<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1998
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: 33-47101
U.S. INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3568449
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
101 Wood Avenue South
Iselin, NJ 08830
(Address of principal executive offices)
(732) 767-0700
(Registrant's telephone number, including area code)
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:
Yes X No
---- ----
As of August 1, 1998, U.S. Industries, Inc. had one class of common stock, of
which 98,445,865 shares were outstanding.
<PAGE>
U.S. INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Operations
for the Three and Nine Months Ended June 30, 1998 and 1997....................... 3
Consolidated Balance Sheets, June 30, 1998
and September 30, 1997........................................................... 4
Consolidated Statements of Cash Flows
for the Nine Months Ended June 30, 1998 and 1997................................. 5
Notes to Consolidated Financial Statements....................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . ............................................. 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................... 23
Item 6. Exhibits and Reports on Form 8-K........................................ 23
SIGNATURE................................................................................................... 24
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
U.S. INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 856 $ 735 $ 2,426 $ 1,977
Operating costs and expenses:
Cost of products sold 600 503 1,688 1,353
Selling, general and administrative expenses 187 153 518 426
Merger, restructuring and other related costs 136 - 136 -
--- ---
Operating income (loss) (67) 79 84 198
Interest expense 18 16 51 43
Interest income (1) (2) (5) (5)
Gain on sale of subsidiary shares - - - (1)
Other income, net (3) (1) (4) (1)
-- -- -- --
Income (loss) before income taxes, discontinued operations and
extraordinary loss (81) 66 42 162
Provision for income taxes 7 28 58 69
- -- -- --
Income (loss) from continuing operations (88) 38 (16) 93
Income (loss) from discontinued operations, net of tax (37) 3 (45) 81
--- - --- --
Income (loss) before extraordinary loss (125) 41 (61) 174
Extraordinary loss, net of tax (5) - (5) (2)
-- -- --
Net income (loss) $ (130) $ 41 $ (66) $ 172
------ ----- ------ --------
------ ----- ------ --------
Earnings (loss) per basic share:
Income (loss) from continuing operations $ (.92) $ .41 $ (.17) $ 1.01
Income (loss) from discontinued operations (.38) .03 (.48) .87
Extraordinary loss (.05) - (.05) (.02)
---- ---- ----
Net income (loss) $(1.35) $ .44 $ (.70) $ 1.86
------ ----- ------- --------
------ ----- ------- --------
Earnings per diluted share:
Income from continuing operations $ .40 $ .97
Income from discontinued operations .03 .84
Extraordinary loss - (.02)
Net income $ .43 $ 1.79
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
June 30, September 30,
-------- -------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 59 $ 67
Trade receivables, net 603 502
Inventories 606 501
Deferred income taxes 83 107
Other current assets 80 55
Net assets held for disposition 37 69
----------- -------------
Total current assets 1,468 1,301
Property, plant and equipment, net 536 422
Deferred income taxes 6 3
Other assets 200 212
Goodwill, net 591 600
----------- -------------
----------- -------------
$ 2,801 $ 2,538
----------- -------------
----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 6 $ 4
Current maturities of long-term debt 12 41
Trade accounts payable 246 189
Accrued expenses and other liabilities 289 344
Income taxes payable 50 72
----------- -------------
Total current liabilities 603 650
Long-term debt 1,003 701
Other liabilities 249 237
----------- -------------
Total liabilities 1,855 1,588
----------- -------------
Commitments and contingencies
Stockholders' equity 946 950
----------- -------------
$ 2,801 $ 2,538
----------- -------------
----------- -------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions-unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ (16) $ 93
Adjustments to reconcile income (loss) from continuing operations to net cash
provided by operating activities of continuing operations:
Depreciation and amortization 72 50
Provision for doubtful accounts 2 5
Gain on sale of excess real estate (4) (2)
Gain on sale of subsidiary stock - (1)
Goodwill impairment and other non-recurring charges 92 -
Changes in operating assets and liabilities, excluding the effects of
acquisitions and dispositions (56) (63)
--- ---
NET CASH PROVIDED BY OPERATING
ACTIVITIES OF CONTINUING OPERATIONS 90 82
-- --
Income (loss) from discontinued operations (45) 81
Adjustments to reconcile income (loss) from discontinued operations to
net cash used in operating activities of discontinued operations:
(Gain) loss on disposal of net assets held for disposition 37 (75)
Increase in net assets held for disposition (35) (93)
NET CASH USED IN OPERATING ACTIVITIES
OF DISCONTINUED OPERATIONS (43) (87)
--- ---
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 47 (6)
INVESTING ACTIVITIES:
Proceeds from sale of net assets held for disposition 3 251
Acquisition of companies, net of cash acquired (171) (257)
Change in marketable securities and investments (7) 24
Proceeds from sale of excess real estate 11 10
Purchases of property, plant and equipment (75) (56)
Other changes in investing activities 8 3
- -
NET CASH USED IN INVESTING ACTIVITIES (231) (25)
---- ---
FINANCING ACTIVITIES:
Proceeds from long-term debt 1,282 1,461
Repayment of long-term debt (1,063) (1,375)
Repayment of notes payable, net (3) -
Payment of dividends (15) (3)
Proceeds from exercise of stock options 19
4
Purchase of treasury stock (35) (59)
--- ---
NET CASH PROVIDED BY FINANCING ACTIVITIES 185 28
--- --
Effect of exchange rate changes on cash (9) (4)
-- --
DECREASE IN CASH AND CASH EQUIVALENTS (8) (7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 67 57
-- --
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 59 $ 50
---------------- -----------------
---------------- -----------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
Note 1-Basis of Presentation
U.S. Industries, Inc. ("USI") manufactures and distributes a broad range of
consumer and industrial products. The accompanying financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information, Article 10 of Regulation S-X and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The interim financial data for the three and
nine months ended June 30, 1998 and 1997 are unaudited and, in the opinion of
management, reflect all necessary adjustments for a fair presentation of the
financial position and results of operations for the interim periods on a
consistent basis. Such adjustments were of a normal and recurring nature. The
results of operations for the three and nine month periods ended June 30, 1998
are not necessarily indicative of those for the full fiscal year ending October
3, 1998. For further information, refer to the Consolidated (Combined) Financial
Statements and footnotes thereto included in U.S. Industries, Inc., Annual
Report on Form 10-K-A for the year ended September 27, 1997, and Zurn
Industries, Inc. ("Zurn"), Annual Report on Form 10-K for the year ended
March 31, 1997.
On June 11, 1998, USI merged with (the "Merger") Zurn, hereafter collectively
referred to as the Company, by exchanging approximately 20 million shares of its
common stock for all of the common stock of Zurn. Each share of Zurn common
stock was exchanged for 1.6 shares of USI common stock. Outstanding Zurn
employee stock options were converted at the same exchange ratio into options to
purchase approximately 2 million shares of USI common stock.
The merger has been accounted for as a pooling of interests under Accounting
Principles Board Opinion No. 16. All prior period financial statements have been
restated to present the results of operations, financial position and cash flows
of USI and Zurn as a single entity as though Zurn had always been a part of USI.
There were no transactions between USI and Zurn prior to the combination.
Certain reclassifications have been made to the Zurn financial statements to
conform to USI's presentations.
The Company's fiscal year ends on the Saturday nearest to September 30. All
three and nine month data contained herein reflect results of operations for the
13-week periods and 40 and 39 week periods ended on the Saturday closest to June
30, 1998 and 1997, respectively, but are presented as of such date for
convenience.
6
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
Note 1-Basis of Presentation (Continued)
The results of operations for Zurn are through June 11, 1998 and presented
as part of USI's results thereafter in the following table.
<TABLE>
<CAPTION>
(in millions)
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net Sales
USI $ 706 $ 579 $ 1,964 $ 1,631
Zurn 150 156 462 346
--- --- --- ---
$ 856 $ 735 $ 2,426 $ 1,977
-------------- ---------------- ----------------- -----------------
-------------- ---------------- ----------------- -----------------
Income (loss) from
continuing operations
USI $ (95) $ 32 $ (37) $ 77
Zurn 7 6 21 16
- - -- --
$ (88) $ 38 $ (16) $ 93
------------- ---------------- ---------------- -----------------
------------- ---------------- ---------------- -----------------
Net income (loss)
USI $ (137) $ 35 $ (83) $ 164
Zurn 7 6 17 8
- - -- -
$ (130) $ 41 $ (66) $ 172
------------- ---------------- ---------------- -----------------
------------- ---------------- ---------------- -----------------
</TABLE>
The Company has adopted a plan to dispose of SunLite; its outdoor furniture
operations, has reflected its operations as discontinued in the accompanying
financial statements and has recorded an estimated loss of $33 million, net of
tax from the disposal of the business.
Note 2-Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
(in millions)
June 30, September 30,
1998 1997
(unaudited)
<S> <C> <C>
Finished products $ 305 $ 260
Work-in process 116 106
Raw materials 185 135
--- ---
$ 606 $ 501
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
7
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
Note 3-Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(in millions)
June 30, September 30,
1998 1997
(unaudited)
<S> <C> <C>
7.25% Senior Notes, net $ 123 $ 123
Revolving credit facility-U.S. dollar 350 350
Revolving credit facility-foreign currencies 145 -
Short-term committed note 200 -
Other long-term debt 177 79
Zurn debt 20 190
----------------- -------------------
1,015 742
Less current maturities 12 41
----------------- -------------------
Long-term debt $ 1,003 $ 701
----------------- -------------------
----------------- -------------------
</TABLE>
During the second quarter of fiscal 1998, USI American Holdings, Inc. ("USIAH"),
a wholly owned subsidiary of the Company amended its credit agreement (the
"Credit Agreement") to allow a portion of the available facility to be used for
borrowings in currencies other than the U.S. dollar and to eliminate the
previous restriction limiting certain unsecured indebtedness to $200 million.
Further, in the third quarter of fiscal 1998, the Credit Facility was amended to
allow for the Merger and to add USI as a co-obligor. The maximum amount which
may be borrowed under the Credit Agreement has not changed and the Company's
ability to incur indebtedness outside of the Credit Agreement is still limited
by certain restrictions and covenants contained therein. For further details
regarding the Credit Agreement, see Note 5 to the Consolidated (Combined)
Financial Statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 27, 1997, as amended.
At June 30, 1998, the Company had long-term indebtedness of $64 million, $50
million and $31 million denominated in German marks, British pounds and Dutch
guilders, respectively. These borrowings are hedges of the Company's net
investments in SiTeco Lighting, Spear & Jackson and the metal components
business acquired from Philips (see note 6), respectively.
Other long-term debt as June 30, 1998 includes $135 million of notes payable
maturing within one year which the Company expects to repay using borrowings
under the Credit Agreement or the debt offering discussed below.
In accordance with the terms of the Zurn Credit Agreement, the Zurn borrowings
under the Credit Agreement were repaid in June, 1998, with proceeds from a
$200 million short-term committed note made available from one of the Company's
lenders, which bears interest at a rate of approximately 6.1% per annum and has
a maturity date of September 11, 1998. The Company expects to refinance this
obligation and a portion of its obligation under its existing Credit Agreement
with a $300 to $500 million debt offering in August. Accordingly, this debt has
been classified as long-term.
8
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
Note 4-Commitments and Contingencies
The Company is subject to a wide range of environmental protection laws. The
Company has remedial and investigatory activities underway at approximately 36
sites. In addition, the Company has been named as a Potentially Responsible
Party ("PRP") at 16 "Superfund" sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") or
comparable statutes.
At June 30, 1998, the Company had accrued approximately $23 million for various
environmental related liabilities of which the Company is aware. The Company
believes that the range of liability for such matters is between approximately
$10 million and $26 million.
It is often difficult to estimate the future impact of environmental matters,
including potential liabilities. The Company accrues for losses associated with
environmental remediation obligations when such losses are probable and
reasonably estimable. This practice is followed whether the claims are asserted
or unasserted. Accruals for estimated losses from environmental remediation are,
depending on the site, based primarily upon internal or third party
environmental studies, and estimates as to the number, participation level and
financial viability of any other PRP's, to the extent of contamination and the
nature of required remedial actions. Such accruals are adjusted as further
information develops or circumstances change. Costs of future expenditures for
environmental remediation obligations are not discounted to their present fair
value. Recoveries of environmental remediation costs from other parties are
recognized as assets when their receipt is deemed probable. Management expects
that the amount accrued will be paid out over the periods of remediation for the
applicable sites which range up to 30 years and that all such reserves are
adequate based on all current data. Each of the sites in question is at various
stages of investigation or remediation; however, no information currently
available reasonably suggests that projected expenditures associated with
remedial action or compliance with environmental laws, for any single site or
for all sites in the aggregate, will have a material adverse affect on the
Company's financial condition, results of operations or cash flows.
United States Brass Corporation ("US Brass"), an Eljer indirect wholly-owned
subsidiary, filed in 1994 a voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code for the purpose of systemically
resolving issues resulting from sales of polybutylene plumbing systems and
related litigation. On January 29, 1998, the United States Bankruptcy Court for
the Eastern District of Texas confirmed the Chapter 11 Bankruptcy Plan of
Reorganization filed by US Brass. On March 19, 1998, the plan became effective
and the US Brass Trust was funded with approximately $50 million in cash and a
$20 million noninterest bearing note (included in the Zurn debt at June 30,
1998), payable over ten years to pay claims resulting from US Brass polybutylene
plumbing systems. As a result, US Brass emerged from bankruptcy and future US
Brass polybutylene plumbing system claims were enjoined and channeled to the
Trust and a national class action settlement fund.
In the normal course of business, financial and performance guarantees are made
in connection with major engineering and construction contracts and a liability
is recognized when a probable loss occurs.
Also, certain of the Company's subsidiaries are defendants or plaintiffs in
lawsuits that have arisen in the normal course of business. While certain of
these matters involve substantial amounts, it is management's opinion, based on
the advice of counsel, that the ultimate resolution of such litigation and
environmental matters will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
9
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
Note 5-Earnings Per Share
In February 1997, the FASB issued Statement No. 128 ("SFAS 128"), "Earnings Per
Share" which was adopted on December 31, 1997. The Company has restated all
prior periods. The adoption of SFAS 128 did not have a material impact on the
earnings per share information previously presented.
(in millions except per share data) (in millions except per share data)
<TABLE>
<CAPTION>
Income From Income From
Continuing Per Share Continuing Per Share
Operations Shares Amount Operations Shares Amount
(For the Three Months Ended (For the Nine Months Ended
June 30, 1997) June 30, 1997)
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share $ 38 92.1 $ .41 $ 93 92.7 $ 1.01
Effect of dilutive securities
Stock options 1.6 1.5
Nonvested stock 1.5 1.5
----------- ---------- ---------- -------------------- --------
Diluted Earnings Per Share $ 38 95.2 $ .40 $ 93 95.7 $ .97
----------- ---------- ---------- -------------------- --------
----------- ---------- ---------- -------------------- --------
</TABLE>
Diluted earnings per share data for the three and nine months ended June 30,
1998, is not presented as it would have an antidilutive impact. The weighted
average shares used to calculate basic loss per share for the three and nine
months ended June 30, 1998 was 96.4 million and 94.9 million, respectively.
Diluted common shares include shares that would be outstanding assuming the
fulfillment of conditions that would remove the restriction on nonvested shares
and the exercise of stock options. Options to purchase 185,900 shares and
313,650 shares in the three and nine months ended June 30, 1997, respectively,
were not included in the computation of earnings per share because the options
exercise prices were greater than the average market price of the common shares.
Note 6-Acquisitions
In May 1998, the Company purchased a metals component business from Philips for
$31 million in cash, subject to customary post closing adjustments. The Company
has entered into a multi-year agreement to supply Philips Electronics
("Philips") with such products. The acquired manufacturing facilities are
located in the Netherlands.
In June 1998, the Company purchased the assets of Sundance Spas for $32 million
in cash, subject to customary post closing adjustments. Sundance Spas, based in
Chino, California, is a manufacturer of high quality self-contained bath spas.
In January 1998, the Company acquired certain semiconductor leadframe assets of
Philips, for $14 million in cash. The acquired manufacturing facilities are
located in the Netherlands.
10
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
Note 6-Acquisitions (Continued)
In December 1997, the Company purchased Spear & Jackson plc ("Spear & Jackson")
for $11 million in cash and $96 million in the Company's Common Stock, resulting
in goodwill of approximately $63 million. Spear & Jackson, manufactures and
distributes hand tools, lawn and garden tools, saws, cutting and industrial
tools. The purchase price is subject to a cash contingency payable on or before
June 2000. The additional purchase price is based upon certain performance
criteria and the market value of the Company's stock and, assuming the
performance criteria were met, currently approximates $65 million.
In October 1997, the Company purchased Siemens Lighting, a division of Siemens
A.G., for $67 million in cash. Siemens Lighting is a leading European
manufacturer and marketer of standard and customized indoor and outdoor lighting
products for commercial and industrial use. Siemens Lighting (renamed SiTeco
Beleuchtungstechnik GmbH) ("SiTeco") operates manufacturing facilities in
Germany, Austria and Slovenia.
In May 1997, the Company purchased Britains Petite Limited for $9 million in
cash. Britains Petite Limited, located in Nottingham, England is a manufacturer
of military soldier collectibles, metal and plastic models of agricultural
vehicles, figures, animals, buildings and accessories and preschool plastic
toys.
In March 1997, the Company purchased certain assets of the outdoor furniture
division of Sunbeam Corporation for $60 million in cash, resulting in goodwill
of $14 million. The acquired business, now known as SunLite Casual Furniture,
Inc. ("SunLite"), manufactures casual outdoor furniture. SunLite has since been
discontinued.
In January 1997, the Company purchased the assets of Woodings-Verona Tool Works,
Inc. ("Woodings-Verona") for $5 million in cash plus the assumption of $1.2
million of debt. Woodings-Verona manufactures hot-forged heavy striking tools
including sledge hammers, axes, bars, picks and railroad tools.
In January 1997, the Company also purchased the stock of Eljer Industries, Inc.
("Eljer") for $172 million in cash plus the assumption of debt resulting in
goodwill of $193 million. Eljer manufactures and distributes china and cast iron
plumbing fixtures, flexible plumbing systems, and heating, ventilation and air
conditioning products.
These transactions have been accounted for as purchases and their results are
included in the financial statements from their respective dates of acquisition.
The allocation of purchase price may be subject to adjustment upon receipt of
final valuation information and management's final estimates as to the fair
value of the respective assets acquired and liabilities assumed.
11
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
Note 7-Merger, Restructuring and Other Related Costs
In connection with the closing of the Zurn transaction, the Company reviewed
its long-term strategy for the newly combined entity and reviewed each operating
Company's performance and future prospects. As a result, the Company adopted a
restructuring plan designed to improve efficiency and enhance its
competitiveness. In addition, due to indications of impairment, the Company
evaluated the recoverability of certain long-lived assets, primarily goodwill at
Garden State Tanning ("GST") and Keller Ladders ("Keller"). The Company
determined an evaluation of the carrying amount of the long-lived assets,
including goodwill, at GST was necessary due to operational issues, changes in
the automotive supplier industry including annual pricing concessions being
demanded by automotive companies and a dramatic decline in scrap leather prices.
The impairment indicators at Keller include a significant decline in operating
profits and sales brought on by the loss of a significant customer whose sales
volume has not been replaced. In determining the amount of the impairment, the
Company obtained independent appraisals of the fair values for GST and Keller.
The restructuring plan includes the closing of certain facilities in the toy,
shoe and lighting operations as the production activities of these facilities
will be outsourced, relocated off-shore, and consolidated into existing
facilities, respectively. The restructuring plan anticipates a reduction in the
work force of approximately 920 employees, most of whom worked in the facilities
to be closed.
The merger integration and other costs include investment banking, legal,
accounting and other miscellaneous costs, as well as, costs related to
change-in-control payments of certain Zurn employees.
The principal components of the merger, restructuring and other costs are:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
Impairment of goodwill $ 83
Lease obligations and impairment of equipment 12
Merger integration and other costs 25
Severance and related costs 16
----------
Total $ 136
----------
----------
Cash charges $ 44
Non-cash charges 92
----------
Total $ 136
----------
----------
</TABLE>
Approximately $17 million of the cash charges were paid prior to June 30, 1998
and the majority of the remaining cash charges will be paid by December 31,
1998.
In addition, the Company has incurred a $2 million charge to cost of products
sold, principally representing a write-down of an older vacuum cleaner model
which became obsolete due to the introduction of a new model.
Additional costs to be recorded during the fourth quarter to complete the
restructuring plan are currently estimated to be $19 million.
12
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
Note 7-Merger, Restructuring and Other Related Costs (Continued)
After an income tax benefit of $17 million, the charges detailed above impact
the results from continuing operations for the nine and three months ended June
30, 1998 by $121 million.
Note 8-Summarized Financial Information of Subsidiaries
Summarized consolidated financial information of USIAH, the co-issuer of the
7.25% Senior Notes, is as follows:
<TABLE>
<CAPTION>
(in millions - unaudited) (in millions - unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 690 $ 579 $ 1,948 $ 1,631
Gross profit 211 186 600 520
Income (loss) from continuing operations (80) 33 (20) 80
Net income (loss) (116) 36 (61) 167
</TABLE>
<TABLE>
<CAPTION>
(in millions)
June 30, September 30,
1998 1997
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Current assets $ 1,160 $ 947
Non-current assets 974 859
Current liabilities 456 395
Non-current liabilities 1,171 703
</TABLE>
13
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
Note 8-Summarized Financial Information of Subsidiaries (Continued)
The summarized consolidated information of USI Atlantic Corp., the guarantor of
the 7.25% Senior Notes, is as follows:
<TABLE>
<CAPTION>
(in millions - unaudited) (in millions - unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 690 $ 579 $ 1,948 $ 1,631
Gross profit 211 186 600 520
Income (loss) from continuing operations (81) 32 (22) 77
Net income (loss) (117) 35 (63) 164
</TABLE>
<TABLE>
<CAPTION>
(in millions)
June 30, September 30,
1998 1997
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Current assets $ 1,160 $ 947
Non-current assets 974 859
Current liabilities 456 399
Non-current liabilities 1,171 703
</TABLE>
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Company's operations are grouped into four segments: Bath and Plumbing
Products, Lighting Corporation of America, Hardware and Tools and Diversified.
The results of all operations sold or classified as discontinued operations,
including SunLite which was discontinued in the current quarter, are excluded
from the table below for all periods presented and are discussed separately
under "Discontinued Operations". The Results of Operations have been restated in
accordance with pooling of interests accounting to include the results of Zurn's
operations.
Results of Operations
<TABLE>
<CAPTION>
(in millions) (in millions)
Three Months Ended Nine Months Ended
June 30 , June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales
Bath and Plumbing Products ..................... $ 309 $ 269 $ 788 $ 613
Lighting Corporation of America................ 184 136 563 401
Hardware and Tools.............................. 136 89 325 239
Diversified..................................... 227 241 750 724
--------- ----------- ----------- ------------
Total Net Sales.............................. $ 856 $ 735 $ 2,426 $ 1,977
--------- ----------- ----------- ------------
--------- ----------- ----------- ------------
Operating Income (Loss) (1)
Bath and Plumbing Products...................... $ 11 $ 34 $ 62 $ 68
Lighting Corporation of America................. 10 9 34 28
Hardware and Tools.............................. (18) 11 (4) 28
Diversified..................................... (55) 33 20 95
--------- ----------- ----------- ------------
Total Operating Income (Loss)................ $ (52) $ 87 $ 112 $ 219
Corporate expenses................................ (15) (8) (28) (21)
--------- ----------- ----------- ------------
Total Operating Income (Loss) $ (67) $ 79 $ 84 $ 198
--------- ----------- ----------- ------------
--------- ----------- ----------- ------------
</TABLE>
(1) Operating income (loss) for the three and nine months ended June 30, 1998
include merger, restructuring and other related costs of $136 million and
obsolescence charges in connection with the restructuring of approximately $2
million. Operating income (loss) for the Bath and Plumbing Products, Lighting
Corporation of America, Hardware and Tools, Diversified Operations and Corporate
expenses include charges of $25, $3, $33, $69 and $8 million, respectively.
Disclosure Concerning Forward-Looking Statements
All statements, other than statements of historical fact, included in the
following Management's Discussion or elsewhere in this Quarterly Report are, or
may deemed to be, forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such forward- looking statements include, without limitation, the
statements set forth in Outlook, below, and all statements that are preceded by,
followed by or include the words "believes", "expects", "anticipates" or similar
expressions. Various economic and competitive factors could cause actual results
to differ materially from those discussed in such forward- looking statements,
including factors which are outside of the control of the Company, such as
interest rates, foreign currency exchange rates, consumer spending patterns,
availability of consumer credit, levels of residential and commercial
construction, levels of automotive production, changes in raw material costs and
instability in the Asian markets, along with the other factors noted in this
Quarterly Report and U.S. Industries Report on Form 10-KA for the year ended
September 30, 1997, Zurn Industries Report on Form 10-K for the year ended March
31, 1997.
15
<PAGE>
Merger with Zurn Industries, Inc.
On June 11, 1998, U.S. Industries, Inc. ("USI") merged with (the "Merger") Zurn
Industries, Inc. ("Zurn") hereafter collectively referred to as the Company, by
exchanging approximately 20 million shares of its common stock for all of the
common stock of Zurn. Each share of Zurn common stock was exchanged for 1.6
shares of USI common stock. Outstanding Zurn employee stock options were
converted at the same exchange ratio into options to purchase approximately 2
million shares of USI common stock.
Zurn manufactures and distributes plumbing and heating, ventilating and air
conditioning (HVAC) products for the construction and remodeling markets in the
United States, Canada and Europe, with significant suppliers located in China
and the Pacific Rim. It designs and installs fire sprinkler systems in the
states of California, Hawaii, Texas, Utah and Washington. Zurn also constructs a
wide variety of systems to control and treat water and wastewater principally
for government agencies in southern California.
The Merger has been accounted for as a pooling of interest under Accounting
Principles Board Opinion No. 16. All prior period consolidated financial
statements presented have been restated to include the results of operations,
financial position and cash flows of USI and Zurn as a single entity. There were
no transactions between USI and Zurn prior to the combination. Certain
reclassifications were made to the Zurn financial statements to conform to USI's
presentations.
Three Months Ended June 30, 1998
Compared to Three Months Ended June 30, 1997
Introduction
The Company had sales of $856 million for the quarter ended June 30, 1998, an
increase of $121 million (16.5%). The operating loss for the quarter was $67
million compared to operating income of $79 million in the third quarter of
fiscal 1997. The current quarter includes merger, restructuring and other
charges of $138 million which are discussed below. Excluding these unusual
charges the Company would have had operating income of $71 million.
The Bath and Plumbing Products operations had sales of $309 million and
operating income of $11 million for the quarter ended June 30, 1998, an increase
of $40 million (14.8%) and a decrease of $23 million (67.6%), respectively, from
the third quarter of fiscal 1997. Operating profit in the current quarter
includes costs in connection with the Zurn merger of approximately $25 million.
Excluding the above mentioned charges, operating income would have been $36
million, an increase of $2 million (5.9%) over the third quarter of fiscal 1997.
The increase in sales and operating profit, excluding unusual charges, is
primarily due to continued strength in the company's European bath operations
and the inclusion of sales and operating profits from the acquisition of
Sundance Spas. The Zurn plumbing business had an increase in sales and operating
profit from the introduction of new products and strong domestic construction
markets. The Eljer plumbing business was negatively impacted by reduced
wholesale shipments, the impact of a one week strike at a chinaware plant and
reduced Asian sales.
The Lighting Corporation of America had sales of $184 million and operating
income of $10 million for the quarter ended June 30, 1998, increases of $48
million (35.2%) and $1 million (11.1 %), respectively, over the third quarter of
fiscal 1997. Operating income in the current fiscal quarter includes
restructuring charges of approximately $3 million dollars in connection with
plant shutdowns at two facilities. The operations of these facilities will be
consolidated into other lighting facilities . Excluding the above mentioned
charges operating income in the current quarter would have been $13 million, an
increase of $4 million (44.4%) over the comparable quarter of the prior year.
The increase in sales and operating income, excluding these charges, is
primarily due to the October 1997 acquisition of SiTeco Lighting, formerly
Siemens Lighting, and higher sales of outdoor and residential lighting. Sales of
commercial indoor florescent fixtures continue to be affected by price
competition.
16
<PAGE>
The Hardware and Tools operations had sales of $136 million and an operating
loss of $18 million for the quarter ended March 31, 1998, a sales increase of
$47 million (52.8%), and a decrease from the prior year's third quarter
operating income of $11 million. The operating loss in the current quarter
includes charges of approximately $33 million which primarily consists of
impairments of goodwill and property, plant and equipment in the Company's
ladder operations and also severance in connection with the consolidation of
certain administrative functions at the ladder operations with Ames. Excluding
these charges the operating income would have been $15 million, an increase of
$4 million (36.3%) over the comparable quarter of the prior year. The increase
in sales and operating income, excluding these charges, is primarily
attributable to the first time inclusion of Spear & Jackson, which was acquired
in December 1997, and the metal components business which was acquired in May
1997 partially offset by reduced contributions from ladder operations.
The Diversified Operations had sales of $227 million and an operating loss $55
million , a decrease of $14 million (5.8%) and $88 million, respectively, from
the prior years third quarter. The operating loss in the current quarter
includes total charges of $69 million consisting of (I) impairments of goodwill
at the automotive leather tanning business, (ii) obsolescence, severance and
impairment charges at the vacuum cleaner operations in connection with
management changes and the changeover to a new model, (iii) severance,
impairment and lease obligation charges in the toy operations from the
downsizing of the domestic toy operations which will be outsourced to the Orient
and the consolidation of certain operations in the UK, (iv) severance and
impairment charges in the footwear operations in connection with the closure of
a manufacturing facility and (v) severance and other charges in the Company's
plastic automotive business in connection with the discontinuance of a business
line. Excluding these charges operating income in the current quarter would have
been $14 million, a decrease of $19 million (57.6%) from the comparable quarter
of the prior year. The significant decrease in sales and operating profit is
primarily due to lower sales in the Company's vacuum cleaner and toy business.
Revenue and operating income in the vacuum cleaner business declined due to
lower sales, particularly in certain foreign markets. The Company's toy business
was impacted by reduced sales of low margin Mexican product and manufacturing
variances. Operating profits were also negatively impacted by lower sales of
western footwear and plastic automotive components and increased price
concessions and reduced scrap prices in the automotive leather division. These
unfavorable factors were partially offset by increased sales and operating
income in the leadframes and refurbished aircraft bearing businesses. The
January 1998 acquisition of the leadframe business of Philips contributed to the
improvement.
Corporate expenses include approximately $8 million of charges for the reduction
of executive staff in connection with the Company's realignment of its business
units.
Merger, Restructuring and Other Related Costs
In connection with the closing of the Zurn transaction, the Company reviewed
its long-term strategy for the newly combined entity and reviewed each operating
Company's performance and future prospects. As a result, the Company adopted a
restructuring plan designed to improve efficiency and enhance its
competitiveness. In addition, due to indication of impairment, the Company
evaluated the recoverability of certain long-lived assets, primarily goodwill at
Garden State Tanning ("GST") and Keller Ladders ("Keller"). The Company
determined an evaluation of the carrying amount of the long-lived assets,
including goodwill, at GST was necessary due to operational issues, changes in
the automotive supplier industry including annual pricing concessions being
demanded by automotive companies and a dramatic decline in scrap leather prices.
The impairment indicators at Keller include the significant decline in operating
profits and sales brought on by the loss of a significant customer whose sales
volume has not been replaced. In determining the amount of the impairment, the
Company obtained independent appraisals of the fair values for GST and Keller.
The restructuring plan includes the closing of certain facilities in the toy,
shoe and lighting operations as the production activities of these facilities
will be outsourced, relocated off-shore, and consolidated into existing
facilities, respectively. The restructuring plan anticipates a reduction in the
work force by approximately 920 employees, most of whom worked in the facilities
to be closed.
17
<PAGE>
The merger integration and other costs include investment banking, legal,
accounting and other miscellaneous costs, as well as, costs related to
change-in-control payments of certain Zurn employees.
The principal components of the merger, restructuring and other costs are:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
Impairment of goodwill $ 83
Lease obligations and impairment of equipment 12
Merger integration and other costs 25
Severance and related costs 16
----------
Total $ 136
----------
----------
Cash charges $ 44
Non-cash charges 92
----------
Total $ 136
----------
----------
</TABLE>
Approximately $17 million of the cash charges were paid prior to June 30, 1998
and the majority of the remaining cash charges will be paid by December 31,
1998.
In addition, the Company has incurred a $2 million charge to cost of products
sold, principally representing a write-down of an older vacuum cleaner model
which became obsolete due to the introduction of a new improved model.
Additional costs to be recorded during the fourth quarter to complete the
restructuring plan are currently estimated to be $19 million.
After an income tax benefit of $17 million, the charges detailed above impact
the results from continuing operations for the nine and three months by $121
million.
Interest and Taxes
Interest expense was $18 million for the three months ended June 30, 1998, a $2
million (12.5%) increase from the comparable period of fiscal 1997 which
includes the impact of higher average debt levels associated with the Eljer and
other acquisitions. Interest income was $1 million for the three months ended
June 30, 1998, a decrease of $1 million from the comparable period of the prior
year.
The provision for income taxes on continuing operations was $7 million for the
three months ended June 30, 1998, on a pre-tax loss of $81 million as compared
to a $28 million provision on pre-tax income of $66 million (a 42.4% effective
tax rate) in the comparable period of fiscal 1997. The current period includes
the impact of goodwill impairment charges, and certain merger and change in
control payments which are not tax deductible.
18
<PAGE>
Discontinued Operations and Extraordinary Loss
For the three months ended June 30, 1998, the Company recorded a net loss from
discontinued operations of $37 million which primarily consisted of the
operating losses associated with the Company's outdoor furniture operations of
$4 million and estimated losses through the disposal date of $33 million.
For the three months ended June 30, 1997, the Company reported income from
discontinued operations of $3 million, consisting of income from operations of
discontinued operations of the Armour Golf Operations (Tommy Armour Golf and
Odyssey Golf) and SunLite Casual Furniture.
USI's management is evaluating its exposure to contingencies related to Zurn's
discontinued Power Systems segment and considering how and when those matters
could be resolved. This review will be completed by the end of fiscal 1998.
Discontinued operations are not expected to have a material impact on the future
operations or liquidity of the Company.
In conjunction with the repayment of all outstanding indebtedness of Zurn during
the three months ended June 30, 1998, a net-of-tax, non-cash, extraordinary
charge of $5 million was incurred to write off unamortized deferred financing
costs and for previously deferred losses associated with interest rate
protection agreements.
Nine Months Ended June 30, 1998
Compared to Nine Months Ended June 30, 1997
Introduction
The Company had sales of $2,426 million, an increase of $449 million (22.7%)
over the comparable period of fiscal 1997. Operating income was $84 million, a
decrease of $114 million (57.6%) from the comparable period of the prior year.
The current quarter includes merger, restructuring and other charges of $138
million which were discussed above. Excluding these unusual charges the
operating income would have been $222 million.
The Bath and Plumbing Products operations had sales of $788 million and
operating income of $62 million for the nine months ended June 30, 1998, a sales
increase of $175 million (28.5%) and a decrease in operating income of $6
million (8.8%), respectively, from the nine months ended June 30,1997. Operating
profit in the current period includes merger, integration and other related
costs in connection with the Zurn merger of approximately $25 million. Excluding
the above mentioned charges operating income would have been $87 million, an
increase of $19 million (27.9%) over the comparable period of the prior year The
improvement in sales and operating income, excluding unusual charges, is
primarily due to the January 1997 acquisition of Eljer, the May 1998 acquisition
of Sundance Spas and increased sales in the European and North American bath
operations. These positive factors were partially offset by reduced sales and
profits in Brazil, Chile and Asia and the impact of reduced sales in the HVAC
business due to the unseasonably warm weather in the North American market.
The Lighting Corporation of America had sales of $563 million and operating
income of $34 million for the nine months ended June 30, 1998, increases of
$162 million (40.4%) and $6 million (21.4%), respectively, over the comparable
period of fiscal 1997. Operating income in the current period includes
restructuring charges of approximately $3 million in connection with plant
shutdowns at two facilities. The operations of these facilities will be
consolidated into other lighting facilities. Excluding the above mentioned
charges operating income in the current period would have been $37 million, an
increase of $9 million (32.1%) over the comparable period of the prior year. The
increase in sales and operating profits was primarily due to the October 1997
acquisition of SiTeco and the strength of outdoor and residential lighting,
partially offset by softness in the commercial indoor fixtures business which is
experiencing intense price competition.
19
<PAGE>
The Hardware and Tools operations had sales of $325 million and an operating
loss of $4 million for the nine months ended June 30, 1998, a sales increase of
$86 million (36%) and a reduction from the prior years operating income of $28
million. The operating loss in the current period includes charges of
approximately $33 million which primarily consist of impairments of goodwill and
property, plant and equipment in the Company's ladder operations and severance
in connection with the consolidation of certain administrative functions of the
ladder operations with Ames. Excluding these charges the Company would have had
operating income of $29 million, an increase of $1 million (3.5%) over the
comparable quarter of the prior year. The increase in sales and operating income
was primarily due to the first-time inclusion of Spear & Jackson and Philips
metal components business which were acquired in December 1997 and May 1998,
respectively. This was partially offset by reduced sales of ladders. Sales of
winter tools were lower due to unusually mild winter weather conditions.
The Diversified operations had sales of $750 million and operating income of $20
million for the nine months ended June 30, 1998, a sales increase of $26 million
(3.6%) and a decrease of $75 million (78.9%), respectively, from the comparable
period of the prior year. The operating income in the current period includes
total charges of $69 million which primarily consist of (I) impairments of
goodwill at the Company's automotive leather tanning business, (ii)
obsolescence, severance and impairment charges at the vacuum cleaner operations
in connection with management changes and the changeover to a new model, (iii)
severance, impairment and lease obligation charges in the toy operations in
connection with the downsizing of the domestic toy operations which will be
outsourced to the Orient and the consolidation of certain operations in the UK,
(iv) severance and impairment charges in the footwear operations in connection
with the closure of a manufacturing facility and (v) severance and other charges
in the plastic automotive parts business in connection with the discontinuance
of a business line. Excluding these charges operating income in the current
quarter would have been $89 million, a decrease of $6 million (6.3%) from the
comparable quarter of the prior year. The reduction in operating income is
primarily due to the vacuum cleaner and toy business. Revenue and operating
income from vacuum cleaner sales declined due to lower sales in the domestic and
certain foreign markets, particularly Poland, the Czech Republic and Austria.
The Company's toy business was negatively affected by reduced sales of low
margin Mexican products and unfavorable manufacturing variances. These sales and
operating profit reductions were partially offset by increased sales and
operating income in the leadframe business, which was acquired in January 1998
from Philips', refurbished aircraft bearing and fabricated metal automotive
parts businesses. While sales of automotive leather increased significantly,
hide quality and low scrap prices resulted in a decrease in operating income.
Operating income was also impacted by a favorable settlement of certain
environmental obligations in the footwear operations and a gain on the sale of
an investment in a supplier of the company's toy business.
Discontinued Operations and Extraordinary Loss
For the nine months ended June 30, 1998, the Company recorded a loss from
discontinued operations of $45 million which primarily consisted of the
operating losses associated with the Company's outdoor furniture operations and
estimated losses through the disposal date.
For the nine months ended June 30, 1997, the Company reported income from
discontinued operations of $81 million, consisting of net gains on disposals of
discontinued operations of $75 million and income from operations of
discontinued operations of $3 million. The gains on dispositions resulted from
the sales of Tubular Textile Machinery, SCM Metals Products, Inc. and the assets
of QPF, Inc. partially offset by losses on the sale of Lynx Golf, the Mechanical
Power Transmission Segment and portions of the Power System Segment. The income
from operations of discontinued operations consisted of the results of the above
named companies as well as the Armour Golf Operations (Tommy Armour Golf and
Odyssey Golf) and SunLite Casual Furniture. Discontinued operations are not
expected to have a material impact on the future operations or liquidity of the
Company.
20
<PAGE>
USI's management is evaluating its exposure to contingencies related to Zurn's
discontinued Power Systems segment and considering how and when those matters
could be resolved. This review will be completed by the end of fiscal 1998.
Discontinued operations are not expected to have a material impact on the future
operations or liquidity of the Company.
In conjunction with the repayment of all outstanding indebtedness of Zurn ,
during the nine months ended June 30, 1998, a net-of-tax, non-cash,
extraordinary charge of $5 million was incurred to write off unamortized
deferred financing costs and for previously deferred losses associated with
interest rate protection agreements. During the nine months ended June 30, 1997,
a net of tax, non cash extraordinary charge in connection with the repayment of
outstanding indebtedness was incurred.
Interest and Taxes
Interest expense was $51 million for the nine months ended June 30, 1998, an $8
million (18.6%) increase from the comparable period of fiscal 1997 which
includes the impact of higher average debt levels associated with the Eljer
acquisition and other acquisitions. Interest income was $5 million for the nine
months ended June 30, 1998 and 1997.
The provision for income taxes on continuing operations was $58 million for the
nine months ended June 30, 1998, on pre-tax income of $42 million as compared to
a $69 million provision on pre-tax income of $162 million (a 42.6% effective tax
rate) in the comparable period of fiscal 1997. The current period includes the
impact of goodwill impairment charges, and certain merger and change in control
payments which are not tax deductible.
Liquidity and Capital Resources
The Company's primary sources of liquidity and capital resources are cash and
cash equivalents, cash provided from operations and available borrowings under
the Company's revolving credit facility.
Net cash provided by operating activities of continuing operations was $90
million and $82 million for the nine months ended June 30, 1998 and 1997,
respectively. The increase in cash flow from operating activities is primarily
due to the increase in income from continuing operations before noncash merger,
restructuring and other noncash costs.
Cash used in discontinued operations in the first nine months of 1998 is
primarily due to the Company's outdoor furniture operations and tax payments in
connection with the sale of discontinued operations. Cash used in discontinued
operations in the first nine months of 1997 is primarily due to the operations
of SunLite and Zurn's power system segment.
Investing activities used net cash of $231 million and $25 million in the nine
months ended June 30, 1998 and 1997, respectively. The nine months ended March
31, 1998 included net cash used for the acquisitions of SiTeco, Spear & Jackson,
Sundance and the Philips leadframe and metal components operations, funding the
U.S. Brass Trust and capital expenditures, partially offset by the cash proceeds
from the sale of net assets held for disposition and sales of excess real
estate. The prior year included proceeds from the sale of net assets held for
disposition, which resulted in an after tax net gain of $75 million, partially
offset by capital expenditures. The prior year also included net cash used for
the acquisitions of Eljer, SunLite, Woodings-Verona and Britain's Petite.
Financing activities provided net cash of $185 million and $28 million in the
nine months ended June 30, 1998 and 1997, respectively. The current period
included proceeds from long-term debt and notes payable in excess of repayments
of $219 million, primarily used to finance acquisitions and operations, the
purchase of $35 million of the Company's common stock for treasury, dividend
payments of $15 million and $16 million to finance the US Brass settlement. The
prior period included proceeds of long-term debt and notes payable in excess of
repayments of $86 million primarily used to finance acquisitions and the
purchase of $59 million in treasury stock.
21
<PAGE>
At June 30, 1998, the Company had long-term indebtedness of $64 million, $50
million and $31 million denominated in German marks, British pounds and Dutch
guilders, respectively. These borrowings are hedges of the Company's net
investments in SiTeco, Spear & Jackson and certain metal components assets
acquired from Philips (see note 6), respectively.
In accordance with the terms of the Zurn Credit Agreement, the Zurn borrowings
under the Credit Agreement were repaid in June, 1998, with proceeds from a $200
million short-term committed note made available from one of the Company's
lenders, which bears interest at a rate of approximately 6.1% per annum and has
a maturity date of September 11, 1998. The Company expects to refinance this
obligation and a portion of its obligation under its existing Credit Agreement
with a $300 to $500 million debt offering in August. Accordingly, this debt
has been classified as long-term.
Outlook
The Company believes that, although certain of its Diversified businesses are
experiencing near-term weakness, USI Plumbing and Bath Products, USI Hardware
and Tools and Lighting Corporation of America will perform favorably compared
to last year, excluding non-recurring charges. For the full fiscal year, the
Company believes that it will meet current earnings per share estimates of
$1.50 - $1.55 from continuing operations before non-recurring charges.
22
<PAGE>
PART II. OTHER INFORMATION.
Item 4. Submission of Matters to A Vote of Security Holders.
At special meetings held on June 11, 1998, the stockholders of U.S.
Industries, Inc. (now known as USI Atlantic Corp.) and shareholders of
Zurn Industries, Inc. approved the mergers of such corporations
pursuant to the Agreement and Plan of Merger, dated as of February 16,
1998, as amended, among such corporations, USI, Inc. (now known as
U.S. Industries, Inc.), Blue Merger Corp. and Zoro Merger Corp., as
follows:
<TABLE>
<CAPTION>
Name Votes For Votes Against Abstentions
<S> <C> <C> <C>
USI Atlantic Corp. 55,523,350 253,934 282,465
Zurn Industries, Inc. 8,876,894 19,745 7,654
</TABLE>
Also on June 11, 1998, the stockholders of USI Atlantic Corp. approved
an amendment to the U.S. Industries, Inc. 1997 Restricted Stock Plan,
with 59,903,924 votes for 858,169 votes against and 385,111
abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Credit Agreement dated December 12, 1996 as amended through
June 11, 1998 among the Company, USI American Holdings, Inc.,
USI Atlantic Corp., various banks, Bank of America National
Trust and Savings Association, as Agent, and BA Securities,
Inc., as Arranger (incorporated by reference to exhibit 10.2 of
the Company's report on Form 8- K filed on June 12, 1998).
27 Financial Data Schedule
(b) Reports on Form 8-K
USI Atlantic Corp. filed a current report on Form 8-K on May 19, 1998,
responsive to Item 4 of such form, relating to a change in certifying
accountant for the Jacuzzi companies. No financial statements were
filed.
The Company filed a current report on Form 8-K on June 15, 1998,
responsive to Item 5 of such form, relating to the completion of the
merger transaction involving the Company, USI Atlantic Corp. and Zurn
Industries, Inc. No financial statements were filed.
The Company filed a current report on Form 8-K on June 25, 1998,
responsive to Items 2 and 7 of such form, relating to the completion
of the merger transaction involving the Company, USI Atlantic Corp.
and Zurn Industries, Inc. The following financial statements were
filed: Consolidated financial statements of Zurn Industries, Inc. and
subsidiaries as of March 31, 1997 and 1996 and for each of the three
years ended in the period March 31, 1997; Consolidated financial
statements of Zurn Industries, Inc. and subsidiaries as of December
31, 1997 and for the three and nine months ended December 31, 1997 and
1996 and Unaudited Pro Forma Combined Financial Statements.
23
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. INDUSTRIES, INC.
Date: August 10, 1998
/s/ James O'Leary
---------------------------------------
James O'Leary
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE ACCOMAPANYING FORM [10-Q] AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> JUN-30-1998
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 645
<ALLOWANCES> (42)
<INVENTORY> 606
<CURRENT-ASSETS> 1,468
<PP&E> 1,029
<DEPRECIATION> (493)
<TOTAL-ASSETS> 2,801
<CURRENT-LIABILITIES> 603
<BONDS> 1,003
0
0
<COMMON> 1
<OTHER-SE> 945
<TOTAL-LIABILITY-AND-EQUITY> 2,801
<SALES> 2,426
<TOTAL-REVENUES> 2,426
<CGS> 1,688
<TOTAL-COSTS> 1,688
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 51
<INCOME-PRETAX> 42
<INCOME-TAX> 58
<INCOME-CONTINUING> (16)
<DISCONTINUED> (45)
<EXTRAORDINARY> (5)
<CHANGES> 0
<NET-INCOME> (66)
<EPS-PRIMARY> (.70)
<EPS-DILUTED> 0
</TABLE>
