10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission file number 1-11415

AMERICAN STANDARD COMPANIES INC.

(Exact name of Registrant as specified in its charter)

Delaware	13-3465896
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Centennial Avenue, P.O. Box 6820, Piscataway, NJ	08855-6820
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (732) 980-6000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one).

Large Accelerated filer  x    Accelerated filer  ¨    Non-Accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  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 30, 2007	204,342,458 shares

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN STANDARD COMPANIES INC.

UNAUDITED SUMMARY CONSOLIDATED STATEMENT OF INCOME

(Dollars in millions, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007		2006
Sales	$	2,620.0		$	2,369.7		$	4,786.3	$	4,313.0
Cost and expenses
Cost of sales		1,859.2			1,659.8			3,413.3		3,053.4
Selling and administrative expenses		442.4			412.8			860.6		797.7
Other (income)/expense		20.8			(0.5	)		32.9		3.6
Interest expense		27.3			30.9			55.5		60.9
		2,349.7			2,103.0			4,362.3		3,915.6
Income from continuing operations before income taxes		270.3			266.7			424.0		397.4
Income taxes		82.8			77.5			135.1		116.2
Income from continuing operations applicable to common shares		187.5			189.2			288.9		281.2
(Loss)/income from discontinued operations, net of income taxes		(11.5	)		2.5			60.4		(5.4	)
Net Income	$	176.0		$	191.7		$	349.3	$	275.8
Net income per share
Basic
Income from continuing operations	$	0.93		$	0.94		$	1.43	$	1.38
(Loss)/income from discontinued operations		(0.06	)		0.01			0.30		(0.03	)
Net Income	$	0.87		$	0.95		$	1.73	$	1.35
Diluted
Income from continuing operations	$	0.90		$	0.91		$	1.39	$	1.35
(Loss)/income from discontinued operations		(0.06	)		0.02			0.29		(0.03	)
Net Income	$	0.84		$	0.93		$	1.68	$	1.32
Cash dividends per share of common stock	$	0.18		$	0.18		$	0.36	$	0.36
Average common shares outstanding
Basic		202,801,218			202,375,303			201,709,039		203,718,650
Diluted		208,436,090			207,083,268			207,387,425		208,221,087

See accompanying notes

2

AMERICAN STANDARD COMPANIES INC.

UNAUDITED SUMMARY CONSOLIDATED BALANCE SHEET

(Dollars in millions, except share data)

	June 30, 2007			December 31, 2006
Current assets:
Cash and cash equivalents	$	356.0		$	267.8
Accounts receivable, less allowance for doubtful accounts: June 2007 - $44.6; Dec. 2006 - $44.8		1,542.1			1,116.8
Inventories:
Finished products		565.5			499.9
Products in process		192.8			181.7
Raw materials		168.3			148.3
Future income tax benefits		94.8			84.7
Retained interest in securitization program		293.7			180.2
Other current assets		152.0			174.9
Assets of discontinued operations		2,218.9			2,151.4
Total current assets		5,584.1			4,805.7
Facilities, less accumulated depreciation:
June 2007 - $620.1; Dec. 2006 - $542.0		1,059.0			1,058.4
Goodwill		666.4			649.0
Capitalized software costs, less accumulated amortization: June 2007 - $316.3; Dec. 2006 - $290.9		123.3			127.9
Long-term asbestos receivable		336.9			336.6
Long-term future income tax benefits		261.7			236.6
Investment in associated companies		110.0			101.8
Other assets		98.8			97.1
Total assets	$	8,240.2		$	7,413.1
Current liabilities:
Loans payable to banks	$	30.8		$	91.6
Current maturities of long-term debt		27.7			23.1
Accounts payable		891.3			697.0
Accrued payrolls		328.4			318.8
Current portion of warranties		192.8			172.4
Taxes on income		117.4			114.3
Other accrued liabilities		648.1			614.6
Liabilities of discontinued operations		940.5			861.0
Total current liabilities		3,177.0			2,892.8
Long-term debt		1,606.8			1,600.7
Post-retirement benefits		711.2			691.7
Long-term portion of asbestos liability		642.6			652.8
Warranties		295.7			280.7
Deferred tax liabilities		64.0			86.5
Other liabilities		375.9			284.4
Total liabilities		6,873.2			6,489.6
Shareholders’ equity:
Preferred stock, 2,000,000 shares authorized; none issued and outstanding		—			—
Common stock, $.01 par value, 560,000,000 shares authorized; shares issued: 251,776,110 in 2007; 251,773,228 in 2006; and shares outstanding: 203,908,577 in 2007; 199,891,689 in 2006		2.5			2.5
Capital surplus		940.7			897.0
Treasury stock, at cost: 47,867,533 shares in 2007; 51,881,539 shares in 2006		(1,405.6	)		(1,523.3	)
Retained earnings		2,229.8			1,972.4
Accumulated other comprehensive income:
Foreign currency translation effects		(106.5	)		(138.9	)
Deferred gain on hedge contracts, net of tax		1.4			3.3
Unrealized losses on benefit plans, net of tax		(295.3	)		(289.5	)
Total shareholders’ equity		1,367.0			923.5
Total liabilities and shareholders’ equity	$	8,240.2		$	7,413.1

See accompanying notes

3

AMERICAN STANDARD COMPANIES INC.

UNAUDITED SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in millions)

	Six months ended June 30,
	2007			2006
Cash provided/(used) by:
Operating activities:
Net income	$	349.3		$	275.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		78.2			93.9
Amortization of capitalized software and other intangibles		31.1			42.4
Equity in earnings of unconsolidated joint ventures, net of dividends received		(8.3	)		(10.0	)
Non-cash stock compensation		53.4			50.5
Gain on sale of a non-strategic business and other asset sale gains		(80.5	)		(4.6	)
Changes in assets and liabilities:
Proceeds from initial sale of receivables, net		—			25.0
Accounts receivable		(459.2	)		(305.1	)
Inventories		(95.8	)		(140.7	)
Accounts payable		225.4			157.3
Other accrued liabilities and taxes		78.5			102.6
Post-retirement benefits		15.5			(36.5	)
Asbestos receivable/liability, net		(10.5	)		(5.4	)
Other current and long-term assets		(139.0	)		(94.7	)
Other long-term liabilities		54.1			2.7
Net cash provided by operating activities		92.2			153.2
Investing activities:
Purchases of property, plant and equipment		(100.1	)		(87.3	)
Investments in affiliated companies		(9.0	)		—
Investment in computer software		(20.6	)		(19.0	)
Proceeds from repayment/loan to unconsolidated joint venture, net		—			2.9
Proceeds from sale of a non-strategic business and other asset sales		171.8			15.2
Net cash provided/(used) by investing activities		42.1			(88.2	)
Financing activities:
Proceeds from issuance of long-term debt		17.7			11.5
Repayments of long-term debt		(44.9	)		(310.9	)
Net change in revolving credit facilities		21.1			334.8
Net change in other short-term debt		(61.0	)		118.8
Purchases of treasury stock		—			(349.4	)
Dividend payments		(72.8	)		(73.1	)
Proceeds from exercise of stock options		61.3			25.5
Proceeds from settlement of foreign exchange forward contracts		0.4			1.4
Proceeds from issuance of shares to ESPP and excess tax benefit recognized upon exercise of stock options		31.1			12.9
Net cash used by financing activities		(47.1	)		(228.5	)
Effect of exchange rate changes on cash and cash equivalents		7.9			5.9
Net increase/(decrease) in cash and cash equivalents		95.1			(157.6	)
Cash and cash equivalents at beginning of period		293.8			390.7
Cash and cash equivalents at end of period	$	388.9		$	233.1
Cash interest paid	$	55.4		$	59.6
Cash taxes paid	$	113.0		$	99.7

See accompanying notes

4

AMERICAN STANDARD COMPANIES INC.

NOTES TO FINANCIAL STATEMENTS

Note 1. Basis of Financial Statement Presentation

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.

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, including normal recurring items, considered necessary for a fair presentation of financial data have been included. Certain reclassifications of amounts reported in prior years have been made to conform to the 2007 classifications. 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, 2006.

Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Management believes the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis and Notes 2 and 14 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the calendar year 2006 describe the most significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ materially from management’s estimates. There have been no significant changes in the Company’s assumptions regarding critical accounting estimates during the first six months of 2007.

Planned Separation

On February 1, 2007, the Company announced that its Board of Directors completed a strategic review of the Company and unanimously approved a plan to separate its three segments. The Board of Directors believes that separating the businesses will create greater shareowner value than the current operating structure. The separation is expected to provide the separated companies with certain opportunities and benefits, including increased strategic focus, increased market recognition, improved capital flexibility and increased ability to attract, retain and motivate employees. On July 12, 2007 the Board of Directors approved the tax-free spinoff of its Vehicle Control Systems business into a new publicly traded company named WABCO Holdings Inc. (“WABCO”). As part of its approval, the Board of Directors authorized a dividend on its common stock of one WABCO share for every three shares of American Standard and established the close of business on July 19, 2007 as the record date. The spinoff was completed at 11:59pm on July 31, 2007. Approval of the Company’s shareholders was not required for the spinoff. On July 11, 2007, the Board of Directors of the Company declared a quarterly dividend of $0.16 per share payable on September 20,

5

2007 to shareholders of record on September 4, 2007. On August 1, 2007, the Board of Directors of WABCO declared a dividend of $0.07 per share payable on September 20, 2007 to shareholders of record on September 4, 2007.

On July 23, 2007, the Company entered into a definitive agreement to sell its Bath and Kitchen business to affiliates of Bain Capital Partners, LLC for $1.755 billion in cash, subject to certain adjustments and normal regulatory approvals. The sale is expected to close early in the fourth quarter of 2007. Approval of the Company’s shareholders is not required for the Bath and Kitchen sale. Based on these facts, the Bath and Kitchen business has been reported as discontinued operations for all periods presented. Proceeds from the sale of Bath and Kitchen are expected to be used primarily to repurchase common stock and to reduce debt to keep the Company at investment grade standards.

Upon completion of the sale of Bath and Kitchen, the Company will focus on its Air Conditioning Systems and Services business and expects, subject to receipt of shareholder approval, to change its name to Trane, the Company’s flagship air conditioning brand.

Spinoff – Vehicle Control Systems Business

The Vehicle Control Systems business will have its results of operations and balance sheet information included in discontinued operations starting in the third quarter of 2007, since the spinoff of the business was effective July 31, 2007. Revenue, income before income taxes and income taxes and balance sheet information for the Vehicle Control Systems business is set forth below.

Vehicle Control Systems ($ in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Revenue	$	582.3	$	511.2	$	1,141.1	$	991.1
Income before income taxes	$	37.0	$	61.8	$	99.0	$	130.1
Income taxes		4.9		18.6		22.6		37.3
Income	$	32.1	$	43.2	$	76.4	$	92.8

Vehicle Control Systems ($ in millions):

	June 30, 2007		December 31, 2006
Cash	$	54.2	$	34.8
Accounts receivable, net		407.4		186.5
Inventories		162.4		138.0
Other current assets		73.1		49.9
Property, plant and equipment, net		301.4		315.3
Goodwill		350.9		343.9
Other non-current assets		186.7		192.8
Total assets	$	1,536.1	$	1,261.2
Loans payable to banks	$	5.8	$	17.9
Current maturities of long-term debt		0.1		—
Accounts payable		183.3		147.3
Accrued and other current liabilities		253.1		242.5
Long-term debt		54.0		57.3
Post-retirement benefits		372.6		366.4
Other liabilities		170.8		75.0
Total liabilities	$	1,039.7	$	906.4

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Note 2. Discontinued Operations

As discussed above, the Company’s Board of Directors approved a plan to sell the Bath and Kitchen business. Based on this approval, the Company began to actively market the business for sale in February and entered into a definitive agreement on July 23, 2007 to sell the business to affiliates of Bain Capital Partners, LLC. Based on these facts, the Bath and Kitchen business has been reported as discontinued operations for all periods presented.

Revenue, income (loss) before income taxes and income taxes for discontinued operations are as follows for Bath and Kitchen.

Bath and Kitchen ($ in millions):

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007		2006
Revenue	$	660.5		$	621.0		$	1,318.4	$	1,229.7
Income (loss) before income taxes	$	7.8		$	(2.3	)	$	23.4	$	(12.1	)
Gain on sale of non-strategic business		—			—			80.8		—
Income taxes		19.3			(4.8	)		43.8		(6.7	)
Income (loss)	$	(11.5	)	$	2.5		$	60.4	$	(5.4	)

On March 30, 2007, the Company sold its Armitage Venesta business included within the Bath and Kitchen segment. Venesta is a leading supplier of commercial washroom solutions in both the United Kingdom and Ireland. The Company received proceeds of $165 million and recognized a pre-tax gain of $80.8 million, $56.8 million net of taxes. The gain has been included as a component of income from discontinued operations as noted in the above table.

Bath and Kitchen incurred $25.8 million of operational consolidation expenses during the second quarter of 2007. Included in the $25.8 million was $25.7 million related to 2007 plans and $0.1 million related to 2006 plans. Bath and Kitchen expended $6.1 million of cash on operational consolidation activities in the second quarter of 2007. The 2007 charges relate to its consolidation of operations and streamlining of commercial functions in Europe and the Americas. Bath and Kitchen will close its Wolverhampton, UK, location and transfer its fittings assembly and logistics to more cost effective locations; streamline and simplify its commercial organization in several European countries; discontinue the production of cast iron bathtubs at its Revin, France location, discontinue the production of ceramics at its Chiva, Spain manufacturing facility and discontinue production of metal tubs and basins at a plant in Cambridge, Ontario Canada. Bath and Kitchen incurred $33.5 million for the six months ended June 30, 2007 and expended $11.4 million of cash on operational consolidation activities. Of this amount, $34.2 million related to 2007 plans and $0.1 million related to 2006 plans. These charges were offset by prior period reversals of $0.8 million. Bath and Kitchen incurred $14.0 million of operational consolidation expenses during the second quarter of 2006 and $20.0 million of operational consolidation expenses during the six months ended June 30, 2006. Bath and Kitchen expects to incur between $18-20 million during 2007 to complete the outstanding programs as of June 30, 2007.

As part of an effort to remain cost competitive, optimize its manufacturing capabilities and continue to rebuild the profitability of the Bath and Kitchen business, the Company announced on July 9, 2007, a consolidation of its ceramics manufacturing operations

7

at its Queimados manufacturing facility in Brazil and the relocation of manufacturing of the remaining products to more cost-effective locations. This action will result in charges amounting to approximately $10 million ($7 million after tax) of which $9 million is expected in the third quarter of 2007 and $1 million is expected in the fourth quarter. The total charge includes approximately $2 million for job-elimination expenses related to approximately 216 employees and approximately $8 million of other exit related costs, including approximately $7 million in facility and equipment losses expected from the disposition. The Company estimates that the foregoing charges will result in approximately $4 million of net cash expenditures, which are expected to be paid in 2007. The Company is unable to estimate at this time the amount of any proceeds received upon disposition of the facility. The Company expects the closure of the facility, relocation of production and related job eliminations to be completed by the end of the third quarter of 2007.

In addition, Bath and Kitchen announced on July 18, 2007, a consolidation plan for its ceramics manufacturing operations at its Excelsior, United Kingdom manufacturing facility and the relocation of manufacturing of the remaining products to more cost-effective locations. This plan will result in charges amounting to approximately $17 million ($12 million after tax) of which $12 million is expected in the third quarter of 2007 and $5 million is expected in the fourth quarter. The total charge includes approximately $6 million for job-elimination expenses related to about 140 employees, and approximately $11 million of other exit related costs, including approximately $9 million in facility and equipment write-offs. The Company estimates that the foregoing charges will result in approximately $7 million of cash expenditures, which are expected to be paid in 2007. The Company expects the closure of the facility, relocation of production and related job eliminations to be completed by the end of the fourth quarter of 2007.

Balance sheet information for the Bath and Kitchen business, which is reported as assets of discontinued operations and liabilities of discontinued operations in the accompanying Consolidated Balance Sheet, is shown below.

Bath and Kitchen ($ in millions):

	June 30, 2007		December 31, 2006
Cash	$	32.9	$	26.0
Accounts receivable, net		257.0		217.2
Inventories		477.1		462.0
Other current assets		97.4		77.2
Property, plant and equipment, net		700.1		667.4
Goodwill		536.3		582.7
Other non-current assets		118.1		118.9
Total assets	$	2,218.9	$	2,151.4
Accounts payable	$	266.5	$	223.4
Accrued and other current liabilities		370.8		323.5
Post-retirement benefits		158.1		171.2
Other liabilities		145.1		142.9
Total liabilities	$	940.5	$	861.0

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Note 3. Comprehensive Income

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

	Three months ended June 30,						Six months ended June 30,
	2007			2006			2007			2006
Net income	$	176.0		$	191.7		$	349.3		$	275.8
Foreign currency translation effects		28.2			16.7			32.4			34.4
Deferred (loss)/gain on hedge contracts, net of tax		(1.9	)		(0.4	)		(1.9	)		10.4
Minimum pension liability adjustment, net of tax		—			(2.4	)		—			(3.2	)
Unrealized losses on benefit plans, net of tax		(2.3	)		—			(5.8	)		—
Total comprehensive income	$	200.0		$	205.6		$	374.0		$	317.4

Note 4. Net Income Per Share

Basic net income per share has been computed using the weighted average number of common shares outstanding. The average number of outstanding shares of common stock used in computing diluted net income per share for the three months ended June 30, 2007 and 2006 included 5,634,872 and 4,707,965 weighted average incremental shares, respectively, for the assumed exercise of stock options; the six-month periods ended June 30, 2007 and 2006 included 5,678,386 and 4,502,437 weighted average incremental shares, respectively. The weighted average incremental shares represent the net amount of shares the Company would issue upon the assumed exercise of in-the-money employee stock options after assuming that the Company would use the proceeds from the exercise of options to repurchase treasury stock. The average number of outstanding shares of common stock used in computing diluted net income per share for the three months ended June 30, 2007 and 2006 excluded 3,132 and 1,587,706 shares associated with options to purchase shares of the Company’s stock, respectively, due to their anti-dilutive effect. The six month periods ended June 30, 2007 and 2006 excluded 3,773 and 2,051,929 shares due to their anti-dilutive effect. Anti-dilutive options represent those options whose exercise price was greater than the average price of the Company’s common stock during the three and six month periods ended June 30, 2007 and 2006, respectively.

Note 5. Capital Stock

On June 20, 2007, a dividend of $0.18 per share of common stock was paid to shareholders of record as of June 1, 2007, totaling $36.6 million. On March 20, 2007, a dividend of $0.18 per share of common stock was paid to shareholders of record as of March 1, 2007, totaling $36.2 million. On July 11, 2007, the Board of Directors approved the payment of a dividend of $0.16 per share of common stock to be paid on September 20, 2007, to shareholders of record on September 4, 2007.

Following is a summary of net shares outstanding and shares issued or reacquired during the first and second quarters of 2007.

9

	Number of Shares of Common Stock
	Total Shares	Treasury Shares		Net Shares Outstanding
Balance, December 31, 2006	251,773,228	(51,881,539	)	199,891,689
Shares issued upon exercise of stock options	2,182	1,027,478		1,029,660
Shares issued to ESOP	—	389,782		389,782
Shares issued to ESPP	—	49,710		49,710
Other shares issued or (reacquired), net	—	24,621		24,621
Balance, March 31, 2007	251,775,410	(50,389,948	)	201,385,462
Shares issued upon exercise of stock options	700	2,135,083		2,135,783
Shares issued to ESOP	—	310,390		310,390
Shares issued to ESPP	—	67,073		67,073
Other shares issued or (reacquired), net	—	9,869		9,869
Balance, June 30, 2007	251,776,110	(47,867,533	)	203,908,577

The Company accounts for purchases of treasury stock under the cost method as defined in Accounting Principles Board Opinion Number 6, Status of Accounting Research Bulletins with the costs of such share purchases reflected in treasury stock in the accompanying consolidated balance sheets. When treasury shares are reissued they are recorded at the average cost of treasury shares acquired since the inception of the share buy back programs, net of shares previously reissued and the Company reflects the difference between the average cost paid and the amount received for the reissued shares in capital surplus. The primary objective of the Company’s share repurchase program is to provide a return to investors and to a lesser extent to satisfy stock option exercises. At June 30, 2007, the Company had an unexpended balance of $512.5 million available to repurchase shares under an authorization by the Board of Directors.

Note 6. Stock-Based Compensation

On January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standard No. 123 (Revised 2004) (“FAS 123r”), Share Based Payments using the modified prospective approach. Total share-based compensation cost recognized during the three months ended June 30, 2007 and 2006 of $5.2 million and $6.5 million, respectively, has been included in the Consolidated Statements of Income. Share-based compensation cost recognized for the six months ended June 30, 2007 and 2006 is $10.7 million and $13.6 million. This amount excludes $1.2 million and $1.0 million for the second quarter of 2007 and 2006, respectively, and $2.3 million and $2.1 million for the six months ended June 30, 2007 and 2006, respectively, of stock-based compensation cost relating to the Bath and Kitchen business.

The Company issues its annual share-based compensation grants during the first quarter of each year. The total number and type of awards granted primarily in connection with the annual grant and the related weighted-average grant-date fair values were as follows:

	For the six months ended
	June 30, 2007					June 30, 2006
	Underlying Shares	Weighted -Average Exercise Price		Weighted Average Grant Date Fair Value		Underlying Shares	Weighted -Average Exercise Price		Weighted Average Grant Date Fair Value
Options Granted	1,908,480	$	52.57	$	14.43	2,392,850	$	37.02	$	9.70
Restricted Stock Units Granted	261,879			$	52.66	52,473			$	36.87
Total Awards	2,170,359					2,445,323

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The options granted in 2007 are exercisable in equal annual installments over a period of three years. 72,264 of the restricted stock units granted in 2007 will vest three years from the date of issuance. The remaining 189,615 of the restricted stock units granted in 2007 will vest two years from the date of issuance.

The following table summarizes the significant assumptions used during the three and six month periods ended June 30, 2007 and 2006.

Assumption	Three months ended June 30, 2007			Three months ended June 30, 2006			Six months ended June 30, 2007			Six months ended June 30, 2006
Weighted average grant date fair value	$	15.76		$	11.03		$	14.43		$	9.70
Risk-free interest rate		4.67	%		4.72	%		4.68	%		4.51	%
Expected volatility		26.0	%		26.0	%		26.0	%		26.0	%
Expected holding period		5 Years			5 Years			5 Years			5 Years
Expected forfeiture rate		4.0	%		4.0	%		4.0	%		4.0	%
Dividend yield		1.27	%		1.64	%		1.38	%		1.61	%

The weighted average grant date fair value was calculated under the Black-Scholes option-pricing model. The risk free interest rate is based on the yield of U.S. Treasury securities that correspond to the expected holding period of the options. The Company reviewed the historic volatility of its common stock over 12-month, 5-year and 10-year periods, and the implied volatility for at the money options to purchase shares of the Company’s common stock. Based on this data, the Company chose to use the average of the 5-year historic volatility of the Company’s common stock and the average implied volatility of at the money options. The 5-year historical volatility period was selected since that period corresponds with the expected holding period. The expected term was calculated by reviewing the historical exercise pattern of all holders over a ten year period, the exercise pattern of domestic versus international option holders (including an analysis by country) and the exercise behavior of officers versus non officers. The results of the analysis support one expected term for all groups of employees. The expected forfeiture rate was determined based on the historical stock option forfeiture data. The dividend yield was based on the Company’s expected dividend rate.

Note 7. Goodwill

The following table summarizes the changes in the carrying amount of goodwill for the six months ended June 30, 2007 (dollars in millions):

Segment	December 31, 2006		Acquisitions		Foreign Exchange Translation		June 30, 2007
Air Conditioning Systems and Services	$	305.1	$	5.1	$	5.3	$	315.5
Vehicle Control Systems		343.9		—		7.0		350.9
Total	$	649.0	$	5.1	$	12.3	$	666.4

Note 8. Accounts Receivable Securitization Agreements

Accounts receivables that relate to the Vehicle Control Systems business ceased to be sold into the Company’s European accounts receivable asset securitization program as of May 31, 2007. In conjunction with this, the Company repurchased $197.2 million of accounts receivable from the bank, which represented the outstanding balance of Vehicle Control Systems receivables previously sold into the program. In addition, the limit on the Company’s European asset securitization program was reduced to €150 million ($202 million at June 30, 2007 exchange rates) from €300 million.

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Note 9. Debt

On May 31, 2007, the Company replaced the primary bank credit agreement in existence as of March 31, 2007 and various other 364 day credit facilities with two new credit agreements that provide the Company and certain subsidiaries (the “Borrowers”) with senior unsecured revolving credit facilities, aggregating $1.5 billion, available to all Borrowers as follows: (a) a five year, $1 billion multi-currency revolving credit facility expiring in 2012 of which up to $250 million may be used for issuing letters of credit and up to $100 million for same-day, short-term borrowings and (b) a 364 day, $500 million multi-currency revolving credit facility of which up to $75 million can be used for same-day, short term borrowings. The 364 day facility has an option to renew for an additional 364 days.

Under the five year facility, the Company pays a facility fee of .125% per annum. Borrowings thereunder bear interest generally at the London Interbank Offered Rate (“LIBOR”) plus a spread of .425% for usage less than or at 50% and a spread of .475% for usage over 50%. The Company also pays a .425% per annum plus issuance fees for letters of credit.

Under the 364 day facility, the Company pays a facility fee of .10% per annum. Borrowings thereunder bear interest generally at the London Interbank Offered Rate (“LIBOR”) plus a spread of .45% for usage less than or at 50% and a spread of .50% for usage over 50%.

The LIBOR spreads for both the five year facility and the 364 day facility are subject to adjustments should the Company’s debt ratings change. Under the primary credit agreements, the Company, American Standard Inc. and American Standard International Inc. guarantee the debt obligations.

The primary credit agreements contain various covenants that limit, among other things, liens, transactions, subsidiary indebtedness, and certain mergers and sales of assets. The covenants also require the Company to meet certain financial tests: ratio of Consolidated Total Debt to consolidated EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), the ratio of Consolidated EBITDA to Consolidated Interest Expense and a Liquidity Test. The Company is currently in compliance with the covenants contained in the credit agreement.

In connection with the entry into its current primary credit facilities, the Company terminated its then existing American Standard Inc. 364 day facilities and expects to terminate a subsidiary borrower’s 40 million Euro Dollar Facility ($53.8 million at June 30, 2007 exchange rates) by the end of 2007. On April 30, 2007 the Company repaid the 30 million Euro ($41.0 million at April 30, 2007 exchange rates) 7.59% Guaranteed Senior Bonds due 2013 with its credit facility. In addition to its primary 364 day facility, the Company, through a foreign subsidiary, continues to maintain a $50.0 million 364 day facility to support operations in Canada (the “Canadian Facility” together with the Euro Dollar Facility, the “364 Day Foreign Facilities”).

Note 10. Warranties, Guarantees, Commitments and Contingencies

Warranties

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 they are sold. Limited warranties cover the equipment, parts and, in limited circumstances, labor necessary to satisfy the warranty obligation for a period ranging from one to ten years generally. 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 liabilities include the number of units sold, historical and anticipated rates of warranty claims, and cost per claim. On a quarterly basis 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.

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The Company also sells a variety of extended warranty contracts for up to ten years on certain air conditioning products. Revenues from the sales of extended warranties are deferred and amortized on a straight-line basis over the terms of the contracts or based upon historical experience. Actual costs to satisfy claims on extended warranty contracts are charged to cost of sales as incurred and were $10.7 million and $11.3 million for the three months ended June 30, 2007 and 2006, respectively, and $20.0 million and $20.7 million for the six months ended June 30, 2007 and 2006, respectively. Total warranty expense was $52.7 million and $56.2 million for the three months ended June 30, 2007 and 2006, respectively, and $95.6 million and $87.0 million for the six months ended June 30, 2007 and 2006, respectively.

Following is a summary of changes in the Company’s product warranty liability for the three and six months ended June 30, 2007 and 2006 ($ in millions).

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Balance of basic limited warranty costs accrued and deferred income on extended warranty contracts, beginning of period	$	462.9		$	419.1		$	453.0		$	411.6
Warranty costs accrued		34.2			47.1			70.3			69.3
Deferred income on extended warranty contracts sold		24.6			24.8			45.6			41.4
Warranty claims settled		(25.4	)		(31.2	)		(57.5	)		(51.3	)
Amortization of deferred income on extended warranty contracts		(16.3	)		(15.1	)		(30.2	)		(27.1	)
Increases (decreases) in warranty estimates made in prior periods		7.8			(2.2	)		5.3			(3.0	)
Foreign exchange translation effects		0.7			2.5			2.0			4.1
Balance of basic warranty costs accrued and deferred income on extended warranty contracts, end of period		488.5			445.0			488.5			445.0
Current portion included in current liabilities		(192.8	)		(184.8	)		(192.8	)		(184.8	)
Long-term warranty liability	$	295.7		$	260.2		$	295.7		$	260.2

Guarantees and Commitments

The Company has commitments and performance guarantees, including energy savings guarantees totaling $81.3 million as of June 30, 2007, extending from 2007 to 2027, under long-term service and maintenance contracts related to its air conditioning equipment and system controls. Through June 30, 2007 the Company has experienced one insignificant loss under such energy savings guarantees and considers the probability of any significant future losses to be unlikely and has therefore not recorded a liability for such guarantees.

The Company and ASII fully and unconditionally guarantee the payment obligations under all the Company’s Senior Notes that were issued by its wholly owned subsidiary American Standard Inc. The Company, American Standard Inc., and ASII guarantee obligations under the primary bank credit agreement.

Contingencies

General

The Company and certain of its subsidiaries are parties to a number of pending legal and tax proceedings. The Company is also subject to federal, state and local environmental laws and regulations and is involved in environmental proceedings concerning the investigation and remediation of various sites, including certain facilities in the process of being closed. In those instances where it is probable as a result of such proceedings that the Company will incur costs that can be reasonably determined, the Company has recorded a liability.

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Income Tax Provision

The income tax provision from continuing operations for the second quarter of 2007 was $82.8 million, or 30.6% of pre-tax income, compared with a provision of $77.5 million, or 29.1% of pre-tax income in the second quarter of 2006. The income tax provision for the second quarter of 2007 included $10.2 million of tax benefits primarily associated with foreign audit settlements and the expiration of statute of limitations and $7.1 million of tax costs associated with the legal reorganization of the Company pursuant to its planned separation. The tax provision for the second quarter of 2006 reflected $7.0 million of tax benefits primarily related to the reduction of a tax contingency as a result of an expiring statute of limitations in a jurisdiction outside of the United States. The tax provision for the first six-months of 2007 was $135.1 million, or 31.9% of pre-tax income, compared with a provision of $116.2 million or 29.2% of pre-tax income for the six-months ended June 30, 2006. The income tax provision for the first six months of 2007 and 2006 reflected tax benefits of $9.7 million. In addition, the tax provision for the six months ended June 30, 2007 includes $7.1 million of tax costs associated with the legal reorganization of the Company pursuant to its planned separation.

Litigation

In November 2004, the Company was contacted by the European Commission as part of a multi-company investigation into possible infringement of European Union competition law relating to the distribution of bathroom fixtures and fittings in certain European countries. In November 2005, the European Commission sent the Company’s indirect subsidiary, American Standard Europe BVBA (“ASE”), a written request for information. On March 28, 2007, the Company, along with a number of other companies, received a Statement of Objections from the European Commission. The Statement of Objections, an administrative complaint, alleges infringements of European Union competition rules by numerous bathroom fixture and fittings companies, including the Company and certain of its European subsidiaries engaged in the Bath and Kitchen business. Certain of these legal entities were transferred to WABCO Holdings Inc. (“WABCO”) as part of a legal reorganization in connection with the spinoff of the Company’s Vehicle Control Systems business that occurred on July 31, 2007. The Company and certain of its subsidiaries and, in light of that legal reorganization, certain of WABCO’s subsidiaries will be jointly and severally liable for any fines that result from the investigation. However, pursuant to an Indemnification and Cooperation Agreement among the Company and certain other parties (the “Indemnification Agreement”), ASE, which is a subsidiary of WABCO following the reorganization, will be responsible for, and will indemnify the Company and its subsidiaries (including certain subsidiaries formerly engaged in the Bath and Kitchen business) and their respective affiliates against, any fines related to this investigation. American Standard and the charged subsidiaries responded to the European Commission on August 1, 2007 and July 31, 2007, respectively. A hearing with the European Commission to present evidence regarding the response to the Statement of Objections is expected to occur sometime in the fall of 2007.

The European Commission recently adopted new fining guidelines (the “2006 Guidelines”) and stated its intention to apply these guidelines in all cases in which a Statement of Objections is issued after September 2006. In applying the 2006 Guidelines, the Commission retains considerable discretion in calculating the fine although the European Union regulations provide for a cap on the maximum fine equal to 10% of the parent company’s (i.e., the Company’s) worldwide revenue attributable to all of its products for the fiscal year prior to the year in which the fine is imposed. If the maximum fine were levied in 2007, the total liability would be approximately $1.1 billion based on the Company’s worldwide revenue in 2006 subject to a probable reduction for leniency of at least 20% provided the leniency applicant fulfills all conditions set forth in the

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Commission’s leniency notice. The Company is confident in ASE’s ability to satisfy its obligations under the Indemnification Agreement, because WABCO’s capital structure includes only a minimal amount of debt. As a result, the Company believes that WABCO will have sufficient funds available under its existing five year revolving credit facility, from operating cash flows and from additional bank credit facilities it expects to be able to arrange, in order for ASE to pay the fine.

On February 23, 2005, the Company received a grand jury subpoena from the Antitrust Division of the U.S. Department of Justice seeking information primarily related to the sale and marketing of bathroom fittings by its European affiliates from January 1997 to the present. Because the Company has not been accused of any wrong-doing in this investigation, which is ongoing, the Company is unable to reasonably estimate the loss or range of loss that may result from it. The Company is cooperating fully with this investigation.

Also, in February 2005, the Company was named as a defendant in several lawsuits filed in the United States District Court for the Eastern District of Pennsylvania alleging that the Company and certain of its competitors conspired to fix prices for fittings and fixtures in the U.S. On November 30, 2006, the California cases were dismissed without prejudice pursuant to a stipulation between the parties. The federal cases were subsequently consolidated, and in June 2005 the plaintiffs filed an amended complaint in the federal action alleging that the Company conspired to fix prices for fixtures in the U.S. The amended complaint deleted reference to fittings and identified a somewhat different group of alleged co-conspirator co-defendants. On September 22, 2005, the Company filed a motion to dismiss the complaint in the federal action, which was argued before the trial court on January 26, 2006. The other defendants in the federal action also filed motions to dismiss. On January 24, 2007, the trial judge granted the defendants’ motion for entry of judgment in favor of defendants, dismissing the consolidated amended complaint with prejudice, and on February 20, 2007, the plaintiffs filed a Notice of Appeal of the trial judge’s order. While the Company cannot predict the outcome of this appeal with certainty, the Company believes that the plaintiffs’ underlying claims in this lawsuit were entirely without merit.

On or about June 5, 2007, the former distributor of Trane commercial products in Indonesia, PT Tatasolusi Pratama (“TSP”), filed suit in the South Jakarta District Court against the Company, four of the Company’s subsidiaries (including the Indonesian Bath and Kitchen entity) and two business leaders (including the Trane commercial country leader for Indonesia and the Trane commercial business leader for Asia). The complaint, with which the Company and its affiliates have not yet been formally served, alleges that the Company and its affiliates wrongfully terminated TSP’s alleged exclusive distributorship and appointed a subsidiary of the Company, defendant PT Trane Indonesia, as the new distributor. The complaint also alleges that the Company and its affiliates unlawfully acquired TSP’s customers. Finally, the complaint alleges that the Company and one of its subsidiaries violated a 1990 shareholder agreement and supplemental documents with TSP and its Singapore parent, Solutions P, by failing to form a business entity in Indonesia to market Trane products. In total, the complaint seeks approximately $69 million in damages. The Company and its subsidiaries intend to vigorously contest the allegations raised in the Complaint, which it believes lack merit and has not recorded a liability related to this matter.

The Company believes that the resolution of the litigation matters described above will not have a material adverse effect on the financial position, liquidity or results of operations of the Company.

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Asbestos Litigation

Over the years, the Company has been named as a defendant in numerous lawsuits alleging various asbestos-related personal injury claims arising primarily from its historical sales of boilers and railroad brake shoes.

In these asbestos-related lawsuits, the Company is usually named as one of a large group of defendants. Many of these lawsuits involve multiple claimants, do not specifically identify the injury or disease for which damages are sought and/or do not allege a connection between any Company product and a claimed injury or disease. As a result, numerous lawsuits have been placed, and may remain on, inactive or deferred dockets, which some jurisdictions have established.

Asbestos Claims Activity

From receipt of its first asbestos claim more than twenty years ago to June 30, 2007, the Company has resolved 62,074 claims. The total amount of all settlements paid by the Company (excluding insurance recoveries) and by its insurance carriers is approximately $94.6 million, for an average payment per resolved claim of $1,524. The average payment per claim resolved during the six months ended June 30, 2007 and the year ended December 31, 2006 was $7,819 and $1,260, respectively.

The table below provides additional information regarding asbestos-related claims filed against the Company, reflecting updated information for all periods.

	Six months ended June 30, 2007		Year ended 2006		Cumulative Total
Open Claims – January 1	102,261		113,764		N/A
New claims filed	1,632		4,445		172,359
Claims settled	(331	)	(845	)	(10,325	)
Claims dismissed	(909	)	(15,102	)	(51,749	)
Inactive claims	—		(1	)	(7,632	)
Open Claims – June 30	102,653				N/A
Open Claims – December 31			102,261		N/A

Because claims are frequently filed and settled in large groups, the amount and timing of settlements, as well as the number of open claims, can fluctuate significantly from period to period.

At June 30, 2007 and December 31, 2006 the total asbestos liability was estimated at $655.6 million and $665.8 million, respectively. The asbestos indemnity liability decreased by $10.2 million during the first six months of 2007 due to claims payments made during the first half of the year.

Asbestos Insurance Recovery

The Company is in litigation against certain carriers whose policies it believes provide coverage for asbestos claims. The insurance carriers named in this suit are challenging the Company’s right to recovery. The Company filed the action in April 1999 in the Superior Court of New Jersey, Middlesex County, against various of its primary and lower layer excess insurance carriers, seeking coverage for environmental claims (the “NJ Litigation”). The NJ Litigation was later expanded to also seek coverage for asbestos related liabilities from twenty-one primary and lower layer excess carriers and underwriting syndicates. On September 19, 2005, the court granted the Company’s motion to add to the NJ Litigation 16 additional insurers and 117 new insurance policies. The court also required the parties to submit all contested matters to mediation. The Company and the defendants in the NJ Litigation engaged in their first mediation session on January 18, 2006 and have engaged in active discussions since that time. During the mediation, the parties agreed to an extension of discovery through November 12, 2007.

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With the addition of the parties and policies referred to above, the NJ Litigation would resolve the coverage issues with respect to approximately 94% of the recorded receivable. The remaining 6% of the recorded receivable comes from policies as to which the Company has not sought resolution of coverage because the policies were issued by parties whose coverage obligations are triggered at higher excess layers that are not expected to be reached in the near future. Ninety-two percent of the recorded insurance recovery receivables are with carriers rated A or better by AM Best. This percentage excludes amounts that have been settled but not yet collected.

The Company estimates and records an asbestos receivable for amounts due to the Company for previously settled and paid claims, the reimbursable portion of incurred legal expenses, and the probable reimbursements relating to its estimated liability for pending and future claims. Please see Note 14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 for a discussion of the methodology used by the Company to calculate the receivable and the factors considered by the Company when concluding that its insurance receivable including amounts in litigation is probable of recovery.

In February 2005, the Company settled with Equitas for $84.5 million to buy-out the participants of certain underwriters in pre-1993 Lloyd’s, London policies included in the Company’s insurance coverage. As of December 31, 2006, $64.9 million remained in a trust, excluding interest, which expired January 3, 2007. Pursuant to the settlement, since there was no U.S. Federal legislation by January 3, 2007 that took asbestos claims out of the courts, the balance of the funds was disbursed to the Company on January 4, 2007. Of the $64.9 million, approximately $44.2 million relates to historical asbestos claim settlements and current legal expenses incurred and the balance represents amounts relating to future legal costs to be incurred.

At June 30, 2007 and December 31, 2006 the asbestos receivable was $342.9 million and $385.8 million, respectively. The asbestos receivable decreased by $42.9 million during the first six months of 2007. The decrease is primarily driven by cash collected from the Equitas trust as described above, partially offset by the recoverable portion of incurred legal expenses.

Note 11. Effect of Recently Issued Accounting Standards

On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 provides recognition criteria and a related measurement model for tax positions taken by companies. In accordance with FIN 48, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions shall be recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained upon examination. Tax positions that meet the more likely than not threshold should be measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement.

The total amount of unrecognized tax benefits as of the date of adoption was $213.5 million. As a result of the implementation of FIN 48, the Company recognized a $19.1 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to retained earnings and an increase to the non current tax liability. During the second quarter of 2007, the Company realized tax benefits of $12.0 million of the $213.5 million of unrecognized tax benefits as of the date of adoption. The benefits recognized in the second quarter relate to foreign

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audit settlements and the expiration of statute of limitations. Also the Company recorded an unrecognized tax benefit of approximately $17.3 million related to a specific transaction undertaken during the current year. If recognized, this amount would impact the effective tax rate.

Included in the balance of unrecognized tax benefits at January 1, 2007, are $191.3 million of tax benefits that, if recognized, would impact the effective tax rate. Also included in the balance of unrecognized tax benefits at January 1, 2007, are $22.2 million of tax benefits that, if recognized, would result in a decrease to goodwill. With regard to the unrecognized tax benefits at June 30, 2007, the Company believes that it is reasonably possible that $14.6 million of such unrecognized tax benefits could be recognized in the next 12 months. The benefits relate to the anticipated expiration of statutes of limitations.

The Company classifies interest and penalties related to unrecognized tax benefits in tax expense. The Company had $31.4 million of interest and penalties accrued at January 1, 2007.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With no material exceptions, the Company is no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2000.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, provides a framework for measuring fair value under current standards in GAAP, and requires additional disclosure about fair value measurements. In accordance with the Statement, the definition of fair value retains the exchange price notion, and exchange price is defined as the price in an orderly transaction between market participants to sell an asset or transfer a liability. If there is a principal market for the asset or liability, the fair value measurement should reflect that price, whether that price is directly observable or otherwise used in a valuation technique. Depending on the asset or liability being valued, the inputs used to determine fair value can range from observable inputs (i.e. prices based on market data independent from the entity) and unobservable inputs (i.e. entity’s own assumptions about the assumptions that market participants would use). The Statement applies to other accounting pronouncements that require or permit fair value measurements and will be effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the provisions of SFAS No. 157 to determine the potential impact, if any, the adoption will have on the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits entities to voluntarily choose to measure many financial assets and financial liabilities at fair value. The election is made on an instrument-by-instrument basis and is irrevocable. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the provisions of SFAS No. 159 to determine the potential impact, if any, the adoption will have on the Company’s financial statements.

Note 12. Operational Consolidation Expenses

During 2007 and 2006, the Company incurred charges related to operational consolidation activities consisting principally of severance and related expenses as more fully described below. The Company expects to complete and fully accrue for these plans by the end of 2007.

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During the second quarter of 2007, the Company recorded $8.6 million of operational consolidation expenses of which $2.5 million was included in cost of sales and $6.1 million was included in selling and administrative expenses. Included in the $8.6 million was $7.7 million related to 2007 programs and $0.9 million related to programs that were initiated prior to 2007. This compares to $0.9 million of expenses incurred during the second quarter of 2006. During the first six months of 2007, the Company recorded $9.8 million of operational consolidation expenses, $2.5 million was included in cost of sales and $7.3 million was included in selling and administrative expenses. Of this amount, $8.4 million related to 2007 programs and $1.4 million related to programs that were initiated prior to 2006. The Company incurred $3.0 million of operational consolidation expenses during the first six months of 2006.

The following is a summary of the operational consolidation programs outstanding as of June 30, 2007.

2007 Operational Consolidation Programs	Termination Payments and Other Employee Costs			Other			Total
Charges during the first six months of 2007	$	8.4		$	—		$	8.4
Payments during the first six months of 2007		(1.3	)		—			(1.3	)
Balance as of June 30, 2007	$	7.1		$	—		$	7.1
2006 Operational Consolidation Programs	Termination Payments and Other Employee Costs			Other			Total
Balance as of December 31, 2006	$	7.6		$	—		$	7.6
Charges during the first six months of 2007		0.8			0.7			1.5
Payments during the first six months of 2007		(2.5	)		(0.6	)		(3.1	)
Reversals during the first six months of 2007		(0.1	)		—			(0.1	)
Balance as of June 30, 2007	$	5.8		$	0.1		$	5.9
2005 Operational Consolidation Programs	Termination Payments and Other Employee Costs			Other			Total
Balance as of December 31, 2006	$	2.7		$	0.4		$	3.1
Payments during the first six months of 2007		(0.7	)		—			(0.7	)
Balance as of June 30, 2007	$	2.0		$	0.4		$	2.4
Total Balance as of June 30, 2007	$	14.9		$	0.5		$	15.4

Air Conditioning Systems and Services incurred $0.8 million of operational consolidation expenses during the second quarter of 2007 of which $0.5 million is primarily associated with severance relating to 2007 plans and $0.3 million relates to prior period plans. Air Conditioning Systems and Services expended $0.3 million of cash on operational consolidation activities in the second quarter of 2007. Air Conditioning Systems and Services recorded $1.0 million during the six-months ended June 30, 2007 and expended $0.8 million of cash on operational consolidation activities. The charges recognized during the first six months of 2007 relate primarily to the consolidation of administrative functions. Air Conditioning Systems and Services recognized a net benefit of $0.9 million of operational consolidation expenses during the second quarter of 2006 and $0.4 million net benefit during the first six months of 2006. Air Conditioning Systems and Services expects to incur an additional $2.2 million during the remainder of 2007 to complete the plans outstanding as of June 30, 2007.

The Vehicle Control Systems business incurred $7.7 million of operational consolidation expenses during the second quarter of 2007 of which $7.2 million is primarily associated with severance relating to 2007 plans and $0.5 million pertains to prior period plans. Vehicle Control Systems expended $3.0 million of cash on operational consolidation activities in the second quarter of 2007. Vehicle Control Systems incurred $8.6 million of operational consolidation expenses during the six months ended June 30, 2007 and expended $4.1 million of cash. Of this charge, $7.9 million related to 2007 plans and $0.7 million related to prior period plans, all related to severance. Vehicle Control Systems incurred $1.4 million of operational consolidation expenses during the second quarter of 2006 and $2.9 million during the first six month of 2006.

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The Company expects that essentially all of Air Conditioning Systems and Services’ $2.2 million balance as of June 30, 2007 will be paid by the end of 2007.

During 2006, the Company incurred charges related to operational consolidation activities in each of its businesses as more fully described in our Form 10-K for the year ended December 31, 2006. The total cost of the 2006 actions was $10.3 million and included the elimination of 78 jobs.

Note 13. Post-retirement Benefits

Post-retirement pension, health and life insurance costs had the following components for the three months and six months ended June 30, 2007 and 2006 (dollars in millions):

	Three Months Ended June 30,												Six Months Ended June 30,
	2007			2007			2006			2006			2007			2007			2006			2006
	Pension Benefits			Health & Life Ins. Benefits			Pension Benefits			Health & Life Ins. Benefits			Pension Benefits			Health & Life Ins. Benefits			Pension Benefits			Health & Life Ins. Benefits
Service cost-benefits earned during the period	$	9.4		$	3.2		$	7.1		$	1.8		$	17.5		$	6.3		$	16.2		$	4.0
Interest cost on the projected benefit obligation		17.4			5.0			15.5			4.4			33.3			10.0			29.3			8.7
Less assumed return on plan assets		(16.4	)		—			(15.5	)		—			(32.7	)		—			(30.8	)		—
Amortization of prior service cost		1.8			(1.2	)		1.6			(1.2	)		3.7			(2.4	)		3.2			(2.4	)
Amortization of net loss		1.5			1.9			1.8			1.7			2.9			3.8			3.7			3.3
Net defined benefit cost	$	13.7		$	8.9		$	10.5		$	6.7		$	24.7		$	17.7		$	21.6		$	13.6
Accretion expense reflected in “Other expense (income)”	$	1.0		$	5.0		$	—		$	4.3		$	0.6		$	10.0		$	(1.6	)	$	8.7

Amortization of prior service cost is recorded using the straight-line method over the average remaining service period of active participants.

The Company expects to contribute $33.5 million to domestic pension plans and $9.0 million to foreign pension plans in 2007. In the second quarter of 2007, $1.0 million was contributed to domestic pension plans and $2.8 million was contributed to foreign pension plans. For the six months ended June 30, 2007, $1.1 million was contributed to domestic pension plans and $4.3 million was contributed to foreign pension plans.

Note 14. 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”) and American Standard International Inc. fully and unconditionally guarantee the payment obligations under these securities (the Company’s “Public Debt”). In lieu of providing separate financial statements for ASI and ASII, the Company has included the accompanying consolidating condensed financial information. The following supplemental financial information sets forth, on a consolidating basis, unaudited statements of income for the three and six months ended June 30, 2007 and 2006, unaudited statements of cash flows for the six months ended June 30, 2007 and 2006, and unaudited balance sheets as of June 30, 2007 and December 31, 2006 for the Parent Company, ASI, ASII and the subsidiaries of the Parent Company which are not subsidiaries of ASI or ASII (the “Other Subsidiaries”). None of the Other Subsidiaries guarantees the Public Debt of ASI. The equity method of accounting is used to reflect investments of the Parent Company in ASI and Other Subsidiaries.

20

Note 14. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2007

(unaudited)

(Dollars in millions)	Parent Company		ASI			ASII			Other Subsidiaries			Eliminations			Consolidated Total
Sales			$	1,513.3		$	1,108.8		$	4.7		$	(6.8	)	$	2,620.0
Costs and expenses:
Cost of sales				1,040.0			820.2			5.2			(6.2	)		1,859.2
Selling and administrative expenses				276.0			166.8			0.2			(0.6	)		442.4
Other expense (income)				29.8			(6.4	)		(2.6	)		—			20.8
Interest expense				25.0			2.3			—			—			27.3
Intercompany interest expense (income)		—		16.2			(16.2	)		—			—			—
Total expenses		—		1,387.0			966.7			2.8			(6.8	)		2,349.7
Income from continuing operations before income taxes and equity in net income of consolidated subsidiaries				126.3			142.1			1.9			—			270.3
Income taxes		—		55.0			26.0			1.8			—			82.8
Equity in net income of consolidated subsidiaries		176.0											(176.0	)		—
Income from continuing operations				71.3			116.1			0.1						187.5
Income (loss) from discontinued operations, net of income taxes		—		(61.8	)		50.3			—			—			(11.5	)
Net income	$	176.0	$	9.5		$	166.4		$	0.1		$	(176.0	)	$	176.0

CONSOLIDATING CONDENSED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2007

(unaudited)

(Dollars in millions)	Parent Company		ASI			ASII			Other Subsidiaries			Eliminations			Consolidated Total
Sales			$	2,706.1		$	2,083.8		$	9.3		$	(12.9	)	$	4,786.3
Costs and expenses:
Cost of sales				1,875.2			1,539.6			9.7			(11.2	)		3,413.3
Selling and administrative expenses				527.7			334.4			0.2			(1.7	)		860.6
Other expense (income)				51.0			(13.4	)		(4.7	)		—			32.9
Interest expense				50.4			5.1			—			—			55.5
Intercompany interest expense (income)		—		31.2			(31.2	)		—			—			—
Total expenses		—		2,535.5			1,834.5			5.2			(12.9	)		4,362.3
Income from continuing operations before income taxes and equity in net income of consolidated subsidiaries				170.6			249.3			4.1			—			424.0
Income taxes		—		81.4			51.9			1.8			—			135.1
Equity in net income of consolidated subsidiaries		349.3											(349.3	)		—
Income from continuing operations				89.2			197.4			2.3						288.9
Income (loss) from discontinued operations, net of income taxes		—		(87.9	)		148.3			—			—			60.4
Net income	$	349.3	$	1.3		$	345.7		$	2.3		$	(349.3	)	$	349.3

21

Note 14. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED BALANCE SHEETS

AS OF JUNE 30, 2007

(unaudited)

(Dollars in millions)	Parent Company		ASI			ASII			Other Subsidiaries			Eliminations			Consolidated Total
ASSETS
Current assets:
Cash and cash equivalents	$	1.3	$	23.0		$	327.9		$	3.8		$	—		$	356.0
Accounts receivable, net		—		722.9			818.7			0.5			—			1,542.1
Inventories		—		549.3			377.3			—			—			926.6
Other current assets		—		354.2			173.6			12.7			—			540.5
Assets of discontinued operations		—		349.4			1,869.5			—			—			2,218.9
Total current assets		1.3		1,998.8			3,567.0			17.0			—			5,584.1
Facilities, net		—		657.7			401.3			—			—			1,059.0
Goodwill, net		—		171.2			495.2			—			—			666.4
Investment in subsidiaries		3,415.8		—			—			—			(3,415.8	)		—
Long-term asbestos receivable		—		336.9			—			—			—			336.9
Other assets		—		507.4			79.8			6.6			—			593.8
Total assets	$	3,417.1	$	3,672.0		$	4,543.3		$	23.6		$	(3,415.8	)	$	8,240.2
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Loans payable to banks	$	—	$	21.5		$	9.3		$	—		$	—		$	30.8
Current maturities of long-term debt		—		26.7			1.0			—			—			27.7
Other current liabilities		—		830.3			1,333.6			14.1			—			2,178.0
Liabilities of discontinued operations		—		110.6			829.9			—			—			940.5
Total current liabilities		—		989.1			2,173.8			14.1			—			3,177.0
Long-term debt		—		1,343.0			263.8			—			—			1,606.8
Reserve for post-retirement benefits		—		356.0			355.2			—			—			711.2
Intercompany accounts, net		2,050.1		80.2			(1,710.8	)		(226.4	)		(193.1	)		—
Intercompany accounts, net – discontinued operations		—		173.2			(366.3	)		—			193.1			—
Long-term portion of asbestos liability		—		642.6			—			—			—			642.6
Other long-term liabilities		—		472.1			60.0			203.5			—			735.6
Total liabilities		2,050.1		4,056.2			775.7			(8.8	)		—			6,873.2
Total shareholders’ equity (deficit)		1,367.0		(384.2	)		3,767.6			32.4			(3,415.8	)		1,367.0
Total liabilities and shareholders’ equity (deficit)	$	3,417.1	$	3,672.0		$	4,543.3		$	23.6		$	(3,415.8	)	$	8,240.2

22

Note 14. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW

FOR THE SIX MONTHS ENDED JUNE, 2007

(unaudited)

(Dollars in millions)	Parent Company			ASI			ASII			Other Subsidiaries			Eliminations			Consolidated Total
Cash provided (used) by:
Operating activities:
Net income	$	349.3		$	1.3		$	345.7		$	2.3		$	(349.3	)	$	349.3
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		—			46.2			63.1			—			—			109.3
Equity in earnings of affiliates, net of dividends received		—			1.7			(10.0	)		—			—			(8.3	)
Non-cash stock compensation		—			53.4			—			—			—			53.4
Gain/(Loss) on sale of non-strategic business and other asset sale gains		—			0.5			(81.0	)		—			—			(80.5	)
Equity in net income of subsidiary		(349.3	)		—			—			—			349.3			—
Changes in assets and liabilities:
Accounts receivable		—			(139.8	)		(342.3	)		22.9			—			(459.2	)
Inventories		—			(86.5	)		(9.3	)		—			—			(95.8	)
Accounts payable		—			158.6			66.8			—			—			225.4
Other accrued liabilities		—			62.5			21.8			(5.8	)		—			78.5
Post-retirement benefits		—			19.5			(4.0	)		—			—			15.5
Asbestos receivable/liability, net		—			(10.5	)		—			—			—			(10.5	)
Other long-term liabilities		—			(24.8	)		75.9			3.0			—			54.1
Other assets		—			(89.2	)		(57.4	)		7.6			—			(139.0	)
Net cash (used)/provided by operating activities		—			(7.1	)		69.3			30.0			—			92.2
Investing activities:
Purchase of property, plant and equipment		—			(46.7	)		(53.4	)		—			—			(100.1	)
Investments in affiliated companies		—			(8.4	)		(0.6	)		—			—			(9.0	)
Investments in computer software		—			(14.3	)		(6.3	)		—			—			(20.6	)
Proceeds from sale of non-strategic business		—			—			171.8			—			—			171.8
Net cash (used)/provided by investing activities		—			(69.4	)		111.5			—			—			42.1
Financing activities:
Proceeds from issuance of long-term debt		—			17.7			—			—			—			17.7
Repayments of long-term debt		—			(0.9	)		(44.0	)		—			—			(44.9	)
Net change in revolving credit facility		—			(120.0	)		141.1			—			—			21.1
Net change in other short-term debt		—			(42.5	)		(18.5	)		—			—			(61.0	)
Dividend payments		(72.8	)		—			—			—			—			(72.8	)
Net change in intercompany accounts		(18.7	)		240.3			(192.4	)		(29.2	)		—			—
Proceeds from exercise of stock options		61.3			—			—			—			—			61.3
Other common stock issued or reacquired, net		31.5			—			—			—			—			31.5
Net cash (used)/provided by financing activities		1.3			94.6			(113.8	)		(29.2	)		—			(47.1	)
Effect of exchange rate changes on cash and cash equivalents		—			—			7.9			—			—			7.9
Net increase in cash and cash equivalents		1.3			18.1			74.9			0.8			—			95.1
Cash and cash equivalents at beginning of year		0.5			8.9			281.4			3.0			—			293.8
Cash and cash equivalents at end of period	$	1.8		$	27.0		$	356.3		$	3.8		$	—		$	388.9

23

Note 14. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2006

(unaudited)

(Dollars in millions)	Parent Company		ASI			ASII			Other Subsidiaries			Eliminations			Consolidated Total
Sales			$	1,396.6		$	975.6		$	4.0		$	(6.5	)	$	2,369.7
Costs and expenses:
Cost of sales				937.2			723.4			4.8			(5.6	)		1,659.8
Selling and administrative expenses				259.8			161.2			0.1			(8.3	)		412.8
Other (income)/expense				8.3			(14.1	)		(2.1	)		7.4			(0.5	)
Interest expense				27.1			3.8			—			—			30.9
Intercompany interest (income) expense		—		12.5			(12.5	)		—			—			—
Total expenses		—		1,244.9			861.8			2.8			(6.5	)		2,103.0
Income from continuing operations before income taxes and equity in net income of consolidated subsidiaries				151.7			113.8			1.2			—			266.7
Income taxes		—		44.2			32.0			1.3			—			77.5
Equity in net income of consolidated subsidiaries		191.7											(191.7	)		—
Income from continuing operations				107.5			81.8			(0.1	)		—			189.2
Income (loss) from discontinued operations, net of income taxes		—		(4.4	)		6.9			—			—			2.5
Net income (loss)	$	191.7	$	103.1		$	88.7		$	(0.1	)	$	(191.7	)	$	191.7

CONSOLIDATING CONDENSED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2006

(unaudited)

(Dollars in millions)	Parent Company		ASI			ASII			Other Subsidiaries			Eliminations			Consolidated Total
Sales			$	2,506.9		$	1,812.0		$	7.9		$	(13.8	)	$	4,313.0
Costs and expenses:
Cost of sales				1,720.0			1,337.7			8.6			(12.9	)		3,053.4
Selling and administrative expenses				507.5			299.3			0.2			(9.3	)		797.7
Other (income) expense				0.6			(0.9	)		(4.5	)		8.4			3.6
Interest expense				53.0			7.9			—			—			60.9
Intercompany interest expense (income)		—		24.6			(24.6	)		—			—			—
Total expenses		—		2,305.7			1,619.4			4.3			(13.8	)		3,915.6
Income from continuing operations before income taxes and equity in net income of consolidated subsidiaries				201.2			192.6			3.6			—			397.4
Income taxes		—		61.0			53.9			1.3			—			116.2
Equity in net income of consolidated subsidiaries		275.8											(275.8	)		—
Income from continuing operations				140.2			138.7			2.3			—			281.2
Income (loss) from discontinued operations, net of income taxes		—		(16.6	)		11.2			—			—			(5.4	)
Net income	$	275.8	$	123.6		$	149.9		$	2.3		$	(275.8	)	$	275.8

24

Note 14. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW

FOR THE SIX MONTHS ENDED JUNE 30, 2006

(unaudited)

(Dollars in millions)	Parent Company			ASI			ASII			Other Subsidiaries			Eliminations			Consolidated Total
Cash provided (used) by:
Operating activities:
Net income	$	275.8		$	123.6		$	149.9		$	2.3		$	(275.8	)	$	275.8
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		—			50.6			85.7			—			—			136.3
Equity in earnings of affiliates, net of dividends received		—			—			(10.0	)		—			—			(10.0	)
Non-cash stock compensation		—			50.5			—			—			—			50.5
Gain/loss on sale of property and equipment		—			1.0			(5.6	)		—			—			(4.6	)
Equity in net income of subsidiary		(275.8	)		—			—			—			275.8			—
Changes in assets and liabilities:
Proceeds from initial sale of receivables, net		—			25.0			—			—			—			25.0
Accounts receivable		—			(121.7	)		(171.6	)		(11.8	)		—			(305.1	)
Inventories		—			(63.6	)		(77.1	)		—			—			(140.7	)
Accounts payable		—			59.9			97.4			—			—			157.3
Other accrued liabilities		—			3.8			103.2			(4.4	)		—			102.6
Post-retirement benefits		—			(38.7	)		2.2			—			—			(36.5	)
Asbestos receivable/liability, net		—			(5.4	)		—			—			—			(5.4	)
Other long-term liabilities		—			17.9			(20.6	)		5.4			—			2.7
Other assets		—			(74.1	)		(28.0	)		7.4			—			(94.7	)
Net cash (used)/provided by operating activities		—			28.8			125.5			(1.1	)		—			153.2
Investing activities:
Purchase of property, plant and equipment		—			(45.0	)		(42.3	)		—			—			(87.3	)
Investments in affiliated companies		—			—			—			—			—			—
Investments in computer software		—			(12.9	)		(6.1	)		—			—			(19.0	)
Loan to unconsolidated joint venture, net		—			2.9			—			—			—			2.9
Proceeds from the disposal of property/equipment		—			—			15.2			—			—			15.2
Net cash used by investing activities		—			(55.0	)		(33.2	)		—			—			(88.2	)
Financing activities:
Proceeds from issuance of long-term debt		—			10.6			0.9			—			—			11.5
Repayments of long-term debt		—			(310.2	)		(0.7	)		—			—			(310.9	)
Net change in revolving credit facility		—			428.9			(94.1	)		—			—			334.8
Net change in other short-term debt		—			108.0			10.8			—			—			118.8
Purchases of treasury stock		(349.4	)		—			—			—			—			(349.4	)
Dividend payments		(73.1	)		—			—			—			—			(73.1	)
Net change in intercompany accounts		384.9			(367.4	)		(19.3	)		1.8			—			—
Proceeds from exercise of stock options		25.5			—			—			—			—			25.5
Proceeds from foreign exchange forward contracts		—			1.4			—			—			—			1.4
Other common stock issued or reacquired, net		12.9			—			—			—			—			12.9
Net cash (used)/provided by financing activities		0.8			(128.7	)		(102.4	)		1.8			—			(228.5	)
Effect of exchange rate changes on cash and cash equivalents		—			—			5.9			—			—			5.9
Net increase (decrease) in cash and cash equivalents		0.8			(154.9	)		(4.2	)		0.7			—			(157.6	)
Cash and cash equivalents at beginning of year		0.1			141.7			246.3			2.6			—			390.7
Cash and cash equivalents at end of period	$	0.9		$	(13.2	)	$	242.1		$	3.3		$	—		$	233.1

25

Note 14. Supplemental Consolidating Condensed Financial Information (continued)

CONSOLIDATING CONDENSED BALANCE SHEETS

AS OF DECEMBER 31, 2006

(Dollars in millions)	Parent Company		ASI			ASII			Other Subsidiaries			Eliminations			Consolidated Total
ASSETS
Current assets:
Cash and cash equivalents	$	0.5	$	7.3		$	257.0		$	3.0		$	—		$	267.8
Accounts receivable, net		—		581.0			512.4			23.4			—			1,116.8
Inventories		—		516.1			313.8			—			—			829.9
Other current assets		—		293.3			140.6			5.9			—			439.8
Assets of discontinued operations		—		202.7			1,948.7			—			—			2,151.4
Total current assets		0.5		1,600.4			3,172.5			32.3			—			4,805.7
Facilities, net		—		651.6			406.8			—			—			1,058.4
Goodwill, net		—		181.8			467.2			—			—			649.0
Investment in subsidiaries		2,981.9		—			—			—			(2,981.9	)		—
Long-term asbestos receivable		—		336.6			—			—			—			336.6
Other assets		—		367.0			187.0			9.4			—			563.4
Total assets	$	2,982.4	$	3,137.4		$	4,233.5		$	41.7		$	(2,981.9	)	$	7,413.1
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Loans payable to banks	$	—	$	64.0		$	27.6		$	—		$	—		$	91.6
Current maturities of long-term debt		—		22.1			1.0			—			—			23.1
Other current liabilities		—		658.4			1,238.4			20.3			—			1,917.1
Liabilities of discontinued operations		—		79.7			781.3			—			—			861.0
Total current liabilities		—		824.2			2,048.3			20.3			—			2,892.8
Long-term debt		—		1,441.0			159.7			—			—			1,600.7
Reserve for post-retirement benefits		—		336.5			355.2			—			—			691.7
Intercompany accounts, net		2,058.9		31.2			(1,570.2	)		(200.5	)		(319.4	)		—
Intercompany accounts, net – discontinued operations		—		16.2			(335.6	)		—			319.4			—
Long-term portion of asbestos liability		—		652.8			—			—			—			652.8
Other long-term liabilities		—		314.3			148.0			189.3			—			651.6
Total liabilities		2,058.9		3,616.2			805.4			9.1			—			6,489.6
Total shareholders’ equity (deficit)		923.5		(478.8	)		3,428.1			32.6			(2,981.9	)		923.5
Total liabilities and shareholders’ equity (deficit)	$	2,982.4	$	3,137.4		$	4,233.5		$	41.7		$	(2,981.9	)	$	7,413.1

26

Note 15. Segment Data

The segment data presented have been reclassified to exclude the results of discontinued operations. Selected information by business segment is presented in the following table ($ in millions):

Summary Segment and Income Statement Data

Dollars in millions

(unaudited)

	Three months ended June 30,				Six months ended June 30,
	2007		2006		2007		2006
Sales:
Air Conditioning Systems and Services	$	2,037.7	$	1,858.5	$	3,645.2	$	3,321.9
Vehicle Control Systems		582.3		511.2		1,141.1		991.1
Total Sales	$	2,620.0	$	2,369.7	$	4,786.3	$	4,313.0
Segment Income:
Air Conditioning Systems and Services	$	288.8	$	278.1	$	446.2	$	408.9
Vehicle Control Systems		67.1		59.5		140.8		127.3
Total Segment Income		355.9		337.6		587.0		536.2
Equity in net income of unconsolidated joint ventures		7.3		12.0		14.6		21.9
		363.2		349.6		601.6		558.1
Interest expense		27.3		30.9		55.5		60.9
Corporate and other expenses		65.6		52.0		122.1		99.8
Income from continuing operations before income taxes		270.3		266.7		424.0		397.4
Income Taxes		82.8		77.5		135.1		116.2
Income from continuing operations applicable to common shares	$	187.5	$	189.2	$	288.9	$	281.2

Corporate and other expenses are comprised of corporate functional spending, minority interest expense and other corporate expenses. Corporate functional spending includes salaries, fringe benefits, share-based compensation expense and professional fees associated with corporate functions such as human resources, finance, information technology, and legal. Other corporate expenses include costs associated with incentive compensation related to the corporate functions listed above, asbestos litigation costs, losses on sales of receivables associated with our receivable securitization programs (See Note 8 of Notes to Financial Statements in our Form 10-K for the year ended December 31, 2006), pension and post-retirement benefit costs related to the corporate functions listed above and accretion expense associated with the Company’s post-retirement benefit plans (See Note 6 of Notes to Financial Statements in our Form 10-K for the year ended December 31, 2006), non-operating foreign exchange gains/losses, separation costs related to the planned separation for tax and accounting fees, legal fees, professional advisory services, employee costs and other costs associated with executing the separation transactions and other miscellaneous corporate related expenses.

For a comparative analysis of this Summary Segment and Income Statement Data, see Management’s Discussion and Analysis of Financial Condition and Results of Operations on the following pages.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

Planned Separation

On February 1, 2007, the Company announced that its Board of Directors completed a strategic review of the Company and unanimously approved a plan to separate its three segments. The Board of Directors believes that separating the businesses will create greater shareowner value than the current operating structure. The separation is expected to provide the separated companies with certain opportunities and benefits, including increased strategic focus, increased market recognition, improved capital flexibility and increased ability to attract, retain and motivate employees. On July 12, 2007, the Board of Directors approved the tax-free spinoff of its Vehicle Control Systems business into a new publicly traded company named WABCO Holdings Inc. (“WABCO”). As part of its approval, the Board of Directors authorized a dividend on its common stock of one WABCO share for every three shares of American Standard and established the close of business on July 19, 2007 as the record date. The spinoff was completed at 11:59pm on July 31, 2007. Approval of the Company’s shareholders was not required for the spinoff. On July 11, 2007, the Board of Directors of the Company declared a quarterly dividend of $0.16 per share payable on September 20, 2007 to shareholders of record on September 4, 2007. On August 1, 2007, the Board of Directors of WABCO declared a dividend of $0.07 per share payable on September 20, 2007 to shareholders of record on September 4, 2007.

On July 23, 2007, the Company entered into a definitive agreement to sell its Bath and Kitchen business to affiliates of Bain Capital Partners, LLC for $1.755 billion in cash, subject to certain adjustments and normal regulatory approvals. The sale is expected to close early in the fourth quarter of 2007. Approval of the Company’s shareholders is not required for the Bath and Kitchen sale. Based on these facts, the Bath and Kitchen business has been reported as discontinued operations for all periods presented. Proceeds from the sale of Bath and Kitchen are expected to be used primarily to repurchase common stock and to reduce debt to keep the Company at investment grade standards.

Upon completion of the sale of Bath and Kitchen, the Company will focus on its Air Conditioning Systems and Services business and expects, subject to receipt of shareholder approval, to change its name to Trane, the Company’s flagship air conditioning brand.

Included within the results of discontinued operations for the six months ended June 30, 2007 is the gain recognized from the sale of the Armitage Venesta business. On March 30, 2007, the Company sold this business, which is a leading supplier of commercial washroom solutions in both the United Kingdom and Ireland. The Company received proceeds of $165 million and recognized a pre-tax gain of $80.8 million, $56.8 million net of taxes.

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The Company expects to incur total costs in the range of $95 to $100 million related to the planned separation for tax and accounting fees, legal fees, professional advisory services, employee costs and other costs associated with executing the separation transactions. In addition, the Company will incur incremental tax costs with regard to the legal reorganization of the Company prior to and in connection with the WABCO separation. These costs are estimated at approximately $45 to $50 million.

Business

For the periods presented the Company currently operates in two major business segments: Air Conditioning Systems and Services and Vehicle Control Systems. Air Conditioning Systems and Services is a global manufacturer of commercial and residential heating, ventilation and air conditioning (HVAC) equipment systems and controls. Vehicle Control Systems designs, manufactures and sells braking and control systems primarily for the worldwide commercial vehicle industry. Company management analyzes the performance of the business using the following general framework and describes the performance of the business in this context throughout the remainder of this discussion and analysis of financial condition and results of operations.

Sales – The Company analyzes its sales activity based on the impacts of its pricing initiatives and the volume and mix of its products. The realization of price increases and the execution of the strategy to improve sales mix to more profitable new products are important to the Company in order to offset commodity and other cost escalations and grow profitability.

Productivity – The Company identifies the impact of key productivity programs in the areas of materials procurement, Six Sigma and labor.

Commodities – Each of the Company’s businesses use commodities such as steel, copper and aluminum in the manufacturing process. The Company seeks to understand the impact of changing costs for these commodities on its performance.

Investments – The Company analyzes its ongoing costs for new products in each of its businesses and its investments in sales and marketing programs in support of sales growth. Investments in new products are important to sustaining organic growth and to improve the mix of products through innovation and new product launches.

Costs associated with shipping, handling, purchasing, receiving, inspecting, warehousing, internal transfer costs and other costs of distribution incurred on sales of products are included in the determination of segment income and total segment income and in the determination of cost of sales in the Consolidated Statement of Income. The Company’s measure of cost of sales may not be comparable to those of other companies as some companies exclude a portion of these costs from cost of sales and include them in another caption within their income statement.

Financial Results Overview - Continuing Operations

Total segment income as referred to in the table below represents the summation of segment income of the Company’s two business segments: Air Conditioning Systems and Services and Vehicle Control Systems. The Vehicle Control Systems business will have its results included in discontinued operations starting in the third quarter of 2007, since the spinoff of the business was effective July 31, 2007. See Note 1 of Notes to Financial Statements for selected income statement and balance sheet data for that business.

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The presentation of total segment income and total segment income as a percentage of sales is not in conformity with GAAP. This measure may not be comparable to similar measures of other companies as not all companies calculate this measure in the same manner. In addition, the presentation of total segment income is not meant to be a substitute for measurements prepared in conformity with GAAP, nor to be considered in isolation. Management believes that presenting these measures is useful to shareholders because it enhances their understanding of how management assesses the performance of the Company’s businesses. See Note 15 of Notes to Financial Statements for a reconciliation of segment income to income from continuing operations applicable to common shares. In addition, please see the table directly below for presentation of total segment income as a percentage of sales and income from continuing operations applicable to common shares as a percentage of sales and information on the presentation of segment income excluding effects of foreign exchange translation in results of operations by business segment. Income from continuing operations applicable to common shares is the most directly comparable GAAP measure to total segment income.

Following is an analysis of changes in sales, total segment income and total segment income as a percentage of sales for the Company for the second quarter of 2007 compared with the second quarter of 2006, with and without the effects of foreign exchange translation.

(Dollars in millions)	Three Months Ended June 30, 2006 Reported			Three Months Ended June 30, 2007
				2007 Reported			Percentage Change Reported		Excluding foreign exchange translation
									2007 Adjusted Amount			Percentage Change Adjusted
Sales	$	2,369.7		$	2,620.0		10.6	%	$	2,561.8		8.1	%
Total segment income		337.6			355.9		5.4	%		349.2		3.4	%
Total segment income as a percentage of sales		14.2	%		13.6	%	(0.6	) pts.		13.6	%	(0.6	) pts.
Income from continuing operations applicable to common shares	$	189.2		$	187.5		(0.9	%)
Income from continuing operations applicable to common shares as a percentage of sales		8.0	%		7.2	%	(0.8	) pts.

Sales in the second quarter of 2007 were $2,620.0 million, an increase of 10.6% (8.1% excluding favorable foreign exchange translation effects) from $2,369.7 million in the second quarter of 2006. Sales increased 9.6% for Air Conditioning Systems and Services and increased 13.9% for Vehicle Control Systems. Sales for the six-months ended June 30, 2007 were $4,786.3 million, an increase of 11% (8.3% excluding favorable foreign exchange translation effects) from $4,313.0 million during the first six months of 2006. Sales increased 9.7% for Air Conditioning Systems and Services and increased 15.1% for Vehicle Control Systems.

Total segment income was $355.9 million for the second quarter of 2007, an increase of 5.4% (an increase of 3.4% excluding favorable foreign exchange translation effects) from $337.6 million in the second quarter of 2006. Segment income increased 3.8% for Air Conditioning Systems and Services and increased 12.8% for Vehicle Control Systems. Total segment income was $587.0 million for the first six months of 2007, an increase of 9.5% (an increase of 7.0%

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excluding favorable foreign exchange translation effects) from $536.2 million during the first six months of 2006. Segment income increased 9.1% for Air Conditioning Systems and Services and increased 10.6% for Vehicle Control Systems.

Income from continuing operations for the three months ended June 30, 2007 was $187.5 million, down 0.9% from $189.2 million a year ago. Income from continuing operations for the three months ended June 30, 2007 was $0.90 per diluted share, down 1.1% from $0.91 per diluted share a year ago. Income from continuing operations in 2007 as compared to 2006 reflected increased earnings from increased Air Conditioning Systems and Services commercial equipment, contracting and services sales and increased sales within the Vehicle Control Systems segment. The increased commercial equipment, contracting and services earnings more than compensated for the lower earnings growth and a warranty charge included in the residential air conditioning systems financial results. Vehicle Controls Systems sales performance reflected increased bus and truck builds in Western Europe, which is the business’s largest region. The growth in the Air Conditioning Systems and Services and Vehicle Controls Systems businesses was not enough to overcome the impact of separation costs and separation related taxes incurred during the second quarter of 2007. Specifically, income from continuing operations for the three months ended June 30, 2007 included $21.1 million of separation expenses ($19.3 million net of $1.8 million of tax benefits) primarily related to tax and accounting fees, legal fees, professional advisory fees and other related costs. In addition, income taxes from continuing operations for the three months ended June 30, 2007 included $7.1 million of tax costs associated with the legal reorganization of the Company pursuant to its planned separation.

Income from continuing operations for the six months ended June 30, 2007 was $288.9 million, up 2.7% from $281.2 million a year ago. Income from continuing operations was $1.39 per diluted share, up 3.0% from $1.35 per diluted share a year ago. The increase in 2007 income from continuing operations as compared to 2006 reflects many of the same factors that impacted business performance during the second quarter of 2007. Income from continuing operations for the six months ended June 30, 2007 also included $27.1 million of separation expenses ($24.9 million net of $2.2 million of tax benefits) primarily related to tax and accounting fees, legal fees, professional advisory fees and other related costs. In addition, income taxes from continuing operations for the six months ended June 30, 2007 includes $7.1 million of tax costs associated with the legal reorganization of the Company pursuant to its planned separation.

In the quarter, the Company experienced improved pricing of approximately $55.0 million, volume and mix increases of approximately $31.0 million, productivity improvements of approximately $49.0 million, which include materials management initiatives and other productivity related benefits and approximately $3.0 million of net foreign exchange transactional and translational gains. These benefits were partially offset by continued commodity, energy and logistics cost escalations of approximately $68.0 million primarily due to increased copper, aluminum and fuel costs, labor cost inflation and other operating expense escalations of approximately $31.0 million, which include approximately $8.0 million of warranty expense associated with the Company’s whole house air filters, additional investments primarily in new product development and marketing of approximately $14.0 million and $8.0 million more operational consolidation expenses in 2007 as compared to 2006. The Company’s performance for the six months ended June 30, 2007 was impacted by many of the same items mentioned above. See discussions below for year over year change in segment income for each business segment.

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Results of Operations by Business Segment

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 15 of Notes to Financial Statements. Approximately half of the Company’s business is outside the U.S. and therefore, changes in exchange rates can have a significant effect on segment income when presented in U.S. dollars. Year-over-year changes in sales and segment income and, in certain cases, segment income as a percentage of sales, for 2007 compared with 2006 are presented both with and without the effects of foreign exchange translation. Presenting segment income excluding the translation effects of foreign exchange amounts is not in conformity with generally accepted accounting principles (GAAP), but management analyzes the data in this manner because it is useful to them for understanding operational performance of the business. Management also uses data adjusted in this manner for purposes of determining incentive compensation. Accordingly, management believes that presenting information in this manner is also useful to shareholders in understanding the performance of the business. 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. The presentation of sales, segment income, total segment income and segment income as a percentage of sales with and without the effects of foreign currency translation are not meant to be a substitute for measurements prepared in conformity with GAAP, nor to be considered in isolation.

Air Conditioning Systems and Services Segment

Following is an analysis of changes in sales, segment income and segment income as a percentage of sales for Air Conditioning Systems and Services for the second quarter of 2007 compared with the second quarter of 2006, showing the effect of foreign exchange translation.

(Dollars in millions)	Three Months Ended June 30, 2006 Reported			Three Months Ended June 30, 2007
				2007 Reported			Percentage Change Reported		Excluding foreign exchange translation
									2007 Adjusted Amount			Percentage change Adjusted
Sales	$	1,858.5		$	2,037.7		9.6	%	$	2,015.8		8.5	%
Segment income	$	278.1		$	288.8		3.8	%	$	286.5		3.0	%
Segment income as a percentage of sales		15.0	%		14.2	%	(0.8	) pts.		14.2	%	(0.8	) pts.

Sales of Air Conditioning Systems and Services increased 9.6% (8.5% excluding favorable foreign exchange translation effects) to $2,037.7 million for the second quarter of 2007 from $1,858.5 million for the second quarter of 2006. Overall, sales benefited from price increases, volume gains in commercial equipment sales and growing commercial contracting and services sales, which more than offset lower sales volumes in residential product sales. Sales benefited during the second quarter of 2007 from price increases of approximately $68 million with the remainder of the increase driven by volume and mix. Commercial equipment sales, which represent approximately 45% of total Air Conditioning Systems and Services sales, increased 16.3% on a global basis. Within the commercial equipment segment, global unitary sales were up 12.6%, and global applied sales were up 20.4%. Sales increased 9.0% in the parts, services and solutions part of our business.

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The commercial equipment market in the U.S. was up an estimated 14% year-over-year, consisting of 3-4% growth in price and 10-11% growth in volume. Markets in Europe and the Middle East as well as Asia increased in the mid to high single digits. Globally, orders were up 5.0% (excluding favorable foreign exchange translation effects and 2006 orders associated with operations in Australia, which were sold in the fourth quarter of 2006) in the second quarter of 2007 as compared to 2006. In the Americas, total orders were up 9.0% (excluding favorable foreign exchange translation effects), with increases in both the unitary and applied markets. Internationally, orders were down 6.0% (excluding favorable foreign exchange translation effects and 2006 orders associated with operations in Australia, which were sold in the fourth quarter of 2006) in the second quarter of 2007. Orders in Asia were down due to focusing on higher profit business, while orders increased in Europe and the Middle East. Backlog at the end of the quarter was $976 million, up 9.0% from the second quarter of last year (excluding foreign exchange translation effects and 2006 backlog associated with operations in Australia, which were sold in the fourth quarter of 2006).

Sales of the Company’s residential products increased 0.6% year-over-year. This increase was driven by price increases and to a lesser extent increased mix, which were nearly offset by decreased volume. The Company experienced lower sales volumes in compressor bearing units, furnaces and air handlers. The decrease in volume was impacted by the overall decrease in the residential market, which included the impact of lower new residential construction. In addition, average temperatures in the second quarter of 2007 were down 3-5% as compared to the second quarter of 2006. While the Company estimates that compressor bearing unit shipments for the total market were up 4-5% versus the second quarter of 2006, the Company estimates that motor bearing manufacturer’s shipments were down approximately 1-2%, which includes compressor bearing units, furnaces and air handlers. The Company believes new residential construction will continue to impact sales volumes for the remainder of 2007. As a result, the Company continues to monitor its inventories in its distribution channel, which appear to be at reasonable levels.

Air Conditioning Systems and Services sales for the six months ended June 30, 2007 were $3,645.2 million up 9.7% (8.6% excluding foreign exchange translation effects) when compared to sales for the six months ended June 30, 2006. Sales for the six months ended June 30, 2007 were favorably impacted by many of the same factors that drove revenue growth in the second quarter of 2007.

Segment income of Air Conditioning Systems and Services increased 3.8% (3.0% excluding foreign exchange translation effects) to $288.8 million in the second quarter of 2007 from $278.1 million in the second quarter of 2006. Segment income benefited from price increases of approximately $68 million, volume and mix increases of approximately $17 million and productivity improvements of approximately $35 million, which include approximately $26 million from material savings initiatives and approximately $9.0 million of other productivity related benefits. These improvements were partially offset by commodity cost increases associated with copper, aluminum and logistics of approximately $65 million, labor cost escalations and other operating cost increases of approximately $17 million, incremental investments primarily in new product development and marketing of approximately $14 million and increased warranty expenses of approximately $15 million, which includes $8 million of warranty expense associated with the Company’s whole house air filters.

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Segment income increased 9.1% (8.3% excluding favorable foreign exchange translation effects) to $446.2 million in the first six months of 2007 from $408.9 million in the comparable prior period of 2006. The improvement in segment income during the first six months of 2007 was driven by many of the same items mentioned above.

Vehicle Control Systems Segment

Following is an analysis of changes in sales, segment income and segment income as a percentage of sales for Vehicle Control Systems for the second quarter of 2007 compared with the second quarter of 2006, showing the effect of foreign exchange translation.

(Dollars in millions)	Three Months Ended June 30, 2006 Reported			Three Months Ended June 30, 2007
				2007 Reported			Percentage Change Reported		Excluding foreign exchange translation
									2007 Adjusted Amount			Percentage Change Adjusted
Sales	$	511.2		$	582.3		13.9	%	$	546.0		6.8	%
Segment income	$	59.5		$	67.1		12.8	%	$	62.7		5.4	%
Segment income as a percentage of sales		11.6	%		11.5	%	(0.1	) pts.		11.5	%	(0.1	) pts.

Sales of Vehicle Control Systems for the second quarter of 2007 were $582.3 million, an increase of 13.9% (6.8% excluding foreign exchange translation) from $511.2 million in the second quarter of 2006, due to increases in truck builds, increased content per vehicle, new applications and aftermarket sales growth. This increase was partially offset by approximately $14 million of price decreases. Sales in Europe, the Company’s largest market, increased 17.5% (increased 9.4% excluding the favorable effects of foreign exchange) which exceeded the growth in the European truck build market. The Company estimates that the European truck build market increased 3.4% as compared to 2006. Total aftermarket sales for the second quarter increased 11% (4.0% excluding the unfavorable effects of foreign exchange). Aftermarket sales growth in the quarter was limited by supply chain capacity limitations due to prioritizing original equipment manufacturer sales ahead of aftermarket demand. Sales decreased 4.5% in the Americas region, which includes the U.S. and Latin America (decreased 10.4% excluding the effects of favorable foreign exchange translation). Sales to original equipment manufacturers in the region were down in line with decreased truck builds year over year. A better mix of trailer and aftermarket sales in Brazil helped offset the significant decrease in U.S. truck builds year over year. The North American truck build market decreased 47.0% when compared to 2006. The decrease was influenced by sales volumes in 2006 ahead of regulations mandating better emissions standards, which became effective in 2007. In Asia, our sales increased 14.1% with and without foreign exchange. Sales performance in Asia was influenced by a significant increase in sales in China. The sales growth in China was primarily driven by the successful introduction of the Company’s compressor product line in the market. Backlog at the end of the quarter was $1,052 million, up 28.0% (up 22.0% excluding favorable foreign exchange translation effects) from the second quarter of 2006.

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Sales for the six months ended June 30, 2007 were $1,141.1 million up 15.1% when compared to sales for the six months ended June 30, 2006. The sales increase recognized in the first six months of 2007 was driven by the same factors as discussed above.

Segment income for Vehicle Control Systems for the second quarter of 2007 increased 12.8% (increased 5.4% excluding favorable foreign exchange translation effects) to $67.1 million from $59.5 million in the second quarter of 2006. Segment income benefited from volume and mix increases of approximately $14 million, reduced warranty expenses of approximately $12 million and productivity improvements of approximately $8 million. These improvements were partially offset by price decreases of approximately $14 million, labor cost escalations of approximately $4 million and commodity cost increases of approximately $3 million. In addition, the second quarter of 2007 included operational consolidation expenses of $7.7 million, which were primarily associated with severance relating to 2007 plans. Operational consolidation expenses were $1.4 million during the second quarter of 2006. Overall, the increase in sales did not translate into improved segment income as a percentage of sales when compared to 2006 due to delays in meeting aftermarket sales demand and additional costs within the supply chain created by the need to meet higher than expected demand from the original equipment manufacturer sector of the business. Segment income increased 10.6% (2.8 % excluding favorable foreign exchange translation effects) to $140.8 million in the first six months of 2007 from $127.3 million in the comparable prior period of 2006. The increase in segment income for the first six months of 2007 was impacted by many of the same items described above.

Other Summary Segment and Income Data Items

Equity in net income of unconsolidated joint ventures decreased to $7.3 million in the second quarter of 2007 from $12.0 million in the second quarter of 2006 and decreased to $14.6 million for the first half of 2007 as compared to $21.9 million in the first half of 2006. The decrease in the second quarter and six months ended June 30, 2007 primarily resulted from the performance of our Meritor WABCO joint venture in the U.S. and Vehicle Control Systems’ joint venture in India. The performance of the Meritor WABCO joint venture in the U.S. was impacted by lower sales volumes due to the market declines experienced in North America.

Interest expense decreased $3.6 million to $27.3 million in the second quarter of 2007 compared with $30.9 million in the second quarter of 2006 and decreased $5.4 million in the first half of 2007 to $55.5 million from $60.9 million in the comparable prior period. The reduction in interest expense in the second quarter and first half of 2007 primarily resulted from lower average debt balances.

Corporate and other expenses in the second quarter of 2007 increased $13.6 million to $65.6 million from $52.0 million in the second quarter of 2006. The increase in 2007 is substantially due to $21.1 million of separation expenses incurred during 2007 primarily related to tax and accounting fees, legal fees, professional advisory fees and other related costs including $5.9 million of costs associated with the early retirement of Senior Bonds. These costs were partially offset by $4.8 million more foreign exchange gains in 2007 as compared to 2006. Corporate and other

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expenses for the six-months ended June 30, 2007 amounted to $122.1 million, up $22.3 million from $99.8 million in the six-months ended June 30, 2006. The increase is substantially due to $27.1 million of separation expenses incurred during the first six months of 2007, including $5.9 million of costs associated with the early retirement of debt discussed above. Corporate and other expenses, shown in the Summary Segment and Income Statement Data table in Note 15 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 (income) in the Unaudited Summary Consolidated Statement of Income. Period-to-period changes in the significant components of Other expense (income) 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 from continuing operations for the second quarter of 2007 was $82.8 million, or 30.6% of pre-tax income, compared with a provision of $77.5 million, or 29.1% of pre-tax income in the second quarter of 2006. The income tax provision for the second quarter of 2007 included $10.2 million of tax benefits primarily associated with foreign audit settlements and the expiration of statute of limitations and $7.1 million of costs associated with the legal reorganization of the Company pursuant to its planned separation. The tax provision for the second quarter of 2006 reflected $7.0 million of tax benefits primarily related to the reduction of a tax contingency as a result of an expiring statute of limitations in a jurisdiction outside of the United States. The tax provision for the first six-months of 2007 was $135.1 million, or 31.9% of pre-tax income, compared with a provision of $116.2 million or 29.2% of pre-tax income for the six-months ended June 30, 2006. The income tax provision for the first six months of 2007 and 2006 reflected tax benefits of $9.7 million. In addition, the tax provision for the six months ended June 30, 2007 includes $7.1 million of costs associated with the legal reorganization of the Company pursuant to its planned separation.

Upon the completion of the spinoff of WABCO, the financial results of the Vehicle Control Systems business will also be reported as part of discontinued operations. The Company expects its income tax provision from continuing operations, which will exclude the Bath and Kitchen and Vehicle Control Systems businesses, to be in the range of 34% to 36%, excluding the impact of the resolution of audits, tax contingencies, changes in tax rules and regulations and assuming no significant changes in the geographic distribution of the Company’s earnings

Financial Results Overview - Discontinued Operations

As previously discussed, the Bath and Kitchen business has been reported as discontinued operations. See Note 2 of Notes to Financial Statements for summary financial information of the business.

Bath and Kitchen sales increased 6.4% (1.8% excluding foreign exchange translation effects) to $660.5 million for the second quarter of 2007 from $621.0 million for the second quarter of 2006. Sales benefited during the second quarter of 2007 from price increases of approximately $13 million with the remainder of the increase driven by volume and mix; additionally, sales in the second quarter of 2006 included approximately $15 million of sales from Armitage Venesta business, which was sold at the end of the first quarter of 2007. Bath and Kitchen experienced increased price across all regions. Sales in the Americas region increased 2% despite difficult market conditions. Demand for new products in the

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Americas region was positive despite the decrease in new residential construction. New products include the Cadet 3 toilet and the newly launched Champion 4 toilet. Sales in Asia increased 12.2% (6.3% excluding favorable foreign exchange translation effects).

Sales for the six months ended June 30, 2007 were $1,318.4 million, up 7.2% when compared to sales for the six months ended June 30, 2006. Sales for the six-months ended June 30, 2007 were impacted by many of the second quarter 2007 factors described above.

Pre-tax income was $7.8 million for the three months ended June 30, 2007 as compared to a loss of $2.3 million in 2006. Pre-tax income benefited from price increases of approximately $13 million and benefits from prior operational consolidation programs of approximately $9 million. These improvements were partially offset by approximately $11 million more of operational consolidation expenses during the second quarter of 2007 as compared to 2006, commodity cost increases associated with copper and zinc of approximately $10 million, $6 million of additional operating expenses, partially attributable to the separation plan and approximately $2 million of decreases from volume and mix. In addition, pre-tax income in the second quarter of 2006 included a gain of $6.3 million associated with the sale of the ceramic manufacturing operation in Europe. Lastly, pre-tax income in the second quarter of 2007 includes a benefit of $23.1 million associated with ceasing to depreciate and amortize long-lived assets as such assets were considered held for sale as of the first quarter of 2007.

The tax provision in the second quarter of 2007 was $19.3 million as compared to a benefit of $4.8 million in 2006. The income tax provision in the second quarter of 2007 includes $20.0 million of tax costs associated with the legal reorganization of the Company pursuant to the Company’s planned separation.

Pre-tax income was $104.2 million for the six months ended June 30, 2007 as compared to a loss of $12.1 million in 2006. The increase in pre-tax income during the first six months of 2007 was attributable to many of the items mentioned above. In addition, pre-tax income for the first six months of 2007 included a gain of $80.8 million recorded on the sale of the Armitage Venesta business and a benefit of $37.5 million for a portion of the first quarter and all of the second quarter associated with ceasing to depreciate and amortize long-lived assets as such assets were considered held for sale as of the first quarter of 2007.

The tax provision for the first six months of 2007 was $43.8 million as compared to a benefit of $6.7 million in 2006. The tax provision in 2007 included an expense of $24 million on the gain of the sale of Armitage Venesta and $20.0 million of tax costs associated with the legal reorganization of the Company pursuant to the Company’s planned separation.

Liquidity and Capital Resources

Cash provided by operating activities was $92.2 million in the first six months of 2007 as compared to cash provided by operating activities of $153.2 million in the first six months of 2006, a decrement of $61.0 million. Cash flow from operating activities during the first six months of 2007 was adversely impacted by the termination of the Vehicle Control Systems business’s participation in the Company’s European accounts receivable asset securitization program. Specifically, in the second quarter of 2007, the Company repurchased from the bank the outstanding balance of receivables sold into the program, which resulted in a $197.2 million payment. The impact of terminating the Vehicle Control Systems portion of the Company’s European receivable securitization program was partially offset by better inventory management and improved accounts payable terms during the first six months of 2007 as compared to 2006. Also, cash flows from operations in 2007 reflects $26.7 million of pension contributions as compared to $50.5

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million of contributions made in 2006. The $26.7 million reflects a special contribution to the U.K. pension plans resulting from the sale of a business. The $50.5 million of contributions in 2006 were associated with the Company’s U.S. pension plans. The Company expects to contribute $30.0 million to such plans in the third quarter of 2007. Finally, cash flow from operating activities in 2007 included cash outflows from separation costs, which totaled $16.6 million. Cash used by discontinued operations included in cash flow from operating activities, was $9.5 million and cash provided by discontinued operations was $78.0 million for the six months ended June 30, 2007 and 2006, respectively.

The Company generated free cash flow of $212.0 million during the first six months of 2007 as compared to $62.1 million during the first six months of 2006. Free cash flow for the six months ended June 30, 2007 excludes the proceeds received from the sale of the Armitage Venesta Washroom Systems business, separation activities relating to terminating Vehicle Control Systems’ portion of the European accounts receivable securitization program and separation costs, as well as an accelerated pension contribution made in the second quarter of 2007. Free cash flow for the six months ended June 30, 2007 includes proceeds related to an insurance settlement received in the first quarter of 2007. Each of these adjustments is outlined in the reconciliation below. In addition, free cash flow used by discontinued operations, included in free cash flow, was $33.8 million and cash provided by discontinued operations was $57.9 million for the six months ended June 30, 2007 and 2006, respectively. Management uses free cash flow when reviewing and assessing the performance of the business. Free cash flow is also one of several measures used to determine incentive compensation. The following table reconciles free cash flow to cash flows provided (used) in operating activities.

	Six months ended June 30,
	2007			2006
Net cash provided by operating activities	$	92.2		$	153.2
Adjustments to net cash provided by operating activities:
Termination of accounts receivable securitization program		197.2			—
Accelerated pension payment		26.7			—
Separation costs		16.6			—
Adjusted net cash provided by operating activities		332.7			153.2
Other deductions or additions to reconcile to free cash flow:
Purchases of property, plant, equipment and computer software		(120.7	)		(106.3	)
Proceeds from disposal of property		—			15.2
Free cash flow	$	212.0		$	62.1

The presentation of free cash flow is not in conformity with GAAP. This measure may not be comparable to similar measures of other companies as not all companies calculate this measure in the same manner. In addition, the presentation of free cash flow is not meant to be a substitute for measurements prepared in conformity with GAAP, nor to be considered in isolation. Cash flow from operating activities is the most directly comparable GAAP measure to free cash flow.

In investing activities, the Company made capital expenditures and investments in computer software of $120.7 million in the first six months of 2007 as compared to $106.3 million in the first six months of 2006. The increase in capital expenditures during 2007 relates to the timing of investments made by the Bath and Kitchen business and increased capital expenditures in Air Conditioning Systems and Services associated with the construction of a new facility in Asia. In addition, the Company received $171.8 million of cash proceeds from the sale of businesses, which was substantially comprised of $165.0 million of cash proceeds received in the first quarter of 2007 from the sale of the Armitage Venesta business. Cash provided by operating and investing activities for the first six months of 2007 was $127.5 million and financing activities used $47.1

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million. The net cash generated by operating and investing activities contributed to the increase in cash on hand and funded, in part, debt reductions of $67.1 million and dividend payments of $72.8 million. During the first six months of 2006, the Company generated $65.0 million in operating and investing activities and $228.5 million was used by financing activities. The net cash generated by operating and investing activities and cash provided by net borrowings of $154.2 million funded, in part, dividend payments and share repurchases totaling $73.1 million and $349.4 million, respectively. Cash provided by discontinued operations, included in investing activities was $140.1 million for the six months ended June 30, 2007 and cash used by discontinued operations, included in investing activities, was $5.0 million for the six months ended June 30, 2006. The $140.1 million of cash provided by investing activities of discontinued operations included the $165 million of proceeds received from the sale of Armitage Venesta.

On July 11, 2007, the Board of Directors approved the payment of a dividend of $0.16 per share of common stock to be paid on September 20, 2007, to shareholders of record on September 4, 2007. In addition, on July 12, 2007, the Board of Directors approved the tax-free spinoff of its Vehicle Control Systems business into a new publicly traded company to be called WABCO. As part of its approval, the Board of Directors authorized a dividend on its common stock of one WABCO share for every three shares of American Standard and established the close of business on July 19, 2007 as the record date. During the first six months of 2007, the Company did not repurchase shares of its common stock. The Company plans to resume its share repurchase program during the second half of 2007 and plans to expend the majority of the remaining authorized but unexpended amount.

On May 31, 2007, the Company replaced the primary bank credit agreement in existence as of March 31, 2007 and various other 364 day credit facilities with two new credit agreements that provide the Company and certain subsidiaries (the “Borrowers”) with senior unsecured revolving credit facilities, aggregating $1.5 billion, available to all Borrowers as follows: (a) a five year, $1 billion multi-currency revolving credit facility expiring in 2012 of which up to $250 million may be used for issuing letters of credit and up to $100 million for same-day, short-term borrowings and (b) a 364 day, $500 million multi-currency revolving credit facility of which up to $75 million can be used for same-day, short term borrowings. The 364 day facility has an option to renew for an additional 364 days.

Under the five year facility, the Company pays a facility fee of .125% per annum. Borrowings thereunder bear interest generally at the London Interbank Offered Rate (“LIBOR”) plus a spread of .425% for usage less than or at 50% and a spread of .475% for usage over 50%. The Company also pays a .425% per annum plus issuance fees for letters of credit.

Under the 364 day facility, the Company pays a facility fee of .10% per annum. Borrowings thereunder bear interest generally at the London Interbank Offered Rate (“LIBOR”) plus a spread of .45% for usage less than or at 50% and a spread of .50% for usage over 50%.

The LIBOR spreads for both the five year facility and the 364 day facility are subject to adjustments should the Company’s debt ratings change. Under the primary credit agreements, the Company, American Standard Inc. and American Standard International Inc. guarantee the debt obligations.

The primary credit agreements contain various covenants that limit, among other things, liens, transactions, subsidiary indebtedness, and certain mergers and sales of assets. The covenants also require the Company to meet certain financial tests: ratio of Consolidated Total Debt to consolidated EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), the ratio of Consolidated EBITDA to Consolidated Interest Expense and a Liquidity Test. The Company is currently in compliance with the covenants contained in the credit agreement.

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In connection with the entry into its current primary credit facilities, the Company terminated its then existing American Standard Inc. 364 day facilities and expects to terminate a subsidiary borrowers 40 million Euro Dollar Facility ($53.8 million at June 30, 2007 exchange rates) by the end of 2007. On April 30, 2007 the Company repaid the 30 million Euro ($41.0 million at April 30, 2007 exchange rates) 7.59% Guaranteed Senior Bonds due 2013 with its credit facility. In addition to its primary 364 day facility, the Company, through a foreign subsidiary, continues to maintain a $50.0 million 364 day facility to support operations in Canada (the “Canadian Facility” together with the Euro Dollar Facility, the “364 Day Foreign Facilities”).

At June 30, 2007, total indebtedness of the Company was $1,665.3 million. The Company had remaining borrowing capacity under its primary bank credit agreements at June 30, 2007 of $907.0 million after reduction for borrowings of $549.7 million and $43.6 million of outstanding letters of credit. In addition, there was $37.8 million outstanding under the 364 Day Foreign Facilities and $66 million remaining available under such facilities. In addition, the Company had $207.5 million available at June 30, 2007 under other facilities that can be withdrawn by the banks at any time and outstanding letters of credit issued by other banks of $114.0 million as of June 30, 2007.

Consistent with prior quarters, at June 30, 2007, the Company was restricted from remitting approximately $74 million from China to the U.S. largely due to the absence of locally accumulated statutory earnings. The Company does not believe that such restrictions or other similar restrictions which may affect certain of the Company’s foreign subsidiaries will materially affect the Company’s liquidity. The Company does not rely on its cash balance in existence at any point in time to fund operations, but rather its ongoing cash flows from operations.

The Company believes that the amounts available from operating cash flows, funds available under its credit agreements and future borrowings under the remaining $540.0 million of a $1.0 billion shelf registration statement filed with the Securities and Exchange Commission and access to private debt markets will be sufficient to meet the Company’s expected operating needs and planned capital expenditures for the foreseeable future.

Off-Balance Sheet Arrangements

The Company employs several means to manage its liquidity and is not dependent upon any one source of funding. In addition to funds available from operating cash flows, bank credit agreements and the public and private debt and equity markets as described above, the Company uses two principal off-balance sheet techniques: operating leases and receivables financing arrangements. Operating leases are employed as an alternative to purchasing certain property, plant and equipment when cost effective to do so. Receivables financing arrangements are used to reduce borrowing costs. 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, 2006. To reduce its borrowing cost, during 2002 the Company established accounts receivable financing facilities in Europe and the U.S. These facilities are subject to annual renewals. The facility in Europe was renewed in May 2007. The U.S. facility will require renewal in September 2007. The Company has the ability to renew these facilities. Receivables that relate to the Vehicle Control Systems’ business are no longer securitized as of May 31, 2007 due to the spinoff of that business and the European facility limit was reduced to €150 million (or $202 million at June 30, 2007 exchange rate) from €300 million. In conjunction

40

with reducing the facility limit, the Company repurchased the outstanding balance of Vehicle Control Systems’ receivables sold into the program. The outstanding balance of receivables purchased totaled $197.2 million. As part of the Bath and Kitchen sale, the Company intends to discontinue the European facility entirely. As of June 30, 2007 advances from conduits were $199.8 million under the European program as compared to $389.5 million at December 31, 2006. The amount of receivables sold under the U.S securitization program have not changed significantly from the amounts disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. As part of the Bath and Kitchen sale, the Company expects to reduce the size of the U.S. program.

The Company has commitments and performance guarantees, including energy savings guarantees totaling $81.3 million as of June 30, 2007, extending from 2007 to 2027, under long-term service and maintenance contracts related to its air conditioning equipment and system controls. Through June 30, 2007 the Company has experienced one insignificant loss under such energy savings guarantees and considers the probability of any significant future losses to be unlikely and has therefore not recorded a liability for such guarantees.

Aggregate Contractual Obligations

The Company has contractual obligations for long-term debt, operating leases, purchase obligations, unfunded pension and post-retirement benefit plans and certain other long-term liabilities that were summarized in a table of aggregate contractual obligations in our 2006 Annual Report on Form 10-K. There have been no material changes to those obligations since December 31, 2006. In addition, the Company does not expect any changes to the aggregate contractual obligations outlined in its Form 10K for the year ended December 31, 2006 as a result of adopting FIN 48.

Information Concerning Forward Looking Statements

Certain of the statements contained in this report (other than the historical financial data and other statements of historical fact), including, without limitation, statements as to management’s expectations and 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-Q includes important information as to risk factors in “Item 1. Legal Proceedings”, “Item 1A. Risk Factors”, and “Item 2. 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 the level of truck and bus production in the Company’s Vehicle Control Systems’ markets;

• weather conditions as unexpected cool trends or unseasonably warm trends during the summer season could negatively or positively affect business and results of operations in Air Conditioning Systems and Services;

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• the extent to which the Company will be able to realize the estimated savings from materials management and Six Sigma initiatives;

• additional developments which may occur that could affect the Company’s estimate of asbestos liabilities and recoveries, such as the nature and number of future claims, the average cost of disposing of such claims, average annual defense costs, the amount of insurance recovery, legislation or legal decisions 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 a consistent supply of those basic materials at pricing levels which will not have an adverse effect on results of operations;

• labor relations; integration of acquired businesses;

• difficulties in obtaining or retaining the management and other human resource competencies that the Company needs to achieve its business objectives;

• the impact on the Company or a segment from the loss of a significant customer or a few customers;

• risks generally relating to the Company’s international operations, including governmental, regulatory or political changes;

• changes in environmental, health or other regulations that may affect one or more of the Company’s current products or future products;

• assumptions made related to post-retirement benefits, including rate of return on plan assets, the discount rate applied to projected benefit obligations and the rate of increase in the health care cost trend rate;

• changes in laws or different interpretations of laws that may affect the Company’s expected effective tax rate for 2007;

• periodic adjustments to litigation reserves;

• the outcome of lawsuits and other contingencies;

• transactions or other events affecting the need for, timing and extent of the Company’s capital expenditures;

• adoption of new accounting pronouncements promulgated by the Financial Accounting Standards Board or other accounting standard setting agencies; and

• the extent to which the Company is able to complete the sale of the Bath and Kitchen business, and the ability to realize the anticipated benefits associated with the contemplated separation transactions.

Critical Accounting Policies and Estimates

Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Management believes the most complex and sensitive judgments, because of their significance to the consolidated financial statements, result primarily

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from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis and Notes 2 and 14 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, describe the most significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ materially from management’s estimates. There have been no significant changes in the Company’s assumptions regarding critical accounting estimates during the first six months of 2007.

On January 1, 2007, the Company adopted the provision of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 provides recognition criteria and a related measurement model for tax positions taken by companies. In accordance with FIN 48, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions shall be recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained upon examination. Tax positions that meet the more likely than not threshold should be measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a tax position, is a matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence.

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, 2006.

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 (i) recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no significant changes since June 30, 2007, except as discussed below. The Company believes that the resolution of the litigation matters described below will not have a material adverse effect on the financial position, liquidity or results of operations of the Company.

The European Commission Investigation

In November 2004, the Company was contacted by the European Commission as part of a multi-company investigation into possible infringement of European Union competition law relating to the distribution of bathroom fixtures and fittings in certain European countries. In November 2005, the European Commission sent the Company’s indirect subsidiary, American Standard Europe BVBA (“ASE”), a written request for information. On March 28, 2007, the Company, along with a number of other companies, received a Statement of Objections from the European Commission. The Statement of Objections, an administrative complaint, alleges infringements of European Union competition rules by numerous bathroom fixture and fittings companies, including the Company and certain of its European subsidiaries engaged in the Bath and Kitchen business. Certain of these legal entities were transferred to WABCO Holdings Inc. (“WABCO”) as part of a legal reorganization in connection with the spinoff of the Company’s Vehicle Control Systems business that occurred on July 31, 2007. The Company and certain of its subsidiaries and, in light of that legal reorganization, certain of WABCO’s subsidiaries will be jointly and severally liable for any fines that result from the investigation. However, pursuant to an Indemnification and Cooperation Agreement among the Company and certain other parties (the “Indemnification Agreement”), ASE, which is a subsidiary of WABCO following the reorganization, will be responsible for, and will indemnify the Company and its subsidiaries (including certain subsidiaries formerly engaged in the Bath and Kitchen business) and their respective affiliates against, any fines related to this investigation. American Standard and the charged subsidiaries responded to the European Commission on August 1, 2007 and July 31, 2007, respectively. A hearing with the European Commission to present evidence regarding the response to the Statement of Objections is expected to occur sometime in the fall of 2007.

The European Commission recently adopted new fining guidelines (the “2006 Guidelines”) and stated its intention to apply these guidelines in all cases in which a Statement of Objections is issued after September 2006. In applying the 2006 Guidelines, the Commission retains considerable discretion in calculating the fine although the European Union regulations provide for a cap on the maximum fine equal to 10% of the parent company’s (i.e., the Company’s) worldwide revenue attributable to all of its products for the fiscal year prior to the year in which the fine is imposed. If the maximum fine were levied in 2007, the total liability would be approximately $1.1 billion based on the Company’s worldwide revenue in 2006 subject to a probable reduction for leniency of at least 20% provided the leniency applicant fulfills all conditions set forth in the Commission’s leniency notice. The Company is confident in ASE’s ability to satisfy its obligations under the Indemnification Agreement, because WABCO’s capital structure includes only a minimal amount of debt. As a result, the Company believes that WABCO will have sufficient funds available under its existing five year revolving credit facility, from operating cash flows and from additional bank credit facilities it expects to be able to arrange, in order for ASE to pay the fine.

Trane Indonesia Distributor Termination Litigation

On or about June 5, 2007, the former distributor of Trane commercial products in Indonesia, PT Tatasolusi Pratama (“TSP”), filed suit in the South Jakarta District Court against the Company, four of the Company’s subsidiaries (including the Indonesian Bath and Kitchen entity) and two

44

business leaders (including the Trane commercial country leader for Indonesia and the Trane commercial business leader for Asia). The complaint, with which the Company and its affiliates have not yet been formally served, alleges that the Company and its affiliates wrongfully terminated TSP’s alleged exclusive distributorship and appointed a subsidiary of the Company, defendant PT Trane Indonesia, as the new distributor. The complaint also alleges that the Company and its affiliates unlawfully acquired TSP’s customers. Finally, the complaint alleges that the Company and one of its subsidiaries violated a 1990 shareholder agreement and supplemental documents with TSP and its Singapore parent, Solutions P, by failing to form a business entity in Indonesia to market Trane products. In total, the complaint seeks approximately $69 million in damages. The Company and its subsidiaries intend to vigorously contest the allegations raised in the Complaint, which it believes lack merit and has not recorded a liability related to this matter.

See also Note 10 of Notes to Financial Statements for additional discussion of legal proceedings.

Item 1A. Risk Factors

There have been no significant changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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. On October 5, 2006, the Company’s Board of Directors approved $500 million to purchase shares of the Company’s common stock in the open market. As of June 30, 2007, the unexpended authorization on the current program totaled $500 million. As of June 30, 2007 the unexpended authorization on the current and prior programs totaled $512.5 million. During the first six months of 2007, the Company did not repurchase any shares of its common stock under these programs. The Company plans to expend the majority of the remaining authorized but unexpended amount for share repurchases during the current year.

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 3, 2007, at the ASD Learning Center located at One Centennial Avenue, Piscataway, New Jersey.

(b) Election of Directors – Voting Results.

Nominee	For	Withheld
Steven E. Anderson	167,567,691	5,016,626
Steven F. Goldstone	167,692,203	4,892,114
Ruth Ann Marshall	168,132,965	4,451,352

Other Directors continuing in office:

Jared L. Cohon

Paul J. Curlander

Kirk S. Hachigian

Edward E. Hagenlocker

Dale F. Morrison

Frederic M. Poses

(c) Additional maters voted upon:

Approval of the amendment to the American Standard Companies Inc. 2002 Omnibus Incentive Plan:

For	Against	Abstain	Broker Non-Votes
144,201,769	10,628,235	2,088,700	15,665,613

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Ratification of appointment of Ernst & Young LLP as the Corporation’s independent registered public accounting firm for the year ending December 31, 2007:

For	Against	Abstain	Broker Non-Votes
168,447,837	2,893,840	1,242,640	0

Item 6. Exhibits

The exhibits listed on the accompanying Index to Exhibits are filed as part of this quarterly report on Form 10-Q.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERICAN STANDARD COMPANIES INC.

/s/ Brad M. Cerepak

Brad M. Cerepak

Vice President and Controller

(Principal Accounting Officer)

August 2, 2007

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AMERICAN STANDARD COMPANIES INC.

INDEX TO EXHIBITS

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

Exhibit No.	Description
2.1	Separation and Distribution Agreement, dated as of July 16, 2007, by and between American Standard Companies Inc. and WABCO Holdings Inc. (previously filed as Exhibit 2.1 to American Standard’s Form 8-K filed on July 20, 2007, and herein incorporated by reference.)
2.2	Stock and Asset Purchase Agreement between American Standard Companies Inc., ASD Acquisition Corp. and Ideal Standard International Holdings SARL dated as of July 23, 2007, (previously filed as Exhibit 2.1 to American Standard’s Form 8-K filed on July 26, 2007, and herein incorporated by reference.)
10.1*	The American Standard Companies Inc. 2002 Omnibus Incentive Plan (Restated to include all amendments through May 3, 2007), filed herewith.
10.2	Tax Sharing Agreement, dated as of July 16, 2007, by and among American Standard Companies Inc. and certain of its subsidiaries and WABCO Holdings Inc. and certain of its subsidiaries (previously filed as Exhibit 10.1 to American Standard’s Form 8-K filed on July 20, 2007, and herein incorporated by reference.)
10.3	Transition Services Agreement, dated as of July 16, 2007, by and between American Standard Companies Inc. and WABCO Holdings Inc. (previously filed as Exhibit 10.2 to American Standard’s Form 8-K filed on July 20, 2007, and herein incorporated by reference.)
10.4	Employee Matters Agreement, dated as of July 16, 2007, by and between American Standard Companies Inc. and WABCO Holdings Inc. (previously filed as Exhibit 10.3 to American Standard’s Form 8-K filed on July 20, 2007, and herein incorporated by reference.)
10.5	Indemnification and Cooperation Agreement, dated as of July 16, 2007, by and among American Standard Companies Inc. and certain of its subsidiaries and WABCO Holdings Inc. and certain of its subsidiaries (previously filed as Exhibit 10.4 to American Standard’s Form 8-K filed on July 20, 2007, and herein incorporated by reference.)
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Management compensatory plan or arrangement.

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EX-10.1

Exhibit 10.1

AMERICAN STANDARD COMPANIES INC.

2002 OMNIBUS INCENTIVE PLAN

(Restated to include all amendments through May 3, 2007)

SECTION 1

PURPOSE

The purpose of the Plan is to foster and promote the long-term financial success of the Company and materially increase shareholder value by (a) providing flexibility to the Company to implement annual and long term incentives that are consistent with the Company’s goals, (b) encouraging and providing for the acquisition of an ownership interest in the Company by Employees, and (c) enabling the Company to attract and retain the services of world-class leaders upon whose judgment, interest and special effort the successful conduct of its operations is largely dependent.

SECTION 2

DEFINITIONS

2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below:

(a) “Act” means the Securities Exchange Act of 1934, as amended.

(b) “Adjustment Event” shall mean any stock dividend, stock split or share combination of, or extraordinary cash dividend on, the Common Stock or recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase Common Stock at a price substantially below Fair Market Value, or other similar event affecting the Common Stock of the Company.

(c) “Annual Incentive Award” means an Incentive Award made pursuant to Section 9 with a Performance Cycle of one year or less.

(d) “Beneficial Owner” means any “person”, as such term is used in Section 13(d) of the Act, who, directly or indirectly, has or shares the right to vote or dispose of such securities or otherwise has “beneficial ownership” of such securities (within the meaning of Rule 13d-3 and Rule 13d-5 under the Act), including pursuant to any agreement, arrangement or understanding (whether or not in writing).

(e) “Board” means the Board of Directors of the Company.

(f) “Cause” means a Participant’s (i) dishonesty, fraud or misrepresentation, (ii) the Participant’s engaging in conduct that is injurious to the Company or any Subsidiary in any way, including, but not limited to by way of damage to its reputation or standing in the industry, (iii) the Participant’s having been convicted of, or entered a plea of nolo contendere to, a crime that constitutes a felony; (iv) the breach by the Participant of any written covenant or agreement with the Company or any Subsidiary not to disclose or misuse any information pertaining to, or misuse any property of, the Company or any Subsidiary or (v) a material violation by the Participant of any policy of the Company or any Subsidiary.

(g) “Change of Control” shall mean the occurrence of any of the following events:

(i) any “person”, as such term is used in Section 13(d) of the Act (other than the Company, any Subsidiary or any employee benefit plan maintained by the Company or any Subsidiary (or any trustee or other fiduciary thereof)) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s then-outstanding securities, provided, however, that an acquisition of securities of the Company representing less than 25% of the combined voting power shall not constitute a Change of Control if, prior to meeting the 20% threshold, the members of the Board who are not Employees unanimously adopt a resolution consenting to such acquisition by such Beneficial Owners;

(ii) during any consecutive 24-month period, individuals who at the beginning of such period constitute the Board, together with those individuals who first become directors during such period (other than by reason of an agreement with the Company or the Board in settlement of a proxy contest for the election of directors) and whose election or nomination for election to the Board was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (the “Continuing Directors”), cease for any reason to constitute a majority of the Board;

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(iii) the consummation of any merger, consolidation, recapitalization or reorganization involving the Company, other than any such transaction immediately following which the persons who were the Beneficial Owners of the outstanding voting securities of the Company immediately prior to such transaction are the Beneficial Owners of at least 55% of the total voting power represented by the voting securities of the entity surviving such transaction or the ultimate parent of such entity in substantially the same relative proportions as their ownership of the Company’s voting securities immediately prior to such transaction; provided that, such continuity of ownership (and preservation of relative voting power) shall be deemed to be satisfied if the failure to meet such threshold (or to preserve such relative voting power) is due solely to the acquisition of voting securities by an employee benefit plan of the Company, such surviving entity, any Subsidiary or any subsidiary of such surviving entity;

(iv) the sale of substantially all of the assets of the Company to any person other than any Subsidiary or any entity in which the Beneficial Owners of the outstanding voting securities of the Company immediately prior to such sale are the Beneficial Owners of at least 55% of the total voting power represented by the voting securities of such entity or the ultimate parent of such entity in substantially the same relative proportions as their ownership of the Company’s voting securities immediately prior to such transaction; or

(v) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company.

(h) “Change of Control Settlement Value” shall mean, with respect to a share of Common Stock, the excess of the Change of Control Stock Value over the option price of the Option or the base price of the Stock Appreciation Right covering such share of Common Stock, provided that, (i) with respect to any Option which is an Incentive Stock Option immediately prior to the election to receive the Change of Control Settlement Value, the Change of Control Settlement Value shall not exceed the maximum amount permitted for such Option to continue to qualify as an Incentive Stock

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Option and (ii) in respect of that portion, if any, of any Option or Stock Appreciation Right that had not become exercisable on or before December 31, 2004, the Change of Control Settlement Value shall not exceed the maximum amount permitted for such Option or Stock Appreciation Right to remain exempt from Section 409A.

(i) “Change of Control Stock Value” shall mean the value of a share of Common Stock determined as follows:

(i) if the Change of Control results from an event described in clause (iii) of the Change of Control definition, the highest per share price paid for shares of Common Stock of the Company in the transaction resulting in the Change of Control; or

(ii) if the Change of Control results from an event described in clause (i), (ii) (iv) or (v) of the Change of Control definition and no event described in clause (iii) of the Change of Control definition has occurred in connection with such Change of Control, the highest sale price of a share of Common Stock of the Company on any trading day during the 60 consecutive trading days immediately preceding and following the date of such Change of Control as reported on the New York Stock Exchange Composite Tape, or other national securities exchange on which the Common Stock is traded, and published in The Wall Street Journal;

(j) “Code” means the Internal Revenue Code of 1986, as amended.

(k) “Committee” means the Management Development and Nominating Committee of the Board (or such other committee of the Board that the Board shall designate), which shall consist of two or more members, each of whom shall be a non-employee director within the meaning of Rule 16b-3, as promulgated under the Act and serving at the pleasure of the Board. Notwithstanding the foregoing, with respect to Incentive Awards granted to non-employee directors, the Committee shall mean the entire Board.

(l) “Common Stock” means the common stock of the Company, par value $0.01 per share.

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(m) “Company” means American Standard Companies Inc., a Delaware corporation, and any successor thereto.

(n) “Disability” means a Participant’s inability, due to reasonably documented physical or mental illness, for more than six months to perform his duties with the Company or a Subsidiary on a full time basis if, within 30 days after written notice of termination has been given to such Participant, he shall not have returned to the full time performance of his duties.

(o) “Dividend Equivalents” means an amount equal to the cash dividends paid by the Company upon one share of Common Stock for each Restricted Unit or property distributions awarded to a Participant in accordance with Section 8 of the Plan.

(p) “Employee” means an individual who is paid on the payroll of the Company or one of its Subsidiaries, and is classified on the employer’s human resource payroll system as a regular full-time or regular part-time employee.

(q) “Executive Officer” means each person who is an officer of the Company or any Subsidiary and who is subject to the reporting requirements under Section 16(a) of the Act.

(r) “Fair Market Value” means, on any date, the average of the highest and lowest sales price reported for such day on the principal national exchange on which the Common Stock is listed for trade or the average of the highest and lowest bid and asked prices on such date as reported on the principal nationally recognized system of price quotation on which the Common Stock is listed. In the event that there are no Common Stock transactions reported on such exchange or system on such date, Fair Market Value shall mean the closing price on the immediately preceding date on which Common Stock transactions were so reported.

(s) “Family Member” means as to a Participant, any (i) child, stepchild, grandchild, parent, stepparent, grandparent, spouse, mother-in-law, father-in-law, son-in-law or daughter-in-law (including adoptive relationships), (ii) trusts for the exclusive benefit of one or more such persons and/or the Participant and (iii) other entity owned solely by one or more such persons and/or the Participant.

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(t) “Incentive Award” means the award of an Annual Incentive Award, a Long-Term Incentive Award, an Option, a Stock Appreciation Right, a Restricted Unit, or Restricted Stock under the Plan and shall also include an award of Common Stock or Restricted Units made in conjunction with other incentive programs established by the Company and so designated by the Committee.

(u) “Long-Term Incentive Award” means an Incentive Award made pursuant to Section 9 with a Performance Cycle of two years or more.

(v) “Option” means the right to purchase Common Stock at a stated price for a specified period of time. For purposes of the Plan, an Option may be either (i) an “Incentive Stock Option” with the meaning of Section 422 of the Code or (ii) an Option which is not an Incentive Stock Option (a “Non-Qualified Stock Option”).

(w) “Participant” means any Employee or any non-employee director of the Company designated by the Committee to receive an Incentive Award under the Plan, provided that non-employee directors shall not be eligible for Annual Incentive Awards, Long-Term Incentive Awards or Incentive Stock Options.

(x) “Performance Cycle” means the period selected by the Committee during which the performance of the Company or any Subsidiary or unit thereof or any individual is measured for the purpose of determining the extent to which an Incentive Award subject to Performance Goals has been earned.

(y) “Performance Goals” means the objectives for the Company, any Subsidiary or business unit thereof or individual that may be established by the Committee for a Performance Cycle with respect to any performance based Incentive Awards contingently awarded under the Plan. The Performance Goals for Incentive Awards that are intended to constitute “performance-based” compensation within the meaning of Section 162(m) of the Code shall be based on one or more of the following measures: sales, gross revenues, gross margins, earnings per share, internal rate of return, return on equity, return on capital, net income (before or after taxes), management net income, operating income, operating income before interest expense and taxes (“OEBIT”), segment income, cash flow, free cash flow or stock price. Performance Goals may reflect absolute entity performance or a relative comparison of entity performance to the performance of a peer group or other external measure.

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(z) “Plan” means the American Standard Companies Inc. 2002 Omnibus Incentive Plan, as set forth herein and as the same may be amended from time to time.

(aa) “Restricted Period” means the period during which Restricted Units or shares of Restricted Stock are subject to forfeiture or restrictions on transfer (if applicable) pursuant to Section 8 of the Plan.

(bb) “Restricted Stock” means Common Stock awarded to a Participant pursuant to the Plan which is subject to forfeiture and restrictions on transferability in accordance with Section 8 of the Plan.

(cc) “Restricted Unit” means a Participant’s right to receive pursuant to the Plan one share of Common Stock at the end of a specified period of time, which right is subject to forfeiture in accordance with Section 8 of the Plan.

(dd) “Retirement” means termination of a Participant’s employment on or after the Participant attains (i) age 55 with 5 years of service or (ii) age 50 with 10 years of service.

(ee) “Stock Appreciation Right” means the right to receive a payment from the Company, in cash or Common Stock, in an amount determined under Section 7 of the Plan.

(ff) “Subsidiary” means any corporation, partnership or limited liability company in which the Company owns, directly or indirectly, 50% or more of the total combined voting power of all classes of stock of such corporation or of the capital interest or profits interest of such partnership.

2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular.

SECTION 3

ELIGIBILITY AND PARTICIPATION

Participants in the Plan shall be those Employees and non-employee directors selected by the Committee to participate in the Plan.

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SECTION 4

ADMINISTRATION

4.1 Power to Grant and Establish Terms of Incentive Awards. The Committee shall have the authority, subject to the terms of the Plan, to determine the Participants to whom Incentive Awards shall be granted and the terms and conditions of any and all Incentive Awards, including but not limited to the number of shares of Common Stock to be covered by each Incentive Award, the time or times at which Incentive Awards shall be granted, and the terms and provisions of the instruments by which Options shall be evidenced; to designate Options as Incentive Stock Options or Non-Qualified Stock Options; to determine the period of time during which restrictions on Restricted Stock or Restricted Units shall remain in effect; and to establish and administer any Performance Goals applicable to Incentive Awards granted hereunder, as well as to determine Participants’ target Annual Incentive and Long-Term Incentive Awards. The proper officers of the Company may suggest to the Committee the Participants who should receive Incentive Awards. The terms and conditions of each Incentive Award shall be determined by the Committee at the time of grant, and such terms and conditions shall not be subsequently changed in a manner which would be adverse to the Participant without the consent of the Participant to whom such Incentive Award has been granted. The Committee may establish different terms and conditions for different Participants receiving Incentive Awards and for the same Participant for each Incentive Award such Participant may receive, whether or not granted at different times. The grant of any Incentive Award to any Participant shall neither entitle such Participant to, nor disqualify him from, the grant of any other Incentive Awards. Notwithstanding anything else contained in the Plan to the contrary, the Committee may delegate, subject to such terms and conditions or guidelines as it shall determine, to any employee of the Company or to a committee of employees of the Company any portion of its authority and powers under the Plan with respect to Participants who are not Executive Officers.

4.2 Administration. The Committee shall be responsible for the administration of the Plan. Any Incentive Award granted by the Committee may be subject to such conditions, not inconsistent with the terms of the Plan, as the Committee shall determine. The Committee, by majority action thereof, is authorized to prescribe, amend and rescind rules and regulations relating to the Plan, to provide for conditions deemed necessary or advisable to protect the interests of the Company to interpret the Plan and to make all other determinations

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necessary or advisable for the administration and interpretation of the Plan to carry out its provisions and purposes. Determinations, interpretations or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding and conclusive for all purposes and upon all persons. The Committee may consult with legal counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel.

4.3 Participants Based Outside the United States. Notwithstanding anything to the contrary herein, the Committee, in order to conform with provisions of local laws and regulations in foreign countries in which the Company or its Subsidiaries operate, shall have sole discretion to (i) modify the terms and conditions of Incentive Awards granted to Participants employed outside the United States, (ii) establish subplans with modified exercise procedures and such other modifications as may be necessary or advisable under the circumstances presented by local laws and regulations, provided that no more than 1,000,000 shares shall be issued as Incentive Awards under such subplans; and (iii) take any action which it deems advisable to obtain, comply with or otherwise reflect any necessary governmental regulatory procedures, exemptions or approvals with respect to the Plan or any subplan established hereunder.

4.4 Newly Eligible Participants. The Committee shall be entitled to make such rules, determinations and adjustments as it deems appropriate with respect to any Participant who becomes eligible to receive a performance based Incentive Award after the commencement of a Performance Cycle.

4.5 Restrictive Covenants and Other Conditions. The Committee may condition the grant of any Incentive Award under the Plan upon the Participant to whom such Incentive Award would be granted agreeing in writing to certain conditions in addition to the provisions regarding exercisability of an Option or the vesting or payment of any other Incentive Award (such as restrictions on the ability to transfer the underlying shares of Common Stock) or covenants in favor of the Company and/or its Subsidiaries (including, without limitation covenants not to compete, not to solicit employees and customers that may have effect following the termination of the Participant’s employment and after the Option has been exercised or the Incentive Award has otherwise vested, including, without limitation, the requirement that the Participant disgorge any profit, gain or other benefit received in respect of the Incentive Award prior to any breach of any such covenant by the Participant).

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4.6 409A Compliance. The Plan is intended to be administered in a manner consistent with the requirements, where applicable, of Section 409A of the Code. Where reasonably possible and practicable, the Plan shall be administered in a manner to avoid the imposition on Participants of immediate tax recognition and additional taxes pursuant to such Section 409A. To that end, and without limiting the generality of the foregoing, unless otherwise expressly provided herein or in any Incentive Award agreement, any amount payable or shares distributable hereunder in connection with the vesting of any Incentive Award (including upon the satisfaction of any applicable performance criteria) shall be paid not later than two and one-half months (or such other time as is required to cause such amounts not to be treated as deferred compensation under Section 409A of the Code) following the end of the taxable year of the Company or the Participant in which the Participant’s rights with respect to the corresponding Incentive Award (or portion thereof) ceased to be subject to a substantial risk of forfeiture. Notwithstanding the foregoing, neither the Company nor the Committee shall have any liability to any person in the event such Section 409A applies to any such Incentive Award in a manner that results in adverse tax consequences for the Participant or any of his beneficiaries or transferees.

SECTION 5

STOCK SUBJECT TO PLAN

5.1 Number. Subject to the provisions of Section 5.3, the number of shares of Common Stock available for Incentive Awards under the Plan shall be 16,500,000. The shares to be delivered under the Plan may consist, in whole or in part, of Common Stock held in treasury or authorized but unissued Common Stock, not reserved for any other purpose. The total number of shares of Common Stock available under the Plan for Incentive Awards other than Options and Stock Appreciation Rights shall not exceed 1,000,000.

5.2 Cancelled, Terminated, or Forfeited Awards. Any shares of Common Stock subject to an Incentive Award issued under this Plan which for any reason expires, or is canceled, terminated or otherwise settled without the issuance of any consideration, whether in cash, Common Stock or other property (including, without limitation, any shares issued in connection with a Restricted Stock award that are subsequently forfeited) shall again be available under the Plan.

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5.3 Adjustment Due to Change in Capitalization. In the event of any Adjustment Event, (i) the aggregate number of shares of Common Stock available for Incentive Awards under Section 5.1, (ii) the aggregate limitations on the number of shares that may be awarded as a particular type of Incentive Award or that may be awarded to any particular Participant in any particular period under Section 5.4 and (iii) the aggregate number of shares subject to outstanding Incentive Awards and the respective prices and/or vesting criteria applicable to outstanding Incentive Awards shall be proportionately adjusted to reflect, as deemed equitable and appropriate by the Committee, an Adjustment Event. To the extent deemed equitable and appropriate by the Committee, subject to any required action by stockholders, in any merger, consolidation, reorganization, liquidation, dissolution, or other similar transaction, any Incentive Award granted under the Plan shall pertain to the securities and other property, including cash, to which a holder of the number of shares of Common Stock covered by the Incentive Award would have been entitled to receive in connection with such event.

Any shares of stock (whether Common Stock, shares of stock into which shares of Common Stock are converted or for which shares of Common Stock are exchanged or shares of stock distributed with respect to Common Stock) or cash or other property received with respect to any award of Restricted Stock or Restricted Units granted under the Plan as a result of any Adjustment Event-or any distribution of property shall, except as provided in Section 10 or as otherwise provided by the Committee at or after the date an award of Restricted Stock or Restricted Units is made by the Committee, be subject to the same terms and conditions, including restrictions on transfer, as are applicable to such shares of Restricted Stock or Restricted Units and any stock certificate(s) representing or evidencing any shares of stock so received shall be legended in such manner as the Company deems appropriate.

5.4 Incentive Award Limitations. Subject to Section 5.3:

(a) the total number of shares of Common Stock subject to Options and Stock Appreciation Rights awarded to any Participant during a calendar year may not exceed 4,500,000;

(b) the total amount of any Restricted Stock or Restricted Units that may be awarded to any Participant during a calendar year shall not exceed 450,000 shares or units as the case may be;

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(c) the total amount of any Annual Incentive Award paid to any Participant during a calendar year shall not exceed $3,000,000; and

(d) the total amount of any Long-Term Incentive Award paid to any Participant during a calendar year shall not exceed $4,500,000.

SECTION 6

STOCK OPTIONS

6.1 Grant of Options. Options may be granted to Participants at such time or times as shall be determined by the Committee; provided that, in no event shall the Committee be permitted to grant Options conditioned on the surrender or cancellation of previously granted Options. Options granted to non-employee directors shall be in such amounts and intervals as determined by the Board from time to time. Options granted under the Plan may be of two types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options, except that no Incentive Stock Option may be granted to a non-employee director or to any Employee of a Subsidiary which is not a corporation (unless the Subsidiary is a disregarded entity for Federal income tax purposes). The date of grant of an Option under the Plan will be the date on which the Option is awarded by the Committee or, if so determined by the Committee, the date on which occurs any event the occurrence of which is an express condition precedent to the grant of the Option. Subject to Section 5.4, the Committee shall determine the number of Options, if any, to be granted to the Participant. Each Option shall be evidenced by an electronic or written document that shall specify the type of Option granted, the exercise price, the duration of the Option, the number of shares of Common Stock to which the Option pertains, and such other terms and conditions not inconsistent with the Plan as the Committee shall determine.

6.2 Option Price. Non-Qualified Stock Options and Incentive Stock Options granted pursuant to the Plan shall have an exercise price that is not less than the Fair Market Value on the date the Option is granted. Except in the event of an Adjustment Event, the Committee shall not have the power or authority to reduce the exercise price of any outstanding Option, whether through amendment, through the cancellation of existing grants and the issuance of new grants with lower exercise prices or by any other means.

6.3 Exercise of Options. Options awarded to a Participant under the Plan shall be exercisable at such times and shall be subject to such restrictions and conditions including the performance of a minimum period of service or the satisfaction of Performance

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Goals, as the Committee may impose either at or after the time of grant of such Options, subject to the Committee’s right to accelerate the exercisability of such Option in its discretion. Notwithstanding the foregoing, unless otherwise determined by the Committee at grant, Options shall become exercisable in three equal installments on each of the first three anniversaries of the date of grant. Except as may be provided in any provision approved by the Committee pursuant to this Section 6.3, after becoming exercisable each installment shall remain exercisable until expiration, termination or cancellation of the Option. An Option may be exercised from time to time, in whole or in part, up to the total number of shares of Common Stock with respect to which it is then exercisable. Notwithstanding the foregoing, no Option shall be exercisable for more than 10 years after the date on which it is granted.

6.4 Payment. The Committee shall establish procedures governing the exercise of Options. No shares shall be delivered pursuant to any exercise of an Option unless arrangements satisfactory to the Committee have been made to assure full payment of the exercise price therefor. Without limiting the generality of the foregoing, payment of the exercise price may be made (i) in cash or cash equivalents, (ii) by exchanging shares of Common Stock which have been owned by the Participant for at least six months’ at the time of exercise (or such greater or lesser period as the Committee shall determine), (iii) by any combination of the foregoing; provided that the combined value of all cash and cash equivalents paid and the Fair Market Value of any such Common Stock so tendered to the Company, valued as of the date of such tender, is at least equal to the exercise price, (iv) through an arrangement with a broker approved by the Company whereby payment of the exercise price is accomplished with the proceeds of the sale of Common Stock or (v) through such other procedures as the Committee may determine. As soon as administratively practicable after receipt of a written exercise notice and payment of the exercise price in accordance with this Section 6.4, the Company shall deliver to the Participant a certificate or certificates representing the acquired shares of Common Stock.

6.5 Settlement. At the time a Participant exercises an Option in lieu of accepting payment of the exercise price of the Option and delivering the number of shares of Common Stock for which the Option is being exercised, the Committee may direct that the Company either (i) pay the Participant a cash amount, or (ii) issue a lesser number of shares of Common Stock having a Fair Market Value on the date of exercise, equal to the amount, if any, by which the aggregate Fair Market Value of the shares of Common Stock as to which the

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Option is being exercised exceeds the aggregate exercise price for such shares, based on such terms and conditions as the Committee shall establish; provided that, for the avoidance of doubt, in either case, the number of shares remaining for issuance under the Plan shall be determined as though the full number of shares corresponding to the portion of such Option settled or net exercised pursuant to this Section 6.5 had been issued.

6.6 Incentive Stock Options. Notwithstanding anything in the Plan to the contrary, no term of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of any Participant affected thereby, to cause any Incentive Stock Option previously granted to fail to qualify for the Federal income tax treatment afforded under Section 421 of the Code.

6.7 Termination of Employment Due to Retirement. Unless otherwise determined by the Committee at the time of grant, in the event a Participant’s employment with the Company or a Subsidiary terminates by reason of Retirement, any such Options granted to such Participant which are exercisable at the date of such Participant’s termination of employment may be exercised at any time during the remainder of the full term of such Options.

6.8 Termination of Employment Due to Death or Disability. Unless otherwise determined by the Committee at the time of grant, in the event a Participant’s employment with the Company or a Subsidiary terminates by reason of death or Disability, any such Options granted to such Participant which are exercisable at the date of such Participant’s termination of employment may be exercised by the Participant or the Participant’s designated beneficiary, and if none is named, in accordance with Section 11.2, at any time during the remainder of the full term of such Options.

6.9 Termination of Employment for Cause. Unless otherwise determined by the Committee at the time of grant, in the event a Participant’s employment with the Company or a Subsidiary is terminated for Cause, all Options granted to such Participant which are then outstanding (whether or not exercisable prior to the date of such termination) shall be forfeited.

6.10 Termination of Employment for Any Other Reason. Unless otherwise determined by the Committee at or after the time of grant, in the event a Participant’s

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employment with the Company or a Subsidiary terminates for any reason other than one described in Section 6.7, 6.8 or 6.9, any Options granted to such Participant which are exercisable at the date of such Participant’s termination of employment shall be exercisable at any time prior to 90 days following such Participant’s termination of employment or the expiration of the term of such Options, whichever period is shorter.

6.11 Cancellation of Unvested Options. Notwithstanding anything else contained in this Section 6 to the contrary, unless otherwise determined by the Committee at or after the time of grant, upon a Participant’s termination of employment for any reason, including death, any Options granted to such Participant which are not exercisable as of the date of such termination of employment shall be cancelled.

6.12 Committee Discretion. Notwithstanding anything else contained in this Section 6 to the contrary, the Committee may permit all or any portion of any Options to be exercised following a Participant’s termination of employment for any reason on such terms and subject to such conditions as the Committee shall determine for a period up to and including, but not beyond, the expiration of the term of such Options.

SECTION 7

STOCK APPRECIATION RIGHTS

7.1 Grant of Stock Appreciation Rights. Stock Appreciation Rights may be granted to any Participants, all Participants or any class of Participants at such time or times as shall be determined by the Committee. Stock Appreciation Rights may be granted in tandem with an Option, or may granted on a freestanding basis, not related to any Option. A grant of a Stock Appreciation Right shall be evidenced in writing, whether as part of the agreement governing the terms of the Option, if any, to which such Stock Appreciation Rights relate or pursuant to a separate written agreement with respect to freestanding Stock Appreciation Rights, in each case containing such provisions not inconsistent with the Plan as the Committee shall approve.

7.2 Terms and Conditions of Stock Appreciation Rights. The terms and conditions (including, without limitation, the exercise period of the Stock Appreciation Right, the vesting schedule applicable thereto and the impact of any termination of service on the Participant’s rights with respect to the Stock Appreciation Right) applicable with respect to (i) Stock Appreciation Rights granted in tandem with an Option shall be substantially identical (to

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the extent possible taking into account the differences related to the character of the Stock Appreciation Right) to the terms and conditions applicable to the tandem Options and (ii) freestanding Stock Appreciation Rights shall be substantially identical (to the extent possible taking into account the differences related to the character of the Stock Appreciation Right) to the terms and conditions that would have been applicable under Section 6 above were the grant of the Stock Appreciation Rights a grant of an Option.

7.3 Exercise of Tandem Stock Appreciation Rights. Stock Appreciation Rights which are granted in tandem with an Option may only be exercised upon the surrender of the right to exercise such Option for an equivalent number of shares and may be exercised only with respect to the shares of Common Stock for which the related Option is then exercisable.

7.4 Payment of Stock Appreciation Right Amount. Upon exercise of a Stock Appreciation Right, the holder shall be entitled to receive payment, in cash, in shares of Common Stock or in a combination thereof, as determined by the Committee, of an amount determined by multiplying the excess, if any, of the Fair Market Value of a share of Common Stock at the date of exercise over the Fair Market Value of a share of Common Stock on the date of grant, by the number of shares of Common Stock with respect to which the Stock Appreciation Rights are then being exercised; provided that, for the avoidance of doubt, the number of shares remaining for issuance under the Plan shall be determined as though the full number of shares corresponding to the portion of such Stock Appreciation Right exercised had been issued.

SECTION 8

RESTRICTED STOCK AND RESTRICTED UNITS

8.1 Grant of Restricted Stock and Restricted Units. Any award made hereunder of Restricted Stock or Restricted Units shall be subject to the terms and conditions of the Plan and to any other terms and conditions not inconsistent with the Plan (including, but not limited to, requiring the Participant to pay the Company an amount equal to the par value per share for each share of Restricted Stock awarded) as shall be prescribed by the Committee in its sole discretion. As determined by the Committee, with respect to an award of Restricted Stock, the Company shall either (i) transfer or issue to each Participant to whom an award of Restricted Stock has been made the number of shares of Restricted Stock specified by the

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Committee or (ii) hold such shares of Restricted Stock for the benefit of the Participant for the Restricted Period. In the case of an award of Restricted Units, no shares of Common Stock shall be issued at the time an award is made, and the Company shall not be required to set aside a fund for the payment of such award.

8.2 Restrictions on Transferability. Shares of Restricted Stock may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered by the Participant during the Restricted Period, except as hereinafter provided. Notwithstanding the foregoing, the Committee may permit (on such terms and conditions as it shall establish) shares of Restricted Stock to be transferred during the Restricted Period pursuant to Section 12.1, provided that any shares of Restricted Stock so transferred shall remain subject to the provisions of this Section 8.

8.3 Rights as a Shareholder. Except for the restrictions set forth herein and unless otherwise determined by the Committee, the Participant shall have all the rights of a shareholder with respect to such shares of Restricted Stock, including but not limited to, the right to vote and the right to receive dividends. A Participant shall not have any right, in respect of Restricted Units awarded pursuant to the Plan, to vote on any matter submitted to the Company’s stockholders until such time as the shares of Common Stock attributable to such Restricted Units have been issued. At the discretion of the Committee, a Participant’s Restricted Unit account may be credited with Dividend Equivalents during the Restricted Period.

8.4 Restricted Period. Unless the Committee shall otherwise determine at or after the date an award of Restricted Stock or Restricted Units is made to the Participant by the Committee, the Restricted Period shall commence upon the date of grant and shall lapse with respect to the shares of Restricted Stock or Restricted Units on the third anniversary of the date of grant, unless sooner terminated as otherwise provided herein. Without limiting the generality of the foregoing, the Committee may provide for termination of the Restricted Period upon the achievement by the Participant of Performance Goals specified by the Committee at the date of grant. The determination of whether the Participant has achieved such Performance Goals shall be made by the Committee in its sole discretion.

8.5 Legend. Each certificate issued to a Participant in respect of shares of Restricted Stock awarded under the Plan shall be registered in the name of the Participant and shall be legended in such manner as the Company deems appropriate.

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8.6 Death, Disability or Retirement. Unless the Committee shall otherwise determine at the date of grant, if a Participant ceases to be employed by the Company or any Subsidiary by reason of death, Disability or Retirement, the Restricted Period will lapse as to a pro rated portion of the shares of Restricted Stock and Restricted Units transferred or issued to such Participant under the Plan based on the number of days the Participant actually worked since the date the shares of Restricted Stock or Restricted Units were granted (or in the case of an award which becomes vested in installments, since the date, if any, on which the last installment of such Restricted Stock or Restricted Units became vested); provided that, in the case of an award with respect to which the restrictions will lapse, if at all, based on the attainment of Performance Goals or targets, such vesting shall be deferred until the end of the applicable performance period and be based on that number of shares of Restricted Stock or Restricted Units, if any, that would have been earned based on the attainment or partial attainment of such Performance Goals or targets. Any shares of Restricted Stock or Restricted Units as to which the Restricted Period has not lapsed at the date of a Participant’s termination of employment by reason of death, Disability or Retirement (or which do not become vested after such date under the preceding sentence) shall revert back to the Company upon such Participant’s termination of employment (or, if applicable, such deferred vesting date).

8.7 Termination of Employment. Unless the Committee shall otherwise determine at or after the date of grant, if a Participant ceases to be employed by the Company or any Subsidiary for any reason other than those specified in Section 8.6 at any time prior to the date when the Restricted Period lapses, all shares of Restricted Stock held by the Participant shall revert back to the Company and all Restricted Units and any Dividend Equivalents credited to such Participant shall be forfeited upon the Participant’s termination of employment.

8.8 Issuance of New Certificates; Settlement of Restricted Units. Upon the lapse of the Restricted Period with respect to any shares of Restricted Stock, such shares shall no longer be subject to the restrictions imposed under Section 8.2 and the Company shall issue or have issued new share certificates without the legend described in Section 8.5 in exchange for those previously issued. Upon the lapse of the Restricted Period with respect to any Restricted Units, the Company shall deliver to the Participant, or the Participant’s beneficiary or estate, as provided in Section 12.2, one share of Common Stock for each Restricted Unit as to which restrictions have lapsed and any Dividend Equivalents credited with respect to such

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Restricted Units and any interest thereon. The Committee may, in its sole discretion, elect to pay cash or part cash and part Common Stock in lieu of delivering only Common Stock for Restricted Units. If a cash payment is made in lieu of delivering Common Stock, the amount of such cash payment for each share of Common Stock to which a Participant is entitled shall be equal to the Fair Market Value of the Common Stock on the date on which the Restricted Period lapsed with respect to the related Restricted Unit.

8.9 Performance Related Awards. Notwithstanding anything else contained in the Plan to the contrary and unless the Committee shall otherwise determine at the time of grant, to the extent required to ensure that the grant of an award of Restricted Shares or Restricted Units to an Executive Officer (other than an award which will vest solely on the basis of the passage of time) is deductible by the Company or such Subsidiary pursuant to Section 162(m) of the Code, any such award shall become vested, if at all, upon the determination by the Committee that Performance Goals established by the Committee have been attained, in whole or in part.

SECTION 9

ANNUAL AND LONG-TERM INCENTIVE AWARDS

9.1 Annual Incentive Awards. Unless determined otherwise by the Committee at or after the date of grant, Annual Incentive Awards shall be payable in cash. If a Participant terminates employment before the end of a Performance Cycle due to death, Disability or Retirement, such Participant or his or her estate, shall be eligible to receive a prorated Annual Incentive Award based on (i) in the case of death or Disability, full achievement of the Participant’s Performance Goals for such Performance Cycle and (ii) in the case of Retirement, the actual achievement of the Performance Goals for such Performance Cycle, in each case prorated for the portion of the Performance Cycle coming before the Participant’s termination of employment. Unless determined otherwise by the Committee at or, in the case of any Participant who is not an Executive Officer, after the date of grant, if a Participant terminates employment before payment of an Annual Incentive Award is authorized by the Committee for any reason other than death, Disability or Retirement, the Participant shall forfeit all rights to such Annual Incentive Award.

9.2 Long-Term Incentive Awards. Unless determined otherwise by the Committee at or after the date of grant, Long-Term Incentive Awards shall be payable in cash.

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If a Participant terminates employment before the end of a Performance Cycle due to death, Disability or Retirement, such Participant or his or her estate, shall be eligible to receive a prorated Long-Term Incentive Award based (i) in the case of death or Disability, full achievement of the Participant’s Performance Goals for such Performance Cycle and (ii) in the case of Retirement, the actual achievement of the Performance Goals for such Performance Cycle, in each case prorated for the portion of the Performance Cycle coming before the Participant’s termination of employment. Unless determined otherwise by the Committee at, or, in the case of a Participant who is not an Executive Officer, after the date of grant, if a Participant terminates employment before payment of a Long-Term Incentive Award is authorized by the Committee for any reason other than death, Disability or Retirement, the Participant shall forfeit all rights to such Long-Term Incentive Award.

9.3 Interpretation. Notwithstanding anything contained in the Plan to the contrary, to the extent required to so qualify any Annual Incentive Award, Long-Term Incentive Award, Restricted Unit or Restricted Stock intended to be qualified as other performance based compensation within the meaning of Section 162(m)(4)(c) of the Code, the Committee shall not be entitled to exercise any discretion otherwise authorized under the Plan (such as the right to authorize payout at a level above that dictated by the achievement of the relevant Performance Goals) with respect to such Incentive Award if the ability to exercise discretion (as opposed to the exercise of such discretion) would cause such award to fail to qualify as other performance based compensation.

SECTION 10

CHANGE OF CONTROL

10.1 Accelerated Vesting and Payment. Subject to the provisions of Section 10.2 below, in the event of a Change of Control each Option and Stock Appreciation Right then outstanding shall be fully exercisable regardless of the exercise schedule otherwise applicable to such Option and/or Stock Appreciation Right and the Restricted Period shall lapse as to each share of Restricted Stock and each Restricted Unit then outstanding. In connection with such a Change of Control, the Committee may, in its discretion, provide that each Option and/or Stock Appreciation Right shall, upon the occurrence of such Change of Control, be canceled in exchange for a cash payment by the Company of the Change of Control Settlement Value per share; provided that, if, following the Change of Control and after taking into account

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any adjustment under Section 5.3 related to such Change of Control, the securities underlying any Options or Stock Appreciation Rights are not readily tradable on a public market, such a cash settlement shall occur automatically without any further action by the Committee.

10.2 Alternative Awards. Notwithstanding Section 10.1, no cancellation, acceleration of exercisability, vesting, cash settlement or other payment shall occur with respect to any Option, Stock Appreciation Right, Restricted Share or Restricted Unit if the Committee reasonably determines in good faith prior to the occurrence of a Change of Control that such award shall be honored or assumed, or new rights substituted therefor (such honored, assumed or substituted award hereinafter called an “Alternative Award”), by a Participant’s employer (or the parent or an affiliate of such employer) immediately following the Change of Control; provided that any such Alternative Award must:

(i) be based on stock which is traded on an established securities market;

(ii) provide such Participant with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under such award, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment;

(iii) have substantially equivalent economic value to such award (determined at the time of the Change in Control in accordance with principles applicable under Section 424 of the Internal Revenue Code); and

(iv) have terms and conditions which provide that in the event that the Participant’s employment or service is involuntarily terminated for any reason (including, but not limited to a termination due to death, Disability or for Cause) or Constructively Terminated (as defined below), all of such Participant’s Option and/or SARs shall be deemed immediately and fully exercisable, the Restricted Period shall lapse as to each of the Participant’s outstanding Restricted Stock or Restricted Unit awards, and each such Alternative Award shall be settled for a payment per each share of stock subject to the Alternative Award in cash, in immediately transferable, publicly traded securities or in a combination thereof, in an amount equal to, in the case of an Option or SAR, the excess of the Fair Market Value of such stock on the date of the Participant’s

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termination over the corresponding exercise or base price per share and, in the case of any Restricted Stock or Restricted Stock Unit award, the Fair Market Value of the number of shares of Common Stock subject or related thereto.

For this purpose, a Participant’s employment or service shall be deemed to have been Constructively Terminated if, without the Participant’s written consent, the Participant terminates employment or service within 120 days following either (x) a material reduction in the Participant’s base salary or a Participant’s incentive compensation opportunity, or (y) the relocation of the Participant’s principal place of employment or service to a location more than 30 miles away from the Participant’s prior principal place of employment or service.

10.3 Annual Incentive and Long-Term Incentive Awards. In the event of a Change of Control, (i) any Annual or Long-Term Incentive Awards relating to Performance Cycles ending prior to the Change of Control which have been earned but not paid shall become immediately payable in cash, (ii) any Performance Cycle for which Annual Incentive Awards are outstanding shall end, all Participants shall be deemed to have achieved a pro rata award equal to the product of (a) such Participant’s target award opportunity for the Performance Cycle in question and (b) a fraction, the numerator of which is the number of full plus partial months that have elapsed since the beginning of such Performance Cycle to the date on which the Change of Control occurs and the denominator of which is twelve, the Company shall pay all such Annual Incentive Awards within ten days of such Change of Control, and Participants may elect to receive all payments in cash, and (iii) all then in progress Performance Cycles for Long-Term Incentive Awards are outstanding shall end, all Participants shall be deemed to have earned a pro rata award equal to the product of (a) such Participant’s target award opportunity for the Performance Cycle in question and (b) a fraction, the numerator of which is the number of full plus partial months that have elapsed since the beginning of such Performance Cycle to the date on which the Change of Control occurs, the denominator of which is the total number of months in such Performance Cycle, the Company shall pay all such Long-Term Incentive Awards within ten days of such Change of Control, and Participants may elect to receive all such payments in cash.

10.4 Termination of Employment Prior to Change of Control. In the event that any Change of Control occurs as a result of any transaction described in subclause (iii) or (iv) of the definition of such term, any Participant whose employment is terminated due to death or Disability or by the Company for any reason other than Cause on or after the date, if any, on

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which the shareholders of the Company approve such transaction, but prior to the consummation thereof, shall be treated, solely for purposes of this Plan (including, without limitation, this Section 10), as continuing in the Company’s employment until the occurrence of such Change of Control, and to have been terminated immediately thereafter.

10.5 No Amendment. Notwithstanding Section 11, the provisions of this Section 10 may not be amended in any respect for two years following a Change of Control.

10.6 Distribution of Amounts Subject to Section 409A. Notwithstanding anything in the Plan to the contrary, if any amount that is subject to Section 409A of the Code is to be paid or distributed solely on account of a Change of Control (as opposed to being paid or distributed on account of termination of employment or within a reasonable time following the lapse of any substantial risk of forfeiture with respect to the corresponding Incentive Award), solely for purposes of determining whether such distribution or payment shall be made in connection with a Change of Control, the term Change of Control shall be deemed to be defined in the manner provided in Section 409A of the Code and the regulations thereunder. If any such distribution or payment cannot be made because an event that constitutes a Change of Control under the Plan is not a change of control as defined under Section 409A, then such distribution or payment shall be distributed or paid at the next event, occurrence or date at which such distribution or payment could be made in compliance with the requirements of Section 409A of the Code.

SECTION 11

AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN

Subject to Section 10.5, the Board may at any time terminate or suspend the Plan, and from time to time may amend or modify the Plan. Notwithstanding the foregoing, no action of the Board may, without the consent of a Participant, alter or impair his or her rights under any previously granted Incentive Award.

SECTION 12

MISCELLANEOUS PROVISIONS

12.1 Transferability of Awards. No Incentive Award granted under the Plan may be sold, transferred, pledged or assigned, or otherwise alienated or hypothecated, other than in accordance with Section 12.2 below, by will or by laws of descent and distribution;

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provided that, the Committee may, in the appropriate award grant or otherwise, permit transfers of Non-Statutory Stock Options, Stock Appreciation Rights, Restricted Units or Restricted Shares to Family Members (including, without limitation, transfers affected by a domestic relations order) subject to such terms and conditions as the Committee shall determine.

12.2 Beneficiary Designation. Each Participant under the Plan may from time to time name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid or by whom any right under the Plan is to be exercised in case of his death. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his lifetime. In the absence of any such designation, benefits remaining unpaid or Incentive Awards outstanding at the Participant’s death shall be paid to or exercised by the Participant’s surviving spouse, if any, or otherwise to or by his estate.

12.3 No Guarantee of Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary or affiliate.

12.4 Tax Withholding. The Company or any Subsidiary shall have the power to withhold, or require a Participant to remit to the Company or such Subsidiary promptly upon notification of the amount due, an amount, which may include shares of Common Stock, sufficient to satisfy Federal, state and local, including foreign, withholding tax requirements with respect to any Incentive Award (including payments made pursuant to Section 9), and the Company may defer payment of cash or issuance or delivery of Common Stock until such requirements are satisfied. The Committee may, in its discretion, permit a Participant to elect, subject to such conditions as the Committee shall impose (i) to have Common Stock otherwise issuable or deliverable under the Plan withheld by the Company or (ii) to deliver to the Company previously acquired shares of Common Stock, in each case, having a Fair Market Value sufficient to satisfy not more than the Participant’s statutory minimum Federal, state and local tax obligations associated with the transaction.

12.5 Indemnification. Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and

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from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may be made a party or in which he may be involved by reason of any action taken or failure to act under the Plan, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or By-laws, by contract, as a matter of law, or otherwise.

12.6 No Limitation on Compensation. Nothing in the Plan shall be construed to limit the right of the Company to establish other plans or to pay compensation to its employees in cash or property, in a manner which is not expressly authorized under the Plan.

12.7 Requirements of Law. The granting of Incentive Awards and the issuance of shares of Common Stock shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

12.8 Governing Law. The Plan, and all Incentive Awards made and actions taken thereunder, shall be construed in accordance with and governed by the laws of the State of Delaware.

12.9 Impact On Benefits. With the exception of Annual Incentive Awards, which shall be compensation for purposes of calculating a Participant’s rights under the Company’s employee benefit programs, Incentive Awards granted under the Plan are not compensation for purposes of calculating an Employee’s rights under any employee benefit program.

12.10 Securities Law Compliance. Instruments evidencing Incentive Awards may contain such other provisions, not inconsistent with the Plan, as the Committee deems advisable, including a requirement that the Participant represent to the Company in writing, when an Incentive Award is granted or when he receives shares with respect to such Incentive Award (or at such other time as the Committee deems appropriate) that he is accepting such Incentive Award, or receiving or acquiring such shares (unless they are then covered by a Securities Act of 1933 registration statement), for his own account for investment only and with no present intention to transfer, sell or otherwise dispose of such shares except such

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disposition by a legal representative as shall be required by will or the laws of any jurisdiction in winding up the estate of the Participant. Such shares shall be transferable, or may be sold or otherwise disposed of only if the proposed transfer, sale or other disposition shall be permissible pursuant to the Plan and if, in the opinion of counsel satisfactory to the Company, such transfer, sale or other disposition at such time will be in compliance with applicable securities laws.

12.11 Term of Plan. If approved by shareholders, the Plan shall be effective January 1, 2002. The Plan shall expire on the seventh anniversary of the date on which it was first approved by the shareholders (except as to Incentive Awards outstanding on that date), unless sooner terminated pursuant to Section 11.

Adopted pursuant to duly authorized resolution of the Board of Directors of the Company on January 31, 2007
American Standard Companies Inc.
By:	/S/    MARY E. GUSTAFSSON
	Mary Elizabeth Gustafsson
	Senior Vice President
	General Counsel & Secretary

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Frederic M. Poses, certify that:

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

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

1

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2007

By:	/s/ Frederic M. Poses
	Frederic M. Poses
	Chief Executive Officer

2

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, G. Peter D’Aloia, certify that:

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

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

1

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2007

By:	/s/ G. Peter D’Aloia
	G. Peter D’Aloia
	Senior Vice President and Chief Financial Officer

2

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of American Standard Companies Inc. (the “Company”) on Form 10-Q for the quarter ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frederic M. Poses, the Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

/s/ Frederic M. Poses

Frederic M. Poses

Chief Executive Officer

August 2, 2007

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of American Standard Companies Inc. (the “Company”) on Form 10-Q for the quarter ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, G. Peter D’Aloia, Senior Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

/s/ G. Peter D’Aloia

G. Peter D’Aloia

Senior Vice President and Chief Financial Officer

August 2, 2007