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 3, 1999
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: 1-14557
U.S. INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of 22-3568449
incorporation or organization) (I.R.S.Employer 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, 1999, U.S. Industries, Inc. had one class of common stock, of
which 89,759,076 shares were outstanding.
<PAGE>
U.S. INDUSTRIES, INC.
INDEX
Page
No.
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Condensed Statements of Operations for
the Three and Nine Months Ended June 30, 1999 and 1998.. 1
Consolidated Condensed Balance Sheets, June 30, 1999
and September 30, 1998.................................. 2
Consolidated Condensed Statements Of Cash Flows
for the Nine Months Ended June 30, 1999 and 1998........ 3
Notes to Consolidated Condensed Financial Statements.... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ............................................ 25
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ....................... 26
SIGNATURES ................................................................. 27
<PAGE>
PART 1. FINANCIAL INFORMATION.
Item 1. Financial Statements.
U.S. INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in millions except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 915 $ 825 $ 2,513 $ 2,310
Operating costs and expenses:
Cost of products sold 642 578 1,762 1,617
Selling, general and administrative expenses 191 175 544 483
Goodwill impairment and non-recurring charges 1 128 1 128
------- ------- ------- -------
Operating income (loss) 81 (56) 206 82
Interest expense 20 18 57 51
Interest income (1) (1) (3) (5)
Other income, net (9) (3) (9) (4)
------- ------- ------- -------
Income (loss) before income taxes, discontinued operations and
extraordinary loss 71 (70) 161 40
Provision for income taxes 26 11 62 57
------- ------- ------- -------
Income (loss) from continuing operations 45 (81) 99 (17)
Loss from discontinued operations, net of tax -- (44) (13) (44)
------- ------- ------- -------
Income (loss) before extraordinary loss 45 (125) 86 (61)
Extraordinary loss, net of tax -- (5) -- (5)
------- ------- ------- -------
Net income (loss) $ 45 $ (130) $ 86 $ (66)
======= ======= ======= =======
Earnings (loss) per basic share:
Income (loss) from continuing operations $ 0.50 $ (0.84) $ 1.05 $ (0.18)
Loss from discontinued operations -- (0.46) (0.13) (0.47)
Extraordinary loss -- (0.05) -- (0.05)
------- ------- ------- -------
Net income (loss) $ 0.50 $ (1.35) $ 0.92 $ (0.70)
======= ======= ======= =======
Earnings (loss) per diluted share:
Income (loss) from continuing operations $ 0.49 $ (0.84) $ 1.03 $ (0.18)
Loss from discontinued operations -- (0.46) (0.13) (0.47)
Extraordinary loss -- (0.05) -- (0.05)
------- ------- ------- -------
Net income (loss) $ 0.49 $ (1.35) $ 0.90 $ (0.70)
======= ======= ======= =======
Cash dividend declared per share $ 0.05 $ 0.05 $ 0.15 $ 0.15
======= ======= ======= =======
</TABLE>
See notes to consolidated condensed financial statements.
1
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions)
June 30, September 30,
-------- -------------
1999 1998
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 146 $ 44
Trade receivables, net 663 609
Inventories 613 539
Deferred income taxes 71 75
Net assets held for disposition -- 143
Other current assets 81 73
------ ------
Total current assets 1,574 1,483
Property, plant and equipment, net 545 508
Deferred income taxes 16 16
Other assets 209 220
Goodwill, net 632 549
------ ------
$2,976 $2,776
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 16 $ 15
Current maturities of long-term debt 171 4
Trade accounts payable 246 247
Accrued expenses and other liabilities 265 301
Income taxes payable 47 40
------ ------
Total current liabilities 745 607
Long-term debt 1,070 947
Other liabilities 250 262
------ ------
Total liabilities 2,065 1,816
Commitments and contingencies
Stockholders' equity 911 960
------ ------
$2,976 $2,776
====== ======
See notes to consolidated condensed financial statements.
2
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(in millions-unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 99 $ (17)
Adjustments to reconcile income from continuing operations to net cash provided
by operating activities of continuing operations:
Depreciation and amortization 72 61
Provision for doubtful accounts 3 2
Gain on sale of excess real estate (9) (4)
Goodwill impairment and other non-recurring and unusual charges -- 89
Changes in operating assets and liabilities,
excluding the effects of acquisitions and dispositions (73) (45)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF
CONTINUING OPERATIONS 92 86
------- -------
Loss from discontinued operations (13) (44)
Decrease (increase) in net assets held for disposition 36 (9)
------- -------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 23 (53)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 115 33
------- -------
INVESTING ACTIVITIES:
Proceeds from sale of businesses 118 10
Acquisition of companies, net of cash acquired (212) (171)
Purchases of property, plant and equipment (75) (70)
Proceeds from sale of property, plant and equipment 2 17
Proceeds from sale of excess real estate 16 11
Purchase of investment -- (7)
Collection of notes 1 5
Other investing activities (1) (12)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (151) (217)
------- -------
FINANCING ACTIVITIES:
Proceeds from long-term debt 1,745 1,282
Repayment of long-term debt (1,437) (1,063)
Repayment of notes payable, net (1) (3)
Payment of dividends (14) (15)
Proceeds from exercise of stock options 3 19
Payment of treasury locks (22) --
Purchase of treasury stock (128) (35)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 146 185
------- -------
Effect of exchange rate changes on cash and cash equivalents (8) (9)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 102 (8)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 44 67
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 146 $ 59
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
Note 1-Basis of Presentation
In June of 1998, U.S. Industries, Inc. ("USI") merged with Zurn
Industries, Inc. ("Zurn") (the "Merger"), hereafter collectively referred to as
the Company, in a transaction accounted for as a pooling of interests.
Accordingly, all periods are presented as if USI and Zurn had always been
combined. The Company 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, 1999 and 1998 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 months periods ended June 30, 1999 are not necessarily
indicative of those for the full fiscal year ending October 2, 1999. For further
information, refer to the Consolidated Financial Statements and footnotes
thereto included in the Company's Annual Report on Form 10-K/A for the year
ended September 30, 1998.
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 39 and 40 week periods ended on the Saturday closest to
June 30, 1999 and 1998, respectively, but are presented as of such date for
convenience.
On May 18, 1999, the Company announced that its Board of Directors had
approved a spin-off of its diversified businesses to USI shareholders. It is
anticipated that the Company will receive approximately $570 million of proceeds
from the new Diversified company, principally through the repayment of existing
intercompany debt owed to the Company. In addition, the new Diversified company
will assume or retire approximately $30 million of the Company's third party
debt. The Company will use the proceeds received from the new Diversified
company to reduce its outstanding debt, make acquisitions for its core
businesses and continue its share repurchase program. Completion of the spin-off
is conditioned upon the new Diversified company obtaining approximately $600
million of new third party financing. Completion of the spin-off is also subject
to the receipt of a ruling from the Internal Revenue Service that the
distribution will be tax free to Company shareholders. There is no certainty
that the IRS will rule favorably with respect to the Company's request. If the
IRS does not rule favorably, the Company would reconsider its then available
alternatives. The Company will account for its diversified businesses as
discontinued operations if and when it receives a favorable tax ruling. The new
Diversified company, named Strategic Industries, Inc. has filed a registration
statement on Form 10 with the Commission providing additional details. The Form
10 is subject to completion and amendment, and has not yet become effective.
Note 2-Inventories
Inventories consist of the following:
(in millions)
June 30, September 30,
-------- -------------
1999 1998
---- ----
(unaudited)
Finished products $ 296 $ 250
Work-in process 115 109
Raw materials 202 180
---------- ----------
$ 613 $ 539
========== ==========
4
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 3-Long-Term Debt
Long-term debt consists of the following:
(in millions)
June 30, September 30,
-------- -------------
1999 1998
---- ----
(unaudited)
7.125% Senior Notes, net $ 247 $ --
7.25% Senior Notes, net 123 123
Revolving credit facility, US dollar 300 300
Revolving credit facility, foreign currencies 267 156
Commercial paper 100 --
Other short-term borrowings 151 200
Other long-term debt 53 172
------- -------
1,241 951
Less current maturities (171) (4)
------- -------
Long-term debt $ 1,070 $ 947
======= =======
In October 1998, USI and USI American Holdings, Inc. ("USIAH"), a wholly
owned subsidiary, jointly issued $250 million aggregate principal amount of
Senior Notes due October 15, 2003, which bear interest at 7.125%, payable
semiannually (the "7.125% Notes"). The net cash proceeds of $247 million, after
transaction fees and discounts, were used to repay a $200 million short-term
note and $47 million in borrowings under uncommitted bank credit lines. On June
14, 1999, the Company offered to exchange its 7.125% Notes due 2003 which were
not registered under the Securities Act of 1933, for registered 7.125% Notes
having substantially the same terms. The exchange offer expired on July 9, 1999
with all outstanding unregistered 7.125% Notes being exchanged for registered
7.125% Notes.
The 7.25% Notes and the 7.125% Notes (collectively, the Notes) and
revolving credit facility are unsecured and guaranteed by USI Atlantic (see Note
10). The Notes are redeemable at the option of the Company.
The Company has a five year revolving line of credit providing for
borrowings of up to an aggregate amount of $750 million (the "Credit
Agreement"). The revolving credit commitment will be permanently reduced by $100
million in December 1999. As of June 30, 1999, the Company had $183 million
available under its revolving line of credit.
In April 1999, USIAH transferred substantially all of its assets and
liabilities to a new wholly owned subsidiary of USI named USI Global Corporation
("USI Global"). in exchange for preferred stock in USI Global. In connection
with the asset transfer, USI Global assumed joint and several obligations under
the Notes and the Credit Facility, equally with USI and USIAH. Neither USI,
USIAH, nor USI Atlantic as guarantor, was released from its obligations under
the Notes or the Credit Agreement in connection with the transfer of assets to
USI Global Corp.
During April 1999, the Company commenced a $300 million commercial paper
program, of which $100 million was outstanding at June 30, 1999. The commercial
paper is supported by a $300 million 364 day revolving line of credit that the
Company entered into on October 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
43 sites. In addition, the Company has been named as a Potentially Responsible
Party ("PRP") at 19 "Superfund" sites pursuant to the Comprehensive
Environmental Response Compensation and Liability Act of 1980 or comparable
statutes.
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. Reserves 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 reserves are adjusted as further
information develops or circumstances change. Costs of future expenditures for
environmental remediation obligations
5
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 4-Commitments and Contingencies (Continued)
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.
At June 30, 1999, the Company had accrued $18 million for known
environmental related matters. The Company believes that the range of liability
for such matters is between $9 million and $29 million.
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.
In the normal course of business, financial and performance guarantees are
made in connection with 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 will not
have a material adverse effect on the Company's financial condition, results of
operations or cash flows.
Certain tax liabilities with respect to undistributed earnings of foreign
subsidiaries which arose as a result of the demerger from Hanson PLC (the
"Demerger") in 1995 were resolved. These liabilities were originally recorded as
a direct charge to paid in capital at the time of the Demerger. Accordingly,
approximately $16 million of such tax reserves no longer required have been
credited directly to paid in capital.
Note 5-Comprehensive Income
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in the financial statements. Reclassification of financial statements
for prior periods is required. Comprehensive income is net income and other
items, which may include foreign currency translation adjustments, minimum
pension liability adjustments, and unrealized gains and losses on marketable
securities classified as available-for-sale. The Company's total comprehensive
income was as follows:
<TABLE>
<CAPTION>
(in millions - unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 45 $(130) $ 86 $ (66)
Unrealized gain on marketable securities -- -- -- 1
Foreign currency translation adjustment (2) (4) (18) (11)
----- ----- ----- -----
Total comprehensive income (loss) $ 43 $(134) $ 68 $ (76)
===== ===== ===== =====
</TABLE>
6
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 6-Earnings Per Share
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share calculation:
<TABLE>
<CAPTION>
(in millions except per share data)
(unaudited)
-----------
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, 1999 June 30, 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings per basic share $ 45 90.2 $0.50 $ 99 93.9 $1.05
Effect of dilutive securities
Stock options 0.8 0.7
Nonvested restricted stock 1.1 1.1
----- ----- ----- ----- ----- -----
Earnings per diluted share $ 45 92.1 $0.49 $ 99 95.7 $1.03
===== ===== ===== ===== ===== =====
</TABLE>
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 approximately 1.2 million
and 1.3 million shares in the three and nine months ended June 30, 1999 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 for those
periods.
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 on those
periods. 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.
7
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 7-Merger, Restructuring and Other Related Costs
During fiscal 1998, as a result of reviewing its long-term strategy in
conjunction with the Zurn merger, the Company recorded a restructuring charge in
order to improve efficiency and enhance competitiveness. At June 30, 1999, $13
million of cash related restructuring charges remained in accrued liabilities,
detailed as follows:
(in millions)
Lease and Merger
Contract Severance and Other
Related and Related Related Total
Costs Costs Costs Costs
--------- --------- --------- ---------
1998 activity:
Initial Charges $ 3 $ 22 $ 27 $ 52
Cash payments -- (6) (24) (30)
--------- --------- --------- ---------
Balance at September 30, 1998 3 16 3 22
1999 activity:
Cash payments (1) (8) (1) (10)
Adjustments -- (1) -- (1)
Charges 1 1 2
--------- --------- --------- ---------
Balance at June 30, 1999 $ 3 $ 8 $ 2 $ 13
========= ========= ========= =========
During the third quarter of fiscal 1999, the Company's footwear operations
expanded its 1998 restructuring plan and closed a second domestic manufacturing
facility. The closure of the second facility was completed by June 1999, with
its production being outsourced to offshore vendors. The total charges amounted
to $2 million and were comprised of the costs of terminating of 110 employees
and the write-off of impaired fixed assets.
The restructuring at a number of facilities, which began during the third
quarter of fiscal 1998, was substantially completed during the third quarter of
fiscal 1999. In addition, during the third quarter of fiscal 1999, the Company
adjusted certain severance reserves amounting to $1 million, primarily due to
voluntary departures prior to final termination.
Note 8-Acquisitions
In June 1999, the Company made a tender offer to acquire Spring Ram
Corporation PLC ("Spring Ram") for approximately $131 million in cash, plus the
assumption of $22 million in debt. Spring Ram, located in Leeds, England, is a
manufacturer of bathroom and kitchen products. As of June 30, 1999, the Company
had acquired through open market transactions an approximately 8.5% interest in
Spring Ram amounting to $11 million, which is included in other assets. Included
in cash and cash equivalents as of June 30, 1999 was $120 million of cash
maintained in a U.K. bank account which was used to complete the purchase of
Spring Ram in the fourth quarter of fiscal 1999. On July 19, 1999 the Company's
cash offer to purchase the shares of Spring Ram was declared wholly
unconditional and accordingly, the operating results of Spring Ram from such
date will be included in USI Bath and Plumbing Products.
In June 1999, the Company purchased the assets of Gatsby Spas, Inc.
("Gatsby") for approximately $17 million in cash, resulting in goodwill of $10
million. Gatsby manufactures and distributes spas. The results of Gatsby are
included in USI Bath and Plumbing Products.
8
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 8-Acquisitions (Continued)
In April 1999, the Company purchased the assets of the Factory Built
Chimney Division of GSW Inc., ("Supervent") in Canada and the assets of the DEC
Group ("DEC") in the Netherlands for approximately $16 million in cash,
resulting in goodwill of $11 million. Supervent and DEC manufacture factory
built chimneys, chimney liners and flexible duct and related products. The
results of Supervent and DEC are included in USI Bath and Plumbing Products.
In March 1999, the Company purchased the assets of True Temper Hardware
Company ("True Temper") for approximately $99 million in cash, resulting in
goodwill of $28 million. True Temper manufactures lawn and garden tools and
wheelbarrows. The results of True Temper are included in USI Hardware and Tools.
In March 1999, the Company purchased the assets of the Dual-Lite business
("Dual-Lite") for approximately $46 million in cash, resulting in goodwill of
$36 million. Dual-Lite manufactures emergency lights, and central inverter
systems. The results of Dual-Lite are included in Lighting Corporation of
America.
In January 1999, the Company purchased the Bowers Group PLC ("Bowers") for
approximately $16 million in cash, resulting in goodwill of $10 million. Bowers
manufactures metrology instruments and hardness equipment. The results of Bowers
are included in USI Hardware and Tools.
In January 1999, the Company purchased Atech Turbine Components, Inc.
("Atech") for approximately $7 million in cash, resulting in goodwill of $6
million. Atech repairs and overhauls small aviation engines. The results of
Atech are included in USI Diversified.
The proforma effect of these acquisitions and the aggregate assets
acquired and liabilities assumed are not material. These acquisitions have been
accounted for as purchases, and as such, their results of operations have been
included in the financial statements from the date of acquisition. These
transactions are subject to customary post closing adjustments, and the
allocation of the 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.
Note 9-Discontinued Operations
During April 1999, the Company completed the sale of its investment in
Teardrop Golf. The Company realized a $1 million net of tax gain from the sale.
In January 1999, the Company completed the sale of its remaining interest
in the Power Systems Segment for gross proceeds of approximately $30 million. No
gain or loss was realized upon the transaction.
In the second quarter of fiscal 1999, the Company adopted a formal plan to
dispose of The Ertl Company Inc. ("Ertl"), which was sold in 1999 for gross
proceeds of approximately $105 million subject to a post working capital closing
adjustment. This resulted in a net-of-tax loss of $12 million in March 1999.
During June 1999, the Company paid a post closing adjustment of approximately
$10 million and recorded an additional net-of-tax loss of $1 million.
The following is a summary of the operating results of the businesses
classified as discontinued operations:
(in millions-unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
Net Sales - $ 56 $ 77 $ 169
Pre-tax income (loss) - $ (56) $ (1) $ (49)
9
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 9-Discontinued Operations (Continued)
Amounts classified as net assets held for disposition as of September 30,
1998 relate to the businesses referred to as discontinued operations and
primarily consist of the net assets of Ertl. As of June 30, 1999, all net assets
held for disposition have been disposed.
(in millions)
September 30,
-------------
1998
----
Net current assets $ 68
Property, plant and equipment, net 30
Other non-current assets, net 45
----
Net assets held for disposition $143
====
Note 10-Supplemental Guarantor Financial Information
The following represents the supplemental consolidating condensed
financial statements of USI, USI Global and USIAH which are the jointly
obligated issuers of the Notes, and USI Atlantic, which is the guarantor of the
Notes, and their non-guarantor subsidiaries, as of June 30, 1999 and September
30, 1998 and for the three and nine months ended June 30, 1999 and 1998. USI
Atlantic was the parent company prior to the Merger in 1998 (see Note 1).
Separate consolidated financial statements of USI, USI Global, USI Atlantic and
USIAH are not presented, as management has determined that they would not be
material to investors.
<TABLE>
<CAPTION>
(in millions - unaudited)
For the Three Months Ended June 30, 1999
----------------------------------------------------------------------------------
USI USI Nonguarantor
USI Global Atlantic USIAH Subsidiaries Eliminations Consolidated
---- ------ -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ -- $ -- $ -- $ -- $ 915 $ -- $ 915
Operating costs and expenses:
Cost of products sold -- -- -- -- 642 -- 642
Selling, general and administrative expenses 6 -- -- -- 185 -- 191
Non-recurring charges -- -- -- -- 1 -- 1
----- ----- ----- ----- ----- ----- -----
Operating income (loss) (6) -- -- -- 87 -- 81
Interest expense 9 6 -- 3 2 -- 20
Interest income -- -- -- -- (1) -- (1)
Intercompany interest, net (3) (10) -- (5) 18 -- --
Other income, net -- -- -- -- (9) -- (9)
Equity in earnings of investees, net (53) (22) (8) (7) -- 90 --
----- ----- ----- ----- ----- ----- -----
Income before income taxes and
discontinued operations 41 26 8 9 77 (90) 71
Provision (benefit) for income taxes (4) 2 1 27 -- 26
----- ----- ----- ----- ----- ----- -----
Income from continuing operations 45 24 8 8 50 (90) 45
Discontinued operations, net of tax -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Net income $ 45 $ 24 $ 8 $ 8 $ 50 $ (90) $ 45
===== ===== ===== ===== ===== ===== =====
</TABLE>
10
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 10-Supplemental Guarantor Financial Information (Continued)
<TABLE>
<CAPTION>
(in millions - unaudited)
For the Three Months Ended June 30, 1998
-----------------------------------------------------------------------
USI Nonguarantor
USI Atlantic USIAH Subsidiaries Eliminations Consolidated
---- -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ -- $ -- $ -- $ 825 $ -- $ 825
Operating costs and expenses:
Cost of products sold -- -- -- 578 -- 578
Selling, general and administrative expenses 1 1 2 171 -- 175
Goodwill impairment and non-recurring
charges -- -- 8 120 -- 128
----- ----- ----- ----- ----- -----
Operating loss (1) (1) (10) (44) -- (56)
Interest expense -- -- 13 5 -- 18
Interest income -- -- -- (1) -- (1)
Intercompany interest, net -- -- (18) 18 -- --
Other (income) expense, net -- -- 1 (4) -- (3)
Equity in earnings of investees, net 65 126 113 -- (304) --
----- ----- ----- ----- ----- -----
Income before income taxes,
discontinued operations and extraordinary loss (66) (127) (119) (62) 304 (70)
Provision (benefit) for income taxes -- -- (3) 14 -- 11
----- ----- ----- ----- ----- -----
Income from continuing operations (66) (127) (116) (76) 304 (81)
Discontinued operations, net of tax -- -- -- (44) -- (44)
----- ----- ----- ----- ----- -----
Income before extraordinary loss (66) (127) (116) (120) 304 (125)
Extraordinary loss, net of tax -- -- -- (5) -- (5)
----- ----- ----- ----- ----- -----
Net income (loss) $ (66) $(127) $(116) $(125) $ 304 $(130)
===== ===== ===== ===== ===== =====
</TABLE>
11
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 10-Supplemental Guarantor Financial Information (Continued)
<TABLE>
<CAPTION>
(in millions - unaudited)
For the Nine Months Ended June 30, 1999
-----------------------------------------------------------------------------------
USI USI Nonguarantor
USI Global Atlantic USIAH Subsidiaries Eliminations Consolidated
---- ------ -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ -- $ -- $ -- $ -- $ 2,513 $ -- $ 2,513
Operating costs and expenses:
Cost of products sold -- -- -- -- 1,762 -- 1,762
Selling, general and administrative expenses 18 -- -- -- 526 -- 544
Non-recurring charges -- -- -- -- 1 -- 1
------- ------- ------- ------- ------- ------- -------
Operating income (loss) (18) -- -- -- 224 -- 206
Interest expense 22 6 -- 21 8 -- 57
Interest income -- -- -- -- (3) -- (3)
Intercompany interest, net (9) (10) -- (33) 52 -- --
Other (income) expense, net -- -- -- -- (9) -- (9)
Equity in earnings of investees, net (105) (22) (37) (30) -- 194 --
------- ------- ------- ------- ------- ------- -------
Income before income taxes and
discontinued operations 74 26 37 42 176 (194) 161
Provision for income taxes (12) 2 -- 5 67 -- 62
------- ------- ------- ------- ------- ------- -------
Income from continuing operations 86 24 37 37 109 (194) 99
Discontinued operationss, net of tax -- -- -- -- (13) -- (13)
------- ------- ------- ------- ------- ------- -------
Net income $ 86 $ 24 $ 37 $ 37 $ 96 $ (194) $ 86
======= ======= ======= ======= ======= ======= =======
</TABLE>
12
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 10-Supplemental Guarantor Financial Information (Continued)
<TABLE>
<CAPTION>
(in millions - unaudited)
For the Nine Months Ended June 30, 1998
-----------------------------------------------------------------------
USI Nonguarantor
USI Atlantic USIAH Subsidiaries Eliminations Consolidated
---- -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ -- $ -- $ -- $ 2,310 $ -- $ 2,310
Operating costs and expenses:
Cost of products sold -- -- -- 1,617 1,617
Selling, general and administrative expenses 1 3 14 465 483
Goodwill impairment and non-recurring
charges -- -- 8 120 128
------- ------- ------- ------- ------- -------
Operating income (loss) (1) (3) (22) 108 -- 82
Interest expense -- -- 35 16 51
Interest income -- -- -- (5) (5)
Intercompany interest, net -- -- (49) 49 --
Other (income) expense, net -- -- 1 (5) (4)
Equity in earnings of investees, net 65 61 56 -- (182) --
------- ------- ------- ------- ------- -------
Income before income taxes,
discontinued operations and extraordinary loss (66) (64) (65) 53 182 40
Provision for income taxes (1) (4) 62 57
------- ------- ------- ------- ------- -------
Income from continuing operations (66) (63) (61) (9) 182 (17)
Discontinued operations, net of tax -- -- -- (44) -- (44)
------- ------- ------- ------- ------- -------
Income (loss) before extraordinary loss (66) (63) (61) (53) 182 (61)
Extraordinary loss, net of tax -- -- -- (5) -- (5)
------- ------- ------- ------- ------- -------
Net income (loss) $ (66) $ (63) $ (61) $ (58) $ 182 $ (66)
======= ======= ======= ======= ======= =======
</TABLE>
13
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 10-Supplemental Guarantor Financial Information (Continued)
<TABLE>
<CAPTION>
(In millions - unaudited)
At June 30, 1999
----------------------------------------------------------------------------------
USI USI Nonguarantor
USI Global Atlantic USIAH Subsidiaries Eliminations Consolidated
---- ------ -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ -- $ -- $ -- $ 146 $ -- $ 146
Trade receivables, net -- -- -- -- 663 663
Inventories -- -- -- -- 613 613
Deferred income taxes 35 -- -- -- 36 71
Other current assets 4 9 -- -- 68 81
------- ------- ------- ------- ------- ------- -------
Total current assets 39 9 -- -- 1,526 -- 1,574
Property, plant and equipment, net -- -- -- -- 545 545
Deferred income taxes 10 -- -- -- 6 16
Other assets 9 7 -- 908 193 (908) 209
Goodwill, net -- -- -- -- 632 632
Investments in subsidiaries 1,326 1,241 908 -- -- (3,475) --
Intercompany receivable (payable), net 87 522 32 -- (641) --
------- ------- ------- ------- ------- ------- -------
Total assets $ 1,471 $ 1,779 $ 940 $ 908 $ 2,261 $(4,383) $ 2,976
======= ======= ======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ -- $ -- $ -- $ 16 $ -- $ 16
Current maturities of long-term debt 168 -- -- -- 3 171
Trade accounts payable 6 -- -- -- 240 246
Accrued expenses and other liabilities 10 31 -- 224 265
Income taxes payable 38 -- -- 9 47
------- ------- ------- ------- ------- ------- -------
Total current liabilities 222 31 -- -- 492 -- 745
Long-term debt 337 683 -- -- 50 1,070
Other liabilities 1 74 -- -- 175 250
------- ------- ------- ------- ------- ------- -------
Total liabilities 560 788 -- -- 717 -- 2,065
Commitments and contingencies
Stockholders' equity 911 991 940 908 1,544 (4,383) 911
------- ------- ------- ------- ------- ------- -------
Total liabilities and stockholders' equity $ 1,471 $ 1,779 $ 940 $ 908 $ 2,261 $(4,383) $ 2,976
======= ======= ======= ======= ======= ======= =======
</TABLE>
14
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 10-Supplemental Guarantor Financial Information (Continued)
<TABLE>
<CAPTION>
(in millions)
At September 30, 1998
--------------------------------------------------------------------------------
USI Nonguarantor
USI Atlantic USIAH Subsidiaries Eliminations Consolidated
---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ -- $ -- $ 44 $ -- $ 44
Trade receivables, net -- -- -- 609 609
Inventories -- -- -- 539 539
Deferred income taxes 45 -- -- 30 75
Net assets held for disposition -- -- -- 143 143
Other current assets -- -- 11 62 73
------- ------- ------- ------- ------- -------
Total current assets 45 -- 11 1,427 -- 1,483
Property, plant and equipment, net -- -- -- 508 508
Deferred income taxes 8 -- -- 8 16
Other assets -- -- 7 213 220
Goodwill, net -- -- -- 549 549
Investments in subsidiaries 996 745 1,221 -- (2,962) --
Intercompany receivable (payable), net (51) 277 245 (471) --
------- ------- ------- ------- ------- -------
Total assets $ 998 $ 1,022 $ 1,484 $ 2,234 $(2,962) $ 2,776
======= ======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ -- $ -- $ 15 $ -- $ 15
Current maturities of long-term debt -- -- -- 4 4
Trade accounts payable -- 2 -- 245 247
Accrued expenses and other liabilities 5 6 43 247 301
Income taxes payable 33 -- -- 7 40
------- ------- ------- ------- ------- -------
Total current liabilities 38 8 43 518 -- 607
Long-term debt -- 270 629 48 947
Other liabilities -- -- 67 195 262
------- ------- ------- ------- ------- -------
Total liabilities 38 278 739 761 -- 1,816
Commitments and contingencies
Stockholders' equity 960 744 745 1,473 (2,962) 960
------- ------- ------- ------- ------- -------
Total liabilities and stockholders' equity $ 998 $ 1,022 $ 1,484 $ 2,234 $(2,962) $ 2,776
======= ======= ======= ======= ======= =======
</TABLE>
15
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 10-Supplemental Guarantor Financial Information (Continued)
<TABLE>
<CAPTION>
(in millions - unaudited)
For the Nine Months Ended June 30, 1999
---------------------------------------------------------------------------
USI USI Nonguarantor
USI Global Atlantic USIAH Subsidiaries Eliminations Consolidated
---- ------ -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (3) $ (5) $ (8) $ 37 $ 94 $ -- $ 115
INVESTING ACTIVITIES:
Proceeds from sale of businesses -- -- -- -- 118 118
Acquisition of companies, net of cash acquired (212) -- -- -- -- (212)
Purchases of property, plant and equipment -- -- -- -- (75) (75)
Proceeds from sales of property, plant and equipment -- -- -- -- 2 2
Proceeds from sale of excess real estate -- -- -- -- 16 16
Net transfers with subsidiaries (45) (163) 13 -- -- 195 --
Collection of notes -- -- -- -- 1 1
Other investing activities -- -- -- -- (1) (1)
------- ------- ------- ------ ------- ------- -------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (257) (163) 13 -- 61 195 (151)
FINANCING ACTIVITIES:
Proceeds from long-term debt 1,078 118 -- 264 285 1,745
Repayment of long-term debt (678) -- -- (264) (495) (1,437)
Repayment of notes payable, net -- -- -- -- (1) (1)
Payment of dividends (14) -- -- -- -- (14)
Proceeds from exercise of stock options 3 -- -- -- -- 3
Payment of treasury locks -- -- -- (22) -- -- (22)
Purchase of treasury stock (128) -- -- -- -- (128)
Net transfers with parent -- 50 (5) (13) 163 (195) --
------- ------- ------- ------ ------- ------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 261 168 (5) (35) (48) (195) 146
Effect of exchange rate changes on cash
and cash equivalents (1) -- -- (2) (5) -- (8)
------- ------- ------- ------ ------- ------- -------
INCREASE IN CASH AND CASH EQUIVALENTS -- -- -- -- 102 -- 102
Cash and cash equivalents at beginning of period -- -- -- -- 44 -- 44
------- ------- ------- ------ ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ -- $ -- $ -- $ -- $ 146 $ -- $ 146
======= ======= ======= ====== ======= ======= =======
</TABLE>
16
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
June 30, 1999
Note 10-Supplemental Guarantor Financial Information (Continued)
<TABLE>
<CAPTION>
(in millions - unaudited)
For the Nine Months Ended June 30, 1998
-----------------------------------------------------------------
USI Nonguarantor
USI Atlantic USIAH Subsidiaries Eliminations Consolidated
---- ------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (45) $ 2 $ (2) $ 78 $ -- 33
INVESTING ACTIVITIES:
Proceeds from the sale of businesses -- -- -- 10 10
Acquisition of companies, net of cash acquired -- -- -- (171) (171)
Purchases of property, plant and equipment -- -- -- (70) (70)
Proceeds from sales of property, plant and equipment -- -- -- 17 17
Proceeds from sale of excess real estate -- -- -- 11 11
Purchase of investment -- -- -- (7) (7)
Collection of notes -- -- -- 5 5
Dividends from subsidiaries 2 -- -- -- (2) --
Net transfers with subsidiaries 74 72 (381) -- 235 --
Other investing activities -- -- -- (12) (12)
------- ------- ------- ------- ------- -------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES 76 72 (381) (217) 233 (217)
FINANCING ACTIVITIES:
Proceeds from long-term debt -- -- 1,140 142 1,282
Repayment of long-term debt -- -- (718) (345) (1,063)
Repayment of notes payable, net -- -- -- (3) (3)
Payment of dividends (15) -- -- (2) 2 (15)
Proceeds from exercise of stock options 19 -- -- -- 19
Purchase of treasury stock (35) -- -- -- (35)
Net transfers with parent -- (74) (72) 381 (235) --
------- ------- ------- ------- ------- -------
NET CASH (USED IN) PROVIDED BY (31) (74) 350 173 (233) 185
FINANCING ACTIVITIES
Effect of exchange rate changes on cash
and cash equivalents -- -- (2) (7) -- (9)
------- ------- ------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -- -- (35) 27 -- (8)
Cash and cash equivalents at beginning of period -- -- 35 32 -- 67
------- ------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ -- $ -- $ -- $ 59 $ -- $ 59
======= ======= ======= ======= ======= =======
</TABLE>
17
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In June 1998, U.S. Industries, Inc. ("USI") merged with Zurn Industries,
Inc. ("Zurn") (the "Merger"), hereafter collectively referred to as the Company,
in a transaction accounted for as a pooling of interests. Accordingly, all
periods are presented as if USI and Zurn had always been combined. The Company's
operations are grouped into four segments: USI Bath and Plumbing Products,
Lighting Corporation of America, USI Hardware and Tools and USI Diversified.
During the nine months ended June 30, 1999, the window manufacturing operations
and the metal components businesses were reclassified from USI Hardware and
Tools to USI Diversified. This change reflects the Company's internal management
reporting structure. Accordingly, all prior periods presented have been restated
to conform to this presentation. The results of all operations sold or
classified as discontinued, are excluded from the table below for all periods
presented and are discussed separately under Discontinued Operations.
Results of Operations
<TABLE>
<CAPTION>
(in millions) (in millions)
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales
Bath and Plumbing Products ........................ $ 353 $ 309 $ 911 $ 788
Lighting Corporation of America ................... 204 184 591 563
Hardware and Tools ................................ 155 118 360 295
Diversified ....................................... 203 214 651 664
------- ------- ------- -------
Total Net Sales .................................. $ 915 $ 825 $ 2,513 $ 2,310
======= ======= ======= =======
Operating Income (loss)
Bath and Plumbing Products ........................ $ 47 $ 11 $ 104 $ 62
Lighting Corporation of America ................... 12 10 32 34
Hardware and Tools ................................ 15 (21) 28 (7)
Diversified ....................................... 13 (41) 59 21
------- ------- ------- -------
87 (41) 223 110
Corporate expenses ................................. (6) (15) (17) (28)
------- ------- ------- -------
Total Operating Income (loss) .................... $ 81 $ (56) $ 206 $ 82
======= ======= ======= =======
</TABLE>
Operating income for the three months ended June 30, 1999 includes,
restructuring costs of $1 million and unusual charges of approximately $12
million. Operating income for Lighting Corporation of America and Diversified
Operations includes charges of $1 and $12 million, respectively.
Operating income for the nine months ended June 30, 1999 includes, restructuring
costs of $1 million and unusual charges of approximately $14 million. Operating
income for Lighting Corporation of America and Diversified Operations includes
charges of $1 and $14 million, respectively.
Operating income (loss) for the three and nine months ended June 30, 1998
includes merger, restructuring and other related costs of $128 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 includes charges of $25, $3, $33, $61 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 be 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. Various economic and
18
<PAGE>
competitive factors could cause actual results to differ materially from the
expectations reflected in such forward-looking statements, including factors
which are outside the control of the Company, such as interest rates, foreign
currency exchange rates, instability in domestic and foreign financial markets,
consumer spending patterns, availability of consumer and commercial credit,
levels of residential and commercial construction, levels of automotive
production, changes in raw material costs and Year 2000 issues, along with the
other factors noted in this Report and in other documents filed by the Company
with the Securities and Exchange Commission. In addition, the Company's future
results are subject to uncertainties relating to the Company's ability to
consummate its business strategy, including realizing market synergies and cost
savings from the integration of its acquired businesses. All subsequent written
and oral forward-looking statements attributable to the Company are expressly
qualified in their entirety by the foregoing factors.
Three Months Ended June 30, 1999
Compared to Three Months Ended June 30, 1998
Introduction
The Company had sales of $915 and operating income of $81 million for the
quarter ended June 30, 1999, compared to sales of $825 million and an operating
loss of $56 million for the same period in the prior year. Sales increased $90
million (11%) while operating income increased $137 million compared to the
third quarter of fiscal 1998. Included in the fiscal 1999 results are
restructuring and unusual charges amounting to $13 million, while the fiscal
1998 results included merger, impairment, restructuring and other related
charges amounting to $130 million. Excluding such costs in both years operating
income increased $20 million (27%) to $94 million in the fiscal 1999 third
quarter.
The Bath and Plumbing Products Operations had sales of $353 million and
operating income of $47 million for the third quarter June 30, 1999, increases
of $44 million (14%) and $36 million (327%), respectively, from the third
quarter of fiscal 1998. Included in the fiscal 1998 operating income were merger
related charges amounting to $25 million. Excluding the charge in fiscal 1998,
operating income increased $11 million (31%) from the prior year period. The
increase in sales and operating income, excluding the merger related costs in
fiscal 1998, resulted from improved volume in the U.S. bath operations, cost
reductions and improved manufacturing in the Chinaware business and the
inclusion of sales and operating profits of Gatsby Spas acquired in June 1999.
In addition, sales and operating income increased due to the cost reductions and
synergies resulting from the Zurn merger.
The Lighting Products Operations had sales of $204 million and operating
income of $12 million for the third quarter June 30, 1999, increases of $20
million (11%) and $2 million (20%), respectively, from the third quarter of
fiscal 1998. Included in the fiscal 1999 operating income were severance related
charges amounting $1 million while the fiscal 1998 results included $3 million
of restructuring related charges. Excluding the unusual charges in both years,
operating income was $13 million in both years. The increase in sales is
primarily due to the inclusion of the Dual-Lite business, which was acquired in
March 1999 coupled with increases in the residential and architectural outdoor
lighting businesses. These sales increases were partially offset by sales
decreases in the commercial indoor lighting business. The increase in operating
income at the residential, commercial indoor lighting and architectural outdoor
lighting businesses coupled with the inclusion of the Dual-Lite operating income
were fully offset by a decline in the European lighting business.
The Hardware and Tools Operations had sales of $155 million and operating
income of $15 million for the third quarter June 30, 1999, compared to sales of
$118 million and an operating loss of $21 million for the same period in the
prior year. Sales increased $37 million (31%) while operating income increased
$36 million compared to the third quarter of fiscal 1998. Included in the prior
year operating loss were charges of $33 million relating to goodwill and
property, plant and equipment impairment charges of the ladder operations.
Excluding the prior year charges operating income increased $3 million (25%)
from the same period in the prior year. The increases in both sales and
operating income is due to the inclusion and integration of the True Temper
business acquired in March 1999 and the elimination of losses in the ladder
business. These increases were partially offset by sales and operating income
decreases at the Ames business as a result of lower reorders of gardening
products which were adversely impacted by severe drought conditions and
inventory reduction programs at certain accounts.
The Diversified Operations has sales of $203 million and operating income
of $13 million for the third quarter June 30, 1999, compared to sales of $214
million and an operating loss of $41 million for the same period in the prior
year. Sales decreased $11 million (5%) while operating income increased $54
million compared to the third quarter of fiscal 1998. Included in the fiscal
1999 operating income were restructuring and other related charges of $2 million
which was comprised of a $2 million severance and impairment charge to close a
manufacturing facility, $1 million of obsolescence costs, partially offset by a
$1 million reduction to the 1998 restructuring reserves. In addition, the fiscal
1999 operating income includes unusual costs of $10 million relating to the
closure of an unprofitable window
19
<PAGE>
operation which amounted to $4 million and a $6 million write-down of a Hong
Kong-based equity investment. The fiscal 1998 operating loss included $61
million of impairment restructuring and related charges which was comprised of a
write-off of impaired goodwill at the leather tanning operations, severance,
obsolescence, and impairment charges at the vacuum cleaner operations, and
severance and impairment charges at the footwear operations. Excluding these
charges in both years operating income for the fiscal 1999 third quarter
increased $5 million (25%) from the same period in the prior year. The decrease
in sales is due to the elimination of the unprofitable lace business in the
fourth quarter of fiscal 1998 and lower sales at the tanning operation due to a
decision to forego some low margin business. These decreases were partially
offset by higher sales of plastic and fabricated metal automotive parts and the
full quarter inclusion of the shadow mask operation, which was acquired in May
1998. The increase in operating income, excluding the restructuring and related
charges and unusual charges, resulted from the increased sales of plastic and
fabricated metal automotive parts, the favorable resolution of an automotive
warranty claim, the elimination of low margin automotive leather sales, the full
quarter inclusion of the shadow mask operations and increased profits on flat
sales at the vacuum cleaner operations. These increases were partially offset by
reduced profits in the footwear and textile business due to severe competitive
pressures.
Discontinued Operations
During April 1999, the Company completed the sale of its investment in
Teardrop Golf. The Company realized a $1 million net of tax gain from the sale.
During June 1999 the Company recorded an additional net-of-tax loss of $1
million with respect to the April 1999 sale of The Ertl Company Inc ("Ertl").
For the quarter ended June 30, 1998, the Company had a net loss on
disposal of discontinued operations of $6 million and loss from operations of
discontinued operations of $38 million. Discontinued operations as of June 30,
1998 consisted of Ertl and the Company's outdoor furniture operations.
Other, net
Other, net was $9 million for the quarter ended June 30, 1999, a $6
million increase from the comparable period of fiscal 1998. The increase was due
to higher gains on the sale of excess real estate.
Interest and Taxes
Interest expense was $20 million for the quarter ended June 30, 1999, a $2
million (11%) increase from the comparable period of fiscal 1998. The increase
was due to higher borrowing as a result of funding acquisitions and the
Company's share repurchase program. Interest income was $1 million for both
years.
The provision for income taxes on continuing operations was $26 million
for the quarter ended June 30, 1999, on pre-tax income of $71 million (an
effective tax rate of approximately 37%) compared to a $11 million provision on
pre-tax loss of $70 million in the comparable period of fiscal 1998. The fiscal
1998 provision includes the impact of goodwill impairment charges and certain
merger and change in control payments, which are not tax deductible. Excluding
such items, the effective tax rate would have been approximately 41%. The
decrease in the effective tax rate, as adjusted, is attributable to continued
international tax planning.
Nine Months Ended June 30, 1999
Compared to Nine Months Ended June 30, 1998
The Company had sales of $2,513 and operating income of 206 million for
the nine months period ended June 30, 1999, increases of $203 million (9%) and
$124 million (151%), respectively, from the same period of fiscal 1998. Included
in the fiscal 1999 results are restructuring and unusual charges amounting to
$15 million, while the fiscal 1998 results included merger, impairment,
restructuring and other related charges amounting to $130 million. Excluding
such costs in both years operating income increased $9 million (4%) to $221
million for the nine months ended June 30, 1999.
The Bath and Plumbing Products Operations had sales of $911 million and
operating income of $104 million for the nine months ended June 30, 1999,
increases of $123 million (16%) and $42 million (68%), respectively, from the
same period of fiscal 1998. Included in the fiscal 1998 operating income were
merger related charges amounting to $25 million. Excluding the charges in fiscal
1998, operating income increased $17 million (20%) from the prior year period.
The increase in sales and operating profit, excluding the merger related costs
in fiscal 1998, resulted from improved volume in the U.S. and European bath
operations and Zurn plumbing products and cost reductions and synergies
resulting from the Zurn merger. In addition, sales and operating income
increased due to the full year inclusion of
20
<PAGE>
sales and operating profits of Sundance Spas acquired in June 1998, and the June
1999 acquisition of Gatsby Spas.
The Lighting Products Operations had sales of $591 million and operating
income of $32 million for the nine months ended June 30, 1999, a sales increase
of $28 million (5%) and an operating income decrease of $2 million (6%) from the
same period of fiscal 1998. Included in the fiscal 1999 operating income were
severance related charges amounting to $1 million, while the fiscal 1998 results
included $3 million of restructuring related charges. Excluding the
restructuring charges in both years, operating income decreased $4 million (11%)
from the same period in the prior year. The increase in sales is primarily due
to the first time inclusion of the Dual-Lite business which was acquired in
March 1999, coupled with an increase in the residential, architectural outdoor
lighting business and the European lighting business. These sales increases were
partially offset, by sales decreases in the commercial indoor lighting business.
The decrease in operating income was mainly the result of decreases in the
commercial indoor lighting business and the European lighting business,
partially offset by increases in the residential lighting business and the
Dual-Lite acquisition.
The Hardware and Tools Operations had sales of $360 million and operating
income of $28 million for the nine months ended June 30, 1999, as compared to
sales of $295 million and an operating loss of $7 million for the same period in
fiscal 1998. Sales increased $65 million (22%) while operating income increased
$35 million compared to the same period in the prior year. Included in the prior
year operating loss were charges of $33 million relating to goodwill and
property, plant and equipment impairment charges of the ladder operations.
Excluding the prior year charges operating income increased $2 million (8%) from
the same period in the prior year. The increases in both sales and operating
income is due to the inclusion and integration of the True Temper business
acquired in March 1999, Bowers PLC acquired in January 1999 and the full year
inclusion of the Spear & Jackson business acquired in December 1997. These sales
and operating income increases were partially offset by decreases in the Ames
business as a result of lower reorders of gardening products which were
adversely impacted by severe drought conditions and inventory reduction programs
at certain accounts.
The Diversified Operations had sales of $651 million and operating income
of $59 million for the nine month period ended June 30, 1999, compared to sales
of $664 million and operating income of $21 million for the same period in the
prior year. Sales decreased $13 million (2%) while operating income increased
$38 million (181%) compared to the same period of the prior year. Included in
the fiscal 1999 operating income were restructuring and other related charges of
$2 million which was comprised of a $2 million severance and impairment charge
to close a manufacturing facility, $1 of obsolescence, partially offset by a $1
million adjustment of the 1998 restructuring reserves. In addition, the fiscal
1999 operating income includes unusual costs of $12 million relating to the
closure of an unprofitable window operation and a $6 million write-down of a
Hong Kong-based equity investment. The fiscal 1998 operating income included $61
million of impairment, restructuring and related charges which was comprised of
a write-off of impaired goodwill at the leather tanning operations, severance,
obsolesce, and impairment charges at the vacuum cleaner operations, and
severance and impairment charges at the footwear operations. Excluding these
charges in both years, operating income for the nine months ended June 30, 1999
decreased $9 million (11%) from the same period in the prior year. The decrease
in sales is due to the elimination of the unprofitable lace business in the
fourth quarter of fiscal 1998, lower sales at the tanning operation due to a
decision to forego some low margin business and lower domestic and international
sales at the vacuum cleaner operations. These decreases were partially offset by
higher sales of plastic and fabricated metal automotive parts and the full year
inclusion of the shadow mask operation, which was acquired in May 1998. The
decrease in operating income is due to lower profits at the vacuum cleaner
operation due to lower sales, and lower operating income at the footwear
operation due to severe competitive pressures. These decreases were partially
offset by increases at the leather tanning operation due to elimination of low
margin business, increases at the plastic and fabricated metal automotive
operations due to higher sales and the full year inclusion of the shadow mask
operation acquired in May 1998.
Discontinued Operations
During the nine months ended June 30, 1999, the Company had a loss from
discontinued operations of $13 million, net of tax, consisting of the loss on
disposal of Ertl of $13 million, a loss from the operations of Ertl of $1
million and a $1 million gain on the sale of the investment in Teardrop Golf.
For the nine months ended June 30, 1998, the Company had a net loss on
disposal of discontinued operations of $6 million and loss from operations of
discontinued operations of $38 million. Discontinued operations as of June 30,
1998 consisted of Ertl and the Company's outdoor furniture operations.
21
<PAGE>
Other, net
Other, net was $9 million for the nine months ended June 30, 1999, a $5
million increase from the comparable period of fiscal 1998. The increase is due
to higher gains on the sale of excess real estate.
Interest and Taxes
Interest expense was $57 million for the nine months ended June 30, 1999,
a $6 million (12%) increase from the comparable period of fiscal 1998. The
increase is primarily due to higher borrowings to fund acquisition and the share
repurchase program. Interest income was $3 million for the nine months ended
June 30, 1999, a $2 million decrease from the comparable period of fiscal 1998.
The provision for income taxes on continuing operations was $62 million
for the nine months ended June 30, 1999, on pre-tax income of $161 million (an
effective tax rate of approximately 39%) as compared to a $57 million provision
on pre-tax income of $40 million in the comparable period of fiscal 1998. The
fiscal 1998 provision includes the impact of goodwill impairment charges and
certain merger and change in control payments, which are not tax deductible.
Excluding such items, the effective tax rate would have been approximately 41%.
The decrease in the effective tax rate, as adjusted, is attributable to
continued international tax planning.
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.
Cash provided by operating activities of continuing operations was $92
million and $86 million for the nine months ended June 30, 1999 and 1998,
respectively. The increase in cash provided by operating activities was due to
higher net income and depreciation and amortization expense, partially offset by
higher working capital requirements.
Cash provided by discontinued operations of $23 million for the nine
months ended June 30, 1999 was a result of reduced working capital requirements
at Ertl. Cash used by discontinued operations of $53 million for nine months
ended June 30, 1998 consisted of tax payments related to the sale of certain
discontinued operations and seasonal working capital requirements of the outdoor
furniture operations.
Investing activities used net cash of $151 million for the nine months
ended June 30, 1999, which primarily consisted of net cash of $212 million used
for acquisitions and $75 million for capital expenditures, offset by the net
proceeds of $118 million from the sales of the remaining interest in the Power
System Segment and Ertl and $16 million from the sale of excess real estate. In
the nine months ended June 30, 1998, the Company used net cash of $217 million,
which primarily consisted of net cash of $171 million used for acquisitions, $70
million for capital expenditures, offset by $10 million in proceeds from the
sale of the remaining assets of Tommy Armour Golf, $17 million from the sale of
property, plant and equipment, and $11 million from the sale of excess real
estate.
Financing activities provided net cash of $146 million for the nine months
ended June 30, 1999. This included proceeds from long-term debt in excess of
repayments of $308 million, dividend payments of $14 million, treasury locks
payment of $22 million and the purchase of $128 million of the Company's common
stock for treasury. In the corresponding period of the prior year financing
activities provided net cash of $185 million, which included proceeds from
long-term debt in excess of repayments of $219 million, the purchase of $35
million of the Company's common stock for treasury and dividend payments of $15
million, partially offset by $19 million in proceeds from the exercise of
options.
The Company has a five year revolving line of credit providing for
borrowings of up to an aggregate amount of $750 million (the "Credit
Agreement"). The revolving credit commitment will be permanently reduced by $100
million in December 1999. As of June 30, 1999, the Company had $183 million
available under its revolving line of credit.
In October 1998, USI and USI American Holdings, Inc. jointly issued $250
million aggregate principal amount of Senior Notes due October 15, 2003, which
bear interest at 7.125%, payable semiannually (the "7.125% Notes"). The net cash
proceeds of $247 million, after transaction fees and discounts, were used to
repay a $200 million short-term note and $47 million in borrowings under
uncommitted bank credit lines. On June 14, 1999, the Company offered to exchange
its 7.125% Notes due 2003 which were not registered under the Securities Act of
1933, for registered 7.125% Notes having substantially the same terms. The
exchange offer expired on July 9, 1999 with all outstanding unregistered 7.125%
Notes being exchanged for registered 7.125% Notes.
During the nine months ended June 30, 1999, the Company paid approximately
$10 million, principally severance, related to its restructuring plan announced
in fiscal 1998. There have been no material changes in the nature or costs of
the restructuring.
22
<PAGE>
In February 1999, the Board of Directors authorized a share repurchase
program to permit the purchase of up to $100 million of the outstanding stock of
the Company, which was completed by April 1999. In April 1999, the Board of
Directors authorized a second share repurchase program to permit the purchase of
up to an additional $100 million of the outstanding stock of the Company. As of
June 30, 1999, the Company has purchased $27 million of its common stock in
accordance with the second share repurchase program. Additional purchases of up
to $72 million may be made at prices deemed acceptable to management. The
funding for the repurchase program will be from cash provided from operations
and available borrowings under the Company's existing credit facilities.
In July 1999, the Company filed a shelf registration statement on Form S-3
with the Commission in order to register $600 million in debt securities. The
Company expects the shelf registration statement to become effective shortly
after this report is filed with the Commission. The Company expects to issue
debt securities covered by this regestration statement in future periods
depending on market conditions
Year 2000 Readiness Disclosure
Many computer systems and other equipment with embedded technology use
only two digits to define the applicable year and may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in failures
or miscalculations causing disruptions of normal business activities and
operations (the "Year 2000 issue").
The Company is actively addressing the Year 2000 issue. The compliance
program is led by information technology staff at each operating company, with
assistance from the finance and manufacturing staffs and outside technology
consultants where necessary. Progress is being monitored by each operating
company president and reported to USI management. The Company engaged outside
technology consultants at various operating locations to provide independent
reviews of Year 2000 readiness and to augment the efforts of the local Year 2000
teams or provide expertise in certain areas.
The Company's Year 2000 efforts focus on three areas: information
technology ("IT") related systems and processes, such as operating systems,
applications and programs; embedded logic ("non-IT") systems and processes, such
as manufacturing machinery, telecommunications equipment and security devices;
and compliance efforts of third parties (such as customers, suppliers and
service providers). Within each of the IT and non-IT areas, the project spans
four phases: assessment of programs and devices to identify those that are
affected by the Year 2000 issue; development of remediation strategies; testing
such strategies; and implementing the solutions.
The Company is presently evaluating each of its critical and principal
customers, supplier, service providers and other business associates to
determine each of such party's Year 2000 readiness status. The evaluation of
each third party includes a request for a Year 2000 readiness certification.
Then, depending upon each party's response, evaluation procedures may be
expanded to include obtaining Year 2000 disclosures contained in SEC filings of
those third parties, where available; testing interfaced systems; holding
face-to-face discussions with third parties; and developing and refining
contingency plans to address the possibility of a third party failure to
complete their year 2000 initiatives on a timely basis. The Company anticipates
that this evaluation will be ongoing through the remainder of 1999.
The Company has completed an assessment of its critical IT systems and, as
a result, the operating companies have decided to modify, upgrade or replace
portions of their systems. The remediation efforts achieved significant progress
to date, and remain underway. The Company expects that the remediation, testing
and implementation of all critical IT systems will be completed by December
1999. The Company is continuing the process of assessing and remediating
critical non-IT systems, as well, and expects that the assessment, remediation,
testing and implementation phases with respect to such systems will be completed
by the fourth quarter of calendar year 1999.
Year 2000 costs for computer equipment, software and outside consultants
incurred through June 30, 1999 were approximately $35 million, of which $6
million was expensed and $29 million was capitalized. Estimated future costs to
complete the Year 2000 program are $9 million, of which $5 million are expected
to be expensed as incurred and the remaining $4 million are expected to be
capitalized. These costs have been, and will continue to be, funded from
operating cash flow and available credit facilities. Most of the costs are for
new systems and improved functionality. These costs include approximately $6
million of internal payroll costs for employees who are involved in the Year
2000 program.
The Company has developed contingency plans to address the possibility of
failure by the Company or third parties to complete their Year 2000 initiatives
on a timely basis. The Company will continue to make further refinements to the
contingency plans based on the Company's ongoing evaluation of its readiness as
well as the status of compliance by third
23
<PAGE>
parties. Such contingency plans include, among other procedures, using
alternative processes, such as manual procedures to substitute for non-compliant
systems; arranging for alternate suppliers and service providers; increasing
inventory levels; and developing procedures internally and in conjunction with
significant third parties to address compliance issues as they arise.
No amount of preparation and testing can guarantee Year 2000 compliance.
However, the Company believes it is taking appropriate preventive measures and
will be successful in avoiding any material adverse effect on the Company's
operations or financial condition. Nevertheless, the Company recognizes that
failing to resolve its Year 2000 issues on a timely basis would, in a worst case
scenario, significantly limit its ability to manufacture and distribute its
products and process its daily business transactions for a period of time,
especially if such failure is coupled with third party or infrastructure
failures. Similarly, the ability to conduct operations without interruption
after calendar 1999 may be significantly affected by the failure of one or more
significant suppliers, customers or components of the infrastructure to conduct
their respective operations without interruption after 1999. Because of the
difficulty of assessing the Year 2000 compliance of such third parties, the
Company considers the potential disruptions caused by such parties to present
the most reasonably likely worst-case scenarios. Adverse effects on the Company
could include business disruption, increased costs, loss of sales and other
similar ramifications.
The costs of the Company's Year 2000 initiatives, the dates on which the
Company believes that it will complete such activities and the Company's
evaluation of third-party effects are estimates and subject to change. Actual
results could differ from those currently anticipated. Factors that could cause
such differences include, but are not limited to, the availability of key Year
2000 personnel, the Company's ability to respond to unforeseen Year 2000
complications, the readiness of third parties, the accuracy of third party
assurances regarding Year 2000 compliance and similar uncertainties.
Spin-off of Diversified Business
On May 18, 1999 the Board of Directors of the Company announced that it
had approved a spinoff of its diversified businesses to the Company's
shareholders. These businesses include Rexair, Inc. ("Rainbow" brand vacuum
cleaners); Garden State Tanning, Inc. and Leon Plastics, Inc. (automotive
interiors); EJ Footwear Corp. (including Georgia Boot Inc., Trimfoot Co. (infant
footwear) and Lehigh Safety Shoe Company (industrial protective footwear));
Huron Inc. and Bearing Inspection, Inc. (precision engineering products); Bilt
Best Products, Inc.; Native Textiles Inc. and Jade Technologies Singapore Ltd.
These entities had combined nine month June 30, 1999 and fiscal year 1998
revenues of $651 million and $888 million, respectively, and operating income
for those periods of $59 million and $32 million, respectively, (including
goodwill impairment, unusual and other related charges of $14 million and $71
million, respectively, for those periods). Excluding USI Diversified and
corporate expenses of $17 million, the Company had revenues of $1.9 billion and
operating income of $164 million (including nonrecurring and unusual charges of
$1 million) for the nine months ended June 30, 1999. Excluding USI Diversified
and corporate expenses of $32 million, the Company had revenues of $2.2 billion
and operating income of $142 million (including nonrecurring and unusual charges
of $75 million) for fiscal year 1998.
It is anticipated that the Company will receive approximately $570 million
of proceeds from the new Diversified company, principally through the repayment
of existing intercompany debt owed to the Company. In addition, the new
Diversified company will assume or retire approximately $30 million of the
Company's third party debt. The Company will use the proceeds received from the
new Diversified company to reduce its outstanding debt, make acquisitions for
its core businesses and continue its share repurchase program. Completion of the
spin-off is conditioned upon the new Diversified company obtaining approximately
$600 million of new third party financing. Completion of the spinoff is also
subject to the receipt of a ruling from the Internal Revenue Service that the
distribution will be tax free to Company shareholders. There is no certainty
that the IRS will rule favorably with respect to the Company's request. If the
IRS does not rule favorably, the Company would reconsider its then available
alternatives. The Company will account for its diversified businesses as
discontinued operations if and when it receives a favorable tax ruling. Mr. John
Raos, President and Chief Operating Officer of the Company will resign his
position to become Chairman and Chief Executive Officer of Strategic Industries,
Inc. the new Diversified company. A registration statement on Form 10 about
Strategic Industries, Inc. has been filed with the Commission, providing
additional details. The Form 10 is subject to completion and amendment, and has
not yet become effective.
Outlook
Management is presently comfortable that earnings per diluted share from
continuing operations for the full year will be approximately $1.55 prior to
unusual charges.
24
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company, in the normal course of doing business, is exposed to the
risks associated with changes in interest rates and currency exchange rates. To
limit the risks from such fluctuations, the Company enters into various hedging
transactions that have been authorized pursuant to the Company's policies and
procedures and does not engage in such transactions for trading purposes.
To manage exposure to interest rate movements the Company uses interest
rate protection agreements. Based on the Company's overall exposure to interest
rate changes, a hypothetical change of 100 basis points across all maturities of
the Company's floating rate debt obligations, after considering interest rate
protection agreements, would be immaterial to the Company's pre-tax earnings in
fiscal 1999.
The Company utilized foreign currency-denominated borrowings to
selectively hedge its net investments in subsidiaries in foreign countries. Such
borrowings at June 30, 1999 are denominated in German marks, British pounds,
Dutch guilders and Hong Kong dollars. A 10% change in the relevant currency
exchange rates is estimated to have an impact of $27 million on the fair value
of such borrowings. This quantification of the Company's exposure to the market
risk of foreign exchange sensitive financial instruments is necessarily limited,
as it does not take into account the offsetting impact of the company's
underlying investment exposures.
The Company is also exposed to foreign currency exchange risk related to
its international operations as well as its U.S. businesses, which import or
export goods. The Company has made limited use of financial instruments to
manage this risk.
25
<PAGE>
PART II. OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Interim Employment Agreement dated as of May 18, 1999 by and
between John G. Raos and the Company.*
27 Financial Data Schedule*
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on May 13, 1999, responsive
to Item 5 of such Form, relating to second quarter earnings, share
repurchase programs, the sale of the Ertl Company and the acquisitions of
Dual-Lite and True Temper. No financial statements were filed.
* Filed herewith
- --------------------
26
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SIGNATURES
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 17, 1999
/s/ James O'Leary
------------------------------
James O'Leary
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Robert P. Noonan
------------------------------
Robert P. Noonan
Corporate Controller
(Principal Accounting Officer)
27
INTERIM EMPLOYMENT AGREEMENT
INTERIM EMPLOYMENT AGREEMENT, dated as of May 18, 1999 (the
"Commencement Date") by and between U.S. Industries, Inc., a Delaware
corporation, with its principal United States office at 101 Wood Avenue South,
Iselin, New Jersey 08830, (the "Company") and John G. Raos, residing at 16
Castle Hill Way, Stuart, Florida 34966 ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed as the President and Chief
Operating Officer of the Company pursuant to an employment agreement dated
February 22, 1995 (the "Old Employment Agreement");
WHEREAS, the Company intends to transfer all or a part of the assets
constituting USI's diversified segment (the "Diversified Segment"), and other
assets of the Company (such assets collectively "USI Diversified") to a newly
constituted wholly owned subsidiary of the Company ("Newco") and to spinoff
Newco to the shareholders of the Company (a spinoff of Newco including at a
minimum Bearing Inspection, Inc., Atech Turbine Components, Inc., Huron Inc. and
Rexair Inc. with Executive as Chairman and Chief Executive Officer of Newco is
referred to herein as the "Spinoff");
WHEREAS, the Company and Executive desire to enter into this
agreement (this "Agreement") as to the terms of his employment by the Company,
between the dates hereof and the Spinoff or the earlier termination of
Executive's employment as provided herein and to hereby supersede and replace
the Old Employment Agreement.
NOW, THEREFORE, in consideration of the premises and mutual
<PAGE>
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
1. Term of Employment. Except for earlier termination as provided in
Section 7 hereof, Executive's employment under this Agreement shall be for a
term (the "Employment Term") commencing on the Commencement Date and terminating
on the earliest to occur of the events specified in Section 7(a) hereof.
2. Positions. (a) As of the Commencement Date, Executive shall serve
as President and Chief Operating Officer of the Company. It is the intention of
the parties that during the Employment Term, Executive shall also serve on the
Board of Directors of the Company (the "Board") without additional compensation.
Executive shall also serve, if requested by the Board, as an executive officer
and director of subsidiaries and a director of associated companies of the
Company and shall comply with the policy of the Compensation Committee of the
Company's Board (the "Compensation Committee") with regard to retention or
forfeiture of the director's fees. Effective September 15, 1999, the Executive
shall cease to be, and hereby resigns as, President and Chief Operating Officer
of the Company, but shall continue as a director and employee of the Company for
the remainder of the Employment Term. Executive shall be elected Chairman and
Chief Executive Officer of Newco on or before the Spinoff.
(b) Executive shall report directly to the Board or the Chief
Executive Officer of the Company and shall have such duties and authority,
consistent with his then position, as shall be determined from time to time by
the Board or the Chief Executive Officer of the Company provided that it is
recognized that Executive's primary responsibilities during the Employment Term
shall be with regard to the Spinoff.
(c) During the Employment Term, Executive shall devote substantially
<PAGE>
all of his business time and efforts to the performance of his duties hereunder;
provided, however, that Executive shall be allowed, to the extent that such
activities do not materially interfere with the performance of his duties and
responsibilities hereunder, to manage his personal financial and legal affairs
and to serve on corporate, civic, or charitable boards or committees.
Notwithstanding the foregoing, the Executive shall not serve on any corporate
board of directors if such service would be inconsistent with his fiduciary
responsibilities to the Company.
3. Base Salary. During the Employment Term, the Company shall pay
Executive a base salary at the annual rate of not less than $500,000. Base
salary shall be payable in accordance with the usual payroll practices of the
Company. Executive's Base Salary shall be subject to annual review by the Board
or the Compensation Committee during the Employment Term and may be increased,
but not decreased, from time to time by the Board or the Compensation Committee,
except that, prior to a Change in Control, as defined in Section 10 hereof, it
may be decreased proportionately in connection with an across the board decrease
applying to all senior executives of the Company. The base salary as determined
as aforesaid from time to time shall constitute "Base Salary" for purposes of
this Agreement; provided, however, for purposes of calculating amounts payable
upon termination of Executive's employment hereunder "Base Salary" shall be
deemed to be the Base Salary immediately prior to any decrease thereof in
connection with an across the board decrease.
4. Incentive Compensation. (a) Bonus. For each fiscal year or
portion thereof during the Employment Term, Executive shall continue to
participate in an incentive pay plan of the Company substantially similar to
that in effect immediately prior the Commencement Date that provides an
annualized cash target bonus
<PAGE>
opportunity equal to at least 100% of Base Salary.
(b) Restricted Stock. The Company shall recommend to the
Compensation Committee that, to the extent it has not already done so during May
1999, at its next meeting it award Executive, subject to his execution of a
Restricted Stock Agreement in the form customarily used by the Company for other
grants, 20,000 shares of restricted Company common stock ("Restricted Stock"),
which shall vest on such terms and conditions as set by the Compensation
Committee but which will in any event vest or be forfeited as provided in
Section 8 hereof and will vest upon a Change in Control.
(c) Other Compensation. The Company may, upon recommendation of the
Compensation Committee, award to the Executive such other bonuses and
compensation as it deems appropriate and reasonable. Notwithstanding anything
else herein, other than the Restricted Stock provided for in Section 4(b) above,
the Company shall not be obligated to grant or recommend any other equity awards
for Executive during the Employment Term.
5. Employee Benefits and Vacation. (a) During the Employment Term,
Executive shall be entitled to participate in all pension, retirement, savings,
welfare and other employee benefit plans and arrangements and fringe benefits
and perquisites maintained by the Company from time to time for the benefit of
the senior executives of the Company in accordance with their respective terms
as in effect from time to time (other than any special arrangement entered into
by contract with an executive). Executive shall be entitled to (i) coverage and
benefits at least equal in the aggregate to the benefits provided under the
benefit plans and programs, including, without limitation, any life insurance,
medical insurance, disability, pension, savings, incentive, retirement and other
plans and programs, of the Company applicable to Executive immediately prior to
the Commencement Date and (ii) fringe benefits and
<PAGE>
perquisites of at least equal value to those provided by the Company to the
Executive immediately prior to the Commencement Date.
(b) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with the Company's policies in effect from time
to time, but in no event less than four (4) weeks paid vacation per calendar
year. The Executive shall also be entitled to such periods of sick leave as is
customarily provided by the Company for its senior executive employees.
6. Business Expenses. The Company shall reimburse Executive for the
travel, entertainment and other business expenses incurred by Executive in the
performance of his duties hereunder, in accordance with the Company's policies
as in effect from time to time.
7. Termination. (a) The employment of Executive under this Agreement
shall terminate upon the occurrence of the earliest of the following events:
(i) the death of the Executive;
(ii) the termination of the Executive's employment by the
Company due to the Executive's Disability pursuant to Section 7(b)
hereof;
(iii) the termination of the Executive's employment by the
Executive for Good Reason pursuant to Section 7(c) hereof;
(iv) the termination of the Executive's employment by the
Company without Cause;
<PAGE>
(v) the termination of employment by the Executive without
Good Reason upon sixty (60) days prior written notice;
(vi) the termination of employment by the Executive with or
without Good Reason during the period running from the date of a
Change in Control to twenty-four (24) months after the date of such
Change in Control (the "Change in Control Protection Period"),
provided that the foregoing commencement date of such right to
terminate employment pursuant to this Section 7(a)(vi) shall be
delayed until six (6) months after the Change in Control if
simultaneous with the Change in Control the Company or the person or
entity triggering the Change in Control delivers to the Executive an
irrevocable direct pay letter of credit with regard to the amounts
under Section 8(c)(A)(i) and (ii) and satisfying the requirements of
Section 7(g) hereof (and further provided that the foregoing shall
in no way affect full vesting of Restricted Stock upon a Change in
Control);
(vii) the termination of the Executive's employment by the
Company for Cause pursuant to Section 7(e);
<PAGE>
(viii) A Spinoff occurring prior to September 30, 2000 (the
"Outside Date"), an Abandoned Spinoff or a Sale Event, in all cases
prior to a Change in Control, where
(x) "Sale Event" shall mean that prior to the earliest
of the Spinoff, an Abandoned Spinoff or the Outside
Date, one or more closings occur that results in more
than seventy-five percent (75%) of the assets
constituting the Diversified Segment as of the date
hereof being sold (or otherwise disposed of) to one or
more persons or entities and/or distributed to
shareholders through a dividend (but not including the
Spinoff or an event which would be an Abandoned
Spinoff); and
(y) "Abandoned Spinoff" shall mean that (A) no Sale
Event or Spinoff occurs prior to the Outside Date, (B)
the Company publicly announces that its Board has
abandoned the Spinoff, (C) Bearing Inspection, Inc.,
Atech Turbine Components, Inc., Huron Inc. or Rexair
Inc. is sold by the Company other than as part of a Sale
Event or the Company determines not to include any of
such companies in the Spinoff, or (D) a transaction
which would be a Spinoff occurs except that Executive is
not Chairman and Chief Executive Officer of Newco at
such time and the reason therefor is because Executive
is incapable of performing the duties of such position
as a result of physical or mental incapacity.
(b) Disability. If, by reason of the same or related physical or
mental reasons, Executive is unable to carry out his material duties pursuant to
this Agreement
<PAGE>
for more than six (6) months in any twelve (12) consecutive month period, the
Company may terminate Executive's employment for Disability upon thirty (30)
days prior written notice, by a Notice of Disability Termination, at any time
thereafter during such twelve (12) month period in which Executive is unable to
carry out his duties as a result of the same or related physical or mental
illness. Such termination shall not be effective if Executive returns to the
full time performance of his material duties within such thirty (30) day notice
period.
(c) Termination for Good Reason. A Termination for Good Reason means
a termination by Executive by written notice given within ninety (90) days after
the occurrence of the Good Reason event unless such circumstances are fully
corrected prior to the date of termination specified in the Notice of
Termination for Good Reason (as defined in Section 7(d) hereof). For purposes of
this Agreement, "Good Reason" shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executive's express written consent, of
any of the following circumstances: (i) any material diminution of Executive's
then positions, duties or responsibilities hereunder (except in each case in
connection with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence or as otherwise provided in Section 2(a)
hereof), or the assignment to Executive of duties or responsibilities (other
than with
<PAGE>
regard to the Spinoff) that are inconsistent with Executive's then position,
(ii) removal of, or the nonreelection of, the Executive from the positions with
the Company specified herein except on or after September 15, 1999 and prior to
a Change in Control; (iii) relocation of the Company's executive offices to a
location more than twenty-five (25) miles from their locations on the
Commencement Date; (iv) a failure by the Company, except as otherwise
specifically provided herein, (A) to continue any bonus plan, program or
arrangement in which Executive is entitled to participate on the Commencement
Date (the "Bonus Plans"), provided that any such Bonus Plans may be modified at
the Company's discretion from time to time but shall be deemed terminated if (x)
any such plan does not remain substantially in the form in effect prior to such
modification and (y) if plans providing Executive with substantially similar
benefits are not substituted therefor ("Substitute Plans"), or (B) to continue
Executive as a participant in the Bonus Plans and Substitute Plans on at least
the same basis as to potential amount of the bonus and substantially the same
level of criteria for achievability thereof as Executive participated in on the
Commencement Date; (v) any material breach by the Company of any provision of
this Agreement, including without limitation Section 11 hereof; (vi) Executive's
removal from the Board; (vii) failure of any
<PAGE>
successor to assume in a writing delivered to Executive upon the assignee
becoming such, the obligations of the Company hereunder; or (viii) a failure of
the Compensation Committee to grant the Executive awards of Restricted Stock in
accordance with Section 4(b).
(d) Notice of Termination for Good Reason. A Notice of Termination
for Good Reason shall mean a notice that shall indicate the specific termination
provision in Section 7(c) relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for Termination for Good
Reason. The failure by Executive to set forth in the
Notice of Termination for Good Reason any facts or circumstances which
contribute to the showing of Good Reason shall not waive any right of Executive
hereunder or preclude Executive from asserting such fact or circumstance in
enforcing his rights hereunder. The Notice of Termination for Good Reason shall
provide for a date of termination not less than ten (10) nor more than sixty
(60) days after the date such Notice of Termination for Good Reason is given,
provided that in the case of the events set forth in Section 7(c)(ii) or (iii)
the date may be two (2) days after the giving of such notice.
(e) Cause. Subject to the notification provisions of Section 7(f)
below,
<PAGE>
Executive's employment hereunder may be terminated by the Company for Cause. For
purposes of this Agreement, the term "Cause" shall be limited to (i) willful
misconduct by Executive with regard to the Company or its business which has a
material adverse effect on the Company; (ii) the refusal of Executive to follow
the proper written direction of the Board or the Chief Executive Officer,
provided that the foregoing refusal shall not be "Cause" if Executive in good
faith believes that such direction is illegal, unethical or immoral and promptly
so notifies the Board or the Chief Executive Officer; (iii) the Executive being
convicted of a felony (other than a felony involving a motor vehicle) and either
(x) exhausting all appeals without a reversal of the conviction or (y)
commencing a term of incarceration in a house of detention; (iv) the breach by
Executive of any fiduciary duty owed by Executive to the Company which has a
material adverse effect on the Company; or (v) Executive's material fraud with
regard to the Company.
(f) Notice of Termination for Cause. A Notice of Termination for
Cause shall mean a notice that shall indicate the specific termination provision
in Section 7(e) relied upon and shall set forth in reasonable detail the facts
and circumstances which provide for a basis for Termination for Cause. Further,
a Notification for Cause shall be required to include a copy of a resolution
duly adopted
<PAGE>
by at least two-thirds of the entire membership of the Board at a meeting of the
Board which was called for the purpose of considering such termination and which
Executive and his representative had the right to attend and address the Board,
finding that, in the good faith opinion of the Board, Executive engaged in
conduct set forth in the definition of Cause herein and specifying the
particulars thereof in reasonable detail. The date of termination for a
Termination for Cause shall be the date indicated in the Notice of Termination.
Any purported Termination for Cause which is held by a court not to have been
based on the grounds set forth in this Agreement or not to have followed the
procedures set forth in this Agreement shall be deemed a Termination by the
Company without Cause.
(g) The irrevocable direct pay letter of credit required to be
delivered pursuant to Section 7(a)(vi) hereof shall be in amount equal to the
amount the Executive would be entitled to under Section 8(c)(A)(i) and (ii)
hereof if he were terminated without Cause upon the Change in Control (the
"Occurrence") and have an expiration date of no less than two (2) years after
the Occurrence. The Executive shall be entitled to draw on the letter of credit
upon presentation to the issuing bank of a demand for payment signed by the
Executive that states that (i) (A) a Good Reason
<PAGE>
event has occurred and the Executive would be entitled to payment under Section
8(c) of this Agreement if he elected to terminate employment for Good Reason or
(B) six (6) months has expired since the Occurrence or (C) the Executive is
entitled to payment under Section 8(c) of this Agreement and (ii) assuming the
event set forth in (i) entitled him to payment under Section 8(c) of this
Agreement, the amount the Company would be indebted to him at the time of
presentation under Section 8(c)(A)(i) and (ii) if he then was eligible to
receive payments under Section 8(c). There shall be no other requirements
(including no requirement that the Executive first makes demand upon the Company
or that the Executive actually terminates employment) with regard to payment of
the letter of credit. To the extent the letter of credit is not adequate to
cover the amount owed to the Executive by the Company under this Agreement, is
not submitted by the Executive or is not paid by the issuing bank, the Company
shall remain liable to the Executive for the remainder owed the Executive
pursuant to the terms of this Agreement. To the extent any amount is paid under
the letter of credit it shall be a credit against any amounts the Company then
or thereafter would owe to the Executive under Section 8(c) of this Agreement.
The letter of credit shall be issued by a national money center bank with a
rating of at least A by Standard & Poors Ratings Services.
<PAGE>
The Company shall bear the cost of the letter of credit.
8. Consequences of Termination of Employment. (a) Death. If
Executive's employment is terminated during the Employment Term by reason of
Executive's death, the employment period under this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement except for: (i) any compensation earned but not yet paid, including
and without limitation, any bonus if declared or earned but not yet paid for a
completed fiscal year, any amount of Base Salary earned but unpaid, any accrued
vacation pay payable pursuant to the Company's policies and any unreimbursed
business expenses payable pursuant to Section 6 (collectively "Accrued
Amounts"), which amounts shall be promptly paid in a lump sum to Executive's
estate; (ii) the product of (x) the target annual bonus for the fiscal year of
the Executive's death, multiplied by (y) a fraction, the numerator of which is
the number of days of the current fiscal year during which the Executive was
employed by the Company, and the denominator of which is 365, which bonus shall
be paid when bonuses for such period are paid to the other executives; (iii) any
other amounts or benefits owing to the Executive under the then applicable
employee benefit, long term incentive or equity plans and programs of the
Company, which shall be paid
<PAGE>
in accordance with such plans and programs, provided that Executive shall be
fully vested in his outstanding stock options and Restricted Stock of the
Company; (iv) payment on a monthly basis of twelve (12) months of Base Salary,
which shall be paid to Executive's spouse, or if she shall predecease him, then
to Executive's children (or their guardian if one is appointed) in equal shares;
and (v) payment of the spouse's and dependent's COBRA coverage premiums to the
extent, and so long as, they remain eligible for COBRA coverage, but in no event
more than three (3) years. Section 11 hereof shall also continue to apply.
(b) Disability. If Executive's employment is terminated by reason of
Executive's Disability, Executive shall be entitled to receive the payments and
benefits to which his representatives would be entitled in the event of a
termination of employment by reason of his death (other than life insurance
benefits), provided that the payment of Base Salary shall be reduced by the
projected amount he would receive under any long-term disability policy or
program maintained by the Company during the twelve (12) month period during
which Base Salary is being paid. Section 11 hereof shall also continue to apply.
(c) Termination by Executive for Good Reason or for any Reason
<PAGE>
During the Change in Control Protection Period or Termination by the Company
without Cause. If (i) outside of the Change in Control Protection Period,
Executive terminates his employment hereunder for Good Reason during the
Employment Term, (ii) if a Change in Control occurs and during the Change in
Control Protection Period Executive terminates his employment for any reason, or
(iii) if Executive's employment with the Company is terminated by the Company
without Cause, Executive shall be entitled to receive (A) in a lump sum within
five (5) days after such termination (i) three times Base Salary, (ii) three
times the highest annual bonus paid or, if declared or earned but not yet paid
for a completed fiscal year, payable to Executive for any of the previous three
(3) completed fiscal years by the Company and (iii) any Accrued Amounts at the
date of termination; (B) any other amounts or benefits owing to Executive under
the then applicable employee benefit, long term incentive or equity plans and
programs of the Company, which shall be paid in accordance with such plans and
programs, provided that Executive shall be fully vested in his outstanding stock
options and Restricted Stock of the Company; (C) three years of additional
service and compensation credit (at his then compensation level) for pension
purposes under any defined benefit type qualified or nonqualified pension plan
or arrangement of the Company, which payments
<PAGE>
shall be made through and in accordance with the terms of the nonqualified
defined benefit pension arrangement if any then exists, or, if not, in an
actuarially equivalent lump sum (using the actuarial factors then applying in
the Company's defined benefit plan covering Executive); (D) three (3) years of
the maximum Company contribution (assuming Executive deferred the maximum amount
and continued to earn his then current salary) under any type of qualified or
nonqualified 401(k) plan (payable at the end of each such year); and (E) payment
by the Company of the premiums for the Executive and his dependents' health
coverage for three (3) years under the Company's health plans which cover the
senior executives of the Company or materially similar benefits. Payments under
(E) above may at the discretion of the Company be made by continuing
participation of Executive in the plan as a terminee, by paying the applicable
COBRA premium for Executive and his dependents, or by covering Executive and his
dependents under substitute arrangements, provided that, to the extent Executive
incurs tax that he would not have incurred as an active employee as a result of
the aforementioned coverage or the benefits provided thereunder, he shall
receive from the Company an additional payment in the amount necessary so that
he will have no additional cost for receiving such items or any
<PAGE>
additional payment. In the circumstances described in each of (i) through (iv)
above,
Section 11 hereof shall also continue to apply.
(d) Termination with Cause or Voluntary Resignation without Good
Reason. If Executive's employment hereunder is terminated (i) by the Company for
Cause, or (ii) by Executive without Good Reason outside of the Change in Control
Protection Period, the Executive shall be entitled to receive only his Base
Salary through the date of termination, any bonus that has been declared or
earned but not yet paid for a completed fiscal year, and any unreimbursed
business expenses payable pursuant to Section 6. All other benefits (including,
without limitation, restricted stock and options, and the vesting thereof) due
Executive following such termination of employment shall be determined in
accordance with the Company's plans and programs.
(e) Termination as a result of a Spinoff. If Executive's employment
hereunder is terminated as a result of a Spinoff, (i) the Executive shall be
entitled to receive his Accrued Amounts, except to the extent the obligations
with regard to them are assumed by Newco, (ii) the Executive shall vest in his
1995 Restricted Stock grant, but forfeit all other Company Restricted Stock
grants, (iii) the Executive shall be treated as if he had a Termination without
Cause with regard to all his outstanding Company stock options and vest in them,
but the exercise period of such stock options shall only extend to the later of
January 15, 2000 or ninety (90) days after the termination event (the "Stock
Option Treatment") (iv) the Executive's benefit accruals and Company obligations
under the Long-Term Incentive Plan (the "LTIP") and the Supplemental Executive
Retirement Plan (the "SERP"), as well as any other employment related
entitlements shall be transferred to Newco and the Company shall have no further
liability with regard to such amounts and entitlements and (v) the Executive
shall
<PAGE>
receive a fiscal year 1999 bonus in accordance with the terms of the Annual
Performance Incentive Plan (but with no requirement of employment on the date of
payment), provided that, if the Spinoff occurs prior to the end of the 1999
fiscal year of the Company, the Executive shall receive a pro rata bonus based
on the number of days during the fiscal year that he was employed by the Company
and the bonus he would have received if employed by the Company at the end of
the fiscal year of the Spinoff (the "1999 Bonus"). The Executive shall not be
entitled to any other amounts or benefits from the Company, except as may become
due pursuant to Section 11 hereof with regard to indemnification or the Special
Tax Provisions of Section 12 hereof or as required by law.
(f) Termination as a result of a Sale Event. If Executive's
employment hereunder is terminated as a result of a Sale Event, (i) the
Executive shall be entitled to receive his Accrued Amounts (ii) the Executive
shall vest in all of his Company Restricted Stock, (iii) the Executive shall be
entitled to the Stock Option Treatment, (iv) the Executive's benefit accruals
under the LTIP shall immediately vest and be paid to him in a lump sum within
ninety (90) days after the Sale Event and any LTIP contributions that thereafter
are made with regard to the 1999 Bonus shall be promptly paid out to him after
deposit, without in either case any regard to any requirement that he be
employed by the Company on a specified date, (v) the Executive shall receive the
1999 Bonus based on the date of the Sale Event as if it was the date of the
Spinoff, (vi) the Executive shall vest in his accrued benefit under the SERP and
it shall be paid out at Retirement in accordance with the term of the SERP (the
"SERP Treatment") and (vii) provided the Executive delivers and does not revoke
the Release referred to in Section 9(b) hereof and fulfills his obligations
under Section 13(b) hereof, the Executive shall be entitled to receive within
thirty (30) days after the Sale Event a lump sum incentive payment equal to
$1,500,000. The Executive shall not be entitled to any other
<PAGE>
amounts or benefits from the Company, except as may become due pursuant to
Section 11 hereof with regard to indemnification or under the Special Tax
Provision of Section 12 hereof or as required by law. The lump sum incentive
payment shall not be treated as compensation for purposes of any incentive or
benefit plan or arrangement.
(g) Termination as a result of an Abandoned Spinoff. If Executive's
employment hereunder is terminated as a result of an Abandoned Spinoff, (i) the
Executive shall be entitled to receive his Accrued Amounts (ii) provided the
Executive delivers and does not revoke the Release referred to in Section 9(b)
hereof, the Executive shall fully vest in all of his Company Restricted Stock,
(iii) provided the Executive delivers and does not revoke the Release referred
to in Section 9(b) hereof, the Executive shall be entitled to his Stock Option
Treatment, (iv) provided the Executive delivers and does not revoke the Release
referred to in Section 9(b) hereof, the Executive shall be entitled to the SERP
Treatment, (v) provided the Executive delivers and does not revoke the Release
referred to in Section 9(b) hereof, the Executive's benefit entitlements under
the LTIP (taking into consideration the bonuses described in clause (vi) below)
shall immediately vest and shall be paid out to him in accordance with the terms
of the LTIP (without regard to the employment requirement as a condition of
payment) and (vi) the Executive shall be entitled to the 1999 Bonus and, if the
Abandoned Spinoff is during fiscal 2000, provided the Executive delivers and
does not revoke the Release referred to in Section 9(b) hereof, a pro rata
fiscal 2000 bonus equal to the product of (x) the target annual bonus for fiscal
2000 (one hundred percent (100%) of Base Salary), multiplied by (y) a fraction,
the numerator of which is the number of days of the 2000 fiscal year prior to
the Abandoned Spinoff, and the denominator of which is 365, such pro rated
fiscal year 2000 bonus to be paid out within ninety (90) days of the Abandoned
Spinoff. In addition, if prior to or within ninety
<PAGE>
(90) days after an Abandoned Spinoff (other than as a result of reaching the
Outside Date), the Company has entered into a definitive agreement or agreements
to effect a sale or sales of assets which would result in the requirements of
Section 7(a)(viii)(x) being satisfied, upon the closing of such transactions
such that the above criteria is satisfied prior to the Outside Date, based on
such transactions and those that closed prior to the Abandoned Spinoff, the
Company shall pay to Executive the incentive payment provided for in Section
8(f)(vii) provided the Executive satisfies the conditions of such subsection.
The Executive shall not be entitled to any other amounts or benefits from the
Company, except as may become due pursuant to Section 11 hereof with regard to
indemnification or the Special Tax Provisions of Section 12 hereof or as
otherwise required by law.
9. No Mitigation; No Set-Off. (a) In the event of any termination of
employment under Section 8, Executive shall be under no obligation to seek other
employment and there shall be no offset against any amounts due Executive under
this Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain. Any amounts due under Section 8 are in the
nature of severance payments and are not in the nature of a penalty. Such
amounts are inclusive, and in lieu of, any amounts payable under any other
salary continuation or cash severance arrangement of the Company and to the
extent paid or provided under any other such arrangement shall be offset from
the amount due hereunder.
(b) The Release required by Sections 8(f) and 8(g) shall be a
release of the Company, its affiliates, officers, directors, employees, agents
and shareholders in
<PAGE>
the standard form used by the Company for senior executives (but without release
of any right of indemnifications or rights under this Agreement, equity grants
or benefit plans that by their terms are intended to survive termination of
Executive's employment).
10. Change in Control. For purposes of this Agreement, the term
"Change in Control" shall mean (i) any "person" as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 ("Act") (other than the
Company, any trustee or other fiduciary holding securities under any employee
benefit plan of the Company, or any company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of Common Stock of the Company), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the Company representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities; (ii) during any
period of two (2) consecutive years (not including any period prior to the
Commencement Date), individuals who at the beginning of such period constitute
the Board, and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in clause (i), (iii), or (iv) of this paragraph) whose election by the
Board or nomination for election by the Company's stockholders 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 two-year period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority of the Board; (iii) a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
<PAGE>
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than twenty-five percent
(25%) of the combined voting power of the Company's then outstanding securities
shall not constitute a Change in Control of the Company; or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or the sale or disposition by the Company of all or substantially all of
the Company's assets other than (x) the sale or disposition of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting securities of the Company
at the time of the sale or (y) pursuant to a spinoff type transaction, directly
or indirectly, of such assets to the stockholders of the Company. In no event
shall the Spinoff constitute a Change in Control for purposes of this Agreement.
11. Indemnification. (a) The Company agrees that if Executive is
made a party to or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he is or was a director or officer of
the Company and/or any affiliate of the Company, or is or was serving at the
request of any of such companies as a director, officer, member, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including, without limitation, service with respect
to employee benefit plans, whether or not the basis of such Proceeding is
alleged action in an official capacity as a director, officer, member, employee,
fiduciary or agent
<PAGE>
while serving as a director, officer, member, employee, fiduciary or agent, he
shall be indemnified and held harmless by the Company to the fullest extent
authorized by Delaware law (or, if other than the Company, the law applicable to
such company), as the same exists or may hereafter be amended, against all
Expenses incurred or suffered by Executive in connection therewith, and such
indemnification shall continue as to Executive even if Executive has ceased to
be an officer, director, member, fiduciary or agent, or is no longer employed by
the applicable company, and shall inure to the benefit of his heirs, executors
and administrators.
(b) As used in this Agreement, the term "Expenses" shall include,
without limitation, damages, losses, judgments, liabilities, fines, penalties,
excise taxes, settlements and costs, attorneys' fees, accountants' fees, and
disbursements and costs of attachment or similar bonds, investigations, and any
expenses of establishing a right to indemnification under this Agreement.
(c) Expenses incurred by Executive in connection with any Proceeding
shall be paid by the Company in advance upon request of Executive and the giving
by the Executive of any undertakings required by applicable law.
(d) Executive shall give the Company notice of any claim made
against him for which indemnity will or could be sought under this Agreement. In
addition, Executive shall give the Company such information and cooperation as
it may reasonably require and as shall be within Executive's power and at such
times and places as are reasonably convenient for Executive.
(e) With respect to any Proceeding as to which Executive notifies
the Company of the commencement thereof:
(i) The Company will be entitled to participate therein at its
<PAGE>
own expense; and
(ii) Except as otherwise provided below, to the extent that it
may wish, the Company will be entitled to assume the defense thereof, with
counsel reasonably satisfactory to Executive. Executive also shall have
the right to employ his own counsel in such action, suit or proceeding and
the fees and expenses of such counsel shall be at the expense of the
Company.
(f) The Company shall not be liable to indemnify Executive under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on Executive
without Executive's written consent. Neither the Company nor Executive will
unreasonably withhold or delay their consent to any proposed settlement.
(g) The right to indemnification and the payment of expenses
incurred in defending a Proceeding in advance of its final disposition conferred
in this Section 11 shall not be exclusive of any other right which Executive may
have or hereafter may acquire under any statute, provision of the certificate of
incorporation or by-laws of the Company, agreement, vote of stockholders or
disinterested directors or otherwise.
<PAGE>
(h) The Company agrees to obtain Officer and Director liability
insurance policies covering Executive and shall maintain at all times during the
Employment Term coverage under such policies in the aggregate with regard to all
officers and directors, including Executive, of an amount not less than $20
million. The Company shall maintain for a six (6) year period commencing on the
date the Executive ceased to be an employee of the Company, Officer and Director
liability insurance coverage for events occurring during the period the
Executive was an employee or director of the Company in the same aggregate
amount and under the same terms as are maintained for its active officers and
directors. The phrase "in the same aggregate amount and under the same terms"
shall include the same level of self-insurance by the Company as shall be
maintained for active officers and directors.
12. Special Tax Provision. (a) Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to Executive by the Company (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
person whose actions result in a change of ownership covered by Internal Revenue
Code (the "Code") Section 280G(b)(2) or any person affiliated with the Company
or such person) as a result of a change in ownership of the Company or a direct
or indirect parent thereof covered by Code Section 280G(b)(2) (collectively, the
"Covered Payments") is or becomes subject to the excise tax imposed by or under
Section 4999 of the Code (or any similar tax that may hereafter be imposed),
and/or any interest or penalties with respect to such excise tax (such excise
tax, together with such interest and penalties, is hereinafter collectively
referred to as the "Excise Tax"), the Company shall pay to Executive an
additional amount (the "Tax Reimbursement Payment") such that after payment by
Executive of
<PAGE>
all taxes (including, without limitation, any interest or penalties and any
Excise Tax imposed on or attributable to the Tax Reimbursement Payment itself),
Executive retains an amount of the Tax Reimbursement Payment equal to the sum of
(i) the amount of the Excise Tax imposed upon the Covered Payments, and (ii)
without duplication, an amount equal to the product of (A) any deductions
disallowed for federal, state or local income or payroll tax purposes because of
the inclusion of the Tax Reimbursement Payment in Executive's adjusted gross
income, and (B) the highest applicable marginal rate of federal, state or local
income taxation, respectively, for the calendar year in which the Tax
Reimbursement Payment is made or is to be made. The intent of this Section 12 is
that (a) the Executive, after paying his Federal, state and local income and
payroll tax, will be in the same position as if he was not subject to the Excise
Tax under Section 4999 of the Code and did not receive the extra payments
pursuant to this Section 12 and (b) that Executive should never be
"out-of-pocket" with respect to any tax or other amount subject to this Section
12, whether payable to any taxing authority or repayable to the Company, and
this Section 12 shall be interpreted accordingly.
(b) Except as otherwise provided in Section 12(a), for purposes of
determining whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as "parachute
payments" (within the meaning of Section 280G(b)(2) of the Code) and such
payments in excess of the Code Section 280G(b)(3) "base amount" shall be
treated as subject to the Excise Tax, unless, and except to the extent
that, the
<PAGE>
Company's independent certified public accountants appointed prior to the
change in ownership covered by Code Section 280G(b)(2) or legal counsel
(reasonably acceptable to Executive) appointed by such public accountants
(or, if the public accountants decline such appointment and decline
appointing such legal counsel, such independent certified public
accountants as promptly mutually agreed on in good faith by the Company
and the Executive) (the "Accountant"), deliver a written opinion to
Executive, reasonably satisfactory to Executive's legal counsel, that
Executive has a reasonable basis to claim that the Covered Payments (in
whole or in part) (A) do not constitute "parachute payments", (B)
represent reasonable compensation for services actually rendered (within
the meaning of Section 280G(b)(4) of the Code) in excess of the "base
amount" allocable to such reasonable compensation, or (C) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate
legal authority, detailed analysis and explanation provided therein by the
Accountants); and
(ii) the value of any Covered Payments which are non-cash
benefits or deferred payments or benefits shall be determined by the
<PAGE>
Accountant in accordance with the principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, Executive shall be deemed:
(i) to pay federal, state, local income and/or payroll
taxes at the highest applicable marginal rate of income taxation for
the calendar year in which the Tax Reimbursement Payment is made or
is to be made, and
(ii) to have otherwise allowable deductions for federal,
state and local income and payroll tax purposes at least equal to
those disallowed due to the inclusion of the Tax Reimbursement
Payment in Executive's adjusted gross income.
(d) (i) (A) In the event that prior to the time the Executive has
filed any of his tax returns for the calendar year in which the change in
ownership event covered by Code Section 280G(b)(2) occurred, the Accountant
determines, for any reason whatever, the correct amount of the Tax Reimbursement
Payment to be less than the amount determined at the time the Tax Reimbursement
Payment was made, the Executive shall repay to the Company, at the time that the
amount of such reduction in
<PAGE>
Tax Reimbursement Payment is determined by the Accountant, the portion of the
prior Tax Reimbursement Payment attributable to such reduction (including the
portion of the Tax Reimbursement Payment attributable to the Excise Tax and
federal, state and local income and payroll tax imposed on the portion of the
Tax Reimbursement Payment being repaid by the Executive, using the assumptions
and methodology utilized to calculate the Tax Reimbursement Payment (unless
manifestly erroneous)), plus interest on the amount of such repayment at the
rate provided in Section 1274(b)(2)(B) of the Code.
(B) In the event that the determination set forth in (A) above is
made by the Accountant after the filing by the Executive of any of his tax
returns for the calendar year in which the change in ownership event covered by
Code Section 280G(b)(2) occurred but prior to one (1) year after the occurrence
of such change in ownership, the Executive shall file at the request of the
Company an amended tax return in accordance with the Accountant's determination,
but no portion of the Tax Reimbursement Payment shall be required to be refunded
to the Company until actual refund or credit of such portion has been made to
the Executive, and interest payable to the Company shall not exceed the interest
received or credited to the Executive by such tax authority for the
<PAGE>
period it held such portion (less any tax the Executive must pay on such
interest and which he is unable to deduct as a result of payment of the refund).
(C) In the event the Executive receives a refund pursuant to (B)
above and repays such amount to the Company, the Executive shall thereafter file
for refunds or credits by reason of the repayments to the Company.
(D) The Executive and the Company shall mutually agree upon the
course of action, if any, to be pursued (which shall be at the expense of the
Company) if the Executive's claim for refund or credit is denied.
(ii) In the event that the Excise Tax is later determined by
the Accountants or the Internal Revenue Service to exceed the amount taken into
account hereunder at the time the Tax Reimbursement Payment is made (including
by reason of any payment the existence or amount of which cannot be determined
at the time of the Tax Reimbursement Payment), the Company shall make an
additional Tax Reimbursement Payment in respect of such excess (plus any
interest or penalties payable with respect to such excess) once the amount of
such excess is finally determined.
(iii) In the event of any controversy with the Internal
<PAGE>
Revenue Service (or other taxing authority) under this Section 12, subject to
subpart (i)(D) above, the Executive shall permit the Company to control issues
related to this Section 12 (at its expense), provided that such issues do not
potentially materially adversely affect the Executive, but the Executive shall
control any other issues. In the event the issues are interrelated, the
Executive and the Company shall in good faith cooperate so as not to jeopardize
resolution of either issue, but if the parties cannot agree Executive shall make
the final determination with regard to the issues. In the event of any
conference with any taxing authority as to the Excise Tax or associated income
taxes, the Executive shall permit the representative of the Company to accompany
him and the Executive and his representative shall cooperate with the Company
and its representative.
(iv) With regard to any initial filing for a refund or any
other action required pursuant to this Section 12 (other than by mutual
agreement) or, if not required, agreed to by the Company and the Executive, the
Executive shall cooperate fully with the Company, provided that the foregoing
shall not apply to actions that are provided herein to be at the sole discretion
of the Executive.
(e) The Tax Reimbursement Payment, or any portion thereof payable
<PAGE>
by the Company shall be paid not later than the fifth (5th) day following the
determination by the Accountant and any payment made after such fifth (5th) day
shall bear interest at the rate provided in Section 1274(b)(2)(B) of the Code).
The Company shall use its best efforts to cause the Accountant to promptly
deliver the initial determination required hereunder and, if not delivered,
within ninety (90) days after the change in ownership event covered by Section
280G(b)(2) of the Code, the Company shall pay the Executive the Tax
Reimbursement Payment set forth in an opinion from counsel recognized as
knowledgeable in the relevant areas selected by the Executive, and reasonably
acceptable to the Company, within five (5) days after delivery of such opinion.
The amount of such payment shall be subject to later adjustment in accordance
with the determination of the Accountant as provided herein.
(f) The Company shall be responsible for all charges of the
Accountant and if (e) is applicable the reasonable charges for the opinion given
by Executive's counsel.
(g) The Company and the Executive shall mutually agree on and
promulgate further guidelines in accordance with this Section 12 to the extent,
if any, necessary to effect the reversal of excessive or shortfall Tax
Reimbursement Payments. The foregoing shall not in any way be inconsistent with
Section 12(d)(i)(D) hereof.
<PAGE>
(h) In no event shall this provision apply with regard to any change
in ownership of Newco covered by Code Section 280G(b)(2) after the Spinoff.
13. Other Provisions.
(a) Upon the Spinoff, Sale Event or Abandoned Spinoff, Executive
hereby resigns as an officer (if he has not already resigned pursuant to Section
1 hereof), director and employee of the Company and its subsidiaries and
affiliates (other than, in the case of a Spinoff of Newco and those entities
that become part of Newco), as well as a fiduciary or trustee of any benefit
plan or similar arrangement of the Company and its subsidiaries and affiliates
(other than, in the case of a Spinoff, as a fiduciary or trustee of any benefit
plan or similar arrangement of Newco and those entities that became part of
Newco). Upon request of the Company at such time Executive shall execute such
documents as necessary to additionally document the foregoing.
(b) Executive shall fully cooperate with the Company in connection
with the Spinoff or Sale Event, provided, however, he shall not be obligated to
work for an acquirer after any Sale Event.
(c) Executive agrees that upon a Spinoff, Sale Event or other
termination of employment he shall promptly return to the Company all Company
property or confidential information in his possession, except to the extent, in
the case of a Spinoff, where such property or information is transferred to
Newco. Executive further agrees that following a Spinoff, Sale Event or
termination, he will cooperate and provide information to the Company with
regard to matters arising during his period of employment with the Company or
its predecessors, including with regard to any litigation related to such
periods; provided that the Company shall reimburse him for his reasonable
out-of-pocket expenses incurred in connection therewith.
<PAGE>
(d) Executive agrees that upon a Spinoff he will serve as Chairman
and Chief Executive Officer of Newco unless he is incapable of doing so because
of physical or mental incapacity. Refusal of the Executive to comply with the
foregoing sentence shall be deemed to be a voluntary resignation without Good
Reason by him under this Agreement and all equity plans and grants.
14. Legal and Other Fees and Expenses. In the event that a claim for
payment or benefits under this Agreement is disputed, the Company shall pay all
reasonable attorney, accountant and other professional fees and reasonable
expenses incurred by Executive in pursuing such claim, unless the claim by the
Executive is found to be frivolous by any court or arbitrator.
15. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey without reference to
principles of conflict of laws.
(b) Entire Agreement/Amendments. This Agreement and the instruments
contemplated herein, contain the entire understanding of the parties with
respect to the employment of Executive by the Company from and after the
Commencement Date and supersedes any prior agreements between the Company
<PAGE>
and Executive with respect thereto, including the Old Employment Agreement,
provided that: (i) any option or restricted stock agreements executed by the
Company and Executive and in effect prior to the Commencement Date shall be
superceded only to the extent the terms thereof are modified herein and (ii) the
provisions of Section 11 of the Old Employment Agreement shall not be superceded
as they relate to obligations of Hanson Industries and Hanson PLC. This
Agreement, however, is in addition to the Employment Agreement being signed
simultaneous herewith by the Company and the Executive that will become
effective upon the Spinoff. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein and therein.
This Agreement may not be altered, modified, or amended except by written
instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
Any such waiver must be in writing and signed by Executive or an authorized
officer of the Company, as the case may be.
(d) Assignment. This Agreement shall not be assignable by Executive.
<PAGE>
This Agreement shall be assignable by the Company only to an acquiror of all or
substantially all of the assets of the Company, provided such acquiror promptly
assumes all of the obligations hereunder of the Company in a writing delivered
to the Executive and otherwise complies with the provisions hereof with regard
to such assumption.
(e) Successors; Binding Agreement; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees legatees and permitted assignees of the parties hereto.
(f) Communications. For the purpose of this Agreement, notices and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given (i) when faxed or delivered, or (ii) two
(2) business days after being mailed by United States registered or certified
mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the initial page of this Agreement, provided that all
notices to the Company shall be directed to the attention of the Senior Vice
President, General Counsel and Secretary of the Company, or to such other
address as any party may have furnished to the other in writing in accordance
herewith. Notice of change of address shall be effective only
<PAGE>
upon receipt.
(g) Withholding Taxes. The Company may withhold from any and all
amounts payable under this Agreement such Federal, state and local taxes as may
be required to be withheld pursuant to any applicable law or regulation.
(h) Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of Executive's employment to the
extent necessary to the agreed preservation of such rights and obligations.
(i) Counterparts. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(j) Headings. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the 18th day of May, 1999.
U.S. INDUSTRIES, INC.
By: /s/ John G. Raos
----------------------------------
Name: John G. Raos
Title: President and
Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements contained in the body of the accompaying Form [10-Q] and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-END> JUL-03-1999
<CASH> 146
<SECURITIES> 0
<RECEIVABLES> 705
<ALLOWANCES> (42)
<INVENTORY> 613
<CURRENT-ASSETS> 1,574
<PP&E> 989
<DEPRECIATION> (444)
<TOTAL-ASSETS> 2,976
<CURRENT-LIABILITIES> 745
<BONDS> 1,241
0
0
<COMMON> 1
<OTHER-SE> 910
<TOTAL-LIABILITY-AND-EQUITY> 2,976
<SALES> 2,513
<TOTAL-REVENUES> 2,513
<CGS> 1,762
<TOTAL-COSTS> 1,762
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> 161
<INCOME-TAX> 62
<INCOME-CONTINUING> 99
<DISCONTINUED> (13)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.03
</TABLE>
