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 March 30, 1996
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: 1-13736
U.S. INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of 22-3369326
incorporation or organization) (I.R.S. Employer Identification No.)
101 WOOD AVENUE SOUTH
ISELIN, NJ 08830
(Address of principal executive offices)
(908) 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 7, 1996, U.S. Industries, Inc. had one class of common stock, of which
51,515,445 shares were outstanding.
<PAGE>
U.S. INDUSTRIES, INC.
INDEX
Page
No.
---
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated (Combined) Statements of Income
for the Three and Six Months Ended March 31, 1996 and 1995. . . .1
Consolidated Balance Sheets, March 31, 1996 (Unaudited)
and September 30, 1995. . . . . . . . . . . . . . . . . . . . . .2
Unaudited Consolidated (Combined) Statements of Cash Flows
for the Six Months Ended March 31, 1996 and 1995. . . . . . .. . 3
Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended March 31, 1996. . . . . . . . . .4
Notes to Consolidated (Combined) Financial Statements. . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . .12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.. . . . . .21
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 22
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
EXHIBIT INDEX
<PAGE>
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
U. S. INDUSTRIES, INC.
CONSOLIDATED (COMBINED) STATEMENTS OF INCOME
(IN MILLIONS EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- -----
<S> <C> <C> <C> <C>
Net sales $ 561 $ 554 $ 1,076 $ 1,059
Operating costs and expenses:
Cost of products sold 378 382 727 727
Selling, general and administrative expenses 131 126 253 242
------- ------- ------- ------
Operating income 52 46 96 90
Interest expense 14 24 34 47
Interest income (2) (2) (4) (3)
Other expense, net 5 3 4 4
-------- -------- ------- -------
Income before income taxes, equity in loss of investee,
discontinued operations and extraordinary loss 35 21 62 42
Provision for income taxes 16 8 28 18
-------- -------- ------- -------
Income before equity in loss of investee, discontinued
operations and extraordinary loss 19 13 34 24
Equity in loss of investee (1) - (2) -
-------- -------- ------- -------
Income from continuing operations 18 13 32 24
Discontinued operations:
(Loss) income from operations of discontinued operations
(net of income tax (benefit) of $(2), $2, $(3) and $7) (3) 1 (4) 7
Gain (loss) on disposals of discontinued operations
(net of income tax (benefit) of $ -, $ -, $10 and $(4)) - - 68 (6)
-------- -------- ------- -------
(Loss) income from discontinued operations (3) 1 64 1
-------- ------- ------- ------
Income before extraordinary loss 15 14 96 25
Extraordinary loss from early extinguishment of debt
(net of income tax benefit of $16) - - (25)
-------- -------- ------- ------
Net income $ 15 $ 14 $ 71 $ 25
======== ======== ======= ======
Income from continuing operations per share $ 0.35 $ 0.61
(Loss) income from discontinued operations per share (0.05) 1.20
Extraordinary loss per share - (0.46)
-------- -------
Net income per share $ 0.30 $ 1.35
====== ======
Pro forma income from continuing operations $ 9 $ 17
======== =======
Pro forma net income $ 10 $ 18
======== =======
Pro forma income from continuing operations per share $ 0.17 $ 0.32
======== =======
Pro forma net income per share $ 0.19 $ 0.34
====== ======
</TABLE>
See notes to consolidated (combined) financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
U.S. INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS EXCEPT PER SHARE DATA)
March 31, September 30,
ASSETS 1996 1995
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37 $ 51
Trade receivables, net of allowance of $37 and $35 354 350
Inventories, net 396 382
Deferred income taxes 3 -
Other current assets 33 31
Net assets held for disposition 69 161
------- ------
Total current assets 892 975
Property, plant and equipment, net of accumulated
depreciation of $421 and $399 335 335
Deferred income taxes 17 3
Other assets 137 172
Goodwill, net 387 393
------- ------
$ 1,768 $ 1,878
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1 $ 4
Current maturities of long-term debt 28 157
Trade accounts payable 144 147
Accrued expenses and other liabilities 185 181
Income taxes payable 26 28
------ ------
Total current liabilities 384 517
Long-term debt 799 832
Other liabilities 134 117
------ ------
Total liabilities 1,317 1,466
------ -----
Commitments and contingencies
Stockholders' equity:
Common stock (par value $.01 per share, authorized 200,000,000 shares;
issued 53,682,309 and 53,671,432; respectively;
outstanding 51,790,945 and 53,671,432; respectively) 1 1
Paid in capital 542 542
Deficit (33) (104)
Minimum pension liability adjustment (3) (3)
Unearned restricted stock compensation (21) (24)
Cumulative translation adjustment - -
Treasury stock (1,891,364 shares at March 31,
1996) at cost (35) -
------ ------
Total stockholders' equity 451 412
------ ------
$ 1,768 $ 1,878
====== =====
</TABLE>
See notes to consolidated (combined) financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
U.S. INDUSTRIES, INC.
CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS
(IN MILLIONS-UNAUDITED)
Six Months Ended
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Income from continuing operations $ 32 $ 24
Adjustments to reconcile income from continuing operations to net cash provided
by operating activities of continuing operations:
Depreciation 22 20
Amortization of goodwill 6 8
Amortization of unearned restricted stock compensation 3 -
Amortization of deferred financing costs 2 -
Provision for deferred income taxes 1 -
Provision for doubtful accounts 4 1
Equity in loss of investee 2 -
Changes in operating assets and liabilities, excluding the effects of
dispositions:
(Increase) decrease in trade receivables (9) 48
Increase in inventories (17) (31)
Increase in other current assets (4) (6)
Decrease in other assets 4 8
Decrease in trade accounts payable (3) (11)
Decrease in income taxes payable (9) -
Decrease in accrued expenses and other liabilities (4) (14)
Increase in other non-current liabilities 2 7
Other, net - (2)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS 32 52
-------- --------
Income from discontinued operations 64 1
Adjustments to reconcile income from discontinued operations to net cash provided
by (used in) discontinued operations:
(Gain) loss on disposal of discontinued operations (68) 6
Decrease (increase) in net assets held for disposition 11 (21)
-------- --------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 7 (14)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 39 38
-------- --------
INVESTING ACTIVITIES:
Acquisition of companies, net of cash acquired - (15)
Proceeds from sale of net assets held for disposition 170 -
Purchases of property, plant and equipment (22) (29)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 148 (44)
-------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt 796 -
Repayment of long-term debt (959) (1)
Repayment of notes payable (3) -
Purchase of treasury stock (35) -
Net cash transfers to Hanson - 8
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (201) 7
Effect of exchange rate changes on cash - -
-------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (14) 1
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 51 28
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 37 $ 29
======== ========
</TABLE>
See notes to consolidated (combined) financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
U.S. INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 1996
(IN MILLIONS EXCEPT PER SHARE DATA)
(UNAUDITED)
Minimum Unearned Cumulative Total
Common Paid in Pension Restricted Translation Treasury Stockholders'
Stock Capital Deficit Liability Stock Adjustment Stock Equity
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $ 1 $ 542 $(104) $ (3) $ (24) $ -- $-- $ 412
Net income 71 71
Amortization of unearned restricted stock 3 3
Purchase of 1,874,391 shares of common
stock (average cost of $18.48 per share) (35) (35)
Common stock issued (10,877 shares)
upon exercise of options -- -- -- --
Forfeiture of 16,973 shares of unearned
restricted stock -- -- --
Translation adjustment -- --
----- ----- ----- ----- ----- -------- ----- -----
Balance at March 31, 1996 $ 1 $ 542 $ (33) $ (3) $ (21) $ -- $ (35) $ 451
===== ===== ===== ===== ===== ======== ===== =====
</TABLE>
See notes to consolidated (combined) financial statements.
4
<PAGE>
U.S. INDUSTRIES, INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1-BASIS OF PRESENTATION
U.S. Industries, Inc. (the "Company") was organized in February 1995 and has
been publicly-owned since May 31, 1995, at which time Hanson PLC ("Hanson") paid
a dividend to its shareholders consisting of all of the then outstanding shares
of the Company's common stock. Regular way trading in the common stock commenced
on the New York Stock Exchange on June 1, 1995. Prior to May 31, 1995, the
Company was a wholly-owned subsidiary of Hanson. Certain consumer, building
products and industrial businesses, as well as certain other assets and
liabilities, were transferred to the Company or its subsidiaries by Hanson or
its subsidiaries pursuant to transactions consummated on May 31, 1995 and June
5, 1995 (collectively, the "Demerger").
Prior to the Demerger, the financial statements of the Company presented the
combined results, financial position and cash flows of the individual
businesses, real estate assets and equity investments that subsequently were
transferred to the Company and its subsidiaries. Subsequent to the Demerger, the
financial statements of the Company and its subsidiaries are presented on a
consolidated, legal entity basis. The financial statements presented for periods
prior to the Demerger include management fees paid by subsidiaries of the
Company to Hanson affiliates for services. Subsequent to the Demerger, all such
services have been provided by the Company.
The accompanying consolidated (combined) 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, 1996 and 1995 are unaudited and, in the opinion of management, reflect all
adjustments necessary 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, 1996 are not necessarily
indicative of those for the full fiscal year ended September 28, 1996. For
further information, refer to the Consolidated (Combined) Financial Statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1995.
The Company's fiscal year ends on the Saturday closest to September 30. All
three and six month data contained herein reflect results of operations for the
13-week and 26-week periods ended on the Saturday closest to March 31, but are
presented as of such date for convenience of reference.
5
<PAGE>
NOTE 2-INVENTORIES
Inventories consist of the following:
(in millions)
March 31, September 30,
1996 1995
---- ----
(unaudited)
Finished products $ 207 $ 192
In-Process products 81 87
Raw materials 108 103
----- ----
Inventories, net $ 396 $ 382
===== ====
NOTE 3-DISCONTINUED OPERATIONS
During the six months ended March 31, 1996, the Company adopted a formal plan to
dispose of Farberware Inc. ("Farberware"). During fiscal 1995, the Company
adopted formal plans to dispose of, among other businesses previously sold,
Bearing Inspection, Inc., Jade Holdings, Inc., Piedmont Moulding Corporation,
Spartus Electronics Corporation ("Spartus") and Universal Gym Equipment, Inc.
(collectively with Farberware, the "Discontinued Operations"). In April 1996,
the Company, in separate transactions, sold most of the operating assets of
Farberware and Spartus (Note 4). The Company intends to dispose of the remainder
of the Discontinued Operations during the current fiscal year. The Discontinued
Operations and all other businesses sold since the Demerger meet the criteria
for classification as discontinued operations and have been classified as such
for all periods presented.
The following is a summary of the operating results of the businesses classified
as discontinued operations at March 31, 1996:
(in millions - unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
1996 1995 1996 1995
---- ---- ---- ----
Net Sales $ 56 $189 $ 120 $ 379
Pre-tax (loss) income $ (5) $ 3 $ (7) $ 14
6
<PAGE>
NOTE 3-DISCONTINUED OPERATIONS--Continued
Amounts classified as net assets held for disposition consist of the following
after accrual for anticipated net-of-tax losses on dispositions not yet
consummated:
(in millions)
March 31, September 30,
--------- -------------
1996 1995
---- ----
(unaudited)
Net current assets $ 68 $ 104
Property, plant and equipment, net 12 54
Other non-current (liabilities)
and assets, net (11) 3
-------- -------
Net assets held for disposition $ 69 $ 161
======== =======
NOTE 4-DIVESTITURES
In October 1995, the Company sold Blue Mountain Industries for $22.5 million in
cash, resulting in a gain of approximately $2 million, net of tax. Also in
October 1995, the Company sold its Office Furniture Group for $143 million in
cash and a note for $5 million (which was collected during the second quarter of
fiscal 1996), and recorded a gain of approximately $66 million, net of tax. The
Company also entered into an agreement not to compete with the purchaser of the
Office Furniture Group for a period of five years in exchange for $11 million,
which will be recognized over the period of the agreement.
In April 1996, the Company sold most of the assets of Farberware for gross cash
consideration of $46 million. The Company expects to realize approximately $52
million after collection of retained receivables and satisfaction of certain
retained liabilities. The Company estimates that there will be no material gain
or loss as the proceeds from the net assets sold will approximate the net
carrying amount of such assets.
In April 1996, the Company sold most of the assets of Spartus for gross cash
consideration of $6.3 million. The Company estimates that there will be no
material gain or loss as the proceeds from the net assets sold will approximate
the net carrying amount of such assets.
7
<PAGE>
NOTE 5-DEBT REFINANCING
Long term debt is as follows:
(in millions)
March 31, September 30,
1996 1995
---- ----
(unaudited)
Term loan facility $ 400 $ 600
Revolving credit facility 350 358
Other 77 31
----- ------
827 989
Less current maturities 28 157
----- -----
Long-term debt $ 799 $ 832
===== =====
Other long-term debt at March 31, 1996 includes $69 million of notes payable
with maturities due within one year which the Company expects to satisfy with
borrowings under the revolving credit portion of the Company's bank credit
facility (the "Credit Facility") described below.
On December 21, 1995, the Company and its subsidiaries entered into the Credit
Facility, which consists of a 4 1/2 - year amortizing term loan facility in the
amount of $400 million and a 5-year revolving credit facility in an amount up to
$575 million (including a swingline loan facility in the amount of up to $50
million and a letter of credit facility in the amount of up to $75 million).
Upon entering into the Credit Facility, the Company repaid all loans outstanding
under its previous bank credit facility with amounts borrowed at lower rates
under the new facility. The Credit Facility is guaranteed by the Company's
subsidiaries that are U.S. corporations and is secured by a first priority
security interest in, and pledge of, all outstanding capital stock of the
Company's direct and indirect subsidiaries that are U.S. corporations and 65% of
the capital stock of a foreign subsidiary which holds the shares of other
foreign subsidiaries of the Company. The term loan facility is subject to
certain mandatory prepayments from asset sales which will be credited against
amortization requirements in the manner specified in the Credit Facility. As
such, current maturities of long-term debt includes approximately $25 million
related to mandatory prepayments required as a result of the April 1996 sales of
most of the assets of Farberware and Spartus (See Note 4).
Amortization payments due under the term loan facility at March 31, 1996 are as
follows:
$100 million June 15, 1998
$100 million June 15, 1999
$200 million June 15, 2000
Amortization payments may be satisfied by borrowing under the revolving credit
facility to the extent there is availability thereunder.
8
<PAGE>
The Credit Facility places restrictions on, among other things, dividends,
liens, acquisitions and additional indebtedness. It also requires compliance
with covenants as to minimum net worth and certain other financial ratios.
The interest rates for loans outstanding under the Credit Facility are based on
specified spreads (adjusted quarterly based on a Consolidated Leverage Ratio
specified in the Credit Facility) over, at the option of the Company, (i) the
London interbank offered rate ("LIBOR") or (ii) the higher of the rate of
interest publicly announced by Bank of America in San Francisco, California as
its reference rate or the federal funds rate in effect on such day (the "Base
Rate"). The spread on LIBOR-based borrowings ranges between 62.5 and 150 basis
points and the spread on Base Rate borrowings ranges between zero and 50 basis
points. At March 31, 1996, the spreads were 62.5 basis points and zero basis
points, respectively. On May 17, 1996, such spreads are expected to be adjusted
to 87.5 basis points and zero basis points, respectively. At March 31, 1996,
three-month LIBOR was 5.44% per annum. A commitment fee is payable on a
quarterly basis in arrears to the lenders under the Credit Facility on the
aggregate unused amount of the revolving credit facility. The commitment fee,
which is adjusted quarterly based on the Consolidated Leverage Ratio, ranges
between 15 and 30 basis points per annum. At March 31, 1996, the commitment fee
was 15 basis points per annum; on May 17, 1996, it is expected to be adjusted to
20 basis points per annum.
At March 31, 1996 and September 30, 1995, a subsidiary of the Company had two
outstanding tranches (6 month and 14 month, respectively, as of March 31, 1996)
of interest rate protection agreements with several banks covering an aggregate
notional amount of $600 million, to exchange variable rate interest payment
obligations under the respective credit facilities in effect at those dates for
fixed rate obligations (without the exchange of the underlying principal
amounts) to manage interest rate exposures in a manner consistent with the
Company's policy and credit facility requirements. Net payments under the
agreements amounted to approximately $1.8 million and $3.3 million,
respectively, for the three and six months ended March 31, 1996. Under the
interest rate protection agreements, the Company receives a floating rate based
on three-month LIBOR and pays a weighted average fixed rate of 6.86% per annum.
In conjunction with the Company's repayment of all loans outstanding under its
previous credit facility during the first quarter of fiscal 1996, a net-of-tax,
noncash, extraordinary charge of approximately $25 million was incurred to
write-off unamortized deferred financing costs and to accrue for previously
deferred losses associated with the interest rate protection agreements that had
been designated as hedges of such facility. Losses associated with such interest
rate agreements were recognized as of the date of termination of the previous
credit facility. The interest rate protection agreements have subsequently been
designated as hedges of the indebtedness incurred under the Credit Facility.
9
<PAGE>
NOTE 6-EARNINGS PER SHARE
Pro Forma Net Income Per Share - Fiscal 1995 earnings per share information
excludes historical net income per common share calculated in accordance with
Accounting Principles Board Opinion No. 15, "Earnings per share" ("APB 15") as
such information is not indicative of the Company's continuing capital
structure. Pro forma income from continuing operations and net income per share
are calculated as if (i) the Demerger had been consummated at the beginning of
the periods presented; (ii) the changes in the Company's capital structure
resulting from the Demerger, including the utilization of the previous credit
facility (see Note 5 to the Consolidated (Combined) Financial Statements
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995), had occurred on such date; (iii) the Company had incurred
certain general and administrative corporate costs in place of previously
allocated management fees; and (iv) compensation expense related to the
restricted share grants pursuant to the Stock Option Plan (see Note 13 to the
Consolidated (Combined) Financial Statements contained in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995) had been
incurred for the entire period.
Weighted Average Common Shares Outstanding - The weighted average number of
common shares outstanding during the three and six month periods ended March 31,
1996 were 52,484,137 and 52,917,722, respectively.
NOTE 7-COMMITMENTS AND CONTINGENCIES
Certain present and former operating sites, or portions thereof, currently or
previously owned and/or leased by current or former operating units of the
Company are the subject of investigations, monitoring or remediation under the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "superfund"), the federal Resource Conservation and Recovery Act or
comparable state statutes or agreements with third parties. These proceedings
are in various stages ranging from initial investigations to active settlement
negotiations to implementation of the clean-up or remediation of sites.
A number of present and former operating units of the Company have been named as
Potentially Responsible Parties ("PRPs") at approximately 17 off-site disposal
sites under CERCLA or comparable state statutes in a number of federal and state
proceedings. In each of these matters the operating unit of the Company is
working with the governmental agencies involved and other PRPs to address
environmental claims in a responsible and appropriate manner.
At March 31, 1996, the Company had accrued $13 million for environmental related
liabilities of which the Company is aware. The Company believes that the range
of liability for such matters is between $11 million and $23 million.
Also, certain of the Company's subsidiaries are defendants or plaintiffs in
lawsuits that have arisen in the normal course of business, including those
relating to commercial transactions and
10
<PAGE>
product liability matters. 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.
NOTE 8 - SUBSEQUENT EVENT
In April 1996, the Company purchased the assets of Haugh's Products Limited
("Haugh's") for approximately Canadian $16.0 million (approximately $11.8
million) and the assumption of approximately Canadian $16.5 million
(approximately $12.2 million) in debt. Haugh's, based in Toronto Canada, is a
manufacturer of above-ground swimming pools and equipment. The transaction has
been accounted for as a purchase effective April 1, 1996. The pro forma
operating results of Haugh's for the six months ended March 31, 1996 were not
material to the Company's consolidated operating results. The operations of
Haugh's will be included in the Company's Bath Products Operations
prospectively.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Company's operations are conducted through subsidiaries grouped into three
business segments: Consumer, Building Products and Industrial. The results of
all operations sold or classified as available for sale are excluded from the
Management's Discussion and Analysis of Financial Condition and Results of
Operations for all periods presented. See Notes 3 and 4 to the Consolidated
(Combined) Financial Statements.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS (in millions)
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- -----
<S> <C> <C> <C> <C>
NET SALES
Consumer Group
Housewares......................... $ 115 $ 100 $ 201 $ 180
Recreation and Leisure ............ 60 52 127 112
Footwear ....................... 43 46 86 91
Textiles ....................... 34 37 69 73
------ ------ ------ ------
252 235 483 456
------ ------ ------ ------
Building Products Group
Bath Products...................... 70 69 130 125
Lighting Products and Systems...... 126 126 245 241
------ ------ ------ ------
196 195 375 366
------ ------ ------ ------
Industrial Group
Automotive Components.............. 97 108 184 206
Other Industrial Products.......... 16 16 34 31
------ ------ ------ ------
113 124 218 237
------ ------ ------ ------
TOTAL NET SALES . . . . $ 561 $ 554 $ 1,076 $ 1,059
====== ====== ====== ======
OPERATING INCOME
Consumer Group
Housewares......................... $ 27 $ 20 $ 44 $ 36
Recreation and Leisure............. (1) (5) 1 (3)
Footwear........................... 5 6 9 11
Textiles .......................... 1 3 3 6
------- ------- ------ ------
32 24 57 50
------- ------- ------ ------
Building Products Group
Bath Products...................... 10 10 17 19
Lighting Products and Systems...... 8 5 16 10
------- ------- ------ ------
18 15 33 29
------ ------- ------ ------
Industrial Group
Automotive Components.............. 8 12 16 22
Other Industrial Products.......... 1 1 3 2
------ ------ ------ ------
9 13 19 24
Corporate expenses and management fees..... (7) (6) (13) (13)
------ ------ ------ ------
TOTAL OPERATING INCOME $ 52 $ 46 $ 96 $ 90
====== ====== ====== ======
</TABLE>
12
<PAGE>
THREE MONTHS ENDED MARCH 31, 1996
COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
INTRODUCTION
The Company had sales of $561 million and operating income of $52 million for
the quarter ended March 31, 1996, increases of $7 million (1.3%) and $6 million
(13.0%), respectively, compared to the second quarter of fiscal 1995.
CONSUMER GROUP
The Consumer Group had sales of $252 million and operating income of $32 million
for the quarter ended March 31, 1996, increases of $17 million (7.2%) and $8
million (33.3%), respectively, over the second quarter of fiscal 1995.
The Housewares Operations reported sales of $115 million and operating income of
$27 million for the quarter ended March 31, 1996, increases of $15 million
(15.0%) and $7 million (35.0%), respectively, from the second quarter of fiscal
1995. Sales of high-margin vacuum cleaners substantially exceeded prior period
levels due to continued international growth. Strong early spring tool shipments
and late winter tool sales attributable to severe winter conditions experienced
in the current quarter led to considerably improved results relative to the
second quarter of fiscal 1995.
The Recreation and Leisure Operations had sales of $60 million and an operating
loss of $1 million for the quarter ended March 31, 1996, improvements of $8
million (15.4%) and $4 million (80.0%), respectively, from the second quarter of
fiscal 1995. Golf club sales and operating income improved primarily due to the
inclusion and success of the Odyssey line of putters acquired in March 1995 and
the absence of markdowns taken during the second quarter of the prior fiscal
year. Toy sales and operating losses improved due to increased volume in
collectible toys and model kits, partially offsetting a decline in sales of
higher-margin promotional toys. Order backlogs for promotional toys at March 31,
1996 were significantly below those at March 31, 1995.
The Footwear Operations had sales of $43 million and operating income of $5
million for the quarter ended March 31, 1996, decreases of $3 million (6.5%) and
$1 million (16.7%), respectively, from the second quarter of fiscal 1995. Weak
retail demand for high-margin western boots more than offset cost reductions and
slightly improved performance in other product lines.
The Textiles Operations had sales of $34 million and operating income of $1
million for the quarter ended March 31, 1996, decreases of $3 million (8.1%) and
$2 million (66.7%), respectively, from the second quarter of fiscal 1995.
Results were affected by reduced sales of
13
<PAGE>
lace, tricot and dyed yarns and unfavorable manufacturing variances that
resulted from curtailed production during the quarter.
BUILDING PRODUCTS GROUP
The Building Products Group had sales of $196 million and operating income of
$18 million for the quarter ended March 31, 1996, increases of $1 million (0.5%)
and $3 million (20.0%), respectively, from the second quarter of fiscal 1995.
The Bath Products Operations had sales of $70 million and operating income of
$10 million for the quarter ended March 31, 1996, an increase in sales of $1
million (1.4%) and unchanged operating income, respectively, compared to the
second quarter of fiscal 1995. Strong European sales, particularly of new,
higher-margin products, were offset by continued weakness in North American
operations. The Company's North American operations will include Haugh's
commencing in the third quarter of the current fiscal year.
The Lighting Products and Systems Operations had sales of $126 million and
operating income of $8 million for the quarter ended March 31, 1996, unchanged
sales and an increase of $3 million (60.0%) in operating income, respectively,
from the second quarter of fiscal 1995. The impact of favorable outdoor lighting
market conditions offset soft market conditions in the residential lighting
market. Current period operating income benefited from new products, cost
reductions and reduced goodwill amortization.
INDUSTRIAL GROUP
The Industrial Group had sales of $113 million and operating income of $9
million for the quarter ended March 31, 1996, decreases of $11 million (8.9%)
and $4 million (30.8%), respectively, from the second quarter of fiscal 1995.
The Automotive Components Operations had sales of $97 million and operating
income of $8 million for the quarter ended March 31, 1996, decreases of $11
million (10.2%) and $4 million (33.3%), respectively, from the second quarter of
fiscal 1995. Sales and operating income from the Company's premium automotive
leather business declined sharply due to weakness in those sectors of the
automotive industry served by the Company and the unfavorable impact of reduced
sales and negative production variances resulting from the strike at General
Motors. Sales and operating income from the Company's powdered metals business
declined due primarily to lower average copper prices relative to the second
quarter of fiscal 1995.
The Other Industrial Products Operations had sales of $16 million and operating
income of $1 million for the quarter ended March 31, 1996, both unchanged from
the second quarter of fiscal 1995.
14
<PAGE>
INTEREST, EQUITY INVESTMENT AND TAXES
Interest expense was $14 million in the three months ended March 31, 1996, a $10
million (41.7%) decrease from the second quarter of fiscal 1995. The decrease
reflects lower levels of debt outstanding and lower average interest rates.
Interest income totaled $2 million in the three months ended March 31, 1996,
unchanged from the second quarter of fiscal 1995.
The Company recorded a loss for its equity investment in Ground Round
Restaurants, Inc. of $1 million during the three months ended March 31, 1996.
Hanson exercised its right to transfer this investment directly to a subsidiary
of the Company immediately following the Demerger and, accordingly, there were
no investment results in the comparable period of fiscal 1995.
The Company's provision for income taxes totaled $16 million in the three months
ended March 31, 1996 on pre-tax income of $35 million (a 45.7% effective tax
rate) as compared to a $8 million provision on pre-tax income of $21 million (a
38.1% effective tax rate) in the second quarter of fiscal 1995. The provision
for the second quarter of fiscal 1995 is net of an adjustment to reduce the
overall effective rate to the rate anticipated for the full fiscal year.
15
<PAGE>
SIX MONTHS ENDED MARCH 31, 1996
COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
INTRODUCTION
The Company had sales of $1,076 million and operating income of $96 million for
the six months ended March 31, 1996, increases of $17 million (1.6%) and $6
million (6.7%), respectively, over the comparable period of fiscal 1995.
CONSUMER GROUP
The Consumer Group had sales of $483 million and operating income of $57 million
for the six months ended March 31, 1996, increases of $27 million (5.9%) and $7
million (14.0%), respectively, over the comparable period of fiscal 1995.
The Housewares Operations reported sales of $201 million and operating income of
$44 million for the six months ended March 31, 1996, increases of $21 million
(11.7%) and $8 million (22.2%), respectively, from the comparable period of
fiscal 1995. Sales of high-margin vacuum cleaners substantially exceeded the
prior period levels due to continued international growth. Sales and operating
income from winter and spring tools were also improved from the comparable
period of fiscal 1995.
The Recreation and Leisure Operations had sales of $127 million and operating
income of $1 million for the six months ended March 31, 1996, increases of $15
million (13.4%) and $4 million respectively, from the comparable period of
fiscal 1995. The Company's toy and golf equipment businesses reversed prior year
operating losses on the strength of improved results compared to the second
quarter of fiscal 1995. Golf club sales and operating income improved due
primarily to the inclusion and success of the Odyssey line of putters acquired
in March 1995 and the absence of markdowns taken during the second quarter of
the prior fiscal year. Increased sales of collectible toys and model kits
partially offset declines in sales of higher-margin promotional toys. Order
backlogs for promotional toys at March 31, 1996 were significantly below those
at March 31, 1995.
The Footwear Operations had sales of $86 million and operating income of $9
million for the six months ended March 31, 1996, decreases of $5 million (5.5%)
and $2 million (18.2%), respectively, from the comparable period of fiscal 1995.
Weak demand for high-margin western boots more than offset cost reductions and
slightly improved performance in other product lines.
The Textiles Operations had sales of $69 million and operating income of $3
million for the six months ended March 31, 1996, decreases of $4 million (5.5%)
and $3 million (50.0%), respectively, from the comparable period of fiscal 1995.
Weak demand for lace, tricot and dyed yarns was the principal cause of the
decline. The disproportionate impact on operating
16
<PAGE>
income was attributable to unfavorable manufacturing variances that resulted
from curtailed production during the second quarter.
BUILDING PRODUCTS GROUP
The Building Products Group had sales of $375 million and operating income of
$33 million for the six months ended March 31, 1996, increases of $9 million
(2.5%) and $4 million (13.8%), respectively, from the comparable period of
fiscal 1995.
The Bath Products Operations had sales of $130 million and operating income of
$17 million for the six months ended March 31, 1996, an increase of $5 million
(4.0%) and a decrease of $2 million (10.5%) respectively, from the comparable
period of fiscal 1995. Strong European sales, particularly of new higher-margin
products, offset weak results in North American operations during the current
six month period. The Company's North American operations will include Haugh's
during the second half of the current fiscal year.
The Lighting Products and Systems Operations had sales of $245 million and
operating income of $16 million for the six months ended March 31, 1996,
increases of $4 million (1.7%) and $6 million (60.0%), respectively, from the
comparable period of fiscal 1995. The impact of favorable outdoor lighting
market conditions offset soft market conditions in the residential lighting
market. Current period operating income benefited from new products, cost
reductions and reduced goodwill amortization.
INDUSTRIAL GROUP
The Industrial Group had sales of $218 million and operating income of $19
million for the six months ended March 31, 1996, decreases of $19 million (8.0%)
and $5 million (20.8%), respectively, from the comparable period of fiscal 1995.
The Automotive Components Operations had sales of $184 million and operating
income of $16 million for the six months ended March 31, 1996, decreases of $22
million (10.7%) and $6 million (27.3%), respectively, from the comparable period
of fiscal 1995. Sales and operating income from the Company's premium automotive
leather business declined sharply due to weakness in those sectors of the
automotive industry served by the Company and the unfavorable impact of reduced
sales and negative production variances resulting from the strike at General
Motors. Sales and operating income from the Company's powdered metals business
declined due primarily to lower average copper prices relative to the comparable
period of the prior fiscal year.
The Other Industrial Products Operations had sales of $34 million and operating
income of $3 million for the six months ended March 31, 1996, increases of $3
million (9.7%) and $1 million (50.0%), respectively, from the comparable period
of fiscal 1995. Both sales and operating income exceeded prior year levels due
to strong demand for lead frames and polypropylene film during the first fiscal
quarter of the current year.
17
<PAGE>
INTEREST, EQUITY INVESTMENT AND TAXES
Interest expense was $34 million in the six months ended March 31, 1996, a $13
million (27.7%) decrease from the comparable period of the prior fiscal year.
The decrease reflects lower levels of debt outstanding as well as lower average
interest rates. Interest income was $4 million in the six months ended March 31,
1996, a $1 million increase from the comparable period of the prior fiscal year.
The increase was attributable to higher average foreign cash balances invested
during the current period.
The Company recorded a loss for its equity investment in Ground Round
Restaurants, Inc. of $2 million during the six months ended March 31, 1996.
Hanson exercised its right to transfer this investment directly to a subsidiary
of the Company immediately following the Demerger and, accordingly, there were
no investment results in the comparable period of the prior fiscal year.
The Company's provision for income taxes totaled $28 million in the six months
ended March 31, 1996 on pre-tax income of $62 million (a 45% effective tax rate)
as compared to a $18 million provision on pre-tax income of $42 million (a 43%
effective tax rate) in the six months ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources are cash
provided from operations, proceeds from sales of non-strategic businesses and
assets and borrowings under the Credit Facility described below.
On December 21, 1995, the Company and its subsidiaries entered into the Credit
Facility, which consists of a 4 1/2-year secured amortizing term loan facility
in the amount of $400 million and a 5-year secured revolving credit facility in
an amount up to $575 million (including a swingline loan facility in an amount
of up to $50 million and a letter of credit facility in the amount of up to $75
million). Upon entering into the Credit Facility, the Company repaid all loans
outstanding under its previous bank credit facility with amounts borrowed at
lower rates under the new facility. During the first quarter of fiscal 1996 a
net-of-tax, noncash, extraordinary charge of approximately $25 million was
incurred to write-off unamortized deferred financing costs and to recognize
previously deferred losses associated with the interest rate protection
agreements which had been designated as hedges of the previous credit agreement.
During the first quarter of fiscal 1996, the Company utilized cash proceeds from
the sale of non-strategic businesses and other assets as well as internally
generated funds to prepay approximately $200 million of the amounts outstanding
under the term loan facility of its previous credit agreement. In the second
quarter, internally generated funds were more than offset by expenditures to
purchase common stock of the Company for treasury, leading to an overall
increase in outstanding indebtedness. Remaining required amortization under the
term
18
<PAGE>
loan facility at March 31, 1996 is as follows: $100 million on June 15, 1998;
$100 million on June 15, 1999; and $200 million on June 15, 2000. Amortization
payments may be satisfied by borrowing under the revolving credit facility to
the extent there is availability thereunder. The term loan facility is subject
to certain mandatory prepayments from asset sales which will be credited against
amortization requirements in the manner specified in the Credit Facility. The
revolving credit facility matures on December 15, 2000.
The interest rates for loans outstanding under the Credit Facility are based on
specified spreads (adjusted quarterly based on a Consolidated Leverage Ratio
specified in the Credit Facility) over, at the option of the Company, (i) the
London interbank offered rate ("LIBOR") or (ii) the higher of the rate of
interest publicly announced by Bank of America in San Francisco, California as
its reference rate or the federal funds rate in effect on such day (the "Base
Rate"). The spread on LIBOR-based borrowings ranges between 62.5 and 150 basis
points and the spread on Base Rate borrowings ranges between zero and 50 basis
points. At March 31, 1996 the spreads were 62.5 basis points and zero basis
points, respectively. On May 17, 1996, reflecting a seasonal increase in working
capital, such spreads are expected to be adjusted to 87.5 basis points and zero
basis points, respectively. At March 31, 1996, three-month LIBOR was 5.44% per
annum. A commitment fee is payable on a quarterly basis in arrears to the
lenders under the Credit Facility on the aggregate unused amount of the
revolving credit facility. The commitment fee (adjusted quarterly based on the
Consolidated Leverage Ratio) ranges between 15 and 30 basis points per annum. At
March 31, 1996, the commitment fee was 15 basis points per annum; on May 17,
1996 it is expected to be adjusted to 20 basis points per annum. The Company's
existing interest rate protection agreements have been designated as hedges of
indebtedness incurred under the Credit Facility.
Net cash provided by operating activities was $39 million for the six months
ended March 31, 1996 compared to $38 million for the comparable period of fiscal
1995, of which $32 million and $52 million, respectively, was provided by
continuing operations.
Net cash provided by investing activities was $148 million for the six months
ended March 31, 1996 compared to net cash used of $44 million for the comparable
period of fiscal 1995. The six months ended March 31, 1996 included proceeds of
$170 million from the sale of businesses, offset by capital expenditures of $22
million.
Net cash used in financing activities was $201 million for the six months ended
March 31, 1996 compared to net cash provided by financing activities of $7
million for the comparable period of fiscal 1995. The change is attributable to
long-term debt and note repayments in excess of new borrowings totaling $166
million and the purchase of $35 million of the Company's common stock for
treasury.
At March 31, 1996, the Company had current maturities of long-term debt and
short-term notes payable aggregating $29 million as well as $54 million of
unused availability under uncommitted short-term lines of credit. The Company
also had $225 million of unused credit available under its long-term revolving
credit facility at March 31, 1996. The Company
19
<PAGE>
believes that cash provided from operations, the net proceeds of further
dispositions of nonstrategic businesses and assets, and availability under the
revolving credit facility will provide adequate support for the Company's cash
needs for working capital, capital expenditures for existing businesses and
future amortization payments under the term loan facility.
Total stockholders' equity increased by $39 million from September 30, 1995 to
March 31, 1996 principally due to net income for the six months ended March 31,
1996, offset by purchases of 1,874,391 of the Company's common shares for
treasury at an average price of $18.48 per share for a total cash outlay of
approximately $35 million. An odd lot repurchase program, established to
purchase shares from stockholders who owned fewer than 100 shares of common
stock expired on December 1, 1995 and accounted for 683,304 of the shares
purchased. Subsequently, the Company instituted an additional share purchase
program to allow for purchases of up to $50 million in the aggregate of the
Company's common stock inclusive of purchases made through the odd-lot
repurchase program. Such purchases may be made from time to time in the open
market or through private transactions at prices deemed acceptable by
management. This program accounted for the remainder of the shares repurchased.
As of May 7, 1996, approximately $40 million of the $50 million authorization
had been utilized.
OUTLOOK
While the economic outlook is mixed, the Company currently believes that it will
achieve a meaningful increase in earnings per share in fiscal 1996. Assuming a
continuation of current economic conditions, and recognizing that more than half
of the Company's operating income is earned in the second half of the year, the
Company currently believes that its income from continuing operations should be
in the upper half of analysts' current estimates, which range from $1.45 to
$1.65 per share for fiscal 1996.
NOTE
The forward-looking statement set forth under "Outlook" above represents
management's current best judgment as to what will occur in fiscal 1996.
However, the Company's actual results for the current fiscal year will depend
upon a number of economic, competitive and other factors, in particular no
significant increases in interest rates or significant declines in consumer
demand. These factors, some which are outside the Company's control, could cause
the Company's actual results for fiscal 1996 to differ materially from
management's current estimate.
20
<PAGE>
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 8, 1996. At the meeting:
1. The following persons were elected as Directors of the Company
in Class I, to serve until the 1999 Annual Meeting and until their successors
are elected and qualified:
Name Votes For Votes Withheld
---- --------- --------------
Derek C. Bonham 40,240,061 1,012,680
John J. McAtee, Jr. 40,265,624 987,117
John G. Raos 40,282,289 970,452
The terms of Directors of the Company in Class II and Class III
will continue until the 1997 and 1998 Annual Meetings of Stockholders,
respectively.
2. The U.S. Industries, Inc. Annual Performance Incentive Plan
was approved by the stockholders, as follows:
Votes For: 39,329,156
Votes Against: 869,666
Abstentions: 1,053,919
3. Amendments to the U.S. Industries, Inc. Stock Option Plan were
approved by the stockholders, as follows:
Votes For: 32,433,089
Votes Against: 7,745,474
Abstentions: 1,074,178
4. The selection of Ernst & Young LLP as independent auditors to
audit the Consolidated Financial Statements of the Company and its subsidiaries
for the fiscal year ended September 30, 1996 was ratified by the stockholders,
as follows:
Votes For: 41,177,461
Votes Against: 28,366
Abstentions: 46,914
A detailed description of the U.S. Industries, Inc. Annual Performance Incentive
Plan and the U.S. Industries, Inc. Stock Option Plan were included in, and are
incorporated by reference to,
21
<PAGE>
the Company's definitive proxy statement for its 1996 Annual Meeting of
Stockholders, which was filed with the Commission on December 13, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
1. Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarterly
period ended March 30, 1996.
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. INDUSTRIES, INC.
Date: May 14, 1996 /s/ Frank R. Reilly
-------------------
Frank R. Reilly
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
23
<PAGE>
U.S. INDUSTRIES, INC.
EXHIBIT INDEX
1. Exhibit 27 - Financial Data Schedule
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial
information extracted from the financial
statements contained in the body of the
accompanying Form 10-Q and is qualified in
its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-30-1995
<CASH> 37
<SECURITIES> 0
<RECEIVABLES> 391
<ALLOWANCES> 37
<INVENTORY> 396
<CURRENT-ASSETS> 892
<PP&E> 756
<DEPRECIATION> 421
<TOTAL-ASSETS> 1,768
<CURRENT-LIABILITIES> 384
<BONDS> 799
0
0
<COMMON> 1
<OTHER-SE> 450
<TOTAL-LIABILITY-AND-EQUITY> 1,768
<SALES> 1,076
<TOTAL-REVENUES> 1,076
<CGS> 727
<TOTAL-COSTS> 727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> 62
<INCOME-TAX> 28
<INCOME-CONTINUING> 32
<DISCONTINUED> 64
<EXTRAORDINARY> (25)
<CHANGES> 0
<NET-INCOME> 71
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
</TABLE>
