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 2001 Compared with the Second Quarter and First Six Months of 2000

     Sales in the second quarter of 2001 were $2,039 million, a decrease of $7 million, or less than 1% (up 3% excluding unfavorable foreign exchange effects), from $2,046 million in the second quarter of 2000. Sales increased 4% for Air Conditioning Systems and Services but decreased 3% for Plumbing Products and 15% for Vehicle Control Systems.

     Segment income for the second quarter of 2001 was $271 million, an increase of $9 million, or 3% (6% excluding unfavorable foreign exchange effects), from $262 million in the second quarter of 2000. Segment income increased 11% for Air Conditioning Systems and Services but decreased 14% for Plumbing Products and 8% for Vehicle Control Systems.

     Sales for the first half of 2001 were $3,830 million, a decrease of $38 million, or 1% (up 2% excluding unfavorable foreign exchange effects), from $3,868 million in the first half of 2000. Sales increased 2% for Air Conditioning Systems and Services but decreased 2% for Plumbing Products and 13% for Vehicle Control Systems. Segment income was $454 million for the first half of 2001, an increase of 3% (6% excluding unfavorable foreign exchange effects), compared with $440 million in the first half of 2000. Segment income increased 10% for Air Conditioning Systems and Services but decreased 12% for Plumbing Products and 2% for Vehicle Control Systems.

     Sales of Air Conditioning Systems and Services increased 4% (5% excluding the effect of foreign exchange) to $1,342 million for the second quarter of 2001, from $1,293 million for the second quarter of 2000, primarily because of gains in U.S. residential and commercial businesses and growth in Asia. This growth was a strong performance relative to the generally weaker markets. We believe that in the U.S., the commercial market was flat and the residential market was down 5%. Worldwide commercial applied and commercial unitary sales increased 3% (5% excluding foreign exchange effects). The increase resulted principally from growth in the U.S. service and solutions business. U.S. sales also benefited from expansion of the global accounts program and sales of Integrated Comfort Systems, which combine new high-efficiency chillers, air handlers, terminal products and controls into one system. Sales outside the U.S., which are substantially commercial, improved by 10% when adjusted for divestitures and foreign exchange, with gains in Asia, Latin America and Canada. Improved markets, particularly in China, and expansion of the global accounts business drove the growth in Asia. Residential sales in the U.S. increased 6% benefiting from the Company’s strong position in the premium market, expanding distribution (including Sears and Home Depot in the retail channel), and continuing share gains in both cooling systems and furnaces. The market trend toward higher-efficiency units evident last year and in the first quarter of 2001 continued in the second quarter. The residential business gain was achieved despite the residential market decline and generally cooler-than-normal weather. Sales for Air Conditioning Systems and Services for the first half of 2001 increased by 2% (3% excluding foreign exchange effects) to $2,413 million from $2,359 million in the first half of 2000, primarily for the same reasons explaining the second quarter increase.

     Segment income of Air Conditioning Systems and Services increased 11% (with little effect from foreign exchange) to $193 million in the second quarter of 2001 from $174 million in the second quarter of 2000 as margins improved from 13.5% to 14.4%. The worldwide commercial business benefited primarily from improved volume in the services and solutions business, and higher volume in Asia. The residential business improved because of share gains, a shift in customer demand to higher-capacity, higher-efficiency products and cost improvements. Segment income for the first half of 2001 increased 10% (with little effect from foreign exchange) to $295 million from $268 million in the first half of 2000, essentially for the reasons mentioned for the second quarter increase.

     Sales of Plumbing Products decreased 3% (increased 1% excluding unfavorable foreign exchange effects) to $464 million in the second quarter of 2001, from $479 million in the second quarter of 2000. The exchange-adjusted increase was the result of gains in Europe and the Americas. The European increase (2% excluding foreign exchange) reflected volume improvements from share gains in some countries and the effects of minor acquisitions. The overall European economy was slightly weaker. Sales in the Americas increased less than 1% (more than 1% excluding foreign exchange effects) due to growth of 2% in the U.S., partly offset by a decline in Latin America. The increase in the U.S. was relatively strong considering that the second quarter of 2000 grew 25% and despite a softening economy. Sales through the retail channel expanded, but the wholesale channel weakened. Marketing initiatives mitigated the weakness in wholesale markets with a gain of four new wholesale distributors. Record sales of faucets were achieved in the quarter as market share in the retail channel increased. Sales in other international operations declined moderately. Sales of Plumbing Products for the first half of 2001 decreased 2% (increased 3% excluding unfavorable foreign exchange effects) to $919 million from $939 million in the first half of 2000. This exchange-adjusted increase was due principally to the same factors affecting second quarter results.

      Segment income of Plumbing Products for the second quarter of 2001 decreased 14% (9% excluding unfavorable foreign exchange effects), to $43 million from $50 million for the 2000 second quarter. The decrease was principally attributable to product mix, higher energy costs, some remaining manufacturing performance issues in the Americas and expenses related to the transition of production capacity to Mexico, partly offset by savings derived from materials management and Six Sigma initiatives. Segment income was down in the U.S. and Latin America and up slightly in Europe and Asia. Margins declined from 10.4% in the second quarter of 2000 to 9.3% in the second quarter or 2001. Segment income for the first half of 2001 decreased 12% (7% excluding unfavorable foreign exchange effects) to $79 million from $90 million in the first half of 2000. The decrease resulted primarily for the same reasons as those responsible for the second quarter decrease.

     Sales of Vehicle Control Systems for the second quarter of 2001 were $233 million, a decrease of 15% (8% excluding unfavorable foreign exchange effects) from $274 million in the second quarter of 2000, primarily because of a significant deterioration in the North American commercial vehicle market and a softening in European markets. Unit volumes of truck and bus production decreased 45% in the U.S. and 7% in Western Europe compared with the second quarter of 2000. The impact of these declines was tempered somewhat by an increase in Asia which continued to grow at an accelerated rate. Sales generally declined less than the markets, as new products, new applications with existing customers, geographic expansion and market penetration tempered the effects of the cyclical nature of the commercial vehicle markets. Sales in Europe (excluding export sales to the U.S. marketing joint venture) were down 4% from the second quarter of 2000 in a market that declined 7%. Similarly, although the North American market declined 45%, sales of anti-lock braking systems to the U. S. marketing joint venture declined 38%. Sales of Vehicle Control Systems for the first half of 2001 decreased 13% (6% excluding unfavorable foreign exchange effects) to $498 million from $570 million in the first half of 2000, primarily for the reasons cited for the second quarter decrease.

     Segment income for Vehicle Control Systems for the second quarter of 2001 decreased 8% (flat excluding unfavorable foreign exchange effects) to $35 million from $38 million in the second quarter of 2000, primarily reflecting lower volumes. Despite the lower volumes, margins improved from 13.9% in the second quarter of 2000 to 15.0% in the second quarter of 2001. Margins are benefiting from a structural reduction in cost as labor-intensive production continues to be shifted to the new facility in Poland and from productivity enhancements including Six Sigma and materials management initiatives. Segment income for Vehicle Control Systems for the first half of 2001 was $80 million, a decrease of 2% (increase of 7% excluding unfavorable foreign exchange effects) from $82 million in the first half of 2000, principally for the same reasons cited for the second quarter results.

Other Summary Segment and Income Data Items

     Equity in net income of unconsolidated joint ventures decreased to $6 million in the second quarter of 2001 from $9 million in the year-earlier quarter, and decreased to $11 million in the first half of 2001 from $19 million in the 2000 first half. These decreases reflected the significant decline in the North American truck manufacturing market and its effect on Vehicle Control Systems’ U.S. braking systems marketing joint venture.

     Interest expense decreased by $5 million in the second quarter of 2001 and by $7 million in the first half of 2001 compared to the year-earlier quarter and first half, because of lower average debt balances and lower average interest rates. Corporate and other expenses decreased by $2 million in the second quarter of 2001 and by $4 million in the first half of 2001 compared to the year-earlier quarter and first half. These decreases were the result of changes in various accounts, none individually significant.

     The income tax provision for the second quarter of 2001 was $72 million and for the first half of 2001 was $111 million, or 37.5% of income before income taxes, compared with provisions of $71 million and $111 million, or 39.75% of income before income taxes in the same periods of 2000. The effective income tax rate is lower in 2001 primarily because of various tax planning initiatives.

Liquidity and Capital Resources

     Net cash provided by operating activities, after cash interest paid of $89 million, was $137 million for the first six months of 2001, compared with net cash provided of $123 million for the same period of 2000. The $14 million improvement resulted primarily from higher net income and higher non-cash compensation charges because Company contributions to the Employee Stock Ownership Plan (ESOP) were funded with shares of common stock in 2001 but with cash in 2000. In addition, depreciation and amortization were somewhat higher in 2001. Those increases were partly offset by higher working capital usage. Accounts receivable and inventories increased in the first half of both years. The receivables increase in 2001 was smaller than the first-half 2000 increase primarily because growth in our businesses was significantly lower in 2001 than in 2000 when sales increased 12% in local currencies. The inventory increase in both periods reflected the normal seasonal pattern and a decision to increase certain air conditioning and plumbing products inventories to serve customers better. The increase in 2001 was lower than in 2000 because the growth of the business was slower in 2001. The increase in accounts payable and accruals in 2001 was smaller than in 2000 and reflected smaller growth of the business in 2001 and timing differences in accruals and payments. In investing activities, the Company made capital expenditures of $101 million for the first half of 2001, including $30 million of investments in affiliated companies and other businesses. This compared with capital expenditures of $113 million in the first half of 2000, including $27 million of investments in affiliated companies and other businesses. The Company also invested $28 million in computer software in the first six months of 2001, compared with $31 million in the 2000 period, and received proceeds of $27 million from sale and leaseback transactions in 2001. In financing activities, the Company realized proceeds from the exercise of stock options of $68 million in 2001, compared with $9 million in 2000, and purchased approximately 1.1 million shares of its common stock for $64 million in the first half of 2001 pursuant to the Company’s share repurchase program, compared with the purchase of approximately 2.4 million shares for $94 million in the first half of 2000. Additionally, the company bought back warrants for the purchase of 3 million shares of the Company’s common stock held by Kelso ASI Partners, L. P. for $35 million in the second quarter of 2001.

     In January 1997 the Company entered into the 1997 Credit Agreement which requires no repayment of principal prior to its expiration in January 2002 and provides the Company with senior secured credit facilities aggregating $1.75 billion as follows: (a) a $750 million U.S. dollar revolving credit facility and a $625 million multi-currency revolving credit facility (the “Revolving Facilities”), and (b) a $375 million multi-currency periodic access credit facility. Up to $500 million of the Revolving Facilities may be used to issue letters of credit. On January 31, 2001, the Company made a $100 million prepayment which reduced the availability under the U.S. dollar revolving credit facility to $707 million, under the multi-currency revolving facility to $589 million and under the Periodic Access Facility to $354 million, or a total of $1.65 billion. The 1997 Credit Agreement contains restrictive covenants and other requirements with which the Company believes it is currently in compliance. Outstanding debt under the 1997 Credit Agreement is classified as long term because management believes a new credit agreement will be successfully negotiated.

     In December 1998, the 1997 Credit Agreement was amended to permit American Standard to issue up to an additional $500 million principal amount of senior or subordinated unsecured debt securities, to reorganize ownership of certain subsidiaries and intellectual property rights, and to lower the interest coverage ratios and increase the debt coverage ratios applicable to the Company beginning for periods ending December 31, 1998. The purpose of the amendment was primarily to accommodate the refinancing of $150 million of American Standard’s 10 7/8% senior notes due May 15, 1999 and the financing of other proposed capital expenditures. In November 1999, the 1997 Credit Agreement was amended to permit the Company to sell its Medical Systems business and to increase the limit on annual lease payments. In September 2000, the 1997 Credit Agreement was amended to extend the Company’s authorization to repurchase annually up to $100 million of its Common Stock beyond July 9, 2001, to expand the Company’s authorization, for hedging purposes, to enter into commodity purchase or option agreements and credit derivative agreements, and to increase the amount of equity the Company is authorized to invest in its financial services joint venture.

      At June 30, 2001, the Company had borrowings of $614 million outstanding under the Revolving Facilities. There was $586 million available under the Revolving Facilities after reduction for borrowings and for $96 million of letters of credit usage. The Company's foreign subsidiaries had $79 million available at June 30, 2001, under overdraft facilities that can be withdrawn by the banks at any time. In addition, the Company's operations in China have $15 million available under bank credit facilities after reduction for borrowings of $20 million and letters of credit usage of $20 million.

     On May 28, 1999, the Company completed the sale of the equivalent of $460 million of Senior Notes, with an average interest rate of 7.7%, issued in three series: 250 million Euro Senior Notes due 2006; 100 million U.S. Dollar Senior Notes due 2009 and 60 million Sterling Senior Notes due 2009. Net proceeds of $452 million from the offering were applied to refinance borrowings incurred to pay $150 million of 10 7/8% Senior Notes at maturity on May 15, 1999 and to refinance a substantial portion of the purchase price of the February 1999 acquisition of Armitage/Dolomite. The May 28, 1999 sale of Senior Notes, which are not subject to redemption, was made pursuant to a $1 billion shelf registration filed with the Securities and Exchange Commission in November 1998 (the “1998 Shelf Registration”). Debt securities sold under the 1998 Shelf Registration are issued by American Standard Inc. and unconditionally guaranteed by American Standard Companies Inc. The Company intends to use the net proceeds from any future sales of such debt securities under the 1998 Shelf Registration for general corporate purposes, which may include certain investments, acquisitions, additions to working capital or capital expenditures. The Company believes that the amounts available from operating cash flows, funds available under its 1997 Credit Agreement (or successor agreement) and future borrowings under the remaining $540 million of the 1998 Shelf Registration will be sufficient to meet its expected operating needs and planned capital expenditures for the foreseeable future.

     As described in Note 8 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, there are pending German Tax issues for the years 1984 through 1994. There has been no change in the status of these issues since that report was filed.

Disclosure Regarding Forward Looking Statements

     Certain of the statements contained in this report (other than the historical financial data and other statements of historical fact) including, without limitation, statements as to management’s expectations and belief, are forward-looking statements. Forward-looking statements are made based upon management’s good faith expectations and belief concerning future developments and their potential effect upon the Company. There can be no assurance that future developments will be in accordance with such expectations or that the effect of future developments on the Company will be those anticipated by management. Forward-looking statements can be identified by the use of words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “estimate,” “project,” “anticipate” and other words of similar meaning in connection with a discussion of future operating or financial performance. This Report on Form 10-Q includes important information as to risk factors in the “Notes to Financial Statements” under the headings “Restructuring and Asset Impairment Charges,” “Tax Matters,” and in the section titled “Management’s Discussion and Analysis of Results of Operations and Financial Position.” Many important factors could cause actual results to differ materially from management’s expectations, including the level of construction activity in the Company’s Air Conditioning Systems and Services’ and Plumbing Products’ markets and the level of truck and bus production in the Company’s Vehicle Control Systems markets; the ability of the Company to implement its restructuring program as planned; the timing of completion and success in the start-up of new production facilities; changes in U.S. or international economic conditions, such as inflation or interest rate fluctuations or recessions in the Company’s markets; pricing changes to the Company’s supplies or products or those of its competitors, and other competitive pressures on pricing and sales; labor relations; integration of acquired businesses; risks generally relating to the Company’s international operations, including governmental, regulatory or political changes; changes in environmental, health or other regulations that may affect one or more of the Company’s products or potential products; changes in laws or different interpretations of laws including the risk that German judicial authorities will disagree with the opinions of the Company’s German tax counsel or that may affect the Company’s expected effective tax rate for 2001; the ability of the Company to successfully negotiate a new credit agreement; transactions or other events affecting the need for, timing and extent of the Company’s capital expenditures; the extent of and the costs at which the Company effects repurchases of its common stock; and the extent to which the Company reduces outstanding debt.

                       Matters                           For            Against         Abstentions         Votes
      Election of Directors*
      - For a term expiring at the Annual
         Meeting of Stockholders in 2004

         Steven E. Anderson                            52,540,381       313,838              *                0
         Roger W. Parsons                              52,538,482       315,737              *                0
         Jared L. Cohon                                52,530,163       324,056              *                0

      - For a term expiring at the Annual
         Meeting of Stockholders in 2003
         Edward E. Hagenlocker                         52,540,902       313,317              *                0

      Appointment of Independent                       52,680,338       112,567            61,314             0
      Accountants

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



                Exhibit No.                Description
                   (12)                    Ratio of Earnings to Fixed Charges