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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 December 29, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 1-14557
U.S. INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of 22-3568449
incorporation or organization) (I.R.S.Employer Identification No.)
101 WOOD AVENUE SOUTH
ISELIN, NJ 08830
(Address of principal executive offices)
(732) 767-0700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes /x/ No / /
As of February 1, 2002 U.S. Industries, Inc. had one class of common stock, of
which 74,332,088 shares were outstanding.
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U.S. INDUSTRIES, INC.
INDEX
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
for the Three Months Ended December 31, 2001 and 2000............. 1
Condensed Consolidated Balance Sheets as of December 31, 2001
and September 30, 2001............................................ 2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended December 31, 2001 and 2000............. 3
Notes to Condensed Consolidated Financial Statements.............. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ...................................................... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 21
Item 6. Exhibits and Reports on Form 8-K.................................. 21
SIGNATURES ........................................................................... 22
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
U.S. INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31
2001 2000
--------- ---------
Net sales $ 254.4 $ 251.8
Operating costs and expenses:
Cost of products sold 178.3 181.8
Selling, general and administrative expenses 61.5 58.0
--------- ---------
Operating income 14.6 12.0
Interest expense (22.9) (19.8)
Interest income 1.9 7.0
Other expense, net (0.6) (5.2)
--------- ---------
Loss before income taxes, discontinued operations
and cumulative effect of accounting change (7.0) (6.0)
Benefit for income taxes -- 2.4
--------- ---------
Loss from continuing operations (7.0) (3.6)
Income from discontinued operations, net of tax provision of
$0.5 million in 2000 -- 0.1
Cumulative effect of accounting change, net of taxes of $0.8 in 2000 -- (0.7)
--------- ---------
Net loss $ (7.0) $ (4.2)
========= =========
Loss per basic share:
Continuing operations $ (0.10) $ (0.05)
Discontinued operations -- --
Cumulative effect of accounting change -- (0.01)
--------- ---------
Net loss $ (0.10) $ (0.06)
========= =========
Loss per diluted share:
Continuing operations $ (0.10) $ (0.05)
Discontinued operations -- --
Cumulative effect of accounting change -- (0.01)
--------- ---------
Net loss $ (0.10) $ (0.06)
========= =========
Cash dividend declared per share $ -- $ 0.05
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
1
U.S. INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
DECEMBER 31, SEPTEMBER 30,
2001 2001
---------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 54.1 $ 65.2
Trade receivables, net 213.0 228.8
Inventories 185.5 191.0
Deferred income taxes 6.2 6.2
Net assets held for sale 470.5 491.6
Income taxes receivable 9.3 6.8
Other current assets 131.0 137.4
---------- ----------
Total current assets 1,069.6 1,127.0
Restricted cash collateral accounts 5.4 4.4
Property, plant and equipment, net 155.2 158.5
Other assets 187.3 184.3
Goodwill and other intangibles, net 301.9 302.4
---------- ----------
$ 1,719.4 $ 1,776.6
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 12.3 $ 12.0
Current maturities of long-term debt 816.6 436.5
Trade accounts payable 87.4 101.3
Accrued expenses and other current liabilities 108.1 123.5
---------- ----------
Total current liabilities 1,024.4 673.3
Long-term debt 382.0 778.3
Deferred income taxes 12.5 12.5
Other liabilities 107.2 112.9
---------- ----------
Total liabilities 1,526.1 1,577.0
Commitments and contingencies
Stockholders' equity 193.3 199.6
---------- ----------
$ 1,719.4 $ 1,776.6
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
2
U.S. INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
2001 2000
------- --------
OPERATING ACTIVITIES:
Loss from continuing operations $ (7.0) $ (3.6)
Adjustments to reconcile the loss from continuing operations to
net cash used in operating activities of continuing operations:
Depreciation and amortization 6.7 12.0
Amortization of deferred financing costs 1.7 0.9
Other operating activities, net 1.1 (1.1)
Changes in operating assets and liabilities,
excluding the effects of dispositions (12.8) (6.5)
------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
OF CONTINUING OPERATIONS (10.3) 1.7
------- --------
Income from discontinued operations -- 0.1
Decrease (increase) in net assets of discontinued operations 16.0 (36.7)
------- --------
NET CASH PROVIDED (USED IN) DISCONTINUED OPERATIONS 16.0 (36.6)
------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5.7 (34.9)
------- --------
INVESTING ACTIVITIES:
Proceeds from sale of businesses -- 7.5
Purchases of property, plant and equipment (5.2) (6.6)
Proceeds from sale of excess real estate -- 3.2
Proceeds from the sale of fixed assets 1.3 0.1
Other investing activities, net (0.1) (0.1)
------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (4.0) 4.1
------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt 28.1 826.9
Repayment of long-term debt (45.3) (760.0)
Proceeds (repayment) of notes payable, net 0.6 (18.9)
Proceeds from exercise of stock options -- 0.3
Payment of collateral on equity instrument contract -- (17.8)
Payment of dividends -- (3.9)
------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (16.6) 26.6
Effect of exchange rate changes on cash and cash equivalents 3.8 6.9
------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (11.1) 2.7
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 65.2 24.7
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 54.1 $ 27.4
======= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN MILLIONS)
NOTE 1-BASIS OF PRESENTATION
U.S. Industries, Inc., together with its subsidiaries (the "Company"),
manufacture and distribute a broad range of consumer and industrial products.
Certain amounts have been reclassified in the prior year to reflect the
discontinuance of certain operations (see Note 10) and to conform them to the
presentation used in the current year.
The Company operates on a 52- or 53-week fiscal year ending on the Saturday
nearest to September 30. Any three-month data contained in this Report on Form
10-Q reflects the results of operations for the 13-week period ended on the
Saturday nearest December 31 of the respective year, but are presented as of
December 31 for convenience. The Company's condensed consolidated interim
financial statements as of December 31, 2001 and for the 13-week periods ending
December 31, 2001 (also referred to as the "First Quarter of 2002") and December
31, 2000 (also referred to as the "First Quarter of 2001") are unaudited.
However, in the Company's opinion, these financial statements reflect all
normal, recurring adjustments necessary to provide a fair presentation of its
financial position, results of operations and cash flows for the periods
presented. These interim financial statements are condensed, and thus, do not
include all of the information and footnotes required by generally accepted
accounting principles for presentation of a complete set of financial
statements.
On December 28, 2001, the Board of Directors approved a formal Disposal Plan for
five businesses in connection with the Company's obligation to pay debt
amortization as set forth in the restructured debt agreements. The Disposal Plan
calls for the sale of the five businesses, Ames True Temper, Selkirk, Lighting
Corporation of America, Spear & Jackson and SiTeco Lighting, during 2002. The
net assets of the discontinued businesses are included in net assets held for
sale in all periods presented.
The Company expects to satisfy operating liquidity needs through operating
cash flow and borrowings under its credit facilities. The Company completed
the sale of Ames True Temper and the Strategic Notes in January 2002. The net
proceeds from these sales were sufficient to fund the required reductions of
the Company's senior debt through March 31, 2002. Additional required
permanent reductions of approximately $180 million and $150 million are due
on June 30 and October 15, 2002, respectively. The remaining outstanding
balance is due November 30, 2002 (see Note 4). The Company continues to
actively pursue its Disposal Plan (see Note 10). However, there can be no
assurance when or whether the Company will consummate these transactions. If
the Company is unable to consummate asset disposals as outlined in its
Disposal Plan in time to meet scheduled amortizations, the Company expects to
seek further restructuring of its credit facilities. Furthermore, the
proceeds of the Disposal Plan, if consummated in its entirety, and the sale
of the Strategic Notes will be insufficient to repay the Restructured
Facilities upon their maturity in November 2002. Accordingly, the Company
will have to restructure or refinance its existing Restructured Facilities
before their scheduled maturity in November 2002. The Company believes it
will be able to restructure or refinance its existing Restructured Facilities
before their scheduled maturity in November 2002. However, there can be no
assurance that it will be able to do so. The Company's auditors have issued
their opinion on the September 30, 2001 consolidated financial statements
with a going concern explanatory paragraph. The accompanying condensed
consolidated financial statements have been prepared on a going concern basis
of accounting and do not include any adjustments that might result if the
Company were unable to continue as a going concern.
These interim results are not necessarily indicative of the results that should
be expected for the full year. For a better understanding of the Company and its
financial statements, the condensed interim financial statements should be read
in conjunction with the Company's audited financial statements for the year
ended September 30, 2001, which are included in its 2001 Annual Report on Form
10-K, filed on January 14, 2002.
NOTE 2-INVENTORIES
Inventories consist of the following:
DECEMBER 31, SEPTEMBER 30,
2001 2001
----------- ------------
Finished products $ 111.6 $ 115.6
Work-in process 12.1 11.5
Raw materials 61.8 63.9
-------- --------
$ 185.5 $ 191.0
======== ========
4
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
NOTE 3 - GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, effective for the fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. SFAS 141 is
effective commencing July 1, 2001, and the Company elected to adopt SFAS 142 as
of October 1, 2001. Accordingly, as of October 1, 2001, the Company no longer
amortizes goodwill.
As of December 31, 2001, the Company had net goodwill of $232.7 million in
the Bath & Plumbing segment, compared to $233.5 million as of September 30,
2001. The decrease in the goodwill balance is due to exchange rate
fluctuations.
Identifiable intangible assets as of December 31, 2001 are comprised of:
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
------- -------------
Amortizable intangible assets $ 0.9 $ 0.1
Non-amortizable intangible assets 68.3 --
------- ------
Total identifiable intangible assets $ 69.2 $ 0.1
======= ======
Amortizable intangible assets consist of patented technology, which will be
amortized over its 10-year useful life. Non-amortizable intangible assets
include a trade name and distributor network.
The reported net loss before the cumulative effect of accounting change of
$3.5 million in the first quarter of 2001 would have decreased to $0.1
million if adjusted to exclude goodwill amortization. The following table
presents actual results of operations for the first quarter of 2002 and a
reconciliation of reported net loss to the adjusted net loss for the first
quarter of 2001:
FIRST QUARTER
2002 2001
-------- --------
Net loss:
Reported net loss $ (7.0) $ (4.2)
Add back: Goodwill amortization after-tax -- 3.4
-------- --------
Adjusted net loss (7.0) (0.8)
Basic loss per share:
Reported net loss per share $ (0.10) $ (0.05)
Addback: Goodwill amortization -- 0.4
-------- --------
Adjusted loss per share $ (0.10) $ (0.01)
======== ========
Diluted earnings per share results are not presented above as the effect would
be antidilutive.
5
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
NOTE 4-LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, SEPTEMBER 30,
2001 2001
---------- ----------
7.125% Senior Notes, net $ 249.2 $ 249.1
7.25% Senior Notes, net 123.9 123.9
Restructured Facilities, Rexair 166.6 166.2
Restructured Facilities, U.S. Industries 649.0 665.3
Other long-term debt 9.9 10.3
---------- ----------
1,198.6 1,214.8
Less current maturities (816.6) (436.5)
---------- ----------
Long-term debt $ 382.0 $ 778.3
========== ==========
On August 15, 2001, the Company finalized a comprehensive restructuring of
its bank debt and the bank debt of Rexair Inc. ("Rexair"), which was
reacquired from Strategic Industries, LLC ("Strategic") on the same date. For
more detailed information on these facilities ("the Restructured Facilities"),
refer to the Company's Annual Report on Form 10-K for the year ended
September 30, 2001. The Restructured Facilities require cumulative permanent
reductions of the Company's senior debt over the term of the facilities,
which mature on November 30, 2002. In addition, the Senior Notes and
Restructured facilities contain cross default and cross acceleration
provisions.
On December 21, 2001, the Company obtained a waiver from its lenders under
the Restructured Facilities that permitted the Company to satisfy the
permanent reduction scheduled on December 31, 2001 of $75 million through a
permanent reduction of the unfunded commitments under the Restructured
Facilities, to the extent not satisfied through cash flow or asset sale
proceeds. The Company reduced the unfunded commitment under the Restructured
Facilities by approximately $58 million to satisfy the $75 million reduction
scheduled on December 31, 2001.
On January 14, 2002, the Company sold Ames True Temper to Wind Point Partners V,
L.P. and Wind Point Partners IV, L.P. and their affiliates for approximately
$165.0 million, before transaction costs and preliminary working capital
adjustments totaling approximately $14.2 million. The net proceeds approximated
the carrying value of the businesses. The entire net cash proceeds were applied
to reduce the Company's funded and unfunded senior debt, approximately $44
million of which were deposited into cash collateral accounts for the benefit of
the holders of the Company's Senior Notes and certain other creditors. The
remainder was remitted to the Lenders under the Restructured Facilities, and the
total facility was permanently reduced by that amount. As a result of the
remittance, the Lenders restored the approximate $58 million of borrowing
capacity under the unfunded commitments of the Restructured Facilities.
On January 16, 2002, the Company sold its Strategic Notes and equity interest
in Strategic to Strategic and its affiliates for approximately $105.9 million,
net of transaction costs of approximately $1.7 million. The net proceeds
approximated the carrying value of the Strategic Notes and equity investment.
The entire net cash proceeds were applied to reduce the Company's funded and
unfunded senior debt, approximately $32 million of which were deposited into
cash collateral accounts for the benefit of the holders of the Company's
Senior Notes and certain other creditors. The remainder was remitted to the
Lenders under the Restructured Facilities, and the total facility was
permanently reduced by that amount. The proceeds from the sale of Ames True
Temper and the Strategic Notes satisfied the required permanent reductions of
the Company's senior debt through March 31, 2002.
At January 31, 2002, excluding all amounts related to the amended Rexair
Credit Facility, the Company had approximately $675.9 million committed under
the Restructured Facilities, of which approximately $524.2 million had been
utilized and the balance of $151.7 million was available. Also at January 31,
2002, $9.7 million was available for borrowing solely by Rexair under the
amended Rexair Credit Facility. These amounts are net of letters of credit
outstanding of $19.3 million at January 31, 2002. In addition, the Company
had letters of credit outstanding with other financial institutions totaling
$31.4 million as of January 31, 2002.
6
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
NOTE 5-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 47
sites, of which it has been named as a Potentially Responsible Party ("PRP") at
16 "superfund" sites pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or comparable statutes. As of December
31, 2001, the Company had accrued $10.9 million ($1.1 million accrued as current
liabilities; $9.8 as non-current liabilities) for known environmental-related
matters. The Company believes that the range of liability for such matters is
between $7.6 million and $16.8 million. For more detailed information regarding
management's assessment of this potential liability, refer to the Company's
Annual Report on Form 10-K for the year ended September 30, 2001.
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.
In June 1998, the Company acquired Zurn Industries, Inc. ("Zurn"). Zurn is a
wholly-owned subsidiary of the Company. Zurn, along with many other companies,
is a codefendant in numerous asbestos related lawsuits pending in the United
States. Plaintiffs' claims against Zurn allege personal injuries allegedly
caused by exposure to asbestos used in industrial boilers formerly manufactured
by Zurn. As reported by numerous other asbestos defendants, there has been a
significant increase in the number of asbestos suits filed over the past several
years. Zurn has also experienced an increase in the number of suits filed
against it in the last fiscal year. As of December 31, 2001, the number of
asbestos claims pending against Zurn was approximately 57,000.
Since Zurn received its first asbestos claim in the 1980's, Zurn has settled or
otherwise disposed of approximately 37,000 asbestos claims. Zurn's insurers have
paid all settlement costs relating to these claims in an aggregate amount that
has not eroded the available insurance coverage by a material amount. Defense
costs are currently being paid by Zurn's insurers without eroding the coverage
amounts of its insurance policies.
Zurn estimates that its potential liability for asbestos claims pending
against it and for claims estimated to be filed over a 10 year period (i.e.,
through 2011) is approximately $107 million. This estimate is based on its
view of the current and anticipated number of asbestos claims, the timing and
amounts of asbestos payments and the status of ongoing litigation, defense
strategies and settlement initiatives. However, there are inherent
uncertainties involved in estimating both the number of future asbestos
claims as well as future settlement costs, and the actual liability could
exceed Zurn's estimate due to changes in facts and circumstances after the
date of the estimate. Further, while there is presently no reasonable basis
for estimating Zurn's asbestos liability beyond 2011, such liability may
continue beyond 2011, and such liability could be substantial.
Zurn's available insurance to cover its potential asbestos liability is between
approximately $310 million to $372 million. Zurn believes, based on its
experience in defending the claims and the amount of insurance coverage
available, that it has sufficient insurance to cover the pending and reasonably
estimable future claims. This conclusion was reached after considering the
insurance payments made to date by Zurn's insurance carriers, existing insurance
policies, and the advice of insurance coverage counsel with respect to
applicable insurance coverage law relating to the terms and conditions of those
policies. After review of the foregoing with Zurn and its consultants, the
Company believes that the resolution of Zurn's pending and reasonably estimable
asbestos claims will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
7
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
NOTE 6-COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
FIRST QUARTER
2002 2001
------ ------
Net loss $ (7.0) $ (4.2)
Foreign currency translation:
Adjustment arising during the period -- 2.7
Reclassification adjustment in earnings -- 5.0
Derivative instruments and hedging activities:
Fair value adjustment arising during period (0.3) 1.2
Reclassification adjustment in earnings 0.4 --
------ ------
Comprehensive income (loss) $ (6.9) $ 4.7
====== ======
NOTE 7-EARNINGS PER SHARE
The Company's weighted average number of common shares outstanding was 74.0
million and 76.0 million for the first quarter of 2002 and 2001,
respectively. Diluted earnings per share information is not presented as the
result would have been anti-dilutive since the Company recorded a net loss
from continuing operations in both periods. Options to purchase 6.1 and 6.4
million shares in the first quarter of 2002 and 2001, respectively, were not
included in the Company's computation of diluted earnings per share. The
effect of assuming that 0.9 million and 1.1 million shares of restricted
stock vested in the first quarter of 2002 and 2001, respectively, was also
excluded from the computation of diluted earnings per share.
NOTE 8-SEGMENT DATA
The Company currently operates in two reportable business segments - Bath &
Plumbing and Rexair. The Company has redefined its business segments for fiscal
2002 due to the acquisition of Rexair on August 15, 2001. The Rexair segment
consists solely of the Rexair business. The following is a summary of the
significant accounts and balances by segment, reconciled to the consolidated
totals.
BATH & CONSOLIDATED
PLUMBING REXAIR CORPORATE TOTAL
------------- ------------ ----------- ------------
(IN MILLIONS)
NET SALES
First Quarter 2002 .......... $ 227.8 $ 26.6 $ -- $ 254.4
First Quarter 2001 .......... 251.8 -- -- 251.8
--------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME (LOSS)
First Quarter 2002 .......... $ 14.2 $ 7.6 $ (7.2) $ 14.6
First Quarter 2001 .......... 16.8 -- (4.8) 12.0
--------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES
First Quarter 2002 .......... $ 5.1 $ 0.1 $ -- $ 5.2
First Quarter 2001 .......... 6.6 -- -- 6.6
--------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
First Quarter 2002 .......... $ 5.4 $ 0.8 $ 0.5 $ 6.7
First Quarter 2001 .......... 11.3 -- 0.7 12.0
--------------------------------------------------------------------------------------------
ASSETS (1)
As of December 31, 2001 ..... $ 868.5 $ 117.8 $ 733.1 $ 1,719.4
As of September 30, 2001 .... 902.6 118.4 755.6 1,776.6
(1) Corporate assets include net assets held for sale of $470.5
million as of December 31, 2001 and $491.6 million as of September 30, 2001.
8
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
NOTE 9- RESTRUCTURING CHARGES
For details on the Company's restructuring activities, refer to the Company's
Annual Report on Form 10-K for the year ended September 30, 2001. The Company
did not incur any charges related to restructuring activities in the first
quarter of 2002 or 2001. As of December 31, 2001, the Company has remaining
accruals of $6.5 million for restructuring costs. The activity in its liability
accounts by cost category is as follows:
LEASE AND SEVERANCE
CONTRACT RELATED AND RELATED TOTAL
ACCRUALS ACCRUALS ACCRUALS
----------------- --------------- ---------------
Balance at September 30, 2001 $ 6.8 $ 0.3 $ 7.1
Cash payments (0.6) - (0.6)
----------------- --------------- ---------------
Balance at December 31, 2001 $ 6.2 $ 0.3 $ 6.5
================= =============== ===============
Approximately $1.8 million of the reserves are included in the balance sheet
caption "Accrued expenses and other current liabilities," while the remaining
$4.7 million are recorded in the balance sheet caption "Other liabilities." The
Company expects the remaining accruals to be paid with cash over the periods
provided by the severance and lease agreements of one and six years,
respectively.
NOTE 10- ACQUISITION/DISPOSITION OF BUSINESS AND DISCONTINUED OPERATIONS
ACQUISITION OF BUSINESS
Contemporaneously with the closing of its debt restructuring on August 15,
2001, the Company reacquired the 75% equity interest in Rexair, the
manufacturer of "Rainbow" vacuum cleaners, previously sold to Strategic as
part of the Diversified transactions in March 2000. The results of Rexair,
are now included in the Rexair segment. The Company accounted for Rexair
under the equity method of accounting during the time period from March 24,
2000 until August 15, 2001 when the Company held only a 25% equity interest.
DISPOSITION OF BUSINESS
During the first quarter of 2001, the Company sold its European HVAC business
for proceeds of $7.5 million, which approximated its carrying value. The
operating results of this business were included in the Bath & Plumbing segment
prior to its disposal.
DISCONTINUED OPERATIONS
On December 28, 2001, the Board of Directors approved a formal Disposal Plan
for five businesses in connection with the Company's obligation to pay debt
amortization as set forth in the restructured debt agreements. The Disposal
Plan calls for the sale of the five businesses, Ames True Temper, Selkirk,
Lighting Corporation of America, Spear & Jackson and SiTeco Lighting, during
2002. The Company completed the sale of Ames True Temper in January 2002.
The operating results of these businesses have been included in discontinued
operations in 2001 and in accordance with APB 30 the fiscal 2002 operating
income has been included in the Company's expected loss on disposal and
therefore is not reflected in the accompanying fiscal 2002 statement of
operations. Summarized results of discontinued operations are as follows:
First Quarter
-----------------------------
2002 2001
------------- --------------
(in millions)
Net sales $ 287.1 $ 304.8
Operating Income 11.5 3.6
Operating income in the first quarter of 2001 included non-recurring charges of
$5.2 million and goodwill amortization of $1.4 million. Included in
non-recurring charges were $3.8 million related to opening a new master
distribution center at Ames True Temper and $1.4 million related to product
sourcing initiatives at Lighting Corporation of America.
9
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
NOTE 10- ACQUISITION/DISPOSITION OF BUSINESS AND DISCONTINUED OPERATIONS
(CONTINUED)
Included in income from discontinued operations in the first quarter of
fiscal 2001 is an after-tax loss of $1.5 million, mainly attributable to the
settlement of certain claims surrounding the previously disposed Power Systems
businesses.
Amounts classified as net assets held for sale consist of the following:
December 31, September 30,
2001 2001
--------------- -------------
(in millions)
Net current assets $ 130.4 $ 144.8
Property, plant and equipment, net 267.5 277.3
Other non-current assets and liabilities, net 72.6 69.5
--------------- -------------
Net assets held for sale $ 470.5 $ 491.6
=============== =============
NOTE 11-INCOME TAXES
The Company has not recorded an income tax benefit for the loss from
continuing operations in fiscal 2002 because of the uncertainty of its
ultimate realization. The Company recorded a $2.4 million benefit on a
pre-tax loss from continuing operations of $6.0 million (an effective tax
rate of approximately 39.5%) in the comparable period of fiscal 2001.
NOTE 12-DERIVATIVES AND HEDGING ACTIVITIES
Effective October 1, 2000, the Company adopted Financial Accounting Standard No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended,
which requires that all derivative instruments be reported on the balance sheet
at fair value and establishes criteria for designation and effectiveness of
hedging relationships. The Company hedged a portion of its variable-rate debt by
entering into an interest rate swap in which the Company agrees to exchange, at
specified intervals, the calculated difference between fixed and variable
interest amounts on $90 million of its debt. The swap, which matures on June 30,
2002, is designated as a cash flow hedge of the underlying variable-rate
interest payments and is recorded as a current liability in the Company's
balance sheet. Since an assessment of the hedging relationship revealed that it
was 100% effective, the entire unrealized loss is recorded in accumulated other
comprehensive income (loss) ("OCI") within stockholders' equity. As of December
31, 2001, there was an unrealized loss of $1.3 million in OCI related to this
contract. The amounts in OCI will be recognized as additional interest expense
over the term of the swap agreement.
NOTE 13-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
The following represents the supplemental consolidating condensed financial
statements of U.S. Industries, Inc.("USI"), USI Global and USIAH which are
the jointly obligated issuers of the Company's Senior Notes, and USI
Atlantic, which is the guarantor of the Notes, and their subsidiaries which
are not guarantors of the Notes, as of December 31, 2001 and September 30,
2001 and for the three months ended December 31, 2001 and 2000, respectively.
Certain of the other subsidiaries have pledged their stock and assets as
collateral for the Senior Notes. 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. Refer to the
Company's Annual Report on Form 10K for the year ended September 30, 2001
with respect to certain security interests in favor of the holders of the
Notes.
10
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
NOTE 13-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
FIRST QUARTER 2002
--------------------------------------------------------------------------
USI USI OTHER ELIMINA- CONSOLI-
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES TIONS DATED
------- -------- -------- ------- ------------ -------- --------
Net Sales $ -- $ -- $ -- $ -- $ 254.4 $ -- $ 254.4
Operating costs and expenses:
Cost of products sold -- -- -- -- 178.3 -- 178.3
Selling, general and administrative expenses 7.1 -- -- -- 54.4 -- 61.5
------- ------- ------- ------- -------- ------- --------
Operating income (loss) (7.1) -- -- -- 21.7 -- 14.6
Interest expense (10.1) (8.6) -- -- (4.2) -- (22.9)
Interest income 1.4 -- -- -- 0.5 -- 1.9
Intercompany interest income (expense), net (7.2) 15.2 -- -- (8.0) -- --
Other income (expense), net 0.9 -- -- -- (1.5) -- (0.6)
Other intercompany income (expense) -- (15.4) -- 15.4 -- -- --
Minority interest income (expense) (15.4) -- -- 15.4 -- -- --
Equity in earnings of investees, net 30.5 1.1 23.1 (7.7) -- (47.0) --
------- ------- ------- ------- -------- ------- --------
Income (loss) before income taxes and
discontinued operations (7.0) (7.7) 23.1 23.1 8.5 (47.0) (7.0)
Provision (benefit) for income taxes -- -- -- -- -- -- --
------- ------- ------- ------- -------- ------- --------
Income (loss) from continuing operations (7.0) (7.7) 23.1 23.1 8.5 (47.0) (7.0)
Loss from discontinued operations, net of tax -- -- -- -- -- -- --
------- ------- ------- ------- -------- ------- --------
Net income (loss) $ (7.0) $ (7.7) $ 23.1 $ 23.1 $ 8.5 $ (47.0) $ (7.0)
======= ======= ======= ======= ======== ======= ========
FIRST QUARTER 2001
--------------------------------------------------------------------------
USI USI OTHER ELIMINA- CONSOLI-
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES TIONS DATED
------- -------- -------- ------- ------------ -------- --------
Net Sales $ -- $ -- $ -- $ -- $ 251.8 $ -- $ 251.8
Operating costs and expenses:
Cost of products sold -- -- -- -- 181.8 -- 181.8
Selling, general and administrative expenses 4.8 -- -- -- 53.2 -- 58.0
------- ------- ------- ------- -------- ------- --------
Operating income (loss) (4.8) -- -- -- 16.8 -- 12.0
Interest expense (9.7) (9.3) -- -- (0.8) -- (19.8)
Interest income 6.1 -- -- -- 0.9 -- 7.0
Intercompany interest income (expense), net (3.9) 11.6 -- -- (7.7) -- --
Other expense, net (4.4) 1.2 -- -- (2.0) -- (5.2)
Other intercompany income (expense) -- (15.4) -- 15.4 -- -- --
Minority interest income (expense) (15.4) -- -- 15.4 -- -- --
Equity in earnings of investees, net 15.1 3.3 14.7 (3.8) -- (29.3) --
------- ------- ------- ------- -------- ------- --------
Income before income taxes, discontinued operations
and cumulative effect of accounting change (17.0) (8.6) 14.7 27.0 7.2 (29.3) (6.0)
Provision (benefit) for income taxes (12.8) (4.8) -- 12.3 2.9 -- (2.4)
------- ------- ------- ------- -------- ------- --------
Income from discontinued operations -- -- -- -- 0.1 -- 0.1
Cumulative effect of accounting change -- -- -- -- (0.7) -- (0.7)
------- ------- ------- ------- -------- ------- --------
Net income (loss) $ (4.2) $ (3.8) $ 14.7 $ 14.7 $ 3.7 $ (29.3) $ (4.2)
======= ======= ======= ======= ======== ======= ========
11
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
NOTE 13-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
AT DECEMBER 31, 2001
--------------------------------------------------------------------------------
USI USI OTHER ELIMINA- CONSOLI-
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES TIONS DATED
---------- ---------- ---------- --------- ------------ --------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 1.6 $ -- $ 0.1 $ -- $ 52.4 $ -- $ 54.1
Trade receivables, net -- -- -- -- 213.0 -- 213.0
Inventories -- -- -- -- 185.5 -- 185.5
Deferred income taxes 22.2 (12.4) -- -- (3.6) -- 6.2
Net assets held for sale -- -- -- -- 470.5 -- 470.5
Income tax receivable 9.3 -- -- -- -- -- 9.3
Other current assets 110.6 -- -- -- 20.4 -- 131.0
---------- ---------- ---------- --------- ---------- ---------- ----------
Total current assets 143.7 (12.4) 0.1 -- 938.2 -- 1,069.6
Restricted cash collateral accounts 5.4 -- -- -- -- -- 5.4
Property, plant and equipment, net 0.6 -- -- -- 154.6 -- 155.2
Other assets 11.5 0.2 -- -- 175.6 -- 187.3
Goodwill, net -- -- -- -- 301.9 -- 301.9
Investments in subsidiaries 1,165.1 804.3 760.3 738.1 -- (3,467.8) --
Intercompany receivable (payable), net (599.6) 469.7 (0.1) 140.2 (10.2) -- --
---------- ---------- ---------- --------- ---------- ---------- ----------
Total assets $ 726.7 $ 1,261.8 $ 760.3 $ 878.3 $ 1,560.1 $ (3,467.8) $ 1,719.4
========== ========== ========== ========= ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ -- $ -- $ -- $ 12.3 $ -- $ 12.3
Current maturities of long-term debt 250.9 398.0 -- -- 167.7 -- 816.6
Trade accounts payable 0.2 -- -- -- 87.2 -- 87.4
Accrued expenses and other current liabilities 14.0 1.8 -- -- 92.3 -- 108.1
---------- ---------- ---------- --------- ---------- ---------- ----------
Total current liabilities 265.1 399.8 -- -- 359.5 -- 1,024.4
Long-term debt 249.2 123.9 -- -- 8.9 -- 382.0
Minority interest -- -- -- 118.0 -- (118.0) --
Deferred income taxes (0.9) -- -- -- 13.4 -- 12.5
Other liabilities 20.0 -- -- -- 87.2 -- 107.2
---------- ---------- ---------- --------- ---------- ---------- ----------
Total liabilities 533.4 523.7 -- 118.0 469.0 (118.0) 1,526.1
Commitments and contingencies
Stockholders' equity 193.3 738.1 760.3 760.3 1,091.1 (3,349.8) 193.3
---------- ---------- ---------- --------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 726.7 $ 1,261.8 $ 760.3 $ 878.3 $ 1,560.1 $ (3,467.8) $ 1,719.4
========== ========== ========== ========= ========== ========== ==========
12
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
NOTE 13-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
AT SEPTEMBER 30, 2001
--------------------------------------------------------------------------------
USI USI OTHER ELIMINA- CONSOLI-
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES TIONS DATED
---------- ---------- ---------- --------- ------------ --------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ (0.3) $ -- $ -- $ -- $ 65.5 $ -- $ 65.2
Trade receivables, net -- -- -- -- 228.8 -- 228.8
Inventories -- -- -- -- 191.0 -- 191.0
Deferred income taxes 22.2 (12.4) -- -- (3.6) -- 6.2
Net assets held for sale -- -- -- -- 491.6 -- 491.6
Income taxes receivable 6.8 -- -- -- -- -- 6.8
Other current assets 118.7 -- -- -- 18.7 -- 137.4
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total current assets 147.4 (12.4) -- -- 992.0 -- 1,127.0
Restricted cash collateral accounts 4.4 -- -- -- -- -- 4.4
Property, plant and equipment, net 0.6 -- -- -- 157.9 -- 158.5
Other assets 12.0 0.2 -- -- 172.1 -- 184.3
Goodwill and other intangibles, net -- -- -- -- 302.4 -- 302.4
Investments in subsidiaries 1,168.9 687.6 647.7 652.4 -- (3,156.6) --
Intercompany receivable (payable), net (592.3) 524.3 -- 128.7 (60.7) -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets $ 741.0 $ 1,199.7 $ 647.7 $ 781.1 $ 1,563.7 $ (3,156.6) $ 1,776.6
========== ========== ========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ -- $ -- $ -- $ 12.0 $ -- $ 12.0
Current maturities of long-term debt 189.1 236.3 -- -- 11.1 -- 436.5
Trade accounts payable 0.7 -- -- -- 100.6 -- 101.3
Accrued expenses and other liabilities 18.5 5.5 -- -- 99.5 -- 123.5
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total current liabilities 208.3 241.8 -- -- 223.2 -- 673.3
Long-term debt 307.3 305.5 -- -- 165.5 -- 778.3
Minority interest -- -- -- 133.4 -- (133.4) --
Deferred income taxes (0.9) -- -- -- 13.4 -- 12.5
Other liabilities 26.7 -- -- -- 86.2 -- 112.9
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 541.4 547.3 -- 133.4 488.3 (133.4) 1,577.0
Commitments and contingencies
Stockholders' equity 199.6 652.4 647.7 647.7 1,075.4 (3,023.2) 199.6
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 741.0 $ 1,199.7 $ 647.7 $ 781.1 $ 1,563.7 $ (3,156.6) $ 1,776.6
========== ========== ========== ========== ========== ========== ==========
13
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
NOTE 13-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
3 MONTHS ENDED DECEMBER 31, 2001
--------------------------------------------------------------------------------
USI USI OTHER ELIMINA- CONSOLI-
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES TIONS DATED
---------- ---------- ---------- --------- ------------ --------- ----------
NET CASH (USED IN) PROVIDED BY $ (28.0) $ (12.3) $ 0.2 $ -- $ 45.8 $ -- $ 5.7
OPERATING ACTIVITIES
INVESTING ACTIVITIES:
Purchases of property, plant and equipment -- -- -- -- (5.2) -- (5.2)
Proceeds from sale of fixed assets -- -- -- -- 1.3 -- 1.3
Net transfers with subsidiaries 27.0 81.7 -- -- -- (108.7) --
Other investing activities, net -- -- -- -- (0.1) -- (0.1)
------- ------- -------- ------- -------- -------- -------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES 27.0 81.7 -- -- (4.0) (108.7) (4.0)
FINANCING ACTIVITIES:
Proceeds from long-term debt 18.7 -- -- -- 9.4 -- 28.1
Repayment of long-term debt (15.0) (20.0) -- -- (10.3) -- (45.3)
Proceeds of notes payable, net -- -- -- -- 0.6 -- 0.6
Net transfers with parent -- (27.0) (0.1) -- (81.6) 108.7 --
------- ------- -------- ------- -------- -------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3.7 (47.0) (0.1) -- (81.9) 108.7 (16.6)
Effect of exchange rate changes on cash and cash
equivalents (0.8) (22.4) -- -- 27.0 -- 3.8
------- ------- -------- ------- -------- -------- -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1.9 -- 0.1 -- (13.1) -- (11.1)
Cash and cash equivalents at beginning of period (0.3) -- -- -- 65.5 -- 65.2
------- ------- -------- ------- -------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 1.6 -- $ 0.1 $ -- $ 52.4 $ -- $ 54.1
======= ======= ======== ======= ======== ======== =======
14
U.S. INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABULAR AMOUNTS IN MILLIONS)
NOTE 13-SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
(CONTINUED)
3 MONTHS ENDED DECEMBER 31, 2000
-----------------------------------------------------------------------
USI USI OTHER ELIMINA- CONSOLI-
USI GLOBAL ATLANTIC USIAH SUBSIDIARIES TIONS DATED
-------- ------- ---- ---- ------- ------- -------
NET CASH USED IN OPERATING ACTIVITIES $ (16.4) $ 0.2 $ -- $ -- $(18.7) $ -- $ (34.9)
INVESTING ACTIVITIES:
Proceeds from sale of businesses 5.1 -- -- -- 2.4 -- 7.5
Purchases of property, plant and equipment -- -- -- -- (6.6) -- (6.6)
Proceeds from sale of excess real estate -- -- -- -- 3.2 -- 3.2
Proceeds from sales of fixed assets -- -- -- -- 0.1 -- 0.1
Net transfers with subsidiaries (16.5) (35.4) -- -- -- 51.9 --
Other investing activities, net -- -- -- -- (0.1) -- (0.1)
-------- ------- ---- ---- ------- ------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (11.4) (35.4) -- -- (1.0) 51.9 4.1
FINANCING ACTIVITIES:
Proceeds from long-term debt 806.9 20.0 -- -- -- -- 826.9
Repayment of long-term debt (757.8) -- -- -- (2.2) -- (760.0)
Proceeds (repayment) from notes payable, net -- -- -- -- (18.9) -- (18.9)
Proceeds from exercise of stock options 0.3 -- -- -- -- -- 0.3
Payment of collateral on equity instrument contract (17.8) -- -- -- -- -- (17.8)
Payment of dividends (3.9) -- -- -- -- -- (3.9)
Net transfers with parent -- 16.5 -- -- 35.4 (51.9) --
-------- ------- ---- ---- ------- ------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 27.7 36.5 -- -- 14.3 (51.9) 26.6
Effect of exchange rate changes on cash and cash
equivalents 0.4 (1.3) -- -- 7.8 -- 6.9
-------- ------- ---- ---- ------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS 0.3 -- -- -- 2.4 -- 2.7
Cash and cash equivalents at beginning of period 0.1 -- -- -- 24.6 -- 24.7
-------- ------- ---- ---- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 0.4 $ -- $-- $ -- $ 27.0 $ -- $ 27.4
======== ======= ==== ==== ======= ======= =======
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(TABULAR AMOUNTS IN MILLIONS)
DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
In December 1995, the Private Securities Litigation Reform Act of 1995 (the
"Act") was enacted by the United States Congress. The Act, as amended, contains
certain amendments to the Securities Act of 1933 and the Securities Exchange Act
of 1934. These amendments provide protection from liability in private lawsuits
for "forward-looking" statements made by public companies. The Company takes
advantage of the "safe harbor" provisions of the Act.
This Quarterly Report on Form 10-Q contains both historical information and
other information that may be used to infer future performance. Examples of
historical information include the Company's quarterly financial statements and
the commentary on past performance contained in its MD&A. While the Company has
specifically identified certain information as being forward-looking in the
context of its presentation, the Company cautions the reader that, with the
exception of information that is clearly historical, all the information
contained in this Quarterly Report on Form 10-Q should be considered to be
"forward-looking statements" as referred to in the Act. Without limitation, when
it uses the words "believe," "estimate," "plan," "expect," "intend,"
"anticipate," "continue," "project," "probably," "should" and similar
expressions, the Company intends to clearly express that the information deals
with possible future events and is forward-looking in nature.
Forward-looking information involves risks and uncertainties. This information
is based on various factors and assumptions about future events that may or may
not actually come true. As a result, the Company's operations and financial
results in the future could differ substantially from those the Company has
discussed in the forward-looking statements in this Quarterly Report and other
documents that have been filed with the Securities and Exchange Commission. In
particular, various economic and competitive factors, including those outside
the Company's control, such as availability of acquisition financing for
purchasers of businesses under the Company's disposal plan, interest rates,
foreign currency exchange rates, instability in domestic and foreign financial
markets, consumer spending patterns, energy costs and availability, freight
costs, availability of consumer and commercial credit, adverse weather, levels
of residential and commercial construction, and changes in raw material costs,
could cause the Company's actual results during the remainder of 2002 and in
future years to differ materially from those expressed in any forward-looking
statement made in this Quarterly Report on Form 10-Q. In addition, the Company's
future results are subject to uncertainties relating to the Company's ability to
consummate its business strategy, including the sale of assets, and 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.
RESULTS OF OPERATIONS
GENERAL
U.S. Industries, Inc., together with its subsidiaries (the "Company"),
manufacture and distribute a broad range of consumer and industrial products.
The Company has redefined its business segments for fiscal 2002 due to the
acquisition of Rexair on August 15, 2001 (see Note 10 to the condensed
consolidated financial statements). The Company now has a Bath & Plumbing
segment and a Rexair segment. The Rexair segment consists solely of the
Rexair business. On December 28, 2001, the Company's Board of Directors
adopted a formal Disposal Plan to dispose of five businesses in connection
with the Company's obligation to pay debt amortization (see Note 10 to the
condensed consolidated financial statements). The Disposal Plan calls for the
sale of the five businesses, Ames True Temper, Selkirk, Lighting Corporation
of America, Spear & Jackson and SiTeco Lighting, during 2002. The operating
results of these businesses have been included in discontinued operations for
all periods presented. The results of operations classified as discontinued
are excluded from the following discussions of the Company's continuing
operating results and are discussed separately under the caption,
"Discontinued Operations."
16
OVERALL
FIRST QUARTER
2002 2001
-------- --------
NET SALES
Bath & Plumbing $ 227.8 $ 251.8
Rexair 26.6 --
-------- --------
TOTAL NET SALES $ 254.4 $ 251.8
======== ========
OPERATING INCOME
Bath & Plumbing $ 14.2 $ 16.8
Rexair 7.6 --
-------- --------
21.8 16.8
Corporate expenses (7.2) (4.8)
-------- --------
TOTAL OPERATING INCOME $ 14.6 $ 12.0
======== ========
The Company's overall sales increased $2.6 million or 1% in the first quarter
of 2002 over the comparable prior year period. Operating income increased
$2.6 million or 22% over the same period. The increase in sales and operating
income is due to the inclusion of the results from Rexair in the fiscal 2002
results. The Company reacquired the 75% equity interest in Rexair on August
15, 2001. The Company previously accounted for Rexair under the equity method
of accounting during the time period from March 24, 2000 until August 15,
2001 when the Company held only a 25% equity interest. Operating income also
increased because the Company stopped amortizing goodwill as part of the
early adoption of SFAS 142 on October 1, 2002. The Company recorded goodwill
amortization of $2.6 million in the first quarter of 2001. This was partially
offset by a decrease in sales and operating income in the Company's Bath &
Plumbing segment and an increase in corporate expenses.
BATH & PLUMBING
Sales in the Bath & Plumbing segment decreased $24.0 million or 10% for the
first quarter of 2002 in comparison with the first quarter of 2001. Sales in
the first quarter of fiscal 2001 included $11.8 million of sales from the
Company's disposed European HVAC businesses and discontinued product lines in
the segment's U.S. Brass operations. The remaining decrease was primarily the
result of the continuing domestic economic downturn and reduced unit sales of
certain homecenter spa and whirlpool bath product lines for which the Company
declined requests for price and service concessions.
Operating income decreased $2.6 million in the first quarter of 2002 when
compared with the prior year. This was primarily due to the decrease in sales
discussed above and the reduced absorption of overhead caused by a reduction
in inventory levels and production. Also contributing to this decrease were
the costs of consolidating selected Whirlpool Bath manufacturing
facilities. The decrease was partially offset by the fact that the segment
stopped amortizing goodwill in accordance with SFAS 142. Operating income in
the first quarter of 2001 included $2.6 million of goodwill amortization and
$4.5 million of non-recurring charges related to accelerated depreciation on
the discontinued U.S. Brass lines.
REXAIR
The Rexair segment consists of the Rexair business, which the Company reacquired
in August 2001. Rexair is a leading manufacturer of premium vacuum cleaner
systems. While still owned by Strategic, Rexair recorded sales and operating
income for the first quarter of fiscal 2001 of $29.0 million and $8.4 million,
respectively. The decreases in both sales and operating income in fiscal 2002
are primarily attributable to a decrease in unit sales in certain of Rexair's
international markets. Operating income in the first quarter of fiscal 2001
included $0.5 million of goodwill amortization.
17
CORPORATE EXPENSES
The increase in corporate expenses is largely due to compensation expense and
professional fees. The Company plans to reduce staff over the course of
fiscal 2002 as its Disposal Plan progresses.
INTEREST INCOME AND EXPENSE
Interest expense increased $3.1 million for the first quarter of 2002 compared
to the respective prior year period. This is largely the result of higher
interest rates under the Restructured Facilities and increased borrowings due to
the re-acquisition of Rexair. Provided that the cumulative permanent debt
reductions under the Restructured Facilities are met, the Company expects
interest expense to decrease over the course of fiscal 2002.
Interest income decreased by $5.1 million for the first quarter in comparison
to the prior year period. This decrease is due to the sale of the 12.5%
Strategic Notes in January 2002. As part of the sale agreement, the Company
received only $1.6 million for interest earned from October 1, 2001 through
the sale of the Notes on January 16, 2002.
OTHER EXPENSE, NET
Other expenses in the first quarter of fiscal 2001 include $4.4 million of
professional fees related to the Company's previously planned spin-off of the
LCA Group.
RESTRUCTURING CHARGES
For details on the Company's restructuring activities, refer to the Company's
Annual Report on Form 10-K for the year ended September 30, 2001. The Company
did not incur any charges related to restructuring activities in the first
quarter of 2002 or 2001. As of December 31, 2001, the Company has remaining
accruals of $6.5 million for restructuring costs. The activity in its liability
accounts by cost category is as follows:
LEASE AND SEVERANCE
CONTRACT RELATED AND RELATED TOTAL
ACCRUALS ACCRUALS ACCRUALS
----------------- --------------- ---------------
Balance at September 30, 2001 $ 6.8 $ 0.3 $ 7.1
Cash payments (0.6) - (0.6)
----------------- --------------- ---------------
Balance at December 31, 2001 $ 6.2 $ 0.3 $ 6.5
================= =============== ===============
Approximately $1.8 million of the reserves are included in the balance sheet
caption "Accrued expenses and other current liabilities," while the remaining
$4.7 million are recorded in the balance sheet caption "Other liabilities." The
Company expects the remaining accruals to be paid with cash over the periods
provided by the severance and lease agreements of one and six years,
respectively.
TAXES
The Company has not recorded an income tax benefit for the loss from continuing
operations in fiscal 2002 because of the uncertainty of its ultimate
realization. The Company recorded a $2.4 million benefit on a pre-tax loss of
$6.0 million (an effective tax rate of approximately 39.5%) in the comparable
period of fiscal 2001.
DISCONTINUED OPERATIONS
On December 28, 2001, the Board of Directors approved a formal Disposal Plan for
five businesses in connection with the Company's obligation to pay debt
amortization as set forth in the restructured debt agreements. The Disposal Plan
calls for the sale of the five businesses, Ames True Temper, Selkirk, Lighting
Corporation of America, Spear & Jackson and SiTeco Lighting, during 2002. The
company completed the sale of Ames True Temper in January 2002.
18
The operating results of these businesses have been included in discontinued
operations for all periods presented. Summarized results of discontinued
operations are as follows:
First Quarter
-----------------------------
2002 2001
------------- --------------
(in millions)
Net sales $ 287.1 $ 304.8
Operating Income 11.5 3.6
Operating income in the first quarter of 2001 included non-recurring charges of
$5.2 million and goodwill amortization of $1.4 million. Included in the
non-recurring charges were $3.8 million related to opening a new master
distribution center at Ames True Temper and $1.4 million related to product
sourcing initiatives at Lighting Corporation of America. Included in income
from discontinued operations in the first quarter of fiscal 2001 is an after tax
loss of $1.5 million mainly attributable to the settlement of certain claims
surrounding the previously disposed Power Systems businesses.
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 Restructured Facilities.
Net cash used in operating activities of continuing operations was $10.3 million
for the first quarter of 2002, compared to cash provided of $1.7 million for the
comparable period of the prior year. The decrease was largely due to decreased
operating profits at the Company's Bath & Plumbing segment, increased corporate
expenses and higher interest payments, as discussed in the Results of Operations
section. The Company has experienced some seasonality in its Jacuzzi and Zurn
businesses. Sales of several Jacuzzi products such as spas and swimming pool
equipment are sensitive to weather conditions and tend to experience a
significant decrease in sales during the fall and winter months (predominantly
the first and second fiscal quarters). Sales of Jacuzzi and Zurn are also
affected when weather affects outside construction and installation.
Net cash provided by discontinued operations was $16.0 million for the first
quarter of 2002, compared to cash used of $36.6 million for the first quarter of
2001. During the first quarter of fiscal 2001, Ames True Temper transitioned
into a new master distribution center. This coincided with inventory reduction
plans instituted by major customers. The result was higher inventories and an
increase in warehouse and distribution costs. Inventories at Ames True Temper at
the end of the first quarter of 2002 were $34.4 million below what they were at
the end of the first quarter of 2001.
Net cash used in investing activities of $4.0 million for the first quarter
of 2002 principally consisted of $5.2 million for capital expenditures,
partially offset by proceeds of $1.3 million received from the sale of fixed
assets. Net cash provided by operating activities of $4.1 million for the
first quarter of 2001 included $7.5 million in cash proceeds from the sale of
the European HVAC operations and $3.3 million from the sale of excess real
estate and fixed assets, partially offset by $6.6 million used for capital
expenditures.
Net cash used in financing activities was $16.6 million for the first quarter of
2002, which consisted of net repayments of long-term debt and notes. Net cash
provided by financing activities was $26.6 million for the first quarter of
2001. This included net proceeds from long-term debt and notes of $48.0 million,
offset by a dividend payment of $3.9 million and the payment of $17.8 million
related to collateral on an equity instrument contract. During October 1999, the
Company entered into equity instrument contracts for approximately 2.8 million
shares of its common stock. As of December 31, 2000, the Company had made
collateral payments related to the contract of $19.5 million. These contracts
were settled for an additional $23.6 million in cash in January 2001 as part of
the Company's authorized share repurchase program. The share repurchase program
has been suspended indefinitely, as the Restructured Facilities entered into on
August 15, 2001 contains restrictions on the purchase of Company stock,
dividends and other restrictive payments. In March 2001, the Company's Board of
Directors indefinitely suspended the Company's quarterly payment of dividends.
During the three months ended December 31, 2001, the Company paid approximately
$0.6 million related to its restructuring plans announced in fiscal 2000, and
expects to pay an additional $1.8 million in the next 12 months. There have been
no material changes in the nature or costs of the restructuring plans.
On August 15, 2001, the Company finalized a comprehensive restructuring of
its bank debt and the bank debt of Rexair, which was reacquired from
Strategic on the same date. For more detailed information on these
facilities, refer to the Company's Annual Report on Form 10-K for the year
ended September 30, 2001. The Restructured Facilities require cumulative
permanent reductions of the Company's senior debt over the term of the
facilities, which mature on November 30, 2002.
19
The Company expects to satisfy operating liquidity needs through operating cash
flow. However, it will have to sell a substantial amount of its assets and
restructure or refinance its debt to satisfy the required cumulative permanent
reductions of the Company's senior debt.
On December 21, 2001, the Company obtained a waiver from its lenders under the
Restructured Facilities that permitted the Company to satisfy the permanent
reduction scheduled on December 31, 2001 of $75 million through a permanent
reduction of the unfunded commitments under the Restructured Facilities, to the
extent not satisfied through cash flow or asset sale proceeds.
On December 28, 2001, the Board of Directors approved a formal Disposal Plan for
five businesses in connection with the Company's obligation to pay debt
amortization as set forth in the restructured debt agreements. The Disposal Plan
calls for the sale of the five businesses, Ames True Temper, Selkirk, Lighting
Corporation of America, Spear & Jackson and SiTeco Lighting, during 2002.
On January 14, 2002, the Company sold Ames True Temper to Wind Point Partners V,
L.P. and Wind Point Partners IV, L.P. and their affiliates for approximately
$165.0 million, before transaction costs and preliminary working capital
adjustments totaling approximately $14.2 million. The net proceeds approximated
the carrying value of the businesses. The entire net cash proceeds were applied
to reduce the Company's funded and unfunded senior debt, approximately $44
million of which was deposited into cash collateral accounts for the benefit of
the holders of the Company's Senior Notes and certain other creditors. The
remainder was remitted to the Lenders under the Restructured Facilities, and the
total facility was permanently reduced by that amount. As a result of the
remittance, the Lenders restored the approximate $58 million of borrowing
capacity under the unfunded commitments of the Restructured Facilities (which
had been reduced by the terms of the December 2001 waiver).
On January 16, 2002, the Company sold its Strategic Notes and equity interest
in Strategic to Strategic and its affiliates for approximately $105.9 million,
net of transaction costs of approximately $1.7 million. The net proceeds
approximated the carrying value of the Strategic Notes and equity investment.
The entire net cash proceeds were applied to reduce the Company's funded and
unfunded senior debt, approximately $32 million of which was deposited into
cash collateral accounts for the benefit of the holders of the Company's
Senior Notes and certain other creditors. The remainder was remitted to the
Lenders under the Restructured Facilities, and the total facility was
permanently reduced by that amount.
The Company expects to satisfy operating liquidity needs through operating
cash flow and borrowings under its credit facilities. The net proceeds from
the sales of Ames True Temper and the Strategic Notes were sufficient to fund
the required reductions of the Company's senior debt through March 31, 2002.
Additional required permanent reductions of approximately $180 million and
$150 million are due on June 30 and October 15, 2002, respectively. The
remaining outstanding balance is due November 30, 2002 (see Note 4). The
Company continues to actively pursue its Disposal Plan (see Note 10).
However, there can be no assurance when or whether the Company will
consummate any of these transactions. If the Company is unable to consummate
asset disposals as outlined in its Disposal Plan in time to meet scheduled
amortizations, the Company expects to seek further restructuring of its
credit facilities. Furthermore, the proceeds of the Disposal Plan, if
consummated in its entirety, and the sale of the Strategic Notes will be
insufficient to repay the Restructured Facilities upon their maturity in
November 2002. Accordingly, the Company will have to restructure or refinance
its existing Restructured Facilities before their scheduled maturity in
November 2002. The Company believes it will be able to restructure of
refinance its existing Restructured Facilities before their scheduled
maturity in November 2002. However, there can be no assurance that it will be
able to do so. The Company's auditors have issued their opinion on the
September 30, 2001 consolidated financial statements with a going concern
explanatory paragraph. The accompanying condensed consolidated financial
statements have been prepared on a going concern basis and do not include any
adjustments that might result if the Company were unable to continue as a
going concern.
At January 31, 2002, excluding all amounts related to the amended Rexair
Credit Facility, the Company had approximately $675.9 million committed under
the Restructured Facilities, of which approximately $524.2 million had been
utilized and the balance of $151.7 million was available. At January 31,
2002, $9.7 million was available for borrowing solely by Rexair under the
amended Rexair Credit Facility. These amounts are net of letters of credit
outstanding of $19.3 million at January 31, 2002. In addition, the Company
had letters of credit outstanding with other financial institutions totaling
$31.4 million as of December 31, 2001.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of doing business, the Company 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, but
does not engage in such transactions for trading purposes.
20
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 increase of 100 basis points across all maturities of
its floating rate debt obligations, after considering interest rate protection
agreements, would decrease the Company's pre-tax earnings in fiscal 2002 by
approximately $8.0 million.
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.
Effective October 1, 2000, the Company adopted Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended,
which requires that all derivative instruments be reported on the balance sheet
at fair value and establishes criteria for designation and effectiveness of
hedging relationships. Refer to NOTE 12 to the Company's Condensed Consolidated
Financial Statements for additional information on its derivative and hedging
activities.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS
See NOTE 5 to the Company's Condensed Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. INDUSTRIES, INC.
Date: February 12, 2002
By: /s/ Allan D. Weingarten
----------------------------------
Allan D. Weingarten
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Francisco V. Punal
-------------------------------------
Francisco V. Punal
Vice President of Finance
(Principal Accounting Officer)
22