<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 1, 2000
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 22-3568449
(State or other jurisdiction of (I.R.S.Employer Identification No.)
incorporation or organization)
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 May 9, 2000, U.S. Industries, Inc. had one class of common stock, of which
81,703,781 shares were outstanding.
<PAGE>
U.S. INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations
for the Three and Six Months Ended March 31, 2000 and 1999............. 1
Consolidated Condensed Balance Sheets, March 31, 2000
and September 30, 1999................................................. 2
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended March 31, 2000 and 1999 ...................... 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............................................................ 23
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................... 24
Item 6. Exhibits and Reports on Form 8-K....................................... 25
SIGNATURES................................................................................. 26
</TABLE>
<PAGE>
PART I. 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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $ 913 $ 848 $ 1,704 $ 1,598
Operating costs and expenses:
Cost of products sold 639 594 1,185 1,120
Selling, general and administrative expenses 206 182 398 353
Non-recurring charges 13 -- 13 --
------- ------- ------- -------
Operating income 55 72 108 125
Interest expense 22 19 45 37
Interest income (1) (1) (2) (2)
Gain on sale of Diversified businesses (24) -- (24) --
Other expense, net 2 -- 1 --
------- ------- ------- -------
Income before income taxes and discontinued operations 56 54 88 90
Provision for income taxes 21 22 33 36
------- ------- ------- -------
Income from continuing operations 35 32 55 54
Loss from discontinued operations, net of tax -- (14) -- (13)
------- ------- ------- -------
Net Income $ 35 $ 18 $ 55 $ 41
======= ======= ======= =======
Earnings per basic share:
Income from continuing operations $ 0.41 $ 0.33 $ 0.64 $ 0.56
Loss from discontinued operations -- (0.14) -- (0.13)
------- ------- ------- -------
Net income $ 0.41 $ 0.19 $ 0.64 $ 0.43
======= ======= ======= =======
Earnings per diluted share:
Income from continuing operations $ 0.40 $ 0.33 $ 0.63 $ 0.55
Loss from discontinued operations -- (0.14) -- (0.13)
------- ------- ------- -------
Net income $ 0.40 $ 0.19 $ 0.63 $ 0.42
======= ======= ======= =======
Cash dividend declared per share $ 0.05 $ 0.05 $ 0.10 $ 0.10
======= ======= ======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
1
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
------ ------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32 $ 58
Trade receivables, net 567 667
Inventories 515 631
Deferred income taxes 63 68
Other current assets 57 67
------ ------
Total current assets 1,234 1,491
Property, plant and equipment, net 441 597
Deferred income taxes -- 6
Other assets 389 185
Goodwill, net 622 749
------ ------
$2,686 $3,028
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 35 $ 33
Current maturities of long-term debt 89 15
Trade accounts payable 213 278
Accrued expenses and other liabilities 236 302
Income taxes payable 17 29
------ ------
Total current liabilities 590 657
Long-term debt 891 1,219
Deferred income taxes 10 --
Other liabilities 271 232
------ ------
Total liabilities 1,762 2,108
Commitments and contingencies
Stockholders' equity 924 920
------ ------
$2,686 $3,028
====== ======
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
2
<PAGE>
U.S. INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS-UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
---------------------
2000 1999
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations $ 55 $ 54
Adjustments to reconcile income from continuing operations to net cash
(used in) provided by operating activities of continuing operations:
Depreciation and amortization 54 47
Provision for doubtful accounts 3 2
Provision for deferred income taxes 1 --
Non-recurring charges 2 --
Gain on sale of excess real estate (3) --
Gain on sale of businesses (24) --
Changes in operating assets and liabilities,
excluding the effects of acquisitions and dispositions (211) (65)
------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES OF
CONTINUING OPERATIONS (123) 38
------- -------
Loss from discontinued operations -- (13)
Decrease in net assets held for disposition -- 36
------- -------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS -- 23
------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (123) 61
------- -------
INVESTING ACTIVITIES:
Proceeds from sale of businesses 421 23
Acquisition of companies, net of cash acquired (7) (168)
Purchases of property, plant and equipment (45) (49)
Proceeds from sale of excess real estate 6 --
Proceeds from sales of property, plant and equipment 1 2
Other investing activities, net (2) (3)
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 374 (195)
------- -------
FINANCING ACTIVITIES:
Proceeds from long-term debt 1,609 1,029
Repayment of long-term debt (1,832) (776)
Proceeds (repayment) of notes payable, net 4 (4)
Proceeds from exercise of stock options 1 --
Purchase of treasury stock (47) (80)
Payment of dividends (9) (10)
Payment to settle interest rate lock agreements -- (22)
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (274) 13
137
Effect of exchange rate changes on cash and cash equivalents (3) (15)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (26) (12)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 58 44
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32 $ 32
======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1-BASIS OF PRESENTATION
U.S. Industries, Inc. ("USI" and, together with its subsidiaries, the
"Company") manufactures and distributes a broad range of building and home
products and consumer products through three operating divisions: USI Bath and
Plumbing Products, Lighting Corporation of America and USI Hardware and Tools.
The Company completed the disposition of a majority equity interest in its
Diversified segment, by means of two separate transactions, on March 24, 2000
(see Note 9). Subsequent to March 24, 2000, the Company will account for its
retained interest in its Diversified segment under the equity method of
accounting. 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 six months ended March
31, 2000 and 1999 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 six month periods ended March 31, 2000 are not necessarily
indicative of those for the full fiscal year ending September 30, 2000. For
further information, refer to the Consolidated Financial Statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1999.
The Company's fiscal year ends on the Saturday nearest to September 30.
All three and six month data contained in this report reflect results of
operations for the 13-week periods and 26-week periods ended on the Saturday
closest to March 31, 2000 and 1999, respectively, but are presented as of March
31 for convenience.
NOTE 2-INVENTORIES
Inventories consist of the following:
(IN MILLIONS)
MARCH 31, SEPTEMBER 30,
2000 1999
---- ----
(UNAUDITED)
Finished products $262 $301
Work-in process 79 115
Raw materials 174 215
---- ----
$515 $631
==== ====
4
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 3-LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(IN MILLIONS)
MARCH 31, SEPTEMBER 30,
2000 1999
------- -------
(UNAUDITED)
<S> <C> <C>
7.125% Senior Notes, net $ 248 $ 248
7.25% Senior Notes, net 123 123
Revolving credit facility, US dollar 200 300
Revolving credit facility, foreign currencies 262 279
Commercial paper 95 167
Other short-term borrowings 23 55
Other long-term debt 29 62
------- -------
980 1,234
Less current maturities (89) (15)
------- -------
Long-term debt $ 891 $ 1,219
======= =======
</TABLE>
The 7.25% Notes and the 7.125% Notes (collectively, the "Notes"), along
with the Credit Agreement and Credit Facility described below, are joint and
several obligations of USI, USI Global Corp. ("USI Global") and USI American
Holdings, Inc. ("USIAH"), and are guaranteed by USI Atlantic Corp. ("USI
Atlantic") (see Note 11). USI Global and USI Atlantic are wholly-owned
subsidiaries of USI. USIAH is a wholly-owned subsidiary of USI Atlantic. The
Notes are unsecured but the indentures place restrictions on liens and
subsidiary indebtedness.
The Company has a five year revolving line of credit providing for
borrowings in both US dollars and foreign currency of up to an aggregate amount
of $650 million (the "Credit Agreement"). The revolving credit commitment will
be permanently reduced by $150 million in December 2000 and terminates in
December 2001. As of March 31, 2000, the Company had $188 million available
under this revolving line of credit.
During fiscal 1999, the Company commenced a $300 million commercial paper
program, of which $95 million was outstanding at March 31, 2000. The commercial
paper is supported by a $300 million 364-day credit facility (the "Credit
Facility") which expires on October 27, 2000.
At March 31, 2000, the Company had unused availability of approximately
$580 million, including approximately $393 million of committed availability
under its Credit Agreement and Credit Facility and $187 million under
uncommitted lines of credit. The Credit Agreement and the Credit Facility
contain certain covenant restrictions that limit the amount of indebtedness
the Company may incur. At March 31, 2000, the Company could have incurred an
additional $387 million in indebtedness under the specified restrictions on
the Company's permitted ratio of debt to total capital.
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
41 sites. In addition, the Company has been named as a Potentially Responsible
Party ("PRP") at 12 "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, 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)
MARCH 31, 2000
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. 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.
At March 31, 2000, the Company had accrued $11 million for known
environmental related matters. The Company believes that the range of liability
for such matters is between $4 million and $14 million.
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.
During October 1999, the Company entered into equity instrument contracts
that were utilized to purchase approximately $40 million of the Company's common
stock. At the discretion of the Company, such contracts can be settled by the
Company in cash, shares or a combination of both, at anytime prior to October
20, 2000.
The purchase price of the Spear & Jackson acquisition that occurred in
December 1997 is subject to a cash contingency payable in June 2000. The cash
contingency is based upon certain performance criteria and the market value of
the Company's stock at the time of payment. Based on the current value of the
Company's stock, it is anticipated that this payment will not exceed (pound
sterling)47 million.
NOTE 5-SEGMENT DATA
The results of the Diversified segment are included until the March 24,
2000 disposal date, after which the Company's proportionate share of earnings
from the Diversified segment will be recorded as equity earnings under the
equity method of accounting.
The following table presents information about the Company by segment.
<TABLE>
<CAPTION>
(IN MILLIONS) (IN MILLIONS)
FOR THE THREE MONTHS ENDED MARCH 31, FOR THE SIX MONTHS ENDED MARCH 31,
------------------------------------ ------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
------ ------ ------ ------ ------ ------ ------ ------
NET SALES OPERATING INCOME NET SALES OPERATING INCOME
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Business Segments:
Bath and Plumbing Products (1) $ 342 $ 294 $ 19 $ 33 $ 644 $ 558 $ 44 $ 57
Lighting Corporation of America 202 195 8 9 398 387 17 20
Hardware and Tools 157 132 17 12 248 205 21 13
Diversified 212 227 16 24 414 448 35 46
------ ------ ------ ------ ------ ------ ------ ------
Totals $ 913 $ 848 60 78 $1,704 $1,598 117 136
====== ====== ====== ======
Corporate expenses (5) (6) (9) (11)
------ ------ ------ ------
Total Operating Income 55 72 108 125
Interest expense 22 19 45 37
Interest income (1) (1) (2) (2)
Gain on sale of Diversified businesses (24) -- (24) --
Other expense, net 2 -- 1 --
------ ------ ------ ------
Income before income taxes 56 54 88 90
Provision for income taxes 21 22 33 36
------ ------ ------ ------
Income from continuing operations $ 35 $ 32 $ 55 $ 54
====== ====== ====== ======
</TABLE>
(1) Operating income for the three and six months ended
March 31, 2000 includes a $13 million non-recurring charge.
6
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 6-COMPREHENSIVE INCOME
The components of the Company's comprehensive income were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 35 $ 18 $ 55 $ 41
---- ---- ---- ----
Foreign currency translation:
Foreign currency translation adjustment
arising druing period (3) (14) (8) (16)
Plus: reclassification adjustment for
translation realized in net income 1 -- 3 --
---- ---- ---- ----
Net currency translation adjustment (2) (14) (5) (16)
---- ---- ---- ----
Comprehensive income $ 33 $ 4 $ 50 $ 25
==== ==== ==== ====
</TABLE>
NOTE 7-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 SIX MONTHS ENDED
MARCH 31, 2000 MARCH 31, 2000
----------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings per basic share $35 84.6 $ 0.41 $55 84.8 $ 0.64
Effect of dilutive securities
Stock options 0.3 0.4
Nonvested restricted stock 0.6 1.0
Equity instrument contract 0.5 0.3
--- ---- ------ --- ---- ------
Earnings per diluted share $35 86.0 $ 0.40 $55 86.5 $ 0.63
=== ==== ====== === ==== ======
Earnings per basic share $32 95.0 $ 0.33 $54 95.8 $ 0.56
Effect of dilutive securities
Stock options 0.8 0.7
Nonvested restricted stock 1.0 0.9
--- ---- ------ --- ---- ------
Earnings per diluted share $32 96.8 $ 0.33 $54 97.4 $ 0.55
=== ==== ====== === ==== ======
</TABLE>
7
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 7-EARNINGS PER SHARE (CONTINUED)
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
3.7 million and 2.9 million shares in the three and six months ended March 31,
2000, respectively, and options to purchase approximately 1.3 million and
1.9 million shares in the three and six months ended March 31, 1999,
respectively, were not included in the computation of earnings per share
because the options' exercise prices exceeded the average market price of the
common shares for those periods.
NOTE 8- RESTRUCTURING CHARGES
The new Chief Executive Officer of USI Bath and Plumbing performed a
review of the operations of this segment. In January 2000, a decision was
made to close the USI Bath and Plumbing corporate office in Dallas, Texas and
relocate it to the USI Corporate office in New Jersey. The closing of the USI
Bath and Plumbing corporate office resulted in the termination of 30 employees,
and vacating the Dallas corporate office. The Company recorded a pre-tax charge
of $13 million relating to this decision, which included severance costs of $2
million, lease costs of $9 million for a lease expiring November 2007, and a
write-off of $2 million relating to leasehold improvements and other fixed
assets.
The accrued liabilities relating to the cash related restructuring charge is
detailed as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
LEASE AND
CONTRACT SEVERANCE
RELATED AND RELATED TOTAL
COSTS COSTS COSTS
-------- ----------- --------
<S> <C> <C> <C>
Balance at September 30, 1999 $ 3 $ 5 $ 8
Cash payments (1) (3) (4)
Reserves of Diversified companies sold - (1) (1)
Fiscal 2000 charge 9 2 11
-------- -------- --------
Balance at March 31, 2000 $11 $ 3 $ 14
======== ======== ========
</TABLE>
Approximately $7 million of the reserves is included in the balance sheet
caption "accrued expenses and other liabilities", while the remaining $7 million
is recorded in the balance sheet caption "other liabilities".
The Company expects the remaining cash charges of $14 million to be paid
by the respective lease termination dates and over the periods provided by
severance agreements.
NOTE 9- DISPOSITION OF BUSINESSES AND DISCONTINUED OPERATIONS
On March 24, 2000, in two separate transactions (the "Diversified
Transactions"), the Company completed the previously-announced disposition of a
majority equity interest in its Diversified group to Automotive Interior
Products LLC ("AIP"), a Citicorp Venture Capital portfolio company. The
consideration for the Diversified Transactions included a combination of cash
and notes.
In one of the transactions, the Company disposed of the following
subsidiaries to AIP, which are now held by Strategic Industries, LLC ("SILLC"):
Atech Turbine Components, Inc.; Bearing Inspection, Inc.; BiltBest Products,
Inc.; EJ Footwear Corp., including Georgia Boot Inc. and Lehigh Safety Shoe Co.;
Garden State Tanning Inc.; Huron Inc.; Jade Holdings Pte Ltd, including Jade
Technologies Singapore Ltd and FSM Europe B.V.; Leon Plastics Inc.; Native
Textiles Inc.; and SCF Industries, Inc.
8
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 9- DISPOSITION OF BUSINESSES AND DISCONTINUED OPERATIONS (CONTINUED)
The Company received gross cash proceeds of $198 million and approximately
$205 million aggregate principal amount of 12% increasing rate senior notes due
2007 issued by SILLC (the "Senior Notes"), and, in addition, SILLC assumed
approximately $8 million of existing bank debt. The Company also retained a
preferred equity interest having a stated value of approximately $19.5 million
and a 17.7% common equity interest in SILLC. The purchase price will be subject
to a post-closing working capital adjustment. The Company has the right to
market and sell the Senior Notes commencing six months after the closing. The
Company recorded the Senior Notes at its fair market value, at March 24, 2000.
As a result of this transaction, for the quarter ended March 31, 2000, the
Company recorded a pre-tax gain of $24 million, ($15 million after-tax).
In the other transaction, Rexair, Inc. ("Rexair"), which manufactures
"Rainbow" brand vacuum cleaners, sold newly issued shares to SILLC representing,
after issuance, 75% of the equity interest in Rexair. The Company received
approximately $195 million in cash and retained a 25% direct equity interest in
Rexair.
As part of the Rexair transaction, the Company guaranteed Rexair's new
$200 million credit facility (the "Rexair Facility"), which is scheduled to
mature on the fifth anniversary of the closing. However, Rexair is primarily
responsible for the repayment of indebtedness under the Rexair Facility. The
Rexair Facility provides that all Rexair free cash flow, as defined, must be
used to repay the outstanding balance of the Rexair Facility. At March 31, 2000,
the outstanding balance on the Rexair Facility was approximately $182 million.
As a result of the Rexair transaction, the Company recorded a deferred gain of
approximately $45 million, which will be deferred until the release of the
guarantee of the Rexair Facility. The Company's 25% share of the net liabilities
of Rexair amounting to $38 million and the deferred gain of $45 million are
included in the balance sheet caption "other liabilities".
The Company's retained interest in SILLC and Rexair will be accounted
for under the equity method of accounting subsequent to the March 24, 2000
disposal date.
Also during the second quarter of fiscal 2000, the Company sold its fire
protection businesses. The cash consideration paid for these businesses totaled
approximately $23 million, which approximated its carrying value.
During the first quarter of fiscal 2000, the Company disposed of assets
relating to its ladder operations and the infant and children footwear
operation. The total proceeds of these separate transactions was $17 million,
which approximated its carrying value. The Company has retained certain
liabilities of the ladder and footwear operations.
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 April 1999 for
gross proceeds of approximately $95 million, which resulted in a net-of-tax loss
of $13 million in March 1999.
NOTE 10-SUBSEQUENT EVENT
On May 4, 2000, the Company announced that it hired Compass Partners
International, LLC as its financial advisor to assist in reviewing strategic
alternatives for Lighting Corporation of America ("LCA"), including a
possible sale. LCA, the Company's lighting segment, manufacturers and
distributes a complete line of indoor and outdoor lighting for the
commercial, institutional and residential markets. Its brand names include
Achitectural Area Lighting, Columbia, Dual-Lite, Prescolite, Moldcast,
Spaulding, Kim, Progress and SiTeco.
9
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 11-SUPPLEMENTAL JOINT ISSUER AND 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 March 31, 2000 and September
30, 1999 and for the three and six months ended March 31, 2000 and 1999.
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 MARCH 31, 2000
--------------------------------------------------------------------------------
USI USI NONGUARANTOR ELIMIN-
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES ATIONS CONSOLIDATED
--- ------ -------- ----- ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ -- $ -- $ -- $ -- $ 913 $ -- $ 913
Operating costs and expenses:
Cost of products sold -- -- -- -- 639 -- 639
Selling, general and administrative expenses 5 -- -- -- 201 -- 206
Non-recurring charges -- -- -- -- 13 -- 13
----- ----- ----- ----- ----- ----- -----
Operating income (loss) (5) -- -- -- 60 -- 55
Interest expense 10 11 -- -- 1 -- 22
Interest income -- -- -- -- (1) -- (1)
Intercompany interest (income) expense, net (3) (15) -- -- 18 -- --
Gain on sale of Diversified businesses -- -- -- -- (24) -- (24)
Other (income) expense, net -- -- -- -- 2 -- 2
Management fee (income) expense (15) -- -- -- 15 -- --
Other intercompany (income) expense -- 16 -- (16) -- -- --
Equity in earnings of investees, net (33) (39) (10) -- -- 82 --
----- ----- ----- ----- ----- ----- -----
Income before income taxes and
discontinued operations 36 27 10 16 49 (82) 56
Provision (benefit) for income taxes 1 (4) -- 6 18 -- 21
----- ----- ----- ----- ----- ----- -----
Net income (loss) $ 35 $ 31 $ 10 $ 10 $ 31 $ (82) $ 35
===== ===== ===== ===== ===== ===== =====
</TABLE>
10
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 11-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2000
---------------------------------------------------------------------------------
USI USI NONGUARANTOR
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--- ------ -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ -- $ -- $ -- $ -- $ 1,704 $ -- $ 1,704
Operating costs and expenses:
Cost of products sold -- -- -- -- 1,185 -- 1,185
Selling, general and administrative expenses 9 -- -- -- 389 -- 398
Non-recurring charges -- -- -- -- 13 -- 13
------- ------- ------- ------- ------- ------- -------
Operating income (loss) (9) -- -- -- 117 -- 108
Interest expense 20 22 -- -- 3 -- 45
Interest income -- -- -- -- (2) -- (2)
Intercompany interest (income) expense, net (6) (32) -- -- 38 -- --
Gain on sale of Diversified businesses -- -- -- -- (24) -- (24)
Other (income) expense, net -- -- -- -- 1 -- 1
Management fee (income) expense (15) -- -- -- 15 -- --
Other intercompany (income) expense -- 31 -- (31) -- -- --
Equity in earnings of investees, net (60) (52) (19) -- -- 131 --
------- ------- ------- ------- ------- ------- -------
Income before income taxes 52 31 19 31 86 (131) 88
Provision (benefit) for income taxes (3) (8) -- 12 32 -- 33
------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 55 $ 39 $ 19 $ 19 $ 54 $ (131) $ 55
======= ======= ======= ======= ======= ======= =======
</TABLE>
11
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 11-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
--------------------------------------------------------------------------------
USI USI NONGUARANTOR
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--- ------ -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ -- $-- $ -- $ -- $ 848 $ -- $ 848
Operating costs and expenses:
Cost of products sold -- -- -- -- 594 -- 594
Selling, general and administrative expenses 7 -- -- -- 175 -- 182
----- --- ----- ----- ----- ----- -----
Operating income (loss) (7) -- -- -- 79 -- 72
Interest expense 7 -- -- 9 3 -- 19
Interest income -- -- -- -- (1) -- (1)
Intercompany interest (income) expense, net (3) -- -- (15) 18 -- --
Other (income) expense, net -- -- -- -- -- -- --
Other intercompany (income) expense -- -- -- -- -- -- --
Equity in earnings of investees, net (24) -- (9) (6) -- 39 --
----- --- ----- ----- ----- ----- -----
Income before income taxes and
discontinued operations 13 -- 9 12 59 (39) 54
Provision (benefit) for income taxes (5) -- -- 3 24 -- 22
----- --- ----- ----- ----- ----- -----
Income from continuing operations 18 -- 9 9 35 (39) 32
Loss from discontinued operations, net of tax -- -- -- -- (14) -- (14)
----- --- ----- ----- ----- ----- -----
Net income (loss) $ 18 $-- $ 9 $ 9 $ 21 $ (39) $ 18
===== === ===== ===== ===== ===== =====
</TABLE>
12
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 11-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------------------------------------------
USI USI NONGUARANTOR
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--- ------ -------- ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ -- $-- $ -- $ -- $ 1,598 $ -- $ 1,598
Operating costs and expenses:
Cost of products sold -- -- -- -- 1,120 -- 1,120
Selling, general and administrative
expenses 12 -- -- -- 341 -- 353
------- --- ------- ------- ------- ------- -------
Operating income (loss) (12) -- -- -- 137 -- 125
Interest expense 13 -- -- 18 6 -- 37
Interest income -- -- -- -- (2) -- (2)
Intercompany interest (income)
expense, net (6) -- -- (28) 34 -- --
Other (income) expense, net -- -- -- -- -- -- --
Other intercompany (income) expense -- -- -- -- -- -- --
Equity in earnings of investees, net (52) -- (29) (23) -- 104 --
------- --- ------- ------- ------- ------- -------
Income before income taxes and
discontinued operations 33 -- 29 33 99 (104) 90
Provision (benefit) for income taxes (8) -- -- 4 40 -- 36
------- --- ------- ------- ------- ------- -------
Income from continuing operations 41 -- 29 29 59 (104) 54
Loss from discontinued operations,
net of tax -- -- -- -- (13) -- (13)
------- --- ------- ------- ------- ------- -------
Net income (loss) $ 41 $-- $ 29 $ 29 $ 46 $ (104) $ 41
======= === ======= ======= ======= ======= =======
</TABLE>
13
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 11-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
AT MARCH 31, 2000
--------------------------------------------------------------------------------------
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 $ -- $ -- $ -- $ -- $ 32 $ -- $ 32
Trade receivables, net -- -- -- -- 567 -- 567
Inventories -- -- -- -- 515 -- 515
Deferred income taxes 26 -- -- -- 37 -- 63
Other current assets 11 3 -- -- 43 -- 57
------- ------- ------- ------- ------- ------- -------
Total current assets 37 3 -- -- 1,194 -- 1,234
Property, plant and equipment, net -- 1 -- -- 440 -- 441
Deferred income taxes (2) -- -- -- 2 -- --
Other assets 6 6 -- 908 377 (908) 389
Goodwill, net -- -- -- -- 622 -- 622
Investments in subsidiaries 1,280 1,250 942 -- -- (3,472) --
Intercompany receivable
(payable), net 45 285 33 34 (397) -- --
------- ------- ------- ------- ------- ------- -------
Total assets $ 1,366 $ 1,545 $ 975 $ 942 $ 2,238 $(4,380) $ 2,686
======= ======= ======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ -- $ -- $ -- $ 35 $ -- $ 35
Current maturities of long-term debt 89 -- -- -- -- -- 89
Trade accounts payable 2 -- -- -- 211 -- 213
Accrued expenses and other liabilities 20 45 -- -- 171 -- 236
Income taxes payable 17 -- -- -- -- -- 17
------- ------- ------- ------- ------- ------- -------
Total current liabilities 128 45 -- -- 417 -- 590
Long-term debt 297 560 -- -- 34 -- 891
Deferred income taxes 10 -- -- -- -- -- 10
Other liabilities 7 46 -- -- 218 -- 271
------- ------- ------- ------- ------- ------- -------
Total liabilities 442 651 -- -- 669 -- 1,762
Commitments and contingencies
Stockholders' equity 924 894 975 942 1,569 (4,380) 924
------- ------- ------- ------- ------- ------- -------
Total liabilities and
stockholders' equity $ 1,366 $ 1,545 $ 975 $ 942 $ 2,238 $(4,380) $ 2,686
======= ======= ======= ======= ======= ======= =======
</TABLE>
14
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 11-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
(IN MILLIONS)
AT SEPTEMBER 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 $ -- $ -- $ -- $ -- $ 58 $ -- $ 58
Trade receivables, net -- -- -- -- 667 -- 667
Inventories -- -- -- -- 631 -- 631
Deferred income taxes 31 -- -- -- 37 -- 68
Other current assets 6 -- -- -- 61 -- 67
------- ------- ------- ------- ------- ------- -------
Total current assets 37 -- -- -- 1,454 -- 1,491
Property, plant and equipment, net -- 1 -- -- 596 -- 597
Deferred income taxes (2) -- -- -- 8 -- 6
Other assets 7 6 -- 908 172 (908) 185
Goodwill, net -- -- -- -- 749 -- 749
Investments in subsidiaries 1,372 1,341 923 -- -- (3,636) --
Intercompany receivable (payable), net 24 444 33 15 (516) -- --
------- ------- ------- ------- ------- ------- -------
Total assets $ 1,438 $ 1,792 $ 956 $ 923 $ 2,463 $(4,544) $ 3,028
======= ======= ======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ -- $ -- $ -- $ 33 $ -- $ 33
Current maturities of long-term debt -- -- -- -- 15 -- 15
Trade accounts payable 2 -- -- -- 276 -- 278
Accrued expenses and other liabilities 10 38 -- -- 254 -- 302
Income taxes payable 29 -- -- -- -- -- 29
------- ------- ------- ------- ------- ------- -------
Total current liabilities 41 38 -- -- 578 -- 657
Long-term debt 477 695 -- -- 47 -- 1,219
Other liabilities -- 51 -- -- 181 -- 232
------- ------- ------- ------- ------- ------- -------
Total liabilities 518 784 -- -- 806 -- 2,108
Commitments and contingencies
Stockholders' equity 920 1,008 956 923 1,657 (4,544) 920
------- ------- ------- ------- ------- ------- -------
Total liabilities and
stockholders' equity $ 1,438 $ 1,792 $ 956 $ 923 $ 2,463 $(4,544) $ 3,028
======= ======= ======= ======= ======= ======= =======
</TABLE>
15
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 11-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 2000
-------------------------------------------------------------------------------
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 $ 14 $ (14) $-- $-- $ (123) $ -- $ (123)
INVESTING ACTIVITIES:
Proceeds from sale of businesses -- -- -- -- 421 -- 421
Acquisition of companies, net of
cash acquired -- -- -- -- (7) -- (7)
Purchases of property, plant
and equipment -- -- -- -- (45) -- (45)
Proceeds from sale of excess real estate -- -- -- -- 6 -- 6
Proceeds from sales of property,
plant and equipment -- -- -- -- 1 -- 1
Net transfers with subsidiaries 131 265 -- -- -- (396) --
Other investing activities -- -- -- -- (2) -- (2)
------- ------- --- --- ------- ------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 131 265 -- -- 374 (396) 374
FINANCING ACTIVITIES:
Proceeds from long-term debt 1,603 -- -- -- 6 -- 1,609
Repayment of long-term debt (1,692) (120) -- -- (20) -- (1,832)
Proceeds of notes payable, net -- -- -- -- 4 -- 4
Payment of dividends (9) -- -- -- -- -- (9)
Payment to settle interest rate
lock agreements -- -- -- -- -- -- --
Proceeds from exercise of
stock options 1 -- -- -- -- -- 1
Purchase of treasury stock (47) -- -- -- -- -- (47)
Net transfers with parent -- (131) -- -- (265) 396 --
------- ------- --- --- ------- ------- -------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (144) (251) -- -- (275) 396 (274)
Effect of exchange rate changes on
cash and cash equivalents (1) -- -- -- (2) -- (3)
------- ------- --- --- ------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS -- -- -- -- (26) -- (26)
Cash and cash equivalents at beginning
of period -- -- -- -- 58 -- 58
------- ------- --- --- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ -- $ -- $-- $-- $ 32 $ -- $ 32
======= ======= === === ======= ======= =======
</TABLE>
16
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
NOTE 11-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
(IN MILLIONS - UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 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 $ 19 $ -- $ (8) $ 15 $ 35 $ -- $ 61
INVESTING ACTIVITIES:
Proceeds from sale of businesses -- -- -- -- 23 23
Acquisition of companies, net
of cash acquired (121) (47) -- -- -- (168)
Purchases of property, plant
and equipment -- -- -- -- (49) (49)
Proceeds from sale of excess real estate -- -- -- -- -- --
Proceeds from sales of property,
plant and equipment -- -- -- -- 2 2
Net transfers with subsidiaries (42) -- 13 -- -- 29 --
Other investing activities -- -- -- -- (3) (3)
------- ------- ------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (163) (47) 13 -- (27) 29 (195)
FINANCING ACTIVITIES:
Proceeds from long-term debt 765 -- -- 264 -- 1,029
Repayment of long-term debt (509) -- -- (264) (3) (776)
Repayment of notes payable, net -- -- -- -- (4) (4)
Payment of dividends (10) -- -- -- -- (10)
Payment to settle interest rate
lock agreements (22) -- -- -- -- (22)
Purchase of treasury stock (80) -- -- -- -- (80)
Net transfers with parent -- 47 (5) (13) -- (29) --
------- ------- ------- ------- ------- ------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 144 47 (5) (13) (7) (29) 137
Effect of exchange rate changes on
cash and cash equivalents -- -- -- (2) (13) -- (15)
------- ------- ------- ------- ------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS -- -- -- -- (12) -- (12)
Cash and cash equivalents at beginning
of period -- -- -- -- 44 -- 44
------- ------- ------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ -- $ -- $ -- $ -- $ 32 $ -- $ 32
======= ======= ======= ======= ======= ======= =======
</TABLE>
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As of March 31, 2000, the Company's operations are grouped into three
segments: USI Bath and Plumbing Products, Lighting Corporation of America and
USI Hardware and Tools. The Company completed the disposition of a majority
interest in the USI Diversified segment on March 24, 2000. The results of all
operations 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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET SALES
Bath and Plumbing Products $ 342 $ 294 $ 644 $ 558
Lighting Corporation of America 202 195 398 387
Hardware and Tools 157 132 248 205
Diversified 212 227 414 448
------- ------- ------- -------
TOTAL NET SALES $ 913 $ 848 $ 1,704 $ 1,598
======= ======= ======= =======
OPERATING INCOME
Bath and Plumbing Products(1) $ 19 $ 33 $ 44 $ 57
Lighting Corporation of America 8 9 17 20
Hardware and Tools 17 12 21 13
Diversified 16 24 35 46
------- ------- ------- -------
60 78 117 136
Corporate expenses (5) (6) (9) (11)
------- ------- ------- -------
TOTAL OPERATING INCOME $ 55 $ 72 $ 108 $ 125
======= ======= ======= =======
</TABLE>
(1) Operating income for the three and six months ended
March 31, 2000 includes a $13 million non-recurring charge.
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, herein. Various economic and 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, and changes in raw material costs,
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.
18
<PAGE>
THREE MONTHS ENDED MARCH 31, 2000
COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
INTRODUCTION
The Company had sales of $913 million and operating income of $55 million
for the quarter ended March 31, 2000, compared to sales of $848 million and an
operating income of $72 million for the same period in the prior year. Sales
increased $65 million (7.7%) and operating income decreased $17 million (23.6%)
compared to the second quarter of fiscal 1999. Included in operating income for
the quarter ended March 31, 2000, is a $13 million non-recurring charge to close
the USI Bath and Plumbing corporate office. Excluding the non-recurring charge,
operating income for the quarter ended March 31, 2000, would have been $68
million, a decrease of $4 million (5.5%) compared to the second quarter of
fiscal 1999.
The Bath and Plumbing Products Operations had sales of $342 million and
operating income of $19 million for the quarter ended March 31, 2000, an
increase of $48 million (16.3%) and a decrease of $14 million (42.4%),
respectively, from the second quarter of fiscal 1999. Included in operating
income for the quarter ended March 31, 2000, is a $13 million non-recurring
charge to close the USI Bath and Plumbing corporate office. Excluding the
non-recurring charge, operating income for the quarter ended March 31, 2000,
would have been $32 million, a decrease of $1 million (3.0%) compared to the
second quarter of fiscal 1999. The increase in sales is mainly due to
contributions of Spring Ram acquired in July 1999 and Gatsby Spas acquired in
June 1999, combined with continued strength in the U.S. bath and spa businesses.
This increase was partially offset by weakness at U.S. Brass and the European
HVAC business. Operating income, excluding the restructuring charge, decreased
from the prior year due to the weakness at U.S. Brass and the North American and
European HVAC businesses. This decrease was partially offset by an increase from
the acquisitions of Spring Ram and Gatsby Spas, and continued strength in both
the U.S. and European bath and spa businesses.
The Lighting Products Operations had sales of $202 million and operating
income of $8 million for the quarter ended March 31, 2000, an increase of $7
million (3.6%) and a decrease of $1 million (11.1%), respectively, from the
second quarter of fiscal 1999. The sales increase is mainly related to the
Dual-Lite acquisition in March 1999, partially offset by lost sales from
discontinuing an unprofitable residential product line and unfavorable currency
translation at the European lighting business. Lower operating income was
primarily attributable to losses associated with the discontinued residential
product line, partially offset by an improvement at the European lighting
business.
The Hardware and Tools Operations had sales of $157 million and operating
income of $17 million for the quarter ended March 31, 2000, increases of $25
million (18.9%) and $5 million (41.7%), respectively, from the second quarter of
fiscal 1999. The increase in sales is mainly due to the acquisition of True
Temper Hardware in March 1999, partially offset by the lost sales of the ladder
business, which was sold in October 1999. Operating income increased due to the
True Temper acquisition combined with the realization of synergies of
integrating True Temper and Ames.
The Diversified Operations had sales of $212 million and operating income
of $16 million for the quarter ended March 31, 2000, decreases of $15 million
(6.6%) and $8 million (33.3%), respectively, from the second quarter of fiscal
1999. The fiscal 2000 results consist of 12 weeks through the March 24, 2000
disposition date, while the prior year period consists of a full 13 weeks. These
decreases in sales and operating income were due to decreases at the footwear,
textile, shadow mask and vacuum cleaner businesses. These decreases were
partially offset by increases at the automotive related businesses which had
both sales and operating income increases.
RESTRUCTURING CHARGE
The new Chief Executive Officer of USI Bath and Plumbing performed a
review of the operations of this segment. In January 2000, a decision was
made to close the USI Bath and Plumbing corporate office in Dallas, Texas and
relocate it to the USI Corporate office in New Jersey. The closing of the USI
Bath and Plumbing corporate office resulted in the termination of 30
employees, and vacating the Dallas corporate office. The Company recorded a
pre-tax charge of $13 million relating to this decision, which included
severance costs of $2 million, lease costs of $9 million for a lease expiring
November 2007, and a write-off of $2 million relating to leasehold
improvements and other fixed assets.
19
<PAGE>
DISCONTINUED OPERATIONS
The Company had a loss from discontinued operations of $14 million, net of
tax, for the second quarter of the prior year, consisting of the estimated loss
on disposal of The Ertl Company, Inc. ("Ertl") of $12 million and a loss from
the operations of Ertl of $2 million. Ertl was subsequently disposed in April
1999.
INTEREST AND TAXES
Interest expense was $22 million for the quarter ended March 31, 2000, a
$3 million (15.8%) increase from the comparable period of fiscal 1999. The
increase is primarily due to a higher average level of outstanding debt with the
average interest rate being similar with the prior year. The increase in debt
level is the result of funding acquisitions and the Company's share repurchase
program. Interest income was $1 million for both the quarter ended March 31,
2000, and March 31, 1999.
The provision for income taxes on continuing operations was $21 million
for the quarter ended March 31, 2000, on pre-tax income of $56 million (an
effective tax rate of approximately 37.5%) compared to a $22 million provision
on pre-tax income of $54 million (an effective tax rate of approximately 40.7%)
in the comparable period of fiscal 1999. The decrease in the effective tax rate
is attributable to continued tax planning.
SIX MONTHS ENDED MARCH 31, 2000
COMPARED TO SIX MONTHS ENDED MARCH 31, 1999
The Company had sales of $1,704 million and operating income of $108
million for the six months ended March 31, 2000, compared to sales of $1,598
million and an operating income of $125 million for the same period in the prior
year. Sales increased $106 million (6.6%) and operating income decreased $17
million (13.6%) compared to the same period of fiscal 1999. Included in
operating income for the six months ended March 31, 2000, is a $13 million
non-recurring charge to close the USI Bath and Plumbing corporate office.
Excluding the non-recurring charge, operating income for the six months ended
March 31, 2000, would have been $121 million, a decrease of $4 million (3.2%)
compared to the same period of fiscal 1999.
The Bath and Plumbing Products Operations had sales of $644 million and
operating income of $44 million for the six months ended March 31, 2000, an
increase of $86 million (15.4%) and a decrease of $13 million (22.8%),
respectively, from the same period of fiscal 1999. Included in operating income
for the six months ended March 31, 2000, is a $13 million non-recurring charge
to close the USI Bath and Plumbing corporate office. Excluding the non-recurring
charge, operating income for the six months ended March 31, 2000, would have
been $57 million, flat with the same period of fiscal 1999. The increase in
sales is mainly due to contributions of Spring Ram acquired in July 1999 and
Gatsby Spas acquired in June 1999, combined with continued strength in the U.S.
bath and spa businesses. This increase was partially offset by weakness at U.S.
Brass and the North American and European HVAC businesses. Operating income
increased from the acquisitions of Spring Ram and Gatsby Spas, and continued
strength in both the U.S. and European bath and spa businesses. This increase
was fully offset by weakness at U.S. Brass and the North American and European
HVAC businesses.
The Lighting Products Operations had sales of $398 million and operating
income of $17 million for the six months ended March 31, 2000, an increase of
$11 million (2.8%) and a decrease of $3 million (15.0%), respectively, from the
same period of fiscal 1999. The sales increase is mainly related to the
Dual-Lite acquisition in March 1999. This sales increase was partially offset by
lost sales from discontinuing an unprofitable residential product line and
unfavorable currency translation at the European lighting business. Lower
operating income is primarily attributable to losses associated with the
discontinued residential product line, and weaknesses at both the commercial
indoor and outdoor lighting businesses. This was partially offset by an
improvement at the European lighting business.
The Hardware and Tools Operations had sales of $248 million and operating
income of $21 million for the six months ended March 31, 2000, increases of $43
million (21.0%), and $8 million (61.5%), respectively, from the same period of
fiscal 1999. The increase in sales is mainly due to the acquisition of True
Temper Hardware in March 1999, partially offset by the lost sales of the ladder
business, which was sold in October 1999, and lower sales at Ames. Operating
income increased due to the True Temper acquisition combined with the synergies
of integrating True Temper and Ames.
20
<PAGE>
The Diversified Operations had sales of $414 million and operating income
of $35 million for the six months ended March 31, 2000, decreases of $34 million
(7.6%) and $11 million (23.9%), respectively, from the same period of fiscal
1999. These businesses were sold on March 24, 2000. These decreases in sales and
operating income were due to decreases at the footwear, textile, shadow mask and
vacuum cleaner businesses. These decreases were partially offset by increases at
the automotive related businesses which had both sales and operating income
increases.
DISCONTINUED OPERATIONS
For the six months ended March 31, 1999, the Company had a loss from
discontinued operations of $13 million, net of tax, consisting of the estimated
loss on disposal of Ertl of $12 million and a loss from the operations of Ertl
of $1 million. Ertl was disposed in April 1999.
INTEREST AND TAXES
Interest expense was $45 million for the six months ended March 31, 2000,
a $8 million (21.6%) increase from the comparable period of fiscal 1999. The
increase is primarily due to a higher average level of outstanding debt with the
average interest rate being similar with the prior year. The increase in debt
level is the result of funding acquisitions and the Company's share repurchase
program. Interest income was $2 million for both the six months ended March 31,
2000, and March 31, 1999.
The provision for income taxes on continuing operations was $33 million
for the six months ended March 31, 2000, on pre-tax income of $88 million (an
effective tax rate of approximately 37.5%) as compared to a $36 million
provision on pre-tax income of $90 million (an effective tax rate of
approximately 40.0%) in the comparable period of fiscal 1999. The decrease in
the effective tax rate is attributable to continued 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, commercial paper program, and
uncommitted short-term lines of credit.
Net cash used in operating activities was $123 million for the six months
ended March 31, 2000 compared to net cash provided of $61 million for the
comparable period of prior year. In the current period, continuing operations
used $123 million compared to providing $38 million in the comparable period of
the prior year. This change relates primarily to working capital investments due
to seasonal cash requirements at the Hardware and Tools and Bath and Plumbing
divisions, increased interest payments and timing of tax payments.
Net cash provided by discontinued operations of $23 million at March 31,
1999, was the result of lower seasonal working capital requirements at The Ertl
Company, which was sold in April 1999.
Net cash provided by investing activities of $374 million for the six
months ended March 31, 2000, was primarily comprised of cash proceeds of $421
million received from the sale of a majority interest in the Diversified
businesses and the sale of the fire protection, children footwear and ladder
operations and $6 million from the sale of excess real estate. This was
partially offset by net cash of $45 million used for capital expenditures and $7
million used for acquisitions. In the six months ended March 31, 1999, the
Company used net cash of $195 million, which primarily consisted of $168 million
used for the acquisitions of True Temper Hardware, Dual-Lite and other smaller
acquisitions combined with cash used for capital expenditures of $49 million,
offset by $23 million in proceeds from the sale of the Power Systems Segment.
Net cash used in financing activities was $274 million for the six months
ended March 31, 2000. This included repayments of long-term debt and notes in
excess of proceeds of $219 million, which resulted mainly from the use of
proceeds from the sale of the Diversified businesses. This was partially offset
by dividend payments of $9 million, and the purchase of $47 million of the
Company's common stock for treasury. In the corresponding period of the prior
year, financing activities provided net cash of $137 million, which included
proceeds of long-term debt and notes in excess of repayments of $249 million,
partially offset by net cash used to purchase $80 million of the Company's
common stock for treasury, dividend payments of $10 million and a $22 million
payment to settle interest rate protection agreements.
The Company has a five year revolving line of credit providing for
borrowings in both U.S. dollars and foreign currency of up to an aggregate
amount of $650 million (the "Credit Agreement"). The revolving credit commitment
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will be permanently reduced by $150 million in December 2000 and terminates in
December 2001. As of March 31, 2000, the Company had $188 million available
under this revolving line of credit.
During fiscal 1999, the Company commenced a $300 million commercial paper
program, of which $95 million was outstanding at March 31, 2000. The commercial
paper is supported by a $300 million 364-day credit facility (the "Credit
Facility") which expires on October 27, 2000.
At March 31, 2000, the Company had unused availability of approximately
$580 million, including approximately $393 million of committed availability
under its Credit Agreement and Credit Facility and $187 million under
uncommitted lines of credit. The Credit Agreement and Credit Facility
contain certain covenant restrictions that limit the amount of indebtedness
the Company may incur. At March 31, 2000, the Company could have incurred an
additional $387 million in indebtedness under the specified restrictions on
the Company's permitted ratio of debt to total capital.
The Company believes that cash provided by operations and availability
under unused credit facilities and commercial paper program will adequately
support cash needs for working capital, capital expenditures for existing
businesses and future principal payments on outstanding borrowings.
Total stockholders' equity increased $4 million from September 30, 1999,
principally due to Company's six months net income of $55 million, partially
offset by $47 million in purchases of the Company's common stock for treasury,
and dividends declared of $9 million.
During the six months ended March 31, 2000, the Company paid approximately
$4 million related to its restructuring plans announced in fiscal 1998 and 1999.
There have been no material changes in the nature or costs of the restructuring.
During fiscal 1999, the Board of Directors authorized share repurchase
programs aggregating $300 million. In April 2000, the Board of Directors
authorized an additional $50 million of share repurchases. As of March 31,
2000, the Company had purchased $237 million, and subsequent to March 31, 2000,
the Company purchased an additional $36 million of its common stock for
treasury, under the program. Accordingly, to date the Company has purchased $273
million of its common stock. During October 1999, the Company entered into
equity instrument contracts that were utilized to purchase approximately $40
million of the Company's common stock. At the discretion of the Company, such
contracts can be settled by the Company in cash, shares or a combination of
both, at anytime prior to October 20, 2000. Share repurchases are made at prices
deemed acceptable to management. The repurchase program has been and will
continue to be, funded from cash provided from operations, proceeds received
from the sale of a majority interest in the Diversified businesses and available
borrowings under the Company's existing credit facilities.
The Company anticipates to make a purchase price contingency payment in
June 2000 relating to the Spear & Jackson acquisition that occurred in
December 1997. Based on the current value of the Company's stock, it is
anticipated that this payment will not exceed (pound sterling)47 million.
In August 1999, the Company's shelf registration statement on Form S-3
filed with the Commission in order to register $600 million in debt securities
became effective. The Company expects to issue debt securities covered by this
registration statement in the future, subject to market conditions.
On March 24, 2000, in two separate transactions (the "Diversified
Transactions"), the Company completed the previously-announced disposition of a
majority equity interest in its Diversified group to Automotive Interior
Products LLC ("AIP"), a Citicorp Venture Capital portfolio company.
In one of the transactions, the Company disposed of the following
subsidiaries to AIP, which are now held by Strategic Industries, LLC ("SILLC"):
Atech Turbine Components, Inc.; Bearing Inspection, Inc.; BiltBest Products,
Inc.; EJ Footwear Corp., including Georgia Boot Inc. and Lehigh Safety Shoe Co.;
Garden State Tanning Inc.; Huron Inc.; Jade Holdings Pte Ltd, including Jade
Technologies Singapore Ltd and FSM Europe B.V.; Leon Plastics Inc.; Native
Textiles Inc.; and SCF Industries, Inc. The Company received gross cash proceeds
of $198 million and approximately $205 million aggregate principal amount of 12%
increasing rate senior notes due 2007 issued by SILLC (the "Senior Notes"), and,
in addition, SILLC assumed approximately $8 million of existing bank debt. The
Company also retained a preferred equity interest having a stated value of
approximately $19.5 million and a 17.7% common equity interest in SILLC. The
purchase price will be subject to a post-closing working capital adjustment. The
Company has the right to market and sell the Senior Notes commencing six months
after the closing. The Company recorded the Senior Notes at its fair market
value, at March 24, 2000.
In the other transaction, Rexair, Inc. ("Rexair"), which manufactures
"Rainbow" brand vacuum cleaners, sold newly issued shares to SILLC representing,
after issuance, 75% of the equity interest in Rexair. The Company received
approximately $195 million in cash and retained a 25% direct equity interest in
Rexair. As part of the Rexair transaction, the Company guaranteed Rexair's new
$200 million credit facility (the "Rexair Facility"), which is scheduled to
mature on the fifth anniversary of the closing. However, Rexair is primarily
responsible for the repayment
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<PAGE>
of indebtedness under the Rexair Facility. The Rexair Facility provides that all
Rexair free cash flow, as defined, must be used to repay the outstanding balance
of the Rexair Facility. At March 31, 2000, the outstanding balance on the Rexair
Facility was approximately $182 million. As a result of the Rexair transaction,
the Company recorded a deferred gain of approximately $45 million, which will be
deferred until the release of the guarantee of the Rexair Facility. The
Company's 25% share of the net liabilities of Rexair amounting to $38 million
and the deferred gain of $45 million are included in the balance sheet caption
"other liabilities".
On May 4, 2000, the Company announced that it hired Compass Partners
International, LLC as its financial advisor to assist in reviewing strategic
alternatives for Lighting Corporation of America ("LCA"), including a possible
sale. LCA, the Company's lighting segment, manufacturers and distributes a
complete line of indoor and outdoor lighting for the commercial, institutional
and residential markets.
OUTLOOK
The Company anticipates, assuming a continuation of the current economic
trends, that fiscal 2000 earnings should be in the range of $1.40 to $1.50 per
diluted share from continuing operations, excluding unusual items.
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 decrease the Company's pre-tax earnings in fiscal
2000 by approximately $7 million.
The Company utilized foreign currency-denominated borrowings to
selectively hedge its net investments in subsidiaries in foreign countries.
These borrowings at March 31, 2000 are denominated in German marks, British
pounds and Dutch guilders. The Company estimates that a 10% change in the
relevant currency exchange rates is estimated to have an impact of $29 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.
23
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PART II. OTHER INFORMATION.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on February 3, 2000.
At the meeting:
1. The following persons were elected as Directors of the Company in Class II
to serve until the 2003 Annual Meeting and until their successors are
elected and qualified:
NAME VOTES FOR VOTES WITHHELD
William E. Butler 70,859,112 364,983
The Hon. Charles H. Price, II 70,840,860 383,235
Royall Victor, III 70,849,009 375,086
The terms of Directors of the Company in Class I and Class III will continue
until the 2002 and 2001 Annual Meetings of Stockholders, respectively.
2. The U.S. Industries, Inc. 2000 Annual Performance Incentive Plan was
approved by the stockholders, as follows:
Votes For: 70,011,893
Votes Against: 1,111,519
Abstentions: 100,683
3. The U.S. Industries, Inc. 2000 Stock Option Plan was approved by the
stockholders, as follows:
Votes For: 65,082,081
Votes Against: 5,778,267
Abstentions: 363,747
4. Amendment Number Two to the Amended U.S. Industries, Inc. Stock Option
Plan was approved by the stockholders, as follows:
Votes For: 58,132,711
Votes Against: 5,497,100
Abstentions: 285,470
5. Amendment Number Two to the U.S. Industries, Inc. Restricted Stock Plan
was approved by the stockholders, as follows:
Votes For: 58,653,059
Votes Against: 4,977,709
Abstentions: 284,513
6. The selection of Ernst & Young LLP as the Company's independent auditors
for the fiscal year ended September 30, 2000 was ratified by the
stockholders, as follows:
Votes For: 71,067,016
Votes Against: 106,881
Abstentions: 50,197
The names of the Class I and Class III directors, and detailed descriptions of
the U.S. Industries, Inc. 2000 Annual Performance Incentive Plan, U.S.
Industries, Inc. 2000 Stock Plan, Amended U.S. Industries, Inc. Stock Option
Plan and the U.S. Industries, Inc. Restricted Stock Plan are included in, and
are incorporated by reference to, the Company's definitive proxy statement for
its 2000 Annual Meeting of Stockholders, which was filed with the Commission on
December 29, 1999.
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule*
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on January 19, 2000, under
Item 5 relating to the proposed sale of the Company's Diversified
businesses and the sale of the Company's fire protection operations. No
financial statements were filed.
* Filed herewith.
- --------------------
25
<PAGE>
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: May 12, 2000 By: /s/ John W. Dean III
-------------------------------
John W. Dean III
Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Nicola Rossi
-------------------------------
Nicola Rossi
Corporate Controller
(Principal Accounting Officer)
26
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