exchange translation effects) to
$53.4 million from $48.0 million in the second quarter of 2003. Segment
operating margins declined from 14.1% in the second quarter of 2003 to 12.5% in
the second quarter of 2004. Strong volume growth and productivity improvements
were partially offset by higher warranty expense. In the second quarter of 2004
we settled a warranty issue with one of our major customers, which caused us to
recognize an incremental $14 million of warranty expense in the quarter.
Segment income for Vehicle Control Systems for the first half of 2004 was
$112.3 million, an increase of 19% (6% excluding favorable foreign exchange
translation effects) from $94.7 million in the first half of 2003, primarily
for the reasons cited for the second quarter increase. Other Summary Segment and Income Data Items Equity in net income of unconsolidated joint ventures increased to $8.4
million for the second quarter of 2004 from $6.7 million for the second quarter
of 2003 and increased to $15.0 million for the first half of 2004, from $11.2
million in the first half of 2003. The increase in the quarter and first half
of the year primarily resulted from the performance of our air conditioning
compressor joint venture in the U.S. and our truck brake joint venture in
India. The Meritor Wabco joint venture in the U.S. did not contribute to the
equity income improvement due to the adverse impact of foreign exchange on
products purchased from our European operations. Interest expense decreased by $1.6 million in the second quarter of 2004
and by $2.5 million in the first half of 2004 compared to the year-earlier
quarter and first half, due to lower average debt balances. Corporate and other expenses increased by $16 million in the second
quarter of 2004 and by $26.4 million in the first half of 2004 compared to the
year-earlier quarter and first half. The increases were due principally to
realized foreign exchange transaction effects, increased incentive
compensation, and provisions for self insurance and post-retirement costs.
Corporate and other expenses, shown in the Summary Segment and Income Statement
Data table in Note 10 of Notes to Financial Statements, primarily include some
of the expenses classified as selling and administrative expenses in the
Unaudited Summary Consolidated Statement of Income on page 2. Corporate and
other expenses also include certain items classified in Other expense in the
Unaudited Summary Consolidated Statement of Income. Period-to-period changes
in the significant components of Other expense are explained by the comments in
this paragraph on corporate expenses, and in the first paragraph of this
section on equity in net income of unconsolidated joint ventures. The income tax provision for the second quarter of 2004 was $68.1 million
and for the first half of 2004 was $106.1 million, or 29.9% and 30.3%,
respectively, of income before income taxes, compared with provisions of $60.1
million and $88.8 million, or 31.0% of income before income taxes in the same
periods of 2003. The effective income tax rates for the 2004 periods was lower
than the 31% rate we had expected as we recognized the benefit of a foreign net
operating loss of $2.7 million previously considered unrealizable. 25




---



##### Table of Contents



Liquidity and Capital Resources Cash flow continues to increase as our earnings increased and we used our
working capital more effectively by reducing inventory levels. Operating
activities provided net cash of $256.8 million for the first six months of
2004, compared with net cash provided of $244.7 million for the same period of
2003. That $12.1 million increase was primarily the result of higher net
income and lower net working capital usage, substantially offset by higher tax
payments in 2004 because in the first half of 2003 we received a refund of
taxes. In addition, in 2004 we had payments of job elimination expenses accrued
at the end of 2003 and higher incentive compensation payments than in 2003. In investing activities, we made capital expenditures of $67.2 million for
the first half of 2004. This compared with capital expenditures of $83.7
million in the first half of 2003, including $22.5 million of investments in
affiliated companies and other businesses. We invested $18.5 million in
computer software in the first half of 2004 and $19.6 million in the first half
of 2003. We also made a loan of $19.2 million to our unconsolidated Alliance
Compressors joint venture in the first half of 2004. Investing activities in
2004 were partly offset by proceeds of $9.9 million from the sale of
miscellaneous assets, consisting primarily of the sale of land in the U.S. for
$9.4 million. The excess of cash provided by operating activities over cash used by
investing activities in the first half of 2004 was $161.8 million and was used
to fund net financing activities of $36.0 million, resulting in a net increase
in cash of $125.9 million. Financing expenditures consisted primarily of the
purchase of approximately 6.2 million shares of the Companys common stock for
$222.6 million pursuant to the Companys share repurchase program. Those
expenditures were partly offset by net borrowings of $158.2 million and by cash
proceeds of $19.0 million realized from the exercise of stock options and $5.7
million realized from Sterling denominated foreign exchange forward contracts
and other miscellaneous transactions. This compares with an excess of cash
provided by operating activities over cash used by investing activities in the
first half of 2003 totaling $141.7 million that was used to fund net financing
activities of $56.5 million, resulting in an increase in cash of $84.4 million.
Financing expenditures in the first half of 2003 consisted primarily of net
debt repayments of $20.3 million and the purchase of approximately 4.0 million
shares of the Companys common stock for $90.6 million pursuant to the
Companys share repurchase program. Those expenditures were partly offset by
cash proceeds of $16.5 million realized from the exercise of stock options and
cash proceeds of $34.2 million from foreign exchange forward contracts, and
other miscellaneous transactions. We have one primary bank credit agreement. That agreement provides the
Company and certain subsidiaries (the Borrowers) with a senior, unsecured,
five-year $1 billion multi-currency revolving credit facility that expires in
November 2006. We did not renew a related 364-day, U.S. dollar revolving
credit facility of $150 million when it expired on November 4, 2003, because
amounts available under the five-year facility and other sources of financing
available were considered sufficient for Company needs. We also have a
Euro-denominated, 364-day bank credit agreement of $49 million (at June 30,
2004 exchange rates) that expires on October 31, 2004, and that was fully
utilized as of June 30, 2003. Debt outstanding under that agreement was
classified as long-term debt in the balance sheet as of June 30, 2004, because
we have the ability and the intent to renew it or to refinance it with
borrowings under the five-year facility. In addition, we have other non-U.S.
lines of credit for $22 million. 26




---



##### Table of Contents



The primary credit agreement contains various covenants that limit, among
other things, indebtedness, liens, sale and leaseback transactions, subsidiary
indebtedness including preferred stock, mergers, consolidations, dissolutions
and asset sales, investments or acquisitions, dividends and redemptions of
capital stock, loans and advances, and certain other business activities. The
covenants also require the Company to meet certain financial tests: ratio of
consolidated debt to EBITDA (Earnings before Interest, Taxes, Depreciation and
Amortization), and consolidated free cash flow to interest expense. We are
currently in compliance with the covenants contained in the credit agreement. At June 30, 2004, our total indebtedness was $1.814 billion. We had
remaining borrowing capacity under our primary bank credit agreement at June
30, 2004, of $535 million after reduction for borrowings of $346 million and
$119 million of outstanding letters of credit. We have $11 million available
under other bank credit facilities after reduction for letters of credit usage
of $11 million. In addition, we had $189 million available at June 30, 2004,
under overdraft facilities that can be withdrawn by the banks at any time. In
addition, we had other outstanding letters of credit issued by other banks of
$56 million as of June 30, 2004. We believe that the amounts available from operating cash flows, funds
available under our credit agreements and future borrowings under the remaining
$540 million of a $1 billion shelf registration statement filed with the
Securities and Exchange Commission in 1998 will be sufficient to meet our
expected operating needs and planned capital expenditures for the foreseeable
future. Off-Balance Sheet Arrangements We employ several means to manage our liquidity and are not dependent upon
any one source of funding. In addition to funds available from operating cash
flows, bank credit agreements and the public debt and equity markets, we use
two principal off-balance sheet techniques: operating leases and receivables
financing. Operating leases are employed as an alternative to purchasing
certain property, plant and equipment. Future rental commitments under all
non-cancelable leases have not changed significantly from the amounts disclosed
in the Companys Annual Report on Form 10-K for the year ended December 31,
2003. To reduce our borrowing cost, during 2002 we established new accounts
receivable financing facilities in Europe and the U.S., and terminated a
previously existing arrangement in the U.S. The amounts of receivables sold
under these securitization programs have not changed significantly from the
amounts disclosed in the Companys Annual Report on Form 10-K for the year
ended December 31, 2003. We have commitments and performance guarantees, including energy savings
guarantees totaling $39 million extending from 2004 to 2021, under long-term
contracts related to our air conditioning equipment and system controls.
Through June 30, 2004 we have experienced no net losses under such energy
savings guarantees and consider the probability of losses to be unlikely. We
also guarantee debt of third parties in the amount of $3 million as of June 30,
2004. We have contractual obligations for long-term debt, leases, purchase
obligations, unfunded pension and post-retirement benefits and certain other
long-term liabilities that were summarized in a table of aggregate contractual
obligations as of December 31, 2003, in our 2003 Annual Report on Form 10-K.
There have been no material changes in those obligations since December 31,
2003. 27




---



##### Table of Contents



Disclosure Regarding Forward Looking Statements Certain of the statements contained in this report (other than the
historical financial data and other statements of historical fact), including,
without limitation, statements as to managements expectations and beliefs, are
forward-looking statements. Forward-looking statements are made based upon
managements good faith expectations and beliefs concerning future developments
and their potential effect upon the Company. There can be no 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-K includes important information as to risk factors in
the sections titled Legal Proceedings and Managements Discussion and
Analysis of Financial Condition and Results of Operations. Many important
factors could cause actual results to differ materially from managements
expectations, including:  
    
    the level of end market activity in the Companys Air
Conditioning Systems and Services and Bath and Kitchen businesses and
the level of truck and bus production in the Companys Vehicle Control
Systems markets;
    
    the extent to which the Company will be able to realize the
estimated savings from Materials Management and Six Sigma initiatives;
    
    additional developments may occur that could affect the Companys
estimate of asbestos liabilities and recoveries, such as the nature of
future claims, the average payment to claimants, the amount of
insurance recovery or legislation affecting claims, criteria or
payout;
    
    unpredictable difficulties or delays in the development of new
product technology;
    
    changes in U.S. or international economic conditions, such as
inflation, interest rate fluctuations, foreign exchange rate
fluctuations or recessions in the Companys markets;
    
    pricing changes to the Companys supplies or products or those of
its competitors, and other competitive pressures on pricing and sales;
    
    increased difficulties in obtaining the supply of basic materials
such as steel, aluminum, copper, clays, electronics and natural gas
necessary to avoid disruptions of operations;
    
    increased difficulties in obtaining a consistent supply of those
basic materials at pricing levels which will not have an adverse
effect on results of operations;
    
    labor relations; integration of acquired businesses;
    
    difficulties in obtaining or retaining the management and other
human resource competencies that the Company needs to achieve its
business objectives;
    
    the impact on the Company or a segment from the loss of a
significant customer or a few customers;
    
    risks generally relating to the Companys international
operations, including governmental, regulatory or political changes; 28




---



##### Table of Contents




    
    changes in environmental, health or other regulations that may
affect one or more of the Companys current products or future
products;
    
    assumptions made related to post-retirement benefits, including
rate of return on plan assets, the discount rate applied to projected
benefit obligations and the rate of increase in the health care cost
trend rate;
    
    changes in laws or different interpretations of laws that may
affect the Companys expected effective tax rate for 2004;
    
    transactions or other events affecting the need for, timing and
extent of the Companys capital expenditures. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes to the disclosure on this matter made in
the Companys Annual Report on Form 10-K for the year ended December 31, 2003. 
 Item 4. Controls and Procedures The Company has established a Disclosure Controls Committee that assists
the Chief Executive Officer and Chief Financial Officer in their evaluation of
the Companys disclosure controls and procedures. Our Chief Executive Officer
and Chief Financial Officer have concluded, based on their evaluation as of the
end of the period covered by this report, that our disclosure controls and
procedures, as defined in the Securities Exchange Act of 1934, Rule 13a-15(e),
are effective to ensure that the information required to be disclosed in the
reports that the Company files or submits under the Securities Act of 1934 is
recorded, processed summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. There have been
no significant changes in our internal controls over financial reporting or in
other factors that could significantly affect these controls subsequent to the
date of the previously mentioned evaluation. 29




---



##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings. In October 1999, in Haynes Trane Service Agency, Inc. and Frederick M.
Haynes v. American Standard, Inc., d/b/a The Trane Company,in the United
States District Court for the District of Colorado, verdicts were returned
against the Company for a total of $18 million on the claim that it wrongfully
terminated distribution agreements. On August 28, 2002, the appellate court
ruled in favor of the Company and vacated the $18 million judgment. The
appellate court also reinstated the Companys counterclaims, including fraud,
and remanded to the trial court limited portions of Haynes initial claims. Over the years, the Company has been named as a defendant in numerous
lawsuits alleging various asbestos-related personal injury claims arising
primarily from sales of low-risk-profile products, such as boilers and railroad
brake shoes. The Company believes it has ample insurance and has never had an
unfavorable court judgment. In these asbestos-related lawsuits, the Company is usually named as one of
a large group of defendants, often in excess of one hundred companies. Many of
these lawsuits involve multiple claimants, do not allege a connection between
any Company product and the claimed injury or disease, and/or do not contain
any allegations regarding the type of claimed injury or disease incurred. As a
result, numerous lawsuits have been placed and may remain on inactive or
deferred dockets, which some jurisdictions have established. Through June 30, 2004, there have been 145,181 claims filed against the
Company. At June 30, 2004, there were 120,896 pending claims, compared with
116,020 at the end of 2003, and 96,463 and 52,171 at the end of 2002 and 2001,
respectively, reflecting updated information for all prior periods. Since
receipt of its first asbestos claim more than fifteen years ago, through June
30, 2004, the Company has resolved 24,285 claims, and settlements of $47.3
million have been made, for an average payment per claim of $1,948. These
settlement payments have substantially been paid or reimbursed or are expected
to be substantially reimbursed by insurance. The Company has recorded an obligation of $70 million as of June 30, 2004,
that represents the Companys estimated payments to claimants associated with
pending asbestos claims. It also has recorded a related asset of $47 million
that represents the probable recoveries from insurance companies for such
payments to claimants. The amount of the estimated obligations is based on the
claims resolved, the assessment of claims pending, the status of ongoing
litigation, defense and settlement strategies, and an assessment of other
entities responsibilities for the claims. The amount of the probable
recoveries is based on an analysis of insurance coverage, the insurers
financial strength and insurance payments made to date. Additional developments may occur that could affect the Companys estimate
of asbestos liabilities and recoveries, such as the nature of future claims,
the average payment to claimants and the amount of insurance recovery. No
liability has been recorded for unknown asbestos claims. However, the Company
has substantial insurance coverage for future claims. The Company believes that
it is not reasonably possible that a net loss material to the liquidity and
financial condition of the Company has been incurred. 30




---



##### Table of Contents



Item 2. Changes in Securities, and Use of Proceeds and Issuer Purchases of Equity Securities The Companys Board of Directors has on several occasions since 1998
approved expenditures under a program to purchase shares of the Companys
common stock in the open market. The Company has continually stated publicly
since 1998 its intention to repurchase shares of its common stock pursuant to
those authorizations. As of December 31, 2003, the unexpended authorization on
the current program was $313,032,214. A summary of the repurchase activity for
the first six months of 2004 follows. All share and per-share amounts reflect
the three-for-one stock split effective May 27, 2004. ISSUER PURCHASES OF EQUITY SECURITIES Total Number
    
    Maximum Dollarof Shares
    
    Value of SharesPurchased as Part
    
    That May Yet BeTotal Number
    
    Average
    
    of Publicly
    
    Purchased Underof Shares
    
    Price Paid
    
    Announced Plans
    
    the PlansPeriod
    
    Purchased
    
    per Share
    
    or Programs
    
    or Programs (a)January 1-January 31
    
    
    1,083,000
    
    
    $
    34.87
    
    
    
    1,083,000
    
    
    $
    275,270,521February 1-February 29
    
    
    1,740,000
    
    
    $
    35.71
    
    
    
    1,740,000
    
    
    $
    213,138,314March 1-March 31
    
    
    1,200,000
    
    
    $
    37.03
    
    
    
    1,200,000
    
    
    $
    168,699,956Total first quarter
    
    
    4,023,000
    
    
    $
    35.88
    
    
    
    4,023,000April 1-April 30
    
    
    765,000
    
    
    $
    36.32
    
    
    
    765,000
    
    
    $
    140,914,596May 1-May 31
    
    
    1,124,000
    
    
    $
    35.19
    
    
    
    1,124,000
    
    
    $
    101,359,010June 1- June 30
    
    
    221,000
    
    
    $
    38.43
    
    
    
    221,000
    
    
    $
    92,866,217Total second quarter
    
    
    2,110,000
    
    
    $
    35.94
    
    
    
    2,110,000Total through June 30
    
    
    6,133,000
    (b)
    
    
    
    
    
    
    6,133,000
  (a) As of December 31, 2003, the Company had two unexpended authorizations
by the Board of Directors under its share repurchase program. The first,
authorized by the Board of Directors on February 6, 2003, approved the
purchase of shares in an amount not to exceed $150,000,000 with no
expiration date. The unexpended balance of $63,032,214 under that
authorization as of December 31, 2003, was used to repurchase shares in
the first quarter of 2004. The second, authorized by the Board on
December 4, 2003, approved the purchase of shares in an amount not to
exceed $250,000,000, with no expiration date. The Company intends to
repurchase stock under this program in the future.(b) All share repurchases were effected in accordance with the safe harbor
provisions of Rule 10b-18 of the Securities Exchange Act. 31




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders. (a) Date of Annual Meeting. The Annual Meeting of Shareholders of the Company was held on May 4, 2004, at
American Standard College located at One Centennial Avenue, Piscataway, New
Jersey. (b) Election of Directors  Voting Results. The voting results set forth
below reflect a 3-for-1 stock split effective May 27, 2004. Nominee
    
    For
    
    WithheldSteven E. Anderson
    
    
    176,645,694
    
    
    
    17,962,476James F. Hardymon
    
    
    183,783,264
    
    
    
    10,824,906Ruth Ann Marshall
    
    
    184,057,686
    
    
    
    10,550,484
 Other Directors continuing in office:  Jared L. Cohon
Steven F. Goldstone
Edward E. Hagenlocker
Frederic M. Poses (c) Additional matters voted upon. The voting results set forth below reflect
a 3-for-1 stock split effective May 27, 2004. Approval of an amendment to the Companys Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock. BrokerFor
    
    Against
    
    Abstain
    
    Non-Votes174,112,176
    
    
    19,156,368
    
    
    
    1,339,626
    
    
    
    0
 Ratification of the appointment of Ernst and Young LLP as independent
certified public accountants for the year 2004. BrokerFor
    
    Against
    
    Abstain
    
    Non-Votes176,603,187
    
    
    17,078,595
    
    
    
    926,388
    
    
    
    0
 32




---



##### Table of Contents



Item 5. Other Matter There are two ways you may contact the Companys presiding director: Phone:
1-800-241-5689 in the United States
1-770-810-1127 outside of the United States In Writing:
Presiding Director
c/o American Standard Companies Inc.
One Centennial Avenue, Piscataway, NJ 08855 About Contacting the Presiding Director
The Board of Directors has designated the chairperson of the Corporate
Governance and Nominating Committee as the ''presiding director as that term
is defined in Section 303A.03 of the NYSE Listed Company Manual. Shareholders or other interested parties wishing to communicate with our board
of directors can call 1-800-241-5689 in the United States or 1-770-810-1127
outside of the United States and request to leave a message for the presiding
director. This reporting service is staffed by a third-party provider who will
take your message and deliver it to the presiding director. You may also contact the presiding director by writing to: Presiding Director
c/o American Standard Companies Inc., One Centennial Avenue, Piscataway, NJ
08855. Regardless of the method you use, your message will not be screened or edited
before it is delivered to the presiding director. The presiding director will
determine whether to relay your message to other members of the board. 
 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:  The Company filed a Current Report on Form 8-K dated April 14, 2004,
and furnished information under Items 9 and 12. This Form 8-K
contained, as an exhibit, a press release pertaining to the
financial results of the Company for the quarter ended March 31,
2004. 33




---



##### Table of Contents



SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. AMERICAN STANDARD COMPANIES INC./s/ Richard S. ParadiseRichard S. ParadiseVice President and Controller(Principal Accounting Officer)July 29, 2004
 34




---



##### Table of Contents



AMERICAN STANDARD COMPANIES INC. 
 INDEX TO EXHIBITS (The File Number of the Registrant, American Standard Companies Inc. is 1-11415) Exhibit No.
    
    Description3
    
    Amendment to the Restated Certificate of Incorporation of the Company.10
    
    American Standard Companies Inc. Corporate Officer Severance Plan (as
Amended and Restated as of July 8, 2004).10.1
    
    Addendum to the 2002 Omnibus Incentive Plan for Canadian participants
to comply with local regulation in Canada with respect to options
granted in that country. (Plan filed as Exhibit (10) to Holdings Form
10-Q for the quarter ended March 31, 2002.)10.2
    
    Addendum to Stock Incentive Plan for Canadian participants to comply
with local regulation in Canada with respect to options granted in
that country. (Plan filed as Exhibit (10)(xiv) to Holdings Form 10-K
for the fiscal year ended December 31, 2000.)10.3
    
    Summary of Employment Arrangement with G. Peter DAloia10.4
    
    Summary of Employment Arrangement with J. Paul McGrath12
    
    Ratio of Earnings to Fixed Charges31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
 35